Delivering
every
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every day.
Annual Report and Accounts 2022
Welcome to our 2022 Annual
Report and Accounts
Smiths News plc
Today we are the market leader in one of the
UK’s fastest-moving supply chains, using our
experience and expertise to deliver a unique
service to thousands of communities across
the country.
S
Smiths News plc
Annual Report and Accounts 2022
Strategic Report
Our Business at a Glance 02
A Letter from our Chairman 04
Strategy and Business Model 06
Non-Financial Key Performance Indicators 10
Financial Key Performance Indicators 12
Stakeholder Engagement 14
CEO Review 18
Operating Review 20
Sustainability Report 24
People Report 30
Financial Review 36
Principal and Emerging Risks 40
Task Force for Climate-Related
Financial Disclosures 44
Viability Statement 56
Governance
Introduction 60
Governance Framework 62
Board of Directors 64
Corporate Governance Report 66
Audit Committee Report 80
Nominations Committee Report 90
Directors’ Remuneration Report 94
Directors’ Report – Other Statutory
Disclosures 119
Directors’ Responsibilities 123
Financial Statements
Independent Auditor’s Report
to the Members of Smiths News plc 124
Group Income Statement 132
Group Statement of Comprehensive
Income 133
Group Balance Sheet 134
Group Statement of Changes in Equity 135
Group Cash Flow Statement 136
Not
es to the Accounts 137
Glossary 176
Company Balance Sheet 179
Company Statement of Changes in Equity 180
Notes to the Company Balance Sheet 181
Shareholder Information 185
Strong headline results
Adjusted
Operating Profit £m Free Cash Flow £m
£38.1m
£48.2m
Adjusted EBITDA
(Excluding
IFRS 16) £m Bank Net Debt £m
£40.7m
£14.2m
Adjusted Profit Before Tax £m
£31.1m
2022
31.1
2021
30.9
Adjusted Earnings per Share p
10.8p
2022
10.8
2021
1.8
Statutory Profit Before Tax £m Dividend per Share p
£27.9m
4.15p
2022
27.9
2022
4.15
2021
30.6
2021
1.65
Inside this report →
S G F 01
/
2022
38.1
2022
48.2
2021
39.6
2021
24.0
2022
40.7
2022
14.2
2021
42.6
2021
53.2
Our Business
at a Glance
Smiths News plc
Annual Report and Accounts 2022
What we do
Every day of the week, we deliver to
thousands of communities across the UK,
operating in the tightest of timescales,
to ensure early morning distribution of
the nation’s newspapers and magazines.
Combining scale, technology and know-
how, we offer a comprehensive supply
chain solution, with unmatched service to
publishers and retailers.
Our market share and geographic coverage
provides us with a unique insight into the news
industry. We enhance this with complementary
services that add value for customers and
embed our role in the supply chain.
Our core market of newspapers and magazine
distribution is characterised by:
•
High-density, time-sensitive deliveries
•
A fragmented customer base with wide
variability in size and location
•
The requirement to manage a complex
and fast-moving product range
•
Additional services that include returns
processing, information management and
demand forecasting
This combination of customer and product
fragmentation requires an industry specialist,
delivering efficiencies and services that other
distributors cannot match.
Our hub and spoke network
Holding long-term contracts with all the
major UK publishers, we operate in defined
territories across England and Wales. With
strong coverage of the majority of major
conurbations, our network amounts to 55%
market share.
Newspapers are served by 36 depots, ranging
from large, round-the-clock ‘super hubs’ to
smaller overnight distribution centres. Supplies
arrive in the early morning and are picked, packed
and delivered within only a few hours. We collect
the previous day’s unsold newspapers with
the daily deliveries. These are then scanned for
crediting and sorted for recycling. Publishers
receive ‘net sales’ reports later in the day, allowing
for speedy and efficient allocation of supplies and
monitoring of demand patterns.
Magazines are packed and processed for
delivery at four regional hubs. Supplies arrive
during the day and are then shipped to the
spoke depots, ready for distribution with that
night’s newspapers. Unsold magazine copies
are collected and processed as soon as new
editions come on sale, providing publishers with
an immediate overview of sales and demand
across the retail network.
Our
network
Key
Hub
Spoke
02 S
Smiths News plc is the
UK’s largest newspaper
and magazine
wholesaler, with 55%
market share. Operating
seven days a week, we
supply approximately
24,000 retailers across
England and Wales.
Our business model is founded
on excellence and expertise, with
competitive advantage derived from
a combination of service quality, scale
efficiencies and added value. These
qualities underpin all our customer
relationships, working to become
an essential partner in their supply
chains and business models, too.
Visit our new website on:
www.corporate.smithsnews.co.uk
Smiths News plc
Annual Report and Accounts 2022
More than deliveries
In addition to physical deliveries, we provide
services that enhance our role and ensure
costs are shared across the supply chain.
Our value add services include:
•
Invoicing retailers for supplies and other
services
•
Forecasting sales and setting supply levels
to agreed parameters
•
Collecting unsold copies for credit and
recycling, including EPoS-based returns
for larger scale retailers
•
Sales Based Replenishment linked to retailer
EPoS systems
•
Merchandising, product placement and other
in-store and on shelf and promotional services
Embracing change for the good
Operating at the centre of our supply
chains, we work with our industry partners
to lead improvements to the environment,
our marketplace and the communities we
serve. In pursuing these goals, we embrace
change and technology in ways that facilitate
progress and meet the shared ambitions of
our stakeholders.
Looking to the longer term, our sustainability
programme is focused on those actions by
which we can make the most tangible difference.
For many years, we have been working to
reduce our emissions and lead our supply chain
in the adoption of practical solutions that seek
to maximise efficiency. More recently, we have
increased our efforts, setting challenging goals
that guide the decisions we make today.
Safety is as essential to our culture as it is to our
operations. We work to minimise risk, seeking
to learn from any incidents and encouraging
constructive challenge in the goal of continual
improvement.
Focused on value
We are focused on delivering value for all
our stakeholders.
For our suppliers and customers, we offer a
shared route to market that operates to high
standards but with low unit-cost. By leveraging
our scale, knowledge and unique market insight,
we then add services that would be difficult and
costly for others to replicate.
For our investors, we are committed to delivering
strong returns while meeting the capital needs
of the business. With relatively predictable cash
flow, we seek to ensure the payment of regular
dividends without compromise to prudent
financial management or the opportunity to invest
in new opportunities for efficiency and growth.
Adjacent businesses
Our core news wholesale operation is enhanced by complementary
businesses that leverage our knowledge, expertise and market leadership
in the news industry.
DMD
Instore
Martin Lavell
DMD is a specialist supplier Instore works with retailers, Martin Lavell is a leading
of printed and digital media to
suppliers and publishers, corporate news distributor,
airlines
and travel points in the providing field-based supplying newspapers and
UK
and worldwide. merchandising and marketing, magazines to corporate and
supply chain auditing and
public sector customers for
compliance solutions.
the last 50 years.
u
b
S G F 03
/
David
Blackwood
Chairman
A Letter from
our Chairman
Underlying
Smiths News plc
Annual Report and Accounts 2022
performance has
exceeded market
expectations
Dear Shareholder
I’m pleased to report that our
underlying performance has
exceeded market expectations and
met the key objectives we had set
for the delivery of shareholder value.
The goals we have so tirelessly
pursued – of service, efficiency,
prudent capital management and
growing shareholder returns – have
underpinned our results, helped in
no small part by a combination of
advance planning and an adaptive
response to tactical opportunities.
That this has been achieved
against a background of continued
economic, social and political
disruption speaks to the underlying
strengths and characteristics of our
business and its people.
It’s abundantly clear
that the people of
our business have an
exceptional commitment
to the Company and its
customers, taking pride
in the difference they
make every day.
For more information on topics
covered in this letter, see the
appropriate chapters at the page
numbers below.
→
Our
People
30
→
Sustainability 24
→ Operational Review 20
→ Financial Review 36
Adjusted profit before tax of £31.1m
is marginally ahead of last year
(FY2021: £30.9m) and Adjusted
earnings per share of 10.8p is flat on
last year (FY2021: 10.8p). Adjusted
Operating Profit was £38.1m, down
3.8% (FY2021: £39.6m) and free
cash flow was £48.2m (FY2021:
£24.0m). Statutory profit before tax
from continuing operations was
£27.9m, down by 8.8% (FY2021:
£30.6m), a consequence of our best
estimate provisioning of £4.4m,
to cover the expected bad debt
from the administration of McColl’s
Retail Group in May 2022. Bank
Net Debt of £14.2m (FY2021:
£53.2m) and average net debt of
£49.9m (FY2021: £82.6m) confirms
the positive transformation in the
strength of the Company’s balance
sheet over the last three years.
In reviewing our performance,
it’s particularly relevant, this year,
to consider the wider social and
economic context of our markets
and trading. It may seem a long
time ago now, but as recently
as autumn 2021 we were still
emerging from COVID-19
restrictions and indeed had further
setbacks to travel and work
patterns from the Omicron variant
in the winter – all of which had
a direct impact on our sales and
operations. The war in Ukraine, and
particularly its impact on fuel and
energy inflation, has added to the
uncertainty just at the time we had
all hoped for some respite.
Meanwhile, the wider cost of
living crisis is squeezing consumer
spending and threatening many
businesses across the country.
And yet, demand for newspapers
and magazines has remained
relatively strong, with overall
revenue down by only 1.8%,
representing an improvement on
historic trends, albeit with the first
half benefiting from softer year-on-
year comparatives. A combination
of cover price rises and improved
margin mix from the sales of one-
shot magazines and stickers has
further helped to mitigate the decline
in volumes. While the structural
decline in sales has certainly not
gone away, the central point I believe
we should take from our markets
over the last two years is that,
despite unprecedented pressures,
they remain large and relatively
predictable — qualities that go to the
core of our business model.
Historically, that model has sought
to make sustainable savings and
efficiencies to offset any reduction in
core sales. This year is no exception,
but clearly, the impact of inflation
has added further pressure to costs,
requiring ever closer management,
as well as a more adaptive
approach to compensating revenue
opportunities. In many ways, our
success in generating new revenues
is one of the most pleasing aspects
of this year’s performance.
04 S
Smiths News plc
Annual Report and Accounts 2022
Not only has the sum of these
tactical gains made a welcome and
ongoing contribution to our profits,
their scope has also surfaced a
range of latent opportunities to
leverage our network and skill sets
in the future.
To pursue these, it’s vital that
we enhance the culture and
competencies of the business,
acquiring the new skills and fresh
perspectives that will be needed.
This year, we have begun that
process in earnest, working to
supplement existing talents and
ensure greater diversity, not only
in gender and ethnicity, but also
in background and commercial
mindset. Integrating these talents
into our organisation is a priority
for the Board and Executive Team.
The refreshed approach to
sustainability, which we launched
in 2021, is a model we can learn
from. At its inception, we rightly set
ourselves a broad agenda, seeking
to investigate all opportunities for
improvement. This year, without
compromise to our ambition, we
have harnessed the insight and
experience of our colleagues and
industry partners to focus those
goals on objectives that will most
positively impact the future of both
our business and the supply chains
in which we operate. I believe this
approach is to be commended,
showing a commitment to industry
leadership and making a tangible
difference, while recognising that
we make the most progress by
looking out as well as in.
Taking just such a proactive
approach is one of the reasons that
in October 2022 we renewed three
of our major publisher contracts,
securing one third of our current
newspaper and magazine revenues
through to 2029. These agreements
are critical to our business model,
and though we have a long history
of successful renewals founded on
deep relationships, we are never
complacent, and it is pleasing to
have made such a strong start to
the anticipated round of contract
discussions.
Together with our improved financial
strength and ongoing commitment
to service and the supply chain, I’m
confident that we will make equally
constructive progress with other key
publishers in due course.
Last year, in my report to
shareholders, I reaffirmed the
Board’s commitment to the payment
of regular dividends and the delivery
of attractive returns. In December
2021, after carefully considering our
trading performance and progress
to financial goals, we extended and
amended our banking agreements,
increasing the annual cap on
dividends and distributions from
£6.0m to £10m. As a consequence,
in May 2022, we announced an
interim dividend of 1.4pence per
share, up by 180% on the reinstated
dividend of 0.5pence per share
announced in June 2021. The Board
has recommended a further and
final dividend of 2.75pence (FY2021:
1.15pence), bringing the total
dividend for the year to 4.15pence
(FY2021: 1.65pence). Going forward,
subject to performance, we remain
committed to paying dividends
up to the cap, while financing the
investment needs of the business.
The Board also remains committed
to maintaining a strong balance
sheet, using positive free cash
flow to meet the needs of all
stakeholders. This year, we passed
the milestone of reducing Bank Net
Debt (ex. IFRS16 leases) to below
1X EBITDA, representing a reduction
of over 73% on FY2021. As a
consequence, the foundations of
our finances are materially stronger,
allowing for greater flexibility in our
ambitions and investments as we
seek to build on the progress of the
last three years.
Looking ahead, the inflationary
headwinds we anticipated last
year have not eased. This remains
our most immediate challenge,
compounded by the impact of rising
p
rices on consumer confidence. We
are, however, well placed to meet
the task of containing costs, with a
wealth of experience in managing
our core operations tightly.
The Board also remains
committed to maintaining
a strong balance sheet,
using positive free cash
flow to meet the needs
of all stakeholders.
As always, we will pursue every
opportunity but be resolute in
protecting our service and long-
term capability. In parallel, we will
continue to seek new revenue from
opportunities that dovetail to our
current operations and, ideally, add
value to our role in the supply chain.
I’m confident that we will succeed.
Not least because it’s abundantly
clear that the people of our business
have an exceptional commitment
to the Company and its customers,
taking pride in the difference they
make every day. It is their efforts, in
going the extra mile, that has seen
us through a uniquely challenging
period, embracing change and,
ultimately, emerging stronger. I am
grateful too for the support of my
colleagues on the Board and to our
excellent working relationship with
CEO Jonathan Bunting and the
Executive Team.
In closing this annual review, I’m
mindful of the uncertainty that all
businesses are facing and conscious
that progress should never be taken
for granted. Nonetheless, as I reflect
on all that’s been delivered, and the
transformation of our fortunes during
my tenure to date, I’m heartened by
our prospects and look forward with
confidence and conviction.
David
Blackwood
Chairman
8 November 2022
S G F 05
/
Strategy and
Business Model
Smiths News plc
Annual Report and Accounts 2022
Our strategy is founded on being the UK’s
leading
news wholesaler, delivering a comprehensive
service to publishers and retailers
every day of
the year
. In addition to physical distribution,
we
add value
through a range of services that
support enhanced margins and increasingly offer
opportunity
for
expansion
and additional revenue
streams. With an unwavering commitment to our
customers, our experience and expertise underpin
a
uniquely efficient
business model that supplies
thousands of communities across the UK.
Driving
Forces
The model is powered by parallel drivers that balance the needs of all stakeholders:
Performance drivers
Performance drivers ensure we deliver a high-
quality service, distribution efficiencies and
added value to our suppliers and customers.
Benefiting the supply chain as a whole, they
support a positive feedback loop which
reinforces our long-term partnerships and
helps to renew future contracts.
Value drivers
Value drivers support the underlying trading
and financial characteristics of our model. These
include our long-term contracts, diversified
income streams and predictable cash flows.
Managing our value drivers closely provides the
necessary confidence to support investment in
the other areas of our business model.
Adaptive drivers
Adaptive drivers explore new opportunities that
are rooted in our relationships, capabilities and
strengths. We have worked hard to introduce
a more agile approach that’s consistent with
our values and which leverages the skills and
talents of our people.
06 S
Smiths News plc
Annual Report and Accounts 2022
With 55% market share, we are the largest player in what is a highly
specialised operation. Operating with exclusive area contracts, we
have long-term relationships with all of the UK’s major publishers,
providing a shared route to market which adds further value
through the provision of services that are complex and costly
for others to replicate.
Expertise Focus
Value Potential
→ Read more about our drivers on the following page
Operations and services
As the UK’s largest newspaper
and magazine wholesaler, we visit
approximately 24,000 news outlets every
day, delivering their supplies in the tightest
of time windows. Holding exclusive area
contracts, we have long-term relationships
with all of the UK’s major publishers,
providing a shared route to market that
is efficient, reliable and essential to their
reaching consumers and communities
across the country.
But our business is founded on much more
than daily deliveries.
For, in addition to physical distribution, we
provide a range of value adding services to
both our suppliers and customers. These
include: category management, returns
processing, waste reduction, invoicing, auditing
and merchandising. By removing complexity
and cost for customers, we become partners
in their operating model and are able to
invest with confidence, working with them to
improve and adapt to changing circumstances.
Our smaller ancillary businesses further
leverage our category expertise and customer
relationships in adjacent markets.
Although the UK’s newspaper and magazine
market remains large, they are challenged by
the gradual structural decline of sales volumes.
This means that to maintain and grow our
profitability, we must find a combination of
efficiency savings and new revenues that
offsets the impact of reduced core sales.
In pursuing this goal, we are aided by the scale
of our operation, the relative predictability of
our sales and costs and the security afforded
by long-term contracts. These underlying
characteristics not only allow us to take a
long- term perspective on costs and benefits,
they also give good visibility of potential
fluctuations in our profit and cash flow,
allowing us to plan accordingly.
Looking ahead, we are constantly evolving
our processes and services to meet customer
needs, and indeed we have worked hard to
implement a more agile approach and culture.
In particular, we are attentive to the potential
for new revenue opportunities which dovetail
with our core skills and infrastructure.
From a f
inancial perspective, we aim to deliver
attractive returns to shareholders, underpinned
by strong and relatively predictable cash
flows. We take a balanced approach to capital
management, paying attractive dividends
while working to reduce net debt and investing
to meet the needs of the business.
Delivering
value
l
S G F 07
/
Strategy and Business
Model continued
Smiths News plc
Annual Report and Accounts 2022
Performance drivers
Outstanding service
News wholesaling operates to uniquely
challenging and ultra time-sensitive
performance metrics. Using scan-based
technology, we measure the entire product
journey from arrival at our depots to delivery to
the stores of our customers, and the return and
recycling of unsold copies. Our focus on service
excellence and stretching KPIs ensures that we
meet publisher and retailer requirements across
the supply chain and, in doing so, minimise
waste and rectification costs.
Scale of efficiency
By consolidating deliveries in one shared
service, our publishers and retailers benefit from
a uniquely efficient route to market. We plan
routes for maximum efficiency within our delivery
time windows, consolidating newspapers and
magazine supplies, and collecting unsold copies
at the same time as deliveries. Our model is
founded on continual efficiency improvement,
and we have a strong track record of combining
service excellence with efficiency, to deliver
regular cost savings that seek to offset the
decline in core sales revenues. We also work with
supply chain partners to improve their efficiency;
examples include EPoS-based returns and sales-
based replenishment for retailers and supply
forecasting with our publisher partners.
Network
Our integrated network is core to the efficiency of
operations. We continually evaluate opportunities
to configure and consolidate in ways that drive
efficiency and service improvements. With long-
term contracts and defined geographic territories,
we are able to plan ahead with confidence,
investing in facilities that keep our network at the
leading edge of the industry.
Leading technology
Our bespoke IT systems are critical for every
aspect of our operations, from the allocation
of supplies to the processing of returns and
forecasting of product demand for the future.
Customer experience is similarly supported,
with both online and call centre technology
that provides a comprehensive communication,
sales and invoicing platform. We are committed
to having the best technology to support our
publishers and retailers, enabling a sharing of
costs across the supply chain.
Additional services
Our adjacent services add further value to
publishers and retailers, embedding our role in
the supply chain. In addition to daily deliveries, we
collect and process unsold copies, providing near
to real time sales and marketing data. Our unique
view across the entire product range is enhanced
by intelligent information systems, enabling us
to forecast and swiftly respond to variations in
demand. Larger retailers benefit from sales-based
replenishment services linked to their EPoS data,
minimising stock holding in store and responding
dynamically to consumer demand.
08 S
1
2
Our business model
Our business model is characterised by
a compelling combination of outstanding
service, scale efficiencies, market
expertise and value adding services. It is
shaped by the needs of our customers,
and tightly aligned to our mission and
strategy. In benefiting the supply chain
as a whole it supports the delivery of
sustainable returns.
Founded on service
The quality of our service is the base from
which we build further value. By operating
to high standards, we are enjoined with our
suppliers and customers, becoming essential
partners in their success.
Shaped by customers
Our trading relationships are sustained by
our specialist service, scale efficiencies and
the removal of complexity for our partners
across the supply chain. By working together
to explore value adding solutions, we move up
the value chain in a way that supports greater
returns for all.
Aligned to goals and strategy
Our goals and strategy are fully aligned to the
business model. Its performance and value
drivers are critical to our core goals, while our
adaptive approach to new opportunities helps
close the loop between present performance
and future objectives.
3
4
5
1
6
2
7
3
8
4
9
5
10
l
Smiths News plc
Annual Report and Accounts 2022
Value
drivers
Long term contracts
We have long term contracts with all the UK’s
national publishers and the majority of regional
press in our territories. These provide the
high levels of cash flow certainty that support
investment, while ’sharing’ the route to market
in a way that facilitates cost and process
efficiencies. Our contracts provide the stability
and surety of tenure that facilitate the pursuit
of efficiencies and support investment in our
network and technology.
Predictable revenue streams
Our income is derived from a combination of
margin from products sold and delivery service
charges, which mitigate the impact of any
fluctuations in direct delivery costs. In addition,
we receive income from the recycling of unsold
copies of magazines.
With wide distribution coverage, our revenues
are spread across many publishers and retail
customers, and our total market coverage means
that while volumes often vary between titles,
overall sales are relatively predictable.
Positive cash flow
Our business model benefits from positive and
relatively predictable cash flow. The turnover of
products is swift with minimal stock holding –
supplies are received on a sale or return basis,
again limiting cash risk. The careful planning of
capital expenditure, together with our prudent
approach to capital management, ensures the
consistent delivery of positive cash flow.
Sustainable partnerships
Our commitment to the long-term success of
news wholesaling means we have deep and
lasting partnerships with our suppliers and
customers. We believe in doing the right thing not
only for our business but for the supply chain as
a whole. By setting high standards, we improve
our capability and encourage our partners to do
likewise. We believe that by working responsibly
together, we are best placed to find solutions to
challenges such as reducing our impact on the
environment or serving remote rural communities
in an efficient way.
Agile development
We strive to build incremental revenues and
respond swiftly to tactical opportunities in our
markets. In doing so, we have worked hard
to introduce a more agile approach that’s
consistent with our values and leverages the
skills and talents of our people. Moving from
ideation to test, review and adoption (or discard),
we are primarily focused on opportunities that
are rooted in our relationships, capabilities
and strengths.
Our core strengths
Market leadership
With 55% market share, Smiths News is the market
leader in newspaper and magazine wholesaling
and the benchmark of quality and innovation in
the industry. Our specialised service is backed by
technology and added value extras that more generic
distributors cannot replicate.
Logistics expertise
We deliver in ultra-time sensitive windows, visiting
around 24,000 outlets from small shops to major
supermarkets, every day of the week. As a result, our
last mile distribution is among the most dependable
and far reaching of any UK logistics operation.
Scale efficiency
Our network depots underpin scale efficiencies that are
the foundation of shared route to market for all the UK’s
major publishers. And in providing a category-wide
service for both deliveries and returns, we reduce cost
and increase efficiency for retailers, too.
Service excellence
The quality of our service is core to our offer. We
operate to high standards of accuracy, tracking every
step of the process and measuring performance to a
granular level that drives continual improvement.
Value
add
We offer a total marketing solution that encompasses,
among other services: demand forecasting and supply
allocation, physical deliveries, returns collection and
recycling, invoicing and crediting, merchandising and
promotion. These services not only add value to our
partners they also enhance our role and discourage
disintermediation in the supply chain.
What makes us
different
→
6
7
8
9
10
S G F 09
/
Non-Financial Key
Performance Indicators
Smiths News plc
Annual Report and Accounts 2022
Non-financial KPIs reflect the core
performance measures of Smiths
News and its service to customers
and industry partners. Additional
measures include our attention to
workplace safety, engagement and
customer satisfaction.
The Board has reviewed the non-financial KPIs,
adjusting and increasing the range of measures,
to ensure they encompass the primary needs
of our stakeholders. Changes for non-financial
measures in FY2023 include the adoption of:
Required Delivery Time; Health & Safety lost
time incidents frequency rate; and our Customer
Satisfaction score. Changes for financial
measures include the adoption of Average Net
Debt (replacing Bank Net Debt) as the most
appropriate measurement of the
C
ompan
y
’
s
borrowings.
An analysis of the
C
ompan
y
’
s
financial and non-
financial performance, including discussion and
explanations of year-on-year movements, can be
found in the various sections of Strategic Report
on pages 2 to 57.
Non-financial KPIs
Customer pack accuracy %
99.7%
Target
98.0%
FY2022
actual
99.7%
FY2021
actual
99.7%
FY2020
actual
99.3%
FY2019
actual
99.3%
Why do we measure this?
Pack accuracy ensures customer supplies and
invoicing are aligned, minimising queries and
administrative corrections.
Link to strategic drivers
1 2 3 4
9
Required delivery time %
92.4%
Target
90.0%
FY2022
actual
92.4%
FY2021
actual
95.1%
FY2020
actual
96.8%
FY2019
actual
95.8%
Why do we measure this?
Arrival at the scheduled time is a key service
measure for customers and publishers,
and aligns to our contractual obligations.
Link to strategic drivers
1 2 3 4 6
9
Health and Safety (Lost time
incidents p
er 100k hours) No.
0.25
Health and Safety RIDDORS No.
2
FY2022
actual
0.25
FY2022 actual
2
FY2021
actual
0.32
FY2021
actual
11
FY2020
actual
7
FY2019
actual
7
Why do we measure this?
Lost time incidents frequency rate (per 100,000
hours). We measure ‘lost time incidents’ as the
most comprehensive and accurate capture
of reportable occurrences that impact our
operation. By measuring these as a percentage
of operating hours, we can benchmark to
other organisations and allow for growth or
contraction of our activities.
Link to strategic drivers
1 3 6
9
Why do we measure this?
We monitor RIDDORS to learn from every major
incident, ensuring we take action to reduce the
possibility of recurrence.
Link to strategic drivers
1 3 6
9
10 S
Returns collections
97.3%
% Returns processing accuracy %
99.96%
Why do we measure this?
Daily returns collections ensure that sales
data (supplies minus returns) is processed
within tight time windows, supporting sales
forecasting and accurate invoicing.
Why do we measure this?
Unsold
copies are credited to customers,
so accuracy is vital for credits and invoicing
to both retailers and publishers.
Link to strategic drivers
1 2 3 4 5 6 8
Link to strategic drivers
9
10
1 2 4 5 6
9
10
Colleague engagement (Net promoter score) Customer satisfaction (Net promoter score)
7.0
27
FY2021
actual
28
Why do we measure this?
Working productively together is central to
our values. The engagement of colleagues
underpins our performance at every level of
the business. From FY2022, we measure an
average across all pulse surveys.
Why do we measure this?
Surveying a statistically representative selection
of 300 customers every month, we track our
service
performance across a range of factors
to ensure quality, accuracy and timeliness of
deliveries. The net promoter score is an annual
average of the overall headline indicator.
Link to strategic drivers
1 5 6
9
10
Link to strategic drivers
1 2 3 4 5 6 7
9
27
FY2022
actual
25
Target
FY2020
actual
6.0
Target
7.0
FY2022
actual
7.0
FY2021
actual
7.0
Smiths News plc
Annual Report and Accounts 2022
Securing sustainable efficiencies
will remain an essential element of
maintaining our profitability. That
our markets are large and their
sales patterns relatively predictable
helps us to plan accordingly. For
many years our approach has been
to adjust our operations in line with
falling volumes, working across
the supply chain to find efficiencies
without compromise to service.
These foundations of our business
model will not change.
→ Read more in my CEO Review
on pages 18 and 19
S G F 11
/
Target
98.0%
FY2022
actual
97.3%
FY2021
actual
98.4%
FY2020
actual
98.2%
FY2019
actual
98.0%
Target
99.5%
FY2022
actual
99.96%
FY2021
actual
99.9%
FY2020
actual
99.9%
FY2019
actual
99.9%
FY2019
1,303.5
FY2022
4.15
Financial Key
Performance Indicators
Smiths News plc
Annual Report and Accounts 2022
Financial KPIs
Total statutory revenue £m
£1,089.6m
FY2022
1,089.6
FY2021
1,109.6
FY2020
1,164.5
Why do we measure this?
Statutory revenue measures the extent to which
core sales and other revenues are within our
planning assumptions and longer-term strategic
forecasts.
Adjusted EBITDA (pre-IFRS16 leases) £m
£40.7m
FY2022
40.7
FY2021
42.6
FY2020
39.1
Why do we measure this?
This measure is based on operating profit from
continuing operations. It excludes depreciation,
amortisation and adjusting items. This is the
headline measure of the Group’s performance
and is a key management incentive metric.
Adjusted operating profit* £m
£38.1m
FY2022
38.1
FY2021
39.6
FY2020
35.1
Why do we measure this?
Adjusted operating profit is defined as operating
profit from continuing operations, excluding
the impact of adjusting items (defined above).
This is the headline measure of the Group’s
performance and will be the key management
incentive metric for FY2023.
* From FY2023 onward, this will replace Adjusted EBITDA
(excluding IFRS 16) as our primary measure of underlying
profit performance.
Earnings per Share p
10.8p
FY2022
10.8p
FY2021
10.8p
FY2020
4.9
FY2019
9.0p
Why do we m
easure this?
Earnings per share measures the profit per
share of the Company and is used by investors
when comparing performance to other similar
businesses.
Adjusted e
arnings per Share p
9.8p
FY2022
9.8p
FY2021
10.8p
FY2020
9.7p
FY2019
11.5p
Why do we measure this?
Adjusted earnings per share measures the profit
per share of the Company, excluding the same
adjusted items as in Adjusted Profit Before Tax.
Free cash flow £m
£48.2m
FY2022 48.2
FY2021
24.0
FY2020
10.9
FY2019
33.2
Why do we m
easure this?
Free cash flow measures the cash available to
the business, which can be used for investments,
dividends and the reduction of debt.
Dividend per Share p
4.15p
FY2021
1.65
FY2020
0.0
FY2019
1.0
Why do we measure this?
Dividend per share measures the profit per
share of the Company and is used by investors
when comparing performance to other similar
businesses.
FY2019 43.6
FY2019 48.8
12 S
FY2019
30.3
FY2019
37.6
Smiths News plc
Annual Report and Accounts 2022
Adjusted profit before tax £m
£31.1m
FY2022
31.1
FY2021
30.9
FY2020
27.9
Why do we measure this?
Adjusted profit before tax measures the
profitability of the Company, excluding
significant and non-recurring one-off costs,
including those not related to the
C
ompan
y
’
s
ordinary activities.
Statutory pr
ofit before tax £m
£27.9m
FY2022
27.9
FY2021
30.6
FY2020
14.8
Why do we measure this?
Statutory profit before tax measures the
absolute profitability of continuing operations
after any disposals.
The Company continues to generate
good underlying profit and free cash
flow, which together with the benefit of
one-off cash items has reduced period
end net debt to £14.2m (FY2021:
£53.2m) and enables dividends of
£10m to be proposed for the period.
→
Read more in the financial review
on pages 36 to 39
Average Net Debt £m
£49.9m
FY2022
49.9
FY2021
82.6
FY2020
98.6
FY2019
112.0
Why do we measure this?
Average Net Debt impacts the level of interest
we pay, and is the measure which most
accurately reflects the ongoing borrowing of
the Company as it removes the potentially
misrepresentative influence of period end
variations caused by publisher and retailer
payment schedules.
Bank Net Debt £m
£14.2m
FY2022
14.2
FY2021
53.2
FY2020 79.5
FY2019
73.9
Why do we measure this?
Bank Net Debt impacts the level of interest
we pay and is a covenant measure of our
financing agreements.
S G F 13
/
Stakeholder Engagement
Smiths News plc
Annual Report and Accounts 2022
Shareholders and
Funders
The
C
ompan
y
’
s
shareholders
include large institutions, as well
as individual investors. Over 73%
of our issued shares are held by
ten shareholders, with 50% held by
our largest four. We engage directly
with these leading shareholders,
holding face-to-face meetings after
both the full-year and half-year
financial results, as well as ad hoc
meetings at their request or in the
event of a material development
in the business’s activities. Our
presentations to analysts and
lenders are made available on our
website, with audiocast recordings
of the supporting commentary
and questions.
Our banking agreements are held
with a syndicate of four lenders. We
engage regularly and directly with
our relationship partners at these
lenders and conduct reviews of our
performance, to ensure they are
kept abreast of our performance,
plans and progress.
Risk
•
Macroeconomic uncertainty
•
Changes to retailers’ commercial
model
•
Growth & Diversification
What is important
•
Financial stability and investment
returns
•
Long-term sustainability
•
Corporate responsibility
•
EPS and TSR
•
Free cash to support distributions
and amortisation payments
under our senior financing
arrangements
Why are they important
•
Stakeholder confidence
•
Ongoing investment and financial
stability
•
Reputation
•
Share price growth
How we engage
•
Annual Report
•
Periodic RNS announcements
and published trading statements
•
Shareholder engagement on
certain resolutions presented to
our 2022 AGM
•
One-on-one engagement with our
largest shareholders, specifically
around the Directors’ Remuneration
Policy and, separately, in
considering the merits of different
distribution programmes. These
one-on-one engagements were
supplemented with investor
roadshows and ad hoc meetings,
with contact made with our
largest institutional shareholders,
representing approximately 74%
of our share capital
•
Receipt of corporate broker
reports, providing coverage of
investor and market sentiment,
economic projections and share
price performance
•
Lender engagement on, and
following, the refinancing of the
C
ompan
y
’
s
senior financing
arrangements in December 2021
•
Formal presentations to
institutional shareholders,
analysts, lenders, and current and
prospective retail shareholders.
The Smiths News website (
www.
s
mithsnews.co.uk) is a source of
information for all shareholders,
including retail investors, and is
a central repository of regulatory
news and announcements, and
where both financial and non-
financial reports are published
Impact on decision-making
•
Determine shareholder views on
different distribution programmes
(dividends vs share buy-backs for
instance)
•
Successful refinancing of the
C
ompan
y
’
s
senior finance
agreement
•
Consultation on Directors’
Remuneration Policy pending
shareholder vote at our AGM
in 2023
Suppliers and
customers
We hold contracts with all the
national publishers/distributors in
the United Kingdom, as well as a
significant proportion of regional
publishers across our territories.
Aside from our daily operational
relationships with these parties,
we also engage through account
managers and director-level reviews
and discussions. As a wholesaler
providing a shared ‘route to market,’
we discuss and agree improvements
to the supply chain that seek to
balance the interests of, and benefits
to, all parties.
With circa 24,000 customers, we
supply the full spectrum of news
outlets from large supermarkets to
high street retailers and independent
stores. The largest multiple retailers
account for over 50% of our sales
revenue, however all customers are
important to ensuring widespread
and universal availability across our
territories. Independent retailers, for
example, are essential to maintaining
home news delivery services.
As with publishers, we manage
engagement through a combination
of account management and
director-level reviews. In addition
to individual customers, we have
strong relationships with the
Federation of Independent Retailers
(formerly the National Federation of
Retail Newsagents), representing
independent and smaller retailers.
We also engage circa 700 self-
employed distribution contractors
who support our operations and
deliver daily to our customers.
Risk
•
Macroeconomic uncertainty
•
Legal & Regulatory compliance
•
Changes to retailers’ commercial
model
•
Growth & Diversification
•
Sustainability & Climate Change
What is important
•
On time, efficient distribution
•
On time payment
•
Corporate responsibility and
ethical trading
•
Revenue security
•
Sustainability and ESG
14 S
Stakeholder engagement
is a priority for the Board.
In its decision-making, it seeks
to consider the views of all
relevant parties, founded on an
understanding of their aspirations
and concerns in relation to our
policies, performance and strategy.
Engagement with stakeholders
is conducted by both the
Board and the Executive Team.
Outcomes are discussed
together, ensuring a common
understanding of all stakeholder
positions that balances any
competing interests and takes
account of the various views
when making decisions.
Our engagement with
stakeholders is focused on, but
not limited to, five groupings
which are described below.
While we appreciate that, strictly
speaking, the environment is not
a stakeholder in its own right, we
believe that, given the increased
focus on this area across all
traditional stakeholder groups
and the focus of Section 172
of the Companies Act 2006, it
best explains our engagements
and the impact on the decisions
taken by the Board, to include the
environment as a stand-alone
stakeholder. While these represent
the mainstream of our activity,
the Board is aware that from time
to time other stakeholders may
have an interest in our activities
and will always try to consider the
wider impact of the Company’s
activities. An example of this wider
engagement would include our
liaison with the Department for
Digital, Culture Media & Sport
during the COVID-19 pandemic,
to ensure that the distribution of
newspapers and magazines was
identified at the time as being one
with key workers.
Key stakeholder
engagements and
their impacts
The following text sets out a
summary of the engagements
with our key stakeholders which
the Board has undertaken during
the year.
Smiths News plc
Annual Report and Accounts 2022
Why are they important
•
SLA and industry compliance
•
Mitigation of financial penalties
or redress
•
Reputation
•
Long-term security of revenue
•
Positive community impact and
security of contract delivery
network
How we engage
•
Continued the rollout of the
EPoS-based returns system
with our grocer customers
•
Engaged with customers on
proposed delivery service
charge increases in light of the
inflationary headwinds being
faced in the reporting period
and mindful of its impact on the
sustainability of the news and
magazine category
•
Engaged with certain publishers
on their expectations and
requirements for the next
publisher contract round (the
first contracts of which have now
been renewed, representing 35%
newspaper and magazine sales
revenues), in order to understand
potential tender timelines,
requirements and expectations
•
Engaged with publishers on
their own sustainability agenda,
providing data on the supply
chain’s environmental footprint
•
Engaged with retailers and
publishers on home news
delivery, looking to promote the
sustainability of this service in
the face of a continued decline in
the numbers of retailers offering
a delivery service
•
Engagement with our delivery
network partners around ad
hoc service issues, network
rationalisation and rising fuel
prices
Impact on decision-making
•
Continued the rollout of the
EPoS-based returns system with
grocer customers, resulting in
enhanced category efficiency
•
Consulted with customers on
delivery service charge increases
and its impact on category
sustainability
•
Determination of publishers’
tender timelines, requirements
and expectations for the next
contract round (which led to
the successful securing in
October 2022 of new contracts
with Frontline/Seymour and
Associated Newspapers through
to 2029)
•
Support to publishers through
the provision of sustainability
data on the supply chain’s
environmental footprint
•
Promoted the sustainability of
the home news delivery service
•
Established a direct-marketing
strategy
•
Supported rate reviews payable
to delivery service partners
National Colleague
Engagement Forum
The Board continues to assess its
approach to engagement within
the workplace, mindful of the
UK Corporate Governance Code
measures. It remains the Board’s
view that the dedicated focus of a
designated non-executive director
(Michael Holt) to workforce
engagement is the best means for
effective colleague engagement
at Smiths News. To this end and
building on the lessons of the
last two years, this year we have
refreshed our National Colleague
Engagement Forum, which is a
representative group drawn from
across the business. This group
meets regularly with Michael Holt
(the designated non-executive
director), who in turn reports
issues raised at the Forum to
the Board. More details on the
nature of the engagements and
outcomes can be found in the
Corporate Governance Report
on page 58.
Key issues discussed and action
t
aken in the year included the
introduction of published fair pay
principles for colleagues; the
commitment and scope of capital
expenditure investments to be
made across our locations; the
merits of and issues arising from
the launch of benefits roadshows
to colleagues to ensure that, in
the current economic climate,
colleagues have a good
understanding and ability to
access all benefits available to
them; and the sharing of plans to
introduce technology assets at
our locations, to help colleagues
access literature and relevant
information where they may not
otherwise have tools to access
such information or training
resources.
Designated Workforce
Engagement Director
The remit of the designated
Workforce Engagement Director
includes:
•
Gathering the opinions of a
broad cross section of our
workforce
•
Seeking to understand the
concerns and views of our
workforce and articulating
these to the Board
•
Ensuring that appropriate
steps are taken to consider
the impact of proposals
and developments on our
workforce
•
Where appropriate and
relevant, providing operational
and commercial updates and
feedback from the Board to
our workforce
More generally, the role continues
to be a critical link in our
communication and feedback
chain.
S G F 15
/
Stakeholder
Engagement
continued
Smiths News plc
Annual Report and Accounts 2022
Colleagues
The Company employs over
1,500 colleagues operating
from 36 distribution centres
throughout England and
Wales, as well as central
support locations in Swindon,
Worcester and Wednesbury.
We use a range of engagement
mechanisms, including in-house
communications, engagement
surveys, colleague forums, all-
colleague intranet, management
conferences, town hall meetings
and staff briefings.
In addition to our colleagues, we
have outsourced certain service
functions to a Shared Service
Centre (SSC) comprising circa
160 outsourced colleagues based
at two sites in Noida and Pune
(India). The SSC provides customer
service, technology, SAP master
data management and finance
back office services. We liaise with,
and carefully consider the interest
and views of, these support service
providers. Colleague engagement,
as well as reward and recognition,
remain at the centre of maintaining
our outsourced colleagues’ sense
of belonging within the wider
business.
Risk
•
Acquisition & Retention of labour
•
IT infrastructure & Cyber Security
•
Growth & Diversification
•
Sustainability & Climate Change
What is important
•
Job security
•
Job satisfaction
•
Remuneration and benefits
•
Consultative and transparent
engagement and processes
•
Safe and healthy environment
•
Sustainability and ESG
Why are they important
•
Workforce satisfaction
•
Productivity
•
Ability to attract, motivate and
retain staff
•
Regulatory compliance
How we engage
•
Engagement forums:
•
Local and national Colleague
Engagement Forum attended
by a designated non-executive
director (this structure and
process was refreshed during
FY2022)
•
Management-led specialist
Colleague Consultation
Forums to provide a platform
for formal consultation on
employee related matters
•
Remuneration-focused
colleague engagement
undertaken by the
Remuneration Committee
chair to discuss policy and
director and wider workforce
pay
•
Virtual ‘Town Hall’ meetings
hosted by the Executive Team,
including video recordings, to
ensure that all colleagues can
access them at any time of the
day, regardless of shift pattern
•
Quarterly newsletters (‘Our
News’) in physical and electronic
formats
•
Pulse quarterly engagement
surveys, with outcomes reviewed
by the Board, to inform action
planning, priorities and impact
on future decision-making (see
People report on page 30)
•
Introduced D&I survey and
updated D&I strategy and
targeted actions
•
Policy and Compliance steering
committee, consulting on key
policies and regulatory matters
which may affect colleagues
•
Launched a new intranet
(SmithsZone), enabling two-
way communication with all
colleagues
•
Regular Mental Health allies’
meetings
Impact on decision-making
•
Introduction of fair pay principles,
following colleague forum input
and views
•
Relaunch of Extra Mile
colleague-recognition awards,
ensuring easier digital access,
fairer distribution of awards and
simplified processes
•
Hardship fund expanded to a
more general colleague support
fund, not exclusively related to
COVID-19 related hardship
•
Further training of mental health
allies across underrepresented
parts of the business
•
Launched benefits and payroll
roadshows, educating and
supporting colleagues
•
‘
L
ove
to shop’ vouchers issued
to colleagues not part of formal
benefits package, in order
to recognise their important
contribution to business
performance
•
Launch of the leadership
apprenticeship programme,
driven from pulse engagement
survey results
•
Externally conducted diversity
and inclusion audit, identifying
key action areas across
recruitment, learning and
communication
Community
With 55% market share we serve
thousands of local communities
across the UK, ensuring
newspapers and magazines are
widely and easily available to all.
While our service is sometimes
regarded as ‘business as usual’ at
times of crisis or severe weather,
its importance and impact on
communities comes to the fore.
Smiths News is a critical
component and active participant
in the news industry community,
supporting the sector through its
NewstrAID charity. More recently,
the Company has been active
in helping to address the issues
and challenges of homelessness
which our distribution colleagues
witness on the streets. In 2021, our
‘Pass it On’ initiative became an
independent registered charity, and
we continue to be its chief sponsor.
Risk
•
Growth & Diversification
•
Sustainability & Climate Change
What is important
•
Social responsibility
•
Community health and wellbeing
•
Sustainability and ESG
Why are they important
•
‘
L
ic
en
se
to operate’
•
Reputation
•
Community support
•
Regulatory compliance
How we engage
•
Ongoing financial and
operational support to the charity
‘Pass It On’ as its anchor sponsor
•
Individual/ team support in
partnership with external
charities to support causes
such as the industry charity
NewstrAid, through workplace
flexibility, publicity and financial
support
•
Consideration of local businesses
when sourcing goods and
services.
Impact on decision-making
•
Community charity initiatives,
including Pass It On supported
•
Enhanced local supplier inclusion
within procurement tender
processes
16 S
Smiths News plc
Annual Report and Accounts 2022
Environment
As a physical distributor our
environmental impact is most
significantly influenced by
our vehicle emissions. Other
key impacts include energy
consumption, waste disposal
and the recycling of product and
packaging.
The Company is conscious that
our plans and performance have a
direct impact on the environmental
footprint efficiency of the supply
chain as a whole, meaning our
actions have particular relevance
to our industry partners. As such,
we work closely with our supply
chain partners to find alignment
and measures that maximise the
positive impact of our combined
actions.
Risk
•
Legal & Regulatory Compliance
•
Sustainability & Climate Change
What is important
•
Environmental sustainability
•
Social responsibility
Why are they important
•
Long-term sustainability
•
Reputation
•
Community support
•
Regulatory compliance
How we engage
•
Sustainability strategy
developed and formation of the
Sustainability SteerCo
•
Sustainability (incl. TCFD)
reporting to the Board as a
quarterly agenda item
•
Environmental impact
assessments – base-line
information established
•
Engaged with large retail
customers, as well as newspaper
and magazine publishers,
to better understand their
sustainability agenda and the
role we play in its delivery and to
share our sustainability strategy
•
Shared and sought feedback
on the
C
ompan
y
’
s
supplier
code, ethical trading policy and
Modern Slavery Statement
•
During the review period, the
Company has commenced
a more formal engagement
process with ESG rating
agencies and investor-led
assessment initiatives, to
keenly demonstrate progress
made in this area and to
assist in identifying areas of
improvement and opportunities
for enhancement
Impact on decision-making
•
TCFD report produced
•
Sustainability strategy developed,
with ‘SMART’ objectives and
measurable KPIs
•
All registered suppliers signed up
to our Supplier Code and Ethical
Trading policies
•
Modern Slavery questionnaires
issued to suppliers and audit in
progress
•
Sustainable Procurement Policy
published
•
Commenced data collection
to fully understand news and
magazine supply chain footprint
Director for Workforce
Engagement
I have been pleased this year to be able
to re-connect in person with colleagues
after the unique challenges presented
by COVID-19. That said, I have also
appreciated the ability to engage more
widely through the virtual meetings that are
common practice in many organisations.
And through those discussions it became
apparent that COVID-19 had, rightly at
the time, led us to be more focused on
addressing immediate challenges. As the
pandemic recedes and after reflection on
the challenges and opportunities ahead, we
have revitalised our Colleague Engagement
Forum specifically to ensure more diverse
representation of members from across
all areas of the business. I have considered
colleague feedback on the quarterly employee
pulse survey, in order to better understand
the drivers and sentiment behind the results
and, drawing on input from multiple sources,
this has helped shape the discussion when
workforce engagement has been on the Board
agenda. This rich feedback from colleagues
has given the Board a more informed
understanding of what’s important
to our people and how they feel.
As inflationary pressures come to bear, we
have had candid discussions around fair pay
principles, rewards and benefits, diversity
and inclusion, and the expected impact of the
economy on our business and workforce. The
latter resulting in us converting the previous
COVID-19 hardship fund into a more general
and ongoing colleague support fund.
I’m confident that our framework for engaging,
sharing, listening and providing feedback
will continue to be an effective two-way
engagement between the Board and our
wider workforce. We will continue to build on
this relationship with forthcoming issues of
attention to include a review of our benefits
strategy and our colleague grading structures.
Michael Holt
Non-Executive Director for Workforce
Engagement
Statement from
Michael Holt
→
S G F 17
/
Jonathan Bunting
Chief
Executive
Officer
CEO
Review
Our
success
is
Smiths News plc
Annual Report and Accounts 2022
underpinned
by
efficiency, knowledge
and
service
Dear Shareholder
On my appointment three years
ago, we set out to strengthen
the foundations of Smiths News,
removing distractions and building
a future that I described in our 2019
report as ‘efficient, knowledgeable
and service driven.’ Despite the
unprecedented challenges of
the pandemic and the ongoing
uncertainty in the UK economy, we
have made excellent progress. It
is always the case that the road to
success is ongoing, but we have
now passed the key milestones of
our recovery plans and, importantly,
we have done so in a way that
supports our ability to deliver value
in the future.
Our financial performance this year
is ahead of expectations, primarily
as a result of an absolute focus
on limiting the impact of inflation,
reducing debt and finding new
revenues. It’s no coincidence that
in ‘delivering the numbers’ we have
drawn on the qualities of efficiency,
knowledge and service that I said
would be the foundation of our
success. But in doing so, we have
also been flexible in addressing the
ways by which we have historically
offset the impacts of declining
sales and rising costs. This agile
approach has not only helped us
through an especially challenging
period, it also gives us an indication
of the opportunities going forward.
Newspaper and magazine
wholesaling will continue to
underpin our prosperity for
the foreseeable future.
For more information on topics
covered in this review, see the
appropriate chapters at the page
numbers below.
→
Our
People
30
→
Sustainability 24
→ Operational Review 20
→ Financial Review 36
But, of course, our results are about
more than metrics; ultimately, they
are down to our people and the
commitment they show in serving
our customers and supply chain
partners. And it is this, as much
as our financial progress, which
gives me confidence that we can
maintain the momentum. Together,
we have reset our business, and
rightly grown in confidence – our
objective now is to look ahead, and
apply what we have learned to the
opportunities in and adjacent to
our markets.
Efficiency and costs
Securing sustainable efficiencies
will remain an essential element of
maintaining our profitability. That
our markets are large and their
sales patterns relatively predictable
helps us to plan accordingly. For
many years our approach has been
to adjust our operations in line with
falling volumes, working across the
supply chain to find efficiencies
without compromise to service.
These foundations of our business
model will not change.
Throughout the year, the inflationary
pressure on our distribution costs
and central overheads has created
additional challenge. We expect
there to be some carry over into
FY2023, and while there is no
guarantee that the ‘peak’ has
passed, we believe our plans will
be sufficient to mitigate inflation
at current forecasts.
Over the last 12 months, we
have offset some of the incremental
impact through additional revenue
generation and this too will
continue, giving further confidence
that we can maintain a grip on
costs that balances short and
long-term requirements.
Contract renewals
For over 200 years, publisher
partnerships have been the
bedrock of our business, and today
we have exclusive area contracts
across our territories with all
the UK’s major newspaper and
magazine companies. In line with
usual practice, we would expect
discussions on these agreements
to pick up well in advance of their
scheduled renewal. The process
is to be welcomed, offering an
opportunity to align goals and
create certainty over the network,
service requirements and
cash flows.
It was therefore especially
pleasing in October 2022 to
renew our agreements with
Frontline, Seymour and Associated
Newspapers, amounting to 35%
of our total revenues and over
50% of our magazine share. These
are foundational agreements that
establish and secure our distribution
footprint for the remainder of the
decade. In working more closely
than ever with our publishers,
we are well placed to renew our
remaining agreements on mutually
beneficial terms.
18 S
Smiths News plc
Annual Report and Accounts 2022
Widening our horizons
Newspaper and magazine
wholesaling will continue to
underpin our prosperity for the
foreseeable future; however, the
longer-term reality is that regardless
of our best endeavours, it will not be
enough to deliver growth nor will
it take full advantage of the assets
and competencies we possess.
In this respect, our aims these last
three years were not limited to re-
establishing the focus and prudence
that is essential to managing in our
markets; they were also to create
the headroom that would allow us
to adapt and flourish thereafter.
In widening our horizons, I believe
we can be mindful of the missteps
of the past, without limiting our
ambition to explore opportunities
that complement, rather than
distract from our core operations.
The tactical revenue gains and
distribution partnership trials this
year have shown that there is
considerable scope to leverage
our skills and assets in near and
complementary markets. This
is a strategy of adaptation not
diversification; it is about being agile
and having the confidence of our
ability to do more and move up the
value chain.
Over the next year, we will more
actively consider entering new
markets in a way that is controlled
and which plays to our strengths.
Ideally, we will seek opportunities
that enhance our current roles
and relationships, moving forward
without risk to the progress we have
made and which draw on a skill set
founded on efficiency, knowledge
and service.
I am excited by this ambition and
determined that we will make
progress in a way that benefits all
our stakeholders.
Sustainable futures
All our futures depend also on
addressing the challenge of climate
change, cooperating with others
to make a positive difference to
the planet, our people and the
communities we serve. Smiths News
has always been a responsible
business in the broadest sense, but
since relaunching our sustainability
strategy last year we have surfaced
how pivotal our role, at the centre of
the supply chain, is to the progress
of others.
We have also confirmed that,
managed sensibly, progress to
greater sustainability is a friend
not a foe to efficiency, service and
professional partnerships. This
helps reinforce our commitment to
taking a lead in matters where we
can make most tangible difference.
And in pursuit of this goal, we
will prioritise our focus on those
sustainability pillars relating to the
environment and people. These are
the areas that matter most to our
stakeholders and which best align
to the particular impacts of and risks
to our business.
Culture and people
As the market leader, operating
successfully for over two centuries,
it’s no surprise that Smiths News has
a workplace culture which reflects
those skills and qualities that have
taken us to where we are today. We
are proud of this heritage and, when
we speak of the need to adapt, it in
no way diminishes the contribution
and importance of what has been
delivered to date. Indeed, it is only by
adapting that we have sustained our
success for so long.
But it is also fair to say that the
ne
ed to embrace change is more
immediate than in times past. To
meet our ambitions of growth,
sustainability and continual
improvement, we must add new
skills and perspectives to those
we already possess. That we plan
to do this through evolution and
enhancement, rather than revolution
or reinvention, should not imply any
lack of commitment to the end goal.
We have also confirmed
that, managed sensibly,
progress to greater
sustainability is a friend
not a foe to efficiency,
service and professional
partnerships.
As with our sustainability pillars,
we will be driven by clear measures
and tangible outcomes, in this case
focused on diversity, colleague
engagement, talent and career
enhancement, and ultimately,
ensuring Smiths News is a place
where people prosper in tandem
with the
C
ompan
y
’
s
success.
Clear priorities
I believe our priorities are clear.
We must maintain our core focus
on service and efficiency; the
renewal of our remaining contracts
will establish the basis for further
certainty and network planning; our
commitments to evolving our culture
and improving sustainability must
remain high on the agenda; and we
must actively seek ways to leverage
our skills and assets in ways that
enhance the core and move us up
the value chain. These will be the
milestones of success on the next
stage of our journey. I have every
confidence that by working together
and with our partners we will reach
and surpass them.
Jonathan Bunting
Chief
Executive
Officer
8 November 2022
S G F 19
/
Priorities FY2023
Sustaining the core
Our wholesale operation remains the primary driver of revenue
and value – we are committed to investing for its future
Controlling costs
We continue to seek efficiencies that mitigate inflation and
declining core sales
Renewing contracts
Building on recent agreements, we are well placed to renew
our remaining publisher contracts as they become due
Investing in capability
We are committed to investing in our business, ensuring we
have the skills and capabilities that are needed for the future
Growing new revenues
From tactical gains to strategic expansion, we are exploring
a range of options to leverage our skills and assets in
adjacent markets
Maintaining strong returns
We are committed to delivering strong returns to shareholders
from a combination of attractive dividends and capital growth
Operating Review
Smiths News plc
Annual Report and Accounts 2022
Continued progress
driven by focus and
flexibility
During the year, we have delivered
a strong financial result ahead of
market expectations by remaining
focused on service and efficiency,
while being flexible in our pursuit of
our overall goals. In addition to profit
performance, our key objectives of
material debt reduction, continued
cash generation, the restoration of
the dividend and the maintenance of
service and efficiency have all been
met. In achieving these goals, we
have demonstrated the continuing
strength of our core business model
and established a platform for future
opportunity.
Historically, Smiths News has
sought to offset the margin impact
of a relatively predictable decline in
core sales by securing sustainable
efficiencies across the network.
This year, while still pursuing
that objective, the bridge to our
profitability required us to address
additional challenges arising from
the COVID-19 pandemic and
growing inflationary pressures. In
this respect, the early actions we
took to address warehouse and
driver shortages played a key role in
our ability to maintain service with
consequent minimisation of waste
and rectification costs.
The net impact of inflation was
in line with our forecasts for the
year, despite the ramifications of
the war in Ukraine which added
further pressure in the second half.
In addition to close cost control,
we have benefited from improved
sales mix, cover price rises and
ongoing network efficiencies. Our
performance was also aided by
lower interest payments from the
significant reduction in average debt
and by capitalising on a number of
ancillary opportunities.
Having made headway with our
strategy to first strengthen the core
business, we have increased efforts
to explore adjacent markets that
can leverage our network, daily
deliveries and trading relationships.
This year, we have successfully
trialled initiatives that include retailer
waste collections and partnering in
parcel deliveries. These, together
with other local actions, have grown
our ancillary revenues, making a
modest and sustainable contribution
to profitability, but also suggesting
there are encouraging early
opportunities to develop and scale
these initiatives.
Together with recent
contract renewals, this
positions the business well
given the current challenges
and uncertainty in the
wider economy.
As anticipated, our core business
has returned to historic sales trends
and the relative predictability
this entails. Together with recent
contract renewals, this positions
the business well given the current
challenges and uncertainty in the
wider economy. Looking ahead, we
will continue to focus on containing
the impact of inflation, but without
damage or compromise to our
service and capabilities. We expect
the combination of cost control,
improved margin and new revenues
to continue to mitigate the impact of
reduced newspaper and magazine
volumes, underpinning another
successful year for the business
and its stakeholders.
Adoption of new
financial metrics
The Board has reviewed the
C
ompan
y
’
s
key financial metrics
and concluded that the performance
of the business would be better
monitored by the adoption of
revised headline measures. Going
forward, the Company will focus
on Adjusted Operating Profit as its
primary measure of overall financial
performance, a measure that
continues to be disclosed on the
C
ompan
y
’
s
Income Statement.
20 S
Smiths News plc
Annual Report and Accounts 2022
Financial performance
Adjusted Operating Profit of
£38.1m was down by 3.8%
(FY2021: £39.6m) from Revenue of
£1,089.3m that was down by 1.8%.
Adjusted Profit before tax of £31.1m
was £0.2m better than last year
(FY2021 £30.9m), as the reduction
in Adjusted Operating Profit was
offset by the benefit of lower
interest charges from the reduction
in the
C
ompan
y
’
s
debt. Free cash
flow of £48.2m is up by 100%
(FY2021: £24.0m), and includes
the expected inflows arising from
the return of a pensions cash
surplus (£8.1m) and settlement
of Tuffnells deferred consideration
(£14m). Adjusted EPS of 10.8p
was consistent with last year.
The underlying factors in driving
this performance were:
•
Relatively stronger sales
patterns as the restrictions of
the pandemic resulted in softer
year-on-year comparators in H1,
while strong price rises helped
sales in H2
•
Beneficial margin mix from the
continued good performance
of higher margin one shots as
schools returned and sticker
collections and trading cards
flourished
•
Ancillary revenue gains from
new initiatives and improved
performance of DMD, Instore
and Rascal
•
The net impact of sustained
inflation on both distribution and
other costs, including the national
minimum wage
•
Lower interest charges from
reduced debt and the new
financing agreements agreed
in December 2021
Statutory profit before tax of £27.9m
is down by 8.8% (FY2021: £30.6m),
impacted by the administration
of
M
c
C
oll
’
s
Retail Group in May
2022, for which the Company has
provisioned a bad debt risk of £4.4m
as previously announced.
Sales and markets
The newspaper and magazine
market showed resilience this year,
with both categories returning a
lower year-on-year decline than
typical historical trends. Combined
sales of newspapers, magazines
and one shots were down by 2.3%.
This was in part driven by softer
comparators from the previous
year (particularly in H1), however
the sustained growth of one
shots in a financial year without a
major football tournament was an
encouraging development. Strong
price rises in the second half reflect
the sometimes counter-cyclical
nature of the market as publishers
compensate for higher production
costs – typically these price rises
tend to bunch before evening out
over time.
Looking ahead, we expect core
sales patterns to continue in line
with historic trends in FY2023. The
impact of the pandemic restrictions
has now washed through and it
is pleasing to note that the total
number of retail customers is
broadly flat. The sale of
M
c
C
oll
’
s
Retail Group to Morrisons has
secured the continued trading of
over 90% of its business with Smiths
News, and while the administration
of the former has required a material
provision for bad debt, the ongoing
service and availability of supplies
to consumers has been protected.
Smiths News wins EIIR National
Courier Award
Whenever the nation comes together – be it in crisis
or celebration – Smiths News steps up to the mark.
And that commitment was recognised this year with a
prestigious EIIR National Courier Award, recognising
our contribution to the distribution demands that
followed the passing of Her Majesty Queen Elizabeth II.
Responding to what was a globally significant event, the teams at
Smiths News took pride in playing their part in getting the news to
customers and communities across the UK. Immediately following
the announcements, we delivered nearly three million extra copies by
9.00am the next morning.
Over the first three days of mourning, working round the clock, we
supplied a total of 16.7 million newspapers and supplements to our
customers. That’s a further five million more than normal. On the day
following Her Majesty’s funeral, newspaper volumes increased by nearly
70%, with special editions, supplements and commemorative issues.
Across our network, hundreds of unsung heroes made a vital difference
at a time of great importance to all our partners, as well as the general
public. The award recognised this outstanding performance, which
reinforced that we are not only one of the fastest supply chain partners,
but also one of the most flexible and responsive. The award is a tribute
to everyone in the business.
S G F 21
/
Operating
Review
continued
Smiths News plc
Annual Report and Accounts 2022
The new financial year has
started well. Trading to date
is in line with expectations,
and in October 2022,
contracts representing 35%
newspaper and magazine
sales revenues, were
renewed until 2029.
For more information on topics
covered in this review see the
appropriate chapters at the page
numbers below.
→
Our
People
30
→
Sustainability 24
→ Operational Review 20
→ Financial Review 36
Managing inflationary
pressures
Our experience in securing
efficiencies, together with the
actions we took to address driver
shortages, has limited the net
impact of inflation to £2.1m in the
year, in line with the guidance
we gave in the autumn of 2022.
This has been achieved through
a combination of distribution
efficiencies, tight management of
ongoing costs and growing ancillary
revenues. As expected, there will
be some carry over into FY2023
as the key cost pressures on fuel,
national minimum wage and energy
are annualised. The business is well
placed to meet this challenge, and
mitigating the impacts of inflation
without undermining customer
service will remain operational
priority in the months ahead.
Ancillary revenues
Our primary focus for the last two
years has been to enhance the
core newspaper and magazine
wholesaling business. Managing
through a period of unprecedented
disruption, we have worked to
maintain service and enhance our
capabilities while strengthening
the balance sheet and delivering
growing returns to shareholders.
Against all these goals, we have
made good progress. As the
pandemic receded and our
improvements embedded, we
have increased our attention to the
potential for ancillary revenues and
adjacent opportunities.
During the year, we have taken
advantage of smaller tactical
initiatives, benefiting revenue by
£0.9m from measures such as
renting spare depot space, while
also trialling opportunities that have
greater potential to be replicated
across the network. We are currently
exploring the logistics and long-term
potential returns of two initiatives:
the collection of retailer waste; and
the expansion of our partnership
with a national courier to provide
sortation and distribution services
at our local depots. Both these
opportunities can be developed
with limited capital investment
and without distraction to our
core service.
Our two established ancillary
businesses, DMD and Instore, were
disproportionately impacted by
the COVID-19 pandemic, which
brought much international travel
to a standstill and reduced the
demand for instore merchandising
as retailers prioritised social
distancing and basic services. This
year, we have seen some recovery
in both markets and the businesses
are once again making a positive if
more limited contribution to overall
profit. We will continue to support
them on the recovery journey,
believing they add value to our role
in the supply chain and enhance
our skills and capabilities to enter
adjacent markets.
Contract renewals
In October 2022, we announced
the signing of new agreements
with Frontline, Seymour and
Associated Newspapers. Together
these represent circa 35% of current
newspaper and magazine revenues,
and over 50% of the magazine
market through to 2029. Similar
discussions with the other major
publishers will follow in due course,
and we are well placed to reach
agreements that will benefit all
parties. The securing of long-term
contracts help not only to improve
the forecasting of future cash flows,
it also assists our joint efforts in
seeking network efficiency, improved
sustainability and future supply
chain development.
Net debt
Bank Net Debt of £14.2m
represents 0.3 x Adjusted EDITDA,
benefiting from one-off receipts
of £22.1m, resulting from the
pension surplus (£8.1m) and the
settlement of Tuffnells deferred
consideration (£14.0m), both of
which were used to pay down debt
under the terms of the
C
ompan
y
’
s
banking agreements. Average Net
Debt reduced by 40% to £49.9m
(FY2021: £82.6m). Looking ahead,
we expect to be able to continue
paying down debt supported by
stable underlying cash flows.
Dividend
In December 2021, the Company
favourably extended and amended
its current banking agreements,
increasing the cap on dividends
and distributions from £6m to £10m
for each financial year throughout
the term of the facilities. Subject
to performance and meeting the
investment needs of the business,
the Board intends to utilise the full
extent of these distribution limits for
the return of cash to shareholders.
Consequently, the Board has
proposed a final dividend of 2.75p,
making a total dividend for the year
of 4.15p (FY2021: 1.65p). The final
dividend will be paid on 9 February
2023 to all shareholders who are on
the register at the close of business
on 13 January 2023; the ex-dividend
date will be 12 January 2023.
Outlook
The new financial year has started
well. Trading to date is in line with
expectations, and in October
2022, contracts representing 35%
newspaper and magazine sales
revenues, were renewed until 2029.
Despite recent economic volatility,
inflationary pressures continue
to be consistent with planning
assumptions, and the combination
of sustained margin mix and close
cost control give us confidence in
maintaining performance in FY2023.
22 S
Smiths News plc
Annual Report and Accounts 2022
S G F
/
23
Ancillary businesses add value
Our ancillary businesses add value
to Smiths News’ core newspaper
and magazine wholesaling
operations. During the pandemic
these operations were more
severely impacted by restrictions
and changing consumer
behaviours. This year their
performance has started to recover,
although it will take some time for
the effects of the last two years to
fully recede. We remain committed
to supporting these businesses
for they are each valued by our
industry partners and enhance our
core service, with bespoke offers
that reach targeted consumers.
Instore, our field marketing service
works with retailers, suppliers
and publishers, providing a range
of solutions for sales promotion,
merchandising and supply chain
compliance. This year, we have
seen a gradual increase in demand
for all these services, with sales
promotion at the fore of the
recovery. We have expanded our
scope too, selling health products
to gyms and trialling a range of
greeting cards for both large and
small outlets – both opportunities
that use our core network for
efficient deliveries supported by
Instore’s merchandising and sales
promotion.
DMD supplies printed and digital
media to airlines and travel points
in the UK and worldwide. The
severe restrictions on international
travel over the last two years
resulted in only a minimal service
throughout the pandemic and,
although the situation has eased
in Europe over 2022, there are still
ongoing restrictions, particularly
in Asia. During FY2022, we have
seen a gradual recovery of demand
in the UK and are pleased to have
renewed our arrangements for
airside media wall displays. Longer
term, the full recovery of sales and
distribution is intrinsically linked to
wider geopolitical considerations.
Meanwhile, our publishers and
airline clients confirm that they
continue to value this service which
reaches high-value customers
through a unique targeted channel.
Martin Lavell supplies business
and large organisations with daily
newspapers and magazines,
specialising in the needs of
corporate clients. As with our other
ancillary businesses its operations
were impacted by the pandemic,
with a gradual recovery in demand
as restrictions have been lifted.
With an offer that combines
flexible ordering, easy invoicing,
subscriptions and dedicated daily
deliveries, Martin Lavell continues
to be a leading player in this
specialist market, with operations
in London and other major cities
across the UK.
Sustainability Report
Smiths News plc
Annual Report and Accounts 2022
While the overall framework has
proved effective, we have evolved
and adapted our approach to
specific goals when doing so
improves the positive impact
of our actions.
24 S
Smiths News plc
Annual Report and Accounts 2022
Risks
Macroeconomic uncertainty
Acquisition and retention
of labour
IT infrastructure and
cyber security
Legal and regulatory
compliance
Changes to retailers'
commercial model
Growth and diversification
Sustainability and climate
change
An impact led
approach
As a Company, we have a long-
standing commitment to making a
positive contribution, recognising
and acting on our responsibilities to
the environment, our marketplace,
our people and the communities we
serve. This commitment remains
the bedrock of our approach to
sustainability, and is consistent with
the significant review of our plans
and governance framework that was
undertaken in FY2021 and which
got underway in earnest this year.
As reported last year, in
consideration of the characteristics
of our business, we aligned our
sustainability strategy to a blend of
the principles-based approach of
the UN Sustainable Development
Goals (SDGs) with the structured
disclosures-based reporting
promoted by the Global Reporting
Initiative (GRI).
In adopting this hybrid model,
we aimed to set targets that were
relevant to our operations and
our people, complemented by
a structured reporting suite that
also considered our impact on
the supply chains in which we
operate and the communities
we serve. We were also mindful
that the framework should be
compatible with our Company
Values, enhancing our service
and partnerships with suppliers
and customers.
We have made good progress
against these goals, learning from
the experience of managing the
framework in practice. While the
overall framework has proved
effective, we have evolved and
adapted our approach to specific
goals when doing so improves the
positive impact of our actions.
Our Sustainability Steering Group
is now well established under the
chairmanship of Paul Baker (CFO)
and comprises representatives
with relevant skills and experience
from across the business. The
Board takes an active interest in
its activities, receiving quarterly
reports which tracks progress
against our targets and discusses
any concerns or developments
as they arise. The Executive Team
is charged with delivering the
sustainability agenda through
a combination of collective
and personal objectives which
are cascaded throughout the
organisation. Where necessary, we
employ functional specialists and
engage external partners to drive
particular objectives: examples,
among others, include Health and
Safety, People and Environmental
Emissions.
Looking outside the organisation,
we work with industry partners
to find solutions that will have a
positive impact not only for our
business but also for the broader
supply chains in which we operate.
As a ‘middle-man,’ this is especially
important if our actions are to have
meaningful and lasting benefit.
Indeed, pursuing this collaborative
approach has confirmed that our
role and actions are often pivotal
to the progress our partners can
make and to leveraging their
benefits across a wider spectrum.
Our five sustainability pillars
Governance
Incorporating formal reporting
structures, the ownership and
communication of targets,
compliance reporting and
transparency, and more widely
the involvement of all colleagues
in the delivery of objectives
4
and commitment to a more
sustainable future. Because of its
vital importance to all colleagues
and partners, we include Health
and Safety reporting under this
pillar too.
7
Environment
Encompassing our direct impact
as
measured by carbon emissions,
fuel and energy usage, waste
and packaging, and recycling. In
addition,
we look to measure and
report on any mitigations and
offsets
which result from actions
and policies of the Company.
2
People
Driven by absolute commitment
to the wellbeing and flourishing
of colleagues, our actions
and
measurements include
engagement, diversity
and inclusion, training and
development, gender equality,
free speech and human rights.
7
Community
We work to make a positive
contribution to the communities
we serve, to wider good causes
and charitable giving. We seek
to provide opportunities for
colleagues to be involved and
make a contribution to the
communities we serve and
support.
3 5
6
Responsible partnerships
Embracing responsible
partnerships in pursuit of a more
sustainable supply chain. Areas
for close attention include ethical
sourcing, taking a leading role in
industry
-wide sustainability and
data security for our customers,
suppliers and colleagues.
1
2
3
4
5
6
7
S G F 25
/
9
3
4
Our sustainability strategy
was comprehensively
refreshed in FY2022
We have made good overall progress in
embedding its structures and key principles,
establishing a framework for action and
measurement that focuses our efforts on those
areas to which we can make the most tangible
difference (both directly in our operations or
across our supply chain) and which reflect the
most significant risks to our sustainability and
success in the longer term.
Sustainability
Report
continued
Smiths News plc
Annual Report and Accounts 2022
Governance
Connected SDGs:
17
Our sustainability governance
process i
s now well established, with
a clear structure of responsibilities,
action planning, reporting and
communications cascade that
extends from the Board to colleagues
at every level and location.
Our high standards of Cooperate
Governance are described
throughout this Annual Report and,
in particular, within the Corporate
Governance report on page 58.
In relation to our workplaces, we
have determined that ISO45001
accreditation is the most appropriate
and stretching measure for our
operating locations. Having achieved
accreditation in FY2022, we will
seek to maintain this standard and
enhance performance in line with its
ongoing requirements.
Environmental impacts
Connected SDGs:
12 13
Environmental emissions are
a priority workstream in our
sust
ainability strategy. They
represent the most significant
impact that we have on the
environment and global warming,
and our progress is integral to
helping the supply chain as a
whole reduce its impact on the
environment.
In FY2022, we have made further
good progress, ensuring all of
our internally generated waste is
diverted from landfill, and moving
the vast majority of our electricity
consumption to renewable sources.
Our continual improvement process
seeks to optimise delivery route
and fuel usage across final mile
and trunking services in line with
fluctuations in volumes.
Looking ahead, we will be focusing
on further fuel efficiency and energy
reductions, as well as partnering
with our publishers and retailers to
find processes that share common
measurements and reduce overall
supply chain emissions. In this
regard, we are working to establish
a common reporting suite with our
publisher partners, covering Scope
1, 2 and 3 emissions. This will create
a cross-industry measurement tool
for target setting and improvement
that is essential to leveraging the
efficiencies of our role in the middle
of a shared supply chain.
We will continue to investigate the
potential for electric and hybrid
vehicles in our company car fleet
and potentially for last mile deliveries
but, at the present time, we believe
we can make greater headway by
focusing on improvements to the
core delivery vehicles.
People
Connected SDGs:
5
Our people workstream and, in
particular, diversity and inclusion is
a priority pillar of our sustainability
strategy.
We believe that supporting our people
by
ensuring an engaging, inclusive
and diverse environment is not only
vital to the foundations of a sustainable
business model, it is equally critical to
improving performance and mitigating
risks to the long-term success of the
Company.
Building on many years of
responsible practice we have made
further progress in FY2022, moving
to quarterly pulse surveys for our
all-colleague engagement survey,
ensuring it has more regular visibility
and speedier response to issues
raised. We have also completed a first
Diversity and Inclusion recruitment
audit, and will be monitoring our
position relative to a benchmark
of appropriate and relevant peer
companies, seeking to maintain an
upper quartile performance.
We recognise the need for greater
diversity on our management
composition and will be taking
positive action to address any
imbalances over time, and in line
with the best interests and needs of
the Company and its Stakeholders.
26 S
1
9
UN Sustainable Development Goals
Smiths News plc
Annual Report and Accounts 2022
Community Responsible partnerships
Connected SDGs:
11
Connected S
DGs:
17
We continue to make a positive
con
tribution to our communities
through the daily service we
provide and more widely through
voluntary and charity activity that
extends the reach of our impact
and involvement.
Our involvement with the industry
charity NewstrAID is substantial,
partnering with and facilitating
their fundraising activities with
our network of retailers. We have
introduced enhanced volunteering
opportunities and continue to be
the leading sponsor of Pass It On, a
national charity seeking to alleviate
the problems of homelessness in the
UK, which was originally founded by
employees of the business. We have
donated £27,000 directly to charities
in the year, and will be increasing
our indirect contributions though
greater levels of volunteering,
donations of products and support
for those colleagues fundraising for
causes they hold to be important to
them and their communities.
Our supplier code, ethical trading
policy and modern slavery policies
have been reviewed and embedded
as part of our refreshed sustainability
strategy. We are working to maintain
this progress, auditing suppliers
to ensure their compliance, and
periodically updating our policies to
ensure they continue to reflect best
practice and changes to legislation.
Developing more sustainable
ways of working with our supply
chain partners is a workstream
that links closely to our prioritised
Environmental pillar. The common
reporting suite with our publisher
partners (see Environment pillar
above) will help ensure shared
goals, creating the foundation for
cross-industry measurement for
target setting and improvement. At
the retailer-end of the supply chain,
we are exploring the opportunity to
collect and process general waste
for recycling, as well as expanding
the scope of smart sales forecasting
and replacement systems that help
to minimise unsold products and
production wastage.
S G F 27
Smiths News Recycle –
making recycling simple
Smiths News Recycle is a new
bespoke service for our retail
customers that offers an easy and
convenient way for them to recycle
cardboard and plastic waste.
We began trials in Birmingham,
serving 250 customers, and
after excellent feedback are now
expanding to further areas as part
of a wider pilot initiative.
Our offering is designed with simplicity
at its core – offering retailers a uniquely
straightforward and convenient service
that fits their busy schedules and priorities
and keeps their stockrooms clear for more
stockholding!
Here’s how it works:
•
We supply retailers with bags for general
cardboard and plastic waste
•
Retailers leave the filled bags for collection
with their newspaper and magazine returns
•
Retailers can leave waste every day or
whenever they choose – there’s no need
to book a collection
•
We collect and process the recycling in
line with legislation on waste management
•
Retailers pay a simple fixed price per week
Retailers benefit from the ease of processing,
with waste taken away securely from their store
with no waiting for collections. And from a
sustainability perspective they can rest assured
the recycling is managed in a professional and
environmentally beneficial way.
We are excited about the potential for Smiths
News Re-cycle and plan to expand the trials
in FY2023. It’s a great example of using our
network to deliver solutions that help our
customers, as well as the environment.
Our recycle
service trials →
/
Sustainability
Report
continued
Smiths News plc
Annual Report and Accounts 2022
Our priority pillars
In pursuing our strategy, we have remained open to adaptation and challenge
as our knowledge grows and we learn lessons from the progress to date.
This year, we have sought to embed all
our sustainability pillars and remain
committed to their close management
and further development as part of
a holistic approach to integrating
sustainability into our everyday
practices.
Without compromise to this goal, we have also
undertaken a materiality review of strategy
and targets, considering the requirements of
TCFD reporting, the nature and impacts of our
business model, and the views of our industry
partners and other stakeholders. In parallel,
we also considered our forward strategy in
relation to the reporting requirements of TCFD
and those relevant aspects of our business
risk matrix. The combined findings of these
exercises clarified those areas of our strategy,
which will maximise our positive impact and are
most critical to the sustainability goals of our
industry partners and wider stakeholders.
As a consequence, we have identified two
‘priority workstreams’ for our future activities,
aligning to the
Environment
(specifically, the
reduction of emissions, energy utilisation and
improved waste management) and our
People
(including the promotion of greater diversity &
inclusion and supporting culture).
Our people
The prioritisation of our People pillar is driven by
our wish to drive increased diversity, ensuring our
culture reflects the make-up of our workplace,
the communities we serve and the needs of the
business in future.
We aim to build on our strengths, retaining those qualities
which underpin our heritage and core capabilities, while
also developing a more adaptive and agile approach to
opportunities. To succeed will mean embracing new skills
and fresh perspectives, and backing this goal with clear
metrics that track our progress. Going forward, we will
continue to blend quantitative and qualitative measures in
pursuit of this priority.
Further detail and disclosures on our policies and progress relating
to people can be found in our Nominations Committee report on
page 90, and the People report on page 30 which includes gender
composition and gender pay gap reporting.
The
environment
As a physical distributor our environmental
impact is most significantly influenced by our
vehicle emissions. Other significant impacts
include energy consumption, waste disposal and
recycling of product and packaging.
Our environmental performance has a direct impact
on our efficiency and of the supply chain as a whole,
meaning our actions have particular importance to
our industry partners, influencing their actions and
progress, too. We plan to work more closely than
ever with our supply chain partners, using common
methodology for measurement and developing joint
actions to deliver environmental benefits.
Further information and disclosures on our environmental objectives
and progress can be found in the Task Force on Climate Related
Financial Disclosures (TCFD) report on page 44, which includes our
Streamlined Energy & Carbon Reporting disclosures.
28 S
Smiths News plc
Annual Report and Accounts 2022
Energy efficiency actions
We have reduced emissions
in several areas and made
improvements to reporting to
provide more visible and accurate
data. In doing so, we have
been guided by the
C
ompan
y
’
s
sustainability strategy with the
support of internal business experts
and external consultants.
Some of the energy efficiency
actions undertaken during the
reporting year were:
•
Ensuring all gas and electricity
meters are AMRs
•
Depot refurbishment projects,
including LED lighting,
implementing motion sensory
lighting, electric panel heating and
changing immersion tanks for
electric point water heaters
•
Ensuring the electricity usage
which we have control over is from
renewable sources (as at the point
of contract renewal in 2021) from
our suppliers EON and Opus
People
The Company takes a progressive
approach to supporting colleagues
in the workplace, making a positive
difference to their lives, prospects
and wellbeing. In addition to fair
remuneration, we aim to offer the
opportunity for satisfying careers,
encouraging everyone to develop
their skills and experience through
training and participatory learning.
In support of these goals, we have
an extensive people programme,
underpinned by clear and
well-publicised policies that are
founded on principles of proactive
colleague engagement, diversity
and inclusion, and responsible
practice throughout the Company.
Furthermore, we have identified
the People pillar as one of the
two priority focus areas for our
sustainability programme.
The Board and Executive Team
take an active role in all aspects
of our People polices, with regular
reviews and discussion. Due
consideration is given to the
impact on colleagues for all our
key initiatives and wider strategy.
A detailed People report on page 30
includes the statutory disclosures
of employee headcount, gender
composition and pay gap reporting,
workplace responsibilities and
Human Rights. The report also
describes the progress made on our
overall people programme in the year.
Marketplace
The Company plays an active role
in monitoring and improving supply
chain standards, leading the way in
the development of best practice
and adopting the voluntary codes
of the Press Distribution Forum
(PDF). In 2022, Smiths News took
over the rotating Chair of the Press
Distribution Forum.
During 2021, the PDF and its
associated service charter returned
towards more normal trends, with
the volume of complaints returning
to more typical levels as the
pandemic subsided. Overall, Stage
2 breaches nationally rose from 57
in 2020 to 151 in 2021; however,
the number of Stage 2 complaints
relating to Smiths News has
remained static at 39 for both 2020
and 2021.
In April 2021, the PDF Retailer
Charter was relaunched in a digital
format, accessed via a new website
which provides a quick and easy
guidance. The revised Charter
includes an updated complaints
process, based on a simplified
two-stage online model that is
m
ore accessible and navigable
for retailers. Its relaunch was
supported by an extensive publicity
campaign to increase retailer
awareness.
In addition to the requirements of
the Charter, Smiths News continues
to apply an automatic service failure
payment scheme in cases where
the daily news is delivered over two
hours late, irrespective of inbound
delivery times which are beyond
our control. This scheme, which
goes beyond the PDF code and our
contractual obligations, has been
well received by retailers and the
trade bodies which represent them.
In the latest year of operation, 6,821
payments were made to retailers
from approximately 8.7 million
deliveries made, representing
0.08% of total delivery instances.
Ensuring responsible standards in our
supply chain is also a central to our
procurement policies. All preferred
suppliers must sign up to our supplier
code, modern slavery and anti-
bribery policies, evidencing how they
uphold these. More information can
be found on our website at
www.smithsnews.co.uk/investor-
zone/corporate-governance/
working-responsibly.
Health and Safety
The Company has a deeply
embedded culture of attention to
health and safety in the workplace.
We work together to promote
positive behaviours and encourage
proactive reporting (without blame
or sanction for doing so) of all
incidents, so that lessons can be
learned and appropriate action
taken. Using qualified Health and
Safety practitioners, we review all
recorded accidents, near misses and
any concerns raised by colleagues
in pursuit of continual improvement
to our processes and performance.
We have a zero exceptions policy to
accurately reporting and categorising
all incidents, followed up by training
and corrective action for all significant
events.
The result is that despite an intensely
physical operation, often conducted
in difficult circumstances, we have
a strong record of limiting accidents
in the workplace underpinned by a
positive and attentive culture that
encourages continual improvement.
Reporting of Injuries, Diseases
and Dangerous Occurrences
Regulations (RIDDOR)
The total of two reportable incidents
in FY2022 is a significant reduction
on the previous year. We are
pleased to report that no specified
injuries (representing more serious
occurrences) were reported this year.
(See table above).
As in previous years, the Company
continues to monitor and manage its
reporting of incidents and accidents,
however minor they may be, with
a robust process of investigation
(i
ncluding root cause analysis) before
the incident is considered closed.
This year, we recorded 101 incidents
(FY2021: 112 incidents), representing
1.68 incidents per 100,000 hours
(FY2021: 1.85). This compares
favourably to the industry average
of 2.8 incidents per 100,000 hours
for warehouse locations in the
Transportation and Storage sector,
as reported by the UK Health and
Safety Executive in 2021.
During the year, Smiths News
successfully retained accreditation
to the new standard ISO 45001
whilst also moving over to BSI from
Intertek. Furthermore, a total of 11
key sites across the network also
achieved RoSPA (Royal Society for
the Prevention of Accidents) Gold
awards, including Birmingham,
Bristol, Hemel Hempstead, Hornsey,
Liverpool, London Travel News,
Newcastle, Newport, Nottingham,
Southampton and Stockport. In
addition, we received an Industry
award for our safety efforts, a Fleet
Safety award and three nominations
for “Inspiring Women in Safety”.
The business successfully completed
the second full year of our three-year
safety plan. A key objective achieved
this year was making our integrated
Health and Safety management
system simpler to operate and more
accessible for all. In line with the plan,
the HSE-MS will be fully online by
January 2023. Further developments
in communication and training of
safe practices across the Company
include an updated compulsory
online induction programme which
all new starters must complete within
a set timeframe.
S G F 29
/
2022
2021
2020
Specified Injuries
0
0
7
Injuries resulting in over seven days
absence from work
2
11
32
Dangerous diseases resulting in over
seven days absence from work
0
6
0
Total RIDDORs
2
17
39
People Report
Smiths News plc
Annual Report and Accounts 2022
As the market leader with over 200 years’ experience
in our industry, it’s no surprise that we are blessed with
talented people who have unparalleled experience and
expertise. From our nightly distribution centres to our
central support services, it’s always the human factor
which makes the most difference. And underpinning
that intangible but essential ingredient of our success
is a unique culture, characterised by commitment,
collaboration and camaraderie.
Building on our strengths
Every day our teams work round
This year, emerging from the
pandemic, we have been able to
raise and widen our horizons, holding
conversations about the lessons
we’ve learned, and what’s now
needed for the future. That there
are new challenges emerging just
reminds us that change is constant.
And because of this, the answer
to our questions was clear and
consistent across the business: we
must build on our strengths, retaining
those qualities that have served us so
well, but enhancing them with new
skills to help us to adapt and grow.
Importantly, it’s our people who are
shaping the change, for together
we know that it’s as desirable as it is
necessary to assimilate change for
the better. Indeed, we do this every
day in our search for operational
efficiencies, technology advances
and continual improvements;
applying that same focus to our
culture is not so different. As the
business has come through what
have been challenging times, there is
now a tangible sense of our people
looking ahead to new opportunities.
In moving forward, we continue
to be guided by our values, which
reflect not only how we work
together today, but our aspirations
for tomorrow. In many ways there is
no better example of how we marry
our heritage to a contemporary and
outward looking mindset. All of which
speaks to our plans for opportunity
and growth through and with the
people who make it happen. From
acquiring new and specialist skills to
growing from within, we are pursuing
a path of diversity and inclusion in all
its forms.
Two-way communication
We work hard to ensure regular,
clear and timely communication
on matters of importance to our
colleagues. This includes, among
others, the performance of the
business, strategic goals, community
relations, changes to policies and any
matters of wider interest or context.
This year our colleague engagement
s
urvey has moved from a
‘
one
-
off’
exercise to more regular quarterly
pulse surveys supported by local and
company-wide briefings to ‘give and
receive’ feedback, sharing information
and ideas on the progress and future
of the business.
Our new company-wide intranet
‘SmithsZone’ is a dynamic digital
platform, giving colleagues access
to business news, useful information
and engaging content they can
interact with. To complement this
online engagement, we produce
regular all-colleague newsletters,
sharing stories and news (both
formal and lighter in tone) that helps
to foster a culture that’s founded
on working together. Quarterly
townhall meetings for all colleagues
and monthly management briefing
sessions are now business as usual.
These include regular Q&A sessions
that are shaped by the suggestions,
concerns and queries of colleagues.
Engagement
Our ‘What Matters’ colleague
engagement survey is the formal
mechanism we use for measuring
engagement, as well as regularly
testing the opinions and concerns
of colleagues. It uses a range of
industry-recognised performance
the clock, often in poor weather and
challenging circumstances to deliver
on time and to the high standards
we set. In doing so, they draw on
their embedded knowledge and a
deep commitment to the customers
and communities we serve. It’s hard
to imagine more testing times than
we have seen these last two years,
and yet our colleagues have worked
tirelessly to minimise disruption,
making a real difference in what were
often dark and difficult times.
In moving forward, we
continue to be guided by
our values, which reflect not
only how we work together
today, but our aspirations
for tomorrow.
This is what we mean by building on
our strength in practice – enhancing
our capabilities and culture today, to
meet the challenges of tomorrow.
measures to gauge the overall
engagement of colleagues and their
alignment to the goals and progress
of the business.
We publish results transparently
and make action plans to address
issues that arise; where we are
unable to address emerging
concerns or suggestions, we seek
to explain the reasons and find
practical ways of responding with
constructive alternatives. As a
result, our engagement scores are
improving, and we have clear goals
that are founded on feedback and
are reactive to the real concerns
of co
lleagues.
30 S
Smiths News plc
Annual Report and Accounts 2022
This year, in response to colleague
feedback and management’s wish
for a more regular measurement,
we have moved from an annual
‘single point in time’ questionnaires
to representative pulse surveys each
quarter. The survey measures 14
drivers of performance measuring
colleague alignment to the
C
ompan
y
’
s
goals and culture across
a balanced scorecard of measures.
We then use a net promotor score
as the overall measure and internally
express this on a scale from 1 to 10.
In FY2021, the score increased from
6 to 7, a significant improvement
reflecting, in part, the camaraderie
and commitment of working together
through the challenging times of
the pandemic, together with the
improvements to communication
and clearer focus of the business.
During FY2022, we have recorded
over 120 actions in response to
feedback gathered in the surveys
and maintained an overall average
engagement score of 7.0. We
continue to hold employee forums
meetings locally and nationally where
results and actions are constructively
discussed by a representative range
of colleagues.
We work hard to ensure
regular, clear and timely
communication on matters
of importance to our
colleagues.
S G F 31
/
People
Report
continued
Smiths News plc
Annual Report and Accounts 2022
Our Values are integral to
all the decisions we make
– they guide the way we
work today and underpin
our ambition for the future.
Most importantly, we seek
to ensure that these Values
are not a mere ‘list on the
wall’, but rather a living
and breathing statement
of beliefs that has real
meaning for the workplace,
as experienced by colleagues
every day.
In this respect we are open to
enhancing the Values when
necessary. During the pandemic, for
example, we introduced additional
operating principles which prioritised
the safety of staff and customers,
the protection of service and supply
chain capability, and the support of
colleagues suffering hardship. These
guided the decisions we took and
resulted in our maintaining a full and
uninterrupted service.
This approach of ‘values in practice’
is reflective of our hands on and
pragmatic culture. And by being
so, it helps to ensure our Values
stay relevant to the pressures of a
dynamic workplace – improving
performance today and shaping
the solutions of tomorrow.
Creative
Be imaginative,
adventurous and curious.
Develop inspirational ideas
and innovative solutions.
Trusted
Safe, reliable and
responsible. Take pride in
our work and do the right
thing for our customers
and each other.
Friendly
Have fun and be helpful.
Enjoy working together to
deliver great performance.
This approach of ‘values in
practice’ is reflective of our
hands on and pragmatic
culture.
Open
Share your thoughts freely
and always stay open to
new ideas. Listen to others,
be positive and engage
in
communications.
Quick
Make informed decisions
and act quickly. Be agile
in the way we work
together and deliver
for our customers.
Fair
Be inclusive, honest and
respectful to everyone,
whatever their role
or
experience.
32 S
Working to
our values
Smiths News plc
Annual Report and Accounts 2022
Talent and development
In support of our colleagues and
the business, we offer extensive and
flexible training and development for
those with the talent and ambition
to progress in their careers. We also
seek to ensure that all colleagues
stay abreast of latest thinking and
best practice in areas such as people
management and safety. Twice
a year, we conduct formal talent
and succession reviews to identify
talent gaps and opportunities for
development across the business.
In all of this activity, our overriding
aim is to offer satisfying careers with
the opportunity to progress for all
colleagues who have a commitment
to learning and the ambition to
succeed.
In practical terms, we blend our
online learning portal
‘
My
L
ear
ning
’
with face-to-face interventions, and
supplement generic content with
specific and external expertise where
needed. Our online learning portal is
available to all colleagues and over
5,400 modules were completed in
the year. Examples of self-directed
learning include Health and Safety,
GDPR, Customer Service and
Managing Conflicts in the workplace.
Training modules and support can
also be tailored to specific roles and
functions, such as Communications,
Human Resources, Commercial
or Finance. For example, this year,
two senior leaders achieved First
Class passes in their Chartered
Management Degrees and a further
three ‘up and coming’ colleagues
participated in the industry’s Ace
Empower Programme. And last
but not least, we are committed to
apprentice level training too, with
several colleagues completing
modules that prepare them for team
leader or other supervisory roles.
Individual learning is supplemented
with team development sessions,
often drawing on workplace style and
personality diagnostics, to support
better understanding of each other
and promote more effective working.
We take pride in developing skills
and promoting people from within
the Company. Our talent programme
gives tailored support to those
individuals with demonstrable
potential to progress, accelerating
their career trajectory with experience
and project opportunities, as well as
formal training. More broadly, we seek
to ensure the wide communication
of all vacancies, encouraging
enquiries and applications from all
who have an interest. Following the
pandemic, we have increased our
efforts to publicise internal roles,
leading to many more promotions
and development roles – overall, 33%
of vacancies are filled by internal
candidates.
In parallel, we are also conscious
of the value of attracting external
talent, ensuring new joiners feel at
home in culture, enhancing it with
new skills and fresh perspectives. To
help towards this goal we have, this
year, conducted a comprehensive
Diversity & Inclusion audit of
our recruitment and onboarding
processes, partnering with an
external specialist to provide
objectivity and expertise. Resulting
in a clear action plan to enhance our
ability and retain a diverse workforce.
We take pride in developing
skills and promoting people
from within the Company.
Supporting colleagues
For the vast majority of colleagues,
work and home life are well balanced,
allowing them to contribute their
best every day. But we know that at
times this balance can be upset by
factors such as physical and mental
health, financial hardship, family
issues or uncertainty over the future.
At times like these we try to be there
for colleagues, offering additional
support and flexibility that can make
a substantial difference to their
wellbeing.
During the COVID-1
9 pandemic,
we established a colleague support
fund and have maintained this since
the ending of restrictions, widening
its scope so that support is now
considered for colleagues in need
whatever the reason. In addition, we
have launched a financial wellbeing
toolkit using a third-party partner that
supplements educational resources
with financial products, including pay
day loans at competitive rates.
S G F 33
/
People
Report
continued
Smiths News plc
Annual Report and Accounts 2022
Promoting good mental health in
a sensitive and supportive way is
one of our people-related priorities.
We now have 40 trained mental
health allies across the business
and work to actively communicate
mental health issues and wellbeing
support, encouraging colleagues to
confidentially raise concerns or ask
for assistance when needed.
To further support the health and
wellbeing of colleagues, in FY2021
we introduced a Health Shield plan
for those colleagues who wish to
participate. The scheme allows
participating members to claim up
to 100% cash back (subject to limits)
for everyday healthcare costs, such
as dental, optical and physiotherapy.
Colleagues are enrolled for the
base service free of charge and
can increase their level of cover at
moderate and subsidised costs if
they so wish, as well as extending
cover to immediate family.
In a spirit of continual improvement,
we have acted on the lessons from
the social disruption of the pandemic.
Supporting colleagues in returning
to office locations, we have worked
to a hybrid model that blends office
and home working. In addition, we
consider and seek to accommodate
requests for additional flexible
working or particular arrangements
for exceptional needs, subject to
meeting the needs of the business.
Diversity and inclusion
Throughout the Company, we
operate a zero tolerance approach
to discrimination and are committed
to promoting diversity in an inclusive
working environment. In doing
so, we seek to create a workplace
culture that embraces people from
all backgrounds, experiences and
orientations. More formally, our
Equality, Diversity and Inclusion
Policy articulates these aims.
In promoting diversity, we are
guided by a belief that different skill
sets, capabilities, backgrounds and
experience contribute to a more
effective and resilient business. This
richness of perspective comes not
only from gender and ethnicity, but
also from welcoming and respecting
the views of colleagues who bring
experience drawn from varying ages,
careers, social backgrounds and
religious beliefs.
In promoting diversity,
we are guided by a belief
that different skill sets,
capabilities, backgrounds
and experience contribute
to a more effective and
resilient business.
Our commitment to diversity
and inclusion is extensively
communicated and celebrated
through our ‘Everyone In’ programme.
This high-profile initiative is visible at
every location and includes national
initiatives to raise awareness through
a calendar of events that are guided
by colleague input. The enthusiasm
for this programme is tangible, doing
much to underscore our aims and
wider culture. Examples of cultural
celebrations this year include
National Inclusion week, Black
History month, Pride and Ramadan.
Looking ahead, our goals for diversity
and inclusion will link closely to
our sustainability strategy, which
has identified its People Pillar as a
priority focus, with specific emphasis
on greater diversity in gender and
ethnicity (see the Sustainability report
on page 24). Further details on our
formal governance of diversity and
inclusion can also be found in the
Nominations Committee report on
page 90.
Workplace responsibility,
whistleblowing and
human rights
The Company is committed to
responsible practice throughout
the workplace, striving to ensure a
culture that is free from discrimination
a
nd harassment in any form. The
Board regularly reviews these issues,
ensuring the actions and policies
described in this report are applied
in practice and that this ambition is
deeply embedded in the culture of
the business.
In support of this, we work to
embed a culture and environment in
which workplace concerns can be
raised and addressed without fear
of recrimination; and confidential
whistleblowing procedures are
well communicated, including
a confidential ‘speak-up’ line. All
concerns raised are carefully
investigated and any significant
matters are brought to the attention
of the Audit Committee.
34 S
Smiths News plc
Annual Report and Accounts 2022
This approach is integral to our
policies and procedures, further
supported by training for managers
and a zero-tolerance approach to
serious breaches. Regular reviews
ensure that updates are made in
response to business initiatives
and legislation; any significant
changes are noted and discussed
with the Executive Team and the
Board. Separately, Health & Safety
performance is reviewed regularly
by the Board and Executive Team
throughout the year.
The Company supports the human
rights of our colleagues and our
policies are built on a commitment to
mutual respect, fairness and integrity.
These principles are reflected in both
our values and People policies and,
more broadly, to the ways in which
we work together. Proper and flexible
consideration is given to people with
disabilities and, should employees
Gender composition and pay gap reporting
The Company actively supports gender equality in the
workplace and is committed to improving the balance of
gender composition over time. More broadly, we strive
for a workplace environment that provides fair reward
for all and ensures each and every colleague has access to
personal development opportunities with the appropriate
support to progress their career.
The gender composition as at 27 August 2022, and the equivalent table
for the prior year can be seen in the table below.
The Company supports
the human rights of our
colleagues, and our policies
are built on a commitment
to mutual respect, fairness
and integrity.
develop a disability while working for
the Company, every effort is made
to continue their employment and
provide retraining for alternative roles
if required.
In relation to our markets, we have
policies for ethical trading standards
and a commitment to combatting
modern slavery, which we expect our
commercial partners to adhere to.
We remain vigilant in our efforts to
combat modern slavery and human
trafficking, regularly reviewing the
effectiveness of our procedures
in the areas we consider to be of
greatest risk, including: employee
recruitment; contractor appointment
and management; procurement and
outsourcing. Furthermore, we seek
to raise awareness of anti-slavery
Gender composition
at 27 August 2022
Gender composition
at 28 August 2021
Male Female
Male Female
and human trafficking through
communication of our policies
and guidelines. The
C
ompan
y
’
s
Anti-Slavery and Human Trafficking
Statement (September 2022) is
available online at www.smithsnews.
co.uk.
The Company’s overall gender pay gap as reported in the year* was
an arithmetic mean average of 14.3% (FY2021: 12.8%). The median
distribution average of 4.04% (FY2021: 3.96%) is significantly lower
than the UK’s National Median Gender Pay Gap average at 15.5%.
This data was communicated in an open and transparent way to
colleagues and other stakeholders, including publication on the relevant
Government websites. A detailed report is available to view and
download on the Company’s website at: www.smithsnews.co.uk.
The Company will update its gender pay gap report in due course, in
line with the required reporting timetable – details will be published on
the Company’s website at www.smithsnews.co.uk/investor-zone/.
*
Calculated on the defined snapshot date of 5 April 2021 and published before
4 April 2022 as required by Government reporting rules.
S G F 35
/
No. % No. % Total
All
Employees
923
60%
616
40%
1,539
Board
of Directors
5
83%
1
17%
6
Executive
Team
6
67%
3
33%
9
Executive
Team and other
Senior Managers
16
76%
5
24%
19
No. % No. % Total
All
Employees
991
62%
612
38%
1,603
Board
of Directors
5
83%
1
17%
6
Executive
Team
7
78%
2
22%
9
Executive
Team and other
Senior Managers
16
76%
5
24%
21
23.4
–
23.4
16.1%
27.9
(4.5)
32.4
(4.5)
1089.3
2022
Paul Baker
Chief Financial Officer
Financial
Review
Smiths News plc
Annual Report and Accounts 2022
These financial
results
confirm the
continued success
of the Company
Overview
The Company continues to
generate good underlying profit and
free cash flow, which together with
the benefit of one-off cash items
has reduced period end net debt
to £14.2m (FY2021: £53.2m) and
On a statutory basis, operating
profit decreased by £3.4m to
£32.4m (FY2021: £35.8m). The
reduction was driven by the write-
down of £4.4m debt following the
administration of McColl’s Retail
Group, partially offset by lower
Table A: Continuing adjusted results
Revenue was down 1.8% at
£1,089.3m, a better performance
than the historic trend of 3-5%,
buoyed by improved one shot and
magazine sales, both of which
benefited profitability through
stronger margin mix. The impact of
inflation was managed in line with
guidance given during the period,
with the net impact of £2.1m largely
flowing to adjusted operating profit
which was down £1.5m at £38.1m.
Adjusted profit before tax, however,
increased by £0.2m to £31.1m, due
to a £1.7m reduction in interest
charges, a consequence of lower
average net debt. Adjusted EPS
was stable at 10.8p, the same as
FY2021.
Cash flow and net debt both
benefited from the return of the
pension surplus (£8.1m) and the
settlement of Tuffnells deferred
consideration (£14m), as well
as £26.1m of underlying cash
generation.
was £2.9m lower than FY2021
(£26.3m), reflecting the above
factors and a higher effective rate
of tax, the prior period having
benefited from the use of Tuffnells
losses. As a result, statutory EPS
reduced by 0.9p to 9.3p (FY2021:
10.2p).
A final dividend of 2.75p (£6.7m)
has been proposed, taking the full
period FY2022 dividend to 4.15p or
£10m (FY2021: £4m), an increase
of £6m.
These financial results confirm
the continuing success of the
Company in meeting its stated
goals of maintaining the broad
profitability and cash flows of its
core operation, materially reducing
net debt and meeting the needs
of all stakeholders. Looking ahead,
this strengthened financial position
will allow for greater flexibility in
our delivery of further value for
shareholders.
* The Company gave guidance and set incentive targets using Adjusted EBITDA (ex IFRS16)
during FY2022. From FY2023, Adjusted operating profit will be used.
Table B: Statutory results
Profit/(loss) attributable
to equity shareholders 26.2 -10.7%
Continuing operations £m
Revenue
Operating
profit
Net
finance costs
Profit
before tax
Taxation
Effective
tax rate
Profit after tax
2021
1,109.6
35.8
(5.2)
30.6
(4.3)
14.1%
26.3
Change
-1.8%
-9.5%
13.5%
-8.8%
-4.7%
-14.2%
-11.0%
Discontinued operations £m
Loss for the period from
Discontinued Operations
(0.1)
36 S
£m
Revenue
EBITDA (ex. IFRS 16)*
EBITDA
2022
1089.3
40.7
48.6
2021
1,109.6
42.6
50.3
Change
-
1.8%
-
4.5%
-
3.4%
Profit before tax
Taxation
Effective
tax rate
Profit after tax
31.1
(5.4)
17.4%
25.7
30.9
(4.6)
14.9%
26.3
0.6%
-
17.4%
-
16.8%
-2.3%
enables dividends of £10m to be
other adjusting items.
Operating profit
38.1
39.6
-3.8%
proposed for the period.
Statutory profit after tax of £23.4m
Net finance costs
(7.0)
(8.7)
19.5%
4.15p
2.55p
2022
Smiths News plc
Annual Report and Accounts 2022
Continuing adjusted
results (Table A)
Revenue of £1,089.3m (FY2021:
£1,109.6m) was down 1.8% on the
prior period, a better performance
compared to the pre-COVID-19
(2015-2020) trend of c3%-5%.
Underpinning this performance was
the success of one shot releases
(+43% increase in revenue period
on period), with particularly strong
showings of Premier League football
and Pokémon trading cards. Daily
newspapers (-2%), weekly (-3%)
and monthly (-2%) magazines
also performed better than historic
trends, offset by lower revenue from
Table C: Earnings per share
Table
D:
Dividend
£m
Dividend per share (paid and proposed)
Dividend per share (recognised)
2021
1.65p
0.50p
Sunday newspapers (-9%).
Daily newspapers, unlike the
Sundays, benefited from cover price
increases in the second half of the
period. Magazines recovered further
against a comparative still impacted
by COVID-19 and were also helped
by increased summer travel.
DMD also benefited from increased
travel. Revenue of £4.2m was a 27%
increase on FY2021 (£3.3m), and
there was positive news towards the
end of the period, with additional
newspaper and magazine supply
to Emirates and Thai Airways who
increased volumes on flights and in
lounges.
At a profit level, continuing adjusted
operating profit of £38.1m was a
decrease of £1.5m (-3.8%) on the
prior period (FY2021: £39.6m),
with inflationary pressures having
an impact on the delivery and
warehouse cost base.
The decrease can be attributed
to the net impact of:
•
Inflationary pressures (net
impact £2.1m) affecting delivery
and warehouse processing costs,
with increases to agency usage
and contractor rates offset by cost
savings and higher rates for sale
of waste paper
•
The benefit of product mix moving
towards magazines and one shots
on wholesale margin (£1.4m)
•
The benefit of ancillary revenue
streams (£0.9m), including leasing
of spare warehouse space and
improvement in performance of
Rascal joint venture
•
Net impact of other items in depot
costs and overheads (£1.7m),
including strategic planning
support costs, an increase to the
accrual for unused annual leave,
redundancy provisions, increased
depot repair costs and the impact
of inflation on the dilapidations
provision. Utility costs were flat
period on period, with fixed price
contracts in place until 2024
Net finance charges of £7.0m
(FY2021: £8.7m) were lower than
the prior period by £1.7m due to
lower bank interest charges (£1.5m)
and lower loan arrangement fee
amortisation (£0.2m).
Adjusted profit before tax was
£31.1m, up 0.6% on last period.
Taxation of £5.4m indicates a
higher effective tax rate of 17.4%
compared to the prior period
(FY2021: 14.9%), the prior period
having benefited from the use of
Tuffnells losses.
Statutory results
(Table B)
Statutory continuing profit before tax
of £27.9m was a £2.7m decrease on
the prior period (FY2021: £30.6m).
The decrease was driven by the
£2.9m of additional adjusting items
which included the £4.4m
M
c
C
oll
’
s
write-down.
The effective statutory income tax
rate for the Continuing Operations
was 16.1% (FY2021: 14.1%), the
prior period having benefited from
the use of Tuffnells losses.
The Company has net liabilities
of £32.0m on its balance sheet
(FY2021: £57.7). The period on
period reduction of £35.7m was
driven by £23.4m of statutory profit,
the £10m net pension credit in other
comprehensive income, offset by
£6.1m of dividends. Net liabilities
have arisen largely as the result of
impairments relating to the Tuffnells
business prior to its sale in May 2020.
The Company-entity balance sheet
continues to have distributable
reserves of £118.7m (FY2021:
£124.9m) to allow for future dividend
payments.
Earnings per share
(Table C)
Earnings attributable to shareholders
on a continuing adjusted basis of
£25.7m resulted in an adjusted EPS
of 10.8p, the same as FY2021. The
impact of lower profit as described
above was offset by a lower basic
weighted average number of shares.
Statutory continuing earnings per
share is down 0.9p to 9.3p (FY2021:
10.2p per share), the result of a
£2.9m low
er profit, also offset by a
higher diluted weighted number of
shares.
The fully diluted weighted number
of shares was 252.0m (FY2021:
254.8m). Fully diluted shares include
a 13.5m diluted share adjustment
for employee incentive schemes
(FY2021: 11.3m) due to purchases
made during the period.
Dividend
(Table D)
The Board is proposing a final
dividend of 2.75p, taking the full
period dividend to 4.15p (FY2021:
1.65p). The proposed final
dividend is subject to approval by
shareholders at the Annual General
Meeting on 24 January 2023 and
has not been included as a liability
in these accounts. The dividend
recommendation represents the
maximum permissible sum that
can be paid under the distribution
cap limits within our banking
arrangements (£10m per annum)
and is based on the forecast
number of shares in issue at the
record date. The proposed dividend,
if approved, will be paid on 9
February 2023 to shareholders on
the register at close of business on
13 January 2022. The ex-dividend
date will be 12 January 2022.
£m
Earnings
attributable to ordinary shareholders (£m)
Basic
weighted average number of shares (millions)
Basic earnings per share
Diluted
weighted number of shares (millions)
Effective tax rate
Adjusted
2021
Statutory
2021
26.3
243.5
10.8p
254.8
10.2p
23.4
238.5
9.8p
252.0
9.3p
26.3
243.5
10.8p
254.8
10.2p
25.7
238.5
10.8p
252.0
10.2p
Continuing
2022
Continuing
2022
S G F 37
/
Financial
Review
continued
Smiths News plc
Annual Report and Accounts 2022
Adjusted items
(Table E)
Adjusted items before tax of £3.2m
(cost) relating to Continuing
Operations were a £2.9m increase
from the prior period (FY2021:
0.3m cost). The major contributing
factors to the increased cost were
the impairment of receivables
(£4.4m increased cost) which was
offset by £1m lower finance income.
Impairment of receivables is a
provision resulting from
M
c
C
oll
’
s
going into administration in May
2022.
Adjusted items are defined in the
accounting policies in Note 1 of
the Group Financial Statements
and present a further measure of
our performance. Excluding these
items from profit metrics provides
readers with helpful additional
information on the performance
of the business across periods
because it is consistent with how
the business performance is
planned by, and reported to, the
Board and the Executive Team.
Alternative Performance Measures
(APMs) should be considered in
addition to, and are not intended to
be a substitute for, or superior to,
IFRS measurements.
The tables below and commentary
provide a summary of the adjusting
items impacting Continuing
Operations. Full details of these
and those impacting discontinued
items can be found in Note 4 of the
Group Financial Statements.
Adjusted items from Continuing
Operations before tax was a cost of
£3.2m (FY2021: £0.3m cost).
During the period, the Company
provided for £4.4m impairment
loss on receivables as a result of
M
c
C
oll
’
s
going into administration.
This represents 80% of the
total receivable of £5.5m due
from
M
c
C
oll
’
s
at the point of
administration and is in line with
the administrator’s estimated
expected payment to unsecured
creditors.
Table E: Adjusted items
Having reviewed the nature of the
bad debt, the treatment in the past
of material items, and the relevance
to users of the future predictability
of the performance of the business,
the £4.4m provision is presented
as an adjusting item, within the
C
ompan
y
’
s
existing alternative
performance measure.
Pension costs in the current and
prior periods related to the buy-out
of the
C
ompan
y
’
s
defined benefit
pension scheme, as discussed
further below.
During the period, the Company
incurred professional fees
in relation to transformation
programme planning of £0.9m
(FY2021: £1.1m).
An asset impairment reversal of
£1.2m was recognised in the period
(FY2021: impairment cost £1.6m)
in respect of the joint venture
investment in Rascal Solutions
Limited (“Rascal”). An impairment
was booked in prior period driven
by increased market competition
and increased risk of contract non-
renewal. The business proved to be
resilient having secured significant
contract extensions during the
period resulting in a reversal of
impairment.
Network and re-organisation costs
were a credit of £0.2m (FY2021:
£0.1m), owing to an overprovision
of costs in the prior periods.
In the prior period, Rascal fully
impaired an intangible asset in
its annual accounts because it is
considered to no longer have future
economic value. The net book value
of this asset was £0.6m, of which
50% (£0.3m) of the write off is
attributed to Smiths News.
A finance income credit of £2.5m
(FY2021: £3.5m) arose on unwind
of the discount on the Tuffnells
deferred consideration.
The tax credit on continuing
adjusted items was £0.9 (FY2021:
£0.3m).
Adjusted items before tax for
Discontinued Operations -£0.1m
(FY2021: £0.2m) related to residual
costs on the disposed Tuffnells
business and, in the prior period,
a VAT refund.
Free cash flow
(Table F)
Free cash flow generation remains
one of the
C
ompan
y
’
s
key
strengths. Free cash flow includes
lease payments, Adjusted items,
interest and tax.
The Company generated £48.2m of
free cash flow, which was £24.2m
higher than FY2021 (£24.0), due
to the £8.1m receipt of pension
surplus and £14m deferred
consideration received from
Tuffnells and lower levels of cash
adjusting items.
The decrease in working capital
in the period was
£0.6m
(FY2021:
increase £1.0m). Working capital is
affected by the billing cycles of both
publishers and retailers, and leads
to intra-month working capital
movements of up to £40m. Those
cycles were largely consistent at
the FY2022 and FY2021 period end
cut-off points, resulting in only a
£0.6m movement.
With management focused on
inflationary pressures in the first
half of the period, cash spent
on capital programmes in the
period reduced by £0.5m to £1.9m
(FY2021: £2.4m). In the last quarter
of FY2022, the depot refurbishment
programme has regained
momentum with £1.3m of orders
and capital creditors on the balance
sheet at period end.
Lease payments increased to
£6.4m (FY2021: £5.9m) due to
lease renewals and rent reviews
completed during the period.
Net interest and fees of £8.0m
(FY2021: £9.5m) has decreased by
£1.5m, due to the lower levels of
net debt. Both the current and the
prior period included the payment
of arrangement fees in relation to
the
C
ompan
y
’
s
refinancing of its
banking facilities (FY2022: £2.9m,
FY2021: £2.8m).
Cash tax outflow of £5.3m was a
£1.0m decrease on the prior period
(FY2021: £6.3m outflow), as the
write-down of
M
c
C
oll
’
s
reduced the
final quarter payment.
The wind-up of the
C
ompan
y
’
s
defined benefit pension scheme
(detailed further below) resulted in
the receipt of £8.1m in respect of the
pension surplus in December 2021.
38 S
£m
Impairment
of receivables
Pensions
Transformation
programme planning costs
Asset impairment reversal/(impairment)
Network and re
-organisation costs
Share
of profits from joint ventures
Other
Total
before tax and interest
Finance income
– unwind of deferred
consideration
Total
before tax
Taxation
Total after taxation
2021
–
(1.0)
(1.1)
(1.6)
0.1
(0.3)
0.1
(3.8)
3.5
(0.3)
0.3
–
(2.3)
(3.2)
0.9
(5.7)
2.5
(4.4)
(1.8)
(0.9)
1.2
0.2
–
–
2022
Smiths News plc
Annual Report and Accounts 2022
Table F: Free cash flow
Table G: Net Debt
FY2022 cash flow also benefited
from the receipt of £14m of deferred
consideration from Tuffnells,
comprising the first instalment in
November 2021 (£6.5m) and the final
settlement of £7.5m in April 2022.
The total net cash impact of other
adjusted items was a £1.5m outflow
(FY2021: £4.0m outflow). This
comprised: £1.3m (FY2021: £1.2m)
of Transformation programme
planning costs and £0.2m (FY 2022:
£0.6m) of Pension related costs.
The prior period included £2.2m of
network and reorganisation costs
(FY2022: £nil).
A reconciliation of free cash flow to
the net movement in cash and cash
equivalents is given in the Glossary.
Net Debt
(Table G)
Bank net debt closed the period
at £14.2m compared to £53.2m in
August 2021, a decrease of £39m.
The reduction in net debt was
driven by free cash flow from
Continuing Operations of £48.2m
as described above. These inflows
were offset by the payment of the
FY2021 final dividend of £2.8m in
February 2022, the FY2022 interim
dividend of £3.3m and a £2.6m
purchase of own shares.
The
C
ompan
y
’
s
bank net debt/
EBITDA ratio decreased to 0.3x (H1
2022: 0.9x, FY2021: 1.2x). The period
end fell just before major publisher
payments of c.£25m were made,
which benefited reported bank net
debt. Bank Net Debt rose to £34.5m
on 31 August 2022 after the period
end (£69.3m on 1 September 2021).
The publisher payments are part
of the
C
ompan
y
’
s
normal working
capital cash flow cycle which
generates a routine and predictable
cash swing of up to £40m within
each period.
Our average daily bank net debt
during FY2022 was £49.9m
(FY2021: 82.6m), a decrease of
39.5% for the full period. Since the
settlement of the Tuffnells deferred
consideration (£7.5m), in April 2022,
average net debt has been £36.7m
(FY2021: £75.3m).
Discontinued items cash flow
in the current and prior period
relates to insurance settlements for
i
ncidents which occurred during the
C
ompan
y
’
s
ownership of Tuffnells
prior to 2 May 2020.
The bank net debt to EBITDA
covenant of 0.3x is comfortably
within our main leverage covenant
ratio of 2.0x (reducing to 1.75x in
February 2023), and we remain well
within all our other bank covenant
tests at period end.
A reconciliation of bank net debt
(which excludes the IFRS16
lease creditor and unamortised
arrangement fees) to the balance
sheet is provided in the Glossary.
Going concern
Having considered the
C
ompan
y
’
s
banking facility, the ongoing
inflationary pressures within the
macro economy and the funding
requirements of the Company,
the directors are confident that
headroom under our bank facility
remains adequate, future covenant
tests can be met, and there is a
reasonable expectation that the
business can meet its liabilities
as they fall due for a period of
greater than 12 months (being an
assessment period of 16 months)
from the date of approval of the
Group Financial Statements. For
this reason, the directors continue
to adopt the going concern basis in
preparing the financial statements
and no material uncertainty has
been identified.
Pension schemes
In December 2021, the Company
received the sum of £8.1m in respect
of the net cash surplus held by
the Trustee from the finalisation of
the buy-out of the defined benefit
liabilities in the News Section of
the WH Smiths Pension Scheme.
As agreed with the Trustee of the
Scheme, the return of surplus
preceded the formal winding up
steps of the News Section – the
winding up of the News Section
being formally completed on 25
February 2022 through the purchase
of insurance run-off cover and the
payment of taxes owed to HMRC,
which were settled by the Trustee.
As part of the wind up, £1.3m was
paid to an escrow account for the
Trustee to purchase indemnity
insurance and to cover future claims
from members owed amounts
following the Lloyds ruling in
November 2020, and £0.2m was
paid for insurance run-off cover.
The Company incurred £0.4m
(FY2021: £0.6m) in pension
administrative expenses and other
professional fees as a result of the
winding up process.
Paul Baker
Chief Financial Officer
8 November 2022
£m
Operating
profit continuing
(including
Adjusted items)
Adjusting
items
Depreciation
and amortisation
Adjusted
EBITDA
Working capital movements
Capital expenditure
Lease
payments
Net
interest and fees
Taxation
Other
Free
cash flow (excluding adjusted items)
Adjusted items (cash effect)
–
return of pension surplus
Adjusted items (cash effect)
–
receipt
of deferred consideration
Adjusted
items (cash effect) – Other
Continuing Free cash flow
2021
35.8
3.8
10.7
50.3
1.0
(2.4)
(5.9)
(9.5)
(6.3)
0.8
28.0
–
–
(4.0)
24.0
48.2
8.1
14.0
(1.5)
27.6
48.6
(0.6)
(1.9)
(6.4)
(8.0)
(5.3)
1.2
32.4
5.7
10.5
2022
£m
Opening
Bank Net Debt
Continuing Operations Free cash flow
Discontinued
Operations Free cash flow
Free cash flow
Other
movement
Dividend paid
Purchase of own shares for
employee share schemes
Discontinued Operations
–
Tuffnells working capital loan
Bank Net Debt
2021
(79.7)
24.0
(0.4)
23.6
–
(1.2)
(2.6)
6.7
(53.2)
(14.2)
47.7
–
(6.1)
(2.6)
–
(53.2)
48.2
(0.5)
2022
S G F 39
/
Principal and
Emerging Risks
The Audit Committee assists the Board in the discharge
of its duties regarding the Company’s maintenance of
proper systems of risk management. Assurance over the
effectiveness of these systems is provided through regular
management reporting to the Audit Committee.
Smiths News plc
Annual Report and Accounts 2022
Risk control model
The Company manages risk by operating a three lines of defence
risk and control model.
Risk management process
The risk management process
mirrors the
C
o
mp
a
n
y
’
s
operating
structure, with each functional area
being responsible for the ongoing
communication and feedback
of their existing and emerging
risks. This process comprises the
identification, assessment and
effective mitigation of their risks,
as well as continuous monitoring
for changes.
Principal and
emerging risks
The Company has a clear
framework in place to continuously
identify and review both the
principal and emerging risks it faces.
This includes, amongst others, a
detailed assessment of business
and functional teams’ principal risks
and regular reporting to and robust
challenge from both the Executive
Team and Audit Committee. The
directors’ assessment of these
principal risks is aligned to the
strategic business planning process.
Specifically, key risks are plotted on
risk maps with descriptions, owners
and mitigating actions, reporting
against a level of materiality
(principally relating to impact and
likelihood) consistent with its size.
These risk maps are reviewed
and challenged by the Executive
Team and Audit Committee and
reconciled against the
C
o
mp
a
n
y
’
s
risk appetite. As part of the regular
principal risk process, a review
of emerging risks (internal and
external) is also conducted and a
list of emerging risks is maintained
and rolled-forward to future
discussions by the Executive Team
and Audit Committee. Where
appropriate, these emerging risks
may be brought into the principal
risk registers. Additional risk
management support is provided
by external experts in areas of
technical complexity to complete
our bottom-up and top-down
exercises.
As part of the Board’s ongoing
assessment of the principal and
emerging risks, the Board has
considered the performance of
the business, its markets, the
changing regulatory landscape,
the
C
o
mp
a
n
y
’
s
future strategic
direction and ambition, as well as
the growing climate-related risk
environment. The directors have
carried out a robust assessment of
the Group’s emerging and principal
risks, including those that could
threaten its business model, future
performance, solvency or liquidity.
Following those assessments, three
emerging risks have been elevated
to principal risks in our risk register.
They are: (i) changes to our retail
customers’ commercial model;
(ii) execution risk in implementing
our growth and diversification
ambitions; and (iii) sustainability
and climate-related change
environment.
Risks are still subject to ongoing
monitoring and appropriate
mitigation.
The table on the next pages detail
each principal business risk, those
aspects that would be impacted
were the risk to materialise, our
assessment of the current status of
the risk and how each is mitigated.
40 S
1
st
line of
defence
Management
controls
The first line of
defence consists
of operational
management
implementing and
maintaining effective
risk identification,
reporting,
management and
internal control
systems.
Executive Team (ET)
Board/Audit Committee
2
nd
line of
defence
Compliance and
support functions
The second line of
defence consists
of the subject
matter experts
who, in addition
to supporting
operational
management in their
own specialist areas,
also maintain their
own risk registers.
The second line
also includes the
Executive Team
who regularly review
strategic risks.
3
rd
line of
defence
Internal Audit
Internal Audit
provides
independent and
objective assurance
on the robustness of
the risk management
framework and the
effectiveness of
internal controls.
Ri
identif
sk
cation
Risk
assessment
Risk
response
Risk
monitoring
and reporting
Smiths News plc
Annual Report and Accounts 2022
Principal risks and potential impact Mitigations Strategic link/Change
Macro-economic uncertainty
Deterioration in the macro-economic environment
results in supply side cost inflation.
The Company is presented with cost challenges in a
number of areas which are being driven by increased
competition in the distribution labour market and rises
in fuel and utility prices. These cost increases present
a risk when they cannot be fully mitigated through
increased prices or other productivity gains.
This results in deterioration in the level of profitability in
both the short and medium term, and impacts on the
C
ompan
y
’
s
ability to execute its strategies, including
level of debt and liquidity objectives.
•
Annual budgets and forecasts take into account
the current macro-economic environment to set
expectations internally and externally, allowing for or
changing objectives to meet short and medium-term
financial targets
•
Weekly cost monitoring enables oversight and action
on a timely basis
•
Predictable level of volume decline within the core
business enables cost optimisation planning
•
Use of fixed term contracts as a hedge against rapidly
rising prices, e.g. energy costs
•
The Company continues to be significantly cash
generating to support its strategic priorities
Strategic Link:
Cost and efficiencies,
Operations
Change:
Increasing
Acquisition and retention of labour
Due to the current competition in the distribution
labour market, the Company is facing an increased
risk of being unable to recruit and retain warehouse
colleagues and support staff.
The same pressures are also being felt in sourcing
and retaining delivery sub-contractors, as well as filling
in-house roles within our central support functions.
A failure to maintain an appropriate level of
resourcing could result in increased costs, employee
disengagement and/or loss of management focus and
underpins the ability to address the strategic priorities
and to deliver the forecast performance.
•
We seek to offer market competitive terms to ensure
talent remains engaged
•
We offer long-term contracts with our sub-contracted
delivery partners
•
We use a variety of platforms to recruit employees
and contractors
•
The level of vacancies across warehouse and delivery
contractors are monitored daily
•
We undertake workforce planning; performance,
talent and succession initiatives; learning and
development programmes; and promote the
C
ompan
y
’
s
culture and core values
Strategic Link:
People first, Culture and
values, Costs and efficiencies
Change:
Stable
•
Retention plans are reviewed to address key risk
areas, and attrition across the business is regularly
monitored
•
Regular surveys are undertaken to monitor the
engagement of colleagues
IT infrastructure and cyber security
To meet the needs of our stakeholders, our IT
infrastructure needs to be flexible, reliable and secure.
Secure infrastructure prevents external cyber-
attack, insider threat or supplier breach could cause
service interruption and/or the loss of company and
customer data.
Cyber incidents could lead to major adverse customer,
financial, reputational and regulatory impacts.
Flexible and reliable IT infrastructure means the
Company is able to meet its strategic goals and
react quickly to changing events. The lack of this
could lead to the Company being unable to execute
its strategic goals.
•
Defined, risked-based approach to the information
security roadmap and technology strategy which is
aligned to the strategic plans
•
Regular tracking of key programmes against spend
targets and delivery dates
•
The Company assesses cyber risk on a day-to-day
basis, using proactive and reactive information
security controls to mitigate common threats
•
Dedicated information security investments and
access to third-party cyber security specialists
•
The Company encourages a cyber-aware culture
by undertaking exercises, such as computer-based
training and more regular communications about
specific cyber threats
Strategic Link:
Technology
Change:
Stable
•
We continue to pursue Cyber Essentials and Cyber
Essential Plus accreditations
S G F 41
/
Principal and
Emerging
Risks
continued
Smiths News plc
Annual Report and Accounts 2022
Principal risks and potential impact Mitigations Strategic link/Change
Legal and regulatory compliance
The Company is required to be compliant with all
applicable laws and regulations. Failure to adhere
to these could result in financial penalties and/or
reputational damage.
Key areas of legal and regulatory compliance include:
•
Changes in laws and regulations are monitored, with
policies and procedures being updated as required
•
Business-wide mandatory training programmes for
higher-risk regulatory areas
•
External experts are used where applicable
•
All major policies are reviewed by the Board or Audit
Committee on an annual basis
•
Operational auditing and monitoring systems for
higher risk areas
Strategic Link:
Technology, Sustainability,
Operations
Change:
Stable
•
GDPR
•
Health and Safety
•
Tax compliance
•
Environmental legislation
•
Employment law
Changes to retailers’ commercial model
Our largest retailers (e.g. grocers and symbol group
members) remain under significant pressure to
maximise sales and profitability by channel within
their retail stores and at associated sale outlets, such
as at petrol forecourt stores. This could result at any
time in a category review of the newspaper and
magazine channel, leading to a significant reduction in
newspapers’ and/or magazines’ selling space instore,
in favour of other higher margin products and/or the
delisting of all/particular titles of newspapers and/or
magazines.
•
Our EPoS-based returns (EBR) solution has
been introduced instore with our largest retailers,
improving staff efficiency in managing the magazine
category, thereby reducing cost to the retailer
•
Longer-term potential to extend EBR to newspapers
in order to broaden efficiency-benefits to retailers
•
Form stronger partnerships with emerging retailers
to stock magazines and newspapers
Strategic Link:
Cost and efficiencies
Change:
New
A reduction in sales space and/or full delisting of
newspapers and/or magazines by our largest retailers
could materially reduce the
C
ompan
y
’
s
revenue,
profitability and cash flow.
Growth and diversification
A successful growth and diversification strategy is
essential to the long-term success of the Company.
At the same time, maintaining the
C
ompan
y
’
s
outstanding and sector-leading standards of service in
newspaper and magazine wholesaling is paramount to
help fund growth and diversification opportunities and
support publisher contract renewals, each of which
deliver shareholder value.
Implementing new business growth opportunities
without detrimentally impacting the
C
ompan
y
’
s
core
newspaper and magazine wholesaling carries an
execution risk to both the new initiative and ensuring
the Company remains able to deliver sector-leading
support to publisher clients.
•
Strong project management and governance in
place to sign-off growth initiatives and oversee their
implementation
•
A Growth Delivery Operations Steering Committee
has been established to monitor the impact of new
business opportunities on core operations
•
Pilots and trials of new business opportunities have
been deployed to assess both the potential economic
benefit of such opportunity and its likely impact
on maintaining the
C
ompan
y
’
s
outstanding and
sector-leading standards of service in newspaper
and magazine wholesaling
•
Executive Team balanced scorecard of key
performance indicators ensures sub-optimal
performance is tracked and monitored on a regular
basis and allows appropriate interventions to be made
Strategic Link:
Cost and efficiencies
Change:
New
42 S
The risk management
process mirrors the
Company’s
operating
structure...
Smiths News plc
Annual Report and Accounts 2022
Principal risks and potential impact Mitigations Strategic link/Change
Sustainability and climate change
Climate change is a widely acknowledged global
emergency. In the UK, government and regulatory
changes in response to a drive to ‘net zero’ carbon
emissions and increasingly stringent air quality targets
for UK towns and cities could make it more difficult
and costly for the Company to undertake newspaper
and magazine wholesaling activities within the UK
or particular towns and cities. In addition to these
transitional risks associated with moving to a low
carbon future, there are also a range of ongoing
physical risks. These include an increase in the
frequency of extreme weather events which may result
in power outages, disruption to our service operations
and/or impact our ability to serve our customers in an
efficient and cost-effective manner.
In common with all major organisations, there is a risk
of reputational damage and/or loss of revenue if the
Company fails to meet stakeholder expectations for
action on climate change.
•
Sustainability Steering Committee established
(chaired by the Chief Financial Officer) to coordinate
the
C
ompan
y
’
s
action on climate change
•
Emissions and air quality targets in UK towns
and cities are monitored by a central team in the
Operations function which ensures the Company
can fulfil its obligations to customers and remain
compliant with legal requirements
•
Operational sites are reviewed for their resilience
to extreme weather events, such as floodings, with
upgrades and interventions made where these are
cost-effective. Depots are relocated to new sites (e.g.
during lease break windows) where this represents a
better option than adapting an existing location
•
Working with suppliers to ensure they share the
C
ompan
y
’
s
vision to act on climate change
Strategic Link:
Cost and efficiencies,
Operations, Sustainability
Change:
New
S G F 43
/
Task Force on Climate-Related
Financial Disclosures (TCFD)
Smiths News plc
Annual Report and Accounts 2022
44 S
Inside this section
Introduction from Paul Baker
Compliance
statement against
TCFD recommendations
Overview
Scenario
planning
Governance
Business strategy
Risk
Metric and targets
Streamlined Energy & Carbon
Reporting disclosure (SECR)
Assurances
Planned
next steps
Outlook
45
46
46
46
48
49
49
52
53
53
54
54
Smiths News plc
Annual Report and Accounts 2022
It gives me pleasure
as Chairman of our
Sustainability Committee
to present this, the first
of our Task Force on
Climate-related Financial
Disclosures (TCFD) reports.
FY2021 represented the start of
our journey in this area and saw
us commence development of
our sustainability approach, with
this year seeing us take significant
strides to develop our sustainability
strategy and commence with its
implementation, including the
processes and systems to enable
TCFD reporting. One of our
sustainability pillars relates to the
environment in which we operate,
with key areas of focus being
emissions, waste and energy,
each of which link closely to TCFD.
We believe that we have made a
credible start with our TCFD report,
but acknowledge that we still do
not have the analytical tools to fully
understand the impact of different
global warming scenarios on all
aspects of our business. We are,
however, taking steps to address
this shortcoming, and as a lean
business, have sourced external
expertise to assist us in this regard.
That said, we are still making
strides and have set ourselves
realistic targets which we believe
we will be able to achieve on our
path to net zero. We have engaged
with our customers and suppliers
in a spirit of mutual cooperation,
to both understand our respective
positions and to identify areas
where we can assist one another
to achieve our goals. We remain
aware of the growing risk of climate
change to our business, but are
also focused on the positive steps
we have taken which saw us
launch our recycling collection
service offering to our independent
retailers, which not only assists
our customers with their recycling
requirements but increases the
utilisation of our fleet and has
the potential to deliver financial
benefits to our business.
I assure you that our Board,
CEO, Executive Team and all our
colleagues throughout the business
are committed to achieving our
goals and to do our part towards
alleviating this climate emergency,
and we will continue to build from
our current position.
Paul Baker
CFO and Chairman of
Sustainability Steering Committee
8 November 2022
... we are still making strides
and have set ourselves
realistic targets which we
believe we will be able to
achieve on our path to
net zero.
S G F 45
/
Process
Our
TCFD
Process
Risk
•
Undertook risk assessment
•
Determined physical
and transitional risks &
opportunities, including impact
& likelihood
•
Considered mitigations
Strategy
•
Considered performance of
the business, its markets & the
changing regulatory landscape
•
Sustainability strategy
•
New business opportunities
Governance
•
Sustainability Committee
•
Ongoing review of processes
and controls
•
Executive Team
•
Board oversight (quarterly
reviews)
Task Force on Climate-Related
Smiths News plc
Annual Report and Accounts 2022
Financial Disclosures (TCFD) continued
Compliance statement
against TCFD
recommendations
At the time of publication, the
Company has made climate-
related financial disclosures
which we believe are consistent
with the TCFD recommended
disclosures (as per the four TCFD
recommendations and the 11
recommended disclosures of the
report entitled “Recommendations
of the Task Force on Climate-related
Financial Disclosures” published in
June 2017 by the TCFD) covering
governance (all recommended
disclosures). In respect of the
strategy recommendations (all
disclosures), we have partially met
the requirements, with further
work underway to refine the
basis of our assumptions used in
scenario planning and to develop
an analytical model to more
accurately identify the impact of
risks and opportunities on business,
strategy and financial planning,
including the timelines of such
impact. Once we have more fully
Sustainability
Committee /Board
Reports
Overview
The Task Force on Climate-related
Outcomes
Sustainability Strategy Elevate to principal
risks / current
opportunity
Scenario planning
We have chosen three climate
understood the impacts, we will
undertake a further exercise to
revisit our business strategy and
financial planning to build additional
business resilience as necessary.
The disclosures in respect of the
risk management recommendations
((a) and (b) in particular) have
partially met the requirements,
with further information required in
respect of the impact of identified
climate-related risks in relation to
our business, as well as our risk
management strategies. Finally,
in respect of metrics and targets
(all disclosures), while we have
determined and disclosed both
metrics and targets, we have
not yet adopted scientific-based
targets and, therefore, these will
be developed within the course
of FY2023.
A summary appendix of our
compliance against the TCFD
recommendations is set out at the
end of this TCFD report on page 54.
Financial Disclosures (TCFD)
published recommendations
for climate-related financial
disclosures which would provide
a consistent and comparable
record of information for use by
companies, investors and other
stakeholders to enable informed
financial decisions. Smiths News
has adopted the recommendations
of the TCFD and recognises that
climate change presents both risks
and opportunities to our business.
This, our first TCFD report, provides
a progress update against the TCFD
framework across each of the four
TCFD pillars: Governance, Strategy,
Risk Management, and Metrics
and Targets, as well as providing
a summary of the strength and
resilience of our strategy and
business model taking into account
climate scenarios.
...further work is underway
to re
fine the basis of our
assumptions used in
scenario planning and
to develop an analytical
model to more accurately
identify the impact of
risks and opportunities
on business, strategy
and financial planning,
including the timelines
of such impact.
scenarios (as set out below) to
assess our risks and resilience of
our mitigating actions. We chose
these scenarios because they
include the requirement to assess
our resilience under different
scenarios, including a 2°C or lower
scenario, and are modelled across
a 30-year time period which is
aligned to the Paris Agreement and
net zero 2050 targets. These three
scenarios are also aligned with the
International Energy Agency (IEA).
We have assumed that a disruptive
transition is most likely, meaning
that physical risks will be present
but will be limited. Irreversible
climate changes (changes in sea
levels, etc.) are seen as long-term
risks under a worst-case scenario.
It should be noted that we currently
have limited data and analytical
capabilities, and have reached our
scenario planning assumption and
assessment based on management
opinion and what we believe the
impact on our business may likely
be. When considering these events,
we have taken into consideration
the likely physical impact on
our business and any merits of
adjusting our strategy because
of this expected impact.
46 S
Smiths News plc
Annual Report and Accounts 2022
The three different scenarios (taking
into account the different levels of
global warming, transition pathways
and the incremental impact this
will have on our business) have
been considered and are reflected
in risks which have been identified
and which are set out further in
this report. We have engaged a
third-party expert (EcoAct) to assist
us with the development of science-
based targets on our journey to net
zero and, as part of this process,
they will work with us to re-evaluate
and quantify our Scope 3 emissions,
and to develop a tool which will
enable us to model our carbon
reduction scenarios and provide a
feasibility check on targets, so as to
inform our strategy.
When considering our obligations
to report in line with TCFD
requirements, and the FCA Listing
Rules (LR9.8.6DG), we have applied
the concept of materiality to our
judgement, aware that we are
required to provide sufficient detail
to enable readers to assess our
business’ exposure and approach
to addressing climate-related
issues. We believe that, considering
both the degree of exposure of our
business, as well as the mitigations
through our sustainability strategy,
the level of detail included in our
disclosures is adequate.
Our materiality measure applied to
climate-related risks is the same
as applied to all our sustainability
risks, being an XY axis rating based
on the importance to stakeholders
on one axis and the impact on
the business on the other. Our
sustainability risks are kept under
review by our Sustainability Steering
Committee, as well as through our
risk management system. In this
regard, please see the risk section
on page 42.
We anticipate that climate-related
risk may have a financial impact on
our business through an increase
in the costs of doing business
(possible increases in tariffs, cost
of assets to facilitate distribution
in low emission city-zones and
rising energy costs), reduced
income as consumer patterns may
change to lower environmental
impact alternatives (e.g. digital
copies) and/or a possible impact
on our asset values. As part of our
financial planning process and our
‘Going
C
o
n
c
e
r
n
’
modelling, we
have considered three mitigation
scenarios to the identified risks to
our operating model, specifically
associated with the various
pressures (regulation, public
and stakeholder opinion, and
costing) which we envisage will
be increasingly brought to bear
on our distribution model and the
associated emissions arising from
increased climate-related regulation
and awareness. Scenario modelling
has included three interventions,
being an increase in charges for
distribution to inner city delivery
points, reoptimising of routes to limit
the number of vehicles accessing
city centres and the utilisation of
electric vehicles. Over the next 12
to 18 months, we will look to further
develop this modelling and seek to
develop a number of programmes
to review future options.
See overleaf for our scenarios.
Environmental Targets
•
Energy – where practical, gas to be sourced from
alternative sources by 2030, while developing further
ongoing energy reduction initiatives, including, where
practical, new warehouse locations to be net carbon
neutral and current sites to be net carbon neutral by
2030
•
Waste – understand if opportunities for further waste
segregation exist, while encouraging retailers to recycle
through Smiths News Recycle
•
Emissions – Review of Science Based Target setting
and achieving SBTi, while monitoring fuel costs with
a view to establishing optimum time for conversion
to advanced renewal diesel, and continuing review
of ‘Final Mile’ delivery to further optimise routes and
minimise mileage
Metrics & Targets –
updated monthly
Metrics & Targets
(incl. Scope 1 & 2 emissions)
•
Emissions
•
Waste
•
Energy
usage
Early implementation of societal
actions and policy towards a low
-
carbon economy, resulting in the
limitation of global warming in line
with the aspirational Paris 1.5°C
increase.
We would expect higher
transitional
risks and limited
physical risks.
Smooth Transition
<2°C
Piecemeal global actions and
divergent policy implementation
which stalling, delays and/or
scaling
-back of initiatives coupled
with compensatory measures to
address late implementation.
We would expect the highest level
of transitional risks and increased
physical risks.
Disruptive Transition
<2°C
>3°C
Failure to implement change
and policies to address global
warming.
We would expect limited
transitional risks but a high
degree of physical risk.
No mitigation/
Business as usual
S G F 47
/
Task Force on Climate-Related
Smiths News plc
Annual Report and Accounts 2022
Financial Disclosures (TCFD) continued
Scenarios
We have used a time horizon of the current period (2022) until 2050, as set out below:
2022 2030 2040 2050
Short
Medium
Long
•
Short-term risks have been determined based
on assumptions that the impact has already
begun to materialise or is expected to do so
within a one to ten-year horizon. These are
risks, the impact of which we are better placed
to assess at this time, and in respect of which
we have detailed plans to assist us to meet our
stated targets as set out further in this report
(e.g. waste and emissions reductions);
•
Medium-term risks are those which we have
identified but the impact of which are still not
clearly measurable. These risks are partially
addressed through our current plans and
determined targets and metrics; and
•
Long-term risks are those in respect of which
we are uncertain as to the projected impacts
and believe that, given the inherent unknown
quality thereof (particularly as to likelihood and
impact), while some of our action plans do
mitigate against future impact they are largely
aspirational as to plans, targets and metrics.
Governance
The Board has overall responsibility
for the strategy, objectives and
financial management of the
business and, within this remit,
the Board has oversight of our
sustainability strategy, as well
as the climate-related risks and
opportunities, energy consumption,
waste management and emissions
associated with our business. The
The Company manages risk
by operating a ‘three lines of
defence’ risk and control model.
More information in this regard
is available in the Principal Risks
section on page 42.
A Sustainability Steering Committee
has been established under
the chairmanship of the Chief
Financial Officer and operates
within approved terms of reference
TCFD Governance structure
The Board
(Standing agenda item per quarter)
•
Overall responsibility
•
Oversees Sustainability Strategy
•
Challenges and monitors metrics and targets
Audit Committee Remuneration Committee
Board is assisted by the Audit
Committee in the discharge of its
duties regarding the maintenance of
proper systems of risk management
and, in this regard, receives regular
management reports. Climate-
related risks are included in the
risk management approach and
have been identified and included
within our risk management
framework; and have recently
from the Board and the Executive
Team, and has representatives
from across the business, including
operations, procurement, finance,
governance, communications
and human resources (please see
the Sustainability report on page
24 for a detailed structure of the
Committee and its workings). The
Committee meets monthly and
submits regular structured reports
(Standing risk agenda item)
•
Oversees risk management
process (including climate-
related risks)
•
Oversees financial statements,
including non-financial
disclosures
Executive Management Team
(Periodic review)
(Considered annually)
•
Alignment of remuneration
policies and incentives*
been elevated from an emerging
risk to a principal risk facing the
Company – please see page 40
for further details. We have an
established risk management
process which includes the
identification of both risks and
opportunities. The risk management
process mirrors the
C
o
mp
a
n
y
’
s
operating structure, with each
functional area being responsible
for the ongoing communication
and feedback of their existing
and emerging risks. This process
comprises the identification,
assessment and effective mitigation
of their functional risks, as well
as continuous monitoring for
forthcoming changes and/or
regulatory updates on the horizon.
to both the Executive Team and the
Board on at least a quarterly basis,
in particular reporting progress
made against goals and targets.
As part of our sustainability strategy,
we have identified a number of
goals which have been arranged
into five pillars, one of which
encompasses the environment.
Goals within the environmental
pillar of our sustainability strategy
includes a commitment to
renewable energy and reduction
of emissions.
•
Responsibility for implementation of Sustainability Strategy
Sustainability Steering Committee
(Monthly)
•
Delegated responsibility for development of our Sustainability
Strategy, including its ongoing refinement
•
Setting and monitoring of targets and metrics
•
Communication strategy (internal and external)
•
Reporting
* ESG metrics are included within the personal objectives of the executive directors and which
therefore impact bonus payments. The Directors’ Remuneration Policy (being presented to
shareholders at the 2023 AGM) makes explicit reference for the inclusion of ESG metrics as
an executive performance measure within the LTIP scheme.
48 S
Smiths News plc
Annual Report and Accounts 2022
Business
strategy
We recognise that climate
change poses both physical and
transitional risks to our business
and current strategy. Physical risks
are associated with an increase
in the frequency and severity of
weather events, such as flooding,
heatwaves, extreme cold snaps,
drought, wildfires and the like. We
also recognise the potential social
and economic impacts of climate
migration and famine. Transitional
risks include the economic impact
of climate change, growing
regulatory requirements and
technology changes, for which we
acknowledge the need to adapt and
refine our strategy. The reputational
risk to our business of failing to
adequately meet the changing
social expectations relating to
climate change are also considered.
The Board has considered the
impact of climate-related risks and
opportunities on the performance
of our business, markets, the
changing regulatory landscape
and the
C
o
mp
a
n
y
’
s
future strategic
direction and ambition, as well as
the financial impact thereof. After
carrying out a robust assessment
of the climate-related risks, we have
determined that, for our business,
we have moved from an emerging
risk environment to one where these
risks have now been reassessed
as principal risks given their likely
increasing impact and foreseeability,
presenting a risk environment which
could impact our business model,
future performance, solvency
or liquidity. We will continue to
monitor these risks and assess the
appropriateness of our mitigation
actions.
Strategically, the business remains
resilient and the identified short-
and medium-term climate-related
risks are largely being managed
and mitigated through the
implementation of our Sustainability
Strategy. We continue to monitor
climate-related risks, understand
the residual risks through ongoing
reviews of our processes, systems
and controls, and build our business
resilience to put us in a position to
respond to climate changes in a
way that has the least impact on
our business.
Risk
The Company identifies risk
and opportunities, including
those associated with climate
risk, through a bottom-up/top-
down approach, which includes
a combination of processes
encompassing a review of
processes and procedures, analysis
of trends, engagement with key
stakeholders, benchmarking with
peers, brainstorming, comparison
against standard risk checklists,
‘cause and effect’ analysis and
the robust maintenance of our
developed risk management
framework and registers.
Risks are plotted on risk maps with
descriptions, owners and mitigating
actions, reporting against a level
of materiality (principally relating
to impact and likelihood which are
the measures used to prioritise
our risks) consistent with its size.
These risk maps are reviewed
and challenged by the Executive
Team and Audit Committee and
reconciled against the
C
o
mp
a
n
y
’
s
risk appetite.
As part of the regular principal
risk process, a review of emerging
risks (internal and external) is also
conducted, and a list of emerging
risks is maintained and rolled-
forward to future discussions by
the Executive Team and Audit
Committee.
Where appropriate, these emerging
risks may be brought into the
principal risk registers. Additional
risk management support is
provided by external experts in
areas of technical complexity to
complete our bottom-up and top-
down exercises, and ensure that
we are aware of future changes
in regulatory or best practice
requirements.
As part of our overall risk
review, climate-related risks and
opportunities have been considered
and identified. A dedicated climate
risk register is in place and is
monitored by the operational team’s
leadership. Climate change-related
risks were initially identified at the
beginning of FY2022 as an emerging
risk but, following recent events and
subsequent review, for FY2023 the
decision has been made to elevate
these and include climate change-
related risks as a new principal
risk on the overall Company risk
framework and register. While we
believe that the mitigation actions,
including the monitoring and
actions being taken pursuant to our
Sustainability Strategy, currently
reduce the risk to an acceptable
level, we understand that climate-
related risks can change quickly
and thus believe that this risk is now
one of the principal risks that the
Company is facing.
Flooding in Stoke
We have experienced flooding
on the approach road to our
former Stoke premises for a
number of years whilst previously
in occupation, making the road
impassable to most vehicles.
Drivers and colleagues who had
to be ferried into the premises
in minibuses and which had the
potential to impact our ability
to distribute news products in a
timely manner. In order to mitigate
the ongoing impact of this risk to
our business model, ultimately we
have relocated to new premises
in Stoke after the failure of various
flood defence mechanisms that
had been unsuccessfully trialled.
Working through
the heatwave –
a thanks to staff
After working our way through
some of the hottest days on
record, I want to thank my
operational teams, and all of our
colleagues for the commitment
and resilience you have shown
in these unprecedented and
uncomfortable conditions.
The temperatures really began
to climb during such a busy time,
so I am incredibly grateful that –
despite the heat – you have been
able to support the business
in delivering its usual fantastic
service, as well as looking out for
each other. Our core values were
clearly on display throughout,
despite the intense heat – and
that was really heartening to see.
Lucy Robertson
Smiths News
Operations Director
S G F 49
/
Task Force on Climate-Related
Smiths News plc
Annual Report and Accounts 2022
Financial Disclosures (TCFD) continued
To enable the business to assess and manage our climate change risks
and opportunities, we need to be able to fully understand the impact of our
business on the environment. To this end, we have developed metrics and
targets for our waste, emissions and energy consumption priorities. We have
assessed the timeline over which we expect the impact to materialise and
categorised them as short, medium or long term as follows:
•
Short term - impact has already begun to
materialise or will do so within a two to eight-
year horizon
•
Medium term - identified but the impact of
which is still not clearly measurable
•
Long term - we are uncertain as to the
impacts and believe they are largely
aspirational as to plans and targets
Description & causes Consequences Mitigation and response
Physical Risk: Increase in extreme weather events
Current likelihood: Possible 10% to 30% chance // Time Estimate: Short
Description
Increased frequency of extreme weather
events, such as flooding or more extreme heat
days. This can create dry ground conditions,
increasing the risk of a product fire at our
depots or flooding, inhibiting or delaying
people and vehicle access to our locations
Causes
An increase in the frequency of extreme
weather events is believed to be driven by
human activities, such as the burning of fossil
fuels causing long-term shifts in temperatures
and weather patterns, commonly referred to as
climate change
Service interruptions to our depots, data
cen
tres and offices prevent the Company from
serving its customers
Increased investment required to make our
depots more resilient to the effects of an
increase in extreme weather events Increased
costs arising from replacing equipment and
repairing depot infrastructure where mitigation
measures have only been partially successful
or unsuccessful
Increase in temperatures leading to more
energy consumption (greater use of air
conditioning in depots, data centres and
offices) and increased costs to ensure safe
operational environment
Controls and mitigations: Review of depot
network and relocation where deemed
necessary
Risk Response – post mitigation: Mitigate
Transitional Risk: Impact of extension of low emission zones across major UK local authorities
Current likelihood: Possible 10% to 30% chance // Time Estimate: Medium
Description
Emissions and air quality targets introduced in
UK towns and cities, e.g. ULEZ in London
Causes
Local Authority Legislation
Increased distribution costs for final mile
d
elivery results in higher operational costs for
the Company
Longer term, the capital costs of using
electric vehicles would require the
C
o
mp
a
n
y
’
s
distribution model to be reassessed
Supply to some customers may also prove
economically or operationally unviable,
reducing our revenue and profitability
Controls and mitigations: Monitored by
our operational teams and reported to the
Sustainability Steering Committee
Adaptation of our distribution model through
consolidation of last mile delivery routes to
minimise higher operational costs
Technology developments (and EV mileage
range) may improve economics and
operational utilisation of electric vehicles
Employees with a company car are now
required to transition to hybrid or electric
vehicles when their current fixed loan period
expires, supporting use in clean air zones
Risk Response – post mitigation: Accept
50 S
Smiths News plc
Annual Report and Accounts 2022
Impact severity key
Severe
Moderate
Mild
We have considered the risk of carbon pricing and any reliance on offsets
to enable us to meet net zero status. We have a 2050 net zero ambition,
but currently do not have the necessary analytical tools to enable us
to undertake accurate scenario planning nor to fully understand the
impact of climate change, our ability to implement changes to reduce our
emissions or to what extent we may or may not need to rely on carbon
credits to achieve our net zero status. This remains work in progress (see
the scenario planning section above), and we will therefore keep this risk
under review and adjust accordingly.
Opportunities – We have already identified a recycling growth
opportunity for our business with the launch of a low-cost daily recycling
collection service, to help our independent customers in the West
Midlands and North West to manage soft plastic and bulky cardboard
packaging left over from trips to the cash-and-carry or stock deliveries.
We collect, sort and arrange the safe and secure recycling of this product.
Description & causes Consequences Mitigation and response
Physical Risk: Decreasing paper supply and/or increasing raw material prices of paper
Current likelihood: Unlikely <10% chance // Time Estimate: Long
Description
Availability of paper supply to publishers and
printers impact physical copy availability and
risk sharply increasing cover prices, presenting
pressure on consumer purchasing decisions
Causes
Deforestation causing natural resource
depletion. Disruption to paper supply chain
through environmental lobby actions
Due to restrictions on the supply of newsprint,
publ
ishers reduce the quantity of physical
copies available for distribution to retailers and
consumers and/or lead to reduction in range
of titles available. This in turn reduces the
C
o
mp
a
n
y
’
s
revenue and profitability, as fixed
costs of final distribution cannot altogether be
mitigated by reducing volumes
Controls and mitigations: Monitor of paper
supply chain availability and costings through
our procurement function
Quarterly update to the Sustainability Steering
Committee of any significant changes
Risk Response – post mitigation: Accept
Transitional Risk: Increase in temperatures impacting operational efficiency/costs
Current likelihood: Possible 10% to 30% chance // Time Estimate: Short
Description
Increase in temperatures, leading to more
energy consumption to ensure a safe
operational environment
Causes
Increase in temperature
Need to allow core breaks for day shift
colleagues and/or provide additional cooling
through air conditioning/fans
Controls and mitigations: Preparation and
monitoring, to ensure cooling equipment hired
and deployed during critical periods
Risk Response – post mitigation: Accept
Physical Risk: Decreasing fuel availability and/or increasing fuel prices
Current likelihood: Possible 10% to 30% chance // Time Estimate: Medium
Description
Availability of diesel and/or petrol decreases,
thereby sharply increasing prices
Causes
Increased competition for scarce resources as
sources of supply close or cannot be accessed
due to international trade sanctions
Increase in operational costs (including
p
ayments to delivery contractors), to reflect
higher fuel costs impacting Company
profitability
Fuel shortages could prevent deliveries being
made to customers, impacting contractual
KPIs with publishers, damaging the
C
o
mp
a
n
y
’
s
reputation and relationships
Controls and mitigations: Fuel availability
and price trends are monitored by our
operational teams and strategies developed to
counter threats and maximise opportunities
Risk Response – post mitigation: Accept
S G F 51
/
Task Force on Climate-Related
Smiths News plc
Annual Report and Accounts 2022
Financial Disclosures (TCFD) continued
Metric and targets
As the identified risks are reviewed and updated, our metrics and targets will also be revisited with any additional metrics, and associated targets,
added as and when necessary. While we recognise a flooding risk, we are not an ‘asset heavy’ business but will keep the risk of flooding to assets
under review.
Where we started Target Metrics Progress FY2023
Energy Consumptions
While we believed 100% of
our electricity was sourced
from renewable sources, we
have now sought to obtain
certificates to evidence this
per location
We currently do not utilise
‘green gas,’ and this is being
investigated
Where p
ractical, our gas
and electricity to be sourced
from renewable and /
or more environmentally
beneficial sources by 2025
(electricity) and 2030 (gas)
Gas and electricity
purchased
•
Electricity supplies
sourced from renewable
/ green sources certified
except for Newport depot
•
Options being developed
for the transition to
carbon neutral using
offsets or green gas
supply
•
Where practical, move to
alternative gas supplies
by 2030
•
Develop further ongoing
energy reduction
initiatives
•
Where practical, new
warehouse locations to
be net carbon neutral and
current sites to be net
carbon neutral by 2030
Waste
Our internally generated
waste is recycled or reused
100% of our generated
w
aste to be recycled and /
or reused
Diversion from
landfill
•
100% of all generated
waste is recycled and /
or reused
•
Compositional
analysis – understand if
opportunities for further
waste segregation exist.
Encourage retailers to
recycle through Smiths
News Recycle
Emissions
Our fleet is primarily
outsourced through
self-employed delivery
contractors for final mile
operations, with a small in-
house HGV fleet servicing
airports and key travel
points. This fleet is primarily
diesel
Optimise transport
op
erations (Company fleet)
to reduce emissions and
reduce annual distribution
mileage
Scope 1 and 2
emissions (see
next page)
•
Assessment of renewable
fuel type for company
HGV fleet complete,
decision to progress
postponed due to
significant cost increases
•
Final Mile distribution
optimisation projects
reducing mileage and
emissions
•
Ongoing trial Electric
Vans in Stoke depot
•
Review of Science
Based Target setting and
achieving SBTi
•
Monitor fuel costs, to
establish appropriate time
to convert to advanced
renewable diesel
•
Continue delivery ‘Final
Mile’ reviews, to further
optimise routes and
minimise mileage
Optimise our company car
fleet – renewing at end of
lease over the next four
years to electric or hybrid
vehicles
•
Company car policy
review policy complete
– only allow PHEV or EV
cars
•
New car orders placed
for 4 PHEV and 6 BEV –
25% of total fleet
•
Create target for overall
fleet tCO
2
e
•
Continue with conversion
to PHEV / BEV car fleet
52 S
2022
(UK
&
offshore)
1,536.4
915.8
2,452.1
2.3
1.5
11,702,058*
9,697.4
Smiths News plc
Annual Report and Accounts 2022
Streamlined Energy
& Carbon Reporting
disclosure (SECR)
As a large, quoted company
incorporated in the UK, Smiths
News is required to report its global
and UK energy use and carbon
emissions in accordance with the
Companies (Directors' Report)
and Limited Liability Partnerships
(Energy and Carbon Report)
Regulations 2018. The data detailed
in this table represents emissions
and energy use for which Smiths
News is responsible, including
energy used in our offices and
depots, and fuel used in company
owned or operated vehicles. To
calculate our emissions, we have
September 2021 – August 2022
September 2020 – August 2021
Emissions from the combustion of fuel or the operation
of any facility, including fugitive emissions from
refrigerants use/tCO
2
e – Scope 1 emissions
Emissions resulting from the purchase of electricity,
heat, steam or cooling by the Company for its own use
(location based) / tCO
2
e – Scope 2 emissions
Total gross emissions / tCO
2
e
tCO
2
e per £million turnover
tCO
2
e per FTE
Energy consumption used to calculate above emissions
/kWh
Estimated emissions from the mileage covered by
our outsourced delivery drivers (tCO e) – Scope 3
2021
2020**
(UK & offshore) (UK & offshore)
983.7 1,446
1,005 1,184
1,988 2,630
1.8 2.26
1.2 1.46
9,680,529 10,803,390
used the main requirements of
the Greenhouse Gas Protocol
emissions***
2
10,333.4 11,255.0
Corporate Standard along with the
UK Government GHG Conversion
Factors for Company Reporting
2022. Any estimates included in our
totals are derived from actual data
which have been extrapolated to
cover the full reporting year.
Assurances
The SECR data set out above has
been externally assured by EcoAct
(see Appendix 2 on page 55).
* ‘Total energy consumption used to calculate emissions in kWh’ has been restated for the comparison year. Following clarified guidance from BEIS,
regarding the conversion from litres of fuel used in vehicles to kWh, calculations have been updated to apply the Net CV value by fuel type as
opposed to the Gross CV value.
** Continuing operations excludes Tuffnells which was sold in May 2020.
*** Scope 3 emissions have been calculated in alignment with the GHG Protocol Corporate Value Chain Standard, an internationally recognised best-
practice standard for calculating emissions resulting from value chain activities.
Our total overall emissions amounted to 12,149.6 tCO
2
e, which is a year-on-year decrease of 172.6 tCO
2
e.
Set out below is a summary explanation of our emissions reporting:
S G F 53
/
Scope Definitions
Scope 1
movement
Company car mileage has risen by 495k miles due to the effect the pandemic had on
reduced travel in the previous year. Hence, as a result of the business’ activities returning
to ‘normal’ following the relaxation of pandemic restrictions in FY2022, our emissions have
actually increased versus the previous year but returning to be broadly in line with the
pre-pandemic levels
Gas consumption has reduced by 262,350 tCO
2
e due to depots being taken off gas supplies
and the increased use of electricity
Diesel purchased has grown by 182k litres due to the additional use of our own fleet
to accommodate for self-employed contractor shortages in FY2022
Scope 2
movement
Electricity has slightly grown in consumption due to depots using less gas and using more
electricity in equipment, such as electric point water heaters and electric panel heating.
To counteract this LED lighting and motion sensors, lighting has been installed together
with motion sensors lighting to limit use
Scope 3
movement
Contractor vehicle mileage has decreased by 584k km due to reduction in the number
of final mile routes within the operation and from improved route optimisation
Trunking mileage has decreased by 19k km due to a reduction in lanes / trips
We have seen a decline in grey fleet / business mileage by due to the rise in the use
of virtual meetings
Other
important
factors
100% renewable electricity in all depots except one (Newport depot)
100% landfill diverted
Task Force on Climate-Related
Smiths News plc
Annual Report and Accounts 2022
Financial Disclosures (TCFD) continued
Planned next steps
We have further activity planned
over the coming year to further
enhance our alignment with the
TCFD recommendations, including:
•
The development of
our analytical tools and
methodologies to enable further
scenario analysis of both physical
and transition climate risks and
opportunities, and in this regard
will be using the services of
external consultants, EcoAct;
•
Review of major strategic plans
to ensure they remain resilient to
the identified climate risks and
opportunities;
•
Further analysis of the financial
impacts of climate change;
•
Development of science-based
targets for monitoring emissions
and the further consideration of
appropriate metrics and targets
to measure future performance;
and
•
To seek external assurance of
our application of the TCFD
recommendations, to ensure our
strategy is robust and aligned to
our business purpose.
Outlook
The Company is well positioned
to consider the impact of climate-
related risks on the
C
ompan
y
’
s
business model (and any
associated costs in meeting these)
together with our Sustainability
Strategy, and believes that we have
a solid platform for the Company
to meet these challenges.
Appendix 1
54 S
Recommendations and disclosures Confirmations
Governance:
Disclose the organisation’s governance around climate-related risks and opportunities
a) Describe the board’s oversight of climate-
related risks and opportunities
Disclosed i
n full and requirements met
Disclosed in full and requirements met
b) Describe management’s role in assessing
and managing climate-related risks and
opportunities
Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities
on the organisation’s businesses, strategy and financial planning where such information is material
a) Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium and long term
Partial disclosure – r
isks and opportunities identified but
data for accurate analysis, analytical models and review of
time periods and scenarios require further enhancement
Partial disclosure – analysis of impact of risks and
opportunities on our business, strategy and financial
planning is based on assumptions which require further
analysis and the development of a suitable model
Partial disclosure – more comprehensive modelling will
be required to determine magnitude of risks, adequacy of
responses and overall business resilience
b) Describe the impact of climate-related risks
and opportunities on the organisation’s
businesses, strategy and financial planning
c) Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C or
lower scenario
Risk Management:
Disclose how the organisation identifies, assesses and manages climate-related risks
a) Describe the organisation’s processes for
identifying and assessing climate-related risks
Partial disclosure – m
ore information is required to quantify
and explain what medium and serious risk means in terms
of impact / relation to remainder of business
Partial disclosure – further details to be provided regarding
the mitigation, transfer or acceptance of the identified risks
Disclosure in full and requirements met
b) Describe the organisation’s processes for
managing climate-related risks
c) Describe how processes for identifying,
assessing and managing climate-related
risks are integrated into the organisation’s
overall risk management
Metrics and Targets: Disclose the metrics and targets used to assess and manage relevant climate-related
risks and opportunities where such information is material
a) Disclose the metrics used by the
organisation to assess climate-related risks
and opportunities in line with its strategy
and risk management process
Partial disclosure – m
ore comprehensive modelling will
be required to determine magnitude of risks, adequacy
of responses and overall business resilience with the
development of scientific-based targets underway
Partial disclosure – Scope 1 & 2 emissions have been
disclosed, with related risks requiring some additional
modelling as set out in TCFD report
Estimated Scope 3 emissions are disclosed but require
further validation
Partial disclosure – more comprehensive modelling will
be required to determine magnitude of risks, adequacy
of responses and overall business resilience, with the
development of scientific-based targets underway
b) Disclose Scope 1, Scope 2 and, if
appropriate, Scope 3 greenhouse gas (GHG)
emissions, and the related risks
c) Describe the targets used by the
organisation to manage climate-related risks
and opportunities, and performance against
targets
o
f
i
c
e
s
n
i
t
e
d
a
ili
t
y
a
d
n
d
n
d
s
n
c
a
t
i
o
n
l
r
a
t
e
Smiths News plc
Annual Report and Accounts 2022
Appendix 2
About EcoAct
Your climate experts.
Your partners for positive change
.
EcoAct, an Atos company, is an international sustainability
consultancy and project developer with 300+ employees in ff
across Canada, France, Germany, Italy, Kenya, Spain, U
Kingdom, and USA.
Extensive experience in emissions reduction and sustain bil y
projects for some of the world’s leading brands.
Widest range of best-in-class solutions in carbon, energy
sustainability.
Dedicated Nature and Technology Based Solutions Unit a
experienced project developers.
In-house Marketing & Communication experts guiding bra d
worldwide in delivering effective climate change commu c
Climate Innovation & Knowledge Centre working to acce e
the transition to a net-zero economy.
1
| © EcoAct
S G F 55
/
Cross reference
TCFD report and the Corporate
Governance report on page 58
TCFD report and the Corporate
Governance report on page 58
TCFD report and the Corporate
Governance report on page 58
TCFD report and the Strategic
report on pages 2 to 57
TCFD report and the Strategic
report on pages 2 to 57
TCFD report and the Principal
Risks section on page 42
TCFD report and the
Sustainability report on page 24
TCFD report and the Principal
Risks section on page 42
TCFD report and the
Sustainability report on page 24
TCFD report and the
Sustainability report on page 24
TCFD report and the
Sustainability report on page 24
Viability
Statement
Smiths News plc
Annual Report and Accounts 2022
1.
How the Group
assesses its prospects
The
C
ompan
y
’
s
business activities
and strategy are central to
assessing its future prospects.
These, together with factors likely
to affect its future development,
performance and position, are
set out in the Strategic Report on
pages 2 to 57. The financial position
of the Company, its cash flows
and liquidity are highlighted in the
Financial Review on page 36.
The Company manages its
financing by structuring core
borrowings and the availability of
debt facilities for drawdown. The
C
ompan
y
’
s
prospects are assessed
primarily through its business
planning process. This includes
an annual review which considers
profitability, the
C
ompan
y
’
s
cash
flows, committed funding and
liquidity positions, and forecast
future funding requirements over
the assessment period of three
years. The most recent review
was approved in September 2022,
and it is part of the Board’s role to
consider the appropriateness of
any key assumptions, taking into
account the external environment,
current inflationary pressures in the
economy and business strategy.
2.
The assessment period
The directors have determined that
a period of three years to August
2025 is an appropriate assessment
period over which to provide its
viability statement. This period is
consistent with that used for the
C
ompan
y
’
s
corporate planning
process as detailed above, and
reflects the directors’ best estimate
of the future prospects of the
business, including the nature and
potential impact of the principal
risks that face the business.
The Board noted in considering
the appropriate assessment period
that the
C
ompan
y
’
s
new banking
facilities are due to also expire in
August 2025 and that this period
also includes the majority of the
publisher contract renewals, the
first of which is due in July 2024.
The Board also considered whether
there are specific foreseeable
events relating to the principal risks
and climate change that could
occur beyond the three-year period
that should be taken into account
when setting the three-year
assessment period and concluded
there were none.
In the Board’s assessment of
viability, the scenarios have
assumed that external debt is
repaid as it becomes due, or will be
refinanced as and when required
(see also Note 18 of the Group
Financial Statements on page 163).
3.
Assessment of viability
In generating its plan, the Board
has considered the overall strategy
of the Company, the principal risks
and uncertainties inherent within
the business, as well as making a
number of key strategic planning
assumptions which are noted
below:
1.
Impact of inflationary pressures
in the economy;
2.
Continued decline in sales
of printed media during the
assessment period offset by
overhead efficiencies in the
assessment period;
3.
Retention of major publisher
contracts within Smiths
News at rates which maintain
acceptable margins – 95% of
future revenues are currently
contracted to at least 2024;
4.
No major changes in working
capital profile; and
5.
No significant acquisitions or
disposals in the assessment
period.
In making this statement, the
directors have carried out a robust
assessment of the
C
ompan
y
’
s
emerging and principal risks,
including those that could
threaten its business model, future
performance, solvency or liquidity,
and also considered the impacts
of climate change. Consideration
has been given to the
C
ompan
y
’
s
ability to renegotiate the publisher
contracts expiring during the
assessment period, and no
evidence exists to suggest these
contracts will not be successfully
renegotiated.
Similarly, the Company has
considered its ability to renew its
banking facilities when due and
believes this will be successfully
completed.
The considerations included the
a
vailability and effectiveness
of mitigating actions that could
realistically be taken to avoid or
reduce the impact or occurrence
of the underlying risks. In assessing
the likely effectiveness of such
actions, the Board considered the
conclusions from its regular review
of risk management and internal
control systems (as described on
page 82).
To make the assessment of viability,
’stress’ scenarios have been
tested over and above those in
the Board’s business plans, based
upon a number of the
C
ompan
y
’
s
principal and emerging risks and
uncertainties (as documented
on page 44). The scenarios were
overlaid into the business plan to
quantify the potential impact of
one or more of these crystallising
over the assessment period. Whilst
each of the principal risks on page
44 has a potential impact and
has been considered as part of
the assessment, only those that
represent severe but plausible
scenarios were selected for
modelling through the business
plan. These are shown in the table
opposite.
As noted above, the scenarios
have assumed that external debt is
repaid as it becomes due, or will be
refinanced as and when required.
The scenarios above are
hypothetical and severe for the
purpose of creating outcomes that
have the ability to threaten the
viability of the Company; however,
multiple control measures are in
place to prevent and mitigate any
such occurrences from taking place.
In each of the stress scenarios
1-5, the Company would be able
to continue operating within its
existing debt covenants and liquidity
headroom. Scenario 6 required such
an extreme set of factors in unison
that it is considered to be a remote
likelihood and, therefore, does not
represent a realistic threat to the
viability of the Company but, rather,
illustrates the factors that would result
in a covenant or liquidity breach.
The directors considered mitigating
factors that could be deployed
to counter the negative effects of
the crystallisation of each of these
risks. The main actions that could
be taken in such circumstances
include reducing any non-essential
capital expenditure and operating
expenditure on projects, working
capital management to smooth
debt peaks (including supply chain
finance arrangements), cancelling
discretionary annual bonus
payments, identifying other cost
savings, as well as reducing or not
paying dividends.
4.
Viability statement
In light of the scenario modelling
noted above, the directors are
confident that headroom under
the existing bank facility remains
adequate and future covenant
tests can be met. This is based on
the Board’s approved three-year
business plan after allowing for a
range of reasonable worst case
downside sensitivity scenarios.
As noted above, in making this
viability statement the directors
have also considered an alternative
view by applying a reverse stress
test to the
C
ompan
y
’
s
financial
models. A reverse stress test is
where scenarios are considered
that lead to a breach of either
the total available facility or one
or more of the covenants. The
directors consider that the risk of
the combination of events leading
to such breaches combined with
the Company not being able to
enact mitigating actions is remote.
Taking into account the
C
ompan
y
’
s
current position and principal risks
and emerging risks, the directors
confirm that they have a reasonable
expectation that the Company will
remain viable over the period of
assessment to August 2025.
56 S
Smiths News plc
Annual Report and Accounts 2022
5.
Going concern
The Company meets its day-to-
day working capital requirements
through its bank facilities of £79.5m,
with an outstanding term of 34
months to 31 August 2025. The
terms of the facility agreement
include: an amortisation schedule
of £6m in the first year (2022) and
£10m per annum thereafter for
the repayment of the term loan
and a reduction in the RCF of
£5m per year after the first year.
The
C
ompan
y
’
s
forecasts, taking
into account the Board’s future
expectations of the
C
ompan
y
’
s
performance, indicate that there is
sufficient headroom within these
bank facilities and the Company
will be able to continue to operate
within the covenants attaching to
the new bank facilities.
Considering the principal and
emerging risks discussed in
this report, the directors have a
reasonable expectation that the
Company can meet its liabilities
as they fall due for a period
greater than 12 months (being an
assessment period of 22 months)
from the date of approval of the
Group Financial Statements. Thus,
the Company will continue to
adopt the going concern basis in
preparing its consolidated financial
statements which are shown on
pages 132 to 181.
S G F 57
/
Scenario modelled Link to principal risks
Scenario
1:
Changes
to
a
retailer’s
commercial
model
The business plan assumes all major retailers will
continue to stock their current newspaper and
magazine range over the assessment period. We
have modelled a scenario that reflects one or more
grocers removing their magazine offering.
Risk 1: Macro-economic uncertainty and
Risk 5: Changes to retailers’ commercial model:
deterioration in the macro-economic environment
and the risk of a reduction in sales space and/or full
delisting of newspapers and/or magazines by our
largest retailers.
Scenario
2:
Growth
and
diversification
strategy
is
not
executed
successfully
The business plan assumes profit from strategic
growth and diversification activities within the next
three years. We have modelled a scenario in which
only 50% of these targets are met.
Risk 1: Macro-economic uncertainty and
Risk 6: Growth and diversification:
deterioration in the macro-economic environment
impacts the
C
ompan
y
’
s
ability to execute new
business growth opportunities.
Scenario
3:
Forecast savings targets are not met
The business plan assumes both operational
and overhead savings throughout the period in
Smiths News. We have assumed 33% of these
improvements are not achieved.
Risk 1:
Macro-economic uncertainty,
Risk 2: Acquisition and retention of labour and
Risk 6: Growth and diversification:
the risk that inflationary cost increases, the absence
of managerial talent and resources used for new
business growth opportunities detrimentally affect
the execution of planned cost reduction.
Scenario
4:
Increased
number
of
congestion
charge
zones
or
low
emission
zones
The business plan assumes that new congestion
charge zones are implemented at their historic
frequency and impact. We have modelled an
accelerated frequency and increased area coverage
for new zones.
Risk 7: Sustainability and climate change:
the risk that increasingly stringent air quality targets
make it more costly for the Company to undertake
newspaper and magazine wholesaling activities.
Scenario
5:
Partial conversion to electric fleet
The business plan assumes that low emission
/ exclusion zones for petrol and diesel electric
vehicles are implemented at their historic frequency
and impact. We have modelled that all existing
congestion zones become 24-hour exclusion zones,
covering a larger area and that on affected routes
deliveries are made by electric vehicles.
Risk 7: Sustainability and climate change:
the risk that increasingly stringent air quality targets
make it more costly for the Company to undertake
newspaper and magazine wholesaling activities.
Scenario
6:
Reverse stress test – revenue loss, margin erosion and cost inflation in combination to create
either a headroom liquidity or covenant breach
This combines an extreme series of factors in unison
to illustrate what would result in a covenant or
liquidity breach of the bank facility headroom.
Multiple risks:
A combination of risks, also including those relating
to Cyber Security and Legal and Regulatory
Compliance, both of which are inherently uncertain
in value.
Annual Report and Accounts 2022
Responsible
governance
shapes our
performance
Board attendance
The following tables show the attendance of directors at Board and Committee meetings held during the year, the independent
status, gender, tenure on the Board and a snapshot of the skills and expertise of the Board as a whole.
Scheduled
Board meetings
Special Board
meetings
Audit
Committee
Nominations
Committee
Remuneration
Committee
Number
of meetings 11
1 4 2
5
David Blackwood
11
1
–
2
5
Denise
Collis
11
1
4
2
5
Michael
Holt
11
1
4
2
5
Mark
Whiteling
11
1
4
2
5
Jonathan
Bunting
11
1
–
–
–
Paul
Baker
10 (of 10)
N/A
–
–
–
Tony
Grace (retired December 2021)
4 (of 4)
1
–
–
–
Composition, Attendance and Evaluation
Board of directors
As reported in the 2021 Annual Report, Tony Grace, former-Chief Financial Officer, retired on 31 December 2021 and was
succeeded by Paul Baker, who was appointed Chief Financial Officer and a director of the Board on 4 October 2021.
Balance of Bo
ard Members by gender Tenure
Independent
Male
0-2 Years
Non-independent
Female
3-5 Years
6+ Years
58 G
S G F
Annual Report and Accounts 2022
/
Governance
Governance is embedded
in our business. We
adopt a holistic approach,
incorporating structures and
systems that make up a
comprehensive and robust
framework.
Introduction
60
Governance Framework
62
Board of Directors
64
Corporate Governance Report
66
Audit Committee Report
80
Nominations Committee Report
90
Directors’ Remuneration Report 94
Directors’ Report – Other Statutory
Disclosures
119
Directors’ Responsibilities 123
59
Introduction
Smiths News plc
Annual Report and Accounts 2022
David
Blackwood
Chairman
A transparent
approach with
clear leadership
Chairman’s statement
on corporate
governance
As I look back on the progress
we have achieved in FY2022
against our financial and strategic
imperatives, together with the
effectiveness of our leadership in
promoting the
C
ompan
y
’
s
long-term
sustainable success, I am reminded
that measuring ourselves against our
corporate governance imperatives
is equally important. This year
was the third in our external board
assessment cycle, and I am pleased
to report that the evaluation process
undertaken by CGI (Corporate
Governance Institute) provided
a result which indicated that the
Board is continuing to function
effectively. We have taken on board
recommendations flowing from this
assessment and continue to make
appropriate improvements, based
on both these recommendations
and those emanating from our
previous internal reviews. As it is
also that point in the governance
cycle where we put the Directors’
Remuneration Policy to a
shareholders’ vote at the 2023 AGM,
this year we have undertaken
one-to-one engagements with
our largest shareholders to better
understand their expectations
in this regard. More information
around the Directors’ Remuneration
Policy is available in the Directors’
Remuneration report on page 94
onwards.
As I look back on the
progress we have achieved
in FY2022 against our
financial and strategic
imperatives, together with
the effectiveness of our
leadership in promoting
the Company’s long-term
sustainable success, I am
reminded that measuring
ourselves against our
corporate governance
imperatives is equally
important.
While we are encouraged to believe
that the COVID-19 pandemic
is firmly behind us now, we
enter another period of potential
economic uncertainty which is
bringing its own challenges to all
stakeholders, with volatility in the
energy market and a challenging
inflationary and labour market,
resulting in affordability concerns,
as well as an increased focus on
the ‘climate emergency’ and the risk
of energy disruption. Once again,
we have renewed our commitment
to support our colleagues and
customers at this particularly
challenging time. Our stakeholder
engagements are alive to the
current economic headwinds and
feedback is carefully considered,
and balanced, when arriving at
decisions. We are encouraged with
the outcome of such engagements
which have led to the introduction
of ‘fair pay principles’ for our
colleagues, as well as the conversion
of our historic COVID-19 hardship
fund into a wider and more-general
‘colleague support fund.’
This year also saw us review our
colleague engagement mechanism
and conclude that the appointment
of a designated non-executive
director remains the optimal
model for promoting colleague
engagement within our business,
although we have taken the
opportunity in this review to refresh
our National Colleague Engagement
Forum, in order to ensure the right
mix of colleagues and that Michael
Holt, who is our designated non-
executive director who attends
the m
eetings, can maximise
engagement.
Aware of the economic pressures
being brought to bear in the logistics
sector and the impact on category
sustainability for newspapers
and magazines, we undertook a
customer consultation process
around delivery service charge
increases and customer satisfaction
during the year. Across all our
stakeholders, we remain committed
to both the requirements and spirit
of s172 of the Companies Act
2006 and to the promotion of the
long-term sustainable success of
the Company – for more detail on
our other engagements, I would
refer you to our s172 statement in
the Corporate Governance report
on page 58 which focus on the
significant engagements in the year
where demonstrable outcomes can
be shared.
60 G
Smiths News plc
Annual Report and Accounts 2022
Two key areas which have been at
the forefront of our deliberations
this year have been diversity and
inclusion (D&I) and sustainability,
more specifically the requirement
that we report in terms of the Task
Force on Climate-Related Financial
Disclosures (TCFD). We have
progressed our D&I agenda well
and have accelerated the target
date for the proposed appointment
of a second female board member
to FY2023, and we are confident
that an announcement will follow
in short order now that we have
identified the balance of skills,
experience and expertise which
would best complement the Board’s
current composition. We have
also completed a wider D&I audit
and identified key action areas
across recruitment, learning and
development, and communications,
the details of which are set out in
my introduction to the Nominations
Committee report on page 90.
Following on from the 2022 Annual
General Meeting (AGM), I engaged
with two of our largest shareholders
who had raised Board diversity as
a future voting issue for them and
believe that the acceleration of our
D&I plan will address their concerns.
I am pleased to report that our
sustainability strategy is now
implemented but, as this is a long
journey rather than a finite process,
we continue to refine and review
the path we take to achieving our
ultimate goal of net zero status. We
have learnt much from the process
we have followed in preparing
our first TCFD report and, where
we have not been able to fully
report against the recommended
disclosures, we have commenced
with actions to access the necessary
expertise and analytical models
to do so. That said, I do believe
we have made a good start in
understanding the impact of climate
change on our business and the
mitigations necessary to ensure
the future viability of our business,
and to identify our commitment to
addressing the ‘climate emergency.’
We continue to exercise oversight
over the breadth of policies,
processes and controls that
make up our wider governance
framework, while ensuring that we
provide effective leadership and
direction. On behalf of the Board, I
am particularly pleased that we have
continued to maintain a sector-
leading track record in health and
safety this year, with our ongoing
activities recognised through
securing 13 RoSPA awards in the
year (including 11 at the highest
‘gold’ standard) and, separately,
retaining our ISO 45001 certification
for H&S management.
Ensuring that our Company culture
and values are integrated across
our business, and are demonstrated
by the way in which we all conduct
ourselves and execute our decision-
making, remains important to
us all. In support of this position,
this year we have moved from
merely re-stating our values to
enhanced disclosure in this report
by attempting to demonstrate how
the Board measures compliance
with our stated values. This year
has also seen the enhancement
of our cyber security systems and
controls, with good progress being
made to secure ‘Cyber Essentials’
accreditation through the National
Cyber Security Centre, and we
remain committed to seeking ‘Cyber
Essentials Plus’ accreditation in
FY2023. More details in this regard
are available in the Audit Committee
report (see page 80).
This has been a good year for our
business, but we remain alive to the
threat of an economic downturn and
the impact it may have not only on
our business but on our people. We
remain well-positioned to continue
to deliver shareholder value in a
sustainable manner and in the best
interests of all our stakeholders.
While online engagements and
virtual AGMs are probably here
to stay in one form or another,
I do welcome the return of the
traditional AGM and encourage all
shareholders to attend and vote.
Having established a
focused sustainability
project team in the year,
I’m particularly pleased
to be able to present our
sustainability strategy,
with measurable
deliverables and planned
activities identified for
the short and medium
term, demonstrating our
commitment to responsible
governance, society and
the environment.
In closing, I would like to express
a note of appreciation to my fellow
Board members for their continued
commitment to the success of
the Company, and on behalf of
myself and the Board, our collective
appreciation to Jonathan (CEO) and
Paul (CFO), as well as the Executive
Team and all our colleagues for
another year of strong operational
and financial performance.
David
Blackwood
Chairman
3 November 2021
S G F 61
/
Governance Framework
We adopt a holistic approach
to governance, incorporating
processes, structures and systems
that make up a comprehensive
and robust governance framework,
ensuring that governance is at the
heart of our decision-making and
appropriately embedded throughout
our business. This framework
underpins our business activities and
supports informed, transparent and
accountable decision-making.
Smiths News plc
Annual Report and Accounts 2022
Key:
Focused strategy
Sustainable future
Operational excellence
Focused strategy
Vision, Mission, Strategy & Planning:
Strategy and business model
Board and Committees:
Board Committees
|
Smiths News PLC
Reporting, Monitoring & Evaluation:
Reports and presentations
Key:
Information found
online
h Information within the report
Sustainable future
Culture & Values:
Values
|
Smiths News PLC
Stakeholder Engagement:
Shareholder
centre
Listening to our People
h
Stakeholder Engagement on pages 14 to 17
Health & Safety:
Health & Safety
h People Report on pages 30 to 35
h Audit Committee Report on page 80
Business Continuity
Operational excellence
Management & Rewards:
h People Report on pages 30 to 35
Terms of Reference & Delegations:
Board Committees
|
Smiths News PLC
Risk & Audit:
h
Principal and Emerging Risks on pages 40 to 43
Evaluation & Succession Planning:
h Nominations Committee Report on
pages 90 to 93
Policies & Procurement:
Available on our
intranet
Training & Support:
Developing our People
Budget & Financial Management
h Financial Statements on pages 124 to 184
Adherence to Legislation, Regulation
& Compliance:
Regulatory
News
Knowledge & Records
Privacy and data management
IT Governance & Security
h Audit Committee Report on pages 80 to 89
62 G
&
l
& A
h
e
g
to
&
i
ti
Smiths News plc
Annual Report and Accounts 2022
Leadership and Oversight
Our leadership structures are
supported by our governance
framework, to ensure oversight,
integrity and control in all our
business dealings and enabling
effective and responsive decision-
making, based on understanding
and the need to consider the
impact of our decision-making
on all our stakeholders.
The Chairman
has overall
responsibility for the management
and operation of the Board, which
in turn oversees the Company’s
strategy and operational and
financial performance, and
manages business requirements
through a formal schedule of
reserved matters for its decision-
making.
A nominated Senior Independent
Director (SID) provides additional
support to the Chairman in
the delivery of the Company’s
objectives.
For more information on
the composition, roles and
responsibilities of the Board and
the division of responsibilities
between the Chair / CEO, as
well as to access the internet
links referred to above, please
refer to our website (Corporate
Governance – Smiths News) or, if
you are reading this electronically,
please click on the relevant links.
Regular reports are submitted
to the Board and its Committees,
and detailed agenda planners are
approved annually in advance,
and revised monthly, to ensure
that all compliance, regulatory and
operational matters are adequately
and timeously addressed by
relevant stakeholders. This
process ensures that the Board
has full knowledge and oversight
of the Company’s impact on the
economy, environment, society,
suppliers and customers, and
our people, and ensures that it
is able to review and direct the
effectiveness and outcomes of
these processes.
The Chief Executive Officer leads
our business and oversees daily
operations and the Company’s
objectives. The CEO is ably
assisted by the Executive Team
that focuses on the development
and implementation of strategy,
financial and operational
performance, risk management,
commercial developments, talent
review and succession planning,
sustainability and organisational
development.
Committees – Remuneration,
Audit, Nominations, Approvals and
Disclosure.
Senior Leadership Team and
functional experts who each
provide support, guidance and
diligence in the Company’s
business dealings and oversee
day-to-day operational, commercial
and functional activity.
Sub-committees/steering
committees which report into the
Executive Team and, in turn, to the
Board and its Committees.
Our Steering Committees function
on a formal basis, comprising
cross-functional membership,
having a chairman, terms of
reference and appropriate
governance standards and record
keeping. Examples of these
sub-committees include the
Business Development & Growth
Committee, Operations Executive
and People Executive Committees,
Investment Committee, Policy
Steering Group, Sustainability
Steering Group and various
colleague engagement forums
and groups. In addition, we have
one-off project teams which
function in a similar structured
manner but which are established
to deal with one-off or short-term
projects, such as IT migration (e.g.
to Microsoft Office365 or direct
marketing).
Roles and responsibilities
The
Board
Remuneration
Committee
•
determines
directors' and
senior
management
remuneration
strategy and
policy
•
oversees the
implementation of
our Remuneration
Policy
•
reviews workforce
remuneration,
related policies
and the alignment
of incentives and
rewards with
culture
Audit
Committee
•
promotes
governance
and our risk
management
framework
•
ensures the
accuracy of our
financial reporting
•
monitors the
internal and
external auditors
Nominations
Committee
•
makes
recommendation
to the Board for
executive and
non-executive
appointments
and succession
planning
•
promotes
employee
engagement and
diversity
See pages 94 to 118
See pages 80 to 89
See pages 90 to 93
Disclosure Committee
•
monitors and oversees the
Company's compliance with
the Market Abuse Regulations
and the considerations of
inside information procedures
and disclosures
Approvals Committee
•
responsible for approving
delegated Board matters
Key skills & expertise
1
2
3
4
5
6
7
Governance
Risk
Financial
Culture & Values
Health & Safety
Strategy
Distribution/Logistics
People/Talent
Sustainability
IT
S G F 63
/
N
R
D
AP
D
AP
A
N
R
Board of Directors
Smiths News plc
Annual Report and Accounts 2022
David Blackwood (63)
Chairman
Year of appointment:
2020
Gender: Male
Ethnic Origin: White
Citizenship: British
Disability: None
David has extensive business and
listed company experience, notably
in Finance, Audit and Risk. David
uses his experience and knowledge
to lead the Board in reviewing and
approving management’s plans for
the development of the
C
ompan
y
’
s
strategy and operational and
financial performance. As Chair of
the Nominations Committee, David
is also responsible for leading the
assessment of the capabilities and skills
of the executive and non-executive
leadership, and for longer-term
succession planning. David has been
a non-executive director of Dignity plc
(June 2020), Scapa Group plc (April
2021) and The Go-Ahead Group plc
(October 2022) where, in respect
of Dignity and Scapa he served as
chair of the audit committee and as
a member of the Go-Ahead audit
Committee and, otherwise in each
case, as Senior Independent Director
and as a member of the nomination
and remuneration committees. He
was formerly Chief Financial Officer
of Synthomer plc, stepping down
in 2015, prior to which he held a
number of senior roles within Imperial
Chemical Industries plc (ICI). David has
also previously served as a member
of the Cabinet Office Audit and Risk
Committee and on the Board for
Actuarial Standards. He is a member of
the Institute of Chartered Accountants
in England and Wales (ICAEW) and a
Fellow of the Association of Corporate
Treasurers (ACT).
Other current appointments
•
Esken limited (previously
Stobart Group PLC), chair of
audit committee and senior
independent director
Jonathan Bunting (50)
Chief Executive Officer
Year of appointment: 2010
Gender: Male
Ethnic Origin: White
Citizenship: British
Disability: None
Jonathan has broad commercial
and operational leadership skills,
combined with extensive experience
gained within the newspaper and
magazine distribution industry,
experience which is critical for
the long-term development and
execution of the
C
ompan
y
’
s
strategic plans.
Jonathan joined WH Smith News
in 1994. He rose through the
organisation in a variety of sales and
marketing managerial roles before
being promoted to the executive
management team in 2001. In April
2014, Jonathan became Managing
Director of the Connect News &
Media division and, subsequently,
Chief Operating Officer in
September 2017, a position which
spanned wider group business
interests held at the time, together
with Smiths News. Following his
appointment as Interim Chief
Executive Officer on 5 November
2019, this appointment was
confirmed on 15 June 2020.
Other current appointments
•
None
Paul Baker (53)
Chief Financial Officer
Year of appointment: 2021
Gender: Male
Ethnic Origin: White
Citizenship: British
Disability: None
Paul is a highly experienced
senior executive, with extensive
and relevant financial and business
transformation experience, most
recently as Integration Director at
Compass Group plc. Prior to that, he
held various regional and divisional
Finance Director roles within each of
Compass Group (2013 to 2021), Iglo
Group/Birds Eye Limited (2011 to
2013) and Cadbury Schweppes PLC
(1997 to 2010).
Other current appointments
•
None
Mark
Whiteling
(59)
Senior independent
non-executive director
Year of appointment: 2017
Gender: Male
Ethnic Origin: White
Citizenship: British
Disability: None
Mark has gained extensive finance
and operational experience at a
senior level within a number of
diverse businesses. He brings
recent and relevant financial
expertise required to lead the
Audit Committee.
Mark was most recently the Chief
Financial Officer of Interserve PLC
and has previously been the Deputy
Chief Executive Officer and Chief
Financial Officer of Premier Farnell
plc. He was a non-executive director
of Future plc until December 2014
and the Senior Independent Director
of Hogg Robinson Group PLC until
July 2018, in both cases acting
as chair of the respective audit
committees, as well as serving on
their nomination and remuneration
committees. In addition, Mark has
been Chairman and non-executive
director of Xpediator PLC from
September 2021 until March 2022
and member of its remuneration
committee.
Other current appointments
•
Board of Trustees of the European
Association of Cardio-Thoracic
Surgery (EACTS), Honorary
Treasurer on the EACTS Council
64 G
Smiths News plc
Annual Report and Accounts 2022
Company Secretary
& General Counsel
Committee Key
Audit Committee
Nomination Committee
Remuneration Committee
Disclosure Committee
Approvals Committee
Chair
Member
Denise
Collis
(65)
Independent non-executive
director
Year of appointment: 2015
Gender: Female
Ethnic Origin: White
Citizenship: British
Disability: None
Denise holds a wealth of business
experience with a particular focus
on people and talent management,
development, retention and
reward. She therefore has the
relevant knowledge and experience
required to lead the Remuneration
Committee, a position she has
also held with SThree PLC (since
September 2016) and EMIS Group
PLC (since October 2021).
Denise was Chief People Officer
at Bupa, the global healthcare
business, from May 2010 until
December 2014. Prior to that,
she was the Group HR Director
for 3i Group plc and a partner at
EY. She has also held senior HR
roles at a number of other leading
organisations, including Standard
Chartered Bank and HSBC.
Other current appointments
•
SThree PLC, senior independent
non-executive director and chair
of remuneration committee
•
British Heart Foundation, chair
of remuneration and people
committee and member of
nomination committee
•
EMIS Group PLC independent
non-executive director and chair
of remuneration committee
Michael Holt (61)
Independent non-executive
director and designated
Colleague Engagement NED
Year of appointment: 2018
Gender: Male
Ethnic Origin: White
Citizenship: British
Disability: None
Michael possesses relevant
commercial and operational
experience gained within the
logistics and distribution industries.
With his detailed understanding
of the distribution sector and its
opportunities and challenges,
Michael provides an independent
voice and commercial sounding
board in the development and
execution of the
C
ompan
y
’
s
strategy
and business ambitions.
Michael is currently Executive
Chairman of Tuffnells Parcels
Express and plays an active role in
the supervision and management of
its business. He was formerly Chief
Operating Officer of FedEx Express,
Europe until the end of September
2018 and held a number of other
senior executive roles with FedEx
Corporation since 2006. Prior to
that, Michael held senior executive
roles at a number of leading logistics
organisations, including ANC
Group, where he was instrumental
in leading the turnaround of the
business from a position of loss-
making to industry-leading margins
and strong profit recovery prior to its
successful sale to FedEx in 2006.
Other current appointments
•
Tuffnells Parcels Express Limited,
Executive Chairman
A
N
R
A
N
R
D
Stuart Marriner
Stuart supports and attends the
Board as Company Secretary
and General Counsel.
Stuart joined the business in
October 2008 and is responsible
for business, legal and regulatory
support. Prior to joining the
Company, he had spent four
years as a corporate finance
solicitor, including extensive
periods on secondment with
Somerfield Stores and Punch
Taverns. Stuart was appointed as
Company Secretary and General
Counsel on 1 September 2011
and continues to lead the legal
and company secretariat teams.
A
N
R
D
AP
S G F 65
Gender and ethnic
diversity
The Board has taken note of the
recent publication by the Financial
Conduct Authority (FCA) of
the policy statement regarding
changes to the Listing Rules (LR
9.8.6R(9)), encouraging enhanced
disclosures in relation to gender
and ethnic diversity at Board level
for financial years starting on or
after 1 April 2022. While this is
therefore not yet applicable to the
Company for this reporting period,
two of the
C
ompan
y
’
s
largest
shareholders had each raised
Board diversity as a future voting
concern for them. Hence, the
Board is very mindful of this future
requirement, as well as possible
sectoral experience and expertise
gaps in the Board’s composition
vis-a-vis future strategic
opportunities and initiatives, and
has already initiated an external
search process to identify suitable
candidates that may be open to
joining the Board during FY2023.
Further details are set out in the
Nominations Committee report
on pages 90 to 93.
/
Corporate Governance Report
Smiths News plc
Annual Report and Accounts 2022
In accordance with the provisions
set out in the 2018 edition of
the UK Corporate Governance
Code (the Code), at the time of
his appointment to the Board as
Chairman, David Blackwood was
independent. The Board considers
that all non-executive directors are
independent. The Board has formal
procedures for the declaration,
review and authorisation of
conflicts of interest of Board
members. Conflicts are considered
and, where appropriate, authorised
by the Board on an annual basis.
In addition, directors are requested
to declare any conflicts at the start
of all Board meetings. The Board
was satisfied that none of the
directors had any conflict of interest
during the year which could not be
authorised by the Board. For details
of current situational conflicts
notified by the directors, please see
the Other Statutory Disclosures
report on page 119.
Board evaluation
FY2022 saw the external board
evaluation process take place
in keeping with the three-year
externally facilitated evaluation
cycle. The evaluation process
was undertaken by the Chartered
Governance Institute (CGI)
following a selection process
overseen by the Board and which
included the consideration of four
different service-providers. The
Board concluded that CGI was
best able to deliver an effective
evaluation process given the depth
of their knowledge and experience,
while also taking into consideration
service delivery, cost effectiveness,
availability and the requirement
that the Company should not have
a prior relationship with the same
reviewer for more than six years.
The evaluation process agreed
with CGI included a confidential,
structured one-on-one interview
with each of the six directors and
Culture and values
the Company Secretary, centred on
the quality of seven aspects of the
Board’s performance as follows:
•
Board and Committee Roles
and Responsibilities
•
Oversight
•
Board and Committee Meetings
•
Support for the Board and
Committees
•
Board Composition
•
Working Together
•
Outcome and Achievements
Overall, the Company achieved a
“Very Good” result, with an average
score of 83% across all areas (based
on directors’ individual perceptions
of the Board’s effectiveness),
acknowledging that the Board
is operating effectively and in
accordance with good corporate
governance principles. A small
number of recommendations were
made where changes could assist
the Board’s effectiveness and
oversight of management, and these
have since been endorsed by the
Board, including continued focus on
‘stretch’ performance by executives,
enhanced Board oversight of our
associated businesses and a refresh
of the Board’s risk appetite approach.
In addition to addressing the
outcomes of this year’s external
evaluation process, the Board has
also focused on the identified key
takeaways from the 2021 internal
Board evaluation review process,
and we are pleased to report
that we have made progress to
address those previous actions
and recommendations, including
enhancing and improving our
colleague engagement mandate
through the National Colleague
Engagement Forum (please
see page 15), strengthening the
relationship between management
and the external advisor to the
Remuneration Committee, fostering
an environment where minority
groups can progress and flourish
within our business (please see
the Nominations Committee report
on page 90), and developing and
implementing the
C
ompan
y
’
s
Sustainability programme and its
regular reporting to the Board as a
standing quarterly agenda item.
The CGI subscribes to the Code of
Practice for board reviewers and was
able to demonstrate that it complied
with the principles of competence
and capacity, independence and
integrity, and ensured that the terms
of engagement were clearly and
unequivocally agreed in writing
prior to the commencement of the
r
eview process. The CGI was given
the opportunity to review the public
statement made by the Company
in relation to the Board evaluation
process prior to publication. For
further details, please see Code of
Practice for Board Reviewers at
https://www.cgi.org.uk/assets/files/
pdfs/Publications/code-of-practice.
pdf.
Director appointments
and training
The Board has an agreed director
appointment and induction
programme which includes
a comprehensive and up-to-
date Directors’ Toolkit, which is
supplemented with one-to-one
meetings and on-site visits to
some of the
C
ompan
y
’
s
locations,
as appropriate. No director is
appointed or nominated by a
stakeholder, with all directors being
identified through, and appointed
following, an extensive external
search agency process. Selection
decisions are based on merit
and the Board strives to ensure
that recruitment activities are fair,
transparent and non-discriminatory.
The Board understands the
importance of succession planning
which is an objective process
based on merit and the assessed
skills, experience and needs of the
business and Board at the time,
while seeking to promote and
uphold our policies, including that
on equality, diversity and inclusion
across multiple criteria. Please see
the Nominations Committee report
on page 90.
All directors are subject to annual
re-election by shareholders at
Annual General Meetings, where
letters of appointment for each
non-executive director are available
for inspection. Set out in the Notice
of Annual General Meeting for 2023
is information on the skills and
experience of each director seeking
re-election.
Directors share developments and
regulatory updates within their
areas of expertise with fellow Board
members, who also receive briefings
across areas of the
C
ompan
y
’
s
business from both management
and external experts as and when
necessary. A quarterly newsletter
containing a summary of current
topical issues is circulated and
individual directors are encouraged
to raise any specific training
needs. Focus areas in FY2022
included diversity (generally,
but also with in-depth gender
and ethnicity considerations),
sustainability (generally, as well as
framework developments, action
planning and TCFD reporting),
stakeholder engagement (employee
engagement and representation,
as well as shareholder trends
and expectations), annual
reporting expectations and AGM
considerations, policy development,
culture, modern slavery compliance
and Companies House developments.
The Company Secretary and
General Counsel is responsible for
the timely and complete distribution
of information to the Board and
all directors have direct access to
the Company Secretary for advice,
including independent professional
advice, where appropriate, at the
C
ompan
y
’
s
expense.
Make informed Be imaginative, curious Safe, reliable and Share your thoughts Have fun and be helpful. Be inclusive, honest and
decisions and act
quickly. Be agile in the
way we work together
and deliver for our
customers.
and adventurous.
Develop inspirational
ideas and innovative
solutions.
responsible. Take
pride in our work and
do the right thing for
each other and our
customers.
freely and stay open
to new ideas. Listen
to others, be positive
and engage in
communications.
Enjoy working together
to deliver a great
performance.
respectful to everyone,
whatever their role or
experience.
Quick
Creative
Trusted
Open
Friendly
Fair
66 G
Smiths News plc
Annual Report and Accounts 2022
The Board supports and promotes our culture and values, which are integral to our decision-making, and which are evident in the way in which we
interact with one another. The Board is responsible for overseeing how our culture and values are integrated into our business, so that everyone is
treated with respect and that our values are brought to life in the way we work together. Culture is, by definition, intangible, and thus the Board believes
that the best way to measure whether our values-based culture is instilled throughout the Company is by listening to the organisation and making use
of a number of measurement tools to validate and corroborate information in support of this process.
How the Board oversees and monitors culture
Listening and understanding Business dealings and activities
The Board looks to understand what is
important to our stakeholders based on
balanced and actual views and priorities
(rather than perceptions), so as to gain
a more informed position and to better
understand the extent to which our
values are truly embedded within the
business and what we do. The Board
understands there is no substitute for
‘walking the shopfloor,’ to ensure it has
a real understanding of the culture at
different levels of the business and is able
to intervene before cultural problems take
hold. Board meetings are held at locations
across our business and directors
periodically visit our operational sites not
only as an opportunity to find out what
is going on but also to demonstrate the
importance and presence of the Board.
This process also assists in determining
the effectiveness of our policies and
procedures, to gain a more informed
perspective of colleague issues and
concerns, to assess the outcomes of
proactive and remedial activities and to
ensure insight into the priorities of our
stakeholders in general.
Business and stakeholder views
are sought through both physical
engagements and the receipt of reports
and discussions throughout the year.
There have also been direct one-to-
one engagements with both our largest
shareholders during the reporting period
(in order to gauge their expectations and
opinions on a number of matters), as well
as with publishers and customers (in order
to better understand their views on service
performance and category sustainability)
– see Stakeholder Engagement on pages
14 to 17.
The Board challenges and supports
management in the institutionalisation
of our values across the business and
holds management accountable for the
way in which the Company conducts
business and engages with, and reports,
to stakeholders. These engagements and
outcomes are detailed in Stakeholder
Engagement on pages 14 to 17.
•
Management oversight – The Board ensures that functions within the business are both
empowered and resourced appropriately to support our values. Through the receipt of regular
reports to the Board and management (e.g. Health & Safety, People updates, internal audit,
whistleblowing, operational and financial performance, risk, etc) we seek to understand behaviour
throughout the Company and to challenge these behaviours if they fall short of expected values.
These reports include an assessment of potential or actual impact on our stakeholders, as well as
including any concerns about wrongdoing or breaches of law or policy. Please refer also to our
Audit Committee report on page 80.
•
Policies & Procedures – Our values and culture are supported by a number of policies and
procedures, as well as by our Code of Conduct, Anti-Bribery policy, Conflicts of Interest and
Whistleblowing policies. During FY2022, we launched an e-learning module for all colleagues in
order to promote and encourage a better understanding of the
C
ompan
y
’
s
culture, our working
environment and the relationship between the Company and our colleagues. This module
explores the different kinds of company culture and considers how the workplace environment
can play a pivotal role in the success of the Company. It also details how best to create, develop
and transform company culture to suit the changing needs of the business. In addition, we
have compulsory training modules for identified colleagues on a wide range of topics, including
anti-bribery and corruption, money laundering prevention, competition law, data protection and
information security. These modules are provided through our external learning and development
partner and are accredited by the CPD Certification Service, which is an independent accreditation
service compatible with global CPD principles. Our Procurement policies (which reference our
Modern Slavery Statement) make clear our expectations for our supply chain network with regard
to business practices and what our suppliers and customers can reciprocally expect from us in
the way that we interact with them. Customer complaints are reviewed and followed up, with
potentially serious matters being brought to the attention of the Board.
•
Talent and Performance Management Systems – We have a culture and value lens in our
performance management system, comprising a dedicated area of assessment which challenges
colleagues to consider company values and how their actions align with those values. We respect
our colleagues and understand that the
C
ompan
y
’
s
culture resides in our people and their
actions, thus the attitude of our colleagues is a good indicator of our culture and engagement.
Through a variety of processes, we seek to measure and report on our human capital including,
amongst others, employee engagement and satisfaction, retention rates, total workforce and our
investment in their training and development, as well as ongoing measurement and impact of
gender pay gaps, adoption of share incentive schemes, executive pay, and workforce composition
and demographics. In this way, we seek to overlay results from our employee engagement pulse
surveys with other data points to build a more informed picture. We have fair and transparent pay
practices and report and consult in this area regularly. Please see the People report on page 30
and the Directors’ Remuneration report on page 94).
•
Risk management and Internal Audit processes – We are aware that it is necessary to remain
vigilant in all our business dealings and, as a result, we maintain strict financial discipline and
risk management processes throughout what we do. We do not tolerate breaches of our rules
or procedures, nor do we encourage short-cuts to be taken. Our Internal Audit function is both
independent and accountable and communicates any concerns about the values and culture
to the Board.
•
Strategy development – As we look at our strategy (see page 6) and growth opportunities,
we have also considered the impact of any such opportunities on our stated values. We see culture
and the upholding of our values as intrinsic to how our business is managed today and tomorrow,
and thus the Board seeks assurances that our operations and strategic priorities are aligned with
our values and that our business model and practices remain compatible with our values.
S G F 67
/
Smiths News plc
Annual Report and Accounts 2022
Corporate Governance Report continued
We strive to ensure our values become part of our daily interactions, highlighted through the following illustrations of activity:
•
Town Hall meetings, reinforcing our values and culture
•
Line managers reinforcing culture and values
•
Mental health ally support networks
•
Extra mile recognition awards for colleagues displaying exceptional performance
•
Colleague hardship/support fund
•
‘
L
ove to Shop’ vouchers for colleagues as recognition of their important part in contributing to our business performance
•
Publication of our volunteering policy
•
Continued collection of charitable donations from colleagues through our payroll processes
•
Improved access to our intranet and the cascade of information relevant to colleagues (SmithsZone)
•
Continued financial and operational support for the Pass-it-On charity
•
Talent development, appraisals and reward processes
•
Colleague engagement forums.
Further information on our values can be found in the People report on page 30.
Whistleblowing
Reports
received in
FY2022
Reports
investigated
and closed
Outstanding
investigations
We recognise that matters or behaviours may go awry from time to time within any business.
When they do, we have a robust procedure to allow such matters to be raised confidentially and
without fear of reprisal. These are then independently investigated and followed-up. The Audit
Committee receives regular reports in this regard and the Chairperson will additionally raise any
concern at the Board.
5
5
0
Board activities in FY2022
Supporting
our values
Addressing
principal risks
Governance
•
Participated in external Board, Committee and director evaluations
•
Reviewed directors’ conflicts of interest
•
Reviewed terms of reference of Board Committees, reserved and delegated matters
•
Reviewed various policies, including the prevention of modern slavery, anti-bribery &
fraud and the
C
ompan
y
’
s
Competition Policy manual
•
Approved the interim financial results and the annual report and accounts
•
Received reports from the
C
ompan
y
’
s
advisers, including its corporate brokers
•
Monitored engagement with stakeholders, including responses to our 2022 AGM and
voting outcomes
•
Review of our vision statement and strategy
•
Received updates on the impact to stakeholders of operational and strategic matters
•
Reviewed the external evaluation of the Board and its Committees
•
Received and reviewed whistleblowing reports and activities
•
Macroeconomic
Uncertainty
•
Legal & Regulatory
Compliance
•
Growth &
Diversification
•
Sustainability &
Climate Change
Finance
•
Agreed new terms to our Senior Finance Agreement
•
Approved our tax strategy
•
Approved and monitored budgets and business plans
•
Considered the declaration of dividends and the merits of other forms of distribution
•
Considered and approved our trading statements, half-year and full-year reports
•
Reviewed financing structures and external financing arrangements
•
Oversaw financial performance, legal and regulatory matters
•
Revisited and revised policies
•
Considered mitigations to the current inflationary environment
•
Macroeconomic
Uncertainty
•
Legal & Regulatory
Compliance
•
Growth &
Diversification
68 G
Key
Quick
Creative
Trusted
Open
Friendly
Fair
Smiths News plc
Annual Report and Accounts 2022
Board activities in FY2022
Supporting
our values
Addressing
principal risks
Business review, performance and strategy
•
Approved and monitored progress against management’s key business imperatives
•
Considered business growth and development opportunities
•
Considered and approved our capital allocation strategy
•
Considered and approved our sustainability strategy, implementation and action
planning and TCFD reporting
•
Reviewed performance and reward
•
Reviewed business continuity plans
•
Considered planning for publisher contract renewals in 2024-2026
•
Macroeconomic
Uncertainty
•
Acquisition &
Retention of labour
•
Legal & Regulatory
Compliance
•
Growth &
Diversification
•
Sustainability &
Climate Change
Audit, internal controls and risk
•
Reviewed business-wide risks, risk appetite and mitigating actions, including
an in-depth credit risk review of our customers and category sustainability
•
Received reports from the Audit Committee chairperson
•
Ongoing assessment of the effectiveness of internal controls and processes
•
Monitored health and safety strategy and activity through monthly Board reports
•
Monitored cyber security & data protection compliance
•
Ongoing monitoring of the transition to the internal audit model
•
Approved the going concern statement and assessment of viability, valuation
of investments and principal and emerging risks
•
Reviewed performance of the statutory auditor and received and considered
recommendation for their appointment and fees
•
Macroeconomic
Uncertainty
•
IT Infrastructure &
Cyber Security
•
Legal & Regulatory
Compliance
•
Changes to retailers’
commercial model
People
•
Received regular updates from the Remuneration Committee on remuneration
and performance
•
Considered and approved various employee share awards (SAYE, LTIP and
deferred bonus)
•
Reviewed Directors’ Remuneration Policy and undertook consultation with
key stakeholders
•
Received pension fund updates
•
Reviewed employee engagement and employee satisfaction survey results
•
Supported equality, diversity and inclusion (introduced as standing board agenda item)
•
Received reports on colleague engagement forums
•
Recruited a new Chief Financial Officer to replace our retiring CFO
•
Acquisition &
Retention of labour
•
IT Infrastructure &
Cyber Security
•
Legal & Regulatory
Compliance
S G F 69
/
Smiths News plc
Annual Report and Accounts 2022
Corporate Governance Report continued
Creating sustainable value with our stakeholders (S172 of the Companies Act 2006)
Every director continues to be aware of their primary duty to act in good faith and in a way which is likely to promote the success of the Company
and to the benefit of its members as a whole. In conducting its business, the Board remains mindful of the need to ensure the long-term sustainable
success of the Company and to generate value for shareholders, while contributing to wider society. The Board recognises the responsibilities it has
to all its stakeholders and, to this end, remains committed to both the intent and spirit of s172 of the Companies Act 2006. In considering the issues
and factors identified as significant, the Board has determined that those relating to strategy, transformation, restructuring, corporate development and
capital allocation require consideration. However, it also reviews other areas which may equally be considered priorities by key stakeholder groups
and will include these in its deliberations and decision-making processes from time to time. Separately, it seeks to consider all positions, balancing
competing interests in a fair and transparent manner, in the best interests of the Company as a whole. The Board understands that such conflicts may
exist between the long-term and short-term good of the Company, between shareholders and colleagues or even between groups of shareholders with
different investment agendas, etc.
The B
oard uses a number of ways to determine relevant issues which may arise from our key stakeholders, including the receipt of reports, expert
opinions and extensive stakeholder engagement. The Board continues to keep engagement mechanisms under review, to ensure they remain relevant
and deliver the desired outcomes and, to this end, the National Colleague Engagement Forum was refreshed in the year, to ensure the right mix of
colleagues and that the designated non-executive director who attends the meetings can maximise engagement with our workforce. The Board
continues to assess its approach to engagement within the workplace, and remains of the view that the dedicated focus of a designated non-executive
director (Michael Holt) is the best means for effective colleague engagement at Smiths News. In the role of designated workforce engagement
director, Michael Holt is responsible for ensuring that he meets regularly with the National Colleague Engagement Forum (and any other agreed
representatives) so as to understand colleague issues and concerns and to provide an opportunity for two-way sharing of information, in order to foster
an understanding of the business across all levels. Michael is also tasked with providing regular formal and informal feedback to the Board.
We have set out in our Stakeholder Engagement/Section 172 report (please see page 14) the key stakeholders to our business, what is important
to them and how their opinion impacts our strategic decisions and long-term success, how we have engaged with them and what the outcome was
of those engagements.
Compliance with the UK Corporate Governance Code
This section of the Annual Report, together with the Audit Committee report on page 80, the Nominations Committee report on page 90 and the
Directors’ Remuneration report on page 94, describes how the Company has applied the main principles contained within the 2018 edition of the UK
Corporate Governance Code (the Code). The Company confirms that, throughout the 52-week period ended 27 August 2022, it has complied with the
principles and provisions of the Code.
The following table is a demonstration of our compliance with the Code during FY2022, which includes cross-references to other parts of the Annual
Report (where relevant) to assist readers with reviewing our compliance during the reporting period.
A copy of the 2018 edition of the Code can be found on the Financial Reporting
C
ounc
il
’
s
website at www.frc.org.uk.
70 G
Smiths News plc
Annual Report and Accounts 2022
Compliance with Principle/Provision disclosure
1. Board Leadership and Company Purpose
A. Board Leadership
A description of how the Board operates, including an overview of the types of decisions reserved for the Board and those delegated to
management are set out in this Corporate Governance report. Each year, the Board conducts a thorough evaluation of its (and each individual
director’s) performance in the year, with an externally facilitated evaluation being carried out every three years. The output of each such review
highlights the merits and effectiveness of the Board and each director in the last 12 months and identifies learnings, reflections and action areas
to be taken forward in order to promote the long-term sustainable success of the Company.
B. Company Purpose
The
C
ompan
y
’
s
purpose, business model and strategy is set out within the Strategic Report and reflects the latest views of the Board following a
strategic and business planning session held in July 2022. Our Values and Culture are aligned with our strategy, are periodically reviewed and are
extensively promoted throughout the business and form an intrinsic part of how we operate. Further details are explained within our People report
on page 30.
C. Objectives and Controls
The
C
ompan
y
’
s
objectives and KPIs are set out within the Strategic Report. The Board receives regular updates across a broad range of internal
KPIs and performance metrics. The Company has a clear framework in place to continuously identify and review the risks to the business as
explained further within our principal risks report on page 42. We have an extensive control framework, which includes a system of internal
control, including risk management and a process for reviewing its effectiveness. A detailed report on the control framework is set out in the Audit
Committee report on page 80.
D. Engagement
An overview of how the Company engages with its stakeholders is set out within the Stakeholder Engagement section of the Annual Report. In
order to facilitate engagement with investors, following the announcement of the
C
ompan
y
’
s
full year and interim results, formal presentations are
made to institutional shareholders by the Chief Executive Officer and Chief Financial Officer covering a range of key issues affecting the
C
ompan
y
’
s
performance and process. The presentations are available to view on the
C
ompan
y
’
s
website. In order to reach out to our increasing retail investor
base, we continue to present to investors and prospective investors on retail investor platforms and, as part of such engagement measures, invite
investors and prospective investors to participate in a Q&A sessions with the Chief Executive Officer and Chief Financial Officer.
Separately, the Chief Executive Officer and Chief Financial Officer report latest shareholder views to the Board at each Board meeting and following
any meetings held with our largest shareholders, whilst independent feedback from shareholders is further provided to the Board by the
C
ompan
y
’
s
advisers and brokers on a periodic basis.
Similarly, such information is also shared with colleagues through, inter alia, ‘Town Hall’ meetings hosted by the Executive Team, on our intranet and
via a cascade of ‘key messages’ as part of the
C
ompan
y
’
s
colleague engagement forums, which facilitate the views of colleagues from across the
business which are reported to the Board.
In addition, during the year as part of our investor relations activity, meetings were held with our largest institutional shareholders and financial
analysts to discuss (inter alia) business performance, strategy, diversification and process, including their views on the merits of share buy-backs,
dividends, the
C
ompan
y
’
s
refinancing concluded in the reporting period and on the
C
ompan
y
’
s
diversification metrics and ambitions. Further, as
part of an informed investor consultation process, investor views were also canvassed regarding the proposed Directors’ Remuneration Policy to be
presented for shareholder vote at our 2023 AGM.
Following an extended period of Government restrictions on large gatherings, the Annual General Meeting returned to a physical meeting in January
2022 and provided further opportunity for investors to engage directly with the Board and, for those unable to attend, to ask questions outside of the
meeting via our Investor Relations email inbox.
Finally, other key stakeholders interests have been represented and consulted in relation to financial performance, governance, strategy and process
through ad hoc presentations made by the Chief Executive Officer and/or Chief Financial Officer to the
C
ompan
y
’
s
lenders, customers and with our
colleagues – see section 5 below for further details.
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Corporate Governance Report continued
Compliance with Principle/Provision disclosure
1. Board Leadership and Company Purpose continued
E.
Workforce
On a regular and ongoing basis, the
C
ompan
y
’
s
employee policies and manager guidelines are revisited (and updated, where required), to ensure
that they are fully aligned with any strategic and/or regulatory changes. A regulatory and policy steering committee is in place to ensure that
cross-functional representation is included in the review of all such policies and that the
C
ompan
y
’
s
values are best reflected in support of the
C
ompan
y
’
s
long-term sustainable success. As part of this process, the Board itself reviews various key policies, to ensure an appropriate ‘tone from
the top’ message is communicated to all colleagues, including in respect of policies for the prevention of modern slavery, anti-bribery & fraud and
competition law.
Further, to encourage colleagues to raise any matters of concern which may arise from time to time, the Company operates a confidential ‘speak
up’ whistleblowing line and has separately approved both an ‘Open Door’ and Whistleblowing Policy which seeks to raise awareness amongst
colleagues and encourages a culture of appropriately calling-out any concerns that they may have.
1. Business Model and Risk
The
C
ompan
y
’
s
business model and principal risks are set out in more detail in the Strategic Report on pages 2 to 57. The Sustainability Report
provides greater detail on the sustainability of the
C
ompan
y
’
s
business model and how its governance, metrics and focus areas agreed from time
to time contribute to the delivery of our strategy.
2. Cultural Alignment
The Board continues to regularly monitor the ongoing implementation and effectiveness of the
C
ompan
y
’
s
stated Culture and Values. Focus in the
year has continued to build on a culture of inclusion, through our continued promotion and recognition of our Values and our ongoing diversity and
inclusion agenda. Our EveryoneIn colleague working group continues to represent the diversity of our business and to drive initiatives and activities
to both educate and raise awareness. This year we have had a targeted calendar of activity, celebrating a whole range of nationally recognised
events – such as Pride, Mental Health Awareness Week, International Women’s Day and a wide variety of religious celebrations. Our EveryoneIn
group are actively working to set up ‘network groups’ for underrepresented colleagues across our business, and they have conducted a programme
of focus groups and spoken to a representation of colleagues to gain insight and feedback as to what is important to them. We have also been keen
to ensure that our focus is driven by feedback both internally and by external benchmarking, therefore in November 2021, we launched our first D&I
Engagement survey, which gave us rich insight and data to shape activities. In June 2022, we launched an external audit of all our full recruitment
processes to further identify improvements on how we attract a diverse workforce.
We continue to focus on developing our communication strategy and ensuring that our communications are received and accessed by colleagues.
The virtual approach we adopted during COVID-19 restrictions continues to be a great way to share key messages across all our colleagues. We
continue to develop these in terms of format, timing and content as we receive feedback from our colleagues. This year has also seen us introduce
new communication channels, with our Senior Leadership conferences that we hold face-to-face every eight months and the rollout of our new
Company Intranet.
Our ‘What Matters’ engagement survey continues to support us in understanding how our values are demonstrated across the organisation and
how much we are embedding our desired culture. This year, we have moved from an annual survey to a quarterly ‘pulse’ survey. This continuous
measurement approach has enabled the business to understand how colleagues are feeling throughout the year, rather than relying on a single
point in time. Colleagues have responded positively to this modernised approach, with an increase in both participation levels and overall
engagement score. The Board plays an active role in reviewing these results and determining the appropriate action plans and priorities. The
engagement survey results drive our focus across the people team and the business and help to inform future decision-making – further details of
which are set out in our People report on page 30.
We undertake workforce planning; performance, talent and succession initiatives; and learning and development programmes with goal setting
remaining a strong driver for the business, measuring what we are expected to deliver as a team and how well colleagues understand how the work
they carry out supports the goal of their team. Our approach to workforce remuneration is set out in more detail within our Directors’ Remuneration
Report on page 94. Management regularly receives whistleblowing and employee relations reports on deviations in stakeholder behaviours, taking
corrective action where required.
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Compliance with Principle/Provision disclosure
1. Board Leadership and Company Purpose continued
3. Shareholder Engagement
We recognise the importance of communicating with our shareholders. Each of the Chairman, the Senior Independent Director and/or Committee
chairs seek to engage with our largest shareholders and make themselves available during the year to attend meetings with major shareholders,
either remotely or in person as circumstances allow.
During the year, the Chairman, Senior Independent Director and/or Company Secretary engaged with some of our largest shareholders, to discuss
matters of governance, strategy, diversification and process, including their views on the merits of share buy-backs, dividends, the
C
ompan
y
’
s
refinancing concluded in the reporting period and on the
C
ompan
y
’
s
diversification metrics and ambitions. Further, as part of an informed investor
consultation process, investor views were also canvassed by the Remuneration Committee chair regarding the proposed Directors’ Remuneration
Policy to be presented for shareholder vote at our 2023 Annual General Meeting.
As outlined above, the Board receive regular investor relations reports, which include up-to-date statistics and dashboard reports from
management, advisers and brokers.
4. Votes Against Proposed Resolutions
There were no significant dissenting votes registered against any of the resolutions put to the 2022 Annual General Meeting.
5.
Stakeholder Engagement – Workforce
The Board has continued to review the way it engages with all stakeholders, including undertaking and considering a stakeholder impact
assessment in respect of Board decisions which may have a potential material impact on stakeholders. This enables the Board to consider such
matters and the potential impact of such decisions on affected stakeholders and ensures the implementation of an effective process to fully adhere
to the provisions of section 172 of the Companies Act 2006.
In engaging with the workforce, the Board makes use of a number of chosen methods in order to better understand the views of the workforce
as set out below. These methods each supplement the primary mechanism taken by the Board to promote workforce engagement through
the appointment of a designated non-executive director (Michael Holt) who informally updates the Board following attendance at the National
Colleague Engagement Forum, thereby giving the Board direct access to the important views and voice of our frontline and corporate centre
colleagues. Key issues discussed and action taken in the year included the introduction of published fair pay principles for colleagues; the
commitment and scope of capital expenditure investments to be made across our locations; the merits of and issues arising from the launch of
benefits roadshows to colleagues to ensure that, in the current economic climate, colleagues have a good understanding and ability to access all
benefits available to them; and the sharing of plans to introduce technology assets at our locations to help colleagues access literature and relevant
information where they may not otherwise have tools to access such information or training resources.
These additional workforce engagement methods include:
•
the
C
ompan
y
’
s
local and regional employee engagement forums which take place on a monthly or quarterly basis respectively, the output of
which is directed to the National Colleague Engagement Forum;
•
the continued support of specialist Colleague Consultation Forums, representing a standing team of 12 colleagues from across the business and
trained by ACAS, to provide a platform for formal consultation in discussions around significant business change or material changes proposed
in relation to employee benefits etc. Key areas of consultation in the year included the introduction of a redundancy policy alongside the removal
of the historic two-tier redundancy pay approach in favour of the implementation of a single approach to enhanced redundancy payments for all
colleagues;
•
quarterly virtual ‘Town Hall’ meetings hosted by the Executive Team, targeting two-way communication with all colleagues; and
•
newsworthy items and updates on the newly launched Company-wide intranet ‘SmithsZone’ which is more accessible to colleagues than the
previous version ‘The Angle,’ and/or published in the
C
ompan
y
’
s
quarterly newsletters (‘Our News’) available to all colleagues, either as paper
copies or digitally.
Following the lifting of COVID-19 restrictions, site visits by our Executive Team and Board members have been far easier, with a combination of
night visits, informal walk arounds and joining local colleague forum and team meetings.
An overview of how the Company engages with all stakeholders is also set out within the Stakeholder Engagement section of the Annual
Report and an overview of how stakeholder views are taken into consideration in Board discussions and decision-making is set out in the Board
activities table.
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Annual Report and Accounts 2022
Corporate Governance Report continued
Compliance with Principle/Provision disclosure
1. Board Leadership and Company Purpose continued
6. Whistleblowing
To encourage colleagues to raise any matters of concern, the Company operates a confidential ‘speak up’ whistleblowing line and has approved
‘Open Door’ and Whistleblowing Policies. We continue to raise awareness among colleagues of this facility and more generally to encourage
a culture of appropriately calling-out concerns. The Board regularly receives whistleblowing and employee relations reports which detail the
investigation and follow-up of all notifications.
7. Conflicts of Interests
The Board confirms that a formal system for the declaration of conflicts of interests continues to be in place and, as part of such system, the
C
ompan
y
’
s
Articles of Association permit the directors to consider and, if thought fit, authorise situations where a director has an interest that
conflicts, or may possibly conflict, with the
C
ompan
y
’
s
interests. In deciding whether to authorise a conflict or potential conflict, the non-conflicted
directors must act in a way they consider would be most likely to promote the
C
ompan
y
’
s
success and they may impose limits or conditions when
giving their authorisation, or subsequently, if they think it is appropriate. Any authorisation given is recorded in the Board minutes and the Board
subsequently monitors and reviews potential conflicts of interest on a regular basis.
No new situational conflicts of interest were notified to the Company in the reporting period and, where a business conflict arose in relation to a
particular area of Board discussion, the conflicted director recused himself from the matter and complied with the terms of the
C
ompan
y
’
s
conflicts
of interest guidance. For details of current situational conflicts notified by the directors, please see the Other Statutory Disclosures on page 119.
8. Unresolved Concerns
No unresolved concerns about the running of the Company or a proposed action were raised by any director in the reporting period.
2. Division of Responsibilities
F. Chairman
The responsibilities of the Chairman are set out in this Corporate Governance statement and are set out in writing and agreed by the Board.
G. Division of Responsibilities
A statement of how the Board operates, including an overview of the types of decisions reserved for the Board and those delegated to management
is set out in this Corporate Governance statement and are set out in writing and agreed by the Board.
H. Non-Executive Directors
The Board is satisfied that the external commitments of the Chairman and the non-executive directors set out in their biographies do not conflict
with their duties and commitments to the Company and that any new commitments are disclosed to the Board.
I. Functioning of the Board
Board meetings are structured to enable the Board to discharge its duties and to promote the success of the Company; this is achieved by way of
an annual agenda planner which is reviewed and updated at each Board meeting and the timely distribution of supporting papers in preparation for
meetings, with a sufficient level of detail and supplementary information for the Board to take decisions.
The Board receives regular updates on matters such as strategy; financial, operational and management reporting; health and safety; investor
relations; and IT security and corporate governance, in addition to ad hoc matters for consideration, such as material transactions or strategic items.
All directors have access to independent professional advice at the
C
ompan
y
’
s
expense, as well as the advice and services of the Company
Secretary & General Counsel.
9. Independence of Chairman
David Blackwood was independent on appointment in May 2020.
The division of responsibilities between the Chairman and Chief Executive Officer are set in this Corporate Governance statement and are set out
in writing and agreed by the Board.
10. Independence of Non-Executive Directors
During FY2022, all non-executive directors were, and continue to be, independent.
11.
Board
Independence
During FY2022, all three of the non-executive directors (excluding the Chairman) were considered to be independent and, therefore, at least half
of the Board were independent non-executive directors.
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Compliance with Principle/Provision disclosure
2. Division of Responsibilities continued
12. Senior Independent Director
Mark Whiteling became Senior Independent Director on 23 January 2018.
The Senior Independent Director leads the annual appraisal of the
C
h
air
m
an
’
s
performance.
13. Performance of Executive Directors
The Remuneration Committee receives regular updates and reports from management on the achievement of objectives and regularly challenge
management on its performance.
The Chairman held five meetings during the reporting period with the non-executive directors, without the executives being present.
14.
Role
Responsibilities
The responsibilities of the Chairman, Chief Executive Officer, Senior Independent Director and the Terms of Reference for each of the Committees
are set out in writing and agreed by the Board.
The Board held 11 scheduled meetings during the year as set out in the directors’ attendance table of this report on page 58.
15. External Commitments
The Board is satisfied that the external commitments of the Chairman and the non-executive directors do not conflict with their duties and
commitments to the Company. Any new commitments require the prior approval of the Chairman (or, in the case of the Chairman, of the Senior
Independent Director in conjunction with the Chief Executive Officer) and are disclosed to the Board.
16. Company Secretary
All directors have access to independent professional advice at the
C
ompan
y
’
s
expense, as well as the advice and services of the Company
Secretary & General Counsel.
3. Composition, Succession and Evaluation
J.
Board
Appointments
A description of the work of the Nominations Committee is set out in the Nominations Committee report on page 90. The Committee receives
an annual update on succession planning for the Board and senior management.
In May 2021, Tony Grace (former Chief Financial Officer) indicated his desire to step down from the Board and to retire by the end of the 2021
calendar year. Having considered the merits and opportunities of internal candidates as part of succession planning, the Board concluded that an
external search process would be undertaken which ultimately concluded in the appointment of Paul Baker in August 2021 (with a joining date
of 4 October 2021). Russell Reynolds Associates was engaged to assist in the search process. Russell Reynolds Associates has no connection with
the Company or the directors and selection decisions were based on merit and recruitment activities were fair and non-discriminatory.
As part of the Nominations
C
ommi
tt
ee
’
s
work in the reporting period, it was mindful that two of the
C
ompan
y
’
s
largest shareholders had each raised
Board diversity as a future voting concern for them, not least in part to the changing regulatory landscape on gender and ethnic diversity under
LR 9.8.6R(9) of the
F
C
A
’
s
Listing Rule regime. As a result of this and mindful of sectoral experience and expertise gaps in the Board’s composition
vis-à-vis strategic growth initiatives, the Board has initiated an external search process to identify suitable candidates that may be open to joining
the Board during FY2023. Further details are set out in the Nominations Committee report on page 90.
K. Board Membership
A description of the work of the Nominations Committee is set out in the Nominations Committee report on page 90.
L. Board Evaluation
A performance review of the Board, its Committees, the Chair and individual directors is carried out annually, and an externally facilitated evaluation
is carried out every three years, with 2022 being the three-year anniversary of the external process.
The external evaluation was undertaken by the Chartered Governance Institute (CGI) and addressed the quality of each of seven aspects
of the Board’s performance through an interview process, ultimately resulting in a report to the Board incorporating a small number of
recommendations where changes may assist the Board’s effectiveness and oversight of management. This report was presented to the Board
in July 2022 and action points agreed in order to promote good corporate governance principles and achieve ongoing continuous improvement
processes. Following its review, the Board has concluded that both it and its Committees continue to operate effectively and in accordance with
good corporate governance principles.
After the period-end, each individual director’s performance was also assessed by their peers. One-to-one discussions were held between the
Chairman and each director to discuss their contribution and performance during the year along with any training needs. A meeting of the non-
executive directors was led by the Senior Independent Director, in which the performance of the Chairman was discussed.
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Compliance with Principle/Provision disclosure
3. Composition, Succession and Evaluation continued
17. Nominations Committee
The Board has established a Nominations Committee and its terms of reference are available on the
C
ompan
y
’
s
website. A description of the work
of the Committee is set in the Nominations Committee report, including its approach to succession and diversity.
Membership of the Nominations Committee is set out in the Nominations Committee report on page 90.
18. Director Re-Election
The
C
ompan
y
’
s
Articles of Association require that directors offer themselves for re-election every three years and that new directors appointed by
the Board offer themselves for election at the next Annual General Meeting following their appointment. However, it is the Board’s practice that all
directors stand for re-election at the Annual General Meeting.
Following the performance evaluations for the continuing directors, each director was confirmed as committed and effective in performing their
duties and are accordingly proposed for re-election with full details of the reasons set out in the Notice of Annual General Meeting.
19. Chair Tenure
David Blackwood was appointed in May 2020 following a rigorous and competitive process undertaken with an external recruitment agency.
The Nominations Committee receives an annual update on succession planning for the board and senior management.
20. Recruitment Agencies
External recruitment agencies are generally used for the appointment of executive and non-executive directors.
21.
Board
Evaluation
A performance review of the Board, its Committees, the Chair and individual directors is carried out annually and an externally facilitated evaluation
is carried out every three years. As set out in Section L above, this year an external evaluation has been undertaken by the Chartered Governance
Institute (CGI). The CGI has no connection with the Company or the directors.
22. Board Evaluation Actions
As part of the annual Board and director evaluation process, the Chairman discusses and agrees with each director their respective needs for
training and development (if any). Ongoing training resources available to the directors include: annual listed company compliance board training,
membership of the Deloitte Academy and other opportunities for promoting continuing professional development, a training and guidance resource
for boards and directors; a programme of head office and business visits; and regular updates from the Company Secretary on governance,
regulatory and legislative changes affecting the business and/or their duties as a director.
23. Work of Nominations Committee
A description of the work of the Nominations Committee is set out in the Nominations Committee report on page 90. See section L above for details
of the Board evaluation process and the People report for details of the
C
ompan
y
’
s
policy on diversity and inclusion, its objectives and linkage to
strategy and relevant diversity data metrics.
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Compliance with Principle/Provision disclosure
4. Audit, Risk and Internal Control
M. Independence of Internal and external Audit
The Board has established an Audit Committee to oversee the independence and effectiveness of the Internal Audit function and the external
auditor, and to review the content and integrity of the
C
ompan
y
’
s
external reporting.
N. Fair, Balance and Understandable Assessment
The Board is responsible for the preparation and approval of this Annual Report and financial statements and considers them, taken as a whole,
to be fair, balanced and understandable and that they provide the information necessary for shareholders to assess the
C
ompan
y
’
s
position and
performance, business model and strategy.
The fair, balanced and understandable assessment is set out in the Financial Review on page 36.
O. Risk and Internal Control
The Board confirms that there is a process for identifying, evaluating and managing the risks we face. A description of the work of the Audit
Committee is set out in the Audit Committee report on page 80.
24. Audit Committee
The Board has established an Audit Committee and the membership is set out in the director biographies.
The Chairman is not a member of the Committee.
25. Role and Responsibility of Audit Committee
The terms of reference for the Audit Committee are available from the
C
ompan
y
’
s
website. A description of the role and responsibility of the Audit
Committee is set out in the Audit Committee report on page 80.
26. Work of Audit Committee
A description of the work of the Audit Committee is set out in the Audit Committee report on page 80.
27. Fair, Balance and Understandable Assessment
The Board is responsible for the preparation and approval of this Annual Report and Group Financial Statements and considers them, taken as a
whole, to be fair, balanced and understandable, and that they provide the information necessary for shareholders to assess the
C
ompan
y
’
s
position,
prospects and performance, business model and strategy.
The fair, balanced and understandable assessment is set out in the Financial Review on page 36.
28. Principal and Emerging Risks
The principal risks assessment is set out on page 42. Emerging risks are identified as part of the
C
ompan
y
’
s
risk management framework, further
details of which are set out in the Audit Committee report on page 80.
29. Effectiveness of Risk Management and Internal Controls
A description of the work of the Audit Committee in relation to monitoring the effectiveness of risk management and internal control is set out on
page 84.
30. Going Concern Assessment
The Going Concern Statement is included within the Financial Review on page 39.
31. Viability Assessment
The Viability Statement is included within the Financial Review on page 56.
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Corporate Governance Report continued
Compliance with Principle/Provision disclosure
5. Remuneration
P.
Policies
Each year, the Remuneration Committee analyses executive remuneration, to ensure that it continues to be aligned to, inter alia, the
C
ompan
y
’
s
values, culture and strategy, and that it also promotes the long-term sustainable success of the Company and without rewarding failure.
Q. Transparency
Through the Remuneration Committee, there is a transparent process to determine remuneration, taking into account the need to ensure there are
no conflicts of interests. No director is involved in deciding their own remuneration outcome. This is set out further in the Directors’ Remuneration
report on page 94.
R.
Discretion
The Remuneration Committee has absolute discretion to consider individual performance, financial performance and prospects of the Company
and any wider context issues, in each case when determining remuneration outcomes. This discretion is reinforced by plan rules which include
best practice discretionary override where appropriate or necessary. The use of discretion is set out further in the Directors’ Remuneration report
on page 94.
32. Independence
The Remuneration Committee and its membership is set out in the director biographies. The Chairman of the Company, who was independent upon
appointment, is a member of the Committee but does not chair it.
The Remuneration Committee Chair has extensive previous remuneration committee experience, having acted as Chief People Officer of major
corporates during her executive career and having served as Remuneration Committee chair for the Company since her appointment in December
2015, together with holding a number of other relevant external appointments.
33. Terms of Reference
The Remuneration
C
ommi
tt
ee
’
s
terms of reference restate the
C
ommi
tt
ee
’
s
responsibility for determining and approving the remuneration
framework for the Chairman, executive directors, senior management team (the Executive Team) and Company Secretary. It further includes review
of remuneration and incentives of the entire workforce, in each case taking into account the values, culture and strategy of the Company.
The terms of reference for the Remuneration Committee are available from the
C
ompan
y
’
s
website. A description of the role and responsibility
of the Remuneration Committee is set out in the Directors’ Remuneration Report on page 94.
34. Fees
Non-executive director fee levels are periodically revisited, to ensure they are not out of line with the market. The fees paid in the reporting period
are set out further in the Directors’ Remuneration report on page 94.
35. Consultants
The Company engages the services of a remuneration consultant. The consultant regularly advises the Remuneration Committee and has a direct
line of reporting to the Committee and its Chair.
36. Policies
The Remuneration Policy approved by shareholders at the 2020 AGM (and the revised policy being presented for shareholder approval at the 2023
AGM with only minimal changes of substance) focuses on the alignment of shareholder and management interests, and includes a 200% of salary
shareholding requirement for all executive directors.
Further, the policy provides that LTIP grant levels adhere with a five-year total vesting and holding period three-year performance period
+
two-year
holding), which has been adopted from FY2018 awards.
Separately, a two-year post-cessation of employment shareholding requirement (excluding self-purchased shares) continues to apply for executive
directors.
The revised Remuneration Policy and the implementation of the current policy in the reporting period are set out further in the Directors’
Remuneration Report on page 94.
37. Recovery and Withholding
The Remuneration Policy provides for Committee discretion specifying that formulaic outcomes can be overridden if an outcome does not reflect
underlying Company performance, investor expectations or employee reward outcome. The scheme rules of the
C
ompan
y
’
s
share incentive plans
explicitly make this clear and include best practice malus/clawback provisions.
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5. Remuneration continued
38. Pensions
Only base pay is pensionable.
The
C
ompan
y
’
s
pension contribution for each of the Chief Executive Officer and Chief Financial Officer is 5% of salary, which is the maximum rate
available to the majority of the workforce.
39. Notice Periods
Executive directors have a notice period of 12 months and do not include any provisions for pre-determined compensation on early termination.
40. Principles
These principles have been adopted and considered by the Remuneration Committee when determining the Directors’ Remuneration Policy and
its implementation within the reporting period. Further details are set out in the Directors’ Remuneration report on page 94.
41. Description of the Work
A description of the work of the Remuneration Committee is set out in the Directors’ Remuneration report on page 94.
The Directors’ Remuneration report sets out further details of the application of the Remuneration Policy in the reporting period and the levels
of engagement undertaken with each of the workforce and shareholders in presenting the revised Directors’ Remuneration Policy to the 2023 AGM
for shareholder approval.
Approval
This report was approved by the Board and signed on its behalf by:
David
Blackwood
Chairman
8 November 2022
S G F 79
/
Mark Whiteling
(Chairman
of Audit Committee & Senior Independent Director)
Denise
Collis
(Independent
non-executive director)
Michael
Holt
(Independent
non-executive director)
4/4
4/4
4/4
Attendance
Audit Committee Report
Smiths News plc
Annual Report and Accounts 2022
Mark Whiteling
Audit
Committee
Chair
Committee objective: To promote effective governance
of the Company’s financial controls, accounting and
reporting, including the adequacy of related disclosures;
the performance of both the Internal Audit function and
the external auditor; and to oversee the Company’s
risk management, internal control systems (including
whistleblowing reporting processes), and compliance
framework and activities.
Membership
&
Composition
Meets the 2018 UK Corporate Governance Code requirement that the
majority of members are independent non-executive directors.
The Committee met four times during the year and all Committee members
attended each of the meetings. At the invitation of the Committee, the
Company Chairman and certain executive directors attended the meetings
from time to time.
Chairman’s introduction
On behalf of the Board I am
pleased to, once again, present
the Audit Committee report which
explains the
C
ommi
tt
ee
’
s
activities
and contribution to the general
oversight of the
C
ompan
y
’
s
internal
controls, risk management, our
corporate governance framework,
and financial reporting and
assurance of the Annual Report
and Group Financial Statements for
the reporting period.
Reviewing our risks
In the light of our ongoing strategy
to look at possible growth and
diversification opportunities which
complement our core business
activities and competences, we have
determined that a new principal risk
should be added to our risk register,
specifically around the execution risks
associated with the implementation
of these opportunities that are being
carefully explored. The challenging
macro-economic position, as well
as the insolvency of a large retailer
(McColls) in the reporting period,
has required a detailed review of the
trading and credit terms extended
to our customers, to ensure that
these remain appropriate now and
for the future, as well as a detailed
review of the impact of that retailer’s
insolvency on the Group Financial
Statements and the alternative
performance measures included
in this Annual Report. This review
and our experience in the reporting
period has also led to the inclusion
of a new principal risk related to a
change to our retailers’ commercial
model. Furthermore, remaining ever
conscious of the growing climate-
related risk environment, we have
determined that an emerging risk
associated with sustainability and
climate change should be elevated
from our emerging risk register to
a principal risk. Coupled to this,
we have extensively reviewed the
proposed disclosures and assurances
necessary to meet the reporting
requirements of the Taskforce on
Climate-related Financial Disclosures
(TCFD), with this being our first year
in which a climate consideration
section has been included within this
Annual Report.
Improving cyber security
During the reporting period, the
Committee is pleased with the
good progress made in enhancing
our cyber security credentials.
Our journey to achieving ‘Cyber
E
ssentials’ accreditation through
the National Cyber Security Centre
has proved a worthwhile exercise
and, with the benefits seen here,
we remain committed to continuing
the focus on cyber security, as the
Company seeks ‘Cyber Essentials
Plus’ accreditation in FY2023.
Our progress has resulted in a
number of positive changes in our
IT landscape and has driven a shift
in culture and security awareness
across the business which is
particularly pleasing.
H&S excellence and
internal controls
We have continued to maintain
a sector-leading track record
in health and safety, with our
ongoing activities recognised
through retaining our ISO 45001
certification for H&S management
and, separately, securing 13 RoSPA
awards in the year (including 11 at
the highest ‘gold’ standard).
The Committee has also continued
to monitor and review our internal
controls framework and the output
of Internal Audit’s activities in the
year and, overall, the Committee
is pleased that our robust controls
and systems have ensured
regulatory compliance and financial
control and discipline in the
reporting period.
External audit and
administration
Once again, I am pleased to report
that we remain satisfied with BDO’s
audit processes, with both their
interim review and period-end
audit progressing well this year.
The Committee can confirm that
through ongoing monitoring and
review the independence and
objectivity of the external auditor
has been ensured.
The Committee has undertaken
an annual review of its terms of
reference in accordance with which
it has acted at all times during
the year.
Further information on the
Committee can be found here,
as well as in the Corporate
Governance report on page 58.
Mark
Whiteling
Audit
Committee
Chairman
8 November 2022
80 G
Smiths News plc
Annual Report and Accounts 2022
Membership
During the year, Michael Holt,
Denise Collis and I were all
The terms of reference address
all matters set out in Disclosure
and Transparency Rule 7.1 and
Roles
&
Responsibilities
members of the Committee. All
members of the Committee who
served during the year were
independent non-executive
directors. David Blackwood, as
Company Chairman, was not a
member of the Committee but did
attend Committee meetings by
invitation only, and has attended
each Committee meeting.
Given my qualifications and my
extensive financial experience,
including my former roles as
Chief Financial Officer of each
of Interserve PLC (until March
2019) and Premier Farnell plc
(until June 2016), I am considered
by the Board to have recent and
relevant experience to chair the
Committee in accordance with
the requirements of the 2018
edition of the Code. Each of the
other members of the Committee
has extensive and highly relevant
business, commercial and
operational experience.
Corporate governance
As part of its overall responsibility
for the strategic direction and
management of the Company, the
Board undertakes an annual review
of its risk appetite and risks and
opportunities, the outputs of which
are considered when conducting
the annual business planning,
budgeting and strategy reviews.
The Audit Committee assists the
Board in the discharge of its duties
regarding the
C
ompan
y
’
s
financial
statements, accounting policies and
the maintenance of proper systems
of risk management and internal
control. The Internal Audit function
assists in maintaining adequate
financial controls by reviewing
the design and operational
effectiveness of core financial
processes and all controls as part
of the internal audit plan approved
by the Committee annually and
refreshed at regular intervals
in the reporting period. Internal
Audit presents its findings to the
Executive Team, and all internal
audits have an executive sponsor
assigned.
the 2018 edition of the Code,
and are reviewed annually by the
Committee and referred to the
Board for approval.
If there is a disagreement with
the Board and/or the Executive
Team on any of the
C
ommi
tt
ee
’
s
responsibilities that cannot be
resolved, the Committee retains
the right to report the issue to
shareholders as part of its report
on the
C
ommi
tt
ee
’
s
activities. There
are no such matters to report to
shareholders at this time.
In addition, the Committee seeks
to identify matters in respect of
which we consider that action or
improvement by the Company
is needed, and appropriate
recommendations are made to the
Board as to the steps that should
be taken to preserve and promote
the assurance and integrity of
the
C
ompan
y
’
s
internal controls
framework.
Evaluation of the
Committee
During the year, an external
evaluation of the effectiveness of
the Committee was conducted.
Further details can be found in the
Corporate Governance report on
page 58.
How the Committee
operates
The Committee met four times
during the year as part of our
schedule to consider matters
planned around the financial
calendar. All Committee members
were in attendance at each of the
meetings. For further details on
attendance, please refer to the
Corporate Governance report on
page 58. At the invitation of the
Committee, representatives of
the external auditors (BDO LLP)
attended meetings, together with
representatives of the Company,
including the Company Chairman,
executive directors, internal auditors
and certain other members of the
Executive Team whom, from time to
time, presented reports specific to
their areas of responsibility.
Includes –
•
Monitoring the integrity of
the financial statements of
the Company, including its
Annual and Interim Reports,
trading statements, preliminary
and interim financial results
announcements and reviewing
significant financial reporting
issues and judgements which
they contain;
•
Keeping under review the
adequacy and effectiveness
of the Company’s internal
financial and non-financial
controls, including monitoring
and reviewing the effectiveness
of the Internal Audit function;
•
Reviewing the Company’s
assurance and risk
management framework
and providing oversight and
input into the Company’s risk
strategy, appetite and risk
management mitigations;
•
Reviewing the content of the
Annual Report and the Group
Financial Statements and
advising the Board whether,
taken as a whole, they are fair,
balanced and understandable
and provide the information
necessary for shareholders to
assess the Company’s position,
performance and prospects,
together with its business
model and strategy;
•
Reviewing and recommending
the adoption of the going
concern basis of accounting
in preparing the financial
statements of the Company
and assessing its prospects
and viability;
•
Reviewing the regulatory
compliance framework and
the systems and controls for
the prevention of fraud and
corruption, tax evasion, modern
slavery and bribery;
•
Ensuring the Company
maintains suitable
arrangements for colleagues,
customers, contractors and
other external parties to
raise matters of concern in
confidence (whistleblowing);
•
Considering and making
recommendations to the
Board as to the appointment,
reappointment or removal of
the external auditor and the
approval of their remuneration
and terms of engagement;
•
Assessing the external auditor’s
independence and objectivity
and the effectiveness of the
audit process;
•
Reviewing and approving the
policy on the engagement of
the external auditor to supply
non-audit services; and
•
Reporting to the Board on
how it has discharged its
responsibilities.
For more details, please see
Audit Committee (or a hard copy
is available from the Company
Secretary on request).
S G F 81
/
Audit
Committee
Report
continued
Smiths News plc
Annual Report and Accounts 2022
As Chair, I regularly engage with
the external auditor and with the
Head of Internal Audit & Risk, both
ahead of Committee meetings and
also as part of a regular dialogue
we have on issues relevant to
the Committee, in each case in
order to ensure that each of their
independent views, opinions and
comments are reflected within
the
C
ommi
tt
ee
’
s
deliberations and
dealings. Separately, the Committee
also seeks to collectively meet
regularly with both the external
auditor and separately with the
Head of Internal Audit & Risk
without the executives being
present. In the year, the Committee
met twice with representatives from
BDO without management present
and held one separate private
meeting with the Head of Internal
Audit & Risk. No material issues
came to light in these discussions
but the Committee nonetheless
welcomed the opportunity to
discuss any issues in a candid and
constructive light.
Towards the end of the financial
year, the Head of Internal Audit
& Risk left the business for an
opportunity outside of the Company.
As a result, the Committee oversaw
the appointment of a new Head of
Internal Audit & Risk. Despite this
change, completion of the FY2022
Internal Audit work plan remained
unimpacted and the Committee
continued to maintain strong
oversight and confidence in the
delivery and successful conclusion
of the FY2022 Internal Audit
work plan.
We believe that the activities of the
Committee during the reporting
period have enabled the non-
executive directors to gain a good
understanding of the
C
ompan
y
’
s
strategic priorities, the risks and
challenges we face, as well as
the adequacy and timeliness of
appropriate actions being taken to
address them. This has assisted
the Committee in its review of
the Annual Report and Accounts,
including the effectiveness of the
C
ompan
y
’
s
system of internal
control and risk management
(see below).
Risk management and
internal control framework
While the Board retains ultimate
responsibility for risk management
and the internal control framework,
the Committee is responsible for
reviewing the robustness and
effectiveness of the
C
ompan
y
’
s
risk
management and internal control
systems. The Internal Audit function
is a key element in supporting the
Committee to discharge this duty
and following a review of Internal
Audit’s effectiveness in January
2021 (which was subsequently
endorsed in July 2021) (see the
Internal Audit section below), the
Committee is pleased with the
decision made in the prior year to
transition to a new in-house model
of resourcing for the Internal Audit
function, which successfully took
place without incident or hindrance
at the start of FY2022.
A critical element of the
C
ompan
y
’
s
risk management review is the
determination of the extent to
which the Company is willing to
‘accept’ a level of net risk as part
of the cost of delivering against its
strategy. To this end, the Board’s
individual and collective risk
appetite is periodically reviewed,
taking into account changes in
the business and the external
environment, as well as emerging
trends and developing risks. Our
risk appetite differs across the
respective principal and emerging
risks, with a lower acceptance
appetite (seeking to reduce the risk
profile and mitigating its impact
where possible) for high impact/
high likelihood risks and with a
higher acceptance level (potentially
accepting the risk, with limited
impact mitigation) for low impact/
low likelihood risks. For further
details, please see the Principal
and Emerging Risks on page 42.
In line with usual procedures, a
refresh of the
C
ompan
y
’
s
principal
and emerging risks was carried out
at the half and full year, taking into
account the continuing environment
of considerable change and
transformation within both the
UK and across our business, the
increasing relevance of climate-
related risks and, more recently, the
impact (both in relation to growing
inflationary pressures in the macro-
economy and its impact on our
service performance and strategic
planning programmes) of the
well-publ
icised sector challenges
in relation to driver recruitment and
warehouse resourcing. This review
and our experience in the reporting
period has, in particular, led to
the inclusion of a new principal
risk related to a change to our
retailers’ commercial model and
a separate sustainability climate-
related risk to supplement our TCFD
reporting (see page 44). This broad
review was conducted through
discussion with a cross-section
of the Executive Team and senior
management and the non-executive
directors, who were each asked
to consider the key risks (in place
and emerging) and the challenges
facing the business (by reference
to the existing principal risks); the
current management activities and
controls that help address these
risks; and future actions that may
be taken to further mitigate the risks
(where appropriate). Following this
review, there remains a general
alignment around the nature
of risks, the risk ownership, the
direction of travel, any mitigation
actions to reduce the gross risk, and
acceptance of remaining net risk.
The
C
ommi
tt
ee
’
s
review of the risk
management and internal controls
in the year included:
•
a review of both the risk profile,
our collective appetite to risk and
the internal control framework,
reviewing the processes for
identifying, evaluating and
managing the principal business
risks (together with the emerging
risks) that we face, including
those that would threaten the
C
ompan
y
’
s
business model,
future performance, solvency
or liquidity;
•
the consideration of updates
from the business covering
current and anticipated risks,
together with corresponding
mitigating actions. These
included issues such as people-
management and remote
working patterns, operational
depot processes, procure to pay,
payroll services, cyber security,
climate-related risk events,
and the impact of the current
inflationary pressures and
recruitment challenges within the
sub-contracted delivery driver
market;
•
a review of operational controls,
processes and systems, together
with robust BCP planning to
mitigate a range of service
interruption scenarios;
•
a review of the
C
ompan
y
’
s
new banking facilities signed in
December 2021 and the impact
this had on the
C
ompan
y
’
s
distribution rights, going concern
and viability assessments; and
•
a review of the mitigations and
controls in place to protect the
business and the continued
oversight of the effectiveness
of our cyber-risk management
plans.
82 G
Smiths News plc
Annual Report and Accounts 2022
The
C
ompan
y
’
s
risk management
and internal control system is
designed, however, only to manage
or mitigate risk, rather than to
eliminate it entirely, as taking on
manageable net risk is an inherent
part of undertaking the
C
ompan
y
’
s
commercial activities and can
only provide reasonable (and
not absolute) assurance against
material misstatement or loss.
We believe that we have been able
to respond quickly and efficiently to
the ever-evolving risk environment
that we regularly face head on
and have deployed effective risk
management processes across the
Company. Accordingly, the Board
is satisfied that it has carried out a
robust assessment of the principal
and emerging risks that we face
(together with the Board’s risk
appetite) as required by the 2018
edition of the Code. Further details
of our risk management framework,
along with our evaluation of the
principal risks and how they are
being monitored are set out in the
Strategic Report on pages 2 to 57.
IT systems and
cyber security
During the year, we enhanced our
Information Technology systems
and controls, not least through the
deployment of Microsoft Office365
to all users, introducing multi-
factor authentication processes
to enhance the security of our
internal and external systems and
provide a robust and fit for purpose
solution going forwards. In the
field of information technology and
security, the Company undertakes
a regular security assurance
programme, testing controls,
identifying weaknesses and
prioritising remediation activities
where necessary. This includes
periodic best practice specialist
security testing by a leading
third-party provider and regular
system scanning to identify security
weaknesses. Issues are assessed
for risk and are comprehensively
managed as part of the
C
ompan
y
’
s
risk management programme. The
Audit Committee is presented with
a detailed Information Security
Report every six months by the IT
Director and Head of Information
Security, which includes
recommendations for further
reinforcements, and a roadmap
for further risk reduction. As a
demonstration of our commitment
to tackling cyber security, we
continue to pursue Cyber Essentials
accreditation from the National
Cyber Security Centre (NCSC)
and intend to supplement this with
Cyber Essentials Plus accreditation
in Q2 FY2023.
Whistleblowing, bribery
and fraud
We operate a confidential
telephone hotline whereby
colleagues can report in confidence
any suspected incidences of fraud,
bribery, modern slavery or non-
compliance with Company policies,
practices or breaches of law. All
such incidences are assessed and
categorised according to severity
and risk by the Employee Relations
team and an investigating manager
appointed, with the findings
reported to the Committee on
completion of the investigation.
During the year, the Committee
received quarterly reports on
incidences of whistleblowing,
suspected fraud, tax evasion, data
breaches, bribery, modern slavery
or other malpractices reported
across the business. A small
number of incidences arose in
the reporting period, but no such
instances were considered to be of
significance to the Company. The
Committee continues to welcome
this increased risk management
framework which aids and
improves the identification of, and
mitigating actions to prevent and
report, incidences of suspected
fraud, tax evasion, data breaches,
bribery, modern slavery or other
forms of malpractice. See the
Corporate Governance report on
page 58 for further details.
Internal audit function
The Committee is responsible
for monitoring and reviewing the
effectiveness of the Internal Audit
function in the context of the overall
risk management system.
Following the reintroduction of
the internally resourced model
(as opposed to the previous
outsourced model) for Internal
Audit at the start of FY2022, we
are pleased to report that the
transition progressed well, with
an effectiveness review of the
Internal Audit function in the year
supporting our initial decision to
make the change and identifying
the tangible benefits to the
business of having made this
decision. This decision was based
on an assessment that the internal
model was best able to meet
the needs of the business and to
de
liver an internal audit function
which remains at the heart of the
risk management framework and
ongoing control environment. This
change has, in the
C
ommi
tt
ee
’
s
view, resulted in better control and
assurance across the business
and, despite the transition process
and the loss of the Head of Internal
Audit & Risk towards the end of the
financial year, we have successfully
been able to achieve our FY2022
internal audit plan, resulting in
the Committee being satisfied
that an effective review of the
control framework and governance
processes has taken place across
the selected areas of our business.
In fulfilling our responsibilities in the
year, the Committee also reviewed
the following matters in relation to
the Internal Audit function:
•
the scope, resource and planned
activities of Internal Audit and the
adequacy of audit coverage;
•
Internal Audit’s strategy, work
plans and status reports against
planned activity and business
incidents reports;
•
a summary of the reports on
the results of individual audit
reviews, significant findings,
management action plans, and
timeliness of resolution; and
•
the performance of the Internal
Audit function which was
undertaken through a formal
review process, which included
the views and experiences of
not only the Audit Committee
members but also a cross
section of peers from across the
business who have engaged
with the Internal Audit team
during the year. The review
has indicated that, overall, the
insourced model is working well,
with some areas identified for
further development in FY2023.
Committee’s activities
during the year
The Committee has a yearly agenda
planner, which ensures that it is
able to fully discharge its roles and
responsibilities, whilst maintaining
sufficient time for discussion of ad
hoc items that arise throughout the
reporting period.
S G F 83
/
Audit
Committee
Report
continued
Smiths News plc
Annual Report and Accounts 2022
What the Committee did during FY2022
Financial reporting
•
Reviewed reports from the Chief Financial Officer and the external auditor on matters of significance in relation to,
and the content of, the Group Financial Statements for the reporting period (including likely key accounting judgements
and approach)
•
Approved the financial results’ press releases and the Annual Report and Accounts
•
Approved the Group’s viability and going concern assessment and subsequent disclosures and statements
•
Considered the impact of retailer insolvency and reviewed the credit and trading terms extended to our customers
•
Considered our response to a further request for information from the FRC’s Corporate Reporting Review team in
relation to the FY2020 Annual Report and Financial Statements and concluded such matter with the FRC, which
resulted in increased disclosures of the key assumptions made in our impairment review performed for the parent
company’s investment in its subsidiary, including references to terminal growth rate, the basis on which assumptions
are quantified, and the sensitivities of the carrying value of investments to changes in such assumptions
•
Considered the FRC’s positive comments on the
C
ompan
y
’
s
impairment reporting in its 2021 Annual Report
External audit
review
•
Reviewed the external auditor’s report on the
C
ompan
y
’
s
full year and half year financial statements
•
Reviewed the external auditor’s assessment of its objectivity and independence, including a review of, and prior
approval of, non-audit services (and associated fees) provided by the external auditor as part of its performance review
•
Reviewed management representation letters related to the
C
ompan
y
’
s
full year and half year financial statements
•
Reviewed recommendations to executive management set out in the external auditor’s management reports
•
Reviewed the external auditor’s audit plan, scope and strategy
•
Approved the external auditor’s fees
Risk management
& Controls
•
Conducted an annual assessment of risk and internal control, including a robust assessment of principal and
emerging risks
•
Received information security and Data Protection reports
•
Received information on climate-related risks and reviewed TCFD reporting
•
Received whistleblowing reports
•
Reviewed findings and recommendations from Internal Audit reports
•
Received risk and internal control reports
•
Reviewed and approved the Internal Audit plan
Other/ad hoc
•
Reviewed the effectiveness of the Internal Audit model and structure and the results of the evaluation of the Internal
Audit function
•
Reviewed various legal reports and compliance and risk updates
•
Received updates on tax and insurance
•
Reviewed policies – treasury, anti-bribery, non-audit work, recruitment of external auditors, parent company guarantees etc
•
Conducted an annual review of the
C
ommi
tt
ee
’
s
terms of reference, evaluation and review of its composition
•
Considered the resignation of the Head of Internal Audit & Risk and appointed a new Head of Audit & Risk
•
Conducted private meetings between the non-executive directors, Head of Internal Audit & Risk and the external auditor
•
Continued to keep under advisement the outcome of the UK Government’s proposals regarding its review of the audit
market, known as “Restoring Trust in Audit and Corporate Governance”, as well as other changes within the auditing
environment
84 G
Smiths News plc
Annual Report and Accounts 2022
Fair, balanced and
understandable
During the year, the Committee
reviewed and considered reports
from the external auditor and the
Chief Financial Officer on matters
of significance in relation to,
and the content of, the financial
statements for both the 52-week
period to 27 August 2022 and the
half year to 26 February 2022 to
ensure that, in each case, they
included the necessary information
to provide shareholders with a fair
and balanced assessment of the
C
ompan
y
’
s
position, performance
and prospects, as well as the
C
ompan
y
’
s
business model and
strategy. This review included but
was not limited to:
•
a paper prepared by the Chief
Financial Officer outlining the
work undertaken by executive
management and the key
estimates and judgements
made in preparing the financial
statements;
•
a review by senior management
of the Annual Report, to ensure
that the information presented
was accurate and that the
narrative was consistent with the
fact pattern; and
•
monthly Board meetings where
the management accounts and
KPIs were reviewed, to ensure
that the financial, operational and
commercial performance was
appropriately assessed, reported
and understood.
The views of the external auditor on
this matter were also considered by
the Committee. Having completed
its assessment, the Committee
reported to the Board that it was
able to make the corresponding
confirmation that this Annual
Report is fair, balanced and
understandable.
Significant Financial
Statement reporting
issues
The significant issues and key
judgements considered by
the Committee in relation to
the FY2022 Group Financial
Statements are set out below. In
light of these significant issues and
key judgements included below,
the Committee has considered
whether each of these areas is a
key judgement or estimate and,
therefore, whether it should be
disclosed within Note 1(e) to the
Group Financial Statements. It
was concluded that the matters
included within Note 1(e) reflect the
key judgements and estimations.
Significant matters and key judgements
Area Matter considered Outcome
Going concern
and viability
The Committee reviewed and challenged executive
management’s assessment of forecast cash flows
over the relevant assessment periods, which were
16 months for going concern and 34 months for
viability.
The Committee considered the sensitivities within
trading and expenditure plans, including a reverse
stress test and five reasonable worse case downside
scenarios which were linked to the principal and
emerging risks as detailed on page 42.
The Committee further reviewed the assumptions
relating to material events occurring before the end
of the assessment period, notably the renewal of
publisher contracts and the extent and renewal of
the
C
ompan
y
’
s
debt financing facilities in August
2025.
The Committee concluded that the assumptions used in the
assessments and the periods of assessment, were appropriate.
In reviewing the Group’s reverse stress tests, the Committee
challenged executive management as to the likelihood of any such
scenario occurring, to assess whether it was reasonable to assume
that the likelihood of any such scenario was remote. Factors that
were considered included the current trading performance of the
business compared with the base case, the extent of revenue and
Operating Profit decline that could impact the going concern of
the Company and current expectations as to the severity of any
inflationary impacts on cash flows.
The Committee further concluded that appropriate consideration
had been made of principal and emerging risks through the
inclusion of the five downside risk scenarios and reverse stress test.
The Committee noted the current level of average and peak debt,
the
C
ompan
y
’
s
debt financing facilities and the factors set out
above to help it conclude that the application of the going concern
basis for the preparation of the Group Financial Statements
continues to be appropriate and, therefore, agreed the Group
Financial Statements should be prepared on a going concern basis
and recommended the approval of the viability statement.
This disclosure in respect of going concern is set out in Note 1
to the Group Financial Statements on page 137.
IFRS15 – Principal
vs. Agent
The Committee considered the appropriateness
of accounting for revenue from the wholesale of
newspaper and magazines as principal, rather than
as an agent.
The Committee was satisfied that appropriate consideration had
been made of the following factors which influence determination
of principal/agent:
•
primary responsibility for fulfilling the promise to provide
newspapers and magazines is with Smiths News who are
responsible for the timing of delivery, bearing risk of loss or
damage and dealing with retailer complaints.
•
Smiths News also bears inventory risk, noting the customer has
a right of return.
•
Smiths News has the discretion to establish prices with retailers
including wholesale discounts.
S G F 85
/
Audit
Committee
Report
continued
Smiths News plc
Annual Report and Accounts 2022
Significant matters and key judgements
Area Matter considered Outcome
Revenue
recognition –
existence
The Committee considered management’s
judgement relating to the existence of revenue
from sales of newspapers and magazines and from
carriage fees, which is recognised when the titles
are delivered to the retailer.
Revenue from the delivery of newspapers and magazines and
from carriage fees are recognised when the titles are delivered to
the retailer, as there is no unfulfilled obligation that could affect the
retailer’s acceptance of the products and the risks of obsolescence
and loss have been transferred to the retailer.
The Committee concluded that the accounting treatment remained
appropriate.
Carrying value of
investment held by
Smiths News plc in
its subsidiary
The Committee considered management’s
conclusion that no change should be made to
the carrying value of the investment held by the
Company in its subsidiary, despite the following
indicators of impairment/reversal of impairment:
•
increase in the risk free rate (impairment);
•
the
C
ompan
y
’
s
market capitalisation
being below the investment carrying value
(impairment); and
•
lower net liability position (reversal).
The Committee received detailed reports from executive
management outlining valuation methodology, the basis for key
assumptions (e.g. discount rate and terminal growth rate), the key
drivers for cash flow forecasts and the sensitivity of the assumptions
used.
The impairment model is highly sensitive to key estimates and
judgements. The key assumptions in the value in use calculations
are the rates of revenue decline, level of cost mitigation to maintain
margins, terminal growth rates and the risk-adjusted post-tax
discount rate.
After careful deliberation and challenge, the Committee was satisfied
that these assumptions and the disclosure of sensitivities were
appropriate.
In its deliberations, the Committee further acknowledged that, while
indicators of impairment and reversal existed, there had been no
significant change to the value of the Company or its market since
the prior year.
The Committee agreed with management’s conclusion that no
change to the carrying value of the investment should be made.
Alternative
Performance
Measures (APMs)
and Adjusted Items
The Committee closely monitored management’s
interpretation and definition of APMs, with focus
on Adjusted Items. The Committee continues to
review and challenge the classification of Adjusted
Items in line with the
C
ompan
y
’
s
defined policy.
The Committee also ensures sufficient involvement
from external auditors in challenging management
to ensure an appropriate level of judgement is
exercised in their assessment.
The Committee considered the appropriateness of
the measure of Adjusted profits, quality of earnings,
and the classification and transparency of items
separately disclosed as such.
The Committee also considered the presentation
of APMs in the Annual Report and Accounts in
the context of the requirement that they are fair,
balanced and understandable.
The Committee was satisfied that the presentation of APMs and
Adjusted profits provides a reasonable view of the underlying
performance of the Company, and that there was transparent and
consistent disclosure of the items shown separately as Adjusted items.
In particular, following rigorous review with management and advisers,
the Committee concluded that the impact of McColls administration
should be treated as an adjusting item for the purposes of recording
the treatment of the £4.4m provision made in the Group Financial
Statements, both in adherence to the
C
ompan
y
’
s
adjusting items
policy and in order to provide a meaningful comparison of APMs.
The definition of APMs can be found in the Glossary on page 176.
The accounting policy on Adjusting items is set out in Note 1 to the
Group Financial Statements on page 137.
86 G
Smiths News plc
Annual Report and Accounts 2022
Significant matters and key judgements
Area Matter considered Outcome
Retirement benefit
obligation
The Committee reviewed the accounting treatment
of the buy-out and winding up of the news section
of the WH Smith Pension Trust scheme in the year.
The Committee was satisfied with the treatment of the “buy-out”
and winding up of the scheme.
Property provision The Committee reviewed the property provisions
as at period end and the appropriateness of the
additions, utilisation and releases made in the year.
The Committee agreed that the property provision held was
appropriately recognised and measured, and that releases were
consistent with the manner in which the original provisions had
been made.
The Committee considered that the provisions have been
discounted to present value using an appropriate discount rate,
and this discount will be unwound over the life of the leases. A
negotiation settlement rate was also used as seen in the market.
The provisions cover the period to 2036; however, a significant
portion of the liability falls within ten years.
Determining
lease terms
The Committee considered the factors used by
management to determine lease terms.
The Committee considered the key judgements made
in determining lease terms and was satisfied with
the approach.
The Committee considered the following key matters:
•
Revenue recognition relating to the existence of revenue from newspapers and magazines and from carriage fees. The Company is considered
to be the principal based on the following indicators of control over its inventory; discretion to establish prices; it holds some of the risk of
obsolescence once in control of the inventory; and has the responsibility of fulfilling the performance obligation on delivery of inventory to its
customers. Revenue from the delivery of newspapers and magazines and from carriage fees are recognised when the titles are delivered to the
retailer, and there is no unfulfilled obligation that could affect the retailer’s acceptance of the products, the risks of obsolescence and loss have
been transferred to the retailer. No issues were noted with regards to this risk; and
•
Carrying value of the investments in Smiths News plc. The impairment model is highly sensitive to key estimates and judgements. The key
assumptions in the value in use calculations are the rates of revenue decline, level of cost mitigation to maintain margins, terminal growth
rates and the risk-adjusted post-tax discount rate. The Committee concluded that the assumptions used by management in this review were
appropriate and no further impairment or reversal was required at period end.
S G F 87
/
Audit
Committee
Report
continued
Smiths News plc
Annual Report and Accounts 2022
Adoption of new
accounting standards
The Financial Conduct Authority
has introduced LR9.8.6R(8)
in relation to adopting the
recommendations of the Task
Force on Climate-related Financial
Disclosures (TCFD), which require
premium-listed companies to
disclose climate-related risks and
opportunities, governance, strategy,
risk management, and metrics and
targets. Companies are obliged to
also consider areas of the financial
statements that could be impacted
by such risks and uncertainties
arising from climate change under
the current accounting standards.
Please see the TCFD report on
page 44 for further details of our
compliance in this area.
Apart from the above financial
reporting developments, there have
been no other significant changes
in accounting standards which are
expected to materially impact the
Company. However, we nevertheless
remain alert to any such changes
and regularly receive updates on
upcoming changes from both the
external auditor and management.
In this light, the Committee has
received an update during the year
on the Department of Business,
Energy and Industrial
S
t
r
a
t
e
g
y
’
s
response to its March 2021
consultation on audit and corporate
governance reform (Restoring trust
in audit and corporate governance)
for which the Committee welcomed
the opportunity to participate in the
consultation last year. The impact
of the wide-ranging reforms has
been considered and executive
management invited to keep
the Committee aware of latest
developments and, in particular, the
implementation timetable through
primary and secondary legislation
and proposed amendments to the
UK Corporate Governance Code.
Going concern and
viability assessment
The Committee also reviewed
a paper prepared by the Chief
Financial Officer to support the
Going Concern and Viability
Assessment referred to on page
56. The Committee noted that
the Company had £79.5m of
available facilities at the end of
the reporting period (of which
£14.2m was drawn at the end
of the reporting period) and,
therefore, achieved 0.3x leverage
covenant of Bank Net Debt to
Adjusted EBITDA (pre-IFRS16).
With current facilities in place
until 31 August 2025, this gives
the Company a strong platform to
continue for the foreseeable future.
On this basis and the evaluation
of the impact of a number of
sensitivity scenarios, the Committee
concluded in its recommendation
to the Board that the profit and
cash forecasts supported the
view that the business can meet
its liabilities as they fall due for a
period greater than 12 months
(being an assessment period of 16
months) from the date of approval
of the Group Financial Statements,
and that there is a reasonable
expectation that the Company
will remain viable over the period
of assessment to August 2025.
The Viability Statement on page
56 sets out further details on the
process applied in relation to this
assessment.
External auditor
Under its terms of reference, the
Committee is responsible for
assessing the scope, fee, objectivity
and effectiveness of external audits,
and for making a recommendation
to the Board regarding the
appointment, reappointment or
removal of the external auditor on
an annual basis.
BDO was appointed as external
auditor following a competitive
tender process in January 2019. In
light of Articles 16 and 17 of the EU
Audit Regulation, the Company will
put the external audit contract out
to tender at least every ten years
and will mandatorily rotate audit
firm every 20 years. The Committee
acknowledges that in line with
professional standards, BDO has
a policy of rotating engagement
partners every five years. This year’s
audit is the fourth year in which
Sophia Michael has been engaged
as audit partner and, consequently,
we have commenced a process
to consider the audit partner’s
r
otation.
The Company has a formal policy
on its relationship with the external
auditor to ensure that the external
auditor’s independence is not
impaired. Following regulatory
changes and the introduction by
the Financial Reporting Counsel
(FRC) of a new 2019 ethical
standard (which applied with effect
from March 2020); in FY2020, the
Committee reviewed the revised
ethical standard and amended
our non-audit services policy at
that time. In doing so, we removed
the previous de minimis financial
approval limits for non-audit
services and adopted a ‘whitelist’
of non-audit services which may
be provided by the external auditor
in adherence to the new ethical
standard. No changes have been
made this year and, therefore, going
forward, the approval of both the
Audit Committee Chairman and the
CFO will continue to be required
in respect of all non-audit service
engagements and, as part of
such approval process, where the
maximum combined spend is likely
to exceed 50% of the annual audit
fee in any financial year, there is
an express requirement to engage
with the external auditor in order to
ensure absolute compliance with
the latest standards.
Fees paid to BDO during the year
in respect of non-audit services
support for the
C
ompan
y
’
s
interim
financial results amounted to
£97,000 (FY2021: £74,000). The
Committee considered, and was
satisfied that, it was appropriate for
BDO to undertake this work and
that doing so did not affect their
independence. Details of the total
fees paid to BDO during the year
in respect of audit and non-audit
services are shown in Note 3 to the
Group Financial Statements.
88 G
Smiths News plc
Annual Report and Accounts 2022
Assessment of the
effectiveness of the
external auditor
The Committee regularly
undertakes a review of the
effectiveness of the external auditor,
The Committee discusses, both
internally and with BDO, the level
to which BDO have demonstrated
professional scepticism and
challenge of management’s
position, specifically regarding
estimations and judgements, with
the addition of private meetings
between the Committee and
BDO being held regularly to
encourage transparent feedback.
At the completion of the financial
reporting and audit process a
formal evaluation process is
undertaken each year, which
includes a written questionnaire
distributed to each member of the
Committee, the Chief Financial
Officer and senior Financial
Controllers across the business.
Subsequently, the Committee holds
a dedicated session to discuss
the collated responses, including
any learnings and suggested
areas for improvement, with BDO
being afforded an opportunity to
comment on any relevant findings
and outcomes. Key areas of focus
in the evaluation of the external
audit included:
•
the external auditor’s processes
for its review of the Board’s
accounting judgements;
•
understanding of key accounting
matters and issues;
•
independence and objectivity;
•
the expertise and technical
knowledge of the external audit
teams;
•
the scope, delivery and execution
of the external auditor’s audit
plan;
•
a review of the completeness,
quality and timeliness of the
audit;
•
a review of the robustness and
perceptiveness of the external
auditor; and
•
a review of formal reporting
to the Committee
Following its review, the Committee
concluded that it was satisfied
that the external audit process in
FY2021 had been independent,
objective and effective, with the
C
ommi
tt
ee
’
s
review concluding
as follows:
•
the quality and independence of
the BDO audit partner and team
were agreed to be performing
and confirmed;
•
BDO had undertaken an
appropriate level of analysis,
discussion and review of
relevant management papers
and underlying assumptions of
the going concern and viability
statements to demonstrate
the adequacy and sufficiency
of audit challenge and critical
assessment;
•
the audit was well planned
and executed on time, with key
findings appropriately addressed;
and
•
BDO had a good understanding
of the business and our internal
control systems and reported in
a clear and open manner.
Approval
This report was approved by the
Audit Committee and signed on its
behalf by:
Mark
Whiteling
Audit
Committee
Chair
8 November 2022
S G F 89
/
Membership
&
Composition
David
Blackwood
(Independent
non-executive Chairman)
Mark
Whiteling
(Senior
Independent Director)
Denise
Collis
(Independent
non-executive director)
Michael
Holt
(Independent
non-executive director)
2/2
2/2
2/2
2/2
Attendance
Nominations Committee Report
Smiths News plc
Annual Report and Accounts 2022
David
Blackwood
Nominations
Committee
Chair
Committee objective:
To lead the process for Board
appointments, having due regard to Board diversity, to
ensure orderly succession planning so as to maintain an
appropriate balance of skills and experience on the Board
and to maintain a progressive refreshing of the Board.
Meets the 2018 UK Corporate Governance Code requirement that the
majority of members are independent non-executive directors.
The Committee met twice during the year and all Committee members
attended each of the meetings. At the invitation of the Committee, certain
executive directors attended the meetings from time to time.
Chairman’s introduction
A key focus of our business is
on attracting, developing and
retaining the best talent required
to sustain our business and deliver
our strategy. The Nominations
C
ommi
tt
ee
’
s
focus primarily
includes succession planning
for the Board, Executive Team
and senior management, as
well as oversight of our talent
pipeline and the development and
implementation of our diversity
and inclusion programme. Against
this background, I am pleased
to present the Nominations
Committee report for the year
and to highlight the key activities
undertaken by the Committee
during FY2022.
D&I
The Committee met at the
beginning of the reporting period
to specifically consider the
progress we had made against our
diversity and inclusion policies,
noting the drive by the Company
to encourage our colleagues to
voluntarily update the relevant data
held by the Company in order to
facilitate more informed internal
diversity reporting and discussion,
and with a view to enabling
better data analytics for both the
composition of our workforce and
the consideration of ethnicity pay
gap metrics going forwards. The
Company also carried out, and the
Committee considered the results
of, a diversity and inclusion survey
amongst colleagues to establish a
baseline data of their views and to
further help the Committee and the
Executive Team with areas of future
targeted focus and action planning.
Following on from this, we also
set ourselves a target to achieve
a 30% increase in the number
of our colleagues from minority
groups recruited into leadership
positions (LL2+) over the next five
years and, in doing so, we have
established new partnerships
with our recruitment partners
in an endeavour to increase the
potential pool of diverse candidates
participating in our recruitment
processes.
Board diversity target
As we implement our Board-
specific Diversity Policy, I am
pleased to report that we have
brought forward our intention
to appoint an additional female
director at Board level, with the
recruitment process underway.
We have sought to draw from
a broad and diverse range of
candidate profiles, including those
who may not have previous listed
company experience but who
possess suitable skills, experiences
or attributes which complement
the expected future direction
and strategy of the Company.
We remain confident that we will
achieve our Board-diversity target
during FY2023 and well before the
previous target set for refreshing
the Board’s diversity, which had
originally been set to coincide with
the Senior Independent Director’s
nine-year tenure (i.e. 2026).
While we remain committed to
the diversity agenda, having the
right blend of skills, expertise and
experience remains paramount,
with the Board acknowledging that
retail, technology and marketing
experience (for instance) would
further support our strategic
initiatives.
Colleague engagement
The Colleague Engagement
surveys that the Company regularly
conducts have moved to a more
frequent quarterly ‘pulse’ process,
with the Committee continuing to
oversee these results. Participation
in these surveys remains high
amongst our colleagues, and it is
pleasing to see the steady progress
being made in the satisfaction
scores.
90 G
Smiths News plc
Annual Report and Accounts 2022
Board workforce
engagement
Chief Financial Officer
As disclosed in our 2021 Annual
Roles
&
Responsibilities
As more fully set out in both our
Stakeholder Engagement report
on page 14 and in the Corporate
Governance report on page 58,
we have refreshed the Board’s
engagement processes with our
wider workforce. As previously
disclosed, we primarily look to
engage with our wider workforce
through the appointment of a
representative non-executive
director (Michael Holt) to attend
quarterly National Colleague
Engagement Forum meetings and
to report colleagues’ views back to
the Board. In FY2022, we reviewed
this process and refreshed the
impetus of all our colleague forums
as they cascade up to the National
Colleague Engagement Forum,
to ensure that these forums and
their processes remain fit for
purpose, also considering whether
alternative engagement methods
may better promote or encourage
colleague engagement. After due
consideration, it has been agreed
that the current representative
non-executive director model
best meets the needs of our
business and ensures that the key
stakeholder views of colleagues
are appropriately considered by the
Board in its decision-making.
Key issues discussed and action
taken in the year included the
introduction of published fair
pay principles for colleagues;
the commitment and scope of
capital expenditure investments
to be made across our locations;
the merits of and issues arising
from the launch of benefits
roadshows to colleagues, to ensure
that, in the current economic
climate, colleagues have a good
understanding and ability to access
all benefits available to them; and
the sharing of plans to introduce
technology assets at our locations,
to help colleagues access literature
and relevant information where
they may not otherwise have tools
to access such information or
training resources.
Report, Paul Baker replaced Tony
Grace as Chief Financial Officer
on 4 October 2021 following the
announcement of Tony’s retirement
(Tony stepped down from the
Board on 30 November 2021) and
Paul is well settled into his role and
has been an established and valued
member of the team over the last
year.
Further information on the
Committee can be found at:
www.smithsnews.co.uk, as well
as in the Corporate Governance
report on page 58.
David
Blackwood
Chairman
8 November 2022
•
review the structure, size,
composition and balance of
the Board, including the skills,
knowledge, experience and
diversity of the directors;
•
ensure plans and a talent
programme are in place
for the orderly succession
planning of directors and senior
management and overseeing
the development of a diverse
pipeline of talent for succession;
•
establish and promote
employee engagement with the
Board, to ensure that workforce
views are collected and
considered; and
•
identify and nominate
candidates to fill Board
vacancies.
For more details, please see
www.smithsnews.co.uk.
Key Actions from FY2022
October 2021
•
Received reports on talent
review and development
and upskilling of the senior
leadership team
April 2022
•
Received results of Colleague
Engagement Pulse Survey and
reviewed action planning
•
Reviewed the Board-specific
•
Reviewed Diversity and
Diversity and Inclusion policy
Inclusion Policies and received
and the FCA’s recent policy
a progress update
•
Received results of colleague
engagement surveys and
considered colleague
engagement processes and
action plans
statements regarding changes
to
the Listing Rules to promote
Board diversity
Diversity and inclusion
Female representation
S G F 91
/
2022
2021
2020
Board
17%
17%
14%
Executive Team
33%
22%
22%
Smiths News plc
Annual Report and Accounts 2022
Nominations Committee Report continued
Recruitment and
succession planning
This year has undoubtedly seen
pressures in the recruitment sector,
with increasing job vacancies
and resourcing pressures being
keenly felt throughout the country.
While these challenges cut
across all areas, they have been
particularly evident in relation to
driver recruitment and warehouse
resourcing. Although the sector
specific challenges largely abated
towards the end of the financial
year, we continue to review and
enhance our recruitment and
engagement processes at particular
hotspots within our business,
mindful of the logistics sector’s
peak trading period being the lead
up to Christmas, and to benchmark
our retention strategies that have
been a key focus during FY2022.
Acknowledging that career
progression and development
remains a key aspect of attraction
and retention of the right talent, this
year has seen good progress being
made in the talent and succession
agenda of the
C
ompan
y
’
s
senior leadership team through
development and upskilling
activities. This has included the
launch of Leadership Master
Classes and the simplification
of the
C
ompan
y
’
s
legacy talent
management processes, such that
talent reviews are now cascaded
down the leadership levels,
thereby ensuring a greater level of
transparency and identification of
talent to the Board. We continue
to map our talent against the
C
ompan
y
’
s
values, as well as
against key priorities for talent
development, with the focus
on proactive succession of key
roles and the development of a
diverse pipeline. The Committee,
and Board, remain mindful
however of the need for sound
succession planning in respect
of both executive and non-
executive directors, and the recent
appointment of the Chief Financial
Officer following a planned
retirement of the former CFO, as
well as the internal appointment
in 2020 of the current Chief
Executive Officer demonstrates
the robustness of this process,
including a demonstration of
the services of external search
consultants being utilised as and
when appropriate to ensure the
right candidates are appointed into
the right roles at the appropriate
time.
Separately, the Board evaluation
process (for further details see page
62 of the Corporate Governance
report) also supports the ongoing
assessment of the
C
ompan
y
’
s
development needs, opportunities
and shortcomings against the
Board’s current skills, experience,
expertise and composition, with
any identified recommendations
being aligned with our succession
planning process.
I joined the Board in May 2020 and
the Senior Independent Director
was appointed in 2017; hence,
the staggering of our respective
tenures further ensures a period
of continuity on the Board, helping
to ensure the robustness of the
C
ompan
y
’
s
succession planning
processes for the future.
Chief Financial Officer
appointment
We confirm that, as reported
in detail in last year’s Annual
Report, Paul Baker was appointed
Chief Financial Officer (and
Board director) with effect from
4 October 2021 following the prior
announcement of the expected
retirement of Tony Grace (former
CFO), who stepped down from the
Board on 30 November 2021.
Colleague engagement
and pulse surveys
This year saw the business move
away from our annual ‘What
Matters’ survey of colleague
engagement towards a more
frequent ‘pulse’ survey approach,
conducted in January, April and
July 2022. We have seen 78% of
colleagues taking part in the July
2022 survey, down slightly on the
participation rates in January 2022
and April 2022 (which were at
86% and 87% respectively). Since
January 2022, we have seen 120
actions recorded from the surveys,
helping us to achieve an overall
average engagement score of 7.0.
The survey measures 14 different
areas of engagement, referred to
as “drivers”, with 13 such drivers
showing an increasing engagement
score and one remaining static
across the year’s pulse surveys.
The two areas where scores
increased most were ‘Growth’
and ‘Organisational Fit’ and our
static driver related to ‘Reward.’
Management continues to focus on
reward in particular, recognising the
increasing cost of living pressures
that colleagues are currently
facing at this time in line with
high levels of inflation and energy
price concerns.
Although we responded
successfully to the changing
working environment following
the COVID-19 pandemic and the
impact this had on direct colleague
engagement, we have since taken
the opportunity this year to revisit
the manner in which we engage
with our wider workforce. In line
with the Corporate Governance
Code guidance around the manner
of the Board’s engagement with
the wider workforce, we continue
to appoint a representative
non-executive director (Michael
Holt) to attend our National
Colleague Engagement Forum
and report colleagues’ views
back to the Board. In revisiting
the rationale and merits of this
approach during the reporting
period, the Board has considered
alternative options, including the
possibility of appointing colleague
representatives to sit on the Board.
However, after due consideration,
the conclusion was that the
current non-executive director
representative model is best
suited to the current needs of our
business and, at the same time,
we have also taken the opportunity
to refresh the membership of the
National Colleague Engagement
Forum, in order to ensure strong
representation across the business,
together with giving it a renewed
impetus. The National Colleague
Engagement Forum continues
to meet quarterly.
In addition to our non-executive
director representative, the Chair of
the Remuneration Committee has
also engaged with the workforce,
and remains committed to
promoting broader engagement
with colleagues, having spent
time to outline our company-wide
remuneration policy and pay and
reward matters, promoting our
new ‘fair pay principles.’ Further
information on the work of our
colleague forums can be found in
the Corporate Governance report
on page 58.
During the year, we also launched
our new intranet-based information
portal, SmithsZone, which enables
two-way communication with
colleagues. This has provided
the opportunity for a review and
refresh of our colleague information
channels, as well as extended
accessibility across our colleagues
who do not always have access
to company email addresses
(and, therefore, previously
had limited accessibility). We
continue to publish our colleague
newsletter ‘Our News’ in physical
and electronic format, and have
continued to hold virtual ‘Town Hall’
meetings hosted by the Executive
Team, ensuring the sharing of news
regularly and consistently and
providing all colleagues with the
opportunity to ask questions of the
Executive Team.
In summary, the highlights of our
various colleague engagement
activities in the year included:
•
Introduction of fair pay principles,
following colleague forum input
and ideas
•
Relaunch of Extra Mile awards
(our colleague-recognition
scheme), granting easier digital
access, fairer distribution of
awards and simplified processes
•
COVID-19 Hardship fund
converting to a more generic
colleague support fund, not
exclusively related to COVID-19
related hardship
•
Further training of mental health
allies across underrepresented
parts of the business
•
Launch of benefits and payroll
roadshows, educating and
supporting colleagues
•
‘
L
ove
to shop’ vouchers issued to
colleagues not part of a formal
benefits package, to recognise
their important contribution to
business performance in the
prior year
•
Launch of the ‘team leadership’
apprenticeship, driven from pulse
engagement survey results
92 G
Smiths News plc
Annual Report and Accounts 2022
•
Externally conducted diversity
and inclusion audit, identifying
key actions across recruitment,
learning and communication
Diversity and inclusion
Diversity and inclusion continues
to be a key focal point at this
time. In this regard, the Board
acknowledges and welcomes
recent changes to the Listing Rules
(on a ‘comply or explain’ basis)
which are targeted at encouraging
enhanced disclosures in relation
to gender and ethnic diversity
at Board level for financial years
starting on or after 1 April 2022.
The Board currently comprises six
members, of which one is a woman
and all are white. The chairperson
of the Remuneration Committee is
a woman, but the Board Chairman,
CEO, CFO and SID are all men. As
the Company seeks to diversify
and pursue growth opportunities
within our core markets, there
is likely to be opportunity for
additional skills, expertise and
experience to be targeted amongst
the composition of the Board.
Against this background, a process
has already been commenced to
identify and appoint an additional
Board member, facilitating a timely
focus on the Board’s diversity and
skills mix. We are confident that
we will be in a position to make an
appointment in FY2023, well before
the originally targeted 2026 date
set out in our Board Diversity Policy
(which had been set to coincide
with the Senior Independent
Director’s nine-year tenure).
While the Committee is mindful of
the expectations around gender
and ethnic diversification, it is
however unlikely that the set
targets (see LR 9.8.6R(9) and FCA
Diversity Targets 2022) will be
met by the Board in the short to
medium term. Whilst the Board is
very much taking steps to improve
its gender and ethnic diversification,
we acknowledge that this takes
time, particularly when the broader
corporate-market is together faced
with the same defined targets and
where competition is likely to be
fierce for a pool of talent that is
naturally limited by the size, nature,
location and profile of our business.
Accordingly, whilst we hope to
make progress in this area, we
remain committed to also having
the right blend of skills, expertise,
commitment and experience when
selecting suitable candidates, while
at the same time also striving to
reflect today’s talent and customer
pools to build balanced teams.
That said, we have made a number
of positive efforts to develop a
clear pathway towards improving
compliance in this area, including:
•
development and publication of
Diversity & Inclusion Policies for
both the Board and the wider
workforce. These introduce
specific targets, which originally
included a Board target of two
female directors by 2026 and a
general target of a 30% increase
in the number of colleagues from
ethnic minority groups recruited
into leadership positions over
the next five years. The Board
target has been accelerated,
and we are confident that an
appointment will be made in
during the first half of FY2023.
Our D&I data-gathering exercise
indicates that within our business
diversity decreases with seniority,
which is why we believe that it
is important that the targets we
set ourselves are specific to the
leadership group, rather than the
whole organisation. We are also
focused on the development of
a future talent pipeline, with 33%
of the current Executive Team
being female;
•
we have set an inclusion target
which aims to maintain an
inclusion score within the upper
quartile of peer benchmarking
data on an annual basis. We
are committed to continuing to
measure inclusion to ensure that,
as we increase our diversity, we
maintain an environment where
all colleagues have a sense of
belonging. We recognise that
our diversity goals will not be
achieved or maintained without
a strong inclusive culture;
•
external review of our current
recruitment approaches and
processes ( job descriptions,
adverts and inclusivity in
interview processes), including
a review, audit and changes to
our processes in this area. In
the case of senior appointments
where w
e make use of executive
search partners, our partners
are required to be signed up to
the Voluntary Code of Conduct
on gender diversity, developed
in response to the Davies
Report. We also encourage our
recruitment partners to present
more balanced candidate
recommendations, with at least
one credible and qualified female
and/or non-white candidate
provided within the shortlist for
the recruitment processes;
•
diversity and inclusion training
is available to all managers;
•
following on from completion
of our diversity data collection
drive already referred to, we have
undertaken an audit of this data,
focusing on the accuracy of data
and statistics, current status and
observations, key findings and
recommendations;
•
promoting a culture and working
environment that is a welcoming
place for all, with a commitment
to promoting and encouraging
all aspects of diversity and
supporting an inclusive working
environment, together with
adopting a zero tolerance
approach towards discrimination;
and
•
engagement by the Board
Chairman with shareholders on
board diversity, including with
those shareholders who may
previously have raised diversity
as a future voting issue, in order
to mutually understand the
others’ position and to provide
some reassurance over the steps
currently being taken.
Our initiatives are further supported
by our diversity and inclusion
initiative called ‘EveryoneIn,’ a
programme which encompasses
a number of national initiatives
which primarily include education
and awareness through an agreed
calendar of D&I events, such as
National Inclusion week, Black
History month, Pride, Ramadan, etc.
Further information on gender
and ethnic diversity, including the
proportion of women in senior
management (being for these
purposes, the Executive Team and
their direct reports as promulgated
by the Hampton-Alexander Review)
and within the organisation overall,
is contained in the People report
on page 30.
Approval
This report was approved by the
Nominations Committee and
signed on its behalf by:
David
Blackwood
Nominations
Committee
Chair
8 November 2022
S G F 93
/
Denise Collis
(Independent
non-executive director)
David
Blackwood
(Independent
non-executive Chairman)
Mark
Whiteling
(Senior
Independent Director)
Michael
Holt
(Independent
non-executive director)
5/5
5/5
5/5
5/5
Attendance
Directors’ Remuneration Report
Shareholder letter from the Chair of the Remuneration Committee
Smiths News plc
Annual Report and Accounts 2022
Denise Collis
Remuneration
Committee
Chair
Committee objective:
To determine the policy for, and
setting of, director and senior management remuneration;
to review workforce remuneration, related policies and the
alignment of incentives and rewards with culture, taking
these into account when setting the policy for executive
director remuneration; and to design remuneration
policies and practices to support strategy and promote
the long-term sustainable success of the Company.
Membership
&
Composition
Meets the 2018 UK Corporate Governance Code requirement that the
members are independent non-executive directors.
The Committee met four times during the year and all Committee members
attended each of the meetings. At the invitation of the Committee, certain
executive directors attended the meetings from time to time.
Dear shareholder
On behalf of the Board, I am pleased
to present the Remuneration
C
ommi
tt
ee
’
s
report for the 52-week
period ended 27 August 2022.
Backdrop to the operation
of the policy and our
performance in FY2022
During FY2022, as economies
began to open up again following
the COVID-19 pandemic, the
Committee has been particularly
mindful of the backdrop of a
challenging labour market and an
increasing inflationary environment,
with significant hikes experienced
in both the cost of labour and
energy prices in what has been
referred to in the media as a ‘cost
of living’ crisis. These macro-
economic headwinds have not
only impacted our business
but also the livelihoods of our
colleagues at all levels of the
organisation. With that in mind,
the Committee has once again
devoted considerable time and
attention to the appropriateness
of the
C
ompan
y
’
s
remuneration
policies and procedures, including
the so-called “Fair Pay” agenda
for our workforce more generally.
More details are provided later in
this letter.
Against this background, it is
therefore pleasing to reflect on
the progress that the business
has delivered in the year as
noted elsewhere in this Annual
Report (for example, and amongst
other achievements, strong
cash management with Bank
Net Debt at historic lows, the
receipt of a pensions surplus of
£8.1m, successful refinancing in
December 2021 which increased
our dividend distribution cap
limits, the effective onboarding of
our new Chief Financial Officer
and Operations Director, and the
unstinting customer service and
operational successes which have
maintained our high standards of
excellence), and to be able to report
financial performance for FY2022
of £40.7m Adjusted EBITDA (pre-
IFRS16) and £38.1m Adjusted
Operating Profit, exceeding the
market’s expectations for the
reporting period. However, this
over-delivery of operational and
financial performance has not been
straightforward. As referenced
elsewhere in this Annual Report,
the insolvency of one of our largest
retailers (McColls) in May 2022
(and its potential bad debt exposure
of £5.5m which, in turn, led the
Board to conclude an adjusting
provision of £4.4m) has presented
considerable debate for each of
the Board, the Audit Committee
and the Remuneration Committee
as to its appropriate treatment
and impact on stakeholders,
including incentive outcomes and
distributions. Accordingly, following
rigorous review, the Committee
concluded that the impact of
McColls should be similarly treated
as an adjusting item in line with
the agreed treatment of the £4.4m
adjusting provision. In reaching
this decision, the Committee
started out by considering the
formulaic outcomes of both the
FY2022 Annual Bonus Plan and
the FY2020-2022 LTIP. Based
on A
djusted EBITDA, which (in
line with normal market practice)
formed the basis of the calculation,
and combined with the decision
by the Board that the impact of
the McColls debt exposure would
be treated as an adjusted item
(being non-recurring and outside
of the normal course of activity),
the schemes’ formulaic outcomes
were not negatively impacted by
the potential bad debt exposure.
The Committee then considered
whether it would be appropriate
to apply downward discretion,
looking through the lens of all
stakeholders. Key considerations
were the shareholder experience
in the reporting period as
reflected in the expected levels
of dividend distribution for
FY2022, management’s effective
management of the McColls
account in advance of the bad
debt situation becoming known,
and management’s subsequent
endeavours at the time to minimise
the bad debt exposure. Taking all
of these factors into consideration,
the Committee has decided that
it would not be appropriate or
necessary to apply any downward
discretion to override the formulaic
outcomes.
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Annual Report and Accounts 2022
Variable pay outcomes
in FY2022
The FY2022 bonus was based
•
the directors’ individual
performances against their
personal objectives, taking
Roles
&
Responsibilities
70% on Adjusted EBITDA (pre-
IFRS16) (the key measure of
profitability against which business
performance was assessed over
the year, in line with our internal
financial reporting) and 30% on
personal objectives. In addition,
a minimum performance rating
on the personal objectives was
required to be met before the
financial performance element
could be paid, with the Committee
also having a general power to
adjust any formula-driven outturns,
if required.
As a result of both Adjusted
EBITDA (pre-IFRS16) of £40.7m
for FY2022 and the successful
delivery of the strategic goals that
the business set itself a year ago
(see later in this report), the annual
bonus pay out is between target
and maximum, resulting from:
•
a pay out for the financial metric
at 61.7% (i.e. 43.2% of the 70%
bonus opportunity); and
•
for the personal element in
respect of each executive
director’s performance against
their respective personal
objectives as reported later on:
– at 85% (i.e. 25.5% of the
30% bonus opportunity) for
Jonathan Bunting;
– at 75% (i.e. 22.5% of the 30%
bonus opportunity) for Paul
Baker; and
– at 75% (i.e. 22.5% of the
30% bonus opportunity) for
Tony Grace (the former Chief
Financial Officer).
Overall, this has resulted in an
annual bonus pay out of 68.7% of
the maximum 100% opportunity for
Jonathan Bunting and at 65.7% for
each of Paul Baker and Tony Grace
(pro rated to 1/3rd for Tony Grace,
in order to reflect having worked
four months of the reporting period
and similarly pro rated to 11/12th
for Paul Baker). In determining
this outcome, the Committee has
carefully considered the following:
into consideration the financial
performance ‘underpin’ whereby
the Committee may scale back
the personal element of the
bonus if this is not deemed
appropriate in light of financial
performance or shareholder
experience; and
•
the application of the FY2022
bonus scheme across all scheme
participants through the “fairness
lens”, to ensure that there has not
been an unmerited bias of higher
bonus outcomes (and payments)
with seniority.
Overall, the Committee is satisfied
that the bonus payments to the
executive directors are appropriate,
representing a strong link between
reward and performance and
shareholder alignment, as well as
being consistent with the treatment
of bonus payments for colleagues.
On this basis, the Committee
determined that there was no
need to use discretion to adjust the
outcome derived from the annual
bonus performance conditions.
The FY2020-22 LTIP award was
weighted 50% against adjusted
basic EPS targets and 50% against
TSR relative to the FTSE SmallCap
(excluding investment trusts). The
Adjusted EPS performance for
FY2022 (excluding the impact of
M
c
C
oll
s
’
insolvency, as referred
to above, and pre-IFRS16) was
10.9p, which is marginally ahead
of threshold performance of
10.0p but representing significant
growth of 42.9% over the three-
year period from when the award
was made at the end of the 2019
financial year (EPS: 7.9p). This has
resulted in a pay out of 44% of
the EPS metric. The performance
period for the TSR element of the
FY2020-22 LTIP award ends on
12 December 2022. Based on a
current estimated TSR performance
to 3 November 2022, this results
in a formulaic vesting of 100%
of
the TSR metric, representing
significant TSR outperformance vs
the nominated peer group over the
three-year performance period and
an absolute TSR of 45%.
•
Determine the framework
for the remuneration of the
executive directors, the
Chairman, the Company
Secretary and the Executive
Team
•
Review the employee benefits
structure across the business
•
Determine annual bonus and
share incentive plan awards and
relevant vesting levels, including
application of clawback and
malus provisions
•
Approve and monitor the
shareholding guidelines policy
for executive directors and the
Executive Team
•
Determine the policy for
pension arrangements for the
Executive Team
•
Oversee contractual terms on
termination and exit payments
•
Ensure that remuneration-
focused engagement with the
workforce takes place
•
Ensure that all provisions
regarding disclosure of
remuneration arrangements
are met and produce a
remuneration report to
shareholders
•
Setting terms of reference for
the remuneration consultant.
For more details, please see
www.smithsnews.co.uk.
S G F 95
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Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Overall, the estimated vesting
outcome for the FY2020-22 LTIP
award is 72% of maximum, with the
final vesting level to be confirmed
in next year’s Annual Report. The
Committee has considered the
estimated out-turn and confirms
that it remains comfortable that
the pay out level is appropriate in
light of the overall performance and
shareholder experience over the
three-year performance period, and
that no discretion is necessary to
adjust the outturn.
Remuneration
Policy review
During the year, the Committee
carried out its triennial review of the
executive directors’ remuneration
policy taking into account business
strategy, corporate governance
developments, institutional investor
views and market practice.
The review concluded that
our current policy is working
effectively and is aligned to the
business strategy, provides a
good link between reward and
performance and is in line with
institutional investors’ ‘best practice’
expectations. As a result, we are
proposing only minor amendments
to our policy (which is to be
presented to our Annual General
Meeting on 24 January 2023), to
reflect current market and best
practice developments and to
formalise a particular area of the
policy.
•
Pension – the references
to legacy pension provisions
have been removed from the
policy, and it is now clear that
the
C
ompan
y
’
s
pension
contributions to an executive
director’s pension (or a cash
payment in lieu of pension) will
be no higher than the percentage
rate which is available to the
majority of the workforce
(currently 5% of salary);
•
LTIP performance measures –
flexibility is now included within
the policy to allow a minority of
the LTIP performance measures
to be based on non-financial
strategic measures, including
those relating to our ESG
strategy; and
•
All-employee share schemes –
the policy now formally includes
the opportunity for executive
directors to participate in
HMRC Approved all-employee
share schemes (such as Save
as you Earn), alongside other
colleagues.
As part of the review, the
Committee engaged with our
largest shareholders and leading
advisory agencies to explain the
proposed changes to policy. The
feedback the Committee received
was supportive. Whilst investors
were welcoming of the flexibility
included in the policy to use ESG
performance measures, there
were some comments expressing
a desire for ESG metrics to have
a minority weighting and the
need for targets to be robust.
For FY2023, the Committee is not
proposing to introduce an ESG
metric for the LTIP, but will consider
its introduction at a future date,
taking into account developments
in market practice, any expressed
shareholder preferences and the
C
ompan
y
’
s
ability to set meaningful
stretching and measurable
objectives linked to strategy.
Board changes
As described in last year’s report,
Tony Grace stepped down from the
Board on 30 November 2021 and
left the Company on 31 December
2021. Our new Chief Financial
Officer, Paul Baker, joined the Board
on 4 October 2021. Details of Tony
Grace’s remuneration arrangements
on departure and Paul Baker’s
remuneration on joining were
disclosed in last year’s Annual
Report.
Operation of the
Remuneration Policy
in FY2023
The base salaries of the Chief
Executive Officer and the Chief
Financial Officer were each
increased by 3.25%, with effect
from 1 September 2022, which
is below the average percentage
increase awarded to our workforce,
the majority of whom saw an
increase of 6.6%. The Committee
also reviewed the fee rate of the
Company chairman, whose fee of
£140,000, has not been reviewed
since 2015, and agreed a similar
cost of living increase of 3.25%
to £144,550 with effect from
1 September 2022. Separately, the
B
oard has agreed an increase of
3.25% to the fee rates of the non-
executive directors, including the
fees for the chairing of committees,
the senior independent director and
the NED responsible for employee
engagement, with effect from
1 September 2022.
For the executive directors, the
annual bonus opportunity will
remain at 100% of base salary,
with 70% of the bonus subject to
Adjusted Operating Profit and the
remaining 30% subject to personal
objectives. The Committee has
endorsed the
C
ompan
y
’
s
desire
to update its primary financial
KPI from Adjusted EBITDA (pre-
IFRS16) to Adjusted Operating
Profit, in order to include the
impact of lease commitments
under IFRS16 and to bring this KPI
into line with current accounting
standards, a position which is
expected to be positively received
by all stakeholders. As such, the
financial metric used for the annual
bonus has been changed.
The LTIP grant level for the
FY2023-2025 award will continue
to be 100% of base salary.
Performance will also continue to
be assessed at 70% on a relative
TSR measure and at 30% on a free
cash flow metric in the final year
of the award. The Committee is
comfortable regarding the adoption
and weighting of the relative TSR
performance measure, particularly
given that it ensures a strong direct
incentive to increase the share price
and aligns with the interests of the
clear majority of our shareholders.
Further details on the performance
measures and target ranges can be
found on page 98.
Broader employee
remuneration
considerations and
employee engagement
The Committee continued its
focus on the fairness agenda
during the year as part of its
review of workforce remuneration
and related policies as required
under the 2018 edition of the UK
Corporate Governance Code.
The topic was discussed in detail
in the
C
ommi
tt
ee
’
s
meeting, in
March 2022, with a particular
focus on the following areas:
•
Considering the impact and
scale of the National Living
Wage increase effective 1 April
2022, in the context of the
current financial climate and high
inflationary environment;
•
Reviewing the employer pension
contribution level for less senior
employees;
•
Noting the review of the
leadership grading framework
and pay structure;
•
Noting an additional ‘peak’
payment premium to be
introduced for the second year
running at our Hemel Hempstead
location, to aid colleague retention
in the four months over the
Christmas peak period;
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Smiths News plc
Annual Report and Accounts 2022
•
Discussing and agreeing that
the Company would look to
develop and adopt a customised
set of fair pay principles
(subsequently introduced by the
Company following colleague
engagement);
•
Improvements in financial
well-being initiatives, such as
providing free financial education
to colleagues; and
•
Approving an up-do-date revised
company-wide non-contractual
and discretionary redundancy
policy, with reduced enhanced
terms for senior managers
and parity being offered to
all colleagues, extending the
same enhanced discretionary
redundancy terms to lower paid
and new colleagues too.
In addition to focusing on
various policy initiatives, at the
C
ommi
tt
ee
’
s
meeting in May 2022,
the Committee also considered
specific additional steps to
support lower paid colleagues
with the impending cost of living
challenges and introduced a one-
off (non-contractual) allowance
of up to £250 each for those
employees paid less than £25,000,
representing approximately two-
thirds of colleagues in receipt of
this additional payment.
As in previous years, I remain
committed to engaging with our
colleagues around remuneration
and ensuring that their views
are shared with the Committee.
During the year, I attended several
meetings with colleagues where
our company-wide remuneration
policy, and director and wider
workforce pay, was discussed
alongside reward matters and
sharing our aspirations around
equitable reward. A key outcome
from these discussions was a
renewed effort by the Company
to ensure that all employees
were fully aware of the benefit
options available to them, as it
became apparent that existing
communications were not
achieving sufficient cut through.
Following the introduction of our
Fair Pay Principles in FY2022, a
priority over the next year will be
to review our grading framework
and pay structures, to ensure these
are appropriate and relevant for the
roles being undertaken.
Concluding remarks
The Committee remains mindful
that the decisions around
executive pay outcomes should
be proportionate and demonstrate
a strong link between reward,
performance and shareholder
alignment. In this light, we are
comfortable that the policy
has operated as intended and
remuneration is appropriate, taking
into account internal and external
factors and measures (including
pay ratios and gaps, colleague pay
and the fairness agenda, and the
overall stakeholder experience).
As ever, I welcome any feedback
on our remuneration policy and its
application.
Denise Collis
Remuneration
Committee
Chair
8 November 2022
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Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Directors’ Remuneration Policy
At-a-glance summary
A summary of the policy and its application for FY2023 is shown below with the policy to be put to shareholder vote at the 2023 AGM.
Policy element
Jonathan Bunting
Chief Executive Officer
Paul Baker
Chief Financial Officer
Annualised base salary from 1 September 2022
£483,396
£314,913
% increase from prior year
3.25%
3.25%
Pension for FY2023 5% of base salary, aligned to the rate available to the majority of the workforce
Annual bonus (ABP) 100% of base salary
Annual bonus metrics Adjusted Operating Profit (70%)
Personal objectives (30%)
ABP payment for threshold performance 0% of base salary
ABP payment for on-target performance 50% of base salary
Deferred bonus plan (DBP)
50% of annual bonus deferred for 2 years in shares
LTIP
100% of base salary
LTIP metrics
Relative Total Shareholder Return vs FTSE Small Cap (70%)
Free Cash flow in final year (30%)
LTIP payment for threshold performance 20% of award
LTIP post-vesting holding period 2 years
Malus and clawback
Applies to awards made under the ABP, DBP and LTIP
Shareholding Guidelines requirement
200% of base salary
Post-cessation of employment shareholding
requirement
Introduction
Lower of 200% of base salary or shareholding on departure for 2 years post-cessation,
excluding self-purchased shares
This report has been prepared on behalf of the Board by the Remuneration Committee in accordance with the relevant provisions of the Companies
Act 2006 and on the basis prescribed in The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations
2013. Where required, data has been audited by BDO LLP and is indicated accordingly.
Directors’ Remuneration Policy
The following section sets out the
C
ompan
y
’
s
policy on remuneration for executive and non-executive directors, which will be put to a binding
shareholder vote at the Annual General Meeting on 24 January 2023. It is intended that the directors’ Remuneration Policy will apply from the date
of the Annual General Meeting for the maximum three years permitted by the regulations and so, in the absence of a new or amended policy or as
otherwise required by law, will only be brought back to the shareholders at the
C
ompan
y
’
s
Annual General Meeting in 2026.
Decision-making process for the determination, review and implementation of the directors’ Remuneration Policy
The aim of the policy remains to facilitate delivery of our long-term strategy through attracting, retaining and motivating high-calibre directors with the
necessary skills and experience. In designing the policy, the Committee has adopted the principles set out in the 2018 edition of the UK Corporate
Governance Code and also considered investor and investor representative body views and market practice. Where changes are made to the
remuneration policy or a material change to operation, we will consult with our largest shareholders to ensure their views are taken into account.
In a
ddition, the Committee also considers management’s views and input from its independent remuneration consultants.
Any potential conflicts of interest are managed by ensuring that no individual is involved in discussions regarding their own remuneration arrangements
and that remuneration is fully aligned to and supports our business strategy and culture. When reviewing and implementing the policy, the Committee
also carefully considers the remuneration arrangements, policies and practices of the workforce and the cascade of remuneration throughout the
business.
The policy has been reviewed in light of the six factors listed in Provision 40 of the 2018 edition of the UK Corporate Governance Code:
•
Clarity – the policy is as clear as possible and is described in straightforward concise terms.
•
Simplicity – remuneration structures are as simple as possible and market typical, whilst at the same time incorporating the necessary structural
features, to ensure a strong alignment to performance, strategy and minimising the risk of rewarding failure.
•
Risk – the policy has been shaped to discourage inappropriate risk taking through a weighting of incentive pay towards long-term incentives,
the balance between financial and non-financial measures, a significant portion of the annual bonus being paid in shares, recovery provisions,
and in-employment and post-employment shareholding requirements.
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Annual Report and Accounts 2022
•
Predictability – annual bonus and LTIP awards are subject to caps and dilution limits. Examples of how remuneration varies depending on
performance is set out in the scenario charts. The Committee may exercise its discretion to adjust executive directors’ remuneration if a formula-
driven incentive pay out is inappropriate in the circumstances. Outcomes will not reward poor performance.
•
Proportionality – there is a sensible balance between fixed pay and variable pay, and incentive pay is balanced between annual and long-term
performance.
•
Alignment to culture – The Committee considers company culture and wider workforce policies when shaping and developing executive director
remuneration policies to ensure that there is coherence across the business. There is a strong emphasis on the fairness of remuneration outcomes
across the broader workforce.
Overview of the remuneration policy changes
Following a detailed review of the existing remuneration policy and shareholder engagement, the following changes are proposed. These are limited
to modest amendments which do not substantively alter the policy from that previously adopted:
•
Pension – we have removed references to legacy pension provisions and now make it clear that the policy is for the
C
ompan
y
’
s
pension
contributions to an executive director’s pension (or a cash payment in lieu of pension) will be no higher than the percentage rate available to the
majority of the workforce (this is currently 5% of salary);
•
LTIP performance measures – we have added flexibility to allow a minority of the LTIP performance measures to be based on non-financial strategic
measures, including those relating to our ESG strategy; and
•
The policy formalises the opportunity for executive directors to participate in HMRC Approved all-employee share schemes (such as Save as you
Earn), alongside other colleagues.
Executive directors
The table below sets out the
C
ompan
y
’
s
Remuneration Policy for executive directors:
Element
Purpose and
link to strategy
Operation
Maximum
Performance
conditions
Base salary Provide fixed
remuneration which is
sufficient to recruit and
retain individuals of
the necessary calibre.
Salaries are set by the
Committee taking into
account:
•
the skills and experience
of the individual;
There is no prescribed
maximum salary. Salary
increases will normally be
in line with salary increases
generally for colleagues.
None.
•
the size and scope
of the role;
•
market data for similar roles
in comparable companies;
and
Larger increases may
be awarded where the
Committee considers it
appropriate to reflect, for
example:
•
performance of the
individual and the business.
Typically, salaries are reviewed
annually, with any changes
effective from 1 September
each year.
•
significant changes in the
size and/or complexity of
the Group and/or of the
role; or
•
individuals being moved
to market positioning
over time.
Benefits
Ensure that benefits
are sufficient to recruit
and retain individuals
of the necessary
calibre and provide
business continuity.
Executive directors are eligible
to receive benefits which
may include a company car
(or cash equivalent), private
medical insurance, a periodic
health assessment and
permanent health insurance.
Where relevant, other benefits
to reflect specific individual
circumstances, such as
housing, relocation, travel or
expatriate allowances may
also be provided. Executive
directors are also provided
with insured Death in
Service benefits.
There is no prescribed
maximum monetary value
of benefits.
Benefit provision is set at a
level which the Committee
considers to be appropriate
for the nature and location
of the role.
None.
S G F 99
/
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Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Element
Purpose and
link to strategy
Operation
Maximum
Performance
conditions
Pension Contribute towards
funding later life cost
of living.
Executive directors may
participate in the Group’s
defined contribution pension
plan, receive a salary
supplement or a combination
of the two.
The maximum employer
contribution or salary
supplement for executive
directors is the contribution
available to the majority of
the workforce, currently 5%
of salary.
None.
Annual bonus
To incentivise the
Bonus levels are determined
The maximum bonus
Annual measures and targets
delivery of the annual
by the Committee after
opportunity in respect
will be set by the Committee
business plan.
the year-end based on
of a financial year is 125%
at the start of the financial
performance against
of salary.
year.
targets set at the start
of the financial year. The
The threshold payment level
The majority of the bonus
Committee retains discretion
for the financial performance
will be based on financial
to adjust bonus payments,
condition is 0%, and up
performance, with the
including to override the
to 50% of the maximum
remaining performance
formulaic outcome of the
may be payable for target
condition attributable to non-
award, in the event that
performance.
financial strategic or personal
objectives, including ESG
performance against targets
The
C
ompan
y
’
s
largest
related measures.
does not properly reflect the
shareholders would be
underlying performance of
consulted beforehand if the
the Group and/or the relevant
bonus opportunity increases
businesses, the overall
above 100% of salary (the
shareholder experience or
currently applied maximum
employee reward outcome.
level).
Half of the bonus is paid in
(immediately vesting) shares
but with appropriate and
relevant trading restrictions
imposed by the
C
ompan
y
’
s
share registrars, in order to
enforce a two-year deferral
period and with the associated
share certificate retained by
the Company for two years.
Clawback and dividend
equivalent provisions apply
(see notes on page 102).
LTIP
To incentivise the
delivery of long-term
shareholder value.
Awards are made in the
form of nil-cost options
or conditional share
awards, the vesting of
which is conditional on the
achievement of performance
targets (as determined by the
Committee).
Vested awards must be held
for a further two-year period
before sale of the shares
(other than to pay tax).
The maximum award in
respect of a financial year is
150% of salary.
The
C
ompan
y
’
s
largest
shareholders would be
consulted beforehand if the
grant level increases above
100% of salary (the currently
applied maximum grant level).
Performance conditions are
based on the achievement
of challenging financial,
total shareholder return
(TSR) or non-financial
strategic (including related
to ESG) performance targets
measured over a period of
three years normally.
For the achievement of the
threshold performance target,
a maximum of 20% of the
award will vest.
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Annual Report and Accounts 2022
Element
Purpose and
link to strategy Operation
Maximum
Performance
conditions
LTIP continued The Committee retains
discretion to adjust the
outturn of an LTIP award,
including to override the
formulaic outcome of the
award, in the event that
performance against targets
does not properly reflect the
underlying performance of
the Group and/or the relevant
businesses, the overall
shareholder experience or
employee reward outcome.
Malus and clawback and
provisions apply (see the
notes below).
The value of dividends payable
over the vesting period may
be paid, normally in the form
of shares.
A majority of the award will be
based on financial and/or TSR
based conditions.
All employee
share plans
To provide alignment The executive directors may
with colleagues and participate in any all-employee
to promote share share plan operated by the
ownership Company.
Participation may be capped
by the Committee and, in
any case, within HMRC limits
applying to the respective
plan.
None.
Shareholding
guidelines
To provide alignment
The shareholding guideline
of interest between
for executive directors is
executive directors and 200% of base salary. Until this
shareholders. level is reached, except for
payment of tax arising on the
exercise of awards and other
exceptional circumstances,
executive directors will be
required to retain 75% of the
shares vesting under share
incentive arrangements
(excluding the application of
the Sharesave scheme). In
exceptional circumstances,
executive directors may
seek permission from the
Committee to temporarily go
below their target holding.
Following termination of
their employment, executive
directors will be required to
retain shares at the lower
of 200% of base salary, or
the actual shareholding on
departure, for two years post-
cessation. Shares purchased
voluntarily will not count
towards this requirement.
S G F 101
/
30.2%
52.0%
24.0%
£340,659
100.0%
30.2%
51.8%
24.1%
24.1%
27.9%
£655,573
27.9%
27.9%
14.0%
27.9%
14.0%
100.0%
24.0%
Smiths News plc
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Notes to the policy table:
a) Choice of Performance Measures: Each year the Committee will select the most appropriate performance measures and targets for the annual bonus plan and LTIP. The measures selected will be
aligned with Company strategy and key performance indicators and may also be based on total shareholder return.
b) Participation in incentive schemes is at the discretion of the Committee.
c) Legacy and mandated payments – the Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretions available to it in
connection with such payments) notwithstanding that they are not in line with the policy set out above: (i) where the terms of the payment were agreed before the policy came into effect; or (ii)
where the terms of the payment were agreed at a time when the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment was not in contemplation
of the individual becoming a director of the Company; or (iii) where the Company is mandated to make the payment as a result of an award issued by a competent court, tribunal or authority.
For these purposes, ‘payments’ includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the time the
award is granted.
d) Clawback and malus – the Company operates clawback and malus provisions for the annual bonus plan, DBP and LTIP. The Committee reserves the right to take such action as it reasonably
considers appropriate to put the Company and participants in the same overall financial position as they would have been had certain circumstances (described below) not occurred. This includes a
reduction or cancellation of vested or unvested share awards and/or a reimbursement to the Company of part or all of any cash or share payments within two years of payment. Such circumstances
include, but are not limited to: (i) discovery of a material misstatement of the
C
ompan
y
’
s
audited results on the basis of which the payment was or would be determined; or (ii) serious reputational
damage of the Company, any member of the Group or the relevant business as a result of the participant’s misconduct; or (iii) gross misconduct by the participant; or (iv) corporate failure; or (v)
any other similar circumstance or event which in the view of the Committee has a serious adverse effect on the Company, any member of the Group or the relevant business.
e) There are some differences in the director’s Remuneration Policy compared to the policy for colleagues generally. Whilst the overall structure of the remuneration package cascades throughout the
business, participation in, and the opportunity for the incentive plans varies by seniority. Pension opportunity for executive directors and the workforce is aligned. All permanent employees are invited
to participate in the all-employee share plan. Overall, the remuneration policy for the executive directors is more heavily weighted towards variable pay than for other employees, to ensure a clear link
between reward and the performance and value created for shareholders.
Application of the Remuneration Policy
The charts below illustrate the application of the proposed policy for FY2023. Each element (as a percentage of total remuneration) and the total values
have been set out.
£2,000,000
£1,800,000
£1,600,000
Application of the Remuneration Policy
£1,730,056
£1,400,000
£1,200,000
£1,000,000
£800,000
£600,000
£400,000
£200,000
£521,566
£1,004,962
£1,127,942
£0
Jonathan
Bunting Paul Baker
LTIP with 50% share price appreciation
LTIP
Annual Bonus
Fixed Pay
Notes
(a) Fixed pay comprises annual base salary, benefits and pension, at current rates at the date of this report.
(b) Benefits are the value received in FY2022.
(c) The on-target level of annual bonus and LTIP is 50% of the maximum opportunity.
(d)
The maximum value also shows the impact of an increase in share price of 50% on the value of the LTIP award.
(e) The value of dividend equivalents on LTIP vested awards are excluded.
Minimum
Target
Maximum
Minimum
Target
Maximum
102
G
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Annual Report and Accounts 2022
Approach to recruitment remuneration
On appointment of a new executive director, the Committee would seek to offer a remuneration package which can secure an individual with the
necessary skills, while seeking to pay no more than it believes is necessary to facilitate the appointment. Any remuneration package would be in line
with the parameters set out in the directors’ Remuneration Policy, which is salary set at a level to be able to recruit the most appropriate candidate,
a maximum annual bonus opportunity of 125% of base salary and a maximum LTIP award of 150% of base salary.
Where an individual forfeits outstanding incentive awards with a previous employer as a result of accepting the appointment within the Company,
the Committee may offer compensatory awards to facilitate recruitment. These awards would be in such form as the Committee considers appropriate
taking into account all relevant factors, including the form, expected value, performance conditions, anticipated vesting and timing of the forfeited
awards. The expected value of any compensatory awards would be no higher than the value forfeited.
If an executive director needs to relocate in order to take up the role, the Company may pay to cover the costs of relocation, including (but not limited
to) actual relocation costs, temporary accommodation and travel expenses.
Any share awards referred to in this section will be granted as far as possible under the
C
ompan
y
’
s
existing share and incentive plans. If necessary,
awards may be granted outside of these plans as currently permitted under the Financial Conduct Authority’s Listing Rules.
Contracts of service and policy on loss of office
Contracts of employment with executive directors may be terminated at any time by the Company or employee upon up to 12 months’ notice.
The contracts of employment do not include any provisions for predetermined compensation for early termination.
Executive
director
Date of current
contract
Notice from the
Company
Notice from the
individual
Unexpired
period of service
contract
Jonathan Bunting 1 March 2018, as
supplemented by a letter
of variation dated
15 June 2020
12 months
12 months
Rolling
Paul Baker
10 August 2021
12 months
12 months
Rolling
The Committee may terminate an employment contract immediately by making a payment in lieu of notice consisting of base salary only for the
unexpired period of notice. In normal circumstances, such a payment would be made in monthly instalments over the period, subject to a duty
to mitigate, and will be reduced by the amount in respect of income receivable from alternative employment, excluding a single non-executive
directorship.
In the event that the employment of an executive director is terminated, any compensation payable will be determined in accordance with the terms
of the service contract, as well as the rules of any incentive plans and post-cessation shareholding requirements. Incentives will be treated in the
following way:
S G F 103
/
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Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Annual bonus Unless the Committee determines otherwise, executives will not be eligible for a bonus if they are under notice.
If the Committee determines that the executive director is a ‘good leaver’
1
they may still receive a bonus, reduced
to reflect the portion of the year they were in active employment.
Any payment would remain subject to performance and would be paid following the normal year-end
assessment process.
DBP (deferred annual
bonus shares)
Deferred bonus will be in shares, awarded at the outset, with a requirement for the executive directors to hold
the shares for a two-year deferral period. The deferred shares would be subject to clawback and post-cessation
shareholding requirements and any held shares would be subject to the executive share ownership requirements,
including post-cessation of employment obligations.
LTIP
If the Committee determines that an executive director is a good leaver, LTIP awards may vest subject to
performance and would normally be scaled back to reflect the portion of the performance period that has elapsed
on the date that employment ceases. The awards will vest on the normal vesting date (other than in exceptional
circumstances, such as death in service when the award may accelerate). The post-vesting holding period will
continue to apply for the full two-year period.
If an executive leaves the Group for any other reason, outstanding awards would lapse.
1.
Good leaver reasons include death, injury, disability, redundancy, retirement by agreement with the Company, the employing entity no longer being part of the Group, or any other reason as
determined by the Committee.
The Committee retains discretion to make additional exit payments where such payments are made in good faith in discharge of an existing legal
obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the
termination of a director’s office or employment. The details and rationale for any such payments would be disclosed in the following year’s directors’
report on remuneration.
External non-executive director appointments
It is the
C
ompan
y
’
s
policy to allow each executive director to accept one non-executive directorship of a publicly quoted company provided that it does
not conflict with the interests of the Company. Executive directors may retain the fee for such an appointment.
Consideration of pay and employment conditions elsewhere in the Group
The Committee considers the general basic salary increase for colleagues throughout the Group when determining the annual salary increases for
executive directors. In addition, the Group performance targets used in the executive bonus plan are cascaded into broader-based annual bonus
arrangements for all eligible colleagues, to ensure alignment across the bonus plans and participating populations.
As part of the Board’s commitment to broader stakeholder engagement, the Committee Chair meets with our National Colleague Engagement Forum,
to explain the company-wide remuneration policy and outline how executive remuneration operates. The discussions explore the pay structure at
different organisation levels, in particular focusing on the checks and balances in place, to ensure pay for performance over both short and longer-term
timeframes, and the ‘fair pay’ agenda and fair pay principles adopted by the Company following colleague engagement.
Consideration of shareholder views
The views of shareholders are very important to the Committee and feedback received from shareholders following publication of the Annual Report
and at the AGM is welcomed. It is the
C
ommi
tt
ee
’
s
policy to consult with its largest shareholders and investor representative bodies before proposing
any material changes to the remuneration policy. In line with our policy, the Committee undertook a thorough consultation with our largest shareholders
to inform the policy review during the year.
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Non-executive directors
The table below sets out the
C
ompan
y
’
s
Remuneration Policy for non-executive directors:
Element
Purpose and link
to strategy
Operation
Maximum
Chairman’s and
non-executive
directors’ fees
To attract and retain high-calibre
individuals
Fee levels are set to reflect the time commitment, demands
and responsibility of the role, taking into account fees paid
by similarly sized companies.
Fees are reviewed from time to time, to ensure that they
remain in line with market practice.
Fees are paid in equal monthly instalments.
The
C
h
air
man
’
s
fee includes his chairmanship of the
Nominations Committee.
There is no
prescribed maximum.
Additional fees To provide compensation to
non-executive directors taking on
additional responsibility
Non-executive directors (other than the Chairman) are
paid an additional fee for their chairmanship of a Board
Committee or additional responsibility, such as chairing the
National Colleague Engagement Forum, or may be paid
additional fees for significant additional workload or roles.
There is no
prescribed maximum.
Benefits
To facilitate the execution of
the role
The Company reimburses reasonable travel and
subsistence costs and other legitimate business expenses,
including any tax that may be incurred.
There is no
prescribed maximum.
The Chairman and non-executive directors do not participate in any pension or incentive plans.
Recruitment Policy
The remuneration package for a newly appointed non-executive director would be in line with the policy outlined above.
All non-executive directors, including the Chairman, have a letter of appointment for an initial three-year term, subject to review thereafter.
The table below details the letter of appointments for each non-executive director.
Non-executive
directors
Date of current
letter of
appointment
Notice from the
Company
Notice from the
individual
Date current
term is due to
expire
David Blackwood
6 May 2020
3 months
3 months
2024 AGM
Denise Collis
16 November 2015
3 months
3 months
2025 AGM
Michael Holt
30 September 2018
3 months
3 months
2025 AGM
Mark Whiteling
14 August 2017
3 months
3 months
2024 AGM
S G F 105
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Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Annual report on remuneration
Total remuneration payable in respect of FY2022 (audited)
The total remuneration for each director for FY2022 and the prior year is set out below.
Jonathan
Bunting
Paul
Baker
Tony
Grace
(a)
Fixed Pay
FY2022
‘000
FY2021
‘000
FY2022
‘000
FY2021
‘000
FY2022
‘000
FY2021
‘000
Salary
468
459
278
–
75
301
Benefits
(b)
14
13
10
–
3
13
Pension
benefits
23
23
12
–
10
44
Total
Fixed Pay
505
495
300
–
88
358
Performance Related Pay
Annual
bonus payments
(c)
322
377
183
–
49
247
LTIP award vesting
(d)
341
43
–
–
178
87
Dividend
equivalent payments
(e)
41
2
–
–
22
3
Total
Variable Pay
704
422
183
–
249
337
Total single figure
1,209
917
483
–
337
695
Notes
(a) Tony Grace stepped down from the Board on 30 November 2021 but remained employed by the Company until 31 December 2021. Remuneration in the table for FY2022 is for the period to
30 November 2021.
(b) Benefits include the taxable value of a company car or car cash allowance, private medical insurance and the intrinsic value of Sharesave options granted during the year, as applicable to each
director.
(c) Bonus for Tony Grace represents the pro-rated bonus for the three months of the financial year that he was a member of the Board to 30 November 2021. The bonus received in relation to the period
from when he stepped down from the Board (30 November 2021) to the date of leaving (31 December 2021) is set out in the payments to former directors and payments for loss of office section.
The bonus for Paul Baker represents the pro-rated bonus for the 11 months of the financial year that he was a member of the Board from 4 October 2021.
(d) The FY2020-2022 LTIP awards were granted on 13 December 2019. Based on a final assessment against the EPS performance conditions and an estimate of TSR performance based on
performance to 3 November 2022, 72% of the awards are expected to vest on 13 December 2022. This would result in 1,016,524 shares vesting for Jonathan Bunting and 531,000 shares vesting
for Tony Grace. The award has been valued at 33.5p per share, being the average share price of the
C
ompan
y
’
s
shares over Q4 of FY2022. Further details on these awards and vesting can be found
on page 110. For Tony Grace, the FY2020-2022 LTIP award represents the pro-rated entitlement for 27 months of the 36-month performance period that he was a member of the Board to
30 November 2021 and the additional time prorating of the FY2020-2022 LTIP award received in relation to the period from when he stepped down from the Board (30 November 2021) to the date
of leaving (31 December 2021 – i.e. one month of the 36-month performance period) is set out in the payments to former directors and payments for loss of office section.
(e) Dividend payments equivalent to the aggregate of all dividends paid during the vesting period applicable to the projected LTIP vesting noted in note (d) above, paid in shares.
Remuneration and link to performance during the year (audited)
Annual bonus
In FY2022, each executive director had a maximum opportunity under the annual bonus of 100% of salary, split 70% on financial performance and 30%
on personal objectives. Tony Grace was eligible to participate in the annual bonus on a pro-rata basis for the period of the year worked to 31 December
2021. Paul Baker’s bonus has been pro-rated to reflect the date he joined the Board on 4 October 2021.
Performance measures and actual performance are set out in the table below. As described earlier in this report, the impact of
M
c
C
oll
s
’
insolvency in
May 2022 (and its related bad debt exposure of £5.5m which, in turn, led the Board to conclude an adjusting provision of £4.4m) has been excluded from
the calculation of EBITDA performance for the purposes of assessing bonus performance given the agreed treatment of McColls as an adjusting item.
Targets
Threshold
Target
Max
Actual result
Bonus
achievement
Measure
Weighting
(0%)
(50%)
(100%)
(£m)
(% of maximum)
Group
adj. EBITDA – (excluding IFRS16)
70%
£37.0m £40.0m £43.0m £40.7m
61.7%
Personal objectives
30%
See detail below
See detail below
22.5% to 25.5%
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For the financial year under review, the executive directors were each given a number of personal objectives against which the personal element of the
annual bonus was assessed. These are set out in the table below, together with the basis for their assessment.
Personal
objective
Weighting of
objective
Target
Achievement
Outcome
(%)
Bonus
paid (%)
Jonathan Bunting
Supply Chain
Growth
Initiatives
33%
To identify new initiatives
from existing processes and
capabilities to support new
revenue growth
Strategic and tactical approach
to developing the supply
chain agreed with the Board,
with current and new growth
initiatives explored and actions
approved. Year 1 of three-year
business plan on track.
90%
30%
Contract strategy with major
publishers developed and
approved, with key interventions
in the year having contributed
to the announcement in
October 2022 of successful
contract renewals, with each
of Associated Newspapers,
Frontline and Seymour, securing
35% of current revenues
through to 2029.
Preparation undertaken for the
formation of a joint venture in
the pursuit of a digital content
platform for single-copy editions
of newspapers and magazines
(MyMags).
New organic revenues of £0.9m
profit delivered against a target
of £0.5m from a combination of
Smiths News Recycle, shared
occupation of spare depot
space and the expansion of
a partnership with a national
courier providing sortation and
final mile distribution services.
Diversification of revenues with
existing supply chain partners
to support new distribution
activities.
Refinancing
33%
To complete refinancing with
the syndicate of banks
Worked in collaboration with
the outgoing CFO to secure an
acceptable refinancing for all
stakeholders, with an increased
dividend cap and extended term
to August 2025.
90%
30%
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Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Personal
objective
Weighting of
objective
Target
Achievement
Outcome
(%)
Bonus
paid (%)
Safety First
10%
To maintain industry leading,
upper quartile, health and
safety performance
LTI frequency rate of 0.25%
achieved against a target of
0.32% – remaining below the
industry average of 1.0 and with
only two RIDDORs. 13 RoSPA
awards achieved, including 11 at
the highest ‘gold’ standard and
ISO 45001 certification for H&S
management retained.
90%
9%
Sustainability
14%
To drive the ESG agenda,
delivering against the
specified targets
ESG strategy and programme of
activity underway, with delivery
against agreed Board-level
KPIs and Science Based Target
setting progressed and now
underway.
75%
11%
People
10%
To score not less than 70%
from the company-wide
engagement survey, and
remain in the upper quartile
for the Diversity & Inclusion
(D&I) Survey
After moving to pulse
engagement surveys, three
were conducted throughout the
year, scoring an average of 7.0
against a target of 7. D&I survey
results of 77%. Participation
rates remained in excess of 85%
across all three surveys.
50%
5%
Total (out of
a maximum
30% bonus
opportunity)
100%
85%
Paul Baker
Sustainability
20%
To lead the ESG strategy,
ensuring three-year targets
were in place
Full set of KPIs agreed with
governance processes
established to manage the
delivery within each area of
strategy. TCFD report completed
and Science Based Target
setting progressed and now
underway.
75%
15%
Shared service
centre
20%
Phase 3 financial structure to
be determined for the Shared
Service Centre team based
in India
Industry standard KPIs
established and cost-efficiency
projects underway, within the
Shared Service Centre. Initial
headcount reductions achieved.
50%
10%
Costs
20%
Oversight of a three-year
cost reduction plan,
addressing changing market
conditions and enabling
delivery of agreed three-year
profit targets
Three-year functional costs
targets set and being actively
monitored, with functional
leaders to support the
C
ompan
y
’
s
business plans.
75%
15%
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Personal
objective
Weighting of
objective
Target
Achievement
Outcome
(%)
Bonus
paid (%)
People
20%
To lead the Finance function
in a way that results in a score
of not less than 70% in the
Company engagement survey
Finance team engagement
score improved from 6.1 to 7.4
(a score of 4% ahead of target).
100%
20%
Supply chain
growth
initiatives
20%
To provide both thought
leadership and financial
support in the pursuit of
shareholder value creation
Provided financial support and
analytical rigour for investment
decisions in tactical and organic
growth opportunities, helping to
secure new organic revenues of
£0.9m profit delivered against a
target of £0.5m.
75%
15%
Total (out of
a maximum
30% bonus
opportunity)
100%
75%
Tony Grace
Business
Strategy
33%
To complete the close out of
the FY2021 financial year end
and audit
Financial year end processes
complete and audit closed with
no issues reported.
Onboarding of new CFO
undertaken to support transition.
60%
20%
Refinancing
33%
To complete refinancing with
the syndicate of banks
Refinancing agreement secured
on acceptable terms and with
an increased dividend cap from
£6m to £10m and an extended
term from November 2023 to
August 2025.
90%
30%
Pension Fund
33%
To finalise the winding up
of the
C
ompan
y
’
s
Defined
Benefit scheme and receive
surplus cash proceeds
Sum of £8.1m cash proceeds
(against a target of £8.0m) was
received in December 2021. The
pension scheme was formally
wound up on 25 February 2022.
75%
25%
Total (out of
a maximum
30% bonus
opportunity)
100%
75%
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Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Further detail on our key strategic objectives and performance against those objectives is provided in the Strategic Report set out on pages 2 to 57.
Overall, as a result of the financial performance (43.2% of the 70% bonus opportunity) and each director’s respective personal performances (85% for
Jonathan Bunting and 75% for each of Paul Baker and Tony Grace), Jonathan Bunting’s aggregate annual bonus pay out is 68.7% of salary and the
aggregate annual bonus payouts for each of Paul Baker and Tony Grace is 65.7% of salary. This results in payments of £321,640 to Jonathan Bunting,
£182,891 to Paul Baker and £49,422 to Tony Grace (with 50% of the bonus deferred into shares for each executive for two years). The Committee is
satisfied that these bonus payments represent a strong link between reward and performance, being aligned with the overall shareholder experience
and consistent with the bonus payments made to employees generally.
Long-term incentive plan
Jonathan Bunting and Tony Grace were each granted LTIP awards on 13 December 2019 which were subject to performance over a three-year
performance period FY2020-2022 for EPS and, over the three-year period from grant, for TSR relative to the FTSE SmallCap (excluding investment
trusts). The targets set and the level of vesting for EPS and the current estimate of vesting under the TSR element are set out in the table below.
FY2020
-2022 Award
Weighting
Threshold
(20% vesting)
Maximum
(100% vesting)
Actual
performance
Vesting
FY2022
Adjusted basic EPS
(a)
50%
10.0p 13.0p 10.9p
22% (of 50%)
Total Shareholder
Return vs FTSE Small Cap
50%
Median Upper quartile Upper quartile(b)
50% (of 50%)
Estimated total vesting (% of max)
(b)
72%
(a) The FY2020-2022 award was set on an IAS17 basis which gives an Adjusted basic EPS result of 10.9p. Please note that the Group Financial Statements to this Annual Report are, however, made
under IFRS16 where Adjusted Basic EPS is 10.8p.
(b) Based on performance to 3 November 2022. Actual performance will be tested to 13 December 2022 and final vesting will be provided in the FY2023 Directors’ Remuneration report.
Given the estimated vesting outcomes and the significant TSR growth over the three-year performance period, the Committee has considered the
appropriateness of the rate of vesting at 72% and confirms that it remains comfortable that the pay out level would be appropriate in light of the overall
performance and shareholder experience over the three-year performance period, and that no discretion would be necessary to adjust the outturn.
Accordingly, the table below shows the number of shares estimated to vest and the value of these shares:
Value
attributable
Number
Value
Estimated
Number
of
shares
Value
on
to share price
growth on
of
shares
at grant
total vesting
estimated
estimated
estimated
at grant
(30.0p)
outcome
to vest
vesting
(a)
vesting
awards
Jonathan Bunting
1,411,840
£423,552
72%
1,016,524
£340,535
£35,578
Tony Grace
(b)
983,333
£295,000
72%
531,000
£177,885
£18,585
(a)
The FY2020-2022 LTIP awards have been valued at 33.5p per share, being the average share price over Q4 of FY2022.
(b) For Tony Grace, the FY2020-2022 LTIP award represents the pro-rated entitlement for 27 months of the 36-month performance period that he was a member of the Board to 30 November 2021.
The additional time prorating of the FY2020-2022 LTIP award received in relation to the period from when he stepped down from the Board (30 November 2021) to the date of leaving (31 December
2021 – i.e. one month of the 36-month performance period) is set out in the payments to former directors and payments for loss of office section.
In addition, dividend payments equivalent to the aggregate of all dividends paid by the Company during the performance period apply to the LTIP
awards that have vested and are to be paid in shares at the time of their exercise. In the case of Jonathan Bunting, the dividend equivalent payment
applicable to the projected LTIP vesting is expected to be £41,169 and, in the case of Tony Grace, the dividend equivalent payment applicable to the
projected LTIP vesting is expected to be £21,506.
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Performance graph and table
The graph below shows the
C
ompan
y
’
s
Total Shareholder Return (TSR) performance against the TSR of the FTSE Small Cap Index (excl. Investment
Trusts) over the past ten years. The FTSE Small Cap Index was chosen because it represents a broad equity market index of which the Company has
primarily been a constituent and is the benchmark for the relative Total Shareholder Return performance condition used for the LTIP awards. The table
below the graph sets out the total remuneration for the Chief Executive Officer during each of the last ten financial years.
350
300
250
200
150
100
50
0
August
August
August
August
August
August
August
August
August
August
August
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Smiths News PLC
FTSE 250 Small Cap (excl. Investment Trusts)
FY2013
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
FY2021
FY2022
Chief Executive Officer
Total remuneration (£’000)
1,311
970
1,095
882
794
539
537
596
917
1,209
Chief Executive Officer Annual
bonus payment (% of maximum)
67.1%
12.5%
71.3%
38.9%
15.0%
0.0%
0.0%
20.0%
82.2%
68.7%
Chief Executive Officer EPP
1
pay out (% of maximum)
86.8%
55.1%
61.5%
72.0%
72.0%
0.0%
N/A
N/A
N/A
N/A
Chief Executive Officer LTIP
vesting (% of maximum)
100.0%
100.0%
63.5%
0.0%
0.0%
0.0%
0.0%
0.0%
27.6%
72%
1. The EPP is a legacy incentive plan based on economic profit. In FY2018, the Committee exercised its discretion in deciding that the final tranche payment would not be considered in FY2019 or
FY2020 as permitted by the scheme rules.
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Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Percentage change in directors’ remuneration
The table below shows the percentage change in the directors’ salary, taxable benefits and annual bonus over the relevant reporting periods noted in
the table compared to the average of all UK-based employees. This group has been chosen as the majority of our workforce is UK-based.
% Change FY2020 % Change FY2021
Base Base
salary/ Annual salary/ Annual
fees Benefits bonus fees Benefits bonus
% Change FY2022
Base
salary/
fees
Benefits
Annual
bonus
Chairman
1
0.0 0.0
–
0.0 0.0
–
0.0 0.0
–
Chief Executive Officer
2
0.0
(30.8)
100.0
2.0
(38.1)
346.7
2.0
7.7
(14.6)
Chief
Financial Officer –
T Grace
3
0.0 0.0 100.0 2.0 (13.3) 319.2 0.0 0.0
(80.2)
Chief
Financial Officer –
P Baker
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Non
-executive directors
D Collis
0.0 0.0
–
0.0 0.0
–
15.0
0.0
–
M Whiteling 0.0 0.0
–
0.0 0.0
–
13.6
0.0
–
M Holt
4
0.0 0.0
–
0.0 0.0
–
16.7 0.0
–
UK
employees
5.6 (1.0) 20.6 (9.1) 0.0 243.4
4.6
0.0
(20.0)
1.
The
C
h
air
man
’
s
fee has not increased. The values in FY2020 represent the combined remuneration for Gary Kennedy (to 13 May 2020) and David Blackwood (from 13 May 2020) and in each of
FY2021 and FY2022 exclusively represent the remuneration of David Blackwood.
2.
The
C
E
O
’
s
values in FY2020 represent the combined remuneration for Jos Opdeweegh (to 5 November 2019) and Jonathan Bunting (from 5 November 2019), and in each of FY2021 and FY2022
exclusively represent the remuneration of Jonathan Bunting.
3.
Tony Grace stepped down from the Board on 30 November 2021 and his remuneration was pro-rated as a result.
4.
For part of FY2020, the annual fee for Michael Holt was temporarily increased by £205,000 per annum for the duration of his tenure as Executive Chairman of Tuffnells from 5 November 2019 until its
sale on 2 May 2020.
Chief Executive Officer pay ratio to the workforce
The table below shows the ratio of the Chief Executive Officer’s single figure total remuneration to the median (50th percentile), 25th and 75th
percentile paid employee, based on the total remuneration of the Group’s full-time equivalent UK colleagues.
The employee total remuneration includes wages and salary, taxable benefits, annual bonus, share-based remuneration and other incentive plans and
pension benefits. In line with the pay ratio regulations, we have shown the pay ratio going back to FY2018.
Year
Methodology
Population
25th percentile
Median
75th percentile
FY2022
Employee salary
£18,954
£20,752
£24,596
Employee
total remuneration
CEO
to employee pay ratio
£19,104
63.3:1
£20,904
57.8:1
£27,552
43.9:1
FY2021
Option
B
CEO
to employee pay ratio 51.6:1 40.8:1 38.5:1
FY2020
CEO to employee pay ratio
34.7:1
29.1:1
23.9:1
FY2019
CEO
to employee pay ratio 31.8:1 22.7:1 18.8:1
FY2018
CEO
to employee pay ratio 32.4:1 26.3:1 17.8:1
The Company has calculated the ratios in accordance with the Option B methodology laid out in the pay gap regulations which have been deemed
the most reasonable and practical approach given the collation of data exercise required and held by the Company for gender pay gap reporting
purposes. The data for the three employees at each quartile is based on the gender pay gap data as at April 2022 and has been calculated at a full-time
equivalent level to allow for direct comparison.
The composition of colleague population in each of the reporting years FY2018-FY2022 remains consistent, with over 50% of colleagues in operational
roles within the warehouse and field operations. As previously reported, these roles typically attract pay levels at or just above the National Living
Wage. The large proportion of these operational roles therefore explains both the salaries that sit at the 25th percentile and median, and also the close
proximity of salaries and total remuneration between those two points. The second-largest population consists of operational administrative support,
team leaders/supervisors and management roles, with the remainder of colleagues (reflective at the 75th percentile) made up of professional functional
roles and senior management which span Leadership Levels 1-4 and who, therefore, have a broad range of salaries and entitlement to performance-
related initiatives.
In reviewing the pay gap assessment, the data and ratios are considered to represent a true reflection of pay within the Company which demonstrate
the varied pay practice reported at each percentile due to (i) the
C
ompan
y
’
s
organisational shape and diverse range of roles within each grade in the
business, (ii) the significant weighting of warehouse and field operational roles sitting at the 25th percentile and median, and (iii) the emphasis on fixed
pay and overtime, rather than performance-related initiatives across most of our colleague population.
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The pay package for the CEO has a higher weighting to performance related pay (part of which is share based) than the employees at the three
percentiles. Therefore, the pay ratios in FY2022 are higher than in FY2021 primarily as a direct result of an increased total remuneration for the CEO
due to increases in the combined payments of the annual bonus and the estimated vesting of the FY2020-2022 LTIP award (as reported in the total
single figure table on page 106). In addition, in comparing FY2022 to FY2021, there was slightly higher pay at the lower quartile but with lower pay at
the median following changes in the composition of colleagues and the total remuneration at these percentiles in FY2022 (including a slightly lower
amount for the colleague recognition voucher scheme vs the previous year and in the composition of remuneration benefits received for the colleagues
at these quartiles).
In FY2021 and FY2022, the pay gap rose sharply versus the prior periods as a direct result of a higher total CEO pay in each of these years than in the
prior periods, noting that, for each of FY2020, FY2019 and FY2018, the ratios do not include any LTIP payments and, for each of FY2018 and FY2019,
the ratios do not include any annual bonus payments either.
Relative importance of spend on pay
The table below illustrates the
C
ompan
y
’
s
expenditure on pay in comparison to adjusted EBITDA, corporation tax paid and distributions to shareholders
by way of dividend payments.
FY2022
£m
FY2021
£m
%
change
Total
employees pay
44.9
44.8
0.2%
Adjusted
Operating Profit
38.1
39.6
–3.8%
Corporation tax paid
5.3
6.3
–13.5%
Dividends
paid
6.1
1.2
408.3%
The figures above are principally set out in the income statements on page 132 and on pages 178, 169 and 164 in the Notes to the Group Financial
Statements. Total employee pay is the total pay for all colleagues across the Company. Adjusted Operating Profit has been used as a comparison as
this is now the revised key financial metric which the Board considers when assessing the
C
ompan
y
’
s
financial performance (from Adjusted EBITDA
(excl. IFRS16)). Corporation tax paid and dividends paid have also been used as a comparison as these together indicate the sustainable after tax and
dividends paid position of the Company for reinvestment.
Share plans – awards made during the year
LTIP awards granted in FY2022 (audited)
On 29 December 2021, executive directors were granted the following FY2022-2024 LTIP awards:
Executive
Share price at
date of grant
1
Number of
nil-cost options
subject to
maximum award
Face value
of
award
Percentage of
awards released
for achieving
threshold targets
2
Performance
period
Jonathan Bunting
37.70p
1,241,856
£468,180
20%
FY2022-2024
Paul Baker
809,018
£305,000
Notes
1.
Share price is the mid-market average price in the three days immediately prior to the date of grant.
2.
100% for achieving maximum targets.
Awards are subject to (i) Adjusted free cash flow (for 30% of the award) and (ii) relative total shareholder return compared to the companies comprising
the FTSE Small Cap Index (excluding investment trusts) (for 70% of the award).
The performance conditions applied to the awards were as follows:
Performance period
FY2024 Adjusted Free Cash flow
(30% of award)
Relative TSR compared
to the companies comprising the
FTSE Small cap Index
(70% of the award)
Proportion
exercisable
Three years ending 31 August 2024
Below £36.4m
Below median rank
Zero
36.4m Median 20%
Between £36.4m and £40.4m Between Median and Upper Quartile 20%-100%
£40.4m or more Upper Quartile or higher 100%
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Directors’ Remuneration Report continued
Deferred Bonus Plan awards granted in FY2022 (audited)
On 29 December 2021, the following award was granted to the Chief Executive Officer under the DBP, equating to 50% of his FY2021 bonus payment,
as follows:
Executive
Share price at
date of grant
1
Number of
nil cost options
subject to award
Face value
of award (£)
Jonathan Bunting 37.70p 500,395 188,649
1. Share price is the mid-market average price in the three days immediately prior to the date of grant.
Awards are immediately exercisable subject to the shares being held (after payment of taxes) for a period of two years from the date of grant, in line
with the
C
ompan
y
’
s
shareholding guidelines policy and subject to clawback within this period. As part of this deferral period, appropriate and relevant
trading restrictions have been imposed with the
C
ompan
y
’
s
share registrars, in order to enforce the two-year deferral period and the associated share
certificate retained by the Company.
Sharesave Scheme awards granted in FY2022 (audited)
No awards were granted to executive directors under the Sharesave Scheme in FY2022.
Payments to former directors and payments for loss of office
Tony Grace, former Chief Financial Officer, stepped down from the Board on 30 November 2021 and remained an employee until 31 December 2021,
to continue to provide handover support to the finance function and support the Board through the finalisation of the FY2021 audited results and the
successful conclusion of the
C
ompan
y
’
s
refinancing in December 2021.
In the period 1 December 2021 to 31 December 2021, Tony Grace received the following remuneration:
•
Salary of £25,075 and benefits of £1,011;
•
A grant under the Deferred Bonus Plan on 29 December 2021 in respect of his FY2021 bonus consisting of 328,036 nil-cost options, which
were subsequently exercised (after deduction of taxes and NICs) into 173,549 shares, which must then be held for a period of two years from the
date of grant;
•
A time prorated annual bonus for FY2022 of an additional £16,474, 50% of which is deferred into shares for a period of two years from the date
of grant; and
•
An estimated time prorated FY2020-2022 LTIP vesting of an additional 19,666 shares and an associated dividend equivalent applicable to the
projected LTIP vesting of £796.
Remuneration received by Tony Grace for FY2022 prior to stepping down is set out in the single figure table on page 106.
Employee Benefit Trust
The
C
ompan
y
’
s
Employee Benefit Trust is used to facilitate the acquisition of ordinary shares in the Company to satisfy awards granted under the
C
ompan
y
’
s
executive share schemes and Sharesave Scheme. The Trust is a discretionary trust, the sole beneficiaries being employees (including
executive directors) and former employees of the Company. The Trust waives its right to vote and to dividends on the shares that it holds.
The Trustee is Computershare Trustees (Jersey) Limited, an independent professional trustee company based in Jersey.
The number of shares held in the Employee Benefit Trust at 27 August 2022 was 12,129,822 ordinary shares.
The Board has resolved that all employee share scheme exercises in FY2022 and, until otherwise agreed, all future employee share scheme exercises
in FY2023 should be satisfied through the Employee Benefit Trust, using market purchased shares and intends to instigate a plan for share purchases
to cover likely future commitments.
Dilution of share capital by employee share plans
Awards granted under the
C
ompan
y
’
s
Sharesave Scheme have, in the past, been satisfied by the issue of new shares when the options are exercised.
The Company monitors the number of shares issued under the Sharesave Scheme and, as at 27 August 2022, had issued 2,906,449 new shares within
the past ten-year period, representing 1.17% of the issued share capital. This is well within our dilution limit of 10% in any rolling ten-year period in the
Sharesave Scheme rules and in line with the guidelines set by the Investment Association.
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Executive directors’ incentive plan share interests (audited)
The table below sets out details of outstanding share awards held by executive directors as at 27 August 2022 under the LTIP and DBP (covering
deferred annual bonus awards), together with exercises made during the year under both the LTIP and DBP (covering deferred annual bonus awards).
Awards under these schemes are structured as nil cost options. In addition, the table sets out awards held by executive directors pursuant to the
Sharesave scheme.
Share awards
With
performance
measures
1
Without
performance
measures
2
Vested but
unexercised
Vesting
during
the year
3
Jonathan
Bunting 4,183,696 42,857
0
611,987
Paul
Baker
809,018
0
0
0
Tony Grace
4
1,210,593
42,857
0
554,046
1.
These unvested awards relate to the FY2020-FY2022 LTIP which is estimated to vest at 72% of maximum based on performance against EPS and TSR performance conditions, and the
FY2021-FY2023 and FY2022-FY2024 LTIPs which are both subject 70% to TSR and 30% to Free Cash Flow performance conditions.
2.
These awards relate to annual bonus deferred shares in respect of the FY2020 bonus, these shares must be held for two years.
3.
These awards relate to the immediately vesting annual bonus deferred shares which were granted to executive directors under the DBP on 29 December 2021, equating to 50% of their respective
FY2021 bonus, and the FY2019-2021 LTIP for Jonathan Bunting and Tony Grace. These awards must be held for at least two years.
4.
Figures for Tony Grace shown as at 30 November 2021, the date of stepping down from the Board and applying pro ration to unvested awards relating to the FY2020-FY2022 and the
FY2021-FY2023 LTIPs. Subsequently, in line with ‘good leaver’ status, the 42,857 share awards designated without performance measures related to a Save As You Earn award which was
exercised on cessation of employment in the amount of 26,190 shares (after tax and NICs).
Executive directors’ shareholdings and shareholding guidelines
The shareholding guideline for executive directors is 200% of salary. Until this level is reached, except for payment of tax arising on the exercise/vesting
of awards and in other exceptional circumstances, executives will be required to retain 75% of the shares vesting under share incentive arrangements
(excluding the application of the Sharesave scheme). The table below sets out the beneficial interests of the executive directors who served during the
year, and of their connected persons, in the ordinary shares of the Company, together with the level held against the shareholding guidelines.
% of salary
h
eld compared
Name
Salary
Holding on
28 August
2021
Holding on
27 August
2022
Valuation
of
current
holding
1
to 200% of
salary target
shareholding
Jonathan Bunting
£468,180
592,115
918,188
£283,720
60.60
Paul Baker
£305,000
–
80,000
£24,720
8.10
Tony Grace
2
£300,900
257,876
380,169
£117,472
39.04
1.
Using the closing share price of 30.90p as of 27 August 2022.
2.
Figures for Tony Grace shown as at 30 November 2021, the date of stepping down from the Board.
Between 27 August 2022 and 8 November 2022 (the publication date of this report), there has been no other change in the executive directors’
shareholdings shown above.
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Directors’ Remuneration Report continued
Non-executive directors
Non-executive directors’ fees
The following fees were paid to non-executive directors for FY2022 and FY2021 (audited):
Base fee
Additional
fees
Benefits
1
Total fees
Year
£000
£000
£000
£000
David
Blackwood
2
FY2022
140
–
1.5
141.5
FY2021
140
–
0.4 140.4
Denise Collis
3
FY2022
47.5
10
0.0
57.5
FY2021
40
10
0.8 50.8
Mark
Whiteling
4
FY2022 47.5 15 0.0 62.5
FY2021
40
15
0.6
55.6
Michael Holt
5
FY2022
47.5
5
0.0
52.5
FY2021
40
5
0
45
1.
The benefits disclosed relate to the reimbursement of travel and accommodation expenses incurred in attending Board meetings at the
C
ompan
y
’
s
premises around the UK. The grossed-up value has
been disclosed and the tax arising is settled by the Company.
2.
The Company chairman is paid a single fee which includes chairmanship of the Nominations Committee.
3.
Denise Collis receives an additional £10,000 per year as chair of the Remuneration Committee.
4.
Mark Whiteling is Senior Independent Director and receives a fee of £5,000 per year for this role in addition to a fee of £10,000 per year he receives as chair of the Audit Committee.
5.
Michael Holt is responsible for Board colleague engagement and is chair of the National Colleague Engagement Forum. He receives an additional £5,000 per year for this additional role.
Non-executive directors’ shareholdings (audited)
The beneficial interests of the non-executive directors who served during the year are set out below:
27 August
2022
28 August
2021
David Blackwood
284,510
240,000
Denise
Collis
48,846
48,846
Mark
Whiteling 80,000 80,000
Michael Holt
0
0
There has been no change in the non-executive directors’ shareholdings shown above between 27 August 2022 and 8 November 2022 (the publication
date of this report).
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Implementation of the Remuneration Policy in FY2023
Executive directors
Salaries
The base salary for the Chief Executive Officer increased by 3.25% to £483,396, and the base salary for the Chief Financial Officer increased by 3.25%
to £314,913, with effect from 1 September 2022, each of which is below the average percentage increase awarded to our workforce, the majority of
whom saw an increase of 6.6%.
Pension
The
C
ompan
y
’
s
pension contribution for executive directors is 5% of salary, which is aligned to the rate available to the majority of the workforce.
Bonus
The annual bonus opportunity will remain at 100% of salary. 70% will be based on Adjusted Operating Profit as this will be the key measure of
profitability against which business performance will be assessed over the year and will be in line with our internal financial reporting. An Operating
Profit target range has been set against a stretching budget number and is also considered to be challenging in light of analysts’ consensus
expectations for our FY2023 profit performance. Also, 30% will be based on personal measures which will be based on the achievement of stretching
targets set against our operational KPIs.
Of the maximum bonus, 50% will be paid out for both the financial and personal objectives for on-target performance. The Committee will apply
discretion as to whether any payment should be made on the personal element of the bonus in the event that the financial targets are not met. There
will also be a requirement for a minimum personal performance rating to be achieved before the financial performance element may be paid.
The performance targets are considered commercially sensitive, so will not be disclosed in advance. However, there will be full disclosure of the targets
that were set, the performance against them and the bonus payable, in next year’s Annual Report.
LTIP
LT
IP awards are expected to be granted within 42 days following publication of the
C
ompan
y
’
s
preliminary financial results for FY2022 covering the
performance period FY2023-2025. The LTIP grant level for the FY2023-2025 award will be 100% of base salary.
The performance measures will be unchanged, being a relative Total Shareholder Return measure (70% weighting) and free cash flow in the final year
of the three-year performance period (30% weighting).
The performance targets are set out below:
Measure Weighting
Threshold
(20% vests)
Maximum
(100% vests)
Adjusted Free cash flow in the final year (FY2025) of the three-year performance period 30% £36.6m £41.2m
Relative TSR versus the companies comprising the FTSE Small Cap index as at the date of grant 70% Median Upper quartile
Free cash flow includes agreed adjustments from EBITDA, such as the purchase of fixed assets, finance lease payments and the cash impact of
adjusted items, and so provides a sharper focus on strong cash generation, return on investment and dividend cover, in line with the
C
ompan
y
’
s
capital allocation strategy.
TSR provides a strong and direct incentive to continue to focus on share price growth and shareholder value.
Non-executive directors
Non-executive directors’ fees in FY2023
The Company
C
h
air
m
an
’
s
fee rate increased by 3.25% to £144,550, with effect from 1 September 2022, and the non-executive directors’ fees similarly
increased by 3.25%, with effect from 1 September 2022, such that the following rates now apply:
•
the base fee rate increases from £47,500 per annum to £49,043.75;
•
the additional fee for chairing the Board’s Committees increase from £10,000 per annum to £10,325 per annum; and
•
the additional fees for the role of Senior Independent Director and/or chairing the National Colleague Engagement Forum increase from £5,000
per annum to £5,162.50 per annum.
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Smiths News plc
Annual Report and Accounts 2022
Directors’ Remuneration Report continued
Consideration by the directors of matters relating to director’s remuneration
Remuneration Committee
David Blackwood is non-executive chairman of the Board and was deemed independent on appointment. All other members of the Committee are
independent non-executive directors.
In addition to the formal number of Committee meetings set out below, members regularly engaged throughout the year in considering various other
matters that arose under the remit of the Committee.
Meetings
attended
Possible
meetings
Denise Collis
5
5
David
Blackwood
5
5
Mark
Whiteling
5
5
Michael
Holt
5
5
The
C
ommi
tt
ee
’
s
terms of reference, which are available on the
C
ompan
y
’
s
website www.smithsnews.co.uk and from the Company Secretary on
request, set out the responsibilities of the Committee.
During the year, the Committee was supported in its work by its appointed external advisers, Korn Ferry, who were paid fees of £37,953 (plus VAT).
Korn Ferry has no connection with the Company or the directors. Based on its experience of working with the advisers, the Committee is satisfied that
the advice received from Korn Ferry has been, and continues to be, objective and independent. Korn Ferry provides no other services to the Company
that could potentially lead to a conflict of interest with the independent advice to the Committee.
Korn Ferry is a founder member of the Remuneration
C
on
s
ultan
t
s
’
Group and, as such, voluntarily operates under the code of conduct in relation to
executive remuneration consulting in the UK. The code of conduct can be found at www.remunerationconsultantsgroup.com.
The Chief Executive Officer, the Chief Financial Officer, the Company Secretary & General Counsel, the People Director and the Head of Reward also
attended Committee meetings in the year but were not present when their own performance or remuneration was discussed.
Shareholder vote
The table below sets out the voting results for the Directors’ Remuneration Policy at the 2020 AGM and the Directors’ Remuneration Report at the
2022 AGM:
Resolution
Votes
for
Percentage
of votes cast
in favour
Votes
against
Percentage
of votes cast
against
Total
votes cast
Votes
withheld
To approve the Remuneration Policy (2020 AGM)
131,630,015
83.08%
26,813,938
16.92%
158,443,953
468,570
To
approve the Directors’ Remuneration report
for
the year ended 28 August 2021 – the 2022 AGM
132,872,601
87.43%
19,099,963
12.57%
151,972,564
133,138
Approval
This report was approved by the Board and signed on its behalf by:
Denise Collis
Remuneration
Committee
Chair
8 November 2022
118 G
Smiths News plc
Annual Report and Accounts 2022
Directors’ Report – Other Statutory Disclosures
Directors’ Report
This Annual Report and the Group Financial Statements include the Directors’ Report and the audited financial statements of Smiths News plc
(the ‘Company’) and its subsidiaries (the ‘Group’) for the 52-week period ended 27 August 2022. The information required to be disclosed in the
Directors’ Report is provided in the following sections of the Annual Report, which are incorporated into this Directors’ Report by reference:
•
Strategic Report on pages 2 to 57;
•
Corporate Governance report on page 58;
•
Audit Committee report on page 80;
•
Nominations Committee report on page 90;
•
Directors’ Remuneration report on page 94;
•
TCFD report on page 44;
•
this section, Other statutory disclosures;
•
Directors’ Responsibilities statement on page 123; and
•
Notes to the Group Financial Statements as detailed in this section.
This Directors’ Report has been drawn up and presented in accordance with, and in reliance upon applicable English company law, and the liabilities
of the directors in connection with those reports shall be subject to the limitations and restrictions provided by such law.
Non-financial information statement
The Company has complied with the requirements of s414CB of the Companies Act 2006 by including certain non-financial information within the
Strategic Report as follows:
•
the business model on page 6;
•
information on environmental, employee, social, human rights, anti-corruption and anti-bribery matters (non-financial matters), including the relevant
policies, due diligence process implemented in pursuance of the policies and outcomes of those policies, on pages 24 to 29;
•
principal and emerging risks identified in relation to non-financial matters, including a description of the business relationships, products and services
which are likely to cause adverse impacts in those areas of risk, and a description of how the principal risks are managed, on page 40;
•
all Key Performance Indicators (KPIs), including those in relation to non-financial matters, are on page 10;
•
the Financial Review, which includes where appropriate, references to, and additional explanations of, amounts included in the Group Financial
Statements on pages 132 to 181;
•
a statement explaining how the directors have had regard to the matters in s172 of the Companies Act 2006 in performing their duties on page 70;
and
•
future developments in the business on pages 20 to 23.
Subsidiaries and branches
The
C
ompan
y
’
s
operating subsidiaries, branches and associated undertakings are listed in Note 31 to the Group Financial Statements.
Post balance sheet events
The directors have considered the period between the balance sheet date and the date when the accounts are authorised for issue for evidence of
conditions that existed at the balance sheet date, either adjusting or non-adjusting post balance sheet events and have concluded that there are no
such events in the current period.
Profit attributable to shareholders and dividends
The statutory profit for the financial year, after taxation, from the Continuing Operations was £23.4m (FY2021: £26.3m) and from the Discontinued
Operations was £nil (FY2021: loss of £0.1m). In aggregate, the statutory profit for the financial year, after taxation, from both the Continuing Operations
and Discontinued Operations was £23.4m (FY2021: £26.2m).
In light of the
C
ompan
y
’
s
performance, the Board has decided to recommend a final dividend of 2.75p which is expected to be paid on 9 February 2023
to all shareholders who are on the register of members at close of business on 13 January 2023. Accordingly, the total dividend for the 52-week period
ended 27 August 2022 is 4.15p per ordinary share (FY2021: 1.65p). The dividend recommendation represents the maximum permissible sum that can
be paid under the distribution cap limits within our banking arrangements (£10m per annum) and is based on the forecast number of shares in issue at
the record date.
S G F 119
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Smiths News plc
Annual Report and Accounts 2022
Directors’ Report – Other Statutory Disclosures
continued
Share capital
The
C
ompan
y
’
s
issued share capital comprises a single class of ordinary shares of 5p each. All issued shares are fully paid, can be held in certificated
or uncertificated form and are listed on the London Stock Exchange. Details of movements in the issued share capital during the year can be found in
Note 25 to the Group Financial Statements.
The rights and obligations attaching to the
C
ompan
y
’
s
ordinary shares, in addition to those conferred on their holders by law, are set out
in the
C
ompan
y
’
s
Articles of Association (Articles), a copy of which can be obtained from Companies House or from the
C
ompan
y
’
s
website
www.smithsnews.co.uk. The
C
ompan
y
’
s
Articles may only be amended by a special resolution of the Company. Subject to applicable statutes, shares
may be issued with such rights and restrictions as the Company may by ordinary resolution decide, or (if there is no such resolution or so far as it does
not make specific provision) as the Board may decide.
Holders of ordinary shares are entitled to attend and speak at general meetings of the Company; to appoint one or more proxies and, if they are
corporations, to appoint corporate representatives; and to exercise voting rights. Holders of ordinary shares may also receive a dividend and on a
liquidation may share in the assets of the Company. In addition, holders of ordinary shares are entitled to receive the
C
ompan
y
’
s
Annual Report and
Accounts. Subject to meeting certain thresholds, holders of ordinary shares may require a general meeting of the Company to be held or propose
resolutions to be considered at Annual General Meetings.
Voting rights and restrictions on transfer of shares
On a show of hands at a general meeting of the Company, every holder of ordinary shares present in person or by proxy and entitled to vote has one
vote and on a poll every member present in person or by proxy and entitled to vote has one vote for every ordinary share held. None of the ordinary
shares carry any special rights with regard to control of the Company. Electronic and paper proxy appointments and voting instructions must be
received by the
C
ompan
y
’
s
Registrars not later than 48 hours before a general meeting. However, when calculating the 48-hour period, no account
is taken of any part of a day that is not a working day.
The directors may refuse to register a transfer of a certificated share: which is not fully paid, provided that the refusal do
es not prevent dealings in the
shares in the Company from taking place on an open and proper basis; or on which the Company has a lien. The directors may also refuse to register a
transfer of a certificated share unless the instrument of transfer: (i) is lodged at the office, or such other place as the directors may decide accompanied
by the certificate for the share to which it relates and such other evidence (if any) as the directors may reasonably require to show the right of the
transferor to make the transfer; (ii) is in respect of only one class of shares; and (iii) is in favour of not more than four transferees.
Transfers of uncertificated shares must be carried out using CREST, and the directors can refuse to register a transfer of an uncertificated share in
accordance with the regulations governing the operation of CREST.
There are no other restrictions on the transfer of ordinary shares in the Company other than those imposed by prevailing laws and regulations (such as
insider trading laws and market requirements in respect of close periods).
The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of ordinary shares or on voting rights.
Shares held by the Employee Benefit Trust
The Trustee of the Smiths News Employee Benefit Trust holds ordinary shares of the Company on behalf of the beneficiaries of the Trust, who are the
employees and former employees of the Company. If any offer is made to the holders of ordinary shares to acquire their shares, the Trustee will not be
obliged to accept or reject the offer in respect of any shares which are, at that time, subject to subsisting options, but will have regard to the interests
of the option holders and can obtain their views on the offer, and subject to the foregoing, the Trustee will take the action with respect to the offer it
thinks fair. The Trustee waives its right to vote and to dividends on the shares that it holds. Further details on the Trust can be found in the Directors’
Remuneration report on page 94.
Purchase of own shares
At the Annual General Meeting held on 20 January 2022, authority was given for the Company to purchase, in the market, up to 24,765,920 ordinary
shares of 5p each. The Company did not use this authority to make any purchases of its own shares during FY2022. This authority is renewable
annually and approval will be sought from shareholders at the Annual General Meeting in 2023 to renew the authority for a further year.
Issue of new ordinary shares
The Board has resolved that all employee share scheme exercises during FY2022 and, unless otherwise agreed, all future employee share scheme
exercises in FY2023 should be satisfied through the Employee Benefit Trust (further details on the Employee Benefit Trust and market purchases are set
out in Directors’ Remuneration report on page 94). Accordingly, during the 52-week period ended 27 August 2022, no ordinary shares in the Company
were issued.
Any newly issued ordinary shares rank pari passu with those previously in issue. The Articles provide that the Board may, subject to the prior approval
of the
C
ompan
y
’
s
shareholders, exercise all the powers of the Company to allot relevant securities, including new ordinary shares.
120 G
Smiths News plc
Annual Report and Accounts 2022
Interests in voting rights
As at 27 August 2022, the Company is aware of the following shareholding interests in its issued share capital as may have been notified to it from time
to time pursuant to the Financial Conduct Authority’s Disclosure and Transparency Rule 5:
Holder
% of
voting
rights
Aberforth Partners LLP
20.05
Fidelity International Limited 9.99
FORUM Family Office Value Fund 9.87
Wellcome Trust 5.78
FORUM Smallcap Fund 4.42
Smiths News Employee Benefit Trust 4.91
Worsley Investors Limited 4.01
In the period 27 August 2022 to 8 November 2022, no further notifications of updated voting rights positions have been received by the Company from
any such holder.
Except for the above, the Company is not aware of any other shareholders with interests in 3% or more of the voting rights attached to the issued share
capital of the Company.
Change of control
Each of the
C
ompan
y
’
s
trading subsidiaries has agreements with customers and suppliers that may contain change of control clauses giving rights to
those customers and suppliers on a takeover of the Company.
A change of control of the Company following a takeover bid may cause a number of other agreements to which the Company and/or one or more of
its subsidiaries is party, such as banking arrangements, property leases and licence agreements to alter or be capable of termination at the election of
the counterparty.
The Company does not have agreements with any director or employee that would provide compensation for loss of office or employment resulting
from a takeover except that provisions of the
C
ompan
y
’
s
share schemes may cause options and awards granted to employees under such schemes
to vest on a takeover – the relevant scheme rules stating that as a result of a change of control event (or other corporate action) the proportion of the
award which may vest shall be limited (unless the Board determines otherwise) to a pro rata proportion on the basis of the number of whole months
which have elapsed from the first day of the performance period to the date of the corporate action, as compared to the number of whole months within
the performance period; any remainder of the award thereby lapsing.
Directors
All directors who served during the year are set out on page 64.
The directors are responsible for the management of the business of the Company and may exercise all the powers of the Company subject to
applicable legislation and regulation and the
C
ompan
y
’
s
Articles.
The
C
ompan
y
’
s
Articles give power to the Board to appoint directors and (where notice is given signed by all the other directors) remove a director
from office. They also give a power to the Company to appoint directors (by ordinary resolution) and remove a director from office (by special resolution
or by ordinary resolution of which special notice has been given).
The interests of the directors and their immediate families in the share capital of the Company, along with details of directors’ share options and awards,
are set out in the Directors’ Remuneration Report on page 94 onwards.
At no time during the year did any of the directors have a material interest in any significant contract with the Company or any of its subsidiaries.
The Company maintains Directors’ and Officers’ liability insurance which gives appropriate cover for any legal action brought against its directors.
The Company has also provided an indemnity for its directors and secretary and for the directors of its associated companies, to the extent permitted
by law, which is a qualifying third-party indemnity provision for the purposes of section 234 of the Companies Act 2006.
Directors’ conflicts of interest
The Board confirms that a formal system for directors to declare their interests and for the independent directors to authorise situational conflicts
continues to be in place. Any authorisations given by the Board are recorded in the Board minutes and in a register of directors’ conflicts which is
reviewed annually by the Board.
Employees
Details of the
C
ompan
y
’
s
policies in relation to employment, training and development, employee engagement, employee share ownership and equal
opportunities are set out in the People report on page 30 and in the Corporate Governance report on page 58.
S G F 121
/
Smiths News plc
Annual Report and Accounts 2022
Directors’ Report – Other Statutory Disclosures
continued
Suppliers and customers
Details of how the directors have engaged with suppliers and customers to foster the
C
ompan
y
’
s
business relationships with its suppliers, customers
and others, and the outcome of such engagement on the decisions made by the Board are set out the Corporate Governance report on page 58.
Greenhouse gas emissions
Details of the
C
ompan
y
’
s
greenhouse gas emissions and SECR disclosures are set out in the TCFD report on page 44.
Consideration of climate change
In preparing the Group Financial Statements, the directors have considered the impact of climate change, particularly in the context of the risks
identified in the TCFD report on page 44. There has been no material impact identified on the financial reporting judgements and estimates. In
particular, the directors considered the impact of climate change in respect of the
C
ompan
y
’
s
going concern and viability review (see page 56). The
directors have determined that none of the short or medium term climate-related risks identified in its review pose a threat to the business but the
directors nonetheless remain mindful of the ever-changing risks associated with climate change and intend to continue to assess these risks (and any
emerging risks that arise from ongoing reviews) against the judgements and estimates made in the preparation of the Group Financial Statements.
Political donations
It is the
C
ompan
y
’
s
policy not to make political donations and no political donations or EU political expenditure were made in the year (FY2021: £nil).
Bribery Act 2010
The Company has an established anti-bribery policy in place designed to manage risks relating to bribery and corruption. Guidance and training is
provided to colleagues through an online webinar presentation, along with support from the
C
ompan
y
’
s
Legal team on how to manage these risks.
Suppliers and contractors are made aware of the anti-bribery policy, through our Supplier Code and appropriate contractual arrangements. Anti-bribery
and corruption is kept regularly under review to ensure that the steps in place are sufficiently robust to prevent bribery and corruption.
Health & safety
We are committed to providing a safe place for our colleagues to work and for visitors and contractors to our sites. Policies applicable to the safety
and well-being of our colleagues are reviewed on an ongoing basis, to ensure that the approach to training, risk assessments, safe systems of working
and accident management are appropriate. An ongoing audit programme assesses health and safety risks on a regular basis and ensures that robust
control measures are in place to limit these risks. Further details are set out in the Sustainability report on page 24.
Financial instruments
Information on the
C
ompan
y
’
s
financial risk management objectives and policies and on the exposure of the Company to relevant risks in respect of
financial instruments is set out in Note 18 to the Group Financial Statements.
Disclosure of information to auditor
Each director confirms that, so far as they are aware, there is no relevant audit information (as defined in section 418 of the Companies Act 2006) of
which the
C
ompan
y
’
s
auditor is unaware and that each director has taken all the steps they ought reasonably to have taken as a director in order to
make themselves aware of any relevant audit information and to establish that the
C
ompan
y
’
s
auditor is aware of that information.
Auditor
Resolutions to re-appoint BDO LLP as auditor of the Company and to authorise the Audit Committee to determine their remuneration will be proposed
at the 2023 Annual General Meeting.
Annual General Meeting
The 2023 Annual General Meeting of the Company will be held at Rowan House, Cherry Orchard North, Kembrey Park, Swindon, Wiltshire SN2 8UH
on Tuesday 24 January 2023 at 11.30am. The Notice of Annual General Meeting is given, together with explanatory notes to the proposed resolutions
to be considered at the meeting, in the booklet which accompanies this report.
Approved by the Board and signed on its behalf by:
Stuart Marriner
Company
Secretary
&
General
Counsel
8 November 2022
122 G
Smiths News plc
Annual Report and Accounts 2022
Directors’ Responsibilities
The directors are responsible for preparing the Annual Report and the Group Financial Statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors are required to prepare the
Group Financial Statements in accordance with UK adopted international accounting standards and have elected to prepare the company financial
statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and the Company and of the profit or loss for the Group for that period.
In preparing these financial statements, the directors are required to:
•
select suitable accounting policies and then apply them consistently;
•
make judgements and accounting estimates that are reasonable and prudent;
•
state whether they have been prepared in accordance with UK adopted international accounting standards, subject to any material departures
disclosed and explained in the financial statements;
•
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group or Company will continue in
business; and
•
prepare a Directors’ Report, a Strategic Report and Directors’ Remuneration Report which comply with the requirements of the Companies Act 2006.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
C
ompan
y
’
s
transactions and disclose,
with reasonable accuracy at any time, the financial position of the Company and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The directors are responsible for ensuring that the Annual Report and the Group Financial Statements, taken as a whole, are fa
ir, balanced and
understandable, and provide the information necessary for shareholders to assess the Group’s performance, business model and strategy.
Website publication
The directors are responsible for ensuring the Annual Report and the Group Financial Statements are made available on a website. The Group Financial
Statements are published on the
C
ompan
y
’
s
website in accordance with legislation in the United Kingdom governing the preparation and dissemination
of these financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the
C
ompan
y
’
s
website is the
responsibility of the directors. The directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.
Directors’ responsibilities pursuant to DTR4
The directors confirm to the best of their knowledge:
•
The Group Financial Statements have been prepared in accordance with the applicable set of accounting standards and give a true and fair view
of the assets, liabilities, financial position and profit and loss of the Group; and
•
The Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and the parent
company, together with a description of the principal risks and uncertainties that they face.
This responsibility statement was approved by the Board on 8 November 2022 and signed on its behalf by:
Jonathan Bunting Paul Baker
Chief
Executive
Officer
Chief Financial Officer
8 November 2022
8 November 2022
S G F 123
/
Independent Auditor’s Report
to
the
Members
of
Smiths
News
Plc
Smiths News plc
Annual Report and Accounts 2022
Opinion on the financial statements
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent
C
ompan
y
’
s
affairs as at 27 August 2022 and of the
Group’s profit for the 52-week period then ended;
•
the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards;
•
the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Smiths News Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the 52-week period ended
27 August 2022 which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group Balance Sheet, the Group
Statements of Changes in Equity, the Group Cash Flow Statement, the Company Balance Sheet, Company Statement of Changes in Equity and notes
to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the Group Financial Statements is applicable law and UK adopted
international accounting standards. The financial reporting framework that has been applied in the preparation of the Parent Company financial
statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework
(United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to
the Audit Committee.
Independence
Following the recommendation of the Audit Committee, we were appointed by The Board of Directors on 15 March 2019 to audit the f
inancial
statements for the year ended 31 August 2019 and subsequent financial periods. The period of total uninterrupted engagement including retenders
and reappointments is four years, covering the years ended 31 August 2019 to 27 August 2022. We remain independent of the Group and the Parent
Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
The non-audit services prohibited by that standard were not provided to the Group or the Parent Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent
C
ompan
y
’
s
ability to continue to adopt the
going concern basis of accounting included:
•
A review of the forecasts and covenant calculations for the Group for a period of at least 12 months from the date of approval of the financial
statements. This included testing that the forecasts were consistent with the latest Board approved budgets;
•
Considering whether the period used by the Directors to assess going concern which was based on cash flow forecasts to 28 February 2024 was
not inappropriate – this period was selected by the Directors as it represented a period greater than 12 months from the approval of the Group and
Parent Company financial statements and aligned to a covenant measurement date;
•
Assessing assumptions within the cash flow forecasts: we challenged the assumptions used in the forecasts, in particular the rate of sales volume
decline, publisher price increases, the ability to achieve operational cost saving plans in light of increasing inflationary costs, the impact of further
cost increases owing to the current macroeconomic environment and inflationary pressures, as well as gross margins – in challenging management,
we held meetings with both the finance team and Commercial Director. The assumptions were corroborated by reviewing historical trend analysis
and reviewing against market data where applicable;
•
Testing the numerical accuracy of the model used to prepare the forecasts;
•
Agreeing a sample of the Group cash balances from the forecasts to post year end bank statements and comparing the Group cash balance to the
forecasted amount to identify any potential liquidity issues;
•
Testing the covenant calculation, and forecast covenant compliance, against the Group’s facility agreements to confirm that there remains sufficient
headroom in the forecasts for the going concern period which is 16 months;
•
Challenge of Director’s scenario analysis with specific reference to the Group’s risk register. This included an evaluation of sensitivities over the Group’s
cash flows and covenants to changes in the significant inputs and assumptions used. We challenged management where principal risks had not been
directly incorporated into specific scenario analysis and considered the potential impact of these against the impact of the reverse stress test;
•
Scrutinising the stress tests and reverse stress test which demonstrated the reduction in EBITDA required without mitigation for a liquidity event or
covenant breach to occur and challenging the Directors’ assessment that it was remote for such a reduction to occur;
•
Comparing the post year end trading results to the forecasts to evaluate the accuracy and achievability of the forecasts prepared;
•
Evaluating the accuracy of Management’s historical forecasting; and
•
Evaluating the completeness and accuracy of the disclosures (Note 1) in relation to the conclusion reached by the Directors in their going concern
assessment and the adequacy of the disclosures in the financial statements against the requirements of the accounting standards.
124 F
Smiths News plc
Annual Report and Accounts 2022
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively,
may cast significant doubt on the Group and the Parent
C
ompan
y
’
s
ability to continue as a going concern for a period of at least twelve months from
when the financial statements are authorised for issue.
In relation to the Parent
C
ompan
y
’
s
reporting on how it has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it appropriate to adopt the going
concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
Overview
Coverage
1
99% (2021: 99%) of Group profit before tax
99% (2021: 99%) of Group revenue
98% (2021: 98%) of Group total assets
Key audit matters
Materiality Group financial statements as a whole
£1.49m (2021: £1.55m) based on 4.8% (2021: 5%) of adjusted profit before tax
1. These are areas which have been subject to a full scope audit by the Group engagement team.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and
assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls,
including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.
The Group operates through a number of legal entities, which forms one reporting segment as disclosed in Note 2 to the financial statements. There
were two significant components which were subject to full scope audits. Non-significant components were subject to desktop review procedures with
specified audit procedures where necessary. All audits and desktop review procedures were completed by the Group engagement team.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which
had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
S G F 125
/
2022
2021
Revenue
recognition
Carrying value of the investments in Smiths News plc (Parent Company)
✓
✓
✓
✓
Smiths News plc
Annual Report and Accounts 2022
Independent Auditor’s Report continued
to
the
Members
of
Smiths
News
Plc
Key audit matter
How the scope of our audit addressed
the key audit matter
Revenue
recognition –
existence of
revenue from
Newspapers and
Magazines and
from Carriage Fees
The Group’s revenue
streams and the
related accounting
policies applied
during the period
are detailed in Note
1 to the financial
statements.
Revenue from the delivery of
Newspapers and Magazines and
from Carriage Fees are recognised
when the products are delivered to
the retailer and there is no unfulfilled
obligation that could affect the
retailer’s acceptance of the products,
the risks of obsolescence and loss
have been transferred to the retailer.
Revenue for the Group is derived
from high volume and low value
transactions.
The existence of revenue recognised
from these streams relies upon the
precision of the returns process and
the adequacy of the processes and
controls in place across the relevant
IT systems.
Due to the complexity of these IT
systems and dependency on the
effective returns process, there is a
risk over the existence of revenue
from the delivery of Newspapers and
Magazines and from Carriage Fees,
which requires a significant proportion
of the audit and IT audit team’s time
and effort, and for these reasons we
determined it to be a Key Audit Matter.
We utilised our own IT specialists to test the operational effectiveness of the
key revenue controls from inception to recognition of revenue, including the
automatic posting of invoices and scanning in of customer returns.
We agreed a sample of revenue to sales invoice, customer sales data and
payments received from the customers. We also agreed a sample of rebates
through to the underlying agreements, verified the rebate percentage and
volume, and finally agreed the sample through to payment or credit note.
We analysed a sample of journal postings to revenue and the sales ledgers, to
ensure these were in line with our understanding of revenue transactions and to
confirm there were no unusual or unexpected manual entries that were outside
of our expectations.
In addition to testing a sample of invoices recorded in revenue in the year to
cash receipt, we agreed a sample of trade receivables to cash received after the
period-end to test the existence and accuracy of revenue.
Credit notes in year and post year end were tested on a sample basis to
confirm they were appropriately raised and recorded in the correct period. We
also scrutinised the complaints process and outcomes relating to deliveries/
returns processing to ensure there were no other matters which may indicate
that revenue may be materially misstated. The period end returns provision and
corresponding estimate was assessed against prior period actual returns to test
the accuracy of the provision.
Key observations:
From the testing performed, we consider that the operating effectiveness
of controls within the IT System relating to the existence of revenue from
Newspapers and Magazines and from Carriage Fees, as well as the related
returns process was adequate.
Carrying value of
investments in
Smiths News plc
(Parent Company)
Refer to the
Accounting polices
(page 137); and
Note 3 of the Parent
Company Financial
Statements (pages
132 to 181).
The carrying value of investments
in subsidiaries has previously been
subject to impairment and the
carrying value is therefore below
original cost.
During the reporting period
impairment indicators were identified
by management, in respect of the
increase in discount rates and the
disparity of the market capitalisation
and investment carrying value.
Conversely management also
identified indicators of potential
reversal which would offset the above
factors owing to the reduction in the
Group’s net debt, improvement in
business performance in the year and
its resulting impact on future cash
flow assessment.
We have assessed the methodology applied by management in performing
the impairment test against the requirements of IAS 36 ‘Impairment of assets’
and considered the various indicators identified by management in respect of
impairment and reversal.
In respect of the value in use calculations we challenged the cash flow estimates
and assumptions used by:
•
agreeing them to supporting information where available, including long-term
volume declines, contracts in place and the ability of the Group to mitigate
volume declines with operational savings;
•
searching for corroborative or contrary evidence to assess the reasonableness
of such assumptions including the use of third-party research reports; and
•
holding discussions with operational team members who were separate to
the finance team and by assessing against market benchmarks and historical
trends.
In conjunction with our valuation specialists, we challenged and assessed the
discount rate used by reviewing the methodology used to calculate the discount
rates and by independently determining a range of acceptable rates, considering
market data and comparable sectors, and comparing the range of rates
independently calculated to the rate used by management.
126 F
Smiths News plc
Annual Report and Accounts 2022
Key audit matter
How the scope of our audit addressed
the key audit matter
Carrying value of
investments in
Smiths News plc
(Parent Company)
continued
Therefore a full assessment was
performed by management on the
C
ompan
y
’
s
investment carrying value.
Where an impairment review is
conducted, the recoverable amount
is determined based on the higher of
‘value in use’ or ‘fair value less costs of
disposal.’
We assessed and challenged the adequacy of management’s sensitivity
analysis in relation to key assumptions to consider the extent of change in those
assumptions that either individually or collectively would be required to lead to
a significant change in the carrying value, in particular forecast cash flows and
discount rate.
This challenge was completed by assessing against the Group’s principal
risks and uncertainties, as well as considering whether further sensitivities could
be applied.
Value in use has been calculated using
cash flows reflecting management’s
best estimate of the current economic
outlook and impact of inflationary
pressures. As the investment
represents an equity investment
the value in use has been adjusted
to reflect the overall net debt of the
underlying subsidiaries.
Management’s value in use model and
hence impairment/reversal assessment
is sensitive to changes in the key
assumptions, including discount and
growth rates set out in Note 3 of the
Parent Company financial statements.
Management is required to ensure
that the disclosures are complete
and accurate, to enable users of the
financial statements to understand
the assumptions and the sensitivities
apparent.
For these reasons, we determined it to
be a Key Audit Matter.
Furthermore, the audit team evaluated the accuracy of Management’s historical
forecasting, challenged the revenue, costs and other cash flows assumptions
based on our knowledge of the business, contractual revenue streams and the
economic outlook.
We tested the arithmetic accuracy of the impairment model.
We assessed whether the disclosures in the financial statements and sensitivity
analysis given were complete and accurate.
Finally, we considered risk of management bias and override given the impact
an impairment or reversal would have on retained earnings, and hence
distributable reserves.
Key observations:
Management determined that the carrying value of the investment remained
consistent with the prior year with no material impairment or reversal. This was
based on both qualitative and quantitative factors.
As disclosed in page 182 the carrying value of the investment is highly sensitive
to movements in the discount rate. The rate established by management was
within the range independently recalculated by our valuation specialists and
therefore not considered to be unreasonable.
Retained earnings in the Parent Company at balance sheet date was £118.7m.
Therefore, based on the sensitivity analysis completed, we did not identify a
significant risk of management bias or override in respect of the Group’s ability
to declare dividends.
Based on procedures performed, we have not identified a material misstatement
in relation to the valuation of the Parent Company investments.
S G F 127
/
Smiths News plc
Annual Report and Accounts 2022
Independent Auditor’s Report continued
to
the
Members
of
Smiths
News
Plc
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to
be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis
of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance
materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial,
as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect
on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:
Group financial statements
Parent Company financial
statements
2022
£m
2021
£m
2022
£m
2021
£m
Materiality 1.49 1.55 0.89 0.93
Basis for determining
materiality
4.8% of profit before
adjusting items and tax
5% of profit before
adjusting items and tax
60% of Group materiality 60% of Group materiality
Rationale for the
benchmark applied
We consider this to be
the most appropriate
performance measure
as it removes the impact
of certain one-off or
exceptional items
impacting the underlying
profit of the Group and
is also a key measure for
stakeholders.
We consider this to be
the most appropriate
performance measure,
as it removes the impact
of certain one-off or
exceptional items
impacting the underlying
profit of the Group and
is also a key measure for
stakeholders.
Calculated as a
percentage of Group
materiality for Group
reporting purposes
given the assessment
of aggregation risk.
Calculated as a
percentage of Group
materiality for Group
reporting purposes
given the assessment
of aggregation risk.
Performance materiality 1.04 1.08 0.59 0.65
Basis for determining
performance materiality
70% of materiality based
on our experience and
knowledge of the Group,
the Group structure,
planned testing approach,
and history of errors.
70% of materiality based
on our experience and
knowledge of the Group,
the Group structure,
planned testing approach,
and history of errors.
70% of materiality based
on our experience and
knowledge of the Parent
Company, planned
testing approach, and
history of errors.
70% of materiality based
on our experience and
knowledge of the Parent
Company, planned
testing approach, and
history of errors.
Component materiality
We identified two significant components, being the Smith News trading entity and the parent company. We set materiality at £1.34m and £0.89m,
respectively based on a percentage of Group materiality. In the audit of each component, we further applied performance materiality levels of 70%
to our testing, to ensure that the risk of errors exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £60k (2021: £60k). We also agreed
to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
128 F
Smiths News plc
Annual Report and Accounts 2022
Other information
The Directors are responsible for the other information. The other information comprises the information included in the Annual Report and Accounts
other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read
the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Parent
C
ompan
y
’
s
compliance with the provisions of the UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement
is materially consistent with the financial statements or our knowledge obtained during the audit.
Going concern and longer-
term viability
•
The Directors’ statement with regards to the appropriateness of adopting the going concern basis of
accounting and any material uncertainties identified set out on pages 56 and 57; and
•
The Directors’ explanation as to their assessment of the Group’s prospects, the period this assessment
covers and why the period is appropriate set out on page 123.
Other Code provisions
•
Directors’ statement on fair, balanced and understandable set out on page 57;
•
Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out
on page 40;
•
The section of the Annual Report that describes the review of effectiveness of risk management and
internal control systems set out on page 82; and
•
The section describing the work of the Audit Committee set out on page 80
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and
ISAs (UK) to report on certain opinions and matters as described below.
Strategic Report and
Directors’ Report
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
•
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal
requirements.
Directors’ remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
Matters on which
we are required to report
by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
•
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit
have not been received from branches not visited by us; or
•
the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited
are not in agreement with the accounting records and returns; or
•
certain disclosures of Directors’ remuneration specified by law are not made; or
•
we have not received all the information and explanations we require for our audit.
S G F 129
/
Smiths News plc
Annual Report and Accounts 2022
Independent Auditor’s Report continued
to
the
Members
of
Smiths
News
Plc
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent
C
ompan
y
’
s
ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless the Directors either intend
to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-c
ompliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below:
•
We obtained an understanding of the legal and regulatory frameworks applicable to the Parent and Group through our knowledge of the business
and the industry in which it operates. The most significant of these were considered to be the applicable financial reporting frameworks (UK
adopted international accounting standards in respect of the Group and UK GAAP in respect of the Parent Company) and relevant tax compliance
regulations. The audit team engaged an internal tax specialist to analyse the Group’s compliance with local tax regulations.
•
We also focused on the provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in
the financial statements. The key laws and regulations we considered in this context include the UK Companies Act, Listing Rules, employment law,
health and safety, and pensions legislation.
•
We considered the nature of the industry, control environment and business performance, including design of the Group’s remuneration policies, key
drivers for Director’s remuneration, bonus levels and performance targets.
•
We assessed the susceptibility of the Group’s financial statements to material misstatement, including how and where fraud might occur. The areas
considered to be most susceptible to fraud being management override of controls and revenue recognition.
•
We obtained an understanding of the procedures and controls that the Group has established to address risks identified, or that otherwise prevent,
deter and detect fraud. Fraud risks were identified in relation to revenue and management override of controls. We performed audit procedures to
address each identified fraud risk by assessing the potential for manipulation or override and then performing targeted testing on this risk.
•
In respect of the procedures performed, we tested a sample of manual journal entries and also automated entries, focusing on journal entries
containing characteristics of audit interest, year-end consolidation journals, journals processed by users with privileged IT systems access rights and
those relating to revenue, cash and trade receivables.
•
We also performed journal testing over one of the non-significant components that would not normally be tested based on our scoping and risk
assessment. This was completed to add unpredictability to our testing approach of management override.
•
Based on the understanding obtained, we designed audit procedures to identify non-compliance with the laws and regulations, as noted above.
This included enquiries of in-house legal counsel, Management, the Audit Committee, in-house Internal Audit and review of Board minutes.
•
We also communicated potential fraud risks to the Group and component engagement team members as part of the engagement team discussion.
The engagement partner concluded that collectively the engagement team had sufficient competence and capabilities to identify or recognise non-
compliance with laws and regulations; and
•
We tested and challenged the key estimates and judgements made by management in preparing the financial statements for indications of bias
or management override when presenting the results and financial position of the Group. This included those relating to the Parent Company
impairment review, presentation of adjusting items and the property dilapidations provision.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting
a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by,
for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed
non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become
aware of it.
A further description of our responsibilities is available on the Financial Reporting
C
ounc
il
’
s
website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
130 F
Smiths News plc
Annual Report and Accounts 2022
Use of our report
This report is made solely to the Parent
C
ompan
y
’
s
members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Parent
C
ompan
y
’
s
members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent
Company and the Parent
C
ompan
y
’
s
members as a body, for our audit work, for this report, or for the opinions we have formed.
Sophia Michael (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
8 November 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
S G F 131
/
Group Income Statement
for
the
52-week
period
ended
27
August
2022
Smiths News plc
Annual Report and Accounts 2022
£m
Note
2022
Adjusted*
2021
Adjusted
items
Total
Adjusted*
Adjusted
items
Total
Revenue
2
Cost of
Sales
3
(1,016.6 )
(1,016.6 )
(1,036.2 )
(1,036.2 )
Gross profit
3
Administrative
expenses
3
(35.0 )
(2. 5 )
(37.5 )
(33.9 ) (1.9 ) (35.8 )
Net
impairment loss on trade receivables
4
(4. 4 )
(4. 4 )
Other income
Income
from joint ventures
13
Impairment
of joint venture investment
13
(1.6 ) (1.6 )
Operating profit
2,3
(5. 7 )
Finance
costs
7
(7. 0 )
(7. 0 )
(8.8 )
(8.8 )
Finance
income
7
Profit/(loss) before tax
(3. 2 )
Income
tax credit/(expense)
8
(5. 4 )
(4. 5 )
(4.6 ) 0.3 (4.3 )
Profit/(loss) for
the year from continuing operations
(2. 3 )
Discontinued operations
Loss
for the year from discontinued operations
4
(0.1 ) (0.1 )
Profit/(loss) attributable to equity shareholders
continuing and discontinued operations
(2. 3 )
(0.1 )
Earnings/(Loss) per share from
continuing operations
Basic
10
Diluted
10
Earnings per share total
Basic
10
Diluted
10
Equity
dividends per share (paid and proposed)
9
* This measure is described in Note 1(4) of the accounting policies and the Glossary to the Accounts on page 176. Adjusted items are set out in Note 4 to the Group Financial Statements.
132 F
Smiths News plc
Annual Report and Accounts 2022
Group Statement of Comprehensive Income
for
the
52-week
period
ended
27
August
2022
£m
Note
2022
2021
Continuing Items that will not be reclassified to the Group Income Statement
Reassessment
as to recoverability of retirement benefit scheme surplus 6
(0.4 )
Impact of IFRIC 14 on defined benefit pension scheme 6
Tax
relating to components of other comprehensive income that will not be reclassified 8
(5. 1 )
Items that may be subsequently reclassified to the Group Income Statement
Currency
translation differences
Other comprehensive result for the year – continuing
Profit for the year – continuing
Total comprehensive income for the year – continuing
Other comprehensive income for the period discontinued
(Loss) for the year – discontinued
(0.1 )
Total
comprehensive (expense) for the year – discontinued
(0.1 )
Total comprehensive income/(expense) for the year
S G F 133
/
Group Balance Sheet
as
at
27
August
2022
Smiths News plc
Annual Report and Accounts 2022
£m Note
2022
2021
Non-current assets
Intangible
assets 11
Property,
plant and equipment 12 8.6 9.4
Right of use assets 19
Interest
in joint ventures 13
Other
receivables 15
Deferred tax assets 20
Current assets
Inventories
14
Trade
and other receivables 15
Cash and bank deposits 17
Corporation
tax receivable
Total
assets 189.4 186.2
Current liabilities
Trade
and other payables 16
(140.3 )
(136.5 )
Current tax liabilities
(0.3 )
Bank
loans and other borrowings 17
(8. 0 )
(21.2 )
Lease
liabilities 19
(5. 9 )
(5.9 )
Provisions 21
(3. 0 )
(3.6 )
(157.2 )
(167.5 )
Non
-current liabilities
Bank loans and other borrowings 17
(39.1 )
(50.1 )
Lease
liabilities 19
(21.7 )
(23.3 )
Non
-current provisions 21
(3. 4 )
(3.0 )
(64.2 )
(76.4 )
Total liabilities
(221.4 )
(243.9 )
Total
net liabilities
(32.0 )
(57.7 )
Equity
Called up
share capital
25(a)
Share
premium account
25(c)
Demerger
reserve
26(a)
(280.1 )
(280.1 )
Own shares reserve
26(b)
(4. 6 )
(3.9 )
Translation
reserve 26(c)
Retained
earnings 27
Total shareholders’ deficit
(32.0 )
(57.7 )
The accounts were approved by the Board of Directors and authorised for issue on 8 November 2022 and were signed on its behalf by:
Jonathan Bunting Paul Baker
Chief
Executive
Officer
Chief Financial Officer
Registered number – 05195191
134 F
Smiths News plc
Annual Report and Accounts 2022
Group Statement of Changes in Equity
for
the
52-week
period
ended
27
August
2022
£m
Note
Share
capital
Share
premium
account
Demerger
reserve
Own
shares
reserve
Hedging
and
translation
reserve
Retained
earnings
Total
Balance at 30 August 2020
(280.1 )
(1. 8 )
(81.6 )
Profit for the year
Actuarial
gain on defined benefit pension scheme
6
(0.4 ) (0.4 )
Impact
of IFRIC 14 on defined benefit pension
scheme
6
Tax relating to components of other
comprehensive income
Total
comprehensive expense/income
for the year
Dividends paid
9
(1.2 )
(1.2 )
Employee
share schemes purchases
(2.7 )
(2.7 )
Employee
share scheme awards
(0.6 )
Recognition of share-based payments net of tax
Balance at 28 August 2021
(280.1 )
(3. 9 )
(57.7 )
Profit
for the year
Actuarial
gain on defined benefit pension scheme
6
Tax relating to components of other
comprehensive income
(5.1 )
(5.1 )
Total
comprehensive expense/income
for the year
Dividends
paid
9
(6.1 ) (6.1 )
Employee
share schemes purchases
(2.2 )
(2.2 )
Employee
share scheme awards
(1.5 )
Recognition
of share-based payments net of tax
Current
tax recognised in equity
(0.1 ) (0.1 )
Deferred
tax recognised in equity
(0.2 ) (0.2 )
Balance at 27 August 2022
(280.1 )
(4. 6 )
(32.0 )
S G F 135
/
Group Cash Flow Statement
for
the
52-week
period
ended
27
August
2022
Smiths News plc
Annual Report and Accounts 2022
£m
Note
2022
2021
Net cash inflow from operating activities
24
Investing activities
Dividends
received from joint ventures 0. 2 0.2
Purchase of property, plant and equipment
(1. 3 )
(2.4 )
Purchase
of intangible assets
(0. 7 )
Net
proceeds on sale of property, plant and equipment 0.1
Interest received
Loan
repayment received
Deferred
consideration receipts
Net cash generated from investing activities
Financing activities
Interest paid
(5. 1 )
(6.8 )
Arrangement
fees paid
(2. 9 )
(2.7 )
Dividend
paid 9
(6. 1 )
(1.2 )
Repayments of lease principal
(6. 4 )
(5.9 )
Repayment
of term loan
(83.0 )
(57.5 )
New
loans issued
Net decrease in revolving credit facility and overdrafts
(80.2 )
Purchase
of shares for employee benefit trust
(2. 6 )
(2.6 )
Net cash (used in)/generated financing activities
(46.1 )
(76.9 )
Net (decrease)/increase in cash and cash equivalents
(31.1 )
Effect
of foreign exchange rate changes
(0.2 )
(31.3 )
Opening
net cash and cash equivalents
Closing
net cash and cash equivalents
17
136 F
Smiths News plc
Annual Report and Accounts 2022
Notes to the Accounts
For the
52-week
period ended
27
August 2022
1.
Accounting policies
(1)
Basis of consolidation
ended 27 August 2022 comprise the Company and its subsidiaries (together referred to as the ‘Group’) and the Group’s interests in joint ventures and
associates. Subsidiary undertakings are included in the Group Accounts from the date on which control is obtained. They are deconsolidated from the
date on which control ceases. All significant subsidiary accounts are made up to 27 August 2022 and are included in the Group Accounts.
Unless otherwise noted, references to 2021 and 2022 relate to a 52-week period ended 28 August 2021 and 27 August 2022 as opposed to
calendar year.
The Accounts were authorised for issue by the directors on 8 November 2022.
(2)
Accounting basis of preparation
The Accounts are prepared on the historical cost basis, with the exception of certain financial instruments, and are presented in Pound Sterling and
rounded to £0.1m, except where otherwise indicated.
The Group Accounts have been prepared in accordance with UK-adopted International Accounting Standards (IAS) in conformity with the
requirements of the Companies Act 2006.
Intra-group balances and unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing Group
Accounts. Unrealised gains and losses arising from transactions with the joint ventures are eliminated to the extent of the Group’s interest in the entities.
(3)
Going concern
The Group accounts have been prepared on a going concern basis.
When assessing the going concern of the Group, the directors have reviewed the year-to-date financial actuals, as well as detailed financial forecasts
for the period up to 29 February 2024, the going concern period.
The G
roup currently has a net liability position of £32.0m as at 27 August 2022. All bank covenant tests were met at the year end. The key bank net
debt: EBITDA (ex IFRS16) ratio of 0.34x, was below the covenant test threshold of 2.0x. The threshold reduces to 1.75x from 25 February 2023.
The intra-month working capital cash flow cycle at Smiths News generates a routine and predictable cash swing of up to £40m. This results in a
predictable fluctuation of bank net debt during the course of the month compared to the closing net debt position. Our average net borrowings during
2022 were £49.8m (2021: £82.6m). The Company utilises the Revolving Credit Facility (RCF) to manage the cash swing. At the year end, £30.0m of the
RCF was available and the Company had £35.3m of cash on hand giving headroom of £64m.
3i) Bank facility
The Group has a facility of £79.5 million at the balance sheet date, comprising a £49.5 million amortising term loan and a revolving credit facility (RCF)
with a limit of £30.0m. The Group’s banking facility was amended and extended in December 2021 and has a final maturity date of 31 August 2025.
The new facility comprises an initial £60 million amortising term loan, of which the Group has since repaid £10.5 million as at the balance sheet date.
The available facility was £27.65m at year end due to £2.35m of letters of credit (see Note 17). The agreement is with a syndicate of banks comprising
HSBC, Barclays, Santander and Clydesdale.
The facility’s current margin is 4% per annum over SONIA.
Consistent with the
C
ompan
y
’
s
stated strategic priorities to reduce net debt, the terms of the facility agreement include: an amortisation schedule of
£6m in the first year and £10m per annum thereafter for the repayment of the term loan; a reduction in the RCF of £5m per year after the first year; and
capped dividend payments at £10m per year.
The final maturity date of the facility is 31 August 2025.
3ii) Reverse stress testing
The directors have prepared their base case forecast which represents their best estimate of cash flows over the going concern period, which is up
to 29 February 2024, and in accordance with FRC guidance have prepared a reverse stress test that would create a covenant break scenario which
could lead to the facilities being repayable on demand.
The break scenario would occur in February 2024 if EBITDA (ex IFRS 16) was 48% below the board approved three-year plan. Facility headroom
of £11m would still exist at this point. The directors consider the likelihood of this level of downturn to be remote based on:
•
current trading which is in line with expectations
•
year-on-year declines in revenues would have to be significantly greater than historical trends;
•
the contracts are secured with publishers until at least 2024; and
•
the Company continues to trade with adequate profit to service its debt covenants.
S G F 137
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
Smiths News plc
Annual Report and Accounts 2022
1. Accounting policies continued
(3) Going concern continued
3iii) Mitigating actions
In the event the break environment scenario went from being remote to possible, then management would seek to take mitigating actions to maintain
liquidity and compliance with the bank facility covenants. The options within the control of management would be to:
•
Optimise liquidity by working capital management of the peak-to-trough intra-month movement of up to £40m. Utilising existing vendor
management finance arrangements with retailers and optimising contractual payment cycles to suppliers which would improve liquidity headroom;
•
Not pay planned dividend;
•
Delay non-essential capex projects;
•
Cancel discretionary annual bonus payments; and
•
Identify other overhead and depot savings.
More extreme mitigating actions would also be available if the scenario arose.
The Company has vendor finance arrangements in place where it has the ability to request early payment of invoices at a small discount, the payments
are non-recourse and the invoices are considered settled from both sides once payment is received. The Company has not made use of this facility in
FY2022 nor FY2021 or since the Balance Sheet date.
3iv) Assessment
Having considered the above and the funding requirements of the Group and Company, the directors are confident that headroom under the bank
facility remains adequate, future covenant tests can be met and there is a reasonable expectation that the business can meet its liabilities as they fall
due for a period of greater than 12 months (being an assessment period of 16 months) from the date of approval of the Group Financial Statements.
For this reason, the directors continue to adopt the going concern basis in preparing the financial statements and no material uncertainty has been
identified.
(4) A
lternate performance measures
In reporting financial information, the Group presents alternative performance measures (APMs), which are not defined or specified under the
requirements of IFRS.
The Group believes that these APMs (listed in the glossary on page 176) are not considered to be a substitute for, or superior to, IFRS measures
but provide stakeholders with additional helpful information on the performance of the business. These APMs are consistent with how the business
performance is planned and reported within the internal management reporting to the Board and Executive Team.
The APMs do not have standardised meaning prescribed by IFRS, and therefore may not be directly comparable to similar measures presented by
other companies.
(5) Estimates and judgements
The preparation of these accounts requires management to make judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
Key accounting judgements
The significant judgements made in the accounts are:
Revenue recognition
The Group recognises the wholesale sales price for its sales of newspapers and magazines. The Group is considered to be the principal based on the
following indicators of control over its inventory: discretion to establish prices; it holds some of the risk of obsolescence once in control of the inventory;
and has the responsibility of fulfilling the performance obligation on delivery of inventory to its customers. If the Group were considered to be the agent,
revenue and cost of sales would reduce by £921.3m (2021: £945.2m).
Determining lease terms
In determining lease terms, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or
not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably
certain to be extended (or not terminated).
For leases of distribution centres and equipment, the following factors are the most relevant:
•
The Company continually considers the optimal network structure in its judgement over lease terms;
•
If there are significant penalties to terminate (or not extend), the Company is typically reasonably certain to extend (or not terminate);
•
If any leasehold improvements are expected to have a significant remaining value, the Company is typically reasonably certain to extend (or not
terminate); and
•
Otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased
asset. Most extension options in vehicles leases have not been included in the lease liability, because the Group could replace the assets without
significant cost or business disruption.
The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The
assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment,
and that is within the control of the lessee.
138 F
Smiths News plc
Annual Report and Accounts 2022
1. Accounting policies continued
(5) Estimates and judgements continued
Key accounting judgements continued
Adjusting items
Adjusting items of income or expense are excluded in arriving at Adjusted operating profit to present a further measure of the Group’s performance.
Each adjusting item is considered to be significant in nature and/or quantum, non-recurring in nature and/or are considered to be unrelated to the
Group’s ordinary activities or are consistent with items treated as adjusting in prior periods. Excluding these items from profit metrics provides readers
with helpful additional information on the performance of the business across periods because it is consistent with how the business performance is
planned by, and reported to, the Board and the Executive Team.
The classification of adjusting items requires significant management judgement after considering the nature and intentions of a transaction. Adjusted
measures are defined with other APM’s in the glossary on page 176.
Based on the nature of the transactions, Adjusting items after tax, including a £4.4m net loss on trade receivables in respect of the Group’s outstanding
trade receivable with
M
c
C
oll
’
s
Retail Group, totalled £2.3m (2021: £0.1m) and a breakdown is included within Note 4.
Retirement benefits
During the year, the Trustee reached the position where it was advised that it could legally distribute the pension cash surplus to the employer as it had
completed activities to trace former members of the Trust impacted by the GMP ruling. This gave the Company an unconditional right to the surplus
asset, and as such the IAS 19 pre-tax surplus of £14.8m has been recognised through other comprehensive income in the year and the IFRIC14 ceiling
eliminated. Subsequently, the Company received the sum of £8.1m, the value of the surplus net of tax and costs on 3 December 2021.
As agreed with the Trustee, the return of the surplus preceded the formal winding up steps of the News Section of the pension scheme, with the
winding up of the scheme formally being completed on 25 February 2022 through the purchase of insurance run-off cover and payment of taxes owed
to HMRC by the Trustee.
As p
art of the closure of the scheme, the Company agreed to deposit £1.3m of the pension surplus into an escrow account to fund the insurance costs
for the Trustee and the outstanding liability to former members in respect of the Lloyds GMP ruling in November 2020. The funds held in escrow are
not considered an asset of the Company and are not recognised on the balance sheet. The cost of the insurances have been recognised through
administration expenses in the income statement and treated as an Adjusted item.
The Company has agreed run-off indemnity coverage for any member claims that are uninsured liabilities capped at £6.5m over the next 60 years.
This potential liability is considered a contingent liability at the period end and reported as such.
Key sources of estimation uncertainty
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future
periods.
The key assumption concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Impairment of investments in joint ventures
Investments in joint ventures are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be
recoverable. When a review for impairment is conducted, the recoverable amount is determined using value in use calculations. The value in use
method requires the Company to determine appropriate assumptions in relation to the cash flow projections over the three-year plan period (which is a
key source of estimation uncertainty), the terminal growth rate to be applied beyond this three-year period and the risk-adjusted post-tax discount rate
used to discount the assumed cash flows to present value. The assumption that cash flows continue into perpetuity is a source of significant estimation
uncertainty.
During th
e period, the Company reviewed the business plan for the Rascal Joint Venture and it was determined that the potential challenges anticipated
to arise in the prior period have not materialised with the successful renewal of contracts previously considered to be at risk. The Company has
therefore chosen to reverse the impairment previously booked by £1.2m. In the prior period, it was assessed that certain challenges may arise from
increasing market competition, resulting in an impairment loss of £1.6m being recognised. A value in use of £4.2m has been calculated based on future
cash flows of the business and have been discounted at a rate of 13% and a terminal growth rate applied of 0%. The result is a reversal of impairment
of £1.2m. Refer to Note 13, for further details.
Property provision
The Group holds a property provision which estimates the future liabilities to restore leased premises to an agreed standard at the date the lease
is terminated. The provision is calculated based on key assumptions, including the length of time properties will be occupied, the future costs of
restoration and the condition of the property at the future exit date.
The property provision represents the estimated future cost of the Group’s potential dilapidation costs on non-trading properties across the Group.
As the current economic outlook is for increased inflation, the Group has assessed the effect of inflation as material on the provisions in the current year.
The provisions have therefore been adjusted for the effect of inflation in the current year. These provisions have been discounted to present value and
this discount will be unwound over the life of the leases.
A change in any of these assumptions could materially impact the provision balance. Refer to Note 21 for further details on the sensitivity of the
assumptions used to calculate the property provision. The property provisions carrying value at the year end is £4.4m (2021: £3.8m).
S G F 139
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
Smiths News plc
Annual Report and Accounts 2022
1. Accounting policies continued
(5) Estimates and judgements continued
Key sources of estimation uncertainty continued
Net impairment loss on trade receivables
On 9 May 2022 (“the administration date”),
M
c
C
oll
’
s
Retail Group went into administration. A statement of claim form was filed with the Administrators
for an amount of £5.5m. The administrators issued notification on 27 May 2022 that they expected unsecured creditors to receive between 20-40%
of approved claims. Management has not received any further information from the Administrators as at the balance sheet date and issuance of this
report and has therefore provided a best estimate that only 20% of the outstanding balance is recoverable. The Company has therefore recognised a
net impairment loss of £4.4m, representing 80% of the total balance of £5.5m in the current financial period. If the Company had considered 40% of the
total balance of £5.5m to be recoverable in line with the upper range of the administrators estimate, the provision recognised would have been £3.3m.
The net impairment loss of £4.4m does not have an impact on the Group’s assessment of its expected credit losses in respect of its remaining trade
receivables and therefore remains negligible. For this reason, the provision for the
M
c
C
oll
’
s
net impairment loss of £4.4m has been disclosed separately
as a specific provision for doubtful debts, with the net impairment loss expense presented in adjusting items.
(6) Discontinued operations
On 2 May 2020, the Company completed the sale of Tuffnells and assumed liability to settle certain pre-disposal insurance and legal claims relating to
employer’s liability, public liability, motor accident claims and legal claims, held as provisions. The Company continues to present the cash outflows from
these provisions for comparative purposes.
In accor
dance with IFRS 5
‘
Non
-
current assets held for sale and Discontinued operations,’ the net results of discontinued operations have been
presented separately in the comparative Group Income statement, and the assets and liabilities of operations are presented separately in the Group
balance sheet if they meet the held for sale criteria at the balance sheet date or were disposed of during the year.
A cash-generating unit would meet the classification of a discontinued operation when considered material to the Group’s overall results.
(7) Revenue
Smiths News – Sales of Newspapers and Magazines
Sales of Newspapers and Magazines are recognised when control of the products has transferred, that is, when the products are delivered to the
retailer and there is no unfulfilled obligation that could affect the retailer’s acceptance of the products, the risks of obsolescence and loss have been
transferred to the retailer. Goods are sold to retailers on a sale or return basis.
Distribution income
Distribution income is recognised when the products, such as newspapers and magazines, are delivered to the retailer and there are no unfulfilled
obligations that could affect the retailer’s acceptance of the products.
Voucher income
Voucher income represents the margin income received from managing the process of collecting voucher payments from retailers and passing them
on to voucher processing centres. The Group is primarily responsible for fulfilling the service.
Sales and marketing
The Group supplies marketing services to both retailers and suppliers. This includes services such as shelf stacking, stock checking and merchandising.
The Group is primarily responsible for fulfilling the services.
Sale of waste
Income from the sale of waste represents the amount received per tonne of newspapers and magazines returns sold on for recycling. The Group has
primary responsibility for fulfilling the service.
Return Reserve
Newspapers and Magazines sales are made on a sale or return basis, therefore the Group is required to estimate a value relating to expected returns
from retailers. Likewise, as the publishers are required to provide the Group with credit for any purchase returns, so a purchase returns reserve is also
required. The key estimates used in calculating the period end reserve are rates of returns (based on historical trends), average shelf life of the product
types and average price of each product type. These estimates are similarly applied to calculate the credit for purchase returns.
Revenue for goods supplied with a right of return is stated net of the value of any returns. Newspapers and magazines are often sold with retrospective
volume discounts based on aggregate sales. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated
volume discounts. Accumulated experience is used to estimate and provide for the discount and returns, using the expected value method and revenue
is only recognised to the extent that it is highly probable that a significant reversal will not occur. A returns reserve accrual and discount accrual
(included in trade and other payables) is recognised for expected volume discounts and refunds payable to customers in relation to sales made until
the end of the reporting period. A right to the returned goods (included in other debtors) are recognised for the products expected to be returned.
Newspapers and Magazines are made on a sale or return basis, therefore the Group is required to estimate a va
lue relating to expected returns from
retailers. Likewise, as the publishers are required to provide the Group with credit for any purchase returns a purchase returns reserve is also required.
No element of financing is deemed present, because the sales are made with short credit terms, which is consistent with market practice.
A receivable is recognised when the goods are delivered, since this is the point in time that the consideration is unconditional because only the passage
of time is required before the payment is due.
140 F
Smiths News plc
Annual Report and Accounts 2022
1. Accounting policies continued
(8) Cost of Sales and Gross profit
The Group considers cost of sales to equate to cost of inventories recognised as an expense and distribution costs as these are considered to represent
for the Group direct costs of making a sale.
The Group considers gross profit to equal revenue less cost of sales.
(9) Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement, except to the extent it relates to
items recognised in other comprehensive income or directly in equity. Current tax is the expected tax payable based on the taxable profit for the year,
using tax rates enacted, or substantively enacted at the balance sheet date and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is calculated using tax rates
enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred
tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which these
temporary differences can be utilised.
(10) Dividends
Interim and final dividends are recorded in the financial statements in the period in which they are paid.
(11) Capitalisation of internally generated development costs
Expenditure on developed software is capitalised when the Group is able to demonstrate all of the following: the technical feasibility of the resulting
asset; the ability (and intention) to complete the development and use it; how the asset will generate probable future economic benefits; adequate
technical, financial and other resources to complete the development and to use the software are available; and the ability to measure reliably the
expenditure attributable to the asset during its development. Software costs are also capitalised if they can be hosted on another server, are portable
and the Group has sole rights to the software. Subsequent to initial recognition, internally generated intangible assets are reported at cost less
accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
(12)
Joint
ventures
The Group Accounts include the Group’s share of the total recognised gains and losses in its joint ventures on an equity accounted basis.
Investments i
n joint ventures are carried in the balance sheet at cost adjusted by post-acquisition changes in the Group’s share of the net assets of the
joint ventures, less any impairment losses. The carrying values of investments in joint ventures include acquired goodwill. Losses in joint ventures that
are in excess of the Group’s interest in the joint venture are recognised only to the extent that the Group has incurred legal or constructive obligations or
made payments on behalf of the joint venture.
(13) Business combinations goodwill and intangibles
The Group uses the acquisition method of accounting to account for business combinations. The cost of an acquisition is measured at the fair value of
the assets given, equity instruments issued, liabilities incurred or assumed at the date of exchange. Acquisition-related costs are recognised in profit or
loss as incurred. Any deferred or contingent purchase consideration is recognised at fair value over the period of entitlement. If the contingent purchase
consideration is classified as equity, it is not remeasured and settlement is accounted for in equity. Any deferred or contingent payment deemed to be
remuneration as opposed to purchase consideration in nature is recognised in profit or loss as incurred and excluded from the acquisition method of
accounting for business combinations. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured,
initially, at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The non-controlling interest is measured, initially, at
the non-controlling interest’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Goodwill is measured as the excess
of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held
equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
Goodwill a
rising on all acquisitions is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated
impairment losses.
The carrying value is reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. Intangible assets arising under a business combination (acquired intangibles) are capitalised at fair value as determined at the date
of exchange and are stated at fair value less accumulated amortisation and impairment losses. Amortisation of acquired intangibles is charged to the
income statement on a straight-line basis over the estimated useful lives as follows:
Customer relationships – 2.5 to 7.5 years
Trade name
– 5 to 10 years
Software and development costs – 3 to 7 years
Computer software and internally generated development costs which are not integral to the related hardware are capitalised separately as an
intangible asset and stated at cost less accumulated amortisation and impairment losses.
Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the
relevant lease. All intangible assets are reviewed for impairment in accordance with IAS 36 ‘Impairment of Assets’ when there are indications that the
carrying value may be higher than its recoverable value. The recoverable value used is the value in use. The value in use is determined by estimating the
future cash inflows and outflows to be derived from continuous use of the asset and applying the appropriate discount rate to those future cash flows.
Where the carrying value is higher than the calculated value in use, an impairment loss will be recognised.
S G F 141
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
Smiths News plc
Annual Report and Accounts 2022
1. Accounting policies continued
(14) Property, plant and equipment
Property, plant and equipment assets are stated at cost less accumulated depreciation and any recognised impairment losses. No depreciation has
been charged on freehold land. Other assets are depreciated, to a residual value, on a straight-line over their estimated useful lives, as follows:
Freehold and long-term leasehold properties – over 20 years
Short-term leasehold properties – shorter of the lease period and the estimated remaining economic life
Fixtures and fittings – 3 to 15 years
Equipment
– 5 to 12 years
Computer equipment – up to 5 years
Vehicles
– up to 5 years
Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of
the relevant lease. All property, plant and equipment is reviewed for impairment in accordance with IAS 36 ‘Impairment of Assets’ when there are
indications that the carrying value may not be recoverable.
(15) Leasing
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following
lease payments:
•
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
•
variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date;
•
amounts expected to be payable by the Group under residual value guarantees;
•
the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
•
payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case
for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds
necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
•
where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing
conditions since third-party financing was received;
•
uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, which does not have recent
third-party financing; and
•
Makes adjustments specific to the lease, e.g. term, country, currency and security.
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability
until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against
the right-of-use asset.
Lease p
ayments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
•
the amount of the initial measurement of lease liability;
•
any lease payments made at or before the commencement date less any lease incentives received;
•
any initial direct costs; and
•
restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If the Group is
reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life.
Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items
of office furniture.
142 F
Smiths News plc
Annual Report and Accounts 2022
1. Accounting policies continued
(15)
Leasing continued
Extension and termination options
Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise
operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held are
exercisable only by the Group and not by the respective lessor.
Modifications
When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination
option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted
using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent
on a rate or index is revised, except the discount rate remains unchanged. In both cases, an equivalent adjustment is made to the carrying value of the
right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-use
asset is adjusted to zero, any further reduction is recognised in profit or loss.
(16)
Inventories
Inventories comprise goods held for resale and are stated at the lower of cost or net realisable value. Inventories are valued using a weighted average
cost method. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the
inventories to their present location and condition.
(17)
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of
the instrument. The Group derecognises financial assets and liabilities only when the contractual rights and obligations are transferred, discharged or
expire.
Financial assets comprise trade and other receivables and cash and cash equivalents. Financial liabilities comprise trade payables, financing liabilities,
bank borrowings.
(18)
Financial assets
The group classifies its financial assets in the following measurement categories:
•
those to be measured subsequently at fair value (either through OCI or through profit or loss); and
•
those to be measured at amortised cost.
The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.
Trade
receivables
Trade receivables are initially measured at fair value, which for trade receivables is equal to the consideration expected to be received from the
satisfaction of performance obligations, plus any directly attributable transaction costs. Subsequent to initial recognition these assets are measured at
amortised cost less any provision for impairment losses, including expected credit losses. In accordance with IFRS 9, the Group applies the simplified
approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit
losses, trade receivables have been grouped based on shared credit risk characteristics, such as the ageing of the debt and the credit risk of the
customers. An historical credit loss rate is then calculated for each group and then adjusted to reflect expectations about future credit losses. The Group
does not have any significant contract assets.
Classification as trade receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due
for settlement within 30 days and are therefore all classified as current. Trade receivables are recognised initially at the amount of consideration that
is unconditional, unless they contain significant financing components, in which case they are recognised at fair value. The Group holds the trade
receivables with the objective of collecting the contractual cash flows, and so it measures them subsequently at amortised cost using the effective
interest method. Details about the Group’s impairment policies and the calculation of the loss allowance are provided in Note 15.
Due to the short-term nature of the current receivables, their carrying amount is considered to be the same as their fair value.
S G F 143
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
Smiths News plc
Annual Report and Accounts 2022
1. Accounting policies continued
(18)
Financial assets continued
Other receivables
Other receivables are recognised on trade date, being the date on which the Group has the right to the asset. Other receivables are derecognised when
the rights to receive cash flows from the other receivables have expired or have been transferred and the group has transferred substantially all the risks
and rewards of ownership.
At initial recognition, the Group measures other receivable at their fair value plus, in the case of a financial asset not at fair value through profit or loss
(FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are
expensed in profit or loss.
Subsequent measurement of other receivables depends on the Group’s business model for managing the asset and the cash flow characteristics of the
asset. The group classifies its other receivables at amortised cost.
Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured
at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss
arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses.
Impairment losses are presented as a separate line item in Note 3.
The Group classifies its financial assets as at amortised cost only if both of the following criteria are met:
•
the asset is held within a business model whose objective is to collect the contractual cash flows; and
•
the contractual terms give rise to cash flows that are solely payments of principal and interest.
The G
roup applies the general approach to impairment under IFRS 9 based on significant increases in credit risk rather than the simplified approach for
trade receivables using lifetime ECL.
(19)
Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts
are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not
due within 12 months after the reporting period. They are recognised initially at their fair value and subsequently measured at amortised cost using the
effective interest method.
(20)
Treasury
Cash and bank deposits
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months
or less. BACS and next day payments are recognised at the settlement date, rather than when they are initiated, to more appropriately reflect the nature
of these transactions. In the consolidated balance sheet, bank overdrafts are shown within borrowings in current liabilities. Cash and cash equivalents in
the cash flow statement comprise cash at bank and in hand and bank overdrafts which form part of the group’s cash management.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued are recorded at
the proceeds received, net of direct issue costs.
Bank b
orrowings Interest bearing bank loans and overdrafts are initially measured at fair value (being proceeds received, net of direct issue costs), and
are subsequently measured at amortised cost, using the effective interest rate method. Finance charges, including premiums payable on settlement or
redemptions and direct issue costs are accounted for on an accruals basis and taken to the income statement using the effective interest rate method,
and are added to the carrying value of the instrument to the extent that they are not settled in the period in which they arise.
Modification/Derecognition of financial liabilities
Financial liabilities are derecognised only when there is extinguishment of the original financial liability and recognition of a new financial liability.
Equally, modification of the terms of existing financial liability is accounted for as an extinguishment of the original financial liability and recognition
of a new financial liability takes place.
Foreign currencies
Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as
assets and liabilities of the foreign entity and are translated at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of
foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the
transactions.
Foreign currency transactions
Transactions in foreign currencies are recorded using the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on
translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies
that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair value was determined.
144 F
Smiths News plc
Annual Report and Accounts 2022
1. Accounting policies continued
(21)
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow
of economic benefits will be required to settle the obligation. Provisions are measured at the present value of the directors’ best estimate of the
expenditure required to settle the present obligation at the balance sheet date and if this amount is capable of being reliably estimated. If such an
obligation is not capable of being reliably estimated, no provision is recognised and the item is disclosed as a contingent liability where material.
Where the effect is material, the provision is determined by discounting the expected future cash flows.
(22)
Retirement benefit costs
Defined contribution schemes
The Group operates a number of defined contribution schemes for the benefit of its employees. Payments to the Group’s schemes are recognised as an
expense in the income statement as incurred.
Defined benefit scheme
Following the disposal of Tuffnells, the Group previously operated one defined benefit pension scheme, the news section of The WH Smith Pension
Trust. On 3 December 2021, the Group received the sum of £8.1m in respect of the net cash surplus held by the Trustee following finalisation of the
buy-out of the defined benefit liabilities in the News Section of the Trust. As agreed with the Trustee, the return of surplus preceded the formal winding
up steps of the News Section of the Trust, the winding up of the News Section of the Trust being formally completed on 25 February 2022 through the
purchase of insurance run-off cover and payment of taxes owed to HMRC. The IAS 19 pre-tax surplus of £14.8m has been recognised through other
comprehensive income in the current financial period, after the Trustee confirmed its intention to return the surplus cash to the employer, giving the
Company an unconditional right to the surplus.
Prior to th
e winding up of the News Section of the Trust, actuarial gains and losses were calculated by independent actuaries and recognised in full
in the period in which they occur in the Group statement of comprehensive income. As at 28 August 2021, there were a small proportion of liabilities
within the Trust relating to amounts owed to former members of the Trust. As these liabilities were not long term in nature, actuarial assumptions
at 28 August 2021 were not required. The Group did not previously recognise any surplus unless there was an unconditional right to do so.
(23)
Employee Benefit Trust
Smiths News Employee Benefit Trust
Where any Group company purchases the
C
ompan
y
’
s
shares, for example as the result of a share buy-back or a share-based payment plan, the
consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity as ‘own shares reserve’ until
those shares are either cancelled or reissued.
The shares held by the Smiths News Employee Benefit Trust are valued at the historical cost of the shares acquired. This value is deducted in arriving
at shareholders’ funds and presented as the own share reserve in line with IAS 32 ‘Financial Instruments: Disclosure and Presentation.’
(24)
Share schemes
Share-based payments
The Group operates several share-based payment schemes, being the Sharesave Scheme, the Executive Share Option Scheme, the LTIP and the
Deferred Bonus Plan. Details of these are provided in the Directors’ Remuneration report and in Note 28.
Equity-settled share-based schemes are measured at fair value at the date of grant. The fair value is expensed with a corresponding increase in equity
on a straight-line basis over the period during which employees become unconditionally entitled to the options. The fair values are calculated using an
appropriate option pricing model. The income statement charge is then adjusted to reflect expected and actual levels of vesting based on non-market
performance related criteria.
Administrative e
xpenses and distribution and marketing expenses include the cost of the share-based payment schemes.
(25)
Changes in accounting policies
The Group’s accounting policy has been changed to recognise BACS and next day payments at the settlement date, rather than when they are initiated,
to more appropriately reflect the nature of these transactions. The comparative amounts have not been restated as the prior period is unaffected by this
change in accounting policy.
The Group has applied the following standards and amendments for the first time for the annual reporting period commencing 29 August 2021:
•
Proceeds before intended use – Amendments to IAS 16;
•
Onerous contracts – Amendments to IAS 37;
•
Definition of Material – Amendments to IAS 1 and IAS 8;
•
Definition of a Business – Amendments to IFRS3;
•
Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39 and IFRS 7;
•
Revised Conceptual Framework for Financial Reporting;
•
Annual Improvements to IFRS Standards 2018-2020 Cycle; and
•
Where applicable, COVID-19-Related Rent Concessions – Amendments to IFRS.
None of the other amendments listed above did have any impact on the amounts recognised in prior periods and are not expected to significantly
affect the current or future periods.
S G F 145
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
Smiths News plc
Annual Report and Accounts 2022
1.
Accounting policies continued
(25) Changes in accounting policies continued
New Standards and Interpretations not yet applied.
At the date of authorisation of these financial statements, the following Standards and Interpretations that are potentially relevant to the Group and
which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the UK):
•
Classification of Liabilities as Current or Non-current – Amendments to IAS 1;
•
Definition of Accounting Estimates – Amendments to IAS 8;
•
Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement; and
•
Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12.
There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future
reporting periods and on foreseeable future transactions.
2.
Segmental analysis
In accordance with IFRS 8 ‘Operating
S
e
gmen
t
s
,
’
management has identified its operating segments based wholly on the overall activities of the Group.
The Group has therefore determined that it has only one reportable operating segment under IFRS 8, which is that of a ‘UK market leading distributor
of newspapers and magazines,’ referred to as ‘Smiths News.’ The performance of Smiths News is reviewed, on a monthly basis, by the Board. The Board
primarily uses a measure of Adjusted operating profit before tax to assess its performance. The Board also receives information about the segments’
revenue.
The Smiths News continuing operating segment consists of the following:
Smiths News C
ore
The UK market leading distributor of newspapers and magazines to approximately 24,000 retailers across England and Wales.
Dawson Media Direct (DMD)
Supplies newspapers, magazines and inflight entertainment to airlines and travel points in the UK.
Instore
Supplies field marketing services to retailers and suppliers across the UK.
Other businesses
A number ancillary business which are adjacent to Smiths News.
The Company derives revenue from the transfer of goods and services in the following major product line and geographical regions:
Revenue
£m
2022
2021
Smiths
News
1,089.3 1,109.6
Total revenue from contracts with customers
1,089.3
1,109.6
The
C
ompan
y
’
s
revenue by geographical location is UK 99.9% (2021: 99.9%) and Rest of World 0.1% (2021: 0.1%).
Information about major customers
Included in revenues arising from Smiths News are revenues of approximately £102.5m (2021: £121.9m) which arose from sales to the Group’s largest
customer. Three other customers contributed 13.3% or more of the Group’s revenue in 2022 (2021: 6.0%).
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in Note 1.
146 F
Smiths News plc
Annual Report and Accounts 2022
3.
Operating profit
The Group’s results are analysed as follows:
£m
Note
2022
Adjusted
2021
Adjusted
items
Total
Adjusted
Adjusted
items
Total
Continuing operations
Revenue
1,089.3
–
1,089.3
1,109.6
–
1,109.6
Cost
of inventories recognised as an expense
(921.3)
–
(921.3)
(945.2)
–
(945.2)
Distribution
costs
(95.3)
–
(95.3)
(91.0)
–
(91.0)
Cost of sales
(1,016.6)
–
(1,016.6)
(1,036.2)
–
(1,036.2)
Gross profit
72.7
–
72.7
73.4
–
73.4
Other
administrative expenses
(23.3)
(2.5)
(25.8)
(22.1) (1.9) (24.0)
Share-based payment expense
28
(1.2)
–
(1.2)
(1.0)
–
(1.0)
Net
impairment loss on trade receivables
–
(4.4)
(4.4)
–
–
–
Impairment reversal/(charge) of joint venture
Investment
–
1.2 1.2
–
(1.6) (1.6)
Impairment
–
–
–
(0.1)
–
(0.1)
Other
income
0.1
–
0.1
–
–
–
Share
of profits from joint ventures
13
0.3
–
0.3 0.1 (0.3) (0.2)
EBITDA
48.6
(5.7)
42.9
50.3 (3.8) 46.5
Depreciation
on property, plant & equipment
12
(2.3)
–
(2.3)
(2.4)
–
(2.4)
Depreciation on right use assets
19
(6.9)
–
(6.9)
(6.4)
–
(6.4)
Amortisation
of intangibles
11
(1.3)
–
(1.3)
(1.9)
–
(1.9)
Operating profit
38.1
(5.7)
32.4
39.6 (3.8) 35.8
The operating profit is stated after charging/ (crediting):
£m
Note
2022
Total
2021
Total
Depreciation
on property, plant & equipment 12 2.3 2.4
Amortisation
of intangible assets 11
1.3
1.9
Depreciation
on right-of-use assets 19
6.9
6.4
Short-term and low value lease charges
occupied land and buildings
–
0.1
equipment and vehicles
0.3
0.4
Lease rental income – land and buildings
(0.4)
(0.2)
(Loss)/gain
on disposal of non-current assets
–
0.2
Staff
costs (excluding share-based payments) 5
43.7
43.8
Included in administrative expenses are amounts payable by the Company and its subsidiary undertakings in respect of audit and non-audit services
which are as follows:
£m
2022
2021
Fees
payable to the
C
ompan
y
’
s
auditor for the audit of the
C
ompan
y
’
s
annual accounts – BDO LLP
Fees
payable to the
C
ompan
y
’
s
auditor for the audit of the
C
ompan
y
’
s
subsidiaries – BDO LLP
0.2
0.4
0.2
0.2
Total non-audit fees
0.1
0.1
Total fees
0.7
0.5
Details of the
C
ompan
y
’
s
policy on the use of auditors for non-audit services and how the auditor’s independence and objectivity was safeguarded are
set out in the Audit Committee report.
S G F 147
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
4.
Adjusted items
Smiths News plc
Annual Report and Accounts 2022
£m
2022
Continuing
2021
Discontinued
Total
Continuing
Discontinued
Total
Transformation
programme planning costs (a)
(0.9)
–
(0.9)
(1.1)
–
(1.1)
Pension
(b)
(1.8)
–
(1.8)
(1.0)
–
(1.0)
Other
–
–
–
0.1
–
0.1
Network
and re-organisation costs (c) 0.2
–
0.2 0.1
–
0.1
Administrative expenses
(2.5)
–
(2.5)
(1.9)
–
(1.9)
Net
impairment loss on trade receivables (d)
(4.4)
–
(4.4)
–
–
–
Share of profits from joint ventures (e)
–
–
–
(0.3)
–
(0.3)
Asset
impairment reversal/(charge)
(f
)
1.2
–
1.2
(1.6)
–
(1.6)
VAT
refund
(g)
–
–
–
–
0.4 0.4
Review
and sale of Tuffnells (h)
–
–
–
–
(0.6) (0.6)
Total before tax and interest
(5.7)
–
(5.7)
(3.8)
(0.2) (4.0)
Finance
income – unwind of deferred consideration (i)
2.5
–
2.5
3.5
–
3.5
Total before tax
(3.2)
–
(3.2)
(0.3)
(0.2)
(0.5)
Taxation
0.9
–
0.9
0.3 0.1 0.4
Total after taxation from continuing operations
(2.3)
–
(2.3)
–
–
–
Total loss from discontinued operations
–
–
–
–
(0.1) (0.1)
Total for the year from both continuing and
discontinued operations
(2.3)
–
(2.3)
–
(0.1)
(0.1)
The Group incurred a total of £3.2m (2021: £0.5m) of Adjusted items before tax and after tax £2.3m (2021: £0.1m) respectively.
Adjusted items are defined in the accounting policies in Note 1 and in the glossary on page 176. The impact of removing these items from the adjusted
profit provides a relevant analysis of the trading results of the Group because it is consistent with how the business performance is planned by, and
reported to, the Board and Executive Team. However, these additional measures are not intended to be a substitute for, or superior to, IFRS measures.
They comprise:
Continuing operations – Administrative expenses £2.5m (2021: £1.9m)
(a)
Transformation programme planning costs: £0.9m (2021: £1.1m)
During the financial period, the Company incurred professional fees in relation to transformation programme planning projects. These projects were
concluded in the current period.
These costs are reported as adjusting items on the basis that they are significant in nature and quantum and are considered to be non-underlying
items.
The total impact on net cash inflow from operating activities was a £1.3m outflow (2021: £0.7m), see Note 24.
(b) Pensions: £1.8m (2021: £1.0m)
The Trust completed the wind up of the news section of the WH Smiths Pension Trust (the
C
ompan
y
’
s
defined benefit pension scheme), with
a Deed of Termination signed by the Company and the Trustee on 25 February 2022.
As part of the wind up, £1.3m was paid to an escrow account in December 2021 for the Trustee to purchase indemnity insurance and to cover future
claims from members owed amounts following the Lloyds ruling in November 2020. This amount has been accounted for as an adjusted item through
the income statement.
The winding up
of the News Section was formally completed on 25 February 2022 through the purchase of insurance run-off cover, plus other
associated professional fees at a total cost of £0.6m. £0.3m of these costs was funded from the total pre-tax pension surplus received of £14.8m, see
Note 6 for further details. A refund of £0.1m due to the Company in relation to the total amount previously held in escrow has been credited against
these costs. In the prior period, the Company incurred £1.0m in pension administrative expenses and other professional fees as a result of the winding
up process.
These costs are reported as adjusting items on the basis that they are significant in nature and quantum and are unrelated to the Group’s ordinary
activities.
The total impact on net cash inflow from operating activities was an £7.9m inflow (2021: £0.6m outflow). An £8.1m inflow was received from the return
of the pension surplus, less a net £0.2m outflow in respect of the insurance run-off cover, see Note 24.
148 F
Smiths News plc
Annual Report and Accounts 2022
4.
Adjusted items continued
Continuing operations – Administrative expenses £2.5m (2021: £1.9m) continued
(c)
Network and re-organisation: £0.2m credit (2021: £0.1m credit)
The disposal of the Tuffnells business in 2020 and lockdowns associated with the COVID-19 pandemic led to the Company restructuring its support
functions and a reorganisation provision was put in place. The Company released £0.2m of this provision in the current period (2021: £0.1m) and the
release was reported as an adjusting item.
Continuing operations – Net impairment loss on trade receivables £4.4m (2021: £nil)
(d)
Net impairment loss on trade receivables
On 9 May 2022 (“the administration date”),
M
c
C
oll
’
s
Retail Group went into administration. A statement of claim form was filed with the Administrators
for an amount of £5.5m. The administrators issued notification on 27 May 2022 that they expected unsecured creditors to receive between 20-40%
of approved claims. Management has not received any further information from the Administrators as at the balance sheet date and issuance of this
report, and has therefore provided a best estimate that only 20% of the outstanding balance is recoverable. The Company has therefore recognised
a net impairment loss of £4.4m, representing 80% of the total balance of £5.5m in the current financial period.
Simultaneously on the administration date, Wm Morrison Supermarkets Ltd (“Morrisons”) agreed terms with the administrator to acquire
M
c
C
oll
’
s
in
a pre-packaged insolvency agreement. The Company continues to trade with
M
c
C
oll
’
s
under the new ownership structure. The
C
ompan
y
’
s
bad debt
exposure relates solely to the outstanding trade receivable balance as at the administration date.
This cost is reported as an adjusting item on the basis that they are significant in nature and quantum, are considered non-underlying items, outside the
normal course of activity and aid comparability from one period to the next. The bad debt from
M
c
C
oll
’
s
has limited predictive value given the historic
low level of bad debts incurred in the ordinary course of business.
Continuing o
perations – Share of profits from Joint Ventures £nil (2021: £0.3m)
(e)
Share of profits from Joint Ventures: £nil (2021: £0.3m)
In the prior financial period, Rascal Solution Limited, one of the Group’s joint ventures, has impaired an intangible asset. The
C
ompan
y
’
s
share of the
impairment was £0.3m.
These costs are reported as adjusting items on the basis that they are significant to the investment in Rascal, and are considered non-underlying items,
outside the normal course of activity and aid comparability from one period to the next regarding the performance of the joint venture.
Continuing operations – Asset impairments – impairment reversal £1.2m (2021: impairment loss £1.6m)
(f)
Asset impairments: impairment reversal £1.2m (2021: impairment charge £1.6m)
During the period, the Company reviewed the business plan for the Rascal Joint Venture, and it was determined that the potential challenges
anticipated to arise in the prior period have not materialised with the successful renewal of contracts previously considered to be at risk. The Company
has therefore chosen to reverse the impairment previously booked by £1.2m. In the prior period, it was assessed that certain challenges may arise from
increasing market competition, resulting in an impairment loss of £1.6m being recognised.
The Group considers the impact of the above to be adjusting given the impairment charges are significant in both quantum and nature to the results of
the Group.
Total discontinued operations before tax and interest £nil (2021: £0.2m)
(g)
VAT refund: £nil (2021: £0.4m credit)
During the prior period, the Company received a refund of VAT previously considered as non-recoverable on prior disposals of businesses previously
owned by the Group.
This in
come was considered to be adjusting given its quantum and is unrelated to the Group’s ordinary activities.
(h)
Review and sale of Tuffnells: £nil (2021: £0.6m expense)
During the prior period, as part of the sale of Tuffnells in 2020, the Company assumed a liability to settle certain pre-disposal insurance and legal claims
related to: employer’s liability, public liability, motor accident claims and legal claims. In the prior period, £0.6m of costs were recognised due
to clarification of the likely settlement costs of existing claims.
Continuing operations – Finance income £2.5m credit (2021: £3.5m credit)
(i)
Finance Income – Deferred consideration £2.5m credit (2021: £3.5m credit)
During the year, £2.5m has been recognised in Finance income, £3.5m (2021: £3.5m) as the unwind of discount on the original total deferred
consideration due of £15.0m. This is offset by the £1.0m agreed reduction in deferred consideration due, see Note 15 for further details. The deferred
consideration relates to the disposal of Tuffnells that took place in 2020, and for that reason has been classified as adjusting because it does not relate
to the Group’s ordinary activities.
S G F 149
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
5.
Staff costs and employees
(a) Staff costs
The aggregate remuneration of employees (including executive directors) was:
Smiths News plc
Annual Report and Accounts 2022
£m Note
2022
2021
Continuing
Wages
and salaries
39.2
39.2
Social security
3.4
3.4
Pension
costs 6
1.1
1.2
Share
-based payments expense
1.2 1.0
Total
44.9
44.8
Pension costs shown above exclude charges and credits for pension scheme financing and actuarial gains and losses arising on the pension schemes.
(b) Employee numbers
The average total monthly number of employees relating to operations (including directors) was:
Number
2022
2021
Continuing operations
Operations
Support functions
1,425
149
1,536
154
Total
1,574
1,690
6.
Retirement benefit obligation
Defined benefit pension schemes
During the current and prior period, the Group operated one defined benefit scheme, the news section of the WH Smith Pension Trust (the ‘Pension
Trust’).
The amounts recognised in the balance sheet are as follows:
£m
2022
2021
Present value of defined benefit obligation
Fair value of assets
(0.1)
14.9
(0.1)
14.9
Net surplus
14.8
14.8
Amounts
not recognised due to asset limit
–
(14.8)
Administrative expenses
(1.6)
–
Tax
paid
(5.1)
–
Refund
of surplus to Company
(8.1)
–
Pension liability
–
–
150 F
Smiths News plc
Annual Report and Accounts 2022
6.
Retirement benefit obligation continued
Return of the surplus and formal winding up of the Pension Trust during the current period
The IAS 1
9 pre-tax surplus of £14.8m has been recognised through other comprehensive income in the current financial period after the Trustee
confirmed its intention to return the surplus cash to the employer, giving the Company an unconditional right to the surplus. The asset was not
previously recognised as the Company did not have an unconditional right to the surplus and, therefore, the net surplus in the scheme was restricted
with an IFRIC 14 asset ceiling, which has now been reversed. On 3 December 2021, the Company received the sum of £8.1m in respect of the net cash
surplus held by the Trustee following finalisation of the buy-out of the defined benefit liabilities in the News Section of the Trust. As agreed with the
Trustee, the return of surplus preceded the formal winding up steps of the News Section, the winding up of the News Section being formally completed
on 25 February 2022 through the purchase of insurance run-off cover and payment of taxes owed to HMRC. The pension surplus of £8.1m (net of tax
and costs) received was recognised as cash on the balance sheet and, in accordance with the requirements of the banking agreement, this cash has
been used to repay existing debt. The tax charge which represents 35% of the surplus (£5.1m) has been treated in accordance with the
recognition
of the sur
plus and recognised through other comprehensive income. The liability was extinguished in January 2022 when the Trustee paid the
outstanding tax balance on behalf of the Company. The Company had agreed to deposit £1.3m of the pension surplus into an escrow account, to fund
the insurance costs for the Trustee and the outstanding liability to former members in respect of the Lloyds GMP equalisation ruling in November 2020.
The funds held in escrow are not considered an asset of the Company and are not recognised on the balance sheet. The cost of the insurances has
been recognised through administration expenses in the income statement and treated as an Adjusted item. During the period, £0.3m of administration
expenses were incurred by the Trustee to obtain legal and consulting advice before the surplus of £8.1m could be refunded. These administration costs
have been recognised in the income statement as an Adjusted item.
Information relating to the prior period
Prior to the winding up of the scheme, the valuation of the defined benefit schemes for the IAS 19 (revised) disclosures were carried out by independent
qualified actuaries based on updating the most recent funding valuations of the respective scheme, adjusted as appropriate for membership experience
and changes in the actuarial assumptions.
The principal long-term assumptions used to calculate scheme liabilities on all Group schemes up to the disposal date are:
%
p.a.
2022
2021
Discount rate
N/a
1.95
Inflation assumptions – CPI
N/a
2.8
Inflation
assumptions – RPI
N/a
3.4
Demographic assumptions for WH Smith Pension Trust:
Life expectancy at age 65
2022
2021
Male
Female
Male
Female
Member currently aged 65
N/a
N/a
21.7
23.7
Member
currently aged 45
N/a
N/a
22.8 24.9
S G F 151
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
Smiths News plc
Annual Report and Accounts 2022
6.
Retirement benefit obligation continued
Inflation assumptions
Pension increases in deferment in both Schemes are granted in line with CPI for all deferred members. RPI inflation is used to determine the increases
for pensions currently in payment, subject to any annual caps and floors.
A summary of the movements in the net balance sheet asset/ (liability) and amounts recognised in the Group Income Statement and Other
Comprehensive Income are as follows:
Impact of
IFRIC 14
on defined
£m
Fair value
of
scheme
assets
Defined
benefit
obligation
benefit
pension
schemes
Total
At 29 August 2020
496.4
(481.2)
(15.2)
–
Net
interest cost 4.4 (4.2) (0.2)
–
Administration
expenses (0.4)
–
–
(0.4)
Total amount recognised in income statement
4.0
(4.2)
(0.2)
(0.4)
Actual
return on scheme assets (excluding amounts included in net interest expense) (8.7)
–
–
(8.7)
Actuarial
gains arising from changes in financial assumptions
–
2.4
–
2.4
Actuarial
gains arising from changes in demographic assumptions
–
6.1
–
6.1
Change in surplus not
recognised
–
–
0.6 0.6
Amount recognised in other comprehensive income
(8.7)
8.5
0.6
0.4
Benefit
payments (14.5) 14.5
–
–
Amounts
included in cash flow statement
(14.5)
14.5
–
–
Settlement
(462.3) 462.3
–
–
At 28 August 2021
14.9
(0.1)
(14.8)
–
Purchase of indemnity insurance
(1.3)
–
–
(1.3)
Other
administration expenses (0.3)
–
–
(0.3)
Total amount recognised in income statement
(1.6)
–
–
(1.6)
Change in surplus not previously recognised
(0.1)
0.1
14.8
14.8
Tax
relating to the repayment of pension surpluses
–
–
(5.1) (5.1)
Amount recognised in other comprehensive income
(0.1)
0.1
9.7
9.7
Tax
paid
(5.1)
–
5.1
–
Refund
of surplus to Company
(8.1)
–
–
(8.1)
Amounts
included in cash flow statement
(13.2)
–
5.1
(8.1)
At 28 August 2022
–
–
–
–
Included within Current liabilities
–
The charge in the prior period for the current service cost is included within administrative expenses. ‘Net interest costs’ were calculated by applying
a discount rate to the net defined benefit asset or liability scheme assets and are included within finance income and expense in the prior period.
An analysis of the assets at the balance sheet date is detailed below:
£m
2022
2021
Gilts and swaps portfolio
Quoted and Unquoted
N/a
11.4
Corporate
bonds
Quoted and Unquoted
N/a
–
Equity funds
Unquoted
N/a
–
Insurance
policy
Unquoted
N/a
–
Cash
and other
Unquoted
N/a
3.5
N/a
14.9
152 F
Smiths News plc
Annual Report and Accounts 2022
6.
Retirement benefit obligation continued
Inflation assumptions continued
The return on scheme assets during 2022 was a loss of £0.4m (2021: £8.7m).
The value of the assets held by the Trust in Smiths News Plc (formerly Connect Group PLC) issued financial instruments is £nil (2021: £nil).
The Company has agreed run-off indemnity coverage for any member claims that are uninsured liabilities capped at £6.5m over the next 60 years.
Defined contribution schemes
The Group operates two defined contribution schemes. For the 52 weeks ended 27 August 2022, contributions from the respective employing company
for continuing operations totalled £1.1m (2021: £1.1m) which is included in the Income Statement.
A defined contribution plan is a pension plan under which the Group pays contributions to an independently administered fund – such contributions
are based upon a fixed percentage of employees’ pay. The Group has no legal or constructive obligations to pay further contributions to the fund once
the contributions have been paid. Members’ benefits are determined by the amount of contributions paid by the Company and the member, together
with investment returns earned on the contributions arising from the performance of each individual’s chosen investments and the type of pension the
member chooses to buy at retirement. As a result, actuarial risk (that benefits will be lower than expected) and investment risk (that assets invested in
will not perform in line with expectations) fall on the employee.
7.
Finance costs
£m
Note
2022
2021
Continuing operations
Interest on bank overdrafts and loans
(3.5)
(5.0)
Amortisation
of loan arrangement fees
(1.7)
(2.0)
Interest
payable on leases
(1.6)
(1.6)
Total
interest cost on financial liabilities at amortised cost
(6.8)
(8.6)
Unwinding
of discount on provisions – trading 21
(0.2)
(0.2)
Finance costs – continuing operations
(7.0)
(8.8)
Interest
income on loans and deferred consideration 2.5 3.6
Net Finance costs – continuing operations
(4.5)
(5.2)
Interest
payable on leases
–
–
Unwinding of discount on provisions – trading 21
–
–
Net Finance costs – discontinued operations
–
–
Net
Finance costs – continuing and discontinued operations
(4.5)
(5.2)
8.
Income tax expense
£m
2022
Adjusted
2021
Adjusted
items
Total
Adjusted
Adjusted
items
Total
Continuing
operations
Current
tax
Adjustment
in respect of prior year
5.7
(0.8)
(0.9)
–
4.8
(0.8)
6.3
(0.9)
(0.3)
–
6.0
(0.9)
Total
current tax charge/(credit) 4.9
(0.9)
4.0 5.4 (0.3) 5.1
Deferred tax – current year
(0.3)
–
(0.3)
(0.4)
–
(0.4)
Deferred
tax – prior year
0.6
–
0.6
(0.1)
–
(0.1)
Deferred
tax – impact of rate change 0.2
–
0.2 (0.3)
–
(0.3)
Total tax charge/(credit) – continuing operations
5.4
(0.9)
4.5
4.6 (0.3) 4.3
Effective tax rate
17.4%
16.1%
14.9%
14.1%
Tax
(credit)/charge – discontinued operations
–
–
–
–
(0.1) (0.1)
Tax
charge/(credit) –
continuing and discontinued operations
5.4
(0.9)
4.5
4.6
(0.4)
4.2
The effective adjusted income tax rate for continuing operations in the year was 17.4% (2021: 14.9%). After the impact of Adjusted items of £0.9m
(2021: £0.3m), the effective statutory income tax rate for continuing operations was 16.1% (2021: 14.1%).
S G F 153
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
Smiths News plc
Annual Report and Accounts 2022
8.
Income tax expense continued
Corporation tax is calculated at the main rates of UK corporation tax, those being 19.0% (2021: 19.0%). The UK Finance Act 2021 has been
substantively enacted, increasing the corporate tax rate to 25%, effective from 1 April 2023. Since this change has been substantively enacted, the
Group has assessed its deferred tax positions using the higher enacted rate of 25%. Taxation for other jurisdictions is calculated at the rates prevailing
in the respective jurisdictions.
The tax charge for the year can be reconciled to the profit in the income statement as follows:
£m
2022
2021
Continuing Profit before tax
27.9
30.6
Tax
on profit at the standard rate of UK corporation tax 19.0% (2021: 19.0%)
5.3
5.9
Income not subject to tax
(1.0)
(0.7)
Expenses
not deductible for tax purposes
0.2
0.4
Adjustment
in respect of prior years
(0.2)
(1.0)
Impact of change in UK tax rate
0.2
(0.3)
Tax charge
4.5
4.3
Income not subject to tax comprised mainly of the tax effect of the Tuffnells discount unwind.
Amounts recognised directly in equity
£m
2022
2021
Aggregate current tax and deferred tax arising in the reporting period and not recognised in net profit or loss or other
comprehensive income but directly (charged)/credited to equity:
Current
tax: share-based payments
(0.1)
–
Deferred tax assets: share-based payments
(0.2)
0.2
9.
Dividends
Amounts paid and proposed as distributions to equity shareholders in the years:
2022
Per share
2021
Per share
2022
£m
2021
£m
Paid
& proposed dividends for the year
Interim dividend
– paid
Final dividend
– proposed
1.40p
2.75p
0.50p
1.15p
3.3
6.7
1.2
2.4
4.15p
1.65p
10.0
3.6
Recognised dividends for the year
Final dividend – prior year
1.15p
–
2.8
–
Interim
dividend – current year
1.40p
0.50p
3.3
1.2
2.55p
0.50p
6.1
1.2
A final 2.75p dividend per share is proposed for the 52 weeks ended 27 August 2022 (2021: 1.15p), which is expected to be paid on 9 February 2023 to
all shareholders who are on the register of members at close of business on 13 January 2023. The ex-dividend date will be 12 January 2023.
154 F
Smiths News plc
Annual Report and Accounts 2022
10.
Earnings per share
2022
2021
Earnings
£m
Weighted
average
number
of shares
Million
Pence
per share
Earnings
£m
Weighted
average
number
of shares
Million
Pence
per share
Weighted average number of shares in issue
247.7
247.7
Shares held by the ESOP (weighted)
(9.2)
(4.2)
Basic earnings per share (EPS)
Continuing
operations
Adjusted earnings attributable to ordinary shareholders
25.7
238.5
10.8
26.3
243.5
10.8
Adjusted items
(2.3)
–
–
–
–
–
Earnings
attributable to ordinary shareholders 23.4 238.5 9.8 26.3 243.5 10.8
Discontinued operations
Adjusted
profit/(loss) attributable to ordinary shareholders
–
–
–
–
243.5
–
Adjusted items
–
–
–
(0.1)
–
–
Loss/(profit)
attributable to ordinary shareholders
–
–
–
(0.1) 243.5
–
Total – Continuing and discontinued operations
Adjusted
earnings attributable to ordinary shareholders 25.7 238.5 10.8 26.3 243.5 10.8
Adjusted items
(2.3)
–
–
(0.1)
–
–
Earnings attributable to ordinary shareholders
23.4
238.5
9.8
26.2
243.5
10.8
Diluted
earnings per share (EPS)
Effect
of dilutive share options – continuing operations
13.5
13.5
Effect
of dilutive share options – adjusting continuing
13.5
13.5
Effect
of dilutive share options – discontinued operations
–
–
Effect
of dilutive share options – total
13.5
13.5
Continuing operations
Diluted adjusted
EPS 25.7 252.0 10.2 26.3 257.0 10.2
Diluted EPS
Discontinued operations – Diluted EPS
23.4
252.0
9.3
26.3 257.0 10.2
Diluted adjusted
EPS
–
–
–
–
257.0
–
Diluted EPS
–
–
–
(0.1) 257.0
–
Total – Continuing and discontinued operations
Diluted adjusted EPS*
25.7
252.0
10.2
26.3
257.0
10.2
Diluted EPS*
23.4
252.0
9.3
26.2
257.0
10.2
* The prior period number of dilutive share options was amended from 11.3m to 13.5m. The effect of which decreased both the diluted adjusted EPS and diluted EPS from 10.3p to 10.2p.
Dilutive shares increase the basic number of shares at 27 August 2022 by 13.5m to 252m (28 August 2021: 257.0m).
The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes of 13.5m dilutive shares (28 August 2021: 13.5m).
S G F 155
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
Smiths News plc
Annual Report and Accounts 2022
11.
Intangible assets
Acquired Intangibles
:
:
Impairment tests goodwill
Goodwill is not amortised but has been tested annually for impairment. As a result of these reviews, goodwill is fully impaired at the end of FY2022
and FY2021.
156 F
£m
Goodwill
Customer
relationships
Trade name
Software
Internally
generated
development
costs
Computer
software
costs
Total
Cost:
At 29 August 2021
5.7
2.4
0.2
–
2.7
7.2
18.2
Additions
–
–
–
–
0.5 0.2 0.7
Disposal
–
–
–
–
–
–
–
At 27 August 2022
5.7
2.4
0.2
–
3.2
7.4
18.9
Accumulated amortisation and impairment
At
29 August 2021
(5.7)
(2.4)
(0.2)
–
(1.8)
(5.8)
(15.9)
Amortisation charge
–
–
–
–
(0.3)
(1.0)
(1.3)
Disposals
–
–
–
–
–
–
–
At
27 August 2022
(5.7)
(2.4)
(0.2)
–
(2.1)
(6.8)
(17.2)
Net book value at 27 August 2022
–
–
–
–
1.1
0.6
1.7
Cost:
At
30 August 2020
5.7
2.4
0.2
–
2.9
7.5
18.7
Additions
–
–
–
–
0.4
–
0.4
Disposals
–
–
–
–
(0.6) (0.3) (0.9)
At
28 August 2021 5.7 2.4 0.2
–
2.7 7.2 18.2
Accumulated
amortisation and impairment
At
30 August 2020
(5.7)
(2.4)
(0.2)
–
(1.9)
(4.5)
(14.7)
Amortisation
charge
–
–
–
–
(0.4) (1.5) (1.9)
Disposals
–
–
–
–
0.5
0.2
0.7
At 28 August 2021
(5.7)
(2.4)
(0.2)
–
(1.8)
(5.8)
(15.9)
Net book value at 28 August 2021
–
–
–
–
0.9
1.4
2.3
Smiths News plc
Annual Report and Accounts 2022
12. Property, plant and equipment
Land and Buildings
Long-term Short-term
leasehold leasehold
Fixtures
Equipment
£m
improvements improvements
and fittings
and vehicles
Total
Cost:
At
29 August 2021
0.2 10.2 2.9 22.1 35.4
Additions
– 0.3
0.1
1.2
1.6
Disposals
–
–
–
(0.3) (0.3)
At 27 August 2022
0.2 10.5
3.0
23.0
36.7
Accumulated depreciation:
At
29 August 2021
(0.2) (8.2) (1.6) (16.0) (26.0)
Depreciation charge
– (0.5)
(0.2)
(1.6)
(2.3)
Disposals
–
–
–
0.2 0.2
At 27 August 2022
(0.2)
(8.7)
(1.8)
(17.4)
(28.1)
Net book value at 27 August 2022
–
1.8
1.2
5.6
8.6
Cost:
At
30 August 2020
0.2 10.1 2.7 22.4 35.4
Additions
0.6
0.4
1.8
2.8
Disposals
– (0.5) (0.2) (2.1) (2.8)
At 28 August 2021
0.2 10.2
2.9
22.1
35.4
Accumulated
depreciation:
At
30 August 2020
(0.2) (8.2) (1.7) (15.9) (26.0)
Depreciation
charge – (0.5) (0.2) (1.7) (2.4)
Disposals
– 0.5 0.3 1.6 2.4
At 28 August 2021
(0.2) (8.2) (1.6)
(16.0) (26.0)
Net book value at 28 August 2021
– 2.0
1.3
6.1
9.4
13. Interests in joint ventures
£m
2022
2021
At 29/30
August
2.9
4.9
Share
of profit/(loss) 0.3 (0.2)
Impairments
reversal/(charge)
1.2
(1.6)
Dividends
received
(0.2)
(0.2)
At
27/28 August 4.2 2.9
The joint venture listed below has share capital consisting solely of ordinary shares, which are held directly by the Group.
S G F 157
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
13. Interests in joint ventures continued
Nature of investments in joint ventures
Smiths News plc
Annual Report and Accounts 2022
Company name/(number)
Share Class
Group
%
Registered address
Measurement method
Fresh
On The Go Limited
08775703
Ordinary Shares
30%
61 Bridge Street,
Kington, HR5 3DJ
Equity method
Bluebox
Systems Group Limited
SC544863
Ordinary A Shares
36.1%
Estantia House, Pitreavie Drive,
Pitreavie Business Park, Dunfermline,
Fife KY11 8US
Equity method
Rascal
Solutions Limited
05191277
Ordinary A Shares
50%
Silbury Court, 420 Silbury Boulevard,
Milton Keynes MK9 2AF
Equity method
The Group owns 50% of the ordinary shares of Rascal Solutions Limited, a company incorporated in England, which in turn owns 100% of the Ordinary
shares of Open-Projects Limited. The latest statutory accounts of Rascal Solutions Limited were drawn up to 31 August 2022. Rascal Solutions Limited
provides retail support services and is a strategic partnership for the Group to provide additional services to its existing customers.
Bluebox Systems Group Limited is the holding company of Bluebox Aviation Systems Ltd, the principal activity of which is the sale of innovative
in-flight entertainment systems. This business is a strategic partnership with DMD which also provides inflight media to the aviation industry.
Fresh On The Go Limited provides retail outlets with coffee vending and other related products.
All joint ventures are private companies and there is no quoted market price available for their shares.
The Group has no commitments relating to its joint ventures
The results, assets and liabilities of joint ventures are as follows:
£m
2022
Rascal
Solutions
Limited
2021
Other
Total
Rascal
Solutions
Limited
Other
Total
Revenue
6.0
2.8
8.8
5.7
1.3
7.0
Depreciation
–
–
–
(1.6) (0.1) (1.7)
Tax
(0.2)
0.3
0.1
0.1
–
0.1
Profit/(loss) after tax
0.6
(0.8)
(0.2)
(0.1) (0.6) (0.7)
Non
-current assets
2.2
–
2.2
2.3
0.6
2.9
Current
assets 1.5 1.6 3.1 1.7 1.5 3.2
Cash
1.6
0.7
2.3
1.0 0.3 1.3
Total assets
5.3
2.3
7.6
5.0 2.4 7.4
Current
liabilities
(1.7)
(1.6)
(3.3)
(1.6)
(0.9)
(2.5)
Non
-current liabilities
–
(1.4)
(1.4)
–
(1.3) (1.3)
Total liabilities
(1.7)
(3.0)
(4.7)
(1.6)
(2.2)
(3.8)
Net assets/(liabilities)
3.6
(0.7)
2.9
3.4 0.2 3.6
Share of net assets
1.8
–
1.8
1.7
–
1.7
Goodwill*
2.4
–
2.4
1.2
–
1.2
Share of net assets and Goodwill
4.2
–
4.2
2.9
–
2.9
* Goodwill represents the difference between the fair value of the share of the net assets acquired and the amount paid, and forms part of the investment in the joint venture.
Dividends of £0.2m (2021: £0.2m) were received in the 52 weeks to 27 August 2022 from joint ventures.
158 F
Smiths News plc
Annual Report and Accounts 2022
13.
Interests in joint ventures continued
Rascal Solutions Limited investment
During the period Rascal Solutions Limited (Rascal) recorded a profit of £0.6m (FY2021: loss of £0.1m). The prior year result includes the full
impairment (£0.6m) of a software development intangible fixed asset which was found to no longer be of economic value to Rascal. The
C
ompan
y
’
s
share of this impairment was 50% (£0.3m) and was reported as an adjusting item in income from joint ventures.
During the period, the Company reviewed the business plan for the Rascal joint venture, and it was determined that the potential challenges anticipated
to arise in the prior period, have not materialised with the successful renewal of contracts previously considered to be at risk. The Company has
therefore chosen to reverse the impairment previously booked by £1.2m. In the prior period, it was assessed that certain challenges may arise from
increasing market competition, resulting in an impairment loss of £1.6m being recognised. The current period impairment review was performed,
resulting in a value in use of £4.2m being calculated based on future cash flows of the Rascal business. These cash flows were discounted at a post-tax
discount rate of 13.0% (pre-tax discount rate of 15.2%) (2021: 15.4% post-tax discount rate and pre-tax discount rate of 18.5%) and a terminal growth
rate applied of 0% (2021: 0%). The result was a reversal of the previous impairment loss recognised by £1.2m (2021: £1.6m impairment loss).
Sensitivities to as
sumptions
If the post-tax discount rate had been increased by 1.0%, the impairment reversal would have reduced by £0.3m and if the post-tax discount rate had
been reduced by 1.0%, the impairment reversal would have increased by £0.4m.
14.
Inventories
£m
2022
2021
Goods held for resale
15.5
13.1
Raw
materials and consumables
0.1
0.1
Inventories
15.6
13.2
15.
Trade and other receivables
£m
2022
2021
Trade
receivables
Specific provision for doubtful debts
1
Provision for expected credit losses
69.0
(4.4)
(0.1)
65.8
–
(
0.1)
64.5
65.7
Other debtors
28.6
29.1
Deferred
consideration
2
–
9.2
Prepayments
1.0
1.2
Accrued income
1.6
1.4
Trade and other receivables
95.7
106.6
1.
Net impairment loss on trade receivables – McColls Retail Group
During the period, the Company received notice that
M
c
C
oll
’
s
Retail Group went into administration. A statement of claim was filed with the
Administrators for an amount of £5.5m. The administrators issued notification on 27 May 2022 that they expected unsecured creditors to receive
between 20-40% of approved claims. Management has not received any further information from the Administrators as at the balance sheet date and
issuance of this report, and has therefore provided a best estimate that only 20% of the outstanding balance is recoverable. The Company has therefore
recognised a net impairment loss of £4.4m, representing 80% of the total balance of £5.5m in the current financial period. For more information, see
Note 4.
The net impairment loss of £4.4m has been allocated to both the 61-91 days overdue and 91-120 days overdue ageing buckets, matching the ageing
profile of the £5.5m total receivable due. £1.4m of the total impairment loss of £4.4m has been allocated to the 61-90 days overdue ageing bucket and
£3.0m to the 91-120 days overdue ageing bucket.
If the Company had considered 40% of the total balance of £5.5m to be recoverable in line with the upper range of the administrators estimate,
the provision recognised would have been £3.3m, £1.0m allocated to the 61-90 days overdue ageing bucket and £2.3m to the 91-120 days overdue
ageing bucket.
S G F 159
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
Smiths News plc
Annual Report and Accounts 2022
15. Trade and other receivables continued
Trade receivables
The average credit period taken on sale is 23 days (2021: 22 days). Trade receivables are generally non-interest bearing.
The following table provides information about the Group’s exposure to credit risk and ECLs against customer balances as at 27 August 2022 under
IFRS 9:
£m
2022
Gross
carrying
amount
2021
Loss
allowance
Net
carrying
amount
Gross
carrying
amount
Specific
provision
for doubtful
debts
Loss
allowance
Net
carrying
amount
Current (not overdue)
63.0
–
(0.1)
62.9
63.9
(0.1)
63.8
30
-60 days overdue
0.2
–
–
0.2
1.9
–
1.9
61
-90 days overdue
2.0
(1.4)
–
0.6
–
–
–
91-120 days overdue
3.8
(3.0)
–
0.8
–
–
–
Over
120 days overdue
–
–
–
–
–
–
–
69.0
(4.4)
(0.1)
64.5
65.8 (0.1) 65.7
The following table provides information about the Group’s loss rates applied against customer balances as at 27 August 2022 under IFRS 9:
%
2022
2021
Current
(not overdue)
0.1
0.1
30
-60 days overdue
–
–
61-90 days overdue
1.2
0.9
91
-120 days overdue
0.1
11.4
Over
120 days overdue
0.1 15.5
Of the trade receivables balance at the end of the year:
•
Two customers (2021: one) had individual balances that represented more than 10% of the total trade receivables balance. The total of these was
£16.9m (2021: £9.7m); and
•
A further three customers (2021: five) had individual balances that represented more than 5% of the total trade receivables balance. The total of
these was £15.6m (2021: £24.2m).
Movement in the allowance for doubtful debts:
£m
2022
2021
At 29/30 August
0.1
0.4
Impairment
losses recognised
4.4
(0.2)
Amounts
written off as uncollectible
–
0.1
Amounts recovered during the year
–
(0.2)
Disposal of
business
–
–
At 27/28
August
4.5
0.1
The directors consider that the carrying amount of trade and other receivables approximates their fair value which is considered to be a level 2
methodology of valuing them. The inputs used to measure fair value are categorised into different levels of the fair value hierarchy (levels 1 to 3). The fair
value measurement is categorised in its entirety in the level of the lowest level input that is significant to the entire measurement.
Default occurs when the debt becomes overdue by 90 days.
The Group performed sensitivity analysis on the expected credit loss (excluding the McColls Retail Group net impairment loss) and should the default
rate change from expected.
•
An increase in default rate by 2% would increase the expected credit loss by £1.2m; and
•
A decrease in default rate by 2% would result in no credit losses.
•
An increase in default rate by 5% would increase the expected credit loss by £3.1m; and
•
A decrease in default rate would result in no credit losses.
160 F
Smiths News plc
Annual Report and Accounts 2022
15.
Trade and other receivables continued
Other debtors and prepayments
The largest items included within this balance are returns reserve asset of £18.3m (2021: £18.5m) (refer to Note 1 Accounting Policies, section 7) and
£7.9m (2021: £6.5m) of publisher debtors.
Non-Current – other receivables
£m
2022
2020
Deferred
consideration
2
Loans
receivable
–
–
2.3
–
–
2.3
2.
Tuffnells Deferred Consideration
Previously included within other receivables were deferred consideration amounts relating to the disposal of the Tuffnells business unit on 2 May 2020.
The original unsecured consideration payable by Tuffnells Holdings Limited to the Group was £15.0m, payable in three tranches as follows:
•
£6.5m on the date 18 months following Completion;
•
£4.25m on or prior to the date 27 months following Completion; and
•
£4.25m on or prior to the date 36 months following Completion.
The first tranche of the unsecured consideration (£6.5m) was paid on 2 November 2021. Following this payment, Tuffnells Holdings Limited (formerly
Palm Bidco Limited (“THL”)) approached the Company regarding the outstanding deferred consideration due of £8.5m. Mindful of the current macro-
economic climate and to extinguish any further liability or outstanding arrangements with THL, the Board agreed revised terms such that the Company
would accept £7.5m in full and final settlement of the outstanding deferred consideration due. This amount was received in full during the current
financial period. Previously, the Company had discounted the total consideration due at 30% and recognised £7.1m on Completion. At 28 August 2021,
the Company recognised total discounted deferred consideration of £11.5m (£2.3m non-current and £9.2m current). On settlement of the outstanding
deferred consideration, £2.5m has been recognised in adjusted items, representing the effect of unwinding the total discount of £3.5m, less the £1.0m
agreed reduction in settlement of the remaining deferred consideration. See Note 4 for further details.
16.
Trade and other payables
£m
2022
2021
Trade payables
(98.6)
(94.9)
Other creditors
(35.1)
(33.8)
Accruals
(6.5)
(7.4)
Deferred
income
(0.1)
(0.4)
(140.3)
(136.5)
Included within other creditors is a balance of £21.6m (2021: £21.7m), relating to the returns reserve accrual. (Refer to Note 1 Accounting Policies,
section 7).
Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade
purchases is 31 days (2021: 27 days). No interest is charged on trade payables. The directors consider that the carrying amount of trade and other
payables approximates to their fair value using a level 2 valuation.
S G F 161
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
17.
Cash and borrowings
Cash and borrowings by currency (Sterling equivalent) are as follows:
Smiths News plc
Annual Report and Accounts 2022
£m
Sterling
Euro
US
Dollar
Other
Total
2022
2021
Cash
and bank deposits
34.1 0.6 0.4 0.2
35.3
19.7
Overdrafts
– included in cash and cash equivalents
–
–
–
–
–
(0.4)
Net
Cash and cash equivalents
34.1 0.6 0.4 0.2 35.3 19.3
Overdrafts
– included in borrowings
–
–
–
–
–
–
Revolving
credit facility – disclosed within current liabilities
–
–
–
–
–
–
Term loan – disclosed within current liabilities
(8.0)
–
–
–
(8.0)
(21.2)
Term
loan – disclosed within non-current liabilities (41.5)
–
–
–
(41.5)
(51.3)
Unamortised arrangement fees – disclosed within non-
current liabilities
2.4
–
–
–
2.4
1.2
Total borrowings
(47.1)
–
–
–
(47.1)
(71.3)
Net borrowings
Total borrowings
(13.0) 0.6 0.4 0.2
(11.8)
(52.0)
Amount due for settlement within 12 months
(8)
–
–
–
(8)
(21.2)
Amount
due for settlement after 12 months (39.1)
–
–
–
(39.1)
(50.1)
(47.1)
–
–
–
(47.1)
(71.3)
Cash and bank deposits comprise cash held by the Company and short-term bank deposits with an original maturity of three months or less. The
carrying amount of these assets approximates their fair value.
In December 2021, an agreement was signed to extend and amend the existing financing arrangements. The original facility which was due to expire in
November 2023 has been extended to August 2025. The new facility comprises an initial £60 million amortising term loan (‘Facility A’) and a £30 million
revolving credit facility (‘RCF’). Facility A is also repayable from any proceeds received from the deferred consideration as part of the sale of Tuffnells,
and any disposal proceeds. The agreement is with a syndicate of banks, comprising lenders HSBC, Barclays, Santander and Clydesdale Banks. The
final maturity date of the facility is 31 August 2025.
The terms of the facility agreement include: agreed repayments against Facility A arising from funds received in relation to deferred consideration
received following the sale of Tuffnells and any disposal proceeds, plus £8m in FY2023, and then £10m in FY2024 and FY2025 respectively for the
repayment of Facility A and a final bullet payment; and capped dividend payments of up to £10m in respect of any financial year. At the year end, the
Term Loan had reduced to £49.5m. The RCF, which remained £30m at year end, will reduce by £5m in November 2022 and then by £2.5m every six
months from February 2023 onwards. As part of the terms of the financing, the Company and its principal trading subsidiaries have agreed to provide
security over their assets to the lenders.
The current r
ate on the facility is 4.00% per annum over SONIA (in respect of Facility A and the RCF).
At 27 August 2022, the Company had £30.0m (28 August 2021: £40.0m) of undrawn committed borrowing and cash facilities in respect of which all
conditions precedent had been met.
Reconciliation of liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising
from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s consolidated statement of cash flows
as cash flows from financing activities.
£m
Note
29 August
2021
Financing
cash flows
New
leases
Disposals
Other
changes
27 August
2022
Term
Loan
18
71.3 (29.4)
–
–
5.2 47.1
Revolving
credit facility
18
–
–
–
–
–
–
Overdrafts
18
0.4 (0.4)
–
–
–
–
Leases
29.2 (8.0) 5.4 (0.6) 1.6 27.6
Total
100.9
(37.8)
5.4
(0.6)
6.8
74.7
162 F
Smiths News plc
Annual Report and Accounts 2022
17.
Cash and borrowings continued
Reconciliation of liabilities arising from financing activities continued
29 August
Financing
Other
28 August
£m
Note
2020
cash flows
New
leases
Disposals
changes
2021
Term
loan*
18
49.8 21.5
–
–
–
71.3
Revolving credit facility
18
39.0
(39.0)
–
–
–
–
Overdrafts
18
41.3 (40.9)
–
–
–
0.4
Leases
33.4 (5.9)
–
–
1.7 29.2
Total
163.5
(64.3)
–
–
1.7
100.9
* The opening term loan liabilities have been amended to include the associated loan arrangement fees.
Other changes include interest accruals, payments.
Analysis of net debt
£m
Note
2022
2021
Cash
and cash equivalents
18
35.3 19.3
Current borrowings
18
(8.0)
(21.2)
Non
-current borrowings
18
(39.1)
(50.1)
Net
borrowings
(11.8)
(52.0)
Lease liabilities 20
(27.6)
(29.2)
Net debt
(39.4)
(81.2)
18.
Financial instruments
Treasury policy
The Group operates a centralised treasury function to manage the Group’s funding requirements and financial risks in line with the Board approved
treasury policies and procedures and their delegated authorities. Treasury’s role is to ensure that appropriate financing is available for running the
businesses of the Group on a day-to-day basis, whilst minimising interest cost. No transactions of a speculative nature are undertaken. Dealings are
restricted to those banks with suitable credit ratings and counterparty risk and credit exposure is monitored frequently.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to
stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the
borrowings, cash and cash equivalents as disclosed in Note 19 and equity attributable to equity holders of the parent, comprising issued capital,
reserves and retained earnings as disclosed in the Group Statement of Changes in Equity.
The only externally imposed capital requirements for the Group are debt to EBITDA, fixed charge cover and interest cover under the terms of the bank
facilities. The Group has fully complied during both the current year and the prior year. To maintain or adjust its capital structure, the Group may adjust
the dividend payment to shareholders and/or issue new shares. There is a future cap on dividends of £10.0m under the new banking facility, this is also
subject to all the covenants.
The Board regularly reviews the capital structure. As part of this review, the Board considers the cost of capital and the risks associated with each class
of capital. We expect free cash from operations to be sufficient to reduce net debt while also maintaining an attractive total shareholder return. The
Group is targeting a reduced net debt/EBITDA (ex. IFRS 16) ratio of 1 x by 2023, with repayment achieved through surplus free cash from operations.
The Group’s facilities include a frozen GAAP clause in relation to IAS17 and the net debt/EBITDA is stated on this basis.
S G F 163
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
Smiths News plc
Annual Report and Accounts 2022
18.
Financial instruments continued
Liquidity risk
The Group manages liquidity risk by maintaining adequate reserves and banking facilities and by monitoring forecast and actual cash flows.
The facilities that the Group has at its disposal to further reduced liquidity risk are described below.
As at 27 August 2022, the Group had £79.5m committed bank facilities in place (2021: £112.5m). Bank facilities comprised:
•
£49.5 million amortising term loan (Facility A); and
•
£30 million revolving credit facility (RCF)
which together expire in August 2025.
The facility described above is subject to the following covenants which are subject to a frozen GAAP clause:
•
Leverage cover – the net debt: adjusted EBITDA ratio which must remain below 2.00x, reducing 0.25x annually to 1.5x at 24 February 2024.
At 27 August 2022, the ratio was 0.3x (2021: 1.2x);
•
Interest cover – the consolidated net interest: adjusted EBITDA ratio which must remain above 4.0x. As at 27 August 2022, the ratio was 12.0x
(2021: 8.5x);
•
Fixed charge cover – the ratio of adjusted EBITDA to consolidated fixed charges is not less than 1.75x to 1. As at 27 August 2022, the ratio was 4.3x
(2021: 4.0x); and
•
Guarantor cover – The annual turnover, gross assets and pre-tax profits of the Guarantors contribute at any time 80% or more of the annual
consolidated turnover, gross assets and pre-tax profits of the Group for each of its financial years. The guarantors, which are all 100% owned or
wholly owned subsidiaries of the Smiths News plc (formerly Connect Group PLC), are each of Smiths News plc, Smiths News Holdings Limited,
and Smiths News Trading Limited.
At 27 August 2022, the Group had available £27.7m (2021: £35.1m) of undrawn committed borrowing facilities. There were no breaches of loan
agreements during either the current or prior years.
As the Group is cash generative its liquidity risk is considered low. The Group’s cash generation allows it to meet all loan commitments as they fall due,
as well as sustain a negative working capital position.
The Group i
nvests significant resources in the forecasting and management of its cash flows. This is critical given a routine cash cycle at Smiths News
that results in significant predictable swings within each month of around £40.0m, the Group’s average gross borrowings for the past year was £62.3m
(2021: £94.5m). The Group has utilised the Revolving Credit Facility of £30.0m for this.
The following is an analysis of the undiscounted contractual cash flows payable under financial liabilities and derivatives. The undiscounted cash flows
will differ from both the carrying value and fair value. Floating rate interest is estimated using the prevailing rate at the balance sheet date.
£m
Due
within
1 year
Due
between
1 and
2 years
Due
between
2 and
3 years
Greater
than
3 years
At
27 August 2022
Non derivative financial liabilities
Bank
and other borrowings
(8.0) (10.0) (10.0) (21.5)
Trade and other payables
(140.3)
–
–
–
Leases
(7.3) (5.8) (4.8) (14.5)
Total
(155.6)
(15.8)
(14.8)
(36.0)
At
28 August 2021
Non derivative financial liabilities
Bank
and other borrowings
(21.3) (23.5) (27.8)
–
Trade and other payables
(136.5)
–
–
–
Leases
(5.9) (5.7) (4.4) (13.1)
Total
(163.7)
(29.2)
(32.2)
(13.1)
164 F
Smiths News plc
Annual Report and Accounts 2022
18.
Financial instruments continued
Counterparty risk
Dealings are restricted to those banks with suitable credit ratings and counterparty risk and credit exposure is monitored.
Foreign currency risk
•
The majority of the Group’s transactions are carried out in the functional currencies of its operations, and so transactional exposure is limited.
•
The majority of the Group’s net liabilities are held in Sterling, with only £0.6m (2021: £0.7m) of net assets held in overseas currencies. Translation
exposure arises on the re-translation of overseas subsidiaries profits and net assets into sterling for financial reporting purposes, and is not seen
as significant.
•
Note 17 denotes borrowings by currency.
•
There are no material currency exposures to disclose.
Interest rate risk
The Group monitors its exposure to interest rate in light of the Group’s debt exposure, consideration of the macroeconomic environment and sensitivity
to potential interest rate rises. The Group avoids the use of derivatives or other financial instruments in circumstances when the outcome would
effectively be largely dependent upon speculation on future rate movements.
Interest rate sensitivity analysis
Based on the assumption that the liabilities outstanding at the balance sheet date were outstanding for the whole year, if interest rates had been
0.5% higher/lower and all other variables were held constant, the Group’s profit and equity for the 52 weeks ending 27 August 2022 would decrease/
increase by £0.2m (2021: £0.4m).
Credit risk
The Group considers its exposure to credit risk at 27 August 2022 to be as follows:
£m
2022
2021
Bank deposits
Deferred
consideration
Trade and other receivables
35.3
–
93.1
19.3
11.5
94.8
128.4
125.6
Further detail on the Group’s policy relating to trade receivables and other receivables can be found in Note 15.
S G F 165
/
Notes to the Accounts
continued
Smiths News plc
Annual Report and Accounts 2022
For the
52-week
period ended
27
August 2022
19.
Leases
Amounts recognised in the Right-of-use assets
The balance sheet shows the following amounts relating to leases:
Equipment
Land and
£m
and vehicles
buildings
Total
Cost:
At
29 August 2021
1.6 38.6 40.2
Additions
0.1
5.3
5.4
Disposals
–
(1.8) (1.8)
At
27 August 2022 1.7 42.1 43.8
Accumulated depreciation:
At
29 August 2021
(0.6) (11.2) (11.8)
Depreciation
charge (0.4) (6.5) (6.9)
Disposals
–
1.2 1.2
At 27 August 2022
(1.0)
(16.5)
(17.5)
Net book value at 27 August 2022
0.7
25.6
26.3
Cost:
At
30 August 2020
1.8 36.9 38.7
Additions
–
2.8 2.8
Disposals
(0.2) (1.1) (1.3)
At 28 August 2021
1.6
38.6
40.2
Accumulated
depreciation:
At
30 August 2020
(0.4) (5.5) (5.9)
Depreciation
charge (0.4) (6.0) (6.4)
Disposals
0.2 0.3 0.5
At 28 August 2021
(0.6)
(11.2)
(11.8)
Net book value at 28 August 2021
1.0
27.4
28.4
Lease commitments
The company have the following lease commitments:
2022
2021
Due
within one year
Due in more than one year, but no more than five years
Due in more than five years
5.9
15.2
6.5
5.9
16.6
6.7
Total lease commitments
27.6
29.2
Amounts recognised in the income statement
£m
2022
2021
Continuing operations
Interest
expense (included in finance cost)
1.6
1.6
Expense relating to low value leases (included in cost of sales and administrative expenses)
0.3
(0.1)
Property
rental income
(0.4)
0.3
Total
cash outflow from leases
6.6
6.2
£m
2022
2021
Lease Liabilities
Current
Non
-current
(5.9)
(21.7)
(5.9)
(23.3)
Total
(27.6)
(29.2)
166 F
Smiths News plc
Annual Report and Accounts 2022
20. Deferred tax
Deferred tax assets and liabilities are attributable to the following:
£m
Fixed
assets
Share-based
payments
Retirement
benefits
Total
At 30 August 2021
1.4
0.4
–
1.8
(Charge)/credit
to income (0.8)
0.3
–
(0.5)
Charge
to equity
–
(0.2)
–
(0.2)
At 27 August 2022
0.6
0.5
–
1.1
Deferred
tax assets 0.6 0.5
–
1.1
Deferred
tax liabilities
–
–
–
–
At 29 August 2020
0.7
0.1
–
0.8
Credit
to income 0.7 0.1
–
0.8
Credit
to other comprehensive income
–
0.2
–
0.2
At 28 August 2021
1.4
0.4
–
1.8
Deferred tax assets
1.4
0.4
–
1.8
Deferred
tax liabilities
–
–
–
–
The deferred tax assets have been deemed recoverable as the Group forecasts that it will continue to make profits against which the assets can be
utilised for tax purposes.
The Group has capital losses carried forward of £20.2m (2021: £20.2m). Deferred tax assets of £5.1m (2021: £3.8m) have not been recognised in
respect of the capital losses carried forward due to the uncertainty of their utilisation.
The UK Finance Act 2021 has been substantively enacted, increasing the corporate tax rate to 25% effective from 1 April 2023.
The deferred tax asset at the period end has been calculated based on the rate of 25%, substantively enacted at the balance sheet date on the basis
that the temporary differences are expected to unwind when that rate applies.
21.
Provisions
Provision
for onerous
contracts
Re-
Insurance
£m
and other
provisions
organisation
provisions
and legal
provision
Property
provisions
Total
At 29 August 2021
(0.7)
(0.8)
(1.3)
(3.8)
(6.6)
Charged
to income statement
–
(0.1)
–
(1.0) (1.1)
Credited
to income statement 0.2
–
0.2
–
0.4
Utilised
in period
–
–
0.5 0.6 1.1
Unwinding
of discount utilisation
–
–
–
(0.2) (0.2)
At
27 August 2022
(0.5)
(0.9)
(0.6)
(4.4)
(6.4)
At 30 August 2020
(0.9)
(2.7)
(1.8)
(3.9)
(9.3)
Charged
to income statement
–
(0.5) (0.6) (0.2) (1.3)
Credited
to income statement
–
0.3
–
–
0.3
Utilised
in period 0.2 2.1 1.1 0.5 3.9
Unwinding
of discount utilisation
–
–
–
(0.2) (0.2)
At 28 August 2021
(0.7)
(0.8)
(1.3)
(3.8)
(6.6)
£m
2022
2021
Included within current liabilities
(3.0)
(3.6)
Included
within non-current liabilities
(3.4)
(3.0)
Total
(6.4)
(6.6)
S G F 167
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
Smiths News plc
Annual Report and Accounts 2022
21.
Provisions continued
Included within non-current liabilities is £3.4m (2021: £3.0m) relating to real estate property provisions.
Re-organisation provisions of £0.9m (2021: £0.8m) relates to the restructure of the DMD business, the Smiths News network and the Group’s support
functions, this was all announced in the prior year.
Insurance & legal provisions represent the expected future costs of employer’s liability, public liability, motor accident claims and legal claims, included
within the total balance is £0.6m (2021: £1.0m) relating to claims from the Tuffnells business prior to disposal.
The property provision represents the estimated future cost of the Group’s onerous leases on non-trading properties and for potential dilapidation costs
across the Group. These provisions have been discounted to present value, and this discount will be unwound over the life of the leases. The provisions
cover the period to 2036, however, a significant portion of the liability falls within ten years.
The Group has performed sensitivity analysis on property provision using possible scenarios below:
If the discount rate changes by +/- 0.5%, the property provision would change by +/-£0.1m (2021: +/-£0.1m).
If the repair cost per square foot changes by +/- £1.00p, the property provision would change by +/-£0.3m (2021: +/- £0.9m).
22.
Contingent liabilities and capital commitments
£m
2022
2021
Bank
and other guarantees
2.4
4.9
Other potential liabilities that could crystallise are in respect of previous assignments of leases where the liability could revert to the Group if the
lessee defaulted. Pursuant to the terms of the Demerger Agreement from WH Smith PLC, any such contingent liability in respect of assignment prior
to demerger, which becomes an actual liability, will be apportioned between Smiths News plc and WH Smith PLC in the ratio 35:65 (provided that
the actual liability of Smiths News plc in any 12-month period does not exceed £5m). The
C
ompan
y
’
s
share of these leases has an estimated future
cumulative gross rental commitment at 27 August 2022 of £0.5m (2021: £0.5m).
Contracts placed for future capital expenditure approved by the directors but not provided for amount to: £nil (2021: £0.2m).
As at 27 August 2022, the Group had approved letters of credit of £2.4m (2021: £4.9m) to the insurers of the Group for the motor insurance and
employer liability insurance policies. The letters of credit cover the employer deductible element of the insurance policy for insurance claims.
On winding up of the News Section of the Trust defined benefit pension scheme, the Company has agreed run-off indemnity coverage for any member
claims that are uninsured liabilities capped at £6.5m over the next 60 years.
23.
Operating lease
The Group as lessor:
At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:
£m
2022
2021
Within
one year
In the second to fifth years inclusive
More than five years
0.2
0.3
–
0.2
0.5
–
0.5
0.7
168 F
Smiths News plc
Annual Report and Accounts 2022
24.
Net cash inflow from operating activities
£m Note
2022
2021
Operating
profit – continuing 3
Operating
profit/(loss) – discontinued 3
32.4
–
35.8
(0.2)
Operating profit
– total
Profit on disposal of assets
Impairment
(reversal)/charge of investments in joint ventures 13
Share
of profits of joint ventures 13
Adjustment
for pension funding 6
Depreciation
of property, plant and equipment 12
Depreciation
of right of use assets 19
Amortisation
of intangible assets 11
Impairment
of assets 4
Share
-based payments
(Increase)/decrease
in inventories
Decrease in receivables
Increase/(decrease) in payables
(Decrease) in provisions
Non
-cash pension costs
Income
tax paid
32.4
–
(1.2)
(0.3)
8.1
2.3
6.9
1.3
–
1.2
(2.4)
1.7
3.9
(0.4)
1.6
(5.3)
35.6
(0.2)
1.6
0.2
–
2.4
6.4
1.9
0.1
1.0
0.7
5.4
(5.1)
(2.8)
0.5
(6.3)
Net cash inflow from operating activities
49.8
41.4
Net
cash flow from operating activities is stated after the following adjusted items:
Continuing
operations
Re
-organisation, Restructuring & Transformation programme planning costs
1
Pension
Return
of pension surplus
Other
strategic costs
(1.3)
(0.2)
8.1
–
(2.2)
(0.6)
–
(1.2)
Discontinued
operations
2
Re
-organisation & Restructuring costs
Strategic review
Sale
and leaseback
Insurance cost
VAT
refund
6.6
–
–
–
(0.5)
–
(4.0)
(0.1)
–
–
(1.1)
0.8
(0.5)
(0.4)
Total
adjusting items cash flow
6.1
(4.4)
1.
Included in the Re-organisation, Restructuring & Transformation programme planning costs adjusted cash flows in the prior period of £2.2m was £0.7m of Transformation programme planning costs.
2.
On 2 May 2020, the Company completed the sale of Tuffnells and assumed liability to settle certain pre-disposal insurance and legal claims relating to employer’s liability, public liability, motor
accident claims and legal claims, held as provisions. The Company continues to present the cash outflows from these provisions for comparative purposes.
S G F 169
/
247.7
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
25.
Share capital
(a) Share capital
Smiths News plc
Annual Report and Accounts 2022
£m
2022
2021
Issued, authorised and fully paid:
At 29/30
August
12.4
12.4
Shares
issued during the year
–
–
247.7m
Ordinary shares of 5p each (2021: 247.7m)
12.4
12.4
(b) Movement in share capital
Number (m)
Ordinary shares
of 5p each
29 August 2021 247.7
Shares issued during the year
–
At 27 August 2022
The holders of Ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the general
meetings of the Company. The Company has one class of Ordinary shares, which carry no right to fixed income.
No shares were issued during the 52 weeks to 27 August 2022 or the period to 28 August 2021.
(c) Share premium
£m
2022
2021
Balance
at 29/30 August
60.5 60.5
Balance at 27/28 August
60.5
60.5
26.
Reserves
(a) Demerger reserve
£m
2022
2021
At 29/30 August
(280.1)
(280.1)
At
27/28 August
(280.1)
(280.1)
This relates to reserves created following the capital re-organisation undertaken as part of the demerger of WH Smith PLC in 2006. The balance
represented the difference between the share capital and reserves of the Group restated on a pro-forma basis as at 31 August 2004 and the previously
reported share capital.
(b) Own shares reserve
£m
2022
2021
Balance at 29/30 August
(3.9)
(1.8)
Acquired
in the period
(2.2)
(2.7)
Disposed
of on exercise of options 1.5 0.6
Balance at 27/28 August
(4.6)
(3.9)
The reserve represents the cost of shares in Smiths News plc purchased in the market and held by the Smiths News Employee Benefit Trust, to satisfy
awards and options granted under the Group’s Executive Share Schemes (see Note 28). The number of ordinary shares held by the Trust as at 27
August 2022 was 12,084,239 (2021: 8,121,362). In accordance with IAS 32, these shares are deducted from shareholders’ funds. Under the terms of the
Trust, the Trustee has waived all dividends on the shares it holds.
(c) Translation reserve
£m
2022
2021
Balance
at 29/30 August
Exchange
differences on translating net assets of foreign operations
0.4
–
0.4
–
Balance at 27/28 August
0.4
0.4
170 F
Smiths News plc
Annual Report and Accounts 2022
27. Retained Earnings
£m
Balance at 30 August 2020
127.0
Amounts
recognised in Total comprehensive expense 26.8
Dividends
paid
(1.2)
Disposed of on exercise of options
(0.6)
Equity
-settled share-based payments, net of tax 1.0
Balance
at 28 August 2021 153.0
Amounts recognised in total comprehensive expense
33.1
Dividends
paid
(6.1)
Disposed
of on exercise of options (1.5)
Equity-settled share-based payments, net of tax
1.2
Current
tax recognised in equity (0.1)
Deferred
tax recognised in equity (0.2)
Balance at 27 August 2022
179.4
28.
Share-based payments
In 2022, the Group recognised a total charge of £1.2m related to equity-settled share-based payment transactions. In 2021, there was a total charge of
£1.0m. The average share price throughout the year was 35.6p (2021: 33.2p).
The Group operates the following share incentive schemes:
Sharesave Scheme
Under the terms of the Smiths News Group Sharesave Scheme, the Board may grant options to purchase
ordinary shares in the Company to eligible employees who enter into an HM Revenue & Customs approved
Save-As-You-Earn (‘SAYE’) savings contract for a term of three years. Options are granted at a 20% discount
to the market price of the shares on the day preceding the date of offer and are normally exercisable for a
period of six months after completion of the SAYE contract.
Executive Share Option
Scheme (ESOS)
Under the terms of the Smiths News Group Executive Share Option Scheme, the Board may grant options
to purchase ordinary shares in the Company to executives up to an annual limit of 200% of base salary. The
exercise of options is conditional on the achievement of adjusted profit after a three-year period, which is
determined by the Remuneration Committee at the time of grant. Provided that the target is met, options are
normally exercisable until the day preceding the 10th anniversary of the date of grant.
LTIP
Under the terms of the Smiths News Group LTIP, executive directors and key senior executives may be
awarded each year conditional entitlements to ordinary shares in the Company (which may be in the form
of nil cost options or conditional awards) or, in order to retain flexibility and at the
C
ompan
y
’
s
discretion, a
cash sum linked to the value of a notional award of shares up to a value of 200% of base salary. The vesting
of awards is subject to the satisfaction of a three-year performance condition, which is determined by the
Remuneration Committee at the time of grant. Subject to the satisfaction of the performance condition, awards
are normally exercisable until the 10th anniversary of the date of grant.
Deferred Bonus Plan (DBP)
Under the terms of the Smiths News Group Deferred Bonus Plan, each year executive directors and key senior
executives may be granted share awards (in the form of nil cost options) dependent on the achievement of the
Annual Bonus Plan performance targets. Awards are immediately exercisable but a two-year hold-back period
applies, during which the share certificate for such shares is held by the Company. Separately, key senior
executives may also be granted share awards (in the form of nil cost options) under the DBP plan in respect
of a (discounted) restricted share award (dependent on continued employment with the Company).
S G F 171
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
28. Share-based payments continued
Details of the options/awards are as follows:
Smiths News plc
Annual Report and Accounts 2022
Sharesave ESOS LTIP DBP
Number
of options/ awards
No of
shares
Weighted
average
exercise
price (p)
No of
shares
Weighted
average
exercise
price (p)
No of
shares
Weighted
average
exercise
price (p)
No of
shares
Weighted
average
exercise
price (p)
At 29 Aug 2020
8,252,887
34.2
1,785,833
126.7
10,967,034
–
1,464,611
–
Granted
2,122,030 43.64
–
–
4,350,408
–
1,541,268
–
Exercised
(59,495)
–
–
–
–
–
(938,854)
–
Expired/Forfeited
(1,927,785)
23.12
(62,621)
108.7
(1,389,340)
–
(41,481)
–
At
28 Aug 2021* 8,387,637 28.92
1,723,212 126.7
13,928,102
–
2,025,544
–
Granted
900,405 34.70
–
–
4,043,731
–
1,807,242
–
Exercised
(92,308)
–
–
(1,113,915)
–
(2,333,638)
–
Expired/Forfeited
(1,616,651) 35.80
(666,468) 137.8
(4,439,620)
–
–
–
At
27 Aug 2022
7,579,083
1,056,744
12,418,298
1,499,148
Exercisable at 27 Aug 2022
–
–
1,056,744
126.1
–
–
–
–
Exercisable at 28 Aug 2021
–
–
1,723,212
113.8
–
–
–
–
*
During the current period, the opening number of options for the Sharesave, LTIP and DBP schemes were restated to
The
weighted average remaining contractual life in years of options/awards is as follows:
amend
disclosure errors made in the prior
period.
Sharesave ESOS LTIP DBP
Outstanding
at 27 August 2022 1.9 5.2 1.2 1.5
Outstanding
at 28 August 2021
1.9 6.2 1.2 1.3
Details of the options/awards granted or commencing during the current and comparative year are as follows:
Sharesave ESOS LTIP DBP
During
2022:
Effective date of grant or commencement date
July 2022
–
Dec 2021
Dec 2020
Average
fair value at date of grant or scheme commencement – pence 4.3 – 26.0 38.0
During
2021:
Effective date of grant or commencement date
Jun 2020
–
Dec 2020
Dec 2020
Average
fair value at date of grant or scheme commencement – pence 19.7 – 25.0 35.0
The options outstanding at 27 August 2022 had exercise prices ranging from nil to 167.8p (2021: nil to 167.8p).
The weighted average share price on the date of exercise was 37p (2021: 39p).
The Sharesave options granted during each period have been valued using the Black-Scholes model, the LTIP performance measures include 70% total
shareholder return (TSR) metric, and this is valued by reference to the share price at date of grant less an adjustment for the TSR portion of the award.
The DBP schemes are valued by reference to the share price at the date of grant.
172 F
Smiths News plc
Annual Report and Accounts 2022
28. Share-based payments continued
The inputs to the Black-Scholes model are as follows:
Sharesave LTIP DBP
2022
options/awards:
Share
price at grant date – pence
34.7
38
38
TSR
adjustment – pence
–
(17)
–
Exercise price – pence
32.0
–
–
Expected
volatility – per cent 40.3
–
–
Expected
life – years
3
–
–
Risk free rate – per cent
1.7
–
–
Expected
dividend yield – per cent 8.37
–
–
Weighted
average fair value – pence 4.3
21
38
2021
options/awards:
Share
price at grant date – pence
44.0
30
30
TSR
adjustment – pence
–
(6.0)
–
Exercise price
– pence
35.0
–
–
Expected
volatility – per cent 97.0
–
–
Expected
life – years
3
–
–
Risk
free rate – per cent (0.1)
–
–
Expected
dividend yield – per cent
–
–
–
Weighted average fair value – pence
19.7
24.0
30
29.
Post balance sheet events
The directors have considered the period between the balance sheet date and the date when the accounts are authorised for issue for evidence of
conditions that existed at the balance sheet date, either adjusting or non-adjusting post balance sheet events, and have concluded that there are no
such events in the current period.
30.
Related party transactions
Transactions between businesses within the Group which are related parties have been eliminated on consolidation and are not disclosed in this note.
Transactions with the Group’s pension schemes are disclosed in Note 6.
Trading transactions
Sales to
related parties
Amounts owed
by related parties
£m
2022
2021
2022
2021
Joint ventures
0.4
0.4
0.1
0.1
Sales to related parties are for management fees, payment is due on the last day of the month following the date of invoice.
Non-trading transactions
Loans to related parties
£m
2022
2021
Joint ventures
0.1
0.2
The balance above is secured against the assets of Fresh on the Go Limited.
Tuffnells Deferred Consideration
On 2 November 2021, the Group received £6.5m (the first tranche) of the total amount of unsecured consideration due of £15m. Following receipt
of this payment, the Board agreed revised terms with Tuffnells Holdings Limited (formerly Palm Bidco Limited) regarding the outstanding deferred
consideration payable, such that it would accept £7.5m in full and final settlement of the outstanding amount due, were it received on or before
2 August 2022. This amount was received in full during the current financial period. The Chairman of Tuffnells Holdings Limited is also a non-executive
director of Smiths News plc.
S G F 173
/
Notes to the Accounts
continued
For the
52-week
period ended
27
August 2022
30. Related party transactions continued
Directors’ remuneration
Smiths News plc
Annual Report and Accounts 2022
£m
2022
2021
Salaries
0.9
0.9
Bonus
0.6 0.6
Non
-executive director fees
0.3
0.3
Post
-employment benefits
–
–
Termination
benefits
–
0.1
1.8
1.9
Information concerning directors’ remuneration, interest in shares and share options are included in the Directors’ Remuneration report in the Annual
Report.
There are 2 (2021: 2) directors to whom retirement benefits are accruing in respect of qualifying services under money purchase schemes.
Directors made gains on share options of £nil (2021: £nil).
Key management personnel (including directors)
The remuneration of the directors and the Executive Team, who are the key management personnel of the continuing Group, is set out below in
aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures.’
£m
2022
2021
Short
-term employee benefits
Termination benefits
Share-based payments
2.8
–
1.1
2.8
–
0.6
3.9
3.4
174 F
Smiths News plc
Annual Report and Accounts 2022
31.
Subsidiary and associated undertakings
Company
name/(number)
Share
Class
Group
% Company name/ (number)
Share
Class
Group
%
United Kingdom
Rowan House, Cherry Orchard North, Kembrey Park, Swindon SN2 8UH
Connect Limited 02008952
Ordinary Shares
100%
Martin-Lavell Limited 02654521 (*)
Ordinary Shares
100%
Connect
Logistics Limited 09172965
Ordinary Shares
100%
Pass My Parcel Limited 09172022
Ordinary
Shares
100%
Connect
News & Media Limited 08572634
Ordinary Shares
100%
Phantom Media Limited 03805661 (*)
Ordinary
Shares
100%
Connect
Parcel Freight Limited 09295023
Ordinary Shares
100%
Smiths News Holdings Limited 04236079
Ordinary
Shares
100%
Connect Parcels Limited 09172850
Ordinary Shares
100%
Smiths News Instore Limited 03364589
Ordinary Shares
100%
Connect
Services Limited 08522170
Ordinary Shares
100%
Smiths News Investments Limited (*)
06831284
Ordinary
Shares
100%
Connect
Specialist Distribution Group
Limited 08458801
Ordinary Shares
100%
Smiths News Distribution Limited
08506961
Ordinary
Shares
100%
Connect2U
Limited 03920619
Ordinary Shares
100%
Smiths News Trading Limited 00237811
Ordinary
Shares
100%
Dawson
Media Services Limited
06882722
Ordinary Shares
100%
Dawson Limited 03433262
Ordinary
Shares
100%
Dawson
Guarantee Company Limited
06882393
Ordinary Shares
100%
Dawson Media Direct Limited (*)
06882366
Ordinary
Shares
100%
Dawson
Holdings Ltd (*) 00034273
Ordinary Shares
100%
France
Dawson Media Direct SAS
450 101 340 RCS
Bobigny
Ordinary Shares
100%
11 rue Léopold Bellan, 75000 Paris, France
Spain
Dawson Media Direct Iberica SL
CIF
-B84692904
Ordinary Shares
100%
Calle Zurbano 76 Madrid 28010, Spain
Germany
Dawson
Media Direct GmbH
HRB 99445
Ordinary Shares
100%
Johannstr. 39 40476 Dusseldorf, Germany
Belgium
Dawson
Media Direct NV
474.114323
Ordinary Shares
99%
Priester Cuypersstraat 3 Brussel 1040, Belgium
Turkey
Dawson
Media Direct Anonim Sirketi
14449
-5
Ordinary Shares
100%
Park Plaza, No:14/24 Resitpasa Mahallesi Istanbul Turkey
Australia
Dawson
Media Direct Australia Pty Limited
615545545
Ordinary Shares
100%
C/O Grant Thornton Australia Level 17, 383 Kent Street,
Sydney NSW 2000, Australia
Hong
Kong
Dawson
Media Direct China Limited
1167911
Ordinary Shares
100%
Flat/Rm 5008 50/F, Central Plaza, 18 Harbour Road, Wanchai,
Hong Kong
Thailand
Dawson
Media Direct Co. Ltd
105558138385
Ordinary Shares
48.9%
87 M Thai Tower, All Seasons Place, 23rd Floor, Wittayu Road,
Lumpini Sub-District, Pathumwan District, Bangkok, Thailand
*
Audit exemption statement
For the 52 weeks ended 27 August 2022, the companies as indicated in the table by ‘(*)’ above were entitled to exemption from audit under section
479A of the Companies Act 2006 relating to subsidiary companies. As such, Smiths News plc (formerly Connect Group PLC) has provided a guarantee
against all debts and liabilities in these subsidiaries as at 27 August 2022. The members of these companies have not required them to obtain an audit
of their financial statements for the 52 weeks ended 27 August 2022.
S G F 175
/
Glossary
Smiths News plc
Annual Report and Accounts 2022
Glossary – Alternative performance measures
Introduction
In the reporting of financial information, the directors have adopted various APMs.
These measures are not defined by International Financial Reporting Standards (IFRS) and therefore may not be directly comparable with other
companies’ APMs, including those in the Group’s industry.
APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.
Purpose
The directors believe that these APMs assist in providing additional useful measures of the Group’s performance. They provide readers with additional
information on the performance of the business across periods which is consistent with how the business performance is planned by, and reported to,
the Board and the Executive Team.
Consequently, APMs are used by the directors and management for performance analysis, planning, reporting and incentive-setting purposes.
The key APMs that the Group has focused on and changes to APMs within the period can be found in Note 1.
APM
Closest
equivalent
IFRS
measure
Adjustments
to reconcile
to IFRS
measure
Note/page
reference for
reconciliation
Definition and purpose
Income Statement
Adjusted Items No direct equivalent
N/A
Note 4
Adjusting items of income or expenses are
excluded in arriving at Adjusted operating profit
to present a further measure of the Group’s
performance. Each of these items is considered
to be significant in nature and/or quantum, non-
recurring in nature and/or are considered to be
unrelated to the Group’s ordinary activities or
are consistent with items treated as adjusting in
prior periods. Excluding these items from profit
metrics provides readers with helpful additional
information on the performance of the business
across periods because it is consistent with how
the business performance is planned by, and
reported to, the Board and the Executive Team.
Adjusted
operating profit
Operating profit* Adjusted items
Income statement/
Note 4
Adjusted operating profit is defined as operating
profit from continuing operations, excluding the
impact of adjusting items (defined above). This is
the headline measure of the Group’s performance
and is a key management incentive metric.
Adjusted profit
before tax
Profit before tax
(PBT)
Adjusted items
Income statement/
Note 4
Adjusted profit before tax is defined as profit
before tax from continuing operations, excluding
the impact of adjusting items (defined above).
Adjusted profit
after tax
Profit after tax (PAT) Adjusted items
Income statement/
Note 4
Adjusted profit after tax is defined as profit after
tax from continuing operations, excluding the
impact of adjusting items (defined above).
Adjusted EBITDA
Operating profit*
Depreciation and
amortisation
Adjusted items
Page 178
This measure is based on business unit operating
profit from Continuing operations. It excludes
depreciation, amortisation and adjusting items.
This is the headline measure of the Group’s
performance and is a key management incentive
metric.
176 F
Smiths News plc
Annual Report and Accounts 2022
APM
Closest
equivalent
IFRS
measure
Adjustments
to reconcile
to IFRS
measure
Note/page
reference for
reconciliation
Definition and purpose
Adjusted
earnings per
share
Earnings per share
Adjusted items
Note 10
Adjusted earnings per share is defined
as continuing adjusted PBT, less taxation
attributable to adjusted PBT and including any
adjustment for minority interest to result in
adjusted PAT attributable to shareholders; divided
by the basic weighted average number of shares
in issue.
Cash flow Statement
Free cash flow
Net movement
in cash and cash
equivalents
Dividends,
acquisitions and
disposals,
Repayment of bank
loans,
EBT share purchases,
Pension deficit repair
payments
Page 178
Free cash flow is defined as cash flow excluding
the following: payment of the dividend,
acquisitions and disposals, the repayment
of bank loan principal amounts, EBT share
purchases and cash flows relating to pension
deficit repair. This measure reflects the cash
available to shareholders.
Free cash flow
(excluding
adjusting items)
Net movement
in cash and cash
equivalents
Dividends,
acquisitions and
disposals,
Repayment of bank
loans,
EBT share purchases,
Pension deficit repair
payments,
Adjusted items
Note 24
Free cash flow (excluding Adjusted items) is Free
cash flow adding back Adjusted cash costs.
Balance Sheet
Bank Net Debt
Borrowings less cash
Cash flow statement
Bank Net Debt is calculated as total debt less
cash and cash equivalents. Total debt includes
loans and borrowings, overdrafts and obligations
under finance leases as defined by IAS 17.
Net debt
Borrowings less cash
Cash flow statement
Net debt is calculated as total debt less cash and
cash equivalents. Total debt includes loans and
borrowings, overdrafts and obligations under
leases.
* Operating profit is presented on the Group income statement. It is not defined per IFRS, however, and is a generally accepted profit measure.
S G F 177
/
Glossary
continued
Smiths News plc
Annual Report and Accounts 2022
Reconciliation of free cash flow to net movement in cash and cash equivalents
A reconciliation between free cash flow and the net increase/(decrease) in cash and cash equivalents are shown below:
£m
2022
2021
Net
(decrease)/increase in cash & cash equivalents
Decrease
in borrowings and overdrafts
16.0
23.0
(31.3)
57.8
Movement in borrowings and cash
39.0
26.5
Dividend
paid
6.1
1.2
Working
capital loan to Tuffnells
–
(6.7)
Outflow for EBT shares
2.6
2.6
Continuing free cash flow
47.7
23.6
Discontinued
free cash flow
0.5
(0.4)
Total free cash flow
48.2
24.0
Continuing Adjusted EBITDA reconciliation
£m
2022
2021
Operating
profit
Adjusting
items
32.4
5.7
35.8
3.8
Adjusted operating profit
38.1
39.6
Depreciation
2.3
2.4
Amortisation
1.3
1.9
Right of use asset depreciation
6.9
6.4
Adjusted EBITDA
48.6
50.3
Operating
lease charges
(7.9)
(7.7)
Adjusted EBITDA (excluding IFRS 16)
40.7
42.6
Reconciliation of Bank net debt to reporting net debt
£m
2022
2021
Bank net debt
(14.2)
(53.2)
Unamortised
arrangement fees (Note 17)
2.4
1.2
IFRS
16 lease liabilities (Note 19)
(27.6)
(29.2)
Net debt (Note 17)
(39.4)
(81.2)
178 F
Smiths News plc
Annual Report and Accounts 2022
Company Balance Sheet
As
at
27
August
2022
£m Note
2022
2021
Fixed assets
Investments
in subsidiary undertakings 3
370.2
370.2
Current
assets
Cash
and bank deposits
–
0.1
–
0.1
Creditors:
amounts falling due within one year 4
(178.6)
(172.5)
Net
assets 191.6
197.8
Capital and reserves
Called up
share capital
5(a)
12.4
12.4
Share premium account
5(c)
60.5
60.5
Retained
earnings 6
118.7
124.9
Total shareholders’ funds
191.6
197.8
The result for the year was a loss of £0.1m (2021: £3.0m).
These accounts were approved by the directors on 8 November 2022.
Signed on behalf of the Board of Directors
Jonathan Bunting Paul Baker
Chief
Executive
Officer
Chief Financial Officer
Registered number – 05195191
S G F 179
/
Smiths News plc
Annual Report and Accounts 2022
Company Statement of Changes in Equity
For the 52 weeks ended 27 August 2022
£m
Note
Share
Capital
Share
Premium
Retained
earnings
Total
Balance at 29 August 2020
12.4
60.5
129.1
202.0
Loss
for the year and total comprehensive income
–
–
(3.0) (3.0)
Dividend
paid
–
–
(1.2) (1.2)
Balance at 28 August 2021
12.4
60.5
124.9
197.8
Loss
for the year and total comprehensive income
–
–
(0.1) (0.1)
Dividend
paid
–
–
(6.1) (6.1)
Balance at 27 August 2022
12.4
60.5
118.7
191.6
180 F
Smiths News plc
Annual Report and Accounts 2022
Notes to the Company Balance Sheet
1.
Accounting Policies
(a) Accounting convention
The separate financial statements of “the Company” are presented as required by the Companies Act 2006. The Company meets the definition of a
qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting Council. Accordingly, the financial statements
have therefore been prepared in accordance with FRS101 (Financial Reporting Standard 101) ‘Reduced Disclosure Framework’ as issued by the
Financial Reporting Council.
The Company has taken advantage of section 408 of the Companies Act 2006 not to present a profit and loss account and related notes.
The Company has taken advantage of the following disclosure exemptions under FRS 101:
•
the requirements of paragraphs 10(d), 10(f), 39(c) and 134-136 of IAS 1 Presentation of Financial Statements;
•
the requirements of IAS 7 Statement of Cash flows;
•
the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;
•
the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group,
provided that any subsidiary which is a party to the transaction is wholly owned by such a member;
•
the requirements of paragraphs 134(d)-134(f) and 135(c)-135(e) of IAS 36 Impairment of Assets;
•
Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details of the number and weighted average exercise prices of options, and how
the fair value of goods and services received was determined); and
•
IFRS 7, ‘Financial Instruments: Disclosures’
Where required, equivalent disclosures are given in the Group financial statements.
The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out in
Note 1 to the Group financial statements except as noted below.
Investments in subsidiaries, and associates are stated at cost less, where appropriate, provisions for impairment.
Critical accounting estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies
and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements
about the carrying value of assets and liabilities which are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis, and any revisions to them are recognised in the period in which they
are revised.
Estimated impairment of investments
Investments are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. When
a review for impairment is conducted, the recoverable amount is determined using value in use calculations. The value in use method requires the
Company to determine appropriate assumptions in relation to the cash flow projections over the three-year plan period (which is a key source of
estimation uncertainty), the terminal growth rate to be applied beyond this three-year period and the risk-adjusted post-tax discount rate used to
discount the assumed cash flows to present value. The assumption that cash flows continue into perpetuity is a source of significant estimation
uncertainty.
(b) Investment in subsidiary undertakings
Investments i
n subsidiary undertakings are individually valued at historical cost less provision for impairment in value.
(c) Financial liabilities and equities
Trade payables are measured at amortised cost.
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial assets and financial liabilities are recognised on the
C
ompan
y
’
s
balance sheet when the Company becomes a party to the contractual
provisions of the instrument.
(d) Taxation
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted
at the balance sheet date.
S G F 181
/
Smiths News plc
Annual Report and Accounts 2022
Notes to the Company Balance Sheet continued
2.
Result for the year
The Company has not presented its own profit and loss account as permitted by section 408 of the Companies Act 2006. The result for the year
attributable to shareholders, which is stated on an historical cost basis, was a loss of £0.1m (2021: loss of £3.0m). There were no other recognised gains
or losses. The dividend paid in the year is £6.1m (2021: £1.2m) (refer to Note 9 of the Group financial statements).
3.
Investments in subsidiary undertakings
£m
2022
2021
Net book value:
At 29/30 August
370.2
373.2
Impairment
charge
–
(3.0)
At
27/28 August 370.2 370.2
In the prior year, the Company impaired its Investment in subsidiary by £3m, bringing the carrying value to £370.2m and the cumulative impairment
provision to £292.7m. At the end of FY2022, the directors identified indicators both of impairment (due to an increase in the risk free rate and difference
when compared to the Group’s total market capitalisation) and of reversal of impairment (due to a lower net debt position for the Group and improved
outlook). Accordingly, they conducted an impairment review, based on the Group’s value in use, which included a sensitivity analysis on the key inputs,
including the discount rate and on scenarios which might affect the Group’s future cash flows.
In the value in use calculation, the impact of an increased discount rate was offset by improved profitability and an improved net debt position.
The sensitivity analyses showed a material range of outcomes were possible and highlighted a sensitivity to the discount rate (see table below).
The directors further considered whether there had been a significant change to the long-term value of the Group or its market since the prior year.
While the Group’s FY2022 result (£40.7m EBITDA ex-IFRS16) was ahead of modelled and market expectation (£39m); there was not currently evidence
that newspaper and magazine revenue decline had permanently rebased post Covid; and, with new ancillary revenues in their infancy, the Group had
not significantly diversified from its core newspaper and magazine wholesale activities.
As a result of impairment review, the directors concluded that it was not appropriate either to impair the investment further or to reverse previous
impairments. At 27 August 2022, the investment in subsidiary therefore remains £370.2m with a cumulative impairment provision of £292.7m.
The Company indirectly owns three cash-generating units (CGU): Smiths News Trading Limited (Smiths News), Dawson Media Direct Group (DMD)
and its joint venture investment in Rascal Solutions Limited. Each cash-generating unit was independently valued using value in use calculations; the
Company prepares cash flow forecasts derived from the most recent budgets and three-year plans. Cash flows beyond this three-year period are
extrapolated using a terminal growth rate based on management’s future expectations.
The future cash flows applied in the calculation reflect the Group’s current plan for Smiths News and its ancillary businesses. T
hese plans reflect the
updated trading position of the businesses post COVID-19, emerging inflationary cost pressures and the change in corporation tax rate from 19% to
25%, effective from 1 April 2023.
The key assumptions in the value in use calculations are the rates of revenue decline, level of cost mitigation to maintain margins, terminal growth rates
and the risk-adjusted post-tax discount rate. The post-tax discount rates are derived from a risk-adjusted weighted cost of capital, using an average
market participant capital structure the inputs of which include a UK risk free rate, risk premium, small company risk premium and a risk adjustment
(beta). The post-tax discount rate used is 11.1% (FY2021: 9.4%) for the primary Smiths News CGU. The pre-tax discount rate used for the Smiths News
CGU is 14.5% (FY2021: 12.7%).
The core newspaper and magazine market (and associated revenues) are in long-term structural decline and it is assumed that revenue is expected to
fall each year over the longer term. Any such decline in revenue is considered to be consistently within a historically tight range allowing management
to plan appropriate cost savings measures each year, to mitigate the impact of any fall in revenue such that profitability and cash flows are maintained
or impacted to a lesser extent by such declining revenues. As such, a terminal growth rate of 0% (FY2021: 0%) is used in the calculations.
As disclosed i
n the accounting policies (see Note 1), the cash flows used within the impairment model are based on assumptions which are sources
of estimation uncertainty and small movements in these assumptions could lead to a change in the impairment loss. Management has performed
sensitivity analysis on the key assumptions in the impairment model using reasonably possible changes in these key assumptions and in reference
to the
C
ompan
y
’
s
principal risks.
182 F
247.7
Smiths News plc
Annual Report and Accounts 2022
3.
Investments in subsidiary undertakings continued
Terminal
Growth
Rate
%
Post-Tax
Discount
Rate %
Headroom/
Impairment
£’m
Expected Case
0%
11.1%
0.0
+1% Discount
Rate
0%
12.1%
(17.8)
-
1% Discount Rate
0%
10.1%
21.3
+1% TGR
1%
11.1%
14.7
-
1% TGR
(1%)
11.1%
(12.2)
Scenario
1
0%
11.1%
(7.5)
Scenario 2
0%
11.1%
(8.6)
Scenario 1
– Assumes magazines revenue and gross margin are reduced by 3%
Scenario
2 – Assumes the Company growth targets are not achieved
4. Creditors: amounts falling due within one year
£m
2022
2021
Amounts
owed to Group companies
(178.6)
(172.5)
Amounts owed to Group companies are repayable on demand, unsecured, non-interest bearing and settled in cash.
5.
Share capital
(a) Share capital
£m
2022
2021
Issued and fully paid ordinary shares of 5p each
At 29/30 August
Shares
issued in the year
12.4
–
12.4
–
At
27/28 August 12.4 12.4
The holders of ordinary shares are entitled to receive dividends as declared from time-to-time and are entitled to one vote per share at the meetings
of the Company. The Company has one class of ordinary shares, which carry no right to fixed income.
(b) Movement in share capital
Number (m)
Ordinary shares
of 5p each
At 29 August 247.7
Issued in the year
–
At 27 August
(c) Share Premium
£m
2022
2021
Balance
at 29/30 August
Shares issued in the year
60.5
–
60.5
–
At 27/28 August
60.5
60.5
S G F 183
/
Smiths News plc
Annual Report and Accounts 2022
Notes to the Company Balance Sheet continued
6.
Reserves
£m
2022
Retained
earnings
Balance
at 29 August
Loss for the year
Dividend
paid
124.9
(0.1)
(6.1)
At 27 August
118.7
7.
Directors emoluments and employees
The Company employed 3 (2021: 3) non-executive directors. Smiths News Trading Limited, an indirect subsidiary, pays all remuneration without
recharge for all directors and the amounts are disclosed within the Director’s Remuneration report in the Group’s annual report.
184 F
Smiths News plc
Annual Report and Accounts 2022
Shareholder Information
Company Secretary and registered office
Stuart Marriner, Smiths News plc, Rowan House, Cherry Orchard North, Kembrey Park, Swindon, Wiltshire SN2 8UH.
Telephone 0845 128 8888.
Smiths News plc (formerly Connect Group PLC) is registered in England and Wales (company number 05195191).
Shareholder enquiries may be submitted to cosec@smithsnews.co.uk
General shareholder enquiries – Registrar
Enquiries relating to shareholders, such as the transfer of shares, change of name or address, lost share certificates or dividend cheques, should be
referred to the
C
ompan
y
’
s
registrar Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA (telephone 0371 384 2771
1
or from outside
the UK +44 (0) 121 415 7565). A textphone facility for shareholders with hearing difficulties is available by telephoning 0371 384 2255
1
.
In addition, Equiniti provides a range of shareholder information online at www.shareview.co.uk (to register for this service you will need your
shareholder reference number which can be found on the Proxy Form).
1. Lines are open from 8.30am to 5.30pm, Monday to Friday, excluding public holidays in England and Wales.
Company website
Smiths News plc’s Annual Reports and results announcements are available online at www.smithsnews.co.uk. The investor zone section of our website
provides a wide range of information about the Company, including Annual Reports, regulatory news releases, share price data, financial calendar and a
Shareholder Centre containing Annual General Meeting information and other useful shareholder information.
Annual Report and Financial Statements
This Annual Report and Financial Statements is published on our website and has only been sent to those shareholders who have asked for a copy.
Shareholders who have not requested a paper copy of the Annual Report and Financial Statements have been notified of its availability on the website.
Annual General Meeting
The 2023 Annual General Meeting will be held at Rowan House, Cherry Orchard North, Kembrey Park, Swindon, Wiltshire SN2 8UH on Tuesday 24
January 2023 at 11.30am.
The Notice of Annual General Meeting sets out the business to be transacted. Shareholders who wish to attend the meeting should detach the
Attendance Card from the Proxy Form that they are sent and present it at the registration desk on arrival at the Annual General Meeting.
The voting results of the 2023 Annual General Meeting will be accessible at www.smithsnews.co.uk shortly after the meeting.
A paper copy of the Annual Report and Financial Statements can be obtained by writing to the Company Secretary at the address listed above or you
can e-mail your request to investor.relations@smithsnews.co.uk.
Proxy Form
Shareholders unable to attend the Annual General Meeting should complete a Proxy Form. To be effective, it must be completed and lodged with the
C
ompan
y
’
s
Registrars, Equiniti, by not later than 11.30am on Friday 20 January 2023.
Electronic proxy voting
You may, if you wish, register the appointment of a proxy for the Annual General Meeting electronically, by logging onto the website www.sharevote.
co.uk. Full details of the procedure are given on the website. You will need to have your Proxy Form to hand when you log-on as it contains information
which will be required. CREST members may appoint a proxy electronically via the
C
ompan
y
’
s
Registrars, Equiniti (ID RA19). If you are an institutional
investor you may alternatively be able to appoint a proxy electronically via the Proxymity platform, a process which has been agreed by the Company
and approved by the Registrar. For further information regarding Proxymity, please go to www.proxymity.io.
Electronic proxy voting instructions must be
received by not later than 11.30am on Friday 20 January 2023.
Financial calendar (provisional dates)
Financial year end
27 August 2022
Results announced
9 November 2022
Annual Report published
16 December 2022
FY2022 Final Dividend Record Date
13 January 2023
Annual General Meeting
24 January 2023
FY2022 Final Dividend Payment Date
9 February 2023
Half-year end
25 February 2023
Interim results announced 3 May 2023
Financial year end
26 August 2023
Results announced
8 November 2023
For the dates of events in the second half of the financial calendar, please check the Smiths News plc website at www.smithsnews.co.uk nearer the
relevant time for further details, and to ensure that no changes have been made.
S G F 185
/
Shareholder
Information
continued
Smiths News plc
Annual Report and Accounts 2022
Share dealing service
The Company has arranged for Shareview Dealing, a telephone and internet share dealing service offered by Equiniti, to be made available to UK
shareholders wishing to buy or sell the
C
ompan
y
’
s
shares. For telephone dealing, you may call 03456 037 037 between 8.30am and 4.30pm, Monday
to Friday, and for internet dealing log on to www.shareview.co.uk/dealing. You will need your shareholder reference number shown on your share
certificate.
ShareGIFT
If you only have a small number of shares which are uneconomic to sell, you may wish to consider donating them to charity under ShareGIFT, a charity
share donation scheme administered by the Orr Mackintosh Foundation. A ShareGIFT transfer form may be obtained from Equiniti. Further information
about the scheme can be found on the ShareGIFT website at www.sharegift.org.
Warning to shareholders (‘boiler room’ scams)
In recent years, like other companies, we have become aware of a small number of investors who have received unsolicited calls or correspondence,
in some cases purporting to have been issued by us, concerning investment matters. These typically make claims of highly profitable opportunities
in UK or US investments which turn out to be worthless or simply do not exist. These approaches are usually made by unauthorised companies and
individuals, and are commonly known as ‘boiler room’ scams. Investors are advised to be wary of any unsolicited advice or offers to buy shares.
If it sounds too good to be true, it often is.
Please see the Financial Conduct Authority website (Protect yourself from scams | FCA) for more detailed information about this or similar activity.
Details of any share dealing facilities that the Company endorses will be included in Company mailings.
UK Capital Gains Tax (CGT)
Rights Issue 17 December 2014
Shareholders who acquired shares
For the purposes of calculating any chargeable gains or losses, any ordinary shares you acquired as a result of the Rights Issue (at a price of 102p
each) are treated as being acquired at the same time as your original holding of ordinary shares and the subscription cost added to the base cost of
your original holding.
Shareholders who sold or renounced their rights or who allowed their rights to lapse
If you sold any or all of your rights to subscribe for the ordinary shares provisionally allotted to you, or if you allowed your rights to lapse and received a
cash payment in respect of them, if the proceeds were ‘small’ as compared with the market value (on the date of sale or lapse) of your existing holding
of ordinary shares in respect of which the rights arose, you will not generally be treated as making a disposal for CGT purposes. Instead, the proceeds
received should be deducted from the base cost of your existing holding of ordinary shares. HMRC current practice is to regard a sum as ‘small’ for
these purposes where either: (i) the proceeds do not exceed 5% of the market value (at the date of sale or lapse) of the ordinary shares in respect of
which the rights arose; or (ii) the sum received is £3,000 or less, regardless of whether the 5% test is satisfied.
If the proceeds you received were not ‘small’ the sale is treated as a disposal and, in order to calculate any chargeable gains or losses, you need to
apportion the original base cost of your existing holding of ordinary shares between the sale proceeds and your existing holding of ordinary shares
in the ratio of the sale proceeds divided by the sale proceeds, plus the market value of your existing holding of ordinary shares (on the date of sale or
lapse). Further guidance can be found on the HMRC website:
www.gov.uk/capital-gai
ns-tax-share-reorganisation-takeover-or-merger.
Demerger 31 August 2006
Following the demerger of new WH Smith PLC on 31 August 2006, in order to calculate any chargeable gains or losses arising on the disposal of
shares after 31 August 2006, the original tax base cost of your old WH Smith PLC ordinary shares of 2
13/81p
(adjusted if you held your shares at
24 September 2004 and 22 May 1998, to take into account the capital reorganisations of 27 September 2004 and 26 May 1998 respectively (see
below)) will have to be apportioned between the shareholdings of ordinary shares of 5p in the Company and ordinary shares of 22
6/67p
(or 20p
if the disposal took place before 22 February 2008) in new WH Smith PLC in the ratio of 0.30415 and 0.69585 respectively.
Capital reorganisation 27 September 2004
If your shares result from a holding of old WH Smith PLC shares acquired on or before 24 September 2004, in order to calculate any chargeable
gains or losses arising on the disposal of shares after 24 September 2004, the original tax base cost of your old WH Smith PLC ordinary shares of
55
5/9p
(adjusted if you held your shares as at 22 May 1998 to take into account the capital reorganisation of 26 May 1998 (see below)) will have
to be apportioned between the shareholdings of ordinary shares of 2
13/81p
and ‘C’ shares resulting from the capital reorganisation.
The cost of your shareholding of ordinary shares of 2
13/81p
is calculated by multiplying the original base cost of your ordinary shares of 55
5/9p
(adjusted where necessary to take into account the capital reorganisation of 26 May 1998 referred to above) by 0.73979.
Capital reorganisation 26 May 1998
If your shares result from a holding of old WH Smith PLC shares acquired on or before 22 May 1998, in order to calculate any chargeable gains
or losses arising on the disposal of shares after 22 May 1998, the original tax base cost of your old WH Smith PLC ordinary shares of 50p will have
to be apportioned between the shareholdings of ordinary shares of 55 5/9p and redeemable ‘B’ shares resulting from the capital reorganisation.
The cost of your shareholding of ordinary shares of 55 5/9p is calculated by multiplying the original cost of your ordinary shares of 50p by 0.90714.
186 F
Smiths News plc
Annual Report and Accounts 2022
March 1982 values
If your shares result from a holding of old WH Smith PLC shares acquired on or before 31 March 1982, the tax base cost to be used in order to calculate
any chargeable gains or losses arising on the disposal of shares is the 31 March 1982 base values per share as follows:
Arising from an
original shareholding
of old WH Smith PLC
‘A’
ordinary
shares
‘B’ ordinary
shares
Ordinary
shares of 5p 26.93p 22.25p
WH
Smith PLC ordinary shares of 22 6/67p
61.62p 50.92p
If you have a complicated tax position, or are otherwise in doubt about your tax circumstances, or if you are subject to tax in a jurisdiction other than the
United Kingdom, you should consult your professional adviser.
Cautionary statement
This Annual Report contains certain forward-looking statements with respect to Smiths News plc’s financial condition, its results of operations
and businesses, strategy, plans, objectives and performance. Words such as ‘anticipates,’ ‘expects,’ ‘intends,’ ‘plans,’ ‘believes,’ ‘seeks,’ ‘estimates,’ ‘targets,’
‘may,’ ‘will,’ ‘continue,’ ‘project’ and similar expressions, as well as statements in the future tense and statements other than statements of historical
fact, identify forward-looking statements. These forward-looking statements are not guarantees of Smiths News plc’s future performance and relate
to events and depend on circumstances that may occur in the future and are therefore subject to risks, uncertainties and assumptions. There are a
number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking
statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of
contracts or licences; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and
taxations; industrial disputes; war and terrorism. These forward-looking statements speak only as at the date of this document and are qualified in their
entirety by the inherent risks and uncertainties surrounding future expectations. Unless otherwise required by applicable law, regulation or accounting
standard, Smiths News plc undertakes no responsibility to publicly update any of its forward-looking statements whether as a result of new information,
future developments or otherwise.
The information contained within this Annual Report may be deemed to constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 (as it forms part of the law of England and Wales by virtue of section 3 of the European Union (Withdrawal) Act 2018). Upon the
publication of this Annual Report, this inside information is now considered to be in the public domain.
S G F 187
/
Notes
Smiths News plc
Annual Report and Accounts 2022
188 F
This publication has been printed on GalerieArt Satin FSC®
certified paper from responsible sources. This ensures that there
is an audited chain of custody from the tree in the well-managed
forest through to the finished document in the printing factory.
Design and Production
www.carrkamasa.co.uk
0345 128 8888