## Delivering ## every y e a r , ## every day. Annual Report and Accounts 2022 Smiths News plc S Annual Report and Accounts 2022 ## Welcome to our 2022 Annual ## Report and Accounts ## Since 1792, Smiths ## News has been ## delivering the n a t i o n ’ s ## newspapers. ## 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. Smiths News plc S G F 01 Annual Report and Accounts 2022 Inside this report → ### Strategic Report Operating Profit £m Free Cash Flow £m 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 IFRS 16) £m Bank Net Debt £m 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 2022 10.8 Introduction 60 Governance Framework 62 Board of Directors 64 Corporate Governance Report 66 Audit Committee Report 80 Nominations Committee Report 90 ## 4.15p Directors’ Remuneration Report 94 2022 27.9 2022 4.15 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 Adjusted Earnings per Share p Statutory Profit Before Tax £m Dividend per Share p ### Strong headline results | Adjusted EBITDA Adjusted Profit Before Tax £m | | --- | | Adjusted (Excluding | | 10.8p £27.9m | ## £31.1m ## £38.1m £40.7m £48.2m £14.2m / 2021 2022 2022 2022 2022 2021 2021 2021 2021 2021 24.0 2022 2021 48.2 1.8 53.2 40.7 38.1 39.6 42.6 14.2 30.9 30.6 31.1 2021 1.65 Smiths News plc 02 S Annual Report and Accounts 2022 ## Our Business ## at a Glance ### Our network ## UK’s largest newspaper ## and magazine ## Smiths News plc is the ## wholesaler, with 55% ## market share. Operating Key ## seven days a week, we Hub ## supply approximately Spoke ## 24,000 retailers across What we do Our hub and spoke network ## England and Wales. Every day of the week, we deliver to Holding long-term contracts with all the thousands of communities across the UK, major UK publishers, we operate in defined operating in the tightest of timescales, territories across England and Wales. With Our business model is founded to ensure early morning distribution of strong coverage of the majority of major on excellence and expertise, with the nation’s newspapers and magazines. conurbations, our network amounts to 55% competitive advantage derived from Combining scale, technology and know- market share. a combination of service quality, scale how, we offer a comprehensive supply Newspapers are served by 36 depots, ranging efficiencies and added value. These chain solution, with unmatched service to from large, round-the-clock ‘super hubs’ to publishers and retailers. qualities underpin all our customer smaller overnight distribution centres. Supplies relationships, working to become Our market share and geographic coverage arrive in the early morning and are picked, packed provides us with a unique insight into the news and delivered within only a few hours. We collect an essential partner in their supply industry. We enhance this with complementary the previous day’s unsold newspapers with chains and business models, too. services that add value for customers and the daily deliveries. These are then scanned for embed our role in the supply chain. crediting and sorted for recycling. Publishers receive ‘net sales’ reports later in the day, allowing Our core market of newspapers and magazine for speedy and efficient allocation of supplies and distribution is characterised by: monitoring of demand patterns. • High-density, time-sensitive deliveries Magazines are packed and processed for • A fragmented customer base with wide delivery at four regional hubs. Supplies arrive variability in size and location during the day and are then shipped to the • The requirement to manage a complex spoke depots, ready for distribution with that and fast-moving product range night’s newspapers. Unsold magazine copies are collected and processed as soon as new • Additional services that include returns editions come on sale, providing publishers with processing, information management and an immediate overview of sales and demand demand forecasting across the retail network. This combination of customer and product fragmentation requires an industry specialist, delivering efficiencies and services that other distributors cannot match. Visit our new website on: www.corporate.smithsnews.co.uk Smiths News plc S G F 03 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 suppliers and publishers, corporate news distributor, of the business. With relatively predictable cash and travel points in the providing field-based supplying newspapers and flow, we seek to ensure the payment of regular and worldwide. merchandising and marketing, magazines to corporate and dividends without compromise to prudent supply chain auditing and public sector customers for financial management or the opportunity to invest in new opportunities for efficiency and growth. DMD is a specialist supplier Instore works with retailers, Martin Lavell is a leading ### Adjacent businesses of printed and digital media to airlines Our core news wholesale operation is enhanced by complementary UK businesses that leverage our knowledge, expertise and market leadership ## in the news industry. DMD Instore Martin Lavell / u b compliance solutions. the last 50 years. Smiths News plc 04 S Annual Report and Accounts 2022 ## A Letter from ## our Chairman David Blackwood Chairman ## Underlying ## performance has ## exceeded market ## expectations Adjusted profit before tax of £31.1m Meanwhile, the wider cost of ### Dear Shareholder is marginally ahead of last year living crisis is squeezing consumer I’m pleased to report that our It’s abundantly clear (FY2021: £30.9m) and Adjusted spending and threatening many underlying performance has earnings per share of 10.8p is flat on businesses across the country. exceeded market expectations and that the people of last year (FY2021: 10.8p). Adjusted met the key objectives we had set our business have an And yet, demand for newspapers Operating Profit was £38.1m, down | for the delivery of shareholder value. | | | and magazines has remained | | --- | --- | --- | --- | | | exceptional commitment | 3.8% (FY2021: £39.6m) and free | | | The goals we have so tirelessly | | | relatively strong, with overall | | | to the Company and its | cash flow was £48.2m (FY2021: | | | pursued – of service, efficiency, | | | revenue down by only 1.8%, | £24.0m). Statutory profit before tax prudent capital management and customers, taking pride representing an improvement on from continuing operations was growing shareholder returns – have in the difference they historic trends, albeit with the first £27.9m, down by 8.8% (FY2021: underpinned our results, helped in half benefiting from softer year-on- make every day. £30.6m), a consequence of our best no small part by a combination of year comparatives. A combination estimate provisioning of £4.4m, advance planning and an adaptive of cover price rises and improved to cover the expected bad debt response to tactical opportunities. margin mix from the sales of one- from the administration of McColl’s That this has been achieved shot magazines and stickers has Retail Group in May 2022. Bank against a background of continued further helped to mitigate the decline Net Debt of £14.2m (FY2021: economic, social and political in volumes. While the structural £53.2m) and average net debt of disruption speaks to the underlying decline in sales has certainly not £49.9m (FY2021: £82.6m) confirms strengths and characteristics of our gone away, the central point I believe the positive transformation in the business and its people. we should take from our markets strength of the Company’s balance over the last two years is that, sheet over the last three years. despite unprecedented pressures, In reviewing our performance, they remain large and relatively it’s particularly relevant, this year, predictable — qualities that go to the to consider the wider social and core of our business model. economic context of our markets Historically, that model has sought and trading. It may seem a long to make sustainable savings and time ago now, but as recently efficiencies to offset any reduction in as autumn 2021 we were still core sales. This year is no exception, emerging from COVID-19 but clearly, the impact of inflation restrictions and indeed had further has added further pressure to costs, setbacks to travel and work requiring ever closer management, patterns from the Omicron variant as well as a more adaptive in the winter – all of which had approach to compensating revenue a direct impact on our sales and For more information on topics opportunities. In many ways, our operations. The war in Ukraine, and covered in this letter, see the success in generating new revenues particularly its impact on fuel and appropriate chapters at the page is one of the most pleasing aspects energy inflation, has added to the numbers below. of this year’s performance. uncertainty just at the time we had → Our People 30 all hoped for some respite. → Sustainability 24 → Operational Review 20 → Financial Review 36 Smiths News plc S G F 05 Annual Report and Accounts 2022 Not only has the sum of these Together with our improved financial As always, we will pursue every tactical gains made a welcome and strength and ongoing commitment opportunity but be resolute in ongoing contribution to our profits, to service and the supply chain, I’m The Board also remains protecting our service and long- their scope has also surfaced a confident that we will make equally term capability. In parallel, we will committed to maintaining range of latent opportunities to constructive progress with other key continue to seek new revenue from a strong balance sheet, leverage our network and skill sets publishers in due course. opportunities that dovetail to our in the future. using positive free cash current operations and, ideally, add Last year, in my report to | | | flow to meet the needs | value to our role in the supply chain. | | --- | --- | --- | --- | | To pursue these, it’s vital that | shareholders, I reaffirmed the | | | | we enhance the culture and | Board’s commitment to the payment | of all stakeholders. | I’m confident that we will succeed. | | competencies of the business, | of regular dividends and the delivery | | Not least because it’s abundantly | | acquiring the new skills and fresh | of attractive returns. In December | | clear that the people of our business | | perspectives that will be needed. | 2021, after carefully considering our | | have an exceptional commitment | | This year, we have begun that | trading performance and progress | | to the Company and its customers, | | process in earnest, working to | to financial goals, we extended and | | taking pride in the difference they | | supplement existing talents and | amended our banking agreements, | | make every day. It is their efforts, in | | ensure greater diversity, not only | increasing the annual cap on | | going the extra mile, that has seen | | in gender and ethnicity, but also | dividends and distributions from | | us through a uniquely challenging | | in background and commercial | £6.0m to £10m. As a consequence, | | period, embracing change and, | | mindset. Integrating these talents | in May 2022, we announced an | | ultimately, emerging stronger. I am | | into our organisation is a priority | interim dividend of 1.4pence per | | grateful too for the support of my | | for the Board and Executive Team. | share, up by 180% on the reinstated | | colleagues on the Board and to our | | | dividend of 0.5pence per share | | excellent working relationship with | The refreshed approach to announced in June 2021. The Board CEO Jonathan Bunting and the sustainability, which we launched has recommended a further and Executive Team. in 2021, is a model we can learn final dividend of 2.75pence (FY2021: from. At its inception, we rightly set In closing this annual review, I’m 1.15pence), bringing the total ourselves a broad agenda, seeking mindful of the uncertainty that all dividend for the year to 4.15pence to investigate all opportunities for businesses are facing and conscious (FY2021: 1.65pence). Going forward, improvement. This year, without that progress should never be taken subject to performance, we remain compromise to our ambition, we for granted. Nonetheless, as I reflect committed to paying dividends have harnessed the insight and on all that’s been delivered, and the up to the cap, while financing the experience of our colleagues and transformation of our fortunes during investment needs of the business. | industry partners to focus those | | my tenure to date, I’m heartened by | | | --- | --- | --- | --- | | goals on objectives that will most | The Board also remains committed | our prospects and look forward with | | | positively impact the future of both | to maintaining a strong balance | confidence and conviction. | | | our business and the supply chains | sheet, using positive free cash | | | | in which we operate. I believe this | flow to meet the needs of all | | | | approach is to be commended, | stakeholders. This year, we passed | David | Blackwood | | showing a commitment to industry | the milestone of reducing Bank Net | Chairman | | | leadership and making a tangible | Debt (ex. IFRS16 leases) to below | | | 8 November 2022 | difference, while recognising that | 1X EBITDA, representing a reduction | | --- | --- | | we make the most progress by | of over 73% on FY2021. As a | | looking out as well as in. | consequence, the foundations of | our finances are materially stronger, Taking just such a proactive allowing for greater flexibility in our approach is one of the reasons that ambitions and investments as we in October 2022 we renewed three seek to build on the progress of the of our major publisher contracts, last three years. securing one third of our current | newspaper and magazine revenues | Looking ahead, the inflationary | | --- | --- | | through to 2029. These agreements | headwinds we anticipated last | | are critical to our business model, | year have not eased. This remains | | and though we have a long history | our most immediate challenge, | | of successful renewals founded on | compounded by the impact of rising | | deep relationships, we are never | p rices on consumer confidence. We | | complacent, and it is pleasing to | are, however, well placed to meet | | have made such a strong start to | the task of containing costs, with a | | the anticipated round of contract | wealth of experience in managing | | discussions. | our core operations tightly. | ## / Smiths News plc 06 S Annual Report and Accounts 2022 ## Strategy and ## Business Model ## 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 Value drivers Adaptive drivers Performance drivers ensure we deliver a high- Value drivers support the underlying trading Adaptive drivers explore new opportunities that quality service, distribution efficiencies and and financial characteristics of our model. These are rooted in our relationships, capabilities and added value to our suppliers and customers. include our long-term contracts, diversified strengths. We have worked hard to introduce Benefiting the supply chain as a whole, they income streams and predictable cash flows. a more agile approach that’s consistent with support a positive feedback loop which Managing our value drivers closely provides the our values and which leverages the skills and reinforces our long-term partnerships and necessary confidence to support investment in talents of our people. helps to renew future contracts. the other areas of our business model. Smiths News plc S G F 07 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 ## Operations and services have long-term relationships with all of the UK’s major publishers, | providing a shared route to market which adds further value | | As the UK’s largest newspaper | | --- | --- | --- | | through the provision of services that are complex and costly | | and magazine wholesaler, we visit | | | for others to replicate. | approximately 24,000 news outlets every | day, delivering their supplies in the tightest of time windows. Holding exclusive area Expertise Focus 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 Value Potential 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. ### → Read more about our drivers on the following page ## Delivering ## value ## l / Smiths News plc 08 S Annual Report and Accounts 2022 ## Strategy and Business ## Model continued ## 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 ### Performance drivers Network our specialist service, scale efficiencies and Outstanding service Our integrated network is core to the efficiency of the removal of complexity for our partners News wholesaling operates to uniquely operations. We continually evaluate opportunities across the supply chain. By working together challenging and ultra time-sensitive to configure and consolidate in ways that drive to explore value adding solutions, we move up performance metrics. Using scan-based efficiency and service improvements. With long- the value chain in a way that supports greater technology, we measure the entire product term contracts and defined geographic territories, returns for all. journey from arrival at our depots to delivery to we are able to plan ahead with confidence, Aligned to goals and strategy investing in facilities that keep our network at the the stores of our customers, and the return and Our goals and strategy are fully aligned to the recycling of unsold copies. Our focus on service leading edge of the industry. business model. Its performance and value excellence and stretching KPIs ensures that we 4 Leading technology drivers are critical to our core goals, while our meet publisher and retailer requirements across Our bespoke IT systems are critical for every adaptive approach to new opportunities helps the supply chain and, in doing so, minimise aspect of our operations, from the allocation close the loop between present performance waste and rectification costs. of supplies to the processing of returns and and future objectives. | 2 | Scale of efficiency | forecasting of product demand for the future. | | --- | --- | --- | | By consolidating deliveries in one shared | | Customer experience is similarly supported, | | service, our publishers and retailers benefit from | | with both online and call centre technology | | a uniquely efficient route to market. We plan | | that provides a comprehensive communication, | | routes for maximum efficiency within our delivery | | sales and invoicing platform. We are committed | | time windows, consolidating newspapers and | | to having the best technology to support our | | magazine supplies, and collecting unsold copies | | publishers and retailers, enabling a sharing of | | at the same time as deliveries. Our model is | | costs across the supply chain. | founded on continual efficiency improvement, Additional services and we have a strong track record of combining Our adjacent services add further value to service excellence with efficiency, to deliver publishers and retailers, embedding our role in regular cost savings that seek to offset the the supply chain. In addition to daily deliveries, we decline in core sales revenues. We also work with collect and process unsold copies, providing near supply chain partners to improve their efficiency; to real time sales and marketing data. Our unique examples include EPoS-based returns and sales- view across the entire product range is enhanced based replenishment for retailers and supply by intelligent information systems, enabling us forecasting with our publisher partners. 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. 1 6 2 7 3 8 4 9 5 10 l 1 3 5 Smiths News plc S G F 09 Annual Report and Accounts 2022 ### Value drivers ## Long term contracts different Our core strengths We have long term contracts with all the UK’s → national publishers and the majority of regional What makes us press in our territories. These provide the ## Market leadership high levels of cash flow certainty that support investment, while ’sharing’ the route to market With 55% market share, Smiths News is the market in a way that facilitates cost and process efficiencies. Our contracts provide the stability leader in newspaper and magazine wholesaling and surety of tenure that facilitate the pursuit and the benchmark of quality and innovation in of efficiencies and support investment in our the industry. Our specialised service is backed by network and technology. technology and added value extras that more generic 7 Predictable revenue streams distributors cannot replicate. 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, Logistics expertise we receive income from the recycling of unsold copies of magazines. We deliver in ultra-time sensitive windows, visiting With wide distribution coverage, our revenues around 24,000 outlets from small shops to major are spread across many publishers and retail supermarkets, every day of the week. As a result, our customers, and our total market coverage means last mile distribution is among the most dependable that while volumes often vary between titles, and far reaching of any UK logistics operation. overall sales are relatively predictable. Positive cash flow Our business model benefits from positive and ## Scale efficiency relatively predictable cash flow. The turnover of products is swift with minimal stock holding – supplies are received on a sale or return basis, Our network depots underpin scale efficiencies that are again limiting cash risk. The careful planning of the foundation of shared route to market for all the UK’s capital expenditure, together with our prudent major publishers. And in providing a category-wide approach to capital management, ensures the service for both deliveries and returns, we reduce cost consistent delivery of positive cash flow. and increase efficiency for retailers, too. Sustainable partnerships Our commitment to the long-term success of news wholesaling means we have deep and ## lasting partnerships with our suppliers and Service excellence customers. We believe in doing the right thing not only for our business but for the supply chain as The quality of our service is core to our offer. We a whole. By setting high standards, we improve operate to high standards of accuracy, tracking every our capability and encourage our partners to do step of the process and measuring performance to a likewise. We believe that by working responsibly granular level that drives continual improvement. 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. | | | Value | add | | --- | --- | --- | --- | | 10 | Agile development | | | | We strive to build incremental revenues and | | We offer a total marketing solution that encompasses, | | | respond swiftly to tactical opportunities in our | | among other services: demand forecasting and supply | | markets. In doing so, we have worked hard allocation, physical deliveries, returns collection and to introduce a more agile approach that’s recycling, invoicing and crediting, merchandising and consistent with our values and leverages the skills and talents of our people. Moving from promotion. These services not only add value to our ideation to test, review and adoption (or discard), partners they also enhance our role and discourage we are primarily focused on opportunities that disintermediation in the supply chain. are rooted in our relationships, capabilities and strengths. ## / 6 8 9 Smiths News plc 10 S Annual Report and Accounts 2022 ## Non-Financial Key ## Performance Indicators Non-financial KPIs reflect the core ### performance measures of Smiths Non-financial KPIs News and its service to customers Customer pack accuracy % Required delivery time % and industry partners. Additional measures include our attention to ## 99.7% 92.4% workplace safety, engagement and Target 98.0% Target 90.0% customer satisfaction. FY2022 actual 92.4% FY2021 actual 95.1% The Board has reviewed the non-financial KPIs, FY2020 actual 96.8% adjusting and increasing the range of measures, to ensure they encompass the primary needs FY2019 actual 95.8% of our stakeholders. Changes for non-financial | measures in FY2023 include the adoption of: | Why do we measure this? | Why do we measure this? | | --- | --- | --- | | Required Delivery Time; Health & Safety lost | Pack accuracy ensures customer supplies and | Arrival at the scheduled time is a key service | | time incidents frequency rate; and our Customer | invoicing are aligned, minimising queries and | measure for customers and publishers, | | Satisfaction score. Changes for financial | administrative corrections. | and aligns to our contractual obligations. | measures include the adoption of Average Net Debt (replacing Bank Net Debt) as the most | appropriate measurement of the | | | | C ompan | y ’ s | Link to strategic drivers | | Link to strategic drivers | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | borrowings. | | | | | | 1 2 3 4 | 9 | 1 2 3 4 6 | 9 | | 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. Health and Safety (Lost time incidents p er 100k hours) No. Health and Safety RIDDORS No. ## 0.25 2 | Why do we measure this? | Why do we measure this? | | --- | --- | | Lost time incidents frequency rate (per 100,000 | We monitor RIDDORS to learn from every major | | hours). We measure ‘lost time incidents’ as the | incident, ensuring we take action to reduce the | | most comprehensive and accurate capture | possibility of recurrence. | 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 Link to strategic drivers 1 3 6 9 1 3 6 9 FY2021 FY2021 FY2022 FY2022 actual FY2022 FY2020 FY2019 FY2020 FY2019 FY2021 0.32 7 7 0.25 actual actual actual actual actual actual actual actual actual 99.3% 99.3% 99.7% 99.7% 11 2 Smiths News plc S G F 11 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 copies are credited to customers, without compromise to service. These foundations of our business model will not change. → Read more in my CEO Review on pages 18 and 19 performance across a range of factors Why do we measure this? | Why do we measure this? Surveying a statistically representative selection | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Why do we measure this? Working productively together is central to of 300 customers every month, we track our | | | | | | | | | | Returns collections % Returns processing accuracy % Colleague engagement (Net promoter score) Customer satisfaction (Net promoter score) Daily returns collections ensure that sales our values. The engagement of colleagues service Why do we measure this? | | | | | | | | | | data (supplies minus returns) is processed underpins our performance at every level of to ensure quality, accuracy and timeliness of Unsold | | | | | | | | | | Link to strategic drivers Link to strategic drivers Link to strategic drivers within tight time windows, supporting sales the business. From FY2022, we measure an deliveries. The net promoter score is an annual so accuracy is vital for credits and invoicing | | | | | | | | | | 97.3% 7.0 | 99.96% | | | | | | | 27 | | forecasting and accurate invoicing. average across all pulse surveys. average of the overall headline indicator. / to both retailers and publishers. Link to strategic drivers 27 FY2022 25 Target FY2021 28 9 10 1 2 4 5 6 9 10 Target FY2022 FY2021 Target FY2022 FY2020 Target FY2022 FY2020 FY2021 FY2021 FY2020 FY2019 FY2019 1 2 3 4 5 6 8 1 5 6 1 2 3 4 5 6 7 | | actual actual actual actual actual actual actual actual actual actual actual actual actual | 99.96% 98.0% 98.0% 97.3% 98.2% 99.5% 98.4% 99.9% 99.9% 99.9% 9 | 10 | 9 | 6.0 | 7.0 7.0 7.0 | | Smiths News plc 12 S Annual Report and Accounts 2022 ## Financial Key ## Performance Indicators ### Financial KPIs Total statutory revenue £m Adjusted EBITDA (pre-IFRS16 leases) £m Adjusted operating profit* £m ## £1,089.6m £40.7m £38.1m Why do we measure this? Why do we measure this? Why do we measure this? Statutory revenue measures the extent to which This measure is based on operating profit from Adjusted operating profit is defined as operating core sales and other revenues are within our continuing operations. It excludes depreciation, profit from continuing operations, excluding planning assumptions and longer-term strategic amortisation and adjusting items. This is the the impact of adjusting items (defined above). forecasts. headline measure of the Group’s performance This is the headline measure of the Group’s and is a key management incentive metric. 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 Adjusted e arnings per Share p Free cash flow £m | 10.8p | | | | | 9.8p | | | | £48.2m | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | FY2022 | | | | 10.8p | FY2022 | 9.8p | | | FY2022 48.2 | | | | | | FY2021 | | | | 10.8p | FY2021 | | 10.8p | | FY2021 | | | 24.0 | | | FY2020 | | 4.9 | | | FY2020 | 9.7p | | | FY2020 | 10.9 | | | | | FY2019 | | | 9.0p | | FY2019 | | | 11.5p | FY2019 | | | | 33.2 | | Why do we m | easure this? | | | | Why do we measure this? | | | | Why do we m | | easure this? | | | | Earnings per share measures the profit per | | | | | Adjusted earnings per share measures the profit | | | | Free cash flow measures the cash available to | | | | | | share of the Company and is used by investors | | | | | per share of the Company, excluding the same | | | | the business, which can be used for investments, | | | | | | when comparing performance to other similar | | | | | adjusted items as in Adjusted Profit Before Tax. | | | | dividends and the reduction of debt. | | | | | businesses. 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. 39.6 FY2022 FY2020 FY2022 FY2021 FY2020 FY2022 FY2021 FY2020 FY2021 FY2019 FY2022 FY2019 43.6 FY2019 48.8 1,089.6 39.1 35.1 1,109.6 40.7 1,164.5 42.6 38.1 1,303.5 4.15 Smiths News plc S G F 13 Annual Report and Accounts 2022 The Company continues to generate Adjusted profit before tax £m Statutory pr ofit before tax £m good underlying profit and free cash flow, which together with the benefit of ## £31.1m £27.9m 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. Why do we measure this? Why do we measure this? Adjusted profit before tax measures the Statutory profit before tax measures the profitability of the Company, excluding absolute profitability of continuing operations significant and non-recurring one-off costs, after any disposals. including those not related to the C ompan y ’ s ordinary activities. → Read more in the financial review on pages 36 to 39 Average Net Debt £m Bank Net Debt £m | £49.9m | £14.2m | | | | --- | --- | --- | --- | | | FY2022 | 14.2 | | | | FY2021 | | 53.2 | FY2020 79.5 | FY2019 | 112.0 | FY2019 | 73.9 | | --- | --- | --- | --- | | Why do we measure this? | | Why do we measure this? | | | Average Net Debt impacts the level of interest | | Bank Net Debt impacts the level of interest | | | we pay, and is the measure which most | | we pay and is a covenant measure of our | | | accurately reflects the ongoing borrowing of | | financing agreements. | | the Company as it removes the potentially misrepresentative influence of period end variations caused by publisher and retailer payment schedules. / FY2022 FY2021 FY2020 FY2022 FY2021 FY2020 FY2022 FY2021 FY2020 FY2019 FY2019 98.6 14.8 82.6 27.9 30.9 31.1 27.9 49.9 30.6 30.3 37.6 Smiths News plc 14 S Annual Report and Accounts 2022 ## Stakeholder Engagement Stakeholder engagement ### Shareholders and Suppliers and is a priority for the Board. ### Funders customers In its decision-making, it seeks The C ompan y ’ s shareholders How we engage We hold contracts with all the to consider the views of all include large institutions, as well • Annual Report national publishers/distributors in relevant parties, founded on an | | as individual investors. Over 73% | | the United Kingdom, as well as a | | --- | --- | --- | --- | | understanding of their aspirations | | • Periodic RNS announcements | | | | of our issued shares are held by | | significant proportion of regional | | and concerns in relation to our | | and published trading statements | | | | ten shareholders, with 50% held by | | publishers across our territories. | | policies, performance and strategy. | | • Shareholder engagement on | | | | our largest four. We engage directly | | Aside from our daily operational | certain resolutions presented to Engagement with stakeholders with these leading shareholders, relationships with these parties, our 2022 AGM is conducted by both the holding face-to-face meetings after we also engage through account Board and the Executive Team. both the full-year and half-year • One-on-one engagement with our managers and director-level reviews Outcomes are discussed financial results, as well as ad hoc largest shareholders, specifically and discussions. As a wholesaler together, ensuring a common meetings at their request or in the around the Directors’ Remuneration providing a shared ‘route to market,’ understanding of all stakeholder event of a material development Policy and, separately, in we discuss and agree improvements positions that balances any in the business’s activities. Our considering the merits of different to the supply chain that seek to competing interests and takes presentations to analysts and distribution programmes. These balance the interests of, and benefits account of the various views lenders are made available on our one-on-one engagements were to, all parties. when making decisions. website, with audiocast recordings supplemented with investor With circa 24,000 customers, we of the supporting commentary roadshows and ad hoc meetings, Our engagement with supply the full spectrum of news and questions. with contact made with our stakeholders is focused on, but outlets from large supermarkets to largest institutional shareholders, not limited to, five groupings Our banking agreements are held high street retailers and independent representing approximately 74% which are described below. with a syndicate of four lenders. We stores. The largest multiple retailers of our share capital | While we appreciate that, strictly | engage regularly and directly with | | account for over 50% of our sales | | --- | --- | --- | --- | | | | • Receipt of corporate broker | | | speaking, the environment is not | our relationship partners at these | | revenue, however all customers are | reports, providing coverage of a stakeholder in its own right, we lenders and conduct reviews of our important to ensuring widespread investor and market sentiment, believe that, given the increased performance, to ensure they are and universal availability across our economic projections and share focus on this area across all kept abreast of our performance, territories. Independent retailers, for price performance traditional stakeholder groups plans and progress. example, are essential to maintaining and the focus of Section 172 • Lender engagement on, and home news delivery services. Risk | of the Companies Act 2006, it | | following, the refinancing of the | | | As with publishers, we manage | | --- | --- | --- | --- | --- | --- | | | • Macroeconomic uncertainty | | | | | | best explains our engagements | | C ompan | y ’ s | senior financing | engagement through a combination | | and the impact on the decisions | • Changes to retailers’ commercial | arrangements in December 2021 | | | of account management and | | taken by the Board, to include the | model | | | | director-level reviews. In addition | | | | • Formal presentations to | | | | | environment as a stand-alone | • Growth & Diversification | institutional shareholders, | | | to individual customers, we have | | stakeholder. While these represent | | analysts, lenders, and current and | | | strong relationships with the | What is important the mainstream of our activity, prospective retail shareholders. Federation of Independent Retailers • Financial stability and investment (formerly the National Federation of the Board is aware that from time The Smiths News website ( www. returns Retail Newsagents), representing to time other stakeholders may s mithsnews.co.uk) is a source of have an interest in our activities • Long-term sustainability information for all shareholders, independent and smaller retailers. and will always try to consider the • Corporate responsibility including retail investors, and is We also engage circa 700 self- wider impact of the Company’s a central repository of regulatory • EPS and TSR employed distribution contractors activities. An example of this wider news and announcements, and who support our operations and engagement would include our • Free cash to support distributions where both financial and non- deliver daily to our customers. and amortisation payments liaison with the Department for financial reports are published under our senior financing Risk Digital, Culture Media & Sport | | arrangements | Impact on decision-making | | | | --- | --- | --- | --- | --- | | during the COVID-19 pandemic, | | | • | Macroeconomic uncertainty | | | | • Determine shareholder views on | | | to ensure that the distribution of Why are they important • Legal & Regulatory compliance different distribution programmes newspapers and magazines was • Stakeholder confidence • Changes to retailers’ commercial (dividends vs share buy-backs for identified at the time as being one • Ongoing investment and financial instance) model with key workers. stability • Growth & Diversification • Successful refinancing of the Key stakeholder • Reputation C ompan y ’ s senior finance • Sustainability & Climate Change engagements and • Share price growth agreement What is important their impacts • Consultation on Directors’ • On time, efficient distribution The following text sets out a Remuneration Policy pending summary of the engagements • On time payment shareholder vote at our AGM with our key stakeholders which in 2023 • Corporate responsibility and the Board has undertaken during ethical trading the year. • Revenue security • Sustainability and ESG Smiths News plc S G F 15 Annual Report and Accounts 2022 Why are they important Impact on decision-making • SLA and industry compliance • Continued the rollout of the EPoS-based returns system with • Mitigation of financial penalties grocer customers, resulting in or redress enhanced category efficiency • Reputation • Consulted with customers on • Long-term security of revenue delivery service charge increases • Positive community impact and and its impact on category security of contract delivery sustainability network • Determination of publishers’ How we engage tender timelines, requirements • Continued the rollout of the and expectations for the next EPoS-based returns system contract round (which led to with our grocer customers the successful securing in October 2022 of new contracts • Engaged with customers on with Frontline/Seymour and proposed delivery service Associated Newspapers through charge increases in light of the ## to 2029) National Colleague inflationary headwinds being ## faced in the reporting period • Support to publishers through Engagement Forum and mindful of its impact on the the provision of sustainability The Board continues to assess its understanding and ability to sustainability of the news and data on the supply chain’s approach to engagement within access all benefits available to magazine category environmental footprint the workplace, mindful of the them; and the sharing of plans to • Engaged with certain publishers • Promoted the sustainability of UK Corporate Governance Code introduce technology assets at on their expectations and the home news delivery service measures. It remains the Board’s our locations, to help colleagues requirements for the next • Established a direct-marketing view that the dedicated focus of a access literature and relevant publisher contract round (the strategy designated non-executive director information where they may not first contracts of which have now • Supported rate reviews payable (Michael Holt) to workforce otherwise have tools to access been renewed, representing 35% to delivery service partners engagement is the best means for such information or training newspaper and magazine sales effective colleague engagement resources. revenues), in order to understand at Smiths News. To this end and potential tender timelines, Designated Workforce building on the lessons of the requirements and expectations Engagement Director last two years, this year we have • Engaged with publishers on refreshed our National Colleague The remit of the designated their own sustainability agenda, Engagement Forum, which is a Workforce Engagement Director providing data on the supply representative group drawn from includes: chain’s environmental footprint across the business. This group • Gathering the opinions of a • Engaged with retailers and meets regularly with Michael Holt broad cross section of our publishers on home news (the designated non-executive workforce delivery, looking to promote the director), who in turn reports • Seeking to understand the sustainability of this service in issues raised at the Forum to concerns and views of our the face of a continued decline in the Board. More details on the workforce and articulating the numbers of retailers offering nature of the engagements and these to the Board | a delivery service | outcomes can be found in the | | | --- | --- | --- | | | Corporate Governance Report | • Ensuring that appropriate | | • Engagement with our delivery | | | | | on page 58. | steps are taken to consider | network partners around ad the impact of proposals hoc service issues, network Key issues discussed and action and developments on our rationalisation and rising fuel t aken in the year included the workforce prices introduction of published fair pay • Where appropriate and principles for colleagues; the relevant, providing operational commitment and scope of capital and commercial updates and expenditure investments to be feedback from the Board to made across our locations; the our workforce merits of and issues arising from the launch of benefits roadshows More generally, the role continues to colleagues to ensure that, in to be a critical link in our the current economic climate, communication and feedback colleagues have a good chain. ## / Smiths News plc 16 S Annual Report and Accounts 2022 ## Stakeholder Engagement continued | Colleagues | | | | Community | | --- | --- | --- | --- | --- | | The Company employs over | How we engage | | Impact on decision-making | With 55% market share we serve | | 1,500 colleagues operating | • Engagement forums: | | • Introduction of fair pay principles, | thousands of local communities | | from 36 distribution centres | | | following colleague forum input | across the UK, ensuring | | | • | Local and national Colleague | | | | throughout England and | | | and views | newspapers and magazines are | Engagement Forum attended | Wales, as well as central | | | widely and easily available to all. | | --- | --- | --- | --- | | | by a designated non-executive | • Relaunch of Extra Mile | | | support locations in Swindon, | | | While our service is sometimes | | | director (this structure and | colleague-recognition awards, | | | Worcester and Wednesbury. | | | regarded as ‘business as usual’ at | | | process was refreshed during | ensuring easier digital access, | | | We use a range of engagement | | | times of crisis or severe weather, | | | FY2022) | fairer distribution of awards and | | | mechanisms, including in-house | | | its importance and impact on | simplified processes • Management-led specialist communications, engagement communities comes to the fore. Colleague Consultation • Hardship fund expanded to a surveys, colleague forums, all- Forums to provide a platform more general colleague support Smiths News is a critical colleague intranet, management for formal consultation on fund, not exclusively related to component and active participant conferences, town hall meetings employee related matters COVID-19 related hardship in the news industry community, and staff briefings. • Remuneration-focused • Further training of mental health supporting the sector through its In addition to our colleagues, we NewstrAID charity. More recently, colleague engagement allies across underrepresented have outsourced certain service the Company has been active undertaken by the parts of the business functions to a Shared Service in helping to address the issues Remuneration Committee • Launched benefits and payroll Centre (SSC) comprising circa and challenges of homelessness chair to discuss policy and roadshows, educating and 160 outsourced colleagues based which our distribution colleagues director and wider workforce supporting colleagues at two sites in Noida and Pune witness on the streets. In 2021, our pay (India). The SSC provides customer • ‘ L ove to shop’ vouchers issued ‘Pass it On’ initiative became an • Virtual ‘Town Hall’ meetings service, technology, SAP master to colleagues not part of formal independent registered charity, and hosted by the Executive Team, data management and finance benefits package, in order we continue to be its chief sponsor. including video recordings, to back office services. We liaise with, to recognise their important ensure that all colleagues can Risk and carefully consider the interest contribution to business access them at any time of the • Growth & Diversification and views of, these support service performance day, regardless of shift pattern providers. Colleague engagement, • Launch of the leadership • Sustainability & Climate Change as well as reward and recognition, • Quarterly newsletters (‘Our apprenticeship programme, What is important remain at the centre of maintaining News’) in physical and electronic driven from pulse engagement formats • Social responsibility our outsourced colleagues’ sense survey results of belonging within the wider • Pulse quarterly engagement • Community health and wellbeing • Externally conducted diversity business. surveys, with outcomes reviewed • Sustainability and ESG and inclusion audit, identifying by the Board, to inform action Risk key action areas across Why are they important planning, priorities and impact recruitment, learning and • Acquisition & Retention of labour • ‘ L ic en se to operate’ on future decision-making (see communication • IT infrastructure & Cyber Security • Reputation People report on page 30) • Growth & Diversification • Community support • Introduced D&I survey and • Sustainability & Climate Change updated D&I strategy and • Regulatory compliance targeted actions What is important How we engage • Policy and Compliance steering • Job security • Ongoing financial and committee, consulting on key • Job satisfaction operational support to the charity policies and regulatory matters ‘Pass It On’ as its anchor sponsor • Remuneration and benefits which may affect colleagues • Individual/ team support in • Consultative and transparent • Launched a new intranet partnership with external engagement and processes (SmithsZone), enabling two- charities to support causes • Safe and healthy environment way communication with all such as the industry charity colleagues • Sustainability and ESG NewstrAid, through workplace • Regular Mental Health allies’ flexibility, publicity and financial Why are they important meetings support • Workforce satisfaction • Consideration of local businesses • Productivity when sourcing goods and • Ability to attract, motivate and services. retain staff Impact on decision-making • Regulatory compliance • Community charity initiatives, including Pass It On supported • Enhanced local supplier inclusion within procurement tender processes Smiths News plc S G F 17 Annual Report and Accounts 2022 Statement from ## Environment Michael Holt Director for Workforce As a physical distributor our • During the review period, the → ## Engagement environmental impact is most Company has commenced significantly influenced by a more formal engagement our vehicle emissions. Other process with ESG rating key impacts include energy agencies and investor-led consumption, waste disposal assessment initiatives, to and the recycling of product and keenly demonstrate progress packaging. made in this area and to assist in identifying areas of The Company is conscious that improvement and opportunities our plans and performance have a for enhancement | direct impact on the environmental | | I have been pleased this year to be able | | --- | --- | --- | | footprint efficiency of the supply | Impact on decision-making | to re-connect in person with colleagues | | chain as a whole, meaning our | • TCFD report produced | after the unique challenges presented | | actions have particular relevance | | by COVID-19. That said, I have also | | | • Sustainability strategy developed, | | | to our industry partners. As such, | | appreciated the ability to engage more | with ‘SMART’ objectives and we work closely with our supply widely through the virtual meetings that are measurable KPIs chain partners to find alignment common practice in many organisations. • All registered suppliers signed up and measures that maximise the to our Supplier Code and Ethical And through those discussions it became positive impact of our combined Trading policies apparent that COVID-19 had, rightly at actions. the time, led us to be more focused on • Modern Slavery questionnaires Risk addressing immediate challenges. As the issued to suppliers and audit in • Legal & Regulatory Compliance pandemic recedes and after reflection on progress the challenges and opportunities ahead, we • Sustainability & Climate Change • Sustainable Procurement Policy have revitalised our Colleague Engagement published What is important Forum specifically to ensure more diverse • Environmental sustainability • Commenced data collection representation of members from across to fully understand news and all areas of the business. I have considered • Social responsibility magazine supply chain footprint colleague feedback on the quarterly employee Why are they important pulse survey, in order to better understand • Long-term sustainability the drivers and sentiment behind the results • Reputation and, drawing on input from multiple sources, this has helped shape the discussion when • Community support workforce engagement has been on the Board • Regulatory compliance agenda. This rich feedback from colleagues How we engage has given the Board a more informed • Sustainability strategy understanding of what’s important developed and formation of the to our people and how they feel. Sustainability SteerCo As inflationary pressures come to bear, we | • Sustainability (incl. TCFD) | have had candid discussions around fair pay | | --- | --- | | reporting to the Board as a | principles, rewards and benefits, diversity | | quarterly agenda item | and inclusion, and the expected impact of the | | • Environmental impact | economy on our business and workforce. The | | assessments – base-line | latter resulting in us converting the previous | | information established | COVID-19 hardship fund into a more general | and ongoing colleague support fund. • Engaged with large retail customers, as well as newspaper I’m confident that our framework for engaging, and magazine publishers, sharing, listening and providing feedback to better understand their will continue to be an effective two-way sustainability agenda and the engagement between the Board and our role we play in its delivery and to wider workforce. We will continue to build on share our sustainability strategy this relationship with forthcoming issues of • Shared and sought feedback attention to include a review of our benefits on the C ompan y ’ s supplier strategy and our colleague grading structures. code, ethical trading policy and Modern Slavery Statement Michael Holt Non-Executive Director for Workforce Engagement ## / Smiths News plc 18 S Annual Report and Accounts 2022 ## CEO ## Review Jonathan Bunting Chief Executive Officer ## Our success is ## underpinned by ## efficiency, knowledge ## and service But, of course, our results are about Over the last 12 months, we ### Dear Shareholder more than metrics; ultimately, they have offset some of the incremental On my appointment three years Newspaper and magazine are down to our people and the impact through additional revenue ago, we set out to strengthen commitment they show in serving generation and this too will the foundations of Smiths News, wholesaling will continue to our customers and supply chain continue, giving further confidence removing distractions and building underpin our prosperity for partners. And it is this, as much that we can maintain a grip on a future that I described in our 2019 the foreseeable future. as our financial progress, which costs that balances short and report as ‘efficient, knowledgeable gives me confidence that we can long-term requirements. and service driven.’ Despite the maintain the momentum. Together, unprecedented challenges of Contract renewals we have reset our business, and the pandemic and the ongoing For over 200 years, publisher rightly grown in confidence – our uncertainty in the UK economy, we partnerships have been the objective now is to look ahead, and have made excellent progress. It bedrock of our business, and today apply what we have learned to the is always the case that the road to we have exclusive area contracts opportunities in and adjacent to success is ongoing, but we have across our territories with all our markets. now passed the key milestones of the UK’s major newspaper and our recovery plans and, importantly, Efficiency and costs magazine companies. In line with we have done so in a way that Securing sustainable efficiencies usual practice, we would expect supports our ability to deliver value will remain an essential element of discussions on these agreements in the future. maintaining our profitability. That to pick up well in advance of their our markets are large and their scheduled renewal. The process Our financial performance this year sales patterns relatively predictable is to be welcomed, offering an is ahead of expectations, primarily helps us to plan accordingly. For opportunity to align goals and as a result of an absolute focus many years our approach has been create certainty over the network, on limiting the impact of inflation, to adjust our operations in line with service requirements and reducing debt and finding new falling volumes, working across the cash flows. revenues. It’s no coincidence that in ‘delivering the numbers’ we have supply chain to find efficiencies It was therefore especially drawn on the qualities of efficiency, without compromise to service. pleasing in October 2022 to knowledge and service that I said These foundations of our business renew our agreements with would be the foundation of our model will not change. Frontline, Seymour and Associated success. But in doing so, we have Throughout the year, the inflationary Newspapers, amounting to 35% also been flexible in addressing the pressure on our distribution costs of our total revenues and over ways by which we have historically and central overheads has created 50% of our magazine share. These offset the impacts of declining additional challenge. We expect are foundational agreements that sales and rising costs. This agile | | | | | | there to be some carry over into | establish and secure our distribution | | --- | --- | --- | --- | --- | --- | --- | | approach has not only helped us | For more information on topics | | | | | | | | | | | | FY2023, and while there is no | footprint for the remainder of the | | through an especially challenging | covered in this review, see the | | | | | | | | | | | | guarantee that the ‘peak’ has | decade. In working more closely | | period, it also gives us an indication | appropriate chapters at the page | | | | | | | | | | | | passed, we believe our plans will | than ever with our publishers, | | of the opportunities going forward. | numbers below. | | | | | | | | | | | | be sufficient to mitigate inflation | we are well placed to renew our | | | → | Our | People | 30 | at current forecasts. | remaining agreements on mutually | | | → | Sustainability 24 | | | | beneficial terms. | → Operational Review 20 → Financial Review 36 Smiths News plc S G F 19 Annual Report and Accounts 2022 Widening our horizons Sustainable futures As with our sustainability pillars, Newspaper and magazine All our futures depend also on we will be driven by clear measures wholesaling will continue to addressing the challenge of climate We have also confirmed and tangible outcomes, in this case underpin our prosperity for the change, cooperating with others focused on diversity, colleague that, managed sensibly, foreseeable future; however, the to make a positive difference to engagement, talent and career progress to greater longer-term reality is that regardless the planet, our people and the enhancement, and ultimately, sustainability is a friend ensuring Smiths News is a place of our best endeavours, it will not be communities we serve. Smiths News enough to deliver growth nor will has always been a responsible not a foe to efficiency, where people prosper in tandem business in the broadest sense, but with the C ompan y ’ s success. it take full advantage of the assets service and professional and competencies we possess. since relaunching our sustainability partnerships. Clear priorities In this respect, our aims these last strategy last year we have surfaced I believe our priorities are clear. three years were not limited to re- how pivotal our role, at the centre of We must maintain our core focus establishing the focus and prudence the supply chain, is to the progress on service and efficiency; the that is essential to managing in our of others. renewal of our remaining contracts markets; they were also to create We have also confirmed that, will establish the basis for further the headroom that would allow us managed sensibly, progress to certainty and network planning; our to adapt and flourish thereafter. greater sustainability is a friend commitments to evolving our culture In widening our horizons, I believe not a foe to efficiency, service and and improving sustainability must we can be mindful of the missteps professional partnerships. This remain high on the agenda; and we of the past, without limiting our helps reinforce our commitment to must actively seek ways to leverage ambition to explore opportunities taking a lead in matters where we our skills and assets in ways that that complement, rather than can make most tangible difference. enhance the core and move us up distract from our core operations. And in pursuit of this goal, we the value chain. These will be the The tactical revenue gains and will prioritise our focus on those milestones of success on the next distribution partnership trials this sustainability pillars relating to the stage of our journey. I have every year have shown that there is environment and people. These are confidence that by working together considerable scope to leverage the areas that matter most to our and with our partners we will reach our skills and assets in near and stakeholders and which best align and surpass them. complementary markets. This to the particular impacts of and risks is a strategy of adaptation not to our business. diversification; it is about being agile Jonathan Bunting Culture and people and having the confidence of our Chief Executive Officer As the market leader, operating ability to do more and move up the 8 November 2022 successfully for over two centuries, value chain. it’s no surprise that Smiths News has Priorities FY2023 Over the next year, we will more a workplace culture which reflects actively consider entering new those skills and qualities that have markets in a way that is controlled taken us to where we are today. We and which plays to our strengths. are proud of this heritage and, when Ideally, we will seek opportunities we speak of the need to adapt, it in that enhance our current roles no way diminishes the contribution and relationships, moving forward and importance of what has been without risk to the progress we have delivered to date. Indeed, it is only by made and which draw on a skill set adapting that we have sustained our founded on efficiency, knowledge success for so long. and service. But it is also fair to say that the I am excited by this ambition and ne ed to embrace change is more determined that we will make immediate than in times past. To progress in a way that benefits all meet our ambitions of growth, our stakeholders. 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. and value – we are committed to investing for its future our remaining publisher contracts as they become due declining core sales have the skills and capabilities that are needed for the future adjacent markets from a combination of attractive dividends and capital growth / Our wholesale operation remains the primary driver of revenue We continue to seek efficiencies that mitigate inflation and Building on recent agreements, we are well placed to renew We are committed to investing in our business, ensuring we From tactical gains to strategic expansion, we are exploring a range of options to leverage our skills and assets in We are committed to delivering strong returns to shareholders Sustaining the core Controlling costs Renewing contracts Investing in capability Growing new revenues Maintaining strong returns Smiths News plc 20 S Annual Report and Accounts 2022 ## Operating Review Continued progress The net impact of inflation was As anticipated, our core business in line with our forecasts for the has returned to historic sales trends driven by focus and year, despite the ramifications of Together with recent and the relative predictability flexibility the war in Ukraine which added this entails. Together with recent During the year, we have delivered contract renewals, this further pressure in the second half. contract renewals, this positions a strong financial result ahead of positions the business well In addition to close cost control, the business well given the current market expectations by remaining we have benefited from improved given the current challenges challenges and uncertainty in the focused on service and efficiency, sales mix, cover price rises and and uncertainty in the wider economy. Looking ahead, we while being flexible in our pursuit of ongoing network efficiencies. Our will continue to focus on containing our overall goals. In addition to profit wider economy. performance was also aided by the impact of inflation, but without performance, our key objectives of lower interest payments from the damage or compromise to our material debt reduction, continued significant reduction in average debt service and capabilities. We expect cash generation, the restoration of and by capitalising on a number of the combination of cost control, the dividend and the maintenance of ancillary opportunities. improved margin and new revenues service and efficiency have all been to continue to mitigate the impact of met. In achieving these goals, we Having made headway with our reduced newspaper and magazine have demonstrated the continuing strategy to first strengthen the core volumes, underpinning another strength of our core business model business, we have increased efforts successful year for the business and established a platform for future to explore adjacent markets that and its stakeholders. opportunity. can leverage our network, daily deliveries and trading relationships. Adoption of new Historically, Smiths News has This year, we have successfully financial metrics sought to offset the margin impact trialled initiatives that include retailer of a relatively predictable decline in The Board has reviewed the waste collections and partnering in core sales by securing sustainable C ompan y ’ s key financial metrics parcel deliveries. These, together efficiencies across the network. and concluded that the performance with other local actions, have grown This year, while still pursuing of the business would be better our ancillary revenues, making a that objective, the bridge to our monitored by the adoption of modest and sustainable contribution profitability required us to address revised headline measures. Going to profitability, but also suggesting additional challenges arising from forward, the Company will focus there are encouraging early the COVID-19 pandemic and on Adjusted Operating Profit as its opportunities to develop and scale growing inflationary pressures. In primary measure of overall financial these initiatives. this respect, the early actions we performance, a measure that took to address warehouse and continues to be disclosed on the driver shortages played a key role in C ompan y ’ s Income Statement. our ability to maintain service with consequent minimisation of waste and rectification costs. Smiths News plc S G F 21 Annual Report and Accounts 2022 Financial performance Sales and markets Adjusted Operating Profit of The newspaper and magazine ## Smiths News wins EIIR National | £38.1m was down by 3.8% | | | | market showed resilience this year, | | | --- | --- | --- | --- | --- | --- | | (FY2021: £39.6m) from Revenue of | | | | with both categories returning a | Courier Award | | £1,089.3m that was down by 1.8%. | | | | lower year-on-year decline than | | | Adjusted Profit before tax of £31.1m | | | | typical historical trends. Combined | | | was £0.2m better than last year | | | | sales of newspapers, magazines | | | (FY2021 £30.9m), as the reduction | | | | and one shots were down by 2.3%. | | | in Adjusted Operating Profit was | | | | This was in part driven by softer | | | offset by the benefit of lower | | | | comparators from the previous | | | interest charges from the reduction | | | | year (particularly in H1), however | | | in the | C ompan | y ’ s | debt. Free cash | the sustained growth of one | | | flow of £48.2m is up by 100% | | | | shots in a financial year without a | | | (FY2021: £24.0m), and includes | | | | major football tournament was an | | | the expected inflows arising from | | | | encouraging development. Strong | | | the return of a pensions cash | | | | price rises in the second half reflect | | | surplus (£8.1m) and settlement | | | | the sometimes counter-cyclical | | | of Tuffnells deferred consideration | | | | nature of the market as publishers | | | (£14m). Adjusted EPS of 10.8p | | | | compensate for higher production | | | was consistent with last year. | | | | costs – typically these price rises | | tend to bunch before evening out The underlying factors in driving over time. this performance were: Looking ahead, we expect core • Relatively stronger sales sales patterns to continue in line patterns as the restrictions of with historic trends in FY2023. The the pandemic resulted in softer impact of the pandemic restrictions year-on-year comparators in H1, has now washed through and it while strong price rises helped is pleasing to note that the total sales in H2 number of retail customers is • Beneficial margin mix from the broadly flat. The sale of M c C oll ’ s continued good performance Retail Group to Morrisons has of higher margin one shots as secured the continued trading of schools returned and sticker over 90% of its business with Smiths collections and trading cards News, and while the administration flourished of the former has required a material • Ancillary revenue gains from provision for bad debt, the ongoing new initiatives and improved service and availability of supplies Whenever the nation comes together – be it in crisis performance of DMD, Instore to consumers has been protected. or celebration – Smiths News steps up to the mark. and Rascal And that commitment was recognised this year with a • The net impact of sustained prestigious EIIR National Courier Award, recognising inflation on both distribution and other costs, including the national our contribution to the distribution demands that minimum wage followed the passing of Her Majesty Queen Elizabeth II. • Lower interest charges from reduced debt and the new Responding to what was a globally significant event, the teams at financing agreements agreed Smiths News took pride in playing their part in getting the news to in December 2021 customers and communities across the UK. Immediately following the announcements, we delivered nearly three million extra copies by Statutory profit before tax of £27.9m 9.00am the next morning. is down by 8.8% (FY2021: £30.6m), impacted by the administration Over the first three days of mourning, working round the clock, we of M c C oll ’ s Retail Group in May supplied a total of 16.7 million newspapers and supplements to our 2022, for which the Company has customers. That’s a further five million more than normal. On the day provisioned a bad debt risk of £4.4m following Her Majesty’s funeral, newspaper volumes increased by nearly as previously announced. 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. ## / Smiths News plc 22 S Annual Report and Accounts 2022 ## Operating Review continued Managing inflationary Our two established ancillary Dividend businesses, DMD and Instore, were In December 2021, the Company pressures The new financial year has disproportionately impacted by favourably extended and amended Our experience in securing | | | the COVID-19 pandemic, which | its current banking agreements, | | --- | --- | --- | --- | | started well. Trading to date | efficiencies, together with the | | | | | | brought much international travel | increasing the cap on dividends | actions we took to address driver is in line with expectations, to a standstill and reduced the and distributions from £6m to £10m shortages, has limited the net | | and in October 2022, | | demand for instore merchandising | | | --- | --- | --- | --- | --- | | | | impact of inflation to £2.1m in the | | for each financial year throughout | | contracts representing 35% | | | as retailers prioritised social | the term of the facilities. Subject | year, in line with the guidance distancing and basic services. This to performance and meeting the newspaper and magazine we gave in the autumn of 2022. year, we have seen some recovery This has been achieved through investment needs of the business, sales revenues, were in both markets and the businesses a combination of distribution the Board intends to utilise the full renewed until 2029. are once again making a positive if efficiencies, tight management of extent of these distribution limits for more limited contribution to overall ongoing costs and growing ancillary the return of cash to shareholders. profit. We will continue to support revenues. As expected, there will Consequently, the Board has them on the recovery journey, be some carry over into FY2023 proposed a final dividend of 2.75p, believing they add value to our role as the key cost pressures on fuel, making a total dividend for the year in the supply chain and enhance national minimum wage and energy of 4.15p (FY2021: 1.65p). The final our skills and capabilities to enter are annualised. The business is well dividend will be paid on 9 February adjacent markets. placed to meet this challenge, and 2023 to all shareholders who are on mitigating the impacts of inflation the register at the close of business Contract renewals without undermining customer on 13 January 2023; the ex-dividend In October 2022, we announced service will remain operational date will be 12 January 2023. the signing of new agreements priority in the months ahead. with Frontline, Seymour and Outlook Associated Newspapers. Together The new financial year has started Ancillary revenues these represent circa 35% of current well. Trading to date is in line with Our primary focus for the last two newspaper and magazine revenues, expectations, and in October years has been to enhance the and over 50% of the magazine 2022, contracts representing 35% core newspaper and magazine market through to 2029. Similar newspaper and magazine sales wholesaling business. Managing discussions with the other major through a period of unprecedented revenues, were renewed until 2029. publishers will follow in due course, disruption, we have worked to Despite recent economic volatility, and we are well placed to reach maintain service and enhance our inflationary pressures continue agreements that will benefit all capabilities while strengthening to be consistent with planning parties. The securing of long-term the balance sheet and delivering assumptions, and the combination contracts help not only to improve growing returns to shareholders. of sustained margin mix and close the forecasting of future cash flows, Against all these goals, we have cost control give us confidence in it also assists our joint efforts in made good progress. As the maintaining performance in FY2023. seeking network efficiency, improved pandemic receded and our sustainability and future supply improvements embedded, we chain development. have increased our attention to the potential for ancillary revenues and Net debt adjacent opportunities. Bank Net Debt of £14.2m | During the year, we have taken | represents 0.3 x Adjusted EDITDA, | | | | --- | --- | --- | --- | | advantage of smaller tactical | benefiting from one-off receipts | | | | initiatives, benefiting revenue by | of £22.1m, resulting from the | | | | £0.9m from measures such as | pension surplus (£8.1m) and the | | | | renting spare depot space, while | settlement of Tuffnells deferred | | | | also trialling opportunities that have | consideration (£14.0m), both of | | | | greater potential to be replicated | which were used to pay down debt | | | | across the network. We are currently | under the terms of the | C ompan | y ’ s | | exploring the logistics and long-term | banking agreements. Average Net | | | | potential returns of two initiatives: | Debt reduced by 40% to £49.9m | | | | the collection of retailer waste; and | (FY2021: £82.6m). Looking ahead, | | | | the expansion of our partnership | we expect to be able to continue | | | | with a national courier to provide | paying down debt supported by | | | | sortation and distribution services | stable underlying cash flows. | | | For more information on topics covered in this review see the at our local depots. Both these appropriate chapters at the page opportunities can be developed numbers below. with limited capital investment and without distraction to our → Our People 30 core service. → Sustainability 24 → Operational Review 20 → Financial Review 36 Smiths News plc ## S G F / 23 Annual Report and Accounts 2022 ## Ancillary businesses add value Our ancillary businesses add value to Smiths News’ core newspaper and magazine wholesaling operations. During the pandemic DMD supplies printed and digital these operations were more media to airlines and travel points severely impacted by restrictions in the UK and worldwide. The and changing consumer severe restrictions on international behaviours. This year their travel over the last two years performance has started to recover, resulted in only a minimal service although it will take some time for throughout the pandemic and, the effects of the last two years to although the situation has eased fully recede. We remain committed in Europe over 2022, there are still to supporting these businesses ongoing restrictions, particularly for they are each valued by our in Asia. During FY2022, we have industry partners and enhance our seen a gradual recovery of demand core service, with bespoke offers in the UK and are pleased to have that reach targeted consumers. renewed our arrangements for airside media wall displays. Longer term, the full recovery of sales and distribution is intrinsically linked to wider geopolitical considerations. Instore, our field marketing service Meanwhile, our publishers and works with retailers, suppliers airline clients confirm that they and publishers, providing a range continue to value this service which of solutions for sales promotion, reaches high-value customers merchandising and supply chain through a unique targeted channel. compliance. This year, we have seen a gradual increase in demand for all these services, with sales promotion at the fore of the Martin Lavell supplies business recovery. We have expanded our and large organisations with daily scope too, selling health products newspapers and magazines, to gyms and trialling a range of specialising in the needs of greeting cards for both large and corporate clients. As with our other small outlets – both opportunities ancillary businesses its operations that use our core network for were impacted by the pandemic, efficient deliveries supported by with a gradual recovery in demand Instore’s merchandising and sales as restrictions have been lifted. promotion. 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. Smiths News plc 24 S Annual Report and Accounts 2022 ## Sustainability Report ## 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. Smiths News plc S G F 25 Annual Report and Accounts 2022 Risks 1 Macroeconomic uncertainty 4 Legal and regulatory 6 Growth and diversification compliance 2 Acquisition and retention 7 Sustainability and climate of labour 5 Changes to retailers' change commercial model 3 IT infrastructure and cyber security 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 Our Sustainability Steering Group vital importance to all colleagues ### An impact led is now well established under the and partners, we include Health ### approach chairmanship of Paul Baker (CFO) and Safety reporting under this As a Company, we have a long- and comprises representatives pillar too. standing commitment to making a with relevant skills and experience positive contribution, recognising from across the business. The and acting on our responsibilities to Board takes an active interest in the environment, our marketplace, its activities, receiving quarterly our people and the communities we measured by carbon emissions, reports which tracks progress serve. This commitment remains against our targets and discusses the bedrock of our approach to any concerns or developments sustainability, and is consistent with we look to measure and as they arise. The Executive Team the significant review of our plans is charged with delivering the and governance framework that was which result from actions sustainability agenda through undertaken in FY2021 and which a combination of collective got underway in earnest this year. and personal objectives which As reported last year, in are cascaded throughout the consideration of the characteristics organisation. Where necessary, we of our business, we aligned our employ functional specialists and sustainability strategy to a blend of engage external partners to drive measurements include the principles-based approach of particular objectives: examples, the UN Sustainable Development among others, include Health and Goals (SDGs) with the structured Safety, People and Environmental disclosures-based reporting Emissions. promoted by the Global Reporting Looking outside the organisation, Initiative (GRI). we work with industry partners In adopting this hybrid model, to find solutions that will have a we aimed to set targets that were positive impact not only for our relevant to our operations and business but also for the broader our people, complemented by supply chains in which we operate. a structured reporting suite that As a ‘middle-man,’ this is especially also considered our impact on important if our actions are to have the supply chains in which we meaningful and lasting benefit. operate and the communities Indeed, pursuing this collaborative we serve. We were also mindful approach has confirmed that our that the framework should be role and actions are often pivotal compatible with our Company to the progress our partners can Values, enhancing our service make and to leveraging their and partnerships with suppliers benefits across a wider spectrum. ## Our five sustainability pillars and customers. We have made good progress against these goals, learning from the experience of managing the -wide sustainability and framework in practice. While the | Community | | overall framework has proved | | --- | --- | --- | | Environment Responsible partnerships People We work to make a positive | | effective, we have evolved and | | Embracing responsible contribution to the communities Encompassing our direct impact Driven by absolute commitment | | adapted our approach to specific | | partnerships in pursuit of a more we serve, to wider good causes as to the wellbeing and flourishing | | goals when doing so improves the | | sustainable supply chain. Areas and charitable giving. We seek fuel and energy usage, waste of colleagues, our actions | | positive impact of our actions. | | for close attention include ethical to provide opportunities for and packaging, and recycling. In and | | | | sourcing, taking a leading role in colleagues to be involved and addition, engagement, diversity | | | | make a contribution to the industry report on any mitigations and and inclusion, training and | | | | communities we serve and offsets data security for our customers, development, gender equality, | | | | support. and policies of the Company. free speech and human rights. suppliers and colleagues. / 7 2 7 3 5 | 6 | | Smiths News plc 26 S Annual Report and Accounts 2022 ## Sustainability Report continued ## 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. | Governance | | Environmental impacts | | Looking ahead, we will be focusing | People | | | --- | --- | --- | --- | --- | --- | --- | | Connected SDGs: | 17 | Connected SDGs: | 12 13 | on further fuel efficiency and energy | Connected SDGs: | 5 | | | | | | reductions, as well as partnering | Our people workstream and, in | | | Our sustainability governance | | Environmental emissions are | | | | | with our publishers and retailers to process i s now well established, with a priority workstream in our particular, diversity and inclusion is find processes that share common a clear structure of responsibilities, sust ainability strategy. They a priority pillar of our sustainability measurements and reduce overall action planning, reporting and represent the most significant strategy. supply chain emissions. In this communications cascade that impact that we have on the regard, we are working to establish We believe that supporting our people extends from the Board to colleagues environment and global warming, a common reporting suite with our by ensuring an engaging, inclusive at every level and location. and our progress is integral to publisher partners, covering Scope and diverse environment is not only helping the supply chain as a Our high standards of Cooperate 1, 2 and 3 emissions. This will create vital to the foundations of a sustainable whole reduce its impact on the Governance are described a cross-industry measurement tool business model, it is equally critical to environment. | throughout this Annual Report and, | | for target setting and improvement | improving performance and mitigating | | --- | --- | --- | --- | | in particular, within the Corporate | In FY2022, we have made further | that is essential to leveraging the | risks to the long-term success of the | | Governance report on page 58. | good progress, ensuring all of | efficiencies of our role in the middle | Company. | | | our internally generated waste is | of a shared supply chain. | | | In relation to our workplaces, we | | | Building on many years of | diverted from landfill, and moving | have determined that ISO45001 | | | responsible practice we have made | | --- | --- | --- | --- | | | the vast majority of our electricity | We will continue to investigate the | | | accreditation is the most appropriate | | | further progress in FY2022, moving | potential for electric and hybrid consumption to renewable sources. and stretching measure for our to quarterly pulse surveys for our vehicles in our company car fleet Our continual improvement process operating locations. Having achieved all-colleague engagement survey, and potentially for last mile deliveries seeks to optimise delivery route accreditation in FY2022, we will ensuring it has more regular visibility but, at the present time, we believe and fuel usage across final mile seek to maintain this standard and and speedier response to issues we can make greater headway by and trunking services in line with enhance performance in line with its raised. We have also completed a first focusing on improvements to the fluctuations in volumes. ongoing requirements. Diversity and Inclusion recruitment core delivery vehicles. 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. 9 3 4 Smiths News plc S G F 27 Annual Report and Accounts 2022 ## UN Sustainable Development Goals service trials → Smiths News Recycle – ## making recycling simple Our recycle 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. | Community Responsible partnerships | | | | | Our offering is designed with simplicity | | --- | --- | --- | --- | --- | --- | | Connected SDGs: | | Connected S | DGs: | | at its core – offering retailers a uniquely | | | 11 | | | 17 | | straightforward and convenient service We continue to make a positive Our supplier code, ethical trading that fits their busy schedules and priorities con tribution to our communities policy and modern slavery policies and keeps their stockrooms clear for more through the daily service we have been reviewed and embedded stockholding! provide and more widely through as part of our refreshed sustainability voluntary and charity activity that strategy. We are working to maintain Here’s how it works: extends the reach of our impact this progress, auditing suppliers • We supply retailers with bags for general and involvement. to ensure their compliance, and cardboard and plastic waste periodically updating our policies to Our involvement with the industry ensure they continue to reflect best • Retailers leave the filled bags for collection charity NewstrAID is substantial, practice and changes to legislation. with their newspaper and magazine returns partnering with and facilitating • Retailers can leave waste every day or their fundraising activities with Developing more sustainable whenever they choose – there’s no need our network of retailers. We have ways of working with our supply to book a collection introduced enhanced volunteering chain partners is a workstream opportunities and continue to be that links closely to our prioritised • We collect and process the recycling in the leading sponsor of Pass It On, a Environmental pillar. The common line with legislation on waste management national charity seeking to alleviate reporting suite with our publisher • Retailers pay a simple fixed price per week the problems of homelessness in the partners (see Environment pillar Retailers benefit from the ease of processing, UK, which was originally founded by above) will help ensure shared with waste taken away securely from their store employees of the business. We have goals, creating the foundation for with no waiting for collections. And from a donated £27,000 directly to charities cross-industry measurement for sustainability perspective they can rest assured in the year, and will be increasing target setting and improvement. At the recycling is managed in a professional and our indirect contributions though the retailer-end of the supply chain, environmentally beneficial way. | greater levels of volunteering, | we are exploring the opportunity to | | | --- | --- | --- | | donations of products and support | collect and process general waste | We are excited about the potential for Smiths | | for those colleagues fundraising for | for recycling, as well as expanding | News Re-cycle and plan to expand the trials | | causes they hold to be important to | the scope of smart sales forecasting | in FY2023. It’s a great example of using our | | them and their communities. | and replacement systems that help | | network to deliver solutions that help our to minimise unsold products and customers, as well as the environment. production wastage. ## / 1 9 Smiths News plc 28 S Annual Report and Accounts 2022 ## Sustainability Report continued ## 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 Without compromise to this goal, we have also As a consequence, we have identified two undertaken a materiality review of strategy ‘priority workstreams’ for our future activities, our sustainability pillars and remain and targets, considering the requirements of aligning to the Environment (specifically, the committed to their close management TCFD reporting, the nature and impacts of our reduction of emissions, energy utilisation and and further development as part of business model, and the views of our industry improved waste management) and our People a holistic approach to integrating partners and other stakeholders. In parallel, (including the promotion of greater diversity & sustainability into our everyday we also considered our forward strategy in inclusion and supporting culture). relation to the reporting requirements of TCFD practices. 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. ## The environment Our people As a physical distributor our environmental The prioritisation of our People pillar is driven by impact is most significantly influenced by our our wish to drive increased diversity, ensuring our vehicle emissions. Other significant impacts culture reflects the make-up of our workplace, include energy consumption, waste disposal and the communities we serve and the needs of the recycling of product and packaging. business in future. Our environmental performance has a direct impact We aim to build on our strengths, retaining those qualities on our efficiency and of the supply chain as a whole, which underpin our heritage and core capabilities, while meaning our actions have particular importance to also developing a more adaptive and agile approach to our industry partners, influencing their actions and opportunities. To succeed will mean embracing new skills progress, too. We plan to work more closely than and fresh perspectives, and backing this goal with clear ever with our supply chain partners, using common metrics that track our progress. Going forward, we will methodology for measurement and developing joint continue to blend quantitative and qualitative measures in actions to deliver environmental benefits. pursuit of this priority. Further information and disclosures on our environmental objectives Further detail and disclosures on our policies and progress relating and progress can be found in the Task Force on Climate Related to people can be found in our Nominations Committee report on Financial Disclosures (TCFD) report on page 44, which includes our page 90, and the People report on page 30 which includes gender Streamlined Energy & Carbon Reporting disclosures. composition and gender pay gap reporting. Smiths News plc S G F 29 Annual Report and Accounts 2022 | Energy efficiency actions | A detailed People report on page 30 | | | | | | --- | --- | --- | --- | --- | --- | | We have reduced emissions | includes the statutory disclosures | | | | | | in several areas and made | of employee headcount, gender | | | | | | | composition and pay gap reporting, | Injuries resulting in over seven days | 2 | 11 | 32 | improvements to reporting to | provide more visible and accurate | | | workplace responsibilities and | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | data. In doing so, we have | | | Human Rights. The report also | Dangerous diseases resulting in over | 0 | 6 | 0 | | been guided by the | C ompan | y ’ s | describes the progress made on our | seven days absence from work | | | | overall people programme in the year. sustainability strategy with the support of internal business experts Marketplace and external consultants. The Company plays an active role Ensuring responsible standards in our As in previous years, the Company Some of the energy efficiency in monitoring and improving supply supply chain is also a central to our continues to monitor and manage its actions undertaken during the chain standards, leading the way in procurement policies. All preferred reporting of incidents and accidents, reporting year were: the development of best practice suppliers must sign up to our supplier however minor they may be, with and adopting the voluntary codes code, modern slavery and anti- a robust process of investigation • Ensuring all gas and electricity of the Press Distribution Forum bribery policies, evidencing how they (i ncluding root cause analysis) before meters are AMRs (PDF). In 2022, Smiths News took uphold these. More information can the incident is considered closed. • Depot refurbishment projects, over the rotating Chair of the Press be found on our website at | including LED lighting, | | | This year, we recorded 101 incidents | | --- | --- | --- | --- | | | Distribution Forum. | www.smithsnews.co.uk/investor- | | | implementing motion sensory | | | (FY2021: 112 incidents), representing | zone/corporate-governance/ During 2021, the PDF and its 1.68 incidents per 100,000 hours lighting, electric panel heating and working-responsibly. associated service charter returned (FY2021: 1.85). This compares changing immersion tanks for towards more normal trends, with Health and Safety favourably to the industry average electric point water heaters the volume of complaints returning of 2.8 incidents per 100,000 hours The Company has a deeply • Ensuring the electricity usage to more typical levels as the for warehouse locations in the embedded culture of attention to which we have control over is from pandemic subsided. Overall, Stage Transportation and Storage sector, health and safety in the workplace. renewable sources (as at the point | | 2 breaches nationally rose from 57 | | as reported by the UK Health and | | --- | --- | --- | --- | | of contract renewal in 2021) from | | We work together to promote | | | | in 2020 to 151 in 2021; however, | | Safety Executive in 2021. | positive behaviours and encourage our suppliers EON and Opus the number of Stage 2 complaints proactive reporting (without blame During the year, Smiths News People relating to Smiths News has or sanction for doing so) of all successfully retained accreditation remained static at 39 for both 2020 The Company takes a progressive incidents, so that lessons can be to the new standard ISO 45001 approach to supporting colleagues and 2021. learned and appropriate action whilst also moving over to BSI from | in the workplace, making a positive | | taken. Using qualified Health and | | | --- | --- | --- | --- | | | In April 2021, the PDF Retailer | | Intertek. Furthermore, a total of 11 | | difference to their lives, prospects | | Safety practitioners, we review all | | | | Charter was relaunched in a digital | | key sites across the network also | | and wellbeing. In addition to fair | | recorded accidents, near misses and | | | | format, accessed via a new website | | achieved RoSPA (Royal Society for | | remuneration, we aim to offer the | | any concerns raised by colleagues | | | | which provides a quick and easy | | the Prevention of Accidents) Gold | | opportunity for satisfying careers, | | in pursuit of continual improvement | | | | guidance. The revised Charter | | awards, including Birmingham, | | encouraging everyone to develop | | to our processes and performance. | | | | includes an updated complaints | | Bristol, Hemel Hempstead, Hornsey, | | their skills and experience through | | We have a zero exceptions policy to | | | | process, based on a simplified | | Liverpool, London Travel News, | | training and participatory learning. | | accurately reporting and categorising | | | | two-stage online model that is | | Newcastle, Newport, Nottingham, | | | m ore accessible and navigable | all incidents, followed up by training | | | In support of these goals, we have | | | Southampton and Stockport. In | | | for retailers. Its relaunch was | and corrective action for all significant | | | an extensive people programme, | | | addition, we received an Industry | | | supported by an extensive publicity | events. | | | underpinned by clear and | | | award for our safety efforts, a Fleet | | well-publicised policies that are | campaign to increase retailer | | Safety award and three nominations | The result is that despite an intensely founded on principles of proactive awareness. for “Inspiring Women in Safety”. physical operation, often conducted colleague engagement, diversity in difficult circumstances, we have In addition to the requirements of The business successfully completed and inclusion, and responsible a strong record of limiting accidents the Charter, Smiths News continues the second full year of our three-year practice throughout the Company. in the workplace underpinned by a to apply an automatic service failure safety plan. A key objective achieved Furthermore, we have identified positive and attentive culture that payment scheme in cases where this year was making our integrated the People pillar as one of the encourages continual improvement. the daily news is delivered over two Health and Safety management two priority focus areas for our hours late, irrespective of inbound system simpler to operate and more Reporting of Injuries, Diseases sustainability programme. delivery times which are beyond accessible for all. In line with the plan, and Dangerous Occurrences | | our control. This scheme, which | | the HSE-MS will be fully online by | | --- | --- | --- | --- | | The Board and Executive Team | | Regulations (RIDDOR) | | | | goes beyond the PDF code and our | | January 2023. Further developments | | take an active role in all aspects | | The total of two reportable incidents | | | | contractual obligations, has been | | in communication and training of | | of our People polices, with regular | | in FY2022 is a significant reduction | | | | well received by retailers and the | | safe practices across the Company | | reviews and discussion. Due | | on the previous year. We are | | | | trade bodies which represent them. | | include an updated compulsory | | consideration is given to the | | pleased to report that no specified | | | | In the latest year of operation, 6,821 | | online induction programme which | | impact on colleagues for all our | | injuries (representing more serious | | | | payments were made to retailers | | all new starters must complete within | | key initiatives and wider strategy. | | occurrences) were reported this year. | | | | from approximately 8.7 million | | a set timeframe. | (See table above). deliveries made, representing 0.08% of total delivery instances. ## / Specified Injuries absence from work Total RIDDORs 2020 2022 2021 39 7 17 0 0 2 Smiths News plc 30 S Annual Report and Accounts 2022 ## People Report As the market leader with over 200 years’ experience This year, emerging from the Two-way communication pandemic, we have been able to We work hard to ensure regular, in our industry, it’s no surprise that we are blessed with raise and widen our horizons, holding clear and timely communication talented people who have unparalleled experience and conversations about the lessons on matters of importance to our expertise. From our nightly distribution centres to our we’ve learned, and what’s now colleagues. This includes, among central support services, it’s always the human factor needed for the future. That there others, the performance of the which makes the most difference. And underpinning are new challenges emerging just business, strategic goals, community reminds us that change is constant. relations, changes to policies and any that intangible but essential ingredient of our success And because of this, the answer matters of wider interest or context. is a unique culture, characterised by commitment, to our questions was clear and collaboration and camaraderie. This year our colleague engagement consistent across the business: we s urvey has moved from a ‘ one - off’ must build on our strengths, retaining exercise to more regular quarterly those qualities that have served us so pulse surveys supported by local and well, but enhancing them with new company-wide briefings to ‘give and skills to help us to adapt and grow. receive’ feedback, sharing information Importantly, it’s our people who are and ideas on the progress and future shaping the change, for together of the business. we know that it’s as desirable as it is Our new company-wide intranet necessary to assimilate change for ‘SmithsZone’ is a dynamic digital the better. Indeed, we do this every platform, giving colleagues access day in our search for operational to business news, useful information efficiencies, technology advances and engaging content they can and continual improvements; interact with. To complement this applying that same focus to our online engagement, we produce culture is not so different. As the regular all-colleague newsletters, business has come through what sharing stories and news (both have been challenging times, there is formal and lighter in tone) that helps now a tangible sense of our people to foster a culture that’s founded looking ahead to new opportunities. on working together. Quarterly In moving forward, we continue townhall meetings for all colleagues to be guided by our values, which and monthly management briefing reflect not only how we work sessions are now business as usual. together today, but our aspirations These include regular Q&A sessions for tomorrow. In many ways there is that are shaped by the suggestions, no better example of how we marry concerns and queries of colleagues. our heritage to a contemporary and outward looking mindset. All of which Engagement speaks to our plans for opportunity Our ‘What Matters’ colleague and growth through and with the engagement survey is the formal people who make it happen. From mechanism we use for measuring acquiring new and specialist skills to engagement, as well as regularly growing from within, we are pursuing testing the opinions and concerns a path of diversity and inclusion in all of colleagues. It uses a range of Building on our strengths Every day our teams work round its forms. industry-recognised performance measures to gauge the overall the clock, often in poor weather and In moving forward, we This is what we mean by building on engagement of colleagues and their challenging circumstances to deliver continue to be guided by our strength in practice – enhancing alignment to the goals and progress on time and to the high standards our capabilities and culture today, to our values, which reflect not of the business. we set. In doing so, they draw on meet the challenges of tomorrow. only how we work together their embedded knowledge and a We publish results transparently deep commitment to the customers today, but our aspirations and make action plans to address and communities we serve. It’s hard for tomorrow. issues that arise; where we are to imagine more testing times than unable to address emerging we have seen these last two years, concerns or suggestions, we seek and yet our colleagues have worked to explain the reasons and find tirelessly to minimise disruption, practical ways of responding with making a real difference in what were constructive alternatives. As a often dark and difficult times. 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. Smiths News plc S G F 31 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. ## / Smiths News plc 32 S Annual Report and Accounts 2022 ## People Report continued Our Values are integral to ## Creative Trusted Friendly all the decisions we make Be imaginative, Safe, reliable and Have fun and be helpful. – they guide the way we adventurous and curious. responsible. Take pride in Enjoy working together to work today and underpin Develop inspirational ideas our work and do the right deliver great performance. our ambition for the future. and innovative solutions. thing for our customers Most importantly, we seek and each other. 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 Working to pragmatic culture. And by being ## so, it helps to ensure our Values our values stay relevant to the pressures of a dynamic workplace – improving performance today and shaping the solutions of tomorrow. ## Open Quick Fair Share your thoughts freely Make informed decisions Be inclusive, honest and and always stay open to and act quickly. Be agile respectful to everyone, This approach of ‘values in new ideas. Listen to others, in the way we work whatever their role practice’ is reflective of our be positive and engage together and deliver or experience. hands on and pragmatic in communications. for our customers. culture. Smiths News plc S G F 33 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 formal training. More broadly, we seek Supporting colleagues or Finance. For example, this year, to ensure the wide communication For the vast majority of colleagues, two senior leaders achieved First of all vacancies, encouraging We take pride in developing work and home life are well balanced, Class passes in their Chartered enquiries and applications from all allowing them to contribute their skills and promoting people Management Degrees and a further who have an interest. Following the best every day. But we know that at from within the Company. | three ‘up and coming’ colleagues | pandemic, we have increased our | times this balance can be upset by | | --- | --- | --- | | participated in the industry’s Ace | efforts to publicise internal roles, | factors such as physical and mental | | Empower Programme. And last | leading to many more promotions | health, financial hardship, family | | but not least, we are committed to | and development roles – overall, 33% | issues or uncertainty over the future. | | apprentice level training too, with | of vacancies are filled by internal | At times like these we try to be there | | several colleagues completing | candidates. | for colleagues, offering additional | | modules that prepare them for team | | support and flexibility that can make | In parallel, we are also conscious leader or other supervisory roles. a substantial difference to their of the value of attracting external wellbeing. | Individual learning is supplemented | talent, ensuring new joiners feel at | | | | --- | --- | --- | --- | | with team development sessions, | home in culture, enhancing it with | During the COVID-1 | 9 pandemic, | | often drawing on workplace style and | new skills and fresh perspectives. To | we established a colleague support | | | personality diagnostics, to support | help towards this goal we have, this | fund and have maintained this since | | | better understanding of each other | year, conducted a comprehensive | the ending of restrictions, widening | | | and promote more effective working. | Diversity & Inclusion audit of | its scope so that support is now | | | | our recruitment and onboarding | considered for colleagues in need | | We take pride in developing skills processes, partnering with an whatever the reason. In addition, we and promoting people from within external specialist to provide have launched a financial wellbeing the Company. Our talent programme objectivity and expertise. Resulting toolkit using a third-party partner that gives tailored support to those in a clear action plan to enhance our supplements educational resources individuals with demonstrable ability and retain a diverse workforce. with financial products, including pay potential to progress, accelerating day loans at competitive rates. their career trajectory with experience and project opportunities, as well as ## / Smiths News plc 34 S Annual Report and Accounts 2022 ## People Report continued 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 Our commitment to diversity Workplace responsibility, for exceptional needs, subject to and inclusion is extensively meeting the needs of the business. whistleblowing and In promoting diversity, communicated and celebrated human rights Diversity and inclusion through our ‘Everyone In’ programme. we are guided by a belief The Company is committed to Throughout the Company, we This high-profile initiative is visible at that different skill sets, responsible practice throughout operate a zero tolerance approach every location and includes national the workplace, striving to ensure a capabilities, backgrounds initiatives to raise awareness through to discrimination and are committed culture that is free from discrimination to promoting diversity in an inclusive and experience contribute a calendar of events that are guided a nd harassment in any form. The working environment. In doing by colleague input. The enthusiasm to a more effective and Board regularly reviews these issues, so, we seek to create a workplace for this programme is tangible, doing resilient business. ensuring the actions and policies culture that embraces people from much to underscore our aims and described in this report are applied all backgrounds, experiences and wider culture. Examples of cultural in practice and that this ambition is orientations. More formally, our celebrations this year include deeply embedded in the culture of Equality, Diversity and Inclusion National Inclusion week, Black the business. Policy articulates these aims. History month, Pride and Ramadan. In support of this, we work to In promoting diversity, we are Looking ahead, our goals for diversity embed a culture and environment in guided by a belief that different skill and inclusion will link closely to which workplace concerns can be sets, capabilities, backgrounds and our sustainability strategy, which raised and addressed without fear experience contribute to a more has identified its People Pillar as a of recrimination; and confidential effective and resilient business. This priority focus, with specific emphasis whistleblowing procedures are richness of perspective comes not on greater diversity in gender and well communicated, including only from gender and ethnicity, but ethnicity (see the Sustainability report a confidential ‘speak-up’ line. All also from welcoming and respecting on page 24). Further details on our concerns raised are carefully the views of colleagues who bring formal governance of diversity and investigated and any significant experience drawn from varying ages, inclusion can also be found in the matters are brought to the attention careers, social backgrounds and Nominations Committee report on of the Audit Committee. religious beliefs. page 90. Smiths News plc S G F 35 Annual Report and Accounts 2022 This approach is integral to our policies and procedures, further ## Gender composition and pay gap reporting 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 The Company actively supports gender equality in the throughout the year. workplace and is committed to improving the balance of The Company supports the human gender composition over time. More broadly, we strive rights of our colleagues and our for a workplace environment that provides fair reward policies are built on a commitment to for all and ensures each and every colleague has access to mutual respect, fairness and integrity. personal development opportunities with the appropriate These principles are reflected in both our values and People policies and, support to progress their career. more broadly, to the ways in which we work together. Proper and flexible The gender composition as at 27 August 2022, and the equivalent table consideration is given to people with for the prior year can be seen in the table below. disabilities and, should employees Male Female develop a disability while working for Gender composition the Company, every effort is made at 27 August 2022 No. % No. % Total to continue their employment and Employees 923 60% 616 40% 1,539 provide retraining for alternative roles if required. of Directors 5 83% 1 17% 6 Team 6 67% 3 33% 9 In relation to our markets, we have policies for ethical trading standards Team and other and a commitment to combatting modern slavery, which we expect our commercial partners to adhere to. We remain vigilant in our efforts to Male Female Gender composition combat modern slavery and human at 28 August 2021 No. % No. % Total trafficking, regularly reviewing the The Company supports Employees 991 62% 612 38% 1,603 effectiveness of our procedures | | the human rights of our | in the areas we consider to be of | of Directors | | 5 | 83% | 1 | 17% | 6 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | colleagues, and our policies | | greatest risk, including: employee | | | | | | | | | | | | | Team | 7 | 78% | 2 | 22% | 9 | recruitment; contractor appointment are built on a commitment and management; procurement and Team and other to mutual respect, fairness outsourcing. Furthermore, we seek and integrity. to raise awareness of anti-slavery and human trafficking through The Company’s overall gender pay gap as reported in the year* was communication of our policies an arithmetic mean average of 14.3% (FY2021: 12.8%). The median and guidelines. The C ompan y ’ s distribution average of 4.04% (FY2021: 3.96%) is significantly lower Anti-Slavery and Human Trafficking than the UK’s National Median Gender Pay Gap average at 15.5%. Statement (September 2022) is This data was communicated in an open and transparent way to available online at www.smithsnews. colleagues and other stakeholders, including publication on the relevant co.uk. 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. Executive Executive ## Executive Board All Board All Executive Senior Managers Senior Managers / 76% 76% 24% 24% 5 5 16 21 16 19 Smiths News plc 36 S Annual Report and Accounts 2022 ## Financial ## Review Paul Baker Chief Financial Officer ## These financial ## results confirm the ## continued success ## of the Company On a statutory basis, operating ### Overview Table A: Continuing adjusted results profit decreased by £3.4m to The Company continues to £32.4m (FY2021: £35.8m). The generate good underlying profit and reduction was driven by the write- 1089.3 1,109.6 - 1.8% free cash flow, which together with down of £4.4m debt following the the benefit of one-off cash items 40.7 42.6 - 4.5% administration of McColl’s Retail has reduced period end net debt Group, partially offset by lower to £14.2m (FY2021: £53.2m) and Statutory profit after tax of £23.4m Net finance costs (8.7) was £2.9m lower than FY2021 Revenue was down 1.8% at (£26.3m), reflecting the above £1,089.3m, a better performance factors and a higher effective rate (5.4) (4.6) 17.4% than the historic trend of 3-5%, of tax, the prior period having buoyed by improved one shot and tax rate 17.4% 14.9% 16.8% benefited from the use of Tuffnells magazine sales, both of which losses. As a result, statutory EPS benefited profitability through reduced by 0.9p to 9.3p (FY2021: stronger margin mix. The impact of 10.2p). * The Company gave guidance and set incentive targets using Adjusted EBITDA (ex IFRS16) inflation was managed in line with during FY2022. From FY2023, Adjusted operating profit will be used. guidance given during the period, A final dividend of 2.75p (£6.7m) with the net impact of £2.1m largely has been proposed, taking the full ### Table B: Statutory results flowing to adjusted operating profit period FY2022 dividend to 4.15p or which was down £1.5m at £38.1m. 2022 £10m (FY2021: £4m), an increase of £6m. 1089.3 1,109.6 -1.8% Adjusted profit before tax, however, | increased by £0.2m to £31.1m, due | These financial results confirm | | profit | 32.4 | 35.8 | -9.5% | | --- | --- | --- | --- | --- | --- | --- | | to a £1.7m reduction in interest | the continuing success of the | | | | | | | | | finance costs | | | (5.2) | 13.5% | | charges, a consequence of lower | Company in meeting its stated | | | | | | | average net debt. Adjusted EPS | | before tax | | 27.9 | 30.6 | -8.8% | goals of maintaining the broad | was stable at 10.8p, the same as | profitability and cash flows of its | | (4.3) | -4.7% | | --- | --- | --- | --- | --- | | FY2021. | core operation, materially reducing | | | | | | | tax rate | 14.1% | -14.2% | net debt and meeting the needs Cash flow and net debt both of all stakeholders. Looking ahead, benefited from the return of the this strengthened financial position pension surplus (£8.1m) and the will allow for greater flexibility in settlement of Tuffnells deferred our delivery of further value for consideration (£14m), as well shareholders. as £26.1m of underlying cash – generation. Profit/(loss) attributable Continuing operations £m Change 2021 to equity shareholders 26.2 -10.7% 23.4 Revenue Operating Net Profit Profit before tax £m Change 30.9 0.6% 31.1 2022 2021 Taxation Taxation - Revenue Discontinued operations £m 23.4 Effective Effective - EBITDA (ex. IFRS 16)* Loss for the period from proposed for the period. other adjusting items. 19.5% 16.1% (4.5) (4.5) (7.0) Discontinued Operations Profit after tax (0.1) Profit after tax EBITDA -11.0% enables dividends of £10m to be -2.3% Operating profit 26.3 - 25.7 48.6 26.3 50.3 3.4% -3.8% 38.1 39.6 Smiths News plc S G F 37 Annual Report and Accounts 2022 ### Continuing adjusted Table C: Earnings per share results (Table A) Revenue of £1,089.3m (FY2021: 2022 2022 2021 £1,109.6m) was down 1.8% on the attributable to ordinary shareholders (£m) 25.7 26.3 23.4 26.3 prior period, a better performance compared to the pre-COVID-19 weighted average number of shares (millions) 238.5 243.5 238.5 243.5 (2015-2020) trend of c3%-5%. 10.8p 10.8p 9.8p 10.8p Underpinning this performance was weighted number of shares (millions) 252.0 254.8 252.0 254.8 the success of one shot releases 10.2p 10.2p (+43% increase in revenue period on period), with particularly strong ### showings of Premier League football Table D: Dividend and Pokémon trading cards. Daily £m 2021 newspapers (-2%), weekly (-3%) Dividend per share (paid and proposed) 4.15p 1.65p and monthly (-2%) magazines also performed better than historic Dividend per share (recognised) 2.55p 0.50p trends, offset by lower revenue from Sunday newspapers (-9%). • Net impact of other items in depot The Company has net liabilities Dividend Daily newspapers, unlike the costs and overheads (£1.7m), of £32.0m on its balance sheet (Table D) Sundays, benefited from cover price including strategic planning (FY2021: £57.7). The period on The Board is proposing a final increases in the second half of the support costs, an increase to the period reduction of £35.7m was dividend of 2.75p, taking the full period. Magazines recovered further accrual for unused annual leave, driven by £23.4m of statutory profit, period dividend to 4.15p (FY2021: against a comparative still impacted redundancy provisions, increased the £10m net pension credit in other 1.65p). The proposed final by COVID-19 and were also helped depot repair costs and the impact comprehensive income, offset by dividend is subject to approval by by increased summer travel. of inflation on the dilapidations £6.1m of dividends. Net liabilities shareholders at the Annual General provision. Utility costs were flat have arisen largely as the result of Meeting on 24 January 2023 and DMD also benefited from increased period on period, with fixed price impairments relating to the Tuffnells has not been included as a liability travel. Revenue of £4.2m was a 27% contracts in place until 2024 business prior to its sale in May 2020. in these accounts. The dividend increase on FY2021 (£3.3m), and Net finance charges of £7.0m The Company-entity balance sheet recommendation represents the there was positive news towards the (FY2021: £8.7m) were lower than continues to have distributable maximum permissible sum that end of the period, with additional the prior period by £1.7m due to reserves of £118.7m (FY2021: can be paid under the distribution newspaper and magazine supply lower bank interest charges (£1.5m) £124.9m) to allow for future dividend cap limits within our banking to Emirates and Thai Airways who and lower loan arrangement fee payments. arrangements (£10m per annum) increased volumes on flights and in amortisation (£0.2m). and is based on the forecast lounges. Earnings per share number of shares in issue at the At a profit level, continuing adjusted Adjusted profit before tax was (Table C) record date. The proposed dividend, | operating profit of £38.1m was a | £31.1m, up 0.6% on last period. | | | | --- | --- | --- | --- | | | | Earnings attributable to shareholders | if approved, will be paid on 9 | | decrease of £1.5m (-3.8%) on the | Taxation of £5.4m indicates a | | | | | | on a continuing adjusted basis of | February 2023 to shareholders on | | prior period (FY2021: £39.6m), | higher effective tax rate of 17.4% | | | | | | £25.7m resulted in an adjusted EPS | the register at close of business on | | with inflationary pressures having | compared to the prior period | | | | | | of 10.8p, the same as FY2021. The | 13 January 2022. The ex-dividend | | an impact on the delivery and | (FY2021: 14.9%), the prior period | | | | | | impact of lower profit as described | date will be 12 January 2022. | | warehouse cost base. | having benefited from the use of | | | above was offset by a lower basic Tuffnells losses. weighted average number of shares. The decrease can be attributed | to the net impact of: | Statutory results | Statutory continuing earnings per | | --- | --- | --- | | | (Table B) | share is down 0.9p to 9.3p (FY2021: | | • Inflationary pressures (net | | | | | Statutory continuing profit before tax | 10.2p per share), the result of a | impact £2.1m) affecting delivery of £27.9m was a £2.7m decrease on £2.9m low er profit, also offset by a and warehouse processing costs, the prior period (FY2021: £30.6m). higher diluted weighted number of with increases to agency usage The decrease was driven by the shares. and contractor rates offset by cost £2.9m of additional adjusting items | savings and higher rates for sale | | | | | The fully diluted weighted number | | --- | --- | --- | --- | --- | --- | | | which included the £4.4m | M | c C oll | ’ s | | | of waste paper | | | | | of shares was 252.0m (FY2021: | write-down. | • The benefit of product mix moving | | 254.8m). Fully diluted shares include | | --- | --- | --- | | towards magazines and one shots | The effective statutory income tax | a 13.5m diluted share adjustment | | on wholesale margin (£1.4m) | rate for the Continuing Operations | for employee incentive schemes | | | was 16.1% (FY2021: 14.1%), the | (FY2021: 11.3m) due to purchases | | • The benefit of ancillary revenue | | | | | prior period having benefited from | made during the period. | streams (£0.9m), including leasing the use of Tuffnells losses. of spare warehouse space and improvement in performance of Statutory Rascal joint venture £m Earnings Basic Basic earnings per share Diluted Continuing Continuing Adjusted 9.3p ## / Effective tax rate 2021 10.2p 2022 Smiths News plc 38 S Annual Report and Accounts 2022 ## Financial ## Review continued | Adjusted items | Table E: Adjusted items | | | | | Free cash flow | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | (Table E) | | | | | | (Table F) | | | | | Adjusted items before tax of £3.2m | | | | | | Free cash flow generation remains | | | | | | | of receivables | | | – | | | | | | (cost) relating to Continuing | | | | | | one of the | C ompan | y ’ s | key | | Operations were a £2.9m increase | | | | | (1.0) | strengths. Free cash flow includes | | | | | from the prior period (FY2021: | | | programme planning costs | | (1.1) | lease payments, Adjusted items, | | | | | 0.3m cost). The major contributing | | | | | | interest and tax. | | | | | | | | | 1.2 | (1.6) | | | | | factors to the increased cost were -organisation costs 0.2 0.1 The Company generated £48.2m of the impairment of receivables free cash flow, which was £24.2m (£4.4m increased cost) which was of profits from joint ventures – (0.3) higher than FY2021 (£24.0), due offset by £1m lower finance income. – 0.1 to the £8.1m receipt of pension Impairment of receivables is a before tax and interest surplus and £14m deferred provision resulting from M c C oll ’ s consideration received from going into administration in May – unwind of deferred Tuffnells and lower levels of cash 2022. 2.5 adjusting items. Adjusted items are defined in the before tax The decrease in working capital accounting policies in Note 1 of 0.9 0.3 in the period was £0.6m (FY2021: the Group Financial Statements (2.3) increase £1.0m). Working capital is and present a further measure of affected by the billing cycles of both our performance. Excluding these publishers and retailers, and leads items from profit metrics provides Having reviewed the nature of the Network and re-organisation costs to intra-month working capital readers with helpful additional bad debt, the treatment in the past were a credit of £0.2m (FY2021: movements of up to £40m. Those information on the performance of material items, and the relevance £0.1m), owing to an overprovision cycles were largely consistent at of the business across periods to users of the future predictability of costs in the prior periods. the FY2022 and FY2021 period end | because it is consistent with how | of the performance of the business, | | | | --- | --- | --- | --- | | | | In the prior period, Rascal fully | cut-off points, resulting in only a | | the business performance is | the £4.4m provision is presented | | | | | | impaired an intangible asset in | £0.6m movement. | | planned by, and reported to, the | as an adjusting item, within the | | | its annual accounts because it is Board and the Executive Team. C ompan y ’ s existing alternative With management focused on considered to no longer have future Alternative Performance Measures performance measure. inflationary pressures in the first economic value. The net book value | (APMs) should be considered in | | | | | | half of the period, cash spent | | --- | --- | --- | --- | --- | --- | --- | | | Pension costs in the current and | | | | of this asset was £0.6m, of which | | | addition to, and are not intended to | | | | | | on capital programmes in the | | | prior periods related to the buy-out | | | | 50% (£0.3m) of the write off is | | | be a substitute for, or superior to, | | | | | | period reduced by £0.5m to £1.9m | | | of the | C ompan | y ’ | s defined benefit | attributed to Smiths News. | | | IFRS measurements. | | | | | | (FY2021: £2.4m). In the last quarter | pension scheme, as discussed | | | A finance income credit of £2.5m | of FY2022, the depot refurbishment | | --- | --- | --- | --- | | The tables below and commentary | further below. | | | | | | (FY2021: £3.5m) arose on unwind | programme has regained | provide a summary of the adjusting During the period, the Company of the discount on the Tuffnells momentum with £1.3m of orders items impacting Continuing incurred professional fees deferred consideration. and capital creditors on the balance Operations. Full details of these in relation to transformation sheet at period end. and those impacting discontinued The tax credit on continuing programme planning of £0.9m items can be found in Note 4 of the adjusted items was £0.9 (FY2021: Lease payments increased to (FY2021: £1.1m). | Group Financial Statements. | | £0.3m). | £6.4m (FY2021: £5.9m) due to | | --- | --- | --- | --- | | | An asset impairment reversal of | | lease renewals and rent reviews | | Adjusted items from Continuing | | Adjusted items before tax for | | | | £1.2m was recognised in the period | | completed during the period. | | Operations before tax was a cost of | | Discontinued Operations -£0.1m | | (FY2021: impairment cost £1.6m) £3.2m (FY2021: £0.3m cost). (FY2021: £0.2m) related to residual Net interest and fees of £8.0m in respect of the joint venture | | | costs on the disposed Tuffnells | (FY2021: £9.5m) has decreased by | | --- | --- | --- | --- | | During the period, the Company | investment in Rascal Solutions | | | | | | business and, in the prior period, | £1.5m, due to the lower levels of | | provided for £4.4m impairment | Limited (“Rascal”). An impairment | | | | | | a VAT refund. | net debt. Both the current and the | | loss on receivables as a result of | was booked in prior period driven | | | prior period included the payment M c C oll ’ s going into administration. by increased market competition of arrangement fees in relation to | This represents 80% of the | and increased risk of contract non- | | | | | | --- | --- | --- | --- | --- | --- | | | | the | C ompan | y ’ s | refinancing of its | | total receivable of £5.5m due | renewal. The business proved to be | | | | | £m banking facilities (FY2022: £2.9m, | | from | M | c C oll | ’ s at the point of | resilient having secured significant | | | --- | --- | --- | --- | --- | --- | --- | | Impairment | | | | | | FY2021: £2.8m). | | | administration and is in line with | | | | contract extensions during the | | | Pensions | | | | | period resulting in a reversal of | | | | the administrator’s estimated | | | | | Cash tax outflow of £5.3m was a | | Transformation | expected payment to unsecured | | | | impairment. | £1.0m decrease on the prior period | | | creditors. | | | | | (FY2021: £6.3m outflow), as the | Asset impairment reversal/(impairment) write-down of M c C oll ’ s reduced the Network and re 2021 final quarter payment. Share The wind-up of the C ompan y ’ s Other (4.4) defined benefit pension scheme Total (1.8) (detailed further below) resulted in (0.9) the receipt of £8.1m in respect of the Finance income pension surplus in December 2021. | consideration 3.5 | | | --- | --- | | Total (0.3) | (5.7) | | Taxation | (3.2) | | Total after taxation (3.8) – | 2022 | Smiths News plc S G F 39 Annual Report and Accounts 2022 The C ompan y ’ s bank net debt/ Going concern ### Table F: Free cash flow | | | EBITDA ratio decreased to 0.3x (H1 | Having considered the | C ompan | y ’ s | | --- | --- | --- | --- | --- | --- | | | | 2022: 0.9x, FY2021: 1.2x). The period | banking facility, the ongoing | | | | profit continuing | 32.4 | end fell just before major publisher | | | | inflationary pressures within the Adjusted items) payments of c.£25m were made, macro economy and the funding items 5.7 which benefited reported bank net requirements of the Company, debt. Bank Net Debt rose to £34.5m and amortisation 10.5 10.7 the directors are confident that on 31 August 2022 after the period headroom under our bank facility EBITDA 48.6 50.3 end (£69.3m on 1 September 2021). remains adequate, future covenant 1.0 tests can be met, and there is a The publisher payments are part (2.4) reasonable expectation that the of the C ompan y ’ s normal working business can meet its liabilities payments (5.9) capital cash flow cycle which as they fall due for a period of generates a routine and predictable interest and fees (9.5) greater than 12 months (being an cash swing of up to £40m within (6.3) assessment period of 16 months) each period. from the date of approval of the | | | 1.2 | 0.8 | | | | --- | --- | --- | --- | --- | --- | | | | | | Our average daily bank net debt | Group Financial Statements. For | | cash flow (excluding adjusted items) | | 27.6 | | during FY2022 was £49.9m | this reason, the directors continue | | | | | | (FY2021: 82.6m), a decrease of | to adopt the going concern basis in | | | – | 8.1 | – | | | | | | | | 39.5% for the full period. Since the | preparing the financial statements | | | | | | settlement of the Tuffnells deferred | and no material uncertainty has | | | – | 14.0 | – | consideration (£7.5m), in April 2022, | | been identified. | of deferred consideration | | average net debt has been £36.7m | | | --- | --- | --- | --- | | | | (FY2021: £75.3m). | Pension schemes | | items (cash effect) – Other | (4.0) | | | In December 2021, the Company Discontinued items cash flow received the sum of £8.1m in respect in the current and prior period of the net cash surplus held by relates to insurance settlements for the Trustee from the finalisation of i ncidents which occurred during the ### Table G: Net Debt the buy-out of the defined benefit C ompan y ’ s ownership of Tuffnells liabilities in the News Section of prior to 2 May 2020. the WH Smiths Pension Scheme. Bank Net Debt | | | | The bank net debt to EBITDA | As agreed with the Trustee of the | | --- | --- | --- | --- | --- | | | 48.2 | 24.0 | | | | | | | covenant of 0.3x is comfortably | Scheme, the return of surplus | | Operations Free cash flow | | (0.4) | within our main leverage covenant | preceded the formal winding up | | | | | ratio of 2.0x (reducing to 1.75x in | steps of the News Section – the | 23.6 February 2023), and we remain well winding up of the News Section movement – – being formally completed on 25 within all our other bank covenant (6.1) tests at period end. February 2022 through the purchase of insurance run-off cover and the A reconciliation of bank net debt payment of taxes owed to HMRC, (which excludes the IFRS16 which were settled by the Trustee. | – | | | lease creditor and unamortised | | | --- | --- | --- | --- | --- | | | – | 6.7 | arrangement fees) to the balance | As part of the wind up, £1.3m was | | | | | sheet is provided in the Glossary. | paid to an escrow account for the | Trustee to purchase indemnity | £m | | | insurance and to cover future claims | | --- | --- | --- | --- | | Operating | | | from members owed amounts | | | FY2022 cash flow also benefited | A reconciliation of free cash flow to | | | (including | | | following the Lloyds ruling in | | | from the receipt of £14m of deferred | the net movement in cash and cash | | November 2020, and £0.2m was Adjusting 3.8 consideration from Tuffnells, equivalents is given in the Glossary. paid for insurance run-off cover. comprising the first instalment in Depreciation Net Debt The Company incurred £0.4m November 2021 (£6.5m) and the final Adjusted (Table G) (FY2021: £0.6m) in pension settlement of £7.5m in April 2022. Bank net debt closed the period administrative expenses and other Working capital movements The total net cash impact of other professional fees as a result of the at £14.2m compared to £53.2m in Capital expenditure adjusted items was a £1.5m outflow £m August 2021, a decrease of £39m. winding up process. (FY2021: £4.0m outflow). This Lease Opening comprised: £1.3m (FY2021: £1.2m) The reduction in net debt was Net | Continuing Operations Free cash flow | | driven by free cash flow from | | | --- | --- | --- | --- | | | of Transformation programme | | Paul Baker | | Taxation | planning costs and £0.2m (FY 2022: | Continuing Operations of £48.2m | | | Discontinued | | | Chief Financial Officer | as described above. These inflows | Other | £0.6m) of Pension related costs. | | | | --- | --- | --- | --- | | Free cash flow | | | 8 November 2022 | | | The prior period included £2.2m of | were offset by the payment of the | | 2021 Free 28.0 Other 47.7 FY2021 final dividend of £2.8m in network and reorganisation costs (79.7) (0.6) February 2022, the FY2022 interim Dividend paid Adjusted items (cash effect) (FY2022: £nil). (1.9) dividend of £3.3m and a £2.6m return of pension surplus Purchase of own shares for | | (6.4) | purchase of own shares. | | --- | --- | --- | | Adjusted items (cash effect) employee share schemes (2.6) | | | | receipt | (53.2) (8.0) | | | Discontinued Operations | (2.6) | | | Adjusted Tuffnells working capital loan | (5.3) | | 2021 (14.2) 48.2 (0.5) (1.5) ## / Continuing Free cash flow Bank Net Debt (53.2) 24.0 35.8 (1.2) 2022 2022 Smiths News plc 40 S Annual Report and Accounts 2022 ## 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. The risk management process As part of the Board’s ongoing ### Risk control model mirrors the C o mp a n y ’ s operating assessment of the principal and The Company manages risk by operating a three lines of defence structure, with each functional area emerging risks, the Board has risk and control model. being responsible for the ongoing considered the performance of communication and feedback the business, its markets, the ### Board/Audit Committee of their existing and emerging changing regulatory landscape, risks. This process comprises the the C o mp a n y ’ s future strategic identification, assessment and direction and ambition, as well as effective mitigation of their risks, the growing climate-related risk as well as continuous monitoring environment. The directors have ### Executive Team (ET) for changes. carried out a robust assessment of the Group’s emerging and principal Principal and risks, including those that could | | st | | nd | | rd | emerging risks | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 line of | | 2 line of | | 3 line of | | threaten its business model, future | | | | | | | | The Company has a clear | performance, solvency or liquidity. | | | defence | | defence | | defence | | | | | | | | | | framework in place to continuously | Following those assessments, three | | Management | | Compliance and | | Internal Audit | | identify and review both the | emerging risks have been elevated | | controls | | support functions | | Internal Audit | | principal and emerging risks it faces. | to principal risks in our risk register. | | The first line of | | The second line of | | provides | | This includes, amongst others, a | They are: (i) changes to our retail | | defence consists | | defence consists | | independent and | | detailed assessment of business | customers’ commercial model; | | of operational | | | | objective assurance | | and functional teams’ principal risks | | | | | of the subject | | | | | (ii) execution risk in implementing | | management | | matter experts | | | | and regular reporting to and robust | | | | | | | on the robustness of | | | our growth and diversification | | implementing and | | who, in addition | | the risk management | | challenge from both the Executive | | ambitions; and (iii) sustainability maintaining effective to supporting framework and the Team and Audit Committee. The and climate-related change risk identification, operational directors’ assessment of these effectiveness of environment. reporting, management in their internal controls. principal risks is aligned to the strategic business planning process. Risks are still subject to ongoing management and own specialist areas, monitoring and appropriate internal control also maintain their Specifically, key risks are plotted on mitigation. systems. own risk registers. risk maps with descriptions, owners The table on the next pages detail The second line and mitigating actions, reporting each principal business risk, those also includes the against a level of materiality aspects that would be impacted Executive Team (principally relating to impact and were the risk to materialise, our who regularly review likelihood) consistent with its size. assessment of the current status of strategic risks. These risk maps are reviewed the risk and how each is mitigated. 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 ### Risk management process 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 Ri Risk Risk may be brought into the principal identif assessment response and reporting 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. sk Risk monitoring cation Smiths News plc S G F 41 Annual Report and Accounts 2022 Principal risks and potential impact Mitigations Strategic link/Change Macro-economic uncertainty Deterioration in the macro-economic environment • Annual budgets and forecasts take into account Strategic Link: results in supply side cost inflation. the current macro-economic environment to set Cost and efficiencies, expectations internally and externally, allowing for or Operations The Company is presented with cost challenges in a changing objectives to meet short and medium-term number of areas which are being driven by increased Change: financial targets competition in the distribution labour market and rises Increasing • Weekly cost monitoring enables oversight and action in fuel and utility prices. These cost increases present on a timely basis a risk when they cannot be fully mitigated through increased prices or other productivity gains. • Predictable level of volume decline within the core business enables cost optimisation planning This results in deterioration in the level of profitability in • Use of fixed term contracts as a hedge against rapidly both the short and medium term, and impacts on the rising prices, e.g. energy costs C ompan y ’ s ability to execute its strategies, including level of debt and liquidity objectives. • The Company continues to be significantly cash generating to support its strategic priorities Acquisition and retention of labour Due to the current competition in the distribution • We seek to offer market competitive terms to ensure Strategic Link: labour market, the Company is facing an increased talent remains engaged People first, Culture and risk of being unable to recruit and retain warehouse values, Costs and efficiencies • We offer long-term contracts with our sub-contracted colleagues and support staff. delivery partners Change: The same pressures are also being felt in sourcing • We use a variety of platforms to recruit employees Stable and retaining delivery sub-contractors, as well as filling and contractors in-house roles within our central support functions. • The level of vacancies across warehouse and delivery contractors are monitored daily A failure to maintain an appropriate level of resourcing could result in increased costs, employee • We undertake workforce planning; performance, disengagement and/or loss of management focus and talent and succession initiatives; learning and underpins the ability to address the strategic priorities development programmes; and promote the and to deliver the forecast performance. C ompan y ’ s culture and core values • Retention plans are reviewed to address key risk areas, and attrition across the business is regularly • Regular surveys are undertaken to monitor the engagement of colleagues IT infrastructure and cyber security To meet the needs of our stakeholders, our IT • Defined, risked-based approach to the information Strategic Link: infrastructure needs to be flexible, reliable and secure. security roadmap and technology strategy which is Technology aligned to the strategic plans Secure infrastructure prevents external cyber- Change: • Regular tracking of key programmes against spend attack, insider threat or supplier breach could cause Stable targets and delivery dates service interruption and/or the loss of company and customer data. • The Company assesses cyber risk on a day-to-day basis, using proactive and reactive information Cyber incidents could lead to major adverse customer, security controls to mitigate common threats financial, reputational and regulatory impacts. • Dedicated information security investments and Flexible and reliable IT infrastructure means the access to third-party cyber security specialists Company is able to meet its strategic goals and • The Company encourages a cyber-aware culture react quickly to changing events. The lack of this by undertaking exercises, such as computer-based could lead to the Company being unable to execute training and more regular communications about its strategic goals. specific cyber threats • We continue to pursue Cyber Essentials and Cyber Essential Plus accreditations ## / monitored Smiths News plc 42 S Annual Report and Accounts 2022 ## Principal and ## Emerging Risks continued Principal risks and potential impact Mitigations Strategic link/Change Legal and regulatory compliance The Company is required to be compliant with all • Changes in laws and regulations are monitored, with Strategic Link: applicable laws and regulations. Failure to adhere policies and procedures being updated as required Technology, Sustainability, to these could result in financial penalties and/or Operations • Business-wide mandatory training programmes for reputational damage. higher-risk regulatory areas Change: Key areas of legal and regulatory compliance include: • External experts are used where applicable Stable • All major policies are reviewed by the Board or Audit • GDPR Committee on an annual basis • Health and Safety • Operational auditing and monitoring systems for • Tax compliance higher risk areas • Environmental legislation • Employment law Changes to retailers’ commercial model Our largest retailers (e.g. grocers and symbol group • Our EPoS-based returns (EBR) solution has Strategic Link: members) remain under significant pressure to been introduced instore with our largest retailers, Cost and efficiencies maximise sales and profitability by channel within improving staff efficiency in managing the magazine Change: their retail stores and at associated sale outlets, such category, thereby reducing cost to the retailer New as at petrol forecourt stores. This could result at any • Longer-term potential to extend EBR to newspapers time in a category review of the newspaper and in order to broaden efficiency-benefits to retailers magazine channel, leading to a significant reduction in • Form stronger partnerships with emerging retailers newspapers’ and/or magazines’ selling space instore, to stock magazines and newspapers in favour of other higher margin products and/or the delisting of all/particular titles of newspapers and/or magazines. 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 • Strong project management and governance in Strategic Link: essential to the long-term success of the Company. place to sign-off growth initiatives and oversee their Cost and efficiencies At the same time, maintaining the C ompan y ’ s implementation Change: outstanding and sector-leading standards of service in • A Growth Delivery Operations Steering Committee New newspaper and magazine wholesaling is paramount to has been established to monitor the impact of new help fund growth and diversification opportunities and business opportunities on core operations support publisher contract renewals, each of which • Pilots and trials of new business opportunities have deliver shareholder value. been deployed to assess both the potential economic Implementing new business growth opportunities benefit of such opportunity and its likely impact without detrimentally impacting the C ompan y ’ s core on maintaining the C ompan y ’ s outstanding and newspaper and magazine wholesaling carries an sector-leading standards of service in newspaper execution risk to both the new initiative and ensuring and magazine wholesaling the Company remains able to deliver sector-leading • Executive Team balanced scorecard of key support to publisher clients. performance indicators ensures sub-optimal performance is tracked and monitored on a regular basis and allows appropriate interventions to be made Smiths News plc S G F 43 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 • Sustainability Steering Committee established Strategic Link: emergency. In the UK, government and regulatory (chaired by the Chief Financial Officer) to coordinate Cost and efficiencies, changes in response to a drive to ‘net zero’ carbon the C ompan y ’ s action on climate change Operations, Sustainability emissions and increasingly stringent air quality targets • Emissions and air quality targets in UK towns Change: for UK towns and cities could make it more difficult and cities are monitored by a central team in the New and costly for the Company to undertake newspaper Operations function which ensures the Company and magazine wholesaling activities within the UK can fulfil its obligations to customers and remain or particular towns and cities. In addition to these compliant with legal requirements transitional risks associated with moving to a low • Operational sites are reviewed for their resilience carbon future, there are also a range of ongoing to extreme weather events, such as floodings, with physical risks. These include an increase in the upgrades and interventions made where these are frequency of extreme weather events which may result cost-effective. Depots are relocated to new sites (e.g. in power outages, disruption to our service operations during lease break windows) where this represents a and/or impact our ability to serve our customers in an better option than adapting an existing location efficient and cost-effective manner. • Working with suppliers to ensure they share the In common with all major organisations, there is a risk C ompan y ’ s vision to act on climate change of reputational damage and/or loss of revenue if the Company fails to meet stakeholder expectations for action on climate change. The risk management process mirrors the Company’s operating ## / structure... Smiths News plc 44 S Annual Report and Accounts 2022 ## Task Force on Climate-Related ## Financial Disclosures (TCFD) statement against ### Inside this section planning Introduction from Paul Baker Compliance | 46 TCFD recommendations | | --- | | Overview 46 | | Scenario 46 | | Governance 48 | | Business strategy 49 | next steps Risk 49 52 Metric and targets Streamlined Energy & Carbon | 53 Reporting disclosure (SECR) | | --- | | 53 Assurances | | Planned 54 | | Outlook 45 54 | Smiths News plc S G F 45 Annual Report and Accounts 2022 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 It gives me pleasure to achieve our goals. We remain as Chairman of our aware of the growing risk of climate change to our business, but are Sustainability Committee also focused on the positive steps to present this, the first we have taken which saw us of our Task Force on launch our recycling collection Climate-related Financial service offering to our independent retailers, which not only assists Disclosures (TCFD) reports. our customers with their recycling requirements but increases the FY2021 represented the start of utilisation of our fleet and has our journey in this area and saw the potential to deliver financial us commence development of benefits to our business. our sustainability approach, with this year seeing us take significant I assure you that our Board, strides to develop our sustainability CEO, Executive Team and all our strategy and commence with its colleagues throughout the business implementation, including the are committed to achieving our processes and systems to enable goals and to do our part towards TCFD reporting. One of our alleviating this climate emergency, sustainability pillars relates to the and we will continue to build from environment in which we operate, our current position. with key areas of focus being emissions, waste and energy, each of which link closely to TCFD. 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. ## / Smiths News plc 46 S Annual Report and Accounts 2022 ## Task Force on Climate-Related ## Financial Disclosures (TCFD) continued Compliance statement against TCFD ## TCFD Process recommendations At the time of publication, the Company has made climate- ### Process related financial disclosures which we believe are consistent with the TCFD recommended Governance Strategy Risk disclosures (as per the four TCFD • Sustainability Committee • Considered performance of • Undertook risk assessment recommendations and the 11 the business, its markets & the • Ongoing review of processes • Determined physical recommended disclosures of the changing regulatory landscape and controls and transitional risks & report entitled “Recommendations • Sustainability strategy opportunities, including impact of the Task Force on Climate-related • Executive Team & likelihood | Financial Disclosures” published in | | • New business opportunities | | | --- | --- | --- | --- | | | • Board oversight (quarterly | | | | June 2017 by the TCFD) covering | | | • Considered mitigations | reviews) governance (all recommended disclosures). In respect of the strategy recommendations (all ### disclosures), we have partially met Outcomes the requirements, with further work underway to refine the basis of our assumptions used in Sustainability Sustainability Strategy Elevate to principal scenario planning and to develop Committee /Board risks / current an analytical model to more Reports opportunity accurately identify the impact of risks and opportunities on business, strategy and financial planning, including the timelines of such Overview Scenario planning impact. Once we have more fully The Task Force on Climate-related We have chosen three climate understood the impacts, we will Financial Disclosures (TCFD) ...further work is underway scenarios (as set out below) to undertake a further exercise to published recommendations to re fine the basis of our assess our risks and resilience of revisit our business strategy and for climate-related financial our mitigating actions. We chose assumptions used in financial planning to build additional disclosures which would provide these scenarios because they scenario planning and | business resilience as necessary. | a consistent and comparable | | include the requirement to assess | | --- | --- | --- | --- | | The disclosures in respect of the | record of information for use by | to develop an analytical | our resilience under different | | risk management recommendations | companies, investors and other | model to more accurately | scenarios, including a 2°C or lower | | ((a) and (b) in particular) have | stakeholders to enable informed | | scenario, and are modelled across | identify the impact of partially met the requirements, financial decisions. Smiths News a 30-year time period which is risks and opportunities with further information required in has adopted the recommendations aligned to the Paris Agreement and on business, strategy | respect of the impact of identified | of the TCFD and recognises that | | net zero 2050 targets. These three | | --- | --- | --- | --- | | climate-related risks in relation to | climate change presents both risks | and financial planning, | scenarios are also aligned with the | | our business, as well as our risk | and opportunities to our business. | including the timelines | International Energy Agency (IEA). | | management strategies. Finally, | This, our first TCFD report, provides | | We have assumed that a disruptive | of such impact. | in respect of metrics and targets | a progress update against the TCFD | transition is most likely, meaning | | --- | --- | --- | | (all disclosures), while we have | framework across each of the four | that physical risks will be present | | determined and disclosed both | TCFD pillars: Governance, Strategy, | but will be limited. Irreversible | | metrics and targets, we have | Risk Management, and Metrics | climate changes (changes in sea | | not yet adopted scientific-based | and Targets, as well as providing | levels, etc.) are seen as long-term | | targets and, therefore, these will | a summary of the strength and | risks under a worst-case scenario. | | be developed within the course | resilience of our strategy and | It should be noted that we currently | | of FY2023. | business model taking into account | have limited data and analytical | | | climate scenarios. | capabilities, and have reached our | A summary appendix of our scenario planning assumption and compliance against the TCFD assessment based on management recommendations is set out at the opinion and what we believe the end of this TCFD report on page 54. 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. ## Our Smiths News plc S G F 47 Annual Report and Accounts 2022 Our materiality measure applied to climate-related risks is the same as applied to all our sustainability risks, being an XY axis rating based Environmental Targets on the importance to stakeholders on one axis and the impact on • Energy – where practical, gas to be sourced from the business on the other. Our alternative sources by 2030, while developing further sustainability risks are kept under Metrics & Targets ongoing energy reduction initiatives, including, where review by our Sustainability Steering (incl. Scope 1 & 2 emissions) practical, new warehouse locations to be net carbon Committee, as well as through our • Emissions neutral and current sites to be net carbon neutral by risk management system. In this regard, please see the risk section • Waste 2030 on page 42. • Energy usage • Waste – understand if opportunities for further waste We anticipate that climate-related segregation exist, while encouraging retailers to recycle risk may have a financial impact on through Smiths News Recycle our business through an increase • Emissions – Review of Science Based Target setting in the costs of doing business (possible increases in tariffs, cost and achieving SBTi, while monitoring fuel costs with of assets to facilitate distribution a view to establishing optimum time for conversion in low emission city-zones and to advanced renewal diesel, and continuing review rising energy costs), reduced Metrics & Targets – of ‘Final Mile’ delivery to further optimise routes and income as consumer patterns may updated monthly minimise mileage 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 The three different scenarios (taking ‘Going C o n c e r n ’ modelling, we into account the different levels of have considered three mitigation - global warming, transition pathways scenarios to the identified risks to and the incremental impact this our operating model, specifically will have on our business) have associated with the various been considered and are reflected pressures (regulation, public in risks which have been identified and stakeholder opinion, and and which are set out further in costing) which we envisage will this report. We have engaged a risks and limited be increasingly brought to bear | third-party expert (EcoAct) to assist | on our distribution model and the | | --- | --- | | us with the development of science- | associated emissions arising from | | based targets on our journey to net | increased climate-related regulation | | zero and, as part of this process, | and awareness. Scenario modelling | | they will work with us to re-evaluate | has included three interventions, | | and quantify our Scope 3 emissions, | being an increase in charges for | | and to develop a tool which will | distribution to inner city delivery | -back of initiatives coupled | enable us to model our carbon | points, reoptimising of routes to limit | | --- | --- | | reduction scenarios and provide a | the number of vehicles accessing | | feasibility check on targets, so as to | city centres and the utilisation of | | inform our strategy. | electric vehicles. Over the next 12 | to 18 months, we will look to further When considering our obligations develop this modelling and seek to to report in line with TCFD develop a number of programmes requirements, and the FCA Listing to review future options. Rules (LR9.8.6DG), we have applied the concept of materiality to our See overleaf for our scenarios. judgement, aware that we are required to provide sufficient detail to enable readers to assess our business’ exposure and approach Smooth Transition Disruptive Transition to addressing climate-related issues. We believe that, considering | Early implementation of societal Piecemeal global actions and | both the degree of exposure of our | | --- | --- | | actions and policy towards a low divergent policy implementation | business, as well as the mitigations | | carbon economy, resulting in the which stalling, delays and/or | through our sustainability strategy, | | limitation of global warming in line scaling Failure to implement change | the level of detail included in our | | with the aspirational Paris 1.5°C with compensatory measures to and policies to address global | disclosures is adequate. | | increase. address late implementation. warming. | | | We would expect higher We would expect the highest level We would expect limited | | | No mitigation/ transitional of transitional risks and increased transitional risks but a high | | | <2°C <2°C >3°C | | | Business as usual physical risks. degree of physical risk. physical risks. / | | Smiths News plc 48 S Annual Report and Accounts 2022 ## Task Force on Climate-Related ## 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 • Medium-term risks are those which we have • Long-term risks are those in respect of which on assumptions that the impact has already identified but the impact of which are still not we are uncertain as to the projected impacts begun to materialise or is expected to do so clearly measurable. These risks are partially and believe that, given the inherent unknown within a one to ten-year horizon. These are addressed through our current plans and quality thereof (particularly as to likelihood and risks, the impact of which we are better placed determined targets and metrics; and impact), while some of our action plans do to assess at this time, and in respect of which mitigate against future impact they are largely we have detailed plans to assist us to meet our aspirational as to plans, targets and metrics. stated targets as set out further in this report (e.g. waste and emissions reductions); Governance The Company manages risk TCFD Governance structure The Board has overall responsibility by operating a ‘three lines of for the strategy, objectives and defence’ risk and control model. The Board | financial management of the | More information in this regard | | | --- | --- | --- | | business and, within this remit, | is available in the Principal Risks | (Standing agenda item per quarter) | | the Board has oversight of our | section on page 42. | | | | | • Overall responsibility | sustainability strategy, as well A Sustainability Steering Committee • Oversees Sustainability Strategy as the climate-related risks and has been established under opportunities, energy consumption, • Challenges and monitors metrics and targets the chairmanship of the Chief waste management and emissions Financial Officer and operates Audit Committee Remuneration Committee associated with our business. The within approved terms of reference Board is assisted by the Audit (Standing risk agenda item) (Considered annually) from the Board and the Executive Committee in the discharge of its Team, and has representatives • Oversees risk management • Alignment of remuneration duties regarding the maintenance of from across the business, including process (including climate- policies and incentives* proper systems of risk management operations, procurement, finance, related risks) and, in this regard, receives regular governance, communications management reports. Climate- • Oversees financial statements, and human resources (please see related risks are included in the including non-financial the Sustainability report on page risk management approach and disclosures 24 for a detailed structure of the have been identified and included Committee and its workings). The Executive Management Team within our risk management Committee meets monthly and framework; and have recently submits regular structured reports (Periodic review) been elevated from an emerging to both the Executive Team and the risk to a principal risk facing the • Responsibility for implementation of Sustainability Strategy Board on at least a quarterly basis, Company – please see page 40 in particular reporting progress Sustainability Steering Committee for further details. We have an made against goals and targets. established risk management (Monthly) As part of our sustainability strategy, process which includes the we have identified a number of • Delegated responsibility for development of our Sustainability identification of both risks and goals which have been arranged Strategy, including its ongoing refinement opportunities. The risk management into five pillars, one of which process mirrors the C o mp a n y ’ s • Setting and monitoring of targets and metrics encompasses the environment. operating structure, with each • Communication strategy (internal and external) Goals within the environmental functional area being responsible pillar of our sustainability strategy • Reporting for the ongoing communication includes a commitment to and feedback of their existing * ESG metrics are included within the personal objectives of the executive directors and which renewable energy and reduction therefore impact bonus payments. The Directors’ Remuneration Policy (being presented to and emerging risks. This process of emissions. shareholders at the 2023 AGM) makes explicit reference for the inclusion of ESG metrics as comprises the identification, an executive performance measure within the LTIP scheme. assessment and effective mitigation of their functional risks, as well as continuous monitoring for forthcoming changes and/or regulatory updates on the horizon. Smiths News plc S G F 49 Annual Report and Accounts 2022 Business strategy We recognise that climate ### Flooding in Stoke change poses both physical and transitional risks to our business We have experienced flooding and current strategy. Physical risks on the approach road to our are associated with an increase former Stoke premises for a in the frequency and severity of number of years whilst previously weather events, such as flooding, in occupation, making the road heatwaves, extreme cold snaps, impassable to most vehicles. drought, wildfires and the like. We Drivers and colleagues who had also recognise the potential social to be ferried into the premises and economic impacts of climate in minibuses and which had the migration and famine. Transitional potential to impact our ability risks include the economic impact to distribute news products in a of climate change, growing timely manner. In order to mitigate regulatory requirements and the ongoing impact of this risk to technology changes, for which we our business model, ultimately we acknowledge the need to adapt and have relocated to new premises refine our strategy. The reputational in Stoke after the failure of various risk to our business of failing to flood defence mechanisms that adequately meet the changing had been unsuccessfully trialled. social expectations relating to climate change are also considered. The Board has considered the impact of climate-related risks and opportunities on the performance Risk Where appropriate, these emerging of our business, markets, the risks may be brought into the The Company identifies risk ### Working through changing regulatory landscape principal risk registers. Additional and opportunities, including ### and the C o mp a n y ’ s future strategic risk management support is the heatwave – those associated with climate direction and ambition, as well as provided by external experts in ### risk, through a bottom-up/top- a thanks to staff the financial impact thereof. After areas of technical complexity to down approach, which includes carrying out a robust assessment complete our bottom-up and top- After working our way through a combination of processes of the climate-related risks, we have down exercises, and ensure that some of the hottest days on encompassing a review of determined that, for our business, we are aware of future changes record, I want to thank my processes and procedures, analysis we have moved from an emerging in regulatory or best practice operational teams, and all of our of trends, engagement with key risk environment to one where these requirements. colleagues for the commitment stakeholders, benchmarking with risks have now been reassessed and resilience you have shown peers, brainstorming, comparison As part of our overall risk as principal risks given their likely in these unprecedented and against standard risk checklists, review, climate-related risks and increasing impact and foreseeability, uncomfortable conditions. ‘cause and effect’ analysis and opportunities have been considered presenting a risk environment which the robust maintenance of our The temperatures really began and identified. A dedicated climate could impact our business model, developed risk management to climb during such a busy time, risk register is in place and is future performance, solvency framework and registers. so I am incredibly grateful that – monitored by the operational team’s or liquidity. We will continue to leadership. Climate change-related despite the heat – you have been Risks are plotted on risk maps with monitor these risks and assess the risks were initially identified at the able to support the business descriptions, owners and mitigating appropriateness of our mitigation beginning of FY2022 as an emerging in delivering its usual fantastic actions, reporting against a level actions. risk but, following recent events and service, as well as looking out for of materiality (principally relating Strategically, the business remains subsequent review, for FY2023 the each other. Our core values were to impact and likelihood which are resilient and the identified short- decision has been made to elevate clearly on display throughout, the measures used to prioritise and medium-term climate-related these and include climate change- despite the intense heat – and our risks) consistent with its size. risks are largely being managed related risks as a new principal that was really heartening to see. These risk maps are reviewed and mitigated through the risk on the overall Company risk and challenged by the Executive implementation of our Sustainability framework and register. While we Team and Audit Committee and Strategy. We continue to monitor believe that the mitigation actions, Lucy Robertson reconciled against the C o mp a n y ’ s climate-related risks, understand including the monitoring and Smiths News risk appetite. the residual risks through ongoing actions being taken pursuant to our Operations Director As part of the regular principal reviews of our processes, systems Sustainability Strategy, currently risk process, a review of emerging and controls, and build our business reduce the risk to an acceptable resilience to put us in a position to risks (internal and external) is also level, we understand that climate- conducted, and a list of emerging respond to climate changes in a related risks can change quickly risks is maintained and rolled- way that has the least impact on and thus believe that this risk is now our business. forward to future discussions by one of the principal risks that the the Executive Team and Audit Company is facing. Committee. ## / Smiths News plc 50 S Annual Report and Accounts 2022 ## Task Force on Climate-Related ## Financial Disclosures (TCFD) continued To enable the business to assess and manage our climate change risks • Short term - impact has already begun to materialise or will do so within a two to eight- and opportunities, we need to be able to fully understand the impact of our year horizon business on the environment. To this end, we have developed metrics and • Medium term - identified but the impact of targets for our waste, emissions and energy consumption priorities. We have which is still not clearly measurable assessed the timeline over which we expect the impact to materialise and • Long term - we are uncertain as to the categorised them as short, medium or long term as follows: 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 Service interruptions to our depots, data Controls and mitigations: Review of depot Increased frequency of extreme weather cen tres and offices prevent the Company from network and relocation where deemed events, such as flooding or more extreme heat serving its customers necessary days. This can create dry ground conditions, Increased investment required to make our Risk Response – post mitigation: Mitigate increasing the risk of a product fire at our depots more resilient to the effects of an depots or flooding, inhibiting or delaying increase in extreme weather events Increased people and vehicle access to our locations costs arising from replacing equipment and Causes repairing depot infrastructure where mitigation An increase in the frequency of extreme measures have only been partially successful weather events is believed to be driven by or unsuccessful human activities, such as the burning of fossil Increase in temperatures leading to more fuels causing long-term shifts in temperatures energy consumption (greater use of air and weather patterns, commonly referred to as conditioning in depots, data centres and climate change offices) and increased costs to ensure safe operational environment 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 Increased distribution costs for final mile Controls and mitigations: Monitored by Emissions and air quality targets introduced in d elivery results in higher operational costs for our operational teams and reported to the UK towns and cities, e.g. ULEZ in London the Company Sustainability Steering Committee Causes Longer term, the capital costs of using Adaptation of our distribution model through Local Authority Legislation electric vehicles would require the C o mp a n y ’ s consolidation of last mile delivery routes to distribution model to be reassessed minimise higher operational costs Supply to some customers may also prove Technology developments (and EV mileage economically or operationally unviable, range) may improve economics and reducing our revenue and profitability 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 Smiths News plc S G F 51 Annual Report and Accounts 2022 Impact severity key Severe Moderate Mild We have considered the risk of carbon pricing and any reliance on offsets Opportunities – We have already identified a recycling growth to enable us to meet net zero status. We have a 2050 net zero ambition, opportunity for our business with the launch of a low-cost daily recycling but currently do not have the necessary analytical tools to enable us collection service, to help our independent customers in the West to undertake accurate scenario planning nor to fully understand the Midlands and North West to manage soft plastic and bulky cardboard impact of climate change, our ability to implement changes to reduce our packaging left over from trips to the cash-and-carry or stock deliveries. emissions or to what extent we may or may not need to rely on carbon We collect, sort and arrange the safe and secure recycling of this product. 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. 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 Due to restrictions on the supply of newsprint, Controls and mitigations: Monitor of paper Availability of paper supply to publishers and publ ishers reduce the quantity of physical supply chain availability and costings through printers impact physical copy availability and copies available for distribution to retailers and our procurement function risk sharply increasing cover prices, presenting consumers and/or lead to reduction in range Quarterly update to the Sustainability Steering pressure on consumer purchasing decisions of titles available. This in turn reduces the Committee of any significant changes C o mp a n y ’ s revenue and profitability, as fixed Causes costs of final distribution cannot altogether be Risk Response – post mitigation: Accept Deforestation causing natural resource mitigated by reducing volumes depletion. Disruption to paper supply chain through environmental lobby actions Transitional Risk: Increase in temperatures impacting operational efficiency/costs Current likelihood: Possible 10% to 30% chance // Time Estimate: Short Description Need to allow core breaks for day shift Controls and mitigations: Preparation and Increase in temperatures, leading to more colleagues and/or provide additional cooling monitoring, to ensure cooling equipment hired energy consumption to ensure a safe through air conditioning/fans and deployed during critical periods operational environment Risk Response – post mitigation: Accept Causes Increase in temperature Physical Risk: Decreasing fuel availability and/or increasing fuel prices Current likelihood: Possible 10% to 30% chance // Time Estimate: Medium Description Increase in operational costs (including Controls and mitigations: Fuel availability Availability of diesel and/or petrol decreases, p ayments to delivery contractors), to reflect and price trends are monitored by our thereby sharply increasing prices higher fuel costs impacting Company operational teams and strategies developed to profitability counter threats and maximise opportunities Causes Increased competition for scarce resources as Fuel shortages could prevent deliveries being Risk Response – post mitigation: Accept sources of supply close or cannot be accessed made to customers, impacting contractual due to international trade sanctions KPIs with publishers, damaging the C o mp a n y ’ s reputation and relationships ## / Smiths News plc 52 S Annual Report and Accounts 2022 ## Task Force on Climate-Related ## 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 | While we believed 100% of | Where p | ractical, our gas | Gas and electricity | • Electricity supplies | • Where practical, move to | | --- | --- | --- | --- | --- | --- | | our electricity was sourced | and electricity to be sourced | | purchased | sourced from renewable | alternative gas supplies | | from renewable sources, we | from renewable and / | | | / green sources certified | by 2030 | | have now sought to obtain | or more environmentally | | | except for Newport depot | | | | | | | | • Develop further ongoing | | certificates to evidence this | beneficial sources by 2025 | | | | | | | | | | • Options being developed | energy reduction | | per location | (electricity) and 2030 (gas) | | | | | | | | | | for the transition to | initiatives | carbon neutral using We currently do not utilise • Where practical, new offsets or green gas ‘green gas,’ and this is being warehouse locations to supply investigated be net carbon neutral and current sites to be net carbon neutral by 2030 Waste | Our internally generated | 100% of our generated | Diversion from | • 100% of all generated | • Compositional | | --- | --- | --- | --- | --- | | waste is recycled or reused | w aste to be recycled and / | landfill | waste is recycled and / | analysis – understand if | | | or reused | | or reused | opportunities for further | waste segregation exist. Encourage retailers to recycle through Smiths News Recycle Emissions | Our fleet is primarily | Optimise transport | Scope 1 and 2 | • Assessment of renewable | • Review of Science | | --- | --- | --- | --- | --- | | outsourced through | op erations (Company fleet) | emissions (see | fuel type for company | Based Target setting and | | self-employed delivery | to reduce emissions and | next page) | HGV fleet complete, | achieving SBTi | | contractors for final mile | reduce annual distribution | | decision to progress | | | | | | | • Monitor fuel costs, to | | operations, with a small in- | mileage | | postponed due to | | establish appropriate time house HGV fleet servicing significant cost increases to convert to advanced airports and key travel • Final Mile distribution renewable diesel points. This fleet is primarily optimisation projects • Continue delivery ‘Final diesel reducing mileage and Mile’ reviews, to further emissions optimise routes and • Ongoing trial Electric minimise mileage Vans in Stoke depot | Optimise our company car | • Company car policy | • Create target for overall | | | --- | --- | --- | --- | | fleet – renewing at end of | review policy complete | fleet tCO | 2 e | | lease over the next four | – only allow PHEV or EV | | | | | | • Continue with conversion | | | years to electric or hybrid | cars | | | to PHEV / BEV car fleet vehicles • New car orders placed for 4 PHEV and 6 BEV – 25% of total fleet Energy Consumptions Smiths News plc S G F 53 Annual Report and Accounts 2022 ### Streamlined Energy September 2021 – August 2022 & Carbon Reporting 2021 2020** disclosure (SECR) September 2020 – August 2021 (UK & offshore) (UK & offshore) (UK & offshore) As a large, quoted company Emissions from the combustion of fuel or the operation 1,536.4 983.7 1,446 incorporated in the UK, Smiths of any facility, including fugitive emissions from News is required to report its global refrigerants use/tCO 2 e – Scope 1 emissions and UK energy use and carbon | emissions in accordance with the | Emissions resulting from the purchase of electricity, | | 915.8 | 1,005 1,184 | | --- | --- | --- | --- | --- | | Companies (Directors' Report) | heat, steam or cooling by the Company for its own use | | | | | and Limited Liability Partnerships | (location based) / tCO | 2 e – Scope 2 emissions | | | (Energy and Carbon Report) Total gross emissions / tCO 2 e 2,452.1 1,988 2,630 Regulations 2018. The data detailed in this table represents emissions tCO 2 e per £million turnover 2.3 1.8 2.26 and energy use for which Smiths tCO 2 e per FTE 1.5 1.2 1.46 News is responsible, including energy used in our offices and Energy consumption used to calculate above emissions depots, and fuel used in company /kWh 11,702,058* 9,680,529 10,803,390 owned or operated vehicles. To Estimated emissions from the mileage covered by calculate our emissions, we have our outsourced delivery drivers (tCO e) – Scope 3 2 used the main requirements of emissions*** 9,697.4 10,333.4 11,255.0 the Greenhouse Gas Protocol * ‘Total energy consumption used to calculate emissions in kWh’ has been restated for the comparison year. Following clarified guidance from BEIS, Corporate Standard along with the 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 UK Government GHG Conversion opposed to the Gross CV value. Factors for Company Reporting ** Continuing operations excludes Tuffnells which was sold in May 2020. 2022. Any estimates included in our *** Scope 3 emissions have been calculated in alignment with the GHG Protocol Corporate Value Chain Standard, an internationally recognised best- totals are derived from actual data practice standard for calculating emissions resulting from value chain activities. which have been extrapolated to 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. cover the full reporting year. Set out below is a summary explanation of our emissions reporting: Assurances The SECR data set out above has Scope Definitions been externally assured by EcoAct (see Appendix 2 on page 55). Scope 1 Company car mileage has risen by 495k miles due to the effect the pandemic had on movement 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 Electricity has slightly grown in consumption due to depots using less gas and using more movement 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 2022 Scope 3 Contractor vehicle mileage has decreased by 584k km due to reduction in the number movement 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 100% renewable electricity in all depots except one (Newport depot) important factors 100% landfill diverted ## / Smiths News plc 54 S Annual Report and Accounts 2022 ## Task Force on Climate-Related ## Financial Disclosures (TCFD) continued ### Planned next steps Appendix 1 We have further activity planned over the coming year to further Recommendations and disclosures Confirmations enhance our alignment with the Governance: Disclose the organisation’s governance around climate-related risks and opportunities TCFD recommendations, including: • The development of a) Describe the board’s oversight of climate- Disclosed i n full and requirements met our analytical tools and related risks and opportunities methodologies to enable further scenario analysis of both physical b) Describe management’s role in assessing Disclosed in full and requirements met and transition climate risks and and managing climate-related risks and opportunities, and in this regard opportunities will be using the services of external consultants, EcoAct; Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities • Review of major strategic plans on the organisation’s businesses, strategy and financial planning where such information is material to ensure they remain resilient to a) Describe the climate-related risks and Partial disclosure – r isks and opportunities identified but the identified climate risks and opportunities the organisation has identified data for accurate analysis, analytical models and review of opportunities; over the short, medium and long term time periods and scenarios require further enhancement • Further analysis of the financial impacts of climate change; b) Describe the impact of climate-related risks Partial disclosure – analysis of impact of risks and • Development of science-based and opportunities on the organisation’s opportunities on our business, strategy and financial targets for monitoring emissions businesses, strategy and financial planning planning is based on assumptions which require further and the further consideration of analysis and the development of a suitable model appropriate metrics and targets to measure future performance; c) Describe the resilience of the organisation’s Partial disclosure – more comprehensive modelling will and strategy, taking into consideration different be required to determine magnitude of risks, adequacy of • To seek external assurance of responses and overall business resilience climate-related scenarios, including a 2°C or our application of the TCFD lower scenario recommendations, to ensure our strategy is robust and aligned to Risk Management: Disclose how the organisation identifies, assesses and manages climate-related risks our business purpose. a) Describe the organisation’s processes for Partial disclosure – m ore information is required to quantify Outlook identifying and assessing climate-related risks and explain what medium and serious risk means in terms The Company is well positioned of impact / relation to remainder of business to consider the impact of climate- related risks on the C ompan y ’ s b) Describe the organisation’s processes for Partial disclosure – further details to be provided regarding business model (and any managing climate-related risks the mitigation, transfer or acceptance of the identified risks associated costs in meeting these) together with our Sustainability c) Describe how processes for identifying, Disclosure in full and requirements met Strategy, and believes that we have a solid platform for the Company assessing and managing climate-related to meet these challenges. 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 | Partial disclosure – m | ore comprehensive modelling will | | --- | --- | --- | | organisation to assess climate-related risks | be required to determine magnitude of risks, adequacy | | | and opportunities in line with its strategy | of responses and overall business resilience with the | | | and risk management process | development of scientific-based targets underway | | | b) Disclose Scope 1, Scope 2 and, if | Partial disclosure – Scope 1 & 2 emissions have been | | | appropriate, Scope 3 greenhouse gas (GHG) | disclosed, with related risks requiring some additional | | | emissions, and the related risks | modelling as set out in TCFD report | | Estimated Scope 3 emissions are disclosed but require further validation c) Describe the targets used by the Partial disclosure – more comprehensive modelling will organisation to manage climate-related risks be required to determine magnitude of risks, adequacy and opportunities, and performance against of responses and overall business resilience, with the targets development of scientific-based targets underway Smiths News plc S G F 55 Annual Report and Accounts 2022 ### Appendix 2 Cross reference ## About EcoAct Your climate experts. TCFD report and the Corporate Your partners for positive change . Governance report on page 58 EcoAct, an Atos company, is an international sustainability consultancy and project developer with 300+ employees in ff TCFD report and the Corporate across Canada, France, Germany, Italy, Kenya, Spain, U Governance report on page 58 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. TCFD report and the Corporate Dedicated Nature and Technology Based Solutions Unit a Governance report on page 58 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 TCFD report and the Strategic the transition to a net-zero economy. report on pages 2 to 57 1 | © EcoAct 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 ## / 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 56 S Annual Report and Accounts 2022 ## Viability Statement 1. How the Group The Board also considered whether Similarly, the Company has In each of the stress scenarios there are specific foreseeable considered its ability to renew its 1-5, the Company would be able assesses its prospects events relating to the principal risks banking facilities when due and to continue operating within its The C ompan y ’ s business activities and climate change that could believes this will be successfully existing debt covenants and liquidity and strategy are central to occur beyond the three-year period completed. headroom. Scenario 6 required such assessing its future prospects. that should be taken into account an extreme set of factors in unison These, together with factors likely The considerations included the when setting the three-year that it is considered to be a remote to affect its future development, a vailability and effectiveness assessment period and concluded likelihood and, therefore, does not performance and position, are of mitigating actions that could there were none. represent a realistic threat to the set out in the Strategic Report on realistically be taken to avoid or viability of the Company but, rather, pages 2 to 57. The financial position In the Board’s assessment of reduce the impact or occurrence illustrates the factors that would result of the Company, its cash flows viability, the scenarios have of the underlying risks. In assessing in a covenant or liquidity breach. | and liquidity are highlighted in the | assumed that external debt is | the likely effectiveness of such | | | --- | --- | --- | --- | | Financial Review on page 36. | repaid as it becomes due, or will be | actions, the Board considered the | The directors considered mitigating | | | refinanced as and when required | conclusions from its regular review | factors that could be deployed | The Company manages its (see also Note 18 of the Group of risk management and internal to counter the negative effects of financing by structuring core Financial Statements on page 163). control systems (as described on the crystallisation of each of these borrowings and the availability of page 82). risks. The main actions that could debt facilities for drawdown. The 3. Assessment of viability be taken in such circumstances C ompan y ’ s prospects are assessed To make the assessment of viability, In generating its plan, the Board include reducing any non-essential primarily through its business ’stress’ scenarios have been has considered the overall strategy capital expenditure and operating planning process. This includes tested over and above those in of the Company, the principal risks expenditure on projects, working an annual review which considers the Board’s business plans, based and uncertainties inherent within capital management to smooth profitability, the C ompan y ’ s cash upon a number of the C ompan y ’ s the business, as well as making a debt peaks (including supply chain flows, committed funding and principal and emerging risks and number of key strategic planning finance arrangements), cancelling liquidity positions, and forecast uncertainties (as documented assumptions which are noted discretionary annual bonus future funding requirements over on page 44). The scenarios were below: payments, identifying other cost the assessment period of three overlaid into the business plan to savings, as well as reducing or not years. The most recent review 1. Impact of inflationary pressures quantify the potential impact of | | in the economy; | | paying dividends. | | | --- | --- | --- | --- | --- | | was approved in September 2022, | | one or more of these crystallising | | | | and it is part of the Board’s role to | 2. Continued decline in sales | over the assessment period. Whilst | | | | | | | 4. | Viability statement | | consider the appropriateness of | of printed media during the | each of the principal risks on page | | | In light of the scenario modelling any key assumptions, taking into assessment period offset by 44 has a potential impact and noted above, the directors are account the external environment, overhead efficiencies in the has been considered as part of confident that headroom under current inflationary pressures in the assessment period; the assessment, only those that the existing bank facility remains | economy and business strategy. | | | represent severe but plausible | | | --- | --- | --- | --- | --- | | | | 3. Retention of major publisher | | adequate and future covenant | | | | contracts within Smiths | scenarios were selected for | tests can be met. This is based on | | 2. | The assessment period | | | | | | | News at rates which maintain | modelling through the business | the Board’s approved three-year | The directors have determined that acceptable margins – 95% of plan. These are shown in the table business plan after allowing for a a period of three years to August future revenues are currently opposite. range of reasonable worst case 2025 is an appropriate assessment | | contracted to at least 2024; | | downside sensitivity scenarios. | | --- | --- | --- | --- | | period over which to provide its | | As noted above, the scenarios | | | viability statement. This period is | 4. No major changes in working | have assumed that external debt is | | As noted above, in making this | consistent with that used for the | | | capital profile; and | repaid as it becomes due, or will be | viability statement the directors | | --- | --- | --- | --- | --- | --- | | C ompan | y ’ s | corporate planning | 5. No significant acquisitions or | refinanced as and when required. | have also considered an alternative | | process as detailed above, and | | | disposals in the assessment | | view by applying a reverse stress | The scenarios above are reflects the directors’ best estimate period. test to the C ompan y ’ s financial hypothetical and severe for the of the future prospects of the models. A reverse stress test is In making this statement, the purpose of creating outcomes that business, including the nature and where scenarios are considered directors have carried out a robust have the ability to threaten the potential impact of the principal that lead to a breach of either assessment of the C ompan y ’ s viability of the Company; however, risks that face the business. the total available facility or one emerging and principal risks, multiple control measures are in or more of the covenants. The The Board noted in considering including those that could place to prevent and mitigate any directors consider that the risk of the appropriate assessment period threaten its business model, future such occurrences from taking place. the combination of events leading that the C ompan y ’ s new banking performance, solvency or liquidity, to such breaches combined with facilities are due to also expire in and also considered the impacts the Company not being able to August 2025 and that this period of climate change. Consideration enact mitigating actions is remote. | also includes the majority of the | has been given to the | C ompan | y ’ s | | | | | --- | --- | --- | --- | --- | --- | --- | | publisher contract renewals, the | ability to renegotiate the publisher | | | Taking into account the | C ompan | y ’ s | | first of which is due in July 2024. | contracts expiring during the | | | current position and principal risks | | | | | assessment period, and no | | | and emerging risks, the directors | | | | | evidence exists to suggest these | | | confirm that they have a reasonable | | | | | contracts will not be successfully | | | expectation that the Company will | | | | | renegotiated. | | | remain viable over the period of | | | assessment to August 2025. Smiths News plc S G F 57 Annual Report and Accounts 2022 5. Going concern Scenario modelled Link to principal risks The Company meets its day-to- day working capital requirements Scenario 1: Changes to a retailer’s commercial model through its bank facilities of £79.5m, The business plan assumes all major retailers will Risk 1: Macro-economic uncertainty and with an outstanding term of 34 continue to stock their current newspaper and months to 31 August 2025. The Risk 5: Changes to retailers’ commercial model: magazine range over the assessment period. We terms of the facility agreement deterioration in the macro-economic environment have modelled a scenario that reflects one or more include: an amortisation schedule and the risk of a reduction in sales space and/or full grocers removing their magazine offering. of £6m in the first year (2022) and delisting of newspapers and/or magazines by our £10m per annum thereafter for largest retailers. the repayment of the term loan and a reduction in the RCF of Scenario 2: Growth and diversification strategy is not executed successfully £5m per year after the first year. The C ompan y ’ s forecasts, taking The business plan assumes profit from strategic Risk 1: Macro-economic uncertainty and into account the Board’s future growth and diversification activities within the next Risk 6: Growth and diversification: expectations of the C ompan y ’ s three years. We have modelled a scenario in which deterioration in the macro-economic environment performance, indicate that there is only 50% of these targets are met. impacts the C ompan y ’ s ability to execute new sufficient headroom within these business growth opportunities. bank facilities and the Company will be able to continue to operate Scenario 3: Forecast savings targets are not met within the covenants attaching to the new bank facilities. The business plan assumes both operational Risk 1: Macro-economic uncertainty, Considering the principal and and overhead savings throughout the period in Risk 2: Acquisition and retention of labour and emerging risks discussed in Smiths News. We have assumed 33% of these Risk 6: Growth and diversification: this report, the directors have a improvements are not achieved. | the risk that inflationary cost increases, the absence | reasonable expectation that the | | --- | --- | | of managerial talent and resources used for new | Company can meet its liabilities | | business growth opportunities detrimentally affect | as they fall due for a period | | the execution of planned cost reduction. | greater than 12 months (being an | assessment period of 22 months) Scenario 4: Increased number of congestion charge zones or low emission zones from the date of approval of the Group Financial Statements. Thus, The business plan assumes that new congestion Risk 7: Sustainability and climate change: the Company will continue to charge zones are implemented at their historic adopt the going concern basis in the risk that increasingly stringent air quality targets frequency and impact. We have modelled an preparing its consolidated financial make it more costly for the Company to undertake accelerated frequency and increased area coverage statements which are shown on newspaper and magazine wholesaling activities. | for new zones. | | | pages 132 to 181. | | --- | --- | --- | --- | | Scenario | 5: Partial conversion to electric fleet | | | | The business plan assumes that low emission | | Risk 7: Sustainability and climate change: | | / exclusion zones for petrol and diesel electric the risk that increasingly stringent air quality targets vehicles are implemented at their historic frequency make it more costly for the Company to undertake and impact. We have modelled that all existing newspaper and magazine wholesaling activities. congestion zones become 24-hour exclusion zones, covering a larger area and that on affected routes deliveries are made by electric vehicles. 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 Multiple risks: to illustrate what would result in a covenant or A combination of risks, also including those relating liquidity breach of the bank facility headroom. to Cyber Security and Legal and Regulatory Compliance, both of which are inherently uncertain in value. ## / 58 G 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. | | of meetings 11 | | | | | 1 4 2 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Collis | | | | 11 | | 1 | 4 | 2 | | | Holt | | | 11 | | 1 | 4 | 2 | | Whiteling | | | | 11 | | 1 | 4 | 2 | | | Bunting | | | 11 | | 1 | – | – | | Baker | | | 10 (of 10) | | N/A | | – | – | | 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 6+ Years Special Board Remuneration Nominations Scheduled Audit Denise Mark Number David Blackwood Michael Jonathan Paul Tony Board meetings Committee Committee Committee Non-independent Independent meetings Male Female – 2 5 5 5 1 5 5 – – – 11 3-5 Years 0-2 Years ## S G F / 59 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 Smiths News plc 60 G Annual Report and Accounts 2022 ## Introduction David Blackwood Chairman ## A transparent ## approach with ## clear leadership While we are encouraged to believe This year also saw us review our ### Chairman’s statement that the COVID-19 pandemic colleague engagement mechanism ### on corporate As I look back on the is firmly behind us now, we and conclude that the appointment ### governance | | | | enter another period of potential | of a designated non-executive | | --- | --- | --- | --- | --- | | As I look back on the progress | progress we have achieved | | | | | | | | economic uncertainty which is | director remains the optimal | | we have achieved in FY2022 | | in FY2022 against our | | | | | | | bringing its own challenges to all | model for promoting colleague | against our financial and strategic financial and strategic stakeholders, with volatility in the engagement within our business, imperatives, together with the imperatives, together with energy market and a challenging although we have taken the effectiveness of our leadership in inflationary and labour market, opportunity in this review to refresh promoting the C ompan y ’ s long-term the effectiveness of our resulting in affordability concerns, our National Colleague Engagement sustainable success, I am reminded leadership in promoting as well as an increased focus on Forum, in order to ensure the right that measuring ourselves against our the Company’s long-term the ‘climate emergency’ and the risk mix of colleagues and that Michael corporate governance imperatives sustainable success, I am of energy disruption. Once again, Holt, who is our designated non- is equally important. This year reminded that measuring we have renewed our commitment executive director who attends was the third in our external board to support our colleagues and the m eetings, can maximise assessment cycle, and I am pleased ourselves against our customers at this particularly engagement. to report that the evaluation process corporate governance challenging time. Our stakeholder undertaken by CGI (Corporate Aware of the economic pressures imperatives is equally engagements are alive to the Governance Institute) provided being brought to bear in the logistics important. current economic headwinds and a result which indicated that the sector and the impact on category feedback is carefully considered, Board is continuing to function sustainability for newspapers and balanced, when arriving at effectively. We have taken on board and magazines, we undertook a decisions. We are encouraged with recommendations flowing from this customer consultation process the outcome of such engagements assessment and continue to make around delivery service charge which have led to the introduction appropriate improvements, based increases and customer satisfaction of ‘fair pay principles’ for our on both these recommendations during the year. Across all our colleagues, as well as the conversion and those emanating from our stakeholders, we remain committed of our historic COVID-19 hardship previous internal reviews. As it is to both the requirements and spirit fund into a wider and more-general also that point in the governance of s172 of the Companies Act ‘colleague support fund.’ | cycle where we put the Directors’ | 2006 and to the promotion of the | | --- | --- | | Remuneration Policy to a | long-term sustainable success of | | shareholders’ vote at the 2023 AGM, | the Company – for more detail on | | this year we have undertaken | our other engagements, I would | | one-to-one engagements with | refer you to our s172 statement in | | our largest shareholders to better | the Corporate Governance report | | understand their expectations | on page 58 which focus on the | | in this regard. More information | significant engagements in the year | | around the Directors’ Remuneration | where demonstrable outcomes can | | Policy is available in the Directors’ | be shared. | Remuneration report on page 94 onwards. Smiths News plc S G F 61 Annual Report and Accounts 2022 Two key areas which have been at We continue to exercise oversight In closing, I would like to express the forefront of our deliberations over the breadth of policies, a note of appreciation to my fellow this year have been diversity and processes and controls that Having established a Board members for their continued inclusion (D&I) and sustainability, make up our wider governance commitment to the success of focused sustainability more specifically the requirement framework, while ensuring that we the Company, and on behalf of project team in the year, that we report in terms of the Task provide effective leadership and myself and the Board, our collective Force on Climate-Related Financial direction. On behalf of the Board, I I’m particularly pleased appreciation to Jonathan (CEO) and Disclosures (TCFD). We have am particularly pleased that we have to be able to present our Paul (CFO), as well as the Executive progressed our D&I agenda well continued to maintain a sector- Team and all our colleagues for sustainability strategy, and have accelerated the target leading track record in health and another year of strong operational with measurable date for the proposed appointment safety this year, with our ongoing and financial performance. deliverables and planned | of a second female board member | activities recognised through | | | | | --- | --- | --- | --- | --- | | to FY2023, and we are confident | securing 13 RoSPA awards in the | activities identified for | | | | that an announcement will follow | year (including 11 at the highest | the short and medium | David | Blackwood | | in short order now that we have | ‘gold’ standard) and, separately, | | Chairman | | term, demonstrating our | identified the balance of skills, | retaining our ISO 45001 certification | | | | --- | --- | --- | --- | | | | commitment to responsible | 3 November 2021 | | experience and expertise which | for H&S management. | | | governance, society and would best complement the Board’s Ensuring that our Company culture current composition. We have the environment. and values are integrated across also completed a wider D&I audit our business, and are demonstrated and identified key action areas by the way in which we all conduct across recruitment, learning and ourselves and execute our decision- development, and communications, making, remains important to the details of which are set out in us all. In support of this position, my introduction to the Nominations this year we have moved from Committee report on page 90. merely re-stating our values to Following on from the 2022 Annual enhanced disclosure in this report General Meeting (AGM), I engaged by attempting to demonstrate how with two of our largest shareholders the Board measures compliance who had raised Board diversity as with our stated values. This year a future voting issue for them and has also seen the enhancement believe that the acceleration of our of our cyber security systems and D&I plan will address their concerns. controls, with good progress being | I am pleased to report that our | made to secure ‘Cyber Essentials’ | | --- | --- | | sustainability strategy is now | accreditation through the National | | implemented but, as this is a long | Cyber Security Centre, and we | | journey rather than a finite process, | remain committed to seeking ‘Cyber | | we continue to refine and review | Essentials Plus’ accreditation in | | the path we take to achieving our | FY2023. More details in this regard | | ultimate goal of net zero status. We | are available in the Audit Committee | | have learnt much from the process | report (see page 80). | we have followed in preparing This has been a good year for our our first TCFD report and, where business, but we remain alive to the we have not been able to fully threat of an economic downturn and report against the recommended the impact it may have not only on disclosures, we have commenced our business but on our people. We with actions to access the necessary remain well-positioned to continue expertise and analytical models to deliver shareholder value in a to do so. That said, I do believe sustainable manner and in the best we have made a good start in interests of all our stakeholders. understanding the impact of climate While online engagements and change on our business and the virtual AGMs are probably here mitigations necessary to ensure to stay in one form or another, the future viability of our business, I do welcome the return of the and to identify our commitment to traditional AGM and encourage all addressing the ‘climate emergency.’ shareholders to attend and vote. ## / Smiths News plc 62 G Annual Report and Accounts 2022 ## 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. & A i h to l Key: Focused strategy Sustainable future Operational excellence | Focused strategy | | | Sustainable future | | | | Operational excellence | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Vision, Mission, Strategy & Planning: | | | Culture & Values: | | | | Management & Rewards: | | | |  | Strategy and business model | |  | Values | \| Smiths News PLC | | h People Report on pages 30 to 35 | | | | Board and Committees: | | | Stakeholder Engagement: | | | | Terms of Reference & Delegations: | | | |  | Board Committees | \| Smiths News PLC |  | Shareholder | | centre |  | Board Committees | \| Smiths News PLC | | | | |  | Listening to our People | | | | | | | Reporting, Monitoring & Evaluation: | | | | | | | Risk & Audit: | | | | | | | h | Stakeholder Engagement on pages 14 to 17 | | | | | | |  | Reports and presentations | | | | | | h | Principal and Emerging Risks on pages 40 to 43 | | Health & Safety: Evaluation & Succession Planning:  Health & Safety h Nominations Committee Report on h People Report on pages 30 to 35 pages 90 to 93 h Audit Committee Report on page 80 Policies & Procurement: Business Continuity  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 Key:  Information found online IT Governance & Security h Information within the report h Audit Committee Report on pages 80 to 89 e g & & ti Smiths News plc S G F 63 Annual Report and Accounts 2022 Leadership and Oversight The Chief Executive Officer leads ### Roles and responsibilities Our leadership structures are our business and oversees daily supported by our governance operations and the Company’s framework, to ensure oversight, objectives. The CEO is ably ### The Board integrity and control in all our assisted by the Executive Team business dealings and enabling that focuses on the development effective and responsive decision- and implementation of strategy, Remuneration Audit Nominations making, based on understanding financial and operational Committee Committee Committee and the need to consider the performance, risk management, • determines • promotes • makes impact of our decision-making commercial developments, talent directors' and governance recommendation on all our stakeholders. review and succession planning, senior and our risk to the Board for sustainability and organisational management management executive and The Chairman has overall development. remuneration framework non-executive responsibility for the management strategy and appointments and operation of the Board, which Committees – Remuneration, • ensures the policy and succession in turn oversees the Company’s Audit, Nominations, Approvals and accuracy of our Disclosure. planning strategy and operational and • oversees the financial reporting financial performance, and implementation of • promotes Senior Leadership Team and • monitors the manages business requirements our Remuneration employee functional experts who each internal and through a formal schedule of Policy engagement and provide support, guidance and external auditors reserved matters for its decision- diversity diligence in the Company’s • reviews workforce making. business dealings and oversee remuneration, day-to-day operational, commercial related policies A nominated Senior Independent and functional activity. and the alignment Director (SID) provides additional of incentives and support to the Chairman in Sub-committees/steering rewards with the delivery of the Company’s committees which report into the culture objectives. Executive Team and, in turn, to the For more information on Board and its Committees. the composition, roles and Our Steering Committees function responsibilities of the Board and See pages 94 to 118 See pages 80 to 89 See pages 90 to 93 on a formal basis, comprising the division of responsibilities cross-functional membership, between the Chair / CEO, as having a chairman, terms of Disclosure Committee Approvals Committee well as to access the internet reference and appropriate • monitors and oversees the • responsible for approving links referred to above, please governance standards and record Company's compliance with delegated Board matters refer to our website (Corporate keeping. Examples of these the Market Abuse Regulations Governance – Smiths News) or, if sub-committees include the and the considerations of you are reading this electronically, Business Development & Growth inside information procedures please click on the relevant links. Committee, Operations Executive and disclosures Regular reports are submitted and People Executive Committees, to the Board and its Committees, Investment Committee, Policy and detailed agenda planners are Steering Group, Sustainability approved annually in advance, Steering Group and various Key skills & expertise | and revised monthly, to ensure | colleague engagement forums | | --- | --- | | that all compliance, regulatory and | and groups. In addition, we have | | operational matters are adequately | one-off project teams which | | and timeously addressed by | function in a similar structured | | relevant stakeholders. This | manner but which are established | | process ensures that the Board | to deal with one-off or short-term | | has full knowledge and oversight | projects, such as IT migration (e.g. | | of the Company’s impact on the | to Microsoft Office365 or direct | | economy, environment, society, | marketing). | suppliers and customers, and our people, and ensures that it is able to review and direct the effectiveness and outcomes of these processes. / 1 2 3 4 5 6 7 Governance Financial Culture & Values Health & Safety Strategy Distribution/Logistics People/Talent IT Risk Sustainability Smiths News plc 64 G Annual Report and Accounts 2022 ## Board of Directors | David Blackwood (63) | | Jonathan Bunting (50) | Paul Baker (53) | Mark | Whiteling | (59) | | --- | --- | --- | --- | --- | --- | --- | | Chairman | | Chief Executive Officer | Chief Financial Officer | Senior independent | | | | Year of appointment: | 2020 | Year of appointment: 2010 | Year of appointment: 2021 | non-executive director | | | | Gender: Male | | Gender: Male | Gender: Male | Year of appointment: 2017 | | | | Ethnic Origin: White | | Ethnic Origin: White | Ethnic Origin: White | Gender: Male | | | | Citizenship: British | | Citizenship: British | Citizenship: British | Ethnic Origin: White | | | | Disability: None | | Disability: None | Disability: None | Citizenship: British | | | Disability: None | David has extensive business and | | | Jonathan has broad commercial | | | Paul is a highly experienced | | | --- | --- | --- | --- | --- | --- | --- | --- | | listed company experience, notably | | | and operational leadership skills, | | | senior executive, with extensive | Mark has gained extensive finance | | in Finance, Audit and Risk. David | | | combined with extensive experience | | | and relevant financial and business | and operational experience at a | | uses his experience and knowledge | | | gained within the newspaper and | | | transformation experience, most | senior level within a number of | | to lead the Board in reviewing and | | | magazine distribution industry, | | | recently as Integration Director at | diverse businesses. He brings | | approving management’s plans for | | | experience which is critical for | | | Compass Group plc. Prior to that, he | recent and relevant financial | | the development of the | C ompan | y ’ s | the long-term development and | | | held various regional and divisional | expertise required to lead the | | strategy and operational and | | | execution of the | C ompan | y ’ s | Finance Director roles within each of | Audit Committee. | | financial performance. As Chair of | | | strategic plans. | | | Compass Group (2013 to 2021), Iglo | | Mark was most recently the Chief | the Nominations Committee, David | | Group/Birds Eye Limited (2011 to | | | --- | --- | --- | --- | | | Jonathan joined WH Smith News | | Financial Officer of Interserve PLC | | is also responsible for leading the | | 2013) and Cadbury Schweppes PLC | | | | in 1994. He rose through the | | and has previously been the Deputy | | assessment of the capabilities and skills | | (1997 to 2010). | | | | organisation in a variety of sales and | | Chief Executive Officer and Chief | of the executive and non-executive marketing managerial roles before Other current appointments Financial Officer of Premier Farnell leadership, and for longer-term being promoted to the executive • None plc. He was a non-executive director succession planning. David has been management team in 2001. In April of Future plc until December 2014 a non-executive director of Dignity plc 2014, Jonathan became Managing and the Senior Independent Director (June 2020), Scapa Group plc (April Director of the Connect News & of Hogg Robinson Group PLC until 2021) and The Go-Ahead Group plc Media division and, subsequently, July 2018, in both cases acting (October 2022) where, in respect Chief Operating Officer in as chair of the respective audit of Dignity and Scapa he served as September 2017, a position which committees, as well as serving on chair of the audit committee and as spanned wider group business their nomination and remuneration a member of the Go-Ahead audit interests held at the time, together committees. In addition, Mark has Committee and, otherwise in each with Smiths News. Following his been Chairman and non-executive case, as Senior Independent Director appointment as Interim Chief director of Xpediator PLC from and as a member of the nomination Executive Officer on 5 November September 2021 until March 2022 and remuneration committees. He 2019, this appointment was and member of its remuneration was formerly Chief Financial Officer confirmed on 15 June 2020. committee. of Synthomer plc, stepping down | in 2015, prior to which he held a | Other current appointments | Other current appointments | | | --- | --- | --- | --- | | number of senior roles within Imperial | • None | • | Board of Trustees of the European | | Chemical Industries plc (ICI). David has | | | Association of Cardio-Thoracic | | also previously served as a member | | | Surgery (EACTS), Honorary | | of the Cabinet Office Audit and Risk | | | Treasurer on the EACTS Council | 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 A N N D D R AP AP R Smiths News plc S G F 65 Annual Report and Accounts 2022 ### Company Secretary ### & General Counsel Committee Key Audit Committee N Nomination Committee R Remuneration Committee D Disclosure Committee AP Approvals Committee Chair Member | Denise | Collis | (65) | Michael Holt (61) | Stuart Marriner | | --- | --- | --- | --- | --- | | Independent non-executive | | | Independent non-executive | Stuart supports and attends the | | director | | | director and designated | Board as Company Secretary | | Year of appointment: 2015 | | | Colleague Engagement NED | and General Counsel. | | Gender: Female | | | Year of appointment: 2018 | | Stuart joined the business in Ethnic Origin: White Gender: Male October 2008 and is responsible Citizenship: British Ethnic Origin: White for business, legal and regulatory Disability: None Citizenship: British support. Prior to joining the Disability: None | Denise holds a wealth of business | | | | | Company, he had spent four | | --- | --- | --- | --- | --- | --- | | experience with a particular focus | Michael possesses relevant | | | | years as a corporate finance | | on people and talent management, | commercial and operational | | | | solicitor, including extensive | | development, retention and | experience gained within the | | | | periods on secondment with | | reward. She therefore has the | logistics and distribution industries. | | | | Somerfield Stores and Punch | | relevant knowledge and experience | With his detailed understanding | | | | Taverns. Stuart was appointed as | | required to lead the Remuneration | of the distribution sector and its | | | | Company Secretary and General | | Committee, a position she has | opportunities and challenges, | | | | Counsel on 1 September 2011 | | also held with SThree PLC (since | Michael provides an independent | | | | and continues to lead the legal | | September 2016) and EMIS Group | voice and commercial sounding | | | | and company secretariat teams. | | PLC (since October 2021). | board in the development and | | | | | | | execution of the | C ompan | y ’ | s strategy | Gender and ethnic | Denise was Chief People Officer and business ambitions. diversity at Bupa, the global healthcare The Board has taken note of the business, from May 2010 until Michael is currently Executive recent publication by the Financial December 2014. Prior to that, Chairman of Tuffnells Parcels Conduct Authority (FCA) of she was the Group HR Director Express and plays an active role in the policy statement regarding for 3i Group plc and a partner at the supervision and management of changes to the Listing Rules (LR EY. She has also held senior HR its business. He was formerly Chief 9.8.6R(9)), encouraging enhanced roles at a number of other leading Operating Officer of FedEx Express, disclosures in relation to gender organisations, including Standard Europe until the end of September and ethnic diversity at Board level Chartered Bank and HSBC. 2018 and held a number of other for financial years starting on or senior executive roles with FedEx Other current appointments after 1 April 2022. While this is Corporation since 2006. Prior to • SThree PLC, senior independent therefore not yet applicable to the that, Michael held senior executive non-executive director and chair Company for this reporting period, roles at a number of leading logistics of remuneration committee two of the C ompan y ’ s largest organisations, including ANC • British Heart Foundation, chair shareholders had each raised Group, where he was instrumental of remuneration and people Board diversity as a future voting in leading the turnaround of the committee and member of concern for them. Hence, the business from a position of loss- nomination committee Board is very mindful of this future making to industry-leading margins requirement, as well as possible • EMIS Group PLC independent and strong profit recovery prior to its sectoral experience and expertise non-executive director and chair successful sale to FedEx in 2006. gaps in the Board’s composition of remuneration committee Other current appointments vis-a-vis future strategic • Tuffnells Parcels Express Limited, opportunities and initiatives, and Executive Chairman 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. A A A N N ## / R R D Smiths News plc 66 G Annual Report and Accounts 2022 ## Corporate Governance Report | In accordance with the provisions | the Company Secretary, centred on | groups can progress and flourish | | | business and Board at the time, | | --- | --- | --- | --- | --- | --- | | set out in the 2018 edition of | the quality of seven aspects of the | within our business (please see | | | while seeking to promote and | | the UK Corporate Governance | Board’s performance as follows: | the Nominations Committee report | | | uphold our policies, including that | | Code (the Code), at the time of | | on page 90), and developing and | | | on equality, diversity and inclusion | | | • Board and Committee Roles | | | | | | his appointment to the Board as | | implementing the | C ompan | y ’ s | across multiple criteria. Please see | and Responsibilities | Chairman, David Blackwood was | | Sustainability programme and its | the Nominations Committee report | | --- | --- | --- | --- | | | • Oversight | regular reporting to the Board as a | | | independent. The Board considers | | | on page 90. | | that all non-executive directors are | • Board and Committee Meetings | standing quarterly agenda item. | | All directors are subject to annual independent. The Board has formal • Support for the Board and The CGI subscribes to the Code of re-election by shareholders at procedures for the declaration, Committees Practice for board reviewers and was Annual General Meetings, where review and authorisation of • Board Composition able to demonstrate that it complied letters of appointment for each conflicts of interest of Board | | | with the principles of competence | non-executive director are available | | --- | --- | --- | --- | | members. Conflicts are considered | • Working Together | | | | | | and capacity, independence and | for inspection. Set out in the Notice | | and, where appropriate, authorised | • Outcome and Achievements | | | | | | integrity, and ensured that the terms | of Annual General Meeting for 2023 | by the Board on an annual basis. Overall, the Company achieved a of engagement were clearly and is information on the skills and In addition, directors are requested “Very Good” result, with an average unequivocally agreed in writing experience of each director seeking to declare any conflicts at the start score of 83% across all areas (based prior to the commencement of the re-election. of all Board meetings. The Board | | on directors’ individual perceptions | r eview process. The CGI was given | | | | | --- | --- | --- | --- | --- | --- | | was satisfied that none of the | | | Directors share developments and | | | | | of the Board’s effectiveness), | the opportunity to review the public | | | | | directors had any conflict of interest | | | regulatory updates within their | | | | | acknowledging that the Board | statement made by the Company | | | | | during the year which could not be | | | areas of expertise with fellow Board | | | | | is operating effectively and in | in relation to the Board evaluation | | | | | authorised by the Board. For details | | | members, who also receive briefings | | | | | accordance with good corporate | process prior to publication. For | | | | | of current situational conflicts | | | across areas of the | C ompan | y ’ s | | | governance principles. A small | further details, please see Code of | | | | | notified by the directors, please see | | | business from both management | | | | | number of recommendations were | Practice for Board Reviewers at | | | | | the Other Statutory Disclosures | | | and external experts as and when | | | | | made where changes could assist | https://www.cgi.org.uk/assets/files/ | | | | | report on page 119. | | | necessary. A quarterly newsletter | | | | | the Board’s effectiveness and | pdfs/Publications/code-of-practice. | | | | containing a summary of current Board evaluation oversight of management, and these pdf. topical issues is circulated and | FY2022 saw the external board | have since been endorsed by the | | | | --- | --- | --- | --- | | | | Director appointments | individual directors are encouraged | | evaluation process take place | Board, including continued focus on | | | | | | and training | to raise any specific training | | in keeping with the three-year | ‘stretch’ performance by executives, | | | | | | The Board has an agreed director | needs. Focus areas in FY2022 | | externally facilitated evaluation | enhanced Board oversight of our | | | | | | appointment and induction | included diversity (generally, | | cycle. The evaluation process | associated businesses and a refresh | | | | | | programme which includes | but also with in-depth gender | | was undertaken by the Chartered | of the Board’s risk appetite approach. | | | | | | a comprehensive and up-to- | and ethnicity considerations), | Governance Institute (CGI) In addition to addressing the date Directors’ Toolkit, which is sustainability (generally, as well as following a selection process outcomes of this year’s external supplemented with one-to-one framework developments, action overseen by the Board and which evaluation process, the Board has meetings and on-site visits to planning and TCFD reporting), included the consideration of four also focused on the identified key some of the C ompan y ’ s locations, stakeholder engagement (employee different service-providers. The takeaways from the 2021 internal as appropriate. No director is engagement and representation, Board concluded that CGI was Board evaluation review process, appointed or nominated by a as well as shareholder trends best able to deliver an effective and we are pleased to report stakeholder, with all directors being and expectations), annual evaluation process given the depth that we have made progress to identified through, and appointed reporting expectations and AGM of their knowledge and experience, address those previous actions following, an extensive external considerations, policy development, while also taking into consideration and recommendations, including search agency process. Selection culture, modern slavery compliance service delivery, cost effectiveness, enhancing and improving our decisions are based on merit and Companies House developments. availability and the requirement | | colleague engagement mandate | and the Board strives to ensure | | | --- | --- | --- | --- | | that the Company should not have | | | The Company Secretary and | | | through the National Colleague | that recruitment activities are fair, | | | a prior relationship with the same | | | General Counsel is responsible for | | | Engagement Forum (please | transparent and non-discriminatory. | | | reviewer for more than six years. | | | the timely and complete distribution | | | see page 15), strengthening the | The Board understands the | | of information to the Board and The evaluation process agreed relationship between management importance of succession planning all directors have direct access to with CGI included a confidential, and the external advisor to the which is an objective process the Company Secretary for advice, structured one-on-one interview Remuneration Committee, fostering based on merit and the assessed including independent professional with each of the six directors and an environment where minority skills, experience and needs of the advice, where appropriate, at the C ompan y ’ s expense. Culture and values Make informed Be imaginative, curious Safe, reliable and Share your thoughts Have fun and be helpful. Be inclusive, honest and decisions and act and adventurous. responsible. Take freely and stay open Enjoy working together respectful to everyone, quickly. Be agile in the Develop inspirational pride in our work and to new ideas. Listen to deliver a great whatever their role or way we work together ideas and innovative do the right thing for to others, be positive performance. experience. and deliver for our solutions. each other and our and engage in customers. customers. communications. Quick Creative Trusted Open Friendly Fair Smiths News plc S G F 67 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 • Management oversight – The Board ensures that functions within the business are both important to our stakeholders based on empowered and resourced appropriately to support our values. Through the receipt of regular balanced and actual views and priorities reports to the Board and management (e.g. Health & Safety, People updates, internal audit, (rather than perceptions), so as to gain whistleblowing, operational and financial performance, risk, etc) we seek to understand behaviour a more informed position and to better throughout the Company and to challenge these behaviours if they fall short of expected values. understand the extent to which our These reports include an assessment of potential or actual impact on our stakeholders, as well as values are truly embedded within the including any concerns about wrongdoing or breaches of law or policy. Please refer also to our business and what we do. The Board Audit Committee report on page 80. understands there is no substitute for • Policies & Procedures – Our values and culture are supported by a number of policies and ‘walking the shopfloor,’ to ensure it has procedures, as well as by our Code of Conduct, Anti-Bribery policy, Conflicts of Interest and a real understanding of the culture at Whistleblowing policies. During FY2022, we launched an e-learning module for all colleagues in different levels of the business and is able order to promote and encourage a better understanding of the C ompan y ’ s culture, our working to intervene before cultural problems take environment and the relationship between the Company and our colleagues. This module hold. Board meetings are held at locations explores the different kinds of company culture and considers how the workplace environment across our business and directors can play a pivotal role in the success of the Company. It also details how best to create, develop periodically visit our operational sites not and transform company culture to suit the changing needs of the business. In addition, we only as an opportunity to find out what have compulsory training modules for identified colleagues on a wide range of topics, including is going on but also to demonstrate the anti-bribery and corruption, money laundering prevention, competition law, data protection and importance and presence of the Board. 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 This process also assists in determining service compatible with global CPD principles. Our Procurement policies (which reference our the effectiveness of our policies and Modern Slavery Statement) make clear our expectations for our supply chain network with regard procedures, to gain a more informed to business practices and what our suppliers and customers can reciprocally expect from us in perspective of colleague issues and the way that we interact with them. Customer complaints are reviewed and followed up, with concerns, to assess the outcomes of potentially serious matters being brought to the attention of the Board. proactive and remedial activities and to ensure insight into the priorities of our • Talent and Performance Management Systems – We have a culture and value lens in our stakeholders in general. 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 Business and stakeholder views our colleagues and understand that the C ompan y ’ s culture resides in our people and their are sought through both physical actions, thus the attitude of our colleagues is a good indicator of our culture and engagement. engagements and the receipt of reports Through a variety of processes, we seek to measure and report on our human capital including, and discussions throughout the year. amongst others, employee engagement and satisfaction, retention rates, total workforce and our There have also been direct one-to- investment in their training and development, as well as ongoing measurement and impact of one engagements with both our largest gender pay gaps, adoption of share incentive schemes, executive pay, and workforce composition shareholders during the reporting period and demographics. In this way, we seek to overlay results from our employee engagement pulse (in order to gauge their expectations and surveys with other data points to build a more informed picture. We have fair and transparent pay opinions on a number of matters), as well practices and report and consult in this area regularly. Please see the People report on page 30 as with publishers and customers (in order and the Directors’ Remuneration report on page 94). to better understand their views on service performance and category sustainability) • Risk management and Internal Audit processes – We are aware that it is necessary to remain – see Stakeholder Engagement on pages vigilant in all our business dealings and, as a result, we maintain strict financial discipline and 14 to 17. 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 The Board challenges and supports independent and accountable and communicates any concerns about the values and culture management in the institutionalisation to the Board. of our values across the business and • Strategy development – As we look at our strategy (see page 6) and growth opportunities, holds management accountable for the we have also considered the impact of any such opportunities on our stated values. We see culture way in which the Company conducts and the upholding of our values as intrinsic to how our business is managed today and tomorrow, business and engages with, and reports, and thus the Board seeks assurances that our operations and strategic priorities are aligned with to stakeholders. These engagements and our values and that our business model and practices remain compatible with our values. outcomes are detailed in Stakeholder Engagement on pages 14 to 17. ## / Smiths News plc 68 G 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. | | | Reports | | | Reports | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | received in | | | investigated | | | Outstanding | | | Whistleblowing | | FY2022 | | and closed | | | investigations | | | We recognise that matters or behaviours may go awry from time to time within any business. | | | 5 | | | 5 | | 0 | 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. Supporting Addressing Board activities in FY2022 our values principal risks Governance • Participated in external Board, Committee and director evaluations • Macroeconomic Uncertainty • Reviewed directors’ conflicts of interest • Legal & Regulatory • Reviewed terms of reference of Board Committees, reserved and delegated matters Compliance • Reviewed various policies, including the prevention of modern slavery, anti-bribery & • Growth & fraud and the C ompan y ’ s Competition Policy manual Diversification • Approved the interim financial results and the annual report and accounts • Sustainability & • Received reports from the C ompan y ’ s advisers, including its corporate brokers Climate Change • 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 Finance • Agreed new terms to our Senior Finance Agreement • Macroeconomic Uncertainty • Approved our tax strategy • Legal & Regulatory • Approved and monitored budgets and business plans Compliance • Considered the declaration of dividends and the merits of other forms of distribution • Growth & • Considered and approved our trading statements, half-year and full-year reports Diversification • 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 Smiths News plc S G F 69 Annual Report and Accounts 2022 Supporting Addressing Board activities in FY2022 our values principal risks Business review, performance and strategy • Approved and monitored progress against management’s key business imperatives • Macroeconomic Uncertainty • Considered business growth and development opportunities • Acquisition & • Considered and approved our capital allocation strategy Retention of labour • Considered and approved our sustainability strategy, implementation and action • Legal & Regulatory planning and TCFD reporting Compliance • Reviewed performance and reward • Growth & • Reviewed business continuity plans Diversification • Considered planning for publisher contract renewals in 2024-2026 • Sustainability & Climate Change Audit, internal controls and risk • Reviewed business-wide risks, risk appetite and mitigating actions, including • Macroeconomic an in-depth credit risk review of our customers and category sustainability Uncertainty • Received reports from the Audit Committee chairperson • IT Infrastructure & Cyber Security • Ongoing assessment of the effectiveness of internal controls and processes • Legal & Regulatory • Monitored health and safety strategy and activity through monthly Board reports Compliance • Monitored cyber security & data protection compliance • Changes to retailers’ • Ongoing monitoring of the transition to the internal audit model commercial 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 People • Received regular updates from the Remuneration Committee on remuneration • Acquisition & and performance Retention of labour • Considered and approved various employee share awards (SAYE, LTIP and • IT Infrastructure & deferred bonus) Cyber Security • Reviewed Directors’ Remuneration Policy and undertook consultation with • Legal & Regulatory key stakeholders Compliance • 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 ## Quick Creative Trusted Open Friendly Fair Key / 70 FI 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 Board 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 Council's website at www.frc.org.uk. Smiths News plc S G F 71 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. ## / Smiths News plc 72 G Annual Report and Accounts 2022 ## 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. Smiths News plc S G F 73 Annual Report and Accounts 2022 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. ## / Smiths News plc 74 G 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. Smiths News plc Annual Report and Accounts 2022 S G F / 75 ## Compliance with Principle/Provision disclosure ### 2. Division of Responsibilities continued #### 12. Senior Independent Director Mark Whitelung became Senior Independent Director on 23 January 2018. The Senior Independent Director leads the annual appraisal of the Chairman'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 Company'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 Committee's work in the reporting period, it was mindful that two of the Company'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 FCA'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. Smiths News plc 76 G Annual Report and Accounts 2022 ## Corporate Governance Report continued 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. Smiths News plc Annual Report and Accounts 2022 S G F / 77 # 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 Company'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 Company'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 Company'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 Company'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 Company'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. 78 FI Smiths News plc^{}[] Annual Report and Accounts 2022 # 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 Company'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 Committee's terms of reference restate the Committee'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 Company'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 Company's share incentive plans explicitly make this clear and include best practice malus/clawback provisions. Smiths News plc S G F 79 Annual Report and Accounts 2022 Compliance with Principle/Provision disclosure 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 ## / Smiths News plc 80 G Annual Report and Accounts 2022 ## Audit Committee Report Chairman’s introduction Our journey to achieving ‘Cyber On behalf of the Board I am E ssentials’ accreditation through pleased to, once again, present the National Cyber Security Centre the Audit Committee report which has proved a worthwhile exercise explains the C ommi tt ee ’ s activities and, with the benefits seen here, we remain committed to continuing and contribution to the general the focus on cyber security, as the oversight of the C ompan y ’ s internal Company seeks ‘Cyber Essentials controls, risk management, our Plus’ accreditation in FY2023. corporate governance framework, and financial reporting and Our progress has resulted in a assurance of the Annual Report number of positive changes in our and Group Financial Statements for IT landscape and has driven a shift the reporting period. in culture and security awareness across the business which is Reviewing our risks particularly pleasing. In the light of our ongoing strategy H&S excellence and to look at possible growth and internal controls diversification opportunities which | complement our core business | We have continued to maintain | | --- | --- | | activities and competences, we have | a sector-leading track record | | determined that a new principal risk | in health and safety, with our | | should be added to our risk register, | ongoing activities recognised | | specifically around the execution risks | through retaining our ISO 45001 | | associated with the implementation | certification for H&S management | | of these opportunities that are being | and, separately, securing 13 RoSPA | | carefully explored. The challenging | awards in the year (including 11 at | | macro-economic position, as well | the highest ‘gold’ standard). | as the insolvency of a large retailer The Committee has also continued (McColls) in the reporting period, to monitor and review our internal has required a detailed review of the controls framework and the output trading and credit terms extended of Internal Audit’s activities in the ### Mark Whiteling to our customers, to ensure that year and, overall, the Committee these remain appropriate now and Audit Committee Chair is pleased that our robust controls for the future, as well as a detailed and systems have ensured Committee objective: To promote effective governance review of the impact of that retailer’s regulatory compliance and financial insolvency on the Group Financial of the Company’s financial controls, accounting and control and discipline in the Statements and the alternative reporting period. reporting, including the adequacy of related disclosures; performance measures included the performance of both the Internal Audit function and in this Annual Report. This review External audit and the external auditor; and to oversee the Company’s and our experience in the reporting administration period has also led to the inclusion Once again, I am pleased to report risk management, internal control systems (including of a new principal risk related to a that we remain satisfied with BDO’s whistleblowing reporting processes), and compliance change to our retailers’ commercial audit processes, with both their | framework and activities. | | | model. Furthermore, remaining ever | interim review and period-end | | --- | --- | --- | --- | --- | | | | | conscious of the growing climate- | audit progressing well this year. | | Membership | & Composition | | related risk environment, we have | The Committee can confirm that | | | | 4/4 | determined that an emerging risk | through ongoing monitoring and | | | | | associated with sustainability and | review the independence and | of Audit Committee & Senior Independent Director) | | | | climate change should be elevated | objectivity of the external auditor | | --- | --- | --- | --- | --- | | Collis | | 4/4 | | | | | | | from our emerging risk register to | has been ensured. | | | non-executive director) | | a principal risk. Coupled to this, | | The Committee has undertaken Holt we have extensively reviewed the an annual review of its terms of proposed disclosures and assurances non-executive director) reference in accordance with which necessary to meet the reporting it has acted at all times during Meets the 2018 UK Corporate Governance Code requirement that the requirements of the Taskforce on the year. majority of members are independent non-executive directors. Climate-related Financial Disclosures (TCFD), with this being our first year Further information on the The Committee met four times during the year and all Committee members in which a climate consideration Committee can be found here, attended each of the meetings. At the invitation of the Committee, the section has been included within this as well as in the Corporate Company Chairman and certain executive directors attended the meetings Annual Report. Governance report on page 58. from time to time. Improving cyber security During the reporting period, the Mark Whiteling Committee is pleased with the Audit Committee Chairman good progress made in enhancing our cyber security credentials. 8 November 2022 Mark Whiteling (Chairman Denise (Independent Michael 4/4 (Independent Attendance Smiths News plc S G F 81 Annual Report and Accounts 2022 | Membership | The terms of reference address | | | | | | --- | --- | --- | --- | --- | --- | | During the year, Michael Holt, | all matters set out in Disclosure | | | | | | | | Roles | & | Responsibilities | | | Denise Collis and I were all | and Transparency Rule 7.1 and | | | | | | | the 2018 edition of the Code, | Includes – | | | • Reviewing and recommending | members of the Committee. All and are reviewed annually by the the adoption of the going members of the Committee who • Monitoring the integrity of Committee and referred to the concern basis of accounting served during the year were the financial statements of Board for approval. in preparing the financial independent non-executive the Company, including its statements of the Company directors. David Blackwood, as Annual and Interim Reports, If there is a disagreement with and assessing its prospects Company Chairman, was not a trading statements, preliminary the Board and/or the Executive and viability; member of the Committee but did and interim financial results Team on any of the C ommi tt ee ’ s attend Committee meetings by announcements and reviewing • Reviewing the regulatory responsibilities that cannot be invitation only, and has attended significant financial reporting compliance framework and resolved, the Committee retains each Committee meeting. issues and judgements which the systems and controls for the right to report the issue to they contain; the prevention of fraud and Given my qualifications and my shareholders as part of its report corruption, tax evasion, modern on the C ommi tt ee ’ s activities. There • Keeping under review the extensive financial experience, slavery and bribery; are no such matters to report to adequacy and effectiveness including my former roles as shareholders at this time. of the Company’s internal • Ensuring the Company Chief Financial Officer of each financial and non-financial maintains suitable of Interserve PLC (until March In addition, the Committee seeks controls, including monitoring arrangements for colleagues, 2019) and Premier Farnell plc to identify matters in respect of and reviewing the effectiveness customers, contractors and (until June 2016), I am considered which we consider that action or of the Internal Audit function; other external parties to by the Board to have recent and improvement by the Company raise matters of concern in relevant experience to chair the • Reviewing the Company’s is needed, and appropriate confidence (whistleblowing); Committee in accordance with assurance and risk recommendations are made to the the requirements of the 2018 management framework • Considering and making Board as to the steps that should edition of the Code. Each of the and providing oversight and recommendations to the be taken to preserve and promote other members of the Committee input into the Company’s risk Board as to the appointment, the assurance and integrity of has extensive and highly relevant strategy, appetite and risk reappointment or removal of the C ompan y ’ s internal controls business, commercial and management mitigations; the external auditor and the framework. operational experience. approval of their remuneration • Reviewing the content of the Evaluation of the and terms of engagement; Annual Report and the Group Corporate governance Committee Financial Statements and • Assessing the external auditor’s As part of its overall responsibility During the year, an external advising the Board whether, independence and objectivity for the strategic direction and evaluation of the effectiveness of taken as a whole, they are fair, and the effectiveness of the management of the Company, the the Committee was conducted. balanced and understandable audit process; Board undertakes an annual review Further details can be found in the and provide the information of its risk appetite and risks and • Reviewing and approving the Corporate Governance report on necessary for shareholders to opportunities, the outputs of which policy on the engagement of page 58. assess the Company’s position, are considered when conducting the external auditor to supply How the Committee performance and prospects, the annual business planning, non-audit services; and operates together with its business budgeting and strategy reviews. • Reporting to the Board on model and strategy; The Committee met four times how it has discharged its The Audit Committee assists the during the year as part of our responsibilities. Board in the discharge of its duties schedule to consider matters regarding the C ompan y ’ s financial For more details, please see planned around the financial statements, accounting policies and Audit Committee (or a hard copy calendar. All Committee members the maintenance of proper systems is available from the Company were in attendance at each of the of risk management and internal Secretary on request). meetings. For further details on control. The Internal Audit function attendance, please refer to the assists in maintaining adequate Corporate Governance report on financial controls by reviewing page 58. At the invitation of the the design and operational Committee, representatives of effectiveness of core financial the external auditors (BDO LLP) processes and all controls as part attended meetings, together with of the internal audit plan approved representatives of the Company, by the Committee annually and including the Company Chairman, refreshed at regular intervals executive directors, internal auditors in the reporting period. Internal and certain other members of the Audit presents its findings to the Executive Team whom, from time to Executive Team, and all internal time, presented reports specific to audits have an executive sponsor their areas of responsibility. assigned. ## / Smiths News plc 82 G Annual Report and Accounts 2022 ## Audit Committee Report continued As Chair, I regularly engage with Risk management and In line with usual procedures, a The C ommi tt ee ’ s review of the risk the external auditor and with the internal control framework refresh of the C ompan y ’ s principal management and internal controls Head of Internal Audit & Risk, both While the Board retains ultimate and emerging risks was carried out in the year included: ahead of Committee meetings and responsibility for risk management at the half and full year, taking into • a review of both the risk profile, also as part of a regular dialogue and the internal control framework, account the continuing environment our collective appetite to risk and we have on issues relevant to the Committee is responsible for of considerable change and the internal control framework, the Committee, in each case in reviewing the robustness and transformation within both the reviewing the processes for order to ensure that each of their effectiveness of the C ompan y ’ s risk UK and across our business, the identifying, evaluating and independent views, opinions and management and internal control increasing relevance of climate- managing the principal business comments are reflected within systems. The Internal Audit function related risks and, more recently, the risks (together with the emerging the C ommi tt ee ’ s deliberations and is a key element in supporting the impact (both in relation to growing risks) that we face, including dealings. Separately, the Committee Committee to discharge this duty inflationary pressures in the macro- those that would threaten the also seeks to collectively meet and following a review of Internal economy and its impact on our C ompan y ’ s business model, regularly with both the external Audit’s effectiveness in January service performance and strategic future performance, solvency auditor and separately with the 2021 (which was subsequently planning programmes) of the or liquidity; | Head of Internal Audit & Risk | endorsed in July 2021) (see the | well-publ | icised sector challenges | | | | --- | --- | --- | --- | --- | --- | | without the executives being | | | | • | the consideration of updates | | | Internal Audit section below), the | in relation to driver recruitment and | | | | | present. In the year, the Committee | | | | | from the business covering | | | Committee is pleased with the | warehouse resourcing. This review | | | | | met twice with representatives from | | | | | current and anticipated risks, | | | decision made in the prior year to | and our experience in the reporting | | | | | BDO without management present | | | | | together with corresponding | | | transition to a new in-house model | period has, in particular, led to | | | | | and held one separate private | | | | | mitigating actions. These | | | of resourcing for the Internal Audit | the inclusion of a new principal | | | | | meeting with the Head of Internal | | | | | included issues such as people- | | | function, which successfully took | risk related to a change to our | | | | | Audit & Risk. No material issues | | | | | management and remote | | | place without incident or hindrance | retailers’ commercial model and | | | | | came to light in these discussions | | | | | working patterns, operational | | | at the start of FY2022. | a separate sustainability climate- | | | | | but the Committee nonetheless | | | | | depot processes, procure to pay, | related risk to supplement our TCFD | | A critical element of the | C ompan | y ’ s | | payroll services, cyber security, | | --- | --- | --- | --- | --- | --- | | welcomed the opportunity to | | | | reporting (see page 44). This broad | | | discuss any issues in a candid and | risk management review is the | | | | climate-related risk events, | review was conducted through constructive light. determination of the extent to and the impact of the current discussion with a cross-section which the Company is willing to inflationary pressures and of the Executive Team and senior Towards the end of the financial ‘accept’ a level of net risk as part recruitment challenges within the management and the non-executive year, the Head of Internal Audit of the cost of delivering against its sub-contracted delivery driver directors, who were each asked & Risk left the business for an strategy. To this end, the Board’s market; to consider the key risks (in place | opportunity outside of the Company. | individual and collective risk | | | | | --- | --- | --- | --- | --- | | | | and emerging) and the challenges | • | a review of operational controls, | | As a result, the Committee oversaw | appetite is periodically reviewed, | | | | | | | facing the business (by reference | | processes and systems, together | | the appointment of a new Head of | taking into account changes in | | | | | | | to the existing principal risks); the | | with robust BCP planning to | | Internal Audit & Risk. Despite this | the business and the external | | | | | | | current management activities and | | mitigate a range of service | | change, completion of the FY2022 | environment, as well as emerging | | | | | | | controls that help address these | | interruption scenarios; | | Internal Audit work plan remained | trends and developing risks. Our | | | | risks; and future actions that may • a review of the C ompan y ’ s unimpacted and the Committee risk appetite differs across the be taken to further mitigate the risks new banking facilities signed in continued to maintain strong respective principal and emerging (where appropriate). Following this oversight and confidence in the December 2021 and the impact risks, with a lower acceptance review, there remains a general delivery and successful conclusion this had on the C ompan y ’ s appetite (seeking to reduce the risk alignment around the nature of the FY2022 Internal Audit distribution rights, going concern profile and mitigating its impact of risks, the risk ownership, the and viability assessments; and work plan. where possible) for high impact/ direction of travel, any mitigation high likelihood risks and with a • a review of the mitigations and We believe that the activities of the actions to reduce the gross risk, and higher acceptance level (potentially controls in place to protect the Committee during the reporting acceptance of remaining net risk. accepting the risk, with limited business and the continued period have enabled the non- impact mitigation) for low impact/ oversight of the effectiveness executive directors to gain a good low likelihood risks. For further of our cyber-risk management understanding of the C ompan y ’ s details, please see the Principal plans. strategic priorities, the risks and and Emerging Risks on page 42. 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). Smiths News plc S G F 83 Annual Report and Accounts 2022 The C ompan y ’ s risk management reinforcements, and a roadmap Internal audit function In fulfilling our responsibilities in the and internal control system is for further risk reduction. As a The Committee is responsible year, the Committee also reviewed designed, however, only to manage demonstration of our commitment for monitoring and reviewing the the following matters in relation to or mitigate risk, rather than to to tackling cyber security, we the Internal Audit function: effectiveness of the Internal Audit eliminate it entirely, as taking on continue to pursue Cyber Essentials function in the context of the overall • the scope, resource and planned manageable net risk is an inherent accreditation from the National risk management system. activities of Internal Audit and the | part of undertaking the | C ompan | y ’ s | Cyber Security Centre (NCSC) | | | | --- | --- | --- | --- | --- | --- | | | | | | Following the reintroduction of | adequacy of audit coverage; | | commercial activities and can | | | and intend to supplement this with | | | | | | | | the internally resourced model | • Internal Audit’s strategy, work | | only provide reasonable (and | | | Cyber Essentials Plus accreditation | | | | | | | | (as opposed to the previous | plans and status reports against | | not absolute) assurance against | | | in Q2 FY2023. | | | | | | | | outsourced model) for Internal | planned activity and business | material misstatement or loss. Whistleblowing, bribery Audit at the start of FY2022, we incidents reports; We believe that we have been able and fraud are pleased to report that the • a summary of the reports on to respond quickly and efficiently to We operate a confidential transition progressed well, with the results of individual audit the ever-evolving risk environment telephone hotline whereby an effectiveness review of the reviews, significant findings, that we regularly face head on colleagues can report in confidence Internal Audit function in the year management action plans, and and have deployed effective risk any suspected incidences of fraud, supporting our initial decision to timeliness of resolution; and management processes across the bribery, modern slavery or non- make the change and identifying • the performance of the Internal Company. Accordingly, the Board compliance with Company policies, the tangible benefits to the is satisfied that it has carried out a Audit function which was practices or breaches of law. All business of having made this undertaken through a formal robust assessment of the principal such incidences are assessed and decision. This decision was based review process, which included and emerging risks that we face categorised according to severity on an assessment that the internal the views and experiences of (together with the Board’s risk and risk by the Employee Relations model was best able to meet not only the Audit Committee appetite) as required by the 2018 team and an investigating manager the needs of the business and to members but also a cross edition of the Code. Further details appointed, with the findings de liver an internal audit function section of peers from across the of our risk management framework, reported to the Committee on which remains at the heart of the business who have engaged along with our evaluation of the completion of the investigation. risk management framework and with the Internal Audit team | principal risks and how they are | | ongoing control environment. This | | | | | | --- | --- | --- | --- | --- | --- | --- | | | During the year, the Committee | | | | | during the year. The review | | being monitored are set out in the | | change has, in the | C ommi | tt ee | ’ s | | | | received quarterly reports on | | | | | has indicated that, overall, the | | Strategic Report on pages 2 to 57. | | view, resulted in better control and | | | | | | | incidences of whistleblowing, | | | | | insourced model is working well, | assurance across the business IT systems and suspected fraud, tax evasion, data with some areas identified for and, despite the transition process cyber security breaches, bribery, modern slavery further development in FY2023. and the loss of the Head of Internal | During the year, we enhanced our | or other malpractices reported | | | | --- | --- | --- | --- | | | | Audit & Risk towards the end of the | Committee’s activities | | Information Technology systems | across the business. A small | | | | | | financial year, we have successfully | during the year | | and controls, not least through the | number of incidences arose in | | | | | | been able to achieve our FY2022 | The Committee has a yearly agenda | | deployment of Microsoft Office365 | the reporting period, but no such | | | | | | internal audit plan, resulting in | planner, which ensures that it is | | to all users, introducing multi- | instances were considered to be of | | | | | | the Committee being satisfied | able to fully discharge its roles and | | factor authentication processes | significance to the Company. The | | | | | | that an effective review of the | responsibilities, whilst maintaining | | to enhance the security of our | Committee continues to welcome | | | | | | control framework and governance | sufficient time for discussion of ad | | internal and external systems and | this increased risk management | | | | | | processes has taken place across | hoc items that arise throughout the | | provide a robust and fit for purpose | framework which aids and | | | | | | the selected areas of our business. | reporting period. | | solution going forwards. In the | improves the identification of, and | | | | field of information technology and | mitigating actions to prevent and | | | | security, the Company undertakes | report, incidences of suspected | | | | a regular security assurance | fraud, tax evasion, data breaches, | | | | programme, testing controls, | bribery, modern slavery or other | | | | identifying weaknesses and | forms of malpractice. See the | | | | prioritising remediation activities | Corporate Governance report on | | | | where necessary. This includes | page 58 for further details. | | | 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 ## / Smiths News plc 84 G Annual Report and Accounts 2022 ## Audit Committee Report continued 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 • Reviewed the external auditor’s report on the C ompan y ’ s full year and half year financial statements review • 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 • Conducted an annual assessment of risk and internal control, including a robust assessment of principal and & Controls 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 Smiths News plc S G F 85 Annual Report and Accounts 2022 Fair, balanced and C ompan y ’ s business model and • monthly Board meetings where Significant Financial understandable strategy. This review included but the management accounts and Statement reporting During the year, the Committee was not limited to: KPIs were reviewed, to ensure issues reviewed and considered reports that the financial, operational and The significant issues and key • a paper prepared by the Chief from the external auditor and the commercial performance was judgements considered by Financial Officer outlining the Chief Financial Officer on matters appropriately assessed, reported the Committee in relation to work undertaken by executive of significance in relation to, and understood. the FY2022 Group Financial management and the key | and the content of, the financial | | | Statements are set out below. In | | --- | --- | --- | --- | | | estimates and judgements | The views of the external auditor on | | | statements for both the 52-week | | | light of these significant issues and | | | made in preparing the financial | this matter were also considered by | | | period to 27 August 2022 and the | | | key judgements included below, | | | statements; | the Committee. Having completed | | | half year to 26 February 2022 to | | | the Committee has considered | its assessment, the Committee • a review by senior management ensure that, in each case, they whether each of these areas is a reported to the Board that it was of the Annual Report, to ensure included the necessary information key judgement or estimate and, able to make the corresponding that the information presented to provide shareholders with a fair therefore, whether it should be confirmation that this Annual was accurate and that the and balanced assessment of the disclosed within Note 1(e) to the Report is fair, balanced and narrative was consistent with the C ompan y ’ s position, performance Group Financial Statements. It understandable. fact pattern; and and prospects, as well as the 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 The Committee reviewed and challenged executive The Committee concluded that the assumptions used in the and viability management’s assessment of forecast cash flows assessments and the periods of assessment, were appropriate. over the relevant assessment periods, which were In reviewing the Group’s reverse stress tests, the Committee 16 months for going concern and 34 months for challenged executive management as to the likelihood of any such viability. scenario occurring, to assess whether it was reasonable to assume The Committee considered the sensitivities within that the likelihood of any such scenario was remote. Factors that trading and expenditure plans, including a reverse were considered included the current trading performance of the stress test and five reasonable worse case downside business compared with the base case, the extent of revenue and scenarios which were linked to the principal and Operating Profit decline that could impact the going concern of emerging risks as detailed on page 42. the Company and current expectations as to the severity of any inflationary impacts on cash flows. The Committee further reviewed the assumptions relating to material events occurring before the end The Committee further concluded that appropriate consideration of the assessment period, notably the renewal of had been made of principal and emerging risks through the publisher contracts and the extent and renewal of inclusion of the five downside risk scenarios and reverse stress test. the C ompan y ’ s debt financing facilities in August The Committee noted the current level of average and peak debt, 2025. 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 The Committee considered the appropriateness The Committee was satisfied that appropriate consideration had vs. Agent of accounting for revenue from the wholesale of been made of the following factors which influence determination newspaper and magazines as principal, rather than of principal/agent: as an 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. ## / Smiths News plc 86 G Annual Report and Accounts 2022 ## Audit Committee Report continued Significant matters and key judgements Area Matter considered Outcome Revenue The Committee considered management’s Revenue from the delivery of newspapers and magazines and recognition – judgement relating to the existence of revenue from carriage fees are recognised when the titles are delivered to existence from sales of newspapers and magazines and from the retailer, as there is no unfulfilled obligation that could affect the carriage fees, which is recognised when the titles retailer’s acceptance of the products and the risks of obsolescence are delivered to the retailer. and loss have been transferred to the retailer. The Committee concluded that the accounting treatment remained appropriate. Carrying value of The Committee considered management’s The Committee received detailed reports from executive investment held by conclusion that no change should be made to management outlining valuation methodology, the basis for key Smiths News plc in the carrying value of the investment held by the assumptions (e.g. discount rate and terminal growth rate), the key its subsidiary Company in its subsidiary, despite the following drivers for cash flow forecasts and the sensitivity of the assumptions indicators of impairment/reversal of impairment: used. • increase in the risk free rate (impairment); The impairment model is highly sensitive to key estimates and judgements. The key assumptions in the value in use calculations • the C ompan y ’ s market capitalisation are the rates of revenue decline, level of cost mitigation to maintain being below the investment carrying value margins, terminal growth rates and the risk-adjusted post-tax (impairment); and discount rate. • lower net liability position (reversal). 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 The Committee closely monitored management’s The Committee was satisfied that the presentation of APMs and Performance interpretation and definition of APMs, with focus Adjusted profits provides a reasonable view of the underlying Measures (APMs) on Adjusted Items. The Committee continues to performance of the Company, and that there was transparent and and Adjusted Items review and challenge the classification of Adjusted consistent disclosure of the items shown separately as Adjusted items. Items in line with the C ompan y ’ s defined policy. In particular, following rigorous review with management and advisers, The Committee also ensures sufficient involvement the Committee concluded that the impact of McColls administration from external auditors in challenging management should be treated as an adjusting item for the purposes of recording to ensure an appropriate level of judgement is the treatment of the £4.4m provision made in the Group Financial exercised in their assessment. Statements, both in adherence to the C ompan y ’ s adjusting items The Committee considered the appropriateness of policy and in order to provide a meaningful comparison of APMs. the measure of Adjusted profits, quality of earnings, The definition of APMs can be found in the Glossary on page 176. and the classification and transparency of items The accounting policy on Adjusting items is set out in Note 1 to the separately disclosed as such. Group Financial Statements on page 137. 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. Smiths News plc S G F 87 Annual Report and Accounts 2022 Significant matters and key judgements Area Matter considered Outcome Retirement benefit The Committee reviewed the accounting treatment The Committee was satisfied with the treatment of the “buy-out” obligation of the buy-out and winding up of the news section and winding up of the scheme. of the WH Smith Pension Trust scheme in the year. Property provision The Committee reviewed the property provisions The Committee agreed that the property provision held was as at period end and the appropriateness of the appropriately recognised and measured, and that releases were additions, utilisation and releases made in the year. 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 The Committee considered the factors used by The Committee considered the key judgements made lease terms management to determine lease terms. 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. ## / Smiths News plc 88 G Annual Report and Accounts 2022 ## Audit Committee Report continued | Adoption of new | Going concern and | External auditor | The Company has a formal policy | | --- | --- | --- | --- | | accounting standards | viability assessment | Under its terms of reference, the | on its relationship with the external | | The Financial Conduct Authority | The Committee also reviewed | Committee is responsible for | auditor to ensure that the external | | has introduced LR9.8.6R(8) | a paper prepared by the Chief | assessing the scope, fee, objectivity | auditor’s independence is not | | in relation to adopting the | Financial Officer to support the | and effectiveness of external audits, | impaired. Following regulatory | | | Going Concern and Viability | and for making a recommendation | changes and the introduction by | recommendations of the Task Force on Climate-related Financial to the Board regarding the the Financial Reporting Counsel Assessment referred to on page Disclosures (TCFD), which require appointment, reappointment or (FRC) of a new 2019 ethical 56. The Committee noted that premium-listed companies to removal of the external auditor on standard (which applied with effect the Company had £79.5m of | | | an annual basis. | from March 2020); in FY2020, the | | --- | --- | --- | --- | | disclose climate-related risks and | available facilities at the end of | | | | opportunities, governance, strategy, | | | Committee reviewed the revised | the reporting period (of which BDO was appointed as external risk management, and metrics and ethical standard and amended £14.2m was drawn at the end auditor following a competitive targets. Companies are obliged to of the reporting period) and, our non-audit services policy at tender process in January 2019. In also consider areas of the financial therefore, achieved 0.3x leverage that time. In doing so, we removed light of Articles 16 and 17 of the EU statements that could be impacted covenant of Bank Net Debt to the previous de minimis financial Audit Regulation, the Company will by such risks and uncertainties Adjusted EBITDA (pre-IFRS16). approval limits for non-audit put the external audit contract out arising from climate change under With current facilities in place services and adopted a ‘whitelist’ to tender at least every ten years the current accounting standards. until 31 August 2025, this gives of non-audit services which may and will mandatorily rotate audit Please see the TCFD report on the Company a strong platform to be provided by the external auditor firm every 20 years. The Committee page 44 for further details of our continue for the foreseeable future. in adherence to the new ethical acknowledges that in line with compliance in this area. standard. No changes have been On this basis and the evaluation professional standards, BDO has | | of the impact of a number of | | made this year and, therefore, going | | --- | --- | --- | --- | | Apart from the above financial | | a policy of rotating engagement | | | | sensitivity scenarios, the Committee | | forward, the approval of both the | | reporting developments, there have | | partners every five years. This year’s | | | | concluded in its recommendation | | Audit Committee Chairman and the | | been no other significant changes | | audit is the fourth year in which | | | | to the Board that the profit and | | CFO will continue to be required | | in accounting standards which are | | Sophia Michael has been engaged | | | | cash forecasts supported the | | in respect of all non-audit service | | expected to materially impact the | | as audit partner and, consequently, | | | | view that the business can meet | | engagements and, as part of | | Company. However, we nevertheless | | we have commenced a process | | | | its liabilities as they fall due for a | | such approval process, where the | | remain alert to any such changes | | to consider the audit partner’s | | | | period greater than 12 months | | maximum combined spend is likely | | and regularly receive updates on | | r otation. | | | | (being an assessment period of 16 | | to exceed 50% of the annual audit | upcoming changes from both the months) from the date of approval fee in any financial year, there is external auditor and management. of the Group Financial Statements, an express requirement to engage In this light, the Committee has and that there is a reasonable with the external auditor in order to received an update during the year expectation that the Company ensure absolute compliance with on the Department of Business, the latest standards. will remain viable over the period Energy and Industrial S t r a t e g y ’ s of assessment to August 2025. response to its March 2021 Fees paid to BDO during the year The Viability Statement on page consultation on audit and corporate in respect of non-audit services 56 sets out further details on the governance reform (Restoring trust support for the C ompan y ’ s interim process applied in relation to this in audit and corporate governance) financial results amounted to assessment. | for which the Committee welcomed | £97,000 (FY2021: £74,000). The | | --- | --- | | the opportunity to participate in the | Committee considered, and was | | consultation last year. The impact | satisfied that, it was appropriate for | | of the wide-ranging reforms has | BDO to undertake this work and | | been considered and executive | that doing so did not affect their | | management invited to keep | independence. Details of the total | | the Committee aware of latest | fees paid to BDO during the year | | developments and, in particular, the | in respect of audit and non-audit | | implementation timetable through | services are shown in Note 3 to the | Group Financial Statements. primary and secondary legislation and proposed amendments to the UK Corporate Governance Code. Smiths News plc S G F 89 Annual Report and Accounts 2022 Assessment of the • the external auditor’s processes • the quality and independence of effectiveness of the for its review of the Board’s the BDO audit partner and team external auditor accounting judgements; were agreed to be performing The Committee regularly and confirmed; • understanding of key accounting undertakes a review of the matters and issues; • BDO had undertaken an effectiveness of the external auditor, appropriate level of analysis, • independence and objectivity; The Committee discusses, both discussion and review of • the expertise and technical internally and with BDO, the level relevant management papers knowledge of the external audit to which BDO have demonstrated and underlying assumptions of teams; professional scepticism and the going concern and viability challenge of management’s • the scope, delivery and execution statements to demonstrate position, specifically regarding of the external auditor’s audit the adequacy and sufficiency estimations and judgements, with plan; of audit challenge and critical the addition of private meetings • a review of the completeness, assessment; between the Committee and quality and timeliness of the • the audit was well planned BDO being held regularly to audit; and executed on time, with key encourage transparent feedback. • a review of the robustness and findings appropriately addressed; At the completion of the financial perceptiveness of the external and reporting and audit process a auditor; and • BDO had a good understanding formal evaluation process is • a review of formal reporting of the business and our internal undertaken each year, which to the Committee control systems and reported in includes a written questionnaire a clear and open manner. | distributed to each member of the | Following its review, the Committee | | | | | | | --- | --- | --- | --- | --- | --- | --- | | Committee, the Chief Financial | concluded that it was satisfied | | | Approval | | | | Officer and senior Financial | that the external audit process in | | | This report was approved by the | | | | Controllers across the business. | FY2021 had been independent, | | | Audit Committee and signed on its | | | | Subsequently, the Committee holds | objective and effective, with the | | | behalf by: | | | | a dedicated session to discuss | C ommi | tt ee | ’ s review concluding | | | | | the collated responses, including | as follows: | | | | | | | any learnings and suggested | | | | Mark | Whiteling | | | areas for improvement, with BDO | | | | Audit | Committee | Chair | being afforded an opportunity to 8 November 2022 comment on any relevant findings and outcomes. Key areas of focus in the evaluation of the external audit included: ## / Smiths News plc 90 G Annual Report and Accounts 2022 ## Nominations Committee Report | Chairman’s introduction | | | Board diversity target | | --- | --- | --- | --- | | A key focus of our business is | | | As we implement our Board- | | on attracting, developing and | | | specific Diversity Policy, I am | | retaining the best talent required | | | pleased to report that we have | | to sustain our business and deliver | | | brought forward our intention | | our strategy. The Nominations | | | to appoint an additional female | | C ommi | tt ee | ’ s focus primarily | director at Board level, with the | | includes succession planning | | | recruitment process underway. | | for the Board, Executive Team | | | We have sought to draw from | | and senior management, as | | | a broad and diverse range of | | well as oversight of our talent | | | candidate profiles, including those | | pipeline and the development and | | | who may not have previous listed | | implementation of our diversity | | | company experience but who | | and inclusion programme. Against | | | possess suitable skills, experiences | | this background, I am pleased | | | or attributes which complement | | to present the Nominations | | | the expected future direction | | Committee report for the year | | | and strategy of the Company. | | and to highlight the key activities | | | We remain confident that we will | | undertaken by the Committee | | | achieve our Board-diversity target | | during FY2022. | | | during FY2023 and well before the | previous target set for refreshing D&I the Board’s diversity, which had The Committee met at the originally been set to coincide with beginning of the reporting period the Senior Independent Director’s to specifically consider the nine-year tenure (i.e. 2026). progress we had made against our diversity and inclusion policies, While we remain committed to noting the drive by the Company the diversity agenda, having the to encourage our colleagues to right blend of skills, expertise and voluntarily update the relevant data experience remains paramount, ### David Blackwood held by the Company in order to with the Board acknowledging that Nominations Committee Chair facilitate more informed internal retail, technology and marketing diversity reporting and discussion, experience (for instance) would Committee objective: To lead the process for Board and with a view to enabling further support our strategic appointments, having due regard to Board diversity, to initiatives. better data analytics for both the ensure orderly succession planning so as to maintain an composition of our workforce and Colleague engagement appropriate balance of skills and experience on the Board the consideration of ethnicity pay The Colleague Engagement gap metrics going forwards. The and to maintain a progressive refreshing of the Board. surveys that the Company regularly Company also carried out, and the conducts have moved to a more Committee considered the results frequent quarterly ‘pulse’ process, of, a diversity and inclusion survey Blackwood 2/2 with the Committee continuing to amongst colleagues to establish a non-executive Chairman) oversee these results. Participation baseline data of their views and to Whiteling 2/2 in these surveys remains high further help the Committee and the Independent Director) amongst our colleagues, and it is Executive Team with areas of future pleasing to see the steady progress Collis targeted focus and action planning. being made in the satisfaction non-executive director) | | | | Following on from this, we also | scores. | | --- | --- | --- | --- | --- | | Holt | | 2/2 | set ourselves a target to achieve | | | | non-executive director) | | a 30% increase in the number | | of our colleagues from minority Meets the 2018 UK Corporate Governance Code requirement that the groups recruited into leadership majority of members are independent non-executive directors. positions (LL2+) over the next five The Committee met twice during the year and all Committee members years and, in doing so, we have attended each of the meetings. At the invitation of the Committee, certain established new partnerships executive directors attended the meetings from time to time. with our recruitment partners in an endeavour to increase the potential pool of diverse candidates participating in our recruitment Membership & Composition processes. David (Independent Mark (Senior Denise (Independent Michael 2/2 (Independent Attendance Smiths News plc S G F 91 Annual Report and Accounts 2022 | Board workforce | Chief Financial Officer | | | | | | --- | --- | --- | --- | --- | --- | | engagement | As disclosed in our 2021 Annual | Roles | & | Responsibilities | | | As more fully set out in both our | Report, Paul Baker replaced Tony | | | | | | | | • review the structure, size, | | | • establish and promote | | Stakeholder Engagement report | Grace as Chief Financial Officer | | | | | | | | composition and balance of | | | employee engagement with the | | on page 14 and in the Corporate | on 4 October 2021 following the | | | | | | | | the Board, including the skills, | | | Board, to ensure that workforce | | Governance report on page 58, | announcement of Tony’s retirement | | | | | | | | knowledge, experience and | | | views are collected and | | we have refreshed the Board’s | (Tony stepped down from the | | | | | | | | diversity of the directors; | | | considered; and | | engagement processes with our | Board on 30 November 2021) and | | | | | | wider workforce. As previously | Paul is well settled into his role and | • ensure plans and a talent | | | • identify and nominate | | disclosed, we primarily look to | has been an established and valued | programme are in place | | | candidates to fill Board | | engage with our wider workforce | member of the team over the last | for the orderly succession | | | vacancies. | | through the appointment of a | year. | planning of directors and senior | | | | For more details, please see representative non-executive management and overseeing Further information on the www.smithsnews.co.uk. director (Michael Holt) to attend the development of a diverse Committee can be found at: quarterly National Colleague pipeline of talent for succession; www.smithsnews.co.uk, as well Engagement Forum meetings and as in the Corporate Governance to report colleagues’ views back to report on page 58. the Board. In FY2022, we reviewed this process and refreshed the impetus of all our colleague forums David Blackwood as they cascade up to the National Chairman Colleague Engagement Forum, 8 November 2022 Received reports on talent Received results of Colleague to ensure that these forums and review and development Engagement Pulse Survey and their processes remain fit for and upskilling of the senior reviewed action planning 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 the Listing Rules to promote Received results of colleague non-executive director model engagement surveys and best meets the needs of our considered colleague business and ensures that the key engagement processes and 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. a progress update April 2022 October 2021 • • • statements regarding changes • to Reviewed Diversity and Diversity and Inclusion policy Board Key Actions from FY2022 Diversity and inclusion Executive Team Board diversity / • Female representation leadership team action plans Inclusion Policies and received Reviewed the Board-specific 2020 14% 22% 2022 2021 17% 17% 33% 22% and the FCA’s recent policy Smiths News plc 92 G Annual Report and Accounts 2022 ## Nominations Committee Report continued | Recruitment and | consultants being utilised as and | | | across the year’s pulse surveys. | new ‘fair pay principles.’ Further | | --- | --- | --- | --- | --- | --- | | succession planning | when appropriate to ensure the | | | The two areas where scores | information on the work of our | | This year has undoubtedly seen | right candidates are appointed into | | | increased most were ‘Growth’ | colleague forums can be found in | | pressures in the recruitment sector, | the right roles at the appropriate | | | and ‘Organisational Fit’ and our | the Corporate Governance report | | with increasing job vacancies | time. | | | static driver related to ‘Reward.’ | on page 58. | | and resourcing pressures being | | | | Management continues to focus on | | | | Separately, the Board evaluation | | | | During the year, we also launched | | keenly felt throughout the country. | | | | reward in particular, recognising the | | | | process (for further details see page | | | | our new intranet-based information | | While these challenges cut | | | | increasing cost of living pressures | | | | 62 of the Corporate Governance | | | | portal, SmithsZone, which enables | | across all areas, they have been | | | | that colleagues are currently | | | | report) also supports the ongoing | | | | two-way communication with | | particularly evident in relation to | | | | facing at this time in line with | | | | assessment of the | C ompan | y ’ s | | colleagues. This has provided | | driver recruitment and warehouse | | | | high levels of inflation and energy | | | | development needs, opportunities | | | | the opportunity for a review and | | resourcing. Although the sector | | | | price concerns. | | | | and shortcomings against the | | | | refresh of our colleague information | specific challenges largely abated Board’s current skills, experience, Although we responded channels, as well as extended towards the end of the financial expertise and composition, with successfully to the changing accessibility across our colleagues year, we continue to review and any identified recommendations working environment following who do not always have access enhance our recruitment and being aligned with our succession the COVID-19 pandemic and the to company email addresses engagement processes at particular planning process. impact this had on direct colleague (and, therefore, previously hotspots within our business, | | | engagement, we have since taken | had limited accessibility). We | | --- | --- | --- | --- | | mindful of the logistics sector’s | I joined the Board in May 2020 and | | | | | | the opportunity this year to revisit | continue to publish our colleague | | peak trading period being the lead | the Senior Independent Director | | | | | | the manner in which we engage | newsletter ‘Our News’ in physical | | up to Christmas, and to benchmark | was appointed in 2017; hence, | | | | | | with our wider workforce. In line | and electronic format, and have | | our retention strategies that have | the staggering of our respective | | | | | | with the Corporate Governance | continued to hold virtual ‘Town Hall’ | | been a key focus during FY2022. | tenures further ensures a period | | | | | | Code guidance around the manner | meetings hosted by the Executive | of continuity on the Board, helping of the Board’s engagement with Team, ensuring the sharing of news Acknowledging that career to ensure the robustness of the the wider workforce, we continue regularly and consistently and progression and development C ompan y ’ s succession planning to appoint a representative providing all colleagues with the remains a key aspect of attraction processes for the future. non-executive director (Michael opportunity to ask questions of the and retention of the right talent, this Chief Financial Officer Holt) to attend our National Executive Team. year has seen good progress being made in the talent and succession appointment Colleague Engagement Forum In summary, the highlights of our agenda of the C ompan y ’ s We confirm that, as reported and report colleagues’ views various colleague engagement senior leadership team through in detail in last year’s Annual back to the Board. In revisiting activities in the year included: | development and upskilling | | | | Report, Paul Baker was appointed | the rationale and merits of this | | | | --- | --- | --- | --- | --- | --- | --- | --- | | activities. This has included the | | | | Chief Financial Officer (and | approach during the reporting | • | Introduction of fair pay principles, | | launch of Leadership Master | | | | Board director) with effect from | period, the Board has considered | | following colleague forum input | | Classes and the simplification | | | | 4 October 2021 following the prior | alternative options, including the | | and ideas | | of the | C ompan | y ’ s | legacy talent | announcement of the expected | possibility of appointing colleague | | | | | | | | | | • | Relaunch of Extra Mile awards | | management processes, such that | | | | retirement of Tony Grace (former | representatives to sit on the Board. | | | (our colleague-recognition talent reviews are now cascaded CFO), who stepped down from the However, after due consideration, scheme), granting easier digital down the leadership levels, Board on 30 November 2021. the conclusion was that the access, fairer distribution of thereby ensuring a greater level of current non-executive director awards and simplified processes Colleague engagement | transparency and identification of | | | | representative model is best | | | | --- | --- | --- | --- | --- | --- | --- | | | | | and pulse surveys | | • | COVID-19 Hardship fund | | talent to the Board. We continue | | | | suited to the current needs of our | | | | | | | This year saw the business move | | | converting to a more generic | | to map our talent against the | | | | business and, at the same time, | | | | | | | away from our annual ‘What | | | colleague support fund, not | | C ompan | y ’ s | values, as well as | | we have also taken the opportunity | | | | | | | Matters’ survey of colleague | | | exclusively related to COVID-19 | | against key priorities for talent | | | | to refresh the membership of the | | | | | | | engagement towards a more | | | related hardship | | development, with the focus | | | | National Colleague Engagement | | | | | | | frequent ‘pulse’ survey approach, | | • | Further training of mental health | | on proactive succession of key | | | | Forum, in order to ensure strong | | | | | | | conducted in January, April and | | | allies across underrepresented | | roles and the development of a | | | | representation across the business, | | | | | | | July 2022. We have seen 78% of | | | parts of the business | | diverse pipeline. The Committee, | | | | together with giving it a renewed | | | colleagues taking part in the July and Board, remain mindful impetus. The National Colleague • Launch of benefits and payroll 2022 survey, down slightly on the however of the need for sound Engagement Forum continues roadshows, educating and participation rates in January 2022 succession planning in respect to meet quarterly. supporting colleagues and April 2022 (which were at | of both executive and non- | | | • | ‘ L ove | to shop’ vouchers issued to | | --- | --- | --- | --- | --- | --- | | | 86% and 87% respectively). Since | In addition to our non-executive | | | | | executive directors, and the recent | | | | colleagues not part of a formal | | | | January 2022, we have seen 120 | director representative, the Chair of | | | | | appointment of the Chief Financial | | | | benefits package, to recognise | | | | actions recorded from the surveys, | the Remuneration Committee has | | | | | Officer following a planned | | | | their important contribution to | | | | helping us to achieve an overall | also engaged with the workforce, | | | | | retirement of the former CFO, as | | | | business performance in the | | | | average engagement score of 7.0. | and remains committed to | | | | | well as the internal appointment | | | | prior year | | promoting broader engagement | in 2020 of the current Chief | The survey measures 14 different | | | | | --- | --- | --- | --- | --- | | | | with colleagues, having spent | • | Launch of the ‘team leadership’ | | Executive Officer demonstrates | areas of engagement, referred to | | | | | | | time to outline our company-wide | | apprenticeship, driven from pulse | | the robustness of this process, | as “drivers”, with 13 such drivers | | | | | | | remuneration policy and pay and | | engagement survey results | | including a demonstration of | showing an increasing engagement | | | | reward matters, promoting our the services of external search score and one remaining static Smiths News plc S G F 93 Annual Report and Accounts 2022 • Externally conducted diversity remain committed to also having search partners, our partners Further information on gender and inclusion audit, identifying the right blend of skills, expertise, are required to be signed up to and ethnic diversity, including the key actions across recruitment, commitment and experience when the Voluntary Code of Conduct proportion of women in senior learning and communication selecting suitable candidates, while on gender diversity, developed management (being for these at the same time also striving to in response to the Davies purposes, the Executive Team and Diversity and inclusion reflect today’s talent and customer Report. We also encourage our their direct reports as promulgated Diversity and inclusion continues pools to build balanced teams. recruitment partners to present by the Hampton-Alexander Review) to be a key focal point at this | | | more balanced candidate | and within the organisation overall, | | --- | --- | --- | --- | | time. In this regard, the Board | That said, we have made a number | | | | | | recommendations, with at least | is contained in the People report | | acknowledges and welcomes | of positive efforts to develop a | | | | | | one credible and qualified female | on page 30. | | recent changes to the Listing Rules | clear pathway towards improving | | | and/or non-white candidate (on a ‘comply or explain’ basis) compliance in this area, including: Approval provided within the shortlist for which are targeted at encouraging This report was approved by the • development and publication of the recruitment processes; enhanced disclosures in relation Nominations Committee and Diversity & Inclusion Policies for • diversity and inclusion training to gender and ethnic diversity signed on its behalf by: both the Board and the wider is available to all managers; at Board level for financial years workforce. These introduce starting on or after 1 April 2022. • following on from completion specific targets, which originally | | | of our diversity data collection | David | Blackwood | | | | --- | --- | --- | --- | --- | --- | --- | | The Board currently comprises six | included a Board target of two | | | | | | | | | drive already referred to, we have | Nominations | | Committee | Chair | | members, of which one is a woman | female directors by 2026 and a | | | | | | undertaken an audit of this data, and all are white. The chairperson general target of a 30% increase 8 November 2022 focusing on the accuracy of data of the Remuneration Committee is in the number of colleagues from and statistics, current status and a woman, but the Board Chairman, ethnic minority groups recruited observations, key findings and CEO, CFO and SID are all men. As into leadership positions over recommendations; the Company seeks to diversify the next five years. The Board target has been accelerated, • promoting a culture and working and pursue growth opportunities environment that is a welcoming within our core markets, there and we are confident that an place for all, with a commitment is likely to be opportunity for appointment will be made in to promoting and encouraging additional skills, expertise and during the first half of FY2023. all aspects of diversity and experience to be targeted amongst Our D&I data-gathering exercise supporting an inclusive working the composition of the Board. indicates that within our business environment, together with Against this background, a process diversity decreases with seniority, adopting a zero tolerance has already been commenced to which is why we believe that it approach towards discrimination; identify and appoint an additional is important that the targets we and | Board member, facilitating a timely | | set ourselves are specific to the | | | --- | --- | --- | --- | | focus on the Board’s diversity and | | leadership group, rather than the | • engagement by the Board | | skills mix. We are confident that | | whole organisation. We are also | Chairman with shareholders on | | we will be in a position to make an | | focused on the development of | board diversity, including with | | appointment in FY2023, well before | | a future talent pipeline, with 33% | those shareholders who may | | the originally targeted 2026 date | | of the current Executive Team | previously have raised diversity | | set out in our Board Diversity Policy | | being female; | as a future voting issue, in order | | (which had been set to coincide | | | to mutually understand the | | | • | we have set an inclusion target | | | with the Senior Independent | | | others’ position and to provide | which aims to maintain an Director’s nine-year tenure). some reassurance over the steps inclusion score within the upper currently being taken. quartile of peer benchmarking While the Committee is mindful of data on an annual basis. We the expectations around gender Our initiatives are further supported are committed to continuing to and ethnic diversification, it is by our diversity and inclusion measure inclusion to ensure that, however unlikely that the set initiative called ‘EveryoneIn,’ a as we increase our diversity, we targets (see LR 9.8.6R(9) and FCA programme which encompasses maintain an environment where Diversity Targets 2022) will be a number of national initiatives all colleagues have a sense of met by the Board in the short to which primarily include education belonging. We recognise that medium term. Whilst the Board is and awareness through an agreed our diversity goals will not be very much taking steps to improve calendar of D&I events, such as achieved or maintained without its gender and ethnic diversification, National Inclusion week, Black a strong inclusive culture; we acknowledge that this takes History month, Pride, Ramadan, etc. time, particularly when the broader • external review of our current corporate-market is together faced recruitment approaches and with the same defined targets and processes ( job descriptions, where competition is likely to be adverts and inclusivity in fierce for a pool of talent that is interview processes), including naturally limited by the size, nature, a review, audit and changes to location and profile of our business. our processes in this area. In Accordingly, whilst we hope to the case of senior appointments make progress in this area, we where w e make use of executive ## / Smiths News plc 94 G Annual Report and Accounts 2022 ## Directors’ Remuneration Report ### Shareholder letter from the Chair of the Remuneration Committee | Dear shareholder | | | straightforward. As referenced | | --- | --- | --- | --- | | On behalf of the Board, I am pleased | | | elsewhere in this Annual Report, | | to present the Remuneration | | | the insolvency of one of our largest | | C ommi | tt ee | ’ s report for the 52-week | retailers (McColls) in May 2022 | | period ended 27 August 2022. | | | (and its potential bad debt exposure | of £5.5m which, in turn, led the Backdrop to the operation Board to conclude an adjusting of the policy and our provision of £4.4m) has presented performance in FY2022 considerable debate for each of | During FY2022, as economies | the Board, the Audit Committee | | --- | --- | | began to open up again following | and the Remuneration Committee | | the COVID-19 pandemic, the | as to its appropriate treatment | | Committee has been particularly | and impact on stakeholders, | | mindful of the backdrop of a | including incentive outcomes and | | challenging labour market and an | distributions. Accordingly, following | increasing inflationary environment, rigorous review, the Committee with significant hikes experienced concluded that the impact of in both the cost of labour and McColls should be similarly treated energy prices in what has been as an adjusting item in line with referred to in the media as a ‘cost the agreed treatment of the £4.4m of living’ crisis. These macro- adjusting provision. In reaching economic headwinds have not this decision, the Committee | only impacted our business | | | | started out by considering the | | | --- | --- | --- | --- | --- | --- | | but also the livelihoods of our | | | | formulaic outcomes of both the | | | colleagues at all levels of the | | | | FY2022 Annual Bonus Plan and | | | organisation. With that in mind, | | | | the FY2020-2022 LTIP. Based | | | the Committee has once again | | | | on A | djusted EBITDA, which (in | | devoted considerable time and | | | | line with normal market practice) | | | attention to the appropriateness | | | | formed the basis of the calculation, | | | of the | C ompan | y ’ | s remuneration | and combined with the decision | | ### Denise Collis policies and procedures, including by the Board that the impact of Remuneration Committee Chair the so-called “Fair Pay” agenda the McColls debt exposure would for our workforce more generally. be treated as an adjusted item Committee objective: To determine the policy for, and More details are provided later in (being non-recurring and outside setting of, director and senior management remuneration; this letter. of the normal course of activity), to review workforce remuneration, related policies and the the schemes’ formulaic outcomes Against this background, it is alignment of incentives and rewards with culture, taking were not negatively impacted by therefore pleasing to reflect on these into account when setting the policy for executive the potential bad debt exposure. the progress that the business The Committee then considered director remuneration; and to design remuneration has delivered in the year as whether it would be appropriate noted elsewhere in this Annual policies and practices to support strategy and promote to apply downward discretion, Report (for example, and amongst the long-term sustainable success of the Company. looking through the lens of all other achievements, strong stakeholders. Key considerations Membership & Composition cash management with Bank were the shareholder experience Net Debt at historic lows, the 5/5 in the reporting period as receipt of a pensions surplus of non-executive director) reflected in the expected levels £8.1m, successful refinancing in Blackwood 5/5 of dividend distribution for December 2021 which increased non-executive Chairman) FY2022, management’s effective our dividend distribution cap management of the McColls Whiteling limits, the effective onboarding of account in advance of the bad Independent Director) our new Chief Financial Officer debt situation becoming known, and Operations Director, and the Holt 5/5 and management’s subsequent unstinting customer service and non-executive director) endeavours at the time to minimise operational successes which have the bad debt exposure. Taking all maintained our high standards of Meets the 2018 UK Corporate Governance Code requirement that the of these factors into consideration, excellence), and to be able to report members are independent non-executive directors. the Committee has decided that financial performance for FY2022 The Committee met four times during the year and all Committee members it would not be appropriate or of £40.7m Adjusted EBITDA (pre- attended each of the meetings. At the invitation of the Committee, certain necessary to apply any downward IFRS16) and £38.1m Adjusted executive directors attended the meetings from time to time. discretion to override the formulaic Operating Profit, exceeding the Denise Collis outcomes. market’s expectations for the (Independent reporting period. However, this over-delivery of operational and David financial performance has not been (Independent Mark (Senior Michael 5/5 (Independent Attendance Smiths News plc S G F 95 Annual Report and Accounts 2022 | Variable pay outcomes | • | the directors’ individual | | | | | | --- | --- | --- | --- | --- | --- | --- | | in FY2022 | | performances against their | | | | | | | | | Roles | & | Responsibilities | | | The FY2022 bonus was based | | personal objectives, taking | | | | | | | | into consideration the financial | • Determine the framework | | | • Oversee contractual terms on | 70% on Adjusted EBITDA (pre- performance ‘underpin’ whereby for the remuneration of the termination and exit payments IFRS16) (the key measure of | | the Committee may scale back | executive directors, the | | | --- | --- | --- | --- | | profitability against which business | | | • Ensure that remuneration- | | | the personal element of the | Chairman, the Company | | | performance was assessed over | | | focused engagement with the | | | bonus if this is not deemed | Secretary and the Executive | | | the year, in line with our internal | | | workforce takes place | | | appropriate in light of financial | Team | | | financial reporting) and 30% on | | | • Ensure that all provisions | | personal objectives. In addition, | performance or shareholder | • Review the employee benefits | | regarding disclosure of | | | experience; and | structure across the business | | | --- | --- | --- | --- | --- | | a minimum performance rating | | | | remuneration arrangements | | on the personal objectives was | • | the application of the FY2022 | • Determine annual bonus and | are met and produce a | | required to be met before the | | bonus scheme across all scheme | share incentive plan awards and | remuneration report to | | financial performance element | | participants through the “fairness | relevant vesting levels, including | shareholders | | could be paid, with the Committee | | lens”, to ensure that there has not | application of clawback and | | | | | | | • Setting terms of reference for | | also having a general power to | | been an unmerited bias of higher | malus provisions | | the remuneration consultant. adjust any formula-driven outturns, bonus outcomes (and payments) • Approve and monitor the if required. with seniority. For more details, please see shareholding guidelines policy www.smithsnews.co.uk. | As a result of both Adjusted | Overall, the Committee is satisfied | for executive directors and the | | --- | --- | --- | | EBITDA (pre-IFRS16) of £40.7m | that the bonus payments to the | Executive Team | | for FY2022 and the successful | executive directors are appropriate, | • Determine the policy for | | delivery of the strategic goals that | representing a strong link between | pension arrangements for the | | the business set itself a year ago | reward and performance and | Executive Team | | (see later in this report), the annual | shareholder alignment, as well as | | | bonus pay out is between target | being consistent with the treatment | | | and maximum, resulting from: | of bonus payments for colleagues. | | On this basis, the Committee • a pay out for the financial metric determined that there was no at 61.7% (i.e. 43.2% of the 70% need to use discretion to adjust the bonus opportunity); and outcome derived from the annual • for the personal element in bonus performance conditions. respect of each executive | director’s performance against | The FY2020-22 LTIP award was | | --- | --- | | their respective personal | weighted 50% against adjusted | | objectives as reported later on: | basic EPS targets and 50% against | TSR relative to the FTSE SmallCap – at 85% (i.e. 25.5% of the (excluding investment trusts). The 30% bonus opportunity) for Adjusted EPS performance for Jonathan Bunting; FY2022 (excluding the impact of – at 75% (i.e. 22.5% of the 30% M c C oll s ’ insolvency, as referred bonus opportunity) for Paul to above, and pre-IFRS16) was Baker; and 10.9p, which is marginally ahead | – at 75% (i.e. 22.5% of the | of threshold performance of | | --- | --- | | 30% bonus opportunity) for | 10.0p but representing significant | | Tony Grace (the former Chief | growth of 42.9% over the three- | | Financial Officer). | year period from when the award | was made at the end of the 2019 Overall, this has resulted in an financial year (EPS: 7.9p). This has annual bonus pay out of 68.7% of resulted in a pay out of 44% of the maximum 100% opportunity for the EPS metric. The performance Jonathan Bunting and at 65.7% for period for the TSR element of the each of Paul Baker and Tony Grace FY2020-22 LTIP award ends on (pro rated to 1/3rd for Tony Grace, 12 December 2022. Based on a in order to reflect having worked current estimated TSR performance four months of the reporting period to 3 November 2022, this results and similarly pro rated to 11/12th in a formulaic vesting of 100% for Paul Baker). In determining of the TSR metric, representing this outcome, the Committee has significant TSR outperformance vs carefully considered the following: the nominated peer group over the three-year performance period and an absolute TSR of 45%. ## / Smiths News plc 96 G Annual Report and Accounts 2022 ## Directors’ Remuneration Report continued | Overall, the estimated vesting | • All-employee share schemes – | Operation of the | The LTIP grant level for the | | --- | --- | --- | --- | | outcome for the FY2020-22 LTIP | the policy now formally includes | Remuneration Policy | FY2023-2025 award will continue | | award is 72% of maximum, with the | the opportunity for executive | in FY2023 | to be 100% of base salary. | | final vesting level to be confirmed | directors to participate in | The base salaries of the Chief | Performance will also continue to | | in next year’s Annual Report. The | HMRC Approved all-employee | Executive Officer and the Chief | be assessed at 70% on a relative | | Committee has considered the | share schemes (such as Save | Financial Officer were each | TSR measure and at 30% on a free | | estimated out-turn and confirms | as you Earn), alongside other | increased by 3.25%, with effect | cash flow metric in the final year | | that it remains comfortable that | colleagues. | from 1 September 2022, which | of the award. The Committee is | | the pay out level is appropriate in | | is below the average percentage | comfortable regarding the adoption | As part of the review, the light of the overall performance and increase awarded to our workforce, and weighting of the relative TSR Committee engaged with our shareholder experience over the the majority of whom saw an performance measure, particularly largest shareholders and leading three-year performance period, and increase of 6.6%. The Committee given that it ensures a strong direct advisory agencies to explain the that no discretion is necessary to also reviewed the fee rate of the incentive to increase the share price proposed changes to policy. The adjust the outturn. Company chairman, whose fee of and aligns with the interests of the feedback the Committee received clear majority of our shareholders. £140,000, has not been reviewed Remuneration was supportive. Whilst investors Further details on the performance since 2015, and agreed a similar Policy review were welcoming of the flexibility measures and target ranges can be cost of living increase of 3.25% During the year, the Committee included in the policy to use ESG found on page 98. to £144,550 with effect from carried out its triennial review of the performance measures, there 1 September 2022. Separately, the executive directors’ remuneration were some comments expressing Broader employee B oard has agreed an increase of policy taking into account business a desire for ESG metrics to have remuneration 3.25% to the fee rates of the non- strategy, corporate governance a minority weighting and the considerations and executive directors, including the developments, institutional investor need for targets to be robust. employee engagement fees for the chairing of committees, views and market practice. For FY2023, the Committee is not The Committee continued its the senior independent director and | | proposing to introduce an ESG | | focus on the fairness agenda | | --- | --- | --- | --- | | The review concluded that | | the NED responsible for employee | | | | metric for the LTIP, but will consider | | during the year as part of its | | our current policy is working | | engagement, with effect from | | | | its introduction at a future date, | | review of workforce remuneration | | effectively and is aligned to the | | 1 September 2022. | | | | taking into account developments | | and related policies as required | business strategy, provides a in market practice, any expressed For the executive directors, the under the 2018 edition of the UK good link between reward and shareholder preferences and the Corporate Governance Code. annual bonus opportunity will performance and is in line with C ompan y ’ s ability to set meaningful remain at 100% of base salary, The topic was discussed in detail institutional investors’ ‘best practice’ stretching and measurable in the C ommi tt ee ’ s meeting, in with 70% of the bonus subject to expectations. As a result, we are objectives linked to strategy. March 2022, with a particular Adjusted Operating Profit and the proposing only minor amendments remaining 30% subject to personal focus on the following areas: to our policy (which is to be Board changes objectives. The Committee has | presented to our Annual General | As described in last year’s report, | | | | | • | Considering the impact and | | --- | --- | --- | --- | --- | --- | --- | --- | | | | endorsed the | C ompan | y ’ s | desire | | | | Meeting on 24 January 2023), to | Tony Grace stepped down from the | | | | | | scale of the National Living | to update its primary financial reflect current market and best Board on 30 November 2021 and Wage increase effective 1 April KPI from Adjusted EBITDA (pre- practice developments and to left the Company on 31 December 2022, in the context of the IFRS16) to Adjusted Operating formalise a particular area of the 2021. Our new Chief Financial current financial climate and high Profit, in order to include the policy. Officer, Paul Baker, joined the Board inflationary environment; impact of lease commitments on 4 October 2021. Details of Tony • Reviewing the employer pension • Pension – the references under IFRS16 and to bring this KPI Grace’s remuneration arrangements contribution level for less senior to legacy pension provisions into line with current accounting on departure and Paul Baker’s employees; have been removed from the standards, a position which is remuneration on joining were policy, and it is now clear that expected to be positively received • Noting the review of the disclosed in last year’s Annual the C ompan y ’ s pension by all stakeholders. As such, the leadership grading framework Report. contributions to an executive financial metric used for the annual and pay structure; director’s pension (or a cash bonus has been changed. • Noting an additional ‘peak’ payment in lieu of pension) will payment premium to be be no higher than the percentage introduced for the second year rate which is available to the running at our Hemel Hempstead majority of the workforce location, to aid colleague retention (currently 5% of salary); in the four months over the • LTIP performance measures – Christmas peak period; 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 Smiths News plc S G F 97 Annual Report and Accounts 2022 • Discussing and agreeing that As in previous years, I remain Concluding remarks the Company would look to committed to engaging with our The Committee remains mindful develop and adopt a customised colleagues around remuneration that the decisions around set of fair pay principles and ensuring that their views executive pay outcomes should (subsequently introduced by the are shared with the Committee. be proportionate and demonstrate Company following colleague During the year, I attended several a strong link between reward, engagement); meetings with colleagues where performance and shareholder our company-wide remuneration alignment. In this light, we are • Improvements in financial policy, and director and wider comfortable that the policy well-being initiatives, such as workforce pay, was discussed has operated as intended and providing free financial education alongside reward matters and to colleagues; and remuneration is appropriate, taking sharing our aspirations around into account internal and external • Approving an up-do-date revised equitable reward. A key outcome factors and measures (including company-wide non-contractual from these discussions was a pay ratios and gaps, colleague pay and discretionary redundancy renewed effort by the Company and the fairness agenda, and the policy, with reduced enhanced to ensure that all employees overall stakeholder experience). terms for senior managers were fully aware of the benefit As ever, I welcome any feedback and parity being offered to options available to them, as it on our remuneration policy and its all colleagues, extending the became apparent that existing application. same enhanced discretionary communications were not redundancy terms to lower paid achieving sufficient cut through. and new colleagues too. | | Following the introduction of our | Denise Collis | | | | --- | --- | --- | --- | --- | | In addition to focusing on | Fair Pay Principles in FY2022, a | Remuneration | Committee | Chair | | various policy initiatives, at the | priority over the next year will be | | | | 8 November 2022 | C ommi | tt ee | ’ s meeting in May 2022, | to review our grading framework | | --- | --- | --- | --- | | the Committee also considered | | | and pay structures, to ensure these | | specific additional steps to | | | are appropriate and relevant for the | | support lower paid colleagues | | | roles being undertaken. | 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. ## / Smiths News plc 98 G 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. | | | Jonathan Bunting | | | Paul Baker | | --- | --- | --- | --- | --- | --- | | Policy element | Chief Executive Officer | | | 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 | Lower of 200% of base salary or shareholding on departure for 2 years post-cessation, | | | | | requirement | | | excluding self-purchased shares | | Introduction 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. Smiths News plc S G F 99 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: Purpose and Performance Element link to strategy Operation Maximum conditions Base salary Provide fixed Salaries are set by the There is no prescribed None. remuneration which is Committee taking into maximum salary. Salary sufficient to recruit and account: increases will normally be retain individuals of in line with salary increases • the skills and experience the necessary calibre. generally for colleagues. • the size and scope be awarded where the of the role; Committee considers it • market data for similar roles appropriate to reflect, for in comparable companies; example: • performance of the size and/or complexity of individual and the business. the Group and/or of the Typically, salaries are reviewed role; or annually, with any changes • individuals being moved effective from 1 September to market positioning each year. over time. Benefits Ensure that benefits Executive directors are eligible There is no prescribed None. are sufficient to recruit to receive benefits which maximum monetary value and retain individuals may include a company car of benefits. of the necessary (or cash equivalent), private Benefit provision is set at a calibre and provide medical insurance, a periodic level which the Committee business continuity. health assessment and considers to be appropriate permanent health insurance. for the nature and location Where relevant, other benefits of the role. to reflect specific individual circumstances, such as housing, relocation, travel or expatriate allowances may also be provided. Executive directors are also provided • significant changes in the with insured Death in Service benefits. Larger increases may ## / of the individual; and Smiths News plc 100 G Annual Report and Accounts 2022 ## Directors’ Remuneration Report continued | | Purpose and | | | Performance | | --- | --- | --- | --- | --- | | Element | link to strategy | Operation | Maximum | conditions | | Pension Contribute towards | | Executive directors may | The maximum employer | None. | | | funding later life cost | participate in the Group’s | contribution or salary | | | | of living. | defined contribution pension | supplement for executive | | | | | plan, receive a salary | directors is the contribution | | | | | supplement or a combination | available to the majority of | | | | | of the two. | the workforce, currently 5% | | of salary. | LTIP | To incentivise the | Awards are made in the | The maximum award in | | | | Performance conditions are | | --- | --- | --- | --- | --- | --- | --- | --- | | | delivery of long-term | form of nil-cost options | respect of a financial year is | | | | based on the achievement | | | shareholder value. | or conditional share | 150% of salary. | | | | of challenging financial, | | | | awards, the vesting of | | | | | total shareholder return | | | | | The | C ompan | y ’ s | largest | | | | | which is conditional on the | | | | | (TSR) or non-financial | shareholders would be achievement of performance strategic (including related consulted beforehand if the targets (as determined by the to ESG) performance targets grant level increases above Committee). measured over a period of 100% of salary (the currently three years normally. | Vested awards must be held | applied maximum grant level). | | | --- | --- | --- | | for a further two-year period | | For the achievement of the | | before sale of the shares | | threshold performance target, | | (other than to pay tax). | | a maximum of 20% of the | award will vest. (see notes on page 102). of salary. level). year. targets set at the start performance against employee reward outcome. the Company for two years. of a financial year is 125% condition is 0%, and up performance. bonus opportunity increases Annual bonus The maximum bonus opportunity in respect The threshold payment level for the financial performance to 50% of the maximum may be payable for target shareholders would be consulted beforehand if the above 100% of salary (the currently applied maximum The at the start of the financial performance, with the financial strategic or personal Annual measures and targets will be set by the Committee The majority of the bonus will be based on financial remaining performance condition attributable to non- objectives, including ESG related measures. the year-end based on the Group and/or the relevant Half of the bonus is paid in relevant trading restrictions enforce a two-year deferral Clawback and dividend Bonus levels are determined by the Committee after does not properly reflect the underlying performance of businesses, the overall shareholder experience or (immediately vesting) shares but with appropriate and imposed by the share registrars, in order to period and with the associated share certificate retained by equivalent provisions apply performance against targets of the financial year. The to adjust bonus payments, award, in the event that Committee retains discretion including to override the formulaic outcome of the business plan. To incentivise the delivery of the annual C ompan y ’ s largest C ompan y ’ s Smiths News plc S G F 101 Annual Report and Accounts 2022 Purpose and Performance Element link to strategy Operation Maximum conditions LTIP continued The Committee retains A majority of the award will be discretion to adjust the based on financial and/or TSR outturn of an LTIP award, based conditions. 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. All employee To provide alignment The executive directors may Participation may be capped None. share plans with colleagues and participate in any all-employee by the Committee and, in to promote share share plan operated by the any case, within HMRC limits ownership Company. applying to the respective plan. Shareholding To provide alignment The shareholding guideline guidelines 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. ## / 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. Application of the Remuneration Policy £2,000,000 £1,800,000 £1,730,056 £1,600,000 14.0% £1,400,000 27.9% £1,200,000 £1,127,942 £1,004,962 14.0% £1,000,000 24.1% £800,000 27.9% 27.9% 24.1% £600,000 £521,566 24.0% 27.9% £400,000 100.0% 51.8% 30.2% £200,000 100.0% £0 | | Jonathan | Bunting Paul Baker | | | --- | --- | --- | --- | | LTIP with 50% share price appreciation | | | Annual Bonus | | LTIP | | | 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. 102 G £340,659 30.2% 52.0% 24.0% Minimum Target Maximum Minimum Target Maximum £655,573 Smiths News plc S G F 103 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. ### Unexpired | Executive | Date of current | Notice from the | Notice from the | period of service | | --- | --- | --- | --- | --- | | director | contract | Company | individual | contract | | Jonathan Bunting 1 March 2018, as | | 12 months | 12 months | Rolling | supplemented by a letter of variation dated 15 June 2020 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: ## / Smiths News plc 104 G 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. 1 If the Committee determines that the executive director is a ‘good leaver’ 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 Deferred bonus will be in shares, awarded at the outset, with a requirement for the executive directors to hold bonus shares) 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. Smiths News plc S G F 105 Annual Report and Accounts 2022 Non-executive directors The table below sets out the C ompan y ’ s Remuneration Policy for non-executive directors: ### Purpose and link ### Element to strategy Operation Maximum Chairman’s and To attract and retain high-calibre Fee levels are set to reflect the time commitment, demands There is no non-executive individuals and responsibility of the role, taking into account fees paid prescribed maximum. directors’ fees 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. Additional fees To provide compensation to Non-executive directors (other than the Chairman) are There is no non-executive directors taking on paid an additional fee for their chairmanship of a Board prescribed maximum. additional responsibility Committee or additional responsibility, such as chairing the National Colleague Engagement Forum, or may be paid additional fees for significant additional workload or roles. Benefits To facilitate the execution of The Company reimburses reasonable travel and There is no the role subsistence costs and other legitimate business expenses, prescribed maximum. including any tax that may be incurred. 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 | letter of | Notice from the | Notice from the | term is due to | | --- | --- | --- | --- | --- | | directors | appointment | Company | individual | 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 | ### Date of current Date current ## / 104 12 Smiths News plc^{}[] 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. | Fixed Pay | Jonathan Bunting | | Paul Baker | | Tony Grace^{(a)} | | | --- | --- | --- | --- | --- | --- | --- | | | 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 15.5p per share, being the average share price of the Company'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 McColls' 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. | Measure | Weighting | Targets | | | Actual result (£m) | Bonus achievement (% of maximum) | | --- | --- | --- | --- | --- | --- | --- | | | | Threshold (0%) | Target (50%) | Max (100%) | | | | 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% | Smiths News plc S G F 107 Annual Report and Accounts 2022 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 Weighting of Outcome Bonus ### objective objective Target Achievement (%) paid (%) | Supply Chain | 33% | To identify new initiatives | | Strategic and tactical approach | 90% | 30% | | --- | --- | --- | --- | --- | --- | --- | | Growth | | | from existing processes and | to developing the supply | | | | Initiatives | | | capabilities to support new | chain agreed with the Board, | | | | | | | revenue growth | with current and new growth | | | initiatives explored and actions approved. Year 1 of three-year business plan on track. 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 Worked in collaboration with 90% 30% the syndicate of banks the outgoing CFO to secure an acceptable refinancing for all stakeholders, with an increased dividend cap and extended term to August 2025. Jonathan Bunting ## / Smiths News plc 108 G Annual Report and Accounts 2022 ## Directors’ Remuneration Report continued | objective | objective | | Target | Achievement | (%) | paid (%) | | --- | --- | --- | --- | --- | --- | --- | | Safety First | 10% | To maintain industry leading, | | LTI frequency rate of 0.25% | 90% | 9% | | | | | upper quartile, health and | achieved against a target of | | | | | | | safety performance | 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. | Sustainability | 14% | To drive the ESG agenda, | ESG strategy and programme of | 75% | 11% | | --- | --- | --- | --- | --- | --- | | | | delivering against the | activity underway, with delivery | | | | | | specified targets | against agreed Board-level | | | KPIs and Science Based Target setting progressed and now underway. | People | 10% | To score not less than 70% | After moving to pulse | 50% | 5% | | --- | --- | --- | --- | --- | --- | | | | from the company-wide | engagement surveys, three | | | | | | engagement survey, and | were conducted throughout the | | | | | | remain in the upper quartile | year, scoring an average of 7.0 | | | | | | for the Diversity & Inclusion | against a target of 7. D&I survey | | | | | | (D&I) Survey | results of 77%. Participation | | | rates remained in excess of 85% across all three surveys. Total (out of 100% 85% a maximum 30% bonus opportunity) | Sustainability | 20% | To lead the ESG strategy, | Full set of KPIs agreed with | 75% | 15% | | --- | --- | --- | --- | --- | --- | | | | ensuring three-year targets | governance processes | | | | | | were in place | established to manage the | | | delivery within each area of strategy. TCFD report completed and Science Based Target setting progressed and now underway. | Shared service | 20% | Phase 3 financial structure to | Industry standard KPIs | 50% | 10% | | --- | --- | --- | --- | --- | --- | | centre | | be determined for the Shared | established and cost-efficiency | | | | | | Service Centre team based | projects underway, within the | | | | | | in India | Shared Service Centre. Initial | | | headcount reductions achieved. | Costs | 20% | Oversight of a three-year | Three-year functional costs | | | 75% | 15% | | --- | --- | --- | --- | --- | --- | --- | --- | | | | cost reduction plan, | targets set and being actively | | | | | | | | addressing changing market | monitored, with functional | | | | | | | | conditions and enabling | leaders to support the | | | | | | | | delivery of agreed three-year | C ompan | y ’ | s business plans. | | | profit targets ### Personal Weighting of Outcome Bonus Paul Baker Smiths News plc S G F 109 Annual Report and Accounts 2022 | Personal | Weighting of | | | Outcome | Bonus | | --- | --- | --- | --- | --- | --- | | objective | objective | Target | Achievement | (%) | paid (%) | | People | 20% | To lead the Finance function | Finance team engagement | 100% | 20% | | | | in a way that results in a score | score improved from 6.1 to 7.4 | | | | | | of not less than 70% in the | (a score of 4% ahead of target). | | | Company engagement survey | Supply chain | 20% | To provide both thought | Provided financial support and | 75% | 15% | | --- | --- | --- | --- | --- | --- | | growth | | leadership and financial | analytical rigour for investment | | | | initiatives | | support in the pursuit of | decisions in tactical and organic | | | | | | shareholder value creation | growth opportunities, helping to | | | secure new organic revenues of £0.9m profit delivered against a target of £0.5m. Total (out of 100% 75% a maximum 30% bonus opportunity) | Business | 33% | To complete the close out of | | Financial year end processes | 60% | 20% | | --- | --- | --- | --- | --- | --- | --- | | Strategy | | | the FY2021 financial year end | complete and audit closed with | | | | | | | and audit | no issues reported. | | | Onboarding of new CFO undertaken to support transition. Refinancing 33% To complete refinancing with Refinancing agreement secured 90% 30% the syndicate of banks on acceptable terms and with an increased dividend cap from £6m to £10m and an extended term from November 2023 to August 2025. | Pension Fund | 33% | To finalise the winding up | | | | Sum of £8.1m cash proceeds | 75% | 25% | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | of the | C ompan | y ’ s | Defined | (against a target of £8.0m) was | | | | | | Benefit scheme and receive | | | | received in December 2021. The | | | | | | surplus cash proceeds | | | | pension scheme was formally | | | wound up on 25 February 2022. Total (out of 100% 75% a maximum 30% bonus opportunity) Tony Grace ## / Smiths News plc 110 G 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. -2022 Award Weighting (20% vesting) (100% vesting) performance Vesting (a) Adjusted basic EPS 50% 10.0p 13.0p 10.9p 22% (of 50%) Return vs FTSE Small Cap 50% Median Upper quartile Upper quartile(b) 50% (of 50%) (b) (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 (b) (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. | | to share price | Threshold Maximum Number | Actual | | | --- | --- | --- | --- | --- | | Total Shareholder FY2022 Jonathan Bunting Tony Grace FY2020 Estimated total vesting (% of max) | | £423,552 £295,000 1,016,524 £340,535 £177,885 531,000 1,411,840 | £35,578 £18,585 983,333 72% 72% 72% | (a) | | | vesting total vesting | estimated estimated Estimated of Value at grant vesting outcome growth on estimated (30.0p) shares to vest Value | Number of awards at grant shares on | | **Smiths News plc** Annual Report and Accounts 2022 S G F / 11 ## Performance graph and table The graph below shows the Company'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. ![img-0.jpeg](img-0.jpeg) | | 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. Smiths News plc 112 G 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 | | % Change FY2022 | | | --- | --- | --- | --- | --- | --- | | | Base Base | | Base | | | | salary/ Annual salary/ Annual | | | salary/ | | Annual | | | fees Benefits bonus fees Benefits bonus | | | | bonus | 1 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 2 Financial Officer – 0.0 0.0 100.0 2.0 (13.3) 319.2 0.0 0.0 (80.2) 3 | Financial Officer – | | | N/A | N/A | N/A | | N/A | N/A | N/A | | N/A | N/A | N/A | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | -executive directors | D Collis | 0.0 0.0 | | | | – 0.0 0.0 | | | | – | | | | | | M Whiteling 0.0 0.0 | | | | | – 0.0 0.0 | | | | – | | | | 4 | | | | | | M Holt | 0.0 0.0 | – 0.0 0.0 | – 16.7 0.0 | – | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | employees | | | | | 5.6 (1.0) 20.6 (9.1) 0.0 243.4 | | | | | 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. | | | | total remuneration | £19,104 | £20,904 | £27,552 | | --- | --- | --- | --- | --- | --- | --- | | | | to employee pay ratio | | 63.3:1 | 57.8:1 | 43.9:1 | | Option | B | to employee pay ratio 51.6:1 40.8:1 38.5:1 | | | | | to employee pay ratio 31.8:1 22.7:1 18.8:1 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. Employee Chief Chief FY2021 CEO Chief Executive Officer T Grace Non UK FY2022 Employee salary CEO FY2020 CEO to employee pay ratio FY2019 CEO FY2018 CEO Chairman P Baker Year Population Benefits Methodology 100.0 346.7 (30.8) (38.1) (14.6) (20.0) 0.0 75th percentile 15.0 13.6 fees 2.0 25th percentile 2.0 7.7 0.0 0.0 4.6 0.0 – – Median £20,752 29.1:1 £24,596 £18,954 23.9:1 34.7:1 Smiths News plc S G F 113 Annual Report and Accounts 2022 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. employees pay 44.8 0.2% Operating Profit 39.6 –3.8% paid 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: | | | | | | Number of | | | | | Percentage of | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | nil-cost options | | | | | awards released | | | | | | | | Share price at | | | | subject to | | Face value | | | for achieving | | | Performance | | | | | | 1 | | | | | | | | | 2 | | | | Executive | date of grant | | | maximum award | | | of | award | threshold targets | | | | | period | | Jonathan Bunting | | | | | 1,241,856 | | £468,180 | | | | | | | | | | | 37.70p | | | | | | | | | 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: Relative TSR compared to the companies comprising the | | FY2024 Adjusted Free Cash flow | | FTSE Small cap Index | | Proportion | | | --- | --- | --- | --- | --- | --- | --- | | Performance period | | (30% of award) | | (70% of the award) | exercisable | | | | | Below £36.4m | | Below median rank | | Zero | 36.4m Median 20% Three years ending 31 August 2024 Between £36.4m and £40.4m Between Median and Upper Quartile 20%-100% £40.4m or more Upper Quartile or higher 100% FY2022 FY2021 ## Total Adjusted Dividends Corporation tax paid / % –13.5% change 44.9 38.1 £m £m 6.1 5.3 6.3 114 Smiths News plc Annual Report and Accounts 2022 # 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 Company'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 Company'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 Company'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 Company's Employee Benefit Trust is used to facilitate the acquisition of ordinary shares in the Company to satisfy awards granted under the Company'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 Company'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. Smiths News plc S G F 115 Annual Report and Accounts 2022 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 | | | performance | | performance | | Vested but | | during | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 1 | | 2 | | | | 3 | | | Bunting 4,183,696 42,857 | | | | | | 0 611,987 | | | | Baker | 809,018 | | | | 0 | | 0 | | 0 | 4 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 | | --- | --- | --- | --- | --- | --- | --- | --- | | | 28 August | | 27 August | | of current | | salary target | | Salary | | | | | | 1 | | | | | 2021 | | 2022 | holding | | shareholding | 2 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. Holding on Vesting Holding on to 200% of Valuation Without With Jonathan Bunting Paul Baker Name Tony Grace Paul Jonathan Tony Grace / unexercised the year 554,046 measures measures 1,210,593 592,115 257,876 £283,720 £117,472 918,188 380,169 42,857 £24,720 80,000 60.60 39.04 8.10 0 – £468,180 £305,000 £300,900 114 TR Smiths News plc^{}[] Annual Report and Accounts 2022 # 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): | | Year | Base fee £000 | Additional fees £000 | Benefits^{1} £000 | Total fees £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 Whitelings^{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 Company' 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 Whitelings 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 Whitelings | 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). Smiths News plc Annual Report and Accounts 2022 S G F / 117 ## 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 Company'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 LTIP awards are expected to be granted within 42 days following publication of the Company'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 Company'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 Chairman'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. Smiths News plc 118 G 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. | | Blackwood | | | | | | 5 | 5 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Whiteling | | | | | | 5 | 5 | | | 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: of votes cast Votes of votes cast Total Votes Votes for against votes cast withheld approve the Directors’ Remuneration report 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 | Percentage Percentage | | | | | | --- | --- | --- | --- | --- | | To | Possible | | Meetings | | | David Denise Collis Mark Michael To approve the Remuneration Policy (2020 AGM) for Resolution 158,443,953 26,813,938 | meetings in favour 468,570 131,630,015 against 83.08% 16.92% | 5 | attended | 5 | Smiths News plc S G F 119 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. ## / Smiths News plc 120 G 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. **Smiths News plc** Annual Report and Accounts 2022 S G F / 121 ## 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 Company’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 Company’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 Company’s Articles. The Company’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 Company’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. 122 t Smiths News plc^{}[] Annual Report and Accounts 2022 # Directors' Report – Other Statutory Disclosures ### Suppliers and customers Details of how the directors have engaged with suppliers and customers to foster the Company'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 Company'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 Company'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 Company'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 Company'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 Company'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 Company'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 Company'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 Smiths News plc S G F 123 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 ## / Smiths News plc 124 F Annual Report and Accounts 2022 ## Independent Auditor’s Report ### to the Members of Smiths News Plc 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. **Smiths News plc** Annual Report and Accounts 2022 S G T / 125 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 Company'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 Company'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** | | 2022 | 2021 | | | Revenue recognition | ✓ | ✓ | | | Carrying value of the investments in Smiths News plc (Parent Company) | ✓ | ✓ | | **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. Smiths News plc 126 F Annual Report and Accounts 2022 ## Independent Auditor’s Report continued ### to the Members of Smiths News Plc ### Key audit matter the key audit matter Revenue Revenue from the delivery of We utilised our own IT specialists to test the operational effectiveness of the recognition – Newspapers and Magazines and key revenue controls from inception to recognition of revenue, including the existence of from Carriage Fees are recognised automatic posting of invoices and scanning in of customer returns. revenue from when the products are delivered to We agreed a sample of revenue to sales invoice, customer sales data and Newspapers and the retailer and there is no unfulfilled payments received from the customers. We also agreed a sample of rebates Magazines and obligation that could affect the through to the underlying agreements, verified the rebate percentage and from Carriage Fees retailer’s acceptance of the products, volume, and finally agreed the sample through to payment or credit note. the risks of obsolescence and loss The Group’s revenue have been transferred to the retailer. We analysed a sample of journal postings to revenue and the sales ledgers, to streams and the ensure these were in line with our understanding of revenue transactions and to related accounting Revenue for the Group is derived confirm there were no unusual or unexpected manual entries that were outside policies applied from high volume and low value of our expectations. during the period transactions. are detailed in Note In addition to testing a sample of invoices recorded in revenue in the year to The existence of revenue recognised 1 to the financial cash receipt, we agreed a sample of trade receivables to cash received after the from these streams relies upon the statements. period-end to test the existence and accuracy of revenue. precision of the returns process and the adequacy of the processes and Credit notes in year and post year end were tested on a sample basis to controls in place across the relevant confirm they were appropriately raised and recorded in the correct period. We IT systems. also scrutinised the complaints process and outcomes relating to deliveries/ returns processing to ensure there were no other matters which may indicate Due to the complexity of these IT that revenue may be materially misstated. The period end returns provision and systems and dependency on the corresponding estimate was assessed against prior period actual returns to test effective returns process, there is a the accuracy of the provision. risk over the existence of revenue from the delivery of Newspapers and Key observations: Magazines and from Carriage Fees, From the testing performed, we consider that the operating effectiveness which requires a significant proportion of controls within the IT System relating to the existence of revenue from of the audit and IT audit team’s time Newspapers and Magazines and from Carriage Fees, as well as the related and effort, and for these reasons we returns process was adequate. determined it to be a Key Audit Matter. Carrying value of The carrying value of investments We have assessed the methodology applied by management in performing investments in in subsidiaries has previously been the impairment test against the requirements of IAS 36 ‘Impairment of assets’ Smiths News plc subject to impairment and the and considered the various indicators identified by management in respect of (Parent Company) carrying value is therefore below impairment and reversal. original cost. | Refer to the | | In respect of the value in use calculations we challenged the cash flow estimates | | --- | --- | --- | | Accounting polices | During the reporting period | and assumptions used by: | | (page 137); and | impairment indicators were identified | | | | | • agreeing them to supporting information where available, including long-term | | Note 3 of the Parent | by management, in respect of the | | volume declines, contracts in place and the ability of the Group to mitigate Company Financial increase in discount rates and the volume declines with operational savings; Statements (pages disparity of the market capitalisation 132 to 181). and investment carrying value. • searching for corroborative or contrary evidence to assess the reasonableness of such assumptions including the use of third-party research reports; and Conversely management also • holding discussions with operational team members who were separate to identified indicators of potential the finance team and by assessing against market benchmarks and historical reversal which would offset the above trends. factors owing to the reduction in the Group’s net debt, improvement in In conjunction with our valuation specialists, we challenged and assessed the business performance in the year and discount rate used by reviewing the methodology used to calculate the discount its resulting impact on future cash rates and by independently determining a range of acceptable rates, considering flow assessment. market data and comparable sectors, and comparing the range of rates independently calculated to the rate used by management. ### How the scope of our audit addressed Smiths News plc S G F 127 Annual Report and Accounts 2022 ### Key audit matter the key audit matter Carrying value of Therefore a full assessment was We assessed and challenged the adequacy of management’s sensitivity investments in performed by management on the analysis in relation to key assumptions to consider the extent of change in those Smiths News plc C ompan y ’ s investment carrying value. assumptions that either individually or collectively would be required to lead to (Parent Company) a significant change in the carrying value, in particular forecast cash flows and Where an impairment review is continued discount rate. conducted, the recoverable amount is determined based on the higher of This challenge was completed by assessing against the Group’s principal ‘value in use’ or ‘fair value less costs of risks and uncertainties, as well as considering whether further sensitivities could disposal.’ be applied. Value in use has been calculated using Furthermore, the audit team evaluated the accuracy of Management’s historical cash flows reflecting management’s forecasting, challenged the revenue, costs and other cash flows assumptions best estimate of the current economic based on our knowledge of the business, contractual revenue streams and the outlook and impact of inflationary economic outlook. pressures. As the investment We tested the arithmetic accuracy of the impairment model. represents an equity investment the value in use has been adjusted We assessed whether the disclosures in the financial statements and sensitivity to reflect the overall net debt of the analysis given were complete and accurate. underlying subsidiaries. Finally, we considered risk of management bias and override given the impact Management’s value in use model and an impairment or reversal would have on retained earnings, and hence hence impairment/reversal assessment distributable reserves. is sensitive to changes in the key Key observations: assumptions, including discount and Management determined that the carrying value of the investment remained growth rates set out in Note 3 of the consistent with the prior year with no material impairment or reversal. This was Parent Company financial statements. based on both qualitative and quantitative factors. Management is required to ensure As disclosed in page 182 the carrying value of the investment is highly sensitive that the disclosures are complete to movements in the discount rate. The rate established by management was and accurate, to enable users of the within the range independently recalculated by our valuation specialists and financial statements to understand therefore not considered to be unreasonable. the assumptions and the sensitivities apparent. 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 For these reasons, we determined it to significant risk of management bias or override in respect of the Group’s ability be a Key Audit Matter. to declare dividends. Based on procedures performed, we have not identified a material misstatement in relation to the valuation of the Parent Company investments. ### How the scope of our audit addressed ## / Smiths News plc 128 F 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: ### Parent Company financial | Group financial statements | | statements | | | --- | --- | --- | --- | | 2022 | 2021 | 2022 | 2021 | | £m | £m | £m | £m | Materiality 1.49 1.55 0.89 0.93 | Basis for determining | 4.8% of profit before | 5% of profit before | 60% of Group materiality 60% of Group materiality | | | --- | --- | --- | --- | --- | | materiality | adjusting items and tax | adjusting items and tax | | | | Rationale for the | We consider this to be | We consider this to be | Calculated as a | Calculated as a | | benchmark applied | the most appropriate | the most appropriate | percentage of Group | percentage of Group | | | performance measure | performance measure, | materiality for Group | materiality for Group | | | as it removes the impact | as it removes the impact | reporting purposes | reporting purposes | | | of certain one-off or | of certain one-off or | given the assessment | given the assessment | | | exceptional items | exceptional items | of aggregation risk. | of aggregation risk. | | | impacting the underlying | impacting the underlying | | | | | profit of the Group and | profit of the Group and | | | | | is also a key measure for | is also a key measure for | | | | | stakeholders. | stakeholders. | | | Performance materiality 1.04 1.08 0.59 0.65 | Basis for determining | 70% of materiality based | 70% of materiality based | 70% of materiality based | 70% of materiality based | | --- | --- | --- | --- | --- | | performance materiality | on our experience and | on our experience and | on our experience and | on our experience and | | | knowledge of the Group, | knowledge of the Group, | knowledge of the Parent | knowledge of the Parent | | | the Group structure, | the Group structure, | Company, planned | Company, planned | | | planned testing approach, | planned testing approach, | testing approach, and | testing approach, and | | | and history of errors. | and history of errors. | history of errors. | 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. Smiths News plc S G F 129 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- • The Directors’ statement with regards to the appropriateness of adopting the going concern basis of term viability 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 In our opinion, based on the work undertaken in the course of the audit: Directors’ Report • 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 have nothing to report in respect of the following matters in relation to which the Companies Act 2006 we are required to report requires us to report to you if, in our opinion: by exception • 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. ## / Smiths News plc 130 F 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. Smiths News plc S G F 131 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). ## / Smiths News plc 132 F Annual Report and Accounts 2022 ## Group Income Statement ### for the 52-week period ended 27 August 2022 2021 Adjusted | | | | 2 | | | | 1,109.6 | | | – 1,109.6 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Sales | | 3 (1,016.6) | | – (1,016.6) | | (1,036.2) | | | – (1,036.2) | | | | | | 3 | | | | | 73.4 | | – 73.4 | | | | | expenses | 3 | | | | | (33.9) (1.9) (35.8) | | | | | impairment loss on trade receivables | | | 4 | – | (4. 4) | (4. 4) | | | – | – | – | | | from joint ventures | | 13 | | | | | 0.1 (0.3) (0.2) | | | | | | | of joint venture investment | 13 | – 1.2 1.2 | | | | | – (1.6) (1.6) | | | | | | | 2,3 | | | | | 39.6 (3.8) 35.8 | | | | | | costs | | 7 | | | | | (8.8) | | – (8.8) | | | | income | | 7 | – 2.5 2.5 0.1 3.5 3.6 | | | | | | | | 30.9 (0.3) 30.6 | | tax credit/(expense) | | 8 | | | | (4.6) 0.3 (4.3) | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | the year from continuing operations | | 25.7 | (2. 3) | 23.4 26.3 | | | – 26.3 | | for the year from discontinued operations | | | 4 | | | | | – (0.1) (0.1) | | 10 10.2 10.2 10 10.2 10.2 dividends per share (paid and proposed) 9 4.15 4.15 1.65 1.65 * 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. Profit/(loss) attributable to equity shareholders Adjusted Cost of Profit/(loss) for Loss Diluted Diluted Equity Revenue Administrative Net Income Impairment Operating profit Finance Finance Profit/(loss) before tax Discontinued operations continuing and discontinued operations Basic £m Note Gross profit Other income Income continuing operations Basic Earnings per share total Earnings/(Loss) per share from 10 10 Adjusted* 1,089.3 1,089.3 Adjusted* Total items items Total (37.5) 32.4 27.9 23.4 26.2 10.8 72.7 10.8 (35.0) (2. 5) (5. 7) (3. 2) (7. 0) (4. 5) (2. 3) 9.3 9.3 0.3 (0.1) 9.8 0.1 9.8 10.2 10.2 38.1 31.1 25.7 10.8 72.7 0.9 10.8 (7. 0) (5. 4) – 0.3 0.1 – – – – – – – – 26.3 10.8 10.8 – – 2022 Smiths News plc Annual Report and Accounts 2022 S G / 133 # 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 | 14.8 | (0.4) | | Impact of IFRIC 14 on defined benefit pension scheme | 6 | – | 0.8 | | Tax relating to components of other comprehensive income that will not be reclassified | 8 | (5.1) | 0.2 | | | | 9.7 | 0.6 | | **Items that may be subsequently reclassified to the Group Income Statement** | | | | | Currency translation differences | | – | – | | **Other comprehensive result for the year – continuing** | | 9.7 | 0.6 | | **Profit for the year – continuing** | | 23.4 | 26.3 | | **Total comprehensive income for the year – continuing** | | 33.1 | 26.9 | | **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** | | 33.1 | 26.8 | Smiths News plc 134 F Annual Report and Accounts 2022 ## Group Balance Sheet ### as at 27 August 2022 assets 11 2.3 plant and equipment 12 8.6 9.4 in joint ventures 13 2.9 receivables 15 – 2.3 | | 14 | 13.2 | | --- | --- | --- | | and other receivables 15 | | 106.6 | | | tax receivable | – | assets 189.4 186.2 | and other payables 16 | | (136.5) | | --- | --- | --- | | loans and other borrowings 17 | | (21.2) | | liabilities 19 | (5. 9) | (5.9) | -current liabilities liabilities 19 (23.3) -current provisions 21 (3. 4) (3.0) (76.4) | net liabilities | | | (32.0) | (57.7) | | --- | --- | --- | --- | --- | | | share capital | 25(a) | 12.4 | 12.4 | | premium account | | 25(c) | | 60.5 | | | reserve | 26(a) | | (280.1) | | | reserve 26(c) | | | 0.4 | | | earnings 27 | | | 153.0 | 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 Retained Corporation Total Provisions 21 Total liabilities Total £m Note Non-current assets Property, Right of use assets 19 Other Trade Current tax liabilities Lease Non Lease Non Equity Called up Demerger Translation Total shareholders’ deficit Deferred tax assets 20 Intangible Interest Current assets Inventories Cash and bank deposits 17 Current liabilities Trade Bank Bank loans and other borrowings 17 Share Own shares reserve (157.2) (221.4) (280.1) (140.3) (167.5) (243.9) 179.4 147.5 (64.2) (21.7) (32.0) (39.1) 139.1 2022 2021 (57.7) (50.1) 26.3 41.9 95.7 15.6 35.3 60.5 28.4 47.1 (3. 0) 19.3 (8. 0) (4. 6) (3.6) (0.3) (3.9) 0.9 0.4 1.1 1.7 4.2 1.8 – 26(b) Smiths News plc S G F 135 Annual Report and Accounts 2022 ## Group Statement of Changes in Equity ### for the 52-week period ended 27 August 2022 Share Own and Share premium Demerger shares translation Retained Note capital account reserve reserve reserve earnings Total gain on defined benefit pension scheme 6 – – – – – (0.4) (0.4) of IFRIC 14 on defined benefit pension 6 – – – – – 0.8 0.8 – – – – – 0.2 0.2 comprehensive expense/income – – – – – 26.8 26.8 share schemes purchases – – – (2.7) – – (2.7) share scheme awards – – – 0.6 – (0.6) – | for the year | | | | – | – | – | – | – 23.4 23.4 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | gain on defined benefit pension scheme | | 6 | – | – | – | – | – 14.8 14.8 | | | | | | | | | – | – | – | – | – | (5.1) | | (5.1) | | comprehensive expense/income | | | | – | – | – | – | – 33.1 33.1 | | | | | | | paid | 9 | – | – | – | – | – (6.1) (6.1) | | | | | | share schemes purchases | | | – | – | – (2.2) | | – | | – (2.2) | | | | share scheme awards | | | – | – | – 1.5 | | – (1.5) | | | – | | | | of share-based payments net of tax | | – | – | – | – | – 1.2 1.2 | | | | | | tax recognised in equity | | | – | – | – | – | – (0.1) (0.1) | | | | | | tax recognised in equity | | | – | – | – | – | – (0.2) (0.2) | | | | Hedging Impact Tax relating to components of other Total Tax relating to components of other Total Deferred Actuarial scheme comprehensive income for the year Employee Recognition of share-based payments net of tax comprehensive income Dividends Employee Balance at 30 August 2020 Profit for the year Dividends paid Employee Balance at 28 August 2021 Profit Actuarial for the year Employee Recognition Current Balance at 27 August 2022 £m / (81.6) (57.7) (32.0) 26.2 (280.1) (280.1) (280.1) 127.0 (1.2) 153.0 179.4 1.0 (1. 8) (3. 9) (4. 6) 12.4 9 12.4 12.4 60.5 26.2 60.5 60.5 (1.2) 1.0 – – – 0.4 0.4 0.4 – – – – – – – – – – – – Smiths News plc 136 F Annual Report and Accounts 2022 ## Group Cash Flow Statement ### for the 52-week period ended 27 August 2022 received from joint ventures 0. 2 0.2 | | of intangible assets | | – | | --- | --- | --- | --- | | proceeds on sale of property, plant and equipment 0.1 | | | – | | repayment received | | | 6.5 | | | consideration receipts | 14.0 | – | 4.4 | | | fees paid | (2.7) | | --- | --- | --- | --- | | | paid 9 | | (1.2) | | | | of term loan | (57.5) | | loans issued | | | 80.0 | | | of shares for employee benefit trust | | (2.6) | (76.9) (31.1) | of foreign exchange rate changes | | | | (0.2) | | --- | --- | --- | --- | --- | | | net cash and cash equivalents | | | 50.6 | | | net cash and cash equivalents | 17 | 35.3 | 19.3 | Net cash inflow from operating activities Deferred Effect £m Dividends Purchase of property, plant and equipment Net Loan Net cash generated from investing activities Financing activities Arrangement Repayments of lease principal Repayment Net decrease in revolving credit facility and overdrafts Purchase Net cash (used in)/generated financing activities Opening Closing Investing activities Purchase Interest paid Dividend New Net (decrease)/increase in cash and cash equivalents Interest received (83.0) (46.1) 2022 2021 (80.2) (31.3) 49.8 12.3 16.0 19.3 60.0 16.0 41.4 (1. 3) (2. 9) (6. 4) (2. 6) (0. 7) (5. 1) (6. 1) (2.4) (5.9) (6.8) 0.1 – – – – Note 24 Smiths News plc Annual Report and Accounts 2022 S G T / 137 # Notes to the Accounts For the 52-week period ended 27 August 2022 ## 1. Accounting policies ### (1) Basis of consolidation Smiths News plc ('the Company') is a company incorporated in England UK under Companies Act 2006. The Group accounts for the 52-week period 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 Group 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 Company'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. Smiths News plc 138 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 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. Smiths News plc Annual Report and Accounts 2022 S G / 137 ## 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 McColl'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 part 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 of 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 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. 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). 140 Smiths News plc^{}[] Annual Report and Accounts 2022 # Notes to the Accounts *continued* For the 52-week period ended 27 August 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"), McColl'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 McColl'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 Tuffnelis 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 accordance 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 value 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. Smiths News plc S G F 141 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. ## / Smiths News plc 142 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 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. Smiths News plc S G F 143 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. ## / Smiths News plc 144 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 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. Smiths News plc S G F 145 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. ## / 146 Smiths News plc Annual Report and Accounts 2022 # Notes to the Accounts continued For the 52-week period ended 27 August 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 Segments', 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 Core 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: | £m | Revenue | | | --- | --- | --- | | | 2022 | 2021 | | Smiths News | 1,089.3 | 1,109.6 | | **Total revenue from contracts with customers** | **1,089.3** | **1,109.6** | The Company'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. Smiths News plc S G F 147 Annual Report and Accounts 2022 3. Operating profit The Group’s results are analysed as follows: 2022 2021 Adjusted items items of inventories recognised as an expense (945.2) – (945.2) costs (95.3) – (95.3) (91.0) – (91.0) | administrative expenses | | (23.3) | | (2.5) | | (25.8) | (22.1) (1.9) (24.0) | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | impairment loss on trade receivables | | | | | | | | – | – | – | | | | | – 1.2 1.2 | | | | | – (1.6) (1.6) | | | | | | | | | | | (0.1) | | – (0.1) | | | income | | | | | | | | – | – | – | | of profits from joint ventures | 13 0.3 | | | | – 0.3 0.1 (0.3) (0.2) | | | | | | 50.3 (3.8) 46.5 on property, plant & equipment 12 (2.4) – (2.4) of intangibles 11 (1.9) – (1.9) 39.6 (3.8) 35.8 The operating profit is stated after charging/ (crediting): Note Total Total on property, plant & equipment 12 2.3 2.4 | | of intangible assets 11 | 1.9 | | --- | --- | --- | | | on right-of-use assets 19 | 6.4 | | occupied land and buildings | | 0.1 | | equipment and vehicles | | 0.4 | | | on disposal of non-current assets | 0.2 | | costs (excluding share-based payments) 5 | | 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: payable to the C ompan y ’ s auditor for the audit of the C ompan y ’ s annual accounts – BDO LLP 0.2 payable to the C ompan y ’ s auditor for the audit of the C ompan y ’ s subsidiaries – BDO LLP 0.2 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. | Fees | | | 0.2 | | --- | --- | --- | --- | | Impairment reversal/(charge) of joint venture | Adjusted | | 2022 2021 | | Cost of sales Share Amortisation Fees Revenue Distribution Gross profit Other Net Investment Impairment Depreciation Operating profit £m Depreciation Depreciation Short-term and low value lease charges (Loss)/gain Staff £m Total non-audit fees Total fees Continuing operations Cost Other EBITDA Depreciation on right use assets Amortisation Lease rental income – land and buildings Share-based payment expense £m / | (1,016.6) (1,036.2) 1,089.3 1,109.6 Note Adjusted | (921.3) (1,016.6) Adjusted 1,089.3 Total Total 19 28 (921.3) 72.7 73.4 32.4 42.9 (1,036.2) (1.3) (4.4) (2.3) (6.9) (6.4) (1.2) (1.0) 1,109.6 (4.4) (5.7) (5.7) | 0.1 2022 2021 72.7 38.1 48.6 43.7 (1.3) (2.3) (6.9) (0.4) (1.2) (0.2) – 6.9 0.3 0.4 0.1 0.7 0.1 1.3 – – – – – – – – – 0.1 0.5 – – – – – – 73.4 (6.4) (1.0) – – – – | Smiths News plc 148 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 2022 4. Adjusted items 2022 2021 Discontinued | | | programme planning costs (a) | | (0.9) | | – | (0.9) | | (1.1) | | – (1.1) | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | 0.1 | | – 0.1 | | | | and re-organisation costs (c) 0.2 | | | | | – 0.2 0.1 | | | | | – 0.1 | | | impairment loss on trade receivables (d) | | | | | | | | | | – | – | – | | impairment reversal/(charge) | | | (f ) | | | | | | (1.6) | | – (1.6) | | | refund | | | (g) | | | | | | | – 0.4 0.4 | | | | | and sale of Tuffnells (h) | | | | – | – | | – | | – (0.6) (0.6) | | | | | | | | | | | | | (3.8) | | (0.2) (4.0) | | | | income – unwind of deferred consideration (i) | | | | | | | | 3.5 | | – 3.5 | | 0.3 0.1 0.4 – – – – (0.1) (0.1) – (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. Total for the year from both continuing and Network Finance Taxation Total loss from discontinued operations Transformation Other Net Asset VAT Review Total before tax and interest Total after taxation from continuing operations discontinued operations £m Pension Administrative expenses Share of profits from joint ventures (e) Total before tax Discontinued Continuing Continuing Total Total (4.4) (5.7) (2.3) (2.3) (1.8) (2.5) (3.2) (1.0) (1.9) (0.3) (0.5) 2.5 0.9 1.2 – – – – (4.4) (5.7) (2.3) (2.3) (1.8) (2.5) (3.2) 2.5 0.9 1.2 (0.2) (1.0) (1.9) (0.3) (0.3) – – – – – – – – – – – – – – – – – – – – – (b) Smiths News plc S G F 149 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. ## / Smiths News plc 150 F Annual Report and Accounts 2022 ## 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: | and salaries | | 39.2 | 39.2 | | --- | --- | --- | --- | | costs 6 | | | 1.2 | | -based payments expense | 1.2 1.0 | | | 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: 1,425 1,536 149 154 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: 14.8 | | not recognised due to asset limit | (14.8) | | | --- | --- | --- | --- | | paid | | | – | | | of surplus to Company | | – | Continuing operations Operations Present value of defined benefit obligation (0.1) (0.1) Support functions £m Note Continuing Wages Social security Pension Share Total Number Total £m Fair value of assets Net surplus Amounts Tax Refund Pension liability Administrative expenses 1,574 2022 2021 2022 2021 2022 2021 14.9 44.9 14.8 14.9 (5.1) (8.1) (1.6) 3.4 1.1 3.4 – – – – Smiths News plc Annual Report and Accounts 2022 S G / 151 ## 6. Retirement benefit obligation continued ### Return of the surplus and formal winding up of the Pension Trust during the current period 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. 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 surplus 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 | Smiths News plc 152 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 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 | | | | | of | scheme | | benefit | | pension | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | interest cost 4.4 (4.2) (0.2) | | | | | | | | | | | – | | | | expenses (0.4) | | | | | | – | | – (0.4) | | | return on scheme assets (excluding amounts included in net interest expense) (8.7) | | | | | | | | – | | – (8.7) | | | | gains arising from changes in financial assumptions | | | | | – 2.4 | | | | – 2.4 | | | | gains arising from changes in demographic assumptions | | | | | – 6.1 | | | | – 6.1 | | | | | | recognised | | | – | | – 0.6 0.6 | | | | | | payments (14.5) 14.5 | | | | | | | | | – | – | | | included in cash flow statement | | | | (14.5) | 14.5 | | | | – | – | | | (462.3) 462.3 | | | | | | | | | – | – | administration expenses (0.3) – – (0.3) relating to the repayment of pension surpluses – – (5.1) (5.1) of surplus to Company (8.1) – – (8.1) included in cash flow statement (13.2) – 5.1 (8.1) – 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: | | bonds | | Quoted and Unquoted | – | | --- | --- | --- | --- | --- | | | policy | Unquoted | | – | | and other | | Unquoted | | 3.5 | benefit Fair value Defined Administration Actuarial Change in surplus not Benefit Settlement Other Total amount recognised in income statement Change in surplus not previously recognised Tax Tax Refund Amounts At 29 August 2020 Net Total amount recognised in income statement Actual Actuarial Amount recognised in other comprehensive income Amounts At 28 August 2021 Purchase of indemnity insurance Amount recognised in other comprehensive income At 28 August 2022 £m Gilts and swaps portfolio Corporate Insurance Cash Included within Current liabilities Equity funds £m obligation schemes paid Total (1.6) 14.8 (481.2) (0.4) (15.2) (14.8) (1.3) Quoted and Unquoted Unquoted 0.4 9.7 14.8 (0.2) – (4.2) 0.6 (0.1) 9.7 5.1 – – – 2022 2021 assets 496.4 N/a N/a N/a N/a N/a N/a 0.1 8.5 0.1 11.4 14.9 – – – (1.6) (8.7) 14.9 (0.1) – – – (0.1) (5.1) (1.3) – 4.0 – – Smiths News plc S G F 153 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 | | of loan arrangement fees | | (2.0) | | --- | --- | --- | --- | | payable on leases | | | (1.6) | | interest cost on financial liabilities at amortised cost | | (6.8) | (8.6) | | | of discount on provisions – trading 21 | | (0.2) | income on loans and deferred consideration 2.5 3.6 (5.2) payable on leases – – | | Finance costs – continuing and discontinued operations | | | (4.5) | (5.2) | | --- | --- | --- | --- | --- | --- | | 8. | Income tax expense | | | | | | | | 2022 | 2021 | | | Adjusted items items operations | tax | | 5.7 | (0.9) | | 4.8 | 6.3 | (0.3) | | 6.0 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | in respect of prior year | | | | | (0.9) | | – | (0.9) | | current tax charge/(credit) 4.9 | | | (0.9) | 4.0 5.4 (0.3) 5.1 | | | | | | | tax – prior year | | | | | | (0.1) | | – (0.1) | | | tax – impact of rate change 0.2 | | | | – 0.2 (0.3) | | | | – (0.3) | | 4.6 (0.3) 4.3 (credit)/charge – discontinued operations – – – – (0.1) (0.1) charge/(credit) – 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%). Continuing Current Tax Adjusted Unwinding Interest Unwinding of discount on provisions – trading 21 Adjustment Total tax charge/(credit) – continuing operations Tax £m Continuing operations Amortisation Interest Total Interest Net Finance costs – discontinued operations Net Deferred tax – current year Deferred Deferred Effective tax rate continuing and discontinued operations Interest on bank overdrafts and loans Finance costs – continuing operations Net Finance costs – continuing operations £m Total / Adjusted 16.1% 14.1% Total Total Adjusted (0.8) (0.3) (0.4) 17.4% 4.5 4.5 0.6 (0.9) (0.9) 2022 2021 (1.7) (1.6) (0.2) (0.8) (0.3) 14.9% (3.5) (7.0) (4.5) (5.0) (8.8) 5.4 5.4 0.6 – – – – (0.4) – – – – Note Smiths News plc 154 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 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: 30.6 | on profit at the standard rate of UK corporation tax 19.0% (2021: 19.0%) | | | 5.9 | | --- | --- | --- | --- | | | not deductible for tax purposes | | 0.4 | | | in respect of prior years | (0.2) | (1.0) | Income not subject to tax comprised mainly of the tax effect of the Tuffnells discount unwind. Amounts recognised directly in equity tax: share-based payments (0.1) – 9. Dividends Amounts paid and proposed as distributions to equity shareholders in the years: & proposed dividends for the year | – paid | 1.40p | 0.50p | 3.3 | 1.2 | | --- | --- | --- | --- | --- | | – proposed | 2.75p | 1.15p | 6.7 | 2.4 | | | | 1.65p | | 3.6 | dividend – current year 0.50p 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. Paid Interim dividend Aggregate current tax and deferred tax arising in the reporting period and not recognised in net profit or loss or other 2022 2021 2022 2021 Final dividend Continuing Profit before tax Impact of change in UK tax rate £m Income not subject to tax Adjustment £m comprehensive income but directly (charged)/credited to equity: Current Recognised dividends for the year Interim Tax Expenses Tax charge Deferred tax assets: share-based payments Final dividend – prior year Per share Per share 4.15p 1.40p 1.15p 2.55p 0.50p 2022 2021 2022 2021 27.9 10.0 (1.0) (0.2) (0.3) (0.7) 0.2 3.3 5.3 0.2 4.5 £m £m 2.8 6.1 1.2 4.3 0.2 – – Smiths News plc S G F 155 Annual Report and Accounts 2022 | 10. | Earnings per share | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 2022 | | | | | 2021 | | | | | | | | average | | | | | average | | | | | | | | number | | | | | number | | | | | | Earnings | | of shares | | Pence | Earnings | | of shares | | Pence | | | | | £m | Million | per share | | | £m | Million | per share | | operations attributable to ordinary shareholders 23.4 238.5 9.8 26.3 243.5 10.8 profit/(loss) attributable to ordinary shareholders – 243.5 – attributable to ordinary shareholders (0.1) 243.5 – earnings attributable to ordinary shareholders 25.7 238.5 10.8 26.3 243.5 10.8 earnings per share (EPS) | of dilutive share options – continuing operations | | 13.5 | | --- | --- | --- | | of dilutive share options – adjusting continuing | | 13.5 | | of dilutive share options – discontinued operations | – | – | | of dilutive share options – total | | 13.5 | EPS 25.7 252.0 10.2 26.3 257.0 10.2 26.3 257.0 10.2 EPS – – – – 257.0 – (0.1) 257.0 – * 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). | Weighted Weighted | | | | | | | --- | --- | --- | --- | --- | --- | | Continuing Diluted EPS | 252.0 | 23.4 9.3 | | | | | Shares held by the ESOP (weighted) Adjusted earnings attributable to ordinary shareholders Adjusted items Earnings attributable to ordinary shareholders Effect Continuing operations Diluted adjusted Diluted adjusted Diluted EPS Total – Continuing and discontinued operations Diluted adjusted EPS* Basic earnings per share (EPS) Earnings Discontinued operations Adjusted Loss/(profit) Adjusted Adjusted items Diluted Effect Effect Discontinued operations – Diluted EPS Diluted EPS* Weighted average number of shares in issue Adjusted items Total – Continuing and discontinued operations Effect / | 238.5 252.0 238.5 252.0 243.5 243.5 257.0 257.0 | 10.2 (2.3) 23.4 25.7 25.7 10.8 (2.3) 23.4 10.8 10.8 10.2 10.2 9.3 9.8 26.3 26.2 26.3 26.2 (0.1) (0.1) – – – – – – – – – | – – – – – – – – – – – – – – | 247.7 13.5 13.5 13.5 (9.2) | 247.7 (4.2) | Smiths News plc 156 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 2022 11. Intangible assets Acquired Intangibles Internally generated Computer Customer development software – – – – 0.5 0.2 0.7 – – – – – – – : | 29 August 2021 | (5.7) | (2.4) | (0.2) | – | (1.8) | (5.8) | (15.9) | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | – | – | – | – | – | – | | – | | 27 August 2022 | (5.7) | (2.4) | (0.2) | – | (2.1) | (6.8) | (17.2) | | | 30 August 2020 | | | 5.7 | 2.4 | 0.2 | – | 2.9 | 7.5 | 18.7 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | – | – | – | – (0.6) (0.3) (0.9) | | | | | 28 August 2021 5.7 2.4 0.2 | | | | | | – 2.7 7.2 18.2 | | | | | | amortisation and impairment | : | | | | | | | | | 30 August 2020 | | | (5.7) | (2.4) | (0.2) | – | (1.9) | (4.5) | (14.7) | | | charge | | – | – | – | – (0.4) (1.5) (1.9) | | | | 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. Cost: Accumulated amortisation and impairment Cost: Accumulated Additions Disposal Disposals At Disposals At Amortisation Disposals At 27 August 2022 At Amortisation charge At Additions At At 28 August 2021 At 29 August 2021 £m relationships Net book value at 27 August 2022 Net book value at 28 August 2021 Goodwill Trade name Software (15.9) Total 18.9 (5.7) 18.2 (1.3) 5.7 0.7 0.4 5.7 1.7 2.3 costs – – – (5.8) – – (1.0) (0.2) costs 0.2 7.4 7.2 0.6 1.4 (2.4) (1.8) – 0.2 – – – – (0.3) – 0.2 – – 2.4 3.2 – 1.1 0.9 0.5 0.4 2.4 2.7 – – – – – – – – – – Smiths News plc Annual Report and Accounts 2022 S G / 157 ## 12. Property, plant and equipment | £m | Land and Buildings | | | Equipment and vehicles | Total | | --- | --- | --- | --- | --- | --- | | | Long-term leasehold improvements | Short-term leasehold improvements | Fixtures and fittings | | | | **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. Smiths News plc 158 F Annual Report and Accounts 2022 ## 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 On The Go Limited Ordinary Shares 30% 61 Bridge Street, Equity method Kington, HR5 3DJ Systems Group Limited Ordinary A Shares 36.1% Estantia House, Pitreavie Drive, Equity method Pitreavie Business Park, Dunfermline, Fife KY11 8US Solutions Limited Ordinary A Shares 50% Silbury Court, 420 Silbury Boulevard, 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: 2021 Rascal Solutions Solutions – – – (1.6) (0.1) (1.7) (0.1) (0.6) (0.7) -current assets 2.3 0.6 2.9 assets 1.5 1.6 3.1 1.7 1.5 3.2 1.0 0.3 1.3 5.0 2.4 7.4 liabilities (1.6) (0.9) (2.5) -current liabilities – (1.3) (1.3) 3.4 0.2 3.6 1.2 – 1.2 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. | Bluebox | | Rascal | | | | | --- | --- | --- | --- | --- | --- | | Fresh SC544863 Rascal | | | | | | | 08775703 Goodwill* 05191277 £m Depreciation Non Current Cash Total assets Current Non Total liabilities Net assets/(liabilities) Share of net assets Revenue Tax Profit/(loss) after tax Share of net assets and Goodwill Company name/(number) | Measurement method Other Total Total Share Class | Limited Other (3.3) (1.4) (4.7) (0.2) Group (1.6) (1.4) (3.0) (0.7) (0.8) (3.8) 2.4 Limited 2.3 7.6 2.9 8.8 0.1 2.2 1.8 4.2 0.7 2.3 1.7 2.8 7.0 0.3 0.1 (2.2) | 1.3 – – – – (1.7) (1.7) (0.2) – – 2.4 1.6 5.3 3.6 6.0 0.6 2.2 1.8 4.2 (1.6) | – 1.7 5.7 0.1 % Milton Keynes MK9 2AF | Registered address 2022 | Smiths News plc Annual Report and Accounts 2022 S G T / 159 ### 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 Company'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 assumptions 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 | 69.0 | 65.8 | | Specific provision for doubtful debts^{1} | (4.4) | – | | Provision for expected credit losses | (0.1) | (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 McColls 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. Smiths News plc 160 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 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: | | | | | | 2022 | | | | | | | | 2021 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Gross | provision | | | | | | Net | | Gross | | | | | | Net | | | carrying | | for doubtful | | | | Loss | carrying | | carrying | | | | Loss | | carrying | | | | amount | | | debts | | allowance | | amount | | amount | | | allowance | | | amount | | | -60 days overdue | | | | | | | | | | | | 1.9 | | | – 1.9 | | | | -90 days overdue | | | | | | | | | | | | – | | | – | | – | | 120 days overdue | | | | | | | | | | | | – | | | – | | – | 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: | | (not overdue) | | | 0.1 | | --- | --- | --- | --- | --- | | -60 days overdue | | | – | – | | -120 days overdue | | | | 11.4 | | 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: | | losses recognised | | (0.2) | | --- | --- | --- | --- | | written off as uncollectible | | – 0.1 | | | | business | | – | | 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. Specific Over Disposal of 30 61 % Current 30 91 £m At 29/30 August Amounts At 27/28 Current (not overdue) 61-90 days overdue Over Impairment Amounts recovered during the year 91-120 days overdue £m 62.9 64.5 63.8 0.2 (0.1) 0.6 (0.1) 0.8 2022 2021 2022 2021 63.0 69.0 (0.1) (1.4) (4.4) (0.2) (3.0) – 0.2 0.1 0.1 0.1 2.0 1.2 4.4 3.8 – 0.4 0.9 63.9 – – – – – – – – – – – – Smiths News plc Annual Report and Accounts 2022 S G T / 14 ## 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^{1} | – | 2.3 | | Loans receivable | – | – | | | – | 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. Smiths News plc 162 F Annual Report and Accounts 2022 ## 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: | | | | | Sterling | | Euro | | US | Dollar | | Other | | 2022 | 2021 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | and bank deposits | | 34.1 0.6 0.4 0.2 | | | | | | | | | | | | 19.7 | | | | – included in cash and cash equivalents | | | | – | | – | | | – | | – | | (0.4) | | | Cash and cash equivalents | | | 34.1 0.6 0.4 0.2 35.3 19.3 | | | | | | | | | | | | | | | – included in borrowings | | | | – | | – | | | – | | – | | | – | | | credit facility – disclosed within current liabilities | | | | – | | – | | | – | | – | | | – | | loan – disclosed within non-current liabilities (41.5) | | | | | | | – | | | – | | – | | (51.3) | | (13.0) 0.6 0.4 0.2 (52.0) due for settlement after 12 months (39.1) – – – (50.1) (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. | | | Note | | 2021 | | cash flows | | New | leases | | Disposals | | changes | | 2022 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Loan | | | 18 71.3 (29.4) | | | | | | | – | | – 5.2 47.1 | | | | | | | credit facility | | 18 | | – | | – | | | – | | – | | – | | – | | | | | 18 0.4 (0.4) | | | | | | | – | | – | | – | | – | 29.2 (8.0) 5.4 (0.6) 1.6 27.6 | Net borrowings | (11.8) | | | --- | --- | --- | | 29 August Financing 27 August | Other Total | | | Overdrafts Term current liabilities Leases £m Cash Net Overdrafts Term loan – disclosed within current liabilities Total borrowings Total borrowings Amount due for settlement within 12 months Amount Term Revolving Overdrafts Total Revolving £m Unamortised arrangement fees – disclosed within non- | (47.1) 100.9 (37.8) (41.5) (47.1) (39.1) (47.1) 74.7 – (8.0) – (21.2) – (71.3) – (21.2) (0.6) 6.8 2.4 35.3 – – (8.0) – – | 5.4 (8) 2.4 1.2 – – – – (8) – – – | Smiths News plc S G F 163 Annual Report and Accounts 2022 17. Cash and borrowings continued Reconciliation of liabilities arising from financing activities continued | | | 29 August | | Financing | | | Other | | 28 August | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | loan* | 18 49.8 21.5 | | | | – | – | | – 71.3 | | | | 18 41.3 (40.9) | | | | – | – | | – 0.4 | | | | | | 33.4 (5.9) | | – | – 1.7 29.2 | | | | * 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 | and cash equivalents | 18 | 35.3 19.3 | | | | --- | --- | --- | --- | --- | | -current borrowings | 18 | | | (50.1) | | borrowings | | | (11.8) | (52.0) | 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. Overdrafts Leases Non Term Revolving credit facility £m Cash Lease liabilities 20 Net debt Current borrowings Net Total £m / New cash flows Disposals changes 163.5 100.9 2020 leases 2021 39.0 (64.3) (39.1) (27.6) (39.4) (39.0) 2022 2021 (29.2) (81.2) (21.2) 1.7 – (8.0) – – – – – Note 18 Note 18 Smiths News plc 164 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 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. | | | between | | between | | Greater | | | --- | --- | --- | --- | --- | --- | --- | --- | | Due | within | | 1 and | | 2 and | | than | | | 1 year | 2 years | | 3 years | | 3 years | | 27 August 2022 and other borrowings (8.0) (10.0) (10.0) (21.5) (7.3) (5.8) (4.8) (14.5) 28 August 2021 and other borrowings (21.3) (23.5) (27.8) – (5.9) (5.7) (4.4) (13.1) (163.7) (29.2) (32.2) (13.1) | | Due Due | | | --- | --- | --- | | At At | | | | Trade and other payables Non derivative financial liabilities Bank Leases Non derivative financial liabilities Bank Leases Trade and other payables £m Total Total | (36.0) (15.8) (14.8) (155.6) (140.3) (136.5) | – – – – – – | Smiths News plc Annual Report and Accounts 2022 S G T / 145 ## 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 | 35.3 | 19.3 | | Deferred consideration | – | 11.5 | | Trade and other receivables | 93.1 | 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. Smiths News plc 166 F Annual Report and Accounts 2022 ## Notes to the Accounts continued Leases 29 August 2021 1.6 38.6 40.2 – (1.8) (1.8) 27 August 2022 1.7 42.1 43.8 29 August 2021 (0.6) (11.2) (11.8) charge (0.4) (6.5) (6.9) – 1.2 1.2 30 August 2020 1.8 36.9 38.7 – 2.8 2.8 (0.2) (1.1) (1.3) depreciation: 30 August 2020 (0.4) (5.5) (5.9) charge (0.4) (6.0) (6.4) 0.2 0.3 0.5 within one year 5.9 15.2 16.6 Amounts recognised in the income statement | expense (included in finance cost) | 1.6 | | --- | --- | | rental income | 0.3 | | cash outflow from leases | 6.2 | (5.9) (5.9) -current (29.2) | For the | 52-week | period ended | 27 | August 2022 | | --- | --- | --- | --- | --- | | Lease Liabilities Due | 5.9 | | | | | Due in more than one year, but no more than five years Current | | | | | 19. The balance sheet shows the following amounts relating to leases: Disposals Due in more than five years Non At Disposals Disposals Cost: Depreciation Disposals At 28 August 2021 Net book value at 28 August 2021 Cost: Additions Accumulated depreciation: At Depreciation At 27 August 2022 At Additions At 28 August 2021 Accumulated At Total lease commitments £m Continuing operations Interest Property £m Total At Net book value at 27 August 2022 Expense relating to low value leases (included in cost of sales and administrative expenses) Total £m Amounts recognised in the Right-of-use assets The company have the following lease commitments: Lease commitments and vehicles Equipment buildings Land and (11.8) (17.5) Total 28.4 40.2 26.3 (11.2) (16.5) 5.4 27.4 38.6 25.6 (21.7) (27.6) (23.3) 2022 2021 2022 2021 2022 2021 5.3 27.6 (0.6) (1.0) 29.2 (0.4) (0.1) 1.0 1.6 6.5 0.7 1.6 0.3 6.6 0.1 6.7 Smiths News plc S G F 167 Annual Report and Accounts 2022 | | | Fixed | | Share-based | | | Retirement | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | assets | | | payments | | | benefits | | Total | | | | to income (0.8) | | | | | 0.3 | | | – (0.5) | | | | to equity | | | – (0.2) | | | | | | – (0.2) | | | | tax assets 0.6 0.5 | | | | | | | | | – 1.1 | | | | tax liabilities | | | – | | | – | | | – | | – | | to income 0.7 0.1 | | | | | | | | | – 0.8 | | | | to other comprehensive income | | | – 0.2 | | | | | | – 0.2 | | | 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. for onerous | | | provisions | | provisions | | provision | | | provisions | | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | to income statement | | – (0.1) | | | | | – (1.0) (1.1) | | | | | | | to income statement 0.2 | | | | – 0.2 | | | | | | – 0.4 | | | | in period | | – | | – 0.5 0.6 1.1 | | | | | | | | | | of discount utilisation | | – | | – | | | – (0.2) (0.2) | | | | | | 27 August 2022 | | | (0.5) | | (0.9) | | (0.6) | | | (4.4) | | (6.4) | to income statement – (0.5) (0.6) (0.2) (1.3) to income statement – 0.3 – – 0.3 in period 0.2 2.1 1.1 0.5 3.9 of discount utilisation – – – (0.2) (0.2) within non-current liabilities (3.0) (6.6) Provision | organisation | and legal and other Property | | | | | --- | --- | --- | --- | --- | | Deferred tax assets and liabilities are attributable to the following: 21. (Charge)/credit Deferred Credit Deferred tax assets Credited Unwinding Credited Unwinding Included | Provisions | 1.8 (3.4) | 0.4 – | 1.4 | | At 30 August 2021 Charge Deferred At 29 August 2020 Credit At 28 August 2021 Deferred At 29 August 2021 Charged Utilised At At 30 August 2020 Charged Utilised £m At 27 August 2022 20. Deferred tax £m £m At 28 August 2021 Included within current liabilities Total / Insurance | contracts | (6.6) (9.3) (6.6) 1.8 1.1 1.8 0.8 (1.3) (1.8) (1.3) (3.8) (3.9) 2022 2021 (3.8) (0.7) (0.9) (0.7) (3.0) (6.4) | (0.8) (2.7) (0.8) (3.6) Re- 0.4 0.5 0.4 0.1 – – – – | 1.4 0.6 1.4 0.7 | Smiths News plc 168 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 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 | | | | --- | --- | --- | --- | | | | 2022 | 2021 | | | and other guarantees | | 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: one year 0.2 0.3 0.5 Within 0.2 In the second to fifth years inclusive More than five years £m Bank £m 2022 2021 0.5 2.4 0.7 – – Smiths News plc S G F 169 Annual Report and Accounts 2022 | 24. | Net cash inflow from operating activities | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | profit – continuing 3 | | | | | | 35.8 | | | | | profit/(loss) – discontinued 3 | | | | | | (0.2) | | | | | | | – total | | 32.4 | | 35.6 | | | | | | | | | | – | (0.2) | | | | | | (reversal)/charge of investments in joint ventures 13 | | | (1.2) | | | 1.6 | | | of profits of joint ventures 13 | | | | | (0.3) | | | 0.2 | | | | | for pension funding 6 | | | 8.1 | | | – | | | | | of property, plant and equipment 12 | | | 2.3 | | | 2.4 | | | | | of right of use assets 19 | | | 6.9 | | | 6.4 | | | | | of intangible assets 11 | | | 1.3 | | | 1.9 | | | | | of assets 4 | | | | – | | 0.1 | | | -based payments | | | | | 1.2 | | | 1.0 | | | | | | | in inventories | (2.4) | | | 0.7 | | | | | | | | 1.7 | | | 5.4 | | | | | | | | 3.9 | | (5.1) | | | | | | | | | (0.4) | | (2.8) | | | | -cash pension costs | | | | | 1.6 | | | 0.5 | | | | tax paid | | | | (5.3) | | (6.3) | | 41.4 cash flow from operating activities is stated after the following adjusted items: operations 1 | -organisation, Restructuring & Transformation programme planning costs | | (1.3) | (2.2) | | --- | --- | --- | --- | | | | (0.2) | (0.6) | | | of pension surplus | 8.1 | – | strategic costs 6.6 (4.0) 2 operations | | -organisation & Restructuring costs | | – | (0.1) | | --- | --- | --- | --- | --- | | | | | – | – | | | and leaseback | | – | – | | | | (0.5) | | (1.1) | | | refund | | – | 0.8 | | | adjusting items cash flow | | | (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. | | | | | Operating profit | 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. Profit on disposal of assets Impairment Share Adjustment Depreciation Depreciation Amortisation Impairment Share | Net Discontinued (Increase)/decrease | | | | --- | --- | --- | | Continuing Re Decrease in receivables | | | | Increase/(decrease) in payables Re Strategic review | | | | (Decrease) in provisions Pension Sale | | | | Operating Return Insurance cost Non | 32.4 | | | £m Note Operating Income Net cash inflow from operating activities Other Total VAT / | 2022 2021 49.8 (0.5) (0.4) (1.2) 6.1 | – – | Smiths News plc 170 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 2022 25. Share capital (a) Share capital | August | | 12.4 | | --- | --- | --- | | issued during the year | – | – | | Ordinary shares of 5p each (2021: 247.7m) | | 12.4 | (b) Movement in share capital Ordinary shares Number (m) 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 at 29/30 August 60.5 60.5 26. Reserves (a) Demerger reserve 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 in the period (2.7) of on exercise of options 1.5 0.6 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 at 29/30 August 0.4 differences on translating net assets of foreign operations – Balance 0.4 Balance At 29/30 August £m At 29/30 Shares 247.7m £m At £m Acquired Disposed Balance at 27/28 August £m Exchange Balance at 27/28 August Issued, authorised and fully paid: Balance at 27/28 August £m Balance at 29/30 August (280.1) (280.1) 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 12.4 12.4 60.5 (2.2) (4.6) 60.5 (3.9) (3.9) (1.8) 0.4 0.4 – 247.7 Smiths News plc Annual Report and Accounts 2022 S G T / 171 ## 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 Company'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). | Smiths News plc 172 F Annual Report and Accounts 2022 ## 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: Sharesave ESOS LTIP DBP | | | | | average | | | | | average | | | | | average | | | | | average | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | No of | exercise | | | No of | | exercise | | | No of | | exercise | | | No of | | exercise | | | | of options/ awards | | shares | price (p) | | | shares | | price (p) | | | shares | | price (p) | | | shares | | price (p) | | | | 2,122,030 43.64 | | | | | | | – | | – | 4,350,408 | | | | – | 1,541,268 | | | | – | | | (59,495) | | | | – | | | – | | – | | | – | | – | (938,854) | | | | – | | 28 Aug 2021* 8,387,637 28.92 | | | | | | 1,723,212 126.7 | | | | | 13,928,102 | | | | – | 2,025,544 | | | | – | | | 900,405 34.70 | | | | | | | – | | – | 4,043,731 | | | | – | 1,807,242 | | | | – | | | | (1,616,651) 35.80 | | | | (666,468) 137.8 | | | | | (4,439,620) | | | | – | | | – | | – | | 27 Aug 2022 | | 7,579,083 | | | | 1,056,744 | | | | | 12,418,298 | | | | | 1,499,148 | | | | | During the current period, the opening number of options for the Sharesave, LTIP and DBP schemes were restated to disclosure errors made in the prior weighted average remaining contractual life in years of options/awards is as follows: Sharesave ESOS LTIP DBP at 27 August 2022 1.9 5.2 1.2 1.5 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 2022: fair value at date of grant or scheme commencement – pence 4.3 – 26.0 38.0 2021: 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. Weighted Weighted Weighted Weighted period. * amend During During The Exercised Expired/Forfeited Expired/Forfeited At Exercisable at 28 Aug 2021 Outstanding Average Number At 29 Aug 2020 Granted At Granted Effective date of grant or commencement date Effective date of grant or commencement date Average Exercised Exercisable at 27 Aug 2022 Outstanding 10,967,034 (1,927,785) (1,389,340) (1,113,915) (2,333,638) 1,056,744 1,723,212 8,252,887 1,785,833 1,464,611 Dec 2020 Dec 2020 (62,621) (41,481) (92,308) 126.1 108.7 113.8 126.7 23.12 – – 34.2 – – – – – – – – – – – – – – – – – – – – July 2022 Jun 2020 Dec 2021 Dec 2020 Smiths News plc S G F 173 Annual Report and Accounts 2022 Sharesave LTIP DBP options/awards: | price at grant date – pence | | 34.7 | | 38 | 38 | | --- | --- | --- | --- | --- | --- | | adjustment – pence | | | – | (17) | – | | | volatility – per cent 40.3 | | | – | – | | | life – years | | 3 | – | – | | | dividend yield – per cent 8.37 | | | – | – | | | average fair value – pence 4.3 | | | 21 | 38 | options/awards: | price at grant date – pence | | | | 44.0 | | 30 | 30 | | --- | --- | --- | --- | --- | --- | --- | --- | | adjustment – pence | | | | | – (6.0) | | – | | | | – pence | 35.0 | | | – | – | | | volatility – per cent 97.0 | | | | | – | – | | | life – years | | | | 3 | – | – | | free rate – per cent (0.1) | | | | | | – | – | | | dividend yield – per cent | | | | – | – | – | 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 Amounts owed related parties by related parties 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 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. | 2022 2021 | | | | --- | --- | --- | | The inputs to the Black-Scholes model are as follows: Expected Risk free rate – per cent Weighted Share Exercise price Risk | – – | 1.7 | | Share TSR Exercise price – pence Expected Expected TSR Expected Expected Expected Weighted average fair value – pence £m Joint ventures £m Joint ventures 28. Share-based payments continued / | 24.0 30 – – 2022 2021 2022 2021 2022 2021 0.4 0.1 0.1 0.4 0.1 0.2 | 32.0 19.7 | Smiths News plc 174 F Annual Report and Accounts 2022 ## Notes to the Accounts continued ### For the 52-week period ended 27 August 2022 30. Related party transactions continued Directors’ remuneration 0.6 0.6 | -executive director fees | | | 0.3 | | --- | --- | --- | --- | | -employment benefits | | | – | | | benefits | – 0.1 | | 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.’ -term employee benefits 2.8 – – 3.4 Short 2.8 Termination benefits Termination Bonus Non Post £m Salaries £m Share-based payments 2022 2021 2022 2021 1.1 3.9 0.9 0.3 1.8 0.6 0.9 – Smiths News plc S G F 175 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 | Logistics Limited 09172965 | Ordinary Shares | | 100% | Pass My Parcel Limited 09172022 | Shares | 100% | | --- | --- | --- | --- | --- | --- | --- | | News & Media Limited 08572634 | | Ordinary Shares | 100% | Phantom Media Limited 03805661 (*) | Shares | 100% | | Parcel Freight Limited 09295023 | | Ordinary Shares | 100% | Smiths News Holdings Limited 04236079 | Shares | 100% | | Services Limited 08522170 | Ordinary Shares | | 100% | Smiths News Investments Limited (*) | Shares | 100% | 06831284 Specialist Distribution Group Ordinary Shares 100% Smiths News Distribution Limited Shares 100% 08506961 | | Limited 03920619 | Ordinary Shares | | 100% | Smiths News Trading Limited 00237811 | Shares | 100% | | --- | --- | --- | --- | --- | --- | --- | --- | | Media Services Limited | | | Ordinary Shares | 100% | Dawson Limited 03433262 | Shares | 100% | | Guarantee Company Limited | | | Ordinary Shares | 100% | Dawson Media Direct Limited (*) | Shares | 100% | 06882366 Holdings Ltd (*) 00034273 Ordinary Shares 100% Ordinary Shares 100% 11 rue Léopold Bellan, 75000 Paris, France Bobigny Ordinary Shares 100% Calle Zurbano 76 Madrid 28010, Spain -B84692904 Media Direct GmbH Ordinary Shares 100% Johannstr. 39 40476 Dusseldorf, Germany Media Direct NV Ordinary Shares 99% Priester Cuypersstraat 3 Brussel 1040, Belgium Media Direct Anonim Sirketi Ordinary Shares 100% Park Plaza, No:14/24 Resitpasa Mahallesi Istanbul Turkey -5 Media Direct Australia Pty Limited Ordinary Shares 100% C/O Grant Thornton Australia Level 17, 383 Kent Street, Sydney NSW 2000, Australia Kong Media Direct China Limited Ordinary Shares 100% Flat/Rm 5008 50/F, Central Plaza, 18 Harbour Road, Wanchai, Media Direct Co. Ltd Ordinary Shares 48.9% 87 M Thai Tower, All Seasons Place, 23rd Floor, Wittayu Road, Lumpini Sub-District, Pathumwan District, Bangkok, Thailand 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. Connect Ordinary Connect Ordinary Dawson Ordinary Dawson Ordinary Dawson Media Direct SAS Dawson Dawson Dawson Media Direct Iberica SL Dawson Dawson Dawson Dawson Connect Ordinary Connect Ordinary Limited 08458801 06882722 06882393 450 101 340 RCS CIF HRB 99445 14449 615545545 105558138385 Connect Limited 02008952 Ordinary Shares Connect Ordinary Connect Parcels Limited 09172850 Ordinary Shares Connect2U Ordinary Dawson France Spain Germany 474.114323 Turkey Australia Hong 1167911 Thailand Belgium / * Ordinary Shares Ordinary Shares 100% 100% 100% 100% Audit exemption statement Martin-Lavell Limited 02654521 (*) Smiths News Instore Limited 03364589 Hong Kong Smiths News plc 176 F Annual Report and Accounts 2022 ## Glossary 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. ### equivalent to reconcile Note/page ### IFRS to IFRS reference for ### APM measure measure 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* Adjusted items Income statement/ Adjusted operating profit is defined as operating operating profit Note 4 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 Profit before tax Adjusted items Income statement/ Adjusted profit before tax is defined as profit before tax (PBT) Note 4 before tax from continuing operations, excluding the impact of adjusting items (defined above). Adjusted profit Profit after tax (PAT) Adjusted items Income statement/ Adjusted profit after tax is defined as profit after after tax Note 4 tax from continuing operations, excluding the impact of adjusting items (defined above). Adjusted EBITDA Operating profit* Depreciation and Page 178 This measure is based on business unit operating amortisation profit from Continuing operations. It excludes depreciation, amortisation and adjusting items. Adjusted items This is the headline measure of the Group’s performance and is a key management incentive metric. ### Closest Adjustments Smiths News plc S G F 177 Annual Report and Accounts 2022 | | Closest | | Adjustments | | | | --- | --- | --- | --- | --- | --- | | | equivalent | | to reconcile | Note/page | | | | IFRS | | to IFRS | reference for | | | APM | measure | | measure | reconciliation | Definition and purpose | | Adjusted | Earnings per share | Adjusted items | | Note 10 | Adjusted earnings per share is defined | | earnings per | | | | | as continuing adjusted PBT, less taxation | | share | | | | | 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 | Dividends, | Page 178 | Free cash flow is defined as cash flow excluding | | --- | --- | --- | --- | --- | | | in cash and cash | acquisitions and | | the following: payment of the dividend, | | | equivalents | disposals, | | acquisitions and disposals, the repayment | of bank loan principal amounts, EBT share Repayment of bank purchases and cash flows relating to pension loans, deficit repair. This measure reflects the cash EBT share purchases, available to shareholders. Pension deficit repair payments | Free cash flow | Net movement | Dividends, | Note 24 | Free cash flow (excluding Adjusted items) is Free | | --- | --- | --- | --- | --- | | (excluding | in cash and cash | acquisitions and | | cash flow adding back Adjusted cash costs. | | adjusting items) | equivalents | disposals, | | | Repayment of bank loans, EBT share purchases, Pension deficit repair payments, Adjusted items 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. ## / Smiths News plc 178 F Annual Report and Accounts 2022 ## Glossary continued 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: | (decrease)/increase in cash & cash equivalents | | (31.3) | | --- | --- | --- | | | in borrowings and overdrafts | 57.8 | | | paid | 1.2 | | | capital loan to Tuffnells | (6.7) | 23.6 free cash flow 0.5 (0.4) 24.0 Continuing Adjusted EBITDA reconciliation profit 35.8 items 3.8 2.4 1.9 50.3 lease charges (7.7) Reconciliation of Bank net debt to reporting net debt arrangement fees (Note 17) 1.2 16 lease liabilities (Note 19) (29.2) Net Operating 16.0 32.4 Operating Discontinued Decrease Movement in borrowings and cash Working Outflow for EBT shares Continuing free cash flow Adjusting Adjusted operating profit Amortisation Right of use asset depreciation Adjusted EBITDA £m Unamortised IFRS Net debt (Note 17) £m Dividend Total free cash flow £m Depreciation Adjusted EBITDA (excluding IFRS 16) Bank net debt (27.6) (39.4) (14.2) 23.0 2022 2021 (81.2) 2022 2021 2022 2021 (53.2) 39.0 47.7 38.1 48.6 48.2 40.7 26.5 39.6 (7.9) 42.6 2.6 5.7 1.3 6.9 2.4 6.1 2.3 2.6 6.4 – Smiths News plc S G F 179 Annual Report and Accounts 2022 ## Company Balance Sheet ### As at 27 August 2022 in subsidiary undertakings 3 370.2 assets | and bank deposits | | | | | | 0.1 | | --- | --- | --- | --- | --- | --- | --- | | | | | | – 0.1 | | | | | | amounts falling due within one year 4 | | | (172.5) | | | assets 191.6 | | | | | 197.8 | | | | share capital | | 5(a) | | | 12.4 | | | earnings 6 | | | | 124.9 | | 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 Fixed assets Current Cash Retained Investments Creditors: Net Called up £m Note Capital and reserves Share premium account Total shareholders’ funds / (178.6) 118.7 370.2 191.6 2022 2021 12.4 60.5 60.5 – 5(c) Smiths News plc 180 F Annual Report and Accounts 2022 ## Company Statement of Changes in Equity ### For the 52 weeks ended 27 August 2022 | | | Note | Capital | | Premium | | earnings | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | for the year and total comprehensive income | | | | – | | – (3.0) (3.0) | | | | | paid | | | – | | – (1.2) (1.2) | | | | for the year and total comprehensive income | | | | – | | – (0.1) (0.1) | | | | | paid | | | – | | – (6.1) (6.1) | | | Retained Share Share Loss Dividend Dividend Balance at 29 August 2020 Balance at 28 August 2021 Loss Balance at 27 August 2022 £m 202.0 197.8 191.6 129.1 124.9 118.7 60.5 60.5 60.5 12.4 12.4 12.4 Smiths News plc Annual Report and Accounts 2022 S G F / 181 # 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 in 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 Company'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. 182 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. These 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 in 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 Company's principal risks. Smiths News plc S G F 183 Annual Report and Accounts 2022 | | | | Growth | Rate | | Discount | | | Impairment | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | % | | Rate % | | | £’m | | | | Rate | | | 0% | | 12.1% | (17.8) | | | | 1% Discount Rate | | | | | 0% | | 10.1% | 21.3 | | | | 1% TGR | | | | | (1%) | | 11.1% | (12.2) | | | | | 1 | | | | 0% | | 11.1% | (7.5) | | | – Assumes magazines revenue and gross margin are reduced by 3% 2 – Assumes the Company growth targets are not achieved owed to Group companies (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 12.4 12.4 issued in the year – 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 Ordinary shares Number (m) of 5p each At 29 August 247.7 Issued in the year – At 27 August (c) Share Premium 2022 2021 at 29/30 August 60.5 60.5 60.5 Issued and fully paid ordinary shares of 5p each Headroom/ Post-Tax Terminal Balance At 29/30 August Scenario Scenario 1 3. +1% Discount +1% TGR Scenario Expected Case - - 4. Creditors: amounts falling due within one year £m At £m Shares issued in the year Scenario 2 Amounts £m At 27/28 August Shares / Investments in subsidiary undertakings continued (178.6) 11.1% 11.1% 11.1% 2022 2021 2022 2021 60.5 14.7 (8.6) 0.0 – – – 247.7 1% 0% 0% Smiths News plc 184 F Annual Report and Accounts 2022 ## Notes to the Company Balance Sheet continued 6. Reserves Retained at 29 August (0.1) paid (6.1) 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. Balance 124.9 2022 Loss for the year £m Dividend At 27 August earnings 118.7 Smiths News plc S G F 185 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 1 referred to the C ompan y ’ s registrar Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA (telephone 0371 384 2771 or from outside 1 the UK +44 (0) 121 415 7565). A textphone facility for shareholders with hearing difficulties is available by telephoning 0371 384 2255 . 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. ## / 184 i Smiths News plc Annual Report and Accounts 2022 # Shareholder Information *continued* ## 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 Company'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 On 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-gains-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. **Smiths News plc** Annual Report and Accounts 2022 S G T / 187 ### 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. Smiths News plc 188 F Annual Report and Accounts 2022 ## Notes 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 Rowan House Kembrey Park Swindon Wiltshire SN2 8UH United Kingdom 0345 128 8888