Preliminary Results Announcem

RNS Number : 7311U

Smiths News PLC

21 October 2010

 



Smiths News PLC

Preliminary Results Announcement for the year ended 31 August 2010

Smiths News PLC (or "the Group"), the UK's leading wholesaler of newspapers and magazines and a leading wholesaler of books, is pleased to announce preliminary results for the year ended 31 August 2010.

FINANCIAL HIGHLIGHTS:

Underlying results	FY 2010	FY 2009	Change
Revenue	£1,829.6m	£1,326.0m	38.0%
Underlying (1) Profit before tax	£35.0m	£30.5m	14.8%
Underlying (1) earnings per share	14.6p	13.8p	5.8%
Statutory results
Revenue	£1,829.6m	£1,326.0m	38.0%
Statutory Profit before tax	£28.1m	£18.4m	52.7%
Statutory earnings per share	11.7p	9.9p	18.2%
Total dividend	7.4p	6.8p	8.8%
Free cash flow (2)	£20.4m	£23.7m	(13.9%)
Net Debt (3)	£48.0m	£49.5m	3.0%

OPERATING HIGHLIGHTS:

·      Strong performance despite challenging markets

·      Integration of Dawson News now completed

o  SAP fully installed with initial network changes complete

o  £3m of costs removed with a further £3m secured for 2011

·      Cost savings from base business⁽⁶⁾ totalled £2m

o  Commitment to remove £20m of costs over the next three years

·      Bertrams continues to trade strongly producing an underlying operating profit of £4m

o  Progress driven by strong internet and international sales and new contract momentum

o  Relocation of Library Services from Leeds to Norwich

·      £25m of Regional Press gains, with a further £6m to commence November 2010

·      Development of acquisition strategy focused on sustainable markets

·      New £135m bank facility in place until November 2014 providing headroom for growth

Mark Cashmore, Group Chief Executive commented:

"Our business has made excellent progress over the last 12 months, increasing pre tax profit by 15%.  We continue to deliver on our strategic goals having completed the integration of the new business and driven a strong performance from Bertrams since acquisition in 2009.  The 9% increase in dividend reflects our ongoing confidence in the business.

The Group remains focused on service and efficiency.  We will continue to innovate and have clear plans to remove £20m of costs over the next three years.  Our corporate development strategy is focused on the specialist distribution sectors in which our skill set will enhance value and create competitive advantage.  I am confident the business will continue to progress in the coming year."

The following definitions have been applied consistently throughout the annual report:

⁽¹⁾ Underlying 2010 and 2009 results exclude non-recurring items and amortisation of acquired intangibles.

⁽²⁾ Free cash flow is the cash flow excluding the following; payment of the dividend, acquisitions, the proceeds on the disposal of freehold properties, repayments of obligations under finance leases, the repayment of bank loans and non-recurring items.

⁽³⁾ Net debt is calculated as total debt less cash and cash equivalents.  Total debt includes loans and borrowings, overdrafts and obligations under finance leases.

⁽⁴⁾ Like for like revenue growth excludes magazine and newspaper publisher net contract gains during the year, and the annualisation impact of gains made in the prior year. Like for like revenue for books excludes one off sales in 2009.

⁽⁵⁾ Smiths News and Bertrams are also referred to as the Newspaper and Magazine wholesaling segment and the Book wholesaling segment respectively.

⁽⁶⁾ Base business refers to the Smiths News business excluding ex Dawson News territories.

Enquiries:

Smiths News PLC
Mark Cashmore, Group Chief Executive Nick Gresham, Group Chief Financial Officer	Today: 020 7466 5000 Thereafter: 01793 563641
Buchanan Communications
Jeremy Garcia / Mark Edwards	020 7466 5000

A meeting for analysts will be held at the office of Buchanan Communications, 45 Moorfields, London, EC2Y 9AE on Thursday 21 October commencing at 9.30am.

Smiths News PLC's Preliminary Results 2010 are available at www.smithsnews.co.uk

The Group will hold its Annual General Meeting and issue its Interim Management Statement on 14 January 2011.

About Smiths News PLC:

Smiths News PLC comprises Smiths News, the UK's leading wholesaler of newspapers and magazines and Bertrams, a leading UK book wholesaler.

Smiths News distributes newspapers and magazines on behalf of all the major national publishers as well as a large number of regional publishers. The business serves approximately 30,000 customers across England and Wales, supplying large general retailers as well as smaller independent newsagents.  Smiths News has an approximate 55% share of the newspaper and magazine wholesaling market in the UK. In addition to its distribution activities, Smiths News collects and processes returns, supplies sales information to publishers and provides a range of services for its retail customers.

Bertrams, which was acquired on 20 March 2009, supplies books to a mix of independent booksellers, on-line and multiple retailers, and libraries.

The Group operates from 59 distribution centres across England and Wales, and employs approximately 5,300 staff.

OPERATING REVIEW

INTRODUCTION

We are pleased to report another strong set of results.  The Group has consolidated its market leading position in newspaper and magazine distribution and Bertrams has made significant progress under our ownership.

It has been a landmark year for Smiths News.  A strong performance was driven by increased sales resulting from the contract gains of 2009, together with the rapid integration of the former Dawson News territories. The successful implementation of SAP in the new territories was accompanied by a material realignment of the network, together delivering £3m of operational savings. A further £2m of annualised savings were made in the base business⁽⁶⁾.

Bertrams performed well in our first full year of ownership. Like for like sales⁽⁴⁾ increased by 6.8%, well ahead of the market and helped by increased demand from internet and international retailers. Bertrams Library Services won over £6m of new contracts and moved its operation from Leeds to Norwich.

Underlying profit before tax increased 15% to £35m from revenues of £1.83bn, an increase of 38% on the previous year.  A full year dividend of 7.4p, an increase of 8.8%, highlights our confidence in the Group's strong cash generation and future prospects.

STRATEGY

Earlier in the year the Group set out six strategic priorities:

·      To complete the full integration (including SAP) of the depots acquired from Dawson News

·      To raise the standards of service in our new depots to those of our established locations

·      To maintain tight cost control across the Group delivering £6m annualised savings from former Dawson News territories

·      To increase the sales and profitability of Bertrams by leveraging the Group's existing relationships, as well as our expertise in service and efficiency

·      To research, prepare for and be alert to new business development opportunities that would enhance the Group

·      To invest in our people and increase our pool of market leading talent

We are pleased to report that the first three priorities are complete and good progress continues to be made on the remainder.

The objective to enter new markets which complement our skills and assets is now central to our strategic planning, with investment in people and resource underway.

MARKETS

The newspaper market has been challenging and is down 4.2% with performance in the second half showing a marginally improving trend.  Sales value has been impacted by price discounting of the Sun and Star, and whilst our margins are protected, the discounting had a secondary impact in that it restricted the ability of other titles to increase their cover prices.  In contrast to the market decline, total sales in Smiths News were up 35% as a result of contract gains.

The magazine market is down 4.0%, a welcome improvement on last year's trend. However, it is clear that the market continues to be affected by the impact of the recession. The World Cup boosted sales of one-shots and football stickers in the year, reflecting the cyclical and 'event driven' nature of this product.  Total magazine sales in Smiths News grew by 30% as a result of our contract gains last year.

Sales of books to UK consumers fell by 2.7% over the period, however this figure is heavily influenced by sales through major high street retailers, which represent only 6% of Bertrams mix. In contrast Bertrams sales grew by 6.8% helped by strong performance from internet retailers, international sales and additional library contracts.

DAWSON NEWS INTEGRATION

As reported in April, significant progress had already been made in integrating SAP into the former Dawson News depots and we are pleased to report that this programme is now complete.  SAP has been installed into 17 depots across the network with over 1,000 members of staff trained. 

Integration was the crucial step to realise the full potential of the Dawson News transaction; delivering this project on time is a tremendous achievement by our people.  In parallel we made 18 changes to our network to remove duplication and reduce costs.  In total, £3m of costs have been removed from the business this year with an additional £3m already secured for 2011.  The business is now in a position to drive further efficiencies and service improvements across the network, enhancing our proposition to retailers and publishers.

SERVICE AND EFFICIENCY

Smiths News continues to examine all aspects of its operation and during the year made annualised cost savings in the base business⁽⁶⁾ of £2m.

Looking ahead we have clear plans to simplify the network and deliver further process efficiencies.  In addition we are examining central costs and the opportunity for Group synergies.  The business is confident of achieving £20m of cost savings over the next three years.

REGIONAL PRESS

Smiths News continues to win new Regional Press contracts.  Over the last 12 months the business secured new contracts worth £25m on an annualised basis, with a further £6m due to commence in November 2010. 

Smiths News is now the largest distributor of Regional Press in the UK with over £70m of revenue, an increase of £50m over the last four years.  The recent network expansion coupled with our stronger market offering for regional publishers presents an opportunity for further growth.

BERTRAMS

Bertrams has performed strongly, increasing underlying operating profit to £4m in our first full year of ownership.  This has been driven by a combination of strong international and internet sales and by a number of contract wins by Bertrams Library Services.  New book supply and fulfilment contracts were also secured with Mail Newspapers, HMV and WHSmith.

Bertrams plans to increase its book range to 220,000 and is currently talking to a number of retailers about supporting their internet offer. Ongoing discussions with retailers and further commercial initiatives remain central to supporting Bertrams organic growth.

Bertrams Library business secured an annualised £6m of net new business.  Separately, the move of its operation from Leeds to Norwich will reduce overheads and shorten despatch times.

Bertrams continues to thrive under the Group's ownership.  Importantly, the cultural fit is strong with best practice and operational experience being openly shared.  It is pleasing that the first step in our strategy to diversify the Group has proved successful.

CORPORATE DEVELOPMENT

Beyond our core newspaper, magazine and book business, we have begun a detailed investigation to identify new markets that best complement our skills and assets.  The Group has consistently stated that broadening its revenue mix is central to its strategy of delivering shareholder value.  The integration of Bertrams and the former Dawson News territories gives confidence in the applicability of our skills in this process.

The Group's logistics expertise is potentially applicable to a number of distribution sectors.  However, the initial investigation is focusing on specialist distribution markets in which our skill set will enhance value and create competitive advantage.  Jonathan Bunting, Chief Commercial Officer and newly appointed Board member is leading these initiatives.  The Group has a development team in place supported by strategy consultants from PWC. Our initial research is wide reaching and the team is examining a number of new sectors.  Whilst there is no fixed timescale, the Group is planning to develop a pipeline of opportunities in the current year.

BANK FACILITIES

The Group has agreed a new banking facility with a syndicate of five major lenders securing a facility of up to £135m through to the end of November 2014. This gives the Group up to £60m of cash flow flexibility to underpin our growth aspirations.

OUTLOOK

Looking ahead, we remain cautious about the impact of the current economic climate on the prospects for a recovery in base sales and our strategy assumes our markets will continue to be challenging.  We therefore have plans to reduce costs by £20m in the next three years and will be pursuing new revenues with a clear vision to develop the Group in specialist markets. 

The business remains on track to meet market expectations for the current financial year.

FINANCIAL REVIEW

HIGHLIGHTS

Group revenues are up 38.0% as a result of significant net contract gains in Smiths News and an excellent performance from Bertrams in our first full year of ownership.

Underlying Group profit before tax of £35.0m has been driven by a strong performance from both businesses, generating a 14.8% increase in the year.

Statutory Group profit before tax of £28.1m generated a 52.7% increase in the year.

Underlying earnings per share (EPS) at 14.6p shows a growth of 5.8% year on year.

The final dividend of 5.0p, subject to approval by the shareholders at the AGM, will be paid on 4 February 2011. This gives a full year dividend of 7.4p which is up 8.8% and represents a yield of 7.3% on our share price at 31 August. This puts us in the top quartile for dividend yield out of the FTSE All Share companies.

The Group generated strong free cash flow from its operations, delivering £20.4m in the year and continues to reduce its net debt position, with an underlying reduction of £8.2m partly offset by £6.7m of expenditure on non-recurring items. This results in a reported net debt of £48.0m (2009: £49.5m).

GROUP

£m			FY 2010	FY 2009	Change
Revenue			1,829.6	1,326.0	38.0%
Gross profit			177.0	130.6	35.5%
Operating costs			(139.9)	(98.2)	(42.5%)
Underlying operating profit			37.1	32.4	14.5%
Net finance costs			(2.1)	(1.9)	(10.5%)
Underlying profit before tax			35.0	30.5	14.8%
Taxation			(8.6)	(5.7)	(50.9%)
Tax rate			25%	19%
Underlying profit after tax			26.4	24.8	6.5%

Group revenues are up 38.0% as a result of significant net contract gains in Smiths News and an excellent performance from Bertrams in our first full year of ownership.

Finance costs at £2.1m are marginally up in the year due to an increase in average borrowing following the acquisition of Bertrams.

Underlying Group profit before tax of £35.0m has been driven by a strong performance from both businesses, generating a 14.8% increase in the year.

The tax charge for the year of £8.6m represents an effective rate of 25% benefiting from the release of prior year tax provisions.

Underlying profit after tax of £26.4m represents a 6.5% increase year on year with the strong trading performance being partially offset by an increase in the effective tax rate.

SMITHS NEWS

£m		FY 2010	FY 2009	Change	LFL(4)
Newspapers		952.0	703.3	35.4%	(4.2%)
Magazines		663.5	508.6	30.5%	(4.0%)
Other		77.0	60.6	27.1%
Total revenue		1,692.5	1,272.5	33.0%
Gross profit		151.6	121.2	25.1%
Operating costs		(118.5)	(89.5)	(32.4%)
Underlying operating profit		33.1	31.7	4.4%
Gross margin		8.9%	9.5%	(60 bps)
Cost ratio		(7.0%)	(7.0%)	-
Operating margin		1.9%	2.5%	(60 bps)

Smiths News total revenues are up 33.0% as a result of a substantial increase in revenues following net contract wins being partially offset by the declining market for newspapers and magazines.

Gross margin rate is down 60bps reflecting the investment in pricing required to secure the additional volume for contracts running through to 2016.

Operating costs are up £29.0m or 32.4% after an initial 45% increase in both the number of staff and depots in our network following integration.

This total cost number is after annual savings of £5m, £3m of which has been driven by SAP and network led efficiencies in our new locations and £2m from further activity in the base business⁽⁶⁾. Actions already taken give us an annualisation benefit of a further £3m to take into 2011, achieving the £6m target indicated at the time of the contracts wins.

Smiths News underlying operating profit at £33.1m is up £1.4m or 4.4% year on year.

BERTRAMS

£m		FY 2010	FY 2009	Change	LFL(4)
Revenue		137.1	53.5	156.3%	6.8%
Gross profit		25.4	9.4	170.2%
Operating costs		(21.4)	(8.7)	(146.0%)
Underlying operating profit		4.0	0.7	471.4%
Gross margin		18.5%	17.6%	90 bps
Cost ratio		(15.6%)	(16.3%)	70 bps
Operating margin		2.9%	1.3%	160 bps

Total revenues are up 156.3% in the first full year of ownership.

Like for like⁽⁴⁾ revenue growth of 6.8% has significantly outperformed the retail books market benefiting from a combination of strong international and internet sales and a number of contract wins by Bertrams Library Services.

The underlying operating profit of £4m supported by gross margin improvements and tight cost control generated an operating margin of 2.9%, which is 160bps higher than FY 2009. Bertrams is a cyclical business driving significant cost economies of scale throughout its seasonal peaks of back to school, back to university and Christmas, none of which fell in the 5 month period of our ownership last year.

NON-RECURRING AND OTHER ITEMS

£m	FY 2010	FY 2009
Dawson News integration	(6.1)	(4.6)
Bertrams Library Services move to Norwich	(0.6)	-
The Returns Company	0.7	(3.1)
Amortisation of acquired intangibles	(0.9)	(0.4)
Cross currency contract	-	(1.5)
Reversionary leases	-	(2.5)
Total before taxation	(6.9)	(12.1)
Taxation	1.7	5.0
Total after taxation	(5.2)	(7.1)

Non-recurring items total £6.9m before tax and £5.2m after tax for the financial year.

The largest element was the cost of integrating the former Dawson News depots at £6.1m.  This represents the final charge associated with an integration, which has seen the Smiths News network grow from 44 depots in July '09 to a peak of 66 and back to a position of 58 by August '10.

The majority of this cost relates to redundancies resulting from a reduction in the workforce by almost 1,000 employees during the year.  The balance relates to property costs following the closure of 8 sites and relocation of a further 3.

The Bertrams Library Services charge of £0.6m reflects the cost of moving the warehouse operation from Leeds to the existing Bertrams Books site in Norwich, a move which will drive improved operational efficiency and service to retailers going forward.

The credit relating to The Returns Company (TRC) is in respect of an early release of a provision taken in 2009 following the sale of the business in February 2010.

Amortisation of intangibles relates to assets from the acquisition of Bertrams being amortised over their expected economic lives.

We expect to incur further non-recurring costs of approximately £5m to deliver £20m of cost savings targeted over the next 3 years.

EPS AND DIVIDEND

	Underlying		Statutory
	FY 2010	FY 2009	FY 2010	FY 2009
Profit after tax (£m)	26.4	24.8	21.2	17.7
Basic number of shares (millions)	180.6	179.5	180.6	179.5
Basic EPS	14.6p	13.8p	11.7p	9.9p
Diluted EPS	14.4p	13.8p	11.5p	9.9p
Dividend per share	7.4p	6.8p	7.4p	6.8p

On an underlying basis profit after tax of £26.4m gives an EPS of 14.6p, up 5.8% on 2009.

Including non-recurring items, statutory profit after tax is £21.2m in FY 2010 versus £17.7m in FY 2009, which gives an EPS of 11.7p, up 18.2% year on year.

The calculation of diluted EPS reflects the potential dilutive effect of employee incentive schemes. This increases the number of shares by 3.3m to 183.9m and results in a diluted EPS of 14.4p (2009: 13.8p).

FREE CASH FLOW

£m	FY 2010	FY 2009
Underlying profit before interest and tax	37.1	32.4
Depreciation & Amortisation	7.3	6.7
EBITDA	44.4	39.1
Working capital	(1.4)	4.6
Capital expenditure	(8.6)	(5.2)
Net interest paid	(2.6)	(2.9)
Taxation	(5.9)	(5.6)
Ongoing pension funding	(6.4)	(5.7)
Other	0.9	(0.6)
Free cash flow (2)	20.4	23.7

The Group continues to generate strong free cash flow from its operations, delivering £20.4m in the year.

Working capital outflow results from an increase in stock relating to World Cup product returns which have still to be credited by publishers, partially offset by a combination of a net timing benefit of lower creditors and lower debtors at the year end.

Capital expenditure is up on the prior year with the investment in SAP and our expanded network helping us to achieve operational cost savings. 

The £6.4m pension funding for the year predominantly relates to the annual pension deficit funding of £5.8m agreed at the last triennial valuation in March '09, and also includes a catch-up payment relating to the period from 31 March 2009 to the date that the revised contributions started to be paid.

NET DEBT

£m	FY 2010	FY 2009
Opening net debt(3)	(49.5)	(44.0)
Free cash flow	20.4	23.7
Dividend paid	(12.6)	(12.0)
Non-recurring items	(6.7)	(1.2)
Acquisitions	-	(12.2)
New finance leases	0.4	(3.8)
Decrease/ (increase) in net debt (3)	1.5	(5.5)
Closing net debt(3)	(48.0)	(49.5)

The business continues to reduce its net debt position, with an underlying reduction of £8.2m partly offset by £6.7m of expenditure on non-recurring items. This results in a reported net debt of £48.0m (2009: £49.5m).

We remain comfortably within our banking covenants with net debt : EBITDA at 1.1 versus last year at 1.3 and a covenant of 2.5.

BANK FACILITIES

The Group finalised a new banking facility on 27 August 2010 with a syndicate of 5 major lenders.

The agreement secures a £135m facility through to the end of November 2014, with repayments of £3m, £3m and £4m starting annually from September 2012.

In addition the Group has the option for further borrowings of up to £35m secured against Group assets.

GOING CONCERN

The Group meets its day to day working capital requirements through its bank facilities of up to £135m, which do not expire until 30 November 2014. The Group's forecasts, taking into account the Board's future expectations of the Group's performance, indicate that there is substantial headroom within these bank facilities and the Group will continue to operate well within the covenants attaching to those facilities.

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, having recognised the current uncertain economic outlook and the Group's negative working capital position. Thus, they continue to adopt the going concern basis in preparing the preliminary announcement.

RISKS AND UNCERTAINTIES 

The Group operates in large and stable markets. Strong cost control is a core competency and, given the relative predictability of sales, the Group is well placed to mitigate any major risks.

Both of the Group's key businesses have relatively secure revenues. Smiths News has exclusive agreements with the major newspaper and magazine publishers for the next five years for the vast majority of its revenues. Bertrams has contracts for its library business that run for an average of three years, whilst the remainder of trading is with established customers.

The Group has robust internal procedures to monitor sales, costs, profits and risks.  The Executive and Risk Committee review the principal strategic and financial risks on a quarterly basis.  The Audit Committee oversees the overall risk process and reviews the outcome of this process twice a year. The business completes a detailed reforecast at least twice a year and more regularly if any significant issues arise and these forecasts are reviewed by the Board.

Our assessment of the principal risks is as follows.

·      Consumer confidence and spending

The general economic environment remains uncertain, affecting consumer confidence.  In addition the planned Government spending cuts and changes to personal benefits, together with the increase in VAT to 20% in January 2011, could have a further negative impact.  Reduced confidence may lead to a squeeze on discretionary spending including the sales of newspapers, magazines and books.

Whilst consumer confidence has a clear correlation with retail sales, the relatively low cover price and habitual nature of newspapers and magazines helps to limit the impact. Demand for books is similarly resilient and the Group strategy remains to increase sales by targeting growth sectors such as the internet, international sales and Regional Press. The vast majority of newspapers, magazines and books have a 0% VAT rating; nonetheless, it remains possible that consumers seeking to economise could reduce spending on discretionary items generally.

·      Impact of passive sales

Following guidance issued by the Office of Fair Trading, the new contracts awarded by magazine publishers make allowance for sales outside of the designated territories in response to unsolicited requests from retailers (passive sales). Previously contracts could be more restrictive, generally being granted on the basis of 'absolute territorial exclusivity'. The new arrangements could create an incentive for retailers to seek alternative suppliers, with a consequent impact on sales, margins and costs.

The combination of leading service and the most efficient operation means Smiths News is well placed to respond to any such requests. Over the last year, Smiths News has received 80 applications to supply retailers with magazines in those territories where we already deliver newspapers.  At the time of writing, these requests are being processed and the subsequent sales are likely to increase our profitability in these territories. We have received only 3 from retailers, wishing to cancel their supplies.

·      Reduced retail sales impacting on newspaper and magazine publishers

A significant reduction in sales of newspapers and magazines over time would have an adverse effect on revenues and lower circulations could also undermine the business model of publishers, leading to title closures.

National newspapers have a long-term trend of price increases mostly offsetting the impact of volume declines. Nonetheless, we are planning on the basis of limited price inflation and our contracts provide protection to margins in the event of promotional price discounting.

Magazine sales have been more impacted by the recession though performance has seen an improvement in the rate of decline but there remains a risk that some titles will cease publication.

The contract wins of 2009 increased sales by approximately £459m and market share to 55%. Magazine launches and closures are a feature of the market with new titles replacing those which no longer reflect consumer lifestyles. Our comprehensive understanding of sales and market dynamics helps us to anticipate and plan for any worsening of conditions, enabling us to take appropriate action to protect profits.

·      Contract renewal

At the time of contract renewal, publishers could seek alternative routes to market in some of Smiths News' current territories, which would result in lower sales.  Alternatively, there remains the risk of contract renewals at lower margin.

The Group is well positioned to renegotiate its contracts as and when they come up for renewal. We are the leading news wholesaler with a strong service performance and our combination of scale, specialist services and category expertise is difficult for new entrants to replicate. Smiths News has long standing commercial relationships throughout the supply chain and continues to work closely with publishers and retailers to ensure our plans and objectives are aligned.

·      Digital media

The recent launch of book readers such as the ipad and Amazon Kindle, together with the The Times' decision to charge for on-line subscriptions has increased awareness of digital publishing. This technology creates the potential for consumers to move from traditional printed media to digital alternatives, which could have an adverse effect on sales and growth opportunities.

The Group is aware that digital media could have an impact on traditional markets, and commissioned research to understand its potential impacts more fully. In this fast moving environment, making long term predictions is fraught with difficulty; however, the research supports the Group's view that the impact on news and books is likely to be an evolutionary rather than revolutionary process.

The research suggests that the format of newspapers, magazines and books is more optimised to consumer needs than music was, which has seen a significant shift to digital downloads.  It is relevant that the vast majority of publishers make inadequate returns on investment from stand-alone digital alternatives, so there are strong incentives for continued investment in traditional channels.

The Group will continue to monitor market developments closely.

·      Impact of Public Sector spending cuts on library purchasing

The Government's stated plans to reduce spending in the public sector could have a detrimental impact on Bertrams Library Services, reducing the value of ongoing expenditure and future contracts.

Bertrams recognises that available funds in the public sector may be more limited and has planned accordingly. This year Bertrams won over £6m in net contract gains helping to offset any future decline; the move of Bertrams Library Services to Norwich will also reduce overheads by enabling a more streamlined operation.

·      Property and lease commitments

Potential liabilities could crystallise 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 any such contingent liability 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 Group's share of these leases has an estimated future cumulative gross rental commitment at 31 August 2010 of £21.2m (2009: £26.6m).

Although the total liability is significant, many of the leases were assigned to retail companies that continue to trade well and are financially robust. Given the expiry of time, it is also likely that many of the leases included within the contingent liability have been renegotiated such that any liability has been extinguished. The maximum potential lease liability will continue to decline, with an estimated maximum liability of below £5m by August 2015.

The Group, working with WHSmith PLC, has reached a mediated settlement in relation to 3 leases following a Creditor Voluntary Agreement made by Focus PLC. The cost of the settlements to the Group totalled £0.5m and two further properties remain to be resolved.

The cash impact resulting from the estimated future cumulative gross rental commitment would spread over more than 10 years.

·      Financial exposure to key retailers and publishers

The failure of one or more of the Group's major retailers or publishers could affect the ability of the Group's profitability and cash flows.

The Group monitors payments carefully and has a strong track record of cash collection from its customer base. Payment for newspapers and magazines from smaller retailers is generally received on a weekly basis and their reliance on product means that settlement of our invoice is generally prioritised.

The Group's largest credit risk is to some of the UK's major retailers who have strong credit ratings. Of our larger retailer customers, the top five are major UK PLCs with good payment records and credit ratings.  We also have credit insurance against a number of smaller retail chains. The average credit period taken on sale of goods is 21 days (2009: 21 days). We continue to manage our credit risk tightly to ensure our customers comply with payment terms.

The failure of one or more of our publisher / distributor suppliers could result in exposure to a significant cash shortfall if the credits due to retailers for unsold copies are greater than any outstanding payments due to the failed publisher.

The Group monitors stock and unsold levels on a regular basis and where appropriate phases payments to publishers to ensure any exposure is minimised; we also use external data to monitor credit ratings on a regular basis. Our largest suppliers are large companies, and in some cases part of larger quoted companies, with established and stable business models.

Smiths News PLC

Group Income Statement for the year ended 31 August 2010

£m				2010				2009
	Note	Underlying*	Non-recurring and other items **	Total		Underlying*	Non-recurring and other items **	Total
Continuing operations
Revenue	2	1,829.6	-	1,829.6		1,326.0	-	1,326.0
Operating profit	3	37.1	(6.9)	30.2		32.4	(10.8)	21.6
Investment revenues	5	1.1	-	1.1		1.2	1.4	2.6
Finance costs	6	(3.2)	-	(3.2)		(3.1)	(2.7)	(5.8)
Profit before tax		35.0	(6.9)	28.1		30.5	(12.1)	18.4
Income tax expense	7	(8.6)	1.7	(6.9)		(5.7)	5.0	(0.7)
Profit for the year		26.4	(5.2)	21.2		24.8	(7.1)	17.7

Earnings per share
Basic	9	14.6p		11.7p		13.8p		9.9p
Diluted	9	14.4p		11.5p		13.8p		9.9p
Equity dividends per share	8			7.4p				6.8p

*Before non-recurring and other items.

**Non-recurring and other items are set out in Note 3.

Group Statement of Comprehensive Income for the year ended 31 August 2010

£m	Note	2010	2009
Gain/(loss) on cash flow hedges		0.9	(1.7)
Actuarial gain/ (loss) on defined benefit pension scheme	4	14.5	(50.0)
Effect of asset limit on defined benefit pension scheme	4	(21.9)	43.1
Tax relating to components of other comprehensive income		2.1	1.8
Other Comprehensive Income for the year		(4.4)	(6.8)
Profit for the year		21.2	17.7
Total comprehensive income and expense for the year		16.8	10.9

Total comprehensive income and expense for the year is fully attributable to the equity holders of the parent company.

Group Balance Sheet at 31 August 2010

£m		2010	2009
Non-current assets
Intangible assets		12.7	12.7
Property, plant and equipment		21.0	21.1
Investments in joint venture and associate		3.7	3.5
Deferred tax assets		1.6	3.3
		39.0	40.6
Current assets
Inventories		38.1	31.1
Trade and other receivables		99.2	114.8
Cash and cash equivalents		4.0	4.3
Assets held for sale		0.9	-
		142.2	150.2
Total assets		181.2	190.8
Current liabilities
Trade and other payables		(181.7)	(191.6)
Current tax liabilities		-	(1.2)
Obligations under finance leases		(1.6)	(1.5)
Bank loans and other borrowings		(48.8)	(15.1)
Provisions		(5.0)	(3.8)
Derivative financial instruments		(0.5)	(0.2)
		(237.6)	(213.4)
Non-current liabilities
Bank loans and other borrowings		-	(34.3)
Retirement benefit obligation		-	-
Deferred tax liabilities		(1.9)	(2.0)
Long-term provisions		(1.9)	(4.6)
Obligations under finance leases		(1.6)	(2.9)
Derivative financial instruments		-	(1.3)
Other non-current liabilities		(0.6)	(0.7)
		(6.0)	(45.8)
Total liabilities		(243.6)	(259.2)
Total net liabilities		(62.4)	(68.4)

Group Balance Sheet at 31 August 2010 (continued)

£m		2010	2009
Equity
Called up share capital		9.2	9.1
Share premium account		0.4	-
ESOP reserve		(2.4)	(3.4)
Other reserve		(280.1)	(280.1)
Hedging reserve		(0.5)	(1.4)
Retained earnings		211.0	207.4
Total equity		(62.4)	(68.4)

The financial statements were approved by the Board of Directors and authorised for issue on 21 October 2010 and were signed on its behalf by:

Registered number - 05195191

Mark Cashmore                                                                   Nick Gresham

Group Chief Executive                                                        Chief Financial Officer

Group Statement of Changes in Equity for the year ended 31 August 2010

£m	Share Capital	Share Premium Account	Other Reserve 1	ESOP Reserve	Hedging Reserve	Retained Earnings	Total
Balance at 1 September 2008	9.1	-	(280.1)	(3.9)	0.3	206.3	(68.3)
Profit for the period	-	-	-	-	-	17.7	17.7
Loss on cash flow hedges	-	-	-	-	(1.7)	-	(1.7)
Actuarial loss on defined benefit pension scheme	-	-	-	-	-	(50.0)	(50.0)
Effect of asset limit on defined benefit pension scheme	-	-	-	-	-	43.1	43.1
Tax relating to components of other comprehensive income	-	-	-	-	-	1.8	1.8
Total comprehensive income for the year	-	-	-	-	(1.7)	12.6	10.9
Dividends paid	-	-	-	-	-	(12.0)	(12.0)
Employee share schemes	-	-	-	0.5	-	(0.5)	-
Recognition of share based payments	-	-	-	-	-	1.0	1.0
Balance at 31 August 2009	9.1	-	(280.1)	(3.4)	(1.4)	207.4	(68.4)
Profit for the period	-	-	-	-	-	21.2	21.2
Gain on cash flow hedges	-	-	-	-	0.9	-	0.9
Actuarial gain on defined benefit pension scheme	-	-	-	-	-	14.5	14.5
Effect of asset limit on defined benefit pension scheme	-	-	-	-	-	(21.9)	(21.9)
Tax relating to components of other comprehensive income	-	-	-	-	-	2.1	2.1
Total comprehensive income for the year	-	-	-	-	0.9	15.9	16.8
Issue of share capital	0.1	0.4	-	-	-	-	0.5
Dividends paid	-	-	-	-	-	(12.6)	(12.6)
Employee share schemes	-	-	-	1.0	-	(1.0)	-
Recognition of share based payments	-	-	-	-	-	1.3	1.3
Balance at 31 August 2010	9.2	0.4	(280.1)	(2.4)	(0.5)	211.0	(62.4)

¹ The 'Other' reserve includes reserves created in relation to the proforma restatement and the demerger of WH Smith PLC.

Group Cash Flow Statement for the year ended 31 August 2010

£m	Note	2010	2009
Net cash inflow from operating activities	10	24.7	31.9
Investing activities
Interest received		-	0.1
Acquisition of investment in joint venture		-	(1.0)
Acquisition of investment in Bertrams		-	(11.2)
Purchase of property, plant and equipment		(6.3)	(4.0)
Purchase of intangible assets		(2.3)	(1.2)
Net cash used in investing activities		(8.6)	(17.3)
Financing activities
Interest paid		(2.6)	(4.2)
Dividend paid		(12.6)	(12.0)
Repayments of obligations under finance leases		(2.2)	(2.6)
Proceeds on issue of shares		0.5	-
Repayments of borrowings		(5.0)	(5.0)
Increase in revolving credit facility		5.5	10.1
Net cash used in financing activities		(16.4)	(13.7)
Net (decrease)/ increase in cash and cash equivalents		(0.3)	0.9
Opening net cash and cash equivalents		4.3	3.4
Closing net cash and cash equivalents		4.0	4.3

Notes to the preliminary announcement

1.         Preparation of the preliminary announcement

(a)           Basis of preparation

Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRSs.

The preliminary announcement for the 12 months to 31 August 2010 has been prepared on the basis of the accounting policies set out in the accounting policies section of the Smiths News PLC Annual Report and Accounts 2010.

The Group meets its day to day working capital requirements through its bank facilities of up to £135m, which do not expire until 30 November 2014. The Group's forecasts, taking into account the board's future expectations of the Group's performance, indicate that there is substantial headroom within these bank facilities and the Group will continue to operate well within the covenants attaching to those facilities.

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, having recognised the current uncertain economic outlook and the Group's negative working capital position. Thus, they continue to adopt the going concern basis in preparing the preliminary announcement.

(b)           Preliminary announcement

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 August 2009 or 2010, but is derived from those accounts. The statutory accounts for Smiths News PLC for the 12 months ended 31 August 2009 have been delivered to the Registrar of Companies and those for the 12 months ended 31 August 2010 will be delivered following the company's annual general meeting.

The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

The Company intends to publish the Annual Report and Accounts that comply with IFRSs.  The Annual Report and Accounts will be available for shareholders in mid December 2010 at www.smithsnews.co.uk.

2.         Segmental analysis

The information presented to the Board for the purpose of resource allocation and assessment of segment performance is focused on the type of product sold. The principal activities of the Group reported to the Board are split into two categories of products sold:

-       Newspaper and Magazine wholesaling (referred to as Smiths News).

-       Book wholesaling (referred to as Bertrams).

The following is an analysis of the Group's revenue and results by reportable segment in the year ended 31 August 2010:

£m		Newspaper & Magazine wholesaling		Book wholesaling		Consolidated
		2010	2009	2010	2009	2010	2009
Continuing operations
Revenue		1,692.5	1,272.5	137.1	53.5	1,829.6	1,326.0
Underlying operating profit		33.1	31.7	4.0	0.7	37.1	32.4
Non-recurring and other items		(5.4)	(10.4)	(1.5)	(0.4)	(6.9)	(10.8)
Operating profit		27.7	21.3	2.5	0.3	30.2	21.6

The accounting policies of the reportable segments are the same as the Group's accounting policies.

Segment assets

£m	2010	2009
Newspaper & Magazine wholesaling	130.4	140.2
Book wholesaling	50.8	50.6
Consolidated total assets	181.2	190.8

For the purposes of monitoring segment performance and allocating resources between segments, the Board monitor the tangible, intangible and financial assets attributable to each segment. Goodwill and acquired intangible assets have been allocated to the Book wholesaling segment.

The £0.9m asset held for sale relates to the Book wholesaling segment.

Segment liabilities

£m	2010	2009
Newspaper & Magazine wholesaling	(211.8)	(223.2)
Book wholesaling	(31.8)	(36.0)
Consolidated total liabilities	(243.6)	(259.2)

Other segment information

	Depreciation and amortisation			Additions to non-current assets
£m	2010	2009		2010	2009
Newspaper & Magazine wholesaling	(6.5)	(6.5)		7.6	8.7
Book wholesaling	(1.7)	(0.6)		1.8	13.3
Consolidated total	(8.2)	(7.1)		9.4	22.0

In addition to the depreciation and amortisation reported above, in the prior year impairment losses of £0.7m relating to the reorganisation of The Returns Company were recognised in respect of property, plant and equipment. These impairment losses were attributable to the Newspaper and Magazine wholesaling segment. No such impairment losses have been recognised in the year ended 31 August 2010.

The Group operates predominantly in the UK.

3.         Operating profit

The Group's results are analysed as follows:

		2010			2009
£m	Underlying		Non-recurring and other items	Total	Underlying	Non-recurring and other items	Total
Revenue	1,829.6		-	1,829.6	1,326.0	-	1,326.0
Cost of sales	(1,652.6)		-	(1,652.6)	(1,195.4)	-	(1,195.4)
Gross profit	177.0		-	177.0	130.6	-	130.6
Distribution costs	(95.9)		(5.8)	(101.7)	(64.4)	(2.2)	(66.6)
Administrative expenses	(44.0)		(1.1)	(45.1)	(33.8)	(8.6)	(42.4)
Operating profit	37.1		(6.9)	30.2	32.4	(10.8)	21.6

The operating profit is stated after charging / (crediting):

£m	2010	2009
Cost of inventories recognised as an expense	1,580.0	1,136.8
Write down of inventories recognised as an expense	0.8	0.3
Depreciation and amounts written off property, plant & equipment	5.9	5.3
Amortisation of intangible assets	2.3	1.8
Operating lease charges
·      land and buildings	10.5	11.7
·      equipment and vehicles	2.6	2.2
Operating lease rental income - land and buildings	(0.4)	(0.5)
Loss on disposal of fixed assets	0.2	-
Staff costs	108.6	81.2

The analysis of auditors' remuneration is as follows:

£m			2010	2009
Fees payable to the company's auditors and their associates for
-       The audit of the company's subsidiaries pursuant to legislation			0.2	0.2
Total audit fees			0.2	0.2
Other services pursuant to legislation
-       Tax services			-	0.2
-       Corporate finance services			-	0.1
-       Other services			0.1	0.1
Total non-audit fees			0.1	0.4

Fees associated with the audit of the company's annual accounts are included within the audit of the company's subsidiaries fees and are £5,000 (2009: £5,000).

Tax services in the prior year include one-off fees associated with the cross-currency contract.

Corporate finance services include the fees associated with the acquisition of Bertrams.

Included within Other services is £102,000 (2009: £39,000) relating to consultancy services and  £29,000 (2009: £63,000) relating to recruitment and remuneration services.

Non-recurring and other items

				2010	2009
£m	The Returns Company	Re-organisation costs	Amortisation of acquired intangibles	Total	Total
Operating  profit/ (loss)	0.7	(6.7)	(0.9)	(6.9)	(10.8)
Finance costs	-	-	-	-	(1.3)
Non-recurring  profit/ (loss) before tax	0.7	(6.7)	(0.9)	(6.9)	(12.1)
Income tax (charge)/ credit	(0.2)	1.9	-	1.7	5.0
Non-recurring profit/ (loss) after tax	0.5	(4.8)	(0.9)	(5.2)	(7.1)

The Returns Company ('TRC')

On 3 February 2010 the trade and assets of The Returns Company (a returns processing business) was sold. In 2009 an impairment charge of £3.1m was recognised to write down the assets and provide for an onerous lease liability. The sale of the business allowed a reduction in the future rental payments, resulting in a £0.7m provision release.

Reorganisation costs

The largest element was the cost of integrating the former Dawson News business at £6.1m. This represents the final charge associated with an integration, which has seen the Smiths News network grow from 44 depots in July '09 to a peak of 66 and back to a position of 58 by August '10. The majority of this cost relates to redundancies resulting from a reduction in the workforce by almost 1,000 employees during the year.  The balance relates to property costs following the closure of 8 sites and relocation of a further 3.

The Bertrams Library Services charge of £0.6m reflects the cost of moving the warehouse operation from Leeds to the existing Bertrams Books site in Norwich, a move which will drive improved operational efficiency and service to retailers going forward. The majority of this cost relates to redundancy.

Amortisation of acquired intangibles

Intangible assets relating to the acquisition of Bertrams are amortised over their expected economic lives. The charge to the income statement in the year to 31 August 2010 is £0.9m (for the 5 months to 31 August 2009: £0.4m) for which there is no associated cash impact.

4.         Retirement benefit obligation

Pension arrangements for employees are operated through a defined benefit scheme, WH Smith Pension Trust ('Pension Trust'), and a defined contribution scheme, WH Smith Retirement Savings Plan.  The most significant is the Pension Trust, which is described in Note 4 (a).  The scheme is independent of the Company and is administered by a Trustee.  The Trustee of the Pension Trust has extensive powers over the pension plan's arrangements, including the ability to determine the levels of contribution.

The amounts recognised in the balance sheet in relation to these plans are as follows:

£m	2010	2009
Present value of the obligation	(367.4)	(338.1)
Fair value of plan assets	408.6	357.4
Surplus	41.2	19.3
Amounts not recognised due to asset limit	(41.2)	(19.3)
Retirement benefit obligation recognised in the balance sheet	-	-

The scheme is closed to further accrual, which would prevent the Group from realising any surplus through a funding holiday or a reduction in contributions. As a result the Group has not recognised the IAS 19 surplus of £41.2m (2009: £19.3m) on the balance sheet.

The valuation of the defined benefit pension scheme used for the IAS 19 disclosures is based upon the most recent actuarial valuation.  Scheme assets are stated at their market value at the relevant reporting date.

(a)           Defined benefit pension scheme

The Pension Trust

The majority of the assets in the investment fund are structured such that they are expected to alter in value in line with changes in the pension liability caused by changes in interest and inflation (a Liability Driven Investment 'LDI' policy). The volatility in interest rate and inflation is minimised through hedging.

The key features of the investment policy are:

·      95% of the Pension Trust's assets are invested in an LDI policy with a leading international institutional fund manager; and

·      5% of the Pension Trust's assets are used to purchase a portfolio of long-dated equity call-spreads.  These represent a notional exposure to underlying equities of some £216m.

The 31 March 2009 triennial valuation produced an actuarial deficit of £50m. A revised deficit funding schedule of £5.8m per annum has been agreed for the next ten years with the trustees.

The Group has paid £6.5m to the Pension Trust over the course of the year in relation to the agreed pension deficit funding, which includes a catch-up payment relating to the period from 31 March 2009 to the date that the revised contributions started to be paid.

The principal long-term assumptions used to calculate scheme liabilities under IAS 19 are:

%	2010	2009
Rate of increase in salaries	-	-
Rate of increase in pension payments and deferred pensions	3.22	3.28
Discount rate	4.86	5.32
Inflation assumptions	3.22	3.28

The amounts recognised in the income statement were as follows:

£m	2010	2009
Current service cost	(0.1)	(0.1)
Interest cost	(17.6)	(19.9)
Expected return on scheme assets	18.6	21.0
	0.9	1.0

The charge for the current service cost has been included within administrative expenses.  Interest cost and expected return on scheme assets have been included within investment revenues.

Movements in the present value of the defined benefit scheme obligation in the year were as follows:

£m	2010	2009
At 1 September	(338.1)	(320.1)
Current service cost	(0.1)	(0.1)
Interest cost	(17.6)	(19.9)
Actuarial losses	(24.6)	(10.4)
Benefits paid	13.0	12.4
At 31 August	(367.4)	(338.1)

Movements in the fair value of defined benefit scheme assets in the year were as follows:

£m	2010	2009
At 1 September	357.4	382.5
Expected return on scheme assets	18.6	21.0
Net actuarial  gains/(losses)	39.1	(39.6)
Contributions	6.5	5.9
Benefits paid	(13.0)	(12.4)
At 31 August	408.6	357.4

An analysis of the defined benefit scheme assets at the balance sheet date is detailed below:

£m	2010	2009
Liquid cash funds	353.3	350.6
Inflation swaps	39.1	(13.6)
Equity call options	16.2	20.4
	408.6	357.4

The actual return on plan assets was a gain of  £57.7m (2009: a loss of £18.6m).

The expected rate of return on these investments, calculated as a weighted average of the expected return on the LDI fund and the equity call options, was 4.61% at 31 August 2010 (5.26 % at 31 August 2009).

The mortality assumptions (in years) underlying the value of the accrued liabilities are:

	Male	Female
Life expectancy at age 65
Member currently aged 65	21.4	23.3
Member currently aged 45	23.3	25.1
Life expectancy at age 60
Member currently aged 60	26.1	28.0
Member currently aged 45	27.6	29.5

The mortality assumptions are based on the SAPS mortality tables (as published by the Institute of Actuaries).  The mortality rates underlying the table have been decreased by 5% to reflect the Trust's actual experience. A long term mortality improvement assumption of 1% has been included as an overlay to these tables, together with 80% of long cohort for men and 60% of long cohort for women.

The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:

Assumption	Change in assumption	Impact on scheme liabilities
Discount rate	Increase/decrease by 0.5%	Decrease/increase by £29m
Rate of inflation	Increase/decrease by 0.5%	Increase/decrease by £34m
Rate of mortality	Increase by 1 year	Increase by £13m

No sensitivity has been undertaken for the rate of salary growth as the scheme is closed to further service accrual.

The sensitivity of the present value of the scheme liabilities to changes in the discount rate and rate of inflation are effectively hedged through the Liability Driven Investment policy.

The history of experience adjustments is as follows:

£m	2010	2009	2008	2007	2006
Present value of defined benefit obligation	(367.4)	(338.1)	(320.1)	(311.3)	(334.0)
Fair value of scheme assets	408.6	357.4	382.5	321.2	285.0
Amounts not recognised due to asset limit	(41.2)	(19.3)	(62.4)	(9.9)	-
Deficit in the scheme	-	-	-	-	(49.0)
Experience adjustments on scheme liabilities
Amount (£m)	(1.4)	12.5	3.6	21.9	(16.6)
Percentage of scheme liabilities	0%	4%	1%	7%	(5%)
Experience adjustments on scheme assets
Amount (£m)	39.1	(39.6)	48.6	1.6	(16.2)
Percentage of scheme assets	10%	(11%)	13%	1%	(6%)

The cumulative amount of actuarial gains and losses recognised in the statement of comprehensive income since the adoption of IFRS is a gain of £1.1m (2009: a loss of £13.4m).

(b)           Defined contribution pension scheme

The pension cost charged to income for the defined contribution scheme, WH Smith Retirement Savings Plan, amounted to £1.8m for the year ended 31 August 2010 (2009: £1.6m).

5.         Investment revenues

£m	2010	2009
Interest on bank deposits	-	0.1
Net change in fair value of derivative liabilities designated as fair value through profit and loss	0.1	-
Net income on pension scheme (Note 4)	1.0	1.1
Underlying investment revenues	1.1	1.2
Non-recurring item - interest income	-	1.4
Investment revenues	1.1	2.6

The prior year non-recurring item relates to the gain arising from the interest rate differential on the cross-currency contract.

6.         Finance costs

£m	2010	2009
Interest on bank overdrafts and loans	2.9	2.8
Net change in fair value of derivative liabilities designated as fair value through profit and loss	-	0.1
Interest payable on finance leases	0.2	0.2
Unwinding of discount on provisions	0.1	-
Underlying finance costs	3.2	3.1
Non-recurring item - foreign exchange loss on cross-currency contract	-	2.7
Finance costs	3.2	5.8

The prior year non-recurring item relates to the foreign exchange loss incurred on closing out the cross-currency contract on 25 February 2009.

7.         Income tax expense

£m			2010			2009
	Underlying	Non-recurring and other items	Total	Underlying	Non-recurring and other items	Total
Current tax	9.8	-	9.8	9.5	-	9.5
Current tax - non-recurring items	-	(1.7)	(1.7)	-	(5.0)	(5.0)
Adjustment in respect of prior year UK corporation tax	(1.4)	-	(1.4)	(2.4)	-	(2.4)
Total current tax charge	8.4	(1.7)	6.7	7.1	(5.0)	2.1
Deferred tax - current year	(0.1)	-	(0.1)	(0.6)	-	(0.6)
Deferred tax - prior year	0.3	-	0.3	(0.8)	-	(0.8)
Total tax on profit	8.6	(1.7)	6.9	5.7	(5.0)	0.7
Effective tax rate	25%		24%	19%		4%

The underlying income tax rate for the year is 25%, which represents the UK corporation tax rate of 28%, adjusted for tax credits relating to prior years of £1.1m (2009: £3.2m). The tax relief relating to non-recurring and other items of £1.7m (2009: £5.0m) reduces the effective income tax rate to 24% (2009: 4%).

Reconciliation of the tax charge

£m	2010	2009
Profit before tax	28.1	18.4
Tax on profit at the standard rate of UK corporation tax 28% (2009: 28%)	7.9	5.2
Permanent differences	0.3	(1.0)
Share schemes	(0.2)	(0.3)
Adjustment in respect of prior year UK deferred tax	0.3	(0.8)
Adjustment in respect of prior year UK corporation tax	(1.4)	(2.4)
Total tax charge	6.9	0.7

In addition to the amount charged to the income statement, current and deferred tax relating to the defined benefit pension scheme amounting to £2.0m (2009: £1.8m) together with deferred tax relating to derivative financial instruments £0.1m (2009: £nil) has been recognised directly in other comprehensive income (see the Group Statement of Comprehensive Income).

8.         Dividends

Amounts recognised as distributions to equity shareholders in the year are as follows:

£m	2010	2009
Final dividend for the year ended 31 August 2009 of  4.6p (2008: 4.5p) per share	8.3	8.0
Interim dividend for the year ended 31 August 2010 of 2.4p (2009: 2.2p) per share	4.3	4.0
	12.6	12.0

The proposed final dividend for the year ended 31 August 2010 of 5.0p is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.  The proposed dividend, if approved, will be paid on 4 February 2011 to shareholders on the register at close of business on 7 January 2011.

9.         Earnings per share

£m	2010	2009
Profit for the financial year	21.2	17.7
Non-recurring items	5.2	7.1
Underlying profit for the financial year	26.4	24.8
	Number  m	Number     m
Weighted average number of shares in issue	183.1	182.9
Share held by ESOP (weighted)	(2.5)	(3.4)
Weighted average number of shares in issue for basic earning per share	180.6	179.5
Shares issuable (weighted)	3.3	0.1
Weighted average number of shares in issue for diluted earnings per share	183.9	179.6
	Pence	Pence
Earnings per share:
Basic	11.7	9.9
Diluted	11.5	9.9
Underlying earnings per share:
Basic	14.6	13.8
Diluted	14.4	13.8

10.       Net cash inflow from operating activities

£m	2010	2009
Operating profit	30.2	21.6
Adjustment for pension funding	(6.4)	(5.7)
Depreciation of property, plant and equipment	5.9	5.3
Amortisation of intangible assets	2.3	1.8
Share based payments	1.3	1.0
Increase  in inventories	(7.0)	(10.9)
Decrease/ (increase) in receivables	15.6	(41.7)
(Decrease)/ increase in payables	(10.0)	57.2
Income tax paid	(4.7)	(4.3)
(Decrease)/ increase in provisions	(2.5)	7.6
Net cash inflow from operating activities	24.7	31.9

11.       Responsibility statement

The responsibility statement below has been prepared in connection with the Group's full annual report for the year ending 31 August 2010. Certain parts thereof are not included within this announcement.

We confirm that to the best of our knowledge:

-     the accounts prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit and loss of the company and the undertakings included in the consolidation taken as a whole; and

-     the management report, which is incorporated in the directors' report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face

The responsibility statement was approved by the board of directors on 21 October 2010 and is signed on its behalf by:

Mark Cashmore                                                                           Nick Gresham

Group Chief Executive                                                                Chief Financial Officer

 

END

 

 

FR GMMZGKGNGGZM