Interim Results 22 April 2015 Highlights Mark Cashmore Group - - PowerPoint PPT Presentation

22 April 2015

Interim Results

Highlights

Mark Cashmore Group Chief Executive

Connect Group PLC 3 Interim Results April 2015

Highlights – On track to deliver Full Year expectations

Group revenue: £909.9m, +1.2% Underlying PBT: £24.1m, +0.2%, Operating Profit: £27.7m, +3.3% Free cash flow: £16.0m, +34.2% Underlying EPS: 8.6p, -5.5% : DPS: 2.9p, +3.6% News & Media:

• Continued resilience of newspaper and magazine markets
• Developing the Pass my Parcel offer with Amazon and accelerating investment

Books:

• Stabilised performance and assessing longer term opportunities
• Wordery continuing impressive growth

Education & Care:

• Growth in core categories with strength in Primary and Early Years
• Investment being made to enhance our customer proposition

Parcel Freight:

• Successful acquisition with continued strong sales and profit growth
• Integration and synergies remain on target

Group Financial Update

Nick Gresham Chief Financial Officer

Connect Group PLC

Cautionary statement

5 Interim Results April 2015 This document contains certain forward-looking statements with respect to Connect Group PLC’s financial condition, its results of operations and businesses, strategy, plans, objectives and performance. Words such as ‘anticipates’, ‘expects’, ‘intends’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘targets’, ‘may’, ‘will’, ‘continue’, ‘project’ and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward- looking statements are not guarantees of Connect Group 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. Unless otherwise required by applicable law, regulation or accounting standard, Connect Group PLC undertakes no responsibility to publicly update any of its forward-looking statements whether as a result of new information, future developments or

• therwise.

Nothing in this document should be construed as a profit forecast or profit estimate. This document may contain earnings enhancement statements which are not intended to be profit forecasts and so should not be interpreted to mean that earnings per share will necessarily be greater than those for the relevant preceding financial period. The financial information referenced in this document does not contain sufficient detail to allow a full understanding of the results of Connect Group PLC. For more detailed information, please see the interim results announcement for the half-year ended 28 February 2015 which can be found on the Investor Relations section of the Connect Group PLC website – www.connectgroupplc.com. However, the contents of Connect Group PLC’s website are not incorporated into and do not form part of this document. The following definitions have been applied consistently throughout this interim results announcement:

• Underlying 2015 and 2014 results exclude non-recurring items and amortisation of acquired intangibles and include the results of acquired businesses

from the date of acquisition and excludes results from businesses disposed in the prior period.

• Underlying earnings per share are calculated using underlying profit before tax and the Group underlying effective tax rate of 20.5% for H1 2015 and

21.5% for H1 2014.

• Free cash flow is cash flow excluding the following: payment of the dividend, acquisitions and disposals, the proceeds on the disposal of freehold

properties, repayments of obligations under finance leases, the repayment of bank loans, EBT share purchase, and cash flows relating to non-recurring and

• ther items.
• Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under finance

leases.

• Like for like revenues exclude the impact of gains and losses (including contracts, new business and acquisitions) reported in the current or prior year

total sales.

• H1 2015 refers to the half year ended 28 February 2015, H1 2014 refers to the half year ended 28 February 2014 and FY2014 refers to the year ended

31 August 2014.

• Rebased EPS and rebased DPS adjust last year reported figures by the rights issue bonus factor adjustment of 0.9015 following the 2 for 7 rights issue in

December 2014

Connect Group PLC

Group performance

6 Interim Results April 2015

£m Feb 2015 Feb 2014 Change % News & Media 21.5 21.5

• Books

1.9 2.3 (18.2) Education & Care 2.8 3.0 (6.7) Total before acquisitions 26.1 26.8 (2.5) Parcel Freight 1.5

• Group operating profit

27.7 26.8 3.3 Net finance charges (3.6) (2.8) (29.9) Group PBT 24.1 24.0 0.2 Tax (4.9) (5.2) 4.4 Group PAT 19.2 18.8 2.1

• Parcel Freight operating profit +11.5% on same 10 week pre-acquisition period last year

Connect Group PLC

Earnings per share

7 Interim Results April 2015

£m Feb 2015 Feb 2014 Change % Operating Profit 27.7 26.8 +3.3% Profit after tax 19.2 18.8 +2.1% Weighted basic shares 221.0m 184.9m +19.5% Basic earnings per share 8.6 10.1

• Bonus factor
• 0.9015
• Rebased earnings per share (p)

8.6 9.1

• 5.5%

Basic dividend per share 2.9 3.1

• Bonus factor
• 0.9015
• Rebased dividend per share (p)

2.9 2.8 +3.6%

• Full year weighted share for Basic EPS calculation 231m

Connect Group PLC

Non recurring and other items

8 Interim Results April 2015

£m Feb 2015 Feb 2014 Integration costs (0.2)

• Network reorganisation costs

(0.8) (0.3) Release of property provisions

• 0.6

Acquisition and disposal costs (6.3) (0.4) Amortisation of acquired intangibles (2.7) (1.3) Impairment of acquired intangibles

• (0.5)

Finance costs

• Total before taxation

(10.0) (1.9) Taxation 1.2 0.1 Total after taxation (8.8) (1.8)

• Total cash cost of non recurring and other items to Feb 2015 £4.8m (H1 14 £0.4m)

Connect Group PLC

Free cash flow

9 Interim Results April 2015

£m Feb 2015 Feb 2014 Operating profit 27.7 26.8 Depreciation and amortisation 4.8 3.7 EBITDA 32.5 30.5 Working capital (3.9) (2.8) Capital expenditure (4.0) (4.5) Net interest and fees (3.3) (4.2) Taxation (3.4) (5.2) Pension funding (2.3) (2.1) Other 0.4 0.2 Free cash flow 16.0 11.9

Connect Group PLC

Net debt

10 Interim Results April 2015

£m Feb 2015 August 2014 Feb 2014 Opening net debt (93.0) (98.5) (98.5) Free cash flow 16.0 37.2 11.9 Dividend (14.4) (17.7) (11.7) Non recurring items (4.8) (4.4) (1.9) Acquisitions (53.0) (0.3) (0.3) Other (8.7) (9.3) (4.5) Closing net debt (157.9) (93.0) (105.0) Net debt : EBITDA 1.9x 1.4x 1.6x

• Committed Bank facilities of £250m to November 2018

Business update

Connect Group PLC 12 Interim Results April 2015

Connect News & Media

2015 H1

Total Revenue £733.9m -2.0% LFL Revenue

• 3.3%

Profit £20.5m +0.1%

LFLs

► Newspapers

• 3.4%

► Magazines

• 5.1%

► Media Total Revenue +3.5% ► Media LFL revenue -1.9%

% of Group Operating Profit

• Total sales ahead of medium term strategic forecast
• Resilient newspaper sales despite lower cover price

inflation

• Improving trend in magazine sales
• £5m full year cost savings on target – further £10m over

the following two years

• Pass my Parcel launched with Amazon and model proving

effective

• £2m accelerated investment to grow parcel network

beyond 3,000 stores with new services and clients

• Media business revenue and profit in line with

expectations

74% 3% News Media

Business update

Connect Group PLC 14

Connect Books

• Performance stabilised and improving trend from H2

2014

• Market continues to evolve with tough trading conditions

across some segments

• Wordery continuing impressive growth from both market

place and Wordery.com

• Addressing operational complexity and opportunities
• Reviewing customer offer within each segment
• On track to deliver full year expectations

2015 H1

Total Revenue £103.4m -3.0% LFL Revenue +1.1% Profit £1.9m -18.2%

Segmental LFLs

► Trade

• 8.4%

► Direct to Consumer 80.3% ► UK Library -9.9% ► Academic

• 8.0%

► Digital

• 14.1%

% of Group Operating Profit

7%

Interim Results April 2015

Business update

Connect Group PLC 16 Interim Results April 2015

Connect Education & Care

2015 H1

Total Revenue £31.5m 0.9% LFL Revenue 0.5% Profit £2.8m -6.7%

Segmental LFLs

► Education 2.8% ► Early Years 13.3% ► Care

• 5.6%

► Other

• 20.4%

% of Group Operating Profit

• Core sales +3.0% with strength in Primary and Early

Years

• Continued scope for growth in competitive

environment

• Investing in range and classroom partnership to

enhance customer proposition

• E-commerce investment to drive incremental sales

and customer loyalty

• Implementing new warehouse management system to

improve efficiency and peak trading capacity

• Well placed for strong peak trading period in H2

10%

Business update

Connect Group PLC 18

Connect Parcel Freight

Interim Results April 2015

2015 H1

Total Revenue £28.4m 16.9% LFL Revenue 16.9% Profit £1.5m 11.5%

% of Group Operating Profit

6%

• Acquisition of Tuffnells completed 19 December 2014
• Clear market position with unique characteristics
• Strong sales and profit growth since acquisition
• Network expansion continuing to support increased

capacity for future growth

• Rigorous focus on customer service and operational

delivery

• Integration and synergies remain on track

Connect Group PLC 19

The parcels and freight market

• Overall parcels market worth over £5bn
• Tuffnells differentiates through specialist

service provision focusing on IDW items

• Many standard parcel carriers focused on

B2C growth

• Tuffnells core addressable market

estimated at £740m, 3-4% per annum forecast growth

• Strong competitive position through a

tailored local customer service offer

• 12 months to December 2014: £144m

revenue and £16.5m EBITDA

Summary & outlook

Connect Group PLC 21 Interim Results April 2015

Summary & outlook

H1 2015 Metrics PBT £24.1m EPS 8.6p DPS 2.9p

• A resilient performance in H1 and on track to deliver full year expectations
• Pleased with the acquisition of Tuffnells and its strong early performance
• Clear plans in place to address market challenges and opportunities across all

divisions

• Group diversification strategy and long term targets remain firmly on track
• Current trading in-line with management expectations

Appendices

Connect Group PLC 23 Interim Results April 2015

Reported Sales Performance

FY15 FY14 FY13 H1 Jan IMS FY July IMS H1 Jan IMS FY July IMS H1 Jan IMS News News (3.4%)

• (0.7%)
• (0.5%)
• (2.7%)
• (3.9%)
• Magazines

(5.1%)

• (6.4%)
• (8.1%)
• (9.9%)
• (7.7%)
• LFL

(3.3%) (2.8%) (2.1%) (2.1%) (2.8%) (2.8%) (4.6%) (4.6%) (5.0%) (4.7%) Total (2.0%) (1.8%) (0.3%) 0.1% (1.6%) (2.0%) (2.6%) (3.2%) (3.0%) (1.9%) Media LFL (1.9%) 0.4% (0.6%) (2.8%) 1.8% 0.2% 1.9%

• (0.3%)

0.5% Total 3.5% 5.2% (3.3%) (3.2%) 3.9% 2.0% (7.8%) (6.9%) (3.3%) (1.5%) Books LFL 1.1% 1.8% (2.5%) (3.2%) (0.3%) (0.4%) (0.6%) 2.0% 2.8% 1.5% Total (3.0%) (1.2%) 3.1% 2.6% 8.4% 9.7% 7.8% 11.2% 7.0% 4.4% Education & Care LFL 0.5% (1.2%) 3.1% 2.2% 3.2% 4.2% 2.6% 1.4% 3.3% 5.1% Core 3.0% 5.0% Total 0.9% (2.0%) 1.7% 2.2% 2.5% 4.2% (0.3%) (1.5%) 3.2% 5.0% Parcel Freight Total 16.9%

Connect Group PLC 24 Interim Results April 2015

Financial KPIs

£m HY 2015 FY 2014 FY 2013 FY 2012 FY 2011 Revenue 909.9 1,808.5 1,806.9 1,803.9 1,734.4 Profit before tax 24.1 50.0 49.9 47.5 38.6 Profit after tax 19.2 40.7 38.9 36.1 28.2 EPS – reported 8.6p 21.7p 21.1p 19.9p 15.5p EPS - rebased* 8.6p 19.6p 19.0p 17.9p 14.0 p Free cash flow 16.0 37.2 32.6 27.2 22.5 DPS - reported 2.9p 9.7p 9.3p 8.6p 8.0p DPS – rebased* 2.9p 8.7p 8.4p 7.8p 7.2p Net Debt 157.9 93.0 98.5 100.5 63.3

* EPS and DPS in prior years have been rebased to include the bonus factor adjustment of the impact of the Rights Issue

Connect Group PLC 25 Interim Results April 2015

Income Statement

£m HY 2015 FY 2014 FY 2013 FY 2012 FY 2011 Revenue 909.9 1,808.5 1,806.9 1,803.9 1,734.4 Underlying operating profit 27.7 55.5 56.4 51.2 41.7 Non recurring items (10.0) (6.9) (10.8) (10.9) (6.5) Statutory operating profit 17.7 48.6 45.6 40.3 35.2 Net finance charges (3.6) (5.9) (6.7) (3.7) (3.1) Statutory profit before tax 14.1 43.1 38.9 36.6 32.1 Income tax expense (3.7) (8.3) (10.8) (9.1) (10.2) Statutory profit after tax 10.4 34.8 28.1 27.5 21.9 Earnings per share Statutory

• basic
• diluted

Underlying

• basic
• diluted

4.6p 4.5p 8.6p 8.4p 16.8p 16.2p 19.6p 19.0p 14.2p 13.3p 19.0p 17.8p 13.7p 13.3p 17.9p 17.4p 10.9p 10.7p 14.0p 13.8p

Connect Group PLC 26 Interim Results April 2015

Balance Sheet

£m HY 2015 FY 2014 FY 2013 FY 2012* FY 2011* Intangible assets 172.9 65.7 68.2 67.1 36.9 Property, plant & equipment 47.5 29.0 26.6 24.5 18.7 Other non current assets 12.8 12.4 12.8 14.5 16.1 Total non current assets 233.2 107.1 107.6 106.1 71.7 Cash 12.7 20.4 10.1 5.1 4.2 Other current assets 167.9 173.4 171.3 164.9 145.2 Total assets 413.8 300.9 289.0 276.1 221.1 Other current liabilities (200.1) (202.7) (206.1) (200.3) (194.8) Borrowings (162.5) (109.3) (106.8) (103.1) (65.2) Retirement benefit (21.6) (21.3) (23.3) (36.0) (36.3) Other non current liabilities (26.8) (6.5) (9.7) (14.3) (12.2) Total liabilities (411.0) (343.0) (345.9) (353.7) (308.5) Total net assets / (liabilities) 2.8 (42.1) (56.9) (77.6) (87.4)

* Restated in respect of retirement benefit obligations

Connect Group PLC 27 Interim Results April 2015

Cash flow

£m HY 2015 FY 2014 FY 2013 FY 2012 FY 2011 Operating profit 27.7 55.5 56.5 51.2 41.7 Depreciation and amortisation 4.8 8.0 7.6 6.9 6.8 EBITDA 32.5 63.5 64.1 58.1 48.5 Working capital (3.9) 1.2 (5.0) (9.1) (10.3) Capital expenditure (4.0) (10.3) (7.9) (5.1) (3.1) Net interest (3.3) (6.1) (4.2) (3.3) (4.9) Taxation (3.4) (9.8) (10.5) (8.0) (1.7) Pension funding (2.3) (4.6) (6.5) (6.8) (6.2) Other 0.4 3.3 2.6 1.4 0.2 Free cash flow 16.0 37.2 32.6 27.2 22.5

Connect Group PLC 28 Interim Results April 2015

Net debt

£m HY 2015 FY 2014 FY 2013 FY 2012 FY 2011 Opening net debt (93.0) (98.5) (100.5) (63.3) (48.0) Free cash flow 16.0 37.2 32.6 27.2 22.5 Dividend (14.4) (17.7) (16.0) (14.9) (13.8) Non recurring items (4.8) (4.4) (5.9) (10.3) (5.2) Net acquisition financing (53.0) (0.3) (5.1) (38.1) (17.9) Other (8.7) (9.3) (3.6) (0.1) (0.9) Closing net debt (157.9) (93.0) (98.5) (100.5) (63.3) Net debt : EBITDA 1.9x 1.4x 1.5x 1.6x 1.3x

Connect Group PLC 29 Interim Results April 2015

Non-recurring and other items

£m HY 2015 FY 2014 FY 2013 FY 2012 FY 2011 Integration costs (0.2)

• (1.1)

(2.7)

• Network re-organisation costs

(0.8) (3.0) (3.3) (2.0) (2.7) Acquisition costs (6.3) (0.9) (3.7) (4.6) (2.4) Property provisions

• 0.5
• (0.5)

Amortisation of acquired intangibles (2.7) (3.0) (2.8) (2.1) (0.9) Impairment of acquired intangible

• (0.5)
• Interest
• (0.2)
• MMC disposal
• 0.1
• Total before taxation

(10.0) (6.9) (11.0) (10.9) (6.5) Taxation 1.2 1.0 1.3 2.3 0.2 Total after taxation (8.8) (5.9) (9.7) (8.6) (6.3) Non-recurring cash (per cash flow) (4.8) (0.4) (5.9) (10.3) (5.2)

Connect Group PLC 30 Interim Results April 2015

Taxation

£m HY 2015 FY 2014 FY 2013 FY 2012 FY 2011 Current tax 5.5 12.3 15.7 13.6 11.3 Adj in respect of prior year UK corporation tax (0.4) (2.4) (2.6) (1.6) (0.5) Total current tax charge 5.1 9.9 13.1 12.0 10.8 Deferred tax – current year (0.2) (0.4) (0.7) (0.6) (0.4) Deferred tax – prior year

• (0.2)

(0.3)

• Total tax on profit

(4.9) 9.3 12.1 11.4 10.4 Effective underlying tax rate 20.5% 18.7% 24.2% 24% 27% Non recurring items (1.2) (1.0) (1.3) (2.3) (0.2) Tax on profit after non recurring 3.7 8.3 10.8 9.1 10.2 Effective statutory tax rate 27.1% 19.4% 27.8% 25% 32%

Connect Group PLC 31 Interim Results April 2015

Defined benefit schemes

HY 2015 FY 2014 FY 2013 FY 2012 FY 2011 Scheme assets 566.6 522.6 469.6 433.1 375.1 Scheme liabilities (487.9) (450.6) (419.2) (395.3) (348.3) Accounting Surplus 78.7 72.0 50.4 37.8 26.8 Additional liability – IFRIC 14 (15.6) (17.3) (20.3) (33.5) (36.3) Liability on balance sheet (21.6) (21.3) (23.3) (36.0) (36.3) Asset on balance sheet 0.3 0.3 0.2

• The Group operates four defined benefit schemes of which WHS Smith Pension Trust (the ‘Pension Trust’) represents over 93% of

the total obligation at 28 February 2015 (H1 2014 96%) The Pension Trust Actuarial deficit £23m at 19 June 2013, Contributions agreed at £4.1m per annum, £2.3m in HY 2015 Managed through Liability Driven Investment Scheme, Closed to further accruals

Connect Group PLC 32

Post-rights issue EPS, number of shares, bonus factor

Bonus-adjusted underlying 2013/14 EPS¹

Underlying EPS for year to 31 August 2014 (a) 21.7p Share price at 1 December 2014 (b) 183.3p Theoretical ex-rights price (TERP) (c) 165.2p Indicative bonus factor1 (d=c/b) 0.9015 Indicative bonus-adjusted underlying EPS for year to 31 August 2014 (a*d) 19.6p Expected no. of shares from 1 September 2014 to 16 December 2014 (e) 189.5m Expected no. of shares from 1 September 2014 to 16 December 2014, restated for bonus factor (f=e/d) 208m Expected no. of shares from 17 December 2014 to 31 August 2015 (g) 244m Expected bonus-adjusted weighted average no. of shares for year to 31 August 2015 (h=f * 15/52 + g * 37/52) 231m Illustrative net income for year to 31 August 2015(i) £25m² Illustrative bonus-adjusted EPS for year to 31 August 2015 (j=i/h) 10.7p

Illustrative bonus-adjusted August 2014/15 EPS¹

1 The rights issue is treated as a bonus issue of shares + an issue of fully paid up shares. The bonus factor is used to reflect the bonus element of the issue, i.e. the

discounted (below market price) bonus issue of shares via the rights issue. Post rights issue completion, historic EPS and DPS are rebased (multiplied by) the bonus

• factor. The actual bonus factor will be calculated as at close on 1 December 2014, being the last trading day before the shares go ex-rights. Historic EPS restated for

bonus element (IAS 33)

2 £25m has been selected purely for illustrative purposes

Connect Group PLC 33

Post-rights issue DPS, number of shares, bonus factor

Treatment of Connect Group’s proposed final 2013/14 dividend payment¹

Proposed final dividend for year to 31 August 2014 (a) 6.6p Share price at 1 December 2014 (b) 183.3p Theoretical ex-rights price (TERP) (c) 165.2p Indicative bonus factor1 (d=c/b) 0.9015 Indicative bonus-adjusted final dividend for year to 31 August 2014 (a*d) 6.0p Expected no. of shares from 1 September 2014 to 16 December 2014 (e) 189.5m Expected no. of shares from 1 September 2014 to 16 December 2014, restated for bonus factor (f=e/d) 208m Expected no. of shares from 17 December 2014 to 31 August 2015 (g) 244m Expected bonus-adjusted weighted average no. of shares for year to 31 August 2015 (h=f * 15/52 + g * 37/52) 231m Illustrative cash dividend for year to 31 August 2015(i) £10m² Illustrative bonus-adjusted DPS for year to 31 August 2015 (j=i/h) 4.3p

Illustrative bonus-adjusted August 2014/15 DPS¹

1 The rights issue is treated as a bonus issue of shares + an issue of fully paid up shares. The bonus factor is used to reflect the bonus element of the issue, i.e. the

discounted (below market price) bonus issue of shares via the rights issue. Post rights issue completion, historic EPS and DPS are rebased (multiplied by) the bonus

• factor. The actual bonus factor will be calculated as at close on 1 December 2014, being the last trading day before the shares go ex-rights. Historic DPS restated for

bonus element (IAS 33)

2 £10m has been selected purely for illustrative purposes