preliminary results - connect group plc...connect group plc preliminary results october 2016 20...

18 October 2016

Preliminary Results

Highlights Mark Cashmore Group Chief Executive

Connect Group PLC

Highlights

Solid Group performance in line with expectations

► Total revenue £1,907m +1.7% ► Adjusted PBT £60.7m +7.4% ► Adjusted EPS 19.8p +0.5% ► Free cash flow £49.6m +24.6% ► DPS 9.5p +3.3%

Good progress on strategic and operational priorities

► Continued strong performance of Tuffnells

► Growing scale and capability in Pass My Parcel

► Delivered £7m of business efficiencies across the Group

► Investing in core capability and capacity

► Closer collaboration between Smiths News and Tuffnells

3

Group Financial Update David Bauernfeind Chief Financial Officer

Connect Group PLC

Group performance

5

£m Aug 2016 Aug 2015 Change %

News & Media 42.4 43.7 (3.0)% Parcel Freight 15.0 9.7* - Education & Care 7.8 7.8 (0.1)% Books 2.5 2.6 (3.8)% Adjusted operating profit 67.7 63.8 6.2% Net finance charges (7.0) (7.3) 3.7% Adjusted PBT 60.7 56.5 7.4% Tax (12.4) (11.1) (12.6%) Adjusted PAT 48.3 45.4 6.2%

Weighted average number of shares 243.4m 230.9m 5.4% Adjusted earnings per share 19.8p 19.7p 0.5%

*Parcel Freight FY15 represents 36 weeks trading post acquisition in December 2014

Connect Group PLC

£m Aug 2016 Aug 2015

Network and reorganisation costs (4.4) (4.5)

Acquisition and disposal costs (3.8) (15.1)

Pension credit 1.1 -

Amortisation of acquired intangibles (10.2) (7.9)

Legal provision – potential health and safety offences

(1.5) -

Total before taxation (18.8) (27.5)

Taxation 3.9 3.5

Total after taxation (14.9) (24.0)

Exceptional items

6

• Total cash cost of non recurring and other items to August 2016 £10.8m (August 2015 £8.2m)

Connect Group PLC

Free cash flow

7

£m Aug 2016 Aug 2015

Operating profit 67.7 63.8

Depreciation and amortisation 13.4 11.6

EBITDA 81.1 75.4

Working capital - (8.0)

Capital expenditure (13.9) (9.2)

Net interest and fees (4.9) (5.8)

Taxation (8.5) (8.7)

Pension funding (5.3) (5.4)

Other 1.1 1.5

Free cash flow 49.6 39.8

Free cash flow excludes the impact of exceptional items

Connect Group PLC

Capital expenditure – cash outlay

8

£m Aug 2016 Aug 2015

Capital expenditure

Maintenance investment (9.6) (6.2)

Growth investment (4.3) (3.0)

Total capital expenditure (13.9) (9.2)

• 2016 higher maintenance investment due to need to improve Parcel Freight infrastructure

• £25m to support planned growth investment in 2017

• Planned reduction in capital expenditure from 2018

Connect Group PLC

Net debt

9

£m Aug 2016 August 2015

Opening net debt (153.4) (93.0)

Free cash flow 49.6 39.8

Dividend (22.7) (21.4)

Exceptional items (10.8) (8.2)

Net acquisition financing - (67.0)

Finance lease payments & other (4.4) (3.6)

Closing net debt (141.7) (153.4)

Net debt : EBITDA 1.7x 1.9x

• Committed Bank facilities of £250m to November 2018

Connect Group PLC

Future assumptions

10

Pass My Parcel £2.5m net cost in 2017

Employee related costs £2m gross impact in 2017, rising to £5m over the medium term before mitigating

actions

Capital investment £25m to support growth initiatives in 2017

Reducing in 2018 and beyond

Cash and Net Debt Circa £40m FCF with flat net debt in 2017

Reduction in net debt from 2018

Business update

Connect Group PLC 12

2016 YE Total Revenue £1,471.4m -2.2%

Total Adj. Op Profit £42.4m -3.0%

News Revenue £1,443.8m -2.4%

News Profit £40.0m -3.4%

Media Revenue £27.6m +8.9%

Media Profit £2.4m +3.5%

LFL revenue Newspapers -3.2% Magazines -4.3% Media +1.6%

► Smiths News

► Sales in line with medium term forecast

► Contract wins secure revenues and territories

► £5m efficiency target achieved in full

► £10m cost savings over the next two years

► Price inflation supporting resilience in newspapers

► Continued improvement in magazine sales trend

► Jack’s Beans generating revenue of £1.3m

► DMD - Media

► Revenue and profit in line with expectations

► New contract wins in both print and digital

Connect News & Media

Connect Group PLC

Market continues to grow strongly

► Click & Collect market forecast to grow at 16%p.a.

► Speed and convenience are key requirements

Operational capability proven

► Excellent service performance across the network

► Returns solution with ASOS and Amazon

► Network expansion through Tuffnells partnership

Planning for growth

► Further investment planned

► Targeting volume of 3 million parcels in 2017

13

Progress 2016 ▶ 500k parcels delivered

in FY2016

▶ 92% customers intend to use PMP again

▶ 60% + Net Promotor Score

▶ National parcelshop network

▶ Pipeline of new clients and services

Pass My Parcel


2016 YE Total Revenue £174.4m 7.3%* LFL Revenue 7.3% Adj. Op Profit £15.0m 4.9% Key Statistics

▶ National network of 37 depots

▶ Diversified base of 4,700 customers

▶ Mixed fleet of over 1,200 vehicles

▶ Strong service performance 97% on time

▶ Delivering over 13m consignments p.a.

* Compared to the same 52 week period in 2015

► Continued revenue and profit growth

► Investment to modernise the network and fleet

► Increasing our share in a growing market

► Further £15m investment planned in FY17

► Service driving customer loyalty and new business

► Over 11% growth in customers

► Synergy and integration plan on track

► Closer cooperation with Smiths News

► Smiths News providing last mile deliveries

► Tuffnells delivering for Pass My Parcel

Connect Parcel Freight

Connect Group PLC

2016 YE Total Revenue £64.8m -1.6% LFL Revenue -2.4% Adj. Op Profit £7.8m -0.1% Segmented LFLs Early Years +6.4% Education -2.8% Care -7.8% Core -2.2% Other -3.5%

15

Connect Education & Care

► Good performance in a difficult market

► Increased teacher costs affecting school budgets

► Early Years – 12% CAGR since acquisition

► Ecommerce strategy on track

► Over 35% of total orders placed online

► Targeting 50% in FY17

► Good peak trading underpinned by strong operational performance

► Market forecast to return to growth in medium term

Connect Group PLC 16 16

Connect Books

2016 YE Total Revenue £195.9mm +3.1% LFL Revenue +7.4% Adj. Op Profit £2.5m -3.8% LFLs Wholesale +8.9% Wordery +26.7% Libraries -10.5% International -1.5%

Highlights

► Challenging year due to tough library markets and cost headwinds

► Strong growth in UK wholesale sales

► Wordery continues impressive growth

► UK library markets remain very difficult

► Impact of National Living Wage

► Market conditions limiting potential for growth

Core strength in specialist distribution

Leveraging the portfolio to achieve sustainable profit growth and strong cash generation

Managing the balance of dividend, deleverage and investment for further growth, including

potential future acquisitions

Profit underpinned by relatively predictable revenues and continued delivery of cost efficiencies

Drive organic revenue primarily through Pass My Parcel

Invest to expand and modernise the network for further growth

Closer collaboration with Smiths News

Continue to deliver ecommerce growth and maintain cash generation

Deliver further Wordery growth, while maintaining tight cost control and cash generation

Group Strategy

Summary

► A solid financial performance

► Challenging conditions in some of our markets

► Good progress on key operational priorities

► Leveraging the Group to drive sustainable profit opportunities

Outlook

► Expect robust financial performance in 2017 despite challenging markets and

increased investment

► Confident in longer term prospects

Summary & outlook

Appendices

Connect Group PLC 20 Preliminary Results October 2016

Reported Sales Performance FY2016 FY2015 FY2014

FY July IMS H1 Jan

IMS FY July IMS H1 Jan IMS FY July

IMS H1 Jan IMS

News Distribution News (3.2%) (3.4%) (4.0%) (4.2%) (3.4%) (3.4%) (3.4%) (2.5%) (0.7%) (0.4%) (0.5%) - Magazines (4.3%) (4.4%) (3.4%) (3.2%) (4.6%) (4.7%) (5.1%) (5.2%) (6.4%) (6.8%) (8.1%) - LFL (3.4%) (3.8%) (2.3%) (3.7%) (3.4%) (3.5%) (3.3%) (2.8%) (2.1%) (2.1%) (2.8%) (2.8%) Total (2.2%) (2.3%) (2.2%) (2.7%) (3.0%) (3.4%) (2.0%) (1.8%) (0.3%) (1.2%) (1.6%) (2.0%) Media LFL 1.6% 3.5% 0.5% 1.8% (3.1%) (2.3%) (1.9%) 0.4% (0.6%) (0.3%) 1.8% 0.2% Total 8.9% 5.5% 4.0% 2.5% 1.0% 1.9% 3.5% 5.2% (3.3%) (3.2%) 3.9% 2.0%

Books LFL 7.4% 4.8% 4.6% 1.2% 3.1% 2.3% 1.1% 1.8% (2.5%) (3.2%) (0.3%) (0.4%) Total 3.1% 1.1% 0.1% (0.8%) (1.8%) (1.1%) (3.0%) (1.2%) 3.1% 2.6% 8.4% 9.7%

Education & Care LFL (2.4%) (3.3%) (1.3%) 0.1% 1.7% 1.8% 0.5% (1.2%) 3.1% 2.2% 3.2% 4.2% Total 1.6% (3.3%) 0.2% 0.1% 1.7% 1.9% 0.9% (2.0%) 1.7% 2.2% 2.5% 4.2%

Parcel Freight

LFL 7.3% 10.2% 12.0% 12.1% 19.6% 20.6% 16.9% - Total 7.3% 10.2% 12.0% 12,1% 19.6% 20.6% 16.9% -


Financial KPIs

£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Revenue 1,906.5 1,875.1 1,808.5 1,806.9 1,803.9

Adjusted profit before tax 60.7 56.5 50.0 49.9 47.5

Adjusted profit after tax 48.3 45.4 40.7 38.4 36.1

Adjusted EPS 19.8 19.7p 19.6p 19.0p 17.9p

Free cash flow 49.6 39.8 37.2 32.6 27.2

DPS 9.5p 9.2p 8.8p 8.4p 7.8p

Net Debt 141.7m 153.4 93.0 98.5 100.5

Preliminary Results October 2016


Income Statement

£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Revenue 1,906.5 1,875.1 1,808.5 1,806.9 1,803.9

Adjusted Operating profit 67.7 63.8 55.5 56.4 51.2

Non recurring items (18.8) (27.5) (6.9) (10.8) (10.9)

Statutory Operating profit 48.9 36.3 48.6 45.6 40.3

Net finance charges (7.0) (7.3) (5.5) (6.7) (3.7)

Statutory Profit before tax 41.9 29.0 43.1 38.9 36.6

Income tax expense (8.5) (7.6) (8.3) (10.2) (9.1)

Statutory Profit after tax 33.4 21.4 34.8 28.7 27.5

Earnings per share Statutory - basic - diluted Adjusted - basic -diluted

13.7p 13.5p

19.8p 19.5p

9.3p 9.0p

19.7p 19.0p

16.8p 16.2p

19.6p 19.0p

14.2p 13.3p

19.0p 17.8p

13.7p 13.3p

17.9p 17.4p



Balance Sheet

£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012*

Intangible assets 164.8 174.8 65.7 68.2 67.1

Property, plant & equipment 50.3 44.6 29.0 26.6 24.5

Other non current assets 12.1 12.4 12.4 12.8 14.5

Total non current assets 227.2 231.8 107.1 107.6 106.1

Cash 9.1 10.9 20.4 10.1 5.1

Other current assets 181.6 189.3 173.4 171.3 164.9

Total assets 417.9 432.0 300.9 289.0 276.1

Other current liabilities (217.2) (222.2) (202.7) (206.1) (200.3)

Borrowings (140.1) (154.9) (109.3) (106.8) (103.1)

Retirement benefit (21.5) (18.5) (21.3) (23.3) (36.0)

Other non current liabilities (26.1) (27.2) (9.7) (9.7) (14.3)

Total liabilities (404.9) (422.8) (343.0) (345.9) (353.7)

Total net assets 13.0 9.2 (42.1) (56.9) (77.6)



Cash flow

£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Operating profit 67.7 63.8 55.5 56.4 51.2

Depreciation and amortisation 13.4 11.6 8.0 7.6 6.9

EBITDA 81.1 75.4 63.5 64.1 58.1

Working capital - (8.0) 1.2 (5.0) (9.1)

Capital expenditure (13.9) (9.2) (10.3) (7.9) (5.1)

Net interest (4.9) (5.8) (6.1) (4.2) (3.3)

Taxation (8.5) (8.7) (9.8) (10.5) (8.0)

Pension funding (5.3) (5.4) (4.6) (6.5) (6.8)

Other 1.1 1.5 3.3 2.6 1.4

Free cash flow 49.6 39.8 37.2 32.6 27.2



Net debt

£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Opening net debt (153.4) (93.0) (98.5) (100.5) (63.3)

Free cash flow 49.6 39.8 37.2 32.6 27.2

Dividend (22.7) (21.4) (17.7) (16.0) (14.9)


Net acquisition financing - (67.0) (0.3) (5.1) (38.2)

Other (4.4) (3.6) (9.3) (3.6) (1.1)

Closing net debt (141.7) (153.4) (93.0) (98.5) (100.5)

Decrease/(Increase) in debt 11.7 (60.4) 5.5 2.0 (37.2)

Net debt : EBITDA 1.7x 1.9x 1.4x 1.5x 1.6x



Exceptional items

£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Integration costs - - - (1.1) (2.7)

Network and re-organisation costs (4.4) (4.5) (3.0) (3.3) (2.0)

Acquisition and disposal costs (3.8) (15.1) (0.9) (3.7) (4.6)

Pension credit 1.1 - - - -

Property provisions - (0.1) 0.5 - -

Amortisation of acquired intangibles (10.2) (7.9) (3.0) (2.8) (2.1)

Impairment - - (0.5)

Legal provision – potential health and safety offences (1.5) - - - -

Total before taxation (18.8) (27.5) (6.9) (11.0) (10.9)

Taxation 3.9 3.5 1.0 1.3 2.3

Total after taxation (14.9) (24.0) (5.9) (9.7) (8.6)

Non-recurring cash (per cash flow) (10.8) (8.2) (4.4) (5.9) (10.3)



Taxation

£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Current tax 13.1 12.4 12.3 15.1 13.6

Adjustment in respect of prior year UK corporation tax

(0.8) (1.1) (2.4) (2.6) (1.6)

Total current tax charge 12.3 11.3 9.9 12.5 12.0

Deferred tax – current year (0.3) (0.2) (0.4) (0.7) (0.6)

Deferred tax – prior year (0.1) - (0.2) (0.3) -

Deferred tax – impact of rate change 0.5 - - - -

Total tax on profit 12.4 11.1 9.3 11.5 11.4

Effective tax rate 20.4% 19.7% 18.7% 23.0% 24%


Tax on profit after non recurring

8.5 7.6 8.3 10.2 9.1

Effective statutory tax rate 20.3% 26.3% 19.4% 26.2% 25% Preliminary Results October 2016


Lease commitments

£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Land and buildings

within one year in second to fifth year beyond fifth year

10.7 29.8 20.7

10.2 30.3 23.3

7.7 25.6 24.3

8.1 26.2 26.7

10.0 28.9 29.6

Total 61.2 63.8 57.6 61.0 68.5

Equipment and vehicles


14.1 23.6

-

12.4 19.9

-

2.1 1.5 -

1.6 1.6 -

1.3 1.8 -

Total 37.7 32.3 3.6 3.2 3.1

Total


24.8 53.4 20.7

22.6 50.2 23.3

9.8 27.1 24.3

9.7 27.8 26.7

11.3 30.7 29.6

Total 98.9 96.1 61.2 64.2 71.6



Defined benefit schemes

FY 2016

FY 2015

FY 2014

FY 2013

FY 2012

Scheme assets 671.9 563.3 522.6 469.6 433.1

Scheme liabilities (531.5) (432.0) (450.6) (419.2) (395.3)

Net surplus / (loss) 140.4 131.3 72.0 50.4 37.8

Amounts not recognised due to asset limit (151.3) (135.6) (75.7) (53.2) (40.3)

Additional liability recognised due to minimum funding requirements (10.3) (13.8) (17.3) (20.3) (33.5)

Total Liability on balance sheet (21.5) (18.5) (21.3) (23.3) (36.0)

Total Asset on balance sheet 0.3 0.4 0.3 0.2 -

The Group operates four defined benefit schemes of which WHS Smith Pension Trust (the ‘Pension Trust’) represents over 92% of the total obligation at 31 August 2016.

The Pension Trust

Actuarial deficit £23m at 19 June 2013, Contributions agreed at £4.1m per annum

Managed through Liability Driven Investment Scheme, Closed to further accruals


preliminary results - connect group plc...connect group plc preliminary results october 2016 20...

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