CNCT.L Regulatory News (CNCT)

Smiths News PLC

Unaudited Interim Results for the six months ended 28 February 2013

Smiths News PLC, the largest UK newspaper and magazine wholesaler, a leading UK book supplier and a leading distributor of consumable products to the education and care markets, is pleased to announce interim results for the 6 months ended 28 February 2013.

Highlights:

·; Strong financial performance with underlying PBT up 16%, including the impact of acquisitions

·; Continued strong shareholder returns

- Underlying EPS of 10.3p up 16%

- Interim dividend of 3.0p up 7%

·; Strategic targets on track

- Profit growth in all four divisions

- 27% of profits outside of newspaper and magazine wholesaling (H112: 17%)

- Smiths News:

§ Contract renewals worth over £350m revenue pa to 2019

§ Ongoing efficiencies reduce cost base by £4m

- Bertrams:

§ Growing addressable markets through launch of direct to consumer proposition

§ Acquired £20m of academic revenues to consolidate European leadership

- The Consortium:

§ Performing to expectations with WMS integration on track

Investing in multi-channel offer to increase revenue growth

·; On track to meet full year market expectations

Mark Cashmore, Group Chief Executive, commented:

"I am pleased to report continued growth in sales, profit, cash flow and earnings during the period. All four divisions have increased profits and are on track with their key strategic initiatives.

These results once again demonstrate the resilience of the Group and the benefits derived from our strategy to deliver unrivalled sector expertise, service and efficiency. We remain on track to meet full year market expectations and, with 27% of our profits now coming from outside of newspaper and magazine wholesaling, we are making good progress towards our medium term objective of 50% by 2016."

The following definitions have been applied consistently throughout this interim results announcement:

(1) Underlying 2013 and 2012 results exclude non-recurring items and amortisation of acquired intangibles and includes the results of acquired businesses from the date of acquisition.

(2) 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 other 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) Smiths News like-for-like revenues exclude newspaper and magazine publisher contract gains and losses during the period and the annualisation impact of gains and losses in the prior year. It also excludes revenues for part-works and one-shots. Like-for-like revenue growth in Bertrams excludes new sales channels and the results of acquired businesses in the period. Like for like revenue growth in The Consortium excludes the impact of gains and losses in the period. Like for like revenue growth in Media and Marketing excludes liquidated titles.

(5) Smiths News is also referred to as the Newspaper and Magazine wholesaling segment. Bertrams including Dawson Books is also referred to as the Book wholesaling segment. Dawson Media Direct (DMD) and Marketlink Marketing Communications (MMC) are also referred to as the Media and Marketing segment. The Consortium or Hedgelane Limited is also referred to as The Education and Care segment.

(6) Pro forma is the contribution of acquired businesses to the results of the Group as if the they had been included for a full 12 months.

(7) HY 2013 refers to the six months ended 28 February 2013, FY 2012 refers to the year ended 31 August 2012 and HY 2012 refers to the six months ended 28 February 2012.

Enquiries:

A meeting for analysts will be held at the office of Buchanan, 107 Cheapside, London, EC2V 6DN on 17 April 2013 commencing at 9.30am.Smiths News PLC's Interim Results 2013 are available at www.smithsnews.co.uk

About Smiths News PLC:

Smiths News PLC comprises Smiths News, the UK's leading wholesaler of newspapers and magazines, Bertram Books, a leading UK book wholesaler and The Consortium, a leading independent distributor of consumable products to the education and care markets.

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.

Bertram Books supplies books to a mix of independent booksellers, on-line and multiple retailers, and libraries. Bertrams is a leading supplier of consumer and academic books in the UK and a growing player in international, digital and direct to consumer markets.

In April 2012 the company acquired The Consortium. The Consortium is the UK's leading distributor of educational and care consumable products servicing 30,000 customers. The business has a 5% market share in large and growing markets.

Notes to Editors

This document contains certain forward-looking statements with respect to Smiths News PLC's financial condition, its results of operations and businesses, strategy, plans, objectives and performance. Words such as 'anticipates', 'expects', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'targets', 'may', 'will', 'continue', 'project' and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of Smiths News PLC's future performance and relate to events and depend on circumstances that may occur in the future and are therefore subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of contracts or licences; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; war and terrorism. These forward-looking statements speak only as at the date of this document. Unless otherwise required by applicable law, regulation or accounting standard, Smiths News PLC undertakes no responsibility to publicly update any of its forward-looking statements whether as a result of new information, future developments or otherwise.

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 Smiths News PLC. For more detailed information, please see the interim announcement for the half-year ended 28 February 2013 which can be found on the Investor Relations section of the Smiths News PLC website - www.smithsnews.co.uk. However, the contents of Smiths News PLC's website are not incorporated into and do not form part of this document. The financial information contained within is presented on an underlying basis excluding non-recurring and other items.

INTERIM MANAGEMENT REPORT

OPERATING REVIEW

INTRODUCTION

We are pleased to report a strong performance in the first half of the financial year with profit growth across all four of our divisions and ongoing progress on our strategic initiatives.

Group underlying profit before tax, including the impact of acquisitions, increased 15.8% to £24.9m from revenues of £904.7m, up 1.3%.

Smiths News continues to deliver on its strategic objectives. Almost a quarter of revenue is now awarded through to 2019 as a result of contract extensions with News International and IPC Marketforce. Profits have increased 2.6% to £19.7m and £4m efficiency targets have been achieved.

Bertrams has again outperformed the UK books market with particularly strong growth in internet, international and academic ebooks sales. In November 2012 we entered the direct to consumer market through the brand Wordery which grows our addressable markets and broadens our portfolio. Acquisitions in the period have brought £20m of revenue and consolidated our European academic book leadership.

The Consortium continues to perform in line with expectations and has traded strongly in the period. Its primary strategic priority of integrating West Mercia Supplies is progressing well and we are investing in growing our multi channel offer by implementing a CRM system, launching a new website and establishing a new telesales team. We are pleased with the financial and operational progress of the Business in our first full year of ownership.

We are on track to meet full year market expectations. In the light of these results we are increasing the interim dividend by 7% to 3p, highlighting our ongoing confidence in the Group's strong cash generation and future prospects.

GROUP STRATEGY

In each of its markets the Group is a leading player with a reputation for sector expertise and service delivery; each division has clear and tangible growth plans.

We have sought to secure our newspaper and magazine business through a combination of extending contracts and by extracting substantial cost efficiencies. This approach has underpinned our success and will remain an important part of our future plans.

We have also undertaken a selective acquisition strategy to diversify our revenue base into new specialist distribution sectors. To that end, we have successfully entered the Book, Education and Care markets through the acquisitions of Bertrams, Dawson Holdings, The Consortium and smaller bolt-on acquisitions.

We will continue to invest in all four of our trading divisions and, with 27% of our profits now coming from outside of newspaper and magazine wholesaling, we are making good progress towards our medium term objective of 50% by 2016.

SMITHS NEWS

Smiths News has delivered contract extensions, achieved new efficiencies and grown underlying operating profit in the period to £19.7m up 2.6%.

The newspaper market has softened with LFL sales down (3.9%) compared to (3.1%) in the previous half year. As in previous years, cover price inflation continues to partly offset the impact of volume decline. The magazine market declined (8.3%) on an LFL basis which is in line with the prior period.

During the period we were pleased to extend our contract with IPC Marketforce and we now have over £350m, almost a quarter of annual revenue, awarded through to 2019. We have also gained £15m of incremental revenues including additional territories with News International and regional wins which have resulted in total sales for Smiths News down (3.0%), an improvement against total LFL sales, down (5.0%). Although the like for like run rate remains within our strategic range, it has been adversely impacted by a price competitive Sunday market which alone impacted total LFL by (0.5%).

With £4m of new efficiencies achieved in the period, the division remains on track to deliver its 3 year target of £20m per annum cost savings by 2015.

Looking ahead, Smiths News remains the largest part of the Group and we have a clear plan to deliver continued cost savings, maintain current levels of profit and generate strong free cash flow. These include further network rationalisation, investment in new and more efficient facilities, process re-engineering to deliver sustainable industry-wide savings and utilising our capability and expertise to develop new organic revenue streams.

BERTRAMS

Bertrams traded strongly in the period with revenue up 7.0% to £98.3m and underlying operating profit of £3.5m, up 7.6%.

In the UK, Bertrams has continued to outperform the consumer books market which contracted by 3.4% versus Bertrams' UK wholesale sales which grew by 2.3% on an LFL basis. This performance is driven by our strength in serving the growing base of internet retailers and was reinforced in March 2013 when Bertrams secured an exclusive fulfilment contract with WH Smith Online worth £3.5m per annum.

In November 2012 we entered the direct to consumer market through a joint venture, Wordery, which grows our addressable markets and broadens our portfolio. Wordery already trades on 4 leading market place websites and within one year aims to be a "Top 3" marketplace trader with its own transactional website.

International sales delivered a pleasing performance increasing 22% YOY and by 4.3% on an LFL basis. The acquisition of Houtschild in July 2012 is integrating well and, more recently the acquisition of Erasmus in January 2013 and selected Blackwell Books contracts in April 2013, have brought over £20 million of full year pro forma revenues to the division. Annualised international revenues now total £60m across 95 countries. These acquisitions have consolidated our market leading position in academic books in Northern Europe and strengthens Bertrams international presence through an enlarged overseas operational footprint.

Sales to UK libraries decreased by (2.7%) LFL which is a robust performance in a market where spending remains under pressure.

Our leading academic eBook platform continues to gather momentum increasing sales by 47.4% LFL (Feb 2012: 50%). Already a market leader in the UK academic market, we continue to target a number of international opportunities, as well as introducing our digital platform into our acquired local and international customer bases.

Looking ahead, Bertrams has a range of opportunities and it is clear our balanced portfolio is an on-going strength: physical and digital, UK and international, internet and high street, public and private sector, B2B and now direct to consumer. By capitalising on the growth opportunities in each, Bertrams medium term strategy targets profits of £10m by 2014.

THE CONSORTIUM

The Consortium has continued to perform well since its acquisition in April 2012. Against a pre-acquisition period sales increased 3.3% LFL to £30.5m with underlying operating profits of £2.9m, up 9.1%.

This result was driven by a good performance from education up 4.8% LFL which outperforms the market. Care, representing 6% of sales, produced another strong performance growing revenue by 18.4% and reflects the opportunities in that market sector.

The integration of the West Mercia Supplies ("WMS") is progressing well and both businesses continue to operate more closely under a single ERP platform, aligned internal processes, and the ongoing creation of a 'virtual' combined warehouse which will improve service, efficiency and profitability.

As well as integrating WMS, The Consortium is committed to expanding its multi-channel capabilities to grow revenues. We invested in a new CRM system, established the telesales team and have recently launched a new website. These initiatives will facilitate better promotional campaigns and targeted sales efforts to capitalise on the opportunity to secure a larger share of wallet in our markets.

Melanie Teal, the Managing Director of The Consortium has confirmed her wish to move on at the end of her lock-in period in December 2013. Her successor will be Glenn Leech, a member of the existing Group Executive who has been with the Group since 2004. He brings significant skills and expertise which will ensure The Consortium capitalises on future growth opportunities.

Looking ahead, clear and tangible opportunities exist to capture a greater share of existing customer spend in education. In the care sector we are targeting contracts with care home providers (both public and private) as they expand in response to an increasingly ageing population. Finally, we remain alert to acquisition opportunities in both the education and care markets beyond our stated strategic aim of 10% organic profit growth per annum.

MEDIA AND MARKETING DIVISION

Media and Marketing has delivered revenues of £14.8m and underlying operating profit of £0.9m, up 6.2%.

DMD, which supplies airlines and travel points with newspapers, magazines and inflight entertainment, has continued to renew and win print contracts including the global fulfilment contract to United Airlines worth £0.8m per annum. As global supply partner to British Airways, DMD is also pleased to have successfully and seamlessly integrated into the contract £0.4m of additional BMI volumes and routes.

New digital contracts have been secured from airline customers with 7,000 iPads now deployed.

MMC, the marketing and fulfilment services operation, continues to face the challenges of the wider UK economy. A new management team was put in place in August 2012 with consequent improvements in efficiency and service to customers.

OUTLOOK

We are on track to grow profits in the current financial year and to meet full year market expectations. Our continued confidence is reflected in the 7% interim dividend increase announced today.

Our priorities for the remainder of the year are clear and include:

·; continued investment in top line growth and new revenues;

·; ongoing efficiency drives to reduce the cost base; and

·; integrating acquisitions, minimising disruption and maximising financial return.

Our medium term outlook remains strong and we are focused on growing profits, generating significant levels of free cash and maintaining a progressive dividend policy.

We remain committed to our previously stated aim of 50% of Group profits to be generated from activities outside of newspaper and magazine wholesaling by 2016.

FINANCIAL REVIEW

GROUP INCOME STATEMENT EXTRACTS - UNDERLYING

Group revenue of £904.7m increased 1.3% driven primarily by the inclusion of £30.5m of revenues from The Consortium acquired in April 2012, not included in the corresponding period of the prior year.

Underlying Group operating profit, of £26.9m increased 16.0% benefiting from growth in all four of our operating divisions and the impact of acquisitions.

Finance costs of £2.0m were up £0.3m as a result of increased borrowings to fund The Consortium acquisition from April 2012.

Underlying Group profit before tax of £24.9m increased 15.8%.

The tax charged for the 6 months of £6.2m represented an effective tax rate of 25% (Feb 2012: 25%). Underlying profit after tax of £18.7m increased 16.2%.

On a statutory basis Group operating profit of £21.9m increased 6.8% on the same period in the prior year.

On a statutory basis profit before tax was £19.9m increased 5.9% on the same period last year.

EPS AND DIVIDEND

The underlying profit after tax of £18.7m, adjusted for £0.1m of non-controlling interest, equates to £18.8m of profit attributable to equity shareholders. This resulted in a basic underlying EPS of 10.3p, an increase of 1.4p or 15.7% on prior year.

Statutory profit after tax of £14.1m, adjusted for £0.1m of non-controlling interest, equates to £14.2m of statutory profit attributable to equity shareholders. This resulted in a basic statutory EPS of 7.8p, an increase of 0.2p or 2.6% on prior year.

The calculation of diluted EPS reflected the potential dilutive effect of employee incentive schemes which account for 7.4m dilutive shares (Feb 2012: 3.8m) and 4.5m shares being the deferred share capital relating to the acquisition of The Consortium (Feb 2012: nil) which will be issuable in January 2014 on the achievement of financial performance targets and continued employment of certain executives to or around 30 September 2013.

Together dilutive shares increased the number of shares at February 2013 by 11.9m to 193.8m and resulted in a diluted underlying EPS of 9.7p, an increase of 1.0p or 11.5% on prior year.

The Board have approved an interim dividend of 3.0p, up 7.1% on last year, highlighting our continued confidence in the Groups' strong cash generation and future prospects.

The interim dividend will be paid on 12 July 2013 to shareholders on the register at the close of business on 14 June 2013.

SMITHS NEWS INCOME STATEMENT

Smiths News total revenues of £761.1m declined (3.0%) on prior year with like-for-like revenues down (5.0%), impacted by the Sunday market being more adverse than the daily market.

Gross margin of £62.1m declined (20 bps) as a result of margin mix changes, with total magazines down (7.7%) versus total newspapers flat.

The cost ratio of (5.6%) improved by 40 bps reflecting £4m of cost savings achieved in the period due to the annualisation of prior year network savings and continued operational efficiencies.

Smiths News underlying operating profit of £19.7m increased 2.6% and resulted in an operating margin of 2.6%, up 20 bps versus prior year.

BERTRAMS INCOME STATEMENT

Bertrams total revenues of £98.3m were up 7.0% driven in part by the acquisitions of Houtschild and Erasmus in the half with no prior year comparison. Like-for-like revenues were up 2.8% with a strong performance in the wholesale and international markets.

Gross margin of 19.0% increased 70bps due to mix with academic books achieving a higher margin.

The cost ratio of 15.5% declined (60bps) on prior year after the inclusion of the higher cost to serve academic operations.

Bertrams underlying operating profit of £3.5m increased 7.6% and resulted in an operating margin of 3.6%, up 10 bps versus prior year. The impact of recent acquisitions was immaterial in the period.

THE CONSORTIUM INCOME STATEMENT

*-indicates growth on a pre-acquisition period

The Consortium total revenues of £30.5m were up 3.2%. Like-for-like revenues were up 3.3% with a strong performance in the Education and Care markets.

Gross margin of 39.3% increased 200 bps on the prior year. The cost ratio of (29.8%) declined (150 bps) on the prior year.

The Consortium operating profit of £2.9m, up 9.1% on the prior year, resulted in an operating margin of 9.5%, up 50 bps versus prior year.

MEDIA AND MARKETING INCOME STATEMENT

The adjustment reflected above excludes the gross value of agency sales in the prior year, to allow for a more consistent on-going comparison.

Media and Marketing adjusted revenues of £14.8m declined (2.6%), due in part to title liquidations. The division continues to win new business and renew contracts.

Gross margin of 44.6% has increased 210bps due to mix.

The cost ratio of 38.5% declined (120 bps) on prior year.

Underlying operating profit of £0.9m increased 6.2% on the prior year and resulted in an operating margin of 6.1%, up 90 bps versus prior year.

NON-RECURRING AND OTHER ITEMS

Non-recurring and other items totalled £5.0m before tax and £4.6m after tax for the period in line with our previous guidance of c£10m for the full year.

Integration costs

The costs of integrating Dawson Holdings plc divisions incurred in the six month period were £0.5m.

Network reorganisation costs

During the period we have spent a further £1.0m within the depot network from a restructuring program designed to deliver cost savings targeted by the Group. Of the costs in the period, the largest amount relates to redundancy costs of £0.9m.

Acquisition costs

Acquisition costs include deferred consideration relating to The Consortium acquisition that have been recognised in the period reflecting payments of £1.8m contingent on future employment. The costs continue to be spread over the earn out periods at expected payout levels.

In addition, advisor costs associated with the acquisition of Erasmus Antiquariaat en Boekhandel B.V. ('Erasmus') and the set up of Magpie Investments Ltd ('Wordery'), together amount to £0.3m.

Amortisation of acquired intangibles

Intangible assets relating to acquisitions are amortised over their expected economic lives. The charge to the income statement for the six month period to 28 February 2013 is £1.4m. This comprises £0.4m relating to the acquisition of Bertrams in March 2009, £0.5m relating to the acquisition of Dawson Holdings in August 2011 and £0.5m in relation to the acquisition of Hedgelane Limited ('The Consortium') in April 2012.

FREE CASH FLOW

The Group continued to generate strong free cash flow, delivering £10.2m up 70% on the prior year.

The improved trading performance of the Group increased underlying EBITDA by £4.1m to £30.6m.

Working capital outflow was (£7.2m) reflecting an expected half year outflow and compares favourably to the prior year which included an investment in stock.

Capital expenditure was (£3.7m), of which £1.3m related to IT development, including a SAP upgrade in the Smiths News division and investment in the eBook platform in Bertrams. The prior year benefited from the sale of the Bertram library services property for £0.9m.

Net interest paid increased to (£2.1m) reflecting the increased level of debt compared to the prior year following the acquisition of The Consortium in April 2012.

Taxation represents a normal cash tax outflow of (£5.0m) reflecting the growing profitability of the Group.

Ongoing pension deficit funding of (£3.1m) for the 6 months is primarily related to the annual pension deficit funding of £5.8m, relating to the Smiths News pension scheme, agreed at the last triennial valuation in March 2009.

NET DEBT AND BANK FACILITIES

Closing net debt was £109.4m an increase of £8.9m on 31 August 2012.

Acquisitions in the period represent a net cash outflow on the acquisition of The Consortium of £2.0m relating to deferred cash consideration and £1.4m payable on the acquisition of Erasmus, comprising £1.2m consideration and £0.2m advisor costs.

The Group has total facilities of £177m, comprising committed bank facilities of £142m through to November 2014 with further committed facilities of £35m secured against Group assets. The Group remained comfortably within its banking covenants with net debt:EBITDA at 1.6x versus a covenant test of 2.5x.

GOING CONCERN

The Group meets its day to day working capital requirements through its bank facilities of up to £177m, 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. Thus the Group continues to adopt the going concern basis in preparing its consolidated financial statements.

PENSION

The Group operates a combination of defined benefit schemes, closed to new members and future accrual, as well as defined contribution schemes.

The largest scheme across the Group is the Smiths News defined benefit pension scheme (the Trust) which as at 28 February 2013 had an IAS 19 surplus of £54.4m (Feb 2012: £69.2m). However as the pension scheme is closed to further accrual, this IAS 19 surplus is not available as a reduction of future contributions or through a funding holiday, and as a result the Group has not recognised this surplus on the balance sheet.

The last funding valuation at 31 March 2009 showed a deficit of £50m and the Group agreed with the Trustee to make deficit contributions of £5.8m per annum plus £0.5m per annum to cover expenses until 31 March 2019. As at 17 April 2013 the March 2012 funding valuation had not been finalised. Smiths News continues to pay the previously agreed deficit contributions at a rate of £5.8m per annum.

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. The Board and Executive Management Team have assessed the Group's appetite for risk and continue to monitor the key risks on an on-going basis.

The Group's key businesses have relatively secure revenues. Smiths News has agreements with the major newspaper and magazine publishers with almost one quarter of revenue awarded to 2019, the vast majority of the remainder is secured for the next four years. Bertrams has contracts for its library business that run for an average of three years, whilst the remainder of trading is with established customers. Dawson Books and Dawson Media Direct have similar characteristics with the vast majority of revenues secured by contractual agreements.

The Group has robust internal procedures to monitor sales, costs, profits and risks. The Executive and Risk Committees 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 assessments of the principal risks are as follows:

·; Consumer confidence and spending

The economic environment remains uncertain, and Government spending cuts and unemployment levels have also contributed to reduced consumer confidence and discretionary spending, including the sales of newspapers, magazines and books.

The 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 and international sales. The vast majority of newspapers, magazines and books have a relatively low cover price.

The Consortium's core markets, have very limited exposure to consumer spending.

·; Digital Media

The increasing penetration of eBook readers and tablet devices (such as the Apple iPad and Amazon Kindle), together with publishers' increased investment in digital publishing could lead to a sharper than anticipated decline in sales of traditional newspapers, magazines and books. More generally, the move from traditional printed media to digital alternatives could have an adverse impact on sales and growth opportunities.

The Group is aware that digital media will have an impact on traditional markets. Recent evidence shows the impact on newspapers, magazines and books continues to be an evolutionary rather than revolutionary process. Printed products continue to represent the vast majority of revenues in newspapers, magazine and books. Most publishers are heavily reliant on revenues from traditional channels and have strong incentives for the continued support of these formats and brands.

eBook sales are increasing, particularly in fiction, however the UK consumer market for printed books remains very large with an estimated value of £1.5bn. Our growing international footprint and direct to consumer proposition increase the market opportunity further.

Bertrams' eBook platform is facilitating our entry into the growing market for digital books in the academic sector.

The Group will continue to monitor market developments in the digital arena closely and is currently undertaking a strategic review as to how best to benefit from any move from traditional printed media to digital alternatives.

·; Accelerated declines in sales impacting on newspaper and magazine and book publishers

An accelerated decline in sales of newspapers, magazines or books could have an adverse effect on revenues and undermine the business model of publishers. This could lead to title closures, reduced investment in products and promotions, or even the failure of some publishers.

National newspapers have a long-term trend of price increases mostly offsetting the impact of volume declines; they continue to demonstrate relative resilience.

Magazines have been more severely impacted by the wider economy with reduced sales and fewer new launches. Nonetheless, more than 3,500 consumer magazines are in circulation in the UK and publishers continue to regard these as valuable brands.

Over recent years both ourselves and the publishers have adjusted our respective business models to account for anticipated reductions in sales and, in the event of accelerated sales declines, additional cost saving actions could be taken. The current run rate of sales performance decline for Smiths News remains within our medium term strategic forecast of -3% to -5% per annum.

·; 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. There also remains the risk of contract renewals at lower margin.

In the six months ended February 2013 the Group announced a major contract renewal with IPC Marketforce through to 2019, which further reduces contract renewal risk. Following on from the August 2012 announcement of the News International contract renewal, 23% of newspaper and magazine wholesaling revenue is now awarded until 2019.

Smiths News remains well positioned to renegotiate the remaining contracts as they come up for renewal.

·; Impact of Public Sector spending

The Government's plan to reduce spending in the public sector has had a detrimental impact on budgets for public libraries, reducing the value of on-going expenditure and future contracts. In the academic sector, the changes to student funding could also, over time, reduce the number of students with a consequential impact on library purchases.

Changes to funding in the education and care sectors could see similar cutbacks with consequential impacts on The Consortium.

The Group has planned on the basis that available funds in the public sector will remain under pressure. After a volatile period in 2011, spending levels and order patterns in libraries have settled into a more consistent pattern - indeed, in 2012 some 'bounce back' in spending was experienced in the public library consortia. Looking ahead, the Group expects the position to remain stable, though further increases in core spending are unlikely.

The impact of changes to student funding in the academic library market remains less clear, as the Group has research to suggest the increase in student fees may also lead to improved library resources. The Group will monitor the market closely and respond accordingly.

The Consortium supplies the Education and Care sectors, both of which are forecast to grow on the basis of demographic factors. Whilst a degree of budget tightening has been experienced with some customers, The Consortium's core product lines are day-to-day consumable items that schools and care providers require on a regular basis and are less discretionary than, for example, capital investments.

·; 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 2006 Demerger Agreement with WH Smith PLC, any other 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 28 February 2013 of £9.6m (August 2012: £10.9m).

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 WH Smith PLC, has either sub-let or reached a mediated settlement in relation to five leases following a Creditor Voluntary Agreement made by, and subsequent administration of, Focus (DIY) Limited.

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 customers or suppliers could affect the Group's profitability and cash flows impacting the Group's ability to service on-going business requirements, service debt and return value to shreaholders.

The Group monitors payments carefully and has a strong track record of cash collection from its customer base.

The Group's largest credit exposure is to some of the UK's major retailers who have strong credit ratings with good payment records.

Our largest suppliers are large companies, and in some cases part of larger quoted companies, with established and stable business models.

The Group is aware thatfailure 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 / distributor. The Group monitors stock and unsold levels on a regular basis and where appropriate it phases payments to publishers to ensure any exposure is minimised; we also use external data to monitor credit ratings on a regular basis. Furthermore, in May 2012, we have put in place credit insurance over some (but not all) of the publishers / distributors in order to further mitigate this risk.

·; Treasury Risk

The Group finances its operations partly through draw down of interest bearing bank loans and overdrafts. Adverse movements in interest rates could therefore impact profitability and net assets.

The Group has a centralised treasury function to manage Group treasury risk with clear guidelines laid down by the Board. Treasury's role is to ensure that appropriate financing is available for running the businesses of the Group on a day to day basis, allowing for investments and acquisitions whilst minimising interest cost. No transactions of a speculative nature are undertaken. Dealings are restricted to those banks with suitable credit ratings and counterparty risk and credit exposure is monitored frequently.

The Group uses derivative financial instruments to reduce exposure to interest rate movements. As at 28 February 2013, 100% of the Group's drawn borrowings were at fixed rates.

·; International Governance

The Group has growing interests in overseas operations, with offices and staff in over 30 countries.

The management and governance of these distant operations has potential to expose the Group to risks such as fraud, contractual irregularities and other legal and regulatory breaches of local law.

The Group has invested in additional resources and instructed external advisors to help ensure high standards in the management of its international operations.

Whilst important for future opportunities and growth, the Group's overseas operations remain a relatively small proportion of overall staff and revenues and exposure is, in part, limited as a result. Furthermore a significant amount of international trade is routed and invoiced through the UK operations, again reducing exposure to potential financial irregularities.

Governance of overseas operations is overseen locally with specialist advice but also from the UK by the Group's management, who routinely review operational and governance effectiveness.

·; Impact of industry regulation in the newspaper and magazine market

In the autumn of 2012 the OFT's decision not to carry out a further review of the industry was challenged by two retail associations and was under review by the Competition Appeals Tribunal (CAT).

The challenge was heard by the Competition Appeals Tribunal in the six month period which upheld the OFT's decision. This concludes the appeals process and marks the end of the uncertainty surrounding industry regulation.

The Press Distribution Forum continues to work towards improved service and efficiency for customers and as part of this process an updated industry charter will be launched in 2013.

Smiths News PLC

Condensed Consolidated Income Statement (Unaudited)

For the 6 months to 28 February 2013

Condensed Consolidated Statement of Comprehensive Income (Unaudited)

For the 6 months to 28 February 2013

Total comprehensive income for the period was fully attributable to the equity holders of the parent company.

Condensed Consolidated Balance Sheet (Unaudited)

As at 28 February 2013

* £1.3m accruals in the prior year have been restated within provisions due within one year to agree with current year treatment.

Condensed Consolidated Statement of Changes in Equity (Unaudited)

For the 6 months to 28 February 2013

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

Condensed Consolidated Group Cash Flow Statement (Unaudited)

For the 6 months to 28 February 2013

Analysis of net debt

Notes to the Condensed Unaudited Interim Financial Statements

For the 6 months to 28 February 2013

1 General Information

These Interim Financial Statements are unaudited and not reviewed.

The information for the year ended 31 August 2012 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

Going Concern

The Group meets its day to day working capital requirements through its committed bank facilities, as set out below:

·; a £37m term loan which is repayable in November 2014;

·; a £95m revolving credit facility is in place which is also repayable in November 2014;

·; a committed asset backed facility of £15m available until November 2014, secured against the debtors of Bertrams;

·; a committed asset backed facility of £20m available until November 2014, secured against the debtors of Smiths News; and

·; a £10m bilateral Revolving Credit Facility repayable in August 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. Those bank facilities together with renewed long term contracts with a number of publishers mean that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial information.

Estimates and judgements

The Group's principal areas of estimation and judgement remain unchanged since the year end and are set out in note 1 (c) on page 85 of the Annual Report for the year ended 31 August 2012.

2 Significant accounting policies

The unaudited condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed in these unaudited condensed financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 August 2012.

3 Segmental analysis of results

In accordance with IFRS 8 'Operating Segments', Group management has identified its operating segments. The performance of these operating segments is reviewed, on a monthly basis, by the Board. The Board monitors the tangible, intangible and financial assets attributable to each segment to determine the allocation of resources and the performance of each segment.

These operating segments are:

The following is an analysis of the Group's revenue and results by reportable segment:

Segment assets and liabilities

Segment depreciation, amortisation and non-current asset additions

Geographical analysis

4 Non-recurring and other items

Non-recurring and other items totalled £5.0m before tax and £4.6m after tax for the period in line with our previous guidance of c£10m for the full year.

Integration costs

The costs of integrating Dawson Holdings plc divisions incurred in the six month period were £0.5m.

Network reorganisation costs

During the period we have spent a further £1.0m within the depot network from a restructuring program designed to deliver cost savings targeted by the Group. Of the costs in the period, the largest amount relates to redundancy costs of £0.9m.

Acquisition costs

Acquisition costs include deferred consideration costs relating to The Consortium acquisition that have been recognised in the period reflecting payments of £1.8m contingent on future employment. The costs continue to be spread over the earn out periods at expected payout levels.

In addition, advisor costs associated with the acquisition of Erasmus Antiquariaat en Boekhandel B.V. ('Erasmus') and the set up of Magpie Investments Ltd ('Wordery'), together amount to £0.3m.

Amortisation of acquired intangibles

Intangible assets relating to acquisitions are amortised over their expected economic lives. The charge to the income statement for the six month period to 28 February 2013 is £1.4m. This comprises £0.4m relating to the acquisition of Bertrams in March 2009, £0.5m relating to the acquisition of Dawson Holdings in August 2011 and £0.5m in relation to the acquisition of Hedgelane Limited ('The Consortium') in April 2012.

5 Retirement benefit obligation

Defined benefit pension schemes

The Group operates three defined benefit schemes, of which the WH Smith Pension Trust (the 'Pension Trust') represents over 96% of the total obligation at 28 February 2013. As part of the acquisition of The Consortium, the Group acquired the assets and liabilities in respect of two other defined benefit schemes (the 'Consortium CARE' and 'Platinum' schemes).

The amounts recognised in the balance sheet are as follows:

The Pension Trust is closed to further accrual and given the LDI policy adopted by the Pension Trustee, the present value of the economic benefits of the IAS 19 surplus in the pension scheme of £54.4m (Aug 2012: £40.3m) available on a reduction of future contributions is £nil (Feb 2012: £nil). As a result the Group has not recognised this IAS 19 surplus on the balance sheet.

Future cash contributions are agreed between the Group and the Trustees of the schemes based on funding valuations carried out every three years using a different measure of the obligations (most notably using a discount rate that reflects the actual investment strategy, rather than corporate bond yields as required under IAS 19). The valuation of the defined benefit schemes for the IAS 19 disclosures have been carried out by independent qualified actuaries based on updating the most recent funding valuations of the respective schemes, adjusted as appropriate for membership experience and changes in the actuarial assumptions.

The Pension Trust

The Trust closed to future accrual in 2007. The assets in the Trust include an interest rate and inflation swap portfolio to remove the majority of the exposure to movements in both variables on a funding valuation measure. The Trust invests in a series of asset classes targeting a return above LIBOR to generate its required payments under the swaps. There is also a small investment in a portfolio of equity call options to retain an exposure to equity markets with limited downside risk.

The last funding valuation at 31 March 2009 showed a deficit of £50m and the Group agreed with the Trustee to make deficit contributions of £5.8m per annum plus £0.5m per annum to cover expenses until 31 March 2019. As at 17 April 2013 the March 2012 funding valuation had not been finalised. Smiths News continues to pay the previously agreed deficit contributions at a rate of £5.8m per annum.

The principal long-term assumptions used to calculate scheme liabilities on all Group schemes are:

A summary of the movements in the net balance sheet asset/(liability) and amounts recognised in the Group Income Statement and Other Comprehensive Income are as follows:

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

Notes to the Condensed Unaudited Interim Financial Statements

For the 6 months to 28 February 2013

6 Income tax expense