CNCT.L Regulatory News (CNCT)

Connect Group PLC

("Connect Group" or "the Group")

Unaudited Interim Results for the six months ended 29 February 2016

Good H1 Performance - In line with management expectations

Connect Group, a leading specialist distributor operating in four divisions; News & Media, Books, Education & Care and Parcel Freight, is pleased to announce its interim results for the six months ended 29 February 2016.

Highlights:

· Group performance in line with management expectations

· Adjusted revenue up 4.2%

· Adjusted profit before tax up 13.0%, driven by post acquisition profits and growth in Parcel Freight

· Adjusted EPS of 8.9p, up 3.5%

· Strong free cash flow generating £18.0m, up 12.5%

· The Group continues to make good progress on its strategic priorities

- Impressive revenue and profit growth in Parcel Freight

- Continued resilience in core News business

- Pass My Parcel growing customers, services and brand awareness

- E-commerce initiatives in Books and Education helping to offset currently challenging markets

· Ongoing confidence in Group prospects reflected in DPS of 3.0p up 3.4%

Mark Cashmore, Group Chief Executive, commented:

"The Group has performed well in the first half, making pleasing progress with our strategic priorities. In particular, Parcel Freight has continued to deliver impressive revenue and profit growth, supported by the significant levels of new business secured in the period. The solid performance of the core News business is underpinned by resilient newspaper and magazine sales and Pass My Parcel is growing brand awareness following the launch of our new mobile enabled returns service with ASOS."

The Group uses certain performance measures for internal reporting purposes and employee incentive arrangements. The terms 'net debt', 'free cash flow', 'adjusted revenue', 'adjusted operating profit', 'adjusted profit before tax', 'adjusted earnings per share' 'adjusted EBITDA' and 'non-recurring and other items' are not defined terms under IFRS and may not be comparable with similar measures disclosed by other companies.

(1) The following are the key non-IFRS measures identified by the Group in the consolidated financial statements as Adjusted results:

- Adjusted revenue; is defined as revenue including the revenue of businesses from the date of acquisition and excludes revenue of businesses disposed of in the prior year.

- Adjusted operating profit; is defined as operating profit including the operating profit of businesses from the date of acquisition and excludes non-recurring and other items and operating profit of businesses disposed of in the prior year.

- Adjusted profit before tax; is defined as adjusted operating profit less finance costs attributable to adjusted operating profit and before non-recurring and other items; including amortisation of intangibles and network and reorganisation costs.

- Adjusted earnings per share; is defined as adjusted PBT, less taxation attributable to adjusted PBT and including any adjustment for minority interest to result in adjusted PAT attributable to shareholders; divided by the basic weighted average number of shares in issue.

- Non-recurring and other items; are material items of income or expense excluded in arriving at Adjusted operating profit to enable a more representative view of underlying performance. These include certain Mergers & Acquisitions related costs, amortisation of intangibles, integration costs, business restructuring costs and network re-organisation costs including those relating to strategy changes which are not normal operating costs of the underlying business. They are disclosed and described separately in the accounts where necessary to provide further understanding of the financial performance of the Group.

(2) Free cash flow; is defined as cash flow excluding the following: payment of the dividend, acquisitions and disposals, the proceeds on the disposal of freehold properties, payments of obligations under finance leases, the repayment of bank loans, EBT share purchase and cash flows relating to non-recurring and other items.

(3) Adjusted EBITDA; is calculated as Adjusted operating profit before depreciation and amortisation. In line with loan agreements Adjusted Bank EBITDA used for covenant calculations is calculated as Adjusted operating profit before depreciation, amortisation, non-recurring items and share based payments charge but after adjusting for the last 12 months of profits for any acquisitions or disposals made in the year.

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

(5) 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 revenues.

(6) HY2016 refers to the half year ended 29 February 2016. HY2015 refers to the half year ended 28 February 2015 and FY2015 refers to the full year ended 31 August 2015.

Enquiries:

A meeting for analysts will be held at the office of Buchanan, 107 Cheapside, London, EC2V 6DN on 19 April 2016 commencing at 9.30am. Connect Group PLC's Interim Results 2016 are available at www.connectgroupplc.com

An audio webcast will be available on:

http://vm.buchanan.uk.com/2016/connectgroup190416/registration.htm

About Connect Group PLC:

Connect Group PLC is a leading specialist distributor operating in large and diverse markets. The Group has four separate divisions, connecting suppliers to customers in an efficient, knowledgeable and service oriented way:

• Connect News & Media - Encompassing: Smiths News, Dawson Media Direct and Pass My Parcel. Smiths News is the UK's largest newspaper and magazine wholesaling business with an approximate 55 per cent. market share. It distributes newspapers and magazines on behalf of the majority of the major national publishers as well as a large number of regional publishers serving approximately 30,000 customers across England and Wales on a daily basis, including large general retailers as well as smaller independent newsagents with approximately 40 million newspapers supplied weekly; Dawson Media Direct is an international media direct business supplying newspapers, magazines and inflight entertainment technology & content to over 80 airlines in 50 countries. Pass My Parcel, a wholly-owned 'click and collect' delivery service, operated by the News Business, has a network of over 3,000 parcelshops and clients which include Amazon and ASOS.

• Connect Books - Combining a number of recognised brands in print and digital bookselling, including Bertrams, Dawson Books and Wordery. A leading distributor of printed and digital books, the division supplies a mix of traditional and online booksellers, academic and public libraries and direct to consumer through Wordery.

• Connect Education & Care - A leading independent supplier of consumable products to the Education and Care markets through The Consortium and West Mercia Supplies. The division currently holds an approximate 5 per cent. market share of the estimated addressable market, and serves over 30,000 customers with an extensive range of over 40,000 products across a branded, own-brand and value range, including stationery, arts and craft and cleaning.

• Connect Parcel Freight - Tuffnells is a leading provider of next-day B2B delivery of mixed parcel freight consignments, specialising in items of irregular dimension and weight ("IDW"), examples of which include bulky furnishings, building materials and automotive parts. Tuffnells offers distribution coverage throughout the UK through a network of 37 depots and operates a largely depot-to-depot operational model, delivering over 13 million consignments per annum, through a wide range of services to over 4,500 customers focusing on SMEs.

Notes to Editors

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 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 Connect Group PLC. For more detailed information, please see the interim announcement for the half-year ended 29 February 2016 and the Report and Accounts for the year ended 31 August 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.

INTERIM MANAGEMENT REPORT

OPERATING REVIEW

INTRODUCTION

The Group has performed well in the first half and in line with our expectations, despite challenging conditions in some of our markets. Total revenues were £948.4m, up 4.2%, and adjusted PBT of £27.2m is up 13.0%, which includes results in Parcel Freight for 26 weeks this year versus 10 weeks last year. Adjusted earnings per share of 8.9p is up 3.5% and free cash flow is up 12.5% to £18.0m. These results underpin our ongoing confidence across the Group, supporting a further increase in the interim dividend of 3.4% to 3.0p per share.

We continue to make good progress with our strategic priorities. The increase in first half results was predominantly driven by the continued growth and inclusion of a full half year's results from our Parcel Freight division, which has again outperformed the market, reinforcing our view that the division will be a key driver of future growth for the Group. On a comparable 26 week period, the revenue growth of 12% and profit growth of 8% in Parcel Freight reflects not only a buoyant market for Irregular Dimension and Weight ("IDW") freight but also a relentless focus on service that has helped us win significant new business over the period. The performance of the core News business has been driven by both resilient sales and the continued achievement of efficiency targets. Today's announcement of the agreement with Northern & Shell, the publisher of The Express and Daily Star newspapers and OK! Magazine, further supports the future stability of the business, with 94% of our contracts (at 2015 revenue values) now secured through to 2019. Our Click & Collect offer, Pass My Parcel, has delivered a successful peak, its first since being established in October 2014. The launch of a new mobile enabled returns service for ASOS, which we announced in January 2016, will further build the customer base and brand awareness. Meanwhile, our e-commerce investments continue to attract new customers in our Books and Education & Care divisions, supporting revenue and improving margin in those businesses, helping to offset currently challenging conditions in some of their markets.

CONNECT NEWS & MEDIA

The News and Media division continues to provide the Group with significant profit and cash flows, thanks to its scale and market-leading position. Total revenue of £730.9m was down 2.1% and adjusted operating profit of £21.0m was down 2.4%.

Total revenue in News of £717.7m reflects the continued resilience of newspaper and magazine sales, which, though down 2.2%, remains ahead of our medium term strategic forecast, of annual declines of between 3 and 5%. Profit of £20.0m is down 2.7% after planned investments in Pass My Parcel. Before these investments, profit in the core News business would have been marginally ahead of last year.

The future of print media has again been in the spotlight following the recent closure of the Independent newspaper. To put this in context, with a daily circulation of 41,000 compared to total national daily newspaper circulation of nearly 5.8 million, the Independent represented less than 1% of the market. Whilst we acknowledge the consumption of media is becoming more diverse, the scale and habitual nature of newspaper and magazine purchasing by consumers across the UK continues to underpin what remains a large and highly resilient market. This is reinforced by the announcement today that we have renewed our contract with Northern & Shell, securing annualised sales of £83m at current value through to 2021. This represents approximately 6% of the market, and means we now have 94% of our contracts (at 2015 revenue values) secured through to 2019.

The continuing improvement in the trend of magazine sales is also a demonstration of this resilience. Overall magazine sales were down by 3.4%, a significant shift from the position three years ago when the market was down by 8%. The European football championships launch of specials and sticker collections is expected to provide a further boost to sales in the second half.

The Group continues to drive sustainable efficiencies within the News division and we are fully on track to deliver this year's £5m cost savings target. This is part of our plan to achieve £10m of sustainable savings over the current financial year and the next, and we will be targeting further efficiencies thereafter.

The impact of increased employee related costs across the Group, including the new national living wage is in line with our view set out in October last year. We expect additional costs of circa £1m in this financial year which will grow to circa £3m over the next few years. We are continuing to review and implement mitigating actions to reduce the net impact on future results.

Our international media business, DMD, has continued to trade in line with its forecasts, with revenues up 4.0% to £13.2m and profit up 4.4% to £1.0m. We have recently secured both new and extended contracts with a range of clients including The Times and The Sunday Times, the Wall Street Journal and Eurostar.

Pass My Parcel, our Click & Collect business has made good progress in the first half of the year. We have focused on delivering successful operations through our first major peak Christmas trading period and building brand awareness as the first phase of parcel shops bedded in. Delivery volumes over the peak trading period have proved the robustness of our capability and importantly, customer feedback was excellent with more than 99.5% of deliveries made on time. This calendar year we expect to handle circa 1 million parcels, demonstrating the growing scale of our operations.

This growth will be supported by the expansion of our parcel shops over the remainder of the year. We expect to reach circa 4,000 stores ahead of peak trading in 2016, giving us an estimated 90% coverage of the UK e-commerce market.

The agreement with ASOS which we announced in January 2016 is an important step towards our goals of adding more services and more clients. The agreement launched a new service delivering a uniquely simple way to return items using a mobile device. With over 60% of visits to ASOS.com made via a mobile device, Pass My Parcel makes the return of unwanted items simple, fast and efficient, and directly supports ASOS's strategic goal of delivering an unbeatable mobile experience.

Looking ahead, Click & Collect represents an exciting growth market; there are currently circa 80m Click & Collect transactions per annum and this is expected to grow circa 20% year on year as retailers develop their propositions to meet the demand for fast and convenient deliveries and returns. A significant further development is the growth of m-commerce, now accounting for an estimated 33% of online sales, reinforcing the need to have solutions which work across multiple platforms, making it quick and easy for consumers to place, track and, if necessary, return their orders. As indicated in October 2015, we are committed to investing to create long term value and as a result we are investing £2-3m through the P&L this year and continue to target a positive contribution over the next two to three years.

CONNECT BOOKS

The medium term recovery of Books remains on track. Revenue of £103.5m increased by 0.1%, reflecting our focus on profitable sales which saw adjusted operating profit of £1.9m increase by 0.4% despite the currently challenging conditions in some of our markets.

Wholesale sales to traditional and online booksellers are up 6.6%, benefiting from the improvement in consumer sales, which, after many years of decline, have returned to growth, underpinned by higher volumes and lower levels of discounting.

Wordery sales continue to grow impressively, up 22.5% overall, with sales through our wordery.com site up 120% in the period. Wordery now represents 24% of total sales in the Books division, a phenomenal success story in only three years.

In contrast, the UK libraries markets remain challenging. Like for like sales are down 12%, though a large part of this is a consequence of our exit from public library contracts that could not be renewed at profitable rates. In recognition of the ongoing challenges in the public library market, we have taken action to integrate the public and academic library operations. This will provide us with a more efficient cost base, better able to flex for the peaks and troughs of a contract driven sector.

Further underpinning our confidence in the recovery has been a strong service performance through peak, continuing into the New Year. Good cost control has been achieved, hand in hand with improvements to customer service. Our most important service KPI, on time and in full delivery, has increased from 94% to 98%, driven by improvements in carrier performance and stock availability.

This strategy of improving service as a means to both winning new business and driving down rectification costs is a keystone of our recovery plan, giving confidence in our full year expectations for the division.

CONNECT EDUCATION & CARE

Education & Care achieved revenues of £31.6m, with core revenues marginally up, whilst adjusted operating profit of £2.8m is flat on last year. These results reflect challenging markets but represent an outperformance by the division relative to competitors and the sector as a whole.

Our strength in Early Years continues, with revenue growth of 10.7%, giving a three-year CAGR in this segment of 13.5%. In the mainstream schools market, primary schools have performed better than secondary and recent contract awards in Wales and internationally are expected to give further momentum to our sales.

The investment in e-commerce is on track and continues to gain momentum. Our growth strategy has been to transform what was a regionally focused catalogue business into a multi-channel supplier with national reach and unique combination of products, promotion and service. During the first half, we have seen encouraging indications that this is working. Online orders now account for over 30% of total sales, with excellent feedback and regular repeat purchase from these customers.

Further investment in the supply chain following the implementation of the new warehouse management system last year has improved and sustained service levels over the period. A rigorous 'right first time' approach has driven improvements in our key metrics, particularly stock availability and on time and in full delivery.

In tandem with this service improvement, we have conducted a review of the key commercial functions, ensuring we have the right skills, structure and investment to continue winning market share and support our multi-channel strategy, as well as securing efficiency savings which will start to come through in the second half.

In summary, despite the currently challenging markets we consider the division to be well placed for peak trading, with its best ever combination of range, pricing and promotions, backed by an e-commerce offer that is increasingly differentiating us from the competition.

CONNECT PARCEL FREIGHT

Parcel Freight has now been part of the Group for over a year and the continued strong performance compounds the progress achieved during its first period in the Group. On a comparable 26 week period last year, revenue of £82.4m is up 12.0% and adjusted operating profit of £5.0m is up by 8.0%.

This performance confirms that not only is the market in growth, but also that Tuffnells is winning market share. Since the start of the financial year we have attracted over 400 net new accounts with annualised revenues of £5m.

In winning this business, it is no coincidence that service levels are running at their highest for two years. As a number of competitors focus on more regular freight that can be handled through their automated hubs, we have benefited from strong local relationships with the small and medium sized enterprises that require a more flexible and tailored service. We have also seen a significant improvement in driver recruitment and retention. Vacancies have fallen by more than 50% over the period, as a result of better quality and more locally empowered recruitment.

Investment to sustain the growth and increase capacity is ongoing. Two new depots have opened in the period and a further five sites will be relocated or extended in 2016, improving efficiency at those locations as well as easing pressure on the remaining network. A rolling programme of upgrades covering the whole estate has also started, together with investment in fleet and further strengthening of the management team, following the appointment of Chris Ward as Managing Director of the division in June 2015.

Looking ahead we remain excited about the prospects for Tuffnells' role in the wider Group. Our focus to date has been on integration together with ensuring that growth was maintained through a period of significant change. With a new team in place, we are now actively exploring Group-wide opportunities. As well as scoping the benefits of shared infrastructure, we are running trials to understand the potential for Smiths News to provide last mile distribution for Tuffnells, and for Tuffnells to support the growth of Pass My Parcel with deliveries and infrastructure that will expand our current reach.

BOARD CHANGES

Since our preliminary results in October last year we have announced two new additions to our Board. In December 2015, we welcomed both Denise Collis and Colin Child as non-executive directors and members of the Audit, Remuneration and Nominations Committees.

Subsequently, Colin succeeded John Worby as Chairman of the Audit Committee and Denise succeeded Anthony Cann as Chairman of the Remuneration Committee at the conclusion of the Annual General Meeting on 4 February 2016. We would like to take this opportunity to thank both John Worby and Anthony Cann for their significant contributions to Connect Group during their time on the Board.

In January 2016, we announced that Nick Gresham, Chief Financial Officer, will be stepping down from the Board later this year to pursue new opportunities. We are making good progress with our search for his successor and Nick will remain with the Group to support an orderly handover, which we expect to occur in the summer. We will provide a further update in due course.

SUMMARY AND OUTLOOK

In summary, the Group has delivered a good performance in the first half of the year and we are on track to meet our full year expectations. Our ongoing confidence in the Group's future prospects is reflected in the dividend of 3.0p per share, a 3.4% increase on the prior year.

Our focus on priorities is in line with the strategy we set out last October and we are making good progress in each of our four divisions. In News & Media, Pass My Parcel continues to develop, whilst in the core business we achieve tight cost controls to maintain profit and cash flow generation. Parcel Freight is delivering impressive growth driven by our focus on service and additional capacity. Meanwhile e-commerce initiatives in Books and Education & Care are helping us to offset what remain currently challenging markets. We are also exploring a growing number of opportunities to leverage the strengths of the Group.

FINANCIAL REVIEW

GROUP INCOME STATEMENT EXTRACTS - ADJUSTED

Group adjusted revenues were £948.4m, up 4.2% and adjusted Group operating profit of £30.6m was up 10.6%, which include results in Parcel Freight for 26 weeks this year versus 10 weeks last year.

Net finance costs of £3.4m were down £0.2m in the period, driven by a reduction in fair value adjustments from improved effectiveness of interest rate and foreign exchange hedges. The impact in the current period was £nil (Feb 2015: £0.2m). Interest cost on borrowings incurred in the period was £2.4m compared to £2.4m for the prior year period. Other finance costs include amortisation of banking arrangement fees of £0.3m (Feb 2015: £0.3m) finance lease interest £0.3m (Feb 2015: £0.3m) and interest cost on pension obligations of £0.3m (Feb 2015: £0.3m).

Adjusted Group profit before tax was up 13.0% to £27.2m.

The underlying tax charge for the period of £5.7m was up £0.8m and reflected an effective tax rate of 21.0% (Feb 2015: 20.5%), marginally higher as a result of the adverse impact of the falling UK Corporation tax rate on deferred tax assets. Future effective tax rates are expected to be broadly in line with standard UK Corporation tax rates.

Adjusted Group profit after tax of £21.5m was up 12.0%.

EPS AND DIVIDEND

On an adjusted basis, profit after tax of £21.5m resulted in a basic EPS of 8.9p an increase of 3.5% on the prior year. Including non-recurring and other items, statutory profit after tax of £15.3m is attributable to equity shareholders. This resulted in a basic statutory EPS of 6.3p, an increase of 1.7p on the prior year.

The weighted average number of shares has increased by 21.6m to 242.6m reflecting the total new shares in issue from the rights issue over a 12 month period, which came into effect on 17 December 2014. We expect the full year weighted share number to be 244m for FY 2016.

Dilutive shares also increased the basic number of shares at 29 February 2016 by 22.7m to 249.1m and resulted in a diluted adjusted EPS of 8.6p, an increase of 0.2p on the prior year.

The calculation of diluted EPS includes the potential dilutive effect of employee incentive schemes of 2.1m shares (Feb 2015: 3.6m) and the weighted impact of 4.4m shares (Feb 2015: 1.8m) expected to be issued relating to the deferred consideration for the acquisition of Tuffnells.

The Board has approved an interim dividend of 3.0p, up 3.4% on last year, reflecting continued confidence in the Group's strong cash generation and future prospects.

The interim dividend will be paid on 8 July 2016 to shareholders on the register at the close of business on 10 June 2016.

CONNECT NEWS & MEDIA - NEWS DISTRIBUTION INCOME STATEMENT

News Distribution adjusted revenues of £717.7m declined 2.2% on prior year with like for like revenues down 2.3%, following continued resilience in its core newspaper and magazine markets despite softer than expected cover price inflation.

Gross margin of 8.4% increased 20bps as a result of an upturn in recent run rates of higher margin weekly and monthly magazines compared to prior periods.

The cost ratio of 5.6% increased by 20bps reflecting £2.1m of Network cost savings achieved in the period which was offset by cost inflation and investment to drive new organic revenues.

News Distribution adjusted operating profit of £20.0m was marginally down on prior year, and resulted in an operating margin of 2.8%, in line with the prior year. Excluding planned investments in Pass My Parcel profit in the core News business would have been marginally ahead of last year.

CONNECT NEWS & MEDIA - MEDIA INCOME STATEMENT

Media adjusted revenues of £13.2m increased 4.0% on the prior year as a result of a number of new contract wins. On a like for like basis, excluding the new contract wins, revenues were up 0.5%.

Gross margin of 50.6% has increased 300bps and the cost ratio of 43.0% has increased by 300bps predominantly driven by the impact of new contracts in the period.

Adjusted operating profit of £1.0m remains in line with prior year and resulted in an operating margin of 7.6% up 10bps versus prior year.

CONNECT BOOKS INCOME STATEMENT

Books adjusted revenues of £103.5m were marginally up 0.1% as a result of a continued focus on profitable sales despite difficult trading conditions, partly offset by the continued growth in Wordery. Excluding the impact of contracts exited, like for like revenues were up 4.6%.

Gross margin of 19.2% increased 50bps due to favourable movement in the sales mix towards higher margin product categories and enhanced margin via wordery.com.

The cost ratio of 17.4% increased 50bps on the prior year, as a result of ongoing investment to improve service levels.

The adjusted operating profit of £1.9m was marginally up on the prior year by 0.4% and resulted in an operating margin of 1.8%, in line with the prior year.

CONNECT EDUCATION & CARE INCOME STATEMENT

Education & Care adjusted revenues of £31.6m were marginally up 0.2% on the prior year. Adjusting for the period end cut-off like for like revenues were down 1.3%. Core sales in Education, Care and Early Years increased 0.5%, on a like for like basis, as a result of Primary schools and especially Early Years, despite challenging current market conditions across the education sector as a whole.

Gross margin of 43.5% increased 180bps, as a result of a focus on profitable sales in our core markets. The cost ratio of 34.8% increased by 190bps reflecting the additional ongoing investment including further improvements to range and catalogues, backed by a programme of classroom partnership.

Education & Care adjusted operating profit of £2.8m was flat on the prior year and resulted in an operating margin of 8.7% down 10bps.

CONNECT PARCEL FREIGHT INCOME STATEMENT

Parcel Freight adjusted revenues were £82.4m, up 12.0% on the comparable 26 week period in the prior year, due to continued volume growth, as well as strong service levels continuing to attract new customers.

Gross margin of 31.3% decreased 110bps and the cost ratio of 25.3% decreased 250bps largely reflecting the 26 week period this year versus 10 weeks post acquisition last year.

Parcel Freight operating profit of £5.0m was up 8.0% on the same 26 week period in the previous year and resulted in an operating margin of 6.0% up 70bps.

NON-RECURRING AND OTHER ITEMS

Non recurring and other items were £8.0m before tax and £6.2m after tax.

Network and reorganisation costs of £1.1m include network rationalisation in News, redundancies following the office consolidation of our Shrewsbury teams into Trowbridge in Education & Care, reorganisation of our European libraries operations in Books and for the cost of senior management changes in Parcel Freight.

Acquisition and disposal costs of £1.8m relate to deferred consideration in relation to Parcel Freight and Wordery. There is a further £5.9m of deferred consideration which we expect to payout in full over the next three years. Acquisition costs in the prior period included deal costs for the Tuffnells acquisition in December 2014.

Amortisation of intangibles, for which there is no associated cash cost, was £5.1m. The increase from £2.7m in the prior period was as a result of the full period inclusion of Parcel Freight.

The total cash impact for the period was £6.9m.

FREE CASH FLOW

The Group continues to generate strong free cash flow, delivering £18.0m in the period an increase of £2m or 12.5%.

Increased Adjusted EBITDA is partially offset by an increased working capital outflow driven mainly by the timing of debtors and stock in Smiths News as a result of the build-up of stock for the European Football Championships in the summer.

Capital expenditure is up year on year as a result of a full period of investment in Parcel Freight and also includes development capital for Jacks Beans and Pass My Parcel in Smiths News, E-commerce in Education & Care, and digital platform upgrades in Books.

Net interest of £2.5m is lower than last year as the prior year included finance arrangement fees of £0.6m for the extension of our credit facilities.

Tax paid of £3.1m is lower by £0.3m compared to prior year reflecting a reduction in the total effective tax rate.

Pension paid of £2.6m increased £0.3m, including a full period payment in respect of Parcel Freight and funding for The Consortiums CARE scheme.

NET DEBT AND BANK FACILITIES

Closing net debt at the end of the period was £160.9m versus £153.4m at August 2015 and £157.9m at February 2015. Debt at the end of the first half is usually higher than the year end position given the weighting of free cash generation in the second half and higher dividend payment in the first half of the year.

Net debt: EBITDA at the end of February 2016 was 2.0x versus 1.9x at August 2015 and 1.9x at February 2015. This remains comfortably within our main covenant ratio of 2.75x and we remain committed to continue to paydown this debt towards £100m by August 2018.

The Group has a banking facility through a syndicate of five banks. The committed facilities of £250m provides funding for over two and a half years to November 2018 and comprises a term loan, with limited amortisation, and a revolving credit facility. The first term loan repayment is due in February 2017 for £10m.

PENSION

The Group operates a combination of defined benefit schemes, the most significant of which is 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 29 February 2016 had an IAS 19 surplus of £139.9m (Aug 2015: £135.6m). However as the pension scheme is closed to future 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 Trust, had an actuarial deficit when last estimated at 19 June 2013 of £23.0m. The process to complete the triennial valuation as at 31 March 2015 is underway. The Group continues to recognise the present value of the agreed deficit repair contributions as a pension liability of £11.9m (31 August 2015: £13.8m).

RISKS AND UNCERTAINTIES

The Group has a comprehensive risk management framework with a consistent approach now embedded across the Group. The Board is responsible for the Group's strategy and system of controls and risk management. The Audit Committee annually reviews the effectiveness of the Group's internal controls and risk management system along with an annual review of the Board's risk appetite. Risks identified across the risk universe are consolidated, refined and calibrated to each area of the business with support from Internal Audit. Key risks are plotted on risk maps with description and owners recorded in the risk register. The Group Executive team regularly reviews and monitors the Group's summarised risk map and register before presentation to the Audit Committee. The Group's major risks are detailed below.

Condensed Consolidated Income Statement (Unaudited)

For the 6 months to 29 February 2016

Condensed Consolidated Statement of Comprehensive Income (Unaudited)

For the 6 months to 29 February 2016

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

Condensed Consolidated Balance Sheet (Unaudited)

As at 29 February 2016

Condensed Consolidated Statement of Changes in Equity (Unaudited)

For the 6 months to 29 February 2016

Condensed Consolidated Group Cash Flow Statement (Unaudited)

For the 6 months to 29 February 2016

Analysis of net debt

Notes to the Condensed Unaudited Interim Financial Statements

For the 6 months to 29 February 2016

1 General Information

These Interim Financial Statements are unaudited and not reviewed.

The information for the year ended 31 August 2015 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 facility of £250m which runs until November 2018.

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 is expected to 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.

As a result 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.

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 73 of the Annual Report for the year ended 31 August 2015.

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 2015.

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 for the period totalled £6.2m after tax for the period, compared to £8.8m in the prior year.

Network and reorganisation costs

During the period we have incurred £1.1m of network and reorganisation costs, which includes network rationalisation in News, redundancies following the office consolidation of our Shrewsbury teams into Trowbridge in Education & Care, reorganisation of our European libraries operations in Books and for the cost of senior management changes in Parcel Freight.

Acquisition costs

Acquisition costs incurred in the period to 29 February 2016 relates fully to deferred consideration arising on the acquisition of Tuffnells and on the remaining 49% of shares in Magpie Investments Limited (Wordery) in August 2015.

In the period to 28 February 2015, the costs incurred related to the acquisition costs arising on the acquisition of Tuffnells which also included £2.8m deferred consideration.

Amortisation of acquired intangibles

Amortisation of £5.1m in the period to 29 February 2016 is higher than in the period to 28 February 2015 reflecting the amortisation of acquired intangibles which arose on acquisition of Tuffnells for a full six month period.

5 Retirement Benefit Obligation

Defined benefit pension schemes

The Group operates four defined benefit schemes, of which the WH Smith Pension Trust (the 'Pension Trust') represents 93% of the total obligation at 29 February 2016 (28 February 2015: 93%). On 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 Group acquired the assets and liabilities of Tuffnells Parcels Express Pension Scheme on its acquisition of The Big Green Parcel Holding Company Limited on 19 December 2014.

The amounts recognised in the balance sheet are as follows:

The primary defined benefit pension scheme (the Smiths News Section of the WH Smith Pension Trust) has an IAS 19 surplus of £139.9m at 29 February 2016 (FY2015: £135.6m surplus) which the Group does not recognise in the accounts as the investment policy adopted means that the amount available on a reduction of future contributions is expected to be £nil (FY2015: £nil). The valuation of the defined benefit schemes for the IAS 19 (revised) 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 actuarial valuation for funding purposes produces a scheme deficit due to different assumptions and calculation methodologies used compared to those under IAS 19, most notably the use of a discount rate that reflects the actual investment strategy, rather than corporate bond yields as required under IAS 19.

The process to complete the triennial valuation as at 31 March 2015 is underway and scheduled to report during 2016. The actuarial valuation of the Smiths News section of the WH Smith Pension Trust at June 2013 was a deficit of £23.0m.

Future cash contributions by the Group to address the deficit will be £4.1m per annum, through to March 2019. The Group recognises the present value of these agreed contributions as a pension liability of £11.9m (FY2015 £13.8m).

Other defined benefit schemes

The actuarial valuation for funding purposes of the Consortium CARE scheme as at 31 December 2013 was a scheme deficit of £1.5m. The Platinum scheme's 31 December 2013 funding valuation showed no deficit. The triennial actuarial valuation of the Tuffnells Parcels Express scheme as at 1 April 2015 was a scheme deficit of £4.1m. Guaranteed Minimum Pension ("GMP") equalisation is expected to lead to an increase in scheme liabilities at some future date on the Consortium Care and Tuffnells Parcels Express Scheme.

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: