Wh Smith Regulatory News (SMWH)

25 April 2024

WH SMITH PLC

The global travel retailer

INTERIM RESULTS ANNOUNCEMENT

FOR THE SIX MONTHS ENDED 29 FEBRUARY 2024

Good first half performance; Group well positioned for peak summer trading period

and on track to deliver full year expectations

· Total Group revenue up 8% to £926m (2023: £859m)

o  Total revenue in Travel up 13%, with Travel UK up 15% year on year; North America up 13%*; Rest of the World ('ROW') up 24%*

· Headline Group profit before tax and non-underlying items1 of £46m (2023: £45m)

o  Total Travel trading profit†1 of £50m (2023: £47m)

o  High Street trading profit†1 of £22m (2023: £24m)

· Headline diluted EPS before non-underlying items1 up 5% to 24.4p

· Investing for growth with capex in the current financial year expected to be around £140m

· New store pipeline of over 80 stores2 won and yet to open in Travel, including over 50 in North America. Expect to open c.110 stores this financial year

· Interim dividend of 11.0p per share, reflecting strong trading and cash generation combined with confidence in future prospects

· Strong balance sheet with leverage1 now at 1.8x with further strengthening expected

· Good start to the second half. Trading momentum continues ahead of peak summer period

Carl Cowling, Group Chief Executive, commented:

"The Group is in its strongest ever position as a global travel retailer. We have had a good first half and our businesses are well positioned for the peak summer trading period. Total Travel revenue is up 13%. The Board is today announcing an interim dividend of 11.0p reflecting current trading and the significant medium and long term prospects for our global travel business.

"Our Travel divisions are trading well and I am particularly pleased with the outstanding performance from our UK Travel business which has seen a 19% increase in trading profit. We continue to make excellent progress in this division, growing our space and broadening our categories as we transition to a one-stop-shop for travel essentials.

"In North America, it has been a very active period where we have opened a further 13 stores. We have also now fully integrated InMotion into our core airport business. This will allow us to sell tech accessories more effectively across our North American airport estate and generate operational efficiencies.

"None of this would be possible without the exceptional efforts of the entire team and I am extremely grateful for their ongoing commitment and hard work.

"The second half of the financial year has started well, and we are on track to deliver full year expectations. We are confident that 2024 will be another year of significant progress for the Group."

* On a constant currency basis

† Pre-IFRS 16

1 Alternative Performance Measure (APM) defined and explained in the Glossary on page 40

2 Pipeline as at 29 February 2024

Group financial summary

Revenue performance

3 The Group adopted IFRS 16 'Leases' with effect from 1 September 2019. The Group continues to monitor performance and allocate resources based on pre-IFRS 16 information (applying the principles of IAS 17), and therefore the results for the periods ended 29 February 2024, 31 August 2023 and 28 February 2023 have been presented on both an IFRS 16 and a pre-IFRS 16 basis.

Measures described as 'Headline' are presented pre-IFRS 16.

For the purposes of narrative commentary on the Group's performance and financial position, both pre-IFRS 16 and IFRS 16 measures are provided. Reconciliations from pre-IFRS 16 measures to IFRS 16 measures are provided in the Glossary on page 40.

ENQUIRIES:

WH Smith PLC's Interim Results 2024 are available at whsmithplc.co.uk.

GROUP OVERVIEW

The Group has had a good first half with Total Travel generating Headline trading profit1 of £50m (2023: £47m), Headline Group profit before tax and non-underlying items1 up 2% to £46m (2023: £45m) and Headline diluted EPS before non-underlying items1 up 5% to 24.4p (2023: 23.3p).

We continue to see strong momentum across all our markets as we benefit from growing passenger numbers. We also see further growth ahead from increasing our spend per passenger and average transaction value ("ATV"), expanding our categories, and expanding our space by continuing to win new stores across the globe utilising our broad suite of brands.

The pace of winning new business in Travel remains strong. Across the UK, North America and ROW we won 31 stores in the half and now have over 80 stores won and due to open, of which we expect to open over 55 in the second half of this financial year. In total, we expect to open c.110 stores this financial year, and close c.60 as we focus on better quality space.

Travel is well positioned to continue to create value through the structurally advantaged markets in which it operates and the considerable opportunities to win and open additional stores. Analysis from the International Air Transport Association suggests that passenger numbers will grow in low single digits each year over the medium term.

Our forensic approach to retailing combined with the scalability of our business internationally provides us with significant opportunities to win and open new stores and with that to continue to grow revenue, profit, cash generation, and through operational gearing, grow our EBIT margins.

The transformation of our UK Travel business from a news, books and convenience retailer to a one-stop-shop for travel essentials is progressing very well. Our one-stop-shops are delivering good results and we still have significant scope to further maximise the opportunities that this transformation provides. By using our forensic approach to retailing, we are able to consolidate existing categories and introduce new ones such as tech accessories, food and health and beauty. This transformation is most evident in our largest stores at London Heathrow, London Gatwick and Birmingham airports. We see significant opportunities to roll this format out across all stores and channels. The rollout is well progressed in the UK, while across our North America and ROW divisions we are only at the very start of this journey. This format is proving a winning formula not only for customers but also landlords, and it improves profitability.

We have made substantial progress, supported by the key pillars of our strategy and our ongoing forensic approach to retailing across each of our businesses.

These include:

· Space growth:

o  Opening new stores;

o  Winning new business;

o  New, better quality space;

o  Extending contracts;

o  Developing formats and brands

· ATV growth:

o  Space management;

o  Refitting stores;

o  Range development

· Category development:

o  One-stop-shop travel essentials format;

o  Internationalising the InMotion brand;

o  Improving ranges, e.g. health and beauty, food to go, and tech

· Cost and cash management:

o  Flexible rent model;

o  Investing for growth (capex in the current financial year expected to be around £140m);

o  Productivity and efficiencies

· Disciplined capital allocation, supporting investment in growth and shareholder returns

In the first half, Total Travel was approximately 72% of Group revenue and 69% of Headline Group profit from trading operations1. Both of these measures will increase as we continue to grow Travel.

Group revenue

4 Constant currency

5 Includes internet businesses

Total Group revenue at £926m (2023: £859m) was up 8% for the first six months compared to the prior year.

In Travel, we saw a strong performance across all our markets. Total Travel revenue for the first half was up 15%4 and up 10% on a like-for-like1 ('LFL') basis. This was driven by strong performances in all three Travel divisions with Total sales in the UK up 15%, North America up 13%4, and ROW up 24%4.

We saw a good performance in High Street throughout the period, with store LFL revenue up 1% year on year during the important Christmas trading period.

In the 7 week period to 20 April 2024, Total Travel revenue was up 9%4 with all three divisions continuing to perform well. As expected, we have seen lower growth rates in the second half to date as we annualise the strong recovery in passenger numbers in the second half of 2023. Spend per passenger remains strong. In North America, the change in growth rate reflects the timing of the store opening programme.

Group profit

For the six month period to 29 February 2024, Total Travel delivered a Headline trading profit1 of £50m (2023: £47m).

In Travel UK, Headline trading profit1 increased by £6m to £37m. Momentum is strong and we are seeing good results, with revenue growing ahead of passenger numbers. In North America, Headline trading profit1 was £14m in line with the prior year, reflecting significant investment to support growth in the period. ROW delivered a Headline trading loss1 of £1m, reflecting pre-opening costs and investment in new stores in the half as we continue to build the business. We expect second half profit in all three divisions to be up on last year.

High Street delivered a Headline trading profit1 of £22m (2023: £24m), in line with expectations.

Headline Group profit from trading operations1 for the period was £72m (2023: £71m) with Headline Group profit before tax and non-underlying items1 at £46m (2023: £45m).

Group balance sheet

The Group has a strong balance sheet, is highly cash generative and has substantial liquidity.

The Group has the following cash and committed facilities as at 29 February 2024:

6 Cash and cash equivalents comprises cash on deposit of £27m and cash in transit of £17m

7 Draw down of £176m as at 29 February 2024

The Group has a 5 year sustainability-linked revolving credit facility ('RCF') and a £327m convertible bond with a maturity of 7 May 2026 which has a fixed coupon of 1.625%.

As at 29 February 2024, Headline net debt1 was £437m (31 August 2023: £330m) and the Group has access to c. £251m of liquidity (£27m cash on deposit and £224m undrawn RCF). Leverage1 at 29 February 2024 was 1.8x Headline EBITDA1 (28 February 2023: 2.0x). We expect to be within our leverage envelope of between 0.75x and 1.25x Headline EBITDA1 by the end of the current financial year.

Group cash flow

The Group generated an operating cash flow1 of £94m (2023: £90m) in the half, demonstrating the cash generative nature of the business. Capex was £65m (2023: £60m) as we continue to invest in new stores, where we get returns well ahead of our cost of capital. As expected, we had a working capital outflow of £68m8 in the first half (2023: £79m). Of this outflow, most results from the usual working capital cadence in the Group where there has been a large working capital outflow in the first half due to the seasonality in the Travel business. As the Travel businesses grows, we will see greater seasonality in our cash flows. The balance mainly relates to the investment in new stores. In total, there was a free cash outflow in the half of £56m (2023: £66m).

For the full year, we expect to generate a free cash inflow, reflecting the normal working capital cadence of the Group and the substantial level of operating cash flows1 generated by the Group during the second half. We anticipate full year Headline net debt1 to be in the region of £330m.

Capital allocation policy

The cash generative nature of the Group is complemented by our disciplined approach to capital allocation. This has been in place for many years and continues to drive our decision making for utilising our cash:

· First, investing for growth in our existing business and in new opportunities where rates of return are ahead of the cost of capital. This financial year, we expect capex of c.£140m. The returns in Travel are good with ROCE9 in the UK at 32%, North America at 15% and ROW at 16%.

· Second, paying a dividend, we have a progressive dividend policy with a target dividend cover, over time, of 2.5x; the Board is declaring an interim dividend of 11.0p per share

· Third, undertaking attractive value-creating acquisitions in strong and growing markets;

· And, fourthly, returning surplus cash to shareholders via share buy backs.

The Board has declared an interim dividend of 11.0p per share. This reflects our strong start to the year, the cash generative nature of the business and our confidence in the future prospects of the Group. Our intention is to return, in time, to a cover ratio of around 2.5 times earnings10, paid on an interim and final basis on a 1/3:2/3 split. The dividend will be paid on 1 August 2024 to shareholders registered at the close of business on 12 July 2024.

8 Pre-IFRS 16

9 Return on capital employed. ROCE is an Alternative Performance Measure (APM) defined and explained in the Glossary on page 40.

10 Headline diluted earnings per share, before non-underlying items.

TOTAL TRAVEL

Total Travel revenue for the period was £670m (2023: £593m), up 13% compared to the previous year, generating a Total Travel Headline trading profit1 of £50m (2023: £47m).

In Travel, our initiatives position us well for continued growth:

· Space growth - Business development and winning new business

Through building and managing relationships with all our landlord partners, we look to win new space, improve the quality and amount of space, develop new formats and extend contracts. During the half we opened 53 stores and we have won 31 additional stores. We now have a store pipeline of over 80 stores, which are due to open over the next three years. Going forward, we expect to win, on average, 50-60 stores each year. There are significant space growth opportunities across all our Travel markets.

· ATV growth and spend per passenger

We aim to grow ATV through our forensic analysis of the return on our space, cross-category promotions, merchandising, store layouts and store refits. The transition of many of our units to a one-stop-shop for travel essentials is an important driver of this growth. During the period, we have continued to focus on re-engineering our ranges and we continue to see good ATV growth across all our channels.

· Category development

We do this by developing adjacent product categories relevant for our customers, such as health and beauty and tech ranges, and expanding existing categories such as premium food ranges. Throughout the half, we have focused on identifying further opportunities where we can reposition our traditional news, books and convenience ('NBC') format to a one-stop-shop travel essentials format. The results from our one-stop-shop travel essentials format have been positive for both our customers and our landlords.

· Cost and cash management

We remain focused on cost efficiency and productivity, for example, by continuing to invest in energy efficient chillers across our stores, and investing in our supply chain capabilities in North America to more effectively serve our growing store estate on the East Coast of the US.

TRAVEL UK

Travel UK, our largest division, has delivered a very strong first half performance and we continue to see good opportunities to grow this division further.

Total revenue in the period was £360m (2023: £314m) which, together with improved margins, resulted in a Headline trading profit1 of £37m (2023: £31m).

Across all our channels, we continue to focus on our key growth drivers: space growth, increasing ATV and spend per passenger, driving EBIT margins and benefitting from the growth in passenger numbers. Momentum is strong and we are seeing good results, with revenue growing ahead of passenger numbers.

Air passenger numbers are a key growth driver, and they are forecast to grow in the short and medium term. All our channels in Travel UK have performed strongly in the period with total revenue growth of 15% versus last year. The second half has also started strongly with total revenue up 9% versus last year for the first 7 weeks.

We are investing in our UK store portfolio while also identifying new and better quality space opportunities across each of our channels. During the half, we have made good progress opening 5 new stores, including 1 airport, 2 hospitals and 2 rail stores, including a standalone InMotion store at London Euston Station. We are on track to open a further 10 stores in the second half of the financial year. We see this annual space growth of around 10 to 15 new stores in Travel UK extending into the medium term. We closed 3 small and less well located stores in the half.

Revenue Growth by Channel

Air

Air, which is the biggest channel in Travel UK, delivered a strong performance with total revenue up 14% and LFL revenue also up 14% on the prior year.

We continually develop our retail formats to better address the changing requirements of airport landlords and customers. Our one-stop-shop format is a great example of how we evolve our travel retail formats. It is delivering good results, improving profitability and generating significant opportunities. We see plenty of scope to extend this format further in Air.

During the half, we opened our 6,000 sq ft flagship one-stop-shop for travel essentials store at Birmingham airport. The store is performing well and is trading ahead of plan.

This store offers a localised design tailored to the requirements of the landlord and provides passengers with a bespoke customer experience, encompassing everything you would expect from a WHSmith, as well as a broader product range, including health and beauty, a tech zone, food and a coffee offer.

Our one-stop-shop formats have extended categories such as health and beauty, tech accessories and food to go. We are therefore able to provide time-pressed customers with all their travel essentials under one roof with a fast and convenient shopping experience which has resulted in an increase in sales per square foot, a higher ATV and spend per passenger. This delivers superior returns with improved margins and attractive economics for our landlords.

Hospitals

The Hospitals channel, our second largest channel in Travel UK by revenue, continued its very strong growth with total revenue up 16% and LFL revenue up 14% in the half.

During the half, we have focused on further improving our retail proposition for the specific needs of hospital staff, visitors and patients by providing an increased range of food, health and beauty products and tech accessories. We see further significant scope to improve customer conversion.

There are good growth opportunities for us in this channel through increasing space using our broad suite of brands (WHSmith, Marks & Spencer Simply Food, Costa Coffee, and our proprietary coffee brands). During the half, we opened 2 new stores, including our new coffee concept at Sheffield Hallam Hospital under the District Market Coffee brand. We are excited by the opportunity to grow our coffee and food offer. We see scope for at least one of our formats in up to 200 further hospitals.

Rail

Rail is also an attractive market. During the half, we delivered a strong performance with total revenue up 17% and LFL revenue up 13%.

We continue to invest in new formats and in new opportunities in Rail which meet landlord and customer needs. This includes improving ranges to increase spend per passenger and customer conversion and driving ATV growth. For example, the opening of a new InMotion store at Euston station and widening our health and beauty ranges across many of our rail stores. We are seeing very good results.

As at 29 February 2024, Travel UK had 590 stores. Over the next three years, we expect to win and open an additional 10 to 15 stores each year in Travel UK, with the majority of the new stores in the Hospitals channel.

NORTH AMERICA

North America is the Group's most exciting opportunity for growth. This division has become an increasingly significant part of the Group and is now our second largest division in full year profit terms, after Travel UK.

During the half, we delivered a good performance as passenger numbers in Air continued to grow. We have increased revenue by 13% on a constant currency basis, improved gross margins and we continue to invest in our store estate. Total revenue was £189m (2023: £177m), an increase of 7%. Headline trading profit1 was £14m (2023: £14m) reflecting significant investment to support growth in the period.

Our approach in North America is different to our approach in the UK. Given it is in a much earlier stage of development, our focus for this division is and has been centred on winning and opening new stores with a target of building market share to 20% over the next four years. The new space opportunities are substantial. Our analysis of the North American market shows that there is a total of approximately 2,000 news and gift and specialty retail stores across the top 70 airports, of which we currently operate or have won over 260 stores11. This demonstrates the scale of opportunity in this market and gives us confidence in growing our market share.

A key driver of our growth has been our ability to win significant new tenders. We are currently part of more live tenders than we have ever been involved in before and we continue to grow the business at pace. We opened a further 13 stores in the period increasing our market share and improving the quality of our space. This included opening some significant new stores at Salt Lake City, Nashville, Boston, La Guardia, Denver, Chicago O'Hare, Washington Ronald Reagan, Las Vegas and Los Angeles airports. Early results are good, and customer and landlord feedback has been positive. During the period, we also closed 11 stores, consistent with our strategy of improving the quality of our store estate.

We still have a very strong pipeline of new store openings. So far this year, we have won an additional 7 stores, including stores at Las Vegas and Palm Springs airports and Rio Las Vegas resort. This takes our new store pipeline to over 50 stores due to open.

Including the 13 store openings in the first half, we now have 236 stores in Air (including 120 InMotion stores), 91 stores in Resorts and 2 stores in Rail.

In addition to winning new and better quality space, we also see significant scope to improve our existing business through applying the forensic approach to retailing which has been so successful in the UK to the North American market.

During the half, we have combined our core MRG airport business with our InMotion business bringing a number of strategic and operational benefits which will drive improved returns. These include introducing tech accessories into our MRG stores and optimising the operational structure of our teams across the airports in which we operate. We now have one manager per terminal in airports supporting both the MRG and InMotion stores.

This combination of MRG Air and InMotion will be described as North America Air and now accounts for approximately 75% of total North America revenue. We will now report one LFL metric for our North America Air business going forward and in the first half we saw Air LFL up 2%. Trends in our smaller Resorts business remain as previously reported.

11 Including stores won and yet to open

We continuously review our ranges to drive productivity and returns. During the second half, we will be introducing more drinks chillers into stores thereby increasing the space for drinks by c.20% for an average store. We have also invested in furthering our supply chain capabilities on the East Coast with a new consolidation centre being implemented in New Jersey. This approach will provide efficiencies by combining all direct deliveries from our suppliers to New York airports and Atlantic City into one delivery centre, therefore reducing costs and enabling a single combined delivery direct to our stores.

While some of this investment has meant that we have seen flat profits in the first half, these initiatives will be a key driver of growth and put us in a strong position for the second half. Importantly, they will also support the longer term sustainable success of the business.

Our North American business is subject to changes in the GBP:USD exchange rates. A 5 cent move results in a change of £2m to trading profit1 in the second half. The first half was negatively impacted by £1m compared to the prior year due to changes in exchange rates.

Our North American business is trading well with total revenue in the first 7 weeks of the second half up 4%4 and is well-placed for growth this year and beyond. The change in the growth rate reflects timing of the new store opening programme.

REST OF THE WORLD

Total revenue for the half in ROW was up 19% and LFL revenue up 12% on the prior year. Revenue in the first 7 weeks of the second half was up 17%4 on the prior year. Headline trading loss1 was £1m (2023: profit of £2m) reflecting pre-opening costs and investment in new stores in the half as we continue to build the business in this division. We expect profit in the second half to be up on last year.

Our strategy for this division is clear: to enter key countries, build our presence from a small base, better understand the market, create efficiencies (such as our EU distribution hub), and build global supplier relationships, while at the same time delivering good returns. We are now present in 29 countries and the scalability of the Group's retail formats means there are significant market share opportunities across multiple territories. We will continue to use our three operating models of directly run, joint venture and franchise, in order to maximise value and win new business.

During the half, we opened 35 new stores, including stores in Australia, Spain and Sweden. We also recently opened our new 2,900 sq ft flagship store at Budapest Airport, a new market for WHSmith. In the balance of this financial year, we anticipate opening a further 16 new stores.

We continue to see good opportunities to win new business in the tech accessories market under our InMotion brand. InMotion is now a globally recognised brand with interest coming from all over the world. To date, we have won a total of 13 InMotion stores outside of the UK and North America, of which 12 are open.

We remain well positioned to benefit from further opportunities as more space becomes available. We now have 351 stores open and a further 22 won and yet to open. Of the 351 stores open, 50% are directly-run, 8% are joint venture and 42% are franchise.

Total Travel stores

During the half, we opened 53 stores in Travel. As at 29 February 2024, our global Travel business operated from 1,270 units (31 August 2023: 1,253 units). As part of our strategy to improve the quality of our space, we closed 36 stores in the period, mostly smaller, less well-located stores. Excluding franchise units, Travel occupies 1.1m square feet. See page 17 for analysis of store numbers by region.

HIGH STREET

High Street delivered a good performance in the half, in line with expectations, with Headline trading profit1 of £22m (2023: £24m) and revenue of £256m (2023: £266m). We continue to manage the business tightly, keeping focused on costs and cash generation.

As we grow Travel, this division is becoming a smaller part of the overall Group. The High Street division which now accounts for around 15% of full year Group profit from trading operations1, is profitable and highly cash generative.

Our strategy for our High Street business is clear and consistent - to manage our space to maximise returns and maintain a flexible cost structure - and the strategy remains as relevant today as it has ever been and focuses on delivering robust and sustainable cash flows and profits.

We utilise our space to maximise returns in ways that are sustainable over the longer-term. We have extensive and detailed space and range elasticity data for every store which we use to allocate space in categories.

As part of our approach to space management, we will be extending our partnership with Toys"R"Us in the second half. We have recently signed a new exclusive agreement to deliver a further 30 store-in-stores by the end of this financial year. This follows a successful launch last year and will provide customers in these locations with an improved toys and games offer.

Driving efficiencies remains a core part of that strategy and we continue to focus on all areas of cost in the business. During the first half, we have delivered savings of £8m and we are on track to deliver savings of £13m in the current year. These savings come from right across the business, including rent savings at lease renewal (on average around 40%) which continue to be a significant proportion, marketing efficiencies and productivity gains from our supply chain.

Over the years, we have actively looked to put as much flexibility into our store leases as we can, which means we are well positioned to respond to changing market conditions. The average lease length in our High Street business, including where we are currently holding over at lease end, is under two years. We only renew a lease where we are confident of delivering economic value over the life of that lease. We have c.475 leases due for renewal over the next three years, including over 100 where we are holding over and in negotiation with the landlord. The store closure process is broadly cash neutral.

As at 29 February 2024, the High Street business operated from 506 stores (31 August 2023: 514) which occupy 2.5m sq ft (31 August 2023: 2.5m sq ft). 8 stores were closed in the period.

Funkypigeon.com delivered total revenue of £18m (2023: £17m) and Headline EBITDA1 of £2m (2023: £1m). We continue to see opportunities to grow the platform further and grow revenue and profits over the medium-term.

ENVIRONMENTAL, SOCIAL AND CORPORATE GOVERNANCE ('ESG')

We have excellent sustainability credentials and we continue to make good progress. We know that our customers, colleagues and business partners all want us to act in a responsible way and that operating sustainably enables better business performance.

We are one of the top performing specialty retailers in Morningstar's Sustainalytics ESG Benchmark and, during the half, we were awarded an AA from MSCI ESG ratings. In addition, we were included, once again, in the Dow Jones World Sustainability Index and awarded an A rating in CDP's annual climate leadership survey.

We have set our target to achieve net zero by 2050 and are working with our supply chain to help reduce emissions across our value chain. Our Scope 1 and 2 emissions continue to fall and more than 25% of our supply chain emissions are now covered by science-based targets, demonstrating good progress towards our target of 30% by the end of the year.

We continue to champion children's literacy in partnership with the National Literacy Trust. Our financial assistance is providing direct early years' support to families in communities where help is needed.

FINANCIAL REVIEW

Total Travel Headline trading profit1 in the period was £50m (2023: £47m) of which the largest division, Travel UK, generated a Headline trading profit1 of £37m (2023: £31m). We expect good profit growth across all Travel divisions in the second half.

The Group generated a Headline profit before tax and non-underlying items1 of £46m (2023: £45m) and, after non-underlying items and IFRS 16, a Group profit before tax of £28m (2023: £45m).

Net finance costs

Headline net finance costs for the half were £13m (2023: £13m). This includes cash costs of £8m and £4m relating to the non-cash debt accretion charge from the convertible which has a fixed coupon of 1.625%.

Lease interest of £11m (2023: £9m) arises on lease liabilities recognised under IFRS 16, bringing the total net finance costs under IFRS 16 to £24m (2023: £21m).

Tax

The effective tax rate1 was 24% (2023: 23%) on the profit for the half, reflecting the increase in the UK corporation tax rate from 19% to 25% with effect from 1 April 2023. Net corporation tax payments in the period were £9m (2023: £10m) after using all possible loss relief. Based on current legislation, we expect the effective tax rate1 in the full year to be around 24%.

Earnings per share

Calculation of Headline earnings per share1 

12 Before non-underlying items 

The above measures are calculated on a pre-IFRS 16 basis.

EPS calculated on an IFRS 16 basis is provided in Note 7 to the financial statements, and a reconciliation between the IFRS 16 and pre-IFRS 16 earnings per share is provided in Note A4 to the Glossary on page 45.

The diluted weighted average number of shares in issue used in the calculation of Headline diluted EPS1 assumes that the convertible bond is not dilutive and reflects the number of shares held by the ESOP Trust.

Profit attributable to non-controlling interests primarily represents the joint venture partner share of profit in relation to airport contracts in the USA. As at 29 February 2024 the profit attributable to non-controlling interests was £3m (2023: £3m).

Non-underlying items1

Items which are not considered part of the normal operating costs of the business, are non-recurring and are exceptional because of their size, nature or incidence, are treated as non-underlying items and disclosed separately. Non-underlying items in the period are detailed in the table below. These items mostly do not have a cash impact.

(1) Impairment of non-current assets

The Group has carried out an assessment for indicators of impairment across the store and online portfolio.

The impairment review compared the value-in-use of cash-generating units, based on management's assumptions regarding likely future trading performance, to the carrying values at 29 February 2024. As a result of this exercise, a non-cash charge of £6m (Feb 2023: £nil) was recorded for impairment of non-current assets on a pre-IFRS 16 basis, and £9m (Feb 2023: £nil) on an IFRS 16 basis which includes an impairment of ROU assets of £3m (Feb 2023: £nil).

(2) Provisions for onerous contracts

A charge of £2m (Feb 2023: £nil) has been recognised in the income statement in non-underlying items to provide for the unavoidable costs of continuing to service a non-cancellable contract. Finance costs relating to the discount unwind on previously recognised provisions for onerous contracts has also been recognised in non-underlying items.

(3) Amortisation of acquired intangible assets

Non-cash amortisation of acquired intangible assets of £2m (Feb 2023: £2m) primarily relate to the MRG and InMotion brands.

(4) Costs associated with pensions

Cost associated with pensions include professional fees associated with the WHSmith Pension Trust of £1m (Feb 2023: £nil).

(5) Other

Other non-underlying costs include £2m of Board-approved programme costs in relation to supply chain and IT (Feb 2023: £nil).

A tax credit of £3m (Feb 2023: £1m) has been recognised in relation to the above items (£2m pre-IFRS 16 (Feb 2023: £1m)).

Cash flow

Free cash flow1 reconciliation

13 Excludes cash flow impact of non-underlying items

The free cash outflow1 for the period was £56m (2023: £66m). Operating cash inflow1 increased by £4m to £94m demonstrating the cash generative nature of the Group. 

We had a working capital8 outflow of £68m in the period (2023: £79m). Most of this outflow results from the usual working capital cadence in the Group, where there has been a large working capital outflow in the first half, due to the seasonality in the Travel business. The balance, then, mainly relates to the investment in new stores.

For the full year, we expect to generate a free cash inflow, reflecting the normal working capital cadence of the Group and the substantial level of operating cash flows generated by the Group during the second half.

Net corporation tax payments in the period were £9m (2023: £10m).

Capital expenditure in the half was £65m (2023: £60m) which includes the spend from opening 53 stores around the world. We anticipate the full year capex spend to be around £140m which includes the additional spend from opening over 55 stores in the second half.

Reconciliation of Headline net debt1

Headline net debt1 is presented on a pre-IFRS 16 basis. See Note 9 of the Financial statements for net debt on an IFRS 16 basis.

As at 29 February 2024, the Group had Headline net debt1 of £437m comprising convertible bonds of £305m and net overdraft of £132m (31 August 2023: £330m, convertible bonds of £301m, £1m of finance lease liabilities and net overdraft of £28m).

In addition to the free cash outflow of £56m the Group paid the 2023 final dividend of £27m (2023: £12m) and we spent £12m (2023: £nil) on own shares for the Group's share schemes. Other includes non-cash accretion on the convertible bond, and payments to non-controlling interests. The cash spend on non-underlying items in the first half of 2024 was £6m (2023: £1m) and mainly related to provisions recorded in prior years including Covid-related charges.

We anticipate full year Headline net debt1 to be in the region of £330m.

On an IFRS 16 basis, net debt was £1,039m (2023: £978m), which includes an additional £602m (2023: £600m) of lease liabilities.

Fixed charges cover1

Fixed charges, comprising property operating lease charges and net finance costs, were covered 1.3 times (2023: 1.3 times) by Headline profit before tax, non-underlying items and fixed charges.

Return on capital employed1

Return on capital employed is calculated as the Headline trading profit1 as a percentage of operating capital employed, and is stated on a pre-IFRS 16 basis. Operating capital employed is calculated as the 12-month average net assets, excluding net debt, retirement benefit obligations and net current and deferred tax balances.

Balance sheet

The Group had Headline net assets1 of £445m, £4m lower than at 31 August 2023 reflecting the investment in new store openings and seasonality of working capital. Under IFRS the Group had net assets of £332m.

TRADING UPDATE

The Group will issue its next trading update on 5 June 2024.

Total Travel stores by region

PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES

The Group's Annual Report and Accounts 2023, a copy of which is available on the Group's website at www.whsmithplc.co.uk, sets out the principal and emerging risks and uncertainties which could impact the Group for the remainder of the current financial year along with mitigating activities relevant to each risk (see Annual Report and Accounts 2023 pages 55 to 60). These include:

· economic, political, competitive and market risks;

· brand and reputation;

· key suppliers and supply chain management;

· store portfolio;

· business interruption;

· reliance on key personnel;

· international expansion;

· cyber risk, data security and GDPR compliance;

· treasury, financial and credit risk management; and

· environment and social sustainability.

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulations.

This announcement contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results to differ from those anticipated. Nothing in this announcement should be construed as a profit forecast. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

WH Smith PLC

Condensed Group Income Statement

For the 6 months to 29 February 2024

1 Alternative Performance Measure. The Group has defined and explained the purpose of its alternative performance measures in the Glossary on page 40.

2 See Note 3 for an analysis of Non-underlying items. See Glossary on page 40 for definition of alternative performance measures.

WH Smith PLC

Condensed Group Statement of Comprehensive Income

For the 6 months to 29 February 2024

WH Smith PLC

Condensed Group Balance Sheet

As at 29 February 2024

WH Smith PLC

Condensed Group Cash Flow Statement

For the 6 months to 29 February 2024

1 Includes interest payments of £11m on lease liabilities (28 February 2023: £8m; 31 August 2023: £19m)

WH Smith PLC

Condensed Group Statement of Changes in Equity

For the 6 months to 29 February 2024