Annual Report and Accounts 2021
About us
We are
a leading
global
retailer
WH Smith PLC is a leading
global Travel retailer for
news, books, convenience
and tech accessories with a
smaller business on the UK
High Street. At the heart of
both our businesses are our
people and our customers.
We aim to deliver our goals
through our strategic priorities
and initiatives by: constantly
innovating, expanding globally,
improving our profitability and
delivering sustainable returns.
Find out more about WHSmith at
whsmithplc.co.uk
@whsmithofficial
@whsmith
youtube.com/WHSmithDirect
linkedin.com/company/whsmith
Disclaimer
This Annual report has been prepared for, and only for, the
members of the Company, as a body, and no other persons.
The Company, its directors, employees, agents or advisers do
not accept or assume responsibility to any other person to
whom this document is shown or into whose hands it may
come and any such responsibility or liability is expressly
disclaimed. By their nature, the statements concerning the
risks and uncertainties facing the Group in this Annual report
involve uncertainty since future events and circumstances can
cause results and developments to differ materially from those
anticipated. The forward-looking statements reflect knowledge
and information available at the date of preparation of this
Annual report and the Company undertakes no obligation to
update these forward-looking statements. Nothing in this
Annual report should be construed as a profit forecast.
WHSmith Travel is a world-leading travel retailer with a presence in over
30 countries
across the globe, mainly in airports
Travel is in a wide range of
locations including
airports,
hospitals,
railway stations
and motorway
service areas
WHSmith High Street is present
on most of the significant high
streets and shopping centres
in the UK, mainly in
As WHSmith continues on its
journey to be a better business,
we have a strong commitment
to the principles of
prime locations sustainability
In this report
Strategic report
Group at a glance
Our business model and strategy to create value
Our markets
Chairman’s statement
Chief Executive’s review
– Review of operations: Travel
– Review of operations: High Street
– Financial review
Key performance indicators
Principal risks and uncertainties
– Viability statement
Our journey to a better business
Non-financial reporting statement
Section 172(1) statement
Corporate governance
Corporate governance report
– Remuneration Committee
– Audit Committee
– Nominations Committee
Directors’ biographies
Directors’ remuneration report
Directors’ report
Statement of directors’ responsibilities
Financial statements
Independent auditors’ report to the members of WH Smith PLC
Group income statement
Group statement of comprehensive income
Group balance sheet
Group cash flow statement
Group statement of changes in equity
Notes to the financial statements
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
Additional information
Glossary
Information for shareholders
WHSmith employs
approximately
11,000
colleagues
WH Smith PLC is listed on
the London Stock Exchange
(SMWH) and is included in the
FTSE 250 Index
WHSmith has a growing
online presence
and reaches customers online via:
– whsmith.co.uk
– funkypigeon.com
– cultpens.com
– treeofhearts.co.uk
– dottyaboutpaper.co.uk
02
04
05
07
08
10
14
16
20
21
28
29
36
37
41
48
49
54
56
58
85
88
89
98
99
100
101
102
103
150
150
151
154
163
01
WH Smith PLC Annual Report and Accounts 2021Strategic report Group at a glance
WH Smith PLC is a leading travel retailer with a smaller high street business
Travel
WHSmith Travel is a global travel retailer with a strong presence in UK travel
locations and an increasing portfolio of stores around the world, including our
fast-growing North American businesses, Marshall Retail Group (MRG) for
speciality retail, and InMotion, the market-leading global technology retailer
in travel locations.
WHSmith Travel sells a range of products serving customers in travel locations
or in need of a convenience offer.
As at 31 August 2021, the business operated from 1,166 units (2020: 1,174
units), in airports, hospitals, railway stations and motorway service areas.
595 of these units (2020: 584 units) are outside the UK across 30 countries
and mainly in airports.
During the year, the business has continued to be impacted by the Covid-19
pandemic with a significant number of stores temporarily closed across the
globe. Further to the easing of government restrictions around the world,
we have been encouraged by the improving trends in each of our channels,
and we are well positioned to benefit from the opportunities that exist as our
markets recover.
Our goal
to be the leading retailer in
travel essentials for the world’s
travelling customer.
Highlights
Operating in
(2020: 1,174)
1,166 units
30 countries
Revenue
£401m
(2020: £553m)
02
WH Smith PLC Annual Report and Accounts 2021
Strategic report High Street
High Street sells a wide range of Stationery, Books, Newspapers, Magazines
and Impulse products.
As at 31 August 2021, the business operated from 544 WHSmith High Street
stores1 (2020: 568 stores1), located on most of the UK’s significant high streets
and shopping centres. We operate over 200 Post Offices from within our High
Street stores, further cementing our position on the high street and at the heart
of the communities we serve.
Our online digital business operates through five websites:
funkypigeon.com, whsmith.co.uk, cultpens.com, treeofhearts.co.uk and
dottyaboutpaper.co.uk.
During the year, High Street was impacted by reduced footfall as a result
of the Covid-19 pandemic. In line with government guidance, we kept the vast
majority of our High Street stores open throughout the lockdown periods
in order to provide access to essential products and services, including
Post Offices.
Our goal
to be Britain’s most popular
high street stationer, bookseller
and newsagent.
Highlights
WHSmith Stores1
544
(2020: 568)
Revenue
£485m
(2020: £468m)
1 Excludes one Cardmarket store (2020: 3 Cardmarket stores).
03
WH Smith PLC Annual Report and Accounts 2021Strategic report Our business model and strategy to create value
WHSmith is a global travel retailer with a smaller business based on UK
high streets. Our business model and strategy seeks to create value for all
stakeholders through improving our profitability and cash flow to deliver
sustainable returns.
Our business model
Travel
High Street
Focused use of cash
Our goal
To be the leading retailer of travel essentials for the
travelling customer
Our goal
To be Britain’s most
popular stationer,
bookseller and newsagent
Our goal
Disciplined approach
to cash generation
and capital allocation
Driving like-for-like sales in
existing stores through
increasing average transaction
value and expanding the range
and number of categories
we sell
Expanding profitability outside
of the UK
– North America
– Building critical mass in our
emerging hubs
Adopting a forensic store
by store focus on space
management to optimise
the returns from our core
categories, particularly
Stationery
Investment in store
environments and layouts
A forensic store by store
focus on space and
category management
Winning new space and
retaining existing space
Developing new formats
– Utilising the same space
management and
operational disciplines
as we have in the UK
Growing InMotion, now the
leading global retailer of
technology stores in
travel locations
Investing in digital solutions
to enhance the customer
experience
Driving margin growth through
category mix management
Reducing our cost base
to reflect our changing
sales profile and
productivity initiatives
Building online propositions
complementary to our stores
and categories: funkypigeon.
com, cultpens.com and
whsmith.co.uk
Investing in the business
where returns are greater
than our cost of capital
Value accretive acquisitions
in attractive markets with good
growth prospects
Return surplus cash to
shareholders through a
progressive dividend policy
and share buybacks
Operating responsibly
You can read more about our approach to
Environmental, Social and Corporate
Governance (ESG) on pages 29 to 36.
Right people and skills
You can read more about our values,
employees and diversity on pages 32 to 34.
Our customers
You can read more about our markets
on pages 5 and 6.
04
WH Smith PLC Annual Report and Accounts 2021
Strategic report Our markets
Travel
Travel sells a range of products serving customers
in travel locations and in need of a convenience offer.
Travel’s typical customer has less time to browse
and is more interested in purchasing convenience
and impulse products such as food, drink and
confectionery, travel and tech accessories and
souvenirs, as well as reading materials for a journey.
Travel units are typically located in high footfall locations with
higher operating and occupation costs with rents paid as a
percentage of sales (often subject to minimum guarantees).
Travel is less affected by the Christmas trading period than
high street retailers. Increased passenger traffic during the
summer holiday season, particularly in airports, contributes
to a summer peak in sales. Most passengers are travelling for
leisure purposes.
Our main markets are in the UK (air, hospitals and rail) and in
North America (air and resorts in Las Vegas). All our markets
have been impacted by government actions following the
outbreak of Covid-19. The rate at which passengers return to
travel locations will have the biggest impact on our markets.
As restrictions have eased, we have seen a return to travelling led
first by domestic travel and then short-haul. Long-haul travel will
be the last to recover. Most industry forecasts, for example,
Airports Council International (ACI) expect passenger numbers
to return to 2019 levels by 2024.
In the UK, air passenger numbers have been significantly
impacted. However, as restrictions have eased, we have seen a
recovery in passenger numbers. According to ACI, UK passenger
numbers were down 49 per cent in October 2021 compared to
2019. This compares to down 80 per cent in October 2020
compared to October 2019. Rail passenger numbers have also
been significantly impacted by government restrictions and have
recovered as restrictions have eased. Concourse data from
Network Rail suggests that rail passengers were down 34 per
cent in October 2021 compared to October 2019. This has
improved from down 65 to 70 per cent in October 2020.
Hospitals are impacted by changes in the number of visitors
and elective surgeries. The UK Government continues to invest
in the National Health Service and in building new and
extended hospitals.
In North America, due to the domestic nature of the market,
airport passenger numbers have recovered quickly. Based on
TSA data, passenger numbers had recovered to 84 per cent of
2019 by the end of October 2021. In Las Vegas, visitor numbers
have also recovered with occupancy levels at 85 per cent of 2019
levels in September 2021.
The speed of the recovery in each market in which we operate
will depend on the successful roll-out of vaccines around the
world, the emergence of new variants and their response to
vaccines, and the way governments choose to relax or impose
restrictions in the face of these changes. Over the longer term,
Travel will be impacted by macroeconomic trends and other
factors which influence the number and nationality of travelling
customers. These include levels of employment and investment,
the cost of travelling, specific category trends such as the growth
of consumable products and tech accessories, and policy
intervention to tackle climate change.
05
WH Smith PLC Annual Report and Accounts 2021Strategic report Our markets continued
High Street
High Street sells a wide range of products in the
following categories: Stationery (including greetings
cards, general stationery, art and craft, and gifting),
News and Impulse (including newspapers,
magazines, confectionery and drinks) and Books.
High Street’s trading is seasonal, peaking at
Christmas and in August/September for ‘Back
to School’.
We also have a number of online businesses:
• funkypigeon.com – our personalised cards and gifts site.
• whsmith.co.uk – which sells a range of Stationery, Books,
Magazines and Gifts.
• cultpens.com – our specialist pen site.
• treeofhearts.co.uk and dottyaboutpaper.co.uk – our specialist
wedding stationery sites.
These websites complement our core in-store and stationery
offers and have accelerated during the Covid-19 pandemic.
High Street’s performance is dependent upon overall growth
in consumer spending and the levels of footfall on the UK high
street. Since Covid-19, we have seen further declines in the level
of footfall on UK high streets. There is a wide discrepancy in store
performance depending on the location, with smaller market
towns and more affluent catchments performing better than city
centre locations, reflecting the level of government restrictions
imposed due to Covid-19. Going forward, further lockdowns or
restrictions in the UK would impact the performance of our
High Street stores.
Funkypigeon.com is our online personalised greeting card and
gifting website. The market for greetings cards in the UK is
substantial and estimated at £1.6bn1 with online penetration
estimated at c.15 per cent1 with OC&C forecasting online growth
of single cards over the next three years, taking penetration to
c.20 per cent1 of the card market by 2024. The UK greetings card
market has been stable with a culture of sending greetings cards
in the UK, with adults sending on average 20 greetings cards per
person each year.
1 Company estimates/OC&C 2019
06
WH Smith PLC Annual Report and Accounts 2021
Strategic report Chairman’s statement
We are now in a strong position to capitalise on the
growth opportunities that exist in our markets.”
Henry Staunton
Chairman
Despite the ongoing uncertainty throughout the
financial year, the Group has delivered a robust
performance. We have taken decisive actions to
secure the financial position of the Group and we are
now in a strong position to capitalise on the growth
opportunities that exist in our markets. Within Travel,
despite the significant impact on passenger numbers
in the year, we have won strategically important
business in the UK, with 30 technology stores won2
across UK airports.
This is a significant step forward for the Group as we introduce
our market-leading technology business in travel locations in the
US, InMotion, to the UK, making it the largest, global technology
retailer in travel locations.
In addition, the growth opportunities in the North American travel
market are substantial. During the year, we have won some
significant new business at major US airports and we are in a
strong position as the market recovers.
While the easing of government-imposed restrictions had a
positive impact on the Group’s performance in the second half of
the financial year, the Group has continued to be significantly
impacted by the Covid-19 pandemic. Across our global travel
business, passenger numbers have been significantly impacted.
In our High Street business, we have seen a structural shift in
consumer behaviour accelerated by the pandemic, resulting in
reduced high street footfall. Despite these challenges, our teams
have acted fast and responded to the evolving trading
environment by focusing on initiatives within our control that
support us in the short term and put us in a better position to
emerge operationally stronger as our markets recover.
Once again, I feel immense pride for how our colleagues have
responded to the pandemic and the resulting challenges.
During the year, we committed to playing our part in the
communities we serve to provide access to vital postal and
banking services from our High Street stores with Post Offices.
Similarly, we kept the majority of our stores open in hospitals
in order to support frontline NHS workers. This would not
have been possible without the extraordinary commitment
of our store colleagues and I remain grateful for their
outstanding contribution.
2 As at 10 November 2021
Looking ahead, value creation remains central to our plans and
we will continue to invest for the longer term where we see
attractive opportunities for profitable growth.
Corporate governance
Corporate governance remains an important area of focus for the
Board and underpins the sustainability of our business and the
achievement of our strategy. A more detailed explanation of our
approach to corporate governance can be found in our Corporate
governance report on pages 41 to 88.
Sustainability
We are committed to adopting a market-leading position on
responsible business practices, and seek to make a positive
impact on the planet, the lives of our people and the communities
in which we operate. This year, we met our target to reach carbon
neutrality for our UK operations by 2021. We continued our work
to reduce plastic packaging and ensure no deforestation from the
manufacture of our stationery products. In addition, we extended
our programme to provide books and reading support to
disadvantaged children, continuing our work with the National
Literacy Trust and others.
Further information on all aspects of our sustainability
programmes can be found on pages 29 to 36.
People
It has been another challenging year for our colleagues across
the Group and I am sincerely grateful for their ongoing
contribution. We have a very strong team at WHSmith and this
year has proven that despite the many challenges we have faced,
we have outstanding talent to lead our business.
Outlook
While we remain cautious in our approach, we are a resilient
and versatile business. We are financially strong and are well
placed to benefit in due course from further opportunities as our
markets recover. We remain very disciplined with our capital
allocation and going forward remain committed to delivering
value for our shareholders.
Henry Staunton
Chairman
11 November 2021
07
WH Smith PLC Annual Report and Accounts 2021Strategic report Chief Executive’s review
We are a financially strong Group in a robust
position to emerge operationally stronger.”
Carl Cowling
Group Chief Executive
Covid-19 continues to have a significant impact on
the performance of the Group. Over the last year,
we have worked hard throughout the world to
navigate our way through the changing government
restrictions in each country. The imposition and
subsequent easing of lockdowns and restrictions
has meant we have developed a flexible and dynamic
approach to operating our stores, opening up when
we had sufficient customer traffic to generate
incremental cash or, in line with government
guidelines, remaining open to provide essential
products and services to our customers.
As at 31 October 2021, we had 1,540 stores open around the
world out of a total portfolio of 1,711 stores.
Our overriding priority during the year has been the health and
wellbeing of all our colleagues and customers. All stores,
distribution centres and head offices had appropriate safety
measures in place in line with the relevant government guidance
at any one time, including social distancing measures, PPE for
colleagues’ use, protective screens and guidelines to limit the
number of customers in store. In addition, all head office staff,
having initially worked at home, are now operating a hybrid
model, combining home and office working.
Group overview
Throughout the year, the trading environment remained impacted
by Covid-19 with extensive restrictions in place. We focused on
initiatives within our control that have supported us in the
immediate term and put us in a good position to emerge
operationally stronger as our markets continue to recover.
These key areas of focus are:
• Securing our financial position through the new banking
arrangements and convertible bond issuance announced
in April 2021. This gives us a strong balance sheet, extends
maturity dates to 2025 and increases our revolving credit
facility to £250m.
• Driving average transaction value and sales per passenger.
1 Liquidity is defined as cash on deposit plus undrawn facilities
2 Equivalent month in 2019
• Extending our categories and ranges to reflect the specific
needs of our customers in each location where we operate.
For example, health and beauty products across our Travel
stores and working from home and electrical accessories
ranges across our High Street stores.
• Working with landlords and building on our strong
relationships to create opportunities for winning new business,
extending key contracts and improving the quality and location
of the space where we operate. The expansion of InMotion into
the UK through the winning of every technology store in UK
airports is a good example of this in practice, reflecting the
combination of our core travel retail expertise, strong brand
and landlord relationships, and builds on the learnings from
operating InMotion in the US.
• Investing capex in strategically important projects which set
us up well for the future, such as our refitted stores at London
Heathrow Terminal 5 and our stores at the new terminal at
Manchester Airport.
• Building our internet proposition by extending ranges, investing
in the websites, marketing, fulfilment and distribution and
building customer engagement through social media.
• Forensic focus on costs and cash, minimising discretionary
spend and managing our cash burn resulting in cash on
deposit of £107m and access to £357m of liquidity1 as at the
end of October 2021.
Total Group revenue as a percentage of 2019 total revenue
has been:
Percentage of 2019 Revenue2
FY 2021
Q1
Q2
Q3
Q4
88%
39%
59%
83%
35%
58%
86%
45%
61%
87%
63%
71%
FY 2022
9 weeks to
30 October 2021
88%
79%
82%
High Street
Travel
Group
Covid-19 continued to have a significant impact on the Group.
Total Group revenue at £886m (2020: £1,021m) was down
13 per cent compared to last year (which included six months
pre-pandemic) and was 62 per cent of 20192. Travel remained
impacted by the government enforced travel restrictions
throughout the year. However, we saw an improved performance
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 (applying the principles of IAS 17) information, and
therefore the results for the years ended 31 August 2021 and 31 August 2020 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 154. Group revenue was not affected by the adoption of IFRS 16, and therefore all references to and discussion of revenue, and like-for-like revenue are based on statutory measures.
08
WH Smith PLC Annual Report and Accounts 2021
Strategic report across all channels in the second half as restrictions were eased
in most countries where we operate and which has continued
into Q1 of the current financial year. We saw a consistently
robust performance in High Street throughout the year, despite
footfall declines, with the important December trading period at
92 per cent of 2019. Our internet businesses have continued to
perform strongly.
The Headline Group loss from trading operations3 for the year
was £20m (2020: loss of £43m) with Headline Group loss before
tax and non-underlying items3 at £55m (2020: loss of £69m).
This includes a second half performance over £110m better than
the prior year. Including non-underlying items, the Headline
Group loss before tax3 was £104m (2020: loss of £226m).
The Group loss before tax, after non-underlying items and
including IFRS 16, was £116m (2020: loss of £280m).
On 28 April 2021, the Group announced new financing
arrangements which included a £250m Revolving Credit Facility
(RCF) (increased from £200m) with maturity extended to 2025.
At the same time, the Group launched an offering of convertible
bonds which mature in 2026. The bonds raised £327m, of which
£50m was retained by the Group to fund new and existing growth
opportunities, including the InMotion stores won in the UK and
the further 100 stores won and yet to open in Travel.
The remaining £267m was used to pay down a significant
proportion of the Group's term debt with its commercial banks,
which now stands at £133m with a maturity in 2025.
The Group had the following cash, committed facilities and drawn
debt as at 31 August 2021:
31 August 2021
Maturity
Cash and cash equivalents
Revolving Credit Facility4
Term Loan
Convertible Bond
£130m
£250m
£133m
£327m
April 2025
April 2025
April 2026
As at 31 August 2021, Headline net debt3 was £291m
(2020: £301m). We continued to focus on cash. Group free
cash flow3 was an inflow of £14m (2020: outflow of £41m).
As at 30 October 2021, access to liquidity was £357m being
cash on deposit of £107m and the undrawn RCF.
The Board has announced that it will not be paying a dividend
in respect of the financial year ending 31 August 2021.
The Group’s approach to capital allocation remains unchanged:
• investing in our existing business and in new opportunities
where we see attractive rates of return ahead of the cost
of capital;
• re-establishing a dividend for our shareholders;
• undertaking attractive value-creating acquisitions in strong
and growing markets; and
• returning surplus capital to shareholders by way of
share buybacks.
In normalised conditions, we have a leverage target of between
0.75x and 1.25x EBITDA.
3 Alternative Performance Measure defined and explained in the Glossary on page 154
4 Undrawn as at 10 November 2021
Travel performance
Covid-19 continued to significantly impact the business across
our UK, North America and Rest of the World markets. This has
resulted in a total Headline trading loss3 of £39m (2020: loss of
£33m) in the year, which is comprised of a loss of £32m in the
UK (2020: loss of £1m), a profit of £6m (2020: loss of £18m) in
North America and a loss of £13m (2020: loss of £14m) in the
Rest of the World. Total revenue was £401m (2020: £553m),
down 27 per cent compared to last year.
In Travel, we have focused on initiatives within our control, that
have supported us in the immediate term, and positioned us well
to emerge operationally stronger as our markets recover.
As restrictions have eased, we have seen a return to travelling,
led first by domestic travel and then short-haul. Long-haul travel
will be the last to recover. Most industry forecasts including
Airports Council International (ACI) expect passenger numbers to
return to 2019 levels by 2024.
We continue to invest in the business where we see attractive
opportunities for profitable growth.
High Street performance
We have managed this business very tightly throughout the year
given the uncertain trading environment, with an ongoing focus
on cost control and cash generation. High Street delivered a
resilient performance with a full year Headline trading profit3
of £19m (2020: loss of £10m). Total revenue was up four per cent.
Cost savings of £30m were delivered in the year. An additional
£45m of cost savings have been identified over the next three
years, of which £35m are planned for 2021/22.
Environmental, Social and Corporate Governance (‘ESG’)
During the first half of the financial year, we launched our new
sustainability strategy, ‘Our journey to a better business’, and we
have continued to focus on our ESG performance.
During the year, we have met our target to reach carbon
neutrality for our UK operations, reducing our energy
consumption by over 60 per cent since 2007, switching to
100 per cent renewable electricity and investing in tree planting
projects to neutralise residual emissions.
Over the next few years, we intend to extend this approach to our
international operations and encourage our supply chain to join
us on the pathway to net zero. We will be seeking independent
assessment and approval of our carbon targets from the Science
Based Target Initiative in the next year.
We continue to focus on more environmentally responsible
sourcing practices and we have removed plastic glitter from all
our own-brand ranges. This is in addition to our work to redesign
and remove plastic packaging from our seasonal ranges
wherever possible.
One of the greatest impacts of the pandemic has been the
increasing gap in children’s literacy levels. We are therefore
proud to continue our partnership with the National Literacy
Trust at such an important time.
We are committed to continuing to play our part to address some
of the key challenges facing society and the environment over the
years ahead.
09
WH Smith PLC Annual Report and Accounts 2021Strategic report Review of operations
Total Travel
Highlights
Revenue
£401m
(2020: £553m)
Headline trading loss1
£(39)m
(2020: £(33)m
Total revenue
(27)%
(2020: (32)%
Retail selling space (sq ft ‘000s) and Number of stores2
2021
2020
2019
2018
2017
Number
of stores
Retail
selling
space
1,166
995
1,174
1,000
1,019
867
815
744
650
613
In Travel, we have focused on
initiatives within our control that have
supported us in the immediate term,
and put us in a good position to
emerge operationally stronger as
our markets recover.”
1 Alternative Performance Measure defined and explained in the Glossary on page 154
2 Travel stores include motorway and international joint ventures and franchise units and
exclude kiosks in China and India, and Wild Cards and Gifts in Australia
3 Equivalent month in 2019
10
WH Smith PLC Annual Report and Accounts 2021
Performance review 2020/21
Our Travel business comprises three divisions: UK, North
America (NA) and Rest of the World (ROW). Going forward
we will split Travel into these three segments when reporting
our results.
Covid-19 continued to significantly impact the business across all
our markets. This has resulted in a total Headline trading loss1 in
the year of £39m (2020: loss of £33m). Total revenue was £401m
(2020: £553m), down 27 per cent compared to the previous year.
£m
Travel UK
North America
Rest of the
World
Total Travel
Trading (loss)/profit1
IFRS 16
Headline trading (loss)/
profit1
pre-IFRS 16
Revenue
2021
(29)
2
(17)
2020
(1)
(14)
(12)
2021
(32)
6
(13)
2020
(1)
(18)
(14)
2021
195
166
40
2020
344
116
93
(44)
(27)
(39)
(33)
401
553
In all our markets, we have focused on initiatives within our
control which support us in the immediate term and put us
in a good position to emerge operationally stronger as our
markets recover:
i. Business development and winning new business
We do this through building and managing relationships with
all our landlord partners to win new space, improve the quality
and amount of space, develop new formats and extend
contracts. As at 31 October 2021, we had over 100 stores won
and yet to open across our global Travel business, including
22 InMotion stores in UK air.
ii. ATV growth and spend per passenger
We do this through our forensic attention to space, cross
category promotions, merchandising, store layouts and
store refits.
iii. Category development
We do this by developing adjacent product categories relevant
for our customers, such as health and beauty and electrical
accessories ranges; and expanding existing categories,
e.g. premium food ranges.
iv. Minimising costs
We remain focused on cost control and minimising our cost
base to reflect the level of sales in each channel and country
whilst retaining our ability to trade as recovery occurs.
As restrictions have eased, we have seen a gradual improvement
in passenger numbers, led first by domestic travel and then
short-haul. We expect long-haul travel to return last.
Consensus of industry forecasts including the Airports Council
International (ACI) expect passenger numbers to return to 2019
levels by 2024, although the speed and shape of the recovery
remains unclear and variable. We concur with this view of
the recovery.
Strategic report As at 31 October 2021, we have eight InMotion stores trading in
UK airports. These include a combined WHSmith and InMotion
store at London Stansted airport which forms part of a format
trial, combining under one roof a news, books and convenience
offer by WHSmith with a technology range from InMotion.
Similar to our flagship store at London Heathrow Terminal 2,
this store boasts a large digital fascia which complements further
digital signage in store, creating an attractive look and feel while
promoting key offers and products. While it is still early days,
there is scope to further develop this new combined format
across our existing large airport stores going forward. In addition,
we will launch a new reserve and collect service later this year in
our new InMotion stores to provide our customers with another
quick and convenient way to shop.
Technology and accessories is a strong growth market and
in a fully recovered travel market we would anticipate that these
stores will deliver c.£80m of incremental sales per year.
Investment in capex and working capital relating to these stores
in the year will be c.£18m. We expect most of the remaining
stores to open by the end of the first half of the current
financial year.
We have also continued to invest in our stores, develop new
formats and win new business in this channel. This has included:
major refits across London Heathrow Terminal 5 to our ‘store of
the future’ format, the opening of three stores in the new
terminal at Manchester airport in October 2021, our first shared
space store with M&S Food at Liverpool Airport, the opening of
a new standalone Bookshop at London Heathrow Terminal 2,
and, under a franchise agreement, new Costa Coffee stores in
Aberdeen and Southampton airports.
Our ongoing investment in format development puts us in a
stronger position to win more new business while benefiting
from higher levels of customer penetration, delivering a greater
return on our space. Going forward, we expect more space to
become available.
Category development remains a key part of the strategy and we
have made good progress in the year, extending our ranges into
new categories such as health and beauty, tech accessories,
premium souvenirs and premium food trials. The premium food
trials include YO! Sushi and Crussh which have delivered a 25 per
cent increase in ATV and have been rolled out to further stores.
As expected, we have seen a faster return of leisure passengers
over the period. We saw another step change in sales over the
half-term holiday in October, with sales at 70 per cent of the
comparable period in 2019.
During the year, we have also successfully extended a number
of key contracts.
As at 31 August 2021, our global Travel business, including
MRG and InMotion, operated from 1,166 units (31 August
2020: 1,174 units). Of these, 996 were open as at 31 October 2021.
Outside of the UK, as at 31 August 2021 we are present in over
100 airports and 30 countries with 291 stores in North America,
84 stores in Europe, 98 in the Middle East and India and 122 in
Asia Pacific.
Excluding franchise units, Travel occupies 1.0m square feet.
Travel UK
Our Travel UK business continued to be impacted by a significant
decline in passenger numbers as a result of government-
imposed travel restrictions in place throughout the financial year.
Total revenue in the year was £195m, (2020: £344m), down 43 per
cent on the previous year. Compared to 20193, revenue in air was
17 per cent, our hospital channel was 76 per cent, and rail was
32 per cent. This resulted in a Headline trading loss¹ of £32m
(2020: loss of £1m).
While first half trading in Travel UK was impacted by lockdown
restrictions, quarantine measures, and resultant reduced
passengers on public transport, we saw encouraging signs of
recovery across all our channels in the second half as restrictions
were progressively eased. This improved performance has
continued into the new financial year. Revenue in September 2021
was 60 per cent. In October 2021, revenue was 71 per cent of
2019 revenue, with air at 59 per cent, hospitals at 92 per cent and
rail at 74 per cent.
In air, we saw a significant improvement in passenger numbers
in the second half as restrictions eased and more countries were
added to the UK Government’s green list. We saw an
improvement in our hospital performance, with higher levels of
visitors, as hospitals returned to more general medical care
with more elective surgeries. Similarly, we saw an improved
performance in our rail business as restrictions eased over the
summer months and commuter traffic increased. Since the
beginning of the new financial year, we have seen a notable shift
in rail passenger numbers with strong performances particularly
over the weekends and an improving weekday performance,
albeit still below pre-pandemic levels.
We have worked hard across all our channels to deliver against
our plan, focusing on key priorities within our control. All three
channels saw a double digit increase in ATV during the year.
As at 31 August 2021, Travel UK operated from 571 stores of
which 518 were open as at 31 October 2021. Over the next three
years, we expect to open an additional ten to 15 stores each year.
Air
In Air, where leisure passengers have been the most important
customer segment before and during the pandemic, we have
continued to build on our strong position in this channel,
including successfully winning all the technology stores across
UK airports, including London Heathrow, London Gatwick and
London Stansted airports. These business wins comprise
30 stores and will trade under the InMotion brand. Combining the
learnings and expertise from our InMotion stores in the US, these
stores will provide a first-class customer service experience and
showcase a range of premium brands, such as Apple, Bose and
Samsung, as well as an extensive range of tech accessories.
11
WH Smith PLC Annual Report and Accounts 2021Strategic report Review of operations continued
Hospitals
The Hospitals channel is an important channel for us and it is
our second largest channel by revenue in Travel UK. While sales
were clearly impacted in the first half of the financial year,
with no hospital visitors and elective surgeries cancelled,
we saw an improvement in the second half as restrictions eased
and these stores performed well. This strength in performance
has extended to the new financial year with sales in October
at 92 per cent of 2019 levels.
The hospital market continues to grow with additional
government investment and we are well placed to service the
increased demand for retail services in hospitals resulting from
extended operating times to compensate for department
backlogs. In addition, there are considerable space opportunities
for us to improve the retail offer across UK hospitals.
As at 31 August 2021 we operated from 138 stores in 100
hospitals and we believe there is scope for around 300 hospitals
in the UK that are able to support at least one of our three store
formats (WHSmith, M&S Food and Costa Coffee).
This channel is a good example of how we continue to innovate
with a strong proposition tailored to each location, and a broad
suite of formats and brands; including most recently, our first
WHSmith store with a Post Office in Travel.
As at 31 August 2021 we operated 49 M&S standalone or
shared space stores across hospitals, including a recently
opened M&S Café at St Thomas’ hospital in London.
Looking ahead, we would expect to return to opening on average
circa ten new stores each year in this channel over the
medium term.
Rail
Rail remains an attractive channel. According to the Department
for Transport, pre-pandemic, rail had approximately 1.7bn
passenger journeys with leisure passengers accounting for
around 40 per cent of these journeys.
During the year, we have seen a gradual improvement in sales as
restrictions have eased. Concourse data for October suggested
passenger numbers in October were 66 per cent of 2019 levels.
Revenue in rail in October was at 74 per cent of 2019 levels.
As we have done across all our channels, we continue to focus
on driving ATV and we have seen some good results with a
c.25 per cent increase from expanding categories (such as
premium food as we have in air) and changing store layouts.
We also continue to invest and develop new formats in this
channel. We have recently opened our first shared space store
in rail with M&S Food at Bristol Templemeads Station. While it
is still early days, both customer and landlord feedback has
been positive.
1 Alternative Performance Measure defined and explained in the Glossary on page 154
2 Excludes one-off integration costs. See Note 4
3
Includes proforma MRG for 2019
12
WH Smith PLC Annual Report and Accounts 2021
In addition, we will be launching a new ‘blended essentials’
store at Euston Station in London later this month. This store
will combine our traditional news, books and convenience offer
with electrical accessories, health and beauty products and
a pharmacy.
North America
We saw a strong performance from North America, where there
was a steady recovery in passenger numbers and also visitors to
Las Vegas over the spring and summer months. Total revenue for
the year in North America was £166m (2020: £116m), with a
Headline trading profit1 of £6m (2020: loss of £18m). The Headline
trading profit1 of £6m2 reflects the recovery in passenger
numbers and tight cost control including the benefits from
merging the MRG and InMotion head offices into Las Vegas.
The growth opportunities in North America are substantial.
The US is the largest travel retail market in the world with annual
sales, pre-pandemic, at $3.2bn. Approximately 85 per cent of
passengers are domestic, with leisure passengers the biggest
segment. TSA (Transportation Security Administration) data
continues to show the gradual recovery in passenger numbers
week on week, with passenger numbers at the end of October
2021 at 84 per cent of 2019 levels.
MRG has a strong track record of winning new business and we
have 58 new stores (including InMotion) won and due to open in
North America over the next three years with 17 stores won this
financial year, including significant wins at major US airports.
During the year, MRG opened eight airport stores, including
stores at La Guardia and San Francisco airports. InMotion has
an excellent store portfolio with 117 stores located across
41 airports in North America and three stores in Resorts.
During the year, InMotion opened seven stores, including three
InMotion stores in Resort locations.
Differentiated from its competitors by its strategy of developing
highly customised retail experiences tailored to local customers
and landlords, which we also now use in tenders around the
world, MRG has a highly successful and proven business model.
The combination of WHSmith, MRG and InMotion now enables
the Group to participate in the entire North American airport
specialty retail market. We expect a substantial amount of retail
space to be offered for tender over the next ten years.
Outside of the airport business, the Resorts channel continues
to be resilient. MRG are a leading player in this channel in
Las Vegas and other resorts with very longstanding relationships
and a significant amount of expertise. The Resorts channel has
similar dynamics to our Travel business with a high number of
short-stay visitors who tend to stay around the Las Vegas Strip
and Fremont Street areas, where most of our stores are located.
This market has proven resilient as a leisure location over the
summer with occupancy levels according to the Las Vegas
Convention and Visitors Authority at 87 per cent of 2019 over
July and August. Whilst many people drive to Las Vegas, we are
also seeing an increase in passenger numbers at McCarran
International Airport.
Strategic report Our sales performance has reflected these trends with overall
sales in North America at 90 per cent3 of 2019 levels in October.
We are currently trading from 264 stores (151 MRG and
113 InMotion).
We continue to invest in digital technology to enhance the
customer experience in our stores, and we will be opening
our first frictionless, check-out free store in the coming weeks.
The WHSmith branded store will provide US customers with
a quick and easy way to shop using Amazon's ‘Just Walk Out’
technology.
Rest of the World
Total revenue for the year in ROW was £40m (2020: £93m), down
57 per cent versus the previous year. The Headline trading loss1
for the year was £13m (2020: loss of £14m).The ROW has seen
broadly similar trends to the UK, with passenger numbers
significantly down year on year. The pace of recovery has varied by
geography, as expected, with Europe and the Middle East the best
performing regions in the second half. As we have done in Travel
UK, we remain focused on areas within our control, including
increasing ATV.
As this market recovers, we expect to see more space become
available. Our very low market share of the News Books and
Convenience market outside of the UK and NA means there is
significant opportunity to grow this business further. We also see
good opportunities to win new business in the technology market
under our InMotion brand. We are delighted to have been
awarded preferred bidder status for two InMotion stores at Dublin
Airport. This win in a significant European airport will bring the
total number of InMotion stores in the Rest of the World to ten.
As at 31 October 2021, we had 214 stores trading (c.70 per cent
of the total).
During the year we opened 17 new stores. In addition, we won
21 new stores, including significant tenders at Adelaide Airport,
Australia, Melbourne Airport Terminal 1 and Bali.
In total, as at 31 August 2021, we operated 304 stores (2020: 307).
40 per cent are directly run, 52 per cent are franchised with the
balance being joint ventures. We will continue to use these
three economic models flexibly in order to create value and
win new business.
13
WH Smith PLC Annual Report and Accounts 2021Strategic report Review of operations continued
High Street
Highlights
Revenue
£485m
(2020: £468m)
Headline trading profit / (loss)1
£19m
(2020: loss £(10)m)
Total revenue
+4%
(2020: (19)%)
Retail selling space (sq ft ‘000s) and Number of stores2
2021
2020
2019
2018
2017
Number
of stores
Retail
selling
space
544
2,610
568
2,682
576
2,740
607
2,764
611
2,799
During the year, we have acted quickly
and taken a number of actions which
means the cashflow and profits of this
business are robust and sustainable.”
1 Alternative Performance Measure defined and explained in the Glossary on page 154
2 Excluding 1 Cardmarket store that has not yet closed (2020: 3 Cardmarket stores) and
including branches in Guernsey and the Isle of Man
14
WH Smith PLC Annual Report and Accounts 2021
Performance review 2020/21
Our High Street business comprises our store portfolio on UK
high streets and includes our websites whsmith.co.uk, cultpens.
com and our personalised greeting cards and gifts business,
funkypigeon.com. During the year, High Street delivered a
resilient performance with Headline trading profit1 of £19m
(2020: loss of £10m) on revenue of £485m, four per cent higher
than 2020. Trading profit¹ (including IFRS 16) was £36m
(2020: loss of £4m). We managed the business tightly in an
uncertain trading environment, keeping focused on costs and
cash generation.
The market has changed significantly during the pandemic,
resulting in a shift in consumer behaviour over the past
18 months. High street footfall is down 25 per cent versus 2019
levels with internet retailing growing. The speed of this change
has accelerated during the pandemic. As a consequence, we
have acted quickly to this changing market in a number of ways:
• We have reviewed our categories and extended them where
appropriate to ensure we have greater relevance in this market
and where competitors have closed. New categories include
working from home ranges and tech accessories, and we have
increased our ranges of cards where competition
has weakened.
• We have invested in our whsmith.co.uk, funkypigeon.com and
cultpens.com websites where we are seeing significant growth.
• We restructured the cost base to reduce costs and also to
increase the level of flexibility in our business model, for
example labour costs in stores, head offices and the
distribution centres, and in occupancy costs reducing rent and
keeping leases short and flexible.
• We closed 24 stores over the last 12 months where leases had
become uneconomic and now have a closure process where
the costs of closure are largely cash neutral. While closing
stores is not an easy decision to make for our colleagues or
the communities we serve, it is vital we retain a strong and
cash-generative high street portfolio going forward.
The strategy we have in place in our High Street business
remains as relevant today as it has ever been, focusing on space
and category management, increasing margins and reducing
costs. Our stores are well located with 95 per cent in prime
pitch locations.
We consider retail space as a strategic asset and we utilise our
space to maximise return in the current year, in ways that are
sustainable for future years. We have extensive and detailed
space and range elasticity data for every store, built up over many
years and we utilise our space to maximise the return on every
metre drop of display space in every store. This approach
remains as appropriate today.
Driving efficiencies remains a core part of our strategy and
we continue to focus on all areas of cost in the business.
We achieved cost savings of £30m in the year. These savings
come from right across the business, including rent savings
at lease renewal (on average over 50 per cent), which continue to
be a significant proportion, government business rates
holiday, marketing efficiencies and productivity gains from
our distribution centres.
Strategic report An additional £45m of cost savings have been identified over the
next three years of which £35m are planned for 2022.
Over the years, we have actively looked to put as much flexibility
into our store leases as we can, and this leaves us well positioned
in the current environment. The average lease length in our High
Street business, including where we are currently holding over at
lease end, is under two and a half years. We only renew a lease
where we are confident of delivering economic value over the life
of that lease. We have c.430 leases due for renewal over the next
three years, including 150 where we are holding over and in
negotiation with our landlord.
As at 31 August 2021, the High Street business operated from
544 WHSmith stores2 (2020: 568) which occupy 2.6m square feet
(2020: 2.7m square feet). 24 WHSmith stores were closed in the
year (2020: eight).
Specialist websites
During the year, we have increased our investment and focus on
whsmith.co.uk and have seen rapid growth through investing in
the site. This has included improving customer conversion and
product presentation; broadening our approach to marketing;
and investing in fulfilment using our Swindon Distribution Centre.
This enables us to have a credible multi-channel offer which is
complementary for our customers.
Our specialist pen website, cultpens.com, has continued to
perform well. During the year, we have invested further in the
site, adding international functionality to build on our existing
international sales, and we have extended our fulfilment centre
to meet demand. In addition, we have continued to focus on our
luxury pen ranges with increased marketing investment in
ranges such as Montblanc.
Funkypigeon.com delivered a record performance in the year.
Total revenue was £54m with EBITDA1 of £14m for the year.
The market for greetings cards in the UK is substantial and
estimated at £1.6bn3 with online penetration estimated at
c.15 per cent3 with OC&C forecasting online growth of single
cards over the next three years, taking penetration to
c.20per cent3 of the card market by 2024. The UK greetings card
market has been stable with adults sending on average
203 greetings cards per person each year. We therefore see
significant growth opportunities with funkypigeon.com.
We continue to invest in the site. During the year, we have
developed the funkypigeon.com app to improve customer
conversion, and invested in platform enhancements, including
improving our customer relationship management capability.
We have further extended the fulfilment capability to meet
demand, supporting the significant increase in new customers
over the past 18 months, with a new production facility in
Swindon and leveraging the Group’s existing assets. In addition,
we have strengthened the management team with a new
Managing Director.
We have also recently launched a new next-day delivery service,
operational seven days a week, to further enhance our customer
proposition. Orders placed before 9:30pm will be fulfilled the
following day. This has received very positive customer feedback.
Whilst the current year will see a lower sales and EBITDA
as we anniversary the lockdown periods, we believe there are
substantial opportunities to grow the platform further and
significantly grow sales and profits.
Outlook
The Group has responded quickly to the changing trading
environment despite the challenges and uncertainties faced
during the year. We have managed our cash position well,
refinanced our debt, and have sufficient liquidity to capitalise on
the significant growth opportunities that have become available
as a result of the pandemic.
We continue to make good progress in winning new space in
Travel both in the UK, North America and the Rest of the World.
In UK air, we have now won 30 technology stores. These stores
will trade under the brand InMotion, further strengthening our
presence in this category in Travel. As well as the 117 stores in
North America, these 30 InMotion stores in the UK, including at
London Heathrow, London Gatwick and London Stansted
airports, will make InMotion the leading technology retailer in
travel locations. In addition, we are delighted to have been
awarded preferred bidder status for a further two InMotion stores
at Dublin Airport.
We have also made good progress investing in our existing
stores, opening new formats and winning new business.
We anticipate further growth opportunities across all our
markets. All this puts us in a robust position to continue to
recover and emerge operationally stronger from the pandemic.
We are financially strong and are an important retail partner for
our travel landlords. As a result, we are well positioned to benefit
from further opportunities, including extending our user clauses
to drive spend per passenger.
Our High Street business has delivered a robust performance
and is well placed to continue to generate cash from its portfolio
of well-located stores and growing internet businesses.
Across our digital channels over the medium-term, we expect to
see strong growth, particularly from funkypigeon.com, and we
are well positioned to grow this platform further.
Subject to uncertainties in our markets, which continue to be
impacted by government actions, we are optimistic that we will
be able to achieve 2019 sales levels in the current financial year4.
Carl Cowling
Group Chief Executive
11 November 2021
3 Company estimates/OC&C 2019
4
Includes acquisitions and new wins
15
WH Smith PLC Annual Report and Accounts 2021Strategic report Financial review
While we will continue to plan cautiously,
we expect to continue to see improving trends
across all our key channels.”
Robert Moorhead
Chief Financial Officer and Chief Operating Officer
Group
The Group generated a Headline loss before tax and non-
underlying items¹ of £55m (2020: £69m) and, after non-underlying
items and IFRS 16, a Group loss before tax of £116m
(2020: £280m). During the year, the Group received a total of
£11m from the UK Government’s Job Retention Scheme and
similar schemes in other countries. The Group also benefited
from the business rates holiday implemented by the UK
Government which was worth £40m in the year.
£m
Travel trading loss¹
North America trading
profit/(loss)¹
Rest of the World trading loss¹
Total Travel trading loss1
High Street trading profit/(loss)1
Group loss from trading
operations1
Unallocated costs1
Group operating loss
Net finance costs
Group loss before tax
Non-underlying items
Group loss before tax
IFRS
2021
(29)
2
(17)
(44)
36
(8)
(19)
(27)
(24)
2020
(1)
(14)
(12)
(27)
(4)
(31)
(17)
(48)
(20)
Headline¹
pre-IFRS 16
2021
(32)
6
(13)
(39)
19
(20)
(19)
(39)
(16)
2020
(1)
(18)
(14)
(33)
(10)
(43)
(17)
(60)
(9)
(51)
(65)
(116)
(68)
(212)
(280)
(55)
(49)
(104)
(69)
(157)
(226)
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 and incidence, are treated as
non-underlying items and disclosed separately. As in 2020, most
non-underlying items are directly attributable to Covid-19, and
are detailed in the following table. Most do not impact cash.
1 Alternative Performance Measure defined and explained in the Glossary on page 154
16
WH Smith PLC Annual Report and Accounts 2021
The cash spend relating to non-underlying items in the 2021
financial year was £38m and mainly related to activity announced
in 2020.
See reconciliation of Headline net debt1 on page 18 for the
cash spend in the year ended 31 August 2021 in relation to
non-underlying items.
Headline ¹
pre-IFRS 16
2021
IFRS
2021
Income statement
Headline¹
pre-IFRS 16
2020
IFRS
2020
Income statement
42
–
Ref.
(1)
(2)
(3)
(4)
(2)
£m
Costs directly attributable to Covid-19
Impairment
Onerous leases
Stock provisions, write-offs
and other costs
Restructuring
Other property costs
Costs associated with
refinancing activity
Other non-underlying costs
Transaction costs
Integration costs
Amortisation
Pensions past
service cost
(6)
(7)
(8)
(5)
3
9
–
6
–
2
3
–
65
18
5
6
9
–
6
–
2
3
135
n/a
15
25
n/a
–
11
9
3
55
13
15
25
12
–
11
9
3
–
49
14
212
14
157
Items 1-5 in the above table have arisen as a direct consequence
of Covid-19, and reflect the impact of lost revenues as a result of
store closures, and downward revisions to budgeted revenues
based on expectations of the rate of return to pre-pandemic
levels of footfall and passenger numbers.
(1) Impairment of property, plant and equipment and
right-of-use assets
The impact on the Group’s operations of Covid-19 is expected to
continue during the next year and beyond. As a result, the Group
has carried out a review for potential impairment across the
entire store portfolio. The impairment review compared the
value-in-use of individual store cash-generating units, based
on managements’ assumptions regarding likely future trading
performance taking into account the effect of Covid-19 to the
carrying values at 31 August 2021. Following this review, a charge
Strategic report of £18m (2020: £55m) was recorded for impairment of retail store
assets on a pre-IFRS 16 basis, and £42m (2020: £135m) on an
IFRS 16 basis which includes an impairment of right-of-use
assets of £27m (2020: £95m).
(2) Onerous leases and other property costs
As a result of the impact of Covid-19, the Group has carried out
a review of leases where the obligations of those leases exceed
the potential economic benefits expected to be received under
them. This resulted in a charge for the year of £5m (2020: £13m).
This concept relates to pre-IFRS 16 numbers only and does
not exist under IFRS 16.
Other property costs of £12m in the prior year relate to
reinstatement liabilities for stores where the long-term viability
has been impacted by Covid-19. Under IFRS 16 these costs are
included in right-of-use assets and are therefore included within
the impairment figure.
(7) Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to the
MRG and InMotion brands, which are recognised separately from
goodwill. This amortisation is not considered to be part of the
underlying operating costs of the business and has no associated
cash flows.
(8) Pension past service cost
Past service cost of £14m was recognised in the prior year.
This related to the equalisation of pension benefits between men
and women for the period from 1 April 1992 to 29 July 1993
(‘Barber equalisation’).
A tax credit of £12m (2020: £25m) has been recognised in relation
to the above items (£9m pre-IFRS 16 (2020: £18m)).
Net finance costs
(3) Stock provisions, write-offs and other
During the year, non-underlying provisions of £5m have been
recorded against inventory, in addition to underlying provisions
of £13m, and relates to dated and perishable stock and stock
subject to obsolescence where the sell through rate has
significantly reduced due to store closures and lower footfall.
Other costs relate to international franchisees, and under IFRS
16 only, the derecognition of lease liabilities relating to the
disposal of WHSmith France.
£m
Interest payable on bank loans
and overdrafts
Interest on convertible bonds
Unwind of discount on onerous
lease provisions
Interest on lease liabilities
Net finance costs
IFRS
Headline¹
pre-IFRS 16
2021
2020
2021
2020
10
4
–
10
24
9
–
–
11
20
10
4
2
–
16
9
–
–
–
9
(4) Restructuring costs
The charge of £9m (2020: £25m) is principally attributable to
redundancies and restructuring costs following a review of store
operations across our High Street business, as a result of the
impact of Covid-19 on footfall on the UK high street. These costs
are presented as a non-underlying item as they are part of a
Board-agreed restructuring programme, and are considered
material and one-off in nature.
(5) Costs associated with refinancing activity
Costs associated with refinancing include £1m of non-cash
charges relating to unamortised fees connected with
extinguished liabilities, £3m of fees incurred in relation to
amendment and extension of the Group’s previous financing
arrangements incurred in March 2021 prior to the issuance
of the convertible bond, and £2m of professional fees relating to
refinancing and debt structuring activity required as a result of
Covid-19. Other fees incurred relating to refinancing activity have
been recognised in underlying finance costs or recognised as
a deduction from the value of liabilities recognised, and will be
amortised over the period of the arrangement through underlying
finance costs.
(6) Integration costs
During the year, the Group incurred further costs of £2m in
relation to the integration of MRG into the Group, and the
merging of the InMotion and MRG corporate offices into Las
Vegas, which has now been completed. In the prior year,
transaction and integration costs of £20m were incurred in
relation to the acquisition of MRG.
Net finance costs for the year were £16m (2020: £9m) with the
year on year increase reflecting the refinancing activity during
the year.
The interest on the convertible bonds includes the accrued
coupon and c.£2m on the non-cash accretion charge.
Looking forward, in the current financial year ending 31 August
2022, net finance costs will include the coupon on the convertible
bonds and c.£8m of non-cash debt accretion charges.
The £2m non-cash unwind of discount on onerous lease
provisions relates to onerous lease provisions recognised in the
current and prior year as a result of Covid-19. This relates to
pre-IFRS 16 only and does not exist under IFRS 16.
Lease interest of £10m arises on lease liabilities recognised
under IFRS 16, bringing the total net finance costs under IFRS 16
to £24m (2020: £20m).
We expect finance costs on a pre-IFRS 16 basis to be
approximately £25m in the current year, with cash finance
costs approximately £10m lower than this. These costs are
considerably lower than had the April refinancing not occurred.
Tax
The effective tax rate1 was 47 per cent on the loss before
non-underlying items made in the year (2020: 23 per cent).
The effective tax rate is higher than the prior year rate due to the
profile of losses incurred in the UK and overseas, and includes
a credit of £8m arising on the substantive enactment of a change
in UK tax rate from 19 to 25 per cent. This new law was
substantively enacted on 24 May 2021.
The tax rate on the IFRS 16 Group statutory loss was 31 per cent
(2020: 15 per cent).
17
WH Smith PLC Annual Report and Accounts 2021Strategic report Financial review continued
During the year, the Group received a corporation tax refund
of £10m following the carry back of 2020 losses against prior
year profits.
Fixed Charges Cover1
£m
Headline net finance charges¹
Net operating lease rentals (pre-IFRS 16)
Total fixed charges
Headline loss before tax1
Headline profit before tax and
fixed charges1
Fixed charges cover – times
pre-IFRS 16
2021
16
151
167
(55)
112
0.7x
2020
9
210
219
(69)
150
0.7x
Fixed charges, comprising property operating lease rentals and
net finance charges, were covered 0.7 times (2020: 0.7 times) by
Headline profit before tax and fixed charges.
Loss per share
Headline loss per share, before non-underlying items¹ was 23.7p
(2020:44.2p) reflecting the reduction in the loss year on year.
Loss per share, after non-underlying items and including IFRS
16, was 62.6p (2020: 199.2p).
Cash flow
Free cash flow1 reconciliation
£m
Headline Group operating loss before
non-underlying items1
Depreciation, amortisation and
impairment (pre-IFRS 16)2
Non-cash items
Operating cash flow3
Capital expenditure
Working capital (pre-IFRS 16)2
Net tax refunded
Net interest paid (pre-IFRS 16)
Other
Free cash flow
2021
2020
(39)
50
8
19
(44)
37
10
(8)
–
14
(60)
60
3
3
(79)
40
5
(7)
(3)
(41)
The free cash inflow¹ for the year was £14m. The operating cash
inflow was £19m (2020: £3m) driven by a good trading
performance from High Street. We continued to focus on
managing our working capital, making appropriate buying
decisions for stores we have open, and generated an inflow of
£37m in the year, which also includes the working capital benefit
from the improved trading over the summer.
Net corporation tax refunded in the year was £10m (2020: £5m)
following the carry back of 2020 losses against prior year profits.
Capital expenditure was £44m (2020: £79m). We continue to
invest in strategically important projects, such as London
Heathrow Airport Terminal 5 and the new terminal at Manchester
Airport, as well as opening stores around the world. We expect
capex spend for the current financial year to be around £100m.
£m
New stores and store development
Refurbished stores
Systems
Other
Total capital expenditure
2021
17
17
9
1
44
2020
34
17
14
14
79
Reconciliation of Headline net debt1
Headline net debt1 is presented on a pre-IFRS 16 basis.
See Note 19 of the Financial statements for the impact of IFRS 16
on net debt1.
As at 31 August 2021, the Group had Headline net debt1 of £291m
comprising convertible bonds of £283m, term loans of £132m
(net of fees), £6m of finance lease liabilities (pre-IFRS 16) and net
cash³ of £130m (2020: net debt of £301m, comprising term loan
of £400m relating to the acquisition of InMotion and MRG, £9m
of finance lease liabilities and net cash of £108m).
£m
Opening net debt
Movement in year
Free cash flow
Dividends
Pensions
Non-underlying items
Net purchase of own shares for employee
share schemes
Acquisition of businesses, net of cash
acquired – MRG/InMotion
Net proceeds from placings
Equity component of convertible bond
Other
Closing net debt
Cash
Term loans (net of fees)
Convertible bond
Finance leases
Headline¹
pre-IFRS 16
2021
(301)
14
–
(3)
(38)
(2)
1
–
41
(3)
(291)
130
(132)
(283)
(6)
(291)
2020
(180)
(41)
(47)
(3)
(20)
(2)
(316)
312
–
(4)
(301)
108
(400)
–
(9)
(301)
1 Alternative Performance Measure defined and explained in the Glossary on page 154
2 Excludes cash flow impact of non-underlying items
3 Headline Group operating (loss)/profit before depreciation, amortisation and impairment (pre-IFRS 16) and other non-cash items
18
WH Smith PLC Annual Report and Accounts 2021
Strategic report In addition to the free cash flow, the Group paid defined benefit
pension funding of £3m (see Note 5 on pensions); and £38m of
non-underlying items which mainly relate to restructuring costs
following the review of store and head office operations,
as previously reported and charged to the income statement
in the prior year.
As part of the Group’s refinancing in April 2021, the Group issued
convertible bonds maturing in 2026. The convertible bonds raised
£327m which was used to partially pay down the existing £400m
of term loans from both the Marshall Retail Group (‘MRG’) and
InMotion acquisitions. The convertible bond is a compound
instrument, which includes an equity option. As a consequence,
the debt is bifurcated into an equity component, reported in
equity, and a debt component. The debt component accretes up
to par over the life of the bond, so for each 12 month period we
will have c.£8m non-cash debt accretion in finance costs.
In addition, the Group increased the RCF from £200m to £250m
and extended its tenor to April 2025.
On an IFRS 16 basis, net debt was £755m, which includes an
additional £464m of lease liabilities.
Balance sheet
£m
Goodwill and other
intangible assets
Property, plant and equipment
Right-of-use assets
Investments in joint ventures
Inventories
Payables less receivables
Working capital
Net current and deferred tax
asset
Provisions
Operating assets employed
Net debt
Net assets excluding
pension liability
Pension liability
Deferred tax asset on
pension liability
Total net assets
IFRS
Headline¹
pre-IFRS 16
2021
2020
2021
2020
473
174
328
2
977
135
(214)
(79)
56
(14)
940
(755)
185
(3)
1
183
493
192
413
2
1,100
150
(183)
(33)
28
(14)
1,081
(851)
230
(4)
1
227
474
167
–
2
643
135
(237)
(102)
46
(28)
559
(291)
268
(3)
1
266
495
190
–
2
687
150
(226)
(76)
17
(27)
601
(301)
300
(4)
1
297
The Group had Headline net assets of £268m before pension
liabilities and associated deferred tax assets, £32m lower than
last year end reflecting the lower level of capex and the impact of
impairment reviews as a result of Covid-19. Headline net assets
after the pension liability and associated deferred tax asset were
£266m compared to £297m at 31 August 2020. Under IFRS 16 the
Group had net assets of £183m.
Pensions
The latest actuarial revaluation of the main defined benefit
pension scheme, the WHSmith Pension Trust, was at 31 March
2020 at which point the deficit was £9m (31 March 2017 actuarial
revaluation deficit of £11m). The Group has agreed a continuation
of the annual funding schedule with the Trustees from March
2020 for the next five years, which includes the deficit recovery
contributions and other running costs, of just under £3m per
annum. During the year ended 31 August 2021, the Group made
a contribution of £3m to the scheme.
The scheme has been closed to new members since 1996 and
closed to defined benefit service accrual since 2007. The Liability
Driven Investment (LDI) policy adopted by the scheme continues
to perform well with 100 per cent of the inflation and interest rate
risks hedged.
As at 31 August 2021, the Group has an IFRIC 14 minimum
funding requirement in respect of the WHSmith Pension Trust
of £2m (2020: £3m) and an associated deferred tax asset of £1m
(2020: £1m) based on the latest schedule of contributions agreed
with the Trustees. As at 31 August 2021, the scheme had an IAS
19 surplus of £284m (2020: surplus of £268m) which the Group
has continued not to recognise. There is an actuarial deficit due
to the different assumptions and calculation methodologies used
compared to those under IAS 19.
The IAS 19 pension deficit on the relatively small UNS defined
benefit pension scheme was £1m (2020: £1m).
Robert Moorhead
Chief Financial Officer and Chief Operating Officer
11 November 2021
19
WH Smith PLC Annual Report and Accounts 2021Strategic report Our performance
Key performance indicators
Revenue (£m)
Total revenue including retail sales,
wholesale sales to franchisees, and
commission and fee income on
concession and franchise arrangements.
Headline (loss)/profit¹ (£m)
The below profit/(loss) measures are
stated on a pre-IFRS 16 basis.
Headline Group loss
per share before
non-underlying items1 (p)
Diluted and stated on a pre-IFRS 16 basis.
Total Travel
£401m
(2020: £553m)
High Street
£485m
(2020: £468m)
Group
£886m
(2020: £1,021m)
Free cash flow1 (£m)
Free cash flow is defined as net cash
inflow from operating activities before the
cash flow effect of non-underlying items
and pension funding, less capital
expenditure. See reconciliation of free
cash flow on page 18.
(23.7)p
(2020: (44.2)p)
Travel Headline trading loss1
£(39)m
(2020: £(33)m)
High Street Headline trading
profit/(loss)1
£19m
(2020: £(10)m)
Headline Group (loss)/profit before tax
and non-underlying items1
£(55)m
(2020: £(69)m)
Dividend per share (p)
Total dividend per share.
£14m
(2020: £(41)m)
Nil
(2020: Nil)
1 Alternative Performance Measure defined and explained in the Glossary on page 154
20
WH Smith PLC Annual Report and Accounts 2021
Strategic report
Principal risks and uncertainties
Risk management framework
Our risk management framework is designed so that material
business risks throughout the Group can be identified, assessed
and effectively managed. This framework incorporates the
following core elements:
r
n it o
o
M
I
d
e
n
t
i
f
y
M
i
t
i
g
a
t
e
e s s
s
A s
Identify – Risk mapping to identify emerging issues:
– Risk registers are compiled by each
business function;
Assess
– Evaluating the potential impact and determining
the likelihood of risk occurrence;
Mitigate – Agreeing actions to manage the identified risks
and ensuring appropriate controls are in place;
Monitor – Maintaining continued oversight and tracking
the effectiveness of the controls.
All principal business functions compile risk registers and
summary risk maps to identify key risks, assess them in terms of
their likelihood and potential impact, and determine appropriate
control strategies to mitigate the impact of these risks, taking
account of risk appetite. The ongoing monitoring of this
framework is overseen by the respective Business Risk
Committees and the Group Audit Committee.
During the year, the Board reviewed the effectiveness of the
Group’s risk management and internal controls systems.
This review included the discussion and review of the risk
registers and the internal controls across all business functions,
as part of an annual exercise facilitated by the Internal Audit
team. During the year, the Board also received presentations
from management on specific risk areas such as the impact
and actions taken in relation to Covid-19, cyber risk, international
expansion, the ongoing risk monitoring processes and
appropriate mitigating controls.
Board review of principal risks and uncertainties
The Board has undertaken a robust assessment of the emerging
and principal risks and uncertainties facing the Group, including
those that would threaten its business model, future
performance, solvency or liquidity. Those emerging and principal
risks are described on the following pages, along with
explanations of how they are managed and mitigated. The Group
recognises that the profile of risks constantly changes and
additional risks not presently known, or that may be currently
deemed immaterial, may also impact the Group’s business
objectives and performance. Our risk management framework
is therefore designed to manage rather than eliminate the risk
of failure to achieve business objectives, and, as such, can only
provide reasonable and not absolute assurance against these
principal uncertainties impacting on business performance.
Changes in principal risks compared to last year
The following section summarises the principal risks and
uncertainties agreed by the Board. These incorporate further
information relating to the movement in the level of these risk
exposures during the year, to highlight whether, in our view,
exposure to each of the principal risks is increasing, decreasing
or remains broadly the same. Where the consequences of the
Covid-19 pandemic may impact the business, we have
incorporated these considerations into our assessment in
relation to each of these principal risk headings, in addition
to the specific commentary provided overleaf.
21
WH Smith PLC Annual Report and Accounts 2021Strategic report Principal risks and uncertainties continued
Overriding risk impact from Covid-19
Impact on Principal risks and uncertainties
How the Group has responded
Covid-19 is the most significant pre-eminent risk currently facing
the Group, impacting all aspects of the business; our customers,
colleagues, stores, supply chain and offices, and across all of the
markets in which we operate. Areas of uncertainty include:
the extent and timing of lifting of International and local travel
restrictions and hence the reopening of our stores; the speed and
extent of recovery in the travel industry more widely and the
resulting impact on passenger numbers and sales; and the speed
and confidence of customers in restoring previous shopping habits
across all of the channels in which we operate.
To the extent that the pandemic may have a longer and more
prolonged impact on global economic conditions, this may have a
further negative impact on consumer spending, customer footfall
and sales, the efficient working of our supply chain, and therefore
create further potential disruption to all of our areas of operation.
During the course of the pandemic, the safety of our customers
and colleagues has been at the forefront of our response and has
shaped all of the measures we have taken across the business.
In order to limit the impact of the pandemic on the Group we have
continued to pursue a series of mitigating actions to protect our
customers, colleagues, and our financial position.
These have included:
• Maintaining regular communications across the Executive team
to monitor all aspects of our response;
• Operating some of our stores continuously through the lockdowns
serving those communities which most need our services,
including stores in hospitals supporting NHS key workers, and
Post Offices providing vital postal and banking services in the
communities where we operate;
• We have undertaken a phased reopening across the rest of our
global store estate, ensuring that appropriate safety measures are
in place, including hand sanitiser stations, providing PPE for
colleagues, protective screens at till points, and enhanced
cleaning regimes;
• Working with our suppliers to adjust our sourcing and supply
chains to mitigate any disruption;
• Ensuring our offices and distribution centres are Covid safe
with reduced capacity reflecting controlled access and exit,
freely available hand sanitiser and a rigorously maintained
cleaning regime;
• Reducing the Group’s cost base, capex and discretionary
expenditure and managing our cash flow and ongoing
commitments wherever possible;
• Restructuring our corporate offices and stores to increase
efficiency, speed of decision-making and reflecting lower levels
of sales;
• Engaging with landlords to manage rental obligations and property
costs, and agree amended lease terms where possible;
• Successfully implementing our existing business continuity plans,
to facilitate a transition to more agile working, with remote access
to core systems and use of technology to manage ongoing
communications;
• Re-financing to provide medium-term funding through a
convertible bond and term loans, and increasing our access to
liquidity; and
• Continuing to adapt our Covid response measures to comply with
developing government and regulatory guidance in each of the
territories in which we operate, as this continues to be updated.
22
WH Smith PLC Annual Report and Accounts 2021
Strategic report Changes to the risk profile due to Covid-19
The grid below explains where the potential risk implications of the pandemic link with, and impact upon, our other principal risks
that are further summarised on the pages that follow.
Relevant principal risk
Covid-19 impact
Economic, political,
competitive and market risks
The Group may fail to effectively respond to the pressures of an increasingly changing retail
environment, where Covid-19 materially changes consumer spending patterns and habits, such as
shifting from physical to online shopping, and from any longer-term damage to the travel industry
and reductions in the level of international travel.
Brand and reputation
The reputation of the brand may be impacted in the event that customers were to perceive that our
store environments are insufficiently safe and secure in response to the continuing experience of
the virus.
Key suppliers and supply chain
management
Given that large elements of our sourcing rely on factories and shipment from the Far East, these
supply chains and principal product flows could be negatively impacted by any interruptions due to any
further shutdown of factories and supply routes or international outbreaks.
Store portfolio
Business interruption
The Group’s performance is reliant upon trading from our wide portfolio of premier shopping locations,
where our performance may be negatively impacted in the event of further store closures, constraints
on trading and travel restrictions, or further extensions in the scale and nature of local lockdowns.
The business could be negatively impacted by any concentration of illness in a particular location such
as head office, distribution centres or particular stores, should these need to close temporarily and
large numbers of staff were required to self-isolate.
Reliance on key personnel
The business could be negatively impacted in the event that any of the senior leadership team were to
fall ill or be personally impacted by the virus.
International expansion
The business continues to grow outside of the UK. Such ongoing growth could therefore be negatively
impacted from further enforced store closures, constraints on trading and the longer-term continuation
of international travel restrictions or curtailment in passenger numbers.
Treasury, financial and credit
risk management
Significantly reduced trading over an extended period from further outbreaks of new Covid strains and
the inability for effective vaccines to be distributed and keep pace with newly identified variants could
cause further negative impact on the Group’s financial position in the longer term.
Cyber risk, data security and
GDPR compliance
Further risks from significant increases in industry wide phishing activity and cyber threats could pose
additional risks of potential systems interruption.
Environment and sustainability
Continued uncertainty and business interruption from the Covid-19 pandemic could provide further
challenges to the delivery of our ongoing sustainability programme.
23
WH Smith PLC Annual Report and Accounts 2021Strategic report Principal risks and uncertainties continued
The table below summarises our other continuing Principal risks and uncertainties.
Key: Change in risk level
higher
no change
lower
Risk/description
Mitigation
Change in risk level
Economic, political, competitive and market risks
The Group operates in highly competitive markets and
in the event of failing to compete effectively with travel,
convenience and other similar product category
retailers, this may affect revenues obtained through our
stores. Failure to keep abreast of market developments,
including the use of new technology, could threaten our
competitive position.
Factors such as the economic climate, levels of
household disposable income, seasonality of sales,
changing demographics, customer shopping patterns
and raw material costs could impact on profit
performance.
The Group may also be impacted by political
developments both in the UK and Internationally such
as from the UK’s exit from the European Union,
regulatory and tax changes, increasing scrutiny by
competition authorities and other changes in the
general condition of retail and travel markets.
Brand and reputation
The WHSmith brand is an important asset and failure to
protect it from unfavourable publicity could materially
damage its standing and the wider reputation of the
business, adversely affecting revenues.
As the Group continues to expand its convenience food
offer in travel locations, associated risks include
compliance with food hygiene and health and safety
procedures, product and service quality, environmental
and ethical sourcing, and associated legislative and
regulatory requirements.
Key suppliers and supply chain management
The Group has agreements with key suppliers in the
UK, Europe and the Far East and other countries in
which it operates. The interruption or loss of supply of
core category products from these suppliers to our
stores may affect our ability to trade.
Quality of supply issues may also impact the Group’s
reputation and impact our ability to trade.
The Group’s performance is dependent on the levels of
consumer confidence and upon effectively predicting and
quickly responding to changing consumer demands, both in
the UK and Internationally. The Group conducts customer
research to understand current demands and preferences
in order to help translate market trends into saleable
merchandise and store formats.
The Group continues to monitor the implications arising from
the UK’s exit from the European Union and is a member of a
number of key industry bodies which provide insight and
updates on this process.
Uncertainties
relating to
ongoing
effects of
Covid-19 on
store trading,
footfall, travel
restrictions
and consumer
confidence
and shopping
habits.
The Group monitors the Company’s reputation, brand
standards and key service and compliance measures to
ensure the maintenance of operating standards and
regulatory compliance across all our operations.
We undertake regular customer engagement to understand
and adapt our product, offer and store environment.
We operate a framework for monitoring compliance with all
regulatory, hygiene and safety standards, encompassing
supplier and store audits and clearly defined sourcing
policies and procedures. Our corporate responsibility
programme monitors our performance in respect of our key
themes of the Marketplace, Workplace, Environment and
impact on the Community.
The Group conducts risk assessments of all its key suppliers
to identify alternatives and develop contingency plans in the
event that any of these key suppliers fail.
Suppliers are required to comply with the conditions laid out
in our Supplier Code of Conduct that covers areas such as
production methods, employee working conditions and
quality control.
The Group has contractual and other arrangements with
numerous third parties in support of its business activities.
None of these arrangements alone are individually
considered to be essential to the business of the Group.
Uncertainties
relating to
sourcing from
Far East
locations and
distribution
into our key
markets.
24
WH Smith PLC Annual Report and Accounts 2021
Strategic report Risk/description
Store portfolio
The quality and location of the Group’s store portfolio
are key contributors to the Group’s strategy. Retailing
from a portfolio of good quality real estate in prime
retail areas and key travel hubs at commercially
reasonable rates remains critical to the performance
of the Group.
All of High Street’s stores are held under operating
leases, and consequently the Group is exposed, to the
extent that any store becomes unviable as a result of
rental costs. Most Travel stores are held under
concession agreements, on average for five to ten years,
although there is no guarantee that concessions will be
renewed or that Travel will be able to bid successfully
for new contracts.
Business interruption
An act of terrorism or war, or an outbreak of a
pandemic disease, could reduce the number of
customers visiting WHSmith outlets, causing a decline
in revenue and profit. In the past, our Travel business
has been particularly impacted by geopolitical events
such as major terrorist attacks, which have led to
reductions in customer traffic. Closure of travel routes
both planned and unplanned, such as the disruption
caused by natural disasters or weather-related events,
may also have a material effect on business.
The Group operates from three distribution centres
and the closure of any one of them may cause
disruption to the business.
In common with most retail businesses, the Group
also relies on a number of important IT systems,
where any system performance problems, cyber risks
or other breaches in data security could affect our
ability to trade.
Reliance on key personnel
The performance of the Group depends on its ability to
continue to attract, motivate and retain key head office
and store staff. The retail sector is very competitive and
the Group’s personnel are frequently targeted by other
companies for recruitment.
International expansion
The Group continues to expand internationally. In each
country in which the Group operates, the Group may be
impacted by political or regulatory developments, or
changes in the economic climate or the general
condition of the travel market.
Mitigation
Change in risk level
The Group undertakes research of key markets and
demographics to ensure that we continue to occupy prime
sites and identify appropriate locations to acquire new space.
We maintain regular dialogue and good relationships with all
our key landlords. The Group also conducts extensive
customer research and analysis to gather feedback on
changing consumer requirements, which is shared with
landlords as part of this ongoing relationship management
programme.
The Group has a framework of operational procedures and
business continuity plans that are regularly reviewed,
updated and tested. The Group also has a comprehensive
insurance programme covering our global assets, providing
cover ranging from property damage and product and public
liability, to business interruption and terrorism. Back-up
facilities and contingency plans are in place and are reviewed
and tested regularly to ensure that business interruptions
are minimised.
The Group’s IT systems receive ongoing investment to
ensure that they are able to respond to the needs of the
business. Back-up facilities and contingency plans are in
place and are tested regularly to ensure that data is
protected from corruption or unauthorised use.
Interruptions
occurring due
to the ongoing
effect of
Covid-19,
causing
temporary
closure of
offices and
stores.
The Group reviews key roles and succession plans.
The Remuneration Committee monitors the levels and
structure of remuneration for directors and senior
management and seeks to ensure that they are designed to
attract, retain and motivate the key personnel to run the
Group successfully.
The Group utilises three business models to manage
risk in our overseas locations: directly run, joint venture
and franchise.
The Group uses external consultants to advise on compliance
with international legislative and regulatory requirements,
to monitor developments that may impact our operations in
overseas territories and to conduct reputational due diligence
on potential new business partners. Our geographical spread
of activity mitigates against the material concentration of risk
in any one area.
Continued
growth of
international
operations.
25
WH Smith PLC Annual Report and Accounts 2021Strategic report Principal risks and uncertainties continued
Risk/description
Mitigation
Change in risk level
Cyber risk and data security
The Group is subject to the risk of systems breach or
data loss from various sources including external
hackers or the infiltration of computer viruses. Theft or
loss of Company or customer data or potential damage
to any systems from viruses, ransomware or other
malware, or non-compliance with data protection
legislation, could result in fines and reputational
damage to the business that could negatively impact
our sales.
Treasury, financial and credit risk management
The Group’s exposure to and management of capital,
liquidity, credit, interest rate and foreign currency risk
are analysed further in Note 22 on page 137 of the
financial statements.
The Group also has credit risk in relation to its trade
and other receivables and sale or return contracts
with suppliers.
The Group employs a framework of IT controls to protect
against unauthorised access to our systems and data,
including monitoring developments in cyber security.
This control framework encompasses the maintenance of
firewalls and intruder detection, encryption of data, regular
penetration testing conducted by our appointed external
quality assurance providers and engagement with third party
specialists, where appropriate.
We have a Steering Group overseeing our approach and
response to cyber risk, and monitoring our programme of
ongoing compliance with the Payment Card Industry Data
Security Standard and the GDPR.
Continuing
increase in
number of
externally
reported
cyber attacks.
The Group’s Treasury function seeks to reduce exposures to
interest rates, foreign exchange and other financial risks,
to ensure sufficient liquidity is available to meet foreseeable
needs and to invest cash assets safely and profitably.
The Group does not engage in speculative trading in financial
instruments and transacts only in relation to underlying
business requirements. The value of any deposit that can be
placed with any approved counterparty is based on short-
term and long-term credit ratings and, in accordance with
the Group’s treasury policy, it is limited to a maximum of
£75m for each approved counterparty.
The Group’s Treasury policies and procedures are
periodically reviewed and approved by the Audit Committee
and are subject to Group Internal Audit review.
The Group announced a refinancing in April, where the
Group issued £327m of convertible bonds. The proceeds
were used to pay £267m of term debt, (leaving £133m of
term debt remaining), £10m was used to pay the costs
associated with the refinancing and the residual £50m was
retained by the Group to fund the opening of over 100 new
Travel stores won and yet to open over the next three years
and new growth opportunities.
As part of the refinancing, the Group also increased its
committed multi-currency revolving credit facility to £250m
(previously £200m), provided by an expanded syndicate of
lending banks, which is due to mature in April 2025.
This facility is currently undrawn.
Environment and sustainability
Our investors, customers and colleagues expect us to
conduct our business in a responsible and sustainable
way. Climate change is now recognised as a global
emergency. Failure to deliver our stated sustainability
commitments could damage our reputation,
introduce higher costs and impact our ability to meet
strategic objectives.
New risk.
Our sustainability strategy, a Journey to a Better Business,
sets out policies, objectives and action plans to address our
key issues. It is overseen by Board and Executive level
committees. We are taking action across the business to
increase our climate resilience, have reduced carbon
emissions for our UK estate to zero and have targets in place
to decarbonise our international estate and supply chain.
We continue to focus on more environmentally sourcing
practices, reducing and redesigning packaging where
possible and ensuring traceability for forestry products.
26
WH Smith PLC Annual Report and Accounts 2021
Strategic report Assessing the impact of our principal risks on our strategic priorities
The table below maps our strategic priorities with our principal risks, to demonstrate where these risks may impact the ongoing
achievement of these strategic priorities.
Economic,
political,
competitive
and market
risks
Key suppliers
and supply
chain
management
Brand and
reputation
Covid-19
pandemic
Store
portfolio
Business
interruption
Reliance
on key
personnel
International
expansion
Treasury,
financial and
credit risk
management
Cyber risk
and data
security
Environment
and
sustainability
1. Travel
i. Winning new space/
developing new
formats in UK and
internationally
ii. Managing our
space to meet the
changing needs of
our customers
iii. Driving like-for-
like sales; increasing
average transaction
value and expanding
the range and
number of categories
we sell
iv. Expanding
profitability outside of
the UK
v. Growing InMotion
2. High Street
i. Optimise returns
on space
ii. Margin growth
from mix
management
iii. Cost efficiency
iv. Building online
propositions and third
party partnerships
complementary to
our stores and
categories
3. Focused use
of cash
27
WH Smith PLC Annual Report and Accounts 2021Strategic report Principal risks and uncertainties continued
Viability statement
In accordance with the UK Corporate Governance Code 2018,
the directors are required to issue a ‘viability statement’ declaring
whether we believe the Company is able to continue to operate
and meet its liabilities over a period greater than 12 months,
taking into account its current position and principal risks.
The Group’s strategy is highlighted on page 4. The key factors are
In Travel:
• driving like-for-like sales in existing stores through increasing
average transaction value, expanding the range, and number
of categories we sell;
• investing in store environments and layouts;
• a forensic store by store focus on space and
category management;
• winning new space and retaining existing space;
• developing new formats;
• expanding profitably outside of the UK;
• growing InMotion, the leading global technology retailer
in travel locations, and
• investing in digital solutions to enhance the
customer experience.
In High Street:
• adopting a forensic store by store focus on space management
to optimise the returns from our core categories,
particularly stationery;
• driving margin growth through category mix management;
• reducing our cost base to reflect our changing sales profile
and productivity initiatives, and
• building online propositions complementary to our stores
and categories: funkypigeon.com, cultpens.com and
whsmith.co.uk.
The Strategic report incorporates plans at both the Group and
operating division level. The plans consider the Group’s cash
flows, committed funding liquidity positions, forecast future
funding and key financial metrics.
A three-year period is considered the appropriate timeframe to
assess the Group’s prospects as it will cover the impact of the
current Covid-19 pandemic and it is consistent with the Group’s
strategic planning and review period.
Following the Group’s refinancing, announced on 28 April 2021,
the balance sheet has been significantly strengthened.
The refinancing arrangements included a £250m multi-currency
revolving credit facility (‘RCF’) (increased from £200m) with an
extended maturity from December 2023 to April 2025. As at
31 October 2021, the Group had not drawn down on the RCF and
has £107m cash on deposit.
As part of the refinancing, the Group also raised £327m from the
issue of convertible bonds, of which £50m was retained by the
Group to fund the opening of over 100 new Travel stores won and
yet to open over the next three years, including thirty new
InMotion stores in Travel UK. The remainder of the proceeds, net
of costs, was used to partially pay down the term loans from both
the MRG and InMotion acquisitions, leaving the Group with a
term loan of £133m. The maturity of the term loan has been
extended from 2023 to 2025, in line with the RCF.
The directors have assessed the prospects of the Group over
the three year period, taking into account its recent historical
performance, forecasts, a robust assessment of the emerging
and principal risks facing the Group and mitigating factors, all of
which consider the impact of Covid-19 given its impact on the
Group’s trading. In assessing viability, the directors considered
the position presented in the budget and three year plan recently
approved by the Board (the ‘base case’). These plans include
management’s forecast of the financial impact of the current
pandemic over the next three years.
In the context of the current challenging environment, we also
used the same severe but plausible assumptions modelled as
part of the going concern assessment (refer to page 103) with a
return to the base case in the three year viability assessment
period. Under both these scenarios the Group would continue to
have sufficient liquidity headroom on its existing facilities and
would meet its covenant tests.
In order to understand the impact of an extreme stress test we
modelled the impact of an additional ten per cent sales decline
across the strategic growth areas of our business; Travel UK and
North America, following the lockdown modelled within the
severe but plausible scenario and without further mitigating
actions. Under these extreme circumstances, whilst liquidity
headroom on the existing facility exists, mitigating action would
be required in order to meet the covenant tests. We consider this
scenario to be highly unlikely and are confident in the Group’s
ability to apply mitigating actions some of which would include
a reduction in capital expenditure, further restructuring and a
reduction in other discretionary spend.
As disclosed in the Strategic report on pages 21 to 28, the Board
has undertaken a robust assessment of the emerging and
principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or
liquidity. The process of mitigating and managing these risks is
described on pages 21 to 28 of the Strategic report.
Taking account of the above matters, and the Group’s current
position and principal risks, the directors have a reasonable
expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the three-year period
ending 31 August 2024.
28
WH Smith PLC Annual Report and Accounts 2021
Strategic report Our journey to a better business
Our strategy
Our customers and wider stakeholders expect us to be a
responsible, sustainable business. We believe we can make a
meaningful contribution to a better society and a cleaner
environment. We have been serving customers for nearly
230 years and, to maintain their trust, we need to adapt to shifting
patterns in sustainable production and consumption and to
changes in the global environment in which we operate.
WHSmith has a long-standing commitment to high standards of
environmental, social and corporate governance. Our approach
has played an important role in risk management, business
development and delivering the expectations of our stakeholders.
Our sustainability strategy concentrates on those areas that our
stakeholders have told us are important and where we believe we
can make a meaningful difference. The three areas of planet,
people and communities provide the framework for our activities
and reporting, underpinned by a strong foundation of responsible
business principles and practices. We have defined a series of
objectives for each of these areas that will drive our activities at
least until 2025.
Our Journey to a Better Business
Planet
People
Communities
Climate change
Packaging
and waste
Forests
Diversity and
inclusion
Human rights in
our supply chain
Safety and
wellbeing
Education
and literacy
Supporting
local causes
Principles and responsible practice
This year, the Board has taken the decision to set up a sub-
committee to monitor our ESG activities and performance.
It will oversee the work of our Environmental, Social and
Corporate Governance (ESG) Steering Group, chaired by our
Group Chief Executive, which meets monthly to monitor progress
of our sustainability activities. More detailed information,
including governance, performance data and future targets,
is available on our website and in our full Sustainability Report at
whsmithplc.co.uk/sustainability/.
Planet
Urgent and sustained action is needed to address the threat to
the health of our planet. The impacts of climate change are
being felt around the world and long-term business success
is dependent on a healthy and sustainable environment.
Our Environmental Policy, available on our website at
whsmithplc.co.uk/sustainability, sets out our commitments to
minimise our business impacts on the planet, including those
relating to climate change, waste management and resource
use. We regularly review progress against our objectives and
targets and aim for continual improvement year on year.
Climate change
Climate change remains one of the most pressing, challenging
issues facing our world and we acknowledge we need to play our
part. We have a long-standing commitment to reduce carbon
emissions from our operations and have been improving energy
efficiency and minimising fuel use for over a decade.
We are committed to implementing the recommendations of
the Task Force on Climate-related Financial Disclosures (TCFD)
and continue to integrate them into our reporting. The following
section also fulfils our reporting obligations in relation to
Streamlined Energy and Carbon Reporting (SECR).
Strategy and risk management
The Group will be required to report under the TCFD framework
for the year ending 31 August 2022. In line with the TCFD’s
recommendations, as part of our progress towards adoption of
the framework we have performed a qualitative scenario analysis
of the risks and opportunities that our business may face in 2030,
using two climate scenarios: a scenario where the world
introduces the changes that are needed to limit global warming
to below two degrees; and a scenario where policy and regulatory
interventions are limited, and global warming exceeds four
degrees. Our quantitative assessment is ongoing, and based on
our qualitative assessment do not anticipate the impact of
climate change in the short-term to be material.
Under the below two-degree scenario, there would be
widespread interventions to limit global warming, including the
implementation of a global carbon price at a level which results
in universal change, a rapid shift in energy sector mix from fossil
fuels to renewables and a reversal of global deforestation.
Afforestation and a rapid growth in biofuels may lead to pressure
on land for other uses. In the transport sector, electric vehicles
would be widely adopted, there would be systemic improvements
in operations and logistics and international fiscal and regulatory
support would be increased for the use of alternative fuels for
road freight and aviation.
29
WH Smith PLC Annual Report and Accounts 2021Strategic report Our journey to a better business continued
Our initial qualitative assessment of the main potential risks to
WHSmith under a below two-degree scenario include increased
operational costs from higher electricity and fuel prices caused
by a higher carbon price. There could be higher trading costs for
certain products because of more expensive raw materials
caused by land use pressures, together with policy disincentives
for carbon-intensive or unsustainable materials such as
single-use plastics. Changes in consumer behaviour such as
reductions in business travel could lead to lower footfall in some
of our stores. A switch to lower-carbon products could lead to
reduced sales of some of our current lines.
Under the four-degree scenario, the world fails to address
climate change, leading to global temperatures continuing to rise
to four degrees or more by the end of the century. There would be
no new policy or regulatory interventions and the physical
impacts of climate change would be much greater under this
scenario. Winters would generally be warmer and wetter in the
Northern Hemisphere and there would be more frequent
extreme weather events such as heavy rainfall and heatwaves.
Water scarcity would be exacerbated in many regions and many
coastal cities would be inundated because of rising sea levels.
Under a qualitative assessment of a four-degree scenario,
incidences of major flooding or extreme heat could have a
significant impact on our warehouses, stores or distribution
networks. Changes in precipitation patterns could exacerbate
water scarcity, leading to shortages in key raw materials for
products such as bottled drinks or paper, causing supply
disruption and the potential for higher costs. There could also
be higher costs to pay for renewable energy if demand outstrips
supply. The pressure from customers and other stakeholders
for businesses to do more are also likely to be greater.
Our initial qualitative assesment shows that both scenarios
present potential financial and operational risks to WHSmith by
2030, predominantly due to increased costs. However, while these
risks would need to be managed, we would not have to materially
change our business model. We are taking action to manage
climate-related risk by:
• investing in energy efficiency to reduce consumption, and
switching to renewable sources of electricity;
• optimising route planning and logistics operations to minimise
fuel consumption;
• reviewing our risk management processes to ensure they
include the climate-risks identified in our scenario analysis;
• ensuring business continuity plans include any disruption from
major weather events, such as flooding and extreme heat;
• factoring the impact of higher carbon prices into decision-
making for long-term projects; and
• continuing to diversify products and packaging away from
carbon-intensive single-use and hard to recycle
plastic materials.
30
WH Smith PLC Annual Report and Accounts 2021
Energy management
We have taken a number of measures to improve energy
efficiency in our buildings. We continue to upgrade building
management systems across our estate to monitor energy
consumption and to optimise energy settings for lighting, heating
and air conditioning to reduce consumption, whilst maintaining a
welcoming and comfortable environment for all. We are
replacing our current LED lights which are coming to the end of
their life with new equipment, investing in newer more efficient
refrigerators and introducing aerofoils to the front of our
refrigeration units to minimise additional energy consumption
to deal with cold air losses. This year, we have switched
our electricity consumption in the UK to 100 per cent
renewable electricity.
Climate change governance
Climate change is an important component of WHSmith’s
sustainability programme which includes carbon emission
reduction targets for our own operations and our wider value
chain. Our ESG Steering Group is responsible for climate change
related issues and for monitoring performance against objectives
and targets. Climate change forms part of a bi-annual update
report to the Board on our sustainability activities. In addition,
climate-related risks and opportunities are integrated into the
management processes and reporting frameworks which feed
into the Group Risk report to the Audit Committee as described
on page 52. This year, the Board introduced a new ESG
sub-committee, and oversight of climate change strategy
will be part of its remit.
Management of climate-related risks
Identification, assessment and management of the risks from
climate change follow our established risk management process,
as described on page 21. Emerging climate change risks are part
of the Brand and reputation principal risk on page 24 and the
Business interruption principal risk on page 25. These principal
risks are monitored by the Audit Committee to ensure effective
management and risk mitigation through appropriate policies,
processes and performance improvements.
Metrics and targets
WHSmith has a long history of reducing Scope 1 and 2 emissions
in line with the trajectory needed to limit global warming to
1.5 degrees. Since 2007, we have reduced location-based Scope 1
and 2 emissions by over 60 per cent.
Last year we set a target to reduce Scope 1 and 2 emissions from
our UK buildings to net zero by the end of 2021 and from our
international buildings by the end of 2025. Our target included
emissions reductions from energy efficiency, investment in
energy saving equipment and a switch to renewable electricity.
Only once all these measures had been taken, would we use
investment in third party carbon removal schemes, such as
afforestation, to neutralise any residual emissions. We achieved
the target for our UK operations for this year (see overleaf).
Going forwards, we are amending our use of terminology to
reflect the latest guidance from international standards
organisations such as the Science Based Target Initiative (SBTI).
Our approach is in line with a 1.5 degree reduction pathway and
we will be seeking SBTI approval for our targets during the next
financial year.
Strategic report Our Scope 1 and 2 market-based carbon emissions decreased
this year to 6,684 tonnes (2020: 29,695 tonnes) of CO2e as a
result of:
• a reduction in energy consumption because of store closures
due to Covid-19;
• energy reduction measures such as investment in more
efficient lighting and cooling systems;
• a switch to 100 per cent renewable electricity contracts for all
sites where we purchase the power; and
• investment in renewable electricity certificates to negate any
emissions from sites where landlords control the power supply.
All certificates were provided under the Renewable Guarantees
of Origin scheme, which is a UK and European regulated
initiative to provide transparency to consumers about the
proportion of electricity that suppliers source from renewable
generation. The certificates were retired on our behalf to avoid
double-counting.
Emissions from our UK operations were 2,688 tonnes
(2020: 24,382 tonnes) of CO2e. These residual emissions arise
from the combustion of natural gas and to date, we have been
unable to remove them completely as alternative technologies
appropriate for our buildings do not yet exist. In order to
neutralise these residual emissions and reduce net emissions
from our UK buildings to zero, we purchased carbon reduction
certificates from a Verified Carbon Standard afforestation
scheme which is acting as a carbon sink for an equivalent
amount of emissions to the residual emissions from our
gas supply.
The largest proportion of our overall carbon footprint lies within
our Scope 3 emissions and principally from the production of
goods and services which we procure from our suppliers.
We undertook analysis to estimate these emissions in 2019,
when sales were at pre-pandemic levels and emissions were
therefore higher than they have been this year. These Scope 3
emissions are more than 15 times greater than our Scope 1
and 2 emissions across our worldwide Group and a major part of
our overall carbon footprint. We have set a target that by 2025,
we will engage with suppliers covering 50 per cent of our carbon
footprint from purchased goods and services to encourage them
to have plans in place to decarbonise in line with a 1.5 degree
pathway and ultimately reach net zero by 2040.
In addition to emissions from purchased goods and services,
we also measure and track Scope 3 emissions from other
material sources, including from the combustion of fuel for the
transport of products from distribution centres to stores and
from business travel.
Further information on climate change metrics and our approach
is available in our Sustainability Report 2021 available on our
website whsmithplc.co.uk/sustainability.
Global greenhouse gas emissions (tonnes of CO2e)
Scope 1 emissions
Combustion of gas to heat and
cool WHSmith stores, offices
and distribution centres.
Percentage of emissions from
UK-based operations.
Scope 2 emissions
(market-based)
From electricity purchased to
power WHSmith stores, offices
and distribution centres.
Percentage of emissions from
UK-based operations.
Total Scope 1 and 2 emissions
(market-based)
Percentage of emissions from
UK-based operations.
Carbon intensity metric
(tonnes CO2e per £m revenue)
Total Scope 1 and 2 emissions
(market-based) after
neutralisation via carbon
removal certificates
Scope 2 emissions
(location-based)
Scope 3 emissions (selected)
Indirect emissions from the
combustion of fuel for the
transport of products from
distribution centres to stores and
from business travel (UK only).
Percentage of emissions from
UK-based operations (UK only).
Total
2021
2020
2019
2,688
6,025
2,653
100%
100%
100%
3,996
23,670
28,098
0%
78%
73%
6,684
29,695
30,751
40%
7.5
82%
29.1
76%
22.0
3,996
29,695
30,751
14,481
17,629
22,192
3,351
4,687
6,940
100%
100%
100%
10,035
34,382
37,691
We engaged Corporate Citizenship to provide independent limited assurance of the greenhouse
gas emissions data in the table above in accordance with assurance standards ISAE 3000 and
3410.Corporate Citizenship’s full assurance standard is available in our Sustainability Report
2021. Emissions have been calculated using the methodology defined in the GHG Protocol
Corporate Standard. We use the market-based method for calculating Scope 2 emissions for our
total emissions to account for our purchasing of low-carbon energy. In previous years, we have
reported Scope 2 location-based emissions and they are provided here for disclosure only. 2020
Scope 2 emissions have been restated to remove US stores which are run as franchises or joint
ventures in line with the rest of our reporting. Our reporting boundary includes our operations in
the UK and our directly-run international businesses where we have operational control,
consistent with those included in our consolidated financial statements. Selected Scope 3
emissions are for UK only and have been calculated in accordance with the Corporate Value
Chain (Scope 3) Accounting and Reporting Standard. Further data and full details of the scope
and methodology for reporting carbon emissions are available in our Sustainability Report 2021.
Energy consumption (MWh)
UK
Non-UK
Total
2021
64,737
7,855
72,592
2020¹
86,782
9,849
96,631
2019
77,619
12,695
90,314
1 Figures for 2020 have been restated to remove US stores which are run as franchises or joint
ventures in line with the rest of our reporting
31
WH Smith PLC Annual Report and Accounts 2021Strategic report Our journey to a better business continued
Waste management
Waste is not only damaging to the environment but adds
additional cost to our business, so we are focused on reducing
excess materials and maximising recycling wherever we can.
In our High Street stores, we operate a recycling system which
enables us to recycle most forms of waste, including cardboard,
paper, plastics and metals. Waste is also segregated in our
distribution centres and offices. Overall, 93 per cent of our
waste was diverted from landfill during this financial year
(2020: 88 per cent).
The number of food lines that we sell is growing, and we are
working hard to eliminate food waste. One of the main sources of
food waste is from unsold sandwiches which have reached their
use-by date. We have implemented a number of initiatives,
including stock control systems to improve forecasting of chilled
food sales, so that we only stock food that we expect to sell,
reducing waste volumes. We operate a discounting strategy in all
our stores; engaging store colleagues to reduce the price of any
sandwiches that are approaching but have not yet exceeded their
use-by date.
Packaging materials are designed to protect items to maintain
quality and enhance product shelf life. However, excessive
packaging can negatively impact the environment, because
energy and raw materials such as forestry products or oil are
used in the manufacturing process. Inappropriate disposal of
packaging can also impact the air, land and marine environments
when it is no longer needed.
We regularly review the type and quantities of packaging we use,
including primary packaging of our own-brand products and the
secondary packaging used to protect goods during transit and
distribution. We seek to identify opportunities to minimise
packaging where possible and use more environmentally-
sustainable solutions such as cardboard for products, and
re-usable skips for internal transfer of stock.
This year, we have redesigned the packaging for our seasonal
ranges, including Christmas and Back to School, removing
unnecessary packaging where possible, and switching from
mixed plastics to paper, card or easier-to-recycle plastic where
packaging is needed. In our own-brand products, we have also
moved away from the use of loose plastic glitter that could make
its way into the water or land environments. We are continuing
discussions with our suppliers to look for further opportunities to
reduce the quantity of materials we use.
All plain, bottled water ranges are now contained in 100 per cent
recycled plastic and we have introduced a much wider range of
refillable water bottles into our stores. A number of our London
Heathrow Airport Terminal stores now host water refilling
stations, where customers can refill their re-usable water bottles
free of charge.
Sustainable forestry
Paper-based products are a core part of WHSmith’s business
and we are committed to minimising the environmental impacts
from paper sourcing for our own-brand products. We will only
use recycled material or virgin (i.e. non-recycled) material from
known, legal, well-managed and credibly-certified forests.
As part of our work towards this objective, and in line with the
requirements of national and international timber regulations,
we carry out an in-depth and rigorous assessment of supplier
timber-sourcing systems. We have set recycled or certified
timber materials as a minimum standard, which gives additional
assurance that materials originate from low risk sources.
A copy of our Sustainable Forests Policy is available on our
website at whsmithplc.co.uk/sustainability.
Our sourcing teams work with our suppliers to help them
understand our requirements and how the data they provide is
needed to demonstrate that any paper, card or wood used in a
WHSmith product is sourced from a certified or recycled source.
We can now demonstrate through certification that 99.3 per cent
of our stationery products contain materials originating from
certified and recycled material, and we are aiming for
100 per cent by next year.
People
Our employees and those who work for us in our supply chain
and for our business partners are vital to our success. They make
our business and are critical to our customers’ experiences and
perceptions of WHSmith. We want to attract, motivate and retain
the best people to deliver great customer service and help our
business to grow.
The Group employs approximately 11,000 people, primarily in the
UK, and is proud of its long history of being regarded as a
responsible and respected employer. We have a full suite of
employee policies and further information is produced below and
in our Code of Business Conduct available on our website at
whsmithplc.co.uk/sustainability.
Diversity and inclusion
WHSmith recognises that talented people are core to the success
of our business, whatever their age, race, religion, gender, sexual
orientation or physical ability. We are committed to promoting a
culture of equality and diversity through our policies, procedures
and working practices. We want to ensure that all our employees
receive equal and fair treatment, and this applies to recruitment
and selection, terms and conditions of employment, promotion,
training, development opportunities and employment benefits.
We believe in creating a culture throughout the Company that is
free from discrimination and harassment and will not permit or
tolerate discrimination in any form.
32
WH Smith PLC Annual Report and Accounts 2021
Strategic report We have developed a new diversity and inclusion action plan to
deliver our goal of creating an environment where everybody is
welcome, can thrive, and is valued for their contribution. It is
focused on data and systems, communication and engagement,
and partnership and collaboration. We have improved the quality
of data and information that we hold in relation to employee
diversity and developed our internal communication processes
with greater use of relatable, personal stories to cultivate a
shared understanding of different perspectives.
Learning and development
Our learning and development programmes are designed to
support our employees as they develop their careers. We provide
a range of learning opportunities and initiatives that are designed
to help our employees develop their skills and experience.
These include online courses, workshops, mentoring and
coaching. We review and develop these activities to ensure that
they continue to meet the requirements of our business and the
learning and development needs for our employees.
We have signed several industry charters, committing to making
progress on improving diversity and inclusion in our business.
This year we became one of eight founding members of a
collaboration community called Diversity in Retail, which is
dedicated to increasing diversity and inclusion at all levels within
organisations in the retail sector. We are also signatories to the
British Retail Consortium’s Diversity and Inclusion Charter.
We have a range of activities designed to promote more women
into senior positions, including a balanced succession planning
process. Mentoring plays a critical role in the development of our
talent pipeline at all levels, providing targeted one-to-one support
from a more senior role model. We continue to work with
‘Everywoman’ who provide a host of personal development tools
aimed at women, including monthly webinars, workbooks and
relevant career development articles. The partnership also
provides our employees with links to an external network of
professional women in other organisations so that contact,
connections and relationships can be made easily.
We are continuing to build our understanding of diversity and
inclusion and to look at ways to increase ethnic diversity at senior
levels in our organisation. We have signed the Race at Work
Charter and have established a Diversity Forum, chaired by our
Group Chief Executive, where employees are encouraged to
provide feedback, commentary and suggestions for improving
diversity and inclusion in WHSmith.
We benchmark our diversity profile versus our peers and the
national average to ensure that our employee profile and that
of our management team reflect our commitment to diversity.
Our latest gender pay gap report can be found on our website.
In terms of equal opportunities, the Company gives full and fair
consideration to applications for employment when these are
received from disabled people. Should an employee become
disabled when working for the Company, we will endeavour to
adapt the work environment and provide retraining if appropriate
so that they may continue their employment. Training, career
development and promotion opportunities are equally applied for
all our employees, regardless of disability.
Individuals have regular career conversations with their
managers during the year, with more formal performance
reviews taking place annually. In addition to monitoring
performance, we also use a model of employee potential to help
us to identify, develop and retain our talent within the business.
To ensure the safety of employees and customers during the
Covid-19 outbreak, we rolled out online training for all store
colleagues to ensure they were fully aware of the operational
changes and health and safety precautions introduced in
response to the pandemic. All employees in store-based roles
were required to complete and pass the training course prior to
returning to work.
Employee share ownership
The Company operates an HM Revenue & Customs Approved
Save-As-You-Earn share option scheme (‘Sharesave Scheme’)
which provides employees with the opportunity to acquire shares
in the Company. Approximately 660 employees participate in
the scheme.
Our employees: key information
The tables below show a breakdown of the composition of the
Board as at year end, and gender diversity statistics for different
cohorts including all employees, both UK and non-UK based.
Gender diversity for the Board (year end headcount)
Tenure
0–1 year
1–3 years
3–6 years
6–9 years
10+ years
1
4
0
1
2
Male/Female
Male
Female
Executive/non-executive
Executive
Non-executive
Group Executive
Committee
Members1
Senior managers2
Managers3
All employees
7
46
315
4,052
Male
78%
68%
48%
35%
5
3
2
6
2
22
345
7,688
1 Group Executive Committee Members are those who have responsibility for planning, directing or controlling the activities of the Company
2
Includes Group Executive Committee Members and colleagues graded at levels one and two below
3
Includes head office colleagues graded at the level below 1 plus Store Managers, Cluster Managers and Post Office Managers
63%
37%
25%
75%
Female
22%
32%
52%
65%
33
WH Smith PLC Annual Report and Accounts 2021Strategic report
Our journey to a better business continued
Safety and wellbeing
We are committed to maintaining high standards of health and
safety. The management team monitors key safety performance
indicators; and an Annual report detailing trends, performance
and recommendations is presented to the Board. The business
has a Health and Safety Committee that comprises employee
representatives and professional health and safety advisers.
We provide an ongoing programme for staff in stores, consisting
of safety training tailored to specific roles within store that focus
on key issues such as fire safety, manual handling and slips, trips
and falls. A copy of our Health and Safety at Work Policy is
available on our website at whsmithplc.co.uk/sustainability and
is the basis for our health and safety management system which
sets out our procedures and processes.
We believe that supporting the mental wellbeing of our
employees is just as important as looking after their physical
health and safety. Our strategy to promote mental wellbeing has
three main objectives: to improve awareness and reduce stigma;
to raise the level of mental health support across the business;
and develop a culture which promotes good mental health.
We work in partnership with accredited organisations, such as
Time to Change, and mental health charities including MQ, the
mental health research charity; Place2Be, the leading national
children’s mental health charity; and CALM, a movement against
male suicide.
We worked closely with Mental Health First Aid (MHFA) England
to create a tailored approach to training and over 1,100 line
managers have received a half-day MHFA awareness course.
We have an equal number of mental and physical health
first aiders.
This year, we also launched a new scheme in association with
Salary Finance, through which employees can access free
financial education and loans at lower interest rates than those
offered by traditional lenders. Employees pay down their existing
debts by replacing them with a single, low-interest employee loan
which enables them to build a positive credit history.
Human rights
We are committed to ensuring full respect for the human rights
of anyone working for us in any capacity and we are committed to
ensuring there is fair and safe work for all employees throughout
our supply chain. We have developed a due diligence process to
make sure we are identifying and assessing any potential and
actual risks, and that we are providing appropriate risk control,
mitigation and remedy where needed. Our approach to human
rights is laid out in our Human Rights Policy (available at
whsmithplc.co.uk/sustainability) which provides further
information on our due diligence processes and the minimum
requirements that everyone working for and on behalf of
WHSmith must meet.
We have identified six priority areas for protecting human rights
in our supply chain: health and safety; freedom of association and
collective bargaining; access to grievance mechanisms; working
hours and overtime; preventing modern slavery and gender
equality. We work with suppliers and other third parties to
develop and progress targets and action plans for improvements
across these areas.
We take a zero-tolerance approach to modern slavery.
Our Modern Slavery Statement (available at whsmithplc.co.uk/
sustainability) sets out the steps we have taken to prevent
modern slavery in our own operations and supply chain.
Sourcing responsibly
One of our key social risks is the need for us to source products
sustainably, ensuring that workers in our supply chain are treated
well, and that their human rights are respected. WHSmith is a
member of the Ethical Trading Initiative, an alliance of
companies, trade unions and NGOs that promotes respect for
workers’ rights around the globe. Our Responsible Sourcing
Standards are based on the ETI Base Code and underpin our
strategy and sustainable sourcing activities. We will only place
orders with suppliers who are committed to working towards
compliance with these standards, and we endeavour to bring
about continual improvement through a programme of factory
audits and ongoing engagement.
Our in-house audit and engagement team conducts audits of
our own-brand suppliers at least every two years, assessing
compliance with our Code of Conduct and grading suppliers
Gold, Silver, Bronze and Unacceptable. We use a mix of
announced and unannounced audits and a factory must be
graded Bronze or above if we are to work with them. The Board
reviews our responsible sourcing strategy annually, looking at our
audit and engagement programmes, emerging trends and risks,
targets and performance.
To supplement the information we gain from supplier audits,
our team also spends a significant part of its time engaging with
suppliers on an ongoing basis to build stronger and more
transparent relationships. The team’s engagement focuses on
resolving specific issues identified during audits and on delivering
wider projects to help suppliers deliver on key areas such as
worker representation or health and safety. We have an
independent hotline for workers to report issues they are
concerned about, which we then investigate and follow up with
suppliers to ensure they are addressed.
Communities
WHSmith is at the heart of communities across the UK and we
are committed to making a positive impact wherever we operate.
As a major retailer of books and stationery, we are particularly
passionate about literacy and life-long learning. We are a
long-term advocate for the development of reading and writing
skills and we have provided help over many years to children and
young people who need additional support.
34
WH Smith PLC Annual Report and Accounts 2021
Strategic report Principles and responsible practice
We aim to always act with integrity, making the right decisions
and demonstrating the appropriate behaviours to earn the
respect of our customers and all those with whom we do
business. Our Code of Business Conduct available on our website
sets out how our business operates, and what is expected of
every person who works for and on behalf of WHSmith. Our Code
includes our policies relating to individual conduct, including
anti-bribery and anti-corruption measures, conflicts of interest
and data protection, as well as those relating to how we work
together, including diversity and inclusion, anti-harassment and
bullying and health and safety. It also sets out our business
standards in relation to fair trading practices, such as pricing and
marketing, quality and product safety, trade controls, competition
and supply chain practices.
Anti-bribery and anti-corruption
WHSmith prides itself on its values and commitment to acting
with integrity throughout the organisation and we will not
tolerate bribery, corruption or extortion in any form, either within
our own operations or in those businesses working on our behalf.
Our Code of Business Conduct sets out in detail how those
working for us should behave and what they should do if they are
confronted with bribery or corruption. We require all employees
and anyone working for us in any capacity to comply with the UK
Bribery Act, in addition to any local anti-bribery and anti-
corruption laws. Our Code states that employees or others
working on our behalf must never offer or accept any kind of
bribe, and that our subcontractors, consultants, agents and
others we work with must have similar anti-bribery and
corruption measures in place.
All employees are required to confirm that they have read and
accept our Code of Business Conduct on an annual basis and are
encouraged to report any suspected breaches using our
confidential Speak Up helpline.
We have a long-term partnership with the National Literacy
Trust, and this year we continued our support for their Young
Readers’ Programme, providing books and other materials for
schools in socio-economically disadvantaged areas of the
country. In addition, the WHSmith Group Charitable Trust
provided financial support for the programme, supported by
donations from WHSmith customers and employees.
This year we joined forces with the National Literacy Trust,
Macmillan Children’s Books and Marcus Rashford, MBE, to
donate books and provide financial support to help those children
most in need to develop their reading and writing skills. For every
copy of Marcus’s book, ‘You Are a Champion: How to Be the Best
You Can Be’, that we sold, we agreed to gift a copy for distribution
to those most unlikely to own a book of their own. We also
provided an opportunity for customers to donate to help the work
of the National Literacy Trust through our till points and website.
The campaign has raised over 30,000 books and £40,000 in the
space of a few months. We also gifted a further 1,500 books to
school libraries as part of the campaign.
WHSmith continues to take a leading role in the delivery of the
World Book Day initiative, which is the biggest annual celebration
of books and reading in the UK. World Book Day took place this
year under the continuing impact of Covid-19. Normally our
stores run special events such as competitions, fancy dress and
author signing sessions, but many of these had to be curtailed
this year. We were still able to redeem 244,000 book vouchers
enabling children to choose one of the special World Book Day
books or offset the cost against any of our children’s ranges of
books. We also partnered with the WHSmith Trust to donate
WHSmith vouchers to schools across the UK for them to choose
books to increase their school library resources. Over 250
schools were helped in this way with £25,000 of vouchers
being donated.
This year, through our charity partnerships, colleague and
customer fundraising and in-kind donations we have donated
nearly £1millon to charities and other good causes. The full
extent of our community investment activity, measured in
alignment with the B4SI (formerly the London Benchmarking
Group) reporting model, is outlined in our Sustainability
Report 2021.
Full details of how we engage with charities and other good
causes are set out in our Code of Business Conduct (available
at whsmithplc.co.uk/sustainability).
35
WH Smith PLC Annual Report and Accounts 2021Strategic report Non-financial reporting statement
The Journey to a Better Business section of the Annual report on pages 29 to 35 and the WHSmith Sustainability Report contain
a wide range of information about the environment, employees and social matters. The table below sets out where information on
non-financial reporting matters can be found within our Annual report. Our full Sustainability Report is available on our website at
whsmithplc.co.uk/sustainability. The due diligence arrangements for each topic are included in the respective policy documentation
on our website.
Non-financial matter
Business model
Environmental matters
Employees
Social matters
Respect for human rights
Policies and standards which govern our approach
Business model and KPIs
Principal risks and uncertainties
Journey to a Better Business – Planet
Section 172 statement
Principal risks and uncertainties
Journey to a Better Business – People
Section 172 statement
Principal risks and uncertainties
Director’s report
Journey to a Better Business – Communities
Section 172 statement
Principal risks and uncertainties
Journey to a Better Business – People
Principal risks and uncertainties
Anti-corruption and anti-bribery matters
Journey to a Better Business – Principles and Responsible Practice
Principal risks and uncertainties
Non-financial KPIs
Principal risks and uncertainties
Our journey to a better business
Remuneration Committee report
Our approach to risk management
Principal risks
Pages
4 and 20
21 to 28
29 to 32
37 to 40
26
32 to 34
37 to 40
25
85
34 to 35
37 to 40
24 and 25
34
24 and 25
35
24 to 26
29 to 35
58 to 84
21
22 to 28
36
WH Smith PLC Annual Report and Accounts 2021
Strategic report Section 172(1) statement
This statement describes how the directors have had regard to
the matters set out in Section 172 of the Companies Act 2006
(the ‘Act’) in exercising their duty to promote the success of the
Company for the benefit of its members as a whole.
Section 172 of the Act requires a director of a company to act
in the way he or she considers, in good faith, would most likely
promote the success of the company for the benefit of its
members as a whole. In doing this, Section 172 requires a
director to have regard amongst other matters to the:
a) likely consequences of any decisions in the long-term;
b) interests of the company’s employees;
c) need to foster the company’s business relationships with
suppliers, customers and others;
d) impact of the company’s operations on the community
and environment;
e) desirability of the company maintaining a reputation for high
standards on business conduct; and
f) need to act fairly as between members of the company.
Information on how the Board operates can be found in the
Corporate governance report on pages 41 to 48.
Examples of how the directors have had regard to the matters set
out in Section 172 when discharging their duties are set out in the
following pages.
Key stakeholder groups can be impacted in different ways by
decisions which are taken by the Board. The directors consider
that the groups listed below are the Company’s key stakeholders.
They are identified as those most likely to be affected by the
principal decisions of the Board:
• Employees: the people at WHSmith are its greatest resource
and the strength of the business depends on committed
colleagues who feel engaged, motivated and appreciated.
Our employees expect to feel valued, be rewarded fairly, treated
with respect and dignity and have opportunities for personal
growth and career development.
• Customers: customers are why we exist – maintaining their
loyalty and enthusiasm for our brands is critical to our success.
Our customers expect that the Company offers a wide range of
products at an accessible price, is responsive to their needs
and trades fairly and responsibly.
• Investors: our investors include individual and institutional
shareholders and providers of debt and financial capital, such
as banks and bondholders. Access to liquidity is vital to the
long-term performance of the business and the Board works
to ensure that the Company’s investors and banks have a
strong understanding of our strategy and performance.
Investors want a return on their investment, delivered in a
responsible and sustainable way.
• Suppliers and landlords: mutually trusted partnerships with
suppliers and landlords are vital in enabling the Company to
offer a wide range of quality products at affordable prices from
optimal store locations. Our delivery partners look to the
Company for a productive business relationship, allowing them
to further their own businesses.
• Communities and the environment: community acceptance
and respect for the environment provide us with a licence to
operate. The Company is committed to operating responsibly,
helping local communities and good causes where it can add
the most value and minimising its impact on the environment.
• Pensioners: the Company is committed to ensuring that it
meets its obligations to current and past employees who rely
upon it to fund their pensions.
The Company engages with these stakeholder groups regularly
to ensure that the Board is aware of their views and interests.
These stakeholder views and concerns are integral to ensuring
a considered and balanced approach to the Board’s decision-
making processes.
The Board accesses information from stakeholders through a
number of methods including direct engagement by Board
members, for example, through store visits and meetings with
stakeholder groups such as employees, investors and suppliers,
and indirectly through the review of reports and updates from
senior executives who meet regularly with stakeholder groups.
Employees
The Board engages with employees through a number of
different methods:
• the Group Chief Executive and other senior executives hold
regular face-to-face updates with employees on matters
including the Group’s strategy and business performance;
• senior executives attend business meetings throughout the
year, including business executive meetings, trading meetings
and risk committee meetings;
• employee engagement surveys are held regularly to gather
staff views on working for WHSmith. In the Company’s head
offices, the businesses run quarterly employee forums where
team representatives are encouraged to raise any issues or
concerns. A number of the senior executives also have direct
mailboxes for employees to raise any issues, questions or
concerns and these are reported to the Board by those
senior executives;
• Simon Emeny is the designated non-executive director for
workforce engagement and leads on ensuring effective
engagement with the workforce. Simon Emeny has, during the
year, joined senior executives on calls with their teams; for
example, he joined Heidi Reynolds, Retail Director, High Street,
on her regular ‘Ask Heidi’ call with her team and has also
attended the High Street and Travel employee forums;
• during the financial year, the Group Chief Executive and other
senior executives held weekly briefings via webinars for all
employees. At the briefings, employees were given the
opportunity to ask questions on any issues relating to the
operation of the Company, including on remuneration, working
conditions and performance;
37
WH Smith PLC Annual Report and Accounts 2021Strategic report Section 172(1) statement continued
• employees are given regular written updates and reminders
on operational issues. This year, this included regular
communications on the Company’s wide-ranging support
programmes, such as our Employee Assistance Programme
to support with counselling services, the WHSmith Benevolent
Fund to support employees and their families with financial
hardship and ways to access trained Mental Health First Aiders
if needed; and
• the Group HR Director provides regular updates to the Board
on employee-related matters, including staff retention rates,
learning and development, gender pay gap, diversity and
inclusion, staff surveys and workforce remuneration.
The Audit Committee has oversight of the Company’s
whistleblowing policy on behalf of the Board. The Company’s
whistleblowing helpline allows employees to raise concerns
regarding misconduct and breach of the Company’s policies.
The Audit Committee receives reports on any matters of concern
raised by employees, reviews the whistleblowing arrangements
which are then discussed by the Board.
The key topics and feedback that the Board obtained from our
engagement with our employees this year included:
Restructuring: as a result of the ongoing impact of Covid-19 and
the impact on footfall on the high street, the Board reviewed the
operating structure of the High Street stores and agreed the
implementation of a change programme to introduce greater
in-store employee flexibility. The High Street business consulted
with employees and unions/employee representative groups on
the new operating structure. Following the implementation of the
changes the High Street business has increased the number of
sales assistants enabling the business to trade more effectively
across the week.
Return to the office: after a prolonged period of home-working
for many employees, some raised questions and concerns about
the return to office working, and a desire for flexible working
arrangements. The Board received an update from the HR
Director on the Company’s new approach to agile working for
head office employees in advance of the Company asking
employees to return to the office. The Board believes that it is
important to retain a balance for employees to work flexibly but at
the same time maintaining the high performing culture which is
important to the long term success of the Company. In advance
of a return to the office, employees were provided with
information and guidance on these matters in order to help
provide clarity in an uncertain and worrying time.
Providing a safe working environment: the safety and wellbeing
of our staff continues to be a priority for the Board. The Board is
very proud of our store colleagues who have done an outstanding
job in serving customers. The Board oversaw the ongoing
application of safety measures for all employees in line with
government guidelines and advice, which include social
distancing measures, PPE for colleague use, hygiene stations,
protective screens at till points, enhanced cleaning and
encouraged use of self-checkout or contactless payment.
The Company’s distribution centres continued to be operational
with effective social distancing measures in place and head office
staff continued to work from home, where possible. The Board
was updated on the Company’s programmes to promote
employee wellbeing, for example, through our mental health first
aider programme and annual Wellbeing at Work week.
Diversity and inclusion: our Diversity and Inclusion (D&I)
Committee continued to receive feedback from employees on the
Company’s approach to equality and inclusion. The Board
recognises the importance of a diverse workforce and an
inclusive culture. The Board was updated on the Company D&I
activities which took place this year and is supportive of plans for
further activity in the forthcoming months.
Customers
The Company regularly listens to its customers and responds to
their feedback. The Company’s store teams and dedicated
customer service team are in constant dialogue with customers,
and ensure that customer feedback is communicated to the
relevant parts of the business and taken into account as the
business develops and implements its policies, operational
activities and product ranges.
The Board receives regular updates on customer feedback and
service standards across the stores and has put systems in place
to ensure that it complies with all relevant product safety
legislation. During the year, the Board took all necessary steps to
help ensure the safety of customers whilst visiting the stores by
ensuring that the Company complied with all relevant social
distancing measures. The Board took the decision to keep the
stores open to support the communities they serve.
Other key feedback that the Board obtained from engagement
with customers related to the nature of store environments, the
availability of products, value for money, online offerings,
customer service and ethical trading. As a result of this feedback,
we have extended our categories and ranges to reflect the
specific needs of our customers. The Company aims to offer
customers a choice of products at competitive prices across all
store formats. The Board also approved new targets to reduce
the environmental impact from packaging by removing it,
switching to more eco-friendly options and minimising waste.
The Board also recognises that we will need to work with our
suppliers in order to achieve our targets. You can read more
about our environmental and responsible sourcing activities in
the Non-financial information statement on pages 29 to 36.
38
WH Smith PLC Annual Report and Accounts 2021
Strategic report Investors
The Board recognises the importance of communicating with
its shareholders to ensure that its strategy and performance are
understood. The Group Chief Executive and CFO/COO update
the Board following meetings with major shareholders, and when
requested to do so, the Chairman and non-executive directors
also attend those meetings.
During the year, the Company provided updates on developments
in trading in the form of stock market announcements to ensure
that all shareholders were informed about the impact of Covid-19
on the business.
The Company engages with investors in one-to-one meetings to
discuss specific elements of the business. We communicate with
shareholders through our results presentation, AGM, investor
roadshows, and our investor relations department. As a result of
Covid-19 restrictions we were not able to hold a physical AGM in
January 2021. Notwithstanding the restrictions, the Board
considered it important that all shareholders were provided with
the opportunity to raise questions. To enable this, shareholders
were invited to submit questions ahead of the meeting and the
Directors’ responses were made available on the Company’s
website. The next AGM will be held at the offices of Herbert Smith
Freehills LLP, Exchange House, Primrose Street, London EC2A
2EG at 11.30 am on Wednesday 19 January 2022. The Notice of
AGM 2022 is now available to view and download from our
website at whsmithplc.co.uk.
The Board receives reports and updates on shareholder relations
at each meeting to ensure that the Board and its Committees are
kept informed of investors’ and advisers’ views on strategy and
corporate governance.
During the year, the Chairman spoke to some of Company’s
largest shareholders to discuss the Board’s succession plan and
composition of the Board. The Remuneration Committee also
consulted with the Company’s largest shareholders and
shareholder representatives on its proposed new remuneration
policy in anticipation of presenting the new policy to shareholders
at the 2022 AGM. For more information, please see the
Remuneration report on page 58.
A key issue for the Board during the year was the approach that it
took to improve the Company’s liquidity position as a result of the
impact of Covid-19 on its trading and financial position, and when
taking decisions, carefully considered the interests of its
employees, customers, shareholders and suppliers. In April 2021,
the Board consulted with shareholders, investors and banks in
order to secure new financing arrangements to strengthen its
balance sheet, working capital and liquidity position. The new
financing arrangements include a new £250m revolving credit
facility (previously £200m) with an extended maturity until April
2025 and provided by an expanded syndicate of lending banks.
In addition, the issue of a £327m convertible bond provided
£50m of new capacity for the Company to fund the opening of
over100 new Travel stores won and yet to open over the next
three years and new growth opportunities. The remainder of the
proceeds was used to partially pay down the £400m term loans
from both the Marshall Retail Group and InMotion acquisitions.
The maturity of the new £133m term loan is also April 2025.
You can read more about the Company’s finances on pages
98 to 162.
The Board also considered the Group’s capital allocation policy.
The Board reviewed the trading performance and liquidity
position of the Company in order to progress the Company’s
long-term strategy and manage any ongoing Covid-19 disruption.
The Board looked at the increased need for capital expenditure
in respect of new store wins and the likely recovery of travel in the
UK, North America and the other markets in which we operate
during the year. The Board recognises the importance of
providing our shareholders with consistent and reliable dividend
returns but, with so much uncertainty around the course of the
pandemic and its economic effects, the Board believed it was
sensible and appropriate to suspend the payment of dividends
to shareholders for the duration of the financial year ended
31 August 2021 to protect the Company’s balance sheet.
The Board will continue to keep its capital allocation policy
under review.
More information on how the Board engages with its
shareholders can be found in the Corporate governance report
on pages 47 and 48.
Suppliers/landlords
The Board is provided with information about key suppliers as
and when relevant to Board discussions, including when approval
of material contracts/leases is required. The Company aims to be
a trusted partner for suppliers and landlords, with established
policies covering the way in which we transact with them.
The Company engages with its suppliers and landlords in a
number of ways including:
• direct engagement via individual supplier and
landlord meetings;
• supplier conferences for major groups of suppliers such as
trade suppliers for individual businesses or geographies, or
suppliers of Goods Not for Resale; and
• supplier feedback surveys.
The Company has a well-established ethical trade programme
aimed at improving labour standards for workers in our supply
chain and to ensure that our products are sourced responsibly.
The Board receives an annual update from the Company’s Head
of Sustainability on how the Company is meeting its obligations
and to ensure the Board is kept informed of developing
best practice.
39
WH Smith PLC Annual Report and Accounts 2021Strategic report Section 172(1) statement continued
The Board has ensured that the Company has maintained a
dialogue with suppliers and landlords to mitigate disruption and
understand their concerns as a result of Covid-19. The Company
continued to pay most of its suppliers and landlords during the
year in accordance with agreed contractual terms or negotiated
rent deals. The Board will also ensure that the Company will
continue to work closely with our suppliers to manage any
changes in the supply chain as a result of Brexit.
This year, the Board approved a target to reduce our Scope 3
emissions by engaging with suppliers representing approximately
50 per cent of our emissions to ensure they have plans in place to
decarbonise in line with a science-based target to maintain
global warming to 1.5°C. The Company also continues to work
with suppliers to reduce waste from packaging and from
single-use plastics. This year, we worked with suppliers of
packaging for our online business to ensure materials were
plastic free and fully recyclable.
The Board also continued to explore new business opportunities
during the year. We worked with our UK Airport landlords to win
30 technology stores across all UK airports. These stores will
trade under the InMotion brand, the Company’s market-leading
US technology business in travel locations which was acquired in
November 2018. Combining our learnings and expertise from
North America, these stores will provide Airport passengers with
a superior customer service experience and a combination of
premium products from brands such as Apple, Bose and
Samsung, as well as an extensive range of tech accessories.
The Board believes that in a fully recovered travel environment
these stores will deliver significant shareholder returns.
Community and environment
The Board places great importance on ensuring that the
Company helps community groups and good causes that are
closely aligned with the business, and that it operates in a way
which minimises the impact on the environment.
Engagement with community groups and others includes:
• regular meetings with key charity partners, including the
National Literacy Trust, mental health charity partners and
other charity community organisations located close to
our stores;
• engagement through meetings, correspondence and survey
responses with non-governmental organisations, trade bodies
and others with an interest in community and environmental
activities, including the Ethical Trade Initiative, WWF and CDP;
and
• questions, views and concerns through the
corporate.responsibility@whsmith.co.uk inbox which is
available for anyone to make contact with the Company on
any issues relating to community or the environment.
The Board received regular updates on the Company’s key
community and environment activities from the Head of
Sustainability. This year, the Board reviewed progress against
the objectives defined in the Company’s sustainability strategy
approved by the Board last year, which relate to the most
important environmental and social issues for the business.
These include a science-based target for carbon emissions in
line with reductions required to limit global warming to 1.5°C,
and reaching net zero for Scope 1 and 2 emissions by 2025.
The Board also took the decision to create a new Committee
which will help us manage our sustainability strategy, our
Journey to a Better Business across the three themes of Planet,
People and Communities. You can read more about the work of
the ESG Committee on page 29. Further details are provided in
our 2021 Sustainability Report available at whsmithplc.co.uk/
investors/results-reports-and-presentations/corporate-
responsibility-reports.
The Board also decided to continue with the long-term focus
on children’s literacy and to work in partnership with others to
tackle inequalities in the ability of children to read and write.
It endorsed the launch of a partnership between the Company,
the National Literacy Trust and Macmillan Children’s Books,
supported by Marcus Rashford MBE, to ensure every child in the
United Kingdom has access to a book of their own.
Further details are provided in the Strategic report on pages
34 to 35.
Defined benefit pension fund
During the year, the Board engaged with the Trustees of the
WHSmith Pension Trust, who have a fiduciary duty to the
members and beneficiaries of the Company’s defined benefit
pension scheme, to ensure that the scheme is sufficiently
funded. The CFO/COO and the Finance Director – Group regularly
meet with the Chair of the Trustees and attend the Trustee
meetings to report on annual and interim results. The Board
agreed with the Trustees, the latest triennial valuation, and
funding plan to ensure that the Company’s defined benefit
pension scheme remains well-positioned to meet its liabilities.
This Strategic report was approved by the Board on
11 November 2021.
On behalf of the Board
Carl Cowling
Group Chief Executive
11 November 2021
40
WH Smith PLC Annual Report and Accounts 2021
Strategic report Corporate governance report
The Board is committed to achieving the highest
standards of corporate governance.”
Henry Staunton
Chairman
Board role and effectiveness
The Board of the Company is committed to achieving
the highest standards of corporate governance.
As Chairman, my role is to run the Board to ensure
that the Company operates effectively and ensure
that the Board works collaboratively and has the right
balance of skills, knowledge, independence and
experience to assess, manage and mitigate risks.
This report, which forms part of the Directors’ report, provides
details of how the Company has applied the principles of, and
complied with, the UK Corporate Governance Code 2018 (the
‘Code’). A copy of the Code is available publicly from frc.org.uk.
Culture
We have been serving customers through our presence in town
centres, travel hubs and hospitals for over 225 years, providing a
retail destination of choice and a sense of community for
thousands of customers every day. We have a presence in 30
countries, employ 11,000 employees, source products from
thousands of suppliers and play an important part in creating
vibrant and sustainable local economies.
We recognise we have an obligation to grow our business
sustainably, providing financial returns for our shareholders,
whilst maintaining high standards of environmental stewardship
and social equity. In delivering these obligations, it is important
that our employees, business partners and suppliers are able to
make the right decisions. We support them with a strong
values-based culture, ongoing training and development, and a
solid foundation of responsible business governance, policies and
programmes. You can read more about our culture on page 46.
Stakeholder engagement
As a Company, we have a long-standing commitment to high
standards of corporate responsibility, which includes considering
the interests of a broad stakeholder group in making business
decisions. The Board remains focused on all our stakeholders,
including our workforce, customers, shareholders and the
communities we are part of. You can read about our engagement
with shareholders on pages 47 and 48, our commitments to
customers, workforce and community matters on pages
29 to 40 and our approach to rewarding our workforce in the
Remuneration report on page 67.
There are already a number of effective employee engagement
processes in place across the Group, including the employee
satisfaction survey and employee forums. Simon Emeny is the
designated non-executive director for workforce engagement
and leads on ensuring effective engagement with the workforce.
Simon Emeny attended a number of employee forums
throughout the year to gain a better understanding of their views
and concerns. Simon Emeny met the Group HR director to review
the outcomes from the satisfaction survey. Feedback relating to
workforce engagement has been reported to the Board and
Committees. Section 172 of the Companies Act 2006 (the ‘Act’)
sets out that a director should have regard to stakeholder
interests when discharging their duty to promote the success
of the Company. You can read how the Board has had regard
to Section 172 of the Act on pages 37 to 40.
Creation of an ESG Committee
In order to help us manage our sustainability strategy, our
Journey to a Better Business across the three themes of Planet,
People and Communities and ensure that it is central to what we
do, we took the decision to create a new Committee which will
assist the Board in providing oversight of the implementation of
the strategy. You can read more about the ESG Committee on
page 48.
Board changes
The Board has continued to give extensive thought to the rotation
of long-serving directors given the ongoing impact of Covid-19 on
the Company. As part of the succession plan, Suzanne Baxter,
who was the Chair of the Audit Committee, stepped down from
the Board at the Company’s Annual General Meeting (‘AGM’) in
January 2021. Annemarie Durbin, Chair of the Remuneration
Committee, who will have served on the Board for nine years will
step down from the Board at the Company’s AGM in January
2022. During the year, the Board appointed Nicky Dulieu and
Kal Atwal as non-executive directors. Nicky Dulieu replaced
Suzanne Baxter as Chair of the Audit Committee. On 28 October
2021, the Company announced the appointment of Marion Sears
who will join the Board as a non-executive director and Chair of
the Remuneration Committee on 1 February 2022.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Corporate governance report continued
The Company has commenced a search for my replacement and,
at the request of the Board, I have agreed to stay on until my
successor is appointed in 2022. The Board believes that this
staggered approach to replacing long-standing directors is in the
best interests of the Company and its shareholders as it will
allow the Board to refresh itself whilst at the same time retaining
valuable expertise and knowledge as the Company looks to
recover from the impact of Covid-19.
I would like to thank Annemarie for her valuable contribution and
strong commitment to the Company.
Covid-19 response
Unfortunately, as with the wider economy and society more
generally, the Company and its stakeholders have continued to
be impacted by Covid-19. The Board has, throughout this crisis,
taken decisive action in order to mitigate the impact of Covid-19
on the Company and its stakeholders. You can read more about
the action the Board took as a result of Covid-19 on page 45 and
the impact that Covid-19 has had on the Company in the
Strategic report on pages 2 to 40.
Henry Staunton
Chairman
11 November 2021
aligned with the majority of the workforce which is
approximately three per cent. The pension contributions for
Carl Cowling and Robert Moorhead will be reduced to align
with the wider workforce rate from 1 January 2023.
3. Workforce engagement on executive remuneration (Provision
41): The Remuneration Committee has a clear and
transparent approach to remuneration which is set out on
pages 58 to 84 in the Directors’ remuneration report.
Whilst the Company undertakes extensive engagement with
employees on a wide range of issues, including remuneration,
working conditions and performance of the Company, the
Remuneration Committee did not directly consult with the
wider workforce on executive remuneration. Details of how
executive director pay is considered in the context of the wider
workforce is set out on page 67 of the Directors’
remuneration report.
The Company’s disclosures on its application of the principles of
the Code can be found on the following pages:
See pages 41 and 42
See pages 41 and 46
See pages 2 to 40
See pages 37 to 40
Board leadership and Company purpose
Chairman’s letter
Purpose, values and culture
Strategy
Shareholder and stakeholder engagement
Division of responsibilities
Leadership, commitment and Board support See page 43
Composition, succession and evaluation
Board evaluation
Nominations Committee report
Audit, risk and internal control
Risks, viability and going concern
Audit Committee report
Remuneration
Directors’ remuneration report
See pages 45 and 46
See pages 54 and 55
See pages 50 and 52
See pages 49 to 53
See pages 58 to 84
The information that is required by Disclosure Guidance and
Transparency Rules (‘DTR’) 7.2 to be contained in the Company’s
Corporate governance statement is included in this Corporate
governance report, in the Directors’ remuneration report on
pages 58 to 84 and in the Directors’ report on pages 85 to 87.
Corporate governance statement
This report, which forms part of the Directors’ report, together
with the Strategic report and Directors’ remuneration report
provides details of how the Company has applied the principles of
the Code.
Throughout the year ended 31 August 2021 and up to the date of
this report, the Board considers that it has complied with the
provisions of the Code except as follows:
1. Chairman’s tenure (Provision 19): Henry Staunton’s tenure as
Chairman of the Company. Henry Staunton was appointed to
the Board in September 2010 and became Chairman in
September 2013. The Board believes that it is important to the
ongoing success of the Company that Henry Staunton remains
as Chairman as the Company looks to recover from the
impact of Covid-19. Henry Staunton continues to provide
invaluable help and support to Carl Cowling, Group Chief
Executive. He is continuing to help lead the recovery of the
Company following the impact of Covid-19. The Board believes
that Henry Staunton continues to act and perform effectively
as Chairman. For these reasons, while mindful of Provision 19
of the Code that requires that the Chairman should not remain
in post beyond nine years from the date of their first
appointment to the Board, the Board believes that it is in the
best interests of the Company and its shareholders that Henry
remains as Chairman of the Board for an extended period.
The Board has commenced a search for Henry Staunton’s
replacement and, at the request of the Board, Henry Staunton
has agreed to stay on until his successor is appointed in 2022.
The Board believes that this staggered approach to replacing
long-standing directors is in the best interests of the Company
and its shareholders as it will allow the Board to refresh itself
whilst at the same time retaining valuable expertise and
knowledge as the Company looks to recover from the impact
of Covid-19.
2. Pension Alignment (Provision 38): The pension contributions
for Carl Cowling and Robert Moorhead reflect the historical
retirement benefits available to employees that joined the
Company at similar times. The Board recognises that the
contribution rates under these arrangements are higher than
the majority of the current workforce and, as such, the
pension contribution for any new executive director is now
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance Operation of the Board
As at the date of this report, the Board comprised the Chairman,
two executive directors and five independent non-executive
directors. Short biographies of each of these directors, which
illustrate their range of experience, are set out on pages 56 and
57. There is a clear division of responsibility at the head of the
Company: Henry Staunton (Chairman) being responsible for
running the Board and Carl Cowling (Group Chief Executive)
being responsible for implementing strategy, leadership of the
Company and managing it within the authorities delegated by
the Board. Simon Emeny is the Senior Independent Director.
The Board structure ensures that no individual or group
dominates the decision-making process.
All the directors, whose biographies are on pages 56 and 57,
served throughout the financial year ended 31 August 2021
and up to the date of this report with the exception of:
1. Nicky Dulieu who was appointed as a non-executive director
on 9 September 2020.
2. Kal Atwal who was appointed as a non-executive director
on 1 February 2021.
All of the non-executive directors who served during the year
and up to the date of this report are considered by the Board
to be independent.
All directors have access to the advice and services of the
Company Secretary and may take independent professional
advice at the Company’s expense in the furtherance of their
duties. The Board receives appropriate and timely information,
with Board and Committee papers normally being sent out a
week before meetings take place. The need for director training
is regularly assessed by the Board.
The interests of the directors and their immediate families in
the share capital of the Company, along with details of directors’
share awards, are contained in the Directors’ remuneration
report on pages 58 to 84.
At no time during the year did any of the directors have a material
interest in any significant contract with the Company or any of
its subsidiaries.
Attendance at Board meetings
The Board met 14 times during the year. The number of Board
meetings was comparable to the previous financial year as a
result of the ongoing impact of Covid-19 on the Company. It is
expected that all directors attend Board meetings and
Committee meetings unless they are prevented from doing so by
prior commitments. The minimum time commitment expected
from the non-executive directors is one day per month
attendance at meetings, together with attendance at the AGM,
Board away-days and site visits, plus adequate preparation time.
Where directors are unable to attend meetings, they receive the
papers for that meeting giving them the opportunity to raise any
issues and give any comments to the Chairman in advance of the
meeting. Following the meeting, the Chairman briefs any director
not present on the discussions and any decisions taken at
the meeting.
The following table shows the number of Board and Committee
meetings held during the year ended 31 August 2021 and the
attendance record of individual directors:
Directors and role
Henry Staunton
Chairman
Board skills and competencies
Finance and retail expertise; strong board leadership and
considerable governance experience.
Kal Atwal
Non-executive director
Marketing and digital expertise; entrepreneurial approach
to business.
Number of meetings attended
Board
14
14 of 14
Audit
4
–
Nominations
2
2 of 2
Remuneration
8
8 of 8
9 of 14
2 of 4
1 of 2
3 of 8
Carl Cowling
Group Chief Executive
Strategic and retail expertise; strong leadership of the Group and
creation of shareholder value.
14 of 14
–
2 of 2
–
Nicki Dulieu
Non-executive director
Finance and retail expertise; extensive knowledge of retail and
customer service.
Annemarie Durbin
Non-executive director
Legal experience and knowledge of regulatory and compliance
matters; extensive board experience.
14 of 14
4 of 4
2 of 2
8 of 8
14 of 14
4 of 4
2 of 2
8 of 8
Simon Emeny
Non-executive director
Commercial expertise and a wealth of consumer facing experience.
14 of 14
4 of 4
2 of 2
8 of 8
Robert Moorhead
CFO/COO
Retail and financial expertise; deep understanding of the Group and
strategy, and creation of shareholder value.
14 of 14
–
–
–
Maurice Thompson
Non-executive director
Board and financial expertise; extensive strategic knowledge and
experience.
14 of 14
4 of 4
2 of 2
8 of 8
a) Nicky Dulieu was appointed as a director of the Company on 9 September 2020.
b) Kal Atwal was appointed as a director of the Company on 1 February 2021.
c) Kal Atwal was unable to attend one meeting of the Remuneration Committee due to a prior commitment which had been arranged before the meeting was convened. She received the papers in
advance of the meeting and gave her comments to the Chair.
d) Henry Staunton, Carl Cowling and Robert Moorhead were invited to and attended all four meetings of the Audit Committee.
e) Robert Moorhead was invited to and attended two meetings of the Nominations Committee.
f) Carl Cowling was invited to and attended all eight meetings of the Remuneration Committee. Robert Moorhead was invited to and attended two meetings of the Remuneration Committee.
g) Suzanne Baxter stepped down from the Board on 20 January 2021. Prior to leaving the Company she attended five meetings of the Board.
h) The Board and the Remuneration Committee have met twice and the Audit Committee and the Nominations Committee have met once since 31 August 2021.
All the directors attended the meetings.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Corporate governance report continued
Matters Reserved for the Board
The Board manages the Company through a formal schedule of
matters reserved for its decision, with its key focus being on
creating long-term sustainable shareholder value. The significant
matters reserved for its decision include: the overall
management of the Company; approval of the business model
and strategic plans including acquisitions and disposals; approval
of the Company’s commercial strategy and operating and capital
expenditure budgets; approval of the Annual report and financial
statements, material agreements and non-recurring projects;
treasury and dividend policy; control, audit and risk management;
executive remuneration; and environmental, social and Corporate
governance matters.
The Board has a forward timetable to ensure that it allocates
sufficient time to key areas of the business. The timetable is
flexible enough for items to be added to any agenda as necessary.
The Board’s annual business includes Chief Executive’s reports,
including business reports; financial results; strategy and
strategy updates, including in-depth sessions on specific areas
of the business and strategic initiatives; consideration of
potential acquisitions and meeting with new management teams;
risk management; dividend policy; investor relations; health and
safety; whistleblowing; Board evaluation; governance and
compliance; communications and the Annual report.
During the year, the Board assessed the basis on which the
Company generates and preserves value over the long-term and
considered the opportunities and risks to the ongoing future
success of the business, the sustainability of the Company’s
business model and how its governance contributes to the
delivery of its strategy. Further information on the risks and
opportunities to the future success of the Company can be found
in the Strategic report on pages 21 to 28.
Board Activities in the financial year ended 31 August 2021
Strategy
Covid-19
• Approval of new banking facility arrangements and issue of
• Review the strategic plans for each of the
convertible bond
• Oversight of Group performance against strategy and budget
• Updates on the management of the impacts of Brexit
• Approval of corporate responsibility strategy and report
• Expansion of technology and accessories stores in UK airports
businesses
• Three-Year Plan
• Project approvals
• Corporate strategy updates
• Updates on Group response to Covid-19
• Updates on ensuring the safety of customers and colleagues
• Re-consideration of strategic priorities as
a result of Covid-19
Financial and Operational performance
• The Company’s preliminary and interim results, trading statements
and the Annual report
• Going Concern and Viability Statements
• Fair, balanced and understandable assessment
• Dividend, treasury and tax strategies
• Approval of the budget
• Approval of capital expenditure
Other Stakeholder Engagement
• Customer initiatives and experience updates
• Updates on ensuring the safety of
customers in line with government advice
• Annual General Meeting documents; inviting shareholder questions
ahead of meeting and publication of responses
• Investor Relations updates
• Issue of convertible bond
Customers
Shareholders
Employees
• Consultation on new remuneration policy
• Consultation on Board composition
• Annual health and safety review
• Company values and culture
• Inclusion and diversity update
• People operations proposal
• Mental health wellbeing plan
• Approval of sharesave invitation
Governance and Risk
• Risk framework and internal control review
• Regulatory compliance updates
• Litigation and disputes updates
• Group Delegation of Authority Policy review
• Board evaluation process
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WH Smith PLC Annual Report and Accounts 2021
• Modern slavery update and statement
• Talent, succession planning and leadership
• Employee engagement insights
• Gender pay gap reporting
• Consideration of workforce pay including
the annual pay review
• Introduction of agile working
• Principal risks and uncertainties review
• Conflicts of Interest and new appointments
• Terms of Reference review
• Formation of ESG Committee and
associated updates
Corporate governance Covid-19
This year’s results have again been severely impacted by
Covid-19 and, as a result of which, the Company made a Headline
loss before tax and non-underlying items1 of £55m in the financial
year ended 31 August 2021. You can read more about the actions
the Company has undertaken on pages 8 to 19. The Company will
also not pay any dividends in respect of the financial year ended
31 August 2021.
The Board took the following steps during the year in response to
Covid-19:
Board actions: The Board was provided with regular updates
from senior executives on all aspects of the impact of Covid-19,
including the safety and wellbeing of our employees and
customers, government advice, lockdowns, financing, supplier
and landlord impacts, consumer behaviour and
scenario planning.
The Board also received regular information on the Company’s
liquidity position, trading and financial data. In April 2021 the
Company consulted with shareholders and banks in order to
secure new financing arrangements to strengthen its balance
sheet, working capital and liquidity position. The new financing
arrangements include a new £250m revolving credit facility
(previously £200m) with an extended maturity until April 2025
which is provided by an expanded syndicate of lending banks.
In addition, the issue of a £327m convertible bond provided
£50m of new capacity for the Company to fund the opening of
approximately 100 new Travel stores won and yet to open over the
next three years and new growth opportunities. The remainder of
the proceeds was used to partially pay down the £400m term
loans from both the Marshall Retail Group and InMotion
acquisitions. The maturity of the new £133m term loan is also
April 2025. You can read more about the Company’s finances on
pages 16 to 19.
Community support: During the further lockdowns during the
year, the Board took the decision to keep most of the Company’s
High Street and hospital stores open so that we could continue as
an essential retailer to serve the communities in which we
operate. The Board also took all necessary steps to help ensure
the safety of customers whilst visiting our stores by ensuring that
we complied with all relevant social distancing measures.
Protecting our employees: The safety and wellbeing of our staff
has been a priority throughout the year. We are very proud of our
store colleagues who have done an outstanding job in serving our
customers. Safety measures were put in place across all our
stores in line with government guidelines and advice, and
included social distancing measures, PPE for colleague use,
hygiene stations, protective screens at till points, enhanced
cleaning and encouraged use of self-checkout or contactless
payment. Our distribution centres remained operational with
effective social distancing measures in place and head office staff
worked from home, where possible. Carl Cowling and other
senior management continued to hold regular online briefings
for all employees. At the briefings, employees were given the
opportunity to ask questions on any issues relating to the
operation of the Company. Additionally, we have provided regular
reminders to staff on our wide-ranging support plan, which
includes access to trained Mental Health First Aiders and our
Employee Assistance Programme which offers all employees
access to free, 24/7 confidential telephone, online and face-to-
face advice for problems they may be experiencing at home or
work. Employees also have access to the Company’s Benevolent
Fund charity, which can provide financial assistance in cases of
significant hardship and provide recuperative holidays and
care breaks.
Board evaluation
The performance of the Board, its Committees and its individual
directors is a fundamental component of the Company’s success.
The Board regularly reviews its own performance and carried
out a formal evaluation in June 2021. The Board, in accordance
with the Code, appointed an external evaluator, EquityCulture
Limited, to carry out the Board evaluation this year.
EquityCulture provides board evaluation services and has no
other connection with the Company or any individual directors.
EquityCulture have reviewed and agree with this disclosure on
the Board evaluation undertaken by them. The main areas
considered during the evaluation were strategy, operations and
risk; succession planning; and Board and Committee meetings.
The Board evaluation process was as follows: (i) EquityCulture
and the Chair agreed a set of questions specifically drafted for
the Company’s Board Evaluation. The questions were designed
to focus the evaluation by Board members in a number of key
areas and to cover the performance of the Board and its
Committees; (ii) EquityCulture used the agreed questions as the
basis for interviews with each of the directors and then produced
a report which compiled the results of the evaluation exercise;
(iii) the Chairman reviewed the results of the evaluation exercise
and shared them with Board members in September 2021; and
(iv) in November 2021, the Board reviewed the results and agreed
actions for 2022.
The results of the assessment confirmed the strength of the
management of the Company, a shared focus and deep
understanding of the business, a sound governance framework
and practices compliant with the Code. Additionally, the culture of
the Board remains very good, being open and frank, whilst also
supportive and collaborative. As a result of the review, the Board
agreed an action plan that will be implemented in the financial
year ending 31 August 2022 and will include continued focus on
executive and non-executive succession planning and the overall
composition of the Board; keeping the strategy under review and
focusing on the priorities of each business to deliver shareholder
value; increasing focus on people issues and retention of key
senior executives; and steps to improve the Board’s procedures
and effectiveness, including the effectiveness of the annual
strategy session. The Board reviewed the agreed actions
following the internally facilitated evaluation carried out in 2020
and agreed that good progress had been made in respect of
these actions, including in respect of the Company’s Board
succession plan (most notably, the appointment of two new
non-executive directors and the ongoing search for a successor
to the Chairman) and improvements in the Board’s procedures;
for example, how the Board is updated on the key strategic
45
WH Smith PLC Annual Report and Accounts 2021Corporate governance Corporate governance report continued
initiatives which were identified at the Board strategy session.
In addition to the Board and Committee evaluation process, the
Group Chief Executive reviews the performance of the Chief
Financial Officer/Chief Operating Officer (‘CFO/COO’) and other
senior executives. The Chairman reviews the performance of the
Group Chief Executive.
The Chairman also undertook a rigorous review with each of the
non-executive directors to assess their effectiveness and
commitment to the role. During the year, the Chairman had
regular meetings with the non-executive directors, without the
executive directors present, to discuss Board issues and how to
maintain the best possible team. The Board is satisfied that each
of the non-executive directors dedicates sufficient time to the
business of the Company and contributes to its governance and
operations. The Senior Independent Director met the other
non-executive directors to undertake a rigorous assessment of
Henry Staunton’s performance given that he has served as
Chairman for eight years and has been on the Board for eleven
years. The non-executive directors confirmed that there are no
relationships or circumstances which are likely to affect, or could
appear to affect, his judgement or independence. The non-
executive directors, taking into account the views of the executive
directors, concluded that Henry Staunton continues to act and
perform effectively as Chairman and demonstrates his
commitment to the role.
Succession planning and culture
Under the Company’s Articles of Association, directors are
required to retire and submit themselves for re-election every
three years and new directors appointed by the Board offer
themselves for election at the next AGM following their
appointment. However, in accordance with the Code, the Board
has agreed that all directors wishing to be appointed will stand
for election or re-election at the forthcoming AGM. At the last
AGM on 20 January 2021, all the directors at that time (aside
from Suzanne Baxter) stood for election or re-election and were
duly elected with a range of 91.01 per cent to 99.12 per cent of
votes cast by shareholders.
The Company’s Articles of Association give a power to the Board
to appoint directors and, where notice is given and signed by all
the other directors, to remove a director from office.
During the year ahead, the Board will continue to focus on
succession planning to ensure the readiness of internal
candidates for all key roles across the business. The Board is
committed to good governance, culture and leadership,
recognising that these are key considerations for a strong,
sustainable business and that the tone comes from the top.
Our business model on page 4 outlines the importance of
having the right people and skills; and operating responsibly.
The Company’s values, behaviours and culture will continue
to form an important part of the Board’s discussions.
The Nominations Committee will continue to support the Board
by ensuring that culture is built into recruitment and
succession considerations.
The Board monitors the culture of the business in a number of
ways, including: through interaction with executives, members of
the senior management team, and other employees in Board
meetings and on visits to stores and other Company locations;
through regular Board agenda items and supporting papers,
covering risk management, internal audit reports and follow-up
actions, customer engagement, health and safety, employee
engagement and retention, whistleblowing and regulatory
breaches; reviewing the results of staff surveys, looking at a
range of employee indicators, including engagement, retention,
absence, learning and development, gender pay, diversity,
workforce composition and demographics; and engaging with
other stakeholders, as described in the Corporate governance
report. During the year, the Board was satisfied that the policy,
practices and behaviour of the Board and employees were
aligned with the Company’s purpose, values and strategy.
The Board recognises the importance of being visible and
accessible to customers and employees. During the year the
non-executive directors accompanied management on site visits
to the High Street and Travel stores. The Board believes that site
visits provide directors with valuable insights into the business,
helping to deepen their knowledge and understanding of the
Company. When joining the Board, a new non-executive director
typically meets individually with each Board member and senior
management to give them insight into all aspects of the
business, including our strategy, culture, values, sustainability,
governance, and the opportunities and challenges facing the
business. The Company Secretary briefs them on policies, Board
and Committee procedures, and core governance practice.
They visit a number of business locations and meet key advisers.
They also receive induction materials including recent Board and
Committee papers and minutes, strategy papers, investor
presentations, Matters Reserved for the Board and the Board
Committees’ Terms of Reference.
During the year, Nicky Dulieu and Kal Atwal participated in an
induction programme, details of which are set out below:
• access to Board papers and minutes; briefing paper on the
duties of directors; Terms of Reference for Committees; Group
policies and procedures including the Code of Dealing;
• meetings with senior management, including the managing
directors of the Group’s businesses, Group HR Director, Group
Risk Director, Investor Relations and Legal Director/
Company Secretary;
• meetings with advisers; and
• store visits.
The Board considered and approved that Kal Atwal could be
appointed as a non-executive director of Whitbread PLC, with
effect from 1 March 2021. The Board concluded that there was no
conflict in Kal Atwal being appointed to the board of Whitbread
PLC and that the demands associated with a non-executive
director role would not affect her commitment to the Company.
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance Diversity policy
The Board values diversity in all its forms, both within its own
membership and at all levels of the Group. The Board is highly
supportive of the initiatives the Company has in place to promote
diversity throughout the business. The Board believes that
diversity in its widest sense is a key component to the success of
the Company and receives reports on the Company’s diversity
profile to ensure that our workforce reflects our commitment to
diversity. The Board aims to ensure its membership, and that of
the wider Group, reflects diversity in its broadest sense so that it
has a combination of demographics, skills, experience, race, age,
gender, education and professional background thereby providing
a wide range of perspectives, insights and challenge needed to
support good decision-making. The Board’s diversity policy aims
to ensure that the Board nominations/appointments process is
based on fairness, respect and inclusion, and that the search for
candidates will be conducted with due regard to the benefits of
diversity. It is the Company’s aim to achieve a minimum of a third
of women at Board and senior levels. The Board also supports
the recommendations of the Parker Review on ethnic diversity
and has met the ‘1 by 24’ target. The Board recognises that there
is more to do to increase the ethnic representation across the
Company. For additional information on diversity and inclusion,
see pages 54 and 55. In order to improve the diversity of the
Company’s senior management team, the Company introduced a
new recruitment policy requiring that there is a shortlist of a
minimum of six candidates for each vacancy of which 50 per cent
must be female and at least one must be from a black or minority
ethnic background. The Remuneration Committee included the
Company’s compliance with this policy as a personal objective for
the Group Chief Executive for the annual bonus plan in the
financial year ended 31 August 2021. The Company also has a
Diversity and Inclusion Committee consisting of employees from
across the Group together with the Group Chief Executive and the
Group HR Director. The Committee met three times during the
financial year ended 31 August 2021 and made recommendations
on how the Company can improve its diversity.
Further information on diversity can be found in the Nominations
Committee section on pages 54 and 55 and is set out in the
Employees section of the Strategic report on pages 32 to 34.
Risk management
The Board has overall responsibility for the Group’s system of
risk management and internal control (including financial
controls, controls in respect of the financial reporting process
and operational and compliance controls) and has conducted a
detailed review of its effectiveness during the year to ensure that
management has implemented its policies on risk and control.
This review included receiving reports from management,
discussion, challenge, and assessment of the principal risks.
No significant failings or weaknesses were identified from this
review. In addition, the Board also received presentations from
management on higher risk areas, for example, the ongoing
impact of Covid-19, supply chain, risks arising from Brexit and
increasing the Company’s food offer. The Board has established
an organisational structure with clearly defined lines of
responsibility which identify matters requiring approval by the
Board. Steps continue to be taken to embed internal control and
risk management further into the operations of the business and
to deal with areas that require improvement which come to the
attention of management and the Board. Such a system is,
however, designed to manage rather than eliminate the risk of
failure to achieve business objectives, and can only provide
reasonable and not absolute assurance against material
misstatement or loss.
The Board confirms that there is an ongoing process for
identifying, evaluating and managing emerging and principal
risks faced by the Group, including those risks relating to social,
environmental and ethical matters. The Board undertakes a
robust assessment of the emerging and principal risks.
The Board confirms that the processes have been in place for the
year under review and up to the date of this report and that they
accord with the Financial Reporting Council (‘FRC’) Guidance on
Risk Management, Internal Control and Related Financial and
Business Reporting (the ‘Risk Management and Internal Control
Guidance’). The processes are regularly reviewed by the Board.
The principal risks and uncertainties facing the Group together
with the procedures and processes for identifying, managing and
the steps taken to mitigate principal and emerging risks can be
found in the Strategic report on pages 21 to 28.
Further information on internal controls and risk management
can be found in the Audit Committee report on pages 49 to 53.
Engagement with shareholders
The Board’s primary role is to promote the success of the
Company and the interests of shareholders. The Board is
accountable to shareholders for the performance and activities
of the Group. The Company recognises the importance of
communicating with its shareholders to ensure that its strategy
and performance are understood. This is achieved principally
through the Annual report and accounts and the AGM. In addition,
a range of corporate information, including all Company
announcements and presentations, is available to investors on
the Company’s website whsmithplc.co.uk.
Formal presentations are made to institutional shareholders
following the announcement of the Company’s full year and
interim results. The Board recognises that the AGM is normally
the principal forum for dialogue with private shareholders.
All directors normally attend the AGM and are available to
answer questions that shareholders may wish to raise. As a
result of Covid-19, the Company did not hold a physical AGM in
January 2021 but gave shareholders the opportunity to ask
questions in advance of the meeting. The questions and answers
were published on the Company’s website (whsmithplc.co.uk/
response-shareholder-questions-2021-agm). At the time of
writing, UK public health regulations and guidance allow us to
return to an in-person meeting this year, with shareholders
physically able to attend the AGM should they wish to do so.
We will continue to review our AGM arrangements in light
of the latest government Covid-19 guidance, and therefore
shareholders are encouraged to monitor the AGM page
of the Company’s website www.whsmithplc.co.uk/investors/
shareholder-centre/agm for any updates.
47
WH Smith PLC Annual Report and Accounts 2021Corporate governance Corporate governance report continued
The Board as a whole is kept fully informed of the views and
concerns of major shareholders. The Group Chief Executive and
CFO/COO update the Board following meetings with major
shareholders and analysts’ briefings are circulated to the Board.
The Head of Investor Relations also carries out a regular
programme of work and reports to the Board the views and
information needs of institutional and major investors. This is
part of the regular contact that the Group maintains with its
institutional shareholders. When requested to do so, the
Chairman and non-executive directors attend meetings with
major shareholders. The Chairman spoke to some of the
Company’s largest shareholders to discuss the Board’s
succession plan and composition of the Board. Following the
2021 AGM, at which a significant minority of shareholders voted
against the Directors’ remuneration report, the Chair of the
Remuneration Committee sought the views of the Company’s
largest shareholders and representatives in respect of the
Company’s new remuneration policy and Carl Cowling’s salary.
The feedback from those shareholders who engaged in the
consultation process was supportive of the proposed changes
to the Company’s remuneration policy. The feedback was
informative for both the Board and the Remuneration Committee
when finalising the Company’s remuneration policy, which will be
considered by shareholders at the forthcoming AGM, and Carl
Cowling’s salary.
Anti-corruption
The Company has continued to enhance its policies and
procedures in order to meet the requirements of the Bribery Act
2010. These policies and procedures include training for
individuals to ensure awareness of acts that might be construed
as contravening the Bribery Act. The Group’s policy on anti-
bribery and corruption is included in the Company’s Code of
Business Conduct at whsmithplc.co.uk/sustainability.
Fair, balanced and understandable
The Board confirms that it considers the 2021 Annual report and
accounts, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to
assess the Company’s position and performance, business
model and strategy.
Discussion of the Board’s assessment of the Annual report and
accounts is described in the Audit Committee report on pages
51 and 52.
Board Committees
The Board delegates specific responsibilities to the Board
Committees, being the Audit, ESG, Nominations and
Remuneration Committees. Details of the role and
responsibilities of the Audit Committee can be found on pages
49 to 53, the Nominations Committee on pages 54 and 55 and
the Remuneration Committee on pages 58 to 84. The role and
responsibilities of each Committee are set out in formal terms
of reference which are available on the Company’s website
whsmithplc.co.uk.
Approvals Committee
The Approvals Committee facilitates the internal approvals
process by approving matters as delegated by the Board.
The Approvals Committee comprises the Group Chief Executive
and the CFO/COO.
Disclosure Committee
The Disclosure Committee is responsible for ensuring
compliance with the Company’s obligations under MAR
and the maintenance of disclosure controls and procedures.
The Disclosure Committee comprises all of the directors
of the Company and the Company Secretary.
ESG Committee
The ESG Committee is responsible for reviewing and approving
Company strategies, policies and performance in relation to
environmental, social and governance matters and ensuring
those strategies are integrated with the core business strategy of
the Group. The Committee is also responsible for approving key
performance indicators, short-, medium- and long-term ESG
targets and monitoring progress towards achievement of those
targets on a regular basis. The Committee comprises a majority
of independent non-executive directors. The members of the
Committee are Kal Atwal (Chair), Carl Cowling, Nicky Dulieu,
Annemarie Durbin, Simon Emeny, Henry Staunton and Maurice
Thompson. As the first meeting of this Committee will be in
November 2021, the work of this Committee will be more fully
described in next year’s Annual report.
Remuneration Committee
Information on the composition and activities of the
Remuneration Committee can be found in the Directors’
remuneration report on pages 58 to 84.
48
WH Smith PLC Annual Report and Accounts 2021
Corporate governance Audit Committee report
I am pleased to present my report on the activities
of the Audit Committee for the financial year ended
31 August 2021.”
Nicky Dulieu
Chair of the Audit Committee
Audit Committee report
Dear Shareholder
As Chair of the Audit Committee, I am pleased to present my
report on the activities of the Audit Committee for the financial
year ended 31 August 2021. Our principal objectives are to
oversee and assist the Board in its responsibility to produce a set
of Annual report and accounts which are fair, balanced and
understandable and to provide effective financial governance in
respect of the Group’s financial results, the performance of both
the internal audit function and the external auditors, and the
management of the Group’s systems of internal control, business
risks and related compliance activities.
The other members of the Committee are Kal Atwal, Annemarie
Durbin, Simon Emeny and Maurice Thompson, who are all
independent non-executive directors. The Board considers that I
have recent and relevant financial experience, as required by the
Code, and that the Committee, as a whole, has competence
relevant to the sector in which the Company operates. At the
invitation of the Committee, the Chairman of the Board, the
Group Chief Executive, the CFO/COO, the Director of Audit and
Risk, representatives of the Group’s senior management team
and of the external auditors attend meetings. The Committee has
regular private meetings with the external and internal auditors
during the year.
A summary of the activities undertaken by the Committee during
the year is as follows:
• considering the impact of Covid-19 on the Company and its
financial results, including the asset impairment charges that
have been recognised at the year end;
• considering papers from management on the significant
financial reporting judgements made in the preparation of the
Interim report and the Annual report and accounts;
• considering the Company’s going concern statement and
papers from management which consider the liquidity of
the Group;
• considering the Company’s viability statement and papers from
• assessing and recommending to the Board that the Annual
report is fair, balanced and understandable;
• reviewing the Interim report and the Annual report and
accounts, including, where relevant, compliance with the
Listing Rules, Disclosure Guidance and Transparency Rules,
Code and statutory reporting requirements and recommending
those documents for Board approval;
• considering the Company’s emerging and principal risks and
uncertainties and reviewing the mitigating actions that
management has taken to ensure that these risks are
appropriately monitored and controlled;
• considering the Company’s systems and framework of controls
designed to detect and report fraud and money laundering;
• receiving the reports from Internal Audit in respect of calls to
the Company’s confidential Speak Up helpline;
• receiving reports and presentations from members of the
Company’s senior management and its business risk
committees on areas of the Company’s control and risk
management processes;
• receiving and reviewing reports from the Internal Audit and
Risk teams and reviewing and agreeing their annual plans;
• holding private meetings with the external and
internal auditors;
• considering the impact of Brexit on the Company;
• agreeing the scope of PricewaterhouseCoopers LLP’s (‘PwC’)
annual audit plans, assessing the effectiveness of the external
audit process and considering the accounting, financial control
and audit issues reported by PwC that flowed from their work;
• reviewing external auditor independence and approving the
policy on the engagement of PwC to supply non-audit services;
• negotiating and agreeing the audit fee;
• undertaking a performance review of Internal Audit and the
external auditors;
• reviewing the Company’s treasury policy;
• approval of the Group Tax Strategy;
management, which considers the long-term viability of
the Group;
• receiving updates on the policies and procedures for the
General Data Protection Regulation (GDPR);
• reviewing the effectiveness of the Group’s financial reporting,
internal control policies and procedures for the identification,
assessment and reporting of risk, including cyber security
and tax;
• monitoring the integrity of the Group’s financial statements
and trading statements;
• considering and approving the report on the Company’s
payment practices;
• assessing new accounting standards; and
• reviewing the Committee’s terms of reference.
49
WH Smith PLC Annual Report and Accounts 2021Corporate governance Corporate governance report continued
FRC Audit Quality Review
The Company received a letter on 27 July 2021 from the Financial
Reporting Council (FRC) noting that it had carried out a review of
PwC’s audit of the Company’s financial statements for the year
ended 31 August 2020. We were pleased with the outcome of the
FRC’s Audit Quality Review (AQR) which reported no key findings
and a number of good practice matters and the Committee
concluded that it had no concerns about the quality of the
2020 audit.
Significant financial reporting issues and areas
of judgement
In preparing the financial statements, there are a number of
areas requiring the exercise by management of particular
judgement. The Committee’s role is to assess whether the
judgements made by management are reasonable and
appropriate. In order to assist in this evaluation, the CFO/COO
presents an accounting paper to the Committee twice a year,
setting out the key financial reporting judgements, and other
papers as required. The main areas of judgement that have been
considered by the Committee in the preparation of the financial
statements are as follows:
Going concern
The Committee reviewed and challenged management’s
assessment of forecast cash flows for the period to 28 February
2023 including sensitivity to trading and expenditure plans, and
for the potential impact of uncertainties including Covid-19 and a
macroeconomic downturn. The Committee also considered the
Group’s financing facilities and future funding plans. Based on
this, the Committee confirmed that the application of the going
concern basis for the preparation of the financial statements
continued to be appropriate, with no material uncertainties.
The Committee received a report from PwC on the work
undertaken to assess going concern and specifically discussed
the content of the disclosures made in the going concern
statement in the Annual report and the basis of preparation
within Note 1 of the financial statements on page 103.
The going concern statement is set out in the Directors’ report on
page 87. For further information see Note 1 of the financial
statements on page 103.
Impairment review of store assets
The Committee received and considered a paper from
management covering the judgements made in respect of the
impairment testing of the Group’s property, plant and equipment
and right-of-use store assets. The paper recognised that there
was an increased risk of asset impairment at 31 August 2021
given that sales and cost pressures and the resultant forecast
reduction of future profitability in some stores caused by Covid-19
or otherwise may adversely impact the recoverable value of
assets used within the store portfolio. The Committee noted that
management had considered the trading results of each store for
the year and noted that where a store is loss-making and is not
expected to return to profitability in the near future, an
impairment charge is recognised over the assets that cannot
be recycled and their value recovered through the generation
of future trading profits within the store portfolio. Given that
management has continued to report on the performance of the
50
WH Smith PLC Annual Report and Accounts 2021
business on a pre-IFRS 16 basis within its Alternative
Performance Measures alongside the statutory measures
derived under IFRS 16, the paper and discussions considered
impairment assessment of store assets on both bases.
The Committee challenged management on the assumptions
used within the impairment models and received and discussed
a paper from PwC on their work in this area, which specifically
considered and reported on their challenge and assessment of
the key assumptions used and that the resultant charges were
allocated appropriately. The Committee was satisfied that the
approach adopted by management was sufficiently robust to
identify when an impairment charge of store assets needs to be
recognised and how it should be assessed and reported.
Goodwill and determination of operating segments
The Committee considered a paper from management on
goodwill. This set out the determination of the cash-generating
units (‘CGUs’) to which goodwill has been allocated across the
Group, the carrying value of goodwill, the results of the value-in-
use calculations and the outcomes from impairment testing.
The Committee discussed the Company’s approach to allocating
goodwill between the revised operating segments of Travel UK,
North America and Rest of the World. The disclosures in respect
of goodwill were also reviewed.
The Committee discussed PwC’s paper to the Committee which
set out their work undertaken in respect of goodwill and
considered the approach to the accounting, CGU determination,
impairment testing and disclosure used by the Company.
Convertible bond
The Committee considered a paper from management on the
accounting treatment of the convertible bond. It discussed the
judgements taken in respect of the accounting treatment of the
conversion option on initial recognition of the bond and the
valuation methodology applied. The Committee was satisfied that
the judgements taken, and the resulting accounting treatment
applied, are appropriate. The Committee also considered the
disclosure included by management in the Annual report
and accounts.
Inventory valuation
The Committee received a paper from management on
accounting for and valuation of inventory, noting in particular the
impact of Covid-19 on trading. It discussed the judgements made
by management, with specific consideration given to inventory
provisioning (both on an underlying and non-underlying basis),
including provision for out-of-date, slow moving or obsolete stock
and the classification and disclosure of related charges in the
income statement and financial statements. The Committee also
received a paper from PwC regarding the audit work they
performed over the valuation of inventory and the presentation
of inventory provision charges in the income statement split
between underlying and non-underlying. The Committee is
satisfied that the process and judgement adopted by
management for the valuation of inventory is sufficiently robust
to establish the value of inventory held and is satisfied as to
the appropriateness of the Company’s provisioning policy and
presentation of inventory provisions.
Corporate governance One-off transactions
The Committee considered the presentation of the financial
statements and, in particular, the use of alternative performance
measures and the presentation of non-underlying items in
accordance with the Group accounting policy. This policy states
that adjustments are only made to reported profit before tax in
determining an alternative performance measure where charges
are not considered part of the normal operating costs of the
business, are non-recurring or are considered exceptional
because of their size, nature or incidence. The Committee
received detailed reports from management outlining the
judgements applied in relation to the non-underlying costs
incurred during the year. These costs were attributable to the
costs arising as a result of the ongoing impact of Covid-19 on the
Group including restructuring costs, asset impairment charges,
the cost of writing down slow moving or obsolete inventory and
costs of refinancing. This was an area of major focus for the
Committee which was cognisant of the need to ensure that costs
were appropriately classified and that the disclosure of the
non-underlying items was sufficient for users of the financial
statements to understand the nature and reason for the costs.
The Committee challenged management on the nature of costs
classified as non-underlying, particularly discussing the factors
underpinning the Covid-19 related costs and seeking specific
input from PwC. PwC outlined the details and nature of the audit
work carried out by them in this area, along with their
consideration of the disclosures presented by management and
the appropriateness of the cost classifications adopted.
Pensions
The Committee assessed the accounting treatment adopted by
management and the application of IAS 19 in relation to the
WHSmith defined benefit pension scheme. The Committee
considered the current guidance and requirements in respect of
pensions accounting, reviewed the judgements made in respect
of the assumptions used in the valuation of the Company’s
obligations under the scheme and the recognition of future
liabilities in respect of committed scheme contributions on the
balance sheet. A detailed report on pensions accounting and
related disclosures was provided by the auditor which set out the
work performed including their challenge and assessment of key
scheme valuation assumptions compared to their independently
observed ranges.
Viability statement
The Committee reviewed the process and assessment of the
Company’s prospects made by management in support of its
longer-term viability statement, including:
• the review period and alignment with the Company’s internal
plans and forecasts and with its work to support the going
concern basis of presentation for the financial statements;
• the assessment of the capacity of the Company to remain
viable after consideration of future cash flows, borrowings and
mitigating factors; and
• the modelling of the potential financial impact of certain of the
Company’s principal risks materialising using severe but
plausible scenarios, including the impact of Covid-19, on the
Company’s financial performance.
The Committee considered the viability statement and related
analyses alongside its work on going concern, as set out in this
report on page 50. It also discussed the clarity and
appropriateness of the disclosures made within the viability
statement and discussed these with PwC.
The viability statement is set out in the Strategic report on
page 28.
Fair, balanced and understandable assessment
At the request of the Board, the Committee has considered
whether, in its opinion, the 2021 Annual report and accounts,
taken as a whole, is fair, balanced and understandable, and that
it provides the information necessary for shareholders to assess
the Company’s position and performance, business model and
strategy. The Committee was assisted in its review by a number
of processes, including the following:
• the Annual report and accounts is drafted by senior
management with overall co-ordination by a member of the
Group Finance team to ensure consistency across the
relevant sections;
• an internal verification process is undertaken to ensure
factual accuracy;
• an independent review is undertaken by the Director of Audit
and Risk to assess whether the Annual report and accounts is
fair, balanced and understandable using a set of pre-defined
indicators (such as consistency with internally reported
information and investor communications);
• comprehensive reviews of drafts of the Annual report and
accounts are undertaken by the executive directors and other
senior management;
• an advanced draft is reviewed by the Board and the Company’s
Legal Director and, in relation to certain sections, by external
legal advisers; and
• the final draft of the Annual report and accounts was reviewed
by the Committee prior to consideration by the Board.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Corporate governance report continued
In the current year, the Committee specifically considered the
disclosures made in respect of the impact on the business of the
Covid-19 pandemic and the presentation and explanation of the
statutory and alternative performance measures. This included
consideration of the use of measures derived consistently with
IFRS 16 (Leases) and APMs derived on a pre-IFRS 16 basis (IAS
17). These pre-IFRS 16 APMs have been adopted to help to
demonstrate the underlying, year on year performance of the
business following the introduction of IFRS 16 during the prior
year and its material impact on the Group’s results.
Following its review, the Committee advised the Board that the
Annual report and accounts, taken as a whole, was considered to
be fair, balanced and understandable and that it provided the
information necessary for shareholders to assess the Company’s
position and performance, business model and strategy.
Risk management and internal controls
The Committee monitors and regularly reviews the effectiveness
of the Group’s risk management processes and internal financial
and non-financial controls. The key features of the risk
management process that were in place during the year are
as follows:
• each business conducts risk assessments based on identified
business objectives, which are reviewed and agreed annually
by the executive management of each business. Risks are
considered in respect of strategy, reputation, operations,
financial and compliance and are evaluated in respect of their
potential impact and likelihood. These risk assessments are
updated and reviewed quarterly and are reported to
the Committee;
• a Group risk assessment is also undertaken by the Internal
Audit team, which considers all areas of potential risk across
all systems, functions and key business processes. This risk
assessment, together with the business risk assessments,
forms the basis for determining the Internal Audit Plan.
Audit reports in relation to areas reviewed are discussed and
agreed with the Committee;
• the Internal Audit team meets annually with all senior
executives, to undertake a formal review and certification
process in assessing the effectiveness of the internal controls
across the Group. The results of this review are reported to
the Committee;
• the Committee confirmed to the Board that it has reviewed the
effectiveness of the systems of internal control, including
financial, operational, and compliance controls and risk
management for the period of this report, in accordance with
the Code and the Risk Management and Internal
Control Guidance;
• the Board is responsible for approving the annual budget and
the three-year plan, for approving major acquisitions and
disposals and for determining the financial structure of the
Company, including treasury and dividend policy.
Monthly results, variances from plan and forecasts are
reported to the Board;
• the Committee assists the Board in the discharge of its duties
regarding the Group’s financial statements, accounting policies
and the maintenance of internal business, operational and
financial controls. The Committee invites input and attendance
from members of the senior management team of the Group
at its meetings to discuss the design and operation of key
business and internal controls and the assessment of risks
that affect the Group. The Committee provides a link between
the Board and PwC through regular meetings;
• the Company has established internal control and risk
management systems in relation to the process for preparing
consolidated financial statements. The key features of these
systems are that management regularly monitors and
considers developments in accounting regulations and best
practice in financial reporting and, where appropriate, reflects
developments in the consolidated financial statements.
PwC also keeps the Committee appraised of these
developments; the Committee and the Board review the draft
consolidated financial statements. The Committee receives
reports from management and PwC on significant judgements,
changes in accounting policies, changes in accounting
estimates and other pertinent matters relating to the
consolidated financial statements, and provides robust and
independent challenge to management where appropriate; and
the full year financial statements are subject to external audit
and the half-year financial statements are reviewed by the
external auditor;
• the Internal Audit team advises and assists management in the
establishment and maintenance of adequate internal controls
and reports to the Committee on the effectiveness of
those controls;
• there is a comprehensive system for budgeting and planning
and for monitoring and reporting the performance of the
Company’s business to the Board. Monthly results are reported
against budget and prior year, and forecasts for the current
financial year are regularly revised in light of actual
performance. These results and forecasts cover profits, cash
flows, capital expenditure and balance sheets;
• routine reports are prepared to cover treasury activities and
risks, for review by senior executives, and annual reports are
prepared for the Board and Committee covering tax, treasury
policies, insurance and pensions; and
• the Board is committed to maintaining high standards of
health and safety in all its business activities. These standards
are set out in the Company’s Health and Safety Policy, which is
regularly reviewed by the Board. A copy of our Health and
Safety Policy is available at whsmithplc.co.uk/sustainability.
The Risk Management team works with the business to assess
health and safety risks and introduce systems to mitigate
them. All reportable accidents are investigated and targets are
set to reduce the level of incidence.
The Director of Audit and Risk attends the meetings of the
Committee to discuss the above matters.
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance The Committee has a formal policy on the Company’s
relationship with its external auditors in respect of non-audit
work to ensure that auditor objectivity and independence are
maintained. The policy is reviewed annually by the Committee
and was updated following the introduction of the FRC Revised
Ethical Standard 2019. The only significant non-audit work
undertaken by PwC in the financial year ended 31 August 2021
related to the interim review. The auditors may only provide such
services if such advice does not conflict with their statutory
responsibilities and ethical guidance. The Committee made
enquiries of PwC and management and were satisfied that no
such conflict existed.
On behalf of the Audit Committee, my approval is required before
the Company uses PwC for non-audit services as specifically set
out in the policy, or if the fees exceed £25,000 per matter.
The Committee is satisfied that the Company was compliant
during the year with both the Code and the FRC’s Ethical and
Auditing Standards in respect of the scope and maximum level of
permitted fees incurred for non-audit services provided by PwC.
For the financial year ended 31 August 2021 the non-audit fees
paid to PwC were £136,100, of which £135,000 related to the
interim review, and the audit fees payable to PwC were
£1,450,000.
The Company has complied during the financial year under
review, and up to the date of this report, with the provisions of the
Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes
and Audit Committee Responsibilities) Order 2014.
Nicky Dulieu
Chair of the Audit Committee
11 November 2021
External auditor
During the year PwC reported to the Committee on their
independence from the Company. The Committee and the Board
are satisfied that PwC has adequate policies and safeguards in
place to ensure that auditor objectivity and independence are
maintained. The Committee has recommended to the Board the
re-appointment of the external Auditors for the 2022 financial
year and the directors will be proposing the re-appointment of
PwC at the forthcoming AGM.
PwC were first appointed as external auditors at the 2015 AGM,
following a competitive tender process completed in 2014,
Jonathan Lambert was appointed as the PwC audit partner and
Senior Statutory Auditor at the conclusion of the 31 August 2019
year end.
In accordance with applicable law and regulation, the Company is
required to conduct a competitive audit tender by December
2024. In line with the Company’s policy for the external audit
contract to be put out to tender at least every ten years, and in
compliance with the rules on mandatory audit rotation, the
Committee propose that a competitive tender process is likely to
be held in 2023. The Committee considers that a competitive
tender is in the best interests of our shareholders as it will allow
the Company to appoint the audit firm that will provide the
highest quality, most effective and efficient audit.
The Committee will continue to monitor the appointment,
effectiveness and independence of PwC as external auditors,
as well as considering whether this proposed timing remains
appropriate in light of business developments, applicable law
and regulation.
In line with our terms of reference, the Committee undertook a
thorough assessment of the quality, effectiveness, value and
independence of the 2020 year end audit provided by PwC.
The Director of Audit and Risk prepared a questionnaire seeking
the views and feedback of the Board, together with those of
Group and divisional management, and it formed the basis of
further discussion with respondents. Input was sought from
Committee members and from members of the management
team on areas including the auditor’s expertise, professionalism,
independence and challenge; their planning and audit approach;
the quality and content of reporting and the outputs from the
audit; and governance of the audit including assessment of team
members’ performance and independence. The findings of the
survey were considered by the Committee and concluded that
PwC continued to perform effectively and remains independent.
As a result, PwC’s re-appointment as external auditors at the
forthcoming AGM is recommended to shareholders.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Corporate governance report continued
Nominations Committee report
The Committee will continue to focus on
succession planning and talent management for
key roles in the business.”
The Committee keeps itself updated on key developments
relevant to the Company, including on the subject of diversity
and inclusion. Information on diversity, including gender,
in respect of the Board and the Company is set out in the
Employees section of the Strategic report on pages 32 to 34.
The Board believes in creating throughout the Company a culture
free from discrimination in any form and is proud of its long
history of being regarded as a responsible and respected
employer. The Board believes that the benefits of a diverse
workforce will help the Company achieve its strategic objectives.
The Committee is fully committed to supporting diversity and
inclusion at Boardroom and senior executive level in compliance
with the Code and recognises the importance of diversity in
effective decision-making. The long-term aim is to increase the
diversity of our Board in all forms. The importance of diversity
extends beyond the Board to senior management and throughout
the Company. The Committee monitors the progress made to
increase diversity at Board and senior management levels and
compliance with targets and best practice recommendations set
for gender diversity by the Hampton-Alexander Review and for
ethnic diversity by the Parker Review.
The Hampton-Alexander Review recommended that by 2020
there would be at least 33 per cent female representation at the
Board, Executive Committee positions and direct reports of the
Executive Committee (‘Senior Management Team’). We are
pleased to report that as at 31 August 2021, three women and five
men served on the Board, which meant that 37.5 per cent of our
Board were female. Our Group Executive Team has two out of
nine positions held by women (22 per cent). Of their direct
reports, 22 out of 46 positions (32 per cent) are held by women.
The Committee is mindful of the recommendation of the Parker
Review Report to have at least one Director from a non-white
ethnic minority by 2024 and is satisfied that our Board currently
meets this recommendation.
Henry Staunton
Chair of the Nominations Committee
Nominations Committee
Dear Shareholder
As Chair of the Nominations Committee, I am pleased to present
my report on the activities of the Nominations Committee for the
financial year ended 31 August 2021. The Committee’s principal
responsibility is to ensure that the Board comprises individuals
with the requisite skills, knowledge, independence and
experience to ensure that it is effective in discharging its
responsibilities and ensure that appropriate procedures are in
place for the nomination, selection and succession of directors
and senior executives.
The Committee comprises a majority of independent non-
executive directors. The other members of the Committee are
Kal Atwal, Carl Cowling, Nicky Dulieu, Annemarie Durbin, Simon
Emeny and Maurice Thompson. In the event of any matters
arising concerning my membership of the Board, I would absent
myself from the meeting as required by the Code and the Senior
Independent Director would take the Chair.
The Committee met twice during the year. The principal matters
discussed at the meetings were succession planning for Board
and senior executives, the appointment of two new non-executive
directors, career planning and identifying talent across the
businesses and reviewing the work that has been undertaken
in respect of improving diversity in the Company’s senior
executive group.
In accordance with the Board’s succession plan which aims to
broaden the diversity of candidates to join the Board, the
Committee appointed an external recruitment consultant,
Annabel Richards Limited, to assist in the process of
identification of potential candidates to join the Board generally
and as a replacement for Annemarie Durbin who will, after nine
years, step down from the Board at the forthcoming AGM.
For each search, Annabel Richards initiated a search which
produced a longlist of candidates, which was then reduced to a
shortlist of candidates. These shortlisted candidates were
interviewed by members of the Committee and the CFO/COO,
and feedback on each candidate was compiled. As a result of
these searches, Kal Atwal was appointed as a non-executive
director on 1 February 2021 and Marion Sears will join the Board
as a non-executive director on 1 February 2022. I confirm that
Annabel Richards has no other relationship with the Company or
individual directors.
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance The Committee will continue to focus on succession planning and
talent management for key roles across the business, to ensure
the Company develops a pipeline of high-quality internal
candidates for senior management roles. Work is being
undertaken to ensure succession arrangements are in place for
Board members and key management. Simon Emeny, the Senior
Independent Director, has, on behalf of the Board, commenced
a search for my replacement as Chairman. The Company has
appointed an external recruitment consultant, Lygon Group,
to assist in the process of identification of potential candidates.
The latest Board evaluation report confirmed that the culture
of the Board is excellent, being very open and collaborative.
The Board continues to have a broad mix of skills, diversity,
experience and talent, which enables the Board and the
Committees to work effectively. The report also confirmed that
the Board is well led and has responded effectively to the issues
arising from Covid-19.
Henry Staunton
Chair of the Nominations Committee
11 November 2021
During the year under review, the Company had 37 per cent
women on the Board, 22 per cent in the Group Executive Team
and their direct reports and 32 per cent in the management
team. The Board is committed to strengthening the pipeline of
women in senior roles across the business and an action plan
has been agreed to take further steps to improve workplace
diversity. Actions include the provision of mentoring, as well as
focused initiatives to better understand the challenges faced by
under-represented groups employed within the Company.
The Company has a Diversity and Inclusion Committee consisting
of employees from across the Group together with the Group
Chief Executive and the Group HR Director. The committee has
met three times during the financial year ended 31 August 2021
and has made recommendations on recruitment, and engaged
with our customers and employees to mark cultural and diversity
related events during the year. These recommendations have
been acted upon and adopted by the Company.
The Company requires gender balanced shortlists for all internal
and external recruitment at a senior executive level to ensure
that we attract more women at senior level. Further information
on the gender balance of those in senior management and their
direct reports is set out in the Strategic report on page 33.
The Company continues to work with ‘Everywoman’ who provide
a host of personal development tools aimed at women and also
provide our employees with links to an external network of
professional women in other organisations.
The Board recognises that diversity is not limited to gender, but
includes skills, experience, ethnicity, disability and sexual
orientation. The Board is committed to having a diverse and
inclusive leadership team and will monitor ethnic diversity across
the Group. The Company’s recruitment policy requires that for all
senior management roles there must be a shortlist which
includes at least one candidate from a non-white minority ethnic
background. We will continue to appoint on merit, whilst aiming
to broaden the diversity of the talent pipeline.
Further information on diversity is set out in the Employees
section of the Strategic report on pages 32 to 34.
55
WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ biographies
Henry Staunton
Chairman
Carl Cowling
Group Chief Executive
Date of appointment: 1 September 2010. Henry was appointed as
Chairman on 1 September 2013. Henry will step down as Chairman
in 2022.
Committee membership: Chair of the Nominations Committee and a
member of the ESG Committee and Remuneration Committee.
Skills and experience: Henry brings a breadth of experience and
leadership in both executive and non-executive roles. He has extensive
finance, media and retail expertise and is Chairman of Capital and
Counties Properties PLC. He was previously the Finance Director of
Granada and ITV, Chairman of Ashtead Group, Phoenix Group Holdings
and Vice Chairman of Legal and General PLC.
Date of appointment: 26 February 2019. Carl was appointed as
Group Chief Executive on 1 November 2019.
Committee membership: Nominations Committee and ESG Committee.
Skills and experience: Carl has considerable retail experience and has
been instrumental in the development and execution of the Company’s
strategy. His strong leadership and strategic expertise enable him to
lead the Group and create shareholder value. He joined WHSmith as
Managing Director, Travel in November 2014. In 2017, he was
appointed Managing Director, High Street. Prior to joining WHSmith,
Carl was Managing Director of Global partnerships at Carphone
Warehouse and previously spent over a decade at Dixons where he held
the roles of Ecommerce Director, Commercial Director and Managing
Director of the airport retailing business, Dixons Travel.
Robert Moorhead
Chief Financial
Officer and Chief
Operating Officer
Kal Atwal
Non-executive director
Date of appointment: 1 December 2008.
Date of appointment: 1 February 2021.
Skills and experience: Robert has over 25 years of retail and financial
management experience, which has proved invaluable in his role as
Chief Financial Officer and Chief Operating Officer. He has a deep
understanding of the Group’s businesses and strategy and has a strong
track record of creating shareholder value. He is a Chartered Accountant
and joined WHSmith in 2004 as Retail Finance Director. He is a non-
executive director and Chair of the Audit Committee of The Watches of
Switzerland Group PLC. Previously, he was Group Finance Director at
Specsavers Optical Group and Finance and IT Director of World Duty Free
Europe. He also held a number of roles at B&Q and Kingfisher Group.
He started his career at Price Waterhouse.
Committee membership: Chair of the ESG Committee and a
member of the Audit Committee, Remuneration Committee and
Nominations Committee.
Skills and experience: Kal has substantial marketing and digital
expertise. She spent 16 years at BGL Group and held several roles,
including Founding Managing Director of comparethemarket.com and
Group Director responsible for brand-led businesses, group strategy
and corporate communications. Kal was also Chair of Simply Cook prior
to its sale to Nestlé. Kal is a non-executive director at Royal London
Group, Admiral Financial Services, a subsidiary of Admiral Group Plc,
Whitbread PLC and a board advisor for Simply Cook Limited.
56
WH Smith PLC Annual Report and Accounts 2021
Corporate governance Annemarie Durbin
Non-executive director
Simon Emeny
Non-executive director
Date of appointment: 3 December 2012.
Date of appointment: 26 February 2019.
Committee membership: Chair of the Remuneration Committee and a
member of the Audit Committee, ESG Committee and Nominations
Committee. Annemarie will step down as a non-executive director
following the Company’s forthcoming AGM.
Skills and experience: Annemarie’s international background and her
legal experience and knowledge of regulatory and compliance matters
provides a valuable contribution to the operation of WHSmith. She is a
non-executive director and Chair of the Remuneration Committee of
Santander UK PLC, Persimmon PLC and Petershill Partners PLC and
Chair of Cater Allen Limited. Previously, she was a non-executive director
of Ladbrokes Coral Group PLC and was Chair of the Listing Authority
Advisory Panel. She has 25 years’ international banking experience,
particularly across Asia, Africa and the Middle East, operating at Board
and Executive Committee level. In addition to her directorships,
Annemarie is an executive coach and a conflict mediator.
Committee membership: Senior Independent Director and a member
of the Audit Committee, ESG Committee, Remuneration Committee
and Nominations Committee.
Skills and experience: Simon has a wealth of consumer-facing
experience, including transport hub sites, and brings this broad range
of skills and commercial expertise to the Board and its Committees.
He is Group Chief Executive of Fuller, Smith & Turner PLC, a role he has
held since 2013. Simon was previously the Senior Independent Director
of Dunelm Group PLC.
Maurice Thompson
Non-executive director
Nicky Dulieu
Non-executive director
Date of appointment: 26 February 2019.
Date of appointment: 9 September 2020.
Committee membership: Member of the Audit Committee, ESG
Committee, Remuneration Committee and Nominations Committee.
Skills and experience: Maurice has substantial Board and financial
expertise, with over 30 years of experience in the international banking
industry. He is able to draw upon his extensive knowledge of financial and
strategic experience to assist the Board and its Committees.
He previously held the position of Chief Executive of Citibank in the UK.
Committee membership: Chair of the Audit Committee
and a member of the ESG Committee, Remuneration Committee
and Nominations Committee.
Skills and experience: Nicky has substantial financial and retail
expertise. She trained as an accountant and held various strategic and
financial roles within Marks & Spencer Group PLC over a 23-year period.
In 2006, Nicky joined the Board of Hobbs Limited as Chief Operating
Officer and Finance Director and was Chief Executive from 2008 until
2014. With her finance and retail expertise, she is a valuable member of
the Board and Chair of the Audit Committee. She is a non-executive
director at Redrow PLC, Marshall Motor Holdings PLC and Adnams PLC.
Ian Houghton is Company Secretary and Legal Director
and was appointed in September 1998.
Previous directors who served during the financial year ended
31 August 2021:
Suzanne Baxter stepped down as a director of the Company
on 20 January 2021.
57
WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report
The Company believes that its approach to total compensation has
served the Company well. The proposed changes to the Directors’
remuneration policy are fully aligned to the Company’s strategic plan.
They are also in keeping with the Company’s culture that promotes
superior value creation in a responsible and sustainable way.”
Annemarie Durbin
Chair of the Remuneration Committee
Annual statement from the
Remuneration Committee Chair
Dear Shareholder
On behalf of the Remuneration Committee (the ‘Committee’),
I am pleased to present the Directors’ remuneration report for
the financial year ended 31 August 2021. This report covers
three areas:
• the forward-looking Directors’ remuneration policy which is
subject to a binding shareholder vote at our 2022 AGM as set
out on pages 61 to 72;
• the annual Directors’ remuneration report (‘report’) setting out
details of the implementation of our Directors’ remuneration
policy in the financial year ended 31 August 2021 as set out on
pages 72 to 84. This report is subject to an advisory vote at our
2022 AGM; and
• an explanation of how the proposed Directors’ remuneration
policy will be implemented in the financial year ending
31 August 2022 as set out on page 75 also forms part of
the Report.
The Remuneration Committee believes that the management
team has performed to a truly exceptional level this year.
In addition to steering the business through an extraordinarily
difficult period, their actions have been fundamental in
establishing a commanding position from which the Company
can build back stronger going forward. More details of the
actions taken are set out below. Of particular note has been the
winning of all 30 technology stores in UK airports and the circa
100 stores won and yet to open in Travel over the next three
years. The Board believe that this management team is pivotal to
the future success of the business. When balancing the interests
of all stakeholders in our decision-making, retaining and
motivating the management team for the future success of the
business has been one of our primary objectives.
Directors’ remuneration policy
Our Directors’ remuneration policy focuses on an approach to
pay which, we believe, is in our shareholders’ best interests and
promotes the long-term success of the Company. Whilst it
provides executive remuneration packages which are competitive,
there is a very clear bias to variable pay with stretching and
rigorous performance measures and conditions designed to
deliver superior returns for shareholders over the long term.
Our existing remuneration policy was supported by 98.78 per cent
of shareholders at the 2019 AGM. The future policy (subject to
shareholder approval) incorporates the following changes to
further bring the policy in line with governance best practices:
• introduction of forward-looking post-cessation share
ownership guidelines;
• inclusion of appropriate ESG metrics into the LTIP from
September 2022;
• aligning the bonus opportunity for the two executive directors
at 160 per cent of salary i.e. to increase Robert Moorhead’s
bonus opportunity from 130 per cent to 160 per cent in order to
recognise his importance to the recovery and future success of
the Group;
• inclusion of ability in exceptional circumstances only to pay a
bonus of up to 20 per cent of maximum for strong personal
performance when financial thresholds have not been met,
noting that this gives less flexibility than many other
companies; and
• re-confirmation that executive director pensions will be aligned
with the wider workforce from 1 January 2023.
Our Directors’ remuneration policy has worked well supporting
the Company’s long-term strategy to create shareholder value.
You can see how the Company has, over the past ten years,
generated shareholder value over this period in the TSR graph
on page 77.
The Company’s remuneration philosophy can be summarised as
providing at or below the median of market levels of fixed pay but
with the opportunity to earn upper quartile levels of remuneration
for exemplary performance aimed at delivering superior returns
for shareholders in a responsible and sustainable way over the
long term. Further details of the proposed changes to the
Company’s remuneration policy are set out on pages 61 to 72.
Business Context: “Building Back Stronger as a result
of management actions”
Although inevitably Covid-19 has continued to impact the
Company during the financial year ended 31 August 2021,
management has exerted considerable effort to strengthen and
reshape the Company during the year focusing on initiatives
within its control. These have supported the Company in the
short term and will put the Company in a strong position to
emerge stronger as all our markets recover. As global travel
restrictions have eased, the Company has seen a return to
travelling, led first by domestic travel and then short-haul.
Long-haul travel will be the last to recover. Most industry
forecasts, including the Airports Council International (“ACI”),
58
WH Smith PLC Annual Report and Accounts 2021
Corporate governance do not expect passenger numbers to return to 2019 levels until
2024. In order to “build back stronger”, management has:
• worked with Travel landlords and building on the Company’s
strong relationships to create opportunities for winning new
business, extending key contracts and improving the quality
and location of the space where the Travel business operates.
The expansion of InMotion into the UK through the winning of
all technology stores in UK airports is a good example of this
in practice. As at the end of October 2021, the Travel business
had won approximately 100 stores which have yet to open,
including the 30 InMotion stores in UK airports;
• invested capex in strategically important projects which set
up the Group well for the future, such as our refitted stores at
London Heathrow Terminal 5 and our stores at the new
terminal at Manchester Airport;
• focused on growing average transaction values across
the Group;
• extended categories and ranges to reflect the specific needs
of our customers in each location where we operate.
Management have done this through a forensic attention to
space, cross category promotions, merchandising, store
layouts and store refits;
• grown the Company’s internet proposition by extending product
ranges, investing in our websites, marketing, fulfilment and
distribution and building customer engagement through
social media;
• actively taken steps to improve the Company’s environmental
footprint and was recognised as a leader in ESG through
inclusion in the Dow Jones Sustainability World Index;
• maintained a sharp focus on costs, minimising discretionary
spend and managing the Company’s cash burn; and
• secured the Company’s financial position through the
agreement of new bank financing arrangements and the issue
of the convertible bond. The Company is not, and has not,
participated in any government-backed loan arrangements.
Whist the financial position has clearly been impacted by
Covid-19, the Committee considers that these changes (and
particularly the expansion of InMotion in UK airports) have
enhanced this potentially high growth part of our business
giving an optimal platform to benefit shareholders as this
market returns.
As a result of management actions undertaken during the
financial year the Company reduced the Headline loss before tax
and non-underlying items1 of £149m made in the second half of
the financial year ended 31 August 2020 to a Headline loss before
tax and non-underlying items1 of approximately £36m in the
same period this year. In this context, the Committee decided that
both executive directors have performed at an exceptional level.
Nevertheless, we recognise that the Company has continued to
be significantly affected by Covid-19 and continued to access
government support in the form of rates relief and furlough
support during the financial year ended 31 August 2021.
The Company aims to be a responsible partner to its other
stakeholders. You can read more about the Company’s
stakeholders in the Company’s S.172 statement on pages
37 to 40.
1 Alternative performance measure defined and explained in the Glossary on page 154
During the year, the Company maintained a regular dialogue with
employee representative groups, unions, shareholders, suppliers
and landlords to ensure that all stakeholders have a common
understanding of the impact of Covid-19 on the Company.
We have recognised the performance of employees across the
Company with approximately 1,750 colleagues receiving a bonus
under the annual bonus plan for the financial year ended
31 August 2021.
For the financial year ended 31 August 2021 the Company
delivered a positive Headline EBITDA1 of £19m. Whilst Headline
EBITDA1 was positive, no dividends have been declared for the
financial year ended 31 August 2021. However, the Committee
noted that shareholders had seen an increase of approximately
39 per cent in the Company’s share price as a result of the
Company’s overall financial improvement during the financial
year ended 31 August 2021.
The Committee took all of the above factors into account when
reaching its decisions on executive director remuneration for the
financial year ended 31 August 2021 and these decisions are set
out below.
Recap on 2019/2020 remuneration decisions and
rationale for 2020/21 outcomes
Bonus
Shareholders will recall that the Committee made no bonus
award to the executive directors for the financial year ended
31 August 2020. This was despite the Company performing very
strongly for the first six months of the financial year and
performing strongly against their personal objectives.
For the financial year ended 31 August 2021, the bonus target
was set using Headline EBITDA1 as the primary metric rather
than Headline profit before tax1. This was because the Company
was expected to deliver a PBT loss for the financial year albeit at
a much reduced level than the previous financial year.
For the bonus plan, the Company slightly exceeded the target
Headline EBITDA1 level and the Committee determined that both
executive directors performed to an exemplary level. You can read
about the actions that the executive directors took to build back
stronger on pages 58 and 59. The executive directors’ personal
objectives are set out on pages 80 and 81. However, recognising
the experience of shareholders and other stakeholders during
the financial year ended 31 August 2021, the Committee believed
that it was appropriate to exercise downward discretion to reduce
the formulaic annual bonus out-turn to one-times salary for Carl
Cowling (a 22 per cent reduction) and by the same percentage for
Robert Moorhead.
The Committee took this decision in order to balance the
experience of shareholders and other stakeholders during the
financial year and to recognise the proactive steps taken by
management which, we believe, will create significant
shareholder value in the future. The level of discount is a matter
of judgement but was arrived at in the round looking at the
out-turn for other senior employees and noting that the executive
directors did not receive a bonus for the previous financial year
and that the 2018 LTIP has not vested as a result of the ongoing
impact of Covid-19 and lapsed on 1 November 2021. Overall, this
reduced bonus was felt appropriate. This resulted in Carl Cowling
59
WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report continued
receiving a bonus of £550,000 and Robert Moorhead receiving a
bonus of £357,500. The Committee agreed that 23 per cent of the
bonus should be deferred in accordance with the rules of the
Company’s Deferred Bonus Plan.
The Committee believes that the senior management team, and
in particular the executive directors, have provided outstanding,
inspiring and resourceful leadership during another year of
uncertainty and disruption. Accordingly, the Committee believes
that the remuneration of the executive directors is proportionate
and appropriate when taking into account the experience of the
Company’s stakeholders and the government support received by
the Company.
For the financial year ending 31 August 2022, the Committee has
reverted to the normal pre-Covid-19 practice of setting Headline
PBT as the financial metric for the annual bonus plan.
The Committee is mindful that the decision to increase the CEO’s
salary was a judgement and some shareholders may have
preferred a further deferment. Carl Cowling became CEO on
1 November 2019 so, consistent with best practice, his transition
to the agreed higher salary (which remains below the market
median) consistent with our general philosophy, will have taken
two and a half years. It was felt that further delaying the increase
was not appropriate given the current demand for experienced
retail executives from PE-backed companies and demonstrates
our commitment to the remuneration package agreed on his
appointment. It should also be noted that the Company has not
defaulted to regular annual increases to its executive directors
and that Robert Moorhead has not received any pay increase
since May 2019. Honouring our commitment to an executive
who is now fully experienced in role and has performed at an
exceptional level is considered both right and fair.
Salary
Shareholders will also recall that when Carl Cowling was
appointed CEO in November 2019, his base pay was set at a
lower level than his predecessor and lower than the market
median for FTSE250 CEOs. At the time, we explained to
shareholders that, subject to personal performance, the intention
was to increase Carl Cowling’s base salary in £25,000 increments
in April 2020, 2021 and 2022.
LTIP
The 2018 LTIP vesting percentage is determined by the growth in
the Company’s Headline EPS and TSR over the three-year
performance period which ended on 31 August 2021.
The Company did not meet the performance targets for the 2018
LTIP and the awards lapsed. The Committee determined that the
formulaic out-turn under the LTIP was appropriate and should be
applied without discretionary adjustment.
The Committee had previously assessed Carl Cowling’s personal
performance for the financial year ended 31 August 2020 and
determined that this was exemplary, particularly in the context
of Covid-19 and therefore announced an intention to make the
scheduled increase with effect from April 2021. At the 2021 AGM
a significant minority of shareholders did not support this
approach. As a result, the Company announced that it would
defer making this award until at least the end of the financial
year ended 31 August 2021. The Committee also confirmed that
it would engage with shareholders and advisory bodies and that
it would consider the feedback received in developing the 2022
Directors’ remuneration policy, which is being put to a vote at the
2022 AGM.
Having done that, and in the context of Carl Cowling’s continued
exemplary performance, when consulting with our largest
shareholders on the new Directors’ remuneration policy, we
advised that the deferred £25,000 increment had been made with
effect from 1 September 2021 and that there is an intention
(subject to continued personal performance) for the final
increment to be awarded with effect from 1 April 2022 in
accordance with the original intention shared with shareholders
in 2019. This will take Carl Cowling’s base salary to £600,000
from 1 April 2022.
The current market median for CEOs in the top half, by market
cap, of the FTSE250 is £628,000 so, even after the previously
announced increments, Carl Cowling will continue to receive
a base salary below market median.
In terms of long-term incentives, in last year’s Annual report we
advised shareholders that, for the financial year ended 31 August
2021, the LTIP award would have only one metric, TSR, rather
than the usual two metrics (EPS and TSR). The Committee is
proposing that, as done pre-Covid-19, the LTIP performance
targets for the financial year ending 31 August 2022 will be based
on Headline EPS (which as consulted on with shareholders
during 2020 will be assessed on a pre-tax basis from this grant
onwards) and on relative TSR.
The Committee agreed that the LTIP performance targets for the
financial year commencing 1 September 2022 will include ESG
targets which will be based on the Company’s Corporate
Responsibility Strategy, namely Planet, People and Communities.
Further details of this will be developed and disclosed in the 2022
Directors’ remuneration report.
Finally, as you may be aware, this is my last letter to you as Chair
of the Committee. Having served nine years on the board, I will be
stepping down as Chair of the Committee at the AGM and
handing over to Marion Sears, who will take up the position when
she joins the Board on 1 February 2022. Marion Sears has a
wealth of experience of remuneration issues. I will be available at
the Annual General Meeting to answer any questions about the
work of the Committee.
Annemarie Durbin
Chair of the Remuneration Committee
11 November 2021
60
WH Smith PLC Annual Report and Accounts 2021
Corporate governance This Remuneration Report has been prepared in accordance with
the Large and Medium-Sized Companies and Groups (Accounts
and Reports) Regulations 2008, as amended in 2013, 2018 and
2019 (the ‘Regulations’), LR 9.8 of the UKLA Listing Rules and the
UK Corporate Governance Code 2018 (the ‘Code’).
1. Information subject to audit
The following information has been audited by PwC:
• Section 4.4 – Summary of non-executive directors’
remuneration 2021;
• Section 4.5 – Summary of executive directors’
remuneration 2021;
• Section 4.6 – Payments made to former directors;
• Section 4.7 – Payments for loss of office;
• Section 4.12 – Annual bonus targets;
• Section 4.13 – Share plans; and
• Section 4.17 – Directors’ interests in shares.
2. Background to Directors’ remuneration policy
The Company’s Directors’ remuneration policy can be
summarised as providing at or below the median of market levels
of fixed pay but with the opportunity to earn upper quartile levels
of remuneration if the executive directors deliver superior returns
for shareholders.
Executive remuneration packages are structured so that they:
• are aligned to the Company’s strategy to deliver shareholder
returns and promote its long-term success;
• are aligned with the interests of shareholders;
• are competitive and provide a very clear bias to variable pay
with stretching and rigorous performance measures
and conditions;
• do not promote unacceptable behaviours or encourage
unacceptable risk taking;
• include robust malus/clawback provisions and holding periods
which permit the recoupment of variable pay if the pay-out was
based on misstated financial results, an error or incorrect
information, if the Committee concludes that circumstances
arose during the bonus year or vesting period which would
have warranted summary dismissal of the individual
concerned or if there is an insolvency having regard to the
Committee’s assessment of the involvement of the individual to
such event; and
• take into account Company-wide pay and
employment conditions.
The key changes to the Company’s Directors’ remuneration
policy are:
• The introduction of post-cessation share ownership guidelines
requiring executive directors to retain the policy level (300 per
cent of salary for the CEO and 250 per cent for other executive
directors) for two years post-cessation. This will apply to both
new awards from the adoption of the policy and all
unvested awards.
• Annual bonus plan: this currently operates as a matrix of
financial targets and personal performance, where failure to
achieve the threshold financial level results in no bonus
payment. While this is felt appropriate in most cases, Covid-19
has clearly demonstrated that it can unfairly penalise executive
directors where they meet their personal objectives but the
financial threshold is not achieved and, therefore, no bonus is
paid. Consistent with other companies operating similar plans,
we propose introducing the ability to pay a bonus of up to 20
per cent of maximum if the Committee considers in
exceptional circumstances that the personal or other non-
financial performance warrant payment of a bonus against
pre-set targets noting that this actually constrains discretion
compared with some companies’ response to Covid-19. It is
envisaged that this would only be invoked in exceptional
circumstances. The Committee also believes that it is
appropriate to align the bonus opportunity for the two executive
directors at 160 per cent of salary (i.e. to increase Robert
Moorhead’s bonus opportunity from 130 per cent to 160 per
cent) in order to recognise his importance to the recovery and
future success of the Group. The Committee believes that
increasing Robert Moorhead’s variable pay rather than his fixed
pay is in line with the Company’s remuneration policy which
has served the Company and shareholders well in the past.
• Introduction of ESG metrics to the LTIP: no changes to the LTIP
plan are proposed. The Committee has agreed that the
Long-Term Incentive Plan for 2022 will include ESG targets
which are relevant to the Company. The targets will be selected
from ESG targets associated with the Company’s sustainability
strategy, a Journey to a Better Business (for more information
on the Company’s sustainability strategy see pages 29 to 35).
The sustainability strategy has been developed following
detailed consideration of the views of different stakeholders, to
ensure that the areas of focus are material and directly linked
to the Company’s business strategy. Material and measurable
ESG targets will be selected by the Committee for inclusion in
the LTIP for the grant in 2022. Typically, the performance
measures have been linked to EPS and relative TSR. It is
proposed that, from the grant in 2022, the performance
measures will be 40 per cent pre-tax EPS, 40 per cent relative
TSR and 20 per cent ESG.
• Pensions: the Company has already committed to align
executive director pension contributions to the all-employee
level, approximately three per cent, from 1 January 2023.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report continued
3. The Directors’ remuneration policy
The Committee presents the Directors’ remuneration policy, which will be put to a binding vote at the forthcoming Annual General
Meeting and, subject to shareholder approval, will take immediate effect.
As part of its review of the remuneration policy, the Committee has considered the factors set out in Provision 40 of the Code.
In our view, the proposed Policy addresses those factors as set out below:
Simplicity
• the Directors’ remuneration policy and our approach to its implementation are simple, appropriately designed
and well understood, reinforcing the Group’s culture as well as strategy;
• the Committee reviews performance metrics and targets each year to ensure that they continue to be clear and
aligned to delivery of the strategy;
Predictability
• the performance measures used in the incentive plans are well aligned to the Group’s strategy and goals, with
stretching and achievable targets: the maximum awards under any award are clearly stated and, therefore,
predictable;
Proportionality
• the balanced approach is proportionate and drives behaviours that promote high performance and sustainable
growth to drive the long-term success of the Company for the benefit of all stakeholders, without encouraging or
rewarding excessive risk-taking;
• the Committee retains sufficient discretion to adjust formulaic incentive outcomes or require the repayment of
previous awards to ensure that poor performance is not rewarded;
Risk
• the Committee reviews and sets performance targets each year to ensure that they drive the right behaviours and
are appropriately stretching without encouraging unnecessary risks;
• risk management is operated through annual bonus deferral, LTIP holding periods and, if approved, our new
policy will introduce post-employment shareholding;
• malus and clawback provisions apply to the annual bonus, DBP and LTIP;
Clarity
• the Committee maintains a continual dialogue with shareholders and proxy agencies to understand their views.
We consulted with shareholders on remuneration arrangements, listening to and taking into account the
feedback we received when developing the new remuneration policy;
• our approach to disclosure is transparent with clear rationale provided on its maintenance and any changes
to policy;
• when considering remuneration for executive directors and senior management, the Committee takes into
account the pay and conditions of employees across the Group and, where appropriate, exercises oversight of
remuneration throughout the Company;
Alignment to
Culture
• the Committee assesses performance under the annual bonus plan against a range of objectives, including those
related to our values and strategy;
• the introduction of ESG targets to the LTIP from the grant in 2022 will further help to ensure incentive schemes
drive behaviours consistent with Company purpose, values and strategy.
The Committee has the discretion to amend the Directors’ remuneration policy with regard to minor or administrative matters where
it would, in the opinion of the Committee, be inappropriate to seek or await shareholder approval.
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance Future policy table
3.1 Executive directors
The following table explains the different elements of remuneration we pay to our executive directors:
Element and purpose
Policy and opportunity
Operation and performance measures
Base salary
This is the basic element of
pay and reflects the
individual’s role and position
within the Group, with some
adjustment to reflect their
capability and contribution.
Base salary is used to attract
and retain executive
directors who can deliver our
strategic objectives and
create shareholder value.
• While base salaries are reviewed each year, the
Company’s policy is not automatically to award
an inflationary increase. When reviewing salaries,
the Committee takes into account a range of
factors including the Group’s performance,
market conditions, the prevailing market rates
for similar positions in comparable companies,
the responsibilities, individual performance and
experience of each executive director and the
level of salary increases awarded to employees
throughout the Group.
• Base salary is paid monthly in cash.
• Base salaries are reviewed typically annually with
any changes normally taking effect from 1 April.
• Base salaries are benchmarked against both
FTSE 250 companies and other leading retailers.
While the Committee applies judgement
rather than setting salaries by reference to a
fixed percentile position, its general approach
is to constrain base salaries to a median or
lower level.
• While the Committee’s general approach is to
keep salaries at or below median, and, in the
normal course, would not expect salary
increases to be higher than the average for other
head office staff, given the need for a formal cap,
the Committee had limited the maximum salary
in the previous policy which it may award to
£680,000 (as increased by RPI from January
2019, approximately £739,000 at the year end).
No changes to this cap are proposed.
• Provide market competitive benefits in kind.
• The Company may periodically amend the
benefits available to staff. The executive
directors would normally be eligible to receive
such amended benefits on similar terms to all
senior staff.
• The value of benefits (other than relocation costs)
paid to an executive director in any year will not
exceed £80,000. In addition, the Committee
reserves the right to pay relocation costs in any
year or any ongoing costs incurred as a result of
such relocation to an executive director if
considered appropriate to secure the better
performance by an executive director of their
duties. In the normal course, such benefits would
be limited to two years following a relocation.
Benefits
To provide other benefits
valued by the recipient which
assist them in carrying out
their duties effectively.
Competitive benefits assist
in attracting and retaining
executive directors.
• Benefits received by executive directors comprise
a car allowance, staff discount, private medical
insurance and life assurance.
• While the Committee does not consider it to form
part of benefits in the normal usage of that term,
it has been advised that corporate hospitality
(whether paid for by the Company or another)
and business travel for directors may
technically come within the applicable rules
and so the Committee expressly reserves the
right to authorise such activities within its
agreed policies.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report continued
Element and purpose
Policy and opportunity
Operation and performance measures
Pension
To aid retention and remain
competitive within the
marketplace. The pension
provides an income following
retirement.
Annual bonus
To motivate employees and
incentivise delivery of annual
performance targets.
• Provide an employer-sponsored pension plan or
equivalent cash allowance. Pension contributions
(or cash in lieu) for new executive directors will
be aligned with the average rate available to
UK-based colleagues more generally,
approximately 3 per cent of salary but subject to
periodic review. The pension contribution for Carl
Cowling is 12.5 per cent and Robert Moorhead is
25 per cent of base salary until 31 December
2022. It will reduce to align with the wider
workforce rate, approximately 3 per cent of
salary, from 1 January 2023.
• All executive directors are eligible to participate
in the Company’s defined contribution pension
plan and/or receive a salary supplement in lieu
(which is not taken into account as salary for
calculation of bonus, LTIP or other benefits).
• Although the mix may change, currently up to
five per cent of salary is paid into a registered
pension and up to 20 per cent by way of a salary
supplement. If the individual elects to receive the
five per cent direct (e.g. to avoid breaching HMRC
limits), employers’ NICs are deducted from that
element.
• During the policy period the bonus potential is
160 per cent of base salary with target levels at
48 per cent of maximum and threshold bonus
levels at 16 per cent of maximum.
• Clawback provisions apply to the annual
bonus plan.
• Bonuses are paid in cash and shares. Any bonus
payable over target is deferred into shares for a
period of up to three years under the Company’s
Deferred Bonus Plan (‘DBP’). The shares are
released one third on each anniversary of
assessment.
• The performance measures applied may be
financial or non-financial and corporate,
divisional or individual and in such proportions as
the Committee considers appropriate. As set out
on page 79, currently, under the annual bonus
plan, participants can earn a bonus based on the
achievement of a financial target and a personal
rating measured against one or more specific
(financial and/or non-financial) objectives.
The maximum level of bonus paid to a participant
in the plan is dependent on the achievement of
both the maximum target for the financial target
and the highest personal performance rating.
• In exceptional circumstances, up to 20 per cent
of the maximum bonus opportunity may be
payable independent of the financial out-turn.
• The appropriateness of performance measures
is reviewed annually to ensure they continue to
support the Company’s strategy.
• Once set, performance measures and targets
will generally remain unaltered unless events
occur which, in the Committee’s opinion, make it
appropriate to make adjustments to ensure they
operate as originally intended and to take
account of events which were not foreseen when
the performance targets were originally set.
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance Element and purpose
Policy and opportunity
Operation and performance measures
Long-term incentives
To motivate and incentivise
delivery of sustained
performance over the
long-term, the Group will
operate the Long-Term
Incentive Plan (‘LTIP’).
Awards delivered in shares
to provide further alignment
with shareholders.
• The normal policy is to award executive directors
with shares with an initial face value of up to 350
per cent of base salary each year under the LTIP.
In practice, awards of 335 per cent for the Group
Chief Executive and 310 per cent for any other
executive director are made annually.
• The LTIP will credit participants with the benefit
of accrual for dividends paid over the
performance and any holding period.
• Malus and clawback provisions (in respect of
both unvested and vested paid awards) apply to
the LTIP.
• Awards are subject to a combined vesting and
holding period of at least five years preventing
the delivery and sale of shares until the end of
the holding period.
All-employee share plans
To encourage share
ownership by employees,
thereby allowing them to
share in the long-term
success of the Group and
align their interests with
those of the shareholders.
• Executive directors are able to participate in
all-employee share plans on the same terms as
other Group employees.
• The Committee may set such performance
conditions as it considers appropriate (whether
financial or non-financial and whether corporate,
divisional or individual) over a period of at least
three financial years.
• Once set, performance measures and targets
will generally remain unaltered unless events
occur which, in the Committee’s opinion, make
it appropriate to make adjustments to the
performance conditions, provided that any
adjusted performance condition is, in its opinion,
neither materially more nor less difficult to
satisfy than the original condition.
• Executive directors can earn up to 25 per cent
of the award for threshold performance.
• The Company will honour the vesting of all
outstanding awards granted prior to this
remuneration policy coming into force in
accordance with the terms of such awards.
• Sharesave – individuals may save up to such limit
as permitted by the relevant legislation (currently
£500 each month) for a fixed period of three
years. At the end of the savings period,
individuals may use their savings to buy ordinary
shares in the Company at a discount of up to
20 per cent of the market price set at the launch
of each scheme.
• In line with the governing legislation, no
performance conditions are attached to options
granted under the Sharesave Scheme.
In addition, executive directors may participate
in other comparable all-employee incentives on
the same basis as other employees.
Notes to the policy table
1 Stating maximum amounts for each element of remuneration
Where the table refers to the maximum amount that may be paid in respect of any element of the policy, these will operate simply as caps and are not indicative of any aspiration. In particular, the
salary cap is not aspirational and the Committee envisages maintaining its approach to salary increases
2 Payments from existing awards
Carl Cowling and Robert Moorhead are eligible to receive payment from awards made before the approval and implementation of the previous remuneration policies or payments envisaged under
those policies. Details of these awards can be found in the annual Directors’ remuneration report on page 82. The Company will similarly honour pre-existing commitments made to any other new
Board members
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report continued
3.2 Performance measure selection and approach
to target setting
Annual bonus plan
The performance targets used under the annual bonus plan are
set annually to support the Company’s strategic priorities and
reinforce financial performance. The performance targets are
typically set by the Committee based on a range of factors,
principally the Company’s budget as approved by the Board either
prior to or shortly following the start of the financial year.
The Committee agreed that the performance targets for the
annual bonus plan for the financial year ended 31 August 2021
should be based on Headline EBITDA¹ in order to focus the
management team on the Group’s free cash flow as a result of
the ongoing impact of Covid-19. The Committee, in setting the
bonus targets for the financial year ended 31 August 2021, was
mindful of the impact of Covid-19 on the Company and the
markets in which we operate and took into consideration market
consensus for the financial year ended 31 August 2021.
The Committee agreed that the range used to determine the level
of pay-out under the bonus plan in respect of the financial targets
should be widened given that the Committee agreed that the
proposed target pay-out under the bonus plan was stretching,
given the uncertainty created by Covid-19.
Participants can earn a bonus based on the achievement of a
financial target, for example, Headline EBITDA¹ and a personal
rating measured against one or more specific financial and/or
non-financial objectives, including ESG targets. The maximum
level of bonus paid to a participant in the plan is dependent on
the achievement of both the maximum target for the financial
target and the highest personal performance rating.
The Committee sets a threshold pay-out target and a maximum
pay-out target with straight-line vesting between the targets.
In exceptional circumstances, up to 20 per cent of the maximum
bonus opportunity may be payable independent of the financial
out-turn. For on-target achievement of the financial target and a
good personal rating, an executive would earn approximately 48
per cent of the maximum bonus available under the plan.
Any bonus in excess of the on-target level is deferred into shares
under the DBP. One third of the shares are released on each
anniversary of the date of grant.
Different bonus measures and targets may apply in subsequent
years within the overall constraints of the plan.
Long-term incentives
The Committee regularly reviews the performance targets
applicable to the LTIP to ensure that they align with the
Company’s strategy and reinforce financial performance.
The Committee may change the measures and/or targets in
respect of subsequent awards. The Committee believes that a
combination of financial, market-based conditions and corporate
responsibility as the basis for the performance targets for the
LTIP is best suited to the needs of the Company and its
shareholders in order to reward sustained long-term
performance and the creation of shareholder value. However, the
performance targets for awards made under the LTIP in the
financial year ended 31 August 2021 were solely based on relative
TSR given the difficulty in putting in place meaningful EPS targets
as a result of the impact of Covid-19 on the Company and the
wider global economy.
The Committee is proposing that any awards made in the
financial year commencing 1 September 2021 will be 50 per cent
based on Headline pre-tax Earnings per Share and 50 per cent
based on relative TSR over three financial years ending 31 August
2024 compared with the FTSE All Share Retailers and that any
awards made in the financial year commencing 1 September
2022 will be based on the following targets each measured over
the three financial years to 31 August 2025:
• 40 per cent based on Headline pre-tax Earnings per Share
(calculated on a pre-IFRS 16 basis). EPS has for some years
been defined as fully diluted pre-exceptional items and
excluding IAS 19 pension charges together with other
adjustments as considered appropriate by the Committee
(although practice has been to make limited adjustments).
The definition of EPS remains unchanged except that, as
consulted with shareholders in 2020, it will be assessed on a
pre-tax basis;
• 40 per cent based on relative TSR over three financial years
compared with the FTSE All Share Retailers index.
Threshold vesting will occur for TSR in line with median
and maximum vesting will occur for TSR in line with the upper
quartile of the comparator group; and
• 20 per cent based on ESG measures which will be developed
over the course of the next year based on the Company’s
Sustainability Strategy, namely Planet, People and
Communities. Further details of this will be developed and
disclosed in the 2022 Directors’ remuneration report.
1 Alternative performance measure defined and explained in the Glossary on page 154
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance Malus/Clawback
The bonus plan, DBP and LTIP rules include a provision for
clawback (before or within a period of three years following
payment or vesting or earlier change of control) of a bonus or
award if (a) the Company materially misstated its financial results
and as a result the bonus or award was made, paid or vested to a
greater extent than it should have been; (b) the extent to which
any performance target or other condition was met was based on
an error or inaccurate or misleading information or assumptions
and as a result any bonus or award was made, paid or vested to a
greater extent than it should have been; (c) the Committee
concludes that circumstances arose during the bonus year or
vesting period which would have warranted summary dismissal
of the individual concerned; or (d) there is an insolvency having
regard to the Committee’s assessment of the involvement of the
individual to such event.
Exercise of discretion
In line with market practice, the Committee retains discretion in
relation to the operation and administration of the annual bonus
plan, DBP and LTIP. This discretion includes, but is not limited to:
• the timing of awards and payments;
• the size of awards, within the overall limits disclosed in the
policy table;
• the determination of vesting, including the discretion to
override formulaic outcomes, where appropriate, ensuring that
the outcome reflects the Company’s and the executive’s
performance as well as the experience of shareholders and
stakeholders, including employees, more generally;
3.3 Statement of consideration of employment conditions
elsewhere in the Company and differences to executive
director policy
Our employees are a key component of the Company’s
performance and our overall reward strategy aims to support
this. When considering remuneration arrangements for executive
directors and senior management, the Committee takes into
account the pay and conditions of employees across the Group.
The Committee receives in-depth data regarding employee
remuneration from the HR director on wider workforce pay and
conditions and, where appropriate, exercises oversight of
remuneration throughout the Group. The employee remuneration
data submitted to the Committee was prepared in respect of
head office and store employees and was based on data provided
by Willis Towers Watson and Alan Jones Retail surveys.
Following discussion, the Committee accepted a number of
recommendations to adjust the pay of some head office and store
based employees.
Although the Committee did not formally consult with the wider
workforce on executive remuneration, each business has an
employee forum at which all aspects of the business are
discussed. Employees are also invited to participate in the annual
Engagement Survey where their views on all aspects of working
conditions can be collected and shared with the Committee and
the Board. The Company is proud of its long history of being
regarded as a responsible and respected employer and regularly
reviews the overall structure of pay practices across the Group
and the wider retail sector to ensure it remains competitive and
is able to retain and attract employees.
• the treatment of awards in the case of a change of control (the
DBP excepted) or a restructuring of the Company;
Our approach to reward for our employees is based on the
following principles:
• the treatment of leavers within the rules of the plan and the
termination policy summary shown on page 70; and
• competitive: setting pay with reference to internal relativity
and external market practices;
• adjustments needed in certain circumstances (for example,
• simple: helping all employees to understand how they
a rights issue, a corporate restructuring or a special
interim dividend).
While performance conditions will generally remain unchanged
once set, the Committee has the usual discretions to amend the
measures and targets in exceptional circumstances (such as a
major transaction) where the unamended conditions would cease
to operate as intended. Any such changes would be explained in
the subsequent annual Directors’ remuneration report and, if
appropriate, be the subject of consultation with the Company’s
major shareholders. Consistent with best practice, the annual
bonus plan and the LTIP rules also provide that any such
amendment must not make the amended condition materially
less difficult to satisfy than the original condition was intended to
be prior to the occurrence of such event.
are rewarded;
• fair: achieving consistent outcomes through flexible and
transparent policies; and
• sustainable: aligning reward to business strategy
and performance.
All employees are entitled to base salary and benefits, including
pension and staff discount. Eligible employees receive private
medical cover and are able to participate in the Company’s
Sharesave plan and thereby become shareholders in the
Company. Our Employee Assistance programme offers all
employees access to free, 24/7 confidential telephone, online and
face-to-face advice for problems they may be experiencing at
home or at work. Employees also have access to the Company’s
Benevolent Fund charity, which can provide financial assistance
in cases of significant hardship and provide recuperative holidays
and care breaks.
Participation in a pension plan is offered to all employees on a
contributory basis and we have approximately 5,520 employees
in our pension plans.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report continued
3.4 Managing conflicts of interest
In order to avoid any conflict of interest, remuneration is
managed through well-defined processes ensuring no individual
is involved in the decision-making process related to their own
remuneration. In particular, the remuneration of all executive
directors is set and approved by the Committee; none of the
executive directors are involved in the determination of their own
remuneration arrangements. The Committee also receives
support from external advisors and evaluates the support
provided by those advisors annually to ensure that advice is
independent, appropriate and cost-effective.
3.5 Statement of consideration of shareholder views
The Committee maintains a continual dialogue with our major
shareholders and proxy agencies to understand their views.
Any major changes to the policy or its operation would be subject
to prior consultation as necessary.
As part of the current policy review process, the Committee
consulted with approximately 60 per cent of the shareholder
register. The Chair of the Remuneration Committee wrote to the
Statutory charts – valuation assumptions
Company’s largest investors and shareholder representatives
setting out the proposed changes to the existing remuneration
policy and made herself available for meetings as requested by
investors. The views expressed by investors were supportive of
the proposed changes given the introduction of post-cessation
share ownership guidelines and ESG performance targets for
the LTIP. The views of shareholders were considered by the
Committee and formed part of the final policy as set out in
Section 2 on page 61.
3.6 Total Remuneration opportunity
The graphs below indicate the level of remuneration that could
be received by each executive director in accordance with the
Directors’ remuneration policy in the first financial year to which
the new policy applies (i.e. financial year ending 31 August 2022)
at different levels of performance. The potential total rewards
are based on the Company’s Directors’ remuneration policy.
Carl Cowling
Robert Moorhead
£4,470
22%
£3,507
55%
43%
26%
21%
19%
14%
£1,584
30%
28%
42%
£661
100%
£3,314
£2,632
21%
52%
41%
27%
21%
21%
17%
£1,243
28%
27%
45%
£564
100%
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Min.
Target
Max.
Max. with growth
Min.
Target
Max.
Max. with growth
Total Fixed Remuneration
Annual Bonus
LTIP
Share Price Growth
Fixed – The minimum scenario reflects base salary, pension and benefits, being the only elements of the remuneration package not linked to performance. No salary increase has been assumed in
respect of the April 2022 salary review for Robert Moorhead, although the charts do include the salary increase for Carl Cowling in April 2022 as set out on page 73.
Annual bonus – The on-target scenario reflects fixed remuneration as above, plus the target level of performance for the annual bonus plan which is 48 per cent of maximum annual bonus; and for the
LTIP awards, threshold vesting levels have been assumed.
LTIP – The maximum scenario reflects fixed remuneration as above, plus the maximum level of performance for the annual bonus plan of 160 per cent of base salary; and for the LTIP awards,
maximum vesting levels have been assumed.
Additional LTIP 50 per cent increase in share price – as for the maximum scenario above, plus an increase in the value of the LTIP of 50 per cent across the relevant performance period to reflect
possible share price appreciation. Consistent with the reporting regulations, this does not separately include the impact of dividend accrual.
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance 3.7 Recruitment remuneration policy
The Company’s recruitment remuneration policy aims to give the Committee sufficient flexibility to secure the appointment and
promotion of high-calibre executive directors to strengthen the management team and secure the skill sets to deliver the Company’s
strategic objectives.
The starting point for the Committee will be to look at the general policy for executive directors as set out above, and structure
a package in accordance with that policy. Although the Regulations provide that, technically, the caps on fixed pay within the
general policy will not apply on the recruitment of an executive, the Committee would seek not to exceed those caps in practice.
In addition, ignoring any special buy-out arrangements which may prove to be necessary, the annual bonus and long-term incentive
compensation arrangements will operate (including the maximum award levels) within the limits as set out in the Future policy table
in Section 3.1 for executive directors on pages 63 to 65.
When an internal appointment is made, any pre-existing obligations will be honoured and payment will be permitted under the policy.
However, the Committee may adjust any pre-existing obligations to reflect the new appointment where it is considered appropriate to
do so.
For external and internal appointments, the Committee may agree that the Company will meet certain relocation expenses and legal
fees as it considers to be appropriate.
Where it is necessary to make a recruitment-related pay award to an external candidate to buy out entitlements under a previous
employers’ plan, the Company will not pay more than the Committee considers necessary and will in all cases seek, in the first
instance, to deliver any such awards under the terms of the existing incentive pay structure. It may, however, be necessary in some
cases to make such buy-out awards on terms that are more bespoke than the existing annual and equity-based pay structures at the
Company in order to secure a candidate.
Any buy-out awards for external appointments, whether under the bonus plan, LTIP or otherwise, will be capped at the commercial
value of the amount forfeited and will take account of the nature, time-horizons and performance requirements of those awards.
In particular, the Committee will seek to ensure that any awards being forfeited which were subject to outstanding performance
requirements (other than where substantially complete) are bought out with replacement performance requirements and any awards
with service requirements are, again, bought out with similar terms. However, exceptionally the Committee may relax those
obligations where it considers it to be in the interests of shareholders and those factors are, in the view of the Committee, equally
reflected in some other way, for example, through a significant discount to the face value of the awards forfeited.
3.8 Contracts of service and policy on payment for loss of office
Executive directors are on rolling service contracts with no fixed expiry date. The contract dates and notice periods for each executive
director are as follows:
Carl Cowling
Robert Moorhead
Date of contract
26 February 2019
8 October 2008
Notice period by Company
12 months
12 months
Notice period by director
12 months
9 months
Carl Cowling’s service contract provides for notice of 12 months from either party, permits summary dismissal with no compensation
in specified cases, has no special provisions in the event of a change of control and limits the maximum sum due on termination to
base salary only for the notice period. Robert Moorhead’s service contract provides for notice of 12 months from the Company and
nine months from Robert Moorhead and has no special provisions in the event of a change of control and limits the maximum sum
due on termination to base salary only for the notice period. Copies of the service contracts may be inspected at the registered office
of the Company.
It is envisaged that any new executive director would join with a contract which is no more favourable than that summarised in respect
of Carl Cowling. In practice, the facts surrounding a termination may be complex and do not always fit neatly into defined categories
for ‘good’ or ‘bad’ leavers. Therefore, it is appropriate for the Committee to consider the suitable treatment on a termination having
regard to all of the relevant facts and circumstances available at that time. This policy applies both to any negotiations linked to notice
periods on a termination and any treatment which the Committee may choose to apply under the discretions available to it under the
terms of the annual bonus plan, DBP and LTIP. The potential treatments on termination under these plans (which are governed by the
relevant plan rules) are summarised in the table below.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report continued
Reason for leaving
Annual bonus
Timing of vesting/payment
Calculation of vesting/payment
• ‘Bad leaver’ (all cases other than
• Not applicable
• No bonus to be paid for the financial year
those specified below)
• Redundancy, retirement or
otherwise at the Committee’s
discretion
• Change of control
Deferred Bonus Plan
• At the end of the financial year
• Bonuses will only be paid to the extent that the
performance measures have been met. Any bonus will
be paid on a time pro-rata basis
• Continuation of plan or
acceleration due to change
of control
• The Committee may decide that the end of any bonus
year should be accelerated to the date of the event with
appropriate pro-rating of any payment
• Dismissal for misconduct
• Not applicable
• Vested and unvested awards lapse
• All other cases
• Vesting: at the end of the relevant
vesting period (save in the case of
death where vesting occurs
immediately) unless the
Committee decides otherwise in
exceptional circumstances
• Change of control
• On change of control
• Awards vest over the original number of shares
• Awards will vest over the original number of shares.
Awards may be exchanged for awards over shares in
the acquiring company in the event of an internal
reorganisation
LTIP
• ‘Bad leaver’ (all cases other than
• Not applicable
• Vested and unvested awards lapse
those specified below)
• Ill health, injury, permanent
• Vesting: at the end of the relevant
disability, retirement with the
agreement of the Company,
redundancy, sale of a division or
subsidiary or if the circumstances,
in the opinion of the Committee,
are exceptional
performance period
• Exercise: at the end of any
relevant holding period
• For prescribed ‘good leavers’, generally, awards vest
over the original timescales, subject to the original
performance conditions. Awards are pro-rated for time
unless the circumstances, in the opinion of the
Committee, are exceptional
• Where the Committee determines that the
circumstances are exceptional such that a participant
is not a ‘bad leaver’, awards vest over the original
timescales, subject to performance measurement and
time pro-rating
• Death
• Vesting: at the discretion of the
Committee
• The Committee has discretion to disapply performance
conditions and may allow immediate vesting. Awards
may be pro-rated for time (as noted above)
• Change of control
• On change of control
• Awards will vest to the extent that any performance
conditions have been satisfied and will be reduced
pro-rata to take account of the performance period not
completed (as noted above), unless the Committee
decides otherwise. Awards may be exchanged for
awards over shares in the acquiring company in the
event of an internal reorganisation
In respect of all-employee plans, including Sharesave, the executive directors are subject to the same leaver provisions as all
other participants.
If additional compensation is required to be considered, such as on a settlement agreement, the Committee will consider all relevant
commercial factors affecting the specific case. If the Committee deems it necessary, the Company may enter into agreements with an
executive director, which may include the settlement of liabilities in return for payment(s), including reimbursement of legal fees and
outplacement services.
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance 3.9 Chairman and non-executive director fees
The following table explains the different elements of the remuneration that is paid to the Chairman and non-executive directors.
All payments made to the Chairman are determined by the Committee. The Chairman does not participate in any bonus or share
plans. The fees paid to non-executive directors are determined by the Chairman and the executive directors (being the Board
excluding the non-executive directors themselves) and are paid in cash. The levels are set to take into account the required time
commitment and the fee payments for non-executive directors of similar organisations. Non-executive directors do not participate in
any bonus or share plans. The current fees payable to the Chairman and the non-executive directors are set out on page 74.
Non-executive directors’ letters of appointment
The Chairman, who has a letter of appointment, is appointed for an initial term of three years. The appointment may be terminated
at any time by either the Company or the Chairman without notice. The non-executive directors, who have letters of appointment, are
also appointed for an initial term of three years. The Chairman and non-executive directors may be invited to serve for up to a further
two terms (nine years in total). Any term renewal is subject to Board review and re-election at the Company’s AGM. There is no right
to re-nomination by the Board, either annually or after any three-year period. These appointments can be terminated at any time by
either the Company or the non-executive director without notice. Copies of the letters of appointment may be inspected at the
registered office of the Company.
In light of the Covid-19 pandemic, we announced that Henry Staunton, Chairman, would remain as a director of the Company until
2022. Information on the Company’s succession planning is set out in the Nominations Committee report on pages 54 and 55.
Chairman and non-executive directors
Henry Staunton
Kal Atwal
Nicky Dulieu
Annemarie Durbin
Simon Emeny
Maurice Thompson
Original appointment date
1 September 2010
1 February 2021
9 September 2020
3 December 2012
26 February 2019
26 February 2019
Term end date
31 December 2022
31 January 2024
8 September 2023
19 January 2022
25 February 2022
25 February 2022
Under the Company’s Articles of Association, all directors are required to retire and submit themselves for re-election every three
years. However, in accordance with the Code, the Board has agreed that all directors will stand for re-election at the forthcoming AGM.
Element and purpose
Policy and opportunity
Operation and performance measures
Annual fees
• The fees paid to the Chairman and the fees of the other
non-executive directors aim to be competitive with other fully
listed companies of equivalent size and complexity. Fee levels
are periodically reviewed by the Board (for non-executive
directors) and the Committee (for the Chairman). In both
cases, the Company does not adopt a quantitative approach
to pay positioning and exercises judgement as to what it
considers to be reasonable in all the circumstances as
regards quantum.
• Additional fees are paid to non-executive directors who chair
a Board Committee (excluding the Nominations Committee)
and to the Senior Independent Director (‘SID’) and additional
fees may be introduced from time to time for other
responsibilities.
• All fees are subject to the aggregate fee cap for directors in
the Articles of Association (currently £750,000 per annum).
• Non-executive directors do not participate in incentive
arrangements.
• Fees are paid monthly in cash.
• Fee levels for the Chairman and the non-
executive directors are reviewed periodically
(the last review being in March 2018) with the
next review due in March 2022.
• The Company reserves the right to change how
the elements and weightings within the overall
fees are paid and to pay a proportion of the fees
in shares within this limit if it is considered
appropriate to do so.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report continued
Element and purpose
Policy and opportunity
Operation and performance measures
Benefits
• In line with other employees, the Chairman and the
non-executive directors receive an employee staff discount.
• It is not the current practice of the Company to
provide benefits to the Chairman or the non-
executive directors (other than the employee staff
discount). However, while the Committee does
not consider it to form part of benefits in the
normal usage of that term, it has been advised
that corporate hospitality (whether paid for by the
Company or another) and business travel for
directors may technically come within the
applicable rules and so the Committee expressly
reserves the right to authorise such activities
within its agreed policies and within the overall
limits.
• Neither the Chairman nor any non-executive
directors will participate in any variable pay
arrangements.
• Any other benefits would count towards the
overall fee cap.
4. Annual Directors’ remuneration report
The Committee presents the Annual report on remuneration which, together with the introductory letter by the Chair of the
Committee on pages 58 to 60, will be put to shareholders as an advisory vote at the forthcoming Annual General Meeting.
4.1 Remuneration Committee
The Committee Chair is Annemarie Durbin. The other members of the Committee are Kal Atwal, Nicky Dulieu, Simon Emeny, Henry
Staunton and Maurice Thompson. At the invitation of the Committee, the Group Chief Executive and representatives of the
Committee’s external independent remuneration advisor regularly attend meetings.
The Committee met eight times during the year. All Committee members are expected to attend meetings. The table on page 43 in the
Corporate governance report shows the number of meetings held during the year ended 31 August 2021 and the attendance record of
individual directors.
In order to avoid any conflict of interest, remuneration is managed through well-defined processes ensuring no individual is involved in
the decision-making process related to their own remuneration. In particular, the remuneration of all executive directors is set and
approved by the Committee; none of the executive directors are involved in the determination of their own remuneration
arrangements. The Committee also receives support from external advisors and evaluates the support provided by those advisors
annually to ensure that advice is independent, appropriate and cost-effective.
During the year, the Committee continued to receive advice from FIT Remuneration Consultants LLP (FIT), which is a member of the
Remuneration Consultants Group (the professional body) and adheres to its code of conduct. FIT was appointed by the Committee and
has no other relationship with the Company or with any individual directors. The Committee is satisfied that FIT continues to provide
objective and independent advice. FIT’s fees in respect of the year under review were £72,092 (excluding VAT) and were charged on the
basis of FIT’s standard terms of business.
Ian Houghton, Company Secretary, also materially assisted the Committee in carrying out its duties, except in relation to his own
remuneration. No director or manager is involved in any decisions as to their own remuneration. The Group Chief Executive also
attends Committee meetings but excludes himself in relation to discussion of his own remuneration, as does the Chairman.
The Committee maintains an ongoing dialogue with our major shareholders and proxy agencies to understand their views. Any major
changes to the policy or its operation would be subject to prior consultation as necessary.
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance Key Committee activities during the year
Alignment to strategy
and wider workforce
Assessed the ongoing alignment of remuneration structures, measures and targets to the strategy.
Reviewed wider workforce remuneration.
Reviewed the gender pay gap report and recommended to the Board that the gender pay gap report
be published.
Shareholder
Engagement
Pay for performance
Governance
Pay
Considered investor feedback, particularly on the remuneration policy.
Assessed performance against targets set for the financial year ended 31 August 2021 annual bonus and 2018
LTIP and considered whether any discretion should be used to adjust formulaic outcomes if necessary.
Reviewed and approved targets for annual bonus and LTIP.
Reviewed the performance of the executive directors against personal objectives.
Considered remuneration to ensure that it retains and motivates the excellent management team.
Reviewed and considered consequences of the changing investor, governance and reporting requirements.
Reviewed progress of the executive directors against shareholding requirements.
Approved the 2020 Directors’ remuneration report.
Postponed the proposed increase to Carl Cowling’s salary in April 2021 and agreed that Robert Moorhead would
not receive a pay increase in the financial year ended 31 August 2021.
Reduced the pay-out under the annual bonus plan for the financial year ended 31 August 2021.
4.2 Implementation of Directors’ remuneration policy in the financial year ended 31 August 2021
This section sets out how the Directors’ remuneration policy has been implemented in the financial year ended 31 August 2021.
Element of pay
Implementation of policy
Executive directors
Base salary
Benefits
Pension
Annual bonus
Carl Cowling was appointed as Group Chief Executive on 1 November 2019 on a lower salary than his
predecessor. The Committee, in accordance with best practice, indicated in the 2019 Directors’ remuneration
report that it would, subject to performance, increase Carl Cowling’s salary in £25,000 increments in April
2020, 2021 and 2022. Given the impact of Covid-19, the April 2020 increase was deferred to 1 July 2020 and
Carl Cowling donated his increase to charity until October 2020. Following the shareholder vote at the 2021
AGM, the April 2021 increase was deferred to September 2021. Accordingly, Carl Cowling’s salary increased to
£575,000 with effect from 1 September 2021.
The current salaries are: Carl Cowling – £575,000; and Robert Moorhead – £440,000.
No changes were made to these elements of remuneration within the financial year ended 31 August 2021
(although the cost of providing benefits may change without any action by the Company).
Executive directors received a car allowance, private medical insurance and life assurance, in addition to other
benefits, during the financial year ended 31 August 2021.
Carl Cowling received a total benefit equivalent to 12.5 per cent of base salary and Robert Moorhead received
a total benefit equivalent to 25 per cent of base salary. During the financial year ended 31 August 2021,
Carl Cowling and Robert Moorhead received all of their pension contribution as a salary supplement after
applying for fixed protection. Part of the amount otherwise paid to the Company’s defined contribution scheme
was reduced to reflect the requirement to pay employers’ National Insurance.
The reduced bonus payable for the financial year ended 31 August 2021 was: Carl Cowling - £550,000 and
Robert Moorhead - £357,500. Any bonus paid in excess of the on-target level is normally deferred into shares.
The formulaic out-turn was reduced by 22 per cent to reflect that, despite the exceptional achievements of
management, the out-turn was still a Headline loss and that no dividends were payable.
The bonus is assessed against a sliding scale financial target and is then moderated (on a downwards only
basis) by reference to the achievement of personal objectives.
Further information on the bonus payments to Carl Cowling and Robert Moorhead and their achievement
of their personal objectives is set out on pages 80 and 81.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report continued
Element of pay
Implementation of policy
Long-term incentives
Shareholding guidelines
Malus/clawback
Non-executive directors
Annual fees
Annual LTIP awards were set at the policy level being 335 per cent for Carl Cowling and 310 per cent for Robert
Moorhead.
The terms of and the performance measures applicable to the LTIP awards made in the financial year ended
31 August 2021 are described on page 81.
Vesting of LTIP awards is determined based on the following measure: 100 per cent is based on relative TSR.
The performance period is three years. There is a subsequent two-year holding period.
The Committee approved this performance measure as it is directly linked to the objectives set out in the
Group’s strategy; there is a direct link with shareholder value and there is a clear line of sight for participants
between performance and reward.
As disclosed in last year’s report, consistent with the Code provisions, the Committee retains a broad discretion
to reduce vesting levels, including if it considers that there would otherwise be a windfall gain or if
management fail to deliver on the Company’s ESG expectations.
The Committee took the decision at its meeting in October 2020 not to adjust the financial targets for the
outstanding LTIP awards. The Company partially met the performance targets for the 2017 LTIP with 13 per
cent of the award vesting notwithstanding the significant impact of Covid-19 on the Company in the second half
of the financial year ended 31 August 2020. The award granted in November 2018 has lapsed and it is likely
that the award granted in November 2019 will also lapse.
Carl Cowling is required to hold 300 per cent of salary in shares. Robert Moorhead is required to hold 250 per
cent of salary in shares. In accordance with the Directors’ remuneration policy, Carl Cowling is expected to
achieve compliance with the shareholding requirement within six years of him joining the Board on 26
February 2019.
As at 31 August 2021 Carl Cowling held 23,051 shares with a value of £376,192 (approximately 68 per cent of
salary) and Robert Moorhead held 197,973 shares with a value of £3,230,919 (approximately 735 per cent of
salary).
The annual bonus plan, DBP and LTIP rules included a provision for clawback (before or within a period of
three years in the case of the LTIP and DBP following payment or vesting or earlier change of control) of a
bonus or award if (a) the Company materially misstated its financial results and as a result the bonus or award
was made, paid or vested to a greater extent than it should have been (b) the extent to which any performance
target or other condition was met was based on an error or inaccurate or misleading information or
assumptions and as a result the bonus or award was made, paid or vested to a greater extent than it should
have been (c) the Committee concludes that circumstances arose during the bonus year or vesting period
which would have warranted summary dismissal of the individual concerned or (d) there is an event of
insolvency having regard to the involvement of the individual executive in the circumstances which led to such
insolvency.
Current fees are £235,000 for the Chairman of the Board and £55,000 for the role of non-executive director with
additional fees of:
(i) £12,000 payable for the role of Senior Independent Director (‘SID’); and
(ii) £12,000 payable for being the Chair of the Audit or Remuneration Committee
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance 4.3 Implementation of Directors’ remuneration policy in the financial year ending 31 August 2022
The Committee envisages that there will be no changes to the implementation of the Directors’ remuneration policy, beyond the
proposed changes to the policy set out on page 61, during the financial year ending 31 August 2022. The policy in respect of the
executive directors will be applied as follows:
Element of pay
Implementation of policy
Executive directors
Base salary
Benefits
Pension
Carl Cowling’s salary will increase to £600,000, subject to his personal performance, with effect from 1 April
2022. Robert Moorhead will be eligible, in line with other head office staff, for any increase in salary following
the March 2022 review. It is proposed that Carl Cowling will be eligible, in line with other head office staff, for
any increase in salary following the March 2023 review.
No changes are expected to be made to these elements of remuneration within the financial year ending
31 August 2022.
No changes are expected to be made to these elements of remuneration within the financial year ending
31 August 2022. Any new executive director would have their allowance aligned to that available to the majority
of UK-based employees. The pension contributions for Carl Cowling and Robert Moorhead will be reduced to
align with the wider workforce rate of approximately 3 per cent from 1 January 2023.
Annual bonus
The bonus opportunity for Carl Cowling and Robert Moorhead will be 160 per cent of annual salary. It is
envisaged that the bonus metrics will be based on a matrix of financial and personal performance.
Any bonus in excess of the on-target level will be deferred into shares.
Long-term incentives
Shareholding guidelines
Malus/clawback
Annual LTIP awards will again be set at the policy level (335 per cent of salary for Carl Cowling and 310 per
cent for Robert Moorhead). Vesting of LTIP awards is determined based on the following measures: 50 per
cent is based on EPS growth and 50 per cent is based on relative TSR. The number of shares vesting for
threshold performance is 25 per cent. The EPS performance targets will be based on the growth in Headline
pre-tax Earnings per Share. The TSR condition remains a median to upper quartile scale relative to the FTSE
All Share General Retailers Index constituents.
Carl Cowling is required to hold 300 per cent of salary in shares and Robert Moorhead is required to hold
250 per cent of salary in shares. As set out in the proposed Directors’ remuneration policy, the Committee is
introducing formal post-employment shareholding requirements which will apply if shareholders approve the
Directors’ remuneration policy at the AGM in January 2022. The post-cessation share ownership guidelines
require Carl Cowling to retain 300 per cent of salary and Robert Moorhead (other executive directors) to retain
250 per cent of salary for two years post-cessation of employment. This requirement will apply to both new
awards from the adoption of the policy and all unvested awards.
The rules of the annual bonus plan, the LTIP and the DBP include a provision for clawback before or within a
period of three years following payment of a bonus if (a) the Company materially misstates its financial results
and as a result the bonus is made or paid to a greater extent than it should have been (b) the extent to which
any performance target or other condition is met is based on an error or inaccurate or misleading information
or assumptions and as a result the bonus is paid to a greater extent than it should be (c) the Committee
concludes that circumstances arose during the bonus year which would have warranted summary dismissal
of the individual concerned or (d) there is an event of insolvency having regard to the involvement of the
individual executive in the circumstances which led to such insolvency.
The policy in respect of the non-executive directors will be applied as follows:
Element of pay
Implementation of policy
Non-executive directors
Annual fees
The fees of the Chairman and non-executive directors will be subject to a review in March 2022.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report continued
4.4 Summary of non-executive directors’ remuneration 2021 (audited)
The table below summarises the total remuneration for non-executive directors as a single figure for the financial year ended
31 August 2021. Non-executive directors are not paid a pension and do not participate in any of the Company’s variable
incentive schemes:
Henry Staunton
Kal Atwal(b)
Nicky Dulieu(d)
Annemarie Durbin
Simon Emeny
Maurice Thompson
Directors who resigned during the year
Suzanne Baxter(c)
Base feee
£’000
Committee/SID fee
£’000
Benefitsa
£’000
Total
£’000
2021
235
32
54
55
55
55
21
2020
223
–
-
52
52
52
52
2021
–
–
7
12
12
–
5
2020
–
–
-
11
7
–
11
2021
–
–
1
–
–
-
–
2020
–
–
-
–
–
1
–
2021
235
32
62
67
67
55
26
2020
223
–
-
63
59
53
63
a) Benefits primarily consist of travel and subsistence costs incurred in the normal course of business, in relation to meetings on Board and Committee matters and other Company events which are
considered taxable.
b) Kal Atwal was appointed as a non-executive director on 1 February 2021.
c) Suzanne Baxter stepped down as a director of the Company on 20 January 2021.
d) Nicky Dulieu was appointed as a non-executive director on 9 September 2020.
e) The directors took a 20 per cent voluntary reduction in salary/fees during the lockdown period between April to June 2020.
4.5 Summary of Executive directors’ remuneration 2021 (audited)
The table below summarises the total remuneration for executive directors as a single figure for the financial year ended
31 August 2021:
Salarya
£’000
Benefitsb
£’000
Pensione
£’000
Total fixed
remuneration
£’000
Annual
bonusc
£’000
LTId
£’000
Total variable
remuneration
£’000
Carl Cowling
Robert Moorhead
Total £’000s
2021
550
440
990
2020
482
418
900
2021
14
14
28
2020
14
14
28
2021
69
107
176
2020
60
102
162
2021
633
561
2020
556
534
1,194 1,090
2021
550
358
908
2020
–
–
–
2021
–
-
–
2020
52
81
133
2021
550
358
908
2020
52
81
133
Total
remuneration
£’000
2021
1,183
919
2020
608
615
2,102 1,223
a) Carl Cowling and Robert Moorhead took a 20 per cent reduction in salary during the lockdown period, March to June 2020. Carl Cowling’s salary increased to £550,000 with effect from 1 July 2020
and to £575,000 with effect from 1 September 2021.
b) Benefits relate mainly to the provision of a car allowance, private medical insurance and life assurance.
c) The performance measures for the annual bonus, and achievement against them, are set out on pages 80 and 81. For the year under review, Carl Cowling had the opportunity to receive an annual
bonus up to a maximum of 160 per cent of his base salary and Robert Moorhead had the opportunity to receive an annual bonus of up to a maximum of 130 per cent of base salary. The calculated
outcome under this measure may be moderated (downwards only) by the Committee having regard to personal performance ratings. The Company’s Headline EBITDA¹ was £19m. After the
exercise of negative discretion, Carl Cowling received a reduced annual bonus of £550,000, of which 23 per cent will be deferred into shares and Robert Moorhead received a reduced annual bonus
of £357,500, of which 23 per cent will be deferred into shares. Both the cash and deferred share elements are subject to malus and clawback provisions.
d) The performance measures for the LTIP, and achievement against them, are set out on page 83. The performance conditions for the awards granted in the financial year ended 31 August 2019 were
not met and the awards lapsed. The 2020 figures in the table above have been updated to the actual values of the LTIP that vested in respect of the performance period ending in that financial year,
using the share price of 1021p, being the closing price on the vesting date, 26 October 2020. The LTI figures in the table for 2020 do not include any share price appreciation as the share price as at
the date of grant on 26 October 2017 was 2036.67p.
e) The pension figures in the table above include both the pension contribution into the Company’s defined contribution pension scheme and any salary supplement received in lieu.
The total aggregate emoluments (excluding LTI) paid to the Board in the financial year ended 31 August 2021 was £2,646,000 and in
the financial year ended 31 August 2020 was £1,703,000.
4.6 Payments made to former directors (audited)
Stephen Clarke stepped down as Group Chief Executive on 31 October 2019. Under the rules of the LTIP, Stephen Clarke was treated
as a good leaver and retained a reduced number of unvested awards. These awards vested in respect of 4,574 shares in the financial
year ended 31 August 2021.
Stephen Clarke also retained awards under the DBP. These awards vested in respect of 2,360 shares in the financial year ended
31 August 2021.
No other payments were made in the financial year ended 31 August 2021 to former directors of the Company.
4.7 Payments for loss of office (audited)
No payments were made in respect of any director’s loss of office in the financial year ended 31 August 2021.
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance 4.8 Assessing pay and performance
You can see how the Company has generated shareholder value since 2011 in the TSR graph below. As can be seen from the graph,
the Company generated a return of 39 per cent over the financial year ended 31 August 2021 compared to the FTSE All Share General
Retailers Index which generated a return of 29 per cent over the same period.
Total shareholder return performance since 31 August 2011
700
600
500
400
300
200
100
0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Accounting year end
WH Smith PLC
FTSE All Share General Retailers Index
a) The graph illustrates the TSR performance on a cumulative basis (with dividends reinvested) as at the end of each of the last ten financial years compared with the FTSE All Share General Retailers
Index (the ‘Index’) over the same period.
b) The Company is a member of the Index and, as such, this sector was considered to be the most appropriate comparator group upon which a broad equity market index is calculated.
The table below summarises the Group Chief Executive’s remuneration and how the Company’s variable pay plans have paid out over
the past ten years.
Financial year ended 31 August
2021
2020 – from 1 November 2019
2020 – until 31 October 2019
2019
2018
2017
2016
2015
2014
2013 – from 1 June
2013 – until 31 May
2012
CEO
Carl Cowling
Carl Cowling
Stephen Clarke
Stephen Clarke
Stephen Clarke
Stephen Clarke
Stephen Clarke
Stephen Clarke
Stephen Clarke
Stephen Clarke
Kate Swann
Kate Swann
Single figure of total remuneration
£’000
1,183
531
221
3,416
2,879
4,112
5,179
4,148
2,546
4,067
9,192
3,147
Annual bonus (vesting versus
maximum opportunity)
%
63
–
–
100
93
98
100
100
100
100
100
100
Long-term incentive (vesting versus
maximum opportunity)
%
-
13
13
69
58
81
98
100
100
97
98
90
The 2020 single figure of total remuneration has been updated to reflect the actual value of the LTIP award that vested in respect of
the performance period ending in that financial year.
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WH Smith PLC Annual Report and Accounts 2021Corporate governance
Directors’ remuneration report continued
4.9 Annual change in remuneration of each director compared to employees
The table below shows the percentage changes in the remuneration of each director (salary/fees, annual bonus and taxable benefits)
from financial year to subsequent financial year over the financial years ended 31 August 2020 and 31 August 2021 compared with the
percentage changes in the average of those components of pay for UK employees employed by WH Smith Retail Holdings Limited over
that period. The Company has chosen to voluntarily disclose this information, given that WH Smith PLC is not an employing company.
Financial year ended 31 August
Carl Cowling
Robert Moorhead
Henry Staunton
Kal Atwal
Nicky Dulieu
Annemarie Durbin
Simon Emeny
Maurice Thompson
UK employees
Salary/fee increase/decrease
%
Annual bonus increase/decrease
%
Taxable benefits increase/decrease
%
2021
14
5
5
–
–
6
14
4
5
2020
140
5
(5)
–
–
2
111
86
7
2021
100
100
n/a
n/a
n/a
n/a
n/a
n/a
100
2020
(100)
(100)
n/a
n/a
n/a
n/a
n/a
n/a
(100)
2021
–
–
-
–
–
–
–
(100)
3
2020
100
–
–
–
–
–
–
–
18
a) Kal Atwal was appointed as a non-executive director on 1 February 2021.
b) Nicky Dulieu was appointed as a non-executive director on 9 September 2020 and became Chair of the Audit Committee on 20 January 2021.
c) The directors took a 20 per cent voluntary reduction in salary/fees during the lockdown period between April to June 2020 and the 2021 figures reported above reflect the reversal of those
salary waivers.
d) Carl Cowling was appointed to the Board on 26 February 2019 and became Group Chief Executive on 1 November 2019.
e) Simon Emeny was appointed as the Company’s Senior Independent Director on 22 January 2020.
4.10 Group Chief Executive pay compared to pay of UK employees
The ratios comparing the total remuneration of the Group Chief Executive (as included in the single total figure of remuneration table
on page 77) to the remuneration of the 25th, 50th and 75th percentile of our UK employees are set out below. The disclosure will build
up over time to cover a rolling ten-year period.
We expect the pay ratio to vary from year to year, driven largely by the variable pay outcome for the Group Chief Executive, which will
significantly outweigh any other changes in pay at WHSmith.
Group Chief Executive pay ratios
Financial year ended 31 August
2021
2020
2019
Method
Option A
Option A
Option A
25th percentile pay ratio
70:1
43:1
239:1
Median pay ratio
70:1
41:1
207:1
75th percentile pay ratio
52:1
33:1
201:1
WHSmith has chosen to use Option A to calculate its Group Chief Executive pay ratio as it believes that it is the most robust way for it
to calculate the three ratios from the options available in the Regulations.
Total remuneration for all UK full-time equivalent employees of the Company on 31 August 2021 has been calculated in line with the
single figure methodology and reflects their actual earnings received in the financial year ended 31 August 2021 (excluding business
expenses). Set out in the table below is the base salary and total pay and benefits for each of the percentiles.
£
Salary
Total pay and benefits
25th percentile pay ratio
16,795
16,795
Median pay ratio
16,795
16,795
75th percentile pay ratio
22,881
22,950
The Company believes the median pay ratio for the year ended 31 August 2021 is consistent with the pay, reward and progression
policies for the Company’s UK employees taken as a whole. This group has been selected as the most appropriate comparator for the
Group Chief Executive as he is a full-time employee based in the UK and approximately 85 per cent of all WHSmith employees are
based in the UK. The increase in the pay ratios in 2021 as compared to 2020 is attributable to the increase in the amount of variable
remuneration received by the Group Chief Executive as he did not receive a bonus payment in 2020 as a result of the impact of
Covid-19. As explained in the Chair’s annual statement on pages 58 to 60 and the summary of executive remuneration on page 76,
the Group Chief Executive and approximately 1,750 employees received a bonus under the annual bonus plan for the financial year
ended 31 August 2021.
78
WH Smith PLC Annual Report and Accounts 2021
Corporate governance 4.11 Relative importance of spend on pay
The table below shows the total cost of remuneration paid to or receivable by all employees in the Group as well as dividends/share
buybacks made during the financial year ended 31 August 2021. There were not considered to be any other significant distributions
and payments or other uses of profit or cash flow deemed by the directors to assist in understanding the relative importance of spend
on pay for the purposes of the table below.
Total cost of remuneration
Distribution to shareholders
2020
£m
217
2021
£m
232
% change
7
2020
£m
–
2021
£m
–
% change
–
4.12 Annual bonus targets (audited)
The performance targets used under the annual bonus plan are normally set annually to support the Company’s strategic priorities
and reinforce financial performance. The performance targets are set by the Committee based on a range of factors, principally the
Company’s budget as approved by the Board either prior to or shortly following the start of the financial year. The Committee agreed
that the performance targets for the annual bonus plan for the financial year ended 31 August 2021 should be based on Headline
EBITDA1 in order to focus the management team on the Group’s free cash flow as a result of the ongoing impact of Covid-19.
The Committee, in setting the bonus targets for the financial year ended 31 August 2021, was mindful of the impact of Covid-19 on the
Company and the markets in which we operate and took into consideration market consensus for the financial year ended 31 August
2021. The Committee agreed that the range used to determine the level of pay-out under the bonus plan in respect of the financial
targets should be widened given that the Committee agreed that the proposed target pay-out under the bonus plan was stretching
given the uncertainty created by Covid-19.
Under the annual bonus plan, participants can earn a bonus based on the achievement of a financial target and a personal rating
measured against one or more specific (financial and/or non-financial) objectives. The maximum level of bonus paid to a participant in
the plan is dependent on the achievement of both the maximum financial target and the highest personal performance rating.
The Committee sets a threshold pay-out target and a maximum pay-out target with straight-line vesting between the targets.
For the financial year ended 31 August 2021, no bonus was payable unless both the threshold financial target and at least an
acceptable personal rating (i.e. ‘Developing’) were achieved. Subject to approval of the Directors’ remuneration policy at the 2022 AGM,
in exceptional circumstances, up to 20 per cent of the maximum bonus opportunity may be payable independent of the financial
out-turn, subject to the Committee’s assessment of whether personal performance or other non-financial performance warrants
payment of a bonus against pre-set targets. No bonus will be payable unless the personal rating is at least acceptable (i.e.
‘Developing’). For on-target achievement of the profit target and a good personal rating (i.e. ‘Strong’), an executive would earn
approximately 48 per cent of the maximum bonus available under the plan. Any bonus payable will be paid in cash and shares.
Bonuses for the financial year ended 31 August 2021 could be earned according to the following scale (as a percentage of each
executive’s respective maximum):
Financial performance against Headline Group profit before tax1 target
Max: £36m
Target: £18m
Threshold: £1m
Interpolation between points in the matrix is permitted.
Role model
100%
80%
40%
Outstanding
80%
64%
32%
Strong
60%
48%
24%
Developing
40%
32%
16%
Underachiever
0%
0%
0%
The Company’s Headline EBITDA¹ for the financial year ended 31 August 2021 was £19m. This performance resulted in approximately
1,750 employees also receiving an on-target bonus under the annual bonus plan for the financial year ended 31 August 2021.
The Committee believes that the senior management team, and in particular the executive directors, have provided outstanding,
inspiring and resourceful leadership during another year of uncertainty and disruption. You can read about the actions that the
executive directors took to build back stronger on pages 58 and 59.
The Committee considered the experience of the Company’s stakeholders and the government support received by the Company in
deciding whether it was in the Company’s best long-term interests to pay Carl Cowling and Robert Moorhead a bonus. The Committee
determined that the formulaic out-turn under the annual bonus plan should be adjusted and that it should reduce the bonus payment
to one-times salary for Carl Cowling (and by the same percentage for Robert Moorhead). This resulted in a 22 per cent reduction.
It also confirmed that 23 per cent of the bonus should be deferred in accordance with the rules of the Company’s Deferred Bonus
Plan. In reaching this decision, the Committee took into consideration the fact that the Company was not paying a dividend for the
financial year ended 31 August 2021 but noted that the shareholders had seen an increase of approximately 39 per cent in the
Company’s share price as a result of the Company’s overall financial improvement during the financial year.
1 Alternative performance measure defined and explained in the Glossary on page 154
79
WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report continued
The Committee believes that the management team has performed to a truly exceptional level this year. In addition to steering the
business through an extraordinarily difficult period, their actions have been fundamental in establishing a commanding position from
which the Company can build back stronger going forward. More details of the actions taken are set out below. Of particular note has
been the winning of all 30 technology stores in UK airports and the circa 100 stores won and yet to open in Travel over the next three
years. The Board believe that this management team is pivotal to the future success of the business. When balancing the interests of
all stakeholders in our decision-making, retaining and motivating the management team for the future success of the business has
been one of our primary objectives.
The executive directors’ personal ratings are based on a range of objectives. Carl Cowling’s personal objectives included:
Objective
Achievement
1. To successfully deliver the integration of
InMotion and MRG.
The InMotion business now operates on the same systems as MRG from its head
office in Las Vegas. The integration of the businesses has generated significant
cost savings.
2. To develop the talent and succession pipeline
of the senior team and recruit a new MD for
Travel UK.
The Company’s senior executive succession plan was presented to the Nominations
Committee in July 2021. A new MD for Travel UK was appointed on 1 May 2021.
3. To ensure that there is a shortlist of a
minimum of six candidates for each senior
executive vacancy of which 50 per cent must be
female and at least one must be from a BAME
background.
Appointments: 4 men (57 per cent) including one male person of colour and three
women (43 per cent) appointed.
Shortlisting: 5 out of 7 (71 per cent) roles met target of at least 50 per cent female
shortlisted (2020: 38 per cent). 6 out of 7 (86 per cent) roles met target of at least one
person of colour shortlisted (2020: 15 per cent).
4. To be carbon neutral for UK operations by the
end of the financial year ended 31 August 2021.
To get the Company accepted into the Dow
Jones Sustainability Index.
Carbon emissions from electricity used to power UK buildings have been reduced to
net zero through the procurement of renewable electricity. Carbon emissions from
gas used to power UK buildings have been neutralised through the purchase of
credible, certified carbon reduction certificates in line with the Company’s published
carbon reduction strategy. UK operations for the financial year ended 31 August 2021
were carbon neutral. WHSmith is a member of the Dow Jones Sustainability Index.
5. To accelerate the growth of WHSmith Online.
WHSmith Online sales increased above the target in the financial year ended 31
August 2021.
6. To ensure the successful re-opening of
UK Travel stores.
All main Airport and Rail stores were successfully re-opened during the financial year
ended 31 August 2021.
7. To improve relationships with key
stakeholder groups.
Carl Cowling undertook a series of meetings with key stakeholders during the
financial year ended 31 August 2021.
The Committee determined that, notwithstanding the successful achievement of all of his key personal objectives, it was appropriate
to exercise downward discretion to reduce the formulaic annual bonus out-turn to one-times salary for Carl Cowling (a 22 per cent
reduction) and, therefore, Carl Cowling should receive a reduced bonus payment of £550,000 for the financial year ended 31 August
2021 of which £127,600 will be deferred into shares.
80
WH Smith PLC Annual Report and Accounts 2021
Corporate governance Robert Moorhead’s personal objectives included:
Objective
Achievement
1. To successfully deliver the integration of
InMotion and MRG.
The InMotion business now operates on the same systems as MRG from its head
office in Las Vegas. The integration of the businesses has generated significant c
ost savings.
2. To lead the refinancing of the Group’s existing
facilities.
The Group successfully refinanced its bank facilities twice in the year and issued a
£327m convertible bond in May 2021 and increased liquidity by £100m.
3. To manage the Group’s cash to ensure its
The Group had net cash and cash equivalents of £130m as at 31 August 2021.
ongoing viability.
4. To be carbon neutral for UK operations by the
end of the financial year ended 31 August 2021.
To get the Company accepted into the Dow
Jones Sustainability Index.
Carbon emissions from electricity used to power UK buildings have been reduced to
net zero through the procurement of renewable electricity. Carbon emissions from
gas used to power UK buildings have been neutralised through the purchase of
credible, certified carbon reduction certificates in line with the Company’s published
carbon reduction strategy. UK operations for the financial year ended 31 August 2021
were carbon neutral. WHSmith is a member of the Dow Jones Sustainability Index.
5. To create value from Funkypigeon.
Funkypigeon’s sales increased above the target set in the financial year ended
31 August 2021.
6. To improve relationships with key
stakeholder groups.
Robert Moorhead undertook a series of meetings with key stakeholders during the
financial year ended 31 August 2021.
The Committee determined that, notwithstanding the successful achievement of all of his key personal objectives, it was appropriate
to exercise downward discretion to reduce the formulaic annual bonus out-turn by 22 per cent reduction and, therefore, Robert
Moorhead will receive a reduced bonus payment of £357,500 for the financial year ended 31 August 2021 of which £82,940 will be
deferred into shares.
For the annual bonus plan for the financial year ending 31 August 2022, the bonus metrics will also be based on a similar matrix of
financial and personal performance with the financial performance measure reverting to Headline Group profit before tax¹.
The financial bonus metrics will apply across the Group’s bonus plans, so that the whole organisation is focused on delivering financial
performance via the metrics that are applicable to each business. The Committee will publish the targets for that financial year in next
year’s report and, consistent with market practice, has elected not to pre-disclose them (or give numerical personal objectives) on the
basis of commercial sensitivity. Any bonus payable in respect of the financial year ending 31 August 2022 will be paid in cash and
shares. Any bonus payable over target will be deferred into shares for a period of up to three years under the DBP. The shares will be
released one third on each anniversary of assessment irrespective of whether the recipient is an employee of the Company.
4.13 Share plans (audited)
The Committee regularly reviews the performance targets applicable to the LTIP to ensure that they align with the Company’s strategy
and reinforce financial performance. The Committee may change the measures and/or targets in respect of subsequent awards.
For awards granted in the financial year ended 31 August 2021, the Committee determined that a market-based condition as the basis
for the performance targets for the LTIP was best suited to the needs of the Company and its shareholders in order to reward
sustained long-term performance and the creation of shareholder value. The Committee agreed that, given the challenge of setting
robust performance targets three years in advance in light of Covid-19 uncertainty, the performance targets should only be based
on TSR.
Annual LTIP awards in the financial year ended 31 August 2021 were set at the policy level being 335 per cent of salary for Carl
Cowling and 310 per cent of salary for Robert Moorhead using the share price calculated over the three days preceding the grant date
to determine the number of awards granted. The grant share price of 1459.33p was 37 per cent higher than the average share price of
1064.89p for the last quarter of the financial year ended 31 August 2020. The performance target for awards was based on relative TSR
against the FTSE All Share General Retailers Index constituents. Vesting will occur on the following basis:
TSR performance ranking at end of the Performance Period
Below median
Median
Upper quartile
Between median and upper quartile
1 Alternative performance measure defined and explained in the Glossary on page 154
Proportion exercisable
Zero
25%
100%
On a straight-line basis between 25% and 100%
81
WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ remuneration report continued
As disclosed in last year’s report, consistent with the requirements of the Code, the Committee retains a broad discretion to reduce
vesting levels, including if it considers that there would otherwise be a windfall gain or if management fail to deliver on the Company’s
ESG expectations.
The performance condition for awards granted under the LTIP in the financial year ending 31 August 2022 will be based, as in prior
years, on the following Headline EPS and relative TSR targets each measured over the three financial years to 31 August 2024:
• 50 per cent based on Headline pre-tax Earnings per Share (calculated on a pre-IFRS 16 basis) of 75p to 110p with 25 percent of this
component vesting at threshold increasing on a straight-line basis to 100 percent at maximum. EPS has for some years been
defined as fully diluted pre-exceptional items and excluding IAS 19 pension charges together with other adjustments as considered
appropriate by the Committee (although practice has been to make limited adjustments). The definition of EPS remains except that,
as consulted with shareholders in 2020, it will be assessed on a pre-tax basis; and
• 50 per cent based on relative TSR over three financial years compared with the FTSE All Share Retailers. Threshold vesting will
occur for TSR in line with median and maximum vesting will occur for TSR in line with the upper quartile of the comparator group
consistent with prior awards.
The performance condition for awards granted under the LTIP in the financial year ending 31 August 2023 will also include ESG
performance measures and will be based on the following targets each measured over the three financial years to 31 August 2025:
40 per cent based on Headline pre-tax Earnings per Share; 40 per cent based on relative TSR; and 20 per cent based on the
Company’s Corporate Responsibility Strategy, namely Planet, People and Communities.
FIT independently carries out the relevant TSR growth calculation for the Company.
Outstanding awards
The Company did not meet the performance targets for the 2018 LTIP and the awards lapsed on 1 November 2021. The Committee
determined that the formulaic out-turn under the LTIP was appropriate and should be applied without discretionary adjustment.
Details of the conditional awards (in the form of nil-cost options) to acquire ordinary shares of the Company granted to executive
directors are as follows:
Number of
shares subject
to awards at
31 August 2020 (a)
Number of
shares subject
to awards
granted
during the year
Number of
dividend
accrual shares
awarded
during the
year
Number of
shares subject
to awards
exercised
during the
year
Number of
shares subject
to awards
lapsed during
the year
Number of
shares subject
to awards at
31 August
2021(f)
Share price
at date
of grant
(pence)
Face value of
award at date
of grant
£’000
Exercise period
17,345
36,457
40,515
79,557
3,990
–
177,864
27,973
57,009
63,354
61,701
3,962
–
213,999
–
–
–
–
–
126,257
126,257
–
–
–
–
–
93,468
93,468
–
336
–
–
64
–
400
–
526
–
–
64
–
590
–
–
–
–
1,351
–
1,351
–
–
–
–
1,341
–
1,341
–
31,689
–
–
–
–
31,689
–
49,553
–
–
–
–
49,553
17,345
5,104
40,515
79,557
2,703
126,257
271,481
27,973
7,982
63,354
61,701
2,685
93,468
257,163
1551.00
2036.67
1832.67
2210.67
2258.67
1459.33
1551.00
2036.67
1832.67
2210.67
2258.67
1459.33
720 20.10.19 – 20.10.26
743 26.10.20 – 26.10.27
743 01.11.23 – 01.11.28
1,759 05.11.24 – 05.11.29
90 24.10.20 – 24.10.29
1,843 19.11.25 – 19.11.30
1,161 20.10.19 – 20.10.26
1,161 26.10.20 – 26.10.27
1,161 01.11.23 – 01.11.28
1,364 05.11.24 – 05.11.29
90 24.10.20 – 24.10.29
1,364 19.11.25 – 19.11.30
Carl Cowling
LTIP 2016(b)
LTIP 2017(c)
LTIP 2018(e)
LTIP 2019(g)
DBP 2019(h)
LTIP 2020(g)
Total
Robert Moorhead
LTIP 2016(b)
LTIP 2017(d)
LTIP 2018(e)
LTIP 2019(g)
DBP 2019(h)
LTIP 2020(g)
Total
82
WH Smith PLC Annual Report and Accounts 2021
Corporate governance
a) The number of shares subject to awards is the maximum (100 per cent) number of shares that could be received by the executive if the performance targets are fully met except that, in respect of
awards granted from October 2016 onwards, consistent with market practice, any part of the awards which vest will benefit from the accrual of dividend roll-up.
b) In respect of the awards granted on 20 October 2016 under the LTIP, the remaining 50 per cent of the vested shares will become exercisable on the fifth anniversary of the date of grant. As a result,
the total number of shares which are exercisable from 20 October 2021 are as follows: Carl Cowling 17,626 shares including 281 dividend accrual shares; and Robert Moorhead 28,426 shares
including 453 dividend accrual shares.
c) In respect of the award granted on 26 October 2017 under the LTIP held by Carl Cowling, 5,104 shares vested, including 336 dividend shares, and 31,689 shares lapsed. The award is subject to a
holding period with 50 per cent of any vested shares becoming exercisable on the third anniversary of the date of grant and the remaining 50 per cent of any vested shares becoming exercisable on
the fifth anniversary of the date of grant. It was agreed that 100 per cent of the vested shares would be subject to a holding period becoming exercisable on the fifth anniversary of the date of grant.
d) In respect of the award granted on 26 October 2017 under the LTIP held by Robert Moorhead, 7,982 shares vested, including 526 dividend accrual shares, and 49,553 shares lapsed. The award is
subject to a holding period with 50 per cent of any vested shares becoming exercisable on the third anniversary of the date of grant and the remaining 50 per cent of any vested shares becoming
exercisable on the fifth anniversary of the date of grant. It was agreed that 100 per cent of the vested shares would be subject to a holding period becoming exercisable on the fifth anniversary of the
date of grant.
e) The performance conditions for awards granted in the financial year ended 31 August 2019 under the LTIP were:
(i) 40 per cent based on the Company’s TSR performance against the FTSE All Share General Retailers Index constituents. Vesting will occur on the following basis: below median – Nil;
median – 25 per cent; upper quartile – 100 per cent; and on a straight-line basis between 25 per cent and 100 per cent; and
(ii) 60 per cent based on growth in the adjusted diluted EPS of the Company. Vesting will occur on the following basis: below 5 per cent – Nil; 5 per cent – 25 per cent; 10 per cent or more – 100 per
cent; and on a straight-line basis between 25 per cent and 100 per cent. For these purposes, EPS will be determined by reference to fully diluted EPS before exceptional items and will exclude
IAS 19 pension charges from the calculation, adjusted as considered appropriate by the Committee to ensure consistency.
The Company did not meet the performance conditions and the awards lapsed on 1 November 2021.
f) No awards have been granted to directors between 1 September 2021 and 11 November 2021.
g) The awards granted in the financial years ended 31 August 2020 and 31 August 2021 under the LTIP will only vest to the extent that the performance targets as set out on pages 81 and 83
are satisfied.
h) The awards granted in the financial year ended 31 August 2020 under the DBP will be released one third on each anniversary of the date of grant. Details of the awards are set out on page 81.
The awards accrue the benefit of any dividends paid by the Company and are not subject to performance targets. In respect of the award granted on 24 October 2019 held by Carl Cowling, 1,351
shares vested with a total value of £20,677.58 (1530.5388p per ordinary share). In respect of the award granted on 24 October 2019 held by Robert Moorhead, 1,341 shares vested with a total value
of £20,524.53 (1530.5388p per ordinary share).
4.14 WH Smith Employee Benefit Trust
The WH Smith Employee Benefit Trust (the ‘Trust’) is used to facilitate the acquisition of ordinary shares in the Company to satisfy
awards granted under the Company’s share plans. The Trust is a discretionary trust, the sole beneficiaries being employees (including
executive directors) and former employees of the Group and their close relations. The Trustee is Computershare Trustees (C.I.)
Limited, an independent professional trustee company based in Jersey. The Company intends that the ordinary shares in the Trust will
be used to satisfy all outstanding awards and options made under the Company’s share plans. The Trustee may exercise all rights
attached to the shares held in the Trust in accordance with their fiduciary duties and the relevant plan rules or other governing
documents. The Trustee has agreed to waive its rights to all dividends payable on the ordinary shares held in the Trust.
Following share purchases of 122,813 shares in the financial year ended 31 August 2021, the number of WH Smith PLC shares held in
the Trust at 31 August 2021 was 304,641. The Group’s accounting policy with respect to the Trust is detailed within Note 1 to the
financial statements and movements are detailed in the Group statement of changes in equity on page 102.
4.15 Dilution limits
Awards under the LTIP are currently satisfied using market purchase shares which may be acquired by the Trust as described in the
paragraph above. WHSmith’s share plans comply with recommended guidelines on dilution limits, and the Company has always
operated within these limits.
4.16 External appointments
Each executive director may accept up to two non-executive directorships provided they are not both appointments to companies in
the FTSE 100 or include a chairmanship of a FTSE 100 company. Non-executive directorships must not conflict with the interests of
the Company. Executive directors may retain fees from one of their external directorships. The fee received and retained by Robert
Moorhead in respect of his non-executive directorship is shown in the table below:
Robert Moorhead
The Watches of Switzerland Group PLC
Received
£’000s
68
Retained
£’000s
68
1 Alternative performance measure defined and explained in the Glossary on page 154
83
WH Smith PLC Annual Report and Accounts 2021Corporate governance
Directors’ remuneration report continued
4.17 Directors’ interests in shares (audited)
The beneficial interests of the directors and their immediate families in the ordinary shares of the Company are set out below:
Ordinary shares
DBP
LTIP
LTIP
Number of shares subject to holding periods
Number of shares subject to
performance conditions
31 August
2021
(or date of leaving)
3,608
Kal Atwal
23,051
Carl Cowling
–
Nicky Dulieu
1,952
Annemarie Durbin
4,427
Simon Emeny
197,973
Robert Moorhead
39,523
Henry Staunton
Maurice Thompson
3,452
Directors who resigned during the year
1,952
Suzanne Baxter
31 August 2020
(or date of
appointment)
4,127
22,335
–
1,952
2,952
197,263
39,523
3,452
31 August
2021
–
2,703
–
–
–
2,685
–
–
31 August
2020
–
3,990
–
–
–
3,962
–
–
31 August
2021
–
22,449
–
–
–
35,955
–
–
31 August
2020
–
17,345
–
–
–
27,973
–
–
31 August
2021
–
246,329
–
–
–
218,523
–
–
31 August
2020
–
156,529
–
–
–
182,064
–
–
1,952
–
–
–
–
–
–
a) Nicky Dulieu was appointed as a non-executive director on 9 September 2020.
b) Kal Atwal was appointed as a non-executive director on 1 February 2021.
c) The LTIP amount above is the maximum potential award that may vest subject to the performance conditions described on pages 81 and 83.
d) The performance conditions for the October 2018 LTIP were not met and the awards lapsed.
e) There has been no further change in the directors’ interests shown above between 1 September 2021 and 11 November 2021.
f) The middle market price of an ordinary share at the close of business on 31 August 2021 was 1632p (28 August 2020: 1177p).
g) See Table of Outstanding awards on page 82 for details of awards exercised during the financial year ended 31 August 2021.
h) Suzanne Baxter stepped down as a director of the Company on 20 January 2021.
4.18 Voting at the Annual General Meeting
Statement of voting at 2019 AGM
The table below shows the voting outcome at the Annual General Meeting on 23 January 2019 for approval of the remuneration policy:
Resolution
Approval of Directors’ remuneration policy
Votes for
75,623,654
% for
98.78
Votes
against
935,638
% against
Total
votes cast
1.22
76,559,292
Votes
withheld
73,785
Statement of voting at 2021 AGM
The table below shows the voting outcome at the Annual General Meeting on 20 January 2021 for approval of the annual Directors’
remuneration report:
Resolution
Approval of Directors’ remuneration report
Votes for
66,038,774
% for
67.43
Votes
against
% against
Total
votes
cast
Votes
withheld
31,894,173
32.57
97,932,947
9,959,963
A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes ‘for’ and ‘against’ a resolution.
As explained in the announcement of the voting outcome at the Annual General Meeting on 20 January 2021, the Company
understands that the primary reason for the significant percentage of votes against the resolution to approve the Directors’
remuneration report was the salary increase of £25,000 which Carl Cowling received on 1 July 2020. As a result, the previously
announced increase to Carl Cowling’s salary in April 2021 was postponed until 1 September 2021.
On behalf of the Board
Annemarie Durbin
Chair of the Remuneration Committee
11 November 2021
84
WH Smith PLC Annual Report and Accounts 2021
Corporate governance Directors’ report
The directors present their report and the audited consolidated
financial statements for the financial year ended 31 August 2021.
The Company is the ultimate parent company of the WHSmith
group of companies (the ‘Group’). WH Smith PLC is registered in
England and Wales (Number 5202036) and domiciled in the
United Kingdom.
The Company has chosen, in accordance with Section 414C(11) of
the Companies Act 2006, to include certain information in the
Strategic report that would otherwise be required to be disclosed
in this Directors’ report, as follows:
Information
Likely future developments in the business
Branches outside the UK
Disclosures concerning greenhouse gas emissions and
energy consumption
Employment of disabled persons
Employee engagement
Engagement with external stakeholders
Page number
8 to 19
14
29 to 32
33
32 to 40
41
Other information, which forms part of this Directors’ report, can
be found in the following sections of the Annual report:
Section
Corporate governance report
Directors’ biographies
Statement of directors’ responsibilities
Information on use of financial instruments
Page number
41 to 48
56 and 57
88
137 to 140
This Directors’ report (including information specified above as
forming part of this report) fulfils the requirements of the
Corporate governance statement for the purposes of DTR 7.2.
The information required by Listing Rule 9.8.4R is disclosed on
the following pages of this Annual report:
Subject matter
Allotment of shares for cash
pursuant to the WH Smith
employee share incentive plans
Arrangement under which the
directors waived salary or fees
Arrangement under which the
WH Smith Employee Benefit Trust
has waived or agreed to waive
dividends/future dividends
Page number
65 Directors’ remuneration
report/ Note 23 on page 140
of the financial statements
76 and 78 Directors’
remuneration report
83 Directors’
remuneration report
Dividends
In light of the ongoing uncertainty and the impact of Covid-19 on
the Group which has resulted in the Group making a Headline
loss before tax and non-underlying items1 of £55m, no interim
dividend was declared at the half-year and the Board will not
propose a final dividend in relation to the financial year ended
31 August 2021. The Board believes that the decision not to pay a
dividend is in the best long-term interests of shareholders but
understands the importance of dividends to shareholders and
will consider the quantum and timing of possible future dividend
payments when appropriate to do so.
1 Alternative performance measure defined and explained in the Glossary on page 154
Share capital
WH Smith PLC is a public company limited by shares. The issued
share capital of the Company, together with details of shares
issued during the year, is shown in Note 23 to the financial
statements on page 140.
The issued share capital of the Company as at 31 August 2021
was 130,908,801 ordinary shares of 226⁄67p each. These shares are
listed on the London Stock Exchange and can be held in
certificated or uncertificated form.
The Company is not aware of any agreements between
shareholders that may result in restrictions on the transfer of
securities and voting rights.
There are no restrictions on the transfer of ordinary shares in the
Company other than certain restrictions imposed by laws and
regulations (such as insider trading laws and market
requirements relating to closed periods), including the
requirements of the UK Market Abuse Regulation and the Listing
Rules, and also the Company’s Share Dealing Code whereby
directors and certain employees of the Company require Board
approval to deal in the Company’s securities.
The rights and obligations attaching to the Company’s ordinary
shares, in addition to those conferred on their holders by law, are
set out in the Company’s Articles of Association, a copy of which
can be obtained from the Company’s website whsmithplc.co.uk.
The holders of ordinary shares are entitled to receive the
Company’s report and accounts, to attend and speak at general
meetings of the Company, to appoint proxies and to exercise
voting rights, and to receive a dividend, if declared, subject to the
deduction of any sums due from the holder of ordinary shares to
the Company on account of calls or otherwise. Changes to the
Company’s Articles of Association must be approved by special
resolution of the Company.
The Trustee of the WH Smith Employee Benefit Trust holds
ordinary shares in the Company on behalf of the beneficiaries of
the Trust, who are the employees and former employees of the
Group. If any offer is made to the holders of ordinary shares to
acquire their shares, the Trustee will not be obliged to accept or
reject the offer in respect of any shares which are at that time
subject to subsisting options, but will have regard to the interests
of the option holders and can consult them to obtain their views
on the offer, and subject to the foregoing, the Trustee will take the
action with respect to the offer it thinks fair.
New Financing Arrangements and Convertible Bond
On 9 March 2021, the Company extended its bank financing
arrangements with its existing banks. The Company extended the
maturity of its two existing £200m Term Loans to October 2023
and agreed a new minimum liquidity covenant for both the
August 2021 and February 2022 covenant tests. The previously
agreed covenant waiver for February 2021 remained unchanged.
These changes enabled the Company to cancel its existing
£120m liquidity loan which was undrawn and due to expire in
November 2021. The Group’s £200m revolving credit facility
remained unchanged with the arrangement due for renewal in
December 2023.
85
WH Smith PLC Annual Report and Accounts 2021Corporate governance Directors’ report continued
On 28 April 2021, the Company announced it had agreed new
bank financing arrangements and also launched a potential
offering of guaranteed senior unsecured Convertible Bonds (the
“Bonds”). The new financing arrangements included a £250m
revolving credit facility (increased from £200m) maturing in April
2025 from an expanded syndicate of lending banks and a new
£133m term loan also maturing in April 2025.
On 29 April 2021 the Company announced the successful pricing
and final terms of its offering of £327m of Bonds. The Bonds
were issued in principal amounts of £100,000 each and carry a
coupon of 1.625 per cent per annum payable semi-annually in
arrear in equal instalments on 7 May and 7 November each year,
with the first interest payment date being 7 November 2021.
The Bonds are convertible into new and/or existing ordinary
shares of the Company. The initial conversion price was set at
£24.99, representing a premium of 40 per cent above the
reference share price of £17.85. Settlement and delivery of the
Bonds took place on 7 May 2021. If not previously converted,
redeemed or purchased and cancelled, the Bonds will be
redeemed at par on 7 May 2026. The Bonds were admitted to
trading on the unregulated open market (Freiverkehr) of the
Frankfurt Stock Exchange. The issue of the Bonds was equivalent
to circa ten per cent of the Company’s existing issued ordinary
share capital.
The new bank financing arrangements and the issue of the
Bonds provide balance sheet capacity and flexibility whilst
diversifying the Company’s sources of debt funding. The Company
also expects to benefit from an ongoing lower cost of funding
from the Bonds.
Purchase of own shares
At the 2021 AGM, authority was given for the Company to
purchase, in the market, up to 13,086,666 ordinary shares of
226⁄67p each, renewing the authority granted at the 2020 AGM.
The Company did not purchase any of its own shares during the
financial year. The Company intends to renew the authority to
purchase its own shares at the forthcoming AGM as the directors
believe that having the flexibility to buy back shares is in the best
interests of the Company. The directors do not currently envisage
utilising this authority in the financial year ending 31 August 2022.
Issue of new ordinary shares
During the financial year ended 31 August 2021, 43,345 ordinary
shares of the Company were issued under the Sharesave
Scheme at prices between 1434.40p and 1609.60p. The Articles of
Association of the Company provide that the Board may, subject
to the prior approval of the members of the Company, be granted
authority to exercise all the powers of the Company to allot
shares or grant rights to subscribe for or convert any security
into shares, including new ordinary shares.
Significant agreements/financing agreements –
change of control
A change of control of the Company following a takeover bid may
cause a number of agreements to which the Company or its
trading subsidiaries is party, such as commercial trading
contracts, banking arrangements, property leases, licence and
concession agreements to take effect, alter or terminate.
In addition, the service agreements of some senior executives
and employee share plans would be similarly affected on a
change of control, including, in the case of some employees,
in relation to compensation for loss of office.
The Company has an unsecured £250m multi-currency revolving
credit facility with Barclays Bank PLC, HSBC Bank PLC, J.P.
Morgan Securities, Santander UK PLC and BNP Paribas for
general corporate and working capital purposes. If there is a
change of control of the Company, and agreeable terms cannot
be negotiated between the parties, any lender may cancel the
commitment under the facility and all outstanding utilisations for
that lender, together with accrued interest, shall be
immediately payable.
The Company issued a £327m convertible bond on 7 May 2021.
The Bond holders have the right to early redemption in the event
of a change of control of the Company.
Directors’ conflicts
The Company’s Articles of Association permit the Board to
consider and, if it sees fit, to authorise situations where a director
has an interest that conflicts, or may possibly conflict, with the
interests of the Company (‘Situational Conflicts’). The Board has
a formal system in place for directors to declare Situational
Conflicts to be considered for authorisation by those directors
who have no interest in the matter being considered. In deciding
whether to authorise a Situational Conflict, the non-conflicted
directors must act in the way they consider, in good faith, would
be most likely to promote the success of the Company, and they
may impose limits or conditions when giving the authorisation,
or subsequently, if they think this is appropriate. Any Situational
Conflicts considered by the Board, and any authorisations given,
are recorded in the Board minutes and in a register of conflicts
which is reviewed regularly by the Board.
Directors’ indemnities
The Company maintained directors’ and officers’ liability
insurance in the financial year ended 31 August 2021 and up to
the date of this report which gives appropriate cover for any legal
action brought against its directors. The Company has provided
and continues to provide an indemnity for its directors, which is a
qualifying third party indemnity provision for the purposes of
Section 234 of the Companies Act 2006.
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WH Smith PLC Annual Report and Accounts 2021
Corporate governance Company’s shareholders
Information provided to the Company pursuant to the Financial
Conduct Authority’s (FCA) Disclosure Guidance and Transparency
Rules (DTRs) is published on a Regulatory Information Service
and on the Company’s website. As at 31 August 2021, the
following information had been received, in accordance with
DTR5, from holders of notifiable interests in the Company’s
issued share capital. It should be noted that these holdings may
have changed since notified to the Company.
Holder
BlackRock Inc.
Causeway Capital
Management LLC
M&G PLC
Marathon Asset
Management LLP
Royal London Asset
Management Ltd
Number
7,698,670
7,882,568
7,971,971
6,539,399
6,539,691
% as at date of
notification
5.87
6.02
6.92
4.99
4.99
Nature of
holding
Indirect
Direct
Indirect
Indirect
Direct
a) On 1 September 2021 BlackRock Inc. notified the Company of a holding of 7,736,608 shares
(5.90 per cent Indirect holding). Subsequently, on 2 September 2021 BlackRock Inc. notified
the Company of a decrease in its holding to 7,657,823 shares (5.83 per cent Indirect holding).
On 15 September 2021 BlackRock Inc. notified the Company of an increase in its holding to
8,057,476 shares (6.14 per cent Indirect holding). On 16 September 2021 BlackRock Inc.
notified the Company of a change in its holding to 8,057,403 shares (6.14 per cent Indirect
holding). On 17 September 2021 BlackRock Inc. notified the Company of a change in its
holding to 8,052,490 shares (6.14 per cent Indirect holding).
b) On 3 September 2021 Causeway Capital Management LLC notified the Company of a holding
of 9,280,753 shares (7.09 per cent Direct holding).
The Company received no other notifications in the period
between 31 August 2021 and the date of this report.
Political donations
It is the Company’s policy not to make political donations and no
political donations, contributions or political expenditure were
made in the year (2020: £nil).
Going concern
The Group’s business activities, together with the factors that are
likely to affect its future developments, performance and position,
are set out in the Strategic report on pages 2 to 40. The Financial
review on pages 16 to 19 of the Strategic report also describes
the Group’s financial position, cash flows and borrowing facilities,
further information on which is detailed in Notes 19 to 22 of the
financial statements on pages 134 to 140. At 31 August 2021, the
Group is in a net current liability position. In addition, Note 22 of
the financial statements on page 137 includes the Group’s
objectives, policies and processes for managing its capital; its
financial risk management objectives; details of its financial
instruments and hedging activities; and its exposures to credit
risk and liquidity risk. The Strategic report on pages 21 to 28 also
highlights the principal risks and uncertainties facing the Group.
The directors are required to assess whether the Group can
continue to operate for a minimum of 12 months from the date of
approval of these financial statements, and to prepare the
financial statements on a going concern basis. The directors
consider that the Group Company has adequate resources to
remain in operation for the foreseeable future and have therefore
continued to adopt the going concern basis in preparing the
financial statements. The basis of preparation of the financial
statements and a more detailed explanation of the work
undertaken in respect of going concern are set out in Note 1 of
the financial statements on page 103.
The longer-term viability statement is in the Strategic report on
page 28.
Independent auditors
PwC has expressed its willingness to continue in office as
auditors of the Company. A resolution to re-appoint PwC as
auditors to the Company and a resolution to authorise the Audit
Committee to determine its remuneration will be proposed at
the AGM.
Disclosure of information to the auditors
Having made the requisite enquiries, as far as each of the
directors is aware, there is no relevant audit information (as
defined in Section 418 of the Companies Act 2006) of which the
Company’s auditors are unaware, and each of the directors has
taken all steps he or she should have taken as a director in order
to make himself or herself aware of any relevant audit
information and to establish that the Company’s auditors are
aware of that information.
Annual General Meeting
The AGM of the Company will be held at the offices of Herbert
Smith Freehills LLP, Exchange House, Primrose Street,
London EC2A 2EG on 19 January 2022 at 11.30am. The Notice of
Annual General Meeting is given, together with explanatory
notes, in the booklet which accompanies this report. At the time
of writing, UK public health regulations and guidance allow us to
return to an in-person meeting this year, with shareholders
physically able to attend the AGM should they wish to do so.
We will continue to review our AGM arrangements in light of the
latest government Covid-19 guidance, and therefore
shareholders are encouraged to monitor the AGM page of the
Company’s website www.whsmithplc.co.uk/investors/
shareholder-centre/agm for any updates.
This report was approved by the Board on 11 November 2021.
On behalf of the Board
Ian Houghton
Company Secretary
11 November 2021
87
WH Smith PLC Annual Report and Accounts 2021Corporate governance Statement of directors’ responsibilities
in respect of the financial statements
Directors’ confirmations
Each of the directors, whose names and functions are listed
in the Directors’ biographies, confirms that, to the best of
their knowledge:
• the Group financial statements, which have been prepared
in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006
and international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union, give a true and fair view of the assets,
liabilities, financial position and loss of the Group;
• the Company financial statements, which have been prepared
in accordance with United Kingdom Accounting Standards,
comprising FRS 101, give a true and fair view of the assets,
liabilities, financial position and loss of the Company; and
• the Strategic report includes a fair review of the development
and performance of the business and the position of the Group
and Company, together with a description of the principal risks
and uncertainties that it faces.
In the case of each director in office at the date the directors’
report is approved:
• so far as the director is aware, there is no relevant audit
information of which the Group’s and Company’s auditors are
unaware; and
• they have taken all the steps that they ought to have taken as a
director in order to make themselves aware of any relevant
audit information and to establish that the Group’s and
Company’s auditors are aware of that information.
On behalf of the Board
Carl Cowling
Group Chief Executive
Robert Moorhead
Chief Financial Officer and Chief Operating Officer
11 November 2021
The directors are responsible for preparing the Annual report
and the financial statements in accordance with applicable law
and regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the Group financial statements in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and the Company
financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101 ‘Reduced Disclosure
Framework’, and applicable law). Additionally, the Financial
Conduct Authority’s Disclosure Guidance and Transparency Rules
require the directors to prepare the Group financial statements in
accordance with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss of the Group and Company for that period.
In preparing the financial statements, the directors are
required to:
• select suitable accounting policies and then apply
them consistently;
• state whether applicable international accounting standards in
conformity with the requirements of the Companies Act 2006
and international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union have been followed for the Group financial
statements and United Kingdom Accounting Standards,
comprising FRS 101, have been followed for the Company
financial statements, subject to any material departures
disclosed and explained in the financial statements;
• make judgements and accounting estimates that are
reasonable and prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and
Company will continue in business.
The directors are also responsible for safeguarding the assets of
the Group and Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and Company and
enable them to ensure that the financial statements and the
Directors’ remuneration report comply with the Companies
Act 2006.
The directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
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WH Smith PLC Annual Report and Accounts 2021
Financial statements Independent auditors’ report to the members
of WH Smith PLC
Report on the audit of the financial statements
Opinion
In our opinion:
• WH Smith PLC’s Group financial statements and Company
financial statements (the “financial statements”) give a true
and fair view of the state of the Group’s and of the Company’s
affairs as at 31 August 2021 and of the Group’s loss and the
Group’s cash flows for the year then ended;
• the Group financial statements have been properly prepared in
accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006;
• the Company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law); and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the
Annual Report and Accounts (the ‘Annual Report’, which
comprise: the Group and Company balance sheets as at
31 August 2021; the Group income statement and Group
statement of comprehensive income; the Group cash flow
statement, and the Group and Company statements of changes
in equity for the year then ended; and the notes to the financial
statements, which include a description of the significant
accounting policies.
Our opinion is consistent with our reporting to the
Audit Committee.
Separate opinion in relation to international financial
reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union
As explained in Note 1 to the financial statements, the Group and
Company, in addition to applying international accounting
standards in conformity with the requirements of the Companies
Act 2006, have also applied international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as
it applies in the European Union.
In our opinion, the Group and Company financial statements
have been properly prepared in accordance with international
financial reporting standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the Group in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard,
as applicable to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
To the best of our knowledge and belief, we declare that non-
audit services prohibited by the FRC’s Ethical Standard were
not provided.
Other than those disclosed in Note 3, we have provided no
non-audit services to the Company in the period under audit.
Our audit approach
Overview
Audit scope
• For the purposes of scoping the Group audit we have assessed
the seven components of the business; High Street, Travel UK,
InMotion, MRG, Travel International, Company and Central.
• For the purposes of the Group audit, we performed a full scope
audit on the High Street, Travel UK, MRG and InMotion
components, whilst performing specified audit procedures over
balances within the Central and Company components based
on their overall size and values of their specific financial
statement line items. Travel International was not included in
the scope of our Group work.
• The audits of the InMotion and MRG components were
performed by PwC USA.
• Our audit scoping gave us coverage of approximately 91% of
absolute Group loss before tax, with approximately 96%
coverage of revenue.
• We performed a full scope audit over the Company for the
Company audit.
Key audit matters
• Going concern (Group and Company)
• Convertible bond and refinancing (Group and Company)
• Impairment of store property, plant & equipment and right-of-
use assets (Group) and impairment of investments (Company)
• Inventory valuation (Group)
• One off transactions and equal prominence of Alternative
Performance Measures ‘APMs’ (Group)
• Pension scheme valuation (Group)
Materiality
• Overall Group materiality: £5.7 million (2020: £6.1 million)
based on approximately 5% of the five year average of
loss/profit before tax before non-underlying items.
• Overall Company materiality: £8.4 million (2020: £11.2 million)
based on 1% of total assets.
• Performance materiality: £4.3 million (Group) and £6.3 million
(Company).
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WH Smith PLC Annual Report and Accounts 2021Financial statements Independent auditors’ report to the members
of WH Smith PLC continued
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the
financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the audit of
the financial statements of the current period and include the
most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including
those which had the greatest effect on: the overall audit strategy;
the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed
in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
The convertible bond and refinancing is a new key audit matter
this year. IFRS 16 Right-of-use asset and lease liability valuation,
Acquisition of Marshall Retail Group (‘MRG’) and Covid-19, which
were key audit matters last year, are no longer included.
MRG was a specific transaction in the prior year, IFRS 16 was an
area of focus in the year of transition and there have been lower
levels of new and modified leases in the year which required less
judgement. Covid-19 has significantly impacted the Group in the
year (including store closures and restricted travel) the specific
impact of Covid-19 on key audit matters has been set out within
separate key audit matters below. Otherwise, the key audit
matters below are consistent with last year.
Key audit matter
How our audit addressed the key audit matter
We agree with the Directors’ conclusion to prepare the
financial statements on a going concern basis.
The procedures performed in respect of going concern and our
findings are set out in the “Conclusions relating to going
concern” section below.
We consider the disclosure within the Basis of Preparation to
appropriately highlight the process the directors have
undertaken and the judgements, estimates and
uncertainty involved.
Going concern (Group and Company)
Refer to Note 1 (a) Accounting policies basis of preparation,
Going concern.
In undertaking their assessment of going concern for the
Company and Group, the directors modelled future business
performance and cash flow forecasts, by means of a ‘base case’
and a ‘severe but plausible’ cash flow model. In both models, the
directors considered the financing available to the Group to
assess liquidity and associated debt covenants.
As part of strengthening the balance sheet, and in response to
the impact Covid-19, management refinanced the Group’s debt
in the year, issuing a £327 million bond, (refer to separate key
audit matter) . The base case model is consistent with the
Group’s budget and three year plan. The severe but plausible
model sensitises the base case and assumes a three-month
lockdown from December 2021, with a gradual recovery
thereafter. This scenario mirrors actual performance in the
lockdown of early 2021 and subsequent recovery.
Taking into account both the base case and severe but plausible
scenario, and considering both liquidity and covenant headroom,
the directors concluded that the Group has sufficient resources
available to meet its liabilities as they fall due and is therefore a
going concern. Further details of the directors’ assessment are
included within the Directors’ report on page 85.
Due to the ongoing pandemic, and associated changes to
lockdown restrictions, there is significant judgement in
developing the future cash flow forecasts, in particular, the
assumptions relating to revenue. We therefore focused audit
effort on the going concern risk.
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WH Smith PLC Annual Report and Accounts 2021
Financial statements Key audit matter
How our audit addressed the key audit matter
Convertible bond and refinancing (Group and Company)
Refer to Note 1 (m) and Note 1 (q) for the financial instrument
accounting policy and the directors’ disclosure of the critical
accounting judgements and key sources of
estimation uncertainty.
As a direct result of Covid-19, the Group has refinanced its
borrowings in the year which has resulted in the derecognition
of the old debt facilities and recognition of the new term loan
and convertible bond.
Initial recognition of the convertible bond requires complex
accounting treatment and judgement regarding the bifurcation
of the instrument into a liability component and an equity
component. Transaction fees have been allocated between
underlying and non-underlying expenses in accordance with the
Group’s policy.
Given the complexity of the accounting and judgements applied
when accounting for these instruments, we have focused on this
as part of our audit.
Impairment of store property, plant & equipment and
right-of-use assets (Group) and impairment of investments
(Company)
Refer to Note 1 (a), Basis of preparation, Non-underlying items
and 1 (q) Critical accounting judgements and key sources of
estimation uncertainty and Notes 12 and 13 (Property, plant &
equipment and Right-of-use assets) and Note 3 in the Company
Financial statements.
The Group has a material operational retail asset base which
may be vulnerable to impairment in the event of trading
performance being below expectations. For the purposes of
impairment testing, each retail store is considered to be a
separate cash generating unit (CGU).
In the year, an impairment trigger was identified for the entire
portfolio of stores as a result of continued challenging trading
conditions as a result of Covid-19. The value-in-use models used
to determine the amount of any impairment charge are based
on store specific assumptions. Management’s assessment
resulted in the recognition of an impairment charge of
£44 million.
We focused on this area because of the inherent judgement and
estimation uncertainty involved in determining key assumptions
such as the future sales profile and discount rates, particularly
given the uncertainty associated with Covid-19, and the
magnitude of the assets under consideration.
We have audited management’s technical assessment and
consider the conclusions reached to be appropriate. We are
satisfied that the initial recognition of the bond and the
bifurcation between a liability and equity component is
appropriate and that the conclusions and related accounting
are reasonable based on our review of the underlying terms
of the bonds.
We have confirmed the existence of the bond with the
relevant counterparty.
We considered whether the allocation and disclosure of the
non-underlying transaction fees as ‘directly attributable to
Covid-19’ was appropriate and were satisfied that there was
evidence that supports this treatment.
Based on the procedures performed, we noted no material
issues arising from our work.
We obtained an understanding of how management had
developed its forecast for the future trading of the Group,
including obtaining a detailed understanding of the key
assumptions made in developing these forecasts. We satisfied
ourselves that the forecasts were reasonable and had been
prepared with appropriate Board involvement. In forming this
conclusion, we benchmarked the projections of trading and
recovery against forecasts of credible third parties, as well as
the current sales trajectory of the business versus pre-pandemic
levels. With the assistance of our valuation experts we tested
the value-in-use models, including challenging management
forecasts at a store level, as well other assumptions such as the
sales profile, assumptions under-pinning the timing of recovery
and discount rate, and found that these assumptions were
reasonable. We assessed the mathematical accuracy and
integrity of the impairment models and determined that the
impairment charge had been appropriately calculated.
Given the estimation uncertainty inherent in the impairment
calculations, the financial statements include a sensitivity
analysis (refer to Note 12). Having re-performed the sensitivity
calculations and considered whether any other sensitivities
might be more appropriate, we are satisfied that the financial
statements adequately disclose the potential risk of future
impairment or requirement for reversal of impairment if the
performance of the stores differs from that forecast.
We considered whether the disclosure of the non-underlying
impairment charge as ‘directly attributable to Covid-19’ was
appropriate and were satisfied that there was evidence that
supports this statement.
We considered the carrying value of the Company investments
in light of the impact of Covid-19, and noted no impairment.
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WH Smith PLC Annual Report and Accounts 2021Financial statements Independent auditors’ report to the members
of WH Smith PLC continued
Key audit matter
How our audit addressed the key audit matter
For the underlying provision, we developed an independent
expectation of the provision required using a combination of
ageing analysis and historic inventory turn data. We performed
testing over the ageing data to ensure its accuracy.
For the non-underlying provision we focused on the book
category, where the provision pertains to items that can no
longer be classified as sale or return. We tested how the returns
allowance was calculated.
The provisions are consistent with the Group’s accounting policy
and also reflect changes in the ageing profile and estimated
future sales forecasts resulting from Covid-19. We satisfied
ourselves that the inventory provisions were materially accurate.
Given the estimations involved we reviewed a sensitivity analysis
to satisfy ourselves that a reasonable possible change would not
result in a material adjustment to the carrying value of
the inventory.
Inventory valuation (Group)
Refer to Note 1 (h) Inventories and Note 1 (q) Critical accounting
judgements and key sources of estimation uncertainty.
Inventory consists of a number of product categories including
books, news and magazines, impulse, stationery, travel essentials
and digital. As at 31 August 2021, inventory was £135 million.
A number of inventory lines are perishable and items such as firm
sale books, digital, fashion and journey solutions are at greater
risk of obsolescence in a reduced trading environment.
Categories including books, newspapers and magazines are on a
sale or return basis and therefore have historically been
considered to be lower risk; however, due to the impact of
Covid-19, there has been an increase in the levels of firm sale
stock as the returns allowances were reduced due to lower intake,
thereby creating additional risk.
The Group’s ‘underlying’ inventory provision is primarily based on
ageing profile and obsolescence risk based on historic sales
performance. The assumptions in the calculation are consistent
with the prior year. For a second year, the Group has calculated a
‘non-underlying’ provision as a direct result of Covid-19. In the
current year, the provision has been calculated due to a slower
than anticipated recovery from the pandemic.
Judgement is required to estimate future sales to clear this
inventory and with respect to alternative exit routes for inventory
which attract different provisioning rates.
We focused on the valuation of the inventory provisions due to the
size of the balance and the estimates involved in determining the
future sales forecasts and the complexity of the calculation.
One off transactions and equal prominence of Alternative
Performance Measures ‘APMs’ (Group)
Refer to Note 1 (a) Non-underlying items, 1 (q) Critical
accounting judgements and key sources of estimation
uncertainty and Note 4 (Non-underlying items).
We substantiated a sample of non-underlying items to
corroborating evidence. We considered whether the designation
of items as ‘non-underlying’ was consistent with the Group’s
accounting policy as disclosed in Note 1 (a) and treatment in
prior years.
The Group has included ‘Non-underlying items’ on the face of
the Group income statement and discusses these items in the
Annual Report. Given the quantum and number of non-
underlying items in the year, we focused on the presentation of
these items to ensure they were treated consistently with the
Group’s accounting policy.
Management runs the business on a pre-IFRS 16 basis and
presents a number of pre-IFRS 16 APMs in the front half of the
Annual Report and Accounts.
We considered the evidence to support the segregation of ‘costs
attributable to Covid-19’ and did not identify any arbitrary
splitting of items between Covid-19 and non Covid-19.
Based on our procedures, we are satisfied that the treatment
and classification of non-underlying items is consistent with the
Group’s policy.
As part of our work we ensured there was equal prominence
between pre-IFRS 16 and IFRS 16 measures.
92
WH Smith PLC Annual Report and Accounts 2021
Financial statements
Key audit matter
How our audit addressed the key audit matter
Pension scheme valuation (Group)
Refer to Note 1 (q) Critical accounting judgements and key
sources of estimation uncertainty and Note 5 (Retirement
benefit obligations).
The Group has two defined benefit pension plans which
comprise total gross plan assets of £1,463 million and total
pension liabilities of £1,180 million which are significant in the
context of the overall balance sheet of the Group. The Group
does not recognise the pension surplus due to the fact there is
not an unconditional right to a refund of the surplus.
The valuation of the schemes’ liabilities requires judgement and
technical expertise in choosing appropriate assumptions.
The Group uses third party actuaries to calculate the schemes’
liabilities.
Changes to a number of the key assumptions can have a
material impact on the pension balance (refer Note 5).
The most recent triennial valuation was completed in
November 2020.
We focused on this area because of the potential financial
impact of changes in the assumptions.
We obtained the actuarial report for the WH Smith Pension Trust
Retail Section for the scheme as at 31 August 2021.
We reviewed the pension liability assumptions, including discount
rates, inflation and mortality rates.
We compared the discount and inflation rates used to our
internally developed benchmark ranges, finding them to be within
an acceptable range. Other assumptions were also assessed and
considered to be reasonable.
We obtained the latest census data information from both the
actuary and payroll and agreed a sample of the data used by the
actuary to the supporting payroll information
without exception.
We obtained independent confirmations from investment
managers to confirm the valuation of the scheme assets at the
balance sheet date.
Based on the procedures performed, we noted no material
issues arising from our work.
93
WH Smith PLC Annual Report and Accounts 2021Financial statements Independent auditors’ report to the members
of WH Smith PLC continued
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Group and the Company, the accounting processes and controls,
and the industry in which they operate.
For the purposes of scoping the Group audit we have assessed
the seven components of the business; High Street, Travel UK,
InMotion, MRG, Travel International, Central and Company.
There are four significant components. High Street and Travel UK
were audited by the UK Group team, and InMotion and MRG were
audited by PwC US as component auditors operating under our
instruction. Audit work was performed over the consolidation
process, tax, impairment and going concern at a UK Group level.
Where the work was performed by the component auditor, we
determined the level of involvement we needed to have in their
audit work to be able to conclude whether sufficient audit
evidence had been obtained as a basis for our opinion on the
Group financial statements as a whole. We held detailed
discussions with the InMotion and MRG component audit team,
including evaluation of and remote review of the work performed,
update calls on the progress of their fieldwork and by attending
the clearance meetings with management via video call.
The components where we performed audit work accounted for
approximately 91% of absolute Group loss before tax and
approximately 96% of revenue. We performed specified audit
procedures over balances within the Central and Company
components based on their overall size and values of their
specific financial statement line items. Travel International was
not included in the scope of our Group work. For the Company
financial statements, we performed a full scope audit, providing
us with 100% coverage.
94
WH Smith PLC Annual Report and Accounts 2021
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to
determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the effect
of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Group financial statements
Company financial statements
Overall
materiality
How we
determined it
Rationale for
benchmark applied
£5.7 million
(2020: £6.1 million).
Approximately 5%
of the five year
average of loss/profit
before tax before
non-underlying
items.
Based on the
benchmarks used in
the Annual Report,
loss/profit before tax
before non-
underlying items is
the primary measure
used by the
shareholders in
assessing the
performance of the
Group and is a
generally accepted
auditing benchmark.
£8.4 million
(2020: £11.2 million).
1% of total assets.
As the parent entity,
WH Smith PLC is a
holding Company for
the Group and
therefore the
materiality
benchmark has
been determined to
be based on total
assets which is a
generally accepted
auditing benchmark.
For each component in the scope of our Group audit, we
allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across components
was £4.0 million and £5.0 million.
We use performance materiality to reduce to an appropriately low
level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality.
Specifically, we use performance materiality in determining the
scope of our audit and the nature and extent of our testing of
account balances, classes of transactions and disclosures, for
example in determining sample sizes. Our performance
materiality was 75% of overall materiality, amounting to
£4.3 million for the Group financial statements and £6.3 million
for the Company financial statements.
In determining the performance materiality, we considered a
number of factors - the history of misstatements, risk
assessment and aggregation risk and the effectiveness of
controls - and concluded that an amount at the upper end of our
normal range was appropriate.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £305,000
(Group audit) (2020: £305,000) and £420,000 (Company audit)
(2020: £563,000) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
Financial statements Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and
the Company’s ability to continue to adopt the going concern
basis of accounting included:
• critically assessed the assumptions within the models
including; assessing the historical accuracy of management’s
forecasts and obtained corroborating evidence for the
assumptions used such as air travel information on
passenger numbers;
• obtained and reviewed the Group’s financing agreements,
including the convertible bond;
• assessed the reasonableness of estimates made regarding the
inclusion of a three-month lockdown in the severe but
plausible case;
• agreed the assumptions regarding the timing and extent of
recovery from Covid-19 in the severe but plausible case to
historical actuals;
• performed independent sensitivity analyses to the severe but
plausible case to assess the impact on liquidity and covenant
headroom; and
• confirmed that consistent approaches to going concern,
viability, impairment and other key areas of estimation
assumptions have been used.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group’s and the Company’s ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the Group’s
and the Company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the directors’ statement in
the financial statements about whether the directors considered
it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections of
this report.
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the
other information. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we
identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the
financial statements or a material misstatement of the other
information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report based on these responsibilities.
With respect to the Strategic report and Directors’ report, we also
considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the
Companies Act 2006 requires us also to report certain opinions
and matters as described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the
audit, the information given in the Strategic report and Directors’
report, for the year ended 31 August 2021 is consistent with the
financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the Group and
Company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the
Strategic report and Directors’ report.
Directors’ Remuneration
In our opinion, the part of the Directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
95
WH Smith PLC Annual Report and Accounts 2021Financial statements Independent auditors’ report to the members
of WH Smith PLC continued
Corporate governance statement
The Listing Rules require us to review the directors’ statements
in relation to going concern, longer-term viability and that part of
the corporate governance statement relating to the Company’s
compliance with the provisions of the UK Corporate Governance
Code specified for our review. Our additional responsibilities with
respect to the corporate governance statement as other
information are described in the Reporting on other information
section of this report.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit, and we
have nothing material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those
principal risks, what procedures are in place to identify
emerging risks and an explanation of how these are being
managed or mitigated;
• The directors’ statement in the financial statements about
whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their
identification of any material uncertainties to the Group’s and
Company’s ability to continue to do so over a period of at least
twelve months from the date of approval of the
financial statements;
• The directors’ explanation as to their assessment of the
Group’s and Company’s prospects, the period this assessment
covers and why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable
expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of its assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term
viability of the Group was substantially less in scope than an audit
and only consisted of making inquiries and considering the
directors’ process supporting their statement; checking that the
statement is in alignment with the relevant provisions of the UK
Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our
knowledge and understanding of the Group and Company and
their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during
the audit:
• The directors’ statement that they consider the Annual Report,
taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess
the Group’s and Company’s position, performance, business
model and strategy;
• The section of the Annual Report that describes the review of
effectiveness of risk management and internal control
systems; and
96
WH Smith PLC Annual Report and Accounts 2021
• The section of the Annual Report describing the work of the
Audit Committee.
We have nothing to report in respect of our responsibility to
report when the directors’ statement relating to the Company’s
compliance with the Code does not properly disclose a departure
from a relevant provision of the Code specified under the Listing
Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of directors’
responsibilities, the directors are responsible for the preparation
of the financial statements in accordance with the applicable
framework and for being satisfied that they give a true and fair
view. The directors are also responsible for such internal control
as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group’s and the Company’s ability
to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
Group or the Company or to cease operations, or have no realistic
alternative but to do so.
Auditors’ responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud, is detailed below.
Based on our understanding of the Group and industry, we
identified that the principal risks of non-compliance with laws
and regulations related to health and safety, GDPR, employment
law, general food law, pensions, tax legislation, the UK Listing
Rules, and we considered the extent to which non-compliance
might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact
on the financial statements such as the Companies Act 2006.
We evaluated management’s incentives and opportunities for
fraudulent manipulation of the financial statements (including
the risk of override of controls), and determined that the principal
risks were related to manipulation of revenue and or costs, and
management bias in accounting estimates. The Group
engagement team shared this risk assessment with the
Financial statements component auditors so that they could include appropriate audit
procedures in response to such risks in their work.
Audit procedures performed by the Group engagement team
and/or component auditors included:
• Reviewing legal confirmations from external lawyers;
• Reviewing the financial statement disclosures and agreement
to underlying supporting documentation;
Use of this report
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
• Challenging assumptions made by management in
determining their significant judgements and accounting
estimates (refer key audit matters); and
• Identifying and testing unusual journals posted to revenue,
journals posted after period close and journals posted by
senior management.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely
related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited
number of items for testing, rather than testing complete
populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other cases,
we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditors’ report.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• we have not obtained all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law
are not made; or
• the Company financial statements and the part of the
Directors’ remuneration report to be audited are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were
appointed by the members on 21 January 2015 to audit the
financial statements for the year ended 31 August 2015 and
subsequent financial periods. The period of total uninterrupted
engagement is 7 years, covering the years ended 31 August 2015
to 31 August 2021.
Jonathan Lambert (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
11 November 2021
97
WH Smith PLC Annual Report and Accounts 2021Financial statements Group income statement
For the year ended 31 August 2021
£m
Revenue
Group operating loss
Finance costs
Loss before tax
Income tax credit
Loss for the year
Attributable to equity holders of the parent
Attributable to non-controlling interests
Loss per share
Basic
Diluted
2021
2020
Before
non-underlying
items1
Non- underlying
items2
886
(27)
(24)
(51)
24
(27)
(29)
2
(27)
–
(65)
–
(65)
12
(53)
(53)
–
(53)
Note
2
2, 3
7
8
10
10
Before
non-underlying
items1
Non-
underlying items2
1,021
(48)
(20)
(68)
16
(52)
(52)
–
(52)
–
(212)
–
(212)
25
(187)
(187)
–
(187)
Total
886
(92)
(24)
(116)
36
(80)
(82)
2
(80)
(62.6)p
(62.6)p
Total
1,021
(260)
(20)
(280)
41
(239)
(239)
–
(239)
(199.2)p
(199.2)p
All results relate to continuing operations of the Group.
1 Alternative performance measure. The Group has defined and explained the purpose of its alternative performance measures in the Glossary on page 154
2 See Note 4 for an analysis of non-underlying items. See Glossary on page 154 for a definition of Alternative Performance Measures
98
WH Smith PLC Annual Report and Accounts 2021
Financial statements Group statement of comprehensive income
For the year ended 31 August 2021
£m
Loss for the year
Other comprehensive loss:
Items that will not be reclassified subsequently to the income statement:
Actuarial (losses)/gains on defined benefit pension schemes
Items that may be reclassified subsequently to the income statement:
(Losses)/gains on cash flow hedges
– Net fair value (losses)/gains
– Reclassified and recognised in inventories
– Reclassified and recognised in goodwill
– Reclassified and reported in the income statement
Exchange differences on translation of foreign operations
Other comprehensive loss for the year, net of tax
Total comprehensive loss for the year
Attributable to equity holders of the parent
Attributable to non-controlling interests
Note
5
2021
(80)
2020
(239)
(1)
(1)
–
–
–
–
(13)
(13)
(14)
(94)
(96)
2
(94)
11
11
(8)
(1)
8
(1)
(22)
(24)
(13)
(252)
(252)
–
(252)
99
WH Smith PLC Annual Report and Accounts 2021Financial statements Group balance sheet
As at 31 August 2021
£m
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Investments in joint ventures
Deferred tax assets
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Current tax receivable
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Bank overdrafts and other borrowings
Retirement benefit obligations
Lease liabilities
Short-term provisions
Non-current liabilities
Retirement benefit obligations
Bank loans and other borrowings
Long-term provisions
Lease liabilities
Deferred tax liabilities
Total liabilities
Total net assets
Shareholders’ equity
Called up share capital
Share premium
Capital redemption reserve
Translation reserve
Other reserves
Retained earnings
Total equity attributable to the equity holders of the parent
Non-controlling interests
Total equity
Note
2021
2020
11
11
12
13
18
14
14
22
19
15
19
5
16
17
5
19
17
16
18
23
26
406
67
174
328
2
57
6
1,040
135
45
–
–
130
310
1,350
(265)
–
(1)
(108)
(2)
(376)
(2)
(415)
(12)
(362)
–
(791)
(1,167)
183
29
316
13
(27)
(240)
82
173
10
183
418
75
192
413
2
23
9
1,132
150
49
–
8
108
315
1,447
(241)
–
(1)
(130)
(5)
(377)
(3)
(400)
(9)
(429)
(2)
(843)
(1,220)
227
29
315
13
(14)
(279)
158
222
5
227
The consolidated financial statements of WH Smith PLC, registered number 5202036, on pages 98 to 149 were approved by the
Board of Directors and authorised for issue on 11 November 2021 and were signed on its behalf by:
Carl Cowling
Group Chief Executive
Robert Moorhead
Chief Financial Officer and Chief Operating Officer
100
WH Smith PLC Annual Report and Accounts 2021
Financial statements
Group cash flow statement
For the year ended 31 August 2021
£m
Operating activities
Cash generated from operating activities
Interest paid1
Net cash inflow from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisition of subsidiaries, net of cash acquired
Net cash outflow from investing activities
Financing activities
Dividend paid
Distributions to non-controlling interests
Proceeds from share placings
Issue of new shares for employee share schemes
Purchase of own shares for employee share schemes
Proceeds from issuance of convertible bonds
Proceeds from borrowings
Repayments of borrowings
Financing arrangement fees
Repayments of obligations under leases
Net cash (outflow)/inflow from financing activities
Net increase in cash and cash equivalents in the year
Opening cash and cash equivalents
Effect of movements in foreign exchange rates
Closing cash and cash equivalents
Reconciliation of net cash flow to movement in net debt2
£m
Net debt at beginning of the year
Net increase in cash and cash equivalents
Impact of adoption of IFRS 16
Lease liability acquired through business combinations
Increase in borrowings
Net decrease in lease liability
Effect of movements in foreign exchange rates
Net debt at end of the year
1
Includes interest payments of £5m on lease liabilities (2020: £6m)
2 Net debt is an Alternative Performance Measure defined and explained in the Glossary on page 154. Further information on the items in the above reconciliation are provided in Note 19
Note
2021
2020
21
27
9
23
23
19
19
19
19
Note
19
113
(13)
100
(37)
(7)
1
(43)
–
–
–
1
(2)
327
–
(267)
(8)
(86)
(35)
22
108
–
130
2021
(851)
22
–
–
(15)
84
5
(755)
94
(13)
81
(67)
(12)
(316)
(395)
(47)
1
312
–
(2)
–
200
(15)
(3)
(72)
374
60
49
(1)
108
2020
(180)
60
(479)
(106)
(185)
32
7
(851)
101
WH Smith PLC Annual Report and Accounts 2021Financial statements Group statement of changes in equity
For the year ended 31 August 2021
£m
Balance at 1 September 2020
Loss for the year
Other comprehensive loss:
Actuarial (losses) on defined benefit pension
schemes (Note 5)
Exchange differences on translation of
foreign operations
Total comprehensive loss for the year
Issue of new shares (Note 23)
Issue of convertible bonds – value of
conversion rights (Note 26)
Deferred tax on share-based payments
Employee share schemes
Non-cash movement on non-controlling
interests
Balance at 31 August 2021
Called up share
capital and
share premium
344
–
Capital
redemption
reserve1
13
–
Translation
reserve
(14)
–
Other
reserves1
(279)
–
Retained
earnings
158
(82)
Total equity
attributable to
the equity
holders of the
parent
222
(82)
Non-controlling
interests
5
2
Total equity
227
(80)
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
(13)
(13)
–
–
–
–
–
–
–
–
–
40
–
(1)
–
(1)
–
(83)
–
–
1
6
–
(1)
(13)
(96)
1
40
1
5
–
–
–
2
–
–
–
–
3
(1)
(13)
(94)
1
40
1
5
3
345
13
(27)
(240)
82
173
10
183
£m
Balance at 31 August 2019
Impact of adoption of IFRS 16
Adjusted balance at 1 September 2019
Loss for the year
Other comprehensive income/(loss):
Actuarial gains on defined benefit pension
schemes (Note 5)
Cash flow hedges
Exchange differences on translation of
foreign operations
Total comprehensive loss for the year
Issue of new shares (Note 23)
Dividends paid (Note 9)
Net cash flows from non-controlling interests
Employee share schemes
Non-controlling interests arising on
acquisition (Note 27)
Balance at 31 August 2020
–
–
–
–
311
–
–
–
–
344
Called up share
capital and
share premium
33
–
33
–
Capital
redemption
reserve1
13
–
13
–
Translation
reserve
8
–
8
–
Other
reserves1
(274)
–
(274)
–
–
–
–
–
–
–
–
–
–
–
–
(22)
(22)
–
–
–
–
–
–
(2)
–
(2)
–
–
–
(3)
–
Total equity
attributable to
the equity
holders of the
parent
235
(22)
213
(239)
Non-controlling
interests
2
–
2
–
Retained
earnings
455
(22)
433
(239)
11
–
–
(228)
–
(47)
–
–
–
11
(2)
(22)
(252)
311
(47)
–
(3)
–
Total equity
237
(22)
215
(239)
11
(2)
(22)
(252)
311
(47)
1
(3)
2
227
–
–
–
–
–
–
1
–
2
5
13
(14)
(279)
158
222
1 For further explanation and analysis of Capital redemption reserve and Other reserves, see Note 26.
102
WH Smith PLC Annual Report and Accounts 2021
Financial statements Notes to the financial statements
1. Accounting policies
a) Basis of preparation
The consolidated Group financial statements have been prepared
in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and
in accordance with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union.
Going concern
The consolidated financial statements have been prepared on a
going concern basis. The directors are required to assess
whether the Group can continue to operate for the 12 months
from the date of approval of these financial statements, and to
prepare the financial statements on a going concern basis.
The directors report that they have undertaken a rigorous
assessment of current performance and forecasts, including
expenditure commitments, capital expenditure and borrowing
facilities, and have concluded that the Group is able to adequately
manage its financing and principal risks, and that the Group will
be able to operate within the level of its facilities and meet the
required covenants for the period to February 2023. Based on this
assessment, which is outlined below, it is appropriate to adopt
the going concern basis of accounting in preparing these
financial statements.
The Strategic report describes the Group’s financial position,
cash flows and borrowing facilities and also highlights the
principal risks and uncertainties facing the Group. As a result of
the Group’s refinancing, announced on 28 April 2021, the balance
sheet has been significantly strengthened.
The refinancing arrangements included a £250m multi-currency
revolving credit facility (‘RCF’), increased from £200m with an
extended maturity from December 2023 to April 2025 and
provided by an expanded syndicate of lending banks. As at
31 October 2021, the Group has not drawn down on the RCF and
has £107m cash on deposit.
As part of the refinancing, the Group also raised £327m from the
issue of convertible bonds, of which £50m was retained by the
Group to fund the opening of c.100 new Travel stores won and yet
to open over the next three years, including thirty new InMotion
stores in UK Travel. The remainder of the proceeds, net of costs,
were used to partially pay down the term loans from both the
Marshall Retail Group (‘MRG’) and InMotion acquisitions, leaving
the Group with £133m of term loans. The maturity of the
remaining term loan has also been extended from 2023 to 2025 in
line with the RCF.
In making the going concern assessment, the directors have
modelled a number of scenarios for the period to February 2023.
The base case scenario is consistent with the Board approved
2022 Budget and the three year plan. Under this scenario the
Group has significant liquidity and comfortably complies with all
covenant tests to February 2023.
A severe but plausible scenario has also been modelled which
assumes a further three-month lockdown over the period
December 2021 to February 2022 across the Group, with High
Street store sales down over 40 per cent across December to
February versus the equivalent months in the year ending August
2019. Sales under this scenario are assumed to recover gradually
from March 2022 at around 35 per cent below the equivalent
month in the year ending August 2019 to down 30 per cent at
February 2023. In Travel UK we have also assumed a lockdown
over the December 2021 to February 2022 period, with sales
down 76 per cent versus the equivalent months in the year ending
August 2019. We then assume a gradual recovery, reflecting our
experience of the post-lockdown recovery period from 2020 and
earlier in the year, to a position in February 2023 where Travel UK
sales are forecast to be down between zero and 12 per cent
versus February 2019. In the US we have assumed a lockdown
over the December 2021 to February 2022 period followed by a
gradual recovery, reflecting our experience of the post-lockdown
period from earlier in the year. The severe but plausible scenario
does not assume any further government financial support
despite the continuation of lockdowns. However, the severe but
plausible scenario includes a number of mitigating actions
including savings in store and head office payrolls and rent relief
in Travel UK, to mitigate the impact of lockdown with lower sales.
In both the base case and severe but plausible scenarios the
Group would continue to have sufficient liquidity headroom on its
existing facilities, as described above.
The covenants on the above facilities are tested half-yearly.
The covenant tests at 31 August 2021, 28 February 2022 and
31 August 2022 are based on minimum liquidity and under the
base case and severe but plausible scenarios the Group would
meet these covenant tests. The covenant test as at 28 February
2023 is based on fixed charges cover and net borrowings.
Under both the base case and the severe but plausible scenarios,
the Group would meet these covenant tests. In addition, we have
received excellent support from our banks who have granted
covenant waivers throughout the pandemic. The Strategic report
also sets out the Group’s business activities together with the
factors that are likely to affect its future developments,
performance and position. Note 22 outlines the Group’s
objectives, policies and processes for managing its capital;
its financial risk management objectives; details of its financial
instruments and hedging activities; and its exposures.
As a result of the above analysis, the directors believe that the
Group has sufficient financial resources to continue in operation
and meet its obligations as they fall due for the 12 months from
the date of approval of these financial statements.
103
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
1. Accounting policies (continued)
a) Basis of preparation (continued)
New standards
The Group has adopted the following standards and
interpretations which became mandatory for the year ended
31 August 2021:
Amendments to references to Conceptual Framework in
IFRS standards
Amendments to IFRS 16 Covid-19 related rent concessions
Interest rate benchmark reform -
Amendment to IFRS 9,
IAS 39 and IFRS 7
Phase 1
Amendments to IFRS 3 Definition of a business
Amendments to IAS 1
and IAS 8
Definition of material
The Group has considered the above new standards and
amendments and has concluded that, with the exception of the
amendments to IFRS 16, they are either not relevant to the Group
or they do not have a significant impact on the Group’s
consolidated financial statements.
The revised accounting policy in respect of the amendment to
IFRS 16 is described in Note 1(g).
At the date of authorisation of these consolidated Group financial
statements, the following standards and interpretations, which
have not been applied in these financial statements, were in
issue but not yet effective:
IFRS 17
Amendments to IFRS 3
Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4
and IFRS 16
Amendments to IAS 1
Amendments to IAS 16
Amendments to IAS 37
Amendment to IAS 12
and IFRS 1
Insurance Contracts
Reference to the
Conceptual Framework
Interest Rate Benchmark Reform -
Phase 2
Presentation of financial statements
on classification of liabilities
Proceeds before intended use
Onerous contracts – cost of fulfilling
a contract
Deferred tax related to assets and
liabilities arising from a
single transaction
Narrow scope amendments to IFRS 3, IAS 16 and IAS 37
Annual improvements to IFRS Standards 2018-2020
Amendments to IAS 1
Amendments to IAS 8
Disclosure of accounting policies
Definition of accounting estimate
The directors anticipate that the adoption of these standards and
interpretations in future years will have no material impact on the
Group’s financial statements.
Alternative Performance Measures (‘APMs’)
The Group has identified certain measures that it believes will
assist the understanding of the performance of the business.
These APMs are not defined or specified under the requirements
of IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for, or superior to, IFRS measures, provide
stakeholders with additional useful information on the underlying
trends, performance and position of the Group and are consistent
with how business performance is measured internally.
The APMs are not defined by IFRS and therefore may not be
directly comparable with other companies’ APMs.
The key APMs that the Group uses include: measures before
non-underlying items, Headline profit before tax, Headline
earnings per share, trading profit, Headline trading profit,
Headline Group profit from trading operations, like-for-like
revenue, gross margin, fixed charges cover, EBITDA, Net debt/
funds and Headline net debt/funds and free cash flow.
These APMs are set out in the Glossary on page 154 including
explanations of how they are calculated and how they are
reconciled to a statutory measure where relevant.
Non-underlying items
The Group has chosen to present a measure of profit and
earnings per share which excludes certain items, that are
considered non-underlying and exceptional due to their size,
nature or incidence, and are not considered to be part of the
normal operations of the Group. These measures may exclude
the financial effect of non-underlying items which are considered
exceptional or occur infrequently such as, inter alia, restructuring
costs linked to a Board agreed programme, costs relating to
business combinations, impairment charges and other property
costs, significant items relating to pension schemes, and
impairment charges and items meeting the definition of non-
underlying specifically related to the Covid-19 pandemic, and the
related tax effect of these items. In addition, non-underlying
measures exclude the income statement impact of amortisation
of intangible assets acquired in business combinations, which are
recognised separately from goodwill. This amortisation is not
considered to be part of the underlying operating costs of the
business and has no associated cash flows.
The Group believes that the separate disclosure of these items
provides additional useful information to users of the financial
statements to enable a better understanding of the Group’s
underlying financial performance.
Further details of the non-underlying items are provided in
Note 4.
Accounting convention
The financial statements are drawn up on the historical cost
basis of accounting, except for certain financial instruments,
share-based payments and pensions that have been measured
at fair value. The financial information is rounded to the nearest
million, except where otherwise indicated. The principal
accounting policies, which have been applied consistently
throughout both years except as noted above, are set out on the
following pages.
104
WH Smith PLC Annual Report and Accounts 2021
Financial statements b) Revenue
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for the
sale of goods and services to customers (which is the most
significant revenue stream), sale of wholesale goods to
franchisees, and commission and fee income on concession and
franchise arrangements. Revenue excludes discounts, estimated
returns, VAT and other sales-related taxes.
Revenue is recognised when performance obligations have been
met and control of the goods has transferred to the customer.
The majority of the Group’s sales are for standalone products
made direct to customers at standard prices either in-store,
online or through franchisees, where there is a single
performance obligation. Revenue generated from different store
formats are considered to be a single revenue stream and are
subject to the same underlying economic risks.
For in-store transactions, control of the goods is deemed to have
transferred to the customer at the point of sale. For online
transactions and wholesale sale of goods to franchisees, control
is deemed to have transferred to the customer at the point of
delivery of the goods.
Revenue on in-store transactions is recognised at the point of
sale. Revenue in respect of online and wholesale (including sales
directly to franchisees) transactions is recognised on the transfer
of control, which is on delivery of the goods to the customers.
Revenue in respect of gift cards sold by the Group is recognised
on the redemption of the gift card either in-store at the point of
sale or on delivery for online redemptions. Franchise and
concession fees and commission are recognised on the accruals
basis in accordance with the substance of the contracts in place,
which is typically on the basis of fixed fees spread evenly over the
contract period, and/or variable amounts earned based
on revenue.
c) Supplier arrangements
The Group receives income from its suppliers in the form of
supplier incentives and discounts (collectively ‘Supplier
arrangements’). These incomes are recognised as a deduction
from cost of sales on an accruals basis as they are earned for
each supplier contract. The level of complexity and judgement is
low in relation to establishing the accounting entries and
estimates, and the timing of recognition.
Supplier incomes that have been invoiced but not received at the
period end are recognised in Trade Receivables, or in Trade
Payables where we have the right of offset. Incomes that have
been earned but not yet invoiced are accrued and are recorded in
Accrued income.
The types of supplier arrangements recognised by the Group, and
the recognition policies are detailed overleaf.
1. Accounting policies (continued)
a) Basis of preparation (continued)
Basis of consolidation
The consolidated Group financial statements incorporate the
financial statements of WH Smith PLC and all its subsidiaries.
Subsidiary undertakings are all entities over which the Group has
control. The Group controls an entity when the Group is exposed
to, or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its power
over the entity. Subsidiaries are fully consolidated from the date
on which control is transferred to the Group.
Goodwill arising on acquisition is recognised as an asset and
initially measured at cost, being the excess of the fair value of
consideration transferred over the Group’s interest in the net fair
value of the identifiable assets, liabilities and contingent liabilities
recognised. If, after reassessment, the Group’s interest in the net
fair value of the acquiree’s identifiable assets, liabilities and
contingent liabilities exceeds the fair value of consideration
transferred, after taking into account recognised goodwill, the
excess is immediately recognised in the income statement.
The separable net assets, both tangible and intangible, of the
newly acquired subsidiary undertakings are incorporated into the
financial statements on the basis of the fair value as at the
effective date of control, if appropriate. Non-controlling interests
are stated at the non-controlling interests’ proportion of the fair
values of the assets and liabilities recognised.
Results of subsidiary undertakings disposed of during the
financial year are included in the financial statements up to the
effective date of disposal. Where a business component
representing a separate major line of business is disposed of, or
classified as held for sale, it is classified as a discontinued
operation. The post-tax profit or loss of the discontinued
operations is shown as a single amount on the face of the income
statement, separate from the other results of the Group.
A joint venture is an entity in which the Group holds an interest on
a long-term basis and which is jointly controlled by the Group and
one or more other venturers under a contractual agreement.
Management has assessed whether it has joint control of the
arrangement. Joint control exists only when decisions about the
relevant activities require the unanimous consent of the parties
that collectively control the arrangement. In assessing this joint
control no significant judgements have been necessary.
The Group’s share of results of joint ventures is included in the
Group consolidated income statement using the equity method of
accounting. The results of joint ventures in the current and prior
year are not material to disclose. Investments in joint ventures
are carried in the Group consolidated balance sheet at cost plus
post-acquisition changes in the Group’s share of net assets of the
entity less any impairment in value.
If the Group’s share of losses in the joint venture equals or
exceeds its investment in the joint venture, the Group does not
recognise further losses, unless it has incurred obligations to do
so, or made payments on behalf of the joint venture.
All intercompany transactions, balances and unrealised gains
on transactions between Group companies are eliminated.
105
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
1. Accounting policies (continued)
c) Supplier arrangements (continued)
Retrospective discounts
Income earned based on sales or purchase volume triggers set
by the supplier for specific products over specific periods.
Income is calculated and invoiced based upon actual sales or
purchases over the period set out in the supplier agreement,
and is recognised in the income statement as it is earned.
Where the period of an agreement spans accounting periods,
income is recognised based on forecasts for expected sales or
purchase volumes, informed by current performance, trends,
and the terms of the supplier agreement. Income is invoiced
throughout the year in accordance with the specific supplier
terms. The carrying value of inventories is adjusted to reflect
unearned elements of supplier income as the product has not
yet been sold. This income is subsequently recognised in cost
of sales when the product has been sold.
Promotional and marketing activity
Supplier income from promotional and marketing activity
includes income in respect of in-store marketing and point of
sale, supplying dedicated promotional space or receiving margin
support for products on promotion.
Income for promotional and marketing activity is agreed with
suppliers for specific periods and products. Income is recognised
over the period of the agreement. Income is invoiced when the
performance conditions in the supplier agreement have
been achieved.
d) Retirement benefit costs
Payments to the WHSmith Group defined contribution pension
schemes are recognised as an expense in the income statement
as they fall due.
The cost of providing benefits for the main defined benefit
scheme, WHSmith Pension Trust, and the United News Shops
Retirement Benefits Scheme are determined by the Projected
Unit Credit Method, with actuarial calculations being carried out
at the balance sheet date.
Actuarial gains and losses are recognised in full in the period in
which they occur. They are recognised outside the income
statement in the Group statement of comprehensive income.
The retirement benefit obligation recognised in the balance sheet
represents the present value of the defined benefit obligation,
as reduced by the fair value of scheme assets. Any asset
resulting from the calculation is limited to the present value of
available refunds and reductions in future contributions to the
plan. Where the Group is considered to have a contractual
obligation to fund the pension scheme above the accounting
value of the liabilities, an onerous obligation is recognised.
e) Intangible assets
Business combinations
The acquisition of subsidiaries is accounted for using the
acquisition method. The consideration transferred is measured
at the aggregate of the fair values, at the date of exchange, of
assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control, of the
106
WH Smith PLC Annual Report and Accounts 2021
acquiree. Costs directly attributable to the business combination
are recognised in the income statement in the period they are
incurred. The cost of a business combination is allocated at the
acquisition date by recognising the acquiree’s identifiable assets,
liabilities and contingent liabilities that satisfy the recognition
criteria at their fair values at that date.
The acquisition date is the date on which the acquirer effectively
obtains control of the acquiree. Intangible assets are recognised
if they meet the definition of an intangible asset contained in
IAS 38 and their fair value can be measured reliably. The excess
of the cost of acquisition over the fair value of the Group’s share
of identifiable net assets acquired is recognised as goodwill.
Where less than the entire equity interest of a subsidiary is
acquired, the non-controlling interest is recognised at the
non-controlling interest’s share of the net assets of the
subsidiary. Changes in the Group’s ownership percentage of
subsidiaries are accounted for within equity.
Goodwill
Goodwill represents the excess of the fair value of purchase
consideration over the net fair value of identifiable assets and
liabilities acquired.
Goodwill is recognised as an asset at cost and subsequently
measured at cost less accumulated impairment. For the
purposes of impairment testing, goodwill is allocated to the cash-
generating units (CGUs) that have benefited from the acquisition.
Each store is considered to be a CGU. Goodwill is allocated to the
group of CGUs making up the Group’s operating segments, as
this is the lowest level at which management monitor goodwill.
Where the Group’s operating segments have changed, goodwill is
allocated to the new operating segments identified on a relative
value basis.
The carrying value of goodwill is reviewed for impairment at least
annually or where there is an indication that goodwill may be
impaired. If the recoverable amount of the group of cash-
generating units is less than its carrying amount, then the
impairment loss is allocated first to reduce the carrying amount
of the goodwill allocated to the units and then to the other assets
of the units on a pro-rata basis. Any impairment is recognised
immediately in the income statement and is not
subsequently reversed.
On disposal of a subsidiary, the attributable amount of goodwill
is included in the determination of the profit and loss on disposal.
Other intangible assets
The costs of acquiring and developing software that is not
integral to the related hardware is capitalised separately as an
intangible asset. These intangibles are stated at cost less
accumulated amortisation and impairment losses.
Amortisation is charged so as to write off the costs of assets over
their estimated useful lives, using the straight-line method, and
is recorded in Distribution costs. The amortisation period for
capitalised software costs is over a maximum period of five years.
Financial statements 1. Accounting policies (continued)
e) Intangible assets (continued)
Other intangible assets are valued at cost and amortised
over their useful life, and the amortisation is recorded in
administrative expenses, unless the asset can be demonstrated
to have an indefinite life. Other intangible assets, such as brands,
arising on business combinations are amortised over their useful
lives. Amortisation of other intangible assets arising on business
combinations is included in non-underlying costs. The useful life
and residual value of all intangible assets are determined at the
time of acquisition and reviewed annually for appropriateness.
All intangible assets are reviewed for impairment in accordance
with IAS 36 Impairment of Assets, when there are indications that
the carrying value may not be recoverable. Assets with indefinite
useful lives are tested for impairment annually.
f) Property, plant and equipment
Property, plant and equipment assets are carried at cost less
accumulated depreciation and any recognised impairment in
value. The carrying values of tangible fixed assets previously
revalued have been retained at their book amount.
Depreciation is charged so as to write off the costs of assets,
other than land, over their estimated useful lives, using the
straight-line method, with the annual rates applicable to the
principal categories being:
Freehold properties
Leasehold improvements
– over 20 years
– shorter of the lease period and
Fixtures and fittings
Equipment and vehicles
the estimated remaining
economic life
– up to ten years
– up to ten years
The residual values of property, plant and equipment are
reassessed on an annual basis.
At each balance sheet date, property, plant and equipment is
reviewed for impairment if events or changes in circumstances
indicate that the carrying amount may not be recoverable.
When a review for impairment is conducted, the recoverable
amount is assessed by reference to the net present value
of expected future pre-tax cash flows of the relevant
cash-generating unit or fair value, less costs to sell, if higher.
Any impairment in value is charged to the income statement
in the period in which it occurs.
g) Leasing
The Group as a lessee
The Group assesses whether a contract is or contains a lease,
at inception of the contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less)
and leases of low-value assets. For these leases, the Group
recognises the lease payments as an operating expense on a
straight-line basis over the term of the lease unless another
systematic basis is more representative of the time pattern in
which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the
lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate
cannot be readily determined, the lessee uses its incremental
borrowing rate.
Lease payments included in the measurement of the lease
liability comprise:
• fixed lease payments, less any lease incentives receivable;
• variable lease payments that depend on an index or rate,
initially measured using the index or rate at the
commencement date;
• the amount expected to be payable by the lessee under
residual value guarantees;
• the exercise price of purchase options, if the lessee is
reasonably certain to exercise the options; and
• payments of penalties for terminating the lease, if the lease
term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the
consolidated balance sheet.
The lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability (using the
effective interest method) and by reducing the carrying amount
to reflect the lease payments made.
The Group remeasures the lease liability (and makes a
corresponding adjustment to the related right-of-use asset)
whenever:
• The lease payments change due to changes in an index, rent
review or rate, in which cases the lease liability is remeasured
by discounting the revised lease payments using an unchanged
discount rate.
• A lease contract is modified, and the lease modification is not
accounted for as a separate lease, in which case the lease
liability is remeasured based on the lease term of the modified
lease by discounting the revised lease payments using a
revised discount rate at the effective date of the modification.
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or before
the commencement date, less any lease incentives received and
any initial direct costs. They are subsequently measured at cost
less accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle
and remove a leased asset, restore the site on which it is located
or restore the underlying asset to the condition required by the
terms and conditions of the lease, a provision is recognised and
measured under IAS 37. To the extent that the costs relate to a
right-of-use asset, the costs are included in the related right-of-
use asset.
107
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
1. Accounting policies (continued)
g) Leasing (continued)
Right-of-use assets are depreciated over the lease term.
The depreciation starts at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the
consolidated balance sheet.
The Group applies IAS 36 to determine whether a right-of-use
asset is impaired and accounts for any identified impairment
loss as described in the accounting policies in Note 1f ) Property,
plant and equipment.
The lease contracts that include variable rents based on sales,
which is the case with many of our retail concession contracts,
are not included in the measurement of the lease liability and the
right-of-use asset. The related rents payable are recognised as
an expense in the period in which the event or condition that
triggers those payables occurs and are included in profit or loss
(see Note 3).
The Group has applied the Amendment to IFRS 16 issued in
June 2020 and further extension granted in March 2021.
This practical expedient allows the impact on the lease liability of
temporary rent reductions/waivers affecting rent payments due
on or before June 2022, to be recognised in the income statement
in the period they are received, rather than as lease
modifications, which would require the remeasurement of the
lease liability using a revised discount rate with a corresponding
adjustment to the right-of-use asset.
For leases acquired as part of a business combination, the lease
liability is measured at the present value of the remaining lease
payments. The right-of-use asset is measured at the same
amount as the lease liability adjusted to reflect favourable or
unfavourable terms of the lease when compared to
market terms.
The Group as a lessor
The Group enters into lease agreements as an intermediate
lessor with respect to some of its property leases. It accounts
for the head lease and the sublease as two separate contracts.
The sublease is classified as finance lease or operating lease by
reference to the right-of-use asset arising from the head lease.
Whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee, the contract is
classified as a finance lease. All other leases are classified as
operating leases.
Rents receivable from operating leases are recognised on a
straight-line basis over the term of the relevant lease.
h) Inventories
Inventories comprise goods held for resale and are stated at the
lower of cost or net realisable value. Consignment stocks are not
included within stocks held by the Group. Inventories are valued
using a weighted average cost method.
Cost is calculated to include, where applicable, duties, handling,
transport and directly attributable costs (including a deduction for
applicable supplier income) in bringing the inventories to their
present location and condition. Net realisable value is based on
estimated normal selling prices less further costs expected to be
incurred in selling and distribution. Cost of inventories includes
the transfer from equity of any gains or losses on qualifying cash
flow hedges relating to purchases.
Provisions are made for obsolescence, markdown below cost
and shrinkage.
i) Government grants and government assistance
Government grants are not recognised until there is reasonable
assurance that the grants will be received and that the Group will
comply with any conditions attached to them.
Government grants are recognised in the income statement over
the same period as the costs for which the grants are intended to
compensate. Government grants that are receivable as
compensation for expenses or losses already incurred or for the
purpose of giving immediate financial support to the Group with
no future related costs are recognised in profit or loss in the
period in which they become receivable. Government grant
income is disclosed in Note 3.
In addition, the Group has benefited from government assistance
in the form of business rates relief of £40m in the year
(2020: £20m).
j) Provisions
Provisions are recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a past
event and it is probable that an outflow of economic benefits will
be required to settle the obligation. Provisions are measured at
the directors’ best estimate of the expenditure required to settle
the obligation at the balance sheet date. Where the effect is
material, the provision is determined by discounting the expected
future cash flows at a pre-tax rate which reflects current market
assessments of the time value of money and, where appropriate,
the risks specific to the liability.
k) Foreign currencies
The consolidated financial statements are presented in pounds
sterling (GBP), which is WH Smith PLC’s functional and
presentation currency. Items included in the financial statements
of each of the Group’s subsidiaries are measured using the
currency of the primary economic environment in which
the entity operates (‘the functional currency’).
On consolidation, the assets and liabilities of the Group’s
overseas operations are translated into sterling at exchange
rates prevailing on the balance sheet date. Income and expense
items are translated into sterling at the average exchange rates
for the period. Exchange differences arising, if any, are classified
as equity and transferred to the Group’s translation reserve.
Transactions denominated in foreign currencies are recorded at
the rates of exchange prevailing on the dates of the transactions.
108
WH Smith PLC Annual Report and Accounts 2021
Financial statements 1. Accounting policies (continued)
k) Foreign currencies(continued)
At each balance sheet date, monetary items denominated in
foreign currencies are retranslated at the rates prevailing on
the balance sheet date. Exchange differences arising on the
settlement of monetary items, and on the retranslation of
monetary items, are included in the income statement for
the period.
In order to hedge its exposure to certain foreign exchange risks,
the Group enters into forward contracts (see below for details of
the Group’s accounting policies in respect of such derivative
financial instruments).
l) Taxation
The tax expense/credit included in the income statement
comprises current and deferred tax.
Current tax is the expected tax payable or receivable based on the
taxable profit or loss for the period, using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will
be available against which deductible temporary differences can
be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from goodwill or from the initial
recognition (other than in business combination) of other assets
and liabilities in a transaction that affects neither the tax profit
nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered. Deferred tax is calculated
at the tax rates that are expected to apply in the period when the
liability is settled or the asset is realised.
Current and deferred tax is charged or credited in the income
statement, except when it relates to items charged or credited
directly to equity, in which case the current or deferred tax is also
recognised directly in equity.
m) Financial instruments
Financial assets and liabilities are recognised in the Group’s
balance sheet when the Group becomes party to the contractual
provisions of the instrument.
i) Initial recognition and subsequent measurement
(a) Financial assets
Trade and other receivables
Trade receivables are measured at fair value at initial recognition,
do not carry any interest and are subsequently measured at
amortised cost using the effective interest rate method.
Appropriate allowances for estimated irrecoverable amounts
are recognised in the income statement.
Allowances for doubtful debts are recognised based on
management’s expectation of losses, without regard to whether
an impairment trigger has occurred or not (an ‘expected credit
loss’ model under IFRS 9).
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at
bank and in hand and short-term deposits with an original
maturity of three months or less.
(b) Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that evidences
a residual interest in the assets of the Group after deducting all
of its liabilities.
Borrowings
Borrowings comprise interest-bearing bank loans and overdrafts
and compound financial instruments (convertible bonds).
Bank loans are initially measured at fair value (being proceeds
received, net of direct issue costs), and are subsequently
measured at amortised cost, using the effective interest rate
method. Transaction fees such as arrangement fees associated
with the securing of financing are capitalised and amortised
through the income statement over the term of the relevant
facility. Finance charges, including premiums payable on
settlement or redemptions and direct issue costs are accounted
for on an accruals basis and taken to the income statement using
the effective interest rate method and are added to the carrying
value of the instrument to the extent that they are not settled in
the period in which they arise.
Compound financial instruments issued by the Group comprise
convertible bonds. The convertible bonds are bifurcated into a
liability component and an equity component on initial
recognition. The carrying value of the liability at initial recognition
is measured using a market interest rate for an equivalent
non-convertible bond at the issue date. The remainder of the
proceeds is allocated to the conversion option and recognised in
equity (Other reserves), and not subsequently remeasured.
Any directly attributable transaction costs are allocated to each
component in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a
compound financial instrument is measured at amortised cost
using the effective interest method. Any transaction costs
apportioned to the liability is included in the carrying amount and
recognised over the contractual life of the liability using the
effective interest rate method.
Trade and other payables
Trade and other payables are initially measured at fair value and
are subsequently measured at amortised cost, using the effective
interest rate method.
109
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
1. Accounting policies (continued)
m) Financial instruments (continued)
i) Initial recognition and subsequent measurement (continued)
(b) Financial liabilities and equity (continued)
Equity instruments
Equity instruments issued are recorded at the proceeds received,
net of direct issue costs.
(either partially or in full) to the extent that there is no realistic
prospect of recovery. This is generally the case when the Group
determines that the debtor does not have the assets or sources
of income that could generate sufficient cash flows to repay the
amounts subject to the write-off. However, financial assets that
are written off could still be subject to enforcement activities in
order to comply with the Group’s procedures for recovery of
amounts due.
ii) Derecognition of financial assets and financial liabilities
Financial assets
The Group derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire, or it
transfers the rights to receive the contractual cash flows in a
transaction in which substantially all of the risks and rewards of
ownership of the financial asset are transferred or in which the
Group neither transfers nor retains substantially all of the risks
and rewards of ownership and it does not retain control of the
financial asset.
Financial liabilities
The Group derecognises a financial liability when its contractual
obligations are discharged or cancelled, or expire. The Group also
derecognises a financial liability when its terms are modified and
the cash flows of the modified liability are substantially different,
in which case a new financial liability based on the modified
terms is recognised at fair value.
On derecognition of a financial liability, the difference between
the carrying amount extinguished and the consideration paid
(including any non-cash assets transferred or liabilities assumed)
is recognised in profit or loss.
iii) Offsetting
Financial assets and financial liabilities are offset and the net
position presented in the balance sheet when, and only when,
the Group has a legally enforceable right to set off the amounts
and it intends either to settle them on a net basis or to realise the
asset and settle the liability simultaneously.
iv) Impairment
The Group recognises loss allowances for expected credit losses
(‘ECLs’) on financial assets measured at amortised cost.
These are always measured at an amount equal to lifetime ECL.
The maximum period considered when estimating ECLs is the
maximum contractual period over which the Group is exposed
to credit risk.
When determining whether the credit risk of a financial asset
has increased significantly since initial recognition and when
estimating ECL, the Group considers reasonable and supportable
information that is relevant and available without undue cost
or effort.
This includes both qualitative and quantitative information and
analysis, based on the Group’s historical experience and
informed credit assessment and forward-looking information.
Loss allowances for financial assets measured at amortised cost
are deducted from the gross carrying amount of the assets.
The gross carrying amount of a financial asset is written off
v) Derivative financial instruments and hedge accounting
The Group uses certain derivative financial instruments to reduce
its exposure to foreign exchange movements in accordance with
its risk management policies. The Group primarily uses forward
foreign currency contracts to manage its exposure to changes in
foreign exchange rates. The Group does not hold or use derivative
financial instruments for speculative purposes. Further details of
the Group’s risk management policies are provided in Note 22.
These instruments are initially recognised at fair value on the
trade date and are subsequently measured at their fair value at
the end of the reporting period. The method of recognising the
resulting gain or loss is dependent on whether the derivative is
designated as a hedging instrument and the nature of the items
being hedged.
Changes in the fair value of derivative financial instruments that
are designated and effective as hedges of future cash flows are
recognised directly in equity and any ineffective portion is
recognised immediately in the income statement.
If the cash flow hedge of a highly probable forecasted transaction
results in the recognition of an asset or liability, then, at the time
the asset or liability is recognised, the associated gains or losses
on the derivative that had previously been recognised in equity
are included in the initial measurement of the asset or liability.
For hedges that do not result in the recognition of an asset or a
liability, amounts deferred in equity are recognised in the income
statement in the same period as the hedged item.
For an effective hedge of an exposure to changes in the fair value
of a recognised asset or liability, changes in fair value of the
hedging instrument are recognised in profit or loss at the same
time that the recognised asset or liability that is being hedged is
adjusted for movements in the hedged risk and that adjustment
is also recognised in profit or loss in the same period.
Changes in the fair value of derivative financial instruments that
do not qualify for hedge accounting are recognised in the income
statement as they arise.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer qualifies
for hedge accounting. At that time, any cumulative gain or loss on
the hedging instrument recognised in equity is retained in equity
until the forecasted transaction occurs. If a hedged transaction is
no longer expected to occur, the net cumulative gain or loss
recognised in equity is transferred to profit or loss for the period.
Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives when their
risks and characteristics are not closely related to those of host
contracts and the host contracts are not carried at fair value with
unrealised gains or losses reported in the income statement.
110
WH Smith PLC Annual Report and Accounts 2021
Financial statements 1. Accounting policies (continued)
n) Share schemes
WHSmith Employee Benefit Trust
The shares held by the WHSmith Employee Benefit Trust are
valued at the historical cost of the shares acquired. They are
deducted in arriving at shareholders’ funds and are presented
as an Other reserve.
Share-based payments
Employees of the Group receive part of their remuneration in the
form of share-based payment transactions, whereby employees
render services in exchange for shares or rights over shares
(equity settled transactions).
Equity settled share-based payments are measured at fair value
at the date of grant. The fair value is calculated using an
appropriate option pricing model. The fair value is expensed to
the income statement on a straight-line basis over the vesting
period, based on the Group’s estimate of the number of shares
that will eventually vest.
For cash-settled share-based payments, a liability is recognised
at the current fair value determined at each balance sheet date,
taking into account performance conditions and the extent to
which employees have rendered service to date, with any
changes in fair value recognised in the profit or loss for the year.
o) Dividends
Final dividends are recorded in the financial statements in
the period in which they are approved by the Company’s
shareholders. Interim dividends are recorded in the period in
which they are approved and paid.
p) Share capital, Share premium and Other reserves
Ordinary shares are classified as equity. Share premium arises
on the excess between the fair value of the shares issued and
the par value of the shares issued. Incremental costs directly
attributable to the issue of new shares or options are shown in
equity as a deduction, net of tax, against share premium. The par
value of shares repurchased and cancelled under the Group’s
share buyback programme is reclassified from Share capital to
the Capital redemption reserve.
For a description of Other reserves, see Note 26.
q) Critical accounting judgements and key sources of
estimation uncertainty
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make judgements, estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities. Actual results could differ from
these estimates and any subsequent changes are accounted for
with an effect on income at the time such updated information
becomes available.
The most critical accounting judgements and sources of
estimation uncertainty in determining the financial condition
and results of the Group are those requiring the greatest
degree of subjective or complex judgement. These relate to the
classification of items as non-underlying, assessment of
lease substitution rights, determination of the lease term,
determination of the incremental borrowing rate, valuation
of retirement benefit obligations, determination of operating
segments and allocation of goodwill, valuation of other
non-current assets and inventory valuation.
Critical accounting judgements
Non-underlying items
The Group has chosen to present a measure of profit and
earnings per share which excludes certain items that are
considered non-underlying and exceptional due to their size,
nature or incidence, and are not considered to be part of the
normal operations of the Group. These measures may exclude
the financial effect of non-underlying items which are considered
exceptional and occur infrequently such as, inter alia,
restructuring costs linked to a Board agreed programme,
amortisation of acquired intangibles assets, costs relating to
business combinations, impairment charges and other property
costs, significant items relating to pension schemes, and
impairment charges and items meeting the definition of non-
underlying specifically related to the Covid-19 pandemic, and the
related tax effect of these items. The Group believes that they
provide additional useful information to users of the financial
statements to enable a better understanding of the Group’s
underlying financial performance.
The classification of items as non-underlying requires significant
management judgement. The definition of non-underlying items
has been applied consistently year on year. Further details of
non-underlying items are provided in Note 4.
IFRS 16 Lease accounting
Substantive substitution rights
Judgement is required in determining whether a contract meets
the definition of a lease under IFRS 16. Management has
determined that certain retail concession contracts give the
landlord substantive substitution rights because the contract
gives the landlord rights to relocate the retail space occupied by
the Group. In such cases, management has concluded that there
is not an identified asset and therefore such contracts are outside
the scope of IFRS 16. For these contracts, the Group recognises
the payments as an operating expense on a straight-line basis
over the term of the contract unless another systematic basis is
more representative of the time pattern in which economic
benefits from the underlying contract are consumed.
Determination of lease term
In determining the lease term for contracts that have options to
extend or terminate early, management has applied judgement in
determining the likelihood of whether such options will be
exercised. This is based on the length of time remaining before
the option is exercisable, performance of the individual store and
the trading forecasts.
111
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
1. Accounting policies (continued)
q) Critical accounting judgements and key sources of
estimation uncertainty (continued)
Critical accounting judgements (continued)
Initial recognition of convertible bond
On initial recognition of the convertible bond, judgement is
required in respect of the accounting treatment of embedded
derivatives. The fixed principal amount of each bond is convertible
into a fixed number of shares and as a result management has
determined that the conversion feature meets the fixed-for-fixed
criterion for equity classification. The bonds include anti-dilution
provisions to ensure that the holder’s potential interest in the
equity of the Company is not diluted in specified circumstances.
If these provisions are triggered, the number of shares that will
be delivered to the holder is adjusted. Management considers
that the provisions are anti-dilutive and exist to ensure that the
holder’s potential interest in the equity of the Company is not
diluted under each of these circumstances. These provisions are
not deemed to breach the fixed-for-fixed criterion, therefore the
conversion feature is accounted for as equity.
Determination of operating segments
During the year the Group has reviewed its assessment of its
operating segments, as a result of internal reorganisation and
changes to the composition of information used by the Board to
monitor the performance of the Group. This review has resulted
in a change to the reportable segments identified, and prior year
comparatives have been restated. There is no change to the total
revenue or Group profit from trading operations.
Further information in respect of the Group’s operating segments
is included in Note 2.
Sources of estimation uncertainty
Retirement benefit obligation
The Group recognises and discloses its retirement benefit
obligation in accordance with the measurement and
presentational requirement of IAS 19 ‘Retirement Benefit
Obligations’. The calculations include a number of judgements
and estimations in respect of the discount rate, inflation
assumptions, the rate of increase in salaries, and life expectancy,
among others. Changes in these assumptions can have a
significant effect on the value of the retirement benefit obligation.
Further information and sensitivity analysis in respect of the
Group’s retirement benefit obligation is included in Note 5.
Valuation of goodwill
As a result of the change to the Group’s identified operating
segments described above, the goodwill previously allocated to
the Travel operating segment has been allocated to the new
operating segments using a relative value approach. This method
of allocation requires the determination of value-in-use of each
of the new segments. The key assumptions in the value-in-use
calculations include growth rates of revenue and expenses,
and discount rates.
A sensitivity analysis of the goodwill impairment calculation has
shown that no reasonably possible change in assumptions would
lead to an impairment of goodwill in the next financial year.
Further to this sensitivity analysis, an assessment of the goodwill
allocation was performed which showed that an impairment
assessment under the previous allocation of goodwill to the
Travel operating segment, or under any other reasonable split of
the goodwill balance, would not have resulted in an impairment
of goodwill.
Intangible assets, property, plant and equipment and
right-of-use asset impairment reviews
Property, plant and equipment, right-of-use assets and intangible
assets are reviewed for impairment if events or changes in
circumstances indicate that the carrying amount may not be
recoverable. When a review for impairment is conducted,
the recoverable amount of an asset or a cash-generating unit is
determined based on value-in-use calculations prepared on the
basis of management’s assumptions and estimates.
The key assumptions in the value-in-use calculations include
growth rates of revenue and the pre-tax discount rate. Due to the
ongoing Covid-19 global pandemic, there is an increased level of
uncertainty in all of the above assumptions such that a
reasonably possible change in these assumptions could lead to a
material change in the carrying value of assets.
Further information in respect of the Group’s property, plant and
equipment and right-of-use assets is included in Notes 12 and
13 respectively.
Inventory valuation
Inventory is carried at the lower of cost and net realisable value
which requires the estimation of sell through rates, and the
eventual sales price of goods to customers in the future.
Any difference between the expected and the actual sales price
achieved will be accounted for in the period in which the sale is
made. A description of the Group’s accounting policy in respect
of inventories is included in Note 1(h). A sensitivity analysis has
been carried out on the calculation of inventory provisions,
including consideration of the uncertainties arising from
Covid-19. The key assumption driving the stock provision
calculation is forecast revenue. A 10 per cent change in the
revenue assumptions applied in the provision calculation,
representing a reasonably possible outcome, would reduce the
net realisable value of inventories by £2m.
112
WH Smith PLC Annual Report and Accounts 2021
Financial statements 2. Segmental analysis of results
IFRS 8 requires segment information to be presented on the same basis as that used by the Chief Operating Decision Maker for
assessing performance and allocating resources. The Group’s operating segments are based on the reports reviewed by the Board of
Directors who are collectively considered to be the chief operating decision maker.
During the year the Group has reviewed its assessment of its operating segments, as a result of internal reorganisation and changes
to the composition of information used by the Board to monitor the performance of the Group. This review has resulted in a change to
the reportable segments identified, and prior year comparatives have been restated. There is no change to the total revenue or Group
profit from trading operations.
For management and financial reporting purposes, the Group is organised into two operating divisions which comprise four reportable
segments – Travel UK, North America, Rest of the World within the Travel division, and High Street. The North America operating
segment includes both MRG and InMotion from the dates of acquisition. For further information in relation to the acquisition of MRG
in the prior year, see Note 27.
The information presented to the Board is prepared in accordance with the Group’s IFRS accounting policies, with the exception of
IFRS 16, and is shown below as Headline information in Section b). A reconciliation to statutory measures is provided below in
accordance with IFRS 8, and in the Glossary on page 154 (Note A2).
a) Revenue
£m
Travel UK
North America
Rest of the World
Total Travel
High Street
Revenue
2021
195
166
40
401
485
886
2020
344
116
93
553
468
1,021
Rest of the World revenue includes revenue from Australia of £20m (2020: £38m). No other country has individually material revenue.
b) Group results
£m
Travel UK trading (loss)/profit
North America trading profit/(loss)
Rest of the World trading (loss)/profit
Total Travel trading (loss)/profit
High Street trading profit/(loss)
Group (loss)/profit from trading
operations
Unallocated central costs
Group operating (loss)/profit before
non-underlying items
Non-underlying items (Note 4)
Group operating loss
Finance costs
Loss before tax
Income tax credit
Loss for the year
Headline1
(pre-IFRS 16)
(32)
6
(13)
(39)
19
(20)
(19)
(39)
–
(39)
(16)
(55)
26
(29)
2021
Headline
non-underlying
items1
(pre-IFRS 16)
–
–
–
–
–
–
–
(49)
(49)
–
(49)
9
(40)
IFRS 16
3
(4)
(4)
(5)
17
12
–
12
(16)
(4)
(8)
(12)
1
(11)
2020
Headline
non-underlying
items1
(pre-IFRS 16)
–
–
–
–
-
–
Headline1
(pre-IFRS 16)
(1)
(18)
(14)
(33)
(10)
(43)
(17)
(60)
–
(60)
(9)
(69)
16
(53)
–
–
(157)
(157)
–
(157)
18
(139)
Total
(29)
2
(17)
(44)
36
(8)
(19)
(27)
(65)
(92)
(24)
(116)
36
(80)
IFRS 16
–
4
2
6
6
12
–
12
(55)
(43)
(11)
(54)
7
(47)
1 Presented on a pre-IFRS 16 basis. Alternative Performance Measures are defined and explained in the Glossary on page 154
Total
(1)
(14)
(12)
(27)
(4)
(31)
(17)
(48)
(212)
(260)
(20)
(280)
41
(239)
113
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
2. Segmental analysis of results (continued)
c) Other segmental items
£m
Travel UK
North America
Rest of the World
Total Travel
High Street
Unallocated
Headline, before non-underlying items
Headline non-underlying items (pre-IFRS 16)
Headline, after non-underlying items
Impact of IFRS 16
Non-underlying items (IFRS 16)
Group
£m
Travel UK
North America
Rest of the World
Total Travel
High Street
Unallocated
Headline, before non-underlying items
Headline non-underlying items (pre-IFRS 16)
Headline, after non-underlying items
Impact of IFRS 16
Non-underlying items (IFRS 16)
Group
Non-current assets¹
Depreciation and
amortisation
Capital additions
2021
Right of use assets
Impairment
Depreciation
Impairment
11
15
2
28
16
–
44
–
44
–
–
44
(14)
(10)
(3)
(27)
(17)
(4)
(48)
(3)
(51)
1
–
(50)
–
–
–
–
(2)
–
(2)
(18)
(20)
–
4
(16)
–
–
–
–
–
–
–
–
–
(84)
–
(84)
–
–
–
–
–
–
–
–
–
–
(28)
(28)
Non-current assets¹
Depreciation and
amortisation
Capital additions
2020
Right of use assets
Impairment
Depreciation
Impairment
18
26
4
48
24
–
72
–
72
–
–
72
(16)
(10)
(6)
(32)
(23)
(5)
(60)
(3)
(63)
8
–
(55)
–
–
–
–
–
–
–
(55)
(55)
–
15
(40)
–
–
–
–
–
–
–
–
–
(110)
–
(110)
–
–
–
–
–
–
–
–
–
–
(95)
(95)
1 Non-current assets including property, plant and equipment and intangible assets, but excluding right-of-use assets.
d) Non-current assets by geographical location
Non-current assets include plant, property and equipment, intangible assets and right-of-use assets.
£m
UK
USA
Australia
Other international
Total
2021
397
553
14
11
975
2020
487
584
16
11
1,098
114
WH Smith PLC Annual Report and Accounts 2021
Financial statements 3. Group operating profit
£m
Revenue
Cost of sales
Gross profit
Distribution costs1
Administrative expenses
Other income2
Non-underlying items (Note 4)
Group operating loss
Before
non-underlying
items
886
(358)
528
(419)
(140)
4
–
(27)
2021
Non-underlying
items
–
–
–
–
–
–
(65)
(65)
Before
non-underlying
items
1,021
(441)
580
(538)
(92)
2
–
(48)
Total
886
(358)
528
(419)
(140)
4
(65)
(92)
2020
Non-underlying
items
–
–
–
–
–
–
(212)
(212)
Total
1,021
(441)
580
(538)
(92)
2
(212)
(260)
1 During the year there was an impairment charge of £2m (2020: £nil) for property, plant and equipment and other intangible assets included in distribution costs. Other impairment charges related
to Covid-19 are included in non-underlying items. See Note 4.
2 Other income relates to profit on disposal and remeasurement of right-of-use assets, and profit attributable to property.
£m
Cost of inventories recognised as an expense
Write-down of inventories in the year³
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
– land and buildings
– other
Amortisation of intangible assets
Impairment of property, plant and equipment
Impairment of right-of-use assets
Impairment of intangibles
(Income)/expenses relating to leasing:
– expense relating to short-term leases
– expense relating to variable lease payments not included in the measurement of the lease liability
– income relating to Covid-19 rent reductions
Other occupancy costs
Staff costs (Note 6)
Government grant income
Auditors’ remuneration (see below)
Audit services
Fees payable to the Group’s auditors, included in the income statement, relate to:
Fees payable to the Group’s auditors for the audit of the Group’s financial statements
Fees payable to the Group’s auditors for other services to the Group including the audit of the
Company’s subsidiaries
Total audit and audit-related services
Non-audit services
Fees payable to the Group’s auditors for other services:
Reporting accountant services
All other non-audit services
Non-audit fees including taxation and other services
Total auditors’ remuneration
2021
358
7
36
80
4
14
16
28
–
14
27
(23)
27
232
(11)
1.2
0.3
1.5
–
0.1
0.1
1.6
2020
441
14
43
105
5
12
39
95
1
22
12
(15)
49
217
(22)
0.8
0.4
1.2
0.4
0.1
0.5
1.7
Included in Administrative expenses is the auditors’ remuneration, including expenses, for audit and non-audit services, payable to the
Group’s auditors PricewaterhouseCoopers LLP and its associates as set out above. A description of the work performed by the Audit
Committee is set out in the Corporate governance section of the Directors’ report and includes an explanation of how auditor
objectivity and independence are safeguarded when non-audit services are provided by auditors.
3 Write-down of inventories in the year are included within the amounts disclosed as Cost of inventories recognised as an expense, and recognised in Cost of sales.
115
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
4. Non-underlying items
Items which are not considered part of the normal operations of the business, are non-recurring or are considered
exceptional because of their size, nature or incidence, are treated as non-underlying items and disclosed separately. Further details
of non-underlying items are included in Note 1, Accounting policies and in the Strategic report on page 16.
£m
Costs relating to business combinations
– Transaction costs
– Integration costs
Amortisation of acquired intangible assets
Pension past service cost
Costs directly attributable to Covid-19
– Impairment of property, plant and equipment
– Impairment of intangible assets
– Impairment of right-of-use assets
– Write-down of inventories
– Restructuring costs
– Costs associated with refinancing
– Other
Non-underlying items, before tax
Tax credit on non-underlying items
Non-underlying items, after tax
2021
2020
–
2
3
–
14
–
28
5
9
6
(2)
65
(12)
53
11
9
3
14
39
1
95
14
25
–
1
212
(25)
187
Non-underlying items recognised in the year are as follows:
Costs relating to business combinations
During the year, the Group incurred further integration costs of £2m in relation to the acquisition of Marshall Retail Group ('MRG'),
which completed on 20 December 2019. In the prior year transaction and integration costs of £20m were incurred in relation to the
acquisition of MRG.
Amortisation of acquired intangible assets
Amortisation of acquired intangible assets primarily relates to the MRG and InMotion brands (see Note 11).
Costs directly attributable to Covid-19
As described in the Strategic report the Covid-19 pandemic continues to have a substantial impact on the Group's operations. As a
result, the Group continues to incur significant costs which have been separately recognised in non-underlying items, in accordance
with the Group’s accounting policy. The charges have arisen as a direct consequence of Covid-19, and reflect the impact of lost
revenues as a result of ongoing store closures and travel restrictions, and downward revisions to budgeted revenues based on
expectations of the rate of return to pre-pandemic levels of footfall and passenger numbers.
Impairment of property, plant and equipment and right-of-use assets
The impact on the Group's operations of Covid-19 is expected to continue during the next year and beyond. As a result, the Group has
carried out a review for potential impairment across the entire store portfolio. The impairment review compared the value-in-use of
individual store cash-generating units, based on management's assumptions regarding likely future trading performance (taking into
account the effect of Covid-19) to the carrying values at 31 August 2021. Following this review, a charge of £42m (2020: £135m) was
recorded within non-underlying items for impairment of retail store assets, of which £14m (2020: £39m) relates to property, plant and
equipment, £nil (2020: £1m) relates to intangible assets and £28m (2020: £95m) relates to right-of-use assets. Refer to Note 12 for
details of impairment of store cash-generating units. The impairment recognised on a pre-IFRS 16 basis is provided in the Glossary on
page 154.
Write-down of inventories
The Group assesses the recoverability of the carrying value of inventories at every reporting period and, where the expected
recoverable amount is lower than the carrying value, a provision is recorded. During the year non-underlying provisions of £5m have
been recorded against inventory, in addition to underlying provisions held of £13m, which relate to dated and perishable stock and
stock subject to obsolescence where the sell through rate has significantly reduced due to store closures and lower footfall. The Group
has recognised these charges as non-underlying as they meet the Group’s definition of non-underlying.
Restructuring costs
The charge of £9m (2020: £21m) is principally attributable to redundancies and restructuring costs following a review of store
operations across our High Street business, as a result of the impact of Covid-19 on footfall on the UK high street. These costs are
presented as a non-underlying item as they are part of a Board-agreed restructuring programme, and are considered material and
116
WH Smith PLC Annual Report and Accounts 2021
Financial statements one-off in nature. In addition, in the prior year the Group incurred costs of £4m relating to exiting the Paris bookshop and the Brazil
joint venture.
4. Non-underlying items (continued)
Costs associated with refinancing
Costs associated with refinancing include £1m of non-cash charges relating to unamortised fees connected with extinguished
liabilities, £3m of fees incurred in relation to amendment and extension of the Group’s previous financing arrangements incurred in
March 2021 prior to the issuance of the convertible bond, and £2m of professional fees relating to refinancing and debt structuring
activity required as a result of Covid-19. Other fees incurred relating to refinancing activity have been recognised in underlying finance
costs or recognised as a deduction from the value of liabilities recognised, and will be amortised over the period of the arrangement
through underlying finance costs.
Other prior year non-underlying items
Pension past service cost
Past service cost of £14m was recognised in the year ended 31 August 2020. This relates to equalisation of pension benefits between
men and women over the period from 1 April 1992 to 29 July 1993 (‘Barber equalisation’). The WHSmith Pension Trust has historically
been administered assuming gender equalisation was achieved on 1 April 1992, and thus a Barber equalisation window of 17 May
1990 to 1 April 1992 applied. A new Trust Deed and Rules reflecting the equalisation of normal retirement ages at 65 was executed on
29 July 1993. It has since been determined that Barber equalisation was not effective until 29 July 1993. Accordingly, this past service
cost is the expected cost of providing these benefits based on a normal retirement age of 60 rather than 65 for the period between
1 April 1992 and 29 July 1993. See Note 5.
A tax credit of £12m (2020: £25m) has been recognised in relation to the above items.
5. Retirement benefit obligations
WH Smith PLC has operated a number of defined benefit and defined contribution pension plans. The main pension arrangements
for employees are operated through a defined benefit scheme, WHSmith Pension Trust, and a defined contribution scheme,
WHSmith Retirement Savings Plan. The most significant scheme is WHSmith Pension Trust, which is described in Note 5 a) i).
The retirement benefit obligations recognised in the balance sheet for the respective schemes at the relevant reporting dates were:
£m
WHSmith Pension Trust
United News Shops Retirement Benefits Scheme
Retirement benefit obligation recognised in the balance sheet
Recognised as:
Current liabilities
Non-current liabilities
2021
(2)
(1)
(3)
(1)
(2)
2020
(3)
(1)
(4)
(1)
(3)
a) Defined benefit pension schemes
i) The WHSmith Pension Trust
The WHSmith Pension Trust Final Salary Section is a funded final salary defined benefit scheme; it was closed to defined benefit
service accrual on 2 April 2007 and has been closed to new members since 1996. Benefits are based on service and salary at the date
of closure or leaving service, with increases currently based on CPI inflation in deferment and RPI inflation in payment.
The WHSmith Pension Trust is independent of the Group and is administered by a Trustee. The Trustee is responsible for the
administration and management of the scheme on behalf of the members in accordance with the Trust Deed and relevant legislation.
Responsibilities include the investment of funds, the triennial valuation and determining the deficit funding schedule. Under the
Articles of Association of WH Smith Pension Trustees Limited (the corporate trustee) there are four directors nominated by the
sponsor, two independent directors and four member-nominated directors. Under the member-nominated director arrangements,
the term of office of a member-nominated director is four years.
The WHSmith Pension Trust has assets valued at £1,456m, as at 31 August 2021 (2020: £1,412m) managed by third party investment
managers. In September 2005, the Pension Trust Trustee adopted a Liability Driven Investment (LDI) policy where the assets in the
investment fund were invested such that they are expected to alter in value in line with changes in the pension liability caused by
changes in interest rates and inflation. The LDI structure that is in place has a number of inflation and interest rate hedges, with
collateral posted daily to or from the scheme to the relevant counterparty. The risk of failure of counterparties could expose the
scheme to loss. The scheme’s liabilities are also subject to changes in longevity.
The principal risks associated with the Group’s defined benefit pension arrangements are as follows:
117
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
Longevity risk
Liabilities are sensitive to life expectancy, with increases in life expectancy leading to an increase in the valuation of liabilities.
5. Retirement benefit obligations (continued)
a) Defined benefit pension schemes (continued)
i) The WHSmith Pension Trust (continued)
Interest rate and inflation risk
Liabilities are sensitive to movements in interest rates and inflation, with lower interest rates or higher inflation leading to an increase
in the valuation of liabilities. As a result of the LDI policy outlined above, these risks are largely hedged.
An Investment Committee of the Trustees to the scheme meets regularly to review the performance of the investment managers and
the scheme as a whole. The Group is represented on this Committee. Although investment decisions are the responsibility of the
Trustee, the Group is an active participant of the investment sub-committee to ensure that pension plan risks are managed efficiently.
The risk of failure of counterparties and of the investment manager is monitored regularly by the Committee. The Trustees have the
right to determine the level of contributions and the Group has agreed with the Trustees a deficit funding schedule.
A full actuarial valuation of the Scheme is carried out every three years with interim reviews in the intervening years. The latest full
actuarial valuation of the Pension Trust was carried out as at 31 March 2020 by independent actuaries using the projected unit credit
method and has been completed. At 31 March 2020 the deficit was £9m. The Group has agreed a continuation of the annual funding
schedule with the Trustees from March 2020 for the following 5 years, which includes the deficit recovery contributions and other
running costs of just under £3m. During the year ending 31 August 2021, the Group made a contribution of £3m to the WHSmith
Pension Trust (2020: £3m) in accordance with the agreed pension deficit funding schedule, being £1m of deficit funding payable to the
Trustee and £2m in relation to investment management costs. The Group expects the cash payments for the year ended 31 August
2022 to be £3m. The weighted average duration of the defined benefit obligation is 18 years.
Amounts recognised in the financial statements
Balance sheet
The amounts recognised in the balance sheet under IAS 19 in relation to this plan are as follows:
£m
Present value of the obligations
Fair value of plan assets
Surplus before consideration of asset ceiling
Amounts not recognised due to effect of asset ceiling
Additional liability recognised due to minimum funding requirements
Retirement benefit obligation recognised in the balance sheet
2021
(1,172)
1,456
284
(284)
(2)
(2)
2020
(1,144)
1,412
268
(268)
(3)
(3)
In accordance with the requirements of IFRIC 14 we have recognised the schedule of contributions as a liability of £2m (2020: £3m).
The defined benefit pension schemes are closed to further accrual. The Group does not have an unconditional right to derive
economic benefit from any surplus, as the Trustees retain the right to enhance benefits under the Trust deed, and therefore the
present value of the economic benefits of the IAS 19 surplus in the pension scheme of £284m (2020: £268m) available on a reduction
of future contributions is £nil (2020: £nil). As a result, the Group has not recognised this IAS 19 surplus on the balance sheet. There is
an ongoing actuarial deficit primarily due to the different assumptions and calculation methodologies used compared to those on
interpretation of IAS 19.
Income statement
The amounts recognised in the income statement were as follows:
£m
Net interest cost on the defined benefit liability
Past service cost
2021
–
–
–
2020
–
(14)
(14)
The net interest cost has been included in finance costs (Note 7). Actuarial gains and losses have been reported in the statement of
comprehensive income.
In the prior year, past service costs of £14m were recognised in relation to equalisation of pension benefits relating to a period
between 1 April 1992 and 29 July 1993 ('Barber equalisation'). This past service cost was disclosed within non-underlying items, in
accordance with the accounting policy in Note 1.
118
WH Smith PLC Annual Report and Accounts 2021
Financial statements 5. Retirement benefit obligations (continued)
a) Defined benefit pension schemes (continued)
i) The WHSmith Pension Trust (continued)
Statement of comprehensive income
Total expense recognised in the statement of comprehensive income (‘SOCI’):
£m
Actuarial gain/(loss) on defined benefit obligations arising from experience
Actuarial loss on defined benefit obligations arising from changes in financial assumptions
Actuarial gain on defined benefit obligations arising from changes in demographic assumptions
Total actuarial loss before consideration of asset ceiling
Return on plan assets excluding amounts included in net interest cost
(Loss)/gain resulting from changes in amounts not recognised due to effect of asset ceiling excluding amounts
recognised in net interest cost
Gain resulting from changes in additional liability due to minimum funding requirements excluding amounts
recognised in net interest cost
Total actuarial (loss)/gain recognised in other comprehensive income
2021
5
(56)
1
(50)
58
(11)
1
(2)
2020
(53)
(12)
22
(43)
(38)
92
–
11
A credit of £1m (2020: £nil) was recognised in the statement of comprehensive income in relation to actuarial gains in the year on the
United News Shops Retirement Benefits Scheme.
Movements in the present value of the WHSmith Pension Trust defined benefit scheme assets, obligations and minimum funding
requirement in the current year were as follows:
£m
At 1 September
Current service cost
Past service cost
Interest income/(expense)
Actuarial gains/(losses)
Contributions from the sponsoring
companies
Benefits paid
At 31 August
2021
2020
Effect of asset
ceiling and
recognition of
minimum
funding liability
(271)
Net retirement
benefit
obligation
recognised
(3)
–
–
(5)
(10)
–
–
(286)
–
–
–
(2)
3
–
(2)
Assets
1,412
Liabilities
(1,144)
–
–
24
58
–
–
(19)
(50)
3
(41)
1,456
–
41
(1,172)
Effect of asset
ceiling and
recognition of
minimum
funding liability
(357)
Net retirement
benefit
obligation
recognised
(3)
–
–
(6)
92
–
–
(271)
–
(14)
–
11
3
–
(3)
Assets
1,461
Liabilities
(1,107)
–
–
26
(38)
3
(40)
1,412
–
(14)
(20)
(43)
–
40
(1,144)
The actual return on scheme assets was a gain of £82m (2020: loss of £12m). During the year, asset returns outperformed the
discount rate, leading to an asset remeasurement gain of £58m. Actuarial losses on scheme liabilities have arisen due to:
experience gains of £5m, as a result of the triennial valuation at 31 March 2020, which applied membership and other demographic
movements over the last 3 years; the lower discount rate and RPI assumptions, offset by higher CPI inflation assumptions resulting in
a loss of £56m; and changes in demographic assumptions that led to a £1m reduction in plan liabilities.
The decrease in scheme liabilities combined with a increase in the scheme assets, resulted in a increase of £16m in the unrecognised
IAS 19 surplus, to £284m.
119
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
5. Retirement benefit obligations (continued)
a) Defined benefit pension schemes (continued)
i) The WHSmith Pension Trust (continued)
An analysis of the defined benefit scheme assets at the balance sheet date is detailed below:
Bonds
– Government bonds
– Corporate bonds
UK
Non-UK
Investment funds1
Derivatives
– Interest rate swaps
– Inflation swaps
– Other2
Cash and cash equivalents3
Total
2021
2020
Quoted
£m
Unquoted
£m
Total
£m
1,211
–
1,211
264
342
43
–
–
–
155
2,015
–
–
186
(85)
(157)
(503)
–
(559)
264
342
229
(85)
(157)
(503)
155
1,456
%
83
18
24
16
(6)
(11)
(35)
11
100
Quoted
£m
Unquoted
£m
Total
£m
1,157
–
1,157
286
342
324
–
–
–
(240)
1,869
–
–
188
28
(143)
(530)
–
(457)
286
342
512
28
(143)
(530)
(240)
1,412
1 These actively managed pooled funds seek to provide long-term positive returns through diversified assets and strategies.
2 Other derivatives include asset swap contracts and open repurchase agreements.
3
In the prior year, the negative cash and cash equivalents balance relates to our obligation to return cash collateral.
No amount is included in the market value of assets relating to either financial instruments or property occupied by the Group.
The principal long-term assumptions used in the IAS 19 valuation were:
%
Rate of increase in pension payments
Rate of increase in deferred pensions
Discount rate
RPI inflation assumption
CPI inflation assumption
2021
3.35
2.55
1.75
3.45
2.55
%
82
20
24
36
2
(10)
(37)
(17)
100
2020
3.04
2.30
1.75
3.10
2.30
The mortality assumptions in years underlying the value of the accrued liabilities for 2021 and 2020 are:
Years
Life expectancy at age 65
Member currently aged 65
Member currently aged 45
2021
2020
Male
Female
Male
Female
22.7
23.3
23.9
25.3
22.7
23.3
23.8
25.2
Sensitivity to changes in assumptions
The valuation of the retirement benefit obligation is considered a significant source of estimation uncertainty, see Note 1(q), and
therefore changes in assumptions can have a significant effect on the amounts recognised in the financial statements.
Sensitivity information has been derived using scenario analysis from the actuarial assumptions as at 31 August 2021, while keeping
all other assumptions consistent; in practice, changes in some of the assumptions may be correlated.
£m
Discount rate +/- 0.1% per annum
Inflation assumptions +/- 0.1% per annum
Life expectancy +/- 1 year
120
WH Smith PLC Annual Report and Accounts 2021
Effect on
liabilities
at 31 August
2021
-19/+19
+18/-18
+66/-66
Financial statements 5. Retirement benefit obligations (continued)
a) Defined benefit pension schemes (continued)
ii) United News Shops Retirement Benefits Scheme
United News Shops Retirement Benefits Scheme (‘UNSRBS’) is closed to new entrants. The scheme provides pension benefits for
pensioners and deferred members based on salary at the date of closure, with increases based on inflation. A full actuarial valuation
of the scheme is carried out every three years with interim reviews in the intervening years. The latest full actuarial valuation of the
scheme was carried out at 5 April 2018 by independent actuaries. Following this valuation, the deficit was less than £1m.
The valuation of the UNSRBS used for the IAS 19 disclosures is based on consistent assumptions to those used for valuing the
WHSmith Pension Trust. Scheme assets are stated at their market value at the relevant reporting date. The deficit funding
contributions are immaterial in the context of these financial statements.
The present value of obligations and fair value of assets are stated below.
£m
Present value of the obligations
Fair value of plan assets
Retirement benefit obligation recognised in the balance sheet
2021
(8)
7
(1)
2020
(8)
7
(1)
All of the assets of the UNSRBS scheme have a quoted market price in an active market. There was a credit of £1m (2020: £nil)
recognised in the statement of comprehensive income in relation to actuarial gains in the year on the United News Shops Retirement
Benefits Scheme.
b) Defined contribution pension scheme
The pension cost charged to income for the Group’s defined contribution schemes amounted to £4m for the year ended 31 August
2021 (2020: £4m).
6. Staff costs and employees
a) Staff costs
The aggregate remuneration of employees was:
£m
Wages and salaries
Social security costs
Other pension costs
Share-based payments
Total Group
b) Employee numbers
The monthly average total number of employees (including executive directors) was:
£m
Total retailing
Support functions
Total Group
7. Finance costs
£m
Interest payable on bank loans and overdrafts
Interest on convertible bonds
Interest on lease liabilities
Net interest cost on defined benefit pension liabilities
2021
208
14
4
6
232
2020
200
13
4
–
217
2021
11,194
41
11,235
2020
14,475
39
14,514
2021
10
4
10
–
24
2020
9
–
11
–
20
121
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
8. Income tax
£m
Tax on loss
Standard rate of UK corporation tax 19.00% (2020: 19.00%)
Adjustment in respect of prior years
Total current tax credit
Deferred tax – current year (Note 18)
Deferred tax – prior year (Note 18)
Deferred tax – adjustment in respect of change in tax rates
Tax on loss before non-underlying items
Tax on non-underlying items – current tax
Tax on non-underlying items – deferred tax (Note 18)
Total tax on loss
Reconciliation of the taxation credit
£m
Tax on loss at standard rate of UK corporation tax 19.00% (2020: 19.00%)
Tax effect of items that are not deductible or not taxable in determining taxable loss
Unrecognised tax losses
Differences in overseas tax rates
Adjustment in respect of prior years
Adjustment in respect of change in tax rates
Total income tax credit
The effective tax rate, before non-underlying items, is 47 per cent (2020: 23 per cent).
2021
–
(1)
(1)
(11)
(4)
(8)
(24)
–
(12)
(36)
2021
(22)
1
(1)
(1)
(5)
(8)
(36)
2020
(5)
(6)
(11)
(7)
2
–
(16)
(9)
(16)
(41)
2020
(53)
15
4
(3)
(4)
–
(41)
The UK corporation tax rate is 19 per cent effective from 1 April 2017. In the Spring Budget 2021, the UK Government announced that
from 1 April 2023 the corporation tax rate will increase to 25 per cent . This new law was substantively enacted on 24 May 2021, and
the main impact of this change is an increase to the deferred tax assets and an increase in the current year tax income statement
credit of £8m.
9. Dividends
Amounts paid and recognised as distributions to shareholders in the year are as follows:
£m
Dividends
Final dividend for the year ended 31 August 2019 of 41.0p per ordinary share
2021
2020
–
–
47
47
The directors have not declared an interim dividend during the year and do not propose a final dividend in respect of the year ended
31 August 2021.
122
WH Smith PLC Annual Report and Accounts 2021
Financial statements 10. Loss per share
a) Loss/earnings
£m
Loss for the year, attributable to equity holders of the parent
Non-underlying items (Note 4)
Loss for the year before non-underlying items, attributable to equity holders of the parent
b) Weighted average share capital
Millions
Weighted average ordinary shares in issue
Less weighted average ordinary shares held in ESOP Trust
Weighted average shares in issue for loss per share
Add weighted average number of ordinary shares under option
Weighted average ordinary shares for diluted loss per share
c) Basic and diluted loss per share
Pence
Basic loss per share
Adjustment for non-underlying items
Basic loss per share before non-underlying items
Pence
Diluted loss per share
Adjustment for non-underlying items
Diluted loss per share before non-underlying items
2021
(82)
53
(29)
2021
131
–
131
–
131
2021
(62.6)
40.5
(22.1)
2021
(62.6)
40.5
(22.1)
2020
(239)
187
(52)
2020
120
–
120
–
120
2020
(199.2)
155.9
(43.3)
2020
(199.2)
155.9
(43.3)
Diluted loss per share takes into account various share awards and share options including SAYE schemes, which are expected to
vest, and for which a sum below fair value will be paid. As the Group has incurred a loss in the years ending 31 August 2021 and
31 August 2020, the impact of its potential dilutive ordinary shares have been excluded as they would be anti-dilutive.
At 31 August 2021 the convertible bond has no dilutive effect as the inclusion of these potentially dilutive shares would improve loss
per share.
The calculation of loss per share on a pre-IFRS 16 basis is provided in the Glossary on page 154.
123
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
11. Intangible assets
£m
Cost
At 1 September 2020
Acquisitions (Note 27)
Additions
Disposals
Foreign exchange
At 31 August 2021
Accumulated amortisation
At 1 September 2020
Amortisation charge
Impairment charge
Disposals
Foreign exchange
At 31 August 2021
Net book value at 31 August 2021
Cost
At 1 September 2019
Additions
Acquisitions (Note 27)
Disposals
Foreign exchange
At 31 August 2020
Accumulated amortisation
At 1 September 2019
Amortisation charge
Impairment charge
Disposals
Foreign exchange
At 31 August 2020
Net book value at 31 August 2020
Brands and
franchise
contracts
Goodwill
Tenancy rights
Software
Total
418
(1)
–
–
(11)
406
–
–
–
–
–
–
406
176
–
258
–
(16)
418
–
–
–
–
–
–
418
43
–
–
–
(1)
42
4
3
–
–
–
7
35
16
–
29
–
(2)
43
1
3
–
–
–
4
39
13
–
–
–
–
13
8
–
–
–
–
8
5
13
–
–
–
–
13
8
–
–
–
–
8
5
96
–
7
(1)
–
102
65
11
–
(1)
–
75
27
109
11
1
(25)
–
96
80
9
1
(25)
–
65
31
570
(1)
7
(1)
(12)
563
77
14
–
(1)
–
90
473
314
11
288
(25)
(18)
570
89
12
1
(25)
–
77
493
Adjustments to goodwill include an adjustment of £1m to the consideration paid in relation to the acquisition of Marshall Retail Group
(MRG). Additions to goodwill in the prior year relate to the acquisition of MRG. See Note 27 for further information. Goodwill of USD
$77m (£56m) relating to the acquisition of InMotion in 2018 is expected to be deductible for tax purposes in the future.
As a result of changes to the Group’s reportable segments (as discussed in Note 2), goodwill previously attributable to the Travel
operating segment has been reallocated to the new operating segments using a relative value approach.
The carrying value of goodwill is allocated to the segmental businesses as follows:
£m
Travel UK
North America
Rest of the World
Total Travel
High Street
124
WH Smith PLC Annual Report and Accounts 2021
2021
253
113
25
391
15
406
2020
403
15
418
Financial statements 11. Intangible assets (continued)
Included within Tenancy rights are certain assets that are considered to have an indefinite life of £4m (2020: £4m), representing certain
rights under tenancy agreements, which include the right to renew leases, therefore no amortisation has been charged.
Management has determined that the useful economic life of these assets is indefinite because the Company can continue to occupy
and trade from certain premises for an indefinite period. These assets are reviewed annually for indicators of impairment.
Impairment of goodwill and intangible assets
The Group tests goodwill for impairment annually or where there is an indication that goodwill might be impaired. For impairment
testing purposes, the Group has determined that each store is a separate CGU, and goodwill is allocated to groups of CGUs in a
manner that is consistent with our operating segments, as this reflects the lowest level at which goodwill is monitored. All goodwill
has arisen on acquisitions of groups of retail stores. These acquisitions are then integrated into the Group’s operating segments as
appropriate. Acquired brands are considered together with goodwill for impairment testing purposes, and are therefore considered
annually for impairment.
Goodwill and acquired brands have been tested for impairment by comparing the carrying amount of each group of CGUs, including
goodwill and acquired brands, with the recoverable amount determined from value-in-use calculations. The value-in-use of each
group of CGUs has been calculated using cash flows derived from the Group's latest Board-approved budget and three year plan,
initially extrapolated to five years and taking into account the projected impact of Covid-19. The forecasts reflect knowledge of the
current market, together with the Group’s expectations on the future achievable growth and committed store openings. Cash flows
beyond the initial forecast period are extrapolated using estimated long-term growth rates. Forecasts have taken into account the
immediately quantifiable impacts of climate change, with no material impact on cash flows. Forecasts beyond the initial forecast
period do not include a quantitative assessment of the impact of climate change on cash flows.
For certain groups of CGUs, additional adjustments to cash flows have been made during the extrapolation process for an extended
period of up to 15 years before calculating a terminal value. This extended period of time is required to establish a normalised cash
flow base on which a terminal value calculation can be appropriately calculated. The main reasons for cash flow adjustments include
the need to forecast lease renewals under IFRS 16, and the unwinding of certain cash flow benefits arising from acquisitions in
North America.
The key assumptions on which forecast three-year cash flows of the CGUs are based include revenue growth, product mix and
operating costs, long-term growth rates and the pre-tax discount rate:
• The values assigned to each of the revenue, product mix and operating cost assumptions were determined based on the
extrapolation of historical trends within the Group and external information on expected future trends in the travel and high street
retail sectors.
• The pre-tax discount rates are derived from the Group’s weighted average cost of capital, which has been calculated using the
capital asset pricing model, the inputs of which include a risk-free rate, equity risk premium, Group size premium and a risk
adjustment (beta). The pre-tax discount rate used in the calculation was 10.4 per cent.
• The long-term growth rate assumptions are between 0 per cent and 2 per cent.
The value-in-use estimates indicated that the recoverable amount of goodwill exceeded the carrying value for each group of CGUs.
As a result, no impairment has been recognised in respect of the carrying value of goodwill in the year (2020: £nil).
As disclosed in Note 1, Accounting policies, the forecast cash flows used within the impairment model are based on assumptions
which are sources of estimation uncertainty and it is possible that significant changes to these assumptions could lead to an
impairment of goodwill and acquired brands. Given the significant uncertainty surrounding the impact of Covid-19 on the Group’s
operations and on the global economy, management have considered a range of sensitivities on each of the key assumptions, with
other variables held constant. The sensitivities include applying increases in the discount rate by 1 per cent and reductions in the
long-term growth rates to 0 per cent. Under these severe scenarios, the estimated recoverable amount of goodwill and acquired
brands still exceeded the carrying value.
The sensitivity analysis showed that no reasonably possible change in assumptions would lead to an impairment.
125
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
12. Property, plant and equipment
£m
Cost or valuation:
At 1 September 2020
Additions
Acquisitions (Note 27)
Disposals
Reclassifications
Foreign exchange
At 31 August 2021
Accumulated depreciation:
At 1 September 2020
Depreciation charge
Impairment charge
Disposals
Reclassifications
Foreign exchange
At 31 August 2021
Net book value at 31 August 2021
Cost or valuation:
At 31 August 2019
Adjustment on initial application of IFRS 16
At 1 September 2019
Additions
Acquisitions (Note 27)
Disposals
Foreign exchange
At 31 August 2020
Accumulated depreciation:
At 31 August 2019
Adjustment on initial application of IFRS 16
At 1 September 2019
Depreciation charge
Impairment charge
Disposals
At 31 August 2020
Net book value at 31 August 2020
Land and buildings
Freehold
properties
Leasehold
improvements
Fixtures
and fittings
Equipment
and vehicles
15
3
–
–
–
–
18
10
–
–
–
–
–
10
8
15
–
15
–
–
–
–
15
10
–
10
–
–
–
10
5
272
12
(1)
(5)
14
(2)
290
185
17
9
(5)
–
–
206
84
236
(3)
233
28
18
(5)
(2)
272
147
1
148
22
20
(5)
185
87
198
15
–
(5)
(11)
(1)
196
127
12
5
(5)
2
(1)
140
56
168
(5)
163
23
14
(1)
(1)
198
103
(1)
102
12
14
(1)
127
71
108
7
–
(2)
(3)
–
110
79
7
2
(2)
(2)
–
84
26
120
(22)
98
10
2
(1)
(1)
108
78
(12)
66
9
5
(1)
79
29
Total
593
37
(1)
(12)
–
(3)
614
401
36
16
(12)
–
(1)
440
174
539
(30)
509
61
34
(7)
(4)
593
338
(12)
326
43
39
(7)
401
192
Impairment of property, plant and equipment
For impairment testing purposes, the Group has determined that each store is a separate CGU. Each CGU is tested for impairment at
the balance sheet date if any indicators of impairment have been identified. The significant disruption to trading as a result of the
Covid-19 pandemic has been identified as an indicator of impairment, and therefore all CGUs have been tested for impairment as at
the balance sheet date.
126
WH Smith PLC Annual Report and Accounts 2021
Financial statements 12. Property, plant and equipment (continued)
Property, plant and equipment and right-of-use assets have been tested for impairment by comparing the carrying amount of each
CGU with its recoverable amount determined from value-in-use calculations. It was determined that value-in-use was higher than fair
value less costs to sell as a result of the significant impact on fair values as a result of Covid-19. The value-in-use of each CGU has
been calculated using discounted cash flows derived from the Group's latest Board-approved budget and three-year plan, taking into
account the projected impact of Covid-19, and reflects historic performance and knowledge of the current market, together with the
Group’s views on the future achievable growth. Cash flows beyond this three-year period are extrapolated using growth rates and
inflation rates appropriate to each store’s location. Cash flows have been included for the remaining lease life for the specific store.
These growth rates do not exceed the long-term growth rate for the Group’s retail businesses in the relevant territory. Where stores
have a relatively short remaining lease life, an extension to the lease has been assumed where management consider it likely that an
extension will be granted.
The key assumptions on which the forecast three-year cash flows of the CGUs are based include revenue and the pre-tax discount
rate. Other assumptions in the model relate to gross margin, cost inflation and longer-term growth rates. The forecasts used in the
impairment review are based on management's best estimate of revenue reductions versus a 'pre-Covid' base, and the recovery in
revenue over the forecast period. In developing these forecasts, management have used available information, including historical
knowledge of the store level cash flows, and knowledge gained during the pandemic up to the year end date.
The forecasts for the year for our High Street business assume that store like-for-like sales will be lower by around 20 per cent during
the year ended 31 August 2022. In Travel UK, revenue is assumed to be initially down around 50 per cent recovering to around 5 per
cent down by the end of that year. This is an average across all formats, with Hospitals recovering more quickly than Air.
Our International locations outside of North America assume that like-for-like sales will be lower by around 75 per cent initially, and
recovering to down around 25 per cent by the end of August 2022.
In North America, revenue is assumed to be down around 25 per cent in the early part of the next financial year, improving to around
2019 levels by the end of the August 2022 financial year. This is an average across all formats, with Resorts recovering more quickly
than Air.
The second and third years of the three year plan include further gradual recoveries across all locations.
The pre-tax discount rates are derived from the Group’s weighted average cost of capital, which has been calculated using the capital
asset pricing model, the inputs of which include the risk-free rate, equity risk premium, Group size premium and a risk adjustment
(beta). The pre-tax discount rate used in the calculation was 10.4 per cent.
Where the value-in-use was less than the carrying value of the CGU, an impairment of property, plant and equipment and right-of-use
assets was recorded. These stores were impaired to their recoverable amount of £56m, which is their carrying value at year end.
The Group has recognised an impairment charge of £16m to property, plant and equipment and £28m to right-of-use assets as a
result of impairment testing. Impairments of £42m have been presented as non-underlying items in the current year (see Note 4), and
impairments of £2m have been included in underlying results.
As disclosed in Note 1, Accounting policies, the forecast cash flows used within the impairment model are based on assumptions
which are sources of estimation uncertainty and changes to these assumptions could lead to further impairments to assets. Given the
significant uncertainty regarding the impact of Covid-19 on the Group’s operations and on the global economy, management have
considered sensitivities to the impairment charge as a result of changes to the estimate of future revenues achieved by the stores.
The Group has applied certain sensitivities in isolation to demonstrate the impact on the impairment of changes in key assumptions.
The most significant assumption is the revenue assumption. The impact of a potential slower recovery from the pandemic has been
modelled by incorporating a further 10 per cent reduction in revenue in High Street stores and a delay in recovery of one year in Travel
UK and North America, with no change to subsequent forecast revenue growth rate assumptions. This would result in a £21m
increase in the impairment charge of retail store assets in the year ended 31 August 2021. An increase or decrease of 1 per cent in the
discount rate would result in an increase or decrease in the impairment charge of around £2m.
Other changes in assumptions have been modelled and have shown that any reasonably possible changes would not lead to a
significant impact on the impairment charge. Other modelled assumption changes include margin reductions and long-term growth
rate reductions across all formats.
The impairment assessment has also been performed on a pre-IFRS 16 basis. See Glossary on page 154.
127
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
13. Right-of-use assets
£m
At 1 September 2020
Additions
Modifications and remeasurements
Disposals
Depreciation charge
Impairment charge
Effect of movements in foreign exchange rates
Net book value at 31 August 2021
£m
At 1 September 2019
Additions
Acquisitions
Modifications and remeasurements
Disposals
Depreciation charge
Impairment charge
Effect of movements in foreign exchange rates
Net book value at 31 August 2020
Land and
buildings
400
45
(13)
(1)
(80)
(28)
(4)
319
Land and
buildings
439
98
108
(35)
(2)
(105)
(95)
(8)
400
Equipment
13
–
–
–
(4)
–
–
9
Equipment
18
–
–
–
–
(5)
–
–
13
Total
413
45
(13)
(1)
(84)
(28)
(4)
328
Total
457
98
108
(35)
(2)
(110)
(95)
(8)
413
The information on the Group's leasing activities is included in Note 16, Lease liabilities.
Impairment of right-of-use assets
Right-of-use assets of £28m have been impaired in the year, as a result of the impact of Covid-19. This impairment charge has
been presented in non-underlying items (see Note 4). The approach to impairment testing is described in detail in Note 12, Property,
plant and equipment.
128
WH Smith PLC Annual Report and Accounts 2021
Financial statements 14. Trade and other receivables
£m
Current receivables
Trade receivables
Other receivables
Prepayments
Accrued income
Non-current receivables
Other receivables
Prepayments
Total trade and other receivables
2021
2020
25
5
10
5
45
2
4
51
22
8
10
9
49
6
3
58
Included in accrued income is £3m (2020: £3m) of accrued supplier income relating to retrospective discounts and other promotional
and marketing income that has been earned but not yet invoiced. Supplier income that has been invoiced but not yet settled against
trade payables balances is included in trade payables where the Group has a right to offset.
There were no government grants receivables included in other receivables this year (2020: £1m).
The ageing of the Group’s current trade and other receivables is as follows:
£m
Trade and other receivables gross
Expected credit losses
Trade and other receivables net
Of which:
Amounts neither impaired nor past due on the reporting date
Amounts past due but not impaired:
Less than one month old
Between one and three months old
Between three and six months old
Between six months and one year old
Trade and other receivables net carrying amount
2021
35
(3)
32
25
3
2
1
1
32
2020
39
(3)
36
26
4
2
2
2
36
The Group has limited exposure to expected credit losses due to the business model. An allowance has been made for lifetime
expected credit losses from receivables at 31 August 2021 of £3m (31 August 2020: £3m). The ageing analysis of these receivables is
given in the table below. This expected credit loss allowance reflects the application of the Group’s provisioning policy in respect of bad
and doubtful debts and is based upon the difference between the receivable value and the estimated net collectible amount. The Group
establishes its provision for bad and doubtful debts by reference to past default experience.
Ageing analysis of bad and doubtful debt provisions:
£m
Less than one month old
Between one and three months old
Between three and six months old
Between six months and one year old
2021
–
–
1
2
3
2020
–
–
1
2
3
No trade and other receivables that would have been past due or impaired were renegotiated during the year. No interest is charged
on the receivables balance. The other classes within trade and other receivables do not include impaired assets. The Group does not
hold collateral over these balances. The directors consider that the carrying amount of trade and other receivables approximates their
fair value.
129
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
15. Trade and other payables
£m
Trade payables
Other tax and social security
Other payables
Accruals
Deferred income
2021
70
24
72
83
16
265
2020
(restated)
55
24
63
87
12
241
Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period
taken for trade purchases is 56 days (2020: 50 days). The directors consider that the carrying amount of trade and other payables
approximates their fair value.
Trade payables is stated net of £4m (2020: £2m) amounts receivable from suppliers in relation to supplier income, that has been
invoiced, for which the Group has the right to set off against amounts payable at the balance sheet date.
The classification of trade and other payables has been reviewed and it was noted that certain balances more closely related to
deferred income have previously been classified in other categories. The analysis provided above more closely reflects the nature of
the underlying balances. The comparatives have been restated for consistency by reducing Trade payables by £5m, reducing Other
creditors by £4m and increasing Deferred income by £9m. There is no impact on the total of trade and other payables.
16. Lease liabilities
£m
At 1 September 2020
Additions
Modifications and remeasurements
Disposals
Interest
Payments
Effect of movements in foreign exchange rates
At 31 August 2021
£m
At 3 August 2019
Adjustment on initial application of IFRS 16
At 1 September 2019
Additions
Acquisitions
Modifications and remeasurements
Disposals
Interest
Payments
Effect of movements in foreign exchange rates
At 31 August 2020
£m
Analysis of total lease liabilities:
Non-current
Current
Total
Land and
buildings
548
41
(37)
(7)
10
(87)
(5)
463
Land and
buildings
–
476
476
87
106
(50)
(2)
11
(72)
(8)
548
Equipment
11
–
–
–
–
(4)
–
7
Equipment
14
3
17
–
–
–
–
–
(6)
–
11
Total
559
41
(37)
(7)
10
(91)
(5)
470
Total
14
479
493
87
106
(50)
(2)
11
(78)
(8)
559
2021
2020
362
108
470
429
130
559
The Group leases land and buildings for its retail stores, distribution centres, storage locations and office property. These leases have
an average remaining lease term of 4 years. Some leases include an option to break before the end of the contract term or an option
to renew the lease for an additional term after the end of the term. Management assess the lease term at inception based on the facts
and circumstances applicable to each property.
130
WH Smith PLC Annual Report and Accounts 2021
Financial statements 16. Lease liabilities (continued)
Other leases are mainly forklift trucks for the retail stores and distribution centres, office equipment and vehicles. These leases have
an average remaining lease term of 3 years.
The Group reviews the retail lease portfolio on an ongoing basis, taking into account retail performance and future trading
expectations. The Group may exercise extension options, negotiate lease extensions or modifications. In other instances, the Group
may exercise break options, negotiate lease reductions or decide not to negotiate a lease extension at the end of the lease term.
Certain property leases contain rent review terms that require rent to be adjusted on a periodic basis which may be subject to market
rent or increases in inflation measurements.
Many of the Group's property leases, particularly in Travel locations, also incur payments based on a percentage of revenue (variable
lease payments) achieved at the location. In line with IFRS 16, variable lease payments which are not based on an index or rate are not
included in the lease liability. See Note 3 for the expense charged to the Income statement relating to variable lease payments not
included in the measurement of the lease liability.
In response to the Covid-19 pandemic, an amendment was issued to IFRS 16 in June 2020 and further extended in March 2021.
This amendment (practical expedient) allows the impact on the lease liability of temporary rent reductions/waivers affecting rent
payments due on or before June 2022, to be recognised in the Income statement in the period they are received, rather than as lease
modifications, which would require the remeasurement of the lease liability using a revised discount rate with a corresponding
adjustment to the right-of-use asset. The Group has applied this practical expedient to all Covid-19 rent reductions/waivers that meet
the requirements of the amendment. This has resulted in a credit to the Income statement of £23m for the year ended 31 August 2021.
The Group’s accounting policy for leases is set out in Note 1. Details of Income statement charges and income for leases are set out in
Note 3. The right-of-use asset categories on which depreciation is incurred are presented in Note 13. Interest expense incurred on
lease liabilities is presented in Note 7. The maturity of undiscounted future lease liabilities are set out in Note 22.
The total cash outflow for leases in the financial year was £123m. This includes cash outflow for short-term leases of £14m and
variable lease payments (not included in the measurement of lease liability) of £18m. The total future income from sub-leasing the
right-of-use assets is £1m.
131
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
17. Provisions
£m
At 1 September 2020
Charge in the year
Utilised in year
Unwinding of discount
At 31 August 2021
£m
At 1 September 2019
Adjustment on initial application of IFRS 16
Charge in the year
Utilised in year
Unwinding of discount
At 31 August 2020
Total provisions are split between current and non-current liabilities as follows:
£m
Included in current liabilities
Included in non-current liabilities
Property
provision
13
–
–
–
13
Property
provision
3
(2)
12
–
–
13
Contingent
consideration
provision
1
–
–
–
1
Contingent
consideration
provision
2
–
–
(1)
–
1
2021
2
12
14
Total
14
–
–
–
14
Total
5
(2)
12
(1)
–
14
2020
5
9
14
Property provisions relate to reinstatement liabilities for stores where the long-term viability has been impacted by Covid-19.
These expected costs of store closures are reviewed frequently and are based on information available as at the reporting date as well
as management’s historical experience of similar transactions. Utilisations of the property provisions are expected to be incurred in
line with the profile of the leases to which they relate.
In the prior year, onerous lease provisions of £2m were derecognised on adoption of IFRS 16.
132
WH Smith PLC Annual Report and Accounts 2021
Financial statements 18. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and
prior years.
£m
Accelerated tax depreciation
Leases
Share-based payments
Retirement benefit obligation
Intangible assets
Losses
Unutilised interest expense
Provisions
Year ended 31 August 2021
Accelerated tax depreciation
Leases
Share-based payments
Retirement benefit obligation
Intangible assets
Losses
Unutilised interest expense
Year ended 31 August 2020
On acquisition of
subsidiaries
–
–
–
–
–
–
–
–
–
Adjustment on
initial application
of IFRS 16
–
–
–
–
–
–
–
–
–
At 1 September
7
4
–
1
(11)
17
3
–
21
Rate change
3
1
–
–
–
4
–
–
8
Credited /
(charged) to
income
(2)
–
1
–
–
24
2
2
27
Credited to
equity
–
–
1
–
–
–
–
–
1
At 31 August
8
5
2
1
(11)
45
5
2
57
5
–
2
1
(3)
–
–
5
(1)
–
–
–
(8)
–
–
(9)
–
4
–
–
–
–
–
4
–
–
–
–
–
–
–
–
3
–
(2)
–
–
17
3
21
–
–
–
–
–
–
–
–
2021
84
23
107
7
4
–
1
(11)
17
3
21
2020
88
33
121
Deferred tax assets have not been recognised in respect of the following tax losses:
£m
Capital losses
Trading losses
Substantially all of the deferred income tax assets are expected to be recovered after more than one year.
The UK corporation tax rate is 19 per cent effective from 1 April 2017. In the Spring Budget 2021, the UK Government announced that
from 1 April 2023 the corporation tax rate will increase to 25 per cent. This new law was substantively enacted on 24 May 2021, and the
main impact of this change is an increase in the deferred tax assets and an increase in the current year tax income statement credit of
£8m.
At 31 August 2021, deferred tax assets have been recognised in respect of tax losses and US unutilised interest expense. The deferred
tax assets of £198m relates to carried forward tax losses which have been recognised to the extent that they will be recoverable using
the estimated future taxable income based on the approved budgets for the Group. The Group has not recognised deferred tax assets
on losses amounting to £107m (2020: £121m) due to uncertainty over the timing and extent of their utilisation. The losses can be
carried forward indefinitely and have no expiry date.
All deferred tax assets and liabilities are offset where there is considered to be a legally enforceable right to do so. The following is an
analysis of the deferred tax balances (after offset) for financial reporting purposes:
£m
Deferred tax liabilities (non-current liabilities)
Deferred tax assets
2021
–
57
57
2020
(2)
23
21
133
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
19. Analysis of net debt
Movements in net debt can be analysed as follows:
£m
At 1 September 2020
Proceeds from borrowings
Repayments of borrowings
Bifurcation of convertible bond
Other non-cash movements
Other cash movements
Currency translation
At 31 August 2021
£m
At 1 September 2019
Recognised on adoption of IFRS 16
Movement on acquisition of subsidiaries
Proceeds from borrowings
Repayments of borrowings
Other non-cash movements
Other cash movements
Currency translation
At 31 August 2020
Term loans
(400)
–
267
–
–
1
–
(132)
Term loans
(200)
–
(115)
(200)
–
115
–
–
(400)
Convertible
bonds
–
(327)
–
41
(2)
5
–
(283)
Revolving credit
facility
–
–
–
–
–
–
–
–
Convertible
bonds
–
–
–
–
–
–
–
–
–
Revolving credit
facility
(15)
–
–
–
15
–
–
–
–
Sub-total
Liabilities from
financing
activities
(959)
(327)
267
41
(9)
97
5
(885)
Sub-total
Liabilities from
financing
activities
(229)
(479)
(221)
(200)
15
69
78
8
(959)
Leases
(559)
–
–
–
(7)
91
5
(470)
Leases
(14)
(479)
(106)
–
–
(46)
78
8
(559)
Cash and cash
equivalents
108
327
(267)
–
–
(38)
–
130
Cash and cash
equivalents
49
–
1
200
(15)
–
(126)
(1)
108
Net debt
(851)
–
–
41
(9)
59
5
(755)
Net debt
(180)
(479)
(220)
–
–
69
(48)
7
(851)
An explanation of Alternative Performance Measures, including Net debt on a pre-IFRS 16 basis, is provided in the Glossary on
page 154.
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months
or less. The carrying amount of these assets approximates to their fair value.
Lease liabilities
Non-cash movements in lease liabilities mainly relate to new leases, modifications and remeasurements in the year.
Term loans and revolving credit facilities
On 28 April the Group announced new financing arrangements. These included the issuance of £327m of convertible bonds, the
repayment of the existing £400m term loans and replacement with a new £133m term loan, and an increased revolving credit facility
of £250m.
At 31 August 2021 the Group has in place a five-year committed multi-currency revolving credit facility of £250m with Santander UK
PLC, BNP Paribas, HSBC UK Bank PLC, JP Morgan Securities PLC and Barclays Bank PLC. The revolving credit facility is due to
mature on 28 April 2025. The utilisation is interest bearing at a margin over SONIA. As at 31 August 2021, the Group has drawn down
£nil on this facility (2020: £nil drawn down on previous facility).
As part of the new financing arrangements the additional multi-currency revolving credit facility of £120m, which was undrawn and
due to expire in November 2021, was cancelled.
The Group has a four-year committed £133m term loan with Banco Santander S.A., London Branch, Barclays Bank PLC, BNP Paribas
and HSBC UK Bank PLC, that was drawn down at the time of the refinancing in April 2021. This loan is interest bearing at a margin
over SONIA and is due to mature on 28 April 2025.
Transaction costs of £1m relating to the term loan are amortised to the Income statement through the effective interest rate method.
Transaction costs of £1m relating to the RCF have been capitalised and are amortised to the Income statement on a straight-
line basis.
134
WH Smith PLC Annual Report and Accounts 2021
Financial statements 19. Analysis of net debt (continued)
Convertible bonds
On 28 April 2021, the Group announced the launch of an offering of £327m of guaranteed senior unsecured convertible bonds due in
2026. Settlement and delivery of convertible bonds took place on 7 May 2021. The total bond offering of £327m covers a five-year term
beginning on 7 May 2021 with a 1.625 per cent per annum coupon payable semi-annually in arrears in equal instalments. The bonds
are convertible into new and/or existing ordinary shares of WH Smith PLC. The initial conversion price was set at £24.99 representing
a premium of 40 per cent above the reference share price on 28 April 2021 (£17.85). If not previously converted, redeemed or
purchased and cancelled, the Bonds will be redeemed at par on 7 May 2026.
The convertible bond is a compound financial instrument, consisting of a financial liability component and an equity component,
representing the value of the conversion rights. The initial fair value of the liability portion of the convertible bond is determined using
a market interest rate for an equivalent non-convertible bond at the issue date. The liability is subsequently recognised on an
amortised cost basis using the effective interest rate method until extinguished on conversion or maturity of the bonds. The remainder
of the proceeds is allocated to the conversion option and recognised in equity (Other reserves), and not subsequently remeasured.
As a result, £286m was initially recognised as a liability in the balance sheet on issue and the remainder of the proceeds of £41m,
which represents the option component, was recognised in equity.
Transaction costs of £6m were allocated between the two components and the element relating to the debt component of £5m is
being amortised through the effective interest rate method. The issue costs apportioned to the equity component of £1m have been
deducted from equity.
Further information regarding the Group's borrowings and revolving credit facilities is provided in Note 22.
20. Contingent liabilities and capital commitments
£m
Bank guarantees and guarantees in respect of lease agreements
2021
31
2020
31
Other potential liabilities that could crystallise are 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 Demerger Agreement with Smiths News PLC, any such contingent liability
which becomes an actual liability will be apportioned between the Group and Smiths News PLC in the ratio 65:35 (provided that the
actual liability of Smiths News PLC in any 12-month period does not exceed £5m). The Group’s 65 per cent share of these leases has
an estimated future rental commitment at 31 August 2021 of £1m (2020: £1m). The movement in the future rental commitment is due
to the crystallisation of lease liabilities, lease expiries and the effluxion of time.
Contracts placed for future capital expenditure approved by the directors but not provided for in these financial statements amount to
£26m (2020: £18m).
£m
Commitments in respect of property, plant and equipment
Commitments in respect of other intangible assets
2021
25
1
26
2020
17
1
18
135
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
21. Cash generated from operating activities
£m
Group operating loss
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Amortisation of intangible assets
Impairment of intangible assets
Depreciation of right-of-use assets
Impairment of right-of-use assets
Non-cash change in lease liabilities
Non-cash movement in pension
Share-based payments
Gain on disposal and remeasurement of leases
Other non-cash items
Decrease in inventories
Decrease in receivables
Increase/(decrease) in payables
Pension funding
Income taxes paid
Income taxes refund
Movement on provisions (through utilisation or income statement)
Cash generated from operating activities
2021
(92)
36
16
14
–
84
28
(23)
–
6
(3)
(2)
14
4
24
(3)
–
10
–
113
2020
(260)
43
39
12
1
110
95
(15)
14
–
–
2
35
27
(10)
(3)
(32)
37
(1)
94
136
WH Smith PLC Annual Report and Accounts 2021
Financial statements 22. Financial instruments
Categories of financial instruments
£m
Financial assets
Derivative instruments in designated hedge accounting relationships1
Receivables at amortised cost (including cash and cash equivalents)2
Financial liabilities
Amortised cost3
Carrying value
2021
2020
–
167
–
161
(1,134)
(1,188)
1 All derivatives are categorised as Level 2 within the fair value hierarchy. The fair value measurements relating to the instruments are derived from inputs other than quoted prices that are
observable for the asset or liability, either directly or indirectly.
2
3
Included within receivables held at amortised cost are trade and other receivables (excluding prepayments) and cash and cash equivalents.
Included within amortised cost are trade payables, other payables, accruals, borrowings, lease obligations and other non-current liabilities.
Comparison of carrying values and fair values
There were no material differences between the carrying value of non-derivative financial assets and financial liabilities and their fair
values as at the balance sheet date.
Risk management
The Group’s treasury function seeks to reduce exposures to interest rate, foreign exchange and other financial risks, and to ensure
liquidity is available to meet the foreseeable needs of the Group and to invest cash assets safely and profitably. The Group does not
engage in speculative trading in financial instruments and transacts only in relation to underlying business requirements. The Group’s
treasury policies and procedures are periodically reviewed and approved by the Group’s Audit Committee and are subject to regular
Group Internal Audit review.
Capital risk
The Group’s objectives with respect to managing capital (defined as net debt/funds plus equity) are to safeguard the Group’s ability to
continue as a going concern, in order to optimise returns to shareholders and benefits for other stakeholders, through an appropriate
balance of debt and equity funding. Refer to Note 19 for the value of the Group’s net debt/funds and refer to the Group statement of
changes in equity for the value of the Group’s equity.
In managing the Group’s capital levels, the Board regularly monitors the level of debt in the business, the working capital
requirements, forecast financing and investing cash flows. Based on this analysis, the Board determines the appropriate return to
investors while ensuring sufficient capital is retained in the business to meet its strategic objectives. The Board has a progressive
dividend policy and expects that, over time, dividends would be broadly covered twice by earnings calculated on a normalised tax basis.
The Group has in place a £250m committed multi-currency revolving credit facility, and a syndicated £133m term loan. The covenants,
tested half-yearly, are based on minimum liquidity for the periods ending 31 August 2021, 28 February 2022 and 31 August 2022, and
from 28 February 2023 are based on fixed charges cover and net borrowings (defined as total borrowings excluding lease liabilities
that would have been treated as an operating lease prior to the adoption of IFRS 16, less cash and cash equivalents).
On 28 April 2021, the Group announced the launch of an offering of £327m of guaranteed senior unsecured convertible bonds due in
2026. Settlement and delivery of the convertible bonds took place on 7 May 2021. The total bond offering of £327m covers a five-year
term beginning on 7 May 2021 with a 1.625 per cent per annum coupon payable semi-annually in arrears in equal instalments.
The bonds are convertible into new and/or existing ordinary shares of the WH Smith PLC. The initial conversion price was set at
£24.99 representing a premium of 40 per cent above the reference share price on 28 April 2021 (£17.85). If not previously converted,
redeemed or purchased and cancelled, the Bonds will be redeemed at par on 7 May 2026.
Liquidity risk
The Group manages its exposure to liquidity risk by reviewing the cash resources required to meet its business objectives through
both short- and long-term cash flow forecasts. The Group has a committed multi-currency revolving credit facility with a number
of financial institutions which is available to be drawn for general corporate purposes including working capital. The facility is due to
mature on 28 April 2025.
The Group has a policy of pooling cash flows in order to optimise the return on surplus cash and also to utilise cash within the Group
to reduce the costs of external short-term funding.
137
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
22. Financial instruments (continued)
The table below shows the maturity analysis of the undiscounted remaining contractual cash flows of the Group’s financial liabilities:
2021 (£m)
Non-derivative financial liabilities
Bank loans and overdrafts
Trade and other payables
Lease liabilities
Total cash flows
2020 (£m)
Non-derivative financial liabilities
Bank loans and overdrafts
Trade and other payables
Lease liabilities
Total cash flows
Due within
1 year
Due between
1 and 2 years
Due between
2 and 5 years
Due over
5 years
10
249
115
374
30
–
92
122
461
–
159
620
–
–
148
148
Due within
1 year
Due between
1 and 2 years
Due between
2 and 5 years
Due over
5 years
7
229
139
375
10
–
97
107
402
–
195
597
–
–
180
180
Total
501
249
514
1,264
Total
419
229
611
1,259
Credit risk
Credit risk is the risk that a counterparty may default on their obligation to the Group in relation to lending, hedging, settlement and
other financial activities. The Group’s principal financial assets are trade and other receivables, and bank balances and cash which are
considered to have low credit risk on initial recognition.
The Group has credit risk attributable to its trade and other receivables, including a number of sale or return contracts with suppliers.
The amounts included in the balance sheet are net of allowances for expected credit losses. The Group has adopted the simplified
approach to calculating expected credit losses allowed by IFRS 9. Historical credit loss rates are applied consistently to groups of
financial assets with similar risk characteristics. These are then adjusted for known changes in, or any forward-looking impacts on,
creditworthiness.
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that credit risk might have increased
significantly include the failure of the debtor to engage in a payment plan and failure to make contractual payments within 180 days
past due, which is in line with historical experience of increased credit risk. Indicators that an asset is credit-impaired would include
observable data in relation to the financial health of the debtor or if the debtor breaches contract.
The Group has low retail credit risk due to the transactions being principally high volume, low-value and of short maturity. The Group
has no significant concentration of credit risk, with the exposure spread over a large number of counterparties and customers.
The credit risk on liquid funds and derivative financial instruments is considered to be low, as the Board approved Group treasury
policy limits the value that can be placed with each approved counterparty to minimise the risk of loss. These limits are based on a
short-term credit rating of P-1.
The carrying amount of financial assets recorded in the financial statements represents the Group’s maximum exposure to credit risk.
The Group does not hold collateral over any of these financial assets.
Interest rate risk
The Group is exposed to cash flow interest rate risk on floating rate bank loans and overdrafts.
At 31 August 2021, the Group had drawn down £nil (2020: £nil) from its £250m committed revolving credit facility. If the Group draws
down on this facility, it does not view any draw down as long-term in nature and therefore does not enter into interest rate derivatives
to mitigate this risk.
The Group has a four-year committed £133m term loan with Banco Santander S.A., London Branch, Barclays Bank PLC, BNP Paribas
and HSBC UK Bank PLC, that was drawn down at the time of the refinancing (April 2021). This loan is interest-bearing at a margin
over SONIA. The Group monitors the risk associated with the loan. At present, the Group has not entered into interest rate derivatives
in respect of the loan.
138
WH Smith PLC Annual Report and Accounts 2021
Financial statements 22. Financial instruments (continued)
Foreign currency risk
Foreign exchange rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of the
changes in foreign exchange rates. The Group’s foreign currency exposures are principally to the US dollar, Euro and Australian dollar.
The Group’s treasury function uses financial instruments to mitigate foreign exchange risk, in line with treasury policies approved by
the Board. Financial instruments include foreign exchange contracts, deposits and bank loans.
The Group uses forward foreign exchange contracts to hedge significant future transactions and cash flows denominated in
currencies other than pounds sterling. The hedging instruments have been used to hedge purchases in US dollars and to minimise
foreign exchange risk in movements of the USD/GBP exchange rates. These are designated as cash flow hedges. At 31 August 2021
the Group had no material unhedged currency exposures.
The Group’s US dollar, Euro and Australian dollar exposure is principally operational and arises mainly through the operation of retail
stores in North America, France, Ireland, Spain, Germany, Italy and Australia. The Group does not use derivatives to hedge balance
sheet and profit and loss translation exposure.
The fair value of cash flow hedges recognised on the balance sheet within derivative assets/liabilities is shown below:
£m
Fair value of derivative assets
2021
–
2020
–
At 31 August 2021, the total notional amount of outstanding forward foreign exchange contracts to which the Group has committed is
US$25m (2020: US$15m). These instruments will be used to hedge cash flows occurring up to one year from the balance sheet date.
Gains of £nil (2020: £1m) have been transferred to the income statement and gains of £nil (2020: £1m) have been transferred to
inventories in respect of contracts that matured during the year ended 31 August 2021. In the year to 31 August 2021, the fair value
gain on the Group’s currency derivatives that are designated and effective as cash flow hedges amounted to £nil (2020: £nil).
All the derivatives held by the Group at fair value are considered to have fair values determined by Level 2 inputs as defined by the fair
value hierarchy. There are no non-recurring fair value measurements nor have there been any transfers of assets or liabilities
between levels of the fair value hierarchy.
Sensitivity analysis as at 31 August 2021
Financial instruments affected by market risks include borrowings, deposits and derivative financial instruments. The following
analysis, required by IFRS 7 ‘Financial Instruments’: Disclosures, is intended to illustrate the sensitivity to changes in market
variables, being UK interest rates, and USD/GBP, EUR/GBP and AUD/GBP exchange rates.
The following assumptions were made in calculating the sensitivity analysis:
• Exchange rate fluctuations on currency derivatives that form part of an effective cash flow hedge relationship affect the hedging
reserve in equity and the fair value of the hedging derivatives.
• Year end exchange rates applied in the analysis are USD/GBP 1.3769/1 (2020: 1.3347/1), EUR/GBP 1.1652/1 (2020: 1.1193/1) and
AUD/GBP 1.8821/1 (2020: 1.8115/1).
• Group debt and hedging activities remain constant, reflecting the positions at 31 August 2021 and 31 August 2020 respectively.
As a consequence, the analysis relates to the position at those dates and is not necessarily representative of the years then ended.
The above assumptions are made when illustrating the effect on the Group’s income statement and equity given reasonable
movements in foreign exchange and interest rates before the effect of tax. The Group considers a reasonable interest rate movement
in GBP SONIA/base rate to be one per cent, based on interest rate history. Similarly, sensitivity to movements in USD/GBP, EUR/GBP
and AUD/GBP exchange rates of ten per cent are shown, reflecting changes of reasonable proportion in the context of movement in
those currency pairs over time.
139
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
22. Financial instruments (continued)
Using these assumptions, the following table shows the illustrative effect on the Group income statement and equity.
£m
GBP SONIA/base rate interest rates 1% increase
USD/GBP exchange rates 10% increase
EUR/GBP exchange rates 10% increase
AUD/GBP exchange rates 10% increase
GBP SONIA/base rate interest rates 1% decrease
USD/GBP exchange rates 10% decrease
EUR/GBP exchange rates 10% decrease
AUD/GBP exchange rates 10% decrease
23. Called up share capital
Allotted and fully paid
£m
Equity:
Ordinary shares of 226⁄67p
Total
2021
2020
Income
gain/(loss)
–
1
1
–
–
(1)
(1)
–
Equity
gain/(loss)
–
(47)
1
1
–
57
(1)
(2)
Income
(loss)/gain
(3)
4
1
2
3
(5)
(1)
(2)
Equity
(loss)/gain
–
(37)
2
1
–
45
(2)
(1)
2021
Number
of shares
(millions)
131
131
Nominal
value
£m
29
29
2020
Number
of shares
(millions)
131
131
Nominal
value
£m
29
29
During the year, 43,345 ordinary shares were allotted under the terms of the Company’s Sharesave Scheme.
The effect of the above share issues was to increase share premium by £1m.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
the meetings of the Company.
The ESOP reserve of £5m (2020: £4m) represents the cost of shares in WH Smith PLC purchased in the market and held by the
WH Smith Employee Benefit Trust to satisfy awards and options under the Group’s executive share schemes. The total shareholding is
304,641 (2020: 203,628).
140
WH Smith PLC Annual Report and Accounts 2021
Financial statements 24. Share-based payments
Summary of movements in awards and options
Number of shares
Outstanding at 1 September 2020
Options and awards granted
Options and awards exercised
Options and awards lapsed
Outstanding at 31 August 2021
Exercisable at 31 August 2021
Outstanding at 1 September 2019
Options and awards granted
Options and awards exercised
Options and awards lapsed
Outstanding at 31 August 2020
Exercisable at 31 August 2020
Pence
Weighted average exercise price of awards:
– Outstanding at the beginning of the year
– Granted in the year
– Exercised in the year
– Lapsed in the year
– Outstanding at the end of the year
– Exercisable at the end of the year
Sharesave
Schemes
307,077
272,790
(43,345)
(148,043)
388,479
–
379,398
–
(5,024)
(67,297)
307,077
–
LTIPs
1,179,064
1,103,099
(5,915)
(293,934)
1,982,314
–
1,189,362
371,521
(161,368)
(220,451)
1,179,064
–
PSP
513,695
180,468
(10,833)
(150,356)
532,974
4,839
526,922
251,081
(82,234)
(182,074)
513,695
15,899
Cash-settled
awards
17,041
56,330
(21,339)
–
52,032
–
34,087
–
(11,791)
(5,255)
17,041
–
Total
2,016,877
1,612,687
(81,432)
(592,333)
2,955,799
4,839
2,129,769
622,602
(260,417)
(475,077)
2,016,877
15,899
2021
2020
232.88
236.81
767.49
373.06
192.20
–
272.76
–
27.80
218.88
232.88
–
Detail of movements in options and awards
LTIPs
Under the terms of the LTIP, executive directors and key senior executives may be granted conditional awards to acquire ordinary
shares in the Company (in the form of nil cost options) which will only vest and become exercisable to the extent that the related
performance targets are met.
Outstanding awards granted under the LTIPs are as follows:
Date of grant
20 October 2016
26 October 2017
1 November 2018
5 November 2019
19 November 2020
Number of shares
2021
136,613
38,315
332,766
371,521
1,103,099
1,982,314
2020
136,613
338,164
332,766
371,521
–
1,179,064
Exercise
price (pence)
Nil
Nil
Nil
Nil
Nil
Exercise period
Oct 2019 – 20.10.26
Oct 2020 – 26.10.27
Nov 2023 – 01.11.28
Nov 2024 – 05.11.29
Nov 2025 - 19.11.30
141
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
24. Share-based payments (continued)
Awards will first become exercisable on the vesting date, which is the third anniversary of the date of grant. Awards made on or after
October 2016 are subject to holding periods preventing the delivery and sale of shares until the fifth anniversary of the date of grant.
For awards made in October 2016 and October 2017, the holding period applies to 50 per cent of any shares which vest. For awards
made in November 2018, and all subsequent awards, the holding period applies to 100 per cent of any shares that vest. The awards
will accrue dividends paid over the performance and any holding period. LTIP awards are equity-settled.
Sharesave Scheme
Under the terms of the Sharesave Scheme, the Board grants options to purchase ordinary shares in the Company to employees with
at least three months service who enter into an HM Revenue & Customs approved Save-As-You-Earn (SAYE) savings contract for a
term of three years. Options are granted at up to a 20 per cent discount to the market price of the shares on the date of offer and are
normally exercisable for a period of six months after completion of the SAYE contract. SAYE options are equity-settled.
Outstanding options granted under the Sharesave Scheme at 31 August 2021 are as follows:
Date of grant
7 June 2017 (3 year)
5 June 2019 (3 year)
9 June 2021 (3 year)
Number of shares
2021
–
115,689
272,790
388,479
2020
140,310
166,767
–
307,077
Exercise
price (pence)
1434.40
1609.60
1400.00
Exercise period
01.08.20 – 31.01.21
01.08.22 – 31.01.23
01.08.24 – 31.01.25
Performance Share Plan (PSP)
Under the terms of the Performance Share Plan, the Board may grant conditional awards to executives. The exercise of awards is
conditional on the achievement of a performance target, which is determined by the Board at the time of grant. The executive directors
do not participate in this plan. PSP awards are equity-settled.
Outstanding awards granted under the PSP are as follows:
Date of grant
5 November 2012
17 October 2013
23 October 2014
22 October 2015
20 October 2016
26 October 2017
1 November 2018
7 December 2018
5 November 2019
19 November 2020
Number of shares
2021
–
–
870
–
3,969
–
137,553
10,476
205,170
174,936
532,974
2020
977
1,693
3,111
1,346
8,772
128,867
141,392
10,476
217,061
–
513,695
Exercise
price (pence)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Exercise period
Nov 2015 – 05.11.22
Oct 2016 – 17.10.23
Oct 2017 – 23.10.24
Oct 2018 – 22.10.25
Oct 2019 – 20.10.26
Oct 2020 – 26.10.27
Nov 2021 – 01.11.28
Dec 2021 – 07.12.28
Nov 2022 – 05.11.29
Nov 2021 - 19.11.30
Deferred Bonus Plan (DBP)
The Deferred Bonus Plan is applicable to executive directors only. Under the terms of the DBP, any bonus payable over target is
deferred into shares for a period of up to three years. One third of the deferred shares are released on each anniversary of the bonus.
At 31 August 2021, 10,108 shares remain deferred in accordance with this plan.
142
WH Smith PLC Annual Report and Accounts 2021
Financial statements 24. Share-based payments (continued)
Cash-settled schemes
Under the terms of the LTIP and PSP, the Board may grant cash-settled awards to executives. The exercise of options is conditional on
the achievement of a performance target, which is determined by the Board at the time of grant. These awards will be settled in cash
based on the share price at the date of exercise. As at 31 August 2021 there were 52,032 outstanding nil-cost cash-settled awards
(2020: 17,041), which will be settled between November 2021 and November 2030. The carrying amount of liabilities arising from
share-based payment transactions is less than £1m (2020: less than £1m).
Fair value information
Weighted average share price at date of exercise of share options exercised during year – pence
Weighted average remaining contractual life at end of year – years
Share options and awards granted
The aggregate of the estimated fair value of the options and awards granted in the year is:
£m
2021
1,558.60
8
2020
2,223.54
7
2021
16
2020
12
The fair values of the LTIP and PSP awards granted were measured using a Monte Carlo simulation model. The input range into the
Monte Carlo models was as follows:
Share price – pence
Exercise price – pence
Expected volatility – per cent
Expected life – years
Risk-free rate – per cent
Dividend yield – per cent
Weighted average fair value of options – pence
2021
1,482
Nil
42
2.8
(0.03)
0%-2%
1,060.81
2020
2,224
Nil
22
2.8
0.53
Nil
1,975.56
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the expected life of the option.
The fair values of the Sharesave options granted in the year ended 31 August 2021 were measured using a Black Scholes model.
None were granted in the year ended 31 August 2020. The input range into the Black Scholes models was as follows in the year ended
31 August 2021:
Share price – pence
Exercise price – pence
Expected volatility – per cent
Expected life – years
Risk-free rate – per cent
Dividend yield – per cent
Weighted average fair value of options – pence
2021
1,785
1,400
37
3.4
0.16
Nil
616.43
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the expected life of the option.
143
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
25. Related party transactions
Transactions between businesses within this Group which are related parties have been eliminated on consolidation and are not
disclosed in this Note.
Remuneration of key management personnel
The remuneration of the executive and non-executive directors, who are the key management personnel of the Group, is set out
below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
Further information about the remuneration of individual directors is provided in the Directors’ remuneration report on pages
58 to 84.
£’000
Short-term employee benefits
Post-employment benefits
Share-based payments
There are no other transactions with directors.
26. Other reserves and Capital redemption reserve
£m
Balance as at 1 September 2020
Issue of convertible bond - value of conversion rights
Employee share schemes
Balance at 31 August 2021
£m
Balance as at 1 September 2019
Employee share schemes
Cash flow hedges
Balance at 31 August 2020
2021
2,470
176
1,042
3,688
2020
1,517
186
(4)
1,699
Other reserves
(277)
–
–
(277)
Other reserves
(272)
(5)
–
(277)
Revaluation
reserve
2
–
–
2
Revaluation
reserve
2
–
–
2
ESOP
reserve Hedging reserve
–
–
–
–
(4)
–
(1)
(5)
ESOP
reserve
(6)
2
–
(4)
Hedging
reserve
2
–
(2)
–
Convertible
bond reserve
–
40
–
40
Convertible
bond reserve
–
–
–
–
Total
(279)
40
(1)
(240)
Total
(274)
(3)
(2)
(279)
The Other reserves include reserves created in relation to historical capital reorganisation and proforma restatement, £(238)m
(2020: £(238)m), demerger from Smiths News PLC in 2006, £69m (2020: £69m), and cumulative amounts relating to employee share
schemes of £(108)m (2020: £(108)m).
The convertible bond reserve is a reserve created to recognise the equity component of the convertible bond issued in April 2021
(see Note 19) and represents the value of the conversion rights at initial recognition of £41m, net of transaction costs of £1m.
The Capital redemption reserve of £13m (2020: £13m) represents the par value of shares repurchased and cancelled under the
Group’s share buyback programme and is reclassified from Share capital to the Capital redemption reserve.
144
WH Smith PLC Annual Report and Accounts 2021
Financial statements 27. Acquisitions
Prior year acquisitions
On 20 December 2019, the Group acquired the entire issued share capital of Marshall Retail Group ('MRG'), for a total cash payment
of USD $402m (£317m) comprising $243m enterprise value, $146m repayment of loans, $12m working capital, and $1m cash and
restricted cash. During the year ended 31 August 2021, the Group received £1m as an adjustment to the consideration paid.
MRG is an independent travel retailer operating in high footfall airport and tourist locations in the United States. The acquisition
builds further on the acquisition of InMotion in November 2018 and significantly strengthens the Group’s offering in the United States,
the world’s largest travel retail market.
Included within the fair value of the net identifiable assets on acquisition is an intangible asset of £29m (US$37m) representing the
MRG brand. The Board believes that the excess of consideration paid over the net assets on acquisition of £257m is best considered as
goodwill on acquisition representing future operating synergies. This amount is not tax deductible.
The provisional goodwill calculation included significant estimates that may be refined for a period of 12 months from the acquisition
date. During the year ended 31 August 2021, final fair value adjustments were recognised of £1m to property, plant and equipment and
£1m to goodwill.
Transaction and integration costs totalling £20m were incurred in the year to 31 August 2020 in respect of the acquisition.
A further £2m integration costs have been incurred in the year ended 31 August 2021.
145
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
28. Subsidiary companies
The subsidiary companies included within the financial statements are disclosed below.
UK subsidiaries
Country of incorporation/
registration
Registered
address
Class of shares
Proportion of
shares held by
Group
companies %
Name
Held directly by WH Smith PLC:
WH Smith Retail Holdings Limited
Held indirectly:
Books & Stationers Limited
Card Market Limited
Dotty About Paper Limited
funkypigeon.com Limited
Modelzone Limited
Sussex Stationers Limited
The Card Gallery (UK) Limited
The SQL Workshop Limited
The Websters Group Limited
Tree of Hearts Limited
WH Smith (Qatar) Limited
WH Smith 1955 Limited
WH Smith High Street Holdings Limited
WH Smith High Street Limited
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
WH Smith Hospitals Holdings Limited
England & Wales
WH Smith Hospitals Limited
WH Smith Promotions Limited
WH Smith Retirement Savings Plan Limited
WH Smith Travel 2008 Limited
WH Smith Travel Holdings Limited
WH Smith Travel Limited
WH Smith US Group Holdings Limited
WH Smith US Retail Holdings Limited
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary &
Preference
Ordinary &
Preference
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary &
Preference
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Principal activity
Holding company
Retailing
Retailing
Dormant
Retailing
Dormant
Dormant
Retailing
Retailing
Dormant
Dormant
Dormant
Holding Company
Holding Company
Retailing
Holding Company
Retailing
Retailing
Dormant
Holding Company
Holding Company
Retailing
Holding Company
Holding Company
The following UK subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies Act 2006 for the
year ended 31 August 2021.
The Company will guarantee the debts and liabilities of the below UK subsidiary undertakings at the balance sheet date in accordance
with section 479C of the Companies Act 2006. The Company has assessed the probability of loss under the guarantee as remote.
Name
Held indirectly:
Books & Stationers Limited
Card Market Limited
WH Smith 1955 Limited
WH Smith High Street Holdings Limited
WH Smith Hospitals Holdings Limited
WH Smith Promotions Limited
WH Smith Travel 2008 Limited
Company number
07515820
8956574
549069
6560371
03896896
2339902
6560390
146
WH Smith PLC Annual Report and Accounts 2021
Financial statements 28. Subsidiary companies (continued)
International joint ventures
The below entities are joint ventures and per the Group's accounting policies on page 105, the Group’s share of results of these joint
ventures is included in the Group consolidated income statement using the equity method of accounting.
Name
Held indirectly:
WH Smith – DFA Brasil Cafeteria, Livraria E
Conveniencia Eireli
WH Smith Malaysia SDN BHD
WH Smith LLC
MSP Innovations, LLC
Nash Nails MRG, LLC
International subsidiaries
Country of incorporation/
registration
Registered
address
Class of shares
Proportion of shares
held by Group
companies %
Principal activity
Brazil
Malaysia
Oman
USA
USA
15
11
10
16
16
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
50
50
50
33
39
Retailing
Retailing
Retailing
Retailing
Retailing
The below list of interests in overseas entities includes certain entities, particularly in the United States of America, in which
WH Smith PLC holds less than 100 per cent ownership. These entities primarily relate to airport operations in which the Group is
required to engage with a local partner in order to operate the stores. Per the accounting policy set out on page 105, the Group has
determined that it has control of these entities and has therefore consolidated their results.
Name
Held indirectly:
WH Smith Asia Limited
WH Smith Australia Pty Limited
WH Smith Calais S.A.S
WH Smith Germany GmbH
WH Smith Ireland Limited
WH Smith Italia S.R.L
WH Smith Jersey Limited
WH Smith LLC
WH Smith Nederland B.V.
WH Smith Singapore Pte. Limited
WH Smith Spain S.L.
WH Smith USA Holdings Inc
InMotion Entertainment Holdings LLC
InMotion Entertainment Personnel Leasing Corp
WH Smith USA Retail Inc
InMotion SFO, LLC
Wild Retail Group Pty Limited
InMotion Entertainment Group, LLC
BTS – InMotion Atlanta, LLC
InMotion AUS, LLC
InMotion BNA, LLC
InMotion BNA-C,LLC
Soundbalance BOS, LLC
InMotion BOS-A, LLC
InMotion BOS, LLC
InMotion BOS-BCE, LLC
InMotion BWI, LLC
InMotion CLE, LLC
Country of incorporation/
registration
Registered
address
Class of shares
Proportion of
shares held by
Group
companies %
Hong Kong
Australia
France
Germany
Ireland
Italy
Jersey
Qatar
Netherlands
Singapore
Spain
USA
USA
USA
USA
USA
Australia
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
2
3
4
5
6
7
8
9
12
13
14
16
16
16
16
16
3
16
16
16
16
16
16
16
16
16
16
16
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
49
100
100
100
100
100
100
100
88
100
100
100
88
84
80
67
80
70
80
60
67
Principal activity
Product sourcing for
Group companies
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Dormant
Retailing
Retailing
Holding Company
Holding Company
Holding Company
Holding Company
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Dormant
Dormant
Dormant
Retailing
Retailing
Retailing
147
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the financial statements continued
28. Subsidiary companies (continued)
Name
Held indirectly:
Soundbalance CLT, LLC
InMotion – SB DC, LLC
InMotion DCA, LLC
InMotion DEN-B, LLC
DFW-A Retail Partners, LLC
DFW-E Retail Partners, LLC
DFW-D/E Retail Partners, LLC
Soundbalance DTW, LLC
InMotion DTW, LLC
InMotion EWR, LLC
InMotion EWR-B, LLC
InMotion FLL, LLC
InMotion FLL-T4, LLC
InMotion IAD, LLC
Soundbalance IAH, LLC
BR InMotion IAH, LLC
InMotion LAX, LLC
InMotion LAX-IT,LLC
Soundbalance MCO, LLC
InMotion MCO, LLC
Soundbalance Miami, LLC
InMotion Bright, LLC
InMotion MKE, LLC
InMotion MSY, LLC
InMotion ORD, LLC
InMotion ORD T2, LLC
Soundbalance PDX, LLC
Soundbalance PHL, LLC
InMotion PHL, LLC
Soundbalance ATL-E, LLC
InMotion ATL-A, LLC
InMotion ATL, LLC
InMotion PHX, LLC
InMotion PHX T3, LLC
Soundbalance SAN, LLC
InMotion SAT, LLC
InMotion SEA, LLC
InMotion SFO-T3, LLC
InMotion SFO-IT, LLC
Soundbalance SJC, LLC
InMotion SLC,LLC
InMotion IAH, LLC
InMotion SLC-A,LLC
InMotion SLC-B,LLC
InMotion SMF,LLC
InMotion CLT, LLC
148
WH Smith PLC Annual Report and Accounts 2021
Country of incorporation/
registration
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Registered
address
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
Proportion of
shares held by
Group
companies %
67
67
75
75
75
60
65
70
67
75
80
85
62
62
75
67
Class of shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
65
75
80
67
73
67
75
79
64
70
70
67
67
70
67
64
80
80
90
55
75
88
85
90
67
80
70
85
90
90
74
Principal activity
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Dormant
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Dormant
Retailing
Dormant
Retailing
Retailing
Retailing
Retailing
Financial statements 28. Subsidiary companies (continued)
Name
Held indirectly:
SBIP, LLC
InMotion LGA, LLC
Marshall Retail Group Holding Co Inc
MRG Holdings Corp
Marshall Retail Group LLC
The Marshall Retail Group Canada Inc
MRG Baltimore Concourse A, LLC
MRG Baltimore (BWI), LLC
MRG Denver, LLC
MRG Dallas II, LLC
MRG LaGuardia, LLC
MRG LaGuardia Terminal A, LLC
MRG Los Angeles, LLC
MRG Nashville, LLC
MRG Raleigh Terminal 1, LLC
MRG Raleigh Terminal 2, LLC
MRG RDU T2, LLC
MRG Sacramento, LLC
MRG San Francisco, LLC
MRG San Francisco Terminal 1, LLC
MRG San Francisco Terminal 2, LLC
MRG San Francisco Terminal 3, LLC
MRG Washington (DCA), LLC
MRG Washington (IAD), LLC
WH Smith DEN, LLC
WH Smith DCA, LLC
Registered addresses
Country of incorporation/
registration
Registered
address
Class of shares
Proportion of
shares held by
Group
companies %
USA
USA
USA
USA
USA
Canada
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
16
16
16
16
16
17
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
16
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
50
75
100
100
100
100
70
70
75
65
80
75
70
80
55
85
80
90
80
80
85
80
75
75
70
75
Principal activity
Dormant
Dormant
Holding company
Holding company
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Retailing
Greenbridge Road, Swindon, Wiltshire SN3 3RX
Suites 13A01-04, 13 Floor, South Tower, World Finance Centre, Harbour City, Tsim Sha Tsui, Kowloon, Hong Kong
Suite 401, 80 William Street, Woolloomooloo NSW 2011, Australia
38 Rue des Mathurins, 75008 Paris 8, France
Terminal Ring 1, Zentralgebaude Ost, Zi. 5. 035, 40474 Dusseldorf, Germany
6th Floor, Grand Canal Square, Dublin 2, Ireland
Via Borgogna, Cap 20122, Milano, Italy
72/74 King Street, St Helier, Jersey, JE2 4WE
27 Um Ghwalinah Road, 230 C-ring Road, Doha, Qatar
PO Box 3275, PC112, Ruwi, Oman
C2-6-1, Solaris Dutamas, 1, Jalan Dutamas 1, 50480, Kuala Lumpur, Malaysia
1
2
3
4
5
6
7
8
9
10
11
12 Weteringschans 94, 1017 XS, Amsterdam, Netherlands
13
14
15
16
17
11 Keng Cheow Street #3-10 The Riverside Piazza, Singapore 059608
Paseo de Recoletos, 27, 7ª, 28004, Madrid, Spain
Avenida das Americas, No. 3434, Barra da Tijuca, CEP 22640-102, Rio de Janeiro, RJ, Brazil
3755 W Sunset Road, Las Vegas, Nevada, NV 89118, USA
2200 HSBC Building, 885 West Georgia Street, Vancouver, BC V6C 3E8, Canada
149
WH Smith PLC Annual Report and Accounts 2021Financial statements Company balance sheet
As at 31 August 2021
£m
Non-current assets
Investments
Current assets
Receivables: amounts falling due within one year
Current liabilities
Payables: amounts falling due within one year
Net current assets
Non-current liabilities
Borrowings
Total net assets
Shareholders’ equity
Called up share capital
Share premium account
Other reserves
Capital redemption reserve
Profit and loss account1
Total equity
Note
2021
2020
3
4
5
6
9
10
10
835
835
298
298
(168)
(168)
130
(415)
(415)
835
835
291
291
(203)
(203)
88
(400)
(400)
550
523
29
316
40
13
152
550
29
315
–
13
166
523
1 The loss for the year attributable to shareholders was £14m (2020: loss of £7m). See Note 2.
The financial statements of WH Smith PLC, registered number 5202036, on pages 150 to 153 were approved by the Board of Directors
and authorised for issue on 11 November 2021 and were signed on its behalf by:
Carl Cowling
Group Chief Executive
Robert Moorhead
Chief Financial Officer and Chief Operating Officer
Company statement of changes in equity
For the year ended 31 August 2021
£m
Balance at 1 September 2020
Loss for the financial year
Total comprehensive loss for the year
Premium on issue of shares
Issue of convertible bonds - value of conversion rights (Note 10)
Balance at 31 August 2021
Balance at 1 September 2019
Loss for the financial year
Total comprehensive loss for the year
Premium on issue of shares
Equity dividends paid during the year (Note 7)
Balance at 31 August 2020
150
WH Smith PLC Annual Report and Accounts 2021
Share
capital
29
–
–
–
–
29
24
–
–
5
–
29
Share
premium
315
–
–
1
–
316
9
–
–
306
–
315
Capital
redemption
reserve Other reserves
–
–
–
–
40
40
–
–
–
–
–
–
13
–
–
–
–
13
13
–
–
–
–
13
Profit
and loss
account
166
(14)
(14)
–
–
152
220
(7)
(7)
–
(47)
166
Total
523
(14)
(14)
1
40
550
266
(7)
(7)
311
(47)
523
Financial statements
Notes to the Company financial statements
1. Accounting policies
a) Basis of preparation
The Company’s financial statements have been prepared on a going concern basis, as detailed in the Directors’ report on page 85.
The financial statements are prepared in accordance with the Companies Act 2006 as applicable to companies using FRS 101.
The Company meets the definition of a qualifying entity under FRS 100 (Application of Financial Reporting Requirements) issued by
the Financial Reporting Council. Accordingly, the financial statements have been prepared in accordance with FRS 101 ‘Reduced
Disclosure Framework’ as issued by the Financial Reporting Council.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemption available under the standard in relation to
share–based payments, financial instruments, capital management, presentation of comparative information in respect of certain
assets, presentation of a cash flow statement, standards not yet effective, impairment of assets and related party transactions.
Where required, equivalent disclosures are given in the consolidated financial statements of the Group.
The financial statements are prepared under the historical cost convention.
The principal accounting policies adopted are the same as those set out in Note 1 to the consolidated financial statements except as
noted below. No new accounting standards, or amendments to accounting standards, or IFRIC interpretations that are effective for the
year ended 31 August 2021, have had a material impact on the Company.
On initial recognition of the convertible bond, judgement is required in respect of the accounting treatment of embedded derivatives.
The fixed principal amount of each bond is convertible into a fixed number of shares and as a result management has determined that
the conversion feature meets the fixed-for-fixed criterion for equity classification. The bonds include anti-dilution provisions to ensure
that the holder’s potential interest in the equity of the Company is not diluted in specified circumstances. If these provisions are
triggered, the number of shares that will be delivered to the holder is adjusted. Management considers that the provisions are
anti-dilutive in order to ensure that the holder’s potential interest in the equity of the Company is not diluted under each of these
circumstances. These provisions are not deemed to breach the fixed-for-fixed criterion, therefore the conversion feature is accounted
for as equity.
In the application of the Company’s accounting policies, the Directors do not consider that there are any further critical accounting
judgements or sources of estimation uncertainty that could lead to a material change in the carrying amounts of assets and liabilities.
b) Investments in subsidiary undertakings
Investments in subsidiaries are valued at historical cost less provision for impairment in value. Investments in subsidiaries are tested
annually for impairment. An impairment loss is recognised for the amount by which the carrying value exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s net realisable value and value-in-use.
c) Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates
and laws that have been enacted or substantively enacted at the balance sheet date.
d) Receivables
Receivables represent amounts due from other Group companies. Receivables are initially measured at fair value and subsequently
measured at amortised cost using the effective interest rate method, less provision for impairment. A provision for the expected credit
loss on receivables is established at inception. This is modified when there is a change in the credit risk and hence evidence that the
Company will not be able to collect all amounts due according to the original terms of receivables.
2. (Loss)/profit for the year
The Company has not presented its own profit and loss account as permitted by Section 408 of the Companies Act 2006.
The loss for the year attributable to shareholders, which is stated on an historical cost basis, was £14m (2020: loss of £7m) comprising
of finance costs of £14m (2020: £7m), non-underlying items of £6m (£2020: £nil) offset by a tax credit of £6m.There were no other
recognised gains or losses.
The Company did not have any employees during the year ended 31 August 2021 (2020: nil). All directors were remunerated by other
Group companies.
3. Investments
A full list of the Company’s subsidiary undertakings is included in Note 28 of the Notes to the consolidated financial statements.
The registered office of WH Smith Retail Holdings Limited is Greenbridge Road, Swindon, Wiltshire SN3 3RX.
The investment in subsidiaries balance has been tested for impairment at the balance sheet date. The recoverable amount of the
investment is assumed to approximate the Group's market capitalisation on the London Stock Exchange, adjusted for any assets or
liabilities on the Company's balance sheet. There was substantial headroom between the recoverable amount of the investment and
its carrying value. Consequently, no impairment has been recognised in respect of the investment.
151
WH Smith PLC Annual Report and Accounts 2021Financial statements Notes to the Company financial statements continued
4. Receivables: amounts falling due within one year
£m
Amounts owed by subsidiary undertakings
Prepayments
Current tax receivable
2021
293
1
4
298
2020
290
1
–
291
Amounts receivable from subsidiary undertakings are non-interest bearing and repayable on demand. The Company has undertaken
a review of the liquidity position of the counterparty subsidiaries and noted that the subsidiaries continue to have sufficient
immediately available funds to settle the receivables at the balance sheet date. As a result, no expected credit losses have been
included in the profit and loss account in the current year in respect of these receivables.
5. Payables: amounts falling due within one year
£m
Amounts owed to subsidiary undertakings
Bank overdrafts
Accruals and deferred income
Amounts owed to subsidiary undertakings are unsecured, non-interest bearing and repayable on demand.
6. Borrowings
£m
Term loans
Convertible bonds
2021
162
3
3
168
2021
132
283
415
2020
202
–
1
203
2020
400
–
400
On 28 April the Group announced new financing arrangements. These included the issuance of £327m of convertible bonds,
the repayment of the existing £400m term loans and replacement with a new £133m term loan, and an increased revolving credit
facility of £250m.
Term loans and revolving credit facilities
At 31 August 2021, alongside other Group companies, the Company is a guarantor on a five-year committed multi-currency revolving
credit facility of £250m with Santander UK PLC, BNP Paribas, HSBC UK Bank PLC, JP Morgan Securities PLC and Barclays Bank
PLC. The revolving credit facility is due to mature on 28 April 2025. The utilisation is interest bearing at a margin over SONIA.
At 31 August 2021, the Company has a four-year committed £133m term loan with Banco Santander S.A., London Branch, Barclays
Bank PLC, BNP Paribas and HSBC UK Bank PLC, that was drawn down at the time of the refinancing in April 2021. This loan is
interest bearing at a margin over SONIA and is due to mature on 28 April 2025.
Transaction costs of £1m relating to the term loan are being amortised through the effective interest rate method.
Convertible bonds
On 28 April 2021, the Company announced the launch of an offering of £327m of guaranteed senior unsecured convertible bonds due
in 2026. Settlement and delivery of convertible bonds took place on 7 May 2021. The total bond offering of £327m covers a five-year
term beginning on 7 May 2021 with a 1.625 per cent per annum coupon payable semi-annually in arrears in equal instalments.
The bonds are convertible into new and/or existing ordinary shares of WH Smith PLC. The initial conversion price was set at £24.99
representing a premium of 40 per cent above the reference share price on 28 April 2021 (£17.85). If not previously converted, redeemed
or purchased and cancelled, the Bonds will be redeemed at par on 7 May 2026.
The convertible bond is a compound financial instrument, consisting of a financial liability component and an equity component,
representing the value of the conversion rights. The initial fair value of the liability portion of the convertible bond is determined using
a market interest rate for an equivalent non-convertible bond at the issue date. The liability is subsequently recognised on an
amortised cost basis using the effective interest rate method until extinguished on conversion or maturity of the bonds. The remainder
of the proceeds is allocated to the conversion option and recognised in equity (Other reserves), and not subsequently remeasured. As a
result, £286m was initially recognised as a liability in the balance sheet on issue and the remainder of the proceeds of £41m, which
represents the option component, was recognised in equity.
Transaction costs of £6m were allocated between the two components and the element relating to the debt component of £5m is
being amortised through the effective interest rate method. The issue costs apportioned to the equity component of £1m have been
deducted from equity.
152
WH Smith PLC Annual Report and Accounts 2021
Financial statements 7. Dividends
Amounts paid and recognised as distributions to shareholders in the year are as follows:
£m
Dividends
Final dividend for the year ended 31 August 2019 of 41.0p per ordinary share
2021
2020
–
–
47
47
The Board of Directors have not declared an interim dividend during the year and do not propose a final dividend in respect of the year
ended 31 August 2021.
8. Contingent liabilities
Contingent liabilities of £1m (2020: £1m) are in relation to insurance standby letters of credit.
The Company will guarantee the debts and liabilities of the below UK subsidiary undertakings at the balance sheet date in accordance
with section 479C of the Companies Act 2006. The Company has assessed the probability of loss under the guarantee as remote.
Company number
07515820
8956574
549069
6560371
03896896
2339902
6560390
Name
Held indirectly:
Books & Stationers Limited
Card Market Limited
WH Smith 1955 Limited
WH Smith High Street Holdings Limited
WH Smith Hospitals Holdings Limited
WH Smith Promotions Limited
WH Smith Travel 2008 Limited
9. Called up share capital
Allotted and fully paid
Equity:
Ordinary shares of 226⁄67p
Total
2021
Number of
shares
(millions)
2020
Nominal
value
£m
Number of
shares
(millions)
Nominal
value
£m
131
131
29
29
131
131
29
29
During the year, 43,345 ordinary shares were allotted under the terms of the Company’s Sharesave Scheme.
The effect of the above share issues was to increase share premium by £1m.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share
at the meetings of the Company.
10. Other reserves and Capital redemption reserve
Other reserves are reserves created to recognise the equity component of the convertible bond issued in April 2021 (see Note 6)
and represents the value of the conversion rights at initial recognition of £41m, net of transaction costs of £1m.
The Capital redemption reserve of £13m (2020: £13m) represents the par value of shares repurchased and cancelled under the
Company’s share buyback programme is reclassified from Share capital to the Capital redemption reserve.
153
WH Smith PLC Annual Report and Accounts 2021Financial statements Glossary (unaudited)
Alternative performance measures
In reporting financial information, the Group presents alternative performance measures, ‘APMs’, which are not defined or specified
under the requirements of IFRS.
The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide
stakeholders with additional useful information on the underlying trends, performance and position of the Group and are consistent
with how business performance is measured internally. The alternative performance measures are not defined by IFRS and therefore
may not be directly comparable with other companies’ alternative performance measures.
Non-underlying items
The Group has chosen to present a measure of profit and earnings per share which excludes certain items that are considered
non-underlying and exceptional due to their size, nature or incidence, and are not considered to be part of the normal operations of
the Group. These measures may exclude the financial effect of non-underlying items which are considered exceptional and occur
infrequently such as, inter alia, restructuring costs linked to a Board agreed programme, amortisation of acquired intangibles assets,
costs relating to business combinations, impairment charges and other property costs, significant items relating to pension schemes,
and impairment charges and items meeting the definition of non-underlying specifically related to the Covid-19 pandemic, and the
related tax effect of these items. The Group believes that they provide additional useful information to users of the financial
statements to enable a better understanding of the Group’s underlying financial performance.
IFRS 16
The Group adopted IFRS 16 in the prior year. IFRS 16 superseded the lease guidance under IAS 17 and the related interpretations.
IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to
account for all leases under a single on-balance sheet model as the distinction between operating and finance leases is removed.
The only exceptions are short-term and low-value leases. At the commencement date of a lease, a lessee will recognise a lease
liability for the future lease payments and an asset (right-of-use asset) representing the right to use the underlying asset during the
lease term. Lessees are required to separately recognise the interest expense on the lease liability and the depreciation expense on
the right-of-use asset.
For the purposes of narrative commentary on the Group’s performance and financial position in the Strategic report, the effects
of IFRS 16 have been excluded, in order to provide meaningful year on year comparisons.
The impact of the implementation of IFRS 16 on the Income statement and Segmental information is provided in Notes A1 and A2
below. There is no impact on cash flows, although the classification of cash flows has changed, with an increase in net cash inflows
from operating activities being offset by a decrease in net cash inflows from financing activities, as set out in Note A9 below.
The balance sheet as at 31 August 2021 both including and excluding the impact of IFRS 16 is shown in Note A10 below.
Leases policies applicable prior to 1 September 2019
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their fair value determined at the inception of the lease or, if
lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet
as a finance lease obligation. These assets are depreciated over their expected useful lives on the same basis as owned assets or,
where shorter, over the term of the relevant lease. Lease payments are apportioned between finance charges and a reduction of the
lease obligations so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised
directly in the income statement.
Rentals payable and receivable under operating leases are charged to the income statement on a straight-line basis over the term of
the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line
basis over the lease term. The Group has a number of lease arrangements in which the rent payable is contingent on revenue.
Contingent rentals payable, based on store revenues, are accrued in line with revenues generated.
154
WH Smith PLC Annual Report and Accounts 2021
Additional information Definitions and reconciliations
In line with the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority (‘ESMA’),
we have provided additional information on the APMs used by the Group below, including full reconciliations back to the closest
equivalent statutory measure.
APM
Closest equivalent
IFRS measure
Reconciling items to IFRS
measure
Definition and purpose
Income statement measures
Headline measures
Various
See Notes A1-A11 Headline measures exclude the impact of IFRS 16 (applying the
Group (loss)/
profit
before tax
See Group income
statement and
Note A1
principles of IAS 17). Reconciliations of all Headline measures are
provided in Notes A1 to A11.
Group (loss)/profit before tax and non-underlying items excludes the
impact of non-underlying items as described below. A reconciliation
from Group (loss)/profit before tax and non-underlying items to Group
(loss)/profit before tax is provided on the Group income statement on
page 98, and on a Headline (pre-IFRS 16) basis in Note A1.
Group
operating
(loss)/profit
See Note 2 and
Note A2
Group (loss)/profit from trading operations and segment trading (loss)/
profit are stated after directly attributable share-based payment and
pension service charges and before non-underlying items, unallocated
costs, finance costs and income tax expense.
Group (loss)/profit
before tax and
non-underlying
items
Group
(loss)/profit from
trading operations
and segment
trading (loss)/profit
Non-underlying
items
None
Refer to definition
and see Note 4
and Note A6
(Loss)/earnings per
share before
non-
underlying items
(Loss)/
earnings
per share
Non-underlying
items, see Note 10
and Note A4
Headline EBITDA
Group
operating
(loss)/profit
Effective tax rate
None
Non-underlying
items
Fixed charges cover None
Refer to definition
Refer to definition Headline EBITDA / Operating cash flow is Headline Group operating
A reconciliation from the above measures to Group operating (loss)/profit
and Group (loss)/profit before tax on an IFRS 16 basis is provided in
Note 2 to the financial statements and on a Headline (pre-IFRS 16) basis
in Note A2.
Items which are not considered part of the normal operating costs of the
business, are non-recurring and considered exceptional because of their
size, nature or incidence, are treated as non-underlying items and
disclosed separately. The Group believes that the separate disclosure of
these items provides additional useful information to users of the
financial statements to enable a better understanding of the Group’s
underlying financial performance. An explanation of the nature of the
items identified as non-underlying on an IFRS 16 basis is provided in
Note 4 to the financial statements, and on a Headline (pre-IFRS 16) basis
in Note A6.
(Loss)/profit for the year attributable to the equity holders of the parent
before non-underlying items divided by the weighted average number of
ordinary shares in issue during the financial year. A reconciliation is
provided on an IFRS 16 basis in Note 10 and on a Headline (pre-IFRS 16)
basis in Note A4.
(loss)/profit before non-underlying items adjusted for pre-IFRS 16
depreciation, amortisation and other non-cash items (see Strategic
report on page 18).
Total income tax credit/charge excluding the tax impact of non-
underlying items divided by Group Headline (loss)/profit before tax and
non-underlying items. See Note 8 on an IFRS 16 basis, and Notes A3 and
A6 on a Headline pre-IFRS 16 basis.
This performance measure calculates the number of times Profit before
tax covers the total fixed charges included in calculating profit or loss.
Fixed charges included in this measure are net finance charges
(excluding finance charges from IFRS 16 leases) and net operating lease
rentals stated on a pre-IFRS 16 basis.
The calculation of this measure is outlined in Note A5.
155
WH Smith PLC Annual Report and Accounts 2021Additional information Glossary (unaudited) continued
Definitions and reconciliations (continued)
APM
Closest equivalent
IFRS measure
Reconciling items to IFRS
measure
Definition and purpose
Income statement measures continued
Gross margin
Like-for-
like revenue
Gross
profit margin
Movement in
revenue per
the income
statement
Balance sheet measures
Headline net debt
Net debt
Not applicable
Where referred to throughout the Annual report, gross margin is calculated
as gross profit divided by revenue.
– Revenue change
from non-like-
for-like stores
– Foreign
exchange
impact
Reconciliation of
net debt
Like-for-like revenue is the change in revenue from stores that have been
open for at least a year, with a similar selling space at a constant foreign
exchange rate. As a result of the Covid-19 pandemic, this measure has
not been utilised in the current year.
Headline net debt is defined as cash and cash equivalents, less bank
overdrafts and other borrowings and both current and non-current
obligations under finance leases as defined on a pre-IFRS 16 basis.
Lease liabilities recognised as a result of IFRS 16 are excluded from this
measure. A reconciliation of net debt on an IFRS 16 basis provided in
Note A8.
Other measures
Free cash flow
Net cash
inflow from
operating
activities
See Note A7 and
Strategic report
page 18
Free cash flow is defined as the net cash inflow from operating activities
before the cash flow effect of non-underlying items and pension funding,
and less net capital expenditure. The components of free cash flow are
shown in Note A7 and on page 18, as part of the Strategic report.
156
WH Smith PLC Annual Report and Accounts 2021
Additional information A1. Reconciliation of Headline to Statutory Group operating loss and Group loss before tax
pre-IFRS 16 basis
IFRS 16 basis
2021
£m
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other income
Non-underlying items
Group operating loss
Finance costs
Loss before tax
Income tax credit
Loss for the period
Attributable to:
Equity holders of the parent
Non-controlling interests
£m
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other income
Non-underlying items
Group operating loss
Finance costs
Loss before tax
Income tax credit
Loss for the period
Attributable to:
Equity holders of the parent
Non-controlling interests
Headline, before
non-underlying items
(pre-IFRS 16)
886
(358)
528
(431)
(136)
–
–
Headline non-
underlying items
(pre-IFRS 16)
–
–
–
–
–
–
(49)
(39)
(16)
(55)
26
(29)
(31)
2
(29)
(49)
–
(49)
9
(40)
(40)
–
(40)
Headline
(pre-IFRS 16)
886
(358)
528
(431)
(136)
–
(49)
(88)
(16)
(104)
35
(69)
(71)
2
(69)
2020
IFRS 16
adjustments
–
–
–
12
(4)
4
(16)
(4)
(8)
(12)
1
(11)
(11)
–
(11)
pre-IFRS 16 basis
IFRS 16 basis
Headline, before
non-underlying items
(pre-IFRS 16)
1,021
(441)
580
(545)
(97)
2
–
Headline non-underlying
items (pre-IFRS 16)
–
–
–
–
–
–
(157)
(60)
(9)
(69)
16
(53)
(53)
–
(53)
(157)
–
(157)
18
(139)
(139)
–
(139)
Headline
(pre-IFRS 16)
1,021
(441)
580
(545)
(97)
2
(157)
(217)
(9)
(226)
34
(192)
(192)
–
(192)
IFRS 16
adjustments
–
–
–
7
5
–
(55)
(43)
(11)
(54)
7
(47)
(47)
–
(47)
Total
886
(358)
528
(419)
(140)
4
(65)
(92)
(24)
(116)
36
(80)
(82)
2
(80)
Total
1,021
(441)
580
(538)
(92)
2
(212)
(260)
(20)
(280)
41
(239)
(239)
–
(239)
157
WH Smith PLC Annual Report and Accounts 2021Additional information Glossary (unaudited) continued
A2. Reconciliation of Headline to Statutory segmental trading (loss)/profit and Group (loss)/profit
from trading operations
£m
Travel UK trading (loss)/profit
North America trading profit/(loss)
Rest of the World trading loss
Total Travel trading loss
High Street trading profit
Group (loss)/profit from
trading operations
Unallocated central costs
Headline Group operating
(loss)/profit
Non-underlying items
Group operating loss
£m
Travel UK trading loss
North America trading (loss)/profit
Rest of the World trading (loss)/profit
Travel trading (loss)/profit
High Street trading (loss)/profit
Group (loss)/profit from
trading operations
Unallocated central costs
Headline Group operating
(loss)/profit
Non-underlying items
Group operating loss
pre-IFRS 16 basis
IFRS 16 basis
2021
Headline, before
non-underlying items
(pre-IFRS 16)
(32)
6
(13)
(39)
19
Headline non-
underlying items
(pre-IFRS 16)
–
–
–
–
–
Headline
(pre-IFRS 16)
(32)
6
(13)
(39)
19
IFRS 16 adjustments
3
(4)
(4)
(5)
17
(20)
(19)
(39)
–
(39)
–
–
–
(49)
(49)
(20)
(19)
(39)
(49)
(88)
12
–
12
(16)
(4)
Headline, before
non-underlying items
(pre-IFRS 16)
(1)
pre-IFRS 16 basis
Headline non-
underlying items
(pre-IFRS 16)
–
2020
IFRS 16 basis
Headline
(pre-IFRS 16)
(1)
IFRS 16 adjustments
–
(18)
(14)
(33)
(10)
(43)
(17)
(60)
–
(60)
–
–
–
-
–
–
–
(157)
(157)
(18)
(14)
(33)
(10)
(43)
(17)
(60)
(157)
(217)
4
2
6
6
12
–
12
(55)
(43)
Total
(29)
2
(17)
(44)
36
(8)
(19)
(27)
(65)
(92)
Total
(1)
(14)
(12)
(27)
(4)
(31)
(17)
(48)
(212)
(260)
A3. Reconciliation of Headline to Statutory tax (credit)/expense
£m
Loss before tax and non-underlying items
Tax on loss – Standard rate of UK corporation tax
(19.00%; 2020: 19.00%)
Adjustment in respect of prior years
Total current tax credit
Deferred tax – current year
Deferred tax – prior year
Deferred tax – adjustment in respect of change in tax rates
Tax on Headline (loss)/profit
Tax on non-underlying items – current tax
Tax on non-underlying items – deferred tax
Total tax on (loss)/profit
158
WH Smith PLC Annual Report and Accounts 2021
2021
2020
Headline
(pre-IFRS 16)
(55)
–
IFRS 16
adjustments
4
–
IFRS 16
(51)
–
Headline
(pre-IFRS 16)
(69)
(5)
IFRS 16
adjustments
1
–
IFRS 16
(68)
(5)
(1)
(1)
(13)
(4)
(8)
(26)
–
(9)
(35)
–
–
2
–
–
2
–
(3)
(1)
(1)
(1)
(11)
(4)
(8)
(24)
–
(12)
(36)
(6)
(11)
(7)
2
–
(16)
(5)
(13)
(34)
–
–
–
–
–
–
(4)
(3)
(7)
(6)
(11)
(7)
2
–
(16)
(9)
(16)
(41)
Additional information A4. Calculation of Headline and Statutory loss per share
£m
Loss for the year,
attributable to equity holders of the parent (Note A1)
Weighted average shares in issue for basic earnings
per share (Note 10)
Weighted average shares in issue for diluted earnings
per share (Note 10)
Basic loss per share (pence)
Diluted loss per share (pence)
£m
Loss for the year,
attributable to equity holders of the parent (Note A1)
Weighted average shares in issue for basic earnings
per share (Note 10)
Weighted average shares in issue for diluted earnings
per share (Note 10)
Basic loss per share (pence)
Diluted loss per share (pence)
A5. Fixed charges cover
pre-IFRS 16 basis
IFRS 16 basis
2021
Headline, before
non-underlying items
(pre-IFRS 16)
(31)
Headline non-
underlying items
(pre-IFRS 16)
(40)
Headline
(pre-IFRS 16)
(71)
IFRS 16
adjustments
(11)
(23.7)p
(23.7)p
(30.5)p
(30.5)p
131
131
(54.2)p
(54.2)p
2020
Total
(82)
131
131
(8.4)p
(8.4)p
(62.6)p
(62.6)p
Headline, before
non-underlying items
(pre-IFRS 16)
(53)
pre-IFRS 16 basis
Headline non-
underlying items
(pre-IFRS 16)
(139)
IFRS 16 basis
Headline
(pre-IFRS 16)
(192)
IFRS 16
adjustments
(47)
120
120
Total
(239)
120
120
(44.2)p
(44.2)p
(115.8)p
(115.8)p
(160.0)p
(160.0)p
(39.2)p
(39.2)p
(199.2)p
(199.2)p
£m
Headline net finance costs (pre-IFRS 16)
Net operating lease rentals (pre-IFRS 16)
Total fixed charges
Headline loss before tax and non-underlying items
Headline profit before tax, non-underlying items and fixed charges
Fixed charges cover – times
Note
A1
A11
A1
2021
16
151
167
(55)
112
0.7x
2020
9
210
219
(69)
150
0.7x
159
WH Smith PLC Annual Report and Accounts 2021Additional information Glossary (unaudited) continued
A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases
£m
Costs relating to business combinations
– Transaction costs
– Integration costs
Amortisation of acquired intangible assets
Pension past service cost
Costs directly attributable to Covid-19
– Impairment of property, plant and equipment
– Impairment of intangible assets
– Impairment of right-of-use assets
– Other property costs
– Write-down of inventories
– Restructuring costs
– Costs associated with refinancing
– Other
Non-underlying items, before tax
Tax credit on non-underlying items
Non-underlying items, after tax
2021
2020
Headline
(pre-IFRS 16)
IFRS 16
Headline
(pre-IFRS 16)
IFRS 16
–
2
3
–
18
–
–
5
5
9
6
1
49
(9)
40
–
2
3
–
14
–
28
–
5
9
6
(2)
65
(12)
53
11
9
3
14
54
1
–
25
14
25
–
1
157
(18)
139
11
9
3
14
39
1
95
–
14
25
–
1
212
(25)
187
Non-underlying items on a pre-IFRS 16 basis are calculated on a consistent basis with IFRS 16, with the exception of the below items.
A tax credit of £12m has been recognised in relation to the above items (£9m pre-IFRS 16).
Impairment of property, plant and equipment and right-of-use assets
The impairment charge recognised on a pre-IFRS 16 basis differs from that recognised under IFRS 16. This is mainly due to a lower
asset base pre-IFRS 16, coupled with lower expected store cash flows, with rental expenses being included in the forecast cash flows
(treated as financing costs under IFRS 16), and a higher discount rate. The calculation of the Group’s weighted average cost of capital
differs under IFRS 16 versus pre-IFRS 16. The pre-tax discount rate used in the IFRS 16 calculation was 10.4 per cent and the pre-tax
discount rate used in the pre-IFRS 16 calculation was 13.9 per cent.
Right-of-use assets are not recognised on a pre-IFRS 16 basis.
Other property costs
Other property costs on a pre-IFRS 16 basis include provisions for onerous lease contracts; on an IFRS 16 basis, onerous lease
contracts are recognised as an impairment of the right-of-use asset. As a result of the impact of Covid-19, the Group has carried out
a review of leases where the obligations of those leases exceed the potential economic benefits expected to be received under them.
We anticipate that a number of stores will not fully recover to pre-Covid-19 sales levels and have accelerated our internal forecasts
for the rate of sales decline in those locations. As a result, we have recognised onerous provisions of £5m for stores where we now
anticipate we will make a cash loss over the remaining term of their leases.
The Group’s pre-IFRS 16 property provisions represent the present value of unavoidable future net lease obligations and related costs
of leasehold property (net of estimated sublease income and adjusted for certain risk factors) where the space is vacant, loss-making
or currently not planned to be used for ongoing operations. The unwinding of the discount is treated as an imputed interest charge.
These provisions represent the best estimate of the liability at the time of the balance sheet date, the actual liability being dependent
on future events such as economic environment and marketplace demand. Expectations will be revised each period until the actual
liability arises, with any difference accounted for in the period in which the revision is made.
160
WH Smith PLC Annual Report and Accounts 2021
Additional information
A7. Free cash flow
£m
Cash generated from operating activities (Note 21)
Interest paid
Net cash inflow from operating activities
Cash flow impact of IFRS 16 (Note A9)
Add back:
– Cash impact of non-underlying items
– Pension funding
Deduct:
– Purchase of property, plant and equipment
– Purchase of intangible assets
Free cash flow
2021
113
(13)
100
(83)
38
3
(37)
(7)
14
2020
94
(13)
81
(66)
20
3
(67)
(12)
(41)
A8. Headline net debt
The table below shows Headline net debt (pre-IFRS 16). This includes lease liabilities that were previously presented as finance leases
(applying the principles of IAS 17), and Group accounting policies as applicable prior to 1 September 2019, described in the Glossary
on page 154), but excludes additional lease liabilities recognised on application of IFRS 16.
£m
Borrowings
– Revolving credit facility
– Convertible bonds
– Bank loans
– Lease liabilities (Note 16)
Liabilities from financing activities
Cash and cash equivalents
Net debt (IFRS 16) (Note 19)
Add back lease liabilities recognised under IFRS 161
Headline net debt (pre-IFRS 16)
1 Excludes lease liabilities previously recognised as finance leases on a pre-IFRS 16 basis.
2021
2020
–
(283)
(132)
(470)
(885)
130
(755)
464
(291)
–
–
(400)
(559)
(959)
108
(851)
550
(301)
A9. Cash flow disclosure impact of IFRS 16
There is no impact of IFRS 16 on cash flows, although the classification of cash flows has changed, with an increase in net cash
inflows from operating activities being offset by a decrease in net cash inflows from financing activities.
£m
Net cash inflows from operating activities
Net cash outflows from investing activities
Net cash inflows/(outflows) from financing activities
Net increase in cash in the period
Headline
(pre-IFRS 16)
17
(43)
48
22
2021
IFRS 16
adjustment
83
–
(83)
–
IFRS 16
100
(43)
(35)
22
Headline
(pre-IFRS 16)
15
(395)
440
60
2020
IFRS 16
adjustment
66
–
(66)
–
IFRS 16
81
(395)
374
60
161
WH Smith PLC Annual Report and Accounts 2021Additional information Glossary (unaudited) continued
A10. Balance sheet impact of IFRS 16
The balance sheet as at 31 August 2021 including and excluding the impact of IFRS 16 is shown below:
£m
Goodwill and other intangible assets
Property, plant and equipment
Right-of-use assets
Investments in joint ventures
Inventories
Payables less receivables
Working capital
Derivative financial asset
Net current and deferred tax asset
Provisions
Operating assets employed
Net debt
Net assets excluding pension liability
Pension liability
Deferred tax asset on pension liability
Total net assets
Headline
(pre-IFRS 16)
474
167
–
2
643
135
(237)
(102)
–
46
(28)
559
(291)
268
(3)
1
266
2021
IFRS 16
adjustment
(1)
7
328
–
334
–
23
23
–
10
14
381
(464)
(83)
–
–
(83)
IFRS 16
473
174
328
2
977
135
(214)
(79)
–
56
(14)
940
(755)
185
(3)
1
183
Headline
(pre-IFRS 16)
495
190
–
2
687
150
(226)
(76)
–
17
(27)
601
(301)
300
(4)
1
297
2020
IFRS 16
adjustment
(2)
2
413
–
413
–
43
43
–
11
13
480
(550)
(70)
–
–
(70)
IFRS 16
493
192
413
2
1,100
150
(183)
(33)
–
28
(14)
1,081
(851)
230
(4)
1
227
A11. Operating lease expense
Amounts recognised in Headline Group operating profit on a pre-IFRS 16 basis are as follows:
£m
Net operating lease charges
2021
151
2020
210
In the prior year, the Group adopted IFRS 16. IFRS 16 requires lessees to account for all leases under a single on-balance sheet model
as the distinction between operating and finance leases is removed. In order to provide comparable information the Group has chosen
to present Headline measures of operating profit/(loss) and profit/(loss) before tax, as explained in Note 2 segmental analysis.
The table above presents the pre-IFRS 16 net operating lease charges, applying the principles of IAS 17, and Group accounting policies
as applicable prior to 1 September 2019, as described in the Glossary on page 154.
The Group leases various properties under non-cancellable operating lease agreements. The leases have varying terms, escalation
clauses and renewal rights. The Group has a number of lease arrangements in which the rent payable is contingent on revenue.
Contingent rentals payable, based on store revenues, are accrued in line with revenues generated.
The average remaining lease length across the Group is four years.
Rentals payable and receivable under operating leases are charged to the income statement on a straight-line basis over the term of
the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line
basis over the lease term.
Temporary rent reductions due to Covid-19, affecting rent payments due on or before June 2022, have been recognised in the Income
statement in the period they are received.
162
WH Smith PLC Annual Report and Accounts 2021
Additional information
Information for shareholders
Company Secretary and registered office
Ian Houghton, WH Smith PLC, Greenbridge Road, Swindon, Wiltshire SN3 3RX. Telephone 01793 616161.
WH Smith PLC is registered in England and Wales (number 5202036).
Company website
This Annual report and accounts together with other information, including the price of the Company’s shares, Stock Exchange
announcements and frequently asked questions, can be found on the WH Smith PLC website at whsmithplc.co.uk.
Annual General Meeting
The Annual General Meeting will be held at the offices of Herbert Smith Freehills LLP, Exchange House, Primrose Street, London
EC2A 2EG on Wednesday 19 January 2022 at 11.30am. A separate notice convening the meeting is being sent to shareholders and
includes explanatory notes on each of the resolutions being proposed. At the time of writing, UK public health regulations and
guidance allow us to return to an in-person meeting this year, with shareholders physically able to attend the AGM should they wish
to do so. We will continue to review our AGM arrangements in light of the latest government Covid-19 guidance, and therefore
shareholders are encouraged to monitor the AGM page of the Company’s website whsmithplc.co.uk/investors/shareholder-centre/
agm for any updates.
Shareholder enquiries – the registrars
All enquiries relating to shareholdings should be addressed to the registrars, Computershare Investor Services PLC, The Pavilions,
Bridgwater Road, Bristol BS99 6ZZ. You can call the registrars on the shareholder helpline 0371 495 0100 or visit their website at
investorcentre.co.uk. A textphone facility for shareholders with hearing difficulties is available by telephoning 0370 702 0005.
Sharedealing services
This can be done through a stockbroker, bank or building society.
Computershare, our registrars, also offer share dealing services for shareholders (in certain jurisdictions). For internet dealing,
log on to computershare.com/dealing/uk and for telephone dealing call 0370 703 0084. You will need to have your Shareholder
Reference Number (SRN) to hand when making this call. This can be found on your Form of Proxy or email notification of availability of
AGM documents.
Please note that dealing fees will apply and will vary between providers.
Financial calendar
The following dates are given for information purposes only. Please check the WH Smith PLC website at whsmithplc.co.uk
nearer the relevant time for full details, and to ensure that no changes have been made.
Financial year end
Preliminary results announced
Annual report posted
AGM
Christmas trading statement
Half-year end
Interim results announced
Trading statement
Financial year end
31 August 2021
11 November 2021
December 2021
19 January 2022
19 January 2022
28 February 2022
April 2022
June 2022
31 August 2022
ShareGIFT
If you only have a small number of shares which are uneconomic to sell, you may wish to consider donating them to charity under
ShareGIFT, a charity share donation scheme administered by the Orr Mackintosh Foundation. A ShareGIFT transfer form may be
obtained from our registrar. Further information about the scheme can be found on the ShareGIFT website at sharegift.org.
163
WH Smith PLC Annual Report and Accounts 2021Additional information Information for shareholders continued
Warning to shareholders – boiler room scams
In recent years, many companies have become aware that their shareholders have received unsolicited phone calls or
correspondence concerning investment matters. These are typically from overseas-based ‘brokers’ who target UK shareholders,
offering to sell them what often turn out to be worthless or high risk shares in US or UK investments. These operations are commonly
known as ‘boiler rooms’. Information on how to avoid share fraud or report a scam can be found on our website at whsmithplc.co.uk.
You can also call the Financial Conduct Authority Consumer Helpline on 0800 111 6768 or go to fca.org.uk/scamsmart.
UK Capital Gains Tax
Demerger 31 August 2006
Following the demerger of the Company on 31 August 2006, in order to calculate any chargeable gains or losses arising on the
disposal of shares after 31 August 2006, the original tax base cost of your ordinary shares of 213⁄81p (adjusted if you held your shares on
24 September 2004 and 22 May 1998 to take into account the capital reorganisations of 27 September 2004 and 26 May 1998
respectively (see below)) will have to be apportioned between the shareholdings of ordinary shares of 20p in the Company and ordinary
shares of 5p in Smiths News PLC.
The cost of your shareholding of ordinary shares of 20p in the Company is calculated by multiplying the original base cost of your
ordinary shares of 213⁄81p (adjusted where necessary to take into account the capital reorganisations of 27 September 2004 and 26 May
1998 (see below)) by 0.69585.
The cost of your shareholding of ordinary shares of 5p is calculated by multiplying the original base cost of your ordinary shares of
213⁄81p (adjusted where necessary to take into account the capital reorganisations of 27 September 2004 and 26 May 1998 (see below))
by 0.30415.
As a result of the share consolidation on 22 February 2008, the nominal value of the Company’s ordinary shares increased from
20p per ordinary share to 226/67p per ordinary share.
Capital reorganisation 27 September 2004
If you acquired your shareholding on or before 24 September 2004, in order to calculate any chargeable gains or losses arising on the
disposal of shares after 24 September, the original tax base cost of your ordinary shares of 555/9p (adjusted if you held your shares on
22 May 1998 to take into account the capital reorganisation of 26 May 1998 (see below)) will have to be apportioned between the
shareholdings of ordinary shares of 213⁄81p and ‘C’ shares resulting from the capital reorganisation.
The cost of your shareholding of ordinary shares of 213⁄81p is calculated by multiplying the original base cost of your ordinary shares of
555/9p (adjusted where necessary to take into account the capital reorganisation of 26 May 1998 (see below)) by 0.73979.
Capital reorganisation 26 May 1998
If you acquired your shareholding on or before 22 May 1998, in order to calculate any chargeable gains or losses arising on the
disposal of shares after 22 May 1998, the original tax base cost of your ordinary shares of 50p will have to be apportioned between the
shareholdings of ordinary shares of 555/9p and redeemable ‘B’ shares resulting from the capital reorganisation.
The cost of your shareholding of ordinary shares of 555/9p is calculated by multiplying the original cost of your ordinary shares of 50p
by 0.90714.
March 1982 values
If you acquired your shareholding on or before 31 March 1982, in order to calculate any chargeable gains or losses arising on disposal
of shares, the tax base cost of your ordinary shares used the 31 March 1982 base values per share as follows:
Ordinary shares of 20p
Smiths News PLC ordinary shares of 5p
‘A’ ordinary shares
61.62p
26.93p
Arising from an original
shareholding of ‘B’
ordinary shares
50.92p
22.25p
If you have a complicated tax position, or are otherwise in doubt about your tax circumstances, or if you are subject to tax in a
jurisdiction other than the UK, you should consult your professional adviser.
‘Company’ means WH Smith PLC, a public limited company incorporated in England and Wales with registered number 5202036;
and ‘Group’ means the Company and its subsidiaries and subsidiary undertakings.
164
WH Smith PLC Annual Report and Accounts 2021
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Contact details
WH Smith PLC
Greenbridge Road
Swindon, Wiltshire SN3 3RX
United Kingdom
T 01793 616161
W whsmithplc.co.uk
WHSmith Travel
133 Houndsditch
London EC3A 7BX
United Kingdom
T 020 3981 0900
W whsmithplc.co.uk
WHSmith High Street
Greenbridge Road
Swindon, Wiltshire SN3 3LD
United Kingdom
T 01793 616161
W whsmith.co.uk
Investor Relations
T 020 3981 1285
W whsmithplc.co.uk/investors
Media Relations
T 01793 563354
W whsmithplc.co.uk/media
Sustainability
W whsmithplc.co.uk/sustainability
Recruitment
W whsmithcareers.co.uk
Customer Service
Freepost SCE4410
Swindon, Wiltshire SN3 3XS
United Kingdom
T 01793 616161
customer.relations@whsmith.co.uk