Interim Results

WH Smith PLC

Apr 27 2022 08:00 BSTSource: RNS

RNS Number : 4456J

WH Smith PLC

27 April 2022

WH SMITH PLC

INTERIM RESULTS ANNOUNCEMENT

For the six months ended 28 February 2022

The Group has emerged from the pandemic operationally stronger and with significantly enhanced growth opportunities

· Successfully navigated the business through the pandemic - recovery well underway

· Group well positioned to benefit from new store opening opportunities in the global travel market

· Total Travel revenue in the 8 week period to 23 April 2022 at 114% of 2019

· New store pipeline of over 125 stores won in Travel, including 63 in North America and 31 in Spain; 28 new InMotion technology stores now open in UK airports; global rollout of InMotion continues

· Focused plan on customer conversion, increasing average transaction value (ATV) and category development continues to drive performance as passenger numbers recover

· Headline profit before tax and non-underlying items* of £14m (2021: loss of £19m)

· Total Travel trading profit* of £10m (2021: loss of £28m)

· High Street trading profit* of £26m (2021: £24m)

· Continued investment across the business funded from cash flow and strong balance sheet

Carl Cowling, Group Chief Executive, commented:

"The Group has delivered a good performance with a strong rebound in profitability. We have seen a recovery across all our travel markets despite the impact of the Omicron variant in Q2, and we are in a strong position to capture growth as the recovery continues. I would like to thank all our colleagues around the world who have worked extremely hard to help the business make such good progress and deliver these results.

"Across the globe, we continue to roll out our Travel stores across all our formats. Since the start of the financial year, we have won 74 stores, including a significant tender win in Spain, bringing the total pipeline to over 125 stores. We expect more space to become available, particularly in North America, as our markets continue to recover.

"In addition, we have opened 28 new technology stores in the UK under our InMotion brand, including our recently opened flagship store at Heathrow Terminal 5. These stores have received excellent feedback from landlords and customers. Outside of the US and the UK, we have opened and won a further 11 InMotion stores across 6 countries and we see significant potential to grow the brand globally.

"Our High Street business delivered a resilient and profitable performance in the period, despite the challenges facing the UK high street. During the period, our online businesses continued to perform well against a strong pandemic-related performance in the prior year.

"Looking ahead, we continue to invest in the business where we see attractive growth opportunities and have positioned the Group well to benefit from the return of passenger numbers. We have improved the scale and footprint of the business and are operationally stronger than prior to the pandemic. While there are some uncertainties in the broader global economy, the Group is well positioned to capitalise on the ongoing recovery in our key markets and take advantage of the many opportunities ahead."

* Pre-IFRS 16

Group financial summary:

	IFRS		Headline
	IFRS		pre-IFRS 16²
	6 months to Feb 2022	6 months to Feb 2021	6 months to Feb 2022	6 months to Feb 2021
Travel UK trading profit/(loss)¹	£9m	£(19)m	£3m	£(19)m
North America trading profit/(loss)¹	£8m	£(4)m	£8m	£(3)m
Rest of the World trading loss¹	£(2)m	£(8)m	£(1)m	£(6)m
Total Travel trading profit/(loss)¹	£15m	£(31)m	£10m	£(28)m
High Street trading profit¹	£35m	£33m	£26m	£24m
Group profit/(loss) from trading operations¹	£50m	£2m	£36m	£(4)m
Group profit/(loss) before tax and non-underlying items¹	£24m	£(17)m	£14m	£(19)m
Earnings / (loss) per share before non-underlying items¹	13.0p	(12.9)p	6.9p	(13.6)p
Non-underlying items¹	£(6)m	£(21)m	£(3)m	£(18)m
Group profit/(loss) before tax	£18m	£(38)m	£11m	£(37)m
Basic earnings/(loss) per share	9.2p	(26.7)p	5.3p	(26.0)p
Diluted earnings/(loss) per share	9.2p	(26.5)p	5.3p	(25.8)p

Revenue performance:

	£m	% change vs 6 months to Feb 2021
Travel UK	189	139%
North America	116	111%
Rest of the World	33	106%
Total Travel	338	125%
High Street	270	-%
Group	608	45%

¹ Alternative Performance Measure (APM) defined and explained in the Glossary on page 41.

² The Group adopted IFRS 16 'Leases' with effect from 1 September 2019. The Group continues to monitor performance and allocate resources based on pre-IFRS 16 information (applying the principles of IAS 17), and therefore the results for the periods ended 28 February 2022 and 28 February 2021 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 41. Group revenue was not affected by the adoption of IFRS 16, and therefore all references to and discussion of revenue are based on statutory measures.

WEBCAST:

A live webcast will be held today at 9.00am BST for investors and analysts and will be available on our website at www.whsmithplc.co.uk.

ENQUIRIES:

WH Smith PLC
Nicola Hillman	Media Relations	01793 563354
Mark Boyle	Investor Relations	07879 897687

Brunswick
Tim Danaher		020 7404 5959

WH Smith PLC's Interim Results 2022 are available at www.whsmithplc.co.uk.

GROUP OVERVIEW

Strategic Initiatives

In the first few months of the financial year, we saw a steady improvement in Travel's trading performance as vaccination rates increased and travel restrictions eased. This improving trend was interrupted by the emergence of the Omicron variant in December. We acted quickly to ensure we kept stores trading, managed inventory levels and continued to recruit colleagues, anticipating the impact of Omicron would be relatively short. Since February, as travel restrictions have been further eased, we have seen the recovery in our travel markets continue with a strong performance over the Easter holiday period.

Throughout the pandemic, we have continued to focus on a number of key strategic initiatives, including:

· Driving ATV and sales per passenger

· Developing our formats in Travel to better meet customer and landlord requirements by repositioning our stores as one-stop-shops for travel essentials

· Working with landlords, building on our strong relationships, to create opportunities for:

i. Winning new business

ii. Extending categories

iii. Renewing key contracts, and

iv. Improving the quality and location of the space where we operate.

· Investing capex in strategically important projects which set us up well for the future, such as our new Travel store formats in the UK, North America and the Rest of the World

· Building our internet proposition by extending ranges, investing in the websites, marketing, fulfilment and building customer engagement through social media

· Forensic focus on returns on investment, costs and cash.

Group Summary

Total Group revenue in the first half was £608m (2021: £420m), up 45% on last half year.

Travel saw a steady recovery from September to November. This was interrupted by the Omicron variant for a short period from December to February. Since then, we have seen a relaxing of restrictions around the world. Travel revenue for the half was at 82% of 2019³, compared to 63% in Q4 of the previous financial year. In the 8 week period to 23 April 2022, Travel revenue has been 114% of 2019³ which demonstrates the strength of the recovery. Over the Easter holiday period, Travel revenue was at 126% of 2019, giving us confidence for the key summer trading period.

We saw a consistently good performance in High Street throughout the half with the important December trading period at 90% of 2019.

The Headline Group profit from trading operations¹ for the period was £36m (2021: loss of £4m) with Headline Group profit before tax and non-underlying items¹ at £14m (2021: loss of £19m).

Including non-underlying items, the Headline Group profit before tax¹ was £11m (2021: loss of £37m). Group profit before tax, on a statutory basis (after non-underlying items and including the effect of IFRS 16), was £18m (2021: loss of £38m).

The Group's financing arrangements include a £250m Revolving Credit Facility (RCF) which matures in 2025, £327m of convertible bonds which mature in 2026 and £133m of term loan with a maturity in 2025. The Group pays a fixed coupon at 1.625% on the convertible bonds and the term loan is interest bearing at a margin over SONIA and is due to mature on 28 April 2025.

³ Equivalent month in 2019

The Group has the following cash, committed facilities and drawn debt as at 28 February 2022:

	28 February 2022	Maturity
Cash and cash equivalents	£88m⁴
Revolving Credit Facility⁵	£250m	April 2025
Term Loan	£133m	April 2025
Convertible bond	£327m	April 2026

⁴ Cash and cash equivalents comprises cash on deposit of £65m and cash in transit of £23m

⁵ Undrawn as at 28 February 2022 and 26 April 2022

As at 28 February 2022, Headline net debt¹ was £336m (2021: £336m) with access to £315m of liquidity (£65m cash on deposit and £250m undrawn RCF). We continue to focus on cash. Group free cash flow¹ was an outflow of £29m (2021: outflow of £13m), largely driven by capital investment of £38m (2021: £22m).

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;

· 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.

Outlook

The Group has continued to manage the business well in an evolving trading environment. We continue to invest in new Travel stores and have the financial capacity to capitalise on the ongoing recovery in our Travel markets and the significant medium term new store opening opportunities.

Our High Street business has delivered another robust performance and is well placed to continue to generate cash from its portfolio of well-located stores and internet businesses.

Given our low ticket-value categories and strong supplier relationships, we are managing the impact of current inflationary pressures.

Since the period end, and following the further relaxing of travel restrictions, we have continued to see a good recovery across all our travel markets and channels. We remain well placed for the ongoing Travel recovery and the key summer trading period which gives the Board confidence in the outlook for the remainder of the financial year.

Looking further ahead, while the broader global economy remains uncertain, the Group is well positioned to capitalise on the ongoing recovery in our key markets and take advantage of the many new store opening opportunities ahead.

TOTAL TRAVEL

Our Travel business comprises three divisions: UK, North America (NA) and Rest of the World (ROW).

Total revenue was £338m (2021: £150m), up 125% compared to the previous year resulting in a Total Travel Headline trading profit¹ in the period of £10m (2021: loss of £28m).

£m	Trading profit/(loss)¹ (IFRS 16)		Headline trading profit/(loss)¹ (pre-IFRS 16)		Revenue
	6 months to Feb 2022	6 months to Feb 2021	6 months to Feb 2022	6 months to Feb 2021	6 months to Feb 2022	6 months to Feb 2021
Travel UK	9	(19)	3	(19)	189	79
North America	8	(4)	8	(3)	116	55
Rest of the World	(2)	(8)	(1)	(6)	33	16
Total Travel	15	(31)	10	(28)	338	150

In all our markets, we have continued to focus on initiatives that position us well as our markets recover:

· 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.

· ATV growth and spend per passenger

We do this through our forensic analysis of the return on our space, cross category promotions, merchandising, store layouts and store refits.

· 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.

· Minimising costs

We remain focused on cost control and minimising our cost base to reflect the level of sales whilst retaining our ability to trade as recovery occurs.

As restrictions have eased, we have seen an encouraging improvement in passenger numbers, led first by domestic travel and then short-haul. Whilst there are some uncertainties in the global economy and the speed and shape of the recovery, we are confident in the recovery of Travel, further supported by the consensus of industry forecasts including the Airports Council International (ACI) which expect passenger numbers to return to 2019 levels by 2024.

Despite the challenging trading environment during the pandemic, we are more optimistic about the prospects for a full recovery and further growth than ever before.

As at 28 February 2022, our global Travel business, including MRG and InMotion, operated from 1,162 units (31 August 2021: 1,166 units). Outside of the UK, as at 28 February 2022 we were present in over 100 airports and 29 countries.

Division	Number of stores
UK	581
North America	288
Rest of World	293
Total	1,162

Excluding franchise units, Travel occupies 1.0m square feet (31 August 2021: 1.0m square feet)

TRAVEL UK

Our Travel UK business continues to recover strongly with a small impact in the half from the Omicron variant.

	% of 2019 Revenue³
	Air	Hospitals	Rail	Total
September 2021	42%	87%	71%	60%
October 2021	59%	92%	74%	71%
November 2021	71%	91%	74%	78%
December 2021	65%	94%	69%	74%
January 2022	59%	83%	58%	66%
February 2022	75%	94%	71%	78%
March 2022	92%	98%	81%	90%
Second half to date⁶	104%	98%	84%	97%

We have experienced periods of strong growth, particularly over the school holidays, indicating good demand for a return to leisure travel. In addition, tour operators have reported a healthy recovery in holiday bookings for 2022 versus pre-Covid levels. We have a robust plan in place to maximise these opportunities over the key summer trading period.

We have worked hard across all our channels, focusing on key priorities within our control. Total revenue in the period was £189m which, along with improved margins, resulted in a Headline trading profit1 of £3m (2021: loss of £19m). We have seen a consistent double digit increase in ATV versus 2019 across our Air, Hospital and Rail channels during the period.

As at 28 February 2022, Travel UK had 581 stores of which 535 were open and 46 were hibernated. We anticipate opening all of these hibernated stores in time for the peak summer trading period. In addition, over the next three years, we expect to win and open an additional 10 to 15 stores each year in UK Travel.

Air

In Air, we saw another step up in revenue over the half-term holiday in February and again over the Easter period, with sales over the February half-term and Easter holiday periods at 86% and 119% respectively of the comparable periods in 2019.

Leisure passengers continue to be our most important customer segment. We are expanding our proposition for leisure passengers by investing in new store formats. This includes the repositioning of our traditional news, books and convenience (NBC) format to a unique one-stop-shop for travel essentials format across our larger stores. Within these one-stop-shop travel essential stores, we have extended categories, such as health and beauty, technology, food to go and pharmacy products to provide time-pressed travelling customers with a fast and convenient shopping experience, under one roof. This enables us to expose a broader range of categories to customers which has resulted in an increase in sales per square metre and a higher ATV and spend per passenger. This delivers good returns for us and attractive economics for our landlords.

We have opened this one-stop-shop format in 4 airports, including Heathrow Terminal 2, Gatwick and Manchester as well as at Euston Station. Customer and landlord feedback has been very positive. Going forward, we expect more space to become available for this format.

We have now opened 28 of the InMotion stores that we recently won in UK Air, including a flagship store at London Heathrow Terminal 5. Combining the learnings and expertise from our InMotion stores in the US, as well as the results of extensive customer research in the UK, these stores provide a first-class customer service experience and showcase a range of premium brands, such as Apple, Bose, Sony and Samsung, as well as an extensive range of tech accessories.

We are very pleased with the performance of the stores to date and early indications suggest that annual sales will be ahead of our original forecast of around £80m of incremental sales in a normalised travel market.

⁶8 weeks to 23 April 2022

Hospitals

The Hospital channel is an important channel for us and is our second largest channel by revenue in Travel UK. In the first six months, we saw an improvement in revenue as restrictions eased and these stores performed well. This strength in performance has extended to the second half of the financial year with revenue in March at 98% of 2019 levels.

The opportunities to increase our number of stores in the hospital market continues to grow with additional government investment in the health service. We are well placed to meet the increased demand for retail services as hospitals extend operating hours to tackle department backlogs.

Our Hospital 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 more recently, our first WH Smith hospital format with a Post Office. We also have 46 M&S Simply Food or shared space stores across our hospital estate.

In addition, there are considerable opportunities for us to open new space in hospitals. As at 28 February 2022, we operated from 136 stores in around 100 hospitals and we believe there are a further 200 hospitals which could support at least one of our three store formats (a WH Smith format, a M&S Simply Food and a Costa Coffee).

Over the medium-term, we would expect to open on average c.8-10 new stores each year in this channel.

Rail

Rail remains an attractive channel. According to the Department for Transport, pre-pandemic rail had approximately 1.7bn passenger journeys per year with leisure passengers accounting for around 40% of these journeys.

We have seen a steady improvement in revenue as travel restrictions have eased. Passenger numbers are now at 74% of 2019 levels with leisure and weekend passenger numbers recovering the fastest. We know from our segmentation and return on space analysis that this customer segment is most valuable to us.

As with our other channels in Travel, we continue to invest in new formats and in new opportunities to meet customer and landlord needs. During the period, we opened our first one-stop-shop format in Rail at London's Euston Station. This store combines our traditional news, books and convenience offer with electrical accessories, health and beauty products and a pharmacy. We have received positive feedback from customers and it is performing strongly.

In addition, we have opened a new standalone bookshop at Edinburgh Waverley Station and our first rail store with a combined M&S food offer at Bristol Temple Meads Station. Again, early customer and landlord reaction has been positive.

NORTH AMERICA

We saw a strong performance from North America where, despite a small impact from Omicron, there has been a steady recovery in air passenger numbers and visitors to Las Vegas. Total revenue for the period in NA was £116m (2021: £55m), with a Headline trading profit¹ of £8m (2021: loss of £3m), reflecting the recovery in passenger numbers and improved margins.

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% of passengers are domestic, with leisure passengers being 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 March 2022 at 90% of 2019 levels.

MRG currently have 120 and InMotion 122 stores open or won in airports. Our analysis of the North America market pre-pandemic shows that there were a total of 1,885 news and gift and specialty retail stores in the top 50 airports, giving our North America business a small market share of c.13%. With MRG's success rate of winning new tenders and our expectation of the amount of space likely to come to the market for tender over the medium-term, we are well placed to grow our North America business.

We continue to invest in digital technology to enhance the customer experience in our stores and, during the period, we opened our first frictionless, checkout-free store at LaGuardia Airport, New York. The WH Smith branded store, our first in the US, provides US customers with a quick and easy way to shop using Amazon's Just Walk Out technology and early customer and landlord feedback has been very positive.

Outside of the airport business, the Resorts channel continues to be resilient. MRG is a leading player in this channel in Las Vegas 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. We saw a small impact from Omicron on the number of visitors to Las Vegas but this has recovered in March with conferences and events returning to the city. Passenger numbers in Las Vegas' Harry Reid International Airport were in line with 2019 by the end of March 2022, the best performance since October 2021.

Our revenue performance has reflected these trends with overall revenue in North America at 104%⁷ of 2019 levels for the month of March 2022. We currently have 273 stores open and trading (158 MRG and 115 InMotion).

REST OF THE WORLD

Total revenue for the first six months in ROW was £33m (2021: £16m). The Headline trading loss¹ for the period was £1m (2021: loss of £6m) with the improvement driven by the higher sales. The pace of recovery has varied by geography, as expected, with Europe the best performing region. 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 strong and compelling proposition and our very low market share means there is significant opportunity to grow this business in new and existing territories through NBC and with technology tenders under the InMotion brand.

We continue to build on areas where we already have stores, for example, in Spain which is one of the most popular destinations for the UK leisure traveller. We know from our experience of operating 19 stores in Spain that our brand and offer resonates well in this market. During the half, we won a significant and highly competed tender in Spain which included 31 additional stores in locations including Madrid, Barcelona, Majorca and Ibiza. We entered this market 6 years ago with a single store in Alicante and have since grown our presence to now become the market leading NBC operator in Spanish airports with a total of over 50 stores. We expect to open these 31 additional directly-run stores by 2023.

We have also won 6 stores in Australia as well as a further 8 stores in Malaysia, Finland, Bahrain and Sweden making a total of 52 stores won (including InMotion) since the start of the financial year.

We continue to see good opportunities to win new business in the technology market under our InMotion brand. During the period, we have won 7 InMotion stores in Dublin, Milan and Stockholm and Gothenburg. We now have a total of 11 InMotion stores outside of the UK and North America of which 4 are open. We remain well positioned to benefit from further opportunities as more space becomes available.

We opened 12 stores in ROW in the half, including stores in Australia, Spain and Germany, giving us a total of 293 stores now open and a further 65 won and yet to open. Of the 293 stores open, 41% are directly-run, 9% are joint venture and 50% are franchise. We will continue to use these three economic models flexibly in order to create value and win new business.

Region	Number of stores
Europe	86
Middle East and India	86
Asia Pacific	121

⁷ Includes proforma MRG for 2019. Constant currency

HIGH STREET

During the period, High Street delivered a resilient performance with Headline trading profit¹ of £26m (2021: profit of £24m which included £17m benefit from rates) with revenue of £270m, in line with last year. We managed the business tightly, 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 two years. Footfall on the UK high street is down c.20% 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:

· Reviewing our categories and extending them where appropriate to ensure we have greater relevance in this market and where competitors have closed. Additional categories include working from home ranges and tech accessories, and we have increased our ranges of cards where competition has weakened

· Making best use of space in our well located portfolio, for example, our trial with Deliveroo across 10 stores to deliver products direct to door in under 20 minutes

· Investing in our whsmith.co.uk, funkypigeon.com and cultpens.com websites to position them for growth over the medium term

· We restructured the cost base to reduce costs and 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

The strategy we have in place in our High Street business remains as relevant today as it has ever been: space and category management, increasing margins and reducing costs.

We consider retail space as a strategic asset and we utilise our space to maximise returns 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 are on track to deliver savings of £41m in the year. These savings come from right across the business, including rent savings at lease renewal (on average 50%) which continue to be a significant proportion, marketing efficiencies and productivity gains from our distribution centres. We have, for many years, actively hedged our energy costs in stores well in advance of consuming the energy. We are currently hedged to August 2023. The hedge was put in place 12 months ago.

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 2 years. We only renew a lease where we are confident of delivering economic value over the life of that lease. We have c.450 leases due for renewal over the next three years, including 160 where we are holding over and in negotiation with our landlord.

As at 28 February 2022, the High Street business operated from 537 WH Smith stores (2021: 544) which occupy 2.6m square feet (2021: 2.6m square feet). 7 WH Smith stores were closed in the period (2021: 7).

Specialist websites

During the period, we increased our investment and focus on whsmith.co.uk and have seen good growth through investing in the site. This has included improving customer conversion, product presentation and broadening our approach to marketing. Our specialist pen website, cultpens.com, has continued to perform well, particularly over the Christmas trading period. We have extended our ranges to broaden our customer offer and introduced related categories such as filing and storage and we are seeing good results.

Following a very strong prior year and a period of exceptional growth, Funkypigeon.com delivered, as expected, total revenue of £21m (2021: £29m) and EBITDA of £4m (2021: £9m). We therefore expect the current year will see lower sales and Headline EBITDA¹ as a result of annualising lockdowns last year and ongoing investment in the business. However, we remain confident of the substantial opportunities to grow the platform further and significantly grow revenue and profits over the medium-term.

The market for greetings cards in the UK is substantial and estimated at £1.6bn⁸ with online penetration estimated at c.15%⁸ with OC&C forecasting online growth of single cards over the next three years, taking penetration to c.20%⁸ of the card market by 2024. The UK greetings card market has been stable with adults sending on average 20⁸ greetings cards per person each year.

While the pandemic accelerated the growth of online shopping, it is still apparent that this is an underpenetrated market with plenty of opportunity to develop this business further and we therefore see significant growth opportunities with funkypigeon.com.

We continue to invest, both in the site and in strengthening the management team. During the period, we have developed the funkypigeon.com app to improve customer conversion by extending our fulfilment centre, and we have also launched a new next day delivery service, which operates 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.

Update on the Funky Pigeon Cyber Security Incident

Further to our recent announcement regarding a cyber security incident impacting Funky Pigeon, the team is working to ensure we can securely resume services for our customers, and we expect the site to be live imminently.

No customer payment data, such as bank account or credit card details, has been placed at risk - all of this data is processed securely via accredited third parties and is securely encrypted. We also do not believe any customer account passwords have been placed at risk.

We take the security of customer data extremely seriously and we are currently investigating the extent to which any personal data, specifically names, addresses, e-mail addresses, telephone numbers and personalised card and gift designs has been accessed. Whilst we have written to our customers, our work is ongoing, and we will be in contact with any affected customers should we have a material update that affects them.

Based on the analysis of the situation performed to date, this incident is not expected to have a material impact on the financial position of the WH Smith Group.

Environmental, Social and Corporate Governance ('ESG')

We have continued to focus on our ESG performance. Our ultimate goal is for net zero by 2050 at the latest. We recognise that we cannot do this alone, and we are collaborating with our suppliers, landlords and customers to work towards this goal.

We were delighted to be included in this year's Dow Jones Sustainability Index for the second year as one of only 12 retailers, globally, to be included. In addition, we are currently the highest performing specialty retailer in Morningstar's ESG Sustainalytics benchmark.

Across the Group, we continue to focus on more environmentally responsible sourcing practices and we have redesigned and removed plastic packaging from our seasonal ranges wherever possible.

We continue to champion children's literacy through our partnership with the National Literacy Trust by donating books and additional funds to ensure we support children across the UK who most need this support.

The Group responded quickly to the humanitarian crisis in Ukraine. We have supported by donating funds to the British Red Cross, sending product from our distribution centres and international stores, installing donation points for customers across every till point in our UK store estate, and supporting our colleagues and their families should they welcome a Ukrainian refugee or family into their home. We have also committed to support with employment opportunities within the WH Smith Group for any refugee residing with a WH Smith colleague.

⁸Company estimates / OC&C 2019

GROUP

The Group generated Headline profit before tax¹ of £14m (2021: loss of £19m) and, after non-underlying items and IFRS 16, statutory profit before tax of £18m (2021: loss of £38m).

	IFRS		Headline pre-IFRS 16
£m	6 months to Feb 2022	6 months to Feb 2021	6 months to Feb 2022	6 months to Feb 2021
Travel UK profit / (loss)¹	9	(19)	3	(19)
North America profit / (loss)¹	8	(4)	8	(3)
Rest of the World loss¹	(2)	(8)	(1)	(6)
Total Travel trading profit / (loss)¹	15	(31)	10	(28)
High Street trading profit¹	35	33	26	24
Group profit / (loss) from trading operations¹	50	2	36	(4)
Unallocated central costs¹	(10)	(9)	(10)	(9)
Group operating profit / (loss)before non-underlying items¹	40	(7)	26	(13)
Net finance costs	(16)	(10)	(12)	(6)
Group profit / (loss) before tax and non-underlying items¹	24	(17)	14	(19)
Non-underlying items	(6)	(21)	(3)	(18)
Group profit / (loss) before tax	18	(38)	11	(37)

Non-underlying items¹

Items which are not considered part of the normal operating costs of the business, are non-recurring and are exceptional because of their size, nature or incidence, are treated as non-underlying items and disclosed separately. Non-underlying items in the half mainly relate to amortisation of acquired intangible assets and impairment of property, plant and equipment and right-of-use assets, due to the ongoing impact of Covid-19 on the business, and are all non-cash.

The Group has carried out an assessment for indicators of impairment across the store portfolio. This assessment has identified a small number of stores where, following the emergence of the Omicron variant and subsequent changes to government guidance, the trading performance in the first 6 months of the year has been more negatively impacted than expected, and the longer-term impact of Covid-19 has become more clear, driven by the ongoing impact of Covid-19 on consumer shopping patterns.

As a result of this exercise, a charge of £4m was recorded within non-underlying items, of which £1m relates to property, plant and equipment and £3m relates to right-of-use assets.

	IFRS		Headline pre-IFRS 16
£m	6 months to Feb 2022	6 months to Feb 2021	6 months to Feb 2022	6 months to Feb 2021
Items directly attributable to Covid-19
Impairment	4	14	1	6
Onerous leases	-	-	-	2
Stock provisions, write-offs and other costs	-	4	-	7
Other non-underlying items
Integration costs	-	1	-	1
Amortisation	2	2	2	2
	6	21	3	18

The cash spend relating to non-underlying items in the first half was £8m and mainly related to restructuring announced in 2020 and 2021.

Net Finance Costs

	IFRS		Headline pre-IFRS 16
£m	6 months to Feb 2022	6 months to Feb 2021	6 months to Feb 2022	6 months to Feb 2021
Interest payable on bank loans and overdrafts	4	6	4	6
Interest on convertible bonds	7	-	7	-
Unwind of discount on onerous lease provisions (pre-IFRS 16)	-	-	1	-
Interest on lease liabilities	5	4	-	-
Net finance costs	16	10	12	6

Pre-IFRS 16 net finance costs for the half were £12m (2021: £6m) with the year on year increase reflecting the refinancing activity during the prior year.

The interest on the convertible bonds includes the accrued coupon (a fixed coupon of 1.625%) and c.£4m of the non-cash debt accretion charge.

Lease interest of £5m arises on lease liabilities recognised under IFRS 16, bringing the total net finance costs under IFRS 16 to £16m (2021: £10m).

We expect finance costs on a pre-IFRS 16 basis for the full year to be approximately £25m, with cash finance costs approximately £10m lower than this.

Tax

The effective tax rate¹ was 22% on the profit for the half (2021: 2%). Corporation tax payments in the period were £3m (2021: £nil).

Fixed Charges Cover¹

	6 months to		Year ended
£m	Feb 2022	Feb 2021	Aug 2021
Headline net finance charges¹	12	6	16
Net operating lease rentals (pre-IFRS 16)¹	96	58	151
Total fixed charges	108	64	167
Headline profit/(loss) before tax and non-underlying items¹	14	(19)	(55)
Headline profit before tax, non-underlying items and fixed charges	122	45	112
Fixed charges cover¹ - times	1.1x	0.7x	0.7x

Fixed charges, comprising property operating lease rentals and net finance charges, were covered 1.1 times (2021: 0.7 times) by Headline profit before tax and fixed charges.

Cash Flow

Free cash flow¹ reconciliation

	pre-IFRS 16
	6 months to
£m	Feb 2022	Feb 2021
Headline Group operating profit / (loss) before non-underlying items¹	26	(13)
Depreciation, amortisation and impairment (pre-IFRS 16)⁹	24	25
Non-cash items	5	3
Operating cash flow^{1, 9}	55	15
Capital expenditure	(38)	(22)
Working capital (pre-IFRS 16)⁹	(36)	(1)
Net tax paid	(3)	-
Net interest paid (pre-IFRS 16)	(7)	(4)
Other	-	(1)
Free cash flow	(29)	(13)

⁹Excludes cashflow impact of non-underlying items

The free cash outflow¹ for the period was £29m. This mainly reflects the return to profit of the business with the operating cash inflow increasing by £40m to £55m and continued investment in the Group as we both recover and open new stores.

We had a working capital outflow of £36m in the half relating to timing from last year as expected; the launch of InMotion in the UK; investment to support the recovery of trading in Travel; and the impact of the trading cadence in the Group where the first half is the least cash generative time of the year.

Net corporation tax payments in the period were £3m, compared to £nil last year.

Capital expenditure was £38m (2021: £22m). We anticipate the full year capex spend to be around £110m which includes the additional spend from winning 31 stores in Spain.

		6 months to
£m	Feb 2022		Feb 2021
New stores and store development	20		10
Refurbished stores	4		4
Systems	6		5
Other	8		3
Total capital expenditure	38		22

Reconciliation of Headline net debt¹

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

As at 28 February 2022, the Group had Headline net debt¹ of £336m comprising £132m term loan, £288m convertible bond, £4m finance lease liabilities and cash of £88m, of which £65m was on deposit (31 August 2021: Headline net debt of £291m, comprising £132m term loan, £283m convertible bond, £6m finance lease liabilities and cash of £130m).

	Headline
	pre-IFRS 16
	6 months to		Year ended
£m	Feb 2022	Feb 2021	Aug 2021
Opening Headline net debt¹	(291)	(301)	(301)
Movement in period
Free cash flow	(29)	(13)	14
Pensions	(1)	(1)	(3)
Non-underlying items	(8)	(22)	(38)
Net purchase of own shares for employee share schemes	(2)	-	(2)
Equity component of convertible bond	-	-	41
Non-cash movements relating to convertible bond	(4)	-	(2)
Other	(1)	1	-
Closing Headline net debt¹	(336)	(336)	(291)

Cash	88	72	130
Term Loans (net of fees)	(132)	(400)	(132)
Convertible bond	(288)	-	(283)
Finance leases (pre-IFRS 16)	(4)	(8)	(6)
	(336)	(336)	(291)

The Group's Headline net debt has increased by £45m since year end. In addition to the free cash outflow of £29m, the Group has incurred £8m of cash spend on non-underlying items which mainly relate to restructuring costs as previously reported and charged to the income statement in the prior year. This restructuring is now complete.

We expect full year net debt to be around £335m.

Balance sheet

				Headline
	IFRS			pre-IFRS 16
£m	Feb 2022	Aug 2021	Feb 2021	Feb 2022	Aug 2021	Feb 2021
Goodwill and other intangible assets	483	473	471	484	474	472
Property, plant and equipment	189	174	182	182	167	178
Right-of-use assets	330	328	370	-	-	-
Investments in joint ventures	2	2	2	2	2	2
	1,004	977	1,025	668	643	652

Inventories	153	135	123	153	135	123
Payables less receivables	(195)	(214)	(148)	(216)	(237)	(181)
Working capital	(42)	(79)	(25)	(63)	(102)	(58)

Derivative financial liability	-	-	(1)	-	-	(1)
Net current and deferred tax asset	55	56	32	45	46	20
Provisions	(14)	(14)	(14)	(28)	(28)	(27)
Operating assets employed	1,003	940	1,017	622	559	586
Net debt	(793)	(755)	(837)	(336)	(291)	(336)
Net assets excluding pension liability	210	185	180	286	268	250
Pension liability	(2)	(3)	(4)	(2)	(3)	(4)
Deferred tax asset on pension liability	-	1	1	-	1	1
Total net assets	208	183	177	284	266	247

The Group had Headline net assets of £286m before pension liabilities and associated deferred tax assets, £18m higher than last year end reflecting the profit in the period. Headline net assets after the pension liability and associated deferred tax asset were £284m compared to £266m at 31 August 2021. Under IFRS the Group had net assets of £208m.

Pensions

The latest actuarial valuation of the main defined benefit pension scheme, the WHSmith Pension Trust, was at 31 March 2020 at which point the deficit was £9m. The Group agreed a continuation of the annual funding schedule with the Trustees from March 2020 for the following five years, which includes the deficit recovery contributions and other running costs of just under £3m per annum. During the period ended 28 February 2022, the Group made a contribution of £1m 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 approximately 100% of the inflation and interest rate risks hedged.

As at 28 February 2022, the Group had an IFRIC 14 minimum funding requirement in respect of the WHSmith Pension Trust of £2m (31 August 2021: £2m) and an associated deferred tax asset of £nil (2021: £1m) based on the latest schedule of contributions agreed with the Trustees. As at 28 February 2022, the scheme had an IAS 19 surplus of £357m (31 August 2021: surplus of £284m) 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 £nil (31 August 2021: £1m).

Principal Risks and Uncertainties

The Group's Annual Report and Accounts 2021, a copy of which is available on the Group's website at www.whsmithplc.co.uk, sets out the principal risks and uncertainties which could impact the Group for the remainder of the current financial year along with mitigating activities relevant to each risk (see Annual Report and Accounts 2021 pages 21 to 28). These include:

· economic, political, competitive and market risks;

· brand and reputation;

· key suppliers and supply chain management;

· store portfolio;

· business interruption (including pandemics);

· reliance on key personnel;

· international expansion;

· treasury, financial and credit risk management; and

· cyber risk, data security and GDPR compliance; and

· environment and sustainability.

The Annual Report and Accounts 2021 also identified specific changes to our risk profile as a consequence of the Covid-19 pandemic following the Board's assessment of the ongoing impact of Covid-19 as a significant risk facing the Group, due to uncertainty around the timing and extent of recovery on our ability to re-open and operate our Travel and High Street stores, both in the UK and internationally, and its impact upon the levels of global and domestic travel.

Ukrainian Conflict

We are saddened and horrified at the conflict in Ukraine, where our thoughts are with those who have been impacted by this conflict. WH Smith is supporting the victims of the war in several ways, through charitable donations and measures aimed at supporting refugees where they are being sponsored by our colleagues. WH Smith has no direct operations in Russia, Ukraine or Belarus, nor do we have any product suppliers located in these territories. In line with many businesses, we do however anticipate that this conflict may impact us, through increasing competition and costs of shipping goods internationally from the Far East, and from increasing inflationary pressures on our sourcing and supply chain. These risks will continue to be monitored through our ongoing risk management framework and principal risk reporting.

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

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

WH Smith PLC

Condensed Group Income Statement

For the 6 months to 28 February 2022

		6 months to 28 Feb 2022 (unaudited)			6 months to 28 Feb 2021 (unaudited)				12 months to 31 Aug 2021 (audited)
£m	Note	Before non-underlying items¹	Non-underlying items²	Total	Before non-underlying items¹	Non-underlying items²	Total		Before non-underlying items¹		Non-underlying items²		Total

Revenue	2	608	-	608	420	-	420		886		-		886
Group operating profit / (loss)	2	40	(6)	34	(7)	(21)	(28)		(27)		(65)		(92)
Finance costs	5	(16)	-	(16)	(10)	-	(10)		(24)		-		(24)
Profit / (loss) before tax		24	(6)	18	(17)	(21)	(38)		(51)		(65)		(116)
Income tax (expense) / credit	6	(5)	1	(4)	-	3	3		24		12		36
Profit / (loss) for the period		19	(5)	14	(17)	(18)	(35)		(27)		(53)		(80)

Attributable to equity holders of the parent		17	(5)	12	(17)	(18)	(35)	(29)		(53)		(82)
Attributable to non-controlling interests		2	-	2	-	-	-	2		-		2
		19	(5)	14	(17)	(18)	(35)		(27)		(53)		(80)

Earnings / (loss) per share
Basic	7			9.2p			(26.7)p						(62.6)p
Diluted	7			9.2p			(26.5)p						(62.6)p

¹ Alternative Performance Measure. The Group has defined and explained the purpose of its alternative performance measures in the Glossary on page 41.

² See Note 3 for an analysis of Non-underlying items. See Glossary on page 41 for definition of alternative performance measures.

WH Smith PLC

Condensed Group Statement of Comprehensive Income

For the 6 months to 28 February 2022

£m	Note	6 months to 28 Feb 2022 (unaudited)	6 months to 28 Feb 2021 (unaudited)	12 months to 31 Aug 2021 (audited)
Profit / (loss) for the period		14	(35)	(80)
Other comprehensive (loss) / income:
Items that will not be reclassified subsequently to the income statement:
Actuarial losses on defined benefit pension schemes	4	(1)	(1)	(1)
		(1)	(1)	(1)
Items that may be reclassified subsequently to the income statement:
(Losses) / gains on cash flow hedges
- Net fair value losses		-	(1)	-
Exchange differences on translation of foreign operations		11	(16)	(13)
		11	(17)	(13)

Other comprehensive income / (loss) for the period, net of tax		10	(18)	(14)
Total comprehensive income / (loss) for the period		24	(53)	(94)
Attributable to equity holders of the parent		22	(53)	(96)
Attributable to non-controlling interests		2	-	2
		24	(53)	(94)

WH Smith PLC

Condensed Group Balance Sheet

As at 28 February 2022

		At	At	At
£m	Note	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Non-current assets
Goodwill	8	416	402	406
Other intangible assets	8	67	69	67
Property, plant and equipment	8	189	182	174
Right-of-use assets	8	330	370	328
Investments in joint ventures		2	2	2
Deferred tax assets		54	26	57
Trade and other receivables		6	8	6
		1,064	1,059	1,040
Current assets
Inventories		153	123	135
Trade and other receivables		48	44	45
Current tax receivable		1	8	-
Cash and cash equivalents	9	88	72	130
		290	247	310
Total assets		1,354	1,306	1,350
Current liabilities
Trade and other payables		(249)	(200)	(265)
Retirement benefit obligations	4	(1)	(1)	(1)
Lease liabilities	9	(105)	(119)	(108)
Derivative financial liabilities		-	(1)	-
Short-term provisions		(2)	(5)	(2)
		(357)	(326)	(376)

Non-current liabilities
Retirement benefit obligations	4	(1)	(3)	(2)
Bank loans and other borrowings	9	(420)	(400)	(415)
Long-term provisions		(12)	(9)	(12)
Lease liabilities	9	(356)	(390)	(362)
Deferred tax liabilities		-	(1)	-
		(789)	(803)	(791)
Total liabilities		(1,146)	(1,129)	(1,167)
Total net assets		208	177	183

Shareholders' equity
Called up share capital	11	29	29	29
Share premium		316	316	316
Capital redemption reserve		13	13	13
Translation reserve		(16)	(30)	(27)
Other reserves		(242)	(280)	(240)
Retained earnings		97	124	82
Total equity attributable to equity holders of the parent		197	172	173
Non-controlling interests		11	5	10
Total equity		208	177	183

WH Smith PLC

Condensed Group Cash Flow Statement

For the 6 months to 28 February 2022

		6 months to		12 months to
£m	Note	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Operating activities
Cash generated from operating activities	10	55	34	113
Interest paid¹		(12)	(7)	(13)
Net cash inflow from operating activities		43	27	100
Investing activities
Purchase of property, plant and equipment		(33)	(16)	(37)
Purchase of intangible assets		(5)	(6)	(7)
Acquisition of subsidiaries, net of cash acquired		-	1	1
Net cash outflow from investing activities		(38)	(21)	(43)
Financing activities
Distributions to non-controlling interests		(1)	-	-
Issue of new shares for employee share schemes		-	1	1
Purchase of own shares for employee share schemes		(2)	-	(2)
Proceeds from issuance of convertible bonds		-	-	327
Repayment of borrowings		-	-	(267)
Financing arrangement fees		-	(1)	(8)
Repayments of obligations under leases		(44)	(42)	(86)
Net cash outflow from financing activities		(47)	(42)	(35)

Net (decrease) / increase in cash and cash equivalents in the period		(42)	(36)	22

Opening cash and cash equivalents		130	108	108
Effect of movements in foreign exchange rates		-	-	-
Closing cash and cash equivalents		88	72	130

¹ Includes interest payments of £5m on lease liabilities (28 February 2021: £5m)

WH Smith PLC

Condensed Group Statement of Changes in Equity

For the 6 months to 28 February 2022

£m	Called up share capital and share premium	Capital redemption reserve	Translation reserves	Other reserves¹	Retained earnings	Total equity attributable to equity holders of the parent	Non-controlling interest	Total equity
Balance at 1 September 2021	345	13	(27)	(240)	82	173	10	183
Profit for the period	-	-	-	-	12	12	2	14
Other comprehensive income / (loss):
Actuarial losses on defined benefit pension schemes	-	-	-	-	(1)	(1)	-	(1)
Exchange differences on translation of foreign operations	-	-	11	-	-	11	-	11
Total comprehensive income for the period	-	-	11	-	11	22	2	24
Non-controlling interest distributions	-	-	-	-	-	-	(1)	(1)
Recognition of share-based payments	-	-	-	-	4	4	-	4
Employee share schemes	-	-	-	(2)	-	(2)	-	(2)
Balance at 28 February 2022 (unaudited)	345	13	(16)	(242)	97	197	11	208

Balance at 1 September 2020	344	13	(14)	(279)	158	222	5	227
Loss for the period	-	-	-	-	(35)	(35)	-	(35)
Other comprehensive income / (loss):
Actuarial losses on defined benefit pension schemes	-	-	-	-	(1)	(1)	-	(1)
Cash flow hedges	-	-	-	(1)	-	(1)	-	(1)
Exchange differences on translation of foreign operations	-	-	(16)	-	-	(16)	-	(16)
Total comprehensive loss for the period	-	-	(16)	(1)	(36)	(53)	-	(53)
Recognition of share-based payments	-	-	-	-	2	2	-	2
Issue of shares	1	-	-	-	-	1	-	1
Balance at 28 February 2021 (unaudited)	345	13	(30)	(280)	124	172	5	177

Balance at 1 September 2020	344	13	(14)	(279)	158	222	5	227
Loss for the year	-	-	-	-	(82)	(82)	2	(80)
Other comprehensive income / (loss):
Actuarial losses on defined benefit pension schemes	-	-	-	-	(1)	(1)	-	(1)
Exchange differences on translation of foreign operations	-	-	(13)	-	-	(13)	-	(13)
Total comprehensive loss for the year	-	-	(13)	-	(83)	(96)	2	(94)
Issue of shares	1	-	-	-	-	1	-	1
Issue of convertible bonds - value of conversion rights	-	-	-	40	-	40	-	40
Deferred tax on share-based payments	-	-	-	-	1	1	-	1
Employee share schemes	-	-	-	(1)	6	5	-	5
Non cash movement on non-controlling interests	-	-	-	-	-	-	3	3
Balance at 31 August 2021 (audited)	345	13	(27)	(240)	82	173	10	183

¹Other reserve includes Revaluation reserve of £2m (August 2021: £2m), ESOP reserve of £(5)m (August 2021: (£(5)m), hedging reserve of £nil (August 2021: £nil), convertible bond reserve of £40m (August 2021: £40m) and Other reserves of £(279)m (August 2021: £(277)m). The 'Other' reserve includes reserves created in relation to the historical capital reorganisation and proforma restatement of £(238)m (2021: £(238)m), the demerger from Smiths News PLC in 2006 of £69m (2021: £69m) and cumulative amounts relating to employee share schemes of £(110)m (2021: £(108)m).

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

1.	Basis of preparation, Accounting policies and Approval of Interim Statement

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards (IFRS), with future changes being subject to endorsement by the UK Endorsement Board. WH Smith PLC transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 September 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.

This Condensed Interim Financial Statements for the 6 months ended 28 February 2022 have been prepared in accordance with the UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

The interim report does not include all of the notes of the type normally included in an annual financial report. Accordingly, this report should be read in conjunction with the Group's Annual Report and Accounts 2021, which were prepared in accordance with both "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", and any public announcements made by WH Smith PLC during the interim reporting period.

The financial information set out in this report does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. The Annual Report and Accounts 2021 have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under s498(2) or s498(3) of the Companies Act 2006.

The Condensed Interim Financial Statements have been prepared in accordance with the accounting policies set out in the 2021 Annual Report and Accounts and it is these accounting policies which are expected to be followed in the preparation of the full financial statements for the financial year ended 31 August 2022, except as outlined below.

Taxes on income in the interim period are accrued using the tax rate that would be applicable to the expected total annual profit or loss.

The Group has adopted the following standards and interpretations which became mandatory for the first time during the current financial year. The adoption of these standards has had no material impact on the Group.

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

Interest Rate Benchmark Reform - Phase 2

At the balance sheet date, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been endorsed by the UK):

IFRS 17	Insurance contracts
Amendments to IAS 1	Presentation of financial statements on classification of liabilities
Amendments to IAS 12 and IFRS 1	Deferred tax related to assets and liabilities arising from a single transaction
Annual Improvements 2018-2020
Narrow scope amendments to IFRS 3, IAS 16 and IAS 37
Narrow scope amendments to IAS 1, Practice statement 2 and IAS 8

The directors anticipate that the adoption of these standards and interpretations will have no material impact on the Group's financial statements.

Alternative performance measures

The Group has identified certain Alternative Performance Measures ("APMs") 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.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

1.	Basis of preparation, Accounting policies and Approval of Interim Statement (continued)

Alternative performance measures (continued)

These APMs are set out in the Glossary on page 41 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, measures before non-underlying items 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 3.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of condensed interim 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, valuation of goodwill and other non-current assets and inventory valuation.

The key areas where the judgments, estimates and assumptions applied have a significant risk of causing a material adjustment to the carrying value of assets and liabilities are consistent with those applied in the Group's financial statements for the year ended 31 August 2021, as set out on pages 111 to 112 of those financial statements.

For details of changes to significant estimates for impairment of property, plant and equipment and right-of-use assets in the current period, refer to Notes 3 and 8.

Going concern

The condensed interim financial statements have been prepared on a going concern basis.

The directors are required to assess whether the Group can continue to operate for at least 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 assessed the principal risks, reviewed current performance and forecasts, combined with expenditure commitments, including capital expenditure, and borrowing facilities and any mitigating actions in the control of the directors. The directors have concluded that it is appropriate to adopt the going concern basis of accounting in preparing these financial statements, having undertaken a rigorous assessment of the financial forecasts, for the reasons set out below.

In making the going concern assessment, the directors have modelled two scenarios for a 16 month period to August 2023 in order to assess the impact on the covenants which are also measured at this date. The base case scenario is based on a Board approved forecast for the year ending August 2022 and the three year plan for the period ending 31 August 2023 adjusted for the latest view of sales in our High Street business. In High Street we have assumed that rents are paid as normal across the period and on a monthly basis. In all Travel segments, rents are based on agreed concessions or contractual agreements with landlords and our reasonable assessment of extending those agreements where necessary to incorporate the 16 month review period.

A downside scenario has also been modelled, applying severe but plausible assumptions to the base case. This replicates the Group's performance in the year ending August 2022, by applying the sales experienced to January 2022 and forecast for the remainder of the financial year, to the period December 2022 to August 2023.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

1.	Basis of preparation, Accounting policies and Approval of Interim Statement (continued)

Going concern (continued)

This includes a recurrence of another Covid-19 variant with no mitigating actions, increasing the severity of the scenario. It does not assume a full national lock down.

In both the base case and severe but plausible scenarios the Group would continue to have sufficient liquidity headroom on its existing facilities and meet its covenant tests, as described below.

The covenants tests on the above facilities for August 2022 are based on a minimum liquidity test. The covenant tests for February 2023 and August 2023 are based on leverage and fixed charge cover. In the base case and severe but plausible scenarios, the Group meets the conditions of all its covenant tests up to and including August 2023.

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 ended 31 August 2021, the Group 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 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 and 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.

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 41 (Note A1)

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

2.	Segmental analysis of results (continued)

a)	Group revenue

	6 months to		12 months to
£m	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Travel UK	189	79	195
North America	116	55	166
Rest of the World¹	33	16	40
Total Travel	338	150	401
High Street	270	270	485
Group revenue	608	420	886

¹ Rest of the World revenue includes revenue from Australia of £11m (28 February 2021: £9m). No other country has individually material revenue.

Seasonality

Sales in the High Street business are subject to seasonal fluctuations, with peak demand in the Christmas trading period, which falls in the first half of the Group's financial year. Sales in the Travel business are also subject to seasonal fluctuations, with higher demand during peak travel periods particularly during the summer holiday months.

b)	Group results

	6 months to 28 Feb 2022 (unaudited)				6 months to 28 Feb 2021 (unaudited)
£m	Headline (pre-IFRS16)¹	Headline non-underlying items (pre-IFRS 16)	IFRS 16	Total	Headline (pre-IFRS16)¹	Headline non-underlying items (pre-IFRS 16)	IFRS 16	Total
Travel UK trading profit / (loss)	3	-	6	9	(19)	-	-	(19)
North America trading profit / (loss)	8	-	-	8	(3)	-	(1)	(4)
Rest of the World trading loss	(1)	-	(1)	(2)	(6)	-	(2)	(8)
Total Travel trading profit / (loss)	10	-	5	15	(28)	-	(3)	(31)
High Street trading profit	26	-	9	35	24	-	9	33
Group profit / (loss) from trading operations	36	-	14	50	(4)	-	6	2
Unallocated central costs	(10)	-	-	(10)	(9)	-	-	(9)
Group operating profit / (loss) before non-underlying items	26	-	14	40	(13)	-	6	(7)
Non-underlying items (Note 3)	-	(3)	(3)	(6)	-	(18)	(3)	(21)
Group operating profit / (loss)	26	(3)	11	34	(13)	(18)	3	(28)
Finance costs	(12)	-	(4)	(16)	(6)	-	(4)	(10)
Group profit / (loss) before tax	14	(3)	7	18	(19)	(18)	(1)	(38)
Income tax (expense) / credit	(3)	1	(2)	(4)	1	2	-	3
Profit/ (loss) for the period	11	(2)	5	14	(18)	(16)	(1)	(35)

¹ Presented on a pre-IFRS 16 basis. Alternative Performance Measures are defined and explained in the Glossary on page 41.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

2.	Segmental analysis of results (continued)

c)	Other segmental items

6 months to 28 Feb 2022
	Non-current assets¹			Right-of-use assets
£m	Capital additions	Depreciation and amortisation	Impairment	Depreciation	Impairment

Travel UK	17	(8)	-	-	-
North America	9	(5)	-	-	-
Rest of the World	2	(1)	-	-	-
Total Travel	28	(14)	-	-	-
High Street	11	(7)	(2)	-	-
Unallocated	-	(1)	-	-	-
Headline, before non-underlying items	39	(22)	(2)	-	-
Headline non-underlying items (pre-IFRS 16)	-	(2)	(1)	-	-
Headline, after non-underlying items	39	(24)	(3)	-	-
Impact of IFRS 16	-	-	-	(36)	-
Non-underlying items (IFRS 16)	-	-	-	-	(3)
Group	39	(24)	(3)	(36)	(3)

6 months to 28 Feb 2021
	Non-current assets¹			Right-of-use assets
£m	Capital additions	Depreciation and amortisation	Impairment	Depreciation	Impairment

Travel UK	4	(8)	-	-	-
North America	8	(6)	-	-	-
Rest of the World	1	(2)	-	-	-
Total Travel	13	(16)	-	-	-
High Street	8	(9)	-	-	-
Unallocated	-	(2)	-	-	-
Headline, before non-underlying items	21	(27)	-	-	-
Headline non-underlying items (pre-IFRS 16)	-	(2)	(6)	-	-
Headline, after non-underlying items	21	(29)	(6)	-	-
Impact of IFRS 16	-	2	-	(43)	-
Non-underlying items (IFRS 16)	-	-	1	-	(9)
Group	21	(27)	(5)	(43)	(9)

¹ Non-current assets including property, plant and equipment and intangible assets, but excluding right-of-use assets.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

3.	Non-underlying items

Items which are not considered part of the normal operating costs of the business are non-recurring and are considered exceptional because of their size, nature or incidence, are treated as non-underlying items and disclosed separately. Further details of the non-underlying items are included in Note 1, and in the Group Overview on page 11.

	6 months to		12 months to
£m	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Costs directly attributable to Covid-19
- Impairment of property, plant and equipment	1	5	14
- Impairment of right-of-use assets	3	9	28
- Write-down of inventories	-	5	5
- Restructuring costs	-	2	9
- Costs associated with refinancing	-	-	6
- Other	-	(3)	(2)
Costs relating to business combinations	-	1	2
Amortisation of acquired intangible assets	2	2	3
Non-underlying items, before tax	6	21	65
Tax credit on non-underlying items	(1)	(3)	(12)
Non-underlying items, after tax	5	18	53

Costs directly attributable to Covid-19

As described in the Group Overview the Covid-19 pandemic has continued to impact on the Group's operations during the period. As a result, the Group has incurred further 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.

Impairment of Property, plant and equipment and Right-of-use assets

The impairment review compares the value-in-use of individual store cash-generating units to their carrying value, based on managements' assumptions regarding likely future trading performance. As a result of this exercise, a charge of £4m was recorded within non-underlying items, of which £1m relates to property, plant and equipment and £3m relates to right-of-use assets.

Amortisation of acquired intangible assets

Amortisation of acquired intangible assets primarily relates to the MRG and InMotion brands in both the current and prior periods.

A tax credit of £1m has been recognised in relation to the above items (28 February 2021: £3m).

Prior year non-underlying items

Costs directly attributable to Covid-19

Impairment of Property, plant and equipment and Right-of-use assets

In the prior year, the Group carried out a review for potential impairment across the entire store portfolio, as Covid-19 was considered to be an over-arching indicator of impairment. Following this review, a charge of £14m was recorded within non-underlying items for impairment of retail store assets, of which £5m relates to property, plant and equipment and £9m relates to right-of-use assets. Refer to Note 8 for details of impairment of store cash-generating units.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

3.	Non-underlying items (continued)

Prior year non-underlying items (continued)

Costs directly attributable to Covid-19 (continued)

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. In the prior period, provisions of £4m were recorded against inventory, which related to dated and perishable stock and stock subject to obsolescence. In addition, as a result of the government lockdowns, the Group has incurred stock write-offs of £1m mainly relating to perishable and dated product. The Group has recognised these charges as non-underlying as they meet the Group's definition of non-underlying.

Restructuring costs

In the prior year, the charges of £9m was 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 were presented as a non-underlying item as they are part of a Board-agreed restructuring programme, and are considered material one-off in nature.

Other

Other non-underlying items in the prior year relate to costs in relation to international franchisees, and derecognition of lease liabilities relating to the disposal of WHSmith France.

Costs relating to business combinations

During the year ended 31 August 2021, the Group incurred further integration costs of £2m in relation to the acquisition of Marshall Retail Group ('MRG'), which completed on 20 December 2019.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

4.	Retirement benefit obligations

WH Smith PLC has operated a number of defined benefit schemes (which are closed to new entrants and future service accrual) and defined contribution pension schemes. The main pension arrangements for employees are operated through a defined contribution scheme, WH Smith Retirement Savings Plan, and a defined benefit scheme, WHSmith Pension Trust. The most significant scheme is the defined benefit WHSmith Pension Trust.

The retirement benefit obligations recognised in the balance sheet for the respective schemes at the relevant reporting dates were:

£m	At 28 Feb 2022 (unaudited)	At 28 Feb 2021 (unaudited)	At 31 Aug 2021 (audited)
WHSmith Pension Trust	(2)	(3)	(2)
United News Shops Retirement Benefits Scheme	-	(1)	(1)
Retirement benefit obligation recognised in the balance sheet	(2)	(4)	(3)
Recognised as:
Current liabilities	(1)	(1)	(1)
Non-current liabilities	(1)	(3)	(2)

WHSmith Pension Trust

The market value of the assets and the present value of the liabilities in the scheme at the relevant reporting dates were:

£m	At 28 Feb 2022 (unaudited)	At 28 Feb 2021 (unaudited)	At 31 Aug 2021 (audited)
Present value of the obligations	(1,047)	(1,121)	(1,172)
Fair value of plan assets	1,404	1,319	1,456
Surplus before consideration of asset ceiling	357	198	284
Amounts not recognised due to effect of asset ceiling	(357)	(198)	(284)
Additional liability recognised due to minimum funding requirements	(2)	(3)	(2)
Retirement benefit obligation recognised in the balance sheet	(2)	(3)	(2)

Total loss recognised in the Statement of Comprehensive Income ("SOCI"):

	6 months to		12 months to
£m	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Total actuarial gain / (loss) before consideration of asset ceiling	115	13	(50)
(Loss) / return on plan assets excluding amounts included in net interest cost	(46)	(86)	58
(Loss) / gain resulting from changes in amounts not recognised due to effect of asset ceiling excluding amounts recognised in net interest cost	(70)	72	(11)
Gain resulting from changes in additional liability due to minimum funding requirements excluding amounts recognised in net interest cost	-	-	1
Total actuarial loss recognised in other comprehensive income	(1)	(1)	(2)

Actuarial losses recognised in the statement of comprehensive income on the United News Shops Retirement Benefits Scheme were £nil in the period to 28 February 2022 (28 February 2021: £nil).

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

4.	Retirement benefit obligations (continued)

Movement in net retirement benefit liability during the period:

	6 months to		12 months to
£m	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
At beginning of period	(2)	(3)	(3)
Current service cost	-	-	-
Contributions from sponsoring companies	1	1	3
Actuarial losses on defined benefit pension schemes	(1)	(1)	(2)
At end of period	(2)	(3)	(2)

In accordance with the requirements of IFRIC 14 management has recognised the net present value of the schedule of contributions as a liability of £2m (28 February 2021: £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 £357m (28 February 2021: £198m) available as a reduction of future contributions is £nil (28 February 2021: £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.

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. 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 period, the Group made a contribution of £1m to the WHSmith Pension Trust (28 February 2021: £1m) in accordance with the agreed pension deficit funding schedule. The Group expects the cash payments for the year ended 31 August 2022 to be approximately £3m in total in relation to the scheme (year ended 31 August 2021: £3m).

The principal long-term assumptions used in the IAS 19 valuation were:

	6 months to		12 months to
%	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Rate of increase in pension payments	3.56	3.22	3.35
Rate of increase in deferred pensions	3.05	2.50	2.55
Discount rate	2.65	2.00	1.75
RPI Inflation assumption	3.75	3.30	3.45
CPI Inflation assumption	3.05	2.50	2.55

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

5.	Finance costs

	6 months to		12 months to
£m	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Interest payable on bank loans and overdrafts	4	6	10
Interest on convertible bonds	7	-	4
Interest on lease liabilities	5	4	10
Net interest cost on the defined benefit pension liabilities	-	-	-
	16	10	24

Interest on convertible bonds includes £3m accrued coupon and £4m non-cash debt accretion charge.

6.	Income tax expense

	6 months to		12 months to
£m	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Tax on profit / (loss)	2	-	-
Adjustment in respect of prior years	-	-	(1)
Total current tax expense / (credit)	2	-	(1)
Deferred tax - current year	4	-	(11)
Deferred tax - prior year	(1)	-	(4)
Deferred tax - adjustment in respect of change in tax rates	-	-	(8)
Tax on Headline (loss) / profit	5	-	(24)
Tax on non-underlying items - deferred tax	(1)	(3)	(12)
Total tax on (loss) / profit	4	(3)	(36)

The effective tax rate, before non-underlying items, was a charge of 22 per cent (31 August 2021: credit of 47 per cent). The 22 per cent effective tax rate is higher than the statutory tax rate of 19 per cent mainly due to differences in overseas tax rates.

The tax charge is calculated by applying the full year estimated tax rate to the profits made in the first half of the year.

The UK corporation tax rate is 19 per cent. 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 therefore the main impact of this rate change on the deferred tax balances was reflected in the 2021 financial statements which resulted in increasing the effective tax rate credit in the prior year.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

7.	Earnings / (loss) per share

Earnings

	6 months to		12 months to
£m	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Profit / (loss) for the period attributable to equity holders of the parent	12	(35)	(82)
Non-underlying items (Note 3)	5	18	53
Headline profit / (loss) for the period attributable to equity holders of the parent	17	(17)	(29)

b)	Weighted average share capital

	6 months to		12 months to
Millions	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Weighted average ordinary shares in issue	131	131	131
Less weighted average ordinary shares held in ESOP Trust	-	-	-
Weighted average ordinary shares for basic earnings per share	131	131	131
Add weighted average number of ordinary shares under option	-	1	-
Weighted average ordinary shares for diluted earnings per share	131	132	131

c)	Basic and diluted earnings / (loss) per share

	6 months to		12 months to
Pence	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Basic earnings / (loss) per share	9.2	(26.7)	(62.6)
Adjustments for non-underlying items	3.8	13.7	40.5
Headline basic earnings / (loss) per share	13.0	(13.0)	(22.1)

Diluted earnings / (loss) per share	9.2	(26.5)	(62.6)
Adjustments for non-underlying items	3.8	13.6	40.5
Headline diluted earnings / (loss) per share	13.0	(12.9)	(22.1)

Diluted earnings 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.

At 28 February 2022 the convertible bond has no dilutive effect as the inclusion of these potentially dilutive shares would improve earnings per share (31 August 2021: No dilutive effect).

The calculation of EPS on a pre-IFRS 16 basis is provided in the Glossary on page 41.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

8.	Non-current assets

During the 6 months to 28 February 2022, there were additions to property, plant and equipment of £34m (28 February 2021: £15m). There were no material disposals of tangible assets during the period (28 February 2021: £nil). During the 6 months to 28 February 2022, there were additions right of use assets of £39m (28 February 2021: £14m) through signing of new leases and lease modifications.

Capital expenditure in respect of intangible assets totalled £5m (28 February 2021: £6m) in the period. There were no material disposals of intangible assets during the period (28 February 2021: £nil).

Goodwill increased by £10m in the period, as a result of movements in exchange rates (28 February 2021: decrease of £16m, as a result of movements in exchange rates).

Impairment of property, plant and equipment, right-of-use assets and intangible assets

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. Following a review of available information, indicators of impairment were identified in respect of a small number of High Street CGUs and one CGU within the Rest of World segment. The identified indicators include under-performance of individual stores versus forecast as a result of slower than expected recovery from Covid-19.

For these CGUs, 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. The value-in-use of each CGU has been calculated using discounted cash flows derived from the Group's latest forecasts, 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 for these specific stores. Cash flows beyond the forecast 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 discount rate applied to future cash flows was 10.4% (31 August 2021: 10.4%)

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. The Group has recognised an impairment charge of £3m to property, plant and equipment and £3m to right-of-use assets as a result of impairment testing. Impairments of £4m have been presented as non-underlying items in the current year (see Note 3), and impairments of £2m have been included in underlying results.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

9.	Analysis of net debt

Movement in net debt can be analysed as follows:

£m	Term loans	Convertible bonds	Revolving credit facility	Leases	Sub-total Liabilities from financing activities	Cash and cash equivalents	Net debt
At 1 September 2021	(132)	(283)	-	(470)	(885)	130	(755)
Other non-cash movements	-	(5)	-	(31)	(36)	-	(36)
Other cash movements	-	-	-	44	44	(42)	2
Currency translation	-	-	-	(4)	(4)	-	(4)
At 28 February 2022	(132)	(288)	-	(461)	(881)	88	(793)

£m	Term loans	Convertible bonds	Revolving credit facility	Leases	Sub-total Liabilities from financing activities	Cash and cash equivalents	Net debt
At 1 September 2020	(400)	-	-	(559)	(959)	108	(851)
Proceeds from borrowings	-	(327)	-	-	(327)	327	-
Repayments of borrowings	267	-	-	-	267	(267)	-
Bifurcation of convertible bond	-	41	-	-	41	-	41
Other non-cash movements	-	(2)	-	(7)	(9)	-	(9)
Other cash movements	1	5	-	91	97	(38)	59
Currency translation	-	-	-	5	5	-	5
At 31 August 2021	(132)	(283)	-	(470)	(885)	130	(755)

An explanation of Alternative performance measures, including Net debt on a pre-IFRS 16 basis is provided in the Glossary on page 41.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2021

9.	Analysis of net debt (continued)

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

Other (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 2021 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 28 February 2022 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 28 February 2022, the Group has drawn down £nil on this facility (28 February 2021: £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 incurred in the prior year 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.

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 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% 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 incurred in the prior year 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.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

10.	Cash generated from operating activities

	6 months to		12 months to
£m	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Group operating profit / (loss)	34	(28)	(92)
Depreciation of property, plant and equipment	18	20	36
Impairment of property, plant and equipment	3	4	16
Amortisation of intangible assets	6	7	14
Depreciation of right of use assets	36	43	84
Impairment of right of use assets	3	9	28
Non-cash change in lease liabilities	(5)	(13)	(23)
Share-based payments	4	2	6
Gain on disposal and re-measurement of leases	(2)	(1)	(3)
Other non-cash items	-	(3)	(2)
(Increase) / decrease in inventories	(17)	25	14
(Increase) / decrease in receivables	(1)	8	4
(Decrease) / increase in payables	(20)	(39)	24
Pension funding	(1)	(1)	(3)
Income taxes paid	(3)	-	-
Income taxes refunded	-	-	10
Movement on provisions (through utilisation or income statement)	-	1	-
Cash generated from operating activities	55	34	113

11.	Called Up Share Capital

	28 Feb 2022 (unaudited)		28 Feb 2021 (unaudited)		31 Aug 2021 (audited)
	Number of shares (millions)	Nominal value £m	Number of shares (millions)	Nominal value £m	Number of shares (millions)	Nominal value £m
Equity
Ordinary shares of 22 6/67p	131	29	131	29	131	29
Total	131	29	131	29	131	29

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.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

12.	Contingent liabilities and capital commitments

£m

28 Feb 2022

(unaudited)

28 Feb 2021

(unaudited)

31 Aug 2021 (audited)

Bank guarantees and guarantees in respect of lease agreements

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 28 February 2022 of £1m (28 February 2021: £1m).

At 28 February 2022, contracts placed for future capital expenditure approved by the directors but not provided for amounted to £22m (28 February 2021: £9m).

13.	Related Parties

Other than directors' remuneration, there have been no material related party transactions during the interim period under review.

14.	Financial instruments

IFRS 13 requires disclosure of fair value measurements by level based on the following measurement hierarchy:

· Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

· Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and

· Level 3 - inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

All fair value measurements made by the group are in the Level 2 category. The fair value of forward foreign exchange contracts has been determined using forward currency exchange rates at the balance sheet date. These have been provided by the individual banking institutions with whom the contracts are held. There have been no transfers of assets or liabilities between any levels of the fair value hierarchy.

There were no material differences between the carrying value of non-derivative financial assets and financial liabilities and their fair values at the balance sheet date.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

14.	Financial instruments (continued)

£m	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Financial assets
Cash flow hedges:
Forward foreign currency contracts	-	-	-
	-	-	-

£m	28 Feb 2022 (unaudited)	28 Feb 2021 (unaudited)	31 Aug 2021 (audited)
Financial liabilities
Cash flow hedges:
Forward foreign currency contracts	-	(1)	-
	-	(1)	-

15.	Events after the balance sheet date

WH Smith subsidiary, Funky Pigeon, the online greetings card and gift retailer, was subject to a cyber security incident affecting part of its systems on Thursday 14 April 2022.

No customer payment data, such as bank account or credit card details, has been placed at risk - all of this data is processed securely via accredited third-parties and is securely encrypted. We are currently investigating the extent to which any personal data, specifically names, addresses, e-mail addresses and personalised card and gift designs has been accessed.

Based on the analysis of the situation performed to date, the incident is not expected to have a material impact on the financial position of the WH Smith Group.

WH Smith PLC

Notes to the Condensed Interim Financial Statements

For the 6 months to 28 February 2022

Statement of Directors' Responsibilities

The Directors confirm to the best of their knowledge that:

(a) The condensed financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the UK; and

(b) This interim report includes a fair review of the information required by:

· DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· DTR 4.2.8R of the Disclosure and Transparency Rules, being related parties' transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Group during that period; and any changes in the related parties' transactions described in the last annual report that could do so.

The Directors of WH Smith PLC are listed on the website at www.whsmithplc.co.uk/about-us/our-board.

By order of the Board

Carl Cowling Robert Moorhead

Group Chief Executive Chief Financial Officer and Chief Operating Officer

27 April 2022

Independent review report to WH Smith Plc

Report on the Consolidated Interim Financial Statements

Our conclusion

We have reviewed WH Smith Plc's condensed consolidated interim financial statements (the "interim financial statements") in the Interim Results Announcement of WH Smith Plc for the 6 month period ended 28 February 2022 (the "period").

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

The interim financial statements comprise:

· the Condensed Group Balance Sheet as at 28 February 2022;

· the Condensed Group Income Statement and Condensed Group Statement of Comprehensive Income for the period then ended;

· the Condensed Group Cash Flow Statement for the period then ended;

· the Condensed Group Statement of Changes in Equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the Interim Results Announcement of WH Smith Plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Interim Results Announcement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Interim Results Announcement, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Interim Results Announcement in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Interim Results Announcement based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, 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.

PricewaterhouseCoopers LLP

Chartered Accountants

London

27 April 2022

WH Smith PLC

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, costs relating to business combinations, impairment charges and other property costs, significant items related 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, measures before non-underlying items 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 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 financial year ended 31 August 2020. 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 28 February 2022 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.

WH Smith PLC

Glossary (unaudited)

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 principles of IAS 17). Reconciliations of all Headline measures are provided in Notes A1 to A11.
Group profit / (loss) before tax and non-underlying items	Group profit / (loss) before tax	See Note A1 and A2	Group profit / (loss) before tax and non-underlying items excludes the impact of non-underlying items as described below. A reconciliation from Group profit / (loss) before tax and non-underlying items to Group profit / (loss) before tax is provided on the Group income statement on page 17, and on a Headline (pre-IFRS 16) basis in Note A1 and A2.
Group profit / (loss) from trading operations and segment trading profit / (loss)	Group operating profit / (loss)	See Note 2 and Note A2	Group profit / (loss) from trading operations and segment trading profit / (loss) 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. A reconciliation from the above measures to Group operating profit / (loss) and Group profit / (loss) before tax on an IFRS 16 basis is provided in Note 2 to the Condensed Interim Financial Statements and on a Headline (pre-IFRS 16) basis in Note A2.
Non-underlying items	None	Refer to definition and see Note 3 and Note A6	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 3 to the Condensed Interim Financial Statements, and on a Headline (pre-IFRS 16) basis in Note A6.
Earnings / (loss) per share before non-underlying items	Earnings / (loss) per share	Non-underlying items, see Note 7 and Note A4	Profit / (loss) 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 7 and on a Headline (pre-IFRS 16) basis in Note A4.
Headline EBITDA	Group operating profit / (loss)	Refer to definition	Headline EBITDA is Headline Group operating profit / (loss) before non-underlying items adjusted for pre-IFRS 16 depreciation, amortisation and other non-cash items. See Group Overview on page 13.
Effective tax rate	None	Non-underlying items see Notes A3 and A6	Total income tax charge / credit excluding the tax impact of non-underlying items divided by Group Headline profit / (loss) before tax and non-underlying items. See Note 6 on an IFRS 16 basis, and Notes A3 and A6 on a pre-IFRS 16 basis.
Fixed charges cover	None	Refer to definition	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.
Gross margin	Gross profit margin	Not applicable	Where referred to throughout the Interim financial statements, gross margin is calculated as gross profit divided by revenue.

WH Smith PLC

Glossary (unaudited)

APM		Closest equivalent IFRS measure		Reconciling items to IFRS measure		Definition and purpose
Income Statement Measures (continued)
Like-for-like revenue		Movement in revenue per the income statement		- Revenue change from non like-for-like stores - Foreign exchange impact		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.
Balance Sheet Measures
Headline net debt	Net debt		Reconciliation of net debt		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 Group Overview		Free cash flow is defined as the net cash inflow from operating activities before the cash flow effect of IFRS 16, non-underlying items and pension funding, less net capital expenditure. The components of free cash flow are shown in Note A7 and on page 13, as part of the Group Overview.

A1. Reconciliation of Headline to Statutory Group operating profit and Group profit before tax

	6 months to 28 Feb 2022
	pre-IFRS 16 basis			IFRS 16 Basis
£m	Headline, before non-underlying items	Headline non-underlying items	Headline	IFRS 16 adjustments	Total
Revenue	608	-	608	-	608
Cost of sales	(240)	-	(240)	-	(240)
Gross profit	368	-	368	-	368
Distribution costs	(264)	-	(264)	13	(251)
Administrative expenses	(78)	-	(78)	-	(78)
Other income	-	-	-	1	1
Non-underlying items	-	(3)	(3)	(3)	(6)
Group operating profit / (loss)	26	(3)	23	11	34
Finance costs	(12)	-	(12)	(4)	(16)
Profit / (loss) before tax	14	(3)	11	7	18
Income tax (charge) / credit	(3)	1	(2)	(2)	(4)
Profit / (loss) for the period	11	(2)	9	5	14
Attributable to:
Equity holders of the parent	9	(2)	7	5	12
Non-controlling interests	2	-	2	-	2
	11	(2)	9	5	14

WH Smith PLC

Glossary (unaudited)

A1. Reconciliation of Headline to Statutory Group operating profit and Group profit before tax (cont'd)

	6 months to 28 Feb 2021
	pre-IFRS 16 basis			IFRS 16 Basis
£m	Headline, before non-underlying items	Headline non-underlying items	Headline	IFRS 16 adjustments	Total
Revenue	420	-	420	-	420
Cost of sales	(169)	-	(169)	-	(169)
Gross profit	251	-	251	-	251
Distribution costs	(196)	-	(196)	6	(190)
Administrative expenses	(68)	-	(68)	(1)	(69)
Other income	-	-	-	1	1
Non-underlying items	-	(18)	(18)	(3)	(21)
Group operating loss	(13)	(18)	(31)	3	(28)
Finance costs	(6)	-	(6)	(4)	(10)
Loss before tax	(19)	(18)	(37)	(1)	(38)
Income tax credit	1	2	3	-	3
Loss for the period	(18)	(16)	(34)	(1)	(35)
Attributable to:
Equity holders of the parent	(18)	(16)	(34)	(1)	(35)
Non-controlling interests	-	-	-	-	-
	(18)	(16)	(34)	(1)	(35)

A2. Reconciliation of Headline to Statutory Segmental trading profit / (loss) and Profit / (loss) for the period

	6 months to 28 Feb 2022					6 months to 28 Feb 2021
	IAS 17 Basis			IFRS 16 Basis		IAS 17 Basis			IFRS 16 Basis
£m	Headline	Non-underlying items	Total	IFRS 16 adjustments	Total	Headline	Non-underlying items	Total	IFRS 16 adjustments	Total
Travel UK trading profit / (loss)	3	-	3	6	9	(19)	-	(19)	-	(19)
North America trading profit / (loss)	8	-	8	-	8	(3)	-	(3)	(1)	(4)
Rest of the World trading loss	(1)	-	(1)	(1)	(2)	(6)	-	(6)	(2)	(8)
Total Travel trading profit / (loss) loss	10	-	10	5	15	(28)	-	(28)	(3)	(31)
High street trading profit	26	-	26	9	35	24	-	24	9	33
Group profit / (loss) from trading operations	36	-	36	14	50	(4)	-	(4)	6	2
Unallocated costs	(10)	-	(10)	-	(10)	(9)	-	(9)	-	(9)
Headline Group operating profit / (loss)	26	-	26	14	40	(13)	-	(13)	6	(7)
Non-underlying items	-	(3)	(3)	(3)	(6)	-	(18)	(18)	(3)	(21)
Group operating profit / (loss)	26	(3)	23	11	34	(13)	(18)	(31)	3	(28)
Finance costs	(12)	-	(12)	(4)	(16)	(6)	-	(6)	(4)	(10)
Profit / (loss) before tax	14	(3)	11	7	18	(19)	(18)	(37)	(1)	(38)
Income tax (expense) / credit	(3)	1	(2)	(2)	(4)	1	2	3	-	3
Profit / (loss) for the period	11	(2)	9	5	14	(18)	(16)	(34)	(1)	(35)
Attributable to:
Equity holders of the parent	9	(2)	7	5	12	(18)	(16)	(34)	(1)	(35)
Non-controlling interests	2	-	2	-	2	-	-	-	-	-
	11	(2)	9	5	14	(18)	(16)	(34)	(1)	(35)

WH Smith PLC

Glossary (unaudited)

A3. Reconciliation of Headline to Statutory tax (expense) / credit

	6 months to 28 Feb 2022			6 months to 28 Feb 2021
£m	IAS 17	IFRS 16 adjustments	IFRS 16	IAS 17	IFRS 16 adjustments	IFRS 16
Headline profit / (loss) before tax	14	10	24	(19)	2	(17)
Tax on profit	1	1	2	-	-	-
Adjustment in respect of prior year UK corporation tax	-	-	-	-	-	-
Total current tax charge	1	1	2	-	-	-
Deferred tax - current year	3	1	4	(1)	1	-
Deferred tax - prior year	(1)	-	(1)	-	-	-
Tax on Headline profit / (loss)	3	2	5	(1)	1	-
Tax on non-underlying items	(1)	-	(1)	(2)	(1)	(3)
Total tax on profit / (loss)	2	2	4	(3)	-	(3)

A4. Calculation of Headline and Statutory earnings per share

	6 months to 28 Feb 2022						6 months to 28 Feb 2021
	IAS 17 Basis			IFRS 16 Basis		IAS 17 Basis				IFRS 16 Basis
£m	Headline	Non-underlying items	Total	IFRS 16 adjustments	Total	Headline		Non-underlying items	Total	IFRS 16 adjustments	Total

Profit / (loss) for the year, attributable to equity holders of the parent	9	(2)	7	5	12	(18)		(16)	(34)	(1)	(35)

Weighted average shares in issue for earnings per share	131	-	131	-	131	131		-	131	-	131
Weighted average shares in issued for diluted earnings per share	131	-	131	-	131	132		-	132	-	132
Basic earnings / (loss) per share	6.9p	(1.6)p	5.3p	3.9p	9.2p	(13.7)p		(12.3)p	(26.0)p	(0.7)p	(26.7)p
Diluted earnings / (loss) per share	6.9p	(1.6)p	5.3p	3.9p	9.2p	(13.6)p		(12.2)p	(25.8)p	(0.7)p	(26.5)p

WH Smith PLC

Glossary (unaudited)

A5. Fixed charges cover

£m	6 months to 28 Feb 2022	6 months to 28 Feb 2021
Net finance costs (pre-IFRS 16)	12	6
Net operating lease rentals (pre-IFRS 16)	96	58
Total fixed charges	108	64
Headline profit / (loss) before tax	14	(19)
Headline profit / (loss) before tax and fixed charges	122	45
Fixed charges cover - times	1.1x	0.7x

A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases

	6 months to 28 Feb 2022		6 months to 28 Feb 2021
£m	IAS 17	IFRS 16	IAS 17	IFRS 16
Costs relating to business combinations
- Transaction costs	-	-	-	-
- Integration costs	-	-	1	1
Amortisation of acquired intangible assets	2	2	2	2
Costs directly attributable to Covid-19
- Impairment of property, plant and equipment	1	1	6	5
- Impairment of right-of-use assets	-	3	-	9
- Other property costs	-	-	2	-
- Write-down of inventories	-	-	5	5
- Restructuring costs	-	-	2	2
- Other	-	-	-	(3)
Non-underlying items, before tax	3	6	18	21
Tax credit on non-underlying items	(1)	(1)	(3)	(3)
Non-underlying items, after tax	2	5	15	18

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 £1m has been recognised in relation to the above items (£1m under IAS 17).

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.

WH Smith PLC

Glossary (unaudited)

A6. Non-underlying items on pre-IFRS 16 and IFRS 16 bases (continued)

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. In the prior year, we have recognised onerous provisions of £2m for stores where we now anticipate we will make a cash loss over the remaining term of their leases.

A7. Free cash flow

£m	Note	6 months to 28 Feb 2022	6 months to 28 Feb 2021
Cash generated from operating activities	10	55	34
Interest paid		(12)	(7)
Net cash inflow from operating activities		43	27
Impact of IFRS 16 (Note A9)		(43)	(41)
Add back:
- Cash impact of non-underlying items		8	22
- Pension funding		1	1
Deduct:
- Purchase of property, plant and equipment		(33)	(16)
- Purchase of intangible assets		(5)	(6)
Free cash flow		(29)	(13)

A8. Headline Net debt

£m	Note	6 months to 28 Feb 2022	6 months to 28 Feb 2021
Borrowings
- Revolving credit facility		-	-
- Convertible bonds		(288)	-
- Bank loans		(132)	(400)
- Lease liabilities		(461)	(509)
Liabilities from financing activities		(881)	(909)
Cash and cash equivalents		88	72
Net debt (IFRS 16)	9	(793)	(837)
- Add back lease liabilities recognised under IFRS 16¹		457	501
Net debt (IAS 17)		(336)	(336)

¹ Excludes lease liabilities previously recognised as finance leases on a pre-IFRS 16 basis.

WH Smith PLC

Glossary (unaudited)

A9. Cash flow disclosure impact of IFRS 16

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.

	6 months to 28 Feb 2022			6 months to 28 Feb 2021
£m	Headline (pre-IFRS 16)	IFRS 16 Adjustment	IFRS 16	Headline (pre-IFRS 16)	IFRS 16 Adjustment	IFRS 16
Net cash inflows from operating activities	-	43	43	(14)	41	27
Net cash outflows from investing activities	(38)	-	(38)	(21)	-	(21)
Net cash inflows/(outflows) from financing activities	(4)	(43)	(47)	(1)	(41)	(42)
Net increase in cash in the period	(42)	-	(42)	(36)	-	(36)

A10. Balance sheet impact of IFRS 16

The balance sheet as at 28 February 2022 including and excluding the impact of IFRS 16 is shown below:

	At 28 Feb 2022			At 28 Feb 2021
£m	Headline (pre-IFRS 16)	IFRS 16 Adjustment	IFRS 16	Headline (pre-IFRS 16)	IFRS 16 Adjustment	IFRS 16
Goodwill and other intangible assets	484	(1)	483	472	(1)	471
Property, plant and equipment	182	7	189	178	4	182
Right-of-use assets	-	330	330	-	370	370
Investments in joint ventures	2	-	2	2	-	2
	668	336	1,004	652	373	1,025

Inventories	153	-	153	123	-	123
Payables less receivables	(216)	21	(195)	(181)	33	(148)
Working capital	(63)	21	(42)	(58)	33	(25)

Derivative financial liability	-	-	-	(1)	-	(1)
Net current and deferred tax asset	45	10	55	20	12	32
Provisions	(28)	14	(14)	(27)	13	(14)
Operating assets employed	622	381	1,003	586	431	1,017
Net debt	(336)	(457)	(793)	(336)	(501)	(837)
Net assets excluding pension liability	286	(76)	210	250	(70)	180
Pension liability	(2)	-	(2)	(4)	-	(4)
Deferred tax asset on pension liability	-	-	-	1	-	1
Total net assets	284	(76)	208	247	(70)	177

WH Smith PLC

Glossary (unaudited)

A11. Operating lease expense

Amounts recognised in Headline Group operating profit on a pre-IFRS 16 basis are as follows:

£m	6 months to 28 Feb 2022	6 months to 28 Feb 2021
Net operating lease charges	96	58

For the year ended 31 August 2020, 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 41.

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.

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.

A12. Analysis of retail stores and selling space

Number of High Street stores¹

	1 Sept 2021	Opened		Closed	28 Feb 2022
Total	545	-		(8)	537

¹ Excludes 100 WH Smith LOCAL franchised stores

Number of Travel units

A Travel store may consist of multiple units within one location. On an individual unit basis, Travel stores can be analysed as follows:

	1 Sept 2021	Opened	Closed	28 Feb 2022
Non franchise units	807	32	(31)	808
Joint Venture and Franchise units²	359	12	(17)	354
Total	1,166	44	(48)	1,162

² Travel units include motorway and international franchise units, and exclude kiosks in India, and Supanews and Wild Cards and Gifts franchisees in Australia.

Retail selling square feet ('000s)

	1 Sept 2021	Opened	Closed	28 Feb 2022
High Street	2,610	-	(23)	2,587
Travel	995	58	(44)	1,009
Total	3,605	58	(67)	3,596

Total Retail selling square feet does not include franchise units.

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Company Announcements

Interim Results

Brunswick

Non-underlying items1

Net Finance Costs

Tax

Fixed Charges Cover1

Cash Flow

Free cash flow1 reconciliation

12 months to

28 Feb 2022

(unaudited)

28 Feb 2021

(unaudited)

31 Aug 2021

(audited)

(unaudited)

(unaudited)

(audited)

Tax on profit / (loss)

Profit / (loss) for the period attributable to equity holders of the parent

Non-underlying items (Note 3)

Headline profit / (loss) for the period attributable to equity holders of the parent

Weighted average ordinary shares for diluted earnings per share

Basic earnings / (loss) per share

Adjustments for non-underlying items

Headline basic earnings / (loss) per share

Diluted earnings / (loss) per share

Adjustments for non-underlying items

Headline diluted earnings / (loss) per share

Analysis of net debt

Term loans

Term loans

Analysis of net debt (continued)

Cash generated from operating activities

28 Feb 2021

IFRS 16

IAS 17

IFRS 16

Note

28 Feb 2022

28 Feb 2022

28 Feb 2022

Non-underlying items¹

Fixed Charges Cover¹

Free cash flow¹ reconciliation