CONNECT GROUP PLC ANNUAL REPORT AND ACCOUNTS 2019 · 2019-12-16 · 16 Financial Review 22...

CONNECT GROUP PLC ANNUAL REPORT AND

ACCOUNTS 2019

CONNECT GROUP ANNUAL REPORT 2019

2 AYearinReview4 Chairman’sStatement6 GroupStrategyand

BusinessModel8 ChiefExecutive’sReview11 KeyPerformanceIndicators12 OperatingReview16 FinancialReview22 PrincipalRisks26 StatementofViability28 CorporateResponsibility

Connect Group PLC Annual Report 2019

INSIDE THIS ANNUAL REPORT

Strategic Report

Governance

32 IntroductiontoGovernance34 BoardofDirectors36 CorporateGovernance44 AuditCommitteeReport51 NominationsCommitteeReport54 Directors’RemunerationReport75 Directors’Report–Other

StatutoryDisclosures79 Directors’Responsibilities

02 32ForregularupdatesontheperformanceandgovernanceoftheGroupvisit:www.connectgroupplc.com

CONNECT GROUPANNUALREPORT2019S

TR

AT

EG

ICR

EP

OR

TOURVALUES

http://www.connectgroupplc.com

STRATEGIC REPORT 1

Financial Statements

Connect Group PLC is a specialist distributor and a leading player in newspaper and magazine wholesaling and mixed freight deliveries. Our business model is founded on the delivery of great service, scale efficiencies and unmatched value for customers.

Our Values

80 IndependentAuditor’sReporttothemembersofConnectGroupPLC

86 GroupIncomeStatement87 GroupStatementof

ComprehensiveIncome88 GroupBalanceSheet89 GroupStatementof

ChangesinEquity90 GroupCashFlowStatement91 NotestotheAccounts132 Glossary–Alternative

PerformanceMeasures134 CompanyBalanceSheet135 StatementofChangesinEquity136 NotestotheCompanyBalance

Sheet139 ShareholderInformation

80

Welcome to the Connect Group PLC Annual Report 2019.

In a challenging year, the Group has focused on building the underlying strength of its core operations, with priorities that balanced improvements in profitability, continued investment and prudent capital management.

Gary Kennedy Chairman

Makeinformeddecisionsandactquickly.Beagileinthewayweworktogetheranddeliverforourcustomers

Beimaginative,adventurousandcurious.Developinspirationalideasandinnovativesolutions

Shareyourthoughtsfreelyandalwaysstayopentonewideas.Listentoothers,bepositiveandengageincommunications

Safe,reliableandresponsible.Takeprideinourworkanddotherightthingforourcustomersandeachother

Havefunandbehelpful.Enjoyworkingtogethertodelivergreatperformance

Beinclusive,honestandrespectfultoeveryone,whatevertheirroleorexperience

CONNECT GROUPANNUALREPORT2019

CONNECT GROUP ANNUAL REPORT 2019OUR VALUESS

TR

AT

EG

IC R

EP

OR

T2

A Year in Review

LOOKING BACK ON A CHALLENGING YEAR

The Group continues to deliver substantial

profit and cash, achieving a reduction in

net debt after meeting the investment needs

of the business.

Total Group revenue

£1,467.9m2018: £1,534.3m

Statutory (loss) before tax

£(37.6)m2018: £(35.5)m

Free cash flow

£8.3m2018: £20.2m

Net debt

£73.9m2018: £83.4m

Adjusted profit before tax

£23.2m2018: £28.4m

Adjusted earnings per share

7.9p2018: 9.3p

Dividend per share

1.0p2018: 3.1p

Financial highlightsConnect Group PLCisaspecialistdistributorandaleadingplayerinnewspaperandmagazinewholesalingandmixedfreightdistribution.Weconnectoursupplierstotheircustomerswithnetworksthatprovidescaleefficienciesandmarketexpertisewhichaddsvalueacrossthesupplychain.Ourbusinessmodelsarefoundedonanunmatchedabilitytomeettheneedsofourcustomerstostandardsthatotherdistributorswouldstruggletoachieve.

www.connectgroupplc.com

Smiths News,theUK’slargestnewswholesalerreachesmorethan25,500retailersacrossEnglandandWales.Operatingsevendaysaweek,wedeliversupplies,collectandprocessreturnsandusetechnologytoforecastdemandandmanageproductsefficiently.Servingafixedbutfragmentedcustomerbase,thedensityofourcoverageisunprecedented,andthespeedofturnaroundiscriticaltooneoftheUK’sfastestphysicalsupplychains.SmithsNewshaslong-termandexclusivedistributioncontractswithitsmajorpublishers,underpinningahighlypredictablebusinessmodelinwhatisauniquelyspecialisedsector.SmithsNewsincludestwoadjacentbusinesses,DMDandInstore,whichprovidecomplementaryservicesforpublishersandretailers.

www.smithsnews.co.uk

Tuffnellsisaleadingspecialistinmixedandirregularfreight,servingsmallandmedium-sizedenterprisesacrosstheUK.Whetheritisaparcelorapalletload,Tuffnellshassolutionsforthedeliveriesthatothersfinddifficulttomake.Withamixoflocalandnationalclients,ournetworkoffersarangeoftimeddeliveriesthatcomplementsourcapabilityinspecialistdistribution.

www.tuffnells.co.uk


http://www.smithsnews.co.uk

http://www.tuffnells.co.uk

CONNECT GROUP ANNUAL REPORT 2019 STRATEGIC REPORT 3

In a challenging year the Group’s performance was driven by a strong recovery in Smiths News, offset by significantly weaker trading in Tuffnells.

Operational headlines• Costsavingsoffsettingimpact

ofdecliningsales• SwiftremovaloflegacyPassMyParcelcosts• Serviceimprovementsreducing

rectificationcosts• Majorcontractrenewalssecured• Pathwaytofuturenetworkefficiencies

Revenue £m

Operating profit £m

Revenue £m

Operating profit £m

OutlookWithawell-establishedandsuccessfulbusinessmodel,SmithsNews’primaryfocusisongreatserviceandthedeliveryofefficienciesthataimtooffsetthedeclineinsalesofnewspapersandmagazines.

Operational headlines• Legacycostandserviceissuesimpacting

performance• Revenuequalityimprovementsoffsetby

lossofvolume• Networkandtrunkingreviewunderway• Strategicreviewofthebusinessunderway

OutlookAfteranextremelychallengingyear,weareimplementingastrategicreviewtodeterminethemostappropriatestructureandstrategyfortheTuffnellsbusinessand,morewidely,toconsideritsroleandfutureintheGroup.Intandemwiththisreview,Tuffnellswillcontinuetofocusonimprovingthequalityofitsrevenue,leanerandmoreflexiblecoststructures,newcustomerwins,increasedvolumesandimprovementstoservice.

2019

2019

2019

2019

2018

2018

2018

2018

164.6

(14.1)

1,303.3

43.6

175.2

(5.0)

1,361.6

38.9

Business overview


TR

AT

EG

IC R

EP

OR

T4

Chairman’sStatement

These headline results have been achieved

in the context of widespread change and

restructure, impacting all areas of the Group.

CHALLENGE AND PROGRESS – LAYING THE FOUNDATION FOR RECOVERY

Inachallengingyear,theGrouphasfocusedonbuildingtheunderlyingstrengthofitscoreoperations,withprioritiesthatbalancedimprovementstoprofitabilityandcontinuedinvestmentandprudentcapitalmanagement.TheperformanceofSmithsNewsandtherestructureofourcentralfunctionshavegonewell,howeveroverallprogresswasseverelyhamperedbyaworseningofTuffnells’performanceinachallengingandcompetitiveenvironment.OverallGroupAdjustedprofitbeforetaxisthereforebelowlastyear,albeitonlymarginallybehindmarketexpectations.WhileweareconfidentthatSmithsNewscannowdeliversustainablypositivereturns,inthelightof

itscontinuingunderperformanceandfutureinvestmentneeds,wehavedeterminedtoconductastrategicreviewofTuffnells,encompassingitsimmediatestrategy,andlonger-termroleandprospectsintheGroup.

GroupAdjustedprofitbeforetaxforcontinuingoperationsof£23.2misdownby18.3%(FY2018:£28.4m)andAdjustedearningspershareisdown15.1%to7.9p(FY2018:9.3p).Freecashflowforcontinuingoperationswas£8.3m(FY2018:£20.2m)andtheGroup’snetdebtclosedtheyearat£73.9m(FY2018:£83.4m).

GiventheunderperformanceofTuffnellsandinconsiderationofitsfutureprospectsintheGroup,animpairmentof£45.5m

hasbeenmadetothegoodwill,tangibleandintangibleassetsofthebusiness.Asaconsequence,theStatutorylossbeforetaxof£37.6misadverseby5.9%(FY2018:lossof£35.5m),andStatutoryearningspershareisalossof12.9p(FY2018:lossof15.5p).

TheGroup’soverallperformanceshouldbeviewedinthecontextofwidespreadchangeandrestructure,impactingallareasofthebusiness,ourcolleaguesandcustomers.Intheautumnof2018,havingcompletedtherationalisationofourportfolio,wereturnedaccountabilityforSmithsNewsandTuffnellsfromtheformerintegratedstructure,tooneofdistinctbusinessunitssupportedbyasuiteofsharedcentralservices.Thenewstructurewasintroducedintandemwithclearprioritiesthatwoulddriverecoverybyrefocusingonourcorestrengthswhilebeingopentonewandmoreefficientwaysofworking.

ItispleasingtoreportthesignificantlyimprovedperformancefromourlargestbusinessSmithsNews,whichreturnedAdjustedoperatingprofitof£43.6m(FY2018:£38.9m)upby12.1%.Acombinationofsustainablecostefficienciesandtherapidremovaloflegacycostsfromexitedbusinesspropositionshascontributedtothisresult.But,perhapsmostimportantly,thefocusedmanagementstructure,ledbyJonathanBunting,hasreturnedSmithsNewstoitsformerstability,restoringitsreputationfordeliveringunmatchedserviceandefficiency.Theacceleratedrenewalofourcontractswiththemajornewspaperandmagazinepublishershasalreadysecuredover80%ofourcurrentrevenuesthroughto2024.Thisisafurther

Gary KennedyChairman


boosttoconfidence,givinguscertaintyofourterritoriesandanenviablepredictabilityofrevenuesandcashflow.SmithsNewshasanexcellenttrackrecordinfindingsavingstomitigatethegradualdeclineinsales–whilethisinevitablybecomesmorechallengingovertime,asakeypriorityandfreeofotherdistractions,wewouldhopetomaintainsimilarprogressoverthelifetimeofourcontracts.

DawsonMediaDirect(DMD),theGroup’sspecialistairlineandtravelpointbusiness,hasforanumberofyearsworkedcloselywithSmithsNews.Thisyear,thebusinesslostasignificantcontractwithBritishAirwaystocompetitivetenders.Wehavethereforetakenactiontomitigatetheimpactand,followinginternalreview,DMD’soperationandmanagementhavebeenfullymergedintoSmithsNews,fromwhereitcancontinuetomakeapositivecontribution.

Tuffnells’Adjustedoperatinglossof£14.1m(FY2018:£5.0m)wasseverelyimpactedbytheflow-throughoflegacyweaknesseswhichmeantwebegantheyearwithasignificantlyworseningrunrateofconsignmentvolume,customerattrition,costsandoperationalperformance.Thepositionwasexacerbatedbyuncertaintyinthewidereconomicenvironmentand,asthemarkettightened,hasledtoafurtherlossofsales.

AsatSmithsNews,thereintroductionofadedicatedmanagementteamhasimprovedfocusandcontrols,butitisnowclearthatthepotentialsolutionsinTuffnellswilltakelongertoflowthroughtoresults,anddisappointinglytheanticipatedfirstsignsofperformanceimprovementwerefurtherdelayedinthesecondhalfbyanespeciallychallengingfinalquarter.

ItisclearthattherecoveryofTuffnellsremainstheGroup’smostpressingchallenge.WecontinuetobelievethattheoperationalperformanceofTuffnellscanbeimproved,withtheimmediateprioritybeingtoidentifymeasurestoreducecostsandimproveoperationalflexibility.However,inthelightofitscontinueddragonoverallGroupprofit,thestrategicreviewwillalsodeterminethemostappropriatestructureandstrategyforthebusiness,andmorewidelytoconsideritsroleandfutureintheGroup.

Supportingthestrategicreview,MichaelHoltwilltaketheroleofExecutiveChairmanofTuffnellsforthedurationoftheprocess.Michaelhasbeenanon-executivedirectoroftheGroupsinceOctober2018;withalifetimeofexperienceinthedistributionandlogisticssector,heisfullyqualifiedtoprovideinsightanddirectionthatwillcomplementthe

currentmanagementteam.Meanwhile,andintandemwiththereview,wewillcontinuetopursueefficienciesandgreaterflexibilityofworkinginresponsetothechallengingtradingenvironment.

Efficienciesinourcentralfunctionshavemadegoodprogressanddeliveredanimportantcontributiontoouroverallresults.Aleanercentre,withasimplifiedmanagementstructurehasalsoimprovedvisibilityofcostsandtheirallocationacrosstheGroup.Workinginsupportofthebusinessunits,thecentralfunctionshavereducedcostsinareassuchasRecruitment,TechnologyandPeople–aswellasimprovingthequalityofinformationwhichunderpinsaccountabilityforperformanceatanoperationallevel.Theongoingdevelopmentofanoffshoresharedservicecentrefortheprovisionofselectedtechnology,customerexperienceandfinanceservices,willyieldsignificantcostbenefitinfutureyears.

DespitethechallengesinTuffnells,whichlimitedprogressintheyear,theGroupgeneratedpositiveFreecashflowof£8.3m(FY2018:£20.2m),closingtheyearwithnetdebtof£73.9m,equivalentto1.9Xnetdebt/EBITDA.TheplannedSaleandLeasebackof16Tuffnellsdepotsdidnotproceedintheyearashopedbut,inthefirstthreemonthsofFY2020,wereachedagreementcoveringsixdepots,generatingnetreceiptsof£9.9m,whichhavebeenusedtofurtherreduceborrowing.Furthermore,cashcontributionstothedeficitrepairplanoftheGroup’slargestdefinedbenefitpensionscheme(inSmithsNews)havenowceased(FY2018:£3.3m),followinganinsuranceledbuy-inprocessinOctober2018.

Duringourrecoveryperiod,weareholdingcapitalmanagementasapriority,whilebeingmindfuloftheneedforallstakeholderstoshareinourprogress.Thisyear,wehavenotmetourperformanceobjectivestotriggervariablepayawardsforouremployees.However,inthelightofourunderlyingprogressandafterconsiderationofourfutureprospects,theBoardhasproposedandrecommendedafinaldividendforFY2019of1.0ppershare,payableinFebruary2020.Lookingahead,wecontinuetoexpectFreecashflowfromoperationstobesufficienttofundinvestmentneeds,contributetoareductioninnetdebt,andprovideanattractiveyieldtoshareholders.

ThesupportofmycolleaguesontheBoardandExecutiveTeamhasbeenessentialtoaddressingtheopportunitiesandchallengesacrosstheGroup.Iamgratefulfortheirconstructivequestioningandthoughtfuljudgementaswecontinuetodeliveraturnaroundbasedonbuildingasustainablybettercorebusiness.JosOpdeweeghwhojoinedasChiefExecutiveOfficerinSeptember2018madeameaningfulcontributiontothedirectionandimplementationofthisstrategy,beforeleavingtheGroupinNovember2019.IamdelightedthatJonathanBunting,whohasledtheSmithsNewsbusinessforovertenyears,hasagreedtotakeuptheroleofInterim

ChiefExecutiveOfficerofConnectGroupPLC.HisindustryexperienceanddeepknowledgeofouroperationswillbeinvaluableasweconductthestrategicreviewanddeterminethefutureleadershiprequirementsoftheGroup.

Thisyear,theBoardcompletedanexternallyfacilitatedthree-yearlyevaluationprocesswhichconcludedthattheBoardanditsCommitteesareworkingeffectively,butalsoprovidedhelpfulfeedbackforimprovement.Furtherdetailsoftheevaluation’sprocessandfindingscanbefoundintheCorporateGovernancereportonpage41.

Lookingtotheyearahead,ourcorestrategyremainsuncomplicatedandunchanged:aresolutefocusonbuildingsustainablybetterbusinesses,underpinnedbyprudentcapitalmanagement.Inthisregard,therecoveryofSmithsNewsandtheimprovementstoourunderlyingfinancialpositionprovideuswithastrongerplatformtoaddressourmostpressingchallenge–theturnaroundofTuffnellsandtheremovalofitsdragonouroverallperformance.Werecognisethereisstillmuchtobedoneandthat,inparticular,theoutcomeofitsstrategicreviewwillbecriticaltothelong-termdeliveryofimprovedshareholdervalue.Iamconfidentthatthiscombinationoffocusedpriorities,widerstrategicreviewandcontinuedprudentcapitalmanagementistherightwayforward,andlookforwardtoreportingonprogressinduecourse.

Finally,Iwouldalsoliketothankallourcolleaguesfortheirunderstandingandunstintingcommitmentinthefaceofwhathasbeenademandingprogrammeofchangeandrenewal.Itistheirdailyeffortswhichunderpinallthatwehaveachieved,andIamalwaysimpressedbytheirdeterminationtodeliverthehigheststandardsofservice,ofteninchallengingcircumstances.AstheGroupcontinueswithitsrecovery,theireffortswillbevital,andIlookforwardtothemsharinginthebenefitsofoursuccess.


During our recovery period we are holding capital management as a priority.


TR

AT

EG

IC R

EP

OR

T6

Group Strategy and Business Model

BUILDING SUSTAINABLY BETTER BUSINESSES

Our strategy is to build the capability of Smiths

News and Tuffnells, through actions and

investments that will deliver sustainable

value over time.

Our strategyTheGroup’sstrategyisfoundedonthedeliveryofmarketleadingservicestoourcorecustomergroups.Weoperateasaleadingplayerintwodistinctmarkets,sharingcentralservices,whichprovidefurtherefficienciesandenhanceourspecialistexpertise.Inbothourmarkets,westrivetoofferthebestvalueroutetomarket,providinghighqualityservicesthataredifficultandcostlyforotherstoreplicate.Bydoingso,weaimtoestablishlong-termpartnershipswithourcustomersandavoiddisintermediationinoursupplychains.

TheGroupremainsprimarilyfocusedinitscoreoperations,workingtoenhancecapabilityandinvestingtobuildsustainablybetterbusinesses.Aleancentralservicemodelensuresscaleeconomiesforthoseservicesthatcanbeshared,withouthindrancetothesmoothrunningoffrontlineoperations.TheGroupisalerttothepotentialforadjacentserviceswhichcanleverageitscoreskillsandplanstopursuetheseovertime,applyingstrictinvestmentcriteriawhichdeliveranappropriatebalancebetweenriskandreturn.

Morebroadly,ourstrategycontinuestofocusonimprovementtotheunderlyingfinancialstrengthoftheGroup,targetingareductioninnetdebt,whilemaintainingourcommitmenttomeetingtheinvestmentneedsofthebusinessandprovidinganattractiveyieldforshareholders.

Our business modelTheGroup’sbusinessmodelaimstodeliverserviceexcellence,scaleefficienciesandvalueforcustomers.Asaleadingplayerinourmarkets,wedeveloplong-termpartnerships,combiningcoreserviceswithbespokesolutionsthatenhanceourroleandvalueacrossthesupplychain.

Ourmarketsarecharacterisedbyalargenumberofsuppliers,complextomanageproductrangesandadiverseanddispersedcustomerbase.Thiscombinationofcustomerandproductfragmentationlimitsdisintermediationinoursupplychainsandsupportstheroleofanindustrydistributionspecialistprovidingavaluableservicetobothsuppliersandcustomers.

TheGroup’stwocorebusinessesservedistinctandspecialisedcustomergroups:SmithsNewsistheUK’slargestnewspaperandmagazinewholesaler;Tuffnellsfocusesonmixedfreightandtimesensitivelogistics,specialisingindeliveriesofirregulardimensionandweight(IDW).

Supportingtheseoperationsarearangeofsharedcentralservicesthatprovidefurtherefficienciesandvalueforcustomers.Wehavealong-termcommitmenttoinvestinginsystemsandinfrastructurewhichmaintainourcompetitiveadvantageandenhancetheserviceweoffer.

> 25,500 customers> 39 depots> Tracking and scanning> Returns collections> 364 day operation

> 36 depots> Specialists in IDW> Online parcel tracking> Collections and

deliveries


Workingefficientlyisthekeytoourcompetitiveadvantage.Withnationalcapabilityandhighmarketsharewecandeliverservicesasstandardthatwouldotherwiserequireapremium,helpingtoreinforceourpartnershipswithcustomers.Ourefficiencyisunderpinnedbyaculturethatactivelyseeksoutimprovementsthatcanbesharedacrossthesupplychain.

TheGroupoffersarangeofdistributionservicesthatcanbetailoredtocustomerneeds.Fromtimesensitiveordifficultdeliveries,tostockholdingandinformationservices,weprovidetheexpertiseandpracticalknow-howthatourcustomerstrusttosupporttheirbusiness.

Valueiscriticaltoourcustomersandhenceourbusinessmodel.Weaimtodeliverthemostcosteffectiveroutetomarket,sharingourinfrastructureandcapabilityacrossmanythousandsofcustomerssothatallcanbenefit.Weunderstandthatvaluecomesindifferentforms,andassuchweofferarangeofpricedservicesfromtherelativelysimpleandregular,tooneoffandmorecomplexdeliveries.

Bysharingandconsolidatingtheroutetomarket,bothourpublishersandretailersbenefitfromahighquality,efficientdailyservice.Wehavelong-termcontractswithallthemajornationalpublishersaswellaswiththemajorityofregionalpressinourterritories.Thismeanswecaninvestforthelong-termandworkwithourpartnerstofindnewefficienciesacrossthesupplychain.

SmithsNewsistheUK’slargestnewswholesaler,workingtouniquelychallengingandultratime-sensitivedemands.Visiting25,500customers364daysayear,thevastmajorityofourdeliveriesandcollectionsarecompletedbefore6.30am.Withover225years’experienceweareaworldleaderinwhatisacomplexandhighlyspecialisedservice.

SmithsNewsalsooffersadjacentservicesforcustomersandsuppliers,includingairlineandtravelpointdistribution,andanextensivefieldmarketingservicespecialisinginnewspapers,magazinesandotherfast-movingcategories.

Ourwidermarketinsightisessentialtobothpublishersandretailers,addingvaluetotheentiresupplychain.Inadditiontodailydeliveries,wecollectandprocessunsoldcopies,providingneartorealtimesalesandmarketingdataonadailybasis.Ouruniqueviewacrosstheentireproductrangeisenhancedbyintelligentinformationsystems,enablingustoforecastandswiftlyrespondtochangingtrendsandspikesindemand.

With36depotscustomers,Tuffnellshaslocalexpertisecombinedwithnationalreach.Thenetworkconfigurationfacilitatesbothadirectcarrierserviceanda‘hubandspoke’capabilityformoredisperseddistribution.

Tuffnellsisaspecialistproviderofparcelfreightservicesforsmallandmediumsizedenterprises,withparticularexpertiseinitemsofirregulardimensionandweight.Ournetworkoflocaldepotsmeansweworkcloselywithourcustomers,offeringarangeofservicesthatcanbeflexedtomeettheirparticularneeds.

Usingsmartsystemsweenhanceourcoreserviceforsuppliersandtheircustomers–addingvaluewithtrackandtracetechnology,electronicproofofdelivery,back-officesystemsintegrationandacustomerwebsiteinterface.Werecognisethatformanypartners,‘timeismoney’–ourgoalistoensuredeliveriesarecompletedasquicklyandefficientlyaspossible.

> 25,500 customers> 39 depots> Tracking and scanning> Returns collections> 364 day operation

> 36 depots> Specialists in IDW> Online parcel tracking> Collections and

deliveries

Services

Services

Services

Efficiency

Efficiency

Efficiency

Value

Value

Value


TR

AT

EG

IC R

EP

OR

T8

Chief Executive’s Review

In developing and enacting our plans, we have paid close

attention to the interests of all stakeholders.

EFFICIENT, KNOWLEDGEABLE AND SERVICE-DRIVEN

Ayearago,performanceoftheGroupwasnegativelyimpactedbyacombinationofweakeningtradeandoperationaldisruption.Despitethebesteffortsofourpeople,thestrategytointegrateourcorebusinesseshadnotdeliveredthehopedforresults.BySeptember2018,itwasclearthatwhileSmithsNewsandTuffnellswerebothspecialistdistributors,theyweretwodistinctbusinesseswithlimitedopportunitytoleveragesynergiesacrosstheircombinednetworks.

Ourfirstprioritywastoreturnfocusandaccountabilitytothecoreoperationswhilstatthesametimeresettingourapproach,allowingustoleveragetheknowledgeandskillsofthoseclosesttocustomerstodelivermoreefficientbutstillexcellent

Jonathan BuntingInterimChiefExecutiveOfficer

service.WiththefullsupportoftheBoard,andtheunstintingcommitmentofcolleaguesacrossthebusiness,wecontinuetomakeprogress.

Focus and accountabilityInOctober2018,weintroducedanewbusinessunitstructure.SmithsNewsandTuffnellswerereturnedtodedicatedmanagementteams,withaccountabilityforsales,operationalserviceandthefinancialperformanceoftheirfrontlineoperations.Thesearesupportedbyaleancentralsharedservicesmodel,workinginserviceofthebusinessestoprovidebothexpertiseandeconomiesofscaleinareassuchasIT,People,FinanceandBusinessTransformation.

Bymovingaccountabilitynearertoourcustomers,wesoughttoensurethosewiththemostrelevantinsightandexpertiseareabletotakeownershipoftheissuestheyarebestplacedtoaddress.Asaconsequence,wehaveenhancedserviceandcostcontrolinSmithsNews,returningthebusinesstoitsformerstabilityandconfirmingtheconfidenceofourpublisherswiththeawardofcontractsthatsecureourrevenuesandfootprintthroughtoatleast2024.TheGroupfunctionsarealsonowdeliveringamorecustomercentricsuiteofservices,firmlyfocusedonhelpingouroperatingbusinessestosucceed.InTuffnells,progresshasbeenslower;whilewehavemadesomestepsinimprovingthequalityofrevenueandtherealignmentofcoststructures,thereremainsasignificantwaytogotowardsrecovery.InthelightofitscontinueddragontheoverallGroup,wehavethereforeinitiatedastrategicreviewofTuffnellstodeterminethemostappropriatestructureandstrategyforthebusiness,andmorewidelytoconsideritsroleandfutureintheGroup.

Indevelopingandenactingourplans,wehavepaidcloseattentiontotheinterestsofallstakeholders,seekingtoensurethatchangesaresustainableanddeliverbenefitsovertime.Forexample,wehaveworkedtofindcostsavingsthatarecompatiblewithimprovementstoservice,whilemaintainingnecessarycapitalinvestmentinthecontextofawiderprudentapproachtocapitalmanagement.Inevitably,wehavehadtomakesomedifficultdecisions,notleastinthedepartureofanumberofcolleaguesaswehaverestructuredoperations.


Efficient Head Office FunctionsThestreamliningofourheadofficefunctionshasdeliveredfurthersavingsforthebusinessunitsandtheGroupcentre,whilealsoimprovingservicethroughamorecustomercentricapproach.Amongahostofinitiatives,notableprogressthisyearincludestheoff-shoringofselectedtechnology,customerexperienceandfinanceservices;theconsolidationofthePeoplefunctionintoasinglecentreofexpertise;andtherestructureofourfinanceteams.

Standard Operating ModelWorkingtobestpracticeprincipleswehavesoughttodefine,measureandimprovetheflowofgoodsandeffortacrossournetworks.Startingwithourdepots,inbothSmithsNewsandTuffnells,wehaverefinedoperatingprocedurestodelivermoreconsistentserviceandensurebestpracticeisfollowedthroughbothnetworks.Afurtherreviewofnationaltrunkingandoverallnetworkstructureisnowunderway.

CultureInconsultationwithcolleagues,wehaveintroducednewworkplacevaluesinserviceofamoreentrepreneurialandcustomerfocusedculture.Inaddition,wehavesupportedthechangeprogrammewithinitiativestoencourageswifter,evidence-based,decisionmakingthatisfocusedonmeetingcustomerneedsandbusinessgoals.Wehavemadegoodprogresstooininvolvingandlisteningtofrontlinecolleagues,introducingacascadeofemployeeforumsthatincludesrepresentationfromthenon-executivedirectorsandtheExecutiveTeam.Colleaguesareencouragedtogiveviewsandfeedbackwhichcanbeusedtorefineourstrategyandpriorities.FurtherdetailsareincludedintheCorporateResponsibilityreportonpage28.

However,wehavealwaysbeenguidedbytheunderlyingprincipleofbuildingasustainablefuture,onthebasisofrobustbusinessmodelsandcompetitivecustomerfocusedoffers.

Performance and progressSmithsNewsSmithsNewshasdeliveredgoodresults.Adjustedoperatingprofitof£43.6misup12.1%(FY2018:£38.9m)drivenbystrongcostcontrol,theswiftremovaloflegacycosts,andarenewedfocusonservice.Lookingahead,therenewalofourpublishercontractsonimprovedtermsprovidessuretyforthebusinessandgivesusenviablepredictabilityoffuturerevenues.SmithsNewsisawell-managedbusinessandtheclearmarketleaderinitssector.Ourprimaryfocusisonsustainingthisposition,deliveringgreatserviceandsecuringefficienciesthatoffsettheslowandstructuraldeclineinthesalesofnewspapersandmagazines.

TuffnellsTuffnellshadadifficultyear,returninganAdjustedoperatinglossof£14.1m(FY2018:lossof£5.0m)andweacknowledgethattheturnaroundofitsprofitabilityremainstheGroup’smostsignificantchallenge.Ourimpairmentofthegoodwill,tangibleandintangibleassetsby£45.5mreflectstherealitythatitsturnaroundaspartoftheGroupwilltaketimetoachieve.Meanwhile,thedecisiontoconductastrategicreviewofthebusinesswillensureweconsideralloptionsforthebestinterestsofthebusinessanditsstakeholders.

WhiletheperformanceofTuffnellswasseverelyimpactedbythecarrythroughofoperationaldisruptionandcustomerattritionfromtheprioryear,theirimpactwasexacerbatedbyaninsufficientlyflexibleoperatingmodelandunderlyingcostbase.Theactionswetooktoaddresstheseweaknesseshaveledtoagradualimprovementtounderlyingmetricsofthebusiness,however,theywereoffsetbyweakerthananticipatedsalesvolumesinthesecondhalfoftheyear.

Lookingahead,weareconfidentthatthefurtheractionswearetakingwillhelptostabiliseTuffnells’performance,whilethestrategicreviewdeterminestheactions,necessaryinvestmentandoptimumstructureforasustainablerecovery.

We are now delivering a more customer centric suite of services, firmly focused on helping our operating businesses to succeed.

Tuffnells ProfitabilityDespitemuchgoodworkinsecuringcostefficienciesandimprovementstorevenuequality,wewerenotagileenoughinrespondingtolowervolumes.Performancewasfurtherimpactedbycontinuedweaknessanddisruptivecompetitioninthemarket,compoundedbyanespeciallychallengingfinalquarter.Lookingahead,inadditiontoconductingastrategicreviewofthebusiness,wearefocusedonfurtherimprovementtocustomerattraction,revenuegenerationandquality,theflexibilityofoperationsandthereviewofournetwork’slong-haultrunkingarrangements.

Cost Savings in Smiths News Thereturnofaccountabilityforcostsatbusinessunitlevelhasre-establishedwhatisoneofthecoreskillsofSmithsNews.ThelegacycostsoftheclosureofPassMyParcelwereswiftlyremovedandsavingswerefoundintheyeartooffsettheimpactofthedeclineincoresales.Wehaveon-goingplanstomaintainthemomentumofthiscorebusinessmodeloverthelifetimeofourcontracts.

Smiths News ContractsTheacceleratedrenegotiationofourpublishercontractsonimprovedtermsisalmostcomplete.Wehavesecuredagreementsencompassing80%ofourcurrentrevenuesthroughtoatleast2024,andweareconfidenttheoutstandingcontractswillfollowshortly.Theseagreementsunderpinourongoingplansfornetworkandprocessefficiencies,andtogetherwitharelativepredictabilityofsales,givetheGroupanenviablevisibilityofrevenuesandcashflowsinourlargestbusiness.

Progress Against Priorities

InNovember2018,wepublishedalistofprioritiesthatwouldsupplementthenewlyintroducedBusinessUnitmodel,helpingtodriveperformanceimprovementacrosstheGroup.

AsummaryoftheprogressmadeinFY2019isgivenbelow.


TR

AT

EG

IC R

EP

OR

T10

For more information on our performance and strategy see pages 12 to 15

Chief Executive’s Review cont.

GroupCentralServicesByrefocusingourcentralfunctions,includingFinance,ITandPeople,wehaveembracednewwaysofworking,supportingthebusinessunitswithimprovedanalytics,projectmanagementexpertiseandanefficientdivisionofrolesandresponsibilities.

Examplesofprogressthisyearinclude:theoff-shoringofselectedtechnology,customerexperienceandfinancefunctions;theconsolidationoftheFinancefunctionfromitspreviouslydevolvedstructure,benefitinginformationflow,businessanalyticsandcontrol;andourPeopleteamsworkingtirelesslytoimproverecruitment,culture,engagementandcommunicationwithourcolleagues.

Network optimisationdeliveringefficienciesinbothSmithsNewsandTuffnells,whileimprovingserviceandcoverageforcustomers.03

Tuffnells Strategic Review determiningthenecessaryactionsandinvestmentforasustainablerecoveryofTuffnells,whileevaluatingtheirimpactontheoverallGroupandlong-termshareholdervalue.Revenuegenerationandcostsavinginitiativeswillbepursuedintandemwiththereview.

01

Smiths News cost savingsachievingsustainableefficienciesthataimtooffsetthemarginimpactofanydeclineincoresales.

02

Optimising head office functions optimisingourcentralcostsinlinewiththenewGroupstructure.04Capital discipline continuingtoreducenetdebtwhilemeetingtheinvestmentneedsofthebusinessanddeliveringattractivereturnsforshareholders.

05

06 Leveraging and energising our people harnessingtheskillsandcommitmentofcolleaguesasweaddressimmediatechallengesandcontinueourpathtoperformancerecovery.

FurtherdetailsoftheGroup’soperatingperformancecanbefoundintheOperatingReviewonpage12.

Strategy and directionOurapproachisfoundedonbuildingsustainablybetterbusinesseswhichcanthriveundertheumbrellaoftheGroup.

SmithsNewsandTuffnellsareleadingplayersintheirmarkets,offeringscaleefficiencies,enhancedbyapassionforserviceandspecialistexpertisewhichcompetitorsfinddifficulttomatch.Thesearethecorestrengthswemuststrivetoenhance,ensuringwecontinuetoofferthebestvalueroutetomarketforourcustomers.

Ourcorestrategyisthereforetobuildourcapabilitythroughactionsandinvestmentsthatwilldeliversustainablevalueovertime.Whileweremainalerttowidermarketdevelopmentsandpotentialadjacentopportunities,wedonotcurrentlyplantodiversifyintonewsectors.

Webelievetheinterestsofallstakeholdersarebestmetthroughacombinationofimprovementstoourexistingoperationsandaprudentapproachtocapitalmanagement,withthegoalofstrengtheningtheunderlyingfinancialpositionoftheGroup.ThestrategicreviewofTuffnellswillbeconductedinthiscontext,balancingtheprospectsforrecoverywiththerequirementsforongoinginvestmentandtheiroverallimpactontheGroupandshareholdervalue.

SummaryOurplansforanoverallperformanceimprovementwillrequireswift,butevidence-baseddecisionsandawillingnesstoadoptnewwaysofworking.Inwhatremainsachallengingtradingenvironment,Ihavenodoubtthatcolleaguesacrossthebusinesswillrespondwithcharacteristicpositivity.Already,theyhaveembracedthereturntomorefocusedbusinessunitsanddemonstrate,onadailybasis,apassionfortheirbusinessesandadeterminationtosucceed.Iamgratefulfortheirsupportinaddressingthesetbacksandachievingtheprogresstheireffortssorichlydeserve.

Lookingahead,ourrecoveryplanswillcontinuetobalanceaprudentapproachtounderlyingfinanceswithclearoperationalprioritiesthatdeliverlong-termvalueforallstakeholders.Ihavenodoubtthatourmarketswillcontinuetobringacombinationofchallengesandopportunities,butIbelievewearesignificantlybetterplacedtomeetthesethanwewereayearago,andamlookingforwardtoreportingonprogressoverthenext12months.

Jonathan BuntingInterimChiefExecutiveOfficer

Priorities FY2020 TheGroup’sprioritieshavebeenrefreshedforthecomingyear.Theseprioritieswilldriveouractions,takingfirstpriorityonresourcesandtheattentionoftheleadershipacrossthebusiness.


Total RIDDORS

422018: 50

Key Performance Indicators

2019

2019

2019

1,467.9

23.2

28.4

48.0

50.4

56.5

1,534.3

1,594.3

1,645.8

1,875.1

7.9

9.3

15.5

16.2

19.7

2018

2018

2018

2017

2017

2017

2016

2016

2016

2015

2015

2015

Total Group Revenue £m

Adjusted profit before tax £m

Adjusted earnings per share p

2019

2019

2019

8.3

20.2

28.7

36.2

34.1

1.9

1.0

1.8

3.1

1.2

9.8

1.7

9.5

1.9

9.2

2018

2018

2018

2017

2017

2017

2016

2016

2016

2015

2015

2015

Dividend per share p

Free cash flow £m

Net debt: EBITDA

Financial Performance

Non-Financial Performance

TheGroupanditsbusinessesmonitorarangeofnon-financialKPIswhichreflectthedaytodayoperatingneedsofthebusiness:

Required delivery time compliance

96%2018: 95.4%

On time delivery

Key

95.5%2018: 94.2%

Parcels returned to depot

2.7%2018: 2.8%

Pack accuracy

99.5%2018: 99.3%

SmithsNews

Tuffnells

Group


TR

AT

EG

IC R

EP

OR

T12

Operating Review

FOCUSED OPERATIONS THROUGH ONGOING CHALLENGES

Smiths News had a strong year, benefiting

from the return to focused management

and the removal of legacy costs and resultant losses

in Pass My Parcel and distractions

inherent in the former integration strategy.

IntroductionInayearofconsiderablechange,wehaveresolutelyfocusedonourplansforasustainablerecoveryoftheGroupinthemedium-term.SmithsNews,ourlargestbusinessandthemajorcontributortoourcashflows,hadastrongyear,andourplansforcentralcostefficienciesareontrackwithfurtheropportunitiesunderway.Tuffnells,however,hadachallengingyear,withitsperformancehamperedbyaflowthroughoflegacyissues,compoundedbyweakeningmarketconditions.

WhiletheGrouphasmadesignificantprogressagainstmanyofitsrecoverytargets,theunderperformanceofTuffnellshasmateriallyimpactedouroverallperformanceand,asaconsequence,wehavefallenshortinourambitionforstakeholders.WearethereforeimplementingastrategicreviewofTuffnellstodetermineboththefurtheractionsrequiredforasustainablerecoveryand,morewidely,toassessitsfutureroleandprospectsintheGroup.

Followingmanagementchangesannouncedon6November2019,ChiefExecutiveOfficerJozef(Jos)OpdeweeghhassteppeddownfrombothhisexecutiveroleandasadirectoroftheBoard;JonBunting(CEO,SmithsNews),hasbecomeInterimChiefExecutiveOfficeroftheGroup;andMichaelHolt(non-executivedirector)hasagreedtotemporarilybecomeExecutiveChairmanofTuffnellsfortheperiodoftheTuffnellsstrategicreview.

Financial headlinesGroupAdjustedprofitbeforetaxforcontinuingoperationsof£23.2misdownby18.3%(FY2018:£28.4m)andAdjustedearningspershareof7.9pisdown15.1%(FY2018:9.3p).

Followinganimpairmentof£45.5mtothegoodwill,tangibleandintangibleassetsofTuffnells,theStatutorylossbeforetaxis£37.6m(FY2018:lossof£35.5m)andStatutoryearningspershareisalossof12.9p(FY2018:lossof15.5p).

TheGroupgeneratedFreecashflowfromoperationsof£8.3m(FY2018:£20.2m),helpingtoreducenetdebtby£9.5mto£73.9m(FY2018:£83.4m).

Sincetheyearend,theGrouphascompletedthesaleandleasebackofsixTuffnellsdepotsfor£9.9mtheproceedsofwhichhavebeenusedtofurtherreducetheGroup’snetdebtfromthatreportedattheyearend.Wecontinuetoinvestigateopportunitiesforremainingdepots,but,withstrongunderlyingfinances,ourcapitalmanagementstrategyisnotdependentonfurthertransactions.

AftercarefulconsiderationoftheGroup’soverallperformanceintheyearandinlightofbothongoingconfidenceinfuturepositivecashflowsandtheimmediateprioritiesofthebusiness,theBoardhasrecommendedafinalandfullyeardividendforFY2019of1.0p(FY20183.1p,down2.1p).

Smiths NewsSmithsNewshadastrongyear,benefitingfromthereturntofocusedmanagementandtheremovaloflegacycostsandresultantlossesinPassMyParcelanddistractionsinherentintheformerintegrationstrategy.Adjustedoperatingprofitof£43.6misup12.1%(FY2018:£38.9m),drivenbystructuredcostcuttingwhichmorethanoffsetthemarginimpactofdecliningsales.Theacceleratedrenewalofpublishercontractsrepresenting80%ofourrevenuesatcurrentvalues,providescertaintyforourterritoriesthroughtoatleast2024,allowingustoplanfurthernetworkefficienciesthatwillhelpmeettheongoingchallengeofoffsettingtheimpactoffallingsales.

Newspaperandmagazinesalescontinuetodeclineinlinewithlong-termtrendsuponwhichourefficiencyplansarebased.Newspaperrevenueof£826.8mwasdown2%,withpricecontinuingtohelpoffsetvolumedeclines;magazinecategoriesweredownby8%,and6%onalikeforlikebasisafterexcludingWorldCupsalesinFY2018.Wecontinuetoplanonthebasisofgradualdeclineswhichweaimtomitigatethroughsupplychainsimplificationandprocessefficiencies.

Inthesecondhalfoftheyear,theoperationsandmanagementofDMDwerefullymergedintoSmithsNews.ThechangereflectsaprogressionofcloserworkingoverrecentyearsandwillhelptomitigatetheimpactofthekeycontractlossofBritishAirwayswithinDMD,whichtookeffectfromJune2019.


Lookingahead,ourstrategyforSmithsNewsisunchanged:whilewearealerttoadjacentopportunities,ourprimaryfocusisondeliveringunmatchedserviceforpublishersandretailers,andsecuringefficienciesinwhatisawell-establishedandpredictablebusinessmodel.

TuffnellsTuffnells’performancewasseverelychallengedbythecarrythroughoflegacyissues,includingcustomerlosses,poorqualityrevenuesandoperationaldisruptionfromtheprioryear.Theirimpactwasmadeworsebyaninsufficientlyflexiblecostbaseandinconsistentservicewhichresultedininefficiencyandrectificationcosts.Despitemuchprogressinaddressingtheunderlyingissues,thedeclineinconsignmentvolume,exacerbatedbyanespeciallychallenginglastquarter,hasfurtherdelayedourexpectationoffinancialperformanceimprovement.

Salesof£164.6mweredownby6.4%(FY2018:£175.2m)resultingintheAdjustedoperatinglossof£14.1m,worseningby£9.1m(FY2018:lossof£5.0m).Thedisproportionateimpactofdecliningvolumesonprofitabilityreflectsthelegacyoperatingmodel,foundedonarelativelyhighfixedcostbaseandinflexibleprocesses.Actionswetooktoreviewcustomerratesandexitfromunprofitableaccountshavebeensuccessfulinincreasingthequalityofourrevenue,butnotwithoutfurthershort-termimpactonvolume.Newrevenuegenerationatthesemoresustainableratesprovedespeciallychallenginginwhathavebeendisruptivemarkets,leadingtolossofsharetocompetitorsoverthecourseofyear.

Giventheongoingchallengestoperformanceimprovement,animpairmentof£45.5mwasmadetothegoodwill,tangibleandintangibleassetsofthebusiness.Furthermore,wehaveinitiatedastrategicreviewofTuffnellswhichwillbeledbyourChairman,GaryKennedy.

Whilethestrategicreviewwilldetermineourlong-termplansforTuffnells,weremainfocusedonaddressingimmediateissues.Swiftactionhasbeentakentofurtherreduceoperatingcoststhroughimprovedlastmilerouting,andawidernetworkefficiencyprogrammeisunderway.Thebusinesshasendedthefinancialyearwithalowercostbase,whichwillhaveapositiveimpactonanyvolumeimprovements.Ourimmediateplansarethereforefocusedonincreasingconsignmentvolumes,newcustomerwinswithoutunderminingprofitablerates,thedeliveryofleanerandmoreflexiblecostsandimprovingthequalityofservice.

Swift action has been taken to further reduce operating costs through improved last mile routing, and a wider network efficiency programme is underway.


TR

AT

EG

IC R

EP

OR

T14

Operating Review cont.

TheseKPIswillspearheadourrecoveryplansintandemwiththestrategicreviewandwewillreportonprogressinduecourse.

Strategic review of Tuffnells WecontinuetobelievethattheoperationalperformanceofTuffnellscanbeimproved,withtheimmediateprioritybeingtoidentifymeasurestoreducecostsandimproveoperationalflexibility.However,inthelightofitscontinueddragonoverallGroupperformance,thestrategicreviewwillalsodeterminethemostappropriatestructureandstrategyforthebusiness,andmorewidelytoconsideritsroleandfutureintheGroup.

Tosupportthestrategicreviewandperformanceimprovementplans,MichaelHolthasagreedtobecomeExecutiveChairmanofTuffnellsforthedurationoftheprocess.Michaelhasbeenanon-executivedirectoroftheGroupsinceOctober2018;withdeepexperienceinthedistributionandlogisticssector,heiswellqualifiedtoprovideinsightanddirectionthatwillcomplementthecurrentmanagementteam.

Whilethestrategicreviewwillprimarilyfocusonthenecessaryactionsandinvestmentforamedium-termrecovery,wewillmaintainourvigorouspursuitofmoreimmediatecostsavings,networkefficienciesandqualityrevenuegenerationinresponsetotherecentdeclineinconsignmentvolumes.Throughoutthereviewperiod,weareconsciousofminimisinguncertaintyforallstakeholdersandcommittocommunicatingourprogressandconclusionsasquicklyaspossible.

Group structure and central servicesInOctober2018,theGrouphalteditsformerintegrationplans,returningoperationalmanagementtoSmithsNewsandTuffnellsunderabusinessunitstructure,supportedbysharedcentralservices.Operationally,thechangehasbeenasuccess,removingdistractionwhiledrivingownershipandaccountabilityofthetwodistinctbusinesses.Thestructureisnowwellestablishedandweenvisagenomaterialchangesaswecontinuewithourmedium-termplans.

TheestablishmentofthebusinessunitmodelwasdeliveredinparallelwiththecreationofaSharedServicesCentre,designedtostreamlinecentralfunctionsanddelivercostsavingswhileimprovingservicetotheoperatingbusinesses.Outcomesofparticularnoteinclude:theoff-shoringofselecttechnology,customerandfinanceserviceswhich,whenfullyimplemented,willdeliversubstantialsavingstooverheadsandfuturecapitalrequirements;thedevelopmentandtrialofrevisedoperatingprocedurestoensureconsistentbestpracticeinbothSmithsNewsandTuffnells;andtheconsolidationoffinancefunctionsintoasinglecentrewhichwillcommenceinDecember2019.

CurrentlyunderwayisafurtherresizingexercisetoensureourHeadOfficefunctionsreflectthereducedscopeoftheGroup.

Priorities for FY2020TheGroup’sstrategyisfoundedonbuildingthecapabilityofSmithsNewsandTuffnells,throughactionsandinvestmentsthatdeliversustainablevalueovertime.Whilewecontinuetoexploreandevaluatepotentialadjacentopportunities,wedonotplantodiversifyintonewsectors.

Thefollowingprioritieswillspearheadthenextphaseofourrecovery,backedbyacommitmenttoupdatestakeholdersonaregularbasis.


1.Tuffnells Strategic Review –determiningthenecessaryactionsandinvestmentforasustainablerecoveryofTuffnells,whileevaluatingtheirimpactontheoverallGroupandlong-termshareholdervalue.Revenuegenerationandcostsavinginitiativeswillbepursuedintandemwiththereview.

2.Smiths News cost savings –achievingsustainableefficienciesthataimtooffsetthemarginimpactofanydeclineincoresales.

3.Network optimisation –deliveringefficienciesinbothSmithsNewsandTuffnells,whileimprovingserviceandcoverageforcustomers.

4. Optimising head office functions –optimisingourcentralcostsinlinewiththenewGroupstructure.

5. Capital discipline –continuingtoreducenetdebtwhilemeetingtheinvestmentneedsofthebusinessanddeliveringattractivereturnsforshareholders.

6. Leveraging and energising our people –harnessingtheskillsandcommitmentofcolleaguesasweaddressimmediatechallengesandcontinueourpathtoperformancerecovery.

Capital managementFollowingreviewofourCapitalManagementstrategy,wehavefollowedastrictcapitaldiscipline,ensuringthatfreecashfromoperationsfundstheinvestmentneededforrecovery,withthesurplususedtoachieveareductioninnetdebtwhilemaintainingafocusonshareholderreturns.

TheGroup’soperationscontinuetogeneratestrongfreecashandweanticipatecapitalrequirementsremainingwithintheguidanceof30%-50%ofEBITDA.Netdebtat£73.9mrepresents1.9xEBITDA,beforethebenefitofproceedsfromthesaleandleasebackofselectedTuffnellsdepots.Weremaincommittedandontracktoreducingnetdebtto1xEBITDAbytheendofFY2021.

Thefinalandfullyeardividendof1.0preflectsourongoingconfidenceintheGroup’scashgenerativemodel.

Directorate changesChiefExecutiveOfficer,Jozef(Jos)Opdeweegh,hassteppeddownfrombothhisexecutiveroleandasadirectoroftheBoardwithimmediateeffect.Joshasbeeninstrumentalinthepast12monthsinhelpingtobringfocustotheGroupandmanychangeshehasledpositionuswelltomeetourambitioninmorecloselyaligningtheGroup’sperformancetoshareholders’expectations.

JonBunting(CEO,SmithsNews),whojoinedSmithsNewsin1994andwasappointedtotheBoardin2010,hassteppeduptobecomeInterimChiefExecutiveOfficeroftheGroup.InthelightofthestrategicreviewoftheTuffnellsbusinesswewillreviewthispositionattheendofthatprocess.JonwillretainaccountabilityasCEOofSmithsNewsthroughthisinterimperiod.

MichaelHolt(non-executivedirector)hasagreedfortheperiodofthestrategicreviewprocesstobecomeExecutiveChairmanofTuffnells,withresponsibilityforprovidingrelevantandcurrentinsighttoaidboththebroaderstrategicreviewandtargetedprofitrecoveryatTuffnells.Inordertoensureweretainhisexpertiseandcontributiontoourwiderstrategy,MichaelwillcontinueasadirectoroftheGroupandmemberoftheBoardalbeit,forthedurationofthisadditionalrole,hewilltemporarilyrelinquishbeingamemberofeachoftheAudit,RemunerationandNominationsCommittees.However,giventheshort-termandspecificnatureofhisinterimrole,theBoarddoesnotcurrentlyconsiderthatitwillpermanentlyimpairMichael’sfutureindependenceinaccordancewiththeUKCorporateGovernanceCode.

Summary and outlookTheGroupremainsfocusedonaturnaroundthatisfoundedonthesustainableimprovementofourcorebusinessesunderpinnedbyprudentcapitalmanagement.SalesinSmithsNewshavestartedtheyearalittleslowlybutweareconfidentthatperformancewillbebroughtbackontrackovertheremainderoftheyear.InTuffnells,tradingintheyeartodateismoredifficultthananticipatedbutisexpectedtostabiliseinH2.OuractionstoreducecostsandincreasetheflexibilityoftheoperatingmodelinTuffnellswillcontinueaswepursueawiderstrategicreviewofthebusiness.


TR

AT

EG

IC R

EP

OR

T16

Financial Review

Despite the challenging year, management

actions to prioritise improvements to

revenue quality, cost reduction and standard

operating processes have gained traction as we enter the new

financial year.

WORKING FOR A SUSTAINABLE RECOVERY

OverviewOverallperformanceisslightlybelowmarketexpectationsaswecontinuetoaddresstheunderlyingissuesthatimpactedrevenueandcostsinFY2018andflowedthroughintothisyear.SmithsNewsre-establisheditscostsavingrhythmtoimprovemargins,whichoffsetthedelayedturnaroundinTuffnellsperformance.

ThefinancialpositionoftheGroupbenefitedfrompositiveFreecashflowintheyearof£8.3m,whichreducednetdebtatyearendto£73.9m(FY2018:£83.4m).

Continuing Adjusted results GroupContinuingAdjustedoperatingprofitof£29.5mwasdown£4.4m(13.0%)ontheprioryear,arecoveryinfinancialperformance

Tony GraceChiefFinancialOfficer

Continuing Adjusted results £m 2019 2018 Change

Revenue 1,467.9 1,534.3 (4.3%)

Operatingprofit 29.5 33.9 (13.0%)

Netfinancecosts (6.3) (5.5) (14.5%)

Profitbeforetax 23.2 28.4 (18.3%)

Taxation (3.8) (5.5) 30.9%

Effectivetaxrate 16.4% 19.4%

Profitaftertax 19.4 22.9 (15.3%)

atSmithsNewswhichwasmorethanoffsetbythechallengingturnaroundatTuffnells.

SmithsNewsAdjustedoperatingprofitwasupby£4.7mto£43.6m.Thestructuraldeclineinnewspaperandmagazinesales,andresultantmargindecline,wassuccessfullymitigatedbytherestorationandcatch-upofthenetworksavingprogrammeof£6.5m.Intheprioryear,SmithsNewsAdjustedoperatingprofitwasfavourablyimpactedbyWorldCupmagazineandstickersaleswhichgeneratedprofitsof£2.8mbutadverselyimpactedbyalossinPassMyParcelof£5.4m.TheexecutionoftheclosureofthePassMyParcelpropositionhasprogressedsmoothly.

TherevenueandprofitofDMDhasbeenabsorbedintotheSmithsNewsresultsfollowingthelossoftheBritishAirwayscontractfromJune2019,reflectingthedecisiontofullyintegratetherespectiveoperationsandmarketingfunctions.Revenueof£24.1mwasdown£2.4m(9.1%)andAdjustedoperatingprofitreducedby£0.4m(13.3%)to£2.6m,drivenprimarilybythelossoftheBritishAirwayscontractfromJune2019andtheannualisedimpactoftwopublishercontractlosses.


Statutory continuing results£m 2019 2019 2018 2018 Change

Revenue 1,467.9 1,534.3 (4.3%)

Operating(loss)/profit:

SmithsNews 36.3 27.7 31.0%

Tuffnells (67.6) (57.7) (17.2%)

Operating(loss)/profit (31.3) (30.0) (4.3%)

Netfinancecosts (6.3) (5.5) (14.5%)

Lossbeforetax (37.6) (35.5) (5.9%)

Taxation 5.9 (2.6) n/a

Effectivetaxrate 16.2% (7.3%)

Lossaftertax (31.5) (38.1) 17.3%

Earnings per share£m

Continuing Adjusted Continuing Statutory2019 2018 2019 2018

Earnings/(loss)attributabletoordinaryshareholders(£m) 19.4 22.9 (31.5) (38.1)

Basicweightedaveragenumberofshares(millions) 246.4 246.0 246.4 246.0

BasicEarnings/(loss)pershare 7.9p 9.3p (12.9p) (15.5p)

Dilutedweightednumberofshares(millions) 247.1 246.7 247.1 246.7

DilutedEarnings/(loss)pershare 7.9p 9.3p (12.9p) (15.5p)

Dividend 2019 2018

Dividendpershare(paid&proposed) 1.0p 3.1p

Dividendpershare(recognised) nil 9.8p

TuffnellsreportedanAdjustedoperatinglossof£14.1m,anincreaseof£9.1montheprioryear(FY2018:£5.0mloss).Performancewashinderedbythecarry-overofcustomerlossessufferedinthesecondhalfoftheprioryear,whilstthesecondhalfofFY2019sawfurtherpressurefromacontinuingcompetitivemarketresultinginlowerconsignmentvolumes.

Despitethechallengingyear,managementactionstoprioritiseimprovementstorevenuequality,costreductionandstandardoperatingprocesseshavegainedtractionasweenterthenewfinancialyear.

Aspartofthestrategicgoaltostreamlineheadofficeservices,anoffshoresharedservicecentrehasbeenestablishedwithanoutsourcingpartner,tomanagecustomerservice,technologyandfinancefunctions.Arestructuringprovisionof£2.5mwasmadeatyearend.

Netfinancechargesof£6.3m(FY2018:£5.5m)wereupontheprioryear.Includedwithinnetfinancechargesare:interestcostsonborrowingincurredintheperiodof£5.1m(FY2018:£4.1m),anincreaseyear-on-yearastheannualisedinterestmarginchargewashigherunderthenewfacility;financeleaseinterestof£0.1m(FY2018:£0.6m);amortisationofbankarrangementfeesof£0.5m(FY2018:£0.5m);andpensioninterestcostsof£0.2m(FY2018:£0.2m).

Adjustedprofitbeforetaxwas£23.2m,down18.3%onlastyear.

Taxationof£3.8mresultedinaneffectivetaxrateof16.4%,effectivetaxratewaslowerthanlastyeardrivenbymovementsindeferredtaxandtaxprovisionintheprioryear.

Statutory continuing results GroupStatutorycontinuinglossbeforetaxof£37.6misanincreaseontheprioryearby£2.1m(FY2018:£35.5mloss),primarilydrivenby:anincreaseintradinglossesatTuffnellsof£9.1m,impairmentchargerelatingtogoodwillandassetsofTuffnellsof£45.5m(FY2018:£46.1m);amortisationofacquiredintangiblesof£6.8m(FY2018:£7.1m);PassMyParcelexitcostsof£0.3m(FY2018:£6.7m);andnetworkandreorganisationcostsof£6.4m(FY2018:£3.1m).

Atthedivisionallevel,SmithsNewsstatutoryoperatingprofitof£36.3m,wasup31.0%onprioryearafter£7.3mofAdjustedItemswhichincluded£5.7mnetworkandre-organisationcosts;Tuffnellsstatutoryoperatinglosswas£67.6mdown£9.9mafterimpairmentofgoodwill,tangibleandintangibleassetsof£45.5mandamortisationofacquiredintangiblesof£6.6m.

Theeffectivestatutoryincometaxrateforcontinuingoperationswas16.2%(FY2018:7.3%),asthetaximpactofAdjustedItemswas£9.9m(FY2018:£2.9m).

Statutorycontinuinglossaftertaxof£31.5misdownby£6.6m(FY2018:£38.1mloss),andStatutorycontinuinglosspershareof12.9pisup2.6p(FY2018:15.5ploss).

AsaconsequenceoftheTuffnellsimpairment,thenetliabilitiesonthebalancesheethaveincreased£28.4mtoareportednetliabilityat31August2019of£74.3m(FY2018:£45.9m).FollowingacorporaterestructuringinJuly019,theConnectGroupPLCCompanyentitybalancesheetcontinuestohavedistributablereservesof£131.5mtoallowfuturedividendpayments.

Earnings per shareEarningsattributabletoshareholdersonacontinuingAdjustedbasisof£19.4mresultedinanAdjustedEPSof7.9p,adecreaseof1.4ponlastyear,drivenbyarecoveryinSmithsNewsmarginsandnetworkrestructuringprogramme,butoffsetbychallengingtradingconditionsinTuffnells.

Thefullydilutedweightednumberofshareswas247.1m(FY2018:246.7m).Fullydilutedsharesincludesa0.7mdilutedshareadjustmentforemployeeincentiveschemes(FY2018:0.7m).

IncludingAdjusteditems,statutoryearningspershareisup2.6pto12.9p(losspershare)(FY2018:15.5plosspershare).

DividendAftercarefulconsiderationoftheGroup’soverallperformanceintheyearandinlightofbothongoingconfidenceinfuturepositivecashflowsandtheimmediateprioritiesofthebusiness,theBoardhasresolvedtorecommendafinaldividendof1.0p,leavingthefullyeardividendas1.0ptobepaidinFebruary2020,areductionof2.1por67.7%(FY2018:3.1p).


TR

AT

EG

IC R

EP

OR

T18

Financial Review cont.

Smiths News (including DMD)

ThereturntofocusedaccountabilityhasrestoredstabilitytotheGroup’slargestbusiness.

Revenuewas£1,303.3m(FY2018:£1,361.6m)down4.3%.Newspaperandmagazinesaleshavecontinuedtoperforminlinewithlong-termtrends,witharelativelystrongerperformancethanexpectedfromnewspapershelpingtooffsetweakermagazinesales.Newspapersalesof£826.8mweredown2%,withpriceincreaseshelpingtooffsetvolumedeclines.Combinedsalesofallmagazinecategoriesweredownby8%,onalike-for-likebasistheyweredown6%afterexcludingthebenefitoftheFIFAWorldCupalbumandstickersalesinFY2018.

Goodprogresshasbeenmadewiththeacceleratedrenewalofpublishercontracts,withnewagreementssecuring98%ofSmithsNews’magazinerevenuesand80%ofitstotalcurrentrevenues,foranaveragecontractextensionoffiveyears.Allourexistingterritorieshavebeenretained,providingthenecessarycertaintytounlocksupplychainefficienciesoverthecontractperiods.

Adjustedoperatingprofitof£43.6m(FY2018:£38.9m)wasup£4.7m(12.1%).ThenewGroupstructurewithtwoseparateaccountablebusinessunitsinSmithsNewsandTuffnells,hasrestoredamorefocusedapproachbytheSmithsNewsmanagementteam.Therestorationandcatch-upoftheSmithsNewsnetworksavingprogrammegenerated£6.5mofsavingsintheyearwhichmitigatesthedeclineinrevenuefromnewspaperandmagazinesales.Networksavingsweregeneratedfromfinalmileroutereductionsandtheclosureofasingledepotattheendofthefinancialyear.TheexecutionofthedecisiontoclosePassMyParcelinthesecondhalfofFY2018hasprogressedsmoothlyandexitcostswereinlinewithexpectedprioryear-endprovisions.AdjustedoperatingprofitintheprioryearwasfavourablyimpactedbytheWorldCupsalesandprofitsof£2.8m,butoffsetbyPassMyParcellossesof£5.4m.Thesehavebeentheprimarydriversintheimprovementofoperatingmarginintheyearto3.3%.

InJanuary2019,theGroupdisposedofitsvendingcoffeebusinessknownasJack’sBeans.Thissalewasinlinewiththestrategytodivestofnon-coreassets;thebusinessmadeanegligiblecontributionandtherewillbenoimpactonfinancialperformanceintheyear.

TherevenueandprofitofDMDhasbeenabsorbedintotheSmithsNewsresults,reflectingthewayinwhichthebusinessisnowmanagedfollowingthedecisiontointegratetherespectiveoperationsandmarketing.Revenueof£24.1mwasdown£2.4m(9.1%)andAdjustedoperatingprofitreducedby£0.4m(13.3%)to£2.6m,inpartdrivenbythelossoftwopublishercontractsandtheBritishAirwayscontractfromJune2019.CostsweremitigatedbypromptactiontorestructuretheoperationalstructureintotheSmithsNewsSloughdepot.

Tuffnells

Tuffnellshadaparticularlychallengingyear,achievingtotalrevenueof£164.6mdown6.1%,(FY2018:£175.2m),andreturninganAdjustedoperatinglossof£14.1m,down£9.1m(FY2018:£5.0mloss).

LossesweredrivenbyanumberoflegacyissuescarriedoverfromFY2018whichaffectedconsignmentvolumesandoperatingcostefficiency.Inwhatbecameanincreasinglycompetitivemarket,variabilityinservicestandardsandcustomerattritionamongthecustomerbase,ledtoafurtherlossofvolumes,whichcontinuedintothesecondhalfoftheyear,butataslowerrate.ThedeclineinparcelvolumescombinedwithahighproportionofoperatingcostsatadepotlevelbeingfixedresultedincontinuinglossesinthesecondhalfofFY2019.Separately,operationalcostsrosefromincreasesinnationallivingwageandhighersub-contractorratesfurthersqueezedmargins.Thedeclineinmarginswasaddressedbymanagementactionsto:improverevenuequalitywithtargetedpricerises;andchangestofinalmiledeliveriesataregionalleveltoensureoptimumroutingandamalgamationofrounds.

Despitethechallengingperiod,webelievethatmanagementactionsaretherightonesforasustainablerecovery.Wecontinuetoprioritiseimprovementstorevenuequality,costreductionandstandardoperatingprocesses–theseactionsarebeginningtoachievetractionasweenterthenewfinancialyear.

Smiths News (including DMD) Adjusted figures £m

2019 2018 Change

Revenue 1,303.3 1,361.6 (4.3%)

Operatingprofit 43.6 38.9 12.1%

Operatingmargin 3.3% 2.9% 40bps

Tuffnells Adjusted figures £m

2019 2018 Change

Revenue 164.6 175.2 (6.1%)

Operating(loss)/profit (14.1) (5.0) (182.0%)

Operatingmargin (8.6%) (2.9%) n/a


Adjusted Items ContinuingoperationsTheGroupincurredatotalof£50.9mofAdjustedItemsonacontinuingbasis,aftertax(FY2018:£61.0m).

AdjustingitemsaredefinedintheaccountingpoliciesinNote1andintheglossary.Inthedirectors’opiniontheimpactofremovingtheseitemsfromtheAdjustedprofitgivethetrueunderlyingperformanceoftheGroupandcomprises:

(a)Networkandre-organisationcostsTheseareanalysedasfollows:

• ExecutiveTeamredundanciesof£0.9m.

• Outsourcingof£3.2m.

• DMDrestructureof£1.2m.

• Otherredundancyandre-organisationcostsof£1.1m.

Executive Team redundancies Costsof£0.9mhavebeenincurredrelatingtotherestructureoftheGroup’spreviousexecutiveteam(FY2018:£nil).Thesecostsareconsideredtobeadjustinggiventhesizeandtheyenablecomparabilitybetweenyearswithequivalentcostsoftheexecutiveteam.

Outsourcing central functionsOfthecurrentyearcost£3.2mrelatestotheoff-shoringofselectedtechnology,customerservicesandfinancefunctions.Thisprocesshasbeencommunicatedtoemployees.The£3.2mcomprisesaprovisionof£2.5mrelatedtoexpectedredundancycostsaspartofthistransitionand£0.7mrelatedtolegalandsetupcosts.Furthercostsoftheoffshoringareexpectedtobeincurredduringthenextfinancialyear.Thesecostsareconsideredadjustingastheimpactofthe

Adjusted Items£m 2019 2018

Networkandre-organisationcosts a (6.4) (3.1)

Property b – 0.7

Saleandleasebackcosts c (0.7) –

Amortisationofacquiredintangibles d (6.8) (7.1)

Pension e (2.2) –

BrierleyHillinsuranceclaim f (0.2) –

ImpairmentofTuffnellsassets g (45.5) (46.1)

PassMyParcelexitcosts h 0.3 (6.7)

Impairmentoftangibleassets i – (1.1)

NMWregulatorycompliance j 0.2 (0.5)

IPRsettlementincome k 0.5 –

Total before taxation (60.8) (63.9)

Taxation 9.9 2.9

Total after taxation (50.9) (61.0)

transitiontoanoffshoredcentralfunctionisconsideredaoneoff.Therunningcostsoncethecentreisfullyoperationalwillbetreatedasnon-adjusting.

DMD restructure costs InMay2019,DMD’sbiggestcontractwithBritishAirwayswasended.Assoonasnoticewasgiven,thebusinesssetaboutachangeprogrammetorightsizetheoperations,closesitesandreduceteamstoreflectthelossofthiscontract.Thiswasdesignedtoensurethebusinesswasabletocontinuetodeliverprofitsinfuturewithitssmallercustomercontractbase.Intotal,costsof£1.2mhavebeenincurredorprovided.

Thesecostsareconsideredtobeadjustinggiventhesizeandtheyenablecomparabilitybetweenyearswithequivalentcostsofthedaytodayoperationsofthebusiness.

Other redundancy and re-organisation costs£1.1mhasbeenincurredinredundancyandotherreorganisationinstreamliningtheSmithsNewsandTuffnellsbusinesses(FY2018£nil).Thisisnetofareleaseof£0.4mofredundancyprovisionsmadeintheprioryearbutnotincurred.

Theprioryearincludedabortiveintegrationcostsof£1.6mwithregardtotheintegrationprogrammeannouncedattheendofthepreviousfinancialyear.

Costsassociatedwiththere-organisationprogrammesareconsideredadjustingitemsgiventheyarepartofastrategicprogrammetodrivefuturecostsavingsandaresignificantinvaluetotheresultsoftheGroup.

(b)PropertyDuringtheprioryeartheGroupmadethestrategicdecisiontotransferthevacantSloughdepottotheTuffnellsbusiness,resultinginacreditfromthereleaseofitsonerousleaseprovision.OnerouschargesonpropertyarechargedthroughAdjustedItemsastheyformpartoftheGroup’sstrategicrestructuringprogramme.ThereversalofchargeshasalsobeenmadeinAdjustedItemsforconsistency.

(c)SaleandleasebackcostsInJanuary2019,theGrouptookthedecisiontoselltheTuffnellsfreeholdandlongleaseholdpropertyportfolioandleaseitback.DuringtheyeartheGroupincurred£0.7mofcostsrelatedtothesaleandleasebackprogramme.TheGroupsubsequentlyannouncedthesaleofsixpropertieson23September2019.Giventhemagnitudeandone-offnatureofthetransactionasawholeitisconsideredtobeanadjustingitem.

(d)AmortisationofacquiredintangiblesAchargeof£6.8m(FY2018:£7.1m)hasbeenrecognisedrelatingtoamortisationofacquiredintangiblesinTuffnells.Thisisconsideredanadjustingitemasitallowscomparisonbetweensegmentsand,therefore,consistencyintheperformanceoftheGroupataconsolidatedlevel.

(e)PensionSmithsNewsincurredprofessionalcostsof£2.1m,asaresultoftheWHSmithPensionTrust(oneoftheGroup’sdefinedbenefitpensionschemes)enteringintoaninsurancebackedannuity‘buy-in’oftheSchemeassets,withinthesectionoftheTrustsponsoredbySmithsNews,whichminimisestheGroup’sexposuretofuturepensionobligations.ThesepensionchargesarenotconsideredtobepartofnormaloperationsduetotheirsizeandnatureandarethereforeconsideredtobeanAdjustedItem.

Thereisafurther£0.1minrelationtoequalisationofGuaranteedMinimumPayments(GMP)oftheTuffnellsParcelsExpresspensionscheme.Thisisconsideredtobeanadjustingitemasitwasduetoaoneoffchangeintheinterpretationofthelawrelatingtopreviouslyrecognisedcost;thisisconsideredoutofcontrolofmanagementandthechargerelatestoserviceinpriorperiodsandthereforeisconsideredanadjustingitem.

(f)BrierleyHillinsuranceclaimTheGroupincurred£0.2mofinsurancesettlementcoststhisyearinrelationtoafatalityatTuffnells’BrierleyHilldepotthatoccurredinJanuary2016.TheGrouphadpreviouslyrecognisedthecostofthefineandlegalcostsinrelationtothis.Giventhemagnitude,one-offnatureandtoensureconsistenttreatmentwithpreviouslyreportedcostsitisconsideredtobeanadjustingitem.


TR

AT

EG

IC R

EP

OR

T20

(g)ImpairmentofTuffnellsintangibleandtangibleassetsManagementreviewedthecarryingvalueoftheTuffnellsbusinessunitandconcludedthatanimpairmentchargeof£45.5m(FY2018:£46.1m)isrequired.Thiscomprises:goodwill£6.0m(FY2018:£46.1m),acquiredintangibles£26.4m(FY2018:nil),otherintangibles£0.4m(FY2018:nil)andproperty,plantandequipment£12.7m(FY2018:nil).

TheimpairmentofGoodwillhasnotaximpact,theimpairmentofacquiredintangibleshasresultedinthereleaseof£4.5mdeferredtaxliabilityasacredittoAdjustedItemsincometax.Adeferredtaxassetof£2.5mhasbeenrecognisedwhichhascreditedAdjustedItemsincometaxasaresultoftheimpairmentoftheotherassets.

ItisconsideredadjustingduetoitssignificantvalueandaidscomparabilitybetweenyearstoshowtheunderlyingperformanceoftheGroup.

(h)PassMyParcel(PMP)exitcostsFollowingareviewofthePMPpropositionon23May2018,theBoarddecidedtoclosethebusinessunitandasaresultachargeof£6.7mwasbookedintheprioryear.Thiswassplit£4.7mofcontractlossesand£2.0mofimpairmentofassociatedassets.

Managementconcludedthatlossesonwindingdownthedivisionrepresentedanonerouscontractwithacostof£4.7mrecognised.ThisrepresentedtheforecastexcessofcostsoverincomefromthedatetheGrouptookthedecisiontoclosethedivision.Ofthisbalance,£2.5minprovisionswasheldattheyearended31August2018tocovertheremainingcoststocloseallcontracts.In2019,£2.2mofcostswereincurredandbookedagainstthisprovision.Theremaining£0.3moftheprovisionhasbeenreleasedthisyear.

Afurther£2.0mofimpairmentchargessplit£1.0mtangibleand£1.0mintangiblewererecognisedtowriteoffthenon-currentassetsrelatingtothedivision.

(i)ImpairmentoftangibleassetsIn2018,theGrouptookthedecisiontoconsiderthesaleoftheJack’sBeansdivisiontofocusonitscorebusinesses.BidsreceivedindicatedthatthenetbookvalueoftheJack’sBeansassetswereoverstatedandsotheywereimpairedby£1.1m.TheGroupsubsequentlydisposedoftheassetsforproceedsequivalenttotheirrevisednetbookvalueinJanuary2019.Giventhemagnitude,theone-offnatureandtheGroup’sstrategytofocusonitscorebusinessesitwasconsideredtobeanadjustingitem.

(j)NMWregulatorycomplianceTheGrouphasbeenindiscussionwithHMRCregardinganhistoricalunderpaymentinrelationtoamisapplicationofnationalminimumwagelegislationinTuffnells.Aprovisionamountingto£1.3mwasmadeintheprioryearfinancialstatements.Ofthisbalance,£0.5mrelatedspecificallytotheestimatedfine.The£0.5mfinewasclassifiedasadjustinginFY2018.

TheunderpaymentsandfineswereallsettledduringFY2019.Theremaining£0.2mofthe£0.5mfineprovisionhasbeenreleasedinFY2019.Thereleasewasalsorecognisedasanadjustingitemtobeconsistentwithpriorperiodsandduetoitsone-offnatureandmagnitude.

(k)IPRsettlementincomeTheGroupreceivedaone-off£0.5mofincomeinrelationtothesettlementofanIPRdisputeconcerningtheproposeduseofasimilarbrandtooneoftheGroup’sbrands.Thisisconsideredadjustinggivenitssizeandone-offnature.

Free cash flow FreecashflowgenerationremainsoneoftheGroup’skeystrengths.Freecashflowincludesfinanceleasepayments,AdjustedItems,interestandtax;butitexcludespensiondeficitrecoverypayments.

Wecontinuetofocusoncashperformanceintheperiod,withtheGroupgenerating£8.3minFreecashflow,adecreaseof£11.9m(58.9%)ontheprioryear.

AdjustedEBITDAof£38.8mcomparedtoFY2018of£45.8m,isdownby£7.0m15.3%,drivenbymixedtradingperformance,recoveryinSmithsNewsEBITDAmarginoffsetbyhighertradinglossesatTuffnells.Depreciationandamortisationwaslowerby£2.6mfromacombinationofTuffnellspropertiesbeingtreatedasheldforsalefromJanuary2019andprioryearwriteoffofPassMyParcelassetswhicharenolongerdepreciated.

Theincreaseinworkingcapitalintheperiodwas£3.9m(FY2018:decrease£7.7m)drivenbyadecreaseinprovisionsandunfavourabletimingofweeklyreceiptandmonthlypaymentcyclesrelativetotheyear-enddate.

Financial Review cont.

Free cash flow£m 2019 2018

Operatinglosscontinuing(includingAdjustedItems)

(31.3) (30.0)

AdjustedItems 60.8 63.9

Depreciation&amortisation 9.3 11.9

AdjustedEBITDA 38.8 45.8

Workingcapitalmovements (3.9) 7.7

Capitalexpenditure (8.6) (8.5)

Financeleasepayments (2.8) (3.8)

Netinterestandfees (5.1) (5.8)

Taxation (2.6) (6.5)

Other 0.8 (0.4)

Free cash flow (excluding Adjusted Items)

16.6 28.5

AdjustedItems–casheffect (8.3) (8.3)

Free cash flow 8.3 20.2


Pensionfundingreducedto£1.6m(FY2018:£4.7m).Thereductionof£3.1mresultedfromdeficitrepaircontributionstoWHSmithPensionTrustnolongerbeingrequiredfromOctober2018followingthecompletionoftheannuitybackedpension’buy-in’.Pensiondeficitrepairpaymentsareconsideredasanon-Freecashflowitem.

Freecashflowgeneration(afterAdjustedItems)intheyearwenttowardstherepaymentofdebtastherewerenodividendpaymentsintheyear(FY2018:£24.1m).

Wehaveabankfacilitycommitmentof£175mwithsixrelationshipbankswhichrunsfromOctober2017toJanuary2021.Thefacilitycomprisesofatermloanof£50mwithnoamortisationandanRCFfor£125m.

Pension schemesTheGroupoperatestwodefinedbenefitschemes,bothclosedtonewentrantsandWHSmithPensionTrustclosedtofutureaccrual.

ThelargestschemeacrosstheGroupistheSmithsNewsdefinedbenefitpensionscheme(theWHSmithPensionTrust)whichasat31August2019hadanIAS19surplusof£24.0m(31August2018:£154.5m).However,asthepensionschemeisclosedtofutureaccrual,thisIAS19surpluscannotbeusedtoreducefuturecontributionsorasafundingholiday,andasaresulttheGrouphasnotrecognisedthissurplusonthebalancesheet.TheSmithsNewssectionoftheWHSmithPensionTrustcompletedtheactuarialtriennialvaluationasat31March2018andconcludeditnolongerrequiredfunding.

SmithsNewshadpreviouslyagreedwiththeWHSmithPensionTrustascheduleofcashcontributionsof£3.3mperannumtoMarch2020.InOctober2018,theTrustenteredintoaninsurancebackedannuitytothe‘buy-in’oftheschemeassetswithinthesectionoftheTrustsponsoredbySmithsNews.This‘buy-in’annuityisrecognisedasaplanassetandthedifferenceinvalueisconsideredanactuarialre-measurement.Further,theschemesactuarytotheTrusteesnotifiedtheGroupthatno

furtherdeficitrepaircashcontributionswillneedtobemade.AsaresulttheIFRIC14deficitrepairliabilityhasbeenreleasedat31August2019£nil(31August2018:£6.7m).

Pension‘buy-in’costsof£2.2mwererecordedwithinAdjustedItemsduringtheyear.

TheTuffnellsdefinedbenefitschemeIAS19deficitat31August2019was£2.9m(31August2018:£2.2m).ThetriennialactuarialvaluationoftheTuffnellsParcelsExpressschemeasat1April2016wasaschemedeficitof£4.3m.Deficitrecoverycontributionshavebeenagreedandremainat£0.3mperannum.

Thetotalcashcontributionforbothdefinedbenefitschemes,whichincludepensionadministrationfeesanddisclosedwithinthecashflowstatement,amountedto£1.6mforFY2019(FY2018:£4.7m).

Discontinued operations Therewerenodiscontinuedoperationsintheyear.

Intheprioryearon14February2018,theGroupcompletedthesaleoftheBooksbusinessatalossof£10.5m.ThisrepresentedAdjustedoperatingprofitfortheGroupof£1.8mandAdjustedprofitbeforetaxof£1.7minFY2018.

Going concern TheGroupmeetsitsday-to-dayworkingcapitalrequirementsthroughitsbankfacilitiesof£175m,agreedinOctober2017,withatermtoJanuary2021.TheGroup’sforecasts,takingintoaccounttheBoard’sfutureexpectationsoftheGroup’sperformance,indicatethatthereissufficientheadroomwithinthesebankfacilitiesandtheGroupwillcontinuetooperatewithinthecovenantsattachingtothosefacilities.

Consideringtheprincipalrisksdiscussedinthisreport,thedirectorshaveareasonableexpectationthattheGroupandtheParentCompanyhaveadequateresourcestocontinueinoperationandmeetitsliabilitiesastheyfalldueforaperiodofatleast12monthsfromthedateofapprovalofthefinancialstatementsandfortheperiodofthethree-yearviabilityassessment.Thus,theGroupandtheParentCompanycontinuetoadoptthegoingconcernbasisinpreparingitsconsolidatedfinancialstatementsandincludesdisclosureregardingitsthreeyearviabilityassessmentbasedontheprincipalrisks.

Net debt £m 2019 2018

Opening net debt (83.4) (82.1)

Freecashflow 8.3 20.2

Financeleasecreditormovement 2.8 3.2

Pensiondeficitrecovery (1.6) (4.7)

Dividendpaid – (24.1)

Disposalproceeds – 12.9

Discontinueddisposalproceedstorepayoverdraft – (12.7)

Discontinuedoperationscashflow – 3.9

Closing net debt (73.9) (83.4)

Capitalexpenditureintheyearwas£8.6m(FY2018:£8.5m)anincreaseof£0.1m.Newandexistingdepotandnetworkinvestmentswere£2.6m(FY2018:£2.1m).Fleetinvestmentwas£1.7m(FY2018:£1.7m).Technologyandequipmentinvestmentwas£4.3m(FY2018:£4.7m).

Financeleasepaymentsof£2.8m(FY2018:£3.8m)havedeclinedby£1.0masexistingITfinanceleasearrangementsareexpiring.

Netinterestandfeesof£5.1m(FY2018:£5.8m)hasdecreasedby£0.7m.Themovementcomprisesincreasedinterestcashcostsfromahighermarginonthefacilityof£0.9m,offsetbytheprioryearcashpaymentofabankarrangementfeeof£1.6mpaidonthenew£175mbankfacilityconcludedinOctober2017.

Cashtaxcostsof£2.6m(FY2018:£6.5m)havedecreasedintheyearreflectingthecashlagfromdecliningprofitsinthecurrentandprioryear.

ThetotalnetcashimpactofAdjustedItemswas£8.3m(FY2018:£8.3m).Thiscomprised:£4.0m(FY2018:£6.8m)ofnetworkreorganisationandrestructuringcosts;pensionbuy-incosts£2.0m(FY2018:£nil)andresolutionoflegacyregulatorymatters£2.0m(FY2018:£nil)

Net debt Netdebtclosedtheperiodat£73.9m,ofwhich£2.5m(FY2018:£5.3m)relatestofinanceleases.

Netdebtreducedcomparedtotheprioryear,howevertheGroup’snetdebt/EBITDAratioroseto1.9x,(FY2018:1.8x)duetothedeclineinEBITDA.Thereductioninnetdebtby£9.5mwasdrivenpredominantlybyFreecashflowgenerationof£8.3mfromrestoredSmithsNewsEBITDAgrowthandtheircashgenerationwhichremainedsufficienttooffsetthedeteriorationinEBITDAfromTuffnellsasitmetitstradingchallenges.

Theintra-monthworkingcapitalcashflowcycleatSmithsNewsgeneratesaroutineandpredictablecashswingofaround£40mwhichutilisestheRevolvingCreditFacility(RCF)of£125m.Thisresultsinapredictablefluctuationofnetdebtduringthecourseofthemonthcomparedtotheclosingnetdebtposition.


TR

AT

EG

IC R

EP

OR

T22

Principal Risks

A CLEAR FRAMEWORK FOR MITIGATING RISK

The Group has a clear framework in place tocontinuously identify

and review the principal risks.

TheGrouphasaclearframeworkinplacetocontinuouslyidentifyandreviewboththeprincipalandemergingriskstotheGroup.TheAuditCommitteereportdescribeshowwemanageriskfromBoardlevelandthroughouttheGroup.Furtherdetailscanbefoundonpages44to50.

Keyrisksareplottedonriskmapswithdescriptions,owners,andmitigatingactions,reportingagainstalevelofmateriality(principallyrelatingtoimpactandlikelihood)consistentwithitssize.TheseriskmapsarereviewedandchallengedbytheExecutiveTeamandAuditCommitteeandreconciledagainsttheGroup’sriskappetite.Aspartoftheregularprincipalriskprocess,areviewofemergingrisks(internalandexternal)isalsoconductedandalistofemergingrisksismaintainedandrolled-forwardtofuture

discussionsbytheExecutiveTeamandAuditCommittee.Whereappropriate,theseemergingrisksmaybebroughtintotheprincipalriskregisters.Additionalriskmanagementsupportisprovidedbyexternalexpertsinareasoftechnicalcomplexitytocompleteourbottom-upandtop-downexercises.

AspartoftheBoard’songoingassessmentoftheprincipalandemergingrisks,theBoardhasconsideredtheperformanceoftheGroup,itsmarkets,thechangingregulatorylandscapeandtheGroup’sfuturestrategicdirectionandambition.Principalriskspreviouslyreportedhavebeenreviewedindetailandtheyhavebeenrefinedandmademorespecificcomparedtotheprincipalrisksreportedinthe2018AnnualReport.Tworisksthatwereseparatelyidentifiedinthe2018

Principal risks Change Potential impact Mitigating actions and assurances

1.Deteriorationofthemacro-economicenvironment–Theriskofvolatilityand/orprolongedeconomicdownturncausesadeclineindemandforourservicesincludingtheuncertaintyassociatedwithEUExit,impactscurrentand/orprojectedbusinessperformanceabovethatincludedinthebusinessplanningandreviewprocessandtheabilityoftheGrouptoaccessthedebtcapitalmarkettorefinanceitsexistinglevelsofdebtatcommerciallyprudentlevelsoratall.

Reductionsindiscretionaryspendingmayimpactsalesofnewspapersormagazinesand/orseeareductioninparcelvolumes.UncertaintyfromEUExitmayaffectthebusinessinboththeshortandmedium-termontradearrangements,futurecapitalinvestmentstrategies,debtrefinancingandresourcingcosts.

• Annualbudgetsandforecaststakeintoaccountthecurrentmacro-economicenvironmenttosetexpectationsinternallyandexternally,allowingfororchangingobjectivestomeetshortandmedium-termfinancialtargets.

• AthoroughEUExitplanningexercisehasbeenundertakenandaccountabilityfortheassociatedactionsandriskshasbeenassignedtotherelevantExecutiveTeammembers.

• TheGroupcontinuestobesignificantlycashgeneratingwhichsupportsopportunitiesforrefinancingandinvestment.

• TheGroupwillcontinuetoexploreSale&LeasebackopportunitiesfortheTuffnellspropertyportfolioasameansofreducingnetdebt,andwillseparatelylookatrefinancingopportunitiesandtiminginthemarket.

AnnualReporthavebeenabsorbedintoprincipalrisks2and4inthisAnnualReport:

• failuretoadequatelymonitorfinancialperformanceand/ordelaysintheGroup’sfinancialperformancerecovery;and

• inadequateprocessesinplacetosupportPeopleinitiatives.

Risksarestillsubjecttoongoingmonitoringandappropriatemitigation.

Thetablebelowdetailseachprincipalbusinessrisk,thoseaspectsthatwouldbeimpactedweretherisktomaterialise,ourassessmentofthecurrentstatusoftheriskandhoweachismitigated.

Key to risk

NewNochange NewriskDecreasedIncreased


Principal risks Change Potential impact Mitigating actions and assurances

2.Failuretorefine,executeand/ormonitortheGroup’sstrategyanddirection–TheriskofnotestablishingbusinessplansandaclearvisionfortheGroupimpactsemployeeengagement,financialreturns,externalconfidenceandstakeholders’perception.

Salesand/orprofitexpectationsmaynotbemetand/ortheCompany’sreputationandstakeholders’supportforarecoveryplanmaybechallenged.

Thechangemanagementculturerequiredintheshort-termforrestructuringmayresultinreducedperformanceandfinancialreturns.

• Thestrategyanddirectionisbeingdefinedandwillbesupportedbyaclearplanforexecutionandbudget.Accountabilityatleadershiplevelisclearlydefined.

• Performancetothebusinessplanandbudgetisreviewedregularlyusingabalancedframework.Thisensureseffectiveandtimelymonitoringofperformancewithactiontobetakenintheeventofshortfallstoexpectations.

• Financialandoperationalmetricsareconsideredalongwithriskassessmentsandmanagementimpactbeforeremedialactionistaken.

3.FailingtoachieverecoveryoftheTuffnellsbusiness,includingaddressingchallengesincustomerservicelevels,revenues,operationalefficiencyandcashand/ornotadaptingtothecompetitiveenvironment–TheriskthattheturnaroundofTuffnellsmaytakelongerandrequiregreaterinvestmentand/orgeneratelowerreturns.

Theriskofnotmaintainingcustomerservicestandardsand/ornotunderstandingoradaptingtonewtechnologies,competitorsanddemographicswhichdrivechangeincustomerbehaviourand/orthatresultindeepandexpeditedstructuralmarketchanges.

ImpactongrowthandprofitabilitywithinTuffnellsifconsistentservicestandardsarenotunderstoodandaddressed,and/oriforganisationalefficiencygoalsand/orcommercialopportunitiesarenotmet.

• ImprovedcontrolandinsightofTuffnells’financialperformancehasledtomoretimelyactionbothregionallyandnationallytorespondtochangingrevenueandcostdrivers.Tradingperformanceismonitoredinrealtime.

• TheTuffnellsturnaroundplanismonitoredthroughthePMOSteeringCommitteealthough,overall,thereisstillfurtherprogresstomakeagainsttheturnaroundplan.

• Theteamhasbeenstrengthenedwithrelevantindustryskillsandtherearevarious‘changeprogramme’initiativesunderwaytoimprovebusinessefficiency.

• Moreworkisplannedtounderstandthechangesincustomerexpectationsandtoimprovecustomerservice,inparticulararoundtheoperatingmodel,themanagementinformation,supportingtechnology,ITinfrastructureandsafeworkplace.Dataanalyticsarenowavailable,supportingamoreforensicapproachtocustomerprofitabilitymodellingandcostforecastingatdepotlevel.

• AvarietyofsalesandoperationalKPIsarebeingtrackedtobenchmarkTuffnells’customerofferingandexperiencetothemarketplace.CombinedinvestmentisbeingmadeacrosstheTuffnellsbusiness,includingtalent,fleet,properties,andnetworkoptimisation.

4.Capacityandcapabilitytodeliverthescaleofchange–TheriskthatlackofcapacityandbandwidthtomanagenumerouschangeprojectsmayhinderthetransformationalchangeorleadtothebreakdownofkeycontrolsrequiredacrosstheGrouptoimprovefinancialperformance.

New ImpactontheabilitytoaddressthestrategicprioritiesandtodelivertheforecastperformancefortheGroup.

• ThroughtheestablishmentofTheConnectWay(theGroup’sleanprocessmanagementandcontinuousimprovementprogramme),sixsigmablackbeltexpertiseandtheintroductionofcoreprojectmanagementskillsareinplacetoleadandprojectmanagethenumerouschangeprogrammesunderwayacrosstheGroup,withallprojectsnowbeingmanagedthroughPMO.

• EachprojecthasitsownriskregisterwithprogressshowingasaRAGstatus.APMOSteeringCommitteemeetsweeklyastheoversightbodytomonitorprogress,resourceadequacyandotherconstraints.ThisCommitteealsoconsidersnewprojectsandreprioritisestheprojectportfolioasneeded.


TR

AT

EG

IC R

EP

OR

T24

5.Failingtoattract,engageandretaintalentwithinahighperformanceandvalues-basedculture–TheriskthatwedonotattractorretainthepeopleandtheskillsweneedtotaketheGroupforwardandthatemployeesarenotmotivatedtowards,oraredisengagedfrom,thetaskinhand.

Riskthatthelevelofchangeaffectsstaffandretentionlevels.

ImpactontheabilitytoaddressthestrategicprioritiesandtodelivertheforecastperformancefortheGroup.

• Weseektooffermarketcompetitivetermstoensuretalentremainsengaged.

• Weundertakeworkforceplanning;performance,talentandsuccessioninitiatives;learninganddevelopmentprogrammes;andpromotetheGroup’scultureandcorevalues.

• Retentionplansarebeingreviewedtoaddresskeyriskareas,andattritionacrosseachbusinessisregularlymonitored.

• Regularsurveysareundertakentomonitortheengagementofemployees.

6.Increasedlabourmarketconstraintsandcosts–Theriskoflegislativechangesorinterpretation,coupledwiththeEUExitandpoliticaluncertainty,drivesdemographicorlegislativechangesorinterpretation,impactingtheabilitytorecruitandretainwarehouseanddeliverycontractors,resultinginhigherattritionriskinwarehousinganddistributionand/orincreasingliabilitiesandcosts.

Intheeventofanylegalclaimastoworkerstatusbyconsultants,subcontractorsoragencyworkers,thebusinesscouldbeliableforincreasedcosts(PAYEandundeclaredNationalInsurancecontributions)andliabilities(suchasemployeerights).Theinabilitytopassonsuchstatutoryincreasestoourcustomerscouldimpactprofitability,andaffectthecostoffutureefficiencyprogrammes.TheimplicationsofEUExitincludeadecreasingpoolofavailable,suitablyqualifiedemployeesandsubcontractors.

• TheGroupregularlyreviewsitslegaltermsofengagementwithcontractorsandconsultantsandhasappropriatecontractualandoperationalarrangementsinplace.Self-employeddeliverycontractorshaveclearlyarticulatedagreementswhichdefinetaskstheyarecontractedtoprovide,whetherpersonallyorbyasubstitute.

• KnownincreasestoemploymentcostassociatedwithNationalLivingWage/ApprenticeshipLevy/AutoEnrolmenthavebeenfactoredintolatestbudgets.Futurechangesinthisareaasaresultofpoliticalchanges/decisionsandthefullimpactofEUExitonemploymentrisksareunknownatthecurrenttimebutarebeingtracked.

• CommercialcontractsacrossSmithsNewspermittherenegotiationoflong-termsupplyagreementsintheeventofchangesinlawwhichimpactthestatusoftheGroup’sself-employeddeliverycontractors.

• Legaldevelopmentsaremonitoredtoensurethatthebusinessmaintainscompliancewithlegislationandbestpractice.

• Workforceplanninginitiativesincludingapprenticeshipandtrainingprogrammes,suchasWarehousetoWheels,aresupportingthelongertermmitigationofdrivershortage.

• Contractorprocesses,includingmonitoringcompliance,arewellestablishedinSmithsNews.Workison-goingtostrengthenprocesseswithinTuffnells.

Principal Risks cont.


7.Failingtomeethighhealth&safetystandards–Theriskofaninadequatehealth&safetyframeworkandinsufficientlyenforcingahealth&safetycultureresultsinseriousinjurytoemployeesand/orthepublic,and/orabreachofrelevanthealth&safetylegislation.

Theriskoffailingtoadheretoexternallawsandregulationsbyemployees,sub-contractorsandthirdpartiesresultinginabreachofourTransportOperatorLicenceconditions.

Inadditiontothedangertostafforthepublic,theimpactofaHealth&Safetyfailurenegativelyimpactsoperations,profitabilityand/orcorporatereputation,togetherwiththeriskofpossibleenforcementaction.

Theriskoftransportcompliancefailuresmayimpactconsistentservicestandardsand/ortheabilitytodelivertheforecastperformancefortheGroup.

• SafetyisakeypriorityoftheGroup.Health&SafetyperformanceisreviewedbytheBoard,AuditCommitteeandExecutiveTeam.

• AdedicatedHealth&Safetyteamexecutesimprovementprogrammes,undertakesauditsandpromotesasafetyculture.

• TheGroupcontinuestoinvestinHealth&Safetyimprovements,includingtheroleofHealth&Safetydirectorandbettermanagementreporting.

• WithinSmithsNewstheriskisconsideredtobewellmanagedandtheambitioncontinuestopromoteconsistencyinstandardsandculture.

• DedicatedTransportComplianceteamsexistspecificallyfocusedontransport-relatedcompliance.Improvementprogrammeshavebeenunderwaytoensurecontinuedlegalcompliance,operationalefficienciesandtominimisemistakes.Managementinformationisinplacetomonitorcomplianceonanongoingbasis.

Inadditiontomonitoringtheprincipalrisks,theBoardalsocontinuestomonitorandreviewtheemergingriskstotheGroupandthelikelihoodandmaterialityoftheirrespectiveimpactontheGroup’sfinancialperformance.KeythemesfortheGroup’semergingrisksareasfollows:

• tighteningdebtcapitalmarketandtheabilityoftheGrouptorefinanceitsexistingdebtwhichmayleadtofinanciallossandinabilitytooperatethebusinessnormally;

• majorincidentsfollowinganaturaldisasterleadingtosignificantdisruptionofservicesand/orinabilitytooperatethebusinessnormally;

• failureinthesuccessfultransitionand/oron-boardingofselectedservicestothesharedservicecentreinIndiawhichmayleadtoservicedisruptionand/orinabilitytooperatethebusinessnormally;

• lackofmaintenanceofanadequateITinfrastructureasaresultoftechnologicalchangeleadingtolossofinnovationability,lesseningagilitytoserveourcustomers,lossofbusinessdataandintegratedmanagementreporting;and

• cybersecurityriskleadingtosignificantbusinessdisruption,datatheft,regulatorynon-compliance,reputationaldamageandfinanciallossthroughfinesorinabilitytooperatethebusinessnormally.

Risk severity assessment

15

32 46

7

Low Mid High

Key to risk

NewNochange NewriskDecreasedIncreased


TR

AT

EG

IC R

EP

OR

T26

Statement of Viability

ROBUST ASSESSMENT OF PRINCIPAL RISKS

1 How Connect Group assesses its prospectsConnectGroup’sbusinessactivitiesandstrategyarecentraltoassessingitsfutureprospects.These,togetherwithfactorslikelytoaffectitsfuturedevelopment,performanceandposition,aresetoutintheStrategicReportonpages2to31.ThefinancialpositionoftheGroup,itscashflowsandliquidityarehighlightedintheFinancialreviewonpages16to21.TheGroupmanagesitsfinancingbystructuringcoreborrowingsandtheavailabilityoffacilitiesfordrawdown.TheGroup’sprospectsareassessedprimarilythroughitsbusinessplanningprocess.Thisincludesanannualreviewwhichconsidersprofitability,theGroup’scashflows,committedfundingandliquiditypositionsandforecastfuturefundingrequirementsovertheassessmentperiodofthreeyears.ThemostrecentwassignedoffinSeptember2019,anditispartoftheBoard’sroletoconsidertheappropriatenessofanykeyassumptions,takingintoaccounttheexternalenvironmentandbusinessstrategy.

2 The assessment periodThedirectorshavedeterminedthatthethreeyearstoAugust2022isanappropriateassessmentperiodoverwhichtoprovideitsviabilitystatement.ThisperiodisconsistentwiththatusedfortheGroup’scorporateplanningprocessasdetailedabove,andreflectsthedirectors’bestestimateofthefutureprospectsofthebusiness,includingthenatureandpotentialimpactoftheprincipalrisksthatfacethebusiness.TheBoardnotedinconsideringtheappropriateassessmentperiodthattheGroup’scurrentbankingfacilitiesareduetoexpireinJanuary2021.TheBoardexpectstorefinanceduring2020oncommercially

reasonabletermsforaperiodthatisconsistentwiththethree-yearplanandreflectstheexpressedintentiontobringnetdebt:EBITDAto1xbyendofFY2021.TheBoardalsoconsideredwhethertherearespecificforeseeableeventsrelatingtotheprincipalrisksthatcouldoccurbeyondthethree-yearperiodthatshouldbetakenintoaccountwhensettingtheassessmentperiodandconcludedtherewerenone.IntheBoard’sassessmentofviability,thescenarioshaveassumedthatexternaldebtisrepaidasitbecomesdue,orwillberefinancedasandwhenrequired(seeNote20onpage119).

3 Assessment of viabilityIngeneratingitsplantheBoardhasconsideredtheoverallstrategyoftheGroup,theprincipalrisksanduncertaintiesinherentwithinthebusiness,aswellasmakinganumberofkeystrategicplanningassumptionswhicharenotedbelow:

1.NosignificantimpactontradingasaresultoftheEUExitorotherpoliticalchange;

2.ModestrevenuegrowthinTuffnellsintheassessmentperiod;

3.DeliveryofmarginimprovementinTuffnells,drivenbyefficienciesbothinoperatingandoverheadcostsintheassessmentperiod;

4.Continueddeclineinsalesofprintedmediaduringtheassessmentperiod,offsetbyoverheadefficienciesintheassessmentperiod;

5.RetentionofmajorcontractsinSmithsNewsatrateswhichmaintainacceptablemargins;

6.Nomajorchangesinworkingcapitalprofile;

7. SuccessfulrenewalofbankingfacilitiesinJanuary2021;and

8.Nosignificantacquisitionsordisposalsintheassessmentperiod.

Inmakingthisstatement,thedirectorshavecarriedoutarobustassessmentoftheprincipalrisksfacingtheGroup,includingthosethatwouldthreatenitsbusinessmodel,futureperformance,solvencyorliquidity.Thisincludedtheavailabilityandeffectivenessofmitigatingactionsthatcouldrealisticallybetakentoavoidorreducetheimpactoroccurrenceoftheunderlyingrisks.Inassessingthelikelyeffectivenessofsuchactions,theBoardconsideredtheconclusionsfromtheirregularreviewofriskmanagementandinternalcontrolsystems(asdescribedonpages42to50).

Tomaketheassessmentofviability,stressscenarioshavebeentestedoverandabovethoseinthebusinessplan,baseduponanumberoftheGroup’sprincipalrisksanduncertainties(asdocumentedonpages22to25).Thescenarioswereoverlaidintothebusinessplantoquantifythepotentialimpactofoneormoreofthesecrystallisingovertheassessmentperiod.Whilsteachoftheprincipalriskshasapotentialimpactandhasbeenconsideredaspartoftheassessment,onlythosethatrepresentseverebutplausiblescenarioswereselectedformodellingthroughthebusinessplan(shownright).


Asnotedabove,thescenarioshaveassumedthatexternaldebtisrepaidasitbecomesdue,orwillberefinancedoncommerciallyreasonableratesoveranagreedperiodonsimilarcovenantterms,asandwhenrequired.TheBoard’sintentionistoseektore-financeduring2020withourexistingbanksyndicate.Anynewrefinancedfacilitytermisexpectedtomatchtheperiodoftheviabilityassessmentandbeatanadequateleveltosupportourintentiontoachieveanetdebt:EBITDAratioof1xbyendofFY2021.Theavailabilitytorefinancecanbeinfluencedbywidermacro-economicfactorsatanypointintime.

ThescenariosabovearehypotheticalandsevereforthepurposeofcreatingoutcomesthathavetheabilitytothreatentheviabilityoftheGroup;however,multiplemeasuresareinplacetopreventandmitigateanysuchoccurrencesfromtakingplace.

Ineachofthestressscenarios1-5,theGroupwouldbeabletocontinueoperatingwithinexistingdebtcovenantsandliquidityheadroom.Scenario6requiredsuchanextremesetoffactorsinunisonthatitisconsideredtobeaveryremotelikelihoodandthereforedoesnotrepresentarealisticthreattotheviabilityoftheGroupbutratherillustratesthefactorsthatwouldresultinabankingcovenantbreach.Thedirectorsconsideredmitigatingfactorsthatcouldbedeployedtocounterthenegativeeffectsofthecrystallisationofeachoftheserisks.Themainactionsincludedreducinganynon-essentialcapitalexpenditureandoperatingexpenditureonprojects,aswellasnotpayingdividendsorbonuses.

TheBoardalsoconsideredtheimpactoftheEUExitonthebusinessanddoesnotforeseeanysignificantnegativeimpactwhichwillimpactontheviabilityassessment.

4 Viability statementTakingintoaccounttheGroup’sandParentCompany’scurrentpositionandprincipalrisksanduncertainties,thedirectorsconfirmthattheyhaveareasonableexpectationthattheGroupandParentCompanywillbeabletocontinueinoperationandmeetitsliabilitiesastheyfalldueoverthethreeyearstoAugust2022.

5 Going concernThedirectorsalsoconsidereditappropriatetoadoptthegoingconcernbasisinpreparingtheGroupandparentFinancialStatementswhichareshownonpages86to135.

Scenario modelled Link to principal risks

Scenario 1Customerattritionasaresultofpoorcustomerservicelevelsandnotadaptingtothecompetitiveenvironment

WehaveassumedcustomerattritioninTuffnellsequalsnewcustomers,resultinginrevenuebeingflatthroughouttheassessmentperiod.

Risk1&3:Failuretoachievedesiredcustomerexperienceandservicelevels.

Scenario 2Majorpublisherbusinessfailure

ThebusinessplanassumesallmajorpublisherswillcontinuetotradewithSmithsNewsoverthethree-yearassessmentperiod.Wehavemodelledascenariothatreflectsoneofthemajorpublishersgoingoutofbusinessormovingtoadigitalonlymarket.

Risk1:Failingtooptimiseprofitabilityinthenewsbusiness.

Scenario 3Forecastsavingstargetsarenotmet

ThebusinessplanassumesbothoperationalandoverheadefficienciesinTuffnellsaspartofdeliveringitsturnaround,aswellasoverheadsavingsinSmithsNewsthroughouttheperiod.Wehaveassumedonly20%oftheseimprovementsareachieved.

Risk1&3:Failingtomonitorfinancialperformanceand/ordelaysintheGroup’sfinancialperformancerecovery.

Scenario 4Changestothegigeconomy

TheGroupoperatesabusinessmodelthatusesamixofemployedoperatives,subcontractorsandagencystaff.Ifemploymentlaworpracticesaresubjecttochangewhichrendersthemixunworkableinfuture,thenthiswouldpotentiallyleadtoincreasedcost.Wehavemodelledscenariosthatchangethismixandleadtoincreasedcost.

Risk6:Increasedlabourmarketconstraintsandcosts.

Scenario 5MajorHealth&Safetyincidents

WeconsideredthefinancialandreputationalimpactofaseriesofHealth&Safetyincidents,modellinganincreasedcostandregulatoryfinessuchasfromtheHealth&SafetyExecutive.

Risk7:Failingtomeethighhealth&safetystandards.

Scenario 6Reversestresstest–revenueloss,marginerosionandworkingcapitaloutflowincombinationtocovenantbreach

Thiscombinesanextremeseriesoffactorsinunison,toillustratewhatwouldresultinacovenantbreach. Multiplerisksincombination.

1

1

1 3

3

6

7

1 7–


TR

AT

EG

IC R

EP

OR

T28

Corporate Responsibility

SUSTAINABLE BUSINESS THROUGH CONTINUAL IMPROVEMENT

The Group operates to a well-established

foundation of responsible practice,

with governance focusing on four key

areas: Governance & Sustainability,

Environment & Community,

Workplace & Conduct and Marketplace.

Governance and sustainabilityThekeyareasoffocusintheGroup’sCorporateResponsibility(CR)programmeareeachownedandmanagedbyarelevantexecutivedirectorwithsupportfromspecialistteamsattheGroupcentrewherenecessary.Targetsandprioritiesareagreedforeachbusiness,withprogressreviewedthroughouttheyear,includingregularupdatestotheBoard.Inpractice,thedaytodayresponsibilityiswidelyshared,withtargetsintegratedintooperationalbusinessesandcrossfunctionalinvolvementininitiativesbeingthenorm.Toensurethatallstakeholdersshareanawarenessofourapproachwepublishourpoliciesand,whererelevant,buildtheseandfuturegoalsintooursupplieragreements.

TheGrouphaschosentoseektocomplyearlywiththerequirementsofthe2018editionoftheUKCorporateGovernanceCodeincludingthoseaspectsrelatingtoCR.FurtherdetailsaresetoutbelowandintheCorporateGovernancereport.

Environment and communityTheGroup’senvironmentalimpactismostsignificantlyinfluencedbyourvehicleemissions;energyconsumptionatourlocations;andwasteandrecyclingofproductandpackaging.Theserepresentourprimaryareasoffocusforenvironmentalimpactimprovement.

Fuelusedbyfleetandcontractorsaccountsforthemostsubstantialportionofourtotalemissions.AsubstantialproportionofthevehiclefleetwasupgradedtoEuro6standardsinFY2018andinFY2019,ourCompanycarfleethasbeenreducedby65vehicles.Ourpriorityoverthenext12monthsistosecurefurtherfuelefficiencies,achievedthroughacombination

ofdrivertrainingandareviewofthetrunkingnetworkwhichmovesproductsbetween‘hubandspoke’locations.Aprojectisunderwaytodeterminehowwecanbestreducethenumberoftrunkingjourneys,whilemaintainingservice,throughimprovedroutingandvehicleoptimisation.

TheGrouphasmaderegularprogressinreducingitsenvironmentalimpactthroughaseriesofdepotconsolidations,theintroductionofsmartmeteringtomonitorelectricityandgasconsumption,andtheconversionofallourlargerlocationstoLEDlighting.Whilemanyofthemostsignificantopportunitieshavenowbeentaken,wecontinuetomonitorutilityusageandmakeimprovementsonanon-goingbasis.

CarbonReductionCommitment(CRC)TheCRCmeasureselectricityandgasusageinlargeandmediumsizedcompanies.InthereferenceperiodtotheendofApril2019the

Group’sactivitiesaccountedforatotalof3,640tonnesofCO2,areductionof41%onthepreviousyear.ThereductionisinpartaconsequenceofthereducedsizeoftheGroup,butalsoreflectsourongoingactionsonlighting,meteringandenergymonitoring.

CarbonEmissionsdataTheGroup’sCarbonEmissionsisreportedfortheyear1January2018to31December2018,consistentwiththeperiodwearerequiredtoreportandauditfortheGovernment’sEnergySavingOpportunitySchemeandtheCarbonReductionCommitment.TheGrouppreviouslyreporteditscarbonemissionsdatausingtheperiod1Marchto28Februaryannually,andthesefiguresareprovidedforabenchmarkcomparison.TheGroupwillpublishitsGreenhouseGasemissionsforthefullcalendaryearof2019withappropriatecomparisons,ontheCompany’swebsitesearlyin2020.

Carbon Reduction Commitment (CRC) 2017/18 2018/19 Change

Electricity(tonnesCO2) 4,675 2,789 -40%

Gas(kWh)(tonnesCO2)* 1,466 851 -42%

Emissions(tonnesCO2) 6,141 3,640 -41%

Fuel type/scope1 March 2017 – 28 Feb 2018 (Tonnes of CO2e)

1 January 2018 – 31 Dec 2018 (Tonnes of CO2e)

Scope1 41,145 85,829

Scope2 5,793 3,979

Scope3 38,879 10,584

Total 87,717 100,395

* Excludingsmallmeters.


Newspaper and magazine recycling

CommunityTheGroup’scommunityactivityisspearheadedbyour‘PassitOn’Campaign,supportinghomelesspeopleacrosstheUK.InFY2018,theprogrammewasextendedtoincludeasummercampaignratherthanfocusingsolelyonChristmasandthiswasrepeatedinsummer2019.Highlightsincludedover10,000itemsbeingdonatedanddistributed,withmorethan70colleaguesvolunteeringsignificanttimebeyondworkinghourstoensurethecampaignransmoothly.TheprogrammeandourwiderCRstrategywerehighlycommendedattheHRExcellenceAwardsinJune2019.

Inadditiontoourflagshipcampaigns,manyteamsandindividualscontinuetosupportcausesthatareimportanttothem.Wherepossible,weprovidesupportwithworkplaceflexibility,publicityandfinancialsupport.Weoffercolleaguestime-offforuptofivedaysayearinordertovolunteerforcommunitycausesandencouragemanagerstobeaccommodatingandflexibleintheirassessmentofrequests.

Workplace & ConductThisyearwehavetakenmeasurestoimprovecolleagueengagement,withactiveinvolvementfromtheBoardandExecutiveTeam,sponsoringaseriesofinitiativestorevisitandimproveourvalues,culture,andcommunicationprocesses.

ColleagueforumsColleagueforumshavebeenestablishedacrosstheGroup,withanextensivecascadestructuretoensurecommunicationisbothswiftandcomprehensive,withissuesandresponsesaddressedpromptly.

TheBoardhastakenanactiveroleinshapingthepurposeandconsideringtheoutputsoftheforums.KeyoutputsfromtheNationalColleagueEngagementForumincludeconstructivediscussionsonourHealth&SafetypoliciesandtheGroup’s‘SafetyFirst’initiative;adesireforgreaterunderstandingofexecutiveandcolleaguereward;proposalsforimprovedtwo-waycommunicationchannelsbetweenfrontlinecolleaguesandbusinessleaders;andtheendorsementofproposalstointroducemoreflexiblebenefitstructures.

NotesThedatacollectedforthisreportisinrespectoftheperiod1January2018to31December2018.Thedataincludesallmaterialemissionsdefinedassourcesrepresentingover1%offootprint.

Usinganoperationalcontrolapproach,theGrouphasassesseditsboundariestoidentifyactivitiesandfacilitiesforwhichithasresponsibilityforthegreenhousegas(GHG)emissionsfromScope1and2.TheGroupreportsonselectedScope3emissions,namely,thesubcontractedmileageofSmithsNewsandTuffnells(wherepossibletoobtain)andemployeebusinesstravel.TotalGHGemissionswerecalculatedfollowingISO-14064-1:2006methodologyandusingDEFRA(2016and2012)emissionsfactors.

Scope1(gasandfuel)emissionsrelateprimarilytotheconsumptionofgastoheattheGroup’sdepotsandthefuelconsumedbyourCompanycarsandcommercialvehiclefleet.Scope2emissionsconsistoftheelectricityusedinourofficesanddepots.

Greenhouse Gas Emissions Intensity Ratios

IntensityratiosReporting year

CO2e tonnesper £1mturnover

CO2e tonnesper

employee

CO2e tonnesper square

metre ofpremises

1January2018–31December2018 66.28 20.73 0.62

1March2017–28February2018 51.26 16.26 0.41

98%of unsold copies are recycled

• Alllocationsholdatleastonecolleagueforummeetingeverymonthheadedbytheirmanager–thisamountsto80meetings,generatingfeedbackandideas,andprovidingopportunitiestocommunicate.

• Regionalforumsareheldquarterly,headedbyRegionalDirectors.

• NationalforumsarealsoheldquarterlyforSmithsNews,TuffnellsandOfficelocations.

• ANationalColleagueEngagementForumisanadditionalmeetingheldquarterlyandchairedbynon-executivedirectorMichaelHolt,whohasbeennominatedbytheBoardtopromotecolleagueengagementasameansofensuringthattheviewsandinsightofinternalstakeholdersarefullyconsidered.

Whilethereisstillmuchworktobedone,wearepleasedtohaveestablishedfoundationswhichareconsistentwithournewvalues,cultureandstrategy.

CompanyvaluesNewCompanyvalueswerelaunchedinautumn2018,supportedbyworkshops,communication,managementandcolleagueforums,amountingtoasignificantandsustainedefforttocreateamoreentrepreneurial,fasterpacedandopenculture.Thenewvaluesweredesignedtoencouragethesebehavioursamongallofourcolleagues,guidingthewayweworktogetherandwithourpartners.


TR

AT

EG

IC R

EP

OR

T30

Corporate Responsibility cont.

Inclusion&DiversityTheGroupiscommittedtopursuingimprovementsingender,ageandethnicdiversity.Whilerecognisingthatthesewilltaketimetoachieve,weareputtinginplacestructurestohelpensureregularprogressismaintained.

Insupportofthisgoal,the‘EveryoneIn’programmewaslaunchedinFebruary2019.Theprogrammeisguidedbyaregularforumofcolleaguesacrossthebusinesswiththeexpresspurposeofhelpingtocreateamoreinclusiveculture,welcomingdiversityandallowingallcolleaguesto‘bethemselves’atwork.InitiativestodateincludesupportforthenationalMentalHealthandCarersweeks,andhighprofileupskillingsessionsformanagersonthebenefitsofinclusionanddiversity.

ColleaguecommunicationWehavesignificantlyincreasedcolleaguecommunicationacrossthebusinesswithgreateractiveparticipationfromtheExecutiveTeamandtheBoard.Initiativesinclude,amongothers:theestablishmentofcolleagueforums,regulartownhallmeetingstoexplainstrategyandperformancetobothSmithsNewsandTuffnells,anewstaffnewspaper,improvementstoandeasieraccesstotheGroup’scolleagueintranet,andBoardmembervisitstooperatinglocations.

TheGroup’sall-colleagueengagementsurveyhasbeenrevisedinlinewiththenewstrategyandwasrelaunchedinSeptember2019.Theresultswillbeanimportantmeasureoftheeffectivenessofactionstakentoimproveculture,communicationandengagement.TheBoardwillplayanactiveroleinreviewingresultsanddeterminingtheappropriateactionplansandpriorities.

Workplaceresponsibility,diversityandhumanrightsTheGroupiscommittedtoresponsiblepracticethroughouttheworkplaceandembedsthisinitspoliciesandprocedures.Regularreviewsensurethatupdatesaremadeinresponsetobusinessinitiativesandlegislation;anysignificantchangesarenotedanddiscussedwiththeExecutiveTeamandtheBoard.Health&SafetyperformanceisreviewedregularlybytheBoardandExecutiveTeamthroughouttheyear.

TheGroupworkstoensureaculturethatisfreefromdiscriminationandharassmentinanyform.Properconsiderationisgiventopeoplewithdisabilitiesand,shouldemployeesdevelopadisabilitywhileworkingfortheGroup,everyeffortismadetocontinuetheiremploymentandprovideretrainingifrequired.Wearecommittedtoacultureandenvironmentinwhichworkplaceconcernscanberaisedandaddressedwithoutrecrimination;wesupplementthiswithconfidentialwhistleblowingproceduresthatarewellcommunicatedthroughouttheorganisation,includingaconfidential‘speak-up’line.AllconcernsraisedarecarefullyinvestigatedandanysignificantmattersarebroughttotheattentionoftheBoard.

TheGroupactivelysupportsdiversityintheworkplaceinallitsformsandiscommittedtoimprovingthebalanceofgendercompositionovertime.Thegendercompositionasat31August2019canbeseeninthetablebelow.

TheGroupsupportsthehumanrightsofouremployeesandourpoliciesarebuiltonacommitmenttomutualrespect,fairnessandintegritythroughouttheGroup.Theseprinciplesarereflectedinourvalues,whichareintegraltoourEmployeeRelationspoliciesand,morebroadly,totheways

inwhichweworktogether.TheGrouphasinplaceethicaltradingstandardsandacommitmenttocombattingmodernslavery,eachofwhichareendorsedbytheBoard,andwhichweexpectoursupplychainpartnerstoadheretoinourcommercialrelationships.Inthelastyear,wehaveincreasedoureffortstocombatmodernslaveryandhumantrafficking,strengtheningourdiligenceproceduresintheareasweconsidertobeofgreatestrisk,including:employeerecruitmentandon-boarding;contractorappointmentandmanagement;procurementandoutsourcing;andbyraisingawarenessofanti-slaveryandhumantraffickingthroughwidespreadcommunicationofpoliciesandmanagerguidelines.TheGroup’sfullAnti-SlaveryandHumanTraffickingStatement(September2019)isavailableonlineatwww.connectgroupplc.com/modern-slavery-statement

Male % Female % Total

Allemployees 3,613 77 1,081 23 4,694

BoardofDirectors 6 86 1 14 7

SeniorManagers* 30 83 6 17 36

* ComprisestheExecutiveTeam(excludingtheExecutiveBoardDirectors)andtheirdirectreportsasrecommendedbytheHampton-AlexanderReview,withresponsibilityforplanning,directingorcontrollingtheactivitiesoftheCompany,orastrategicallysignificantpartoftheCompany.

Toencourageemployeestoraiseanymattersofconcern,theGroupoperatesaconfidential‘speak-up’line.AllconcernsarecarefullyinvestigatedandanysignificantmattersarebroughttotheattentionoftheBoard.

GenderpaygapreportingTheGroup’soverallgenderpaygapintheyearto31August2018hasreducedfrom9%to5.1%.Thisprogresswasnotfullymirroredinthepaymentofbonuses,withthemeangenderbonusgapincreasingfrom17%to35.9%,whilethemediangenderbonus

The Group works to ensure a culture free

from discrimination and harassment in any form.

All concerns are carefully investigated and any significant matters are brought to the attention of the Board.

http://www.connectgroupplc.com/modern-slavery-statement




gapimprovedfrom-84%to-45.4%.Arangeoflegacyfactorsimpactthesefigures,mostnotablythenumberandvalueofbonusespaidinFY2018aswellasthepercentageofwomenandmenreceivingabonusinprioryears,bothofwhichinfluencethecalculationofthemeanbonusgap.

TheGrouphasputconsiderableeffortintoensuringtheseresultsarecommunicatedinanopenandtransparentwaytocolleaguesandotherstakeholders.DetailswerepublishedontherelevantGovernmentwebsitesduringFY2019,supplementedbycolleaguecommunicationsthatexplainedtheresults,whattheymeanandtheactionswearetaking.

Our2018GenderPayGapreportcanbefoundatwww.connectgroupplc.com/working-responsibly/a-responsible-business

Marketplace TheGroupiscommittedtoworkingacrossitssupplychainsinpursuitofhighstandardsandsustainablebestpractice.Seniorcolleaguescontributetoanumberofindustrybodiesandforumsandwearealeaderintransparencyandtheadoptionofrelevantvoluntarycodes.

Inthenewsindustry,thePressDistributionForumconductedareviewofitsretailerComplaintsProcessembodiedinthePressDistributionCharter.Weplayedanactiveroleinthisprocessandarenowworkingtothenewstandardswhichfacilitateamoretransparentmeasureofanyissuesraisedbyretailers.Underthenew(stricter)measures,theindustryhasseenasignificantyearonyearreductionofStage1andStage2complaintswithissuesrelatingtoSmithsNewsdownby63%yearonyear.ThePressDistributionReviewPanelnotedinitsindependentAnnualReport(2018)thatthetotalnumberofservicebreachesacrosstheindustryreachingStage2wasonly294,ofwhichonly41wereescalatedtoStage3.Furthermore,itcommentedthatthesefiguresneedtobeplacedinthecontextofthesheerscaleofopportunitiesforcomplaint,whichatitssimplestcanamounttoasinglemisseddeliveryforasingleproduct.Thereare,thereportnotes,over396milliondeliverycomplaintopportunities,confirmingthatthelevelofbotherrorsandcomplaintsisatinypercentageoftotalactivity.

Morerecently,inJuly2019thenewsindustryannouncedanautomaticservicefailurepaymentschemeincaseswherethedailynewsisdeliveredovertwohourslate,irrespectiveofinbounddeliverytimes.SmithsNewshasadoptedthenewschemefromSeptember2019.

AcrosstheGroup,wehavebeenreviewingourprocurementproceduresagainstbestpractice,developingasuppliercodethatwillincludetherequirementforsupplierstoupholdtherelevantCRstandardsincludingcompliancetoourmodernslaveryandanti-briberypolicies.OurpreferredsupplierswillneedtobeabletoevidencetheirupholdingofboththesestandardsandanyadditionalCRrequirements

2019Smiths

News Tuffnells Group

SpecifiedInjuries 4 11 15

Injuriesresultinginover7daysabsencefromwork 3 24 27

AllRIDDOR 7 35 42

Prior years 2018 2017 2016 2015

SpecifiedInjuries 11 10 10 10

Injuriesresultinginover7daysabsencefromwork 38 41 41 52

AllRIDDOR 49 51 51 62

thatmayberelevant.Forcategories,suchaspackaging,stationeryandwasteweplantointroducespecificcompliancechecks.Weaimtohavethecodefullyinplacebytheendofthecalendaryear.

Health & SafetyTheBoardiscommittedtoachievingthehigheststandardsofHealth&Safety,ensuringtheappropriateresourcesareavailableforimprovementstoourculture,performanceandpractice.EachofSmithsNewsandTuffnellsissupportedbyspecialistHealth&Safetyteamsthatprovideguidance,trainingandsupportinrelationtoitsparticularrisksandpriorities.AHealth&SafetyreportisprovidedtotheBoardonastandingitembasis;andtheAuditCommitteeandBoardeachconductregularreviewsofincidents,trendsandoverallperformance.TheresultisacontinualfocusonHealth&Safetyatalllevels.

ReportingofInjuries,DiseasesandDangerousOccurrencesRegulations(RIDDOR)TheGrouphasseenapleasingimprovementinitsHealth&Safetyperformanceacrosstheyear.OverallRIDDORreportableincidentsaredownby14%withincidentsdownby60%inSmithsNewsandupby6%inTuffnells.WeareconfidentthattheincreaseinTuffnellsreflectsoccasionalvariationsinstatisticalreporting,ratherthanasignificanttrendasthetotalnumberofincidentsinTuffnells(includingminorincidentsandnearmissesthatarenotrecordedasRIDDOR)declinedby7.5%overthesameperiod.

OthermeasuresandtrainingInFY2019,theGroupadoptedameasureof‘LostTimeIncidents’asanadditionalkeyindicatorfortrackingsafetyintheCompany.UnlikeSpecifiedInjuries,a‘LostTimeIncident’isnotdependentontheseverityoftheinjury,soeachrecordcouldrepresentaslittleasoneday’sabsence.Thisbestpracticeapproachisaimedatencouragingarigorousawareness

ofallrisks,regardlessoftheirseverity,reinforcingapositivesafetyculture.Atotalof149LostTimeIncidentswererecordedacrosstheGroup(FY2018:147),thoughbroadlyflatonlastyear,thetotalisreflectiveofthedrivetoincreaseawarenessanda‘zeroexceptions’cultureofreportingofminorincidentsandnearmisses.WiththesupportoftrainedHealth&Safetypractitionerswereviewallrecordedaccidents,nearmissesandanyconcernsraisedbycolleaguesinpursuitofcontinualimprovementtoourprocessesandperformance.

AnindicationoftheimprovingHealth&SafetyenvironmentistheawardbyRoSPAofnineGoldawardsacrossSmithsNewsandTuffnellsdepots,withfurthersilverawardsatourBrierleyHillandHaydocklocations.Giventhecomplexityoftheoperationsthesearesignificantachievementsandsetastandardwhichweareworkingtoachieveacrossthenetwork.

Insupportofapositivesafetycultureweadditionallylauncheda‘SafetyFirst’campaigninouroperatinglocations.Recognisingthatbehavioursarecriticaltolong-termimprovement,wehavemaintainedourinvestmentintraining,withprogrammesintheyearincludingManualHandlingTrainingforallcolleaguesandouragencypartners,andtherolloutofvideotrainingonsafesystemsofwork.

ApprovalThisStrategicReporthasbeenapprovedbytheBoardandsignedonitsbehalfby:

Gary KennedyChairman5November2019

Specified Injuries Over 7 days

Tuffnells

Smiths News

11 2404 03

http://www.connectgroupplc.com/working-responsibly/a-responsible-business

http://www.connectgroupplc.com/working-responsibly/a-responsible-business

CONNECT GROUP ANNUAL REPORT 2019G

OV

ER

NA

NC

E32

Introduction to Governance

As Chairman of the Board, I am pleased to present our Corporate

Governance report for the year ended

31 August 2019.

A COMMITMENT TO GOOD GOVERNANCE

AgainstabackdropofchangeandtransformationacrosstheGroupduringFY2019,wehavemadegreatstridesinresettingourmostimportantcorebehavioursbylaunchingtheGroup’snewValueswhichareexpectedof,andpromotedby,allofourcolleagues.WearedelightedthattheseValueshaveresonatedsostronglywithourpeopleandareincreasinglyembeddedwithinoureverydayconductandculture.MoreinformationonourValuescanbefoundwithintheCorporateResponsibilityreportonpages28to31.

Alongsidethisculturalshiftandatatimewhenwehavecontinuedtoexperiencechallengestoourtradingprofile,wehavere-energisedthewayinwhichweinteractwithourkeystakeholderswitharenewedvigourtolistenandengagewithourcolleagues,customers,suppliers,communitiesandshareholders.Thisisevidencedinmanywaysvia:

• ournewnetworkofcolleagueforums,includingourNationalColleagueEngagementForumattendedbyMichaelHolt(asdesignatednon-executivedirector)asameansofgivingtheBoarddirectaccesstotheimportantviewsandvoiceofourfrontlineandcorporatecentrecolleagues(furtherinformationcanbefoundinourCorporateResponsibilityreportonpages28to31),

• ournewdiversityandinclusionawarenessprogrammes(informationonournewDiversity&InclusionpolicycanbefoundinourNominationsCommitteereportonpage51),

• ourthoroughCapitalMarketsstrategysessionheldinJanuary2019;and

• ourextensiveconsultationwithinstitutionalshareholdersinrelationtoourproposedupdateddirectors’remunerationpolicy,assummarisedbyourRemunerationCommitteeChaironpage54,andwhichshareholdersareinvitedtoapproveatour2020AnnualGeneralMeeting(AGM).

Separately,wehaveengagedwithasmallnumberofshareholderswhovotedagainstmyre-electionasChairmanatour2019AGMinordertounderstandtheirconcernsovermyperceived‘over-boarding’inlightofmyotherchairmanships.TheBoardhasconsideredtheseconcernsandhasconcludedthatIhavesufficientcapacitytomeetmycommitmenttotheCompany,particularlygiventhatoneofmychairmanshipsrelatestoGreenREITPLC(arealestateinvestmenttrust),whichduetothenatureofitsbusinessconstitutesconsiderablylesstimecommitmentthanatypicaltradingbusiness,apositionformallyrecognisedrecentlybyLegal&GeneralInvestmentManagementwhodesignatedsucharoleasbeingequivalenttoonerole(comparedwitha‘tworole’equivalentforaBoardChair)outofamaximumoffivepermittednon-executiveroles.Nevertheless,IcanalsoreportthatIintendtoresignastheChairmanofGreenREITPLCfollowingconclusionofitsformalsalesprocessandtherecentannouncementforitssaletoasubsidiaryofHendersonParkRealEstateFund.FurtherdetailsonthisprocesscanbefoundinourCorporategovernancereportonpage36.

Buildingonourcommitmentofleansixsigmaprocessmanagement,continuousimprovementandtransformation,wearesatisfiedwiththecontinuedfocusandimprovementintheriskmanagementprocessandthestrengtheningofourinternalcontrolenvironmentasoverseenbyourAuditCommitteeandreportedonpage44.WewillcontinuewiththisfocusintoFY2020.Duringtheyear,asexplainedonpage34,weinitiatedatenderforexternalauditservicesandwearepleasedtorecommendBDOLLPasournewauditor.Iwouldliketoexpress,onbehalfoftheBoard,ourgratitudetotheformerDeloitteauditteamfortheirrobustandprofessionalauditservicestotheCompanysincedemergerfromWHSmithPLCin2006.

TheBoardremainscommittedasithasalwaysdonetodrivinggoodgovernanceprinciplesthroughourGroupandforthisreasonwehavesoughttocomplyayearearlierthanrequiredwiththeupdated2018editionoftheUKCorporateGovernanceCode(the‘Code’).SetoutwithintheCorporategovernancereportonpages36to43,wedetailourcomplianceduringtheyearwiththenewCodeandwelookforwardtocontinuingourcommitmenttogoodgovernancethroughtheyearahead.


CONNECT GROUP ANNUAL REPORT 2019 GOVERNANCE 33CONNECT GROUPANNUALREPORT2019

Governance frameworkWeoperatewithinacleargovernanceframework,whichisoutlinedinthediagrambelow.OurriskmanagementframeworkalongwiththeprincipalrisksisdescribedintheStrategicreportonpages22to26.

—remunerationofdirectorsandseniormanagersandoversightofworkforcepayarrangements;

—annualevaluationoftheBoardanddirectors,consideringitscompositionandtheeffectivenessofdirectorsworkingtogethertopromotethelong-termsustainablesuccessoftheCompany,generatingvalueforshareholdersandcontributingtowidersociety;and—corporateresponsibility.

TheScheduleofMattersReservedfortheBoardisavailableonourwebsitewww.connectgroupplc.com

Audit Committeepromotesgovernanceandaccuracyoffinancialreporting—monitorstheinternalandexternalauditors

Nominations CommitteemakesrecommendationstotheBoardforexecutiveandnon-executiveappointmentsandsuccessionplanning—promotesemployeeengagementanddiversity

Remuneration Committeedeterminesdirectors’andseniormanagementremunerationstrategyandpolicy—overseestheimplementationofremunerationpolicy

Approvals CommitteeresponsibleforapprovingdelegatedBoardmatters

Disclosures CommitteemonitorsandoverseestheCompany’scompliancewiththeMarketAbuseRegulationandtheconsiderationofinsideinformationproceduresanddisclosures

Chairman ResponsibleforrunningtheBoard

AssetoutinthedivisionofresponsibilitiesbetweenChairmanandChiefExecutiveOfficeravailableonourwebsitewww.connectgroupplc.com

Chief Executive OfficerResponsibleforleadingourbusinessesandfordeveloping&implementingstrategy

AssetoutinthedivisionofresponsibilitiesbetweenChairmanandChiefExecutiveOfficeravailableonourwebsitewww.connectgroupplc.com

Executive TeamTheExecutiveTeamfocusesonthedevelopmentandimplementationofstrategy,financialandoperationalperformance,commercialdevelopments,successionplanningandorganisationaldevelopment.

Read more on pages 44 to 50



BoardTheBoardisresponsibleforoverseeingtheGroup’sstrategyandperformanceandmanagesbusinessrequirementsthroughaformalscheduleofmattersreservedforitsdecision.Suchmattersinclude:

overallstrategicdirectionandmanagement,includingacquisitionsanddisposals;—approvalofappointmentstotheBoardfollowingrecommendationbytheNominationsCommittee;—approvaloflong-termobjectivesandcommercialstrategy;—approvaloftheannualoperatingandcapitalexpenditurebudgets;—approvalofmajorcapitalexpenditure;—approvalofmaterialagreements;—changesrelatingtotheCompany’scapitalstructure;—approvalofthefinancialstatementsandaccounts;—dividendandtreasurypolicies;—control,auditandriskmanagement;

Board of Directors – changes in FY2019On1October2018,MichaelHoltjoinedtheBoardasanon-executivedirector.

On5November2018,TonyGrace,whohadjoinedtheGrouponaninterimbasisinJune2018,wasappointedtotheBoard,followingasuccessfulinduction.

On5November2019,JosOpdeweeghsteppeddownasadirectorandChiefExecutiveOfficerandwasreplacedbyJonathanBuntingasInterimChiefExecutiveOfficer.Inaddition,MichaelHoltagreed,forthelimitedperiodoftheTuffnellsstrategicreview,tobecomeExecutiveChairmanofTuffnells.

6+

M

60+

1

2

2

1

3

1

2

1

1

2

2

3-5

F

50-59

0-2

40-49

executivenon-executive

Tenure (years)

Gender

Age

Key

GOVERNANCE 33





OV

ER

NA

NC

E34

Board of Directors

AN EXPERIENCED AND CONFIDENT TEAM

Mark WhitelingSeniorindependentnon-executivedirector

Jonathan BuntingInterimChiefExecutiveOfficer(andCEOofSmithsNews)

Michael HoltIndependentnon-executivedirector


Denise CollisIndependentnon-executivedirector


N N N

A A A

N

R

R R R

D

AP

D

AP

Key to Committee membershipA AuditandRiskN NominationsandGovernanceR RemunerationD DisclosureAP Approvals

Member

Chair

CONNECT GROUPANNUALREPORT2019

CONNECT GROUP ANNUAL REPORT 2019 GOVERNANCE 35

Mark WhitelingSeniorindependentnon-executivedirector

Year of appointment2017

Skills and experienceMarkhasgainedextensivefinanceandoperationalexperienceataseniorlevelwithinanumberofdiverseorganisations.HebringsrecentandrelevantfinancialexpertiserequiredtoleadtheAuditCommittee.

MarkwasmostrecentlytheChiefFinancialOfficerofInterservePLCandhaspreviouslybeentheDeputyChiefExecutiveOfficerandChiefFinancialOfficerofPremierFarnellplc.Hewasanon-executivedirectorofFutureplcuntilDecember2014andtheSeniorIndependentDirectorofHoggRobinsonGroupPLCuntilJuly2018,inbothcasesactingaschairoftherespectiveAuditCommitteesaswellasservingontheirNominationandRemunerationCommittees.

Other current appointments• None.

Denise CollisIndependentnon-executivedirector


Skills and experienceDeniseholdsawealthofbusinessexperiencewithaparticularfocusonpeopleandtalentmanagement,development,retentionandreward.ShethereforehastherelevantknowledgeandexperiencerequiredtoleadtheRemunerationCommittee,apositionshehasalsoheldwithSThreePLCsinceSeptember2016.

DenisewasChiefPeopleOfficeratBupa,theglobalhealthcarebusiness,fromMay2010untilDecember2014.Priortothat,shewastheGroupHRDirectorfor3iGroupplcandapartneratEY.ShehasalsoheldseniorHRrolesatanumberofotherleadingorganisationsincludingStandardCharteredBankandHSBC.

Other current appointments• SThreePLC,seniorindependentnon-executive

director,chairofRemunerationCommitteeandmemberoftheAuditCommitteeandNominationCommittee.

• BritishHeartFoundation,chairofRemunerationCommitteeandmemberofNominationCommitteeandAdvisoryCouncil.

Michael HoltIndependentnon-executivedirector


Skills and experienceMichaelpossesseshighlyrelevantcommercialandoperationalexperiencegainedwithinthelogisticsanddistributionindustry.Duetohisdetailedunderstandingofthesector,itsopportunitiesandchallenges,MichaelisanimportantindependentvoiceandsoundingboardinthedevelopmentandexecutionoftheGroup’slong-termstrategy.

Michaelwas,mostrecently,ChiefOperatingOfficerofFedExExpress,EuropeuntiltheendofSeptember2018andheldanumberofotherseniorexecutiveroleswithFedExCorporationsince2006.Priortothat,MichaelheldseniorexecutiverolesatanumberofleadinglogisticsorganisationsincludingANCGroup,wherehewasinstrumentalinleadingtheturnaroundofthebusinessfromapositionofloss-makingtoindustryleadingmarginsandstrongprofitrecoverypriortoitssuccessfulsaletoFedExin2006.

On5November2019,inlightoftheGroup’sannouncementthatastrategicreviewoftheTuffnellsbusinesswouldtakeplace,MichaelHolthasagreed,forthelimitedperiodofthestrategicreview,tobecomeExecutiveChairmanofTuffnells,withresponsibilityforprovidingrelevantandcurrentinsighttoaidboththebroaderstrategicreviewandtargetedprofitrecoveryatTuffnells.Fortheperiodofthistemporaryrole,MichaelwillrelinquishbeingamemberofeachoftheAudit,RemunerationandNominationsCommittees.Inaddition,forthepurposesofthe2018editionoftheUKCorporateGovernanceCode,Michaelwillnolongerbeconsidered‘independent’.However,giventheshort-termandspecificnatureofhisinterimrole,theBoarddoesnotcurrentlyconsiderthatitwillpermanentlyimpairMichael’sfutureindependenceinaccordancewiththeUKCorporateGovernanceCode.




Skills and experienceGaryhasextensiveexperienceofBoardchairmanshipwithinlistedcompaniesandbringstotheGroupadeepunderstandingofbusinessoperationsandfinance.Garyuseshisexperienceandknowledge,toleadtheBoardinreviewingandapprovingmanagement’splansforthedevelopmentoftheGroup’sstrategyandoperationalperformance.AsChairoftheNominationsCommittee,Garyisalsoresponsibleforleadingtheassessmentofthecapabilitiesandskillsoftheexecutiveandnon-executiveleadership,andforsuccessionplanningthroughtheGroup’stransformationprogramme.

GarywasformerlyGroupDirectorofFinanceandEnterpriseTechnologyatAlliedIrishBanksplcfrom1997to2005,followingexecutivepositionsatNortelNetworksandDeloitte.Hehasalsopreviouslybeenanon-executivedirectorofElanCorporationplcandIrishBankResolutionCorporationLimited.HeservedontheBoardoftheIndustrialDevelopmentAuthorityofIrelandfortenyearstoDecember2005.

Other current appointments• GreencoreGroupplc,Chairman.• GreenREITplc,Chairman.

Jonathan BuntingInterimChiefExecutiveOfficer(andChiefExecutiveOfficerofSmithsNews)Year of appointment2010

Skills and experienceJonathanhasdeepcommercialandoperationalleadershipskills,combinedwithextensiveexperiencegainedwithinthenewspaperandmagazinedistributionindustry,experiencewhichiscriticalforthelong-termdevelopmentandexecutionoftheGroup’sstrategicplans.

JonathanjoinedWHSmithNewsin1994.Herosethroughtheorganisationinavarietyofsalesandmarketingmanagerialrolesbeforebeingpromotedtotheexecutivemanagementteamin2001.InApril2014,JonathanbecameManagingDirectoroftheConnectNews&MediadivisionandsubsequentlyChiefOperatingOfficerinSeptember2017,apositionwhichspannedboththeTuffnellsandSmithsNewsbusinesses.Witheffectfrom1October2018,followingadecisiontore-establishbusinessunitleadership,JonathanassumedtheroleofChiefExecutiveOfficerofSmithsNews,includingresponsibilityforDMDandon5November2019becameInterimChiefExecutiveOfficerfollowingthedecisionforJosOpdeweeghtostepdownasadirectorandChiefExecutiveOfficer.



Year joined2018

Skills and experienceTonybringsextensive,recentandrelevantfinanceandbusinesstransformationexperiencetotheGroup.TheseskillsareessentialinensuringtheGroupcomplieswithitsaccounting,financialreporting,financialandriskmanagementpoliciesandprocesses,aswellaslegalandregulatoryrequirementsduringitsbusinesstransformationphase.

TonywasmostrecentlyChiefFinancialOfficeratYodelDeliveryNetworkandhaspreviouslyheldseniorfinanceandoperationalrolesatVirginMediaandTelewest.


Stuart MarrinerCompanySecretary&GeneralCounsel

Skills and experienceStuartjoinedthebusinessinOctober2008andisresponsibleforbusiness,legalandregulatorysupportacrosstheGroup.PriortojoiningtheCompany,hehadspentfouryearsasacorporatefinancesolicitor,includingextensiveperiodsonsecondmentwithSomerfieldStoresandPunchTaverns.StuartwasappointedasCompanySecretaryandGeneralCounselon1September2011andcontinuestoleadthelegalandCompanysecretariatteams.

D


OV

ER

NA

NC

E36

Directors’ attendance ThefollowingtableshowstheattendanceofdirectorsatBoardandCommitteemeetingsheldduringtheyear.

ScheduledBoardmeetings

AdditionalBoardmeetings1

Committeemeetings

Audit Nominations Remuneration

Number of meetings 10 5 4 2 6

GaryKennedy 10 5 2 6

DeniseCollis 10 5 4 2 6

MichaelHolt2 9 4 4 2 5

MarkWhiteling 10 4 4 2 6

JonathanBunting3 9 4

TonyGrace4 7 4

JosOpdeweegh5 10 5

1. TherewerefiveadditionalBoardmeetingsheldduringtheyear,oneofwhichwasinrelationtotradingperformance,oneinrelationtotheGroup’sbankingfacilities,oneinrelationtotheconsiderationoftheawardofpublishercontractsinSmithsNewsandtwoinrelationtotheproposedsaleandleasebacktransaction.Forcompleteness,therewerealsotwoBoardsub-committeemeetingsheldduringtheyear,oneofwhichwasinrelationtotheapprovaloftheFY2018fullyearpreliminaryfinancialresultsandoneinrelationtotheHY2019interimfinancialresults.

2. MichaelHoltjoinedtheBoardon1October2018andattendedallBoardandcommitteemeetingsoccurringafterthatdate.On5November2019,MichaelHoltagreed,forthelimitedperiodoftheTuffnellsstrategicreview,tobecomeExecutiveChairmanofTuffnellsand,inlightofthis,tostepdownfromeachoftheAudit,RemunerationandNominationsCommitteesforthedurationofhisroleasExecutiveChairmanofTuffnells.

3. JonathanBuntingwasabsentfromonemeetingduetoillness.4. TonyGracejoinedtheBoardon5November2018andattendedallBoardmeetingsoccurringafterthatdate,withtheexceptionofoneduetoan

unavoidablepre-arrangeddiaryconflict.5. On5November2019,JosOpdeweeghsteppeddownasadirectorandChiefExecutiveOfficerandwasreplacedbyJonathanBuntingasInterim

ChiefExecutiveOfficer.

Board activities in FY2019ThefollowingtablesummarisesthemattersconsideredbytheBoardduringFY2019andnotestheconsiderationgiventokeystakeholdergroupsinitsdeliberations.OneoftheprimaryareasoffocusfortheBoardatanytimeistheimpactanydecisionoractiontakenmayhaveonkeystakeholdergroupsrepresentedwithintheBoard’scommondutyunders172oftheCompaniesAct2006.TheBoardremainsmindfulofthelevelsofengagementithasatsuchtimeswithkeystakeholdergroupsandhowtheirrespectiveviewsmaybeincorporatedintorelevantdecision-making.BoardmaterialsanddiscussionsthereforeseektoappropriatelyconsidertheimpactandviewsofkeystakeholdergroupswhilstalwaysensuringtheneedtopromotethesuccessoftheCompanyforthebenefitofitsmembersasawhole.

Corporate Governance

GOVERNANCE FRAMEWORK

Long-term

Customers

Colleagues

Community

Shareholder

Environment

Suppliers

Businessconduct

Key to stakeholder icons


Matters considered by the Board in the year Stakeholder impactStakeholder and s172 Companies Act considerations

BusinessReview,Performance&Strategy

• RegularupdatesfromtheChiefExecutiveOfficer,theCEOofSmithsNewsandtheCEOofTuffnells.

• ApprovingtheGroup’sstrategyandcapitalallocationprogrammetogetherwithupdatesontheproposedsaleandleasebackofupto16freeholdandlongleaseholdpropertieswithinTuffnells.

• ApprovalofkeypublishercontractsinSmithsNews.• Integrationandtransformationprojectupdates

includingtheestablishmentoftheoffshoresharedservicecentre.

• DisposaloftheJack’sBeansbusinessinJanuary2019.

TheconsiderationandapprovaloftheGroup’sstrategyandcapitalallocationprogrammeisanexampleinthisareawheretheBoardhashadregardtoitsdutyunders172,includingensuringregardistobemadetotheinterestsofkeystakeholdergroupsandthelikelyconsequencesofanydecisioninthelong-term.

Priortosettingthecapitalallocationstrategy,theBoardconsideredtheinterestsofkeystakeholdergroups:

• Shareholders/Lenders–adoptingaprudentanddisciplinedapproachtocapitalmanagement,wherefreecashfromoperationsisexpectedtofundinvestmentneededfortheGroup’srecovery,withsurplususedtoreducenetdebtwhilealsomaintaininganattractivetotalshareholderreturn.

• Customers–deliveringsustainableimprovementstothecorebusinesses,underpinnedbytheintroductionofleanprocessmanagementandcontinuousimprovementprinciplestodriveefficiencysavingsandimprovedcustomerexperience.

• Employees/Community–ensuringtherightinvestmentinsupportofhygieneandrecreationalfacilitiesatoursites,andpromotingrewardandbenefitsthataremarketcompetitive.

Financial

• RegularupdatesfromtheChiefFinancialOfficeronfinancialperformanceandlegalandregulatorymatters.

• ApprovaloftheGroup’sbudgetandbusinessplan.• Approvalofthehalfyearandfullyearreports,

includinggoingconcernandviabilityassessments.• Approvaloftheissuanceoftradingupdatesduring

theyear.

FollowingtheannouncementoftheCompany’sfullyearandinterimfinancialresults,formalpresentationsaremadetoinstitutionalshareholderandanalystsbytheChiefExecutiveOfficerandChiefFinancialOfficercoveringarangeofkeyissuesaffectingtheCompany’sperformance.

Similarly,thecascadeanddisseminationofsuchinformationisalsosharedwiththeCompany’sworkforcethrough,interalia,‘TownHall’meetingshostedbytheExecutiveTeamandviaacascadeof‘keymessages’aspartoftheGroup’semployeeengagementforums,whichfacilitatetheviewsofcolleaguesandcanbereportedtotheBoard.

InternalControls&RiskManagement

• RegularupdatesfromtheAuditCommitteeChair.• PeriodicupdatesonHealth&Safetyprogress,

particularlywithinTuffnells.• ApprovalofGroup-widepoliciesandterms

ofreference.

‘SafetyFirst’isakeyconceptpromotedbytheGroupinallactivitiesacrosstheorganisation.Itensuresthatthewell-beingandsafetyofourcolleaguesisforemostinallthatwedo.ThesuccessofthisandourGroup-widepoliciesisademonstrationofhowweinteractwithourcommunity,ourstakeholdersandensurethatwedeliverimprovedcustomerexperience.

Governance

• Reviewandapprovalofthevalues&culture.• UpdatesfromtheNationalColleague

EngagementForum.• Regularupdatesandtrainingfromthe

Company’sbrokersandadvisers.

FeedbackfromcolleagueshashelpedtoshapeandembedacrosstheorganisationtheGroup’scorevalues–quick,open,friendly,creative,trustedandfair.

Inthecourseofitsactivities,theBoardisalwaysmindfulofhoweffectivelythedirectorsworktogetherandoftheeffectivefunctioningoftheBoardinpromotingthelong-termsustainablesuccessoftheCompanyandgeneratingvalueforshareholdersandcontributingtowidersociety.AnoverviewoftheexternalBoardevaluationprocesscanbefoundonpage41.


OV

ER

NA

NC

E38

Corporate Governance cont.

Compliance with the UK Corporate Governance CodeThissectionoftheAnnualReport,togetherwiththeAuditCommitteereportonpages44to50,theNominationsCommitteereportonpages51to53andtheDirectors’Remunerationreportonpages54to74,describeshowtheCompanyhasappliedthemainprinciplescontainedwithintheUKCorporateGovernanceCode(the‘Code’).TheCompanyconfirmsthat,throughouttheyearended31August2019,ithascompliedfullywiththeprinciplesandprovisionsofboththe2016editionoftheCodeand,notwithstandingthatthe2018editionoftheCodeisapplicableonlytoaccountingperiodsbeginningonorafter1January2019,the2018editionoftheCodealso.

Giventheincreasingrigourofthe2018editionoftheCode,theBoardhastakenthedecisiontoseektocomplywiththe2018editionoftheCodeayearearlierthanformallyrequired.Accordingly,setoutinthefollowingtableisademonstrationofourcompliancewiththe2018editionoftheCode,whichincludescross-referencestootherpartsoftheAnnualReporttoassistwithreviewingcompliance.CompliancewithSection5(Remuneration)issetoutintheRemunerationreportonpages54to74.

Acopyofthe2016and2018editionsoftheCodecanbefoundontheFinancialReportingCouncil’swebsiteatwww.frc.org.uk.

1. Board leadership and Company purpose

A.Boardleadership

AdescriptionofhowtheBoardoperates,includinganoverviewofthetypesofdecisionsreservedfortheBoardandthosedelegatedtomanagementaresetoutonpage33.

B.Companypurpose

TheGroup’spurposeandstrategyissetoutindetailintheStrategicReportonpages2to31.Duringtheyear,weimplementedaculturalchangeprogrammeacrosstheGroupthroughtheresettingandintroductionofourValues.ManagementregularlyreviewandpromotealignmentwiththeValuesacrosstheGroup.TheValuesareexplainedinmoredetailwithinourCorporateResponsibilityreportonpage28to31.

C.Objectivesandcontrols

TheGroup’sobjectivesandKPIsaresetoutwithintheStrategicReportonpages2to31.TheBoardreceivesregularupdatesacrossabroadrangeofinternalKPIsandperformancemetrics.TheGrouphasaclearframeworkinplacetocontinuouslyidentifyandreviewtheriskstothebusinessasexplainedfurtherwithinourprincipalandemergingrisksonpages22to25.

D.Engagement

AnoverviewofhowtheGroupengageswithitsstakeholdersissetoutwithintheCorporateResponsibilityreportonpages28to31.

TheBoard,asawhole,iskeptfullyinformedoftheviewsandconcernsofmajorshareholdersandotherkeystakeholders.TheChiefExecutiveOfficerandChiefFinancialOfficerregularlyupdatetheBoardateachBoardmeetingofkeystakeholderinterestsandviewsthatmayhavebeenreceivedinthereportingperiod.Further,followingmeetingswithmajorshareholders,independentfeedbackisprovidedtotheBoardbytheCompany’sadvisersandbrokers.

Inordertofacilitateengagementwithinvestors,followingtheannouncementoftheCompany’sfullyearandinterimfinancialresults,formalpresentationsaremadetoinstitutionalshareholdersandanalystsbytheChiefExecutiveOfficerandChiefFinancialOfficercoveringarangeofkeyissuesaffectingtheCompany’sperformance.ThepresentationsareavailabletoviewontheCompany’swebsiteatwww.connectgroupplc.com.Similarly,thedisseminationofsuchinformationisalsosharedwithcolleaguesthrough,interalia,‘TownHall’meetingshostedbytheExecutiveTeamandviaacascadeof‘keymessages’aspartoftheGroup’semployeeengagementforums,whichfacilitatetheviewsofcolleaguesandcanbereportedtotheBoard.

Inaddition,duringtheyearaspartofourinvestorrelationsactivity,meetingswereheldwithmajorinstitutionalshareholdersandfinancialanalyststodiscussbusinessperformanceandstrategy.Thisincludedatradingandstrategycapitalmarketspresentationon22January2019.

Separately,institutionalshareholdersalsometorengagedwiththeChairman,RemunerationCommitteeChairandCompanySecretaryatvarioustimesintheyeartodiscussmattersofgovernanceandremunerationpolicy,withathoroughinvestorconsultationexerciseundertakenwithourlargestshareholderstoinformtheCompany’snewdirectors’remunerationpolicytobepresentedtoshareholdersforapprovalatthe2020AGM.

Finally,otherkeystakeholderinterestshavebeenrepresentedandconsultedthroughadhocpresentationsmadebytheChiefExecutiveOfficerandChiefFinancialOfficertolenders(inparticular,ontheGroup’scapitalallocationstrategy)andwiththeworkforce–seesection5belowforfurtherdetails.

http://www.frc.org.uk



E.Workforce

Duringtheyear,group-wideemployeepoliciesandmanagerguidelineswereupdatedinlinewiththenewValuesandrelaunchedacrosstheGroup.

Toencouragecolleaguestoraiseanymattersofconcern,theGroupoperatesaconfidential‘speakup’whistleblowingline.Wecontinuetoraiseawarenessamongcolleaguesofthisfacilityandmoregenerallytoencourageacultureofappropriatelycalling-outconcerns.

1. Business model and risks

TheGroup’sbusinessmodelandprincipalandemergingrisksaresetoutinmoredetailintheStrategicReportonpages6and22onwards.

2. Cultural alignment

Duringtheyear,weimplementedaculturalchangeprogrammeacrosstheGroupthroughtheintroductionofourValuesandourdiversityandinclusioninitiativecalled‘EveryoneIn’.Thisprogrammeisguidedbyaregularforumofcolleaguesfromacrossthebusinesswiththeexpresspurposeofhelpingtocreateamoreinclusiveculture,welcomingdiversityandallowingallcolleaguesto‘bethemselves’atwork.InitiativestodateincludesupportforthenationalMentalHealthandCarersweeks,andhighprofileupskillingsessionsformanagersonthebenefitsofinclusionanddiversity.

Weregularlymonitorcolleagueengagementandculturethroughour‘WhatMatters’employeesurveysand,thereafter,theBoardwillplayanactiveroleinreviewingresultsanddeterminingtheappropriateactionplansandpriorities.Furthermore,thesurveyresultsalsohelptoinformfuturedecisionmaking–furtherdetailsofwhicharesetoutintheCorporateResponsibilityreportonpages28to31.

Managementregularlyreceivewhistleblowingandemployeerelationsreportsondeviationsinstakeholderbehaviours,takingcorrectiveactionwhererequired.

Weundertakeworkforceplanning;performancereview,talentandsuccessioninitiatives;andlearninganddevelopmentprogrammes.OurapproachtoworkforceremunerationissetoutinmoredetailwithinourDirectors’Remunerationreportonpages54to74.

3. Shareholder engagement

Werecognisetheimportanceofcommunicatingwithourshareholders.BoththeChairman,theSeniorIndependentDirectorandCommitteechairsseektoengagewithmajorshareholdersandmakethemselvesavailableduringtheyeartoattendmeetingswithmajorshareholders.

Duringtheyear,theChairoftheRemunerationCommitteeengagedandconsultedwithourlargestshareholdersaswellasthreeprominentproxyadvisoryservicefirmsinrelationtotheproposedFY2020-2022directors’remunerationpolicy.

Asoutlinedabove,theBoardreceivesregularinvestorrelationsreports.

4. Votes against proposed resolutions

TheBoardacknowledgesasignificantnumberofvotescastatthe2019AGMbyasmallnumberofshareholdersagainstresolution6forthere-electionofGaryKennedy,Chairman(equatingto22.0%ofthevotesreceived).TheCompanyhassoughttoengagewiththeshareholdersconcernedandpublishedonitswebsiteinMarch2019anupdatestatementontheactionstaken.Afinalsummaryoftheoutcomeisprovidedwithinsection15below.

5. Stakeholder views – workforce

TheemployeeengagementmechanismstheBoardusestounderstandtheviewsofstakeholdersinclude:

• theGroup’slocalandregionalemployeeengagementforumswhichtakeplaceonamonthlyorquarterlybasisrespectively;• adesignatednon-executivedirector(MichaelHolt)whoinformallyupdatestheBoardfollowingattendanceattheNationalColleagueEngagement

Forum,establishedandlaunchedduringtheyearasameansofgivingtheBoarddirectaccesstotheimportantviewsandvoiceofourfrontlineandcorporatecentrecolleagues.KeyissuesdiscussedintheyearincludedconstructivediscussionsontheGroup’sHealth&Safetypoliciesandits‘SafetyFirst’initiative;proposalsforimprovedtwo-waycommunicationchannelsbetweenfrontlinecolleaguesandbusinessleaders;andtheendorsementofproposalstointroducemoreflexiblebenefitstructures.Inaddition,theChairoftheRemunerationCommitteeattendedoneofthemeetingstoengagewithparticipantsonthestructureofremunerationacrossthebusinessandspecificallyontherewardofexecutivedirectors;

• ‘TownHall’meetingshostedbytheExecutiveTeam;• ‘listeninglunches’withtheChairmanand/orChiefExecutiveOfficer;and• newsworthyitemsandupdatesontheGroup-wideintranet‘TheAngle’,and/orpublishedintheGroup’smonthlynewsletters(‘GetConnected’)

tofrontlineandcorporatecentrecolleagues.

AnoverviewofhowtheGroupengageswithallstakeholdersissetoutwithintheCorporateResponsibilityreportonpages28to31andanoverviewofhowstakeholderviewsaretakenintoconsiderationinboarddiscussionsanddecisionmakingissetoutintheBoardactivitiestableonpages36and37.

6. Whistleblowing

Toencouragecolleaguestoraiseanymattersofconcern,theGroupoperatesaconfidential‘speakup’whistleblowingline.Wecontinuetoraiseawarenessamongcolleaguesofthisfacilityandmoregenerallytoencourageacultureofappropriatelycalling-outconcerns.TheBoardregularlyreceiveswhistleblowingandemployeerelationsreportswhichdetailtheinvestigationandfollow-upofallnotifications.


OV

ER

NA

NC

E40


7. Conflicts of interest

TheBoardconfirmsthataformalsystemforthedeclarationofconflictsofinterestscontinuestobeinplaceand,aspartofsuchsystem,theCompany’sarticlesofassociationpermitthedirectorstoconsiderand,ifthoughtfit,authorisesituationswhereadirectorhasaninterestthatconflicts,ormaypossiblyconflict,withtheCompany’sinterests.Indecidingwhethertoauthoriseaconflictorpotentialconflict,thenon-conflicteddirectorsmustactinawaytheyconsiderwouldbemostlikelytopromotetheCompany’ssuccessandtheymayimposelimitsorconditionswhengivingtheirauthorisation,orsubsequently,iftheythinkitisappropriate.AnyauthorisationgivenisrecordedintheBoardminutesandtheBoardsubsequentlymonitorsandreviewspotentialconflictsofinterestonaregularbasis.

8. Unresolved concerns

NounresolvedconcernsabouttherunningoftheCompanyoraproposedactionwereraisedbyanydirectorinthereportingperiod.

2. Division of responsibilities

F.Chairman

TheresponsibilitiesoftheChairman,asdescribedonpage33,aresetoutinwritingandagreedbytheBoard.

G.Divisionofresponsibilities

AstatementofhowtheBoardoperates,includinganoverviewofthetypesofdecisionsreservedfortheBoardandthosedelegatedtomanagement,asdescribedonpage33,aresetoutinwritingandagreedbytheBoard.

H.Non-ExecutiveDirectors

TheBoardissatisfiedthattheexternalcommitmentsoftheChairmanandthenon-executivedirectorssetoutintheirbiographiesdonotconflictwiththeirdutiesandcommitmentstotheCompanyandthatanynewcommitmentsaredisclosedtotheBoard.

I.FunctioningoftheBoard

BoardmeetingsarestructuredtoenabletheBoardtodischargeitsduties;thisisachievedbywayofanannualagendaplannerwhichisreviewedandupdatedateachBoardmeeting.Inpreparationformeetings,supportingpapersarecirculatedinatimelymanner,withasufficientlevelofdetailandsupplementaryinformationfortheBoardtotakedecisions.TheBoardreceivesregularupdatesonmatterssuchasstrategy,financial,operationalandmanagementreporting,Health&Safety,investorrelationsandcorporategovernance,inadditiontoadhocmattersforconsiderationsuchasmaterialtransactions.

AlldirectorshaveaccesstoindependentprofessionaladviceattheCompany’sexpenseaswellastheadviceandservicesoftheCompanySecretary.

9. Independence of Chairman

TheChairmanwasindependentonappointmentinMarch2015.

ThedivisionofresponsibilitiesbetweentheChairmanandChiefExecutiveOfficer,asdescribedonpage33,aresetoutinwritingandagreedbytheBoard.

10. Independence of Non-Executive Directors

DuringFY2019,theBoardconsidersthatallnon-executivedirectorswereindependentasidentifiedassuchwithinthedirectorbiographiesonpage35.However,asnotedwithinMichaelHolt’sbiography,on5November2019,MichaelHoltwastemporarilyappointedasExecutiveChairmanofTuffnellsforthelimitedperiodofthestrategicreviewofTuffnells.Forthepurposesofthe2018editionoftheUKCorporateGovernanceCode,Michaelwillnolongerbeconsidered‘independent’.However,giventheshort-termandspecificnatureofhisinterimrole,theBoarddoesnotcurrentlyconsiderthatitwillpermanentlyimpairMichael’sfutureindependenceinaccordancewiththeUKCorporateGovernanceCode.Allothernon-executivedirectorscontinuetobeindependent.

11. Board independence

Excludingthechair,halfoftheBoardwereindependentnon-executivedirectorsduringthereportingperiod.However,inlightofMichaelHolt’stemporaryappointmentasExecutiveChairmanofTuffnellson5November2019asnotedabove,duringFY2020atleasthalftheBoardwillnolongerbemadeupofindependentnon-executivedirectorsforthelimitedperiodofMichael’stemporaryappointmentasExecutiveChairmanofTuffnells.

12. Senior Independent Director

MarkWhitelingbecameSeniorIndependentDirectoron23January2018.

TheSeniorIndependentDirectorleadstheannualappraisaloftheChairman’sperformance.


13. Performance of Executive Directors

TheRemunerationCommitteereceivesregularupdatesandreportsfrommanagementontheachievementofobjectivesandregularlychallengesmanagementonitsperformance.

TheChairmanheldthreemeetingsduringtheyearwiththenon-executivedirectors,withouttheexecutivesbeingpresent.

14. Role responsibilities

TheresponsibilitiesoftheChairman,ChiefExecutiveOfficer,SeniorIndependentDirectorandtheTermsofReferencefortheCommitteesaresetoutinwriting,agreedbytheBoardandareavailableonourwebsitewww.connectgroupplc.com.

TheBoardheldtenscheduledmeetingsduringtheyearassetoutinthedirectors’attendancetableonpage36.

15. External commitments

TheBoardissatisfiedthattheexternalcommitmentsoftheChairmanandthenon-executivedirectorsdonotconflictwiththeirdutiesandcommitmentstotheCompanyandthatanynewcommitmentsareapprovedbytheBoard.

Asnotedatsection4above,theBoardacknowledgesanumberofvoteswerecastatthe2019AGMbyasmallnumberofshareholdersagainstresolution6forthere-electionofGaryKennedy,Chairmanduetoaperceptionof‘over-boarding’inlightoftheChairman’sotherchairmanships.TheBoardhasconsideredtheseconcernsand,onthebasisthattheChairmanhas,todate,madehimselfavailableasrequiredforallCompanymatters,theBoardhasconcludedthathehassufficientcapacitytomeethiscommitmenttotheCompany,particularlygiventhatoneofthechairmanshipsrelatestoGreenREITPLC(arealestateinvestmenttrust),whichinlightofthenatureofitsbusinessconstitutesminimalengagementandtimecommitment.Separately,theBoardisalsoawarethatGaryKennedyintendstoresignastheChairmanofGreenREITPLCfollowingconclusionofitsformalsalesprocessandtherecentannouncementofitssaletoasubsidiaryofHendersonParkRealEstateFund.Inaddition,theBoardhasdeterminedthattheChairman’sknowledgeofthebusinessandhisextensiveexperiencebringsmanybenefitstotheGroupandthathistimeavailabilityandattentionhavebeenwithoutquestionandhavenotbeenadverselyimpactedbyhisotherBoardcommitments.

16. Company Secretary

AlldirectorshaveaccesstoindependentprofessionaladviceattheCompany’sexpenseaswellastheadviceandservicesoftheCompanySecretary.

3. Composition, succession and evaluation

J.Boardappointments

AdescriptionoftheworkoftheNominationsCommitteeissetoutonpage51.TheCommitteereceivesanannualupdateonsuccessionplanningfortheBoardandseniormanagement.

K.Boardmembership

AdescriptionoftheworkoftheNominationsCommitteeissetoutonpage51.

L.Boardevaluation

AperformancereviewoftheBoard,itsCommittees,theChairandindividualdirectorsiscarriedoutannuallyandanexternallyfacilitatedevaluationiscarriedouteverythreeyears.

Thisyear,anexternalevaluationoftheBoardanditsCommitteeswasconductedbyEquityCommunicationsandconsistedof:ascopingexercisewiththeChairmanandCompanySecretarytodiscusstheextentandstructureoftheevaluationexercise;thedevelopmentofanapproximateagendaforcirculationtodirectorsaheadoftheirone-on-oneinterviewstopromptinitialthoughtprocesses;additionalquestionpromptsforthefacilitatortoaidfeedbackanddiscussion;andaseriesofindividualdirectorinterviewsconductedwiththeexternalfacilitator.

Awrittenreportsummarisingandanalysingtheresponsestotheevaluationexercise,alongwithsuggestedactionpointsandrecommendations,wereconsideredbytheBoardatitsJuly2019meeting.TheevaluationconfirmedtheconclusiondrawnfrompreviousevaluationsthattheBoardoperateseffectively.TherewereanumberofactionsthatwereagreedtoensurethattheBoard,itsCommitteesandindividualdirectorscontinuetoworkeffectively,including:greaterfocusonthedevelopmentofcohesivestrategicgoals;considerationofBoardcadencetoensurefrequentface-to-facemeetingsduringbusierperiodsandtohelpfosterstrongerrelationshipsamongstBoardmembers;increasingrelianceonaccurateandtimelydatatohelpdriveanalyticaldecisionmaking;balancingthefocusofreportingbetweenhistoricalresultsandfuturestrategicaims;anddeepeningthenon-executivedirectors’understandingoftheGroup’sbusinessesandthosebusinesses’respectivestrengthsandopportunities.

TheexternalBoardevaluationprocesswassupplementedbyaninternalreviewofindividualdirectors’performance.One-to-onediscussionswereheldbetweentheChairmanandeachdirectortodiscusstheircontributionandperformanceduringtheyearalongwithanytrainingneeds.Ameetingofthenon-executivedirectorswasledbytheSeniorIndependentDirector,inwhichtheperformanceoftheChairmanwasdiscussed.Followingtheperformanceevaluationsforthedirectorsasoutlinedabove,eachdirectorwasconfirmedascommittedandeffectiveinperformingtheirdutiesandareaccordinglyproposedforre-electionassetoutintheNoticeofAnnualGeneralMeeting.



OV

ER

NA

NC

E42


17. Nominations Committee

TheBoardhasestablishedaNominationsCommitteeanditstermsofreferenceareavailableatwww.connectgroupplc.com.MembershipandadescriptionoftheworkoftheCommitteeissetoutonpage51includingitsapproachtosuccessionanddiversity.

18. Director re-election

TheCompany’sArticlesofAssociation(theArticles)requirethatdirectorsofferthemselvesforre-electioneverythreeyearsandthatnewdirectorsappointedbytheBoardofferthemselvesforelectionatthenextAnnualGeneralMeetingfollowingtheirappointment.However,itistheBoard’spracticethatalldirectorsstandforre-electionattheAnnualGeneralMeeting.

Followingtheperformanceevaluationsforthecontinuingdirectors,eachdirectorwasconfirmedascommittedandeffectiveinperformingtheirdutiesandareaccordinglyproposedforre-electionwithfulldetailsofthereasonssetoutintheNoticeofAnnualGeneralMeeting.

19. Chair tenure

TheChairmanwasappointedin2015.TheNominationsCommitteereceivesanannualupdateonsuccessionplanningfortheBoardandseniormanagement.

20. Recruitment agencies

Externalrecruitmentagenciesaregenerallyusedfortheappointmentofnon-executivedirectors.

21. Board evaluation

Asdescribedabove,aperformancereviewoftheBoard,itsCommittees,theChairandindividualdirectorsiscarriedoutannuallyandanexternallyfacilitatedevaluationiscarriedouteverythreeyears.ThisyearwehaveundertakenanexternallyfacilitatedevaluationconductedbyEquityCommunicationswhohavenootherconnectionwiththeCompanyoranydirectors.

22. Board evaluation actions

AspartoftheannualBoardevaluationprocess,theChairmandiscussesandagreeswitheachdirectortheirneedsfortraininganddevelopment.Ongoingtrainingresourcesavailabletothedirectorsinclude:annuallistedcompanycomplianceboardtraining,membershipoftheDeloitteAcademyandotheropportunitiesforpromotingcontinuingprofessionaldevelopment,atrainingandguidanceresourceforboardsanddirectors;aprogrammeofheadofficeandbusinessvisits;andregularupdatesfromtheCompanySecretaryongovernance,regulatoryandlegislativechangesaffectingthebusinessand/ortheirdutiesasadirector.

23. Work of the Nominations Committee

AdescriptionoftheworkoftheNominationsCommitteeissetoutonpage51.

4. Audit, risk and internal control

M.Independenceofinternalandexternalaudit

TheBoardhasestablishedanAuditCommitteetooverseetheindependenceandeffectivenessoftheInternalAuditfunctionandtheexternalauditorandtoreviewthecontentandintegrityoftheGroup’sexternalreporting.

N.Fair,balancedandunderstandableassessment

TheBoardisresponsibleforthepreparationandapprovaloftheAnnualReportandfinancialstatementsandconsidersthem,takenasawhole,tobefair,balancedandunderstandableandthattheyprovidetheinformationnecessaryforshareholderstoassesstheGroup’spositionandperformance,businessmodelandstrategy.

Thefair,balancedandunderstandableassessmentissetoutintheFinancialReviewonpages16to21.

O.Riskandinternalcontrol

TheBoardconfirmsthatthereisaprocessforidentifying,evaluatingandmanagingtherisksweface.AdescriptionoftheworkoftheAuditCommitteeinrelationtoriskandinternalcontrolissetoutonpages45to46.

24. Audit Committee

TheBoardhasestablishedanAuditCommittee,themembershipofwhichissetoutinthedirectorbiographiesonpage35.Atthebeginningofthereportingperiod,theChairmansteppeddownasamemberoftheCommittee.



25. Role and responsibilities of the Audit Committee

ThetermsofreferencefortheAuditCommitteeareavailablefromourwebsitewww.connectgroupplc.com.AdescriptionoftheroleandresponsibilityoftheAuditCommitteeissetoutonpages44to46.

26. Work of the Audit Committee

AdescriptionoftheworkoftheAuditCommitteeissetoutonpages44to46.

27. Fair, balanced and understandable assessment

TheBoardisresponsibleforthepreparationandapprovaloftheAnnualReportandfinancialstatementsandconsidersthem,takenasawhole,tobefair,balancedandunderstandableandthattheyprovidetheinformationnecessaryforshareholderstoassesstheGroup’spositionandperformance,businessmodelandstrategy.

Thefair,balancedandunderstandableassessmentissetoutintheFinancialReviewonpages16to21.

28. Principal and emerging risks

Theprincipalrisksassessmentissetoutonpages26and27.EmergingrisksareidentifiedaspartoftheGroup’sriskmanagementframework,furtherdetailsofwhichissetoutintheAuditCommitteereportonpages45to47.

29. Effectiveness of risk management and internal controls

AdescriptionoftheworkoftheAuditCommitteeinrelationtomonitoringtheeffectivenessofriskmanagementandinternalcontrolissetoutonpages45to47.

30. Going concern assessment

TheGoingConcernStatementisincludedwithintheFinancialReviewoftheStrategicReportonpage21.

31. Viability assessment

TheViabilityStatementisincludedwithintheFinancialReviewonpage26.

ApprovalThisreportwasapprovedbytheBoardandsignedonitsbehalfby:

Gary KennedyChairman5November2019



OV

ER

NA

NC

E44

Key objectivesTopromoteeffectivegovernanceoftheGroup’sfinancialcontrols,accountingandreporting,includingtheadequacyofrelateddisclosures;theperformanceofboththeInternalAuditfunctionandtheexternalauditor;andtooverseetheGroup’sriskmanagement,internalcontrolsystems(includingwhistleblowingreportingprocesses),andcomplianceframeworkandactivities.

Responsibilities TheroleandresponsibilitiesoftheCommitteearesetoutinitstermsofreference,whichareavailableontheCompany’swebsitewww.connectgroupplc.comandfromtheCompanySecretaryonrequest.Thetermsofreference,whichaddressallmatterssetoutinDisclosureandTransparencyRule7.1andthe2018editionoftheCode,arereviewedannuallybytheCommitteeandreferredtotheBoardforapproval.

TheprincipalresponsibilitiesoftheCommitteeare:

• monitoringtheintegrityofthefinancialstatementsoftheCompany,includingitsAnnualandInterimReports,tradingstatements,preliminaryandinterimfinancialresultsannouncementsandreviewingsignificantfinancialreportingissuesandjudgementswhichtheycontain;

• keepingunderreviewtheadequacyandeffectivenessoftheCompany’sinternalfinancialandnon-financialcontrols,includingmonitoringandreviewingtheeffectivenessoftheInternalAuditfunction;

• reviewingtheGroup’sassuranceandriskmanagementframeworkandprovidingoversightandinputintotheGroup’sriskstrategy,appetiteandriskmanagementmitigations;

• reviewingthecontentoftheAnnualReportandtheGroupFinancialStatementsandadvisingtheBoardwhether,takenasawhole,theyarefair,balancedandunderstandableandprovidetheinformationnecessaryforshareholderstoassesstheCompany’sposition,performanceandprospects,togetherwithitsbusinessmodelandstrategy;

• reviewingtheregulatorycomplianceframeworkandthesystemsandcontrolsforthepreventionoffraudandcorruption,taxevasion,modernslaveryandbribery;

• ensuringtheCompanymaintainssuitablearrangementsforemployees,customers,contractorsandotherexternalpartiestoraisemattersofconcerninconfidence(whistleblowing);

Audit Committee Report

The Committee has continued to play a

pivotal role within the governance framework.

PROMOTING AND SUPPORTING ROBUST GOVERNANCE

Mark WhitelingAuditCommitteeChair




• consideringandmakingrecommendationstotheBoardastotheappointment,reappointmentorremovaloftheexternalauditorandtheapprovaloftheirremunerationandtermsofengagement;

• assessingtheexternalauditor’sindependenceandobjectivityandtheeffectivenessoftheauditprocess;

• reviewingthepolicyontheengagementoftheexternalauditortosupplynon-auditservices;and

• reportingtotheBoardonhowithasdischargeditsresponsibilities.

IfthereisadisagreementwiththeBoardand/orexecutivemanagementonanyoftheCommittee’sresponsibilitiesthatcannotberesolved,theCommitteeretainstherighttoreporttheissuetoshareholdersaspartofitsreportontheCommittee’sactivities.

Inaddition,theCommitteeseekstoidentifymattersinrespectofwhichweconsiderthatactionorimprovementbytheCompanyisneeded,andappropriaterecommendationsaremadetotheBoardastothestepswhichshouldbetakentopreserveandpromotetheintegrityoftheCompany’sinternalcontrolsframework.

OverviewIampleasedtopresentthisyear’sreportontheactivitiesoftheAuditCommittee,wheretheCommitteehascontinuedtoplayapivotalrolewithinthegovernanceframeworkinkeymattersrelatingtointernalcontrol,riskmanagementandfinancialreporting,particularlyinthecontextoftheGroup’srecenttradingprofileandtransformationprogramme.

OnekeyeventconsideredbytheCommitteeintheyearrelatedtotheCommittee’stenderforexternalauditservicesandsubsequentrecommendationfortheappointmentofBDOLLP(BDO)astheCompany’sauditorinplaceofDeloitteLLP,whohadadvisedthattheywouldlooktostepdownfollowingconclusionofthe2019AnnualGeneralMeeting.OnbehalfoftheCommitteeI’dliketoextendmysincereappreciationtotheDeloitteauditteamfortheirsteadfastandrobustauditservicessincetheCompany’sdemergerfromWHSmithPLCin2006.

Lookingtothefuture,theCommitteewasdelightedwiththethoroughaudittenderprocessthatwasconductedandtheverycredibleresponsesreceivedfromshortlistedauditfirms.InrecommendingBDOforappointment,theCommitteeconcludedthatitsstrongcredentialscoupledwithitsleadingproposition,itsenrichingpartner-ledengagementanditsmarket-leadingauditquality,ashighlightedbyindependentanalysisconductedbytheFinancialReportingCouncil,identifiedBDOasthestandoutfirm.Intheperiodsinceitsengagement,theCommitteeispleasedwiththescopeandmannerofBDO’sinduction,therobustnessofitsaudittodateandtheeffectivenessoftheexternalauditprocessgenerally.

Separately,anothersignificantmilestoneachievedinthereportingperiodincludedpositiveprogressmadeinouroverallriskmanagementandinternalcontrolenvironmentasdescribedinmoredetailbelow.Thiswasidentifiedinlastyear’sAnnualReportasakeyactivityforFY2019inlightofthereinforcedfocusontheGroup’sriskmanagementframeworkandinternalcontrolprocesseswhichhadbeeninitiatedinthelatterpartofFY2018andtheCommitteewelcomesthecontinuedfocusandimprovementintheriskmanagementprocessandthestrengtheningofinternalcontrolsduringtheyear.

TheCommitteenotesthatithasatalltimesduringthereportingperiodactedinaccordancewithitstermsofreferenceandconfirmsthatithasensured,throughongoingmonitoringandreview,theindependenceandobjectivityoftheexternalauditor.

Membership AllmembersoftheCommitteewhoservedduringtheyearwereindependentnon-executivedirectors.Inordertocomplyearlywiththe2018editionoftheCode,GaryKennedysteppeddownasamemberoftheCommitteeon31August2018andnowattendsCommitteemeetingsbyinvitationonly.Additionally,on1October2018,wewelcomedMichaelHoltasamemberoftheCommittee.

Givenmyqualificationasacharteredaccountantandmyextensivefinancialexperience,includingmyformerrolesasChiefFinancialOfficerofeachofInterservePLC(untilMarch2019)andPremierFarnellplc(untilJune2016),IamconsideredbytheBoardtohaverecentandrelevantexperiencetochairtheCommitteeinaccordancewiththerequirementsofthe2018editionoftheCode.EachoftheothermembersoftheCommitteehasextensiveandhighlyrelevantbusiness,commercialandoperationalexperience.

How the Committee operatesTheCommitteemetfourtimesduringtheyearaspartofourscheduletoconsidermattersplannedaroundthefinancialcalendar.AllCommitteememberswereinattendanceateachofthemeetingsand,attheinvitationoftheCommittee,representativesoftheexternalauditors(DeloitteLLP(until18February2019)andBDO(from15March2019))andtheinternalauditorsattendedmeetingstogetherwiththeexecutivedirectorsandothermembersoftheexecutivemanagementteamfromtimetotimetopresentreportsspecifictotheirareasofresponsibility.

AsChair,IregularlyengagewiththeexternalauditorandwiththeHeadofInternalAuditbothaheadofCommitteemeetingsandalsoaspartofaregulardialoguewehaveonissuesrelevanttotheCommittee,ineachcaseinordertoensurethateachoftheirindependentviews,opinionsandcommentsarereflectedwithintheCommittee’sdeliberationsanddealings.Separately,theCommitteealsoseekstocollectivelymeetregularlywithboththeexternalauditorandseparatelywiththeHeadofInternalAuditwithouttheexecutivesbeingpresent.Intheyear,theCommitteemetoncewithrepresentativesfromDeloitteandoncewithrepresentativesfromBDOwithoutmanagementpresentandheldtwoseparateprivatemeetingswiththeHeadofInternalAudit.

Risk management and internal control frameworkTheCommitteeisresponsibleforkeepingunderreviewtherobustnessandeffectivenessoftheCompany’sriskmanagementandinternalcontrolsystems.

TheBoardhasoverallresponsibilityforoursystemofinternalcontrol,includingriskmanagementandforreviewingitseffectiveness.TheGroup’sriskmanagementandinternalcontrolsystemisdesigned,however,onlytomanageormitigateratherthaneliminaterisk,astakingonmanageableriskisaninherentpartofundertakingtheGroup’scommercialactivities,andcanonlyprovidereasonableandnotabsoluteassuranceagainstmaterialmisstatementorloss.

Wehavedeveloped,andintheyearmadefurtherenhancementsto,theframeworkofinternalcontrolsacrosstheGroupincludingfinancial,operationalandcompliancecontrols.Enhancementsintroducedintheyearincludeimprovedfinancialforecastingandbudgetarymanagementprocesses,anewe-payrollsystemandarevisedpurchasetopaysystemtogetherwithimprovementsintherespectivecontrolframeworks,robustprogrammemanagementgovernancecontrolsledbySixSigmaprinciplesdeployedacrosskeystrategicprojects(includingoffshoringcertaintransactionalactivitiesfromacrosstheGrouptoanewserviceproviderinIndia),thedeploymentofnewgovernancepolicies,greaterlevelsofreportingandaccurateoversightofkeyperformanceindicators(bothfinancialandnon-financial)relevanttothelong-termsuccessoftheGroupandthedevelopmentofoperationalandcompliancecontrolsinbothSmithsNewsandTuffnellsaspartofthetransformationgovernanceframework.Together,theseenhancementsprovidemoreaccurateandinsightfulinformationandhavebeenassessedbyourInternalAuditfunctionashavingachievedamorematureandimprovedlevelofawarenessandoversightfromacrosstheGroup.


OV

ER

NA

NC

E46

Audit Committee Report cont.

Inaddition,theprocessesforidentifying,evaluatingandmanagingtheprincipalbusinessrisks(andemergingrisks)thatweface,includingthosethatwouldthreatentheGroup’sbusinessmodel,futureperformance,solvencyorliquidity,havebeenrefreshedandrenewedthroughouttheyearunderreview.TheseprocessesaccordwiththeFinancialReportingCouncil’sGuidanceonRiskManagement,InternalControlandRelatedFinancialandBusinessReporting(the‘FRCGuidance’)andwecontinuetodevelopsuchprocessestoensurethattheyremainrelevanttothechangingcompositionandmarketcompetitivenessoftheGroupandthelandscapeofthesectorsinwhichweoperate.

InlightoftheriskmanagementprocessesdeployedwithintheGroupand,inparticular,mindfulofthededicatedreviewoftheprincipalriskenvironmentundertakenbytheBoardandtheAuditCommittee,theBoardissatisfiedthatithascarriedoutarobustassessmentoftheprincipalandemergingrisksthatweface,includingthosethatwouldthreatenthebusinessmodel,futureperformance,solvencyorliquidityoftheGroup,asrequiredbythe2016and2018editionsoftheCode.Thestructureissetoutbelow.Furtherdetailsofourriskmanagementframework,alongwithourevaluationoftheprincipalrisksandhowtheyarebeingmonitoredaresetoutintheStrategicReportonpages4to31.

ThesystemofinternalcontrolwhichhasbeeninplacefortheyearunderreviewanduptothedateofapprovaloftheAnnualReportandaccountsalsoincludes:

Financialcontrols• asystemofbudgetingand

planning,togetherwithmonitoringandreportingtheperformanceofthebusinessestotheBoard.Monthlyresultsarereportedagainstbudgetandprioryear,andforecastsforthecurrentfinancialyearareregularlyrevisedinthelightofactualperformance.Thesecoverprofits,cashflows,capitalexpenditureandbalancesheets;

• appraisalofallmajorinvestmentprojects;

• adedicatedpurchasetopaysystem,includingarevised“nopurchaseorder.nopay”policyapproachintroducedattheendofthereportingperiod;

• keycontrolsovermajorbusinessrisks,includingreviewsagainstperformanceindicatorsandexceptionreporting;

• monthlyreportingoftreasuryactivitiesandrisks,forreviewbyseniorexecutives;and

• AnnualReportscoveringtreasurypolicy,taxcompliance,pensions,informationandcybersecurityandinsurance,eachforreviewbytheBoardortheAuditCommittee.

Operationalcontrols• keyperformanceindicatorsto

monitoroperationalactivity,includingcustomerservicelevels;

• independentcustomersatisfactionsurveys;and

• businessrecoveryplanstoenablethebusinessestocontinuewithminimumdisruptiontocustomersintheeventofadisasterevent.Periodically,businesscontinuityplanningisreviewedbyInternalAuditaspartofitsannualauditplanningprocess.

Peopleandenvironmentcontrols• monitoringemployee

engagementandsharingpolicyupdatesutilisingouremployee-wideintranet,obtainingfeedbackfromlocalmanagementmeetings,andfrequentsitevisitsbytheExecutiveTeamtoencourageopendialogueandexchangeofgoodpractice;

• aCodeofBusinessConductwhichtakesintoaccounttheinterestsofallstakeholders;

• aWhistleblowingPolicyandassociatedspeak-uplinewherebyemployeescanreportinconfidenceincidencesofsuspectedfraudorothermalpractices;

• anewe-payrollsystemintroducedinthesecondhalfoftheyear,togetherwithimprovementsintherespectivecontrolframeworks;and

• acorporateresponsibilityprogrammewhichsetsouttheCompany’sactivitiesongovernance&sustainability,environment&community,workplace&conductandmarketplace.

Health&Safetycontrols• aHealth&SafetyPolicy,the

implementationofwhichisactivelymonitoredateachBoardmeeting,andthepolicyisreviewedannuallybytheBoard;

• Health&SafetyRiskManagementteams,workingtoassessHealth&Safetyrisksandintroducesystemstomitigatethem.DetailsofmajorbusinessincidentsarereportedtoInternalAuditandtheAuditCommittee,andallnotifiedaccidentsareinvestigated;

• reportsonHealth&SafetymattersincludingtheReportingofInjuries,DiseasesandDangerousOccurrenceRegulations(RIDDOR)whicharebothprovidedandpresentedtotheBoardonaregularbasis;and

• acommitmentbytheCompanytoensurethatitspersonnelmeethighstandardsofintegrityandcompetence.TheCompany’ssystemscoverrecruitment,traininganddevelopmentofpersonnel,andthecommunicationofCompanypoliciesandproceduresthroughouttheorganisation.

Compliancecontrols• robustprogrammemanagement

governancecontrolsinfluencedbySixSigmaprinciplesdeployedacrosskeystrategicprojects;

• regulatoryandcompliancepolicies(includinganEnvironmentalPolicy,anAnti-CorruptionPolicyandanEthicalTradingPolicy)eachofwhichisreviewedannuallybytheBoard;

• anITSecurityPolicytoprotecttheCompany,itsemployeesandaffiliatesfromillegalordamagingactionsbythirdparties;

• oversightofouradherencetotherequirementsoftheModernSlaveryAct,andannualapprovaloftheModernSlaveryStatement;and

• acomprehensiveDataProtectionPolicysettingstrictguidelinesfortheuseandretentionofconfidentialcustomer,supplierandemployeedata,andreflectinga‘privacybydesign’approachaswellasthelegalrequirementsundertheGeneralDataProtectionRegulations(‘GDPR’).


Internal Audit functionTheCommitteeisresponsibleformonitoringandreviewingtheeffectivenessoftheInternalAuditfunctioninthecontextoftheoverallriskmanagementsystem.

Ourriskmanagementandinternalauditarrangementsarecurrentlyundertakenbyanexternaloutsourcedprovider.Duringtheyear,theCommitteereviewedthecontinuingsuitabilityandappropriatenessoftheexternalproviderandconcludedthatthisarrangementensuresmaximumflexibilityforthecontinuingauditprogrammeaswellasaccesstospecialistexpertiseandskills.Accordingly,theCommitteeintendstocontinuewiththecurrentoutsourcedarrangementbuttokeepthisengagementunderreviewaswedeterminethefutureshapeoftheGroupinlightoftheGroup’srecenttradingprofile,itstransformationprogrammeandrecentchangesintheexecutiveteamandhowbesttoutilisetheInternalAuditfunction.

Infulfillingitsresponsibilities,intheyeartheCommitteereviewedthefollowingmattersinrelationtotheInternalAuditfunction:

• thescope,resourceandplannedactivitiesofInternalAuditandtheadequacyofauditcoverage;

• InternalAudit’sstrategy,workplans,statusreportsagainstplannedactivityandbusinessincidentsreports;

• asummaryofthereportsontheresultsofindividualauditreviews,significantfindings,managementactionplans,andtimelinessofresolution;and

• theperformanceoftheInternalAuditfunction.

Committee’sactivitiesduringtheyearSetoutoverthenextpagesisasummaryofthemajoractivitiesoftheCommitteeintheyear.

Financial reportingDuringtheyearwereviewedreportsfromtheChiefFinancialOfficerandtheexternalauditoronmattersofsignificanceinrelationto,andthecontentof,thefinancialstatementsforthefullyearto31August2019andconsideredreportsfromtheChiefFinancialOfficerinrelationtothehalfyearto28February2019toensurethattheyeachincludedthenecessaryinformationtoprovideshareholderswithafairandbalancedassessmentoftheCompany’sposition,performanceandprospects,aswellastheGroup’sbusinessmodelandstrategy.Inundertakingthisreview,weconsideredapaperpreparedbytheChiefFinancialOfficeroutliningtheworkundertakenbyexecutivemanagementandthekeyestimatesandjudgementsmadeinpreparingthefinancialstatements.TheCommitteeconcludedinitsrecommendationtotheBoardthatitwassatisfiedthat,takenasawhole,theAnnualReportisfair,balancedandunderstandable.

ThesignificantissuesandkeyjudgementsconsideredbytheCommitteeinrelationtotheFY2019GroupFinancialStatementsaresetoutbelow.Inlightofthesesignificantissuesandkeyjudgementsincludedbelow,theCommitteehasconsideredwhethereachoftheseareasisakeyjudgementorestimateand,therefore,whetheritshouldbedisclosedwithinNote1(5)totheGroupFinancialStatements.ItwasconcludedthatthemattersincludedwithinNote1(5)reflectthekeyjudgementsandestimations.

Risk management and internal control frameworkTheBoardisresponsiblefortheoverallstrategicdirectionandmanagementandundertakesanannualreviewofitsriskappetite,outputsofwhichareconsideredwhenconductingtheannualbusinessplanningandstrategyprocess.FulldetailsoftheBoard’sresponsibilitiesaresetoutintheformalscheduleofmattersreservedforitsdecision,whicharesummarisedonpage33.

TheBoardhasestablishedanorganisationalstructurewithclearlydefinedreportinglinesandcontrolsatalllevelsofmanagement,identifyingtransactionsrequiringapprovalbytheBoardorbytheApprovalsCommittee.

TheInternalAuditfunctionassistsinmaintainingadequatefinancialcontrolsbyreviewingthedesignandoperationaleffectivenessofcorefinancialprocessesandcontrolsaspartoftheinternalauditplanapprovedbytheAuditCommitteeannuallyandrefreshedatregularintervals.

InternalAuditpresentsitsfindingstotheExecutiveTeam,andallinternalauditshaveanexecutivesponsorassigned.

TheApprovalsCommittee,whichcomprisestheChiefExecutiveOfficerandChiefFinancialOfficerisauthorisedbytheBoardtoapproveroutinematterswithinagreedfinanciallimits.

TheAuditCommitteeassiststheBoardinthedischargeofitsdutiesregardingtheCompany’sfinancialstatements,accountingpoliciesandthemaintenanceofpropersystemsofriskmanagementandinternalcontrol.


OV

ER

NA

NC

E48


Significant issues and key judgements

Area Matterconsidered Outcome

Carryingvalueofgoodwill,intangiblesandtangibleassets

TheCommitteeconsideredthecarryingvalueofCashGeneratingUnits(CGU)followingayearofunderperformanceagainstbudgets.

TheCommitteereviewedtheforecastandsensitivityanalysiswhichmanagementhadpreparedtoassesswhethertherehadbeenanyimpairmentinthevalueinuseoftheGroup’sCGUs.

TheCommitteeagreedwithmanagement’sconclusionthattheTuffnellsbusinessshouldbeimpairedtoreflectthesignificantdeteriorationinitsvalueinuse;theimpairmentbeingappliedagainstthecarryingvalueoftheGroup’sgoodwill,intangibleandcertaintangibleassetsintheTuffnellsbusiness.

TheCommitteealsoagreedwithmanagement’sviewthatonthebasisthatthefairvaluelesscoststosellofcertainTuffnellspropertiesandfleetassetswasinexcessoftheirnetbookvalue,itwasnotnecessarytoimpairtheseassets.

TheCommitteealsoreviewedtheassumptionsregardingthevalueinuseoftheotherCGUsandagreedthattheywereappropriatelyrecognisedandmeasuredandthevalueinuseremainedsignificantlyabovecarryingvalueforthoseCGU’s.

CarryingvalueofinvestmentsheldbyConnectGroupPLCinitssubsidiaries

TheCommitteeconsideredthecarryingvalueoftheinvestmentsheldbyConnectGroupPLCfollowingayearofunderperformanceagainstbudgets.

TheCommitteereviewedandagreedwithmanagement’sconclusionthattherewasimpairmentinthevalueoftheseinvestmentsinConnectGroupPLC.Thisreviewusedthesamevalueinusecalculationspreparedforallbusinessesnotedabove.

AdjustedItems TheCommitteeconsideredtheappropriatenessofthemeasureofAdjustedprofits,qualityofearnings,andtheclassificationandtransparencyofitemsseparatelydisclosedassuch.

TheCommitteewassatisfiedthatthepresentationofAdjustedprofitsprovidedareasonableviewoftheunderlyingperformanceoftheGroupandthattherewastransparentandconsistentdisclosureoftheitemsshownseparatelyasAdjustedItems.

Provisions TheCommitteereviewedtheprovisionsasatyearendandtheappropriatenessoftheadditions,utilisationandreleasesmadeintheyear.ThekeyprovisionsestablishedintheyearrelatedtorestructuringprovisionsrelatingtotheoffshoringofcertainoftheGroup’scentralfunctionsandspecificoperationalrestructuringprojects.

TheCommitteeagreedthattheprovisionsheldwereappropriatelyrecognisedandmeasuredandthatreleaseswereconsistentwiththemannerinwhichtheoriginalprovisionshadbeenmade.

Heldforsaleassets TheCommitteereviewedtheaccountingclassificationofthefreeholdandlongleaseholdpropertiesinTuffnells.

TheCommitteewassatisfiedwithmanagement’sjudgementthatthesepropertiesmetthecriteriasetoutinIFRS5tobeheldforsaleinJanuary2019andthattheseconditionscontinuedtobemetatthebalancesheetdate.

Retirementbenefitobligation

TheCommitteereviewedtheproposedaccountingtreatmentforthe‘BuyIn’fortheSmithsNewsDefinedBenefitPensionScheme.

TheCommitteereviewedtheassumptionsusedfortheIAS19calculationofsurplus/deficitandthetotalIFRIC14liabilityrecognisedonthebalancesheetforfutureactuarialdeficitreductioncontributions.

TheCommitteesatisfieditselfthattheactuarialmeasurementapproachthatresultsintheIFRIC14gainbeingmatchedagainstthelossappropriatelyreflectsthe‘factpattern’thatledtothe‘BuyIn’

TheCommitteesatisfieditselfthattheassumptionsusedwerereasonable.

Revenuerecognition TheCommitteereviewedtherecognitionofrevenueacrosstheGroup.

TheCommitteesatisfieditselfthattheGrouphadappropriatelyrecognisedrevenuesinaccordancewithitscontractualobligationduringtheperiod,payingattentiontoperiodendcut-offandthelevelofexpectedcustomerreturns.

TheCommitteealsosatisfieditselfthattherequirementsofIFRS15‘Revenuefromcontractswithcustomers’adoptedthisfinancialyearhavebeenmetandreflected.Aspartofthisreview,theCommitteespecificallyconsideredandagreedwithmanagement’sjudgementthatSmithsNewswasactingasprincipalinitstradingactivityinrespectofthenewsandmagazinesmarket.


Adoption of new accounting standards TheGrouphasadoptedIFRS9‘FinancialInstruments’andIFRS15‘RevenuefromContractswithCustomers’bothofwhichareeffectivefortheperiodbeginningon1September2018.TheimpactofbothstandardsisexplainedinthenotestotheGroupFinancialStatements.Atthebalancesheetdate,theonlynewstandardinissuebutnotyeteffectivethatwillhaveamaterialimpactonfinancialreportingisIFRS16‘Leases’.IFRS16isexpectedtohaveamaterialimpactonthevalueofleaseliabilitiesandrightofuseassets.Anassociatedfinancechargeanddepreciationchargewillreplacetheexistingoperatingleasecharge,andasaresultthereisexpectedtobeanimpactonoperatingprofitinfutureperiods,buttherewillbenoimpactontheunderlyingcommercialperformanceoftheGrouporthecashgenerated.Thereisalsoexpectedtobeanimpactonclassificationswithincashflows.AppropriateresourceshavebeenassignedtoensurethereadinessofsystemsandfinancialreportingrequirementswithregularreportingtotheCommittee.TheimpactofIFRS16isexplainedinthenotestotheGroupFinancialStatements.

GoingConcernandViabilityAssessmentTheCommitteealsoreviewedapaperpreparedbytheChiefFinancialOfficertosupporttheGoingConcernandViabilityAssessmentreferredtoonpage27and,ontheassumptionthatexternaldebtiseitherrepaidasitbecomesdueinJanuary2021,orwillberefinancedoncommerciallyreasonableratesoveranagreedperiodonsimilarcovenantterms,concludedinitsrecommendationtotheBoardthattheprofitandcashforecastssupportedtheviewthatthebusinesscanmeetitsliabilitiesastheyfalldueforaperiodofatleast12monthsfromthedateofapprovaloftheGroupFinancialStatementsandthethree-yearperiodoftheViabilityAssessment.TheFinancialReviewonpages16to21setsoutfurtherdetailsontheprocessappliedinrelationtothisassessment.

RiskmanagementTheCommitteereceivedregularreportsontheCompany’slegal,taxation,treasury,fraudprevention,whistleblowing,informationsecurityanddataprotection,insuranceactivitiesandrelatedpoliciesandproceduresforthepromotionoftheCommittee’sgoals.Additionallyduringtheyear,theCommitteeoversawtheGroup’sassessmentofitsexpectedexposuretotherisksarisingfromtheUK’sproposedexitfromtheEU(‘Brexit’),whichhadbeenundertakenbytheInternalAuditor.ThesummaryfindingsofthereviewwereconsideredbytheCommitteewiththeactionsarisingprogressedbymanagement.

GiventhelackofclarityaroundthenatureandtimingoftheUK’sexitarrangements,theCommitteesubsequentlyencouragedmanagementtoensurethatdetailedandthoroughplansforaworstcase‘nodeal’scenariowereinplacepriorto31October2019.Accordingly,aBrexitsteeringcommitteewasestablishedinordertomeetonaregularbasistodiscussthekeyimpactsoftheBrexitdecisionandreporttotheExecutiveTeamandtheCommittee.TheCommitteeissatisfiedthattheGroupcontinuestoseekwaystomitigatepotentialrisksand,inthemeantime,hasconcludedthatthedirectimpactofBrexittotheGroupisexpectedtobemutedbuttheindirectimpactongeneralconsumerconfidenceandmarketuncertaintytohavegreatersignificanceacrosseachofourbusinesses.WewillcontinuetomonitortherisksanduncertaintiesarisingfromBrexitwithintheGroup’sexistingriskmanagementandcontrolprocessasoutlinedonpages22to25.

Inlinewithusualprocedures,arefreshoftheGroup’sprincipalandemergingriskswascarriedoutatthehalfandfullyear,takingintoaccountthecontinuingenvironmentofconsiderablechangeandtransformationwithintheGroup.Thereviewwasconductedthroughdiscussionwithacrosssectionoftheexecutiveandseniormanagementteamsandthenon-executivedirectors,whowereaskedtoconsiderthekeyrisks(inplaceandemerging)andchallengestothebusiness(byreferencetotheexistingprincipalrisks);thecurrentmanagementactivitiesandcontrolsthathelpaddresstheserisks;andfutureactionsthatmaybetakentofurthermitigatetherisks(whereappropriate).Thereviewidentifiedthatformalriskmanagementactivitieshaveimprovedduringtheyearandthereisageneralalignmentaroundthenatureofrisks,theriskownership,thedirectionoftravelandanyriskmitigatingactions.

InternalcontrolsAsoutlinedinourFY2018report,InternalcontrolhealthcheckswereconductedinFY2018inordertoidentifyareasofpriorityandfocus.Keyinternalcontrolthemeswereidentifiedandthereviewresultedintherecommendationofanumberofmitigatingactions,eachofwhichwereprogressedbymanagementasameansofstrengtheningandrebasingtheinternalcontrolenvironment.WearepleasedwiththeprogressmadeontheGroup’sinternalcontrolenvironmentandcontinuetocloselymonitortheimprovementsmade.

Furtherdetailsoftheprincipalrisks,anyemergingrisksandhowtheyaremanagedandmitigatedcanbefoundonpages22to25.

Whistleblowing,briberyandfraudWeoperateaconfidentialtelephonehotlinewherebyemployeescanreportinconfidencesuspectedincidencesoffraud,briberyornon-compliancewithCompanypolicies,practicesorbreachesoflaw.AllsuchincidencesareassessedandcategorisedaccordingtoseverityandriskbytheEmployeeRelationsteamandaninvestigatingmanagerappointed,withthefindingsreportedtotheCommitteeoncompletionofaninvestigation.

Duringtheyear,theCommitteereceivedquarterlyreportsonincidencesofwhistleblowing,suspectedfraud,databreaches,briberyorothermalpracticesreportedacrossthebusinessandseparatelyInternalAuditre-establishedtheGroup’sfraudriskmanagementframeworktoimprovetheidentificationof,andmitigatingactionstopreventandreport,incidencesoffraud.

External auditorUnderitstermsofreference,theCommitteeisresponsibleforassessingthescope,fee,objectivityandeffectivenessofexternalauditsandformakingarecommendationtotheBoardregardingtheappointment,reappointmentorremovaloftheexternalauditoronanannualbasis.Further,inaccordancewithArticles16and17oftheEUAuditRegulation,theCompanyisrequiredtocompleteacompetitivetenderprocessfortheexternalauditeverytenyearsandmandatorilyrotateauditfirmevery20years.

FollowingtheconclusionofaformaltenderprocessinJanuary2019,theBoardapprovedtheappointmentofBDOastheCompany’sauditorfromtheconclusionofthe2019AnnualGeneralMeetinguntiltheirre-appointmentbyshareholdersatthe2020AnnualGeneralMeeting.Followingtheconclusionofthetenderprocess,DeloitteresignedastheCompany’sauditor.

TheCompanyhasaformalpolicyonitsrelationshipwiththeexternalauditorwhichtheCommitteehasreviewedandupdatedduringtheyear.Thepolicyincludesfinancialapprovallimitsfornon-auditservicesandrestrictionsonthenatureofworkthatcanbeperformedtoensurethattheexternalauditor’sobjectivityisnotimpaired.Mypriorapprovalisrequiredifthecostofnon-auditworkislikelytoexceed£20,000perannumorwherethemaximumcombinedspendislikelytoexceed70%oftheannualauditfeeforthefinancialyear.Furthermore,variousregulatoryauthorities,includingtheAuditingPracticesBoardandtheInstituteofCharteredAccountantsofEnglandandWales,haveidentifiedcommonnon-auditserviceswhichmaypresentahigh


OV

ER

NA

NC

E50


riskofconflictandthreattoexternalauditorindependence.Consequently,theCommitteehasadoptedamandatoryprohibitionontheexternalauditor’sengagementinrelationtothefollowingservicesunlessitcanbeclearlyshowntopresentnothreattoexternalauditorindependenceanditisinthebestinterestsoftheGroup:

• workrelatedtothemaintenanceofaccountingrecordsandtheinitialpreparationoffinancialstatementsthatwillultimatelybesubjecttoexternalaudit;

• managementof,orsignificantinvolvementin,internalauditservices;

• financialinformationsystemsdesignandimplementation;

• actuarialservices;• investmentadviceand

bankingservices;• secondmentstomanagement

positionsthatinvolveanydecision-making;

• legalservices;• custodyofassets;• taxadvisory,includingtax

planningandcompliance;• valuationservicesofapublic

nature;and• anyworkwhereamutualityof

interestiscreatedthatcouldcompromisetheindependenceoftheexternalauditor.

NofeeswerepaidtoDeloitteduringtheyearinrespectofnon-auditservices.However,feespaidtoBDOduringtheyearinrespectofnon-auditservicessupportfortheCompany’sinterimfinancialresultsamountedto£30,000.TheCommitteeconsidered,andwassatisfiedthat,itwasappropriateforBDOtoundertakethisworkandthatdoingsodidnotaffecttheirindependence.DetailsofthetotalfeespaidtoDeloitteandBDOduringtheyearinrespectofauditandnon-auditservicesareshowninNote3totheGroupFinancialStatements.

Assessment of the effectiveness of the external auditorTheCommitteealsoregularlyundertakesareviewoftheeffectivenessoftheexternalauditor.AdedicatedsessionisthentypicallyheldtocollatetheviewsofeachmemberoftheCommittee,theChiefFinancialOfficerandtheGroupFinancialControlleronmatterssuchastheexternalauditor’sprocessesforinternalreviewofaccountingjudgements,includingunderstandingofthekeyissues;theexpertiseandtechnicalknowledgewithintheexternalauditteamstoauditeffectivelytheCompany;thescope,deliveryandexecutionoftheauditplan;andtherobustnessandperceptivenessoftheexternalauditor.

AftertheconclusionoftheFY2018audit,theCommitteeevaluatedtheperformanceofDeloitteandconcludedthattheexternalauditprocessinFY2018hadbeeneffective.FollowingDeloitte’sdecisiontoresignasauditorandBDO’ssuccessfulappointmentinFebruary2019,theCommitteeexpectstoconductathoroughassessmentofBDO’sfirstyearasexternalauditorfortheGroupandtoensurethatanyareasidentifiedforimprovementinitsfirstauditarecommunicatedtoBDOforaction.Thiswillbereportedinnextyear’sAnnualReport.

Duringthefinancialyearunderreview,theCompanyhadnointeractionwiththeFRC’sCorporateReportingReviewTeamoritsAuditQualityReviewTeam.

ApprovalThisreportwasapprovedbytheAuditCommitteeandsignedonitsbehalfby:

Mark WhitelingAuditCommitteeChair5November2019


Key objectivesToleadtheprocessforBoardappointmentshavingdueregardtoBoarddiversity,toensureorderlysuccessionplanningsoastomaintainanappropriatebalanceofskillsandexperienceontheBoardandtomaintainaprogressiverefreshingoftheBoard.

ResponsibilitiesTheroleandresponsibilitiesoftheCommitteearesetoutinitstermsofreference,whichareavailableontheCompany’swebsite,www.connectgroupplc.com,andfromtheCompanySecretaryonrequest.ThetermsofreferencearereviewedannuallybytheCommitteeandthenreferredtotheBoardforapproval.

TheprincipalresponsibilitiesoftheCommitteeare:

• reviewingthestructure,size,compositionandbalanceoftheBoardincludingtheskills,knowledge,experienceanddiversityofthedirectors;

• ensuringplansareinplacefororderlysuccessionplanningfordirectorsandseniormanagementandoverseeingthedevelopmentofadiversepipelineforsuccession;

• establishandpromoteemployeeengagementwiththeBoardtoensurethatworkforceviewsarecollectedandconsidered;and

• identifyingandnominatingcandidatestofillBoardvacancies.

OverviewIampleasedtopresentthisyear’sreportontheactivitiesoftheNominationsCommittee.TheCommitteehashadaproductiveperiodduringtheyearwhichincludedtherecommendationforthepermanentappointmentofTonyGrace(ChiefFinancialOfficer)totheBoardwitheffectfrom5November2018asreportedinlastyear’sAnnualReport,establishingtheGroup’scolleagueengagementmechanisms,consideringtheresultsandactionplansarisingfromthe2018group-widecolleaguesurvey,overseeingtheresettingandlaunchofourGroup’scultureandvaluesaswellasapprovingandoverseeingtheimplementationofournewDiversityandInclusionpolicy.

MembershipDuringtheyear,DeniseCollis,MarkWhitelingandMichaelHolt(witheffectfrom1October2018)weremembersoftheCommittee.AllmembersoftheCommitteewhoservedduringtheyearwereindependentnon-executivedirectors,excludingmyselfasIamdeemedbythe2018Code,byvirtueofmyChairmanshipoftheBoard,nottoberegardedasindependentbutpermittedtoactasChairoftheCommittee.

How the Committee operatesTheCommitteemettwiceduringtheyearandallCommitteememberswereinattendanceateachofthemeetings.AttheinvitationoftheCommittee,certainexecutivedirectorsattendedthemeetingsfromtimetotime.

Nominations Committee Report

The committee recognises the

benefits of diverse skill sets, capabilities,

backgrounds and experience.

LEADING WITH A PROGRESSIVE APPROACH

Gary KennedyNominationsCommitteeChair



OV

ER

NA

NC

E52

Nominations Committee Report cont.

SetoutbelowisasummaryofthemajoractivitiesoftheCommitteeintheyear.

ChiefFinancialOfficerappointmentAsreportedinlastyears’AnnualReport,followingDavidBauernfeind’sdecisiontoresignfromtheBoardasChiefFinancialOfficeron30April2018andthesubsequentdecisiontostepdownwithimmediateeffecton12June2018,theCommitteeoversawthesearchandappointmentofTonyGraceasChiefFinancialOfficer,initiallyprovidinginterimcoverand,thereafter,followingrecommendationbytheCommittee,permanentlywitheffectfrom5November2018.

TheCommitteeengagedBlackwoodRecruitmentLLPtoassistinthissearchprocessandconfirmsthatBlackwoodRecruitmentLLPhasnootherconnectionwiththeCompanyorthedirectors,thatallselectiondecisionswerebasedonmeritandthatallrecruitmentactivitieswerefairandnon-discriminatory.

Non-executivedirectorappointmentFollowingthedepartureofAndrewBrentfollowingconclusionofthe2018AGMon23January2018,theCommitteeidentifiedthatitwouldseektheappointmentofanadditionalnon-executivedirectorwho,followingareviewoftherequiredskills,knowledge,experienceanddiversitytoenhancethecompositionoftheBoard,wouldideallypossessrelevantindustryexperienceapplicabletotheTuffnellsbusinessandthelogisticsanddistributionsector.MichaelHoltwasidentifiedasastandoutcandidatebut,duetootherworkcommitmentsasChiefOperatingOfficerofFedExExpress,EuropeuntiltheendofSeptember2018,hisappointmentwasdeferreduntil1October2018whentheCommitteerecommendedthatMichaelHoltbeappointedtotheBoardandtheBoardacceptedtherecommendation.Accordingly,MichaelHoltwasdulyappointedasnon-executivedirectoron1October2018andsubsequentlyalsobecametheGroup’sdesignatednon-executivedirectorontheNationalColleagueEngagementForumestablishedandlaunchedduringtheyear.

SuccessionplanningDuringtheyear,theCommitteeconsideredtheorderlysuccessionplanningforboardandseniormanagementroles,alongsidecontinuedprogressbeingmadeintheGroup’supdatedapproachtosuccessionplanning,reviewoftalentandmanagementdemographics.TheCommitteedeterminedthatthisapproachhadimprovedcapabilityacrosstheseniormanagementpopulation,withamorefavourabledistributionofgood/highperformanceacrossbothleadershiplevel3andleadershiplevel4comparedtopreviousreviews.FurtherworkalsocontinuedduringtheyearontalentmappingagainsttheGroup’snewvaluesaswellasthekeyprioritiesfortalentdevelopmentinordertoensuretheplannedsuccessionofkeyrolesandthedevelopmentofadiversepipeline.

ColleagueengagementDuringtheyear,theCommitteeoversawthecreationanddevelopmentofcolleagueforumsasameansofpromotingworkplaceengagement.Astructureoflocal,regionalandnationalforumswasestablished,withrepresentativesnominatedbyourcolleagues.Theforumstakeplacemonthlyorquarterlyasappropriateandgatherawiderangeofviewsfromourcolleaguesaswellascascadingkeystrategicinitiativesandbusinessupdatesthroughouttheorganisation.

Asnotedabove,aNationalColleagueEngagementForumwasestablishedandlaunchedduringtheyearandattendedbycertainnominatedrepresentativesfromthelocalandregionalforums,plusMichaelHolt,astheBoard’sdesignatednon-executivedirector.ThisforumisheldquarterlyandgivestheBoarddirectaccesstotheimportantviewsandvoiceofourfrontlineandcorporatecentrecolleagues.FurtherinformationontheworkofourcolleagueforumscanbefoundintheCorporateResponsibilityreportonpages28to31.

TheCommitteereceivedandreviewedtheresultsofthe2018group-widecolleagueengagementsurvey,whichwerelargelypositivegiventhecontextoftheGroup’srecenttradingprofile.Theresultsdemonstratedthatthereisanopportunitytoembrace

higherlevelsofengagementacrosstheGroup,creatingandcommunicatingavisionforthefuturestrategicdirectionoftheGroupandinvestinginthedevelopmentofourcolleagues.

Followingthereviewoftheresults,athoroughactionplanwasdevelopedalongsideFY2019internalcommunicationsplanning,withanincreasedemphasisoncolleagueengagementandtwo-waycommunications.Initiativesundertakeninpursuitoftheseresultsincludetheintroductionofquarterly‘townhall’meetingsinmultiplelocations,monthlycallswithdepotmanagementandseparatelywiththeseniorleadershipteam.Theintroductionofregularvideoupdatesfortheoperationaldepot-basedteam,reportingonprogressacrosstheGroupinthedeliveryofourkeystrategicinitiativesandsuccesseshasbeenwellreceived.Weleadallteammeetingswithafocusonour‘SafetyFirst’initiativeandourcompanyvalues,toconsistentlyunderlinetheimportanceofboth.

CultureandValuesAsanimportantstepinourtransformationalplans,significantconsultationandconsiderationoftheGroup’sstakeholderswasundertakenduringtheyeartorealignourcorporatecultureandtointroducenewreinvigoratedvaluesandcorebehaviourstobeexpectedof,andpromotedby,allcolleagues.Sixcorevalueswerelaunchedwhichemphasisetrustedserviceforourcustomers,puttingourcolleaguesandtheprinciplesoffairnessandopennessattheheartofeverythingwedo,encouragingallcolleaguestoactwithappropriatespeedandcreativityinallthatwedo,andatalltimespromotingthedeliveryofvalueforourshareholders.TheCommitteereceivedupdatesontheintegration,cascadeandengagementofthenewvaluesandispleasedwiththelevelsofprogressmadeintherealignmentofcultureacrosstheGroup.

FurtherinformationonourvaluescanbefoundintheCorporateResponsibilityreportonpages28to31.


DiversityandinclusionTheCommitteerecognisesthebenefitsofdiverseskillsets,capabilities,backgroundsandexperiencetotheeffectivefunctioningoftheBoardandtheachievementofourobjectivesandlonger-termstrategyandacknowledgestheadditionalwidercompanybenefitsthatarisefromacomprehensivediversityandinclusionstrategy,suchascreatingandfosteringahighperformingandinclusivecultureandattractingandretainingbothcustomersandtalenttotheorganisation.

Accordingly,theCommitteeconsideredandapprovedanewDiversityandInclusionpolicywhichhasthewiderobjectiveofembeddingacultureofdiversityandinclusionthroughouttheorganisationinsupportoftheCompany’slong-termstrategy.Inordertoensurethattheobjectivesofthepolicyareachieved,aDiversityandInclusionCouncilwasestablished,withdelegatedresponsibilityto(i)agreeannualdiversityandinclusionobjectives,(ii)monitordiversitydataagainstagreedmetrics,(iii)reporttotheCommitteeontheeffectivenessoftheinitiativesthathavebeenimplementedduringtheyear,(iv)updatetheCommitteeonannualprogressmadeagainstthepolicy’sobjectives,and(v)makerecommendationsforfurtherdiversityandinclusionfocus.

Duringtheyear,theCouncilimplementedtheDiversityandInclusionpolicythroughaseriesofinitiatives,includingraisingtheawarenessandimprovingtheeducationofourmanagersonthepolicythroughacampaigncalled‘EveryoneIn’,launchingacalendarofawarenessevents,introducingsupportingcommunicationsandfocusingondiversitywithinrecruitment,talentanddevelopmentofcolleagues.InitiativestodateincludesupportforthenationalMentalHealthandCarersweeks,theestablishmentofacolleaguesassistanceandsupportprogrammeandhigh-profileupskillingsessionsformanagersonthebenefitsofinclusionanddiversity.Accordingly,theCommitteeisencouragedbytheearlyengagementandprogresswhichhasbeenmadeinachievingthediversityandinclusionannualobjectivesandwearepleasedwiththeincreasingawarenessofdiversityacrossourorganisation.

TheBoardconsidersitselfdiverseintermsofthebackground,skillsandexperienceeachdirectorbringstotheBoardandiscommittedtotargetingtherecruitmentoffemaleBoardmembersthroughexecutivesearchpartnerswhoaresigneduptotheVoluntaryCodeofConductongenderdiversity,developedinresponsetotheDaviesReport.Weencourageourrecruitmentpartnerstopresentmorebalancedcandidaterecommendationswithatleastonecredibleandqualifiedfemalecandidateprovidedwithintheshortlistfortherecruitmentprocesses.TheCommitteeisalsomindfuloftherecommendationsoftheParkerReviewandtheHampton-AlexanderReview,whenconsideringpotentialcandidatesandacknowledgesthatbybroadeningthepotentialskillsbasethroughenhancingthediversityofourbusiness,wewillimprovethequalityofourfuturedecision-making.TheCommitteealsoagreesthatimprovingtheoveralldiversity,includinggenderbalance,inleadershiprolesisgoodforcompanyperformanceandproductivity.

Femalerepresentation

2019 2018

Board 14% 17%

ExecutiveTeam 14% 25%

Furtherinformationongenderdiversity,includingtheproportionofwomeninseniormanagement(beingforthesepurposes,theExecutiveTeamandtheirdirectreportsaspromulgatedbytheHampton-AlexanderReview)andwithintheorganisationoverall,iscontainedintheCorporateResponsibilityreportonpages28to31.

ApprovalThisreportwasapprovedbytheNominationsCommitteeandsignedonitsbehalfby:

Gary KennedyNominationsCommitteeChair5November2019

Executivesearchconsultantisappointed

Followingareviewoftherequiredskills,knowledge,experienceanddiversity,detailedjobspecificationsareprepared

Comprehensiveprofilesarepreparedandconsidered,andcandidatesareshortlisted

InitialandsecondinterviewsareheldwitheachmemberoftheBoard

FollowingrecommendationbytheCommittee,theBoardappointsthenewdirector

Immediatelyfollowingappointmenttherelevantannouncementsaremadetothemarket

BoardappointmentsandsuccessionplanningTheCommitteeadoptsaformal,rigorousandtransparentprocedurefortheappointmentofnewdirectorstotheBoard:


OV

ER

NA

NC

E54

Shareholder letter from the Chair of the Remuneration CommitteeDear shareholder OnbehalfoftheBoard,IampleasedtopresenttheRemunerationCommittee’sreportfortheyearended31August2019.

Remuneration matters related to the Tuffnells strategic review and directorate changesInNovember2019itwasannouncedthatastrategicreviewoftheTuffnellsbusinesswouldtakeplace,accompaniedbyanumberoforganisationalchanges.

TheChiefExecutiveOfficer,JosOpdeweegh,steppeddownfromthebusinesswithimmediateeffectandwasreplacedbyJonathanBunting,whowillcombinetheroleofInterimChiefExecutiveOfficeroftheGroupwithcontinuingaccountabilityasChiefExecutiveOfficerofSmithsNews,throughtheperiodofthereview.

JosOpdeweeghhasreceivedcompensationforlossofofficeinlinewithhiscontractualprovisions.

JonathanBunting’sbasesalaryplussalarysupplementforthenewinterimrolewilltakehissalaryto£450,000(the“totalsalary”),thesamemonetaryvalueasJosOpdeweeghpriortohisdeparture.ThetotalsalarywillalsobeappliedtotheannualbonusplanandtheFY2020-2022LTIPaward,ineachcaseonapro-ratedbasis.Inaddition,forthedurationofhisinterimrole,JonathanBunting’spensioncontributionswillreducefrom20%to15%oftotalsalary,thesamepercentagepensioncontributionasforJosOpdeweegh.TheremunerationarrangementsforJonathanBuntingwillbesubjecttofurtherreviewandalignmentwithshareholderguidelines(inparticulararoundpensioncontribution)shouldtheroleofChiefExecutiveOfficeroftheGroupbecomepermanent.

Asalsoannounced,on5November2019,MichaelHolt,currentlyanon-executivedirector,becameExecutiveChairmanoftheTuffnellsbusinessfortheperiodoftheTuffnellsstrategicreviewprocess.MichaelhasdeepexperienceandexpertiseinthelogisticssectorandwillhaveresponsibilityforprovidingrelevantandcurrentinsighttoaidboththebroaderstrategicreviewandtargetedprofitrecoveryatTuffnells,supportingPeterBirks,Tuffnells’ChiefExecutiveOfficer.Forthedurationofhistimeinrole(whichisexpectedtobeonlyofashort-termnature),Michaelwillreceiveanadditionalfeeontopofhiscurrentnon-executivedirectors’fees,of£205,000perannum.Hewillnotreceiveanybenefitsorperformancerelatedpay.

Directors’ Remuneration Report

The incentive plans align to the business strategy and culture

and provide for a rounded assessment

of performance.

TRANSPARENCY AND STAKEHOLDER ENGAGEMENT

Denise CollisRemunerationCommitteeChair


Fulldetailsofeachofthesearrangementsareprovidedlaterinthisreport.

Review of our remuneration policyTheforthcoming2020AGMmarksthethirdanniversaryoftheapprovalofourremunerationpolicyandassuch,wearerequiredtoputanewpolicytoabindingshareholdervote.Thisalsorepresentsthethirdtimethatabindingresolutiontoapproveourremunerationpolicyhasbeenbroughttoshareholdersandwelookforwardtothecontinuinghighlevelsofshareholdersupportaswehavesecuredinthepast.Thepolicywillapplyforthefullthree-yearperiodandwillbetheframeworkforsettingthepayoftheexecutivedirectors,non-executivedirectorsandtheGroup’sExecutiveTeam.Whiletheshareholderapprovedpolicyappliestothemostseniorexecutivesinthebusiness,theCommitteehasalsoreviewedremunerationandincentivesmorewidely,takingtheseintoaccountwhensettingthispolicy.

Inpreparationforthe2020AGM,theCommitteehasreviewedthedirectors’remunerationpolicy,toensurethatitremainsalignedtothebusinessstrategyandcomplieswiththeCompaniesAct,relevantregulatoryrequirements(includingtheUKCorporateGovernanceCode)andlatestinvestorguidelines.AkeycomponentoftheCommittee’sreviewhasincludedathoroughconsultationexercisewithourlargestshareholders.Thisindicatedthatthebroadpolicyframeworkcouldbecontinuedforthenextpolicyperiod,withsomerelativelyminorrefinementstoaligntotheCodeandinvestorguidelines.Inparticular,ourshareownershipguidelinesforexecutivedirectorshaveincreasedto200%ofbasesalaryandshareholdingrequirementshavebeenintroducedtonowrequiredepartingexecutivedirectorstocontinuetoholdsharesaftertheyhaveleftthebusinessforaperiodoftwoyears.Inaddition,themaximumpolicylimitfortheannualbonushasbeenreducedfrom150%ofbasesalaryto125%ofbasesalary(withthecurrentappliedlimitremainingat100%ofbasesalary).

TheCommitteeconsidersthatthenewdirectors’remunerationpolicyisclearandassimpleaspossible,whilstincorporatingthenecessarysafeguardstoensureastronglinkbetweenperformanceandrewardand,further,ensuringthatfailurecannotberewarded.Theincentiveplansaligntothebusinessstrategyandcultureandprovideforaroundedassessmentofperformance.

Theoverallstructureofthepackageprovidesamarket-competitiveremunerationopportunitywithproportionatelevelsofpaythatvarywithperformance.Furthermore,theCommitteehasdemonstratedinrecentyearsthatitispreparedtousediscretiontoreduceaformuladrivenoutcomewhenthisdoesnotreflectbroadercompanyperformanceortheshareholderexperience.

Theproposedchangestothenewdirectors’remunerationpolicyaresetoutonpage58.

Performance in FY2019 and incentive paymentsAtthestartofthefinancialyear,theCommitteedeterminedthat,forthethirdyearrunning,thereshouldbenoincreasestobasesalaryfortheExecutiveTeam.TheFY2019bonuswasmeasured70%onAdjustedprofitbeforetax(PBT)and30%onindividualobjectives.InwhathasprovedachallengingyearinwhichtheGrouphasfocusedonrebuildingtheunderlyingstrengthofitscoreoperationswithprioritiesthatbalancedimprovementstoprofitability,withcontinuedinvestmentandprudentcapitalmanagement,thethresholdlevelofGroupPBTwasnotachieved,andassuchnobonusispayableforFY2019undertheGroupPBTelementofthebonus.TheSmithsNewselementofthebonus(forJonathanBunting)exceededitsperformancetargetbut,duetotheGroupPBTunderpin,nobonuswasawardedforthiselement.Likewise,thepersonalelementofthebonusforallthreeexecutivedirectorsintheyearwasalsosubjecttotheGroupPBTunderpin,andreducedtozero.Overall,bonuspaymentswerezeroforthesecondyearrunning.

TheLTIPawardsgrantedinFY2017weresubjecttoAdjustedbasicEPSandaggregateoperatingcashflowperformancemeasures,weightedequallyandmeasuredoverthethree-yearperiodending31August2019.Basedonperformanceoverthisperiod,theFY2017-2019LTIPawarddidnotvestasthresholdperformancewasnotmet.

TheCommitteeconsidersthattheabsenceofincentivepaymentsfortheyearisanappropriateoutcome,withnodiscretionrequiredtochangetheformuladrivenoutcomes.

Operation of the new Remuneration Policy in FY2020Fromthedateofhisappointment,theInterimChiefExecutiveOfficerwillreceiveasalarysupplementinadditiontohisunchangedcurrentbasesalaryof£291,312,takinghistotalannualisedsalaryto£450,000,thesamemonetaryvalueasforhispredecessor.TherewillbenoincreasestobasesalaryforthecomingyearfortheChiefFinancialOfficer.

TheInterimChiefExecutiveOfficer’spensioncontributionforthedurationofhisnewrolewillbe15%oftotalsalary,areductionfromthecurrent20%.

Theannualbonusopportunitywillremainat100%ofsalary.FortheInterimChiefExecutiveOfficer,thiswillbebasedonactualbasesalaryandsalarysupplementreceivedoverthecourseoftheyear.Theperformancemeasureswillbebased70%onAdjustedGroupPBTand30%onindividualobjectiveslinkedtostrategyandleadership.TheCommitteehasreviewedtheoperationoftheGroupfinancialperformanceunderpinforthepaymentoftheindividualelementofthebonusandhasdecidedtoreplacetheformulaicapproachwithamorediscretionaryoneforFY2020.ThisisaimedatprovidinggreaterflexibilityfortheCommittee,ifdeemedappropriate,whilstensuringthattheoverallprofitabilityoftheGroupremainsakeyfactorinitsdecisionmaking.Consistentwithpreviousyears,therewillbeadiscretionaryrequirementforaminimumindividualperformanceratingtobeachievedbeforetheGroupfinancialperformanceelementmaybepaid.

TheLTIPgrantlevelsfortheFY2020-2022awardfortheInterimChiefExecutiveOfficerwillbe100%ofbasesalary.Thiswillbebasedontwomonthsbasesalaryplustenmonthsofcombinedbasesalaryandsalarysupplement.IntheabsenceofknowinganexactenddatefortheInterimChiefExecutiveOfficer’srole(althoughitisreasonablyprudenttoassumethatitwillcontinueforthemajorityofFY2020),andgiventhattheawardwillbemadeshortly(unlikethebonusawardwhichwillbeconsideredaftertheendofthefinancialyear),theRemunerationCommitteehasdeterminedthatthiswasthemoststraightforwardapproachtotake.Inaddition,theLTIPgrantfortheChiefFinancialOfficerwillbe100%ofbasesalary.However,theCommitteehasdeterminedthattheLTIPawardforallparticipantswillbebasedoneither30pashareortheactualsharepriceatthedateofgrant,whicheveristhehigher.


OV

ER

NA

NC

E56

Directors’ Remuneration Report cont.

TheCommitteehasreviewedtheLTIPperformancemeasuresandthealignmentofthesemetricstothebusinessstrategyandshareholders’interests.Thiswasaparticularareaoffocusintheshareholderconsultationexercise,althoughviewswerevariedandtherewasnoconsensusinanyparticulardirection.Aftercarefulconsideration,theCommitteehasdecidedtoreplacethecumulativecashflowmeasurewitharelativetotalshareholderreturnperformancemetric,comparingtheCompany’sstockmarketperformance(sharepriceplusdividends)againstthecompaniescomprisingtheFTSESmallCapIndex(intheabsenceofasufficientlyrobustdirectcomparatorgroup).WewishtoaddanelementofTSRtoprovideamoredirectincentivetomanagementtoimproveoursharepriceanddividendperformancevspeersinasustainablemannerandtoensurecommonalignmentwiththelong-terminterestsofourshareholders.TheTSRelementwillaccountfor50%oftheaward,withtheremaining50%beingbasedonAdjustedbasicEPSperformance,asinthepreviouspolicy,measuredoverthreeyearstoFY2022.ThiswillmaintainthestrongfocusonEPSvis-à-visourlong-termfinancialperformance.AlthoughcashflowhasbeenremovedasaperformancemeasurefortheLTIP,thereisastrongcashflowdisciplinethroughouttheExecutiveTeam.Inparticular,theBoardremainsmindfuloftheviewsofsomeofourshareholdersandintendstomaintainadeeplevelofoversightofongoingcashflow.

Furtherdetailsonperformancetargetscanbefoundonpages66to67.

Inrespectoftheannualbonus,50%ofanypayoutwillbedeferredfortwoyearsandanyvestedLTIPawardswillbesubjecttoatwoyearholdingperiod.Furthermore,theCommitteeretainsdiscretiontooverridetheformulaicoutcomesofthebonusandLTIP,androbust(andenhanced)clawbackandmalusprovisionswillapply.

Employee engagement on remuneration mattersAspartoftheBoard’scommitmenttobroaderstakeholderengagementIwasdelightedtomeetwithmembersofourNationalColleagueEngagementForumtoexplainourcompany-wideremunerationpolicyandoutlinehowexecutiveremunerationoperates.Aspartofthediscussion,weexploredthepaystructureatdifferentorganisationlevels,inparticularfocusingonthechecksandbalancesinplacetoensurepayforperformanceoverbothshortandlongertermtimeframes.Iwouldliketothankcolleaguesfortheirinsightfulquestions,observationsandcomments.OnbehalfoftheCommittee,IlookforwardtofurthermeetingsinthefutureinordertocontinuethedialogueandreceivevaluablefeedbackwhilstatthesametimedischargingtheCommittee’scommitmentsunderthe2018editionoftheUKCorporateGovernanceCode.Concluding remarksIwelcomeanyfeedbackonourproposedremunerationpolicyanditsapplicationandlookforwardtoseeingshareholdersattheAnnualGeneralMeetingon31January2020,wherewehopetoreceiveyoursupportforourpayarrangements.

Denise CollisRemunerationCommitteeChair


Directors’ Remuneration PolicyAt-a-glance summary AsummaryofthepolicyanditsapplicationforFY2020isshownbelowwiththefullpolicysetoutonpages59to64.

Policy elementJonathan BuntingInterim Chief Executive Officer

Tony GraceChief Financial Officer

Annualisedbasesalaryfrom1September2019 £291,312 £295,000

Annualisedsalarysupplementfrom5November2019

£158,688 N/A

TotalsalaryforFY2020 £421,740(a) N/A

%increasefromprioryear 45%(relatedtonewinterimrole) 0%

PensionforFY2020 £65,859(being20%of£291,312for65daysandbeing15%of£450,000for301days)1

£44,250(15%)

Annualbonus(ABP) 100%ofbasesalary,plusprorataofthesalarysupplementforthedurationoftheinterimrole

100%ofbasesalary

Annualbonusmetrics AdjustedGroupPBT(70%)Individualobjectives(30%)

ABPpaymentforthresholdperformance 0%ofsalary

ABPpaymentforon-targetperformance 50%ofsalary

Deferredbonusplan(DBP) 50%ofannualbonusdeferredfor2yearsinshares

LTIP Awardof100%ofsalary,constructedastwomonthsbasesalaryplustenmonthsofbasesalaryandsalarysupplement

100%ofbasesalary

Awardwillbecalculatedbasedonasharepriceof30portheactualsharepriceatdateofgrant,whicheveristhehigher

LTIPmetrics AdjustedbasicEPS(50%)TotalShareholderReturn(50%)

LTIPpaymentforthresholdperformance 20%ofaward

LTIPpost-vestingholdingperiod 2years

Malusandclawback AppliestoawardsmadeundertheABP,DBPandLTIP

ShareholdingGuidelinesrequirement 200%ofsalary

Post-cessationofemploymentshareholdingrequirement

Lowerof200%ofsalaryorshareholdingondeparturefor2yearspost-cessation,excludingself-purchasedshares

1. FortheInterimChiefExecutiveOfficer,theprojectedfigureisbasedonthedurationoftheinterimappointmentbeinguntiltheendofFY2020.

IntroductionThisreporthasbeenpreparedonbehalfoftheBoardbytheRemunerationCommitteeinaccordancewiththerelevantprovisionsoftheCompaniesAct2006andonthebasisprescribedinTheLargeandMedium-sizedCompaniesandGroups(AccountsandReports)(Amendment)Regulations2013.Whererequired,datahasbeenauditedbyBDOLLPandisindicatedaccordingly.

Directors’ Remuneration Policy ThefollowingsectionsetsouttheCompany’spolicyonremunerationforexecutiveandnon-executivedirectors,whichwillbeputtoabindingshareholdervoteattheAnnualGeneralMeetingon31January2020.Itisintendedthatthedirectors’RemunerationPolicywillapplyforthemaximumthreeyearspermittedbytheregulationsandso,intheabsenceofaneworamendedpolicyorasotherwiserequiredbylaw,willonlybebroughtbacktotheshareholdersattheCompany’sAnnualGeneralMeetingin2023.

Theaimofthepolicyremainstofacilitatedeliveryofourlong-termstrategythroughattracting,retainingandmotivatinghigh-calibredirectorswiththenecessaryskillsandexperience.InformingthepolicytheCommitteehasadoptedtheprinciplessetoutinthe2018editionoftheUKCorporateGovernanceCode.


OV

ER

NA

NC

E58

Overview of remuneration policy changesFollowingadetailedreviewoftheexistingpolicyfortheexecutivedirectorsandathoroughshareholderconsultationexercise,thefollowingchangestoourremunerationpolicyareproposed:

SalaryThesalaryreviewdatewillbechangedfrom1Aprileachyearto1Septembertoalignwiththefinancialyear.

PensionNewappointmentswillreceiveapensioncontributioninlinewiththerateapplyingtothemajorityoftheworkforceatthetimeofappointment.Forexistingdirectors,thepensioncontributionhasbeenfrozenattherelevantpercentageforeachrole,withtheeffectthatanyfuturepayincreaseswillnotleadtoachangeinthemonetaryvalue.

AnnualbonusThepolicymaximumhasbeenreducedfrom150%to125%ofsalarytoalignmorecloselytothecurrentappliedbonusmaximumof100%ofbasesalary.Dividedequivalentsaccruedthroughthedeferredbonusplanwillnormallybepayableinshares,inordertoimprovealignmentofinterestwithshareholders.

TheCommitteewillhavediscretiontooverridetheformulaicoutturnofanybonusif,forexample,itisnotreflectiveofbusinessperformance,theoverallshareholderexperienceoremployeerewardoutcome.

Clawbackandmalusprovisionshavebeenbroadenedinlinewiththe2018Codetoincludecorporatefailureandseriousreputationaldamage.

Long-termincentivePlanThepolicynowexplicitlyincludesthetwo-yearpost-vestingholdingperiod,whichwasintroducedfortheFY2018-2020grantsandonwards,butnotformallypartofthepreviouspolicy.

Thechoiceofperformancemetricshasbeenmademoreflexibletopermittheuseofmetricsotherthansolelythefinancialperformanceofthebusiness,forexampleTotalShareholderReturn.

Inlinewiththebonus,discretionandclawbackandmalusprovisionshavebeenenhancedanddividendequivalentswillonlybepayableinsharesonvestedawards(otherthaninthecaseofexceptionalcircumstances,suchasdeathinservice).

ShareholdingrequirementsTheshareholdingrequirementwillbeincreasedfrom150%to200%ofsalaryforalldirectorstostrengthenalignmentofinterestwithshareholders.

Apost-cessationshareholdingrequirementwillbeintroduced.Therequirementwillbetoretainsharesworththelowerofthein-serviceshareholdingrequirementortheactualshareholdingondeparture,fortwoyearspostcessationofemployment.Sharespurchasedfromanexecutivedirector’sownfundswillnotberestrictedbythepost-cessationshareholdingrequirementinordertoencourageself-purchases.TheCommitteewillretaindiscretiontoreduceorwaivethisrequirementinexceptionalcircumstances,suchasdeathinservice.

LossofofficeFor‘goodleavers’therewillbenoearlyvestingofLTIPordeferredbonusawardsoncessationofemployment,andpost-vestingholdingperiodswillcontinuetoapplytoawardspostcessationofemployment.Awardsmayonlyvestorbereleasedearlierthanthisinexceptionalcircumstancessuchasdeathinservice.

Outplacement,legalandotherreasonablerelevantcostsassociatedwithterminationwillbepayableinadditiontoanyclaimorpotentialclaiminrelationtoatermination.



Executive directorsThetablebelowsetsouttheCompany’sRemunerationPolicyforexecutivedirectors:

Element Purpose Operation Maximum Performance conditions

Basesalary Providefixedremunerationwhichissufficienttorecruitandretainindividualsofthenecessarycalibre.

SalariesaresetbytheCommitteetakingintoaccount:

• theskillsandexperienceoftheindividual;

• thesizeandscopeoftherole;• marketdataforsimilarrolesin

comparablecompanies;and• performanceoftheindividual

andthebusiness.

Typically,salariesarereviewedannually,withanychangeseffectivefrom1Septembereachyear.

Thereisnoprescribedmaximumsalary.Salaryincreaseswillnormallybeinlinewithsalaryincreasesgenerallyforemployees.

LargerincreasesmaybeawardedwheretheCommitteeconsidersitappropriatetoreflect,forexample:

• significantchangesinthesizeand/orcomplexityoftheGroupand/oroftherole;or

• individualsbeingmovedtomarketpositioningovertime.

None.

Benefits Ensurethatbenefitsaresufficienttorecruitandretainindividualsofthenecessarycalibreandprovidebusinesscontinuity.

Executivedirectorsareeligibletoreceivebenefitswhichmayincludeacompanycar(orcashequivalent),privatemedicalinsuranceandpermanenthealthinsurance.

Whererelevant,otherbenefitstoreflectspecificindividualcircumstances,suchashousing,relocation,travelorexpatriateallowancesmayalsobeprovided.ExecutivedirectorsarealsoprovidedwithinsuredDeathinServicebenefits.

Thereisnoprescribedmaximummonetaryvalueofbenefits.

BenefitprovisionissetatalevelwhichtheCommitteeconsiderstobeappropriateforthenatureandlocationoftherole.

None.

Pension Contributetowardsfundinglaterlifecostofliving.

ExecutivedirectorsmayparticipateintheGroup’sdefinedcontributionpensionplan,receiveasalarysupplementoracombinationofthetwo.

UnderthetermsoftheGroup’sdefinedcontributionpensionschemes,executivedirectorsmayalsoreceivedeathinservicebenefit.

Themaximumemployercontributionorsalarysupplementforexistingexecutivedirectorsis15%ofsalaryotherthanforJonathanBunting,whosecontributionorsalarysupplementremainsatthelegacylevelof20%ofsalary.Thislevelofcontributionhasbeen‘frozen’withtheeffectthatanyfuturepayincreaseswillnotleadtoanincreaseinmonetarypensioncontributions.However,assetoutearlier,thepensioncontributionforJonathanBunting(comprisingbothbasesalaryandsalarysupplementonapro-ratedbasis)willbereducedto15%forthedurationofhisnewroleasInterimChiefExecutiveOfficer.

Foranynewexecutivedirectorsandanyexistingexecutivedirectorwhohasapermanentinternalchangeofrole,themaximumemployercontribution/salarysupplementwillbeinlinewiththecontributionavailabletothemajorityworkforceatthetime.

None.


OV

ER

NA

NC

E60


Annualbonus Toincentivisethedeliveryoftheannualplan.

BonuslevelsaredeterminedbytheCommitteeaftertheyear-endbasedonperformanceagainsttargetssetatthestartofthefinancialyear.TheCommitteeretainsdiscretiontoadjustbonuspayments,includingtooverridetheformulaicoutcomeoftheaward,intheeventthatperformanceagainsttargetsdoesnotproperlyreflecttheunderlyingperformanceoftheGroupand/ortherelevantbusinesses,theoverallshareholderexperienceoremployeerewardoutcome.

Halfofthebonusisdeferredintosharesfortwoyears,whichvestsubjecttocontinuedemploymentunderthetermsoftheDBP.

Clawbackanddividendequivalentprovisionsapply(seenotesbelow).

Themaximumbonusopportunityinrespectofafinancialyearis125%ofsalary.

Thethresholdpaymentlevelforthefinancialperformanceconditionis0%andupto50%ofthemaximummaybepayablefortargetperformance.

TheCompany’slargestshareholderswouldbeconsultedbeforehandifthebonusopportunityincreasesabove100%ofsalary(thecurrentlyappliedmaximumlevel).

AnnualmeasuresandtargetswillbesetbytheCommitteeatthestartofthefinancialyear.

Themajorityofthebonuswillbebasedonfinancialperformance,withtheremainingperformanceconditionattributabletopersonaland/orteamobjectivesaswellasanybehaviouralaspectsthatrequireimprovementordevelopment,suchasleadershipeffectiveness.

LTIP Toincentivisethedeliveryoflong-termshareholdervalue.

Awardsaremadeintheformofnil-costoptionsorconditionalshareawards,thevestingofwhichisconditionalontheachievementofperformancetargets(asdeterminedbytheCommittee).

Vestedawardsmustbeheldforafurthertwo-yearperiodbeforesaleoftheshares(otherthantopaytax).

TheCommitteeretainsdiscretiontoadjusttheoutturnofanLTIPaward,includingtooverridetheformulaicoutcomeoftheaward,intheeventthatperformanceagainsttargetsdoesnotproperlyreflecttheunderlyingperformanceoftheGroupand/ortherelevantbusinesses,theoverallshareholderexperienceoremployeerewardoutcome.

Clawbackanddividendequivalentprovisionsapply(seethenotesbelow).

Themaximumawardinrespectofafinancialyearis150%ofsalary.

TheCompany’slargestshareholderswouldbeconsultedbeforehandifthegrantlevelincreasesabove100%ofsalary(thecurrentlyappliedgrantlevel).

Vestingisbasedontheachievementofchallengingfinancialortotalshareholderreturn(TSR)performancetargetsmeasuredoveraperiodofatleastthreeyears.

Fortheachievementofthresholdperformancetarget,amaximumof20%oftheawardwillvest.




Shareholdingguidelines

Toprovidealignmentofinterestbetweenexecutivedirectorsandshareholders.

Theshareholdingguidelineforexecutivedirectorsis200%ofsalary.Untilthislevelisreached,exceptforpaymentoftaxarisingontheexerciseofawardsandotherexceptionalcircumstances,executiveswillberequiredtoretain75%ofthesharesvestingundershareincentivearrangements(excludingtheapplicationoftheSharesavescheme).Inexceptionalcircumstances,executivedirectorsmayseekpermissionfromtheRemunerationCommitteetotemporarilygobelowtheirtargetholding.

Followingterminationoftheiremployment,executivedirectorswillberequiredtoretainsharesatthelowerof200%ofbasesalary,ortheactualshareholdingondeparture,fortwoyearspost-cessation.Sharespurchasedvoluntarilywillnotcounttowardsthisrequirement.

Notestothepolicytable:1 Foreaseofpresentation,thetableabovedoesnotincludeallofthespecificarrangementsrelatedtotheappointmentofJonathanBuntingasInterimChiefExecutiveOfficer.Thesearefully

documentedelsewhereintheDirectors’Remunerationreport.2 Thechangestothepolicyarehighlightedinthesectionabovethepolicytable.3 ParticipationinincentiveschemesisatthediscretionoftheCommittee.4 Legacyandmandatedpayments–theCommitteereservestherighttomakeanyremunerationpaymentsandpaymentsforlossofoffice(includingexercisinganydiscretionsavailabletoitin

connectionwithsuchpayments)notwithstandingthattheyarenotinlinewiththepolicysetoutabove:(i)wherethetermsofthepaymentwereagreedbeforethepolicycameintoeffect;or(ii)wherethetermsofthepaymentwereagreedatatimewhentherelevantindividualwasnotadirectoroftheCompanyand,intheopinionoftheCommittee,thepaymentwasnotincontemplationoftheindividualbecomingadirectoroftheCompany;or(iii)wheretheCompanyismandatedtomakethepaymentasaresultofanawardissuedbyacompetentcourt,tribunalorauthority.Forthesepurposes‘payments’includestheCommitteesatisfyingawardsofvariableremunerationand,inrelationtoanawardovershares,thetermsofthepaymentare‘agreed’atthetimetheawardisgranted.

5 Clawback–theCompanyoperatesclawbackandmalusprovisionsfortheannualbonus,DBPandLTIP.TheCommitteereservestherighttotakesuchactionasitreasonablyconsidersappropriatetoputtheCompanyandparticipantsinthesameoverallfinancialpositionastheywouldhavebeenhadcertaincircumstances(describedbelow)notoccurred.Thisincludesareductionorcancellationofvestedorunvestedshareawardsand/orareimbursementtotheCompanyofpartorallofanycashorsharepaymentswithintwoyearsofpayment.Suchcircumstancesinclude,butarenotlimitedto:(i)discoveryofamaterialmisstatementoftheCompany’sauditedresultsonthebasisofwhichthepaymentwasorwouldbedetermined;or(ii)seriousreputationaldamageoftheCompany,anymemberoftheGrouportherelevantbusinessasaresultoftheparticipant’smisconduct;or(iii)grossmisconductbytheparticipant;or(iv)corporatefailure;or(v)anyothersimilarcircumstanceoreventwhichintheviewoftheCommitteehasaseriousadverseeffectontheCompany,anymemberoftheGrouportherelevantbusiness.

6 Detailsofdirectors’servicecontractsaresetoutonpage71.


OV

ER

NA

NC

E62

Application of the remuneration policyThechartsbelowillustratetheapplicationoftheproposedpolicyforFY2020.Eachelement(asapercentageoftotalremuneration)andthetotalvalueshavebeensetout.

£0

£200,000

£400,000

£600,000

£800,000

£1,000,000

£1,200,000

£1,400,000

£1,600,000

£1,800,000

£1,091,750

£649,250

£354,250

£1,600,204

£967,594

£545,854

43.8%

56.2%

Minimum Target Maximum Minimum Target

Jonathan Bunting Tony Grace

Maximum

21.8%

21.8%

24.7%

31.7%

13.2%

26.4%

26.4%

14.9%

19.2% 100.0%

22.7%

22.7%

54.6%

13.5%

27.0%

27.0%

32.4%

Application of the remuneration policy

LTIP with 50% share price appreciationLTIPAnnual Bonus

Fixed Pay – Supplement from 05/11/19Fixed Pay – from 01/02/19

Notes1. Fixedpaycomprisesannualbasesalary,benefitsandpension,atcurrentratesatthedateofthisreport.However,inthecaseofJonathanBunting,

anadditionalsalarysupplementisincludedwitheffectfrom5November2019inrecognitionofhisnewroleasInterimChiefExecutiveOfficerand,consequently,bothhispensioncontributionandincentiveschemeawardsarepro-ratedasfurtherdescribedinthisreport.

2. BenefitsarethevaluereceivedinFY2019.3. Theon-targetlevelofannualbonusandLTIPis50%ofthemaximumopportunity.4. Themaximumvaluealsoshowstheimpactofanincreaseinsharepriceof50%onthevalueoftheLTIPaward.5. ThevalueofdividendequivalentsonLTIPorDBPvestedawardsareexcluded.

ApproachtorecruitmentremunerationOnappointmentofanewexecutivedirector,theCommitteewouldseektoofferaremunerationpackagewhichcansecureanindividualwiththenecessaryskills,whileseekingtopaynomorethanitbelievesisnecessarytofacilitatetheappointment.Anyremunerationpackagewouldbeinlinewiththeparameterssetoutinthedirectors’RemunerationPolicy.

WhereanindividualforfeitsoutstandingincentiveawardswithapreviousemployerasaresultofacceptingtheappointmentwithintheCompany,theCommitteemayoffercompensatoryawardstofacilitaterecruitment.TheseawardswouldbeinsuchformastheCommitteeconsidersappropriatetakingintoaccountallrelevantfactorsincludingtheform,expectedvalue,performanceconditions,anticipatedvestingandtimingoftheforfeitedawards.Theexpectedvalueofanycompensatoryawardswouldbenohigherthanthevalueforfeited.

AnyshareawardsreferredtointhissectionwillbegrantedasfaraspossibleundertheCompany’sexistingshareandincentiveplans.Ifnecessary,awardsmaybegrantedoutsideoftheseplansascurrentlypermittedundertheUKListingAuthority’sListingRules.

ContractsofserviceandpolicyonlossofofficeContractsofemploymentwithexecutivedirectorsmaybeterminatedatanytimebytheCompanyoremployeeuponupto12months’notice.Thecontractsofemploymentdonotincludeanyprovisionsforpredeterminedcompensationforearlytermination.

TheCommitteemayterminateanemploymentcontractimmediatelybymakingapaymentinlieuofnoticeconsistingofbasesalaryonlyfortheunexpiredperiodofnotice.Innormalcircumstances,suchapaymentwouldbemadeinmonthlyinstalmentsovertheperiod,subjecttoadutytomitigate,andwillbereducedbytheamountinrespectofincomereceivablefromalternativeemployment,excludingasinglenon-executivedirectorship.



Intheeventthattheemploymentofanexecutivedirectoristerminated,anycompensationpayablewillbedeterminedinaccordancewiththetermsoftheservicecontractaswellastherulesofanyincentiveplansandpost-cessationshareholdingrequirements.Incentiveswillbetreatedinthefollowingway:

Annualbonus UnlesstheCommitteedeterminesotherwise,executiveswillnotbeeligibleforabonusiftheyareundernotice.

IftheCommitteedeterminesthattheexecutiveisa‘goodleaver’1theymaystillreceiveabonus,reducedtoreflecttheportionoftheyeartheywereinactiveemployment.

Anypaymentwouldremainsubjecttoperformanceandwouldbepaidfollowingthenormalyear-endassessmentprocess.

DBP(deferredannualbonus)

Deferredbonuswillbeinshares,awardedattheoutset,witharequirementfortheexecutivedirectorstoholdthesharesforatwoyeardeferralperiod.Thedeferredshareswouldbesubjecttoclawbackandpost-cessationshareholdingrequirementsandanyheldshareswouldbesubjecttotheexecutiveshareownershiprequirements,includingpost-cessationofemploymentobligations.

LTIP IftheCommitteedeterminesthatanexecutiveisagoodleaverLTIPawardsmayvestsubjecttoperformanceandwouldnormallybescaledbacktoreflecttheportionoftheperformanceperiodthathaselapsedonthedatethatemploymentceases.Theawardswillvestonthenormalvestingdate(otherthaninexceptionalcircumstancessuchasdeathinservicewhentheawardmayaccelerate).Thepost-vestingholdingperiodwillcontinuetoapplyforthefulltwoyearperiod.

IfanexecutiveleavestheGroupforanyotherreason,outstandingawardswouldlapse.

1. Goodleaverreasonsincludedeath,injury,disability,redundancy,retirementbyagreementwiththeCompany,theemployingentitynolongerbeingpartoftheGroup,oranyotherreasonasdeterminedbytheCommittee.

TheCommitteeretainsdiscretiontomakeadditionalexitpaymentswheresuchpaymentsaremadeingoodfaithindischargeofanexistinglegalobligation(orbywayofdamagesforbreachofsuchanobligation)orbywayofsettlementorcompromiseofanyclaimarisinginconnectionwiththeterminationofadirector’sofficeoremployment.Thedetailsandrationaleforanysuchpaymentswouldbedisclosedinthefollowingyear’sdirectors’reportonremuneration.

Externalnon-executivedirectorappointmentsItistheCompany’spolicytoalloweachexecutivedirectortoacceptonenon-executivedirectorshipofapubliclyquotedcompanyprovidedthatitdoesnotconflictwiththeinterestsoftheCompany.Executivedirectorsmayretainthefeeforsuchanappointment.

ConsiderationofpayandemploymentconditionselsewhereintheGroupTheCommitteeconsidersthegeneralbasicsalaryincreaseforemployeesthroughouttheGroupwhendeterminingtheannualsalaryincreasesforexecutivedirectors.Inaddition,theGroupperformancetargetsusedintheexecutivebonusplanarecascadedintobroader-basedannualbonusarrangementsforalleligibleemployeestoensurealignmentacrossthebonusplansandparticipatingpopulations.

AspartoftheBoard’scommitmenttobroaderstakeholderengagementtheCommitteeChairmetwithourNationalColleagueEngagementForumtoexplainthecompany-wideremunerationpolicyandoutlinehowexecutiveremunerationoperates.Thediscussionexploredthepaystructureatdifferentorganisationlevels,inparticularfocusingonthechecksandbalancesinplacetoensurepayforperformanceoverbothshortandlonger-termtimeframes.

ConsiderationofshareholderviewsTheviewsofshareholdersareveryimportanttotheCommitteeandfeedbackreceivedfromshareholdersfollowingpublicationoftheAnnualReportandattheAGMiswelcomed.ItistheCommittee’spolicytoconsultwithitslargestshareholdersandinvestorrepresentativebodiesbeforeproposinganymaterialchangestotheremunerationpolicy.Inlinewithourpolicy,theCommitteeundertookathoroughconsultationwithourlargestshareholderstoinformthepolicyreviewduringtheyear.


OV

ER

NA

NC

E64

Non-executive directorsThetablebelowsetsouttheCompany’sRemunerationPolicyfornon-executivedirectors:

Element Purpose and link to strategy

Operation Maximum

Chairman’sandnon-executivedirectors’fees

Toattractandretainhigh-calibreindividuals.

Feelevelsaresettoreflectthetimecommitment,demandsandresponsibilityoftherole,takingintoaccountfeespaidbysimilarlysizedcompanies.

Feesarereviewedfromtimetotimetoensurethattheyremaininlinewithmarketpractice.

Feesarepaidinequalmonthlyinstalments.

TheChairman’sfeeincludeshischairmanshipoftheNominationsCommittee.

Thereisnoprescribedmaximum.

Additionalfees Toprovidecompensationtonon-executivedirectorstakingonadditionalresponsibility.

Non-executivedirectors(otherthantheChairman)arepaidanadditionalfeefortheirchairmanshipofaBoardCommitteeoradditionalresponsibility,suchaschairingtheNationalColleagueEngagementForum,ormaybepaidadditionalfeesforsignificantadditionalworkloadorroles.


Benefits Tofacilitatetheexecutionoftherole.

TheCompanyreimbursesreasonabletravelandsubsistencecosts.


BasefeesandCommitteefeesfornon-executivedirectorswerelastincreasedin2015.

TheChairmanandnon-executivedirectorsdonotparticipateinanypensionorincentiveplans.

RecruitmentPolicyTheremunerationpackageforanewlyappointednon-executivedirectorwouldbeinlinewiththepolicyoutlinedabove.

LettersofappointmentAllnon-executivedirectors,includingtheChairman,havealetterofappointmentforaninitialthree-yearterm,subjecttoreviewthereafter.Appointmentsmaybeterminatedbyeitherpartygivingthreemonths’notice.



Annual report on remunerationTotal remuneration payable in respect of FY2019 (audited)Thetotalremunerationforeachdirectorissetoutbelow.TotalpayinFY2019comprisedbasesalary,benefitsandpension.Asreportedinthissection,givenperformancetargetswerenotmet,nopaymentsweremadeinrespectofboththeFY2019annualbonusplanandtheFY2017-2019LTIPincentiveplan.AstheFY2017-2019LTIPdidnotvestduringtheyear,therehasbeennoimpactofthesharepriceuponremuneration.

JosOpdeweegh3 TonyGrace4 JonathanBunting

Fixed PayFY2019

‘000FY2018

‘000FY2019

‘000FY2018

‘000FY2019

‘000FY2018

‘000

Salary £450 – £243 – £291 £291

Benefits1 £19 – £15 – £30 £32

Pensionbenefits2 £68 – £36 – £61 £59

TotalFixedPay £537 – £294 – £382 £382

Performance Related Pay

Annualbonuspayments £0 – £0 – £0 £0

LTIPawardvesting £0 – £0 – £0 £0

Dividendequivalentpayments5 £0 – £0 – £19 £0

TotalVariablePay £0 – £0 – £19 £0

Total single figure £537 – £294 – £401 £382

Notes1. Benefitsincludethetaxablevalueofacompanycarorcarcashallowance,privatemedicalinsuranceandtheintrinsicvalueofSharesaveoptionsgrantedduringtheyear,asapplicabletoeach

director.2. TheCEOandCFOreceivepensionbenefitsequivalentto15%ofbasesalaryandtheCEOofSmithsNewsreceivespensionbenefitsequivalentto20%ofbasesalarypaidovertheyear.

ThepensionpaymenttotheCEOofSmithsNewsincludesanadjustmentof£2.9kthatwillbecorrectedinthecurrenttaxyear.3. JosOpdeweeghjoinedtheBoardon1September2018.4. TonyGracejoinedtheBoardon5November2018.5. DividendpaymentsequivalenttotheaggregateofalldividendspaidduringthevestingperiodapplicabletobothLTIPandDBP,paidinshares.InthecaseofJonathanBunting,thedividendequivalent

paymentaroseoutoftheexerciseofhisFY2016DBPawardwhichwasexercisedon7February2019andpaidinshares.

Remuneration and link to performance during the year (audited)AnnualbonusInFY2019,eachexecutivehadamaximumopportunityundertheannualbonusof100%ofsalary,split70%onfinancialperformance(forJonathanBunting20%Groupand50%basedonSmithsNews)and30%personalobjectives.

Performancemeasuresandactualperformancewasasfollows:

Measure

Weighting

TargetsActualresult

(£m)Bonus

achievementThreshold Target Max

Groupadj.PBT 70% £23.75m £25.0m £31.25m £23.2m 0

SmithsNewsdivisionadj.OperatingProfit1 50% £66.25 £70.34 £77.90

£72.5mbutbonusreducedtozeroduetothefailuretoachievethe

Groupfinancialunderpin0

Personalobjectives 30% Seedetailbelow Partialachievementintotalitybutstrongperformanceinpart,

reducedtozeroduetothefailuretoachievetheGroupfinancial

underpin

0

1. SmithsNewsandDMDAdjustedoperatingprofitaftercontrollableoverheadallocation.


OV

ER

NA

NC

E66


Forthefinancialyearunderreviewtheexecutivedirectorswereeachgivenanumberofpersonalobjectivesagainstwhichtheindividualelementoftheannualbonuswasassessed.Thesearesetoutinthetablebelow.

AsthefinancialunderpinofrequiringGroupadjustedPBTof£22.5mwasnotachieved(aftertakingintoaccounttheaggregatecostofbonusesthatwouldhavebeenmade),theCommitteedeterminedthatnobonuswouldbepayableforthepersonalobjectivesnotwithstandingpartialachievementofperformanceagainstthepersonalobjectivesassetoutinfurtherdetailbelow:

Personal objectives Link to key strategic objectives

Jos Opdeweegh • MaximizecostsavingsatSmithsNews.

• LeadatransformationplantoreturnTuffnellstoprofitability.

• Developaplantoreduceheadofficesupportfunctioncost.

• Developadetailedstrategicplantoidentifyandexecute‘nearadjacent’revenuestreams.

• CostsavingsatSmithsNews.

• Tuffnellsprofitability.

• Efficientheadofficefunctions.

• LeveragingSmithsNews.

Performanceagainstobjectives

WithinSmithsNews,thereintroductionofafocusedmanagementteamimprovedoversightoncostcontrolandhelpedtoaddresstherootcausesofpreviousunder-performance.Tuffnells’returntoprofitabilitywasseverelyimpactedbyanumberofissuesincludingaflowthroughoflegacyweaknesses,uncertaintyinthewidereconomicenvironment,disruptivepricingfromcompetitorsinthesectorandinconsistentserviceperformanceleadingtofurthercustomerattritionand/ordowntrading.ThesetogetherledtoTuffnells’performancebeingmateriallyweaker,resultinginanincreasedlossintheyear.HeadofficecostreductionwasdelayedbytheshiftingfocustoaddresschallengesinTuffnellsbutsomeprogresswasneverthelessachievedthroughthedeploymentofasharedservicecentreinIndiafortheprovisionofselectedback-officesupportfunctionsandazerobasedbudgetingprocesswhichisexpectedtoconcludeinQ1ofFY2020.Near-adjacencystrategywaspurposefullydeprioritisedinordertofocusonotherstrategicobjectives.

Tony Grace • LeadprocessforsaleandleasebackofTuffnellsproperties.

• LeadprocesstobuyoutSNPensionScheme,soastobeontrackforwindupofschemein2020.

• Implementupgraded‘purchasetopay’systemandrevise‘OrdertoCash’and‘RecordtoReport’processes,eachinordertoenhancefinanceefficiency,effectivenessandcontrolenvironment.

• Tuffnellsprofitability.

• CostsavingsatSmithsNews.

• Efficientheadofficefunctions


AdversemarketconditionspreventedsuccessfulcompletionoftheproposedsaleandleasebackofTuffnellsproperties.Goodprogresswasmadeinsecuringthebuy-inoftheSmithsNewsPensionScheme.Implementationoftherevised‘purchasetopay’systemandtherevisionofthe‘OrdertoCash’and‘RecordtoReport’processeshavemadegoodprogressandwillbedeliveredinQ1ofFY2020.FurthergoodprogresswasmadeinstrengtheningtheFinancefunctionanditskeyoutputandcontrols.

Jonathan Bunting • Publishercontractrenegotiation.• Deliver£4.4mof‘inyear’savings.• Tobecompliantacrossallkey

publishercontractualKPIs.• SafetyFirst.

• SmithsNewscontracts.• CostsavingsatSmithsNews.• SmithsNewscontracts.• Culture.


7majorpublishercontractsweresuccessfullyrenegotiatedwhichrepresentover80%ofSmithsNews’currentrevenueshavingbeensecuredthroughtoatleast2024.Thiswasahighlysignificantachievement.£4.4mofinyearsavingsfromtheSmithsNewsbusinessunitweredelivered.AlllocationsachievedkeypublishercontractualKPIs.Losttimeincidentsper100,000hoursworkedweresubstantiallylessthantarget.

MoredetailonourkeystrategicobjectivesisprovidedintheStrategicReportsetoutonpages10and11.


Long-termincentiveplanLTIPawardsweregrantedinFebruary2017torelevantexecutivedirectorsatthetimesubjecttoperformanceoverathreeyearperformanceperiodFY2017-2019.TheawardsweresubjecttoequallyweightedperformanceconditionsbasedonadjustedbasicEPSachievedinFY2019and50%onaggregateoperatingcashflow.Astheperformancetargetswerenotachieved,theLTIPawardsdidnotvestandaccordinglylapsedinfullasdemonstratedinthetablebelow:

FY2017-2019AwardThreshold

(20%vesting)Maximum

(100%vesting)Actual

performance Vesting

FY2019AdjustedbasicEPS 19.5p 23.0p 7.9p 0%

AggregateOperatingcashflow £163.3m £204.7m £122.4m 0%

Total vesting (% of max) 0%

Performance graph and tableThegraphbelowshowstheCompany’sTotalShareholderReturn(TSR)performanceagainsttheTSRoftheFTSESmallCapIndex(excl.InvestmentTrusts)overthepasttenyears.TheFTSESmallCapIndexwaschosenbecauseitrepresentsabroadequitymarketindexofwhichtheCompanyisaconstituentandisthebenchmarkfortheTotalShareholderReturnperformanceconditionusedfortheFY2020-2022LTIPaward.ThetablebelowthegraphsetsoutthetotalremunerationfortheChiefExecutiveOfficerduringeachofthelasttenfinancialyears.

TotalShareholderReturn

0

50

100

150

200

250

300

August2009

Valu

e (£

)

August2010

August2011

August2012

August2013

August2014

August2015

August2016

August2017

August2018

August2019

Connect Group PLC FTSE All Share Support Services

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

ChiefExecutiveOfficertotalremuneration(£’000) 846 862 1,079 1,311 970 1,095 882 794 539 537

Annualbonuspayment(%maximum) 100.0% 59.9% 83.1% 67.1% 12.5% 71.3% 38.9% 15.0% 0.0% 0.0%

EPP1payout(%maximum) 84.1% 79.2% 89.4% 86.8% 55.1% 61.5% 72.0% 72.0% 0.0% N/A

LTIPvesting(%maximum) 0.0% 78.0% 100.0% 100.0% 100.0% 63.5% 0.0% 0.0% 0.0% 0.0%

1. Legacyincentiveplanbasedoneconomicprofit.InFY2018,theCommitteeexerciseditsdiscretionindecidingthatthefinaltranchepaymentwouldnotbeconsideredinFY2019orFY2020aspermittedbytheschemerules.


OV

ER

NA

NC

E68


Percentage change in directors’ remunerationThetablebelowshowsthepercentagechangeinthedirectors’salary,benefitsandannualbonusovertherelevantreportingperiodsnotedinthetablecomparedtotheaverageofallUK-basedemployees.ThisgrouphasbeenchosenasthemajorityofourworkforceisUK-based.

%changeFY2017–FY2018 % change FY2018 – FY2019

Basesalary BenefitsAnnualbonus Base salary Benefits

Annualbonus

Chairman 0.0 0.0 – 0.0 0.0 –

ChiefExecutiveOfficer 0.0 (22.8)1 (100.0) 0.0 0.0 0.0

ChiefFinancialOfficer2 – – – 0.0 0.0 0.0

ChiefExecutiveSmithsNews 0.0 6.0 (100.0) 0.0 (4.9) 0.0

Non-executivedirectors3 0.0 0.0 0.0 0.0 0.0 0.0

UKemployees 4.4 8.0 (29.0) 5.6 1.1 4.7

1. TheChiefExecutiveOfficeratthetimerevertedfromacompanycartoacashallowanceduringtheyear,atamuchlowerbeneficialvalue.2. NodataisavailablefortheChiefFinancialOfficerinFY2017-FY2018asthisrolewasfilledbyaninterimposition.3. Non-executivedirectorfeeshavenotincreased.However,forthenewnon-executivedirectorroleofChairoftheNationalColleagueEngagement

Forumasupplementalfeeof£5,000perannumwasintroducedwitheffectfromFY2019.

Chief Executive Officer pay ratio to the workforceThetablebelowshowstheratiooftheChiefExecutiveOfficer’ssinglefiguretotalremunerationtothemedian(50thpercentile),25thand75thpercentilepaidemployee,basedonthetotalremunerationoftheGroup’sfull-timeequivalentUKcolleagues.

Theemployeetotalremunerationincludeswagesandsalary,taxablebenefits,annualbonus,share-basedremunerationandotherincentiveplansandpensionbenefits.Inlinewiththepaygapregulations,wehaveshownthepayratioforFY2018alongsideFY2019.

Year Methodology Population 25thpercentile Median 75thpercentile

FY2019

OptionB

Employeetotalremuneration £16,818 £23,750 £28,448

CEOtoemployeepayratio 31.8:1 22.7:1 18.8:1

FY2018 Employeetotalremuneration £17,446 £19,884 £30,310

CEOtoemployeepayratio 32.4:1 26.3:1 17.8:1

TheCompanyhascalculatedtheratiosinaccordancewiththeOptionBmethodologylaidoutinthepaygapregulationswhichweredeemedthemostreasonableandpracticalapproachgiventhecollationofdataexerciserequiredforthegenderpaygapreporting.

ThecompositionofthetwomainemployingentitieswithintheGroup(SmithsNewsandTuffnells)includesover50%ofcolleaguesinfrontlineoperationalroles.Theseincludewarehouseoperatives(approximately1,900)anddrivers(approximately1,000).Paybetweenthe25thpercentileandthemedianisrepresentativeofwarehouseoperativeandsupervisorroles,whichtypicallyattractpaylevelsatorclosetotheNationalLivingWage.Drivers’salariestypicallysitbetweenthemedianand75thpercentiledependingonclassofvehicle,3.5tonnedriversreceivingaroundthemedian.Thelargeproportionofoperationalrolesthereforeexplainsboththesalariesthatsitatthe25thpercentileandmedianandalsotheproximityofsalariesbetweenthosetwopoints.

Insummary,theGroup’sorganisationalshapeandnatureofoperationexplainsthesalariesateachreportedpercentileandtheratiosbetweentotalemployeeremuneration(atmedian,upperquartileandlowerquartile)andChiefExecutiveOfficertotalremuneration.Duetothediverserangeofroleswithinthebusiness,paypracticedoesvarybutwebelievethatthedataandratiosareatruereflectionofpaywithintheGroup.

Inconsideringthedata,itshouldbenotedthattheChiefExecutiveOfficer’ssinglefiguretotalremunerationforFY2019andforFY2018doesnotincludeanyannualbonusorLTIPpaymentsandthereforerepresentsalowerlevelofremunerationcomparedtohistoricalnorms.Basedonthedirectors’payscenariochartonpage66,andwithbusinessperformancedeliveringattargetormaximumlevelofperformancethepayfortheChiefExecutiveOfficerwouldbelikelytoincreaseatasignificantlyhigherratethanthatofthegeneralemployeepopulationandsotheratioswouldbesignificantlyhigher.Asaconsequence,thisyear’spayratioreportingdoesnotconstituteanormalbaseline.

ThemedianofthedataforemployeetotalremunerationhasincreasedsignificantlyinFY2019comparedtoFY2018.Thisisprimarilyduetostructuralchangesinthepopulationreflectingsignificantinvestmentinincreasingdriver/warehouseoperativepayandbringingagreaternumberofagencydriversontocontractintheTuffnellsbusinesscombinedwiththeimpactofNationalMinimum/LivingWageincreases.


Relative importance of spend on payThetablebelowillustratestheCompany’sexpenditureonpayincomparisontoAdjustedprofitbeforetax,corporationtaxpaidanddistributionstoshareholdersbywayofdividendpayments.

FY2019 £m

FY2018£m %change

Totalemployeepay–ContinuingOperations 113.5 112.6 0.7%

AdjustedGroupprofitbeforetax–ContinuingOperations 23.2 28.4 (18.3)%

Corporationtaxpaid–ContinuingOperations 2.6 7.2 (63.9)%

Dividendspaid nil 24.1 (100)%

ThefiguresaboveareprincipallysetoutintheGroupincomestatementonpage86andonpages104,108and109intheNotestotheGroupFinancialStatements.TotalemployeepayisthetotalpayforallGroupemployees.AdjustedGroupprofitbeforetaxhasbeenusedasacomparisonasthisisthekeyfinancialmetricwhichtheBoardconsiderswhenassessingCompanyperformance.CorporationtaxpaidanddividendspaidhavealsobeenusedasacomparisonasthesetogetherindicatethesustainableaftertaxanddividendspaidpositionoftheCompanyforreinvestment.

Share plans – awards made during the yearLTIPawardsgrantedinFY2019(audited)On13December2018,thefollowingexecutivedirectorsweregrantedtheFY2019-2021LTIPawards.Assetoutinlastyear’sreport,theawardstotheChiefExecutiveOfficerandChiefFinancialOfficerwereworth100%ofsalaryatthedateofgrant,andtheawardtotheChiefExecutiveOfficerofSmithsNewswasworth50%ofsalaryatthedateofgrant,reflectingthescale-backof50%oftheusualawardof100%ofbasesalary:

ExecutiveSharepriceatdateofgrant1

Numberofnil-costoptions

subjecttoaward

Facevalueofaward

Percentageofawardsreleasedforachieving

thresholdtargets2Performance

period

JosOpdeweegh

36.025p

1,249,132 £450,000

20% FY2019-2021TonyGrace 818,875 £295,000

JonathanBunting 404,319 £145,656

Notes1. Basedontheaverageclosingpriceforthethreedealingdayspriortothedateofgrant,usedtocalculatethenumbersofsharesunderaward.2. 100%forachievingmaximumtargets.

Awardsaresubjecttoequallyweightedperformanceconditionsbasedon(i)adjustedbasicEPSachievedinFY2021(asdefinedbyIAS33,beforeAdjustedItems(previously,exceptionalornon-recurringitems)andtheirassociatedtaximpact,adjustedbytheCommitteeasconsideredappropriatetoensureconsistency)and(ii)aggregatecashflowfromoperationsachievedoverthethreeyearstoFY2021.

Theperformanceconditionsappliedtotheawardswereasfollows:

PerformanceperiodAdjustedEPSinfinalyearof

performanceperiod(FY21)Aggregatecashflowfrom

operationsoverthreeyearsProportion

exercisable

Threeyearsending31August2021

Below9.8p £125m Zero

9.8p £125m 20%

Between9.8pand12.3p Between£125mand£150m 20%-100%

12.3pormore £150mormore 100%

DeferredBonusPlanawardsgrantedinFY2019(audited)AstherewasnobonuspaymentforFY2018,nodeferredBonusPlanawardsweregrantedduringtheyear.

SharesaveSchemeawardsgrantedinFY2016(audited)On26June2019,TonyGracewasgranted59,210sharesatanoptionpriceof30.4ppershare(thefacevalueoftheawardwas£18,000).

ThemaximumamountwhichcanbesavedpursuanttotheSharesaveSchemeis£500permonth,thetotalsavingsattheendofthetermbeingusedtopurchasesharesat80%oftheirmarketvalueatthestartofthesavingscontract.Incommonwithmostschemesofthistype,therearenoperformanceconditionsapplicabletooptionsgrantedundertheSharesaveScheme.


OV

ER

NA

NC

E70

Payments to former DirectorsAsannouncedon6November2019,JosOpdeweeghsteppeddownfromtheBoardwithimmediateeffect.

InaccordancewithJosOpdeweegh’sservicecontractandtheCompany’sdirectors’remunerationpolicy,thefollowinghasbeenagreed:

• giventhatJos’scontractualnoticeperiodfromtheCompanyis12months,theCompanyhaselectedtoterminateJos’semploymentwithimmediateeffectbygivinghimwrittennoticethatitwillmakeapaymentinlieuofnotice(PILON),representinghisgrossannualbasicsalaryof£450,000butexcluding(i)anybonus,(ii)anypaymentinlieuofpensioncontributionsorotherbenefitsand(iii)anypaymentinrespectofanyholidayentitlementthat,ineachcase,wouldotherwisehaveaccruedduringthenoticeperiod.ThepaymentstoJoswillbephasedinmonthlyinstalmentsover12monthsandanypaymentshallbereducedbytheamountinrespectofincomereceivablefromalternativeemploymentinaccordancewiththedutyonhisparttomitigateloss.

• Joswillnotbeeligibleforanannualbonusforthefinancialyearending29August2020.• JoswillnotreceiveanyfutureawardundertheCompany’slong-termincentiveplan.Anyoutstandingawards

undertheCompany’slong-termincentiveplan(includingthegrantmadeon13December2018inrespectofanawardofupto1,249,132shares)willlapse.

• InrecognitionofthelowervalueofthepaymentsunderthePILONcomparedtoserving12months’noticetoterminatehisemployment,togetherwiththeforfeitureoftheFY2020bonusopportunityandtheFY2020-2022LTIPaward,theCommitteeintendstoapplyitsdiscretionnottorequestJostorepaythevalueofthemodestrelocationallowanceof£19,174whichhereceivedonappointment.Thiscoveredaone-waybusinessclassairfareforJosandhisfamily,oneweeks’accommodationinaservicedapartmentandassistancewithvisarequirements,allrelatedtoamovefromtheUSA.

Inaccordancewiththeschemerules,JoswillbeeligibletothereturnofanysavingshehasmadeforthepurposeoftheCompany’sSaveAsYouEarnScheme.

Asdisclosedinlastyear’sAnnualReport,MarkCashmoresteppeddownfromtheBoardattheendofFY2018,butremainedwiththebusinessuntil28September2018toensureasmoothtransitiontothenewleadership.Markcontinuedtoreceivehisbasicsalary,benefitsandpension,subjecttooffsetagainstearningsreceivedelsewherefromanyotherexecutiveroleuntil30June2019.

Therehavebeennopaymentstoanyotherformerexecutivedirectors.

Employee Benefit TrustTheCompany’sEmployeeBenefitTrustisusedtofacilitatetheacquisitionofordinarysharesintheCompanytosatisfyawardsgrantedundertheCompany’sexecutiveshareschemesandSharesaveScheme.TheTrustisadiscretionarytrust,thesolebeneficiariesbeingemployees(includingexecutivedirectors)andformeremployeesoftheCompany.TheTrustwaivesitsrighttovoteandtodividendsonthesharesthatitholds.

TheTrusteeisComputershareTrustees(Jersey)Limited,anindependentprofessionaltrusteecompanybasedinJersey.

ThenumberofsharesheldintheEmployeeBenefitTrustat31August2019was1,188,537ordinaryshares.TheaccountingtreatmentisshownintheGroupstatementofchangesinequityonpage185.Duringtheyear,theBoardresolved(untilotherwiseagreed)tosatisfyallfutureemployeeshareschemeexercisesthroughtheEmployeeBenefitTrustusingmarketpurchasedsharesandintendstoinstigateaplanforsharepurchasestocoverlikelyfuturecommitments.

Dilution of share capital by employee share plansAwardsgrantedundertheCompany’sSharesaveSchemehave,inthepast,beensatisfiedbytheissueofnewshareswhentheoptionsareexercised.TheCompanymonitorsthenumberofsharesissuedundertheSharesaveSchemeandasat31August2019hadissued3,513,505newshareswithinthepastten-yearperiod,representing1.42%oftheissuedsharecapital.Thisiswellwithinourdilutionlimitof10%inanyrollingten-yearperiodintheSharesaveSchemerulesandinlinewiththeguidelinessetbytheInvestmentAssociation.



Executive directors’ share interests (audited)Thetablebelowsetsoutdetailsofoutstandingshareawardsheldbyexecutivedirectorsasat31August2019undertheLTIPandDBP(coveringdeferredannualbonusandlegacyEPPawards).Awardsundertheseschemesarestructuredasnilcostoptions.Inaddition,thetablesetsoutawardsheldbyexecutivedirectorsasat31August2019pursuanttotheSharesaveschemewhereparticipantsmaybuyshareswithsavingsmadeoverathreeyearperiod(uptoHMRClimitsof£500permonth)forafixedpricedeterminedatgrant.

Shareawards

Withperformance

measures

Withoutperformance

measures

Vestedbut

unexercised

Exercised/Vestingduring

theyear

JosOpdeweegh 1,249,132 0 0 0

TonyGrace 818,875 59,210 0 0

JonathanBunting 883,288 88,995 0 146,7261

1. InFebruary2019,JonathanBuntingexercisedhisFY2016DBPawardinrespectof97,649sharesandadividendequivalentpaymentof£18,943whichwaspaidbywayofanadditional49,077shares.Followingthedeductionoftax,aresidualallocationof77,623shareswasawardedtoJonathanBuntingandhasbeenretainedpursuanttotheshareholdingguidelines(seebelow).

Executive directors’ shareholdings and shareholding guidelinesTheshareholdingguidelineforexecutivedirectorsis200%ofsalary.Untilthislevelisreached,exceptforpaymentoftaxarisingontheexercise/vestingofawardsandotherexceptionalcircumstances,executiveswillberequiredtoretain75%ofthesharesvestingundershareincentivearrangements(excludingtheapplicationoftheSharesavescheme).ThetablebelowsetsoutthebeneficialinterestsoftheexecutivedirectorswhoservedduringthereportingperiodintheordinarysharesoftheCompany,togetherwiththelevelheldagainsttheshareholdingguidelines.

Name Salary

Holdingat31August

2018

Holding at 31 August

2019

Valuationofcurrent

holding1

%ofsalaryheldcompared

to200%ofsalarytargetshareholding

JosOpdeweegh £450,000 0 535,935 £194,544 43.2%

TonyGrace £295,000 0 100,727 £36,563 12.4%

JonathanBunting £291,312 370,876 448,499 £162,805 55.9%

1.Usingsharepriceof36.3pasat31August2019.

Between1September2019and5November2019(thepublicationdateofthisreport),therehasbeennootherchangeintheexecutivedirectors’shareholdingsshownabove.

Contracts of employmentDetailsofthecontractsofemploymentfortheexecutivedirectorswhoservedduringtheyearareasfollows:

Executive DateofcontractNoticeperiodbyCompany

Noticeperiodbydirector

JonathanBunting1 1April2010 12months 9months

JosOpdeweegh 29July2018 12months 12months

TonyGrace 5November2018 12months 9months

1.JonathanBunting’sservicecontracthasnotbeenchangedforhisnewroleofInterimChiefExecutiveOfficer.

Non-executive directorsLettersofappointmentAllnon-executivedirectors,includingtheChairman,havealetterofappointmentforaninitialthree-yearterm,whichcanbeterminatedbyeitherpartygivingthreemonths’notice,assetoutinthetablebelow.

Non-executive Dateofappointment Noticeperiod

GaryKennedy 2March2015 3months

DeniseCollis 1December2015 3months

MichaelHolt 1October2018 3months

MarkWhiteling 1September2017 3months


OV

ER

NA

NC

E72


Non-executivedirectors’feesThefeespaidtonon-executivedirectors(excludingtheChairman)compriseabasefeeof£40,000,withanadditionalfeeof£10,000forchairingtheAuditorRemunerationCommittee,anadditionalfeeof£5,000forchairingtheNationalColleagueEngagementForumandanadditionalfeeof£5,000fortheroleofSeniorIndependentDirector.BasefeesandCommitteeChairFeeshaveremainedunchangedsince2015.

Asnotedelsewhereinthisreport,theannualfeeforMichaelHolthasincreasedtemporarilyby£205,000fortheintendedshort-termdurationofhistenureasExecutiveChairmanofTuffnells.

Thefollowingfeeswerepaidtonon-executivedirectorsforFY2019andFY2018(audited):

YearBasefee

£000

Additionalfees

£000Benefits1

£000Totalfees

£000

GaryKennedy2FY2019 140 12 152

FY2018 140 – 11 151

DeniseCollisFY2019 40 10 2 52

FY2018 40 10 2 52

MarkWhiteling4FY2019 40 15 2 60

FY2018 40 13 4 57

MichaelHolt3FY2019 40 1 3 44

FY2018 – – – –

1. ThebenefitsdisclosedrelatetothereimbursementoftravelandaccommodationexpensesincurredinattendingBoardmeetingsattheCompany’spremisesaroundtheUK.Thegrossed-upvaluehasbeendisclosedandthetaxarisingissettledbytheCompany.

2. GaryKennedyispaidasinglefeewhichincludeschairmanshipoftheNominationsCommittee.3. MichaelHoltjoinedtheBoardon1October2018andisChairoftheNationalColleagueEngagementForum.4. MarkWhitelingsucceededAndrewBrentasSeniorIndependentDirectoron23January2018andreceivedanadditional£5,000peryearpro-rated

forFY2018forthisadditionalrole.

Non-executive directors’ shareholdings (audited)Thebeneficialinterestsofthenon-executivedirectorswhoservedduringthereportingperiodaresetoutbelow:

31 August 2019

31August2018

GaryKennedy 60,000 60,000

DeniseCollis 48,846 48,846

MarkWhiteling 80,000 80,000

MichaelHolt 0 N/A

Therehasbeennochangeinthenon-executivedirectors’shareholdingsshownabovebetween1September2019and5November2019.


Implementation of the Remuneration Policy in FY2020 Executive directorsSalariesForthedurationofhisappointment,theInterimChiefExecutiveOfficerwillreceiveanannualisedsalarysupplementof£158,688inadditiontohisbasesalaryof£291,312,resultinginatotalannualisedsalaryof£450,000,thesameashispredecessor.TheChiefFinancialOfficer’ssalaryisunchangedat£295,000.

Thenextsalaryreviewwillbeon1September2020asnotedinthedirectors’remunerationpolicy,inordertoalignwiththeCompany’sfinancialyearend.

PensionThepensionforJonathanBuntinginhisroleasChiefExecutiveofSmithsNewswas20%ofsalary.Thishasbeenreducedto15%oftotalsalaryfrom5November2019forthedurationofhisappointmentasInterimChiefExecutiveOfficer,beingthesamepercentagepensioncontributionashispredecessorandtheChiefFinancialOfficer.Asnotedearlierinthisreport,themonetaryvalueofpensioncontributionswillbefrozenatFY2019contributionlevels.IntheeventthattheInterimChiefExecutiveOfficerisappointedpermanentlyintotheroleofChiefExecutiveOfficeroftheGroup,hispensioncontributionwouldreducetotherateappliedtothemajorityoftheworkforce,currently4%ofbasesalary.

BonusBonusopportunitywillremainat100%ofbasesalary.FortheInterimChiefExecutiveOfficerthiswillbebasedontheactualbasesalaryplussalarysupplementreceivedoverthecourseoftheyear.70%ofthebonuswillbebasedonarangeofGroupAdjustedPBTtargetsand30%ofthebonuswillbebasedonindividualobjectiveslinkedtostrategyandleadership.

50%ofthemaximumbonuswillbepaidoutforboththefinancialandpersonalobjectivesforon-targetperformance.TheCommitteewillapplydiscretionastowhetheranypaymentshouldbemadeontheindividualelementofthebonusintheeventthattheGroupfinancialtargetsarenotmet.Indoingso,theCommitteewillensurethattheoverallprofitabilityoftheGroupremainsakeyfactorinitsdecisionmaking.Consistentwithlastyear,therewillbearequirementforaminimumindividualperformanceratingtobeachievedbeforetheGroupfinancialperformanceelementmaybepaid.

Theperformancetargetsareconsideredcommerciallysensitivesowillnotbedisclosedinadvance.However,therewillbefulldisclosureofthetargetsthatwereset,theperformanceagainstthemandthebonuspayable,innextyear’sAnnualReport.

LTIPLTIPawardsareexpectedtobegrantedwithin42daysfollowingpublicationoftheCompany’spreliminaryfinancialresultsforFY2019coveringtheperformanceperiodFY2020-2022.

TheLTIPgrantlevelsfortheFY2020-2022awardfortheInterimChiefExecutiveOfficerwillbe100%ofbasesalary.Thiswillbecalculatedbasedontwomonthsbasesalaryplustenmonthsofcombinedbasesalaryandsalarysupplement.IntheabsenceofknowinganexactenddatefortheInterimChiefExecutiveOfficer’srole(althoughitisreasonablyprudenttoassumethatitwillcontinueforthemajorityofFY2020),andgiventhattheawardwillbemadeshortly(unlikethebonusawardwhichwillbeconsideredaftertheendofthefinancialyear),theRemunerationCommitteehasdeterminedthatthiswasthemoststraightforwardapproachtotake.Inaddition,theLTIPgrantfortheChiefFinancialOfficerwillbe100%ofbasesalary.However,forboththeInterimChiefExecutiveOfficerandtheChiefFinancialOfficer,theCommitteehasdeterminedthattheLTIPawardwillbebasedoneither30pashareortheactualsharepriceatthedateofgrant,whicheveristhehigher.

TheLTIPawardwillbesubjecttostretchingEPSandTSRperformanceconditions.Theperformanceconditionsaresetoutbelow:

Measure WeightingThreshold

(20%vests)Maximum

(100%vests)

AdjustedbasicEPSinfinalyearofperformanceperiod 50% 10.0p 13.0p

RelativeTSRversusthecompaniescomprisingtheFTSESmallCapindexasatthedateofgrant 50% Median Upperquartile

TheCommitteehasreviewedtheLTIPperformancemeasuresanditsalignmenttothebusinessstrategyandshareholders’interests.Aftercarefulconsideration,theCommitteehasreplacedthecumulativecashflowmeasurewitharelativetotalshareholderreturnperformancemetric,comparingtheCompany’sstockmarketperformance(sharepriceplusdividends)againstthecompaniescomprisingtheFTSESmallCapIndex.TheCommitteewishestoaddanelementofTSRtoprovideamoredirectincentivetomanagementtoimprovetheCompany’ssharepriceanddividendperformancevspeersinasustainableandlong-termmannerandensurecommonalignmentwiththelong-terminterestsofourshareholders.TheTSRelementwillaccountfor50%ofanaward,withtheremaining50%beingbasedonAdjustedbasicEPSperformancemeasuredoverthreeyearstoFY2022.EPSwillstillprovideastrongfocusonourlong-termfinancialperformance.AlthoughcashflowhasbeenremovedasaperformancemeasurefortheLTIP,thereisastrongcashflowdisciplinethroughoutthemanagementteamandtheBoardremainsparticularlymindfuloftheviewsofsomeofourshareholdersandintendstothereforemaintainadeeplevelofoversightofongoingcashflow.

TheEPSrangerepresentssignificantgrowth(c.32%-71%abovetheFY2019outturn),isaheadofanalystconsensusEPSatthetimeofwritingandaheadoftherangesetforlastyear’sLTIPawards.


OV

ER

NA

NC

E74


Non-executive directorsNon-executivedirectors’feesinFY2020Therewillbenochangetothestandardnon-executivedirectorbasefeeandCommitteeChairfeesinFY2020.Forthedurationofhistimeinrole(whichisexpectedtobeonlyofashort-termnature),MichaelHoltwillreceiveanadditionalfeeontopofhiscurrentnon-executivedirectors’fees,of£205,000perannum.Hewillnotreceiveanybenefitsorperformancerelatedpay.

Consideration by the directors of matters relating to Directors’ RemunerationRemunerationCommitteeGaryKennedyisnon-executivechairmanoftheBoardandwasdeemedindependentonappointment.AllothermembersoftheCommitteeareindependentnon-executivedirectors.MichaelHoltjoinedtheBoardandbecameamemberoftheCommitteeon1October2018.AsreferredtointheCorporateGovernancereport,inlightofMichaelHolttakingonthetemporaryroleofExecutiveChairmanofTuffnells,MichaelHoltwillstepdownfromtheCommitteeforthedurationofthistemporaryrole.

InadditiontotheformalnumberofCommitteemeetingssetoutbelow,membersregularlyengagedthroughouttheyearinconsideringvariousothermattersthataroseundertheremitoftheCommittee.

Meetingsattended

Possiblemeetings

DeniseCollis 6 6

GaryKennedy 6 6

MarkWhiteling 6 6

MichaelHolt1 5 5

1. MichaelHoltjoinedtheBoardon1October2018andattendedallCommitteemeetingsoccurringafterthatdate.

TheCommittee’stermsofreference,whichareavailableontheCompany’swebsitewww.connectgroupplc.comandfromtheCompanySecretaryonrequest,setouttheresponsibilitiesoftheCommittee.

Duringtheyear,theCommitteewassupportedinitsworkbyitsappointedexternaladvisers,KornFerry,whowerepaidfeesof£77,860(plusVAT).KornFerryhasnoconnectionwiththeCompanyorthedirectors.BasedonitsexperienceofworkingwiththeadviserstheCommitteeissatisfiedthattheadvicereceivedfromKornFerryhasbeen,andcontinuestobe,objectiveandindependent.KornFerryprovidesnootherservicestotheCompanythatcouldpotentiallyleadtoaconflictofinterestwiththeindependentadvicetotheCommittee.

KornFerryisafoundermemberoftheRemunerationConsultants’Groupand,assuch,voluntarilyoperatesunderthecodeofconductinrelationtoexecutiveremunerationconsultingintheUK.Thecodeofconductcanbefoundatwww.remunerationconsultantsgroup.com.

JosOpdeweegh(formerChiefExecutiveOfficer),StuartMarriner(CompanySecretary&GeneralCounsel)andtheHeadofRewardalsoattendedCommitteemeetingsintheyearbutwerenotpresentwhentheirownperformanceorremunerationwasdiscussed.

ShareholdervoteAtthe2017andthe2019AnnualGeneralMeetings,shareholderswereaskedtoapprovetheremunerationpolicyandFY2018Directors’Remunerationreportrespectively.Thevotesreceivedwere:

Resolution Votesfor

Percentageofvotescast

infavourVotes

against

Percentageofvotescast

againstTotal

votescastVotes

withheld

ToapprovetheRemunerationPolicy–the2017AGM 165,987,901 94.21% 10,203,503 5.79% 176,191,404 1,832,869

ToapprovetheDirectors’Remunerationreportfortheyearended31August2018–the2019AGM

144,131,838 99.71% 424,137 0.29% 144,555,975 2,029,008

ApprovalThisreportwasapprovedbytheBoardandsignedonitsbehalfby:

Denise CollisRemunerationCommitteeChair5November2019


http://www.remunerationconsultantsgroup.com


Directors’ reportThisAnnualReportandtheGroupFinancialStatementsincludetheDirectors’ReportandtheauditedfinancialstatementsofConnectGroupPLC(the‘Company’)anditssubsidiaries(the‘Group’)fortheyearended31August2019.TheinformationrequiredtobedisclosedintheDirectors’ReportisprovidedinthefollowingsectionsoftheAnnualReport,whichareincorporatedintothisDirectors’Reportbyreference:

• StrategicReportonpages2to31;• CorporateGovernancereportonpages36to43;• AuditCommitteereportonpages44to50;• NominationsCommitteereportonpages51to53;• Directors’Remunerationreportonpages54to74;• thissection,Otherstatutorydisclosures;• Directors’Responsibilitiesstatementonpage79;and• NotestotheGroupFinancialStatementsasdetailedinthissection.

ThisDirectors’Reporthasbeendrawnupandpresentedinaccordancewith,andinrelianceuponapplicableEnglishcompanylaw,andtheliabilitiesofthedirectorsinconnectionwiththosereportsshallbesubjecttothelimitationsandrestrictionsprovidedbysuchlaw.

Non-financial information statementTheCompanyhascompliedwiththerequirementsofs414CBoftheCompaniesAct2006byincludingcertainnon-financialinformationwithintheStrategicReportasfollows:

• Thebusinessmodelonpage6;• Informationonenvironmental,employee,social,humanrights,anti-corruptionandanti-briberymatters

(non-financialmatters),includingtherelevantpolicies,duediligenceprocessimplementedinpursuanceofthepoliciesandoutcomesofthosepolicies,onpages28to31;

• Principalandemergingrisksidentifiedinrelationtonon-financialmatters,includingadescriptionofthebusinessrelationships,productsandserviceswhicharelikelytocauseadverseimpactsinthoseareasofrisk,andadescriptionofhowtheprincipalrisksaremanaged,onpages22to25;

• AllKeyPerformanceIndicators(KPIs),includingthoseinrelationtonon-financialmatters,areonpage11;and• TheFinancialReview,whichincludeswhereappropriate,referencesto,andadditionalexplanationsof,

amountsincludedintheGroupFinancialStatementsonpages16to21.

Subsidiaries and branchesTheCompany’soperatingsubsidiaries,branchesandassociatedundertakingsarelistedinNote34totheGroupFinancialStatements.

Post balance sheet eventsOn23September2019,theGroup’ssubsidiary,TuffnellsParcelsExpressLimited(Tuffnells),exchangedcontractsinrespectoftheproposedsaleandleasebackofsixdistributiondepots,ofwhichthreewerefreeholdandthreewerelongleaseholdproperties,toUrbanLogisticsPropCo1(AC)Limited(UrbanLogistics),asubsidiaryofUrbanLogisticsREITplc.Completionsubsequentlytookplaceon27September2019.

ThesalepricereceivedfromUrbanLogisticswas£9.9m.Atcompletion,thisfirsttrancheofpropertieswassubsequentlyleasedbackfromUrbanLogisticson20yearleaseterms,withmarketrentspayableat£0.7mperannum,subjecttomarketinflation.Ineachcase,theleasesareguaranteedbytheCompany.TheexpectedimpactunderIFRS16willbetorecogniseagainondisposalof£0.7m,aleasecreditorof£8.0m,arightofuseassetof£3.2m,annualdepreciationof£0.2mandyear1interestof£0.4m.

Profit attributable to shareholders and dividendsThestatutorylossforthefinancialyear,aftertaxation,fromtheContinuingOperationswas£31.5m(FY2018:£38.1m).Therewerenodiscontinuedoperationsintheyear(FY2018:lossof£8.9m).Inaggregate,thestatutorylossforthefinancialyear,aftertaxation,fromboththeContinuingOperationsandDiscontinuedOperationswas£31.5m(FY2018:£47.0m).

InlightoftheGroup’sperformance,theBoardhasdecidedtorecommendafinaldividendof1.0p.Accordingly,thetotaldividendfortheyearended31August2019was1.0pperordinaryshare(FY2018:3.1p).

UK referendum (Brexit)FollowingtheoutcomeoftheUKreferendumon23June2016toleavetheEU,thereremainanumberofuncertaintiesregardinghowtheexitwillbeachievedandwhatarrangementsmaybeputinplaceasaresult.TheGrouphasestablishedaBrexitsteeringcommitteewhichmeetsonaregularbasistodiscussthekeyimpactsoftheBrexitdecisionandreportstotheExecutiveTeam.Wecontinuetoseekwaystomitigatepotentialrisksand,inthemeantime,webelievethatthedirectimpactofBrexittotheGroupwillbemutedbuttheindirectimpactongeneralconsumerconfidenceandmarketuncertaintytohavegreatersignificanceacrosseachofourbusinesses.WewillcontinuetomonitortherisksanduncertaintiesarisingfromBrexitwithintheGroup’sexistingriskmanagementandcontrolprocessasoutlinedonpage22.

Directors’ Report – Other Statutory

Disclosures


OV

ER

NA

NC

E76

Directors’ Report – Other Statutory Disclosures cont.

Share capitalTheCompany’sissuedsharecapitalcomprisesasingleclassofordinarysharesof5peach.Allissuedsharesarefullypaid,canbeheldincertificatedoruncertificatedformandarelistedontheLondonStockExchange.DetailsofmovementsintheissuedsharecapitalduringtheyearcanbefoundinNote28totheGroupFinancialStatements.

TherightsandobligationsattachingtotheCompany’sordinaryshares,inadditiontothoseconferredontheirholdersbylaw,aresetoutintheCompany’sArticlesofAssociation(Articles),acopyofwhichcanbeobtainedfromCompaniesHouseorfromtheCompany’swebsitewww.connectgroupplc.com.TheCompany’sArticlesmayonlybeamendedbyaspecialresolutionoftheCompany.Subjecttoapplicablestatutes,sharesmaybeissuedwithsuchrightsandrestrictionsastheCompanymaybyordinaryresolutiondecide,or(ifthereisnosuchresolutionorsofarasitdoesnotmakespecificprovision)astheBoardmaydecide.

HoldersofordinarysharesareentitledtoattendandspeakatgeneralmeetingsoftheCompany;toappointoneormoreproxiesand,iftheyarecorporations,toappointcorporaterepresentatives;andtoexercisevotingrights.HoldersofordinarysharesmayalsoreceiveadividendandonaliquidationmayshareintheassetsoftheCompany.Inaddition,holdersofordinarysharesareentitledtoreceivetheCompany’sAnnualReportandAccounts.Subjecttomeetingcertainthresholds,holdersofordinarysharesmayrequireageneralmeetingoftheCompanytobeheldorproposeresolutionstobeconsideredatAnnualGeneralMeetings.

Voting rights and restrictions on transfer of sharesOnashowofhandsatageneralmeetingoftheCompany,everyholderofordinarysharespresentinpersonorbyproxyandentitledtovotehasonevoteandonapolleverymemberpresentinpersonorbyproxyandentitledtovotehasonevoteforeveryordinaryshareheld.NoneoftheordinarysharescarryanyspecialrightswithregardtocontroloftheCompany.ElectronicandpaperproxyappointmentsandvotinginstructionsmustbereceivedbytheCompany’sRegistrarsnotlaterthan48hoursbeforeageneralmeeting.However,whencalculatingthe48-hourperiod,noaccountistakenofanypartofadaythatisnotaworkingday.

Thedirectorsmayrefusetoregisteratransferofacertificatedshare:whichisnotfullypaid,providedthattherefusaldoesnotpreventdealingsinthesharesintheCompanyfromtakingplaceonanopenandproperbasis;oronwhichtheCompanyhasalien.Thedirectorsmayalsorefusetoregisteratransferofacertificatedshareunlesstheinstrumentoftransfer:(i)islodgedattheoffice,orsuchotherplaceasthedirectorsmaydecideaccompaniedbythecertificateforthesharetowhichitrelatesandsuchotherevidence(ifany)asthedirectorsmayreasonablyrequiretoshowtherightofthetransferortomakethetransfer;(ii)isinrespectofonlyoneclassofshares;and(iii)isinfavourofnotmorethanfourtransferees.

TransfersofuncertificatedsharesmustbecarriedoutusingCRESTandthedirectorscanrefusetoregisteratransferofanuncertificatedshareinaccordancewiththeregulationsgoverningtheoperationofCREST.

TherearenootherrestrictionsonthetransferofordinarysharesintheCompanyotherthanthoseimposedbyprevailinglawsandregulations(suchasinsidertradinglawsandmarketrequirementsinrespectofcloseperiods).

TheCompanyisnotawareofanyagreementsbetweenshareholdersthatmayresultinrestrictionsonthetransferofordinarysharesoronvotingrights.

Shares held by the Employee Benefit TrustTheTrusteeoftheSmithsNewsEmployeeBenefitTrustholdsordinarysharesoftheCompanyonbehalfofthebeneficiariesoftheTrust,whoaretheemployeesandformeremployeesoftheGroup.Ifanyofferismadetotheholdersofordinarysharestoacquiretheirshares,theTrusteewillnotbeobligedtoacceptorrejecttheofferinrespectofanyshareswhichareatthattimesubjecttosubsistingoptions,butwillhaveregardtotheinterestsoftheoptionholdersandcanconsultthemtoobtaintheirviewsontheoffer,andsubjecttotheforegoing,theTrusteewilltaketheactionwithrespecttotheofferitthinksfair.TheTrusteewaivesitsrighttovoteandtodividendsonthesharesthatitholds.FurtherdetailsontheTrustcanbefoundintheDirectors’Remunerationreportonpage54.

Purchase of own sharesAttheAnnualGeneralMeetingheldon31January2019,authoritywasgivenfortheCompanytopurchase,inthemarket,upto24,765,920ordinarysharesof5peach.TheCompanydidnotusethisauthoritytomakeanypurchasesofitsownsharesduringFY2019.ThisauthorityisrenewableannuallyandapprovalwillbesoughtfromshareholdersattheAnnualGeneralMeetingin2020torenewtheauthorityforafurtheryear.



Issue of new ordinary sharesTheBoardhasresolved,untilotherwiseagreed,tosatisfyallfutureemployeeshareschemeexercisesthroughtheEmployeeBenefitTrust(furtherdetailsontheEmployeeBenefitTrustandmarketpurchasesaresetoutinDirectors’Remunerationreportonpage70).Accordingly,duringtheyearended31August2019,noordinarysharesintheCompanywereissued.

Anynewlyissuedordinarysharesrankparipassuwiththosepreviouslyinissue.TheArticlesprovidethattheBoardmay,subjecttothepriorapprovaloftheCompany’sshareholders,exerciseallthepowersoftheCompanytoallotrelevantsecuritiesincludingnewordinaryshares.

Interests in voting rightsAsat31August2019,theCompanyhadbeennotified,pursuanttotheFinancialConductAuthority’sDisclosureandTransparencyRule5,ofthefollowingnotifiableinterestsinitsissuedsharecapital:

Holder%ofvoting

rights

AberforthPartnersLLP 13.1

FidelityInternationalLimited 10.0

SilchesterInternationalInvestorsLLP 9.9

FORUMFamilyOfficeValueFund 8.0

AmeripriseFinancial,Inc. 4.8

HargreaveHaleLimited 3.8

FORUMSmallcapFund 3.0

Intheperiod1September2019to5November2019theCompanywasnotified(on11September2019)thatFidelityInternationalLimitedhadreduceditsrelevantshareholdinginterestto9.9%.On16October2019,theCompanywasinformedthatFORUMSmallcapFundhadincreaseditsrelevantshareholdingto4.09%.

Exceptfortheabove,theCompanyisnotawareofanyordinaryshareholderswithinterestsin3%ormoreofthevotingrightsattachedtotheissuedsharecapitaloftheCompany.

Change of control EachoftheCompany’stradingsubsidiarieshasagreementswithcustomersandsuppliersthatmaycontainchangeofcontrolclausesgivingrightstothosecustomersandsuppliersonatakeoveroftheCompany.

AchangeofcontroloftheCompanyfollowingatakeoverbidmaycauseanumberofotheragreementstowhichtheCompanyand/oroneormoreofitssubsidiariesisparty,suchasbankingarrangements,propertyleasesandlicenceagreementstoalterorbecapableofterminationattheelectionofthecounterparty.

TheCompanydoesnothaveagreementswithanydirectororemployeethatwouldprovidecompensationforlossofofficeoremploymentresultingfromatakeoverexceptthatprovisionsoftheCompany’sshareschemesmaycauseoptionsandawardsgrantedtoemployeesundersuchschemestovestonatakeover–therelevantschemerulesstatingthatasaresultofachangeofcontrolevent(orothercorporateaction)theproportionoftheawardwhichmayvestshallbelimited(unlesstheBoarddeterminesotherwise)toaprorataproportiononthebasisofthenumberofwholemonthswhichhaveelapsedfromthefirstdayoftheperformanceperiodtothedateofthecorporateaction,ascomparedtothenumberofwholemonthswithintheperformanceperiod;anyremainderoftheawardtherebylapsing.

DirectorsThedirectorswhoservedduringtheyeararesetoutonpage36withtheexceptionof(i)MichaelHoltwhojoinedtheBoardon1October2018,(ii)TonyGracewho,havingjoinedtheGrouponaninterimbasisinJune2018,wasappointedtotheBoardfollowingasuccessfulinductionon5November2018,and(iii)JosOpdeweegh,whoservedthroughouttheyearasChiefExecutiveOfficerbutwho,on5November2019,steppeddownasadirectorandChiefExecutiveOfficerandwasreplacedbyJonathanBuntingasInterimChiefExecutiveOfficer.

ThedirectorsareresponsibleforthemanagementofthebusinessoftheCompanyandmayexerciseallthepowersoftheCompanysubjecttoapplicablelegislationandregulationandtheCompany’sArticles.

TheCompany’sArticlesgivepowertotheBoardtoappointdirectorsand(wherenoticeisgivensignedbyalltheotherdirectors)removeadirectorfromoffice.TheyalsogiveapowertotheCompanytoappointdirectors(byordinaryresolution)andremoveadirectorfromoffice(byspecialresolutionorbyordinaryresolutionofwhichspecialnoticehasbeengiven).

TheinterestsofthedirectorsandtheirimmediatefamiliesinthesharecapitaloftheCompany,alongwithdetailsofdirectors’shareoptionsandawards,aresetoutintheDirectors’Remunerationreportonpages69,71and72.

AtnotimeduringtheyeardidanyofthedirectorshaveamaterialinterestinanysignificantcontractwiththeCompanyoranyofitssubsidiaries.

TheCompanymaintainsdirectors’andofficers’liabilityinsurancewhichgivesappropriatecoverforanylegalactionbroughtagainstitsdirectors.TheCompanyhasalsoprovidedanindemnityforitsdirectorsandsecretaryandforthedirectorsofitsassociatedcompanies,totheextentpermittedbylaw,whichisaqualifyingthirdpartyindemnityprovisionforthepurposesofsection234oftheCompaniesAct2006.


OV

ER

NA

NC

E78

Directors’ conflicts of interestTheBoardconfirmsthataformalsystemfordirectorstodeclaretheirinterestsandfortheindependentdirectorstoauthorisesituationalconflictscontinuestobeinplace.AnyauthorisationsgivenbytheBoardarerecordedintheBoardminutesandinaregisterofdirectors’conflictswhichisreviewedannuallybytheBoard.

Employees DetailsoftheGroup’spoliciesinrelationtoemployment,traininganddevelopment,employeeengagement,employeeshareownershipandequalopportunitiesaresetoutintheCorporateResponsibilityreportonpages28to31.

Greenhouse gas emissionsDetailsoftheGroup’sgreenhousegasemissionsaresetoutintheCorporateResponsibilityreportonpages28and29.

Political donationsItistheGroup’spolicynottomakepoliticaldonationsandnopoliticaldonationsorEUpoliticalexpenditureweremadeintheyear(FY2018:£nil).

Bribery Act 2010TheGrouphasanestablishedanti-briberypolicyinplacedesignedtomanagerisksrelatingtobriberyandcorruption.Guidanceandtrainingisprovidedtocolleaguesthroughanonlinewebinarpresentation,alongwithsupportfromtheGroup’sLegalteamonhowtomanagetheserisks.Suppliersandcontractorsaremadeawareoftheanti-briberypolicy,throughourSupplierCodeandappropriatecontractualarrangements.Anti-briberyandcorruptioniskeptregularlyunderreviewtoensurethatthestepsinplacearesufficientlyrobusttopreventbriberyandcorruption.

Health & safetyWearecommittedtoprovidingasafeplaceforourcolleaguestoworkandforvisitorsandcontractorstooursites.Policiesapplicabletothesafetyandwell-beingofourcolleaguesarereviewedonanongoingbasistoensurethattheapproachtotraining,riskassessments,safesystemsofworkingandaccidentmanagementareappropriate.AnongoingauditprogrammeassessesHealth&Safetyrisksonaregularbasisandensuresthatrobustcontrolmeasuresareinplacetolimittheserisks.FurtherdetailsaresetoutintheCorporateResponsibilityreportonpages28to31.

Financial instrumentsInformationontheGroup’sfinancialriskmanagementobjectivesandpoliciesandontheexposureoftheGrouptorelevantrisksinrespectoffinancialinstrumentsissetoutinNote20totheGroupFinancialStatements.

Disclosure of information to auditorEachdirectorconfirmsthat,sofarastheyareaware,thereisnorelevantauditinformation(asdefinedinsection418oftheCompaniesAct2006)ofwhichtheCompany’sauditorisunawareandthateachdirectorhastakenallthestepstheyoughtreasonablytohavetakenasadirectorinordertomakethemselvesawareofanyrelevantauditinformationandtoestablishthattheCompany’sauditorisawareofthatinformation.

AuditorResolutionstoappointBDOLLPasauditoroftheCompanyandtoauthorisetheAuditCommitteetodeterminetheirremunerationwillbeproposedatthe2020AnnualGeneralMeeting.

Annual General MeetingThe2020AnnualGeneralMeetingoftheCompanywillbeheldatRowanHouse,CherryOrchardNorth,KembreyPark,Swindon,WiltshireSN28UHonFriday31January2020at11.30am.TheNoticeofAnnualGeneralMeetingisgiven,togetherwithexplanatorynotestotheproposedresolutionstobeconsideredatthemeeting,inthebookletwhichaccompaniesthisreport.

ApprovedbytheBoardandsignedonitsbehalfby:

Stuart MarrinerCompanySecretary&GeneralCounsel5November2019

Directors’ Report – Other Statutory Disclosures cont.


ThedirectorsareresponsibleforpreparingtheAnnualReportandthefinancialstatementsinaccordancewithapplicablelawandregulations.

Companylawrequiresthedirectorstopreparefinancialstatementsforeachfinancialyear.UnderthatlawthedirectorsarerequiredtopreparetheGroupfinancialstatementsinaccordancewithInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnionandapplicablelawandhaveelectedtopreparetheCompanyfinancialstatementsinaccordancewithUnitedKingdomGenerallyAcceptedAccountingPractice(UnitedKingdomAccountingStandardsandapplicablelawsincludingFRS101ReducedDisclosureFramework.UndercompanylawthedirectorsmustnotapprovethefinancialstatementsunlesstheyaresatisfiedthattheygiveatrueandfairviewofthestateofaffairsoftheGroupandtheCompanyandoftheprofitorlossfortheGroupandtheCompanyforthatperiod.

Inpreparingthesefinancialstatements,thedirectorsarerequiredto:

• selectsuitableaccountingpoliciesandthenapplythemconsistently;• makejudgementsandaccountingestimatesthatarereasonableandprudent;• fortheGroupfinancialstatements,statewhethertheyhavebeenpreparedinaccordancewithIFRSsas

adoptedbytheEuropeanUnion,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancialstatements;

• fortheCompanyfinancialstatements,statewhetherapplicableUnitedKingdomAccountingStandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancialstatements;

• preparethefinancialstatementsonthegoingconcernbasisunlessitisinappropriatetopresumethattheGrouporCompanywillcontinueinbusiness;and

• prepareadirectors’report,astrategicreportanddirectors’RemunerationreportwhichcomplywiththerequirementsoftheCompaniesAct2006.

ThedirectorsareresponsibleforkeepingadequateaccountingrecordsthataresufficienttoshowandexplaintheCompany’stransactionsanddisclosewithreasonableaccuracyatanytimethefinancialpositionoftheCompanyandenablethemtoensurethatthefinancialstatementscomplywiththeCompaniesAct2006and,asregardstheGroupfinancialstatements,Article4oftheIASRegulation.TheyarealsoresponsibleforsafeguardingtheassetsoftheCompanyandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.ThedirectorsareresponsibleforensuringthattheAnnualReportandthefinancialstatements,takenasawhole,arefair,balanced,andunderstandableandprovidetheinformationnecessaryforshareholderstoassesstheGroup’sperformance,businessmodelandstrategy.

Website publicationThedirectorsareresponsibleforensuringtheAnnualReportandthefinancialstatementsaremadeavailableonawebsite.FinancialstatementsarepublishedontheCompany’swebsiteinaccordancewithlegislationintheUnitedKingdomgoverningthepreparationanddisseminationoffinancialstatements,whichmayvaryfromlegislationinotherjurisdictions.ThemaintenanceandintegrityoftheCompany’swebsiteistheresponsibilityofthedirectors.Thedirectors’responsibilityalsoextendstotheongoingintegrityofthefinancialstatementscontainedtherein.

Directors’ responsibilities pursuant to DTR4Thedirectorsconfirmtothebestoftheirknowledge:

• TheGroupfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnionandArticle4oftheIASRegulationandgiveatrueandfairviewoftheassets,liabilities,financialpositionandprofitandlossoftheGroup;and

• TheAnnualReportincludesafairreviewofthedevelopmentandperformanceofthebusinessandthefinancialpositionoftheGroupandtheparentcompany,togetherwithadescriptionoftheprincipalrisksanduncertaintiesthattheyface.

ThisresponsibilitystatementwasapprovedbytheBoardon5November2019andsignedonitsbehalfby:

Jonathan Bunting Tony GraceInterimChiefExecutiveOfficer ChiefFinancialOfficer5November2019 5November2019

Directors’ Responsibilities

CONNECT GROUP ANNUAL REPORT 2019F

INA

NC

IAL

STA

TE

ME

NT

S80

OpinionWehaveauditedthefinancialstatementsofConnectGroupPlc(the‘ParentCompany’)anditssubsidiaries(the‘Group’)fortheyearended31August2019whichcomprisetheGroupIncomeStatement,theGroupStatementofComprehensiveIncome,theGroupandParentCompanyBalanceSheet,theGroupandParentCompanyStatementsofChangesinEquity,theGroupCashFlowStatementandthenotestothefinancialstatements,includingasummaryofsignificantaccountingpolicies.ThefinancialreportingframeworkthathasbeenappliedinthepreparationoftheGroupfinancialstatementsisapplicablelawandInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnion.ThefinancialreportingframeworkthathasbeenappliedinthepreparationoftheParentCompanyfinancialstatementsisapplicablelawandUnitedKingdomGenerallyAcceptedPractice,includingFinancialReportingStandard101ReducedDisclosureFramework.(UnitedKingdomGenerallyAcceptedAccountingPractice).

Inouropinionthefinancialstatements:

• giveatrueandfairviewofthestateoftheGroup’sandoftheParentCompany’saffairsasat31August2019andoftheGroup’slossfortheyearthenended;

• theGroupfinancialstatementshavebeenproperlypreparedinaccordancewithIFRSsasadoptedbytheEuropeanUnion;• theParentCompanyfinancialstatementshavebeenproperlypreparedinaccordancewithUnitedKingdomGenerallyAcceptedPractice;and• thefinancialstatementshavebeenpreparedinaccordancewiththerequirementsoftheCompaniesAct2006;and,asregardstheGroupfinancial

statements,Article4oftheIASRegulation.

Basis for opinionWeconductedourauditinaccordancewithInternationalStandardsonAuditing(UK)(ISAs(UK))andapplicablelaw.OurresponsibilitiesunderthosestandardsarefurtherdescribedintheAuditor’sresponsibilitiesfortheauditofthefinancialstatementssectionofourreport.WeareindependentoftheGroupandtheParentCompanyinaccordancewiththeethicalrequirementsthatarerelevanttoourauditofthefinancialstatementsintheUK,includingtheFRC’sEthicalStandardasappliedtolistedpublicinterestentities,andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeserequirements.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.

Conclusions relating to principal risks, going concern and viability statementWehavenothingtoreportinrespectofthefollowinginformationintheAnnualReport,inrelationtowhichtheISAs(UK)requireustoreporttoyouwhetherwehaveanythingmaterialtoaddordrawattentionto:

• thedisclosuresintheAnnualReportthatdescribetheprincipalrisksandexplainhowtheyarebeingmanagedormitigated;• thedirectors’confirmationintheAnnualReportthattheyhavecarriedoutarobustassessmentoftheprincipalrisksfacingtheGroup,including

thosethatwouldthreatenitsbusinessmodel,futureperformance,solvencyorliquidity;• thedirectors’statementinthefinancialstatementsaboutwhetherthedirectorsconsidereditappropriatetoadoptthegoingconcernbasis

ofaccountinginpreparingthefinancialstatementsandthedirectors’identificationofanymaterialuncertaintiestotheGroupandtheParentCompany’sabilitytocontinuetodosooveraperiodofatleasttwelvemonthsfromthedateofapprovalofthefinancialstatements;

• whetherthedirectors’statementrelatingtogoingconcernrequiredundertheListingRulesinaccordancewithListingRule9.8.6R(3)ismateriallyinconsistentwithourknowledgeobtainedintheaudit;or

• thedirectors’explanationintheAnnualReportastohowtheyhaveassessedtheprospectsoftheGroup,overwhatperiodtheyhavedonesoandwhytheyconsiderthatperiodtobeappropriate,andtheirstatementastowhethertheyhaveareasonableexpectationthattheGroupwillbeabletocontinueinoperationandmeetitsliabilitiesastheyfalldueovertheperiodoftheirassessment,includinganyrelateddisclosuresdrawingattentiontoanynecessaryqualificationsorassumptions.

Key audit mattersKeyauditmattersarethosemattersthat,inourprofessionaljudgement,wereofmostsignificanceinourauditofthefinancialstatementsofthecurrentperiodandincludethemostsignificantassessedrisksofmaterialmisstatement(whetherornotduetofraud)thatweidentifiedincludingthosewhichhadthegreatesteffecton:theoverallauditstrategy,theallocationofresourcesintheaudit;anddirectingtheeffortsoftheengagementteam.Thesematterswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.

Independent Auditor’s Report to the members of Connect Group PLC

CONNECT GROUP ANNUAL REPORT 2019 FINANCIAL STATEMENTS 81

Valuation of goodwill, intangibles and other assets in the Tuffnells cash generating unit (“CGU”) and carrying value of investments in subsidiaries in the Parent company

Key Audit Matter How we addressed the Key Audit Matter in the audit

ManagementisrequiredtotestgoodwillwithineachCGUannuallyforimpairment.

InrespectoftheTuffnellsCGU,asaresultofcurrenttradingperformance,additionaltimetakentoturnthebusinessaroundandtheeconomicoutlookmanagementdeterminedanimpairmenttotheCGUof£45.5mbasedonvalueinuse.

Thisresultedinfullimpairmentofgoodwill(£6.0m)andintangibles(£26.9m)aswellaspartimpairmentofproperty,plantandequipment(“PPE”)(£12.6m).

Theremainingamountoftheimpairmenttotalling£1.7mwasnotrecordedonthebasisthatthefairvaluelesscoststosellsupportedthecarryingvalueoftheremainingassets.Nootherassetsweredeterminedbymanagementasrequiringimpairment.

Thereisaninherentuncertaintyinvolvedinforecastinganddiscountingfuturecashflowsandthereforeconstitutesakeyjudgement.AsperNote1(e)managementconsiderthesetobeakeyaccountingestimates.

Notes13and14provideadditionaldetailoftheimpairmentsrecordedagainstGoodwill,intangiblesandPPE.

TheimpairmentchargeshavebeenrecordedasadjustingitemsasdetailedinNote4.

TheimpairmentrecognisedalsoimpactedthecarryingvalueoftheinvestmentheldbytheParentCompanyinitssubsidiary,whichinturnheldtheinvestmentinTuffnells.FurtherindicatorsofimpairmentwereidentifiedintheParentcompanyinvestmentduetothedistributionofa£240mdividendbythesubsidiaryintheyear,thisandtheTuffnellsimpairmentresultedina£108.6mimpairmentbeingrecorded(seeParentcompanybalanceandNote3formoredetails).

WehaveobtainedanunderstandingoftheGroup’sbudgetingandforecastingprocessaswellastheimpairmentreviewprocess.

Theauditteamhaveengagedwithourinternalvaluationsteamtoaudittheunderlyingassumptionsandinputsintheimpairmentmodels.Thiscomprisedanassessmentoftheappropriatenessofthediscountrateusedandassessmentoftheunderlyingmechanicsofthemodel.

Furthermore,theauditteamevaluatedtheaccuracyofManagement’shistoricalforecasting,challengedtherevenueandmarginandothercashflowsassumptionsbasedonourknowledgeofthebusiness,contractualrevenuestreamsandtheeconomicoutlook.

InrespectoftheTuffnellsCGUwescrutinisedandtestedtheremainingamountoftheimpairmenttotalling£1.7mwhichwasnotrecorded,throughassessmentofthefairvalueofassets.

TheimpactoftheimpairmenttotheTuffnellsCGUwasalsofactoredintotheassessmentofthecarryingvalueoftheParentcompany’sinvestmentinitssubsidiary.

FinallywehaveassessedtheadequacyofthefinancialstatementdisclosuresinNote13.inrespectoftheGroupfinancialstatementsandinNote3oftheParentcompanyfinancialstatementsrelatingtothisKeyAuditMatter.


INA

NC

IAL

STA

TE

ME

NT

S82

The adoption of IFRS 15 Revenue from Contracts with Customers

Key audit matter How we addressed the key audit matter in the audit

TheGroupwasrequiredtoadoptIFRS15RevenuefromContractswithCustomersinthecurrentyear.Thisstandardintroducedtheconceptofhighlyprobableinassessingoutcomesandperformanceobligationsandthefive-stepmodelframeworkinrespectofrevenuerecognition.

ManagementcompletedareviewoftheimpactofIFRS15andassetoutinNote36concludedthattherewasnomaterialimpactonthefinancialstatementswiththeexceptionofbalancesheetreclassification(seeNote36).Thenewstandardhasappliedthefullyretrospectiveapproachrestatingthecomparativeperiodsinrespectofreturnsreserveassetandaccrual.TherewasnofurtherimpactidentifiedbymanagementofadoptingIFRS15.

Judgementsatarrivingatthisconclusionincluded:

• Interpretationofcontractterms;• Considerationofagentvprincipal;toensurethattheGroupisableto

continuetorecogniserevenueasprincipal;and• Assessmentofrevenuerecognitionbasedonperformanceobligations

beingachieved.

WeassessedtheGroup’sprocessesandcontrolsinrespectoftheadoptionwhichincludedconsideringcompletenessofareasforadoption.

Weselectedasampleofrevenuekeycontractswithcustomersandforeachonewe:

• Reviewedthecontractualtermsandmetwithcontractmanagerstounderstandthetermsofthecontract,compliancewiththecontract,andthepotentialimplicationrevenuerecognition;

• WeassessedeachagainsttheIFRS15criteriaandcomparedthiswithManagement’sassessmentinrespectofperformanceobligations;and

• WeauditedthedisclosurespreparedinthefinancialstatementstoconfirmthattheyareconsistentwithourinterpretationofIFRS15.

Inadditionwehaveauditedmanagement’sassessmentthatSmithsNewsistheprincipalinthetransactionandthereforeshouldcontinuetorecogniserevenueasprincipal,inlinewithpreviousyears.

Presentation of Adjusting Items as a non-GAAP measure on the face of the income statement

Key audit matter How we addressed the key audit matter in the audit

TheGrouppresentsanon-GAAPmeasureofAdjustedprofitbeforetaxonthefaceoftheincomestatement.ThisisafteradjustingforcertainitemswhichthedirectorsconsidertobesignificantinnatureanddonotrelatetotheunderlyingtradingactivityoftheGroup.Thismeasurerequiresjudgement.

ThereisariskthatamountsareincorrectlyclassifiedasadjustingandthedisclosuresincludedinNote4arenotsufficientlydetailedortransparenttofullyunderstandtheadjustingitemsandthatthenon-GAAPmeasureismisleading.

TheadjustingitemsfortheyearhasbeenscepticallyreviewedtoensurethattheadjustingitemsmeettheGroupsaccountingpolicyforinclusion.

Furtherprocedurescarriedoutforeachadjustingitemsincluded:

• Auditingasampletosupportingdocumentation;and• Examiningdisclosuresofadjustingitemstoconfirmtheyare

sufficientlytransparentandaddresstheguidanceissuedbytheFRCandESMA.

Independent Auditor’s Report to the members of Connect Group PLC cont.


Our application of materialityWeapplytheconceptofmaterialitybothinplanningandperformingourauditandinevaluatingtheeffectofmisstatements.Weconsidermaterialitytobethemagnitudebywhichmisstatements,includingomissions,couldinfluencetheeconomicdecisionsofreasonableusersthataretakenonthebasisofthefinancialstatements.Importantly,misstatementsbelowtheselevelswillnotnecessarilybeevaluatedasimmaterialaswealsotakeaccountofthenatureofidentifiedmisstatementsandtheparticularcircumstancesoftheiroccurrence,whenevaluatingtheireffectonthefinancialstatementsasawhole.

Basedonourprofessionaljudgement,wedeterminedmaterialityfortheGroupfinancialstatementstobe£1.1mandfortheParentCompanytobe£0.8m.Performancematerialitywascalculatedbasedon65%ofourmateriality.Thislevelofperformancematerialitywasselectedtoreflecttherisksapparentinourfirstyearofaudit.

ThematerialityweappliedinrespectoftheGroupfinancialstatementsequatesto5%ofprofitbeforeadjustingitemsandtax.ParentCompanymaterialitywassetat1%oftotalassetsduetoitprincipallyholdinginvestmentsinsubsidiariesonly,andcappedat75%ofGroupmateriality.

Weconsidertheuseof5%ofAdjustedprofittobethemostappropriateperformancemeasureasitremovestheimpactofcertainone-offorexceptionalitemsimpactingtheunderlyingprofitoftheGroupandisalsoakeymeasureforstakeholders.AdjustingitemsaredetailedinNote4totheGroupfinancialstatements.

Wesetcomponentmaterialitybetween£0.6mand£0.9mbasedontheoverallsizeandrespectiveriskofeachcomponent.

WeagreedwiththeAuditCommitteethatwewouldreporttotheCommitteeallauditdifferencesinexcessof£42,000aswellasdifferencesbelowthatthresholdthat,inourview,warrantedreportingonqualitativegrounds.WealsoreporttotheAuditCommitteeondisclosuremattersthatweidentifiedwhenassessingtheoverallpresentationofthefinancialstatements.

An overview of the scope of our auditTheGroupoperatesthroughanumberoflegalentities,whichformreportingcomponents,thereportingcomponentsareconsistentwiththesegmentalanalysisasdisclosedinNote2tothefinancialstatements.Allsignificantcomponentsweresubjecttofullscopeauditswiththeexceptionofcertainoverseasentitieswhichweresubjecttodesktopreviewprocedures.AllauditsanddesktopreviewprocedureswerecompletedbyBDOLLP.

Theauditprocedureswerecarriedoutover98%ofGrouprevenue,profitbeforeadjustingitemsandtotalassets.

TheGroupauditteamsetcomponentmaterialitylevelsasdetailedabovewithworkonallcomponentsbeingperformedbytheBDOLLPunderthedirectionandsupervisionoftheGroupengagementpartner.

WealsogainedanunderstandingofthelegalandregulatoryframeworkapplicabletotheGroupandtheindustryinwhichitoperates,andconsideredtheriskofactsbytheGroupthatwerecontrarytoapplicablelawsandregulations,includingfraud.WedesignedauditproceduresatGroupandsignificantcomponentleveltorespondtotherisk,recognisingthattheriskofnotdetectingamaterialmisstatementduetofraudishigherthantheriskofnotdetectingoneresultingfromerror,asfraudmayinvolvedeliberateconcealmentby,forexample,forgeryorintentionalmisrepresentations,orthroughcollusion.Wefocusedonlawsandregulationsthatcouldgiverisetoamaterialmisstatementinthefinancialstatements,including,butnotlimitedto,theCompaniesAct2006,theUKListingRulesandtaxlegislation.

Ourtestsincludedagreeingthefinancialstatementdisclosurestounderlyingsupportingdocumentation,enquirieswithmanagementandenquiriesofinternallegalcounsel.Thereareinherentlimitationsintheauditproceduresdescribedaboveand,thefurtherremovednon-compliancewithlawsandregulationsisfromtheeventsandtransactionsreflectedinthefinancialstatements,thelesslikelywewouldbecomeawareofit.Wedidnotidentifyanykeyauditmattersrelatingtoirregularities,includingfraud.Asinallofouraudits,wealsoaddressedtheriskofmanagementoverrideofinternalcontrols,includingtestingjournalsandevaluatingwhethertherewasevidenceofbiasbythedirectorsthatrepresentedariskofmaterialmisstatementduetofraud.


INA

NC

IAL

STA

TE

ME

NT

S84

Other informationThedirectorsareresponsiblefortheotherinformation.TheotherinformationcomprisestheinformationincludedintheAnnualReport,otherthanthefinancialstatementsandourauditor’sreportthereon.Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationand,excepttotheextentotherwiseexplicitlystatedinourreport,wedonotexpressanyformofassuranceconclusionthereon.Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.Ifweidentifysuchmaterialinconsistenciesorapparentmaterialmisstatements,wearerequiredtodeterminewhetherthereisamaterialmisstatementinthefinancialstatementsoramaterialmisstatementoftheotherinformation.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementoftheotherinformation,wearerequiredtoreportthatfact.

Wehavenothingtoreportinthisregard.

Inthiscontext,wealsohavenothingtoreportinregardtoourresponsibilitytospecificallyaddressthefollowingitemsintheotherinformationandtoreportasuncorrectedmaterialmisstatementsoftheotherinformationwhereweconcludethatthoseitemsmeetthefollowingconditions:

• Fair,balancedandunderstandable–thestatementgivenbythedirectorsthattheyconsidertheAnnualReportandfinancialstatementstakenasawholeisfair,balancedandunderstandableandprovidestheinformationnecessaryforshareholderstoassesstheGroup’sperformance,businessmodelandstrategy,ismateriallyinconsistentwithourknowledgeobtainedintheaudit;or

• Auditcommitteereporting–thesectiondescribingtheworkoftheauditcommitteedoesnotappropriatelyaddressmatterscommunicatedbyustotheauditcommittee;or

• Directors’statementofcompliancewiththe2016UKCorporateGovernance–thepartsofthedirectors’statementrequiredundertheListingRulesrelatingtotheCompany’scompliancewiththe2016UKCorporateGovernanceCodecontainingprovisionsspecifiedforreviewbytheauditorinaccordancewithListingRule9.8.10R(2)donotproperlydiscloseadeparturefromarelevantprovisionofthe2016UKCorporateGovernanceCode.

Opinions on other matters prescribed by the Companies Act 2006Inouropinion,thepartoftheDirectors’RemunerationreporttobeauditedhasbeenproperlypreparedinaccordancewiththeCompaniesAct2006.

Inouropinion,basedontheworkundertakeninthecourseoftheaudit:• theinformationgiveninthestrategicreportandtheDirectors’reportforthefinancialyearforwhichthefinancialstatementsarepreparedis

consistentwiththefinancialstatementsandthosereportshavebeenpreparedinaccordancewithapplicablelegalrequirements;and• thestrategicreportandDirectors’reporthavebeenpreparedinaccordancewithapplicablelegalrequirements.

Matters on which we are required to report by exceptionInthelightoftheknowledgeandunderstandingoftheGroupandtheParentCompanyanditsenvironmentobtainedinthecourseoftheaudit,wehavenotidentifiedmaterialmisstatementsinthestrategicreportortheDirectors’report.

WehavenothingtoreportinrespectofthefollowingmattersinrelationtowhichtheCompaniesAct2006requiresustoreporttoyouif,inouropinion:

• adequateaccountingrecordshavenotbeenkeptbytheParentCompany,orreturnsadequateforouraudithavenotbeenreceivedfrombranchesnotvisitedbyus;or

• theParentCompanyfinancialstatementsandthepartoftheDirectors’Remunerationreporttobeauditedarenotinagreementwiththeaccountingrecordsandreturns;or

• certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or• wehavenotreceivedalltheinformationandexplanationswerequireforouraudit;or• acorporategovernancestatementhasnotbeenpreparedbytheParentCompany.

Responsibilities of DirectorsAsexplainedmorefullyintheDirectors’responsibilitiesstatement,thedirectorsareresponsibleforthepreparationofthefinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview,andforsuchinternalcontrolastheDirectorsdetermineisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Inpreparingthefinancialstatements,theDirectorsareresponsibleforassessingtheGroup’sandtheParentCompany’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlessthedirectorseitherintendtoliquidatetheGrouportheParentCompanyortoceaseoperations,orhavenorealisticalternativebuttodoso.

Independent Auditor’s Report to the members of Connect Group PLC cont.


Auditor’s responsibilities for the audit of the financial statementsOurobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAs(UK)willalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.

AfurtherdescriptionofourresponsibilitiesfortheauditofthefinancialstatementsislocatedontheFinancialReportingCouncil’swebsiteat:www.frc.org.uk/auditorsresponsibilities.Thisdescriptionformspartofourauditor’sreport.

Other matters which we are required to addressFollowingtherecommendationoftheAuditCommittee,wewereappointedon15March2019toauditthefinancialstatementsfortheyearending31August2019andsubjecttoannualre-electionattheParentCompany’sAGM,subsequentfinancialperiods.Theperiodoftotaluninterruptedengagementisoneyear,coveringtheyearending31August2019.

Thenon-auditservicesprohibitedbytheFRC’sEthicalStandardwerenotprovidedtotheGrouportheParentCompanyandweremainindependentoftheGroupandtheParentCompanyinconductingouraudit.

Ourauditopinionisconsistentwiththeadditionalreporttotheauditcommittee.

Use of our reportThisreportismadesolelytotheParentCompany’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.OurauditworkhasbeenundertakensothatwemightstatetotheParentCompany’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthantheParentCompanyandtheParentCompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.

Sophia Michael (Senior Statutory Auditor)ForandonbehalfofBDOLLP,StatutoryAuditorLondon5November2019

BDOLLPisalimitedliabilitypartnershipregisteredinEnglandandWales(withregisterednumberOC305127).

http://www.frc.org.uk/auditorsresponsibilities


INA

NC

IAL

STA

TE

ME

NT

S86

Group Income Statement for the year ended 31 August 2019

2019 2018*1

£m Note Adjusted*Adjusted

items Total Adjusted*Adjusted

items Total

Revenue 2 1,467.9 – 1,467.9 1,534.3 – 1,534.3

Costofsales 3 (1,386.0) (1.0) (1,387.0) (1,429.6) (3.6) (1,433.2)

Gross profit/(loss) 3 81.9 (1.0) 80.9 104.7 (3.6) 101.1

Administrativeexpenses 3 (53.0) (59.8) (112.8) (71.3) (60.3) (131.6)

Incomefromjointventures 0.6 – 0.6 0.5 – 0.5

Operating (loss)/profit 2,3 29.5 (60.8) (31.3) 33.9 (63.9) (30.0)

Financecosts 7 (6.3) – (6.3) (5.5) – (5.5)

(Loss)/profit before tax 23.2 (60.8) (37.6) 28.4 (63.9) (35.5)

Incometaxcredit/(expense) 8 (3.8) 9.9 6.1 (5.5) 2.9 (2.6)

(Loss)/profit for the year from continuing operations 19.4 (50.9) (31.5) 22.9 (61.0) (38.1)

Discontinued operations

(Loss)/profit for the year from discontinued operations 11 – – – 1.3 (10.2) (8.9)

(Loss)/profit attributable to equity shareholders continuing and discontinued operations 19.4 (50.9) (31.5) 24.2 (71.2) (47.0)

(Loss)/earnings per share from continuing operations

Basic 10 7.9p (12.9p) 9.3p (15.5p)

Diluted 10 7.9p (12.9p) 9.3p (15.5p)

Equitydividendspershare(paidandproposed) 9 1.0p 3.1p

* ThismeasureisdescribedinNote1(4)oftheaccountingpoliciesandtheGlossarytotheAccountsonpage132.AdjustedItemsaresetoutinNote4totheGroupAccounts.*1 Theincomestatementhasbeenrestatedtoshowananalysisofcosts,seeNote1(27)fordetails.


£m Note 2019 2018

Continuing

Items that will not be reclassified to the Group Income Statement

Actuarial(loss)ondefinedbenefitpensionscheme 6 (136.3) (2.1)

ImpactofIFRIC14ondefinedbenefitpensionscheme 6 139.7 2.1

Taxrelatingtocomponentsofothercomprehensiveincomethatwillnotbereclassified 8 (0.7) –

2.7 –

Items that may be subsequently reclassified to the Group Income Statement

Currencytranslationdifferences 0.1 (0.3)

0.1 (0.3)

Other comprehensive result/(loss) for the year – continuing 2.8 (0.3)

Loss for the year – continuing (31.5) (38.1)

Total comprehensive (expense)/income for the year – continuing (28.7) (38.4)

Loss for the year – discontinued – (8.9)

Total comprehensive (expense)/income for the year – discontinued – (8.9)

Total comprehensive (expense)/income for the year (28.7) (47.3)

Group Statement of Comprehensive Income for the year ended 31 August 2019


INA

NC

IAL

STA

TE

ME

NT

S88

£m Note 2019Restated1

2018

Non-current assets

Intangibleassets 13 10.1 50.8

Property,plantandequipment 14 10.9 38.8

Interestinjointventures 15 5.3 5.1

Deferredtaxassets 23 5.2 –

31.5 94.7

Current assets

Inventories 16 16.2 13.3

Tradeandotherreceivables 17 124.2 129.7

Cashandbankdeposits 19 24.0 18.0

Currenttaxasset – 0.3

Assetsclassifiedasheldforsale 11 16.8 0.5

181.2 161.8

Total assets 212.7 256.5

Current liabilities

Tradeandotherpayables 18 (173.7) (175.6)

Currenttaxliabilities – (0.8)

Bankloansandotherborrowings 19 (46.1) (47.2)

Obligationsunderfinanceleases 21 (2.2) (2.8)

Retirementbenefitobligations 6 (0.4) (3.7)

Provisions 24 (7.3) (9.5)

(229.7) (239.6)

Non-current liabilities

Retirementbenefitobligations 6 (2.5) (3.6)

Bankloansandotherborrowings 19 (49.3) (48.8)

Obligationsunderfinanceleases 21 (0.3) (2.5)

Othernon-currentliabilities 22 (1.2) (0.6)

Deferredtaxliabilities 23 – (2.5)

Non-currentprovisions 24 (4.0) (4.8)

(57.3) (62.8)

Total liabilities (287.0) (302.4)

Total net liabilities (74.3) (45.9)

Equity

Calledupsharecapital 28(1) 12.4 12.4

Sharepremiumaccount 28(3) 60.5 60.5

Demergerreserve 29(1) (280.1) (280.1)

Ownsharesreserve 29(2) (1.7) (2.1)

Translationreserve 29(3) 0.3 0.2

Retainedearnings 30 134.3 163.2

Total shareholders’ deficit (74.3) (45.9)

1. TheGrouphasappliedIFRS15usingthefullyretrospectivemethod.SeeNote36.

TheaccountswereapprovedbytheBoardofDirectorsandauthorisedforissueon5November2019andweresignedonitsbehalfby:

Jonathan Bunting Tony GraceInterimChiefExecutiveOfficer ChiefFinancialOfficer

Registerednumber–05195191

Group Balance Sheet at 31 August 2019


£m NoteShare

capital

Sharepremiumaccount

Demergerreserve

Ownshares

reserve

Hedgingandtranslation

reserveRetainedearnings Total

Balance at 31 August 2017 12.4 60.5 (280.1) (3.1) 0.5 234.9 25.1

Lossfortheyear – – – – – (47.0) (47.0)

Actuariallossondefinedbenefitpensionscheme – – – – – (2.1) (2.1)

ImpactofIFRIC14ondefinedbenefitpensionscheme – – – – – 2.1 2.1

Currencytranslationdifferences – – – – (0.3) – (0.3)

Taxrelatingtocomponentsofothercomprehensiveincome – – – – – – –

Total comprehensive income for the year – – – – (0.3) (47.0) (47.3)

Issueofsharecapital 28 – – – – – – –

Purchaseofownshares – – – – – – –

Dividendspaid 9 – – – – – (24.1) (24.1)

Employeeshareschemes – – – 1.0 – (1.0) –

Recognitionofsharebasedpaymentsnetoftax – – – – – 0.4 0.4

Balance at 31 August 2018 12.4 60.5 (280.1) (2.1) 0.2 163.2 (45.9)

Lossfortheyear – – – – – (31.5) (31.5)

Actuariallossondefinedbenefitpensionscheme 6 – – – – – (136.1) (136.1)

ImpactofIFRIC14ondefinedbenefitpensionscheme 6 – – – – – 139.7 139.7

Currencytranslationdifferences – – – – 0.1 – 0.1

Taxrelatingtocomponentsofothercomprehensiveincome – – – – – (0.7) (0.7)

Total comprehensive expense for the year – – – – 0.1 (28.6) (28.5)

Issueofsharecapital 28 – – – – – – –

Purchaseofownshares – – – – – – –

Dividendspaid 9 – – – – – – –

Employeeshareschemes – – – 0.4 – (0.4) –

Recognitionofsharebasedpaymentsnetoftax – – – – – 0.1 0.1

Balance at 31 August 2019 12.4 60.5 (280.1) (1.7) 0.3 134.3 (74.3)

Group Statement of Changes in Equity for the year ended 31 August 2019


INA

NC

IAL

STA

TE

ME

NT

S90

£m Note 2019 2018

Net cash inflow from operating activities 27 23.0 37.5

Investing activities

Dividendsreceivedfromjointventures 0.1 0.2

Purchaseofproperty,plantandequipment (7.4) (6.1)

Purchaseofintangibleassets (1.2) (2.4)

Proceedsonsaleofproperty,plantandequipment 0.5 –

Proceedsonsaleofsubsidiary(netofdisposalcosts) – 12.9

Net cash (used in)/generated from investing activities (8.0) 4.6

Financing activities

Interestpaid (5.1) (5.8)

Dividendpaid 9 – (24.1)

Repaymentsofobligationsunderfinanceleases (2.8) (3.8)

Net(decrease)/increaseinrevolvingcreditfacility (8.0) 25.3

Newbankloansraised – 48.8

Repaymentofborrowings – (80.0)

Net cash used in financing activities (15.9) (39.6)

Net (decrease)/increase in cash and cash equivalents (0.9) 2.5

Effectofforeignexchangeratechanges 0.1 (0.2)

(0.8) 2.3

Openingnetcashandcashequivalents 8.7 6.4

Closing net cash and cash equivalents 19 7.9 8.7

Duringtheyear,cashoutflowfromoperatingactivitiesattributedtodiscontinuedoperationsamountedto£nil(2018:£8.8minflow)andpaid£nil(2018:£4.3m)inrespectofinvestingactivities.Therewerenocashflowsassociatedwithfinancingactivitiesattributabletodiscontinuedoperations.

Group Cash Flow Statement for the year ended 31 August 2019


1. Accounting policies(1) BasisofconsolidationConnectGroupPLC(‘theCompany’)isacompanyincorporatedinEnglandUKunderCompaniesAct2006.TheGroupAccountsfortheyearended31August2019comprisetheCompanyanditssubsidiaries(togetherreferredtoasthe‘Group’)andtheGroup’sinterestsinjointventuresandassociates.SubsidiaryundertakingsacquiredduringtheperiodareincludedintheGroupAccountsfromthedateofacquisition.Allsignificantsubsidiaryaccountsaremadeupto31AugustandareincludedintheGroupAccounts.FurthertotheEUIASRegulation(Article4)theGroupAccountshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(‘IFRS’)asadoptedbytheEuropeanUnion(‘adoptedIFRS’)withthosepartsoftheCompaniesAct2006applicabletocompaniesreportingunderIFRS.

Unlessotherwisenotedreferencesto2018and2019relatetofiscalyearended31August2018and31August2019asopposedtocalendaryear.

Theaccountswereauthorisedforissuebythedirectorson5November2019.

(2) AccountingbasisofpreparationTheaccountsarepreparedonthehistoricalcostbasiswiththeexceptionofcertainfinancialinstrumentsandarepresentedinPoundSterlingandroundedto£0.1m,exceptwhereotherwiseindicated.

TheGroupAccountshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(‘IFRS’)asadoptedforusebytheEuropeanUnion.

Intra-groupbalancesandunrealisedgainsandlossesorincomeandexpensesarisingfromintra-grouptransactions,areeliminatedinpreparingGroupAccounts.UnrealisedgainsandlossesarisingfromtransactionswiththejointventuresareeliminatedtotheextentoftheGroup’sinterestintheentities.

(3) GoingconcernTheGroupcurrentlyhasanetliabilitypositionof£74.3masat31August2019.GiventhispositionthedirectorshavecarefullyconsideredtheabilityoftheGrouptomeetitsdebtsastheyfalldue.TheGroup’scurrentbankingfacilityisconsideredtohaveadequateheadroom,withatotalfacilityof£175mavailabletotheGroupandwithabalanceundrawnof£95.0matthe31August2019.TheGroup’sforecastsandprojections,takingaccountofreasonablepotentialvariationsintradingperformance,showthattheGroupshouldbeabletooperatewithinthelevelofitscurrentbankingcovenantsdefinedasaperiodofnotlessthan12monthsfromthedateofapprovalofthisreport.ThedirectorsexpectthattheGroupwillbeabletonegotiateafacilitypostJanuary2021toenabletheGrouptotradefortheforeseeablefuture.

Despitetheuncertaineconomicenvironment,thedirectorshaveareasonableexpectationthattheGrouphasadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.TheGroupthereforecontinuestoadoptthegoingconcernbasisinpreparingitsconsolidatedfinancialstatements.

(4) AlternativeperformancemeasuresTheCompanyusesanumberofAlternativePerformanceMeasures(APMs)inadditiontothosereportedinaccordancewithIFRS.ThedirectorsbelievethattheAPMs,listedintheglossaryonpage132,areimportantwhenassessingtheunderlyingfinancialandoperatingperformanceoftheGroupanditssegments.TheAPMsdonothavestandardisedmeaningprescribedbyIFRSandthereforemaynotbedirectlycomparabletosimilarmeasurespresentedbyothercompanies.

(5) EstimatesandjudgementsThepreparationoftheseaccountsrequiresmanagementtomakejudgements,estimatesandassumptionsthataffecttheapplicationofaccountingpoliciesandthereportedamountsofassetsandliabilities,incomeandexpense.Actualresultsmaydifferfromtheseestimates.

Key sources of estimation uncertaintyEstimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimateisrevisediftherevisionaffectsonlythatperiod,orintheperiodoftherevisionandfutureperiodsiftherevisionaffectsbothcurrentandfutureperiods.

Thekeyassumptionsconcerningthefuture,andotherkeysourcesofestimationuncertaintyattheendofthereportingperiodthatmayhaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyearare:

Estimatedimpairmentofgoodwill,intangiblesandproperty,plantandequipment(PPE)TheGrouptestsannuallywhethergoodwillhassufferedanyimpairment;italsotestsintangiblesandPPEwhenimpairmentindicatorsexistinaccordancewiththeaccountingpolicy.

Thecarryingamountsofcash-generatingunits(CGUs)havebeendeterminedbasedonvalueinusecalculations.Thevaluedeterminedonthecashgeneratingunitshasbeencomparedagainsttheassetsofthedivisiontocalculateimpairments.Thesecalculationsrequiretheuseofestimates(Note13).

Notes to the Accounts


INA

NC

IAL

STA

TE

ME

NT

S92

Notes to the Accounts cont.

1. Accounting policies cont.(5) Estimatesandjudgementscont.TuffnellsThedeteriorationintradingperformanceoftheTuffnellsbusinessunit,acurrentyearlossof£14.1m(2018:loss£5.0m),resultedintheGroupperforminganimpairmentassessmentofgoodwill,intangiblesandPPE.Asaresultofthereview,thegoodwill,acquiredintangiblesandPPEwereimpaired,andthevalueoftheremainingassetsinthedivisionhasbeenwrittendowntotheirfairvaluelesscoststosellasthevalueinusedoesnotsupportthem.

Giventheresultsofthevalueinusereview,animpairmentchargeof£6.0m,£26.4mand£13.2marosetogoodwill,intangiblesandPPErespectively.Thedirectorsconsiderthattheassetsshouldbevaluedbasedonthefairvaluelesscosttosellandthisisbasedonthebestestimates.Notes13and14includedetailsofdirectors’assumptionsandimpactofchangingthese.

DawsonMediaDirect(DMD)–EstimatedvalueofgoodwillThelossofamajorcontractinDMDhasresultedinthevalueinuseofthebusinessunitbeingsensitivetochangesinestimationsoffutureperformance.Changestotheseestimateswouldresultinanimpairmenttothegoodwill.FordetailsofthesensitivitiesandtheassumptionsusedtocalculatethevalueinuseseeNote13.

ProvisionsTheGroupholdsanumberofprovisionswhicharesubjecttoestimates.ThekeyprovisionsestablishedintheyearrelatetorestructuringprovisionsoftheoffshoringofcertainoftheGroup’scentralfunctionsandspecificoperationalrestructuringprojects;forfurtherdetailsseeNote24.

Key accounting judgementsThesignificantjudgementsmadeintheaccountsfortheyearended31August2019are:

RevenueTheGrouprecognisesthewholesalesalespriceforitssalesofnewspapersandmagazines.TheGroupisconsideredtobetheprincipalbasedonthefollowingindicatorsofcontroloveritsinventory:discretiontoestablishprices,itholdssomeoftheriskofobsolescenceonceincontroloftheinventoryandhastheresponsibilityoffulfillingtheperformanceobligationondeliveryofinventorytoitscustomers.IftheGroupwereconsideredtobetheagent,revenueandcostofsaleswouldreduceby£1,111.0m(2018:£1,154.5m).

RetirementbenefitsFollowingthecompletionofthe‘buy-in’inOctober2018wheretheWHSmithPensionTrustenteredintoaninsurancebackedannuityoftheSchemeassetswithinthesectionoftheTrustsponsoredbySmithsNews,thepensionschemesactuarynotifiedtheGroupthatfuturecashcontributionsbytheGrouptoaddressthedeficitwouldnolongerberequiredandtheGrouphasreleasedtheIFRIC14liability.The‘buy-in’annuityisrecognisedasaplanassetandthedifferenceinvaluebetweenthevalueoftheinsuranceassetreceivedof£425matthedateoftransactionandtheassettransferredinexchangeforthepolicy£555misconsideredanactuarialremeasurementrecognisedwithinothercomprehensiveincomeandisoffsetbythereleaseoftheIFRIC14liability.

Ifthiswasnotconsideredtobeanactuarialre-measurementtheresultingdifferenceof£130mwouldneedtoberecognisedasachargeintheFY2019incomestatement.Theoffsetting£130m,beingthereleaseoftherestriction,wouldcontinuetobeincludedwithinothercomprehensiveincome.

AdjustedItemsAdjustedItemsofincomeorexpensethatareexcludedinarrivingatAdjustedoperatingprofit.ThisenhancestheusersunderstandingoftheGroup’sperformanceasitaidsthecomparabilityofinformationbetweenreportingperiodsandbusinessunitsbyadjustingfornon-recurringoruncontrollablefactorswhichaffectIFRSmeasures,adjustedmeasuresaredefinedwithotherAPM’sintheglossaryonpages132and133.

BasedonthenatureofthetransactionstheGrouphadAdjustedItemstotalling£60.8m(2018:£63.9m)andabreakdownisincludedwithinNote4.

OnerouscontractsThisjudgementrelatestotheyearended31August2018.Presentobligationsarisingunderonerouscontractsarerecognisedandmeasuredasprovisions.AnonerouscontractisconsideredtoexistwheretheGrouphasacontractunderwhichtheunavoidablecostsofmeetingtheobligationsunderthecontractexceedtheeconomicbenefitsexpectedtobereceivedfromthecontract.Thecalculationofonerouscontractprovisionsincludesestimatesofallfuturecostsandincometooccur.Significantjudgementisappliedinthedeterminationofwhencontractsbecomeonerous.ManagementconcludedthatasresultofthedecisiontoclosethePMPdivisionon28May2018allfurtherlossesof£4.7mwouldberecognisedasanonerouscontractloss.SeeNote24forfurtherdetails.

HeldforsaleassetsInJanuary2019,theGrouptookthedecisiontoactivelymarkettheTuffnellsfreehold,longleaseholdpropertyandrelatedassets.Post-sale,theGroupwouldthenleasebacktheseproperties.Giventheabove,theGroupconsideredthatthefollowingcriteriaforrecognitionofassetsheldforsalehadbeenmet:

• Thepropertieswereavailableforimmediatesale,• Thepropertieswerebeingactivelymarketed,• Thesalewasconsideredhighlyprobable,• ThesalewasexpectedtoconcludewithinoneyearofJanuary2019.

Thereforethesepropertieshavebeenreclassifiedasassetsheldforsale.Thishasresultedin£0.6mofdepreciationrelatingtothesepropertiesnotbeingcharged.ForfurtherdetailsseeNote11.


1. Accounting policies cont.(6) Non-currentassetsheldforsaleanddisposalgroupsNon-currentassetsheldforsaleanddisposalgroupsareclassifiedasassetsheldforsalewhentheircarryingamountistoberecoveredprincipallythroughasaletransactionandasaleisconsideredhighlyprobable.Theyarestatedattheloweroftheircarryingamountorfairvaluelesscoststosell.

HeldforsaleassetsareassetsthathavemetallthecriteriarequiredbyIFRS5tobeclassifiedasheldforsale,atwhichpointtheyarederecognisedasnon-currentassets.

(7) DiscontinuedoperationsInaccordancewithIFRS5‘Non-currentassetsheldforsaleandDiscontinuedoperations’,thenetresultsofdiscontinuedoperationsarepresentedseparatelyintheGroupIncomestatement(andthecomparativesrestated)andtheassetsandliabilitiesofoperationsarepresentedseparatelyintheGroupbalancesheetiftheymeettheheldforsalecriteriaatthebalancesheetdate.

AcashgeneratingunitwouldmeettheclassificationofadiscontinuedoperationwhenconsideredmaterialtotheGroup’soverallresults.

(8) RevenueSmiths News – Sales of newspapers and magazines Salesofnewspapersandmagazinesarerecognisedwhencontroloftheproductshastransferred,thatis,whentheproductsaredeliveredtotheretailerandthereisnounfulfilledobligationthatcouldaffecttheretailer’sacceptanceoftheproducts,therisksofobsolescenceandlosshavebeentransferredtotheretailer.Goodsaresoldtoretailersonasaleorreturnbasis.

Revenueforgoodssuppliedwitharightofreturnisstatednetofthevalueofanyreturns.Newspapersandmagazinesareoftensoldwithretrospectivevolumediscountsbasedonaggregatesales.Revenuefromthesesalesisrecognisedbasedonthepricespecifiedinthecontract,netoftheestimatedvolumediscounts.Accumulatedexperienceisusedtoestimateandprovideforthediscountandreturns,usingtheexpectedvaluemethod,andrevenueisonlyrecognisedtotheextentthatitishighlyprobablethatasignificantreversalwillnotoccur.Areturnsreserveaccrualanddiscountaccrual(includedintradeandotherpayables)isrecognisedforexpectedvolumediscountsandrefundspayabletocustomersinrelationtosalesmadeuntiltheendofthereportingperiod.Arighttothereturnedgoods(includedinothercurrentassets)isrecognisedfortheproductsexpectedtobereturned.Noelementoffinancingisdeemedpresent,becausethesalesaremadewithshortcreditterms,whichisconsistentwithmarketpractice.

Areceivableisrecognisedwhenthegoodsaredelivered,sincethisisthepointintimethattheconsiderationisunconditionalbecauseonlythepassageoftimeisrequiredbeforethepaymentisdue.

Tuffnells – Delivery revenueDeliveryrevenueisrecognisedondeliverywhentherearenounfulfilledobligations.Retrospectivevolumediscountsbasedonaggregatesalesareoftengivenbasedontheaggregatesalesoverashortperiod.Revenueisonlyrecognisedtotheextentthatitishighlyprobableandasignificantreversalwillnotoccur.

Areceivableisrecognisedwhenthegoodsaredelivered,sincethisisthepointintimethattheconsiderationisunconditionalbecauseonlythepassageoftimeisrequiredbeforethepaymentisdue.

Accruedincomeonallrevenueisrecognisedwhenaservicehasbeenperformedbutaninvoicehasnotbeenraised,theGroupaccruedincomeisshort-termandinvoicedclosetotheservicebeingprovided.(9) CostofsalesandgrossprofitTheGroupconsiderscostofsalestoequatetocostofinventoriesrecognisedasanexpense,netimpairmentlossesonfinancialassetsanddistributioncostsastheseareconsideredtorepresentfortheGroupdirectcostsofmakingasale.

TheGroupconsidersgrossprofittoequalrevenuelesscostofsales.

(10)TaxationTaxontheprofitorlossfortheyearcomprisescurrentanddeferredtax.Taxisrecognisedintheincomestatement,excepttotheextentitrelatestoitemsrecognisedinothercomprehensiveincomeordirectlyinequity.Currenttaxistheexpectedtaxpayablebasedonthetaxableprofitfortheyear,usingtaxratesenacted,orsubstantivelyenactedatthebalancesheetdateandanyadjustmenttotaxpayableinrespectofpreviousyears.

Deferredtaxisprovidedonthebalancesheetliabilitymethod,providingfortemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheamountsusedfortaxationpurposes.Theamountofdeferredtaxprovidediscalculatedusingtaxratesenactedorsubstantivelyenactedatthebalancesheetdateandareexpectedtoapplywhentherelateddeferredtaxassetisrealisedorthedeferredtaxliabilityissettled.Deferredtaxassetsarerecognisedtotheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichthesetemporarydifferencescanbeutilised.

(11)DividendsInterimandfinaldividendsarerecordedinthefinancialstatementsintheperiodinwhichtheyarepaid.


INA

NC

IAL

STA

TE

ME

NT

S94


1. Accounting policies cont.(12)CapitalisationofinternallygenerateddevelopmentcostsExpenditureondevelopedsoftwareiscapitalisedwhentheGroupisabletodemonstrateallofthefollowing:thetechnicalfeasibilityoftheresultingasset;theability(andintention)tocompletethedevelopmentanduseit;howtheassetwillgenerateprobablefutureeconomicbenefits;andtheabilitytomeasurereliablytheexpenditureattributabletotheassetduringitsdevelopment.Subsequenttoinitialrecognition,internallygeneratedintangibleassetsarereportedatcostlessaccumulatedamortisationandaccumulatedimpairmentlosses,onthesamebasisasintangibleassetsthatareacquiredseparately.

(13)JointventuresTheGroupAccountsincludetheGroup’sshareofthetotalrecognisedgainsandlossesinitsjointventuresonanequityaccountedbasis.

Investmentsinjointventuresarecarriedinthebalancesheetatcostadjustedbypost-acquisitionchangesintheGroup’sshareofthenetassetsofthejointventures,lessanyimpairmentlosses.Thecarryingvaluesofinvestmentsinjointventuresincludeacquiredgoodwill.LossesinjointventuresthatareinexcessoftheGroup’sinterestinthejointventurearerecognisedonlytotheextentthattheGrouphasincurredlegalorconstructiveobligationsormadepaymentsonbehalfofthejointventure.

(14)Businesscombinations,goodwillandintangiblesTheGroupusestheacquisitionmethodofaccountingtoaccountforbusinesscombinations.Thecostofanacquisitionismeasuredatthefairvalueoftheassetsgiven,equityinstrumentsissued,liabilitiesincurredorassumedatthedateofexchange.Acquisitionrelatedcostsarerecognisedinprofitorlossasincurred.Anydeferredorcontingentpurchaseconsiderationisrecognisedatfairvalueovertheperiodofentitlement.Ifthecontingentpurchaseconsiderationisclassifiedasequity,itisnotremeasuredandsettlementisaccountedforinequity.Anydeferredorcontingentpaymentdeemedtoberemunerationasopposedtopurchaseconsiderationinnatureisrecognisedinprofitorlossasincurred,andexcludedfromtheacquisitionmethodofaccountingforbusinesscombinations.Identifiableassetsacquiredandliabilitiesandcontingentliabilitiesassumedinabusinesscombinationaremeasured,initially,attheirfairvaluesattheacquisitiondate,irrespectiveoftheextentofanynon-controllinginterest.Thenon-controllinginterestismeasured,initially,atthenon-controllinginterest’sproportionofthenetfairvalueoftheassets,liabilitiesandcontingentliabilitiesrecognised.Goodwillismeasuredastheexcessofthesumoftheconsiderationtransferred,theamountofanynon-controllinginterestsintheacquiree,andthefairvalueoftheacquirer’spreviouslyheldequityinterestintheacquiree(ifany)overthenetoftheacquisition-dateamountsoftheidentifiableassetsacquiredandtheliabilitiesassumed.

Goodwillarisingonallacquisitionsisinitiallyrecognisedasanassetatcostandissubsequentlymeasuredatcostlessanyaccumulatedimpairmentlosses.

Thecarryingvalueisreviewedannuallyforimpairmentorwhenevereventsorchangesincircumstancesindicatethatthecarryingamountmaynotberecoverable.Intangibleassetsarisingunderabusinesscombination(acquiredintangibles)arecapitalisedatfairvalueasdeterminedatthedateofexchangeandarestatedatfairvaluelessaccumulatedamortisationandimpairmentlosses.Amortisationofacquiredintangiblesischargedtotheincomestatementonastraight-linebasisovertheestimatedusefullivesasfollows:

Customerrelationships –2.5to7.5yearsTradename –5to10yearsSoftwareanddevelopmentcosts–3to7years

Computersoftwareandinternallygenerateddevelopmentcostswhicharenotintegraltotherelatedhardwarearecapitalisedseparatelyasanintangibleassetandstatedatcostlessaccumulatedamortisationandimpairmentlosses.

Assetsheldunderfinanceleasesaredepreciatedovertheirexpectedusefullivesonthesamebasisasownedassetsor,whereshorter,overthetermoftherelevantlease.AllintangibleassetsarereviewedforimpairmentinaccordancewithIAS36‘ImpairmentofAssets’whenthereareindicationsthatthecarryingvaluemaynotberecoverable.

(15)Property,plantandequipmentProperty,plantandequipmentassetsarestatedatcostlessaccumulateddepreciationandanyrecognisedimpairmentlosses.Nodepreciationhasbeenchargedonfreeholdland.Otherassetsaredepreciated,toaresidualvalue,onastraight-lineovertheirestimatedusefullives,asfollows:

Freeholdandlong-termleaseholdproperties–over20yearsShort-termleaseholdproperties –shorteroftheleaseperiodandtheestimatedremainingeconomiclifeFixturesandfittings –3to15yearsEquipment –5to12yearsComputerequipment –upto5yearsVehicles –upto5years

Assetsheldunderfinanceleasesaredepreciatedovertheirexpectedusefullivesonthesamebasisasownedassetsor,whereshorter,overthetermoftherelevantlease.Allproperty,plantandequipmentisreviewedforimpairmentinaccordancewithIAS36‘ImpairmentofAssets’whenthereareindicationsthatthecarryingvaluemaynotberecoverable.


1. Accounting policies cont.(16)LeasingLeasesareclassifiedasfinanceleaseswheneverthetermsoftheleasetransfersubstantiallyalltherisksandrewardsofownershiptothelessee.Allotherleasesareclassifiedasoperatingleases.Property,plantandequipmentheldunderfinanceleasesiscapitalisedinthebalancesheetatthelowerofthefairvalueorthepresentvalueoftheminimumleasepaymentsandisdepreciatedoveritsusefullife.Thecapitalelementsoffutureobligationsunderleasesareincludedasliabilitiesinthebalancesheet.Leasepaymentsareapportionedbetweenfinancechargesandreductionoftheleaseobligationsoastoachieveaconstantrateofreturnontheremainingbalanceoftheliability.

Propertyandequipmentandvehiclerentalspaidunderoperatingleasesarechargedtoincomeonastraightlinebasisovertheleaseterm.Thebenefitsofrentfreeperiodsandsimilarincentivesarecreditedtotheincomestatementonastraight-linebasistothefirstbreakclause.

(17)InventoriesInventoriescomprisegoodsheldforresaleandarestatedatthelowerofcostornetrealisablevalue.Inventoriesarevaluedusingaweightedaveragecostmethod.Costcomprisesdirectmaterialsand,whereapplicable,directlabourcostsandthoseoverheadsthathavebeenincurredinbringingtheinventoriestotheirpresentlocationandcondition.

(18)FinancialinstrumentsFinancialassetsandfinancialliabilitiesarerecognisedontheGroup’sbalancesheetwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.TheGroupderecognisesfinancialassetsandliabilitiesonlywhenthecontractualrightsandobligationsaretransferred,dischargedorexpire.

Financialassetscomprisetradeandotherreceivablesandcashandcashequivalents.Financialliabilitiescomprisetradepayables,financingliabilitiesandbankborrowings.

(19)TradereceivablesTradeandotherreceivablesareinitiallymeasuredatfairvalue,whichfortradereceivablesisequaltotheconsiderationexpectedtobereceivedfromthesatisfactionofperformanceobligations,plusanydirectlyattributabletransactioncosts.Subsequenttoinitialrecognitiontheseassetsaremeasuredatamortisedcostlessanyprovisionforimpairmentlossesincludingexpectedcreditlosses.InaccordancewithIFRS9theGroupappliesthesimplifiedapproachtomeasuringexpectedcreditlosseswhichusesalifetimeexpectedlossallowanceforalltradereceivables.Tomeasuretheexpectedcreditlosses,tradereceivableshavebeengroupedbasedonsharedcreditriskcharacteristicssuchastheageingofthedebtandthecreditriskofthecustomers.Anhistoricalcreditlossrateisthencalculatedforeachgroupandthenadjustedtoreflectexpectationsaboutfuturecreditlosses.TheGroupdoesnothaveanysignificantcontractassets.

Classification as trade receivablesTradereceivablesareamountsduefromcustomersforgoodssoldorservicesperformedintheordinarycourseofbusiness.Theyaregenerallydueforsettlementwithin30daysandarethereforeallclassifiedascurrent.Tradereceivablesarerecognisedinitiallyattheamountofconsiderationthatisunconditional,unlesstheycontainsignificantfinancingcomponents,inwhichcasetheyarerecognisedatfairvalue.TheGroupholdsthetradereceivableswiththeobjectiveofcollectingthecontractualcashflows,andsoitmeasuresthemsubsequentlyatamortisedcostusingtheeffectiveinterestmethod.DetailsabouttheGroup’simpairmentpoliciesandthecalculationofthelossallowanceareprovidedinNote17.

Duetotheshort-termnatureofthecurrentreceivables,theircarryingamountisconsideredtobethesameastheirfairvalue.

(20)TradeandotherpayablesTheseamountsrepresentliabilitiesforgoodsandservicesprovidedtotheGrouppriortotheendofthefinancialyearwhichareunpaid.Theamountsareunsecuredandareusuallypaidwithin30daysofrecognition.Tradeandotherpayablesarepresentedascurrentliabilitiesunlesspaymentisnotduewithin12monthsafterthereportingperiod.Theyarerecognisedinitiallyattheirfairvalueandsubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod.

(21)TreasuryCash and bank depositsCashandcashequivalentsinthebalancesheetcomprisecashatbankandinhandandshort-termdepositswithanoriginalmaturityofthreemonthsorless.Intheconsolidatedbalancesheet,bankoverdraftsareshownwithinborrowingsincurrentliabilities.Cashandcashequivalentsinthecashflowstatementcomprisecashatbankandinhandandbankoverdraftsheldfortradingpurposes.

Financial liabilities and equityFinancialliabilitiesandequityinstrumentsareclassifiedaccordingtothesubstanceofthecontractualarrangementsenteredinto.AnequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsoftheGroupafterdeductingallofitsliabilities.Equityinstrumentsissuedarerecordedattheproceedsreceived,netofdirectissuecosts.

Bank borrowingsInterestbearingbankloansandoverdraftsareinitiallymeasuredatfairvalue(beingproceedsreceived,netofdirectissuecosts),andaresubsequentlymeasuredatamortisedcost,usingtheeffectiveinterestratemethod.Financecharges,includingpremiumspayableonsettlementorredemptionsanddirectissuecostsareaccountedforonanaccrualsbasisandtakentotheincomestatementusingtheeffectiveinterestratemethodandareaddedtothecarryingvalueoftheinstrumenttotheextentthattheyarenotsettledintheperiodinwhichtheyarise.


INA

NC

IAL

STA

TE

ME

NT

S96


1. Accounting policies cont.(21)Treasurycont.Foreign currenciesFinancialstatementsofforeignoperationsTheassetsandliabilitiesofforeignoperations,includinggoodwillandfairvalueadjustmentsarisingonacquisitionofaforeignentityaretreatedasassetsandliabilitiesoftheforeignentityandaretranslatedatforeignexchangeratesrulingatthebalancesheetdate.Therevenuesandexpensesofforeignoperationsaretranslatedatanaverageratefortheperiodwherethisrateapproximatestotheforeignexchangeratesrulingatthedatesofthetransactions.

ForeigncurrencytransactionsTransactionsinforeigncurrenciesarerecordedusingtheraterulingatthedateofthetransaction.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesatthebalancesheetdatearetranslatedattheforeignexchangeraterulingatthatdate.Foreignexchangedifferencesarisingontranslationarerecognisedintheincomestatement.Non-monetaryassetsandliabilitiesthataremeasuredintermsofhistoricalcostinaforeigncurrencyaretranslatedusingtheexchangerateatthedateofthetransaction.Non-monetaryassetsandliabilitiesdenominatedinforeigncurrenciesthatarestatedatfairvaluearetranslatedatforeignexchangeratesrulingatthedatesthefairvaluewasdetermined.

(22)ProvisionsProvisionsarerecognisedwhentheGrouphasapresentlegalorconstructiveobligationasaresultofapasteventanditisprobablethatanoutflowofeconomicbenefitswillberequiredtosettletheobligation.Provisionsaremeasuredatthedirectors’bestestimateoftheexpenditurerequiredtosettletheobligationatthebalancesheetdateandifthisamountiscapableofbeingreliablyestimated.Ifsuchanobligationisnotcapableofbeingreliablyestimated,noprovisionisrecognisedandtheitemisdisclosedasacontingentliabilitywherematerial.Wheretheeffectismaterial,theprovisionisdeterminedbydiscountingtheexpectedfuturecashflows.

(23)RetirementbenefitcostsTheGroupoperatesanumberofdefinedcontributionschemesforthebenefitofitsemployees.PaymentstotheGroup’sschemesarerecognisedasanexpenseintheincomestatementasincurred.TheGroupoperatestwodefinedbenefitpensionschemes.ThelargestschemeTheWHSmithPensionTrust,isclosedtofurtheraccrual.ThechargetotheGroupofprovidingbenefitsforthesetwoschemesisdeterminedbytheProjectedUnitCreditMethod,withactuarialcalculationsbeingcarriedoutatthebalancesheetdate.ActuarialgainsandlossesarerecognisedinfullintheperiodinwhichtheyoccurintheGroupstatementofcomprehensiveincome.Theretirementbenefitobligationrecognisedinthebalancesheetrepresentsthepresentvalueofthedefinedbenefit,reducedbythefairvalueofschemeassets.AnassetceilingcapisappliedinaccordancewithIFRIC14withanadditionalliabilityrecognisedwherethereisacontractualobligationtomakefurtherpaymentsintothescheme.

(24)EmployeeBenefitTrustSmiths News Employee Benefit TrustThesharesheldbytheSmithsNewsEmployeeBenefitTrustarevaluedatthehistoricalcostofthesharesacquired.Thisvalueisdeductedinarrivingatshareholders’fundsandpresentedastheownsharereserveinlinewithIAS32‘FinancialInstruments:DisclosureandPresentation’.

(25)ShareschemesShare-based paymentsTheGroupoperatesseveralshare-basedpaymentschemes,beingtheSharesaveScheme,theExecutiveShareOptionScheme,theLTIPandtheDeferredBonusPlan.DetailsoftheseareprovidedintheDirectors’RemunerationreportandinNote31.

Equity-settledshare-basedschemesaremeasuredatfairvalueatthedateofgrant.Thefairvalueisexpensedwithacorrespondingincreaseinequityonastraight-linebasisovertheperiodduringwhichemployeesbecomeunconditionallyentitledtotheoptions.Thefairvaluesarecalculatedusinganappropriateoptionpricingmodel.Theincomestatementchargeisthenadjustedtoreflectexpectedandactuallevelsofvestingbasedonnon-marketperformancerelatedcriteria.

Administrativeexpensesanddistributionandmarketingexpensesincludethecostoftheshare-basedpaymentschemes.

(26)ChangesinaccountingpoliciesTheGrouphasappliedthefollowingstandardsandamendmentsforthefirsttimeforitsAnnualReportingperiodcommencing1September2018:

• IFRS9,‘FinancialInstruments’;• IFRS15,‘RevenuefromContractswithCustomers’;• ClassificationandMeasurementofShare-basedPaymentTransactions–AmendmentstoIFRS2;• AnnualImprovements2014–2016cycle;• TransferstoInvestmentProperty–AmendmentstoIAS40;and• Interpretation22,‘ForeignCurrencyTransactionsandAdvanceConsideration’.

TheGrouphadtochangeitsaccountingpoliciesandmakecertainretrospectiveadjustmentsfollowingtheadoptionofIFRS9andIFRS15.ThisisdisclosedinNote36.Mostoftheotheramendmentslistedabovedidnothaveanyimpactontheamountsrecognisedinpriorperiodsandarenotexpectedtosignificantlyaffectthecurrentorfutureperiods.


1. Accounting policies cont.(26)Changesinaccountingpoliciescont.New Standards and Interpretations not yet appliedAtthedateofauthorisationofthesefinancialstatements,thefollowingStandardsandInterpretationsthatarepotentiallyrelevanttotheGroupandwhichhavenotbeenappliedinthesefinancialstatementswereinissuebutnotyeteffective(andinsomecaseshadnotyetbeenadoptedbytheEU):

• IFRS16Leases.• IFRS17InsuranceContracts.• IFRIC23UncertaintyoverTaxTreatments.• AmendmentstoIFRS9–PrepaymentFeatureswithNegativeCompensation.• AmendmentstoIAS19:PlanAmendment,CurtailmentorSettlement.• AmendmentstoIAS28:Long-termInterestsinAssociatesandJointVentures.• AnnualImprovementstoIFRSStandards2015-2017Cycle.

TheGroupwillapplyIFRS16,whichreplacesIAS17,witheffectfrom1September2019.ThestandardwillhaveamaterialimpactfortheGroupasitintroducesanewlesseeaccountingmodelandrequirestherecognitionofassetsandliabilitiesforthemajorityofleases.Rentalcostscurrentlyrecognisedinoperatingprofitwillbereplacedbydepreciationoftheassetsandfinancecostsontheliabilities.Thetotalcashoutflowforleasepaymentswillnotchange.However,thepaymentsrelatedtotheprincipalliabilitieswillbepresentedascashoutflowsfromfinancingactivities,asopposedtothecurrenttreatmentascashoutflowfromoperatingactivities.

TheGroupintendstoapplyIFRS16usingthemodifiedretrospectiveapproach;thecumulativeeffectofinitialadoptionbeingrecognisedasanadjustmenttotheopeningbalanceofretainedearningsasat1September2019withnorestatementofcomparativeinformation.Theleaseliabilitiesontransitionwillbethepresentvalueofleasepaymentsdiscountedusingtheincrementalborrowingrateat1September2019.Theright-of-useassetwillbevaluedatanamountequaltoeithertheleaseliabilityorthecarryingamountasifIFRS16hadbeenappliedsincethestartofthelease,butusingthediscountrateat1September2019(thedateofinitialapplication),determinedonaleasebyleasebasis.TheGroupplanstotakeadvantageofpracticalexpedientsto:

• applyIFRS16onlytocontractspreviouslyidentifiedasleasesunderIAS17LeasesandIFRIC14DeterminingwhetheranArrangementcontainsaLease;

• excludeleaseswheretheleasetermis12monthsorlessfromthedateofinitialapplicationandclasssuchleasesasshort-termleases;• excludelowvalueassets;• excludeinitialdirectcostsfromthemeasurementoftheright-of-useassetatthedateofinitialapplication;• usehindsight,suchasindeterminingtheleasetermifthecontractcontainsoptionstoextendorterminate;• applyasinglediscountratetoaportfolioofleaseswithsimilarcharacteristics;and• relyonitsassessmentastowhetheraleaseisonerousbyapplyingIAS37Provisions,ContingentLiabilitiesandContingentAssetsimmediately

beforethedateofinitialapplicationasanalternativetoperforminganimpairmentreview.

At31August2019,theGroupheldasignificantnumberofoperatingleasesforwhichthefutureundiscountedminimumleasepaymentsamountedto£79.3masdisclosedinNote25totheconsolidatedfinancialstatements.OnadoptionofIFRS16,theexpectedeffectonthebalancesheetistherecognitionof‘rightofuse’assetsofaround£74.5m,acorrespondingleaseliabilityofaround£74.5m.Theexpectedeffectontheincomestatementin2020,basedontheleasesheldontransition,willbeanincreaseintheGroupannualdepreciationchargeofaround£16.8moffsetbyadecreaseinrentalchargesby£18.9mandanimprovementinoperatingprofitby£2.1m.Theinterestchargerelatingtoleasedcreditorswillalsoincreaseby£3.4m.TheGroupcurrentlyhas£1.4mofleaseincentivesand£0.4mofonerousleaseprovisions,thesewillbeincludedwithintherightofuseassetontransition.PostyearendtheGroupenteredintoasaleandleasebackforsixofitspropertiestheIFRS16impactisdisclosedwithinNote11.

Astheleaseliabilityisexpectedtomatchtherightofuseassetat1September2019thereisnoexpectedchangetodeferredtax.

TheGroupwillcontinuetoimplementandrefineproceduresandprocessestoapplythenewrequirementsofIFRS16.Asaresultofthisongoingwork,itispossiblethattheremaybesomechangestotheadoptionimpactoutlinedabove,beforethehalfyearresultsto28February2019areissued.However,atthistimethesearenotexpectedtobematerial.

ThecovenantrequirementsfortheGroup’scommittedfinancingfacilitiesarebasedon“FrozenGAAP”andthereforearenotimpactedbythetransitiontoIFRS16.

Therearenootherstandardsthatarenotyeteffectiveandthatwouldbeexpectedtohaveamaterialimpactontheentityinthecurrentorfuturereportingperiodsandonforeseeablefuturetransactions.

(27)RestatementofIncomeStatementTheprioryearincomestatementhasbeenrestated,topresentasplitofcoststocomplywiththeprinciplesofIAS1,thishasnoimpactontheoverallresultfortheperiod.


INA

NC

IAL

STA

TE

ME

NT

S98


2. Segmental analysisInaccordancewithIFRS8‘OperatingSegments’,managementhasidentifieditsoperatingsegments.Theperformanceoftheseoperatingsegmentsisreviewed,onamonthlybasis,bytheBoard.TheBoardprimarilyusesameasureofAdjustedoperatingprofitbeforetaxtoassesstheperformanceoftheoperatingsegments.However,theBoardalsoreceivesinformationaboutthesegments’revenue.

Thecontinuingoperatingsegmentsare:

Smiths News TheUKmarketleadingdistributorofnewspapersandmagazinesto27,000retailersacrossEnglandandWalesfrom39distributioncentres.

Tuffnells AleadingproviderofnextdayB2Bdeliveryofirregularweightanddimensionsconsignments.

TheBoardnolongerconsidersthepreviouslyreportedDMDsegmentareportablesegment.TheBoardtookthedecisiontorationalisethepropositionanditisnowincludedwithintheresultsofSmithsNews.TheresultsofSmithsNewshavebeenrestatedtoincludetheresultsofthepreviouslyreportedDMDsegment.

AsexplainedinNote11,theBooksbusiness,aleadingUKdistributorofphysicalanddigitalbooks,wasdisposedofon14February2018.Thebusinesshasbeenpresentedasadiscontinuedoperationandhasbeenincludedbelowwherenecessaryforthepurposeofreconciliation.

ThefollowingisananalysisoftheGroup’srevenueandresultsbyreportablesegment:

Revenue

£m 2019Restated*

2018

SmithsNews 1,303.3 1,361.6

Tuffnells 164.6 175.2

EliminationofIntragrouprevenue – (2.5)

Continuingoperations 1,467.9 1,534.3

Discontinuedoperations – 114.3

Totalcontinuinganddiscontinuedoperations 1,467.9 1,648.6

TheaccountingpoliciesofthereportablesegmentsarethesameastheGroup’saccountingpoliciesdescribedinNote1.

IntragrouprevenuerelatestoservicesprovidedbyTuffnellstoSmithsNewsinrespectofPassMyParcel.

2019 Restated*2018

£m

Adjustedoperating

profitAdjusted

items

Statutoryoperating

profit

Adjustedoperating

profitAdjusted

items

Statutoryoperating

profit

SmithsNews 43.6 (7.3) 36.3 38.9 (11.2) 27.7

Tuffnells (14.1) (53.5) (67.6) (5.0) (52.7) (57.7)

Continuingoperations 29.5 (60.8) (31.3) 33.9 (63.9) (30.0)

Discontinuedoperations* – – – 1.8 (10.6) (8.8)

Total continuing and discontinued operations 29.5 (60.8) (31.3) 35.7 (74.5) (38.8)

Netfinanceexpense (6.3) – (6.3) (5.5) – (5.5)

Profitbeforetaxation 23.2 (60.8) (37.6) 30.2 (74.5) (44.3)Discontinuedoperationsinthetableabovearepre-taxmeasures.PresentationintheGroupincomestatementfordiscontinuedoperationsareposttaxmeasures.

* TheabovetableshavebeenrestatedtoconsolidatetheresultsofDMDwithintheresultsofSmithsNews.DMDresultsfor2018wereasfollows:£26.5mrevenue,£3.0mofAdjustedoperatingprofit,(£0.3m)ofAdjustedItems,£2.7mofoperatingprofit.


2. Segmental analysis cont.InformationaboutmajorcustomersIncludedinrevenuesarisingfromSmithsNewsarerevenuesofapproximately£136.5m(2018:£141.3m)whicharosefromsalestotheGroup’slargestcustomer.Noothersinglecustomercontributed5.9%ormoreoftheGroup’srevenuein2019(2018:6.0%).

Segmentdepreciation,amortisationandnon-currentassetadditions

Depreciation

Amortisation

Impairment

Additionstonon-currentassets

£m 2019Restated*

2018 2019Restated*

2018 2019Restated*

2018 2019Restated*

2018

SmithsNews (2.8) (4.0) (2.4) (3.5) – (3.0) 5.4 3.9

Tuffnells (4.1) (4.6) (6.8) (6.8) (45.5) (46.1) 4.8 4.4

Continuingoperations (6.9) (8.6) (9.2) (10.3) (45.5) (49.1) 10.2 8.3

Discontinuedoperations – – – – – – – 0.6

Consolidated total (6.9) (8.6) (9.2) (10.3) (45.5) (49.1) 10.2 8.9

Additionstonon-currentassetsincludeintangibleassetsandproperty,plantandequipment.

* TheabovetableshavebeenrestatedtoconsolidatetheresultsofDMDwithintheresultsofSmithsNews.DMDresultsfor2018wereasfollows:£0.2mdepreciation,£0.3mofamortisation,£0.1mofadditionstonon-currentassets.

Geographicalanalysis

Revenuebydestination

Non-currentassetsbylocationofoperation

£m 2019 2018 2019 2018

UnitedKingdom 1,454.9 1,521.2 40.2 94.6

Spain 0.5 0.7 – –

France 1.2 1.7 – –

Germany 2.9 2.6 – –

Netherlands 4.1 3.6 – –

RestofWorld 4.3 4.5 – –

Continuing operations 1,467.9 1,534.3 40.2 94.6

Discontinued operations – 114.3 – –

Total continuing and discontinued operations 1,467.9 1,648.6 40.2 94.6

IFRS8requiresthatameasureofsegmentassetsshouldbedisclosedonlyifthatamountisregularlyprovidedtothechiefoperatingdecisionmakerandconsequentlynosegmentassetsaredisclosed.


INA

NC

IAL

STA

TE

ME

NT

S100


3. Operating profit/(loss)TheGroup’sresultsareanalysedasfollows:

2019 Restated*2018

£m Note AdjustedAdjusted

items Total AdjustedAdjusted

items Total

Revenue 1,467.9 – 1,467.9 1,534.3 – 1,534.3

Costofinventoriesrecognisedasanexpense (1,111.0) – (1,111.0) (1,154.5) – (1,154.5)

Netimpairmentlossesonfinancialassets (0.1) – (0.1) (0.4) – (0.4)

Distributioncosts (274.9) (1.0) (275.9) (274.7) (3.6) (278.3)

Gross profit 81.9 (1.0) 80.9 104.7 (3.6) 101.1

Otheradministrativeexpenses (50.2) (7.5) (57.7) (68.3) (7.1) (75.4)

Share-basedpaymentexpense 31 (0.4) – (0.4) – – –

Impairmentofassets 13 – (45.5) (45.5) – (46.1) (46.1)

Amortisationofintangibles 13 (2.4) (6.8) (9.2) (3.0) (7.1) (10.1)

Administrative expenses (53.0) (59.8) (112.8) (71.3) (60.3) (131.6)

Shareofprofitsfromjointventures 15 0.6 – 0.6 0.5 – 0.5

Operating profit 29.5 (60.8) (31.3) 33.9 (63.9) (30.0)

* TheabovenotehasbeenrestatedtocombineothercostofsalesanddistributioncostsastheGroupconsidersthesetoequatetothesametypeofexpense.

Theoperatingprofit/(loss)isstatedaftercharging/(crediting):

2019 2018

£m Note Continuing Discontinued Total Continuing Discontinued Total

Depreciationonproperty,plant&equipment 14 6.9 – 6.9 8.6 – 8.6

Amortisationofintangibleassets 13 9.2 – 9.2 10.3 – 10.3

Operatingleasecharges

occupiedlandandbuildings 10.1 – 10.1 10.2 0.5 10.7

equipmentandvehicles 15.5 – 15.5 16.7 0.1 16.8

Operatingleaserentalincome–landandbuildings (0.3) – (0.3) (0.2) – (0.2)

Writedownofinventoriesrecognisedasanexpense – – – – – –

(Loss)/gainondisposalofnon-currentassets (0.3) – (0.3) (0.4) – (0.4)

(Loss)/gainondisposalofnon-currentassetsheldforsale 12 – – – – (10.5) (10.5)

Staffcosts(excludingshare-basedpayments) 5 (124.5) – (124.5) 125.5 6.7 132.2

IncludedinadministrativeexpensesareamountspayablebytheCompanyanditssubsidiaryundertakingsinrespectofauditandnon-auditserviceswhichareasfollows:

£m 2019 2018

FeespayabletotheCompany’sauditorfortheauditoftheCompany’sannualaccounts–DeloitteLLP – 0.5

FeespayabletotheCompany’sauditorfortheauditoftheCompany’ssubsidiaries–DeloitteLLP 0.1 0.2

FeespayabletotheCompany’sauditorfortheauditoftheCompany’sannualaccounts–BDOLLP 0.2 –

FeespayabletotheCompany’sauditorfortheauditoftheCompany’ssubsidiaries–BDOLLP 0.2 –

Total non-audit fees 0.1 –

Total fees 0.6 0.7

DetailsoftheCompany’spolicyontheuseofauditorsfornon-auditservicesandhowtheauditor’sindependenceandobjectivitywassafeguardedaresetoutintheAuditCommitteereport.


4. Adjusted Items£m Note 2019 2018

Continuing operations

Networkandre-organisationcosts (1) (6.4) (3.1)

Property (2) – 0.7

Saleandleasebackcosts (3) (0.7) –

Amortisationofacquiredintangibles (4) (6.8) (7.1)

Pension (5) (2.2) –

BrierleyHillinsuranceclaim (6) (0.2) –

ImpairmentofTuffnellsassets (7) (45.5) (46.1)

PassMyParcelexitcosts (8) 0.3 (6.7)

ImpairmentofJack’sBeans (9) – (1.1)

NMWregulatorycompliance (10) 0.2 (0.5)

IPRsettlementincome (11) 0.5 –

Total before tax (60.8) (63.9)

Taxation 9.9 2.9



Lossondisposalofsubsidiary (12) – (10.5)

Re-organisationcosts (13) – (0.1)

Total before tax – (10.6)

Taxation – –

Total after taxation – (10.6)

Continuing and discontinued operations

Totalbeforetax (60.8) (71.6)

Taxation 9.9 2.9


TheGroupincurredatotalof£60.8m(2018:£63.9m)ofAdjustedItemsonacontinuingbasis,aftertax£50.9m(2018:£61.0m).

AdjustedItemsaredefinedintheaccountingpoliciesinNote1andintheglossaryonpage132,inthedirectors’opiniontheimpactofremovingtheseitemsfromtheAdjustedprofitgivethetrueunderlyingperformanceoftheGroupandcomprises:

(1) Networkandre-organisationcostsTheseareanalysedasfollows:

• ExecutiveTeamredundanciesof£0.9m. • Outsourcingofthesharedservicecentre£3.2m.• DMDrestructureof£1.2m.• Otherredundancyandre-organisationcostsof£1.1m.

Executive Team redundancies Costsof£0.9mhavebeenincurredrelatingtotherestructureoftheGroup’spreviousExecutiveTeam(2018:£nil).ThesecostsareconsideredtobeadjustinggiventhesizeandtheyenablecomparabilitybetweenyearswithequivalentcostsoftheExecutiveTeam.AstherestructureofthepreviousExecutiveTeamhasbeencompleted,nofurthercostsareexpectedtobeincurred.

Outsourcing central functions £3.2mofthecurrentyearcostrelatestotheoff-shoringofselectedtechnology,customerservicesandfinancefunctions.Thisprocesshasbeencommunicatedtoemployees.The£3.2mcomprisesaprovisionof£2.5mrelatedtoexpectedredundancycostsaspartofthistransitionand£0.7mrelatedtolegalandsetupcosts.Furthercostsoftheoffshoringareexpectedtobeincurredduringthenextfinancialyear.Thesecostsareconsideredadjustingastheimpactofthetransitiontoanoffshoredcentralfunctionisconsideredaoneoff.Therunningcostsoncethecentreisfullyoperationalwillbetreatedasnon-adjusting.


INA

NC

IAL

STA

TE

ME

NT

S102


4. Adjusted Items cont.(1) Networkandre-organisationcostscont.DMD restructure costs InJune2019,DMD’sbiggestcontractwithBritishAirwayswasended.Assoonasnoticewasgiven,thebusinesssetaboutachangeprogrammetorightsizetheoperations,closesitesandreduceteamstoreflectthelossofthiscontract.Thiswasdesignedtoensurethebusinesswasabletocontinuetodeliverprofitsinfuturewithitssmallercustomercontractbase.Intotal,costsof£1.2mhavebeenincurredonredundanciesandtransferringoperationsintotheSmithsNewsSloughdepot.

Thesecostsareconsideredtobeadjustinggiventhesizeandtheyenablecomparabilitybetweenyearswithequivalentcostsofthedaytodayoperationsofthebusiness.

Other redundancy and re-organisation costs £1.1mhasbeenincurredinredundancyandotherre-organisationinstreamliningtheSmithsNewsandTuffnellsbusinesses(2018:£nil).

Theprioryearincludedabortiveintegrationcostsof£1.6mwithregardtotheintegrationprogrammeannouncedattheendofthepreviousfinancialyear.

Costsassociatedwiththere-organisationprogrammesareconsideredAdjustedItemsgiventheyarepartofastrategicprogrammetodrivefuturecostsavingsandthereforetheimpactofthecostsinthecurrentyeardistortsthetrueunderlyingperformanceoftheGroup.

(2) PropertyDuringtheprioryear,theGroupmadethestrategicdecisiontotransferthepreviouslyvacantSloughdepottotheTuffnellsbusiness,resultinginacreditfromthereleaseofitsonerousleaseprovision.OnerouschargesonpropertiesarechargedthroughAdjustedItemsastheyformpartoftheGroup’sstrategicrestructuringprogrammetogeneratefuturecostsavings.ThereversalofchargeshasalsobeenmadeinAdjustedItemsforconsistency.

(3) SaleandleasebackprofessionalfeesInJanuary2019,theGrouptookthedecisiontoselltheTuffnellsfreeholdandlongleaseholdpropertyportfolioandleaseitback.DuringtheyeartheGroupincurred£0.7mofcostsrelatedtothesaleandleasebackprogramme.TheGroupannouncedthesaleofsomepropertiespostyearend–forfurtherdetailsseeNote11.Giventhemagnitudeandone-offnatureofthetransactionasawholeitisconsideredtobeanAdjusteditem.

(4) AmortisationofacquiredintangiblesAchargeof£6.8m(2018:£7.1m)hasbeenrecognisedrelatingtoamortisationofacquiredintangiblesinTuffnells.ThisisconsideredanAdjusteditemasitallowscomparisonbetweensegmentsand,therefore,consistencyintheperformanceoftheGroupataconsolidatedlevel.

(5) PensionsSmithsNewsincurredprofessionalcostsof£2.1m,asaresultoftheWHSmithPensionTrust(oneoftheGroup’sdefinedbenefitpensionschemes)enteringintoaninsurancebackedannuity‘buy-in’oftheSchemeassets,withinthesectionoftheTrustsponsoredbySmithsNews,whichminimisestheGroup’sexposuretofuturepensionobligations.ThesepensionchargesarenotconsideredtobepartofnormaloperationsduetotheirsizeandnatureandarethereforeconsideredtobeanAdjusteditem.

Thereisafurther£0.1minrelationtoequalisationofGuaranteedMinimumPayments(GMP)oftheTuffnellsParcelExpresspensionscheme.ThisisconsideredtobeanAdjusteditemasitwasduetoaone-offchangeintheinterpretationofthelawrelatingtopreviouslyrecognisedcost,thisisconsideredoutofcontrolofmanagementandthechargerelatestoserviceinpriorperiodsandthereforeisconsideredanAdjusteditem.

(6) BrierleyHillinsuranceclaimTheGroupincurred£0.2mofinsurancesettlementcoststhisyearinrelationtoafatalityatTuffnells’BrierleyHilldepotthatoccurredinJanuary2016.TheGrouphadpreviouslyrecognisedthecostofthefineandlegalcostsinrelationtothis.Giventhemagnitude,one-offnatureandtoensureconsistenttreatmentwithpreviouslyreportedcostsitisconsideredtobeanAdjusteditem.


4. Adjusted Items cont.(7) ImpairmentofTuffnellsassetsManagementreviewedthecarryingvalueoftheTuffnellsbusinessunitandconcludedthatanimpairmentchargeof£45.5m(2018:£46.1m)isrequired.Thiscomprises£6.0m(2018:£46.1m)goodwill,£26.4m(2018:nil)acquiredintangibles,£0.4m(2018:nil)otherintangiblesand£12.7m(2018:nil)property,plantandequipment.ForfurtherdetailsforthereasonandhowtheimpairmentswerecalculatedseeNotes13and14.

Theimpairmentofgoodwillhasnotaximpact;theimpairmentofacquiredintangibleshasresultedinthereleaseof£4.5mdeferredtaxliabilityasacredittoAdjustedItemsincometax.Adeferredtaxassetof£2.5mhasbeenrecognisedwhichhascreditedAdjustedItemsincometaxasaresultoftheimpairmentoftheotherassets.

ItisconsideredadjustingduetoitssignificantvalueandaidscomparabilitybetweenyearstoshowtheunderlyingperformanceoftheGroup.

(8) PassMyParcel(PMP)exitcostsFollowingareviewofthePMPpropositionon23May2018,theBoarddecidedtoclosethedivisionandasaresultachargeof£6.7mwasbookedintheprioryear.Thiswassplit£4.7mofcontractlossesand£2.0mofimpairmentofassociatedassets.

Managementconcludedthatlossesonwindingdownthedivisionrepresentedanonerouscontractwithacostof£4.7mrecognised.ThisrepresentedtheforecastexcessofcostsoverincomefromthedatetheGrouptookthedecisiontoclosethedivision.Ofthisbalance,£2.5minprovisionswasheldattheyearended31August2018tocovertheremainingcoststocloseallcontracts.In2019,£2.2mofcostswereincurredandbookedagainstthisprovision.Theremaining£0.3moftheprovisionhasbeenreleasedthisyear.

Afurther£2.0mofimpairmentchargessplit£1.0mtangibleand£1.0mintangiblewererecognisedtowriteoffthenon-currentassetsrelatingtothedivision.

(9) ImpairmentofJack’sBeansIn2018,theGrouptookthedecisiontoconsiderthesaleoftheJack’sBeansdivisiontofocusonitscorebusinesses.BidsreceivedindicatedthatthenetbookvalueoftheJack’sBeansassetswereoverstatedandsotheywereimpairedby£1.1m.TheGroupsubsequentlydisposedoftheassetsforproceedsequivalenttotheirrevisednetbookvalueinJanuary2019.Giventhemagnitude,theone-offnatureandtheGroup’sstrategytofocusonitscorebusinessesitwasconsideredtobeanAdjustingitem.

(10)NMWregulatorycomplianceTheGrouphasbeenindiscussionwithHMRCregardinganhistoricalunderpaymentinrelationtoamisapplicationofnationalminimumwagelegislationinTuffnells.Aprovisionamountingto£1.3mwasmadeintheprioryearfinancialstatements.Ofthisbalance,£0.5mrelatedspecificallytotheestimatedfine.The£0.5mfinewasclassifiedasadjustingin2018.Theunderpaymentsandfineswereallsettledduring2019.Theremaining£0.2mofthe£0.5mfineprovisionhasbeenreleasedin2019.ThereleasewasalsorecognisedasanAdjustingitemtobeconsistentwithpriorperiodsandduetoitsone-offnatureandmagnitude.

(11)IPRsettlementincomeTheGroupreceivedaone-off£0.5mofincomeinrelationtothesettlementofanIPRdisputeconcerningtheproposeduseofasimilarbrandtooneoftheGroup’sbrands.Thisisconsideredadjustinggivenitssizeandone-offnature.

(12)LossondisposalofsubsidiaryOn14February2018,theGroupcompletedthesaleoftheBooksbusinessatalossof£10.5m–fulldetailsareprovidedinNote12.

(13)Re-organisationcostsRe-organisationcostsof£nil(2018:£0.1m)wereincurredbytheBooksbusinessduringtheyear.Re-organisationcostsareconsideredtobeAdjustedItemsastheyarepartoftheGroup’swiderrestructuringprogrammetodelivercostsavingsandwereincurredpriortothedisposal.Thesearedisclosedseparatelyfromotherre-organisationcostsonthebasistheBooksbusinesswasdiscontinued.


INA

NC

IAL

STA

TE

ME

NT

S104


5. Staff costs and employees(1) StaffcostsTheaggregateremunerationofemployees(includingexecutivedirectors)was:

£m Note 2019 2018

Continuing

Wagesandsalaries 113.5 112.6

Socialsecurity 9.5 11.0

Pensioncosts 6 1.9 1.9

Total 124.9 125.5

Pensioncostsshownaboveexcludechargesandcreditsforpensionschemefinancingandactuarialgainsandlossesarisingonthepensionschemes.Wagesandsalariesshownaboveexcludeamountsrelatedtosharebasedpaymentcharges.Onacontinuingbasistherewasachargeof£0.4min2019(2018:£nil)relatingtosharebasedpayments(refertoNote3).Therewas£nil(2018:£6.7m)ofstaffcostsrelatingtodiscontinuedoperations;thesearenotincludedintheabovetable.

(2) EmployeenumbersTheaveragetotalmonthlynumberofemployeesrelatingtocontinuingoperations(includingexecutivedirectors)was:

Number 2019 2018

Operations 3,263 3,707

Supportfunctions 1,763 1,137

Total 5,026 4,844

6. Retirement benefit obligationDefinedbenefitpensionschemesTheGroupoperatestwodefinedbenefitschemes,theWHSmithPensionTrust(the‘PensionTrust’)andtheTuffnellsParcelsExpressPensionScheme.

TheGroup’sdefinedbenefitpensionplansarefinalsalarypensionplans,whichprovidebenefitstomembersintheformofaguaranteedlevelofpensionpayableforlife.Thelevelofbenefitsprovideddependsonmembers’lengthofserviceandtheirsalaryinthefinalyearsleadinguptoretirement.Benefitsarepaidtomembersfromtrustee-administeredfunds.Thetrusteesareresponsibleforensuringthattheplanissufficientlyfundedtomeetcurrentandfuturebenefitpayments.Ifinvestmentexperienceisworsethanexpected,theGroup’sobligationsareincreased.

Thetrusteesmustagreeafundingplanwiththesponsoringcompanysuchthatanyfundingshortfallisexpectedtobemetbyadditionalcontributionsandinvestmentperformance.Inordertoassessthelevelofcontributionsrequired,triennialvaluationsarecarriedoutwithplan’sobligationsmeasuredusingprudentassumptions(relativetothoseusedtomeasureaccountingliabilities).Thetrustees’otherdutiesincludemanagingtheinvestmentofplanassets,administrationofplanbenefitsandexercisingofdiscretionarypowers.

Theamountsrecognisedinthebalancesheetareasfollows:

£m

WH SmithPension

Trust

TuffnellsParcels

Express 2019

WHSmithPension

Trust

TuffnellsParcels

Express 2018

Presentvalueofdefinedbenefitobligation (470.2) (13.4) (483.6) (428.6) (11.8) (440.4)

Fairvalueofassets 494.2 10.5 504.7 583.1 9.6 592.7

Net surplus/(loss) 24.0 (2.9) 21.1 154.5 (2.2) 152.3

Amountsnotrecognisedduetoassetlimit (24.0) – (24.0) (154.5) – (154.5)

– (2.9) (2.9) – (2.2) (2.2)

Additionalliabilityrecognisedduetominimumfundingrequirements – – – (5.1) – (5.1)

Pension liability – (2.9) (2.9) (5.1) (2.2) (7.3)

Theprimarydefinedbenefitpensionscheme(theSmithsNewssectionoftheWHSmithPensionTrust)hasanIAS19surplusof£24.0mat31August2019(2018:£154.5msurplus)whichtheGroupdoesnotrecogniseintheaccountsastheGroupdoesnothaveanunconditionalrighttoeitherareductionoffuturecontributionsorrighttoarefundonclosureofthescheme.ThevaluationofthedefinedbenefitschemesfortheIAS19disclosureshavebeencarriedoutbyindependentqualifiedactuariesbasedonupdatingthemostrecentfundingvaluationsoftherespectiveschemes,adjustedasappropriateformembershipexperienceandchangesintheactuarialassumptions.

TheactuarialvaluationforfundingpurposesproducesaschemedeficitduetodifferentassumptionsandcalculationmethodologiesusedcomparedtothoseunderIAS19,mostnotablytheuseofadiscountratethatreflectstheactualinvestmentstrategy,ratherthancorporatebondyieldsasrequiredunderIAS19.


6. Retirement benefit obligation cont.WHSmithPensionTrustTheactuarialvaluationoftheSmithsNewssectionoftheWHSmithPensionTrustat31March2018wascompletedandresultedinnofurtherfundingbeingrequiredfromtheGroupatthistime.Followingthecompletionofthe‘buy-in’inOctober2018wheretheWHSmithPensionTrustenteredintoaninsurancebackedannuityoftheSchemeassetswithinthesectionoftheTrustsponsoredbySmithsNewsthepensionschemesactuarynotifiedtheGroupthatfuturecashcontributionsbytheGrouptoaddressthedeficitwouldnolongerberequiredandtheGrouphasreleasedtheIFRIC14liability.The‘buy-in’annuityisrecognisedasaplanassetandthedifferenceinvaluebetweenthevalueoftheinsuranceassetreceivedof£425matthedateoftransactionandtheassettransferredinexchangeforthepolicy£555misconsideredanactuarialremeasurementrecognisedwithinothercomprehensiveincomeandisoffsetbythereleaseoftheIFRIC14liability.

TuffnellsParcelsExpressschemeThetriennialactuarialvaluationoftheTuffnellsParcelsExpressschemeasat1April2016wasanagreedliabilityof£4.3m.GuaranteedMinimumPension(“GMP”)equalisationhasledtoanincreaseinschemeliabilitiesby£0.1m.Deficitrecoverycontributionstotheschemehavebeenagreedat£0.3mperannum.

Theweightedaveragedurationoftheschemesis17yearsforthePensionTrustand25yearsfortheTuffnellsParcelsExpressscheme.

Theprincipallong-termassumptionsusedtocalculateschemeliabilitiesonallGroupschemesare:

%p.a. 2019 2018

Discountrate 1.8 2.6

Inflationassumptions–CPI 2.2 2.2

Inflationassumptions–RPI 3.2 3.2

DemographicassumptionsforWHSmithPensionTrust:

2019 2018

Lifeexpectancyatage65 Male Female Male Female

Membercurrentlyaged65 21.5 23.3 21.4 23.3


DemographicassumptionsforTuffnellsParcelsExpressscheme:

2019 2018

Lifeexpectancyatage65 Male Female Male Female




INA

NC

IAL

STA

TE

ME

NT

S106


6. Retirement benefit obligation cont.InflationassumptionsPensionincreasesindefermentinbothSchemesaregrantedinlinewithCPIforalldeferredmembers.RPIinflationisusedtodeterminetheincreasesforpensionscurrentlyinpayment,subjecttoanyannualcapsandfloors.

Asummaryofthemovementsinthenetbalancesheetasset/(liability)andamountsrecognisedintheGroupIncomeStatementandOtherComprehensiveIncomeareasfollows:

£m

Fairvalueofscheme

assets

Definedbenefit

obligation

ImpactofIFRIC14

ondefinedbenefit

pensionschemes Total

At 31 August 2017 620.1 (473.6) (158.0) (11.5)

Currentservicecost – (0.1) – (0.1)

Netinterestcost 14.4 (10.9) (3.7) (0.2)

Administrationexpenses (0.2) – – (0.2)

Total amount recognised in income statement 14.2 (11.0) (3.7) (0.5)

Actualreturnonschemeassets(excludingamountsincludedinnetinterestexpense) (23.4) – (1.7) (25.1)

Actuarialgainsarisingfromexperience – (3.1) – (3.1)

Actuarialgainsarisingfromchangesinfinancialassumptions – 21.9 – 21.9

Actuarialgainsarisingfromchangesindemographicassumptions – 2.5 – 2.5

Changeinsurplusnotrecognised – – 3.8 3.8

Amount recognised in other comprehensive income (23.4) 21.3 2.1 –

Employercontributions 4.7 – – 4.7

Employeecontributions – – – –

Benefitpayments (22.9) 22.9 – –

Amounts included in cash flow statement (18.2) 22.9 – 4.7

At 31 August 2018 592.7 (440.4) (159.6) (7.3)

Currentservicecost – – – –

Netinterestcost 14.9 (11.0) (4.1) (0.2)

Pastservicecost – (0.1) – (0.1)

Administrationexpenses (0.4) – – (0.4)

Total amount recognised in income statement 14.5 (11.1) (4.1) (0.7)

Actualreturnonschemeassets(excludingamountsincludedinnetinterestexpense) (83.0) – 5.2 (77.8)

Actuarialgains/(loss)arisingfromexperience – 7.3 – 7.3

Actuarialgains/(loss)arisingfromchangesinfinancialassumptions – (60.1) – (60.1)

Actuarialgains/(loss)arisingfromchangesindemographicassumptions – (0.4) – (0.4)

Changeinsurplusnotrecognised – – 134.5 134.5

Amount recognised in other comprehensive income (83.0) (53.2) 139.7 3.5

Employercontributions 1.6 – – 1.6

Employeecontributions – – – –

Benefitpayments (21.1) 21.1 – –

Amounts included in cash flow statement (19.5) 21.1 – 1.6

At 31 August 2019 504.7 (483.6) (24.0) (2.9)

Included within current liabilities (0.4)

Included within non-current liabilities (2.5)

Thechargeforthecurrentservicecostisincludedwithinadministrativeexpenses.‘Netinterestcosts’arecalculatedbyapplyingadiscountratetothenetdefinedbenefitassetorliabilityschemeassetsandareincludedwithinfinanceincomeandexpense.


6. Retirement benefit obligation cont.Inflationassumptionscont.Ananalysisoftheassetsatthebalancesheetdateisdetailedbelow:

£m 2019 2018

Giltsandswapsportfolio QuotedandUnquoted 10.8 362.9

Corporatebonds QuotedandUnquoted – 216.0

Equityfunds Unquoted 10.5 9.6

Insurancepolicy Unquoted 470.2 –

Cashandother Unquoted 13.2 4.2

504.7 592.7

Thereturnonschemeassetsduring2019wasalossof£83.0m(2018:alossof£23.4m)duetoachangeininvestmentstrategytopurchaseaninsurancepolicyfortheWHSmithPensionTrust.

ThevalueoftheassetsheldbytheTrustinConnectGroupPLCissuedfinancialinstrumentsis£nil(2018:£nil).

Sensitivityofresultstochangesinthemainassumptions:

AssumptionChangein

assumptionImpacton

IAS19liabilities

Discountrate +/-0.5% (£41.8m)/+£35.5m

Rateofinflation +/-0.5% £41.3m/+(£36m)

Lifeexpectancy +/-1year £22.4m/+(£15.5m)

Thesensitivityanalysisforeachsignificantactuarialassumptionhasbeendeterminedbasedonreasonablypossiblechangestotheassumptionsattheendofthereportingperiod.Itisbasedonachangeinthekeyassumptionwhileholdingallotherassumptionsconstant.Theeffectofachangeinmorethanoneassumptionwillbedifferenttothesumoftheindividualchanges.Whencalculatingthesensitivities,thesamemethodologyusedtocalculatetheliabilityrecognisedinthebalancesheethasbeenapplied.Themethodologyandtypesofassumptionsusedinpreparingthesensitivityanalysisisconsistentwiththepreviousperiod.

ThecumulativeamountofactuarialgainsandlossesrecognisedinthestatementofcomprehensiveincomesincetheadoptionofIFRSisalossof£26.8m(2018:alossof£30.5m).

TheGroup’sdefinedbenefitpensionplanshaveanumberofareasofrisk,themostsignificantofwhicharesetoutbelow:

• LifeexpectancyThemajorityoftheplans’obligationsaretoprovideapensionforthelifeofthemember,soincreasesinlifeexpectancywillresultinanincreaseintheplans’liabilities.

• InflationriskTheplans’benefitobligationsarelinkedtoinflationandhigherinflationwillleadtohigherliabilities.

• ChangesinbondyieldsFallingbondyieldstendtoincreasethefundingandaccountingliabilities.Theschemesbothholdinvestmentsincorporateandgovernmentbondswhichofferadegreeofmatching,i.e.themovementinassetsarisingfromchangesinbondyieldspartiallymatchesthemovementinthefundingoraccountingliabilities.Inthisway,theexposuretomovementsinbondyieldsisreduced.

However,theWHSmithPensionTrustenteredintoaninsurancebackedannuity‘buy-in’oftheSchemeassets,withinthesectionoftheTrustsponsoredbySmithsNews,whichminimisestheGroup’sexposuretofuturepensionobligations(Note32).

DefinedcontributionschemesTheGroupoperatesanumberofdefinedcontributionschemes.Fortheyearended31August2019,contributionsfromtherespectiveemployingcompanyforcontinuingoperationstotalled£1.9m(2018:£1.9m)whichisincludedintheIncomeStatement.

AdefinedcontributionplanisapensionplanunderwhichtheGrouppayscontributionstoanindependentlyadministeredfund–suchcontributionsarebaseduponafixedpercentageofemployees’pay.TheGrouphasnolegalorconstructiveobligationstopayfurthercontributionstothefundoncethecontributionshavebeenpaid.Members’benefitsaredeterminedbytheamountofcontributionspaidbytheCompanyandthemember,togetherwithinvestmentreturnsearnedonthecontributionsarisingfromtheperformanceofeachindividual’schoseninvestmentsandthetypeofpensionthememberchoosestobuyatretirement.Asaresult,actuarialrisk(thatbenefitswillbelowerthanexpected)andinvestmentrisk(thatassetsinvestedinwillnotperforminlinewithexpectations)fallontheemployee.


INA

NC

IAL

STA

TE

ME

NT

S108


7. Finance costs£m Note 2019 2018


Interestonbankoverdraftsandloans (5.1) (4.1)

Amortisationofloanarrangementfees (0.5) (0.5)

Interestpayableonfinanceleases (0.1) (0.6)

Total interest cost on financial liabilities at amortised cost (5.7) (5.2)

Netinterestexpenseondefinedbenefitobligation 6 (0.2) (0.2)

Unwindingofdiscountonprovisions–trading 24 (0.4) (0.1)

Finance costs – continuing operations (6.3) (5.5)

Finance costs – continuing and discontinued operations (6.3) (5.5)

8. Income tax expense2019 2018

£m Adjusted Adjusted Items Total Adjusted AdjustedItems Total


Currenttax 2.9 (1.4) 1.5 5.6 (1.9) 3.7

Adjustmentinrespectofprioryear 0.9 – 0.9 (1.0) – (1.0)

Total current tax charge 3.8 (1.4) 2.4 4.6 (1.9) 2.7

Deferredtax–currentyear (0.1) (9.1) (9.2) 0.6 (1.0) (0.4)

Deferredtax–prioryear 0.1 – 0.1 0.3 – 0.3

Deferredtax–impactofratechange – 0.6 0.6 – – –

Total tax (credit)/charge – continuing operations 3.8 (9.9) (6.1) 5.5 (2.9) 2.6

Effective tax rate 16.4% (16.2%) 19.4% (7.3%)

Taxcharge–discontinuedoperations – – – 0.4 (0.4) –

Tax charge – continuing and discontinued operations 3.8 (9.9) (6.1) 5.9 (3.3) 2.6

Theeffectiveadjustedincometaxrateforcontinuingoperationsintheyearwas16.4%(2018:19.4%).AftertheimpactofAdjustedItemsof£9.9m(2018:£2.9m),theeffectivestatutoryincometaxrateforcontinuingoperationswas(16.2)%(2018:(7.3)%).

CorporationtaxiscalculatedatthemainratesofUKcorporationtax,thosebeing19.0%(2018:19.0%).Taxationforotherjurisdictionsiscalculatedattheratesprevailingintherespectivejurisdictions.

TheimpairmentofTuffnellsgoodwillcreatesadisallowableexpense;theimpairmentofacquiredintangibleshasresultedinthereleaseof£4.5mdeferredtaxliabilityasacredittoAdjustedItemsincometax.Adeferredtaxassetof£2.5mhasbeenrecognisedwhichhascreditedAdjustedItemsincometaxasaresultoftheimpairmentoftheotherassets.SeeNotes4and13fordetailsrelatingtotheimpairments.


8. Income tax expense cont.Thetaxchargefortheyearcanbereconciledtothelossintheincomestatementasfollows:

£m 2019 2018

Loss before tax (37.6) (35.5)

TaxonprofitatthestandardrateofUKcorporationtax19.0%(2018:19.0%) (7.1) (6.7)

Expensesnotdeductiblefortaxpurposes 1.3 9.8

Non-taxableincome – (0.5)

Share-basedpayments – 0.6

Adjustmentinrespectofprioryears (1.0) (0.6)

ImpactofchangeinUKtaxrate 0.6 –

Impactofhigheroverseastaxrates 0.1 –

Tax (credit)/charge (6.1) 2.6

ExpensesnotdeductiblefortaxpurposesarecomprisedmainlyofthetaxeffectoftheimpairmentofgoodwillinTuffnells.SeeNote4.

Taxchargestoothercomprehensiveincomeanddirectlyinequity

£m 2019 2018


Currenttaxrelatingtothedefinedbenefitpensionscheme (0.3) (0.7)

Deferredtaxrelatingtoretirementbenefitobligations 1.0 0.7

Tax charge/(credit) to other comprehensive income and directly in equity – continuing operations 0.7 –

Tax charge to other comprehensive income and directly in equity – discontinued operations – –

Tax charge/(credit) to other comprehensive income and directly in equity – continuing and discontinued operations 0.7 –

9. DividendsAmountspaidandproposedasdistributionstoequityshareholdersintheyears:

2019Per share

2018Pershare

2019£m

2018£m

Paid and proposed dividends for the year

Interimdividend–paid – 3.1p – 7.6

Finaldividend–proposed 1.0p – 2.5 –

1.0p 3.1p 2.5 7.6

Recognised dividends for the year

Finaldividend–prioryear – 6.7p – 16.5

Interimdividend–currentyear – 3.1p – 7.6

– 9.8p – 24.1

Thereisaproposedfinaldividendof1.0ppersharefortheyearended31August2019(2018:nil).


INA

NC

IAL

STA

TE

ME

NT

S110


10. Earnings per share2019 2018

Earnings£m

Weightedaverage

number ofshares million

Pence per share

Earnings£m

Weightedaverage

numberofsharesmillion

Pencepershare

Weightedaveragenumberofsharesinissue 247.7 247.7

SharesheldbytheESOP(weighted) (1.3) (1.7)

Basic earnings per share (EPS)


Adjustedearningsattributabletoordinaryshareholders 19.4 246.4 7.9p 22.9 246.0 9.3p

AdjustedItems (50.9) (61.0)

Earnings attributable to ordinary shareholders (31.5) 246.4 (12.9p) (38.1) 246.0 (15.5p)


Earnings attributable to ordinary shareholder – 246.4 – 1.3 246.0 0.5p

Total – continuing and discontinued operations

Adjustedearningsattributabletoordinaryshareholders 19.4 246.4 7.9p 24.2 246.0 9.8p

AdjustedItems (50.9) (71.2)

Earnings attributable to ordinary shareholders (31.5) 246.4 (12.9p) (47.0) 246.0 (19.1p)

Diluted earnings per share (EPS)

Effectofdilutiveshareoptions – –

Effectofdilutiveshareoptionsadjusting 0.7 0.7


DilutedadjustedEPS 19.4 247.1 7.9p 22.9 246.7 9.3p

DilutedEPS (31.5) 246.4 (12.9p) (38.1) 246.0 (15.5p)

Discontinued operations – diluted EPS – 247.1 – (8.9) 246.0 (3.6p)

Total – continuing and discontinued operations

DilutedadjustedEPS 19.4 247.1 7.9p 24.2 246.7 9.8p

DilutedEPS (31.5) 246.4 (12.9p) (47.0) 246.0 (19.1p)

Dilutivesharesincreasethebasicnumberofsharesat31August2019by0.7mto246.4m(31August2018:246.7m).

ThecalculationofdilutedEPSreflectsthepotentialdilutiveeffectofemployeeincentiveschemesof0.7mdilutiveshares(31August2018:0.7m).

DilutivesharesareonlydilutiveforthepurposesoftheGroup’sadjustedmeasure,whereaprofitisrecognised.TheapplicationofthedilutivesharestotheAdjustedprofitsmeasurereducestheprofitpershare.WheretheGroup’sstatutorymeasuresarelossmaking,thepotentialdilutiveeffectofemployeeincentiveschemesisantidilutive,inthattheywouldreducethelosspershare.Accordingly,theyarenotappliedtothestatutorycalculationwithbasicanddilutiveEPSbeingthesame.


11. Discontinued operations and assets held for sale£m 2019 2018

Non-currentassetsheldforsale 16.8 0.5

TuffnellspropertyportfolioInJanuary2019theGrouptookthedecisiontoenterintoasaleandleasebackarrangementforthe“Tuffnellspropertyportfolio”madeupof12freeholdandthreelongleaseholdpropertiesincludingrelatedassets,theportfoliohasnetbookvalueof£16.8mbeing:£13.6mfreeholdproperty,£1.1mlong-termleaseholdproperty,£0.1mshortleasehold,£0.5mfixturesandfittingsand£1.5mofequipment.

On23September2019,theGroup’ssubsidiary,TuffnellsParcelsExpressLimited(Tuffnells),exchangedcontractsinrespectoftheproposedsaleandleasebackofsixdistributiondepots,ofwhichthreewerefreeholdandthreewerelongleaseholdproperties,toUrbanLogisticsPropCo1(AC)Limited(UrbanLogistics),asubsidiaryofUrbanLogisticsREITplc.Completionsubsequentlytookplaceon27September2019.

ThesalepricereceivedfromUrbanLogisticswas£9.9m.Atcompletion,thisfirsttrancheofpropertieswassubsequentlyleasedbackfromUrbanLogisticson20yearleaseterms,withmarketrentpayableat£0.7mperannum,subjecttomarketinflation.Ineachcase,theleasesareguaranteedbytheCompany.TheexpectedimpactunderIFRS16willbetorecogniseagainondisposalof£0.7m,aleasecreditorof£8.0m,arightofuseassetof£3.2m,annualdepreciationof£0.2mandyear1interestof£0.4m.

TheGroupcontinuestomarkettheremainingpropertiesandexpectstosellthepropertiesbyFebruary2020.FurtherinformationisincludedwithinNote32.

Jack’sBeansInJanuary2019,theGroupsoldtheassetsrelatingtotheJack’sBeansdivisionforconsiderationof£0.5m.Thedivisionwasnotconsideredtomeetthedefinitionofadiscontinuedoperationgiventhesizeoftheoperationmakinguplessthan1%oftheGroupstotalrevenue.ThedecisiontosellthedivisionwasmadeinAugust2018,toenabletheGrouptofocusonitscorebusinesses.Thebidsreceivedindicatedanexcessofnetbookvalueof£1.0m,therefore,theGroupimpairedtheassetsdownto£0.5minthepriorfinancialyearandmovedthemintonon-currentassetsheldforsale.

BooksTheBooksbusinesswasclassifiedasheldforsaleon31August2017astheGroupwasactivelymarketingthebusiness.Itsubsequentlydisposedofthebusinesson14February2018.Assuch,theresultsoftheBooksbusinessarealsoclassifiedasdiscontinued.

Theresultsofdiscontinuedoperations,whichhavebeenincludedwithintheconsolidatedincomestatement,areasfollows:

12 months to Aug 2019 12monthstoAug2018

£m Adjusted Adjusted Items Total Adjusted AdjustedItems Total

Revenue – – – 114.3 – 114.3

Expenses – – – (112.5) (10.6) (123.1)

Operating profit – – – 1.8 (10.6) (8.8)

Financecosts – – – (0.1) – (0.1)

Profit before tax – – – 1.7 (10.6) (8.9)

Incometaxexpense – – – (0.4) 0.4 –

Profit from discontinued operations – – – 1.3 (10.2) (8.9)

Duringtheyearcashoutflowfromoperatingactivitiesattributedtodiscontinuedoperationsamountedto£nil(2018:inflow£8.8m)andpaid£nil(2018:£4.3m)inrespectofinvestingactivities.Therewerenocashflowsassociatedwithfinancingactivitiesattributabletodiscontinuedoperations.


INA

NC

IAL

STA

TE

ME

NT

S112


12. Disposal of subsidiariesTheGroupdisposedoftheBooksbusinesson14February2018.

Thenetassetsofthebusinessatthedateofdisposalwere:

£m 2018

Goodwill 9.7

Intangibleassets 3.6

Property,plantandequipment 4.1

Inventories 20.7

Tradeandotherreceivables 32.7

Cashandbankbalances 4.6

Tradeandotherpayables (45.9)

Corporationtaxliability (0.1)

Deferredtaxliabilities (0.3)

Provisions (0.5)

Net assets disposed 28.6

Grossproceedsreceived 18.7

Disposalcosts (1.5)

Releaseofdeferredconsiderationliability 0.9

Netassetsdisposed (28.6)

Loss on disposal (10.5)

Totalconsideration

Satisfiedby:

Cash 18.7

Net cash inflow arising on disposal

Equityconsideration 6.0

Disposalproceedstorepayoverdraft* 12.7

Consideration received in cash and cash equivalents 18.7

Less:cashandcashdepositsdisposed (4.6)

Less:cashdisposalcosts (1.5)

Net cash inflow arising from disposal of Books business 12.6

* AspartofthesaleandpurchaseagreementaGroupoverdraftbalancewassettledwhichwasintrinsicallylinkedtotheBooksbusiness.

Thelossondisposalisincludedinthe2018profitfortheyearfromdiscontinuedoperations.

£m 2018

NetcashinflowarisingfromdisposalofBooksbusiness 12.6

Cashconsiderationreceivedintheyearending31August2018arisingfromdisposalofEducation&Care 0.3

Net cash inflow arising from disposals 12.9


13. Intangible assetsAcquiredintangibles

£m GoodwillCustomer

relationships Tradename Software

Internallygenerated

developmentcosts

Computersoftware

costs Total

Cost:

At1September2018 57.8 29.3 30.7 0.8 7.1 12.5 138.2

Additions – – – – 0.4 1.0 1.4

Disposals – – – – (0.1) (2.1) (2.2)

At 31 August 2019 57.8 29.3 30.7 0.8 7.4 11.4 137.4

Accumulated amortisation:

At1September2018 (46.1) (15.3) (11.4) (0.8) (5.4) (8.5) (87.5)

Amortisationcharge – (3.7) (3.1) – (0.6) (1.8) (9.2)

Disposals – – – – – 2.3 2.3

Impairment (6.0) (10.3) (16.2) – – (0.4) (32.9)

At 31 August 2019 (52.1) (29.3) (30.7) (0.8) (6.0) (8.4) (127.3)

Net book value at 31 August 2019 5.7 – – – 1.4 3.0 10.1

Cost:

At1September2017 57.8 29.3 30.7 0.8 6.4 11.5 136.5

Additions – – – – 0.7 1.1 1.8

Disposals – – – – – (0.1) (0.1)

At 31 August 2018 57.8 29.3 30.7 0.8 7.1 12.5 138.2

Accumulated amortisation:

At1September2017 – (11.3) (8.3) (0.7) (3.9) (5.8) (30.0)

Amortisationcharge – (4.0) (3.1) (0.1) (0.4) (2.7) (10.3)

Disposals – – – – – – –

Impairment (46.1) – – – (1.0) – (47.1)

At 31 August 2018 (46.1) (15.3) (11.4) (0.8) (5.4) (8.5) (87.4)

Net book value at 31 August 2018 11.7 14.0 19.3 – 1.8 4.0 50.8

TheGroupleasessoftwareundervariousfinanceleasearrangements.Thenetbookvalueoffinanceleasescontainedwithinthesoftwarebalanceaboveis£nil(2018:£0.2m).

ThenetbookvalueoftheGroup’sacquiredintangiblessplitbyCGUisincludedinthetablebelow.

Goodwill Acquiredintangibles Total

£m 2019 2018On

acquisition 2019 2018On

acquisition 2019 2018On

acquisition

DMD 5.7 5.7 5.7 – 0.2 2.6 5.7 5.9 8.3

SmithsNews – – – – 0.3 – – 0.3

Tuffnells – 6.0 52.1 – 33.1 58.1 – 39.1 110.2

5.7 11.7 57.8 – 33.3 61.0 5.7 45.0 118.8


INA

NC

IAL

STA

TE

ME

NT

S114


13. Intangible assets cont.ImpairmenttestsgoodwillGoodwillisnotamortised,buttestedannuallyforimpairmentormorefrequentlyifthereareindicationsthatgoodwillmightbeimpairedwiththerecoverableamountbeingdeterminedfromvalueinusecalculations.Therecoverableamountsofthecombinedcashgeneratingunitsaredeterminedfromthevalueinusecalculations.TheGrouppreparescashflowforecastsderivedfromthemostrecentplanforthefollowingasapprovedbytheBoardandextrapolatesthesecashflowsonanestimatedgrowthrateintoperpetuity.

Therateusedtodiscounttheforecastcashflowsisincludedinthetablebelow,beingtheGroup’sweightedaveragecostofcapitaladjustedforindustryandmarketrisk.

ThetablebelowincludesthekeyassumptionsusedtocalculatetheGroup’scashgeneratingunitvalueinuse:

Tuffnells DMD

2019 2018 2019 2018

Averageplanrevenuegrowth 2.2% 1.4% 2.5%* 0.0%

Posttaxdiscountrate 11.5% 9.5% 10.5% 9.5%

Pretaxdiscountrate 20.0% 8.1% 19.9% 8.7%

Long-termgrowthrate 2.0% 2.0% 0.0% 0.0%

* AveragegrowthofrevenuerelatestoyearsFY21-FY23

IngeneratingthesebudgetstheBoardhasconsideredtheoverallstrategyoftheGroup,theprincipalandemergingrisksanduncertaintiesinherentwithinthebusiness,aswellasmakinganumberofkeystrategicplanningassumptionswhicharenotedbelow:

1. NosignificantimpactontradingasaresultoftheEUExitorotherpoliticalchange;2. ModestrevenuegrowthinTuffnellsintheassessmentperiod;3. DeliveryofmarginimprovementinTuffnells,drivenbyefficienciesbothinoperatingandoverheadcostsintheassessmentperiod;and4. Continueddeclineinsalesofprintedmediaduringtheassessmentperiodoffsetbyoverheadefficienciesintheassessmentperiod.

ConsistentwithIAS36revenuesinrelationtoenhancementofassetshasnotbeenincluded.

SensitivitytochangesinkeyassumptionsImpairmenttestingisdependentonmanagement’sestimatesandjudgements,particularlyastheyrelatetotheforecastingoffuturecashflows,thediscountratesselectedandexpectedlong-termgrowthrates.

TheGrouphasconductedsensitivityanalysisontheimpairmenttestofeachoftheCGUsclassifiedwithincontinuingoperations.

TuffnellsThecontinueddeteriorationofperformancewhichwasdue,inpart,totheweakeningofconsignmentvolumesincomparisontotheprioryearhasresultedinlossesof£14.1mintheTuffnellsbusinessunit(2018:£5.0m).ThisweakeninghasimpactedthefutureoutlookandhasnegativelyimpactedthevalueinuseoftheTuffnellsCGUandresultedintheGrouprecordinganimpairmentof£6.0magainstthevalueofthegoodwillasitisconsideredtohavenorecoverablebasis.

TheTuffnellsCGUhasarecoverableamountofnegative£0.6mbasedontheassumptionsinthetableabove;theeffectofareasonablypossiblechangeintheassumptionsisdisclosedinthetablebelow.Thisvaluationhasresultedinthevaluationbasisforremainingassetstobetheloweroftheirnetbookvalueorthefairvaluelesscoststosell.Thishasresultedinfurtherimpairmentsbeyondthatofgoodwillforfurtherdetails;seesectiononotherassetsbelowandNote14.WhiletheCGUrecoverableamountwillbeimpactedbythechangesintheassumptionsbelowitwouldnotresultinfurtherimpairmentstootherassets.

Planscenario Change

Effectonvalueinuse

£m

Long-termgrowthrate(%) % -/+0.5% 2.1/(1.9)

Posttaxdiscountrate(%) % -/+1% 5.8/(4.5)

Averagerevenuegrowth % -0.2% (16.7)

Reductionincostsavings £m 3.0 (8.2)

DMDTheDMDCGUhasarecoverableamountof£7.1mwhichprovidesheadroomof£1.4mabovethecarryingvalueofgoodwillbasedontheassumptionsinthetableabove;theeffectofareasonablypossiblechangeintheassumptionsisdisclosedinthetablebelow.

Planscenario Change

Effectonvalueinuse

£m

Long-termgrowthrate(%) % -/+1% 0.6/(0.5)

Posttaxdiscountrate(%) % -/+1% (0.7)/0.8

ReductioninCGUprofit % -10% (1.2)


13. Intangible assets cont.OtherIntangiblesTuffnells Parcels ExpressThevalueinusecalculationperformedfortheTuffnellsbusinessunitnolongersupportstheintangibleassetsrelatingtothisbusinessunit,seeoverleaffordetailsoftheassumptionsusedandreasonforthisdeclineinvalue.

TheGrouphasdeemedthefairvaluelesscosttoselltobe£nil.Asboththefairvalueandvalueinusenolongersupporttheseassets,animpairmentchargeof£26.9m(2018:nil)hasbeenrecognised,split,acquiredintangibles£26.5mandcomputersoftware£0.4m.

Pass My ParcelIncludedwithincostofsalesis£nil(2018:£1.0m)inrelationtotheimpairmentofintangibleassetsinthePMPdivision.ThisisincludedwiththeSmithsNewsCGU,furtherdetailsofwhichareincludedwithinNote4.

14. Property, plant and equipment

Land&buildings

£mFreehold

propertiesLong-termleasehold

Short-termleasehold

Fixturesandfittings

Equipmentandvehicles Total

Cost:

At1September2018 14.0 1.3 13.6 5.4 42.2 76.5

Additions 0.2 0.3 0.2 0.7 7.4 8.8

Disposals – – (0.2) (0.4) (11.3) (11.9)

Classifiedasheldforsale (14.0) (1.3) (0.2) (1.2) (2.6) (19.3)

At 31 August 2019 0.2 0.3 13.4 4.5 35.7 54.1

Accumulated depreciation:

At1September2018 (0.2) (0.3) (8.7) (3.6) (24.9) (37.7)

Depreciationcharge – (0.4) (0.6) (1.3) (4.6) (6.9)

Transferbetweenassetclasses – 0.3 (0.4) 0.6 (0.6) (0.1)

Disposals 0.1 – 0.2 0.4 10.9 11.6

Impairments (0.5) – (1.7) (0.9) (9.5) (12.6)

Classifiedasheldforsale 0.6 0.1 0.1 0.7 1.0 2.5

At 31 August 2019 – (0.3) (11.1) (4.1) (27.7) (43.2)

Net book value at 31 August 2019 0.2 – 2.3 0.4 8.0 10.9

Cost:

At1September2017 14.1 1.5 12.6 4.9 42.7 75.8

Additions – – 1.3 0.9 6.9 9.1

Transferbetweenassetclasses – – – – – –

Disposals (0.1) (0.2) (0.3) (0.4) (4.0) (5.0)

Classifiedasheldforsale – – – – (3.4) (3.4)

At 31 August 2018 14.0 1.3 13.6 5.4 42.2 76.5

Accumulated depreciation:

At1September2017 – (0.4) (7.7) (3.5) (22.9) (34.5)

Depreciationcharge (0.2) – (1.0) (1.3) (6.1) (8.6)

Transfersbetweenassetclasses – – – 0.6 (0.6) –

Disposals – 0.1 – 0.6 3.8 4.5

Impairments – – – – (2.0) (2.0)

Classifiedasheldforsale – – – – 2.9 2.9

At 31 August 2018 (0.2) (0.3) (8.7) (3.6) (24.9) (37.7)

Net book value at 31 August 2018 13.8 1.0 4.9 1.8 17.3 38.8

TheGroupleasesplantandequipmentunderanumberoffinanceleasearrangementsandhastheoptiontopurchasetheequipmentattheendofeachlease.Thenetbookvalueoffinanceleasescontainedwithinthesebalancesis£0.2mat31August2019(2018:£3.7m).


INA

NC

IAL

STA

TE

ME

NT

S116


14. Property, plant and equipment cont.TuffnellsThevalueinusecalculationperformedfortheTuffnellsbusinessunitresultedinavalueinuseofnegative£0.6m,thereforetheassetsrelatingtothethisbusinessunitareconsideredtobenolongersupported;seeNote13fordetailsoftheassumptionsusedandreasonforthisdeclineinvalue.

TheGrouphasthereforedeemedamoreappropriatevaluationmethodologytobethelowerofnetbookvalueorfairvaluelesscoststosell.Theproperty,plantandequipmentrelatingtotheTuffnellsbusinessunithasbeenvaluedat£1.6mthereforeresultinginanimpairmentchargeof£12.6m(2018:£nil).

OtherImpairmentsof£1.0mand£1.0mwererecognisedintheprioryearrelatingtothewritedownofJack’sBeansandwriteoffofthePassMyParcelassetsrespectivelytotheirNBV;furtherdetailisincludedwithinNote4.

15. Interests in joint venturesTheGroup’sshareoftheresults,assetsandliabilitiesofjointventuresisasfollows:

£m 2019 2018

Revenue 5.4 5.1

Profitaftertax 0.5 0.5

Non-currentassets 1.8 1.5

Currentassets 2.8 2.5

Totalassets 4.6 4.0

Currentliabilities (1.8) (1.8)

Non-currentliabilities (0.4) –

Totalliabilities (2.2) (1.8)

Goodwill 2.9 2.9

Share of net assets 5.3 5.1

Dividendsof£0.1m(2018:£0.2m)werereceivedintheyearto31August2019fromjointventures.

TheGrouphasa50%interestintheordinarysharesofRascalSolutionsLimited,acompanyincorporatedinEngland(2018:50%),whichinturnowns100%oftheordinarysharesofOpen-ProjectsLimited.ThelateststatutoryaccountsofRascalSolutionsLimitedweredrawnupto31August2019.TheGroupalsohasa50%investmentinFMDLimited,theholdingcompanyofWorldwideMagazineDistributionLimited,acompanyincorporatedinEngland(2018:50%).ThelateststatutoryaccountsofFMDLimitedweredrawnupto31July2018.BothFMDLimitedandWorldwideMagazineDistributionLimitedarecurrentlyintheprocessofliquidation.

16. Inventories£m 2019 2018

Goodsheldforresale 15.5 12.4

Rawmaterialsandconsumables 0.7 0.9

Inventories 16.2 13.3

17. Trade and other receivables

£m 2019Restated*

2018

Tradereceivables 87.2 86.9

Provisionforexpectedcreditlosses (0.3) (0.5)

86.9 86.4

Otherdebtors 32.1 36.7

Prepayments 2.8 3.9

Accruedincome 2.4 2.7

Trade and other receivables 124.2 129.7

* Thebalanceshavebeenrestatedtoreflectthereturnsreserveaccrualof£23.4m(2018:£25.5m)previouslynetoffagainsttradereceivableswithinothercreditorsandthereturnsreserveassetof£20.2m(2018:£22.5m)netoffagainsttradepayablesincludedwithinotherdebtors.SeeNote36forfurtherinformation.


17. Trade and other receivables cont.TradereceivablesTheaveragecreditperiodtakenonsaleis22days(2018:20days).Tradereceivablesaregenerallynon-interestbearing.

ThefollowingtableprovidesinformationabouttheGroup’sexposuretocreditriskandECLsagainstcustomerbalancesasat31August2019underIFRS9:

2019 20181

£m

Grosscarrying amount

Loss allowance

Net carrying amount

Grosscarryingamount

Baddebtprovision

Netcarryingamount

Current(notoverdue) 84.5 (0.1) 84.4 83.8 – 83.8

30-60daysoverdue 2.0 (0.1) 1.9 2.0 – 2.0

61-90daysoverdue 0.4 – 0.4 0.4 – 0.4

91-120daysoverdue – – – 0.5 (0.3) 0.2

Over120daysoverdue 0.3 (0.1) 0.2 0.2 (0.2) –

87.2 (0.3) 86.9 86.9 (0.5) 86.4

Note:1. Thetableaboveprovidesinformationabouttheageingoftradereceivablesasat31March2018underIAS39.TheGrouphasadoptedIFRS9starting1September2018usingthetransitionoption

availableinthestandardbydisclosingtheimpactasanadjustmenttoopeningretainedearningsatthedateofinitialapplication.Underthisoption,thecomparativeinformationisnotrestated.

ThefollowingtableprovidesinformationabouttheGroup’slossratesappliedagainstcustomerbalancesasat31August2019underIFRS9:

% 2019

Current(notoverdue) 0.1

30-60daysoverdue 2.9

61-90daysoverdue 6.1

91-120daysoverdue –

Over120daysoverdue 18.4

Ofthetradereceivablesbalanceattheendoftheyear:

• Onecustomer(2018:one)hadanindividualbalancethatrepresentedmorethan10%ofthetotaltradereceivablesbalance.Thetotalofthiswas£13.0m(2018:£13.2m);and

• Afurtherthreecustomers(2018:seven)hadindividualbalancesthatrepresentedmorethan5%ofthetotaltradereceivablesbalance.Thetotalofthesewas£17.0m(2018:£32.8m).

Movementintheallowancefordoubtfuldebts:

£m 2019 2018

At1September 0.5 0.5

Impairmentlossesrecognised (0.1) 0.5

Amountswrittenoffasuncollectible (0.3) (0.4)

Amountsrecoveredduringtheyear 0.2 (0.1)

Amountsreleasedduringtheyear – –

At31August 0.3 0.5

Thedirectorsconsiderthatthecarryingamountoftradeandotherreceivablesapproximatestheirfairvaluewhichisconsideredtobealevel2methodologyofvaluingthem.

OtherdebtorsandprepaymentsThelargestitemsincludedwithinthisbalanceare£20.2m(2018:£22.5m)returnsreserveasset,£7.9m(2018:£6.8m)ofpublisherdebtors.


INA

NC

IAL

STA

TE

ME

NT

S118


18. Trade and other payables

£m 2019Restated*

2018

Tradepayables (114.4) (116.3)

Othercreditors (47.0) (43.0)

Accruals (12.1) (16.1)

Deferredincome (0.2) (0.2)

(173.7) (175.6)

* Thebalanceshavebeenrestatedtoreflectthereturnsreserveaccrualpreviouslynetoffagainsttradereceivableswithinothercreditorsandthereturnsreserveassetnetoffagainsttradepayablesincludedwithinotherdebtors.SeeNote2forfurtherinformation.

Includedwithinothercreditorsisabalanceof£23.4m(2018:£25.5m)relatingtothereturnsreserveaccrual.

Tradeandotherpayablesprincipallycompriseamountsoutstandingfortradepurchasesandongoingcosts.Theaveragecreditperiodtakenfortradepurchasesis31days(2018:31days).Nointerestischargedontradepayables.Thedirectorsconsiderthatthecarryingamountoftradeandotherpayablesapproximatestotheirfairvalueusingalevel2valuation.

19. Cash and borrowingsCashandborrowingsbycurrency(Sterlingequivalent)areasfollows:

£m Sterling Euro USDollar OtherTotal 2019 2018

Cashandbankdeposits 20.9 1.9 0.8 0.4 24.0 18.0

Overdrafts (16.1) – – – (16.1) (9.3)

Netcashandcashequivalents 4.8 1.9 0.8 0.4 7.9 8.7

Revolvingcreditfacility–disclosedwithincurrentliabilities (30.0) – – – (30.0) (38.0)

Termloan–disclosedwithinnon-currentliabilities (49.3) – – – (49.3) (48.8)

Totalborrowings (95.4) – – – (95.4) (96.0)

Net borrowings (74.5) 1.9 0.8 0.4 (71.4) (78.1)

Total borrowings

Amountdueforsettlementwithin12months (46.1) – – – (46.1) (47.2)

Amountdueforsettlementafter12months (49.3) – – – (49.3) (48.8)

(95.4) – – – (95.4) (96.1)

CashandbankdepositscomprisecashheldbytheGroupandshort-termbankdepositswithanoriginalmaturityofthreemonthsorless.Thecarryingamountoftheseassetsapproximatestheirfairvalue.

InOctober2017,theGroupenteredintobankingfacilitiesof£175.0mwithsixrelationshipbankswithatermwhichrunsuntilJanuary2021.Thefacilitycomprisesofatermloanof£50.0mwithnoamortisationandarevolvingcreditfacility(RCF)for£125.0m(seeNote20).The£46.0mdueforsettlementwithin12monthsrelatestotheRCFandoverdraft.

AvailableGroupbankfacilitiesareoutlinedinNote20.Interestpayableunderthefacilityinplaceat31August2019iscalculatedasthecostofonemonthLIBORplusaninterestmarginofbetween1.35%and2.35%dependentonthenetdebt/AdjustedEBITDAcovenantratio.Theweightedaverageinterestratefortheyearwas5.5%(2018:4.9%).


19. Cash and borrowings cont.ReconciliationofliabilitiesarisingfromfinancingactivitiesThetablebelowdetailschangesintheGroup’sliabilitiesarisingfromfinancingactivities,includingbothcashandnon-cashchanges.Liabilitiesarisingfromfinancingactivitiesarethoseforwhichcashflowswere,orfuturecashflowswillbe,classifiedintheGroup’sconsolidatedstatementofcashflowsascashflowsfromfinancingactivities.

£m Note1September

2018Financing

cashflowsNewfinance

leasesOther

changes31August

2019

TermLoan 19 48.8 – – 0.5 49.3

Revolvingcreditfacility 19 38.0 (8.0) – – 30.0

Financeleases 5.3 (2.8) – – 2.5

Total 92.1 (10.8) – 0.5 81.8

£m Note1September

2017Financing

cashflowsNewfinance

leasesOther

changes31August

2018

TermLoan 19 80.0 (30.0) – (1.2) 48.8

Revolvingcreditfacility 19 – 24.1 – 13.9 38.0

Financeleases 8.5 (3.8) – 0.6 5.3

Total 88.5 (9.7) – 13.3 92.1

Otherchangesincludeinterestaccrualsandpayments.

Analysisofnetdebt

£m Note 2019 2018

Cashandcashequivalents 19 7.9 8.7

Currentborrowings 19 (30.0) (38.0)

Non-currentborrowings 19 (49.3) (48.8)

Net borrowings (71.4) (78.1)

Financeleaseliabilities 21 (2.5) (5.3)

Net debt (73.9) (83.4)

Themovementinnetdebtintheperiodincludes£0.5mloanfeeamortisation.

Cashandcashequivalentsincludescashof£24.0m(2018:£18.0m)offsetby£16.0m(2018:£9.2m)ofoverdrafts.

20. Financial instrumentsTreasurypolicyTheGroupoperatesacentralisedtreasuryfunctiontomanagetheGroup’sfundingrequirementsandfinancialrisksinlinewiththeBoardapprovedtreasurypoliciesandproceduresandtheirdelegatedauthorities.Treasury’sroleistoensurethatappropriatefinancingisavailableforrunningthebusinessesoftheGrouponadaytodaybasis,whilstminimisinginterestcost.Notransactionsofaspeculativenatureareundertaken.Dealingsarerestrictedtothosebankswithsuitablecreditratingsandcounterpartyriskandcreditexposureismonitoredfrequently.

CapitalriskmanagementTheGroupmanagesitscapitaltoensurethatentitiesintheGroupwillbeabletocontinueasagoingconcernwhilemaximisingthereturntostakeholdersthroughtheoptimisationofthedebtandequitybalance.ThecapitalstructureoftheGroupconsistsofdebt,whichincludestheborrowings,cashandcashequivalentsasdisclosedinNote19andequityattributabletoequityholdersoftheparent,comprisingissuedcapital,reservesandretainedearningsasdisclosedintheGroupStatementofChangesinEquity.

TheonlyexternallyimposedcapitalrequirementsfortheGrouparedebttoEBITDA,fixedchargecoverandinterestcoverunderthetermsofthebankfacilities,withwhichtheGrouphasfullycompliedduringboththecurrentyearandtheprioryear.Tomaintainoradjustitscapitalstructure,theGroupmayadjustthedividendpaymenttoshareholdersand/orissuenewshares.TheGroup’scapitalisonlyrestrictedbydistributablereserves.

TheBoardregularlyreviewsthecapitalstructure.Aspartofthisreview,theBoardconsidersthecostofcapitalandtherisksassociatedwitheachclassofcapital.TheGroupintendstotakeamoreprudentanddisciplinedapproachtocapitalmanagement.Weexpectfreecashfromoperationstobesufficienttofundtheinvestmentneededforrecovery,withthesurplususedtoreducenetdebtwhilealsomaintaininganattractivetotalshareholderreturn.TheGroupistargetingareducednetdebt/EBITDAratioof1xby2021,withrepaymentachievedthroughacombinationofsurplusfreecashfromoperationsaswellasproceedsfromthesaleandleasebackofselectedfreeholdandlongleaseproperties.TheGroup’sfacilitiesincludeafrozenGAAPclauseandthenet/EBITDAratioisstatedonthisbasis.


INA

NC

IAL

STA

TE

ME

NT

S120


20. Financial instruments cont.LiquidityriskTheGroupmanagesliquidityriskbymaintainingadequatereservesandbankingfacilitiesandbymonitoringforecastandactualcashflows.ThefacilitiesthattheGrouphasatitsdisposaltofurtherreduceliquidityriskaredescribedbelow.

Asat31August2019,theGrouphad£175.0mcommittedbankfacilitiesinplace(2018:£175.0m).Bankfacilitiescomprised:

• a£50.0msyndicatedtermloan;and• a£125.0msyndicatedrevolvingcreditfacility,

whichtogetherexpireinJanuary2021.

ThefacilitydescribedaboveissubjecttothefollowingcovenantswhicharesubjecttoafrozenGAAPclause:

• Leveragecover–thenetdebt:AdjustedEBITDAratiowhichmustremainbelow2.75x.At31August2019theratiowas1.9x(2018:1.8x);• Interestcover–theconsolidatednetinterest:AdjustedEBITDAratiowhichmustremainabove4.0x.Asat31August2019theratiowas7.2x

(2018:9.6x);• Fixedchargecover–theratioofAdjustedEBITDAtoconsolidatedfixedchargesisnotlessthan1.75xto1.Asat31August2019theratiowas

2.1x(2018:2.3x);and• Guarantorcover–theannualturnover,grossassetsandpre-taxprofitsoftheguarantorscontributeatanytime80%ormoreoftheannual

consolidatedturnover,grossassetsandpre-taxprofitsoftheGroupforeachofitsfinancialyears.Theguarantors,whichareall100%ownedorwhollyownedsubsidiariesoftheConnectGroupPLC,areeachofConnectGroupPLC,SmithsNewsHoldingsLimited,SmithsNewsTradingLimitedandTuffnellsParcelsExpressLimited.

At31August2019,theGrouphadavailable£95.0m(2018:£87.0m)ofundrawncommittedborrowingfacilities.Therewerenobreachesofloanagreementsduringeitherthecurrentorprioryears.

AstheGroupiscashgenerativeitsliquidityriskisconsideredlow.TheGroup’scashgenerationallowsittomeetallloancommitmentsastheyfalldueaswellassustainanegativeworkingcapitalposition.

TheGroupinvestssignificantresourcesintheforecastingandmanagementofitscashflows.ThisiscriticalgivenaroutinecashcycleatSmithsNewsthatresultsinsignificantpredictableswingswithineachmonthofaround£40.0m,whichutilisestheRevolvingCreditFacilityof£125.0m.

Thefollowingisananalysisoftheundiscountedcontractualcashflowspayableunderfinancialliabilitiesandderivatives.Theundiscountedcashflowswilldifferfromboththecarryingvalueandfairvalue.Floatingrateinterestisestimatedusingtheprevailingrateatthebalancesheetdate.

£mDuewithin

1yearDuebetween1and2years

Duebetween2and3years

Greaterthan3years

At 31 August 2019

Non derivative financial liabilities

Bankandotherborrowings (38.0) (50.0) – –

Financeleases (2.2) (0.3) – –

Total (40.2) (50.3) – –

At 31 August 2018

Non derivative financial liabilities

Bankandotherborrowings (47.2) – (50.0) –

Financeleases (2.8) (1.7) (0.4) (0.6)

Total (50.0) (1.7) (50.4) (0.6)

CounterpartyriskDealingsarerestrictedtothosebankswithsuitablecreditratingsandcounterpartyriskandcreditexposureismonitored.

Foreigncurrencyrisk• ThemajorityoftheGroup’stransactionsarecarriedoutinthefunctionalcurrenciesofitsoperations,andsotransactionalexposureislimited.• ThemajorityoftheGroup’snetliabilitiesareheldinSterling,withonly£3.2m(2018:£1.0m)ofnetassetsheldinoverseascurrencies.Translation

exposurearisesonthere-translationofoverseassubsidiaries’profitsandnetassetsintosterlingforfinancialreportingpurposesandisnotseenassignificant.

• Note19denotesborrowingsbycurrency.• Therearenomaterialcurrencyexposurestodisclose.

InterestrateriskTheGroupmonitorsitsexposuretointerestrateinlightoftheGroup’sdebtexposure,considerationofthemacroeconomicenvironmentandsensitivitytopotentialinterestraterises.TheGroupavoidstheuseofderivativesorotherfinancialinstrumentsincircumstanceswhentheoutcomewouldeffectivelybelargelydependentuponspeculationonfutureratemovements.


20. Financial instruments cont.HedgeaccountingItis,andhasbeenthroughouttheperiodofreview,theGroup’spolicythatnotradinginderivativefinancialinstrumentsshallbeundertaken.

Allfinancialassetsareclassifiedunderloansandreceivablesandotherfinancialliabilitiesareheldatamortisedcost.

InterestratesensitivityanalysisBasedontheassumptionthattheliabilitiesoutstandingatthebalancesheetdatewereoutstandingforthewholeyear,ifinterestrateshadbeen0.5%higher/lowerandallothervariableswereheldconstant,theGroup’sprofitandequityfortheyearended31August2019woulddecrease/increaseby£0.5m(2018:£0.4m).

CreditriskTheGroupconsidersitsexposuretocreditriskat31August2019tobeasfollows:

£m 2019 2018

Bankdeposits 23.9 17.9

Tradeandotherreceivables 124.2 129.4

148.1 147.3

FurtherdetailontheGroup’spolicyrelatingtotradereceivablescanbefoundinNote17.

21. Obligations under finance leases2019 2018

£m

Minimum lease

payments

Present valueof minimum

lease payments

Minimumlease

payments

Presentvalueofminimum

leasepayments

Amount payable under finance leases:

Withinoneyear 2.2 2.2 2.8 2.8

Inthesecondtofifthyearsinclusive 0.3 0.3 2.7 2.5

Total 2.5 2.5 5.5 5.3

Less:futurefinancecharges (0.2) –

Present value of lease obligations 2.5 2.5 5.3 5.3

Less:amountdueforsettlementwithin12months(shownundercurrentliabilities) (2.2) (2.8)

Amount due for settlement after 12 months 0.3 2.5

Grouppolicyistoacquirecertainitemsofitsfixtures,equipmentandsoftwareunderfinanceleases.Theaverageleasetermisthreeyears.Interestratesarefixedatthecontractdate.Allleasesareonafixedrepaymentbasisandnoarrangementshavebeenenteredintoforcontingentrentalpayments.

ThefairvalueoftheGroup’sleaseobligationsapproximatestotheircarryingamount.

22. Other non-current liabilities£m 2019 2018

Othercreditors (1.2) (0.6)

Thebalancedisclosedasothercreditorswithinnon-currentliabilitiesrelatestooperatingleaseincentiveswhicharebeingrecognisedovertheleaseterm.


INA

NC

IAL

STA

TE

ME

NT

S122


23. Deferred taxDeferredtaxassetsandliabilitiesareattributabletothefollowing:

£mAcceleratedtax

depreciation OtherSharebased

paymentsIntangible

assetsRetirement

benefits Total

At1September2018 1.9 0.2 – (5.9) 1.3 (2.5)

Chargetoincome 2.7 (0.2) 5.9 – 8.4

Chargetoothercomprehensiveincomeanddirectlyinequity – – 0.1 – (0.8) (0.7)

At 31 August 2019 4.6 – 0.1 – 0.5 5.2

Deferredtaxassets 4.6 – 0.1 – 0.5 5.2

Deferredtaxliabilities – – – – – –

At1September2017 1.8 0.9 0.7 (7.2) 2.0 (1.8)

Chargetoincome 0.1 (0.7) (0.7) 1.3 – –

Chargetoothercomprehensiveincomeanddirectlyinequity – – – – (0.7) (0.7)

At 31 August 2018 1.9 0.2 – (5.9) 1.3 (2.5)

Deferredtaxassets 1.9 0.2 – – 1.3 3.4

Deferredtaxliabilities – – – (5.9) – (5.9)

TheGrouphasrecognisedthenetbalanceofdeferredtaxastheliabilityandassetarewiththesametaxauthorityandunwindoverthesametimeperiod.ThedeferredtaxassetshavebeendeemedrecoverableastheyareoffsetbyaliabilityandtheGroupforecaststhatitwillcontinuetomakeprofitsagainstwhichtheassetscanbeutilised.

TheGrouphascapitallossescarriedforwardof£28.2m(2018:£28.2m).Deferredtaxassetshavenotbeenrecognisedinrespectofthecapitallossescarriedforwardduetotheuncertaintyoftheirutilisation.

ChangestotheUKcorporationtaxratesweresubstantivelyenactedaspartofFinanceBill2017(on6September2016).Theseincludereductionstothemainratetoreducetherateto17%from1April2020.Deferredtaxesatthebalancesheetdatehavebeenmeasuredusingtheseenactedtaxratesandreflectedinthesefinancialstatements.

24. Provisions

£m RegulatoryRe-organisation

provisions

Insuranceandlegalprovision

Propertyprovisions Total

At 1 September 2018 (2.8) (4.0) (1.9) (5.6) (14.3)

Chargedtoincomestatement – (2.6) (1.2) – (3.8)

Creditedtoincomestatement 0.7 0.5 – 0.6 1.8

Utilisedinperiod 2.1 2.5 0.8 – 5.4

Unwindingofdiscountutilisation – – – (0.4) (0.4)

At 31 August 2019 – (3.6) (2.3) (5.4) (11.3)

£m 2019 2018

Includedwithincurrentliabilities (7.3) (9.5)

Includedwithinnon-currentliabilities (4.0) (4.8)

Total (11.3) (14.3)

Includedwithinnon-currentliabilitiesis£4.0m(2018:£4.8m)relatingtopropertyprovisions.

Regulatoryprovisionsbroughtforwardincluded£1.3minrelationtolegalcostsandestimatedhistoricalunderpaymentofnationalminimumwagecompliance,seeNote4forfurtherinformation;£0.7mofthisprovisionhasbeenreleasedandtheremainingliabilitysettledinfull.Afurther£1.5mofthebalancebroughtforwardwassettledinfullon3October2018followingTuffnellsprosecutionon11September2018relatingtoafatalityatitsBrierleyHilldepotandanoffenceunderS2(1)oftheHealth&SafetyatWorkAct.

Re-organisationprovisionsinclude£1.0mrelatingtotheclosureofPassMyParcel.£2.6mofredundancycostshavebeenaccruedaspartoftheGroup’sstrategytooffshoreitssharedservicecentres,thetransitionhadbeenannouncedpriortotheyearendandthetotalamountisexpectedtobeutilisedduringthefollowingfinancialyear(seeNote4forfurtherinformation).

Insurance&legalprovisionsrepresenttheexpectedfuturecostsofemployer’sliability,publicliability,motoraccidentclaimsandlegalclaims.

ThepropertyprovisionrepresentstheestimatedfuturecostoftheGroup’sonerousleasesonnon-tradingpropertiesandforpotentialdilapidationcostsacrosstheGroup.Theseprovisionshavebeendiscountedatariskadjustedrateandthisdiscountwillbeunwoundoverthelifeoftheleases.Theprovisionscovertheperiodto2036,however,asignificantportionofthepotentialliabilityfallswithinfiveyears.Includedwithintheprovisionareamountsof£0.4minrelationtoestimatedPMPrelatedpropertycosts(seeNote4forfurtherinformation).


25. Contingent liabilities and capital commitments£m 2019 2018

Bankandotherloansguaranteed 7.8 6.8

OtherpotentialliabilitiesthatcouldcrystalliseareinrespectofpreviousassignmentsofleaseswheretheliabilitycouldreverttotheGroupifthelesseedefaulted.PursuanttothetermsoftheDemergerAgreementfromWHSmithPLC,anysuchcontingentliabilityinrespectofassignmentpriortodemerger,whichbecomesanactualliability,willbeapportionedbetweenConnectGroupPLCandWHSmithPLCintheratio35:65(providedthattheactualliabilityofConnectGroupPLCinany12monthperioddoesnotexceed£5m).TheCompany’sshareoftheseleaseshasanestimatedfuturecumulativegrossrentalcommitmentat31August2019of£0.8m(2018:£1.3m).

Contractsplacedforfuturecapitalexpenditureapprovedbythedirectorsbutnotprovidedforamountto:£2.3m(2018:£nil).

TheGrouphasapprovedaletterofcreditof£7.8mtotheinsurersoftheGroupforthemotorinsuranceandemployerliabilityinsurancepolicy.Theletterofcreditcoverstheemployerdeductibleelementoftheinsurancepolicyforinsuranceclaims.

26. Operating lease commitmentsTheGroupaslessee:Minimumleasepaymentsundernon-cancellableoperatingleasesareasfollows:

2019 2018

£mLand and buildings

Equipment and vehicles Total

Landandbuildings

Equipmentandvehicles Total

Continuing

Withinoneyear 10.0 9.2 19.2 12.1 13.3 25.4

Inthesecondtofifthyearsinclusive 27.7 15.7 43.4 30.4 18.6 49.0

Inmorethanfiveyears 16.2 0.5 16.7 22.3 2.3 24.6

53.9 25.4 79.3 64.8 34.2 99.0

TheGroupleasesvariousdistributionpropertiesandplantandequipmentundernon-cancellableoperatingleaseagreements.Theleaseshavevaryingterms,escalationclausesandrenewalrights.

TheGroupaslessor:Atthebalancesheetdate,theGrouphadcontractedwithtenantsforthefollowingfutureminimumleasepayments:

£m 2019 2018

Withinoneyear 0.2 0.1

Inthesecondtofifthyearsinclusive 0.7 –

Morethanfiveyears 0.2 –

1.1 0.1

Propertyrentalincomeearnedduringtheyearwas£0.3m(2018:£0.2m).


INA

NC

IAL

STA

TE

ME

NT

S124


27. Net cash inflow from operating activities£m Note 2019 2018

Operating(loss)/profit–continuing 3 (31.3) (30.0)

Operating(loss)/profit–discontinued 3 – (8.8)

Operating(loss)/profit–total (31.3) (38.8)

Lossesondisposalofassets 0.2 0.5

Impairmentofassetsheldforsale 4 – 1.1

Impairmentoftangibleassets 4 – 1.0

Shareofprofitsofjointventures (0.4) (0.5)

Lossondisposalofsubsidiary 12 – 10.5

Adjustmentforpensionfunding (1.2) (4.2)

Depreciationofproperty,plantandequipment 6.9 8.6

Amortisationofintangibleassets 4 9.2 11.4

ImpairmentofTuffnellsassets 4 45.5 46.1

Sharebasedpayments 0.2 (0.3)

(Increase)/decreaseininventories (2.8) 0.5

Decreaseinreceivables 5.3 17.7

Decreaseinpayables (2.9) (10.2)

Decreaseinprovisions (3.5) (0.3)

Noncashpensioncosts 0.4 0.3

Amortisationofloanarrangementfees 7 – 0.6

Incometaxpaid (2.6) (6.5)

Net cash inflow from operating activities 23.0 37.5

NetcashflowfromoperatingactivitiesisstatedafterthefollowingAdjustedItems:

Re-organisation&restructuringcosts (4.0) (4.7)

PMPexitcosts (0.8) (2.1)

Pension (2.0) –

IPRsettlement 0.5 –

BrierleyHillsettlement (1.7) –

NMWsettlement (0.3) –

Feesrelatingtodisposalactivity – (1.5)

(8.3) (8.3)

28. Share capital(1) Sharecapital

£m 2019 2018

Issued and fully paid:


Sharesissuedduringtheyear – –

247.7mordinarysharesof5peach(2018:247.7m) 12.4 12.4

(2) Movementinsharecapital

Number(m)Ordinaryshares

of5peach

31August2018 247.7

Sharesissuedduringtheyear –

At 31 August 2019 247.7

TheholdersofordinarysharesareentitledtoreceivedividendsasdeclaredfromtimetotimeandareentitledtoonevotepershareatthegeneralmeetingsoftheCompany.TheCompanyhasoneclassofordinaryshares,whichcarrynorighttofixedincome.

Noshareswereissuedduringtheyearto31August2019.Duringtheyearto31August2018125ordinary5pshareswereissuedtosatisfyshareschemeexercises.


28. Share capital cont.(3) Sharepremium

£m 2019 2018

Balanceat1September 60.5 60.5

Premiumarisingonissueofequityshares – –

Balance at 31 August 60.5 60.5

29. Reserves(1) Demergerreserve

£m 2019 2018

At1September (280.1) (280.1)

At31August (280.1) (280.1)

Thisrelatestoreservescreatedfollowingthecapitalre-organisationundertakenaspartofthedemergerofWHSmithPLCin2006.ThebalancerepresentedthedifferencebetweenthesharecapitalandreservesoftheGrouprestatedonapro-formabasisasat31August2004andthepreviouslyreportedsharecapital.

(2) Ownsharesreserve

£m 2019 2018

Balanceat1September (2.1) (3.1)

Acquiredintheperiod – –

Disposedofonexerciseofoptions 0.4 1.0

Balance at 31 August (1.7) (2.1)

ThereserverepresentsthecostofsharesinConnectGroupPLCpurchasedinthemarketandheldbytheSmithsNewsEmployeeBenefitTrusttosatisfyawardsandoptionsgrantedundertheGroup’sExecutiveShareSchemes(seeNote31).ThenumberofordinarysharesheldbytheTrustasat31August2019was1,188,537(2018:1,506,850).InaccordancewithIAS32,thesesharesaredeductedfromshareholders’funds.UnderthetermsoftheTrust,theTrusteehaswaivedalldividendsonthesharesitholds.

(3) Hedgingandtranslationreserve

£m 2019 2018


Settlementontermination – –

Netmovementincashflowhedges – –

Exchangedifferencesontranslatingnetassetsofforeignoperations 0.1 (0.3)


Thehedgingreserverepresentsthecumulativeamountofgainsandlossesonhedginginstrumentsdeemedeffectiveincashflowhedges.Thecumulativedeferredgainorlossonthehedginginstrumentisrecognisedintheprofitorlossonlywhenthehedgedtransactionceasestobeeffective.

30. Retained earnings£m

Balance at 31 August 2017 234.9

AmountsrecognisedinTotalcomprehensiveincome (47.0)

Dividendspaid (24.1)

Employeeshareschemes (1.0)

Equity-settledsharebasedpayments,netoftax 0.4


AmountsrecognisedinTotalcomprehensiveexpense (28.6)

Dividendspaid –

Employeeshareschemes (0.4)

Equity-settledsharebasedpayments,netoftax 0.1



INA

NC

IAL

STA

TE

ME

NT

S126


31. Share-based paymentsIn2019,theGrouprecognisedatotalchargeof£0.4mrelatedtoequity-settledshare-basedpaymenttransactions.In2018therewasatotalcreditof£0.4m.Theaveragesharepricethroughouttheyearwas37.4p(2018:72.0p).

TheGroupoperatesthefollowingshareincentiveschemes:

SharesaveScheme UnderthetermsoftheConnectGroupSharesaveScheme,theBoardmaygrantoptionstopurchaseordinarysharesintheCompanytoeligibleemployeeswhoenterintoanHMRevenue&CustomsapprovedSave-As-You-Earn(‘SAYE’)savingscontractforatermofthreeyears.Optionsaregrantedata20%discounttothemarketpriceofthesharesonthedayprecedingthedateofofferandarenormallyexercisableforaperiodofsixmonthsaftercompletionoftheSAYEcontract.

ExecutiveShareOptionScheme(ESOS) UnderthetermsoftheConnectGroupExecutiveShareOptionScheme,theBoardmaygrantoptionstopurchaseordinarysharesintheCompanytoexecutivesuptoanannuallimitof200%ofbasesalary.TheexerciseofoptionsisconditionalontheachievementofAdjustedprofitafterathree-yearperiod,whichisdeterminedbytheRemunerationCommitteeatthetimeofgrant.Providedthatthetargetismet,optionsarenormallyexercisableuntilthedayprecedingthe10thanniversaryofthedateofgrant.

LTIP UnderthetermsoftheConnectGroupLTIP,executivedirectorsandkeyseniorexecutivesmaybeawardedeachyearconditionalentitlementstoordinarysharesintheCompany(whichmaybeintheformofnilcostoptionsorconditionalawards)or,inordertoretainflexibilityandattheCompany’sdiscretion,acashsumlinkedtothevalueofanotionalawardofsharesuptoavalueof200%ofbasesalary.Thevestingofawardsissubjecttothesatisfactionofathree-yearperformancecondition,whichisdeterminedbytheRemunerationCommitteeatthetimeofgrant.Subjecttothesatisfactionoftheperformancecondition,awardsarenormallyexercisableuntilthe10thanniversaryofthedateofgrant.

DeferredBonusPlan(DBP) UnderthetermsoftheConnectGroupDeferredBonusPlan,executivedirectorsandkeyseniorexecutivesmaybegrantedeachyearshareawards(intheformofnilcostoptions)dependentontheachievementoftheAnnualBonusPlanperformancetargets.Awardsarenormallyexercisableaftertwoyearssubjecttocontinuedemployment.

Detailsoftheoptions/awardsareasfollows:

Sharesave ESOS LTIP DBP

Numberofoptions/awardsNoof

shares

Weightedaverage

exerciseprice(p)

Noofshares

Weightedaverage

exerciseprice(p)

Noofshares

Weightedaverage

exerciseprice(p)

Noofshares

Weightedaverage

exerciseprice(p)

At31August2017 3,565,191 118.1 6,097,269 144.8 3,006,029 – 910,524 –

Granted 3,154,226 43.6 1,353,061 108.8 2,137,786 – 338,976 –

Exercised (9,846) 101.3 (114,935) 86.3 – – (676,941) –

Expired/forfeited (2,787,326) 115.1 (705,876) 165.0 (2,039,058) – (92,705) –

At31August2018 3,922,245 60.4 6,629,519 136.3 3,104,757 – 479,854 –

Granted 3,104,452 30.40 – – 8,561,924 – 416,378 –

Exercised – – – – – – (158,785) –

Expired/forfeited (1,908,532) 79.40 (2,290,577) 154.5 (1,786,330) – (92,297) –

At31August2019 5,118,165 45.42 4,338,942 126.7 9,880,351 – 645,150 –

Exercisable at 31 August 2019 16,312 110.3 152,209 159.8 – – – –

Exercisableat31August2018 253,052 128.4 2,753,725 134.3 – – – –


31. Share-based payments cont.Theweightedaverageremainingcontractuallifeinyearsofoptions/awardsisasfollows:


Outstanding at 31 August 2019 2.5 6.8 1.9 1.3

Outstandingat31August2018 2.6 6.6 8.6 1.2

Detailsoftheoptions/awardsgrantedorcommencingduringthecurrentandcomparativeyearareasfollows:


During 2019:

Effectivedateofgrantorcommencementdate Jun2019 Dec2018May2019

Averagefairvalueatdateofgrantorschemecommencement–pence 8.0 36.5

During 2018:

Effectivedateofgrantorcommencementdate Jun2018 Dec17 Dec17 Dec17

Averagefairvalueatdateofgrantorschemecommencement–pence 13.9 11.6 – 109

Theoptionsoutstandingat31August2019hadexercisepricesrangingfromnilto189.5p(2018:nilto189.5p).

Theweightedaveragesharepriceonthedateofexercisewas37p(2018:108p).

TheSharesaveoptionsgrantedduringeachperiodhavebeenvaluedusingtheBlack-Scholesmodel,theLTIPandDBPschemesarevaluedbyreferencetothesharepriceatthedateofgrant.

TheinputstotheBlack-Scholesmodelareasfollows:

Sharesave ESOS LTIP LTIP DBP

2019 options/awards: May19 Dec18 Dec18

Sharepriceatgrantdate–pence 38.0 – 37.4 36.25 36.25

Exerciseprice–pence 30.4 – – – –

Expectedvolatility–percent 39% – – – –

Expectedlife–years 3.0 – – – –

Riskfreerate–percent 0.4% – – – –

Expecteddividendyield–percent 2.6% – – – –

Weightedaveragefairvalue–pence 8.0 – 37.4 36.25 36.25

2018 options/awards: Dec2017

Sharepriceatgrantdate–pence 52.3 109 – 109 109

Exerciseprice–pence 42.0 109 – – –

Expectedvolatility–percent 50% 33% – – –

Expectedlife–years 3.0 3.0 – – –

Riskfreerate–percent 0.94% 0.78% – – –

Expecteddividendyield–percent 1.9% 9.1% – – –

Weightedaveragefairvalue–pence 13.9 11.6 – 109 109


INA

NC

IAL

STA

TE

ME

NT

S128


32. Post balance sheet events

On23September2019,theGroup’ssubsidiary,TuffnellsParcelsExpressLimited(Tuffnells),exchangedcontractsinrespectoftheproposedsaleandleasebackofsixdistributiondepots,ofwhichthreewerefreeholdandthreewerelongleaseholdproperties,toUrbanLogisticsPropCo1(AC)Limited(UrbanLogistics),asubsidiaryofUrbanLogisticsREITplc.Completionsubsequentlytookplaceon27September2019.

ThesalepricereceivedfromUrbanLogisticswas£9.9m.Atcompletion,thisfirsttrancheofpropertieswassubsequentlyleasedbackfromUrbanLogisticson20-yearleaseterms,withmarketrentpayableat£0.7mperannum,subjecttomarketinflation.Ineachcase,theleasesareguaranteedbytheCompany.TheexpectedimpactunderIFRS16willbetorecogniseagainondisposalof£0.7m,aleasecreditorof£8.0m,arightofuseassetof£3.2m,annualdepreciationof£0.2mandyear1interestof£0.4m.

33. Related party transactionsTransactionsbetweenbusinesseswithintheGroupwhicharerelatedpartieshavebeeneliminatedonconsolidationandarenotdisclosedinthisNote.

TransactionswiththeGroup’spensionschemesaredisclosedinNote6.

Tradingtransactions

Salestorelatedparties Amountsowedbyrelatedparties

£m 2019 2018 2019 2018

Jointventures 2.6 3.5 0.5 0.8

Salestorelatedpartiesareformanagementfees,paymentisdueonthelastdayofthemonthfollowingthedateofinvoice.

Non-tradingtransactions

Loanstorelatedparties

£m 2019 2018

Jointventures 0.6 –

AggregateremunerationofkeymanagementpersonnelTheremunerationofthedirectorsandtheExecutiveTeam,whoarethekeymanagementpersonnelofthecontinuingGroup,issetoutbelowinaggregateforeachofthecategoriesspecifiedinIAS24‘RelatedPartyDisclosures.’

£m 2019 2018

Short-termemployeebenefits 2.9 2.1

Post-employmentbenefits – 0.4

Terminationbenefits 0.3 –

Sharebasedpayments 0.2 (0.1)

3.4 2.4

Informationconcerningdirectors’remuneration,interestinsharesandshareoptionsareincludedintheDirectors’RemunerationreportintheAnnualReport.MarkCashmore,theGroup’sformerChiefExecutiveOfficer,continuedtoreceivehisbasicsalary,benefitsandpension,subjecttooffsetagainstearningsreceivedelsewherefromanyotherexecutiverole,until30June2019.Thistotalled£0.6muptoJune2019(2018:£0.5m).


34. Subsidiary and associated undertakings

Companyname/(number) ShareClass Group% Companyname/(number) ShareClass Group%

United Kingdom

RowanHouse,CherryOrchardNorth,KembreyPark,SwindonSN28UH

ConnectLimited02008952 OrdinaryShares 100% Martin-LavellLimited02654521(*) OrdinaryShares 100%

ConnectLogisticsLimited09172965 OrdinaryShares 100% PassMyParcelLimited09172022 OrdinaryShares 100%

ConnectNews&MediaLimited08572634 OrdinaryShares 100% PhantomMediaLimited03805661(*) OrdinaryShares 100%

ConnectParcelFreightLimited09295023 OrdinaryShares 100% SmithsNewsHoldingsLimited04236079 OrdinaryShares 100%

ConnectParcelsLimited09172850 OrdinaryShares 100% SmithsNewsInstoreLimited03364589 OrdinaryShares 100%

ConnectServicesLimited08522170 OrdinaryShares 100% SmithsNewsInvestmentsLimited

06831284 OrdinaryShares 100%

ConnectSpecialistDistributionGroupLimited08458801 OrdinaryShares 100% SmithsNewsLimited


Connect2ULimited03920619 OrdinaryShares 100% SmithsNewsTradingLimited00237811 OrdinaryShares 100%

DawsonMediaServicesLimited06882722 OrdinaryShares 100% TheBigGreenEuroMachineLimited


DawsonGuaranteeCompanyLimited06882393 OrdinaryShares 100% TheBigGreenParcelGroupLimited


DawsonHoldingsLtd00034273 OrdinaryShares 100% TheBigGreenParcelHoldingCompanyLtd


DawsonLimited03433262 OrdinaryShares 100% TheBigGreenParcelMachineLimited


DawsonMediaDirectLimited06882366 OrdinaryShares 100% TuffnellsParcelsExpressLimited


TwoSnowhill,SnowHill,Birmingham,B46GA

WorldwideMagazineDistributionLimited01206287 OrdinaryShares 50% FMDLimited

03729720 OrdinaryAshares 50%

27KingsRoad,Berkhamsted,Hertfordshire,HP43BH

FreshOnTheGoLimited08775703 OrdinaryShares 30%

EstantiaHouse,PitreavieDrive,PitreavieBusinessPark,Dunfermline,FifeKY118US

BlueboxAviationSystemsLtdSC267388 OrdinaryShares 36.1% BlueboxSystemsGroupLimitedSC544863 OrdinaryAShares 36.1%

InflightHouse,HurricaneWay,Langley,SL38AG

BlueboxAvionicsLimited05684001 OrdinaryShares 36.1%

SilburyCourt,420SilburyBoulevard,MiltonKeynesMK92AF

Open-ProjectsLimited02422753 OrdinaryShares 50% RascalSolutionsLimited05191277 OrdinaryAShares 50%


INA

NC

IAL

STA

TE

ME

NT

S130


34. Subsidiary and associated undertakings cont.Companyname/(number) ShareClass Group% Address

France

DawsonMediaDirectSAS450101340RCSBobigny OrdinaryShares 100% 11rueLéopoldBellan,75000Paris,France

Spain

DawsonMediaDirectIbericaSLCIF-B84692904 OrdinaryShares 100% AvendidadelaIndustria38,NaveC-17,28223Coslada,Spain

Germany

DawsonMediaDirectGmbHHRB99445 OrdinaryShares 100% AufderRoos6-12,65795HattersheimamMain,Germany

Belgium

DawsonMediaDirectNV474.114323 OrdinaryShares 99% Brixtonlaan1E,1930Nossengem,Belgium

Turkey

DawsonMediaDirectAnonimSirketi14449-5 OrdinaryShares 100% ParimaPlazaMaltepeMahallesiEskiCirpiciYoluSokNo:8K:14-176

Merter-Zeytinburnu,Istanbul,Turkey

Australia

DawsonMediaDirectAustraliaPtyLimited615545545 OrdinaryShares 100% C/OGrantThorntonAustraliaLevel17,383KentStreet,SydneyNSW2000,

Australia

Hong Kong

DawsonMediaDirectChinaLimited1167911 OrdinaryShares 100% Flat/Rm500850/F,CentralPlaza,18HarbourRoad,Wanchai,HongKong

Thailand

DawsonMediaDirectCo.Ltd105558138385 OrdinaryShares 48.9% 87MThaiTower,AllSeasonsPlace,23rdFloor,WittayuRoad,

LumpiniSub-District,PathumwanDistrict,Bangkok,Thailand

United Arab Emirates

DMDHoldingsLimited(JAFZA)OF3596 OrdinaryShares 100% POBox7992,Dubai,UnitedArabEmirates

United States

DawsonMediaDirectHoldingsInc4056281 CommonStock 100% CorporationTrustCentre,1209OrangeStreet,WilmingtonILDE19801,

UnitedStates

DawsonMediaDirectInc4056283 CommonStock 100% 40WallStreet,28thFloor,NewYork,NY10005,USA

* Auditexemptionstatement.

Fortheyearended31August2019,thecompaniesasindicatedinthetableby‘(*)’abovewereentitledtoexemptionfromauditundersection479AoftheCompaniesAct2006relatingtosubsidiarycompanies.Assuch,ConnectGroupPLChasprovidedaguaranteeagainstalldebtsandliabilitiesinthesesubsidiariesasat31August2019.Themembersofthesecompanieshavenotrequiredthemtoobtainanauditoftheirfinancialstatementsfortheyearended31August2019.

BlueboxSystemsGroupLimited,BlueboxAviationSystemsLimitedandBlueboxAvionicsLimitedareassociatedundertakings.RascalSolutionsLimited,Open-ProjectsLimited,FMDLimitedandWorldwideMagazineDistributionLimitedarejointventures(seeNote15).

35. Reconciliation cash flow to net movement in cash and cash equivalentsAreconciliationbetweenFreecashflowandthenetincrease/(decrease)incashandcashequivalentsisshownbelow:

£m 2019 2018

Net(decrease)/increaseincash&cashequivalents (0.8) 2.5

Dividendpaid – 24.1

Proceedsonsaleofsubsidiary(netofdisposalcosts) – (12.9)

Decreaseinborrowings 8.0 5.9

Adjustmentforpensionfunding 1.2 4.7

Dividendsreceivedfromassociates (0.1) (0.2)

TotalFreecashflow 8.3 24.1

DiscontinuedFreecashflow – (3.9)

ContinuingFreecashflow 8.3 20.2


36. Adoption of new accounting standardsInthecurrentyear,theGrouphasadoptedandappliedthefollowingaccountingstandardsissuedbytheInternationalAccountingStandardsBoardthatarerelevanttotheoperationsoftheGroup.

• IFRS9‘FinancialInstruments’.• IFRS15‘RevenuefromContractswithCustomers’.

TheimpactoftheadoptionofthesenewstandardsontheGroup’sfinancialstatementsisexplainedbelow.Neitherofthesestandardshashadamaterialimpactontheincomestatementorthenetassets/(liabilities)oftheGroup.

IFRS9‘FinancialInstruments’IFRS9becameeffectiveforaccountingperiodsbeginningonorafter1January2018andreplacedIAS39‘FinancialInstruments:RecognitionandMeasurement’.IFRS9introducednewrequirementsfortheclassificationandmeasurementoffinancialinstruments,impairmentoffinancialassetsusinganexpectedcreditloss(ECL)model,andhedgeaccounting.

TheadoptionofIFRS9didnothaveamaterialimpactontheGroupfinancialstatements,theeffectbeinglimitedtoachangeinthemethodologyusedtocalculateimpairmentoftheGroup’sfinancialassets.ThischangedidnothaveamaterialimpactonthenetassetsorprofitfortheyearoftheGroup.TheGrouphaselectednottorestatecomparativeinformationfortheeffectofapplyingIFRS9onthebasisthatthechangeisimmaterial.

ClassificationandmeasurementoffinancialassetsThedirectorshavereviewedandassessedtheGroup’sfinancialassetsandconcludedthattheapplicationofIFRS9doesnothaveanimpact.Tradeandotherreceivables,cashandcashequivalentswillcontinuetobeclassifiedatamortisedcost.

ImpairmentoffinancialassetsIFRS9requiresanexpectedcreditlossapproachtoimpairmentratherthantheincurredcreditlossmodelunderIAS39.TheGrouphasappliedthesimplifiedapproachtomeasuringexpectedcreditlosses.Thisusesalifetimeexpectedlossallowanceforalltradereceivablesandcontractreceivables.

Balanceshavebeengroupedbasedonsharedcreditriskcharacteristicsandthedayspastdue.OnthisbasisthereisnosignificantimpactcomparedtothosepreviouslyrecognisedunderIAS39FinancialInstruments:RecognitionandMeasurement.

ClassificationandmeasurementoffinancialliabilitiesAlltheGroup’sfinancialliabilitiesareheldatamortisedcost.TheIFRS9requirementsregardingtheclassificationandmeasurementoffinancialliabilitiesarebroadlyconsistentwiththepreviousstandard,IAS39.Accordingly,theadoptionofIFRS9hashadnoimpactontheclassificationandmeasurementoftheGroup’sfinancialliabilities.

IFRS15RevenuefromContractswithCustomersIFRS15RevenuefromContractswithCustomerswasissuedbytheIASBinMay2014andbecameeffectivefortheGroupfrom1September2018.TheGrouphasappliedthefullyretrospectiveapproach;thereforecomparativeperiodshavebeenrestated.

IFRS15‘RevenuefromContractswithCustomers’isanewstandardbasedonafive-stepmodelframework,whichreplacesallexistingrevenuerecognitionstandards.Thestandardrequiresrevenuetorepresentthetransferofpromisedgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.TheGroupadoptedIFRS15from1September2018usingafullyretrospectiveapproach.TheGroupconsideredthatthecurrentsegmentalsplitofrevenuetobeappropriatelydisaggregatedinlinewithIFRS15.ThereisnochangetotheGroup’srevenuerecognitionunderIFRS15;howeverthereareotherimpactstotheGroupwhicharesetoutinthetablebelow.

AsatAugust2018

Tradeandother

receivables£m

Tradeandotherpayables

£m

Netassets

£m

Balance without IFRS 15 adjustment 81.7 (127.6) (45.9)

IFRS15adjustments:

A–Returnsreserveaccrual 25.5 (25.5) –

B–Returnsreserveasset 22.5 (22.5) –

As reported total 129.7 (175.6) (45.9)

AdjustmentA–ReturnsreserveaccrualUnderIFRS15arightofreturnisnotaseparateperformanceobligationandtheGroupisrequiredtorecogniserevenuenetofestimatedreturns.Areturnsreserveaccrualandacorrespondingassetrepresentingtherighttorecoverproductsfromthecustomerisalsorecognised.TheGrouppreviouslyrecognisedtheseitemsonanetbasisonadoptionofIFRS15.TheGroupwasrequiredtoadjusttradereceivablestogrossoutthereturnsreserveaccrualwiththeoffsetnowincludedwithinothercreditors.

AdjustmentB–ReturnsreserveassetTheassetrepresentingtherighttoreturndiscussedinAdjustmentAhasnowbeenrecognisedwithinotherdebtorswhereitwaspreviouslyoffsetagainsttradepayables.


INA

NC

IAL

STA

TE

ME

NT

S132

Glossary – Alternative Performance Measures

IntroductionInthereportingoffinancialinformation,thedirectorshaveadoptedvariousAPMs.

ThesemeasuresarenotdefinedbyInternationalFinancialReportingStandards(IFRS)andthereforemaynotbedirectlycomparablewithothercompanies’APMs,includingthoseintheGroup’sindustry.

APMsshouldbeconsideredinadditionto,andarenotintendedtobeasubstitutefor,orsuperiorto,IFRSmeasurements.

PurposeThedirectorsbelievethattheseAPMsassistinprovidingadditionalusefulinformationontheunderlyingtrends,performanceandpositionoftheGroup.

APMsarealsousedtoenhancethecomparabilityofinformationbetweenreportingperiodsandbusinessunitsbyadjustingfornon-recurringoruncontrollablefactorswhichaffectIFRSmeasures,toaidusersinunderstandingtheGroup’sperformance.

Consequently,APMsareusedbythedirectorsandmanagementforperformanceanalysis,planning,reportingandincentive-settingpurposes.

ThekeyAPMsthattheGrouphasfocusedonandchangestoAPMswithintheperiodcanbefoundinNote1.

APM

Closest equivalent IFRS measure

Adjustments to reconcile to IFRS measure

Note/page reference for reconciliation Definition and purpose

IncomeStatement

AdjustedItems Nodirectequivalent

N/A Note4 AreitemsofincomeorexpensethatareexcludedinarrivingatAdjustedoperatingprofit.ThisenhancesusersunderstandingoftheGroup’sperformanceasitaidsthecomparabilityofinformationbetweenreportingperiodsandbusinessunitsbyadjustingfornon-recurringoruncontrollablefactorswhichaffectIFRSmeasures.

Adjustedoperatingprofit

Operatingprofit* AdjustedItems Incomestatement/Note4

Adjustedoperatingprofitisdefinedasoperatingprofitfromcontinuingoperations,excludingtheimpactofAdjustedItems(definedabove).ThisistheheadlinemeasureoftheGroup’sperformanceandisakeymanagementincentivemetric.

Adjustedprofitbeforetax

Profitbeforetax(PBT)

AdjustedItems Incomestatement/Note4

Adjustedprofitbeforetaxisdefinedasprofitbeforetaxfromcontinuingoperations,excludingtheimpactofAdjustedItems(definedabove).

Adjustedprofitaftertax

Profitaftertax(PAT)

AdjustedItems Incomestatement/Note4

Adjustedprofitaftertaxisdefinedasprofitaftertaxfromcontinuingoperations,excludingtheimpactofAdjustedItems(definedabove).

AdjustedEBITDA Operatingprofit* DepreciationandamortisationAdjustedItems

Page20 Thismeasureisbasedonbusinessunitoperatingprofitfromcontinuingoperations.Itexcludesdepreciation,amortisationandAdjustedItems.ThisistheheadlinemeasureoftheGroup’sperformanceandisakeymanagementincentivemetric.

Adjustedearningspershare

Earningspershare AdjustedItems Note10 AdjustedearningspershareisdefinedascontinuingadjustedPBT,lesstaxationattributabletoadjustedPBTandincludinganyadjustmentforminorityinteresttoresultinadjustedPATattributabletoshareholders;dividedbythebasicweightedaveragenumberofsharesinissue.


APM

Closest equivalent IFRS measure

Adjustments to reconcile to IFRS measure

Note/page reference for reconciliation Definition and purpose

CashflowStatement

Freecashflow Cashgeneratedfromoperatingactivities

Dividends,acquisitionsanddisposals,Repaymentofbankloans,EBTsharepurchases,Pensiondeficitrepairpayments

Note27 Freecashflowisdefinedascashflowexcludingthefollowing:paymentofthedividend,acquisitionsanddisposals,therepaymentofbankloans,EBTsharepurchasesandcashflowsrelatingtopensiondeficitrepair.Thismeasurereflectsthecashavailabletoshareholders.

Freecashflow(excludingadjustingitems)

Cashgeneratedfromoperatingactivities

Dividends,acquisitionsanddisposals,Repaymentofbankloans,EBTsharepurchases,PensiondeficitrepairpaymentsAdjustedItems

Note27 Freecashflow(excludingAdjustedItems)isFreecashflowaddingbackAdjustedcashcosts.

BalanceSheet

Netdebt Borrowingslesscash

Cashflowstatement

Netdebtiscalculatedastotaldebtlesscashandcashequivalents.Totaldebtincludesloansandborrowings,overdraftsandobligationsunderfinanceleases.

* OperatingprofitispresentedontheGroupincomestatement.ItisnotdefinedperIFRS,however,isagenerallyacceptedprofitmeasure.


INA

NC

IAL

STA

TE

ME

NT

S134

Company Balance Sheet as at 31 August 2019

£m Note 2019 2018

Fixed assets

Investmentsinsubsidiaryundertakings 3 373.2 481.8

373.2 481.8

Current assets

Cashandbankdeposits 2.2 –

2.2 –

Creditors: amountsfallingduewithinoneyear 4 (171.0) (408.8)

Net assets 204.4 73.0

Capital and reserves

Calledupsharecapital 5(1) 12.4 12.4

Sharepremiumaccount 5(3) 60.5 60.5

Retainedearnings 6 131.5 0.1

Total shareholders’ funds 204.4 73.0

Theprofitfortheyearwas£131.4m.

Theseaccountswereapprovedbythedirectorson5November2019.

SignedonbehalfoftheBoardofDirectors

Jonathan Bunting Tony GraceInterimChiefExecutiveOfficer ChiefFinancialOfficer

Registerednumber–05195191


Statement of Changes in Equity for the year ended 31 August 2019

£m NoteShare

capitalShare

premiumRetainedearnings Total

Balance at 31 August 2017 12.4 60.5 62.4 135.3

Lossfortheyear – – (38.2) (38.2)

Dividendpaid – – (24.1) (24.1)


Profitfortheyear – – 131.4 131.4



INA

NC

IAL

STA

TE

ME

NT

S136

Notes to the Company Balance Sheet

1. Accounting policies(1) AccountingconventionTheseparatefinancialstatementsof“theCompany”arepresentedasrequiredbytheCompaniesAct2006.TheCompanymeetsthedefinitionofaqualifyingentityunderFRS100(FinancialReportingStandard100)issuedbytheFinancialReportingCouncil.Accordingly,thefinancialstatementshavethereforebeenpreparedinaccordancewithFRS101(FinancialReportingStandard101)‘ReducedDisclosureFramework’asissuedbytheFinancialReportingCouncil.

TheCompanyhastakenadvantageofsection408oftheCompaniesAct2006nottopresentaprofitandlossaccountandrelatednotes.

TheCompanyhastakenadvantageofthefollowingdisclosureexemptionsunderFRS101:

• therequirementsofparagraphs10(d),10(f),39(c)and134-136ofIAS1PresentationofFinancialStatements;• therequirementsofIAS7StatementofCashflows;• therequirementsofparagraphs30and31ofIAS8AccountingPolicies,ChangesinAccountingEstimatesandErrors;• therequirementsinIAS24RelatedPartyDisclosurestodiscloserelatedpartytransactionsenteredintobetweentwoormoremembersofagroup,

providedthatanysubsidiarywhichisapartytothetransactioniswhollyownedbysuchamember;• therequirementsofparagraphs134(d)-134(f)and135(c)-135(e)ofIAS36ImpairmentofAssets;• paragraphs45(b)and46to52ofIFRS2,‘Share-basedpayment’(detailsofthenumberandweightedaverageexercisepricesofoptions,andhow

thefairvalueofgoodsandservicesreceivedwasdetermined);and• IFRS7,‘FinancialInstruments:Disclosures’

Whererequired,equivalentdisclosuresaregivenintheconsolidatedfinancialstatements.

Thefinancialstatementshavebeenpreparedonthehistoricalcostbasis.Theprincipalaccountingpoliciesadopted,arethesameasthosesetoutinNote1totheconsolidatedfinancialstatementsexceptasnotedbelow.

Investmentsinsubsidiaries,andassociatesarestatedatcostless,whereappropriate,provisionsforimpairment.

Critical accounting estimates and judgementsThepreparationoffinancialstatementsrequiresmanagementtomakejudgements,estimatesandassumptionsthataffecttheapplicationofpoliciesandreportedamountsofassetsandliabilities,incomeandexpenses.Theestimatesandassociatedassumptionsarebasedonhistoricalexperienceandvariousotherfactorsthatarebelievedtobereasonableunderthecircumstances,theresultsofwhichformthebasisofmakingjudgementsaboutthecarryingvalueofassetsandliabilitieswhicharenotreadilyapparentfromothersources.Actualresultsmaydifferfromtheseestimates.Theestimatesandunderlyingassumptionsarereviewedonanongoingbasisandanyrevisionstothemarerecognisedintheperiodinwhichtheyarerevised.

Estimated impairment of investmentsTheCompanytestsforimpairmentupontriggers,inaccordancewiththeaccountingpolicy.Thecarryingamountsofcash-generatingunits(CGUs)havebeendeterminedbasedonvalueinusecalculations.Thesecalculationsrequiretheuseofestimates(Note13)oftheGroupfinancialstatements.

Animpairmentchargeof£108.6m(2018:£38.2m)aroseontheinvestmentinSmithsNewsHoldingLimitedduringthecourseofthe2019year,resultingintheinvestmentbeingwrittendowntoitsrecoverableamount,aftertakingintoaccounttheintercompanybalances.Note13oftheGroupfinancialstatementsincludesdetailsofmanagementsassumptions;theimpactofchangingtheseestimatesarediscussedinNote3.

(2) InvestmentinsubsidiaryundertakingsInvestmentinsubsidiaryundertakingsareindividuallyvaluedathistoricalcostlessprovisionforimpairmentinvalue.

(3) FinancialliabilitiesandequitiesTradepayablesaremeasuredatamortisedcost.

EquityinstrumentsissuedbytheCompanyarerecordedattheproceedsreceived,netofdirectissuecosts.

FinancialassetsandfinancialliabilitiesarerecognisedontheCompany’sbalancesheetwhentheCompanybecomesapartytothecontractualprovisionsoftheinstrument.

(4) TaxationCurrenttaxisprovidedatamountsexpectedtobepaid(orrecovered)usingthetaxratesandlawsthathavebeenenactedorsubstantivelyenactedatthebalancesheetdate.


2. Result for the year TheCompanyhasnotpresenteditsownprofitandlossaccountaspermittedbysection408oftheCompaniesAct2006.Theresultfortheyearattributabletoshareholders,whichisstatedonanhistoricalcostbasis,wasaprofitof£131.4m(2018:£38.2m).Therewerenootherrecognisedgainsorlosses.Thedividendpaidintheyearis£nil(2018:£24.1m)(refertoNote9oftheGroupfinancialstatements).

3. Investments in subsidiary undertakings£m 2019 2018

Net book value:


Impairment (108.6) (38.2)

At 31 August 373.2 481.8

Thecarryingamountoftheinvestmenthasbeenreducedtoitsrecoverableamountthroughrecognitionofanimpairmentloss.Animpairmentof£108.6m(2018:£38.2m)hasbeenrecognisedagainstthecostofinvestments.

Sincetheprioryearadividendof£240.0mwasmadefromSmithsNewsHoldingsLimited(theCompany’simmediatesubsidiary).Thedifferencebetweenthenetbookvalue,sizeofthedividendreceivedfromtheimmediatesubsidiary,thedeterminationoftheoutlookinTuffnellsParcelExpressLimitedandDawsonMediaDirectLimited(DMD)indirectsubsidiariesoftheCompanytriggeredanimpairmentreview.Theimpairmentreviewresultedinanimpairmentchargeof£108.6mbeingmade.

TheCompanyindirectlyownsthreecashgeneratingunits:SmithsNewsTradingLimited(SmithsNews),DawsonMediaDirectGroup(DMD)andTuffnellsParcelExpressLimited(Tuffnells).

Eachcash-generatingunitwasindependentlyvaluedusingvalueinusecalculations,theCompanypreparescashflowforecastsderivedfromthemostrecentplanforthefollowingasapprovedbytheBoardandextrapolatesthesecashflowsonanestimatedgrowthrateintoperpetuity.ThekeyassumptionstakeninperformingthesecalculationsforDMDandTuffnellsaredisclosedinNote13oftheGroup’sAccounts,theassumptionstakenforSmithsNewsareincludedinthetablebelow.

SmithsNews

2019 2018

Averageplanrevenuedecline 3.8% 6.1%

Posttaxdiscountrate 10.5% 9.5%

Pretaxdiscountrate 21.7% 9.8%

Long-term(decline)/growthrate (3.0%) 0.0%

AfteravaluewasallocatedtoeachbusinessunitthattheCompanyholdsanadjustmenttothevaluewasmadefortheGroup’snetliabilitypositiontocalculatethevalueoftheGroup.ThiswasthencomparedwiththevalueoftheinvestmentheldbytheCompanyandthedifferencewasbookedasanimpairment.

SensitivitytochangesinkeyassumptionsImpairmenttestingisdependentonmanagement’sestimatesandjudgements,particularlyastheyrelatetotheforecastingoffuturecashflows,thediscountratesselectedandexpectedlong-termgrowthrates.Thetablebelowsetsouttheimpactofareasonablypossiblechangeintheassumptions.

Planscenario ChangeImpacton

valueinuse

Long-termgrowthrate (3%)to2% -/+1%to0.5% 28.5/(24.3)

Discountrate 10.5%to11.5% -/+1% 15.0/(13.0)

Reductionintheforecastfutureprofits (54.8)

Thetotalcumulativeimpairmentrecognisedagainsttheinvestmentis£289.7m(FY18:£181.1m).FurtherinformationaboutsubsidiariesandjointventuresisprovidedinNote34totheGroupfinancialstatements.

4. Creditors: amounts falling due within one year

£m 2019 2018

AmountsowedtoGroupcompanies (171.0) (408.8)

AmountsowedtoGroupcompaniesarerepayableondemand,unsecured,non-interestbearingandsettledincash.


INA

NC

IAL

STA

TE

ME

NT

S138

Notes to the Company Balance Sheet cont.

5. Share capital(1) Sharecapital

£m 2019 2018

Issued and fully paid ordinary shares of 5p each


Sharesissuedintheyear – –

At31August 12.4 12.4

Theholdersofordinarysharesareentitledtoreceivedividendsasdeclaredfromtime-to-timeandareentitledtoonevotepershareatthemeetingsoftheCompany.TheCompanyhasoneclassofordinaryshares,whichcarrynorighttofixedincome.

Duringtheyearto31August2018,125ordinary5pshareswereissuedtosatisfyshareschemeexercises.

(2) Movementinsharecapital

Number(m)Ordinaryshares

of5peach

At1September2018 247.7

Issuedintheyear –

At 31 August 2019 247.7

(3) Sharepremium

£m 2019 2018


Sharesissuedintheyear – –


6. Reserves

£m

2019 Retained earnings

Balanceat1September 0.1

Profitfortheyear 131.4

Dividendpaid –

Balance at 31 August 131.5

7. Directors’ emoluments and employeesTheCompanyemployedthree(2018:three)non-executivedirectors.SmithsNewsTradingLimited,anindirectsubsidiary,paysallremunerationwithoutrechargeforalldirectorsandtheamountsaredisclosedwithintheDirectors’RemunerationreportintheGroup’sAnnualReport.


Shareholder Information

Company Secretary and registered officeStuartMarriner,ConnectGroupPLC,RowanHouse,CherryOrchardNorth,KembreyPark,Swindon,WiltshireSN28UH.

Telephone08451288888.

[email protected]

General shareholder enquiries – registrarEnquiriesrelatingtoshareholders,suchasthetransferofshares,changeofnameoraddress,lostsharecertificatesordividendcheques,shouldbereferredtotheCompany’sregistrarEquiniti,AspectHouse,SpencerRoad,Lancing,WestSussexBN996DA(telephone037138427711orfromoutsidetheUK+44(0)1214157565).Atextphonefacilityforshareholderswithhearingdifficultiesisavailablebytelephoning037138422551.

Inaddition,Equinitiprovidesarangeofshareholderinformationonlineatwww.shareview.co.uk(toregisterforthisserviceyouwillneedyourshareholderreferencenumberwhichcanbefoundontheProxyForm).

1. Linesareopenfrom8.30amto5.30pm,MondaytoFriday,excludingpublicholidaysinEnglandandWales.

Company websiteConnectGroupPLCAnnualReportsandresultsannouncementsareavailableonlineatwww.connectgroupplc.com.TheinvestorsectionofourwebsiteprovidesawiderangeofinformationabouttheCompanyincludingAnnualReports,regulatorynewsreleases,sharepricedata,financialcalendarandaShareholderCentrecontainingAnnualGeneralMeetinginformationandotherusefulshareholderinformation.

Annual Report and Financial StatementsThisAnnualReportandFinancialStatementsispublishedonourwebsiteandhasonlybeensenttothoseshareholderswhohaveaskedforacopy.ShareholderswhohavenotrequestedapapercopyoftheAnnualReportandFinancialStatementshavebeennotifiedofitsavailabilityonthewebsite.

Annual General MeetingThe2020AnnualGeneralMeetingwillbeheldatRowanHouse,CherryOrchardNorth,KembreyPark,Swindon,WiltshireSN28UHonFriday31January2020at11.30am.TheNoticeofAnnualGeneralMeetingsetsoutthebusinesstobetransacted.ShareholderswhowishtoattendthemeetingshoulddetachtheAttendanceCardfromtheProxyFormthattheyaresentandpresentitattheregistrationdeskonarrivalattheAnnualGeneralMeeting.

Thevotingresultsofthe2020AnnualGeneralMeetingwillbeaccessibleatwww.connectgroupplc.comshortlyafterthemeeting.

ApapercopyoftheAnnualReportandFinancialStatementscanbeobtainedbywritingtotheCompanySecretaryattheaddresslistedaboveoryoucane-mailyourrequesttoinvestor.relations@connectgroupplc.com.

Proxy FormShareholdersunabletoattendtheAnnualGeneralMeetingshouldcompleteaProxyForm.Tobeeffective,itmustbecompletedandlodgedwiththeCompany’sregistrars,Equiniti,bynotlaterthan11.30amonWednesday29January2020.

Electronic proxy votingYoumay,ifyouwish,registertheappointmentofaproxyfortheAnnualGeneralMeetingelectronically,byloggingontothewebsitewww.sharevote.co.uk.Fulldetailsoftheprocedurearegivenonthewebsite.YouwillneedtohaveyourProxyFormtohandwhenyoulogonasitcontainsinformationwhichwillberequired.CRESTmembersmayappointaproxyelectronicallyviatheCompany’sRegistrars,Equiniti(IDRA19).Electronicproxyvotinginstructionsmustbereceivedbynotlaterthan11.30amonWednesday29January2020.

DividendsAfinaldividendof1.0ppersharehasbeenproposedand,subjecttoapprovalattheAnnualGeneralMeeting,willbepaidon13February2020toallshareholdersontheregisteron17January2020.DividendscanbepaidbyBACSdirectlyintoaUKbankaccount,withthetaxvoucherbeingsenttotheshareholder’saddress.

AdividendmandateformisavailablefromEquinitioratwww.shareview.co.uk

Financial calendarFinancialyearend 31August2019Resultsannounced 6November2019AnnualReportpublished 16December2019Finaldividendex-dividenddate 16January2020Finaldividendrecorddate 17January2020AnnualGeneralMeeting 31January2020Finaldividendpaymentdate 13February2020Half-yearend 29February2020Interimresultsannounced 13May2020Financialyearend 29August2020Resultsannounced 4November2020

Forthedatesofeventsinthesecondhalfofthefinancialcalendar,pleasechecktheConnectGroupPLCwebsiteatwww.connectgroupplc.comnearertherelevanttimeforfurtherdetails,andtoensurethatnochangeshavebeenmade.

mailto:[email protected]

http://www.shareview.co.uk



mailto:[email protected]

http://www.sharevote.co.uk

http://www.shareview.co.uk



INA

NC

IAL

STA

TE

ME

NT

S140

Shareholder Information cont.

Share dealing serviceTheCompanyhasarrangedforShareviewDealing,atelephoneandinternetsharedealingserviceofferedbyEquiniti,tobemadeavailabletoUKshareholderswishingtobuyorselltheCompany’sshares.Fortelephonedealing,youmaycall03456037037between8.30amand4.30pm,MondaytoFriday,andforinternetdealinglogontowww.shareview.co.uk/dealing.Youwillneedyourshareholderreferencenumbershownonyoursharecertificate.

ShareGIFTIfyouonlyhaveasmallnumberofshareswhichareuneconomictosell,youmaywishtoconsiderdonatingthemtocharityunderShareGIFT,acharitysharedonationschemeadministeredbytheOrrMackintoshFoundation.AShareGIFTtransferformmaybeobtainedfromEquiniti.FurtherinformationabouttheschemecanbefoundontheShareGIFTwebsiteatwww.sharegift.org.

Warning to shareholders (‘boiler room’ scams)Inrecentyears,likeothercompanies,wehavebecomeawareofasmallnumberofinvestorswhohavereceivedunsolicitedcallsorcorrespondence,insomecasespurportingtohavebeenissuedbyus,concerninginvestmentmatters.ThesetypicallymakeclaimsofhighlyprofitableopportunitiesinUKorUSinvestmentswhichturnouttobeworthlessorsimplydonotexist.Theseapproachesareusuallymadebyunauthorisedcompaniesandindividualsandarecommonlyknownas‘boilerroom’scams.Investorsareadvisedtobewaryofanyunsolicitedadviceorofferstobuyshares.Ifitsoundstoogoodtobetrue,itoftenis.

SeetheFinancialConductAuthoritywebsitewww.fca.org.uk/consumers/scamsformoredetailedinformationaboutthisorsimilaractivity.DetailsofanysharedealingfacilitiesthattheCompanyendorseswillbeincludedinCompanymailings.

UK Capital Gains Tax (CGT)RightsIssue17December2014Shareholders who acquired sharesForthepurposesofcalculatinganychargeablegainsorlosses,anyordinarysharesyouacquiredasaresultoftheRightsIssue(atapriceof102peach)aretreatedasbeingacquiredatthesametimeasyouroriginalholdingofordinarysharesandthesubscriptioncostaddedtothebasecostofyouroriginalholding.

Shareholders who sold or renounced their rights or who allowed their rights to lapseIfyousoldanyorallofyourrightstosubscribefortheordinarysharesprovisionallyallottedtoyou,orifyouallowedyourrightstolapseandreceivedacashpaymentinrespectofthem,iftheproceedswere‘small’ascomparedwiththemarketvalue(onthedateofsaleorlapse)ofyourexistingholdingofordinarysharesinrespectofwhichtherightsarose,youwillnotgenerallybetreatedasmakingadisposalforCGTpurposes.Instead,theproceedsreceivedshouldbedeductedfromthebasecostofyourexistingholdingofordinaryshares.HMRCcurrentpracticeistoregardasumas‘small’forthesepurposeswhereeither:(i)theproceedsdonotexceed5%ofthemarketvalue(atthedateofsaleorlapse)oftheordinarysharesinrespectofwhichtherightsarose;or(ii)thesumreceivedis£3,000orless,regardlessofwhetherthe5%testissatisfied.

Iftheproceedsyoureceivedwerenot‘small’thesaleistreatedasadisposaland,inordertocalculateanychargeablegainsorlosses,youneedtoapportiontheoriginalbasecostofyourexistingholdingofordinarysharesbetweenthesaleproceedsandyourexistingholdingofordinarysharesintheratioofthesaleproceedsdividedbythesaleproceedsplusthemarketvalueofyourexistingholdingofordinaryshares(onthedateofsaleorlapse).FurtherguidancecanbefoundontheHMRCwebsitewww.gov.uk/capital-gains-tax-share-reorganisation-takeover-or-merger.

Demerger31August2006FollowingthedemergerofnewWHSmithPLCon31August2006,inordertocalculateanychargeablegainsorlossesarisingonthedisposalofsharesafter31August2006,theoriginaltaxbasecostofyouroldWHSmithPLCordinarysharesof213/81p(adjustedifyouheldyoursharesat24September2004and22May1998totakeintoaccountthecapitalreorganisationsof27September2004and26May1998respectively(seebelow))willhavetobeapportionedbetweentheshareholdingsofordinarysharesof5pintheCompanyandordinarysharesof226/67p(or20pifthedisposaltookplacebefore22February2008)innewWHSmithPLCintheratioof0.30415and0.69585respectively.

Capitalreorganisation27September2004IfyoursharesresultfromaholdingofoldWHSmithPLCsharesacquiredonorbefore24September2004,inordertocalculateanychargeablegainsorlossesarisingonthedisposalofsharesafter24September2004,theoriginaltaxbasecostofyouroldWHSmithPLCordinarysharesof555/9p(adjustedifyouheldyoursharesasat22May1998totakeintoaccountthecapitalreorganisationof26May1998(seebelow))willhavetobeapportionedbetweentheshareholdingsofordinarysharesof213/81pand‘C’sharesresultingfromthecapitalreorganisation.

Thecostofyourshareholdingofordinarysharesof213/81piscalculatedbymultiplyingtheoriginalbasecostofyourordinarysharesof555/9p(adjustedwherenecessarytotakeintoaccountthecapitalreorganisationof26May1998referredtoabove)by0.73979.

http://www.shareview.co.uk/dealing

http://www.sharegift.org

http://www.fca.org.uk/consumers/scams

http://www.gov.uk/capital-gains-tax-share-reorganisation-takeover-or-merger


Capitalreorganisation26May1998IfyoursharesresultfromaholdingofoldWHSmithPLCsharesacquiredonorbefore22May1998,inordertocalculateanychargeablegainsorlossesarisingonthedisposalofsharesafter22May1998,theoriginaltaxbasecostofyouroldWHSmithPLCordinarysharesof50pwillhavetobeapportionedbetweentheshareholdingsofordinarysharesof555/9pandredeemable‘B’sharesresultingfromthecapitalreorganisation.

Thecostofyourshareholdingofordinarysharesof555/9piscalculatedbymultiplyingtheoriginalcostofyourordinarysharesof50pby0.90714.

March1982valuesIfyoursharesresultfromaholdingofoldWHSmithPLCsharesacquiredonorbefore31March1982,thetaxbasecosttobeusedinordertocalculateanychargeablegainsorlossesarisingonthedisposalofsharesisthe31March1982basevaluespershareasfollows:

ArisingfromanoriginalshareholdingofoldWHSmithPLC

‘A’ordinaryshares

‘B’ordinaryshares

Ordinarysharesof5p 26.93p 22.25p

WHSmithPLCordinarysharesof226/67p 61.62p 50.92p

Ifyouhaveacomplicatedtaxposition,orareotherwiseindoubtaboutyourtaxcircumstances,orifyouaresubjecttotaxinajurisdictionotherthantheUnitedKingdom,youshouldconsultyourprofessionaladviser.

Cautionary statement ThisAnnualReportcontainscertainforward-lookingstatementswithrespecttoConnectGroupPLC’sfinancialcondition,itsresultsofoperationsandbusinesses,strategy,plans,objectivesandperformance.Wordssuchas‘anticipates’,‘expects’,‘intends’,‘plans’,‘believes’,‘seeks’,‘estimates’,‘targets’,‘may’,‘will’,‘continue’,‘project’andsimilarexpressions,aswellasstatementsinthefuturetenseandstatementsotherthanstatementsofhistoricalfact,identifyforward-lookingstatements.Theseforward-lookingstatementsarenotguaranteesofConnectGroupPLC’sfutureperformanceandrelatetoeventsanddependoncircumstancesthatmayoccurinthefutureandarethereforesubjecttorisks,uncertaintiesandassumptions.Thereareanumberoffactorswhichcouldcauseactualresultsanddevelopmentstodiffermateriallyfromthoseexpressedorimpliedbysuchforwardlookingstatements,including,amongotherstheenactmentoflegislationorregulationthatmayimposecostsorrestrictactivities;there-negotiationofcontractsorlicences;fluctuationsindemandandpricingintheindustry;fluctuationsinexchangecontrols;changesingovernmentpolicyandtaxations;industrialdisputes;warandterrorism.Theseforward-lookingstatementsspeakonlyasatthedateofthisdocumentandarequalifiedintheirentiretybytheinherentrisksanduncertaintiessurroundingfutureexpectations.Unlessotherwiserequiredbyapplicablelaw,regulationoraccountingstandard,ConnectGroupPLCundertakesnoresponsibilitytopubliclyupdateanyofitsforward-lookingstatementswhetherasaresultofnewinformation,futuredevelopmentsorotherwise.

TheinformationcontainedwithinthisAnnualReportisdeemedtoconstituteinsideinformationasstipulatedundertheMarketAbuseRegulations(EU)No.596/2014.UponthepublicationofthisAnnualReport,thisinsideinformationisnowconsideredtobeinthepublicdomain.

Design and Productionwww.carrkamasa.co.uk

CONNECT GROUPANNUALREPORT2019 FINANCIALSTATEMENTS 141

Connect Group PLCRowanHouseKembreyParkSwindonWiltshireSN28UHUnitedKingdom

08451288888

connectgroupplc.com

http://connectgroupplc.com

Date post:	26-May-2020
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times

CONNECT GROUP PLC ANNUAL REPORT AND ACCOUNTS 2019 · 2019-12-16 · 16 Financial Review 22...

Documents