annual report and accounts 2010 - connect group · annual report and accounts 2010 performance...

18520.04 24/11/2010 Proof9 18520.04 24/11/2010 Proof9

Smiths News PLCWakefield HousePipers WaySwindonWiltshire SN3 1RFUnited Kingdom

Telephone 0845 123 0000Facsimile 01793 563601

www.smithsnews.co.uk

Annual Report and Accounts 2010

PerformanceServiceValue

Delivering

Annual R

epo

rt and A

ccounts 2010

18520.04 24/11/2010 Proof9 18520.04 24/11/2010 Proof9

Welcome to

Smiths News PLCPerformance – Service – Value

Smiths News PLC is the UK’s largest distributor of newspapers, magazines and books. Our scale and expertise, combined with intelligent logistics systems, ensure we provide the best and widest range of services for both publishers and retailers. Delivering performance, service and value is coreto everything we do.

Our BusinessHighlights 01Chairman’s Statement 02Our Business at a Glance 04Questions and Answers 06 Our PerformanceBusiness Review Operating Review 08 Financial Review 28

Our GovernanceCorporate Responsibility Report 38Board of Directors 46Executive Management Team 48Directors’ Report 49Corporate Governance 52Remuneration Report 57Directors’ Responsibilities Statement 68

Our AccountsIndependent Auditors’ Report 69Group Income Statement 70Group Statement of Comprehensive Income 71Group Balance Sheet 72Group Statement of Changes in Equity 73Group Cash Flow Statement 74Notes to the Accounts 75Five Year Financial Summary 113Independent Auditors’ Report 115Company Balance Sheet 116Reconciliation of Movements in Shareholders’ Funds 116Notes to the Company Balance Sheet 117Shareholder Information 119Glossary of Terms 121

Contents


Our PerformanceOur Business

Glossary of Terms

Smiths News PLC and its subsidiaries.

Smiths News PLC, registered in England and Wales with registered no. 5195191.

The businesses operated by a subsidiary of Smiths News PLC, Smiths News Trading Limited comprising Smiths News, InStore and NewsWorks.

The businesses operated by a subsidiary of Smiths News PLC, Bertram Trading Limited comprising Bertram Books, Bertram Library Services and Bertram Publisher Services.

The acquisition of the business and certain assets from the Bertram group of companies, formerly being known as (i) Bertram Group Limited(In Administration) (ii) Bertram Trading Limited (In Administration) and (iii) Bertram Books Limited (In Administration).

The news and magazine wholesaling business operated by (i) Surridge Dawson Limited (In Administration) and (ii) Solent SD Limited (InAdministration), together formerly trading as ‘Dawson News’.

Rascal Solutions Limited, a 50/50 joint venture between Smiths News and the Kemble family.

The Group

Smiths News PLC/ the Company

Smiths News

Bertrams

Acquisition of Bertrams

Dawson News

Rascal

In order to aid clarity the following terms are used throughout the Annual Report and Accounts 2010.

121

Our Governance Our Accounts

www.smithsnews.co.uk 01

18520.04 24/11/2010 Proof11

Revenue

To £1,830m (2009: £1,326m)

+38%Underlying profit before tax

To £35.0m (2009: £30.5m)

+14.8%Profit before tax

To £28.1m (2009: £18.4m)

+52.7%Earnings per share

To 14.6p (2009: 13.8p)

+5.8%Dividend per share

To 7.4p (2009: 6.8p)

+8.8%Free cash flow

To £20.4m (2009: £23.7m)

-13.9%

■ Strong performance despite challenging markets

■ Integration of new territories now complete

■ 18 network changes and SAP installed at all depots

■ Cost savings of £5m in Smiths News

■ £25m of Regional Press gains

■ Bertrams trading strongly with underlying operating profit of £4m

■ Bertram Library Services wins new contracts and relocates to Norwich

■ New bank facilities in place until November 2014

Highlights

Our Business Our Performance

02 Stock Code: NWSSmiths News PLC Annual Report and Accounts 2010

18520.04 24/11/2010 Proof11

Chairman’s StatementDennis Millard, Chairman

Unprecedented change with speed and precision

One of the most pleasing aspects of my

role as Chairman is the opportunity I

have to visit our depots throughout the

country. Nothing compares with seeing

an operation at first hand to get a sense

of the strengths and the values that drive our business. In

my time at Smiths News, I have become accustomed to

seeing the pride, professionalism, focus and determination

that is the hallmark of our staff at our depots across the

length and breadth of our network.

This year I have witnessed something more. It has been a

year of unprecedented growth and our management

and staff have demonstrated both the agility and

capability to manage massive change. The

complexity of absorbing £459m of new

contracts would be more than enough for

most companies to manage. But this has

been achieved without disruption to service,

whilst we restructured the organisation,

introduced and operated new systems

and processes and captured

significant efficiencies.

The list of achievements

often gives me pause

for thought: 6,000 new

customers and delivery

points, 18 depot

changes, the SAP system

fully installed across the

network, Regional Press

gains of £25m, new facilities

and technology at many

locations.

It is our ability to deliver this change with speed and precision

that gives me confidence in the future. It is clear that in Smiths

News we have the skills and abilities to drive performance,

both in our existing markets as well as new ones.

Bertrams is a good example. In the 18 months

since acquisition we have grown sales and profits,

winning new contracts and delivering efficiencies. We

have made investments too, extending our Norwich hub

to accommodate the Library Services business, a move

that will improve service and reduce operating costs. Most

importantly, Bertrams has fitted well into our culture; skills

and experience are willingly shared and the result is a

more diverse and stronger Group.

In what we recognised would be a year of change and

consolidation, the Group has delivered an excellent financial

performance. Revenue of £1.8bn was up 38% following

contract gains made in August 2009. Underlying profit

before tax of £35m increased by 14.8% and earnings per

share at 14.6p is up 5.8%. Cash flow remained strong and

we have renegotiated our borrowing facilities on attractive

terms. Given the Board’s confidence in the future prospects

for the Group and its positive cash flow characteristics, a

final dividend of 5.0p per share has been proposed, making

a full year dividend of 7.4p, up 8.8% on last year.

As a consequence of the contract awards, and as

reported last year, Smiths News will be withdrawing from

its established depots in Blackpool, Carmarthen, Sheffield

and Lancaster. Whilst the outcome of the contracts was

positive for the Group as a whole, it is nonetheless sad

to be leaving areas that we have served for many years.

I would like to thank our customers and particularly our

staff in these areas for their unwavering dedication in

what are difficult circumstances.

SMITHS NeWS SeRveS 30,000 ReTAILeRS ACROSS eNGLAND AND WALeS

FACT:



18520.04 24/11/2010 Proof11

I would also like to acknowledge Mark Cashmore for his

excellent leadership of the business and his executive

team for their efforts in what has been a demanding year.

My colleagues on the Board have, as always, provided

support and constructive challenge. I was delighted to

welcome Jonathan Bunting to the Board, following his

promotion to Chief Commercial Officer, and also Nick

Gresham who has joined the Company as Chief Financial

Officer. Nick replaces Alan Humphrey (Financial Director)

who retired in August. On behalf of the Board, I offer Alan

our sincere thanks for his skilful contribution over a long

period, and our very best wishes for his retirement.

The wider economic environment remains challenging

and our markets, though relatively resilient and

predictable, are no exception to consumer spending

patterns. The contract gains of recent years mean we

are well positioned to make progress, but our attention

to efficiencies will need to continue. It is encouraging that

we have completed many of the changes that will secure

savings in the year ahead. We will continue to look for

opportunities in areas where our capabilities are evident.

In this regard, we have consistently stated an ambition

to broaden the revenue mix of the Group, using our

skills in markets that can add value to customers and

shareholders. With the integration of the new territories

complete and Bertrams performing well, this is now a key

priority. We have thus begun to research a range of

opportunities with a focus on the specialist distribution

sector, where our competencies have most potential to

give us a competitive advantage.

Looking ahead, the Group is well positioned to make

progress. Our core businesses have each demonstrated

an exceptional ability to respond to change and grasp

opportunities. More than anything else, it is these qualities,

at the heart of our business, that give the Board

confidence for the future.

Dennis Millard

Chairman

1 A member of the customer services team at Bertrams.

ReGIONAL PReSS GAINS OF £25M

FACT:

PerformanceDelivering

1



18520.04 24/11/2010 Proof11

Our Business at a Glance

Smiths News has a unique insight into the

news industry. Working in one of the world’s

fastest supply chains, delivering 1.6 billion

newspapers and 800 million magazines

every year.

Our scale and expertise enables us to deliver a highly

efficient service backed by information systems that provide

a comprehensive supply chain solution. We deliver supplies,

collect and recycle returns, and forecast future demand,

working closely with publishers and retailers to meet the

needs of millions of consumers every day of the year.

Smiths News serves all the major magazine and

newspaper publishers. Deliveries go out every morning

to 30,000 retailers across england and Wales.

Our customers range from major supermarkets and high

street retailers to corner shops and remote community

stores.

We’re committed to providing excellent service, regardless

of our customers’ size or location.

Smiths News is the UK’s leading newspaper and magazine wholesaler, serving 30,000 customers from 58 distribution centres across the UK.

Smiths News

1

2

SMITHS NeWS DISTRIBUTeS 73 MILLION NeWSPAPeRS AND MAGAzINeS A WeeK

FACT:

1 A member of staff in our Nottingham depot packing magazines.

Deliveries being unloaded from a lorry.

2

Divisional Revenue

Key statistics

£1,692.5m2009: £1,272.5m

■ 30,000 customers

■ 58 distribution centres

■ 4,900 employees

Sales by type 1

2

Magazines

56%

Newspapers

39%

Other

5%



18520.04 24/11/2010 Proof11

BertramsBertrams is a leading book wholesaler. For more than 40 years it has supplied books to retailers large and small in the UK and overseas.

Based in Norwich, Bertrams employs over 400

staff at its distribution centre. Its warehouse

has an impressive capacity for storage of

over 200,000 titles.

Bertrams specializes in reaching independent booksellers

and online retailers, with over 2 million titles available to

order. Deliveries to the UK are usually within 24 hours and

the overseas operation can ship orders to 96 countries

round the world, in just 3–5 days.

The business comprises Bertrams Books, the book

wholesaler, Bertram Library Services, a leading library

supply business, and Bertram Publisher Services,

providing bespoke services to publishers.

With over 40 years’ experience and extensive industry

contacts, Bertrams is able to interpret and quickly

respond to the needs of both clients and customers.

Bertrams was acquired by Smiths News PLC in

March 2009.

BeRTRAMS HAS 200,000 TITLeS IN STOCK

FACT:

3 Bertrams sorting technology allows 200 customer orders to be processed together ensuring a speedy and efficient process.

A member of staff checking books at the goods in section.

4

3

4

Sales by type

Key statistics

Divisional Revenue

£137.1m2009: £53.5m

■ 2,000 customers

■ 1 distribution centre

■ 400 employees

Library 18%

Independents

19%

Internet 39%

High Street 6%

Media 2%

International 16%



18520.04 24/11/2010 Proof11

Questions and AnswersMark Cashmore, Group Chief executive

Our vision is to be a leading player in all our markets

Question:What is the Smiths News PLC vision?Answer: Our vision is to be a leading player in all our markets, following clear, focused strategies that benefit all stakeholders,

and delivering profit growth and cash generation for shareholders.

Over the last two years we have reinforced our position as the leading wholesaler of newspapers and magazines.

And we’ve successfully acquired Bertrams, growing its sales and profits in our first year of ownership. These,

our core businesses, have many opportunities to make efficiencies, increase revenues and improve profits in the future.

But we are ambitious to grow further and we plan on taking our skills to new markets that offer sustainable profit

growth. We will focus on those opportunities that best match our skills and competencies, and to which the Group

can add value.

Question:Is the newspaper and magazine industry under threat from digital technology?Answer: There’s been a lot of publicity about digital technologies and we’ve been watching developments carefully. We recently

commissioned a wide-ranging study, supported by Deloitte, to understand the potential impact on our business

and markets.

Our research concluded that there are considerable challenges for publishers to overcome if digital publishing is ever to

be profitable at scale. The economics of digital subscriptions and advertising remain unproven, and consumers retain a

strong affinity to traditional newspapers, magazines and books.

There are specialist areas, such as the financial and academic sectors, where digital publishing has capability to make

more impact more quickly. But in the broader market, whilst some change is inevitable, there are strong reasons to

believe any change will be evolutionary and not revolutionary.



18520.04 24/11/2010 Proof11

Question:What does 2011 hold for Smiths News PLC?Answer: I believe it is going to be an exciting time.

Last year we worked tirelessly to integrate our new businesses and reduce the higher operating costs that we had

inherited. In 2011 we plan to build on that success, seeking further efficiencies and consolidating the service

improvements for customers.

Our markets, like the wider economy, will continue to be challenging, but there are many opportunities

for new revenues as well as cost reductions.

But equally important is our commitment to expanding in new markets. With the contract integration

behind us, and the experience of acquiring Bertrams, this year is the ideal time to focus on how best

to develop the Group for the future.

Question:What makes Smiths News PLC different from its competitors?Answer: Firstly, I’d highlight our commitment to investments and particularly leading technology. We were

ten years ahead of our nearest competitor in installing SAP and we’ve consistently delivered new

solutions, better service and the most comprehensive offer to customers.

Secondly, our scale and network coverage is unmatched in our marketplace. We have the capability

to drive sustainable efficiencies in a way that others cannot.

And thirdly, I’d say our people, their passion for our business and determination to succeed.

Ultimately, our success is down to their efforts.

Question:What is your commitment to reducing environmental impact?Answer: We believe that responsible practice is good business, and we’re committed to reducing our impact

on the environment. We have made great strides in recycling and waste management as well as

reducing our energy usage. But I recognise there is more we can do and we’ll be focusing on making

our operation as efficient as possible without impacting on service to customers.

I was delighted that in October we were awarded the Carbon Trust Standard – it commits us to

making targeted year on year improvements, a challenge that we will embrace.



18520.04 24/11/2010 Proof11



Business ReviewOperating ReviewMark Cashmore, Group Chief executive

A strong performance across the Group

I am delighted to report another year of progress for the

Smiths News Group. We have achieved or exceeded

all of the operational targets that we set last year and

delivered a strong financial performance in line with

expectations. As a result, the Group remains on track

with its strategy and is well positioned to make further

progress in the year ahead.

Despite challenging markets and the higher cost base

inherited in the former Dawson News territories, we have

increased underlying profit before tax by 14.8% to £35m.

This strong result was driven by the increase in sales

following the contract wins of 2009, supported by clearly

targeted performance and efficiency improvements,

further results of which will flow through into the

current year. Free cash flow at £20.4m was in line

with expectations, also a strong performance. The

dividend for the year of 7.4p, an increase of 8.8%,

reflects our confidence in the ongoing

performance of the Group.

Once again, teams at Smiths

News have demonstrated

their exceptional talent and

determination, successfully

implementing the integration

of 22 former Dawson News

depots and £459m of contract

gains. This huge task was

delivered on time and without

impact on service: an

exceptional achievement.

Bertrams has also performed

strongly, increasing profits and

winning new contracts in the

library sector. It is pleasing that

1

the first step in our strategy to widen the base of our

distribution activities within the Group has proved successful.

Such progress would not have been possible without the

exceptional efforts of our staff. In a year of immense

change I have been reminded, time and time again, of

their commitment and capability. I would like to thank

them for their efforts, and also acknowledge the support

and cooperation of our supply chain partners.

Smiths News – summary of performance

Smiths News has delivered a strong performance, with

underlying operating profits increasing to £33.1m (2009:

£31.7m) following the contract gains of 2009, and the

business responding to transformational change with

characteristic focus and determination.

In last year’s report, I described 2009 as an extraordinary

year for Smiths News. Our priority for this year was clear:

to assimilate the new business without disruption, quickly

implementing our leading processes and systems. By

doing so we planned to drive both service and efficiency

at the new locations to the standards of our established

network.



18520.04 24/11/2010 Proof11



The implementation of the SAP technology system at

the new locations was achieved on time and without

disruption to service. The scale of this achievement bears

a little reflection: in a period of only 28 weeks the project

team worked tirelessly, training 1,000 new staff and

successfully implementing the system at all the new

locations, improving service to over 6,000 new customers.

The business is now operating on one system with

consistent information and processes – as a result, we

were able to close the former Dawson News Head Office

in March 2010.

In parallel with the implementation of SAP we made

changes to our network, reducing the duplication of

facilities and integrating the new depots into our more

efficient ‘hub and spoke’ operation. Over the year we

made 18 network changes; we believe there is further

opportunity for consolidation and remain committed to

investing where necessary to ensure our network has the

best and most efficient infrastructure.

There were no contract renewals this year affecting

national newspapers or magazine distributors. However,

our expanded network has created opportunity for

Regional Press publishers and we secured new contracts

worth £25m on an annualised basis. Smiths News is now

the largest distributor of Regional Press in the UK with

£70m of revenues from these publishers – an increase of

£50m in only four years. As regional publishers look for

efficiencies we have expanded our capability to include

leaflet and free newspaper distribution. We are targeting

further growth from this sector as more regional publishers

review their distribution arrangements in the light of

market developments.

BeRTRAMS HAS THe ABILITy TO SHIP TO 96 COUNTRIeS WORLDWIDe

FACT:

2

1 A van outside our depot in Slough ready to deliver newspapers and magazines to our customers.

A newspaper packing area in our depot in Plymouth.

2

ServiceDelivering



18520.04 24/11/2010 Proof11



Business ReviewOperating Review continued

Bertrams – summary of performance

Bertrams has performed well in our first full year of

ownership, delivering an underlying operating profit of

£4m. In what has been a challenging market for UK retail

sales, Bertrams has performed ahead of the market, with

like-for-like sales growth of 6.8%. Of particular importance

has been the performance of Internet retailers and

international sales. New contracts for book supply and

fulfilment services from HMv, Mail Newspapers and WH

Smith have also contributed to the momentum. The

business has made good progress in identifying service

and efficiency improvements and the cultural and strategic

fit with the Group has proved to be strong.

Bertrams’ profits and revenues are more seasonal than

those of the news distribution business, with key periods

being the autumn (for back to School/University sales) and

Christmas. Independent booksellers are still at the core

of the business and in a difficult High Street environment

they have shown resilience, with their focus on service

and edited selection supporting a loyal consumer base.

The Internet continues to grow primarily at the expense

of chain booksellers and plays to Bertrams’ strengths

of speed of delivery and distribution efficiency. Lastly,

international sales benefited from a combination of the

continued global growth in english language usage and

the low value of sterling against both the dollar and euro.

excellent service, and breadth and depth of range, has

long been central to the Bertrams’ brand and it is

therefore pleasing to see service levels fully recovered

after the difficult period prior to our ownership, caused by

restricted investment in the business. In September 2009

we commissioned independently conducted surveys

1

ServiceDelivering

1

2

Bertrams 180,000 square foot warehouse in Norwich.

A retailer replenishing her magazine display.



18520.04 24/11/2010 Proof11



which showed Bertrams to be leading its competitors in

five out of the six most important service factors. Going

forward, we will continue to monitor service, responding

to customer feedback, ensuring we maintain the best and

most efficient offer in the market.

Bertram Library Services (BLS) is a leading supplier of

books to UK public libraries and its success is also

founded on excellent service. This year, BLS won or

retained new contracts worth £10.2m with Glasgow,

Tayside Consortium, Cheshire West and Chester,

Westminster and the new Scotland excel Consortium,

more than offsetting contract losses of £3.9m. Following

the Group’s £1m investment in a mezzanine floor at

Bertrams’ Norwich hub, BLS began, in July 2010, the

transfer of its operation from Leeds to Norwich. This move

was completed at the end of September 2010 and will

deliver greater overall efficiency as well as improving

despatch times to customers – one of the top service

requirements of the library consortia.

Markets

Newspapers and magazines

The newspaper market has been challenging, although it

remains resilient in the context of the wider economy.

Like-for-like newspaper sales are down by 4.2% with

performance in the second half showing a marginally

improving trend. Sales value has been impacted by price

SMITHS NeWS DeLIveRS 1.6 BILLION NeWSPAPeRS AND 800 MILLION MAGAzINeS eveRy yeAR.

FACT:

discounting of the Sun and Star, and whilst our margins are

protected, the discounting had a secondary impact in that

it restricted the ability of other titles to increase their cover

prices. In contrast to the market decline, total sales in

Smiths News were up 35% as a result of contract gains.

Like-for-like magazine sales are down by 4.0%, a welcome

improvement on last year’s trend. However, it is clear that

the market continues to be affected by the recession. The

World Cup boosted sales of one-shots and football stickers

in the year, reflecting the cyclical and ‘event driven’ nature

of this product. Looking forward, we are planning on the

basis of no significant change to current performance. Total

magazine sales in Smiths News grew by 30% as a result of

our contract gains last year.

Books

The total value of all books sold to consumers in the UK

was down by 2.7% in the period. This headline figure is

heavily influenced by sales of the major high street chains,

which account for only 6% of Bertrams’ mix. In contrast,

our diverse range of customers means we are less

dependent on any one sector; as a consequence

Bertrams performed ahead of the overall market, with

like-for-like sales up 6.8%.

2


InStore’s partnership with Sainsbury’s

InStore Field Marketing, part of the Smiths News Group, also had a successful year. In 2010 they worked with Sainsbury’s to implement its biggest review of magazines since 2004. The InStore team visited over 500 stores, updating their displays of magazines and replacing over 300,000 pieces of point of sale material. An intense activity that was delivered to deadline but more importantly delivered to the satisfaction of Sainsbury’s.



18520.04 24/11/2010 Proof11






18520.04 24/11/2010 Proof11



Group strategy and objectives

The Group is the market leader in newspaper, magazine and

book distribution and seeks to become a meaningful player

in new markets that build on our skills and competencies,

creating demonstrable value for shareholders.

We plan to deliver profit growth and cash generation to

our shareholders by following clear, focused strategies

that benefit all stakeholders.

Our strategy is to deliver:

l World class logistics for news and book distribution

l Clearly defined services that are tailored to the needs

of each customer group

l Focused cost control, unsurpassed efficiency and

unbeatable economics

l Industry leading systems for process control, data

management, marketing information and sales

forecasting

l A combination of scale, service and relationship

management that makes us the clear ‘partner of

choice’ for retailers and publishers

l The necessary management structure, supported

by extensive training and development throughout

the business

l Sustainable profit growth by driving efficiencies and

sales opportunities in our core business, supported

by acquisitions in new markets that match our skills

and competencies

Progress against objectives for 2009/10

In the 2009 Annual Report we outlined six priorities for

2009/10. We have achieved or exceeded in all areas.

Business gains

The full integration of the depots acquired in August

2009, including the implementation of our SAP

information system at all locations.

This was our top priority for the year. We successfully

achieved the integration and implemented SAP without

impact on our core service. The last depot transferred

to SAP in March 2010, removing any reliance on the

legacy systems of the former Dawson News. Smiths

News now operates with consistent systems, processes

and management information – the essential tools to

improving service and efficiency.

SMITHS NeWS HAS OveR 1 MILLION SQUARe FeeT OF WAReHOUSe SPACe.

FACT:

Service excellence

To raise the standards of service in our newly

acquired depots towards those of our established

locations, providing greater service consistency

to customers throughout our network.

The service standards at the new depots have risen

gradually over the year. It is the SAP system that gives

us the visibility of performance that is required to target

improvements; as the system was rolled out we

developed clear action plans to address any service

weakness. Already a number of the new depots are

performing as well as our established locations.

We have also invested heavily in technology, processes

and training, including new pack lines and scanning

equipment and a major expansion of the sales-based

replenishment system.

Bringing graduates on board25-year-old Anya Perry is about to finish her graduate

scheme placement with Smiths News. Anya spent six

months with the Commercial department and a further

six months working for Operations. She has been

instrumental in pushing forward the Smiths News Carbon

Reduction programme. Anya has this to say about the

scheme: “This year has been very intense but extremely

rewarding. I have worked on various projects and been

very well supported along the way. The graduate scheme

is very well structured, but also allows for responding to

the needs of the business as they arise, giving the trainee

the opportunity to participate in current projects.”

For further information about careers go to www.smithsnews.co.uk

Delivering Performance



18520.04 24/11/2010 Proof11



300 MILLION ITeMS ARe SCANNeD eveRy yeAR

FACT:


Cost control

To maintain tight cost control across all businesses

in the Group, achieving a like-for-like reduction in

costs at least equal to inflation.

We had a clear plan to drive efficiencies from our new

contract areas, and achieved or exceeded all key targets,

making savings of £3.0m. A further £2.0m of annualised

savings was achieved from our established locations. The

business remains on track to achieve further efficiencies in

the year ahead.

Cost control is a core competence of the Group and we

continue to invest to facilitate efficiency improvements;

examples this year include the new mezzanine floor at

Bertrams and new depots for Smiths News in Oxford and

Newmarket.

Bertrams

To increase the sales and profitability of Bertrams by

applying the Group’s expertise in service and efficiency.

Bertrams increased its underlying operating profit to £4.0m.

The cultural and operational fit between Smiths News

and Bertrams has proved to be strong; best practice and

commercial expertise is being shared and both businesses

have benefited from Bertrams joining the Group. An

excellent example is the recent move of Bertram Library

Service from Leeds to Norwich and the integration of its

supporting administration into the Smiths News Accounting

Centre at Bradford.

New business development

To research, prepare for and be alive to new

business development opportunities that would

enhance the Group.

With the unprecedented demands on our core businesses

we had not planned to make any further acquisitions this year.

Nonetheless, we have continued to research opportunities

for expansion into complementary markets. There are

benefits for all stakeholders in a more diversified Group,

making use of our core skills. We will continue to pursue a

range of corporate development opportunities, focusing

on those areas where we can use our assets and

competencies to add value.

People

To increase our pool of market leading talent.

During the year we launched a major talent management

initiative, expanded our apprentice and graduate

schemes, and increased our investment in people and

their development. In the last 18 months we have

welcomed over 2,000 staff from Bertrams and Dawson

News; we regard our new staff as an important asset and

already our performance management and development

programmes are helping us to maximise their potential.

400 MILLION SUPPLeMeNTS ARe DISTRIBUTeD eveRy yeAR

FACT:

1



18520.04 24/11/2010 Proof11



2

Objectives for 2010/2011

We have identified six strategic priorities for the

current year:

• Operational excellence

To improve further the operational performance

and service consistency of both Smiths News

and Bertrams.

We plan to invest in our systems, to simplify processes

for retailers, and to take swift action in any areas of

underperformance. We will measure performance

against a wider range of KPIs to ensure we meet the

needs of all supply chain partners.

1 A range of magazines in a large retail outlet.

A member of Smiths News’ customer service team in Slough.

2

• Cost leadership

To make further efficiency savings without

impact on our capability or service standards.

We have clear plans to deliver further efficiencies from

the expanded network in Smiths News and equivalent

targets for Bertrams. This year we will look closely at

opportunities across our internal Group services.

• Network development

To review our longer term network strategy and

commence further regional consolidations.

We will work with publishers and retailers to

understand and agree the most effective and efficient

network for the future. We plan to close the four

depots for which our contracts were not renewed.



18520.04 24/11/2010 Proof11




98.8% OF NeWSPAPeR ReTURNS COLLeCTION WeRe ON TIMe

FACT:• Bertrams

To grow Bertrams’ scale and capability, winning

new business from retailers and libraries, and

increasing our share of the growth sectors.

We plan to offer a wider range of services, reinforcing

our position as ‘number one for customer service’.

We will develop an e-book offer for customers,

strengthening our position in this area of the market.

• Corporate development

To make clear progress in diversifying our

revenues through a combination of organic

growth, opportunities and acquisitions.

We plan to investigate a range of options and remain

committed to finding the best opportunities for the

Group. Our firm focus is on areas that will be

complementary to our skill base and shareholder

value will be paramount throughout.

• People

To support the delivery of our strategy by

improving the long term performance, capability

and engagement of our people.

We plan to roll out the leading performance

management software that will improve consistency

of objective setting and drive performance. We will

increase our commitment to training, development

and talent management.

Major business developments

Integration of the former Dawson News depots

The integration of the former Dawson News depots

was our top priority this year. We planned to implement

our SAP system at all locations, quickly removing our

dependency on the Dawson News legacy technology

and enabling the combination of service and efficiency

improvements that are the hallmark of Smiths News.

This was a huge undertaking: the installation of SAP

requires a change to almost every working process;

training requirements are extensive and the cut-over had

to be executed flawlessly. Over a period of 28 weeks the

project team rolled out the system to all our new depots,

hitting every deadline and achieving all key targets.

By the end of the project we had trained over 1,000 staff,

installed scanning and tracking equipment to match that

used in our traditional locations, extended our sales-

based replenishment service to the new locations and

transferred the marketing and administration services to

our centres of excellence. In April, after the last depot

transferred to SAP, we were able to close the former

Dawson News head office.

This year the integration has involved one-off costs of

£6.1m comprising technology investments, project

expenses and redundancies. It was essential to achieve

efficiencies that we operated on one system with consistent

processes and service to customers. The integration has

enabled network improvements and the centralisation of

services, delivering annualised savings of £3m in the year,

increasing to £6m in the year ending 31 August 2011.

Network changes

In parallel with the implementation of SAP we have

undertaken an extensive review of the network. The

acquisition of 22 depots at short notice was necessary

to ensure continuity of the supply chain but there were

clear areas of duplication and inefficiency that needed

to be addressed.

1 2

1 Bertrams staff moving books into the sorting machine.

Storage racking for books in Norwich.

2



18520.04 24/11/2010 Proof11



ValueDelivering

Leading library services

Bertram Library Services (BLS) is at the forefront of supply to Public and School Libraries throughout the UK and overseas. BLS provides delivery within two days for over 200,000 titles, including fiction and non-fiction, academic and reference. In addition, BLS offers pre-publication ordering as well as online search facilities for over 6 million book titles. As one of the leading and largest specialist library suppliers in the UK, BLS aims to develop a love of reading amongst the public, and assists libraries with promotional material to



18520.04 24/11/2010 Proof11




1

1.5 BILLION SALeS ITeMS ARe ANALySeD eveRy DAy

FACT:

This year we have made 18 network changes. We have

closed eight depots, and converted seven of the smaller

locations to become part of a ‘hub and spoke’ arrangement

with a regional centre. Replacement depots were also

opened at Oxford and Newmarket.

By sharing services and rationalising depots we make

savings and improve service to customers. The actions to

date have addressed the most urgent and available

opportunities but we plan to develop further our network,

ensuring it continues to offer the winning combination of

service and efficiency that is vital for publishers and retailers.

Bertrams

In our first full year of ownership our priorities were to

increase profits, seek operational efficiencies and ensure

Bertrams’ services were regarded as ‘best in class’ by its

customers. We have made progress in all areas.

Book sales are more seasonal than newspapers and

magazines, with important peaks in the autumn and at

Christmas. We performed above market trends,

capitalising on the ‘back to University’ period, making

strong international sales, and benefiting from the shift of

sales from High Street to Internet retailers. Service metrics

were high throughout, with stock and availability boosted

by investment from the Group. In addition, new contracts

were agreed with HMv, Mail Newspapers, and WH Smith.

In autumn 2009 we commissioned independently

conducted customer surveys to gauge our progress and

establish priorities for service improvements. The results

were encouraging: Bertrams ranked number one in five out

of the six areas that customers regarded as most important

for service. We continue to monitor service and act on

the views of customers. This year we redesigned and

relaunched our customer website and online ordering

service for retailers; we made parallel improvements to our

library services offer. Our Independent Booksellers Group

helps some of our largest independent retailers with

targeted offers and promotional agreements.

Bertram Library Services (BLS) has had an eventful and

successful year. This year, BLS won or retained new

contracts worth £10.2m, more than offsetting contract

losses of £3.9m. In July, the library processing operation

relocated from Leeds to Norwich, a move made possible

by a £1m Group investment in a mezzanine floor. This

centralising of all physical operations will significantly

reduce our cost base, increase profitability and at the

same time improve service levels to our customers: for

example, reducing the lead time for despatch to libraries.

The sales and marketing function for BLS has moved to

the Smiths News National Accounting Centre in Bradford.136 GIGAByTeS OF DATABASe GROWTH A MONTH

FACT:



18520.04 24/11/2010 Proof11



Industry regulation

Following the review of newspaper and magazine

distribution by the Office of Fair Trading in 2008, the

industry has considered its need for self regulation. In April

this year the Joint Industry Group disbanded and work

began on a simpler and more effective structure to ensure

service guarantees and cross industry efficiency.

The Press Distribution Forum was established in July

2010, and a new Industry Charter will be launched in

November, which gives clear guarantees of service to

retailers from publishers and wholesalers. The Charter

will be supported by an independent complaints and

review process.

Smiths News has embraced the Charter’s standards and

will apply them to all our customers, regardless of size or

location. We recognise that newspapers and magazines

are different to other products, having the most time

sensitive of supply chains and a requirement to serve all

areas of the UK with a universal service. To achieve this

requires some element of shared services and coordination

of logistics. We remain committed to working across the

supply chain with the goal of improving service and

ensuring consumer needs are met.

Lost contract territories

The contract awards in 2009 increased the market share

of Smiths News from 39% to 55%. This unprecedented

success came as publishers awarded contracts to fewer,

larger locations, with a consolidation of newspapers and

magazines. An unfortunate consequence of this publisher

strategy was the loss of our contracts at four smaller

locations: Blackpool, Carmarthen, Lancaster and Sheffield.

Whilst we continued to trade at these locations

throughout the financial year, the gradual withdrawal

of the publisher contracts has made it progressively

uneconomic for us to fulfil our commitments and maintain

acceptable standards of service. We have therefore

confirmed our withdrawal from these territories with effect

from 31 October 2010.

Smiths News has served these areas for many years and it

is with regret that we have had to withdraw. The financial

impact has been accounted for in the year ended 31 August

2010 and we expect there to be no further adverse impact.

We would like to thank all our customers and particularly our

staff in the regions for their dedication during what has

clearly been a difficult period.

Staff

Our people are central to our success. yet again, they

have made extraordinary efforts to ensure we meet our

strategic targets without disruption to the day-to-day

operation. The Group now encompasses 5,300 staff; they

are our most important competitive advantage and we are

committed to investing in and developing their talent.

This year we’ve introduced a new framework for talent

management to identify and develop future leaders at all

levels of the business. A comprehensive review covered

every department and operating depot in each Group

business. We linked the outcome to individual

development plans and have introduced a series of

leadership groups to ensure we fast track those staff who

have the commitment and capability to progress.

2 3

1 A member of staff in Plymouth packing newspapers.

Books being moved from a delivery lorry into the warehouse in Norwich.

A member of Smiths News’ customer services team in Plymouth.

2

3

2 3



18520.04 24/11/2010 Proof11



In support of our talent strategy we have expanded the

apprentice scheme – to date 28 staff have participated. It

is particularly pleasing to see the apprentices rising to new

challenges, and thriving on their new experience and

responsibilities. Our graduate scheme, now in its third

year, provides us with further new talent, with the initial

appointees now moving into permanent roles.

In August 2009 we welcomed over 1,800 new staff from

the former Dawson News. In what was a very unsettling

time, they have performed magnificently, maintaining their

commitment and enthusiasm, despite considerable

change to operating practices.

As we reported last year, the integration of the new

depots would inevitably result in some redundancies.

This is never easy but we have worked extremely hard

to be as clear in our communication, with fairness and

sensitivity as our guiding principles. In total we made

855 redundancies during the year.

Bertrams continues to progress with its award-winning

training programme. Working in conjunction with Learn

Direct and Pitman Training they deliver a range of courses

from adult certificate level Maths and english training to

advanced IT and management skills. The scheme results

in a better skilled, better motivated workforce for the ever

challenging market Bertrams operates in.


1



18520.04 24/11/2010 Proof11



Corporate responsibility

The Group takes a positive approach to corporate

responsibility, recognising that responsible business practice

benefits all stakeholders. Our approach to corporate

responsibility embraces our workplace, our marketplace,

the environment and the communities we serve.

A further development this year has been our preparation

for the newly introduced Carbon Reduction Commitment

programme. In October, the Group achieved the Carbon

Trust Standard and we are committed to finding new

ways of reducing our impact on the environment.

Further details of our corporate responsibility policy and

our initiatives can be found on page 38 of this report and

on our website www.smithsnews.co.uk

Outlook

Looking ahead, we remain cautious about the impact of

the current economic climate on the prospects for a

recovery in base sales and our strategy assumes our

markets will continue to be challenging. We therefore have

plans to reduce costs by £20m in the next three years and

will be pursuing new revenues with a clear vision to

develop the Group in specialist markets.

Risks and uncertainties

The Group operates in large and stable markets. Strong

cost control is a core competence and, given the relative

predictability of sales, the Group is well placed to mitigate

any major risks.

Both of the Group’s key businesses have relatively secure

revenues. Smiths News has exclusive agreements with

the major newspaper and magazine publishers for the

next five years for the vast majority of its revenues.

Bertrams has contracts for its library business that run

for an average of three years, whilst the remainder of

trading is with established customers.

The Group has robust internal procedures to monitor

sales, costs, profits and risks. The executive and Risk

Committee review the principal strategic and financial

risks on a quarterly basis. The Audit Committee oversees

the overall risk process and reviews the outcome of this

process twice a year. The business completes a detailed

reforecast at least twice a year and more regularly if any

significant issues arise and these forecasts are reviewed

by the Board.

Our assessment of the principal risks is as follows.

Consumer confidence and spending

The general economic environment remains uncertain,

affecting consumer confidence. In addition, the planned

Government spending cuts and changes to personal

benefits, together with the increase in vAT to 20% in

January 2011, could have a further negative impact.

Reduced confidence may lead to a squeeze on

discretionary spending including the sales of newspapers,

magazines and books.

Whilst consumer confidence has a clear correlation with

retail sales, the relatively low cover price and habitual

nature of newspapers and magazines helps

to limit the impact. Demand for books is similarly resilient

and the Group strategy remains to increase sales by

targeting growth sectors such as the Internet, international

sales and Regional Press. The vast majority of

newspapers, magazines and books have

a 0% VAT rating; nonetheless, it remains possible that

consumers seeking to economise could reduce spending

on discretionary items generally.

1 The Plymouth night team busy sorting and packing newspapers.

Spiral conveyor taking books to the sortation machine.

2

2

IN OCTOBeR, THe GROUP ACHIeveD THe CARBON TRUST STANDARD

FACT:



18520.04 24/11/2010 Proof11



Impact of passive sales

Following guidance issued by the Office of Fair Trading,

the new contracts awarded by magazine publishers make

allowance for sales outside of the designated territories in

response to unsolicited requests from retailers (passive

sales). Previously contracts could be more restrictive,

generally being granted on the basis of ‘absolute territorial

exclusivity’. The new arrangements could create an

incentive for retailers to seek alternative suppliers, with a

consequent impact on sales, margins and costs.

The combination of leading service and the most efficient

operation means Smiths News is well placed

to respond to any such requests. Over the last year,

Smiths News has received 80 applications to supply

retailers with magazines in those territories where we

already deliver newspapers. At the time of writing, these

requests are being processed and the subsequent sales

are likely to increase our profitability in these territories. We

have received only three requests from retailers wishing to

cancel their supply of magazines.

Reduced retail sales impacting on newspaper and

magazine publishers

A significant reduction in sales of newspapers and

magazines over time would have an adverse effect on

revenues and lower circulations could also undermine the

business model of publishers, leading to title closures.

National newspapers have a long-term trend of price

increases mostly offsetting the impact of volume declines.

Nonetheless, we are planning on the basis of limited price

inflation and our contracts provide protection to margins in

the event of promotional price discounting.

Magazine sales have been more impacted by

the recession though more recent performance has seen

an improvement in the rate of decline but there remains

a risk that some titles will cease publication.

The newspaper and magazine contract wins of 2009

increased sales by approximately £459m and market

share to 55%. Magazine launches and closures are a

feature of the market with new titles replacing those which

no longer reflect consumer lifestyles. Our comprehensive

understanding of sales and market dynamics helps us to

anticipate and plan for any worsening of conditions,

enabling us to take appropriate action to protect profits.

Contract renewal

At the time of contract renewal, publishers could seek

alternative routes to market in some of Smiths News’

current territories, which would result in lower sales.

Alternatively, there remains the risk of contract renewals at

lower margin.

The Group is well positioned to renegotiate its contracts

as and when they come up for renewal. We are the

leading news wholesaler with a strong service

performance and our combination of scale, specialist

services and category expertise is difficult for new entrants

to replicate. Smiths News has long-standing commercial

relationships throughout the supply chain and continues

to work closely with publishers and retailers to ensure our

plans and objectives are aligned.

Digital media

The recent launch of book readers such as the ipad and

Amazon Kindle, together with the The Times’ decision to

charge for online subscriptions has increased awareness of

digital publishing. This technology creates the potential for

consumers to move from traditional printed media to digital

alternatives, which could have an adverse effect on sales

and growth opportunities.

The Group is aware that digital media could have an

impact on traditional markets, and commissioned

research to understand its potential impacts more

fully. In this fast moving environment, making long-term

predictions is fraught with difficulty; however, the research

supports the Group’s view that the impact on news and

books is likely to be an evolutionary rather than

revolutionary process.

The research suggests that the format of newspapers,

magazines and books is more optimised to consumer

needs than music was, which has seen a significant shift

to digital downloads. It is relevant that the vast majority of

publishers make inadequate returns on investment from

stand-alone digital alternatives, so there are strong

incentives for continued investment in traditional channels.

The Group will continue to monitor market developments

closely.




18520.04 24/11/2010 Proof11



Impact of public sector spending cuts on library

purchasing

The Government’s stated plans to reduce spending in

the public sector could have a detrimental impact on

Bertram Library Services, reducing the value of ongoing

expenditure and future contracts.

Bertrams recognises that available funds in the public sector

may be more limited and has planned accordingly. This year

Bertrams won over £6m in net contract gains helping to

offset any future decline; the move of Bertram Library

Services to Norwich will also reduce overheads by enabling

a more streamlined operation.

Property and lease commitments

Potential liabilities could crystallise in respect of previous

assignments of leases where the liability could revert to the

Group if the lessee defaulted. Pursuant to the terms of the

Demerger Agreement any such contingent liability which

becomes an actual liability will be apportioned between

Smiths News PLC and WH Smith PLC in the ratio 35:65

(provided that the actual liability of Smiths News PLC in any

12 month period does not exceed £5m). The Group’s share

of these leases has an estimated future cumulative gross

rental commitment at 31 August 2010 of £21.2m (2009:

£26.6m).

Although the total liability is significant, many of the leases

were assigned to retail companies that continue to trade

well and are financially robust. Given the expiry of time, it is

also likely that many of the leases included within the

contingent liability have been renegotiated such that any

liability has been extinguished. The maximum potential

lease liability will continue to decline, with an estimated

maximum liability of below £5m by August 2015.

The Group, working with WH Smith PLC, has reached a

mediated settlement in relation to three leases following a

Creditor Voluntary Agreement made by Focus PLC. The

cost of the settlements to the Group totalled £0.5m and

two further properties remain to be resolved.

The cash impact resulting from the estimated future

cumulative gross rental commitment would spread over

more than ten years.

Financial exposure to key retailers and publishers

The failure of one or more of the Group’s major retailers or

publishers could affect the ability of the Group’s

profitability and cash flows.

The Group monitors payments carefully and has

a strong track record of cash collection from its

customer base. Payment for newspapers and magazines

from smaller retailers is generally received on a weekly

basis and their reliance on product means that settlement

of our invoice is generally prioritised.

The Group’s largest credit risk is to some of the UK’s

major retailers who have strong credit ratings. Of our

larger retailer customers, the top five are major UK PLCs

with good payment records and credit ratings. We also

have credit insurance against a number of smaller retail

chains. The average credit period taken on sale of goods

is 21 days (2009: 21 days). We continue to manage

our credit risk tightly to ensure our customers comply with

payment terms.

The failure of one or more of our publisher/distributor

suppliers could result in exposure to a significant cash

shortfall if the credits due to retailers for unsold copies are

greater than any outstanding payments due to the failed

publisher.

The Group monitors stock and unsold levels on a regular

basis and where appropriate phases payments to

publishers to ensure any exposure is minimised; we also

use external data to monitor credit ratings on a regular

basis. Our largest suppliers are large companies, and in

some cases part of larger quoted companies, with

established and stable business models.

The Group’s treasury and risk management policies are

set out in the Financial Review on page 28. The principal

financial risks (capital, market, credit and liquidity)

are detailed in Note 23 to the Accounts.



18520.04 24/11/2010 Proof11




Intelligent Logistics

you might think that it’s a

relatively easy process to move

a newspaper from A to B – but

have you ever considered what’s

really going on behind the

scenes in order to facilitate newspaper delivery

around the UK?

Smiths News is a leader in intelligent logistics.

Supporting our operation is a complex and

highly functioning database, based on the SAP

system. This is such an important part of our

business, that since 1998 we’ve invested over

£60m in SAP and our information systems. And

we will continue to invest ensuring we have the

most effective processes available.

Our information has to move as quickly as our

newspapers. every stage of our process is

controlled by scanning and tracking the products

– the key to fast-moving, accurate data.

We measure and adjust our service, based on

real-time knowledge, which helps us make

quick decisions that ensure we hit over 90% of

our key performance indicators.

We provide statistics on sales, customers,

returns, invoicing and more to newspaper and

magazine publishers, within hours of their

products going on or coming off sale. Some of

this is transmitted on eDI links and some is

available to download from a portal that serves

our biggest publishing customers.

At the publishers

We receive information from publishers telling us how many copies of each newspaper and magazine will arrive at each depot. Newspapers and magazines are scanned as soon as they reach the depot.

In the depots

Our systems tell our staff exactly how many copies of newspapers to pack and how many magazines to load into each retailer’s tote box. We can scan, pack and distribute over 6 million newspapers within three hours.

On the road

Drivers scan the tote boxes of newspapers and magazines on arrival at a retailer’s premises. The scanning guns record the time of delivery and the number of boxes dropped off. The driver also collects any magazines and newspapers which have been left for return.



18520.04 24/11/2010 Proof11



Managing returns

When unsold copies are returned they are scanned at the depot with either static machines or hand-held scanners. This is all processed by our SAP system. Retailers are credited for their unsold products and publishers receive up-to-the-minute sales data to help them set the next print quantity.

At the sales centres

Our Account Managers work with retailers to manage copy allocation, based on past sales and sales forecasts – data which is available from SAP.

At customer service centres

Our customer service staff have instant access to the newspapers and magazines supplied to our customers. This allows a seamless communication between Smiths News and its customers, including order quantities, delivery and invoicing.

ServiceDelivering



18520.04 24/11/2010 Proof11




Key Operational Performance Indicators

Operational Key Performance Indicators

2010 2009Measure

Newspaper pack accuracy

Magazine pack accuracy

On time delivery

Newspaper returns collection on time

Magazine returns processing accuracy

99.8%

99.6%

97.2%

98.8%

100%

99.8%

99.7%

97.0%

99.8%

99.9%

Smiths NewsThe most important performance measures are those that our publishers and retailers identify as having the biggest impact on their businesses.

We maintained our excellent performance in all of these areas during the year, operating well above targeted levels. Performance against these

measures is listed below.



18520.04 24/11/2010 Proof11



Operational Key Performance Indicators

2010 2009Measure

Availability of titles in core range

On-shelf stock integrity

Same day despatch

Deliverednext day

Telephone calls answered in less than 20 seconds

94.4%

99.8%

100%

98.7%

93.5%

94.1%

99.8%

100%

98.2%

93.3%

BertramsThis strong performance shows improvements year on year and reflects the continued focus on customer service following the Group’s acquisition

of Bertrams.



18520.04 24/11/2010 Proof11



Business ReviewFinancial ReviewNick Gresham, Chief Financial Officer

Focused cost control supports earnings growth

FY 2010 FY 2009 Change

Underlying results

Revenue £1,829.6m £1,326.0m 38.0%

Underlying(1) profit before tax £35.0m £30.5m 14.8%

Underlying(1) earnings per share 14.6p 13.8p 5.8%

Statutory results

Revenue £1,829.6m £1,326.0m 38.0%

Statutory profit before tax £28.1m £18.4m 52.7%

Statutory earnings per share 11.7p 9.9p 18.2%

Total dividend 7.4p 6.8p 8.8%

Free cash flow(2) £20.4m £23.7m (13.9%)

Net debt(3) £48.0m £49.5m 3.0%

The following definitions have been applied consistently throughout the annual report:(1) Underlying 2010 and 2009 results exclude non-recurring items and amortisation of acquired intangibles.(2) Free cash flow is the cash flow excluding the following; payment of the dividend, acquisitions, the proceeds on the disposal of

freehold properties, repayments of obligations under finance leases, the repayment of bank loans and non-recurring items.(3) Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and

obligations under finance leases.(4) Like-for-like revenue growth excludes magazine and newspaper publisher net contract gains during the year, and the annualisation

impact of gains made in the prior year. Like-for-like revenue for books excludes one-off sales in 2009.(5) Smiths News and Bertrams are also referred to as the Newspaper and Magazine wholesaling segment and the Book wholesaling

segment respectively. (6) Base business refers to the Smiths News business excluding ex-Dawson News territories.

Group revenues are up 38.0% as a

result of significant net contract gains

in Smiths News and an excellent

performance from Bertrams in our

first full year of ownership.

Underlying Group profit before tax of £35.0m represents a

14.8% increase year on year after a strong performance

from both businesses.

Statutory Group profit before tax of £28.1m generated a

52.7% increase in the year.

Underlying earnings per share (ePS) at 14.6p shows a

growth of 5.8% year on year.

The final dividend of 5.0p, subject to approval by

shareholders at the Annual General Meeting, will be paid

on 4 February 2011. This gives a full year dividend of 7.4p

which is up 8.8% and represents a yield of 7.3% on our

share price at 31 August 2010. This puts us in the top

quartile for dividend yield out of the FTSe All Share

companies.

The Group generated strong free cash flow(2) largely from

its operations, delivering £20.4m in the year and continues

to reduce its net debt position, with an underlying

reduction of £8.2m largely offset by £6.7m of expenditure

on non-recurring items. This results in a reported net debt

of £48.0m (2009: £49.5m).



18520.04 24/11/2010 Proof11



Group

Underlying Group operating profit of £37.1m has been driven by a strong performance from both businesses, generating

a 14.5% increase in the year.

Finance costs at £2.1m are marginally up in the year due to an increase in average borrowing following the acquisition of

Bertrams.

The tax charge for the year of £8.6m represents an effective rate of 25% benefiting from the release of prior year

tax credits.

Underlying Group profit after tax of £26.4m represents a 6.5% increase year on year with the strong trading performance

being partially offset by an increase in the effective tax rate.

£m FY 2010 FY 2009 Change

Group Income Statement Extracts

Revenue 1,829.6 1,326.0 38.0%

Gross profit 177.0 130.6 35.5%

Operating costs (139.9) (98.2) (42.5%)

Underlying operating profit 37.1 32.4 14.5%

Net finance costs (2.1) (1.9) (10.5%)

Underlying profit before tax 35.0 30.5 14.8%

Taxation (8.6) (5.7) (50.9%)

Tax rate 25.0% 19.0% (31.6%)

Underlying profit after tax 26.4 24.8 6.5%



18520.04 24/11/2010 Proof11



Business ReviewFinancial Review continued

Smiths News

£m FY 2010 FY 2009 Change LFL(4)

Newspapers 952.0 703.3 35.4% (4.2%)

Magazines 663.5 508.6 30.5% (4.0%)

Other 77.0 60.6 27.1%

Total revenue 1,692.5 1,272.5 33.0%

Gross profit 151.6 121.2 25.1%

Operating costs (118.5) (89.5) (32.4%)


Gross margin 8.9% 9.5% (60 bps)

Cost ratio (7.0%) (7.0%) –

Operating margin 1.9% 2.5% (60 bps)

Per cent of revenue contracted per annum

FY 2011 FY 2012 FY 2013 FY 2014

100% 100% 100%

87%

£6.5bn revenue

£5bn revenue

Smiths News’ total revenues are up 33.0% as a result of a

substantial increase in revenues following net contract

wins being partially offset by the declining market for

newspapers and magazines.

Gross margin rate is down 60 bps reflecting the

investment in pricing required to secure the additional

volume for contracts running through to 2016.

Operating costs are up £29.0m or 32.4% after an initial

45% increase in both the number of staff and depots in

our network following integration.

This total cost number is after annual savings of £5m,

£3m of which has been driven by SAP and network led

efficiencies in our new locations and £2m from further

activity in the base business.(6) Actions already taken give

us an annualisation benefit of a further £3m to take into

2011, achieving the £6m target indicated at the time of

the contracts wins.

Smiths News’ underlying operating profit at £33.1m is up

£1.4m or 4.4% year on year.

Our first contract is not scheduled to expire until Fy 2014,

which means over the next three years 100% of our

revenues are contracted. At Fy 2010 volumes, this

represents over £5bn of revenue or £6.5bn for the four

years to Fy 2014.

The Smiths News business tenders for news and

magazine contracts on a five yearly cycle.



18520.04 24/11/2010 Proof11



1


Bertrams

£m FY 2010 FY 2009 Change LFL(4)

Revenue 137.1 53.5 156.3% 6.8%

Gross profit 25.4 9.4 170.2%

Operating costs (21.4) (8.7) (146.0%)


Gross margin 18.5% 17.6% 90 bps

Cost ratio (15.6%) (16.3%) 70 bps

Operating margin 2.9% 1.3% 160 bps

Total revenues are up 156.3% in the first full year of ownership.

Like-for-like(4) revenue growth of 6.8% has significantly outperformed the retail books market benefiting from a

combination of strong international and Internet sales and a number of contract wins by Bertram Library Services.

The underlying operating profit of £4m supported by gross margin improvements and tight cost control generated an

operating margin of 2.9%, which is 160 bps higher than Fy 2009. Bertrams is a cyclical business driving significant cost

economies of scale throughout its seasonal peaks of back to school, back to university and Christmas, none of which

fell in the five month period of our ownership last year.

1 Books being delivered and stored at Bertrams warehouse in Norwich.



18520.04 24/11/2010 Proof11




Non-recurring and other items

£m FY 2010 FY 2009

Dawson News integration (6.1) (4.6)

Bertram Library Services move to Norwich (0.6) –

The Returns Company 0.7 (3.1)

Amortisation of acquired intangibles (0.9) (0.4)

Cross currency contract – (1.5)

Reversionary leases – (2.5)

Total before taxation (6.9) (12.1)

Taxation 1.7 5.0

Total after taxation (5.2) (7.1)

Non-recurring items total £6.9m before tax and £5.2m

after tax for the financial year.

The largest element was the cost of integrating the former

Dawson News depots at £6.1m. This represents the final

charge associated with an integration, which has seen the

Smiths News network grow from 44 depots in July 2009

to a peak of 66 and back to a position of 58 by August

2010.

The majority of this cost relates to redundancies resulting

from a reduction in the workforce by almost 1,000

employees during the year. The balance relates to property

costs following the closure of eight sites and relocation of a

further three.

The Bertram Library Services charge of £0.6m reflects the

cost of moving the warehouse operation from Leeds to

the existing Bertrams Books site in Norwich, a move

which will drive improved operational efficiency and

service to retailers going forward.

The credit relating to The Returns Company (TRC) is the

release of a provision taken in 2009 following the sale of

the business in February 2010.

Amortisation of intangibles relates to assets from the

acquisition of Bertrams being amortised over their

expected economic lives.

We expect to incur further non-recurring costs of

approximately £5m to deliver £20m of cost savings

targeted over the next three years.

2

1 Returned magazines being scanned in Borehamwood.

Tote boxes complete with supplies ready to be delivered to customers.

2

1


Investors Online

Our investors are important to us. With the launch of our new website in 2009 we created a new investor relations centre. This provides current and potential investors with access to both up-to-date and historical information about our business. The Smiths News PLC share price is updated throughout the day. We provide share charting tools, share calculators and detailed trades information, which are also downloadable. Our Annual Report and Accounts can be downloaded, together with other finance-related information. Our financial calendar is available to view and interested parties can sign up to email alerts, to receive the PLC latest news as soon as it is announced.



18520.04 24/11/2010 Proof11





18520.04 24/11/2010 Proof11




The Group continues to generate strong free cash flow

from its operations, delivering £20.4m in the year.

Working capital outflow results from an increase in stock

relating to World Cup product returns which have still to

be credited by publishers, partially offset by a combination

of a net timing benefit of lower creditors and lower

debtors at the year end.

Free cash flow

£m FY 2010 FY 2009

Underlying profit before interest and tax 37.1 32.4

Depreciation and amortisation 7.3 6.7

eBITDA 44.4 39.1

Working capital (1.4) 4.6

Capital expenditure (8.6) (5.2)

Net interest paid (2.6) (2.9)

Taxation (5.9) (5.6)

Ongoing pension funding (6.4) (5.7)

Other 0.9 (0.6)

Free cash flow(2) 20.4 23.7

Capital expenditure is up on the prior year with the

investment in SAP and our expanded network helping us

to achieve operational cost savings.

The £6.4m pension funding for the year predominantly

relates to the annual pension deficit funding of £5.8m

agreed at the last triennial valuation in March 2009, and

also includes a catch-up payment relating to the period

from 31 March 2009 to the date that the revised

contributions started to be paid.

On an underlying basis profit after tax of £26.4m gives an ePS of 14.6p, up 5.8% on 2009.

Including non-recurring items statutory profit after tax is £21.2m in Fy 2010 versus £17.7m in Fy 2009, which gives an

ePS of 11.7p, up 18.2% year on year.

The calculation of diluted ePS reflects the potential dilutive effect of employee incentive schemes. This increases the

number of shares by 3.3m to 183.9m and results in a diluted ePS of 14.4p (2009: 13.8p).

EPS and dividend

FY 2010 FY 2009 FY 2010 FY 2009

Underlying Statutory

Profit after tax (£m) 26.4 24.8 21.2 17.7

Basic number of shares (millions) 180.6 179.5 180.6 179.5

Basic ePS 14.6p 13.8p 11.7p 9.9p

Diluted ePS 14.4p 13.8p 11.5p 9.9p

Dividend per share 7.4p 6.8p 7.4p 6.8p

ServiceDelivering



18520.04 24/11/2010 Proof11



£19.00 IS OUR SMALLeST WeeKLy INvOICe, £27,000 OUR LARGeST

FACT:

Net debt

£m FY 2010 FY 2009

Opening net debt(3) (49.5) (44.0)

Free cash flow 20.4 23.7

Dividend paid (12.6) (12.0)

Non-recurring items (6.7) (1.2)

Acquisitions – (12.2)

New finance leases 0.4 (3.8)

Decrease/(increase) in net debt(3) 1.5 (5.5)

Closing net debt(3) (48.0) (49.5)

The business continues to reduce its net debt position, with an underlying reduction of £8.2m largely offset by £6.7m of

expenditure on non-recurring items. This results in a reported net debt of £48.0m an actual reduction of £1.5m.

We remain comfortably within our banking convenants with net debt : eBITDA at 1.1 versus last year at 1.3 and a

covenant of 2.5.

1

1

A view across Bertrams distribution centre in Norwich.



18520.04 24/11/2010 Proof11




Bank facilities

The Group finalised a new banking facility on 27 August

2010 with a syndicate of 5 major lenders.

The agreement secures a £135m facility through to the

end of November 2014, with annual repayments of £3m,

£3m and £4m starting from September 2012.

In addition, the Group has the option for further

borrowings of up to £35m secured against Group assets.

Defined benefit scheme

The scheme had an actuarial deficit of £50m on

completion of the last triennial valuation at March 2009.

A revised deficit funding schedule of £5.8m per annum for

ten years was agreed with the trustees at that time.

This deficit continues to be managed through the Liability

Driven Investment (‘LDI’) policy, which seeks to minimise

volatility through the hedging of interest and inflation.

The IAS 19 pension surplus relating to the defined benefit

scheme at 31 August 2010 is £41.2m (2009: £19.3m), an

increase of £21.9m in the year. This increase is largely due

to the return on assets being greater than expected.

The scheme is closed to further accrual, which would

prevent the Group from realising any surplus through a

funding holiday or a reduction in contributions. As a result

the Group has not recognised the IAS 19 surplus on the

balance sheet.

Treasury and risk management

The Group endeavours to reduce exposure to interest

rates and other financial risk, to ensure sufficient liquidity is

available to meet foreseeable requirements and to invest

cash assets safely and profitably. The Group uses certain

derivative financial instruments to hedge interest rate

exposures and to support underlying business

requirements.

The Group’s treasury policies and procedures are

periodically reviewed and approved by the Audit

Committee and are subject to regular Group Internal

Audit review.

The principal financial risks for Smiths News PLC are set

out in Note 23 to the accounts.

Accounting policies and standards

The Group has prepared its consolidated accounts under

International Financial Reporting Standards for the year

ended 31 August 2010. The basis of preparation and

principal accounting standards are set out in Note 1 to the

consolidated accounts.

Going concern

The Group meets its day-to-day working capital

requirements through its bank facilities of up to £135m,

which do not expire until 30 November 2014. The Group’s

forecasts, taking into account the Board’s future

expectations of the Group’s performance, indicate that

there is substantial headroom within these bank facilities

and the Group will continue to operate well within the

covenants attaching to those facilities.

The directors have a reasonable expectation that the

Group has adequate resources to continue in operational

existence for the foreseeable future, having recognised the

current uncertain economic outlook and the Group’s

negative working capital position. Accordingly, they

continue to adopt the going concern basis in preparing

the accounts.



18520.04 24/11/2010 Proof11



2,000

1,500

1,000

500

0

35

33

31

29

27

25

Revenue £m

2007 2008 2009 2010

Underlying profit before tax £m

2007 2008 2009 2010

Free cash flow £m

2007 2008 2009 2010

Net debt £m

2007 2008 2009 2010

Total dividend Pence

8

7

6

52007 2008 2009 2010

Underlying earnings per share Pence

15

14

13

122007 2008 2009 2010

Key Financial Performance Indicators (KPIs)

31.01232

6.4

27.152.7

14.0

32.5

1241

6.7

21.3

44.0

14.5

30.5

1326

6.8

23.7

49.5

13.8

35.01830

7.4

20.4

48.0

14.6

24

23

22

21

20

19

25

26

27

50

45

40

35

30

55



18520.04 24/11/2010 Proof11



Corporate Responsibility Report

Working hard to make a difference

T he importance of a holistic and positive

approach to corporate responsibility has

never been more relevant than in today’s

business landscape. At Smiths News PLC

we take our responsibilities seriously –

in the workplace, the marketplace, our

environment and in our communities.

We’ve made progress in all areas, and this year’s highlight

is achieving the Carbon Trust Standard. The standard is

awarded to organisations for managing and reducing their

carbon emissions, and committing to reducing them year

on year. It has taken a lot of hard work to reach this stage

and we are confident that next year we can report even

more improvements.

The results of our employee survey showed that interest in

our Corporate Responsibility (CR) programme was high;

our people want to work for a company that makes a

difference and they want to be kept informed of progress.

In response, we’ve worked hard to communicate our

Corporate Responsibility programme more widely, with

newsletters and bulletins to keep everyone up to date.

That interest is reflected also in our community and charity

work. Across the business our staff are involved in

supporting good causes, raising money, volunteering time

and sharing their expertise.

The Group recognises the benefits of having clear targets

and priorities for the Company as a whole. But we believe

it is equally important to cascade these into the objectives

of our business unit leaders and their teams. More than

ever before our people are working to clear CR goals,

measuring progress and celebrating success. Taking our

responsibilities seriously is not an optional extra; it is how

we do business.

We HAve 5,300 eMPLOyeeS

FACT:

1 A member of staff from Plymouth with a stock cage.

1



18520.04 24/11/2010 Proof11



Electricity

Reduced electricity across the Group

-2.19%Gas

Reduced gas across the Group

-4.37%

Packaging Waste Recycling

of packaging waste recycled

70.0%of newspapers and magazines recycled

99.0%

In October 2010 we

achieved the Carbon Trust

Standard. This is awarded

to organisations for

measuring, managing and

genuinely reducing their

carbon emissions – and

committing to reduce them year on year. It has involved

a lot of work and a thorough review of our approach

to environmental concerns. We’ve reviewed our

environmental Policy, Company Car and Fleet policy,

installed more automatic meter readers at our depots

and introduced a company-wide programme to raise

awareness and encourage prudent use of energy.

Protecting the environment

For further information about our responsibility to the environment go to www.smithsnews.co.uk



18520.04 24/11/2010 Proof11



Corporate Responsibility Report continued

LAST yeAR We HeLPeD RAISe MORe THAN £600,000 FOR OUR INDUSTRy CHARITy, NeWSTRAID

FACT:

Training our teamsBertrams have been offering their employees training

in subjects such as numeracy, literacy and IT since

2007. In July 2009 they won an award for their efforts.

Run under the government’s Train to Gain scheme, the

courses are open to all. Caroline Wilson, HR Director

at Bertrams, said: “There has been an increase in

morale at Bertrams since we started this training, as

well as staff having improved confidence in their ability

to do their jobs. If you invest in people they will support

you back. It’s a two-way thing.”

For further information about our workplace go to www.smithsnews.co.uk

Delivering Service

Governance and management

The Corporate Responsibility Committee oversees the

management of our CR programme, working to clear

objectives, which are reviewed annually. The Committee

reports to the executive Management team and gives the

Board regular updates on any significant issues and

achievements. The Board considers a full progress report

every year and issues of particular significance or urgency

are considered by the executive and the Board as

they arise.

The Committee is composed of managers with

responsibility for our focus areas: community, workplace,

marketplace and environment. Its objectives are aligned

with those of our day-to-day operation. Where appropriate,

we have sub committees and steering groups to take

responsibility for those issues that require significant focus

and direction.

A sub committee is responsible for our carbon reduction

programme; it is chaired by the Operations Director and

includes managers with expertise and responsibilities for

our energy management and usage. Similarly, Bertrams

manages its own CR programme, working to objectives

agreed with the executive and building on its history of

community and staff involvement.

Workplace

With a workforce of 5,300 we understand that our people

are a vital asset. It is fundamental to our values that

everyone is given the opportunity to develop, is treated with

respect, and that we comply with all necessary legislation,

as well as our own internal standards.

Communication throughout the business has improved

with the introduction of regular staff newsletters. These

newsletters provide information about the Company

performance, report on any news from our depots around

the UK and offer employees the opportunity to take part

and send newsworthy items for the next edition.

We carry out regular employee surveys, listening carefully to

our staff and responding to the issues and suggestions that

are raised. We value this feedback and encourage all

employees to have their say. The results we receive shape

action plans that are drawn up at each depot and functional

area. Not every suggestion can be progressed but we aim

to be clear about what can work and what cannot.

In response to feedback we’ve worked to give staff a

greater understanding of the business performance,

explaining the key areas of our financial results, using

brochures, briefing sessions, and online audiocast of

preliminary and interim results. We’ve also taken time to

have some fun too. This year we ran a Fantasy Football

league during the World Cup with donations to charity as

well as prizes for the winners. This was so popular with staff

that another league has been introduced to coincide with

the english Premier League season.

A major focus this year was our talent management

programme, aimed at identifying and developing talent in

the business. In support of this we have a leadership

development group, an apprentice scheme – for which we

have been nominated for a national training award, and a

graduate scheme. The talent programme and our

performance management in general will be bolstered by

the introduction of an online goal-setting and performance

management tool, My Goals.

ValueDelivering



18520.04 24/11/2010 Proof11



Working in the community

In June 2010 members of our Commercial team rolled their sleeves up and got busy building a polytunnel at the Chalet School in Swindon. The school, which caters for autistic children, was delighted to have representatives from a local company get to work on their behalf. The head teacher Kathie Bryan said: “We often get cash donations, for which we are of course grateful, but it can be difficult to get the actual work done. The team from Smiths News have been fantastic, and with this polytunnel the children now have somewhere to learn about growing their own fruit and vegetables.”



18520.04 24/11/2010 Proof11




1

My goals ensures everyone is working to clear, consistent

and aligned objectives – it will be used by everyone in the

business, from the executive directors to frontline

distribution staff and teams.

Bertrams has continued with its award winning programme

of literacy and skills training. The training not only improves

efficiency at work, but also benefits staff in their personal

lives. Working with Pitman Training and Learndirect we offer

personalised training with the flexibility to fit around our

working hours and an environment in which staff feel

comfortable. The courses we offer include adult certificates

in Maths and english as well as a range of IT modules as

part of the CLAIT qualification.

This year we have reviewed and where appropriate

renewed policies to ensure we comply with and exceed

the requirements of all new and upcoming legislation.

This includes such diverse areas as the Agency Workers

Regulations (coming into effect 2011), the equality Act,

Working Time Regulations and NeST pensions.

Marketplace

We recognise that the newspaper and magazine supply

chain has characteristics that require a highly responsible

approach. In particular we understand the social and

political requirement of ensuring there is a widely available

and diverse press in all parts of the UK. With 55% market

share, Smiths News has an important role to play in

achieving that end.

In August 2009, parts of the supply chain faced an

unprecedented situation; there was a significant risk that

the failure of Dawson News would lead to a damaging

collapse of parts of the supply chain. Our operational

progress is covered in the Chief executive’s Operating

Review (on page 8), but beyond this we have given

particular attention to ensuring all stakeholders are fully

informed of any changes and their impacts minimised.

We have also sought to reassure customers that standards

will be maintained or improved, actively participating in the

development of a new Press Distribution Charter, to be

introduced this November. The Charter is a service

guarantee that sets out the standards customers can

expect from publishers and wholesalers; it will be

supplemented with an independent complaints and

arbitration process. The Charter is supported by the leading

publishers and wholesalers, and Smiths News will apply it

to all retailers, no matter their size or location.

Smiths News is also aware of the increasing public concerns

over the sale and display of adult and ‘lads’ magazines. We

have worked closely with publishers and retailers to ensure

our policies and processes reflect best practice.

1 Members of our Human Resources team digging a garden at Leonard Cheshire Care Home near Chippenham.



18520.04 24/11/2010 Proof11



BeRTRAMS ReDUCeD ITS GAS CONSUMPTION By 19% AND eLeCTRICITy By 5%

FACT:Environment

The Group has made good progress reducing its energy

consumption and carbon footprint.

Smiths News cut absolute energy use by 3.74% at those

locations for which we have year on year comparable data

(robust data was not available for the former Dawson

News depots). This is marginally behind our target of a

5% reduction, however, we experienced one of the

coldest winters on record and processed a 7% increase

in the volume of products at the locations for which data

is available. On a like-for-like basis, energy usage as a

ratio to sales is down 11%.

Bertrams reduced its gas consumption by 19% and

electricity by 5%. This result is particularly encouraging

in the light of the construction and operation of a further

34,000 sq ft of warehouse floor space. This year Bertrams

is targeting a further net reduction of 10%.

The Group is required to participate in the newly

introduced Carbon Reduction Commitment. This is a

government initiative designed to encourage companies

to measure, manage and reduce energy usage. We are

confident of achieving the early action metrics and in

October we achieved the Carbon Trust Standard. In

preparing our application, we have measured more energy

sources than ever before, confirming a 6% reduction in

our overall carbon footprint over the last three years

(excluding the new locations) – we are embracing the

challenge of reducing this further and have engaged

specialist consultants to help us with this goal.

We have also made progress in other areas:

The recycling of packaging waste is averaging at over

70% per month – a huge improvement on the position only

a few years ago when the recycling rate was only 15%. In

one year we have improved the performance of the former

Dawson News depots from 32% waste recycling to 61%

recycling. Our Newport depot adopted the recycling

practices with such enthusiasm that they were singled out

for an award by the Severnside Recycling scheme.

Newspaper and magazine returns continue to be

processed efficiently with over 99% of products being

recycled. We have installed walking-floor waste facilities at

Nottingham, Peterborough, Newport and Plymouth. There

has also been a reduction in cover-mounted gifts, which

has reduced the waste tonnage sent to landfill.

Bertrams now recycles 100% of all cardboard and paper

packaging waste and has found innovative ways to reuse

items such as old boxes that are used as infill on outgoing

parcels.

Our Company Car and Fleet policies have been reviewed.

We aim to increase the understanding amongst Company

car users of the benefits of lower emission vehicles, and

have worked with our suppliers to ensure that hybrid and

low emission vehicles can be supplied to all grades of

company users within their allocated cash allowances. Our

distribution fleet is another focus area: whilst we do not

currently consider alternative fuelled vehicles to be suitable,

we are committed to improving fuel efficiency and reducing

overall emissions. As members of the Carbon Trust we will

monitor and publish our fleet emissions, and will target

ongoing reductions.

Bertrams has reviewed transport for employees coming to

its distribution centre in Norwich, negotiating discounts

with the local bus service and working closely with the

other local tenants to promote schemes such as a Walk to

Work week, Car Share and Bike to Work week.

The Smiths News environmental Policy has been reviewed

to reflect our increased commitment. It can be viewed on

our website www.smithsnews.co.uk.

Community

every day we serve local communities with newspapers,

magazines and books. We know that what we do makes

a difference to many communities across the UK. But in

addition to this, more of our staff are getting involved in

projects and fundraising that go beyond our day job.

Charity fundraising and donations have increased, our new

locations bringing their own initiatives and ideas to help

increase the overall contribution of the Group. In the last

12 months our staff and customers have helped NewstrAid,

the industry charity, raise over £600,000. Bertrams donates

books to educational establishments, charities and other

good causes as well as giving at least 20% of the funds

raised through the staff bookshop to local sports teams

and other charity partners. In total, the Group donated

£19,445 to match the efforts of staff fundraising projects

and in June we were awarded the government bronze

quality mark for payroll giving schemes.




18520.04 24/11/2010 Proof11



Waste reduction

Unsold magazines and newspapers are collected and recycled by Smiths News. We collect returns at the same time as our daily deliveries, minimising the number of journeys required. In mid-2007 we started trialling ‘walking-floor’ technology and from 2008 to 2010 this has been rolled out across further depots. Using this machinery has reduced mileage for transporting waste, reducing our CO2 emissions and increased the amount of recycling we do.




18520.04 24/11/2010 Proof11



The Smiths News volunteering Policy was relaunched in

May, in time to support National volunteers week in June.

Under the scheme, staff can apply to use some of their

work time, on a regular or project basis, in support of

good causes. The policy will be adopted by Bertrams in

2010–11.

We encourage our teams to support community projects

and try to give them the tools they need to get involved and

make a difference in their communities. The Human

Resources department worked with Leonard Cheshire

Disability to transform a wasteland into a garden at a

residential facility for disabled adults near Chippenham. Our

Commercial department assisted a school for autistic

children, a team of 15 spending two days clearing a ground

and erecting a large polytunnel. The school was delighted

with the result – the polytunnel will be used to teach the

children to grow and sell their own fruit and vegetables.

Health & Safety

The Group takes the Health & Safety of its employees,

customers and contractors very seriously.

Our Health & Safety team monitors practices across the

Company and keeps our policies under continual review.

We strongly encourage employee involvement and

commitment to achieving safety standards. each location

Smiths News

2010 2010 2009 2008 2007

Total LFL*

Major injuries 1 1 2 1 5

Injuries resulting in over three days absence from

work/hospitalisation 67 40 34 61 61

All RIDDORS 68 41 36 62 66

* Like-for-like comparisons exclude the former Dawson News depots. Throughout the year we have rationalised the network and as a consequence these ‘core’ depots have seen a 5.8% increase in the volume of products they distribute. When incidents are measured as a ratio to turnover, these depots have seen a reduction from 35.3 to 33.3 incidents per billion pounds of turnover.

Bertrams

2010 2009 2008 2007

Major injuries 0 0 0 0

Injuries resulting in over three days absence from work/hospitalisation 3 6 2 1

All RIDDORS 3 6 2 1

1 1 A member of the Human Resources team working hard to clear a care home garden near Chippenham.

has a Health & Safety representative and training sessions

are held quarterly; every incident is investigated and,

where appropriate, action is taken to minimise future risk.

The Company has a Health & Safety Committee which

includes employee representatives. Health & Safety

performance is further monitored by the Internal Risk

Committee and the executive Management team. The

Board receives monthly updates on Health & Safety

performance, and the Audit Committee reviews incidents,

trends and overall performance on a regular basis.

The Health & Safety policy and overall performance is

reviewed at least annually by the Board.



18520.04 24/11/2010 Proof11



Board of Directors

Dennis Millard

Dennis Millard joined the Board as a non-executive director and Deputy Chairman on 31 August

2006 and became Chairman on 6 February 2008. He is Chairman of the Nominations

Committee and a member of the Audit and Remuneration Committees. He is Chairman of

Halfords Group plc and a non-executive director and Senior Independent Director of Premier

Farnell plc, Xchanging plc, and Debenhams plc. He was Finance Director of Cookson Group plc

from 1996 to 2005 and was a non-executive director of exel plc from 2003 until 2005. He is

Chairman of Trustees of the charity The Holy Cross Children’s Trust. Aged 61.

Chairman

Non-executive directors Andrew Brent

Andrew Brent is a non-executive director and joined the Board on 1 September 2008. He is

a member of the Audit, Remuneration and Nominations Committees. He was most recently

Group Brand Marketing Director of BSkyB and previously held senior marketing positions in a

number of leading companies including Alliance Boots Plc, Burger King Inc., Iceland Frozen

Foods Plc and Procter & Gamble Inc. Aged 51.

Anthony Cann

Anthony Cann is a non-executive director and joined the Board on 31 August 2006. He is

Chairman of the Remuneration Committee and a member of the Audit and Nominations

Committees. He is a solicitor, now non-practising, and was the worldwide Senior Partner of

Linklaters, an international law firm, from 2001 until September 2006. He is a non-executive

director of Panmure Gordon & Co. plc and was Chairman of Trustees of the charity Changing

Faces from 2007 until 2009. Aged 63.

John Worby

John Worby is a non-executive director and Senior Independent Director and joined the Board

on 31 August 2006. He is Chairman of the Audit Committee and a member of the Remuneration

and Nominations Committees. He is Finance Director of Genus plc and was previously Group

Finance Director and Deputy Chairman of Uniq plc (formerly Unigate plc). He is the Senior

Independent Director and Chairman of the Audit Committee of Cranswick plc. Aged 59.



18520.04 24/11/2010 Proof11



Mark Cashmore Group Chief Executive

Mark Cashmore joined the Board on 31 August 2006 as Group Chief executive. He started his

career with Pernod Ricard before moving to United News and Media in 1989. Between 1989

and 1999 he held senior positions in a number of news distribution businesses, including Sales

Director of United Magazine Distribution, USM and Seymour. He joined WH Smith News in 1999

and was appointed Magazine Sales Director in 2001 and Managing Director in June 2006.

Aged 50.

Board CommitteesAudit Committee

John Worby, Chairman

Andrew Brent

Anthony Cann

Dennis Millard

Nominations Committee

Dennis Millard, Chairman

Andrew Brent

Anthony Cann

John Worby

Remuneration Committee

Anthony Cann, Chairman

Andrew Brent

Dennis Millard

John Worby

Executive directors

Nick Gresham Chief Financial Officer

Nick Gresham joined Smiths News and was appointed to the Board on 1 August 2010. Prior to

joining Smiths News, he held various senior financial roles in GUS plc and Home Retail Group

plc over a ten year period, including Group Financial Controller, Finance Director of the Financial

Services division and most recently three years as Finance Director of Homebase. Before joining

GUS Nick worked for virgin Retail and Debenhams. Aged 39.

Jonathan Bunting Chief Commercial Officer

Jonathan Bunting joined the Board on 1 April 2010. He joined the business as a graduate recruit

in 1994. He rose through the organisation in a variety of sales and marketing managerial roles

before being promoted to the executive management team in 2001 as Trade Marketing Director.

He was appointed Commercial Director on 31 August 2006 and was promoted to the position

of Chief Commercial Officer on 1 April 2010. Aged 38.



18520.04 24/11/2010 Proof11



executive Management Team

Richard WebbInformation Systems Director

Richard Webb joined the business as a

graduate recruit in 1987. Richard worked in

a variety of roles at warehouse locations and

regional level before moving to Head Office

in 1994 to join the Information Systems

Department. He was appointed Information

Systems Director in 2004. Aged 45.

Michael NeilManaging Director, Bertrams

Michael Neil joined Bertrams in 2005. He has

extensive experience in buying, marketing

and operations, having formerly worked for

WH Smith, Waterstone’s, Blackwell’s and

Hammicks, and is a member of the

Booksellers Association Council. Aged 47.

.

Graeme UnderhillOperations Director

Graeme Underhill joined the business in

1975. Graeme managed a number of depots

before moving to Head Office in 1997 as

Project Manager for the Business Process

Review. He held various senior central

roles including SAP Project Manager and

Operations Development Manager before

being appointed Operations Director in

2001. Aged 52.

Mark CharltonCompany Secretary

Mark Charlton joined the business in 1993.

Mark was appointed Business Planning

Director in 2001. He was appointed

Company Secretary on the demerger

of WH Smith Retail on 31 August 2006.

Aged 49.

Glenn LeechHuman Resources Director

Glenn Leech joined the business in

November 2004 from Ford Motor Company.

He spent seven years at Ford, during which

time he held a number of managerial

positions in employee Relations, HR

Business Operations and as an HR Project

Manager. Aged 35.

The Executive

Mark Cashmore

Jonathan Bunting

Nick Gresham

Mark Charlton

Glenn Leech

Michael Neil

Graeme Underhill

Richard Webb



18520.04 24/11/2010 Proof11



Directors’ Report

The directors of Smiths News PLC (the ‘Company’) present their report

and audited accounts of the Company and its subsidiaries (the ‘Group’)

for the year ended 31 August 2010.

The report contains certain forward-looking statements with respect to the

operations, performance and financial condition of the Group. By their nature,

these statements involve uncertainty since future events and circumstances

can cause results to differ from those anticipated. Nothing stated in this

report should be construed as a profit forecast.

Pages 49 to 51 inclusive, together with the Corporate Governance Report

on pages 52 to 56, the Remuneration Report on pages 57 to 67 and the

sections of the Annual Report which comprise the Business Review, all of

which are deemed to be incorporated by reference in (and shall be deemed

to form part of) this report, consist of a directors’ report that has been

drawn up and presented in accordance with and reliance upon applicable

english company law and the liabilities of the directors in connection with

the report shall be subject to the limitations and restrictions provided by

such law.

Principal activities

The principal activities of the Group are the wholesale distribution of

newspapers, magazines and books operating as two divisions:

• Smiths News, the UK’s leading wholesaler of newspapers and

magazines, serving around 30,000 retailers across england and

Wales; and

• Bertrams, a leading UK book wholesaler, supplying books to a mix of

independent booksellers, online and multiple retailers, and libraries.

The principal companies affecting the profits or net assets of the Group in

the year are listed in Note 29 to the Accounts.

Business review

A review of the business of the Group during the financial year ended

31 August 2010, including an analysis of the position of the Group at the

end of the financial year, a description of the principal risks and

uncertainties facing the Group and an indication of likely future

developments is set out in the following sections of the Annual Report,

which are incorporated into this report by reference:

• Chairman’s Statement on pages 2 and 3;

• Business Review, comprising the Operating Review and Financial

Review, on pages 8 to 37; and

• Corporate Responsibility Report on pages 38 to 45.

Profit and dividends

The profit for the financial year, after taxation, was £21.2m (2009:

£17.7m).

The directors recommend the payment of a final dividend for the year of

5p per ordinary share (2009: 4.6p) on 4 February 2011 to members on

the Register at the close of business on 7 January 2011.

This final dividend, together with the interim dividend of 2.4p per ordinary

share paid on 11 June 2010, makes a total dividend of 7.4p per ordinary

share for the year ended 31 August 2010 (2009: 6.8p).

Capital structure

As at the date of this report the Company’s issued share capital

comprises 183,375,453 ordinary shares of 5p each nominal value.

Details of movements in the issued share capital can be found in Note 27

to the Accounts. The ordinary shares are listed on the London Stock

exchange.

All ordinary shares rank equally with respect to voting and dividend rights,

each share carrying the right to one vote at general meetings of the

Company. There are no specific restrictions either on the size of a holding

or on the transfer of shares, which are both governed by the provisions of

the Company’s Articles of Association (the ‘Articles’) and prevailing

legislation and regulations. No shareholder has any special rights of control

over the Company’s share capital and all issued shares are fully paid.

Details of the Company’s share schemes are set out in the Remuneration

Report on pages 57 to 67 and in Note 26 to the Accounts. The Trustee of

the Smiths News employee Benefit Trust waives its right to vote and to

dividends on the shares that it holds.

Issue of new ordinary shares

During the financial year ended 31 August 2010, 452,312 ordinary shares

in the Company were issued under the terms of the Sharesave Scheme

at prices between 79.2p and 100.8p. The Articles provide that the Board

may, subject to the prior approval of the members of the Company,

exercise all the powers of the Company to allot relevant securities

including new ordinary shares.

Purchase of own shares

At the Annual General Meeting held on 15 January 2010, authority was

given for the Company to purchase, in the market, up to 18,292,238

ordinary shares of 5p each. The Company did not use this authority to

make any purchases of its own shares during the financial year. This

authority is renewable annually and approval will be sought from

shareholders at the Annual General Meeting in 2011 to renew the authority

for a further year.



18520.04 24/11/2010 Proof11



Substantial shareholdings

As at 21 October 2010 the Company had been notified, in accordance with Chapter 5 of the Disclosure and Transparency Rules, of the following

significant holdings of voting rights in its shares:

Holder Number % Nature of Holding

Silchester International Investors Limited 34,803,278 19.03 Direct Interest

Standard Life Investments Limited 8,964,340 4.90 Direct and Indirect Interests

Legal & General Group Plc 7,035,428 3.84 Direct Interest

Significant agreements – change of control

The Company’s trading subsidiaries, Smiths News Trading Limited

and Bertram Trading Limited, have agreements with publishers and

distributors that contain change of control clauses giving rights to those

publishers and distributors on a takeover of the Company.

A change of control of the Company following a takeover bid may cause a

number of other agreements to which the Company, Smiths News Trading

Limited or Bertram Trading Limited is party, such as banking arrangements,

property leases and licence agreements, to alter or terminate. In addition,

the executive directors’ service agreements and employee share plans

would be similarly affected on a change of control, including in the case of

Mark Cashmore, compensation for loss of office if his contract was

terminated. Details of the change of control clause in Mark Cashmore’s

contract can be found in the Remuneration Report on page 61.

Directors

The directors are responsible for the management of the business of the

Company and may exercise all the powers of the Company subject to

applicable legislation and regulation and the Company’s Articles.

The names of the directors as at the date of this report, together with

biographical details, are set out on pages 46 and 47. All the directors

served throughout the year except as set out below:

Jonathan Bunting was appointed as a director on 1 April 2010.

Nick Gresham was appointed as a director on 1 August 2010.

Alan Humphrey, who was appointed as a director on 31 August 2006,

stepped down from the Board on 31 August 2010 and will leave the

Company on 31 October 2010.

The Company’s Articles give a power to the Board to appoint directors

and (where notice is given signed by all the other directors) remove a

director from office. They also give a power to the Company to appoint

directors (by ordinary resolution) and remove a director from office (by

special resolution or by ordinary resolution of which special notice has

been given). The Company’s Articles themselves may be amended by

special resolution of the shareholders.

The Company’s Articles require that directors offer themselves for

re-election every three years and that new directors appointed by the

Board offer themselves for election at the next Annual General Meeting

following their appointment. However, in accordance with the new UK

Corporate Governance Code (the ‘New Code’), which replaces the existing

Combined Code on Corporate Governance for accounting periods

beginning on or after 29 June 2010, the Board has agreed that all directors

will stand for re-election at the Annual General Meeting to be held on

14 January 2011. This is notwithstanding that the Company, which is a

‘smaller company’ for the purposes of the New Code, is not formally

required to re-elect all directors on an annual basis.

The Chairman confirms that, following the formal performance evaluation

carried out in August 2010, each of the non-executive directors makes an

effective and valuable contribution to the Board and demonstrates

commitment to their respective roles.

John Worby has led a review of Dennis Millard’s contribution to the Board

and confirms that, following the formal performance evaluation carried out

in August 2010, he continues to be an effective Chairman.

The interests of the directors and their immediate families in the share

capital of the Company, along with details of directors’ share options and

awards, are set out in the Remuneration Report on pages 57 to 67.

Directors’ Report continued



18520.04 24/11/2010 Proof11



At no time during the year did any of the directors have a material interest

in any significant contract with the Company or any of its subsidiaries.

The Company maintains directors’ and officers’ liability insurance which gives

appropriate cover for any legal action brought against its directors. The

Company has also provided an indemnity for its directors and secretary, to

the extent permitted by law, which is a qualifying third party indemnity

provision for the purposes of section 234 of the Companies Act 2006.

Employees

The Group employs approximately 5,300 people (2009: 6,100)

throughout the United Kingdom and it is proud of its long history of being

regarded as a responsible and respected employer.

employees are kept well informed of the performance and objectives of

the business through personal briefings and email and the Group’s open

management style encourages employees to contribute to the

development of the business.

The Company operates an HM Revenue & Customs Approved Save-As-

you-earn share option scheme (Sharesave Scheme), which provides

employees with the opportunity to acquire shares in the Company.

Approximately 600 employees participate in this scheme (2009: 560).

The Board believes in creating throughout the Group a culture that is free

from discrimination and harassment and will not permit or tolerate

discrimination in any form. Proper consideration is given to applications

for employment from disabled people. Should an employee become

disabled when working for the Group, efforts are made to continue his/

her employment and retraining is provided if necessary.

Charitable and political donations

Charitable donations during the year ended 31 August 2010 totalled

£19,445 (2009: £6,594). The Group encourages its employees to give

their time and skills for the benefit of a variety of charitable causes.

Further details can be found in the Corporate Responsibility Report on

pages 38 to 45.

It is the Group’s policy not to make political donations and no political

donations or eU political expenditure were made in the year (2009: £nil).

Supplier payment policy

The Group’s policy for the payment of suppliers, which complies with the

CBI Code of Practice for Buyers, is to agree the terms of payment in

advance in line with normal trade practice and, provided a supplier

performs in accordance with the agreement, to abide by such terms. The

Group’s trade creditors figure as at the balance sheet date was equivalent

to 35 days (2009: 34 days) based on average daily amounts invoiced by

suppliers during the year. The Company is a holding company and does

not have any trade creditors.

Disclosure of information to auditors

each director confirms that, so far as he is aware, there is no relevant

audit information of which the Company’s auditors are unaware and that

each director has taken all the steps he ought reasonably to have taken

as a director in order to make himself aware of any relevant audit

information and to establish that the Company’s auditors are aware of

that information.

This confirmation is given and should be interpreted in accordance with

the provisions of section 418 of the Companies Act 2006.

Auditors

Deloitte LLP (‘Deloitte’) have expressed their willingness to continue in office

as auditors of the Company. Resolutions to re-appoint Deloitte as auditors to

the Company and to authorise the Audit Committee to determine their

remuneration will be proposed at the Annual General Meeting.

Annual General Meeting

The Annual General Meeting of the Company will be held at Wakefield

House, Pipers Way, Swindon, Wiltshire, SN3 1RF on 14 January 2011 at

11.30am. The Notice of Annual General Meeting is given, together with

explanatory notes on the five items of special business to be considered

at the meeting, in the booklet which accompanies this report.

By order of the Board

Mark Charlton

Company Secretary

21 October 2010



18520.04 24/11/2010 Proof11



Corporate Governance

Smiths News PLC is committed to achieving high standards of corporate

governance. The principal governance rules applying to UK companies

listed on the London Stock exchange, for accounting periods beginning

before 29 June 2010, are contained in the June 2008 Combined Code on

Corporate Governance (the ‘Code’).

Statement of compliance with the Code

The Board confirms that the Company has applied the main principles of

and has complied with all of the provisions set out in Section 1 of the

Code for the financial year ended 31 August 2010. This report, together

with the Remuneration Report on pages 57 to 67, describe how the

Company has applied the main principles of the Code during the year.

The Board

Board composition

On 21 October 2010, the Board comprised the Chairman, three executive

directors and three independent non-executive directors. Jonathan

Bunting and Nick Gresham were appointed to the Board as executive

directors on 1 April 2010 and 1 August 2010 respectively. Alan Humphrey

resigned as an executive director on 31 August 2010. Details of the

selection and appointment process are set out on page 54. Short

biographies of each of the directors, which illustrate their range of

experience and qualifications, are set out on pages 46 and 47.

There is a clear division of responsibility at the head of the Company;

Dennis Millard (Chairman) being responsible for running the Board

and Mark Cashmore (Group Chief executive) being responsible for

implementing Group strategy. The division of responsibilities between the

Chairman and Group Chief executive have been set out in writing and

agreed by the Board. The Board considers that it is of an appropriate size

to oversee the Company’s business, with a structure that ensures that no

individual or group dominates the decision-making process.

Dennis Millard, who was non-executive Deputy Chairman until his

appointment as Chairman on 6 February 2008, met the independence

criteria set out in the Code on appointment as a director. Andrew Brent,

Anthony Cann and John Worby (Senior Independent Director), who

served as non-executive directors throughout the year and up to the date

of this report, meet the independence criteria set out in the Code.

The Chairman’s other directorships are described in his biographical

details set out on page 46. There have been no significant changes

during the year relating to these commitments. The Board is satisfied that

the directors who have external directorships have sufficient time available

to be effective members of the Board.

The Board’s role

The Board, which had eight scheduled meetings and two additional

meetings during the year, manages the Company through a formal

schedule of matters reserved for its decision. Such matters include:

• overall strategic management of the Company, including acquisitions

and disposals;

• approval of long-term objectives and commercial strategy;

• approval of the annual operating and capital expenditure budgets;

• major capital expenditure;

• changes relating to the Company’s capital structure;

• approval of the accounts, material agreements and non-recurring

projects;

• treasury policy;

• control, audit and risk management;

• remuneration of directors and senior managers; and

• corporate responsibility.

Directors

All directors have access to the advice and services of the Company

Secretary and may take independent professional advice at the

Company’s expense where necessary. In preparation for Board meetings,

information is received by the Board in a timely manner, of a quality

sufficient for the Board to take decisions.

All new directors receive induction training on joining the Board, which is

tailored to meet the needs of the individual. The induction programme is

supplemented by ongoing training and development, the need for which

is regularly assessed by the Board.

The Company’s Articles of Association (the ‘Articles’) require that directors

offer themselves for re-election every three years and that new directors

appointed by the Board offer themselves for election at the next Annual

General Meeting following their appointment. However, in accordance

with the new UK Corporate Governance Code (the ‘New Code’), which

replaces the existing Combined Code on Corporate Governance for

accounting periods beginning on or after 29 June 2010, the Board has

agreed that all directors will stand for re-election at the Annual General

Meeting (‘AGM’) on 14 January 2011. This is notwithstanding that the

Company, which is a ‘smaller company’ for the purposes of the New

Code, is not formally required to re-elect all directors on an annual basis.

Details of the directors’ service contracts, remuneration, options to

subscribe for shares in the Company and interests of the directors and

their immediate families in the share capital of the Company are shown in

the Remuneration Report on pages 57 to 67.



18520.04 24/11/2010 Proof11



Directors’ conflicts of interest

The Companies Act 2006 provides that a director must avoid situations

where he can have a direct or indirect interest that conflicts or might

conflict with the interests of the Company (‘situational conflicts’). The

Company’s Articles contain provisions that allow the Board to consider

and, if it sees fit, to authorise situational conflicts.

The Board confirms that such powers have been operated effectively and

that a formal system for directors to declare their interests and for the

independent directors to authorise situational conflicts continues to be in

place. Any authorisations given are recorded in the Board minutes and in

a register of directors’ conflicts which is reviewed annually by the Board.

Board Committees

The Board delegates specific responsibilities to the Board Committees

(described below). The role and responsibilities of each Committee are

set out in formal terms of reference, which are reviewed annually. The

terms of reference for each of the Committees are available on the

Company’s website (www.smithsnews.co.uk) and from the Company

Secretary on request.

Audit Committee

The Audit Committee is chaired by John Worby, who the Board has

determined has recent and relevant financial experience, and its other

members are Andrew Brent, Anthony Cann and Dennis Millard, who all

have extensive business experience. John Worby, Andrew Brent and

Anthony Cann are independent non-executive directors and Dennis

Millard was independent on appointment as a director in August 2006.

Short biographies of each of the directors, which illustrate their range of

experience and qualifications, are set out on pages 46 and 47. At the

invitation of the Committee, the Group Chief executive, Chief Financial

Officer, Chief Commercial Officer, Head of Internal Audit and

representatives of the external auditors regularly attend meetings.

The Committee’s terms of reference, which are available on the


Secretary on request, set out the responsibilities of the Committee. These

responsibilities include:

• monitoring the integrity of the annual and interim accounts and other

announcements relating to financial performance;

• reviewing significant financial reporting issues and judgements which

they contain;

• keeping under review the effectiveness of the internal control and risk

management systems;

• monitoring and reviewing the effectiveness of external audit (including

auditor independence) and internal audit;

• making recommendations to the Board as to the re-appointment or

otherwise of the external auditors; and

• monitoring and reviewing the arrangements for employees to raise, in

confidence, concerns about possible improprieties in matters of

financial reporting, control and other matters (‘whistle-blowing’).

The Committee met four times during the year. In addition to ensuring the

integrity of the annual and interim accounts the Committee was also

active throughout the year in other key areas, including:

• reviewing the preliminary announcement, Annual Report and

Accounts, interim announcement and interim results;

• considering reports from the external auditors reviewing any

accounting or judgemental issues requiring its attention;

• approving audit plans for the external and internal auditors;

• considering reports from the Head of Internal Audit on the results of

internal audit reviews, significant findings, management action plans,

and timeliness of resolution;

• reviewing reports on the Company’s risk management process;

• reviewing management of fraud risk and incidences of fraud;

• meeting privately with the external auditors and the Head of

Internal Audit;

• reviewing the effectiveness of the internal audit activities;

• reviewing the effectiveness of the Company’s whistle-blowing

process; and

• reviewing the independence and performance of the external auditors.

In relation to the external auditors, the Committee assesses the scope,

fee, objectivity and effectiveness annually. The Committee has a formal

policy to review the selection of external auditors at least every five years,

including consideration of whether a tender process is appropriate. For

this purpose the current term of engagement of the incumbent external

auditors, Deloitte LLP (‘Deloitte’), is regarded as having commenced on

31 August 2006, being the date of demerger of old WH Smith PLC. In

line with professional standards, Deloitte has a policy of rotating partners

every five years.

The Committee also has a formal policy on the Company’s relationship

with the external auditors which includes financial approval limits for

non-audit services and restrictions on the nature of work that can be

performed to ensure that the external auditors’ objectivity is

not impaired.

The Audit Committee, following its annual review, is satisfied that

Deloitte continue to provide an effective audit service and has

recommended to the Board that they be re-appointed. Accordingly, a

resolution to re-appoint Deloitte will be put to shareholders at the AGM.

The fees paid to Deloitte in respect of non-audit services are shown in

Note 3 to the Accounts.



18520.04 24/11/2010 Proof11



Nominations Committee

The Nominations Committee is chaired by Dennis Millard and its other

members are Andrew Brent, Anthony Cann and John Worby.



Secretary on request, set out the responsibilities of the Committee, which

include the following:

• reviewing the composition of the Board including the skills, knowledge

and experience of the directors;

• ensuring plans are in place for orderly succession planning for

directors and senior management; and

• identifying and nominating candidates to fill Board vacancies.

During the year the Committee led the recruitment process for a new

Chief Financial Officer after Alan Humphrey informed the Board that he

intended to retire. Following a tender, search consultants, egon zehnder

International, were instructed by the Committee in connection with this

process. The Committee considered the skills, knowledge, background

and experience required for the role, and a job specification was

prepared. Following an extensive search, the Committee recommended

to the Board that Nick Gresham be appointed. Nick Gresham joined the

Company and was appointed to the Board on 1 August 2010.

The Committee holds one meeting each year to review succession

planning and otherwise meets as required. The Committee met three

times during the year.


The Remuneration Committee, which met five times during the year,

is chaired by Anthony Cann and its other members are Andrew Brent,

Dennis Millard and John Worby. At the invitation of the Committee,

the Group Chief executive, Chief Financial Officer, HR Director and

representatives of its external independent adviser may attend meetings.

The Committee’s principal responsibility is to determine and recommend

to the Board the remuneration of executive directors and the Chairman.

It also monitors the level and structure of remuneration for senior

management and seeks to ensure that remuneration packages are

designed to attract, retain, and motivate executive directors and senior

management to run the Company successfully. The remuneration of

the non-executive directors is determined by the Chairman and the

executive directors.

The Remuneration Report, which provides more detailed information on

the role of the Committee and the remuneration of the directors, is set out

on pages 57 to 67.

The Committee’s terms of reference are available on the Company’s

website (www.smithsnews.co.uk) and from the Company Secretary

on request.

Corporate Governance continued

Attendance at Board and Committee meetings

The following table shows the attendance of directors at Board and Committee meetings held during the year.

Scheduled Committee Meetings

Board Meetings Audit Nominations Remuneration

No. of meetingsa 8 4 3 5

Dennis Millard 8 4 3 5

Jonathan Buntingb 3 – – –

Mark Cashmore 8 – – –

Nick Greshamc – – – –

Alan Humphrey 8 – – –

Andrew Brent 8 4 3 5

Anthony Cann 8 4 3 5

John Worby 8 4 3 4

a) Two additional Board meetings were held by telephone conference call during the year.b) Jonathan Bunting was appointed to the Board on 1 April 2010 and attended all Board meetings in the year after that date.c) Nick Gresham was appointed to the Board on 1 August 2010. There were no Board meetings held in the year after that date.

The Board has met twice since 31 August 2010 and all the directors attended both meetings. In addition, the Audit Committee has met once and the

Remuneration Committee has met twice since 31 August 2010.



18520.04 24/11/2010 Proof11



Evaluation of the Board and its committees

The Board has a formal process for evaluating its performance, the

performance of its committees and of individual directors. This process

takes place in August and September each year and consists of: each

director completing an extensive questionnaire covering Board and

Committee procedures and effectiveness and individual contributions

to Board and Committee meetings; a one-to-one discussion between

the Chairman and each director to discuss their contribution and

performance during the year and training needs, if any; and a meeting of

the non-executive directors led by the senior independent director to

discuss the Chairman’s performance and provide feedback.

The findings of this year’s evaluation were considered by the Board

at its September meeting. The Chairman led this discussion, based on

the responses to the questionnaires and his one-to-one discussions.

The Board also reviewed the two main actions arising from the 2009

evaluation process (the scheduling of additional depot visits following the

increase in size of the network and the continuation of the programme of

pre-Board breakfast meetings with functional teams) and noted that these

had been implemented during the year.

The outcome of the evaluation was that the Board is working effectively

with an appropriate balance of skills and adequate time and resources.

With the Company’s increasing focus on corporate development, it

was felt that the Board had been strengthened by the appointment of

Jonathan Bunting during the year and that this had further increased its

effectiveness. In addition, in accordance with the New Code, it was

agreed that the Board would review its collective risk appetite with a view

to outlining its approach to risk in next year’s Annual Report.

Internal control and risk management

The Board has overall responsibility for the Company’s system of internal

control including risk management and for reviewing its effectiveness

throughout the Group. Such a system is designed to manage or mitigate

rather than eliminate the risk of failure to achieve business objectives, and

can only provide reasonable and not absolute assurance against material

misstatement or loss.

Risk management

The Board confirms that there is an ongoing process for identifying,

evaluating and managing significant risks faced by the Company,

including those risks relating to social, environmental and ethical matters.

This process was in place throughout the year under review and up to the

date of approval of the Annual Report and accords with the revised

guidance on internal control published in October 2005 (the ‘Turnbull

Guidance’). The Audit Committee has kept under review the effectiveness

of the system of internal control and has reported regularly to the Board.

The key features of the risk management process are as follows:

• the Company has an internal Risk Committee which is responsible for

monitoring the nature and extent of the risks across the business;

• the business conducts half yearly risk assessments based on identified

business objectives which are reviewed and agreed by its executive

management. Risks are categorised into strategic, operational, financial

and compliance and are evaluated in respect of their potential impact

and likelihood. These risk assessments are reviewed and updated

quarterly by the Risk Committee and are reported to and reviewed by

the executive management and Audit Committee; and

• the results of the business risk assessment form one of the bases for

determining the internal audit plan. Audit reports in relation to the

areas reviewed are discussed with the Risk Committee and agreed

with the Audit Committee.

Internal control

The Company has an established framework of internal controls covering

both financial and non-financial controls, the effectiveness of which is

regularly reviewed by the executive management and the Board.

The Board is responsible for overall Group strategy, for approving revenue

and capital budgets and plans, for approving major acquisitions and

disposals and for determining the financial structure of the Group,

including treasury and dividend policy.

The Board has established an organisational structure with clearly defined

reporting lines and controls at all levels of management across the

business, identifying transactions requiring approval by the Board or by

the Approvals Committee.

The Approvals Committee, which comprises the Group Chief executive

and Chief Financial Officer, and for commercial transactions the relevant

member of the executive management, is authorised by the Board to

approve routine matters within agreed financial limits.

The Audit Committee assists the Board in the discharge of its duties

regarding the Group’s accounts, accounting policies and the maintenance

of proper internal financial controls.

The system of financial control also includes:

• a comprehensive system for budgeting and planning together with

monitoring and reporting the performance of the Company’s business

to the Board. Monthly results are reported against budget and prior

year, and forecasts for the current financial year are regularly revised in

the light of actual performance. These cover profits, cash flows, capital

expenditure and balance sheets;

• a full appraisal of all major investment projects;

• key controls over major business risks including reviews against

performance indicators and exception reporting, and the preparation

of monthly management accounts;



18520.04 24/11/2010 Proof11



• monthly reporting of treasury activities and risks, for review by senior

executives; and

• annual reports covering treasury policies, pensions and insurance, for

review by the Board and Audit Committee.

Additional non-financial controls include:

• key performance indicators to monitor customer service levels at

every location, whilst summary level results are reported to the

Board monthly;

• independent customer satisfaction surveys;

• a corporate responsibility programme which addresses the impact of

the Company’s activities on the environment, workplace, marketplace

and community;

• a Corporate Responsibility Committee which is responsible for

reviewing delivery against corporate responsibility objectives, with

annual updates provided to the Board;

• an environmental Policy, which is reviewed annually by the Board;

• a Health & Safety Policy, which is reviewed annually by the Board;

• a Risk Management team, working with the business to assess health

and safety risks and introduce systems to mitigate them. Details of

major business incidents are reported to the Risk and Audit

Committees and all notified accidents are investigated;

• reports under the Reporting of Injuries, Diseases and Dangerous

Occurence Regulations provided to the Board on a monthly basis;

• a commitment by the Company to ensure that its personnel meet high

standards of integrity and competence. The Company’s systems

cover recruitment, training and development of personnel, and the

communication of Company policies and procedures throughout the

organisation;

• business recovery plans to enable the business to continue with

minimum disruption to customers in the event of a disaster. These

plans are reviewed by the Risk and Audit Committees;

• a Code of Business Conduct (including whistle-blowing) which takes

into account the interests of all stakeholders; and

• strict guidelines for the use of confidential customer data.

The Internal Audit team assists in maintaining adequate financial controls.

It is also responsible for reviewing the effectiveness of those controls by

undertaking an agreed schedule of internal audits each year and reporting

its findings to the executive management, Risk and Audit Committees.

The schedule of internal audits forms part of an audit plan approved by

the Audit Committee annually.

Internal Audit meets annually with senior executives in order to complete

a formal certification of the effectiveness of internal controls. These

certificates are submitted to the Risk Committee. In turn, the Risk

Committee provides a certificate to the Audit Committee in order to assist

the Board with conducting its annual review of the effectiveness of

internal controls in compliance with the Turnbull Guidance.

The Audit Committee has carried out a specific review of the effectiveness

of the system of internal control during the year. This assessment

considered all significant aspects of internal control arising during the

period covered by this report including the work of internal audit. During

the course of this review, the Audit Committee has not identified nor been

advised of any failings or weaknesses which it has determined to be

significant. Therefore a confirmation in respect of necessary actions has

not been considered appropriate.

Relations with shareholders

The Board is responsible for and recognises the importance of

communicating with the Company’s shareholders to ensure that both

strategy and performance are understood. This is achieved principally

through the Company’s website, www.smithsnews.co.uk, and the AGM.

The website provides a range of information about the Company,

including Annual Reports, results announcements and presentations,

AGM information, share price data, the Company’s financial calendar and

regulatory news releases.

Following the announcement of the Company’s full year and interim

results, formal presentations are made to institutional shareholders by the

Group Chief executive and Chief Financial Officer covering a range of key

issues affecting the Company’s performance.

All shareholders have the opportunity to ask questions at the AGM, which

is normally attended by all of the directors. The notice of the AGM is sent

to shareholders at least 20 working days before the meeting and includes

notice of the availability of the Annual Report on the Company’s website.

At the AGM, separate resolutions are proposed on each separate issue

and shareholders vote on each resolution on a show of hands, unless a

poll is validly called. Proxy Forms allow shareholders to vote for or

against, or to withhold their vote on each resolution, and the results of

proxy voting are made available at the meeting, announced to the London

Stock exchange and published on the Company’s website.

The Board as a whole is kept fully informed of the views and concerns of

major shareholders. The Group Chief executive and Chief Financial Officer

update the Board following meetings with major shareholders whilst

independent feedback from shareholders is provided to the Board by the

Company’s advisers and brokers. The Chairman and Senior Independent

Director make themselves available to attend meetings with major

shareholders.

Approval

This report was approved by the Board and signed on its behalf by:

Mark Charlton

Company Secretary

21 October 2010

Corporate Governance continued



18520.04 24/11/2010 Proof11



Remuneration Report

This Remuneration report has been prepared on behalf of the Board by

the Remuneration Committee. The Committee has adopted the principles

of good governance as set out in the Combined Code and complies with

Schedule 8 to the Accounting Regulations under the Companies Act

2006 and the Listing Rules of the Financial Services Authority. Part A of

the report, which is not subject to audit, sets out the Company’s

remuneration policy. Part B, which has been audited, provides details of

the remuneration, pensions and share incentives of the directors for the

year ended 31 August 2010. Shareholders will be asked to approve the

report at the Annual General Meeting on 14 January 2011.

Part A – Unaudited


The Remuneration Committee is chaired by Anthony Cann and its other

members throughout the year were Andrew Brent, Dennis Millard and

John Worby. Anthony Cann, Andrew Brent and John Worby are all

independent non-executive directors and Dennis Millard was independent

on appointment as a director in August 2006. The Committee met five

times during the year.


Company’s website and from the Company Secretary on request,

set out the responsibilities of the Committee which include:

• determining and agreeing with the Board the broad policy for the

remuneration of the Chairman, executive directors and certain other

senior executives;

• reviewing the ongoing appropriateness and relevance of the

remuneration policy;

• reviewing the policy for any performance related pay schemes

operated for those below executive management level and approving

total annual payments made under all performance related pay

schemes;

• reviewing the design of all short and long-term incentive plans for

approval by the Board and, where required, by shareholders;

• determining the policy for the grant of share incentives to executive

directors and senior executives, setting appropriate performance

targets and approving the quantum of grants and vesting schedules;

• ensuring that contractual terms on termination, and any payments

made, are fair to the individual and the Company, that failure is not

rewarded and that the duty to mitigate loss is fully recognised; and

• determining the total individual remuneration package of each

executive director and other senior executives including bonuses

and share incentives.

During the year the Committee received external advice and services from

its independent adviser, Deloitte LLP (‘Deloitte’). Deloitte also provided

audit services to the Company. The Committee is satisfied that the

remuneration advice it receives from Deloitte is independent. Glenn

Leech, Human Resources Director also materially assisted the Committee

in carrying out its duties, except in relation to his own remuneration.

Remuneration policy

The Company’s remuneration policy aims to encourage a performance-

based culture, attract and retain high calibre executive directors and align

the interests of executive directors and shareholders. In forming this

policy the Committee has adopted the principles set out in

Section B of the Combined Code.

The aims of the policy are achieved by providing a remuneration

package, comprising salary and benefits, positioned around the median

of a comparator group of peer companies, pension provision and

performance related benefits. Any payments made to executive directors

other than salary are not pensionable. The performance related benefits,

which consist of an annual bonus, an economic profit bonus and

long-term incentive (‘LTIP’), account for a significant proportion of

total remuneration.

In line with the Association of British Insurers’ Guidelines on Responsible

Investment Disclosure, the Committee will ensure that the incentive

structure for executive directors and senior management will not raise

environmental, social or governance (‘eSG’) risks by inadvertently

motivating irresponsible behaviour. More generally, with regard to the

overall remuneration structure, there is no restriction on the Committee

which prevents it from taking into account corporate governance on

eSG matters.

Under our current policy, the overall maximum remuneration opportunity

is 300% of salary for Mark Cashmore and 255% of salary for Jonathan

Bunting and Nick Gresham. For Mark Cashmore, this comprises base

salary, an annual bonus opportunity of 100% of base salary, an economic

profit bonus opportunity of 50% of base salary and an LTIP opportunity of

50% of base salary. For Jonathan Bunting and Nick Gresham, it

comprises base salary, an annual bonus opportunity of 80% of base

salary, an economic profit bonus opportunity of 40% of base salary and

an LTIP opportunity of 35% of base salary. For the year ending 31 August

2011, Nick Gresham’s economic profit bonus opportunity is capped at

13% of base salary (see table on page 58). Also, it has been decided that

the proportion of the annual bonus and economic profit bonus to be paid

in the form of deferred shares will remain unchanged at 33% and 50%

respectively. The Annual Bonus Plan, economic Profit Plan (‘ePP’) and

LTIP are described in more detail below.



18520.04 24/11/2010 Proof11



Salary and benefits

To align the timing of salary reviews throughout the Group, the Committee

has decided to move its annual review of executive directors’ salaries

from September to January, with any new salaries taking effect from

1 January. When conducting any review, the Committee takes into

account a range of factors including the Group’s performance, market

conditions, the prevailing market rates for similar positions in a

comparable group of companies, the responsibilities, individual

performance and experience of each executive director and the level

of salary increases awarded to employees throughout the Group.

Mark Cashmore’s and Jonathan Bunting’s salaries, which were last

reviewed in September 2009, are £320,000 and £200,000 respectively.

Nick Gresham, who joined the Company and was appointed a director on

1 August 2010, receives a salary of £230,000.

executive directors also receive taxable benefits including the provision of

a company car and private medical insurance.

The fees paid to non-executive directors are determined by the Chairman

and the executive members of the Board and take into account the

required time commitment and the fee payments for non-executive

directors of similar organisations. There were no changes to the fees paid

to non-executive directors during the year under review. Non-executive

directors do not participate in any bonus or share schemes.

Annual Bonus Plan

The plan is designed so that the level of bonus paid is dependent on

the achievement of an underlying profit before tax target and personal

performance, set at the beginning of each year. Target level is based on

the achievement of stretching performance; maximum level requires

outstanding performance.

For the year under review, Mark Cashmore had the opportunity to receive

an annual bonus up to a maximum of 100% of base salary (47.5% at

target level) and Alan Humphrey and Jonathan Bunting had the

opportunity to receive an annual bonus up to a maximum of 80% of base

salary (37.5% at target level), one third of which is payable in the form of

shares, the receipt of which is deferred for two years (see Deferred Bonus

Plan below).

Largely as a result of achieving the maximum profit before tax target of

£35m, Mark Cashmore’s annual bonus for the year under review is

£320,000, of which £213,333 will be paid in cash in November 2010 and

£106,667 will be paid in the form of shares. Alan Humphrey and Jonathan

Bunting will each receive an annual bonus for the year under review of

£150,000, of which £100,000 will be paid in cash in November 2010 and

£50,000 will be paid in the form of shares.

For the year ending 31 August 2011, the annual bonus opportunity for

Mark Cashmore and Jonathan Bunting will remain unchanged. Nick

Gresham will have the opportunity to earn an annual bonus up to a

maximum of 80% of base salary (37.5% at target level), of which one third

is payable in shares.

Economic Profit Plan

Under this plan, which was introduced in 2008, executive directors and key

senior executives may receive each year a cash payment and/or be

granted a share award under the terms of the Deferred Bonus Plan, based

on the value of an economic profit pool (the ‘Pool’). The value of the Pool is

determined by the economic profit (calculated as profit after tax less the

cost of capital employed) created in each financial year, with 10% of this

economic profit being contributed to the Pool (if there is an economic loss

in any year the value of the Pool will be diminished). One third of the Pool is

then distributed to participants each year (allocated in the proportion of

each participant’s base salary to the participants’ total base salaries) and

two-thirds is carried forward to form part of the Pool for the following year.

Remuneration Report continued

Relative value of remuneration package 2010/11

The table below shows the expected relative value at target and maximum performance levels of the fixed and performance-related elements of the

executive directors’ remuneration package for the financial year ending 31 August 2011.

Fixed element Performance-related elements

Base salary Annual Bonus Plana EPPb LTIP

Target Max. Target Max. Target Max. Target Max.

Mark Cashmore 47% 33% 22% 33% 17% 17% 14% 17%

Jonathan Bunting 53% 39% 20% 31% 16% 16% 11% 14%

Nick Gresham 59% 44% 22% 35% 6% 6%c 13% 15%

a) 33% of the annual bonus will be paid in the form of shares, the receipt of which is deferred for two years (see Deferred Bonus Plan below).b) 50% of the ePP bonus will be paid in the form of shares, the receipt of which is deferred for two years (see Deferred Bonus Plan below).c) As a new joiner, Nick Gresham’s maximum ePP bonus opportunity is 13% of base salary (one-third of 40%), representing 6% of his total remuneration package.d) The above table does not include the value of other benefits such as the provision of a company car, private medical insurance and employer pension contributions.



18520.04 24/11/2010 Proof11



The main objectives of the plan are to retain key executives and to

incentivise the executive management team to generate profits over and

above the Group’s cost of capital. Mark Cashmore receives an allocation of

up to 50% of base salary and Jonathan Bunting receives an allocation of

up to 40% of base salary. Given the nature of the plan, an executive’s

entitlement will build up during the first three years of participation. As such,

Nick Gresham is able to receive an allocation of up to 13% of base salary in

the year ending 31 August 2011, 27% of base salary in the year ending

31 August 2012 and 40% of base salary in the year ending 31 August

2013. It is current policy that 50% of the annual payout will be in cash and

50% will be in the form of deferred shares (see Deferred Bonus Plan

below). However, the Committee reserves the right to change these

proportions for future years in light of the circumstances prevailing at

the time.

The economic profit generated in the year to 31 August 2010 resulted in

a contribution to the Pool of £622,700, bringing the total value of the Pool

to £947,000. Of this Pool, Mark Cashmore will receive £89,574, of which

£44,787 will be paid in cash in November 2010 and £44,787 will be paid in the

form of shares, Alan Humphrey will receive £45,974, of which £22,987 will be

paid in cash in November 2010 and £22,987 will be paid in the form of shares,

and Jonathan Bunting will receive £46,108, of which £23,054 will be paid in

cash in November 2010 and £23,054 will be paid in the form of shares.

Deferred Bonus Plan

Under this plan, executive directors and key senior executives may be

granted each year share awards (in the form of nil cost options)

representing a proportion of the bonuses earned under the Annual

Bonus Plan and/or economic Profit Plan. The awards are exercisable

after a holding period of two years, subject to continued employment.

As described under Annual Bonus Plan and economic Profit Plan, for

performance in the year under review, Mark Cashmore, Alan Humphrey

and Jonathan Bunting will be granted share awards under this plan with

market values at the date of grant of £106,667, £50,000 and £50,000

respectively in connection with the Annual Bonus Plan and £44,787,

£22,987 and £23,054 respectively in connection with the economic Profit

Plan. These awards will be granted in October 2010.

Alan Humphrey stepped down from the Board on 31 August 2010 and

will retire on 31 October 2010. In accordance with the rules of the plan,

his outstanding awards will vest in the normal way, i.e. after the expiry of

the two year holding period, after which he will have six months in which

to exercise them.

Long-term incentives

Smiths News LTIP

Under this plan, executive directors and key senior executives may be awarded each year conditional entitlements to ordinary shares in the Company (in the

form of nil cost options) or, in order to retain flexibility and at the Company’s discretion, a cash sum linked to the value of a notional award of shares up to a

value of 200% of base salary.

The vesting of awards is subject to the satisfaction of a performance condition, which is determined by the Remuneration Committee at the time of grant.

The Committee believes that for executive directors and Smiths News senior executives earnings per share (‘ePS’) is the most appropriate measure of the

Company’s performance.

For awards granted in November 2006 and November 2007, the performance condition is based on real growth in the Company’s ePS over the three

years ended 31 August 2009 and 31 August 2010 respectively (the ‘Performance Period’) as set out in the following table.

Annual rate of growth in EPS (compounded annually)

in excess of growth in RPI over the Performance Period Proportion exercisable

Below 3% zero

3% 35%

Prorating applies between these points Between 35% and 100%

9% or more 100%

This performance condition has not been met and, as such, the awards granted in November 2006 and November 2007 lapsed on 22 October 2009

and 21 October 2010 respectively.

In light of the prevailing business environment, for awards granted to the executive directors and Smiths News senior executives in April and November

2009, the performance condition is based on the Company’s aggregate absolute ePS over the three years ending 31 August 2011 and 31 August

2012 respectively (the ‘Performance Period’) as set out in the following tables.



18520.04 24/11/2010 Proof11



Awards granted in April 2009

Aggregate EPS performance

over the Performance Period Proportion exercisable

Below 41p zero

41p 20%


45p or more 100%

Awards granted in November 2009

Aggregate EPS performance

over the Performance Period Proportion exercisable

Below 42.5p zero

42.5p 20%


47.5p or more 100%

For the purposes of the above targets, ePS will be determined by reference to basic earnings per share, as defined by IAS 33, before non-recurring

items and their associated tax impact, adjusted by the Committee as considered appropriate to ensure consistency.


Smiths News share option schemes

The Company operates two types of share option scheme:

a) an executive Share Option Scheme which is used to grant options to

executives up to an annual limit of 200% of base salary. The

performance condition for options granted in November 2006 and

November 2007 is based on real growth in the Company’s ePS

and is the same as the 2006 and 2007 LTIP performance condition

described above. This condition has not been met and, as such,

these options lapsed on 22 October 2009 and 21 October 2010

respectively. Options granted in November 2008 will only be

exercisable if the Company’s profit before tax for the year ending 31

August 2011 exceeds £30m and options granted in November 2009

will only be exercisable if the Company’s profit before tax for the year

ending 31 August 2012 exceeds £30.5m. The Committee will conduct

its annual review of the performance condition prior to the grant of

options in November 2010. The executive directors did not participate

in this Scheme in the financial year ended 31 August 2010 and will not

participate in the current financial year; and

b) an HM Revenue & Customs Approved Save-As-you-earn share option

scheme (the ‘Sharesave Scheme’). The Sharesave Scheme is open to

all employees who have completed one year’s service and who enter

an approved savings contract for a term of three or five years. The

maximum amount which can be saved is £250 per month, the total

savings at the end of the term being used to purchase

shares at 80% of their market value at the start of the savings

contract. In common with most schemes of this type, there are no

performance conditions applicable to options granted under the

Sharesave Scheme.

WH Smith Executive Share Option Scheme 1999 (pre-demerger)

For options granted in 2004 and 2005, prior to the demerger of

WH Smith Retail on 31 August 2006, the performance condition is based

on the Company’s adjusted ePS growth over a fixed three year period,

the proportion of options that become exercisable increasing on a

straight-line basis from 40% for growth of RPI plus 9% to 100% for

growth of RPI plus 15%.

For those options granted in November 2004, adjusted ePS growth

exceeded RPI plus 15% over the three year period ended

31 August 2007 and, as such, these options became exercisable in

full on 3 November 2007.

For those options granted in November 2005, adjusted ePS growth

exceeded RPI plus 15% over the three year period ended 31 August

2008 and, as such, these options became exercisable in

full on 2 November 2008.

Personal shareholdings

The Company’s shareholding guidelines require executive directors to

build up over a period of five years and then maintain a target holding of

100% of salary and other members of the executive management team

to build up over a period of five years and then maintain a target holding

of 75% of salary.



18520.04 24/11/2010 Proof11



Contracts of service

The contract dates and notice periods for each executive director are as follows:

Notice period Notice period

Date of contract by Company by director

Jonathan Bunting 1 April 2010 One year Nine months

Mark Cashmore 4 July 2006 One year Nine months

Nick Gresham 23 August 2010 One year Nine months

It is the Company’s policy to enter into contracts of employment with executive directors which may be terminated at any time by the Company upon

12 months’ notice and upon nine months’ notice by the executive director. In the event of a change of control, Mark Cashmore’s contract provides for a

payment of liquidated damages of 95% of salary and benefits if the contract is terminated in breach of the notice period. In other circumstances, the

Committee believes that any question of compensation should be decided upon at the appropriate time rather than in advance so that the principle of

mitigation is applied in the particular circumstances.

The Chairman and other non-executive directors, who have letters of appointment, are appointed for an initial term of three years, which may be

terminated at any time upon three months’ written notice on either side, and are subject to review thereafter.

Appointment of Nick Gresham

Nick Gresham joined the Board as Chief Financial Officer on 1 August 2010. The following sets out the main terms of Nick Gresham’s appointment:

• salary of £230,000;

• participation in the Annual Bonus Plan. 37.5% of salary at target level of performance and maximum opportunity of 80% of salary. Delivery is 2/3 in

cash and 1/3 in deferred shares;

• participation in the economic Profit Plan at 40% of salary (as described on page 59, this is built up during the first three years of participation);

• an LTIP appointment award of 113% of salary to be made in November 2010, under the same performance conditions as for LTIP awards to be

made to other executives. This will be made in part in lieu of incentives forgone from his previous employer and is subject to performance;

• ordinary LTIP participation from 2011, i.e. 35% of salary;

• participation in the Company’s defined contribution pension scheme as described on page 62;

• car allowance of £915 per month and private medical insurance.

Performance graph

Cumulative TSR growth since 31 August 2006.

a) The graph illustrates the TSR performance of the Company on a cumulative basis (with dividends reinvested) since the demerger of WH Smith Retail on 31 August 2006 compared with the FTSe Support Services Sector Index over the same period.

b) Smiths News PLC is a member of the FTSe Support Services sector and, as such, this sector was considered to be the most appropriate comparator group upon which a broad equity market index is calculated.

Accounting year end

120

110

100

90

80

70

60Smiths News FTSe Support Services

2006 2007 2008 20102009



18520.04 24/11/2010 Proof11



Smiths News Employee Benefit Trust

The Smiths News employee Benefit Trust is used to facilitate the

acquisition of ordinary shares in the Company for the purpose of

satisfying awards and options granted under the Company’s executive

share schemes including the pre-demerger share scheme. The Trust is

a discretionary trust, the sole beneficiaries being employees (including

executive directors) and former employees of the Company. The Trust

waives its right to vote and to dividends on the shares that it holds. The

Trustee is eeS Trustees International Limited, an independent professional

trustee company based in Jersey.

The number of shares held in the Smiths News employee Benefit Trust

at 31 August 2010 was 2,122,616. The accounting treatment is

shown in the Group Statement of Changes in equity on page 73.

Dilution limits

Share awards and executive share options are usually satisfied using

market purchase shares. The Company’s share plans comply with

recommended guidelines on dilution limits and the Company has always

operated within these limits.

Pensions

For the year under review, the Company operated two defined

contribution pension schemes, the money purchase section of the

WH Smith Pension Trust, for those employees who were active members

of the defined benefit section of the WH Smith Pension Trust on 1 May

2007 and the WH Smith Retirement Savings Plan. The Company ceased

service accruals for active members of the defined benefit pension

scheme on 1 May 2007.

Jonathan Bunting participates in the money purchase section of the WH

Smith Pension Trust. The other executive directors participate in the

Smiths News section of the WH Smith Retirement Savings Plan. Under

these plans an executive director may contribute up to an amount

equivalent to 5% of salary which is then matched by the Company. In

addition, a salary supplement, in respect of pension entitlement, is also

payable which may be taken as an additional pension contribution or as

an addition to basic pay. For the financial year ended 31 August 2010, for

Mark Cashmore and Alan Humphrey, the salary supplement was

equivalent to 25% of salary and for Jonathan Bunting and Nick Gresham

it was equivalent to 20% of salary.

External appointments

It is the Company’s policy to allow each executive director to accept one

non-executive directorship of a publicly quoted company provided that it is

not a chairmanship of a FTSe 100 company and it does not conflict with

the interests of the Company. executive directors may retain the fee for

such an appointment. The executive directors do not currently hold any

non-executive directorships.

Part B – Audited

Directors’ remuneration

The remuneration of the directors for the financial year ended 31 August 2010 was as follows:

Pension

Economic supplement Year to

Annual Profit and 31 August

Salary/fees bonus Plan benefits Total 2009

£’000 £’000 £’000 £’000 £’000 £’000

Executive

Jonathan Bunting 83 42 10 9 144 –

Mark Cashmore 320 213 45 68 646 495

Nick Gresham 19 – – 5 24 –

Alan Humphrey 200 100 23 73 396 341

Non-executive

Dennis Millard (Chairman) 110 – – – 110 110

Andrew Brent 35 – – – 35 35

Anthony Cann 40 – – – 40 40

John Worby 40 – – – 40 40

Total 847 355 78 155 1,435 1,061




18520.04 24/11/2010 Proof11



a) Pension supplement and benefits: this includes any pension salary supplement taken as an addition to basic pay, the provision of a company car and private medical insurance.

b) Jonathan Bunting earned an annual bonus of £150,000, of which £50,000 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010. The values shown in the table are in respect of the period 1 April 2010 (date of appointment) to 31 August 2010.

c) Mark Cashmore earned an annual bonus of £320,000, of which £106,667 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010.

d) Alan Humphrey earned an annual bonus of £150,000, of which £50,000 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010.

e) Jonathan Bunting will receive an economic Profit Plan payout of £46,108, of which £23,054 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010.

f) Mark Cashmore will receive an economic Profit Plan payout of £89,574, of which £44,787 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010.

g) Alan Humphrey will receive an economic Profit Plan payout of £45,974, of which £22,987 is in the form of shares, the receipt of which is deferred for two years, subject to continued employment. This share award will be granted in October 2010.

h) Jonathan Bunting was appointed as a director of the Company on 1 April 2010. Jonathan Bunting’s salary for the full year was £200,000.i) Nick Gresham was appointed as a director of the Company on 1 August 2010. Nick Gresham’s annual salary is £230,000. j) All of the directors, with the exception of Jonathan Bunting and Nick Gresham, served throughout the year.

Directors’ pensions

Defined contribution schemes

Jonathan Bunting was a member of the Smiths News section of the WH Smith Pension Trust during the year ended 31 August 2010. Mark Cashmore,

Nick Gresham and Alan Humphrey were members of the Smiths News section of the WH Smith Retirement Savings Plan during the year ended

31 August 2010.

Directors’ pension contributions during the year were as follows:

Employee contribution Employer contribution % of salary £’000 % of salary £’000

Jonathan Bunting 25 21 5 4

Mark Cashmore 15 48 5 16

Nick Gresham 5 1 5 1

Alan Humphrey 5 10 5 10

a) executive directors receive a salary supplement which may be taken as an additional pension contribution or as an addition to basic pay; this payment if taken as an addition to basic pay is included in the table of directors’ remuneration under the heading Pension supplement and benefits.

b) Jonathan Bunting, who was appointed to the Board on 1 April 2010, received a salary supplement of 20% of salary, all of which was taken as an additional pension contribution and is included in the employee contribution in the above table.

c) Mark Cashmore received a salary supplement of 25% of salary, 10% of which was taken as an additional pension contribution and is included in the employee contribution in the above table and 15% of which was taken as an addition to basic pay and is included in the table of directors’ remuneration.

d) Nick Gresham, who was appointed to the Board on 1 August 2010, received a salary supplement of 20% of salary, all of which was taken as an addition to basic pay and is included in the table of directors’ remuneration.

e) Alan Humphrey received a salary supplement of 25% of salary, all of which was taken as an addition to basic pay and is included in the table of directors’ remuneration.f) The dependants of Jonathan Bunting are eligible for payment of a lump sum in the event of death-in-service equivalent to eight times salary. The dependants of the other

executive directors are eligible for payment of a lump sum in the event of death-in-service equivalent to four times salary.



18520.04 24/11/2010 Proof11



Directors’ deferred share awards

Smiths News Deferred Bonus Plan

Details of the deferred share awards (in the form of nil cost options) granted to executive directors under the Smiths News Deferred Bonus Plan (arising

from the Annual Bonus Plan and economic Profit Plan), are as follows:

Number of

shares Number of Number of

subject to shares shares Number of

awards at subject to subject to shares Share

1 September awards awards subject to price

2009 granted exercised awards at at date

Date of (or date of during during 31 August of grant

grant appointment) the year the year 2010 (pence) Exercise period

Jonathan Bunting

Annual Bonus Plan 26.11.09 48,837 – – 48,837 107.50 26.11.11 – 26.11.12

economic Profit Plan 26.11.09 10,620 – – 10,620 107.50 26.11.11 – 26.11.12

Total 59,457 – – 59,457

Mark Cashmore

Annual Bonus Plan 23.10.08 194,106 – 194,106 – 56.67 22.02.10 – 22.02.11

Annual Bonus Plan 26.11.09 – 102,326 – 102,326 107.50 26.11.11 – 26.11.12

economic Profit Plan 26.11.09 – 20,860 – 20,860 107.50 26.11.11 – 26.11.12

Total 194,106 123,186 194,106 123,186

Alan Humphrey

Annual Bonus Plan 23.10.08 106,097 – 106,097 – 56.67 22.02.10 – 22.02.11

Annual Bonus Plan 26.11.09 – 51,628 – 51,628 107.50 26.11.11 – 26.11.12

economic Profit Plan 26.11.09 – 11,227 – 11,227 107.50 26.11.11 – 26.11.12

Total 106,097 62,855 106,097 62,855

a) Full details of the Annual Bonus Plan, economic Profit Plan and Deferred Bonus Plan are set out on pages 58 and 59.b) There are no further performance conditions attached to these awards, which are exercisable subject only to continued employment.c) No option price is payable on either the grant or exercise of any award.d) To maintain the tax treatment at the time the awards were granted, the expiry of the holding period for awards granted on 23 October 2008 was brought forward from

23 October 2010 to 22 February 2010 on condition that shares acquired on the exercise of awards were retained until 23 October 2010.e) Mark Cashmore exercised the award granted to him on 23 October 2008 on 23 February 2010. The market value of the shares on the date of exercise was £225,163

(116p per ordinary share).f) Alan Humphrey exercised the award granted to him on 23 October 2008 on 23 February 2010. The market value of the shares on the date of exercise was £123,073

(116p per ordinary share).g) The total gains made by all directors on the exercise of deferred share awards was £348,236.h) Alan Humphrey stepped down from the Board on 31 August 2010 and will retire on 31 October 2010. In accordance with the rules of the plan, his outstanding awards

will vest in the normal way, i.e. after the expiry of the two year holding period, after which he will have six months in which to exercise them.i) No awards have lapsed during the year ended 31 August 2010.j) No awards have been granted to or exercised by directors between 1 September 2010 and 21 October 2010.




18520.04 24/11/2010 Proof11



Directors’ long-term incentive schemes

Smiths News LTIP

Details of the conditional awards (in the form of nil cost options) to acquire ordinary shares of the Company granted to executive directors under the

Smiths News LTIP are as follows:

Number of


subject to shares shares Number

awards at subject to subject to of shares Share

1 September awards awards subject to price

2009 granted lapsed awards at at date

Date of (or date of during during 31 August of grant


Jonathan Bunting

2007 15.11.07 50,601 – – 50,601 110.67 –

2008 30.04.09 61,146 – – 61,146 100.17 Oct 2011 – 30.04.19

2009 26.11.09 65,116 – – 65,116 107.50 Oct 2012 – 26.11.19

Total 176,863 – – 176,863

Mark Cashmore

2006 16.11.06 196,078 – 196,078 – 127.50 –

2007 15.11.07 124,243 – – 124,243 110.67 –

2008 30.04.09 137,267 – – 137,267 100.17 Oct 2011 – 30.04.19

2009 26.11.09 – 148,837 – 148,837 107.50 Oct 2012 – 26.11.19

Total 457,588 148,837 196,078 410,347

Alan Humphrey

2006 16.11.06 105,882 – 105,882 – 127.50 –

2007 15.11.07 58,507 – – 58,507 110.67 –

2008 30.04.09 64,640 – – 64,640 100.17 Oct 2011 – 30.04.19

2009 26.11.09 – 65,116 – 65,116 107.50 Oct 2012 – 26.11.19

Total 229,029 65,116 105,882 188,263

a) The number of shares subject to awards is the maximum (100%) number of shares that could be received by the director if the performance targets as set out on pages 59 and 60 are fully met.

b) The threshold ePS performance target applicable to the awards granted on 16 November 2006 and 15 November 2007 has not been met and, as such, these awards lapsed on 22 October 2009 and 21 October 2010 respectively.

c) No option price is payable on either the grant or exercise of any award.d) Alan Humphrey stepped down from the Board on 31 August 2010 and will retire on 31 October 2010. In accordance with the rules of the plan, a time-based proportion

of his outstanding awards will, to the extent that the performance targets are met, be exercisable within six months of the normal vesting dates.e) No awards have vested or been exercised during the year ended 31 August 2010.f) No awards have been granted to or exercised by directors between 1 September 2010 and 21 October 2010.



18520.04 24/11/2010 Proof11



Share option schemes

Details of the options to acquire ordinary shares of the Company granted to executive directors are as follows:

Number of


subject to shares shares Number of

options at subject to subject to shares

1 September options options subject to

2009 granted exercised options at Option

Date of (or date of during during 31 August price


Jonathan Bunting

WH Smith 03.11.04 64,203 – – 64,203 81.00 03.11.07 – 02.11.14

executive

Share Option 02.11.05 120,681 – – 120,681 88.00 02.11.08 – 01.11.15

Scheme 1999

Smiths News 04.06.08 11,058 – – 11,058 85.00 01.08.11 – 31.01.12

Sharesave

Scheme

Total 195,942 – – 195,942

Mark Cashmore

WH Smith 03.11.04 64,203 – – 64,203 81.00 03.11.07 – 02.11.14

executive

Share Option 02.11.05 169,022 – – 169,022 88.00 02.11.08 – 01.11.15

Scheme 1999

Smiths News 29.11.06 3,750 – 3,750 – 100.80 01.02.10 – 31.07.10

Sharesave

Scheme 04.06.08 4,423 – – 4,423 85.00 01.08.11 – 31.01.12

24.06.09 2,310 – – 2,310 79.20 01.09.12 – 28.02.13

02.06.10 – 3,689 – 3,689 98.40 01.08.13 – 31.01.14

Total 243,708 3,689 3,750 243,647

Alan Humphrey

WH Smith 03.11.04 57,696 – – 57,696 81.00 03.11.07– 02.11.14

executive

Share Option 02.11.05 177,404 – – 177,404 88.00 02.11.08 – 01.11.15

Scheme 1999

Smiths News 29.11.06 3,750 – 3,750 – 100.80 01.02.10 – 31.07.10

Sharesave

Scheme

Total 238,850 – 3,750 235,100




18520.04 24/11/2010 Proof11



a) The middle market price of an ordinary share at the close of business on 31 August 2010 was 100.75p (28 August 2009: 120p).b) The high and low middle market prices of an ordinary share during the year were 126p and 96p respectively.c) The maximum ePS performance target applicable to the options granted under the WH Smith executive Share Option Scheme 1999 on 3 November 2004 and

2 November 2005, as set out on page 60, has been met and as such these options became exercisable in full on 3 November 2007 and 2 November 2008 respectively.d) Mark Cashmore exercised the Sharesave option granted to him on 29 November 2006 on 27 January 2010. The market price of the shares on the date of exercise was

118p and the gain was £645.e) Alan Humphrey exercised the Sharesave option granted to him on 29 November 2006 on 21 July 2010. The market price of the shares on the date of exercise was 108p

and the gain was £270.f) The total gains made by all directors on the exercise of share options was £915.g) Alan Humphrey stepped down from the Board on 31 August 2010 and will retire on 31 October 2010. In accordance with the rules of the WH Smith executive Share

Option Scheme 1999, his outstanding options, both of which have vested, will be exercisable within 12 months of his date of retirement.h) No share options lapsed during the year ended 31 August 2010.i) No share options have been granted to or exercised by directors between 1 September 2010 and 21 October 2010.

Directors’ interests in shares

The beneficial interests of the directors and their immediate families in the ordinary shares of the Company are set out below:

31 August 2009

31 August 2010 (or date of appointment)

Andrew Brent 10,101 –

Jonathan Bunting 130,402 130,402

Anthony Cann 30,000 30,000

Mark Cashmore 157,847 109,736

Nick Gresham – –

Alan Humphrey 234,743 168,484

Dennis Millard 85,000 75,000

John Worby 12,000 12,000

There has been no change in the directors’ interests shown above between 1 September 2010 and 21 October 2010.

Approval

This report was approved by the Board and signed on its behalf by:

Anthony Cann

Chairman of the Remuneration Committee

21 October 2010



18520.04 24/11/2010 Proof11



Directors’ Responsibilities Statement

The directors are responsible for preparing the Annual Report,

Directors’ Remuneration Report and the accounts in accordance

with applicable law and regulations.

Company law requires the directors to prepare accounts for each financial

year. Under that law the directors are required to prepare the Group

accounts in accordance with International Financial Reporting Standards

(IFRSs) as adopted by the european Union and Article 4 of the IAS

Regulation and have elected to prepare the parent Company accounts in

accordance with United Kingdom Generally Accepted Accounting

Practice (United Kingdom Accounting Standards and applicable law).

Under Company law the directors must not approve the accounts unless

they are satisfied that they give a true and fair view of the state of affairs

of the Company and of the profit or loss of the Company for that period.

In preparing the parent Company accounts, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable

and prudent;

• state whether applicable UK Accounting Standards have been

followed, subject to any material departures disclosed and explained

in the accounts; and

• prepare the accounts on the going concern basis unless it is

inappropriate to presume that the Company will continue in business.

In preparing the Group accounts, International Accounting Standard 1

requires that directors:

• properly select and apply accounting policies;

• present information, including accounting policies, in a manner that

provides relevant, reliable, comparable and understandable

information;

• provide additional disclosures when compliance with the specific

requirements in IFRSs are insufficient to enable users to understand

the impact of particular transactions, other events and conditions on

the entity’s financial position and financial performance; and

• make an assessment of the Company’s ability to continue as a

going concern.

The directors are responsible for keeping adequate accounting records

that are sufficient to show and explain the Company’s transactions and

disclose with reasonable accuracy at any time the financial position of the

Company and enable them to ensure that the accounts comply with the

Companies Act 2006. They are also responsible for safeguarding the

assets of the Company and hence for taking reasonable steps for the

prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the

corporate and financial information included on the Company’s website.

Legislation in the United Kingdom governing the preparation and

dissemination of accounts may differ from legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

• the accounts, prepared in accordance with the relevant financial

reporting framework, give a true and fair view of the assets, liabilities,

financial position and profit or loss of the Company and the

undertakings included in the consolidation taken as a whole; and

• the management report, which is incorporated into the Directors’

Report, includes a fair review of the development and performance of

the business and the position of the Company and the undertakings

included in the consolidation taken as a whole, together with a

description of the principal risks and uncertainties that they face.

Mark Cashmore Nick Gresham

Group Chief executive Chief Financial Officer

21 October 2010 21 October 2010



18520.04 24/11/2010 Proof11



Independent Auditors’ Report to the Members of Smiths News PLC

We have audited the Group accounts of Smiths News PLC for the year

ended 31 August 2010, which comprise the Group Income Statement, the

Group Statement of Comprehensive Income, the Group Balance Sheet, the

Group Statement of Changes in equity, the Group Cash Flow Statement

and the related Notes 1 to 29. The financial reporting framework that has

been applied in their preparation is applicable law and International

Financial Reporting Standards (IFRSs) as adopted by the european Union.

This report is made solely to the Company’s members, as a body, in

accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our

audit work has been undertaken so that we might state to the Company’s

members those matters we are required to state to them in an auditors’

report and for no other purpose. To the fullest extent permitted by law,

we do not accept or assume responsibility to anyone other than the

Company and the Company’s members, as a body, for our audit work,

for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors’ Responsibilities Statement, the

directors are responsible for the preparation of the Group accounts and

for being satisfied that they give a true and fair view. Our responsibility is

to audit the Group accounts in accordance with applicable law and

International Standards on Auditing (UK and Ireland). Those standards

require us to comply with the Auditing Practices Board’s (APB’s) ethical

Standards for Auditors.

Scope of the audit of the accounts

An audit involves obtaining evidence about the amounts and disclosures

in the accounts sufficient to give reasonable assurance that the accounts

are free from material misstatement, whether caused by fraud or error.

This includes an assessment of: whether the accounting policies are

appropriate to the Group’s circumstances and have been consistently

applied and adequately disclosed; the reasonableness of significant

accounting estimates made by the directors; and the overall presentation

of the accounts.

Opinion on accounts

In our opinion the Group accounts:

• give a true and fair view of the state of the Group’s affairs as at

31 August 2010 and of its profit for the year then ended;

• have been properly prepared in accordance with IFRSs as adopted

by the european Union; and

• have been prepared in accordance with the requirements of the

Companies Act 2006 and Article 4 of the IAS Regulation.

Separate opinion in relation to IFRSs as issued by the IASB

As explained in Note 1 to the Group accounts, the Group in addition to

complying with its legal obligation to apply IFRSs as adopted by the

european Union, has also applied IFRSs as issued by the International

Accounting Standards Board (IASB).

In our opinion the Group accounts comply with IFRSs as issued by

the IASB.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion the information given in the Directors’ Report for the

financial year for which the accounts are prepared is consistent with the

Group accounts.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in

our opinion:

• certain disclosures of directors’ remuneration specified by law are not

made; or

• we have not received all the information and explanations we require

for our audit.

Under the Listing Rules we are required to review:

• the directors’ statement contained within the Directors’ Report in

relation to going concern; and

• the part of the Corporate Governance Statement relating to the

Company’s compliance with the nine provisions of the June 2008

Combined Code specified for our review.

Other matter

We have reported separately on the parent Company accounts of Smiths

News PLC for the year ended 31 August 2010 and on the information in the

Directors’ Remuneration Report that is described as having been audited.

Mark Mullins (Senior Statutory Auditor)

for and on behalf of Deloitte LLP

Chartered Accountants and Statutory Auditors

Reading

United Kingdom

21 October 2010



18520.04 24/11/2010 Proof11



Group Income StatementFor the year ended 31 August 2010

£m 2010 2009

Non-recurring Non-recurring

and other and other

Note Underlying* items† Total Underlying* items† Total

Continuing operations

Revenue 2 1,829.6 – 1,829.6 1,326.0 – 1,326.0

Operating profit 3 37.1 (6.9) 30.2 32.4 (10.8) 21.6

Investment revenues 7 1.1 – 1.1 1.2 1.4 2.6

Finance costs 8 (3.2) – (3.2) (3.1) (2.7) (5.8)

Profit before tax 35.0 (6.9) 28.1 30.5 (12.1) 18.4

Income tax expense 9 (8.6) 1.7 (6.9) (5.7) 5.0 (0.7)

Profit for the year 26.4 (5.2) 21.2 24.8 (7.1) 17.7

Earnings per share

Basic 11 14.6p 11.7p 13.8p 9.9p

Diluted 11 14.4p 11.5p 13.8p 9.9p

equity dividends per share 10 7.4p 6.8p

* Before non-recurring and other items.† Non-recurring and other items are set out in Note 3 to the Accounts.



18520.04 24/11/2010 Proof11



Group Statement of Comprehensive IncomeFor the year ended 31 August 2010

£m Note 2010 2009

Gain/(loss) on cash flow hedges 0.9 (1.7)

Actuarial gain/(loss) on defined benefit pension scheme 4 14.5 (50.0)

effect of asset limit on defined benefit pension scheme 4 (21.9) 43.1

Tax relating to components of other comprehensive income 2.1 1.8

Other comprehensive income for the year (4.4) (6.8)

Profit for the year 21.2 17.7

Total comprehensive income and expense for the year 16.8 10.9

Total comprehensive income and expense for the year is fully attributable to the equity holders of the parent Company.



18520.04 24/11/2010 Proof11



Group Balance SheetAt 31 August 2010

£m Note 2010 2009

Non-current assets

Intangible assets 12 12.7 12.7

Property, plant and equipment 13 21.0 21.1

Investments in joint venture and associate 14 3.7 3.5

Deferred tax assets 20 1.6 3.3

39.0 40.6

Current assets

Inventories 38.1 31.1

Trade and other receivables 15 99.2 114.8

Cash and cash equivalents 15 4.0 4.3

Assets held for sale 15 0.9 –

142.2 150.2

Total assets 181.2 190.8

Current liabilities

Trade and other payables 16 (181.7) (191.6)

Current tax liabilities – (1.2)

Obligations under finance leases 18 (1.6) (1.5)

Bank loans and other borrowings 21 (48.8) (15.1)

Provisions 19 (5.0) (3.8)

Derivative financial instruments 22 (0.5) (0.2)

(237.6) (213.4)

Non-current liabilities

Bank loans and other borrowings 21 – (34.3)

Retirement benefit obligation 4 – –

Deferred tax liabilities 20 (1.9) (2.0)

Long-term provisions 19 (1.9) (4.6)

Obligations under finance leases 18 (1.6) (2.9)

Derivative financial instruments 22 – (1.3)

Other non-current liabilities 17 (0.6) (0.7)

(6.0) (45.8)

Total liabilities (243.6) (259.2)

Total net liabilities (62.4) (68.4)

Equity

Called up share capital 27 9.2 9.1

Share premium account 27 0.4 –

eSOP reserve (2.4) (3.4)

Other reserve (280.1) (280.1)

Hedging reserve (0.5) (1.4)

Retained earnings 211.0 207.4

Total equity (62.4) (68.4)

Registered number – 05195191

The accounts were approved by the Board of Directors and authorised for issue on 21 October 2010 and were signed on its behalf by:





18520.04 24/11/2010 Proof11



Group Statement of Changes in equityFor the year ended 31 August 2010

£m

Share

Share premium Other ESOP Hedging Retained

capital account reserve1 reserve reserve earnings Total

Balance at 1 September 2008 9.1 – (280.1) (3.9) 0.3 206.3 (68.3)

Profit for the period – – – – – 17.7 17.7

Loss on cash flow hedges – – – – (1.7) – (1.7)

Actuarial loss on defined benefit pension scheme – – – – – (50.0) (50.0)

effect of asset limit on defined benefit

pension scheme – – – – – 43.1 43.1

Tax relating to components of other

comprehensive income – – – – – 1.8 1.8

Total comprehensive income for the year – – – – (1.7) 12.6 10.9

Dividends paid – – – – – (12.0) (12.0)

employee share schemes – – – 0.5 – (0.5) –

Recognition of share-based payments – – – – – 1.0 1.0

Balance at 31 August 2009 9.1 – (280.1) (3.4) (1.4) 207.4 (68.4)

Profit for the period – – – – – 21.2 21.2

Gain on cash flow hedges – – – – 0.9 – 0.9

Actuarial gain on defined benefit pension scheme – – – – – 14.5 14.5

effect of asset limit on defined benefit

pension scheme – – – – – (21.9) (21.9)

Tax relating to components of other

comprehensive income – – – – – 2.1 2.1

Total comprehensive income for the year – – – – 0.9 15.9 16.8

Issue of share capital 0.1 0.4 – – – – 0.5

Dividends paid – – – – – (12.6) (12.6)

employee share schemes – – – 1.0 – (1.0) –

Recognition of share-based payments – – – – – 1.3 1.3

Balance at 31 August 2010 9.2 0.4 (280.1) (2.4) (0.5) 211.0 (62.4)

1 The ‘Other’ reserve includes reserves created in relation to the pro forma restatement and the demerger of WH Smith PLC.



18520.04 24/11/2010 Proof11



Group Cash Flow StatementFor the year ended 31 August 2010

£m Note 2010 2009

Net cash inflow from operating activities 25 24.7 31.9

Investing activities

Interest received – 0.1

Acquisition of investment in joint venture – (1.0)

Acquisition of investment in Bertrams – (11.2)

Purchase of property, plant and equipment (6.3) (4.0)

Purchase of intangible assets (2.3) (1.2)

Net cash used in investing activities (8.6) (17.3)

Financing activities

Interest paid (2.6) (4.2)


Repayments of obligations under finance leases (2.2) (2.6)

Proceeds on issue of shares 0.5 –

Repayments of borrowings (5.0) (5.0)

Increase in revolving credit facility 5.5 10.1

Net cash used in financing activities (16.4) (13.7)

Net (decrease)/increase in cash and cash equivalents (0.3) 0.9

Opening net cash and cash equivalents 4.3 3.4

Closing net cash and cash equivalents 4.0 4.3



18520.04 24/11/2010 Proof11



Notes to the Accounts

1 Accounting policies

(a) Basis of preparation

The consolidated Group accounts have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the

european Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. These standards, subsequent

amendments and related interpretations issued and adopted by the International Accounting Standards Board (‘IASB’) are those that have been

endorsed by the european Union at the year end and therefore the Group accounts comply with Article 4 of the european Union International

Accounting Standards (‘IAS’) regulations.

The consolidated Group accounts have also been prepared in accordance with IFRS and International Financial Reporting Interpretations

Committee (IFRIC) interpretations issued and effective at the time of preparing these accounts.

Smiths News PLC is a company incorporated in the United Kingdom under the Companies Act 2006.

In preparing the Group accounts for the current year, the Group has adopted the following new IFRS, amendments to IFRS and IFRIC

interpretations:

l IAS 1 (revised) ‘Presentation of financial statements’. effective for periods commencing 1 January 2009, requires the presentation of a

Statement of Changes in equity as a primary statement and a Statement of Comprehensive Income.

l IFRS 7 (amended) ‘Financial instruments: Disclosures’. Additional disclosures on financial instrument levels have been included.

In preparing the Group accounts for the current year, the Group has adopted the following new IFRS, amendments to IFRS and IFRIC

interpretations, which have not had a significant impact on the results or net assets of the Group:

l IFRS 1 ‘Cost of an Investment in a Subsidiary, Jointly controlled entity or Associate’

l IFRS 2 (amended) ‘vesting conditions and cancellations’

l IFRS 3 (revised) ‘Business Combinations’

l IAS 23 (revised) ‘Borrowing costs’

l IAS 27 (revised) ‘Consolidated and Separate Financial Statements’

l IFRIC 9 and IAS 39 ‘embedded Derivatives’

l IFRIC 12 ‘Service Concession Arrangements’

l IFRIC 14 IAS 19 ‘The limit on a defined benefit asset, minimum funding requirements and their interaction’

l IFRIC 15 ‘Agreements for the Construction of Real estate’

At the date of authorisation of these consolidated Group accounts, the following Standards and Interpretations which have not been applied in

these accounts were in issue but not yet effective (and in some cases had not been adopted by the eU):

l IFRS 1 (amended) ‘Additional exemptions for First Time Adopters’

l IFRS 2 (amended) ‘Group Cash settled Share-based Payment Transactions’

l IFRS 9 ‘Financial Instruments’

l IAS 24 (revised) ‘Related Party Disclosures’

l IAS 32 (amended) ‘Classification of Rights Issue’

l IFRIC 14 (amended) ‘Prepayments of Minimum Funding Requirement’

l IFRIC 17 ‘Distributions of Non-cash Assets to Owners’



18520.04 24/11/2010 Proof11



Notes to the Accounts continued

1 Accounting policies continued

l IFRIC 18 ‘Transfer of Assets from Customers’

l IFRIC 19 ‘extinguishing Financial Liabilities with equity Instruments’

l Improvements to IFRS (2010 and 2009)

The Directors do not expect that the adoption of these Standards and Interpretations in future periods will have a material impact on the financial

statements of the Group.

A summary of the Group’s accounting policies is given below.

Accounting convention

The accounts are drawn up on the historical cost basis of accounting except for the revaluation of certain financial instruments. The financial

information is rounded to the nearest hundred thousand, except where otherwise indicated. The principal accounting policies, which have been

applied consistently throughout both years, have been set out below.

Going concern

The Group meets its day-to-day working capital requirements through its bank facilities of up to £135m, which do not expire until November 2014.

The Group’s forecasts, taking into account the Board’s future expectations of the Group’s performance, indicate that there is reasonable headroom

within these bank facilities and the Group will continue to operate well within the covenants attaching to those facilities.

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future,

having recognised the current uncertain economic outlook and the Group’s negative working capital position. Thus, they continue to adopt the

going concern basis in preparing the accounts.

Basis of consolidation

The consolidated Group accounts incorporate the accounts of Smiths News PLC, its subsidiaries and investments in joint ventures and associates

up to the year end date.

Subsidiary undertakings are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying

a shareholding of more than one-half of the voting rights, so as to obtain benefits from its activities.

Results of subsidiary undertakings disposed of during the financial year are included in the accounts up to the effective date of disposal. Where a business

component representing a separate major line of business is disposed of, or classified as held for sale, it is classified as a discontinued operation.

All intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated.

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair

values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control

of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent

liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current

assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued

Operations, which are recognised and measured at fair value less costs to sell.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and

contingent liabilities recognised.



18520.04 24/11/2010 Proof11




(b) Revenue

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services

provided in the normal course of business, net of discounts, vAT and other sales related taxes. Sales of goods are recognised when goods are

delivered and title has passed.

(c) Operating profit

Operating profit is stated after charging restructuring costs and after the share of results of associates but before investment income and

finance costs.

(d) Retirement benefit costs

Payments to Smiths News PLC’s defined contribution pension scheme, The WH Smith Retirement Savings Plan, are recognised as an expense in

the income statement as they fall due.

The cost of providing benefits for the defined benefit scheme, WH Smith Pension Trust, is determined by the Projected Unit Credit Method, with

actuarial calculations being carried out at the balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur.

They are recognised outside the income statement in the consolidated statement of comprehensive income.

The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for

unrecognised past service cost, and as reduced by the fair value of scheme assets.

The scheme is closed to further accrual, which would prevent the Group from realising any surplus through a funding holiday or a reduction in

contributions. As a result the Group has not recognised the IAS 19 surplus on the balance sheet.

(e) Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.

All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets of the Group at their fair value determined at the inception of the lease or, if lower,

at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease

obligation. Lease payments are apportioned between finance charges and a reduction of the lease obligations so as to achieve a constant rate of

interest on the remaining balance of the liability. Finance charges are recognised directly in the income statement.

Rentals payable and receivable under operating leases are charged to the income statement on a straight-line basis over the term of the

relevant lease.

Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

(f) Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets

and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is initially recognised as an asset at cost and is

subsequently measured at cost less any accumulated impairment losses. Goodwill, which is recognised as an asset is reviewed for impairment at

least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed.



18520.04 24/11/2010 Proof11





For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash generating units expected to benefit from the synergies of

the combination. Cash generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is

an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the

impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata

on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or

loss on disposal.

(g) Other Intangible assets

Intangible assets arising under a business acquisition (acquired intangible assets) are capitalised at fair value as determined at the date of

acquisition and are stated at that fair value less accumulated amortisation (see below) and impairment losses (see below).

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of acquired intangibles from the date they

are acquired. The estimated useful lives are as follows:

Customer relationships 2.5–10 years

Trade name 10 years

Software 5 years

The costs of acquiring and developing software that is not integral to the related hardware is capitalised separately as an intangible asset. These

intangibles are stated at cost less accumulated amortisation and impairment losses.

Assets held under finance leases are amortised over their expected useful lives on the same basis as owned assets or, where shorter, over the term

of the relevant lease.

All intangible assets are reviewed for impairment in accordance with IAS 36 ‘Impairment of Assets’, when there are indications that the carrying

value may not be recoverable.

(h) Property, plant and equipment

Property, plant and equipment assets are carried at cost less accumulated depreciation and any recognised impairment in value. The carrying

values of tangible fixed assets previously revalued have been retained at their book amount.

Depreciation is charged so as to write off the costs of assets, other than land, over their estimated useful lives, using the straight-line method, with

the annual rates applicable to the principal categories being:

Freehold and long leasehold properties over 20 years

Short leasehold properties shorter of the lease period and the

estimated remaining economic life

Fixtures and fittings 10 years

Equipment 8 to 10 years

Computer equipment (disclosed within up to 5 years

equipment in Note 13 to the Accounts)

Vehicles up to 5 years



18520.04 24/11/2010 Proof11




Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the

term of the relevant lease.

All property, plant and equipment are reviewed for impairment in accordance with IAS 36 ‘Impairment of Assets’, when there are indications that

the carrying value may not be recoverable.

(i) Joint ventures and associates

A joint venture is an entity where the Group has joint control with one or more other venturers, under a contractual agreement, through participation

in the financial and operating policy decisions of the investee.

An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation

in the financial and operating policy decisions of the investee.

The results, assets and liabilities of joint ventures and associates are incorporated in these accounts using the equity method of accounting.

Investments in joint ventures and associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share

of the net assets of the joint venture and associate, less any impairment in value. The carrying values of investments in joint ventures and

associates include acquired goodwill.

Losses in a joint venture or associate in excess of the Group’s interest in the joint venture or associate are recognised only to the extent that the

Group has incurred legal or constructive obligations or made payments on behalf of the joint venture or associate.

(j) Inventories

Inventories comprise goods held for resale and are stated at the lower of cost or net realisable value. Inventories are valued using a weighted

average cost method. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in

bringing the inventories to their present location and condition.

(k) Non-current assets held for sale

Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing

use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition.

Management must be committed to the sale which should be expected to qualify as recognition as a completed sale within one year from the date

of classification.

(l) Provisions

Provisions are recognised in the balance sheet when Smiths News PLC has a present legal or constructive obligation as a result of a past event

and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the directors’ best

estimate of the expenditure required to settle the obligation at the balance sheet date. Where the effect is material, the provision is determined by

discounting the expected future cash flows at the Group’s post-tax weighted average cost of capital (‘WACC’).

(m) Taxation

The tax expense included in the income statement comprises current and deferred tax.

Current tax is the expected tax payable based on the taxable profit for the year, using tax rates that have been enacted or substantively enacted by

the balance sheet date.



18520.04 24/11/2010 Proof11




Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the accounts and the corresponding tax basis

used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally

recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be

available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference

arises from goodwill or from the initial recognition (other than in business combination) of other assets and liabilities in a transaction that affects

neither tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that

sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is

charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is

also dealt with in equity.

(n) Financial instruments

Financial assets

Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (‘FvTPL’), ‘held-to-maturity’

investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the

financial assets and is determined at the time of initial recognition.

A financial asset other than a financial asset held for trading may be designated as FvTPL upon initial recognition if:

l Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

l The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on

a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the Group is

provided internally on that basis; or

l It forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement

permits the entire combined contract (asset or liability) to be designated as FvTPL.

Financial assets at FvTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit

or loss incorporates any dividend or interest earned on the financial asset.

Trade receivables

Trade receivables do not carry any interest and are stated at their fair value. They are subsequently measured at amortised cost using the effective

interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is evidence

that the asset is impaired.

Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three

months or less.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity

instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.




18520.04 24/11/2010 Proof11




Bank borrowings

Interest bearing bank loans and overdrafts are initially measured at fair value (being proceeds received, net of direct issue costs), and are

subsequently measured at amortised cost, using the effective interest rate method. Finance charges, including premiums payable on settlement or

redemptions and direct issue costs are accounted for on an accruals basis and taken to the income statement using the effective interest rate

method and are added to the carrying value of the instrument to the extent that they are not settled in the period in which they arise.

Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

equity instruments issued are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments and hedge accounting

The Group uses certain derivative financial instruments to hedge interest rate exposures and to support underlying business requirements.

Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly

in equity and any ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted

transaction results in the recognition of an asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the

derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result

in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the

hedged item affects the net income statement.

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as

they arise.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge

accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted

transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the

net income or expense for the year.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics

are not closely related to those of host contracts and the host contracts are not carried at fair value with unrealised gains or losses reported in the

income statement.

(o) Share schemes

Smiths News Employee Benefit Trust

The shares held by the Smiths News employee Benefit Trust are valued at the historical cost of the shares acquired. They are deducted in arriving

at shareholders’ funds and are presented as an other reserve in line with IAS 32 ‘Financial Instruments: Disclosure and Presentation’.



18520.04 24/11/2010 Proof11




Share-based payments

The Company has applied IFRS 2 from 1 September 2004. employees of the Group receive part of their remuneration in the form of share-based

payment transactions, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). equity-settled

share-based payments are measured at fair value at the date of grant. The fair value is calculated using an appropriate option pricing model. The

fair value is expensed to the income statement on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will

eventually vest.

(p) Critical accounting judgements and key sources of estimation uncertainty

Retirement benefit obligation

The Group recognises and discloses its retirement benefit obligation in accordance with the measurement and presentational requirement of

IAS 19 ‘Retirement Benefit Obligations’. The calculations include a number of judgements and estimations in respect of the expected rate of return

on assets, the discount rate, inflation assumptions, the rate of increase in salaries and life expectancy, amongst others. Changes in these

assumptions can have a significant effect on the value of the retirement benefit obligation.

In order to substantially reduce the volatility in the underlying investment performance and reduce the risk of a significant increase in the obligation,

the Pension Trust Trustee has adopted a Liability Driven Investment policy. This is discussed in more detail in Note 4 to the Accounts.

Use of non-GAAP measures

Smiths News PLC has identified certain measures that it believes provide additional useful information on the performance of the Group. This

approach is comparable with that previously used, but as the measures are not defined under IFRS, they may not be directly comparable with other

companies’ adjusted measures. The non-GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance.

The following are the key non-GAAP measures identified by the Group:

Net debt

Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings, overdrafts and obligations under

finance leases.

Underlying profit

Profit before non-recurring and other items as described below.


Non-recurring and other items are material items of income or expense that are disclosed separately due to their nature or amount. They are

disclosed and described separately in the accounts where it is necessary to do so to provide further understanding of the financial performance of

the Group.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which goodwill has been

allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash generating unit and a

suitable discount rate in order to calculate present value. Details of the value in use calculation are provided in Note 12 to the Accounts.




18520.04 24/11/2010 Proof11



2 Segmental analysis

The information presented to the Board for the purpose of resource allocation and assessment of segment performance is focused on the type of

product sold. The principal activities of the Group reported to the Board are split into two categories of products sold:

– Newspaper and Magazine wholesaling (referred to as Smiths News).

– Book wholesaling (referred to as Bertrams).

The following is an analysis of the Group’s revenue and results by reportable segment in the year ended 31 August 2010:

£m 2010 2009 2010 2009 2010 2009

Newspaper & Magazine

wholesaling Book wholesaling Consolidated


Revenue 1,692.5 1,272.5 137.1 53.5 1,829.6 1,326.0

Underlying operating profit 33.1 31.7 4.0 0.7 37.1 32.4

Non-recurring and other items (5.4) (10.4) (1.5) (0.4) (6.9) (10.8)

Operating profit 27.7 21.3 2.5 0.3 30.2 21.6

The accounting policies of the reportable segments are the same as the Group’s accounting policies described in Note 1.

Segment assets

£m 2010 2009

Newspaper & Magazine wholesaling 130.4 140.2

Book wholesaling 50.8 50.6

Consolidated total assets 181.2 190.8

For the purposes of monitoring segment performance and allocating resources between segments, the Board monitors the tangible, intangible and

financial assets attributable to each segment. Goodwill and acquired intangible assets have been allocated to the Book wholesaling segment.

The £0.9m asset held for sale relates to the Book wholesaling segment.

Segment liabilities

£m 2010 2009

Newspaper & Magazine wholesaling (211.8) (223.2)

Book wholesaling (31.8) (36.0)

Consolidated total liabilities (243.6) (259.2)



18520.04 24/11/2010 Proof11




2 Segmental analysis continued

Other segment information

£m 2010 2009 2010 2009

Depreciation and Additions to

amortisation non-current assets

Newspaper & Magazine wholesaling (6.5) (6.5) 7.6 8.7

Book wholesaling (1.7) (0.6) 1.8 13.3

Consolidated total (8.2) (7.1) 9.4 22.0

In addition to the depreciation and amortisation reported above, in the prior year impairment losses of £0.7m relating to the reorganisation of The

Returns Company were recognised in respect of property, plant and equipment. These impairment losses were attributable to the Newspaper &

Magazine wholesaling segment. No such impairment losses have been recognised in the year ended 31 August 2010.

The Group operates predominantly in the UK.

3 Operating profit

The Group’s results are analysed as follows:

£m 2010 2009


and other and other

Underlying items Total Underlying items Total

Revenue 1,829.6 – 1,829.6 1,326.0 – 1,326.0

Cost of sales (1,652.6) – (1,652.6) (1,195.4) – (1,195.4)

Gross profit 177.0 – 177.0 130.6 – 130.6

Distribution costs (95.9) (5.8) (101.7) (64.4) (2.2) (66.6)

Administrative expenses (44.0) (1.1) (45.1) (33.8) (8.6) (42.4)

Operating profitOperating profit 37.1 (6.9) 30.2 32.4 (10.8) 21.6

The operating profit is stated after charging/(crediting):

£m 2010 2009

Cost of inventories recognised as an expense 1,580.0 1,136.8

Write down of inventories recognised as an expense 0.8 0.3

Depreciation and amounts written off property, plant and equipment 5.9 5.3

Amortisation of intangible assets 2.3 1.8

Operating lease charges – land and buildings 10.5 11.7

– equipment and vehicles 2.6 2.2

Operating lease rental income – land and buildings (0.4) (0.5)

Loss on disposal of fixed assets 0.2 –

Staff costs (Note 5) 108.6 81.2



18520.04 24/11/2010 Proof11



3 Operating profit continued

The analysis of auditors’ remuneration is as follows:

£m 2010 2009

Fees payable to the Company’s auditors and their associates for

– The audit of the Company’s subsidiaries pursuant to legislation 0.2 0.2

Total audit fees 0.2 0.2

Other services pursuant to legislation

– Tax services – 0.2

– Corporate finance services – 0.1

– Other services 0.1 0.1

Total non-audit fees 0.1 0.4

Fees associated with the audit of the Company’s annual accounts are included within the audit of the Company’s subsidiaries fees and are £5,000

(2009: £5,000).

Tax services in the prior year include one-off fees associated with the cross-currency contract.

Corporate finance services include the fees associated with the acquisition of Bertrams.

Included within Other services is £102,000 (2009: £39,000) relating to consultancy services and £29,000 (2009: £63,000) relating to recruitment

and remuneration services.


£m 2010 2009

Re- Amortisation

The Returns organisation of acquired

Company costs intangibles Total Total

Operating profit/(loss) 0.7 (6.7) (0.9) (6.9) (10.8)

Finance costs/Investment revenues – – – – (1.3)

Non-recurring profit/(loss) before tax 0.7 (6.7) (0.9) (6.9) (12.1)

Income tax (charge)/credit (0.2) 1.9 – 1.7 5.0

Non-recurring profit/(loss) after tax 0.5 (4.8) (0.9) (5.2) (7.1)

The Returns Company (‘TRC’)

On 3 February 2010 The Returns Company (a returns processing business) was sold. In 2009 an impairment charge of £3.1m was recognised to

write down the assets and provide for an onerous lease liability. The sale of the business allowed an earlier exit from the lease than was anticipated,

resulting in a £0.7m provision release.

Reorganisation costs

The largest element was the cost of integrating the former Dawson News business at £6.1m. This represents the final charge associated with an

integration, which has seen the Smiths News network grow from 44 depots in July 2009 to a peak of 66 and back to a position of 58 by August

2010. The majority of this cost relates to redundancies resulting from a reduction in the workforce by almost 1,000 employees during the year.

The balance relates to property costs following the closure of eight sites and relocation of a further three.



18520.04 24/11/2010 Proof11




3 Operating profit continued

The remaining charge of £0.6m reflects the cost of moving the Bertram Library Services warehouse operation from Leeds to the existing Bertrams

Books site in Norwich, a move which will drive improved operational efficiency and service to retailers going forward. The majority of this cost

relates to redundancy.

Amortisation of acquired intangibles

Intangible assets relating to the acquisition of Bertrams are amortised over their expected economic lives. The charge to the income statement in

the year to 31 August 2010 is £0.9m (for the five months to 31 August 2009: £0.4m) for which there is no associated cash impact.

4 Retirement benefit obligation

Pension arrangements for employees are operated through a defined benefit scheme, WH Smith Pension Trust (‘Pension Trust’), and a defined

contribution scheme, WH Smith Retirement Savings Plan. The most significant is the Pension Trust, which is described in Note 4 (a) to the

Accounts. The scheme is independent of the Company and is administered by a Trustee. The Trustee of the Pension Trust has extensive powers

over the pension plan’s arrangements, including the ability to determine the levels of contribution.

The amounts recognised in the balance sheet in relation to these plans are as follows:

£m 2010 2009

Present value of the obligation (367.4) (338.1)

Fair value of plan assets 408.6 357.4

Surplus 41.2 19.3

Amounts not recognised due to asset limit (41.2) (19.3)

Retirement benefit obligation recognised in the balance sheet – –

The scheme is closed to further accrual, which would prevent the Group from realising any surplus through a funding holiday or a reduction in

contributions. As a result the Group has not recognised the IAS 19 surplus of £41.2m (2009: £19.3m) on the balance sheet.

The valuation of the defined benefit pension scheme used for the IAS 19 disclosures is based upon the most recent actuarial valuation. Scheme

assets are stated at their market value at the relevant reporting date.



18520.04 24/11/2010 Proof11



4 Retirement benefit obligation continued

(a) Defined benefit pension scheme

The Pension Trust

The majority of the assets in the investment fund are structured such that they are expected to alter in value in line with changes in the pension

liability caused by changes in interest and inflation (a Liability Driven Investment (‘LDI’) policy). The volatility in interest rate and inflation is minimised

through hedging.

The key features of the investment policy are:

l 95% of the Pension Trust’s assets are invested in an LDI policy with a leading international institutional fund manager; and

l 5% of the Pension Trust’s assets are used to purchase a portfolio of long-dated equity call-spreads. These represent a notional exposure to

underlying equities of some £216m.

The 31 March 2009 triennial valuation produced an actuarial deficit of £50m. A revised deficit funding schedule of £5.8m per annum has been

agreed for the next ten years with the trustees.

The Group has paid £6.5m to the Pension Trust over the course of the year in relation to the agreed pension deficit funding, which also includes a

catch-up payment relating to the period from 31 March 2009 to the date that the revised contributions started to be paid.

The principal long-term assumptions used to calculate scheme liabilities under IAS 19 are:

% 2010 2009

Rate of increase in salaries – –

Rate of increase in pension payments and deferred pensions 3.22 3.28

Discount rate 4.86 5.32

Inflation assumptions 3.22 3.28

The amounts recognised in the income statement were as follows:

£m 2010 2009

Current service cost (0.1) (0.1)

Interest cost (17.6) (19.9)

expected return on scheme assets 18.6 21.0

0.9 1.0

The charge for the current service cost has been included within administrative expenses. Interest cost and expected return on scheme assets

have been included within investment revenues.

Movements in the present value of the defined benefit scheme obligation in the year were as follows:

£m 2010 2009

At 1 September (338.1) (320.1)

Current service cost (0.1) (0.1)

Interest cost (17.6) (19.9)

Actuarial losses (24.6) (10.4)

Benefits paid 13.0 12.4

At 31 August (367.4) (338.1)



18520.04 24/11/2010 Proof11





Movements in the fair value of defined benefit scheme assets in the year were as follows:

£m 2010 2009

At 1 September 357.4 382.5

expected return on scheme assets 18.6 21.0

Net actuarial gains/(losses) 39.1 (39.6)

Contributions 6.5 5.9

Benefits paid (13.0) (12.4)

At 31 August 408.6 357.4

An analysis of the defined benefit scheme assets at the balance sheet date is detailed below:

£m 2010 2009

Liquid cash funds 353.3 350.6

Inflation swaps 39.1 (13.6)

equity call options 16.2 20.4

408.6 357.4

The actual return on plan assets was a gain of £57.7m (2009: a loss of £18.6m).

The expected rate of return on these investments, calculated as a weighted average of the expected return on the LDI fund and the equity call

options, was 4.61% at 31 August 2010 (5.26 % at 31 August 2009).

The mortality assumptions (in years) underlying the value of the accrued liabilities are:

Male Female

Life expectancy at age 65

Member currently aged 65 21.4 23.3


Life expectancy at age 60



The mortality assumptions are based on the SAPS mortality tables (as published by the Institute of Actuaries). The mortality rates underlying the

table have been decreased by 5% to reflect the Trust’s actual experience. A long-term mortality improvement assumption of 1% has been included

as an overlay to these tables, together with 80% of long cohort for men and 60% of long cohort for women.

The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:

Assumption Change in assumption Impact on scheme liabilities

Discount rate Increase/decrease by 0.5% Decrease/increase by £29m

Rate of inflation Increase/decrease by 0.5% Increase/decrease by £34m

Rate of mortality Increase by 1 year Increase by £13m

No sensitivity has been undertaken for the rate of salary growth as the scheme is closed to further service accrual.

The sensitivity of the present value of the scheme liabilities to changes in the discount rate and rate of inflation are effectively hedged through the

Liability Driven Investment policy.



18520.04 24/11/2010 Proof11




The history of experience adjustments is as follows:

£m 2010 2009 2008 2007 2006

Present value of defined benefit obligation (367.4) (338.1) (320.1) (311.3) (334.0)

Fair value of scheme assets 408.6 357.4 382.5 321.2 285.0

Amounts not recognised due to asset limit (41.2) (19.3) (62.4) (9.9) –

Deficit in the scheme – – – – (49.0)

experience adjustments on scheme liabilities

Amount (£m) (1.4) 12.5 3.6 21.9 (16.6)

Percentage of scheme liabilities 0% 4% 1% 7% (5%)

experience adjustments on scheme assets

Amount (£m) 39.1 (39.6) 48.6 1.6 (16.2)

Percentage of scheme assets 10% (11%) 13% 1% (6%)

The cumulative amount of actuarial gains and losses recognised in the statement of comprehensive income since the adoption of IFRS is a gain of

£1.1m (2009: a loss of £13.4m).

(b) Defined contribution pension scheme

The pension cost charged to the income statement for the defined contribution scheme, WH Smith Retirement Savings Plan, amounted to £1.8m

for the year ended 31 August 2010 (2009: £1.6m).

5 Staff costs and employees

(a) Staff costs

The aggregate remuneration of employees was:

£m 2010 2009

Wages and salaries 99.5 74.1

Social security 7.2 5.4

Pension costs 1.9 1.7

Total 108.6 81.2

Charges and credits for pension scheme financing and actuarial gains and losses arising on the pension scheme are not disclosed in the

table above.

(b) Employee numbers

The average total monthly number of employees (including executive directors) was:

Number 2010 2009

Operations 5,114 3,840

Support functions 607 489

Total 5,721 4,329



18520.04 24/11/2010 Proof11




6 Operating lease commitments

The Group as lessee:

Minimum lease payments under non-cancellable operating leases are as follows:

£m 2010 2009

Land & Equipment Land & equipment

buildings & vehicles Total buildings & vehicles Total

Within one year 8.8 1.0 9.8 8.7 1.3 10.0

In the second to fifth years inclusive 28.7 0.8 29.5 28.9 0.7 29.6

In more than five years 29.5 – 29.5 24.7 – 24.7

67.0 1.8 68.8 62.3 2.0 64.3

The Group leases various distribution properties and plant and equipment under non-cancellable operating lease agreements. The leases have

varying terms, escalation clauses and renewal rights.

The Group as lessor:

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

£m 2010 2009

Within one year 0.3 0.3

In the second to fifth years inclusive 0.7 0.9

1.0 1.2

Property rental income earned during the year was £0.2m (2009: £0.2m).

7 Investment revenues

£m 2010 2009

Interest on bank deposits – 0.1

Net change in fair value of derivative liabilities designated as fair value through profit and loss 0.1 –

Net income on pension scheme (Note 4) 1.0 1.1

Underlying investment revenues 1.1 1.2

Non-recurring item – interest income – 1.4

Investment revenues 1.1 2.6

The prior year non-recurring item relates to the gain arising from the interest rate differential on the cross-currency contract.

8 Finance costs

£m 2010 2009

Interest on bank overdrafts and loans 2.9 2.8

Net change in fair value of derivative liabilities designated as fair value through profit and loss – 0.1

Interest payable on finance leases 0.2 0.2

Unwinding of discount on provisions 0.1 –

Underlying finance costs 3.2 3.1

Non-recurring item – foreign exchange loss on cross-currency contract – 2.7

Finance costs 3.2 5.8

The prior year non-recurring item relates to the foreign exchange loss incurred on closing out the cross-currency contract on 25 February 2009.



18520.04 24/11/2010 Proof11



9 Income tax expense

£m 2010 2009


and other and other

Underlying items Total Underlying items Total

Current tax 9.8 – 9.8 9.5 – 9.5

Current tax – non-recurring items – (1.7) (1.7) – (5.0) (5.0)

Adjustment in respect of prior year UK corporation tax (1.4) – (1.4) (2.4) – (2.4)

Total current tax charge 8.4 (1.7) 6.7 7.1 (5.0) 2.1

Deferred tax – current year (0.1) – (0.1) (0.6) – (0.6)

Deferred tax – prior year 0.3 – 0.3 (0.8) – (0.8)

Total tax on profit 8.6 (1.7) 6.9 5.7 (5.0) 0.7

Effective tax rate 25% 24% 19% 4%

The underlying income tax rate for the year is 25%, which represents the UK corporation tax rate of 28%, adjusted for tax credits relating to prior

years of £1.1m (2009: £3.2m). The tax relief relating to non-recurring and other items of £1.7m (2009: £5.0m) reduces the effective income tax rate

to 24% (2009: 4%).

Reconciliation of the tax charge

£m 2010 2009

Profit before tax 28.1 18.4

Tax on profit at the standard rate of UK corporation tax 28% (2009: 28%) 7.9 5.2

Permanent differences 0.3 (1.0)

Share schemes (0.2) (0.3)

Adjustment in respect of prior year UK deferred tax 0.3 (0.8)

Adjustment in respect of prior year UK corporation tax (1.4) (2.4)

Total tax charge 6.9 0.7

In addition to the amount charged to the income statement, current and deferred tax relating to the defined benefit pension scheme amounting to

£2.0m (2009: £1.8m) together with deferred tax relating to derivative financial instruments of £0.1m (2009: £nil) has been recognised directly in

other comprehensive income (see the Group Statement of Comprehensive Income).



18520.04 24/11/2010 Proof11




10 Dividends

Amounts recognised as distributions to equity shareholders in the year are as follows:

£m 2010 2009

Final dividend for the year ended 31 August 2009 of 4.6p (2008: 4.5p) per share 8.3 8.0

Interim dividend for the year ended 31 August 2010 of 2.4p (2009: 2.2p) per share 4.3 4.0

12.6 12.0

The proposed final dividend for the year ended 31 August 2010 of 5.0p is subject to approval by shareholders at the Annual General Meeting and

has not been included as a liability in these accounts. The proposed dividend, if approved, will be paid on 4 February 2011 to shareholders on the

register at close of business on 7 January 2011.

11 Earnings per share

£m 2010 2009

Profit for the financial year 21.2 17.7

Non-recurring items 5.2 7.1

Underlying profit for the financial year 26.4 24.8

Number m 2010 2009

Weighted average number of shares in issue 183.1 182.9

Shares held by eSOP (weighted) (2.5) (3.4)

Weighted average number of shares in issue for basic earnings per share 180.6 179.5

Shares issuable (weighted) 3.3 0.1

Weighted average number of shares in issue for diluted earnings per share 183.9 179.6

Pence 2010 2009

Earnings per share:

Basic 11.7 9.9

Diluted 11.5 9.9

Underlying earnings per share:

Basic 14.6 13.8

Diluted 14.4 13.8



18520.04 24/11/2010 Proof11



12 Intangible assets

£m

Acquired Intangibles

Internally

generated Computer

Customer development software

Goodwill relationships Trade name Software costs costs Total

Cost:

At 1 September 2009 4.1 3.3 1.3 0.5 1.7 21.7 32.6

Additions – – – – 0.4 1.9 2.3

Disposals – – – – – (0.1) (0.1)

At 31 August 2010 4.1 3.3 1.3 0.5 2.1 23.5 34.8

Accumulated amortisation:

At 1 September 2009 – 0.3 0.1 – 0.5 19.0 19.9

Amortisation charge – 0.7 0.1 0.1 0.5 0.9 2.3

Disposals – – – – – (0.1) (0.1)

At 31 August 2010 – 1.0 0.2 0.1 1.0 19.8 22.1

Net book value at 31 August 2010 4.1 2.3 1.1 0.4 1.1 3.7 12.7

Cost:

At 1 September 2008 – – – – – 22.2 22.2

Additions – – – – 0.6 0.6 1.2

Inter-segment transfer – – – – 1.1 (1.1) –

Acquisition of subsidiary 4.1 3.3 1.3 0.5 – – 9.2

At 31 August 2009 4.1 3.3 1.3 0.5 1.7 21.7 32.6

Accumulated amortisation:

At 1 September 2008 – – – – – 18.1 18.1

Inter-segment transfer – – – – 0.2 (0.2) –

Amortisation charge – 0.3 0.1 – 0.3 1.1 1.8

At 31 August 2009 – 0.3 0.1 – 0.5 19.0 19.9

Net book value at 31 August 2009 4.1 3.0 1.2 0.5 1.2 2.7 12.7

The goodwill of £4.1m and acquired intangibles totalling £5.1m arise from the acquisition of the business and assets of Bertrams on 20 March

2009 and have been allocated to the Book wholesaling segment. Goodwill is allocated to the Group’s cash generating units which are the same as

the segments presented in Note 2 to the Accounts.

The recoverable amounts of the cash generating units are determined from the value in use calculations. The Group prepares cash flow forecasts

derived from the most recent budgets and forecasts approved by the Board and extrapolates these cash flows on an estimated growth rate of 1%

over a 20 year period.

The rate used to discount the forecast cash flows from the Book wholesaling segment was 11%, being the Group’s post-tax WACC. The

calculation of value in use is most sensitive to the discount rate and growth rates used. Management believes that no reasonable potential change

in any of the above key assumptions would cause the carrying value to exceed its recoverable amount.

Capitalised software comprises costs that are not deemed to be an integral part of the related hardware, which is classified within property, plant

and equipment.



18520.04 24/11/2010 Proof11




13 Property, plant and equipment

£m

Land & Buildings

Freehold Long-term Short-term Fixtures Equipment

properties leasehold leasehold & fittings & vehicles Total

Cost or valuation:

At 1 September 2009 0.9 0.5 14.2 7.4 34.4 57.4

Additions – – 0.5 1.5 5.1 7.1

Inter-segment transfer – – (1.2) 1.0 0.2 –

Transfer to assets held for sale (0.9) – – – – (0.9)

Disposals – (0.1) (0.7) (0.3) (0.8) (1.9)

At 31 August 2010 – 0.4 12.8 9.6 38.9 61.7

Accumulated depreciation:

At 1 September 2009 – 0.1 9.0 3.5 23.7 36.3

Depreciation charge – 0.1 0.7 0.9 4.2 5.9

Disposals – – (0.5) (0.2) (0.8) (1.5)

At 31 August 2010 – 0.2 9.2 4.2 27.1 40.7

Net book value at 31 August 2010 – 0.2 3.6 5.4 11.8 21.0

Cost or valuation:

At 1 September 2008 – 0.5 12.5 5.1 27.9 46.0

Additions – – 0.6 0.4 6.5 7.5

Acquisition of subsidiary 0.9 – 1.2 2.0 – 4.1

Disposals – – (0.1) (0.1) – (0.2)

At 31 August 2009 0.9 0.5 14.2 7.4 34.4 57.4

Accumulated depreciation:

At 1 September 2008 – – 8.4 2.9 19.2 30.5

Impairment loss – – 0.1 0.1 0.5 0.7

Depreciation charge – 0.1 0.6 0.6 4.0 5.3

Disposals – – (0.1) (0.1) – (0.2)

At 31 August 2009 – 0.1 9.0 3.5 23.7 36.3

Net book value at 31 August 2009 0.9 0.4 5.2 3.9 10.7 21.1

The Group leases plant and equipment under a number of finance lease arrangements and has the option to purchase the equipment at the end

of each lease. The net book value of finance leases contained within these balances is £3.1m at 31 August 2010 (2009: £4.4m).



18520.04 24/11/2010 Proof11



14 Investment in joint ventures and associates

The Group’s share of the results, assets and liabilities of joint ventures and associates:

£m 2010 2009

Joint Joint

venture Associate Total venture Associate Total

Non-current assets 0.4 0.2 0.6 0.3 0.1 0.4

Current assets 0.8 0.8 1.6 0.6 0.5 1.1

Total assets 1.2 1.0 2.2 0.9 0.6 1.5

Current liabilities (0.4) (0.7) (1.1) (0.3) (0.4) (0.7)

Non-current liabilities (0.3) – (0.3) (0.2) – (0.2)

Total liabilities (0.7) (0.7) (1.4) (0.5) (0.4) (0.9)

Goodwill 2.9 – 2.9 2.9 – 2.9

Share of net assets 3.4 0.3 3.7 3.3 0.2 3.5

Revenue 2.7 3.7 6.4 2.3 2.5 4.8

Profit after tax 0.1 – 0.1 0.1 0.1 0.2

The Group has a 45% (2009: 30%) interest in the ordinary shares of FMD Limited, the holding company of Worldwide Magazine Distribution

Limited, a company incorporated in england and Wales. The accounts of the associate are drawn up to 31 August 2010 for inclusion in the

consolidated accounts. The latest statutory accounts of the associate were drawn up to 30 April 2010.

The Group has a 50% interest in the ordinary shares of Rascal Solutions Limited, a company incorporated in england and Wales. The latest

statutory accounts of the joint venture were drawn up to 31 August 2010.

15 Other financial assets

Trade and other receivables

£m 2010 2009

Trade receivables 85.9 101.5

Allowance for doubtful debts (0.6) (0.6)

85.3 100.9

Other debtors 8.3 10.0

Prepayments and accrued income 5.6 3.9

99.2 114.8



18520.04 24/11/2010 Proof11




15 Other financial assets continued

Trade receivables

Total trade receivables net of allowances for doubtful debts held by the Company at 31 August 2010 amounted to £85.3m (2009: £100.9m),

comprising the amounts presented above.

The average credit period taken on sales of goods is 21 days (2009: 21 days). Trade receivables are generally non-interest bearing. The Group has

provided fully for all receivables over 90 days for independent customers as historical experience is such that receivables past due beyond 90 days

are generally not recoverable. For larger multiple customers the Group provides for receivables on an individual customer basis based on

circumstances known at that time and the likelihood of recovery.

Of the trade receivables balance at the end of the year, five customers had individual balances that represented more than 5% of the total trade

receivables balance. The total of these was £34.7m (2009: £39.2m). The directors believe that there is no further credit provision required due to

the concentration of credit risk in excess of the allowance for doubtful debts.

The Group does not have any individual customers whose sales in the year represent more that 10% of the Group revenue.

Included in the outstanding trade receivables balance are debtors with an overdue amount of £0.2m (2009: £0.3m) that the Group has not

provided for as these amounts are still considered recoverable and fall outside our pre-determined policy.

Ageing of past due but not impaired receivables:

£m 2010 2009

30–60 days 0.1 0.2

60–90 days 0.1 0.1

0.2 0.3

Movement in the allowance for doubtful debts:

£m 2010 2009


Impairment losses recognised 0.7 0.4

Acquisition of subsidiary – 0.5

Amounts written off as uncollectable (0.5) (0.3)

Amounts recovered during the year (0.2) (0.1)

At 31 August 0.6 0.6



18520.04 24/11/2010 Proof11



15 Other financial assets continued

Ageing of past due and impaired trade receivables:

£m 2010 2009

30–60 days 0.1 0.1

60–90 days 0.1 0.3

90–120 days 0.4 0.2

0.6 0.6

The directors consider that the carrying amount of trade and other receivables approximates their fair value.

Cash and cash equivalents

£m 2010 2009

Cash and cash equivalents 4.0 4.3

Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The

carrying amount of these assets approximates their fair value.

Assets held for sale

£m 2010 2009

Assets held for sale 0.9 –

The move of Bertram Library Services warehouse operation from Leeds to the existing Bertrams Books site in Norwich has been completed

since year end. The Leeds property is expected to be sold within the next 12 months and is classified as an asset held for sale and presented

separately on the balance sheet.

16 Trade and other payables

£m 2010 2009

Trade payables 152.9 166.1

Other tax and social security 2.4 2.7

Other creditors 9.9 12.1

Accruals and deferred income 16.5 10.7

181.7 191.6

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for

trade purchases is 35 days (2009: 34 days). No interest is charged on trade payables. The directors consider that the carrying amount of trade

and other payables approximates to their fair value.



18520.04 24/11/2010 Proof11




17 Other non-current liabilities

£m 2010 2009

Other creditors 0.6 0.7

18 Obligations under finance leases

£m 2010 2009

Present value Present value

Minimum of minimum Minimum of minimum

lease lease lease lease

payments payments payments payments

Amount payable under finance leases:

Within one year 1.8 1.6 1.7 1.5

In the second to fifth years inclusive 1.8 1.6 3.2 2.9

Total 3.6 3.2 4.9 4.4

Less: future finance charges (0.4) – (0.5) –

Present value of lease obligations 3.2 3.2 4.4 4.4

Less: Amount due for settlement within 12 months (shown under current liabilities) (1.6) (1.6) (1.5) (1.5)

Amount due for settlement after 12 months 1.6 1.6 2.9 2.9

It is the Group’s policy to lease certain of its fixtures and equipment under finance leases. The average lease term is 3–4 years. Interest rates are

fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The fair value of the Group’s lease obligations approximates their carrying amount.



18520.04 24/11/2010 Proof11



19 Provisions

£m

Reorganisation Property

provisions provisions Total

Gross provisions:

At 1 September 2009 4.1 6.6 10.7

Additions 1.5 1.9 3.4

Utilisation (3.6) (0.7) (4.3)

Released unutilised (0.7) – (0.7)

At 31 August 2010 1.3 7.8 9.1

Discount:

At 1 September 2009 – (2.3) (2.3)

Unwinding of discount utilisation – 0.1 0.1

At 31 August 2010 – (2.2) (2.2)

Net book value at 31 August 2010 1.3 5.6 6.9

Gross provisions:

At 1 September 2008 – 0.8 0.8

Additions 4.3 6.3 10.6

Utilisation (0.2) (0.5) (0.7)

At 31 August 2009 4.1 6.6 10.7

Discount:

At 1 September 2008 – (0.1) (0.1)

Additions – (2.2) (2.2)

At 31 August 2009 – (2.3) (2.3)

Net book value at 31 August 2009 4.1 4.3 8.4

£m 2010 2009

Included within current liabilities 5.0 3.8

Included within non-current liabilities 1.9 4.6

Total 6.9 8.4

The property provisions represent the estimated future cost of the Group’s onerous and reversionary leases in non-trading properties based on

known and estimated rental sub-leases. These provisions have been discounted at 11% (being the Group’s post-tax WACC), and this discount will

be unwound over the life of the leases. The provisions are expected to be utilised over the period to 2019, when all of the leases that have been

provided against will have expired.



18520.04 24/11/2010 Proof11



20 Deferred tax

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior

reporting periods.

£m

Accelerated Retirement

tax Share-based benefit

depreciation Other payments obligations Total

At 1 September 2009 (0.7) – 0.5 1.5 1.3

Charge to income 0.1 (0.3) – – (0.2)

Charge to other comprehensive income – 0.1 – (1.5) (1.4)

At 31 August 2010 (0.6) (0.2) 0.5 – (0.3)

At 1 September 2008 (1.7) – 0.1 3.1 1.5

Charge to income 1.0 – 0.4 – 1.4

Charge to other comprehensive income – – – (1.6) (1.6)

At 31 August 2009 (0.7) – 0.5 1.5 1.3

The Company has capital losses carried forward of £23.9m (2009: £23.9m).

Deferred tax assets have not been recognised in respect of the capital losses carried forward due to the uncertainty of their utilisation.

Certain deferred tax assets and liabilities have been offset in the table above. The following is an analysis of the deferred tax balances, after offset,

for financial reporting purposes.

£m 2010 2009

Deferred tax assets 1.6 3.3

Deferred tax liabilities (1.9) (2.0)

Net deferred tax (liability)/asset (0.3) 1.3




18520.04 24/11/2010 Proof11



21 Borrowings

£m 2010 2009

Term loan – disclosed within current liabilities 33.2 –

Term loan – disclosed within non-current liabilities – 39.3

Revolving credit facility 15.6 9.5

Overdraft – 0.6

Total borrowings 48.8 49.4

Total borrowings

Amount due for settlement within 12 months 48.8 15.1

Amount due for settlement after 12 months – 34.3

Total borrowings 48.8 49.4

All borrowings are in sterling. There were no breaches of the loan agreement during either the current or prior year.

The other principal features of the Group’s borrowings are as follows:

A new banking facility was finalised on 27 August 2010 with a syndicate of five major lenders. At 31 August 2010 the term loan was drawn under

the facility that was due to expire on 26 June 2011, and as a result has been shown as a creditor within current liabilities. Since year end the Group

has started to use the new banking facility and the term loan will be disclosed as a creditor within non-current liabilities in future periods.

At year end the Group has committed bank facilities in place of £135m, plus a further committed asset backed facility of up to £35m, which

comprise:

l a £40m term loan of which £3m is repayable in September 2012 and September 2013, £4m is repayable in September 2014 with the balance

repayable in November 2014;

l a £95m revolving credit facility is in place which is also repayable in November 2014; and

l a committed asset backed facility of up to £35m of which £15m can be secured against the debtors of Bertrams and £20m against other

Group assets.

There is an interest rate hedge in place until June 2011 at an all in effective rate of 6.76%, which at 31 August 2010 covered £13.5m of the

term loan.

The weighted average interest rates paid during the year were as follows:

% 2010 2009

Term loan 4.1 5.4

Revolving credit facility 1.2 2.3

Undrawn borrowing facilities

At 31 August 2010, the Group had available £106.2m (2009: £54.6m) of undrawn committed borrowing facilities.



18520.04 24/11/2010 Proof11



22 Derivative financial instruments

£m 2010 2009 2010 2009

Current Non-current

Derivatives that are designated and effective as hedging instruments carried at fair value:

Interest rate swaps (0.5) – – (1.3)

Derivatives that are designated and carried at fair value through profit and loss (FvTPL):

Basis interest rate swap – (0.2) – –

Total derivative financial instruments (0.5) (0.2) – (1.3)

Further details of derivative financial instruments are provided in Note 23 to the Accounts.

23 Financial instruments

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to

stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the

borrowings disclosed in Note 21 to the Accounts, cash and cash equivalents and equity attributable to equity holders of the parent, comprising

issued capital, reserves and retained earnings as disclosed in the Group Statement of Changes in equity.

The Group is not subject to externally imposed capital requirements.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis

on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in

Note 1 to the Accounts.

Categories of financial instruments

£m 2010 2009

Financial assets

Cash and cash equivalents 4.0 4.3

Financial liabilities

Derivative instruments in designated hedge accounting relationships 0.5 1.3

Derivatives designated as fair value through the profit and loss – 0.2

Borrowings 48.8 49.4

Finance leases 3.2 4.4

Market risk

Interest rate management

The Group regularly monitors its exposure to interest rate risk and considers from time to time whether there would be a benefit in further hedging

this risk. The Group avoids the use of derivatives or other financial instruments in circumstances when the outcome would effectively be largely

dependent upon speculation on future rate movements. The Group uses interest rate swaps to manage its exposure to interest rate movements on

its bank borrowings.




18520.04 24/11/2010 Proof11



23 Financial instruments continued

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative instruments at

the balance sheet date. For floating rate liabilities the analysis is prepared assuming the amount of liability outstanding at the balance sheet date

was outstanding for the whole year.

If interest rates had been 0.5% higher/lower and all other variables were held constant, the Group’s profit and equity for the year ended 31 August

2010 would decrease/increase by £0.3m (2009: £0.2m).

Interest rate swap contracts

Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on

agreed notional principal amounts. Such contracts enable the Group to mitigate the cash flow exposures on the issued variable rate debt held.

The fair value of interest rate swaps at the reporting date is based on the market values of equivalent instruments at the balance sheet date, and

is disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year.

The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at the reporting date:

2010 2009 2010 2009 2010 2009

Average contract Notional principal

fixed interest rate amount Fair value

Outstanding receive floating, pay fixed contracts

Less than 1 year 5.13% – £13.5m – (£0.5m) –

2 to 5 years – 5.13% – £24.8m – (£1.3m)

The interest rate swaps settle on a semi-annual basis. The floating rate on the interest rate swaps is 6 months LIBOR. The Group will settle the

difference between fixed and floating interest rates on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for

fixed rate interest amounts are designated as cash flow hedges in order to reduce the Group’s cash flow exposure resulting from variable interest

rates on borrowings. The interest rate swaps and the interest payments on the loan occur simultaneously and the amount deferred in equity is

recognised in the income statement over the period that the floating rate interest payments on debt impact the income statement.

Credit risk

The Group considers its exposure to credit risk at 31 August to be as follows:

£m 2010 2009

Bank deposits 4.0 4.3

Trade receivables 85.3 100.9

Total 89.3 105.2

The Group’s policy is to transact derivatives only with counterparties whose long-term credit is rated at least A1 by Moody’s. Further detail on the

Group’s policy relating to trade receivables can be found in Note 15 to the Accounts.

Investment risk management

The Group’s pension scheme, the WH Smith Pension Trust, has significant assets valued at £408.6m as at 31 August 2010. An Investment

Committee of the Trustees to the Scheme meets regularly to review the performance of the asset managers and the scheme as a whole. The

Group is represented on this committee by the Chief Financial Officer. In adopting the LDI structure in 2005 a number of inflation and interest rate

hedges and option agreements were entered into, with collateral posted daily to or from the scheme to the relevant counterparty. The risk of failure

of counterparties to these instruments and of the investment manager is monitored regularly by the Committee, as such failure could expose the

scheme to loss.



18520.04 24/11/2010 Proof11



23 Financial instruments continued

Liquidity risk

The Group manages liquidity risk by maintaining adequate reserves and banking facilities and by monitoring forecast and actual cash flows.

Included in Note 21 is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk. The renewal of

the bank facility just before year end at an increased level enhances the Group’s ability to manage liquidity risk. As the Group is cash generative its

liquidity risk is considered low. The Group’s cash generation allows it to meet all loan commitments as they fall due as well as sustain a negative

working capital position.

The Group invests significant resources in the forecasting and management of its cash flows. This is critical given a routine cash cycle that results

in significant predictable swings within each month of around £50m.

The following is an analysis of the undiscounted contractual cash flows payable under financial liabilities and derivatives. The undiscounted cash

flows will differ from both the carrying value and fair value. Floating rate interest is estimated using the prevailing rate at the balance sheet date.

£m

Due Due Due

within between 1 between 2 Greater

1 year and 2 years and 3 years than 3 years

At 31 August 2010

Non-derivative financial liabilities

Bank and other borrowings (48.8) – – –

Interest payments on borrowings – – – –

Finance leases (1.8) (1.0) (0.8) –

Derivative and other financial liabilities

Net settled derivative contracts – receipts 0.1 – – –

Net settled derivative contracts – payments (0.6) – – –

Total (51.1) (1.0) (0.8) –

At 31 August 2009

Non-derivative financial liabilities

Bank and other borrowings (15.1) (35.0) – –

Interest payments on borrowings (2.9) (2.6) – –

Finance leases (1.7) (1.8) (0.8) (0.6)

Derivative and other financial liabilities

Net settled derivative contracts – receipts 0.3 0.3 – –

Net settled derivative contracts – payments (1.2) (0.9) – –

Total (20.6) (40.0) (0.8) (0.6)

All financial instruments are classified as level 2 based upon the degree to which the fair value movements are observable. Level 2 fair value

measurements are defined as those derived from inputs other than quoted prices that are observable for the asset or liability, either directly (prices

from third parties) or indirectly (derived from third party prices).

The loan shown on the balance sheet at year end was repaid on 9 September 2010, when the new bank facility was brought into use. As a result

the contracted amounts of interest payment on borrowing at the year end were not significant enough to include in the above table.




18520.04 24/11/2010 Proof11



24 Contingent liabilities and capital commitments

£m 2010 2009

Bank and other loans guaranteed 3.0 3.1

Other potential liabilities that could crystallise are in respect of previous assignments of leases where the liability could revert to the Group if the

lessee defaulted. Pursuant to the terms of the Demerger Agreement, any such contingent liability, which becomes an actual liability, will be

apportioned between Smiths News PLC and WH Smith PLC in the ratio 35 : 65 (provided that the actual liability of Smiths News PLC in any

12 month period does not exceed £5m). The Company’s share of these leases has an estimated future cumulative gross rental commitment at

31 August 2010 of £21.2m (2009: £26.6m).

Contracts placed for future capital expenditure approved by the directors but not provided for amount to £nil (2009: £1.1m).

25 Net cash inflow from operating activities

£m 2010 2009

Operating profit 30.2 21.6

Adjustment for pension funding (6.4) (5.7)

Depreciation of property, plant and equipment 5.9 5.3

Amortisation of intangible assets 2.3 1.8

Share-based payments 1.3 1.0

Increase in inventories (7.0) (10.9)

Decrease/(increase) in receivables 15.6 (41.7)

(Decrease)/increase in payables (10.0) 57.2

Income tax paid (4.7) (4.3)

(Decrease)/increase in provisions (2.5) 7.6

Net cash inflow from operating activities 24.7 31.9



18520.04 24/11/2010 Proof11




26 Share-based payments

Details of the share schemes operated by the Group are provided in the Remuneration Report on pages 57 to 67. The Group recognised total

expenses of £1.3m in 2010 (2009: £1.0m) related to equity-settled share-based payment transactions.

The average share price throughout the period was 114.5p (2009: 84.9p).

Sharesave Scheme

Under the terms of the Smiths News Sharesave Scheme, the Board may grant options to purchase ordinary shares in the Company to eligible

employees who enter into an Inland Revenue approved Save-As-you-earn (‘SAye’) savings contract for a term of three or five years. Options are

granted at a 20% discount to the market price of the shares on the day preceding the date of offer and are normally exercisable for a period of six

months after completion of the SAye contract.

2010 2009

Weighted Weighted

average average

Number of exercise Number of exercise

options price options price

Outstanding at the beginning of the period 2,745,297 87.2p 1,944,417 93.3p

Granted 1,042,952 98.4p 1,173,638 79.2p

exercised (452,312) 100.6p (329) 85.0p

Forfeited (246,392) 83.1p (372,429) 93.6p

expired (119,998) 100.8p – –

Outstanding at the end of the period 2,969,547 88.9p 2,745,297 87.2p

Exercisable at the end of the period – – – –

Outstanding options granted under the Sharesave Scheme as at 31 August 2010 are as follows:

2010 2009

Weighted Weighted

Weighted average Weighted average

average remaining average remaining

Number of exercise contractual Number of exercise contractual

Date of grant options price life (years) options price life (years)

29 November 2006 (3 years) – – – 573,103 100.8p 0.9

29 November 2006 (5 years) 229,820 100.8p 1.9 242,813 100.8p 2.9

4 June 2008 (3 years) 476,094 85.0p 0.4 525,406 85.0p 1.4

4 June 2008 (5 years) 202,858 85.0p 2.4 232,185 85.0p 3.4

24 June 2009 (3 years) 714,242 79.2p 1.8 817,231 79.2p 2.8

24 June 2009 (5 years) 309,113 79.2p 3.8 354,559 79.2p 4.8

2 June 2010 (3 years) 748,574 98.4p 2.9 – – –

2 June 2010 (5 years) 288,846 98.4p 4.9 – – –

2,969,547 88.9p 2.4 2,745,297 87.2p 2.5



18520.04 24/11/2010 Proof11



26 Share-based payments continued

Executive share option schemes

Under the terms of the Smiths News executive Share Option Scheme, the Board may grant options to purchase ordinary shares in the Company

to executives up to an annual limit of 200% of base salary. The exercise of options is conditional on the achievement of a performance target,

which is determined by the Remuneration Committee at the time of grant.

As a result of the demerger of the WH Smith Retail business on 31 August 2006 all outstanding options under the unapproved part of the

WH Smith executive Share Option Scheme 1999 were exchanged for new options over the Company’s shares.

2010 2009

Weighted Weighted

average average

Number of exercise Number of exercise

options price options price

Outstanding at the beginning of the period 7,877,217 89.0p 6,845,998 96.8p

Granted 1,465,641 107.5p 1,987,383 63.3p

exercised (781,204) 84.8p (632,093) 85.5p

Forfeited (913,276) 120.3p (324,071) 103.7p

Outstanding at the end of the period 7,648,378 89.2p 7,877,217 89.0p

Exercisable at the end of the period 2,845,330 86.4p 3,626,534 86.1p

The weighted average share price at date of exercise was 119.6p.

Outstanding options granted under the executive share option schemes as at 31 August 2010 are as follows:

2010 2009

Weighted Weighted

Weighted average Weighted average

average remaining average remaining

Number of exercise contractual Number of exercise contractual

Date of grant options price life (years) options price life (years)

7 December 1999 – – – 24,688 93.0p 0.3

31 October 2000 77,723 94.0p 0.2 77,723 94.0p 1.2

1 November 2001 103,427 105.0p 1.2 103,427 105.0p 2.2

5 November 2002 42,635 86.0p 2.2 72,584 86.0p 3.2

20 November 2003 191,915 82.0p 3.2 243,706 82.0p 4.2

3 November 2004 616,357 81.0p 4.2 934,137 81.0p 5.2

26 November 2004 60,166 74.0p 4.2 60,166 74.0p 5.2

26 April 2005 154,065 86.0p 4.7 154,065 86.0p 5.7

2 November 2005 1,599,042 88.0p 5.2 1,956,038 88.0p 6.2

16 November 2006 – – – 732,861 127.5p 7.2

15 November 2007 1,468,521 110.7p 7.2 1,530,439 110.7p 8.2

27 November 2008 1,915,055 63.3p 8.2 1,987,383 63.3p 9.2

26 November 2009 1,419,472 107.5p 9.2 – – –

7,648,378 89.2p 7.1 7,877,217 89.0p 7.1



18520.04 24/11/2010 Proof11




LTIP

Under the terms of the Smiths News LTIP, executive directors and key senior executives may be awarded each year conditional entitlements to

ordinary shares in the Company (in the form of nil cost options) or, in order to retain flexibility and at the Company’s discretion, a cash sum linked to

the value of a notional award of shares up to a value of 200% of base salary. The vesting of awards is subject to the satisfaction of a performance

condition, which is determined by the Remuneration Committee at the time of grant.

2010 2009

Number of Number of

awards awards

Outstanding at the beginning of the period 2,643,656 1,405,396

Granted 636,046 1,250,843

exercised – –

Forfeited (772,235) (12,583)

Outstanding at the end of the period 2,507,467 2,643,656

Exercisable at the end of the period – –

Outstanding awards granted under the LTIP as at 31 August 2010 are as follows:

2010 2009

Weighted Weighted

average average

remaining remaining

Number of contractual Number of contractual

Date of grant awards life (years) awards life (years)

16 November 2006 – – 772,235 7.2

15 November 2007 620,578 7.2 620,578 8.2

30 April 2009 1,250,843 8.7 1,250,843 9.7

26 November 2009 636,046 9.2 – –

2,507,467 8.5 2,643,656 8.6




18520.04 24/11/2010 Proof11




Deferred Bonus Plan

Under the terms of the Smiths News Deferred Bonus Plan, executive directors and key senior executives may be granted each year share awards

(in the form of nil cost options) dependent on the achievement of the Annual Bonus Plan performance targets and economic Profit Plan payouts.

The shares under award are exercisable after two years, subject to continued employment.

2010 2009

Number of Number of

awards awards

Outstanding at beginning of the period 690,180 –

Granted 428,694 775,873

exercised (690,180) (85,693)

Outstanding at the end of the period 428,694 690,180

Exercisable at the end of the period – –

The weighted average share price at date of exercise was 116p.

Outstanding awards granted under the Deferred Bonus Plan as at 31 August 2010 are as follows:

2010 2009

Weighted Weighted

average average

remaining remaining

Number of contractual Number of contractual

Date of grant awards life (years) awards life (years)

23 October 2008 – – 690,180 1.2

26 November 2009 428,694 2.2 – –

428,694 2.2 690,180 1.2

Economic Profit Plan

Under this plan, executive directors and key senior executives may receive each year a cash payment and/or be granted a share award under

the terms of the Deferred Bonus Plan, based on the value of an economic profit Pool. The value of the Pool is determined by the economic

profit (calculated as profit after tax less the cost of capital employed) created in each financial year, with 10% of this economic profit being

contributed to the Pool (if there is an economic loss in any year the value of the Pool will be diminished). One-third of the Pool is then distributed

to participants each year and two-thirds is carried forward to form part of the Pool for the following year. Awards in respect of this plan totalling

75,429 shares were granted under the terms of the Deferred Bonus Plan on 26 November 2009, and are included within the disclosures for

that plan.



18520.04 24/11/2010 Proof11




Sharesave scheme and executive share option schemes

The share options granted during each period have been valued using a Black–Scholes model.

The inputs to the Black–Scholes model are as follows:

2010 2009 2010 2009

Sharesave Executive

scheme share options

Share price at grant date – pence 119.5 85.0 110.0 63.3

exercise price – pence 98.4 79.2 110.0 63.3

expected volatility – per cent 38.0 38.0 40.0 40

expected life – years 3.0–5.0 3.0–5.0 3.0 3.0

Risk-free rate – per cent 2.7 2.5 2.5 2.5

Dividend yield – per cent 5.7 6.8 6.4 6.7

Weighted average fair value – pence 30.3 29.3 18.2 11.7

expected volatility was based on the median three-year share price volatility of 42 FTSe Support Services companies.

Awards

The fair values of the LTIP and Deferred Bonus Plan awards granted in 2010 were measured by reference to the share price at date of grant

discounted at the estimated dividend yield per cent.

The inputs into this calculation were as follows:

2010 2009

Share price – pence 107.5 100.2

Dividend yield – per cent 6.4 6.7

Weighted average fair value – pence 88.2 81.4




18520.04 24/11/2010 Proof11



27 Called up share capital

(a) Share Capital

£m 2010 2009

Authorised:

300.0m ordinary shares of 5p each 15.0 15.0

Issued and fully paid:

183.4m ordinary shares of 5p each (2009: 182.9m ordinary shares of 5p each) 9.2 9.1

(b) Movement in Share Capital

£m

Ordinary shares

of 5p each

At 1 September 2008 and 31 August 2009 9.1

Issue of share capital in relation to sharesave schemes 0.1

At 31 August 2010 9.2

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the

meetings of the Company. The Company has one class of ordinary shares, which carry no right to fixed income.

During the year 452,312 ordinary 5p shares were issued for a consideration of £455,027, resulting in a share premium of £432,411.

The concept of authorised share capital was repealed by the Companies Act 2006 with effect from 1 October 2009, and on 15 January 2010,

the Company passed a Special Resolution disapplying the existing provisions of its Memorandum of Association from applying to its Articles

of Association.

28 Related party transactions

Transactions between businesses within this Group, which are related parties, have been eliminated on consolidation and are not disclosed in

this note.

Trading transactions

£m 2010 2009 2010 2009

Sales to Amounts owed

related parties by related parties

Joint venture 0.4 0.1 – –

Sales to related parties are for management fees; payment is due on the last day of the month following the date of invoice.



18520.04 24/11/2010 Proof11



28 Related party transactions continued

Non-trading transactions

£m 2010 2009

Loan to related parties

Joint venture 0.3 0.3

The loan to related parties has no set date for repayment and accrues interest at LIBOR + 2%.

Remuneration of key management personnel

The remuneration of the directors and the executive management team, who are the key management personnel of the Group, is set out below in

aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’.

£m 2010 2009

Short-term employee benefits 2.3 2.7

Post-employment benefits 0.2 0.2

Share-based payments 0.8 0.5

3.3 3.4

Information concerning directors’ remuneration, interest in shares and share options are included in the Remuneration Report on pages 57 to 67.

Directors’ transactions

There are no other transactions with directors.

29 Principal companies

The principal companies of the Group are disclosed below, these are wholly owned subsidiaries and joint ventures:

Name Country of incorporation/registration Proportion of ownership interest

Smiths News Holdings Limited england and Wales 100%

Smiths News Trading Limited england and Wales 100%

Bertram Trading Limited england and Wales 100%

Rascal Solutions Limited england and Wales 50%




18520.04 24/11/2010 Proof11



Group income statement

£m 2010 2009 2008 2007 2006

12 months to

31 August 31 August 31 August 31 August 31 August


Revenue 1,829.6 1,326.0 1,240.6 1,232.4 1,210.6

Operating profit before non-recurring items 37.1 32.4 36.0 36.0 33.0

Non-recurring items (6.9) (10.8) 0.1 5.4 1.3

Operating profit 30.2 21.6 36.1 41.4 34.3

Net finance charges (2.1) (3.2) (3.5) (5.0) (2.3)

Profit before tax 28.1 18.4 32.6 36.4 32.0

Income tax expense (6.9) (0.7) (6.1) (7.7) (6.4)

Profit for the year from continuing operations 21.2 17.7 26.5 28.7 25.6

Discontinued operations – – – – 32.1

Profit for the period 21.2 17.7 26.5 28.7 57.7

Earnings per share

Basic – continuing operations 11.7p 9.9p 14.8p 16.1p 14.9p

Basic 11.7p 9.9p 14.8p 16.1p 33.5p

Diluted 11.5p 9.9p 14.7p 15.8p 33.3p

Underlying Earnings per share

Basic – continuing operations 14.6p 13.8p 14.5p 14.0p 14.1p

Basic 14.6p 13.8p 14.5p 14.0p 32.8p

Five year Financial Summary



18520.04 24/11/2010 Proof11



Group balance sheet

£m 2010 2009 2008 2007 2006

31 August 31 August 31 August 31 August 31 August

Non-current assets

Intangible assets 12.7 12.7 4.1 3.4 2.6

Property, plant and equipment 21.0 21.1 15.5 18.2 19.2

Deferred tax assets 1.6 3.3 11.6 6.0 15.6

Other non-current assets 3.7 3.5 3.5 1.1 0.3

Total non-current assets 39.0 40.6 34.7 28.7 37.7

Current assets 142.2 150.2 76.1 66.4 93.0

Total assets 181.2 190.8 110.8 95.1 130.7

Current liabilities (237.6) (213.4) (126.9) (123.3) (134.4)

Non-current liabilities

Bank loans and other borrowings – (34.3) (39.7) (44.6) (49.6)

Retirement benefit obligation – – – – (49.1)

Deferred tax liabilities (1.9) (2.0) (10.1) (1.6) (1.7)

Other non-current liabilities (4.1) (9.5) (2.4) (3.0) (3.2)

Total liabilities (243.6) (259.2) (179.1) (172.5) (238.0)

Total net liabilities (62.4) (68.4) (68.3) (77.4) (107.3)

Five year Financial Summary continued



18520.04 24/11/2010 Proof11



Independent Auditors’ Report to the Members of Smiths News PLC

We have audited the parent Company accounts of Smiths

News PLC for the year ended 31 August 2010 which

comprise the Parent Company Balance Sheet, the Parent

Company Reconciliation of Movements in Shareholders’

Funds and the related notes 1 to 7. The financial reporting

framework that has been applied in their preparation is

applicable law and United Kingdom Accounting Standards

(United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company’s members, as

a body, in accordance with Chapter 3 of Part 16 of the

Companies Act 2006. Our audit work has been

undertaken so that we might state to the Company’s

members those matters we are required to state to them

in an auditors’ report and for no other purpose. To the

fullest extent permitted by law, we do not accept or

assume responsibility to anyone other than the Company

and the Company’s members, as a body, for our audit

work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors’ Responsibilities

Statement, the directors are responsible for the

preparation of the parent Company accounts and for

being satisfied that they give a true and fair view. Our

responsibility is to audit the parent Company accounts in

accordance with applicable law and International

Standards on Auditing (UK and Ireland). Those standards

require us to comply with the Auditing Practices Board’s

(APB’s) ethical Standards for Auditors.

Scope of the audit of the accounts

An audit involves obtaining evidence about the amounts

and disclosures in the accounts sufficient to give

reasonable assurance that the accounts are free from

material misstatement, whether caused by fraud or error.

This includes an assessment of: whether the accounting

policies are appropriate to the parent Company’s

circumstances and have been consistently applied and

adequately disclosed; the reasonableness of significant

accounting estimates made by the directors; and the

overall presentation of the accounts.

Opinion on accounts

In our opinion the parent Company accounts:

• give a true and fair view of the state of the parent

Company’s affairs as at 31 August 2010 and of its

result for the year then ended;

• have been properly prepared in accordance with

United Kingdom Generally Accepted Accounting

Practice; and

• have been prepared in accordance with the

requirements of the Companies Act 2006.

Opinion on other matters prescribed by the

Companies Act 2006

In our opinion:

• the part of the Directors’ Remuneration Report to be

audited has been properly prepared in accordance

with the Companies Act 2006; and

• the information given in the Directors’ Report for the

financial year for which the accounts are prepared is

consistent with the parent Company accounts.

Matters on which we are required to report by

exception

We have nothing to report in respect of the following

matters where the Companies Act 2006 requires us to

report to you if, in our opinion:

• adequate accounting records have not been kept by the

parent Company, or returns adequate for our audit have

not been received from branches not visited by us; or

• the parent Company accounts and the part of the

Directors’ Remuneration Report to be audited are not in

agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified

by law are not made; or

• we have not received all the information and

explanations we require for our audit.

Other matter

We have reported separately on the Group accounts of

Smiths News PLC for the year ended 31 August 2010.

Mark Mullins (Senior Statutory Auditor)

for and on behalf of Deloitte LLP

Chartered Accountants and Statutory Auditors

Reading

United Kingdom

21 October 2010



18520.04 24/11/2010 Proof11



Company Balance SheetAs at 31 August 2010

£m Note 2010 2009

Fixed assets

Investments in subsidiary undertakings 3 520.0 520.0

520.0 520.0

Creditors: Amounts falling due after more than one year 4 (452.7) (440.6)

Total net assets 67.3 79.4

Capital and reserves

Called up share capital 5 9.2 9.1

Share premium account 6 0.4 –

Retained earnings 6 57.7 70.3

Total shareholders’ funds 67.3 79.4

Registered number – 05195191

These accounts were approved by the Board of Directors on 21 October 2010 and were signed on its behalf by:



21 October 2010 21 October 2010

Reconciliation of Movements in Shareholders’ FundsFor the year ended 31 August 2010

£m 2010 2009

Opening shareholders’ funds 79.4 160.6


Retained loss for the financial year – (69.2)

Shares issued in the year 0.5 –

Net reduction in shareholders’ funds (12.1) (81.2)

Closing shareholders’ funds 67.3 79.4



18520.04 24/11/2010 Proof11



Notes to the Company Balance Sheet

1 Accounting Policies

(a) Accounting convention

The accounts are prepared in compliance with the Companies Act 2006 and in accordance with applicable United Kingdom law and accounting

standards. The accounts are prepared under the historical cost convention. The accounting policies have been applied consistently in the current

and prior year.

In accordance with FRS 1 (Revised), a statement of cash flows has not been prepared.

(b) Investment in subsidiary undertakings

Investments in subsidiary undertakings are individually valued at historical cost less provision for impairment in value.

(c) Financial liabilities and equities

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity

instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

(d) Taxation

Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively

enacted at the balance sheet date.

2 Loss for the year

The Company has not presented its own profit and loss account as permitted by section 408 of the Companies Act 2006. The loss for the year

attributable to shareholders, which is stated on an historical cost basis, was £nil (2009: £69.2m). The £69.2m loss in the prior year comprised,

impairment of investments in subsidiary undertakings of £149.2m offset by intercompany dividends received of £80.0m. There were no other

recognised gains or losses. Dividend paid in the year is £12.6m (2009: £12.0m).

3 Investments in subsidiary undertakings

£m 2010 2009

Cost or valuation:


Impairment – (149.2)

At 31 August 520.0 520.0

During the prior year the Company reviewed the carrying value of its investments. The outcome resulted in a £149.2m impairment in the value of

the investments in Group companies.

4 Creditors: amounts falling due after more than one year

£m 2010 2009

Amounts owed to Group companies 452.7 440.6



18520.04 24/11/2010 Proof11



Notes to the Company Balance Sheet continued

5 Called up share capital

(a) Share capital

£m 2010 2009

Authorised:

300.0m Ordinary Shares of 5p each 15.0 15.0

£m 2010 2009

Issued and fully paid Ordinary Shares of 5p each


Shares issued in the year 0.1 –

At 31 August 9.2 9.1

(b) Movement in share capital

Number m

Ordinary shares

of 5p each

At 1 September 2009 182.9

Issued in the year 0.5

At 31 August 2010 183.4

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the

meetings of the Company. The Company has one class of ordinary shares, which carry no right to fixed income.

6 Reserves

£m 2010 2009

Share Profit

Share premium and loss

capital account account Total Total

Balance at 1 September 9.1 – 70.3 79.4 160.6

Dividend paid – – (12.6) (12.6) (12.0)

Loss retained for the year – – – – (69.2)

Shares issued in the year 0.1 0.4 – 0.5 –

Balance at 31 August 9.2 0.4 57.7 67.3 79.4

7 Related party transactions

The Company has taken advantage of the exemption granted by paragraph 3(c) of FRS 8, Related Party Disclosures, not to disclose transactions

with Smiths News Group companies and interests of the Group, which are related parties.



18520.04 24/11/2010 Proof11



Shareholder Information

Company Secretary and Registered Office

Mark Charlton, Smiths News PLC, Wakefield House,

Pipers Way, Swindon, Wiltshire, SN3 1RF.

Telephone 0845 1230000.

Smiths News PLC is registered in england and Wales

(Number 5195191).

Company website

Smiths News PLC Annual Reports and results

announcements are available via the Internet on our

website www.smithsnews.co.uk. The site provides a wide

range of information about the Company including AGM

information, share price data, financial calendar and

regulatory news releases.

Annual Report and Accounts

This Annual Report and Accounts is published on our

website at www.smithsnews.co.uk and has only been

sent to those shareholders who have asked for a copy.

Shareholders who have not requested a paper copy of the

Annual Report and Accounts have been notified of its

availability on the website.

A paper copy of the Annual Report and Accounts can be

obtained by writing to the Company Secretary, Smiths

News PLC, Wakefield House, Pipers Way, Swindon,

Wiltshire, SN3 1RF or you can email your request to

[email protected].

Annual General Meeting

The Annual General Meeting will be held at Wakefield

House, Pipers Way, Swindon, Wiltshire, SN3 1RF on

Friday 14 January 2011 at 11.30am. The Notice of Annual

General Meeting sets out the business to be transacted.

Shareholders who wish to attend the meeting should

detach the Attendance Card from the Proxy Form and

present it at the registration desk on arrival.

Proxy Form

A Proxy Form is enclosed for those shareholders unable

to attend the Annual General Meeting. To be effective, it

must be completed and lodged with the Company’s

Registrars, equiniti, by not later than 11.30am on

12 January 2011.

Electronic proxy voting

you may if you wish register the appointment of a proxy

for the meeting electronically, by logging onto the website

www.sharevote.co.uk. Full details of the procedure are

given on the website. you will need to have your Proxy

Form to hand when you log on as it contains information

which will be required. CReST members may appoint a

proxy electronically via equiniti (ID RA19). electronic proxy

voting instructions must be received by not later than

11.30am on 12 January 2011.

Registrars

If you have any enquiries about your shareholding in

Smiths News PLC or wish to advise of a change of

address, please contact equiniti, Aspect House, Spencer

Road, Lancing, West Sussex, BN99 6DA (telephone

0871 384 2771* or from outside the UK +44 (0) 121 415

7565). A textphone facility for shareholders with hearing

difficulties is available by telephoning 0871 384 2255*. In

addition, equiniti provides a range of shareholder

information online at www.shareview.co.uk (to register for

this service you will need your shareholder reference

number which can be found on the Proxy Form).

*Calls to this number cost 8p per minute from a BT landline, other providers’ costs may vary. Lines are open 8.30am to 5.30pm, Monday to Friday.

Financial calendar

Financial year end 31 August 2010

Results announced 21 October 2010

Annual Report published 6 December 2010

Final dividend ex dividend date 5 January 2011

Final dividend record date 7 January 2011

Interim Management Statement 14 January 2011

Annual General Meeting 14 January 2011

Final dividend payment date 4 February 2011

Half year end 28 February 2011

Interim results announced April 2011

Interim dividend ex dividend date May 2011

Interim dividend record date May 2011

Interim dividend payment date June 2011

Interim Management Statement July 2011

Financial year end 31 August 2011

Results announced October 2011

Share dealing services

The Company has arranged for Shareview Dealing, a

telephone and Internet share dealing service offered by

equiniti, to be made available to UK shareholders wishing

to buy or sell the Company’s shares. For telephone

dealing call 08456 037 037 between 8.30am and

4.30pm, Monday to Friday, and for Internet dealing log

on to www.shareview.co.uk/dealing. you will need

your shareholder reference number shown on your

share certificate.



18520.04 24/11/2010 Proof11



JPMorgan Cazenove provides a postal share dealing

service for private investors who wish to buy or sell the

Company’s shares. Further details are available from

JPMorgan Cazenove, telephone 020 7155 5155.

ShareGIFT

If you only have a small number of shares which are

uneconomic to sell, you may wish to consider donating

them to charity under ShareGIFT, a charity share donation

scheme administered by the Orr Mackintosh Foundation.

A ShareGIFT transfer form may be obtained from equiniti.

Further information about the scheme can be found on

the ShareGIFT website at www.sharegift.org.

Shareholder security

Shareholders are advised to be wary of any unsolicited

advice, offers to buy shares at a discount or offers of

free reports about the Company. Details of any

share dealing facilities that the Company endorses

will be included in the Company’s mailings or on our

website. More detailed information can be found at

www.moneymadeclear.fsa.gov.uk.

UK Capital Gains Tax

Demerger 31 August 2006

Following the demerger of new WH Smith PLC on

31 August 2006, in order to calculate any chargeable

gains or losses arising on the disposal of shares after

31 August 2006, the original tax base cost of your old

WH Smith PLC ordinary shares of 213/81p (adjusted if you

held your shares at 24 September 2004 and 22 May 1998

to take into account the capital reorganisations of

27 September 2004 and 26 May 1998 respectively (see

below)) will have to be apportioned between the

shareholdings of ordinary shares of 5p in the Company

and ordinary shares of 226/67p (or 20p if the disposal took

place before 22 February 2008) in new WH Smith PLC in

the ratio of 0.30415 and 0.69585 respectively.

Capital reorganisation 27 September 2004

If your shares result from a holding of old WH Smith PLC

shares acquired on or before 24 September 2004, in

order to calculate any chargeable gains or losses arising

on the disposal of shares after 24 September 2004, the

original tax base cost of your old WH Smith PLC ordinary

shares of 555/9p (adjusted if you held your shares as at

22 May 1998 to take into account the capital

reorganisation of 26 May 1998 (see below)) will have to be

apportioned between the shareholdings of ordinary shares

of 213/81p and ‘C’ shares resulting from the capital

reorganisation.

The cost of your shareholding of ordinary shares of 213/81p

is calculated by multiplying the original base cost of your

ordinary shares of 555/9p (adjusted where necessary to

take into account the capital reorganisation of 26 May

1998 referred to above) by 0.73979.

Capital reorganisation 26 May 1998


shares acquired on or before 22 May 1998, in order to

calculate any chargeable gains or losses arising on the

disposal of shares after 22 May 1998, the original tax

base cost of your old WH Smith PLC ordinary shares of

50p will have to be apportioned between the

shareholdings of ordinary shares of 555/9p and

redeemable ‘B’ shares resulting from the capital

reorganisation.

The cost of your shareholding of ordinary shares of 555/9p

is calculated by multiplying the original base cost of your

ordinary shares of 50p by 0.90714.

March 1982 values


shares acquired on or before 31 March 1982, in order to

calculate any chargeable gains or losses arising on the

disposal of shares, the tax base cost of your ordinary

shares is the 31 March 1982 base values per share as

follows:

Arising from an original

shareholding of old

WH Smith PLC

‘A’ ordinary ‘B’ ordinary

shares shares

Ordinary shares of 5p 26.93p 22.25p

WH Smith PLC ordinary

shares of 226/67p 61.62p 50.92p

If you have a complicated tax position, or are otherwise in

doubt about your tax circumstances, or if you are subject

to tax in a jurisdiction other than the United Kingdom, you

should consult your professional adviser.

Shareholder Information continued

18520.04 24/11/2010 Proof9 18520.04 24/11/2010 Proof9

Welcome to

Smiths News PLCPerformance – Service – Value

Smiths News PLC is the UK’s largest distributor of newspapers, magazines and books. Our scale and expertise, combined with intelligent logistics systems, ensure we provide the best and widest range of services for both publishers and retailers. Delivering performance, service and value is coreto everything we do.

Our BusinessHighlights 01Chairman’s Statement 02Our Business at a Glance 04Questions and Answers 06 Our PerformanceBusiness Review Operating Review 08 Financial Review 28

Our GovernanceCorporate Responsibility Report 38Board of Directors 46Executive Management Team 48Directors’ Report 49Corporate Governance 52Remuneration Report 57Directors’ Responsibilities Statement 68

Our AccountsIndependent Auditors’ Report 69Group Income Statement 70Group Statement of Comprehensive Income 71Group Balance Sheet 72Group Statement of Changes in Equity 73Group Cash Flow Statement 74Notes to the Accounts 75Five Year Financial Summary 113Independent Auditors’ Report 115Company Balance Sheet 116Reconciliation of Movements in Shareholders’ Funds 116Notes to the Company Balance Sheet 117Shareholder Information 119Glossary of Terms 121

Contents


Our PerformanceOur Business

Glossary of Terms

Smiths News PLC and its subsidiaries.

Smiths News PLC, registered in England and Wales with registered no. 5195191.

The businesses operated by a subsidiary of Smiths News PLC, Smiths News Trading Limited comprising Smiths News, InStore and NewsWorks.

The businesses operated by a subsidiary of Smiths News PLC, Bertram Trading Limited comprising Bertram Books, Bertram Library Services and Bertram Publisher Services.

The acquisition of the business and certain assets from the Bertram group of companies, formerly being known as (i) Bertram Group Limited(In Administration) (ii) Bertram Trading Limited (In Administration) and (iii) Bertram Books Limited (In Administration).

The news and magazine wholesaling business operated by (i) Surridge Dawson Limited (In Administration) and (ii) Solent SD Limited (InAdministration), together formerly trading as ‘Dawson News’.

Rascal Solutions Limited, a 50/50 joint venture between Smiths News and the Kemble family.

The Group

Smiths News PLC/ the Company

Smiths News

Bertrams

Acquisition of Bertrams

Dawson News

Rascal

In order to aid clarity the following terms are used throughout the Annual Report and Accounts 2010.

121

18520.04 24/11/2010 Proof9 18520.04 24/11/2010 Proof9

Smiths News PLCWakefield HousePipers WaySwindonWiltshire SN3 1RFUnited Kingdom

Telephone 0845 123 0000Facsimile 01793 563601


Annual Report and Accounts 2010

PerformanceServiceValue

Delivering

Annual R

epo

rt and A

ccounts 2010

annual report and accounts 2010 - connect group · annual report and accounts 2010 performance...

Documents