18 October 2016
Preliminary Results
Highlights Mark Cashmore Group Chief Executive
Connect Group PLC
Highlights
Solid Group performance in line with expectations
► Total revenue £1,907m +1.7% ► Adjusted PBT £60.7m +7.4% ► Adjusted EPS 19.8p +0.5% ► Free cash flow £49.6m +24.6% ► DPS 9.5p +3.3%
Good progress on strategic and operational priorities
► Continued strong performance of Tuffnells
► Growing scale and capability in Pass My Parcel
► Delivered £7m of business efficiencies across the Group
► Investing in core capability and capacity
► Closer collaboration between Smiths News and Tuffnells
3
Group Financial Update David Bauernfeind Chief Financial Officer
Connect Group PLC
Group performance
5
£m Aug 2016 Aug 2015 Change %
News & Media 42.4 43.7 (3.0)% Parcel Freight 15.0 9.7* - Education & Care 7.8 7.8 (0.1)% Books 2.5 2.6 (3.8)% Adjusted operating profit 67.7 63.8 6.2% Net finance charges (7.0) (7.3) 3.7% Adjusted PBT 60.7 56.5 7.4% Tax (12.4) (11.1) (12.6%) Adjusted PAT 48.3 45.4 6.2%
Weighted average number of shares 243.4m 230.9m 5.4% Adjusted earnings per share 19.8p 19.7p 0.5%
*Parcel Freight FY15 represents 36 weeks trading post acquisition in December 2014
Connect Group PLC
£m Aug 2016 Aug 2015
Network and reorganisation costs (4.4) (4.5)
Acquisition and disposal costs (3.8) (15.1)
Pension credit 1.1 -
Amortisation of acquired intangibles (10.2) (7.9)
Legal provision – potential health and safety offences
(1.5) -
Total before taxation (18.8) (27.5)
Taxation 3.9 3.5
Total after taxation (14.9) (24.0)
Exceptional items
6
• Total cash cost of non recurring and other items to August 2016 £10.8m (August 2015 £8.2m)
Connect Group PLC
Free cash flow
7
£m Aug 2016 Aug 2015
Operating profit 67.7 63.8
Depreciation and amortisation 13.4 11.6
EBITDA 81.1 75.4
Working capital - (8.0)
Capital expenditure (13.9) (9.2)
Net interest and fees (4.9) (5.8)
Taxation (8.5) (8.7)
Pension funding (5.3) (5.4)
Other 1.1 1.5
Free cash flow 49.6 39.8
Free cash flow excludes the impact of exceptional items
Connect Group PLC
Capital expenditure – cash outlay
8
£m Aug 2016 Aug 2015
Capital expenditure
Maintenance investment (9.6) (6.2)
Growth investment (4.3) (3.0)
Total capital expenditure (13.9) (9.2)
• 2016 higher maintenance investment due to need to improve Parcel Freight infrastructure
• £25m to support planned growth investment in 2017
• Planned reduction in capital expenditure from 2018
Connect Group PLC
Net debt
9
£m Aug 2016 August 2015
Opening net debt (153.4) (93.0)
Free cash flow 49.6 39.8
Dividend (22.7) (21.4)
Exceptional items (10.8) (8.2)
Net acquisition financing - (67.0)
Finance lease payments & other (4.4) (3.6)
Closing net debt (141.7) (153.4)
Net debt : EBITDA 1.7x 1.9x
• Committed Bank facilities of £250m to November 2018
Connect Group PLC
Future assumptions
10
Pass My Parcel £2.5m net cost in 2017
Employee related costs £2m gross impact in 2017, rising to £5m over the medium term before mitigating
actions
Capital investment £25m to support growth initiatives in 2017
Reducing in 2018 and beyond
Cash and Net Debt Circa £40m FCF with flat net debt in 2017
Reduction in net debt from 2018
Business update
Connect Group PLC 12
2016 YE Total Revenue £1,471.4m -2.2%
Total Adj. Op Profit £42.4m -3.0%
News Revenue £1,443.8m -2.4%
News Profit £40.0m -3.4%
Media Revenue £27.6m +8.9%
Media Profit £2.4m +3.5%
LFL revenue Newspapers -3.2% Magazines -4.3% Media +1.6%
► Smiths News
► Sales in line with medium term forecast
► Contract wins secure revenues and territories
► £5m efficiency target achieved in full
► £10m cost savings over the next two years
► Price inflation supporting resilience in newspapers
► Continued improvement in magazine sales trend
► Jack’s Beans generating revenue of £1.3m
► DMD - Media
► Revenue and profit in line with expectations
► New contract wins in both print and digital
Connect News & Media
Connect Group PLC
Market continues to grow strongly
► Click & Collect market forecast to grow at 16%p.a.
► Speed and convenience are key requirements
Operational capability proven
► Excellent service performance across the network
► Returns solution with ASOS and Amazon
► Network expansion through Tuffnells partnership
Planning for growth
► Further investment planned
► Targeting volume of 3 million parcels in 2017
13
Progress 2016 ▶ 500k parcels delivered
in FY2016
▶ 92% customers intend to use PMP again
▶ 60% + Net Promotor Score
▶ National parcelshop network
▶ Pipeline of new clients and services
Pass My Parcel
Connect Group PLC 14
2016 YE Total Revenue £174.4m 7.3%* LFL Revenue 7.3% Adj. Op Profit £15.0m 4.9% Key Statistics
▶ National network of 37 depots
▶ Diversified base of 4,700 customers
▶ Mixed fleet of over 1,200 vehicles
▶ Strong service performance 97% on time
▶ Delivering over 13m consignments p.a.
* Compared to the same 52 week period in 2015
► Continued revenue and profit growth
► Investment to modernise the network and fleet
► Increasing our share in a growing market
► Further £15m investment planned in FY17
► Service driving customer loyalty and new business
► Over 11% growth in customers
► Synergy and integration plan on track
► Closer cooperation with Smiths News
► Smiths News providing last mile deliveries
► Tuffnells delivering for Pass My Parcel
Connect Parcel Freight
Connect Group PLC
2016 YE Total Revenue £64.8m -1.6% LFL Revenue -2.4% Adj. Op Profit £7.8m -0.1% Segmented LFLs Early Years +6.4% Education -2.8% Care -7.8% Core -2.2% Other -3.5%
15
Connect Education & Care
► Good performance in a difficult market
► Increased teacher costs affecting school budgets
► Early Years – 12% CAGR since acquisition
► Ecommerce strategy on track
► Over 35% of total orders placed online
► Targeting 50% in FY17
► Good peak trading underpinned by strong operational performance
► Market forecast to return to growth in medium term
Connect Group PLC 16 16
Connect Books
2016 YE Total Revenue £195.9mm +3.1% LFL Revenue +7.4% Adj. Op Profit £2.5m -3.8% LFLs Wholesale +8.9% Wordery +26.7% Libraries -10.5% International -1.5%
Highlights
► Challenging year due to tough library markets and cost headwinds
► Strong growth in UK wholesale sales
► Wordery continues impressive growth
► UK library markets remain very difficult
► Impact of National Living Wage
► Market conditions limiting potential for growth
Core strength in specialist distribution
Leveraging the portfolio to achieve sustainable profit growth and strong cash generation
Managing the balance of dividend, deleverage and investment for further growth, including
potential future acquisitions
Profit underpinned by relatively predictable revenues and continued delivery of cost efficiencies
Drive organic revenue primarily through Pass My Parcel
Invest to expand and modernise the network for further growth
Closer collaboration with Smiths News
Continue to deliver ecommerce growth and maintain cash generation
Deliver further Wordery growth, while maintaining tight cost control and cash generation
Group Strategy
Summary
► A solid financial performance
► Challenging conditions in some of our markets
► Good progress on key operational priorities
► Leveraging the Group to drive sustainable profit opportunities
Outlook
► Expect robust financial performance in 2017 despite challenging markets and
increased investment
► Confident in longer term prospects
Summary & outlook
Appendices
Connect Group PLC 20 Preliminary Results October 2016
Reported Sales Performance FY2016 FY2015 FY2014
FY July IMS H1 Jan
IMS FY July IMS H1 Jan IMS FY July
IMS H1 Jan IMS
News Distribution News (3.2%) (3.4%) (4.0%) (4.2%) (3.4%) (3.4%) (3.4%) (2.5%) (0.7%) (0.4%) (0.5%) - Magazines (4.3%) (4.4%) (3.4%) (3.2%) (4.6%) (4.7%) (5.1%) (5.2%) (6.4%) (6.8%) (8.1%) - LFL (3.4%) (3.8%) (2.3%) (3.7%) (3.4%) (3.5%) (3.3%) (2.8%) (2.1%) (2.1%) (2.8%) (2.8%) Total (2.2%) (2.3%) (2.2%) (2.7%) (3.0%) (3.4%) (2.0%) (1.8%) (0.3%) (1.2%) (1.6%) (2.0%) Media LFL 1.6% 3.5% 0.5% 1.8% (3.1%) (2.3%) (1.9%) 0.4% (0.6%) (0.3%) 1.8% 0.2% Total 8.9% 5.5% 4.0% 2.5% 1.0% 1.9% 3.5% 5.2% (3.3%) (3.2%) 3.9% 2.0%
Books LFL 7.4% 4.8% 4.6% 1.2% 3.1% 2.3% 1.1% 1.8% (2.5%) (3.2%) (0.3%) (0.4%) Total 3.1% 1.1% 0.1% (0.8%) (1.8%) (1.1%) (3.0%) (1.2%) 3.1% 2.6% 8.4% 9.7%
Education & Care LFL (2.4%) (3.3%) (1.3%) 0.1% 1.7% 1.8% 0.5% (1.2%) 3.1% 2.2% 3.2% 4.2% Total 1.6% (3.3%) 0.2% 0.1% 1.7% 1.9% 0.9% (2.0%) 1.7% 2.2% 2.5% 4.2%
Parcel Freight
LFL 7.3% 10.2% 12.0% 12.1% 19.6% 20.6% 16.9% - Total 7.3% 10.2% 12.0% 12,1% 19.6% 20.6% 16.9% -
Connect Group PLC 21
Financial KPIs
£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012
Revenue 1,906.5 1,875.1 1,808.5 1,806.9 1,803.9
Adjusted profit before tax 60.7 56.5 50.0 49.9 47.5
Adjusted profit after tax 48.3 45.4 40.7 38.4 36.1
Adjusted EPS 19.8 19.7p 19.6p 19.0p 17.9p
Free cash flow 49.6 39.8 37.2 32.6 27.2
DPS 9.5p 9.2p 8.8p 8.4p 7.8p
Net Debt 141.7m 153.4 93.0 98.5 100.5
Preliminary Results October 2016
Connect Group PLC 22
Income Statement
£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012
Revenue 1,906.5 1,875.1 1,808.5 1,806.9 1,803.9
Adjusted Operating profit 67.7 63.8 55.5 56.4 51.2
Non recurring items (18.8) (27.5) (6.9) (10.8) (10.9)
Statutory Operating profit 48.9 36.3 48.6 45.6 40.3
Net finance charges (7.0) (7.3) (5.5) (6.7) (3.7)
Statutory Profit before tax 41.9 29.0 43.1 38.9 36.6
Income tax expense (8.5) (7.6) (8.3) (10.2) (9.1)
Statutory Profit after tax 33.4 21.4 34.8 28.7 27.5
Earnings per share Statutory - basic - diluted Adjusted - basic -diluted
13.7p 13.5p
19.8p 19.5p
9.3p 9.0p
19.7p 19.0p
16.8p 16.2p
19.6p 19.0p
14.2p 13.3p
19.0p 17.8p
13.7p 13.3p
17.9p 17.4p
Preliminary Results October 2016
Connect Group PLC 23
Balance Sheet
£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012*
Intangible assets 164.8 174.8 65.7 68.2 67.1
Property, plant & equipment 50.3 44.6 29.0 26.6 24.5
Other non current assets 12.1 12.4 12.4 12.8 14.5
Total non current assets 227.2 231.8 107.1 107.6 106.1
Cash 9.1 10.9 20.4 10.1 5.1
Other current assets 181.6 189.3 173.4 171.3 164.9
Total assets 417.9 432.0 300.9 289.0 276.1
Other current liabilities (217.2) (222.2) (202.7) (206.1) (200.3)
Borrowings (140.1) (154.9) (109.3) (106.8) (103.1)
Retirement benefit (21.5) (18.5) (21.3) (23.3) (36.0)
Other non current liabilities (26.1) (27.2) (9.7) (9.7) (14.3)
Total liabilities (404.9) (422.8) (343.0) (345.9) (353.7)
Total net assets 13.0 9.2 (42.1) (56.9) (77.6)
Preliminary Results October 2016
Connect Group PLC 24
Cash flow
£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012
Operating profit 67.7 63.8 55.5 56.4 51.2
Depreciation and amortisation 13.4 11.6 8.0 7.6 6.9
EBITDA 81.1 75.4 63.5 64.1 58.1
Working capital - (8.0) 1.2 (5.0) (9.1)
Capital expenditure (13.9) (9.2) (10.3) (7.9) (5.1)
Net interest (4.9) (5.8) (6.1) (4.2) (3.3)
Taxation (8.5) (8.7) (9.8) (10.5) (8.0)
Pension funding (5.3) (5.4) (4.6) (6.5) (6.8)
Other 1.1 1.5 3.3 2.6 1.4
Free cash flow 49.6 39.8 37.2 32.6 27.2
Preliminary Results October 2016
Connect Group PLC 25
Net debt
£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012
Opening net debt (153.4) (93.0) (98.5) (100.5) (63.3)
Free cash flow 49.6 39.8 37.2 32.6 27.2
Dividend (22.7) (21.4) (17.7) (16.0) (14.9)
Non recurring items (10.8) (8.2) (4.4) (5.9) (10.3)
Net acquisition financing - (67.0) (0.3) (5.1) (38.2)
Other (4.4) (3.6) (9.3) (3.6) (1.1)
Closing net debt (141.7) (153.4) (93.0) (98.5) (100.5)
Decrease/(Increase) in debt 11.7 (60.4) 5.5 2.0 (37.2)
Net debt : EBITDA 1.7x 1.9x 1.4x 1.5x 1.6x
Preliminary Results October 2016
Connect Group PLC 26
Exceptional items
£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012
Integration costs - - - (1.1) (2.7)
Network and re-organisation costs (4.4) (4.5) (3.0) (3.3) (2.0)
Acquisition and disposal costs (3.8) (15.1) (0.9) (3.7) (4.6)
Pension credit 1.1 - - - -
Property provisions - (0.1) 0.5 - -
Amortisation of acquired intangibles (10.2) (7.9) (3.0) (2.8) (2.1)
Impairment - - (0.5)
Legal provision – potential health and safety offences (1.5) - - - -
Total before taxation (18.8) (27.5) (6.9) (11.0) (10.9)
Taxation 3.9 3.5 1.0 1.3 2.3
Total after taxation (14.9) (24.0) (5.9) (9.7) (8.6)
Non-recurring cash (per cash flow) (10.8) (8.2) (4.4) (5.9) (10.3)
Preliminary Results October 2016
Connect Group PLC 27
Taxation
£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012
Current tax 13.1 12.4 12.3 15.1 13.6
Adjustment in respect of prior year UK corporation tax
(0.8) (1.1) (2.4) (2.6) (1.6)
Total current tax charge 12.3 11.3 9.9 12.5 12.0
Deferred tax – current year (0.3) (0.2) (0.4) (0.7) (0.6)
Deferred tax – prior year (0.1) - (0.2) (0.3) -
Deferred tax – impact of rate change 0.5 - - - -
Total tax on profit 12.4 11.1 9.3 11.5 11.4
Effective tax rate 20.4% 19.7% 18.7% 23.0% 24%
Non recurring items (3.9) (3.5) (1.0) (1.3) (2.3)
Tax on profit after non recurring
8.5 7.6 8.3 10.2 9.1
Effective statutory tax rate 20.3% 26.3% 19.4% 26.2% 25% Preliminary Results October 2016
Connect Group PLC 28
Lease commitments
£m FY 2016 FY 2015 FY 2014 FY 2013 FY 2012
Land and buildings
within one year in second to fifth year beyond fifth year
10.7 29.8 20.7
10.2 30.3 23.3
7.7 25.6 24.3
8.1 26.2 26.7
10.0 28.9 29.6
Total 61.2 63.8 57.6 61.0 68.5
Equipment and vehicles
within one year in second to fifth year beyond fifth year
14.1 23.6
-
12.4 19.9
-
2.1 1.5 -
1.6 1.6 -
1.3 1.8 -
Total 37.7 32.3 3.6 3.2 3.1
Total
within one year in second to fifth year beyond fifth year
24.8 53.4 20.7
22.6 50.2 23.3
9.8 27.1 24.3
9.7 27.8 26.7
11.3 30.7 29.6
Total 98.9 96.1 61.2 64.2 71.6
Preliminary Results October 2016
Connect Group PLC 29
Defined benefit schemes
FY 2016
FY 2015
FY 2014
FY 2013
FY 2012
Scheme assets 671.9 563.3 522.6 469.6 433.1
Scheme liabilities (531.5) (432.0) (450.6) (419.2) (395.3)
Net surplus / (loss) 140.4 131.3 72.0 50.4 37.8
Amounts not recognised due to asset limit (151.3) (135.6) (75.7) (53.2) (40.3)
Additional liability recognised due to minimum funding requirements (10.3) (13.8) (17.3) (20.3) (33.5)
Total Liability on balance sheet (21.5) (18.5) (21.3) (23.3) (36.0)
Total Asset on balance sheet 0.3 0.4 0.3 0.2 -
The Group operates four defined benefit schemes of which WHS Smith Pension Trust (the ‘Pension Trust’) represents over 92% of the total obligation at 31 August 2016.
The Pension Trust
Actuarial deficit £23m at 19 June 2013, Contributions agreed at £4.1m per annum
Managed through Liability Driven Investment Scheme, Closed to further accruals
Preliminary Results October 2016