Final Results

GUS PLC 28 May 2003 28 May 2003 GUS plc Preliminary Results For Year Ended 31 March 2003 Highlights - 16% increase in profit before amortisation of goodwill, exceptional items and taxation to Â£642m (2002: Â£552m) - Profit before tax increased to Â£409m (2002: Â£380m) - 15% increase in basic earnings per share before amortisation of goodwill and exceptional items to 47.8p (2002: 41.7p) - Basic earnings per share 25.1p (2002: 25.7p) - 7% increase in full year dividend to 23.3p (2002: 21.7p) - Record profits again at Experian, Argos and Burberry - Experian: sales up 12% and profit up 20% at constant exchange rates; global momentum building with sales in North America above $1bn for the first time - Argos Retail Group: sales up 11%; profit up 12%; Argos sales exceed Â£3bn for the first time; Homebase integration on track - Burberry: sales up 21% and profit up 34% at constant exchange rates; exceeded expectations set at the time of IPO - Portfolio reshaping continues: Burberry partial IPO in July 2002; acquisition of Homebase in December 2002; disposal of Home shopping and Reality in May 2003; planned partial IPO of South Africa in calendar 2004 Sir Victor Blank, Chairman of GUS, commented: 'Our priority since 2000 has been to focus GUS on fewer businesses which operate in growth markets. The partial IPO of Burberry and the disposal of Home shopping and Reality are important steps in this process. We have also been re-allocating capital to growth businesses and today's results demonstrate the real momentum within GUS.' John Peace, Chief Executive of GUS, commented: 'GUS has completed a third consecutive year of significant progress, with sales up 11% and profit up 16%. Once again, Experian, Argos and Burberry each reported record profits and the integration of Homebase is on track. We continue to look forward to the coming year with confidence, while remaining mindful of the potential impact of political and economic uncertainty.' Enquiries GUS John Peace Chief Executive 020 7495 0070 David Tyler Finance Director Fay Dodds Director of Investor Relations Finsbury Rupert Younger 020 7251 3801 Rollo Head There will be a presentation today to analysts and institutions at 9.30am at the Merrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ and a press conference at 11.30am at the same location. GUS and Burberry announcements are available on the GUS website: www.gusplc.com. The GUS slide pack and presentation to analysts and institutions will also be available there later in the day. There will also be a conference call to discuss the results at 3.00pm today (UK time). A replay will be available later on the GUS website. Photography is available from: www.newscast.co.uk. GUS will hold its AGM and issue its First Quarter Trading Update on 23 July 2003. Certain statements made in this announcement are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future results in forward looking statements. CHIEF EXECUTIVE'S REVIEW GUS has completed a third consecutive successful year. In each of these years, the Group has generated a strong increase in sales and profit, while restructuring its portfolio of businesses and positioning its chosen activities as market-leaders in growth industries. Continued sales and profit growth Group sales increased by 11% in the twelve months to 31 March 2003. Profit before amortisation of goodwill, exceptional items and taxation grew by 16%. This is the third year of strong profit growth. All three main businesses performed well with Experian, Argos and Burberry all once again reporting record profits. Further portfolio restructuring GUS has continued to restructure its portfolio of businesses. The successful partial flotation of Burberry in July 2002 raised Â£239m for GUS as well as establishing an independent market value for Burberry. Further cash was generated by the winding down of the Finance Division (Â£191m) and from the property joint venture with British Land (Â£40m). We announced yesterday the disposal of our Home shopping businesses in the UK, Ireland and Sweden, and of Reality, our logistics and customer care business in the UK, to March U.K. Limited for about Â£590m. We are also today announcing our intention, subject to market conditions, to arrange a partial IPO for our South African Retailing business. This is expected to occur during calendar year 2004 on the Johannesburg Securities Exchange. A partial IPO will enable GUS to realise some value, while enhancing the development opportunities for our South African business. Complementary acquisitions While releasing capital by restructuring our portfolio, GUS has been pursuing acquisitions that complement and enhance the growth prospects of its main businesses. All of these acquisitions are expected to generate a double-digit post-tax return on capital for shareholders. Homebase, the UK DIY and home furnishings retailer, was acquired for about Â£900m in December 2002. It provides Argos Retail Group with a leading brand in growing markets, as well as the potential for significant operational synergies. The acquisition of ConsumerInfo.com in the US, which supplies on-line credit information to consumers, established Experian as the leader in this fast growing direct-to-consumer market. Internationally, Experian strengthened its position with the acquisition of Nordic Info Group, the leading Scandinavian credit information business. Experian has also acquired its outstanding stakes in Scorex, in order to create a global decision solutions company. GROUP RESULTS In the year ended 31 March 2003, Group sales grew by 11% to Â£7.1bn. Profit before amortisation of goodwill, exceptional items and taxation increased to Â£642.4m from Â£552.1m, a rise of 16% on 2002. Underlying profit growth was over 20%, adjusting for unfavourable currency movements (Â£19m), the excess of the funding costs of Homebase over its operating profit in the short period since acquisition (Â£13m) and lower profits from the Finance division (Â£8m). Earnings per share before amortisation of goodwill and exceptional items increased by 15% to 47.8p (2002: 41.7p). Minority interests were Â£17m reflecting the partial IPO of Burberry during the year. The Group's effective tax rate (based on profit before amortisation of goodwill and before profits/losses on sale of businesses) was 22.7%, compared to 23.8% last year. This is the fifth consecutive year that the effective tax rate has been below 25%. The Group generated Â£618m of free cash flow in the year before acquisitions, disposals and dividends (2002: Â£478m). Year-end borrowings increased to Â£2.1bn, largely resulting from the acquisition of Homebase. An analysis of cash flow by division is given in Appendix 1. The Board is proposing a final dividend of 16.4p (2002: 15.2p), giving 23.3p for the year (21.7p last year). Based on EPS of 47.8p, dividend cover is 2.05 times, giving cover of around two times pre-exceptional earnings for the first time since 1997. 12 months to 31 March Sales Profit before taxation 2003 2002 2003 2002 Â£m Â£m Â£m Â£m Experian 1 1,201 1,115 256.4 224.2 Argos Retail Group 2 5,234 4,703 285.1 255.2 Burberry 594 499 116.7 90.3 Other 117 140 42.3 48.9 Total 7,146 6,457 700.5 618.6 Net interest (58.1) (66.5) Profit before amortisation of goodwill, exceptional items and taxation 642.4 552.1 Amortisation of goodwill (142.9) (99.4) Exceptional items (90.1) (72.6) Profit before taxation 409.4 380.1 EPS before amortisation of goodwill and exceptional items 47.8p 41.7p Reported EPS 25.1p 25.7p The profit figures shown against each business above are operating profit, which is defined as profit before interest, taxation, exceptional items and goodwill amortisation. The same definition of operating profit is used in each table in this preliminary announcement Following the disposal of the Home shopping and Reality businesses, the financial statements provide the split of sales and profits between continuing and discontinued businesses 1 Experian 2002 figures restated to include sales from third party call centre and related activities transferred from Reality and a loss from CreditExpert previously reported in gusco.com 2 ARG 2002 figures restated to include external logistics sales and profit previously reported by Reality EXPERIAN 12 months to 31 March Sales Operating profit 2003 2002 1 2003 2002 1 Â£m Â£m Â£m Â£m Experian North America 718 688 171.5 154.6 Experian International 483 427 84.9 69.6 Total 1,201 1,115 256.4 224.2 Operating margin 21.4% 20.1% 1 2002 restated to reflect transfer of activities from gusco.com to Experian North America and transfer of third party call centre and related activities from Reality to Experian International For global Experian, sales for the year increased by 12% and operating profit by 20% at constant exchange rates. Both Experian North America and Experian International delivered double-digit increases in sales and profit, driven by a combination of organic growth and targeted acquisitions. Of the Â£256m of operating profit generated by Experian, 105% was converted into operating cash flow. This was a significant improvement from last year, driven by tighter control of working capital and lower capital expenditure. In March 2003, Craig Smith, who joined as CEO of Experian North America in June 2000, was appointed Chairman of Experian worldwide. Don Robert, who was Chief Operating Officer of Experian North America, succeeded Craig Smith as CEO of that business. John Saunders, CEO of Experian International, has taken on additional worldwide responsibility for Global Decision Solutions, Experian's first global business unit. It was formed as a result of the acquisition of the outstanding stakes in its joint ventures with Scorex, the credit decision solutions company, for Â£70m in March 2003. This acquisition will give Experian additional scale and accelerated growth in the credit decision solutions market. It will benefit from the expertise of a combined management team and an integrated product range. Segmental information on Experian for this year and comparatives for last year are given in Appendix 2. Additional updated information on Experian and its markets is available on the GUS website, www.gusplc.com. Experian North America 12 months to 31 March 2003 2002 Change at Â£m Â£m constant FX rates Sales 718 688 13% Operating profit 1 171.5 154.6 20% Of which: - Direct business 2 139.4 123.9 22% - FARES 32.1 30.7 13% Operating margin 23.9% 22.5% 1 2002 profit restated to include Â£4.9m loss from CreditExpert previously reported in gusco.com 2 After restructuring costs of Â£4.2m in 2003 (2002: Â£7.7m) Experian North America delivered a strong performance in the year under review, with sales exceeding $1billion for the first time. Operating profit grew by 20% in dollars, leading to an operating margin expansion of 1.4 percentage points. The management team was further strengthened, productivity again improved and major contracts were won across the business. Financial review In dollars, Experian North America increased sales by 13%, with growth accelerating in the second half. ConsumerInfo.com, which was acquired in April 2002, contributed 11% of this growth. Had its sales been included in the prior year, Experian's dollar sales would have increased by 6% on a proforma basis. Excluding ConsumerInfo.com, sales in Credit Information and Solutions rose by 8% in the year. This was helped by strong demand from clients in interest rate sensitive sectors, especially the mortgage refinancing market. Experian's own initiatives were also successful, especially in scoring and fraud solutions and an improved business information offering. Direct-to-consumer sales in the year totalled $123m, 11% of Experian North America's revenue, up from less than 1% last year. As well as Experian's own developed products, it acquired ConsumerInfo.com, the market leader in supplying on-line credit and related information to consumers in the United States. Experian has seen significant growth in this market during the year (up 87% on a proforma basis), with over 1.4m paid members at March 2003 - up from 0.8m a year earlier. Against a background of difficult trading conditions, Marketing Information and Solutions sales declined by 5% in the year. However, sales were on an improving trend throughout the year (-13% in H1; +4% in H2), especially in the multi-channel retail and media sectors. In dollar terms, operating profit grew by 20% and the operating margin advanced to 23.9% (19.4% excluding FARES). The main drivers of this were: - the benefits from strong Credit growth in the year, offset in part by a lower contribution from Marketing; - a significant increase in the contribution from direct-to-consumer activities; - continued tight control of costs, despite above inflation increases in areas such as legal, insurance and employee-related costs; - significant productivity improvements, with sales per employee increasing by 18%; and - as previously announced, a change in the data amortisation period for its consumer credit data from five to seven years, which benefited profits by $9m in the year. With profits up $5.8m to $49.7m, FARES, the real estate information joint venture, had another excellent year, helped by continuing low interest rates. Operational review Experian North America remains focused on growth: - it is building on its core businesses. Experian North America continues to win contracts and take share in many activities. By controlling costs, it is able to re-invest in new product areas while protecting margins. Experian North America is also driving growth by buying in its affiliated credit bureaux, which act principally as resellers of its data in certain regions. At 31 March 2003, 11 affiliates out of a total of 38 bureaux had been acquired at a cost of $48m. Their contribution to sales in the year to March 2003 is estimated at significantly less than 1% to sales. The complete acquisition programme is expected to cost up to $300m and to generate double-digit post-tax returns on capital; - it is successfully selling new solutions. Experian's strategy of cross-selling products to clients and 'bundling' products together for individual clients, both of which are done successfully in Experian International, has started to produce results in North America. Notable wins include Dell in credit and fraud solutions. In Marketing, major contracts in many sectors have recently been won, as Experian can bundle different products across many channels (mail, e-mail, in-store, etc). Previously, clients were buying these services from up to five separate suppliers; and - it is growing by targeted acquisitions. The acquisition of ConsumerInfo.com gave Experian leadership in the on-line direct-to-consumer market. This is growing fast, driven by consumers' desire to manage their credit more actively and by their increasing awareness of fraud and identity theft. Experian has also been increasing its market share by introducing innovative products and through strategic alliances. Experian International 12 months to 31 March 2003 2002 Change at Â£m Â£m constant FX rates Sales UK 1 298 264 13% Rest of World 185 163 9% Total 483 427 11% Operating profit 84.9 69.6 21% Operating margin 17.6% 16.3% 1 2002 sales restated to include Â£23m of third party call centre and related activities transferred from Reality Experian International, which accounts for 40% of total Experian sales, had another excellent year, continuing its long record of double-digit sales and profit growth. At constant exchange rates, sales increased by 11%, with acquisitions, net of disposals, contributing 1% of this growth. With operating profit at constant exchange rates up by 21%, the operating margin advanced by 1.3 percentage points. Financial review At constant exchange rates, sales in Credit Information and Solutions together grew by 15%, with strong performances from business information and account processing in particular. The latter was strong in the second half of the year as development work was undertaken on three major new projects. Since December 2001, Experian has been the prime systems and service partner for a multi-million pound business re-engineering, systems delivery and outsourcing project for the financial services arm of Marks & Spencer. The project to support the pilot of the new Marks & Spencer joint credit and loyalty card involved delivery of account processing and related services all supported by operational and business consultancy from Experian. The project successfully delivered as planned. Experian are continuing to work closely with Marks & Spencer. Despite difficult conditions, sales in Marketing Information and Solutions together increased by 14%, again accelerating in the second half. This was driven by strong growth in the automotive and insurance sectors. Outsourcing accounts for about 30% of Experian International's sales and showed 4% growth in the year. Operating profit grew by 21% at constant exchange rates. This was driven by strong sales growth and by tight cost control across the business, with further productivity increases demonstrated by an 8% improvement in sales per employee. Operational review Experian International continues to focus on sustaining sales and profit growth: - it is building on its core businesses. Experian International continues to win major contracts across its business. In the UK, it is the clear market leader in consumer credit information and continues to grow share in the financial sector and in new industries, such as telecommunications. It is also building share elsewhere in Europe, especially in Spain and Italy; - it is successfully selling new solutions. Product innovation is key to Experian in driving growth and winning share. For example, during the year, Experian International launched a new service that automates decisions for banks and financial institutions for lending to businesses. This is generating early success with both existing and new clients. Another example is the completion of the UK's Motor Insurance Database, which now holds details of 28 million vehicle insurance policies. 25,000 enquiries per day are now being received from the police, showing how Experian's skills can be successfully applied to a new sector; and - it is growing by targeted acquisitions. In addition to the small, targeted acquisitions made in the first half, Experian International acquired Nordic Info Group A/S in January 2003 for approximately Â£90m. This market-leading company provides consumer and business information in Denmark and Norway and has annual sales of about Â£30m. This acquisition brings to sixteen the number of consumer and business bureaux operated by Experian worldwide. It offers an opportunity to sell Experian's value-added products, such as application processing, fraud prevention and customer management solutions, alongside the information products in Denmark and Norway. Since acquisition, the business has met all expectations and work is well under way to enhance the current product range with value-added solutions from Experian. As Experian International serves more clients on a pan-European basis, it is no longer appropriate to report sales separately for UK and Rest of World. From 1 April 2003, Experian International will therefore report one combined sales number. ARGOS RETAIL GROUP Sales Operating profit 12 months to 31 March 2003 2002 2003 2002 Â£m Â£m Â£m Â£m Argos 3,192 2, 847 238.2 204.0 Homebase 1 251 - 2.2 - Home Shopping UK & Ireland2 1,482 1,607 15.4 33.6 Financial Services 34 11 4.6 (4.8) Home Shopping Continental Europe 275 238 24.7 22.4 Total 5,234 4,703 285.1 255.2 Operating margin 5.4% 5.4% 1 Homebase sales and profit consolidated for the period from date of acquisition (20 December 2002) to 28 February 2003, Homebase's new year-end 2 2002 Home Shopping UK & Ireland restated to include Â£74m sales and Â£0.5m profit previously reported by Reality Argos Retail Group (ARG) had another successful year, with sales up 11% and profit up by 12%. Argos again performed particularly strongly, outperforming in its market, with annual sales exceeding Â£3bn for the first time. There has been significant corporate restructuring at ARG in the last twelve months: - Homebase, a UK DIY and home furnishings retailer, was acquired for Â£902m in December 2002; - Home shopping businesses in the United Kingdom, Ireland and Sweden, together with Reality, were sold for about Â£590m in May 2003; and - other smaller, underperforming businesses were sold or closed during the year. With its focus now on general merchandise, both Argos and Homebase have clear strategies and operational initiatives to deliver growth. This will be key in a period where growth in UK consumer spending is expected to be muted. ARG generated Â£67m of operating cash flow, equivalent to 24% of operating profit. Investment in the year to March 2003 in supply chain, new stores and the Financial Services loan books will underpin future growth. Argos 12 months to 31 March 2003 2002 Change Â£m Â£m Sales1 3,192 2,847 12% Operating profit1 238.2 204.0 17% Operating margin 7.5% 7.2% 1 Includes Argos Additions and jungle.com For the third successive year, Argos' sales grew faster than its market and it again grew operating margin. At the same time, customers' perceptions of the choice, value and convenience it offers also continued to improve. This improvement, along with Argos' own growth initiatives, should enable it to continue to outperform its market as consumer spending growth slows further in the current year. Financial review Excluding Argos Additions and jungle.com, Argos' sales in the full year increased by 13%, or 7% on a like-for-like basis. For the year as a whole, it grew share in all its major markets, with particularly strong sales growth in consumer electronics, mobile phones, electricals and home furnishings. Gross margins for the year were firm, supported by better sourcing. Excluding integration costs of Â£8.7m relating to jungle.com, operating margin advanced by a further 0.5%. Operational review As previously outlined, Argos has a clear strategy for growth and has made good progress this year against its objectives: - Argos plans to open about 35 new stores each year. At 31 March 2003, Argos operated 523 stores, an increase of 33 in the year. These new stores contributed 6% to sales growth, ahead of expectations. Of the 33 stores, about two-thirds were second or third stores within a town or city. The opening of these new stores inevitably deflects some sales from existing stores and therefore had the effect of reducing like-for-like sales growth by an estimated 3%. In the current year, Argos plans to open an additional 35 stores, with potential for over 650 in four years time; - Argos is refurbishing its small stores. By 31 March 2003, 340 stores had the modernised brand fit-out, with a further 100 planned for this year. Initiatives to improve customer service have also been made across the chain. For example, over 500 quick-pay kiosks have been installed in 190 stores. These enable customers to order and pay for goods without going to the till. Currently, over 4% of sales in these stores are going through the kiosks and customer usage is growing; - Argos is enhancing choice for customers by extending the range of products and services offered. Range extension has been a key driver of sales growth in the year under review. Both the Autumn/Winter 2002 catalogue (11,400 lines) and the Spring/Summer catalogue (11,600 lines) have about 25% more products than the same catalogue the previous year. The additional lines are focused on areas such as textiles and bedding, furniture and homewares, with about two-thirds available in store and one-third for home delivery only. Sales of these new lines have met expectations in the year and aided gross margin. In addition, Argos' previous experience of range expansion suggests that sales of these lines should continue to increase as customer awareness of them grows. In January 2003, Argos initiated a test in the South West to expand its product range further. A new catalogue called Argos Extra, which added 4,500 lines to the existing range, is being tested in five of its larger stores and in five neighbouring smaller stores, where these goods are available for collection 48 hours after ordering. Although still at an early stage, the trial will be extended in July 2003 to an additional five larger stores and nine neighbouring stores in the North West; - Argos is investing Â£120m over four years in its supply chain. The four-year programme initiated last year is on track, making improvements to IT, software systems and product sourcing. The new 560,000 square feet central distribution centre, which will handle all direct imports, opens in June 2003. Aided by the ARG Hong Kong buying office and the new IT systems, direct importing now accounts for 16% of sales (up from 12% three years ago). With prices on re-included lines in the current Spring/Summer catalogue 2% lower than last year, the supply chain investments made to date are already benefiting customers, while allowing Argos' margins to remain firm; and - Argos is growing capacity and improving customer service in Argos Direct, its delivery to home operation. Sales via Argos Direct grew by 33% during the year and accounted for 18% of Argos' sales - up from 16% last year. Approximately Â£550m of sales were delivered to home. About one-quarter were products available in store and three-quarters were more bulky items such as furniture and widescreen TVs, which are only available for home delivery. The new 650,000 square feet Argos Direct warehouse in Bedfordshire has been operational since January 2003. This significantly increases Argos' capacity for two-man delivery of bulky items. Argos was the second most visited retail website over Christmas 2002, while the Internet contributed 3% of Argos' total sales in the year. Sales at Argos Additions increased by 11% in the year to Â£144m. Following a slow first half, improvements were made to merchandising and the credit offer in the Spring/Summer catalogue. The Additions brand name has been sold to March U.K. Limited. The Autumn/Winter 2003 catalogue will be the last to use the Argos brand and to be distributed via Argos stores. Homebase 2003 1 2002 Â£m Â£m Sales 251 - Operating profit 2.2 - 1 Homebase sales and profit consolidated for the period from date of acquisition (20 December 2002) to 28 February 2003, Homebase's new year-end Homebase, a leading UK DIY and home furnishings retailer, was acquired in December 2002 for Â£902m. It enhances ARG's long-term competitive position as: - it brings to ARG a leading brand in fast growing markets, with good organic growth prospects; - it is pursuing growth in the furniture and homewares market, where ARG already has considerable presence and skills; and - there are operational benefits from combining ARG and Homebase, in terms of supply chain and infrastructure. Period since acquisition The priority in the period since acquisition has been to prepare for peak trading in April and May. The management team at Homebase has been strengthened with appointments from within ARG and actions to improve retail disciplines in the short term have been implemented. Since the start of its new financial year on 1 March 2003, Homebase has traded in line with expectations. As is GUS' established practice, a more detailed comment on first quarter trading will be made on 23 July 2003. For Homebase, it will cover sales in the four months to 30 June 2003. Operational review During the current financial year, the priority at Homebase will be to create a platform for growth in 2004 and beyond, while delivering on profit expectations. The key initiatives are: - improving retail disciplines. This includes improving the in-store experience, particularly stock availability, ease of shopping and customer service; strengthening the price proposition, by reinvesting some of the sourcing benefits into reducing prices on key lines; and improving category management skills, particularly for core DIY and decorating ranges; - increasing sales of kitchens, bathrooms and home furnishings. In the twelve months to 28 February 2003, homewares, which includes these ranges, contributed 21% of sales - up from 18% in the previous year. They showed a year-on-year growth of 20%. Several trials are planned for this year to improve the offering in these categories, particularly in furniture and furnishings, building on development work already undertaken at ARG. Homebase is also developing plans to improve significantly its two-man delivery service, building on the expertise and success of home delivery within Argos; - opening more mezzanine floors and increasing their productivity. At 28 February 2003, 36 stores had mezzanine floors, which are used to showcase kitchens, bathrooms and home furnishings. Their average size is 11,600 square feet, ranging from 7,000 to 17,000 square feet. On average, sales uplifts were about 15% in the year, contributing around 1% to total sales growth. As the return on investment on these mezzanines is attractive, an additional 35-40 mezzanine floors will be installed in the current financial year, at a capital cost of about Â£35-40m. Several trials are planned to modify the category mix in order to optimise the sales densities on and returns from mezzanines; - opening more new stores. At 28 February 2003, Homebase had 273 stores. An additional nine stores are planned to open in the current financial year. The small store trial will be accelerated. These are 20-25,000 square feet stores, offering edited ranges in catchments which will not support a full range store; and - delivering integration benefits. Given the degree of overlap between ARG and Homebase in products and suppliers, there are significant gains to be achieved over time from improved sourcing. Early benefits are being achieved through terms harmonisation and should generate savings of over Â£5m in the current year. Beyond that, increasing the percentage of direct importing and supply chain improvements will reduce sourcing costs at Homebase. Direct importing currently accounts for 8% of sales, but has scope over time to move to about 30%. In addition, Homebase is working with ARG in certain areas such as e-commerce, financial services, IT and media buying to reduce costs and improve customer service. The priority for the current financial year is to further strengthen the business and build a platform for future growth, while delivering on profit expectations. Capital expenditure at Homebase in the current financial year is expected to be about Â£65-70m, compared to Â£66m last year. As previously announced, re-organisation costs are expected to be about Â£10m in the current year. Financial review As already reported, Homebase's year-end has been moved to the end of February to avoid distortions relating to the timing of Easter and its associated promotions and trading patterns. January and February are seasonally quiet months. In its financial year to 31 March 2003, GUS has consolidated sales of Â£251m and operating profit of Â£2.2m for the period from acquisition on 20 December 2002 to 28 February 2003. This performance is in line with the same period last year. For the twelve months to 28 February 2003, sales at Homebase were Â£1,444m, an increase of 4% over last year (3% like-for-like). Operating profit was Â£101.6m, giving an operating margin of 7.0%, compared to 5.9% in the previous year. This was driven primarily by improvements in gross margin and non-operational costs. Home Shopping UK and Ireland 12 months to 31 March 2003 2002 1 Change Â£m Â£m Sales Home Shopping 1,409 1,533 (8%) Reality logistics 73 74 - Total 1,482 1,607 (8%) Operating profit 15.4 33.6 - Operating margin 1.0% 2.1% 1 2002 Home Shopping UK & Ireland restated to include Â£0.5m profit previously reported by Reality The agency home shopping market deteriorated during the year under review. As a result, both sales and profit at Home Shopping UK & Ireland were below the level of last year. Reported sales in Home Shopping were 8% below last year. During the year, management has continued to sell or close peripheral businesses, including Family Hampers, Innovations and McCord. Excluding these peripheral businesses, the sales decline was 5%. Agency sales fell by 9% in the year (H1 -5%; H2 -13%) although GUS maintained market share. The number of active customers was further reduced to 2.5m, with a small increase in average spend per customer. Sales from continuing direct catalogues, mainly Marshall Ward and Abound, account for 15% of sales. They saw continued strong growth (up nearly 40% in the year). Gross margins at Home Shopping were in line with last year. However, the sharp slowdown in sales in the second half more than countered the benefits of the cost reduction programme that has been underway for the past three years. An additional 250 redundancies were announced during the second half. Reality's sales to third parties were flat year-on-year. However, this masked 7% growth in the core logistics business, offset by the withdrawal from or sale of peripheral activities such as packaging and fleet management. Financial Services 12 months to 31 March 2003 2002 Â£m Â£m Sales 1 34 11 Operating profit/(loss) 4.6 (4.8) 1 Sales represent interest income, fees and commissions relating to the Argos store card and Argos personal loans Financial Services reported a profit in the year, with the improvement largely driven by the continued build-up of the Argos store card. This resulted in more interest income as the number of active accounts and the size of the debtor book both grew. At 31 March 2003, there were about 630,000 active Argos store card accounts, up from 460,000 a year earlier. The gross loan book increased by Â£50m to Â£155m. Over 7% of sales at Argos were made via the store card. Argos' personal loan offer was first included in the Autumn/Winter 2002 catalogue and the gross loan book had grown to Â£37m at 31 March 2003. The contribution to profits from Home Shopping customers was Â£17m in the year. Following the disposal to March U.K. Limited, this profit stream is no longer part of ARG Financial Services. Home Shopping Continental Europe 12 months to 31 March 2003 2002 Change at Â£m Â£m constant FX rates Sales Â£m 275 238 10% Operating profit Â£m 24.7 22.4 5% Operating margin 9.0% 9.4% At constant exchange rates, sales from European Home Shopping increased by 10% and profit by 5%. This was driven by Wehkamp, the leading home shopping brand in Holland, which accounts for over 80% of sales. It benefited from improved promotional activity, higher service levels and strong growth in branded clothing sales and electronics. 16% of Wehkamp's sales were through its website. Halens, the Scandinavian operation, has been sold to March U.K. Limited. In the year to March 2003, its sales were Â£46m and its profit was about Â£5m. Sales grew by 4% in local currency, while profits benefited from the expansion of its financial services offering. BURBERRY Following the partial IPO of Burberry Group plc, GUS retains a 77% stake in Burberry. The following is an abridged version of the latter's preliminary announcement released on 22 May 2003. 12 months to 31 March 2003 2002 Change at Â£m Â£m constant FX rates Sales Â£m 594 499 21% Operating profit Â£m 116.7 90.3 34% Operating margin 19.7% 18.1% Burberry acquired the operations of its primary distributors in Asia outside of Japan in January 2002 and July 2002 (the 'Asia acquisitions'). The year to March 2003 saw significant progress for Burberry. It completed a partial IPO, advanced its strategic agenda and maintained its financial momentum, exceeding the expectations set at the time of the IPO. Financial review Total sales in the year increased by 21% at constant exchange rates, or 12% on an underlying basis (i.e. at constant exchange rates and excluding the impact of the Asia acquisitions). Operating profit increased by 34% at constant exchange rates, driven by the contribution from these Asia acquisitions and a further improvement in the gross margin. Operating margin expanded by 1.6% to 19.7%. Operating cash flow more than doubled in the year to Â£108m. Operational review Burberry continued to implement its strategic initiatives across product categories, geographic regions and channels of distribution. By product categories Accessories' share of sales expanded to 29%, compared to 25% in the previous year, driven by continued emphasis on product development. Womenswear maintained its momentum (up 20% year-on-year), while menswear saw solid growth (up 9%). By geographic regions Burberry experienced strong sales growth in the US, driven by both wholesale and retail operations. There were more moderate underlying gains in Europe, while growth in Asia was dominated by the impact of the Asia acquisitions. By channels of distribution Total retail sales increased by 46% in the year, or 25% on an underlying basis. During the year, Burberry opened flagship stores in New York, Barcelona and London (Knightsbridge), as well as opening nine other stores and acquiring 46 concessions in Korea. At 31 March 2003, it operated 132 retail locations. Burberry plans to increase retail selling space by approximately 10% in 2003, with the opening of eight stores, including one in Milan - Burberry's first store in Italy. Total wholesale sales advanced 6%, or 5% on an underlying basis, with high single digit growth for the Spring/Summer merchandise, for which shipments are concentrated in the second half of the year. Based on the Autumn/Winter 2003 initial order book, Burberry expects high single digit wholesale sales growth for this season. Licensing revenues in the year increased by 9% (14% at constant exchange rates), led by 10% volume gains in Japan and increases in certain royalty rates, as well as strong sales gains by global product licensees. As reported, licensing revenues did moderate in the second half (21% in H1; 9% in H2, both at constant exchange rates). While acknowledging the challenging operating environment, and especially the exceptional short-term uncertainty faced by the luxury goods industry, Burberry remains confident in its long term growth strategies. SOUTH AFRICAN RETAILING 12 months to 31 March 2003 2002 Change at Â£m Â£m constant FX rates Sales 114 123 2% Operating profit 31.8 30.9 13% Operating margin 27.8% 25.2% As already stated, GUS intends, subject to market conditions, to arrange a partial IPO for its South African Retailing business on the Johannesburg Securities Exchange during calendar year 2004. Sales in rand were 2% up for the year as a whole. The second half of the year was more difficult with increased competitive activity, three interest rate increases and the high level of food and petrol inflation impacting total consumer spending and durable goods in particular. Operating profit, however, increased by 13% in rand in the year, driven by further growth in financial services and by cost saving initiatives. The business currently operates 398 Lewis stores and 45 Best Electric stores. The rand weakened further from an average rate of Â£1=R13.5 in 2002 to an average of R14.9 in 2003. This reduced reported sales by Â£12m and operating profit by Â£3.2m in the year. The closing rate at 31 March 2003 was R12.5. Our South African Retailing business has a strong market position. This has been enhanced by recent consolidation in the industry, which has already led to the closure of a significant number of stores by competitors. Our business has a strong, experienced management team. Its initiatives to enhance merchandise, improve credit systems and reduce costs make it well placed for the expected recovery in consumer spending in South Africa. PROPERTY 12 months to 31 March 2003 2002 Â£m Â£m Operating profit 25.9 24.8 The joint venture with British Land disposed of a further 27 properties in the year for Â£55m. GUS' 50% share of operating profit was broadly in line with the prior year as the fall in rental income from sold properties was offset by small gains on disposal and increasing rents from the remaining portfolio. The joint venture's portfolio of 121 remaining properties was valued at Â£796m at 31 March 2003. GUS' investment in the joint venture at 31 March 2003, including its loans to the venture, amounted to Â£210m. A continuing programme of property disposals is planned in the current year. FINANCE 12 months to 31 March 2003 2002 Â£m Â£m Operating profit 6.6 15.1 General Guarantee Finance largely completed the wind down of its loan book during the year. At 31 March 2003, GGF's outstanding advances, net of provisions, were Â£63m, a reduction of Â£191m. All of the securitised debt, which had been used to fund the business, has now been repaid. gusco.com 12 months to 31 March 2003 2002 Â£m Â£m Operating loss1 (2.7) (4.8) 1 2002 profit restated to exclude Â£4.9m loss from CreditExpert now reported in Experian North America Revenue spend largely comprised the funding of MyPoints Europe, a web-based loyalty scheme. As both the Finance Division and gusco.com are now so small, they will be included within central costs from 1 April 2003. INTEREST COSTS Interest costs were Â£8m lower than last year. This reflects the impact of lower interest rates (Â£6m), the previously announced change in the way GUS accounts for interest (a gain of Â£9m) and the interest income on proceeds from the partial IPO of Burberry (Â£7m). These were partly offset by the interest cost of the acquisition of Homebase (Â£15m). Note 1 to the financial statements includes a more detailed explanation of the accounting change, which relates to forward sales of foreign currencies undertaken to hedge overseas assets. EXCEPTIONAL ITEMS 12 months to 31 March 2003 2002 Â£m Â£m Continuing operations Net profit on partial IPO of Burberry 139 - Loss on sale of businesses - (6) Restructuring costs in Argos Retail Group/Reality - (36) Loss on sale of e-commerce investments - (2) 139 (44) Discontinued operations Provision on disposal of Home shopping/Reality (210) - Goodwill impairment (19) (28) (229) (28) Total charge (90) (72) An exceptional loss of Â£90m was incurred during the year. This related to the sale of 23% of Burberry via an Initial Public Offering in July 2002 and a provision for the loss on disposal of the Home shopping and Reality businesses, which was announced yesterday. Impairment of goodwill on the closure of the Innovations business contributed the balance. All other restructuring costs have been charged against operating profit in the divisions in which they were incurred. CASH FLOW AND NET DEBT The Group's free cash flow during the year improved to Â£618m, compared with last year's Â£478m, due to profit growth and good working capital control. With the Â£902m purchase of Homebase, there was a net cash outflow of Â£802m for the year after the payment of dividends, the repayment of securitised loans and acquisitions and disposals. Net debt was Â£2,086m at 31 March 2003 compared with Â£1,284m a year earlier. GUS has funded the increase in net debt largely by raising approximately Â£750m of eurobonds. This comprised of Eur600m 4.125% bonds due 2007 and Â£350m 5.625% bonds due 2013. PENSIONS The Group continues to report pension costs under SSAP 24 but makes the additional disclosures required by FRS 17. The sharp fall in equity markets during the year reduced the market value of the Group's pension schemes, whilst the fall in interest rates increased the discounted value of the liabilities. As a result the FRS 17 disclosures show a net deficit for all retirement benefit schemes of Â£215m net of tax relief at 31 March 2003. Although this situation is not welcome, it should be noted the deficit is less than 4% of the Group's market capitalisation and can prudently be resolved over a period of several years. It therefore has no material impact on the Group's operations or financial flexibility. Contribution rates for the Group's principal pension schemes were increased in April 2002. The next regular actuarial valuation of these schemes will measure the position at 31 March 2004. Unless, over the next year or so, there is a material change in the long-term outlook for investment returns, that valuation is likely to lead to a further increase in the contribution rates paid to the schemes. In anticipation of this, the Group made additional special cash contributions of Â£20m in the year to 31 March 2003. APPENDIX ONE Divisional cash flow for FY 2003 and FY 2002 Year to 31 March 2003 Â£m Operating Depreciation Capital Change in Operating cash profit spend working flow capital Experian 256 118 (128) 24 270 ARG 285 89 (136) (171) 67 Burberry 117 19 (56) 28 108 Other 42 19 (9) 320 372 Total Group 700 245 (329) 201 817 Net interest (58) Exceptional items - Taxation (141) Free cash flow 618 Dividends (220) Acquisitions and divestments (1,037) Net cash flow (639) Year to 31 March 2002 Â£m Operating Depreciation Capital Change in Operating cash profit spend working flow capital Experian 224 114 (177) (48) 113 ARG 255 77 (118) (195) 19 Burberry 90 14 (39) (14) 51 Other 50 7 12 420 489 Total Group 619 212 (322) 163 672 Net interest (67) Exceptional items (45) Taxation (82) Free cash flow 478 Dividends (213) Acquisitions and divestments (35) Net cash flow 230 APPENDIX TWO Additional information on Experian Reported sales for Experian North America 12 months to 31 March 2003 2002 Underlying $m $m change 1 Credit - Information 645 500 8% - Solutions 93 84 10% Total 738 584 8% Marketing - Information 139 152 (8%) - Solutions 147 149 (1%) Total 286 301 (5%) Outsourcing 87 100 (13%) Reported sales 2 1,111 985 2% 1 Excluding ConsumerInfo.com 2 Had the sales of ConsumerInfo.com been included for the comparative period last year, total dollar sales would have grown by 6% Reported sales for Experian International 12 months to 31 March 2003 2002 Underlying Â£m Â£m change 1 Credit - Information 99 84 14% - Solutions 153 134 12% Total 252 218 13% Marketing - Information 55 48 14% - Solutions 32 28 14% Total 87 76 14% Outsourcing 2 146 135 4% Discontinued activities/eliminations (2) (2) Reported sales 483 427 10% 1 Excluding acquisitions and disposals and at constant exchange rates 2 2002 sales restated to include Â£23m of third party call centre and related activities sales transferred from Reality GUS plc GROUP PROFIT AND LOSS ACCOUNT for the year ended 31 March 2003 2003 2003 2003 2002 Before Exceptional Total Exceptional Items Items (Note 2) Â£m Â£m Â£m Â£m Turnover Continuing operations 5,473 - 5,473 4,678 Discontinued operations 1,673 - 1,673 1,779 -------- -------- ------- -------- Total turnover 7,146 - 7,146 6,457 Cost of sales (4,130) - (4,130) (3,869) -------- -------- ------- -------- Gross profit 3,016 - 3,016 2,588 ---------------------------- -------- -------- ------- -------- Net operating expenses before goodwill charge (2,386) (22) (2,408) (2,064) Goodwill charge (143) (19) (162) (127) ---------------------------- -------- -------- ------- -------- Net operating expenses (2,529) (41) (2,570) (2,191) -------- -------- ------- -------- Operating profit 487 (41) 446 397 ---------------------------- -------- -------- ------- -------- Continuing operations 452 (22) 430 381 Discontinued operations 35 (19) 16 16 ---------------------------- -------- -------- -------- -------- Share of operating profit of BL Universal PLC (joint venture) 26 - 26 25 Share of operating profit of associated undertakings 44 - 44 33 Loss on sale of fixed asset investments in continuing operations - - - (2) -------- -------- ------- -------- Trading profit 557 (41) 516 453 Profit on Initial Public Offering of Burberry - continuing operations - 161 161 - Provision for loss on disposal of Home Shopping and Reality businesses - discontinued operations - (210) (210) - Loss on sale of other businesses - continuing operations - - - (6) -------- -------- ------- -------- Profit on ordinary activities before interest 557 (90) 467 447 -------- -------- Net interest (58) (67) ------- -------- Profit on ordinary activities before taxation 409 380 Tax on profit on ordinary activities UK (95) (75) Overseas (46) (47) ------- -------- (141) (122) ------- -------- Profit on ordinary activities after taxation 268 258 Equity minority interests (17) (1) ------- -------- Profit for the year 251 257 Dividends (232) (217) ------- -------- Retained profit for the 19 40 year ------- -------- Profit before amortisation of goodwill, exceptional items and taxation - Â£m 642 552 ------- -------- Earnings per share - Basic 25.1p 25.7p - Diluted 25.0p 25.5p Earnings per share before amortisation of goodwill and exceptional items - Basic 47.8p 41.7p - Diluted 47.5p 41.4p Dividend per share - Interim 6.9p 6.5p - Final 16.4p 15.2p -------- -------- - Total 23.3p 21.7p -------- -------- GUS plc GROUP BALANCE SHEET at 31 March 2003 ------- ------- -------- ------- 2003 2003 2002 2002 Â£m Â£m Â£m Â£m ------- ------- -------- ------- Fixed assets Goodwill 2,436 1,422 Other intangible assets 178 192 Tangible assets 1,043 847 Investment in joint venture -------- -------- Share of gross assets 405 416 Share of gross liabilities (277) (308) -------- -------- 128 108 Loans to joint venture 82 210 87 195 Other investments 128 115 ------- -------- 3,995 2,771 ------- -------- Current assets Stocks 853 590 Debtors - due within one year 1,803 1,706 - due after more than one year 265 200 -------- -------- Securitised receivables - 263 Less: non-recourse borrowings - - (201) 62 -------- -------- Investments 109 53 Bank balances and cash 243 203 ------- -------- 3,273 2,814 Creditors Amounts due within one year (2,699) (2,171) ------- -------- Net current assets 574 643 ------- -------- Total assets less current liabilities 4,569 3,414 Creditors - amounts due after more than one year (1,791) (865) Provisions for liabilities and charges (138) (126) ------- -------- Net assets 2,640 2,423 ------- -------- Capital and reserves Called up share capital 252 252 Share premium account 6 3 Revaluation reserve 131 121 Profit and loss account 2,154 2,041 ------- -------- Shareholders' funds 2,543 2,417 Minority interests 97 6 ------- -------- Capital employed 2,640 2,423 ------- -------- GUS plc GROUP CASH FLOW STATEMENT for the year ended 31 March 2003 ------- -------- 2003 2002 Â£m Â£m ------- -------- Cash flow from operating activities Operating profit 446 397 Depreciation and amortisation charges 407 338 (Increase)/decrease in working capital 7 (195) ------- -------- 860 540 Dividends received from associated undertakings 24 23 Returns on investments and servicing of finance (11) (43) Taxation (141) (82) Capital expenditure (329) (322) Financial investment (13) (15) Acquisition of subsidiaries (1,241) (34) Disposal of subsidiaries 239 6 Dividends paid (220) (213) ------- -------- Cash outflow before management of liquid resources and financing (832) (140) Management of liquid resources (134) (18) Financing - issue of shares 3 2 - purchase of own shares for cancellation (1) - - change in debt and lease financing 934 75 ------- -------- Decrease in cash (30) (81) ------- -------- Reconciliation of net cash flow to movement in net debt Decrease in cash (30) (81) Cash inflow from movement in debt and lease financing (934) (75) Cash outflow from movement in liquid resources 134 18 ------- -------- Movement in net debt resulting from cash flows (830) (138) Finance leases acquired with subsidiary (2) (7) New finance leases (7) (5) Exchange movements 37 (4) ------- -------- Movement in net debt (802) (154) Net debt at beginning of year (1,284) (1,130) ------- -------- Net debt at end of year (2,086) (1,284) ------- -------- GUS plc DIVISIONAL ANALYSIS for the year ended 31 March 2003 Turnover Profit before taxation 2003 2002 2003 2002 (Restated) (Restated) (Note 1) (Note 1) Â£m Â£m Â£m Â£m Experian Experian North America 718 688 171.5 154.6 Experian International 483 427 84.9 69.6 ------- -------- ------- -------- 1,201 1,115 256.4 224.2 Argos Retail Group Argos 3,192 2,847 238.2 204.0 Homebase 251 - 2.2 - Home Shopping - UK & Ireland 1,482 1,607 15.4 33.6 Financial Services 34 11 4.6 (4.8) Home Shopping - Continental Europe 275 238 24.7 22.4 ------- -------- ------- -------- 5,234 4,703 285.1 255.2 Burberry 594 499 116.7 90.3 South African Retailing 114 123 31.8 30.9 Finance Division 17 29 6.6 15.1 Property - - 25.9 24.8 gusco.com 1 1 (2.7) (4.8) ------- -------- -------- -------- 7,161 6,470 719.8 635.7 Inter-divisional turnover (principally Experian) (15) (13) ------- -------- 7,146 6,457 ------- -------- Central costs (19.3) (17.1) -------- -------- 700.5 618.6 Net interest (58.1) (66.5) -------- -------- Profit before amortisation of goodwill, exceptional items and taxation 642.4 552.1 Amortisation of goodwill (142.9) (99.4) Exceptional items (Note 2) (90.1) (72.6) -------- -------- Profit before taxation 409.4 380.1 -------- -------- Included within turnover and profit before taxation of Argos Retail Group shown above, Â£1,673m (2002 Â£1,779m) of turnover and Â£35.3m (2002 Â£44.0m) of profit before tax relates to discontinued activities. The turnover and profit figures for Homebase cover the post acquisition period from 20 December 2002. Amortisation of goodwill includes Â£38m (2002 Â£5m) relating to Experian, Â£99m (2002 Â£89m) relating to acquisitions by Argos Retail Group and Â£6m (2002 Â£5m) relating to acquisitions by Burberry. GEOGRAPHICAL ANALYSIS for the year ended 31 March 2003 Turnover Profit before taxation 2003 2002 2003 2002 Â£m Â£m Â£m Â£m United Kingdom & Ireland 5,476 4,976 416.8 367.9 Continental Europe 605 533 47.1 46.6 North America 853 794 185.8 161.2 Rest of World 212 154 50.8 42.9 ------- ------- ------- ------- 7,146 6,457 700.5 618.6 ------- ------- Net interest (58.1) (66.5) ------- ------- Profit before amortisation of goodwill, exceptional items and taxation 642.4 552.1 Amortisation of goodwill (142.9) (99.4) Exceptional items (Note 2) (90.1) (72.6) -------- -------- Profit before taxation 409.4 380.1 -------- -------- GUS plc STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 31 March 2003 2003 2002 Â£m Â£m ------- -------- Profit for the year 251 257 Revaluation of properties 15 (10) Currency translation differences 71 (42) -------- -------- Total recognised gains and losses for the year 337 205 -------- -------- RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS for the year ended 31 March 2003 2003 2002 Â£m Â£m ------- -------- Profit for the year 251 257 Dividends - Interim (68) (65) - Final (164) (152) ------- -------- 19 40 Goodwill credited to reserves 19 4 Shares issued under option schemes 3 2 Shares cancelled on purchase (1) - Revaluation of properties 15 (10) Currency translation differences 71 (42) ------- -------- 126 (6) Opening shareholders' funds 2,417 2,423 ------- -------- Closing shareholders' funds 2,543 2,417 ------- -------- ANALYSIS OF NET BORROWINGS at 31 March 2003 2003 2002 Â£m Â£m ------- -------- Cash and other liquid resources 283 172 Debt due within one year (678) (646) Finance leases (19) (10) Debt due after more than one year (1,672) (800) -------- -------- Net debt at end of year (2,086) (1,284) Non-recourse borrowings - (201) -------- -------- Net borrowings at end of year (2,086) (1,485) -------- -------- GUS plc NOTES TO THE FINANCIAL STATEMENTS 1. Basis of preparation ------------------------------------------------------------------------------- The financial information set out in this announcement does not constitute the Group's statutory financial statements for the year ended 31 March 2003 but is taken from those financial statements, which have received an unqualified report by the auditors and will be delivered to the Registrar of Companies. From 1 April 2002, Reality's external logistics sales and results are reported within Home Shopping UK & Ireland with sales from third party call centre and related activities reported as part of Experian International. Comparative figures have been restated. For the year ended 31 March 2002, Â£73.4m of external logistics sales are shown within Home Shopping UK & Ireland with Â£23.2m of sales from third party call centre and related activities included within Experian International. The profits of Â£0.5m have been included within Home Shopping UK & Ireland. CreditExpert.com, a US consumer credit management business, is now managed by and reported within Experian North America. Comparative figures have been restated to remove the losses of CreditExpert.com from gusco.com and to reduce the reported profit of Experian North America by Â£4.9m. There is no material impact on divisional turnover. The Group has for several years hedged its investments in subsidiaries outside the UK by a combination of foreign currency borrowings and forward sales of relevant foreign currencies. The forward premium/discount to spot exchange rates incorporated in these forward sales contracts reflects the differential between sterling interest rates and the interest rate of the currency concerned. Until 31 March 2002 this interest rate differential has been taken directly to reserves, along with the changes in value during the year of the currency borrowings, the forward currency sales and the assets being hedged. For GUS, the most significant overseas assets are in the United States. With US short term interest rates well below sterling interest rates and the growth in the Group's forward sales of US dollars, the interest element of these forward dollar sales, whose effect is to reduce interest costs, has become more significant. Similar issues arise in connection with the Group's hedging of its Euro and South African Rand assets, with Euro interest rates slightly below sterling rates and South African interest rates significantly higher than sterling rates. With effect from 1 April 2002, the Group is accounting for the forward premium/ discount arising on forward currency sales as interest. The effect of this change has been to reduce interest expense for the year ended 31 March 2003 by Â£9m; this consists of a Â£12m gain from Dollar and Euro hedging less a Â£3m cost of South African hedging. There would have been no material effect if this approach had been applied in the year ended 31 March 2002. GUS plc NOTES TO THE FINANCIAL STATEMENTS (continued) 2. Exceptional items ------------------------------------------------------------------------------- Exceptional items comprise: 2003 2002 Â£m Â£m Continuing operations Profit on Initial Public Offering of Burberry 161 - Cost of employee share schemes in connection with the Initial Public Offering of Burberry (22) - ------- ------- 139 - ------- ------- Loss on sale of businesses - (6) Redundancy and other costs incurred in connection with the combination of Argos and Home Shopping operations and the formation of Reality - (36) Loss on sale of fixed asset investments - (2) ------- -------- 139 (44) ------- -------- Discontinued operations Provision for loss on disposal of Home Shopping and Reality businesses (210) - Impairment of goodwill (19) (28) ------- -------- (229) (28) ------- -------- ------- -------- Exceptional charge (90) (72) ------- -------- The Initial Public Offering of 22.5% of the ordinary share capital of Burberry Group plc took place on 12 July 2002. The associated exceptional items comprise the excess of the flotation proceeds, less costs, over the related portion of net assets at that date and the cost of share schemes designed to secure the retention of employees. The loss on the sale of fixed asset investments of Â£2m in 2002 related to the disposal by Experian of internet related investments in the US, after charging Â£4m of goodwill previously written off to reserves. The disposal of Home Shopping and Reality businesses was announced on 27 May 2003. The provision for loss on disposal of Home Shopping and Reality represents the difference between the sale proceeds of about Â£590m and the book value of net assets to be disposed of which amount to approximately Â£800m. The impairment of goodwill in 2003 relates to goodwill, previously written off to reserves, on the closure of Innovations. The impairment of goodwill charged in 2002 related principally to Reality Solutions. 3. Taxation ------------------------------------------------------------------------------- The effective rate of tax, before amortisation of goodwill, the profit on the Initial Public Offering of Burberry and loss on sale of businesses, has reduced from 23.8% to 22.7%. GUS plc NOTES TO THE FINANCIAL STATEMENTS (continued) 4. Basic and diluted earnings per share 2003 2002 pence pence ------------------------------------------------------------------------------- Basic earnings per share before amortisation of goodwill and exceptional items 47.8 41.7 Effect of amortisation of goodwill (14.3) (9.9) Effect of exceptional items (8.4) (6.1) ------------------------------------------------------------------------------- Basic earnings per share 25.1 25.7 ------------------------------------------------------------------------------- The calculation of basic earnings per share is based on profit for the year of Â£251m (2002 Â£257m) divided by the weighted average number of Ordinary shares in issue of 995.9m (2002 999.8m). Basic earnings per share before amortisation of goodwill and exceptional items is disclosed to indicate the underlying profitability of the Group and is based on profit of Â£476m (2002 Â£417m): 2003 2002 Â£m Â£m ------------------------------------------------------------------------------- Earnings before amortisation of goodwill and exceptional items 476 417 Effect of amortisation of goodwill (142) (99) Effect of exceptional items (83) (61) ------------------------------------------------------------------------------- Profit for the year 251 257 ------------------------------------------------------------------------------- 2003 2002 m m ------------------------------------------------------------------------------- Weighted average number of ordinary shares in issue during the year* 995.9 999.8 Dilutive effect of options outstanding 7.3 7.4 -------- -------- Diluted weighted average number of ordinary shares in issue during the year 1,003.2 1,007.2 -------- -------- * excluding those held by The GUS ESOP Trust, The GUS ESOP Trust No. 2 and The GUS ESOP Trust No. 3 upon which dividends have been waived. The calculation of diluted earnings per share reflects the potential dilutive effect of the exercise of employee share options. 5. Foreign currency ------------------------------------------------------------------------------- The principal exchange rates used were as follows: Average Closing 2003 2002 2003 2002 ------------------------ -------- -------- ------- ------- US dollar 1.55 1.43 1.58 1.43 South African rand 14.89 13.52 12.48 16.15 Euro 1.55 1.62 1.45 1.64 --------------------- -------- -------- -------- -------- Assets and liabilities of overseas undertakings are translated into sterling at the rates of exchange ruling at the balance sheet date and the profit and loss account is translated into sterling at average rates of exchange. 6. Dividend ------------------------------------------------------------------------------- The final dividend will be paid on 8 August 2003 to shareholders on the Register at the close of business on 11 July 2003. This information is provided by RNS The company news service from the London Stock Exchange EN FR ARMJTMMTTTPJ

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