Final Results

GUS PLC 25 May 2004 GUS plc Preliminary Results For Year Ended 31 March 2004 Strong financial performance • 29% increase in profit before amortisation of goodwill, exceptional items and taxation to £827m (2003: £642m) • Profit before tax increased to £692m (2003: £409m) • 27% increase in basic earnings per share before amortisation of goodwill and exceptional items to 60.7p (2003: 47.8p) • Basic earnings per share 47.4p (2003: 25.1p) • 16% increase in full year dividend to 27.0p (2003: 23.3p) Record profits again at Argos, Experian and Burberry • Argos Retail Group: sales up 10% and profit up 19% on a proforma basis (including Homebase for a full year in 2003) • Experian: sales up 14% and profit up 20% for continuing activities at constant exchange rates • Burberry: sales up 16% and profit up 24% at constant exchange rates Further initiatives to enhance shareholder value • Portfolio reshaping continues: disposal of Home shopping and Reality in May 2003; further Burberry share sale and disposal of property JV in November; planned partial IPO of South African Retailing in calendar 2004 • £200m share buyback to be initiated over next twelve months • GUS Board actively to review all strategic options over the next two years Sir Victor Blank, Chairman of GUS, commented: 'I am delighted with the progress that has been made over the past twelve months in all of our main businesses and with the growth in profits announced today. Over the past four years, GUS has established an excellent track record of creating value for our shareholders.' John Peace, Chief Executive of GUS, commented: 'Profits grew by 29% last year, with record earnings at Argos, Experian and Burberry. We have strong momentum in all our businesses, reflecting continuing investment and clear strategies to drive growth. Today's announcement of a £200m share buyback and our intention actively to review all strategic options over the next two years further demonstrates our commitment to creating long-term shareholder value.' 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 at 8.30am to analysts and institutions at the Merrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ. 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 be a conference call to discuss the results at 3.00pm today (UK time), with a recording available later on the website. GUS will hold its AGM and issue its First Quarter Trading Update on 21 July 2004. 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. GROUP STRATEGY Over the last four years, GUS has established a track record of creating significant value for our shareholders. In this period, earnings per share have grown by over 75% and total return for shareholders has exceeded that of all but two of the hundred companies that made up the FTSE 100 at 1 April 2000. We have achieved this by focusing on fewer activities and on businesses that have above average growth potential and are capable of sector leadership in their respective markets: - since 2000, GUS has withdrawn from low growth activities such as UK home shopping and delivery, vehicle financing and property; - Argos, Experian and Burberry have all delivered double-digit profit growth over the past two years, benefiting from a clear strategy and significant investment; - shareholders will have received over £900m in dividends for the financial years 2001 to 2004, equal to about half of Group earnings before amortisation of goodwill and exceptional items over that period; and - the partial IPO of Burberry has also released value for shareholders. As a next step, we are planning, as previously announced, the partial IPO of our South African Retailing business for calendar year 2004, subject to market conditions. Looking forward, the Board of GUS believes that there is further scope to increase shareholder value significantly. Consequently, we will: - continue to invest in our three main businesses and drive profit growth; - initiate a share buyback programme of about £200m over the next twelve months; and - actively review all strategic options over the next two years, in order to create further value for our shareholders. This is a logical extension of what we have been doing at GUS since 2000. GROUP FINANCIAL HIGHLIGHTS Sales up 6% to £7.5bn An increase of 29% to £827m profit before amortisation of goodwill, exceptional items and taxation. An increase of 27% to 60.7p in earnings per share before amortisation of goodwill and exceptional items. Minority interests were £27m (2003: £17m), reflecting strong profit growth at Burberry and the sale of a further stake in that business in November 2003. An effective tax rate of 23.4%, based on profit before amortisation of goodwill and before profits and losses on sale of businesses. This compares to 22.7% last year and is the sixth consecutive year that the effective tax rate has been below 25%. Net debt reduced to £1.2bn at 31 March 2004, down from £2.1bn a year ago, driven by strong operational cash flow and proceeds from disposals. An analysis of cash flow by division is given in the Appendix. Final dividend of 19.0p proposed, making 27.0p for the full year (2003: 23.3p). Dividend cover is 2.25 times on eps of 60.7p. 12 months to 31 March Sales Profit before taxation 2004 2003 2004 2003 £m £m £m £m Argos Retail Group 5,162 3,523 415.5 249.8 Experian 1,286 1,201 282.2 256.4 Burberry 676 594 141.2 116.7 Other 155 117 23.6 16.4 Continuing operations 7,279 5,435 862.5 639.3 Discontinued operations 269 1,673 18.0 61.2 Total 7,548 7,108 880.5 700.5 Net interest (53.9) (58.1) Profit before amortisation of goodwill, exceptional items and taxation 826.6 642.4 Amortisation of goodwill (192.6) (142.9) Exceptional items 58.3 (90.1) Profit before taxation 692.3 409.4 EPS before amortisation of goodwill and exceptional 60.7p 47.8p items Reported EPS 47.4p 25.1p The profit figure shown against each business above is 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 2003 sales have been restated for FRS 5. Discontinued operations include Home shopping, Reality and Property. See Appendix for details ARGOS RETAIL GROUP (ARG) Sales up 10% to £5.2bn and profit up 19% to £416m on proforma basis (including Homebase for a full year in 2003); operating margin up to 8.0% Argos outperformed its market for the fifth consecutive year Argos Extra to be in about 150 stores in July 2004 Homebase repositioning on track; good progress on synergies Argos store card now profitable; about a further £150m to be invested in loan book in 2005 ARG capital expenditure approximately £250m in 2005 (2004: £159m), with investment in Argos Extra, Homebase mezzanines and new Argos and Homebase stores Sales Operating profit ------------------------------------------ 12 months to 31 March 2004 2003 2004 2003 £m £m £m £m ----- ----- ----- ----- Argos 3,384 3,017 297.4 240.8 Homebase 1,483 246 102.2 2.2 Financial Services 60 34 (5.5) (13.1) Wehkamp 235 226 21.4 19.9 Total 5,162 3,523 415.5 249.8 Operating margin 8.0% 7.1% Operating cash flow 44 96 Notes (relevant to all ARG tables): 2003 sales have been restated for FRS 5. 2003 figures exclude discontinued Home shopping and Reality operations. See Appendix for details Homebase's year-end is 28 February. For 2004, sales and profit are for the twelve months to 28 February 2004. For 2003, sales and profit are for the period from date of acquisition (20 December 2002) to 28 February 2003 Following the disposal of the Home shopping businesses and Reality in May 2003, ARG is now focused principally on selling general merchandise through a multi-brand, multi-channel offer. Argos and Homebase are targeted at different customer groups but combined, consumers are spending about £5bn each year with ARG on a wide range of hard goods. While the individual brands focus on the needs of their own customers, the core competencies and infrastructure supporting the brands are, where appropriate, increasingly centralised and shared. These core competencies are sourcing and supplier management, multi-channel ordering and home delivery, as well as financial services. The shared services include IT, finance, human resources and property. This central infrastructure has been further strengthened during the year and is now starting to deliver benefits derived from ARG's scale. In the area of sourcing and supplier management, the central ARG team has been tasked with identifying and realising benefits from the combined sales of Argos and Homebase. In the key overlapping areas of DIY, gardening, furniture and homewares, sales are about £2.7bn. A programme is under way to realise benefits from reducing product costs, increasing supplier rebates, rationalising supplier numbers and cutting distribution costs. This has been initiated through joint negotiations, common product sourcing and utilisation of the ARG buying office in Hong Kong and the recently-opened office in Shanghai. The bulk of supply chain gains are being re-invested in the businesses and in reducing prices further for our customers. Argos 12 months to 31 March 2004 2003 Change £m £m Sales 3,384 3,017 12% Total growth 12% 13% Like-for-like growth 5% 7% Operating profit 297.4 240.8 24% Operating margin 8.8% 8.0% At 31 March Number of stores 556 523 Of which: Argos Extra stores 75 11 Operating profit in 2003 is after a charge of £8.7m relating to integration of jungle.com In an increasingly competitive general merchandise market in the UK, Argos aims to win more customers and a greater share of their spend by offering the most compelling combination of choice, value and convenience. Operational review Argos again clearly outperformed its market. Sales grew by 12% year-on-year as Argos made strong share gains in many product categories, especially consumer electronics, white goods and toys. Argos has maintained its reputation for excellent value during this period of price deflation and a more competitive environment. Prices of products re-included in catalogues during 2004 were reduced by 3% on average. About 20% of sales last year were made at promotional prices, reflecting Argos' strong promotional stance during the life of a catalogue. Supply chain benefits, together with operational cost improvements, funded these lower prices. The convenience of the multi-channel offer at Argos continues to drive outperformance. Argos offers customers the ability to order or reserve goods in store, by phone or on the Internet, for delivery to store or home. Further investments will be made in 2005 to expand these capabilities: - a further 35 new stores are planned in 2005, following the 33 stores opened in 2004; - the store refit programme was largely completed during 2004. Quick pay kiosks, which reduce the time it takes for customers to order and pay for goods, were in over 230 stores at the year-end and will be rolled out further during 2005. 8% of sales in those stores with kiosks were processed through the kiosks, with this percentage improving throughout the year; and - Argos Direct grew by 21% compared to last year and accounted for 20% of sales in 2004 (2003: 18%). Building on this success, a decision has been made to invest in a third two-man delivery warehouse in Darlington. This will become operational in calendar year 2005. Sales ordered via the Internet grew by over 50% year-on-year, accounting for 4% of total sales. An additional 7% of sales were reserved remotely by phone or Internet for purchase and collection later in store. Improved choice through product range expansion remains a key driver of sales, with 13,000 lines in the current catalogue, 12% more than a year ago. The combination of more choice, together with Argos' multi-channel offer, is driving market share growth. Argos' ability to offer additional ranges using the catalogue, improved in-store stock management and home delivery, rather than adding retail space, is a competitive cost advantage. Argos Extra is to be rolled out to about 150 stores in July 2004. The Argos Extra catalogue, which was first trialled in January 2003, provides a major increase in choice through the addition of new and extended product ranges. It currently offers 17,000 lines, 4,000 more than the main catalogue, with increased ranges in Leisure, Home and Electricals. The current trial has 43 Argos Extra stores where the additional 4,000 lines are stocked-in. The facility to order the extended range for collection is available in a further 32 neighbourhood stores. To date, a high single-digit percentage sales uplift has been achieved in the Argos Extra stocked-in stores. Gross margins on Extra ranges are in line with the main catalogue. As a result, Argos Extra will be introduced into a further 73 stocked-in stores in July 2004. These will be a combination of new store openings (14 stores) and the conversion of existing stores, where stockroom space is being extended. The use of a catalogue to offer the additional range, as well as improved in-store stock management, home delivery and better utilisation of existing space, means no extra retail space is required. Capital investment of about £25m in 2005 will be used to reconfigure the current space (for example, by adding mezzanine stockrooms) and provide distribution infrastructure. The neighbourhood stores trial will continue, as will various systems developments and testing nationwide home delivery of Argos Extra products. Financial review Sales for the year of £3.4bn increased by 12%, of which 7% came from new stores which continue to exceed their investment hurdle rate. Like-for-like sales growth was 5%, following on from the previous year's 7% like-for-like performance. Gross margin was slightly up on the year, with supply chain benefits continuing to fund lower prices and to offset an adverse product mix, mainly caused by increasing sales of lower margin consumer electronics. Operating profit grew by 19%, excluding costs of £8.7m in 2003 relating to the integration of jungle.com. Expense levels as a percentage of sales were again reduced despite continuing investment in growth initiatives (such as Argos Extra) and in the infrastructure (including two new distribution centres opened during the year). Operating margin, excluding the £8.7m costs in 2003, advanced by a further 50 basis points to 8.8%. Homebase 12 months to 28 February 2004 2003 £m £m Sales 1,483 246 Total growth 5% - Like-for-like growth 3% - Operating profit 102.2 2.2 Operating margin 6.9% - At 28 February Number of stores 278 273 Of which: number with mezzanine floor 67 36 In the twelve month period to 28 February 2003, Homebase had sales of £1,416m and operating profit of £101.6m, an operating margin of 7.2% Homebase is being repositioned as the UK's leading home enhancement retailer. Its strategic priorities are to: - improve the existing core business; - enhance and extend its home furnishings offer; and - deliver synergies by leveraging the scale and expertise of ARG. During the year under review, Homebase has made substantial progress in executing this strategy. Operational review Homebase has started to improve the in-store experience, by better stock availability, less cluttered stores, enhanced retail standards and a major step forward in customer service, with over 17,000 staff completing the culture change programme. Customers are recognising these enhancements, which are directly contributing to the improvement in sales performance. Homebase will accelerate its new store opening programme. From its current base of 278 stores, Homebase plans to open an additional 10 stores in financial year 2005 and a further 15 to 20 stores each year from 2006 to 2008. Following the successful trial in 2004, roughly half of these will be smaller stores. This format is 30-35,000 square feet of trading space including the mezzanine and external garden area. It offers edited ranges in markets where a larger store would not be viable or available. The current performance of new stores, particularly small stores, is substantially above the investment hurdle rate. Homebase continues to roll out the mezzanine format. The performance of stores with mezzanines remains strong, generating an average sales uplift of 15% across the total store. The additional space is used to showcase kitchens, bathrooms and home furnishings, without reducing space for core DIY products. Homebase plans to add mezzanine floors to a further 35 stores in 2005, at a capital cost of about £1m each. In addition, most new stores will be built with a mezzanine. Home furnishing ranges and the mezzanine offer continue to be improved. The 'Mezzanine II' format has been trialled in 12 stores during 2004. These changes to mezzanine ranges, lighting, display and merchandising techniques, combined with more profitable space allocation, will be used in all new mezzanines. The miHome range, which offers contemporary, quality products at competitive prices, has been tested in ten stores since September 2003. These new ranges will be extended across the chain over time, whenever range reviews are undertaken, resulting in a significant offer of miHome product in all stores by Easter 2005. Homebase is starting to deliver the benefits of being part of ARG. In 2004, this has enabled the rapid launch of a new Homebase store card, use of the ARG Hong Kong and Shanghai buying offices and improvements to the big ticket home delivery offer. 2005 will see further benefits from the acceleration of direct importing and lower media buying costs. Supply chain gains are accelerating at Homebase. A thorough review of sourcing at Homebase and the areas of product overlap with Argos has been undertaken. The opportunities to drive down costs and to improve the Homebase product offer are significant, giving ARG confidence that savings at least equal to those envisaged at the time of acquisition will be achieved. The bulk of these gains will, as previously indicated, be re-invested in the business and in reducing prices further for consumers. Financial review Sales in the 12 months to 28 February 2004 increased by 5%, 3% on a like-for-like basis. The Home-related categories performed particularly strongly, especially in kitchens and bathrooms. In the second half, all major product areas showed year-on-year growth. Gross margin was in line with last year, with supply chain benefits exceeding £5m, mainly through terms harmonisation between Argos and Homebase. These gains funded lower prices and higher sales of lower margin kitchens, bathrooms and furniture. Operating profit in the year was £102.2m, a similar level to last year. This is after significant investment in the store portfolio, with higher depreciation and rates on the roll-out of mezzanine floors. The investment in costs of change was approximately £6m in the full year, covering mainly staff training and the one-off costs associated with improving the home delivery offer. As is GUS' established practice, a detailed comment on Homebase's first quarter trading will be made on 21 July 2004. For Homebase, it will cover sales in the four months to 30 June 2004. ARG Financial Services (ARG FS) 12 months to 31 March 2004 2003 £m £m Sales 60 34 Profit before funding costs 6.8 (6.4) Interest charge (12.3) (6.7) Operating (loss) (5.5) (13.1) At 31 March Gross loan book 374 192 Number of active store card holders (000s) 765 634 ARG Financial Services works in conjunction with Argos and Homebase to provide their customers with the most appropriate credit offers to drive product sales. This currently includes store cards, personal and product loans and insurance products. As well as driving merchandise sales in the stores, ARG Financial Services is expected to move into profit after funding costs for the first time in 2005 and to generate significant profits over time. Operational review In 2004, ARG Financial Services grew strongly, almost doubling its total loan book. The Argos store card has maintained its good performance during the year, now funding 9% of sales at Argos. The store card outstanding receivables have grown by nearly 50% in the year. Argos loans also continued to grow well, with the number of loans issued and the gross loan book more than doubling in the year. Following the acquisition of Homebase in December 2002, ARG Financial Services utilised its existing infrastructure to launch quickly to Homebase customers both a range of personal and product loans (in April 2003) and a new store card (in October 2003). ARG Financial Services expects to invest about a further £150m in its loan book during 2005 to fund additional lending to both Argos and Homebase customers. Financial review In 2004, ARG Financial Services earned a profit of £6.8m before funding costs which are charged against operating profit. The loan book at ARG FS is funded on the GUS balance sheet, with an assumption of 10% equity and 90% debt. The interest cost of the debt (£12.3m in 2004) is charged against ARG FS operating profit, with the Group interest charge being reduced by the same amount. Reported operating losses after funding costs reduced to £5.5m in 2004, reflecting the maturity of the Argos store card loan book, which was in profit for the first time in 2004 since its launch in 2001. This was offset somewhat by the start-up investment to launch the Homebase products. Wehkamp 12 months to 31 March 2004 2003 Change at £m £m constant FX Sales 235 226 (3%) Operating profit 21.4 19.9 - Operating margin 9.1% 8.8% Sales at Wehkamp, the leading home shopping brand in Holland, were 3% lower in euros compared to last year. This reflects the difficult Dutch economy and retail market, as well as increased competition. Wehkamp has a multi-channel model and is the leading Internet retailer in Holland. In 2004, about one-third of its merchandise sales were via the website and this is expected to rise further in 2005. The change in product mix towards higher margin fashion, together with tight control of operating costs, resulted in a slightly improved operating margin. The £/euro exchange rate moved during the year from an average of €1.55 in the year to March 2003 to €1.44 in 2004. This increased reported sales by £16m and operating profit by £1.5m. EXPERIAN Sales up 14% and profit up 20% for continuing activities at constant exchange rates Fourth consecutive six-month period of double-digit sales and profit growth Excellent cash generation, with more than 100% of operating profit again converted into operating cash flow Further improvement in portfolio of businesses, with acquisitions in high growth areas and divestment of low growth, low margin outsourcing activities Strong sales growth from new initiatives by product, geography and market Investing for growth in 2005 in new products and infrastructure 12 months to 31 March Sales Operating profit 2004 2003 2004 2003 £m £m £m £m -------- -------- -------- -------- Experian North America 665 662 181.2 168.7 Experian International 550 446 108.8 86.6 -------- -------- -------- -------- Total continuing activities 1,215 1,108 290.0 255.3 % growth at constant FX 14% 14% 20% 24% Discontinued activities 71 93 - 1.1 Closure costs - - (7.8) - -------- -------- -------- -------- Total reported 1,286 1,201 282.2 256.4 -------- -------- -------- -------- Operating margin - excluding FARES 20.8% 20.1% - including FARES 23.9% 23.0% -------- -------- Operating cash flow 298 270 -------- -------- Notes (relevant to all Experian tables): Discontinued activities are those sold during the year (North American lettershops, Italian call centre, cheque printing in France, business process outsourcing in Holland) and discontinuing UK contact centres. Trading Updates in 2005 will report sales growth for continuing activities only. Closure costs relate to UK contact centres. Operating margin is for continuing activities only. For FARES, the 20% owned real estate information associate, Experian reports its share of FARES profits but not sales. Segmental information on Experian is given in the Appendix. Additional updated information on Experian and its markets is available on the GUS website, www.gusplc.com. Experian is a global leader in providing information solutions to organisations and consumers. It helps organisations find, develop and manage profitable customer relationships by providing information, decision-making solutions and processing services. It has over 40,000 clients in more than 60 countries. Experian has a clear strategy for growth: - build on core businesses; - sell new value-added solutions; and - grow by targeted acquisitions, against which further progress was made in 2004. Experian has continued to win major contracts during the year across its businesses. It has built on its strong global position, with success in both its largest markets (the US and UK) and elsewhere, including in: - France (Jedeclare.com), for online submission of statutory company returns; - Italy (Iveco, part of FIAT), a database contract; - Spain (Amena), a database contract for this mobile phone operator; and in - Korea (Kookmin Bank), Malaysia (AmBank), Australia (Westpac) and Turkey (Kredi Kayit Burosu), all decision solutions via Experian-Scorex. Experian is also building considerable momentum in non-traditional vertical markets, such as government. Product innovation remains key to Experian. Significant new product launches during 2004 include the direct-to-consumer service in the UK (CreditExpert), building on the US model; the international business information reports service now covering companies all over the world; and a new database management tool (Totalvue) to help US retail and catalogue companies improve their marketing capabilities. Experian's portfolio of businesses has been further strengthened. Including the ongoing programme to buy its US affiliate bureaux, Experian spent £162m during the year on acquisitions of complementary businesses. These acquisitions bring new data or products; take Experian into new geographical or vertical markets; or strengthen core operations by improving efficiencies. All acquisitions are performing in line with plan and are expected to achieve double-digit post-tax returns. Certain outsourcing activities, with below average sales growth and operating margins, have been sold or closed during the year. Experian North America 12 months to 31 March 2004 2003 Growth at £m £m constant FX Sales - Continuing activities 665 662 10% - Discontinued activities 38 56 n/a - Total reported 703 718 7% Operating profit - Direct business 143.9 136.6 15% - FARES 37.3 32.1 27% - Continuing activities 181.2 168.7 18% - Discontinued activities (1.6) 2.8 n/a - Total reported 179.6 171.5 15% Operating margin - excluding FARES 21.6% 20.6% - including FARES 27.2% 25.5% The year under review has seen good growth in Experian North America, driven by its balanced portfolio of established businesses and by new growth initiatives. Operational review Sales from continuing activities increased to $1,128m (£665m), up by 10% in dollars. Of this, 2% came from corporate acquisitions made in the second half of the year. These were CheetahMail (e-mail delivery), Marketswitch (decision solutions) and MetaReward (Internet loyalty marketing to complement Consumer Direct). Credit Information and Solutions together grew sales by 12%, 9% excluding corporate acquisitions, with good growth from Consumer Direct, from the successful integration of affiliate acquisitions and from new products such as on-line notification services and collections solutions. Sales to the mortgage sector accounted for about 8% of continuing North America revenue during 2004, having peaked at 10% in the April to June 2003 quarter. Following a strong first half, the anticipated slowdown in the mortgage refinancing market reduced sales growth by 2% in the second half. Consumer Direct grew by over 40% during the year. With over 1.7m subscribers, it remains the clear leader in this fast growing market. This position is being reinforced by its exclusive integration agreements with leading Internet portals, including Yahoo, AOL and MSN; by its new product developments, such as the launch of monthly membership billing; and by higher transaction volumes from the up-sell of services such as credit scores and tri-bureaux reports. A further 10 affiliate bureaux were purchased during the year, bringing the total to 21 at a combined cost of $166m. Integration is progressing smoothly, with expected returns being exceeded. Marketing Information and Solutions together grew sales by 6%, with Marketing Information improving throughout the year. Although consumer marketing information sales remained flat, Experian has significant momentum in sales of business and automotive marketing information. Marketing Solutions saw strong sales growth, with the successful delivery of over 20 database projects. Experian continues to invest in transforming its marketing business to a more solutions-based model. Financial review The lettershop operations were sold in December 2003 for $28m. Excluding these, sales were up 10% to $1,128m and profits up 18% to $307m (£181m). Excluding FARES, the 20%-owned real estate information associate, the operating margin for continuing activities increased by 100 basis points. This reflects operational leverage from growing sales and the benefits of efficiency improvements. Restructuring costs of about $6m, similar to last year, were charged to operating profit. These relate largely to further cost improvement programmes in Marketing. Operating profit from the 20% holding in FARES was $63m (2003: $50m). FARES was also affected by the slowdown in mortgage refinancing in the second half of the year. However, the acquisition by FARES of Transamerica's real estate tax service and flood hazard certification businesses in October 2003 has helped to offset this impact. Integration of these businesses is progressing well. The £/$ exchange rate moved substantially during the year from an average of $1.55 in the year to March 2003 to $1.70 in 2004. This reduced reported sales by £68m and operating profit by £17.3m. FACT Act The Fair and Accurate Credit Transactions Act (FACTA) was signed into law on 4 December 2003, permanently extending the national standards for consumer credit reporting in the US. Among other things, it requires national credit reporting agencies to provide consumers, on request via a centralised source, one free credit report annually. Discussions continue with the Federal Trade Commission to establish how this will work in practice. Final rules are expected in June 2004 regarding the centralised source and later this year regarding all other aspects of FACTA compliance. If the free report requirement results in an undue burden of costs on Experian, we will seek to recover costs from our clients. Experian International 12 months to 31 March 2004 2003 Growth at £m £m constant FX Sales - Continuing activities 550 446 20% - Discontinued activities 33 37 n/a - Total reported 583 483 18% Operating profit - Continuing activities 108.8 86.6 24% - Discontinued activities 1.6 (1.7) n/a - Closure costs (7.8) - n/a - Total reported 102.6 84.9 19% Operating margin 19.8% 19.4% Experian International, which accounts for 45% of total Experian sales, had another excellent year, continuing its long record of double-digit sales and profit growth. Operational review Sales from continuing activities grew by 20% at constant exchange rates, of which 13% came from acquisitions. These include Nordic Info Group (acquired in January 2003), Experian-Scorex (March 2003) and DMS Atos, French cheque processing and document management (September 2003). The latter is expected to enhance total sales growth by about 6% in the first half of the current year. Sales in the UK grew by over 10% again, building on its market leadership position in consumer credit information and solutions and on its growing share in the business credit and marketing area. Credit Information and Solutions sales grew by 11%, excluding corporate acquisitions and at constant exchange rates. This was driven by solid growth in UK consumer and business information, by high demand for value-added products and by strong performances in continental European credit information. In the current year, Experian's account processing operations will be affected by one large client moving its UK processing in-house, as previously planned. However, Experian has won a major contract with Marks & Spencer and extended an existing contract with Morgan Stanley in this area. In its first year of full ownership, Experian-Scorex has delivered double-digit sales growth by continuing to develop its leading position in decision solutions. It has won a number of significant contracts during the year, including Barclaycard and CIT Group (pan-European application processing for this commercial finance client). Marketing Information and Solutions sales also grew by 11%. Despite a continuing difficult background in the direct marketing industry in the UK, Experian delivered strong growth in business-to-business marketing, in the UK insurance sector and in Southern Europe, where the introduction of global products is driving new business. Outsourcing accounted for 24% of continuing sales in 2004, with the remaining businesses based predominantly in France, where cheque processing makes up almost half of sales. This is a mature market where Experian is consolidating capacity and reducing costs, while building strong relationships with French financial institutions. Experian is also offering some innovative outsourcing services in France. For example, it has won a multi-million euro contract with the Paris Transport Authority to provide back office, processing and document handling services for season tickets (Carte Integrale) and weekly and monthly travel cards (Carte Orange). Financial review Excluding discontinued activities and at constant exchange rates, sales increased by 20% and operating profit by 24%. Of the latter, just over half came from acquisitions and the remainder from progress in the underlying business. The closure costs of £7.8m charged to operating profit relate to the phased closure of Experian's call centres and remittance processing activities in the UK by 2006, which was announced recently. During the current year, Experian International will start to migrate its operations to its new purpose-built computer centre in Nottingham. Operating costs will increase by several million pounds, but the new centre will enable Experian to offer its clients greater resilience and provides additional capacity for future growth. BURBERRY GUS has a 66% stake in Burberry Group plc. The following is an abridged version of the latter's preliminary announcement released on 24 May 2004. 12 months to 31 March 2004 2003 Growth at £m constant FX £m Sales 676 594 16% Operating profit 141.2 116.7 24% Operating margin 20.9% 19.7% Operating cash flow 155 108 At 31 March Number of retail locations 145 132 - Total selling space (000s sq ft) 410 360 12% In the year to March 2004, Burberry delivered strong results and continued its strategic progress. Management successfully strengthened the product line, refined and expanded distribution and continued to develop targeted regions. Burberry's product design, development and merchandising teams produced exciting achievements during the year. For example, candy check, a pink adaptation of Burberry's iconic pattern, was successfully offered across a range of handbags and other accessories. Burberry saw growth across all distribution channels. Retail selling space increased by 12% during the year, with nine new stores, including one in Milan. In wholesale, Burberry continued to concentrate on key accounts, add doors selectively in developed markets and utilise the channel as a primary means to address emerging markets, such as China. In licensing, Burberry Brit for women was the year's highlight, bringing important perception and awareness benefits to the Burberry brand. By region, Burberry extended its global reach. At constant exchange rates, Burberry achieved solid growth across the US (up 26%), Europe (up 10%) and Asia (up 17%). Sales growth resumed in Spain, reflecting the successful repositioning efforts in that market. In Japan, Burberry continued its long-term brand enhancement activities by assuming the role of directly managing and monitoring the non-apparel licensees in this market. In line with the ongoing execution of its core growth strategies, Burberry's plans for 2005 include an approximate 8% increase in net retail selling space; high single-digit percentage wholesale sales growth, as indicated by orders received to date for the Autumn/Winter 2004 season; and more moderate licensing revenue growth relative to 2004. Burberry delivered strong financial results. Reported sales grew by 14%, with growth of 13% in retail, 14% in wholesale and 15% in licensing. The operating margin expanded from 19.7% to 20.9%, driven by strong gross margin gains. SOUTH AFRICAN RETAILING 12 months to 31 March 2004 2003 Growth at £m £m constant FX Sales 160 114 13% Operating profit 43.5 31.8 11% Operating margin 27.2% 27.8% At 31 March Number of stores - Lewis 400 398 - Best Electric 47 45 - Lifestyle Living 18 - Our South African Retailing business trades as the Lewis Group, which is a leading retailer in Southern Africa, selling furniture, household and electrical goods mainly on credit, together with associated financial products. It is the largest single brand by number of stores. The Lewis Group provides consumers with distinctive convenience, choice and credit on affordable terms, resulting in significant customer loyalty. It also has a strong focus on constantly improving operational efficiency. The Lewis Group performed strongly in 2004, with sales in rand up 13% and operating profit up 11%. Sales growth accelerated from 6% in the first half to 21% in the second half. Gross margin was unchanged and operating margin remained above 27%, slightly impacted by lower legislated service charge income. Lifestyle Living, a furniture retailer with 18 stores in the Cape area focused on higher income market segments, was acquired in October 2003. It contributed about 2% to sales growth in the full year. Strong consumer demand in South Africa and a reduction in overcapacity in the furniture retailing industry contributed to this performance, with lower inflation, declining interest rates and a strengthening rand enabling lower prices, especially in electrical products. The Lewis Group also made further progress with its own growth initiatives. These include the development of exclusive furniture and electrical products, enhanced training methods and innovative marketing and store promotions. Fifteen new stores are planned for 2005. The partial IPO of the Lewis Group is planned for calendar 2004, subject to market conditions. This transaction will enable GUS to realise some value, while enhancing the development opportunities for Lewis. The rand strengthened from an average rate of £1=R14.89 in 2003 to an average of R12.05 in 2004. This increased reported sales by £31m and operating profit by £8.3m in the year. CENTRAL ACTIVITIES 12 months to 31 March 2004 Operating profit/(loss) 2004 2003 £m £m Central costs (19.9) (19.3) Finance - 6.6 gusco.com - (2.7) Total (19.9) (15.4) As previously announced, the results of the Finance Division and gusco.com have been included from 1 April 2003 in central costs as they are so small. Both were closed during the year, with any remaining assets sold to third parties. DISCONTINUED OPERATIONS 12 months to 31 March 2004 Operating profit 2004 2003 £m £m Home shopping and Reality - 35.3 Property 18.0 25.9 Total 18.0 61.2 In May 2003, GUS sold for about £590m its Home shopping businesses in the UK, Ireland and Sweden, together with Reality, its logistics and customer care business. Gross disposal proceeds of £450m have been received and the balance of about £140m is due in May 2006. As the completion statements in respect of the sold businesses are still subject to agreement, the profits and losses of the discontinued operations for the two-month period up to disposal will be reported in the 2005 financial statements. Following the sale of GUS' 50% stake in its property joint venture in November 2003 for a total of £163m, Property is treated as a discontinued operation. The £18.0m of operating profit is for the period up to disposal. INTEREST COSTS At £54m, interest costs were £4m lower than last year. This principally reflects the reduced interest costs arising from the proceeds of selling the Home shopping businesses (£21m), the Group's share of its property joint venture (£10m) and a further 11.5% stake in Burberry (£3m). These were largely offset by the additional impact of the interest costs of acquiring Homebase (£31m). EXCEPTIONAL ITEMS The only costs treated as exceptional items are those associated with the sale of businesses. All other restructuring costs have been charged against operating profit in the divisions in which they were incurred. A profit of £159m was recorded on the sale of 11.5% of the shares of Burberry. This was partly offset by losses associated with businesses sold during the year, being £43m on Home shopping and Reality (of which £11m related to goodwill previously written-off to reserves); and £58m on other business disposals, mainly Experian North America's lettershop operations (of which £24m related to goodwill previously written-off to reserves). CASH FLOW AND NET DEBT The Group's free cash flow was £336m in 2004, compared with £636m in 2003. Included within the £636m was a £187m inflow from the reduction in working capital in the Group's vehicle finance business, the remainder of which was sold in December 2003. Capital expenditure in 2004 was £306m, with an increase to about £400m planned for 2005. Net cash flow, after acquisitions and divestments, dividends and the special pension contributions was £707m. This, and the positive impact of exchange rates (£179m), reduced net debt at 31 March 2004 to £1,200m, down from £2,086m at 31 March 2003. PENSIONS As previously disclosed, GUS' two UK Defined Benefit pension schemes had modest deficits at 31 March 2003. To improve the funding of these schemes, the Group made voluntary special contributions totalling £100m in March 2004. The contributions will marginally increase earnings in the current financial year and beyond. The Group continues to report pension costs under SSAP 24. Under FRS 17, the deficit at 31 March 2004 for all retirement benefit schemes is £131m, net of tax relief. This is after taking into account the £100m special contributions. It should be noted that the deficit is less than 2% of the Group's market capitalisation and can prudently be resolved over a period of time. SHARE BUYBACK In November 2003, following the disposal of Home shopping and Reality, the 50% share in the property joint venture and a further 11.5% stake in Burberry, the Board of GUS announced that it was to review the possibility of returning surplus funds to shareholders, while at the same time ensuring that the interests of bondholders and lenders were protected by maintaining a strong balance sheet. The review has taken account of: - the significant growth opportunities open to the Group, and the consequent scope for investment, particularly in ARG Financial Services, ARG infrastructure and for infill acquisitions for Experian; - the £100m voluntary special contributions made to the Group's pension schemes; and - discussions held with the credit rating agencies. Following the completion of this review, the Board has decided to initiate a share buyback programme over the next twelve months, aimed at purchasing approximately £200m of GUS shares. This repurchase programme will, of course, be on top of GUS' dividends to shareholders of £271m in 2004. The scope for further buybacks will be reviewed regularly. INTERNATIONAL FINANCIAL REPORTING STANDARDS It will become mandatory for the consolidated financial statements of all European Union listed companies to be reported in accordance with International Financial Reporting Standards (IFRS) for periods commencing on or after 1 January 2005. The areas of greatest impact for GUS have been identified and work is under way to ensure the required compliance with IFRS for the year ending 31 March 2006. An impact assessment has identified that changes in accounting treatment for goodwill, other intangibles, property, share-based payments, pensions, deferred tax and financial instruments may have the greatest impact. The presentation of the Financial Statements will also be affected. APPENDIX Divisional cash flow Year to 31 March 2004 £m Operating Depreciation Capital spend Change in Operating cash profit working capital flow ARG 415 117 (159) (329) 44 (continuing) Experian 282 119 (102) (1) 298 Burberry 141 29 (29) 14 155 Other 42 26 (16) 11 63 Total 880 291 (306) (305) 560 Group Interest (48) Taxation (176) Free cash flow 336 Acquisitions and divestments 715 Dividends (244) Special pension contributions (100) Net cash flow 707 Year to 31 March 2003 Operating Depreciation Capital spend Change in Operating cash profit working capital flow £m ARG 250 65 (118) (101) 96 (continuing) Experian 256 118 (128) 24 270 Burberry 117 19 (56) 28 108 Other 77 43 (27) 221 314 Total 700 245 (329) 172 788 Group Interest (11) Taxation (141) Free cash flow 636 Acquisitions and divestments (1,035) Dividends (220) Special pension contributions (20) Net cash flow (639) Additional information on Experian Reported sales for Experian North America 12 months to 31 March 2004 2003 Underlying $m $m change(1) Credit - Information 722 645 10% - Solutions 102 93 7% Total 824 738 9% Marketing - Information 140 139 (1%) - Solutions 164 147 12% Total 304 286 6% Continuing activities 1,128 1,024 8% Discontinued activities 64 87 Total sales 1,192 1,111 (1) Excluding corporate acquisitions Reported sales for Experian International 12 months to 31 March 2004 2003 Underlying £m £m change (1) Credit - Information 141 99 11% - Solutions 180 153 11% Total 321 252 11% Marketing - Information 61 55 11% - Solutions 37 32 12% Total 98 87 11% Outsourcing(2) 135 109 (4%) Eliminations (4) (2) Continuing activities 550 446 7% Discontinued activities 33 37 Reported sales 583 483 (1) Excluding corporate acquisitions and at constant exchange rates (2) Excluding the previously anticipated completion of a three-year contract with one client in France, Outsourcing sales were up 4% ARG - Restated sales and operating profit GUS has adopted FRS 5 Application Note G (Revenue Recognition) for the first time in its results for the year to 31 March 2004. Sales for ARG have been restated for the year to 31 March 2003. No other divisions required restatement. The adoption of FRS 5 has no impact on profit. The Home shopping and Reality businesses were sold in May 2003 and were classified as discontinued operations. The tables below show sales and profits for the 12 months to 31 March 2003, reflecting continuing and discontinued operations and the impact of FRS 5. Sales 12 months to 31 March As reported FRS 5 impact Disposal impact Restated 2003 £m Argos 3,192 (31) (144) 3,017 Homebase 251 (5) - 246 Home Shopping UK & Ireland 1,482 - (1,482) - Financial Services 34 - - 34 Home Shopping Continental Europe 275 (2) (47) 226 Continuing 5,234 (38) (1,673) 3,523 operations Discontinued - - 1,673 1,673 operations Total 5,234 (38) - 5,196 Operating profit 12 months to 31 March 2003 As reported Disposal impact Restated £m Argos 238.2 2.6 240.8 Homebase 2.2 - 2.2 Home Shopping UK & Ireland 15.4 (15.4) - Financial Services 4.6 (17.7) (13.1) Home Shopping Continental Europe 24.7 (4.8) 19.9 Continuing operations 285.1 (35.3) 249.8 Discontinued operations - 35.3 35.3 Total 285.1 - 285.1 GUS plc GROUP PROFIT AND LOSS ACCOUNT for the year ended 31 March 2004 2004 2004 2004 2003 Before Exceptional Total (Restated) Exceptional Items (Note 1) Items (Note 2) £m £m £m £m Turnover Continuing operations 7,279 - 7,279 5,435 Discontinued operations 269 - 269 1,673 ----------- ----------- ------ ------- Total turnover 7,548 - 7,548 7,108 Cost of sales (4,273) - (4,273) (4,092) ----------- ----------- ------ ------- Gross profit 3,275 - 3,275 3,016 ----------- ----------- ------ ------- ----------- ----------- ------ ------- Net operating expenses before (2,458) (5) (2,463) (2,408) goodwill charge Goodwill charge (193) - (193) (162) ----------- ----------- ------ ------- Net operating expenses (2,651) (5) (2,656) (2,570) ----------- ----------- ------ ------- Operating profit 624 (5) 619 446 ----------- ----------- ------ ------- Continuing operations 624 (5) 619 430 Discontinued operations - - - 16 ----------- ----------- ------ ------- Share of operating profit of BL Universal PLC (joint venture) - discontinued operations 18 - 18 26 Share of operating profit of associated undertakings - continuing operations 46 - 46 44 ----------- ----------- ------ ------- Trading profit 688 (5) 683 516 Profit on disposal of shares in - 157 157 161 Burberry - continuing operations Disposal of Home Shopping and Reality businesses - discontinued operations: Provision for loss on disposal - - - (210) ----------- ----------- ------ ------- Realised loss on disposal - (246) (246) - Less: utilisation of 2003 - 210 210 - provision for loss on disposal ----------- ----------- ------ ------- - (36) (36) - Loss on sale of interest in BL - (5) (5) - Universal PLC - discontinued operations Loss on sale of other businesses - (53) (53) - - continuing operations ----------- ----------- ------ ------- Profit on ordinary activities 688 58 746 467 before interest ----------- ----------- Net interest (54) (58) ------ ------- Profit on ordinary activities 692 409 before taxation Tax on profit on - UK (140) (95) ordinary activities (Note 3) - Overseas (52) (46) ------ ------- (192) (141) ------ ------- Profit on ordinary activities 500 268 after taxation Equity minority interests (27) (17) ------ ------- Profit for the financial year 473 251 Dividends (Note 6) (271) (232) ------ ------- Retained profit for the financial 202 19 year ------ ------- Profit before amortisation of 827 642 goodwill, exceptional items and taxation - £m ------ ------- Earnings per share (Note 4) - Basic 47.4p 25.1p - Diluted 47.0p 25.0p Earnings per share before amortisation of goodwill and exceptional Items (Note 4) - Basic 60.7p 47.8p - Diluted 60.1p 47.5p Dividend per share - Interim 8.0p 6.9p - Final 19.0p 16.4p ------ ------- - Total 27.0p 23.3p ------ ------- GUS plc GROUP BALANCE SHEET at 31 March 2004 2004 2004 2003 2003 £m £m £m £m ------- ------- -------- -------- Fixed assets Intangible assets - goodwill 2,338 2,436 Intangible assets - other 159 178 Tangible assets 1,038 1,043 Investment in joint venture - 210 Other investments 151 128 ------- -------- 3,686 3,995 ------- -------- Current assets Stocks 823 853 ------- -------- Debtors - due within one year 1,088 1,803 - due after more than one year 540 1,628 265 2,068 ------- -------- Investments 101 109 Cash at bank and in hand 524 243 ------- -------- 3,076 3,273 Creditors Amounts due within one year (2,233) (2,699) ------- -------- Net current assets 843 574 ------- -------- Total assets less current liabilities 4,529 4,569 Creditors - amounts due after more than (1,433) (1,791) one year Provisions for liabilities and charges (89) (138) ------- -------- Net assets 3,007 2,640 ------- -------- Capital and reserves Called up share capital 254 252 Share premium account 35 6 Revaluation reserve 40 131 Profit and loss account 2,518 2,154 ------- -------- Total equity shareholders' funds 2,847 2,543 Equity minority interests 160 97 ------- -------- Capital employed 3,007 2,640 ------- -------- GUS plc GROUP CASH FLOW STATEMENT for the year ended 31 March 2004 2004 2003 £m £m ------- -------- Cash flow from operating activities Operating profit 619 446 Depreciation and amortisation charges 483 407 (Increase)/decrease in working capital (371) 7 ------- -------- 731 860 Dividends received from associated undertakings 45 24 (including £9m (2003 nil) in respect of discontinued operations) Returns on investments and servicing of finance (48) (11) Taxation (176) (141) Capital expenditure (306) (329) Financial investment (including £82m (2003 £5m) in 37 (13) respect of discontinued operations) Acquisition of subsidiaries (132) (1,241) Disposal of subsidiaries and joint venture 779 239 (including £558m (2003 nil) in respect of discontinued operations) Dividends paid (244) (220) ------- -------- Net cash inflow/(outflow) before management of liquid 686 (832) resources and financing Management of liquid resources 8 (134) Financing - issue of Ordinary shares 31 3 - purchase of own shares for cancellation - (1) - change in debt and lease financing (534) 934 ------- -------- Increase/(decrease) in cash 191 (30) ------- -------- Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash 191 (30) Cash outflow/(inflow) from movement in debt and lease 534 (934) financing Cash (inflow)/outflow from movement in liquid (8) 134 resources ------- -------- Movement in net debt resulting from cash flows 717 (830) Finance leases acquired with subsidiary - (2) New finance leases (2) (7) Investments transferred from current to fixed assets (8) - Exchange movements 179 37 ------- -------- Movement in net debt 886 (802) Net debt at beginning of year (2,086) (1,284) ------- -------- Net debt at end of year (1,200) (2,086) ------- -------- GUS plc DIVISIONAL ANALYSIS for the year ended 31 March 2004 Turnover Profit before taxation 2004 2003 2004 2003 (Restated) (Restated) (Note 1) (Note 1) £m £m £m £m ------- -------- ------- --------- Argos Retail Group Continuing operations: Argos 3,384 3,017 297.4 240.8 Homebase 1,483 246 102.2 2.2 Financial 60 34 (5.5) (13.1) Services Wehkamp 235 226 21.4 19.9 ------- -------- ------- --------- 5,162 3,523 415.5 249.8 Discontinued 269 1,673 - 35.3 operations ------- -------- ------- --------- 5,431 5,196 415.5 285.1 Experian Experian North 703 718 179.6 171.5 America Experian 583 483 102.6 84.9 International ------- -------- ------- --------- 1,286 1,201 282.2 256.4 Burberry 676 594 141.2 116.7 South African 160 114 43.5 31.8 Retailing Property - - - 18.0 25.9 discontinued operations Central 6 18 (19.9) (15.4) activities ------- -------- ------- --------- 7,559 7,123 880.5 700.5 Inter-divisional (11) (15) turnover (principally Experian) ------- -------- 7,548 7,108 ------- -------- Net interest (53.9) (58.1) ------- --------- Profit before amortisation of goodwill, 826.6 642.4 exceptional items and taxation Amortisation of (192.6) (142.9) goodwill Exceptional items (Note 2) (including goodwill 58.3 (90.1) of nil (2003 £19.0m)) ------- --------- Profit before taxation 692.3 409.4 ------- --------- The turnover and profit figures for Homebase reported in the year ended 31 March 2003 cover the post acquisition period from 20 December 2002. The profit before taxation of the Property division represents the Group's share of the operating profit of BL Universal PLC up to the date of its sale on 17 November 2003. Amortisation of goodwill includes £127m (2003 £99m) relating to Argos Retail Group, £59m (2003 £38m) relating to Experian and £7m (2003 £6m) relating to Burberry. GUS plc GEOGRAPHICAL ANALYSIS for the year ended 31 March 2004 Turnover by origin Profit before taxation 2004 2003 2004 2003 (Restated) (Note 1) £m £m £m £m United Kingdom & 5,741 5,440 553.7 416.8 Ireland Continental Europe 676 603 65.3 47.1 North America 859 853 198.1 185.8 Rest of World 272 212 63.4 50.8 ------ ------- ------- ------- 7,548 7,108 880.5 700.5 ------ ------- Net interest (53.9) (58.1) ------- ------- Profit before amortisation of goodwill, 826.6 642.4 exceptional items and taxation Amortisation of goodwill (192.6) (142.9) Exceptional items (Note 2) 58.3 (90.1) ------- ------- Profit before taxation 692.3 409.4 ------- ------- GUS plc STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES for the year ended 31 March 2004 2004 2003 £m £m ------- -------- Profit for the year 473 251 Revaluation of properties 3 15 Currency translation differences 33 71 -------- -------- Total recognised gains and losses for the year 509 337 -------- -------- RECONCILIATION OF MOVEMENT IN GROUP SHAREHOLDERS' FUNDS for the year ended 31 March 2004 2004 2003 £m £m ------- -------- Profit for the year 473 251 Dividends - Interim (80) (68) - Final (191) (164) ------- -------- 202 19 Goodwill credited to reserves 35 19 Shares issued under option schemes 31 3 Shares cancelled on purchase - (1) Revaluation of properties 3 15 Currency translation differences 33 71 ------- -------- 304 126 Opening shareholders' funds 2,543 2,417 ------- -------- Closing shareholders' funds 2,847 2,543 ------- -------- ANALYSIS OF NET BORROWINGS at 31 March 2004 2004 2003 £m £m -------- -------- Cash and other liquid resources 460 283 Debt due within one year (336) (678) Finance leases (12) (19) Debt due after more than one year (1,312) (1,672) -------- -------- Net borrowings at end of year (1,200) (2,086) -------- -------- 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 2004 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. On 27 May 2003 the Group announced the disposal of its Home Shopping and Reality businesses and, accordingly, the results of these operations are classified as discontinued. To give an indication of ongoing profitability, continuing and discontinued operations are now separately reported within the results of Argos Retail Group with the relevant segmental reporting comparative figures restated. The results of the discontinued operations of Argos Retail Group in the comparative period are analysed below: Discontinued operations Turnover Profit before taxation 2003 2003 £m £m ------ ------ Argos 144 (2.6) Home Shopping UK & Ireland 1,482 15.4 Financial Services - 17.7 Home Shopping Continental Europe 47 4.8 ------ ------ 1,673 35.3 ------ ------ The completion statements in respect of the sold Home Shopping and Reality businesses are still subject to agreement and have been referred to a third party expert for determination. The Group has assumed a neutral trading position for the period from 1 April 2003 to the date of disposal on 27 May 2003 and, once these completion statements are agreed, any profit or loss will be recorded as an exceptional item. During the year the Group disposed of its property joint venture with British Land and its results are classified as discontinued operations. As previously announced, from 1 April 2003 the results of the Finance Division and gusco.com are reported within Central activities, which also includes Central costs. Comparative figures have been restated. For the year ended 31 March 2003 turnover of £18m and profits of £6.6m for the Finance Division and losses of £2.7m in respect of gusco.com, are included within Central activities. The Group has adopted FRS 5 Application Note G 'Revenue Recognition' for the first time in these financial statements. It only affects the Argos Retail Group and has no material effect on reported profits or turnover. The Application Note requires that amounts recorded as turnover should exclude the sales value of estimated returns from the total sales value of the goods supplied to customers. Such provision has now been made representing the Group's estimate of the sales value of product sold during the year that will be returned in the following year. The Application Note also requires that turnover should be recorded net of discounts. For sales promotion purposes the Group operates a variety of schemes that give rise to goods being sold at a discount to standard retail price. These will include redemption of loyalty card points, staff discounts, Friends and Family evenings and the redemption of promotional vouchers. Turnover is now adjusted to show sales net of all related discounts. The Group acts as an agent in arranging the sales of a variety of third party provided financial services products. The Application Note requires that where the Group acts as an agent, the commission received should be recorded as turnover. Group turnover now includes only commission received from acting as an agent and excludes amounts received from the customer that are payable to the principal. The effect of adopting FRS 5 Application Note G is to reduce turnover by £82m in the year ended 31 March 2004. Comparative figures have been restated and Group turnover in the year ended 31 March 2003 has been restated from £7,146m to £7,108m. There is no effect on profit before taxation. The results included for Homebase in the current year are for the twelve months ended 28 February as Homebase prepares its financial statements to the end of February to avoid distortions relating to the timing of Easter and related promotions and trading patterns. GUS plc NOTES TO THE FINANCIAL STATEMENTS (continued) 2. Exceptional items Exceptional items comprise: 2004 2003 £m £m Continuing operations Disposal of shares in Burberry 157 161 Income/(cost) in respect of employee share schemes in connection with the disposal of Burberry shares 2 (22) ------- ------- 159 139 Loss on sale of other businesses (53) - Restructuring costs incurred by Argos Retail Group following the disposal of Home Shopping and Reality businesses (7) - ------- ------- 99 139 ------- ------- Discontinued operations Disposal of Home Shopping and Reality businesses: Provision for loss on disposal - (210) ------- ------- Realised loss on disposal (246) - Less: utilisation of 2003 provision 210 - ------- ------- (36) (210) Disposal of interest in BL Universal PLC (joint venture) (5) - Impairment of goodwill - (19) ------- ------- (41) (229) ------- ------- ------- ------- Total exceptional profit/(charge) 58 (90) ------- ------- An 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. A further stake of 11.5% in the ordinary share capital of the company was sold on 19 November 2003. The associated exceptional item comprises the excess of sale proceeds, less costs, over the related portion of net assets disposed of at that date. The loss on the sale of other businesses is principally in respect of the sale by Experian North America of its Outsourcing activities and includes a charge of £24m in respect 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 charged in the year ended 31 March 2003 represented the difference between the sale proceeds of £590m and the net assets to be disposed of which amount to £800m, subject to the agreement of completion statements. The further charge in the year ended 31 March 2004 relates to professional and other costs associated with the transaction, and a charge of £11m in respect of goodwill previously written off to reserves. The disposal of the 50% equity stake in the property joint venture BL Universal PLC was announced on 17 November 2003. The associated exceptional item comprises the deficit of sale proceeds, less costs, over the related portion of net assets at that date. The goodwill on disposal of subsidiary undertakings charged in 2003 related to goodwill, previously written off to reserves, on the closure of Innovations. 3. Taxation The effective rate of tax, before amortisation of goodwill, the profit on the disposal of shares in Burberry and loss on sale of businesses (including the joint venture), has increased from 22.7% to 23.4%. GUS plc NOTES TO THE FINANCIAL STATEMENTS (continued) 4. Basic and diluted earnings per share 2004 2003 pence pence ------ ----- Basic earnings per share before amortisation of goodwill and exceptional items 60.7 47.8 Effect of amortisation of goodwill (19.1) (14.3) Effect of exceptional items 5.8 (8.4) ------ ----- Basic earnings per share 47.4 25.1 ------ ----- The calculation of basic earnings per share is based on profit for the year of £473m (2003 £251m) divided by the weighted average number of Ordinary shares in issue of 998.0m (2003 995.9m). 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 £606m (2003 £476m): 2004 2003 £m £m -------- ------- Earnings before amortisation of goodwill and exceptional 606 476 items Effect of amortisation of goodwill (191) (142) Effect of exceptional items 58 (83) -------- ------- Profit for the year 473 251 -------- ------- 2004 2003 m m -------- ------- Weighted average number of Ordinary shares in issue during 998.0 995.9 the year* Dilutive effect of options outstanding 9.1 7.3 -------- ------- Diluted weighted average number of Ordinary shares in issue 1,007.1 1,003.2 during the year -------- ------- * excluding those held by The GUS ESOP Trust, The GUS ESOP Trust No. 2, The GUS ESOP Trust No. 3 and The GUS ESOP Trust No. 4 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 2004 2003 2004 2003 -------- -------- ------- ------- US dollar 1.70 1.55 1.84 1.58 South African rand 12.05 14.89 11.55 12.48 Euro 1.44 1.55 1.50 1.45 -------- -------- -------- -------- 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 6 August 2004 to shareholders on the Register at the close of business on 9 July 2004. This information is provided by RNS The company news service from the London Stock Exchange

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