Final Results

GUS PLC 24 May 2006 24 May 2006 GUS plc Preliminary Results For Year Ended 31 March 2006 Further strategic progress â€¢Demerged remaining stake in Burberry â€¢Raised Â£350m from disposal of Lewis and Wehkamp â€¢Â£1.2bn invested in ARG and Experian on capital expenditure and acquisitions â€¢Demerger of ARG and Experian planned for October 2006 Financial highlights â€¢Continuing operations - Sales up 9% to Â£7.3bn (2005: Â£6.7bn) - EBIT(1) up 7% to Â£745m (2005: Â£695m) - Record profit at Experian - ARG outperforming in difficult UK market - Profit before tax Â£649m (2005: Â£648m) â€¢Benchmark PBT(2) of Â£829m (2005: Â£910m), reflecting impact of disposals â€¢Benchmark earnings per share(3) 63.5p (2005: 62.0p) â€¢Basic earnings per share 60.2p (2005: 59.6p) â€¢Diluted earnings per share 59.2p (2005: 58.8p) â€¢Full year dividend of 31.5p per new consolidated GUS share (2005: 29.5p per old share) Sir Victor Blank, Chairman of GUS, commented: 'This year has been one of significant strategic progress for GUS with Burberry, Lewis and Wehkamp all leaving the Group, and ARG and Experian scheduled for demerger in October. GUS has a long history of creating value for its shareholders and we are confident that this will continue as they will now have the choice to invest directly in three extremely well-positioned businesses - ARG, Burberry and Experian.' John Peace, Chief Executive of GUS, commented: 'Experian generated record profits in 2006, reflecting the strength of its portfolio by product, by region and by market. ARG continued to outperform its markets, while investing in key initiatives. Although we remain cautious about the UK retail market in the short term, we are confident that both ARG and Experian have clear strategies for growth in the medium and longer term.' (1) Earnings before interest and taxation (EBIT) is defined as profit before interest, amortisation of acquisition intangibles, store impairment charges, exceptional items (i.e. gains or losses on disposal, demerger or closure of businesses and goodwill impairment charges), financing fair value remeasurements and taxation. It also includes the Group's share of associates' pre-tax profit. (2) Benchmark PBT is defined as profit before amortisation of acquisition intangibles, store impairment charges, exceptional items (i.e. gains or losses on disposal, demerger or closure of businesses and goodwill impairment charges), financing fair value remeasurements and taxation. It includes the Group's share of associates' pre-tax profit and the profits or losses of discontinued operations up to the date of disposal or closure. (3) Benchmark EPS takes Benchmark PBT less taxation (attributable to Benchmark PBT) and minority interests, divided by the weighted average number of shares in issue (excluding own shares held in Treasury and in the ESOP Trust). Enquiries GUS John Peace Group Chief Executive 020 7495 0070 David Tyler Group Finance Director Fay Dodds Director of Investor Relations Finsbury Rupert Younger 020 7251 3801 Rollo Head There will be a presentation today at 9.30am to analysts and investors at the Merrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ. The presentation can be viewed live on the GUS website at www.gusplc.com. The supporting slides and an indexed replay will also be available on the website 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. All GUS announcements are also available on www.gusplc.com. GUS' First Quarter Trading Update will be on 12 July 2006. Its AGM will be held on 19 July 2006. This announcement is not an offer of securities for sale in any jurisdiction. 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 events or results to differ materially from any expected future events or results referred to in these forward looking statements. GROUP STRATEGY The year under review has seen further major steps in the transformation of GUS, with significant disposals, acquisitions and organic investment. In March 2006, the Board of GUS announced plans for the demerger of our two remaining businesses, Argos Retail Group and Experian. This will enable all our existing shareholders to continue to benefit directly from an investment in both these attractive businesses. We have during the year completed the demerger of Burberry and the disposals of Lewis and Wehkamp, leaving GUS now focused entirely on Argos Retail Group (ARG) and Experian. In May 2005, we sold our remaining 50% stake in Lewis, raising Â£140m; in January 2006, we sold Wehkamp, our last home shopping business, for Â£210m; and in December 2005, we carried out the demerger of our remaining 65% stake in Burberry Group plc. Combined, these businesses contributed about one-quarter of Benchmark PBT in the year to 31 March 2005. We have invested over Â£800m in acquiring businesses during the year. Most of this has been in Experian in areas such as Interactive (including LowerMyBills.com and PriceGrabber.com), in marketing database solutions (ClarityBlue) and further credit bureaux affiliates. Argos also acquired 33 Index stores at a cost of Â£44m. All these acquisitions are trading well. We have continued to invest both capital and revenue during the year in ARG and Experian. At ARG, investments were made in new stores, warehouses and ranges. Experian continues to invest in new products, regions and infrastructure. Capital expenditure in the year to 31 March 2006 was about Â£360m for continuing operations - a level that is expected broadly to repeat in the current year. As announced in March 2006, the Board of GUS proposes, subject to shareholder approval, that ARG and Experian should be separated by means of a demerger with both businesses becoming independently listed on the London Stock Exchange. We are today updating investors further on the demerger process. Details have been released in a separate announcement. GROUP FINANCIAL HIGHLIGHTS Sales from continuing operations up 9% to Â£7.3bn. EBIT from continuing operations up 7% to Â£745m, reflecting both record profits at Experian and the impact of a difficult UK retail market on ARG. Benchmark PBT down 9% to Â£829m (2005: Â£910m), reflecting the impact of the disposal of Lewis, Burberry and Wehkamp during the year. An effective tax rate of 25.6% based on Benchmark PBT (2005: 26.3%). It is anticipated that the Group tax rate will be similar to this in the current year. Benchmark EPS up 2% to 63.5p (2005: 62.0p), reflecting the lower tax rate and the impact of the share consolidation accompanying the Burberry demerger in December 2005. Net debt increased to Â£1.97bn at 31 March 2006, up from Â£1.43bn a year ago, reflecting the cost of acquisitions (about Â£820m) and a Â£100m special pension contribution, partly funded by strong operating cash flow. Final dividend of 21.9p proposed, making 31.5p for the full year for each new consolidated GUS share (2005: 29.5p per old share). Dividend cover for GUS is 2.0 times on EPS of 63.5p. 12 months to 31 March Sales Profit -------------------- ----------------------- ---------------------- 2006 2005 2006 2005 Â£m Â£m Â£m Â£m -------------------- ---------- --------- --------- --------- Argos Retail Group 5,548 5,313 348.9 399.5 Experian 1,725 1,362 416.7 317.0 Central activities (11) (12) (20.2) (21.8) ---------- --------- --------- --------- Continuing operations 7,262 6,663 745.4 694.7 Discontinued operations(1) 653 1,124 119.4 239.0 ---------- --------- --------- --------- Total 7,915 7,787 864.8 933.7 -------------------- ---------- --------- Net interest (36.3) (23.7) --------- --------- Benchmark PBT 828.5 910.0 Amortisation of acquisition intangibles (37.0) (11.6) Store impairment charges(2) (12.8) - Exceptional items 17.5 (3.5) Fair value remeasurements (2.8) - --------- --------- 793.4 894.9 Taxation (198.2) (249.7) Equity minority interests (25.6) (49.4) --------- --------- Profit attributable to equity shareholders 569.6 595.8 ----------------------------------- --------- --------- Benchmark EPS 63.5p 62.0p Basic EPS 60.2p 59.6p Weighted average number of ordinary shares 946.7m 1,000.1m ----------------------------------- --------- --------- The profit figure shown against each business above and used throughout this announcement is earnings before interest and taxation (EBIT), defined as profit before interest, amortisation of acquisition intangibles, store impairment charges, exceptional items (i.e. gains or losses on disposal, demerger or closure of businesses and goodwill impairment charges), financing fair value remeasurements and taxation. It also includes the Group's share of associates' pre-tax profit. The same definition of EBIT is used in each table in this announcement 2005 profit has been restated to reflect clearer IFRS interpretation on certain issues. See Appendix 1 for details (1) Discontinued operations include Lewis, Burberry and Wehkamp with profit in 2006 up until the date of disposal (2) Resulting from clearer IFRS interpretation on store impairment which affects Homebase ARGOS RETAIL GROUP (ARG) Sales up 4% to Â£5.5bn; EBIT of Â£349m reflects the difficult UK retail environment, especially in DIY Both Argos and Homebase outperformed their markets, benefiting from investment in key strategic initiatives Significant operational improvements in 2006; well executed in both Argos and Homebase ARG remains cautious on the outlook for a recovery in consumer spending 12 months to 31 March Sales EBIT ---------------------- -------------------- ------------------ 2006 2005 2006 2005 Â£m Â£m Â£m Â£m ---------------------- --------- --------- -------- --------- Argos 3,893 3,652 291.0 320.0 Homebase(1) 1,562 1,580 51.8 113.8 Financial Services 93 81 6.1 0.2 --------- --------- -------- --------- Sub-total 5,548 5,313 348.9 434.0 Argos - charge for OFT fine - - - (16.2) Homebase - charge for reorganisation - - - (18.3) costs --------- --------- -------- --------- Total 5,548 5,313 348.9 399.5 ---------------------- --------- --------- -------- --------- EBIT margin(2) 6.3% 8.2% ---------------------- --------- --------- -------- --------- 2005 EBIT has been adjusted as a result of clearer IFRS interpretation now available on lease accounting and store impairment since GUS restated its results under IFRS in June 2005. The result has been to reduce Argos EBIT by Â£1.2m and increase Homebase EBIT by Â£5.2m (1) Homebase sales and EBIT for 12 months to 28 February (2) Excluding one-off charges for Argos OFT fine and Homebase reorganisation costs Following the disposal of Wehkamp, ARG is now focused on selling general merchandise in the UK and Ireland. It has a multi-brand, multi-channel offer, supported where appropriate by a central infrastructure in areas such as sourcing and supplier management, multi-channel ordering, home delivery and financial services. The annual rate of growth in consumer spending in the UK slowed markedly in the year under review. Higher interest payments and utility bills, a moderation in the growth of disposable income and a more cautious approach to borrowing (influenced in particular by a slow housing market) all combined to subdue spending. This weak demand, coupled with higher cost inflation for retailers in areas such as rents, business rates, wages, utilities and fuel bills, has adversely impacted many retailers' profits including those of Argos and Homebase. Both businesses have continued to manage their costs effectively during the year, while investing to strengthen their long-term competitive positions. In the year under review, ARG has successfully implemented a significant number of operational improvements. These include: Argos â€¢ roll-out of Argos Extra to all stores in July 2005; â€¢ acquisition, integration and rebranding of 33 Index stores; â€¢ opening of 32 additional new stores; â€¢ opening of two new warehouses supporting Argos Direct, Argos Extra and direct importing; â€¢ reorganisation of store staffing to serve customers more effectively; and â€¢ introduction of a trial of the Argos Home catalogue in 100 stores. Homebase â€¢ opening of 10 new stores; â€¢ addition of 23 mezzanines; â€¢ national roll-out of Furniture Extra; and â€¢ relocation of about 500 roles in buying, merchandising and other functions to Milton Keynes alongside Argos. Looking forward, ARG remains cautious on the outlook for a recovery in the rate of growth in consumer spending and is planning on this basis. It expects the DIY market in particular to remain difficult. In the current financial year, underlying cost inflation in both businesses is likely to be about 4% - the same as 2006. ARG will continue to work to mitigate the impact of this through cost reduction programmes and productivity improvements while still investing in its key initiatives. ARG has a clear strategy in place to deliver further share gains. GUS believes that both Argos and Homebase are well-positioned in their markets - Argos as a leading multi-channel general merchandise retailer and Homebase as a strong brand across the wider home enhancement market. There are continuing synergies available from Argos and Homebase working closely together in areas such as sourcing and supply chain initiatives, home delivery and product development. Argos ----------------------------------- ---------- --------- ----------- 12 months to 31 March 2006 2005 Change Â£m Â£m ----------------------------------- ---------- --------- ----------- Sales 3,893 3,652 7% Total change 7% 8% Like-for-like change (1%) 3% EBIT(1) 291.0 320.0 (9%) Charge for OFT fine - (16.2) ---------- --------- ----------- Total reported 291.0 303.8 EBIT margin(2) 7.5% 8.8% ----------------------------------- ---------- --------- ----------- At 31 March Number of stores 657 592 Of which: Argos Extra stocked-in 191 128 ----------------------------------- ---------- --------- ----------- (1) 2005 EBIT has been adjusted as a result of clearer IFRS interpretation now available on lease accounting since GUS restated its results under IFRS in June 2005. The effect has been to reduce EBIT by Â£1.2m (2) Excluding one-off charge for the OFT fine In a competitive general merchandise market, Argos continues to grow share by winning a higher proportion of customers' spend by offering them the most compelling combination of choice, value and convenience. Operational review Argos Extra, which offers customers over 17,000 lines compared to around 13,000 previously, was successfully rolled out to all stores and channels for both the Autumn/Winter catalogue (launched in July 2005) and the Spring/Summer catalogue (launched in January 2006). Of the 657 stores at the year end, 191 stocked in the additional ranges, up from 128 last year. The remaining stores offer customers the option to order-in for later collection from store or for home delivery. Argos Extra is trading in line with expectations and is estimated to have contributed about 2% to total sales growth in the year. Looking forward, the emphasis will be on optimising the product offer and further improving customer awareness of the extended ranges. After such major growth in the last year, the number of catalogue lines in the next twelve months is unlikely to increase significantly. Argos is also trialling a separate 'Home' catalogue which is designed to increase ARG's market-leading share of the fragmented furniture and home accessories market. The trial started in March 2006 with a 340-page catalogue available in 100 stores. It offers consumers over 3,000 products from the existing Argos catalogue presented in a more aspirational manner. Argos has further reduced prices for consumers. In the current Spring/Summer catalogue, prices on re-included lines are 3% lower than last year. Argos is also committed to lowering prices during the life of each catalogue; for example, over 1,800 price reductions were made in the 2005 Autumn/Winter catalogue. Its 'non stop price drop' campaign reinforces this message to customers. Argos continues to be able to fund these lower prices as it delivers further supply chain benefits. For example, the proportion of directly imported goods in the current catalogue is 32% of sales, up from 26% last year and 16% three years ago. Direct importing drives gross margin benefits by lowering the cost of goods sold, albeit that it requires additional infrastructure investment and costs to support the more sophisticated supply chain. Argos opened 65 stores during the year, including the 33 acquired from Index in July 2005. The integration and refitting of the Index stores was achieved on plan and these stores contributed 2% to total sales growth. Of the 65 openings, 10 were in new towns with the balance being second or third stores in existing catchments. At 31 March 2006, Argos operated 657 stores. It expects to open around 30 stores in the current year. Argos is benefiting from the growth in online shopping in the UK, with 12% of its sales now ordered over the Internet for delivery to home or for later collection in store. This is a 55% increase on the previous year and the first time that the value of orders over the Internet has exceeded that over the phone. Argos Direct, the delivery to home operation, grew sales by 10% in the year, representing 22% of revenue. Self-service kiosks are in over 300 stores and account for about 10% of sales in those locations. The new advertising campaign at Argos reinforces the message about how convenient it is to shop from Argos. Financial review Sales in the year to 31 March 2006 increased by 7% in total. Of this, 8% came from new space while like-for-like sales fell by 1% in the year. There were strong performances from consumer electronics, bedroom furniture, textiles and white goods while jewellery remained weak. Gross margin was in line with last year. EBIT in the year was Â£291m, a Â£29m decline on the previous year excluding the charge for the OFT fine last year. There were Â£11m of one-off costs incurred in the first half of the year: Â£7m transitional costs relating to the Index stores and Â£4m restructuring costs associated with changing staffing arrangements in-store. Excluding these, operating costs increased by 10% year-on-year, of which underlying cost inflation was about 4%. The balance reflects the direct costs of higher sales and further investment in areas such as Argos Extra, new space and infrastructure investment (especially the new warehouses which are currently running below full capacity utilisation). These costs have been partly offset by cost saving initiatives. Homebase ----------------------------------- ---------- --------- ----------- 12 months to 28 February 2006 2005 Change Â£m Â£m ----------------------------------- ---------- --------- ----------- Sales 1,562 1,580 (1%) Total change (1%) 6% Like-for-like change (4%) 3% EBIT(1) 51.8 113.8 (54%) Charge for reorganisation costs - (18.3) ---------- --------- ----------- Total reported 51.8 95.5 EBIT margin(2) 3.3% 7.2% ----------------------------------- ---------- --------- ----------- At 28 February Number of stores 297 287 Of which: number with mezzanine 144 111 floor ----------------------------------- ---------- --------- ----------- (1) 2005 EBIT has been adjusted as a result of clearer IFRS interpretation now available on store impairment since GUS restated its results under IFRS in June 2005. The result has been to increase Homebase EBIT by Â£5.2m (2) Excluding one-off charge for reorganisation costs Despite the sharp reduction in profits this year caused by a very difficult DIY market, we remain confident in the strategy for Homebase that was developed at the time of acquisition. This aims to differentiate Homebase from other players by making it the UK's leading home enhancement retailer. It will achieve this by continuing to invest in order to: â€¢ improve the existing core DIY business; â€¢ enhance and extend its home furnishings offer; and â€¢ deliver synergies by leveraging the scale and expertise of ARG. Operational review The UK DIY market was very challenging during the year, with weak demand from consumers and increasing promotional activity from major competitors. Homebase continued to gain share in its market, although some of the price reductions that it pursued, especially in the second half of the year, did not generate the desired volume uplifts. As a result, Homebase intends to pursue a less aggressive promotional stance in the current year. Homebase continues to invest in initiatives to differentiate itself further from other players. More range reviews were completed during the year so that all major product groups have now been repositioned since the acquisition of Homebase in December 2002. Homebase has also continued to improve the shopping experience for its customers by raising in-store standards, improving stock availability and offering better customer service. In home enhancement, Furniture Extra, a catalogue offering over 700 lines, was rolled out to all stores by December 2005, with product displays in 135 stores. This has significantly improved the sales performance in furniture. A new 200-page home furnishings catalogue is being trialled in 30 stores from Easter 2006, while new merchandising techniques for textiles, cookshop and home accessories are currently being trialled in 11 stores. Homebase continues to add space through new stores and mezzanine floors, enabling it to serve new regions and sell new products more effectively. During the year, Homebase opened a net ten new stores, bringing the total at 28 February 2006 to 297. In the current year, it plans a net increase of 15 stores, being a mix of traditional and small store formats. At the year end, 144 stores had a mezzanine floor, up from 111 a year ago. Sales uplifts from the latest mezzanine floors continue to be above those generated by earlier trials. In the current year, Homebase plans to add mezzanines to at least another ten stores. Homebase continues to leverage the ARG infrastructure. Being part of ARG gives Homebase considerable advantage over what it could achieve on its own. For example, the proportion of goods directly imported now stands at 22%, compared to 8% at acquisition. This growth has been accelerated by Homebase having access to ARG's established buying offices in Hong Kong, Shanghai and Shenzhen. The Homebase website, which was relaunched in February 2005 using the Argos IT infrastructure, is performing well, albeit from a small base. The relocation of about 500 Homebase roles to Milton Keynes, where Argos is based, was completed successfully during the year and is expected to deliver benefits in terms of closer co-operation throughout ARG. Financial review In the year to 28 February 2006, sales at Homebase fell slightly in total, outperforming the DIY market as a whole. New stores contributed 3% to sales and are trading in line with plan. Like-for-like sales were down 4% for the year, although this performance was worse in the latter part of the period. Despite the difficult economic environment, total sales of kitchens and furniture saw double-digit percentage increases, driven by the investment in Furniture Extra and additional mezzanines. Core DIY and decorating sales fell by mid-single digit percentages on a like-for-like basis. Gross margin for the year as a whole was in line with last year, although down in the second half. Both the gross margin and operating costs as a percentage of sales at Homebase are significantly higher than at Argos. Total costs increased by 8% year-on-year, reflecting 4% underlying cost inflation and a 4% increase from investment in areas such as new stores and mezzanine space. These were only partly funded by cost savings and productivity improvements. The combined impact of lower sales, cost inflation and investment in new space led to a sharp reduction in EBIT to Â£52m. ARG Financial Services (ARG FS) ---------------------------------------------- -------- --------- 12 months to 31 March 2006 2005 Â£m Â£m ---------------------------------------------- -------- --------- Sales 93 81 Earnings before funding costs 24.0 18.6 Funding costs (17.9) (18.4) -------- --------- 6.1 0.2 ---------------------------------------------- -------- --------- At 31 March Gross loan book 433 463 Number of active store card holders (000s) 1,044 887 ---------------------------------------------- -------- --------- ARG FS works in conjunction with Argos and Homebase to provide their customers with the most appropriate credit offers to drive product sales, while retaining the maximum possible profit from the transaction within ARG. It offers store cards (providing both revolving and promotional credit) and a range of insurance products. The ARG FS gross loan book fell by Â£30m to end the year at Â£433m. The decline reflects the run-off of personal loan balances resulting from the decision taken in December 2004 to withdraw from this very competitive market. The Argos and Homebase store card balances grew by 9% to Â£378m at year-end, primarily due to the success of 'buy now pay later' credit offers. The Argos store card funded 9% of sales in 2006, with a 17% increase in the active card base. The Homebase card funded 4% of its sales, with growth in the active base of 33%. Credit offers are supporting initiatives in the retail businesses such as the trial of the Home catalogue in Argos and growing kitchen sales in Homebase. Modest expansion is expected in the total gross loan book over the next twelve months, reflecting continued growth in store cards but a further run-off in personal loans. Profit after funding costs increased to Â£6.1m, driven by increased interest income from the growth in the store card loan book, partially offset by increased provisions for bad debts. EXPERIAN Sales up 27% and profit up 29% for continuing activities at constant exchange rates Fourth consecutive year of double-digit sales and profit growth Further EBIT margin advance even after increased investment in new products, markets and infrastructure Fourth consecutive year of excellent cash generation, with about 100% of EBIT converted into operating cash flow 12 months to 31 March Sales EBIT ---------------------- ------------------- ------------------- 2006 2005 2006 2005 Â£m Â£m Â£m Â£m ---------------------- -------- -------- -------- -------- Experian North America 1,000 712 265.3 189.0 Experian International 722 620 151.3 126.6 -------- -------- -------- -------- Total continuing activities 1,722 1,332 416.6 315.6 % growth at constant FX 27% 18% 29% 16% Discontinuing activities 3 30 0.1 1.4 -------- -------- -------- -------- Total reported 1,725 1,362 416.7 317.0 ---------------------- -------- -------- -------- -------- EBIT margin - excluding FARES 22.2% 21.1% - including FARES 24.2% 23.7% ----------------------------- -------- -------- Notes (relevant to all Experian tables): Additional information on Experian is given in Appendix 2 Full details of discontinuing activities are given in Appendix 3, including the impact of treating MetaReward and large scale UK account processing as discontinuing activities from 1 April 2006 EBIT 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. FARES is an integral part of Experian's business 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 helps consumers understand, manage and protect their personal information and make more informed purchasing decisions. As we have said previously, Experian is well-positioned to benefit from a number of key drivers of long-term growth, including expansion in: â€¢ the direct-to-consumer market and online advertising; â€¢ consumer credit and card usage; â€¢ multi-channel marketing; â€¢ fraud prevention; â€¢ vertical markets such as automotive and government; and â€¢ emerging markets such as Asia Pacific and Eastern Europe. Experian has a clear strategy to capitalise on these opportunities by building on its core businesses, selling value-added solutions and growing by targeted acquisitions. In 2006, sales were up 27% at constant exchange rates and EBIT was up 29%, demonstrating the benefits of Experian's portfolio of businesses by product, by region and by market. There was also a balance between organic growth (which contributed 10% of the 27% sales increase) and acquisitions (which contributed 17%). Experian was highly cash generative in 2006, converting all of its EBIT to operating cash flow. Acquisition spend in the year was about Â£775m, well above the average spend in the three previous years. Together, acquisitions made in the last three financial years are performing ahead of plan. Experian continued to invest organically in its businesses during the year, in areas such as new products, establishing a stronger presence in selected regions and in its infrastructure. For example, new products, which contributed significantly to organic growth, include Triple Advantage in Consumer Direct and Hunter II, the anti-fraud system which recently won the Queen's Award for Innovation. Experian also recently launched Vantage Score in the US, a new credit score jointly developed by it and the two other US national credit reporting companies, which delivers for clients and consumers more consistent and predictive credit scores. In Asia Pacific, Experian now employs nearly 200 people - an increase of more than 50% over a year ago. This enables it to serve better both local and multi-national clients looking to expand into this fast-growing region. Experian also continued to evolve its portfolio of businesses by further acquisitions and some closures. Experian made two large acquisitions during the year, both in the Interactive business. LowerMyBills.com, a leading US online generator of mortgage leads, was acquired for $330m plus earn-out in May 2005 and PriceGrabber.com, a leading US provider of online comparison shopping services, was purchased for $485m in December 2005. Both will benefit from the rapid growth in Internet usage by consumers and clients, as well as from the synergies available to them from being part of Experian in areas such as access to data, analytical tools and clients. Experian also invested via acquisition in other areas such as database marketing solutions (ClarityBlue), purchasing more US credit affiliate bureaux, enabling lending to small businesses (Baker Hill) and in the retail and property sectors (Footfall). In addition, Experian has recently announced its withdrawal from two markets which have become increasingly unattractive - incentive marketing websites in the US (via MetaReward) and large scale account processing in the UK. In 2006, Experian continued to win contracts across the business. Some of these are from long-established major clients where Experian is extending the services its sells. One example is the recently announced multi-year, multi-million pound contract with HSBC, which will use Experian's decision analytics to support lending decisions around the world. In the US, Limited Brands, a top ten specialty retailer, extended its relationship with Experian, awarding it a multi-year, multi-million dollar contract for an integrated customer and prospect database across all sales channels. Other wins are in recently acquired companies such as ClarityBlue's three year, multi-million pound contract to support customer acquisition at BSkyB. Finally, Experian is gaining clients in new regions, such as Japan (JCB and Nicos) and Thailand (Bank of Siam). Experian North America ----------------------------------- -------- -------- ------------ 12 months to 31 March 2006 2005 Growth at Â£m Â£m constant FX ----------------------------------- -------- -------- ------------ Sales - Continuing 1,000 712 36% activities - Discontinuing 2 12 na activities -------- -------- ------------ - Total reported 1,002 724 34% EBIT - Direct business 230.3 154.5 44% - FARES 35.0 34.5 (2%) -------- -------- ------------ - Continuing 265.3 189.0 36% activities - Discontinuing - (0.1) na activities -------- -------- ------------ - Total reported 265.3 188.9 36% ----------------------------------- -------- -------- ------------ EBIT margin - excluding FARES 23.0% 21.7% - including FARES 26.5% 26.5% ----------------------------------- -------- -------- ------------ In the year to 31 March 2006, Experian North America again delivered very strong sales and profit growth, reflecting the strength of its market position and the quality of its execution, enabling it to capitalise on strong market demand. Operational review Sales from continuing activities increased by 36% in dollars. Corporate acquisitions generated 23% of this growth, with 13% organic growth (H1: 18%; H2: 9%). In the current financial year, the contribution from acquisitions made to date is expected to increase sales growth by mid-single digits. Credit Information and Solutions together grew sales by 14% excluding corporate acquisitions. The US consumer credit market was very strong during the year. For example, credit card solicitations were at an all time high in calendar year 2005, with 6 billion offers mailed - up 16% on 2004. This strong market, which is expected to moderate in the current year, benefited Experian's core credit operations. Experian also saw good growth in value-added products such as triggers and prescreen. The FACT Act recovery charge, which anniversaried from 1 January 2006, contributed 3% to sales growth in Credit in the year. There was double-digit organic growth in business credit, reflecting strength in the volume of business credit reports as well as growth in decision analytics in this market. Marketing Information and Solutions together grew sales by 6% excluding acquisitions. There was renewed weakness across the direct marketing industry in the second half. This impacted Information sales at Experian, especially in the catalogue and reseller sectors. Marketing Solutions continued to trade well, especially in database solutions and email marketing. The success of CheetahMail, which sent nearly 11 billion email messages during the year, is a good example of how Experian repositions its portfolio of businesses to capitalise on high growth markets. Experian Interactive contributed about 35% of sales in Experian North America in 2006, up from 22% in 2005. Sales in total more than doubled to $617m, with significant contributions from businesses acquired during the year. Excluding acquisitions, sales increased by 22%. Consumer Direct saw further strong growth of over 30%, driven by more new members, the success of new products such as Triple Advantage and increased revenue per member. Sales at MetaReward fell during the second half of the year. As previously announced, it has closed its incentive marketing websites, which operate in an increasingly unattractive market for both consumers and thus clients. These websites had sales of $70m and EBIT of $5m in the year to 31 March 2006. Financial review In dollars, sales from continuing activities were $1,789m, up 36% compared to last year. EBIT from direct businesses was $412m (2005: $286m), giving an improvement in EBIT margin of over one percentage point to 23.0%. This improvement reflects operational leverage from 13% organic sales growth and a favourable mix from strong Credit sales. These factors were stronger in the first half of the year than the second half. FACTA-related set-up costs which were incurred in the previous year were recovered during 2006. Experian North America also invested several million dollars in the latter part of the year in further improving its information infrastructure. FARES, the 20%-owned real estate information associate, saw largely unchanged profits year-on-year at $63m (2005: $64m), reflecting the decline in the US mortgage refinancing market offset by continuing cost control. The Â£/$ exchange rate moved from an average of $1.85 in the year to March 2005 to $1.79 in 2006. This increased reported sales by Â£33m in the year and EBIT by Â£9m. Experian International ----------------------------------- -------- -------- ------------ 12 months to 31 March 2006 2005 Growth at Â£m Â£m constant FX ----------------------------------- -------- -------- ------------ Sales - Continuing 722 620 16% activities - Discontinuing 1 18 na activities -------- -------- ------------ - Total reported 723 638 13% EBIT - Continuing 151.3 126.6 19% activities - Discontinuing 0.1 1.5 na activities -------- -------- ------------ - Total reported 151.4 128.1 18% ----------------------------------- -------- -------- ------------ EBIT margin 21.0% 20.4% ----------------------------------- -------- -------- ------------ Experian International, which accounts for over 40% of total Experian sales, had another good year, continuing its long and consistent record of double-digit sales and profit growth. Operational review Sales grew by 16% at constant exchange rates, of which 9% came from acquisitions and 7% was organic. The full year impact of acquisitions made to date is expected to increase sales growth by mid-single digits in 2007. Despite a slowdown in the growth of UK consumer lending, Experian's sales in the UK, which account for about 60% of its International revenues, still grew by 6% excluding acquisitions. This reflects the breadth of its portfolio by product and vertical market. Organic growth outside the UK was 8%. Credit Information and Solutions increased sales by 8% excluding acquisitions. Although there was a decline in demand for products supporting new consumer credit applications in the UK, this was countered by strong sales growth in business-to-business sales, as well as significant growth from a small base in the government, telecomms and direct-to-consumer markets. Outside the UK, Italy, Asia Pacific, South Africa and Eastern Europe demonstrated double-digit growth in credit, especially in value-added decision solutions. As already announced, with the market in decline, Experian will have withdrawn from large scale credit card and loan account processing in the UK by Autumn 2009. In the year to 31 March 2006, sales in UK account processing fell to about Â£44m generating EBIT of Â£20m. With the planned contraction of the business, profit will decline further over the next few years, with EBIT in the year to 31 March 2007 expected to be no more than half the 2006 level. The costs of withdrawal, all of which are cash, will be about Â£15m. These will be charged against EBIT in the year to 31 March 2007. Marketing Information and Solutions grew sales by 9% excluding acquisitions. As expected, given the UK market background, there was some slowdown in marketing spend by financial services clients. This was compensated for by strong growth in CheetahMail, by public sector wins in QAS and by double-digit growth in Business Strategies in the UK and elsewhere. Outsourcing sales grew by 4% in euros excluding acquisitions. Experian continued to win new contracts in both the more mature cheque processing area (now serving all five major French banks) as well as other back office functions, including a four year, multi-million euro contract with Prud'homales, building and running the electoral roll for French work council elections. Financial review Sales for continuing activities at Experian International increased by 16% at constant exchange rates. EBIT from continuing activities at Â£151.3m increased by 19% at constant rates, resulting in a 60 basis point improvement in the margin. This reflects operational leverage throughout the business, despite re-investment in new products and regions. In particular in the second half, Experian increased its revenue investment in Asia Pacific. OTHER Discontinued operations 12 months to 31 March Sales EBIT ---------------------- --------------------- ---------------------- 2006 2005 2006 2005 Â£m Â£m Â£m Â£m ---------------------- --------- --------- --------- -------- Lewis 20 187 5.2 55.2 Burberry 472 715 94.1 161.3 Wehkamp 161 222 20.1 22.5 --------- --------- --------- -------- Total 653 1,124 119.4 239.0 ---------------------- --------- --------- --------- -------- A placing of GUS' remaining 50% stake in Lewis took place in May 2005, raising Â£140m. In December 2005, the demerger of the remaining 65% stake in Burberry Group plc was completed while in January 2006, Wehkamp, GUS' last home shopping business, was sold, raising Â£210m. As a result, all three businesses have been treated as discontinued operations and EBIT up until the date of disposal has been included in the 2006 results. Net interest At Â£36m, interest costs were Â£13m higher than last year, reflecting higher net debt levels largely resulting from the Â£820m spent on acquisitions. The reported net interest line benefits from the recharge to ARG Financial Services interest on its loan book (Â£18m), from Â£8m of income from a Â£140m loan note which did not form part of net debt, and from a credit to interest of Â£8m relating to the excess of the expected return on pension assets over the interest on pension liabilities (2005: Â£2m). Since 31 March 2006, the Group has received Â£140m from the repayment of a loan note received as deferred consideration for the sale of Home Shopping. Amortisation of acquisition intangibles IFRS requires that, on acquisition, specific intangible assets are identified and recognised and then amortised over their useful economic lives. These include items such as brand names and customer lists, to which value is first attributed at the time of acquisition. In the year to 31 March 2006, this amortisation amounted to Â£37.0m which relates to Experian acquisitions undertaken since the Transition Date to IFRS of 1 April 2004. The charge for 2005 is now Â£11.6m, reflecting the amortisation of acquired intangible assets which had previously been classified as goodwill. Store impairment charges Following clearer IFRS interpretation becoming available, a store impairment charge has been taken in Homebase. Opening fixed assets at 1 April 2004 have been reduced by Â£36m, with a resulting fall in the depreciation charge in 2005 of Â£7.6m. There has been a further impairment charge in 2006 of Â£12.8m, which has been excluded from Benchmark PBT. The store impairment charge also triggers the creation of an onerous lease provision of Â£12m at 31 March 2004. Additional onerous lease provisions of Â£2.4m have now been provided for in the year ended 31 March 2005. Exceptional items ----------------------------------------- ------ ----- 12 months to 31 March 2006 2005 Â£m Â£m ----------------------------------------- ------ ----- Profit on disposal of Lewis shares 35.7 23.6 Profit on disposal of Burberry shares 9.7 3.1 Costs incurred relating to the demerger of (4.5) - Burberry Loss on disposal of Wehkamp (19.3) - Loss on sale of other businesses - (30.2) Costs incurred relating to Group demerger (4.1) - ----------------------------------------- ------ ----- Total 17.5 (3.5) ----------------------------------------- ------ ----- The only costs treated as exceptional items are those associated with the disposal or closure of businesses. All other restructuring costs have been charged against EBIT in the divisions in which they were incurred. The exceptional items during the year were a profit on the disposal of Lewis and Burberry shares, a loss on the disposal of Wehkamp and various costs relating to the Burberry and Group demerger projects. Fair value remeasurements An element of the Group's hedges is ineffective under IFRS. Gains or losses on these arising from market movements are now charged or credited to the income statement. In the year to 31 March 2006, this amounted to a charge of Â£3m (with no comparable credit or charge as the Group had previously elected to defer implementation of IAS 32 and 39). Pensions The Group's net pension asset at 31 March 2006 was Â£18m after taking account of all post-retirement liabilities. In particular, its two Defined Benefit pension schemes had modest surpluses at 31 March 2006, totalling Â£58m, reversing their modest deficits a year earlier. This improvement came partly as a result of the Group making a further special contribution of Â£100m in March 2006 (Â£76m in March 2005). Appendix 1. Restatement of 2005 income statement under IFRS Since GUS restated its results for the year to 31 March 2005 under IFRS in June 2005, there has been clearer IFRS interpretation of certain accounting standards. The table below summarises the impact on the income statement of these further restatements. Further details can be found in the notes to the financial statements. ------------- -------- ------------ ------------ ----------- -------- 12 months to IFRS as Lease Homebase Goodwill IFRS 31 March 2005 reported adjustment(1) store reclassifi- as Â£m June impairment cation(3) restated 2005 charge(2) ------------- -------- ------------ ------------ ----------- -------- Argos 305.0 (1.2) 303.8 Homebase 90.3 5.2 95.5 ARG FS 0.2 0.2 -------- ------------ ------------ ----------- -------- Total ARG 395.5 (1.2) 5.2 399.5 Total Experian 317.0 317.0 Central (21.8) (21.8) activities -------- ------------ ------------ ----------- -------- Continuing 690.7 (1.2) 5.2 694.7 operations -------- ------------ ------------ ----------- -------- Discontinued 239.0 239.0 operations -------- ------------ ------------ ----------- -------- Total 929.7 (1.2) 5.2 933.7 Net interest (23.7) (23.7) -------- ------------ ------------ ----------- -------- Benchmark PBT 906.0 (1.2) 5.2 910.0 Amortisation of (4.1) (7.5) (11.6) acquisition intangibles Store - - impairment charges Exceptional (3.5) (3.5) items Fair value - - remeasurements -------- ------------ ------------ ----------- -------- Total 898.4 (1.2) 5.2 (7.5) 894.9 Taxation (250.2) 0.5 (249.7) Equity minority (49.4) (49.4) interests -------- ------------ ------------ ----------- -------- Profit 598.8 (0.7) 5.2 (7.5) 595.8 attributable to equity shareholders ------------- -------- ------------ ------------ ----------- -------- Benchmark EPS 61.5p 62.0p Basic EPS 59.9p 59.6p ------------- -------- ------------ ------------ ----------- -------- (1) 2005 profit has been adjusted as a result of clearer guidance on certain elements of lease accounting, namely the treatment of Guaranteed Rental Uplifts payable on certain leased premises in Argos (2) Reflects lower depreciation charge of Â£7.6m in Homebase due to Â£36m store impairment on transition to IFRS at 1 April 2004, partly offset by an onerous lease provision of Â£2.4m (3) Reclassification of goodwill to acquisition intangibles and resulting amortisation charge 2. Additional information on Experian Reported sales for Experian North America ----------------------------------- --------- --------- ------------- 12 months to 31 March 2006 2005 Underlying $m $m change(1) ----------------------------------- --------- --------- ------------- Credit - Information 607 537 13% - Solutions 169 130 15% --------- --------- ------------- Total 776 667 14% Marketing - Information 164 160 nc - Solutions 232 192 10% --------- --------- ------------- Total 396 352 6% Interactive 617 296 22% --------- --------- ------------- Continuing activities 1,789 1,315 13% Discontinuing activities(2) 3 22 --------- --------- ------------- Reported sales 1,792 1,337 ----------------------------------- --------- --------- ------------- (1) Excluding corporate acquisitions (2) Discontinuing activities in 2006 will be restated to reflect the closure of MetaReward's incentive marketing websites. See Appendix 3 for details Reported sales for Experian International ----------------------------------- --------- --------- ------------- 12 months to 31 March 2006 2005 Underlying Â£m Â£m change(1) ----------------------------------- --------- --------- ------------- Credit - Information 173 158 8% - Solutions 206 189 8% --------- --------- ------------- Total 379 347 8% Marketing - Information 82 72 5% - Solutions 124 69 13% --------- --------- ------------- Total 206 141 9% Outsourcing 143 138 4% Eliminations (6) (6) --------- --------- ------------- Continuing activities 722 620 7% Discontinuing activities(2) 1 18 --------- --------- ------------- Reported sales 723 638 ----------------------------------- --------- --------- ------------- (1) Excluding acquisitions and at constant exchange rates (2) Discontinuing activities in 2006 will be restated to reflect the phased withdrawal from UK large scale account processing. See Appendix 3 for details 3. Experian continuing activities In the year to 31 March 2006, Experian was analysed between continuing and discontinuing activities. Discontinuing activities were NuEdge and Real Estate Solutions in North America and call centres in International. Subsequent to the year-end, a decision was taken to close MetaReward's incentive marketing websites (2006 sales Â£39m; EBIT Â£2.6m). Experian also announced its phased withdrawal from large scale UK account processing (2006 sales Â£44m; EBIT Â£20.1m). Both were included in continuing activities for the year to 31 March 2006. Both these businesses will now be classified as discontinuing activities with effect from 1 April 2006. Future Trading Updates will report sales growth for continuing activities only, excluding both businesses. The split of sales and EBIT for continuing activities by half is given below: Sales ---------------------------------- --------------------------------------- Â£m FY 2006 --------------------------------------- First half Second half Full year ---------------------------------- ------------ ----------- --------- North America 442 519 961 International 319 359 678 ------------ ----------- --------- Total continuing activities 761 878 1,639 North America 24 17 41 International 23 22 45 ------------ ----------- --------- Total discontinuing activities 47 39 86 Total reported 808 917 1,725 ---------------------------------- ------------ ----------- --------- EBIT ---------------------------------- --------------------------------------- Â£m FY 2006 --------------------------------------- First half Second half Full year ---------------------------------- ------------ ----------- --------- North America 125.2 137.5 262.7 International 63.2 68.0 131.2 ------------ ----------- --------- Total continuing activities 188.4 205.5 393.9 North America 2.7 (0.1) 2.6 International 9.3 10.9 20.2 ------------ ----------- --------- Total discontinuing activities 12.0 10.8 22.8 Total reported 200.4 216.3 416.7 ---------------------------------- ------------ ----------- --------- 4. Reconciliation of Benchmark PBT to Income Statement ------------------------------------------ ----------- ----------- 12 months to 31 March 2006 2005 Â£m Â£m ------------------------------------------- ----------- ----------- Benchmark PBT 828.5 910.0 Include: amortisation of acquisition (37.0) (11.6) intangibles Include: store impairment charges (12.8) - Include: exceptional items relating to continuing activities: - Costs relating to Group demerger (4.1) - - Loss on sale of other businesses - (6.9) ---- ----- (4.1) (6.9) Include: financing fair value remeasurements (2.8) - Include: tax expense on share of profits of (0.8) (1.1) associates Exclude: EBIT of discontinued operations (119.4) (239.0) Exclude: interest income of discontinued (2.6) (3.7) operations ----- ----- Reported profit before tax(1) 649.0 647.7 Group tax expense(1) (164.5) (175.5) ----- ----- Profit after tax(1) 484.5 472.2 Include: profit for the period from discontinued operations: EBIT of discontinued operations 119.4 239.0 Interest income of discontinued operations 2.6 3.7 Exceptional items relating to discontinued operations: Net profit on disposal of shares in Lewis 35.7 23.6 Loss on sale of other businesses (14.1) (20.2) Tax expense on discontinued operations (32.9) (73.1) ---- ----- 110.7 173.0 ----- ----- Profit for the financial period 595.2 645.2 Equity minority interests (25.6) (49.4) ----- ----- Profit attributable to equity shareholders 569.6 595.8 ------------------------------------------ ----------- ----------- (1) As per Group income statement, for continuing operations only GROUP INCOME STATEMENT for the year ended 31 March 2006 2006 2005 Continuing operations: Notes Â£m Â£m -------------------------------------- ------ -------- -------- Sales 4 7,262 6,663 Cost of sales (4,103) (3,879) -------------------------------------- ------ -------- -------- Gross profit 3,159 2,784 Net operating expenses (2,505) (2,150) -------------------------------------- ------ -------- -------- Operating profit 654 634 -------- -------- Interest income 98 102 Interest expense (137) (130) Financing fair value remeasurements (3) - -------- -------- Net financing costs (42) (28) Share of post tax profits of associates 37 42 -------------------------------------- ------ -------- -------- Profit before tax 4 649 648 Group tax expense -------- -------- -UK (152) (163) -Overseas (13) (13) -------- -------- (165) (176) -------------------------------------- ------ -------- -------- Profit after tax for the financial year from continuing operations 484 472 Discontinued operations: Profit for the financial year from discontinued operations 7 111 173 -------------------------------------- ------ -------- -------- Profit for the financial year 595 645 -------------------------------------- ------ -------- -------- Profit attributable to: Equity shareholders in the parent company 569 596 Minority interests 26 49 -------------------------------------- ------ -------- -------- Profit for the financial year 595 645 -------------------------------------- ------ -------- -------- Earnings per share 9 -Basic 60.2p 59.6p -Diluted 59.2p 58.8p Earnings per share from continuing operations -Basic 51.2p 47.2p -Diluted 50.4p 46.7p Non-GAAP measures Reconciliation of profit before tax to Benchmark PBT Profit before tax 4 649 648 exclude: amortisation of acquisition intangibles 5 37 11 exclude: exceptional items relating to continuing operations 5 4 7 exclude: store impairment charges 5 13 - exclude: financing fair value remeasurements 5 3 - exclude: tax expense on continuing operations' share of profit of associates 4 1 1 include: EBIT of discontinued operations 7 119 239 include: net interest of discontinued operations 7 3 4 -------------------------------------- ------ -------- -------- Benchmark PBT 4 829 910 -------------------------------------- ------ -------- -------- Benchmark earnings per share 9 -Basic 63.5p 62.0p -Diluted 62.5p 61.2p -------------------------------------- ------ -------- -------- Dividend per share (including proposed final dividend) 8 31.5p 29.5p -------------------------------------- ------ -------- -------- GROUP BALANCE SHEET at 31 March 2006 ------------------------------------ ------------ ------------ 2006 2005 Â£m Â£m ------------------------------------ ------------ ------------ ASSETS Non-current assets Goodwill 3,068 2,485 Other intangible assets 532 313 Property, plant and equipment 959 1,041 Investment in associates 129 110 Deferred tax assets 314 342 Retirement benefit assets 18 - Trade and other receivables 51 454 Other financial assets 91 8 ------------------------------------ ------------ ------------ 5,162 4,753 ------------------------------------ ------------ ------------ Current assets Inventories 883 1,017 Trade and other receivables 1,051 1,134 Current tax assets 119 74 Other financial assets 6 31 Cash and cash equivalents 221 347 ------------------------------------ ------------ ------------ 2,280 2,603 ------------------------------------ ------------ ------------ Total assets 7,442 7,356 ------------------------------------ ------------ ------------ LIABILITIES Non-current liabilities Trade and other payables (83) (111) Loans and borrowings (2,067) (1,676) Deferred tax liabilities (201) (164) Retirement benefit obligations - (112) Other financial liabilities (8) - ------------------------------------ ------------ ------------ (2,359) (2,063) ------------------------------------ ------------ ------------ Current liabilities Trade and other payables (1,480) (1,600) Loans and borrowings (174) (129) Other financial liabilities (21) - Current tax liabilities (276) (253) ------------------------------------ ------------ ------------ (1,951) (1,982) ------------------------------------ ------------ ------------ Total liabilities (4,310) (4,045) ------------------------------------ ------------ ------------ Net assets 3,132 3,311 ------------------------------------ ------------ ------------ SHAREHOLDERS' EQUITY Share capital 256 254 Share premium 97 69 Other reserves (240) (246) Retained earnings 3,018 2,978 ------------------------------------ ------------ ------------ Total shareholders' equity 3,131 3,055 Minority interests in equity 1 256 ------------------------------------ ------------ ------------ Total equity 3,132 3,311 ------------------------------------ ------------ ------------ GROUP CASH FLOW STATEMENT for the year ended 31 March 2006 ---------------------------------------- -------- ----------- 2006 2005 Â£m Â£m ---------------------------------------- -------- ----------- Continuing operations: Cash flows from operating activities Operating profit 654 634 Loss on sale of businesses - 7 Loss on sale of property, plant and equipment - 1 Depreciation and amortisation 295 241 Credit in respect of share incentive schemes 30 37 Change in working capital (85) (124) Interest paid (63) (60) Interest received 30 26 Dividends received from associates 27 26 Tax paid (108) (170) ---------------------------------------- -------- ----------- Net cash inflow from operating activities 780 618 ---------------------------------------- -------- ----------- Continuing operations: Cash flows from investing activities Purchase of property, plant and equipment (261) (258) Sale of property, plant and equipment 6 18 Purchase of intangible assets (112) (109) Sale of intangible assets 2 5 Purchase of non-current investments (28) (5) Acquisition of subsidiaries, net of cash acquired (819) (176) Disposal of subsidiaries 360 106 ---------------------------------------- -------- ----------- Net cash flows used in investing activities (852) (419) ---------------------------------------- -------- ----------- Continuing operations: Cash flows from financing activities Purchase of treasury and ESOP shares (36) (222) Issue of Ordinary shares 29 35 Sale of own shares 20 16 New borrowings 375 473 Repayment of borrowings (35) (355) Capital element of finance lease rental payments (3) (5) Equity dividends paid (284) (281) ---------------------------------------- -------- ----------- Net cash flows used in financing activities 66 (339) ---------------------------------------- -------- ----------- ---------------------------------------- -------- ----------- Net decrease in cash and cash equivalents - continuing operations (6) (140) Net decrease in cash and cash equivalents - discontinued operations (173) (30) ---------------------------------------- -------- ----------- Net decrease in cash and cash equivalents (179) (170) ---------------------------------------- -------- ----------- Movement in cash and cash equivalents from continuing operations Cash and cash equivalents at 1 April - continuing 84 224 operations Net decrease in cash and cash equivalents (6) (140) Exchange and other movements 2 - ---------------------------------------- -------- ----------- Cash and cash equivalents at the end of the financial year - continuing operations 80 84 ---------------------------------------- -------- ----------- Non-GAAP measures Reconciliation of net decrease in cash and cash equivalents to movement in net debt Net debt at 1 April - as reported (1,427) (1,200) Cash and cash equivalents at 1 April - discontinued operations (173) (203) Other financial assets at 1 April - discontinued operations (31) (31) ------------------------------------- ----------- ----------- Net debt at 1 April - continuing operations (1,631) (1,434) Net decrease in cash and cash equivalents (6) (140) Increase in debt (337) (113) Exchange and other movements - 56 ------------------------------------- ----------- ----------- Net debt at end of year - continuing operations (1,974) (1,631) ------------------------------------- ----------- ----------- GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE for the year ended 31 March 2006 ------------------------------------------ --------- --------- 2006 2005 Â£m Â£m ------------------------------------------ --------- --------- Net income/(expense) recognised directly in equity Cash flow hedges (2) - Net investment hedges (9) - Fair value gains in the year 2 6 Actuarial gains/(losses) in respect of defined benefit pension schemes 7 (5) Currency translation differences 14 3 Recycled cumulative exchange loss in respect of divestments 3 3 Tax credit in respect of items taken directly to equity 5 7 --------------------------------------- ----- --------- --------- Net income recognised directly in equity 20 14 Profit for the financial year 595 645 --------------------------------------- ----- --------- --------- Net income recognised for the year 615 659 Cumulative adjustment for the implementation of IAS 39 12 - --------------------------------------- ----- --------- --------- Total income recognised for the year 627 659 --------------------------------------- ----- --------- --------- Net income recognised for the year attributable to: Equity shareholders in the parent company 586 610 Minority interests 29 49 --------------------------------------- ----- --------- --------- Net income recognised for the year 615 659 --------------------------------------- ----- --------- --------- Cumulative adjustment for the implementation of IAS 39 attributable to: Equity shareholders in the parent company 10 Minority interests 2 --------------------------------------- ----- --------- Total 12 --------------------------------------- ----- --------- GROUP RECONCILIATION OF MOVEMENTS IN EQUITY for the year ended 31 March 2006 ------------------------------------------- ----- ------ ------ Notes 2006 2005 Â£m Â£m ------------------------------------------- ----- ------ ------ Total equity at 1 April 3,311 3,019 Cumulative adjustment for the implementation of IAS 39 11 12 - ------------------------------------------- ----- ------ ------ Equity as restated at 1 April 3,323 3,019 Profit for the financial year 595 645 Net income recognised directly in equity for the financial year 20 14 Employee share option schemes: - value of employee services 35 35 - proceeds from shares issued 30 35 (Decrease)/increase in minority interests arising due to corporate transactions (277) 62 Shares cancelled on purchase - (31) Purchase of treasury and ESOP shares (16) (176) Equity dividends paid during the year 8 (284) (281) Dividend in specie relating to the demerger of Burberry Group plc 8 (287) - Dividends paid to minority shareholders (7) (11) ------------------------------------------- ----- ------ ------ Total equity at end of financial year 3,132 3,311 ------------------------------------------- ----- ------ ------ Attributable to: Equity shareholders in the parent company 3,131 3,055 Minority interests 1 256 ------------------------------------------- ----- ------ ------ Total equity at end of financial year 3,132 3,311 ------------------------------------------- ----- ------ ------ NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2006 1. Basis of preparation The financial information set out in this announcement does not constitute the Group's statutory financial statements for the years ended 31 March 2006 or 31 March 2005 but is derived from the 31 March 2006 financial statements. The Group Annual Report and Financial Statements for 2005, which were prepared under UK GAAP, have been delivered to the Registrar of Companies and the Group Annual Report and Financial Statements for 2006, prepared under IFRS, will be delivered to the Registrar of Companies in due course. The auditors have reported on those financial statements and have given an unqualified report which does not contain a statement under Section 237(2) or 237(3) of the Companies Act 1985. The comparative information presented in this document has been restated for IFRS except for the adoption of IAS 32 and IAS 39 where implementation was deferred until 1 April 2005. A reconciliation between UK GAAP and IFRS for the year ended 31 March 2005 is provided in note 13 below. For the year ended 31 March 2006, the Group has prepared its financial statements under International Financial Reporting Standards (IFRS) adopted for use in the European Union. These are those Standards, subsequent amendments, future Standards and related interpretations issued and adopted by the International Accounting Standards Board (IASB) that have been endorsed by the European Commission at the year end. This preliminary announcement has been prepared in accordance with the Listing Rules of the UK Listing Authority, and with IFRS compliant accounting policies that have been followed in preparing the Group's financial statements for the year ended 31 March 2006. The IFRS compliant accounting policies were published in full on 14 June 2005 and are available on the Group's website, at www.gusplc.com/gus/investors/ifrs. In developing its accounting policies, the Group anticipated that the amendment to IAS 19 'Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosure' would be endorsed for use in the EU, which it was. As permitted by IFRS 1 'First-time Adoption of International Financial Reporting Standards', the Group elected to defer implementation of IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement' until the year commencing on 1 April 2005, making an adjustment to opening equity. The adjustment required as at 1 April 2005 is set out in note 11 below. The Group financial statements incorporate the results of the Company and its subsidiary undertakings for the financial year to 31 March 2006 with the exception of Homebase where the Group includes its results for the financial year to the end of February. This is done to facilitate comparability to avoid distortions related to the timing of Easter. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 1. Basis of preparation (continued) Use of Non-GAAP measures GUS has identified certain measures that it believes provide additional useful information on the performance of the Group. This approach is comparable with that previously used but as the measures are not defined under IFRS they may not be directly comparable with other companies' adjusted measures. The non-GAAP measures are not intended to be a substitute for, or superior to, any IFRS measures of performance. The following are the Non-GAAP measures identified by the Group: Benchmark Profit Before Tax (Benchmark PBT) Benchmark PBT is defined as profit before amortisation of acquisition intangibles, store impairment charges, exceptional items, financing fair value remeasurements and taxation. It includes the Group's share of associates' pre-tax profit and the pre-tax profits or losses of discontinued operations up to the date of disposal or closure. Earnings Before Interest and Tax (EBIT) EBIT is defined as profit before amortisation of acquisition intangibles, store impairment charges, exceptional items, net financing costs and taxation and includes the Group's share of pre-tax profits of associates. Benchmark Earnings per Share (Benchmark EPS) Benchmark EPS represents Benchmark PBT less attributable taxation and minority interests divided by the weighted average number of shares in issue, and is disclosed to indicate the underlying profitability of the Group. Exceptional items The separate reporting of exceptional items that are non-recurring costs gives an indication of the underlying performance of the Group. The only costs treated as exceptional items are those associated with the disposal, demerger or closure of businesses. All other restructuring costs are charged against EBIT in the divisions in which they are incurred. Net debt Net debt is calculated as total debt less cash and cash equivalents. Total debt includes loans and borrowings (and the fair value of derivatives hedging loans and borrowings), overdrafts and obligations under finance leases. 2. Taxation The effective rate of tax is 25.4% (2005: 27.2%) based on the profit before tax of Â£649m (2005: Â£648m). The effective rate of tax based on Benchmark PBT of Â£829m (2005: Â£910m) is 25.6% (2005: 26.3%). 3. Foreign currency The principal exchange rates used were as Average Closing follows: --------------- --------------- 2006 2005 2006 2005 ------------------------------ -------- -------- -------- -------- US dollar 1.79 1.85 1.74 1.88 Euro 1.46 1.47 1.44 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 income statement is translated into sterling at average rates of exchange. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 4. Segmental information (primary segments) Year ended 31 March 2006 Continuing operations ---------------------------------------------------------------------------- Argos Homebase Financial ARG Experian Central Total Discontinued Total Services Total Activities continuing operations Group Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- Sales Total sales 3,893 1,562 93 5,548 1,725 - 7,273 653 7,926 Inter-segment sales(1) - - - - (11) - (11) - (11) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- Sales to external customers 3,893 1,562 93 5,548 1,714 - 7,262 653 7,915 ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- Profit EBIT(2) 291 52 6 349 417 (20) 746 119 865 Net interest - - - - - (39) (39) 3 (36) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- Benchmark PBT 291 52 6 349 417 (59) 707 122 829 ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- Exceptional items - - - - - (4) (4) 22 18 Amortisation of acquisition intangibles - - - - (37) - (37) - (37) Store impairment charges - (13) - (13) - - (13) - (13) Financing fair value remeasurements - - - - - (3) (3) - (3) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- Exceptional and other adjustment items (note 5) - (13) - (13) (37) (7) (57) 22 (35) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- Tax expense on share of profit of associates - - - - (1) - (1) - (1) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- Profit before tax 291 39 6 336 379 (66) 649 144 793 ----------------- ----- ------ ------ ------ ------ ------ Group tax expense (165) (33) (198) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- Profit for the financial year 484 111 595 ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- (1) Inter-segment sales represents sales between Experian and Financial Services. (2) EBIT as presented for Experian includes its share of pre-tax profits of associates. Discontinued operations comprise the businesses Burberry, Lewis and Wehkamp which were all individual segments. Additional information on these segments is shown in note 7 below. Year ended 31 March 2005 Continuing operations ---------------------------------------------------------------------------- Argos Homebase Financial ARG Experian Central Total Discontinued Total Services Total Activities continuing operations Group Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Sales Total sales 3,652 1,580 81 5,313 1,362 - 6,675 1,124 7,799 Inter-segment sales(1) - - - - (12) - (12) - (12) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Sales to external customers 3,652 1,580 81 5,313 1,350 - 6,663 1,124 7,787 ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Profit EBIT(2) 304 96 - 400 317 (22) 695 239 934 Net interest - - - - - (28) (28) 4 (24) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Benchmark PBT 304 96 - 400 317 (50) 667 243 910 ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Exceptional items - - - - (7) - (7) 3 (4) Amortisation of acquisition intangibles - - - - (11) - (11) - (11) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Exceptional and other adjustment items (note 5) - - - - (18) - (18) 3 (15) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Tax expense on share of profit of associates - - - - (1) - (1) - (1) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Profit before tax 304 96 - 400 298 (50) 648 246 894 ----------------- ----- ------ ------ ------ ------ ------ Group tax expense (176) (73) (249) ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Profit for the financial year 472 173 645 ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ (1) Inter-segment sales represents sales between Experian and Financial Services. (2) EBIT as presented for Experian includes its share of pre-tax profits of associates. Discontinued operations comprise the businesses Burberry, Lewis and Wehkamp which were all individual segments. Additional information on these segments is shown in note 7 below. The segmental information at 31 March 2005 has been adjusted from that previously published as a result of clearer IFRS interpretation becoming available. Note 13 below explains these adjustments. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 5. Exceptional and other adjustment items --------------------------------- ----------------- -------- 2006 2005 Â£m Â£m --------------------------------- ----------------- -------- Exceptional items Continuing operations: Costs incurred relating to the planned Group demerger (4) - Loss on sale of businesses - (7) --------------------------------- ----------------- -------- (4) (7) --------------------------------- ----------------- -------- Discontinued operations (note 7): Profit on disposal of Lewis Group 36 24 Loss on disposal of Wehkamp (19) - Profit on disposal of shares in Burberry 10 3 Costs incurred relating to the demerger of Burberry (5) - Loss on disposal of other discontinued operations - (24) --------------------------------- ----------------- -------- 22 3 --------------------------------- ----------------- -------- Total exceptional items 18 (4) --------------------------------- ----------------- -------- Other adjustment items Continuing operations: Amortisation of acquisition intangibles (37) (11) Store impairment charges (13) - Financing fair value remeasurements (3) - --------------------------------- ----------------- -------- Total other adjustment items (53) (11) --------------------------------- ----------------- -------- Total exceptional and other adjustment items (35) (15) --------------------------------- ----------------- -------- Exceptional items The profit on the disposal of Lewis Group relates to the placing of GUS' remaining 50% stake in May 2005. The profit in the prior year relates to the Initial Public Offering of Lewis Group in September 2004. The loss on disposal of Wehkamp relates to the sale of the business in January 2006. The income in respect of Burberry shares in both years included that arising from the exercise or lapse of awards under executive share schemes, together with that arising on the sale of certain shares at the time of the demerger in December 2005. The costs incurred relating to the demerger of Burberry are treated as an exceptional item. The loss on sale of continuing businesses in the prior year was principally in respect of the sale by Experian of two small non-core operations. Other exceptional items were costs in relation to the Group demerger of Â£4m. The prior year loss on disposal of other discontinued operations is explained in note 7 below. Other adjustment items IFRS requires that, on acquisition, specific intangible assets are identified and recognised separately from goodwill and then amortised over their useful economic lives. These include items such as brand names and customer lists, to which value is first attributed at the time of acquisition. As permitted by IFRS, acquisitions prior to 1 April 2004 have not been restated. As it did with goodwill under UK GAAP, the Group has excluded amortisation of these acquisition intangibles from its definition of Benchmark PBT because such a charge is based on uncertain judgements about their value and economic life. As a result of clearer IFRS interpretation on impairment reviews, Argos Retail Group now perform store impairment tests on a store by store basis and this has led to an impairment charge at Homebase of Â£13m in 2006 (2005: nil). An element of the Group's derivatives is ineffective under IFRS. Gains or losses on these derivatives arising from market movements are credited or charged to financing fair value remeasurements in the income statement. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 6. Acquisitions, demerger of Burberry and disposals (a) Acquisitions for the year ended 31 March 2006 On 5 May 2005 the Group acquired 100% of the issued share capital of LowerMyBills.com, a leading online generator of mortgage and other loan application leads in the US. On 14 December 2005 the Group acquired 100% of the issued share capital of PriceGrabber.com, a leading provider of online comparison shopping services in the US. During the year ended 31 March 2006, the Group made several other acquisitions, none of which are considered individually material to the Group. Most of these were made by Experian, including three US-based affiliate credit bureaux, ClassesUSA, Baker Hill and Vente in North America, and ClarityBlue and FootFall in the UK. Also in the UK, Argos acquired 33 former Index stores and the Index brand from Littlewoods Limited. In aggregate, it is estimated that the acquired businesses contributed revenues of Â£261m and profit after tax of Â£16m to the Group for the periods from their respective acquisition dates to 31 March 2006. If these acquisitions had been completed on 1 April 2005, Group revenues from the acquired businesses for the year have been estimated at Â£398m. Due to the acquired entities using different accounting policies prior to acquisition, previously reporting to different period ends and, in certain cases, preparing financial information on a cash basis prior to acquisition, it has been impracticable to estimate the impact on Group profit had they been owned from 1 April 2005. Details of the net assets acquired and the provisional goodwill are as follows: LowerMyBills.com PriceGrabber.com Other acquisitions Total ---------------- ----------------------- ----------------------- ----------------------- ------------------------- Book value Fair value Book value Fair value Book value Fair value Book value Fair value Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m ---------------- ------- ------- ------- ------- ------- ------- ------- ------- Intangible assets - 44 - 81 1 95 1 220 Property, plant and equipment 1 1 1 1 6 6 8 8 Deferred tax assets 8 - - - 10 - 18 - Inventories - - - - 1 2 1 2 Trade and other receivables 10 10 4 4 27 24 41 38 Cash, net of overdrafts 4 4 1 1 (5) (5) - - Other financial assets 1 1 1 1 6 6 8 8 Trade and other payables (14) (14) (4) (4) (28) (34) (46) (52) Deferred tax liabilities - (10) - - - (12) - (22) ---------------- ------- ------- ------- ------- ------- ------- ------- ------- 10 36 3 84 18 82 31 202 ------- ------- ------- ------- Goodwill 177 193 309 679 ---------------- ------- ------- ------- ------- ------- ------- ------- ------- 213 277 391 881 ---------------- ------- ------- ------- ------- ------- ------- ------- ------- Satisfied by: Cash 181 276 355 812 Acquisition expenses 6 1 4 11 Deferred consideration 26 - 32 58 ---------------- ------- ------- ------- ------- ------- ------- ------- ------- 213 277 391 881 ---------------- ------- ------- ------- ------- ------- ------- ------- ------- In the Group cash flow statement Â£4m of acquisitions made by Burberry have been shown within the cash flows of discontinued operations. The fair values set out above contain certain provisional amounts which will be finalised no later than one year after the date of acquisition. Goodwill represents the synergies, assembled workforce and future growth potential of the businesses acquired. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 6. Acquisitions, demerger of Burberry and disposals (continued) (b) Demerger of Burberry Group plc At an Extraordinary General Meeting on 13 December 2005, the shareholders of GUS plc approved the demerger of the Group's remaining 65% interest in Burberry Group plc. On demerger, the Company declared a dividend in specie, which was satisfied by the Group's shares in Burberry Group plc. The dividend in specie represents the Group's share of the net assets of Burberry Group plc. The Group's share of the net assets of Burberry Group plc at the date of demerger was as follows: Â£m ------------------------------------------ -------------- Intangible assets 134 Property, plant and equipment 162 Deferred tax assets 16 Inventories 134 Trade and other receivables 110 Other financial assets 4 Cash and cash equivalents 97 Trade and other payables (176) Current tax payable (19) Deferred tax liabilities (18) Equity minority interests (157) ------------------------------------------ -------------- Group's share of net assets of Burberry Group plc on demerger 287 ------------------------------------------ -------------- The costs associated with the Burberry demerger of Â£5m were charged against discontinued operations in the Group income statement. (c) Disposal of subsidiaries for the year ended 31 March 2006 Details of the subsidiaries disposed of during the financial year are given in note 7. The net assets disposed of and the consideration received are as follows: Lewis Group Wehkamp Total Â£m Â£m Â£m ---------------------------------- ---------- --------- --------- Intangible assets - 2 2 Property, plant and equipment 12 14 26 Deferred tax assets - 6 6 Inventories 14 19 33 Trade and other receivables 168 378 546 Other assets 35 4 39 Cash and cash equivalents 14 - 14 Trade and other payables (20) (172) (192) Retirement benefit obligations (4) (21) (25) Other financial liabilities (15) - (15) Current tax liabilities (12) - (12) Equity minority interests (91) - (91) ---------------------------------- ---------- --------- --------- Net assets disposed 101 230 331 Net proceeds received 142 220 362 Costs (2) (9) (11) Recycled cumulative exchange loss (3) - (3) ---------------------------------- ---------- --------- --------- Profit/(loss) on disposal 36 (19) 17 ---------------------------------- ---------- --------- --------- Cash flow from disposals Proceeds received 142 220 362 Costs paid (2) (5) (7) ----------------------------------- --------- --------- --------- Net cash inflow 140 215 355 ----------------------------------- --------- --------- --------- In the Group cash flow statement, Â£5m of proceeds in respect of the sale of Burberry shares (net of demerger costs) are included in the cash flows on disposal of subsidiaries. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 7. Discontinued operations The results for discontinued operations were as follows: ------------------------------------- -------------- -------- 2006 2005 Â£m Â£m ------------------------------------- -------------- -------- Sales: Burberry 472 715 Wehkamp 161 222 Lewis Group 20 187 ------------------------------------- -------------- -------- 653 1,124 ------------------------------------- -------------- -------- EBIT: Burberry 94 161 Wehkamp 20 23 Lewis Group 5 55 ------------------------------------- -------------- -------- Total EBIT 119 239 Exceptional item - profit on Initial Public Offering of Lewis Group - 24 Net interest income 3 4 ------------------------------------- -------------- -------- Profit before tax of discontinued operations 122 267 Tax charge in respect of pre-tax profit (33) (73) ------------------------------------- -------------- -------- Profit after tax of discontinued operations 89 194 ------------------------------------- -------------- -------- Gains/(losses) on disposal of discontinued operations: Gain on Burberry shares 10 3 Costs incurred relating to the demerger of Burberry (5) - Loss on disposal of Wehkamp (19) - Profit on disposal of Lewis Group 36 - Home shopping and Reality businesses - (24) ------------------------------------- -------------- -------- Gains/(losses) on disposal 22 (21) Tax charge in respect of gains/(losses) on disposal - - ------------------------------------- -------------- -------- Profit/(loss) after tax on disposal 22 (21) ------------------------------------- -------------- -------- Profit for the financial year from discontinued 111 173 operations -------------- -------- ------------------------------------- On 19 May 2005, the Group announced the sale of its remaining 50% interest in Lewis Group Limited and on 13 December 2005 divested its remaining 65% interest in Burberry Group plc. On 19 January 2006, the Group sold Wehkamp, the leading home shopping brand in the Netherlands. As a result, these operations have been reclassified as discontinued. The disposal of the home shopping and Reality businesses took place in May 2003, and provision for the loss on disposal was made in the financial statements for the year ended 31 March 2003, with a further charge relating to professional fees and other costs associated with the transaction being made the following year. Following agreement of the completion statements and the settlement of certain warranty claims, a further charge was made in the year ended 31 March 2005 reflecting full and final settlement of all claims that have arisen from the disposal of these businesses. The related interest bearing loan of Â£140m was repaid in full in April 2006 by March UK Limited, being the element of deferred consideration in respect of this disposal. The cash flows attributable to discontinued operations comprise: ---------------------------------------- -------- ---------- 2006 2005 Â£m Â£m ---------------------------------------- -------- ---------- From operating activities (43) 55 From investing activities (122) (74) From financing activities (8) (11) ---------------------------------------- -------- ---------- Net decrease in cash and cash equivalents in discontinued operations (173) (30) ---------------------------------------- -------- ---------- NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 8. Dividend -------------------------------------- ------ ------ ------ ------ 2006 2006 2005 2005 pence pence per per share Â£m share Â£m -------------------------------------- ------ ------ ------ ------ Amounts recognised and paid as distributions to equity holders during the year Interim 9.6 82 9.0 90 Final 20.5 202 19.0 191 -------------------------------------- ------ ------ ------ ------ Ordinary dividends paid on equity shares 30.1 284 28.0 281 -------------------------------------- ------ ------ ------ ------ -------------------------------------- ------ ------ ------ ------ Dividend in specie relating to the demerger of Burberry Group plc - 287 - - -------------------------------------- ------ ------ ------ ------ -------------------------------------- ------ ------ ------ ------ Proposed final dividend for the year ended 31 March 21.9 187 20.5 203 -------------------------------------- ------ ------ ------ ------ The proposed final dividend is not included as a liability in these financial statements and will be paid on 4 August 2006 to shareholders on the Register at the close of business on 7 July 2006. 9. Basic and diluted earnings per share The calculation of basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders of the Company by the weighted average number of Ordinary shares in issue during the year (excluding own shares held in Treasury and in the ESOP trust, which are treated as cancelled). The calculation of diluted earnings per share reflects the potential dilutive effect of employee share incentive schemes. The earnings figures used in the calculations are unchanged for diluted earnings per share. During the year the Group demerged its remaining interest in Burberry. This was followed by a share consolidation which reduced the number of shares in issue to 849m. As a result of the share consolidation the earnings per share numbers shown below are comparable in 2005 and 2006. ----------------------------------------- --------- --------- Basic earnings per share: 2006 2005 pence pence ----------------------------------------- --------- --------- Continuing operations 51.2 47.2 Discontinued operations 9.0 12.4 ----------------------------------------- --------- --------- Continuing and discontinued operations 60.2 59.6 Add back of exceptional and other adjustment items, net of tax (note 5) 3.3 1.6 Adjustment between effective and actual rates of taxation* - 0.8 ----------------------------------------- --------- --------- Benchmark earnings per share 63.5 62.0 ----------------------------------------- --------- --------- Diluted earnings per share: ----------------------------------------- --------- --------- Continuing operations 50.4 46.7 Discontinued operations 8.8 12.1 ----------------------------------------- --------- --------- Continuing and discontinued operations 59.2 58.8 ----------------------------------------- --------- --------- Benchmark earnings per share 62.5 61.2 ----------------------------------------- --------- --------- NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 9. Basic and diluted earnings per share (continued) ------------------------------------------ ------- --------- Earnings 2006 2005 Â£m Â£m ------------------------------------------ ------- --------- Continuing operations 484 472 Discontinued operations 85 124 ------------------------------------------ ------- --------- Continuing and discontinued operations 569 596 Add back of exceptional and other adjustment items, net of tax (note 5) 32 16 Adjustment between effective and actual rates of taxation* - 8 ------------------------------------------ ------- --------- Benchmark earnings 601 620 ------------------------------------------ ------- --------- ------------------------------------------ ------- --------- 2006 2005 m m ------------------------------------------ ------- --------- Weighted average number of Ordinary shares in issue during the year 946.7 1,000.1 Dilutive effect of share incentive awards 15.0 12.6 ------------------------------------------ ------- --------- Diluted weighted average number of Ordinary shares in issue during the year 961.7 1,012.7 ------------------------------------------ ------- --------- * The tax charge used in the calculation of the effective tax rate is based on Benchmark PBT. 10. Analysis of Group net debt ---------------------------------- ---------------- --------- 2006 2005 Â£m Â£m ---------------------------------- ---------------- --------- Cash and cash equivalents (net of overdrafts) 80 259 Available for sale assets - current - 31 Derivatives hedging loans and borrowings 46 - Debt due within one year (29) (35) Finance leases (5) (8) Debt due after more than one year (2,066) (1,674) ---------------------------------- ---------------- --------- Net debt at end of year (1,974) (1,427) ---------------------------------- ---------------- --------- Continuing operations (1,974) (1,631) Discontinued operations - 204 ---------------------------------- ---------------- --------- Net debt at end of year (1,974) (1,427) ---------------------------------- ---------------- --------- Net debt at 31 March 2006 is stated after deducting Â£46m in respect of the fair value of derivatives related to the Group's borrowings. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 11. Transitional adjustment on first time adoption of IAS 32 and IAS 39 As permitted by IFRS 1 'First-time Adoption of International Financial Reporting Standards', the Group elected to defer implementation of IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement' until the year commencing on 1 April 2005, with an appropriate adjustment recognised in opening equity. The principal impact of IAS 32 and IAS 39 on the Group's financial statements relates to the recognition of derivative financial instruments at fair value. Financial assets and liabilities which arise on derivatives that do not qualify for hedge accounting are held on the balance sheet at fair value, with the changes in value reflected through the income statement. The accounting treatment of derivatives which qualify for hedge accounting depends on how they are designated. The different accounting treatments are explained below: Fair value hedges The Group uses interest rate and cross currency swaps to hedge the exposure to interest rates and currency movements of its loans and borrowings. Under UK GAAP, interest amounts payable or receivable in respect of derivative financial instruments held for hedging interest rate and currency movements on loans and borrowings were recognised as adjustments to net interest over the period of the derivative contract. Derivative financial instruments were not recognised at fair value in the balance sheet. Under IAS 39, derivative financial instruments which meet the 'fair value' hedging requirements are recognised in the balance sheet at fair value, with corresponding fair value movements recognised in the income statement. Cash flow hedges The Group hedges the foreign currency exposure on inventory purchases. Under UK GAAP, foreign currency derivatives were held off balance sheet. Under IAS 39, derivative financial instruments which qualify for cash flow hedging are recognised on the balance sheet at fair value, with corresponding fair value changes deferred in equity. Net investment hedges The gains or losses on the translation of currency borrowings and foreign exchange contracts used to hedge the Group's net investments in foreign entities are recognised in equity. Provided the hedging requirements of IAS 39 are met and the hedging relationship is fully effective, this treatment does not differ from UK GAAP. The effect of adopting IAS 32 and IAS 39 on the balance sheet as at 1 April 2005 is as follows: --------------------------------- -------- --------- -------- 31 March Transition 1 April 2005 adjustment 2005 Â£m Â£m Â£m --------------------------------- -------- --------- -------- Current assets Other financial assets 31 36 67 --------------------------------- -------- --------- -------- 31 36 67 --------------------------------- -------- --------- -------- Current liabilities Trade and other payables (1,600) (3) (1,603) Other financial liabilities - (5) (5) --------------------------------- -------- --------- -------- (1,600) (8) (1,608) --------------------------------- -------- --------- -------- Non-current liabilities Loans and borrowings (1,676) (11) (1,687) Deferred tax liabilities (164) (5) (169) --------------------------------- -------- --------- -------- (1,840) (16) (1,856) --------------------------------- -------- --------- -------- Other assets and liabilities 6,720 - 6,720 --------------------------------- -------- --------- -------- Total equity 3,311 12 3,323 --------------------------------- -------- --------- -------- NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 12. Retirement benefit assets/obligations The Group operates pension plans in a number of countries around the world and provides post-retirement healthcare insurance benefits to certain former employees. Pension arrangements for UK employees are operated principally through two defined benefit schemes (the GUS Pension Scheme and the Argos Pension Scheme) and one defined contribution scheme (the GUS Money Purchase Plan). In other countries, benefits are determined in accordance with local practice and regulations and funding is provided accordingly. The GUS and Argos defined benefit schemes have rules which specify the benefits to be paid and are financed accordingly with assets being held in independently administered funds. A full actuarial funding valuation of these schemes is carried out every three years with interim reviews in the intervening years. The latest full actuarial funding valuation of each of the schemes was carried out as at 31 March 2004 by independent, qualified actuaries, Watson Wyatt Limited, using the projected unit method. Principal assumptions The valuations used for IAS 19 have been based on the most recent actuarial funding valuations and have been updated by Watson Wyatt Limited to take account of the requirements of IAS 19 in order to assess the liabilities of the schemes at 31 March 2006. The principal actuarial assumptions used to calculate the present value of the UK defined benefit obligations were as follows: 2006 2005 % % ------------------------------------- ---------- ---------- Rate of inflation 2.9 2.9 Rate of increases for salaries 4.7 4.7 Rate of increase for pensions in payment and deferred 2.9 2.9 pensions Rate of increase for medical costs 6.5 6.5 Discount rate 4.9 5.4 ------------------------------------- ---------- ---------- The main financial assumption is the real discount rate, i.e. the excess of the discount rate over the rate of inflation. If this assumption increased/decreased by 0.1%, the UK defined benefit obligation would decrease/increase by approximately Â£23m and the annual UK current service cost would decrease/ increase by approximately Â£1m. The IAS 19 valuation assumes that mortality will be in line with standard tables for males and females. An allowance is also made for anticipated future improvements in life expectancy, by assuming that the probability of death occurring at each age will decrease by 0.25% each year. Overall, the average expectation of life on retirement in normal health is assumed to be: - 18.9 years at age 65 for a male currently aged 65 - 22.0 years at age 65 for a female currently aged 65 - 19.6 years at age 65 for a male currently aged 50 - 22.9 years at age 65 for a female currently aged 50 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 12. Retirement benefit assets/obligations (continued) Movement in the defined benefit assets/(obligations) during the year The movement in the defined benefit assets/(obligations) during the year was as follows: UK Overseas Total --------------- -------------- ------------- 2006 2005 2006 2005 2006 2005 Â£m Â£m Â£m Â£m Â£m Â£m ------------------------------ ------ ------ ------ ------ ------ ------ Obligations in schemes at beginning of the year (101) (155) (11) (23) (112) (178) Current service cost (36) (32) (3) (4) (39) (36) Interest on schemes' liabilities (49) (46) (2) (8) (51) (54) Expected return on schemes' assets 56 47 2 8 58 55 Settlement gain in respect of unfunded liabilities of home shopping and Reality businesses - 4 - - - 4 Actuarial gain/(loss) recognised 25 (19) (18) 1 7 (18) Disposal of subsidiaries - - 25 - 25 - Contributions paid 128 100 2 15 130 115 ------------------------------ ------ ------ ------ ------ ------ ------ Surplus/(deficit) in schemes at end of the year 23 (101) (5) (11) 18 (112) ------------------------------ ------ ------ ------ ------ ------ ------ Contributions include a special contribution of Â£100m paid into the Argos Pension Scheme in March 2006 and special contributions paid into the Argos Pension Scheme (Â£50m) and the GUS Pension Scheme (Â£26m) in March 2005. 13. Summary of the impact of IFRS on the comparative periods Detailed indicative disclosures in respect of the effect of IFRS on the reported position and results for the year ended 31 March 2005 were issued on 14 June 2005, and are available on the Company website at www.gusplc.com/gus/investors/ifrs. A summary of the impact of IFRS on certain key reported figures is set out below. Since that date, Burberry and Wehkamp have been reclassified as discontinued operations (note 7), and some further adjustments have been made as a result of clearer IFRS interpretation becoming available. The effect of these changes on the IFRS financial statements is shown below. Adjustments to comparative information issued on 14 June 2005 As set out in note 5, the results for the year ended 31 March 2005 have been adjusted as a result of clearer guidance now available with regard to cash generating units. It has been the policy of Argos Retail Group to use a geographic clustering approach when looking at whether store assets should be impaired, but emerging practice requires impairment reviews to be performed on a store by store basis. As a result of this change, there is an impairment charge at Homebase of Â£36m, relating to the balance sheet at 31 March 2004 on transition to IFRS. There was no impairment charge in the year ended 31 March 2005. The store impairment charge also triggers the creation of an onerous lease provision of Â£12m at 31 March 2004. Additional onerous lease provisions of Â£2m were provided for in the year ended 31 March 2005. The results for the year ended 31 March 2005 have also been adjusted as a result of clearer guidance now available on the accounting treatment of 'Guaranteed Rental Uplifts' payable on certain leased premises. Such uplifts are now recognised on a straight-line basis over the length of the lease. The effect has been to reduce the retained earnings reserve and net assets by Â£2m at 31 March 2005 (2004: Â£1m) and to reduce profit for the year ended 31 March 2005 by Â£1m. Other adjustments to the 2005 restatement to IFRS published in June 2005 relate to taxation and acquisition intangibles. The taxation liabilities of Â£26m (2004: Â£26m) relate to share schemes and properties acquired with corporate acquisitions. Â£8m of acquisition intangibles have been reclassified from goodwill and these intangibles have now been fully amortised with Â£8m charged to the income statement in 2005. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 13. Summary of the impact of IFRS on the comparative periods (continued) Group income statement Reported sales are reduced due to the different presentation required under IFRS in respect of discontinued operations. This restatement is set out in the segmental analysis at note 4 above. IFRS adjustments in respect of other key items within the Group income statement are as follows: Year ended 31 March 2005 ----------------------------------------- Note Operating Profit before Profit for the profit tax financial year Â£m Â£m Â£m ------------------------------ ------ --------- --------- --------- As reported under UK GAAP 680 693 423 IFRS reclassifications: --------- --------- --------- Lewis Group a (55) (79) - Other discontinued operations a - 27 - Tax expense of associates - (1) - Minority interests b - - 49 --------- --------- --------- (55) (53) 49 IFRS remeasurements: --------- --------- --------- Share based payments c (7) (7) (7) Catalogue costs d (1) (1) (1) Reversal of goodwill amortisation e 207 207 207 Amortisation of acquisition intangibles e (4) (4) (4) Interest earned on pension scheme assets f - 2 2 Deferred tax charges g - - (29) Other 3 6 8 --------- --------- --------- 198 203 176 ------------------------------ ------ --------- --------- --------- As reported under IFRS on 14 823 843 648 June 2005 Further adjustments: Reclassification of (164) (169) - Burberry (note 7) Reclassification of (22) (23) - Wehkamp (note 7) Adjustment for depreciation 8 8 8 on store impairment charges Adjustment for onerous leases (2) (2) (2) Adjustment for further (8) (8) (8) amortisation of acquisition intangibles Adjustment for guaranteed rental uplifts (1) (1) (1) ------------------------------ ------ --------- --------- --------- As reported under IFRS, 634 648 645 as restated ------------------------------ ------ --------- --------- --------- NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 13. Summary of the impact of IFRS on the comparative periods (continued) ---------------------------------- ------- ---------- ---------- Group balance sheet Note 31 March 2005 1 April 2004 Â£m Â£m ---------------------------------- ------- ---------- ---------- Capital employed as reported under UK GAAP 3,070 2,971 ---------- ---------- Pension liabilities f (226) (227) Catalogue costs d (15) (14) Lease incentives h (34) (34) Amortisation of acquisition intangibles e (4) - Reversal of UK GAAP goodwill e 207 - amortisation charged after transition Goodwill impairment on transition (3) (3) Deferred taxation g 186 210 Dividends i 203 191 Other - (5) ---------- ---------- 314 118 ---------------------------------- ------- ---------- ---------- As reported under IFRS on 14 June 2005 3,384 3,089 ---------------------------------- ------- ---------- ---------- Further adjustments: Adjustment for store impairment charges, net of depreciation (23) (31) Adjustment for amortisation of acquisition intangibles (8) - Adjustment for recognition of taxation liabilities (26) (26) Adjustment for onerous leases (14) (12) Adjustment for guaranteed rental uplifts (2) (1) ---------------------------------- ------- ---------- ---------- As reported under IFRS, as restated 3,311 3,019 ---------------------------------- ------- ---------- ---------- Notes a Under IFRS, the Group income statement down to profit after tax excludes the results of discontinued operations. b The concept of a group differs under IFRS and minority interests are regarded as equity holders of the Group. Thus rather than deducting a minority interest in arriving at profit for the financial year, the profit for the year is instead attributed to the different types of equity holders. c IFRS requires that the fair value of all share-based payments is charged to the income statement over the vesting period. Depending on the type of scheme concerned, the recognition, or timing, or both, of the charges to profit may differ compared with UK GAAP. d Under UK GAAP, catalogue costs were expensed over the period in which the catalogues generated revenue. These costs are expensed as incurred under IFRS. e Goodwill amortisation charged under UK GAAP after the transition date, 1 April 2004, is reversed in the IFRS financial statements. Goodwill will be subject to an annual impairment review. IFRS also requires that, on acquisition, specific intangible assets are identified and then amortised over their useful economic lives. These include items such as brand names and customer lists, to which value is first attributed at the time of acquisition. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 March 2006 13. Summary of the impact of IFRS on the comparative periods (continued) f Under IFRS, the pension charge principally comprises a current service cost, charged to operating profit, and a financing item reported within net interest. Under IAS 19, GUS has adopted the option that requires the full actuarial value of the surplus or deficit of pension schemes and other post-retirement benefits to be shown on the balance sheet. Any movements in the pension assets and liabilities arising from actuarial gains and losses are recognised immediately in full through the SORIE. g Under UK GAAP, tax relief on goodwill written off to reserves in respect of pre-1998 US acquisitions was credited each year against the tax charge in the income statement. Under IFRS, a deferred tax asset is set up for this future relief at the time of the acquisition; as the tax relief is received, it is credited against this deferred tax asset. This asset is the most significant tax related adjusting item on the transition from UK GAAP to IFRS. h Under UK GAAP, property lease incentives were recognised over the period to the first rent review. Under IFRS, these are recognised over the full term of the lease. i Under IFRS, a dividend that is proposed but not yet authorised is not included as a liability in the financial statements. 14. GUS plc website The maintenance and integrity of the GUS plc website, www.gusplc.com, is the responsibility of the Company's directors. The work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the preliminary announcement since it was initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange

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