Interim Results

GUS PLC 18 November 2004 18 November 2004 GUS plc Interim Results for the Six Months Ended 30 September 2004 Strong financial performance â€¢15% increase in profit before amortisation of goodwill, exceptional items and taxation to Â£406m (2003: Â£354m) â€¢Profit before tax increased to Â£323m (2003: Â£247m) â€¢11% increase in basic earnings per share before amortisation of goodwill and exceptional items to 28.9p (2003: 26.0p) â€¢Basic earnings per share 20.5p (2003: 15.3p) â€¢13% increase in interim dividend to 9.0p (2003: 8.0p) â€¢10.4% post-tax return on capital in the 12 months to 30 September 2004, showing continued improvement Record profits again at Argos, Experian and Burberry â€¢Argos Retail Group: sales up 10% and profit up 13% â€¢Experian: sales up 15% and profit up 13% for continuing activities at constant exchange rates â€¢Burberry: sales up 14% and profit up 22% at constant exchange rates Further initiatives to enhance shareholder value â€¢Portfolio reshaping continues: IPO of 46% stake in Lewis Group completed; further Experian infill acquisitions; Burberry share repurchase programme of about Â£250m â€¢Â£67m of GUS Â£200m share buyback programme completed Sir Victor Blank, Chairman of GUS, commented: 'GUS has once again achieved record half-year profits. We have continued to invest across the Group to further enhance shareholder value. I would like to thank everybody at GUS for contributing to these excellent results.' John Peace, Group Chief Executive of GUS, commented: 'In the first half, we delivered double-digit sales and profit growth at constant exchange rates in each of our main businesses. While not underestimating the current challenges in some of our markets, we have clear strategies for growth in each of our businesses and are confident of the strength of their competitive positions.' 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 there later in the day. There will be a conference call to discuss the results at 3.00pm today (UK time), with a recording available later on the website. All relevant GUS, Burberry and Lewis Group announcements are also available on www.gusplc.com. GUS will issue its Third Quarter Trading Update on 13 January 2005. Its preliminary results for the year to 31 March 2005 will be announced on 25 May 2005. Certain statements made in this announcement are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future results in forward looking statements. GROUP STRATEGY In May 2004, the Board of GUS stated that it believed that there is further scope to increase shareholder value significantly. Considerable progress has been made during the first half of the year. Delivered strong financial performance GUS has grown profit before tax by 15% in the first half. Each of our three main businesses has again reported record operating profits and generated double-digit sales and profit growth at constant exchange rates. The interim dividend has been increased by 13%. Continued to invest in three main businesses GUS has continued to invest in its main activities through a combination of capital expenditure (Â£164m in the period), working capital (a Â£57m increase in the Financial Services loan book) and acquisition (Â£36m on buying complementary businesses for Experian). Continued to transform the Group The partial IPO of the Lewis Group took place in September 2004. GUS sold 46m shares (or 46% of the equity) for net proceeds of Â£105m. It will also transfer about three million shares to Lewis share incentive schemes. Although the transaction is modestly dilutive to earnings, the listing has enabled GUS to realise value, while at the same time enhancing the development opportunities for Lewis. The share repurchase programme announced by Burberry will enable GUS to maintain its existing holding in Burberry while receiving about Â£165m in available cash. Burberry has announced a share repurchase programme of approximately Â£250m, following a review of its balance sheet strategy. This is expected to be completed by March 2006. GUS will retain its existing 66% stake in Burberry, but benefit from Burberry returning cash to its shareholders. To effect this transaction, for every share bought in the market from external shareholders, Burberry will purchase a proportionate number of shares directly from GUS at the same price. This mechanism is subject to approval at a Burberry EGM. GUS has completed Â£67m of its share buyback programme of approximately Â£200m announced in May 2004 (7.8m shares at an average price of 850p). This is in addition to Â£191m of dividends paid to shareholders in the first half. GUS expects to complete the balance of the buyback as planned by the end of this financial year. The scope for subsequent buybacks will, as previously announced, be regularly reviewed. Initiated strategic review process GUS announced in May 2004 that its Board would actively review all strategic options over a two-year period in order to create further value for its shareholders. This process is on track and GUS will update shareholders in due course. GROUP FINANCIAL HIGHLIGHTS Sales from continuing operations up 8% to Â£3.7bn An increase of 15% to Â£406m of profit before amortisation of goodwill, exceptional items and taxation. This is after an adverse foreign exchange movement of Â£14m. An increase of 11% to 28.9p in earnings per share before amortisation of goodwill and exceptional items. Minority interests were Â£19m (2003: Â£10m), reflecting strong profit growth at Burberry and the sale of a further stake in that business in November 2003. An effective tax rate of 24.4%, based on profit before amortisation of goodwill and before profits and losses on sale of businesses. This compares to 23.4% in the last financial year. Net debt reduced to Â£1.3bn at 30 September 2004, down from Â£1.5bn a year ago, driven by strong operational cash flow and proceeds from disposals. The increase of Â£58m in net debt since 31 March 2004 reflects the share buyback undertaken in the period. Interim dividend of 9.0p announced (2003: 8.0p). 10.4% post-tax return on capital for the 12 months to 30 September 2004, up from 9.4% for the previous 12 months. 6 months to 30 September Sales Profit before taxation -------------------- ---------------- ---------------- 2004 2003 2004 2003 Â£m Â£m Â£m Â£m -------------------- --------- --------- --------- --------- Argos Retail Group 2,675 2,435 172.7 153.0 Experian 645 638 152.7 145.7 Burberry 348 321 78.8 66.9 Other 81 73 14.0 10.0 --------- --------- --------- --------- Continuing operations 3,749 3,467 418.2 375.6 Discontinued operations - 269 - 15.0 --------- --------- --------- --------- Total 3,749 3,736 418.2 390.6 -------------------- --------- --------- Net interest (12.4) (36.2) --------- --------- Profit before amortisation of goodwill, exceptional 405.8 354.4 items and taxation Amortisation of goodwill (98.8) (91.4) Exceptional items 16.4 (15.6) --------- --------- Profit before taxation 323.4 247.4 ---------------------------------- --------- --------- EPS before amortisation of goodwill and exceptional 28.9p 26.0p items ---------------------------------- --------- --------- Basic EPS 20.5p 15.3p ---------------------------------- --------- --------- The profit before taxation figure shown against each business above is operating profit, defined as profit before interest, taxation, exceptional items and goodwill amortisation. The same definition of operating profit is used in each table in this announcement. 2003 sales have been restated for FRS 5 Application Note G. Discontinued operations include sales from Home shopping and Reality and operating profit from Property. See Appendix for details. ARGOS RETAIL GROUP (ARG) Sales up 10% to Â£2.7bn and profit up 13% to Â£173m at ARG, the UK's largest general merchandise retailer Argos again outperformed its market; 7% like-for-like sales growth Homebase demonstrating benefits of repositioning; 4% like-for-like sales growth ARG sourcing initiatives progressing well Financial Services moved into profit; driving merchandise sales in Argos and Homebase 6 months to 30 September Sales Operating profit -------------------- --------------- ---------------- 2004 2003 2004 2003 Â£m Â£m Â£m Â£m -------------------- -------- --------- --------- --------- Argos 1,552 1,377 85.7 73.9 Homebase 981 917 76.3 71.5 Financial Services 35 25 0.4 (3.3) Wehkamp 107 116 10.3 10.9 -------- --------- --------- --------- Total 2,675 2,435 172.7 153.0 -------------------- -------- --------- --------- --------- Operating margin 6.5% 6.3% -------------------- -------- --------- --------- --------- Notes (relevant to all ARG tables): 2003 sales and operating margin have been restated for FRS 5 Application Note G and exclude discontinued activities. Full details are given in the Appendix. Homebase sales and operating profit are for the seven-month periods to 30 September. ARG is focused principally on selling general merchandise in the UK. 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 and home delivery and financial services. At the time of the Homebase acquisition in December 2002, ARG expected integration benefits of at least Â£20m per annum within three years. Incremental benefits have now been identified, principally driven by joint sourcing activities. Sourcing savings have come through in greater quantity and faster than envisaged at the time of acquisition. Total benefits from the integration are therefore now expected to be about Â£40m in the year to March 2006, broadly double the initial target. These savings will be largely re-invested in lower prices or re-invested in the business to support future growth. Argos 6 months to 30 September 2004 2003 Growth Â£m Â£m ------------------------------ -------- --------- --------- Sales 1,552 1,377 13% Total growth 13% 14% Like-for-like growth 7% 7% Operating profit 85.7 73.9 16% Operating margin 5.5% 5.4% ------------------------------ -------- --------- --------- At 30 September Number of stores 570 540 Of which: Argos Extra stores 146 26 In an increasingly competitive general merchandise market in the UK, Argos aims to win more customers and a greater share of their spend by offering the most compelling combination of choice, value and convenience. Operational review Argos again clearly outperformed its market. Sales grew by 13% year-on-year as Argos made strong market share gains in many product categories, especially consumer electronics, photography, white goods and leisure. Argos Extra, which offers consumers even more choice, performed well in the first half. The Argos Extra range has 3,800 more lines than the main catalogue at 13,200. It is now available in 146 stores, of which 109 stock-in the additional lines. In the remaining 37 neighbourhood stores, customers can order the extended range for later collection. Leisure, storage and lighting ranges sold particularly well in the first half. A high single-digit percentage sales uplift continued to be achieved during the period in the Argos Extra stocked-in stores. Sales performance is stronger in those conurbations, such as Bristol, which have several Extra stores. The progress of Argos Extra will continue to be evaluated through peak trading. Argos continues to re-invest supply chain gains in further improving value for its customers. Prices on re-included lines in the Autumn/Winter 2004 catalogue are approximately 5% lower than last year, helped in part by the movement in the US dollar. Argos also continues to reduce prices during the life of the catalogue to improve its value proposition with customers. In the Spring/Summer 2004 catalogue, over 20% of sales were at promotional prices, broadly in line with the previous year. Argos continues to win share driven by the convenience of its multi-channel offer. Argos offers customers the ability to order or reserve goods in store, by phone or on the Internet, for delivery to store or home. Further progress was made during the first half in improving convenience: - Argos opened 14 stores in the first half, bringing the total to 570. A further 21 store openings are planned for the second half; - Argos Direct, the delivery to home operation, grew sales by 30% and accounted for 24% of total sales in the first half. The third Argos Direct two-man delivery warehouse in Darlington is planned to be operational in time for the build-up to Christmas 2005; - 5% of Argos' sales in the first half were ordered over the Internet for direct delivery to home. This increase of about 50% over the same period last year contributed to the growth in Argos Direct. In addition, 6% of total sales were reserved by customers, either by phone, Internet or text messaging, for later collection in-store; and - Argos will have quick pay kiosks in over 300 stores by Christmas 2004. Kiosks process about 8% of sales where present, reducing queuing in-store for customers. Financial review Sales for the six months of Â£1,552m increased by 13%, of which 6% came from new stores that continue to perform ahead of expectations. Like-for-like sales growth was 7%. Gross margin was in line with the previous year, with supply chain benefits continuing to fund lower prices. Operating profit grew by 16% and operating margin advanced by a further ten basis points to 5.5%, despite investment in the roll-out of Argos Extra and additional distribution capacity. Homebase 7 months to 30 September 2004 2003 Growth Â£m Â£m ------------------------------------- -------- --------- --------- Sales 981 917 7% Total growth1 6% 4% Like-for-like growth1 4% 2% Operating profit 76.3 71.5 7% Operating margin 7.8% 7.8% ------------------------------------- -------- --------- --------- At 30 September Number of stores 283 273 Of which: number with mezzanine floor 88 52 1 Total and like-for-like growth for H1 2004 excluded 29 February 2004. Homebase continues to reposition itself as the UK's leading home enhancement retailer. The key strategic priorities remain unchanged, being to: - improve the existing core business; - enhance and extend its home furnishings offer; and - deliver synergies by leveraging the scale and expertise of ARG. During the period under review, Homebase has made further substantial progress in executing and delivering on this strategy. Operational review Homebase continues to improve the in-store experience for its customers. The actions initiated during the last year to improve customer service, stock availability and retailing basics have continued in the first half. The results are beginning to show through in positive feedback from customers. Homebase has made good progress in range development and store layout, supporting the core DIY and decorating offer. Range developments have taken place on tiling, own brand paint and power tools, the latter being jointly sourced from the Far East with Argos. There has also been a successful new store design trial in Telford and Plymouth incorporating improved layout, range and navigation. This has included increased mezzanine space, allowing extensions to the core DIY and decorating product offer on the ground floor. Homebase continues to see strong growth in home furnishings, especially kitchens and bathrooms. New product ranges are better displayed in the new store formats and customer service is being enhanced by, for example, the roll-out of CAD systems across the chain. Homebase is also benefiting from the infrastructure and expertise of ARG. For example, there has been an encouraging response to its trial of a furniture catalogue in 15 of its stores. This offers furniture from both the Argos and Homebase ranges and is delivered to home using the Argos Direct infrastructure. Homebase continues to refine and roll out its mezzanine format. Homebase opened 21 mezzanines in the first half of the year, bringing the total to 88 and expects to open up to a further 25 in the second half. The latest enhanced mezzanine formats are trading well and delivering sales uplifts in excess of 15%. Homebase continues with its store opening programme. Homebase opened five stores in the first half, bringing the total to 283, and expects to open a further four new stores in the second half. Plans are in place to accelerate the store opening programme to about 45 new stores in the three years 2006 to 2008. This will add about 12% to selling space by March 2008. Combined sourcing improvements are ahead of plan and continue to fund re-investment in lower pricing where appropriate. Product sourcing between Argos and Homebase, using the ARG Far Eastern offices, has proved successful particularly in areas such as garden power, power tools and garden furniture. An accelerated pace of activity on joint programmes - including value chain improvement, reverse auctions and development of own-brand product - continues to drive down cost prices. Financial review Sales in the seven months to 30 September 2004 increased by 6%, 4% on a like-for-like basis (excluding 29 February 2004). The strong performances in kitchens, bathrooms and tiling continued, while there were good uplifts from new ranges in areas such as paints and power tools. Gross margin was in line with previous year, as supply chain gains funded lower prices and increased seasonal promotions. Operating profit at Â£76.3m grew by 7% compared to the same period last year, with operating margin remaining level at 7.8%. Investment in marketing and mezzanines increased year-on-year. ARG Financial Services (ARG FS) 6 months to 30 September 2004 2003 Â£m Â£m ------------------------------------------ ------ ------ Sales 35 25 Profit before funding costs 9.0 1.6 Funding costs (8.6) (4.9) ------ ------ Operating profit/(loss) 0.4 (3.3) ------------------------------------------ ------ ------ At 30 September Gross loan book 431 271 Number of active store card holders (000s) 839 660 ARG Financial Services 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), personal loans and a range of insurance products. ARG Financial Services increased its total loan book by over Â£50m in the first six months of the year and by Â£160m in the last 12 months. It now expects the growth in its loan book in the second half to be roughly in line with that in the first half. ARG Financial Services continued to drive merchandise sales in both Argos and Homebase. The Argos store card maintained its momentum in the first half of the year, funding 10% of sales at Argos. Promotional credit, such as 'buy now pay later', is being used to drive big ticket sales in Argos and Homebase and accounted for about two-thirds of the year-on-year increase in the combined store card loan book. ARG Financial Services earned a small profit in the first half, after funding costs, as it entered its fourth year of operation. The loan book is funded on the GUS balance sheet, with an assumption of 10% equity and 90% debt. The funding cost of the debt (Â£8.6m in the period) is charged against ARG FS operating profit, with the Group interest charge being reduced by the same amount. Wehkamp 6 months to 30 September 2004 2003 Growth at Â£m Â£m constant FX ------------------------- ------ ------- ------------ Sales 107 116 (5%) Operating profit 10.3 10.9 (2%) Operating margin 9.6% 9.4% Sales and operating profit at Wehkamp, the leading home shopping brand in Holland, were 5% and 2% lower respectively in euros. This reflects the continued difficult economy and retail sector in Holland and the increased competition in the Dutch home shopping market. The Â£/euro exchange rate moved during the period from an average of â‚¬1.43 in the six months to September 2003 to â‚¬1.49 in 2004. This reduced reported sales by Â£4m and operating profit by Â£0.4m. EXPERIAN Sales up 15% and profit up 13% for continuing activities at constant exchange rates Fifth consecutive six-month period of double-digit sales and profit growth at constant exchange rates Well-balanced business driving organic growth across products and regions Complementary acquisitions continue in high growth areas, with returns in line or ahead of expectations ---------------------- --------------- --------------- 6 months to 30 September Sales Operating profit ---------------------- --------------- --------------- 2004 2003 2004 2003 Â£m Â£m Â£m Â£m ---------------------- -------- -------- -------- -------- Experian North America 348 339 90.7 94.1 Experian International 290 254 62.0 51.7 -------- -------- -------- -------- Total continuing activities 638 593 152.7 145.8 % growth at constant FX 15% 14% 13% 29% Discontinued activities 7 45 - (0.1) -------- -------- -------- -------- Total reported 645 638 152.7 145.7 Operating margin - excluding FARES 21.1% 20.6% - including FARES 23.9% 24.6% ----------------------------------- -------- -------- Notes (relevant to all Experian tables): Discontinued activities are North American lettershops, Italian call centres, French cheque printing, business process outsourcing in Holland and UK contact centres. Operating margin is for continuing activities only. For FARES, the 20% owned real estate information associate, Experian reports its share of FARES' profits but not sales. Additional information on Experian is given in the Appendix. Experian is a global leader in providing information solutions to organisations and consumers. It helps organisations find, develop and manage profitable customer relationships by providing information, decision-making solutions and processing services. It has over 40,000 clients in more than 60 countries. Experian has a clear strategy for growth against which further progress was made in the first half: - build on core businesses; - sell new value-added solutions; and - grow by targeted acquisitions. Experian has continued to build on its core business by winning major contracts across its broad base of activities, by product and region. In Credit, HBOS, the UK's largest mortgage and savings provider, has agreed a new contract with Experian worth in excess of Â£40m over five years. Experian will be HBOS' prime solutions provider for consumer and business credit referencing, scoring solutions, application processing, fraud prevention and marketing solutions. In Marketing, Experian has won a three-year contract worth more than $10m to provide a full range of solutions to one of the US' largest credit card issuers. In Outsourcing, Experian has extended its partnership with Banque de France with a multi-million euro contract for processing activities. Experian continues to improve its ability to sell value-added solutions as well as data to its clients. For example, investment in the repositioning of North American Marketing is now delivering benefits. Following product innovation and acquisitions, Experian is now seeing greater success in selling to its clients analytical marketing solutions as well as information and in working across all channels (direct mail, email and mass media). This has contributed to over $40m of contract wins and renewals in the first half from marketing clients in sectors as diverse as financial services, travel, retail and charities. Experian continues to drive growth through complementary acquisitions. In the first half, Experian spent a further Â£36m on acquisitions, including: - five affiliate bureaux, to bolster North American Credit Information; - Americas Software, to enhance its fraud prevention solutions in the area of anti-money laundering; - AutoCount, to deepen services offered to automotive dealers in the US; and - ISL, to strengthen Experian's offer in the UK insurance sector. After the period end, Experian also purchased QAS, the leading supplier of address management software in the UK for a net cost of Â£90m and Simmons, a market research company in the US. These acquisitions are all consistent with Experian's global strategy of acquiring complementary businesses that provide new products, new data or entry into new vertical or regional markets, while leveraging the core assets of Experian. The integration of recent acquisitions is proceeding well and all are performing in line with or ahead of expectations. Experian North America 6 months to 30 September 2004 2003 Growth at Â£m Â£m constant FX --------------------------------- ------- -------- ------ Sales - Continuing activities 348 339 15% - Discontinued activities - 26 n/a ------ -------- ------ - Total reported 348 365 7% Operating profit - Direct business 72.6 70.2 16% - FARES 18.1 23.9 (15%) ------ -------- ------ - Continuing activities 90.7 94.1 8% - Discontinued activities - (0.2) n/a ------ -------- ------ - Total reported 90.7 93.9 8% Operating margin - excluding FARES 20.9% 20.7% - including FARES 26.1% 27.8% Experian North America has delivered another six months of good growth, demonstrating the benefits of its broad base of products and services. Credit is showing steady growth, despite rising interest rates; the growth rate in Marketing is accelerating, while the integration of recent acquisitions is helping to enhance prospects. Operational review Sales from continuing activities increased to $631m (Â£348m), up by 15% in dollars. Of this, 8% came from corporate acquisitions. The slowdown in the mortgage refinancing market reduced Experian North America's sales growth by 4% in the period. Credit Information and Solutions together grew sales by 14%, 6% excluding corporate acquisitions. As well as strong growth in Consumer Direct, there were good performances in account management and retention tools and in value-added solutions, in areas such as on-line notification, fraud, scoring and analytics. Consumer Direct sales grew by 27% in the first half. With over 2.0m subscribers to its credit monitoring services, Experian is the clear market leader in this fast expanding sector. Its growth has been driven by increased membership, higher renewals, more cross-selling of additional products and the introduction of monthly billing. A further five affiliate bureaux were purchased during the first half, giving a total of 26 at a combined cost of $173m since the programme started in July 2002. Integration is progressing smoothly, with returns exceeding expectations. Marketing Information and Solutions together grew sales by 19%, 11% excluding acquisitions. Information sales were strong in the first half, especially in the retail, financial and travel and entertainment markets. Marketing Solutions was impacted by low growth in the catalogue sector and the timing of certain large database contracts, but prospects remain good. Experian is seeing particularly strong growth in email solutions, following the acquisition of CheetahMail in March 2004, winning significant new business with clients such as LL Bean. Of the 11% underlying growth in Marketing in the first half, 3% came from low margin contracts where Experian is still managing relationships for print and mail services with certain clients as part of wider marketing contracts. Financial review For continuing activities, sales in the first half were $631m and operating profit was $164m. Operating profit from the direct business increased by 16% to $132m, reflecting strong sales growth in the period. Operating margin increased by a further 20 basis points, despite an adverse product mix and several million dollars of FACTA-related set-up costs. Operating profit from the 20% holding in FARES, the real estate information associate, was $33m (2003: $39m). The slowdown in mortgage refinancing was partly offset by acquisitions, particularly of Transamerica's tax and flood services businesses acquired in September last year. At Â£1=$1.81, the average rate for the US dollar was much weaker in the first half of this year than last year (Â£1=$1.62). This reduced reported sales by Â£42m and operating profit by Â£11.0m. In the six months to 31 March 2004, the average US dollar rate was $1.78. FACT Act The Fair and Accurate Credit Transactions Act (FACTA) was signed into law on 4 December 2003. This permanently extends the national standards for consumer credit reporting in the US, benefiting the financial services industry as a whole. Among other things, it requires national credit reporting agencies to provide consumers, on request via a centralised source, one free credit report annually. This free service will begin on 1 December 2004, with a nine-month roll-out beginning in the western states and moving east. To recover the costs of complying with this legislation, Experian is, as previously announced, applying an 8% cost recovery charge to the total online credit services revenue for each Experian business client, subject to a minimum of eight cents per transaction. As planned, Experian has initiated this cost recovery from 1 October at a 50% discount to these rates. The full cost recovery programme will become effective on 1 January 2005. Experian International 6 months to 30 September 2004 2003 Growth at Â£m Â£m constant FX ---------------------------- -------- --------- ------- Sales - Continuing activities 290 254 16% - Discontinued activities 7 19 n/a -------- --------- ------- - Total reported 297 273 11% Operating profit - Continuing activities 62.0 51.7 21% - Discontinued activities - 0.1 n/a -------- --------- ------- Total reported 62.0 51.8 21% Operating margin 21.4% 20.4% -------- --------- ------- Two additional Outsourcing activities (UK print and mail and French call centres) have recently been sold. These will be treated as discontinued activities from 1 October 2004. Combined sales were Â£7m in H1 2004 (H1 2003: Â£8m); combined operating profit was Â£1.4m (H1 2003: Â£0.5m). Full details are given in the Appendix. Experian International, which accounts for 45% of Experian sales, had another excellent period, continuing its long record of double-digit sales and profit growth. Operational review Sales from continuing activities grew by 16% at constant exchange rates. Of this, 7% came from acquisitions, predominantly DMS Atos, which was acquired in September 2003. Credit Information and Solutions together delivered 11% sales growth. There was continued strength in consumer information and value-added products in the UK, in the Southern European credit operations and in business information services in France. Experian-Scorex grew strongly especially in the UK and Southern and Eastern Europe, led by sales of solutions for retail banking, application processing and customer management tools. Revenues are also building well in emerging markets such as Russia; while in Korea, following another significant win, Experian-Scorex is now working with four of the top five banks in this market. The sales pipeline for the recently-acquired Marketswitch business continues to grow rapidly in all markets. In the UK, Experian was the first credit bureau to launch a National Credit Score available directly to consumers. As previously announced, from the second quarter, one large card issuer moved its UK account processing in-house from Experian. Marketing Information and Solutions sales increased by 7%, excluding acquisitions. This was driven by strong growth in the UK in business-to-business marketing, insurance and email marketing, and in direct marketing in Southern Europe. Experian has also strengthened its international presence in Marketing in the first half, with acquisitions in Ireland and in Business Strategies micro-marketing in Norway, Sweden, France and Hong Kong. Following the disposal of all non-core businesses, Outsourcing is now better positioned to deliver growth. The business is focused on driving sales in France from debit card processing and business process outsourcing activities. For example, it has recently won a contract to process unemployment claims for Unedic, a French government department. Financial review For continuing activities at constant exchange rates, sales in the first half increased by 16% to Â£290m. Operating profit increased by 21% to Â£62m, giving an improved operating margin of 21.4%. This reflects the high level of sales growth, a better mix and tight cost control. BURBERRY GUS has a 66% stake in Burberry Group plc. The following summarises the latter's interim announcement released on 16 November 2004. 6 months to 30 September 2004 2003 Growth at Â£m Â£m constant FX ---------------------- -------- -------- ----------- Sales 348 321 14% Operating profit 78.8 66.9 22% Operating margin 22.7% 20.8% ---------------------- -------- -------- ----------- At 30 September Number of retail locations 151 136 Burberry delivered a strong performance in the first half, with good progress on strategic and operational priorities. The results reflect both the balance and diversity of Burberry's business across products, channels and regions. Burberry enjoyed progress across all product categories led by Womenswear, which achieved 18% sales growth at constant exchange rates. Growth was achieved across all distribution channels. Retail sales increased by 12% at constant currency, driven by newly opened stores with a marginal contribution from existing stores. Four stores were opened in the first half, selling space increased by approximately 10% year-on-year and several key stores underwent refurbishment. Burberry is on schedule to open a minimum of four stores in the second half, including Rome. Wholesale revenues increased by 13% at constant exchange rates. Mid-to-high single-digit wholesale sales growth is expected for the Spring/Summer 2005 season. Licensing revenue increased by 31% at constant exchange rates, reflecting partly the new fragrance licence, which delivers substantially enhanced royalty rates and increased marketing commitment by its partner. Burberry achieved good results across all regions. Sales at constant currency grew by 15% in the US, 7% in Europe and 29% in Asia, the latter driven by strong demand from Chinese consumers, both within the country and in the region. Financial performance in the first half was again strong. Sales increased by 14% at constant exchange rates. Gross margin expanded from 55.6% to 58.6%, primarily as a result of reduced end-of-season sale activity, sourcing gains and an increase in Licensing's share of the revenue mix. Operating profit grew 22% at constant exchange rates, with operating margin expanding 190 basis points to 22.7%. The lock-up arrangement that GUS entered into when it sold Burberry shares last year expires today (18 November). GUS has no current intention to sell further Burberry shares following the expiry of this arrangement, apart from those sold under the Burberry share repurchase programme. It will continue to assess its holding as part of the strategic review process announced in May 2004. LEWIS GROUP GUS has a 54% stake in Lewis Group, following the partial IPO in September 2004. The following summarises the latter's interim announcement released on 16 November 2004. 6 months to 30 September 2004 2003 Growth at Â£m Â£m constant FX ---------------------- -------- -------- -------- Sales 86 73 13% Operating profit 24.8 19.8 20% Operating margin 28.7% 27.0% ---------------------- -------- -------- -------- At 30 September Number of stores - Lewis 400 399 - Best Electric 55 47 - Lifestyle Living 17 - The above figures are prepared under UK GAAP, while the Lewis Group announcement has been prepared under South African GAAP. Lewis Group, a leading retailer in southern Africa, sells furniture, household and electrical goods mainly on credit. In the first half, it continued to focus on its key strategic business initiatives of: - increasing sales from existing stores and expanding the store base; - driving operational efficiencies; and - delivering on its customer-focused business model, which is based on convenience, choice, credit and loyalty. Sales increased by 13% in rands in the first half. Merchandise sales grew by 16% (10% on a like-for-like basis). This was helped by the favourable economic environment, which increased the affordability of consumer goods, as well as the growth of the middle-income consumer group, Lewis' main target market. New merchandise ranges continued to be added in response to customers' demands and changing demographics. Insurance premiums and finance charges earned grew only marginally year-on-year. This was because a lower proportion of sales took place on credit during the period and interest rates decreased. Operating profit increased by 20% in rands, with operating margin expanding by a further 170 basis points. This was driven mainly by further improvements in the quality of the debtors' book and tight control on costs. The South African rand strengthened from an average rate of Â£1=R12.16 in the six months to September 2003 to an average of R11.72 in the first half of this year. This increased reported sales by Â£3m and operating profit by Â£0.9m in the period. INTEREST COSTS At Â£12m, interest costs were Â£24m lower than the first half last year. This principally reflects the proceeds from selling the Group's share of its property joint venture (Â£10m benefit), a further 11.5% stake in Burberry (Â£5m benefit) and the Home shopping businesses (Â£5m benefit) during the last financial year. Interest expense in the second half may be modestly ahead of the first half, mainly because of increased interest rates and the potential cash outflow for share repurchases. CASH FLOW AND NET DEBT The Group's free cash flow during the first half was Â£218m, compared with Â£236m in the same period last year. Net cash outflow, after acquisitions and divestments, dividends and share repurchases was Â£76m in the first half. After the positive impact of exchange rates (Â£18m), net debt at 30 September 2004 increased by Â£58m to Â£1,258m, up from Â£1,200m at 31 March 2004. This increase reflects the Â£67m used to repurchase GUS shares. The net proceeds from the partial IPO of the Lewis Group of Â£105m were received in early October. INTERNATIONAL FINANCIAL REPORTING STANDARDS It will become mandatory for the consolidated financial statements of all European Union listed companies to be reported in accordance with International Financial Reporting Standards (IFRS) for periods commencing on or after 1 January 2005. Work is well under way at GUS in preparing for the adoption of IFRS. The greatest impact on net assets and profit is likely to come from changes to the accounting treatment of goodwill amortisation and impairment, other intangibles, financial instruments, share-based remuneration, pension costs, tax and deferred tax. The move to IFRS will not change how the Group is managed and will have no impact on cash flow. It will, however, be likely to lead to increased volatility in the profit and loss account and balance sheet, with the presentation of the financial statements also affected. The results for the year to 31 March 2005 will be published on 25 May 2005 under UK GAAP. GUS then plans to publish a restatement of these results under IFRS shortly afterwards. The financial statements for the year to 31 March 2006 will be reported under IFRS, as will the interim results for the six months to 30 September 2005. Appendix 1 - ARG restated sales GUS adopted FRS 5 Application Note G (Revenue Recognition) for the first time in its results for the year to 31 March 2004. Sales for ARG have been restated for the six months to 30 September 2003. No other divisions required restatement. The adoption of FRS 5 has no impact on profit as a corresponding adjustment has been made to cost of sales. The Home shopping and Reality businesses were sold in May 2003 and were classified as discontinued operations. The table below show sales for the six months to 30 September 2003 reflecting the impact of FRS 5 and continuing and discontinued operations. Sales 6 months to 30 As reported FRS 5 impact Disposal impact Restated September 2003 Â£m -------------------- -------- ------ -------- ------- Argos 1,390 (13) - 1,377 Homebase 938 (21) - 917 Financial Services 25 - - 25 Wehkamp 117 (1) - 116 -------- ------ -------- ------- Continuing 2,470 (35) - 2,435 operations Discontinued 269 - (269) - operations -------- ------ -------- ------- Total 2,739 (35) (269) 2,435 Appendix 2 - Additional information on Experian Reported sales for Experian North America 6 months to 30 September 2004 2003 Underlying $m $m growth1 --------------------------- -------- -------- ------ Credit - Information 401 360 3% - Solutions 62 48 23% -------- -------- ------ Total 463 408 6% Marketing - Information 76 63 25% - Solutions 92 77 1% -------- -------- ------ Total 168 140 11% -------- -------- ------ Continuing activities 631 548 7% Discontinued activities - 43 -------- -------- ------ Total sales 631 591 1 Excluding corporate acquisitions. Reported sales for Experian International 6 months to 30 September 2004 2003 Underlying Â£m Â£m growth1 --------------------------- -------- -------- ------ Credit - Information 75 68 11% - Solutions 95 85 12% -------- -------- ------ Total 170 153 11% Marketing - Information 33 29 12% - Solutions 17 17 (3%)2 -------- -------- ------ Total 50 46 7% Outsourcing 72 56 4% Eliminations (2) (1) -------- -------- ------ Continuing activities 290 254 9% Discontinued activities3 7 19 -------- -------- ------ Reported sales 297 273 1 Excluding acquisitions and at constant exchange rates. 2 As expected, the termination of one major contract reduced sales by Â£1.3m in H1 2004, equivalent to 8% growth in Marketing Solutions. 3 Two additional Outsourcing activities (UK print and mail and French call centres) have recently been sold. These will be treated as discontinued activities with effect from 1 October 2004. Combined sales were Â£7m in H1 2004 (2003: Â£8m). Appendix 3 - Experian continuing activities For the year to 31 March 2004, Experian was analysed between continuing and discontinued activities. Discontinued activities were North American lettershops, Italian call centre, cheque printing in France, business process outsourcing in Holland and UK contact centres. Closure costs relating to the UK contact centres were also separately identified. Since the year-end, two small additional Outsourcing activities (UK print and mail and French call centres) have been sold. These will be treated as discontinued activities from 1 October 2004. The table below shows the original and additional discontinued activities for all relevant periods. Future Trading Updates will report sales growth for continuing activities only. Sales Â£m FY 2004 FY 2005 First half Second half Full year First half ------------------------ ------ ------ --------- ------ International 254 296 550 290 Discontinued from 30 (8) (10) (18) (7) September 2004 ------ ------ --------- ------ International - continuing 246 286 532 283 North America 339 326 665 348 ------ ------ --------- ------ Total continuing 585 612 1,197 631 activities International 19 14 33 7 Discontinued from 30 8 10 18 7 September 2004 ------ ------ --------- ------ International - 27 24 51 14 discontinued North America 26 12 38 - ------ ------ --------- ------ Total discontinued 53 36 89 14 activities Total reported 638 648 1,286 645 Operating profit Â£m FY 2004 FY 2005 First half Second half Full year First half ------------------------ ------ ------ --------- ------ International 51.7 57.1 108.8 62.0 Discontinued from 30 (0.5) (1.0) (1.5) (1.4) September 2004 ------ ------ --------- ------ International - continuing 51.2 56.1 107.3 60.6 North America 94.1 87.1 181.2 90.7 ------ ------ --------- ------ Total continuing 145.3 143.2 288.5 151.3 activities International 0.1 1.5 1.6 - Discontinued from 30 0.5 1.0 1.5 1.4 September 2004 ------ ------ --------- ------ International - 0.6 2.5 3.1 1.4 discontinued International - closure - (7.8) (7.8) - costs North America (0.2) (1.4) (1.6) - ------ ------ --------- ------ Total discontinued 0.4 (6.7) (6.3) 1.4 activities Total reported 145.7 136.5 282.2 152.7 GUS plc Group profit and loss account for the six months ended 30 September 2004 Six months Six months Six months Six months Year to 30.9.04 to 30.9.04 to 30.9.04 to 30.9.03 to 31.3.04 Before Exceptional Total (Restated) Exceptional Items (Note 1) Items (Note 5) Â£m Â£m Â£m Â£m Â£m --------------------------- -------- -------- -------- --- ------- --- ------- Turnover 3,749 - 3,749 3,736 7,548 --------------------------- -------- -------- -------- --- ------- --- ------- Continuing operations 3,749 - 3,749 3,467 7,279 Discontinued operations - - - 269 269 --------------------------- -------- -------- -------- --- ------- --- ------- Cost of sales (2,094) - (2,094) (2,102) (4,273) --------------------------- -------- -------- -------- --- ------- --- ------- Gross profit 1,655 - 1,655 1,634 3,275 -------- -------- -------- ------- ------- Net operating expenses (1,259) (5) (1,264) (1,285) (2,463) before goodwill charge Goodwill charge (99) - (99) (91) (193) -------- -------- -------- ------- ------- Net operating expenses (1,358) (5) (1,363) (1,376) (2,656) --------------------------- -------- -------- -------- --- ------- --- ------- Operating profit - 297 (5) 292 258 619 continuing operations Share of operating profit of - - - 15 18 BL Universal PLC (joint venture) - discontinued operations Share of operating profit of 22 - 22 26 46 associated undertakings - continuing operations --------------------------- -------- -------- -------- --- ------- --- ------- Trading profit 319 (5) 314 299 683 Profit on disposal of shares - 1 1 - 157 in Burberry - continuing operations Profit on Initial Public - 26 26 - - Offering of Lewis Group - continuing operations Disposal of home shopping - - - (16) (36) and Reality businesses - discontinued operations Loss on sale of interest in - - - - (5) BL Universal PLC - discontinued operations Loss on sale of other - (6) (6) - (53) businesses - continuing operations --------------------------- -------- -------- -------- --- ------- --- ------- Profit on ordinary 319 16 335 283 746 activities before interest Net interest (12) - (12) (36) (54) --------------------------- -------- -------- -------- --- ------- --- ------- Profit on ordinary 307 16 323 247 692 activities before taxation -------- -------- Tax on profit on ordinary activities -------- ------- ------- - UK (76) (62) (140) - Overseas (23) (23) (52) -------- ------- ------- (99) (85) (192) --------------------------- -------- -------- -------- --- ------- --- ------- Profit on ordinary 224 162 500 activities after taxation Equity minority interests (19) (10) (27) --------------------------- -------- -------- -------- --- ------- --- ------- Profit for the period 205 152 473 Dividends (90) (80) (271) --------------------------- -------- -------- -------- --- ------- --- ------- Retained profit for the 115 72 202 period --------------------------- -------- -------- -------- --- ------- --- ------- Profit before amortisation of goodwill, 406 354 827 exceptional items and taxation - Â£m -------- --- ------- --- ------- Earnings per share - Basic 20.5p 15.3p 47.4p - Diluted 20.2p 15.2p 47.0p Earnings per share before amortisation of goodwill and exceptional items - Basic 28.9p 26.0p 60.7p - Diluted 28.5p 25.7p 60.1p Dividend per share 9.0p 8.0p 27.0p -------------------- -------------- -------- -------- --- ------- --- ------- GUS plc Statement of Group total recognised gains and losses for the six months ended 30 September 2004 Six months Six months Year to 30.9.04 to 30.9.03 to 31.3.04 Â£m Â£m Â£m -------------------------------- ----------- ---------- --------- Profit for the period 205 152 473 Revaluation of properties - 3 3 Currency translation differences 4 46 33 -------------------------------- ----------- ---------- --------- Total recognised gains and losses for 209 201 509 the period -------------------------------- ----------- ---------- --------- Reconciliation of movement in Group shareholders' funds for the six months ended 30 September 2004 Six months Six months Year to 30.9.04 to 30.9.03 to 31.3.04 (Restated) (Restated) (Note 1) (Note 1) Â£m Â£m Â£m -------------------------------- ----------- ---------- --------- Profit for the period 205 152 473 Dividends - Interim (90) (80) (80) - Final - - (191) --------------------------------- ----------- ---------- --------- 115 72 202 Goodwill on disposals - 11 35 Shares issued under option schemes 28 20 31 Shares cancelled on purchase (30) - - Shares purchased and held in (48) (17) (6) treasury Credit in respect of share incentive 6 7 14 schemes Revaluation of properties - 3 3 Currency translation differences 4 46 33 -------------------------------- ----------- ---------- --------- 75 142 312 Opening shareholders' funds 2,811 2,543 2,543 -------------------------------- ----------- ---------- --------- 2,886 2,685 2,855 Prior year adjustment - UITF 38 (Note 1) - (44) (44) -------------------------------- ----------- ---------- --------- Closing shareholders' funds 2,886 2,641 2,811 -------------------------------- ----------- ---------- --------- Analysis of Group net borrowings at 30 September 2004 30.9.04 30.9.03 31.3.04 (Restated) (Note 1) Â£m Â£m Â£m -------------------------------- ----------- ---------- --------- Cash and other liquid resources 348 327 460 Debt due within one year (284) (177) (334) Finance leases (9) (16) (12) Debt due after more than one year (1,313) (1,661) (1,314) -------------------------------- ----------- ---------- --------- Net borrowings at end of period (1,258) (1,527) (1,200) -------------------------------- ----------- ---------- --------- GUS plc Group balance sheet at 30 September 2004 30.9.04 30.9.03 31.3.04 (Restated) (Restated) (Note 1) (Note 1) Â£m Â£m Â£m ----------------------------------- -------- --- -------- --- -------- Fixed assets Intangible assets - goodwill 2,284 2,388 2,338 Intangible assets - other 164 174 159 Tangible assets 1,077 1,064 1,038 Investment in joint venture - 192 - Other investments 119 72 103 ----------------------------------- -------- --- -------- --- -------- 3,644 3,890 3,638 Current assets Stocks 950 757 823 -------- -------- -------- Debtors - due within one year 1,236 1,083 1,088 - due after more than one 529 450 540 year -------- -------- -------- - total 1,765 1,533 1,628 Investments 32 112 101 Cash at bank and in hand 468 365 524 ----------------------------------- -------- --- -------- --- -------- 3,215 2,767 3,076 Creditors Amounts due within one year (2,205) (1,977) (2,221) ----------------------------------- -------- --- -------- --- -------- Net current assets 1,010 790 855 ----------------------------------- -------- --- -------- --- -------- Total assets less current 4,654 4,680 4,493 liabilities Creditors - amounts due after more (1,418) (1,788) (1,433) than one year Provisions for liabilities and (87) (147) (89) charges ----------------------------------- -------- --- -------- --- -------- Net assets 3,149 2,745 2,971 ----------------------------------- -------- --- -------- --- -------- Capital and reserves Called up share capital 254 253 254 Share premium account 63 25 35 Revaluation reserve 40 115 40 Profit and loss account 2,529 2,248 2,482 ----------------------------------- -------- --- -------- --- -------- Shareholders' funds 2,886 2,641 2,811 Equity minority interests 263 104 160 ----------------------------------- -------- --- -------- --- -------- Capital employed 3,149 2,745 2,971 ----------------------------------- -------- --- -------- --- -------- GUS plc Group cash flow statement for the six months ended 30 September 2004 Six months Six months Year to 30.9.04 to 30.9.03 to 31.3.04 (Restated) (Restated) (Note 1) (Note 1) Â£m Â£m Â£m ------------------------------------ ----------- --------- -------- Cash flow from operating activities Operating profit 292 258 619 Depreciation and amortisation 233 227 469 charges Credit in respect of share incentive 10 7 15 schemes Change in working capital (56) (52) (376) ---------------------------------- ----------- --------- -------- 479 440 727 Dividends received from associated 14 31 45 undertakings Returns on investments and servicing (6) (17) (48) of finance Taxation (119) (60) (176) Capital expenditure (164) (158) (306) Financial investment (14) 29 50 Acquisition of subsidiaries (29) (49) (132) Disposal of subsidiaries and joint 4 445 779 venture Dividends paid (191) (164) (244) ---------------------------------- ----------- --------- -------- Cash (outflow)/inflow before (26) 497 695 management of liquid resources and financing Management of liquid resources 154 60 5 Financing - issue of shares 28 20 31 - net purchase of own shares (78) (17) (6) - change in debt and lease (36) (449) (534) financing ---------------------------------- ----------- --------- -------- Increase in cash 42 111 191 ---------------------------------- ----------- --------- -------- Reconciliation of net cash flow to movement in net debt Increase in cash 42 111 191 Cash outflow from movement in debt and 36 449 534 lease financing Cash inflow from movement in liquid (154) (60) (5) resources ---------------------------------- ----------- --------- -------- Movement in net debt resulting from (76) 500 720 cash flows New finance leases - (3) (2) Investments transferred from current - - (3) to fixed assets Exchange movements 18 70 179 ---------------------------------- ----------- --------- -------- Movement in net debt (58) 567 894 Net debt at beginning of period (1,200) (2,094) (2,094) ---------------------------------- ----------- --------- -------- Net debt at end of period (1,258) (1,527) (1,200) ---------------------------------- ----------- --------- -------- GUS plc Divisional analysis for the six months ended 30 September 2004 Turnover Profit before taxation ---------------------------- -------------------------- Six months to Year to Six months to Year to 30.9.04 30.9.03 31.3.04 30.9.04 30.9.03 31.3.04 (Restated) (Note 1) Â£m Â£m Â£m Â£m Â£m Â£m ------------------------ ------- -------- ------- --- ------- ------- ------- Argos Retail Group Continuing operations: Argos 1,552 1,377 3,384 85.7 73.9 297.4 Homebase* 981 917 1,483 76.3 71.5 102.2 Financial Services* 35 25 60 0.4 (3.3) (5.5) Wehkamp 107 116 235 10.3 10.9 21.4 ------- -------- ------- --- ------- ------- ------- 2,675 2,435 5,162 172.7 153.0 415.5 Discontinued operations - 269 269 - - - ------------------------ ------- -------- ------- --- ------- ------- ------- 2,675 2,704 5,431 172.7 153.0 415.5 Experian Experian North America 348 365 703 90.7 93.9 179.6 Experian International 297 273 583 62.0 51.8 102.6 ------------------------ ------- -------- ------- --- ------- ------- ------- 645 638 1,286 152.7 145.7 282.2 Burberry 348 321 676 78.8 66.9 141.2 Lewis Group 86 73 160 24.8 19.8 43.5 Property - discontinued - - - - 15.0 18.0 operations Central activities - 5 6 (10.8) (9.8) (19.9) Inter-divisional turnover (5) (5) (11) (principally Experian) ------------------------ ------- -------- ------- --- ------- ------- ------- 3,749 3,736 7,548 418.2 390.6 880.5 ----------------------- ------- -------- ------- Net interest (12.4) (36.2) (53.9) ------------------------ ------- ------------- --- ------- ------- ------- Profit before amortisation of goodwill, exceptional items and 405.8 354.4 826.6 taxation Amortisation of (98.8) (91.4) (192.6) goodwill (Note 2) Exceptional items 16.4 (15.6) 58.3 (Note 5) --------------------- -------- --------------- --- ------- ------- ------- Profit before 323.4 247.4 692.3 taxation --------------------- -------- --------------- --- ------- ------- ------- * The results of Homebase for the half years are in respect of the seven months to 30 September. The profit reported for Financial Services is after deducting funding costs. Geographical analysis for the six months ended 30 September 2004 Turnover by origin Profit before taxation -------------------- ------------------------ Six months to Year to Six months to Year to 30.9.04 30.9.03 31.3.04 30.9.04 30.9.03 31.3.04 (Restated) (Note 1) Â£m Â£m Â£m Â£m Â£m Â£m ------------------------ ------- -------- ------- --- ------- ------- ------- United Kingdom & 2,848 2,842 5,741 254.1 229.4 553.7 Ireland Continental Europe 321 336 676 33.3 32.4 65.3 North America 417 434 859 96.1 98.5 198.1 Rest of World 163 124 272 34.7 30.3 63.4 ------------------------ ------- -------- ------- --- ------- ------- ------- 3,749 3,736 7,548 418.2 390.6 880.5 ------------------------ ------- -------- ------- --- Net interest (12.4) (36.2) (53.9) ------------------------ ------- -------- ------- --- ------- ------- Profit before amortisation of goodwill, 405.8 354.4 826.6 exceptional items and taxation Amortisation of (98.8) (91.4) (192.6) goodwill (Note 2) Exceptional items 16.4 (15.6) 58.3 (Note 5) ------------------- ------- ------------ ------- --- ------- ------- ------- Profit before 323.4 247.4 692.3 taxation ------------------- ------- ------------ ------- --- ------- ------- ------- GUS plc Notes to the interim financial statements for the six months ended 30 September 2004 1. Basis of preparation The interim report comprises the unaudited results for the six months ended 30 September 2004 and 30 September 2003 and the audited results for the twelve months ended 31 March 2004. The financial information for the twelve months ended 31 March 2004, as adjusted for the change in accounting policy in respect of UITF 38 noted below, has been extracted from the Group's statutory financial statements for that year. The interim financial statements are unaudited and do not constitute statutory accounts but have been formally reviewed by the auditors and their report is set out on page 32. In the financial statements for the year ended 31 March 2004, the Group revised its accounting policy on turnover in accordance with Application Note G - Revenue Recognition which amended Financial Reporting Standard 5 'Reporting the substance of transactions'. The Application Note only affected Argos Retail Group and comparative figures for the six months ended 30 September 2003 have now been restated with reported Group turnover for that period restated from Â£3,771m to Â£3,736m. There is no effect on profit before taxation as a corresponding adjustment has been made to cost of sales. The provisions of UITF Abstract 38 'Accounting for ESOP trusts' have been adopted by the Group with effect from 1 April 2004. These supersede UITF Abstract 13 and require own shares held by the Company to be deducted in arriving at shareholders' funds. The effect of this change is to reduce the profit and loss account reserve and therefore net assets at 30 September 2004 by Â£78m. Comparative figures have been restated and the effect is to reduce the profit and loss account reserve and net assets by Â£54m at 30 September 2003 and by Â£36m at 31 March 2004, including movements arising in those periods of Â£10m and Â£8m respectively. As a consequence of the adoption of UITF 38, cash flows in respect of own shares are now all reported as financing cash flows and the comparative figures in the cash flow statement have been restated accordingly. The provisions of UITF 38 also amend the requirements of UITF 17 concerning the recognition of the cost of employee share incentive schemes. This amendment has no material effect on profit before taxation in either the current or prior periods. Six months to Year to 30.9.04 30.9.03 31.3.04 2. Amortisation of goodwill Â£m Â£m Â£m -------------------------------------- ------- ------- ------ Amortisation of goodwill is analysed as follows: Argos Retail Group 64 63 127 Experian 32 24 59 Burberry 3 4 7 -------------------------------------- ------- ------- ------ 99 91 193 -------------------------------------- ------- ------- ------ 3. Taxation The effective rate of tax, before amortisation of goodwill, profit on the disposal of shares in Lewis Group Limited and Burberry and loss on sale of businesses, is based on the estimated tax charge for the full year at a rate of 24.4% (2004 full year: 23.4%). Average Closing --------------- ---------------- Six months to Year to 4. Foreign currency 30.9.04 30.9.03 31.3.04 30.9.04 30.9.03 31.3.04 ----------------------- ------ ------- ------ --- ------- ------- ------- The principal exchange rates used were as follows: US dollar 1.81 1.62 1.70 1.80 1.66 1.84 South African rand 11.72 12.16 12.05 11.59 11.59 11.55 Euro 1.49 1.43 1.44 1.46 1.43 1.50 ----------------------- ------ ------- ------ --- ------- ------- ------- Assets and liabilities of overseas undertakings are translated into sterling at the rates of exchange ruling at the balance sheet date and the profit and loss account is translated into sterling at average rates of exchange. GUS plc Notes to the interim financial statements (continued) for the six months ended 30 September 2004 Six months to Year to 30.9.04 30.9.03 31.3.04 5. Exceptional items Â£m Â£m Â£m ---------------------------- -------- -------- -------- Exceptional items comprise: Continuing operations Profit on Initial Public Offering of Lewis 26 - - Group Charge in respect of employee share schemes in (6) - - connection with the Initial Public Offering of Lewis Group* ---------------------------- -------- -------- -------- 20 - - ---------------------------- -------- -------- -------- Disposal of shares in Burberry 1 - 157 Income in respect of employee share schemes in 1 - 2 connection with the disposal of shares in Burberry* ---------------------------- -------- -------- -------- 2 - 159 ---------------------------- -------- -------- -------- Loss on sale of other businesses (6) - (53) Restructuring costs incurred by Argos Retail - - (7) Group following the disposal of home shopping and Reality businesses* ---------------------------- -------- -------- -------- (6) - (60) ---------------------------- -------- -------- -------- Exceptional profit in respect of continuing 16 - 99 operations ---------------------------- -------- -------- -------- Discontinued operations Disposal of Home Shopping and Reality businesses: -------- -------- -------- Realised loss on disposal - (226) (246) Less: utilisation of 2003 provision - 210 210 -------- -------- -------- - (16) (36) Disposal of interest in BL Universal PLC - - (5) ---------------------------- -------- -------- -------- Exceptional charge in respect of discontinued - (16) (41) operations ---------------------------- -------- -------- -------- Exceptional profit/(charge) 16 (16) 58 ---------------------------- -------- -------- -------- * Aggregated to a net exceptional charge of Â£5m (2004: Â£5m) within Trading profit. The Initial Public Offering of 46% of the ordinary share capital of Lewis Group Limited, GUS' South African Retailing business, on the Johannesburg Stock Exchange (JSE) in South Africa was priced on 29 September 2004 and trading in the shares commenced on 4 October 2004. The associated exceptional profit comprises the excess of the flotation proceeds, less costs, over the related portion of net assets disposed of at 29 September 2004 and the cost of share schemes designed to secure the retention of key employees. The income in respect of Burberry shares in the period arises from the exercise or lapse of awards under executive share schemes. The profit on disposal of shares, in the year ended 31 March 2004, related to the sale of 11.5% of the ordinary share capital of Burberry Group plc on 19 November 2003. This profit comprised the excess of sale proceeds, less costs, over the related portion of net assets disposed of at that date. The loss on sale of other businesses in the period was principally in respect of the sales by Experian International of two small non-core businesses. The loss on sale of other businesses, in the year ended 31 March 2004, was principally in respect of the sale by Experian North America of its Outsourcing activities and included a charge of Â£24m in respect of goodwill previously written off to reserves. GUS plc Notes to the interim financial statements (continued) for the six months ended 30 September 2004 Six months to Year to 30.9.04 30.9.03 31.3.04 6. Basic and diluted earnings per share pence pence pence ------------------------------------- -------- ------- ------- Basic earnings per share before amortisation 28.9 26.0 60.7 of goodwill and exceptional items Effect of amortisation of goodwill (10.0) (9.1) (19.1) Effect of exceptional items 1.6 (1.6) 5.8 ------------------------------------- -------- ------- ------- Basic earnings per share 20.5 15.3 47.4 ------------------------------------- -------- ------- ------- The calculation of basic earnings per share is based on profit for the period divided by the weighted average number of Ordinary shares in issue during the period. Basic earnings per share before amortisation of goodwill and exceptional items is disclosed to indicate the underlying profitability of the Group. Six months to Year to 30.9.04 30.9.03 31.3.04 Â£m Â£m Â£m ------------------------------------- -------- ------- ------- Earnings before amortisation of goodwill and 289 259 606 exceptional items Effect of amortisation of goodwill (100) (91) (191) Effect of exceptional items 16 (16) 58 ------------------------------------- -------- ------- ------- Profit for the period 205 152 473 ------------------------------------- -------- ------- ------- 30.9.04 30.9.03 31.3.04 m m m ------------------------------------- -------- ------- ------- Weighted average number of Ordinary shares in 1,001.1 997.1 998.0 issue during the period* Dilutive effect of share incentive awards 12.9 8.9 9.1 outstanding ------------------------------------- -------- ------- ------- Diluted weighted average number of Ordinary 1,014.0 1,006.0 1,007.1 shares in issue during the period ------------------------------------- -------- ------- ------- * Excluding own shares held. The calculation of diluted earnings per share reflects the potential dilutive effect of employee share incentive schemes. 7. Dividend The interim dividend will be paid on 4 February 2005 to shareholders on the Register at the close of business on 7 January 2005. 8. Directors' responsibilities The maintenance and integrity of the GUS plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibilities for any changes that may have occurred to the interim report 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. Independent review report to GUS plc Introduction We have been instructed by GUS plc to review the financial information of GUS plc and its subsidiaries ('the Group'), which comprises the Group profit and loss account, the statement of Group total recognised gains and losses, the reconciliation of movement in Group shareholders' funds, the analysis of Group net borrowings, the Group balance sheet, the Group cash flow statement, the divisional analysis, the geographical analysis and the notes to the interim financial statements. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for GUS plc for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 September 2004. PricewaterhouseCoopers LLP Chartered Accountants Manchester 18 November 2004 This information is provided by RNS The company news service from the London Stock Exchange

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