Final Results - Part 2
Smith WH PLC
18 October 2001
PART TWO
WH Smith PLC
Group Profit and Loss Account
For the 12 months to 31 August 2001
2001 2000
___________ ____________ _______ _______
£m Note Before Exceptional Total Total
exceptional items
items (Note 2)
____________________________ ____ ___________ ____________ _______ _______
Sales - Continuing 2,712 - 2,712 2,584
operations
- Acquisitions 23 - 23 -
____________________________ ____ ___________ ____________ _______ _______
Total Sales 1 2,735 - 2,735 2,584
____________________________ ____ ___________ ____________ _______ _______
____________________________ ____ ___________ ____________ _______ _______
Operating profit 1 127 (16) 111 135
- Continuing operations
- Acquisitions 1 - - - -
____________________________ ____ ___________ ____________ _______ _______
Total operating profit 127 (16) 111 135
Profit on sale of operation 2 - - - 1
- Continuing operations
Amount written off 2 - - - (2)
investment in own shares -
Continuing operations
____________________________ ____ ___________ ____________ _______ _______
Profit on ordinary 127 (16) 111 134
activities before interest
and taxation
Interest 5 3 - 3 6
____________________________ ____ ___________ ____________ _______ _______
Profit on ordinary 130 (16) 114 140
activities before taxation
Tax on profit on ordinary 6 (36) 1 (35) (39)
activities
____________________________ ____ ___________ ____________ _______ _______
Profit on ordinary 94 (15) 79 101
activities after taxation
Minority interests (1) - (1) (1)
____________________________ ____ ___________ ____________ _______ _______
Profit attributable to 93 (15) 78 100
shareholders
Dividends 7 (47) - (47) (48)
____________________________ ____ ___________ ____________ _______ _______
Retained earnings 46 (15) 31 52
____________________________ ____ ___________ ____________ _______ _______
Earnings per share 8 31.7p 40.2p
Diluted earnings per share 8 31.5p 40.0p
Adjusted earnings per share 8 38.6p 41.3p
Dividends per share 7 19.0p 19.0p
Net Assets per share 253.0p 241.0p
Fixed charges cover - times 9 1.6x 1.7x
Dividend cover - times 7 1.7x 2.1x
Dividend cover before 7 2.0x 2.1x
exceptional items - times
Tax charge 6 31.0% 28.0%
Group Balance Sheet
As at 31 August 2001
£m Note 2001 2000
________________________________________________ ____ _________ _________
Fixed assets
Goodwill 12 236 222
Fixed assets 13 326 294
Investments 13 14 1
________________________________________________ ____ _________ _________
Total fixed assets 576 517
________________________________________________ ____ _________ _________
Current assets
Stock 14 255 216
Debtors 14 185 160
Cash at bank and in hand 16 138 152
________________________________________________ ____ _________ _________
578 528
Creditors due within one year
Debt 16 (37) (1)
Other 14 (447) (394)
________________________________________________ ____ _________ _________
(484) (395)
________________________________________________ ____ _________ _________
Net current assets 94 133
________________________________________________ ____ _________ _________
Total assets less current liabilities 670 650
________________________________________________ ____ _________ _________
Creditors due after more than one year
Debt 16 (26) (28)
Other 14 (2) (4)
________________________________________________ ____ _________ _________
(28) (32)
Provisions for liabilities and charges 15 (11) (14)
________________________________________________ ____ _________ _________
TOTAL NET ASSETS 631 604
________________________________________________ ____ _________ _________
Equity
Share capital 17 139 140
Share premium 18 89 86
Capital redemption reserve 18 156 155
Revaluation reserve 18 8 8
Profit and loss account 18 232 210
________________________________________________ ____ _________ _________
Equity shareholders' funds 624 599
Non equity share capital 17 2 2
________________________________________________ ____ _________ _________
Shareholders' funds 626 601
Minority interests 5 3
________________________________________________ ____ _________ _________
TOTAL EQUITY 631 604
________________________________________________ ____ _________ _________
Memorandum - Analysis of net cash (£m)
________________________________________________ ____ _________ _________
Cash at bank 138 152
Debt less than one year (37) (1)
Debt greater than one year (26) (28)
________________________________________________ ____ _________ _________
Net cash 75 123
________________________________________________ ____ _________ _________
Group Cash Flow Statement
For the 12 months to 31 August 2001
£m Note 2001 2000
_______________________________________________ ____ _________ _________
Cashflow from operating activities 19 165 163
Returns on investment and servicing of finance 3 6
Taxation (38) (27)
Purchase of fixed assets (68) (60)
Purchase of shares for employee share schemes (13) -
Disposal of tangible fixed assets 2 1
Proceeds on sale and leaseback of freehold - 2
property
_______________________________________________ ____ _________ _________
Cash flow from capital expenditure and financial (79) (57)
investment
_______________________________________________ ____ _________ _________
Proceeds on disposal of operation - 1
Acquisitions - Cash consideration (51) (23)
_______________________________________________ ____ _________ _________
Cash flow for acquisitions and disposals (51) (22)
_______________________________________________ ____ _________ _________
Equity dividends paid (48) (47)
_______________________________________________ ____ _________ _________
Cash flow before use of liquid resources and (48) 16
financing
_______________________________________________ ____ _________ _________
Issue of shares 3 2
Repurchase of own shares (9) -
Increase/(decrease) in debt 16 34 (40)
_______________________________________________ ____ _________ _________
Cash flow from financing 28 (38)
_______________________________________________ ____ _________ _________
Decrease in cash (20) (22)
_______________________________________________ ____ _________ _________
Reconciliation of net cash flow to movement in
net cash
_______________________________________________ ____ _________ _________
Net cash at the start of the period 123 105
Decrease in cash in the period (20) (22)
Cash flow from (increase)/decrease in debt (34) 40
Cash in subsidiaries acquired 6 -
_______________________________________________ ____ _________ _________
Net cash at the end of the period 75 123
_______________________________________________ ____ _________ _________
Consolidated Statement of Total Recognised Gains and Losses
For the 12 months to 31 August 2001
£m 2001 2000
________________________________________________ _________ _________
Profit attributable to shareholders 78 100
Currency translation differences - 7
________________________________________________ _________ _________
Total recognised gains for the financial period 78 107
________________________________________________ _________ _________
Note of Historical Cost Profits
For the 12 months to 31 August 2001
£m 2001 2000
________________________________________________ _________ _________
Profit on ordinary activities before taxation 114 140
________________________________________________ _________ _________
Historical cost profit on ordinary activities before 114 140
taxation
________________________________________________ _________ _________
Historical cost retained earnings 31 52
________________________________________________ _________ _________
Reconciliation of Movements in Consolidated Shareholders' Funds
For the 12 months to 31 August 2001
£m 2001 2000
________________________________________________ _________ _________
Shareholders' funds at beginning of period 601 540
Retained earnings 31 52
Issue of shares 3 2
Repurchase of own shares (9) -
Currency translation differences - 7
________________________________________________ _________ _________
Net additions to shareholders' funds 25 61
________________________________________________ _________ _________
Shareholders' funds at end of period 626 601
________________________________________________ _________ _________
1 SEGMENTAL ANALYSIS OF RESULTS
1(a) Analysis of Retailing Stores and Selling Space
Number of stores 1 Sept Acquired Opened Closed 31 Aug
2000 2001
_____________________ ______ ________ _______ ______ ______
WHSmith High Street 529 - 13 (3) 539
Europe Travel Retail 187 - 5 (3) 189
_____________________ ______ ________ _______ ______ ______
UK Retailing 716 - 18 (6) 728
International 523 193 82 (18) 780
Retailing (note a)
_____________________ ______ ________ _______ ______ ______
Total Retailing 1,239 193 100 (24) 1,508
Businesses
_____________________ ______ ________ _______ ______ ______
Growth in
Retail selling square 1 Sept Acquired Opened Closed 31 Aug Average
feet (000's) 2000 2001 Sq ft*
_____________________ ______ ________ _______ ______ ______ _________
WHSmith High Street 2,924 - 61 (20) 2,965 1%
Europe Travel Retail 200 - 10 (2) 208 2%
_____________________ ______ ________ _______ ______ ______ _________
UK Retailing 3,124 - 71 (22) 3,173 1%
_____________________ ______ ________ _______ ______ ______ _________
International 533 778 73 (20) 1,364 30%
Retailing (note a)
_____________________ ______ ________ _______ ______ ______ _________
Total Retailing 3,657 778 144 (42) 4,537 5%
Businesses
_____________________ ______ ________ _______ ______ ______ _________
* Growth in average square feet compares the average square feet for the 12
month period to 31 August 2001 to the average square feet for the 12 month
period to 31 August 2000.
a) As at 31 August 2001 International Retailing consisted of 573 stores in
the USA (570,000 sq ft), 183 in Australia and New Zealand (762,000 sq ft) and
24 in Asia (32,000 sq ft). Acquired stores include 10 in the USA (16,000 sq
ft) and 183 in Australia and New Zealand (762,000 sq ft).
1(b) Segmental Analysis of Sales
Base Acquisitions Total
£m Business 2001 Sales 2000
2001 2001
________________________________ _________ ____________ _______ _______
Retailing (note a)
WHSmith High Street 1,120 - 1,120 1,058
Europe Travel Retail (note b) 287 - 287 265
WHSmith Online 8 - 8 7
________________________________ _________ ____________ _______ _______
UK Retailing 1,415 - 1,415 1,330
International Retailing (note c) 261 23 284 204
________________________________ _________ ____________ _______ _______
Total Retailing Businesses 1,676 23 1,699 1,534
Publishing Businesses 131 - 131 119
- Total sales (note d)
- Internal sales (16) - (16) (14)
________________________________ _________ ____________ _______ _______
Publishing Businesses 115 - 115 105
________________________________ _________ ____________ _______ _______
WHSmith News Distribution 1,024 - 1,024 1,047
- Total sales
- Internal sales (103) - (103) (102)
________________________________ _________ ____________ _______ _______
WHSmith News Distribution 921 - 921 945
________________________________ _________ ____________ _______ _______
Total Sales 2,712 23 2,735 2,584
________________________________ _________ ____________ _______ _______
a) Comparable sales growth for Retailing Businesses (adjusted for selling
space) in the year to 31 August 2001 was 5%. Comparable sales growth in
the period for UK Retailing was 5% (consisting of WHSmith High Street; 5%
and Europe Travel Retail; 6%) and International Retailing 1% (consisting
of USA Travel Retail 0% and Asia Travel Retail 20%).
b) Europe Travel Retail includes sales of £7m (2000; £6m) generated in
continental Europe.
c) International Retailing consists of business operations in the USA, Asia,
Australia and New Zealand. In the 12 months to 31 August 2001, USA Travel
Retail generated sales of £245m (2000; £192m) and Asia Travel Retail
generated sales of £16m (2000; £12m). Sales from acquisitions of £23m
included in International Retailing represent Angus & Robertson in
Australia and Whitcoulls in New Zealand (both acquired 14 June 2001).
d) Sales from Publishing Businesses include sales from Hodder Headline and
Helicon Publishing. In the 12 months to 31 August 2001, Hodder Headline
made external sales of £112m (2000; £102m) and Helicon Publishing made
external sales of £3m (2000; £3m).
1(c) Segmental Analysis of Operating Profits
2001 2000
________ ____________ ___________ _________
£m Base Acquisitions Exceptional Total
Business items Operating
Profit
_______________________ ________ ____________ ___________ _________ _____
Retailing
WHSmith High Street 76 - - 76 69
Europe Travel Retail 20 - - 20 17
(note a)
WHSmith Online (7) - - (7) (7)
_______________________ ________ ____________ ___________ _________ _____
UK Retailing 89 - - 89 79
International Retailing 8 - - 8 12
(note b)
_______________________ ________ ____________ ___________ _________ _____
Total Retailing 97 - - 97 91
Businesses
Publishing Businesses 16 - (8) 8 16
(note c)
WHSmith News 23 - (8) 15 37
Distribution (note d)
_______________________ ________ ____________ ___________ _________ _____
Trading profit 136 - (16) 120 144
Support Costs (12) - - (12) (12)
Internal Rents (note e) 3 - - 3 3
_______________________ ________ ____________ ___________ _________ _____
Operating profit 127 - (16) 111 135
_______________________ ________ ____________ ___________ _________ _____
a) Europe Travel Retail includes profits of £1m (2000; £1m) generated in
continental Europe.
b) International Retailing consists of business operations in the USA, Asia,
Australia and New Zealand. In the 12 months to 31 August 2001, USA Travel
Retail generated profits of £10m (2000; £12m) and Asia Travel Retail
generated losses of £2m (2000; £nil). Profits from acquisitions of £nil
included in International Retailing represent Angus & Robertson in
Australia and Whitcoulls in New Zealand (both acquired 14 June 2001).
c) Pre-exceptional profits included in Publishing Businesses relate to Hodder
Headline and Helicon Publishing. In the 12 months to 31 August 2001,
Hodder Headline generated profits of £18m (2000; £16m) and Helicon
Publishing generated losses of £2m (2000; £nil).
d) Pre-exceptional profits from WHSmith News Distribution relate to WHSmith
News Distribution and Connect2U. In the 12 months to 31 August 2001,
WHSmith News Distribution made a profit of £26m (2000; £38m) and Connect
2U made a loss of £3m (2000; loss of £1m).
e) The results for Retailing Businesses are reported after an internal arm's
length market rent on freehold and long leasehold properties owned and
occupied by the Company. The internal income generated of £3m (2000; £3m)
is shown as a separate credit to the profit and loss account giving a nil
net effect to operating profit.
2 EXCEPTIONAL AND NON-OPERATING ITEMS
a) Exceptional items in the current year
Write off of tangible and intangible fixed assets
Following the application of an impairment review the Directors consider the
goodwill and associated tangible fixed assets in respect of Helicon Publishing
and Connect2U to be impaired. Therefore the £8m Helicon and £3m Connect2U
carrying values have been written off.
Transaction costs associated with terminated disposal of WHSmith News
Distribution
On 4 October 2001 WHSmith News Distribution was withdrawn as a potential
disposal. Therefore the associated professional fees of £5m incurred during
the year in connection with the disposal process have been charged to the
profit and loss account.
b) Non-operating items in the prior year
Profit on sale of operation
On 31 May 2000, Hodder Headline sold Hodder and Stoughton Southern Africa
(Proprietary) Limited, its publishing business in Southern Africa, for total
proceeds of £1m realising a profit before taxation of £1m on the net
liabilities held in the Company's balance sheet.
Amount written off investment in own shares
On 3 August 1999, the Company purchased 950,000 of its own ordinary shares of
nominal value of 55.55p each with an aggregate market value of £6m. These
shares were held for the sole purpose of satisfying obligations under the
Employee Share Schemes and were carried under fixed assets in accordance with
UITF 17. At 31 August 2000 the carrying value of the remaining 858,801 shares
in the schemes was restated to reflect the market value at that date. This
resulted in a charge of £2m in the Company's profit and loss account.
3 PENSIONS
The Company has continued to account for pensions in accordance with SSAP 24
and the disclosures given below in (a) are those required by that standard.
However FRS 17 Retirement Benefits was issued in November 2000 but will not
become fully mandatory for the Company until the financial year ending 31
August 2003. Before this date transitional disclosures are required for the
current year. These are disclosed in (b).
a) WHSmith Pension Schemes
The Company operates a number of pension schemes. The principal scheme is a
defined benefit scheme, WHSmith Pension Trust. The Company also operates a
defined contribution scheme, WHSmith Pension Builder. The assets of all
schemes are held in separate funds administered by Trustees, which are
independent of the Company's finances.
The principal defined benefit scheme was last formally valued for financial
accounting purposes, in accordance with advice from professionally qualified
actuaries, at 31 March 2000. This valuation was made using the market value
basis. The principal long term assumptions used were: rate of return on
investments 6 per cent, earnings inflation 4.5 per cent, pension increases
2.75 per cent and price inflation of 2.75 per cent. The market value of the
fund's assets at this date was approximately £791m and the actuarial value of
the assets was sufficient to cover 129 per cent of the benefits that had
accrued to members after allowing for expected future increases in wages and
salaries. The surplus of the actuarial value of the assets over the benefits
accrued to members will be taken into account when determining future
employers' contributions. The decline in stock market values since the
valuation of the fund at 31 March 2000 and the increase in accrued liabilities
as a result of changes in financial conditions have reduced the surplus in the
fund at 31 August 2001. Under current accounting policies these matters would
have been reflected in the Group's accounts following completion of the next
triennial valuation at 31 March 2003. However, FRS 17 (see below) will be
fully adopted in the year commencing 1 September 2002 and the pension charge
for that year will reflect the circumstances of the fund at that date.
For the 12 months to 31 August 2001, the regular cost of pensions under the
principal scheme was £14m (2000; £14m). The variation to regular cost, which
is spread over the average remaining lives of current employees, is estimated
at £14m (2000; £14m). The net result is therefore a pension cost of £nil
charged to the profit and loss account in the current year for this scheme.
The pension cost for the defined contribution scheme and related supplements
charged to the profit and loss account is £2m (2000; £2m).
b) FRS 17 Retirement Benefits
The valuation of the Company's defined benefit pension schemes used for the
FRS 17 disclosures is based upon the most recent actuarial valuation at 31
March 2000. This has been updated by professionally qualified actuaries to
take into account the requirements of FRS 17 and to assess the liabilities of
the scheme at 31 August 2001. Scheme assets are stated at their market value
at 31 August 2001.
The principal long term assumptions used were: earnings inflation 4.25 per
cent, pension increases 2.5 per cent, price inflation of 2.5 per cent and a
discount rate of 5.8 per cent. The assets in the schemes and their expected
long-term rate of return were £475m equities at 8.0 per cent, £213m bonds at
4.75 per cent and £5m cash at 5.75 per cent. The market value of the fund's
assets at this date was approximately £693m and the present value of the
fund's liabilities at this date was £693m giving no surplus in the fund at 31
August 2001.
4 OPERATING LEASE COMMITMENTS
The total annual commitment for continuing businesses of £161m (2000; £143m),
comprises £10m (2000; £7m) expiring within one year, £66m (2000; £55m)
between two and five years, and £85m (2000; £81m) over five years. The annual
net rental is further analysed as follows;
2001 2000
__________ _____________ _______ __________
Annual Future Average Annual
net rental cumulative lease net rental
commitment net rental term commitment
£m commitment (years) £m
£m
__________________________ __________ _____________ _______ __________
WHSmith High Street 71 751 11 69
Europe Travel Retail 36 125 6 34
__________________________ __________ _____________ _______ __________
UK Retailing 107 876 8 103
International Retailing 58 217 4 43
__________________________ __________ _____________ _______ __________
Total Retailing Businesses 165 1,093 7 146
Publishing Businesses 3 25 8 4
WHSmith News Distribution 3 36 11 3
Property sublet to third 10 87 9 10
parties
__________________________ __________ _____________ _______ __________
Gross rental commitment 181 1,241 7 163
Less (17) (85) 5 (18)
- external rent
receivable
- internal rent (3) (36) 12 (2)
receivable
__________________________ __________ _____________ _______ __________
Total 161 1,120 7 143
__________________________ __________ _____________ _______ __________
(i) WHSmith High Street rental commitments include internal rent of £2m
(2000; £2m) relating to those properties which are owned by the
Company. The cumulative future costs of internal rent are taken as the
book value of those properties in the balance sheet at £36m, all of
which relates to WHSmith High Street.
(ii) External rent receivable relates to properties which, are let by the
Company to third parties. Of the total external rent receivable £8m
(2000; £9m) relates to USA Travel Retail which sublets retail space in
airports where it operates a master contract and £9m (2000; £9m)
represents income on subletting surplus property. Of the future
cumulative external rent receivable, £29m relates to USA Travel Retail.
(iii) Outstanding contingencies under previous assignments of leases where the
liability would revert to the Company if the lease defaulted are
estimated at £17m per year with a future cumulative rental commitment
of approximately £173m, and an average lease term of around 10 years.
(iv) For those leases that are turnover related leases the annual net rental
commitment is calculated using the minimum rental liability. The
aggregate rental liability for these stores with minimum guaranteed
rents is £76m (2000; £44m) and relates to Europe Travel Retail and
International Retailing stores.
5 INTEREST
£m 2001 2000
________________________________________________ __________ _________
Interest payable on bank loans and overdrafts (2) (4)
Interest receivable 5 10
________________________________________________ __________ _________
3 6
________________________________________________ __________ _________
6 TAXATION
£m 2001 2000
________________________________________________ _________ _________
Tax on profit on ordinary activities
Corporation tax on UK profits 34 38
- Standard rate of UK corporation tax 30.0%
(2000;30.6%)
Foreign tax 1 1
________________________________________________ _________ _________
35 39
________________________________________________ _________ _________
Effective tax rate 31% 28%
The effective tax rate on ordinary activities, before exceptional items, of
28.0% for the 12 months to 31 August 2001 is below the UK standard corporation
tax rate of 30.0% due to the reduction of taxation on international profits
and the utilisation of provisions. Tax relief on exceptional items relates to
professional fees incurred on the terminated disposal of the WHSmith News
Distribution business.
7 DIVIDENDS
2001 2000
________________________________________________ _________ _________
Interim 6p 6p
Final - proposed 13p 13p
________________________________________________ _________ _________
Total dividend 19p 19p
________________________________________________ _________ _________
£m
________________________________________________ _________ _________
Interim 15 15
Final - proposed 32 33
________________________________________________ _________ _________
Total dividend 47 48
________________________________________________ _________ _________
Dividend cover - times 1.7x 2.1x
________________________________________________ _________ _________
Dividend cover before exceptional items - times 2.0x 2.1x
________________________________________________ _________ _________
The final dividend will, if approved, be paid on 1 February 2002 to
shareholders registered at the close of business on 26 October 2001. At 31
August 2001, the Company had 249,319,145 ordinary shares in issue.
8 EARNINGS PER SHARE
8(a) Earnings Per Share
2001 2000
___ __________ _________ ___ ________ ________
£m Basic Diluted £m Basic Diluted
_______________________ ___ __________ _________ ___ ________ ________
Profit attributable to 78 31.7p 31.5p 100 40.2p 40.0p
shareholders
Exceptional items 15 6.3p 6.2p - - -
Non-operating items - - - 1 0.4p 0.4p
Amortisation of 2 0.6p 0.6p 2 0.7p 0.7p
goodwill (note a)
_______________________ ___ __________ _________ ___ ________ ________
Adjusted earnings 95 38.6p 38.3p 103 41.3p 41.1p
_______________________ ___ __________ _________ ___ ________ ________
a) Amortisation of goodwill is stated net of £1m of related tax credit.
8(b) Weighted Average Share Capital
Millions 2001 2000
____________________________________________________ _______ _______
Weighted average shares in issue for earnings per 246 249
share
Add weighted average number of ordinary shares under 2 1
option
____________________________________________________ _______ _______
Weighted average ordinary shares for fully diluted 248 250
earnings per share
____________________________________________________ _______ _______
(i) The weighted average number of ordinary shares in issue is stated after
excluding 3,383,154 shares held in the Employee Share Trust.
9 FIXED CHARGES COVER
£m 2001 2000
____________________________________________________ _______ _______
Interest income (3) (6)
Operating lease rentals 172 154
Property taxes 33 32
Other property costs 9 11
____________________________________________________ _______ _______
Total fixed charges 211 191
Profit before exceptional items and tax 130 140
____________________________________________________ _______ _______
Profit before exceptional items and tax and before 341 331
fixed charges
____________________________________________________ _______ _______
Fixed charges cover 1.6x 1.7x
____________________________________________________ _______ _______
i) Fixed charges cover is calculated by dividing profit before tax and fixed
charges by total fixed charges.
10 SEGMENTAL ANALYSIS OF OPERATING ASSETS EMPLOYED
ROCE% after ROCE% after
capitalised capitalised
net net
operating operating
Return leases leases
on including Return on including
capital internal capital internal
2001 employed rent 2000 employed rent
£m % % £m % %
___________________ ____ ________ ___________ ____ _________ ___________
WHSmith High Street 186 41% 17% 184 38% 16%
Europe Travel 34 59% 34% 29 59% 28%
Retail
WHSmith Online 8 - - 8 - -
___________________ ____ ________ ___________ ____ _________ ___________
UK Retailing 228 38% 19% 221 40% 18%
International 121 8% 12% 79 17% 14%
Retailing (note a)
___________________ ____ ________ ___________ ____ _________ ___________
Total Retailing 349 30% 17% 300 31% 16%
Businesses
WHSmith News (1) - - 6 - -
Distribution
___________________ ____ ________ ___________ ____ _________ ___________
Trading Operations 348 37% 20% 306 44% 20%
(excluding
Publishing
Businesses)
___________________ ____ ________ ___________ ____ _________ ___________
Publishing 235 7% 7% 228 7% 7%
Businesses
___________________ ____ ________ ___________ ____ _________ ___________
Trading Operations 583 24% 17% 534 28% 17%
(including
Publishing
Businesses)
Freehold property 42 38
Support functions (58) (77)
Provisions for (11) (14)
liabilities and
charges
___________________ ____ ________ ___________ ____ _________ ___________
Operating assets 556 25% 17% 481 29% 17%
employed
Net cash 75 123
___________________ ____ ________ ___________ ____ _________ ___________
Total net assets 631 604
___________________ ____ ________ ___________ ____ _________ ___________
(a) Return on Capital Employed for International Retailing is stated
excluding WHSmith ASPAC, which was owned for the last 11 weeks of the
financial year.
(b) Return on Capital Employed is calculated as the operating profit before
exceptional items as a percentage of operating capital employed.
(c) Return on Capital Employed after capitalised net operating leases
including internal rent is calculated as adjusted profit as a percentage
of operating assets after capitalising leases. Adjusted profit is stated
after adding back the annual net rent and charging depreciation on the
value of capitalised leases. The value of capitalised leases is based on
the net present value of future rent commitments.
11 ACQUISITIONS AND GOODWILL
The principal acquisitions during 2001 were:
* On 17 April 2000, WHSmith USA Inc. entered into a phased acquisition of The
Benjamin Company, a books, news and gifts retailer. At 31 August 2000, the
first part of this transaction had been completed with the acquisition of
five stores for US$7m (£5m), and associated goodwill of US$7m (£5m). On 10
October 2000, the second part of this transaction was completed with the
purchase of a further 10 stores for a total consideration of US$7m (£5m).
The capitalised goodwill on this transaction was US$6m (£4m).
* During the year a number of smaller acquisitions were made. These include
A.N.D. Cartographers, Stockton Journals and the minority interest of
Connect2U. The aggregate consideration was £6m with associated goodwill of
£6m.
* On 14 June 2001 WHSmith New Zealand Limited acquired the share capital of
WGL Retail Holdings Limited a retailer with 183 stores operating in
Australia and New Zealand for a total consideration of £40 million
including fees and expenses. The capitalised goodwill arising from the
transaction is £15m. Since acquisition, WHSmith New Zealand has had sales
of £23m with associated profits of £nil. In the year ended 30 April 2000,
the acquired business had sales of £112m and operating profit of £4m.
The balance sheet of this acquisition, together with fair value adjustments,
is set out below:
£m Book Fair Value Fair
Value Adjustments Value
________________________________________ _________ ____________ ______
Tangible fixed assets 22 (8) 14
Investments 1 - 1
Stock 28 (7) 21
Debtors 3 - 3
Creditors (16) (4) (20)
Cash 6 - 6
________________________________________ _________ ____________ ______
Net assets acquired 44 (19) 25
Consideration paid - cash 40
________________________________________ _________ ____________ ______
Capitalised goodwill 15
________________________________________ _________ ____________ ______
The adjustments to book value identified in the above table are provisional as
a result of the limited time available to determine the fair value of the
assets and liabilities acquired. The adjustments made reflect accounting
policy changes and valuation adjustments in respect of tangible fixed assets,
changes in the method of calculating the realisable value of stock and
adjustments to reflect onerous leases.
12 GOODWILL
£m
_______________________________________________________________ ______
Cost:
At 1 September 2000 226
Acquisitions 25
_______________________________________________________________ ______
At 31 August 2001 251
_______________________________________________________________ ______
Accumulated amortisation:
At 1 September 2000 4
Amortised in period 3
Impairment charge in the period 8
_______________________________________________________________ ______
At 31 August 2001 15
_______________________________________________________________ ______
Net book value
_______________________________________________________________ ______
At 31 August 2001 236
_______________________________________________________________ ______
At 1 September 2000 222
_______________________________________________________________ ______
Purchased goodwill is capitalised as an asset and amortised against profits
over its useful economic life. In estimating the useful economic life of
purchased goodwill, consideration is given to its durability.
Goodwill arising on the earlier acquisitions of John Menzies Retail, Internet
Bookshop and Hazelwood is regarded by the Directors as having a useful life of
20 years and is therefore amortised through the profit and loss account over
this period. The goodwill arising on the acquisition of WGL Retail Holdings
Limited is regarded as having a useful economic life of 20 years and will be
amortised over this period.
In accordance with FRS 10, where goodwill is regarded as having an indefinite
life, it is not amortised but is subject to an annual test for impairment. As
permitted under FRS 10, this represents a departure, for the purposes of
giving a true and fair view, from the requirements of the Companies Act 1985,
which requires goodwill to be amortised.
Goodwill arising on the acquisitions of Hodder Headline (£172m) and Wayland
(£3m) is regarded as having an indefinite useful life and is therefore not
amortised in the profit and loss account. It is considered that the purchased
goodwill is durable because both businesses are expected to maintain their
market share and profitability in UK publishing over a long period. The
majority of titles published and imprint names have significant lifespans due
to copyright and licensing arrangements and range and strength of backlist
titles. It is also considered that the barriers to entry which exist (and are
anticipated to continue) and the nature of competition in the publishing
industry are such that scale, relationships with third parties, intellectual
property rights and quality of branding will prove this goodwill to be
durable.
Since it is not possible to identify a finite useful life for goodwill on the
purchase of both Hodder Headline and Wayland, it is not possible to quantify
any amortisation, which would be charged. The application of an impairment
test (which is carried out annually) supports the value of goodwill and, as a
result, no charge for impairment is required at the balance sheet date.
13 FIXED ASSETS AND INVESTMENTS
13(a) Changes in Fixed Assets and Investments
£m Tangible Fixed Investments
Assets
_____________________________________ _________________ ___________
Net book value at 1 September 2000 294 1
_____________________________________ _________________ ___________
Additions 68 13
Business acquisitions 15 1
Disposals (2) -
Impairment charge in the period (3) -
Depreciation (46) (1)
_____________________________________ _________________ ___________
Net book value at 31 August 2001 326 14
_____________________________________ _________________ ___________
13(b) Analysis of Fixed Assets
£m 2001 2000
___________________________________________ __________ ____________
Freehold and long leasehold property 43 38
Short leasehold 114 103
Fixtures, fittings and equipment 169 153
___________________________________________ __________ ____________
Net book value 326 294
___________________________________________ __________ ____________
14 WORKING CAPITAL
£m 2001 2000
_________ _________________________________________ _______ _______
Stock - Continuing operations 234 216
- Acquisitions 21 -
_________ _________________________________________ _______ _______
255 216
_________ _________________________________________ _______ _______
Debtors - Continuing operations 183 160
- Acquisitions 2 -
_________ _________________________________________ _______ _______
185 160
_________ _________________________________________ _______ _______
Creditors - Continuing operations 356 320
- Acquisitions 19 -
- Corporation tax 42 45
- Dividends payable 32 33
_________ _________________________________________ _______ _______
449 398
_________ _________________________________________ _______ _______
15 PROVISIONS FOR LIABILITIES AND CHARGES
John Menzies
Post Retail
Non trading retirement Acquisition
£m Property medical Reorganisation
provisions benefits Provisions Total
____________________ ___________ __________ ______________ _____
At 1 September 2000 10 3 1 14
Utilised in period (3) - - (3)
____________________ ___________ __________ ______________ _____
At 31 August 2001 7 3 1 11
____________________ ___________ __________ ______________ _____
In the 12 months to 31 August 2001, the amount charged to non trading property
provisions comprised £3m net rent paid for vacant or surplus properties which
will continue to be charged for around 6 years. The provision for post
retirement medical benefits will continue to be utilised over the remaining
lives of the relevant employees. The John Menzies Retail acquisition
reorganisation provisions principally related to store closure costs and the
provision is expected to be utilised in the 12 months to 31 August 2002.
16 FINANCIAL ASSETS AND LIABILITIES
£m 2001 2000
____________________________________________________________ ______ _____
Cash at bank and in hand 138 152
Repayable in one year or less or on demand (37) (1)
Repayable in more than one year but not more than two years - -
Repayable in more than five years (26) (28)
____________________________________________________________ ______ _____
Net cash 75 123
____________________________________________________________ ______ _____
The Company has additional committed facilities of £113m available, which
mature in May 2002.
£m 2001 Cashflow 2000
__________________________________________________ ______ _________ _____
Cash at bank and in hand (note a) 138 (14) 152
Debt - Sterling floating rate (note b) (61) (35) (26)
- Sterling fixed rate (note c) (2) 1 (3)
__________________________________________________ ______ _________ _____
Net cash 75 (48) 123
__________________________________________________ ______ _________ _____
a) Cash at bank is held on short-term deposit, bearing interest at an average
rate of 5.4%. The only material foreign exchange exposure at 31 August
2001 relates to the financial assets and liabilities in USA Travel Retail
and international acquisitions in Australia and New Zealand. Cash at bank
and in hand includes £23m worth of US dollars and £6m in New Zealand
dollars.
b) Floating rate debt represents loan notes repayable in 2008 and bearing
interest at a rate of 1% per annum below LIBOR of £24m and committed
facility loans repayable in May 2002 bearing an interest rate of LIBOR
plus 10 basis points of £37m.
c) Sterling fixed rate debt includes 5.125% redeemable unsecured loan stock
of £2m (2000; £2m).
d) In addition to the above, at 31 August 2001 the Group had unredeemed 'B'
shares of £4.4m which carry a net non-cumulative preferential dividend set
at 75% of six month LIBOR.
17 SHARE CAPITAL
17(a) Authorised
2001 2000
___________ ________ ___________ ________
Number of Nominal Number of Nominal
shares value shares value
(millions) £m (millions) £m
______________________________ ___________ ________ ___________ ________
Ordinary shares of 55.55p each 333 185 333 185
'B' shares of 53.75p each 286 153 286 153
______________________________ ___________ ________ ___________ ________
At 31 August 338 338
______________________________ ___________ ________ ___________ ________
17(b) Allotted and Fully Paid
2001 2000
___________ ________ ___________ ________
Number of Nominal Number of Nominal
shares Value Shares value
(millions) £m (millions) £m
______________________________ ___________ ________ ___________ ________
Ordinary shares of 55.55p each 249 139 251 140
'B' shares of 53.75p each 4 2 4 2
______________________________ ___________ ________ ___________ ________
At 31 August 141 142
______________________________ ___________ ________ ___________ ________
The number of shares issued in the year to 31 August 2001 was 849,000 ordinary
shares with a nominal value of £0.5m (2000; 597,000 shares) relating to share
options exercised for a cash consideration of £3m.
The 'B' shares are redeemable at their nominal value at the shareholder's
option during any period declared by the Company, at the Company's option or
on maturity on 31 August 2008.
At 31 August 2001 the number of options held under employee share schemes was
11.5 million shares (2000; 8.4 million).
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