Final Results - Year Ended 31 Aug 1999, Part 3
SMITH (WH) GROUP PLC
28 October 1999
Part 3
1. SEGMENTAL ANALYSIS OF RESULTS
1(A) Analysis of Retailing Stores and Selling Space
1 Sept 31 Aug
Number of stores 1998 Opened Clos- 1999
ed
-------------------------------------------------------------------
WHSmith High Street
- base 400 6 (5) 401
- former John 158 - (14) 144
Menzies Retail
stores acquired
-------------------------------------------------------------------
558 6 (19) 545
Europe Travel
Retail
- base 110 2 (1) 111
- former John 74 - (2) 72
Menzies Retail
stores acquired
--------------------------------------------
184 2 (3) 183
USA Travel Retail 409 23 (20) 412
Asia Travel Retail 8 2 - 10
-------------------------------------------------------------------
Total 1,159 33 (42) 1,150
-------------------------------------------------------------------
Growth in
1 Sept 31 Aug average
Retail selling 1998 Open-ed Clos-ed 1999 sq ft*
square feet (000's)
-------------------------------------------------------------------
WHSmith High Street
- base 2, 74 (17) 2, +1%
240 297
- former John 743 6 (81) 668 -5%
Menzies Retail
stores acquired
--------------------------------------------
2, 80 (98) 2, -
983 965
Europe Travel
Retail
- base 118 4 (1) 121 +1%
- former John 75 - (1) 74 -
Menzies Retail
stores acquired
--------------------------------------------
193 4 (2) 195 +1%
USA Travel Retail 445 24 (23) 446 +2%
Asia Travel Retail 8 1 - 9 -
-------------------------------------------------------------------
Total 3,629 109 (123) 3, -
615
-------------------------------------------------------------------
* Growth in average square feet compares the average square feet for the
12 month period to 31 August 1999 to the average square feet for the 12
month period to 31 August 1998.
1 (B) Segmental Analysis of Sales and Profits - Summary
12 months to Comp-
---------------
Proforma arable 15 months
31 Aug 31 Aug Sales Sales to 31 Aug
1999 1998 Growth Growth 1998
Sales £m £m % % £m
(note a)
--------------------------------------------------------------------
WHSmith Retailing 1,198 1,162 3% 2% 1,400
businesses (note 1C)
WHSmith News
Distribution
- total 995 1,025 -3% 1% 1,281
- less internal (98) (92) 6% 6% (112)
-------------------------------------------
- external 897 933 -4% 1% 1,169
---------------------------------------------------------------------
Base businesses 2,095 2,095 - 1% 2,569
Former John Menzies 263 79 79
Retail stores acquired
in previous year (note
b)
Internet Trading 5 1 1
---------------------------------------------------------------------
Continuing operations 2,363 2,175 2,649
Acquisitions (note c) 28 - -
Discontinued operations - 643 807
(note d)
-------------------------------------------------------------------
Total sales 2,391 2,818 3,456
-------------------------------------------------------------------
12 months to
--------------
15 months
31 Aug Pro-forma to 31 Aug
Operating profit 1999 31 Aug 1998
£m 1998 Growth £m
£m %
-------------------------------------------------------------------
WHSmith Retailing businesses 79 66 18% 63
(note 1C)
WHSmith News Distribution 39 45 56
Support costs (12) (13) (16)
Internal rents (note e) 5 6 8
Net pension cost - (3) (4)
-------------------------------------------------------------------
Base businesses 111 101 10% 107
Former John Menzies Retail 8 (3) (3)
stores acquired in previous
year (note b)
Internet Trading (3) - -
-------------------------------------------------------------------
Continuing operations before 116 98 18% 104
exceptional items
Exceptional item (note 2) - (10) (10)
---------------------------------------------------------------------
Continuing operations 116 88 94
Acquisitions (note c) 4 - -
Discontinued operations (note - 37 35
d)
-------------------------------------------------------------------
Operating profit 120 125 129
-------------------------------------------------------------------
(a) Comparable sales growth for retailing businesses excludes the impact
of changes in selling space. Comparable sales growth for WHSmith News
Distribution excludes the effect of the loss of part of a contract.
(b) Former John Menzies Retail stores acquired on 2 May 1998.
(c) Sales from acquisitions include Hodder Headline PLC £26m (acquired 27
May 1999) and Helicon PLC £2m (acquired 11 February 1999). Post
acquisition operating profits of £4m all relate to Hodder Headline PLC.
(d) Proforma sales for discontinued operations in the prior year include
Waterstones £144m, Virgin Our Price £431m and The Wall £68m. Proforma
operating profits from discontinued operations in the prior year include
Waterstones £17m, Virgin Our Price £15m, and The Wall £5m.
(e) The results for base retailing businesses are reported after an
internal arms length market rent on freehold and long leasehold properties
owned and occupied by the Group. The internal income generated £5m
(Proforma 12 months to 31 August 1998; £6m) is shown as a separate credit
to the profit and loss account, giving a nil
net effect to operating profit.
1 (C) Segmental Analysis of Sales and Profits
- Base Businesses (before acquisitions, disposals and share repurchases)
12 months to
---------------------
Proforma 15 months
Sales from Base 31 Aug 31 Aug Sales Comparable to 31 Aug
Businesses 1999 1998 Growth Sales 1998
£m £m % Growth £m
%
(note a)
-------------------------------------------------------------------
WHSmith High Street 861 840 2% 1% 999
Travel Retail 151 147 3% 2% 182
- Europe (note b)
- USA 178 171 3% 1% 214
- Asia 8 4 - - 5
-------------------------------------------------------------------
WHSmith Retailing 1,198 1,162 3% 2% 1,400
Businesses
WHSmith News 995 1,025 -3% 1% 1,281
Distribution
- total (note c)
- less internal (98) (92) 6% 6% (112)
- external 897 933 -4% 1% 1,169
-------------------------------------------------------------------
Sales 2,095 2,095 - 1% 2,569
-------------------------------------------------------------------
12 months to
--------
Proforma 15 months
Profit before tax 31 Aug 31 Aug to 31 Aug
from Base 1999 1998 Growth 1998
Businesses £m £m % £m
(before
acquisitions,
disposals and share
repurchases)
----------------------------------------------
WHSmith High Street 57 51 12% 44
Travel Retail 9 8 6% 10
- Europe (note b)
- USA 13 9 - 11
- Asia - (2) - (2)
----------------------------------------------
WHSmith Retailing 79 66 18% 63
Businesses
WHSmith News 39 45 - 56
Distribution (note
c)
----------------------------------------------
Trading profit 118 111 6% 119
Support costs (12) (13) - (16)
Internal rents 5 6 - 8
Net pension cost - (3) - (4)
----------------------------------------------
Operating profit 111 101 10% 107
----------------------------------------------
(a) Comparable sales growth for retailing businesses excludes the impact
of increases in selling space. Comparable sales growth for WHSmith News
Distribution excludes the effect of the loss of part of a contract.
(b) Europe Travel Retail includes sales in continental Europe £6m
(Proforma 12 months to 31 August 1998; £6m), and profits £1m (Proforma 12
months to 31 August 1998; £1m).
(c) Total sales from WHSmith News Distribution in the Proforma 12 months
to 31 August 1998 include £47m relating to loss of part of a contract. On
a comparable basis, total sales are £995m (Proforma 12 months to 31 August
1998; £978m). The results for the Proforma 12 months to 31 August 1998
include £6m relating to
part of a lost contract. On a comparable basis, profits are £39m (Proforma
12 months to 31 August 1998; £39m).
1 (D) Analysis of former John Menzies Retail Stores Acquired
12 months to Proforma
----------------------
Proforma 15 months to
31 Aug 1999 31 Aug 1998 Grow-th 31 Aug 1998
£m £m % £m
----------------------------------------------
Sales- continuing 248 251 - 1% 305
stores
- stores identified 15 25 33
for closure (note c)
----------------------------------------------
----------------------------------------------
263 276 338
----------------------------------------------
Profits- continuing 13 13 13
stores
- stores identified (1) - -
for closure (note c)
- administration (4) (8) (11)
costs (note b)
- internal rents 1 1 1
----------------------------------------------
Profit before 9 6 3
goodwill
amortisation
- amortisation of (1) - -
goodwill
----------------------------------------------
Profit after 8 6 3
goodwill
amortisation
----------------------------------------------
(a) Proforma comparative financial information in the above table for the
12 months to 31 August 1998 and the 15 months to 31 August 1998 is
presented as if the stores had been owned for the whole period.
(b) Administration costs for the 12 months to 31 August 1999 represent an
estimate of the incremental cost to the Company of administration costs
which relate to the former John Menzies Retail stores acquired.
(c) Stores identified for closure include sales and profits from 30 stores
and at 31 August 1999 the Company has closed 14 stores. Sales from these
stores were £15m and the stores made a loss of £1m.
1 (E) Analysis of former John Menzies High Street Stores Acquired between
High Street and Travel Stores
12 months to Proforma
----------------------------------------------
Proforma 15 months
31 Aug 1999 31 Aug 1998 Growth to
£m £m % 31 Aug
1998
£m
----------------------------------------------
Sales - High 157 163 - 3% 197
Street
- Travel 91 88 4% 108
- stores 15 25 33
identified for
closure
----------------------------------------------
263 276 338
----------------------------------------------
Profits - High 4 3 1
Street
- Travel 5 2 1
- stores (1) - -
identified for
closure
- internal rents 1 1 1
----------------------------------------------
Profit before 9 6 3
goodwill
amortisation
- amortisation (1) - -
of goodwill
----------------------------------------------
Profit after 8 6 3
goodwill
amortisation
----------------------------------------------
1 (F) Segmental Analysis of Sales and Profits
- Businesses acquired in current year
Sales from Businesses acquired 12 months to
in current year 31 Aug 1999
£m
---------------------------------------------------------------
Hodder Headline PLC 26
Helicon Publishing PLC 2
---------------------------------------------------------------
Sales 28
---------------------------------------------------------------
Profit before tax from Businesses acquired in 12 months to
current year 31 Aug 1999
£m
---------------------------------------------------------------
Hodder Headline PLC 4
Helicon Publishing PLC -
---------------------------------------------------------------
Operating profit 4
Interest on financing (2)
acquisitions
--------------------------------------------------------------
Profit before tax 2
---------------------------------------------------------------
2 EXCEPTIONAL ITEMS
(a) The operating profit for continuing operations in the prior periods
included an exceptional operating cost of £10m relating to the
reorganisation of John Menzies Retail stores acquired (2 May 1998). The
exceptional cost included £4m relating to staff rationalisation costs and
£5m for property rationalisation costs.
(b) The exceptional operating profit of £122m in the proforma 12 months to
31 August 1998 includes the disposal of The Wall for £28m (on 3 March 1998)
with a profit arising before goodwill previously written off of £nil,
disposal of Waterstones for £300m (on 28 March 1998) with a profit arising
before goodwill previously written off of £210m and disposal of Virgin Our
Price for £145m (on 8 July 1998) with a profit arising before goodwill
previously written off of £69m. Total goodwill previously written off on
the disposal of these operations was £157m.
3. PENSIONS
The Group operates a number of pension schemes. The principal scheme is
a defined benefit scheme, WHSmith Pension Trust. The Group 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 Group's finances.
The market value of the assets of the principal scheme were recently
estimated at around £700m and are sufficient to cover around 117 per cent
of the fund's future pension obligations.
The principal defined benefit scheme was last formally valued for
financial accounting purposes, in accordance with advice from
professionally qualified actuaries, at 31 March 1997. This valuation was
made using the projected unit method and the principal long term
assumptions used were: rate of return on investments 8 per cent, earnings
inflation 6 per cent, pension increases 3.5 per cent and growth of
dividends 4.25 per cent. The market value of the fund's assets at this
date was approximately £545m and the actuarial value of the assets was
sufficient to cover 113 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 employers'
contributions.
For the 12 months to 31 August 1999 the regular cost of pensions under
the principal scheme was £10m and the variation to regular cost, which is
spread over the average remaining lives of current employees is estimated
at £10m with the result that a net pension cost of £nil has been charged to
the profit and loss account for that scheme. The pension cost for the
defined contribution scheme and related supplements charged to the profit
and loss account is £2m (Proforma 12 months to 31 August 1998; £1m).
4 OPERATING LEASE COMMITMENTS
31 Aug 1999 31 Aug 1998
------------------------------
Future
Annual cumulative Average Annual
net rental net rental lease net rental
commitment commitment term commitment
£m £m (years) £m
--------------------------------------------------------------
WHSmith High 69 815 12 69
Street
Travel Retail 33 165 7 28
- Europe
- USA 32 122 5 31
- Asia 3 8 3 3
--------------------------------------------------------------
WHSmith 137 1,110 9 131
Retailing
Businesses
WHSmith News 3 43 13 3
Distribution
Hodder 4 25 6 -
Headline
Surplus 9 92 10 9
property
sublet by
WHSmith to
third parties
--------------------------------------------------------------
Gross rental 153 1,270 9 143
commitment
Less (16) (90) 5 (17)
- external
rent
receivable
- internal (3) (40) 13 (6)
rent
receivable
--------------------------------------------------------------
Total 134 1,140 9 120
--------------------------------------------------------------
(i) WHSmith High Street gross rental commitment includes internal rent of
£3m (1998; £6m) relating to those properties which are owned by the Group.
The reduction of £3m relates to the sale and leaseback of properties
previously owned by the Group to 3rd party landlords. The cumulative future
costs of internal rent is taken as the book value of those properties in
the balance sheet at £40m of which £38m relates to WHSmith High Street.
(ii) External rent receivable relates to properties which are let by the
Group to third parties. Of the total external rent receivable £8m (1998;
£10m) relates to USA Travel Retail and £8m (1998; £7m) represents income on
subletting surplus property. Of the future cumulative external rent
receivable £24m 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 £200m and an average lease term of around 12 years.
(iv) The rent commitments for the former John Menzies Retail stores
acquired have been included within WHSmith High Street (for High Street
stores) and Europe Travel Retail (for Travel Retail stores).
(v) For those leases which 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 £65m (1998;£59m) and relates to Europe Travel Retail and USA Travel
Retail stores.
5. INTEREST
12 months to
------------------------
Proforma 15 months
31 Aug 1999 31 Aug1998 to 31 Aug
1998
£m £m £m
--------------------------------------------------------------
Interest payable on bank (4) (7) (8)
loans and overdrafts
Interest receivable 18 14 14
--------------------------------------------------------------
14 7 6
--------------------------------------------------------------
6. TAXATION
12 months to
------------------------
5. Proforma 15 months
31 Aug 1999 31 Aug 1998 to 31 Aug
1998
£m £m £m
--------------------------------------------------------------
Tax on profit on
ordinary activities
Corporation tax on UK 36 43 43
profits
-Standard rate of UK
corporation tax 30.6%
(1998; 31%)
International tax 2 (4) (4)
--------------------------------------------------------------
38 39 39
--------------------------------------------------------------
Effective tax rate 28% 28% 28%
before exceptional
items
The effective tax rate of 28.0 per cent for the 12 months to 31 August 1999
is below the UK standard corporation tax rate of 30.6 per cent due to
increased levels of capital expenditure qualifying for tax relief and lower
rates of taxation on overseas activities.
The tax charge in the prior period included an exceptional net credit of
£1m.
7. 12 months to 15 months
DIVIDENDS
----------------------
Proforma Grow-th to 31 Aug
31 Aug 1999 31 Aug % 1998
1998*
--------------------------------------------------------------
Interim 5.75p 5.25p 10% 5.25p
Final 12.45p 11.35p 10% 15.50p
--------------------------------------------------------------
Total 18.20p 16.60p 10% 20.75p
dividend
--------------------------------------------------------------
£m £m £m
--------------------------------------------------------------
Interim 14 15 15
Final 31 28 39
--------------------------------------------------------------
Total 45 43 54
dividend
--------------------------------------------------------------
Dividend 2.1x 2.1x
cover -
times
--------------------------------------------------------------
* Total dividend for 15 months apportioned to proforma 12 months.
The Final dividend will, if approved, be paid on 28 January 2000 to
shareholders registered at the close of business on 14 November 1999. At
31 August 1999 the Company had 250,167,000 shares in issue.
8 EARNINGS PER SHARE
8 (A) Earnings 12 months to 15 months
Per Share
-------------
Proforma Grow-th to 31 Aug
31 Aug 31 Aug % 1998
1999 1998
--------------------------------------------------------------
Total profit 96 211 214
attributable to
shareholders (£m)
Weighted average 250 276 278
number of ordinary
shares in issue (m)
--------------------------------------------------------------
Earnings per share 38.4p 76.5p 77.0p
--------------------------------------------------------------
Amount attributable - (41.0p) (40.5p)
to exceptional items
Amount attributable 0.5p - -
to amortisation of
goodwill
--------------------------------------------------------------
Earnings per share - 38.9p 35.5p 10% 36.5p
before exceptional
items and goodwill
amortisation
--------------------------------------------------------------
8 (B) Calculation 12 months to
of Diluted Earnings
Per Share
------------------------------
Pro- Grow 15 mon-ths
forma th to
31 Aug 31 Aug % 31 Aug
1999 1998 1998
---------------------------------------------------------
Total profit 96 211 214
attributable to
shareholders (£m)
Weighted average 250 276 278
number of ordinary
shares in issue (m)
Add weighted 2 1 1
average number of
ordinary shares
under option (m)
----------------------------------------------------------
Total weighted 252 277 279
average number of
ordinary shares (m)
-------------------------------------------------------------
Diluted earnings 38.1p 76.2p 76.0p
per share
-------------------------------------------------------------
Amount attributable 0.5p - -
to amortisation of
goodwill
Amount attributable - (40.5p) (40.0p)
to exceptional
items
--------------------------------------------------------------
Diluted earnings per 38.6p 35.7p 8% 36.0p
share before
exceptional items
and goodwill
amortisation
--------------------------------------------------------------
Earnings per share have been calculated in accordance with the Financial
Reporting Standard 14.
9 FIXED CHARGES COVER
12 months to
---------------------
15 months to
Proforma 31 Aug 1998
31 Aug 31 Aug 1998
1999
£m £m £m
-----------------------------------------------------------
Interest income (14) (7) (6)
Operating lease rentals 141 118 145
Property taxes 30 24 29
Other property costs 9 5 6
-----------------------------------------------------------
Total fixed charges 166 140 174
Profit before tax 134 105 110
-----------------------------------------------------------
Profit before tax and 300 245 284
before fixed charges
Fixed charges cover 1.8 1.8 1.7
-----------------------------------------------------------
(i) Fixed charges cover for continuing operations is calculated by
dividing total fixed charges by profit before tax and before fixed charges.
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