Interim Results

Smith WH PLC
22 April 2004



                                                                   22 April 2004

                                  WH SMITH PLC

                                INTERIM RESULTS
                     FOR THE SIX MONTHS TO 29 FEBRUARY 2004

KEY POINTS

Profit before tax, goodwill amortisation and exceptional items down £26m to
£65m.

Loss before tax, after exceptional items, £72m (2003 profit: £54m).

Total sales of continuing operations up 4% at £1.5bn

-         UK Retail lfl sales flat
-         News Distribution lfl sales up 4%
-         Publishing lfl sales up 5%
-         ASPAC Retail lfl sales up 2%

Operating profit before goodwill amortisation and exceptional items down 28% to
£67m. This includes:
-         UK Retail down 39% to £51m
-         News Distribution up 13% to £17m
-         Publishing flat at £11m
-         ASPAC Retail up 40% to £7m
Operating loss after exceptional items £9m (2003 profit: £56m)

'Operating' exceptional charges of £75m include the following:
-         UK Retail stock write down £45m
-         UK Retail fixed asset impairment £17m
-         Publishing author advances provision £9m
Exceptional FRS 3 loss on disposal of US business £61m
- includes £39m goodwill previously written off to reserves


ASPAC sale process under way

Earnings per share before exceptional items and goodwill amortisation down 31%
to 18.0p
Loss per share of 34.4p (2003 earnings per share: 11.0p)

Interim dividend of 4.0p (2003 - 6.0p)

GROUP CHIEF EXECUTIVE'S COMMENTS

Commenting on the results, Kate Swann, Group Chief Executive said:

'The News Distribution and UK Travel Retail businesses performed well in the
first half and the underlying Publishing result was strong.

' The UK High Street Retail business delivered an unacceptable performance in
the first half. This performance is the culmination of a number of years where
the business has not fulfilled its potential.

'I believe the business has strong assets on which to build. We have already
taken action to strengthen the senior management team and address the
operational shortcomings of the business. The priorities are clear: we are
reducing our central costs, addressing stock availability, improving the offer
in store, strengthening our controls and processes and addressing our product
ranges.

'We need to re-instate our authority in the high street and re-establish a
compelling consumer offer to generate earnings growth. I am convinced of the
potential for profitable organic growth through a return to sound retailing
disciplines and rigorous execution of our plans. '

Enquiries:
WH Smith PLC
Kate Swann          -   Group Chief Executive              020 7409 3222
John Warren         -   Group Finance Director             020 7409 3222
Mark Boyle          -   Investor Relations                 020 7514 9630
Louise Evans        -   Media Relations                    020 7514 9624
Brunswick
Timothy Grey                                               020 7404 5959


CURRENT TRADING

In the seven weeks to 17th April 2004, adjusting for the impact of Easter, UK
Retail like for like sales were down by 1% but gross margin showed some progress
over last year. ASPAC Retail like for like sales were up 3%. Publishing sales
were down 1%. News Distribution sales were up 6%.

CHIEF EXECUTIVE'S OPERATIONAL AND FINANCIAL REVIEW

Following the sale of the US businesses and proposed sale of the ASPAC business,
the Group will be focused on three business areas, Publishing, News Distribution
and UK Retail.

Our Publishing, News Distribution and UK Travel Retail businesses have leading
market positions and are performing well.

Publishing is growing, gaining market share and currently ranks second in
fiction and secondary education and first in consumer education and further
education.

News Distribution has produced good sales and profit growth, driven by a strong
magazine market, and a continuing focus on tight cost control. This is a highly
cash generative business with cash conversion generally representing over 100%
of profits.

The UK Travel Retail business is strong, well managed, and uniquely placed in
the UK travel market.

It is clear that the High Street Retail business faces operational and strategic
challenges. In order to address the under performance of the High Street
businesses I have identified five key operational priorities:

   • Controlling the cost base: central costs are high in absolute terms and
    uncompetitive with other comparable retailers. We are removing 270 central
    office roles from a base of approximately 1000. This will generate
    annualised cost savings of £8.5m.


   • Improving stock availability: historical disciplines have been
    inadequate with warehouse availability poor and in-store availability worse.
    We have introduced new disciplines to ensure product file accuracy and
    ensure stockroom standards are in place.


   • Improving our store offer: store standards and customer conversion
    levels have been variable depending upon the particular store or area
    manager's focus. We are implementing common store standards, introducing
    service programmes and improving how we communicate with customers.


   • Controls and processes: financial controls have been inadequately
    integrated into the business processes and we are focused on introducing
    greater discipline in three main areas - stock management, budgeting and
    capital allocation.


   • Range planning: strong range architecture has been lost, with best
    sellers not fully ranged in all stores, a lack of value ranges and unclear
    price structures. We have instigated range reviews with a focus on new
    product development on core categories and ensuring best sellers are in all
    stores in time for Christmas.


At the strategic level, we face competition from supermarkets, the internet and
specialist retailers. However, this competition varies by category and
catchment.

The supermarkets do have a strong position in front-list, fast-moving lines but
often have a limited presence in back-list lines. The percentage of sales and
profit coming from lines where we overlap with the supermarkets varies
materially by category and catchment.

The threat of the supermarkets' move into non-food is clearly real. However, in
many of our categories, there are high street specialists succeeding. The lesson
is that success is driven by creating a strong customer offer.

In order to ensure that we compete effectively, our offer must be compelling to
customers. A bundling of weak offers across categories will not be effective
against our competitors. Instead, by establishing greater authority in the
categories in which we choose to compete, we will be able to generate greater
sales intensities and a more profitable performance.

We are developing our plans in a disciplined way with a clear focus on
performance, our stores and our customers. We are currently carrying out very
thorough data gathering, analysis and trials to ensure that we fully understand
our current position. Having done this we will move ahead decisively and ensure
our capital allocation is carefully controlled for maximum effect.

What I have discovered so far is that the picture is much richer than generally
portrayed. It is complex and will take time to solve, but I am convinced of the
potential for profitable organic growth, by creating a compelling customer offer
through a return to sound retailing disciplines and rigorous execution of our
plans.

GROUP SUMMARY

Operating profit before exceptional items and goodwill amortisation was down
£26m (28%) to £67m (2003 - £93m). After including the FRS17 pension interest
cost of £2m (2003 - £2m) pre-tax profit before exceptional items and goodwill
amortisation was £65m (2003 - £91m).

Operating loss after exceptional items and goodwill amortisation was £9m, down
£65m on last year (2003 profit - £56m). Loss before tax after exceptional items,
goodwill amortisation and interest was £72m (2003 profit - £54m).

Earnings per share before exceptional items and goodwill amortisation was 18.0p,
down 31% compared to last year. Loss per share after exceptional items and
goodwill amortisation was 34.4p (2003 earnings per share - 11.0p).

Given the current trading position of the Group, the Board has decided to
declare an interim dividend of 4.0p per share (2003 - 6.0p per share).

The balance sheet remains sound with net cash amounting to £28m (2003 - £31m)
and total net assets before pension liabilities of £497m (2003 - £602m). Free
cash outflow amounted to £2m compared to an inflow of £28m in the prior year,
primarily reflecting the poor profit performance in the period to date.

Although the net cash position at February is similar to last year, the cashflow
in the second half of this year will be substantially less than in the same
period last year. Firstly, we sold and leased back a number of our properties in
the second half last year. Secondly, we are increasing the level of funding into
our defined benefit pension scheme, and we will be spending against the
provisions created for the US disposal and UK Retailing redundancies in the
balance of year. Finally, we anticipate closing the year with a higher level of
stock in the High Street business as a result of the Operational Review work,
focusing on improving availability. However, this year is somewhat unusual in
many respects and looking forward, we expect the Group to perform much more
strongly from a cash perspective.

BUSINESS RESULTS

NB: All divisional profit and loss figures in this section are stated before
exceptional items and goodwill amortisation.


UK Retail sales were flat at £834m (2003 - £833m). Gross margin fell 2%pts to
37.8%. WHSmith High Street sales were marginally down at £687m (2003 - £691m)
and down 1% on a like for like basis, adjusting for selling space. UK Travel
Retail sales grew by 4% to £142m (2003 - £137m).

Books sales were in line with last year. However, increased promotional
activity, particularly in fiction books, led to a 2%pts fall in gross margin.
Stationery sales were up by 2%, but gross margin fell by 1%pt, through mix
effects and increased clearance activity in January as some of our strongest
margin lines, such as cards and wrap, performed poorly. News and Express sales
were also up 2%, with gross margin flat. Entertainment sales were down 4% on
last year, compounded by a 4%pts fall in gross margin due to increased
discounting over the Christmas period.

UK Retail divisional profits were down 39% to £51m (2003 - £83m). WHSmith High
Street divisional profits declined to £43m (2003 - £76m). UK Travel Retail
achieved divisional profits of £9m (2003 - £8m). WHSmith Online divisional
losses were £1m (2003 - £1m loss).

The decline in gross margin resulted in gross contribution falling by £16m to
£315m. Cost inflation, including store occupancy costs, was approximately 4% in
the period. In addition, we incurred a £3m increase in marketing costs and £3m
of additional depreciation relating to our new computer system, Retek. In total,
costs rose by £16m year on year, and operating profit, therefore, fell by £32m.

UK Retail selling space is 3.3m square feet, marginally up on last year. In the
first half of this year, the business has opened eight new stores and closed
seven stores across the UK.

ASPAC Retail achieved divisional profits of £7m (2003 - £5m), with sales of £97m
(2003 - £81m). Most of the sales increase was due to favourable exchange rates.
At constant exchange rates, total sales were up 5% with like for like sales up
2%.

In January we announced a review of our strategic options for the ASPAC Retail
businesses. We have decided to sell these businesses and can confirm that the
sale process is underway.

Publishing achieved divisional profits of £11m (2003 - £11m), with sales up 5%
to £81m (2003 - £77m). The sales growth was achieved through a strong release
programme in the first half of the year. Notable releases include Martin
Johnson's autobiography, Pamela Stephenson's 'Bravemouth' and the latest Martina
Cole 'The Know'. The additional contribution of the sales increase has been
offset by an increase in the level of provisioning for unearned authors'
advances. Underlying divisional profits, excluding this charge, grew faster than
sales.

WHSmith News Distribution achieved divisional profits of £17m (2003 - £15m),
with sales of £587m (2003 - £550m). Like for like newspaper sales, adjusting for
'red-top' discounting in the prior period, were up 4% driven by price increases
and marketing initiatives by the publishers. Weekly magazine sales were up 3%,
due to new launches and the continued popularity of celebrity titles. Partworks
sales were up 46%, driven by a number of successful new launches. Gross margin
was maintained and costs were well controlled, allowing divisional profits to
grow by £2m.

US Travel Retail incurred trading divisional losses of £5m (2003 - trading
losses of £9m). We have now exited both the Hotels and Airports businesses. As a
result, these operations are treated as discontinued in the accounts.

Exceptional items. The Group has booked exceptional charges of £136m in the
first half of this year. Of these, £75m is classified as operating exceptional
items, charged against operating profit, but treated as exceptional due to their
size and non-recurring nature.

Following Kate Swann's appointment as Group Chief Executive, we instigated a
full operational and financial review of our UK businesses. The operating
exceptional items have arisen from this review and mainly relate to UK Retail.

The largest item relates to the write down of the carrying value of stock in UK
Retail - amounting to £45m. There are a number of elements making up this
charge. Firstly we have changed our operational approach, clearing our stock
rooms and shelves of slow moving items and the tail of previous ranges faster
than in the past. Secondly, we have identified obsolete stock, over which we now
have improved visibility due to the investment in our new Retek systems.
Thirdly, as a result of changes in trading patterns, we have had to write down
the value of excess stock of video and music product. In addition, we have
increased the ongoing level of stock provisioning.

We have also written down certain fixed assets in the UK Retail business,
amounting to £17 m. Firstly, we have suspended a major IT project to implement
the High Street IT infrastructure, including Retek, into the UK Travel Retail
Business. Secondly, given WHSmith Online's ongoing losses, we have provided
against the carrying value of the fixed assets and fully impaired the goodwill
in the business. Thirdly, we have written down the carrying value of the
Guildford Concept Store; we learned much from the store as an R&D exercise, but
have concluded that it does not provide the answer for the chain as a whole and
we are now focusing on different solutions.

In respect of the Publishing business, we have recognised that provisioning in
relation to unearned author's advances must reflect the medium-term trend for
higher advances. We have therefore not only raised the level of current year
provisioning to a level that is fully adequate for current market conditions,
but we have also provided a further exceptional amount of £9m to ensure that the
balance sheet correctly reflects an up-to-date view of the backlist sales
prospects of titles published in previous years.

In total, operating exceptional items amount to £75m. They are mainly non-cash,
representing the impairment of previously expended cash. After tax relief, the
short-term effect is likely to be cash positive.

In addition to the operating exceptional items, there is a charge of £61m
arising on the disposal of the US operations. This includes £39m of goodwill
previously written off to reserves.

Post Balance Sheet Event

Today we have announced the results of an organisational review which will
result in the loss of 270 personnel at our Swindon and London offices.
Restructuring costs of £1m have been booked as exceptional in the first half;
the full year costs related to this review will amount to some £11m and the
balance will be booked as an exceptional item in the second half. The full year
expected amount of savings from this review amounts to £8.5m, the majority of
which will benefit the next financial year.



An interview with Kate Swann, Group Chief Executive in video/audio and text is
available on: http://www.whsmithplc.com and on http://cantos.com





                      This information is provided by RNS
            The company news service from the London Stock Exchange
               LGDZG