Interim Results - 6 Months to 29 Feb 2000, Part 2

Smith WH PLC 18 April 2000 PART 2 WHSmith PLC Notes to Interim Financial Statements For the 6 months to 29 February 2000 Group Profit and Loss Account For the 6 months to 29 February 2000 6 months to 12 months to -------------------- 29 Feb 28 Feb 31 Aug 2000 1999 1999 Note £m £m £m ----------------------------------------------------------------------- Sales 1 1,355 1,276 2,391 ----------------------------------------------------------------------- Operating profit 1 98 95 120 Interest 3 10 14 ----------------------------------------------------------------------- Profit on ordinary 101 105 134 activities before taxation Tax on profit on ordinary 3 (28) (30) (38) activities ----------------------------------------------------------------------- Profit on ordinary 73 75 96 activities after taxation and attributable to shareholders Dividends 4 (15) (14) (45) ----------------------------------------------------------------------- Retained earnings 58 61 51 ----------------------------------------------------------------------- Basic earnings per share 5 29.2p 30.1p 38.4p Diluted earnings per share 5 29.2p 29.9p 38.1p Fixed charges cover - times 6 2.1x 2.4x 1.8x Dividend per share 4 6.00p 5.75p 18.20p Dividend cover - times 4.9x 5.2x 2.1x Tax charge 3 28.0% 28.0% 28.0% Group Balance Sheet At 29 February 2000 At At At 29 Feb 28 Feb 31 Aug 2000 1999 1999 Note £m £m £m ------------------------------------------------------------------- Fixed assets Goodwill 9 207 34 205 Tangible assets 10 276 312 275 ------------------------------------------------------------------- Total fixed assets 483 346 480 ------------------------------------------------------------------- Current assets Stock 216 199 203 Debtors 163 108 143 Cash at bank and in hand 12 212 336 174 ------------------------------------------------------------------- 591 643 520 Creditors due within one year Debt 12 (38) (36) (39) Other (388) (337) (368) ------------------------------------------------------------------- (426) (373) (407) ------------------------------------------------------------------- Net current assets 165 270 113 Total assets less current 648 616 593 liabilities ------------------------------------------------------------------- Creditors due after more than one year Debt 12 (29) (40) (30) Other (2) (2) (2) ------------------------------------------------------------------- (31) (42) (32) Provisions for liabilities 11 (17) (24) (19) and charges ------------------------------------------------------------------- TOTAL NET ASSETS 600 550 542 ------------------------------------------------------------------- Equity Share capital 13 142 141 142 Share premium 14 84 82 84 Capital redemption reserve 14 155 155 155 Revaluation reserve 14 8 14 8 Profit and loss account 14 209 157 151 ------------------------------------------------------------------- Shareholders' funds 598 549 540 Minority interests 2 1 2 ------------------------------------------------------------------- TOTAL EQUITY 13 600 550 542 ------------------------------------------------------------------- Memorandum - Analysis of £m £m £m net cash ------------------------------------------------------------------- Cash at bank 212 336 174 Debt less than one year (38) (36) (39) Debt greater than one year (29) (40) (30) ------------------------------------------------------------------- Net cash 145 260 105 ------------------------------------------------------------------- Group Cash Flow For the 6 months to 29 February 2000 6 months 12 months to to ---------------- 29 Feb 28 Feb 31 Aug 2000 1999 1999 £m £m £m ----------------------------------------------------------------------- Cash flow from operating activities 101 82 145 Returns on investment and servicing of 3 10 14 finance Taxation (7) (9) (37) Purchase of fixed assets (23) (23) (60) Disposal of tangible fixed assets 2 1 54 ----------------------------------------------------------------------- Cash flow from capital expenditure and (21) (22) (6) financial investment ----------------------------------------------------------------------- Cash flow for acquisitions (5) (6) (171) Equity dividends paid (31) (39) (55) ----------------------------------------------------------------------- Cash flow before use of liquid resources 40 16 (110) and financing ----------------------------------------------------------------------- Issue of shares - 2 5 Repurchase of shares - (24) (24) Decrease in debt (2) (24) (63) ----------------------------------------------------------------------- Cash flow from financing (2) (46) (82) ----------------------------------------------------------------------- Increase/(decrease) in cash 38 (30) (192) ----------------------------------------------------------------------- 6 months 12 months to to ----------------- Memorandum - Analysis of free cash flow 29 Feb 28 Feb 31 Aug (£m) 2000 1999 1999 £m £m £m ----------------------------------------------------------------------- Profit before tax and before 101 105 134 exceptional items Depreciation / amortisation of 21 20 43 goodwill Movement in working capital (16) (29) (9) Capital expenditure on fixed (23) (23) (60) assets Proceeds on disposal of tangible - 1 8 fixed assets Tax paid (7) (1) (29) Cash spend against provisions (2) (4) (9) ------------------------------------------------------------------------ Free cash flow 74 69 78 Dividends (31) (39) (55) Issue of shares - 2 5 Acquisitions - cash paid/issue (5) (6) (198) of loan notes Sale & leaseback of freehold 2 - 46 properties Repurchase of shares and ACT on - (32) (32) repurchases ------------------------------------------------------------------------ Cash movement in debt 40 (6) (156) Opening net cash 105 266 266 Hodder Headline debt - - (5) acquired ------------------------------------------------------------------------ Closing net cash 145 260 105 ------------------------------------------------------------------------ Consolidated Statement of Total Recognised Gains and Losses For the 6 months to 29 February 2000 6 months 12 months to to ----------------- 29 Feb 28 Feb 31 Aug 2000 1999 1999 £m £m £m ---------------------------------------------------------------------- Profit attributable to shareholders 73 75 96 Currency translation differences - - (3) ---------------------------------------------------------------------- Total recognised gains and losses for 73 75 93 the period ---------------------------------------------------------------------- Historical Cost Profits For the 6 months to 29 February 2000 6 months 12 months to to ------------------ 29 Feb 28 Feb 31 Aug 2000 1999 1999 £m £m £m ---------------------------------------------------------------------- Profit on ordinary activities before 101 105 134 taxation Realisation of property revaluation - 6 6 surplus ---------------------------------------------------------------------- Historical cost profit on ordinary 101 111 140 activities before taxation ---------------------------------------------------------------------- Historical cost profit retained 58 67 57 earnings ---------------------------------------------------------------------- Reconciliation of Movements in Shareholders' Funds For the 6 months to 29 February 2000 6 months to 29 Feb 2000 £m ---------------------------------------------------------------------- Shareholders' funds at beginning 540 of period ---------------------------------------------------------------------- Retained earnings 58 Shareholders' funds at end of 598 period ---------------------------------------------------------------------- 1 (A) Segmental Analysis of Sales and Profits - Summary 6 months to 12 months to ------------------------- 29 Feb 28 Feb 31 Aug 2000 1999 1999 Sales Profit Sales Profit Sales Profit £m £m £m £m £m £m -------------------------------------------------------------------- WHSmith High Street 630 69 626 67 1,033 60 UK Travel Retail 123 7 115 7 242 14 (note b) -------------------------------------------------------------------- UK Retailing 753 76 741 74 1,275 74 International 89 3 88 6 186 13 Retailing (note c) -------------------------------------------------------------------- Retailing 842 79 829 80 1,461 87 Businesses Online 4 (3) 3 (1) 4 (3) Publishing 62 8 - - 29 4 (note d) WHSmith News 507 18 493 19 995 39 Distribution Internal (60) - (49) - (98) - Sales (note e) -------------------------------------------------------------------- Total 1,355 102 1,276 98 2,391 127 -------------------------------------------------------------------- Support costs (6) (6) (12) Internal Rents 2 3 5 (note f) -------------------------------------------------------------------- Operating Profit 98 95 120 -------------------------------------------------------------------- a) Comparable sales growth for Retailing Businesses (adjusted for selling space) in the 6 months to 29 February 2000 was 2%. Comparable sales growth in the period for UK Retailing was 2% (consisting of WHSmith High Street; 1% and UK Travel Retail; 6%) and International Retailing; flat. b) UK Travel Retail includes sales of £3m (6 months to 28 February 1999; £3m) and profits of £1m (6 months to 28 February 1999; £1m) generated in continental Europe. c) International Retailing consists of business operations in the USA and Asia. In the 6 months to 29 February 2000, USA Travel Retail generated sales of £84m (6 months to 28 February 1999; £84m) and profits of £3m (6months to 28 February 1999; £6m). In the 6 months to 29 February 2000, Asia Travel Retail generated sales of £5m (6 months to 28 February 1999; £4m) and profits of £nil (6 months to 28 February 1999;£nil). d) Sales and profits from Publishing Businesses incorporates sales and profits from Hodder Headline plc (acquired in May 1999) and Helicon Publishing PLC (acquired in February 1999). e) Internal sales comprise sales to Group companies by WHSmith News Distribution £52m (6 months to 28 February 2000; £49m) and Hodder Headline £8m. f) The results for 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 £2m (6 months to 28 February 1999; £3m) is shown as a separate credit to the profit and loss account giving a nil net effect to operating profit. 1(B) Analysis of Retailing Stores and Selling Space 1 Sept 29 Feb Number of stores 1999 Opened Closed 2000 -------------------------------------------------------------- WHSmith High Street 545 1 (15) 531 UK Travel Retail 183 2 - 185 ----------------------------------- UK Retailing 728 3 (15) 716 International Retailing 422 35 (18) 439 (note a) -------------------------------------------------------------- Total 1,150 38 (33) 1,155 -------------------------------------------------------------- a) International Retailing at 29 February 2000 consisted of 427 stores in USA (6 months to 28 February 1999; 416) and 12 stores in Asia (6 months to 28 February 1999; 9). Growth in 1 Sept 29 Feb Average Retail selling square 1999 Opened Closed 2000 Sq ft feet (000's) --------------------------------------------------------------- WHSmith High Street 2,965 11 (43) 2,933 - UK Travel Retail 195 2 - 197 1% ---------------------------------------- UK Retailing 3,160 13 (43) 3,130 - International 455 30 (20) 465 1% Retailing (note a) --------------------------------------------------------------- Total 3,615 43 (63) 3,595 - --------------------------------------------------------------- a) International Retailing retail selling square feet at 29 February 2000 consisted of 455,000 square feet in USA (28 February 1999; 455,000) and 10,000 square feet in Asia (6 months to 28 February 1999; 8,000) 2 Operating Lease Commitments 29 Feb 31 Aug 2000 1999 ------------------------------------------------------------------- Future cumula- Annual tive Annual net net Average net rental rental lease rental commit- commit- term commit- ment ment (years) ment £m £m £m ------------------------------------------------------------------- WHSmith High Street 68 804 12 69 UK Travel Retail 34 154 7 33 ------------------------------------------------------------------- UK Retailing 102 958 10 102 International 36 129 4 35 Retailing ------------------------------------------------------------------- Retailing Businesses 138 1,087 9 137 Publishing Businesses 4 24 7 4 WHSmith News 3 39 12 3 Distribution Surplus property 10 89 10 9 sublet to third parties ------------------------------------------------------------------- Gross rental 155 1,239 9 153 commitment Less - external rent (16) (82) 6 (16) receivable - internal rent (2) (38) 14 (3) receivable ------------------------------------------------------------------- Total 137 1,119 9 134 ------------------------------------------------------------------- (i) WHSmith High Street gross rental commitment includes internal rent of £2m (1999; £3m) relating to those properties which are owned by the Group. The internal income generated is shown separately as internal rent receivable in the above analysis giving a nil net effect to Group total annual rent commitment. The cumulative future cost of internal rent is taken as the book value of those properties in the balance sheet (£38m), including £36m relating to WHSmith High Street. (ii) External rent receivable principally relates to properties which are let to third parties. Of the total external rent receivable £7m (1999; £10m) relates to USA Travel Retail. Of the future cumulative external rent receivable £20m 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 £16m per year with a future cumulative rental commitment of approximately £195m and an average lease term of around 11 years. (iv) For those leases on which rent is turnover related the annual net rental commitment is calculated using the minimum rental liability. The minimum rental liability included in the annual net rental commitment at 29 February 2000 is £67m (1999; £63m) and relates to UK Travel Retail and USA Travel Retail stores. (v) The net present value of operating leases at 29 February 2000 is £690m (1999; £645m). 3. Taxation 6 months 12 months to to ---------------------- 29 Feb 28 Feb 1999 31 Aug 2000 1999 £m £m £m ------------------------------------------------------------------ Tax on profit on ordinary activities -Standard rate of UK 27 29 36 corporation tax 30% (1999; 30.6%) International tax 1 1 2 ------------------------------------------------------------------ 28 30 38 ------------------------------------------------------------------ Effective tax rate 28% 28% 28% The effective tax rate of 28.0 % for the 6 months to 29 February 2000 is below the UK standard corporation tax rate of 31% due to increased levels of capital expenditure qualifying for tax relief and lower rates of taxation on international activities. 4. Dividends 6 months to 12 months to -------------------- 29 Feb 28 Feb 31 Aug 2000 1999 1999 Pence ----------------------------------------------------------------- Interim 6.00 5.75 5.75 ----------------------------------------------------------------- Final 12.45 ------- Total 18.20 ----------------------------------------------------------------- £m £m £m --------------------------------------------------------------- Interim 15 14 14 --------------------------------------------------------------- Final 31 ------ Total 45 --------------------------------------------------------------- The Interim dividend will be paid on 29 June 2000 to shareholders registered at the close of business on 8 May 2000. At 29 February 2000 the Company had 250,235,524 shares in issue. 5. Earnings Per Share 5 (A) Basic Earnings Per Share 6 months to 12 months to ------------------- 29 Feb 28 Feb 31 Aug 2000 1999 1999 ---------------------------------------------------------------- Total profit attributable to 73 75 96 shareholders (£m) Weighted average number of 250 251 250 ordinary shares in issue (m) ---------------------------------------------------------------- Earnings per share (pence) 29.2p 30.1p 38.4p ---------------------------------------------------------------- 5. (B) Calculation of Diluted Earnings Per Share Earnings per share 6 months 12 months to to ------------------- 29 Feb 28 Feb 31 Aug 2000 1999 1999 ---------------------------------------------------------------- Total profit attributable to 73 75 96 shareholders (£m) Weighted average number of 250 251 250 ordinary shares in issue (m) Add weighted average number - 1 2 of ordinary shares under option (m) ---------------------------------------------------------------- Total weighted average number 250 252 252 of ordinary shares (m) ---------------------------------------------------------------- Diluted earnings per share 29.2p 29.9p 38.1p (pence) ---------------------------------------------------------------- Earnings per share have been calculated in accordance with Financial Reporting Standard 14. 6. Fixed Charges Cover 6 months 12 months to to -------------------- 29 Feb 28 Feb 31 Aug 2000 1999 1999 £m £m £m -------------------------------------------------------------- - Profit before tax and before 189 180 300 fixed charges -------------------------------------------------------------- - Interest income (3) (10) (14) Operating lease rentals 70 65 141 Property taxes 16 15 30 Other property costs 5 5 9 -------------------------------------------------------------- - Total fixed charges 88 75 166 -------------------------------------------------------------- - Profit before tax 101 105 134 -------------------------------------------------------------- - Fixed charges cover 2.1 2.4 1.8 -------------------------------------------------------------- - Fixed charges cover is calculated by dividing profit before tax and before fixed charges by total fixed charges. 7. Segmental Analysis of Operating Assets Employed At At At 29 Feb 28 Feb 31 Aug 2000 1999 1999 £m £m £m ---------------------------------------------------------------- WHSmith High Street 183 200 207 UK Travel Retail 37 33 20 ---------------------------------------------------------------- UK Retailing 220 233 227 International Retailing 53 53 44 ---------------------------------------------------------------- Retailing Businesses 273 286 271 Online 8 9 8 WHSmith News Distribution 8 2 5 Helicon Publishing 5 6 6 ---------------------------------------------------------------- 294 303 290 Hodder Headline 210 - 203 ---------------------------------------------------------------- Total 504 303 493 Freehold property 38 89 40 Support functions (55) (64) (46) Dividends payable (15) (14) (31) Provisions for liabilities and charges (17) (24) (19) ---------------------------------------------------------------- Operating assets employed 455 290 437 Net cash 145 260 105 ---------------------------------------------------------------- Total net assets 600 550 542 ---------------------------------------------------------------- 8. Acquisitions In September 1999, Hodder Headline PLC acquired Wayland Publishing Limited for a total consideration of £4.5m. The capitalised goodwill on the transaction is £3.3m. In the post acquisition period up to 29 February 2000, Wayland Publishing had sales of £3.5m and profits of £0.4m. 9. Goodwill (A) Changes in Goodwill 29 Feb 2000 £m ----------------------------------------------------------------- Net book value at 1 September 1999 205 Acquisitions 3 Amortisation (1) ----------------------------------------------------------------- Net book value at 29 February 2000 207 ----------------------------------------------------------------- (B) Analysis of Goodwill At At At 29 Feb 28 Feb 1999 31 Aug 2000 £m 1999 £m £m ----------------------------------------------------------------- John Menzies Retail 17 18 18 Internet Bookshop 9 10 9 Helicon Publishing 6 6 6 Hodder Headline 172 - 172 Wayland Publishing 3 - - ----------------------------------------------------------------- Net book value 207 34 205 ----------------------------------------------------------------- Purchased goodwill is capitalised as an asset and amortised against profits over its useful economic life. In accordance with FRS 10, where goodwill is regarded as having an indefinite life, it is not amortised but is subject to an annual rest 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. In estimating the useful economic life of purchased goodwill, consideration is given to the durability of the goodwill. Goodwill arising on the purchases of John Menzies Retail, Internet Bookshop, and Helicon is regarded by the Directors as having a useful life of 20 years and is therefore amortised in the profit and loss account over that period. Goodwill arising on the purchase of Hodder Headline and Wayland Publishing 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 these businesses are expected to maintain their market share and profitability in UK publishing over a long period, and that the majority of their titles published and imprint names have significant lifespans due to copyright and licensing arrangement 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, relationship 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 these businesses, it is not possible to quantify any amortisation which would be charged. The application of an impairment test (which will be carried out annually) supports the value of goodwill and, as a result, no charge for impairment is required at the balance sheet date. 10. Tangible Fixed Assets (A) Changes in Tangible Fixed 29 Feb Assets 2000 £m --------------------------------------------------------------------- Net book value at 1 September 275 1999 --------------------------------------------------------------------- Additions 23 Disposals (2) Depreciation (20) --------------------------------------------------------------------- Net book value as at 29 276 February 2000 --------------------------------------------------------------------- (B) Analysis of Tangible At At At Fixed Assets 29 Feb 28 Feb 1999 31 Aug 2000 £m 1999 £m £m ---------------------------------------------------------------------- Freehold and long leasehold 38 89 40 property Short leasehold 92 100 97 Fixtures, fittings and 143 123 136 equipment Investment in own shares 3 - 2 ---------------------------------------------------------------------- Net book value 276 312 275 ---------------------------------------------------------------------- 11. Provisions John Menzies Acquisi- tion Non Reor- trading Post ganisa- property retirement tion pro- medical Pro- visions benefits visions Total £m £m £m £m ---------------------------------------------------------------------- At 1 September 1999 13 4 2 19 ---------------------------------------------------------------------- Utilised in period (1) - (1) (2) ---------------------------------------------------------------------- At 29 February 2000 12 4 1 17 In the 6 months to 29 February 2000 the amount charged to non trading property provisions comprised £1m of net rent paid on surplus properties which will continue to be charged for around 7 years. The provision for post-retirement medical benefits will continue to be utilised over the remaining lives of the relevant employees. The amount charged to John Menzies Retail acquisition reorganisation provisions principally related to store closures and the provision is expected to be utilised in the period to 31 August 2001. 12. Financial Assets and Liabilities At At At 29 Feb 28 Feb 31 Aug 2000 1999 1999 £m £m £m -------------------------------------------------------------------- Cash at bank and in hand 212 336 174 Repayable within one year (38) (36) (39) Repayable between one and two - (38) (1) years Repayable between two and five - - - years Repayable in more than five years (29) (2) (29) -------------------------------------------------------------------- Net cash 145 260 105 -------------------------------------------------------------------- Additional committed facilities available not utilised at 29 February 2000 totalled £330m (31 August 1999; £330m) comprising £165m repayable within one year and £165m repayable between two and five years. At At At 29 Feb 28 Feb 31 Aug 2000 1999 1999 £m £m £m -------------------------------------------------------------------- Cash at bank and in hand (note a) 212 336 174 Debt - Floating rate (note b) (27) - (28) - Fixed rate (note c) (30) (56) (31) - Interest free loan (note d) (10) (20) (10) -------------------------------------------------------------------- Net cash 145 260 105 -------------------------------------------------------------------- (a) Cash at bank is held on short term deposit, bearing interest at an average rate of 5.5%. The only material foreign exchange exposure at 29 February 2000 relates to the financial assets and liabilities in International Retailing. (b) Floating rate debt represents loan notes repayable in 2008 and bearing interest at a rate of 1% per annum below LIBOR. (c) Fixed rate debt includes sterling bank loans and overdrafts of £25m (1999; £25m), repayable in May 2000 and bearing interest at a rate of 7.985%, £3m (1999; £3m) repayable in December 2000 and bearing interest at a rate of 8.375% and 5?% redeemable unsecured loan stock of £2m (1999; £2m). (d) In connection with the sale of Do It All. 13. Share Capital At At At 29 Feb 29 Feb 1999 31 Aug 2000 £m 1999 £m £m ------------------------------------------------------------------- Ordinary shares of 55.55p each 140 139 140 ------------------------------------------------------------------- 'B' shares of 53.75p each 2 2 2 ------------------------------------------------------------------- 142 141 142 ------------------------------------------------------------------- Number of Number of Number of shares shares shares (millions) (millions) (millions) -------------------------------------------------------------------- Ordinary shares of 55.55p each 250 249 250 -------------------------------------------------------------------- 'B' shares of 53.75p each 4 4 4 -------------------------------------------------------------------- At 29 February 2000 the number of options held under employee share schemes was 6.5 million shares (1999; 4.8 million). The proceeds due to the Company upon exercise of these options would be approximately £27m (1999; £19m). The remaining 'B' shares are redeemable by shareholders at their nominal value at the shareholder's option during any other period declared by the Company, at the Company's option or on maturity on 31 August 2008. 14. Reserves Capital Share Redemp- Re- Profit & Premium tion valuation Loss Account Reserve Reserve Account £m £m £m £m ----------------------------------------------------------------- At 1 September 1999 84 155 8 151 ----------------------------------------------------------------- Profit retained for the 6 - - - 58 months to 29 February 2000 ----------------------------------------------------------------- Reserves at 29 February 84 155 8 209 2000 ----------------------------------------------------------------- 15. Notes to the Cash Flow Statement (A) Reconciliation of operating profit to net cash flow from operating activities 6 months 12 months to to ------------------- 29 Feb 28 Feb 31 Aug 2000 1999 1999 £m £m £m ----------------------------------------------------------------- Operating profit 98 95 120 Depreciation / amortisation of 21 20 43 goodwill (Increase)/decrease in stock (12) 1 6 Increase in debtors (20) (16) (9) Increase/(decrease) in 16 (14) (6) creditors Cash spend against provisions (2) (4) (9) ----------------------------------------------------------------- Net cash inflow from operating 101 82 145 activities ----------------------------------------------------------------- (B) Reconciliation of net cash flow to movement in net cash 6 months to 12 months ----------------- to 29 Feb 28 Feb 31 Aug 2000 1999 1999 £m £m £m ------------------------------------------------------------------- Increase / (decrease) in cash in the 38 (30) (192) period Cash flow from decrease in debt 2 24 63 ------------------------------------------------------------------- Change in net cash resulting from 40 (6) (129) cash in/ (out) flow Hodder Headline - debt acquired - - (5) - purchase consideration satisfied by - - (27) issue of loan notes ------------------------------------------------------------------- Movement in net 40 (6) (161) cash/(debt) in the period Net cash at 105 266 266 beginning of period ------------------------------------------------------------------- Net cash at end 145 260 105 of period ------------------------------------------------------------------- 16. Post Balance Sheets Events The acquisition of Hazelwood Enterprises Inc was completed on 1 March 2000 for £12m. Hazelwood operates stores in 70 hotels in the USA. In the year to 31 December 1999 it achieved sales of £11.5m and profit before administrative costs, interest and taxes of £2.6m. On 17 April 2000 the acquisition of Benjamin Books for £12m was announced. Benjamin operates 17 book stores and news and gift stores in 9 US airports. In the year to 31 December 1999 it achieved sales of £16.4m with profit before administrative costs, interest and taxes of £2.1m. It is intended to convert a number of the book stores acquired to the WHSmith.books.co.format. Preparation of Interim Financial Statements (a) The interim financial statements have been prepared on the basis of the accounting policies set out in the Group's Annual Report and Accounts for the 12 months ended 31 August 1999. (b) International trading results are expressed in sterling at the average rates of exchange ruling during the period. International net assets and UK loans denominated in foreign currencies are expressed in sterling at the closing rate of exchange on the balance sheet date. The effect of currency movements on assets and liabilities is taken to reserves. The effect of restating 1999/0 operating profits at 1998/9 average rates would not be material. (c) The financial information contained in this report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The year 31 August 1999 figures have been extracted from the audited accounts for that year. The accounts for the year ended 31 August 1999 on which the auditors issued an unqualified audit report and which did not contain a statement under either section 237(2) or (3) of the Companies Act 1985, have been delivered to the Registrar of Companies. Independent review report to WHSmith PLC Introduction We have been instructed by the company to review the financial information set out on pages 6 to 21 and 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 Listing Rules of the London Stock Exchange 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. 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 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. 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 29 February 2000. Deloitte & Touche Chartered Accountants Hill House 1 Little New Street London EC4A 3TR 18 April 2000

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