Interim Results/Disposal Pt 2
Smith WH PLC
12 April 2001
PART 2
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
1 (A) Segmental Analysis of Sales and Profits
6 months to 12 months
------------------------ to
28 Feb 2001 29 Feb 2000 31 Aug 2000
Sales Profit Sales Profit Sales Profit
£m £m £m £m £m £m
===== ====== ====== ====== ====== =========
Retailing (note a)
WHSmith High 665 74 630 69 1,058 69
Street
Europe Travel 133 7 123 7 265 17
Retail (note b)
Internet Trading 5 (4) 4 (3) 7 (8)
------------------ ----- ------ ------ ------ ------ ----------
UK Retailing 803 77 757 73 1,330 78
International
Retailing (note c) 122 6 89 3 204 12
------------------ ----- ------ ------ ------ ------ ----------
Total Retailing 925 83 846 76 1,534 90
Publishing (note
d) 68 9 62 8 119 16
WHSmith News
Distribution 507 12 507 18 1,047 38
Connect2U - (2) - - - -
Internal sales
(note e) (62) - (60) - (116) -
------------------ ----- ------ ------ ------ ------ ----------
Total 1,438 102 1,355 102 2,584 144
Support costs (6) (6) (12)
Internal Rents
(note f) 1 2 3
------------------ ----- ------ ------ ------ ------ ----------
Operating profit 97 98 135
================= ===== ====== ====== ====== ====== ==========
a) Comparable sales growth for UK Retailing (adjusted for selling
space) in the 6 months to 28 February 2001 was 6% (consisting of
WHSmith High Street; 6% and Europe Travel Retail; 7%).
Comparable sales growth for International Retailing was 2%.
b) Europe Travel Retail includes sales of £3m (6 months to 29
February 2000; £3m) and profits of £1m (6 months to 29 February
2000; £1m) generated in continental Europe.
c) International Retailing consists of business operations in the
USA and Asia. In the 6 months to 28 February 2001, USA Travel
Retail generated sales of £114m (6 months to 29 February 2000;
£84m) and profits of £6m (6 months to 29 February 2000; £3m).
In the 6 months to 28 February 2001, Asia Travel Retail
generated sales of £8m (6 months to 29 February 2000; £5m) and
profits of £nil (6 months to 29 February 2000; £nil).
International Retailing includes sales and profits relating to
businesses acquired since 1 March 2000; Hazelwood Enterprises
Inc. and The Benjamin Company. In the 6 months to 28 February
2001, Hazelwood generated sales of £5.6m and profits of £0.4m.
Benjamin generated sales of £4.3m and profits of £0.2m.
d) Sales from Publishing comprise Hodder Headline £66.8m (6 months
to 29 February 2000; £60.3m) and Helicon Publishing £1.4m (6
months to 29 February 2000; £1.6m). Results from Publishing
comprise Hodder Headline £9.8m (6 months to 29 February 2000;
£8.3m) and Helicon loss £0.8m (6 months to 29 February 2000;
loss of £0.3m).
e) Internal sales comprise sales to Group companies by WHSmith News
Distribution £52m (6 months to 29 February 2000; £52m) and
Hodder Headline £10m (6 months to 29 February 2000; £8m).
f) The results for Retailing are reported after an internal arm's
length market rent on freehold and long leasehold properties
owned and occupied by the Group. The internal income generated
of £1m (6 months to 29 February 2000; £2m) is shown as a
separate credit to the profit and loss account giving a nil
effect to operating profit.
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
1 (B) Analysis of Retailing Stores and Selling Space
Number of stores 1 Sept 2000 Opened Closed 28 Feb 2001
==================== =========== ====== ======= ===========
WHSmith High Street 529 4 (3) 530
Europe Travel Retail 187 3 (1) 189
-------------------- ----------- ------ ------- ------------
UK Retailing 716 7 (4) 719
International
Retailing (note a) 523 56 (4) 575
--------------------- ----------- ------ ------- -----------
Total 1,239 63 (8) 1,294
===================== =========== ====== ====== ===========
a) International Retailing at 28 February 2001 consisted of 552
stores in USA (29 February 2000; 427) and 23 stores in Asia (29
February 2000; 12).
Retail selling Growth in
square feet 1 Sept 28 Feb average
(000's) 2000 Opened Closed 2001 sq ft*
------------------ ------- ------- ------- ------- -----------
WHSmith High
Street 2,924 24 (17) 2,931 -
Europe Travel
Retail 200 5 - 205 1%
----------------- ------ ------- ------- -------- -----------
UK Retailing 3,124 29 (17) 3,136 -
International
Retailing (note a) 533 62 (1) 594 18%
----------------- ------- ------- ------- ------- -----------
Total 3,657 91 (18) 3,730 3%
======= ======= ======= ======= ===========
*Growth in average square feet compares the average square feet for the 6
months to 29 February 2000 to the average square feet for the 6 months to 28
February 2001.
a) International Retailing selling space at 28 February 2001
consisted of 560,000 square feet in USA (29 February 2000;
455,000) and 34,000 square feet in Asia (29 February 2000;
10,000).
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
2. Operating Lease Commitments
28 Feb 2001 31 Aug 2000
--------------------------
Future
Annual cumulative Average Annual net
net rental net rental lease rental
commitment commitment term commitment
£m £m (years) £m
======================= ========== ========== ======= ==========
WHSmith High Street 69 763 11 69
Europe Travel Retail 35 129 5 34
----------------------- ---------- ---------- ------ ----------
UK Retailing 104 892 9 103
International Retailing 43 139 3 43
----------------------- ---------- ---------- ------ ----------
Total Retailing 147 1,031 7 146
Publishing 3 26 8 4
WHSmith News
Distribution 3 38 12 3
Property sublet to third
parties 10 89 10 10
----------------------- ---------- ---------- ------ ----------
Gross rental commitment 163 1,184 7 163
Less -
external rent receivable (17) (83) 5 (18)
internal rent receivable (1) (37) 16 (2)
----------------------- ---------- ---------- ------ ----------
Total 145 1,064 7 143
======================= ========== ========== ====== ==========
(i) WHSmith High Street gross rental commitment includes internal
rent of £1m (2000; £2m) 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 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 (£37m), including
£35m relating to WHSmith High Street.
(ii) External rent receivable principally relates to properties let
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 £8m
(2000; £9m) represents income on subletting surplus property.
Of the future cumulative external rent receivable, £23m 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 £18m per year with a future
cumulative rental commitment of approximately £181m and an
average lease term of around 10 years.
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
3. Taxation
12
6 months to months
------------------ to
28 Feb 29 Feb 31 Aug
2001 2000 2000
£m £m £m
================================ ======== ======== ========
Corporation tax on UK profits 27 27 38
- Standard rate of UK corporation
tax 30% (2000; 30%)
Foreign tax 1 1 1
-------------------------------- -------- ------- --------
Total 28 28 39
================================ ======== ======== ========
Effective tax rate 28% 28% 28%
The effective tax rate of 28% for the 6 months to 28 February 2001
is below the UK standard corporation tax rate of 30% due mainly to
lower rates of taxation on international profits and the effective
utilisation of provisions.
4. Dividends
6 months to 12
months
------------------ to
28 Feb 29 Feb 31 Aug
2001 2000 2000
================================ ======== ======== ========
Interim 6.00p 6.00p 6.00p
--------------------------------- -------- -------- --------
Final 13.00p
--------
Total 19.00p
================================= ======== ======== ========
£m £m £m
================================ ======== ======== ========
Interim 15 15 15
-------------------------------- -------- -------- --------
Final 33
--------
Total 48
================================ ======== ======== ========
The interim dividend will be paid on 28 June 2001 to shareholders registered
at the close of business on 27 April 2001. As at 28 February 2001, the Company
had 248,755,456 shares in issue.
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
5. Earnings Per Share
5 (A) Earnings Per Share
12
6 months to months
------------------ to
31 Aug
2000
28 Feb 29 Feb
2001 2000
================================= ======== ======== ========
Profit attributable to
shareholders (£m) 72 73 100
Weighted average number of
ordinary shares in issue (m) 247 250 249
--------------------------------- -------- -------- -------
Earnings per share 29.2p 29.2p 40.2p
================================= ======= ======== =======
The weighted number of Ordinary shares in issue is stated after excluding
3,383,154 shares held solely for the purpose of satisfying obligations under
employee share schemes.
5(B) Diluted Earnings Per Share
12 months
6 months to to
31 Aug 2000
------------------
28 Feb 29 Feb
2001 2000
================================= ======= ======== ========
Profit attributable to
shareholders (£m) 72 73 100
Weighted average number of
ordinary shares in issue (m) 247 250 249
Add weighted number of ordinary
shares under option (m) 1 - 1
-------------------------------- -------- -------- --------
Total weighted average number of
ordinary shares (m) 248 250 250
-------------------------------- -------- -------- --------
Diluted earnings per share 28.9p 29.2p 40.0p
================================ ======== ======== ========
6. Fixed Charges Cover
6 months to 12 months
------------------ to
31 Aug
2000
28 Feb 29 Feb
2001 2000
£m £m £m
================================= ======== ======== ========
Interest income (3) (3) (6)
Operating lease rentals 79 70 154
Property taxes 16 16 32
Other property costs 7 5 11
-------------------------------- -------- -------- --------
Total fixed charges 99 88 191
Profit before tax 100 101 140
-------------------------------- ------- ------- -------
Profit before tax and before fixed
charges 199 189 331
================================ ======= ======== =======
Fixed charges cover 2.0x 2.1x 1.7x
================================ ======= ======== =======
Fixed charges cover is calculated by dividing profit before tax and fixed
charges by total fixed charges.
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
7. Segmental Analysis of Operating Assets Employed
At At At
28 Feb 29 Feb 31 Aug
2001 2000 2000
£m £m £m
================================= ======== ======= =======
WHSmith High Street 191 183 184
Europe Travel Retail 39 37 29
Internet Trading 7 8 8
--------------------------------- -------- -------- -------
UK Retailing 237 228 221
International Retailing 107 53 79
--------------------------------- -------- -------- -------
Total Retailing 344 281 300
WHSmith News Distribution 21 8 6
Connect2U 2 - 3
--------------------------------- -------- -------- -------
Trading operations (excluding
Publishing) 367 289 309
Publishing 232 215 228
--------------------------------- -------- -------- -------
Trading operations (including
Publishing) 599 504 537
Freehold property 37 38 38
Support functions (49) (70) (80)
Provisions for liabilities and
charges (13) (17) (14)
--------------------------------- -------- -------- -------
Operating assets employed 574 455 481
Net cash 77 145 123
--------------------------------- -------- -------- -------
Total net assets 651 600 604
================================= ======== ======== =======
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
8 Acquisitions
Acquisitions made during the 6 months to 28 February 2001 totalled £8m.
Significant acquisitions in this period include:
* On 17 April 2000, WH Smith 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).
* On 10 September 2000, Helicon Publishing purchased certain assets from
A.N.D. Cartographic Publishers Limited for £1m consideration. Associated
goodwill on the transaction amounted to £1m.
9. Goodwill
£m
=============================================== =============
Cost
At 1 September 2000 226
Acquisitions 7
----------------------------------------------- --------------
At 28 February 2001 233
=============================================== =============
Accumulated amortisation
At 1 September 2000 (4)
Amortised in period (1)
----------------------------------------------- -------------
At 28 February 2001 (5)
=============================================== ============
Net book value
----------------------------------------------- --------------
At 28 February 2001 228
=============================================== =============
At 1 September 2000 222
----------------------------------------------- -------------
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
9 Goodwill (cont'd)
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, Helicon 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 that period. The goodwill arising on the acquisition by WHSmith
USA Inc. of Benjamin is regarded as having a useful economic life of 20 years
and will be amortised over that period.
In accordance with FRS10, 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 FRS10, 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 that 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.
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
10. Fixed Assets
(A)Changes in Fixed Assets
Total Employee
fixed share
assets schemes Total
£m £m £m
================================= ======= ======== ========
Net Book Value at 1 September 294 1 295
2000
--------------------------------- -------- -------- --------
Additions 35 - 35
Disposals (2) - (2)
Acquisitions 1 - 1
Depreciation (22) - (22)
Purchases of own shares (note a) - 13 13
Other movement in employee share - (1) (1)
schemes (note b)
--------------------------------- -------- ------- --------
Net Book Value at 28 February 306 13 319
2001
================================= ======== ======== ========
a) During the 6 months to 28 February 2001, the Company acquired 3 million of
its own Ordinary shares with an aggregate nominal value of £1.6m. The total
cost of the shares purchased was £13.0m. These shares were purchased for the
sole purpose of satisfying obligations under employee share schemes. As at 28
February 2001, the Company owned 3,383,154 shares to fund employee share
schemes.
b) During the 6 months to 28 February 2001, a provision of £1m was made to
ensure obligations under existing share schemes were fully provided.
(B)Analysis of Fixed Assets At At At
28 Feb 29 Feb 31 Aug
2001 2000 2000
£m £m £m
================================ ======== ======== ======
Freehold and long leasehold
property 37 38 38
Short leasehold 110 92 103
Fixtures, fittings and equipment 159 143 153
Investment in own shares 13 3 1
-------------------------------- -------- -------- ------
Net Book Value 319 276 295
================================= ======== ======== ======
11. Provisions for Liabilities and Charges
Post- John Menzies
Non-trading retirement acquisition
property medical reorganisation
provisions benefits provisions Total
£m £m £m £m
============ ========= ============= =======
At 1 September
2000 10 3 1 14
Utilised in
period (1) - - (1)
----------------- ------------ ---------- ------------- -------
At 28 February
2001 9 3 1 13
================= =========== ========= ============= =======
In the 6 months to 28 February 2001 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 6 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 acquisition
reorganisation provisions principally related to store closures and the
provision is expected to be utilised in the period to 31 August 2002.
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
12. Financial Assets and Liabilities
At At At
28 Feb 29 Feb 31 Aug
2001 2000 2000
£m £m £m
================================= ======= ======== ======
Cash at bank and in hand 104 212 152
Repayable within one year - (38) (1)
Repayable in more than five years (27) (29) (28)
--------------------------------- ------- -------- -------
Net cash 77 145 123
================================ ======= ======== =======
The company has additional committed facilities of £165m available but not
utilised maturing in May 2002.
At At At
28 Feb 29 Feb 31 Aug
2001 2000 2000
£m £m £m
================================ ======== ======== ======
Cash at bank and in hand (note a) 104 212 152
Debt
Sterling floating rate (note b) (25) (27) (26)
Sterling fixed rate (note c) (2) (30) (3)
Sterling interest free loan - (10) -
(note d)
-------------------------------- -------- -------- -------
Net cash 77 145 123
================================= ======== ======== =======
a) Cash at bank is held on short-term deposit, bearing interest
at an average rate of 5.8%. The only material foreign
exchange exposure at 28 February 2001 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) Sterling fixed rate debt includes 5.125% redeemable
unsecured loan stock of £2m (2000; £2m).
d) In connection with the sale of Do It All.
e) In addition to the above, at 28 February 2001, the Group had
unredeemed 'B' shares of £2m which carry a non-cumulative
preferential dividend set at 75% of six month LIBOR.
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
13. Share Capital
During the 6 month period to 28 February 2001, the Company repurchased and
subsequently cancelled 2 million Ordinary shares, representing 0.8% of the
Company's called up share capital with an average cost of 423p per share. The
total cost of these repurchases was £9m.
At At At
28 Feb 29 Feb 31 Aug
2001 2000 2000
£m £m £m
================================ ======== ======= ========
Ordinary shares at 55.55p each 139 140 140
'B'shares of 53.75p each 2 2 2
-------------------------------- -------- -------- --------
141 142 142
================================ ======== ======== ========
Number of Number of Number of
shares shares shares
(millions) (millions) (millions)
================================ ========== ========== =========
Ordinary shares of 55.55p each 249 250 251
================================ ========== ========== =========
'B' shares of 53.75p each 4 4 4
================================ ========== ========== =========
At 28 February 2001, the number of options held under employee share schemes
was 11.5 million shares (29 February 2000; 6.5 million). The proceeds due to
the Company upon exercise of these options would be approximately £60m (29
February 2000; £27m).
The 'B' shares are redeemable at their nominal value at the shareholder's
option during any other period declared by the Company, at the Company's
option or at maturity on 31 October 2008.
14. Reserves
Share Capital Profit and
premium redemption Revaluation loss
account reserve reserve account
£m £m £m £m
====================== ======= ========== ============ ============
At 1 September 2000 86 155 8 210
Profit retained for the
period - - - 57
On market purchases - 1 - (9)
Currency translation
differences - - - (2)
---------------------- ------- ----------- ------------ ------------
Reserves at 28 February
2001 86 156 8 256
====================== ======== =========== ============ ============
WH Smith PLC
Notes to the Interim Financial Statements
For the 6 months to 28 February 2001
15. Notes to the Cash Flow Statement
(A) Reconciliation of operating profit to net cash flow from
operating activities
6 months to
12 months
------------------ to
28 Feb 29 Feb 31 Aug
2001 2000 2000
£m £m £m
================================ ======== ======== ========
Operating profit 97 98 135
Non-operating items - - (1)
Depreciation of fixed assets 22 20 42
Other movement in employee share
schemes 1 - -
Amortisation of goodwill 1 1 2
Increase in stock (31) (12) (10)
Increase in debtors (16) (20) (15)
(Decrease)/increase in creditors (13) 16 12
Cash spend against provisions (1) (2) (5)
Currency translation differences - - 3
-------------------------------- -------- ------- -------
Net cash inflow from operating
activities 60 101 163
================================ ======== ======== ========
(B) Reconciliation of net cash flow to movement in net cash
12 months
6 months to to
31 Aug
2000
------------------
28 Feb 29 Feb
2001 2000
£m £m £m
================================ ======== ======== ========
Net cash at the start of the
period 123 105 105
(Decrease)/increase in cash in
the period (48) 38 (22)
Cash flow from decrease in debt 2 2 40
-------------------------------- -------- -------- --------
Net cash at the end of the period 77 145 123
================================ ======== ======== =======
WH Smith PLC
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 2000.
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
2000/2001 operating profits at 1999/2000 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 2000 figures have been extracted from the audited
accounts for that year. The accounts for the year ended 31 August 2000 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 WH Smith PLC
Introduction
We have been instructed by the Company to review the financial information set
out on pages 6 to 22 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 UK Listing Authority 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 based thereon, and
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 28 February 2001.
Deloitte & Touche
Chartered Accountants Hill House
12 April 2001 1 Little New Street
London
EC4A 3TR
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