Interim Results - Part One

Smith WH PLC
17 April 2003

17 April 2003


PRESS RELEASE

                                 WH SMITH PLC
                                INTERIM RESULTS
                     FOR THE SIX MONTHS TO 28 FEBRUARY 2003

KEY POINTS

Profit before tax and exceptional items up £2 million to £91 million


Operating profit before goodwill and exceptional items up 9% to £93 million

-          UK Retail profits up 1% to £83m

-          USA Travel Retail trading losses reduced by £2m to £9m

-          ASPAC Retail profits flat at £5m

-          Publishing profits up 22% to £11m

-          News Distribution profits, before Connect2U, up 9% to £15m


Total sales down 2% at £1.6 billion

-          UK Retail lfl sales down 2%

-          USA Travel Retail lfl sales up 4%

-          ASPAC Retail lfl sales up 1%

-          Publishing lfl sales up 13%

-          News Distribution lfl sales up 2%


Exceptional charge of £35 million reflecting further asset impairment in US


Operating profit after exceptional items flat at £56 million


EPS before exceptional items and goodwill amortisation flat at 26.1p


EPS down 23% to 11.0p


Strong cash generation with free cash inflow of £28 million, (£13m outflow last
year)


Interim dividend maintained at 6.0p


Encouraging current trading in UK businesses


GROUP CHIEF EXECUTIVE'S COMMENTS

Commenting on the results, Richard Handover, Group Chief Executive said:

'Underlying operating profit for the group has increased by 9% demonstrating the
resilience of the main UK businesses in difficult trading conditions.

'In UK Retail we grew profits and generated good cashflow despite disappointing
Christmas sales. This reflects the strong margin and operational performance
achieved in the business which we reported at the end of January.

'News Distribution continued its good recovery, driven by a strong magazine
market, greater efficiencies resulting from the investment in SAP and the
integration of Connect2U. A continued focus on delivering improved customer
service to client publishers and retail customers is putting this business in a
strong position for the future.

'Hodder Headline has had an excellent six months of sales and profit growth
driven by frontlist consumer books. The recent acquisitions are trading well and
are being successfully integrated.

'We have yet to see the anticipated upturn in our USA Travel Retail business.
This business continues to experience difficult trading conditions reflecting
the well publicised subdued US economy and specifically the challenging US
travel market. As a result, we have written down our US assets by a further £35
million.

'We have closed a further 33 loss making hotel stores and following a review of
our cost base have reduced our central costs by 25% on an annualised basis.
However, we continue to review all our options in respect of our USA Travel
Retail business, particularly in relation to hotels, and seek solutions that
will benefit all our stakeholders.

'We are currently confident about the Group's prospects for the rest of the
year, and our cashflow remains strong. We are encouraged by current trading in
the UK businesses, but are mindful of the uncertain economic outlook and
resulting possible impact on consumer confidence.'

Enquiries:

WH Smith PLC

Richard Handover   -  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


OPERATIONAL REVIEW

UK Retail sales fell by 3% to £842m (2002 - £868m), with like for like sales
down by 2%.

Overall UK Retail profits were up 1% to £83m (2002 - £82m). Gross margin
increased by 2 percentage points reflecting both improved margins on stationery
products, through increased levels of sourcing from Asia, and an increase in
sales of the high margin stationery category as a percentage of the overall
sales mix. Total operating expenses grew by £5m, due to increased store
occupation costs. Increases in other store costs were offset by tight central
cost control and operational efficiencies. Net margins for UK Retail have
increased by 0.4 percentage points to 9.9%.

WHSmith High Street sales declined by 3% to £700m (2002 - £720m) and by 4% on a
like for like basis. Book sales reduced by 3% and news and express were down by
2%, with magazines up 4%. Entertainment sales fell by 6%, despite strong DVD
sales up 87%. Stationery sales were up 1%, with the core stationery ranges
growing by 6%.

Own brand and exclusive product sales increased by 3% and now represent 17% of
sales.

UK Travel Retail sales fell by 5% to £137m (2002 - £144m), but were up 4% on a
like for like basis. This difference reflects both the strategic decision to
withdraw from selling phonecards and the sale of ten stores to TMR at the end of
the previous financial year.

WHSmith Online sales were ahead by 31% and losses were reduced to £1m (2002 -
£2m loss). We expect to drive further efficiencies through increased supply
chain integration with the other UK Retail businesses.

Total UK Retail selling space is 3.3 million square feet with average selling
space increasing by 1% over last year. In the first half of this year, the
business has opened two new stores, including an edge of town store in Preston
and a further eight edge of town stores are due to open in the next 12 months.

The implementation of Retek computer systems continues. To date, the Warehouse
Management System and Sales Forecasting System have been successfully
implemented. Availability of those lines where the new Sales Forecasting System
is being used (approximately 40% of sales) has improved by 2 percentage points
and weeks forward stock has been reduced by 15%. The final stage, the Stock
Replenishment and Merchandising System, will go live in the summer.

USA Travel Retail sales decreased by 10% to £90m (2002 - £100m), with like for
like sales up 4%.

Trading in the US continues to be difficult with ongoing weakness in the US
economy and, more recently, events in the Middle East suppressing recovery.

The business incurred an operating loss in the period of £9m (2002 - £11m loss).
Action has been taken to help mitigate any further losses. These include
withdrawing from a further 33 loss making hotel stores (72 since September
2001), minimising capital expenditure and head office restructuring. We have
implemented plans which will reduce head office costs by 25% on an annualised
basis and this will remain under constant review in the light of difficult
trading.

During the first half of the previous financial year a review of the carrying
value of assets in the USA Travel Retail business was undertaken and an
exceptional impairment charge of £27m was recognised. In arriving at this
charge, assumptions were made about the rate of recovery of the US travel
market, which were reasonable at the time. However, in the light of experience
these assumptions have proved optimistic as trading has fallen short of our
expectations. An exceptional charge of £35m has therefore been booked in the
first half results to cover further impairment. The charge covers goodwill and
fixed asset impairment.

ASPAC Retail achieved profits of £5m (2002 - £5m), with sales of £82m (2002 -
£75m). Since the acquisition of Angus and Robertson and Whitcoulls, the business
has continued to meet expectations. The future implementation of SAP in the
Angus and Robertson business in Australia should further strengthen trading
performance. Trials of the WHSmith format continue in Australia. Costs related
to the SAP implementation and WHSmith trials amounted to £0.3m in the first
half. In the period, a further 25% stake was acquired in Calendar Club, a
seasonal calendar business taking the overall ownership to 75%. This business
increased sales by £4.6m and profit by £0.2m in the first half.

Publishing achieved profits of £11m (2002 - £9m), with sales of £76m (2002 -
£65m). Strong sales growth of 17% was achieved through an excellent release
programme in the first half of the year. Notable releases to date include titles
from key brand authors James Patterson and Martina Cole and strong performances
from Kate Adie and Alan Titchmarsh in non-fiction. Sales to WHSmith businesses
increased by 22%.

In the Hodder Headline base business, strong sales and improving gross margins
were partly offset by an increase in royalty advance provisioning. The
underlying cost base was also tightly controlled and improved significantly year
on year as a percentage of sales.

Last year's profit performance was impacted by £1m of losses from Helicon, which
was sold last year. The John Murray and Robert Gibson businesses acquired last
year are being successfully integrated. In the current year these acquisitions
generated sales of £4.0m and profits of £0.6m in the first half.

WHSmith News Distribution achieved profits of £15m (2002 - £12m) on sales of
£533m (2002 - £538m). Underlying profit grew by 9% with the balance of the
profit increase due to the integration of Connect2U. The reduction in overall
sales is due to a decline in newspaper sales of 4% (due to 'red top'
discounting) and phonecards of 53%. This has been offset by an increase in sales
of magazines by 5%. Comparable newspaper sales are up by 1% after adjusting for
the impact of the discounting, which did not affect profitability.

Despite the decline in sales of 1%, underlying profit increased by 9%, largely
due to the more buoyant magazine market and improved operational performance,
notably cost reductions as we drive significant benefits from the now fully
operational SAP computer systems. Connect2U is now fully integrated and incurred
a £0.3m loss in the first half (2002 - £2m loss).

Gross margins improved by 0.4 percentage points (due to the mix impact of
stronger magazine sales and reduced waste) and costs fell by £1m leaving overall
net margins up by 0.6 percentage points.

The business is also undertaking a programme of regeneration to improve customer
service and drive further efficiencies. The head office relocated to a new site
in Swindon and the national accounting centre will move to a new location in
Bradford in the summer. In addition, a programme of warehouse refurbishment has
commenced.

GROUP SUMMARY

For the Group, operating profit before exceptional items and goodwill
amortisation was up by £8m or 9% to £93m (2002 - £85m).

The Group has adopted FRS17 Retirement Benefits, relating to pension accounting,
for the first time this year. This has resulted in a £2m charge within interest
payable compared with a restated £4m credit in the prior year. This £6m adverse
movement reflects the change in the financial position of the Group's defined
benefit pension schemes which had nil surplus/deficit at the start of the
previous financial year, compared with a £143m deficit at 1st September 2002.

As a result, the improvement in pre-tax profit before exceptional items and
goodwill amortisation was restricted to £2m at £91m (2002 - £89m).

Earnings per share before exceptional items and goodwill amortisation were 26.1
pence, flat compared with last year.

The interim dividend has been maintained at 6.0 pence.

The financial position of the company remains sound with net cash amounting to
£31m (2002 - £29m) and total net assets before pension liabilities of £627m
(2002 - £644m). Free cash inflow amounted to £28m compared with an outflow of
£13m in the prior year, primarily reflecting improved working capital management
(£22m) and reduced capital expenditure (£11m). This strong cash performance is
after £9m of cash contributions into the Group's pension schemes (2002 - £1m).

CURRENT TRADING

In the six weeks to 12th April 2003, UK Retail like for like sales are up 3%,
USA Travel Retail like for like sales are down 8%, ASPAC Retail like for like
sales are down 3%, Hodder Headline sales down 6% and News Distribution sales are
up 2%.

Within UK Retail, books are ahead by 7%, stationery by 4% and entertainment by
4%. Sales in the news and express category are flat. The sharp downturn in sales
in the USA reflects the impact on the travel market of the Iraq war and concerns
regarding SARS. This has also affected our Asian travel operations within ASPAC
Retail. The decline in Hodder sales reflects the timing of returns year on year
- underlying sales remain strong.

                                     -Ends-




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