Interim Results - Part Two

Smith WH PLC 17 April 2003 WH Smith PLC Group Profit and Loss Account For the 6 months to 28 February 2003 6 months to 12 months to 28 Feb 2003 28 Feb 2002 31 Aug 2002 As restated As restated Note Â£m Â£m Â£m _______________________________________________ ___ ____________ _____________ __________ Sales 1 1,556 1,582 2,936 _______________________________________________ ___ ____________ _____________ __________ Operating profit before exceptional items and 1 93 85 109 goodwill amortisation Exceptional items and goodwill amortisation 1, 2 (37) (29) (33) _______________________________________________ ___ ____________ _____________ __________ Operating profit 56 56 76 Interest 3 (2) 4 8 _______________________________________________ ___ ____________ _____________ __________ Profit on ordinary activities before taxation 54 60 84 Tax on profit on ordinary activities 5 (27) (25) (37) _______________________________________________ ___ ____________ _____________ __________ Profit attributable to shareholders 27 35 47 Dividends 6 (15) (15) (47) _______________________________________________ ___ ____________ _____________ __________ Retained earnings 12 20 - _______________________________________________ ___ ____________ _____________ __________ All results have been derived from continuing operations Earnings per share 7 11.0p 14.2p 19.1p Diluted earnings per share 7 11.0p 14.2p 19.0p Adjusted earnings per share 7 26.1p 26.0p 32.5p Dividend per share 6 6.0p 6.0p 19.0p Net assets per share 196p 250p 204p Net assets excluding pension liabilities per 251p 259p 245p share Fixed charges cover - times 8 1.8x 1.8x 1.5x Dividend cover - times 1.8x 2.3x 1.0x Dividend cover before exceptional items and 4.3x 4.3x 1.7x goodwill - times Tax charge before exceptional items and 5 30% 28% 30% goodwill Group Balance Sheet As at 28 February 2003 At At At 28 Feb 2003 28 Feb 2002 31 Aug 2002 As restated As restated Note Â£m Â£m Â£m _________________________________________ _____ ____________ ___________ ____________ Fixed assets Goodwill 10 228 228 240 Fixed assets 11 293 324 326 Investments 11 27 14 17 _________________________________________ _____ ____________ ___________ ____________ Total fixed assets 548 566 583 Current assets Stock 272 274 254 Debtors 209 190 192 Cash at bank and in hand 12 67 54 98 _________________________________________ _____ ____________ ___________ ____________ 548 518 544 Creditors due within one year Debt 12 (34) (23) (52) Other (408) (403) (432) _________________________________________ _____ ____________ ___________ ____________ (442) (426) (484) _________________________________________ _____ ____________ ___________ ____________ Net current assets 106 92 60 _________________________________________ _____ ____________ ___________ ____________ Total assets less current liabilities 654 658 643 _________________________________________ _____ ____________ ___________ ____________ Creditors due after more than one year Debt 12 (2) (2) (2) Other - (2) (3) _________________________________________ _____ ____________ ___________ ____________ (2) (4) (5) Provisions for liabilities and charges 13 (25) (10) (25) _________________________________________ _____ ____________ ___________ ____________ Net assets excluding pension liabilities 627 644 613 Pension liabilities 3 (137) (22) (103) _________________________________________ _____ ____________ ___________ ____________ TOTAL NET ASSETS 490 622 510 _________________________________________ _____ ____________ ___________ ____________ Equity Share capital 14 139 139 139 Share premium 15 91 89 91 Capital redemption reserve 15 156 156 156 Revaluation reserve 15 8 8 8 Profit and loss account 15 91 223 111 _________________________________________ _____ ____________ ___________ ____________ Equity shareholders' funds 485 615 505 Non equity share capital 14 2 2 2 _________________________________________ _____ ____________ ___________ ____________ Shareholders' funds 487 617 507 Minority interests 3 5 3 _________________________________________ _____ ____________ ___________ ____________ TOTAL EQUITY 490 622 510 _________________________________________ _____ ____________ ___________ ____________ Group Cash Flow Statement For the 6 months to 28 February 2003 6 months to 12 months to __________ ____________ _____________ 28 Feb 2003 28 Feb 2002 31 Aug 2002 As restated As restated Note Â£m Â£m Â£m _______________________ ______ __________ ____________ _____________ Cash inflow from 16 62 30 128 operating activities Returns on investment (2) 4 8 and servicing of finance Taxation (15) (18) (36) Purchase of fixed (19) (30) (66) assets Purchase of shares for (10) - (3) employee share schemes Disposal of fixed 2 1 2 assets ________________________ ______ __________ ____________ _____________ Cash outflow from (27) (29) (67) capital expenditure and investment Proceeds on disposal of - - 2 operation Acquisitions - cash (1) - (22) consideration ________________________ ______ __________ ____________ _____________ Cash outflow for (1) - (20) acquisitions and disposals ________________________ ______ __________ ____________ _____________ Equity dividends paid (32) (32) (47) ________________________ ______ __________ ____________ _____________ Cash outflow before use (15) (45) (34) of liquid resources and financing Issue of shares - - 2 Decrease in debt (18) (38) (9) ________________________ ______ __________ ____________ _____________ Cash outflow from (18) (38) (7) financing ________________________ ______ __________ ____________ _____________ Decrease in cash (33) (83) (41) ________________________ ______ __________ ____________ _____________ Memorandum - Analysis of free cash flow Â£m Â£m Â£m _________________________________________________ __________ ___________ ______________ Profit before tax, exceptional items and goodwill 91 89 117 amortisation Adjustment for FRS 17 - 2 1 Depreciation 27 26 52 Movement in working capital (57) (81) (28) Capital expenditure on fixed assets (19) (30) (66) Proceeds on disposal of fixed assets 2 1 2 Tax paid (15) (18) (36) Decrease in provisions (1) (2) (3) _________________________________________________ __________ ___________ ______________ Free cash flow 28 (13) 39 Dividends (32) (32) (47) Issue of shares - - 2 Proceeds on disposal of operation - - 2 Acquisitions (1) - (22) Purchase of own shares for employee share schemes (10) - (3) Cash outflow relating to exceptional items - - (3) _________________________________________________ __________ ___________ ______________ Cash movement in debt (15) (45) (32) Opening net cash 44 75 75 Cash in subsidiaries acquired 1 - 2 Currency translation movements 1 (1) (1) _________________________________________________ __________ ___________ ______________ Closing net cash 31 29 44 _________________________________________________ __________ ___________ ______________ Group Statement of Total Recognised Gains and Losses For the 6 months to 28 February 2003 6 months to 12 months to __________ __________ ____________ 28 Feb 2003 28 Feb 2002 31 Aug 2002 As restated As restated Note Â£m Â£m Â£m ____________________________________________ ___ __________ __________ ____________ Profit attributable to shareholders 27 35 47 Currency translation differences 3 - (10) Loss relating to pension scheme 3 (50) (25) (142) Deferred tax attributable to pension scheme 15 8 43 liability ____________________________________________ ___ __________ __________ ____________ Total recognised (loss) / gain for period (5) 18 (62) ____________________________________________ ___ __________ __________ ____________ Prior year adjustment for FRS 17 3 (104) ____________________________________________ ___ __________ __________ ____________ Total recognised loss for period since last annual (109) report ____________________________________________ ___ __________ __________ ____________ Reconciliation of Movements in Group Shareholders' Funds For the 6 months to 28 February 2003 6 months to 12 months to __________ __________ ___________ 28 Feb 2003 28 Feb 2002 31 Aug 2002 As restated As restated Note Â£m Â£m Â£m ___________________________ ___ __________ __________ ___________ Shareholders' funds at 611 614 614 beginning of period as previously stated Prior year adjustment for 3 (104) - - FRS 17 ___________________________ ___ __________ __________ ___________ Shareholders' funds at 507 614 614 beginning of period as restated ___________________________ ___ __________ __________ ___________ Retained earnings 12 20 - Issue of shares - - 2 Movement in net pension (35) (17) (99) deficit Currency translation 3 - (10) differences ___________________________ ___ __________ __________ ___________ Net (reductions) / (20) 3 (107) additions to shareholders' funds ___________________________ ___ __________ __________ ___________ Shareholders' funds at end 487 617 507 of period ___________________________ ___ __________ __________ ___________ 1 (A) Segmental Analysis of Sales and Profits 6 months to 12 months to 28 Feb 2003 28 Feb 2002 31 Aug 2002 Profit as Profit as Sales Profit Sales restated Sales restated Â£m Â£m Â£m Â£m Â£m Â£m __________________________________ _________ _________ ________ ________ _______ _______ Retailing (note a) WHSmith High Street 700 76 720 76 1,189 79 UK Travel Retail (note b) 137 8 144 8 306 21 WHSmith Online 5 (1) 4 (2) 6 (3) __________________________________ _________ _________ ________ ________ _______ _______ UK Retailing 842 83 868 82 1,501 97 USA Travel Retail 90 (9) 100 (11) 216 (16) ASPAC Retail (note c) 82 5 75 5 138 5 __________________________________ _________ _________ ________ ________ _______ _______ Total Retailing 1,014 79 1,043 76 1,855 86 Publishing (note d) 76 11 65 9 138 19 WHSmith News Distribution (note e) 533 15 538 12 1,069 27 Internal sales (note f) (67) - (64) - (126) - Support costs - (6) - (6) - (14) Pensions service costs - (7) - (7) - (13) Internal rents (note g) - 1 - 1 - 4 __________________________________ _________ _________ ________ ________ _______ _______ Total operating profit before 1,556 93 1,582 85 2,936 109 exceptional items and goodwill amortisation Exceptional items and goodwill (note - (37) - (29) - (33) h) __________________________________ _________ _________ ________ ________ _______ _______ Operating profit 1,556 56 1,582 56 2,936 76 Interest (2) 4 8 __________________________________ _________ _________ ________ ________ _______ _______ Profit on ordinary activities before taxation 54 60 84 __________________________________ _________ _________ ________ ________ _______ _______ a) Like for like sales for UK Retailing (adjusted for selling space) in the 6 months to 28 February 2003 were down 2% (consisting of WHSmith High Street down 4%, UK Travel Retail up 4% and WHSmith Online up 31%). Like for like sales for USA Travel Retail were up 4% (consisting of Airports up 5% and Hotels up 4%). Like for like sales for ASPAC Retail were up 1%. b) UK Travel Retail includes sales of Â£3m (2002; Â£3m) and profits of Â£0.4m (2002; Â£0.5m) generated in continental Europe. c) ASPAC Retail includes sales arising from the acquisition of Calendar Club of Â£4.6m and associated profits of Â£0.8m. d) Sales from Publishing comprise Hodder Headline Â£72m (2002; Â£64m), John Murray Publishing Â£4m (2002; Â£nil) and Helicon Publishing Â£nil (2002; Â£1m). Profits from Publishing comprise Hodder Headline Â£10.6m (2002; Â£9.6m) and Â£0.6m (2002; Â£nil) arising from the acquisition of John Murray Publishing. In the prior period, Publishing also incurred losses from Helicon of Â£1.1m. e) Profits from WHSmith News Distribution relate to both WHSmith News Distribution and Connect2U. In the 6 months to 28 February 2003, WHSmith News Distribution, including the results of the now integrated Connect2U operation, made a profit of Â£15m. In the prior period, WHSmith News Distribution made a profit of Â£14m and Connect2U, which operated as a stand-alone business, a loss of Â£2m. f) Internal sales comprise sales to Group companies by WHSmith News Distribution Â£55m (2002; Â£54m) and Hodder Headline Â£12m (2002; Â£10m). g) 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 Â£1m (2002; Â£1m) is shown as a separate credit to the profit and loss account giving a nil effect to operating profit. h) Exceptional items incurred during the 6 months were Â£35m (2002; Â£27m) and are analysed in Note 2. Goodwill amortisation of Â£2m is analysed as UK Retailing Â£1m (2002; Â£1m) and USA Travel Retail Â£1m (2002; Â£1m). 1 (B) Analysis of Retailing Stores and Selling Space Number of stores 1 Sept 2002 Opened Closed 28 Feb 2003 ______________________ _______________ ________ ____________ __________ WHSmith High Street 553 1 (2) 552 UK Travel Retail 183 1 (1) 183 ______________________ _______________ ________ ____________ __________ UK Retailing 736 2 (3) 735 USA Travel Retail - 345 - (33) 312 Hotels USA Travel Retail - 183 8 (18) 173 Airports ASPAC Retail 200 5 (6) 199 _______________________ _______________ ________ ____________ __________ Total 1,464 15 (60) 1,419 _______________________ _______________ ________ ____________ __________ Retail selling square feet (000's) 1 Sept 2002 Opened Closed 28 Feb 2003 _____________________ _______________ _________ ____________ __________ WHSmith High 3,045 8 (7) 3,046 Street UK Travel Retail 212 1 (3) 210 _____________________ _______________ _________ ____________ __________ UK Retailing 3,257 9 (10) 3,256 USA Travel Retail - 349 - (27) 322 Hotels USA Travel Retail - 181 9 (20) 170 Airports ASPAC Retail 778 16 (17) 777 _____________________ _______________ _________ ____________ __________ Total 4,565 34 (74) 4,525 _____________________ _______________ _________ ____________ __________ 2. Exceptional Items (i) Exceptional items in the current year Further impairment and write down of USA Travel Retail assets During the first half of the previous financial year, a review of the carrying value of assets in the WHSmith USA Travel Retail operations was undertaken. It was concluded that as a result of the significant impact of the events of September 11th on the trading prospects of the business, the value of certain assets were impaired and an exceptional impairment charge Â£27m was recognised (see below for details). In arriving at this charge, assumptions were made about the rate of recovery of the US travel market. However, in the light of experience, these assumptions have proved optimistic and trading has fallen short of our expectations. Accordingly, the Board have again reviewed the carrying value of the assets and have concluded that further material impairment has occurred. An exceptional charge of US$55m (Â£35m) has therefore been booked in the first half results. The charge has been applied against goodwill US$15m (Â£9m) and fixed assets US$40m (Â£26m). As a result, the carrying value of WHSmith USA assets in the balance sheet at 28 February 2003 has been written down to US$68m (Â£43m). (ii) Exceptional items in the previous year Impairment and write down of USA Travel Retail assets In the 6 months to February 2002, the Group carried out a review of the carrying value of the assets in the WHSmith USA Travel Retail operation following the tragic events of September 11th. It was concluded that a material impairment of asset values had occurred. The adjustment made to stock was US$10m (Â£6.9m), to debtors was US$1.6m (Â£1.1m), to provisions was US$7.5m (Â£5.2m), to tangible fixed assets US$7.5m (Â£5.2m) and to goodwill was US$11.3m (Â£7.8m). Associated restructuring costs of US$1.1m (Â£0.8m) were also incurred. 3. Pensions Arrangements (A) Restatement of comparatives Financial Reporting Standard 17: Retirement Benefits (FRS 17) has been adopted with effect from 1 September 2002. The adoption of FRS 17 has required a change to the accounting treatment of pensions and the prior year results have been restated accordingly as follows. (i) Consolidated balance sheet Other debtors Provisions for Pension Profit and loss ue within one liabilities and liabilities account year charges _________________ _______________ _______________ __________ ____________ Â£m Â£m Â£m Â£m _________________ _______________ _______________ __________ ____________ At 28 February 2002 191 (13) - 243 Adoption of FRS 17 (1) 3 (22) (20) _________________ _______________ _______________ __________ ____________ 28 February 2002 190 (10) (22) 223 restated _________________ _______________ _______________ __________ ____________ Other debtors Provisions for Pension Profit and loss due within one liabilities and liabilities account year charges Â£m Â£m Â£m Â£m _________________ _______________ _______________ __________ ____________ At 31 August 2002 196 (28) - 215 Adoption of FRS 17 (4) 3 (103) (104) _________________ _______________ _______________ __________ ____________ 31 August 2002 192 (25) (103) 111 restated _________________ _______________ _______________ __________ ____________ 3. Pensions Arrangements (A) Restatement of comparatives (cont.) Under FRS 17, the difference between the market value of the assets of the Group's principal defined benefit pension funds and the present value of accrued pension liabilities is shown as an asset or liability on the balance sheet, net of deferred tax. Previously, the only balance sheet item was a provision representing the cumulative difference between pension charges included in the profit and loss account and actual payments made to the scheme and the provision for un-funded pension obligations and other post retirement benefits. (ii) Consolidated profit and loss account Operating Interest Profit profit attributable to shareholders Â£m Â£m Â£m _____________________________ _____________ ____________ ____________ At 28 February 2002 63 - 38 Adoption of FRS 17 (7) 4 (3) _____________________________ _____________ ____________ ____________ 28 February 2002 restated 56 4 35 _____________ _______________ _____________ ____________ ____________ Operating Interest Profit profit attributable to shareholders Â£m Â£m Â£m __________________________ _____________ ____________ ____________ At 31 August 2002 89 - 52 Adoption of FRS 17 (13) 8 (5) __________________________ _____________ ____________ ____________ 31 August 2002 restated 76 8 47 __________ _______________ _____________ ____________ ____________ The profit and loss charge, under SSAP 24, comprised a regular pension cost net of spreading of the surplus over the average remaining service lives of the relevant employees and a notional interest credit. Under FRS 17, the following items are included in the profit and loss account; Charged to operating profit - the full service cost of pension provision relating to the period, together with the costs of any benefits relating to past service. Included in interest - a charge equal to the expected increase in the present value of the scheme liabilities because the benefits are closer to settlement; and netted against this. - a credit equivalent to the Group's long-term expected return on assets based on market value of the scheme assets at the start of the period. Included in the statement of total recognised gains and losses is the difference between the expected return on pension assets at the start of the period along with the differences, which arise from experience or assumption changes in pension liabilities. 3. Pensions Arrangements (B) Pension Plans The Group operates pension plans in a number of countries around the world. Pension arrangements for UK employees are operated through two defined benefit schemes (the WHSmith Pension Trust and Hodder Headline Staff Retirement Benefits Plan) and a defined contribution scheme, WHSmith Pension Builder. The most significant scheme is the defined benefit WHSmith Pension Trust. In other countries, benefits are determined in accordance with local practice and regulations and funding is provided accordingly. The assets of the pension plans are held in separate funds administered by Trustees, which are independent of the Group's finances. The market value of the assets in the schemes and the present value of the liabilities in the schemes were: At At At 28 Feb 2003 28 Feb 2002 31 Aug 2002 Â£m Â£m Â£m _____________________________ ______________ _____________ ______________ Total market value of 558 677 596 assets Present value of scheme (751) (704) (739) liabilities _____________________________ ______________ _____________ ______________ Deficit in the scheme (193) (27) (143) Related deferred tax asset 58 8 43 _____________________________ ______________ _____________ ______________ Net defined benefit scheme (135) (19) (100) liabilities Net retirement medical (2) (3) (3) liabilities _____________________________ ______________ _____________ ______________ Net pension liabilities (137) (22) (103) _____________________________ ______________ _____________ ______________ Under FRS 17, there is only a requirement to revalue scheme liabilities at the financial year end. As a consequence, the last formal valuation of scheme liabilities was at 31 August 2002. Our actuaries (Mercer Human Resource Consulting) have advised that due to a fall in real bond yields, the liabilities of the defined benefit pension schemes would have increased by approximately Â£50m before deferred tax accounting over the period if these new assumptions had been adopted. The WHSmith Pension Trust scheme was closed to new entrants in September 1995 and under the projected unit method the current service cost would be expected to increase as members approach retirement. The Hodder Headline Staff Retirement Benefits Plan continues to be open to new members. 3. Pensions Arrangements (B) Pension Plans (cont.) (i) Defined Benefit Pension Schemes Analysis of the amount charged to operating profit At At At 28 Feb 2003 28 Feb 2002 31 Aug 2002 Â£m Â£m Â£m ________________________ ____________ _____________ ______________ Current service cost (7) (7) (13) ________________________ ____________ _____________ ______________ Analysis of the amount (charged) / credited to interest At At At 28 Feb 2003 28 Feb 2002 31 Aug 2002 Â£m Â£m Â£m ______________________________ ____________ _____________ ______________ Expected return on pension 19 24 47 scheme assets ______________________________ ____________ _____________ ______________ Interest on pension scheme (21) (20) (39) liabilities ______________________________ ____________ _____________ ______________ (2) 4 8 ______________________________ ____________ _____________ ______________ Analysis of the actuarial loss in the statement of total recognised gains and losses At At At 28 Feb 2003 28 Feb 2002 31 Aug 2002 Â£m Â£m Â£m ______________________________ ____________ _____________ ______________ Actual return less expected (50) (25) (117) return on pension scheme assets Experience gains and losses - - (19) arising on the scheme liabilities Changes in assumptions - - (6) underlying the present value of the scheme liabilities ______________________________ ____________ _____________ ______________ (50) (25) (142) ______________________________ ____________ _____________ ______________ 3. Pensions Arrangements (B) Pension Plans (cont.) Movement in scheme deficit during the year At At At 28 Feb 2003 28 Feb 2002 31 Aug 2002 Â£m Â£m Â£m _____________________________ ______________ ______________ ______________ At beginning of period (143) - - Current service cost (7) (7) (13) Contributions 9 1 4 Interest (cost) / income (2) 4 8 Actuarial loss (50) (25) (142) _____________________________ ______________ ______________ ______________ Deficit in scheme (193) (27) (143) _____________________________ ______________ ______________ ______________ (ii) Defined Contribution Pension Scheme The group's pension cost charge to its defined contribution scheme, WHSmith Pension Builder, for the period amounted to Â£2m (2002; Â£2m). 4. Operating Lease Commitments 28 Feb 2003 31 Aug 2002 ___________ ____________ _________ ____________ Annual Future Annual net cumulative Average net rental net rental lease rental commitment commitment term commitment Â£m Â£m (years) Â£m _________________________________ ___________ ____________ _________ ____________ WHSmith High Street 77 770 10 78 UK Travel Retail 40 131 5 39 _________________________________ ___________ ____________ _________ ____________ UK Retailing 117 901 7 117 USA Travel Retail 34 117 3 37 ASPAC Retail 16 43 3 14 _________________________________ ___________ ____________ _________ ____________ Total Retailing 167 1,061 6 168 Publishing 3 21 8 3 WHSmith News Distribution 3 35 10 3 Property sublet to third parties 10 72 7 10 _________________________________ ___________ ____________ _________ ____________ Gross rental commitment 183 1,189 6 184 Less - External rent receivable (14) (64) 5 (14) - Internal rent receivable (1) (32) 21 (3) _________________________________ ___________ ____________ _________ ____________ Total 168 1,093 7 167 _________________________________ ___________ ____________ _________ ____________ (i) WHSmith High Street gross rental commitments includes internal rent of Â£1m (2002; Â£1m) relating to those properties which are owned by the Group. The cumulative future costs of internal rent are taken as the book value of those properties in the balance sheet at Â£32m (2002; Â£34m), all of which 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 Â£5m (2002; Â£4m) relates to USA Travel Retail which sublets retail space in airports where it operates a master contract and Â£9m (2002; Â£8m) represents income on subletting Group surplus property. Of the future cumulative external rent receivable, Â£17m (2002; Â£20m) relates to USA Travel Retail. (iii) Outstanding contingencies under previous assignments of leases where the liability would revert to the Group if the lease defaulted are estimated at Â£18m (2002; Â£17m) per year with a future cumulative rental commitment of approximately Â£149m (2002; Â£165m) and an average lease term of around 8 years. (iv) For those leases that 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 Â£88m (2002; Â£87m) and relates to UK Travel Retail, USA Travel Retail and ASPAC Retail stores. 5. Taxation 6 months to 12 months to ___________ ____________ ____________ 28 Feb 2003 28 Feb 2002 31 Aug 2002 As restated As restated Â£m Â£m Â£m __________________________________________________ ___________ ____________ ____________ Corporation tax on UK profits 24 26 33 - Standard rate of UK corporation tax 30% (2002;30%) Foreign tax 2 1 1 __________________________________________________ ___________ ____________ ____________ Total current tax charge 26 27 34 Deferred tax 1 (2) 3 __________________________________________________ ___________ ____________ ____________ Tax on profit on ordinary activities 27 25 37 __________________________________________________ ___________ ____________ ____________ Effective tax rate before exceptional items and 30% 28% 30% goodwill amortisation The effective tax rate of 30% for the 6 months to 28 February 2003 is equal to the UK standard corporation tax rate. 6. Dividends 6 months to 12 months to _______________________________________________________________________________ 28 Feb 2003 28 Feb 2002 31 Aug 2002 _______________________________________________________________________________ Interim 6.0p 6.0p 6.0p _______________________________________________________________________________ Final 13.0p ___________ Total 19.0p _______________________________________________________________________________ Â£m Â£m Â£m _______________________________________________________________________________ Interim 15 15 15 _______________________________________________________________________________ Final 32 ___________ Total 47 _______________________________________________________________________________ The interim dividend will be paid on 26 June 2003 to shareholders registered at the close of business on 30 May 2003. As at 28 February 2003 the Company had 249,899,308 shares in issue. 7. Earnings Per Share 6 months to 12 months to __________ __________ __________ 28 Feb 2003 28 Feb 2002 31 Aug 2002 As restated As restated _______________________________________________________________________________ Profit attributable to shareholders 27 38 52 as previously stated (Â£m) Prior year adjustment - (3) (5) _______________________________________________________________________________ Profit attributable to shareholders 27 35 47 as restated (Â£m) Exceptional items net of related 35 27 28 taxation Amortisation of goodwill 2 2 5 _______________________________________________________________________________ Adjusted earnings (Â£m) 64 64 80 _______________________________________________________________________________ _______________________________________________________________________________ Weighted average shares in issue 245 246 246 for earnings per share _______________________________________________________________________________ Add weighted average number of - 1 2 ordinary shares under option _______________________________________________________________________________ Weighted average ordinary shares 245 247 248 for fully diluted earnings per share _______________________________________________________________________________ _______________________________________________________________________________ Earnings per share - Basic 11.0p 14.2p 19.1p _______________________________________________________________________________ Earnings per share - Diluted 11.0p 14.2p 19.0p _______________________________________________________________________________ Adjusted earnings per share - 26.1p 26.0p 32.5p Basic _______________________________________________________________________________ Adjusted earnings per share - 26.1p 25.9p 32.3p Diluted _______________________________________________________________________________ The weighted number of ordinary shares in issue is stated after excluding 6,541,345 shares held solely for the purpose of satisfying obligations under employee share schemes. 8. Fixed Charges Cover 6 months to 12 months to __________ __________ __________ 28 Feb 2003 28 Feb 2002 31 Aug 2002 As restated As restated Â£m Â£m Â£m _______________________________________________________________________________ Interest cost / (income) 2 (4) (8) Operating lease rentals 95 91 186 Property taxes 18 18 36 Other property costs 7 7 15 _______________________________________________________________________________ Total fixed charges 122 112 229 Profit before tax, exceptional 91 89 117 items and goodwill amortisation _______________________________________________________________________________ Profit before tax, exceptional 213 201 346 items, goodwill amortisation and fixed charges _______________________________________________________________________________ Fixed charges cover 1.8x 1.8x 1.5x _______________________________________________________________________________ Fixed charges cover is calculated by dividing profit before tax, exceptional items, goodwill amortisation, and fixed charges by total fixed charges. 9. Segmental Analysis of Operating Assets / (Liabilities) Employed At At At 28 Feb 2003 28 Feb 2002 31 Aug 2002 As restated As restated Â£m Â£m Â£m _______________________________________________________________________________ WHSmith High Street 246 229 224 UK Travel Retail 36 41 28 WHSmith Online 8 8 7 _______________________________________________________________________________ UK Retailing 290 278 259 USA Travel Retail 43 80 64 ASPAC Retail 28 29 22 _______________________________________________________________________________ Total Retailing 361 387 345 WHSmith News Distribution (6) 11 (9) _______________________________________________________________________________ Trading operations (excluding 355 398 336 Publishing) Publishing 260 235 263 _______________________________________________________________________________ Trading operations (including 615 633 599 Publishing) Freehold property 39 41 42 Support functions (33) (49) (47) Provisions for liabilities and (25) (10) (25) charges _______________________________________________________________________________ Operating assets employed 596 615 569 Net cash 31 29 44 _______________________________________________________________________________ Total net assets before pension 627 644 613 liability Pension liabilities (137) (22) (103) _______________________________________________________________________________ TOTAL NET ASSETS 490 622 510 _______________________________________________________________________________ 10. Acquisitions and Goodwill Goodwill Â£m _______________________________________________________________________________ Cost At 1 September 2002 268 Acquisitions (note a) 1 Currency translation differences (1) _______________________________________________________________________________ At 28 February 2003 268 _______________________________________________________________________________ Accumulated amortisation At 1 September 2002 28 Amortised in period 2 Impairment charge in the period 9 Other movements 1 _______________________________________________________________________________ At 28 February 2003 40 _______________________________________________________________________________ Net book value _______________________________________________________________________________ At 28 February 2003 228 _______________________________________________________________________________ At 1 September 2002 240 _______________________________________________________________________________ (a) Acquisitions On 21 October 2002, the Group acquired a further 25% holding of the share capital of Angus & Robertson Bookworld Calendar Club Pty Limited and Calendar Club New Zealand Limited bringing its total ownership in both entities to 75%. Total consideration including fees and expenses was Â£0.9m and the capitalised goodwill arising on the transaction was Â£0.7m. Since acquisition, these two companies have had sales of Â£4.6m with associated profits of Â£0.8m. (b) Goodwill 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 and WGL Retail Holdings Limited 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. 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 (Â£172m), Wayland (Â£3m), John Murray (Â£14m) and Robert Gibson (Â£1m) 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 the 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 purchases of Hodder Headline, Wayland, John Murray and Robert Gibson, 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. 11. Fixed Assets (A) Changes in Fixed Assets Costs of shares Investment in acquired for associated Fixed employee share undertakings Assets schemes Total Â£m Â£m Â£m Â£m _______________________________________________________________________________ Net Book Value 326 16 1 343 at 1 September 2002 Additions 19 10 - 29 Depreciation (27) - - (27) Impairment (26) - - (26) charge in the period Currency 1 - - 1 translation differences _______________________________________________________________________________ Net Book Value 293 26 1 320 at 28 February 2003 _______________________________________________________________________________ (B) Analysis of Fixed Assets At At At 28 Feb 2003 28 Feb 2002 31 Aug 2002 Â£m Â£m Â£m _______________________________________________________________________________ Freehold and long leasehold 39 41 42 property Short leasehold 100 106 109 Fixtures, fittings and 154 177 175 equipment _______________________________________________________________________________ Net Book Value 293 324 326 _______________________________________________________________________________ 12. Financial Assets and Liabilities At At At 28 Feb 2003 28 Feb 2002 31 Aug 2002 As restated As restated Â£m Â£m Â£m _______________________________________________________________________________ Cash at bank and in hand 67 54 98 Repayable within one year or on (34) (23) (52) demand Repayable in more than five (2) (2) (2) years _______________________________________________________________________________ Net cash 31 29 44 _______________________________________________________________________________ At 31 August 2002, Â£17m stated as being repayable in more than one year but less than five years and Â£22m stated as being repayable in more than five years have now been reclassified as repayable within one year or on demand. At 28 February 2002, Â£23m stated as being repayable in more than five years, has now been reclassified as being repayable within one year or on demand. At At At 28 Feb 2003 28 Feb 2002 31 Aug 2002 Â£m Â£m Â£m _______________________________________________________________________________ Cash at bank and in hand (note a) 67 54 98 Debt - Sterling floating rate (note b) (34) (23) (52) - Sterling fixed rate (note c) (2) (2) (2) _______________________________________________________________________________ Net cash 31 29 44 _______________________________________________________________________________ a) Cash at bank is held on short-term deposit, bearing interest at an average rate of 3.8% (2002; 4.1%). Material foreign exchange exposure at 28 February 2003 relates to the financial assets and liabilities in Hodder Headline, UK Travel Retail, USA Travel Retail and ASPAC Retail. Cash at bank and in hand includes Â£1m (2002; Â£9m) worth of US dollars, Â£11m (2002; Â£11m) in Australian dollars, Â£9m (2002; Â£3m) in New Zealand dollars, Â£1m (2002; Â£1m) in Singapore dollars, Â£1m (2002; Â£nil) in Hong Kong dollars and Â£1m (2002; Â£1m) in Euros. b) Floating rate debt represents loan notes and a committed facility loan. The loan notes repayable in 2008 bear interest at a rate of 1% per annum below LIBOR. The committed facility loan bears an interest rate of LIBOR plus 45 basis points and is repayable May 2003. c) Sterling fixed rate debt includes 5.125% redeemable unsecured loan stock of Â£2m (2002; Â£2m). d) In addition to the above, at 28 February 2003, the Group had unredeemed 'B' shares of Â£2m which carry a non-cumulative preferential dividend set at 75% of six month LIBOR. e) The company has unutilised additional committed facilities of Â£187m, of which Â£52m matures in May 2003 and Â£135m in May 2007. 13. Provisions for Liabilities and Charges Business Deferred Non-trading partner taxation property guarantees provisions Total Â£m Â£m Â£m Â£m _______________________________________________________________________________ At 1 September 5 15 5 25 2002 as restated Charged during - 1 1 2 the period Utilised in (1) - (1) (2) period _______________________________________________________________________________ At 28 February 4 16 5 25 2003 _______________________________________________________________________________ In the 6 months to 28 February 2003, an additional Â£1m was provided for future rental commitments on vacant or surplus properties. This provision will be utilised over a period of 2 to 12 years. Business partner guarantees represent amounts guaranteed to USA business partner joint ventures and will be utilised over the partnership lease term. 14. Share Capital At At At 28 Feb 2003 28 Feb 2002 31 Aug 2002 Â£m Â£m Â£m _______________________________________________________________________________ Ordinary shares at 55.55p each 139 139 139 'B' shares of 53.75p each 2 2 2 _______________________________________________________________________________ 141 141 141 _______________________________________________________________________________ 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 28 February 2003, the number of options held under employee share schemes was 16.9 million shares (2002; 13.4 million). The proceeds due to the Company upon exercise of these options would be approximately Â£66m (2002; Â£54m). The 'B' shares are redeemable at their nominal value at the shareholders' option during any other period declared by the Company, at the Company's option or at maturity on 31 August 2008. 15. Reserves Share Capital Profit and premium redemption Revaluation loss account reserve reserve account Â£m Â£m Â£m Â£m _______________________________________________________________________________ At 1 September 91 156 8 215 2002 as previously stated Prior period - - - (104) restatement for FRS 17 _______________________________________________________________________________ At 1 September 91 156 8 111 2002 as restated Profit retained - - - 12 for the period Currency - - - 3 translation differences _______________________________________________________________________________ Reserves excluding 91 156 8 126 current period pension deficit at 28 February 2003 Current period - - - (35) pension deficit adjustment _______________________________________________________________________________ Reserves at 28 91 156 8 91 February 2003 _______________________________________________________________________________ The profit and loss account reserve at 28 February 2003 is stated after previously writing off acquired goodwill of Â£58m - including USA Travel Retail Â£39m. 16. Notes to the Cash Flow Statement (A) Reconciliation of operating profit to net cash inflow from operating activities 6 months to 12 months to 28 Feb 2003 28 Feb 2002 31 Aug 2002 As restated As restated Â£m Â£m Â£m _______________________________________________________________________________ Operating profit 56 56 76 Adjustment for FRS 17 - 2 1 Exceptional items 35 27 28 Depreciation of fixed assets 27 26 52 Amortisation of goodwill 2 2 5 Increase in stock (13) (27) (7) Increase in debtors (18) (11) (9) Decrease in creditors (26) (43) (12) Decrease in provisions (1) (2) (3) _______________________________________________________________________________ Net cash inflow from operating 62 30 131 activities before exceptional items Cash outflow relating to - - (3) exceptional items _______________________________________________________________________________ Net cash inflow from operating 62 30 128 activities after exceptional items _______________________________________________________________________________ (B) Reconciliation of net cash flow to movement in net cash 6 months to 12 months to 28 Feb 2003 28 Feb 2002 31 Aug 2002 Â£m Â£m Â£m _______________________________________________________________________________ Net cash at the start of the 44 75 75 period _______________________________________________________________________________ Decrease in cash in the period (33) (83) (41) Cash in subsidiaries acquired 1 - 2 Currency translation 1 (1) (1) differences Cash flow from decrease in 18 38 9 debt _______________________________________________________________________________ Net cash at the end of the 31 29 44 period _______________________________________________________________________________ 17. Basis of Preparation The interim announcement for the 6 months to 28 February 2003 has been prepared on the basis of the accounting policies set out in the Company's Annual Report and Financial Statements for the 12 months to 31 August 2002 with the exception of the adoption of the new accounting standard FRS 17: Retirement Benefits. Details of this change in accounting policy are set out in note 3. The financial information contained in this interim announcement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The financial information for the full preceding year is based on the statutory accounts for the financial year ended 31 August 2002. These statutory accounts have been filed with the Registrar of Companies. The auditors' reports on these accounts were unqualified and did not include a statement under Section 237 (2) or (3) of the Companies Act 1985. 18. Approval of Interim Statement The Interim Statement was approved by the Board of Directors on 17 April 2003. Deloitte & Touche have issued the following Independent Review Report relating to the Interim Statement. The Interim Statement comprises the Group profit and loss account, Group balance sheet, Group cash flow statement, Group statement of total recognised gains and losses and notes 1A, 2, extracts of note 3, and notes 5, 6, 7, 16, 17 and 18 of this document. The Interim Statement will be available on WH Smith PLC's website and mailed to shareholders by 16 May 2003. INDEPENDENT REVIEW REPORT TO WH SMITH PLC Introduction We have been instructed by the company to review the financial information for the six months ended 28 February 2003 which comprises the Group profit and loss account, the Group balance sheet, the Group cash flow statement, the Group statement of total recognised gains and losses and related notes 1-7. We have read the other information contained in the Interim Statement and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This Report is made solely to the company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The Interim Statement, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Statement in accordance with the Listing Rules of the Financial Services Authority which require that the accounting polices and presentation applied to the interim figures are 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 the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. 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 United Kingdom 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 2003. Deloitte & Touche Chartered Accountants London 17 April 2003 This information is provided by RNS The company news service from the London Stock Exchange

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