Interim Results - Part Two

Smith WH PLC 22 April 2004 WH Smith PLC Group Profit and Loss Account For the 6 months to 29 February 2004 6 months to 29 Feb 2004 6 months to 28 Feb 2003 12 months to 31 Aug 2003 ______________________________________________________________________________________________________________________ Before Exceptional Total Before Exceptional exceptional items & exceptional items & items & goodwill items & goodwill goodwill amortisation goodwill amortisation Total Total amortisation amortisation As As Â£m Note As restated restated restated ______________________________________________________________________________________________________________________ Turnover - Continuing operations 1,531 - 1,531 1,474 - 1,474 2,739 - Discontinued operations 49 - 49 90 - 90 181 ______________________________________________________________________________________________________________________ Group Turnover 1,3 1,580 - 1,580 1,564 - 1,564 2,920 ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ Operating profit / (loss) - Continuing operations 1,2 72 (76) (4) 102 (1) 101 101 - Discontinued operations 1,2 (5) - (5) (9) (36) (45) (52) ______________________________________________________________________________________________________________________ Group operating profit / (loss) 67 (76) (9) 93 (37) 56 49 Profit on sale of fixed assets - continuing operations 2 - - - - - - 7 Loss on sale of discontinued operations 2 - (61) (61) - - - - ______________________________________________________________________________________________________________________ Profit / (loss) on ordinary activities before interest and taxation 67 (137) (70) 93 (37) 56 56 Interest (2) - (2) (2) - (2) (4) ______________________________________________________________________________________________________________________ Profit / (loss) on ordinary activities before taxation 65 (137) (72) 91 (37) 54 52 Tax on profit on ordinary activities 5 (21) 9 (12) (27) - (27) (29) ______________________________________________________________________________________________________________________ Profit / (loss) attributable to shareholders 44 (128) (84) 64 (37) 27 23 Dividends 6 (10) - (10) (15) - (15) (47) ______________________________________________________________________________________________________________________ Retained earnings / (losses) 34 (128) (94) 49 (37) 12 (24) ______________________________________________________________________________________________________________________ (Loss) / earnings per share 7 (34.4)p 11.0p 9.4p Diluted (loss) / earnings per share 7 (34.4)p 11.0p 9.4p Adjusted earnings per share 7 18.0p 26.1p 29.1p Dividends per share 6 4.0p 6.0p 19.0p Net assets per share 147p 189p 168p Net assets per share excluding net pension liabilities 204p 246p 232p Fixed charges cover - times 8 1.5x 1.8x 1.4x Dividend cover before exceptional items and goodwill amortisation - times 4.4x 4.3x 1.5x Tax rate - before exceptional items and goodwill amortisation - continuing operations 5 30% 27% 26% WH Smith PLC Group Balance Sheet As at 29 February 2004 At At At 29 Feb 28 Feb 2003 31 Aug 2003 Â£m Note 2004 As restated As restated ________________________________________________________________________________ Fixed assets Goodwill 220 228 228 Fixed assets 9 249 293 272 Investments 3,9 1 1 1 ________________________________________________________________________________ Total fixed assets 470 522 501 Current assets Stock 223 272 257 Debtors due within one year 183 209 209 Debtors due after more than one year 15 - - Cash at bank and in hand 10 54 67 90 ________________________________________________________________________________ 475 548 556 Creditors due within one year Debt 10 (24) (34) (20) Other (396) (407) (443) ________________________________________________________________________________ (420) (441) (463) ________________________________________________________________________________ Net current assets 55 107 93 ________________________________________________________________________________ Total assets less current liabilities 525 629 594 ________________________________________________________________________________ Creditors due after more than one year Debt 10 (2) (2) (2) ________________________________________________________________________________ 523 627 592 Provisions for liabilities and charges (26) (25) (27) ________________________________________________________________________________ Net assets excluding pension liabilities 497 602 565 Pension liabilities 4 (138) (138) (156) ________________________________________________________________________________ TOTAL NET ASSETS 359 464 409 ________________________________________________________________________________ Equity Share capital 139 139 139 Share premium 11 93 91 93 Capital redemption reserve 11 156 156 156 Revaluation reserve 11 4 8 4 Other reserve 3,11 (27) (27) (27) Profit and loss account 3,11 (9) 92 40 ________________________________________________________________________________ Equity shareholders' funds 356 459 405 Non equity share capital 2 2 2 ________________________________________________________________________________ Shareholders' funds 358 461 407 Minority interests 1 3 2 ________________________________________________________________________________ TOTAL EQUITY 359 464 409 ________________________________________________________________________________ WH Smith PLC Group Cash Flow Statement For the 6 months to 29 February 2004 6 months to 12 months to 29 Feb 28 Feb 31 Aug Â£m Note 2004 2003 2003 ____________________________________________________________________________________ Cash inflow from operating activities 12 28 62 135 Returns on investment and servicing of finance (2) (2) (4) Taxation (17) (15) (32) ____________________________________________________________________________________ Purchase of fixed assets (24) (19) (47) Disposal of fixed assets - 2 26 ____________________________________________________________________________________ Cash outflow from capital expenditure and financial investment (24) (17) (21) ____________________________________________________________________________________ Proceeds on disposal of operations 21 - - Non-operating disposal costs (12) - - Acquisitions - cash consideration - (1) (2) Net cash in subsidiaries acquired - - 1 ____________________________________________________________________________________ Cash inflow / (outflow) from acquisitions and disposals 9 (1) (1) ____________________________________________________________________________________ Equity dividends paid (32) (32) (47) ____________________________________________________________________________________ Cash (outflow) / inflow before financing (38) (5) 30 Premium on issue of shares - - 2 Purchase of own shares for employee share schemes - (10) (10) Increase / (decrease) in debt 4 (18) (32) ____________________________________________________________________________________ Cash inflow / (outflow) from financing 4 (28) (40) ____________________________________________________________________________________ Decrease in cash (34) (33) (10) ____________________________________________________________________________________ Memorandum - Analysis of free cash flow ____________________________________________________________________________________ Profit before tax, exceptional items and goodwill amortisation 65 91 102 Depreciation 24 27 49 Movement in working capital (50) (57) (8) Capital expenditure on fixed assets (24) (19) (47) Proceeds on disposal of fixed assets - 2 1 Tax paid (17) (15) (32) Cash spend against provisions - (1) (4) ____________________________________________________________________________________ Free cash flow (before dividends and investment activity) (2) 28 61 Dividends (32) (32) (47) Additional pension funding (12) - (6) Premium on issue of shares - - 2 Sale and leaseback proceeds - - 25 Proceeds on disposal of operations 21 - - Non-operating disposal costs (12) - - Acquisitions - (1) (2) Purchase of own shares for employee share schemes - (10) (10) Cash outflow relating to exceptional items (1) - (2) ____________________________________________________________________________________ Cash movement in debt (38) (15) 21 Opening net funds 68 44 44 Cash in subsidiaries acquired - - 1 ____________________________________________________________________________________ Currency translation movements (2) 2 2 ____________________________________________________________________________________ Closing net funds 10,12 28 31 68 ____________________________________________________________________________________ WH Smith PLC Group Statement of Total Recognised Gains and Losses For the 6 months to 29 February 2004 6 months to 12 months to __________________________________________________________________________________ 29 Feb 28 Feb 2003 31 Aug 2003 Â£m Note 2004 As restated As restated __________________________________________________________________________________ (Loss) / profit attributable to shareholders (84) 27 23 Currency translation differences (4) 3 4 Gain / (loss) relating to pension scheme 4 14 (50) (77) Deferred tax attributable to pension scheme liability (4) 15 21 UK current tax attributable to the additional pension contributions - - 2 Net actuarial loss on post retirement medical benefits - - (2) __________________________________________________________________________________ Total recognised losses for the period (78) (5) (29) __________________________________________________________________________________ Prior year adjustment 3 (26) _________________________________________________________________ Total recognised losses for the period since last annual report (104) _________________________________________________________________ Reconciliation of Movements in Group Shareholders' Funds For the 6 months to 29 February 2004 6 months to 12 months to __________________________________________________________________________________ 29 Feb 28 Feb 2003 31 Aug 2003 Â£m Note 2004 As restated As restated __________________________________________________________________________________ Shareholders' funds at beginning of period as previously stated 433 507 507 Prior year adjustment for UITF 38 3 (26) (16) (16) __________________________________________________________________________________ Shareholders' funds at beginning of period as restated 407 491 491 __________________________________________________________________________________ Retained (losses) / earnings (94) 12 (24) Premium on issue of shares - - 2 Purchase of own shares for employee share schemes - (10) (10) Goodwill previously written off now transferred to profit and loss account for the period 2 39 - - Other recognised gains and losses 6 (32) (52) __________________________________________________________________________________ Net reduction to shareholders' funds (49) (30) (84) __________________________________________________________________________________ Shareholders' funds at end of period 358 461 407 __________________________________________________________________________________ WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 1 (a) Segmental analysis of Turnover and Operating (Losses) / Profits 6 months to 12 months to ___________________________________________________________________________________________________ 29 Feb 2004 28 Feb 2003 31 Aug 2003 Operating Turnover Operating Turnover Operating Profit As Profit As Profit Â£m Turnover /(loss) restated /(loss) restated /(loss) ___________________________________________________________________________________________________ Continuing operations: Retailing (note a) WHSmith High Street 687 43 691 76 1,164 73 UK Travel Retail 142 9 137 8 291 19 WHSmith Online 5 (1) 5 (1) 8 (2) ___________________________________________________________________________________________________ UK Retailing 834 51 833 83 1,463 90 ASPAC Retail 97 7 81 5 149 5 ___________________________________________________________________________________________________ Total Retailing 931 58 914 88 1,612 95 Publishing 81 11 77 11 143 19 WHSmith News Distribution 587 17 550 15 1,115 32 Internal sales (note b) (68) - (67) - (131) - Support costs - (7) - (6) - (14) Pensions service costs (note c) - (8) - (7) - (13) Internal rents (note d) - 1 - 1 - 3 ___________________________________________________________________________________________________ Before exceptional items and goodwill amortisation 1,531 72 1,474 102 2,739 122 Operating exceptional items (Note 2) - (75) - - - (18) Goodwill amortisation - (1) - (1) - (3) ___________________________________________________________________________________________________ Turnover / Operating (loss) / profit - continuing operations 1,531 (4) 1,474 101 2,739 101 ___________________________________________________________________________________________________ Discontinued operations: Before exceptional items and goodwill amortisation 49 (5) 90 (9) 181 (16) Operating exceptional items (Note 2) - - - (35) - (35) Goodwill amortisation - - - (1) - (1) ___________________________________________________________________________________________________ Turnover / Operating loss - discontinued operations 49 (5) 90 (45) 181 (52) ___________________________________________________________________________________________________ Group Turnover / Operating (loss) / profit 1,580 (9) 1,564 56 2,920 49 ___________________________________________________________________________________________________ a) Like for like sales for UK Retailing (adjusted for selling space) in the 6 months to 29 February 2004 were flat (consisting of WHSmith High Street down 1%, UK Travel Retail up 4% and WHSmith Online up 4%). Like for like sales for ASPAC Retail were up 2%. b) Internal sales comprise sales to Group companies by WHSmith News Distribution Â£56m (2003; Â£55m) and Hodder Headline Â£12m (2003; Â£12m). c) The annual pension service costs have been allocated between the businesses based on pensionable salaries as follows: WHSmith High Street Â£4.0m (2003; Â£3.5m), UK Travel Retail Â£0.6m (2003; Â£0.5m), Publishing Â£0.6m (2003; Â£0.5m), WHSmith News Distribution Â£1.7m (2003; Â£1.5m) and Support functions Â£0.6m (2003; Â£0.5m). d) The results for UK 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 (2003; Â£1m) 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 29 February 2004 1 (b) Geographic split of Turnover and (Loss) / Profit Before Taxation 6 months to 12 months to ________________________________________________________________________________________ 29 Feb 2004 28 Feb 2003 31 Aug 2003 Profit Turnover Profit Turnover Profit Â£m Turnover /(loss) As restated /(loss) As restated /(loss) ________________________________________________________________________________________ UK / Europe 1,422 62 1,383 95 2,572 111 Asia / Pacific 109 8 91 5 167 7 ________________________________________________________________________________________ 1,531 70 1,474 100 2,739 118 Exceptional operating charges (Note 2) - (75) - - - (18) Goodwill amortisation - (1) - (1) - (3) Profit on sale of fixed assets (Note 2) - - - - - 7 ________________________________________________________________________________________ Continuing operations 1,531 (6) 1,474 99 2,739 104 ________________________________________________________________________________________ USA 49 (5) 90 (9) 181 (16) Exceptional operating charges (Note 2) - - - (35) - (35) Goodwill amortisation - - - (1) - (1) Exceptional non-operating charges (Note 2) - (61) - - - - ________________________________________________________________________________________ Discontinued operations 49 (66) 90 (45) 181 (52) ________________________________________________________________________________________ ________________________________________________________________________________________ Total Group 1,580 (72) 1,564 54 2,920 52 ________________________________________________________________________________________ WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 1 (c) Analysis of Retailing Stores and Selling Space Number of stores 1 Sept Opened Disposed Closed 29 Feb 2003 2004 ________________________________________________________________________________ WHSmith High Street 545 6 - (4) 547 UK Travel Retail 132 2 - (3) 131 ________________________________________________________________________________ UK Retailing 677 8 - (7) 678 ASPAC Retail 204 5 - (7) 202 ________________________________________________________________________________ Total Retailing Businesses - Continuing 881 13 - (14) 880 ________________________________________________________________________________ USA Travel Retail - Hotels 278 - (278) - - USA Travel Retail - Airports 160 7 (167) - - ________________________________________________________________________________ Total Retailing - Discontinued 438 7 (445) - - ________________________________________________________________________________ Total Retailing Businesses 1,319 20 (445) (14) 880 ________________________________________________________________________________ Retail selling square feet 1 Sept Opened Disposed Closed 29 Feb (000's) 2003 2004 ________________________________________________________________________________ WHSmith High Street 3,034 49 - (24) 3,059 UK Travel Retail 212 3 - (3) 212 ________________________________________________________________________________ UK Retailing 3,246 52 - (27) 3,271 ASPAC Retail 778 10 - (14) 774 ________________________________________________________________________________ Total Retailing Businesses - Continuing 4,024 62 - (41) 4,045 ________________________________________________________________________________ USA Travel Retail - Hotels 286 - (286) - - USA Travel Retail - Airports 154 11 (165) - - ________________________________________________________________________________ Total Retailing - Discontinued 440 11 (451) - - ________________________________________________________________________________ Total Retailing Businesses 4,464 73 (451) (41) 4,045 ________________________________________________________________________________ WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 2. Exceptional Items (a) (i) Exceptional items in the current year 6 months to 12 months to ___________________________________ 29 Feb 28 Feb 31 Aug Â£m 2004 2003 2003 ________________________________________________________________________________ UK Retailing Operational & Financial Review (note a) - Stock write down (45) - - - Impairment of intangible and tangible assets (17) - (6) - Other items (4) - - Publishing unearned author advances provision (note b) (9) - - Surplus property provision - - (12) USA impairment - (35) (35) ________________________________________________________________________________ (75) (35) (53) ________________________________________________________________________________ a) UK Retailing Operational & Financial Review As a result of a detailed review, we have written down Â£45m in the carrying value of stock. This reflects redundant and slow moving items, particularly as a result of the substantial slow down in the sales of certain entertainment product categories. Fixed asset impairments of Â£17m include the recent costs of research work on our concept store and systems development for UK Travel Retail. This impairment charge also covers goodwill and assets in relation to WHSmith Online. b) Publishing unearned author advances provision An exceptional provision of Â£9m has been charged to ensure that the balance sheet correctly reflects an up-to-date view of the future sales prospects of backlist titles published in previous years. The tax effect of the exceptional items is disclosed in note 5 to the accounts. (a) (ii) Exceptional items in the prior year Further impairment and write down of USA Travel Retail assets In the six months to February 2003, the Board reviewed the carrying value of the assets of the USA Travel Retail business and concluded that further material impairment had occurred. An exceptional charge of US$55m (Â£35m) was booked in the 2003 first half results. The charge was applied against goodwill US$15m (Â£9m) and fixed assets US$40m (Â£26m). As a result, the carrying value of USA Travel Retail assets in the balance sheet at 28 February 2003 was written down to US$68m (Â£43m). Surplus property provision As a result of a sub-tenant default and a deterioration in the London commercial property market in the year to 31 August 2003, a requirement arose to significantly increase the provision for onerous leases. Following a review of the provision at the year end, it was increased to Â£12m. Write down of fixed assets In the year to 31 August 2003, WHSmith High Street wrote down surplus fixed assets of Â£6m related to loss making stores and other sundry impaired short life assets. WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 (b) (i) Non-operating exceptional items in the current year USA Travel Retail disposal During the period, the Group has disposed of its USA Travel Retail Airport and Hotel businesses. A financial summary of the disposal of USA Travel Retail is as follows: USA USA Â£m Hotels Airports Total ________________________________________________________________________________ Fixed Assets - 9 9 Stock 7 8 15 Debtors 2 8 10 Creditors (1) - (1) _____________________________________ Total assets 8 25 33 Minority interest - (1) (1) _____________________________________ Net assets disposed 8 24 32 _____________________________________ Cash - 20 20 Deferred consideration (see below) 7 12 19 _____________________________________ Total consideration 7 32 39 Net assets disposed (8) (24) (32) Net liabilities retained (8) (15) (23) Transaction costs (1) (5) (6) _____________________________________ Loss before goodwill (10) (12) (22) __________________________ Goodwill previously written off to reserves (39) ___________ Loss on sale of discontinued operations (61) ___________ Deferred consideration - USA Travel Retail - Hotels Deferred consideration in respect of the Hotel business sale to Travel Traders LLC consists of a loan note which is interest bearing, with a 5 per cent coupon conditional on the trading cash flows of that company. - USA Travel Retail - Airports Deferred consideration in respect of the Airport business sale to Hudson Group consists of an interest bearing loan note with a 5 per cent coupon, with interest accruing from the second year. ASPAC Retail disposals The Group also disposed of its investment in Books and More NZ Limited, University Bookshop (Otago) Ltd and University Bookshop Canterbury Limited for a total consideration of Â£1.3m. The total investments disposed and associated costs were Â£1.0m and there was Â£0.3m profit on disposal. (b) (ii) Non-operating exceptional items in the prior year - sale of fixed assets In August 2003, WHSmith High Street completed the sale and leaseback of twenty freehold properties and sold a further four freehold properties. The profit on the sale of these properties was Â£6m. ASPAC Retail also completed the sale and leaseback of three properties in New Zealand. The profit on the sale of these properties was Â£1m. WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 3. Prior period adjustments Urgent Issues Task Force Abstract 38 'Accounting for ESOP Trusts' (UITF 38) has been adopted with effect from 1 September 2003. The adoption of UITF 38 requires that an entity's own shares held in an ESOP Trust to be deducted in arriving at shareholders' funds. The Group has adopted Application Note G 'Revenue Recognition' to Financial Reporting Standard 5 'Substance of Transactions' ('FRS 5 ANG'). The key impacts of this amendment for the Group are set out below: â€¢ FRS 5 ANG states that turnover excludes the sales value of estimated returns. Accordingly the provision for estimated refunds, which represents the cumulative estimate that will be returned and refunded after the period end, has now been deducted from turnover. â€¢ FRS 5 ANG states that turnover should be recorded net of discounts. Accordingly, discounts provided to customers and staff (including loyalty scheme costs) previously shown as deductions against gross margin, have been reclassified as deductions against turnover. â€¢ Other ancillary income previously deducted from administration costs have now been reclassified as part of turnover. (i) Consolidated balance sheet The table below sets out the impact of the adoption of UITF 38 on the balance sheet as at 28 February 2003 and 31 August 2003. There has been no impact on net assets arising from the adoption of FRS 5 ANG. Other Profit and Â£m Investments reserve loss account _______________________________________________________________________ At 28 February 2003 27 - 91 Adoption of UITF 38 (26) (27) 1 _______________________________________________________________________ 28 February 2003 restated 1 (27) 92 _______________________________________________________________________ Other Profit and Â£m Investments reserve loss account _______________________________________________________________________ At 31 August 2003 27 - 39 Adoption of UITF 38 (26) (27) 1 _______________________________________________________________________ 31 August 2003 restated 1 (27) 40 _______________________________________________________________________ The above restatement has reduced the net assets of the group by Â£26m. (ii) Consolidated profit and loss account Under UITF 38, impairment in the carrying value of shares is no longer charged to the profit and loss account, and as such, a prior year adjustment of Â£1m in respect of previous years' impairments has been made. If the previous policy had been continued in the current period, the impact on profit before and after tax would have been Â£nil. In accordance with the change in accounting policy to adopt FRS 5 ANG, group turnover for the period ended 28 February 2003 has been restated from Â£1,556m to Â£1,564m, and for the year ended 31 August 2003 has been restated from Â£2,900m to Â£2,920m. There has been no impact on profit before tax or profit after tax in respect of the restatements relating to FRS 5 ANG for both the period ended 28 February 2003 and the year ended 31 August 2003. If the previous policy had been continued in the current period, the impact on profit before and after tax would have been Â£nil. WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 4. Pensions Arrangements 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 29 Feb 28 Feb 2003 31 Aug Â£m 2004 As restated 2003 _____________________________________________________________________________ Total market value of assets 672 558 631 Present value of scheme liabilities (862) (752) (846) _____________________________________________________________________________ Deficit in the scheme (190) (194) (215) Related deferred tax asset 57 58 64 _____________________________________________________________________________ Net defined benefit scheme liabilities (133) (136) (151) Net retirement medical benefit liabilities (5) (2) (5) _____________________________________________________________________________ Net pension liabilities (138) (138) (156) _____________________________________________________________________________ Under FRS 17 ('Retirement Benefits'), 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 2003. 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. Movement in scheme deficit during the period At At At 29 Feb 28 Feb 2003 31 Aug Â£m 2004 As restated 2003 _____________________________________________________________________________ At beginning of period (215) (144) (144) Current service cost (8) (7) (13) Contributions 22 9 22 Interest cost (2) (2) (3) Loss on curtailment (1) - - Actuarial gain / (loss) 14 (50) (77) _____________________________________________________________________________ Deficit in scheme (190) (194) (215) _____________________________________________________________________________ WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 5. Taxation 6 months to 12 months ________________________________________ Â£m 29 Feb 2004 28 Feb 2003 31 Aug 2003 ________________________________________________________________________________ Corporation tax on UK profits 21 24 40 - Standard rate of UK corporation tax 30% (2003; 30%) Adjustment in respect of prior year UK corporation tax - - (6) Foreign tax 2 2 1 ________________________________________________________________________________ Total current tax charge 23 26 35 Deferred tax (2) 1 (4) ________________________________________________________________________________ Tax on profit on ordinary activities before exceptional items and goodwill amortisation 21 27 31 Tax on exceptional items (9) - (2) ________________________________________________________________________________ Tax on profit on ordinary activities after exceptional items and goodwill amortisation 12 27 29 ________________________________________________________________________________ Effective tax rate before exceptional items and goodwill amortisation - continuing operations 30% 27% 26% 6. Dividends 6 months to 12 months _____________________________________ Â£m 29 Feb 2004 28 Feb 2003 31 Aug 2003 __________________________________________________________________________________ Interim 4.0p 6.0p 6.0p __________________________________________________________________________________ Final 13.0p _________ Total 19.0p __________________________________________________________________________________ Â£m __________________________________________________________________________________ Interim 10 15 15 __________________________________________________________________________________ Final 32 _________ Total 47 __________________________________________________________________________________ The interim dividend will be paid on 24 June 2004 to shareholders registered at the close of business on 28 May 2004. As at 29 February 2004 the Company had 250,543,733 shares in issue. WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 7. Earnings Per Share 6 months to 12 months _____________________________________ Â£m 29 Feb 2004 28 Feb 2003 31 Aug 2003 __________________________________________________________________________________ (Loss) / profit attributable to shareholders (Â£m) (84) 27 23 Exceptional items net of related taxation 127 35 44 Goodwill amortisation 1 2 4 __________________________________________________________________________________ Adjusted earnings (Â£m) 44 64 71 __________________________________________________________________________________ __________________________________________________________________________________ Weighted average shares in issue for earnings per share (m) 244 245 244 __________________________________________________________________________________ Add weighted average number of ordinary shares under option - - - __________________________________________________________________________________ Weighted average ordinary shares for fully diluted earnings per share (m) 244 245 244 __________________________________________________________________________________ __________________________________________________________________________________ (Loss) / earnings per share - Basic (34.4)p 11.0p 9.4p __________________________________________________________________________________ (Loss) / earnings per share - Diluted (34.4)p 11.0p 9.4p __________________________________________________________________________________ Adjusted earnings per share - Basic 18.0p 26.1p 29.1p __________________________________________________________________________________ Adjusted earnings per share - Diluted 18.0p 26.1p 29.1p __________________________________________________________________________________ The weighted number of ordinary shares in issue is stated after excluding 6,682,660 shares held solely for the purpose of satisfying obligations under employee share schemes. 8. Fixed Charges Cover 6 months to 12 months _____________________________________ Â£m 29 Feb 2004 28 Feb 2003 31 Aug 2003 __________________________________________________________________________________ Interest expense 2 2 4 Operating lease rentals 91 95 206 Property taxes 18 18 36 Other property costs 16 7 13 _________________________________________________________________________________ Total fixed charges 127 122 259 Profit before tax, exceptional items and goodwill amortisation 65 91 102 _________________________________________________________________________________ Profit before tax, exceptional items, goodwill amortisation and fixed charges 192 213 361 _________________________________________________________________________________ Fixed charges cover 1.5x 1.8x 1.4x _________________________________________________________________________________ Fixed charges cover is calculated by dividing profit before tax, exceptional items, goodwill amortisation, and fixed charges by total fixed charges. WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 9. Fixed Assets (a) Changes in Fixed Assets ________________________________________________________________________________ Costs of shares acquired for employee Investment in Fixed share associated Â£m Assets schemes undertakings Total ________________________________________________________________________________ Net Book Value at 1 September 2003 272 26 1 299 Prior year adjustment on adoption of UITF 38 - (26) - (26) ________________________________________________________________________________ Restated Net Book Value at 1 September 2003 272 - 1 273 Additions 24 - - 24 Disposals (11) - - (11) Depreciation (24) - - (24) Impairment charge in the period (10) - - (10) Currency translation differences (2) - - (2) ________________________________________________________________________________ Net Book Value at 29 February 2004 249 - 1 250 ________________________________________________________________________________ (b) Analysis of Fixed Assets At At At Â£m 29 Feb 2004 28 Feb 2003 31 Aug 2003 ________________________________________________________________________________ Freehold and long leasehold property 24 39 24 Short leasehold 82 100 90 Fixtures, fittings and equipment 143 154 158 ________________________________________________________________________________ Net Book Value 249 293 272 ________________________________________________________________________________ 10. Financial Assets and Liabilities At At At Â£m 29 Feb 2004 28 Feb 2003 31 Aug 2003 ________________________________________________________________________________ Cash at bank and in hand 54 67 90 Repayable within one year or on demand (24) (34) (20) Repayable in more than five years (2) (2) (2) ________________________________________________________________________________ Net Funds 28 31 68 ________________________________________________________________________________ WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 10. Financial Assets and Liabilities (continued) At At At Â£m 29 Feb 2004 28 Feb 2003 31 Aug 2003 ________________________________________________________________________________ Cash at bank and in hand (note a) 54 67 90 ________________________________________________________________________________ Debt - Sterling floating rate (note b) (24) (34) (20) - Sterling fixed rate (note c) (2) (2) (2) ________________________________________________________________________________ Net Funds 28 31 68 ________________________________________________________________________________ a) Cash at bank is held on short-term deposit, bearing interest at an average rate of 3.6% (2003; 3.8%). Material foreign exchange exposure at 29 February 2004 relates to the financial assets and liabilities in Hodder Headline, UK Travel Retail and ASPAC Retail. Cash at bank and in hand includes Â£6m (2003; Â£1m) worth of US dollars, Â£16m (2003; Â£11m) in Australian dollars, Â£6m (2003; Â£9m) in New Zealand dollars, Â£1m (2003; Â£1m) in Singapore dollars, Â£1m (2003; Â£1m) in Hong Kong dollars and Â£1m (2003; 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. At 29 February 2004, the Group had unutilised multi-currency revolving committed facilities of Â£195m, of which Â£62m bears an interest rate of LIBOR plus 45 basis points and is repayable May 2004, and Â£133m which bears an interest rate of LIBOR plus 50 basis points and expires in May 2007. c) Sterling fixed rate debt includes 5.125% redeemable unsecured loan stock of Â£2m (2003; Â£2m). d) In addition to the above, at 29 February 2004, the Group had unredeemed 'B' shares of Â£2m which carry a non-cumulative preferential dividend set at 75% of six month LIBOR. 11. Reserves Share Capital Profit and premium redemption Revaluation Other loss Â£m account reserve reserve reserve account ____________________________________________________________________________________ At 1 September 2003 as previously stated 93 156 4 - 39 Prior period restatement for UITF 38 - - - (27) 1 ____________________________________________________________________________________ At 1 September 2003 93 156 4 (27) 40 Loss retained for the period - - - - (94) Currency translation differences - - - - (4) Goodwill previously written off - - - - 39 ____________________________________________________________________________________ Reserves excluding current period pension deficit at 29 February 2004 93 156 4 (27) (19) Current period net pension deficit adjustment - - - - 10 ____________________________________________________________________________________ Reserves at 29 February 2004 93 156 4 (27) (9) ____________________________________________________________________________________ The profit and loss account reserve at 29 February 2004 is stated after previously writing off acquired goodwill of Â£19m (2003; Â£58m). WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 12. Notes to the Cash Flow Statement (a) Reconciliation of operating (loss) / profit to net cash inflow from operating activities 6 months to 12 months _______________________________________ Â£m 29 Feb 2004 28 Feb 2003 31 Aug 2003 ____________________________________________________________________________________ Operating (loss) / profit (9) 56 49 Additional pension funding (note a) (12) - (6) Operating exceptional items 75 35 53 Depreciation of fixed assets 24 27 49 Goodwill amortisation 1 2 4 (Increase) / decrease in stock (29) (13) 3 Decrease / (increase) in debtors 7 (18) (17) (Decrease) / increase in creditors (28) (26) 6 Cash spend against provisions - (1) (4) ____________________________________________________________________________________ Net cash inflow from operating activities before exceptional items 29 62 137 Cash outflow relating to operating exceptional items (note b) (1) - (2) ____________________________________________________________________________________ Net cash inflow from operating activities after exceptional items 28 62 135 ____________________________________________________________________________________ a) For the six months ended 29 February 2004, Â£22m (2003; Â£9m) cash contributions have been made to the pensions schemes. The associated profit and loss charge comprises Â£8m (2003; Â£7m) for operating costs and Â£2m (2003; Â£2m) financing charge. b) Cash outflow relating to operating exceptional items consists of Â£1m in relation to the exceptional surplus property provision. (b) Reconciliation of net cash flow to movement in net cash 6 months to 12 months _______________________________________ Â£m 29 Feb 2004 28 Feb 2003 31 Aug 2003 ____________________________________________________________________________________ Net funds at the start of the period 68 44 44 ____________________________________________________________________________________ Decrease in cash in the period (34) (33) (10) Currency translation differences (2) 2 2 Cash flow from (increase) / decrease in debt (4) 18 32 ____________________________________________________________________________________ Net funds at the end of the period 28 31 68 ____________________________________________________________________________________ WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 29 February 2004 13. Transactions with related parties USA Travel Retail - Hotels The CEO of Travel Traders LLC is Sean Anderson who was Chairman of WHSmith Inc, WH Smith PLC's US subsidiary, until September 2003, and he holds a 30% stake in Travel Traders LLC. The total consideration of Â£7m for the USA Travel Retail Hotel Business was satisfied by way of an interest bearing loan note with a 5 per cent coupon, conditional on the trading cash flows of Travel Traders LLC. Additionally WH Smith Group Holdings (USA) Inc. holds a 15% equity interest in Travel Traders LLC and the Group is providing a loan facility of up to Â£4m to the new company. 14. Post Balance Sheet Event Subsequent to the balance sheet date, the company has announced plans for internal restructuring of its UK Retailing and Group Head Office functions, leading to a material reduction in the number of staff at its London and Swindon locations. The total redundancy and associated costs of this programme are estimated to be Â£11m. Of this amount, Â£1m has been included within these accounts, and Â£10m will be charged in the second half of the year. 15. Basis of Preparation The interim announcement for the 6 months to 29 February 2004 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 2003 with the exception of the adoption of UITF 38 'Accounting for ESOP Trusts' and Application Note G 'Revenue recognition' to Financial Reporting Standard 5 'Substance of Transactions'. 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 2003. 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. 16. Approval of Interim Statement The Interim Statement was approved by the Board of Directors on 22 April 2004. Deloitte & Touche LLP 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, Reconciliation of movement in group shareholders' funds and extracts of notes 1, and notes 2, 3, 5, 6, 7, 12, 13, 14, 15 and 16 of this document. The Interim Statement will be available on WH Smith PLC's website and mailed to shareholders by 16 May 2004. 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 29 February 2004 which comprises the Group profit and loss account, the Group balance sheet, the Group cash flow statement and associated notes, the Group statement of total recognised gains and losses, Reconciliation of movement in Shareholders' funds and related notes 1 - 9. 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 29 February 2004. Deloitte & Touche LLP Chartered Accountants London 22 April 2004 This information is provided by RNS The company news service from the London Stock Exchange

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