Interim Results/Disposal Pt 1

Smith WH PLC 12 April 2001 PART 1 12 April 2001 Interim Announcement Of Results For The Six Months To 28 February 2001 And Intention To Sell News Distribution Business Interim Results WH Smith PLC announced today its results for the six months to 28 February 2001. Profit before tax was £100m (2000 - £101m). Earnings per share were 29.2 pence per share (2000 - 29.2 pence). Sales amounted to £1.44 billion, including a 6 per cent increase in comparable retail sales. Key Points * Strong retail sales performance, profits up 9 per cent to £83m * Comparable UK retailing sales up 6 per cent * Good sales growth in books, up 4 per cent, stationery, up 5 per cent and entertainment, up 11 per cent * UK retailing profits up 5 per cent to £77m * International retailing doubled profits to £6m * Publishing sales up 11 per cent and profits up 13 per cent to £9m * News Distribution profits £6m worse at £12m - soft magazine market and increased investment in infrastructure * An interim dividend of 6.0 pence per share has been declared (2000 - 6.0 pence) Current Trading The performance of UK retailing is continuing to show positive trends with like for like sales in the 5 week period since 1 March 2001 up 9 per cent. However, like for like sales in International retailing are flat, reflecting the impact of reduced occupancy rates in US hotels. News Distribution sales are down reflecting continuing weakness in the magazine market. Commenting on the outlook for the year, Richard Handover, Chief Executive said: 'I am very pleased with the performances of our retailing and publishing businesses in the first half of the year and the outlook for these businesses remains encouraging.' Enquiries: Richard Handover Chief Executive 020 7514 9623/5 John Warren Finance Director Richard Manhire Investor Relations 020 7514 9686 Philippa Power Corporate Affairs 020 7514 9624 To see video interviews with Richard Handover and John Warren go to www.whsmithplc.com. Chief Executive's Comments Commenting on the results to date, Richard Handover, Chief Executive said: 'The UK High Street and Travel businesses have performed well despite the disrupted trading environment. We have had good sales growth from books and stationery while magazine sales have been only marginally ahead of last year. Entertainment sales have performed very strongly in the period. 'The shift in the sales mix towards lower margin entertainment product has caused a reduction in gross margin. In the second half we anticipate a partial improvement in the gross margin. 'The USA business has made a significant improvement in its profit performance and is in line with expectations. However, the slowdown of the US economy is reducing US hotel occupancy rates which will have an impact on the second half. 'Hodder Headline has had an excellent six months with sales and profits up very strongly. Particular successes were David Beckham's autobiography and novels by John le Carre and James Patterson. 'The News Distribution business has had a very difficult six months in part reflecting the soft magazine market. However, the planned continued systems upgrading, the increasing weight of newspapers and the National Distribution initiative have all increased costs. In January we announced our commitment to an Industry Solution to take the development of the supply chain forward on an agreed industry-wide basis and in February we were delighted to secure the renewal of the Frontline magazine distribution contract. These developments have considerably strengthened the outlook for this business.' Commentary The WHSmith retailing businesses achieved profits of £83m (2000 - £76m), with sales of £925m (2000 - £846m). In a retail market which suffered significant disruption from external factors, our UK retailing activities achieved comparable sales growth of 6 per cent, with operating profits of £77m (2000 - £73m). Book sales grew by 4 per cent, maintaining our leading share of the market. Stationery sales grew by 5 per cent and magazine sales grew by 1 per cent, with good growth in other news and express categories of 15 per cent. Entertainment showed strong sales growth of 11 per cent, driven primarily by DVD sales and strong music releases against a weaker prior period. Own brand sales grew by 16 per cent in the period, further increasing its share of total UK retail sales. Overall, UK retailing gross margins were down 0.7 percentage points. As highlighted in our January trading statement, this is principally due to increased sales of lower margin categories. Total expenses grew by £8m, representing a 0.7 percentage point reduction as a proportion of sales. As a result, net margins for UK retailing were flat at 9.6 per cent. Total retail selling space is 3.1 million square feet with average selling space increasing by 0.5 per cent in the period. The business has opened two new London Underground stores (Stratford and Westminster) and a store at Clapham Junction. Another metro style format has recently been opened in Tottenham Court Road, a new factory outlet store at Cheshire Oaks is opening in April and two out of town stores at Fort Kinnaird and New Mersey will open in the second half. The rate of space growth will increase in the second half. WHSmith Online increased sales by 47 per cent to £5m. Margins have been held despite pressure from discounting and promotion led activity. We continue to develop the fulfilment capability and improve the service to the customer as part of an integrated UK retail proposition. In the USA sales increased by 35 per cent to £114m up 2 per cent on a comparable basis. The performance of the business, following on from a much improved second half of last year, was driven principally by new store developments (44 outlets were opened in the period) and the impact of the Benjamin and Hazelwood acquisitions made in the second half of last year. Profits of £6m were up £3m on the previous year and net margins improved significantly to 5.3 per cent (2000 - 3.6 per cent). In Asia sales have grown by 40 per cent to £8m with good performances in both Singapore and Hong Kong airports and encouraging results from the Australian operations. Our publishing business achieved sales of £68m (up 11 per cent) and profits of £9m (up 13 per cent). Trading profits at Hodder Headline were up by £2m. Popular consumer releases and good growth in educational products resulted in a strong margin performance in the period. This was partially offset by Helicon losses of £0.8m which arose as a result of weaker sales activity in the period and further investment in future product development. The sale of Hodder Headline books to WHSmith stores increased by 25 per cent to £10m. Hodder Headline's strong sales performance was led by 'David Beckham: My World' by David Beckham and 'The Constant Gardener' by John le Carre. There were also very strong contributions from Josephine Cox, Stephen King, James Patterson, Mike Gayle and Michel Thomas' educational language books. WHSmith News Distribution sales were flat at £507m reflecting, in particular, a downturn in the magazine market. As a result, gross margin was also flat year on year. There were significant additional operating costs firstly as a result of the National Distribution initiative and, secondly, due to the progressive rollout of new SAP- based systems. Finally the increasing weight of newspapers is adding further cost. When fully implemented, the investment in SAP will increase operational efficiency and position the News business favourably in a sector that it already leads. Operating profits were therefore impacted, down by £6m, from £18m to £12m in the current period. With the non-recurrence of this year's one-off costs and the efficiency benefits from the SAP systems beginning to flow through, we anticipate significant profit recovery next year. Operating profit was £97m (2000 - £98m). Interest income was flat at £3m. Earnings were 29.2 pence per share, in line with last year and accordingly, the interim dividend has been maintained at 6.0 pence. This is consistent with our stated intention broadly to maintain the dividend cover. The financial position of the business remains robust with £77m of net cash and total net assets of £651m. Free cash flow amounted to £17m which was in line with expectations (2000 - £74m). This reflected higher stock levels which improved customer service and availability and a reduction in creditors which was due to timing of payments to major suppliers. Planned capital expenditure also showed a significant increase year on year at £35m and will be in the order of £70m in the full year (2000 - £60m). A significant improvement in cashflow performance is expected in the second half. During the six months the company purchased 2.3 million of its own shares costing £9m. In addition the company purchased a further 3 million shares costing £13m to meet future obligations under existing employee share schemes. Sale Of News Distribution Business Following a strategic review, the Board of WH Smith PLC announced today its intention to sell the News Distribution business. Commenting on this decision, Richard Handover, Chief Executive said: 'Our strategy is to build a strong retail business supported by content from a strong and vibrant publishing business. We believe that there is considerable growth potential domestically and internationally for both our retailing and publishing interests. Our News Distribution business, despite its excellent record of cash generation and good future prospects, is not core to this strategy and accordingly the Board have decided to put this business up for sale.' WH Smith PLC Group Profit and Loss Account For the 6 months to 28 February 2001 12 months 6 months to to 31 Aug 2000 £m ---------------- Note 28 Feb 29 Feb 2001 £m 2000 £m =========================== ==== ======= ======= ========= Sales 1 1,438 1,355 2,584 =========================== ==== ======= ======= ========= Operating profit 1 97 98 135 Profit on sale of operation - - 1 Amount written off investment in own shares - - (2) --------------------------- ---- ------- ------ --------- Profit on ordinary activities before interest and taxation 97 98 134 Interest 3 3 6 --------------------------- ---- ------- ------ --------- Profit on ordinary activities before taxation 100 101 140 Tax on profit on ordinary activities 3 (28) (28) (39) --------------------------- ---- ------- ------ --------- Profit on ordinary activities after taxation 72 73 101 Minority interests - - (1) --------------------------- ---- ------- ------ --------- Profit attributable to shareholders 72 73 100 Dividends 4 (15) (15) (48) --------------------------- ---- ------- ------ --------- Retained earnings 57 58 52 =========================== ==== ======= ======= ======= Earnings per share 5 29.2p 29.2p 40.2p Diluted earnings per share 5 28.9p 29.2p 40.0p Dividend per share 4 6.0p 6.0p 19.0p Fixed charges cover - times 6 2.0x 2.1x 1.7x Dividend cover - times 4.8x 4.9x 2.1x Tax charge 3 28.0% 28.0% 28.0% WH Smith PLC Group Balance Sheet As at 28 February 2001 At At At 28 Feb 29 Feb 31 Aug 2001 2000 2000 Note £m £m £m =========================== === ======= ======= ======= Fixed assets Goodwill 9 228 207 222 Fixed assets 10 319 276 295 --------------------------- --- ------- ------- ------- Total fixed assets 547 483 517 Current assets Stock 247 216 216 Debtors 176 163 160 Cash at bank and in hand 12 104 212 152 --------------------------- --- ------- ------- ------- 527 591 528 Creditors due within one year Debt 12 - (38) (1) Other (380) (388) (394) --------------------------- --- ------- ------- ------- (380) (426) (395) --------------------------- --- ------- ------- ------- Net current assets 147 165 133 --------------------------- --- ------- ------- ------- Total assets less current 694 648 650 liabilities --------------------------- --- ------- ------- ------- Creditors due after more than one year Debt 12 (27) (29) (28) Other (3) (2) (4) --------------------------- --- ------- ------- ------- (30) (31) (32) Provisions for liabilities and charges 11 (13) (17) (14) --------------------------- --- ------- ------- ------- TOTAL NET ASSETS 651 600 604 =========================== === ======= ====== ====== Equity Share capital 13 139 140 140 Share premium 14 86 84 86 Capital redemption reserve 14 156 155 155 Revaluation reserve 14 8 8 8 Profit and loss account 14 256 209 210 --------------------------- --- ------- ------- ------- Equity shareholders' funds 645 596 599 Non equity share capital 13 2 2 2 --------------------------- --- ------- ------- ------- Shareholders' funds 647 598 601 Minority interests 4 2 3 --------------------------- --- ------ ------ ------- TOTAL EQUITY 651 600 604 =========================== === ====== ====== ====== Memorandum - Analysis of net cash £m £m £m --------------------------- --- ------- ------- ------- Cash at bank and in hand 104 212 152 Debt less than one year - (38) (1) Debt greater than one year (27) (29) (28) --------------------------- --- ------- ------- -------- Net cash 77 145 123 =========================== === ======= ====== ======== WH Smith PLC Group Cash Flow Statement For the 6 months to 28 February 2001 6 months to 12 months to 31 Aug 2000 ----------------- 28 Feb 29 Feb 2001 2000 Note £m £m £m ================================= ======= ======= ======== 15 Cash flow from operating activities 60 101 163 Returns on investment and servicing of finance 3 3 6 Taxation (11) (7) (27) Purchase of fixed assets (48) (23) (60) Disposal of fixed assets - 2 3 --------------------------------- -------- ------- -------- Cash flow from capital expenditure and financial investment (48) (21) (57) Proceeds on disposal of operation - - 1 Acquisitions - cash consideration (8) (5) (23) -------------------------------- -------- ------- -------- Cash flow for acquisitions and disposals (8) (5) (22) -------------------------------- -------- ------- -------- Equity dividends paid (33) (31) (47) -------------------------------- -------- ------- -------- Cash flow before use of liquid resources and financing (37) 40 16 Issue of shares - - 2 Repurchase of shares (9) - - Decrease in debt (2) (2) (40) -------------------------------- -------- ------- -------- Cash flow from financing (11) (2) (38) -------------------------------- -------- ------- -------- (Decrease)/increase in cash (48) 38 (22) ================================ ======== ======= ======== 6 months to 12 months to 31 Aug 2000 ---------------- Memorandum - Analysis of free cashflow (£m) 28 Feb 29 Feb 2001 2000 £m £m £m =============================== ======= ======= ======= Profit before tax 100 101 140 Depreciation/amortisation of goodwill 24 21 44 Movement in working capital (60) (16) (10) Capital expenditure on fixed assets (35) (23) (60) Proceeds on disposal of fixed assets - - 1 Tax paid (11) (7) (27) Cash spend against reorganisation (1) (2) (5) provisions -------------------------------- -------- ------- -------- Free cash flow 17 74 83 Dividends (33) (31) (47) Issue of shares - - 2 Acquisitions - cash consideration (8) (5) (23) Purchase of own shares for employee share schemes (13) - - Repurchase of own shares (9) - - Proceeds on disposals - 2 3 -------------------------------- -------- ------- -------- Cash movement in debt (46) 40 18 Opening net cash 123 105 105 -------------------------------- -------- ------- -------- Closing net cash 77 145 123 ================================ ======= ====== ======== WH Smith PLC Consolidated Statement of Total Recognised Gains and Losses For the 6 months to 28 February 2001 6 months to 12 months ---------------- 28 Feb 29 Feb to 2001 2000 31 Aug 2000 £m £m £m ================================= ======== ======= ======== Profit attributable to shareholders 72 73 100 Currency translation differences (2) - 7 -------------------------------- -------- ------- -------- Total recognised gains for the period 70 73 107 ================================= ======== ======= ======== Reconciliation of Movements in Consolidated Shareholders' Funds For the 6 months to 28 February 2001 6 months to ------------------- 28 Feb 29 Feb 2001 2000 £m £m ============================================== ====== ====== Shareholders' funds at beginning of period 601 540 ---------------------------------------------- ------- ------ Retained earnings 57 58 Repurchase of shares (9) - Currency translation differences (2) - ---------------------------------------------- ------- ------ Net additions to shareholders' funds 46 58 ---------------------------------------------- ------- ------ Shareholders' funds at end of period 647 598 ============================================== ======= ====== MORE TO FOLLOW

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