12th Oct 2006 07:01
Smiths News PLC12 October 2006 Group Income Statement for the year ended 31 August 2006 ______________________________________________________________________________ 2006 2005______________________________________________________________________________ £m Note_________________________________________________________ ______________Continuing operationsRevenue 2 1,095 1,074_________________________________________________________ ______________Operating profit 2,3 34 33Finance costs (2) (1)_________________________________________________________ ______________Profit before tax 32 32Income tax expense 5 (6) (7)_________________________________________________________ ______________Profit after tax from continuing operations 26 25Profit for the year from discontinued operations 13 32 22_________________________________________________________ ______________Profit for the year 58 47============================================================================== NoteEarnings per shareBasic - continuing operations 7 15.1p 14.2pDiluted - continuing operations 7 15.0p 14.0pBasic 7 33.7p 26.6pDiluted 7 33.5p 26.3p______________________________________________________________________________Non GAAP measuresEquity dividends per share(1) 4.0p______________________________________________________________________________ (1) Dividend per share is the final proposed dividend Group Balance Sheet at 31 August 2006 _____________________________________________________________________________ £m Note 2006 2005_____________________________________________________________________________ Non-current assetsGoodwill - 15Other intangible assets 3 18Property, plant and equipment 19 219Deferred tax assets 16 57_____________________________________________________________________________ 38 309_____________________________________________________________________________ Current assetsInventories 12 162Trade and other receivables 70 111Cash and cash equivalents 8 11 46_____________________________________________________________________________ 93 319_____________________________________________________________________________ Total assets 131 628_____________________________________________________________________________ Current liabilitiesTrade and other payables (118) (303)Current tax liabilities (15) (27)Obligations under finance leases 8 (1) (6)Bank overdrafts and other borrowings 8 - (45)Short-term provisions - (5)_____________________________________________________________________________ (134) (386)_____________________________________________________________________________ Non-current liabilitiesBank loans and other borrowings 8 (50) (37)Retirement benefit obligation 4 (49) (103)Deferred tax liabilities (2) (16)Long-term provisions (1) (12)Obligations under finance leases 8 (2) (14)Other non-current liabilities - (8)_____________________________________________________________________________ (104) (190)_____________________________________________________________________________ Total liabilities (238) (576)_____________________________________________________________________________ Total net (liabilities)/assets (107) 52_____________________________________________________________________________ Group Balance Sheet at 31 August 2006 (continued) _____________________________________________________________________________ £m Note 2006 2005_____________________________________________________________________________ Total equityCalled up share capital 11 9 660"B" Share reserve 11 - 2"C" Share reserve 11 - 8ESOP reserve (7) (34)Revaluation reserve - 3Other reserve (280) (278)Retained earnings 171 (309)_____________________________________________________________________________ Total equity (107) 52_____________________________________________________________________________ Group Cash Flow Statement for the year ended 31 August 2006 _____________________________________________________________________________ £m Note 2006 2005_____________________________________________________________________________ Net cash inflows/(outflows) from operating activities 10 105 (22)Investing activitiesInterest received 2 4Proceeds on disposal of property, plant and equipment 10 2Proceeds on disposal of subsidiary - 222Proceeds on settlement of loan notes 11 -Non-operating disposal costs (3) (10)Net cash in subsidiaries disposed (66) -Purchase of property, plant and equipment (26) (29)Purchase of intangible assets (5) (3)_____________________________________________________________________________ Net cash (outflows)/inflows from investing activities (77) 186_____________________________________________________________________________ Financing activitiesInterest paid (7) (6)Dividend paid (25) (21)Repayments of obligations under finance leases (6) (6)New bank loans raised (net of financing costs) 49 61Repayments of borrowings (76) -Derivative cash movements (1) -"C" share dividend paid on capital - (143)reorganisationPurchase of shares for employee share schemes - (12)Money returned to ESOP Trust after share capital reorganisation - 5Issue of shares to satisfy employee share schemes 6 2Repurchase of equity component of "C" shares (3) (62)_____________________________________________________________________________ Net cash outflows from financing activities (63) (182)_____________________________________________________________________________ Net increase / (decrease) in cash and cash equivalents - continuing operations 4 (6)Net increase / (decrease) in cash and cash equivalents - discontinued operations 27 (12)Net cash in subsidiaries disposed - discontinued operations (66) -_____________________________________________________________________________ Net decrease in cash and cash equivalents in year (35) (18)_____________________________________________________________________________ Opening net cash and cash equivalents 46 64_____________________________________________________________________________ Closing net cash and cash equivalents 11 46_____________________________________________________________________________ £m Note 2006 2005_____________________________________________________________________________ Reconciliation of net cash flow to movement in net (debt) / funds_____________________________________________________________________________ Net (debt) / funds at beginning of the year (56) 35IAS 39 - "B" and "C" shares reclassified as financial liabilities (7) -Decrease in cash and cash equivalents (35) (18)Decrease / (increase) in debt 39 (63)Net movement in finance leases 17 (10)_____________________________________________________________________________ Net debt at end of the year 8 (42) (56)_____________________________________________________________________________ Group Statement of Recognised Income and Expense for the year ended 31 August2006 _____________________________________________________________________________ £m 2006 2005_____________________________________________________________________________ Exchange differences arising on translation of foreign operations (2) -Loss on cash flow hedges (2) -Actuarial losses on defined pension schemes (Note 4) (33) (42)UK deferred tax attributable to pension scheme liabilities 7 (27)UK current tax attributable to the additional pension scheme contributions 4 39_____________________________________________________________________________ Net expense recognised directly in equity (26) (30) Profit for the year 58 47_____________________________________________________________________________ Total recognised income and expense for the year 32 17_____________________________________________________________________________ Total recognised income and expense for the year is fully attributable to theequity holders of the parent company. Reconciliation of movements in equity for the year ended 31 August 2006 £m Share "B" "C" Share Other Capital Revaluation ESOP Translation Retained Total Capital Share Share Premium Reserve Reserve Reserve Reserve & Hedging Earnings Reserve Reserve Reserve_____________________________________________________________________________________________________________Balance at 1 September 2004 139 2 - 93 - 156 3 (27) - (105) 261Capital reorganisationand pro formarestatement 519 - 70 (93) (278) (156) - - - (62) -_____________________________________________________________________________________________________________Balance at 1 September 2004restated 658 2 70 - (278) - 3 (27) - (167) 261_____________________________________________________________________________________________________________Total recognisedincome andexpense forthe year - - - - - - - - - 17 17Dividends paid - - - - - - - - - (164) (164)Repurchase of non-equityshare capital - - (62) - - - - - - - (62)Purchase of own shares foremployee sharescheme - - - - - - - (12) - - (12)Money returned to ESOP Trustafter sharecapitalreorganisation - - - - - - - 5 - - 5Employee share schemes 2 - - - - - - - - - 2Recognition of share basedpayments - - - - - - - - - 5 5_____________________________________________________________________________________________________________Balance at 31 August 2005 660 2 8 - (278) - 3 (34) - (309) 52Cumulative adjustment forimplementationof IAS 39 - (2) (5) - - - - - - - (7)_____________________________________________________________________________________________________________Balance restated at 1September 2005for adoptionof IAS 39 660 - 3 - (278) - 3 (34) - (309) 45 Total recognisedincome andexpense forthe year - - - - - - - - (4) 36 32Dividends paid - - - - - - - - - (25) (25)Employee share schemes 8 - - - (2) - - 5 - (5) 6Recognition of share basedpayments - - - - - - - - - 6 6Repurchase of non equityshare capital - - (3) - - - - - - - (3)Reduction in capital (659) - - - - - - - - 659 -Dividend in specie - - - - - - (3) 22 4 (191) (168)_____________________________________________________________________________________________________________Balance at 31 August 2006 9 - - - (280) - - (7) - 171 (107)_____________________________________________________________________________________________________________ 1. Basis of Preparation The consolidated Group financial statements have been prepared in accordancewith International Financial Reporting Standards ('IFRS') as adopted by theEuropean Union and with those parts of the Companies Act 1985 applicable tocompanies reporting under IFRS. These are those standards, subsequent amendmentsand related interpretations issued and adopted by the International AccountingStandards Board ('IASB') that have been endorsed by the European Union at theyear end. The Group previously reported under UK Generally Accepted AccountingPrinciples ('UK GAAP'). The date of transition to IFRS is 1 September 2004. The consolidated Group financial statements have also been prepared inaccordance with IFRS adopted for use in the European Union and therefore complywith Article 4 of the EU IAS Regulation. At the date of authorisation of these consolidated Group financial statements,the following Standards and Interpretations which have not been applied in thesefinancial statements were in issue but not yet effective: International Financial Reporting Interpretations Committee ('IFRIC') IFRIC 4 Determining whether the arrangement contains a leaseIFRIC 8 Scope of IFRS2 - Share Based PaymentsIFRIC 9 Reassessment of Embedded Derivatives International Accounting Standards ('IAS') Amendment to IAS 39 Cash Flow Hedge Accounting of Forecast Intragroup Transactions The directors anticipate that the adoption of these standards andinterpretations in future years will have no material impact on the Groupfinancial statements except for the additional disclosures on capital andfinancial instruments when the relevant standards come into effect for thefinancial year commencing on or after 1 September 2006. Accounting convention The financial statements are drawn up on the historical cost basis ofaccounting. The financial information is rounded to the nearest million, exceptwhere otherwise indicated. The principal accounting policies, which have beenapplied consistently throughout both years, have been set out below. Basis of consolidation The consolidated Group financial statements incorporate the financial statementsof Smiths News PLC and all its subsidiaries up to the year end date. Subsidiary undertakings are all entities over which the Group has the power togovern the financial and operating policies generally accompanying ashareholding of more than one half of the voting rights so to obtain benefitsfrom its activities. Goodwill arising on acquisition is recognised as an asset and initially measuredat cost, being the excess of the cost of the business combination over theGroup's interest in the net fair value of the identifiable assets, liabilitiesand contingent liabilities recognised. If, after reassessment, the Group'sinterest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, after taking into account recognised goodwill, the excess isimmediately recognised in profit and loss. The separable net assets, both tangible and intangible of the newly acquiredsubsidiary undertakings are incorporated into the financial statements on thebasis of the fair value as at the effective date of control, if appropriate. Results of subsidiary undertakings disposed of during the financial year areincluded in the financial statements up to the effective date of disposal. Wherea business component representing a separate major line of business is disposedof, or classified as held for sale, it is classified as a discontinuedoperation. The post-tax profit or loss of the discontinued operations is shownas a single amount on the face of the income statement, separate from the otherresults of the Group. All intercompany transactions, balances and unrealised gains on transactionsbetween Group companies are eliminated. IFRS 1 First-time adoption These financial statements show the results for the year ended 31 August 2006and 31 August 2005. The results for the year ended 31 August 2005 have beenextracted from the consolidated WH Smith Group's financial statements for thatyear and have been adjusted for the effects of changes in accounting policies ontransition to IFRS. These adjustments were set out in detail in the WH SmithGroup's "Restatement of financial information under International FinancialReporting Standards" document which was published in full on 29 November 2005and is available on the WH Smith Group's website at www.whsmithplc.com/grp/WHSPLC-IR-Reports.htm. IFRS 1 First-time adoption of International Financial Reporting Standards setsout the requirements for the first time adoption of IFRS. The disclosuresrequired by IFRS 1 - 'First-time Adoption of International Financial ReportingStandards' concerning the transition from UK GAAP to IFRS are given in the fullset of financial statements. Adoption of IAS 32 and IAS 39 As permitted by IFRS 1, Smiths News PLC elected to defer implementation of IAS32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'FinancialInstruments: Recognition and Measurement' until the year commencing 1 September2005. The effect of the adoption of IAS 39 is to reduce net assets by £7 millionresulting from the reclassification of non-equity share capital to financialliabilities. The Group has designated the majority of its foreign exchangederivatives as cash flow hedges as at 1 September 2005 and there was no effecton the balance sheet in respect of this. Reverse Acquisition Accounting During the year under review Smiths News PLC has undergone significantre-organisation in order to effect the demerger of the WH Smith PLC (containingthe Retail Business) from Smiths News PLC. Smiths News PLC, formerly Brightway Services Limited, was incorporated on 2August 2004. On 23 June 2006 the company re-registered as a public limitedcompany. As part of the reorganisation of the Group prior to demerger SmithsNews PLC was inserted as a new holding company over the listed parent company,WH Smith PLC, by way of a Scheme of Arrangement on 30 August 2006 and on thatdate the shares of Smiths News PLC were admitted to listing on The London StockExchange and the shares of WH Smith PLC were delisted. Smiths News PLC thenreduced its share capital to create distributable reserves. Following thisreduction of capital in Smiths News PLC, WH Smith PLC transferred GreenbridgeNews Limited (the immediate holding company of the News Business) to Smiths News PLC. This resulted in Greenbridge News Limited(and the News Business) becoming a direct subsidiary of Smiths News PLC. WHSmith PLC then paid a dividend to Smiths News PLC which was satisfied by aset-off against part of an intercompany loan owing from Smiths News PLC to WHSmith PLC. Smiths News PLC then used part of the £50 million drawn down under aSmiths News PLC Term Loan facility to settle the remaining intercompany loanowing from Smiths News PLC to WH Smith PLC. Finally, and in order to implement the demerger, on 31 August 2006 Smiths NewsPLC paid a dividend in specie to its shareholders of shares in New WH Smith PLC.The payment of the dividend was effected as follows: - existing shares in WH Smith PLC (which owned the Retail Business)were transferred by Smiths News PLC to New WH Smith PLC (a newly incorporatedcompany) so that New WH Smith PLC became the holding company of the RetailBusiness; and - in exchange for such transfer, New WH Smith PLC allotted and issuedto Smiths News PLC Shareholders one New WH Smith PLC Share, credited as fullypaid, for each Smiths News PLC Share held. On 1 September 2006, WH Smith PLC changed its name to WH Smith Retail HoldingsLimited. The shares of New WH Smith PLC were admitted to listing on The LondonStock Exchange on 1 September 2006; on the same day New WH Smith PLC changed itsname to WH Smith PLC and on 7 September 2006 reduced its share capital in orderto create distributable reserves. The consequence of these reorganisation steps was that WH Smith Retail HoldingsLimited (formally known as WH Smith PLC) shareholders received one Smiths NewsPLC share for each WH Smith Retail Holdings Limited share on 30 August 2006 andone WH Smith PLC share for each Smiths News PLC share on 1 September 2006. The accounts of Smiths News PLC have been prepared as if it had been inexistence in its current group form since 1 September 2004. The followingsummarises the accounting principles that have been applied in preparing theaccounts on a reverse acquisition accounting basis. - the income statements for Smiths News PLC have been prepared as ifthe continuing operations of Smiths News PLC were in existence the whole of theperiod from 1 September 2004 through to 31 August 2006. - share capital and reserves for the prior year consolidated balance sheet havebeen restated on a proforma basis including the capital reorganisation.Differences between these amounts and the previously reported share capital andreserves have been adjusted in the Other reserve, as set out in theReconciliation of movements in equity. The proforma restated share capital at 1September 2004 represents the nominal value of shares in issue as if Smiths NewsPLC had been in existence in its group form at this date. - as well as costs borne directly by Smiths News PLC (the News Business), thecontinuing results for the year ended 31 August 2006 and 31 August 2005 include£0.8 million of corporate head office costs of the former parent company, WHSmith PLC which have historically not been recharged to the business. Services provided by the former parent company WH Smith PLC included, but werenot limited to, treasury, cash management, human resources, accounting, legaland professional services and IT services. These charges may not berepresentative of the costs that would have been incurred had the business beena standalone entity. 2. Segmental analysis of results For management purposes, the Group is currently organised into one continuingoperating division - News Distribution. This division is the basis on which theGroup currently reports its primary business segment information. Discontinuedoperations comprise the demerged WH Smith PLC retailing business (High Streetand Travel) for both years and the Publishing business for the prior year.Segmental information for these businesses are presented as discontinuedoperations and can be found in Note 13. (i) Segmental analysis by business segments (a) Group revenue ________________________________________________________________________________ 2006 2005 ________________________________________________________________________________ Continuing Continuing operations - operations - £m News Distribution News Distribution ________________________________________________________________________________ Sales Total sales 1,211 1,187 Inter-segment sales to discontinued operations (116) (113) ________________________________________________________________________________Sales to external customers 1,095 1,074________________________________________________________________________________ Inter-segment sales are between Smiths News PLC and WH Smith PLC which aretraded at arm's length value. Discontinued revenue is shown in Note 13 of thefinancial statements. (b) Group Results ________________________________________________________________________________ 2006 2005 Continuing Continuing operations - operations - £m News Distribution News Distribution ________________________________________________________________________________ Profit Operating Profit 34 33 ________________________________________________________________________________ Segmental Result 34 33________________________________________________________________________________ Finance Costs (2) (1) Income tax expense (6) (7)Profit after tax from continuing operations 26 25 ________________________________________________________________________________ Profit for the year from discontinued operations 32 22 ________________________________________________________________________________ Profit for the year 58 47________________________________________________________________________________ Discontinued operations comprise the demerged WH Smith PLC for both years andthe Publishing business in the prior year, which were all individual segments.Additional information on these segments is shown in Note 13. (c) Balance Sheet ____________________________________________________________________________________ 2006 2005 _____________________________ _____________________________________________________ Continuing Continuing Unallocated Discontinued Group operations - operations - operations News News £m Distribution Distribution _____________________________ _____________________________________________________Assets Segment assets 131 91 - 502 593Unallocated assets - - 35 - 35 _____________________________ _____________________________________________________Consolidated total assets 131 91 35 502 628 _____________________________ _____________________________________________________ Liabilities Segment (238) (111) - (280) (391)liabilities Unallocated liabilities - - (185) - (185) _____________________________ _____________________________________________________Consolidated total liabilities (238) (111) (185) (280) (576) _____________________________ _____________________________________________________ Net (liabilities)/assets (107) (20) (150) 222 52 _____________________________ _____________________________________________________ Segment assets include goodwill, other intangibles, property, plant andequipment, inventories, receivables and operating cash. Segment liabilitiescomprise of operating liabilities. Information on discontinued operations isshown in Note 13. (d) Other Segmental Items ______________________________________________________________________________________ 2006 2005 _______________________________ _____________________________________________________ Continuing Continuing Discontinued Group operations - operations - operations News News £m Distribution Distribution _______________________________ _____________________________________________________ Capital additions 2 4 28 32 Depreciation and amortisation of non-current assets (7) (6) (41) (47) _______________________________ _____________________________________________________ Information on discontinued operations is shown in Note 13. (ii) Segmental analysis by geographical area The total Group revenue and operating profits for both years originate from theUK region. The Directors consider this to be one segment. 3. Group Operating Profit _________________________________________________________________________________£m 2006 2005 _________________________________________________________________________________ Turnover 1,095 1,074 Cost of sales (966) (943)Gross Profit 129 131_________________________________________________________________________________ Distribution costs (63) (64) Administrative expenses (33) (34) Other income (1) 1 -_________________________________________________________________________________ Group Operating profit 34 33_________________________________________________________________________________ (1) Other income relates to profits on disposals of freehold properties The operating profit is after charging:- _________________________________________________________________________________ £m 2006 2005_________________________________________________________________________________ Cost of inventories recognised as an expense 1,035 1,010 Depreciation and amounts written off property, plant & equipment 4 3 Amortisation of intangible assets 3 3Net operating lease charges - land and building 5 5- equipment and vehicles 3 2Other occupancy costs 2 2Staff costs 77 76 Auditors' remuneration (see below) _________________________________________________________________________________ Fees payable in the continuing & discontinued operations to Deloitte & ToucheLLP, the Group's auditors, included in the income statement related to: Audit fees 0.3 0.3Non-audit fees 1.9 0.2_________________________________________________________________________________ 2.2 0.5_________________________________________________________________________________ Fees payable to Deloitte & Touche LLP, the Group's auditors, included in theincome statement relating to audit fees amount to £0.3 million (2005:£0.3million) and non-audit fees £1.9million (2005:£0.2million) which comprisefurther assurance services associated with the demerger of WH Smith PLC £1.9million (2005: £nil), tax compliance services £nil (2005: £0.1million) and IFRSpreparation work £nil (2005: £0.1million). 4. Retirement benefit obligation The Group has operated a number of defined benefit and defined contributionpension plans. The main pension arrangements for employees are operated througha defined benefit scheme WHSmith Pension Trust ("Pension Trust"), and a definedcontribution scheme, WHSmith Retirement Savings Plan. The most significant isthe Pension Trust for the Group's UK employees which is described in note 4 a)(i). The scheme is independent of the Company and is administered by a Trustee.The Trustee of the Pension Trust has extensive powers over the pension plans'arrangements, including the ability to determine the levels of contribution. Segregation of assets and liabilities of each pension scheme into two sections On the date of demerger, the assets and liabilities of the defined benefitscheme have been split between the News business, (owned by Smiths News PLC) andthe WH Smith Retail business (owned by WH Smith PLC) by way of a"sectionalisation" of the defined benefit scheme into two different sections(i.e. the News business section and the WH Smith Retail business section). Thetwo sections will remain within the defined benefit scheme. Similarly, theassets and liabilities of the defined contribution scheme will be separated (or"sectionalised") into two different sections, a News business section and a WHSmith Retail business section, with each section only containing the accounts ofmembers who are or were employed by the relevant business. The two sections willremain within the WHSmith Retirement Savings Plan. The demerged WH Smith Retailbusiness section has been disclosed within discontinued operations within theincome statement. Upon sectionalisation of the Pension Trust, the assets and liabilities of thedefined benefit scheme will be allocated to the News business section and the WHSmith Retail business section in proportions that reflected the liabilities ofactive, deferred, pensioner and orphan members belonging to the respectivebusinesses. Orphan members are members (or spouses of members) whose employerhad left the Group prior to the split but were classified as either News orRetail for the purpose of the sectionalisation. The proportions are currentlyexpected to be 35 per cent, for the News business and 65 per cent, for the WHSmith Retail business. The participating employers of the News business willcontribute to the News business section, and the participating employers of theWH Smith Retail business will contribute to the WH Smith Retail businesssection. Assets apportioned to one section of the Pension Trust will not be able to beused for the purposes of the other section. There will be no cross-subsidy orcross-guarantee between the sections of the Pension Trust. However, foradministrative and investment purposes the Pension Trust will operate generallyon a unified basis, except that the principal employer will be replaced with asponsor for each section. On 1 September 2006, a one-off contribution of £25 million was made to thePension Trust by the Company. The amounts recognised in the balance sheet within non-current liabilities inrelation to these plans are as follows:_________________________________________________________________________________£m 2006 2005 _________________________________________________________________________________ Present value of the obligations (334) (967)Fair value of plan assets 285 871_________________________________________________________________________________Deficit (49) (96)_________________________________________________________________________________ Retirement medical benefit liability - (7)_________________________________________________________________________________ Retirement benefit obligation recognised in the balance sheet (49) (103) _________________________________________________________________________________ Deferred taxation 15 30_________________________________________________________________________________Net retirement obligation (34) (73)_________________________________________________________________________________ 4. Retirement benefit obligation a) Defined benefit pension scheme (i) The WHSmith Pension Trust ("Pension Trust") A full actuarial valuation of the Scheme is carried out every three years withinterim reviews in the intervening years. The latest full actuarial valuation ofthe Pension Trust was carried out as at 31 March 2006 by independent actuaries,Mercer Human Resource Consulting, using the projected unit basis, and, as witheach such triennial valuation, the valuation currently remains subject to theformal approval of the Pension Trust Trustee. The scheme was closed in September1995 and under the projected unit method the current service cost would beprojected to increase as members approach retirement and the age profile ofmembers increases. On an ongoing basis, the actuarial gross defined benefitpension deficit was approximately £63 million (approximately £44 million net ofrelated deferred taxes) for the Smiths News PLC's section of the WHSmith PensionTrust. The ongoing deficit is greater than the IAS 19 deficit primarily due tothe different assumptions and calculation methodologies. In September 2005, the Pension Trust Trustee adopted a new investment policy inorder to substantially reduce the volatility in the underlying investmentperformance and reduce the risk of a significant increase in the deficit in thefund. The assets in the investment fund were restructured in order to adopt thispolicy. This involved the assets being invested such that they are expected toalter in value in line with changes in the pension liability caused by changesin interest and inflation ("a Liability Driven Investment 'LDI' policy"). The key features of the new investment policy were that: - 94% of the Pension Trust's assets was invested in an LDI policy with a leading international institutional fund manager; and - 6% of the Pension Trust's assets was used to purchase a portfolio of long-dated equity call options. These represented a notional exposure to underlying equities of some £350 million. The impact of this change in investment policy is to substantially reduce thevolatility in the fund and the resultant risk of a significant increase in theoverall deficit whilst enabling the fund to continue to benefit from anypotential higher returns in the equity markets. The valuation of the defined benefit pension scheme used for the accountdisclosures are based upon the most recent valuation. Scheme assets are statedat their market value at the relevant reporting date. The principal long-term assumptions used to calculate scheme liabilities underIAS 19 are:________________________________________________________________________________% 2006 2005 ________________________________________________________________________________ Rate of increase in salaries 4.00% 3.70% Rate of increase in pension payments and deferred pensions 3.00% 2.70% Discount rate 5.10% 4.90%Inflation assumptions 3.00% 2.70%________________________________________________________________________________ The amounts recognised in the income statement were as follows:________________________________________________________________________________£m 2006 2005 Current service cost (9) (10)Interest cost (47) (46)Expected return on scheme assets 42 44________________________________________________________________________________ (14) (12)________________________________________________________________________________ The charge for the current service costs has been included in administrativecosts. Movements in the present value of the defined benefit scheme obligations in theyear were as follows:________________________________________________________________________________£m 2006 2005 At 1 September (967) (830)Current service cost (9) (10)Interest cost (47) (46)Actuarial losses (18) (113)Benefits paid 33 32Subsidiaries disposed 674 -________________________________________________________________________________As at 31 August (334) (967)________________________________________________________________________________ Movements in the fair value of defined benefit scheme assets in the year were asfollows:________________________________________________________________________________£m 2006 2005 ________________________________________________________________________________ At 1 September 871 645Expected return on scheme assets 42 44Net actuarial (losses) / gains (15) 71Contributions from the sponsoring companies 28 143 Benefits paid (33) (32)Subsidiaries disposed (608) -________________________________________________________________________________As at 31 August 285 871________________________________________________________________________________ An analysis of the defined benefit scheme assets at the balance sheet date isdetailed below:________________________________________________________________________________£m 2006 2005 ________________________________________________________________________________ Equities - 386Bonds - 485Cash 275 -Inflation swaps (7) -Equity call options 17 -________________________________________________________________________________ 285 871________________________________________________________________________________ An analysis of the expected rate of return on the defined benefit scheme assetsat the balance sheet date is detailed below:________________________________________________________________________________ 2006 2005 ________________________________________________________________________________ Equities - 7.0%Bonds - 4.0%Cash (1) - 3.8%Inflation swaps (1) - -Equity call options (1) - -________________________________________________________________________________ ________________________________________________________________________________ (1) The expected rate of return on these investments was calculated as aweighted average of the expected return on the LDI fund and the equity calloptions was 5.01 per cent at 31 August 2006. Prior to 22 September 2005, the overall expected rate of return on the Trust'sassets was calculated as a weighted average return based on the distribution ofthe assets (between equities, bonds and cash, at the accounting date). On 22September 2005, the investment strategy was altered to invest in a LiabilityDriven Investment (LDI) fund and a number of equity call options. The mortality assumptions (in years) underlying the value of the accruedliabilities are:-________________________________________________________________________________ Male Female Life expectancy at age 65 Member currently aged 65 20.1 22.9Member currently aged 45 21.4 24.1________________________________________________________________________________Life expectancy at age 60 Member currently aged 60 24.9 27.7Member currently aged 45 25.9 28.7________________________________________________________________________________ The mortality assumptions are based on the standard PA92 medium cohort tables(as published by the Institute of Actuaries). The mortality rates underlying thetable have been increased by 25% to reflect the Trust's actual experience. The history of experience adjustments is as follows: ________________________________________________________________________________________ £m 2006 2005 2004 2003 2002 ________________________________________________________________________________________ Present value of defined benefit obligations (334) (967) (883) (846) (740)Fair value of scheme assets 285 871 678 631 596________________________________________________________________________________________ Deficit in the scheme (49) (96) (205) (215) (144)________________________________________________________________________________________ Experience adjustments on scheme liabilities Amount (£m) (18) (113) Percentage of scheme liabilities (%) (5%) (12%) _______________________________________________________ Experience adjustments on scheme assets Amounts (£m) (15) 71 Percentage of scheme assets (%) (5%) 8% _______________________________________________________ b) Defined contribution pension scheme The pension cost charged to income for its defined contribution scheme, WHSmithRetirement Savings Plan, amounted to £3million for the year ended 31 August 2006 (2005: £3 million). c) Post retirement medical benefits The Group provides retirement medical benefits to certain pensioners. Totalpremiums paid by the Group during the year in respect of these benefits were£0.1 million (31 August 2005: £0.4 million). The present value of the futureliabilities under this arrangement at each reporting date has been assessed byindependent actuaries Mellon Human Resources & Investor Solutions (Actuaries &Consultants Limited) and this amount was included on the balance sheet withinretirement benefit obligations. In September 2005, the members were offered the option to be bought out of thisscheme, which was accepted by the majority of the members. The impact of thesettlement was a £5 million reduction in the net deficit and this has beendisclosed within discontinued operations. A small number of members opted toremain in the scheme and the present value of the remaining future liabilitiesrelating to Smiths News PLC is valued at £0.1 million net of deferred taxation. d) Disposals and Post Retirement Medical Benefit Settlement Year ended 31 August 2006 Retailing Business On 31 August 2006, the assets and liabilities of the defined benefit scheme, WHSmith Pension Trust were divided into two different sections (the Smiths NewsPLC and the WH Smith PLC business section). The gross deficit at the date ofdisposal was £66 million. On demerger, the post retirement medical benefits of £0.1million weretransferred to New WH Smith PLC, which changed its name on 1 September 2006 toWH Smith PLC. The amounts recognised as current liabilities for the WH Smith PLC's proportionof the defined benefit scheme is as follows: ________________________________________________________________________________ £m 2006 2005 ________________________________________________________________________________ Present value of defined benefit obligations (674) (651) Fair value of scheme assets 608 598________________________________________________________________________________ Deficit (66) (53)________________________________________________________________________________ Year ended 31 August 2005 Publishing Business On 25 September 2004, the Group completed the disposal of the Publishingbusiness, including the disposal of that business' pension fund. The grossdeficit at the date of disposal was £20 million. USA Business The Group made a settlement of £3 million in respect of the US businesses. 5. Income tax expense ___________________________________________________________________ £m 2006 2005 ___________________________________________________________________ Tax on profit 10 10 Standard rate of UK corporation tax 30% Adjustment in respect of prior year UK corporation tax (4) (2) ___________________________________________________________________Total current tax charge 6 8 ___________________________________________________________________ Deferred tax - current year - (1) ___________________________________________________________________ Tax on profit 6 7 ___________________________________________________________________ Discontinued operations 12 9 ___________________________________________________________________ Total tax on profit 18 16 ___________________________________________________________________ Effective tax rate on continuing activities 20% 23% When the profit before tax and the tax charge figures are rounded to the nearest£million the effective tax rate for the year ended 31 August 2006 appears to be19%. However, the actual detailed figures do result in an effective tax rate of20%. Reconciliation of the taxation charge ___________________________________________________________________ £m 2006 2005 Tax on profit at standard rate of UK corporation tax 30% 10 9 Tax effect of items that are not deductible or not taxable in determining taxable profit - 1 Adjustment in respect of prior years (4) (2) ___________________________________________________________________ Current tax charge 6 8 ___________________________________________________________________ 6. Dividends Amounts recognised as distributions to shareholders in the year are as follows: ______________________________________________________________________________ £m Note 2006 2005 ______________________________________________________________________________ Dividends Final - paid 16 14Interim - paid 9 7______________________________________________________________________________ 25 21______________________________________________________________________________ "C" share dividends "C" share dividend paid on capital reorganisation - 143______________________________________________________________________________ 25 164______________________________________________________________________________ ______________________________________________________________________________ Dividend in specie relating to the demerger of WH Smith PLC 13 168 - ______________________________________________________________________________ The proposed dividend of 4.0p is subject to approval by shareholders at theAnnual General Meeting and has not been included as a liability in thesefinancial statements. The proposed dividend will be paid on 9 February 2007 toshareholders on the register at close of business on 12 January 2007. The Group also paid a dividend in respect of "C" shares during the year to 31August 2006 of £282,688 (2005: £156,647) and paid dividends on the "B" sharesduring the year to 31 August 2006 of £81,555 (2005: £45,192). 7. Earnings per share a) Earnings _______________________________________________________________________________ 2006 2005 _____________________________ ______________________________£m Continuing Discontinued Total Continuing Discontinued Total _____________________________ ______________________________ _______________________________________________________________________________ Profit attributable to shareholders 26 32 58 25 22 47 _______________________________________________________________________________ b) Basic earnings per share _______________________________________________________________________________ 2006 2005 _____________________________ ______________________________ Continuing Discontinued Total Continuing Discontinued Total _____________________________ ______________________________ _______________________________________________________________________________ Earnings per 15.1p 18.6p 33.7p 14.2p 12.4p 26.6p share (note i) _______________________________________________________________________________ (i) Basic earnings per share has been calculated using profit after tax. c) Diluted earnings per share _______________________________________________________________________________ 2006 2005 _____________________________ ______________________________ Continuing Discontinued Total Continuing Discontinued Total _____________________________ ______________________________ _______________________________________________________________________________ Earnings per share 15.0p 18.5p 33.5p 14.0p 12.3p 26.3p _______________________________________________________________________________ Diluted earnings per share takes into account various share awards and shareoptions including SAYE schemes, which are expected to vest, and for which a sumbelow fair value will be paid. d) Weighted average share capital _______________________________________________________________________________ millions 2006 2005 _______________________________________________________________________________ Weighted average shares in issue for earnings per share 172 177 Add weighted average number of ordinary shares under option 1 2 _______________________________________________________________________________ Weighted average ordinary shares for diluted earnings per share 173 179 _______________________________________________________________________________ 8. Analysis of net debt Movements in net debt can be analysed as follows:_____________________________________________________________________________________£m At 31 Aug Cash Subsidiaries IAS 32 and 39 At 31 Aug 2006 flow disposed reclassification 2005 _____________________________________________________________________________________ Cash and cash equivalents 11 (35) - - 46Debt - Sterling floating rate (50) (6) 13 (7) (50)- Sterling fixed rate - 32 - - (32)Obligations under finance leases (3) 6 11 - (20) _____________________________________________________________________________________Net debt (42) (3) 24 (7) (56)_____________________________________________________________________________________ _____________________________________________________________________________________£m At 31 Aug Cash Non- At 31 Aug 2005 flow cash 2004 _____________________________________________________________________________________ Cash and cash equivalents 46 (18) - 64Debt - Sterling floating rate (50) (33) - (17)- Sterling fixed rate (32) (30) - (2)Obligations under finance leases (20) (6) (4) (10) _____________________________________________________________________________________ Net debt (56) (87) (4) 35_____________________________________________________________________________________ Analysed by maturity:_____________________________________________________________________________________ 2006 2005 __________________________________________________ ________________________________ Less Between After Total Less Between After Total than two to five than one two to five one five years year five years £m year years years __________________________________________________ ________________________________ Cash and cash equivalents 11 - - 11 46 - - 46 Debt - Sterling floating rate - (50) - (50) (30) (20) - (50) - Sterling fixed rate - - - - (15) (15) (2) (32)- Obligations under finance leases (1) (2) - (3) (6) (14) - (20) __________________________________________________ ________________________________Net debt 10 (52) - (42) (5) (49) (2) (56)__________________________________________________ ________________________________ Set out below is a comparison by currency and interest price profile of the netdebt: _____________________________________________________________________________________ £m 2006 2005 ____________________________________________ ____________________________________ Floating Fixed Non-interest Total Floating Fixed Non-interest Total Rate Rate bearing Rate Rate bearing ____________________________________________ ____________________________________ Currency Sterling (39) (3) - (42) (50) (7) - (57)US dollars - - - - 1 - - 1____________________________________________ ____________________________________ Total (39) (3) - (42) (49) (7) - (56)____________________________________________ ____________________________________ 9. Contingent liabilities and Capital Commitments _____________________________________________________________________________________ £m 2006 2005 _____________________________________________________________________________________ Bank and other loans guaranteed 2 11_____________________________________________________________________________________ 2 11_____________________________________________________________________________________ Other potential liabilities that could crystallise are in respect of previousassignments of leases where the liability could revert to the Group if thelessee defaulted. Pursuant to the terms of the Demerger Agreement, any suchcontingent liability which becomes an actual liability will be apportionedbetween Smiths News PLC and WH Smith PLC in the ratio 35:65 (provided that theactual liability of Smiths News PLC in any 12 month period does not exceed £5million). The company's share of these leases have an estimated futurecumulative gross rental commitment at 31 August 2006 of £55 million (2005: £181million). Contracts placed for future capital expenditure approved by the directors butnot provided amount to £nil (2005: £4 million). 10. Net cash inflow / (outflow) from operating activities _____________________________________________________________________________________ £m 2006 2005 _____________________________________________________________________________________ Operating profit from continuing operations 34 33Operating profit from discontinued operations 53 47_____________________________________________________________________________________ 87 80_____________________________________________________________________________________ Operating exceptional items 7 -Adjustment for pension funding (19) (133)Depreciation of property, plant and equipment 34 39Profit on sale of property, plant and equipment (6) -Impairment of property, plant and equipment 3 -Amortisation of intangible assets 7 8Share based payments 8 5Decrease in inventories 7 6(Increase) / decrease in receivables (7) 1Increase / (decrease) in payables 1 (9)Income taxes paid (6) (4)Cash spend against provisions (3) (6)_____________________________________________________________________________________ Net cash inflow / (outflow) from operating activities before exceptional items 113 (13) Cash outflow relating to exceptional operating item (8) (9)_____________________________________________________________________________________ Net cash inflow / (outflow) from operating activities 105 (22)____________________________________________________________________________________ 11. Called up share capital a) Authorised______________________________________________________________________________________ 2006 ____________________________ Number of Nominal shares value (millions) £m______________________________________________________________________________________ Equity: Ordinary shares of 5p each 300 15 ______________________________________________________________________________________ 300 15______________________________________________________________________________________Non-Equity: "B" shares of 53.75p each - -"C" shares of 85p each - -Deferred shares of 85p each - -______________________________________________________________________________________ - -____________________________________________________________________________________________________________________________________________________________________________Total 300 15______________________________________________________________________________________ b) Allotted and fully paid _________________________________________________________________________________________ 2006 2005 Proforma _________________________ ___________________________ Number of Nominal Number of Nominal shares value shares value (millions) £m (millions) £m _________________________________________________________________________________________ Equity: Ordinary shares of 5p each 183 9 - - Ordinary shares of 365p each - - 181 660 _________________________________________________________________________________________ 183 9 181 660 _________________________________________________________________________________________ Non-Equity: "B" shares of 53.75p each - - 4 2 "C" shares of 85p each - - 10 8 _________________________________________________________________________________________ - - 14 10 _________________________________________________________________________________________ _________________________________________________________________________________________ Total 183 9 195 670 _________________________________________________________________________________________ c) Movement in share capital _________________________________________________________________________________________ Ordinary Ordinary shares Ordinary Total shares of 5p of 365p each shares of 55p £m each each _________________________________________________________________________________________ At 1 September 2004 - - 139 139Capital reorganisation and proforma restatement - 658 (139) 519 _________________________________________________________________________________________ At 1 September 2004 restated - 658 - 658 Employee share schemes - 2 - 2_________________________________________________________________________________________ At 31 August 2005 - 660 - 660_________________________________________________________________________________________ _________________________________________________________________________________________ At 1 September 2005 - 660 - 660Employee share schemes - 8 - 8Capital reduction - (659) - (659)Capital reorganisation 9 (9) - -_________________________________________________________________________________________ At 31 August 2006 9 - - 9_________________________________________________________________________________________ _________________________________________________________________________________________ Non-Equity ________________________________ £m 'B' shares 'C' shares Deferred Total of of 85p shares 53.75p each of 85p each each _________________________________________________________________________________________ At 1 September 2004 2 - 143 145Capital reorganisation and proforma restatement - 70 (143) (73) _________________________________________________________________________________________ At 1 September 2004 restated 2 70 - 72Cancelled - (62) - (62)_________________________________________________________________________________________ At 31 August 2005 2 8 - 10_________________________________________________________________________________________ _________________________________________________________________________________________ At 1 September 2005 2 8 - 10Restatement for adoption of IAS 39 (2) (5) - (7)_________________________________________________________________________________________ Balance restated at 1 September 2005 - 3 - 3Cancelled - (3) - (3)_________________________________________________________________________________________ At 31 August 2006 - - - -_________________________________________________________________________________________ Authorised and issued share capital is shown on a pro forma basis for the yearended 31 August 2005. On 2 August 2004, the Company was incorporated with authorised share capital of£1,000 divided into one thousand ordinary shares of £1 each. At incorporationone ordinary share was subscribed and fully paid. On 23 June 2006, the authorised share capital of Smiths News PLC was increasedby the creation of one redeemable preference share of £50,000 which was issuedas fully paid up. In accordance with IAS32 'Financial Instruments: disclosureand presentation', this amount is presented within liabilities. On the same dateSmiths News PLC issued a second ordinary share which was fully paid. On 6 July 2006, the authorised share capital was increased by £1,094,999,040through the creation of a further 1,094,999,000 ordinary shares of £1 each and40 deferred shares of £1 each. All of the deferred shares and 144 ordinaryshares were then issued fully-paid to the existing shareholders. The issued andunissued ordinary shares were then consolidated on a 73:1 basis into ordinaryshares of £73 each and then subdivided on a 1:20 basis into ordinary shares of£3.65 each. Following this consolidation and subdivision, the authorised sharecapital was £1,095,050,040 divided into 300,000,000 ordinary shares of £3.65, 40deferred shares of £1 each and 1 redeemable preference share of £50,000, ofwhich 40 of the ordinary shares, the redeemable preference share and all of thedeferred shares were issued and fully paid-up. On 30 August 2006, Smiths News PLC was inserted as a new holding company overthe listed parent company, WH Smith PLC and by way of a Scheme of Arrangement onthat date the shares of Smiths News PLC were admitted to listing on The LondonStock Exchange and the shares of WH Smith PLC were delisted. In return for cancellation of WH Smith PLC shares, shareholders in WH Smith PLCreceived shares in Smiths News PLC, pro rata to existing holdings in WH SmithPLC. The share capital of WH Smith PLC as at 31 August 2006 was 182,919,930shares. On 31 August 2006 Smiths News PLC issued 182,919,930 ordinary shareswith a nominal value of £3.65 per share. On 31 August 2006, Smiths News PLC reduced its share capital by £659 million to£9 million effected by a written resolution of the company dated 30 August 2006,which was confirmed by a Court Order in accordance with the Companies Act 1985.This effectively reduced Smiths News PLC ordinary shares nominal value to £0.05per share. On 1 March 2006, the deferred shares were transferred to the Group for a totalconsideration of one pence. On 29 August 2006, the 'B' shares and 'C' shares were repurchased for a totalconsideration of £10 million and subsequently cancelled. 12. Post Balance Sheet Events Financing Facilities On 1 September 2006, Smiths News PLC drew down £20 million under the Smiths NewsPLC revolving credit facility to makes its share of the cash contribution to theSmiths News PLC's section of the WH Smith Pension Trust. WH Smith Pension Trust Smiths News PLC announced on 31 August 2006 that following the demerger of WHSmith PLC, it would make a contribution of £25 million to the Smiths News PLC'ssection of the WH Smith Pension Trust. This amount was paid on 1 September 2006. 13. Discontinued operations Year ended 31 August 2006 At the Extraordinary General Meeting on 2 August 2006 the shareholders of theformer WH Smith PLC approved the demerger of the Retailing Businesses. Ondemerger, the Company declared a dividend in specie, in which the existingshares in the former WH Smith PLC (which owned the Retail Business) weretransferred by Smiths News PLC to New WH Smith PLC (a newly incorporatedcompany) so that New WH Smith PLC became the holding company of the RetailBusinesses. In exchange for this transfer, New WH Smith PLC allotted and issuedto Smiths News PLC Shareholders, one New WH Smith PLC share, credited as fullypaid, for each Smiths News PLC Share held. On 1 September 2006, New WH Smith PLCchanged its name to WH Smith PLC. Year ended 31 August 2005 Publishing Business Disposal On 25 September 2004, the Group completed the disposal of its Publishingbusiness, Hodder Headline Limited. USA Travel Retail An amount of £8 million was charged to the income statement relating to thedisposal of discontinued businesses. Of this amount, £7 million relates to animpairment review of the loan notes received as deferred consideration inrespect of the Group's USA businesses. The balance relates to closure and exitprovisions. Aspac Retail During the year ended 31 August 2005, £7 million was received for the AspacRetail disposal, which related to deferred consideration and working capitaladjustments. (a) The Revenue from discontinued operations were as follows: ________________________________________________________________________________£m 2006 2005 ________________________________________________________________________________ Revenue Retailing businesses High Street 1,021 1,112Travel 319 311________________________________________________________________________________ 1,340 1,423Publishing business Total revenue - 14 Internal revenue - (3)________________________________________________________________________________ Total revenue - 11 ________________________________________________________________________________________________________________________________________________________________ Total revenue - discontinued operations 1,340 1,434 ________________________________________________________________________________ (b) The results of the discontinued operations were as follows:- ________________________________________________________________________________ 2006 2005 ___________________________________________ __________________________________ Retailing USA Travel Retailing Total £m Businesses Retail Businesses ___________________________________________ __________________________________ Profit before tax and before exceptional items 51 - 39 39 Income tax expense (10) - (9) (9)___________________________________________ __________________________________Profit after tax and before exceptional items and impairment of discontinued operations 41 - 30 30 ___________________________________________ __________________________________ Exceptional items (note 13e) (7) - - -Impairment of discontinued operations - (8) - (8) Income tax expense on exceptional items (2) - - - ___________________________________________ __________________________________Exceptional items and impairment of discontinued operations after tax (9) (8) - (8) ___________________________________________ __________________________________ Profit/ (loss) for the year from discontinued operations 32 (8) 30 22 ___________________________________________ __________________________________ (c) The group operating profit from discontinued operations comprise:- ________________________________________________________________________________ £m 2006 2005________________________________________________________________________________ Turnover 1,340 1,423 Cost of sales (761) (847)________________________________________________________________________________ Gross Profit 579 576 Distribution costs (434) (437) Administrative expenses (97) (92) Other income (1) 5 -________________________________________________________________________________ Group Operating profit 53 47________________________________________________________________________________ (1) Other Income relates to profit on disposal of property, plant and equipment. (d) The group profit from discontinued operations is after charging:- ________________________________________________________________________________ £m 2006 2005 ________________________________________________________________________________ Cost of inventories recognised as an expense 786 854 Writedown of inventories in the period 12 17 Depreciation and amounts written off property, plant & equipment: 33 37 Amortisation of intangible assets 4 4 Net operating lease charges - land and building 147 140 - equipment and vehicles 1 2 Other occupancy costs 50 45 Staff costs 192 201 Auditors' remuneration 2 1 (e) Within the results from discontinued operations, certain exceptional charges were made as follows:- ________________________________________________________________________________ £m 2006 2005 ________________________________________________________________________________ Post retirement medical benefits settlement 5 -Demerger costs (12) -Impairment and loss on sale of USA Travel Retail - (8)________________________________________________________________________________ (7) (8)________________________________________________________________________________ Year ended 31 August 2006 Post retirement medical benefits settlement WH Smith PLC provides retirement medical benefits to certain pensioners. Totalpremiums paid by WH Smith PLC during the year in respect of these benefits were£nil (2005: £0.4 million). The present value of the future liabilities underthis arrangement at each reporting date have been assessed by independentactuaries Mellon Human Resources & Investor Solutions (Actuaries & ConsultantsLimited) and this amount was included on the balance sheet, retirement benefitobligation. In September 2005, the members were offered the option to be bought out of thisscheme, which was accepted by the majority of the members. The impact of thesettlement was a £5 million reduction in the net deficit and has been disclosedas an exceptional item in discontinued operations. A small number of membersopted to remain in the scheme and the present value of the remaining futureliabilities is valued at £0.2 million net of deferred taxation. Demerger costs The costs associated with the Retailing Business demerger of £12 million werecharged against discontinued operations in the Group Income Statement. Year ended 31 August 2005 An amount of £8 million was charged to the income statement relating to thedisposal of discontinued businesses. Of this amount, £7 million relates to animpairment review of the loan notes received as deferred consideration inrespect of the Group's USA businesses. The balance relates to closure and exitprovisions (f) The cash flows of discontinued operations comprise: ________________________________________________________________________________ £m 2006 2005 ________________________________________________________________________________ From operating activities 82 (23) From investing activities (10) 188 From financing activities (45) (177) ________________________________________________________________________________ Net increase/(decrease) in cash and cash equivalents 27 (12) ________________________________________________________________________________ (g) The taxation from discontinued operations was as follows: ________________________________________________________________________________ £m 2006 2005 ________________________________________________________________________________ Tax on profit before exceptional items 4 14 Adjustment in respect of prior year UK corporation tax (7) (3) ________________________________________________________________________________ Total current tax charge before exceptional items (3) 11 ________________________________________________________________________________ Deferred tax - current year 13 (2) ________________________________________________________________________________ Tax on profit before exceptional items 10 9 Tax on exceptional items 2 - ________________________________________________________________________________ Tax on profit after exceptional items 12 9 ________________________________________________________________________________ (h) On 31 August 2006, WH Smith PLC was demerged from the Group. The summary balance sheet of WH Smith PLC and its subsidiaries at the date of demerger was:- £m ___________________________________________________________________________________ Goodwill 15 Intangible assets 15 Property, plant and equipment 184 Deferred tax assets 29 Inventories 143 Trade and other receivables 74 Cash and cash equivalents 66 Trade and other payables (215) Current tax payable (20) Other current liabilities (20) Deferred tax liabilities (13) Other non-current liabilities (90) ___________________________________________________________________________________ Group's share of net assets of WH Smith PLC on demerger 168 ___________________________________________________________________________________ On demerger, Smiths News PLC paid a dividend in specie of £168 millionrepresenting the net assets demerged. The costs associated with the demerger ofWH Smith PLC of £12 million were charged as an exceptional item against thediscontinued operations in the Group Income Statement. (2) Prior Year Publishing business disposal During the prior year, the Group completed the disposal of its Publishingbusiness, Hodder Headline Limited. A financial summary of the disposal is shownbelow: ___________________________________________________________________________________ £m Total ___________________________________________________________________________________ Fixed assets 156Stock 17Debtors 80Creditors (30)Net pension liabilities (14)___________________________________________________________________________________Net assets disposed 209___________________________________________________________________________________ Cash consideration 210Cash received in respect of working capital adjustments 5Net assets disposed (209)Transaction costs and other charges (6)___________________________________________________________________________________Net result on sale of the Publishing business recognised in the financial year to 31 August 2005 - ___________________________________________________________________________________ The Group incurred a £5 million cash outflow in respect of transaction costs andother charges relating to the Publishing business disposal. Aspac Retail During the year ended 31 August 2005, £7 million was received for the AspacRetail disposal, which related to deferred consideration and working capitaladjustments. 14. Related party transactions Transactions between businesses within this Group which are related parties havebeen eliminated on consolidation and are not disclosed in this note. WH Smith PLC During the year, Group companies entered into the following transactions withthe Retailing business, which on 31 August 2006 was demerged from Smiths NewsPLC, and is now controlled by WH Smith PLC. Purchases were made on an arm's length basis. The amounts outstanding are unsecured and will be settled in cash. No guaranteeshave been given or received. No provisions have been made for doubtful debts inrespect of the amounts owed by related parties. _________________________________________________________________________________ £m 2006 2005 _________________________________________________________________________________ Sales of goods to WH Smith PLC 116 -Trading amounts owed to WH Smith PLC at end of year 6 - Amounts owed to WH Smith PLC in respect of prior years corporation tax 15 - _________________________________________________________________________________ Prior to demerger on 31 August 2006, trading between WH Smith PLC & Smiths NewsPLC was not classified as a related party transaction as they were both part ofthe WH Smith Group. Amounts owed to WH Smith PLC at end of the year are in respect of tax balancesthat are expected to be recovered from HMRC and repaid. Transitional services agreement on demerger On 7 July 2006, WH Smith PLC and Smiths News PLC entered into a transitionalservices agreement whereby WH Smith PLC has agreed, with effect from thedemerger , to supply certain transitional services to Smiths News PLC. Theseservices include, amongst other things, payroll, tax, and propertyadministration. It is expected that the services will be provided for atransitional period of up to 12 months plus such time as is required to completethe 2005/2006 year end tax computation, following which Smiths News PLC willmake its own arrangements for the provision of these services. The considerationpayable by Smiths News PLC to WH Smith PLC under this agreement from the 12month period is likely to be approximately £800,000 although this could increasedepending on the length of time that the services are provided to Smiths NewsPLC. USA Travel Retail - Hotels The CEO of Travel Traders LLC is Sean Anderson who was Chairman of WH SmithAirports Inc., WH Smith PLC's US subsidiary until September 2003 and he holds a30 per cent stake in Travel Traders LLC. The total consideration of £7 millionfor the USA Travel Retail hotel business was satisfied by way of an interestbearing loan note with a 5 per cent coupon, conditional on the trading cashflows of Travel Traders LLC. Additionally, WH Smith Group Holdings (USA) Inc.holds a 15 per cent equity interest in Travel Traders LLC and is also providinga loan facility of up to £4 million to the new company, of which £3 million isdrawn down as at 31 August 2006. (31 August 2005: £3 million). Remuneration of key management personnel The remuneration of the executive and non-executive directors, who are the keymanagement personnel of the Group, is set out below in aggregate for each of thecategories specified in IAS 24 Related Party Disclosures. ________________________________________________________________________________£000 2006 2005 ________________________________________________________________________________ Short-term employee benefits 2,407 3,048Post-employment benefits 39 38________________________________________________________________________________ 2,446 3,086________________________________________________________________________________ The directors and non-executive directors of Smiths News PLC were appointed tothe board of Smiths News PLC following close of business on 31 August 2006. Forfuture remuneration commitments, refer to the Remuneration Report. Directors' transactions There are no other transactions with directors. 15. Preparation of the Preliminary Announcement a) Basis of preparation The preliminary announcement for the 12 months to 31 August 2006 has beenprepared on the basis of the accounting policies set out in the Smiths Newsprospectus issued on 7 July 2006. While the financial information included in this preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRS), this announcement does not itself contain sufficient information tocomply with IFRS. The Company expects to publish full financial statements thatcomply with IFRS in November 2006. b) Preliminary announcement The financial information for the 12 months to 31 August 2006 and 12 months to31 August 2005 do not comprise statutory accounts for the purpose of Section 240of the Companies Act 1985 and have been extracted from the Company'sconsolidated accounts for the year to 31 August 2006. The statutory accounts forSmiths News PLC (formerly Brightway Services Limited) for the period fromincorporation on 2 August 2004 to 31 August 2005 have been filed with theRegistrar of Companies and those for the 12 months to 31 August 2006 will befiled following the Company's annual general meeting. The prior year accountsdid not require to be audited and the auditors' report on the accounts for the12 months to 31 August 2006 were unqualified and did not include a statementunder Section 237 (2) or (3) of the Companies Act 1985. The Annual Report and Accounts will be posted to shareholders in November 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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