21st Apr 2005 07:00
Smith WH PLC21 April 2005 21 April 2005 WH SMITH PLC INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 28 FEBRUARY 2005 KEY POINTS • Profit before tax: £61m (2004: £72m loss) • Profit before tax, goodwill amortisation and exceptional items on continuing operations, up 32% to £70m (2004: £53m) - High Street Retail up 31% to £55m - Travel Retail up 22% to £11m - News Distribution up 12% to £19m • Total sales of continuing operations flat at £1.4bn - High Street like-for-like (LFL) sales down 3% - Travel LFL sales up 4% - News Distribution LFL sales up 2% • Cost savings of £13m delivered faster than planned; on track to deliver 3-year cost savings of £30m as previously announced • Returned £205m to shareholders following the completion of the sale of Hodder Headline for £224m* • Exceptional impairment charge of £8m in respect of the disposal of discontinued businesses • Earnings per share of 23.5p (2004: 34.4p loss per share). Earnings per share before exceptional items and goodwill amortisation up 58% to 28.4p (2004: 18.0p). • Interim dividend of 4.5p (2004: 4.0p) (* £210m in cash and assumption of the Hodder Headline net pension deficit of£14m) Commenting on the results, Kate Swann, Group Chief Executive said: "We have improved profits substantially across the Group in the first half andwhilst it is early days and much remains to be done, we are on track in thedelivery of our recovery plan. "In High Street Retail we have improved the business's profitability by beingmore efficient, increasing product choice, improving availability and storestandards. Customer response to these changes has been positive. "Travel Retail delivered strong sales and profit growth and News Distributionhas made steady progress in the first half. "Trading conditions are tough; however, we remain confident in the outcome forthe full year." - Ends - Enquiries: WH Smith PLCLouise Evans Media Relations 020 7851 8850Mark Boyle Investor Relations 020 7851 8820 BrunswickTom Buchanan 020 7404 5959Pam Small CURRENT TRADING In the seven weeks to 16 April 2005, Retail LFL sales were flat and gross marginwas up on last year. News Distribution sales were down 1%. GROUP SUMMARY Operating profit after exceptional operating items and goodwill amortisation was£72m (2004: £9m loss). Profit before tax after all exceptional items andgoodwill amortisation was £61m (2004: £72m loss). Operating profit before exceptional items and goodwill amortisation oncontinuing operations increased 33% to £73m (2004: £55m). After including thepension interest charge of £2m (2004: £2m) and other interest payable of £1m(2004: £nil), pre-tax profit before exceptional items and goodwill amortisationfrom continuing operations was £70m (2004: £53m). An amount of £8m has been charged to the profit and loss account relating todiscontinued businesses. Of this amount, £7m relates to an impairment review ofthe loan notes received as deferred consideration in respect of the disposal ofthe Group's US businesses. The balance relates to closure and exit costs. Adjusted earnings per share were 28.4p, up 58% compared to last year (2004:18.0p). Earnings per share after exceptional items and goodwill amortisationwere 23.5p (2004: 34.4p loss per share). Given the improvement in the Group's trading position, the Board has declared aninterim dividend of 4.5p per share (2004: 4.0p per share). The reduction in net assets to £66m (2004: £359m) mainly reflects the loss ondisposal of the Hodder Headline business and the return of cash to shareholders.The balance sheet remains sound with net funds amounting to £2m (2004: £28m).Free cash inflow amounted to £51m compared to an outflow of £2m in the prioryear, primarily reflecting the poor profit performance last year. BUSINESS RESULTS NB: All divisional profit and loss figures in this section are stated beforepension service costs, exceptional items and goodwill amortisation, interest andtaxation. High Street Retail numbers incorporate the results of WHSmith Online,which has been integrated. Retail sales were down 2% at £816m (2004: £834m). Gross margin rose 240 basispoints to 40.1% (2004: 37.7%). Retail divisional profits were up 29% to £66m(2004: £51m). Books sales were down 3%, as we avoided last year's unprofitable promotions, andcompensated for by a strong improvement in gross margin. Stationery sales wereup by 4%, with gross margin up. News and Express sales were flat, with grossmargin also up. Entertainment sales were down 12% on last year, with increasedprice pressure across all categories. The improvements in gross margin more thancompensated for the decline in sales volumes, with gross contribution increasingby £12m to £327m. Cost inflation, including store occupancy costs, was approximately 4% in theperiod. This was more than offset by cost savings across all aspects of thebusiness. Total costs were £3m lower than last year and divisional profitincreased by £15m. High Street Retail sales were down 3% at £670m (2004: £692m) and down 3% on alike for like basis, adjusting for selling space. Travel Retail sales grew by 3%to £146m (2004: £142m), up 4% on a like for like basis. High Street Retaildivisional profits increased to £55m (2004: £42m). Travel Retail achieveddivisional profits of £11m (2004: £9m). Retail selling space is 3.3m square feet, broadly in line with last year. In thefirst half of this year, the business has opened one new store and closed sevenstores across the UK. News Distribution achieved divisional profits of £19m (2004: £17m), with totalsales of £599m (2004: £587m). Like for like newspaper sales were up 2% and totalmagazine sales were also up 2%. Divisional profits grew by £2m, throughwell-controlled costs and further efficiencies from network changes. The OFT has announced its provisional conclusions on newspaper and magazinedistribution arrangements. We will be playing a full part in the upcomingconsultation process. There is a wide range of possible outcomes and we arepreparing for any changes that may result. WH Smith PLC Group Profit and Loss AccountFor the 6 months to 28 February 2005 -------------------------------------------------------------------------------------------------------------------- 6 months to 28 Feb 2005 6 months to 29 Feb 2004 12 months to 31 Aug 2004-------------------------------------------------------------------------------------------------------------------- £m Note Before Exceptional Total Before Exceptional Total Total exceptional items & exceptional items & items & goodwill items & goodwill goodwill amortisation goodwill amortisation amortisation amortisation -------------------------------------------------------------------------------------------------------------------- TurnoverContinuing operations 1,359 - 1,359 1,365 - 1,365 2,520Discontinued operations 11 - 11 215 - 215 314-------------------------------------------------------------------------------------------------------------------- Group turnover 2 1,370 - 1,370 1,580 - 1,580 2,834-------------------------------------------------------------------------------------------------------------------- Operating profit/ (loss)Continuingoperations 2,3 73 (1) 72 55 (67) (12) (42)Discontinuedoperations 2,3 - - - 12 (9) 3 11-------------------------------------------------------------------------------------------------------------------- Group operatingprofit /(loss) 73 (1) 72 67 (76) (9) (31)Net loss onsale ofdiscontinuedoperations 4 - (8) (8) - (61) (61) (101)Profit on saleof fixedassets -continuingoperations - - - - - - 2-------------------------------------------------------------------------------------------------------------------- Profit /(loss) onordinaryactivitiesbefore netfinancingcharges 73 (9) 64 67 (137) (70) (130)Net financingcharges (3) - (3) (2) - (2) (5)-------------------------------------------------------------------------------------------------------------------- Profit /(loss) onordinaryactivitiesbeforetaxation 70 (9) 61 65 (137) (72) (135)Tax on profit/ (loss) onordinaryactivities 6 (18) - (18) (21) 9 (12) (13)-------------------------------------------------------------------------------------------------------------------- Profit /(loss) onordinaryactivitiesafter taxation 52 (9) 43 44 (128) (84) (148)Dividends 7 (150) - (150) (10) - (10) (24)-------------------------------------------------------------------------------------------------------------------- Retained(losses) /earnings (98) (9) (107) 34 (128) (94) (172)-------------------------------------------------------------------------------------------------------------------- Basic anddiluted earnings /(loss) pershare 8 23.5p (34.4)p (60.7)pAdjustedearnings pershare 8 28.4p 18.0p 18.0pEquitydividends pershare 7 4.5p 4.0p 12.0pFixed chargescover - times 9 1.7x 1.5x 1.3xEquitydividend cover- times 5.2x - -Equitydividend coverbeforeexceptionalitems andgoodwillamortisation -times 6.3x 4.5x 1.5x-------------------------------------------------------------------------------------------------------------------- WH Smith PLC Group Balance SheetAs at 28 February 2005 -------------------------------------------------------------------------------- At At At £m Note 28 Feb 2005 29 Feb 2004 31 Aug 2004--------------------------------------------------------------------------------Fixed assets Intangible assets - goodwill 10 14 220 164Tangible fixed assets 219 249 237Investments - 1 ---------------------------------------------------------------------------------Total fixed assets 233 470 401-------------------------------------------------------------------------------- Current assets Stocks 181 223 184Debtors due within one year 122 183 187Debtors due after more thanone year 18 15 25Current asset investment 5,11 60 - -Cash at bank and in hand 11 35 54 64-------------------------------------------------------------------------------- 416 475 460Creditors due within one yearDebt 11 (26) (24) (17)Other creditors (356) (396) (397)-------------------------------------------------------------------------------- (382) (420) (414)--------------------------------------------------------------------------------Net current assets 34 55 46--------------------------------------------------------------------------------Total assets less currentliabilities 267 525 447-------------------------------------------------------------------------------- Creditors due after more thanone year Debt 11 (67) (2) (2)Other creditors (2) - (2)-------------------------------------------------------------------------------- (69) (2) (4)Provisions for liabilitiesand charges (31) (26) (38)-------------------------------------------------------------------------------- Net assets excluding pensionliabilities 167 497 405Net pension liabilities 5 (101) (138) (149)-------------------------------------------------------------------------------- Total net assets 66 359 256-------------------------------------------------------------------------------- Capital and reserves Called up share capital 13 4 139 139Share premium account 14 15 93 93Capital redemption reserve 14 218 156 156Revaluation reserve 14 3 4 3Other reserve 14 (34) (27) (27)Profit and loss account 14 (293) (9) (110)--------------------------------------------------------------------------------Equity shareholders'(liabilities) / funds (87) 356 254Non equity share capital 13 153 2 2--------------------------------------------------------------------------------Shareholders' funds 66 358 256Minority interests - 1 ---------------------------------------------------------------------------------Total capital employed 66 359 256-------------------------------------------------------------------------------- WH Smith PLC Group Cash Flow StatementFor the 6 months to 28 February 2005 ---------------------------------------------------------------------------------- 6 months to 12 months to£m Note 28 Feb 2005 29 Feb 2004 31 Aug 2004----------------------------------------------------------------------------------Net cash (outflow) /inflow from operatingactivities beforeexceptional operatingitems 12 (58) 29 61Net cash outflow fromexceptional operatingitems 12 (8) (1) (13)----------------------------------------------------------------------------------Net cash (outflow) /inflow from operatingactivities 12 (66) 28 48----------------------------------------------------------------------------------Returns on investment andservicing of financeInterest received 3 1 1Interest paid (3) (1) (1)Net charge on pensionschemes (2) (2) (4)----------------------------------------------------------------------------------Net cash outflow fromreturns on investment andservicing of finance (2) (2) (4)---------------------------------------------------------------------------------- Taxation (3) (17) (10)---------------------------------------------------------------------------------- Capital expenditure andfinancial investmentPurchase of tangible fixedassets (10) (24) (49)Proceeds on disposal oftangible fixed assets - - 5----------------------------------------------------------------------------------Cash outflow from capitalexpenditure and financialinvestment (10) (24) (44)---------------------------------------------------------------------------------- Acquisitions and disposalsProceeds on disposal ofsubsidiary undertakings 215 20 64Proceeds on disposal ofassociated undertakings - 1 1Non-operating disposalcosts (9) (12) (23)Net cash in subsidiariesdisposed - - (11)----------------------------------------------------------------------------------Cash inflow fromacquisitions and disposals 206 9 31---------------------------------------------------------------------------------- Equity dividends paid (14) (32) (42)----------------------------------------------------------------------------------Cash inflow / (outflow)before financing 111 (38) (21)---------------------------------------------------------------------------------- FinancingPurchase of own shares foremployee share schemes (12) - -Money returned to ESOPTrust after share capitalreorganisation 5 - -Non equity dividend (143) - -Repurchase of "C" shares (62) - -Increase / (decrease) indebt (net of financecosts) 72 4 (3)----------------------------------------------------------------------------------Cash (outflow) / inflowfrom financing (140) 4 (3)---------------------------------------------------------------------------------- Decrease in cash (29) (34) (24)---------------------------------------------------------------------------------- Reconciliation of net cashflow to movements in net funds---------------------------------------------------------------------------------- 6 months to 12 months to £m 28 Feb 2005 29 Feb 2004 31 Aug 2004---------------------------------------------------------------------------------- Net funds at the start of theperiod 45 68 68Decrease in cash in the period (29) (34) (24)Increase in current assetinvestment (See Note 5) 60 - -(Increase) / decrease in debt (74) (4) 3Currency translation - (2) (2)differences ----------------------------------------------------------------------------------Net funds at the end of theperiod 2 28 45---------------------------------------------------------------------------------- WH Smith PLC Group Statement of Total Recognised Gains and LossesFor the 6 months to 28 February 2005 -------------------------------------------------------------------------------- 6 months to 12 months to£m 28 Feb 2005 29 Feb 2004 31 Aug 2004--------------------------------------------------------------------------------Profit / (loss) for thefinancial period 43 (84) (148)Actuarial (loss) / gain relatingto the pension schemes (19) 14 (15)UK deferred tax attributable topension scheme liabilities (14) (7) (3)UK current tax attributable tothe additional pension schemescontributions 18 3 7Currency translation differences (1) (4) (7)--------------------------------------------------------------------------------Total recognised gains / (losses)for the period 27 (78) (166)-------------------------------------------------------------------------------- Group Note of Historical Cost Profits and LossesFor the 6 months to 28 February 2005 -------------------------------------------------------------------------------- 6 months to 12 months to£m 28 Feb 2005 29 Feb 2004 31 Aug 2004--------------------------------------------------------------------------------Reported profit / (loss) onordinary activities beforetaxation 61 (72) (135)Realisation of propertyrevaluation gains of the previousyear - - 1--------------------------------------------------------------------------------Historical cost profit / (loss)on ordinary activities beforetaxation 61 (72) (134)--------------------------------------------------------------------------------Historical cost loss for the yearretained after taxation, minorityinterests and dividends (107) (94) (171)-------------------------------------------------------------------------------- Reconciliation of Movements in Group Shareholders' FundsFor the 6 months to 28 February 2005 -------------------------------------------------------------------------------- 6 months to 12 months to£m 28 Feb 2005 29 Feb 2004 31 Aug 2004-------------------------------------------------------------------------------- Shareholders' funds at beginningof period 256 407 407--------------------------------------------------------------------------------Retained losses (107) (94) (172)Repurchase of non-equity sharecapital (62) - -Purchase of own shares foremployee share scheme (12) - -Money returned to ESOP Trustafter share capitalreorganisation 5 - -Employee share schemes 2 - -Goodwill previously written offdirectly to reserves nowtransferred to profit and lossaccount for the period - 39 39Net gains and losses relating topension schemes (15) 10 (11)Currency translation differences (1) (4) (7)--------------------------------------------------------------------------------Net reduction to shareholders'funds (190) (49) (151)--------------------------------------------------------------------------------Shareholders' funds at end ofperiod 66 358 256-------------------------------------------------------------------------------- WH Smith PLC Notes to the Interim Financial StatementsFor the 6 months to 28 February 2005 1 Basis of preparation The interim announcement for the 6 months to 28 February 2005 has been preparedon the basis of the accounting policies set out in the Company's Annual Reportand Financial Statements for the 12 months to 31 August 2004. The financialinformation contained in this interim announcement does not constitute statutoryaccounts as defined in Section 240 of the Companies Act 1985. The financialinformation for the full preceding year is based on the statutory accounts forthe financial year ended 31 August 2004. These statutory accounts have beenfiled with the Registrar of Companies. The auditors' report on these accountswas unqualified and did not include a statement under Section 237 (2) or (3) ofthe Companies Act 1985. Adoption of International Financial Accounting Standards ("IFRS") International Financial Reporting Standards ("IFRS") will first apply to theGroup for the financial year ended 31 August 2006 with Interim Results to 28February 2006 also being presented under IFRS. The 2005 results will be restatedaccordingly. The Group's preparation for the transition to IFRS is continuing inline with the project timetable. The key areas of impact include the accountingfor employee benefits and share based payments, certain aspects of propertylease accounting, the tax impact of all of the above and the overallpresentation of the financial statements. This is not intended to be a completelist of areas. Further differences may arise as a result of the continueddetailed assessment and interpretations of IFRS and any pronouncements issued bythe International Accounting Standards Board (IASB). 2 Segmental analysis of results a) Segmental analysis of Group turnover -------------------------------------------------------------------------------- 6 months to 12 months to£m 28 Feb 2005 29 Feb2004 31 Aug 2004-------------------------------------------------------------------------------- Continuing operations:RetailingHigh Street Retail 670 692 1,152Travel Retail 146 142 301-------------------------------------------------------------------------------- Total 816 834 1,453--------------------------------------------------------------------------------News DistributionTotal turnover 599 587 1,182Internal turnover (56) (56) (115)-------------------------------------------------------------------------------- Total 543 531 1,067--------------------------------------------------------------------------------Turnover - continuing operations 1,359 1,365 2,520-------------------------------------------------------------------------------- Discontinued operations:RetailingUSA Travel Retail - 49 49Aspac Retail - 97 132-------------------------------------------------------------------------------- Total - 146 181-------------------------------------------------------------------------------- Publishing BusinessTotal turnover 14 81 155Internal turnover (3) (12) (22)-------------------------------------------------------------------------------- Total 11 69 133--------------------------------------------------------------------------------Turnover - discontinued operations 11 215 314--------------------------------------------------------------------------------Group turnover 1,370 1,580 2,834-------------------------------------------------------------------------------- WH Smith PLC Notes to the Interim Financial StatementsFor the 6 months to 28 February 2005 2 Segmental analysis of results continued b) Segmental analysis of Group operating profit / (loss) ----------------------------------------------------------------------------------------------------------- 6 months to 28 Feb 2005 6 months to 29 Feb 2004 12 months to 31 Aug 2004----------------------------------------------------------------------------------------------------------- £m Before goodwill Goodwill Total Before Exceptional Total Total amortisation amortisation exceptional items & items & goodwill goodwill amortisation amortisation ----------------------------------------------------------------------------------------------------------- Continuingoperations:RetailingHigh StreetRetail 55 (1) 54 42 (62) (20) (54)Travel Retail 11 - 11 9 (5) 4 16----------------------------------------------------------------------------------------------------------- Total 66 (1) 65 51 (67) (16) (38)NewsDistribution 19 - 19 17 - 17 35-----------------------------------------------------------------------------------------------------------Trading profit 85 (1) 84 68 (67) 1 (3)Supportfunctions (8) - (8) (7) - (7) (26)Pensionservice costs(note a) (5) - (5) (7) - (7) (14)Internal rents(note b) 1 - 1 1 - 1 1-----------------------------------------------------------------------------------------------------------Operatingprofit /(loss) -continuingoperations 73 (1) 72 55 (67) (12) (42)-----------------------------------------------------------------------------------------------------------Discontinuedoperations:RetailingUSA TravelRetail - - - (5) - (5) (5)Aspac Retail - - - 7 - 7 6----------------------------------------------------------------------------------------------------------- Total - - - 2 - 2 1PublishingBusiness - - - 11 (9) 2 11Pensionservice costs(note a) - - - (1) - (1) (1)-----------------------------------------------------------------------------------------------------------Operatingprofit /(loss) -discontinuedoperations - - - 12 (9) 3 11-----------------------------------------------------------------------------------------------------------Groupoperatingprofit /(loss) 73 (1) 72 67 (76) (9) (31)----------------------------------------------------------------------------------------------------------- a) The annual pension service costs are attributable to the businesses based on pensionable salaries as follows: High Street Retail £2.8m (2004: £4.0m), Travel Retail £0.4m (2004: £0.6m), Publishing £nil (2004: £0.6m), News Distribution £1.2m (2004: £1.7m) and Support functions £0.4m (2004: £0.6m). b) The results for Retailing are reported after an internal arm's length market rent on freehold and long leasehold properties owned and occupied by the Group. The internal income generated of £1m (2004: £1m) is shown as a separate credit to the profit and loss account and a debit against the respective businesses, giving a nil net effect to the overall Group operating profit before exceptional operating items and goodwill amortisation. WH Smith PLC Notes to the Interim Financial StatementsFor the 6 months to 28 February 2005 2 Segmental analysis of results continued c) Geographical split Turnover Profit / (loss) before taxation----------------------------------------------------------------------------------- 6 months to 12 months to 6 months to 12 months to£m 28 Feb 29 Feb 31 Aug 2004 28 Feb 29 Feb 31 Aug 2004 2005 2004 2005 2004 ----------------------------------------------------------------------------------- Continuingoperationsbeforeexceptionalitems andgoodwillamortisation -UK / Europe 1,359 1,365 2,520 70 53 46Exceptionalitems andgoodwillamortisation (1) (67) (91)-----------------------------------------------------------------------------------Continuingoperations -UK / Europe 1,359 1,365 2,520 69 (14) (45)-----------------------------------------------------------------------------------Discontinuedoperationsbeforeexceptional itemsand goodwillamortisation:UK / Europe 9 57 110 - 9 16USA - 49 49 - (5) (5)Asia / Pacific 2 109 155 - 8 10----------------------------------------------------------------------------------- 11 215 314 - 12 21-----------------------------------------------------------------------------------Exceptionalitems andgoodwill (8) (70) (111)amortisation-----------------------------------------------------------------------------------Discontinuedoperations 11 215 314 (8) (58) (90)-----------------------------------------------------------------------------------Total Group 1,370 1,580 2,834 61 (72) (135)----------------------------------------------------------------------------------- Turnover is disclosed by origin. There is no material difference in turnover bydestination. d) Analysis of retailing stores and selling space Number of stores 1 Sept 2004 Opened Closed 28 Feb 2005-------------------------------------------------------------------------------- High Street Retail 544 - (2) 542Travel Retail 129 1 (5) 125--------------------------------------------------------------------------------Total Retailing Businesses 673 1 (7) 667-------------------------------------------------------------------------------- Retail selling square feet (000's) 1 Sept 2004 Opened Closed 28 Feb 2005--------------------------------------------------------------------------------High Street Retail 3,056 - (7) 3,049Travel Retail 214 2 (6) 210--------------------------------------------------------------------------------Total Retailing Businesses 3,270 2 (13) 3,259-------------------------------------------------------------------------------- WH Smith PLC Notes to the Interim Financial StatementsFor the 6 months to 28 February 2005 3 Exceptional operating items No exceptional operating charges have been made in the six months to 28 February2005. In the prior year the following exceptional operating charges were made: a) An exceptional operating charge of £66m was made relating to UK Retailing. Ofthis amount, £45m related to the write-down in the carrying value of stock toreflect redundant and slow moving items, and £17m related to fixed assetimpairment charges in respect of costs of research work on our concept store,systems development for Travel Retail and to an impairment charge coveringgoodwill and assets in relation to WHSmith Online. A further £4m was written offrelating to other items. These charges are included within continuing operations. b) A £9m exceptional provision was made in the Publishing Business relating tounearned author advances, which is included within discontinued operations. 4 Net loss on sale of discontinued operations a) Provisions for discontinued businesses An amount of £8m has been charged to the profit and loss account for the sixmonths to 28 February 2005 relating to the disposal of discontinued businesses.Of this amount, £7m relates to an impairment review of the loan notes receivedas deferred consideration in respect of the disposal of the Group's USAbusinesses. The balance relates to closure and exit provisions. b) Publishing Business disposal On 25 September 2004, 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 period -ended 28 February 2005 --------------------------------------------------------------------------------The Group incurred a £5m cash outflow in respect of transaction costs and othercharges relating to the Publishing Business disposal. In the period to 29 February 2004 the following exceptional non-operatingcharges were made: a) The Group disposed of its USA Travel Retail business for a totalconsideration of £39m. A loss of £61m was incurred on the sale of this business. b) The Group disposed of its investment in Books and More NZ Limited, UniversityBookshop (Otago) Ltd and University Bookshop Canterbury Limited for a totalconsideration of £1.3m, generating a profit of £0.3m on disposal. WH Smith PLC Notes to the Interim Financial StatementsFor the 6 months to 28 February 2005 5 Pensions arrangements The Group's pension arrangements for employees are operated through a definedbenefit scheme (the WHSmith Pension Trust) and a defined contribution scheme,WHSmith Pension Builder. The most significant scheme remaining in the Group isthe defined benefit WHSmith Pension Trust. The assets of the pension plans areheld in separate funds administered by Trustees, which are independent of theGroup's finances. The Trustees have extensive powers over the plan'sarrangements, including the ability to determine the levels of contribution. The market value of the assets in the schemes and the present value of theliabilities in the schemes were: --------------------------------------------------------------------------------£m At At At 28 Feb 2005 29 Feb 2004 31 Aug 2004--------------------------------------------------------------------------------Total market value of assets 759 672 678Present value of scheme liabilities (896) (862) (883)--------------------------------------------------------------------------------Deficit in the scheme (137) (190) (205)Related deferred tax asset 41 57 61--------------------------------------------------------------------------------Net defined benefit schemeliabilities (96) (133) (144)Net retirement medical benefitliabilities (5) (5) (5)--------------------------------------------------------------------------------Net pension liabilities (101) (138) (149)-------------------------------------------------------------------------------- Under FRS 17 ("Retirement Benefits"), there is only a requirement to revaluescheme assets and liabilities at the financial year end. However, the schemeassets have been valued at market value as at 28 February 2005. The last formalvaluation of scheme liabilities was at 31 August 2004. The financial assumptionsused in the calculation of the liability as at 31 August 2004 have been appliedin the calculation of the actuarial value of the liability in these interimaccounts, with the exception of the discount rate. The discount rate used hasbeen reduced from 5.6% in August 2004 to 5.25% in February 2005, and thisdecrease resulted from a fall in bond yields over this period. The WHSmith Pension Trust scheme was closed to new entrants in September 1995and under the projected unit method the current service cost would be expectedto increase as members approach retirement. Movement in scheme deficit during the period -------------------------------------------------------------------------------- 6 months to 12 months to£m 28 Feb 2005 29 Feb 2004 31 Aug 2004--------------------------------------------------------------------------------At beginning of period (205) (215) (215)Current service cost (5) (8) (15)Contributions 71 22 44Interest cost (2) (2) (4)Settlement / loss on curtailment 3 (1) -Disposal of subsidiary pension fund 20 - -Actuarial (loss) / gain (19) 14 (15)--------------------------------------------------------------------------------Deficit in scheme at end of period (137) (190) (205)-------------------------------------------------------------------------------- On 25 September 2004, the Group completed the disposal of its PublishingBusiness. The gross and net deficit of the pension fund were £20m and £14mrespectively. In July 2004, the Group announced that following the disposal of the PublishingBusiness, it would make additional contributions totalling £120m to the WHSmithPension Trust. These have been made through monthly instalments. As at 28February 2005, the Group had made additional contributions totalling £60m. Theremaining £60m has been paid into an Escrow bank account, which will be releasedto the WHSmith Pension Trust by 31 August 2005. The Escrow bank account balancehas been shown as a current asset investment in the Group's balance sheet. WH Smith PLC Notes to the Interim Financial StatementsFor the 6 months to 28 February 2005 6 Taxation-------------------------------------------------------------------------------- 6 months to 12 months to£m 28 Feb 2005 29 Feb 2004 31 Aug 2004--------------------------------------------------------------------------------Tax on profit before exceptionalitems and goodwill amortisation 19 21 20 - Standard rate of UK corporation tax30% (2004: 30%)Adjustment in respect of prioryear UK corporation tax - - (3)Foreign tax - 2 3--------------------------------------------------------------------------------Total current tax charge beforeexceptional items and goodwillamortisation 19 23 20 Deferred tax - current year (1) - -Deferred tax - prior year - (2) 3--------------------------------------------------------------------------------Tax on profit on ordinaryactivities before exceptionalitems and goodwill amortisation 18 21 23 Tax on exceptional items andgoodwill amortisation - (9) (10)--------------------------------------------------------------------------------Tax on profit on ordinaryactivities after exceptionalitems and goodwill amortisation 18 12 13--------------------------------------------------------------------------------Effective tax rate beforeexceptional items and goodwillamortisation - continuingoperations 25% 30% 30%-------------------------------------------------------------------------------- 7 Dividends-------------------------------------------------------------------------------- 6 months to 12 months to 28 Feb 2005 29 Feb 2004 31 Aug 2004-------------------------------------------------------------------------------- Equity dividendsInterim 4.5p 4.0p 4.0pFinal 8.0p -------- 12.0p Non equity dividends "C" share dividend paid oncapital reorganisation (see Note13) 85.0p - --------------------------------------------------------------------------------- Total 89.5p 4.0p 12.0p-------------------------------------------------------------------------------- £m -------------------------------------------------------------------------------- Equity dividends Interim 7 10 10Final 14 -------- 24Non equity dividends "C" share dividend paid oncapital reorganisation (see Note 13) 143 - --------------------------------------------------------------------------------- 150 10 24-------------------------------------------------------------------------------- The interim dividend will be paid on 23 June 2005 to shareholders registered atthe close of business on 27 May 2005. As at 28 February 2005 the Company had180,522,752 ordinary shares in issue. On 27 October 2004, the Group paid a "C" share dividend of £142,533,945inrespect of 167,686,994 "C" shares in issue. All such "C" shares weresubsequently converted to Deferred shares. The Group paid a dividend in respectof all those "C" shares not repurchased or converted to deferred shares at arate of 75% of LIBOR, totalling £104,441 on 28 February 2005. In addition, theGroup paid dividends on the "B" shares of £44,914 on 28 February 2005. WH Smith PLC Notes to the Interim Financial StatementsFor the 6 months to 28 February 2005 8 Earnings / (loss) per share a) Basic and diluted earnings / (loss) per share -------------------------------------------------------------------------------- 6 months to 12 months to£m 28 Feb 29 Feb 31 Aug 2005 2004 2004-------------------------------------------------------------------------------- Continuing operations:Profit / (loss) attributableto shareholders 51 (22) (50)Exceptional items net ofrelated tax impact - 58 81Goodwill amortisation 1 1 1--------------------------------------------------------------------------------Adjusted earningsattributable to shareholders- continuing operations 52 37 32--------------------------------------------------------------------------------Discontinued operations:Loss attributable toshareholders (8) (62) (98)Exceptional items net ofrelated tax impact 8 69 109Goodwill amortisation - - 1--------------------------------------------------------------------------------Adjusted earningsattributable to shareholders- discontinued operations - 7 12--------------------------------------------------------------------------------Total adjusted earningsattributable to shareholders 52 44 44-------------------------------------------------------------------------------- Adjusted earnings per share is based on profits / (losses) attributable toshareholders before goodwill amortisation and exceptional items and is presentedto show a clearer representation of the results of the business going forward. -------------------------------------------------------------------------------- 6 months to 12 months to 28 Feb 2005 29 Feb 2004 31 Aug 2004-------------------------------------------------------------------------------- Continuing operations:Basic and diluted earnings /(loss) per share 27.9p (9.0)p (20.5)pExceptional items net of relatedtaxation - 23.8p 33.2pGoodwill amortisation 0.5p 0.4p 0.4p--------------------------------------------------------------------------------Adjusted earnings per share -continuing operations 28.4p 15.2p 13.1p--------------------------------------------------------------------------------Discontinued operations:Basic and diluted loss per share (4.4)p (25.4)p (40.2)pExceptional items net of relatedtaxation 4.4p 28.2p 44.7pGoodwill amortisation - - 0.4p--------------------------------------------------------------------------------Adjusted earnings per share -discontinued operations - 2.8p 4.9p--------------------------------------------------------------------------------Total basic and diluted earnings/ (loss) per share 23.5p (34.4)p (60.7)p--------------------------------------------------------------------------------Total adjusted earnings per share 28.4p 18.0p 18.0p-------------------------------------------------------------------------------- In accordance with FRS 14 "Earnings per share", as the average share optionprice was higher than the fair market value of all shares in the current period,earnings per share was not diluted by shares under option. In the prior year, asthe Group recorded a loss from continuing operations, the diluted loss per sharewas the same as the basic, as any potential dilutive shares reduce the loss pershare for continuing operations. WH Smith PLC Notes to the Interim Financial StatementsFor the 6 months to 28 February 2005 8 Earnings / (loss) per share continued b) Weighted average share capital ------------------------------------------------------------------------------------ 6 months to 12 months to£m 28 Feb 2005 29 Feb 2004 31 Aug 2004------------------------------------------------------------------------------------ Weighted average shares in issuefor earnings per share 183 244 244------------------------------------------------------------------------------------Add dilutive weighted average number of - - -ordinary shares under option ------------------------------------------------------------------------------------Weighted average ordinary sharesfor fully diluted earnings pershare 183 244 244------------------------------------------------------------------------------------ The weighted number of ordinary shares in issue is stated after excluding8,961,515 (2004: 6,682,660) shares held solely for the purpose of satisfyingobligations under employee share schemes. 9 Fixed charges cover -------------------------------------------------------------------------------- 6 months to 12 months to £m 28 Feb 2005 29 Feb 2004 31 Aug 2004-------------------------------------------------------------------------------- Interest expense 3 2 5Operating lease rentals 76 91 184Property taxes 18 18 37Other property costs 6 16 15--------------------------------------------------------------------------------Total fixed charges 103 127 241Profit before tax, exceptionalitems and goodwill amortisation 70 65 67-------------------------------------------------------------------------------- Profit before tax, exceptionalitems, goodwill amortisation andfixed charges 173 192 308--------------------------------------------------------------------------------Fixed charges cover 1.7x 1.5x 1.3x-------------------------------------------------------------------------------- Fixed charges cover is calculated by dividing profit before exceptional items,goodwill amortisation, tax and fixed charges by total fixed charges. WH Smith PLC Notes to the Interim Financial Statements For the 6 months to 28 February 2005 10 Goodwill --------------------------------------------------------------------------------£m--------------------------------------------------------------------------------Cost:At 1 September 2004 226Disposals (195)--------------------------------------------------------------------------------At 28 February 2005 31-------------------------------------------------------------------------------- Accumulated Amortisation:Related Shares:
Wh Smith