12th Apr 2006 07:01
Smith WH PLC12 April 2006 12 April 2006 WH SMITH PLC INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 28 FEBRUARY 2006 Good profit performance across all divisions KEY POINTS • Profit before tax and exceptional items up 4% to £71m (2005: £68m)(1). Divisional profits are: - Travel Retail up 18% to £13m- High Street Retail up 6% to £57m- News Distribution up 5% to £20m • Total like-for-like (LFL) sales down 3% to £1.3bn reflecting the continued tough trading environment and our strategy not to chase unprofitable sales - Travel Retail LFL sales up 3%- High Street Retail LFL sales down 6%- News Distribution LFL sales down 2% • Headline(2) earnings per share of 32.6p (2005: 28.4p per share) • Basic earnings per share of 33.1p (2005: 23.5p per share) • Strong free cash flow of £62m (2005: £54m) • Interim dividend increased by 13% to 5.1p (2005: 4.5p) • Intention to separate the Retail and News Distribution businesses Commenting on the results, Kate Swann, Group Chief Executive said: "We have maintained our focus on Group profitability. Our Travel Retail businesshas had a strong first half with good sales growth, outperforming passengergrowth, and an 18% increase in profit. In a challenging environment High StreetRetail has increased its profitability by 6% and is on track in the delivery ofits plan. News Distribution continues to make good progress, delivering anindustry-leading performance through service improvements and tight costcontrol. Overall, we continue to be cautious about consumer spending. However,we remain confident in the outcome for the full year. "We have today announced our intention to separate our Retail and NewsDistribution businesses. This separation will enable these distinct businessesto benefit from increased focus and to pursue their strategies to maximumeffect." (1) Reported profit before tax of £76m (2005: £60m including discontinued items) (2) Headline: Continuing profit before tax, exceptional items and IAS 19 pensioninterest - undiluted - Ends - Enquiries: WH Smith PLCLouise Evans Media Relations 020 7851 8850Mark Boyle Investor Relations 020 7851 8820 BrunswickTom BuchananPam Small 020 7404 5959 A summary of WH Smith PLC's Interim Results 2006 will be published in The Timesnewspaper on Thursday, 13 April 2006. WH Smith PLC's Interim Results 2006 arealso available at www.whsmithplc.com and a copy of the Interim Results 2006 willshortly be available for inspection at the UK Listing Authority, 25 The NorthColonnade, London, E14 5HS. CURRENT TRADING In the 6 weeks to 8 April 2006, Retail LFL sales* were down 3% and gross marginwas up on last year. News Distribution sales were up 1%. * Due to the difference in the timing of Easter, this year's current tradingperiod is not comparable with last year's current trading period. FINANCIAL REVIEW Group Summary The Group's profit has continued to increase despite the tough tradingenvironment. Travel Retail improved its divisional profit by 18% to £13m. Thisstrong performance, with good sales and margin growth, was driven byimprovements to ranges and space management. High Street Retail divisionalprofit has improved by 6% to £57m as we focused on good category mix managementand cost control. News Distribution improved its divisional profit by 5% to £20mand continues to make good progress, delivering an industry leading performancethrough service improvements and tight cost control. Overall, the Group generated a profit before tax and exceptional items of £71m(2005: £68m), an increase of 4% on the prior year, reflecting interest costs andnon-cash charges. Profit before tax was £76m (2005: £60m including discontinueditems). Headline earnings per share increased by 15% to 32.6p (2005: 28.4p) with basicearnings per share of 33.1p (2005: 23.5p), up 41%. Cash generation was strong due to the improved trading performance in thebusinesses and good stock and debtor control. Group free cash flow was £62m(2005: £54m). The increase in net assets to £91m (2005: £65m) reflects thesignificant reduction in the net pension liability. In light of the Group's improved profit performance and its future prospects,the Board has declared an interim dividend of 5.1p per share (2005: 4.5p), anincrease of 13%. We also today announce our intention to separate our Retail and NewsDistribution businesses, conditional upon shareholder approval. The separationwill allow increased focus on their respective strategies as independentbusinesses. An independent News Distribution business will be even more responsive topublisher needs and will invest further in publisher facing service. It willalso be able to work more effectively with other retailers, free of the link toa key retail competitor and it will be better placed to maximise itstechnological investments, win new business and develop new revenue streams. WHSmith Retail will benefit from greater focus, enabling High Street Retail tocontinue the delivery of its recovery plan and Travel Retail to continue on itsgrowth path. The separation is likely to be via a demerger of the Retail business. Notimetable has been set at present. Further details of the separation will begiven in due course. Business Results NB: All divisional profit and loss figures in this section are stated beforeallocation of share based payment charges of £4m (2005: £2m), pension charges of£5m (2005: £5m), interest and taxation. Retail Retail sales fell by 6% to £771m (2005: £816m) with LFL sales down 5%. Despitechallenging trading conditions Retail divisional profit increased by 8% to £70m(2005: £65m) as we maintained our focus on profit maximisation, cost control andnot chasing unprofitable sales. High Street Retail sales were down 7% at £621m (2005: £670m) and down 6% on aLFL basis (adjusting for selling space). Travel Retail sales grew by 3% to£150m, up 3% on a LFL basis. High Street Retail divisional profit increased by£3m to £57m for the period and Travel Retail divisional profit rose by £2m to£13m for the period. Book LFL sales were down 4% with gross margin up year on year as we focused onstabilising our market share versus the general high street and maximisingprofitability. We achieved this by delivering profitable promotional eventswhile creating a very competitive Christmas offer. We also focused on improvingthe retail basics in the category. In Children's books for example to improveour customer offer we reviewed the range architecture, we improved the use ofspace to reflect seasonality of products and delivered better promotions. Thisresulted in increased sales and market share. We intend to replicate this focusin other book sub-categories going forward. We continue to trial new storeenvironments, increased ranges and different levels of service in books. In thesecond half of the year we will increase the space devoted to books in morestores. Stationery LFL sales were down 4% versus last year. Sales were impacted byreduced consumer spending in the market and our decision to remove unprofitablesub-categories such as electronics. This action had a negative impact on salesbut a positive impact on profit. Stationery gross margin also improved in theperiod from the continued benefits of Far East sourcing, improved mix managementand consolidation of suppliers. Our stationery trial store in Barnet performedwell in the period and we will incorporate the findings into some of ourstandard stores. We will also expand the amount of space we devote to stationeryand introduce new ranges through the summer period. News and Impulse LFL sales were up 2% year on year with an improvement in grossmargin. We held share in newspapers and magazines by delivering focusedpromotional activity. We also implemented further changes in the magazine supplychain, which have improved efficiency and productivity in store. We grew oursnacking and confectionery ranges by making better use of our space. The monthlymagazine market remained depressed and partwork sales softened over the periodas a consequence of a poor release schedule. We believe the partwork category has now reverted to its traditional levels after a couple of years with strong releases led by DVD collections. The entertainment market was extremely competitive, with a weaker releaseschedule than in 2004/05 and on-going price deflation. LFL sales fell by 17%with an improvement in gross margin year on year as again we focused ondelivering our plan. Stock was tightly controlled to reflect sales patterns,without any detrimental impact on availability levels, and this coupled with ourmove to the consolidator, E.UK, will allow us to rebalance an element of ourentertainment space in the second half of the year to our other core categories. Travel Retail delivered another strong performance, with divisional profit up18% driven by good sales and margin growth combined with tightly controlledcosts. Total LFL sales improved by 3% with sales growth in airports up 6%, wellahead of passenger growth, driven by improvements to our product ranges and moreefficient use of our space. Total Rail LFL sales were down 1%. In particular,London Rail remains subdued. Gross margin has improved in Travel Retail over the period as buyingimprovements and mix changes delivered more sales in higher margin categoriessuch as snacking. Average transaction value also increased as a result of thesemix changes and improved promotional activity. In Travel Retail we continue to develop new store formats in both airports andstations. The airport bookstores we have opened at Gatwick North and LondonLuton airport are performing well and we will open a further airport bookstoreat Bristol airport in May 2006. In addition, we opened a new bookstore inLiverpool Street station and two stationery stores at London Bridge and CharingCross stations. We are also testing further channel opportunities and haveopened two franchise stores with Moto, the motorway service stations operator. Retail costs, including store occupancy costs, fell during the period despitecost inflation of approximately 3%. This was due to successful and focused costcontrol, which has led to £3m of cost savings, announced previously, beingdelivered ahead of schedule. We are on track to deliver 3-year cost savings of£48m. The Retail business operates from 674 stores, which occupy 3.3m square feet(2005: 3.3m square feet). We opened 5 new stores in the period (Beverley,Barnet, Kidderminster, Sudbury and Liverpool Street Station). We relinquishedsome space in a number of our stores and the net effect on occupancy is broadlyneutral. News Distribution Total sales were down 2% to £587m (2005: £599m) for the period. Newspaper saleswere down 1% with price increases partially offsetting volume declines. Magazinesales were down 3%, as a result of the drop in monthly magazine sales, withpart-works and one-shots down 13%. Against this backdrop, the market for weeklymagazines has grown by 1% and it has benefited from new product launches such asLove It and Real People. Divisional profit increased by £1m to £20m based on tight cost control andefficiency savings, together with the benefits of house closures we announcedlast year. News Distribution continues to implement solutions to deliver serviceimprovements for its publishing and retail customers. To this end, during 2005we introduced market leading, transparent key performance indicators (KPIs) thatallow full visibility of our logistics performance. The KPIs are agreed inconjunction with publishers, distributors and retailers and have generated astep change in service performance. Performance is now measured across core logistics areas such as timely delivery,accuracy of supplies and returns, and product tracking to and from stores.Performance improvement has been delivered through the introduction of newmeasurement tools, a dedicated support team plus clear accountability andownership at all levels in the business. The benefits of improving our serviceare cost savings and reduced wastage, as well as building better customerrelations across the supply chain. News Distribution has also continued to roll out its sales-based replenishment(SBR) system during the year; a total of 20 out of 22 news houses now have SBRcapability. We have expanded the SBR offer and tailored the service to thespecific needs of individual retailers. For retailers the benefit of SBR isimproved availability of product, less unsold stock and therefore reduced stockhandling for stores. We intend to roll out SBR to the remaining two news housesin the second half of the year so that we can offer SBR to more retailers,including independent retailers, on a nationwide basis. We have also invested in new revenue streams and are now processing all the bookreturns for the High Street Retail business at our returns warehouse inStratton. We will be rolling this out to Travel Retail in the second half of theyear. Contract renewals with publishers have progressed well in the first half of theyear and we have now contracted circa 85% of our revenue. The average length ofthe new contracts is five years. We have also won a number of new contractsincluding new business for Northern & Shell and Comag in Derby and Frontline'sdistribution in Newcastle, Blackpool, Croydon, Derby, Oxford, Northampton,Cambridge and Bury St Edmunds. The Office of Fair Trading announced in March that they will issue a new draftopinion on the distribution arrangements for newspapers and magazines at the endof May 2006, with a view to publishing their final opinion in the autumn of2006. We believe we are well placed to adapt to any changes in the market and weremain focused on continuing to deliver excellent customer service to bothpublishers and retailers. Non-operating activities These results include finance costs net of investment income of £6m (2005: £3m).The increase in the net finance charges from last year is primarily due to lowerinvestment income where in the prior year we had circa £200m of proceeds fromthe disposal of Hodder Headline earning interest for some of the period andinterest on the £120m pension funding which was paid in monthly instalments overthe year. In addition, net finance charges for the pension fund were £2m (2005:£2m). This represents the difference between interest earned on pension schemeassets and interest charged on pension scheme liabilities. At 28 February 2006, the gross defined benefit pension deficit is £87m (31August 2005: £96m). In September 2005 we introduced a Liability DrivenInvestment approach to the pension fund. As a result of the change in investmentapproach, over the long-term the profile of the scheme has become morepredictable. The Group is committed to making pension deficit payments of £15min the current year, £17m in 2006/07, £20m in 2007/08 and increasing by RPI(capped at 5%) thereafter until the deficit is repaid. Deferred consideration of £11m was received in relation to the early settlementof loan notes received on the disposal of the US Travel Airports business to theHudson Group in 2004. A £5m exceptional gain was recognised in the period as a result of postretirement medical benefit liabilities being settled. During the period, a repayment of £30m was made against the term debt, leavingnet debt of £12m. Subsequent to 28 February 2006, the final tranche of £35m onthe term debt has been repaid, one year early, reflecting the benefits of strongcash flow. WH Smith PLC Group Income StatementFor the 6 months ended 28 February 2006 12 months to 31 6 months to 28 Feb 2006 6 months to 28 Feb 2005 Aug 2005 ------------------------------ ------------------------------ ------- Before Before exceptional Exceptional exceptional Exceptional £m Note items items Total items items Total Total------------------ ----- ------- ------- ------ ------- ------- ------ -------ContinuingoperationsRevenue 2 1,302 - 1,302 1,359 - 1,359 2,497------------------ ----- ------- ------- ------ ------- ------- ------ -------Operating profit 2,3 77 5 82 71 - 71 80Investment income 1 - 1 3 - 3 3Finance costs (7) - (7) (6) - (6) (12)------------------ ----- ------- ------- ------ ------- ------- ------ -------Profit before tax 71 5 76 68 - 68 71Income tax expense 6 (17) (2) (19) (17) - (17) (16)------------------ ----- ------- ------- ------ ------- ------- ------ -------Profit after tax from continuingoperations 54 3 57 51 - 51 55Loss for theperiod fromdiscontinuedoperations 4 - - - - (8) (8) (8)------------------ ----- ------- ------- ------ ------- ------- ------ -------Profit for theperiod 54 3 57 51 (8) 43 47------------------ ----- ------- ------- ------ ------- ------- ------ -------Continuing earningsper shareBasic earningsper share 8 33.1p 27.9p 31.1pDilutedearnings pershare 8 32.7p 27.9p 30.7p Earnings per shareBasic earningsper share 8 33.1p 23.5p 26.6pDilutedearnings pershare 8 32.7p 23.5p 26.3p------------------ ----- ------- ------- ------ ------- ------- ------ -------Non-GAAP measuresHeadlineprofit beforetax(1) £73m £70m £73mHeadlineearnings(1) -continuing 8 £56m £52m £56m Headline earningsper share(1)Basic earningsper share -continuing 8 32.6p 28.4p 31.6pDilutedearnings pershare -continuing 8 32.1p 28.4p 31.3p Dividend pershare(1) 5.1p 4.5p 13.7p Fixed chargescover 9 1.7x 1.7x 1.4x------------------ ----- ------- ------- ------ ------- ------- ------ ------- (1) Headline earnings per share is calculated using profit after tax, but beforeexceptional items and IAS 19 pension interest net of taxation WH Smith PLC Group Balance SheetAs at 28 February 2006 At At At£m Note 28 Feb 2006 28 Feb 2005 31 Aug 2005------------------------------ ----- -------- -------- --------Non-current assetsGoodwill 15 15 15Other intangible assets 17 20 18Property, plant and equipment 204 207 219Deferred tax assets 33 48 57------------------------------ ----- -------- -------- -------- 269 290 309------------------------------ ----- -------- -------- -------- Current assetsInventories 171 181 162Trade and other receivables 115 139 111Current asset investment - 60 -Derivative financial assets 1 - -Cash and cash equivalents 10 63 35 46------------------------------ ----- -------- -------- -------- 350 415 319------------------------------ ----- -------- -------- --------Total assets 619 705 628------------------------------ ----- -------- -------- --------Current liabilitiesTrade and other payables (307) (322) (303)Current tax liabilities (21) (28) (27)Obligations under financeleases 10 (5) (4) (6)Bank overdrafts and otherborrowings 10 (50) (26) (45)Short-term provisions (7) (7) (5)------------------------------ ----- -------- -------- -------- (390) (387) (386)------------------------------ ----- -------- -------- --------Net current (liabilities) /assets (40) 28 (67)------------------------------ ----- -------- -------- --------Non-current liabilitiesBank loans and otherborrowings 10 (9) (67) (37)Retirement benefit obligation 5 (87) (145) (103)Deferred tax liabilities (15) (14) (16)Long-term provisions (8) (11) (12)Obligations under financeleases 10 (11) (6) (14)Other non-current liabilities (8) (10) (8)------------------------------ ----- -------- -------- -------- (138) (253) (190)------------------------------ ----- -------- -------- --------Total liabilities (528) (640) (576)------------------------------ ----- -------- -------- --------Total net assets 91 65 52------------------------------ ----- -------- -------- -------- Shareholders' equity Called up share capital 4 4 4Deferred shares and "C"shares reserve 146 153 153Share premium account 17 15 17Other reserves 187 187 187Retained earnings (263) (294) (309)------------------------------ ----- -------- -------- --------Total equity 91 65 52------------------------------ ----- -------- -------- -------- WH Smith PLC Group Cash Flow StatementFor the 6 months to 28 February 2006 6 months to 12 months to£m Note 28 Feb 2006 28 Feb 2005 31 Aug 2005-------------------------------- ----- -------- -------- --------Net cash from operatingactivities 11 65 (68) (22)-------------------------------- ----- -------- -------- --------Investing activitiesInterest received 1 3 4Proceeds on disposal ofproperty, plant andequipment 8 - 2Proceeds on disposal ofsubsidiary - 215 222Proceeds on settlement ofloan notes 11 - -Non-operating disposalcosts (2) (9) (10)Purchase of property,plant and equipment (12) (10) (32)-------------------------------- ----- -------- -------- --------Net cash from investingactivities 6 199 186-------------------------------- ----- -------- -------- --------Financing activitiesInterest paid (4) (3) (6)Dividend paid (16) (14) (21)"C" share dividend paid oncapital reorganisation - (143) (143)Purchase of shares foremployee share schemes - (12) (12)Money returned to ESOPTrust after share capitalreorganisation - 5 5Issue of shares to satisfyemployee share schemes - - 2Repurchase of "C" shares - (62) (62)Repayments of borrowings (30) - -Repayments of obligationsunder finance leases (4) (3) (6)New bank loans raised (netof financing costs) - 72 61-------------------------------- ----- -------- -------- --------Net cash used in financingactivities (54) (160) (182)-------------------------------- ----- -------- -------- --------Net increase / (decrease)in cash and cashequivalents - continuingoperations 8 (20) (8)Net increase / (decrease)in cash and cashequivalents - discontinuedoperations 9 (9) (10)-------------------------------- ----- -------- -------- --------Net increase / (decrease)in cash and cashequivalents in period 17 (29) (18)-------------------------------- ----- -------- -------- --------Opening net cash and cashequivalents 46 64 64-------------------------------- ----- -------- -------- --------Closing net cash and cashequivalents 63 35 46-------------------------------- ----- -------- -------- -------- Reconciliation of net cash flow to movement in net (debt) / funds -------------------------------- ----- -------- -------- --------Net (debt) / funds at beginning of the period - as reported (56) 35 35IAS 39 - Deferred shares and 'C' shares classified as financial liabilities (7) - -Increase / (decrease) in cash and cash equivalents 17 (29) (18) Decrease / (increase) in debt 30 (74) (63)Current asset investment - 60 -Net movement in finance leases 4 - (10)-------------------------------- ----- -------- -------- --------Net (debt) / funds at end of the period 10 (12) (8) (56)-------------------------------- ----- -------- -------- -------- WH Smith PLC Group Statement of Recognised Income and ExpensesFor the 6 months to 28 February 2006 6 months to 12 months to£m 28 Feb 2006 28 Feb 2005 31 Aug 2005------------------------------------- ----------- ----------- -----------Exchange differences arisingon translation of foreignoperations (1) (1) -Actuarial gains / (losses) ondefined pension schemes 2 (19) (42)UK deferred tax attributableto pension scheme liabilities (2) (14) (27)UK current tax attributable tothe additional pension schemecontributions 2 18 39------------------------------------- ----------- ----------- -----------Net income recognised directlyin equity 1 (16) (30) Profit for the period 57 43 47------------------------------------- ----------- ----------- -----------Total recognised income andexpense for the period 58 27 17------------------------------------- ----------- ----------- ----------- Total recognised income and expense for the period is fully attributable toequity holders of the parent company. Reconciliation of movements in equityFor the 6 months to 28 February 2006 Deferred Hedging and Share Shares and Share Translation Capital Revaluation Other Retained£m Capital "C" shares Premium Reserves Reserve Reserve Reserve Earnings Total------------- ------ ------- ------- ------- ------ -------- ------ ------ ------Balance at 1September 2005 4 153 17 - 218 3 (34) (309) 52Cumulativeadjustment forimplementationof IAS 39 (netof deferredtax) - (7) - - - - - - (7)------------- ------ ------- ------- ------- ------ -------- ------ ------ ------Balancerestated at 1September 2005 for adoptionof IAS 39 4 146 17 - 218 3 (34) (309) 45Totalrecognisedincome andexpense forthe period - - - - - - - 58 58Recognition ofshare-basedpayments - - - - - - - 4 4Dividends paid - - - - - - - (16) (16)------------- ------ ------- ------- ------- ------ -------- ------ ------ ------Balance at 28February 2006 4 146 17 - 218 3 (34) (263) 91------------- ------ ------- ------- ------- ------ -------- ------ ------ ------ On 1 March 2006, the deferred shares were transferred to the Group for a totalconsideration of one pence. The effect on the balance sheet will be to reducethe deferred shares and "C" shares reserve by £143m and increase the capitalreserve by £143m. WH Smith PLC Notes to the Interim Financial StatementsFor the 6 months to 28 February 2006 1 Basis of preparation The Group has previously prepared its financial statements under UK GenerallyAccepted Accounting Principles ("UK GAAP"). From 1 September 2005, the Group isrequired to prepare its annual consolidated financial statements in accordancewith International Financial Reporting Standards ("IFRS") as adopted by theEuropean Union and implemented in the UK. This interim report has been preparedusing IFRS accounting policies consistent with those that the Group expects touse in the preparation of its first annual report and financial statements usingIFRS for the year ending 31 August 2006. These accounting policies were includedin the Group's "Restatement of financial information under InternationalFinancial Reporting Standards" document which was published in full on 29November 2005 and is available on the Group's website at www.whsmithplc.com/grp/WHSPLC-IR-Reports.htm. As the 2006 annual financial statements will include comparatives for 2005, theGroup's transition date to IFRS is 1 September 2004. The 2005 comparatives havebeen restated accordingly with the exception of the adoption of IAS 32"Financial Instruments: Presentation and Disclosure" and IAS 39 "FinancialInstruments: Recognition and Measurement". As permitted by IFRS 1 "First timeadoption of IFRS" the Group elected to defer implementation of IAS 32 and IAS 39until the year ending 31 August 2006. The adjustments required for the adoptionof IAS 32 and IAS 39 as at 1 September 2005, together with the IAS adjustmentsrequired as at 31 August 2005 and the comparative six month period to 28February 2005 for this set of interim statements, are set out in notes 12 to 15of this report. The interim financial statements are unaudited but have been reviewed by theauditors. The scope of this review was substantially less than an audit inaccordance with Auditing Standards. The full year accounts for the year ended 31August 2005 were prepared under UK GAAP. The auditors' report on these accountswas unqualified and did not include a statement under Section 237 (2) or (3) ofthe Companies Act 1985. 2 Segmental analysis of results For management purposes, the Group is currently organised into three operatingdivisions - High Street Retail, Travel Retail and News Distribution. Thesedivisions are the basis on which the Group reports its primary business segmentinformation. 1) Segmental analysis by business segments a) Group revenue 6 months to 12 months to£m 28 Feb 2006 28 Feb 2005 31 Aug 2005------------------------------ -------- -------- ---------Continuing operations:RetailingHigh Street Retail 621 670 1,112Travel Retail 150 146 311------------------------------ -------- -------- ---------Total 771 816 1,423------------------------------ -------- -------- ---------News DistributionTotal revenue 587 599 1,187Internal revenue (56) (56) (113)------------------------------ -------- -------- ---------Total 531 543 1,074------------------------------ -------- -------- ---------Group revenue 1,302 1,359 2,497------------------------------ -------- -------- --------- Travel retail includes revenue of £3.0m generated from Continental Europe(February 2005: £3.0m and August 2005: £5.6m).WH Smith PLC b) Group operating profit 12 months to 6 months to 28 Feb 2006 6 months to 28 Feb 2005 31 Aug 2005 ----------------------------------------- ----------------------------------------- ---------- Share Share Divisional based Divisional based £m Profit Pensions payments Total Profit Pensions payments Total Total--------------- ---------- -------- -------- -------- ---------- -------- -------- ------- -------Continuingoperations:RetailingHigh StreetRetail 57 (3) (2) 52 54 (3) (1) 50 36Travel Retail 13 - - 13 11 - - 11 25--------------- ---------- -------- -------- -------- ---------- -------- -------- ------- -------Total 70 (3) (2) 65 65 (3) (1) 61 61NewsDistribution 20 (1) (1) 18 19 (1) (1) 17 34--------------- ---------- -------- -------- -------- ---------- -------- -------- ------- -------Trading 90 (4) (3) 83 84 (4) (2) 78 95profitUnallocatedcosts (4) (1) (1) (6) (6) (1) - (7) (15)--------------- ---------- -------- -------- -------- ---------- -------- -------- ------- -------Groupoperatingprofit beforeexceptionalitems 86 (5) (4) 77 78 (5) (2) 71 80--------------- ---------- -------- -------- -------- ---------- -------- -------- ------- ------- Divisional profit comprises operating profit before exceptional items, pensionservice cost and charges in respect of share based payments.Travel retail includes profit of £0.4m generated from Continental Europe(February 2005: £0.3m and August 2005: £0.6m). c) Geographical split The total Group revenue and operating profit stated in notes 1 (a) and 1 (b)above originate from the UK / Europe region. d) Analysis of retailing stores and selling space Number of stores 1 Sept 2005 Opened Closed 28 Feb 2006------------------------------ -------- -------- -------- --------High Street Retail 542 4 - 546Travel Retail 127 1 - 128------------------------------ -------- -------- -------- --------Total Retailing Businesses 669 5 - 674------------------------------ -------- -------- -------- -------- Retail selling square feet (000's) Sapce 1 Sept 2005 Opened reduction 28 Feb 2006------------------------------ -------- -------- -------- --------High Street Retail 3,035 14 (11) 3,038Travel Retail 216 1 (1) 216------------------------------ -------- -------- -------- --------Total Retailing Businesses 3,251 15 (12) 3,254------------------------------ -------- -------- -------- -------- 3 Exceptional items In September 2005, members of the post retirement medical benefits scheme wereoffered the option to be bought out of the scheme, which was accepted by themajority of members. A gain of £5m (before tax) arose from the settlement ofthis scheme, which has been recognised in the Income statement for the period.Further details are included in Note 5. 4 Discontinued operations 1) Results from discontinued operations The results from discontinued operations were as follows: 6 months to 12 months to£m 28 Feb 2006 28 Feb 2005 31 Aug 2005------------------------------ -------- -------- ---------RevenuePublishing BusinessTotal revenue - 14 14Internal revenue - (3) (3)------------------------------ -------- -------- ---------Total revenue - 11 11------------------------------ -------- -------- ---------USA Travel Retail - - ------------------------------- -------- -------- ---------Total revenue - discontinuedoperations - 11 11------------------------------ -------- -------- ---------Loss after taxPublishing Business - - -USA Travel Retail - (8) (8)------------------------------ -------- -------- ---------Loss after tax - discontinuedoperations - (8) (8)------------------------------ -------- -------- --------- The cash flows attributable to discontinued operations comprise: 6 months to 12 months to£m 28 Feb 2006 28 Feb 2005 31 Aug 2005------------------------------ -------- -------- ---------From operating activities - - -From investing activities 9 (9) (10)From financing activities - - ------------------------------- -------- -------- ---------Net increase / (decrease) in cash and cash equivalents 9 (9) (10)------------------------------ -------- -------- --------- 2) Net loss on sale of discontinued operations There are no results recorded in the period to 28 February 2006 for the sale ofdiscontinued operations. In the prior year, the following results were recorded: a) Provisions for discontinued businesses An amount of £8m was charged to the Income statement for the six months to 28February 2005 relating to the disposal of discontinued businesses. Of thisamount, £7m relates to an impairment review of certain loan notes received asdeferred consideration in respect of the disposal of the Group's USA businesses.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. The net profit on disposal was £nil. 5 Retirement benefit obligation 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 is the defined benefitWHSmith Pension Trust. The assets of the pension plans are administered byTrustees, which are independent of the Group's finances. The Trustees haveextensive powers over the plan's arrangements, including the ability todetermine the levels of contribution. In September 2005, the Trustees of the WHSmith Pension Trust adopted a newinvestment policy in order to limit 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 expected liabilities of the scheme being matched byassets that will alter in value as interest and inflation rates change, matchingthe movements at the same rate as the pension liability changes ("a LiabilityDriven Investment 'LDI' policy"). The key features of this fund restructuring are as follows: - 94% of the fund's assets are invested in an LDI structure with a leadinginternational institutional fund manager; and - 6% of the fund's assets are invested in a portfolio of long-dated equity Calloptions. These represent a notional exposure to underlying equities of some£350m. The impact of this change in investment policy is to limit the volatility in thefund and the resultant risk of a significant increase in the overall deficitwhilst enabling the fund to continue to benefit from any potential higherreturns in the equity markets. 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 2006 28 Feb 2005 31 Aug 2005------------------------------- --------- --------- ---------Present value of the obligations (1,033) (896) (967)Fair value of plan assets 946 758 871------------------------------- --------- --------- ---------Deficit in the pension scheme (87) (138) (96)Retirement medical benefitliabilities - (7) (7)------------------------------- --------- --------- ---------Retirement benefit obligationrecognised in the balance sheet (87) (145) (103)Deferred taxation 26 43 30------------------------------- --------- --------- ---------Net retirement obligation (61) (102) (73)------------------------------- --------- --------- --------- In accordance with IAS 19 "Employee benefits", the liability recognised in thebalance sheet represents the difference between the present value of the definedbenefit obligation, using the projected unit credit method, and the fair valueof the plan assets, as at the balance sheet date. The retirement benefit obligation and the associated deferred tax asset areshown within different line items on the face of the balance sheet. Movement in retirement benefit obligation during the period (excludingpost-retirement medical benefit liabilities) 6 months to 12 months to£m 28 Feb 2006 28 Feb 2005 31 Aug 2005------------------------------- --------- --------- ---------At beginning of period (96) (206) (207)Current service cost (5) (5) (10)Interest cost (2) (2) (2)Contributions 15 71 142Settlement - 3 3Disposal of subsidiary pension fund - 20 20Actuarial gain / (loss) 1 (19) (42)------------------------------- --------- --------- ---------At end of period (87) (138) (96)------------------------------- --------- --------- --------- Post retirement medical benefits WH Smith PLC provides retirement medical benefits to certain pensioners. InSeptember 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 £5m reduction in the net deficit. A small number of membersopted to remain in the scheme and the present value of the remaining futureliabilities is valued at £0.2m net of deferred taxation. The remaining liabilityand the associated deferred tax asset are shown within different line items onthe face of the balance sheet. The valuation has been assessed by independentactuaries (Buck Consultants (Healthcare) Limited). 6 Income tax expense 6 months to 12 months to£m 28 Feb 2006 28 Feb 2005 31 Aug 2005-------------------------------- -------- ------ --------Current tax - current year 2 22 24 - prior year (5) (5) (5)Deferred tax 22 - (3)-------------------------------- -------- ------ --------Income tax expense for the period 19 17 16-------------------------------- -------- ------ --------Effective tax rate - continuingoperations 23% 25% 25%-------------------------------- -------- ------ -------- Income tax for the period, using the domestic corporation tax rate, is chargedat 30% (28 February 2005: 30% and 31 August 2005: 30%).WH Smith PLC 7 Dividends Amounts recognised as distributions to shareholders in the period are asfollows: 6 months to 12 months to 28 Feb 2006 28 Feb 2005 31 Aug 2005-------------------------------- -------- ------ --------Dividend per shareInterim - paid - - 4.5pFinal - paid 9.2p 8.0p 8.0p "C" share dividend per share"C" share dividend paid oncapital reorganisation - 85.0p 85.0p-------------------------------- -------- ------ -------- £m-------------------------------- -------- ------ --------DividendsInterim - paid - - 7Final - paid 16 14 14-------------------------------- -------- ------ -------- 16 14 21"C" share dividends"C" share dividend paid oncapital reorganisation - 143 143-------------------------------- -------- ------ -------- 16 157 164-------------------------------- -------- ------ -------- The Group also paid a dividend of £140,600 on 28 February 2006 (28 February2005: £104,441 and 31 August 2005: £156,647) in respect of "C" shares, and paiddividends on the "B" shares of £40,563 on 28 February 2006 (28 February 2005:£44,914 and 31 August 2005: £45,192). In addition, the directors are recommending an interim dividend in respect ofthe period ending 28 February 2006 of 5.1p per ordinary share (2005: 4.5p),which will absorb an estimated £9m of shareholders' equity (2005: £7m). Thiswill be paid on 15 June 2006 to shareholders registered at the close of businesson 19 May 2006. 8 Earnings /(loss) per share a) Earnings 6 months to 12 months to£m 28 Feb 2006 28 Feb 2005 31 Aug 2005-------------------------------- -------- ------ --------Continuing operations:Profit for the periodattributable to shareholders 57 51 55Operating exceptional items netof related taxation (3) - -Pension interest net of relatedtaxation 2 1 1-------------------------------- -------- ------ --------Headline earnings attributable toshareholders - continuingoperations 56 52 56-------------------------------- -------- ------ --------Discontinued operations:Loss for the period attributableto shareholders - (8) (8)Pension interest net of related taxation - - --------------------------------- -------- ------ --------Headline earnings attributable toshareholders - discontinuedoperations - (8) (8)-------------------------------- -------- ------ --------Total profit for the periodattributable to shareholders 57 43 47-------------------------------- -------- ------ --------Total headline earningsattributable to shareholders 56 44 48-------------------------------- -------- ------ -------- b) Basic earnings / (loss) per share 6 months to 12 months to 28 Feb 2006 28 Feb 2005 31 Aug 2005-------------------------------- -------- ------ --------Continuing operations:Earnings per share 33.1p 27.9p 31.1pExceptional items net of relatedtaxation (1.7)p - -Pension interest net of relatedtaxation 1.2p 0.5p 0.5p-------------------------------- -------- ------ --------Headline earnings per share -continuing operations 32.6p 28.4p 31.6p-------------------------------- -------- ------ --------Discontinued operations:Loss per share - (4.4)p (4.5)pPension interest net of related taxation - - --------------------------------- -------- ------ --------Loss per share - discontinuedoperations - (4.4)p (4.5)p-------------------------------- -------- ------ --------Total basic earnings per share(note a) 33.1p 23.5p 26.6p-------------------------------- -------- ------ --------Total headline earnings per share(note b) 32.6p 24.0p 27.1p-------------------------------- -------- ------ -------- c) Diluted earnings / (loss) per share 6 months to 12 months to 28 Feb 2006 28 Feb 2005 31 Aug 2005-------------------------------- -------- ------ --------Continuing operations:Earnings per share 32.7p 27.9p 30.7pExceptional items net of relatedtaxation (1.7)p - -Pension interest net of relatedtaxation 1.1p 0.5p 0.6p-------------------------------- -------- ------ --------Headline earnings per share -continuing operations 32.1p 28.4p 31.3p-------------------------------- -------- ------ --------Discontinued operations:Loss per share - (4.4)p (4.4)pPension interest net of related taxation - - --------------------------------- -------- ------ --------Loss per share - discontinuedoperations - (4.4)p (4.4)p-------------------------------- -------- ------ --------Total diluted earnings per share(note a) 32.7p 23.5p 26.3p-------------------------------- -------- ------ --------Total diluted headline earningsper share (note b) 32.1p 24.0p 26.9p-------------------------------- -------- ------ -------- a) Basic earnings per share and diluted earnings per share is calculatedusing profit after tax for the period. b) Basic headline earnings per share and diluted headline earnings pershare is calculated using profit after tax but before exceptional items and netinterest charges on pension schemes. c) Diluted earnings per share takes into account various share awardsand share options, including SAYE schemes, which are expected to vest at 28February 2006, and for which a sum below fair value will be paid. d) Weighted average share capital 6 months to 12 months toMillions 28 Feb 2006 28 Feb 2005 31 Aug 2005-------------------------------- -------- ------ --------Weighted average shares in issuefor earnings per share 172 183 177-------------------------------- -------- ------ --------Add weighted average number ofordinary shares under option 3 - 2-------------------------------- -------- ------ --------Weighted average ordinary sharesfor fully diluted earnings pershare 175 183 179-------------------------------- -------- ------ -------- The weighted number of ordinary shares in issue is stated after excluding8,928,064 (2005: 8,961,515) 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 2006 28 Feb 2005 31 Aug 2005-------------------------------- -------- ------ --------Finance costs less investmentincome 6 3 9Operating lease rentals 76 72 149Property taxes 21 18 37Other property costs 5 6 10-------------------------------- -------- ------ --------Total fixed charges 108 99 205Profit before tax 76 68 71-------------------------------- -------- ------ --------Profit before tax and fixedcharges 184 167 276-------------------------------- -------- ------ --------Fixed charges cover 1.7x 1.7x 1.4x-------------------------------- -------- ------ -------- Fixed charges cover is calculated by dividing profit before tax and fixedcharges by total fixed charges. 10 Analysis of net debt At At At£m 28 Feb 2006 28 Feb 2005 31 Aug 2005----------------------------------- -------- -------- -------- Cash and cash equivalents 63 35 46Current asset investment - 60 -Debt due within one year (50) (26) (45)Finance leases (16) (10) (20)Debt due after more than one year (9) (67) (37)----------------------------------- -------- -------- --------Net debt (12) (8) (56)----------------------------------- -------- -------- -------- Movements in net debt can be further analysed as follows: At Cash flow Non-cash IAS 32 and 39 At£m 28 Feb 2006 Cash flow Non-cash reclassification 31 Aug 2005------------------------ -------- ------- ------- ------------ --------Cash and cash equivalents 63 17 - - 46Debt- Sterling floating rate (30) 20 - - (50)- Sterling fixed rate (22) 10 - - (32)- 'B' and 'C' sharesclassified as financialliabilities (7) - - (7) -Finance lease creditor (16) 4 - - (20)------------------------ -------- ------- ------- -------- --------Net (debt) / funds (12) 51 - (7) (56)------------------------ -------- ------- ------- -------- -------- At 28 February 2006, floating rate debt constitutes (1) £15m of unsecured termloan bearing an interest rate of one month LIBOR plus 155 basis points and (2)£15m of unsecured loan notes (which are repayable at par on demand up untilexpiry on 28 February 2008) which bear an interest rate of 100 basis pointsbelow six month LIBOR. Fixed rate debt constitutes (1) £20m of unsecured termloan bearing an interest rate of 6.47% and (2) £2m of undated 5.125% unsecured(redeemable at par) loan stock. On 27 March 2006, the company repaid both the £15m unsecured floating term loanand the £20m fixed unsecured term loan. 11 Net cash inflow / (outflow) from operating activities 6 months to 12 months to£m 28 Feb 2006 28 Feb 2005 31 Aug 2005-------------------------------- -------- ------ --------Operating profit / (loss) 82 71 80Operating exceptional items (5) - -Adjustment for pension funding (9) (126) (132)Depreciation of property,plant and equipment 18 22 43Profit on sale of property,plant and equipment (note a) (4) - -Impairment of property, plantand equipment (note a) 2 - -Amortisation of intangibleassets 3 2 4Share based payments 4 1 2(Increase) / decrease ininventories (9) (13) 6(Increase) / decrease inreceivables (18) (20) 1Increase / (decrease) inpayables 4 8 (7)Income taxes paid - (3) (4)Corporate advisory costs - (8) (9)Cash spend against provisions (1) (2) (6)-------------------------------- -------- ------ --------Net cash inflow / (outflow)from operating activitiesbefore exceptional items 67 (68) (22)Cash outflow relating toexceptional operating item(PRMB settlement) (2) - --------------------------------- -------- ------ --------Net cash inflow / (outflow)from operating activities 65 (68) (22)-------------------------------- -------- ------ -------- a) High Street Retail generated £3m of the profit on sale of property,plant and equipment, with the balance relating to News Distribution. During theperiod there was a £2m impairment charge for property, plant and equipment inHigh Street Retail. 12 First time adoption of IAS 39 "Financial Instruments: Recognition and Measurement" As permitted by IFRS 1 "First time Adoption of International Financial ReportingStandards", the Group has elected to defer the implementation of IAS 39 untilthe year ending 31 August 2006. The effect of the adoption of IAS 39 is toreduce net assets by £7m resulting from the reclassification of non-equity sharecapital to financial liabilities. The Group has designated the majority of itsforeign exchange derivatives as cash flow hedges as at 1 September 2005; therewas no effect on the balance sheet in respect of this. The adjustments on thebalance sheet as at 1 September 2005 are summarised below: At Transitional At£m 31 Aug 2005 adjustments 1 Sept 2005-------------------------------- -------- ---------- --------Non-current liabilitiesBank loans and other borrowings (37) (7) (44)-------------------------------- -------- ---------- --------Shareholders' equityDeferred shares and "C" shares reserve 153 (7) 146-------------------------------- -------- ---------- -------- 13 Summary of the impact of IFRS on the comparative periods - Income Statement The adjustments to the Income statement for the comparative periods aresummarised below: 6 months to 28 February 2005 12 months to 31 August 2005 As reported IFRS As restated As reported IFRS As restated£m UK GAAP adjustments IFRS UK GAAP adjustments IFRS --------------------- ------- ------- ------- ------- ------- -------Continuing operationsRevenue 1,370 (11) 1,359 2,508 (11) 2,497--------------------- ------- ------- ------- ------- ------- -------Operating profit 72 (1) 71 80 - 80Investment income 3 - 3 3 - 3Finance costs (6) - (6) (11) (1) (12)--------------------- ------- ------- ------- ------- ------- -------Profit before tax 69 (1) 68 72 (1) 71Income tax expense (18) 1 (17) (18) 2 (16)--------------------- ------- ------- ------- ------- ------- -------Profit after tax -continuing operations 51 - 51 54 1 55Loss for the year from discontinuedoperations (8) - (8) (8) - (8)--------------------- ------- ------- ------- ------- ------- -------Profit for the year 43 - 43 46 1 47--------------------- ------- ------- ------- ------- ------- ------- The adjustments made to the Income statement as a result of the transition toIFRS are analysed further below: 6 months to 28 12 months to 31£m Feb 2005 Aug 2005------------------------------- ------------- -------------RevenueIFRS 5 "Non-current assets" -reclassification of revenue (11) (11)------------------------------- ------------- -------------Operating profitIFRS 2 "Share based payments" - recognition of share based payments (1) (2)IAS 17 "Leasing" - reclassification of operating leases as finance leases - 1IAS 19 "Employee benefits" - recognition of holiday pay (1) -IFRS 3 "Business combinations" - reversal of goodwill amortisation 1 1 ------- ----- (1) -Finance costsIAS 17 "Leasing" -reclassification of operating leases as finance leases - (1)Income tax expenseTax effect of IFRS adjustments to Income statement 1 2------------------------------- ------------- -------------Net effect on Income statement on transition to IFRS - 1------------------------------- ------------- ------------- 14 Summary of the impact of IFRS on the comparative periods - Balance sheet The adjustments to the Balance sheets for the comparative periods are summarisedbelow: At 28 February 2005 At 31 August 2005 As reported IFRS As reported As reported IFRS As reported£m Note UK GAAP Adjustments IFRS UK GAAP Adjustment IFRS------------------- ----- ------- ------- ------- ------- ------- -------Non-current assetsGoodwill a 14 1 15 14 1 15Other intangibleassets a - 20 20 - 18 18Property, plant andequipment b 219 (12) 207 231 (12) 219Deferred tax assets c - 48 48 20 37 57------------------- ---- ------- ------- ------- ------- ------- ------- 233 57 290 265 44 309------------------- ---- ------- ------- ------- ------- ------- -------Current assetsInventories 181 - 181 162 - 162Trade and otherreceivables d 140 (1) 139 112 (1) 111Current assetinvestment 60 - 60 - - -Cash and cashequivalents 35 - 35 46 - 46------------------- --- ------- ------- ------- ------- ------- ------- 416 (1) 415 320 (1) 319------------------- --- ------- ------- ------- ------- ------- -------Total assets 649 56 705 585 43 628------------------- --- ------- ------- ------- ------- ------- -------Current liabilitiesTrade and other payables e (328) 6 (322) (319) 16 (303)Current taxliabilities (28) - (28) (27) - (27)Obligations under finance leases f - (4) (4) (3) (3) (6)Bank overdrafts andloans (26) - (26) (45) - (45)Short-term provisions g - (7) (7) - (5) (5)------------------- ---- ------- ------- ------- ------- ------- ------- (382) (5) (387) (394) 8 (386)------------------- ---- ------- ------- ------- ------- ------- -------Net current assets /(liabilities) 34 (6) 28 (74) 7 (67)------------------- ---- ------- ------- ------- ------- ------- -------Non-currentliabilitiesBank loans and otherborrowings (67) - (67) (37) - (37)Retirement benefitobligation h (101) (44) (145) (71) (32) (103)Deferred taxliabilities i - (14) (14) - (16) (16)Long-termprovisions j (31) 20 (11) (31) 19 (12)Obligationsunder financeleases k - (6) (6) (9) (5) (14)Othernon-currentliabilities l (2) (8) (10) (1) (7) (8)------------------- ---- ------- ------- ------- ------- ------- ------- (201) (52) (253) (149) (41) (190)------------------- ---- ------- ------- ------- ------- ------- -------Totalliabilities (583) (57) (640) (543) (33) (576)------------------- ---- ------- ------- ------- ------- ------- -------Total net assets 66 (1) 65 42 10 52------------------- ---- ------- ------- ------- ------- ------- -------Shareholders' equityCalled up share capital 4 - 4 4 - 4Deferred and"C" shares reserve 153 - 153 153 - 153Share premium account 15 - 15 17 - 17Other reserves 187 - 187 187 - 187Retainedearnings m (293) (1) (294) (319) 10 (309)------------------- ---- ------- ------- ------- ------- ------- -------Total equity 66 (1) 65 42 10 52------------------- ---- ------- ------- ------- ------- ------- ------- The principal IFRS transition adjustments made to the Balance sheets for thecomparative periods are summarised below: £m At 28 February 2005 At 31 August 2005------------------------------------- ----------- -----------a) Intangible assets IFRS 3 "Business Combinations" -reversal of goodwill amortisation 1 1 IAS 38 "Intangible assets" -reclassification of capitalisedsoftware as intangible assets 20 18 b) Property, plant and equipment IAS 38 - reclassification ofcapitalised software as intangibleassets (20) (18) IAS 17 "Leases" - reclassificationof operating leases as financeleases 10 8 IAS 36 "Impairment of assests" -recognition of impairment of fixedassets (2) (12) (2) (12) ------ ------c) Deferred tax assets IAS 19 "Employee benefits" -reclassification of deferred taxasset on pension liability 43 30 IAS 37 "Provisions, contingentassets and contingent liabilities" -transfer of non-current deferred taxprovision to non-current assets 2 2 Deferred tax assets created from IASadjustments to opening reserves 3 48 5 37 ------ ------d) Trade and other receivables IAS 17 - reversal of operating leaseprepayment on reclassification ofoperating leases to finance leases (1) (1) e) Trade and other payables IAS 10 "Events after balance sheetdate" - de-recognition of dividendaccrual 7 16 IAS 19 - recognition of holiday payaccrual (1) 6 - 16 ------ ------f) Obligations under finance leases IAS 17 - recognition of the currentliabilities relating to financelease creditors previouslyclassified as operating leases underUK GAAP (4) (3) g) Short term provision IAS 37 - reclassification ofprovisions as short-term (7) (5) h) Retirement benefit obligation IAS 19 - transfer deferred tax assetelement of pension deficit todeferred tax asset (43) (30) IAS 19 - effect of mid price to bidprice pension valuation (1) (44) (2) (32) ------ ------i) Deferred tax liabilities IAS 37 - reclassification ofdeferred tax liability element ofthe tax provision (15) (16) Changes to deferred tax liabilitiesarising from IAS adjustments toopening reserves 1 (14) - (16) ------ ------j) Long-term provisions IAS 37 - effect of reclassificationof provisions into correct IASbalance sheet headings 20 19 k) Obligations under finance leases IAS 17 - recognition of thenon-current liabilities relating tofinance lease creditors previouslyclassified as operating leases underUK GAAP (6) (5) l) Other non-current liabilities IAS 17 - re-instatement of leaseincentives under IAS, previouslytaken to income under UK GAAP (8) (7) ------ ------m) Cumulative effect on retainedearnings (1) 10 ------------------------------------- ------ ------ ------ ------ 15 Summary of the impact of IFRS on date of transition - Balance sheet The adjustments to the Balance sheet at the date of transition (1 September2004) are summarised below: As reported IFRS As reported£m Note UK GAAP Adjustment IFRS-------------------- ------- ------- ------- -------Non-current assetsGoodwill a 164 (149) 15Other intangible assets a - 23 23Property, plant and equipment b 237 (21) 216Deferred tax assets c - 68 68-------------------- ------ ------- ------- ------- 401 (79) 322-------------------- ------ ------- ------- -------Current assetsInventories d 184 (17) 167Trade and other receivables e 212 (75) 137Cash and cash equivalents 64 - 64-------------------- ------ ------- ------- ------- 460 (92) 368-------------------- ------ ------- ------- -------Assets held for sale f - 247 247-------------------- ------ ------- ------- ------- 460 155 615-------------------- ------ ------- ------- -------Total assets 861 76 937-------------------- ------ ------- ------- ------- Current liabilitiesTrade and other payables g (367) 51 (316)Current tax liabilities (30) - (30)Obligations under finance leases h - (4) (4)Bank overdrafts and loans (17) - (17)Short-term provisions i - (10) (10)-------------------- ------ ------- ------- ------- (414) 37 (377)-------------------- ------ ------- ------- -------Net current assets / (liabilities) 46 192 238-------------------- ------ ------- ------- -------Non-current liabilitiesBank loans and other borrowings (2) - (2)Retirement benefit obligation j (149) (65) (214)Deferred tax liabilities k - (17) (17)Long-term provisions l (38) 25 (13)Obligations under finance leases m - (6) (6)Other non-current liabilities n (2) (8) (10)-------------------- ------ ------- ------- ------- (191) (71) (262)-------------------- ------ ------- ------- -------Non current assets held for sale o - (37) (37)-------------------- ------ ------- ------- -------Total liabilities (605) (71) (676)-------------------- ------ ------- ------- -------Total net assets 256 5 261-------------------- ------ ------- ------- -------Shareholders' equityCalled up share capital 141 - 141Share premium account 93 - 93Other reserves 132 - 132Retained earnings p (110) 5 (105)-------------------- ------ ------- ------- -------Total equity 256 5 261-------------------- ------ ------- ------- ------- The principal IFRS adjustments made to the Balance sheet at date of transition(1 September 2004) are summarised below: £m £m----------------------------------------- ------ ------a) Intangible assets IFRS 5 "non-current assets held for sale and discontinuedoperations" - reclassification of Hodder Headline ("Hodder")goodwill as a non-current asset held for sale (149) IAS 38 - reclassification of capitalised software as intangibleassets 23 b) Property, plant and equipment ("PPE") IAS 38 - reclassification of capitalised software as intangibleassets (23) IFRS 5 - reclassification of PPE held by Hodder as non-currentasset held for sale (7) IAS 17 - reclassification of operating leases as finance leases 11 IAS 36 - recognition of impairment of fixed assets (2) (21) ------c) Deferred tax assets IAS 19 - reclassification of deferred tax asset on pensionliability 63 IAS 37 - transfer of non-current deferred tax provision tonon-current assets 2 Deferred tax assets created from IAS adjustments to openingreserves 3 68 ------d) Inventories IFRS 5 - reclassification of inventories held by Hodder asnon-current assets held for sale (17) e) Trade and other receivables IFRS 5 - reclassification of trade and other receivables held byHodder as non-current assets held for sale (74) IAS 17 - reversal of operating lease prepayment onreclassification of operating leases to finance leases (1) (75) ------f) Assets held for sale IFRS 5 - recognition of the assets and liabilities of Hodder as anon-current asset held for sale 247 g) Trade and other payables IFRS 5 - reclassification of trade / other payables held byHodder as non-current assets liabilities held for sale 37 IAS 10 - de-recognition of dividend accrual 14 51 ------h) Obligations under finance leases IAS 17 - recognition of the current liabilities relating tofinance lease creditors previously classified as operating leasesunder UK GAAP (4) i) Short term provision IAS 37 - reclassification of provisions as short-term (10) j) Retirement benefit obligation IAS 19 - transfer deferred tax asset element of pension deficitto deferred tax asset (63) IAS 19 - effect of mid price to bid price pension valuation (2) (65) ------k) Deferred tax liabilities IAS 37 - reclassification of deferred tax liability element ofthe tax provision (17) l) Long-term provisions IAS 37 - effect of reclassification of provisions into correctIAS balance sheet headings 25 m) Obligations under finance leases IAS 17 - recognition of the non-current liabilities relating tofinance lease creditors previously classified as operating leasesunder UK GAAP (6) n) Other non-current liabilities IAS 17 - re-instatement of lease incentives under IAS, previouslytaken to reserves under UK GAAP (8) o) Non-current assets held for sale IFRS 5 - recognition of the non-current liabilities of Hodder asnon-current liabilities held for sale (37) ------ p) Cumulative effect on retained earnings 5 ------ ----------------------------------------- ------ ------ 16 Approval of Interim Statement The Interim Statement was approved by the Board of Directors on 12 April 2006. INDEPENDENT REVIEW REPORT TO WH SMITH PLC Introduction We have been instructed by the Company to review the financial information forthe six months ended 28 February 2006 which comprises the Group incomestatement, the Group balance sheet, the Group cash flow statement, the Groupstatement of recognised income and expenses, the reconciliation of movements inequity and related notes 1 to 16. We have read the other information containedin the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. International Financial Reporting Standards As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with International Financial Reporting Standards asadopted for use in the EU. Accordingly, the interim report has been prepared inaccordance with the recognition and measurement criteria of IFRS and thedisclosure requirements of the Listing Rules. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 28 February 2006. Deloitte & Touche LLPChartered AccountantsLondon12 April 2006 -------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Wh Smith