Final Results part 2
Smiths News PLC
12 October 2006
Group Income Statement for the year ended 31 August 2006
______________________________________________________________________________
2006 2005
______________________________________________________________________________
£m Note
_________________________________________________________ ______________
Continuing operations
Revenue 2 1,095 1,074
_________________________________________________________ ______________
Operating profit 2,3 34 33
Finance costs (2) (1)
_________________________________________________________ ______________
Profit before tax 32 32
Income tax expense 5 (6) (7)
_________________________________________________________ ______________
Profit after tax from
continuing operations 26 25
Profit for the year from
discontinued operations 13 32 22
_________________________________________________________ ______________
Profit for the year 58 47
==============================================================================
Note
Earnings per share
Basic - continuing operations 7 15.1p 14.2p
Diluted - continuing operations 7 15.0p 14.0p
Basic 7 33.7p 26.6p
Diluted 7 33.5p 26.3p
______________________________________________________________________________
Non GAAP measures
Equity dividends per share(1) 4.0p
______________________________________________________________________________
(1) Dividend per share is the final proposed dividend
Group Balance Sheet at 31 August 2006
_____________________________________________________________________________
£m Note 2006 2005
_____________________________________________________________________________
Non-current assets
Goodwill - 15
Other intangible assets 3 18
Property, plant and equipment 19 219
Deferred tax assets 16 57
_____________________________________________________________________________
38 309
_____________________________________________________________________________
Current assets
Inventories 12 162
Trade and other receivables 70 111
Cash and cash equivalents 8 11 46
_____________________________________________________________________________
93 319
_____________________________________________________________________________
Total assets 131 628
_____________________________________________________________________________
Current liabilities
Trade and other payables (118) (303)
Current tax liabilities (15) (27)
Obligations under finance leases 8 (1) (6)
Bank overdrafts and other borrowings 8 - (45)
Short-term provisions - (5)
_____________________________________________________________________________
(134) (386)
_____________________________________________________________________________
Non-current liabilities
Bank loans and other borrowings 8 (50) (37)
Retirement benefit obligation 4 (49) (103)
Deferred tax liabilities (2) (16)
Long-term provisions (1) (12)
Obligations under finance leases 8 (2) (14)
Other non-current liabilities - (8)
_____________________________________________________________________________
(104) (190)
_____________________________________________________________________________
Total liabilities (238) (576)
_____________________________________________________________________________
Total net (liabilities)/assets (107) 52
_____________________________________________________________________________
Group Balance Sheet at 31 August 2006 (continued)
_____________________________________________________________________________
£m Note 2006 2005
_____________________________________________________________________________
Total equity
Called up share capital 11 9 660
'B' Share reserve 11 - 2
'C' Share reserve 11 - 8
ESOP reserve (7) (34)
Revaluation reserve - 3
Other reserve (280) (278)
Retained earnings 171 (309)
_____________________________________________________________________________
Total equity (107) 52
_____________________________________________________________________________
Group Cash Flow Statement for the year ended 31 August 2006
_____________________________________________________________________________
£m Note 2006 2005
_____________________________________________________________________________
Net cash inflows/(outflows) from
operating activities 10 105 (22)
Investing activities
Interest received 2 4
Proceeds on disposal of property,
plant and equipment 10 2
Proceeds on disposal of subsidiary - 222
Proceeds on settlement of loan notes 11 -
Non-operating disposal costs (3) (10)
Net cash in subsidiaries disposed (66) -
Purchase of property, plant and
equipment (26) (29)
Purchase of intangible assets (5) (3)
_____________________________________________________________________________
Net cash (outflows)/inflows from
investing activities (77) 186
_____________________________________________________________________________
Financing activities
Interest paid (7) (6)
Dividend paid (25) (21)
Repayments of obligations under
finance leases (6) (6)
New bank loans raised (net of
financing costs) 49 61
Repayments of borrowings (76) -
Derivative cash movements (1) -
'C' share dividend paid on capital - (143)
reorganisation
Purchase of shares for employee share
schemes - (12)
Money returned to ESOP Trust after
share capital reorganisation - 5
Issue of shares to satisfy employee
share schemes 6 2
Repurchase of equity component of
'C' shares (3) (62)
_____________________________________________________________________________
Net cash outflows from financing
activities (63) (182)
_____________________________________________________________________________
Net increase / (decrease) in cash and
cash equivalents - continuing
operations 4 (6)
Net increase / (decrease) in cash and
cash equivalents - discontinued
operations 27 (12)
Net cash in subsidiaries disposed -
discontinued operations (66) -
_____________________________________________________________________________
Net decrease in cash and cash equivalents
in year (35) (18)
_____________________________________________________________________________
Opening net cash and cash equivalents 46 64
_____________________________________________________________________________
Closing net cash and cash equivalents 11 46
_____________________________________________________________________________
£m Note 2006 2005
_____________________________________________________________________________
Reconciliation of net cash flow to
movement in net (debt) / funds
_____________________________________________________________________________
Net (debt) / funds at beginning of
the year (56) 35
IAS 39 - 'B' and 'C' shares
reclassified as financial liabilities (7) -
Decrease in cash and cash equivalents (35) (18)
Decrease / (increase) in debt 39 (63)
Net movement in finance leases 17 (10)
_____________________________________________________________________________
Net debt at end of the year 8 (42) (56)
_____________________________________________________________________________
Group Statement of Recognised Income and Expense for the year ended 31 August
2006
_____________________________________________________________________________
£m 2006 2005
_____________________________________________________________________________
Exchange differences arising on translation of
foreign operations (2) -
Loss on cash flow hedges (2) -
Actuarial losses on defined pension schemes
(Note 4) (33) (42)
UK deferred tax attributable to pension scheme
liabilities 7 (27)
UK current tax attributable to the additional
pension scheme contributions 4 39
_____________________________________________________________________________
Net expense recognised directly in equity (26) (30)
Profit for the year 58 47
_____________________________________________________________________________
Total recognised income and expense for the year 32 17
_____________________________________________________________________________
Total recognised income and expense for the year is fully attributable to the
equity holders of the parent company.
Reconciliation of movements in equity for the year ended 31 August 2006
£m Share 'B' 'C' Share Other Capital Revaluation ESOP Translation Retained Total
Capital Share Share Premium Reserve Reserve Reserve Reserve & Hedging Earnings
Reserve Reserve Reserve
_____________________________________________________________________________________________________________
Balance at 1
September 2004 139 2 - 93 - 156 3 (27) - (105) 261
Capital
reorganisation
and pro forma
restatement 519 - 70 (93) (278) (156) - - - (62) -
_____________________________________________________________________________________________________________
Balance at 1
September 2004
restated 658 2 70 - (278) - 3 (27) - (167) 261
_____________________________________________________________________________________________________________
Total
recognised
income and
expense for
the year - - - - - - - - - 17 17
Dividends paid - - - - - - - - - (164) (164)
Repurchase of
non-equity
share capital - - (62) - - - - - - - (62)
Purchase of
own shares for
employee share
scheme - - - - - - - (12) - - (12)
Money returned
to ESOP Trust
after share
capital
reorganisation - - - - - - - 5 - - 5
Employee share
schemes 2 - - - - - - - - - 2
Recognition of
share based
payments - - - - - - - - - 5 5
_____________________________________________________________________________________________________________
Balance at 31
August 2005 660 2 8 - (278) - 3 (34) - (309) 52
Cumulative
adjustment for
implementation
of IAS 39 - (2) (5) - - - - - - - (7)
_____________________________________________________________________________________________________________
Balance
restated at 1
September 2005
for adoption
of IAS 39 660 - 3 - (278) - 3 (34) - (309) 45
Total
recognised
income and
expense for
the year - - - - - - - - (4) 36 32
Dividends paid - - - - - - - - - (25) (25)
Employee share
schemes 8 - - - (2) - - 5 - (5) 6
Recognition of
share based
payments - - - - - - - - - 6 6
Repurchase of
non equity
share capital - - (3) - - - - - - - (3)
Reduction in
capital (659) - - - - - - - - 659 -
Dividend in
specie - - - - - - (3) 22 4 (191) (168)
_____________________________________________________________________________________________________________
Balance at 31
August 2006 9 - - - (280) - - (7) - 171 (107)
_____________________________________________________________________________________________________________
1. Basis of Preparation
The consolidated Group financial statements have been prepared in accordance
with International Financial Reporting Standards ('IFRS') as adopted by the
European Union and with those parts of the Companies Act 1985 applicable to
companies reporting under IFRS. These are those standards, subsequent amendments
and related interpretations issued and adopted by the International Accounting
Standards Board ('IASB') that have been endorsed by the European Union at the
year end. The Group previously reported under UK Generally Accepted Accounting
Principles ('UK GAAP'). The date of transition to IFRS is 1 September 2004.
The consolidated Group financial statements have also been prepared in
accordance with IFRS adopted for use in the European Union and therefore comply
with Article 4 of the EU IAS Regulation.
At the date of authorisation of these consolidated Group financial statements,
the following Standards and Interpretations which have not been applied in these
financial statements were in issue but not yet effective:
International Financial Reporting Interpretations Committee ('IFRIC')
IFRIC 4 Determining whether the arrangement contains a lease
IFRIC 8 Scope of IFRS2 - Share Based Payments
IFRIC 9 Reassessment of Embedded Derivatives
International Accounting Standards ('IAS')
Amendment to IAS 39 Cash Flow Hedge Accounting of Forecast Intragroup
Transactions
The directors anticipate that the adoption of these standards and
interpretations in future years will have no material impact on the Group
financial statements except for the additional disclosures on capital and
financial instruments when the relevant standards come into effect for the
financial year commencing on or after 1 September 2006.
Accounting convention
The financial statements are drawn up on the historical cost basis of
accounting. The financial information is rounded to the nearest million, except
where otherwise indicated. The principal accounting policies, which have been
applied consistently throughout both years, have been set out below.
Basis of consolidation
The consolidated Group financial statements incorporate the financial statements
of Smiths News PLC and all its subsidiaries up to the year end date.
Subsidiary undertakings are all entities over which the Group has the power to
govern the financial and operating policies generally accompanying a
shareholding of more than one half of the voting rights so to obtain benefits
from its activities.
Goodwill arising on acquisition is recognised as an asset and initially measured
at cost, being the excess of the cost of the business combination over the
Group's interest in the net fair value of the identifiable assets, liabilities
and contingent liabilities recognised. If, after reassessment, the Group's
interest in the net fair value of the acquiree's identifiable assets,
liabilities and contingent liabilities exceeds the cost of the business
combination, after taking into account recognised goodwill, the excess is
immediately recognised in profit and loss.
The separable net assets, both tangible and intangible of the newly acquired
subsidiary undertakings are incorporated into the financial statements on the
basis of the fair value as at the effective date of control, if appropriate.
Results of subsidiary undertakings disposed of during the financial year are
included in the financial statements up to the effective date of disposal. Where
a business component representing a separate major line of business is disposed
of, or classified as held for sale, it is classified as a discontinued
operation. The post-tax profit or loss of the discontinued operations is shown
as a single amount on the face of the income statement, separate from the other
results of the Group.
All intercompany transactions, balances and unrealised gains on transactions
between Group companies are eliminated.
IFRS 1 First-time adoption
These financial statements show the results for the year ended 31 August 2006
and 31 August 2005. The results for the year ended 31 August 2005 have been
extracted from the consolidated WH Smith Group's financial statements for that
year and have been adjusted for the effects of changes in accounting policies on
transition to IFRS. These adjustments were set out in detail in the WH Smith
Group's 'Restatement of financial information under International Financial
Reporting Standards' document which was published in full on 29 November 2005
and is available on the WH Smith Group's website at
www.whsmithplc.com/grp/WHSPLC-IR-Reports.htm.
IFRS 1 First-time adoption of International Financial Reporting Standards sets
out the requirements for the first time adoption of IFRS. The disclosures
required by IFRS 1 - 'First-time Adoption of International Financial Reporting
Standards' concerning the transition from UK GAAP to IFRS are given in the full
set of financial statements.
Adoption of IAS 32 and IAS 39
As permitted by IFRS 1, Smiths News PLC elected to defer implementation of IAS
32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial
Instruments: Recognition and Measurement' until the year commencing 1 September
2005.
The effect of the adoption of IAS 39 is to reduce net assets by £7 million
resulting from the reclassification of non-equity share capital to financial
liabilities. The Group has designated the majority of its foreign exchange
derivatives as cash flow hedges as at 1 September 2005 and there was no effect
on the balance sheet in respect of this.
Reverse Acquisition Accounting
During the year under review Smiths News PLC has undergone significant
re-organisation in order to effect the demerger of the WH Smith PLC (containing
the Retail Business) from Smiths News PLC.
Smiths News PLC, formerly Brightway Services Limited, was incorporated on 2
August 2004. On 23 June 2006 the company re-registered as a public limited
company. As part of the reorganisation of the Group prior to demerger Smiths
News PLC was inserted as a new holding company over the listed parent company,
WH Smith PLC, by way of a Scheme of Arrangement on 30 August 2006 and on that
date the shares of Smiths News PLC were admitted to listing on The London Stock
Exchange and the shares of WH Smith PLC were delisted. Smiths News PLC then
reduced its share capital to create distributable reserves. Following this
reduction of capital in Smiths News PLC, WH Smith PLC transferred Greenbridge
News Limited (the immediate holding company of the
News Business) to Smiths News PLC. This resulted in Greenbridge News Limited
(and the News Business) becoming a direct subsidiary of Smiths News PLC. WH
Smith PLC then paid a dividend to Smiths News PLC which was satisfied by a
set-off against part of an intercompany loan owing from Smiths News PLC to WH
Smith PLC. Smiths News PLC then used part of the £50 million drawn down under a
Smiths News PLC Term Loan facility to settle the remaining intercompany loan
owing from Smiths News PLC to WH Smith PLC.
Finally, and in order to implement the demerger, on 31 August 2006 Smiths News
PLC paid a dividend in specie to its shareholders of shares in New WH Smith PLC.
The payment of the dividend was effected as follows:
- existing shares in WH Smith PLC (which owned the Retail Business)
were transferred by Smiths News PLC to New WH Smith PLC (a newly incorporated
company) so that New WH Smith PLC became the holding company of the Retail
Business; and
- in exchange for such transfer, New WH Smith PLC allotted and issued
to Smiths News PLC Shareholders one New WH Smith PLC Share, credited as fully
paid, for each Smiths News PLC Share held.
On 1 September 2006, WH Smith PLC changed its name to WH Smith Retail Holdings
Limited. The shares of New WH Smith PLC were admitted to listing on The London
Stock Exchange on 1 September 2006; on the same day New WH Smith PLC changed its
name to WH Smith PLC and on 7 September 2006 reduced its share capital in order
to create distributable reserves.
The consequence of these reorganisation steps was that WH Smith Retail Holdings
Limited (formally known as WH Smith PLC) shareholders received one Smiths News
PLC share for each WH Smith Retail Holdings Limited share on 30 August 2006 and
one WH Smith PLC share for each Smiths News PLC share on 1 September 2006.
The accounts of Smiths News PLC have been prepared as if it had been in
existence in its current group form since 1 September 2004. The following
summarises the accounting principles that have been applied in preparing the
accounts on a reverse acquisition accounting basis.
- the income statements for Smiths News PLC have been prepared as if
the continuing operations of Smiths News PLC were in existence the whole of the
period from 1 September 2004 through to 31 August 2006.
- share capital and reserves for the prior year consolidated balance sheet have
been restated on a proforma basis including the capital reorganisation.
Differences between these amounts and the previously reported share capital and
reserves have been adjusted in the Other reserve, as set out in the
Reconciliation of movements in equity. The proforma restated share capital at 1
September 2004 represents the nominal value of shares in issue as if Smiths News
PLC had been in existence in its group form at this date.
- as well as costs borne directly by Smiths News PLC (the News Business), the
continuing results for the year ended 31 August 2006 and 31 August 2005 include
£0.8 million of corporate head office costs of the former parent company, WH
Smith PLC which have historically not been recharged to the business.
Services provided by the former parent company WH Smith PLC included, but were
not limited to, treasury, cash management, human resources, accounting, legal
and professional services and IT services. These charges may not be
representative of the costs that would have been incurred had the business been
a standalone entity.
2. Segmental analysis of results
For management purposes, the Group is currently organised into one continuing
operating division - News Distribution. This division is the basis on which the
Group currently reports its primary business segment information. Discontinued
operations comprise the demerged WH Smith PLC retailing business (High Street
and Travel) for both years and the Publishing business for the prior year.
Segmental information for these businesses are presented as discontinued
operations and can be found in Note 13.
(i) Segmental analysis by business segments
(a) Group revenue
________________________________________________________________________________
2006 2005
________________________________________________________________________________
Continuing Continuing
operations - operations -
£m News Distribution News Distribution
________________________________________________________________________________
Sales
Total sales 1,211 1,187
Inter-segment sales to
discontinued operations (116) (113)
________________________________________________________________________________
Sales to external customers 1,095 1,074
________________________________________________________________________________
Inter-segment sales are between Smiths News PLC and WH Smith PLC which are
traded at arm's length value. Discontinued revenue is shown in Note 13 of the
financial statements.
(b) Group Results
________________________________________________________________________________
2006 2005
Continuing Continuing
operations - operations -
£m News Distribution News Distribution
________________________________________________________________________________
Profit
Operating Profit 34 33
________________________________________________________________________________
Segmental Result 34 33
________________________________________________________________________________
Finance Costs (2) (1)
Income tax expense (6) (7)
Profit after tax from
continuing operations 26 25
________________________________________________________________________________
Profit for the year from
discontinued operations 32 22
________________________________________________________________________________
Profit for the year 58 47
________________________________________________________________________________
Discontinued operations comprise the demerged WH Smith PLC for both years and
the Publishing business in the prior year, which were all individual segments.
Additional information on these segments is shown in Note 13.
(c) Balance Sheet
____________________________________________________________________________________
2006 2005
_____________________________ _____________________________________________________
Continuing Continuing Unallocated Discontinued Group
operations - operations - operations
News News
£m Distribution Distribution
_____________________________ _____________________________________________________
Assets
Segment assets 131 91 - 502 593
Unallocated
assets - - 35 - 35
_____________________________ _____________________________________________________
Consolidated
total assets 131 91 35 502 628
_____________________________ _____________________________________________________
Liabilities
Segment (238) (111) - (280) (391)
liabilities
Unallocated
liabilities - - (185) - (185)
_____________________________ _____________________________________________________
Consolidated
total liabilities (238) (111) (185) (280) (576)
_____________________________ _____________________________________________________
Net
(liabilities)/assets (107) (20) (150) 222 52
_____________________________ _____________________________________________________
Segment assets include goodwill, other intangibles, property, plant and
equipment, inventories, receivables and operating cash. Segment liabilities
comprise of operating liabilities. Information on discontinued operations is
shown in Note 13.
(d) Other Segmental Items
______________________________________________________________________________________
2006 2005
_______________________________ _____________________________________________________
Continuing Continuing Discontinued Group
operations - operations - operations
News News
£m Distribution Distribution
_______________________________ _____________________________________________________
Capital additions 2 4 28 32
Depreciation and
amortisation of
non-current
assets (7) (6) (41) (47)
_______________________________ _____________________________________________________
Information on discontinued operations is shown in Note 13.
(ii) Segmental analysis by geographical area
The total Group revenue and operating profits for both years originate from the
UK region. The Directors consider this to be one segment.
3. Group Operating Profit
_________________________________________________________________________________
£m 2006 2005
_________________________________________________________________________________
Turnover 1,095 1,074
Cost of sales (966) (943)
Gross Profit 129 131
_________________________________________________________________________________
Distribution costs (63) (64)
Administrative expenses (33) (34)
Other income (1) 1 -
_________________________________________________________________________________
Group Operating profit 34 33
_________________________________________________________________________________
(1) Other income relates to profits on disposals of freehold properties
The operating profit is after charging:-
_________________________________________________________________________________
£m 2006 2005
_________________________________________________________________________________
Cost of inventories recognised as an expense 1,035 1,010
Depreciation and amounts written off property,
plant & equipment 4 3
Amortisation of intangible assets 3 3
Net operating lease charges
- land and building 5 5
- equipment and vehicles 3 2
Other occupancy costs 2 2
Staff costs 77 76
Auditors' remuneration (see below)
_________________________________________________________________________________
Fees payable in the continuing & discontinued operations to Deloitte & Touche
LLP, the Group's auditors, included in the income statement related to:
Audit fees 0.3 0.3
Non-audit fees 1.9 0.2
_________________________________________________________________________________
2.2 0.5
_________________________________________________________________________________
Fees payable to Deloitte & Touche LLP, the Group's auditors, included in the
income statement relating to audit fees amount to £0.3 million (2005:
£0.3million) and non-audit fees £1.9million (2005:£0.2million) which comprise
further assurance services associated with the demerger of WH Smith PLC £1.9
million (2005: £nil), tax compliance services £nil (2005: £0.1million) and IFRS
preparation work £nil (2005: £0.1million).
4. Retirement benefit obligation
The Group has operated a number of defined benefit and defined contribution
pension plans. The main pension arrangements for employees are operated through
a defined benefit scheme WHSmith Pension Trust ('Pension Trust'), and a defined
contribution scheme, WHSmith Retirement Savings Plan. The most significant is
the Pension Trust for the Group's UK employees which is described in note 4 a)
(i). The scheme is independent of the Company and is administered by a Trustee.
The Trustee of the Pension Trust has extensive powers over the pension plans'
arrangements, including the ability to determine the levels of contribution.
Segregation of assets and liabilities of each pension scheme into two sections
On the date of demerger, the assets and liabilities of the defined benefit
scheme have been split between the News business, (owned by Smiths News PLC) and
the WH Smith Retail business (owned by WH Smith PLC) by way of a
'sectionalisation' of the defined benefit scheme into two different sections
(i.e. the News business section and the WH Smith Retail business section). The
two sections will remain within the defined benefit scheme. Similarly, the
assets and liabilities of the defined contribution scheme will be separated (or
'sectionalised') into two different sections, a News business section and a WH
Smith Retail business section, with each section only containing the accounts of
members who are or were employed by the relevant business. The two sections will
remain within the WHSmith Retirement Savings Plan. The demerged WH Smith Retail
business section has been disclosed within discontinued operations within the
income statement.
Upon sectionalisation of the Pension Trust, the assets and liabilities of the
defined benefit scheme will be allocated to the News business section and the WH
Smith Retail business section in proportions that reflected the liabilities of
active, deferred, pensioner and orphan members belonging to the respective
businesses. Orphan members are members (or spouses of members) whose employer
had left the Group prior to the split but were classified as either News or
Retail for the purpose of the sectionalisation. The proportions are currently
expected to be 35 per cent, for the News business and 65 per cent, for the WH
Smith Retail business. The participating employers of the News business will
contribute to the News business section, and the participating employers of the
WH Smith Retail business will contribute to the WH Smith Retail business
section.
Assets apportioned to one section of the Pension Trust will not be able to be
used for the purposes of the other section. There will be no cross-subsidy or
cross-guarantee between the sections of the Pension Trust. However, for
administrative and investment purposes the Pension Trust will operate generally
on a unified basis, except that the principal employer will be replaced with a
sponsor for each section.
On 1 September 2006, a one-off contribution of £25 million was made to the
Pension Trust by the Company.
The amounts recognised in the balance sheet within non-current liabilities in
relation to these plans are as follows:
_________________________________________________________________________________
£m 2006 2005
_________________________________________________________________________________
Present value of the obligations (334) (967)
Fair value of plan assets 285 871
_________________________________________________________________________________
Deficit (49) (96)
_________________________________________________________________________________
Retirement medical benefit liability - (7)
_________________________________________________________________________________
Retirement benefit obligation recognised
in the balance sheet (49) (103)
_________________________________________________________________________________
Deferred taxation 15 30
_________________________________________________________________________________
Net retirement obligation (34) (73)
_________________________________________________________________________________
4. Retirement benefit obligation
a) Defined benefit pension scheme
(i) The WHSmith Pension Trust ('Pension Trust')
A full actuarial valuation of the Scheme is carried out every three years with
interim reviews in the intervening years. The latest full actuarial valuation of
the Pension Trust was carried out as at 31 March 2006 by independent actuaries,
Mercer Human Resource Consulting, using the projected unit basis, and, as with
each such triennial valuation, the valuation currently remains subject to the
formal approval of the Pension Trust Trustee. The scheme was closed in September
1995 and under the projected unit method the current service cost would be
projected to increase as members approach retirement and the age profile of
members increases. On an ongoing basis, the actuarial gross defined benefit
pension deficit was approximately £63 million (approximately £44 million net of
related deferred taxes) for the Smiths News PLC's section of the WHSmith Pension
Trust. The ongoing deficit is greater than the IAS 19 deficit primarily due to
the different assumptions and calculation methodologies.
In September 2005, the Pension Trust Trustee adopted a new investment policy in
order to substantially reduce the volatility in the underlying investment
performance and reduce the risk of a significant increase in the deficit in the
fund. The assets in the investment fund were restructured in order to adopt this
policy. This involved the assets being invested such that they are expected to
alter in value in line with changes in the pension liability caused by changes
in interest and inflation ('a Liability Driven Investment 'LDI' policy').
The key features of the new investment policy were that:
- 94% of the Pension Trust's assets was invested in an LDI policy with
a leading international institutional fund manager; and
- 6% of the Pension Trust's assets was used to purchase a portfolio of
long-dated equity call options. These represented a notional exposure to
underlying equities of some £350 million.
The impact of this change in investment policy is to substantially reduce the
volatility in the fund and the resultant risk of a significant increase in the
overall deficit whilst enabling the fund to continue to benefit from any
potential higher returns in the equity markets.
The valuation of the defined benefit pension scheme used for the account
disclosures are based upon the most recent valuation. Scheme assets are stated
at their market value at the relevant reporting date.
The principal long-term assumptions used to calculate scheme liabilities under
IAS 19 are:
________________________________________________________________________________
% 2006 2005
________________________________________________________________________________
Rate of increase in salaries 4.00% 3.70%
Rate of increase in pension payments and
deferred pensions 3.00% 2.70%
Discount rate 5.10% 4.90%
Inflation assumptions 3.00% 2.70%
________________________________________________________________________________
The amounts recognised in the income statement were as follows:
________________________________________________________________________________
£m 2006 2005
Current service cost (9) (10)
Interest cost (47) (46)
Expected return on scheme assets 42 44
________________________________________________________________________________
(14) (12)
________________________________________________________________________________
The charge for the current service costs has been included in administrative
costs.
Movements in the present value of the defined benefit scheme obligations in the
year were as follows:
________________________________________________________________________________
£m 2006 2005
At 1 September (967) (830)
Current service cost (9) (10)
Interest cost (47) (46)
Actuarial losses (18) (113)
Benefits paid 33 32
Subsidiaries disposed 674 -
________________________________________________________________________________
As at 31 August (334) (967)
________________________________________________________________________________
Movements in the fair value of defined benefit scheme assets in the year were as
follows:
________________________________________________________________________________
£m 2006 2005
________________________________________________________________________________
At 1 September 871 645
Expected return on scheme assets 42 44
Net actuarial (losses) / gains (15) 71
Contributions from the
sponsoring companies 28 143
Benefits paid (33) (32)
Subsidiaries disposed (608) -
________________________________________________________________________________
As at 31 August 285 871
________________________________________________________________________________
An analysis of the defined benefit scheme assets at the balance sheet date is
detailed below:
________________________________________________________________________________
£m 2006 2005
________________________________________________________________________________
Equities - 386
Bonds - 485
Cash 275 -
Inflation swaps (7) -
Equity call options 17 -
________________________________________________________________________________
285 871
________________________________________________________________________________
An analysis of the expected rate of return on the defined benefit scheme assets
at the balance sheet date is detailed below:
________________________________________________________________________________
2006 2005
________________________________________________________________________________
Equities - 7.0%
Bonds - 4.0%
Cash (1) - 3.8%
Inflation swaps (1) - -
Equity call options (1) - -
________________________________________________________________________________
________________________________________________________________________________
(1) The expected rate of return on these investments was calculated as a
weighted average of the expected return on the LDI fund and the equity call
options was 5.01 per cent at 31 August 2006.
Prior to 22 September 2005, the overall expected rate of return on the Trust's
assets was calculated as a weighted average return based on the distribution of
the assets (between equities, bonds and cash, at the accounting date). On 22
September 2005, the investment strategy was altered to invest in a Liability
Driven Investment (LDI) fund and a number of equity call options.
The mortality assumptions (in years) underlying the value of the accrued
liabilities are:-
________________________________________________________________________________
Male Female
Life expectancy at age 65
Member currently aged 65 20.1 22.9
Member currently aged 45 21.4 24.1
________________________________________________________________________________
Life expectancy at age 60
Member currently aged 60 24.9 27.7
Member currently aged 45 25.9 28.7
________________________________________________________________________________
The mortality assumptions are based on the standard PA92 medium cohort tables
(as published by the Institute of Actuaries). The mortality rates underlying the
table have been increased by 25% to reflect the Trust's actual experience.
The history of experience adjustments is as follows:
________________________________________________________________________________________
£m 2006 2005 2004 2003 2002
________________________________________________________________________________________
Present value of defined benefit
obligations (334) (967) (883) (846) (740)
Fair value of scheme assets 285 871 678 631 596
________________________________________________________________________________________
Deficit in the scheme (49) (96) (205) (215) (144)
________________________________________________________________________________________
Experience adjustments on scheme
liabilities
Amount (£m) (18) (113)
Percentage of scheme liabilities (%) (5%) (12%)
_______________________________________________________
Experience adjustments on scheme
assets
Amounts (£m) (15) 71
Percentage of scheme assets (%) (5%) 8%
_______________________________________________________
b) Defined contribution pension scheme
The pension cost charged to income for its defined contribution scheme, WHSmith
Retirement Savings Plan, amounted to £3million for the year ended 31 August
2006 (2005: £3 million).
c) Post retirement medical benefits
The Group provides retirement medical benefits to certain pensioners. Total
premiums paid by the Group during the year in respect of these benefits were
£0.1 million (31 August 2005: £0.4 million). The present value of the future
liabilities under this arrangement at each reporting date has been assessed by
independent actuaries Mellon Human Resources & Investor Solutions (Actuaries &
Consultants Limited) and this amount was included on the balance sheet within
retirement benefit obligations.
In September 2005, the members were offered the option to be bought out of this
scheme, which was accepted by the majority of the members. The impact of the
settlement was a £5 million reduction in the net deficit and this has been
disclosed within discontinued operations. A small number of members opted to
remain in the scheme and the present value of the remaining future liabilities
relating to Smiths News PLC is valued at £0.1 million net of deferred taxation.
d) Disposals and Post Retirement Medical Benefit Settlement
Year ended 31 August 2006
Retailing Business
On 31 August 2006, the assets and liabilities of the defined benefit scheme,
WHSmith Pension Trust were divided into two different sections (the Smiths News
PLC and the WH Smith PLC business section). The gross deficit at the date of
disposal was £66 million.
On demerger, the post retirement medical benefits of £0.1million were
transferred to New WH Smith PLC, which changed its name on 1 September 2006 to
WH Smith PLC.
The amounts recognised as current liabilities for the WH Smith PLC's proportion
of the defined benefit scheme is as follows:
________________________________________________________________________________
£m 2006 2005
________________________________________________________________________________
Present value of defined benefit obligations (674) (651)
Fair value of scheme assets 608 598
________________________________________________________________________________
Deficit (66) (53)
________________________________________________________________________________
Year ended 31 August 2005
Publishing Business
On 25 September 2004, the Group completed the disposal of the Publishing
business, including the disposal of that business' pension fund. The gross
deficit at the date of disposal was £20 million.
USA Business
The Group made a settlement of £3 million in respect of the US businesses.
5. Income tax expense
___________________________________________________________________
£m 2006 2005
___________________________________________________________________
Tax on profit 10 10
Standard rate of UK corporation tax 30%
Adjustment in respect of prior year UK
corporation tax (4) (2)
___________________________________________________________________
Total current tax charge 6 8
___________________________________________________________________
Deferred tax - current year - (1)
___________________________________________________________________
Tax on profit 6 7
___________________________________________________________________
Discontinued operations 12 9
___________________________________________________________________
Total tax on profit 18 16
___________________________________________________________________
Effective tax rate on continuing
activities 20% 23%
When the profit before tax and the tax charge figures are rounded to the nearest
£million the effective tax rate for the year ended 31 August 2006 appears to be
19%. However, the actual detailed figures do result in an effective tax rate of
20%.
Reconciliation of the taxation charge
___________________________________________________________________
£m 2006 2005
Tax on profit at standard rate of UK
corporation tax 30% 10 9
Tax effect of items that are not
deductible or not taxable in determining
taxable profit - 1
Adjustment in respect of prior years (4) (2)
___________________________________________________________________
Current tax charge 6 8
___________________________________________________________________
6. Dividends
Amounts recognised as distributions to shareholders in the year are as follows:
______________________________________________________________________________
£m Note 2006 2005
______________________________________________________________________________
Dividends
Final - paid 16 14
Interim - paid 9 7
______________________________________________________________________________
25 21
______________________________________________________________________________
'C' share dividends
'C' share dividend paid on capital reorganisation - 143
______________________________________________________________________________
25 164
______________________________________________________________________________
______________________________________________________________________________
Dividend in specie relating to the demerger
of WH Smith PLC 13 168 -
______________________________________________________________________________
The proposed dividend of 4.0p is subject to approval by shareholders at the
Annual General Meeting and has not been included as a liability in these
financial statements. The proposed dividend will be paid on 9 February 2007 to
shareholders on the register at close of business on 12 January 2007.
The Group also paid a dividend in respect of 'C' shares during the year to 31
August 2006 of £282,688 (2005: £156,647) and paid dividends on the 'B' shares
during the year to 31 August 2006 of £81,555 (2005: £45,192).
7. Earnings per share
a) Earnings
_______________________________________________________________________________
2006 2005
_____________________________ ______________________________
£m Continuing Discontinued Total Continuing Discontinued Total
_____________________________ ______________________________
_______________________________________________________________________________
Profit
attributable to
shareholders 26 32 58 25 22 47
_______________________________________________________________________________
b) Basic earnings per share
_______________________________________________________________________________
2006 2005
_____________________________ ______________________________
Continuing Discontinued Total Continuing Discontinued Total
_____________________________ ______________________________
_______________________________________________________________________________
Earnings per 15.1p 18.6p 33.7p 14.2p 12.4p 26.6p
share (note i)
_______________________________________________________________________________
(i) Basic earnings per share has been calculated using profit after tax.
c) Diluted earnings per share
_______________________________________________________________________________
2006 2005
_____________________________ ______________________________
Continuing Discontinued Total Continuing Discontinued Total
_____________________________ ______________________________
_______________________________________________________________________________
Earnings per
share 15.0p 18.5p 33.5p 14.0p 12.3p 26.3p
_______________________________________________________________________________
Diluted earnings per share takes into account various share awards and share
options including SAYE schemes, which are expected to vest, and for which a sum
below fair value will be paid.
d) Weighted average share capital
_______________________________________________________________________________
millions 2006 2005
_______________________________________________________________________________
Weighted average shares in issue for earnings per share 172 177
Add weighted average number of ordinary shares
under option 1 2
_______________________________________________________________________________
Weighted average ordinary shares for diluted
earnings per share 173 179
_______________________________________________________________________________
8. Analysis of net debt
Movements in net debt can be analysed as follows:
_____________________________________________________________________________________
£m At 31 Aug Cash Subsidiaries IAS 32 and 39 At 31 Aug
2006 flow disposed reclassification 2005
_____________________________________________________________________________________
Cash and cash equivalents 11 (35) - - 46
Debt
- Sterling floating rate (50) (6) 13 (7) (50)
- Sterling fixed rate - 32 - - (32)
Obligations under
finance leases (3) 6 11 - (20)
_____________________________________________________________________________________
Net debt (42) (3) 24 (7) (56)
_____________________________________________________________________________________
_____________________________________________________________________________________
£m At 31 Aug Cash Non- At 31 Aug
2005 flow cash 2004
_____________________________________________________________________________________
Cash and cash equivalents 46 (18) - 64
Debt
- Sterling floating rate (50) (33) - (17)
- Sterling fixed rate (32) (30) - (2)
Obligations under
finance leases (20) (6) (4) (10)
_____________________________________________________________________________________
Net debt (56) (87) (4) 35
_____________________________________________________________________________________
Analysed by maturity:
_____________________________________________________________________________________
2006 2005
__________________________________________________ ________________________________
Less Between After Total Less Between After Total
than two to five than one two to five
one five years year five years
£m year years years
__________________________________________________ ________________________________
Cash and cash
equivalents 11 - - 11 46 - - 46
Debt
- Sterling
floating rate - (50) - (50) (30) (20) - (50)
- Sterling fixed rate - - - - (15) (15) (2) (32)
- Obligations
under finance leases (1) (2) - (3) (6) (14) - (20)
__________________________________________________ ________________________________
Net debt 10 (52) - (42) (5) (49) (2) (56)
__________________________________________________ ________________________________
Set out below is a comparison by currency and interest price profile of the net
debt:
_____________________________________________________________________________________
£m 2006 2005
____________________________________________ ____________________________________
Floating Fixed Non-interest Total Floating Fixed Non-interest Total
Rate Rate bearing Rate Rate bearing
____________________________________________ ____________________________________
Currency
Sterling (39) (3) - (42) (50) (7) - (57)
US dollars - - - - 1 - - 1
____________________________________________ ____________________________________
Total (39) (3) - (42) (49) (7) - (56)
____________________________________________ ____________________________________
9. Contingent liabilities and Capital Commitments
_____________________________________________________________________________________
£m 2006 2005
_____________________________________________________________________________________
Bank and other loans guaranteed 2 11
_____________________________________________________________________________________
2 11
_____________________________________________________________________________________
Other potential liabilities that could crystallise are in respect of previous
assignments of leases where the liability could revert to the Group if the
lessee defaulted. Pursuant to the terms of the Demerger Agreement, any such
contingent liability which becomes an actual liability will be apportioned
between Smiths News PLC and WH Smith PLC in the ratio 35:65 (provided that the
actual liability of Smiths News PLC in any 12 month period does not exceed £5
million). The company's share of these leases have an estimated future
cumulative gross rental commitment at 31 August 2006 of £55 million (2005: £181
million).
Contracts placed for future capital expenditure approved by the directors but
not provided amount to £nil (2005: £4 million).
10. Net cash inflow / (outflow) from operating activities
_____________________________________________________________________________________
£m 2006 2005
_____________________________________________________________________________________
Operating profit from continuing operations 34 33
Operating profit from discontinued operations 53 47
_____________________________________________________________________________________
87 80
_____________________________________________________________________________________
Operating exceptional items 7 -
Adjustment for pension funding (19) (133)
Depreciation of property, plant and equipment 34 39
Profit on sale of property, plant and equipment (6) -
Impairment of property, plant and equipment 3 -
Amortisation of intangible assets 7 8
Share based payments 8 5
Decrease in inventories 7 6
(Increase) / decrease in receivables (7) 1
Increase / (decrease) in payables 1 (9)
Income taxes paid (6) (4)
Cash spend against provisions (3) (6)
_____________________________________________________________________________________
Net cash inflow / (outflow) from operating
activities before exceptional items 113 (13)
Cash outflow relating to exceptional operating item (8) (9)
_____________________________________________________________________________________
Net cash inflow / (outflow) from operating activities 105 (22)
____________________________________________________________________________________
11. Called up share capital
a) Authorised
______________________________________________________________________________________
2006
____________________________
Number of Nominal
shares value
(millions) £m
______________________________________________________________________________________
Equity:
Ordinary shares of 5p each 300 15
______________________________________________________________________________________
300 15
______________________________________________________________________________________
Non-Equity:
'B' shares of 53.75p each - -
'C' shares of 85p each - -
Deferred shares of 85p each - -
______________________________________________________________________________________
- -
______________________________________________________________________________________
______________________________________________________________________________________
Total 300 15
______________________________________________________________________________________
b) Allotted and fully paid
_________________________________________________________________________________________
2006 2005 Proforma
_________________________ ___________________________
Number of Nominal Number of Nominal
shares value shares value
(millions) £m (millions) £m
_________________________________________________________________________________________
Equity:
Ordinary shares of 5p each 183 9 - -
Ordinary shares of 365p each - - 181 660
_________________________________________________________________________________________
183 9 181 660
_________________________________________________________________________________________
Non-Equity:
'B' shares of 53.75p each - - 4 2
'C' shares of 85p each - - 10 8
_________________________________________________________________________________________
- - 14 10
_________________________________________________________________________________________
_________________________________________________________________________________________
Total 183 9 195 670
_________________________________________________________________________________________
c) Movement in share capital
_________________________________________________________________________________________
Ordinary Ordinary shares Ordinary Total
shares of 5p of 365p each shares of 55p
£m each each
_________________________________________________________________________________________
At 1 September 2004 - - 139 139
Capital reorganisation
and proforma restatement - 658 (139) 519
_________________________________________________________________________________________
At 1 September 2004
restated - 658 - 658
Employee share schemes - 2 - 2
_________________________________________________________________________________________
At 31 August 2005 - 660 - 660
_________________________________________________________________________________________
_________________________________________________________________________________________
At 1 September 2005 - 660 - 660
Employee share schemes - 8 - 8
Capital reduction - (659) - (659)
Capital reorganisation 9 (9) - -
_________________________________________________________________________________________
At 31 August 2006 9 - - 9
_________________________________________________________________________________________
_________________________________________________________________________________________
Non-Equity
________________________________
£m 'B' shares 'C' shares Deferred Total
of of 85p shares
53.75p each of 85p
each each
_________________________________________________________________________________________
At 1 September 2004 2 - 143 145
Capital reorganisation
and proforma restatement - 70 (143) (73)
_________________________________________________________________________________________
At 1 September 2004 restated 2 70 - 72
Cancelled - (62) - (62)
_________________________________________________________________________________________
At 31 August 2005 2 8 - 10
_________________________________________________________________________________________
_________________________________________________________________________________________
At 1 September 2005 2 8 - 10
Restatement for adoption of IAS 39 (2) (5) - (7)
_________________________________________________________________________________________
Balance restated at 1 September 2005 - 3 - 3
Cancelled - (3) - (3)
_________________________________________________________________________________________
At 31 August 2006 - - - -
_________________________________________________________________________________________
Authorised and issued share capital is shown on a pro forma basis for the year
ended 31 August 2005.
On 2 August 2004, the Company was incorporated with authorised share capital of
£1,000 divided into one thousand ordinary shares of £1 each. At incorporation
one ordinary share was subscribed and fully paid.
On 23 June 2006, the authorised share capital of Smiths News PLC was increased
by the creation of one redeemable preference share of £50,000 which was issued
as fully paid up. In accordance with IAS32 'Financial Instruments: disclosure
and presentation', this amount is presented within liabilities. On the same date
Smiths News PLC issued a second ordinary share which was fully paid.
On 6 July 2006, the authorised share capital was increased by £1,094,999,040
through the creation of a further 1,094,999,000 ordinary shares of £1 each and
40 deferred shares of £1 each. All of the deferred shares and 144 ordinary
shares were then issued fully-paid to the existing shareholders. The issued and
unissued ordinary shares were then consolidated on a 73:1 basis into ordinary
shares of £73 each and then subdivided on a 1:20 basis into ordinary shares of
£3.65 each. Following this consolidation and subdivision, the authorised share
capital was £1,095,050,040 divided into 300,000,000 ordinary shares of £3.65, 40
deferred shares of £1 each and 1 redeemable preference share of £50,000, of
which 40 of the ordinary shares, the redeemable preference share and all of the
deferred shares were issued and fully paid-up.
On 30 August 2006, Smiths News PLC was inserted as a new holding company over
the listed parent company, WH Smith PLC and by way of a Scheme of Arrangement on
that date the shares of Smiths News PLC were admitted to listing on The London
Stock Exchange and the shares of WH Smith PLC were delisted.
In return for cancellation of WH Smith PLC shares, shareholders in WH Smith PLC
received shares in Smiths News PLC, pro rata to existing holdings in WH Smith
PLC. The share capital of WH Smith PLC as at 31 August 2006 was 182,919,930
shares. On 31 August 2006 Smiths News PLC issued 182,919,930 ordinary shares
with a nominal value of £3.65 per share.
On 31 August 2006, Smiths News PLC reduced its share capital by £659 million to
£9 million effected by a written resolution of the company dated 30 August 2006,
which was confirmed by a Court Order in accordance with the Companies Act 1985.
This effectively reduced Smiths News PLC ordinary shares nominal value to £0.05
per share.
On 1 March 2006, the deferred shares were transferred to the Group for a total
consideration of one pence.
On 29 August 2006, the 'B' shares and 'C' shares were repurchased for a total
consideration of £10 million and subsequently cancelled.
12. Post Balance Sheet Events
Financing Facilities
On 1 September 2006, Smiths News PLC drew down £20 million under the Smiths News
PLC revolving credit facility to makes its share of the cash contribution to the
Smiths News PLC's section of the WH Smith Pension Trust.
WH Smith Pension Trust
Smiths News PLC announced on 31 August 2006 that following the demerger of WH
Smith PLC, it would make a contribution of £25 million to the Smiths News PLC's
section of the WH Smith Pension Trust. This amount was paid on 1 September 2006.
13. Discontinued operations
Year ended 31 August 2006
At the Extraordinary General Meeting on 2 August 2006 the shareholders of the
former WH Smith PLC approved the demerger of the Retailing Businesses. On
demerger, the Company declared a dividend in specie, in which the existing
shares in the former WH Smith PLC (which owned the Retail Business) were
transferred by Smiths News PLC to New WH Smith PLC (a newly incorporated
company) so that New WH Smith PLC became the holding company of the Retail
Businesses. In exchange for this transfer, New WH Smith PLC allotted and issued
to Smiths News PLC Shareholders, one New WH Smith PLC share, credited as fully
paid, for each Smiths News PLC Share held. On 1 September 2006, New WH Smith PLC
changed its name to WH Smith PLC.
Year ended 31 August 2005
Publishing Business Disposal
On 25 September 2004, the Group completed the disposal of its Publishing
business, Hodder Headline Limited.
USA Travel Retail
An amount of £8 million was charged to the income statement relating to the
disposal of discontinued businesses. Of this amount, £7 million relates to an
impairment review of the loan notes received as deferred consideration in
respect of the Group's USA businesses. The balance relates to closure and exit
provisions.
Aspac Retail
During the year ended 31 August 2005, £7 million was received for the Aspac
Retail disposal, which related to deferred consideration and working capital
adjustments.
(a) The Revenue from discontinued operations were as follows:
________________________________________________________________________________
£m 2006 2005
________________________________________________________________________________
Revenue
Retailing businesses
High Street 1,021 1,112
Travel 319 311
________________________________________________________________________________
1,340 1,423
Publishing business
Total revenue - 14
Internal revenue - (3)
________________________________________________________________________________
Total revenue - 11
________________________________________________________________________________
________________________________________________________________________________
Total revenue - discontinued operations 1,340 1,434
________________________________________________________________________________
(b) The results of the discontinued operations were as follows:-
________________________________________________________________________________
2006 2005
___________________________________________ __________________________________
Retailing USA Travel Retailing Total
£m Businesses Retail Businesses
___________________________________________ __________________________________
Profit before tax and before
exceptional items 51 - 39 39
Income tax expense (10) - (9) (9)
___________________________________________ __________________________________
Profit after tax and before
exceptional items and
impairment of discontinued
operations 41 - 30 30
___________________________________________ __________________________________
Exceptional items (note 13e) (7) - - -
Impairment of discontinued
operations - (8) - (8)
Income tax expense on
exceptional items (2) - - -
___________________________________________ __________________________________
Exceptional items and impairment
of discontinued operations after tax (9) (8) - (8)
___________________________________________ __________________________________
Profit/ (loss) for the year from
discontinued operations 32 (8) 30 22
___________________________________________ __________________________________
(c) The group operating profit from discontinued operations comprise:-
________________________________________________________________________________
£m 2006 2005
________________________________________________________________________________
Turnover 1,340 1,423
Cost of sales (761) (847)
________________________________________________________________________________
Gross Profit 579 576
Distribution costs (434) (437)
Administrative expenses (97) (92)
Other income (1) 5 -
________________________________________________________________________________
Group Operating profit 53 47
________________________________________________________________________________
(1) Other Income relates to profit on disposal of property, plant and equipment.
(d) The group profit from discontinued operations is after charging:-
________________________________________________________________________________
£m 2006 2005
________________________________________________________________________________
Cost of inventories recognised as an
expense 786 854
Writedown of inventories in the period 12 17
Depreciation and amounts written off
property, plant & equipment: 33 37
Amortisation of intangible assets 4 4
Net operating lease charges
- land and building 147 140
- equipment and vehicles 1 2
Other occupancy costs 50 45
Staff costs 192 201
Auditors' remuneration 2 1
(e) Within the results from discontinued operations, certain exceptional charges
were made as follows:-
________________________________________________________________________________
£m 2006 2005
________________________________________________________________________________
Post retirement medical benefits settlement 5 -
Demerger costs (12) -
Impairment and loss on sale of USA Travel Retail - (8)
________________________________________________________________________________
(7) (8)
________________________________________________________________________________
Year ended 31 August 2006
Post retirement medical benefits settlement
WH Smith PLC provides retirement medical benefits to certain pensioners. Total
premiums paid by WH Smith PLC during the year in respect of these benefits were
£nil (2005: £0.4 million). The present value of the future liabilities under
this arrangement at each reporting date have been assessed by independent
actuaries Mellon Human Resources & Investor Solutions (Actuaries & Consultants
Limited) and this amount was included on the balance sheet, retirement benefit
obligation.
In September 2005, the members were offered the option to be bought out of this
scheme, which was accepted by the majority of the members. The impact of the
settlement was a £5 million reduction in the net deficit and has been disclosed
as an exceptional item in discontinued operations. A small number of members
opted to remain in the scheme and the present value of the remaining future
liabilities is valued at £0.2 million net of deferred taxation.
Demerger costs
The costs associated with the Retailing Business demerger of £12 million were
charged against discontinued operations in the Group Income Statement.
Year ended 31 August 2005
An amount of £8 million was charged to the income statement relating to the
disposal of discontinued businesses. Of this amount, £7 million relates to an
impairment review of the loan notes received as deferred consideration in
respect of the Group's USA businesses. The balance relates to closure and exit
provisions
(f) The cash flows of discontinued operations comprise:
________________________________________________________________________________
£m 2006 2005
________________________________________________________________________________
From operating activities 82 (23)
From investing activities (10) 188
From financing activities (45) (177)
________________________________________________________________________________
Net increase/(decrease) in cash and
cash equivalents 27 (12)
________________________________________________________________________________
(g) The taxation from discontinued operations was as follows:
________________________________________________________________________________
£m 2006 2005
________________________________________________________________________________
Tax on profit before exceptional items 4 14
Adjustment in respect of prior year UK
corporation tax (7) (3)
________________________________________________________________________________
Total current tax charge before
exceptional items (3) 11
________________________________________________________________________________
Deferred tax - current year 13 (2)
________________________________________________________________________________
Tax on profit before exceptional items 10 9
Tax on exceptional items 2 -
________________________________________________________________________________
Tax on profit after exceptional items 12 9
________________________________________________________________________________
(h) On 31 August 2006, WH Smith PLC was demerged from the Group. The summary balance
sheet of WH Smith PLC and its subsidiaries at the date of demerger was:-
£m
___________________________________________________________________________________
Goodwill 15
Intangible assets 15
Property, plant and equipment 184
Deferred tax assets 29
Inventories 143
Trade and other receivables 74
Cash and cash equivalents 66
Trade and other payables (215)
Current tax payable (20)
Other current liabilities (20)
Deferred tax liabilities (13)
Other non-current liabilities (90)
___________________________________________________________________________________
Group's share of net assets of WH Smith PLC on demerger 168
___________________________________________________________________________________
On demerger, Smiths News PLC paid a dividend in specie of £168 million
representing the net assets demerged. The costs associated with the demerger of
WH Smith PLC of £12 million were charged as an exceptional item against the
discontinued operations in the Group Income Statement.
(2) Prior Year
Publishing business disposal
During the prior year, the Group completed the disposal of its Publishing
business, Hodder Headline Limited. A financial summary of the disposal is shown
below:
___________________________________________________________________________________
£m Total
___________________________________________________________________________________
Fixed assets 156
Stock 17
Debtors 80
Creditors (30)
Net pension liabilities (14)
___________________________________________________________________________________
Net assets disposed 209
___________________________________________________________________________________
Cash consideration 210
Cash received in respect of working capital adjustments 5
Net assets disposed (209)
Transaction costs and other charges (6)
___________________________________________________________________________________
Net result on sale of the Publishing business recognised in the
financial year to 31 August 2005 -
___________________________________________________________________________________
The Group incurred a £5 million cash outflow in respect of transaction costs and
other charges relating to the Publishing business disposal.
Aspac Retail
During the year ended 31 August 2005, £7 million was received for the Aspac
Retail disposal, which related to deferred consideration and working capital
adjustments.
14. Related party transactions
Transactions between businesses within this Group which are related parties have
been eliminated on consolidation and are not disclosed in this note.
WH Smith PLC
During the year, Group companies entered into the following transactions with
the Retailing business, which on 31 August 2006 was demerged from Smiths News
PLC, and is now controlled by WH Smith PLC.
Purchases were made on an arm's length basis.
The amounts outstanding are unsecured and will be settled in cash. No guarantees
have been given or received. No provisions have been made for doubtful debts in
respect of the amounts owed by related parties.
_________________________________________________________________________________
£m 2006 2005
_________________________________________________________________________________
Sales of goods to WH Smith PLC 116 -
Trading amounts owed to WH Smith PLC at
end of year 6 -
Amounts owed to WH Smith PLC in respect
of prior years corporation tax 15 -
_________________________________________________________________________________
Prior to demerger on 31 August 2006, trading between WH Smith PLC & Smiths News
PLC was not classified as a related party transaction as they were both part of
the WH Smith Group.
Amounts owed to WH Smith PLC at end of the year are in respect of tax balances
that are expected to be recovered from HMRC and repaid.
Transitional services agreement on demerger
On 7 July 2006, WH Smith PLC and Smiths News PLC entered into a transitional
services agreement whereby WH Smith PLC has agreed, with effect from the
demerger , to supply certain transitional services to Smiths News PLC. These
services include, amongst other things, payroll, tax, and property
administration. It is expected that the services will be provided for a
transitional period of up to 12 months plus such time as is required to complete
the 2005/2006 year end tax computation, following which Smiths News PLC will
make its own arrangements for the provision of these services. The consideration
payable by Smiths News PLC to WH Smith PLC under this agreement from the 12
month period is likely to be approximately £800,000 although this could increase
depending on the length of time that the services are provided to Smiths News
PLC.
USA Travel Retail - Hotels
The CEO of Travel Traders LLC is Sean Anderson who was Chairman of WH Smith
Airports Inc., WH Smith PLC's US subsidiary until September 2003 and he holds a
30 per cent stake in Travel Traders LLC. The total consideration of £7 million
for the USA Travel Retail hotel business was satisfied by way of an interest
bearing loan note with a 5 per cent coupon, conditional on the trading cash
flows of Travel Traders LLC. Additionally, WH Smith Group Holdings (USA) Inc.
holds a 15 per cent equity interest in Travel Traders LLC and is also providing
a loan facility of up to £4 million to the new company, of which £3 million is
drawn down as at 31 August 2006. (31 August 2005: £3 million).
Remuneration of key management personnel
The remuneration of the executive and non-executive directors, who are the key
management personnel of the Group, is set out below in aggregate for each of the
categories specified in IAS 24 Related Party Disclosures.
________________________________________________________________________________
£000 2006 2005
________________________________________________________________________________
Short-term employee benefits 2,407 3,048
Post-employment benefits 39 38
________________________________________________________________________________
2,446 3,086
________________________________________________________________________________
The directors and non-executive directors of Smiths News PLC were appointed to
the board of Smiths News PLC following close of business on 31 August 2006. For
future remuneration commitments, refer to the Remuneration Report.
Directors' transactions
There are no other transactions with directors.
15. Preparation of the Preliminary Announcement
a) Basis of preparation
The preliminary announcement for the 12 months to 31 August 2006 has been
prepared on the basis of the accounting policies set out in the Smiths News
prospectus issued on 7 July 2006.
While the financial information included in this preliminary announcement has
been computed in accordance with International Financial Reporting Standards
(IFRS), this announcement does not itself contain sufficient information to
comply with IFRS. The Company expects to publish full financial statements that
comply with IFRS in November 2006.
b) Preliminary announcement
The financial information for the 12 months to 31 August 2006 and 12 months to
31 August 2005 do not comprise statutory accounts for the purpose of Section 240
of the Companies Act 1985 and have been extracted from the Company's
consolidated accounts for the year to 31 August 2006. The statutory accounts for
Smiths News PLC (formerly Brightway Services Limited) for the period from
incorporation on 2 August 2004 to 31 August 2005 have been filed with the
Registrar of Companies and those for the 12 months to 31 August 2006 will be
filed following the Company's annual general meeting. The prior year accounts
did not require to be audited and the auditors' report on the accounts for the
12 months to 31 August 2006 were unqualified and did not include a statement
under Section 237 (2) or (3) of the Companies Act 1985.
The Annual Report and Accounts will be posted to shareholders in November 2006.
This information is provided by RNS
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