KEY POINTS
Commenting on the results, Kate Swann, Group Chief Executive said:
"We have improved profits substantially across the Group in the first half and whilst it is early days and much remains to be done, we are on track in the delivery of our recovery plan.Enquiries to -
"In High Street Retail we have improved the business's profitability by being more efficient, increasing product choice, improving availability and store standards. Customer response to these changes has been positive.
"Travel Retail delivered strong sales and profit growth and News Distribution has made steady progress in the first half.
"Trading conditions are tough; however, we remain confident in the outcome for the full year."
CURRENT TRADING
In the seven weeks to 16 April 2005, Retail LFL sales were flat and gross margin was up on last year. News Distribution sales were down 1%.
GROUP SUMMARY
Operating profit after exceptional operating items and goodwill amortisation was £72m (2004: £9m loss). Profit before tax after all exceptional items and goodwill amortisation was £61m (2004: £72m loss).
Operating profit before exceptional items and goodwill amortisation on continuing operations increased 33% to £73m (2004: £55m). After including the pension interest charge of £2m (2004: £2m) and other interest payable of £1m (2004: £nil), pre-tax profit before exceptional items and goodwill amortisation from continuing operations was £70m (2004: £53m).
An amount of £8m has been charged to the profit and loss account relating to discontinued businesses. Of this amount, £7m relates to an impairment review of the loan notes received as deferred consideration in respect of the disposal of the Group's US businesses. The balance relates to closure and exit costs.
Adjusted earnings per share were 28.4p, up 58% compared to last year (2004: 18.0p). Earnings per share after exceptional items and goodwill amortisation were 23.5p (2004: 34.4p loss per share).
Given the improvement in the Group's trading position, the Board has declared an interim dividend of 4.5p per share (2004: 4.0p per share).
The reduction in net assets to £66m (2004: £359m) mainly reflects the loss on disposal of the Hodder Headline business and the return of cash to shareholders. The balance sheet remains sound with net funds amounting to £2m (2004: £28m). Free cash inflow amounted to £51m compared to an outflow of £2m in the prior year, primarily reflecting the poor profit performance last year.
BUSINESS RESULTS
NB: All divisional profit and loss figures in this section are stated before pension service costs, exceptional items and goodwill amortisation, interest and taxation. High Street Retail numbers incorporate the results of WHSmith Online, which has been integrated.
Retail sales were down 2% at £816m (2004: £834m). Gross margin rose 240 basis points to 40.1% (2004: 37.7%). Retail divisional profits were up 29% to £66m (2004: £51m).
Books sales were down 3%, as we avoided last year's unprofitable promotions, and compensated for by a strong improvement in gross margin. Stationery sales were up by 4%, with gross margin up. News and Express sales were flat, with gross margin also up. Entertainment sales were down 12% on last year, with increased price pressure across all categories. The improvements in gross margin more than compensated for the decline in sales volumes, with gross contribution increasing by £12m to £327m.
Cost inflation, including store occupancy costs, was approximately 4% in the period. This was more than offset by cost savings across all aspects of the business. Total costs were £3m lower than last year and divisional profit increased by £15m.
High Street Retail sales were down 3% at £670m (2004: £692m) and down 3% on a like for like basis, adjusting for selling space. Travel Retail sales grew by 3% to £146m (2004: £142m), up 4% on a like for like basis. High Street Retail divisional profits increased to £55m (2004: £42m). Travel Retail achieved divisional profits of £11m (2004: £9m).
Retail selling space is 3.3m square feet, broadly in line with last year. In the first half of this year, the business has opened one new store and closed seven stores across the UK.
News Distribution achieved divisional profits of £19m (2004: £17m), with total sales of £599m (2004: £587m). Like for like newspaper sales were up 2% and total magazine sales were also up 2%. Divisional profits grew by £2m, through well-controlled costs and further efficiencies from network changes.
The OFT has announced its provisional conclusions on newspaper and magazine distribution arrangements. We will be playing a full part in the upcoming consultation process. There is a wide range of possible outcomes and we are preparing for any changes that may result.