|
 |
 |
Wednesday 23 March 2005 |
| |
Woolworths Group plc:
Preliminary Results Announcement 2005 |
| |
|
| |
Financial Review |
back to contents |
| |
|
| |
Earnings Per Share and Dividend |
| |
|
| |
Basic earnings per share, impacted by exceptional items, was 0.1 pence per share compared with 3.3
pence per share in 2004. Adjusted earnings per share before exceptional items and the amortisation of
acquisition goodwill was 3.6 pence per share compared to 3.5 pence per share in 2004. |
| |
|
| |
In light of the proposal from Apax, the Directors are not recommending a final dividend. In the event that
an offer is not forthcoming, the Directors then expect to recommend a dividend. The Company’s Annual
General Meeting is to be held at 11:00am on 7 June 2005 at the Royal College of Physicians, 11 St
Andrews Place, Regent’s Park, London NW1 4LE. |
| |
|
| |
Exceptional items |
| |
|
| |
In March 2004, the Group announced that Woolworths big W as traded from its existing property
portfolio did not represent a secure source of long term profitability. As a result, a number of stores have
been reconfigured or are in the process of being sold. The operating exceptional item of £60.9 million
includes the cost of stock write downs, property impairments, redundancy, and consultancy fees, partly
offset by disposal proceeds. The restructuring of the big W stores will continue throughout the current
year and an exceptional credit in the region of £25 million is expected in 2005/06. This will result in the
total net exceptional being in the range of £35-40 million. |
| |
|
| |
Cashflow and Net Debt |
| |
|
| |
At the year-end the Group had net funds of £108.7 million. Cash generation across the Group remained
healthy with a cash inflow from operating activities of £162.2 million. |
| |
|
| |
At the balance sheet date the Group had facilities comprising an undrawn, uncancelled £150 million
credit facility and, in issue, £100 million of 8.75 per cent Senior Notes due in 2006. |
| |
|
| |
The net interest charge has further decreased this year to £8.8 million from £10.2 million in 2004. Net
interest charges were covered 9.3 times before exceptional costs and goodwill amortisation. |
| |
|
| |
Subsequent to the balance sheet date, the Group took advantage of the favourable lending market and
refinanced. As a result the Group has added one bank to its existing Club and amended the existing
facilities to provide a new committed revolving credit facility of £250 million over a five year term. Both
pricing and other terms reflect the further progress the Group has made since demerger. |
| |
|
| |
Adoption of New Reporting Standards |
| |
|
| |
The Group has adopted Urgent Issues Task Force, Abstract 38 (UITF38) ‘Accounting for ESOP Trusts’.
As a result, shares in the Company held through an employee share scheme which were previously
reported as investments are now recorded as a deduction from shareholders funds. |
| |
|
| |
International Financial Reporting Standards |
| |
|
| |
International Financial Reporting Standards (IFRS) become mandatory for the consolidated financial
statements reported by all EU Listed companies from 2005 onwards. The areas of greatest impact for
the Group have been identified and work is underway to ensure the required compliance with IFRS for the 2005/6 financial year. The impact assessment has identified that changes in accounting treatment
for property, goodwill, pensions and deferred tax may have greatest impact on the Group. |
| |
|
| |
The impact of IAS 39 ‘Financial Instructions; Recognition and Measurement’ on the Group’s treasury
operations is largely restricted to treatment of instruments used to hedge its transacted foreign
exchange exposure, its £100 million Bond, and the interest rate swap linked to this debt instrument.
Group Treasury anticipates that its foreign exchange hedging will qualify under the new rules for hedge
accounting treatment. |
| |
|
| |
Taxation |
| |
|
| |
The effective tax rate for the 52 weeks to 29 January 2005 before exceptional items is 30.6 per cent
(76.3 per cent including exceptional items). This compares to an effective tax rate of 30.9 per cent for
the prior year. Under existing tax legislation, it is anticipated that the effective Group tax rate will
continue to move towards the standard corporation tax rate. |
| |
|
| |
Acquisitions and Disposals |
| |
|
| |
The Group purchased the remaining 50 per cent interest in Flogistics Limited (a company which sells
and distributes gift vouchers) from Kingfisher for £2 on 26 September 2004. There was no difference
between the book value and the fair value of the assets acquired. Accordingly, up to that date, Flogistics
has been accounted for as a joint venture and since that date as a subsidiary. |
| |
|
| |
On 27 September 2004, Woolworths Group plc entered into a joint venture with BBC Worldwide Limited
to form 2entertain Limited. This transaction has been accounted for in accordance with UITF 31
’Exchange of businesses or other non monetary assets for an interest in a subsidiary, joint venture or
associate’. The net effect of this transaction was to dispose of a 60 per cent interest in certain VCI
Group trading entities in return for a 40 per cent interest in 2entertain Limited. Goodwill relating to the
transaction of £52.1 million is being amortised over 20 years and amortisation of £0.9 million has been
charged since completion. |
| |
|
| |
Accounting for Pensions |
| |
|
| |
Following a detailed review, the Group announced in April 2003 that it would retain the Woolworths
Group Pension Scheme (WGPS) final salary scheme, whilst revised terms for the participation of new
employees have been introduced, existing members have been asked to increase contributions with
effect from April 2004 in order to retain their existing benefits. |
| |
|
| |
Financial Reporting Standard 17 ‘Retirement Benefits’ (FRS 17) was issued in November 2000 to
replace Statement of Standard Accounting Practice 24 ‘Accounting for Pension Costs’ (SSAP 24), and
was initially supposed to be fully effective for the accounting periods ending on or after 22 June 2003.
However, full implementation of FRS 17 has now been deferred, pending the review of International
Accounting Standard 19 ‘Employee Benefits’. |
| |
|
| |
The Group has continued to account for pension costs under SSAP 24 although in accordance with the
transitional arrangements for FRS 17, certain additional information is set out below. The Group has
continued to contribute to the WGPS at the rate of 13.5 per cent of pensionable pay. Under SSAP 24
the pension cost for the year is £16.0 million (2004: £16.2 million), which is split into a regular cost of
£14.8 million (2004: £15.0 million) and a variation of £1.2 million (2004: £1.2 million). |
| |
|
| |
The actuaries have assessed the Minimum Funding Requirement (MFR) level for the Group at the end
of the financial year and it remains above 100 per cent. |
| |
|
| |
Impact of Financial Reporting
Standard 17 ‘Retirements Benefits’ |
| |
|
| |
The valuation of the WGPS as at 29 January 2005, as measured in accordance with FRS 17, was a net
pension deficit of £68.2 million (2004: £66.1 million) after the benefit of potential deferred taxation at 30
per cent amounting to £29.3 million (2004: £28.4 million). |
| |
|
| |
The increase in the deficit over the year is primarily attributable to asset returns and membership
movements within the scheme. |
| |
|
| |
Had the Group charged pension costs to the profit and loss account on the FRS 17 basis, then the
charge for the year would have been £18.4 million (2004: £25.4 million), compared to a SSAP 24 charge
of £16.0 million (2004: £16.2 million). |
| |
|
| |
|
| |
|
