Gusbourne Regulatory News (GUS)

24 May 2006 07:03

GUS PLC24 May 2006 24 May 2006 GUS plc Preliminary Results For Year Ended 31 March 2006 Further strategic progress •Demerged remaining stake in Burberry •Raised £350m from disposal of Lewis and Wehkamp £€1.2bn invested in ARG and Experian on capital expenditure and acquisitions •Demerger of ARG and Experian planned for October 2006 Financial highlights •Continuing operations - Sales up 9% to £7.3bn (2005: £6.7bn) - EBIT(1) up 7% to £745m (2005: £695m) - Record profit at Experian - ARG outperforming in difficult UK market - Profit before tax £649m (2005: £648m) •Benchmark PBT(2) of £829m (2005: £910m), reflecting impact of disposals •Benchmark earnings per share(3) 63.5p (2005: 62.0p) •Basic earnings per share 60.2p (2005: 59.6p) •Diluted earnings per share 59.2p (2005: 58.8p) •Full year dividend of 31.5p per new consolidated GUS share (2005: 29.5p per old share) Sir Victor Blank, Chairman of GUS, commented: "This year has been one of significant strategic progress for GUS with Burberry,Lewis and Wehkamp all leaving the Group, and ARG and Experian scheduled fordemerger in October. GUS has a long history of creating value for itsshareholders and we are confident that this will continue as they will now havethe choice to invest directly in three extremely well-positioned businesses -ARG, Burberry and Experian." John Peace, Chief Executive of GUS, commented: "Experian generated record profits in 2006, reflecting the strength of itsportfolio by product, by region and by market. ARG continued to outperform itsmarkets, while investing in key initiatives. Although we remain cautious aboutthe UK retail market in the short term, we are confident that both ARG andExperian have clear strategies for growth in the medium and longer term." (1) Earnings before interest and taxation (EBIT) is defined as profit before interest, amortisation of acquisition intangibles, store impairment charges, exceptional items (i.e. gains or losses on disposal, demerger or closure of businesses and goodwill impairment charges), financing fair value remeasurements and taxation. It also includes the Group's share of associates' pre-tax profit. (2) Benchmark PBT is defined as profit before amortisation of acquisition intangibles, store impairment charges, exceptional items (i.e. gains or losses on disposal, demerger or closure of businesses and goodwill impairment charges), financing fair value remeasurements and taxation. It includes the Group's share of associates' pre-tax profit and the profits or losses of discontinued operations up to the date of disposal or closure. (3) Benchmark EPS takes Benchmark PBT less taxation (attributable to Benchmark PBT) and minority interests, divided by the weighted average number of shares in issue (excluding own shares held in Treasury and in the ESOP Trust). Enquiries GUSJohn Peace Group Chief Executive 020 7495 0070David Tyler Group Finance DirectorFay Dodds Director of Investor Relations FinsburyRupert Younger 020 7251 3801Rollo Head There will be a presentation today at 9.30am to analysts and investors at theMerrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ. Thepresentation can be viewed live on the GUS website at www.gusplc.com. Thesupporting slides and an indexed replay will also be available on the websitelater in the day. There will be a conference call to discuss the results at 3.00pm today (UKtime), with a recording available later on the website. All GUS announcementsare also available on www.gusplc.com. GUS' First Quarter Trading Update will be on 12 July 2006. Its AGM will be heldon 19 July 2006. This announcement is not an offer of securities for sale in any jurisdiction. Certain statements made in this announcement are forward looking statements.Such statements are based on current expectations and are subject to a number ofrisks and uncertainties that could cause actual events or results to differmaterially from any expected future events or results referred to in theseforward looking statements. GROUP STRATEGY The year under review has seen further major steps in the transformation of GUS,with significant disposals, acquisitions and organic investment. In March 2006,the Board of GUS announced plans for the demerger of our two remainingbusinesses, Argos Retail Group and Experian. This will enable all our existingshareholders to continue to benefit directly from an investment in both theseattractive businesses. We have during the year completed the demerger of Burberry and the disposals ofLewis and Wehkamp, leaving GUS now focused entirely on Argos Retail Group (ARG)and Experian. In May 2005, we sold our remaining 50% stake in Lewis, raising£140m; in January 2006, we sold Wehkamp, our last home shopping business, for£210m; and in December 2005, we carried out the demerger of our remaining 65%stake in Burberry Group plc. Combined, these businesses contributed aboutone-quarter of Benchmark PBT in the year to 31 March 2005. We have invested over £800m in acquiring businesses during the year. Most ofthis has been in Experian in areas such as Interactive (includingLowerMyBills.com and PriceGrabber.com), in marketing database solutions(ClarityBlue) and further credit bureaux affiliates. Argos also acquired 33Index stores at a cost of £44m. All these acquisitions are trading well. We have continued to invest both capital and revenue during the year in ARG andExperian. At ARG, investments were made in new stores, warehouses and ranges.Experian continues to invest in new products, regions and infrastructure.Capital expenditure in the year to 31 March 2006 was about £360m for continuingoperations - a level that is expected broadly to repeat in the current year. As announced in March 2006, the Board of GUS proposes, subject to shareholderapproval, that ARG and Experian should be separated by means of a demerger withboth businesses becoming independently listed on the London Stock Exchange. We are today updating investors further on the demerger process. Details havebeen released in a separate announcement. GROUP FINANCIAL HIGHLIGHTS Sales from continuing operations up 9% to £7.3bn. EBIT from continuing operations up 7% to £745m, reflecting both record profitsat Experian and the impact of a difficult UK retail market on ARG. Benchmark PBT down 9% to £829m (2005: £910m), reflecting the impact of thedisposal of Lewis, Burberry and Wehkamp during the year. An effective tax rate of 25.6% based on Benchmark PBT (2005: 26.3%). It isanticipated that the Group tax rate will be similar to this in the current year. Benchmark EPS up 2% to 63.5p (2005: 62.0p), reflecting the lower tax rate andthe impact of the share consolidation accompanying the Burberry demerger inDecember 2005. Net debt increased to £1.97bn at 31 March 2006, up from £1.43bn a year ago,reflecting the cost of acquisitions (about £820m) and a £100m special pensioncontribution, partly funded by strong operating cash flow. Final dividend of 21.9p proposed, making 31.5p for the full year for each newconsolidated GUS share (2005: 29.5p per old share). Dividend cover for GUS is2.0 times on EPS of 63.5p. 12 months to 31 March Sales Profit-------------------- ----------------------- ---------------------- 2006 2005 2006 2005 £m £m £m £m-------------------- ---------- --------- --------- ---------Argos Retail Group 5,548 5,313 348.9 399.5Experian 1,725 1,362 416.7 317.0Central activities (11) (12) (20.2) (21.8) ---------- --------- --------- ---------Continuing operations 7,262 6,663 745.4 694.7 Discontinued operations(1) 653 1,124 119.4 239.0 ---------- --------- --------- ---------Total 7,915 7,787 864.8 933.7-------------------- ---------- --------- Net interest (36.3) (23.7) --------- ---------Benchmark PBT 828.5 910.0Amortisation of acquisition intangibles (37.0) (11.6)Store impairment charges(2) (12.8) -Exceptional items 17.5 (3.5)Fair value remeasurements (2.8) - --------- --------- 793.4 894.9Taxation (198.2) (249.7)Equity minority interests (25.6) (49.4) --------- ---------Profit attributable to equityshareholders 569.6 595.8----------------------------------- --------- ---------Benchmark EPS 63.5p 62.0pBasic EPS 60.2p 59.6pWeighted average number of ordinaryshares 946.7m 1,000.1m----------------------------------- --------- ---------The profit figure shown against each business above and used throughout thisannouncement is earnings before interest and taxation (EBIT), defined as profitbefore interest, amortisation of acquisition intangibles, store impairmentcharges, exceptional items (i.e. gains or losses on disposal, demerger orclosure of businesses and goodwill impairment charges), financing fair valueremeasurements and taxation. It also includes the Group's share of associates'pre-tax profit. The same definition of EBIT is used in each table in thisannouncement2005 profit has been restated to reflect clearer IFRS interpretation on certainissues. See Appendix 1 for details(1) Discontinued operations include Lewis, Burberry and Wehkamp with profit in 2006 up until the date of disposal(2) Resulting from clearer IFRS interpretation on store impairment which affects Homebase ARGOS RETAIL GROUP (ARG) Sales up 4% to £5.5bn; EBIT of £349m reflects the difficult UK retailenvironment, especially in DIY Both Argos and Homebase outperformed their markets, benefiting from investmentin key strategic initiatives Significant operational improvements in 2006; well executed in both Argos andHomebase ARG remains cautious on the outlook for a recovery in consumer spending 12 months to 31 March Sales EBIT---------------------- -------------------- ------------------ 2006 2005 2006 2005 £m £m £m £m---------------------- --------- --------- -------- ---------Argos 3,893 3,652 291.0 320.0Homebase(1) 1,562 1,580 51.8 113.8Financial Services 93 81 6.1 0.2 --------- --------- -------- ---------Sub-total 5,548 5,313 348.9 434.0Argos - charge for OFT fine - - - (16.2)Homebase - charge for reorganisation - - - (18.3)costs --------- --------- -------- ---------Total 5,548 5,313 348.9 399.5---------------------- --------- --------- -------- --------- EBIT margin(2) 6.3% 8.2%---------------------- --------- --------- -------- ---------2005 EBIT has been adjusted as a result of clearer IFRS interpretation nowavailable on lease accounting and store impairment since GUS restated itsresults under IFRS in June 2005. The result has been to reduce Argos EBIT by£1.2m and increase Homebase EBIT by £5.2m(1) Homebase sales and EBIT for 12 months to 28 February(2) Excluding one-off charges for Argos OFT fine and Homebase reorganisation costs Following the disposal of Wehkamp, ARG is now focused on selling generalmerchandise in the UK and Ireland. It has a multi-brand, multi-channel offer,supported where appropriate by a central infrastructure in areas such assourcing and supplier management, multi-channel ordering, home delivery andfinancial services. The annual rate of growth in consumer spending in the UK slowed markedly in theyear under review. Higher interest payments and utility bills, a moderation inthe growth of disposable income and a more cautious approach to borrowing(influenced in particular by a slow housing market) all combined to subduespending. This weak demand, coupled with higher cost inflation for retailers inareas such as rents, business rates, wages, utilities and fuel bills, hasadversely impacted many retailers' profits including those of Argos andHomebase. Both businesses have continued to manage their costs effectivelyduring the year, while investing to strengthen their long-term competitivepositions. In the year under review, ARG has successfully implemented a significant numberof operational improvements. These include: Argos • roll-out of Argos Extra to all stores in July 2005; • acquisition, integration and rebranding of 33 Index stores; • opening of 32 additional new stores; • opening of two new warehouses supporting Argos Direct, Argos Extra and direct importing; • reorganisation of store staffing to serve customers more effectively; and • introduction of a trial of the Argos Home catalogue in 100 stores. Homebase • opening of 10 new stores; • addition of 23 mezzanines; • national roll-out of Furniture Extra; and • relocation of about 500 roles in buying, merchandising and other functions to Milton Keynes alongside Argos. Looking forward, ARG remains cautious on the outlook for a recovery in the rateof growth in consumer spending and is planning on this basis. It expects the DIYmarket in particular to remain difficult. In the current financial year,underlying cost inflation in both businesses is likely to be about 4% - the sameas 2006. ARG will continue to work to mitigate the impact of this through costreduction programmes and productivity improvements while still investing in itskey initiatives. ARG has a clear strategy in place to deliver further share gains. GUS believesthat both Argos and Homebase are well-positioned in their markets - Argos as aleading multi-channel general merchandise retailer and Homebase as a strongbrand across the wider home enhancement market. There are continuing synergiesavailable from Argos and Homebase working closely together in areas such assourcing and supply chain initiatives, home delivery and product development. Argos ----------------------------------- ---------- --------- ----------- 12 months to 31 March 2006 2005 Change £m £m ----------------------------------- ---------- --------- ----------- Sales 3,893 3,652 7% Total change 7% 8% Like-for-like change (1%) 3% EBIT(1) 291.0 320.0 (9%)Charge for OFT fine - (16.2) ---------- --------- ----------- Total reported 291.0 303.8 EBIT margin(2) 7.5% 8.8% ----------------------------------- ---------- --------- ----------- At 31 March Number of stores 657 592 Of which: Argos Extra stocked-in 191 128 ----------------------------------- ---------- --------- ----------- (1) 2005 EBIT has been adjusted as a result of clearer IFRS interpretation now available on lease accounting since GUS restated its results under IFRS in June 2005. The effect has been to reduce EBIT by £1.2m(2) Excluding one-off charge for the OFT fine In a competitive general merchandise market, Argos continues to grow share bywinning a higher proportion of customers' spend by offering them the mostcompelling combination of choice, value and convenience. Operational review Argos Extra, which offers customers over 17,000 lines compared to around 13,000previously, was successfully rolled out to all stores and channels for both theAutumn/Winter catalogue (launched in July 2005) and the Spring/Summer catalogue(launched in January 2006). Of the 657 stores at the year end, 191 stocked inthe additional ranges, up from 128 last year. The remaining stores offercustomers the option to order-in for later collection from store or for homedelivery. Argos Extra is trading in line with expectations and is estimated tohave contributed about 2% to total sales growth in the year. Looking forward, the emphasis will be on optimising the product offer andfurther improving customer awareness of the extended ranges. After such majorgrowth in the last year, the number of catalogue lines in the next twelve monthsis unlikely to increase significantly. Argos is also trialling a separate "Home" catalogue which is designed toincrease ARG's market-leading share of the fragmented furniture and homeaccessories market. The trial started in March 2006 with a 340-page catalogueavailable in 100 stores. It offers consumers over 3,000 products from theexisting Argos catalogue presented in a more aspirational manner. Argos has further reduced prices for consumers. In the current Spring/Summercatalogue, prices on re-included lines are 3% lower than last year. Argos isalso committed to lowering prices during the life of each catalogue; forexample, over 1,800 price reductions were made in the 2005 Autumn/Wintercatalogue. Its "non stop price drop" campaign reinforces this message tocustomers. Argos continues to be able to fund these lower prices as it delivers furthersupply chain benefits. For example, the proportion of directly imported goods inthe current catalogue is 32% of sales, up from 26% last year and 16% three yearsago. Direct importing drives gross margin benefits by lowering the cost of goodssold, albeit that it requires additional infrastructure investment and costs tosupport the more sophisticated supply chain. Argos opened 65 stores during the year, including the 33 acquired from Index inJuly 2005. The integration and refitting of the Index stores was achieved onplan and these stores contributed 2% to total sales growth. Of the 65 openings,10 were in new towns with the balance being second or third stores in existingcatchments. At 31 March 2006, Argos operated 657 stores. It expects to openaround 30 stores in the current year. Argos is benefiting from the growth in online shopping in the UK, with 12% ofits sales now ordered over the Internet for delivery to home or for latercollection in store. This is a 55% increase on the previous year and the firsttime that the value of orders over the Internet has exceeded that over thephone. Argos Direct, the delivery to home operation, grew sales by 10% in the year,representing 22% of revenue. Self-service kiosks are in over 300 stores andaccount for about 10% of sales in those locations. The new advertising campaignat Argos reinforces the message about how convenient it is to shop from Argos. Financial review Sales in the year to 31 March 2006 increased by 7% in total. Of this, 8% camefrom new space while like-for-like sales fell by 1% in the year. There werestrong performances from consumer electronics, bedroom furniture, textiles andwhite goods while jewellery remained weak. Gross margin was in line with lastyear. EBIT in the year was £291m, a £29m decline on the previous year excluding thecharge for the OFT fine last year. There were £11m of one-off costs incurred inthe first half of the year: £7m transitional costs relating to the Index storesand £4m restructuring costs associated with changing staffing arrangementsin-store. Excluding these, operating costs increased by 10% year-on-year, ofwhich underlying cost inflation was about 4%. The balance reflects the directcosts of higher sales and further investment in areas such as Argos Extra, newspace and infrastructure investment (especially the new warehouses which arecurrently running below full capacity utilisation). These costs have been partlyoffset by cost saving initiatives. Homebase ----------------------------------- ---------- --------- ----------- 12 months to 28 February 2006 2005 Change £m £m ----------------------------------- ---------- --------- ----------- Sales 1,562 1,580 (1%)Total change (1%) 6% Like-for-like change (4%) 3% EBIT(1) 51.8 113.8 (54%)Charge for reorganisation costs - (18.3) ---------- --------- ----------- Total reported 51.8 95.5 EBIT margin(2) 3.3% 7.2% ----------------------------------- ---------- --------- ----------- At 28 February Number of stores 297 287 Of which: number with mezzanine 144 111 floor ----------------------------------- ---------- --------- ----------- (1) 2005 EBIT has been adjusted as a result of clearer IFRS interpretation now available on store impairment since GUS restated its results under IFRS in June 2005. The result has been to increase Homebase EBIT by £5.2m(2) Excluding one-off charge for reorganisation costs Despite the sharp reduction in profits this year caused by a very difficult DIYmarket, we remain confident in the strategy for Homebase that was developed atthe time of acquisition. This aims to differentiate Homebase from other playersby making it the UK's leading home enhancement retailer. It will achieve this bycontinuing to invest in order to: • improve the existing core DIY business; • enhance and extend its home furnishings offer; and • deliver synergies by leveraging the scale and expertise of ARG. Operational review The UK DIY market was very challenging during the year, with weak demand fromconsumers and increasing promotional activity from major competitors. Homebasecontinued to gain share in its market, although some of the price reductionsthat it pursued, especially in the second half of the year, did not generate thedesired volume uplifts. As a result, Homebase intends to pursue a lessaggressive promotional stance in the current year. Homebase continues to invest in initiatives to differentiate itself further fromother players. More range reviews were completed during the year so that allmajor product groups have now been repositioned since the acquisition ofHomebase in December 2002. Homebase has also continued to improve the shoppingexperience for its customers by raising in-store standards, improving stockavailability and offering better customer service. In home enhancement, Furniture Extra, a catalogue offering over 700 lines, wasrolled out to all stores by December 2005, with product displays in 135 stores.This has significantly improved the sales performance in furniture. A new200-page home furnishings catalogue is being trialled in 30 stores from Easter2006, while new merchandising techniques for textiles, cookshop and homeaccessories are currently being trialled in 11 stores. Homebase continues to add space through new stores and mezzanine floors,enabling it to serve new regions and sell new products more effectively. Duringthe year, Homebase opened a net ten new stores, bringing the total at 28February 2006 to 297. In the current year, it plans a net increase of 15 stores,being a mix of traditional and small store formats. At the year end, 144 stores had a mezzanine floor, up from 111 a year ago. Salesuplifts from the latest mezzanine floors continue to be above those generated byearlier trials. In the current year, Homebase plans to add mezzanines to atleast another ten stores. Homebase continues to leverage the ARG infrastructure. Being part of ARG givesHomebase considerable advantage over what it could achieve on its own. Forexample, the proportion of goods directly imported now stands at 22%, comparedto 8% at acquisition. This growth has been accelerated by Homebase having accessto ARG's established buying offices in Hong Kong, Shanghai and Shenzhen. TheHomebase website, which was relaunched in February 2005 using the Argos ITinfrastructure, is performing well, albeit from a small base. The relocation ofabout 500 Homebase roles to Milton Keynes, where Argos is based, was completedsuccessfully during the year and is expected to deliver benefits in terms ofcloser co-operation throughout ARG. Financial review In the year to 28 February 2006, sales at Homebase fell slightly in total,outperforming the DIY market as a whole. New stores contributed 3% to sales andare trading in line with plan. Like-for-like sales were down 4% for the year,although this performance was worse in the latter part of the period. Despitethe difficult economic environment, total sales of kitchens and furniture sawdouble-digit percentage increases, driven by the investment in Furniture Extraand additional mezzanines. Core DIY and decorating sales fell by mid-singledigit percentages on a like-for-like basis. Gross margin for the year as a wholewas in line with last year, although down in the second half. Both the gross margin and operating costs as a percentage of sales at Homebaseare significantly higher than at Argos. Total costs increased by 8%year-on-year, reflecting 4% underlying cost inflation and a 4% increase frominvestment in areas such as new stores and mezzanine space. These were onlypartly funded by cost savings and productivity improvements. The combined impactof lower sales, cost inflation and investment in new space led to a sharpreduction in EBIT to £52m. ARG Financial Services (ARG FS) ---------------------------------------------- -------- --------- 12 months to 31 March 2006 2005 £m £m ---------------------------------------------- -------- ---------Sales 93 81 Earnings before funding costs 24.0 18.6 Funding costs (17.9) (18.4) -------- --------- 6.1 0.2 ---------------------------------------------- -------- --------- At 31 March Gross loan book 433 463 Number of active store card holders (000s) 1,044 887 ---------------------------------------------- -------- --------- ARG FS works in conjunction with Argos and Homebase to provide their customerswith the most appropriate credit offers to drive product sales, while retainingthe maximum possible profit from the transaction within ARG. It offers storecards (providing both revolving and promotional credit) and a range of insuranceproducts. The ARG FS gross loan book fell by £30m to end the year at £433m. The declinereflects the run-off of personal loan balances resulting from the decision takenin December 2004 to withdraw from this very competitive market. The Argos and Homebase store card balances grew by 9% to £378m at year-end,primarily due to the success of 'buy now pay later' credit offers. The Argosstore card funded 9% of sales in 2006, with a 17% increase in the active cardbase. The Homebase card funded 4% of its sales, with growth in the active baseof 33%. Credit offers are supporting initiatives in the retail businesses suchas the trial of the Home catalogue in Argos and growing kitchen sales inHomebase. Modest expansion is expected in the total gross loan book over the next twelvemonths, reflecting continued growth in store cards but a further run-off inpersonal loans. Profit after funding costs increased to £6.1m, driven by increased interestincome from the growth in the store card loan book, partially offset byincreased provisions for bad debts. EXPERIAN Sales up 27% and profit up 29% for continuing activities at constant exchangerates Fourth consecutive year of double-digit sales and profit growth Further EBIT margin advance even after increased investment in new products,markets and infrastructure Fourth consecutive year of excellent cash generation, with about 100% of EBITconverted into operating cash flow 12 months to 31 March Sales EBIT ---------------------- ------------------- ------------------- 2006 2005 2006 2005 £m £m £m £m ---------------------- -------- -------- -------- --------Experian North America 1,000 712 265.3 189.0 Experian International 722 620 151.3 126.6 -------- -------- -------- --------Total continuing activities 1,722 1,332 416.6 315.6 % growth at constant FX 27% 18% 29% 16% Discontinuing activities 3 30 0.1 1.4 -------- -------- -------- --------Total reported 1,725 1,362 416.7 317.0 ---------------------- -------- -------- -------- -------- EBIT margin - excluding FARES 22.2% 21.1% - including FARES 24.2% 23.7% ----------------------------- -------- -------- Notes (relevant to all Experian tables): Additional information on Experian is given in Appendix 2 Full details of discontinuing activities are given in Appendix 3, including theimpact of treating MetaReward and large scale UK account processing asdiscontinuing activities from 1 April 2006 EBIT margin is for continuing activities only. For FARES, the 20%-owned realestate information associate, Experian reports its share of FARES profits butnot sales. FARES is an integral part of Experian's business Experian is a global leader in providing information solutions to organisationsand consumers. It helps organisations find, develop and manage profitablecustomer relationships by providing information, decision-making solutions andprocessing services. It helps consumers understand, manage and protect theirpersonal information and make more informed purchasing decisions. As we have said previously, Experian is well-positioned to benefit from a numberof key drivers of long-term growth, including expansion in: • the direct-to-consumer market and online advertising;• consumer credit and card usage;• multi-channel marketing;• fraud prevention;• vertical markets such as automotive and government; and• emerging markets such as Asia Pacific and Eastern Europe. Experian has a clear strategy to capitalise on these opportunities by buildingon its core businesses, selling value-added solutions and growing by targetedacquisitions. In 2006, sales were up 27% at constant exchange rates and EBIT was up 29%,demonstrating the benefits of Experian's portfolio of businesses by product, byregion and by market. There was also a balance between organic growth (whichcontributed 10% of the 27% sales increase) and acquisitions (which contributed17%). Experian was highly cash generative in 2006, converting all of its EBIT tooperating cash flow. Acquisition spend in the year was about £775m, well abovethe average spend in the three previous years. Together, acquisitions made inthe last three financial years are performing ahead of plan. Experian continued to invest organically in its businesses during the year, inareas such as new products, establishing a stronger presence in selected regionsand in its infrastructure. For example, new products, which contributedsignificantly to organic growth, include Triple Advantage in Consumer Direct andHunter II, the anti-fraud system which recently won the Queen's Award forInnovation. Experian also recently launched Vantage Score in the US, a newcredit score jointly developed by it and the two other US national creditreporting companies, which delivers for clients and consumers more consistentand predictive credit scores. In Asia Pacific, Experian now employs nearly 200people - an increase of more than 50% over a year ago. This enables it to servebetter both local and multi-national clients looking to expand into thisfast-growing region. Experian also continued to evolve its portfolio of businesses by furtheracquisitions and some closures. Experian made two large acquisitions during theyear, both in the Interactive business. LowerMyBills.com, a leading US onlinegenerator of mortgage leads, was acquired for $330m plus earn-out in May 2005and PriceGrabber.com, a leading US provider of online comparison shoppingservices, was purchased for $485m in December 2005. Both will benefit from therapid growth in Internet usage by consumers and clients, as well as from thesynergies available to them from being part of Experian in areas such as accessto data, analytical tools and clients. Experian also invested via acquisition inother areas such as database marketing solutions (ClarityBlue), purchasing moreUS credit affiliate bureaux, enabling lending to small businesses (Baker Hill)and in the retail and property sectors (Footfall). In addition, Experian hasrecently announced its withdrawal from two markets which have becomeincreasingly unattractive - incentive marketing websites in the US (viaMetaReward) and large scale account processing in the UK. In 2006, Experian continued to win contracts across the business. Some of theseare from long-established major clients where Experian is extending the servicesits sells. One example is the recently announced multi-year, multi-million poundcontract with HSBC, which will use Experian's decision analytics to supportlending decisions around the world. In the US, Limited Brands, a top tenspecialty retailer, extended its relationship with Experian, awarding it amulti-year, multi-million dollar contract for an integrated customer andprospect database across all sales channels. Other wins are in recently acquiredcompanies such as ClarityBlue's three year, multi-million pound contract tosupport customer acquisition at BSkyB. Finally, Experian is gaining clients innew regions, such as Japan (JCB and Nicos) and Thailand (Bank of Siam). Experian North America ----------------------------------- -------- -------- ------------ 12 months to 31 March 2006 2005 Growth at £m £m constant FX ----------------------------------- -------- -------- ------------ Sales - Continuing 1,000 712 36% activities - Discontinuing 2 12 na activities -------- -------- ------------ - Total reported 1,002 724 34% EBIT - Direct business 230.3 154.5 44% - FARES 35.0 34.5 (2%) -------- -------- ------------ - Continuing 265.3 189.0 36% activities - Discontinuing - (0.1) na activities -------- -------- ------------ - Total reported 265.3 188.9 36% ----------------------------------- -------- -------- ------------ EBIT margin - excluding FARES 23.0% 21.7% - including FARES 26.5% 26.5% ----------------------------------- -------- -------- ------------ In the year to 31 March 2006, Experian North America again delivered very strongsales and profit growth, reflecting the strength of its market position and thequality of its execution, enabling it to capitalise on strong market demand. Operational review Sales from continuing activities increased by 36% in dollars. Corporateacquisitions generated 23% of this growth, with 13% organic growth (H1: 18%; H2:9%). In the current financial year, the contribution from acquisitions made todate is expected to increase sales growth by mid-single digits. Credit Information and Solutions together grew sales by 14% excluding corporateacquisitions. The US consumer credit market was very strong during the year. Forexample, credit card solicitations were at an all time high in calendar year2005, with 6 billion offers mailed - up 16% on 2004. This strong market, whichis expected to moderate in the current year, benefited Experian's core creditoperations. Experian also saw good growth in value-added products such astriggers and prescreen. The FACT Act recovery charge, which anniversaried from 1January 2006, contributed 3% to sales growth in Credit in the year. There was double-digit organic growth in business credit, reflecting strength inthe volume of business credit reports as well as growth in decision analytics inthis market. Marketing Information and Solutions together grew sales by 6% excludingacquisitions. There was renewed weakness across the direct marketing industry inthe second half. This impacted Information sales at Experian, especially in thecatalogue and reseller sectors. Marketing Solutions continued to trade well,especially in database solutions and email marketing. The success ofCheetahMail, which sent nearly 11 billion email messages during the year, is agood example of how Experian repositions its portfolio of businesses tocapitalise on high growth markets. Experian Interactive contributed about 35% of sales in Experian North America in2006, up from 22% in 2005. Sales in total more than doubled to $617m, withsignificant contributions from businesses acquired during the year. Excludingacquisitions, sales increased by 22%. Consumer Direct saw further strong growthof over 30%, driven by more new members, the success of new products such asTriple Advantage and increased revenue per member. Sales at MetaReward fellduring the second half of the year. As previously announced, it has closed itsincentive marketing websites, which operate in an increasingly unattractivemarket for both consumers and thus clients. These websites had sales of $70m andEBIT of $5m in the year to 31 March 2006. Financial review In dollars, sales from continuing activities were $1,789m, up 36% compared tolast year. EBIT from direct businesses was $412m (2005: $286m), giving animprovement in EBIT margin of over one percentage point to 23.0%. Thisimprovement reflects operational leverage from 13% organic sales growth and afavourable mix from strong Credit sales. These factors were stronger in thefirst half of the year than the second half. FACTA-related set-up costs whichwere incurred in the previous year were recovered during 2006. Experian NorthAmerica also invested several million dollars in the latter part of the year infurther improving its information infrastructure. FARES, the 20%-owned real estate information associate, saw largely unchangedprofits year-on-year at $63m (2005: $64m), reflecting the decline in the USmortgage refinancing market offset by continuing cost control. The £/$ exchange rate moved from an average of $1.85 in the year to March 2005to $1.79 in 2006. This increased reported sales by £33m in the year and EBIT by£9m. Experian International ----------------------------------- -------- -------- ------------ 12 months to 31 March 2006 2005 Growth at £m £m constant FX ----------------------------------- -------- -------- ------------ Sales - Continuing 722 620 16% activities - Discontinuing 1 18 na activities -------- -------- ------------ - Total reported 723 638 13% EBIT - Continuing 151.3 126.6 19% activities - Discontinuing 0.1 1.5 na activities -------- -------- ------------ - Total reported 151.4 128.1 18% ----------------------------------- -------- -------- ------------ EBIT margin 21.0% 20.4% ----------------------------------- -------- -------- ------------ Experian International, which accounts for over 40% of total Experian sales, hadanother good year, continuing its long and consistent record of double-digitsales and profit growth. Operational review Sales grew by 16% at constant exchange rates, of which 9% came from acquisitionsand 7% was organic. The full year impact of acquisitions made to date isexpected to increase sales growth by mid-single digits in 2007. Despite aslowdown in the growth of UK consumer lending, Experian's sales in the UK, whichaccount for about 60% of its International revenues, still grew by 6% excludingacquisitions. This reflects the breadth of its portfolio by product and verticalmarket. Organic growth outside the UK was 8%. Credit Information and Solutions increased sales by 8% excluding acquisitions.Although there was a decline in demand for products supporting new consumercredit applications in the UK, this was countered by strong sales growth inbusiness-to-business sales, as well as significant growth from a small base inthe government, telecomms and direct-to-consumer markets. Outside the UK, Italy,Asia Pacific, South Africa and Eastern Europe demonstrated double-digit growthin credit, especially in value-added decision solutions. As already announced, with the market in decline, Experian will have withdrawnfrom large scale credit card and loan account processing in the UK by Autumn2009. In the year to 31 March 2006, sales in UK account processing fell to about£44m generating EBIT of £20m. With the planned contraction of the business,profit will decline further over the next few years, with EBIT in the year to 31March 2007 expected to be no more than half the 2006 level. The costs ofwithdrawal, all of which are cash, will be about £15m. These will be chargedagainst EBIT in the year to 31 March 2007. Marketing Information and Solutions grew sales by 9% excluding acquisitions.As expected, given the UK market background, there was some slowdown inmarketing spend by financial services clients. This was compensated for bystrong growth in CheetahMail, by public sector wins in QAS and by double-digitgrowth in Business Strategies in the UK and elsewhere. Outsourcing sales grew by 4% in euros excluding acquisitions. Experian continuedto win new contracts in both the more mature cheque processing area (now servingall five major French banks) as well as other back office functions, including afour year, multi-million euro contract with Prud'homales, building and runningthe electoral roll for French work council elections. Financial review Sales for continuing activities at Experian International increased by 16% atconstant exchange rates. EBIT from continuing activities at £151.3m increased by19% at constant rates, resulting in a 60 basis point improvement in the margin.This reflects operational leverage throughout the business, despitere-investment in new products and regions. In particular in the second half,Experian increased its revenue investment in Asia Pacific. OTHER Discontinued operations 12 months to 31 March Sales EBIT ---------------------- --------------------- ---------------------- 2006 2005 2006 2005 £m £m £m £m ---------------------- --------- --------- --------- -------- Lewis 20 187 5.2 55.2 Burberry 472 715 94.1 161.3 Wehkamp 161 222 20.1 22.5 --------- --------- --------- --------Total 653 1,124 119.4 239.0 ---------------------- --------- --------- --------- -------- A placing of GUS' remaining 50% stake in Lewis took place in May 2005, raising£140m. In December 2005, the demerger of the remaining 65% stake in BurberryGroup plc was completed while in January 2006, Wehkamp, GUS' last home shoppingbusiness, was sold, raising £210m. As a result, all three businesses have beentreated as discontinued operations and EBIT up until the date of disposal hasbeen included in the 2006 results. Net interest At £36m, interest costs were £13m higher than last year, reflecting higher netdebt levels largely resulting from the £820m spent on acquisitions. The reportednet interest line benefits from the recharge to ARG Financial Services intereston its loan book (£18m), from £8m of income from a £140m loan note which did notform part of net debt, and from a credit to interest of £8m relating to theexcess of the expected return on pension assets over the interest on pensionliabilities (2005: £2m). Since 31 March 2006, the Group has received £140m from the repayment of a loannote received as deferred consideration for the sale of Home Shopping. Amortisation of acquisition intangibles IFRS requires that, on acquisition, specific intangible assets are identifiedand recognised and then amortised over their useful economic lives. Theseinclude items such as brand names and customer lists, to which value is firstattributed at the time of acquisition. In the year to 31 March 2006, thisamortisation amounted to £37.0m which relates to Experian acquisitionsundertaken since the Transition Date to IFRS of 1 April 2004. The charge for2005 is now £11.6m, reflecting the amortisation of acquired intangible assetswhich had previously been classified as goodwill. Store impairment charges Following clearer IFRS interpretation becoming available, a store impairmentcharge has been taken in Homebase. Opening fixed assets at 1 April 2004 havebeen reduced by £36m, with a resulting fall in the depreciation charge in 2005of £7.6m. There has been a further impairment charge in 2006 of £12.8m, whichhas been excluded from Benchmark PBT. The store impairment charge also triggersthe creation of an onerous lease provision of £12m at 31 March 2004. Additionalonerous lease provisions of £2.4m have now been provided for in the year ended31 March 2005. Exceptional items ----------------------------------------- ------ -----12 months to 31 March 2006 2005 £m £m ----------------------------------------- ------ ----- Profit on disposal of Lewis shares 35.7 23.6 Profit on disposal of Burberry shares 9.7 3.1 Costs incurred relating to the demerger of (4.5) - Burberry Loss on disposal of Wehkamp (19.3) - Loss on sale of other businesses - (30.2) Costs incurred relating to Group demerger (4.1) ------------------------------------------ ------ ----- Total 17.5 (3.5) ----------------------------------------- ------ ----- The only costs treated as exceptional items are those associated with thedisposal or closure of businesses. All other restructuring costs have beencharged against EBIT in the divisions in which they were incurred. Theexceptional items during the year were a profit on the disposal of Lewis andBurberry shares, a loss on the disposal of Wehkamp and various costs relating tothe Burberry and Group demerger projects. Fair value remeasurements An element of the Group's hedges is ineffective under IFRS. Gains or losses onthese arising from market movements are now charged or credited to the incomestatement. In the year to 31 March 2006, this amounted to a charge of £3m (withno comparable credit or charge as the Group had previously elected to deferimplementation of IAS 32 and 39). Pensions The Group's net pension asset at 31 March 2006 was £18m after taking account ofall post-retirement liabilities. In particular, its two Defined Benefit pensionschemes had modest surpluses at 31 March 2006, totalling £58m, reversing theirmodest deficits a year earlier. This improvement came partly as a result of theGroup making a further special contribution of £100m in March 2006 (£76m inMarch 2005). Appendix 1. Restatement of 2005 income statement under IFRS Since GUS restated its results for the year to 31 March 2005 under IFRS in June2005, there has been clearer IFRS interpretation of certain accountingstandards. The table below summarises the impact on the income statement ofthese further restatements. Further details can be found in the notes to thefinancial statements. ------------- -------- ------------ ------------ ----------- -------- 12 months to IFRS as Lease Homebase Goodwill IFRS 31 March 2005 reported adjustment(1) store reclassifi- as £m June impairment cation(3) restated 2005 charge(2) ------------- -------- ------------ ------------ ----------- -------- Argos 305.0 (1.2) 303.8 Homebase 90.3 5.2 95.5 ARG FS 0.2 0.2 -------- ------------ ------------ ----------- -------- Total ARG 395.5 (1.2) 5.2 399.5 Total Experian 317.0 317.0 Central (21.8) (21.8) activities -------- ------------ ------------ ----------- -------- Continuing 690.7 (1.2) 5.2 694.7 operations -------- ------------ ------------ ----------- -------- Discontinued 239.0 239.0 operations -------- ------------ ------------ ----------- -------- Total 929.7 (1.2) 5.2 933.7 Net interest (23.7) (23.7) -------- ------------ ------------ ----------- -------- Benchmark PBT 906.0 (1.2) 5.2 910.0 Amortisation of (4.1) (7.5) (11.6) acquisition intangibles Store - - impairment charges Exceptional (3.5) (3.5) items Fair value - - remeasurements -------- ------------ ------------ ----------- -------- Total 898.4 (1.2) 5.2 (7.5) 894.9 Taxation (250.2) 0.5 (249.7) Equity minority (49.4) (49.4) interests -------- ------------ ------------ ----------- -------- Profit 598.8 (0.7) 5.2 (7.5) 595.8 attributable to equity shareholders ------------- -------- ------------ ------------ ----------- -------- Benchmark EPS 61.5p 62.0p Basic EPS 59.9p 59.6p ------------- -------- ------------ ------------ ----------- -------- (1) 2005 profit has been adjusted as a result of clearer guidance on certain elements of lease accounting, namely the treatment of Guaranteed Rental Uplifts payable on certain leased premises in Argos (2) Reflects lower depreciation charge of £7.6m in Homebase due to £36m store impairment on transition to IFRS at 1 April 2004, partly offset by an onerous lease provision of £2.4m (3) Reclassification of goodwill to acquisition intangibles and resulting amortisation charge 2. Additional information on Experian Reported sales for Experian North America----------------------------------- --------- --------- -------------12 months to 31 March 2006 2005 Underlying $m $m change(1) ----------------------------------- --------- --------- -------------Credit - Information 607 537 13% - Solutions 169 130 15% --------- --------- -------------Total 776 667 14% Marketing - Information 164 160 nc - Solutions 232 192 10% --------- --------- -------------Total 396 352 6% Interactive 617 296 22% --------- --------- ------------- Continuing activities 1,789 1,315 13% Discontinuing activities(2) 3 22 --------- --------- -------------Reported sales 1,792 1,337 ----------------------------------- --------- --------- -------------(1) Excluding corporate acquisitions(2) Discontinuing activities in 2006 will be restated to reflect the closure of MetaReward's incentive marketing websites. See Appendix 3 for details Reported sales for Experian International----------------------------------- --------- --------- -------------12 months to 31 March 2006 2005 Underlying £m £m change(1) ----------------------------------- --------- --------- -------------Credit - Information 173 158 8% - Solutions 206 189 8% --------- --------- -------------Total 379 347 8% Marketing - Information 82 72 5% - Solutions 124 69 13% --------- --------- -------------Total 206 141 9% Outsourcing 143 138 4% Eliminations (6) (6) --------- --------- -------------Continuing activities 722 620 7% Discontinuing activities(2) 1 18 --------- --------- -------------Reported sales 723 638 ----------------------------------- --------- --------- ------------- (1) Excluding acquisitions and at constant exchange rates(2) Discontinuing activities in 2006 will be restated to reflect the phased withdrawal from UK large scale account processing. See Appendix 3 for details 3. Experian continuing activities In the year to 31 March 2006, Experian was analysed between continuing anddiscontinuing activities. Discontinuing activities were NuEdge and Real EstateSolutions in North America and call centres in International. Subsequent to the year-end, a decision was taken to close MetaReward's incentivemarketing websites (2006 sales £39m; EBIT £2.6m). Experian also announced itsphased withdrawal from large scale UK account processing (2006 sales £44m; EBIT£20.1m). Both were included in continuing activities for the year to 31 March2006. Both these businesses will now be classified as discontinuing activities witheffect from 1 April 2006. Future Trading Updates will report sales growth forcontinuing activities only, excluding both businesses. The split of sales and EBIT for continuing activities by half is given below: Sales---------------------------------- ---------------------------------------£m FY 2006 --------------------------------------- First half Second half Full year ---------------------------------- ------------ ----------- --------- North America 442 519 961 International 319 359 678 ------------ ----------- --------- Total continuing activities 761 878 1,639 North America 24 17 41 International 23 22 45 ------------ ----------- --------- Total discontinuing activities 47 39 86 Total reported 808 917 1,725 ---------------------------------- ------------ ----------- --------- EBIT---------------------------------- ---------------------------------------£m FY 2006 --------------------------------------- First half Second half Full year ---------------------------------- ------------ ----------- --------- North America 125.2 137.5 262.7 International 63.2 68.0 131.2 ------------ ----------- --------- Total continuing activities 188.4 205.5 393.9 North America 2.7 (0.1) 2.6 International 9.3 10.9 20.2 ------------ ----------- --------- Total discontinuing activities 12.0 10.8 22.8 Total reported 200.4 216.3 416.7 ---------------------------------- ------------ ----------- --------- 4. Reconciliation of Benchmark PBT to Income Statement ------------------------------------------ ----------- ----------- 12 months to 31 March 2006 2005 £m £m ------------------------------------------- ----------- ----------- Benchmark PBT 828.5 910.0 Include: amortisation of acquisition (37.0) (11.6) intangibles Include: store impairment charges (12.8) - Include: exceptional items relating to continuing activities: - Costs relating to Group demerger (4.1) - - Loss on sale of other businesses - (6.9) ---- ----- (4.1) (6.9) Include: financing fair value remeasurements (2.8) - Include: tax expense on share of profits of (0.8) (1.1) associates Exclude: EBIT of discontinued operations (119.4) (239.0) Exclude: interest income of discontinued (2.6) (3.7) operations ----- -----Reported profit before tax(1) 649.0 647.7 Group tax expense(1) (164.5) (175.5) ----- ----- Profit after tax(1) 484.5 472.2 Include: profit for the period from discontinued operations: EBIT of discontinued operations 119.4 239.0 Interest income of discontinued operations 2.6 3.7 Exceptional items relating to discontinued operations: Net profit on disposal of shares in Lewis 35.7 23.6 Loss on sale of other businesses (14.1) (20.2) Tax expense on discontinued operations (32.9) (73.1) ---- ----- 110.7 173.0 ----- -----Profit for the financial period 595.2 645.2 Equity minority interests (25.6) (49.4) ----- -----Profit attributable to equity shareholders 569.6 595.8 ------------------------------------------ ----------- ----------- (1) As per Group income statement, for continuing operations only GROUP INCOME STATEMENTfor the year ended 31 March 2006 2006 2005Continuing operations: Notes £m £m-------------------------------------- ------ -------- --------Sales 4 7,262 6,663Cost of sales (4,103) (3,879)-------------------------------------- ------ -------- --------Gross profit 3,159 2,784 Net operating expenses (2,505) (2,150)-------------------------------------- ------ -------- --------Operating profit 654 634 -------- --------Interest income 98 102Interest expense (137) (130)Financing fair value remeasurements (3) - -------- --------Net financing costs (42) (28) Share of post tax profits of associates 37 42-------------------------------------- ------ -------- --------Profit before tax 4 649 648 Group tax expense -------- ---------UK (152) (163)-Overseas (13) (13) -------- -------- (165) (176)-------------------------------------- ------ -------- --------Profit after tax for the financial year fromcontinuing operations 484 472 Discontinued operations:Profit for the financial year from discontinuedoperations 7 111 173-------------------------------------- ------ -------- --------Profit for the financial year 595 645-------------------------------------- ------ -------- -------- Profit attributable to: Equity shareholders in the parent company 569 596Minority interests 26 49-------------------------------------- ------ -------- --------Profit for the financial year 595 645-------------------------------------- ------ -------- -------- Earnings per share 9 -Basic 60.2p 59.6p-Diluted 59.2p 58.8p Earnings per share from continuing operations -Basic 51.2p 47.2p-Diluted 50.4p 46.7p Non-GAAP measuresReconciliation of profit before tax to Benchmark PBTProfit before tax 4 649 648exclude: amortisation of acquisition intangibles 5 37 11exclude: exceptional items relating to continuingoperations 5 4 7exclude: store impairment charges 5 13 -exclude: financing fair value remeasurements 5 3 -exclude: tax expense on continuing operations' share of profit of associates 4 1 1include: EBIT of discontinued operations 7 119 239include: net interest of discontinued operations 7 3 4-------------------------------------- ------ -------- --------Benchmark PBT 4 829 910-------------------------------------- ------ -------- -------- Benchmark earnings per share 9-Basic 63.5p 62.0p-Diluted 62.5p 61.2p-------------------------------------- ------ -------- --------Dividend per share (including proposed final dividend) 8 31.5p 29.5p-------------------------------------- ------ -------- -------- GROUP BALANCE SHEETat 31 March 2006------------------------------------ ------------ ------------ 2006 2005 £m £m------------------------------------ ------------ ------------ASSETS Non-current assetsGoodwill 3,068 2,485Other intangible assets 532 313Property, plant and equipment 959 1,041Investment in associates 129 110Deferred tax assets 314 342Retirement benefit assets 18 -Trade and other receivables 51 454Other financial assets 91 8------------------------------------ ------------ ------------ 5,162 4,753------------------------------------ ------------ ------------Current assetsInventories 883 1,017Trade and other receivables 1,051 1,134Current tax assets 119 74Other financial assets 6 31Cash and cash equivalents 221 347------------------------------------ ------------ ------------ 2,280 2,603------------------------------------ ------------ ------------Total assets 7,442 7,356------------------------------------ ------------ ------------ LIABILITIES Non-current liabilitiesTrade and other payables (83) (111)Loans and borrowings (2,067) (1,676)Deferred tax liabilities (201) (164)Retirement benefit obligations - (112)Other financial liabilities (8) ------------------------------------- ------------ ------------ (2,359) (2,063)------------------------------------ ------------ ------------Current liabilitiesTrade and other payables (1,480) (1,600)Loans and borrowings (174) (129)Other financial liabilities (21) -Current tax liabilities (276) (253)------------------------------------ ------------ ------------ (1,951) (1,982)------------------------------------ ------------ ------------Total liabilities (4,310) (4,045)------------------------------------ ------------ ------------ Net assets 3,132 3,311------------------------------------ ------------ ------------ SHAREHOLDERS' EQUITY Share capital 256 254Share premium 97 69Other reserves (240) (246)Retained earnings 3,018 2,978------------------------------------ ------------ ------------Total shareholders' equity 3,131 3,055Minority interests in equity 1 256------------------------------------ ------------ ------------Total equity 3,132 3,311------------------------------------ ------------ ------------ GROUP CASH FLOW STATEMENTfor the year ended 31 March 2006---------------------------------------- -------- ----------- 2006 2005 £m £m---------------------------------------- -------- -----------Continuing operations:Cash flows from operating activitiesOperating profit 654 634Loss on sale of businesses - 7Loss on sale of property, plant and equipment - 1Depreciation and amortisation 295 241Credit in respect of share incentive schemes 30 37Change in working capital (85) (124)Interest paid (63) (60)Interest received 30 26Dividends received from associates 27 26Tax paid (108) (170)---------------------------------------- -------- -----------Net cash inflow from operating activities 780 618---------------------------------------- -------- ----------- Continuing operations:Cash flows from investing activitiesPurchase of property, plant and equipment (261) (258)Sale of property, plant and equipment 6 18Purchase of intangible assets (112) (109)Sale of intangible assets 2 5Purchase of non-current investments (28) (5)Acquisition of subsidiaries, net of cash acquired (819) (176)Disposal of subsidiaries 360 106---------------------------------------- -------- -----------Net cash flows used in investing activities (852) (419)---------------------------------------- -------- ----------- Continuing operations:Cash flows from financing activitiesPurchase of treasury and ESOP shares (36) (222)Issue of Ordinary shares 29 35Sale of own shares 20 16New borrowings 375 473Repayment of borrowings (35) (355)Capital element of finance lease rental payments (3) (5)Equity dividends paid (284) (281)---------------------------------------- -------- -----------Net cash flows used in financing activities 66 (339)---------------------------------------- -------- ----------- ---------------------------------------- -------- -----------Net decrease in cash and cash equivalents - continuingoperations (6) (140)Net decrease in cash and cash equivalents - discontinuedoperations (173) (30)---------------------------------------- -------- -----------Net decrease in cash and cash equivalents (179) (170)---------------------------------------- -------- ----------- Movement in cash and cash equivalents from continuingoperationsCash and cash equivalents at 1 April - continuing 84 224operationsNet decrease in cash and cash equivalents (6) (140)Exchange and other movements 2 ----------------------------------------- -------- -----------Cash and cash equivalents at the end of the financial year- continuing operations 80 84---------------------------------------- -------- ----------- Non-GAAP measuresReconciliation of net decrease in cash and cash equivalents tomovement in net debtNet debt at 1 April - as reported (1,427) (1,200)Cash and cash equivalents at 1 April - discontinuedoperations (173) (203)Other financial assets at 1 April - discontinuedoperations (31) (31)------------------------------------- ----------- -----------Net debt at 1 April - continuing operations (1,631) (1,434)Net decrease in cash and cash equivalents (6) (140)Increase in debt (337) (113)Exchange and other movements - 56------------------------------------- ----------- -----------Net debt at end of year - continuing operations (1,974) (1,631)------------------------------------- ----------- ----------- GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the year ended 31 March 2006------------------------------------------ --------- --------- 2006 2005 £m £m------------------------------------------ --------- ---------Net income/(expense) recognised directly in equityCash flow hedges (2) -Net investment hedges (9) -Fair value gains in the year 2 6Actuarial gains/(losses) in respect of defined benefitpension schemes 7 (5)Currency translation differences 14 3Recycled cumulative exchange loss in respect of divestments 3 3Tax credit in respect of items taken directly to equity 5 7--------------------------------------- ----- --------- ---------Net income recognised directly in equity 20 14Profit for the financial year 595 645--------------------------------------- ----- --------- ---------Net income recognised for the year 615 659Cumulative adjustment for the implementation of IAS 39 12 ---------------------------------------- ----- --------- ---------Total income recognised for the year 627 659--------------------------------------- ----- --------- ---------Net income recognised for the year attributable to:Equity shareholders in the parent company 586 610Minority interests 29 49--------------------------------------- ----- --------- ---------Net income recognised for the year 615 659--------------------------------------- ----- --------- --------- Cumulative adjustment for the implementation of IAS 39 attributable to:Equity shareholders in the parent company 10Minority interests 2--------------------------------------- ----- ---------Total 12--------------------------------------- ----- --------- GROUP RECONCILIATION OF MOVEMENTS IN EQUITYfor the year ended 31 March 2006------------------------------------------- ----- ------ ------ Notes 2006 2005 £m £m------------------------------------------- ----- ------ ------Total equity at 1 April 3,311 3,019Cumulative adjustment for the implementation of IAS 39 11 12 -------------------------------------------- ----- ------ ------Equity as restated at 1 April 3,323 3,019Profit for the financial year 595 645Net income recognised directly in equity for the financialyear 20 14Employee share option schemes:- value of employee services 35 35- proceeds from shares issued 30 35(Decrease)/increase in minority interests arising due tocorporate transactions (277) 62Shares cancelled on purchase - (31)Purchase of treasury and ESOP shares (16) (176)Equity dividends paid during the year 8 (284) (281)Dividend in specie relating to the demerger of BurberryGroup plc 8 (287) -Dividends paid to minority shareholders (7) (11)------------------------------------------- ----- ------ ------Total equity at end of financial year 3,132 3,311------------------------------------------- ----- ------ ------ Attributable to:Equity shareholders in the parent company 3,131 3,055Minority interests 1 256------------------------------------------- ----- ------ ------Total equity at end of financial year 3,132 3,311------------------------------------------- ----- ------ ------ NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 March 2006 1. Basis of preparation The financial information set out in this announcement does not constitute theGroup's statutory financial statements for the years ended 31 March 2006 or 31March 2005 but is derived from the 31 March 2006 financial statements. The GroupAnnual Report and Financial Statements for 2005, which were prepared under UKGAAP, have been delivered to the Registrar of Companies and the Group AnnualReport and Financial Statements for 2006, prepared under IFRS, will be deliveredto the Registrar of Companies in due course. The auditors have reported on thosefinancial statements and have given an unqualified report which does not containa statement under Section 237(2) or 237(3) of the Companies Act 1985. The comparative information presented in this document has been restated forIFRS except for the adoption of IAS 32 and IAS 39 where implementation wasdeferred until 1 April 2005. A reconciliation between UK GAAP and IFRS for theyear ended 31 March 2005 is provided in note 13 below. For the year ended 31 March 2006, the Group has prepared its financialstatements under International Financial Reporting Standards (IFRS) adopted foruse in the European Union. These are those Standards, subsequent amendments,future Standards and related interpretations issued and adopted by theInternational Accounting Standards Board (IASB) that have been endorsed by theEuropean Commission at the year end. This preliminary announcement has been prepared in accordance with the ListingRules of the UK Listing Authority, and with IFRS compliant accounting policiesthat have been followed in preparing the Group's financial statements for theyear ended 31 March 2006. The IFRS compliant accounting policies were publishedin full on 14 June 2005 and are available on the Group's website, atwww.gusplc.com/gus/investors/ifrs. In developing its accounting policies, theGroup anticipated that the amendment to IAS 19 "Employee Benefits - ActuarialGains and Losses, Group Plans and Disclosure" would be endorsed for use in theEU, which it was. As permitted by IFRS 1 "First-time Adoption of International Financial ReportingStandards", the Group elected to defer implementation of IAS 32 "FinancialInstruments: Disclosure and Presentation" and IAS 39 "Financial Instruments:Recognition and Measurement" until the year commencing on 1 April 2005, makingan adjustment to opening equity. The adjustment required as at 1 April 2005 isset out in note 11 below. The Group financial statements incorporate the results of the Company and itssubsidiary undertakings for the financial year to 31 March 2006 with theexception of Homebase where the Group includes its results for the financialyear to the end of February. This is done to facilitate comparability to avoiddistortions related to the timing of Easter. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 1. Basis of preparation (continued) Use of Non-GAAP measuresGUS has identified certain measures that it believes provide additional usefulinformation on the performance of the Group. This approach is comparable withthat previously used but as the measures are not defined under IFRS they may notbe directly comparable with other companies' adjusted measures. The non-GAAPmeasures are not intended to be a substitute for, or superior to, any IFRSmeasures of performance. The following are the Non-GAAP measures identified by the Group: Benchmark Profit Before Tax (Benchmark PBT)Benchmark PBT is defined as profit before amortisation of acquisitionintangibles, store impairment charges, exceptional items, financing fair valueremeasurements and taxation. It includes the Group's share of associates'pre-tax profit and the pre-tax profits or losses of discontinued operations upto the date of disposal or closure. Earnings Before Interest and Tax (EBIT)EBIT is defined as profit before amortisation of acquisition intangibles, storeimpairment charges, exceptional items, net financing costs and taxation andincludes the Group's share of pre-tax profits of associates. Benchmark Earnings per Share (Benchmark EPS)Benchmark EPS represents Benchmark PBT less attributable taxation and minorityinterests divided by the weighted average number of shares in issue, and isdisclosed to indicate the underlying profitability of the Group. Exceptional itemsThe separate reporting of exceptional items that are non-recurring costs givesan indication of the underlying performance of the Group. The only costs treatedas exceptional items are those associated with the disposal, demerger or closureof businesses. All other restructuring costs are charged against EBIT in thedivisions in which they are incurred. Net debtNet debt is calculated as total debt less cash and cash equivalents. Total debtincludes loans and borrowings (and the fair value of derivatives hedging loansand borrowings), overdrafts and obligations under finance leases. 2. Taxation The effective rate of tax is 25.4% (2005: 27.2%) based on the profit before taxof £649m (2005: £648m). The effective rate of tax based on Benchmark PBT of£829m (2005: £910m) is 25.6% (2005: 26.3%). 3. Foreign currency The principal exchange rates used were as Average Closingfollows: --------------- --------------- 2006 2005 2006 2005------------------------------ -------- -------- -------- --------US dollar 1.79 1.85 1.74 1.88Euro 1.46 1.47 1.44 1.45------------------------------ -------- -------- -------- -------- Assets and liabilities of overseas undertakings are translated into sterling atthe rates of exchange ruling at the balance sheet date and the income statementis translated into sterling at average rates of exchange. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 4. Segmental information (primary segments) Year ended 31 March 2006 Continuing operations ---------------------------------------------------------------------------- Argos Homebase Financial ARG Experian Central Total Discontinued Total Services Total Activities continuing operations Group £m £m £m £m £m £m £m £m £m----------------- ----- ------ ------ ------ ------ ------ ------ ------- -----SalesTotal sales 3,893 1,562 93 5,548 1,725 - 7,273 653 7,926Inter-segmentsales(1) - - - - (11) - (11) - (11)----------------- ----- ------ ------ ------ ------ ------ ------ ------- -----Sales toexternalcustomers 3,893 1,562 93 5,548 1,714 - 7,262 653 7,915----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- ProfitEBIT(2) 291 52 6 349 417 (20) 746 119 865Net interest - - - - - (39) (39) 3 (36)----------------- ----- ------ ------ ------ ------ ------ ------ ------- -----Benchmark PBT 291 52 6 349 417 (59) 707 122 829----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- Exceptionalitems - - - - - (4) (4) 22 18Amortisationof acquisitionintangibles - - - - (37) - (37) - (37)Storeimpairmentcharges - (13) - (13) - - (13) - (13)Financing fairvalueremeasurements - - - - - (3) (3) - (3)----------------- ----- ------ ------ ------ ------ ------ ------ ------- -----Exceptionaland otheradjustmentitems (note 5) - (13) - (13) (37) (7) (57) 22 (35)----------------- ----- ------ ------ ------ ------ ------ ------ ------- -----Tax expense onshare ofprofit ofassociates - - - - (1) - (1) - (1)----------------- ----- ------ ------ ------ ------ ------ ------ ------- -----Profit beforetax 291 39 6 336 379 (66) 649 144 793----------------- ----- ------ ------ ------ ------ ------Group taxexpense (165) (33) (198)----------------- ----- ------ ------ ------ ------ ------ ------ ------- -----Profit for thefinancial year 484 111 595----------------- ----- ------ ------ ------ ------ ------ ------ ------- ----- (1) Inter-segment sales represents sales between Experian and Financial Services.(2) EBIT as presented for Experian includes its share of pre-tax profits of associates. Discontinued operations comprise the businesses Burberry, Lewis and Wehkampwhich were all individual segments. Additional information on these segments isshown in note 7 below. Year ended 31 March 2005 Continuing operations ---------------------------------------------------------------------------- Argos Homebase Financial ARG Experian Central Total Discontinued Total Services Total Activities continuing operations Group £m £m £m £m £m £m £m £m £m ----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ SalesTotal sales 3,652 1,580 81 5,313 1,362 - 6,675 1,124 7,799Inter-segmentsales(1) - - - - (12) - (12) - (12)----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------Sales toexternalcustomers 3,652 1,580 81 5,313 1,350 - 6,663 1,124 7,787----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Profit EBIT(2) 304 96 - 400 317 (22) 695 239 934Net interest - - - - - (28) (28) 4 (24)----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Benchmark PBT 304 96 - 400 317 (50) 667 243 910----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ Exceptionalitems - - - - (7) - (7) 3 (4)Amortisationof acquisitionintangibles - - - - (11) - (11) - (11)----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------Exceptionaland otheradjustmentitems (note 5) - - - - (18) - (18) 3 (15)----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------Tax expense onshare ofprofit ofassociates - - - - (1) - (1) - (1)----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------Profit beforetax 304 96 - 400 298 (50) 648 246 894----------------- ----- ------ ------ ------ ------ ------Group taxexpense (176) (73) (249)----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------Profit for thefinancial year 472 173 645----------------- ----- ------ ------ ------ ------ ------ ------ ------- ------ (1) Inter-segment sales represents sales between Experian and Financial Services.(2) EBIT as presented for Experian includes its share of pre-tax profits of associates. Discontinued operations comprise the businesses Burberry, Lewis and Wehkampwhich were all individual segments. Additional information on these segments isshown in note 7 below. The segmental information at 31 March 2005 has beenadjusted from that previously published as a result of clearer IFRSinterpretation becoming available. Note 13 below explains these adjustments. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 5. Exceptional and other adjustment items--------------------------------- ----------------- -------- 2006 2005 £m £m--------------------------------- ----------------- --------Exceptional items Continuing operations:Costs incurred relating to the planned Group demerger (4) -Loss on sale of businesses - (7)--------------------------------- ----------------- -------- (4) (7)--------------------------------- ----------------- --------Discontinued operations (note 7):Profit on disposal of Lewis Group 36 24Loss on disposal of Wehkamp (19) -Profit on disposal of shares in Burberry 10 3Costs incurred relating to the demerger of Burberry (5) -Loss on disposal of other discontinued operations - (24)--------------------------------- ----------------- -------- 22 3--------------------------------- ----------------- --------Total exceptional items 18 (4)--------------------------------- ----------------- -------- Other adjustment items Continuing operations:Amortisation of acquisition intangibles (37) (11)Store impairment charges (13) -Financing fair value remeasurements (3) ---------------------------------- ----------------- --------Total other adjustment items (53) (11)--------------------------------- ----------------- -------- Total exceptional and other adjustment items (35) (15)--------------------------------- ----------------- -------- Exceptional itemsThe profit on the disposal of Lewis Group relates to the placing of GUS'remaining 50% stake in May 2005. The profit in the prior year relates to theInitial Public Offering of Lewis Group in September 2004. The loss on disposalof Wehkamp relates to the sale of the business in January 2006. The income in respect of Burberry shares in both years included that arisingfrom the exercise or lapse of awards under executive share schemes, togetherwith that arising on the sale of certain shares at the time of the demerger inDecember 2005. The costs incurred relating to the demerger of Burberry aretreated as an exceptional item. The loss on sale of continuing businesses in theprior year was principally in respect of the sale by Experian of two smallnon-core operations. Other exceptional items were costs in relation to the Group demerger of £4m. Theprior year loss on disposal of other discontinued operations is explained innote 7 below. Other adjustment itemsIFRS requires that, on acquisition, specific intangible assets are identifiedand recognised separately from goodwill and then amortised over their usefuleconomic lives. These include items such as brand names and customer lists, towhich value is first attributed at the time of acquisition. As permitted byIFRS, acquisitions prior to 1 April 2004 have not been restated. As it did withgoodwill under UK GAAP, the Group has excluded amortisation of these acquisitionintangibles from its definition of Benchmark PBT because such a charge is basedon uncertain judgements about their value and economic life. As a result of clearer IFRS interpretation on impairment reviews, Argos RetailGroup now perform store impairment tests on a store by store basis and this hasled to an impairment charge at Homebase of £13m in 2006 (2005: nil). An element of the Group's derivatives is ineffective under IFRS. Gains or losseson these derivatives arising from market movements are credited or charged tofinancing fair value remeasurements in the income statement. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 6. Acquisitions, demerger of Burberry and disposals(a) Acquisitions for the year ended 31 March 2006 On 5 May 2005 the Group acquired 100% of the issued share capital ofLowerMyBills.com, a leading online generator of mortgage and other loanapplication leads in the US. On 14 December 2005 the Group acquired 100% of theissued share capital of PriceGrabber.com, a leading provider of onlinecomparison shopping services in the US. During the year ended 31 March 2006, the Group made several other acquisitions,none of which are considered individually material to the Group. Most of thesewere made by Experian, including three US-based affiliate credit bureaux,ClassesUSA, Baker Hill and Vente in North America, and ClarityBlue and FootFallin the UK. Also in the UK, Argos acquired 33 former Index stores and the Indexbrand from Littlewoods Limited. In aggregate, it is estimated that the acquired businesses contributed revenuesof £261m and profit after tax of £16m to the Group for the periods from theirrespective acquisition dates to 31 March 2006. If these acquisitions had beencompleted on 1 April 2005, Group revenues from the acquired businesses for theyear have been estimated at £398m. Due to the acquired entities using differentaccounting policies prior to acquisition, previously reporting to differentperiod ends and, in certain cases, preparing financial information on a cashbasis prior to acquisition, it has been impracticable to estimate the impact onGroup profit had they been owned from 1 April 2005. Details of the net assets acquired and the provisional goodwill are as follows: LowerMyBills.com PriceGrabber.com Other acquisitions Total---------------- ----------------------- ----------------------- ----------------------- ------------------------- Book value Fair value Book value Fair value Book value Fair value Book value Fair value £m £m £m £m £m £m £m £m---------------- ------- ------- ------- ------- ------- ------- ------- -------Intangibleassets - 44 - 81 1 95 1 220Property,plant andequipment 1 1 1 1 6 6 8 8Deferred taxassets 8 - - - 10 - 18 -Inventories - - - - 1 2 1 2Trade andotherreceivables 10 10 4 4 27 24 41 38Cash, net ofoverdrafts 4 4 1 1 (5) (5) - -Otherfinancialassets 1 1 1 1 6 6 8 8Trade andother payables (14) (14) (4) (4) (28) (34) (46) (52)Deferred taxliabilities - (10) - - - (12) - (22)---------------- ------- ------- ------- ------- ------- ------- ------- ------- 10 36 3 84 18 82 31 202 ------- ------- ------- -------Goodwill 177 193 309 679---------------- ------- ------- ------- ------- ------- ------- ------- ------- 213 277 391 881---------------- ------- ------- ------- ------- ------- ------- ------- -------Satisfied by:Cash 181 276 355 812Acquisitionexpenses 6 1 4 11Deferredconsideration 26 - 32 58---------------- ------- ------- ------- ------- ------- ------- ------- ------- 213 277 391 881---------------- ------- ------- ------- ------- ------- ------- ------- ------- In the Group cash flow statement £4m of acquisitions made by Burberry have beenshown within the cash flows of discontinued operations. The fair values set out above contain certain provisional amounts which will befinalised no later than one year after the date of acquisition. Goodwillrepresents the synergies, assembled workforce and future growth potential of thebusinesses acquired. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 6. Acquisitions, demerger of Burberry and disposals (continued)(b) Demerger of Burberry Group plc At an Extraordinary General Meeting on 13 December 2005, the shareholders of GUSplc approved the demerger of the Group's remaining 65% interest in BurberryGroup plc. On demerger, the Company declared a dividend in specie, which wassatisfied by the Group's shares in Burberry Group plc. The dividend in specierepresents the Group's share of the net assets of Burberry Group plc. The Group's share of the net assets of Burberry Group plc at the date ofdemerger was as follows: £m------------------------------------------ --------------Intangible assets 134Property, plant and equipment 162Deferred tax assets 16Inventories 134Trade and other receivables 110Other financial assets 4Cash and cash equivalents 97Trade and other payables (176)Current tax payable (19)Deferred tax liabilities (18)Equity minority interests (157)------------------------------------------ --------------Group's share of net assets of Burberry Group plc on demerger 287------------------------------------------ --------------The costs associated with the Burberry demerger of £5m were charged againstdiscontinued operations in the Group income statement. (c) Disposal of subsidiaries for the year ended 31 March 2006 Details of the subsidiaries disposed of during the financial year are given innote 7. The net assets disposed of and the consideration received are asfollows: Lewis Group Wehkamp Total £m £m £m---------------------------------- ---------- --------- ---------Intangible assets - 2 2Property, plant and equipment 12 14 26Deferred tax assets - 6 6Inventories 14 19 33Trade and other receivables 168 378 546Other assets 35 4 39Cash and cash equivalents 14 - 14Trade and other payables (20) (172) (192)Retirement benefit obligations (4) (21) (25)Other financial liabilities (15) - (15)Current tax liabilities (12) - (12)Equity minority interests (91) - (91)---------------------------------- ---------- --------- ---------Net assets disposed 101 230 331 Net proceeds received 142 220 362Costs (2) (9) (11)Recycled cumulative exchange loss (3) - (3)---------------------------------- ---------- --------- ---------Profit/(loss) on disposal 36 (19) 17---------------------------------- ---------- --------- --------- Cash flow from disposals Proceeds received 142 220 362Costs paid (2) (5) (7)----------------------------------- --------- --------- ---------Net cash inflow 140 215 355----------------------------------- --------- --------- --------- In the Group cash flow statement, £5m of proceeds in respect of the sale ofBurberry shares (net of demerger costs) are included in the cash flows ondisposal of subsidiaries. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 7. Discontinued operationsThe results for discontinued operations were as follows:------------------------------------- -------------- -------- 2006 2005 £m £m------------------------------------- -------------- --------Sales:Burberry 472 715Wehkamp 161 222Lewis Group 20 187------------------------------------- -------------- -------- 653 1,124------------------------------------- -------------- -------- EBIT:Burberry 94 161Wehkamp 20 23Lewis Group 5 55------------------------------------- -------------- --------Total EBIT 119 239Exceptional item - profit on Initial Public Offering ofLewis Group - 24Net interest income 3 4------------------------------------- -------------- --------Profit before tax of discontinued operations 122 267Tax charge in respect of pre-tax profit (33) (73)------------------------------------- -------------- --------Profit after tax of discontinued operations 89 194------------------------------------- -------------- --------Gains/(losses) on disposal of discontinued operations:Gain on Burberry shares 10 3Costs incurred relating to the demerger of Burberry (5) -Loss on disposal of Wehkamp (19) -Profit on disposal of Lewis Group 36 -Home shopping and Reality businesses - (24)------------------------------------- -------------- --------Gains/(losses) on disposal 22 (21)Tax charge in respect of gains/(losses) on disposal - -------------------------------------- -------------- --------Profit/(loss) after tax on disposal 22 (21)------------------------------------- -------------- --------Profit for the financial year from discontinued 111 173operations -------------- --------------------------------------------- On 19 May 2005, the Group announced the sale of its remaining 50% interest inLewis Group Limited and on 13 December 2005 divested its remaining 65% interestin Burberry Group plc. On 19 January 2006, the Group sold Wehkamp, the leadinghome shopping brand in the Netherlands. As a result, these operations have beenreclassified as discontinued. The disposal of the home shopping and Reality businesses took place in May 2003,and provision for the loss on disposal was made in the financial statements forthe year ended 31 March 2003, with a further charge relating to professionalfees and other costs associated with the transaction being made the followingyear. Following agreement of the completion statements and the settlement ofcertain warranty claims, a further charge was made in the year ended 31 March2005 reflecting full and final settlement of all claims that have arisen fromthe disposal of these businesses. The related interest bearing loan of £140m wasrepaid in full in April 2006 by March UK Limited, being the element of deferredconsideration in respect of this disposal. The cash flows attributable to discontinued operations comprise:---------------------------------------- -------- ---------- 2006 2005 £m £m---------------------------------------- -------- ----------From operating activities (43) 55From investing activities (122) (74)From financing activities (8) (11)---------------------------------------- -------- ----------Net decrease in cash and cash equivalents in discontinuedoperations (173) (30)---------------------------------------- -------- ---------- NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 8. Dividend-------------------------------------- ------ ------ ------ ------ 2006 2006 2005 2005 pence pence per per share £m share £m-------------------------------------- ------ ------ ------ ------Amounts recognised and paid asdistributions to equity holders duringthe yearInterim 9.6 82 9.0 90Final 20.5 202 19.0 191-------------------------------------- ------ ------ ------ ------Ordinary dividends paid on equityshares 30.1 284 28.0 281-------------------------------------- ------ ------ ------ ------ -------------------------------------- ------ ------ ------ ------Dividend in specie relating to thedemerger of Burberry Group plc - 287 - --------------------------------------- ------ ------ ------ ------ -------------------------------------- ------ ------ ------ ------Proposed final dividend for theyear ended 31 March 21.9 187 20.5 203-------------------------------------- ------ ------ ------ ------The proposed final dividend is not included as a liability in these financialstatements and will be paid on 4 August 2006 to shareholders on the Register atthe close of business on 7 July 2006. 9. Basic and diluted earnings per share The calculation of basic earnings per share is calculated by dividing theearnings attributable to ordinary shareholders of the Company by the weightedaverage number of Ordinary shares in issue during the year (excluding own sharesheld in Treasury and in the ESOP trust, which are treated as cancelled). The calculation of diluted earnings per share reflects the potential dilutiveeffect of employee share incentive schemes. The earnings figures used in thecalculations are unchanged for diluted earnings per share. During the year the Group demerged its remaining interest in Burberry. This wasfollowed by a share consolidation which reduced the number of shares in issue to849m. As a result of the share consolidation the earnings per share numbersshown below are comparable in 2005 and 2006. ----------------------------------------- --------- ---------Basic earnings per share: 2006 2005 pence pence----------------------------------------- --------- ---------Continuing operations 51.2 47.2Discontinued operations 9.0 12.4----------------------------------------- --------- ---------Continuing and discontinued operations 60.2 59.6Add back of exceptional and other adjustment items, net of tax (note 5) 3.3 1.6Adjustment between effective and actual rates of taxation* - 0.8----------------------------------------- --------- ---------Benchmark earnings per share 63.5 62.0----------------------------------------- --------- --------- Diluted earnings per share:----------------------------------------- --------- ---------Continuing operations 50.4 46.7Discontinued operations 8.8 12.1----------------------------------------- --------- ---------Continuing and discontinued operations 59.2 58.8----------------------------------------- --------- ---------Benchmark earnings per share 62.5 61.2----------------------------------------- --------- --------- NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 9. Basic and diluted earnings per share (continued) ------------------------------------------ ------- ---------Earnings 2006 2005 £m £m------------------------------------------ ------- ---------Continuing operations 484 472Discontinued operations 85 124------------------------------------------ ------- ---------Continuing and discontinued operations 569 596Add back of exceptional and other adjustment items, net of tax(note 5) 32 16Adjustment between effective and actual rates of taxation* - 8------------------------------------------ ------- ---------Benchmark earnings 601 620------------------------------------------ ------- --------- ------------------------------------------ ------- --------- 2006 2005 m m------------------------------------------ ------- ---------Weighted average number of Ordinary shares in issue duringthe year 946.7 1,000.1Dilutive effect of share incentive awards 15.0 12.6------------------------------------------ ------- ---------Diluted weighted average number of Ordinary shares in issueduring the year 961.7 1,012.7------------------------------------------ ------- --------- * The tax charge used in the calculation of the effective tax rate is based onBenchmark PBT. 10. Analysis of Group net debt---------------------------------- ---------------- --------- 2006 2005 £m £m---------------------------------- ---------------- ---------Cash and cash equivalents (net of overdrafts) 80 259Available for sale assets - current - 31Derivatives hedging loans and borrowings 46 -Debt due within one year (29) (35)Finance leases (5) (8)Debt due after more than one year (2,066) (1,674)---------------------------------- ---------------- ---------Net debt at end of year (1,974) (1,427)---------------------------------- ---------------- --------- Continuing operations (1,974) (1,631)Discontinued operations - 204---------------------------------- ---------------- ---------Net debt at end of year (1,974) (1,427)---------------------------------- ---------------- --------- Net debt at 31 March 2006 is stated after deducting £46m in respect of the fairvalue of derivatives related to the Group's borrowings. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 11. Transitional adjustment on first time adoption of IAS 32 and IAS 39 As permitted by IFRS 1 "First-time Adoption of International Financial ReportingStandards", the Group elected to defer implementation of IAS 32 "FinancialInstruments: Disclosure and Presentation" and IAS 39 "Financial Instruments:Recognition and Measurement" until the year commencing on 1 April 2005, with anappropriate adjustment recognised in opening equity. The principal impact of IAS 32 and IAS 39 on the Group's financial statementsrelates to the recognition of derivative financial instruments at fair value.Financial assets and liabilities which arise on derivatives that do not qualifyfor hedge accounting are held on the balance sheet at fair value, with thechanges in value reflected through the income statement. The accountingtreatment of derivatives which qualify for hedge accounting depends on how theyare designated. The different accounting treatments are explained below: Fair value hedgesThe Group uses interest rate and cross currency swaps to hedge the exposure tointerest rates and currency movements of its loans and borrowings. Under UKGAAP, interest amounts payable or receivable in respect of derivative financialinstruments held for hedging interest rate and currency movements on loans andborrowings were recognised as adjustments to net interest over the period of thederivative contract. Derivative financial instruments were not recognised atfair value in the balance sheet. Under IAS 39, derivative financial instruments which meet the 'fair value'hedging requirements are recognised in the balance sheet at fair value, withcorresponding fair value movements recognised in the income statement. Cash flow hedgesThe Group hedges the foreign currency exposure on inventory purchases. Under UKGAAP, foreign currency derivatives were held off balance sheet. Under IAS 39,derivative financial instruments which qualify for cash flow hedging arerecognised on the balance sheet at fair value, with corresponding fair valuechanges deferred in equity. Net investment hedgesThe gains or losses on the translation of currency borrowings and foreignexchange contracts used to hedge the Group's net investments in foreign entitiesare recognised in equity. Provided the hedging requirements of IAS 39 are metand the hedging relationship is fully effective, this treatment does not differfrom UK GAAP. The effect of adopting IAS 32 and IAS 39 on the balance sheet as at 1 April 2005is as follows:--------------------------------- -------- --------- -------- 31 March Transition 1 April 2005 adjustment 2005 £m £m £m--------------------------------- -------- --------- --------Current assetsOther financial assets 31 36 67--------------------------------- -------- --------- -------- 31 36 67--------------------------------- -------- --------- --------Current liabilitiesTrade and other payables (1,600) (3) (1,603)Other financial liabilities - (5) (5)--------------------------------- -------- --------- -------- (1,600) (8) (1,608)--------------------------------- -------- --------- --------Non-current liabilitiesLoans and borrowings (1,676) (11) (1,687)Deferred tax liabilities (164) (5) (169)--------------------------------- -------- --------- -------- (1,840) (16) (1,856)--------------------------------- -------- --------- --------Other assets and liabilities 6,720 - 6,720--------------------------------- -------- --------- -------- Total equity 3,311 12 3,323--------------------------------- -------- --------- -------- NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 12. Retirement benefit assets/obligations The Group operates pension plans in a number of countries around the world andprovides post-retirement healthcare insurance benefits to certain formeremployees. Pension arrangements for UK employees are operated principally through twodefined benefit schemes (the GUS Pension Scheme and the Argos Pension Scheme)and one defined contribution scheme (the GUS Money Purchase Plan). In othercountries, benefits are determined in accordance with local practice andregulations and funding is provided accordingly. The GUS and Argos defined benefit schemes have rules which specify the benefitsto be paid and are financed accordingly with assets being held in independentlyadministered funds. A full actuarial funding valuation of these schemes iscarried out every three years with interim reviews in the intervening years. Thelatest full actuarial funding valuation of each of the schemes was carried outas at 31 March 2004 by independent, qualified actuaries, Watson Wyatt Limited,using the projected unit method. Principal assumptionsThe valuations used for IAS 19 have been based on the most recent actuarialfunding valuations and have been updated by Watson Wyatt Limited to take accountof the requirements of IAS 19 in order to assess the liabilities of the schemesat 31 March 2006. The principal actuarial assumptions used to calculate thepresent value of the UK defined benefit obligations were as follows: 2006 2005 % %------------------------------------- ---------- ----------Rate of inflation 2.9 2.9Rate of increases for salaries 4.7 4.7Rate of increase for pensions in payment and deferred 2.9 2.9pensionsRate of increase for medical costs 6.5 6.5Discount rate 4.9 5.4------------------------------------- ---------- ----------The main financial assumption is the real discount rate, i.e. the excess of thediscount rate over the rate of inflation. If this assumption increased/decreasedby 0.1%, the UK defined benefit obligation would decrease/increase byapproximately £23m and the annual UK current service cost would decrease/increase by approximately £1m. The IAS 19 valuation assumes that mortality will be in line with standard tablesfor males and females. An allowance is also made for anticipated futureimprovements in life expectancy, by assuming that the probability of deathoccurring at each age will decrease by 0.25% each year. Overall, the averageexpectation of life on retirement in normal health is assumed to be:- 18.9 years at age 65 for a male currently aged 65- 22.0 years at age 65 for a female currently aged 65- 19.6 years at age 65 for a male currently aged 50- 22.9 years at age 65 for a female currently aged 50 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 12. Retirement benefit assets/obligations (continued) Movement in the defined benefit assets/(obligations) during the year The movement in the defined benefit assets/(obligations) during the year was asfollows: UK Overseas Total --------------- -------------- ------------- 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m------------------------------ ------ ------ ------ ------ ------ ------Obligations in schemes atbeginning of the year (101) (155) (11) (23) (112) (178)Current service cost (36) (32) (3) (4) (39) (36)Interest on schemes' liabilities (49) (46) (2) (8) (51) (54)Expected return on schemes' assets 56 47 2 8 58 55Settlement gain in respect ofunfunded liabilities of homeshopping and Reality businesses - 4 - - - 4Actuarial gain/(loss) recognised 25 (19) (18) 1 7 (18)Disposal of subsidiaries - - 25 - 25 -Contributions paid 128 100 2 15 130 115------------------------------ ------ ------ ------ ------ ------ ------Surplus/(deficit) in schemes atend of the year 23 (101) (5) (11) 18 (112)------------------------------ ------ ------ ------ ------ ------ ------ Contributions include a special contribution of £100m paid into the ArgosPension Scheme in March 2006 and special contributions paid into the ArgosPension Scheme (£50m) and the GUS Pension Scheme (£26m) in March 2005. 13. Summary of the impact of IFRS on the comparative periods Detailed indicative disclosures in respect of the effect of IFRS on the reportedposition and results for the year ended 31 March 2005 were issued on 14 June2005, and are available on the Company website at www.gusplc.com/gus/investors/ifrs. A summary of the impact of IFRS on certain key reported figures is set out below. Since that date, Burberry and Wehkamp have been reclassified as discontinued operations (note 7), and some further adjustments have been made as a result of clearer IFRS interpretation becoming available. The effect of these changes on the IFRS financial statements is shown below. Adjustments to comparative information issued on 14 June 2005As set out in note 5, the results for the year ended 31 March 2005 have beenadjusted as a result of clearer guidance now available with regard to cashgenerating units. It has been the policy of Argos Retail Group to use ageographic clustering approach when looking at whether store assets should beimpaired, but emerging practice requires impairment reviews to be performed on astore by store basis. As a result of this change, there is an impairment chargeat Homebase of £36m, relating to the balance sheet at 31 March 2004 ontransition to IFRS. There was no impairment charge in the year ended 31 March2005. The store impairment charge also triggers the creation of an onerous leaseprovision of £12m at 31 March 2004. Additional onerous lease provisions of £2mwere provided for in the year ended 31 March 2005. The results for the year ended 31 March 2005 have also been adjusted as a resultof clearer guidance now available on the accounting treatment of 'GuaranteedRental Uplifts' payable on certain leased premises. Such uplifts are nowrecognised on a straight-line basis over the length of the lease. The effect hasbeen to reduce the retained earnings reserve and net assets by £2m at 31 March2005 (2004: £1m) and to reduce profit for the year ended 31 March 2005 by £1m. Other adjustments to the 2005 restatement to IFRS published in June 2005 relateto taxation and acquisition intangibles. The taxation liabilities of £26m (2004:£26m) relate to share schemes and properties acquired with corporateacquisitions. £8m of acquisition intangibles have been reclassified fromgoodwill and these intangibles have now been fully amortised with £8m charged tothe income statement in 2005. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 13. Summary of the impact of IFRS on the comparative periods (continued) Group income statementReported sales are reduced due to the different presentation required under IFRSin respect of discontinued operations. This restatement is set out in thesegmental analysis at note 4 above. IFRS adjustments in respect of other keyitems within the Group income statement are as follows: Year ended 31 March 2005 ----------------------------------------- Note Operating Profit before Profit for the profit tax financial year £m £m £m------------------------------ ------ --------- --------- ---------As reportedunder UK GAAP 680 693 423 IFRS reclassifications: --------- --------- ---------Lewis Group a (55) (79) -Other discontinuedoperations a - 27 -Tax expense ofassociates - (1) -Minorityinterests b - - 49 --------- --------- --------- (55) (53) 49 IFRS remeasurements: --------- --------- ---------Share basedpayments c (7) (7) (7)Cataloguecosts d (1) (1) (1)Reversal of goodwillamortisation e 207 207 207Amortisationof acquisitionintangibles e (4) (4) (4)Interest earned onpension schemeassets f - 2 2Deferred taxcharges g - - (29)Other 3 6 8 --------- --------- --------- 198 203 176------------------------------ ------ --------- --------- ---------As reported under IFRS on 14 823 843 648June 2005 Further adjustments: Reclassification of (164) (169) -Burberry (note 7) Reclassification of (22) (23) -Wehkamp (note 7) Adjustment for depreciation 8 8 8on store impairment charges Adjustment for onerous leases (2) (2) (2)Adjustment for further (8) (8) (8)amortisation of acquisition intangibles Adjustment for guaranteed rental uplifts (1) (1) (1)------------------------------ ------ --------- --------- ---------As reported under IFRS, 634 648 645as restated ------------------------------ ------ --------- --------- --------- NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 13. Summary of the impact of IFRS on the comparative periods (continued)---------------------------------- ------- ---------- ----------Group balance sheet Note 31 March 2005 1 April 2004 £m £m---------------------------------- ------- ---------- ---------- Capital employed as reported under UKGAAP 3,070 2,971 ---------- ----------Pension liabilities f (226) (227)Catalogue costs d (15) (14)Lease incentives h (34) (34)Amortisation of acquisition intangibles e (4) -Reversal of UK GAAP goodwill e 207 -amortisation charged after transition Goodwill impairment on transition (3) (3)Deferred taxation g 186 210Dividends i 203 191Other - (5) ---------- ---------- 314 118---------------------------------- ------- ---------- ----------As reported under IFRS on 14 June 2005 3,384 3,089---------------------------------- ------- ---------- ---------- Further adjustments: Adjustment for store impairment charges,net of depreciation (23) (31)Adjustment for amortisation ofacquisition intangibles (8) -Adjustment for recognition of taxationliabilities (26) (26)Adjustment for onerous leases (14) (12)Adjustment for guaranteed rental uplifts (2) (1)---------------------------------- ------- ---------- ----------As reported under IFRS, as restated 3,311 3,019---------------------------------- ------- ---------- ---------- Notes a Under IFRS, the Group income statement down to profit after tax excludes the results of discontinued operations. b The concept of a group differs under IFRS and minority interests are regarded as equity holders of the Group. Thus rather than deducting a minority interest in arriving at profit for the financial year, the profit for the year is instead attributed to the different types of equity holders. c IFRS requires that the fair value of all share-based payments is charged to the income statement over the vesting period. Depending on the type of scheme concerned, the recognition, or timing, or both, of the charges to profit may differ compared with UK GAAP. d Under UK GAAP, catalogue costs were expensed over the period in which the catalogues generated revenue. These costs are expensed as incurred under IFRS. e Goodwill amortisation charged under UK GAAP after the transition date, 1 April 2004, is reversed in the IFRS financial statements. Goodwill will be subject to an annual impairment review. IFRS also requires that, on acquisition, specific intangible assets are identified and then amortised over their useful economic lives. These include items such as brand names and customer lists, to which value is first attributed at the time of acquisition. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 March 2006 13. Summary of the impact of IFRS on the comparative periods (continued) f Under IFRS, the pension charge principally comprises a current service cost, charged to operating profit, and a financing item reported within net interest. Under IAS 19, GUS has adopted the option that requires the full actuarial value of the surplus or deficit of pension schemes and other post-retirement benefits to be shown on the balance sheet. Any movements in the pension assets and liabilities arising from actuarial gains and losses are recognised immediately in full through the SORIE. g Under UK GAAP, tax relief on goodwill written off to reserves in respect of pre-1998 US acquisitions was credited each year against the tax charge in the income statement. Under IFRS, a deferred tax asset is set up for this future relief at the time of the acquisition; as the tax relief is received, it is credited against this deferred tax asset. This asset is the most significant tax related adjusting item on the transition from UK GAAP to IFRS. h Under UK GAAP, property lease incentives were recognised over the period to the first rent review. Under IFRS, these are recognised over the full term of the lease. i Under IFRS, a dividend that is proposed but not yet authorised is not included as a liability in the financial statements. 14. GUS plc website The maintenance and integrity of the GUS plc website, www.gusplc.com, is theresponsibility of the Company's directors. The work carried out by the auditorsdoes not involve consideration of these matters and, accordingly, the auditorsaccept no responsibility for any changes that may have occurred to thepreliminary announcement since it was initially presented on the website.Legislation in the United Kingdom governing the preparation and dissemination offinancial information may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange