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Sustainability

Environment

We recognise that we have responsibilities for managing the impact of our business on the environment. Some of these impacts relate directly to our operations - the most significant relating to:

Energy & Emissions

We have continued to reduce energy consumption across the Group in line with our targets. Since September 2004, we have delivered a 4.3% reduction in consumption.

We have continued our regular programme of energy audits, looking at sites with high levels of energy consumption to identify the reasons for these high consumption levels. These audits are followed up with a corrective action plan implement the necessary improvement.

Raising staff awareness of energy efficiency remains a focus. This year we have created an ‘Energy and Environment’ section on our intranet to provide staff with the information on how they can help us save energy. Resources include a ‘Virtual Shop’, a fun tool for store teams to explore and see if they can find all of energy saving opportunities in typical store

Transport

In the last few years we have made good progress in reducing the distance travelled and fuel used in getting product into store. In 2006 we reduced diesel usage by 16.2% from 2004 levels. During the same two year period we have also managed to reduce distance travelled by 16.7%.

Savings last year were primarily due to the implementation of our ideal delivery frequency schedule. This takes account of how full a vehicle is before making a delivery rather than simply basing it on the daily schedule. This year, further reductions have been achieved through the introduction of double deck trailers on trunk routes and a restructuring of our distribution network. This was only completed in the second half of the financial year so further benefits should be seen in the next 12 months.

Waste

Waste can be broken down into many different categories but for us there are two main areas to consider: waste from our stores and distribution centres, for example, cardboard boxes, plastic shrink wrap and damaged stock, and general waste from our offices, such as office paper, food, redundant IT equipment, toner cartridges and newspapers.

Overall we have managed to increase our recycling rate to 16% of our total waste arisings. This has been achieved through reductions in the amount of transit packaging being used on our products in the first place and through increased recycling in our stores. We have increased the recycling rate at our central sites to over two thirds of total waste arisings.

We have been working hard to increase the store recycling rate, overcoming some particular issues related to space and location. The amount of waste at each is small and dispersed around hundreds of sites around the country. Some of these are in stations, airports and shopping centres where we rely on the waste management services provided by our landlord.

We have a centralised waste management contract covering 370 of our High Street stores and during the year we have extended our cardboard recycling scheme to cover 153 of these sites. This has resulted in the recycling of 1,100 tonnes of cardboard.

Packaging

With increasing pressure on both businesses and consumers to reduce waste, we are keen to find opportunities to reduce product packaging at source and to make our packaging easier to dispose of. As well as placing a burden on the environment, excessive packaging also increases costs for our business, with an over-packaged product costing more to transport and taking longer to unpack.

Each year we are required to report to the Environment Agency figures for the amount of packaging we handle and ensure that a set percentage of this material has been recycled. This percentage is known as our packaging obligation. We have managed to reverse the trend of previous years with a fall in our obligation for the 2006 calendar year.

Encouraging Our Customers to Help the Environment

Waste Electrical and Electronic Equipment (WEEE)

Each year in the UK, people throw away over 1.2 million tonnes of electrical and electronic waste. That’s the equivalent of 150 thousand double-decker buses.

Electrical products are often full of nasty chemicals and can have a harmful effect on natural habitat, wildlife and also human health. It is very important that these products are either recycled or otherwise disposed of safely.

All new electrical products now carry a symbol of a crossed-out wheelie bin. This means it should be disposed of carefully, and not thrown out with general household waste.

At WHSmith, we are helping to upgrade local Civic Amenity sites across the UK where you can take your old electrical items for a safe, free-of-charge disposal. We cannot dispose of your old products in-store.

You can find out the location of your nearest WEEE-compliant Civic Amenity site by entering your post code at www.recycle-more.co.uk.

Christmas Card Recycling

We are involved in Woodland Trust’s Christmas Card Recycling campaign – now in its 10th year.

Throughout January customers were able to recycle cards in WHSmith stores throughout England, Wales and Scotland. A staggering 82 million cards were recycled by the scheme in 2006, an increase on the previous year of more than 40%. This meant that 1,600 tonnes of cardboard that might otherwise have ended up in landfill were recycled. By way of a thank you, the Woodland Trust has dedicated a stand of trees to WHSmith at Warnage Wood near Swindon.

Toner Cartridge Recycling

We continue to ‘complete the loop’ with our own brand toner cartridges. Customers buying a new printer cartridge can send off their old one to be recycled using a prepaid envelope available in store.

This cartridge is then refurbished, refilled and tested by our supplier before making its way back on to the shelf as our own brand cartridge. In addition, Tommy’s, the baby charity, receives donations based on the number of units recycled.

Product Sourcing & Suppliers

Forest Sourcing

WHSmith offers a wide range of wood and paper products that come from forests located all over the world. It is our ultimate objective that all virgin (i.e. non-recycled) material used in our products be from known, legal, well-managed and credibly certified forests. The issues are complex and it will take us time to get to this position. As a minimum we expect our suppliers to know where forest material used in their products comes from and to be able to provide evidence that it has been legally harvested.

We continue to be members of the WWF UK’s Forest Trade Network (FTN). Members have committed to tracing timber and paper products back to the forest source and report this annually to the FTN.

Each year we contact our largest suppliers of paper and wood-based products requesting information on every forest-based product that they supplied to us in the previous twelve months. We have developed guidance documents to help them understand the risks around forest sourcing and what we are looking for in terms of sound forestry sourcing policies. The report helps us to identify the risks in our supply chain, notably timber from illegal sources, and also highlights those suppliers making good progress with forest sourcing, perhaps providing us with recycled or FSC-certified material, which we can in turn highlight to our customers.

In 2006 we increased the coverage of our report from 71% to 78% of the total volume of own-brand paper and wood based products sold in our stores. Furthermore, material coming from recycled sources and certified* forests rose from 30% to 32% of the total. Our 2006 report was audited by an independent third party appointed by the WWF FTN. In commenting on WHSmith’s commitment in this area the auditors noted that there was “commitment at senior management level”, and a “proactive approach to providing information and training to buyers and suppliers”. They also recognised the value of our inclusion of forest sourcing requirements when we are tendering contracts with suppliers.

* Certified forests are managed in accordance with the requirements of specific certification bodies setting out the steps that must be taken to ensure the long-term sustainability of the forest. The certification schemes our suppliers use include the Forest Stewardship Council (FSC) scheme, Pan-European Forest Certification (PEFC) scheme and Sustainable Forestry Initiative (SFI). The approach taken by each certification scheme varies. We encourage suppliers to move towards certification under the FSC scheme, which is recognised by WWF as an indicator of a well-managed forest.

Ethical Trading

As with most other UK retailers, a significant number of our products are now made by suppliers based in the Far East. We are committed to ensuring standards are maintained right across our supply chain and it is our objective that all suppliers should meet the standards set out in our Supplier Code of Conduct. We will actively support our suppliers in making improvements, recognising that this will be a gradual process.

We have been members of the Ethical Trading Initiative (ETI) for several years. The ETI is an alliance of companies, non-governmental organisations (NGOs) and trade unions working together to promote and improve corporate codes of practice covering the supply chain. We participate in the ETI’s China Working Group, which provides a forum for us to work with other retailers to learn and share our experiences from one of our key supplier countries.

We have been assessing labour standards in our own-brand Asian suppliers for several years. We have appointed a specialist WHSmith audit team within our Far East sourcing office. This is enabling us to build closer relationships with our suppliers, giving us greater visibility of the risks and increasing our capacity to influence improvement.

The audit team is responsible for monitoring supplier performance, making regular assessments of compliance with our Code of Conduct.

Significantly, the appointment of this dedicated resource also increases our capacity to engage with our key suppliers to encourage improvement in labour standards. One of the audit team’s key objectives is to build strong relationships with these companies and to help them to understand how improvements in labour standards can benefit both the individual workers and the business as a whole. If we can help factory management to appreciate the benefits of improved labour standards, we hope that this will make them more willing to work with us to deliver improvements.

Closer to home, our UK Compliance Manager has overall responsibility for maintaining standards in UK own brand suppliers. Many of our UK suppliers also source components from around the world and it is important that they too have systems in place to maintain standards.

Case study: Improving worker welfare

In south-east China, where many of our supplier factories are located, there is currently a labour shortage which makes it more important than ever for factory management to look after their staff and build a sense of loyalty. Our audit team has been working with one supplier facing just this problem.

A key element of our regular factory audits is a series of interviews with workers. At the factory in question, it became clear through these interviews that workers shared one concern: the quality of food in the canteen. From reviewing minutes of worker meetings it was clear that staff were unhappy with the food and that this had been the case for some time.

There seemed to be an opportunity to make a material difference to worker welfare through simple changes to the food quality and we discussed this with the factory owner. We suggested that the management conduct a survey regarding the quality and price of food. Within a month, the survey had been completed and 70% of the employees had taken part. It showed that only 11% of the workers were satisfied with what the canteen provided and 69% were willing to pay a little more for better quality food.

The owner responded to the survey results by increasing the budget and improving standards. Feedback suggests that workers are now satisfied with the catering and feel that the management value their opinions and take their welfare seriously.

Engaging suppliers and buyers

As our main interface with suppliers it is important that our buyers have a good understanding of these issues and what we expect of our suppliers. We have followed up on last year’s buyer training programme by incorporating ethical trading and forest sourcing within buyers’ personal objectives.

During the year we held supplier workshops in the UK to raise awareness of our ethical trading and forest sourcing requirements. In this way we spoke directly with around 30 key suppliers, developing their understanding of our requirements, outlining the business case for action and explaining how they can put systems in place. We are following up these sessions with more detailed engagement as well as planning further workshops for own-brand suppliers in the Far East this year.

We have also provided our suppliers of paper and wood-based product with specific guidance to explore in detail the forestry issues in some key countries including China, Russia and Finland. In addition we provided individual feedback on their responses to this year’s annual forestry survey.

For more information about WHSmith’s Corporate Responsibility programme please visit www.whsmithplc.com/cr.