Bottom Line: Smith strong on promise

IF Jeremy Hardie, chairman of WH Smith, had followed the example of his predecessor, Sir Simon Hornby, his tie would have been a flamboyant orange. Mr Hardie is rather less subtle: he, not his ties, did the shouting about the 'excellent' results, the strength of its brands and the clarity of its strategy.

There are enough other signs of change at Smith's to suggest that Mr Hardie's influence is more than cosmetic. Cutting a layer of store management hardly fits with its paternalistic image, but it must make sense in an era when computers and suppliers should be doing most of a retailer's stock work. Sir Simon would surely never have allowed the group to renounce its opposition to abolition of the net book agreement.

There is even a new vision statement that gives greater emphasis to shareholders' returns - although finance director John Napier's rather baffling set of profit-to-inventory ratios and gross profit analysis left the impression it was struggling to prove it is achieving that.

The City was still impressed enough to mark the shares up 13.5p to 482.5p but even so it leaves them at about a 15 per cent discount to the sector, based on forecasts of between pounds 135m and pounds 140m.

That may seem rather miserly, given that its underlying profits rose by 13 per cent, it has wrested Our Price back into profit, increased margins in all the key businesses and squeezed out yet more productivity gains.

But that was not enough to counter those who point out that rivals like Boots are achieving far higher margins in UK retail and have far stronger cash flow, despite capital spending at a similar two-times depreciation. And it does not have a threat to profits like the abolition of the net book agreement hanging over its head.

Mr Hardie should not get too despondent - such shortcomings, after all, mean he has ample scope for improvement. If he lives up to yesterday's promise, it could be worth going along for the ride.