WH Smith slashes dividend after posting £135m loss

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The Independent Online

WH Smith yesterday predicted it was in for a tough Christmas as it sank to a £135m annual loss and slashed its dividend.

WH Smith yesterday predicted it was in for a tough Christmas as it sank to a £135m annual loss and slashed its dividend.

The retailer, which is struggling to find its raison d'être, insisted it would not chase sales again over its key trading period as it did last year to disastrous effect.

Kate Swann, who started her job as chief executive with a profits warning in January, said: "Sales growth over Christmas will be pretty challenging but you will see margin growth." She promised not to repeat last year's confusing promotions, which baffled customers and destroyed margins.

The group, which came close to being taken private by the venture capitalists Permira earlier this year, revealed the cost of the abortive bid process was £11m.

That figure, though, was swallowed up among the £200m of exceptional charges it unveiled, in what was one of its worst years in more than two centuries of trading. The charges, which covered old stock, losses on selling businesses and the cost of axing head office jobs, turned pre-tax profits of £52m last year into losses of £135m.

Ms Swann yesterday warned it would take three years to get the retailer back on its feet, insisting: "I think the business is absolutely turnroundable." She added: "I'm not into promising something I can't deliver. We have 550 stores in relatively bad shape and it will take time to get them right. It's really a three-to-five year job." She could receive a £4m windfall if she succeeds.

Since taking the helm Ms Swann has sold off the rest of the group's international businesses and its publishing division, Hodder Headline, to focus on turning around its core UK high street estate. She has also tackled the group's £200m pension deficit, which has shrunk to £50m following a cash injection, and is returning £207m to shareholders later this month.

Profits from its 544 high street stores slumped 66 per cent to £25m, reflecting the failed tenure of its former chief executive, Richard Handover, who became chairman when Ms Swann joined. Net margins halved to 3 per cent as costs spiralled and more was spent on new systems and marketing. Its 129-strong travel retail arm fared better, growing profits by 11 per cent to £21m, as did its news distribution division, which reported a 10 per cent rise in profits to £35m.

Ms Swann believes the high street future hinges on concentrating on its core strengths of books, stationery and cards. "It's about getting a grip back on the business and starting to work out how to tackle some of the strategic issues we have."

Matthew McEachran, a retail analyst at Investec Securities, said: "It's about small steps to stabilise the business. She will make some progress but the business is up against it."

The group said like-for-like sales in the past six weeks were 2 per cent down across its high street estate, but 4 per cent up in its travel retail arm. Underlying profits, excluding exceptionals, fell 34 per cent to £67m, in line with expectations. UK retail sales fell 1 per cent to £1.45bn. The group slashed its final dividend from 13p to 8p.

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