WH Smith chief rules out early break-up plans

W H Smith's chairman, Jeremy Hardie, ruled out a break-up of the struggling retail group yesterday, saying the appointment of a new chief executive remained the priority. Speaking as W H Smith announced a rebound in full- year underlying profits to pounds 124m, Mr Hardie said the company would stick to the strategy developed by Bill Cockburn, whose shock decision to quit as chief executive in June plunged the group into fresh turmoil.

"We have no plans for a break-up," he said. "A year ago we had a strategic review and disposed of some assets such as Do It All and business supplies. The strategy we developed then is being implemented now. What you don't do is thrash about changing things."

Mr Hardie admitted that he could not dismiss a break-up entirely as the incoming chief executive may view the situation differently. However, he said none of the candidates interviewed for the post had expressed a different view as to the company's best method of rebuilding shareholder value.

Mr Hardie, who has been spending all his time at the company even though he is supposed to be part-time chairman, disappointed the City by giving precious little fresh information about the chief executive search. "It is only two months since Bill Cockburn left and if you are going to do a professional job it takes longer than that. You don't find a chief executive by looking at the small ads overnight." He said the interviews had been completed but did not rule out additional candidates coming forward.

At present the leading external candidate is Stuart Rose, the former Burton director. The three internal candidates are Alan Giles, John Hancock, and Richard Handover.

Keith Hamill, the group's finance director who was considered a front- runner prior to his decision to pull out at the weekend, said he was happy to work under someone else and had no plans to quit. "I'm quite happy here. I'm not roving about talking to headhunters."

He denied he had canvassed support for a break-up but admitted that he had been "quite loud" about the company being under-valued when the shares fell to 350p.

Some analysts say the group could be worth more than its current market value of just over pounds 1bn if parts of the group such as the Waterstones books division and Virgin Our Price, were sold.

Mr Cockburn, who joins BT as head of its UK operations in October, will not return to Smith's after taking August as holiday. However, he telephoned the company yesterday saying he would waive his September salary, worth around pounds 35,000.

WH Smith's pre-tax profits of pounds 124m for the year to 31 May followed the previous year's pounds 194m loss, which was struck after heavy exceptional items.

However, there were fresh problems in the main WH Smith retail business, where the group was forced to make a pounds 6m provision for pounds 20m of excess stock. The company said the unsold books, music and videos were a result of over-buying and a failure to mark poor sellers down soon enough.

Mr Hardie said he was confident that the business could be turned around. "There is a big market for a mainstream store providing music, books and so on, regardless of the inroads the specialist retailers and supermarkets are making."

There was also a pounds 73m pension write-off caused by the recent changes to Advance Corporation Tax in the Budget.

Like-for-like sales at the core business rose by just 1.5 per cent last year and by 2 per cent in current trading.

In the rest of the business, Waterstones remained the star performer, increasing profits from pounds 15m to pounds 20m. But profits at Virgin Our Price fell from pounds 18m to pounds 14m due to a weak roster of music releases.

Group sales were up 4 per cent at pounds 2.75bn and the dividend was maintained at 15.65p. The shares closed 9p higher at 376.5p.

Comment, page 17

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