WH Smith confirms separation plans as sales slide 3%

Retail group WH Smith confirmed plans today to separate its news distribution arm from its retail business.

The announcement came as the newsagent and bookseller blamed the tough trading environment for a drop in like-for-like sales of 3% to £1.3 billion for the six months to February 28.

Pre-tax profits were up 4% to £71 million, in line with market expectations.

Last month, reports suggested WH Smith was looking to hive off its news distribution arm - possibly through a stock market flotation.

Chief executive Kate Swann said a separation of the businesses would enable the news distribution arm to "benefit from increased focus and to pursue their strategies to maximum effect."

She added: "Overall, we continue to be cautious about consumer spending. However, we remain confident in the outcome for the full year."

City analysts expect full-year profits to come in at £79 million, up from £73 million last year.

Most of WH Smith's profits come from the vital Christmas period.

WH Smith said that in the six weeks to April 8 like-for-like retail sales were down 3% while news distribution sales were up 1% but trading was affected by the timing of Easter this year.

Ms Swann denied she was hanging up the For Sale sign and said the split would likely come through a demerger of the businesses.

However, she said suitable offers would be considered.

"If somebody wants to put a large amount of money on the table, we will take that seriously," she said.

She added women's monthly magazine sales had been particularly hit while stores at rail stations suffered after the London bomb attacks.

Travel retail like-for-like sales were up 3% during the six-month period while high street retail sales were down 6% and news distribution sales dropped 2%.

Shares lifted 7% today.

WH Smith last contemplated selling off its distribution arm in 2001, but the £215 million deal collapsed after would-be buyer ABN Amro Private Equity looked to negotiate a lower price. Venture capitalists Electra and 3i were also interested parties at that time.

Analysts are split on whether a sale of the division would make good sense for WH Smith, with some saying it provided a steady source of income at a time when its 542 high street stores were under more pressure than ever. It also has 127 branches in airports and railway stations.

In 2004, WH Smith it sold off its publishing arm Hodder Headline to focus on its UK retailing interests following its withdrawal from retail in the United States and Australia.

The break-up followed a failed takeover campaign by private equity Permira, which walked away over pension issues.