WH Smith ends campaign against book discounting: Profits improve 13% to pounds 125m after exceptional costs

WH SMITH, the retailing and newspaper distribution group, has signalled the end of its campaign to prevent abolition of the Net Book Agreement, which prevents retailers selling books below published prices, writes Heather Connon.

Sir Malcolm Field, chief executive, said it was up to publishers to decide whether to fight the Office of Fair Trading, which last week asked the Restrictive Practices Court to review the agreement.

Sir Malcolm said the group was confident it could prosper, whatever happened to the NBA, and pointed to its experience of video retailing, where price competition is fierce, and book retailing in the US, where retailers are already free to cut prices, as evidence of its ability to thrive in competitive markets.

Jeremy Hardie, chairman, admitted, however, that margins could decline if the agreement were abandoned. 'The odds are we would increase our market share as we believe Net Book Agreement abolition would be bad for small existing retailers. The effect on profit is not so clear.'

The group owns Waterstone's and also sells books through its 545 WH Smith retail outlets. In the year to 28 May, book sales in Britain accounted for pounds 390.3m of its pounds 2.8bn turnover.

The comments came as the group announced pounds 83.4m profit before tax for the year, down from pounds 113.8m previously. The figures were, however, distorted by a pounds 36.6m charge for restructuring at Do It All, the joint venture with Boots, and pounds 6m for cuts in management jobs at its WH Smith stores. The group said profits, excluding these exceptional costs, were 13 per cent higher at pounds 124.8m.

Profits from the British retail businesses rose from pounds 86m to pounds 93.8m, before exceptionals. That reflected a return to profits at Our Price - demonstrated in a 7.2 per cent rise in music sales - as well as a 15 per cent increase in video sales. Losses at Do It All were pounds 10.5m compared with pounds 14.3m.

In the US, profits rose 7.3 per cent to pounds 11.8m, although margins were affected by refurbishment of Wall record stores and the storms in the north-east.

Distribution profits were pounds 37.7m, up 13.6 per cent, and Sir Malcolm said that newspaper price wars had not affected margins.

Court must decide, page 17

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Bottom Line, page 34