WH Smith plunges £135m into the red

WH Smith shocked the City today with the worst results in its 212-year history.

The high street chain plunged £135 million into the red in the year to the end of August, far worse than the most pessimistic City forecasts.

The dire results raise fresh questions about whether one of Britain's most familiar retailing names has any future as an independent company.

It has faced increasingly tough competition in all its major markets, particularly from the supermarkets, and has been criticised for its tired and dated format.

Kate Swann, the £475,000-a-year chief executive, conceded that WH Smith has had "a poor year" with a disastrous Christmas followed by "unacceptable trading" this year. She also admitted there was no immediate sign of a recovery with sales in the core UK shop chain down two per cent since the end of the financial year. She added the firm expected "to face tough competition in our core markets this Christmas".

Ms Swann was appointed in November to turn around the company after years of struggle. WH Smith, founded in 1792, has about 550 stores in Britain, making it the country's biggest magazine and book retailer.

It has come under intense competition in recent years from supermarkets such as Tesco, where popular books and DVDs have been heavily discounted. Its stationery range is also being undercut by competitors. Although 10 million people shop in WH Smith, the average spend per visit is only £3.

Retail experts say that the shop's format has outlived its purpose and that only shock treatment and a radical makeover can save it from a slide into retail oblivion.

Ms Swann, who stands to make up to £2.5 million if she can restore the company's fortunes, has slashed the cost base and sold off non-core businesses such as its US operations and its publishing arm.

She also announced today that the dividend is being slashed from 19p to 12p, saving £23 million.

Underlying pre-tax profits for the year fell from £102 million to £67 million, but there were one-off charges of more than £200 million.

The company also announced that it is pouring £120 million into its pension fund, which has a £200 million short-fall. It is also returning £207 million of cash to shareholders. Both payments are being funded from money raised by disposals.