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Waterstones must sustain three years of consecutive profit-making before the company can “stand on its own two feet” and not rely on the “charity” of its owner, the chain’s m.d. James Daunt has said.
The retailer’s annual financial results for the year to 25th April 2015 were filed recently at Companies House, revealing that despite achieving a £16.5m swing in operating profit (from an operating loss of £12.2m in the previous results to a profit of £4.3m this time around), the company’s final balance was £1.9m in the red after tax. In the results filed in 2014, the retailer was down £18.5m. Sales at the chain for the 12 months to April 2015 were up a marginal 1% year on year, to £378.0m, through its UK branches.
While Daunt said he hoped Waterstones would make a profit after tax in the 2016 results, he told The Bookseller the chain had to sustain at least three years of year-on-year hikes in operating profits before it did not need to rely on the generosity of its owner, Russian investor Alexander Mamut’s Cyprus-based Lynwood Investments, which has pumped £58.7m into the company since 2011. Daunt said: “We still need to become a much more stable business. It is currently reliant on its owner for its continued existence and that is not at all what we aspire to be in the position of. We should not be reliant on someone’s charity. We need to get our business into a position where it can be independent of that.” Pressed on the detail, Daunt said: “We need to improve our profits by £10m–£15m for the next three years before we have got a business that can stand on its own two feet.”
He added: “The great thing is, it is quite clear now that we can become a business that can support itself and become independent. We are deeply grateful to our owner for his statement of faith in the business so far, but our aim is to become independent of that.”
Mamut bought Waterstones from the HMV Group for £53.5m in 2011. The following year he invested £29.5m in the chain, the year after that £20.9m, and in the most recent annual results he invested £8.3m; including the cost of the initial acquisition, this brings Mamut’s level of investment in Waterstones to £112.2m. The money has been used to refurbish some of the estate’s stores, relaunch its website and open, to date, Café Ws in 28 of its premises.
The latest accounts reveal that Waterstones achieved marginal sales growth despite contending with a sharp plummet in sales of Kindle e-readers, “which came crashing down to zero”, according to Daunt. In books, academic titles were hardest hit and in related product, sales of calendars—once a “huge” part of the related product business—also fell sharply, thought to be a consequence of more people using calendars on digital devices instead. However, sales of children’s books grew, fiction sales “stabilised” and the retailer saw an uplift in popular non-fiction titles.
Last week it was also revealed that the Waterstones Piccadilly building, which houses Waterstones’ head office, had been sold to Italian pension fund CBRE Global Investors and Fabrica, which advises Italian fund Cicerone, for £92m. However, Waterstones has a lease on the store until 2034 and recently concluded negotiations on a new five- year rent rate.
Daunt said: “The sale of the building doesn’t really mean anything for us. What it does mean is what we already know—that property values have gone through the roof. The risk for us is that the rents will follow them. We are quite a long way away from having to consider moving our headquarters and the Waterstones Piccadilly shop. We have just had a rent negotiation and it is five years before we have the next one.”