Hachette UK sales hit by VAT change

Hachette UK sales hit by VAT change

Sales at Hachette UK fell 4% year-on-year for the first quarter of 2015, partially due to an “unfavourable” VAT effect on e-books, parent company Lagardere has said.

Hachette UK said it had “steady sales in print and digital” in the first quarter of the year, with its performance “broadly in line with expectations in what is a relatively quiet quarter for sales”.

Hachette UK made the comments as its parent company Lagardere released its results for the first quarter of 2015.

Lagardere Publishing, which includes Hachette companies around the world, had sales of €421m, down 2.2% on the year before.

In the UK, sales were down 4% because of a “less intensive new release schedule” than in the first quarter of 2014, said Lagardere.

The firm also said sales were down because of a “dip in sales of e-books, related to the lower number of bestsellers, and an unfavourable VAT effect." Following an European Commission ruling, from 1st January 2015, VAT on e-books has been charged by the rate of the country where the customer is based, rather country where the distributor is located. In the UK, the VAT rate applied to e-books is 20%. 

Previously companies like Amazon and Apple have sold e-books from their European Luxembourg headquarters, which applies just a 3% VAT rate. 

However, a survey by The Bookseller shortly after the VAT law change came in suggested prices had remained stable from their pre-2015 levels. 

In the UK the digital market "seems to be stabilising”, said Lagardere, with digital sales accounting for 26% of total sales, down slightly from 28% in the first quarter of 2014.

E-books accounted for 36% of total adult trade sales in the first quarter of 2015 in the UK, compared to 40% in the same period last year.

Lagardere said the “transition to digital remains isolated to the English-speaking countries and the general literature segment”.

In the US, the company noted sales down 12.3% due to a less-intensive new release schedule compared with last year’s first quarter, and a downturn in sales of e-books. The company attributed the latter to two factors: "Q1 2014 was still benefitting from a very high activity level with Amazon, before the trade problems with the latter arose. In addition, the agreement signed with Amazon in November 2014 was implemented beginning in March. This agreement, which maintains the agency contract model (prices set by the publisher), is resulting in the gradual disappearance of e-book discounts, which caused a slight loss in volumes at the end of the quarter."

Overall Lagardere, which owns services and media businesses, had sales of €1.572m, up 6% from €1,526m in the first quarter of 2014.