A good result, but Swann can do better

WHSmith should be awarded nine out of 10 for margin management and cost control: the alchemy of generating a profits increase in another year of like-for-like sales declines.

But there is plenty to concern potential investors. The high street stores for a start: if you think of visiting one, might I suggest dark glasses since most are a riot of overly loud visual merchandising.

But if you habitually wear very dark glasses and a labrador is your constant companion, think again. A store visit is more than likely to mean a stumble. Aisles are more like canyons of stock. Clutter, particularly around the tills, and more so in the Christmas run-up, makes them as customer unfriendly as a pound store. Presumably most punters visit WHSmith because they cannot find the goods in anywhere more pleasant.

Some shops are beginning to show signs of under-investment. No surprise then that the group’s fixed asset line continues to shrink. This also reflects a shift in the group’s revenue base towards the travel division, where stores are typically held on short leases.

Recent openings have been in hospitals, motorway service stations, and now work places, as well as the more traditional railway stations and airports. Spot the common thread - WHSmith’s management likes locations where there is a strong potential for distress purchases, and where the customer cannot defect to competing retailers.

But a five-year lease in such a place - admittedly generating high margins until the next review - does not provide as secure an earnings stream for a shareholder as an investment in a high street freehold with a successful retail format.

Eight out of 10 for the books performance, but Richard and Judy must be squirming on their sofa at the way in which WHSmith has acquired their ‘book club’, and turned it into a tool for screwing more marketing cash from publishers.

Having underperformed in online retailing from its promising start, WHSmith looks now to be having a reasonable shot at developing an e-books business.

But it is handicapped by not being able to sell to the most common platforms - the Kindle and Mr Jobs’ gizmos. The typical WHSmith’s book buyer is only a light book consumer, and one wonders whether they will be in the vanguard of acquiring e-readers and e-books.

Meanwhile openings have at last started to be made overseas but, with the group’s cash generation, one wonders why this has not been a touch more aggressive. Fear of having to grant senior staff too many exeats?

And two out of 10 for the new phase of the management incentive plan. The boardroom must clearly be hoping for a hefty dose of inflation to afflict the UK. 80% of the awards are derived from nominal earnings per share growth. Nice work if you can get it.

So the head girl has signed on for a few more terms. But as for coming up with a convincing investment case: must try harder.