Bloomsbury, the publisher, is pinning its hopes on the seventh and final Harry Potter book stemming a steep decline in trading after the company’s annual pretax profits dived by 74.2 per cent.

The group, which has published all the Harry Potter novels since the launch in 1997, said that profits for the year to December 31, 2006, fell to £5.2 million, compared with £20.1 million in 2005 when Harry Potter and the Half-Blood Prince was released.

Turnover also declined by 31.5 per cent to £74.7 million. Shares in Bloomsbury fell to 185¼p from 191½p yesterday. The results were in line with a profits warning that Bloomsbury issued in December, when it blamed a tough preChristmas sales environment as well as difficulties selling the rights to third parties on many of its titles, including reference books.

Bloomsbury will release the final instalment in JK Rowling’s hugely successful series, which so far has sold 325 million copies worldwide, when it launches Harry Potter and the Deathly Hallows in July.

While the new book will lift profits at Bloomsbury, Richard Menzies-Gow, an analyst at Dresdner Kleinwort, said that in recent years publishers had faced pressure from large supermarket chains that sell hard-back editions at low prices. Customers who may have waited for traditionally cheaper paper-back copies now buy hardbacks.

“The last Harry Potter book sold a huge number of hardbacks because, with supermarkets selling it at £8, there was no need to wait,” he said.

The children’s books division at Bloomsbury suffered a fall in revenues of 60.3 per cent to £27.3 million. Its adult publishing group reported an 18.9 per cent rise in turnover and reference titles increased sales by 16.6 per cent to £14.7 million.

Bloomsbury said that it had made an encouraging start to 2007 and was hoping to expand the business through acquisition. The company has a £24.3 million cash pile and no debt, allowing it to borrow if it finds the right target.

The last big acquisition the company completed was A&C Black, which it bought for more than £16 million and gave it access to the Schott’s Original Miscellany series, which analysts said had been the only title that Bloomsbury has published of late to bolster revenues in years when it does not release a Harry Potter title.

Bloomsbury may seek to increase its American business, where turnover during 2006 increased by 36.1 per cent to £15 million compared to Britain, where sales fell by 41.8 per cent to £53.8 million.

The company said that it has increased investment into future books to £30.7 million on a previous £22.4 million. This year, it will publish a number of new titles, including a new novel from Khaled Hosseini, author of the award-winning The Kite Runner.

Bloomsbury will maintain its dividend at 300p, giving a final payout of 366p, compared to 360p last year.

Analysis by Dan Sabbagh

Bloomsbury is not the only company that makes a key part of its profits from the Harry Potter phenomenon. Each of the six titles has sold between 3 million and 4.5 million copies so far, creating a small industry that book publishers will miss when JK Rowling puts down her pen.

In 2006, a year without a new Harry Potter title, Bloomsbury figures show a drop of £41.6 million in sales and £20.7 million in profit in its children’s division. Its statement baldly said that this was “due to Harry Potter and the Half-Blood Prince being published in 2005”.

The publisher’s books are distributed by MDL in the UK, a unit of Macmillian, which in turn is owned by the German publisher Holtzbrinck. Its printers are St Ives, the small-run specialist, which recently survived a takeover bid headed by Michael Green.

Meanwhile, specialist retailers such as WH Smith and Waterstone’s, part of the HMV group, believe that the launch of a Harry Potter title is the event of that year, in a sector which faces pressures from online and supermarket rivals. They, too, will miss the initial rush from a Harry Potter launch, which generates sales volumes 20 times greater than the next most popular title.

While Bloomsbury holds the international rights to publish Harry Potter in English — apart from the United States — as well as the more niche markets of Ancient Greek and Latin, there are a host of independent publishers who hold the rights elsewhere. The largest is Scholastic, the American group, which has printed 12 million Harry Potter books in the US.

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