Redgroup Retail on the borderline with banks

The owner of New Zealand's biggest books retailer says it will be talking to its banks daily until the threat of a likely breach of two of its three banking covenants next month is resolved.

Redgroup Retail, which owns book-selling chains Whitcoulls and Borders in New Zealand, and Angus & Robertson book stores in Australia, told the NZX yesterday the likely breach was due to tough trading conditions in the last quarter, particularly in Australia.

Redgroup is wholly owned by Australasian private equity investor Pacific Equity Partners.

A Sydney spokeswoman said the company would not name its banks and did not intend to discuss sales figure details. "But REDgroup is certainly not the first major retailer to post lower than expected sales results in the last week or so. Trading conditions in Australia have been really tough."

Late last year Redgroup was touted as a float prospect and reportedly appointed Macquarie Capital, UBS and JP Morgan as joint lead managers for a March share offer to raise about A$500 million (NZ$620m) and list on both sides of the Tasman.

That option has since faded from view.

The company told the NZX it was expecting an ebitda result, for the purpose of testing banking covenants, of around $25m for the financial year ending August 28. This compared with annual cash interest payments of around $9m for the period.

At the end of last August, the group reported it had $131m of debt, up from $122m the previous year. Redgroup has 80 Whitcoulls stores, five Borders shops and a number of "pop up" Calendar Club retail operations in New Zealand.

It employs more than 1000 people in New Zealand.

In March, the New Zealand division of the company reported profit had slumped to $2m for the year to August 2009, down from $6.7m the previous year.

This was despite revenue increasing from $218m to $232m. It cited a sharp rise in costs, particularly financing and occupancy costs. In April the overall group announced a half-year net profit increase of 83 per cent to $19.5m.

PEP bought Whitcoulls and Australian chain Angus & Robertson from British bookseller WH Smith in 2004.

- © Fairfax NZ News