Blackfriar: Troubled times as Findel needs to act fast to cut debt

They tumbled another 11 per cent to 8.6p last night as investors headed for the exit .

On top of a 76m pre-tax loss, analysts are worried about the Burley-in-Wharfedale company's high debt levels which stand at almost 310m.

Findel has, to put it mildly, had an eventful year.

The troubled education supplies division reported an annual operating loss of 9m following the discovery of accounting errors.

The company was then in breach of certain financial covenants in April after earnings fell as a result of the accounting errors.

It all smacks of serious trouble.

But new chairman David Sugden insists the company has some businesses with "significant potential" for improved performance.

Under Sugden, the new management team is conducting a full review of the business.

So what can Findel do?

The review is expected to focus on the core home shopping brands.

The new management is keen to invest in both sports brand Kitbag and kitchen to laundry brand Kleeneze.

Sales at sports home shopping brand Kitbag, which operates official online stores for Manchester United, Chelsea, Real Madrid, Barcelona and Everton, remain strong with annual sales up 34 per cent to 48.3m.

The group is in the process of getting rid of a number of internet businesses that were bought for large sums of money and the management review is likely to get rid of any remaining ones.

As for its troublesome education supplies division, the group is likely to keep it despite its woes.

While school budgets are likely to be slashed under the new Government, Findel has a market leading position and the management believes it will be in a good position if the Government reduces the supplier base, as expected.

Although the statutory 76m loss looks horrific, this was largely due to 52.8m in charges to cover impairment of intangible assets and 16.7m following cost reductions. There was also a 12.2m charge following changes to credit facilities after the breach of covenants.

A better guide to trading is Findel's full-year adjusted pre-tax profit, which more than halved from a restated 29.2m to 13.8m.

Analysts have cut their 2011 pre-tax profit forecast from 23m to 20m.

But the real worry is the debt. Findel needs to get it down fast. Otherwise the new management is wasting its time.

n UK Coal could do with some good news. This week the country's biggest miner warned of half-year losses of 94m, hot on the heels of 129m losses in 2009.

The Doncaster-based company has suffered badly from geological problems at its deep mines, safety concerns and the tough coal market during the recession.

Its shares fell 13.2 per cent to 33p on the update, exacerbated by worries over its 255m debt pile – which is more than twice its market capitalisation.

But buried within UK Coal's statement were some nuggets that give Blackfriar cause for cautious optimism.

For the first time in a long while there was no bad news around production at its three deep mines, which are finally humming along nicely after millions of pounds of upgrades. Poorly-priced legacy coal contracts are almost a thing of the past, so it can sell its coal on better terms.

It is also close to selling more than a third of its agricultural land to wipe about 45m off debt, and a Scottish surface mine is also for sale. Meanwhile, its land development plans are picking up pace, and joint ventures with housebuilders are just around the corner.

The holy grail of profitability may yet be some way off, but given the vital role UK Coal plays in the nation's energy security, Blackfriar thinks the sell-off has gone too far.