Debt fears see Findel shares fall to new low

The new management team at the Burley-in-Wharfedale company has instigated a full review of the business to decide which parts of the business to focus on.

New chairman David Sugden insisted the company has some businesses with "significant potential" for improved performance.

"The new team has drawn a clear line in the sand," he said. "The group contains a number of profitable and cash generative businesses. We will update people following the completion of the Full Potential Review."

But the market took fright and the shares closed down 42 per cent, a fall of 7.1p to 9.65p.

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

The group is in the process of getting rid of a number of internet businesses that were bought for large sums of money but have since become a millstone.

As part of the strategy to dispose of or terminate non-core or loss-making operations, it has already closed mail order brands Cotswold and Letterbox.

In June it sold its struggling entertainment retailing business Webb to Leeds-based turnaround specialist Endless for 1. Endless pledged to invest 15m in Webb, which has been starved of trade credit.

Another two businesses Confetti and IWOOT are yet to be sold. The review of the business will be announced over the next few months.

The group is likely to keep the troubled education supplies division, despite its reporting an operating loss of 9m in the year to April 2.

This followed the discovery of accounting errors by the former management. While no money was actually stolen, the former management had overstated the performance of the business.

KPMG has conducted a full review of the whole business to see if the accounting errors had cropped up in other parts of the company, but ruled that it was a localised problem and the rest of the business was in the clear.

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 remain strong with annual sales up 34 per cent to 48.3m.

Kitbag, which is Europe's leading online sports retailer, operates official online stores for Manchester United, Chelsea, Real Madrid, Barcelona, Everton, the English FA, British Lions, Formula 1, Wimbledon and the Ryder Cup. It recently also won new contracts with Nottingham Forest and Manchester City football teams.

Findel's full-year adjusted pre-tax profit more than halved from a restated 29.2m to 13.8m.

The 76m loss followed 52.8m in charges to cover impairment of intangible assets that have been sold and 16.7m following cost reductions.

The company, which was in breach of certain financial covenants in April after earnings fell as a result of the accounting errors, also amended its credit facilities and incurred a related charge of 12.2m.

Total revenue for the year was down four per cent at 547m.

Sales in the education supplies division fell 15 per cent to 138.4m, while sales for the core credit business were down three per cent to 221.4m.

The company said its current level of debt at 309.6m was too high, a sentiment shared by analysts. "The stock is now looking more interesting after recent declines," says analyst Freddie George of Seymour Pierce.

"We are, however, still concerned about the high level of debt, which was 310m at end of March 2010 and the valuation of the business on a sum-of-the-parts basis in these difficult markets. The broker has a 'sell' recommendation on the stock and cut its 2011 pre-tax profit forecast from 23m to 20m.

All change on the board

Findel has seen a number of board changes over the past year.

Last week finance director Chris Hinton became the latest casualty of the home shopping group's financial woes.

Mr Hinton will be replaced by retail expert Tim Kowalski on August 2.

Mr Kowalski joins Findel from private equity-owned HomeForm Group and has also been finance director of home shopping rival N Brown.

Mr Hinton's departure follows the exit of chairman Keith Chapman in April, who spent more than a quarter of a century with the business.

No reason was given for Mr Chapman's departure, but analysts said a change of management was vital for investors to regain confidence in the company.

Mr Chapman led the company on the acquisition trail, snapping up a number of internet-based companies during the dotcom boom.

Chief executive Patrick Jolly also left in March.