Discover warns of finance plight as it falls to loss

The East Yorkshire-based group, which was narrowly saved from administration in 2009, yesterday said the “continuation of recessionary conditions and weak markets” hurt sales in its crucial summer selling season.

The company, which now operates from five sites across the north after its restructuring, has been hit by consumers’ reluctance to spend on big ticket items such as caravans and motorhomes.

Discover said its prediction earlier this year of a tough second half has come true, “with UK sales of both tourers and motorhomes in the three months to August 2011 both being less than the similarly weak year-ago period”.

The company added low season conditions have already arrived, and said it expects the tough trading environment to continue, forcing it to seek more finance.

“The group will come under further significant pressure this autumn and into winter,” it said in a trading update ahead of releasing its full-year results.

“The group has continued to benefit from its existing lending facilities, but the board recognises that it needs to secure additional finance and is therefore actively involved in pursuing a number of opportunities to secure the ongoing trade of the business.”

Shares in the company dived almost 40 per cent to close at 0.3p.

Discover typically makes the bulk of its sales between Easter and the end of August.

However, after making a first half pre-tax loss of £1.5m, its summer season was not strong enough to lift Discover to profitability for the year to the end of August.

It said provisional results show annual pre-tax losses improved slightly to £1.5m from £1.8m a year earlier, but turnover was down almost five per cent at £49.8m.

“The group witnessed the usual seasonal uplift in trade in the second half and trading for the 12 months to August 31 2011 was in line with the expectations at the half year,” said the company, headed by chief executive Trevor Parker.

“However, profits in the second half of the year have not been sufficient to offset the previous winter losses and therefore the finances of the business have come under increasing pressure.”

A number of surveys have pointed to ongoing tough conditions for the retail sector, particularly around big ticket items.

The British Retail Consortium (BRC) retail sales monitor for September is due out today, and is expected to show a continuation of this trend.

The BRC’s August survey showed total sales values rose by just 1.5 per cent year-on-year, suggesting sales volumes fell given high inflation.

“This is seen primarily the consequence of the ongoing serious squeeze on consumers’ purchasing power and very low confidence,” said Howard Archer, chief UK and European economist at IHS Global Insight.

“The likelihood is that consumers will be very cautious in their spending over the rest of 2011 and likely early 2012 at least as their purchasing power remains under severe pressure from high inflation, muted wage growth and tighter fiscal policy.

“The current turmoil in financial markets and growing fears of a renewed serious global economic downturn is unlikely to do much for consumers’ confidence and willingness to spend.”

Discover said its net debt was around £10.1m at the end of August, down from £11.5m a year earlier after selling surplus property.

Discover was saved from collapse in 2009 with a company voluntary arrangement (CVA). It had to shut 11 sites but the deal saved the group from administration.

The company now trades from five sites in its Northern heartland – in Birtley, Chorley, Darlington, Delamere and York. These sites accounted for 60 per cent of turnover prior to the CVA.

Last year the company said it was considering resuming acquisitions, after a significant cost-cutting exercise.

Discover did not return calls for further comment.

A player in the leisure market

Discover Leisure was saved from collapse with a company voluntary arrangement (CVA) in 2009, after tumbling consumer confidence eroded sales.

It had to shut 11 sites and make hundreds of job cuts, but the deal saved the group from administration. However, unsecured creditors had to write off almost 80 per cent of the debt they were owed. Discover Leisure was originally incorporated in April 2003 to exploit opportunities in the leisure market.

It was founded by the former team at Dixon Motors and changed its name to Titan Move in January 2004, acquiring York Boat in November 2004.

Titan Move floated on AIM in May 2005 and then made a series of acquisitions to build a core business in caravan, motor home, leisure clothing, accessories and after-sale service. It bought the company which owned Harringtons Caravans in August 2005.

Discover pounced on Leisure World in September 2006 for £5.75m.