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Postie Plus plans to sell SchoolTex unit for $9 million to reduce debt, invest in core business

Thursday 5th December 2013

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 Postie Plus Group, the worst performer on the New Zealand stock exchange this year, has agreed to sell its school uniform business SchoolTex for $9 million to reduce debt in an attempt to return the company to profitability.

Postie Plus will seek agreement from shareholders for the sale at its annual meeting on Dec. 20, the Auckland-based company said in a statement. It didn't disclose the proposed buyer which it said is a well-known New Zealand company.

Shares in the clothing retailer have lost two thirds of their value this year as the company's annual loss ballooned out to $13 million after it wrote down $4 million of inventory because it failed to get stock out to its stores as a result of it outsourcing its distribution centre as part of a move to Auckland from Christchurch to be closer to its major market. The company wants to invest in its clothing, health and beauty products ranges but is struggling under a debt load of $21.1 million, it said today.

"The proposed sale of SchoolTex is a substantial step towards resolving the issue," chief executive Richard Binns said in the statement. "The SchoolTex sale is forecast to cut PPGL's debt load to $12.2 million."

Outside the peak uniform-buying seasons, SchoolTex, which supplies uniforms to more than 1,500 schools, is only marginally relevant to the company's broader product range and places significant capital demands on the business with investment in inventory, Binns said.

Exiting the business would allow Postie Plus to stock products that have the potential to increase average basket size and provide comparable or higher margins year round, he said.

The company estimates the changes would generate an extra $5 million in sales, partially offsetting the loss of SchoolTex's $11.3 million annual revenue, while improvement s in operating costs and better product mix will lift earnings.

"It is estimated that an additional $5 million in annual sales will enable the core Postie brand to return to a break even position for FY15 and then future profitability," the company said in a notice to shareholders.

The debt reduction would help the company retain the support of its bank and increase the prospects for further capital raising which it is exploring, it said.

Should the sale not go ahead, Postie Plus would be more dependent on support from its bank and would look to restructure to cut costs, it said.

Shares in Postie Plus last traded at 9 cents.

 

BusinessDesk.co.nz

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