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Warehouse buys unprofitable Noel Leeming chain for $65M

Monday 10th December 2012

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Warehouse Group, the country's biggest listed retailer, bought consumer electronics and appliance chain Noel Leeming Group for $65 million from Gresham Private Equity.

The Auckland-based retailer's acquisition will be completed today and is expected to add to the company's earnings immediately, contributing between $4 million to $6 million to earnings before interest and tax in the six months ended Jan. 27, 2013, it said in a statement. The 92 Noel Leeming stores will be operated as a separate trading division and is part of Warehouse's move to improve its 'Red Sheds' business.

"We are impressed with the performance of Noel Leeming Group over the past three years with strong management leading a talented team in the specialist consumer electronics and home appliance sector," chief executive Mark Powell said. "We believe in the future growth of this retail sector, and are pleased that the current team have agreed to stay with the business."

Last month, the retailer affirmed its view that next year's earnings will beat the 2012 result and said it sees signs of growth in consumer spending. Warehouse increased first-quarter sales 1.9 percent to $377.3 million on the strength of its stationery unit.

The company will fund the deal through its existing debt facilities. As at March 31, Noel Leeming had total borrowings of $113.6 million, $73.5 million of which was owed to Bank of Scotland International, and $38.2 million outstanding to Gresham Private Equity by way of a shareholder loan. The chain held $3.2 million in cash as at March 31. It is unclear how much debt of that still sits with the electronics and appliance chain once the deal is settled.

Noel Leeming narrowed its annual loss to $615,000 in the year ended March 31, from a loss of $3 million a year earlier, according to financial statements lodged with the Companies Office.

Revenue rose 7.6 percent to $607.8 million, and operating profit jumped 45 percent to $10.6 million. Employee expenses rose 14 percent to $60.1 million from a year earlier.

The appliance chain's goodwill was $95.1 million as at March 31, and relied on expected growth in underlying earnings and a growth rate of 2.5 percent from 2017 onward.

Warehouse shares fell 1 percent to $3.09 in trading on Friday and have increased 3 percent this year. The stock is rated an average 'hold, based on eight analyst recommendations compiled by Reuters, with a median target price of $3.05.

Cameron Partners acted as an external adviser to the Warehouse board for the acquisition.

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