Woolworths Mulls Cutting Off Arm And Dividend To Stay In Business
Retail Business Group, Woolworths, is expected to cut down dividend by almost half as interest payments, which it had taken to re-finance its business has eaten into its profits. Even though the company had expected to make profits of 26.5 million pounds on sales of around 2.7 billion pounds, mainly due after disposing off property, it did not manage to make any substantial profits from its 820 stores in the previous year.
However, there was a lot of potential in its CD, DVD and books business as well as in its Bertram, 2Entertain and Entertainment UK divisions. The group's chief executive Trevor Bish-Jones will now have to decide if he should sell of 2Entertain, in which his group owns a 40% stake along with the BBC, which has the balance 60% stake. 2Entertain has many valuable programs such as Planet Earth, Dr Who and Little Britain in its kitty, which are valued at around 200 million pounds, which is actually higher than the market capitalization of the company itself. In fact, the BBC has the right to pick up the stake before any other outside bidder and it can exercise this right in this month itself, but Woolworths has still not informed the BBC about its decision. In the previous year, Woolworths had started some really innovative programs on TV including some remarkable characters such as Woolly and Worth and famous celebrities like Kelly Osbourne and Rolf Harris. The company also has plans to come out with its next phase of its value series, 'Worth It' during the coming quarter. But then, before Christmas, Woolworths decided to concentrate more on its on line and catalog campaign and hence slashed its TV advertisement budget.
The biggest problem facing Woolworths is that the refinance agreement, which the company had entered into in which it had availed of a 350 million pound secured asset based loan from the Bank of Ireland and GMAC in addition to a 35 million pound loan from ADM Capital has resulted in an interest outflow of 30 million pounds per year as interest. A recent acquisition, EUK, to improve Woolworths distribution business, has also strained the company's finances. Many investors and bondholders feel that selling of its stake in 2Entertain is the simplest and fastest way out of this situation. Mr. Bish-Jones is also planning to cut the final dividend by around 50% even though the company on paper seems to have made a profit. The company also has a pension fund deficit of around 60 million pounds, and some of these problems could be resolved by selling off its stake in 2Entertain, along with restructuring its retail arm. Analysts like Mark Photiades of Landsbanki, however, cautioned that the “Management's aim of returning the retail business to sustained profitability looks a tough task, given the current consumer climate, and a potential worsening of macro conditions”. As it is, it is only the company's media and distribution arm, which is making most of the profits. Other analysts too, reckon that selling off 2Entertain is the best way for the ailing group to pay of its out standings and reduce its interest payments on its loans.
So, Woolworths now faces an acid year and whether its strategy will be to concentrate on its 820 stores to bring back its lost glory or to sell of some of its assets such as 2Entertain in a bid to reduce its interest payments will have to be seen. It is also planning to reduce its stock in its stores. Anyway, there does not seem to be any easy way out for this group and as weary Britons already squeezed by high food, fuel and energy rates try to cut down on spending, the current year at least will test the company's and its investors nerves to the fullest.
Article written by: Craig Parker - Make Money Expert |
After following your advice and using the Docs method I made over £500 in the last two weeks. Thank you for your advice you are right this is a powerful system that works. I am now going to try another one of the opportunities that you review and I will let you know how I get on. I can't wait until my next pay cheque hits my account. Thanks again :-)
I just wanted to let you know that your site has been very helpful. I have always wanted to work at home but didn't know where to start. After reading your reviews I signed up to 3 of the sites that you have listed and I am now making a very nice income of £300+ per week working from home. This is a perfect situation for me because it means I can be a home mum and still have my own dependence... I will be telling my friends about your site.
