WOW/ABC/JUST

Sydney, Aug 1, 2008 (ABN Newswire) - Shares in The Warehouse, New Zealand's biggest retailer, fell sharply yesterday after Woolworths and rival Foodstuffs were blocked by a court from launching separate bids for the company.

The court decision, if maintained, could see shareholders in Woolworths benefit through a big capital return; which is an option for our biggest retailer if it is blocked from spending more than $1.5 billion in cash on a possible bid for The Warehouse.

In New Zealand, the shares in the company (WHS) slumped 64 NZc, or 17%, to $NZ3.18 in the wake of the news of the Appeal Court decision; its biggest one-day slide since May 2003. 

That's more than half the six-month high of $NZ6.66 in December after a decision by the High Court opened the way for a takeover to proceed. Neither Foodstuffs, nor Woolworths have made a takeover offer.

Woolies shares ended at $25.20, up 16c, Warehouse ended down 18% in Australia at $2.46.



Yesterday's decision was from the NZ Appeals Court, which upheld an appeal from the NZ Commerce Commission against that earlier High Court decision.

It means that just as the Australian competition regulator, the ACCC hands a report on Australian grocery retailing, a New Zealand court has indicated there's a limit to the size the country's retailers can get by taking out a competitor.

The impending ACCC report has already got the business commentators here moaning about nasty regulators and grandstanding politicians and calling for our retailers not to be hobbled.

Across the Tasman it was a different story as the country's Court of Appeal overturned a lower court's ruling that had allowed Woolworths and its local rival, Foodstuffs to try and takeover a third retailer, discount retailer The Warehouse Group.

The Appeal Court's decision, which was made public on Thursday in part (the full judgement won't be released until sensitive information is removed), prevents Woolworths and the co-operative, Foodstuffs bidding for The Warehouse. The Warehouse is actually NZ's biggest retailer and any bid would cost more than $A1.5 billion.

Foodstuffs and Woolworths each have 10% stakes in The Warehouse, bought to block each other from succeeding in a full offer. 

The two retailers last year successfully went to the High Court to overturn a Commerce Commission decision to block any potential takeover.

The Appeals Court decision could now be appealed to the final court of appeal in NZ, the Supreme Court. It was established in 2004 to replace appeals from NZ to the Privy Council in London.

The NZ Commerce Commission welcomed the ruling in a statement as a "victory for supermarket consumers and competition in markets".

"In the second appeal from the Commission's clearance decision, the Court of Appeal has today reversed the High Court's November 2007 decision that cleared the way for the three Foodstuffs co-operatives and Woolworths Ltd to acquire up to 100% shares in, or assets of, The Warehouse.

"The Commission's case has focused on its concerns about competition in the supermarket sector where there is, in effect, a duopoly at present, except in the three regions where The Warehouse has opened a supercentre.

"Commerce Commission Chair Paula Rebstock says, "New Zealand consumers know that more competition is needed in the supermarket sector. 

"In coming to its decision to decline the acquisition the Commission considered that The Warehouse had already brought important new dimensions to supermarket competition, and potential competition, through its innovative supercentre stores."

"The Commission was prepared to leave it to the market to decide whether The Warehouse supercentres would be viable. 

"We did not consider that the Commission could rule out The Warehouse as a significant supermarket competitor, either now or into the future. The Commission considered that the presence of an innovative third party – such as The Warehouse - had the potential to increase the level of competition in this important market.

"New Zealand consumers and competition are the winners today," says Ms Rebstock.

The court decision upholds the powers of the Commerce Commission to regulate competition, and it has prevented duopolies from either being created or expanded in NZ.

That's an argument that is gaining coverage and attention in Australia and it was talked about extensively in the hearings that the ACCC had in Australia for today's report.

An example of that was the move by the ACCC to block Woolworths from buying an independent retailer in the NSW regional city of Queanbeyan (near Canberra). That would have give Woolies three supermarkets in the city to one of Coles and a small Aldi outlet.

If the move isn't appealed or is upheld by the NZ Supreme Court, then Woolworths will be forced to make a large capital return to shareholders because it is at present generating profits faster than it is growing sales.

In the summary of its decision, the Court of Appeal said the appeal of the Commerce Commission against a High Court decision letting the two retailers lodge takeover bids would be allowed.

It set aside the clearances granted in the High Court and ordered the two supermarket chains to pay costs to the regulator.

And shareholders turned on childcare operator ABC Learning Centres, selling the shares off 12% to 72.5c after it said it will write down assets by another $213 million, not pay a final dividend and declare a full-year pre-tax loss.

The company will post a pre-tax loss of $437 million for the 12 months to July 31 and earnings before interest, tax, depreciation and amortisation (EBITDA) for the same period will also be a loss of $86 million, ABC said in a statement to the ASX yesterday.

ABC, which paid an interim dividend of eight cents per share, said the payment of future dividends would depend on profitability, capital commitments and available cash and franking credits at the time.

It's joined the lengthening list of companies and investment groups cutting assets and deciding to try and pay dividends out of actual operating earnings, instead of through financial engineering.

The company has revised its capital expenditure program and will now spend $165 million to buy 110 new centres in 2009 with an additional $45 million on refurbishments. ABC will buy 70 centres for $80 million in 2010 and spend $17 million on refurbishments.

ABC said the first three weeks of fiscal 2009 had been encouraging and centres in Australia and New Zealand had met their revenue and wages targets. The company had increased fees after a review.

The company said it confirms that post all of these adjustments, write-downs and impairment charges it remains compliant with all banking covenants.

It explained the new write-down:

"During the preparation of the 2008FY accounts A.B.C. Learning Centres Limited ("ABC" or the "Company") has identified a number of areas where a reassessment of accounting treatments and carrying values is required and further provisions, adjustments and write-downs of $(213) million need to be taken."

But this doesn't mean that shareholders who received the 8 cents a share interim will have to repay it, even though the interim result is now irrelevant.

Embattled retailer, Just Group Ltd says its second half sales revenue has risen strongly and will lead to a 7% gain in annual sales.

The company, which is the target of a hostile takeover bid by Solomon Lew's Premier Investments Ltd, said in a statement yesterday that sales for the six months ended July 26 rose 3.4% to $387.5 million, thanks to a good sales effort for the second quarter to July 26.



But Premier issued a statement yesterday afternoon claiming to have its foot on around 38% of Just's shares through two stakes of around 25.6%, which relates to agreements with big shareholders to buy the shares if a certain acceptance level was reached, and just over 12.4% in acceptances from shareholders under its offer which are in the special acceptance facility.

While impressive, Premier doesn't actually have control of those shares yet: they will only vest to Premier if it gets control.

Anyway, Just was putting its best foot forward after its downgrade earlier in the month with the poor June sales figures.

The company says that as a result of the stronger July, sales for the full 2008 financial year (which ends next January) will be $812.2 million.

This will be at the upper end of the company's earlier guidance for sales of $808 million to $814 million in the year ending July 26.

"July trading pleasing with sales and gross margins ahead of mid-point guidance. Australian same-store-sales growth of +2.7% for the last 4 weeks of the year; Trading remains strong in Dotti and Jacqui E; Portmans turnaround ahead of schedule; Sales have recovered well in Just Jeans; Jay Jays sales pleasing after a very strong comparable FY2007; Pro-forma EPS for the full FY2008 year is expected to be at the mid-to-upper end of guidance range of 29.2 to 30.6 cents per share, broadly in line with FY2007," the company said in a statement to the ASX.

"Special Board Committee to recommend final, fully franked dividend of 9.0 cents per share to the Just Group Board. This would bring total fully franked dividend for FY2008 to 19.5 cents, equal to the total FY2007 dividend."

Just Group's Managing Director, Jason Murray, said in a statement that he was reasonably pleased with the final sales result for the year to 26 July 2008, particularly in light of the challenging retail environment in the second half of the year.

""The sales result has been achieved against a backdrop of softer market conditions, slower recent trading, industry wide uncertainty and significant discounting undertaken by a number of retailers, particularly late in the second half. 

"The strength of the July results on a like-for-like ("LFL") basis is notable given the strong trading experienced in July 2007. In addition, the correlation between increased sales and the introduction of new season ranges is encouraging.

"These factors give weight to our belief that the disappointing June results, which led to our revised forecasts and that appear to have impacted a number of other retailers, were unforeseeable and abnormal, even in a soft consumer environment."

"Economic conditions in New Zealand have been extremely difficult. Our sales result in New Zealand reflects this situation and is amplified by the translation effect of a weaker New Zealand dollar. 

"However, this market remains highly profitable for Just Group and investment will be tightly controlled until market conditions improve."

"Whilst earnings figures are yet to be finalised it is expected that pro-forma earnings before interest, tax and amortisation ("EBITA") and earnings per share ("EPS") will be at the mid-to-upper end of the guidance range of $95.0m to $99.0m and 29.2 cents to 30.6 cents respectively.

This compares to Adjusted FY2007 EBITA and EPS of $96.5m and 29.2 cents respectively," Mr Murray said.

Premier rubbished the Just statement, describing it as a collection of "lowlights" and pointing out that the retailer had not hit its guidance figures, even after the claimed improvement in July.

"Just Group Limited today confirmed its substantially deteriorated performance for the second half of FY2008. Just's poor results further highlight the attractiveness of Premier's offer. Premier's Chairman, Solomon Lew said:

"As of last night, Premier has a relevant interest in, or acceptance instructions in relation to, 38.1% of Just Shares. Just Shareholders want our Offer to proceed—and with results like these, it's little wonder why."

But Premier is facing opposition from some big holders of Just shares who don't like Premier's governance record, or its thinly traded shares. Premier is an illiquid stock and big institutional holders do not like exchanging liquid shares for ones difficult to exit quickly.

Just shares rose 15 cents to $3.32, Premier shares fell 13 cents to $7.06.Despite what Premier might claim, the game isn't over.


 

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