UK PowerHouse chain hauls PRG down to $13.1m loss

The UK PowerHouse appliance chain continues to devour cash generated by the sale of PRG Group's profitable New Zealand assets and has dragged Eric Watson's investment company to a $13.1 million full-year loss.

PRG, 81.3 per cent owned by Watson, saw its total operating revenue fall to $617 million from $997 million last year with PowerHouse continuing to lose money at an impressive rate and PRG's portfolio of profitable businesses again shrinking.

Chairman Jock Irvine said the group's result was disappointing "but we're an investment company and we're not always able to depend on cashflow off profits on trading".

PRG's $46.6 million profit last year was mainly thanks to proceeds from the sale of the Noel Leeming and Bond & Bond chains. This time around, the January sale of Pacific Retail Finance to GE Money - reportedly for $145 million - failed to keep the company in the black. Yesterday, PRG said it had realised a capital profit of $73.4 million from the sale which was slightly lower than the $75 million expected "due to adjustments under the sale and purchase agreement and the sale costs".

The proceeds were used to repay debt, leaving the company "virtually debt free and well placed to support the growth and development of our operating businesses over the coming year".

PowerHouse, bought out of receivership by PRG in 2003 for $47 million, reported a operating loss of $45.6 million compared with a loss of $51.4 million a year earlier. Gross operating revenue fell to $373 million from $591 million.

On top of that, the company sank an additional $35 million into the business in "reconstruction" costs.

At the time, PRG said it expected PowerHouse to be profitable by 2005 but yesterday did not say when it expected the business to turn around.

In its efforts to improve the chain's fortunes, PRG Group shut the doors on 60 stores during the year, leaving it with 53.

The company said PowerHouse had made strong progress over the year through cost reductions, and improvements in margins and infrastructure. "The changes made to the business put PowerHouse in a stronger position to pursue its target of break-even as demand strengthens, with a small loss being expected if it remains weak."

Hamilton Hindin Greene broker James Smalley said the result was the latest instalment in the ongoing story of the company selling profitable assets in New Zealand to make up for the loss-making PowerHouse, "which has been a disastrous investment".

Irvine said: "I wouldn't call it a disaster but it's certainly not been a particularly good investment at this point."

The group's Living and Giving gift and homeware chain in New Zealand posted a $970,000 operating loss, a big improvement on the $1.7 million loss last year.

Lingerie division Bendon provided some good news.

Gross operating revenue was up at $126 million from $114 million and operating earnings rose to $7 million from $6 million. Sales to international markets outside Australia grew by 65 per cent, and UK sales grew by 43 per cent.

"Bendon is now beginning to realise the benefits from its international expansion of recent years and plans to spend the coming year further improving its profits through consolidating and growing its current position," the company said.

Pacific Retail Finance contributed a pre-tax profit of $6.9 million during its final 10 months under PRG ownership compared with $24.9 million for the previous full year.

PRG shares closed 9 per cent or 15c lower at $1.54.