Warehouse buys Noel Leeming chain for $65m

The Warehouse has bought the Noel Leeming chain of 92 electronics and appliances stores for $65m. Photo / Herald on Sunday

The Warehouse Group has announced that it has bought the Noel Leeming chain of 92 electronics and appliances stores for $65m.

"The Warehouse Group believes this acquisition will support its transformation into New Zealand's pre-eminent non-food Retail business and support its ongoing strategy to improve the "Red Sheds" performance," said the company in an announcement to the stock exchange.

Warehouse shares are up 4 cents to $3.13 each in morning trading on the NZX - a 1.3 per cent lift.

"The consumer electronics and home appliance sector has experienced substantial growth over the past five years and as people continue to purchase technology and entertainment products in an increasingly 'connected' world, the sector will continue to grow."

Noel Leeming, which is the parent comapny of Bond and Bond, is currently owned by Australian private equity investor Gresham Group. The sale also includes all Bond and Bond-branded stores, which are part of the Noel Leeming group.

See a presentation sent by The Warehouse to the NZX detailing the transaction here.

The announcement says the Noel Leeming Group will operate as a separate trading division with its own "retail brand positioning and personality".

"The Warehouse Group will retain the current Noel Leeming Group management team, who have proven their ability to satisfy customers and deliver growth in a challenging retail environment," said Warehouse Group chief executive Mark Powell.

"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. We believe in the future growth of this retail sector, and are pleased that the current management 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 per cent 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 per cent to $607.8 million, and operating profit jumped 45 per cent to $10.6 million. Employee expenses rose 14 per cent 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 per cent from 2017 onward.

Warehouse shares fell 1 per cent to $3.09 in trading on Friday and have increased 3 per cent 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.

The Warehouse Group is expecting Noel Leeming Group to contribute $4m - $6m of earnings to its first half results from the acquisition today through to January 27th 2013.

-HERALD ONLINE/ BUSINESSDESK