Retailer's profit drops to $2 million despite rise in turnover

Whitcoulls and other members of REDgroup have had a tough year. Photo / Kenny Rodger

A sharp increase in costs pushed down the profits of New Zealand's biggest book retailer last year.

REDgroup New Zealand, which owns the Borders, Bennett's and Whitcoulls chains, made a profit of just $2 million in the year ending in August, well down on the $6.7 million it made the year before, according to accounts filed with the Companies Office.

Although revenue increased from $218 million to $232 million, costs also increased, particularly occupancy costs and financing costs.

At the end of last August, the group had $131 million of loans, compared with $122 million the previous year.

Australian private equity giant Pacific Equity Partners (PEP) bought Whitcoulls and Australian chain Angus & Robertson from British bookseller WH Smith for $135 million in 2004.

It subsequently added Australian newsagency chain Supanews to the group for an undisclosed sum, and also acquired 32 Borders stores in New Zealand, Australia and Singapore in a deal worth as much as A$110 million ($137 million).

It has also acquired the Calendar Club chain, which sells calendars in malls over the Christmas period.

Altogether, the business employs more than 1000 people in New Zealand, and has more than 90 stores on this side of the Tasman.

Formerly known as A&R Whitcoulls, the company has since rebranded itself as REDgroup Retail.

It has also announced a new online strategy, and is set to become the first book retailer in New Zealand to offer ebooks.

Last year, it signed an agreement with the Canadian company Kobo, a spinoff from Canadian book retailer Indigo Books & Music, that will allow customers to download books, magazines and newspapers on to a wide variety of devices, including its own ereader.

REDgroup said it expected to begin the service in May.

There has been speculation PEP is considering floating the company on the sharemarket.

However, predictions of a March listing now appear unlikely.

In June last year, the company announced it had rejigged its senior debt and working capital facilities with Bank of Scotland International and Germany's WestLB AG until the end of this year.

Its New Zealand managing director, Peter Kalan, was unavailable for comment.

A spokeswoman for the group said more details would become available next month, when its full results were released to New Zealand and Australian bondholders.