Hartstone in crisis talks with banks: Barker resigns as covenants broken

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The Independent Online
HARTSTONE, the leather goods and hosiery group built up by Stephen Barker, was in crisis talks with bankers yesterday after its second profits warning in three months.

Mr Barker, formerly chief executive at Albert Fisher, the food group, resigned as chairman and chief executive as the company announced it was in breach of its banking covenants and could not make deferred payments on acquisitions.

Hartstone shares - 272p at the beginning of March before the company's first profits warning - plummeted 57p to 34p. Hartstone said yesterday it would pay no final dividend in the year to 31 March. Profits were put at not less than pounds 9m while restructuring of European operations would cost pounds 12m.

In March it said the restructuring would cost just pounds 8.5m and that the final dividend would be increased from last year's 3p. Brokers cut back profits forecasts after the March warning to pounds 20m-pounds 25m from pounds 32m-pounds 37m.

Shaun Dowling, a non-executive director and a former director of Guinness, has taken over as interim chairman of the group. He said he was looking for a new chief executive and a new finance director. Mr Barker will remain on the board for the time being, as will David Grattan, the finance director.

Mr Dowling that he and another non-executive director, John Padovan, had instructed the company's auditors, Binder Hamlyn, to be particularly rigorous in their audit because of the rumours dogging the company, including one that it was about to be taken over. It is understood that interest cover provisions in Hartstone's banking covenants have been broken by the deterioration in the group's finances. The covenants specify interest cover of two-and-a-half times profits before interest and tax.

The company's debts are estimated to be about pounds 100m, against shareholders' funds of about pounds 80m-pounds 90m. Barclays is believed to be the bank with the biggest exposure. At yesterday's closing price of 35p, the group's market capitalisation is about pounds 40m.

The board is also in negotiations with the vendors of Michael Stevens and Etienne Agnier, its US shoes and handbags businesses, over pounds 13.5m of deferred payments now due.

Analysts said they suspected that the auditors had taken a very tough line on stock provisions. Mark Puleikis at Smith New Court said: 'The problem has got to revolve around stock levels, which were probably very high at the end of the year.'

Mr Puleikis said that the fundamental business probably could realise its value despite the setback, but that all depended on the support of the bankers.

Mr Barker, who worked for ADT's Michael Ashcroft at Hawley Group before joining Albert Fisher, built Hartstone up rapidly from a troubled shell company called Glamar in 1989 into Europe's largest distributor of leather goods.