Jessops holds talks with lenders as losses widen to £19m

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The Independent Online

Jessops is set to breach its lending agreements and is mulling a debt-for-equity swap with its bank, the struggling camera specialist warned yesterday, as it posted widening losses and its auditors raised questions over its future.

The 230-store retailer said it was not likely to meet its banking covenants and that it is in discussions with banks about putting in place a new covenant test and restructuring its net debt of £57.4m. Jessops is understood to be considering swapping a chunk of its debt for equity in the coming weeks with HSBC, which holds about 15 per cent of the retailer's shares.

David Adams, the executive chairman of Jessops, said: "We can't carry on carrying £57m worth of debt on a business which is generating £4m.

"We are actively engaging with our advisers and HSBC Bank to put the business on a more stable footing for the future. It is highly likely that this exercise will involve a fundamental restructuring of our debt."

The scale of the challenge facing Jessops was laid bare by its auditors, who said the conditions relating to the restructuring of its banking facilities "indicate the existence of a materialuncertainty which may cast significant doubt on the company's and the group's ability to continue as a going concern".

Asked if Jessops was at risk over the next year, Mr Adams said: "We have a good chance, but there is no guarantee." He warned: "We believe we have a viable business model and a good position in the market place, but we now have to address the balance sheet."

For the year to 30 September, Jessops delivered a loss before non-recurring items and tax of £19.1m, compared to £9.3m for the previous year. Its total loss after tax for the year was £50.2m.

Mr Adams said it was "not clear when economic conditions will improve", but said Jessops had focused on improving margins and had significantly reduced stock levels during the period with further reductions since the year-end. The retailer's like-for-like sales fell by 6.5 per cent for the year to 30 September, compared to an 8.5 per cent decline for the previous year.

Mr Adams described current trading as the "the most difficult and uncertain trading conditions that we have seen in the photographic market for a long time". For the year to 30 September, digital camera sales in the market were flat.

Jessops' underlying sales rose by 3.8 per cent for the eight weeks ended 25 January 2009, but this was driven by hefty discounting that contributed to a 4.2 per cent fall in its gross margins. Jessops' shares fell by 0.57p, or 20.7 per cent, to 2.18p yesterday.

The retail outlook continues to look challenging across the high street. Savers, the 237-store discount health and beauty chain, has become the latest retailer to request rental concessions, including payment holidays, from landlords. An AS Watson UK spokeswoman said: "Savers can confirm that we have written to a number of landlords with regard to negotiating more favourable rent and rate terms in the current economic climate."

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