Smaller Companies: Brown & Jackson hits a common problem

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The Independent Online
THE TRIALS of Brown & Jackson, the Poundstretcher discount stores group, have highlighted the often difficult relationship between small companies and their bankers.

Brown was forced to announce to the Stock Exchange last month that its banks - Midland and National Westminster - were refusing working capital for the year ahead.

The news came halfway through a three-year rescue programme for the group being implemented by a management team put in to revive its fortunes after it reached the brink of insolvency in 1991.

Ian Gray, the chief executive, said the banks only revealed their intention to refuse further facilities when Brown needed to provide a working capital statement in support of a deal to sell and lease back 18 of its stores to the British Aerospace pension fund for pounds 7.1m.

The company was forced to warn that it might have to cease trading, and 4,200 jobs in 220 Poundstretcher stores across the country were put at risk. The banks' recalcitrance also scuppered the sale and leaseback deal with the BAe fund, although a modified, more modest version of it has now gone through.

Mr Gray argues that the banks' behaviour demonstrates the skewed balance of power between them and their business customers. 'We have paid back more than pounds 20m to the banks since we came into the company and we had net cash at the year end. Now that we no longer owe them anything, they seem to be prepared to leave us in the lurch.'

Although the lead bank, Midland, will not discuss the individual case of Brown & Jackson, it is understood to be reluctant to lend any more money to the company after its disastrous performance last year. The bankers seem to have lost faith in the ability of the management team to turn the business around.

Brown's losses almost doubled to pounds 12.7m last year, and Mr Gray acknowledges that the result was very disappointing. 'But we are still only 18 months into a rescue programme that we always said would take three to four years.'

He claims that the group's institutional shareholders are still supportive, despite having stumped up pounds 37m in two rights issues over the past two years.

They have seen the share price gyrate wildly over the past couple of years. It now stands at a miserable 3p. Mr Gray says the company has a number of options. It is still talking to the banks and has entered discussions with Pepkor, the giant South African discount retailer, which may be prepared to make a trade investment. Even Philip Green, the former chairman of Amber Day, has expressed interest, although Mr Gray says neither the company nor its advisers have had a positive proposal from him.

Poundstretcher's market is tough and getting tougher, with the big chains talking value for money.

Even if Brown & Jackson gets enough capital to fund its purchasing, this year will be the last chance for Mr Gray's rescue to come off.

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