Hard-pressed Shoprite in talks with bankers: Share price halved after company's fresh profits warning

SHARES in Shoprite halved to 30p yesterday as the troubled discount food retailer released a further profits warning and disclosed it was in talks with its bankers about revising its borrowing arrangements.

It is the third time in as many months that the company, based on the Isle of Man, has shocked investors. Disappointing interim results in May caused the price to tumble 54p to 90p, while news in June that a planned sale and leaseback arrangement for 11 stores had fallen through sent it down 27p to 51p. As recently as February the shares peaked at 241p.

The company said that full-year operating profits would fall significantly short of expectations. Following the May figures analysts slashed 1994 expectations of pre-tax profits of about pounds 9m to about pounds 5m, the same level as last year. Yesterday's they reduced them to less than pounds 2m.

Charles Good, managing director, said failure of sales to recover as expected at the time of the interims, rather than continuing margin erosion, was at the root of its difficulties. At the time of the May results the company said it was confident of a better performance in the second half.

Scotland, the main area of operation, has been the scene of fierce competition between big supermarket chains despite accounting for only 10 per cent of UK sales.

Mr Good said the company had embarked on a strategic review that would reconsider all aspects of the company's business as well as a programme of margin management and a further drive to cut overheads.

Its previously unsecured borrowings were now secured on its assets following a request from its bankers, who were worried about its trading performance and the failure to tie up the planned sale and lease-back deal.

'They were a bit rattled and we didn't want them to be, so we have given them security,' Mr Good added.

The talks would be finalised once the review was complete, but the intention was in any case to move the company permanantly from its unsecured overdraft borrowings to a secured medium-term financing arrangement.

To cut its debts, which before yesterday's statement were expected to be about pounds 28m or 73 per cent by 31 October, the end of its financial year, the group plans to sell non-core property assets - two shopping centres, office and residential property on the Isle of Man - with a book value of about pounds 17m.

It has scaled back its expansion plans sharply and now expects to add only a further 10 stores to its existing 97 by the end of the year.