Partners inject further 15m pounds into Do It All

THE STORES groups WH Smith and Boots have reluctantly agreed to inject a third tranche of capital into their venture Do It All, the DIY products chain that is haemorrhaging cash.

After receiving pounds 54m in loans and equity last year, DIA is still losing money. Boots and Smith have decided to put in another pounds 15m this year to finance a centralised distribution complex.

On Friday DIA disclosed a 4.5 per cent fall in sales in the final quarter of 1992, hit by the fierce price war in DIY. The position worsened in the final three weeks, with the percentage decline well into double figures.

The chain's losses are expected to worsen from pounds 10m last time to as much as pounds 30m in the year to 28 February. Its gearing is said to be rocketing, with borrowings approaching pounds 60m.

Smith in particular is understood to be losing patience with DIA, fearing it may be accused of throwing good money after bad. Last May it injected pounds 24m as part of a capital restructuring. Each partner later lent DIA a further pounds 15m.

The DIA board, chaired by Keith Ackroyd of Boots, is currently finalising the budget for 1993/4. If sales continue to decline, the company may have to slow its store modernisation programme, which costs an additional pounds 1.5m a month.

The latest equity injection is to finance a distribution centre in Tamworth, Staffordshire, which is due to open in the spring of 1994.

Price wars with the industry leaders Texas Homecare, owned by Ladbroke, and B&Q, owned by Kingfisher, have devastated DIA's margins. DIA is the third-largest player with 225 stores and 13 per cent market share.

A standstill deal between Smith and Boots prevents either side selling its 50 per cent stake without the approval of the other. However, from 1994 a 'Mexican agreement' comes into force, allowing a unilateral withdrawal.

Smith says it is committed to DIA in the medium term, but has made it clear that it will not tolerate losses in the long term. Smaller than Boots, it is proportionately more vulnerable to DIA's losses.

One bright spot is the sales improvement in stores converted to the new format, where products are grouped according to the home improvement task. Steve Russell, DIA's managing director, has also made progress, lifting the proportion of higher-margin own- brand products and improving the previously poor stock availability.

Some City analysts believe that Boots and Smith should bite the bullet and write off the entire investment. However, others say the worst will be over for DIA if the housing market starts to recover this spring.