Pentos passes dividend in attack on debt: Pre-Christmas sales bring some relief

PENTOS, the troubled bookshops- to-stationers retailer, expects to make a 'substantial' loss in the year ending 31 December, and is understood to have breached its banking convenants.

The shares fell 8.5p to 26p after a trading statement signed by the chairman, Sir Kit McMahon, warned of a loss accompanied by exceptional items and steps to put the company on a sound financial footing.

The statement, also announcing there would be no final dividend, spoke of the immediate need to reduce group debt. It added that discussions were being held regarding longer-term borrowings.

A source close to the company said that it had breached its banking covenants on gearing and levels of borrowing. Borrowings peaked at pounds 86m in October but have since fallen thanks to pre-Christmas sales.

NatWest Securities, the broker that wrote the controversial 'Pentosaurus' note questioning the company's high cost base last August, is forecasting a pounds 40m pre-tax loss. That comprises a pounds 10m trading loss plus pounds 30m in provisions on stock and property.

The broker also expects a one-for- one rights issue and a debt-for- equity swap to be unveiled around the time the preliminary results are published in February or March.

Yesterday's profits warning follows the appointment of Bill McGrath as chief executive, a post he will take up on 1 January. Mr McGrath, at present deputy chairman of Wickes the DIY chain, will reveal a new strategy for Pentos when its results are announced. He has also undertaken a review of the accounting and disclosure policies. The company plans, for example, to disclose property profits.

The swift trading deterioration has mainly been caused by Athena, the poster shop, which will make a loss this year. But, following a static first half, intense competition has led also to a 12 per cent plunge in like-for-like sales at Ryman Computer Store after allowing for a drop in the number of sales outlets.

At Ryman The Stationer, like- for-like second-half sales are down a comparatively minor 2 per cent. And at Dillons, the bookshop, like- for-like sales are up 4 per cent in the second half.

The office furniture business has been trading below plan in October and November but has been taken off the market.

Terry Maher, the Mancunian accountant who built up Pentos, resigned last September at the same time as he disclosed a pounds 400,000 loss for the half-year to June against a pounds 2.4m pre-tax profit in the corresponding period last year.