Flying Brands shares slump on concerns it may breach covenants

The Jersey-based business – best-known for selling flowers through the post, but which also ships audiobooks and bird feed – said it was in “advanced talks” to sell some of its properties to avoid the breach.

Hunter bought a 29.9 per cent stake in the company in 2006 for £23.6 million through his West Coast Capital vehicle. But his holding has since been diluted to 27 per cent and last night was worth just £872,000.

Flying Brands blamed its problems on the performance of its Gardening Direct arm, which had been “significantly below management expectations”. The company added that its other businesses had also been performing “below expectations”.

The firm said: “We are currently reviewing our forecasts for the rest of the year in light of this, but it is already clear that – in the absence of any further action – we would breach our banking covenants when these come to be tested in the second half of October.

“This would result in the need to further renegotiate our banking arrangements or seek a waiver from the bank.”

Loan facilities of £3m were rearranged with Barclays Wealth in July 2010, with £1.4m being used to pay off previous borrowings, with the remaining £1.6m funding the takeover of rival retailer Flowers Direct.

Yet accounts for the year to 31 December show that Flying Brands breached a net debt covenant test but that Barclays had waived any fines after the company offered to make a one-off payment of £600,000 in March.

The accounts stated that £2.85m of the loan was outstanding, with £1.38m repayable within one year and the other £1.47m within the following year.

News of the potential breach comes after the firm slumped to a loss of £1.97m for the six months to 31 July, compared with a £400,000 profit at the same stage in the previous year. The loss forced the firm to axe its interim dividend.

July’s figures revealed a 10 per cent fall in sales at its gardening business to just under £10m, although turnover from its gift operations rose to £5m from £3.7m following the acquisition of Flowers Direct and Drake Algar Flowers. In April, the company launched a joint venture with Debenhams to sell flowers through the chain’s network of department stores.

Hunter vowed to become a “more active shareholder” in Flying Brands in 2009, having abandoned a takeover attempt during the previous year.

His intervention came following a profits warning and a slump into the red, with the firm burning through three chief executives in just 12 months.

The shares closed down 38.7 per cent or 7.25p last night at 11.5p, having fallen as low as 8.5p earlier in the session, which marked a 56 per cent fall.

Before yesterday’s announcement, analysts at Singer Capital Markets had expected the company to make a pre-tax loss of £200,000 in the year to 31 January, 2012.