Looking to a business plan with Vision

14 June, 2007

graham holter on the thresher group'S sale to vision capital

Thresher's new owner may be a lot of things, but it's hard to portray Vision Capital as an asset stripper. Thresher has few assets left to strip, having disposed of its freeholds in a sale-and-leaseback programme that resulted in the business apparently clearing a lot of bank debt and concentrating on its retailing activities.

The remaining cash Thresher realised from its property sell-off did not go, as some have assumed, straight into the pockets of Guy Hands, the entrepreneur behind Terra Firma. It was still sitting in the business when it was sold to Eddie Truell's Pension Insurance Corporation, putting ­Truell in the perhaps bizarre position of paying a cash price for a business with cash in it. So yes, Hands has seen some compensation for his sale-and-leaseback plan, but as far as his disposal of Thresher is concerned, there is little doubt that he has made a loss.

That's not necessarily a disaster for him. Private equity is a spread bet - investors put their money into a range of businesses, knowing that some will perform brilliantly, others will do averagely well and a few will lose money. In the grand scheme of things, Hands will merely regard Thresher as a gamble that didn't quite pay off.

The real deal

So what exactly has Truell got for the 25 per cent stake he retains in Thresher? The answer is an £85 million pension fund with a deficit that has been estimated by some as a £21 million liability. Nobody can put an exact figure on it, because no one knows for sure what returns the fund's investments will achieve in the coming years, and how long its 2,500 members will live. (The scheme was closed seven years ago so is not quite as big a problem as it might have been.)

Truell has a reputation for business acumen in this area and may well have a financial strategy up his sleeve that will mean the actual liability comes in a lot lower than £21 million. But, this being the complicated world of actuaries and high finance, it may end up even higher. Nervous Thresher pensioners should, however, be assured that (a) there is nothing necessarily sinister or unusual about a pension fund in deficit and (b) the company will not be allowed to move money out of the fund without the agreement of the regulatory authorities.

Back to business. The fact that Thresher is little more than a trading company suggests that Vision sees some potential in the business as a retailer. Not everybody is quite so optimistic about the prospects of the

multiple specialists, so in a way Vision may be paying something of a compliment to Thresher and its strategy.

That strategy is to segregate its stores into wine specialists (Wine Rack), middle-tier drinks and convenience (Threshers) and lower-end drinks and convenience (The Local). In Scotland, Haddows straddles the Threshers/Local proposition fairly effectively, if a little inconveniently for the strategists in

Welwyn Garden City.

The way ahead

The estate needs investment. Wine Rack has made a good start but Vision needs to think about how to make the stores really appeal to enthusiasts, and frankly that will require more range reviews. They also need to recruit, develop and retain the sort of managers that are ­making independent wine merchants so successful. Currently, Wine Rack sits outside the franchise scheme but it can only be a matter of time before the blue end of the estate embraces the concept of owner-managers.

The Threshers and Local stores (which, incidentally, have 124 signed-up franchisees and an eventual target of 600) are in a tighter spot. Three-for-two has been described by chief executive Roger ­Whiteside as "the best thing we've done", but it's really only achieving a higher ­average spend out of an existing - and diminishing - base of consumers who shop in multiple specialists.

It was probably too much to expect that it would actually ­increase traffic and change market ­dynamics.

So what might Vision ask of its team? It's possible it will demand a complete rethink, or at least a new retail concept. One assumes there is a closet somewhere at Enjoyment House in which the photos of Threshers+Food, Booze Barn, ­Martha's Vineyard and Home Run are neatly stowed away, along with the press ­cuttings about how each idea was launched and eventually failed.

There aren't many original ideas left in drinks retailing, but it's always possible that someone will stumble upon one that works. Majestic did.

A case of too many

Many in the market believe that Thresher's long-term problem is that it just has too many shops. Or, more specifically, too many shops that don't work. These under-performers obviously drag down the balance sheet of the estate at large, and are gradually cut loose as rent agreements end. Perhaps Vision will seek to speed up this process.

Sometimes shops go "bad" simply because the neighbourhood has changed for the worse. But Thresher may also be the victim of upward trends. For example its wine range won't necessarily be the most successful in a neighbourhood where a Jeroboams, a Nicolas or an upmarket independent has opened its doors. Again, there would appear to be every possibility for Wine Rack to succeed, with the right manager and an improved product mix.

Vision has bought Thresher at a time when the business is, by its own standards, fairly stable even if the market is not. It has yet to declare its hand and may have a masterplan that secures a long-term future for the nation's biggest off-licence chain.

Without any infrastructure to strip, it must be assumed that Vision believes it can trade its way to profitability.

The entire trade is wondering exactly how that will happen.

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