Ruth Pollard August 17, 2010 THE parent company of Gloria Jeans Coffee, co-owned by the Hillsong Church elder Nabi Saleh, is in ''financial dire straits'' and should be put into liquidation and an investigation held into its affairs, the NSW Supreme Court has been told.
It is the latest shot fired in the multimillion-dollar lawsuit against the coffee giant's parent company, Jireh International, by a small US-based coffee supplier, Western Export Services.
On June 11, the court ruled that Jireh must pay the export company millions in commissions and interest after it found Jireh had breached a joint venture agreement. Yesterday the parties were back in court, fighting over the formula used to calculate the total owed to Western Export Services.
Both parties were required to submit evidence to the court on their financial circumstances. ''The defendant is hopelessly insolvent,'' said Jim Johnson, counsel for Western Export Services. ''There are public policy issues as to whether this company should be allowed to keep trading.''
After revising the formula, Justice David Hammerschlag ordered that Jireh pay more than $12 million to Western Export Services, plus interest and court costs. The judgment also requires that Jireh honour the original joint venture agreement, which provides ongoing commissions on sales of Gloria Jeans coffee and products to franchisees, worth $1.865 million in the year to June 2010.
Mr Saleh and his co-owner, Peter Irvine, a former chief executive of the now-closed Mercy Ministries, sought a stay in the judgment, leaving the way open for them to appeal the decision.
The judge granted the stay order, but instructed Jireh to provide assurances that it would not ''dispose of any assets or conduct any dealings other than in the course of normal business''.
In December, Mr Irvine and fellow Mercy Ministry directors admitted engaging in false, misleading and deceptive conduct following an Australian Competition and Consumer Commission investigation into the practices of the Hillsong-connected organisation. They were required to pay $1050 and apologise to each person affected by Mercy Ministries' conduct, all young women with mental health and drug and alcohol problems.
Source: The Sydney Morning Herald
SOUTH Wharf DFO has been crushed by up to $550 million in debt, throwing the future of the entire factory outlet chain into doubt.
With banks likely to appoint receivers KordaMentha to South Wharf Retail, which owns the South Wharf DFO, as early as today, the collapse threatens to drag down seven other DFO stores and developer Austexx, which have guaranteed South Wharf's debts.
Company loan documents show South Wharf owes money to four banks: Suncorp-Metway, St George, NAB and Lloyd's offshoot Bank of Scotland International.
Work on the shopping complex, next to the Melbourne Convention and Exhibition Centre, has stalled. Only the retail component is completed; it is still missing a cinema, a food court and restaurants.
But while shoppers have been slow to embrace the complex, it is believed the banking syndicate was more concerned by Austexx's debt-heavy corporate structure.
South Wharf Retail has also been hit by a lawsuit from Sydney-based finance company Ashe Morgan Winthrop, which arranged the company's line of credit with the banks, over $1.7 million in allegedly unpaid commission.
Last night it was not clear whether South Wharf Retail's directors would call in some administrators of their own, who would work alongside KordaMentha. Directors of Austexx, which owns three-quarters of South Wharf Retail, did not respond to a request for comment.
Austexx is run by DFO's founders, Toorak rich-listers David Wieland and David Goldberger, who have been trying to sell the chain.
Australian Competition and Consumer Commission chairman Graeme Samuel is also an investor through a blind trust, and it is believed his trustee has expressed unhappiness at Austexx's level of debt.
Melbourne Convention and Exhibition Centre operator Plenary Group, which owns the other quarter of South Wharf Retail, said that it remained committed to the site for the long term.
While loan documents show Plenary is also a guarantor of South Wharf Retail's bank debt, Plenary spokesman Kevin Lavelle declined to comment on Austexx's finances.
He defended the South Wharf retail precinct's performance, saying all areas that were open ''are trading ahead of our expectations''.
''While there has been some frustration in getting the food and beverage offer open to the public, the necessary planning and licensing approvals are being achieved methodically and significant progress has been made in recent months; we see plenty of upside in the precinct.''
Separately, Plenary yesterday sold 49.9 per cent of the Convention Centre project, a public-private partnership with the state government, to New Zealand fund manager Morrison & Co in a deal believed to be worth less than $50 million. Mr Lavelle said the deal was unrelated to South Wharf Retail or Austexx.
South Wharf Retail is believed to owe its banks, who have first call on company assets, about $450 million.
DFO outlets at Homebush, Brisbane, Essendon, Jindalee, Canberra and Cairns have been pledged as security over the South Wharf loan.
An additional $50 million to $100 million is believed owed to mezzanine financiers, which loan documents show are Singapore's state-owned GIC Real Estate and a fund run by Australian developer Mirvac.
Mr Wieland and Mr Goldberger made their fortunes in the oil trade in the 1980s, selling their Solo petrol station chain to Ampol in 1989 for a reported $200 million. This year's BRW rich list estimated the pair were worth $625 million between them.
Australias largest book retailer is mired in debt and slashing its range, leaving publishers anxious about the industrys health.
Redgroup Retail, parent of the Borders and Angus & Robertson chains, has been forced to jack up prices, increase returns and extend trading terms with its suppliers, according to industry sources. The company told the New Zealand Stock Exchange in July it was likely to breach two of its banking covenants at the end of the month, with debts believed to be in the order of $50-75 million.
A whole lot of publishers arent doing business with them at the moment, a senior book publishing source told Crikey. They are asking for payment terms to be extended to as far as 120 days, which nobody is prepared to give them. In response publishers are cutting their print runs by 30% in the run up to Christmas. Another source told Crikey that Redgroup was looking to reduce stock on shelves, up recommended retail prices and increase return credits with publishers.
The retailer which accounts for more than a quarter of Australias $1.5 billion book industry is suffering a bleak period. According to industry figures, book sales were down 4% across the market in the first six months of 2010. Redgroup told the NZSX in July it was on track to deliver earnings of just $25 million for the year to August.
Gabrielle Coyne, CEO of Penguin, told Crikey it had been a bumpy year with flat volumes. The next six months are crucial, as ever, given how important the Christmas season and therefore the last quarter is to publishing and book retailing, she said.
Malcolm Neil, a spokesperson for Redgroup, told Crikey the book industry was suffering a downward turn after bumper sales on the back of the economic stimulus and blockbuster titles such as Twilight, Harry Potter and the Dan Brown series.
Retail across the board is really struggling. Youve got to work harder for every dollar of sales than ever before, Neil told Crikey. However, there has been a lot of work back of house. The basics of retail are still as important as ever.
Angus & Robertson and Borders are now apparently ordering books in very small quantities one or two at a time and stock is being turned over much more often. A senior book publishing source says this is affecting the companys brand, especially Borders.
Borders was renowned for having a very strong range, however that has changed considerably. Youve got three months for a book to survive, then you are dead and gone. Its the publishers who pay for that, they said.
Tim Coronel, publisher of Bookseller+Publisher magazine, said Redgroup had completed a big return push before the financial year, a move that wasnt a great sign for the retailers future.
The admission they made recently is telling, because they definitely have a big debt burden, Coronel told Crikey. Redgroup are playing it down, saying it may have been overplayed. But theyre definitely under pressure.
Redgroup says retailers are trying to get the right mix of stock and that publishers always want their title on display for longer than book shops can afford. Says Neil: Retail is tough. Were a sale or return business. When you are in a tough market everyone has to share the pain.
Coronel says that any bloodletting for Redgroup is likely to come from Angus & Robertsons 183 store-strong network: A lot of that pressure is because they have a large range of big stores, in places like Westfield shopping centres. The overheads of running those stores from things like rent are huge.
There is a moderate to high chance that you will see the branch network shrink, when franchisees pull out. They may not be offered the support that they otherwise would be.
Despite tanking book sales, Redgroups flagship Carlton store in Melbourne has gone through a recent extensive refit and the company has rebuilt its website while heavily promoting the Kobo e-reader.
Theyre spending, spending, spending, because they have to, said Coronel. And now maintaining their retail stores is becoming an issue.
According to Neil, the Borders Carlton rebranding is part of the companys aim to sell books that come with add-on products in order to extend the range. But, he says, the story is still the book. There is that feeling that when you talk about selling other things, that you arent focusing on the book. But that only works when the book is right.
Coyne told Crikey all retailers are important to Penguin, including independents, mass market retailers and chains like Redgroup. But one senior publisher says the stakes are higher: Its the mass marketing publishers that are going to face the real strain if they go under. They need Redgroup to be working.
Correction: The original version of this story said Angus & Robertson operated a 183 store-strong franchise network. Crikey would like to clarify that not all 183 stores are franchises.
