Renaissance chairman Colin Giffney has submitted a lengthy letter to shareholders announcing grim earnings expectations but promising improvement in 2012.
Giffney describes a ‘perfect storm’ of adverse trading conditions in the last year, with Apple squeezing the company’s margins and credit limit, Ingram Micro entering the market as a second Apple distributor, and the Christchurch earthquake shutting down the company’s distribution and direct sales offices, its best-performing retail stores, and its Natcoll education campus.
"The trading result for 2011 will not be pretty," Giffney says.
"We have had two major events hitting the business at the same time. The new Apple model has deeply affected our distribution and sales activities. The earthquake in Christchurch has severely restrained our activities in that town.”
Specifically, Giffney says the quake has caused $1.3 million in material damage and $2.7 million in loss of earnings. So far, only $500,000 has been paid in insurance.
"Outcomes in Christchurch remain uncertain,” Giffney says.
Despite this difficulty, the bigger problem seems to be the pressure from Apple.
"Over our whole business, with no adjustment for loss of business in Christchurch, gross margins have declined $4.0 million, or 27%. That has been the real issue.”
Heavy cost-cutting measures have been introduced, Giffney says,
"We have reduced the total number of employees by 99 from 367 to 268 since November 2010. 76 of those people have gone from distribution and sales.”
However, Giffney says there are still positives to be considered, with the company’s businesses now consolidated under a single brand, Yoobee, and gains being made in retail stores.
"We are now looking forward to 2012. The significant reductions we have made in employee numbers and operating expenditure will begin to flow in 2012.”
Renaissance's share price has fallen to 12c per share.
Read the full letter here.