Asda rights wins City's approval
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Your support makes all the difference.ASDA, the rejuvenated supermarkets group, enjoyed a warm reception from the City after launching a pounds 347m rights issue to speed up its programme of store refurbishment, and forecasting a 50 per cent rise in pre-tax profits to pounds 130m for the year to 1 May.
Archie Norman, chief executive, said his board wanted to be first in the 1993 rights issue queue, and this had helped to dictate Asda's timing. A sizeable pipeline of companies has been building up to raise new cash before the full impact of the Government's massively increased borrowing needs hits the financial markets.
It is the group's second cash-raising in 16 months. But unlike the pounds 357m rights issue in September 1991, which was a blatant rescue exercise, the current fund-raising, fully underwritten by the bankers Morgan Grenfell, is specifically earmarked for store rebuilding, expansion into new catchment areas and new sites for its Dales discount chain.
The cash call at 53p is on the basis of three new shares for every 10 held. Asda shares rose 4.75p to 67.75p which, taking account of the newly issued shares, would value the supermarket group at pounds 1.9bn and could herald Asda's return to the FT-SE 100 index.
Shareholders will be paid a final dividend of 1.1p, making a total of 1.6p against 2.1p in 1991-92.
Mr Norman, 39, who arrived in December 1991 from Kingfisher, owner of Woolworth, B&Q and Superdrug, to spearhead a three-year recovery programme, said Asda's trading over the Christmas period had beaten the industry average and it had recorded store-for-store sales growth of 2 per cent for the year so far.
Asda's existing schedule of store refurbishment could have been financed from the company's own cash flow.
But, as many stores were near the end of their useful lives, without a rights issue there would have been a contraction of Asda's store portfolio over the next few years, restricting the potential for future growth in sales and profits.
Promising trading results from Asda's experimental stores had suggested that the company should begin replacing a selected number of its older stores.
A pounds 2m experimental store refurbishment at Wolstanton in Stoke, intended to test a new Asda format for the mid-1990s, had yielded sales gains of 20 per cent. Conversion of four underperforming Asda stores into the Dales discount format had boosted sales by 50 per cent and increased customers by 25 per cent.
Armed with the pounds 347m rights issue money, Asda plans to close and resite 15 of its oldest stores in improved locations within their catchment areas. It also aims to demolish and rebuild between five and 10 stores on their existing sites at a cost of pounds 9m a store.
Asda ran into financial problems after paying pounds 700m in 1989 for 60 Gateway stores and bungling the introduction of a national distribution network.
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