Apple squeezes Renaissance to loss

In an unscheduled letter to shareholders, IT distributror Renaissance [NZX:RNS] has warned that "The trading result for 2011 will not be pretty."

The company is looking at a loss of around $4 million, or around $1.3 million after insurance claims.

The letter predicts the company will record a profit of $1.5 million in 2012 - thanks in part to "significant reductions we have made in employee numbers".

Renaissance reduced its headcount by 99 staff from 367 to 268 since November 2010. Of those culled, 76 have gone from distribution and sales.

The company first hit turbulance back in 2007 when it lost exclusive distributorship for its key brand, Apple. 

Renaissance 12-month chart courtesy NZX.com

Apple began to sell its iPhones and other products directly to New Zealand consumers through its local website, run out of Sydney.

But it wasn't until September 2010 that Apple appointed a second distributor in New Zealand - US-owned giant - Ingram Micro.

The pain was compounded in December when "Apple reduced our credit limit they had traditionally provided us by 25%."

Apple also cut Renaissance's margin on its products - twice.

The letter says Apple products represent around 70% of Renaissance's retail business.

Since 2007, Renaissance has sought to diversify its business by buying the Magnum Mac retail chain (recently re-branded Yoobee), and design school NatColl.

NatColl's Christchurch building and head office was condemned after the February Christchurch quake, for which a $1.7 million insurance claim was lodged. The company also suffered around $1 million in damage to its retail and distirbution operation in the city.

The company's revised financial outlook:

REVENUE
2010: $145 millin (actual)
2011: $124 million (est.)
2012: $119 million (est)

GROSS MARGIN %
2010: 10.43% (actual)
2011: 8.86% (est.)
2012: 8.24% (est.)

EBITDA
2010: (0.7 million)
2011: ($1.8 million; est)
2012: $4 million (est)

The letter says the company's balance sheet is "stretched ....  we have been in breach of our banking covenants and we remain in breach."

Renaissance shares [NZX:RNS] were flat at 13 cents in midday trading.