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This man of vision plays the business game to win

PETER O'Grady-Walshe puts his head in his hands when he's reminded -- as if he needed reminding -- that Xtra-vision has now been part of his life, on and off, for almost 20 years.

"Can't you say it's 15?" he jokingly entreats as he sits in the board room of the retail chain at its Tallaght headquarters in Dublin.

On a crisp, frosty morning, Mr O'Grady-Walshe (49), who is chief executive and chairman of the group, says he and his team are still crunching the numbers from the Christmas period.

He admits that it was pretty tough, due in no insignificant part to the cold weather that affected the country in the weeks prior to December 25. Via a new point-of-sale system, he and his management team were able to get a live view of how each store was trading.

"You could see where the trade was tailing off at 5pm, whereas we'd normally trade well up to 9pm. People were going home because they were afraid of driving in the ice and snow."

He won't divulge the level of sales decline over the Christmas period compared to 2009 and is in the midst of trying to extract the snow effect from the bottom line. However, he concedes that the slide continued the trend of falling retail sales in the country.

With roughly 140 stores in the Republic and 45 in Northern Ireland, Xtra-vision is primarily a retailer, rather than a rental business.

Almost 70pc of its revenue is derived from sales of everything from electronic goods to console games, with movie rentals making up the remainder. In stores outside Dublin, the split is even greater.

New outlet

A new outlet in Trim, Co Meath generates just 20pc of its sales from rentals. Group turnover from August 2009 to January 3, 2010, was €53m, with a €1.1m operating profit.

"We're in the middle of planning for 2011 and 2012 now, which is an interesting exercise because there's so much at this stage that is dependent on consumer spending on this island," Mr O'Grady-Walshe says.

"The reality is that Irish people, south and north, have been keeping their hands in their pockets."

For Mr O'Grady-Walshe, being back at Xtra-vision returns him to a company with which he was first associated back in 1993.

He'd been working as NCB's corporate-finance director and as Xtra-vision entered examinership he was drafted in to shepherd the ailing business.

Venture-capital group 3i, as well as HSBC, then invested in the business and Mr O'Grady-Walshe was installed as managing director.

The chain was sold to the US group Blockbuster in 1997 for about £20m (€25m).

Mr O'Grady-Walshe, who's married to Roseanne Corcoran -- the daughter of former Paddy Power chairman and founder of Green Property, John Corcoran -- joined the board of Paddy Power in 2000.

He took on the role of finance director as the company prepared for its stock-market flotation.

Following his exit from the business, he joined forces with Lehman Brothers in 2002 to make an audacious €205m bid for the retailer Arnotts, which was listed on the stock market at that time.

That bid failed and Arnotts was taken over by a vehicle headed by Richard Nesbitt, who then amassed a €300m debt pile at the business before control was assumed by Anglo Irish Bank and Ulster Bank last year.

"I have a fundamental view that property and retailing are two different businesses. Xtra-vision only leases properties. We've no desire to own any," says Mr O'Grady-Walshe, who also points out that there are pretty much as many Xtra-vision stores in Ireland as there is comfortably room for.

"Arnotts was and is a fine retailer. We only believed it was worth a certain amount of money. The people who acquired it clearly believed it was worth more than that, but we disagreed.

"Had we acquired the business, our first objective would have been to pay down the debt and there were a number of asset sales we had provisionally lined up. We would have had it debt-free within a relatively short period of time."

Over-leveraged companies simply can't react quickly enough to their environment, insists Mr O'Grady-Walshe, who maintains his aversion to shackling businesses to debt burdens.

Meanwhile, he says that there was significant underinvestment in the Xtra-vision chain by Blockbuster, which is now in bankruptcy protection in the United States as it labours under $1bn of debt.

Blockbuster sucked as much as $100m in cash from the Xtra-vision business during its ownership of it.

For some time, Blockbuster had been trying to offload its European operations, including Xtra-vision, in one lot.

Mr O'Grady-Walshe, backed by Pageant Holdings, the investment arm of the Dublin-based Furlong family, which made around €50m selling a video-distribution arm to DCC in 2005, approached Blockbuster in late 2008.

"We believed that Blockbuster had materially underinvested in the Irish business in recent years and that there was more money that could be made from it," he explains.

"They didn't want to sell the Irish operation on its own, but we didn't have an interest in all of the European operations and eventually they agreed to it."

In August 2009, an up-front cash payment of €20m was made to Blockbuster, comprising €13m in equity and a €7m loan from Bank of Scotland (Ireland). There was the potential for an additional €12m earn-out clause for Blockbuster.

The bank loan is all but repaid. Pageant Holdings owns about 60pc of the business, with NCB Ventures, backed by the Ulster Bank Diageo Venture Fund owning the remainder. Mr O'Grady-Walshe has a minority stake.

He won't be drawn on it but it's clear that Blockbuster set the bar too high in terms of the level of trading that Xtra-vision would report in the subsequent year for the €12m earnout clause to take effect.

The consortium that acquired the business didn't have to pay the money, making the whole acquisition look like a sweet deal.

"While the vendor had one view as to what the performance might be, we were comfortable that if that performance didn't transpire, we wouldn't be paying the extra €12m," Mr O'Grady-Walshe says diplomatically.

"They perhaps didn't have as clear a view about the prospects for the Irish economy as we did.

"That's not to say that we had huge foresight. We did not expect the consumer environment to decline as much as it did."

Since taking over the business, about €4.5m has been invested in it, a big chunk of that on an electronic sales system to give a live and accurate view of trading performance.

Significant challenges remain as the retail environment remains difficult, although launches of new consoles this year -- such as Nintendo's DS and Sony's new handheld PSP -- should provide some sales impetus in 2011.

Xtra-vision has managed to get its rent roll reduced by about €900,000 a year but Mr O'Grady Walshe -- who is a landlord himself through unrelated property investments -- maintains that Irish landlords are "lazy" and don't actively engage in managing their properties.

Xtra-vision's own annual rent roll is €10m, about 80pc of it related to the Republic.


Asked if the clear intention is to sell Xtra-vision on, he says that's not necessarily the case.

"I need to generate sufficient returns to remunerate the shareholders, but selling the business is only one way of doing that. Once we've exhausted our capex requirements and there are no other debt requirements in the business, then we can look to start remunerating shareholders," he explains.

"In these depressed times we're not at that stage yet, but I hope those times will come."

His latest stint at Xtra-vision could end up being his longest.

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