Debenhams now working with KPMG team amidst CVA worries

Debenhams now working with KPMG team amidst CVA worries

After their third profit warning of the year, Debenhams calls in KPMG reconstructing specialists

Debenhams released an official statement on 10 September 2018 with the promise of official preliminary results for 25 October.

Similarly to the issues faced by House of Fraser, the major retail chain is having to operate in an increasingly challenging industry. Consumers largely prefer to rely on online purchasing; coupled with a general growth in business rates, rent, and wages, companies like Debenhams are undeniably in danger.

Debenhams has called in KPMG reconstructing specialists to help plug particular financial issues with the company.

Colliers International has estimated that, across Debenhams’ 178 stores, they have a total of £150m. The Colliers report stated: “Some stores saw big rises in Rateable Value of over 50% or even 100% (Westfield +133% and Oxford Street +57%), following the Revaluation in 2017, and these rises are still filtering through, with inflation on top.

“The store in Westfield, for example, was paying a rates bill of £651,000 before the Revaluation. This year the figure is now an eye-watering £1.3m (2018/19) In Oxford Street, the Debenhams store paid a rates bill of £3.4m before the Revaluation. It is paying £5.46m this year and the bill will rise to £5.87m by 2020/21. These rises are largely unsustainable in the current market.”

In other parts of the country, stores have seen a decrease in rate bills ever since Revaluation. However, this isn’t having enough effect with Debenhams’ stores, due to the policy of downward transition.

The Debenhams store in Cumbria, for example, has a 37% reduction in Rateable Value after Revaluation, but the rate bill only decreased by less than £5,000 in the first year. In 2018 they paid £41,261, which is still too high.

John Webber, Head of Business Rates at Colliers International, said: “Debenhams, House of Fraser, Laura Ashley, New Look – the list of retailers with uncomfortably high business rate bills is never ending. Yet still the Government talks and does nothing.

“A total overhaul of the business rates system, a look at reliefs and reform of the appeal system is needed.

“The Government really needs to stop fiddling on the margins and prioritise this issue higher up the agenda.”

The official statement released by Debenhams, however, suggests they are confident that they can deal with the challenges ahead of them.

In their statement, they said: “Consistent with our focus on managing cost and cash generation, we anticipate year end net debt will be approximately £320m, in line with guidance and retaining significant headroom on our £520m medium term facilities.”

They go on to emphasise that they are continuing to focus on strengthening their financial position, including increasing headroom on the fixed charge covenant that they announced on 1 August 2018.

Sergio Bucher, CEO of Debenhams, said: “The market environment remains challenging and underlying trends deteriorated through the summer months. Nevertheless, the product and format improvements we have tested are gaining traction and we are ready to scale up some of our strategic activity.

“Having put in place a leaner operational structure and strong leadership team, and taken action to strengthen our financial position, we are well-equipped to navigate these market conditions and take advantage of any trading opportunities that emerge.”

Only time will tell how Debenhams manages to navigate the next few months, ahead of their preliminary results in October.

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