Debenhams issues upbeat statement as CVA speculation mounts

By

Sandra Halliday

Published
Sep 10, 2018

On a day when department stores giant Debenhams saw more attention focused on its survival chances rather than its big new announcement around its beauty offer, the company on Monday felt compelled to issue a statement clarifying its situation.

It said that media speculation is the reason behind the unplanned update that came out some weeks ahead of preliminary results that are due on October 25. 

So what did it have to say? “Subject to audit, we expect to report pre-exceptional pre-tax profit for FY2018 of around £33m, within the current market range of £31m to £36.5m, and EBITDA of around £157m,” it explained. “Consistent with our focus on managing cost and cash generation, we anticipate year-end net debt will be approximately £320m, in line with guidance. We have continued to strengthen our financial position, including increasing headroom on our fixed charge covenant as announced on 1 August 2018, in order to give us comfortable liquidity through the peak borrowing period, ensuring maximum flexibility amidst volatile market trading conditions.”

It also insisted that “the early weeks of the new season have shown more positive trends and any sustained upturn would result in a rebound in our profit performance.”

And CEO Sergio Bucher added: “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 ahead of peak. 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.”

Did that statement help? Well, the company’s share price recovered ever so slightly but remained heavily down at just over 11p per share. And some analysts were unimpressed.

Patrick O’Brien, who is UK retail research director at GlobalData, said: "Debenhams' statement reacting to media speculation over its future has singularly failed to address investor concerns. While trying to give reassurance with regards to its short-term performance, it ignored the real reason why investors had punished its stock this morning: fear that its decision to bring in advisors KPMG is a prelude to a CVA, or worse.”

He added: "While it would seem too early to try to foist a CVA on landlords who are already seething at what they deem to be an inherently unfair process being abused by retailers, Debenhams appears to be softening them up for some form of negotiation.

‘‘Debenhams may still be profitable and has the possibility of bringing in £200m plus from the sale of Magasin du Nord, but its long-term performance is still going to be under huge pressure, and with it carrying £4.6 billion of lease commitments (as of September 2017), both it and its landlords know that these will need to be addressed soon unless there is a marked upturn in the fortunes of the UK high street.’’