Debenhams’ GBP 40 Million Funding Gives It A Second Wind; Sports Direct At Bay

Debenhams Ltd (DEB.L) incorporated in 1905, and by 1950, it was the biggest departmental store group in the UK. Today, the company is a leading multinational, multi-channel brand with over 240 stores across 27 countries. The company’s operations divided into two segments: UK and International. Although the company sources most of its revenue from the UK, the company’s growth comes from its International market only. Through 240 department store and online presence in more than 90 countries, the companies offer a mix of own brands, international brands and concessions. In the UK, the company is amongst the top five according to market share in womenswear and menswear and top ten in children-wear. The company also has a localised online service in many overseas markets, and in the UK, a website is one of the top online retail destinations with over 300 million visits each year.

Key Management:

• Terry Duddy, Chairman
• Sergio Bucher, Chief Executive

Key Financials - FY 2018 (£ million)

(Source: Company Fillings)

Financials Commentary

• In FY 2018, gross transaction value from UK & Ireland market was down by 2.7 per cent to £2,287.3 million as compared to the last year period, and gross transaction value from other international market increased by 1.5 per cent to £613.1 million.
• In the financial year 2018, Group gross transaction value decreased by 1.8 per cent to £2,900.4 million as compared to FY 2017 reported revenue.
• Group EBITDA reported was £157.3 million in FY 2018, reflecting a decrease of 27.5 per cent when compared with last year data.
• The company reported underlying profit before tax figure dipped by 65.1 per cent to £ 33.2 million when compared to FY17 data.
• Operating cash flow in FY18 decreased by £57.2 million to £ 159.1 million as compared to the last year.
• Reported net debt surged to £321.3 million in the financial year 2018 against £275.9 million reported in FY 2017.

The sword hanging on Debenhams’ head is finally off, at least in the near future. In the high street, Debenhams’ was coping with severe long-term pressures. The retail chain from the UK was able to secure an additional cash infusion of 40 million pounds from its lenders. With extra funding, the company will strive to safeguard its long-term future. The company is planning to close 50 non-performing stores. The company is risking approximately 4,000 jobs because of its failed anticipation regarding the customer’s changing preferences as they switched to cheaper/online options available to them.

Sergio Bucher, Chief executive of Debenhams, said that the cash injection announcement is its first step towards future refinancing. The sustainable future for Debenhams’ hugely depends upon the support its lenders can leverage so that a comprehensive solution can be underpinned, he added.

The company is trying hard to stay afloat amid troubled times, fearing the fate of those who went down, House of Fraser and BHS. In its bid to restructure, the company jointly agreed with Li & Fung (Hong-Kong based supply chain solutions firm) to develop a strategic sourcing partnership. Debenhams’ lost around 85 per cent in their market value in the year 2018.

The interim solution shows that lenders still have confidence in the company. The current financing will help the company meet its peak working capital requirement in April month. Sports Direct, with a current holding of 30 per cent in Debenhams had approached it some time back with a £40m loan offer, and the same was turned down by the high street retail store.

Debenhams’ spokeswoman said some of the conditions mentioned in the offer were affecting other stakeholders’ interests. The board invited Sports Direct to engage in the refinancing process while it was unable to accept the current proposal, she added.

A few analysts don’t feel that the latest cash injection from the lenders would not be enough for Debenhams, and it might still have to look at Sports Direct for an offer.

Mike Ashley, Sports Direct CEO, said it was not a surprise that the offer was rejected. In his view, the company never supports any help from his group. He mentioned that he was concerned about the company not being able to fathom the situation it is in.