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Company Watch comments on retailers' debt burdens in Real Business, 22 February 2012
The recent high profile collapses of Peacocks and La Senza has focussed attention on the debt burdens of major UK retailers in the current difficult trading climate. Nick Hood has written two articles on this hot topic as the final pieces in a series on the retail sector for the special month-long feature being published by the leading corporate magazine, Real Business. The articles can be accessed below:
Which retailers are in most trouble
Company Watch research shows that the financial health of AIM mining stocks outperforms the market, 22 February 2012
Research from Company Watch shows that 31 out of 114 AIM listed mining stocks are in the Company Watch Warning Area, yet this sector still outperforms the AIM market as a whole. Read the full release here.
Company Watch comments on retail issues in Real Business, 15 February 2012
The retail sector has been the centre of media attention during and since the poor Christmas trading season. Nick Hood has written two articles in a series for a special retail focus in the leading corporate magazine, Real Business. The articles can be accessed below:
Retail: when debt becomes toxic
Trouble on the high street: lessons from the past
Company Watch expands into Middle East market with the Lebanese Credit Insurer, 7 February 2012
Company Watch is in discussions to form a joint venture with the Lebanese Credit Insurer (LCI), the largest credit insurance company operating in Lebanon and serving other countries in the Middle East. Read the full release.
Company Watch research reveals that nearly half of the UK's largest house building groups are in fragile financial health, 23 January 2012
Figures released today confirm that 7 of the top 15 UK house builders (47%) are in the Company Watch warning area, with H-Scores below 25. Read the full release.
Company Watch appears on BBC Radio and Sky News to comment on the retail sector, 13 January 2012
Head of External Affairs, Nick Hood, appeared yesterday morning on BBC Radio5 Live's Wake Up to Money programme and on BBC Radio Scotland's Good Morning Scotland show to comment on the deluge of bad news on Christmas trading from a number of major retailers. He was also interviewed yesterday evening on the Jeff Randall Live business programme on Sky about the exceptionally disappointing results announced by Tesco.
Nick commented: 'these are difficult times for many retailers after the vital Christmas period when any sales increases were achieved through heavy discounting. Top line gains are only part of the picture, what remains to be seen is how badly this has affected bottom line profits. All retail stakeholders, including employees, shareholders, suppliers and landlords will be waiting anxiously for the full results.'
Company Watch highlights likely winners and losers on UK high streets in 2012, 2 January 2012
The Company Watch health monitoring system shows the extent to which the retail market can be divided up akin to football teams competing in different leagues. Read the full release.
Company Watch research shows that four in ten AIM stocks are in poor financial health, 27 December 2011
Research from Company Watch shows that many AIM companies are in less-than-robust financial health. Of the 758 companies surveyed by Company Watch, a worrying 310 companies (41%) are in the Warning Area, recording health ratings of below 25. Read the full release.
Company Watch comments on the news that high street lingerie retailer La Senza will enter Administration, 23 December 2011
La Senza, the lingerie retailer previously owned by Dragon’s Den star Theo Paphitis, was reported on 14 December to have appointed KPMG to advise on a possible restructuring. On 23 December, the company confirmed that it would enter a formal administration. Read our full comment.
As Company Watch prepares to launch its full Irish system, CEO Denis Baker writes for InsolvencyJournal.ie, 14 December 2011
"Generating, conserving and rationing cash is a key part of most restructuring assignments. Central to this process is persuading nervy suppliers and service providers to continue to trade on terms that avoid putting an unworkable strain on scarce cash resources. Far too many rescues are scuppered by withdrawal of supplier support or demands for ransom credit terms." Read the full article here.
Company Watch comments on the troubled tour operator Thomas Cook Group PLC, 23 November 2011
In April 2010, Thomas Cook was valued at over £2.3bn: at the same time the Company Watch H-Score was deep in the Warning Area (H-Score 25 or less). In November 2011, barely 18 months later, its market capitalisation had plummeted to under £100m.
Company Watch highlights the impact for business of falling disposable incomes in the Sunday Express, 23 October 2011
Company Watch was featured again in the Sunday Express, warning about the severe squeeze being felt in consumer-facing sectors in the UK. As the government austerity measures and rising prices begin to bite on household incomes, the UK has seen a 35% rise in business failures in the worst affected parts of the UK economy. Read the full article here.
Company Watch warning on problems for UK retailers on BBC Radio 5 Live confirmed by Administration of Alexon Group, 29 September 2011
The grim reality of warnings by Company Watch Head of External Affairs, Nick Hood in a live interview on the BBC Radio 5 Live Breakfast programme on the severe problems facing the embattled UK retail sector were confirmed later the same day when, as foreshadowed by him in the interview, women's fashion retailer Alexon (with brands such as Ann Harvey, Kaliko, Dash & Eastex) filed for administration. It was immediately sold via the controversial pre-pack procedure to private equity house, Sun Capital.
Alexon had issued a profit warning just three weeks previously (on 5th September), after its sales had fallen by 9% in the first three weeks of August, as well as disclosing that discussions were ongoing for the potential sale of the company and its brands. It had previously implemented a major reconstruction and turnaround plan in 2010, which involved raising some £20m in new equity and shutting a significant number of its stores. Alexon had been in the Company Watch Warning Area since publication of its January 2009 accounts, and remained so even after its so-called reconstruction.
To hear Nick's interview follow this link.
Company Watch & Baker Tilly research highlights downturn in the UK SME sector, September 2011
Company Watch has worked with professional services firm Baker Tilly to produce research into the current state of health of the UK's Small & Medium Enterprise (SME) sector. The outcome shows just how vulnerable this vital part of the UK economy has become as the recovery phase has stuttered to a halt. A startling 25% of SME's with sales between £5m and £25m have seen their pre-tax profits halved between 2009 and 2010. Equally worrying, one in six of them have also seen their sales fall by more than 20%, a drop in activity levels that few management teams have the skills or experience to withstand. This gloomy picture means that credit managers and other stake holders need to be exceptionally vigilant in minimising their downside risk in the SME sector.
Managing Cash In A Crisis By Optimising Credit Ratings (Financier Worldwide, September 2011)
"Most turnaround and restructuring professionals live by the 'cash is king' mantra. A core discipline is to generate, conserve and ration this most precious of commodities in the troubled businesses they work with. A key strategy in this process is persuading nervous suppliers and service providers to continue to trade on terms that do not put an unworkable strain on scarce cash resources. All too many rescues are torpedoed by withdrawal of supplier support."
Click here to read the full article.
Company Watch comments on the struggling retail sector in the Sunday Express, 11 September 2011
Company Watch was featured in the Sunday Express commenting on the rough ride ahead for some of the nation's leading retailers. Company Watch warned that there is a real risk that the retail sector will return to the dark days of Christmas 2008.
Read the full article here.
Company Watch comments on Holidays 4 UK Limited, which went into Administration in August 2011
Holidays 4 UK Limited (which also trades as Holidays 4 U and Aegean Flights) announced on 3 August that it had entered Administration. Accounts for the year ending 31 October 2010 were signed in March 2011 but filed at Companies House on 16 July, less than three weeks before filing for Administration. These accounts stated that the director was 'confident of success in 2011'. However, it emerges that Holidays 4 UK had suffered particularly poor trading in May, June and July which appears to have precipitated the company's eventual failure. This downturn in holiday bookings is hardly a surprise - a recent ING Direct survey revealed that 40% of UK consumers are going without a summer holiday this year to balance household finances, and those who do book are demanding - and getting - discounts of up to 50% off brochure prices.
Looking at the 2009 and 2010 accounts filed by Holidays 4 UK, we can see that the company was particularly vulnerable to such cuts to their margins: in 2009 £26m sales generated pre-tax profits of just £119,000, while in 2010 £35m sales generated pre-tax profits of £326,000. Although the company had a fairly healthy cash balance at the October 2010 year-end, the business model, which required consistent high revenues to function effectively, meant that the company was vulnerable to a sustained period of poor trading. Using the Company Watch experiment function, we see that a drop of only 2% in sales and profits would be enough to tip Holidays 4 UK into the Warning Area.
Company Watch comments on the struggling travel industry in the Sunday Express, 24 July 2011
Company Watch was featured in the Sunday Express commenting on the turbulent months ahead for the UK travel industry. Company Watch was quoted in the paper warning that 'it is highly likely that there will be significantly more company failures over the next six months than the 14 companies which collapsed in the same period last year, leaving holiday makers devastated and thousands stranded across the world'. Company Watch research indicates that at least 20 tour operators will go bust in the next six months.
Final chapter for Borders Group Inc as private equity bid for the company is withdrawn, July 2011
The struggling US book chain group Borders, which filed for Chapter 11 bankruptcy protection in February 2011, announced on 1 July that it was seeking court approval to sell itself to the Arizona-based private equity firm Najafi for $215m. The terms of the sale would have seen Najafi acquire liabilities of $220m, but would have kept the business intact. However, objections from Borders' creditors means that the private equity bid has been withdrawn and it is likely that the company will now be liquidated.
Borders was founded in 1971 with a single store - nearly 25 years later, in 2005, its value peaked at $2bn, with over 1,000 stores worldwide. Even after the growth of online bookshops dented confidence in the company, the market still valued the book chain at $1.3bn in January 2007. Yet, by this time, the Company Watch H-Score was deep in the Warning Area, highlighting serious weaknesses inherent in the business: not only was Borders loss-making, the assets mostly consisted of illiquid inventory which had been funded short-term, a significant amount in the form of bank debt. It was only in January 2009 that the market view caught up with the analysis that Company Watch had provided two years previously.
Click here to view the Borders Group Inc Health Profile.
Trading in Southern Cross shares has been suspended as the care homes operator announces that it will be broken up, July 2011
Southern Cross announced on 11th July 2011 that all 752 of its care homes are being taken over by their respective landlords as crisis talks aimed at restructuring and saving the operator appear to have failed. The decision by the landlords to desert the group and the suspension of the shares is final recognition of the loss of value, the risk of which was higlighted many years ago by the Company Watch H-Score. See our comment in June 2011 (below).
Credit Risk Management - Lessons Learnt from the Recession (Financier Worldwide, June 2011)
"As the global recession slips into history, at least for most economies, attention is being focused not just on what caused the near catastrophe but also on what could have been done differently. The concern is not just to avoid such disasters in the future, but to examine how the process might better have been managed to mitigate the downside for stakeholders."
Click here to read the full article.
The Jane Norman Group goes into Administration, June 2011
The fashion retail group Jane Norman (consolidated into its ultimate parent company, JN Group) announced on 27th June that it has entered administration. JN Group has long had a weak balance sheet, but strong profits had kept the company robust until 2008. When the profits collapsed in 2009, there was little strength in the balance sheet to to save it and by March 2009 the group was deep into the Company Watch Warning Area.
Click here to view the JN Group Health Profile.
Homeform (owners of the Moben & Dolphin brands) and Habitat announce plans to file for Administration, June 2011
Homeform, owners of the Moben kitchen and Dolphin bathroom brands, announced on 24th June that it plans to appoint administrators within the next 10 days. With 160 showrooms across the UK it is one of the largest retailers of fitted kitchens and bathrooms.
The high street was further rocked by news that Habitat will go into administration. Home Retail Group, the owner of Argos and Homebase, will save the Habitat brand and three flagship stores in London, but the future of 750 jobs in the branches in administration is still unclear.
Both have had exceedingly weak Company Watch Health Profiles for a number of years. Click here to view the Health Profiles.
Company Watch appoints Nick Hood as Head of External Affairs
We are delighted to announce that Nick Hood has joined Company Watch as Head of External Affairs. Nick, a Chartered Accountant, has for many years headed the BTG Global Network and brings to Company Watch not only a wealth of experience from his corporate management and insolvency careers, but also from his role directing PR campaigns for the past twelve years at Begbies. Nick continues to work at Begbies as Chairman of the BTG Global Network on a part-time basis.
Click here to read the press release.
Company Watch analyses the care homes operator Southern Cross as it appears on the brink of collapse, June 2011
Southern Cross announced in May 2011 that it could no longer meet its rental obligations of around £230m per annum. The company is currently in talks with its landlords and bankers as it attempts to avoid administration. To understand what went wrong at the UK's largest care homes provider, it is necessary to go back to the heady days of 2007 when the company, which is now valued at £14m, had a market cap of £1.2 billion.
Southern Cross was founded in 1996 and expanded rapidly using a sale and leaseback business model, floating in London in summer 2006. By the end of 2007 it had reached a market capitalisation of £1.2bn. While market confidence was at its height, the Company Watch H-Score had identified significant underlying vulnerabilities in the company's financial structure and placed Southern Cross deep in its Warning Area (H-Score 17 in October 2006, falling to 14 in September 2007).
What the H-Score model had picked up was a dangerously weak balance sheet: asset values inflated by high levels of goodwill (reflecting the company's continuous acquisition trail) had been funded to a significant extent by short-term liabilities, much of which was debt. Furthermore, in 2007, the year of maximum market valuation, profits were barely at breakeven.
Future growth of the company was dependent on continued high demand from its primary customers - the local authorities; it was also dependent upon a buoyant property market to allow the sale and leaseback model to function effectively. In 2008, however, the business model began to unravel when Southern Cross was confronted with the double blows of local authority cut backs and a decline in property prices. With a poorly structured balance sheet there was little to fall back on.
As market confidence began to wane Southern Cross was forced to sell off assets at a loss to enable it to meet its lease commitments. Although the company was able to negotiate a deal with its bankers, the new round of local authority cut backs in 2010/11 has once again exposed the company's lack of balance sheet strength.
Euler Hermes appoints Company Watch as an official Approved Source for Trade Credit Insurance policies, May 2011
Company Watch is delighted to announce that it has just been selected as a Euler Hermes Approved Source. Company Watch Full and Highlight reports can be used in conjunction with Euler Hermes Trade Credit Insurance policies (subject to policy wording). To find out more about using Company Watch with a credit insurance policy, please contact us.
Click here to read the press release.
Company Watch at Credit Today's Credit Summit, 12th May 2011
Come and meet the Company Watch team at Grosvenor House, Park Lane, London on Thursday 12th May. We will be at stand 19 from 11am. We look forward to seeing you there!
Company Watch comments on Focus DIY, May 2011
Focus DIY entered administration on 5th May 2011 after failing to secure a rescue deal. The Company Watch Health Profile of its parent FLP2 Limited, which consolidates Focus DIY, shows that the DIY chain has struggled since it went through a leveraged buyout led by the private equity firm Cerberus in 2007.
The group has been plagued by continued losses, exacerbated by high interest costs required to service the substantial debt levels that arose from the buyout. This is coupled with a balance sheet (latest year end February 2010) which shows that liabilities were far in excess of assets. Not only that, but much of the assets were tied up in illiquid stock and intangibles, the value of which is surely difficult to justify. This is a textbook example of how not to be financially robust and why it is so difficult for leveraged buyouts to succeed.
Our modelling tool shows that it would have taken drastic measures to achieve a realistic turnaround in financial health; virtually all debt would have needed to have been converted into equity and the company would have needed positive pre-tax profits.
Click here to view the latest H-Score of FLP2 Limited which consolidates Focus DIY
Company Watch comments on the consolidated Von Essen hotels group, which owns 31 luxury hotels in the UK and France, as it enters administration, April 2011
The Von Essen hotels group went into administration on 20th April 2011, just before the extended Easter and Royal Wedding break, having been unable to service interest payments on an estimated £250m debt owed to Barclays and the Lloyds Banking Group. Summarised accounts taken from the company's website show assets of £430m, sales of £74.2m and operating profit of £24.9m for the year ending December 2010; the company's portfolio includes such prestigious luxury and country house hotels as The Royal Crescent in Bath, Amberley Castle in West Sussex and, of course, the legendary Cliveden in Berkshire.
The company has reported steady increases in sales over the past five years, assisted by its growing portfolio of properties. However, despite reasonable operating profits of £24.9m in 2010, this was reduced to barely breakeven once exceptionals of £6m coupled with interest costs of £17m were taken into account. An appetite for acquisitions (The Forbury in 2009, Llangoed Hall in 2010) has left the group with substantial debt of £250m, which went short in 2010. This weakening of the balance sheet coupled with its break-even earnings position gave it a very weak health profile (with an H-Score of just 8, i.e. deep into Company Watch's Warning Area) and it is not surprising that the company was forced into administration.
Our modelling tool shows that if the group's bankers were agreeable to restructure the debt to long - which would, no doubt, need to be backed by a belief that the group could generate operating cash flows sufficient to cover interest payments, the Von Essen group would emerge from the Warning Area and could return to reasonable financial health.
Company Watch comments on the Oddbins group as it announces that it will enter administration, April 2011
The off-licence chain Oddbins announced on 31st March 2011 that it will shortly enter administration, following the rejection by creditors of a Company Voluntary Agreement. The struggling retailer, whose sales have halved since 2006, has been loss making for most of the last ten years, suffering like many other niche retailers from the dominance of supermarket chains.
Despite Oddbins' loss making operations, the company’s unconsolidated 2009 financials at first glance look to have some balance sheet strength. This is derived primarily from a receivable of more than £15m due from its parent, Ex Cellar Investments. This receivable is rather convoluted as it relates to a loan from Oddbins to Ex Cellar to assist Ex Cellar in its acquisition of Oddbins in 2008! Our models show that the consolidated accounts for Ex Cellar are exceedingly weak, reflecting the operational losses from Oddbins coupled with Ex Cellar’s own negative net worth (where liabilities exceed assets). This fundamental weakness makes the recoverability of Oddbins' receivable from Ex Cellar highly unlikely: once £15m is removed from Oddbins' own balance sheet it is clear that the company has little to fall back on. The case of Oddbins and Ex Cellar highlights the importance of considering groups as a whole when evaluating an individual company's financial health.
Company Watch comments on Dixons Retail PLC, March 2011
On 30th March 2011, Dixons issued a profit warning relating to their year ending April 2011 blaming government cuts, the VAT increase and fragile customer confidence in the economy.
Dixons Retail, which owns Currys and PC World has warned analysts to expect profits for the year to April 2011 to be at the lower end of expectations - around £85m. The Company Watch H-Score has long highlighted the company's weak balance sheet and our models show that, even if profits were to reach the higher end of expectations (£109m), Dixons Retail would still be deep within the Company Watch Warning Area. Like many retailers, Dixons shows poor short term liquidity, but while most other retailers have compensating factors such as a strong capital base, or significant earnings flows, Dixons is substantially weaker than average on 5 out of the 7 measures that contribute to the Company Watch H-Score. All of Dixons' capital base and some of its other long term funding are tied up in its investment in intangibles (goodwill); and there must now be some doubt about the true value of these intangibles as super earnings have failed to materialise. The Company Watch modelling tool shows that Dixons needs to improve its funding structure by ensuring that all its debt is structured long. However, to achieve longer term stability, it should strengthen its capital base either with improved and consistent profit retentions or by a significant injection of new capital.
Company Watch comments on troubled entertainment group HMV, March 2011
HMV, the global music and book retailer has issued four profit warnings in the last six months, and concern is growing that it is set to breach some of its lending covenants in the coming months. The latest profit warning estimated that full-year pre-tax profits will be "moderately below expectations" of £45m.
The Company Watch H-Score has identified HMV as vulnerable for many years. While their earnings performance may have been disappointing, this is not their key weakness - it is their balance sheet which is cause for concern. Over the years, they have spent significant sums on acquisitions (including Waterstones, Zavvi, Fopp, Hammersmith Apollo); in addition, with funds tied up in fixed assets and inventories, the group remains highly illiquid. After netting off intangibles against net worth, the liabilities exceed the assets; further, over 75% of these liabilities are current.
Current discussion centres on the possibility of selling off Waterstones to shore up the balance sheet. However, our modelling tool shows that, even if the group raises the £75m that its lenders have stipulated for covenants to be extended, this on its own would be insufficient to bring the company out of the danger zone. The Company Watch modelling tool shows that far more drastic measures are required to bring HMV out of the Warning Area.
Company Watch comments on Auto Windscreens, which entered Administration in February 2011
Auto Windscreens, the
Click here to see the Company Watch H-Score.
Company Watch launches its new website and brand identity
Company Watch is delighted to reveal its new website and brand identity. CEO Denis Baker thanked the Company Watch staff for their team effort in getting the site live and said that he hopes the new website will enable our clients and prospective customers to better understand the diverse uses of the Company Watch Business Intelligence tool. He added that he is looking forward to the next phase in the company's commitment to providing a globally recognised standard measurement of corporate financial health.
Company Watch would like to thank John McCarthy and the team at Brandgraphica for all their help in bringing the new look and website to fruition
Learn to love the H-Score (Shares Magazine, 6th January 2011)
'Every serious investor has one or two horror stories to tell about a company in their portfolio which contrives to go bust. Imagine if there was a tool to help you to quickly and effortlessly identify a company's financial position before you put your cash at risk. Imagine how much money you could potentially save. The good news is there is such an instrument and it is called the H-Score.'
Company Watch's CEO Denis Baker speaking at the CCR-i conference
Denis Baker spoke at the Credit Collections and Risk conference in October 2010. Watch him here.
Company Watch welcomes Anthony Montgomery as new Sales Director
Company Watch is pleased to announce that Anthony Montgomery has recently joined the team as Sales Director. Anthony has many years' experience in the information industry, most recently at ISI Emerging Markets.
23/12/2010 Company Watch on Ireland
10/11/2010 Company Watch on ROK PLC
10/09/2010 Company Watch on Connaught PLC
The H-Score measures the financial health of any company. Companies in the Warning Area (H-Score of 25 or less) display the characteristics of previously failed companies and may themselves be vulnerable to distress.
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