News and events

Pages

19 May, 2013

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!

19 May, 2013

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

19 May, 2013

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.

19 May, 2013

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.

Click to view the Company Watch Health Profile of Ex Cellar Investments, the consolidated group of Oddbins Limited.

19 May, 2013

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.

19 May, 2013

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.

19 May, 2013

Auto Windscreens, the UK’s second largest windscreen repair company (at one time employing over 2,000 staff), went into Administration in February 2011. In 2008, following catastrophic losses, the company underwent a major restructuring and cost cutting programme, and at the same time raised £45m new funding via equity and group loans. Yet even this reconstruction did not bring it out of our Warning Area (H-Score 25 or less). Losses continued into 2009 and beyond and it finally went into Administration on 14th February 2011, with the possible loss of 1,100 jobs. 

19 May, 2013

As Republic joins the lengthening list of private equity owned retailers to fail, Nick Hood shares Company Watch’s experience of the pros and cons of the private equity ownership model in this struggling sector.

19 May, 2013

Company Watch Head of External Affairs, Nick Hood contributes to detailed analysis of results from leading companies:

Thorntons continues its turnaround mission

Domino’s sells 61m pizza in the UK & Ireland

Primark sales growth surges on

8 May, 2013

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

Pages