News and events
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.
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.
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.
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.
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
'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.'
Denis Baker spoke at the Credit Collections and Risk conference in October 2010. Watch him here.
Amid the gloomy news coming from Ireland this week, Company Watch is pleased to reveal some positive news for the Republic. Using the Company Watch H-Score we have analysed 5 of the strongest quoted companies in Ireland and show how and why they have successfully weathered the economic downturn.
Click here to read more.