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Debenhams seeks to calm investors with statement on financial position

Lauretta Roberts
10 September 2018

Debenhams sought to calm investors' nerves today with a statement in which it confirmed expectation of a £33m profit for the current financial year (in line with current guidance) after its share price sank further on speculation that it could be planning store closures.

Reports over the weekend said that KPMG had been called in to work with the retailer, which has issued a number of profit warnings this year, and that store closures were a possibility, perhaps even via a CVA (Company Voluntary Arrangement). As a result Debenhams' shares, which had already fallen from 50p just over a year ago to 12p last week, dropped to just above 10p today. They closed at 11.33p.  

In an unexpected statement to the Stock Market, CEO Sergio Bucher said: "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."

The statement said the company expected to end the financial year with net debt of approximately £320m which it said was "in line with guidance and retaining significant headroom on our £520m medium term facilities". It also provided assurance that it had strengthened its financial position to give it comfortable liquidity through the peak borrowing period and said it had seen a positive response from customers to current season trends.

Chairman Sir Ian Cheshire noted: "As we stated in June, the board continues to work with its advisers on longer term options, which include strengthening our balance sheet and reviewing non-core assets. This activity is in order to maximise value for shareholders and protect other stakeholders, including our employees."

However not everyone was convinced by the statement Patrick O’Brien, UK Retail Research Director at GlobalData, a leading data and analytics company, said the statement "singularly failed to address investor concerns".

"While trying to give reassurance with regards to its short term performance – earnings and debts are running at expected levels, and the new season has seen ‘positive trends’ – 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.

‘‘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 [Debenhams' Danish chain] Magasin du Nord, but its long term performance is still going to be under huge pressure, and with it carrying £4.6bn 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.’’

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