House of Fraser on brink of collapse
Lenders to House of Fraser have put accountancy giant EY on alert to handle a potential collapse of the department store after a Chinese backer pulled out of a rescue deal. It yesterday launched a frantic search for a new cash injection when the Chinese shoe retailer C. Banner, which owns the toy store Hamleys, pulled out of a £70million investment. C. Banner had intended to raise the money via a placing on the Hong Kong stock exchange, but abandoned the plan after a sharp fall in its share price.
THE accountancy giant EY has been put on alert to handle a potential collapse of House of Fraser after a Chinese backer pulled out of a rescue deal for the department store chain.
House of Fraser yesterday launched a frantic search for a new cash injection when the little-known Nanjing-based shoe retailer C.banner pulled out of a £70m investment.
C.banner had intended to raise the money via a placing on the Hong Kong Stock Exchange but was forced to abandon the plan after a sharp fall in its share price in recent weeks.
The cash call had “been rendered impracticable and inadvisable”, C.banner admitted.
Last night, sources close to the situation said that the crisis meant preparations were being made to put House of Fraser into administration if necessary.
EY drew up contingency plans for insolvency as part of a restructuring deal with creditors agreed last month. It is understood that senior accountants are now on standby to handle what would be the biggest high street failure since Woolworths went under a decade ago with 30,000 job losses.
If a new backer cannot be found, as many as 17,000 jobs could be at risk. As well as 6,000 House of Fraser staff, about 11,000 concession workers may be under threat.
House of Fraser said it was in talks with alternative lenders and exploring other options in an attempt to get the investment on the same timetable.
Sports Direct’s founder Mike Ashley, an 11pc shareholder in House of Fraser, is said to be interested in striking a deal, having written to the company offering what he considered “better terms”.
He has previously bought struggling retailers via pre-pack deals with administrators.
Talks between House of Fraser and Mr Ashley are at an early stage. Sources said the funding shortfall at House of Fraser has raised doubts over its ability to stock its stores.
The chain had been relying on the planned C.banner funding to stay afloat into the crucial Christmas trading period, even after it announced plans to slash costs by shutting more than half its 59 stores.
Creditors initially approved the restructuring via a company voluntary arrangement (CVA).
However, a group of commercial landlords launched a legal challenge last week and prompted C.banner to delay its investment, which was due to be exchanged for a 51pc shareholding. In recent days, credit ratings agencies have labelled House of Fraser finances as “tantamount to default” and in “limited default”, further restricting its ability to borrow to pay its bills.
The company had asked to extend the maturities on its bonds and banking facilities to October 2020 in exchange for a fee of 1pc of the outstanding debt. It prevented House of Fraser from being hit by a “liquidity crisis” on, or immediately after, July 29, when interest and £26.1m worth of debt repayments were due.
Fears over the fate of House of Fraser will also spark concerns for the company’s pension scheme, which is worth £120m, according to the most recent available accounts.
Volkswagen’s new boss has pledged to transform the scandal-ridden German carmaker from a “cumbersome supertanker into a powerful fleet of speedboats”. Presumably the comment from Herbert Diess was meant to signal that VW is finally taking reform seriously, but shareholders are unlikely to be fooled. They have heard it all before.
His predecessor Matthias Müller was a fan of equally grandiose statements, once declaring that the company was about to enter the “biggest change process in Volkswagen’s history”.
Incredibly though, Müller was referring to plans to make more electric cars, and pare back costs, rather than addressing the overwhelming need to overhaul a corporation that had long treated corporate governance with contempt.
In some ways, VW is a victim of its own success. Its latest numbers point to a company in fine shape. A heavy cloud may still linger over Wolfsburg, where the carmaker is based, but consumers don’t seem to care.
It managed to register its best ever quarterly profit in the three months to June, racking up nearly €6bn (£5.3bn) of operating profit, and smashing analyst forecasts by more than €1bn. Deliveries and revenues also hit new highs.
With the carmaker firing on all cylinders, no wonder there is so much resistance to change. Yet it is impossible to ignore the eye-watering financial cost of the diesel scandal. So far, €25bn has been paid out in fines, including another €1.6bn in the last quarter alone.
Not that VW has sat still in the three years since the crisis erupted. Costs have been slashed, engineering complexity reduced, and it has steamed into the market for electric and self-driving technologies. Diess has even promised to step up the turnaround with a plan to split its brands into three new vehicle groups: a “super premium” category that would include sports car brands Porsche, Bentley, Lamborghini and Bugatti; a premium division consisting of Audi; and a “volume” group that includes the VW brand, Czech division Skoda and Spanish unit Seat.
Slimming down makes sense. Carmakers must be competitive if they are to survive in a changing world. But VW’S focus seems to be almost entirely operational. Reforms on governance have been few. The board’s cabal of three interest groups – the state of Lower Saxony, the Porsche family and Qatar’s sovereign wealth fund – has carried on as normal.
Diess is clearly alive to some of the risks that VW faces. “We cannot rest on our laurels because great challenges lie ahead of us in the coming quarters,” he said after unveiling its most recent figures.
Surely the greatest of all is the ongoing cost of industrial-scale cheating? Apparently not. “Growing protectionism” is Diess’s biggest concern, he said.
There are some signs that the company is opening itself up to more scrutiny such as Diess’s willingness to face reporters’ questions every quarter, rather than just once a year as has been customary, but genuine change still seems a long way off.
Diess has been described as a man of action. Living up to that moniker will require a complete rethink.
House of horrors
“Worse than BHS” – that’s how one retail source described House of Fraser’s prospects as a rescue deal from China started to unravel. Hong Kong’s C.banner has now confirmed it has pulled the deal following a startling collapse in its share price.
The company is now in a horribly precarious position with its cash reserves running dangerously low. In fact, reserves are so depleted that it is seeking a bridging loan of £25m so that it can buy stock to replenish the shelves in its stores.
A CVA designed to halve its store base also looks dead after a small group of rebel landlords launched legal action to block it.
Unsurprisingly, the high street’s resident grim reaper Mike Ashley is already sharpening his scythe. The Sports Direct founder has long coveted a more illustrious place for his cut-price trainers and bargain tracksuits, and has offered to step in with an emergency loan.
Ashley has a history of waiting until rival retailers go bust, then snapping up assets on the cheap. A similar result may be on the table as the chain’s lenders line up EY as administrators.
Even in BHS’S final days, there were hopes that its strong homeware and lighting collection would tempt someone to save it. House of Fraser has an illustrious history but there is little that is unique about it today.
‘With the carmaker firing on all cylinders, no wonder there is resistance to change’