REG - Debenhams plc - Debenhams Group - Financial update
This announcement contains price sensitive information
26 April 2019
DEBENHAMS GROUP
Financial update
Debenhams Group Holdings Limited updates on business performance for the 26 weeks to 2 March 2019 and provides information relating to medium term projections contained in the Debenhams business plan.
Terry Duddy, Debenhams Executive Chairman, said:
"The issues facing the UK high street are very well known. We are announcing today the next phase of our restructuring, to reshape our store portfolio which will give Debenhams the platform to deliver a turnaround. With committed funding and supportive new investors this business can look forward to a viable and sustainable future."
Financial headlines
· Group gross transaction value ("GTV") declined by 5.3% in the 26 weeks to 2 March 2019 compared to the first 26 weeks to 3 March 2018 , with like-for-like sales down 5.2%. UK sales declined by 5.4%, with International sales down 4.8%.
· Group EBITDA, before exceptional items[1], declined 36.3% to £65.9m in the same period, as a result of lower sales and a c. 150bp decline in gross margins.
· Group net debt as at 2 March 2019 stood at £417.4m. On 29 March 2019, the Group announced it had agreed £200m of new money facilities in addition to its existing facilities of £520m.
· Debenhams plc was placed into administration on 9 April 2019, with the underlying group operating companies immediately sold by the Administrator to a newly incorporated company, Celine UK NewCo 1 Ltd. These operations continue to trade as normal. Fuller details on the Group's interim results will be provided in due course.
Operational headlines
· UK stores declined 7.4% over the half due to weak industry footfall, although performance over the peak period was less negative. Stores trading in the Debenhams Redesigned format have traded better than the average performance by c. 1.5% and we have seen a positive response to our revitalised womenswear offer.
· Digital sales growth of 2.5% like-for-like reflects a slowdown post-peak as a result of our withdrawal from own bought furniture and weaker demand for high ticket discretionary items. We have successfully transitioned desktop to the Mobify web application, extending the user experience improvement to all our UK digital customers.
· Gross margins declined by 150bp in H1, reflecting an adverse sales mix and tight inventory management. Stocks have declined by 5.1% year on year. On 12 February we announced a strategic sourcing partnership with Li & Fung which is expected over time to lead to sourcing benefits and improved margins.
· In H1 we delivered annualised £8m savings from initiatives identified in FY18, and a further £35m from new initiatives, contributing to a c. 4% reduction in costs, net of new space and inflationary effects. Savings are on track to meet the c. £80m annualised target previously identified.
· The Group intends to deliver a comprehensive turnaround plan which will include:
o An exciting customer proposition through the Debenhams Redesigned strategy;
o A financial restructuring to achieve a sustainable capital structure; and
o A rationalisation of the store portfolio, which we are providing a separate update on today.
Enquiries:
Debenhams plc (in administration)
Debenhams Group
FTI Consulting
Jonathon Brill
Ed Bridges
Tom Hufton
Fern Duncan
020 3727 1000
Brunswick Group
Tim Danaher
Craig Breheny
Fiona Micallef-Eynaud
020 7404 5959
Notes to editors:
Administrators were appointed to Debenhams plc (in administration) on 9 April 2019. The underlying group operating companies are unaffected and all businesses are continuing to trade as normal. Debenhams Group Holdings Limited, its subsidiaries and certain dormant companies, which together make up the Debenhams Group, were transferred to the ownership of Celine UK NewCo 1 Ltd. on 9 April 2019.
SUMMARY FINANCIAL REVIEW OF THE HALF YEAR
£m
26 weeks to
2 March 2019
26 weeks to
3 March 2018
% change
Gross transaction value1,2
UK
International
Group
1,233.2
330.0
1,563.2
1,303.3
346.8
1,650.1
(5.4)%
(4.8)%
(5.3)%
Statutory revenue1,2
UK
International
Group
1,008.8
237.2
1,246.0
1,065.9
253.3
1,319.2
(5.4)%
(6.4)%
(5.5)%
Group like-for-like sales movement3
(5.2)%
Group gross margin movement4
(150) bps
EBITDA1,5,6
UK
International
Group
37.1
28.8
65.9
71.6
31.9
103.5
(48.2)%
(9.7)%
(36.3)%
2 March 2019
3 March 2018
Net debt
RCF
Notes
Other
Less: Cash
Net debt
360.0
200.0
(0.4)
(142.2)
417.4
83.8
200.0
0.6
(36.2)
248.2
Net debt : EBITDA (last 12 months) 6
3.5x
1.4x
Notes to the above table and to all references in this statement:
1. UK operating segment comprises stores in the UK and digital sales to UK addresses. International operating segment comprises the international franchise stores, the owned stores in Denmark and the Republic of Ireland and digital sales to addresses outside the UK.
2. Gross transaction value (GTV): sales on a gross basis before adjusting for concessions, consignments and staff discounts. Statutory revenue: sales after adjusting for these items.
3. Like-for-like sales movement relates to sales from stores which have been open for more than 12 months plus digital sales.
4. Gross margin: GTV less the value of cost of goods sold, as a percentage of GTV.
5. EBITDA is calculated as profit before interest, tax, depreciation, amortisation and profit/loss on disposal of assets, asset write offs and exceptional items.
6. Before exceptional items, comprising costs associated with restructuring, provisions for impairment losses and onerous lease commitments, write off of intangible assets, impairment of goodwill and provisions for minimum guaranteed pension liabilities.
.
GROUP SALES AND PROFITS
Sales and revenue
Group gross transaction value ("GTV") decreased by 5.3% to £1,563.2 million and Group revenue decreased by 5.5% to £1,246.0 million. Group like-for-like sales decreased by 5.2% on a reported basis and 5.3% on a constant currency basis.
The constant currency like-for-like sales performance reflects the difficult market conditions in H1 2019 with lower footfall and heavier discounting having impacted our overall sales. The shift to digital also continued, with like-for-like digital sales growth of 2.5% representing 20.0% of Group gross transaction value (H1 2018: 18.4%).
SEGMENTAL PERFORMANCE
UK
Gross transaction value for the UK segment decreased by 5.4% to £1,233.2 million and reported revenue decreased by 5.4% to £1,008.8 million. The GTV decline was a result of a continued volatile and highly competitive UK trading environment, exacerbated by adverse speculation in relation to the Group's financial position impacting consumer and supplier confidence. Against the backdrop of a highly promotional market environment, some tactical promotional activity was reinstated in order to be competitive and to manage inventory levels tightly. Despite this, we have seen positive reaction to our revitalised Womenswear ranges driving market share growth in that category.
EBITDA before exceptional charges decreased by 48.2% to £37.1 million as a result of the sales decline and additional markdown required to maintain competitive pricing and market position. This has been mitigated somewhat through cost savings initiatives, in line with the c. £80 million annualised cost savings previously announced. In the first half, as expected we have annualised £8 million savings from initiatives identified in FY18, and a further £35 million from new initiatives, contributing to a c. 4% reduction in costs, net of new space and inflationary effects.
International
In the International segment, GTV of £330.0 million was 4.8% lower than last year and reported revenue decreased by 6.4% to £237.2 million.
The trading environment has been similar to that of the UK, impacting both sales within our owned Republic of Ireland stores and despatches to our international partners. Magasin continued to see growth, helped by a new store opening in Aalborg and a 40% growth in online sales. Overall, EBITDA fell by 9.7% to £28.8 million.
RECENT EVENTS AND OUTLOOK
Following the administration of Debenhams plc on 9 April 2019, the Group confirmed that it will continue to have access to its significant additional funding from the £200m new money facilities announced on 29 March 2019. On 18 April 2019, Debenhams announced that CEO, Sergio Bucher, had decided to step down following the successful refinancing. Terry Duddy has become Interim Executive Chairman and is leading the process to recruit a new CEO. On 23 April 2019 Stefaan Vansteenkiste of Alvarez & Marsal joined the Group as CRO.
The Group intends to deliver a comprehensive turnaround plan which will include: an exciting customer proposition through the Debenhams Redesigned strategy; a financial restructuring to achieve a sustainable capital structure; and a rationalisation of its store portfolio, which we are announcing today, to be delivered through a CVA process.
Linked to the provision of the £200m new money facilities and lenders' plans to implement a £100 million debt for equity swap, the Group is required to proceed with its restructuring plans. Today, Debenhams has announced details of two proposed Company Voluntary Arrangements (together the "CVA"): one relating to Debenhams Retail Limited, the main trading entity in the Group; and one relating to Debenhams Properties Limited, the main property holding company in the Group. These decisive actions will serve to keep Debenhams on a stable financial footing and ensure the future of the business. The CVA does not affect existing trade suppliers or employees.
The CVA proposals provide a mechanism to restructure the Debenhams store estate in line with the plan outlined by management in October 2018 to reduce the current 166 UK store portfolio by closing around 50 stores. With no store closures resulting from the CVA in 2019, the first stage of the programme proposes up to 22 UK store closures in 2020. Additional stores could be closed over the next 5 years, depending on their financial performance.
If successful, the CVA will reduce rent expense, benefiting UK EBITDA and improving future cashflows. With lower fixed costs and earlier break clauses there will also be significantly improved flexibility for the business in the medium term. The medium-term financial projections do not include the impact of the CVA, which is stated separately.
We have set new strategic priorities for our teams to put the business back on course following the period of disruption resulting from the refinancing and restructuring process. These are:
o Accelerate cost savings through simpler and more efficient operations
o Rebuild confidence in our business and our brand
o Develop a compelling and relevant product offer
o Deliver a website that is easier, better and more reliable to shop
o Improve our stores to give our customers better, more consistent experiences
Details of balance sheet restructuring
As part of the overall restructuring and turnaround plan, c. 80% of lenders have agreed to equitise £100 million of debt and extend maturities on the Group's existing RCF and Notes, conditional on the successful implementation of the CVA. The key terms of the reinstated debt will be:
Tranche
Amount
Interest
Maturity
First Lien Facility
£200.0m
L + 12.00% Cash
30 June 2021[2]
Second Lien Facility
£117.3m
L + 5.25% Cash
30 June 2021
Third Lien Facility
£302.7m
L + 2.20% Cash / 8.05% PIK
30 June 2021
As part of the restructuring, Debenhams and its lenders have also agreed to a revised funding agreement with pension trustees, resulting in an increase in cash contributions to Debenhams pension schemes of £9 million p.a. from September 2019 onwards.
Medium-term financial projections
The Group has provided certain of its lenders with the following medium term financial projections, which will be reviewed in due course, following completion of the CVA and analysis of recent trading trends and expected additional restructuring and refinancing costs. The guidance below does not reflect the potential impact of the proposed CVA, which is shown separately.
FY18
Medium-term Guidance
Gross Transaction Value (GTV)
£2,900m
c. 3.9% decline in FY19, c. 1.7% decline in FY20, c. 0.1% decline in FY21, c. 0.6% increase in FY22 and c. 0.9% increase in FY23
of which Online
£485m
Flat in FY19, annual increase between c. 4.5% and c. 6.5% in FY 20 to FY23
of which UK1
£2,287m
Expected to contribute c. 76% of total GTV by FY23
of which International1
£613m
Expected to contribute c. 24% of total GTV by FY23
Gross Margin
Low 40%s of GTV
Decline of c. 100bps in FY19, increase of c. 100bps in FY20, increase of c. 40bps in FY21, increase of c. 20bps in FY22, increase of c. 10bps FY23
Operating Costs
Mid 30%s of GTV
Increase of c. 40bps in FY19, increase of c. 50bps in FY20, increase of c. 10bps in FY21, increase of c. 20bps in FY22, increase of c. 20bps in FY23
Implied EBITDA
£157m
c. 4.0% of total GTV in FY19, c. 4.5 of total GTV in FY20, c. 4.9% of total GTV in FY21, c. 4.9% of total GTV in FY22, c. 4.8% of total GTV in FY23
Non-Cash Items2
£(16)m
c. £(24)m in FY19, c. £(26)m in FY20, c. £(25)m in FY21, c. £(25)m in FY22, c. £(25)m in FY23
Change in Working Capital3[3]
£23m
c. £(80)m in FY19, reversing in FY20 and FY21 with c.£45m and £35m respectively, constant working capital thereafter
Capital Expenditures4
£(143)m
c. £(52)m in FY19 trending to c. £(40)m in FY22 and FY23
Exceptional Items
£(15)m
c. £(48)m in FY19, c. £(9)m in FY20, nil thereafter
Pension Contributions
£(5)m
Additional £(9)m annually from FY19 to FY23
Closing Net Debt
£321m
Estimated CVA Impact
--
Expected run-rate EBITDA increase between c. £43m and £48m from FY20 onwards, assuming the closure of up to 22 stores in 2020. One-off working capital benefit between c. £13m and £16m expected in FY20. Future financial impacts from additional store closures are uncertain at this stage and depend on a number of factors, including individual store performances, the timing of landlord negotiations and store exits
Anticipated cost savings
The medium-term financial projections presented above include the estimated financial impact of management initiatives that aim to reduce the Group's operating cost base. The overall programme envisages cost savings of c. £80 million in FY19, incremental savings of c. £15 million in FY20, c. £10 million in each of FY21 and FY22, resulting in total cost savings of c. £115 million. To date, Debenhams has delivered £43 million in cost savings from initiatives identified in FY18 and new initiatives. The Group is on track to meet its c. £80 million annualised target in FY19.
Statements made in this announcement that look forward in time or that express management's beliefs, expectations or estimates regarding future occurrences or prospects are forward-looking statements. These forward-looking statements reflect Debenhams' current expectations concerning future events and actual results may differ materially from current expectations or historical results. Neither the content of the Debenhams website nor the content of any website accessible from hyperlinks on the website (or any other website) is (or is deemed to be) incorporated into or forms (or is deemed to form) part of this announcement.
This announcement has been issued through the Companies Announcement Service of Euronext Dublin.
[1] The Group's interim results are subject to review and are likely to reflect additional non-cash exceptional items relating to restructuring, goodwill and store impairment charges etc.
[2] If the maturity date under the existing credit facilities and notes is extended to 30 June 2022, the maturity will be 30 June 2022.
1 Both the UK and the International segment include online GTV.
2 FY18 information includes IFRS adjustment to align the basis of preparation with the medium-term guidance.
3 FY18 information includes capital contributions from landlords, while the medium-term guidance excludes capital contributions from landlords.
4 FY18 information excludes capital contributions from landlords, while the medium-term guidance includes capital contributions from landlords.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDISEZMGZDRVKGLZG
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