Debenhams has published a viability statement in which it revealed an internal strategic assessment proved that the department store chain will survive the next three years.
The retailer set out the results of the assessment in a viability assessment – which formed part of its annual report published on Wednesday this week – whereby senior directors looked at the prospects of Debenhams to meet its liabilities while taking into account its current position and principal risks.
The internal assessment, which covered a three-year period to August 28, 2021, considered Debenhams’ cash flows and key financial performance indicators, as well as main risks facing the business in theoretical scenarios.
Debenhams said it chose that specific three-year period because it reflected the pace of change in retail, uncertainty surrounding the UK’s decision to exit the EU, and aligns with its Debenhams Redesigned turnaround strategy and three year planning process.
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The viability statement comes as supplier risks such as loss of credit insurance, downgrades from influential credit rating firms, and three profit warnings throughout the year threatened the long term future of the business.
“The board is in agreement that Debenhams is a viable business”, the retailer said in its viability statement.
“In making this statement the directors have considered the resilience of Debenhams, taking account of its current position and historical financial performance, the principal risks facing the business in severe but theoretical scenarios, and the effectiveness of any mitigating actions.
“This assessment has considered the potential impacts of these risks on the business model, future performance, solvency and liquidity over the period.
“In assessing these impacts, the directors also considered specific supplier risks in relation to credit insurance and the potential impact that working capital may be impacted by such risks.”
The viability statement was published alongside end of financial year figures for Debenhams, most of which were already revealed in its preliminary full-year trading update in October.
This includes a reported loss before tax of £491 million – a record in the retailer’s 240-year history and a massive drop compared to the £59 million profit it recorded the previous financial year.
The loss came about after £512.4 million worth of write downs relating to store and lease provisions, IT costs, and impairment charges.
Like-for-like sales across the year also fell 2.3 per cent year-on-year, with Debenhams noting that their core markets of fashion and beauty remained weak.
Meanwhile, EBITDA fell 35.6 per cent to £112 million in the UK, while the retailer’s overall EBITDA fell 27.5 per cent year-on-year to £157.5 million
Operating profit fared worse, nose diving 88.5 per cent in the UK to £8.5 million, while overall operating profit plunged 59.6 per cent to £43.4 million.
Underlying profit before tax also plummeted 65.1 per cent year-on-year to £33.2 million, before cash exceptional charges relating in part to the Debenhams Redesigned strategy.
The beleaguered department store announced at the time of the preliminary report that it would close up to 50 under-performing stores out of its 166-strong portfolio in the next three to five years.
This could lead to the loss of around 4000 jobs, although this has not yet been confirmed.
“We are encouraged by the signs that our transformation is gaining traction,” Debenhams chief executive Sergio Bucher said in this week’s annual report.
“We have been reshaping our business, taking some hard decisions, including announcing more store closures, to make sure that Debenhams is in a strong financial position to trade successfully in a highly competitive and promotional marketplace.
“I would like to thank all my colleagues for their resilience and support in delivering the necessary changes and building the foundations for our transformation of Debenhams.”
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