Laura Ashley teetering on administration
17 Mar 2020
Listed furnishings and interiors retailer Laura Ashley is set to file for administration blaming the escalating covid-19 outbreak as the last straw for the struggling chain
17 Mar 2020
Laura Ashley Holdings plc is moving to appoint joint administrators Robert Lewis and Zelf Hussain of PwC following a ‘challenging’ year of falling sales and problems renegotiating its working capital facility.
This effectively would put 2,800 plus jobs at risk across the group, including manufacturing, retail and distribution arms of the business.
In a statement to London Stock Exchange, the company warned shareholders that ‘given the group's creditor position, the company is not certain whether there would be any surplus assets available to shareholders of the company’.
All of the group will go into administration, including main trading subsidiary (Laura Ashley Limited), Premier Home Logistics Limited, Laura Ashley Investments Limited, and Texplan Manufacturing Limited.
The imminent collapse follows months of difficult trading, exacerbated by the fallout from Brexit and the increasing threat to bricks and mortar on the high street as online sales escalate.
The onslaught of coronavirus was too much for the business to handle, despite reporting an improvement in sales for the seven weeks to 13 March, when the retailer reported revenue up 24% year on year.
‘Discussions with stakeholders have been ongoing and the directors are in advanced discussions for the provision of third-party debt funding. However, based on the company's revised cashflow forecasts and the increased uncertainty facing the group, the company expects that it will not be in a position to draw down additional funds from third party lenders in a timely manner sufficient to support working capital requirements,’ according to the LSE statement.
Talk of the possible failure of the business was refuted by the group last month. In a statement to shareholders in mid-February, Laura Ashley Holdings said: ‘The decline in total revenue was due to the market headwinds and weaker consumer spending during the period, which led to a decline in sales of bigger ticket items.
At the time it also flagged ‘a reduction in the amount that the group can draw down under its working capital facility with Wells Fargo, the lender to the group’.
MUI Asia, a major investor in the group, also refused to provide further financial support in the required timeframe following a cash injection last month.
UHY Hacker Young LLP has been auditor of the group since May 2018. In the 2019 annual report and accounts, the audit report relied on ‘the directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group’. The firm was paid £100,000 in audit fees in 2019.
Total group sales for year end 2019 were £232.5m [2018: £257.2m] with the company reporting a pre-tax loss of £9.8m, up from £5.6m in 2018.
Managing cashflow to avert insolvency – tips
‘This is further very sad news from the high street. This won’t be the last business affected by covid-19, with aeroplanes on the ground, theatres dark and shops and restaurants emptying,' said Stuart Evans, commercial litigation partner and specialist in business disputes at law firm BLM.
‘In terms of what small businesses can do to shore themselves up at this uncertain time, we are looking at an unprecedented situation and there is no magic answer, especially if businesses are operating in sectors like retail, travel or hospitality.’
But despite the chaos ensuing from the coronavirus crises, there are steps businesses can take to make sure they are on top of day-to-day financial management.
Evans explained: ‘Look critically not only at the predicament of your own business and commitments, such as bank loan repayments and upcoming quarterly VAT payments, but what is happening to your customer base and supply chain.
‘Look out for longer delays in invoices being paid, credit terms being re-negotiated, future orders dropping, news of redundancies or adverse changes.
‘Whilst it’s easy to say, do think about reducing activity in areas of your business where there will be lowered demand and try to see if you can diversify and repackage your business to mitigate the current situation. I got an email last night from a local gastro pub that is normally packed, offering an online takeaway service for a discount. That’s a good example of manageable lateral thinking to try and get through this.’
‘Of course, despite all efforts businesses may be overwhelmed. If insolvency is inevitable, don’t bury your head in the sand. Take advice as soon as the distress signals are there; independent professional input can make all the difference. It may result in the closure of your business, but sometimes workable restructuring solutions can be found instead.
‘If the business cannot be saved, it’s still important to wind up its affairs with the benefit of professional advice, to mitigate the risk of personal liability under the Insolvency Act or personal guarantees and also, for directors, disqualification on the ground of unfitness.’
By Sara White