Douglas - They said "refinance" and "comfortably"
All,
Please refer to our unchanged analysis here.
We are holding on to our 6% of NAV position in the Subs as Douglas management expect to "refinance … comfortably”. Creditors should expect the company to approach them in due course.
Q1:
- In forecasting Q1 (December) Sales and EBITDA and the cost of store closures, our model has been working well enough, but management have flexed working capital far better than we assumed and has carried forward a higher amount of deferred payments. Including some drawings under the RCF that has generated a healthy liquidity balance of approx. E450m.
- Sales were down less than 10% vs Q120, which is typically a store chain dominated quarter and where lockdowns in France and Germany impacted the company’s biggest quarter. Online sales therefore must have risen exponentially, which explains the E1bn online tag the CEO had been pushing.
- We did not receive a figure for Q1 EBITDA - perhaps for good reason. But it could be better than what we have in the model.
2021 Liquidity:
- We estimate that CVC will want to inject further cash into the business, despite the apparently comfortable liquidity position now and the lower than expected net cost of store closures.
- Management mentioned it expects to be able to operate within existing liquidity constraints and does not have any plans of drawing an additional E75m RCF add-on committed in January. This somewhat contradicts the auditor’s statement that: "According to the liquidity planning there are only limited liquidity reserves beyond the reporting date of September 30, 2021, in order to maintain solvency at all times even in the event of further plan failures or an extended period of store closures.”
Store Closures:
- Michael Keppel estimates store closures to cost a total of E120m (including his E15m fees), but Inventory sales are to be organised in a way so as to finance the impact with cash inflows around the time of closures (spring/summer) of E80m to bring the net cost to no more than E40m. The effect would first show a cash inflow before the settling of lease and severance negotiations leads to an outflow.
- Meanwhile, the redirection of some of the lost revenue into neighbouring stores and online should add E120m of EBITDA contribution, after taking into account increased cost at those stores / online.
Happy to discuss,
Wolfgang
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