Homebase plans to end its company voluntary arrangement (CVA) a year and a half earlier than expected after renegotiating most of its leases and improving profitability.
A CVA was used by the home improvement retailer in 2018 to cut rents and close stores. Hilco Capital acquired Homebase for just £1 after Australian retail conglomerate Wesfarmers failed in using it as a springboard into the UK market.
The CVA was due to run until August 2021 but being ahead of its profits, reducing its cost base by over £180 million and bringing the business to a stronger place now, means it can be terminated in March/April 2020 instead. The turnaround plan used has been a success.
There are now 164 Homebase stores. This is down from 241 pre-CVA. Leases have been renegotiated at 75 stores and lower rents have accounted for a good part of its £180million worth of annualised cost savings. Almost all stores are profitable now compared to the 70 per cent which were losing money before. For the year ending December 29 2019, a £3.2million EBITDA profit was reported compared to a loss of £114.5million in 2018. The year also ended with a positive net cash balance of £17million. Customers are thought to of responded well to new ranges and improvements both online and instore.
The company invested £10 million into its UK and Ireland based stores, creating new kitchen showrooms, home furnishing departments and 49 Bath Store concessions. Its online website was also made more user friendly, proven a success since it led to a sales increase of over 50 per cent.
CEO, Damain McGloughin declined to disclose the average rent reductions secured and if the company would look to capitalise on its recovery by floating on the stock market or selling to a private equity house. He did however state: ‘’Eighteen months into out turnaround, we’re extremely proud of what our team has achieved, working hard with out partners to return to profit and lay solid foundations for growth’’
‘’We have a very clear vision for Homebase, and we’re excited about the plans we have for the future. We will continue to invest in our ranges, services, and team members as we make Homebase the go to place for the inspiration, expertise and products customers need to take their ideas and create homes they love.’’
Plans for the future are include product range expansions, the opening of more concessions with leading brands, new store formats and customer service training for all team members.
Companies exiting a CVA early is unusual with the process often ending in further restructuring or an immediate collapse. Take the cases of Mothercare and Carpetright.
But by the looks of things, Homebase will break the trend, be different and have a positive 2020.