Supermarket Booths says it has an “effective plan” in place to overcome difficulties, which have prompted its principal lenders to commission an Independent Bank Review (IBR).
Royal Bank of Scotland and HSBC have asked the accountant Grant Thornton to carry out an IBR, which may be requested by a lending bank if a company is showing signs of insolvency.
The aim is to establish the measures needed for the lender to secure or recover their money.
Our existing management structure was struggling to cope with the high demands attributable to improving the customer experience while at the same time working more efficiently.
That may involve requesting additional security, asking the directors to inject capital or, in an extreme case, placing the company in receivership – there is no suggestion that this is about to happen to Booths.
Press reports indicate that the IBR was ordered after the company came close to breaching the terms of its loans.
Booths is a lynchpin of the North West retail scene.
Founded by Edwin Henry Booth in Blackpool in 1847, and based in Preston, the business remains family owned with the fifth generation now at the helm.
It operates 28 stores including seven in Cumbria at Kendal, Keswick, Kirkby Lonsdale, Milnthorpe, Penrith, Ulverston and Windermere.
Booths champions local food producers and is a partner in Cumbria Chamber of Commerce’s Supply Chain Gateway project that helps Cumbrian SMEs do business with some of the county’s largest enterprises.
Its ‘Fair Milk’ scheme, launched in 2014, offers a lifeline to struggling dairy farmers by paying them above the market rate.
The company is making no public comment on the IBR.
But it said in a statement: “Booths is a resilient 170-year-old family owned retailer with strong brand loyalty and leadership in place. These are turbulent times for the retail industry, which is rife with conjecture and speculation.
“We have an effective plan and team in place to ensure Booths remains a much-loved retailer for our customers here in the North.
“We’re focusing on delivering the best service, products and value to our customers.”
An analysis of Booths’ most recent accounts, for the year to March 2016, reveals that the business is facing significant challenges.
It recorded a pre-tax loss of £6.49m, a dramatic deterioration from the profit of £1.07m recorded in 2014-15.
Turnover declined by 0.7% from £278.6m to £276.6m.
The loss is entirely attributable to a £6.74m impairment on its property portfolio, but Booths faced other exceptional items.
These included £1.63m for what the company describes as “a complete overhaul of the leadership teams at our stores” to save £2.5m a year.
It explained: “Our existing management structure was struggling to cope with the high demands attributable to improving the customer experience while at the same time working more efficiently. To facilitate this, we removed one layer of senior management and established a cross-functional team of three, reporting directly to the store manager.”
Booths also incurred a £1.36m one-off cost to set up a three-year refinancing agreement with Royal Bank of Scotland and HSBC, concluded in July 2015.
This involves a £60m term loan, a revolving credit facility of £25m and a bridging loan of £15m that was due to be repaid by December last year.
These borrowings are secured against property and assets and bear interest at between 1.75% and 2% above Libor.
As part of the deal with its lenders, Booths agreed a property divestment programme, which saw it close smaller stores at Lane Ends in Preston, Normoss and Marton in Blackpool, Torrisholme in Morecambe, Ansdell near Lytham, and Poulton-le-Fylde, with a view to selling the sites.
However, it opened four larger stores at Hale Barns in Greater Manchester, and at Burscough, St Annes and Poulton-le-Fylde in Lancashire, the latter two replacing stores that had closed.
The new stores are part of a strategy to expand into relatively affluent areas but the debt taken on to fund this appears to be at the root of the business’ difficulties, particularly as trading assumptions may have been knocked off course by intensifying competition.
Booths’ upmarket offer is less vulnerable to discounters such as Aldi and Lidl, but it is affected by the aggressive expansion of M&S’s Simply Food outlets.
The business was carrying net debt of £74m at the 2015-16 year end, with £14.5m in bank loans due for repayment in 2016-17 and a further £64.7m repayable over the following four years. Interest and related charges totalled £3.2m. On the positive side, there was a £10.6m actuarial gain on its pension scheme assets and liabilities.
Booths’ bankers were unlikely to take much cheer from the tone of the strategic report, which says: “The financial year finished very much as it started with a continuation of the deflation that has plagued our market for a considerable period. Allied to a tight consumer market and heavy discounting, this has kept the lid on potential for sales growth.”
The report adds that the flooding caused by Storm Desmond in December 2015 adversely affected sales, with two Cumbrian stores badly hit.
The financial year finished very much as it started with a continuation of the deflation that has plagued our market for a considerable period.
Kirkby Lonsdale suffered flooding to its basement warehouse, damaging all plant and equipment beyond repair. The shop floor was unaffected, however, and the store reopened within a week.
Conditions were more severe in Keswick where the town’s flood defences were overtopped and Booths’ store ended up under 3ft of water.
The company established a pop-up shop in the car park, which traded until a full refurbishment of the store was completed in April.
Meanwhile, documents filed at Companies House reveal that charges in favour of RBS were placed on Booths’ supermarkets in Barrowford and Garstang, Lancashire, in March and April this year.
And Booths has seen major boardroom changes in recent months.
The company announced in May that chief executive Chris Dee – the first non-family member to run the business – would leave at the end of June and that executive chairman Edwin Booth would assume the dual role of chairman and chief executive “in the short to medium term”.
That was followed by the promotion of Nigel Murray from commercial director to chief operating officer, with effect from July 1, and the appointment of a new finance director, Ross Faith, who has joined from Forest Holidays.
He replaces Matthew Rothwell who only took up the role a year earlier following spells with Sainsbury’s and Asda.
Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, said: “Booths were one of the first supermarkets to have a comprehensive local sourcing policy.
“That has benefited Cumbrian food producers, including many of our members, opening up new markets and allowing their businesses to grow.
“Booths has a good business model and we hope that, with tweaking, it can overcome these difficulties and go forward with confidence.”© Cumbria Chamber of Commerce