Douglas - Liquidity, Structure and Perspective
All,
Please refer to our unchanged analysis of Douglas here.
- Like Karstadt Kaufhof, Douglas have announced stretched payment schedules for suppliers and are paying 65% of salaries on “Kurzarbeit” terms.
- Liquidity was good at the end of December with E560m - as it always is - and the decision to stretch payments for replenishment orders placed until March (predominantly to large fashion houses) means the company is holding on to that cash during the crisis. For comparison, Rent is approx. E300m p.a. and Salaries E170m. We were also estimating the German online store to make E60m of EBITDA this year (before Corona steroids). Details on arrangements in international operations is not yet available, but chances are that the company has sufficient liquidity to weather the storm for its duration.
- Eventually however, chances are that also CVC will have to at least threaten to use the Schutzschirmverfahren for Douglas as leverage will have spiralled out of control. So its worth observing insolvencies like Karstadt Kaufhof.
- The company is in discussions with creditors and landlords and is hoping to use KFW’s credit reinsurance program through its banks and to postpone / but not to cancel rental payments. A state participation in the equity is being excluded - for the moment - although it may not even be on offer.
- Douglas’ fortunes turned around only just before the crisis hit. Thus the danger persists that it is kitchen sinked with other struggling companies that may not survive the crisis as going concern.
- The company reports of exploding online trade. However, the CEO’s comments on Monday last week let us conclude that German online revenue for instance (32% of German turnover before the crisis) is still only on the way to reaching 50%. In Italy and other countries, Online was only 12% of turnover. Thus no matter how strong online grows, it will not begin to make up for the losses incurred in the brick & mortar business.
- The German “Sonderkreditprogramm” foresees for amounts in excess of E25m that the KFW guarantees up to 80% of new syndicated loans and can directly participate with up to 50% of the new loans. Size is further limited to 25% of annual turnover, 2x employee costs (per 2019) and the current financial requirements for 2020.
- Thus far we have seen KFW-backed loans enter legal/capital structures in the form of unsecured hold loans - the only way to hand them out with the required speed. How that will be forthcoming in the context of a largely secured capital structure will be interesting to see. The baskets were largely exhausted with the acquisition of Italy and Spain.
- Note that the SUNs are not in a strong position to defend themselves from an agreed deal between SSNs, Landlords and CVC. The rule is that their recovery needs to be better than in insolvency, which points to single digit nuisance value.
Wolfgang