Examiner appointed to DIY chain Homebase

Company says ability to reduce costs restricted by upward only rent reviews

Tue, Jul 16, 2013, 13:16

DIY chain Homebase has become the latest Irish retailer to enter into examinership.

Homebase Ireland said sales had fallen by 31 per cent since 2009, and that the business had been unprofitable for each of the last five years despite remedial action taken by management.

It also said its ability to reduce costs had been restricted by the existence of “upward only” rent reviews on its store leases here.

The company, which is a subsidiary of UK-owned Home Retail Group, currently operates 15 stores in the Republic, employing 558 full-time and part-time staff.

The High Court today appointed Kieran Wallace of KPMG as interim examiner to the business.

The company said its Irish stores would continue to trade as normal and that all customer orders, pre-payments, credit notes and gift vouchers would be “fully honoured”.

“The purpose of the examinership is to re-structure Homebase Ireland so as to put the business on a sustainable footing,” the company said, adding that a key objective of the examinership process was to protect as many jobs as possible.

The company said the Irish business had a reasonable prospect of survival but “consideration will need to be given to closing non-viable stores”.

Based upon both the current trading performance and forecast projections, it said it was proposing to close three of its 15 stores here.

The stores earmarked for closure are located in Fonthill, Carlow and Castlebar and collectively employ 17 full-time and 79 part-time staff.

“In addition, the future viability of the remaining 12 stores will depend on a number of factors including securing the agreement of individual landlords of improved lease terms,” the company added.

Mr Justice Brian McGovern today appointed Mr Wallace of as interim examiner to Homebase House & Garden Centre Ltd, the Irish arm of the UK Homebase retail group incorporating the Homebase and Argos brands.

Moving the petition on behalf of the Irish company, Rossa Fanning said it employed 558 people — of whom just 114 are full-time — and had been loss-making for a number of years due to factors including falling demand and onerous leases.

Turnover for the year to end March 2006 was some €67.6 million but that fell to some €46.3 million for the year to end March 2013.

The company had no bank debt but had continued to trade with the assistance of inter-company loans, he outlined. It now owed more than €30m to two companies in the wider group.

Annual rental costs were some €10.3 million and all the stores were held on foot of long-term leases involving five yearly upwards-only rent reviews. 

Last Friday, the UK group parent had stated it was withdrawing its support without which the company was insolvent but the company’s petition and an independent accountant’s report identified debt restucuturing and other measures necessary if it were to have a reasonable prospect of survival as a going concern.

An independent accountant believed the company had a reasonable prospect of survival if cetrain conditions were met, including renegotiaiton or repudiation of leases and acceptance of a scheme of arrangement by the High Court.

Even if rent issues were addressed for the three stores at Carlow, Castlebar and Fonthill Road, they may have to close given the extent of their losses, counsel indicated. Further store closures may be necessary if rents are not repudiated or renegotiated, he added. 

Mr Fanning also indicated the company sources most of its product from an inter-group supplier with the effect  its list of creditors is small.

Preferential creditors include a number of local authorities in relation to rates while no historic debt is owed to the Revenue Commissioners.

The judge also heard the parent group is prepared to allocate €2.14 million to meet trading costs during the examinership period.

Homebase Ireland chairman Robert Burke said: “The significant deterioration in consumer spending over the last five years coupled with high rents at each of our stores has made restructuring an imperative in order to re-establish a sustainable business, to secure the future of as many stores as possible and to protect as many jobs as possible.”

“Today’s appointment represents an important step in this process,” he added.