Blow for ScS as credit insurer halts cover

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The boss of ScS Upholstery yesterday moved to allay concerns over its finances after revealing that an unnamed credit insurer has stopped offering cover to five of the sofa retailer's suppliers.

ScS chief executive David Knight said that all five suppliers continued to supply ScS and were either trying to find other credit insurers or were talking to their banks about how to address the situation. Mr Knight said: "They all have a desire to continue to trade with us but they're having to look at their own businesses."

The retailer's shares tumbled by more than 50 per cent to 14p following the revelation. It followes three profit warnings issued by ScS since the start of December, as consumers rein back on purchases of big-ticket items. Sofa rival Land of Leather has also issued two profit warnings this year.

Three of the five affected companies are principal suppliers who deliver large volumes to ScS, said Mr Knight. The furniture retailer has 14 suppliers in total.

The withdrawal of credit cover, which insurers provide on behalf of suppliers in case of non-payment, indicates an insurer believes a company could have financial difficulties. Mr Knight said the credit insurer had not turned its back on ScS permanently and had indicated it might reconsider when the retailer has sorted out next year's budget.

Mr Knight said: "We know we are working in a tough climate. We have got suppliers and customers who like our offer and we firmly believe we can work our way through it." He added that ScS had not used any of its £3m overdraft facility.

Asked if he thought other credit insurers might follow suit, Mr Knight said: "I cannot possibly second guess what other credit insurers will do."

Land of Leather has also had its problems with a credit insurer. Last month, it emerged that Euler Hermes had withdrawn cover from some its suppliers.

Shore Capital analyst John Stevenson said that he "struggles to see any redeeming features for investors" in either Land of Leather or ScS.