Comet's credit insurance cut back as crisis spreads

Coface reduces insurance cover to some suppliers
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The Independent Online

The UK electricals chain Comet has become the latest big retailer to have its credit insurance scaled back, as the consumer recession and financial crisis gripping the retail sector spreads.

Coface, one of the UK's biggest credit insurers, said yesterday it had cut the insurance cover it provides to some suppliers to provide goods to Comet, which is owned by Kesa Electricals, this month.

The reduction of insurance cover on Comet – which has more than 250 UK stores and until this year was one of the UK retail sector's strongest performers – illustrates how nervous credit insurers are that some of the sector's biggest retailers may struggle to pay for goods and services received. All of the UK's three biggest credit insurers, Coface, Euler Hermes and Atradius, have scaled back the insurance cover they provide to DSGi, the electricals group that owns Currys and PC World. The three insurers continue to provide cover to DSGi's suppliers.

A DSGi spokeswoman said: "This is not a DSGi specific issue. We have seen no changes to our overall terms with suppliers."

Until now, credit insurers have only reduced or withdrawn cover on many small and medium-sized retailers, as well as more sickly chains.

But electricals chains have been among the worst affected by the consumer recession, as the tanking housing market forces shoppers to sharply rein in their purchases of washing machines, fridges and flat-screen TVs.

Euler Hermes was unavailable for comment on its policy towards Comet yesterday, but Atradius said it had not reduced cover for Comet's suppliers in any shape or form. Comet continues to trade with the suppliers insured by Coface and is unaffected by the reduction. A Comet spokeswoman said: "We have not been informed of any change in the facilities that credit insurers provide to our suppliers. Our cash position remains strong."

However, Comet has struggled, along with many other retailers of big-ticket items, during this year's downturn.

In September, Jean-Noël Labroue, the chief executive of Kesa Electricals, said he expected Comet to post a loss over the six months to October. In the three months to 31 July, Comet's like-for-like sales plummeted by 9.9 per cent.

Kesa Electricals, whose portfolio also includes the Darty electricals chains in France and Italy, is regarded by City analysts to be a stronger business overall than DSGi. Nick Bubb, the Pali International analyst, said: "We still prefer Kesa, given its stronger balance sheet/freehold properties and euro profit exposure."

On Thursday, shares in DSGi, whose other chains on the continent include Electro World, PC City and Elkjop, tumbled by 9p, or 31.85 per cent, to 19.25p, after a report that Atradius had scaled back its cover.

For the 24 weeks ending 18 October, total group like-for-like sales at DSGi fell 7 per cent.

In a note about DSGi entitled "Be Afraid?" yesterday, Mr Bubb said: "In theory, net debt of about £100m is well within the group's borrowing limits, but much depends on how much confidence the suppliers have in the business and things could unravel after Christmas, even though DSG is such a dominant player in the UK electricals market."

Mr Bubb said that DSG will continue to "limp along" and said it still has the option of selling its crown jewels, for example, the Scandinavian business Elkjop. Yesterday, shares in DSGi rose by 0.5p to 19.75p, a far cry from October 2006, when they were 222p.