Furniture chain Courts at mercy of banks as shares crash after £34m loss

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Courts, the 150-year-old furniture retailer advertised on television by Bruce Forsyth, is in the hands of its banks having announced worse-than-expected annual results yesterday.

Courts, the 150-year-old furniture retailer advertised on television by Bruce Forsyth, is in the hands of its banks having announced worse-than-expected annual results yesterday.

Leading retail analysts were predicting a break-up of the company as its shares crashed 20 per cent after it revealed a pre-tax loss of £34.4m for the 12 months to 31 March, compared with a £11.5m profit in 2003.

The loss came after write-offs in its UK operations, including provisions for loss-making stores and adjustments for old and damaged stock. In total the company was forced to subtract exceptional items of £24.4m, wiping out a pre-exceptional profit of £11.8m.

Courts' status as a going concern is dependent on the outcome of certain "liquidity events", the company said, including a new credit facility being thrashed out with a syndicate of banks.

In a dramatic move to try to placate angry investors, it severed management ties with the Cohen family that still owns 50 per cent of it. But analysts remained sceptical about the changes being little more than ceremonial "falling on swords" with the business facing far more fundamental problems.

Bruce Cohen, the deputy chairman and managing director of Courts' international division, has retired from the board while Steven Cohen, the managing director of its UK business, has stepped down to pursue a management buyout of the domestic operation.

It is understood he has submitted a fully funded written offer within the past three weeks of up to £50m for the UK business, although the Courts board, led by Leo McKee, the chairman, maintained yesterday it had yet to receive a "formal" offer. Steven Cohen's backers are understood to be either 3i or Permira, two of the country's biggest buyout funds. Courts announced Alan Fort as a replacement for Steven Cohen in the UK.

Mr McKee was locked in briefings with analysts and shareholders yesterday. He explained the funding package being finalised with a syndicate of banks and detailed the company's strategy, which seeks to combine 103 furniture stores in the UK with an international retail operation centred mainly on electronics in Singapore, Malaysia and the Caribbean.

The company's trading saw group sales rise from £627.9m to £686.3m, with UK stores delivering a 21.5 per cent like-for-like increase. Overseas operations had a sales rise of 5.9 per cent.

But top-line growth could not overcome the serious structural and financial challenges which Courts faces. Mr McKee said: "This is a time of significant change for Courts - change in leadership team, change in our mission and focus, and a change in our financial structure. The intent of these changes is to move the business on to a stable financial basis and to restore it to profitability."

A measure of the scale of the company's problems emerged from the talks with its banking syndicate. The company said it was discussing an increase of its credit facility by £20m to £280m and permission to use £10m of existing letters of credit to support an overdraft. In the notes to its accounts, Courts said: "The group financial statements will be prepared on a going concern basis, the validity of which depends on the outcome of the uncertainties described below."

It said the new credit facility would be effective until 1 December 2005, giving it an 18-month cash flow forecast. "The ability of the group to operate within the proposed amended facility with sufficient headroom and without additional interest penalties, and to conform with the covenants, will be dependent on achieving, within specified timeframes, certain liquidity events."

These include transactions related to credit receivables in its overseas business and, as far as its UK business is concerned, certain property transactions and the successful completion of efficiency improvements and measures to control working capital.

However, it warned: "The cash flow forecast contains assumptions by the directors with regard to the average periods of suppliers' credit. Under the current circumstances, this area is difficult to quantify and the cash position of the group is sensitive to a change in the basis of this assumption."

The 20 per cent fall in the company's share price after these statements reflected City concerns over the future of the business. Evolution Beeson Gregory, the brokerage house, said: "The statement presents a setback for the group and whilst there is improving visibility of the restructuring of the overseas business, the group's debt position is starting to rock the boat. With senior management jumping ship, the UK business still needs to be turned around."

Richard Ratner, the retail analyst at Seymour Pierce, said: "We see a break-up of the group, with perhaps the proceeds equating to around the current price, but in the meantime a choppy rise is likely."

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