PowerHouse collapses with the loss of 800 jobs

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The Independent Online

PowerHouse, the electrical goods retailer spawned from the remnants of the old regional electricity groups, has collapsed into administrative receivership with the immediate loss of more than 800 jobs.

PowerHouse, the electrical goods retailer spawned from the remnants of the old regional electricity groups, has collapsed into administrative receivership with the immediate loss of more than 800 jobs.

The group, which has about 3,000 employees and 223 stores, was forced to appoint administrators last night after emergency refinancing talks with its lenders broke down. It will be put up for sale as a going concern by Deloitte & Touche, the receivers.

The financial woes at PowerHouse were first highlighted in The Independent in May, when it emerged the company was facing a cash crunch and needed to sell off at least 35 stores. At the time, the company denied that it needed to raise cash.

PowerHouse, the UK's largest independent retailer, said it would close 93 of its 223 stores on Friday, axing 815 jobs in the process. It has not decided which of its superstores and high street shops to shut but plans to brief staff today.

"We are carrying out a rapid assessment of the company's operations with a view to selling the business as a going concern," Nick Dargan, a partner at Deloitte & Touche, said. "The remainder [of the stores] will continue to trade as we try to find a buyer," he added.

The crisis at PowerHouse was sparked when insurers acting for its suppliers unexpectedly withdrew cover on the grounds that the company's "risk profile" had become untenable. Industry sources said Gerling NCM, the German credit trade insurer, was the first to pull the plug, although the problem is understood to have been widespread. Trade insurance is taken out by suppliers of goods such as washing machines, televisions and DVDs to cover themselves against the risk of bad debts in the event that a retailer cannot pay for the items.

The company's stand-off with its suppliers has resulted in some of its customers not receiving the goods they have ordered. A brief statement on its website warns customers that some deliveries may be delayed because it is "currently experiencing some problems with supplier deliveries".

Barely 24 hours before PowerHouse appointed receivers, its chairman and chief executive, Derrick Broomfield, claimed to have "set a course for recovery". Solutions on the table are understood to have included a cash injection from Barclays Private Equity, which has a 4 per cent stake in the group.

The Oxfordshire-based PowerHouse, which was briefly part of the Hanson conglomerate in the early Nineties, doubled in size in 2001 after buying 98 loss-making stores from Scottish Power. It has not filed a full financial report since June 2002, when its accounts showed that in the year to 30 March 2002 it made a loss after taxation of £3.3m. The company claimed to have scraped a post-tax profit of £300,000 in the year to end-March 2003 on sales of £398.6m. It refused to give an update on its cash reserves and had net cash of just £8.5m in March 2002.

The company, which sells a range of "white" goods such as fridge freezers and washing machines, and "brown" goods such as hi-fis and plasma TVs, is understood to have struggled to trade profitability this year against the backdrop of a continuing competition probe into sales of the highly profitable extended warranties on electrical goods.

PowerHouse, which has about 170 superstores, 51 high street stores and eight delivery depots, was launched as an independent electrical retailer after a management buyout from the loss-making retail arms of three regional electricity companies - Southern Electric, Midlands Electricity and Eastern Group. Some 96 per cent of the company is owned by nine members of the management team, including Mr Broomfield.

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