Poundworld falls into administration

August 2018 | DEALFRONT | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

August 2018 Issue

The embattled UK high street suffered another blow in June when discount retailer Poundworld collapsed into administration, giving it temporary protection from its creditors.

Deloitte was appointed administrator amid efforts to save the firm, however there are doubts over whether ultimately it can be rescued. In April, Poundworld’s private equity group owner TPG Capital said that it was considering launching a company voluntary arrangement (CVA) which would have seen 100 stores close. In May, TPG took the decision to put the retailer up for sale but was unable to attract a buyer. Talks with potential buyer R Capital fell through, as did negotiations with Alteri Partners. As a result, the company was forced to file for administration on 11 June. Though Poundworld’s stores remain open in the short term, mass store closures seem likely.

“The retail trading environment in the UK remains extremely challenging and Poundworld has been seeking to address this through a restructure of its business,” said Clare Boardman, joint administrator for Poundworld. “Unfortunately, this has not been possible. We still believe a buyer can be found for the business or at least part of it and we are keeping staff appraised of developments as they happen. We thank all employees for their support at this difficult time.”

According to Deloitte, a combination of “high product cost inflation, decreasing footfall, weaker consumer confidence and an increasingly competitive discount retail market” were reasons behind the company’s collapse. It will continue to trade while a resolution is sought. “The administrators’ strategy remains the same; to continue to trade the business in order to realise the stock whilst seeking to secure a sale of the business either in whole or part,” said Deloitte.

Poundworld has around 350 stores across the UK and employs over 5000 people. ‘Closing down’ sales started across the company’s network of stores in June and redundancies quickly followed, when around 100 head office staff were laid off. However, the administrator said that the move does not mean that stores will definitely close. Looking longer term, it seems unlikely that a buyer will be found for the whole chain, but individual stores may receive a reprieve.

Poundworld was acquired by TPG in 2015 for around £150m, however the company has struggled over the last two years as the cost of importing goods into the UK has risen since the Brexit vote. Poundworld’s losses have climbed since 2016. It recorded losses of £17.1m for the financial year 2016-17, up from £5.4m in 2015-16. A TPG spokesperson said: “This was a difficult decision for every party involved. We invested in Poundworld because of our belief in how the company serves its customers and the strength of its employees.”

Store closures in the UK retail market have become commonplace in recent years. Many high street retailers have been forced to downsize their operations, however 2018 has proven to be one of the most challenging years in recent memory. Marks & Spencer, New Look, Carpetright, Mothercare, and House of Fraser announced store closures in the first half of 2018. House of Fraser’s CVA will see 31 stores close, affecting over 6000 employees. Mothercare will close 50 locations. Maplins and Toys R Us also collapsed into administration.

CVAs have been a favoured method of restructuring. A number of CVAs have been launched this year as retailers struggle to cope with rising costs and business rates, as well as increased competition from online rivals and a slowdown in consumer spending. TPG also launched a CVA for its Prezzo chain which will close around 100 restaurants. Carluccio’s and Byron have also launched CVAs over the last 12 months.

Richard Summerfield