Focus DIY faces tough credit review

By Helia Ebrahimi
Telegraph.co.uk

A review of Focus DIY's financial position will be delivered by Ernst & Young to the group's lenders this Friday to help them to decide whether to continue backing Britain's third largest DIY retailer.

Although the lenders, GMAC and HBOS, have agreed in principle to renew a two-year credit facility which expires in December, they have called in E&Y to prepare a independent business review.

Even if the report is favourable and a new facility is granted it is likely to be on much more onerous terms, piling the pressure on the already struggling group, which is owned by US private equity firm Cerberus.

It is unclear what the current terms of the £50m facility are, but given the general economic environment any renewal is likely to be costly for the 181-strong chain.

Cerberus paid just £1 for Focus in 2007 from Apax Partners and Duke Street Capital, although it also assumed £225m in debt .

Focus itself has asked its auditors KPMG to suggest options for the business, which has thrown up the possibility of a seeking a company voluntary arrangement.

It is thought the use of a CVA, which enables companies to address their debts without going into administration, would enable Focus to shed a group of costly legacy property leases.

Focus chief executive Bill Grimsey said that this remained only one option amongst a range of strategies and that the company was currently in talks with landlords regarding those problem stores.

Following the Cerberus takeover it closed 50 non-performing stores, but it is still stuck with leases of more than 20 outlets that have reportedly been haemorrhaging £12m a year.

A CVA requires the support of at least 75pc of creditors, but it can be effective and was recently used to re-structure sports retailer JJB – another KPMG deal.

Focus, Britain's third biggest DIY retailer, has been under added pressure since last November when credit insurers reduced the cover available to its suppliers.

Mr Grimsey said suppliers had put their faith in the management team and self-insured to allow the company to continue operating normally.

The former Wickes and Iceland boss said that despite a tough trading environment, Focus's performance in terms of sales and profits was ahead of targets.

"We have been helped by a later Easter, good weather and the demise of MFI, which has allowed us to pick up kitchen sales," he said.

Mr Grimsey said the company had worked hard to cut costs at the back end of last year and agreed monthly rental payments with some landlords.

"We are fighting for every penny we can get," he said. "The underlying situation remains very tough and it is unlikely that DIY will show any real growth until this time next year.

"But we are making sure our products are good, that they are at the right price and that we are satisfying customers."

Mr Grimsey added he was confident lenders would continue their support.