Frasers Group is counting the costs of Covid-19 lockdowns to its business and says they could come to more than £100m in the second half of its financial year alone. If so, its asset writedowns for the full financial year would come to at least £224.9m, following a first-half impairment provision of more than £120m.
Frasers Group today says that it expects to have to write down the value of assets including its shops in the light of last night’s news from Prime Minister Boris Johnson that non-essential retailers will not now be able to reopen their shops until at least April 12. Changing customer behaviour together with the news that the current lockdown will run for at least three months could mean the group has to reduce the book value of assets including its stores, both owned and leased, as well as other property, plant and equipment. As of October 25 2020, the retail group had 1,557 shops in total.
“Given the length of this current lockdown, potential systemic changes to consumer behaviour and the risk of further restrictions in future, we believe this non-cash impairment could be in excess of £100m,” Frasers Group said in a stockmarket announcement today.
The group said the write-down would come on top of provisions of already made in its half-year figures, reported in December, and would be announced in its figures for the year to the end of April 2021. In the 26 weeks to October 25, the retailer wrote down the value of its assets by £124.9m to reflect the ongoing effects of Covid-19 and the challenges of changing customer behaviour. The impact of the write down was offset, however, as the retail group reported a 17.6% rise in pre-tax profits despite a 7.4% fall in sales over the period.
At the time, Frasers Group non-executive chair David Daly said: “Fortunately the Frasers Group is a strong business built on solid foundations. We can weather most of the storms faced this calendar year, however much of the UK High Street, which was already suffering before Covid-19, won’t survive unless the Government addresses the out of date business rates regime which is due to return come April 2021.”
Frasers Group has expanded across the high street in recent years through a strategy of buying ailing retailers out of administration. In 2018 it bought department store House of Fraser and Evans cycles out of administration, before going on in 2019 to buy Game and Jack Wills.
Game and Evans Cycles are Top50 retailers in the latest RXUK Top500 research, while House of Fraser and Jack Wills are Top100, and Sports Direct is a Top250 retailer.