Credit insurance tightens for geek shack Maplin Electronics

QBE walks away, others reduce lines amid worries for high street

Exclusive Credit insurers are cutting their exposure to geek emporium Maplin Electronics amid some reports of declining profit and wider concerns about old-school retailing.

Trade indemnifier QBE slashed available cover on Maplin by more than 80 per cent in September and has just removed the limit completely, meaning distributors will not be able to use QBE to insure debts with the Brit retailer.

"This is a commercial decision now about whether we continue to supply Maplin or not," one supplier told The Register. "I can't believe the limits have been cut to zero."

A person familiar with the matter said that a dip in profits had spooked the credit insurers. Euler Hermes and Atradius have also scaled back their exposure to the high-street retailer, two sources claimed.

A Maplin spokesman told us today: "Maplin is a profitable and cash-generative business. As part of our normal quarterly reporting process we will shortly be updating credit insurers on our financial position, which we anticipate will reassure any broader sector worries."

The rep said that a credit insurer recently doubled the credit level following a meeting with management but did not name them, citing commercial sensitivity.

"Maplin is well prepared and well stocked for Christmas with the best brands and product range it has ever had and is increasing service levels with the launch of free home survey to help people with their Smart Homes," the spokesman added.

Everyone loves Maplin

An expert in the credit sector who asked to remain anonymous said there were "long-standing concerns" regarding the hobbyist electronics retailer.

"The management [team] were slow to invest in the internet and they have very large overheads [in terms of] store rent and staff. Is the business model sustainable?" he questioned.

Reg readers are fond of "Maplins" as one of the few remaining outlets that allows electronics hobbyists to browse legacy components, cables, semiconducters, graphics cards and motherboards while scouting out the latest drones, 3D printers and more. Compared to Dixons Carphone and other old-world retailers, Maplin still has a reputation for customer service.

Maplin has 211 stores in the UK from Aberdeen to York (according to its Store Finder tool), employing 2,599 people across the group.

The business was sold to Rutland Partners for £85m in June 2014, a fraction of the £244m that fellow private equity house Montagu paid when it bought Maplin from hedge fund Graphene in 2011. Graphene had slurped Maplin in 2001 for £42m so made a decent return on its investment.

In the last set of filed P&L accounts for the year ended March 19, 2016, Maplin parent MEL Topco reported a dip in turnover to £234.5m from £236.2m and operating profit declined £2.6m in the year to £1.82m.

Loss for the financial year, including £8.32m in interest payable on loan notes and tax and interest received, was £11.7m versus a net loss of £6.23m. Cash in the bank dropped to £8.6m from £13.5m.

The carry forward loan note position was £63.82m with accrued interest rolled up of £17.45m. Shareholder loan notes and interest rolled over are redeemable by the end of June 2019, the accounts stated.

Maplin generated cash of £16.26m for the period, versus £10.49m in the same financial year ended 2015. Gross margin was a healthy 48 per cent.

The cash flow statement showed the reconciliation from subjective profits and losses to cold hard cash, with interest being rolled up and non-cash charges for amortisation and depreciation being accounted for.

"It is better to be loss making and cash generative than profitable and highly cash negative," Maplin's spokesman told us.

He revealed that the group had refinanced debt in October 2016, paying off all its acquisition debt, with £2m of senior debt remaining and a working facility of £30m set up.

Another source in the credit sector suspected credit insurers have had difficulty getting answers or preliminary figures for Maplin's current financial year "or maybe they have them and are not too happy".

Maplin was largely funded through cash generation and a squeezing of credit will drain cash balance and make debt repayment more arduous, our source added. But he said Maplin is a "high street retail business operating at almost manufacturing gross margins and should not be bedevilled by the level of long-term debt it carried. EBITDA remains strong and this is where shareholders I suspect are looking to see a full return in the event of a business sale."

Comet lost credit insurance and ended up going pop some years ago, an administration that cost UK taxpayers more than £250m. Dixons weathered the credit insurance storm that started in 2008, and was supported by suppliers. Anyone noticed the prominence of Samsung gear on the shelves at PC World or Currys in the past nine years? ®

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