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Holland & Barrett told suppliers a deal to buy back £700m of debt left it in a ‘position of strength’

Holland & Barrett has vowed to improve supplier relations amid growing protests from small suppliers over late payments extending past 120 days, with new government data showing the business paid almost 60% of invoices outside its agreed terms. 

It comes as the retailer’s owner LetterOne, which has been plagued by challenges linked to its sanction-hit Russian investors, completed a deal to buy back more than £700m of debt, The Grocer has learned. 

In communication seen by The Grocer, Holland & Barrett today told suppliers the deal, which concluded yesterday (22 November), left the group “debt-free and capitalised to drive our ambitious transformation programme”. 

A source close to the group said the investment demonstrated LetterOne’s long-term commitment to H&B. The source added it was “extremely positive” for suppliers as it meant H&B had no external debt burden and now had “one of the strongest capital structures in the sector”, eliminating future refinancing risk. 

The move should mean suppliers are also able to secure trade credit insurance for H&B, which had been pulled given the leveraged nature of the group. 

Dozens of SMEs, including startups, in the fmcg space have contacted The Grocer to complain of repeated late payment by H&B, putting pressure on already strained cashflows and stretching resources while chasing down invoices. 

According to government payment data filed by H&B this month, 58% of the retailer’s invoices were not paid within agreed terms in the six months to 30 September 2022, compared with 32% in the prior six months. 

H&B took an average of 63 days to pay invoices, with 20% paid within 30 days, 43% in 31 to 60 days and 37% in 61 days or more, the data revealed. 

Most small brands are on 90-day payment terms with H&B.

The Grocer heard anonymously from a number of businesses who had not been paid for 120 days-plus and, in some cases, more than 180 days, having had to repeatedly chase H&B and threaten withholding future orders. 

Brands reported being owed six-figure sums and receiving excuses from H&B including software issues, system errors and problems related to finance team members leaving.

“As a health and wellness retailer, the financial health of our suppliers is very important to us,” a H&B spokeswoman told The Grocer. “We’d like to apologise to any of our suppliers for any inconvenience caused over recent weeks.

“We are undertaking a large multiyear finance and systems transformation, which has created challenges in some of our payments to suppliers. We are actively working to ensure prompt payment and are speaking directly to any impacted suppliers to work through any issues.” 

The Small Business Commissioner, an independent public body set up by the government to tackle late payment, told The Grocer it had received a number of enquiries about late payment of invoices by Holland & Barrett and was aware the retailer had been extending payment terms from 90 to 120 days. 

Small Business Commissioner Liz Barclay said: “For many small suppliers, having to wait for 120 days to be paid will cause severe cashflow issues. For others it will prove existential. I’d welcome the opportunity to speak with Holland & Barrett directly to discuss their payment practices in more detail.”

H&B has faced criticism in the past for paying suppliers late, with the SBC calling out the company for “a purposeful culture of poor payment practices” in 2019.

The retailer had previously been brought to the attention of the SBC after the company was named by the Parliamentary Business, Energy and Industrial Strategy (BEIS) Select Committee into payment practice in April 2018.

Under the advice of the SBC, H&B committed in 2020 to paying its smaller partners on time.

Thea Alexander, CEO and founder of consultancy Young Foodies, said: “Smaller businesses do not have the resources to deal with retailers reneging on basic commitments like paying them. 

“H&B already has longer payment terms than most comparable retailers, so to then renege on this is just throwing the supplier base into a spin. As a retailer that prides itself on a new, different, interesting and independent supplier base, it is critical they get a grip on this problem or they will do lasting damage to brands and the industry as a whole.” 

The email sent by the H&B finance team to suppliers today said the £350m investment programme was intended to make it a “more agile, modern business and one that is a much better and more responsive partner to our suppliers”. 

“To achieve this, we are seeking to have a leaner, more efficient supply chain and, as we announced in September, an improved finance system,” it read. 

“The combination of these projects mean we are still having to manage a lot of these processes manually, which have regrettably been causing some delays with payments to some of our suppliers while we seek to assess and manage our cashflow and stock into the business.

“We appreciate your continued support during this transition period and we will seek to accelerate the transformation to conclude in these areas in the coming months.” 

The email added H&B was in “a position of strength” and current trading was in line with expectations.

It has been a difficult year for H&B following the outbreak of war in Ukraine, with the retailer distancing itself from the Russian owners of LetterOne.

The retailer also said it was not being affected by sanctions on oligarch Mikhail Fridman, who co-founded LetterOne. Fridman resigned from the board of London-based LetterOne, which itself had not being subject to sanctions, after being added to the EU’s sanctions list.

The situation led to difficulty in April in interest payments reaching creditors, including lender HSBC, over concerns linked to the parent company.

In September, reports emerged that LetterOne was planning to buy back almost £900m in debt used to finance the £1.7bn takeover H&B in 2017, offering to reaquire outstanding borrowings from lenders.

H&B operated from about 800 stores in the UK, with hundreds more overseas.

Most recent accounts at Companies House, revealed UK sales dropped 1.8% to £528.6m in the year to 30 September 2021 as it closed 24 stores as the pandemic impacted trading on the high street.