Struggling luxury retailer OrotonGroup will get up to $3 million in credit support from its largest shareholder as the company looks at proposals to sell off assets and break up the group.
News of the support and other moves were contained in a trading update released to the ASX yesterday which showed the that sales slump that the company has been seeing for much of this year, is continuing.
News of the possible break up and the support from its largest shareholder saw the company’s shares rise more than 4% to $1.08, stopping the rot for the time being.
Oroton is negotiating with Westpac the terms of a $35 million facility that is due to expire in 2018. As part of that (and no doubt to convince Westpac) will receive up to $3 million credit support from its major shareholder and former director James Vicars, who holds an 18.2%.
This loan looms as a key point to Oroton’s survival, judging by what was said in yesterday’s statement:
“The group’s working capital advances which form part of this facility, historically have fluctuated with the seasons. At mid-June 2017, the working capital advances were drawn to a total of $16m which is reflective of the June seasonal high-point with the purchase of inventory for the upcoming Spring season,“ Oroton told the ASX
“The company anticipates a net debt position at FY17 year-end of approximately $10m. This forecast $6m decrease in the net debt balance by year end primarily reflects the normal working capital cycle in June and July and the importance of these months on the company’s overall cash position.”
As a result, the company will need support in the lead up to the Christmas sales.
“Accordingly Oroton will require ongoing support from Westpac to incur that debt, and in relation to the continued use of all its facilities.”
That’s why the credit support from Mr Vicars is so crucial.
The retailer said in yesterday’s update that it expects its sales slump to continue after revenue fell 11% in the nine months to the end of April, and has reaffirmed its guidance for underlying earnings before interest, tax, depreciation and amortisation of between $2 million and $3 million in 2016-17 (but a overall loss for the financial year).
It was only last month that shares in Oroton plunged by up to 32% when it warned that full-year earnings would be around $10 million weaker than the previous year.
The stock plunged to $1 and an 18-year low, with interim CEO and major shareholder Ross Lane revealing the company had engaged investment bank Moelis & Co to assist in a strategic review to “assess our various options”.
Yesterday Oroton revealed early details of that review, which could include a sale of the business.
“Following that announcement, numerous parties have expressed interest in exploring certain strategic options which may involve a sale, refinancing of debt facilities or recapitalisation of the company,’’ Oroton said in a statement to the ASX.
“Oroton Group’s board has decided it is appropriate to commence a formal process in response to the interest received to explore these options and to invite additional parties to participate in the process.
“The strategic process will be focused on maximising value for the company and its stakeholders. It is premature to comment in detail on potential structures, terms or outcomes,’’ the company said in its statement to the ASX.
