Women’s fashionwear retailer Mosaic Brands is looking for cash to avoid a second near death experience after surviving the first round of Covid and lockdowns in mid-2020.
The chain took big write downs in 2020 and closed stores and negotiated rent cuts with its many landlords in a successful attempt to remain in business.
But investors have been suspicious about the company for a while now. Mosaic Brands shares closed at 46 cents on Tuesday, down 44.5% so far this year.
The slump in the share price and the low price at Tuesday’s close constrains the company in its capital raising – it will be hard to do a normal issue without severely diluting existing shareholders, so any raising will have to be off balance sheet as much as possible or via a convertible note type raising, or a mix.
It had a market value of $44 million at Tuesday’s close. Raising enough cash will be a big ask.
The company reported gross cash of $50 million and net cash of $25 million at June 30.
The Group reported earnings before interest, tax, depreciation and amortisation (EBITDA) of $48.2 million for FY21 (excl EziBuy). Comparable stores sales grew in second half by 5% with margin growth for that period up 37%.
Online sales achieving record revenues of $111 million.
“As a shareholder of EziBuy the Group has worked with them to return them to profitability after two years of losses and delivered an EBITDA of $3.7 million, “the company said.
“The Group entered the 2022 financial year with solid momentum, clean stock holding and a much-improved cash position, an although the severe lockdowns have impacted this in the short term, the group continue to see continued digital online department store acceleration and sees 13.3 growth year to date,” it wrote in its annual review.
But all the solid work to steady and then tentatively grow the business (including arguing with landlords for rent cuts) is in danger of being undone by the Covid Delta lockdowns, especially in the country’s two biggest markets, NSW and Victoria.
“As is the case across the majority of the retail sector, recent widespread lockdowns during the first two months of FY22 have disrupted Group momentum. Almost all stores across our entire portfolio experiencing restrictions or full lockdowns in some form during this period,” the company said yesterday.
But online sales continue to accelerate by delivering 23% growth in the first eight weeks of FY22 with comparable store sales down 8% despite the impact of COVID.
The company said it is confident that as lockdowns become less prevalent in the coming weeks and months, it will see a resumption of the fourth quarter growth trend and a profitable FY22.
“For the entire retail sector, it’s critical that by late October, stores nationally are able to open and be trading again,” chairman Richard Facioni said.
“From supply chain logistics to consumer and national sentiment, ongoing internal borders beyond this timeframe will leave lasting scars.”
The company has a self-imposed deadline of this Friday to raise the new capital.
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Meanwhile Adelaide-based Hills Ltd saw Covid also blow a hole in its year to June 30.
Hills reported an 18% slide in revenue to $180 million and a 56% leap in losses for the year to $10.2 million in the last day of reporting season.
Of that loss, the company said there were non-operating items of $7.5 million, include non-cash asset reductions, non-operating foreign exchange losses and legal costs. “These were largely foreshadowed in earlier ASX releases.”
There was also a $2.8 million non-cash tax expense caused by the reversal of tax-related timing differences and New Zealand tax losses in the deferred tax assets.
The company said that cost cutting delivered $10.7 million in savings and $5.3 million in reduced working capital.
2020-21 was big year for Hills which saw the company become a tech/health group under Ted Pretty’s reign and has seen a new CEO and CFO installed as well as a board revamp last year which included a change of chairman.
The company says its Health division saw a 33% growth in underlying earnings before interest, tax, depreciation and amortisation to $9.7 million, which it described as a solid result in a volatile operating environment given COVID-related restrictions that have affected the commencement of new projects and access to hospitals and aged care facilities.
Its tech distribution business was hit by the COVID-related lockdowns which affected customer projects as well as the worldwide semiconductor shortages which impacted product availability and lead times.
The loss included $7.5 million in asset writedowns, foreign exchange losses and legal costs.
Hills received three months of JobKeeper in FY21, amounting to $2.95 million, versus a benefit of $3.2 million in JobKeeper the prior year.
Net debt jumped 61% to $13.2 million.
Hills CEO David Clarke promised improvement this year, saying.
“The new leadership team are introducing a range of initiatives to improve operational performance, address revenue decline and support profitability>
Looking to the immediate future, the company warned “trading conditions in all of Hills’ businesses remain impacted by COVID-related restrictions. Any recovery is dependent on relaxation of restrictions and improved business confidence to drive new and deferred project and construction work. Semiconductor scarcity and erratic global supply chains are expected to continue into 2022, complicating demand and inventory planning, and impacting project delivery.”
