Retailer Godfreys has warned of a looming serious cash flow squeeze early next month as a takeover for the struggling vacuum cleaner group moves towards completion.
In an update yesterday the company said it needs emergency financial injection after new management installed by John Johnson, the 99-year-old bidder found the company’s financial situation was weaker than anticipated.
The bid from Mr Johnston (he was one of the original employees when he joined the company back in 1936) has now grabbed more than 80% of the shares in the retailer.
With a 90% acceptance condition before compulsory acquisition, yesterday’s warning statement will help boost acceptances towards that level. He is bidding 33.5 cents a share for the company, and after yesterday’s statement that is going to better than a doubtful future as a locked in minority in a struggling company
The management team put in place on May 25 by Mr Johnston has found the financial situation has deteriorated much more than expected at the group, which operates more than 200 retail outlets in Australia and New Zealand.
New CEO, John Hardy, (who is actually the long time old CEO) warned investors its “prudent” to “not rely on previously published earnings guidance”.
In an ASX statement yesterday, Godfreys advise without further financial support, the retail group will likely experience “cash flow challenges in early July 2018”.
“It must be stressed that these indications are based on a high level analysis by the new executive team, which is all that has been possible in the short time available. Work is currently underway to verify this position,” Godfreys told the market.
Since listing in 2014, the company’s share price has dropped over 90%.
Mr Johnston is the main financier through a vehicle known as 1918 Finance Pty Ltd which owned 28% of Godfreys before the bid and which has been the company’s main financier and the statement said talks were underway about future financing needs, including a possible rights issue (which would require Mr Johnston to put up more money.
Discussions with 1918 Finance are about an extension to the limit on an existing $30 million senior debt facility.
Godfreys also warned the remaining investors should brace themselves for another profit downgrade, as the new executives and advisers worked through more number-crunching, with an announcement expected soon.
“In the meantime, it would be prudent for shareholders and investors not to rely on previously published earnings guidance,” the company warned yesterday.
