Godfreys Breach Lending Covenant, During Takeover Talks
As consumers flock to The Good Guys, JB Hi Fi and Betta Electrical to buy their cleaning appliances takeover target Godfrey who pioneered the sale of cleaning products in Australia is wallowing to the extent that the Company has warned that have technically breached a covenant due in part to soft trading during the past three months.
The retailer has already received a waiver from a 99-year-old major shareholder John Johnston whose financing arm, 1918 Finance Pty Ltd, has launched a cash bid for the company. Mr Johnston, who will turn 100 in July, was one of the founders of Godfreys in the 1930s and owns about 28 per cent of the company.
Godfreys said in a statement to the ASX on Monday that “trading conditions have remained subdued”, which meant it would come in at the lower end of a previously forecast profit range for 2017-18.
Godfreys also said on Monday that 1918 Finance had advised the company it wouldn’t be granting any more waivers for future breaches of covenants or any other variations.
Arcade Finance which is owned by Johnson is offering 32¢ a share in an all-cash, off-market takeover bid.
The AFR said that in February, Godfreys, which operates 222 stores in Australia and New Zealand, scrapped dividend payments as new chief executive Jason Gowie embarked on an urgent overhaul, including potential store closures, heavy cost cutting and reinvestment in the brand to try to arrest an alarming sales decline.
Mr Gowie started in the role on December 4. Godfreys said on Monday that “good progress” had been made on five main areas of a turnaround strategy, but that trading conditions had continued to be subdued. This would result in earnings before interest, tax, depreciation and amortisation likely coming in at the lower end of a $5 million to $6 million range previously foreshadowed. That is before substantial restructuring and one-off costs.
In February, Godfreys had been granted a waiver by 1918 Finance Pty Ltd of one specific covenant related to leverage ratios. Godfreys said on Monday it would likely “need to rely on the waiver granted by the lender” on that particular covenant because it was headed for a technical breach.
But it didn’t think it would need any further waivers or relief from future covenant tests.