Filing summary: fiscal year ended January 31, 2018
Entity and period note: The supplied filing is Naked Brand Group Limited’s Form 20-F, reporting Bendon Limited’s intimate-apparel business; it is not a Cenntro Inc. filing. It reports a fiscal year ended January 31, 2018, not a standalone 2017 fourth quarter. Unless stated otherwise, amounts below are NZ$ millions; the audited statements are prepared under IFRS. The principal prior-year comparison is an unaudited 12-month period ended January 31, 2017, assembled from accounting records.
Business context
Bendon designs, distributes, wholesales and retails women’s and men’s intimate apparel and swimwear through stores, e-commerce, wholesale and licensed brands. On June 19, 2018, after year-end, Bendon and Naked Brand Group Inc. completed a merger; the combined company became Naked Brand Group Limited and listed on Nasdaq under NAKD.
Financial results and condition
| Metric | FY ended Jan. 31, 2018 | Prior 12 months ended Jan. 31, 2017 |
|---|---|---|
| Revenue | 131.4 | 152.1 |
| Gross profit / gross margin | 43.9 / 33.4% | 67.8 / 44.6% |
| Loss before tax | (37.5) | (34.2) |
| Net loss | (37.6) | (40.4) |
| Operating cash flow | (4.1) | (15.2) |
| Investing cash flow | (2.3) | (2.9) |
| Financing cash flow | 14.5 | 17.0 |
- Revenue fell 13.6%. Management attributed the decline to stock shortages caused by liquidity constraints, which also led to order cancellations, customer discounts and an unfavorable product mix. Gross margin declined 11.2 percentage points.
- Net loss improved by about NZ$2.8 million, despite lower gross profit, partly because finance expense decreased to NZ$8.8 million from NZ$11.2 million and foreign-exchange results swung from a NZ$14.3 million loss to a NZ$0.8 million gain. FY2018 also included NZ$3.3 million of transition, restructuring and transaction expense, including US-listing costs, and NZ$1.9 million of impairment, including an ERP-system write-off.
- Cash and equivalents were NZ$10.7 million at year-end, versus NZ$2.6 million. Total assets were NZ$88.1 million; borrowings were NZ$52.1 million; total liabilities were NZ$93.8 million; and shareholders’ equity was negative NZ$5.7 million. Working capital was negative NZ$20.8 million.
- Operating cash outflow improved from NZ$15.2 million to NZ$4.1 million, but the company remained loss-making and dependent on financing. FY2018 financing included share issuance and convertible notes; reported cash generation should be considered alongside the reliance on external capital.
- Segment results were uneven: New Zealand retail EBITDA was NZ$4.3 million, while Australian retail lost NZ$2.6 million. Australian wholesale lost NZ$0.8 million and U.S. wholesale lost NZ$3.3 million; management cited supply delays and the end of the Macy’s relationship. E-commerce EBITDA was a NZ$0.3 million loss, versus NZ$4.5 million profit in the prior comparison.
Liquidity, debt and outlook
- At January 31, 2018, BNZ borrowings and working-capital facilities were classified as current. The company disclosed covenant breaches, including a gearing ratio of 5.96 against a maximum of 2.25 at December 31, 2017; the lender reserved its rights. Trade creditors were past their original payment terms.
- After year-end, the company raised USD$23.5 million in equity and entered a 12-month BNZ facility capped at NZ$20 million, subject to financial and trading covenants. It also obtained a related-party standby facility of up to NZ$20 million, carrying 7.5% interest on drawn amounts and a NZ$0.5 million fee for each facility first drawn. The remaining shareholder loan converted to equity when the merger closed.
- Management forecast operating cash flow turning positive toward the third quarter of FY2019, relying on inventory replenishment, cost reductions, supplier and customer terms, and the capital raised. This was a forecast, not a guarantee. Management used going-concern accounting while acknowledging losses, negative working capital and dependence on forecasts, refinancing and shareholder-related support.
- Bendon’s Stella McCartney license expired June 30, 2018, removing the right to sell those products thereafter. Management identified this as a trading challenge. No formal numerical revenue or earnings guidance is provided.
Material risks, contingencies and unusual matters
- Management reported material weaknesses in financial reporting controls: inadequate audit-committee and independent-board oversight, insufficient accounting/SEC-reporting expertise, weak contract review processes, and no formally documented internal-control system. Disclosure controls were deemed ineffective at January 31, 2018. The auditor did not express an opinion on internal-control effectiveness.
- Customer, supplier and license concentration; consumer demand and seasonality; inventory availability and markdowns; competition; foreign-exchange exposure; and the ability to service or refinance debt are key disclosed risks. The holiday-season selling period accounted for about 54% of FY2018 net sales.
- A possible acquisition of FOH Online was described as possible but not probable at the filing date; proposed consideration included 1,304,917 shares and assumption of about USD$9.5 million debt. Verify subsequent status before relying on this proposal.
- Management reported no legal proceedings expected to have a material adverse effect. Contractual commitments included NZ$25.3 million of minimum operating-lease payments and NZ$17.2 million of contracted commitments, chiefly license obligations.
- The audited financial statements received an unmodified PwC opinion. The audit did not include an opinion on internal controls.
Most important facts for investors to verify
- Confirm the issuer and period: this is a Naked Brand Group/Bendon filing, not a Cenntro filing, and it does not provide standalone Q4 results.
- Reconcile the unaudited prior-year 12-month comparison with audited historical periods, and confirm the reported figures and NZD/USD conversions in the audited statements.
- Check post-merger liquidity: actual drawdowns, covenant compliance and renewal of the NZ$20 million BNZ facility, use of the USD$23.5 million equity raise, and availability and terms of the related-party standby facility.
- Assess whether supply and working-capital improvements produced the forecast cash-flow turnaround, and quantify the impact of the expired Stella McCartney license and lost Macy’s business.
- Track remediation of the disclosed material weaknesses and verify whether related-party transactions, including the proposed FOH Online acquisition, were completed and on what terms.