The board of fixed-security specialist Trellidor has been granted a lifeline after its main lender condoned covenant breaches for the 2023 financial year, quashing any motive for a potential rights issue or the sale of some of its businesses.
A combination of rising debt in the year to the end of June coupled with declining ebitda (earnings before interest, tax, depreciation & amortisation) led to the group breaching two covenants.
The group’s debt-to-ebitda ratio ballooned to 5.1 (excluding IFRS 16), breaching the ceiling of 2 set by First National Bank (FNB), its primary lender. Additionally, a total senior debt service cover of 0.8 breached the covenant of 1.3.
Trellidor on Thursday said FNB had completed its reviews and subsequently condoned the covenant breaches for the 2023 financial year without amending the existing financial covenants or imposing any additional covenants or conditions.
FNB will remeasure the covenants for the ensuing financial period ending June 30 2024, the Durban-based company added.
“Given that the primary lender has condoned the covenant breaches, the group will have the unconditional right to defer settlement of the related loan liabilities for at least 12 months after the 2023 financial year reporting period,” Trellidor said in a statement. “Such debt will therefore be reclassified as non-current liabilities.”
The R237m JSE-listed construction materials group said it secured the reprieve after presenting detailed financial and operating plans to rectify the breaches.
The plans focus on improving profitability and reducing debt levels by “fulfilling significant manufacturing and supply contracts of roller shutters in the UK”, and “maintaining overhead levels in line with inflation throughout FY2024, after the investment in selling capacity which took place during FY2023”.
“The board has mandated the executive team to investigate opportunities to materially reduce the debt levels of the group by the end of FY2025,” it added.
FNB was confident “the group continues to be profit-making, despite its underperformance, and that no legal proceedings have been instituted against the group by other funders”, Trellidor said.
The group, whose brands include Trellidor, NMC and Taylor, was founded in Durban in 1976 and listed on the JSE in October 2015. It produces barrier security products that are distributed in SA, Africa and the UK.
As the majority of key financial performance objectives weren’t met during the current financial year, the board decided against paying a short-term incentive to CEO Terry Dennison and CFO Damian Judge.
In the company’s latest integrated report, group chair Mark Cyril Olivier said that executing the growth strategies and rectifying the breach of covenants would be the main focuses in the financial year, adding that the reduction of debt was a priority.
Though the board wasn’t recommending a rights issue or the sale of any of the individual businesses to reduce debt, it would be taking a prudent approach to the management of financial risk given an uncertain operating environment, he added.
“The board is focused on restructuring the existing balance sheet as well as restoring the earnings and cash generating capacity of the business through the development of its existing growth strategies,” Olivier said.
“Accordingly, the group’s growth strategies in the short term will be financed by operating cash flows and capital will not be allocated to the payment of dividends and/or the buyback of shares until gearing levels are in line with the board’s target.”
The board on Thursday told shareholders the executive team is considering various strategies and initiatives, including a “sale and leaseback” transaction for certain group properties.
Trellidor has said it would introduce new products for the commercial property segment in SA. including the recently launched sectional door product, Coroview, which is targeted at the automotive and emergency services industries.
During the 2023 financial year, the firm launched the Traditional Trellidor range as well as a security mesh-screen product and plans to launch a second sectional door product, Corosteel, in 2024 that will be marketed primarily to warehousing and industrial applications.
Trellidor’s biggest shareholders include Mazi Asset Management, Aylett & Co, Peresec Prime Brokers, and Fortuna Investment.
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