Oct 20, 2019
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Brexit and tough economy mean Monsoon Accessorize still in trouble, despite CVA

Oct 20, 2019

Monsoon Accessorize is facing a potential existential threat, its latest accounts have revealed. It may have managed to push through a company voluntary arrangement (CVA) this summer with no store closures planned, but the new documents show that it's not out of the woods just yet. And its future lies very much in the hands of founder Peter Simon who committed £30 million in loans to the business after its CVA went through.

Photo: Monsoon

The company has already been making use of a roughly £12 million chunk of that money and has said that if trading conditions substantially worsen (which is the worst-case scenario), it may need to call on the remaining £18 million.

The complication is that management forecasts show it will miss its targets, according to its auditor BDO, with its covenants "expected to be breached,” and that means the £18 million may not be available on the existing negotiated terms. BDO said "there can be no guarantee that funding sources will be available should they be needed.”

While BDO thinks this bleak possibility is unlikely to play out, it’s a further sign of the instability in the UK fashion retail sector. It shows how previously-strong companies have been suffering as the market changes beyond recognition and as a tough, Brexit-influenced, economy continues to depress consumer sentiment.

As it would be purely Peter Simon's decision as to whether he would stump up the remaining cash, in a worst-case scenario, Monsoon’s ability to continue as a going concern could therefore be dependent on it either being able to squeeze as much productivity as it can out of the existing £12 million, or convince Simon that the extra £18 million can make a difference rather than just delaying the inevitable.

So based on the firm’s latest accounts, just how bad is its situation? Well, the company was reporting on its year to August 2018 so it doesn’t give us much clarity on how it’s doing at the moment, although it did discuss the current difficult market in the report. 

For FY18, it made an underlying EBITDA loss of £1.8 million after a profit on that basis of £6.9 million a year earlier. The after-tax loss was £22.5 million, much worse than the prior year’s £2.2 million deficit. Turnover dropped 4.6% to £296.4 million as the womenswear and kidswear operations of the Monsoon physical stores chain saw falling like-for-like sales on the back of footfall declines. But both categories grew strongly online via its own website and third-party marketplace partners.

It said online made up “a considerable portion of total sales, but not yet enough that [the] strong performance online was able to offset the declines across [its] retail stores.”

Coming closer to today, the company said trading since the 2018 year-end “has proved extremely difficult, particularly for our UK store business. The macro environment of a weak economic recovery, depressed consumer spending and continued political uncertainty have all taken their toll on demand.”

The “immediate competitive environment has also proved challenging”, in particular the much higher-than-usual promotional activity in the women’s and children's clothing markets.” It added that “in 2018, this meant negative like-for-like UK retail sales for the firm and these declines have continued in the current fiscal year to the date of the earnings report.”
Monsoon also said that since the fiscal 2018 year-end, during FY19 and into FY20, "we have seen slower growth in online sales both on our owned website and with our third-party partners.”

But the company struck a very-cautiously-upbeat note too, saying that it continues to invest in its online capabilities and partnerships and believes there are considerable opportunities to grow its digital presence and commerce in the UK and internationally, with the potential for a much greater proportion of Monsoon sales to be made online.

And it said that it has prepared various forecasts in relation to its ability to continue as a going concern. In its base forecast, it believes it can fund its operations with the £12 million it has access to already, and that it has performed above its base forecast in the first month of its fiscal year 2020.

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