The Bortex Group is principally involved in two segments, garment manufacturing and retailing on the one hand and property development and hotel operations on the other. In 2017, the Group, through its financing vehicle Bortex Group Finance plc, issued a €12.75m unsecured bond, with a coupon of 3.75 per cent and that matures in 2027.
Trading update on the COVID-19 pandemic and outlook
Inevitably, due to the nature of its business models, the Group was severely impacted by the pandemic. Consequently, the Group expects a significant downturn in its financial performance for 2020, which might also be prolonged into the initial months of FY21, given that Bortex has an October financial year-end.
Despite this, the latest news from the vaccine front augurs well for the economic recovery proposition, with an improved economic sentiment envisaged to kick-off in early 2021, while more tangible recovery predicted once the full-scale COVID-19 vaccination process kicks-in. The latter is expected to occur in Q2 of 2021. Therefore, the upcoming winter months will continue to be challenging both for the tourist industry, but also from a consumer spending perspective.
As per the latest forecasts issued by the Group in its June 2020 Financial Analysis Summary (FAS), in FY20, the Group is forecasting a drop in revenue and EBITDA of 23 per cent and 97 per cent, respectively. Notwithstanding this remarkable impact, upon recent discussions with management, it is expected that the actual results for FY20 will be better than those forecasted in the FAS. Management explained that manufacturing and retail sales up to September 2020, have exceeded the forecasts presented in the FAS. Similarly, hospitality revenue also exceeded prior expectations with Hotel 1926 registering a strong occupancy levels between the summer months July to September.
Additionally, management explained that throughout this unprecedented period it managed to successfully carry out a restructuring exercise which drastically reduced the operating costs of the manufacturing and retail division. The Group has secured a loan under the Malta Development Bank (MDB) scheme. It is important to note that these loans are on favourable terms, as part of the Government’s initiative to assist businesses during this distressed period. The Group has also benefitted from the wage supplements on both of its divisions given that these were classified as ‘industries most impacted by the pandemic’.
In addition to the above, the Group’s financial position has been further improved through the development of the TEN Apartments. As reported by the Group, the construction of this development was limitedly impacted by the pandemic, with a favourable momentum in terms of sales and promise of sales agreements. The proceeds from this development will strengthen further the Group’s working capital.
The TEN Apartments consists of 18 apartments and two penthouses over a total of seven floors. The developments will also cater for 58 underground car parking spaces. As June 2020, the Group confirmed that it secured the sale of 15 apartments (seven of which concluded) and 27 car spaces (10 of which concluded) by way of promise of sale, which amounts to €6.2m sales (net of commissions).
The Group’s strategic decision to invest in the local real estate market is bearing fruit, especially during such distressed period. Additionally, the recent diversification into the hospitality industry is expected to significantly improve the Group’s fundamentals. As can be analysed from the FAS, the profitability margins of the hospitality segment is significantly better than that of the apparel segment.
In view of the recent positive news, which includes the locked MDB loan, better than expected results for FY20 and the secured liquidity generated from the sale of the TEN Apartments, the Group expects to generate sufficient liquidity to meet all of its near term financial obligations. Therefore, it is expected that Bortex should be in a position to weather the current storm and continue on its recovery.
This article was issued by Rowen Bonello, research analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.