Office completes debt refinancing but store closures still to come

Truworths completes Office restructuring and debt refinancing
CEO Michael Mark says turnaround plan has "stabalised" the retailer but still close loss-making stores
// Office parent company Truworths says it concluded an agreement to refinance its funding
// In July it entered into discussions with UK lenders regarding potential debt restructuring options
// Truworths says “no major financial restructuring is being considered” after securing £32.5m refinancing sum

Truworths has announced that it has concluded an agreement to refinance the funding for its Office footwear retailer in the UK, and plans to close loss-making stores will go ahead.

The South African parent company said existing syndicated debt facility will be replaced with a £32.5 million facility provided by Standard Bank.

Office’s debt totalled around £42.5 million in its financial year ending June this year.

In early July, Truworths announced that it had entered into discussions with UK lenders regarding potential debt restructuring options for Office.


Truworths chief executive officer Michael Mark said the funding has been obtained at more favourable rates than the existing facility, based on the strength of the group’s balance sheet.

He also said the facility was secured by a guarantee issued jointly by Truworths International Ltd and Truworths Ltd.

Office has also used existing cash reserves of £10.5 million, which are surplus to operating requirements, to settle the balance of the existing sterling denominated debt.

“Based on Office’s profitability, liquidity and cash position, as well as the successful completion of the debt restructuring, the board wishes to advise stakeholders that no major financial restructuring of Office is being considered,” Mark said.

The tough retail trading conditions in the UK has been blamed for Office’s decline in profitability.

Mark said Office has implemented a turnaround strategy and early indications suggest the business has “stabilised”.

However, he highlighted that Office now faces the challenge of managing the balance of online versus physical store sales while being bound by long-term legacy leases.

As a result, management is “critically evaluating” Office’s real estate portfolio and plans to close poorly-performing stores “as soon as it is able to do so”.

While Truworths did not confirm how many or which Office stores will be affected, last month Mark told analysts that up to 15 will close down in the next two years as their leases come to an end.

He also said more closures could possibly follow, along with three concessions that were “problematic”.

“Office management is now focused on driving profitable growth by improving staff morale, investing in customer and brand relationships, and improving merchandise processes,” Mark said in a statement yesterday.

“We continue to enhance the e-commerce offering to grow sales in an environment trending towards online shopping.”

The footwear retailer reportedly hired specialists from Alvarez & Marsal to assess the business and consider its options back in early July.

The £250 million Office acquisition in December 2015 was Truworths’ first foray into Europe as the company looked to diversify from its home market in South Africa.

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