Trellidor Holdings, a manufacturer of custom-made barrier security products, has to satisfy its lenders that breaching its debt covenants this year is not material, and how it plans to degear debt.
This is according to chief financial officer Damian Judge, in the firm’s 2023 annual report released on Friday.
As at June 30 this year, driven primarily by the decrease in financial performance during the second half of 2023, the group’s debt to Ebitda ratio (excluding IFRS 16) of 5.1x, breached the 2.0x debt to Ebitda covenant set by the group’s primary lender. In addition, total senior debt service cover of 0.8 breached the covenant of 1.2. Its debt is at R121.5 million, from R96.4m the prior year, excluding lease liabilities.
He said Trellidor’s board had performed a detailed going concern assessment, which included the group’s projected performance for 12 months from July 1, and found that the group would continue to trade as a going concern for at least 12 months from the date of this report.
Plans had been presented to the group’s lender as part of its ongoing monitoring of the group’s debt levels.
“Once the lender has received the signed annual financial statements, it will complete its annual review and assess the significance of the breaches,” he said.
To improve profitability going forward, the firm will implement strategic product positioning and price reviews at Trellidor through the second quarter in 2024.
It will also fulfil a significant manufacture and supply contract of roller shutters in the UK. Initial orders had already been received and the project was expected to be completed during the third quarter of 2024. It said overhead levels would be maintained.
In addition, the board has mandated the executive team to investigate opportunities to materially reduce the debt levels by the end of financial year 2025, Judge said.
Chairperson Mark Olivier said: “The group executive has been under significant pressure during the year, but has responded well during unprecedented times of uncertainty. Executing the growth strategies and rectifying the breach of covenants are key focuses, and as a priority the executive will need to execute on the reduction of debt.”
Trellidor had been under-performing as demand for its traditional product had been negatively affected by consumers’ applying their limited disposable income on alternative energy and water sources, and trading down on physical barrier security.
In addition, subdued residential sales volumes and negative real price growth over multiple years, most prominently in Gauteng, as well as the growing preference for estate living, had also impacted negatively on Trellidor’s market in South Africa, he said.
“In addition, although home burglaries in South Africa impact approximately 13% of the South African population annually, it has not grown materially over the last five years. According to the latest survey released by Statistics South Africa in August 2023, housebreaking/burglary levels are almost similar during the years between 2018 and 2023,” Olivier said.
The group was actively diversifying its geographical footprint, now operating in the UK, rebuilding the capacity of the distribution network in Africa, as well as now targeting growth into the commercial and industrial segment.
Trellidor introduced the first of two new sectional overhead products during 2023. Coroview primarily targets the auto-motive and emergency services sector. The introduction of the second sectional overhead product, Corosteel, during 2024 will widen Trellidor’s product offering into the industrial and warehousing segments of the market.
Amongst other growth strategies, the group aims to stabilise Taylor, which it acquired in 2017, and has overhauled its management, among other measures.
Chief executive Terry Dennison said Trellidor would focus on restoring its margins in an effort to return to profitability, and market segmentation in South Africa would continue with an established B2B team.