NEW LOOK has leading positions in the UK womenswear market. Bloomberg
CAPE TOWN - Moody’s Investors Service has given the thumbs up to the financial restructuring of UK clothing retailer New Look - which has Brait SE as its biggest shareholder - by upgrading its rating to Caa1 from Caa2, with a stable outlook.

But both Moody’s and a local analyst warned that the group still needed to demonstrate that it could grow turnover in the current tough UK retail environment, which has been hurt by economic factors, Brexit and more competition from online sales.

“New Look’s management team will now have the flexibility it needs to deliver on its business plan, with the recent restructuring likely to significantly shrink leverage,” Roberto Pozzi, a Moody’s senior vice-president and lead analyst for New Look, said.

New Look has leading positions in the UK womenswear market, with good brand recognition on the UK high street, and will benefit from lower rents following a Company Voluntary Arrangement in March 2018 and other efficiency measures that have lowered the cost base, Pozzi said.

New Look re-launched its brand in April 2018. Its turnaround plan includes focusing on a return to proven broad appeal product, a realigned supply chain, lower prices delivering better value and efficiency and cost savings, according to the Brait website.

Previously it struggled to generate positive free cash flows due to high rental and financial expenses in the context of declining revenues, Pozzi said.

Moody’s said the post-restructuring capital structure provided sufficient flexibility to enable management to proceed with its business plan.

Nevertheless, the business plan was subject to execution risk and “Moody’s believes New Look needs to demonstrate that it can maintain market share and stabilise revenue in a still highly competitive UK retail market”.

An equity analyst in South Africa, who wished to remain anonymous, said management would still need to show the company could grow the topline, saying “there is still a risky road ahead”.

The stable outlook reflected the sufficient liquidity available to execute its turnaround plan, the lack of near-term debt maturities until 2021 and Moody’s expectation of an improved operating performance and positive cash flow generation beyond fiscal 2020, said Pozzi.

Brait noted that “significant progress has been made to deliver financial and operational stability that will be reflected in 2019 and beyond”.

Following the completion of the financial restructuring plan, New Look is owned by a combination of the new senior secured noteholders, previous noteholders and management, with Brait still the biggest effective shareholder. Brait had bought 90 percent of New Look in 2015, but its stake was reduced to pay creditors in the financial restructuring.

Over the past three years, Brait shares have fallen nearly 88 percent on the JSE.

Brait shares fell 3.62 percent to close at R18.12 on the JSE yesterday.

BUSINESS REPORT