Malta franchiser’s Italy leases in post-COVID liquidation

The Maltese fashion franchiser Melite Retail Group caught a gasp of air in the immediate post-COVID year, registering profits in 2022 after the lockdown on its Italian stores cost it millions in losses.

Bond issuer Melite Finance said the group, which runs the Accessorize, Monsoon and CKU chains across various stores in Milan and Turin, amongst other brands, had generated an €883,000 gross profit after losses of €274,000 back in 2021.

The profits reflect the increase in rental income upon the re-opening of outlets that were closed during the COVID-19 pandemic. But with impairments on its leasehold premia, the group’s pre-tax losses were of €805,000 (2021: €2 million).

Melite was caught in the eye of the storm in 2020 and 2021, when the lockdown forced shut over 20 of its Italian stores, with a €9.25 million bond expected to pay out a 4.85% coupon.

The group is now expecting a liquidation of its Italian leasholders to be finalised in 2023, after a third party acquired the tenancy of 11 out of 19 stores through an Italian judicial auction. The process will see a remaining balance of €472,000 paid to Melite.

But in its latest financial statements, auditors said inflationary conditions from retail and commercial real estate in Italy, indicate the existence of a material uncertainty “which may cast significant doubt on the ability of the group to continue as a going concern.”

Melite Finance acts as a vehicle to advance loans to Italian subsidiary Melite Properties, which holds leasehold rights over its retail stores.

In late 2021, plans to force some 70 Melita bondholders to forgo their interest payment in 2021 and then gradually climb to just 3% over the next three years, were changed at the eleventh hour with an injection of shareholders’ capital.

The volte-face came with a €660,000 contribution from retail giant Alf. Mizzi & Sons, which comes over and above a previous €638,000 contribution from Alf. Mizzi, Marina Milling, as well as Michael Soler’s Daystar Holdings. The capital injection will be turned into preference shares ranked after the bonds, and with no fixed coupon.

Alf. Mizzi had declared in a company statement this was its last capital contribution to Melite Finance, whose shareholders are Alf. Mizzi, Marina Milling, and Lidsdale, whose directors are the Soler and Ganado business groups.

When Melite was hit by the Italian lockdown on its 26 stores during COVID in 2020, it suffered €4.2 million in losses.

With equity spiralling down to €1.3 million by year-end, shareholders extended a €1.1 million loan but did not increase capital.

Melite Finance also secured €449,000 from the Maltese COVID Guarantee Scheme, and Italian state credits of around €580,000 as compensation on rental losses.

All stores were reopened in 2022, but any uncertainty was heightened by the outbreak of the war in Ukraine in February 2022 and the soaring inflation and rising interest rates which followed, which affects rental turnover. The leasehold value of its 19 stores has dropped from €9.1 million to €8.1 million in 2022.