Top Form never quite lived up to its name

PUBLISHED : Monday, 22 April, 1996, 12:00am
UPDATED : Monday, 22 April, 1996, 12:00am

Lingerie-maker Top Form International has hit the rocks. By this time next year, unless there is a miracle, the company we see today will almost definitely not be around.

Top Form has a liquidity problem. Debt repayments have been re-scheduled and, after an independent review by accountants, non-core assets are due to be sold.

The company is asking the banks to grant another $40 million in new credit to cover a deemed shortfall in working capital.

The Top Form rescue plan hangs in the balance. Banks will tell the company whether they will go along with what the directors have proposed at a meeting this week.

With the benefit of hindsight, Top Form was one of those early 1990s listings that should never have happened. The company was listed amid loads of hype in December 1991. Until November 1991 it actually did not exist.

It was a merger of three groups. A manufacturing, retailing and distribution unit was born in the merger of Top Form International, Hong Kong's biggest bra-maker, luxury lingerie retailer Marguerite Lee Group and Top Form Europe.

Later the stock exchange listing rules were changed to stop this kind of pre-listing merger-mania.

As is the tradition, profits peaked at Top Form shortly after listing. They rose from $20 million in 1989, as shown in the prospectus, to $81 million by the end of June 1993. From there on it has been down hill all the way.

Top Form was a great manufacturer which failed to cope with the massive downturn in business during 1994 and last year in Hong Kong and China.

A restructuring of the retail division was launched in November 1994. At the end of June 1994, profit had fallen by almost half to $45.5 million.

At the interim stage, to December 31, 1994, profits slumped to $11.36 million, from $41 million. An exceptional loss of $6 million was booked on store closures.

The year ending June 30, 1995, saw profit drop to $19.8 million, from $45.5 million. The annual accounts showed inventory was up 16.5 per cent to $375 million and debt was up 57 per cent to $601 million. Of this, $466.8 million was due within one year.

Yet net cash flow before financing was an outflow of $237 million and after financing it was an inflow of $175 million, with just $1.2 million in cash.

At the reporting of the interim stage to December 31, 1995, red ink spread like a virus over the face of the group profit and loss.

An operating loss of $8.7 million was incurred. Previously the profit was $25.4 million. A $39 million exceptional was booked on stock provisions, factory closures and redundancies and restructuring.

The loss attributable to shareholders was $68 million.

Top Form is in dire need of a big infusion of capital and a more ruthless re-organisation than the management has already undertaken.

Top Form might dump all non-manufacturing operations.

Manufacturing, at the interim operating profit stage, actually turned a profit of $12.8 million. Previously the profit was $35.6 million.

On Friday, Top Form's shares closed up half-a-cent at 31.5 cents.

If the banks give the all-clear to go ahead with the rescue, and the management focuses on profit-making businesses, Top Form might just pull through.

It remains a pretty risky turnaround play, however.