Tough times ahead for Derby

Derby insiders have now confirmed that, as well as Matthews, other key Derby execs have been shown the door. These include finance director Dan Lynch, who leaves in February, and vice-president global marketing Reggie Fils-Aime.

Fils-Aime was Raleighs acting MD for the latter half of 1999, stepping in after Mark Todd left the company and before Philip Darnton took on the mantle.

Matthews is officially with Derby until June although has no operational responsibilities.

The management changes at Derby have yet to be officially registered by Standard and Poors, the international credit ratings agency, although senior S&P raters read this site so are aware of the recent dramas involving Finden-Crofts.

However, Derbys pre-Christmas success at securing the $31m refinancing package has registered with S&P and they issued a press release concerning Derbys credit rating status.

Derby is now on a triple-‘C’ rating instead of triple-‘C’-plus rating.

The S&P release pulls no punches:

Derby’s weak operating record in the past two years…means that it is not certain that the company will successfully withstand the continuing challenges of its operating environment.

The rating actions on Derby reflect continued weak operating performance for the cycle manufacturer. The negative EBITDA of $3 million recorded in the first nine months of 2000 resulted from continuing losses in the U.K. and U.S. These losses were compounded by management problems in Germany, which in turn led to operating losses in the German market and necessitated write-downs for slow-moving inventory.

The $31m should ensure funding for the crucial manufacturing period in the first quarter of 2001 and prepare the company for the key trading period quarters two and three…[but] Derbys financial profile remains very weak.

The cash Derby pocketed for Sturmey and other sold-off assets brought short-term relief but now with less assets to offer as guarantees, Derbys balance sheet doesnt look too hot.

S&P offers this warning:

Derby’s senior unsecured debt has been downgraded two notches below the corporate credit rating (CCR) at double-‘C’, having been only one notch below the CCR previously. This reflects a contraction in the size of Derby’s assets, caused by asset disposals and widening shareholder deficit. As a result, there has been an increase in the size of priority debt relative to total assets.

S&P gives Derby a negative outlook:

The outlook remains negative due to Derby’s restricted financial flexibility, as well as continuing uncertainty regarding its trading prospects.

With a fair wind and execs who understand the nuances of the bike business, which Matthews clearly failed to grasp Alan Finden-Crofts will be able to turn the corporation around and improve its S&P credit ratings.

RELATED ARTICLE

Why did Derby ditch Matthews?, 5th January 2001 http://www.bikebiz.co.uk/…/article.php3?id=1127

NOTE

S&P credit warning definitions:

CCC

An obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

CC

An obligation rated ‘CC’ is currently highly vulnerable to nonpayment.