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MADE Announces Strategic Review

MADE store

Further to the Q2 trading update published on 19 July 2022 and subsequent confirmation on 18 August 2022 that it was considering a capital raising to strengthen its balance sheet, MADE announces that its board of directors (the "Board") has decided to conduct a formal review of the various strategic options available to the Group to maximise value for shareholders (the "Strategic Review"). 

As a consequence of the factors described below, combined with the unexpected events of the past two weeks in the UK compounding the deterioration of trade and the current financial position of the Group impacting its trading stance, the continued uncertainty means that Board has concluded that it is appropriate to withdraw its full-year guidance. 

Background to the Strategic Review

Global macroeconomic conditions have radically changed over the 15 months since MADE's IPO, creating two major headwinds for consumer businesses, including the Group:

Decline in discretionary consumer spending

The first headwind is the decline in discretionary consumer spending stemming from increased inflation and a steep decline in consumer confidence. During the first half of 2022, MADE's core markets have experienced adverse developments in macroeconomic conditions, including economic slowdowns, rising inflation of commodity and energy prices, spurred by Russia's invasion of Ukraine, which has caused greater uncertainties about the duration and further deterioration of these adverse conditions and other contributing factors. These adverse market conditions have caused a sharp decline in consumer confidence and contributed to a significant withdrawal of consumer discretionary spending.

Further, these conditions contributed to an increased need to sell goods at a discount in order to address the inventory levels to adjust to the adverse market conditions, negatively impacting gross margin and causing negative operating leverage of fixed costs. MADE's previous strategy to build up inventories and range availability to improve customer experience and conversion rates through shorter lead times coincided with this steep decline in consumer confidence and resulted in MADE being in an overstocked position, with more cash tied up in working capital.

The ongoing adverse market conditions have also made it challenging for the Group to acquire new customers at financially attractive rates, resulting in higher customer acquisition costs.

Deglobalisation and destabilisation of supply chains

The second headwind has been the deglobalisation and destabilisation of supply chains resulting in reduced reliability and increased costs. Recent macroeconomic conditions and geopolitical events have impacted the global supply chains, leading to industry wide freight cost increases. Since November 2020, global freight disruptions resulting from, among other things, the COVID-19 pandemic, have resulted in market wide reduced freight capacity, delays in freight shipping and significantly higher freight costs.

The Group has been adversely affected by these events. In the second half of 2021, significant increases in market spot rates for freight contributed to a rise in freight costs from £8.2 million in 2020 to £45.3 million in 2021, which the Group has not been able to fully pass on to its customers during a tightening consumer macroeconomic environment, resulting in depressed margins. This cost inflation in MADE's supply chain has persisted throughout the first half of 2022 as a result of now structurally higher levels of freight rates and carrier costs. This is despite the recent decline in freight rates, of which the Group has not yet been able to realise the benefit. In addition, last-mile-delivery costs and additional significant fuel surcharges from carriers, caused by the resulting impact of the Russian invasion of Ukraine on global fossil fuel prices, have contributed to the increased fulfilment costs which has depressed margins.

Group response to challenging conditions

Since the beginning of 2022, MADE has taken several steps to manage its cost base and cash flow. These actions include significantly reducing the level of forward purchases of inventories, reducing capital expenditures, implementing a hiring freeze, removing planned spend from brand marketing activity, and laying the foundations for opening European sourcing and a new marketplace non-stocked operating model.

In order to extend the Group's cash runway further, the Board has concluded that costs must be reduced further and a process has commenced to implement additional cost reductions, including a strategic headcount review, within the next few weeks, whilst retaining appropriate skills and resources to be able to conduct the Strategic Review process effectively.

Balance Sheet

As previously announced, the Board has been considering ways to strengthen the Group's balance sheet, including a possible capital raising.

In light of a number of factors including the continued uncertain trading conditions, the Board has concluded that the prevailing conditions are not supportive at the current time of raising sufficient equity from public market investors.

As a result, the Board has decided to undertake a Strategic Review, which will involve a broad range of options to either facilitate raising additional funding, for example through debt financing, through a strategic investment by a business partner or other market participant, by realising value from a sale of the Group - or its business and assets - or through a business combination with another entity with sufficient funding for the combined group.

MADE is a company subject to the City Code on Takeovers and Mergers (the "Takeover Code") and  information on certain implications of the Takeover Code on some of the strategic options which are being considered are set out below.   

Takeover Code considerations

One of the options that will be considered in the Strategic Review is a potential sale of the Group by way of a "formal sale process" (as referred to in Note 2 on Rule 2.6 of the Takeover Code).

The Takeover Panel has granted a dispensation from the requirements of Rules 2.4(a), 2.4(b) and 2.6(a) of the Takeover Code such that any interested party participating in the formal sale process will not be required to be publicly identified as a result of this announcement and will not be subject to the 28 day deadline referred to in Rule 2.6(a) of the Takeover Code for so long as it is participating in the formal sale process. Following this announcement, the Group is now considered to be in an "offer period" as defined in the Takeover Code, and the dealing disclosure requirements as set out below will apply.

The Board has appointed PricewaterhouseCoopers LLP ("PwC") as its financial adviser with regards to the Strategic Review and formal sale process. J.P. Morgan Cazenove is advising MADE in respect of the application of the Takeover Code.

While the Group has had a number of strategic discussions with interested parties, the Group is not in receipt of any approaches, nor in discussions with any potential offeror, at the time of this announcement. As described above, the Board emphasises that a sale of the Group is only one of a number of strategic options to be considered under the Strategic Review. Another option under consideration is to seek a strategic investment in the Group.  This may offer the scope for existing investors to participate but the Board recognises that, given the current market capitalisation of the Group, a significant investment could trigger the requirement for a waiver under Rule 9 of the Takeover Code.

Parties interested in submitting any expression of interest or other proposal relating to any strategic option for the business, should contact PwC through the contact details given below. It is currently expected that any party interested in submitting any form of proposal for consideration within the Strategic Review (including within the formal sale process) will, at the appropriate time, enter into a non-disclosure agreement and standstill arrangement with the Group on terms satisfactory to the Board and on the same terms, in all material respects, as other interested parties before being permitted to participate in the process. The Group then intends to provide such interested parties with certain information on its business, following which interested parties shall be invited to submit their proposals to PwC. The Group will update the market in due course regarding timings for the formal sale process.

The Board reserves the right to alter any aspect of the process as outlined above or to terminate the process at any time and in such cases will make an announcement as appropriate.  The Board also reserves the right to reject any approach or terminate discussions with any interested party at any time.

Shareholders are advised that this announcement does not represent a firm intention by any party to make an offer under Rule 2.7 of the Takeover Code and there can be no certainty that any offers will be made as a result of the formal sale process, that any sale, strategic investment or other transaction will be concluded, nor as to the terms on which any offer, strategic investment or other transaction may be made.

Source : MADE

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26 September 2022

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