Renewcell Gets Some Breathing Room With $10 Million Injection
Renewcell, which is in the throes of a strategic review following a spate of disappointing earnings, said Wednesday that it will be able to ease some of its liquidity squeeze with a mix of new financing and adjustments on existing loans amounting to 100 million Swedish kronor ($9.9 million) in cash, even though maintaining this posture is far from sustainable.
The Stockholm-base textile recycling firm said that short-term loans from H&M Group and Girincubator, its largest shareholders with stakes of 10.3 percent and 9.5 percent, respectively, plus credit increases and waivers from the likes of BNP Paribas, European Investment Bank and Nordea Bank, will resolve its immediate capital need caused by what it describes as a slower-than-expected ramp-up of sales in the textiles value chain. At the same time, the amount of breathing room the infusion provides can be numbered in months, which means that securing longer-haul funding during the first quarter of 2024 remains the “highest” priority.
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The company, which makes a dissolving pulp called Circulose at a year-old industrial facility in Sundsvall, 235 miles north of Stockholm, has had a rocky few months. A profit warning in October sent shares into a freefall and prompted a CEO shakeup. Its third-quarter sales, which landed in early November, showed that it was hemorrhaging some 94.5 million kronor ($9.3 million) in cash, contributing to a net debt of 905 million kronor, or $89.2 million.
Getting brands to commit to the volumes Renewcell needs to break out of the red is still a work in progress. The firm said that it has, in tandem with its strategic review, “intensified” discussions with several customers to secure orders, leading to the signing of a non-binding term sheet with H&M for the acquisition of 7,000 metric tons of Circulose-containing fiber in 2024 and 11,000 metric tons in 2025, with a binding offtake agreement potentially to follow. In its newsletter earlier this week, Renewcell noted that Faherty, La Maison Simon, Reformation and Toteme have likewise “said yes” to Circulose in their products for 2024. This is in addition to the 2,000 metric tons of Circulose-blended fiber from Chinese textile producer Tangshan Sanyou that Zara owner Inditex has called dibs on.
2024 promises to be a make-or-break moment for Renewcell, as well as the burgeoning textile innovation sector whose success upon which demand for its products hinges. In the new year, Peter Schulz will join the company as interim chief financial officer, replacing Toby Lawton, who announced he was leaving in July but has stuck around during the search for his successor. Magnus H?kansson will continue to serve as acting CEO following Patrik Lundstr?m’s exit.
While Renewcell said it is still exploring financing alternatives such as equity injections in the form of rights or directed issues, its liquidity outlook will “continue to be dependent on sales and the dynamics with the company’s supply chain partners.” A previous note revealed that its facility pumped out 1,339 metric tons of Circulose in November, with none of it delivered to customers. Production volumes will continue to fall under capacity unless this changes, creating a situation where there will be fewer virgin alternatives available for brands when they want it.
“Today’s capital injection is expected to be sufficient to handle the liquidity required for the coming months and is therefore not a long-term solution,” Renewcell added.
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