Germany largest domestic bike manufacturer reported it may have lose €15 million in 2013 after underestimating inventory costs, but also disclosed it was in final negotiations to raise an equal sum by selling shares to its counterpart in India.
MIFA Central German Bicycle Werke AG said its supervisory board had signed a letter of intent to sell a stake to India's Hero Cycles Ltd. for €15 million. MIFA said details of the transaction are subject to final due diligence and agreements which the parties are still negotiating. In addition to an equity investment the strategic partnership includes a comprehensive cooperation between MIFA and Hero in the areas of procurement and product development, particularly in electric bicycles and drives.
Legally binding agreements with Hero are expected within the next few weeks. Hero is measured by sales of the world's largest bicycle manufacturer.
Markets and technology transfer cooperation between MIFA and Hero offers enormous potential for both companies, said Hans-Peter Barth, who was appointed Thursday to MIFA’s supervisory board effective immediately. An accountant, Barth will take over the responsibilities of former director Peter Wicht, who is currently not available due to illness, until further notice, MIFA said.
“By working together, we create the conditions that will benefit from a growing global market for e-bikes and an efficient, global component manufacturing,” he said.
While MIFA attributed a loss of about €15 million primarily to a failure to meet sales forecasts, it also disclosed it had discovered that it incorrectly recorded inventory levels while introducing a new accounting system in the second quarter of 2013. Those errors resulting in underreporting the cost of materials in the quarterly financial statements for the second and third quarter of 2013. Since MIFA performs no in-year inventory, the company has recognized the incorrect entries only in the course of the annual financial statements.
“The preliminary loss has no impact on the operating performance of MIFA,” said Barth. “The order situation in the first quarter of 2014 is very good and we have sufficient liquidity for the current fiscal.”
The company said that a formal audit may show that it no longer meets bond and bank loan covenants, which could affect the rights of some of its investors. Should this happen, the company intends to call a meeting of investors to vote on an amendment to the terms and conditions stipulated in its August 2013 bond issue. In addition, the company will seek refinancing options.
“We expected due to the strong operational situation of MIFA no impairments due in August of interest payments on the outstanding bonds,” said Barth.
