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Mothercare in talks over financing options
Mothercare has begun talking to its lenders and investors as borrowings are expected to breach bank limits in coming months, with profits likely to come in at the lower end of previous guidance.
Net debt in for the year to 30 December is expected to be slightly better than the £50m that management indicated in January's profit warning but borrowings are forecast to grow "towards the limit" of bank facilities "at various points from the start of the new financial year", which will require lenders to temporarily waive their covenants.
Since the January profit warning, the 60% collapse in Mothercare's share price has seen its market valuation shrivel to around £35m. The collapse into administration of Toys R Us on Wednesday sent shockwaves that further greased the shares' slide.
"Reflecting the more challenging trading environment and our seasonal cash flows, we are working with our financing partners with respect to our financing needs for FY19 and beyond," the company said, with talks ongoing.
Directors have also been exploring "additional sources of financing" as they try and transform the business, which could suggest a rights issue looms.
While trading and financial performance was said to have "remained broadly in line" with the board's expectations, adjusted group profit before tax was now guided to be at the lower end of the fairly broad £1-5m range.
To cut costs, "decisive action" has been taken as well as a continued reduction of the UK store estate in favour of a bigger push into digital, with over 40% of sales now being taken online.