Mothercare says financing talks are progressing, shares rise

By

Sandra Halliday

Published
Mar 21, 2018

Mothercare said Wednesday that discussions with its lenders on the terms of its existing financial facilities “are progressing constructively.”

The update followed heavy speculation over the future prospects for the mother and baby products retailer and comes several weeks after it said it was working with financing partners on its funding needs for the 2019 financial year due to the "challenging retail environment”.

The talks referred to in the new update should conclude before May 17, which is the scheduled date for it to reveal its preliminary results, and its lenders have therefore “agreed to defer the testing of [its] financial covenants” due on March 24.

The company had earlier said that it expected its borrowings to increase “towards the limit of our total committed and non-committed facilities at various points from the start of the new financial year, and will therefore require waivers of certain financial covenants.”

It reiterated on Wednesday that it’s also “exploring additional sources of financing to support and maintain the momentum of our transformation programme and we are engaged in preliminary discussions on securing such additional financing.”

We have no idea what those additional sources of financing might be, of course, and whether the company might want to try to raise more money from shareholders via a rights issue, or seek funding from external lenders.

It’s all a long way from last autumn when the company seemed to be on the right track. Although it reported a loss, it hailed progress in its turnaround plan. And it seemed to be in the vanguard of UK retailers making the most of omnichannel opportunities with a huge percentage of its sales happening online. 

But earlier this month, the weak retail environment in the UK that led to the collapse of the Toys R Us and Maplin chains saw investors losing confidence. In a three-day period, Mothercare’s share price fell 9%, 12% and 10%. 

The company’s CEO Mark Newton-Jones said at the time that the business was still performing in line with expectations and remained cash generative, although given its need for extra financing, it’s clearly not generating as much cash as it needs.

But the financing update on Wednesday did seem to satisfy some people and the company’s shares rose over 12% at one point in early trading.