Pumpkin Patch warns its shares are worthless

Pumpkin Patch [NZX:PPL] says there is a material risk to the viability of the business, as it pushes out talks with its bank and warns its shares are worthless.

Shares of the debt-bogged childrenswear retailer were put in a trading halt this morning while it made a material market announcement.

Chairman Peter Schuyt says the business remains significantly over-leveraged and capital constrained.

“Our ability to move forward  is impacted by the lack of available capital for debt reduction and reinvestment. This represents a material risk to the viability of the business."

The business has banking facilities to provide the working capital necessary to trade and to fund a limited level of essential capital expenditure.

At the end of September, Pumpkin Patch said it had three weeks to come up with options for its banker ANZ on how it expects to fund its future or risk breaching its debt agreement.

The company was meant to meet and table its options with the bank yesterday but now says this has been pushed out to October 31.

Mr Schuyt says Pumpkin Patch has been working on its options, which include a capital raise, equity injection, equity or asset sale or acquisition of the group.

“This further work coupled with discussions with the bank and certain key stakeholders has generated substantial uncertainty, which remains ongoing, regarding the company’s future in the context of its current financing arrangements.

“Shareholders should note that it is highly unlikely that there is any residual value in the company’s equity.”

The company expects further work and discussions with relevant stakeholders will be completed in the next few days and an outcome will be announced to the market when clear.

Pumpkin Patch’s loss widened 71% to $15.5 million in the year to July 31, as revenue dropped 11% to $212.4 million, and adjusted earnings before interest, taxation, amortisation and depreciation fell 71% to $3.4 million.

Earnings suffered after a loss of international wholesale accounts and related northern hemisphere online channels.

Its debt to ANZ rose to $46 million from $39.1 million.

The full-year accounts show Pumpkin Patch breached banking covenants for working capital at the start of 2016, and a new agreement was signed with the bank on September 22, which reduced the total facility available to the group from $60 million to $57 million, split into two tranches.

Pumpkin Patch's shares have fallen 49% in the past 12 months to 6c.