Industrial products distributor Brammer (BRAM) is asking shareholders to bail it out of financial difficulty through a rights issue of up to £100m.

Investment bank Investec is underwriting a stand-by equity raise announced alongside a third quarter trading update today which showed nine months of falling sales and profitability and a potential debt default.

The cash call is likely to be launched on or before full-year results are published some time in the first quarter of 2017.

Shares in Brammer plunged 25% to 95p this morning.

'We are actively developing our plans to move the business forward and there is a strong recognition within the business of the need for change,' says chief executive Meinie Oldersma, who replaced 18-year Brammer veteran Ian Fraser in August.

'The proposed rights issue will reduce the group's structural indebtedness significantly and provide the group with the appropriate capital structure to deliver this improved performance.'

An underwritten rights issue means an investment bank will buy up any new rights issue shares not taken up by existing shareholders, providing a safety net if the business fails to persuade investors to provide the full £100m.

Net debt at Brammer was £107.7m at 30 June 2016, though Oldersma says average net debt was £50-60m higher between reporting dates because of large working capital movements.

Under covenants on Brammer's borrowings, lenders are entitled to ask for their money back under a couple of scenarios. If earnings before interest, tax, depreciation and amortisation (EBITDA) falls below one-third of its net indebtedness (net debt/EBITDA covenant: 3) or interest cover falls below 4.5, Brammer would be in breach of its lending agreements.

A covenant test scheduled for 31 December is now unlikely to be passed, Oldersma says, and the business is in talks with lenders.

Trading issues first highlighted in late June by former chief executive Fraser have continued into the third quarter, with sales per working day 2% lower over the three months to 30 September, a slight improvement from the 3% decline in the second quarter. Operating profit was also negative in the period because of 'falling sales and reduced levels of supplier support' and Brammer does not now expect to deliver a profit for 2016.


Issue Date: 07 Oct 2016