Mothercare Regulatory News (MTC)

30 Mar 2020 07:00

Mothercare plc: Transformation Plan Update

Mothercare plc ("Mothercare", "the Company" or "the Group") today provides the following update on its Transformation Plan announced on 5 November 2019 and further to the update released on 23 January 2020.

In those announcements, we set out our plans for the Group to become a profitable international franchise operation, generating revenues through an asset-light model, operating in over 40 international territories. We continue to make significant progress with those plans and have substantially completed our transition to refocus the Group on our core competencies of brand management and the design, development and sourcing of product to grow the Mothercare business with our global franchise partners.

Covid-19

As with all businesses, the impact of Covid-19 and the associated actions from governments and corporations around the globe has been having direct consequences for the Group, in particular given the disruption to both our franchise partners’ and suppliers’ businesses and operations.

In the UK, whilst many of our key UK head office staff are working productively from home, a number of our retail personnel are unable to do so. Accordingly, whilst UK Government support for furloughed workers has been enacted for around 430 of our Boots Mini-Club retail colleagues, this will still result in incremental operating costs for the Group. We welcome the measures announced by Her Majesty’s Government, including tax reliefs and other forms of financial aid, which we will seek to utilise as and when they become readily accessible.

Franchise Partners

As retailers, our global franchise partners are facing the considerable challenges that the Covid-19 pandemic and national government responses present to their businesses in their respective territories. This is likely to lead to a material impact on Mothercare’s short-term revenues. We will not be immune to the effect of widespread store closures and restrictions on local population freedom of movement in those territories.

However, the experience we gained as a result of the controlled supply shock that was exerted upon the business at the time of the administration of Mothercare UK and related store closures last November, is proving invaluable. We are in close dialogue with our franchise partners and our manufacturing partners, as we seek to manage and mitigate the overall impact on both our and their businesses.

UK franchise arrangements

On 13 December 2019, we announced that Mothercare Global Brand had entered into binding heads of terms for Boots UK (“Boots”) to become the exclusive franchisee of the Mothercare brand for the UK. Boots is the UK’s largest pharmacy-led health and beauty retailer and is part of the Retail Pharmacy International Division of Walgreens Boots Alliance, Inc., the first global pharmacy-led, health and wellbeing enterprise.

Although we remain on track with the process of finalising the detailed contractual arrangements with Boots, which are expected to last for an initial period of five years, there have inevitably been some delays as a result of the operational priorities forced upon both businesses by Covid-19. We currently anticipate that contractual arrangements will be finalised in late spring and that a wider Mothercare product offer will be available online and in Boots stores from late summer 2020.

Recapitalisation of the Business

On 5 November 2019, in addition to raising £8.7m from our existing investors and securing a temporary revised payment schedule with our pension scheme trustees, we set out a number of funding options, totaling £50m, which were available to the Group.

Since then there has been a substantial reduction in bank debt, with an initial distribution of £10m from the administrators of Mothercare UK Limited to the Group’s secured debt holders now having been made. The total secured debt, which (at the time of the administration) included the Group’s £24m revolving credit facility, other guarantees and likely crystallisation of letters of credit has (as of 27 March 2020) reduced to some £18.5m owed to the Company's current lenders and these liabilities are secured over the Group as a whole. We understand that there remains a further amount to come from the administrators of Mothercare UK Limited which is expected to reduce this secured debt further. This remains in line with our guidance set out in January 2020.

Throughout, we have striven to recalibrate our new operating model to be as capital-light as possible and we remain determined to complete the recapitalisation of the Group with the minimum possible further dilution for shareholders. We remain in discussions with a number of debt providers as set out on 23 January 2020 regarding entering into new debt facilities, in relation to which we continue to:

• have access to our £10m trade partner facility;• work with the remaining interested parties, including Gordon Brothers, in progressing a £20m secured term loan; and• explore the various UK Government schemes to support business in these extraordinary times.

We have not extended the standby equity facility of up to £20m made available to us by Numis Securities, which has therefore now lapsed. In this context, the Board has determined for the time being that it will be in the better interests of stakeholders to pursue additional debt facilities for its reduced finance requirements rather than pursuing an equity solution at this time. The Board continues to keep the financial needs and available resources of the Group under close review through this unprecedented period and will take all necessary steps to preserve and/or enhance the Group’s liquidity.

In line with FCA guidance, we are currently reviewing the timetable for publication of our audited annual financial report and a further announcement will be made in due course.

Clive Whiley, Chairman of Mothercare, commented:

“In the current circumstances, we have activated our contingency plans to deal with the challenges that we and others are facing in the current global crisis, focusing on the well-being of our colleagues alongside our ongoing business and corporate liquidity. We continue to enjoy the support of our key stakeholders and financing partners and we are very grateful to them at this unprecedented time.

We believe that the intrinsic value of our brand, the close contact fostered with our key stakeholders over the last two years and our seamless, deep understanding of the Group's new trading cash flow dynamics, honed over the last six months, will prove to be extremely valuable.

At this time we believe that our efforts should be focused on helping to preserve the businesses of our franchise and manufacturing partners through even more collaborative ways of working, to ensure both the short term liquidity of our business together with our return to longer term profitability. We are already seeing the benefits of this approach being brought to bear.

Finally, I would like to thank our colleagues, franchise partners, manufacturing partners, lenders and all stakeholders for their continued support in these most extraordinary of times.”

Ends

For further information:

Mothercare plc

Glyn Hughes, Interim Chief Executive Officer 01923 206004 / investorrelations@mothercare.comAndrew Cook, Chief Financial Officer

Numis Securities Ltd (Financial Adviser)

Luke Bordewich 020 7260 1000Henry Slater

MHP Communications

Simon Hockridge, Tim Rowntree, Alistair de Kare-Silver 07709 496 125 mothercare@mhpc.com