Mothercare plc (“Mothercare”, “the Company” or “the Group”) provides the following update on its Transformation Plan.
As set out most recently in our announcement of 30 March 2020, we remain on track to become a profitable international franchise operation, generating revenues through an asset-light model, operating in around 40 international territories. We continue to make significant progress with those plans and have now substantially completed our transition to refocus the Group on its core competencies of brand management and the design, development and sourcing of product to help grow the Mothercare business with its global franchise partners.
As with all businesses, the impact of Covid-19 and the associated actions from governments and corporations around the globe has had direct consequences for the Group and its various stakeholders. As we have noted previously, the experience we gained at the time of the administration of Mothercare UK last November, is proving invaluable in helping us – with the support of our franchise and our manufacturing partners – to manage and mitigate the overall impact on both our and their businesses. We currently estimate that approximately two thirds of our partners’ global retail locations are now open following local guidance in their respective territories. Constructive discussions are ongoing with our existing franchise partners (to establish a more sustainable and less capital-intensive business going forward with effect from the A/W20 season) and with Boots (to finalise the contractual arrangements for their appointment as our UK franchise partner as contemplated by the binding heads of terms signed in December 2019).
In line with recent FCA guidance, we are currently reviewing the timetable for publication of our audited annual report and accounts for the year ended 28 March 2020 and a further announcement on this will be made in due course.
Recapitalisation of the Business
In line with our plans to recapitalise the Group with the minimum possible further dilution for shareholders, we remain in discussions with a number of prospective new debt providers regarding entering into new facilities and anticipate making further announcements in this regard in due course. As at 19 June 2020, the total secured debt, including the Group’s £24m revolving credit facility, other guarantees and letters of credit was £18m and these liabilities remain secured over the Group as a whole. We understand that there remains a further amount to be paid out from the administrators of Mothercare UK which is expected to reduce this secured debt further. This remains in line with our previous guidance and expectations.
The Company has been notified by HSBC Bank plc that it has assigned all of its interests in the Group’s existing secured senior debt facility to the other co-lender, GB Europe Management Services Limited (“Gordon Brothers”). Gordon Brothers is now the Company’s sole lender in respect of the Group’s senior debt facility.
UK Property Restructuring
The Group continues to make significant progress in addressing its legacy infrastructure and associated cost base.
We have agreed to a sub-lease, on a short-term basis with a minimum term of 4 months, of a substantial part of our main Daventry warehouse to a third-party. This facility had previously predominantly catered to the UK retail business of Mothercare UK, which entered into administration last November. It is anticipated that this will reduce cash occupancy costs for the Group in respect of those premises by approximately £220,000 per month.
We have also recently entered into binding terms to move to a smaller and more cost-effective head office in early August 2020. Terms have also been agreed for a surrender of the existing lease of the Company’s current head office in Watford in mid-July. It is anticipated that this move will reduce cash occupancy costs for our head office by approximately £900,000 per annum. With effect from 30 June 2020 and for a temporary period, the Company’s registered address will change to c/o Prism Cosec, Elder House, St Georges Business Park, 207 Brooklands Road, Weybridge, Surrey KT13 0TS. Further notifications will be provided as appropriate.
We are making good progress with the search for our new permanent CEO and are now at shortlist stage. Glyn Hughes who has been acting as the interim CEO in this period has ruled himself out of the search, and as we are approaching the end of the period of transformation he has expressed his desire to step down to pursue other opportunities. Given the interim nature of the appointment the Board has agreed to this and Glyn’s departure will be effective from 30 June 2020. A further announcement will be made on the permanent Chief Executive as we conclude the recruitment process.
Pending the arrival of a new Chief Executive Officer, the day to day management of the Group will continue to be run by the Chief Operating Officer and Chief Financial Officer, with close oversight from the Chairman.
Clive Whiley, Chairman of Mothercare, commented: “I would like to thank our colleagues, franchise partners, manufacturing partners, lender and all stakeholders for their continued support in these most extraordinary of times. As a result of their support, we remain on track with the plans we set out at the end of March. We are finalising our arrangements with both our existing franchise partners and Boots as our new UK franchise partner and will make further announcements in due course. Our discussions with various other financing partners also continue constructively.
“We have carefully managed our business over the past three months, to mitigate the impact of the COVID-19 pandemic on our cash flows and liquidity during this period of global crisis which is reflected in our unchanged bank debt position since March. Whilst we have not been immune to temporary store closures in almost all of our territories over the period, I am pleased that we are seeing the reopening of our partners’ stores. At the same time, we continue to take action to reduce our cost base and address legacy issues, helping with our return to being a profitable and sustainable business.
“Finally, I would like to thank Glyn Hughes both personally and on behalf of the Board. Glyn has, initially as CFO and latterly as interim CEO, been instrumental in driving much of the significant financial and strategic change in the Group over his time at Mothercare. We wish him well with his future endeavours.”