Mothercare UK announces measures to being a cash generative and profitable business in FY21

LONDON: Mothercare UK Limited (Mothercare UK) and Mothercare Business Services Limited (MBS) have announced further steps in the restructuring of the Group to return to being a sustainable and profitable business.

Mothercare plc earlier on 5 November 2019 had announced appointment of Zelf Hussain, Toby Banfield, and David Baxendale of PricewaterhouseCoopers LLP as administrators to its subsidiaries.

Mothercare remains a significant and profitable international franchise operation generating significant revenues through an asset light model, with over 1,000 stores operating in over 40 territories.

The core elements of the Company’s transformation programme comprises:

  1. The transfer to Mothercare Global Brands Limited (a wholly owned subsidiary of Mothercare plc) from the Administrators of: the Mothercare brand, its trademarks and associated intellectual property; the novation of the commercial agreements relating to international franchise operations; and the transfer of the Group’s pension scheme deficit.
  2. A significantly strengthened financial position through the following new arrangements:

o  Placing of £3.2 million new equity raised today at 10 pence per share alongside an agreement in principle for the provision of an additional £5.5 million tranche of unsecured convertible loan notes

o  Existing £24 million bank debt facilities will be paid down by the administration process

o  Up to £50 million of further financial capacity potentially available to the Group from third parties including a standby underwritten equity issue and a new term loan facility, amongst other sources

o  Revised payment schedule agreed with pension scheme trustees, reducing contributions over the next 18 months

  1. Ongoing dialogue in the UK with potential partners to maintain a presence for customers both in store and online. Although no developments can be guaranteed, company expects to announce further details of these negotiations in due course.

Clive Whiley, Chairman of Mothercare, said: “Following the completion of our transformation programme, Mothercare – one of the leading global brands for parents and young children – should have a bright future ahead as a solvent and cash generative Group, notwithstanding the administration of Mothercare UK and MBS.

“The actions we are announcing today have been carefully thought through and have not been taken lightly. Yesterday, all of our stakeholders faced an uncertain future given Mothercare UK’s perilous financial situation that threatened the Group as a whole. Today’s actions seek to return Mothercare to a stable and sustainable footing, and to preserve value for many of our stakeholders – most notably our pension fund, our global franchise operations and lending group – who might have otherwise faced significant losses.

“Unfortunately despite our best efforts, unremitting focus and the continuing support of our key stakeholders, we have been unable to find a way through the challenges facing Mothercare UK and MBS. We are doing everything we can to support the longstanding and hardworking colleagues during what is clearly a difficult period.

“The UK high street is facing a near existential problem with intensifying and compounding pressures across numerous fronts, most notably the high levels of rent and rates and the continuing shifts in consumer behaviour from high street to online. Mothercare UK is far from immune to these headwinds. Despite the changes implemented over the last 18 months contributing to a significant reduction in net debt over the same period, Mothercare UK continued to consume cash on an unsustainable basis.

“We know it is right for the Group as a whole, to ensure that Mothercare will remain a leading global brand for parents and young children with a bright and solvent future within the international franchise business. The changes announced are the final steps in the recovery of Mothercare as a Group. As a result of which, we believe Mothercare will return to being a profitable and sustainable business as we enter the next financial year. We look forward to returning to growth and cash generation in FY21 and beyond.”

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