Mothercare plc: Transformation Plan Update

                                           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.  In that announcement, we set out our future plans for the Group to move forward as a profitable international franchise operation, generating revenues through an asset light model, operating in over 40 international territories.

?In the last 12 weeks, we have made significant progress with these plans, and we believe that the transaction risk associated with implementing those far-reaching measures has largely dissipated. We are now managing our way through the latter stages of the execution risk which naturally flows from rebooting the Group's business model and associated financial structure. 

We set out below the next steps in our plan 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 franchise partners in the UK and around the world.

UK franchise arrangements

On 13 December 2019, we announced that Mothercare Global Brand had agreed heads of terms for Boots UK (“Boots”) to become our 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. We are 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. 

Recapitalisation of the Business

?We are broadly on track with the planned recapitalisation of the Group as we set out on 5 November 2019.  We completed the raising of £8.7m from our existing investors and there has been a substantial reduction in the bank debt of the Group through the administration of Mothercare UK Limited. We continue to explore options to finalise the recapitalisation of the business in line with the guidance given in November.

We successfully completed both the placing of £3.2m new equity and the issuance of an additional £5.5m tranche of convertible unsecured loan notes.  We also secured a revised payment schedule with our pension scheme trustees, reducing contributions over the next 15 months.  At the time we set out a number of funding options, totaling £50m, which were available to the Group.  These options included a further equity issuance of up to £25m (which was reduced to £20m on the issuance of the convertible loan notes) and indicative terms for a £15m term loan from Gordon Brothers, amongst other alternatives. These options remain available to the Group.

The Group’s existing £24m debt facilities owed to the Company's current lenders are secured over the Group as a whole.  The administration of Mothercare UK has resulted in a substantial reduction in the amounts owed albeit this reduction has been behind expectations, with a shortfall arising from the Mothercare UK stock clearance and liquidation.  We currently estimate that the Group may therefore have an obligation to make good a shortfall of some £10m in relation to these loans. 

We are making good progress with the Transformation Plan and the Board is confident that, taking into account the shortfall in the cash realisations from the Mothercare UK administration process, the Group’s financing requirements are well within the overall guidance set out on 5 November.  We remain determined to complete the recapitalisation of the Group with the minimum possible further dilution for shareholders? and, in this context, we continue to explore the most appropriate overall solution and make the following update:

• We have extended our current £20m standby equity underwriting arrangements with Numis Securities Ltd from 31 January 2020 to 27 March 2020.
• We are in discussions with a number of debt providers regarding entering into new debt facilities.
• We have agreed a temporary increase to £25m (from £10m) in our trade partner facility.

We initiated discussions for the provision of up to £50m of further financial capacity, with both debt and equity providers amongst other sources, with the final quantum dependent upon the outcome of these work-streams and the cash realisation from the administration of Mothercare UK.  Taking into account the good progress of and the dissipation of transaction risk from the Transformation Plan, the recent dialogue with our key operational stakeholders and our deepening understanding of the Group's new trading cash flow dynamics, we remain of the view that we need no more than £25m of additional financing capacity in order to refinance our residual financial debt and future working capital requirements.

A further announcement will be made in due course once the Board has reached its conclusions on the most appropriate funding alternatives (or combination of alternatives) to be pursued.

Board Changes

As we approach the end of this period of major change and the completion of our Transformation Plan, the Company’s management needs and requirements are also evolving as we become a focused international franchise operation. We are therefore today announcing the following board and management changes:?

• In line with previous communications, the Board believes the time is right for Clive Whiley to become Non-Executive Chairman with effect from 29 March 2020;
• Mark Newton-Jones will ?today step down as Chief Executive Officer, remaining as an Executive Director through to July 2020 as we complete the Transformation Plan above. Mark has also agreed to make himself available as a Non-Executive Director thereafter; 
• Glyn Hughes who has been Chief Financial Officer throughout the restructuring period will become Interim Chief Executive Officer with immediate effect; and
• Andrew Cook?, who has served as Corporate Development Director of Mothercare since April 2019, will join the main Board as Chief Financial Officer with immediate effect. 

Andrew is a ?highly-experienced, results-oriented finance executive having successfully transformed business profitability across a number of sectors, including retail. He was most recently Chief Financial Officer for Stanley Gibbons Group plc. Prior to that role, he held senior director roles within Medina Dairy Group, Kelly Services, The Body Shop and Virgin Group.

Clive Whiley, Chairman of Mothercare, said:

"As we approach the completion of our Transformation Plan, Mothercare - one of the leading global brands for parents and young children – once more has a brighter future ahead as a solvent and cash generative Group. We have made good progress with the Transformation Plan and the risks to achieving the outcomes we laid out in November are increasingly dissipated.

Our plans for the final steps of the recapitalisation of the Group are in hand and whilst the cash realisation from the Mothercare UK administration was lower than anticipated, the progress that we have made elsewhere means that the financing requirement overall is unchanged from our original plans. 

?The board changes announced today align the management of Mothercare with that of a its new structure as an international franchise brand and will contribute to a further overhead reduction. In time we plan to add relevant skills and expertise – particularly in brand and product management – to the team to accelerate our development as an international brand owner and operator.

Finally I would like to thank Mark for his contribution to the business over what has proved to be a turbulent period and I am delighted that we will be able to call upon his retail experience as we go forward.”

__________________________________________

There are no other details to disclose under LR 9.6.13 in respect of Andrew Cook

Andrew Cook holds the following share options:

Date of award: 29 March 2019

Option plan: Mothercare plc long term incentive plan

Number of options: 709,601

For further information:

Mothercare plc

Mark Newton-Jones, Executive Director                               01923 206004

Glyn Hughes, Interim Chief Executive Officer                                              

Numis Securities Ltd (Financial Adviser)

Luke Bordewich                                                                 020 7260 1000

Oliver Cox

MHP Communications:

Simon Hockridge, Tim Rowntree, Alistair de Kare-Silver        020 3128 8789