Mothercare is in talks with new lenders it has revealed in an update on its transformation plan, in which it confirmed interim CEO, Glyn Hughes, is departing the business.
In its update today (22 June), the group said it has now substantially completed its transition to refocus on “core competencies of brand management and the design, development and sourcing of product to help grow the Mothercare business with its global franchise partners”.
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The retailer, which collapsed into administration last November resulting in 2,500 job losses and the closure of 79 stores, said it is still on track to becoming a profitable international franchise operation and is in talks with new debt providers to engage in new facilities for its recapitalisation.
As of 19 June, Mothercare had a total secured debt of GBP24m in a revolving credit facility, with other guarantees and letter of credit amounting to GBP18m.
The retailer said “constructive discussions” are ongoing with its existing franchise partners, to establish a more sustainable and less capital-intensive business going forward with effect from the autumn/winter 2020 season, and with Boots, the UK’s largest pharmacy-led health and beauty retailer, to finalise the contractual arrangements for its appointment as Mothercare’s UK franchise partner as agreed in December of last year.
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The group also said it is making good progress in its hunt for a new CEO and is now at the shortlist stage following the stepdown of Mark Newton-Jones in January. It added interim CEO Glyn Hughes has ruled himself out of the search and will leave the company on 30 June to pursue other opportunities.
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By GlobalDataPending the arrival of a new CEO, the day-to-day management of the group will continue to be run by the COO and CFO, with close oversight from the chairman.
Clive Whiley, chairman of Mothercare, said: “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.”
“Mothercare is a fragile business”
Clive Black, analyst at Shore Capital, comments the update — beyond the news about Hughes — is pleasing.
“Mr Hughes has made an outstanding contribution, along with chair Clive Whiley, to the survival of Mothercare. He moves on to pursue other interests, for which we wish him well, without his efforts the company would not exist.
“Mothercare pleasingly updates that it is ‘on track to become a profitable international franchise operation’, with an asset-light franchise business model trading in forty markets. With the UK store business closed some months ago, the remaining management resource has focused upon what it sees as core competencies; brand management and product design, development, and sourcing.
“Mothercare is a fragile business and the coronavirus crisis makes its work on survival and re-emergence as a viable capital-light entity all the more challenging.
“Activity around the balance sheet is vital, and whilst anti-dilution work is also commendable, equity shareholders will be more relaxed when the group is trading more broadly with a settled and sustainable leverage position.
“We would also be more content if the Boots UK deal, central to a settled ongoing entity and the resumption of forecasts, were actually signed…It is said that the coronavirus crisis hits the weakest hardest, and whilst the rear guard survival activities of Clive Whiley and Glyn Hughes merit support, they really have had the most challenging time.
“Whilst the journey has been more challenging than we expected, not helped by coronavirus it should be said, greener valleys do still promise a potentially brighter future and a higher share price in time. Hence, we sit on the optimistic side of the fence.”
