Mothercare (UK) Looks to Expand Successful International Franchise Model
07 Nov 2019 - While Mothercare has put its UK business into administration, the company sees a future in refocussing on its franchise model, which has proved successful in more than 40 countries outside the UK.
As Zelf Hussain, Toby Banfield and David Baxendale of PricewaterhouseCoopers LLP step in as administrators for Mothercare UK Limited and Mothercare Business Services Limited (MBS), Clive Whiley, Chairman of Mothercare says that further steps are to be taken in the restructuring of the Group to return to being a sustainable and profitable business.
Mothercare’s management believes that the company remains a significant and profitable international franchise operation generating significant revenues through an asset light model, with more than 1,000 stores operating in more than 40 territories.
“We are setting out our plans to refocus the Group on our core competencies of brand management, product design and development and sourcing to grow the Mothercare business with our franchise partners around the world,” says Whiley.
To do this, Mothercare will be looking to restructure its business, transferring the Mothercare Global Brands subsidiary from the administrators and placing £3.2m new equity raised this week, alongside an agreement in principle for the provision of an additional £5.5m tranche of unsecured convertible loan notes.
Up to £50m of further financial capacity is also potentially availableto the Group from third parties, says the company, including a standby underwritten equity issue and a new term loan facility, amongst other sources. The company is also looking for a revised payment schedule with its pension scheme trustees, reducing contributions over the next 18 months.
In addition to this, there will be an “ongoing dialogue in the UK with potential partners to maintain a presence for our customers both in store and online. Although no developments can be guaranteed, we expect to announce further details of these negotiations in due course”, says Whiley.
"The actions have been carefully thought through and have not been taken lightly,” says Whiley. “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.”
Whiley adds: "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.”
Whiley concludes: "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."