Mothercare PLC (LON:MTC) shares rebounded sharply on Wednesday morning after the retailer called in administrators for its UK shops and revealed the next steps for its online and overseas business, including a refinancing.
In a statement issued overnight, the parent and baby-focused retailer stressed its “deep regret and sadness” that it has not saved its UK business, leaving around 2,700 staff fearing for their jobs, but said the administration processes would “serve the wider interests of ensuring a sustainable future for the company”.
READ: Mothercare buckles under retail pressure, putting UK stores into administration
Investors seemed to agree, with the shares bouncing 45% higher to 13.73p in early trade.
Mothercare said its ongoing business has “sufficient cash resources to meet its current operating requirements” and that the board would now focus on managing its “successful global brand”, with more than 1,000 stores operating with franchise partners in over 40 territories around the world.
Management forecast the international franchise operations could make annual operating profits of £10mln-£15mln per annum return to growth and cash generation from the 2021 financial year
Refinancing begins
The Mothercare brand and intellectual property, along with the pension scheme deficit, will now be transferred to the ‘global brands’ business, with an institutional placing of new shares to raise £3.2mln at a price of 10p plus an agreement for an additional £5.5mln tranche of unsecured convertible loan notes.
Other refinancing activities include an extra £50mln of “further financial capacity” from lenders, including a standby underwritten equity issue and a new term loan facility, while the existing £24mln bank debt will be repaid from the administration process.
With net debt at circa £25mln as of 13 October, the company expects to be free of bank debt by the year end, with cashflow helped by a revised payment schedule with the pension scheme trustees to reduce contributions over the next 18 months.
Saying the board was in talks with potential partners to maintain a UK presence through a franchise agreement, Mothercare chairman Clive Whiley said: “The action announced today has been carefully thought through and without it, the existence of the wider group would be threatened.
“We know it is right for the wider group to ensure that Mothercare remains the leading global brand for parents and young children with a bright and solvent future within the international franchise business.”
Broker Shore Capital said it felt this “is a potentially transformational moment in the recovery story for Mothercare”, with the UK closures “sad but necessary” as it will eliminate around £30mln of operating losses.
"The changes announced this week look like the last pieces of the jigsaw being put together to returning the business to being profitable and a brighter future, ahead of it."