THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS DEFINED IN EU REGULATION NO 596/2014 AND IS MADE IN ACCORDANCE WITH THE COMPANY'S OBLIGATIONS UNDER ARTICLE 17 OF THAT REGULATION
Mothercare plc
Update on transformation and disposal of Early Learning Centre
Following the refinancing and restructuring of Mothercare plc ("Mothercare" or the "Company" and together with its subsidiaries, the "Group") announced in May 2018, Mothercare remains on track with the Group's transformation plan:
· The UK store closure program, which will result in a total estate of 80 stores by the end of March 2019, is ahead of the original schedule and brings the Group down from 137 stores in May 2018;
· the product outsourcing initiative is underway which will begin to yield margin benefits from Autumn/Winter 2019;
· the creation of a leaner organisational structure, which led to a collective consultation exercise with all employees at Head Office, was completed in December 2018; and
· the Company is on track to deliver cost savings of at least £19 million per annum in aggregate.
The revised Group structure has been designed to drive a greater focus towards strengthening its global brand, with improved product design, marketing and distribution of Mothercare products around the world. At the same time the UK management team is now singularly focused upon operating with the discipline of a typical franchise partner, with the objective of bringing the UK business back towards profitability.
Throughout the last nine months we have been progressively reducing net debt, and our aspiration remains to be bank debt free by the end of 2019. This objective has been greatly assisted by the sale and leaseback of the UK head office for a cash consideration of £14.5 million, which completed in December 2018.
In addition, we are today announcing the next step towards being free of bank debt, with the proposed disposal of the business and certain assets of Early Learning Centre Limited ("ELC") to TEAL Brands Limited, a subsidiary of TEAL Group Holdings, the holding company of the Entertainer group of companies ("The Entertainer") (the "Disposal") for a total expected cash consideration and earn out fees of up to £13.5 million. Of this amount, £6 million is to be received on completion of the Disposal, with up to £5.5 million in respect of inventory due within a few months of completion and a further £2 million earn out fees over the next two years. We are retaining ownership of approximately £6 million of inventory relating to ELC that we intend to sell over the next few months. The net proceeds from the Disposal and inventory sales will be used to reduce the Group's bank debt by c.£17.5 million over the next year.
The timing of the Disposal, ten months after the refinancing, allows for both the realisation of attractive total cash proceeds from ELC and associated inventory, and accelerates the reduction of our bank debt providing the financial flexibility and resources to support our core strategic initiatives.
Whilst Mothercare has a solid presence in the toy market through the ELC brand, the Group does not have the necessary capital, resources or scale in this category to continue to invest and develop the own‑brand ELC toys needed to maximise returns from this specialist brand. Furthermore, in the intensely competitive toy market, where third party and branded product is key to a successful customer offer, especially in the older age ranges, we lack the scale to construct a compelling product range to achieve acceptable margins. This was also the reason behind our strategic decision two years ago to withdraw from product categories for older age groups.
The Disposal secures attractive cash proceeds for ELC and its inventory, with additional long-term arrangements also put in place with The Entertainer for an improved toy retailing proposition within our UK stores and for supply to ELC's overseas partners.
These new arm's length and long term concession arrangements for the supply of toys in the UK to our stores and online will be supported by the skill and scale of the team of The Entertainer, with their proven specialism in the sourcing of own brand and third party toy products, giving a wider age range than Mothercare's current offering.
Mark Newton-Jones, CEO of Mothercare commented:
"We have made significant progress in recent months as we continue our strategic transformation to deliver a sustainable and profitable future for Mothercare.
"This disposal of Early Learning Centre provides a further step towards eliminating our bank debt, and our new concession arrangements with The Entertainer will bring our customers an even stronger Toys offer, both in stores and online. We look forward to working with the team at The Entertainer in the years to come.
"We will update further at our full year results in May."
ENDS
Mothercare plc
Mark Newton-Jones, Chief Executive Officer 01923 206064
Glyn Hughes, Chief Financial Officer
MHP Communications:
Simon Hockridge, Tim Rowntree, Alistair de Kare-Silver 020 3128 8789
Information on ELC
ELC is the Group's core brand for its Toys product offering. The brand focuses on delivering quality and safe educational toys, designed to help children explore the boundaries of their imaginations and creativity and develop vital skills. ELC was founded in 1974, originally as a mail order business offering toys and books with educational content, and had 210 UK stores and had expanded internationally in 1994, with the opening of the first store in Gibraltar. The Group pursued further international expansion of the ELC Business through franchise arrangements with select franchise partners in targeted markets, whilst combining the ELC and Mothercare estate in the UK, with ELC "inserts" and/or product stocked within all of the UK stores.
In the year to 24 March 2018, the ELC Business generated revenues of £73.9 million and made profits of £1.1 million. As at 6 October 2018, the gross assets the subject of the Disposal totalled £38.0 million, including £31.0 million of goodwill and intangibles.
Information on The Entertainer
The Entertainer was founded in 1981 in Amersham, Buckinghamshire, by husband and wife team, Gary and Catherine Grant, who instil the driving force and mission - "To be the best-loved toyshop - one child, one community at a time". Today, it continues to be the largest family-owned chain of toy shops in the UK with a total of 163 stores.
As well as a strong High Street presence, The Entertainer has a successful website (TheToyShop.com) which offers a 30-minute click and collect service and has over 29 million visits annually. The Entertainer is also recognised for its charitable giving. Each year it tithes 10% of its pre-tax annual profit to charity, in addition employees are encouraged to donate directly through Payroll Giving. The Entertainer is also an active member of the Pennies scheme, the digital upgrade of the traditional charity collecting box, which enables customers to donate a few pence to charity at the point of sale when paying by card. On average, this generates £14,500 of customer donations to Children's hospitals each week. The Entertainer currently employs 1,530 staff across the stores and a further 211 in the Head Office in Amersham, Buckinghamshire.
The Entertainer was ranked 49th in the prestigious Sunday Times "100 Best Companies to work for" in 2019.
Cautionary Statement
This announcement contains certain forward-looking statements with respect to the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect the knowledge and information available at the date of preparation of this announcement and Mothercare undertakes no obligation to update these forward-looking statements. Nothing in this announcement should be construed as a profit forecast.
