MTC.GB Mothercare PLC

 
TIDMMTC 
 
 
   Mothercare plc 
 
   Pre-close Trading and Business Update 
 
   Mothercare plc ("Mothercare" or "the Company"), the global specialist 
brand for parents and young children, today issues a pre-close trading 
update for the financial year ended 27 March 2021. 
 
   Highlights 
 
 
   -- Unaudited net worldwide sales of GBP326 million for the year impacted by 
      varied approaches to Covid-19 in franchisee markets 
 
   -- Significantly reduced net debt of GBP12.1 million at the year end 
 
   -- Performance over the recent period is in line with expectations and the 
      Group anticipates reporting a small EBITDA profit for the financial year, 
      against previous guidance of a small loss 
 
   -- New asset light operating model providing ongoing financial benefits 
 
   -- Further overhead reduction planned from a further reduction in 
      distribution costs and a new ERP system 
 
   -- Encouraging feedback to new, bespoke product strategy for international 
      markets 
 
 
   Pre-Close Trading Update 
 
   Unaudited net worldwide franchisee retail sales for the financial year 
to March 2021 were GBP326 million, which is GBP216 million (40 per 
cent.) below the prior year reflecting the impact of Covid-19 in the 
various markets in which our franchisees operate around the world. As a 
global brand the impact of Covid-19 has varied enormously by market as 
the countries in which our franchise partners operate have addressed the 
Covid-19 pandemic in many different ways including, but not limited to, 
restrictions on travel, movement and operating hours of retailers. These 
issues have been compounded by similar restrictions for our 
manufacturing partners, which coupled with the disruption to the global 
movement of freight, have caused additional challenges with availability 
of product for franchise partners further impacting sales for the year. 
 
   At the year end Mothercare had net debt of GBP12.1 million, being cash 
of GBP6.9 million against a substantial drawdown of GBP19.5 million from 
the new facility announced last November, reflecting both ongoing tight 
control of cash and the conversion of the total outstanding GBP19 
million of shareholder loans into new ordinary shares on the 17 March 
2021. Whilst we performed broadly in line with our expectations in the 
final period of the year, we now expect to report a small EBITDA profit, 
before adjusting items, for the year ended 27 March 2021 however we are 
not immune to the evolving Covid-19 impacts on our franchisees' 
operations country by country. 
 
   During the period, the Financial Reporting Council conducted a review of 
the Mothercare plc Annual Report and Accounts to 28 March 2020.  The 
Board is pleased to confirm the successful conclusion of the FRC's 
review with no significant or material changes required or matters 
raised, particularly in the light of the complexities of those accounts 
reflecting both the placing into administration of Mothercare UK during 
the period and the impact of the pandemic on the conduct of the audit 
itself last spring.  In the light of the FRC's review, Mothercare will 
be amending the diluted EPS disclosure from continuing and discontinued 
operations in 2020.  Further details will be set out in the notes to our 
2021 Annual Report & Accounts. 
 
   We expect to release preliminary results for the year to 27 March 2021 
in late July. 
 
   Business Strategy and Operational Update 
 
   We continue to work towards our goal of becoming an asset light business, 
greatly facilitated by the implementation of our new way of stock 
purchasing, meaning that our franchise partners contract to pay for 
products directly with our manufacturing partners. For the autumn/winter 
2021 season currently in our supply chain some 55% of the products by 
value are invoiced directly to franchise partners by our manufacturing 
partners, thus removing the Group's exposure to the debt and working 
capital requirement for these products. Hence for these products the 
creditors and stock will not be recognised by the Group and whilst the 
associated revenue will also be excluded there will be no material 
impact on the sterling margin earned. The responsibility for design, 
quality control and choice of manufacturing partner for these products 
remains with the Group. Also, for the autumn/winter 2021 season some 70% 
of the products by value, will be shipped directly from the country of 
manufacture to our franchise partners without passing through our 
warehouses. 
 
   We have targeted extending these ways of working to the remainder of our 
franchise partners and anticipate 80% of our products moving direct by 
the end of this current financial year and we continue to work to 
minimise costs for both ourselves and our franchise partners by moving 
activities further up the supply chain. 
 
   The National Distribution warehouse facility in Daventry, which 
predominantly serviced the Mothercare UK retail business, which was 
previously sublet to a third-party on a short-term basis, has now been 
fully assigned to a third party. This has removed a contingent risk of 
around GBP3 million per annum to the Group on a lease that expires in 
June 2026. 
 
   We are also progressing the development of a new ERP system designed to 
provide easier, more accurate and cost effective access to information 
to benefit our own business and those of our manufacturing & franchise 
partners. In the year ending March 2023, the first full year to benefit 
from the new system, our information technology costs would be expected 
to be reduced to close to half of those for the year to March 2021, 
which would result in a direct bottom line improvement of over GBP2 
million. 
 
   During 2020 we also commissioned an in depth customer survey across many 
of our major territories to gain greater insight of our customers' views 
on both the local Mothercare business and the relevant competitors. 
The analysis of the results has shown strong correlation across the 
sampled markets and has allowed us to clarify our product strategy both 
in terms of the specific categories we should focus on and the 
attributes of the products we need to emphasise. The revised product 
strategy will be much more geared to meet the expectations of our 
customers in our international markets, rather than majoring on products 
that were historically designed for the UK market. Our Spring/Summer 
2022 season, which was the first to use these learnings, was presented 
to our franchise partners this month with pleasing initial positive 
feedback. 
 
   Outlook 
 
   The global outlook remains uncertain with the continued impact of 
Covid-19 being felt around the world but over 80 per cent. of our 
Franchise Partners' global retail locations are now open, which points 
towards recovery in their sales and consequently our revenues. Our plans 
are based upon continuing but reducing levels of disruption from the 
pandemic and on that basis the Directors believe that Mothercare remains 
on track to return to profitable trading levels in the short to medium 
term. 
 
   Taking into account these reducing impacts upon us and our franchise 
partners' operations the implementation of the new operating model, 
greatly reduced cost structures and the elimination of significant 
legacy issues, the steady state operation of our retail franchise 
operations in more normal circumstances could return to annual operating 
profits of GBP15 million in future years. The further planned reduction 
in overheads and the continuing implementation of the asset light model 
will also support improving cash generation for the business. 
 
   Clive Whiley, Chairman of Mothercare, said: 
 
   "Our performance in 2021 shows that whilst we are not immune to the 
impact of the pandemic on our franchise partners' operations around the 
world, we have ended the year in a far stronger position than we started 
it.  Our resilient performance and financial position bears out the 
robustness of the Mothercare business today, delivering what will be a 
positive if modest EBITDA result for the year. We enter FY22 as a 
conservatively financed, cash generative and profitable business. 
 
   We expect 2022 to be a year of further progress and we can now focus 
upon developing our strategy and future plans to optimise the 
competencies and attributes of Mothercare over the next five years. 
That is an exciting prospect for all of our staff and stakeholders as we 
hopefully exit this most uncertain of times." 
 
   Investor and analyst enquiries to: 
 
   Mothercare plc                Email: investorrelations@mothercare.com 
 
   Andrew Cook, Chief Financial Officer 
 
 
   Kevin Rusling, Chief Operating Officer 
 
 
   Numis Securities Limited (Financial Advisor & NOMAD)        Tel: 020 
7260 1000 
 
   Luke Bordewich 
 
   Henry Slater 
 
   Media enquiries to: 
 
   MHP Communications                                        Email: 
mothercare@mhpc.com 
 
   Tim Rowntree                                                Tel: 020 3128 8789 
 
 
   Simon Hockridge 
 
 
 
 

(END) Dow Jones Newswires

May 25, 2021 02:00 ET (06:00 GMT)

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