TIDMMTC
RNS Number : 8415G
Mothercare PLC
29 July 2021
Mothercare plc ("Mothercare", "the Company" or "the Group")
Full Year Results 2021
A trusted global brand - designed for the future
Mothercare plc, the leading specialist global brand for parents
and young children, today announces full year results for the 52
week period to 27 March 2021. Comparatives are based on the 52 week
period to 28 March 2020.
Strategic highlights
-- Successful transformation to create a strong platform for growth:
o Transitioned the business to provide a sustainable,
operationally efficient, capital-light platform for growth focused
on brand management and the design, development and sourcing of
product to support international franchise partners in over 700
stores across 37 countries.
-- A pure franchised global brand business:
o We established Boots UK Limited ("Boots") as our UK franchise
partner, with the Mothercare brand becoming available in Boots
stores and online from Autumn 2020.
o Our gross profit is principally derived from royalties payable
on global franchise partners' retail sales, across some two million
square feet of retail space worldwide.
o Whilst the design, quality control and choice of manufacturing
partner remains under Mothercare's control, today the Group is free
of the burden of a UK store estate, warehousing and the associated
operational costs.
-- Multiple opportunities for growth:
o Strong opportunities for growth in new territories -
Mothercare is still not represented in 7 of the top 10 baby markets
in the world.
o Organic growth through new and enhanced ways of working with
existing franchise partners and refocused product strategy aligned
to international customer demand.
o Extension of brand reach possible as we explore the
opportunities available to us in wholesale, licensing and online
marketplaces.
o Opportunity for stepchange growth through leveraging the
intrinsic value of our strong core global brand recognition
andextensive international footprint
o AIM listed entity with expectations of an improving trend in
operating profitability and being debt free within five years.
Current trading
-- We currently estimate that over 80% of our partners' global retail locations are now open.
-- Trade continues to be challenging in the key markets of
Russia, India, Indonesia and Malaysia due to the continuing impact
of COVID-19 on footfall and consumer confidence.
-- Throughout the pandemic we witnessed substantial online sales
growth, however, this in itself was not enough to offset the
temporary closure of retail stores.
Based upon reducing impacts on us and our franchise partners'
operations as the current year progresses and the implementation of
the new operating model, greatly reduced cost structures and the
elimination of significant legacy issues, we expect a significant
improvement in operating profits for the current year.
In the first thirteen weeks of FY22, the Group's Franchise
Partners, many of whom continue to be affected by Covid-19
lockdowns, recorded total retail sales of GBP94 million, generating
an adjusted EBITDA of approximately GBP2.5 million.
Financial highlights (on a continuing operations basis, unless
otherwise stated)
*Continuing operations in the current period are the same as
total operations; t he prior year has been restated for the impact
of prior year adjustments (note 12). Continuing operations in the
comparative period represent the Global operation of the business,
with the UK operational segment categorised as a discontinued
operation. Continuing operations reflect accounting guidelines and
therefore included some expenditure which ceased following the
administration process, and as such did not necessarily reflect the
result achieved by the standalone international business.
-- Loss from continuing operations for the 52 weeks to 27 March
2021 of GBP21.5 million (2020: GBP8.5 million loss).
-- Total loss for the 52 weeks to 27 March 2021 of GBP21.5
million (2020: GBP13.1 million profit).
-- Net debt(3) at GBP13.5 million (2020: GBP22.1 million).
Our Group - on a continuing operations basis
2021 2020
52 weeks to 52 weeks to % change
27 Mar 2021 28 Mar 2020 vs.
Restated (8)
GBPmillion GBPmillion last year
---------------------------------------- ------------ ------------- ----------
Turnover 85.8 164.7 (47.9)%
Adjusted EBITDA 2.2 6.2 (64.5)%
Adjusted operating profit/(loss) 0.2 (0.6) 66.7%
Group adjusted loss before taxation(2) (8.6) (6.4) (34.4)%
Statutory loss (21.5) (8.5) (352.9)%
Our Franchise partners - on a continuing operations basis
2021 2020
52 weeks to 52 weeks to % change
27 Mar 2021 28 Mar 2020 vs.
Restated (8)
GBPmillion GBPmillion last year
-------------------------------- ------------ ------------- ----------
Worldwide retail sales(1) GBPm 358.6 542.1 (33.8)%
Online retail sales GBPm 44.4 31.3 41.9%
Total number of stores 734 841 (12.7)%
Space (k) sq. ft. 1,970 2,345 (16.0)%
-------------------------------- ------------ ------------- ----------
Clive Whiley, Chairman of Mothercare, commented:
"The past financial year has clearly been a challenging one,
however, despite the backdrop of the pandemic, we have made a
tremendous amount of progress in fundamentally transforming the
Group.
We expect 2022 to be a year of further progress as we focus upon
developing our strategy and future plans to optimise the Mothercare
brand globally over the next five years. These are exciting times
as, notwithstanding the continued impact of the pandemic in many of
our franchise partners territories, without the distractions of the
last three years we are seeking to accelerate the growth of the
business and the Mothercare Brand. We look to the future with great
optimism having established a strong and efficient platform with
multiple opportunities for growth."
Investor and analyst enquiries to:
Mothercare plc
Email: investorrelations@mothercare.com
Clive Whiley, Chairman
Andrew Cook, Chief Financial Officer
Numis Securities Limited (Nominator Advisor & Joint
Corporate Broker) Tel: 020 7260 1000
Luke Bordewich
Henry Slater
finnCap (Joint Corporate Broker) Tel: 020 7260 1000
Christopher Raggett
Media enquiries to:
MHP Communications Email: mothercare@mhpc.com
Simon Hockridge Tel: 07709 496 125
Tim Rowntree
Alistair de Kare-Silver
Notes
The Directors believe that alternative performance measures
("APMs") assist in providing additional useful information on the
performance and position of the Group and across the period because
it is consistent with how business performance is reported to the
Board and Operating Board.
APMs are also used to enhance the comparability of information
between reporting periods and geographical units (such as
like-for-like sales), by adjusting for non-recurring or
uncontrollable factors which affect IFRS measures, to aid the user
in understanding the Group's performance. Consequently, APMs are
used by the Directors and management for performance analysis,
planning, reporting and incentive setting purposes. The key APMs
that the Group has focused on in the period are as set out in the
Glossary.
1 - Worldwide retail sales are total International retail
franchise partner sales to end customers (which are estimated and
unaudited) in relation to continuing operations only. International
stores refers to overseas franchise and joint venture stores.
2 - Adjusted loss before taxation is stated before the impact of
the adjusting items set out in note 4.
3 - Net Debt is defined as total borrowings including
shareholder loans, cash at bank and IFRS 16 lease liabilities. In
2020 it also included the financial asset; in 2021 this asset is no
longer linked to the borrowings and has therefore not been
included.
4 - This announcement contains certain forward-looking
statements concerning the Group. Although the Board believes its
expectations are based on reasonable assumptions, the matters to
which such statements refer may be influenced by factors that could
cause actual outcomes and results to be materially different. The
forward-looking statements speak only as at the date of this
document and the Group does not undertake any obligation to
announce any revisions to such statements, except as required by
law or by any appropriate regulatory authority.
5 - The information contained within this announcement is deemed
by the Company to constitute inside information for the purposes of
the Market Abuse Regulation (EU) No 596/2014. Upon the publication
of this announcement via a Regulatory Information Service, this
inside information is now considered to be in the public
domain.
6 - The person responsible for the release of this announcement
is Lynne Medini, Group Company Secretary at Mothercare plc,
Westside 1, London Road, Hemel Hempstead, HP3 9TD.
7 - Mothercare plc's Legal Entity Identifier ("LEI") number is
213800ZL6RPV9Z9GFO74
8 - The prior year has been restated for the impact of prior
year adjustments (note 12).
Chairman's Statement
A Platform for Growth
I am pleased to report that we have completed our transition to
refocus the Mothercare brand on its core competencies of
international franchise and brand management coupled with design,
development and distribution of product which is sold through our
international partners' stores and online. Today the Group is free
of the burden of a UK store estate, warehousing and the associated
operational costs. Our gross profit is principally derived from
royalties payable on global franchise partners' retail sales,
operating through over 700 stores, representing some 2 million
square feet of retail space.
The Mothercare brand is represented in 37 countries around the
world including the UK through our franchise with Boots. Yet whilst
this reach is impressive, the brand is still not represented in 7
of the top 10 baby markets in the world, when viewed by wealth and
birth rate. Hitherto, the Brand's singular route to market today is
via franchisees and post the restructuring we are now able to
explore the opportunities available to us in wholesale, licensing
or online marketplaces.
Accordingly, our current measure of success, as we strive to be
the leading global brand for parents and young children, remains
our ability to distribute the Mothercare brand and its products to
many more territories around the world through franchising,
wholesale & licensing as well as growing our existing
territories: hence optimising the level of sustainable long-term
revenues and profitability going into 2022 and beyond.
Understandably, during this past year our focus has been on our
existing franchise partners and their markets, managing both the
impact of the pandemic upon them and its effect on our supply
chain. However we now have the management time and resource to
optimise our operating platform generating revenues through an
asset-light model, both in the UK and other international
territories and backed by new debt facilities provided by Gordon
Brothers Brands LLC ("GBB").
We look to the future with great optimism and with multiple
opportunities to grow the global presence of the Mothercare brand.
We are actively pursuing a three-pronged growth strategy
encompassing:
Opportunities for Organic growth
During 2020 we 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
refocus our product strategy both in terms of the specific
categories we develop and the level and quality and design. This
revised product strategy, will be more geared to meet the
expectations of our customers in our international markets, rather
than majoring on products that were historically designed and
developed for the UK market. Our spring/summer 2022 season, which
was the first to use these learnings, was presented to our
franchise partners recently receiving positive initial
feedback.
Opportunities for growth beyond the existing territories
Secondly, as we noted last year, we estimate that the birth rate
around the world is c130 million births per annum, within which we
believe that at least 30 million babies are born each year into
households where there is a sufficient income level to make this an
addressable market for the Mothercare brand. Indeed, of the top ten
territories by wealth and birth rate, the Mothercare brand is only
available in three of them today. For example, we currently have no
presence in the USA, Japan, Australia or Brazil. Closer to home, we
have no stores or online presence in any of the bigger European
economies, such as Germany, France, the Netherlands or Scandinavia.
We believe this translates into great potential for the Mothercare
brand beyond its existing global footprint. An assessment is now
underway to identify the right franchise partners and channels to
market for these territories.
Opportunities for step change growth
Thirdly, we are seeking to leverage the intrinsic value
liberated by our extensive efforts over the last three years, where
in addition to the above:
-- we are an AIM listed entity with expectations of an improving
trend in operating profitability and being debt free within five
years;
-- Mothercare is a strong unencumbered core brand, superior in
its quality, international footprint & global reach than many
peers who are being afforded premium market ratings; &
-- we have a transactionally astute PLC Board & senior
executive team that has overseen our emergence from both the
restructuring and the pandemic in better shape than we entered.
Accordingly, these are exciting times as, without the
distractions of the last three years, we are seeking to accelerate
the growth of the business to encompass large and attractive
markets where we currently have no presence.
The Pandemic
As a global brand and franchise operator 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.
These circumstances introduced an unprecedented demand shock
throughout the first quarter of 2020 which led to the year under
review commencing with many of our Franchise Partners' global
retail locations being closed which, alongside significant
disruption within our manufacturing base, required extensive
efforts to reorganise production to ensure the best possible range
availability. Whilst stores have substantially re-opened for
customers since then this still equated to an aggregate reduction
in worldwide retail sales by our Franchise Partners of 34 per cent.
compared to last year, reflecting the impact of Covid-19 in the
various markets in which our franchisees operate around the world.
Throughout the pandemic we witnessed substantial online sales
growth, however, this in itself was not enough to offset the
temporary closure of retail stores.
The contingency plans activated by the Board are detailed
elsewhere in this report, however these primarily focused
management attention upon the well-being of our colleagues
alongside protecting corporate liquidity in order to preserve the
businesses of our manufacturing and Franchise Partners as a
prerequisite to returning to longer-term profitability. The Group
did not access any of the distress loan facilities proferred by Her
Majesty's Government nor did we furlough any direct employees in
the continuing business.
Rebuilding the Group
Last year we finalised the fundamental restructuring of the
Company's operations and the associated refinancing of the Group,
commenced in the summer of 2018, which ultimately resulted in the
placing into administration of the Group's UK retail business in
November 2019. This unavoidable step preserved value most notably
for our pension fund, our global franchise operations and lending
group - who would have otherwise faced significant losses -
importantly it cleared a path for the Mothercare brand to emerge as
the profitable and cash generative international franchise
operation it is today.
As previously stated, the key strategic aim post the
restructuring was to further transform the business by creating
both a financial structure which supports a sustainable, capital
light franchising model with the capacity to secure both future
global growth and brand reach, alongside redeveloping the Group's
UK retail presence within a Mothercare franchise.
The year under review witnessed substantial progress with all of
our goals, notwithstanding the continuing challenges presented by
Covid-19, as recorded in detail within the Chief Operating
Officer's Review and Financial Review, achieving the Board's
objective of preserving significant value for all stakeholders.
New ways of working with our Partners
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 the continued receipt of royalty
payments will ensure 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, both
reducing our cost base and speeding up the supply of product.
As detailed in the Financial Review, 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.
Updated Financing Requirement
At the year-end Mothercare had net borrowing 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 17 March 2021.
This represents a significant reduction in the total financing
requirement, of around GBP50 million, anticipated in November 2019
and bears testimony to our accelerated progress to becoming a
focused, asset light global franchising business with no directly
operated stores and greatly reduced direct costs.
GBB, with whom terms for a new GBP19.5 million secured 4 year
loan facility, to refinance the Company's outstanding secured
senior debt facility and for additional working capital purposes,
were agreed in November 2020, is now the Group's sole lender.
These changes are detailed in the Financial Review, including
the terms agreed with the Pension Scheme Trustees of our defined
benefit schemes, for a revised schedule of contributions, which
allows the Group to pay contributions at an affordable level whilst
paying off the new loan.
Cost Reduction Programme
Last year the Group made substantial progress in addressing its
legacy infrastructure and associated cost base which greatly
assisted in reducing the total financing requirement the Group
refinanced with GBB:
-- we surrendered the lease of our former head office in Watford
and moved into our new head office in Apsley, Hemel Hempstead, in
August 2020 reducing cash occupancy costs for our head office by
GBP900,000 per annum;
-- 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,
was fully assigned to a third party with a strong covenant on 1
March 2021. This 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 integrated
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
reduce to close to half of those for the year to March 2021, a
direct bottom line improvement of over GBP2 million.
This continued improvement in overhead recovery and reduced
distribution costs, in tandem with the impact of the new ways of
working, will support cash generation as highlighted above and is
detailed further within the Chief Operating Officer's Review and
Financial Review.
Delisting & AIM Admission
The Company first listed on the London Stock Exchange in 1972
with its listing on the main market continuing throughout via
various different corporate entities. However, with the completion
of the transformation plan the Board considered, for the reasons
highlighted below, that AIM is a more appropriate market for the
Company at this stage, commensurate with the Company now being a
Small-Cap company. AIM was launched in 1995 as the London Stock
Exchange's market specifically designed for smaller companies, with
a more flexible regulatory regime, and has an established
reputation with investors and is an internationally recognised
market:
-- AIM will offer greater flexibility with regard to corporate
transactions, enabling the Company to agree and execute certain
transactions more quickly and cost effectively than a company on
the Official List;
-- Companies whose shares trade on AIM are deemed to be unlisted
for the purposes of certain areas of UK taxation, including
possibly being eligible for relief from inheritance tax.
Furthermore stamp duty is not payable on the transfer of shares
that are traded on AIM and not listed on any other market;
-- In addition to existing institutional investors, given the
possible tax benefits, admission to trading on AIM could make the
Company's shares more attractive to both AIM specific funds and
certain retail investors where, since 2013, shares traded on AIM
can be held in ISAs.
Accordingly, following shareholder approval, the Company applied
to cancel the listing of its Ordinary Shares on the Official List
and to trading on the Main Market alongside applying to the London
Stock Exchange for admission to trading on AIM which was
successfully completed on 12 March 2021.
Management & Board changes
We have a PLC Board that is appropriate for a company of our
size, nature and circumstances with Non-Executive Directors with
deeply embedded and relevant skills who have directly contributed
to the change process and interface cohesively with the Operating
Board.
In addition, the Company's management requirements have evolved
as we have successfully transitioned the business to become a
focused international brand owner and operator. Hence during the
year we reinforced the executive team with the appointment of both
a Chief Product Officer and Head of Commercial, whose collective
expertise has already contributed to our evolving product roadmap
as we strive to build closer partner relationships and better serve
end customer needs in key markets.
Accordingly, having completed the short-term priorities
associated with the refinancing and the transformation plan,
alongside continuing to manage through the continuing restrictions
imposed upon us by Covid-19, we have recommenced the search for a
new Chief Executive Officer: where we are seeking proven global
brand & E-commerce experience.
A further announcement will be made when appropriate and, in the
interim, the day-to-day management of the Group is being run by the
Chief Operating Officer and Chief Financial Officer with oversight
from me as Non-Executive Chairman and my fellow Non-Executive
Directors.
Dividend Policy
The Company has not paid a dividend since 3 February 2012. The
Directors understand the importance of optimising value for
shareholders and it is the Directors' intention to return to paying
a dividend as soon as this is possible under the Company's
agreements with GBB and the pension trustees and as soon as the
Directors believe it is financially prudent for the Group to do
so.
Outlook
First and foremost I would like to thank all of our colleagues
across the organisation for their continued diligence in combating
the challenges created by the pandemic. Their combined efforts in
the face of adversity have been truly inspiring.
Whilst the global outlook remains uncertain and we are not
immune to the continued impact of Covid-19 being felt around the
world, 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.
Accordingly, based upon reducing impacts on us and our franchise
partners' operations as the current year progresses and the
implementation of the new operating model, greatly reduced cost
structures and the elimination of significant legacy issues, we
expect a significant improvement in operating profits for the
current year.
Furthermore, we still anticipate that the steady state operation
of our existing retail franchise operations, in more normal
circumstances, should exceed annual operating profits of GBP15
million in future years, underwritten by the planned further
reduction in overheads. For the first 13 weeks of the financial
year to March 2022 our total retail sales were GBP94 million,
generating an adjusted EBITDA of approximately GBP2.5 million.
Hence we expect 2022 to be a year of further progress as we
focus upon developing our strategy and future plans to optimise the
Mothercare brand globally over the next five years. That is an
exciting prospect for all of our staff and stakeholders as we
finally exit this most uncertain of times.
Clive Whiley
Chairman
Mothercare plc
Preliminary Results
FINANCIAL AND OPERATIONAL REVIEW
In addition to the significant progress we have made around our
product and brand strategy the last year has also seen a radical
change in the way the business is now financed and in our new
operating model. The result has been the emergence of a profitable
and cash generative international business, with reduced risk,
lower overheads and an asset-light model.
After a period of significant change and restructuring of the
Group in 2020, the year ended 27 March 2021 was a relative return
to stability for Mothercare - albeit with international
uncertainties over COVID-19 continuing to impact trading
levels.
International retail sales by our franchise partners of GBP358.6
million (2020: GBP542.1 million) showed a 34% decrease year on
year. This trend reflects the impact of the COVID-19 pandemic,
which has affected each market across the world in many different
ways. During the current year, the percentage of retail stores open
globally varied between 23% and 95% of the total portfolio. The
most significant impact was felt in the first quarter; for the rest
of the year the percentage of retail stores open globally varied
between 81% and 95%. At 27 March 2021, the Group's franchise
partners had 92% of stores open (2020: 58%).
The loss from operations in the year was GBP2.4 million (2020:
loss of GBP8.8 million) reflecting the significant impact of
COVID-19 on our business. The Group uses a non-statutory reporting
measure of adjusted profit, to show results before any one-off
significant non-trading items , adding back the adjusted items
which relate to the restructuring and reorganisation costs and are
non-recurring of GBP2.6 million together with depreciation and
amortisation of GBP2.0 million gives an adjusted EBITDA profit for
the year of GBP2.2 million (2020: GBP6.2 million).
The Group recorded a loss from continuing operations for the 52
weeks to 27 March 2021 of GBP21.5 million (2020: GBP8.5 million
loss). The adjusted loss for the year from continuing operations
was GBP8.6 million (2020: GBP6.4 million loss). Continuing
operations represent the Global operation of the business; all
operations for the 2021 financial year were continuing, however,
the UK operational segment ceased during the comparative year and
was previously categorised as a discontinued operation. Continuing
operations reported reflected accounting guidelines and therefore
included some expenditure which ceased following the administration
process, and as such, the comparative period does not necessarily
reflect the result achieved by the standalone international
business.
Total loss for the year of GBP21.5 million (2020: GBP13.1
million profit) was the same as the loss from continuing
operations. However, the prior year also included a gain on the
loss of control of the Group's main trading subsidiary Mothercare
UK Limited (in administration), and a shared service entity,
Mothercare Business Services Limited (in administration) of GBP46.2
million.
Retail space at the end of the year was 2.0 million sq. ft. from
734 stores (2020: 2.3 million sq. ft. from 841 stores - continuing
operations).
There was also COVID-19 induced disruption in the supply chain,
impacting both the current and previous financial years. This
temporarily decelerated, or in some instances constrained, the
movement of product within the supply chain, which resulted in a
lack of availability for franchise partners.
The Group has two distribution centres, one in the UK and one in
Shenzhen, China; and whilst routes directly from suppliers to
partners were able to continue, there were barriers to stock being
shipped in and out of the facility in China. There were also
COVID-19 related logistical challenges in securing space and
haulage, with shipments being delayed once vessel capacities were
reached.
Each of the Group's key markets - including the Middle East,
Russia, China, India, Indonesia and Singapore saw a decline in
trading year on year - driven by the aforementioned stock
availability limitations and store closures.
The year ended 28 March 2020 saw two subsidiaries of the Group,
Mothercare UK Limited (MUK) and Mothercare Business Services
Limited (MBS), enter administration. Mothercare Global Brand
Limited (MGB), also a subsidiary of Mothercare PLC (PLC), purchased
the brand, customer relationships, and certain assets and
liabilities of the international business from the
administrators.
Responsibility for the UK operating segment ceased to belong to
PLC from the point of administration; included within this were the
UK retail store estate, through which the Group sold to end
consumers, as well as the Group's UK trading website. Subsequently,
the administrators wound down the UK operations, generating cash to
repay the creditors, with the bank debt to which MUK was a
guarantor, being the sole secured creditor, and the Group liable
for any shortfall.
The International and UK operating segments were previously both
trading segments of the same legal entity, MUK. The corporate costs
were therefore managed as one business. In categorising these
operations between continued and discontinued operations, the
accounting standards do not allow for such costs to be pro-rated.
Any expenditure which was incurred under a contract used by the
international continuing business as well as the UK discontinued
operation was disclosed under continuing operations - regardless of
whether the expenditure did not continue after the administration,
and regardless of whether the contract was primarily for the
benefit of the UK segment. For this reason, the continuing
administrative expenses disclosed in the comparative period do not
necessarily reflect the ongoing corporate cost base of the
business. There were no discontinued operations in the current
period.
COMPLETION OF REFINANCING
As initially announced last November, there were three main
achievements connected with the refinancing -
-- A new GBP19.5 million four year term loan to refinance the
Company's previous debt that was repayable on demand due to
covenant breaches.
-- The holders of the GBP19.0 million of Convertible Unsecured
Loan Notes that were potentially due for repayment on 30 June 2021,
have converted their entire holdings into equity, increasing the
number of ordinary shares in issue from 374.2 million to 563.8
million.
-- Revised contribution schedules have been agreed for the next
five years with the Mothercare pension schemes' trustees that will
enable us to generate sufficient cash over that period to repay the
term loan in full whilst still meeting the reduced deficit
reduction contributions. The value of the deficit under the full
actuarial valuation at 31 March 2020 was GBP123.4 million; the
Group's deficit payments are calculated using this as the basis.
The agreed annual contributions to the pension schemes, for the
years ending in March, are as follows: 2022 - GBP4.1 million; 2023
- GBP9.0million; 2024 - GBP10.5 million; 2025 - GBP12.0 million;
2026 to 2029 - GBP15 million; 2030 - GBP5.7 million.
Whilst COVID-19 is still having a negative short term impact on
the Group's profitability and cash generation our forecasts show
that we are able to comply with our commitments to our lender and
the pension schemes for the foreseeable future. As at the balance
sheet date the Group had net borrowings of GBP12.1m, being cash of
GBP6.9 million against a substantial drawdown of GBP19.5 million
from the new facility, reflecting an ongoing tight control of
cash.
In March 2021 the Group transitioned stock exchanges by
simultaneously being admitted to AIM and cancelling its listing on
the Main Market.
OPERATING MODEL
The Group continues to work towards its goal of becoming an
asset light business. At the beginning of the COVID-19 pandemic
with supply chains being stretched, it was clear that our existing
operating model would put excessive demands on our limited working
capital. At that time product was often shipped to our warehouse to
be picked and repacked and shipped back to franchise partners,
resulting in our manufacturing partners frequently being paid well
before our franchise paid us, due to the time the stock was inside
our supply chain. We launched the new tripartite agreement ('TPA')
at the beginning of COVID-19, whereby the franchise partners commit
to paying the manufacturing partners for the product when due. And
as a result the manufacturing partners were generally willing to
re-extend credit terms that had sometimes been lost because of the
UK retail administration, thereby limiting the impact on our
franchise partners' working capital. The TPA process has resulted
in a substantial reduction in our working capital requirement and
has been an instrumental element of our successful navigation
through the impact of COVID-19.
We have subsequently further improved the TPA model whereby the
franchise partner is invoiced directly by the manufacturing
partner. This allows the manufacturing partners the opportunity to
obtain credit insurance in relation to the franchise partners debt,
which due to MGB's limited trading history was sometimes difficult
to obtain for invoices raised to MGB. Additionally, this model
removes the Group's exposure to the debt and working capital
requirement for these products. Where this is the case, under IFRS
15 the Group is the agent in the transaction - previously the Group
was the principal. Hence for these products the creditors and stock
will not be recognised by the Group and whilst the associated
revenue and cost of sales will also be excluded there will be no
material impact on the absolute margin earned. The responsibility
for design, quality control and choice of manufacturing partner for
these products, as outlined in the Chief Operating Officer's
report, are unchanged and remains with the Group.
For the autumn/winter 2021 season, recently in our supply chain
some 55% of the products by value are invoiced directly to
franchise partners by our manufacturing partners. The direct
invoicing to franchise partners by manufacturing partners for
products is a condition in recent franchise agreements highlighted
below, which will mean that within the next year this figure should
increase to around 70%.
The second major change to the operating model was within our
supply chain. As mentioned above we previously contracted warehouse
space and associated labour to accept and unpack products from
manufacturing partners then pick and repack to send to our
franchise partners. Clearly it is more cost effective to do things
once so from our spring/ summer 2022 season due to ship later this
year, where volumes allow, our manufacturing partners will
individually pack orders for each franchise partner and then they
will be shipped direct to our franchise partners, eliminating the
need for us to use our warehouses. For the spring/ summer 2022
season we anticipate 80% of our products will be moving direct and
we continue to work to minimise costs for both ourselves and our
franchise partners by moving activities further up the supply
chain.
These new ways of working are being accepted by both our
franchise and manufacturing partners as they are beneficial for
all. Our franchise partners have the potential of reduced
distribution recharges, shorter delivery times and improved surety
and availability of product. In turn, manufacturing partners have
greater security of payment through credit insurance or simply
dealing directly with some of our well capitalised franchise
partners.
Another change that is currently underway is the development of
a new integrated ERP system, expected to go live early in 2022. 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. This system will allow us to automate much of our ordering
process with both our franchise partners and manufacturing partners
accessing the system through portals. It will also provide easier,
more accurate and cost-effective access to information, including
our ability to analyse our franchise partners' sales data to ensure
we are optimising our product designs.
PARTNERSHIP AGREEMENTS
In addition to the TPAs above we have also been rolling out a
new more balanced version of our franchise partner agreement. In
the past there was sometimes limited consistency between the
agreements which makes them more difficult to manage and increases
our legal costs. In August 2020 we completed new 10 year franchise
agreements with an option to extend for another 10 years, with both
Alshaya Group, our largest franchise partner, and Boots UK Limited
for the UK and Republic of Ireland. Subsequently we have now
finalised new agreements with our franchise partners in Indonesia,
Malaysia, Singapore and Hong Kong. These new agreements are all
based on the same standard version and contain the commitments to
the TPA, direct shipping and direct invoicing. We intend to extend
these new standard agreements to other franchise partners when
appropriate in relation to their existing agreements.
We have also launched a new manufacturing partner agreement,
which is common to all our manufacturing partners and again is more
balanced and replaces relationships in the past that were often
more informal and lacked the clarity that we now have. All our
manufacturing partners receiving future orders, commencing with the
spring/ summer 2022 season now being placed, will be required to
sign up to this agreement.
LEGACY ISSUES FROM THE ADMINISTRATION OF THE UK RETAIL
BUSINESS
The National Distribution Centre ('NDC') warehouse facility in
Daventry, which predominantly serviced the Mothercare UK retail
business and 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 potential risk of around GBP3 million per annum to the
Group on a lease that expires in June 2026.
In addition to the NDC lease above after issuing our results for
the year ended Mach 2020, we were approached by the landlord of a
previous UK retail store, where a cross guarantee existed that we
were not aware of. The resultant provision, which needed to be made
as a prior year adjustment, as detailed in note 12, was
GBP1.3m.
BALANCE SHEET
Total equity at 27 March 2021 was a deficit of GBP43.0 million,
a worsening on the deficit position of GBP4.0 million at 27 March
2020. This was driven by the temporary defined pension scheme
moving from a surplus of GBP29.8 million to a deficit of GBP25.6
million. There was also the conversion of the shareholder loans
from borrowings to equity during the year - these were carried at a
borrowings amount of GBP12.8 million and embedded derivatives of
GBP0.3 million at the comparative period end.
The Group has moved to a net current asset position of GBP1.6
million. In the comparative period, the net current liability
position is driven by the level of provision held against Group
receivables and includes the unwind of certain non-cash provisions.
The Group's working capital position is closely monitored and
forecasts demonstrate the Group is able to meet its debts as they
fall due.
27 March 2021 28 March 2020
Restated
GBP million GBP million
------------------------------------------------------------------------ -------------- --------------
Intangible assets 1.1 0.6
Property, plant and equipment 1.7 8.6
Retirement benefit obligations asset/(liability) (net of deferred tax) (25.6) 19.4
Net debt (13.5) (43.1)
Derivative financial instruments 0.8 20.6
Other net liabilities (7.5) (18.5)
Net liabilities (43.0) (4.0)
------------------------------------------------------------------------- -------------- --------------
Share capital and premium 198.1 179.1
Reserves (241.1) (183.1)
------------------------------------------------------------------------- -------------- --------------
Total equity (43.0) (4.0)
------------------------------------------------------------------------- -------------- --------------
Pensions
The Mothercare defined benefit pension schemes were closed with
effect from 30 March 2013.
The pension deficit at 27 March 2021 was GBP25.6 million,
whereas at 28 March 2020, the Group was in the unusual and
temporary position of recognising an accounting surplus under IAS
19 of GBP29.8 million for these schemes. This accounting surplus -
arising as a result of a decrease in long term inflation
expectations and the use of a lower pre-retirement discount rate -
was a function of the volatile markets around that time, driven by
the extreme situation of countries all over the world being about
to enter a period of 'lockdowns' and high levels of uncertainty.
During the current year, therefore, the scheme has returned to a
deficit of a level similar to the value it was held at in 2019.
The Group's deficit payments are calculated using the full
triennial actuarial valuation as the basis rather than the
accounting deficit / surplus. The value of the deficit under the
full actuarial valuation at 31 March 2020 was GBP123.4 million.
Details of the income statement net charge, total cash funding
and net assets and liabilities in respect of the defined benefit
pension schemes are as follows:
GBP million 52 weeks ending 52 weeks ending 52 weeks ending
26 March 2022* 27 March 2021 28 March 2020
------------------------------------------------ ---------------- ---------------- --------------------
Income statement
Running costs (2.5) (3.4) (2.9)
Net interest on liabilities / return on assets (0.5) 0.2 (0.6)
------------------------------------------------ ---------------- ---------------- --------------------
Net charge (3.0) (3.2) (3.5)
------------------------------------------------ ---------------- ---------------- --------------------
Cash funding
Regular contributions (1.0) (1.3) (1.9)
Additional contributions - - (1.9)
Deficit contributions (4.1) (3.2) (7.8)
------------------------------------------------ ---------------- ---------------- --------------------
Total cash funding (5.1) (4.5) (11.6)
------------------------------------------------ ---------------- ---------------- --------------------
Balance sheet**
Fair value of schemes' assets n/a 403.4 401.2
Present value of defined benefit obligations n/a (429.0) (371.4)
------------------------------------------------ ---------------- ---------------- --------------------
Net liability n/a (25.6) 29.8
------------------------------------------------ ---------------- ---------------- --------------------
*Forecast
**The forecast fair value of schemes' assets and present value
of defined benefit obligations is dependent upon the movement in
external market factors, which have not been forecast by the Group
for 2022 and therefore have not been disclosed.
In consultation with the independent actuaries to the schemes,
the key market rate assumptions used in the valuation and their
sensitivity to a 0.1% movement in the rate are shown below:
2021 2020 2020 2020
Sensitivity Sensitivity
GBP million
----------------- ----- ----- ------------- -------------
Discount rate 2.0% 2.3% +/- 0.1% -7.3 /+7.5
Inflation - RPI 3.1% 2.5% +/- 0.1% +4.5 /-5.7
----------------- ----- ----- ------------- -------------
Inflation - CPI 2.4% 1.7% +/- 0.1% +1.8 /-1.8
----------------- ----- ----- ------------- -------------
The Group has a deferred tax liability of GBPnil (2020: GBP10.4
million). In 2021, no deferred tax asset was recognised as there
was not considered to be enough certainty over the recoverability.
In the comparative period, the deferred tax liability arose as a
temporary difference due to the surplus on the pension scheme.
Net debt
Net debt of GBP13.5 million, which includes net borrowings,
related financial assets and IFRS 16 lease liabilities represents
an improvement on the 2020 position of GBP22.1 million.
The Group's IFRS 16 lease liabilities significantly reduced to
GBP1.4 million (2020: GBP8.4 million) as a result of the assignment
of the warehouse facility lease, which had been vacated since the
administration of the UK business.
In March 2021, the Group's shareholder loans were converted to
equity. At the 2021 year end, the net debt amount in relation to
these was therefore GBPnil. At the 2020 year end, GBP12.8 million
in relation to these was included within net debt; GBP6.2 million
of interest accrued up to the point of conversion.
During the year, the Group agreed a GBP19.5 million secured four
year term loan, which was drawn down in November 2020; the carrying
value of this at 27 March 2021 is GBP19.0 million (GBP19.5 million
gross of unamortised facility fee).
At the point of the administration of Mothercare UK Ltd and
Mothercare Business Services Ltd, the Group's secured Revolving
Credit Facility (RCF) crystalised at GBP28.0 million, and this
GBP28.0 million was shown as a current liability at 28 March 2020.
Linked to this debt was a financial asset. Under the sales purchase
agreement with the administrators, the proceeds of the wind up of
the UK business were first be used to repay the secured creditor
i.e. the RCF. Monies of GBP21.0 million were expected to be
generated towards this, and therefore in addition to the debt of
GBP28.0 million, a financial asset of GBP21.0 million was
recognised gross of the debt to reflect this. During the current
year, the outstanding balance on the RCF was settled through
distributions received from the administrators, with the remaining
balance settled at the point of drawdown of the Group's new term
loan. The Group still holds a financial asset of GBP2.6 million,
reflecting expected future distributions from the administrators,
however as at the current year end this financial asset is no
longer linked to the Group's borrowings.
Also included within net debt is GBP6.9 million (2020: GBP6.1
million) of cash funds, the increase being driven by cash received
under the term loan facility during the year.
Leases
Right-of-Use assets of GBP1.2 million (2020: GBP7.9 million) and
lease liabilities of GBP1.4 million (2020: GBP8.4 million)
represented the Group's head office leases. The comparative period
included an investment property asset relating to the NDC warehouse
facility in Daventry which the Group ceased to use for supply of
goods from the point at which Mothercare UK Ltd went into
administration; this lease was assigned in March 2021 and therefore
the carrying value was disposed of in the period.
Working capital
The Group only purchases stock directly needed to fulfil
franchise partner orders. Of the GBP5.9 million (2020: GBP9.7
million) year-end inventories balance, GBP2.6 million (2020: GBP4.5
million) of this related to stock in transit, i.e. was on a boat on
its way to one of the Group's two distribution centres, at the year
end date.
Trade receivables have remained consistent year on year, being
GBP11.6 million at 27 March 2021 (2020: GBP11.2 million).
Similarly, trade payables have also remained fairly constant, being
GBP11.8 million at 27 March 2021 (2020: GBP12.0 million).
INCOME STATEMENT - on a continuing operations basis
52 weeks to 52 weeks to
27 March 2021 28 March 2020
Restated
GBPmillion GBPmillion
---------------------------------------------- -------------- --------------
Revenue 85.8 164.7
Adjusted EBITDA (EBITDA before exceptionals) 2.2 6.2
Depreciation and amortisation (2.0) (6.8)
---------------------------------------------- -------------- --------------
Adjusted result before interest and
taxation 0.2 (0.6)
Adjusted net finance costs (8.7) (4.9)
---------------------------------------------- -------------- --------------
Adjusted result before taxation (8.5) (5.5)
---------------------------------------------- -------------- --------------
Adjusted costs (12.9) (2.2)
Loss before taxation (1) (21.4) (7.7)
---------------------------------------------- -------------- --------------
Taxation (0.1) (0.8)
Profit/(loss) from discontinued operations
(note 7) - 21.6
---------------------------------------------- -------------- --------------
Total profit/( loss) (21.5) 13.1
---------------------------------------------- -------------- --------------
EPS - basic (continuing operations) (5.7)p (2.4)p
Adjusted EPS - basic (continuing
operations) (2.3)p (1.8)p
------------------------------------- ------- -------
1. Adjusted results are consistent with how the business
performance is measured internally. Refer to adjusted items table
in note 4 for further details. See accounting policies for
definitions.
Foreign exchange
The main exchange rates used to translate the consolidated
income statement and balance sheet are set out below:
52 weeks ended 53 weeks ended
27 March 2021 28 March 2020
Average:
------------------- --------------- ---------------
Euro 1.1 1.1
Russian rouble 96.9 82.4
Chinese Renminbi 8.8 8.9
Kuwaiti dinar 0.4 0.4
Saudi riyal 4.9 4.8
Emirati dirham 4.8 4.7
Indonesian rupiah 18,954 17,968
Indian rupee 96.9 90.1
Closing:
Euro 1.1 1.1
Russian rouble 102.9 93.9
Chinese Renminbi 9.0 8.3
Kuwaiti dinar 0.4 0.4
Saudi riyal 5.2 4.4
Emirati dirham 5.1 4.3
Indonesian rupiah 19,965 19,576
Indian rupee 100.5 88.5
------------------- --------------- ---------------
The principal currencies that impact the translation of
International sales are shown below. The net effect of currency
translation caused worldwide retail sales and adjusted loss to
decrease by GBP26.1 million (2020: increase by GBP14.4 million) and
GBP1.4 million (2020: increase by GBP0.9 million) respectively as
shown below:
Adjusted
Worldwide retail sales Profit/(loss)
GBP million GBP million
------------------- ------------------------- -----------------
Euro (0.6) -
Russian rouble 4.8 0.3
Chinese Renminbi (0.1) -
Kuwaiti dinar 1.0 0.1
Saudi riyal 2.5 0.1
Emirati dirham 1.6 0.1
Indonesian rupiah 1.3 0.1
0.4 -
Indian rupee
Other currencies 3.6 0.2
------------------- ------------------------- -----------------
14.4 0.9
------------------- ------------------------- -----------------
See glossary for definitions
Net finance cost
Financing costs include interest receivable on bank deposits,
less interest payable on borrowing facilities, the amortisation of
costs relating to bank facility fees and the net interest charge on
the liabilities/assets of the pension scheme.
Year-on-year finance costs have increased due to the compounding
interest on the convertible shareholder loans. Whilst interest of
GBP2.6 million accrued in the prior period, the current year saw an
interest accrual of GBP6.2 million - the increase partly as a
result of the effect of compounding, but also due to an
acceleration of interest on early conversion to include interest up
to what would have been the conversion date (three months
later).
There was also a swing in interest income/costs on the pension
scheme, with a GBP0.2 million income in the current year compared
to a GBP0.6 million cost in 2020.
GBP10.3 million of finance costs (2020: GBP6.0 million of
finance income) are included in adjusted items. GBP9.1 million of
costs arose on the fair value movements of the shareholder loan
embedded derivatives (2020: income of GBP6.0 million).This GBP9.1
million was driven by fluctuations in the Group's share price - in
March 2020 there was a high level of uncertainty in the UK market -
driven by COVID-19, which caused the fair value of these
instruments to plummet; during 2021 the value returned to pre-March
2020 levels. The shareholder loans converted in March 2021 and were
fair valued immediately prior to their transfer to share capital
and share premium. Also included in adjusted finance costs is the
recognition of 15.0 million of warrants issued in March 2021, as
well as the fair value movements on these to the year end date,
totalling GBP1.2 million (2020: GBPnil).
Discontinued operations
There were no discontinued operations presented for the current
financial 52 week period ended 27 March 2021.
On 5 November 2019, administrators were appointed for MUK and
MBS, two subsidiaries of Mothercare PLC. The trade, and certain
assets and liabilities pertaining to the international business
were transferred to a new Group subsidiary, MGB. Consequently, in
the comparative period, the UK operating segment was presented as a
discontinued operation, and a profit on the loss of control of
GBP46.2 million subsequently recognised. This profit reflected the
greater value of liabilities disposed of compared to assets, the
largest of these being the IFRS 16 lease liabilities for the UK
store estate - this was significantly greater than the
corresponding right-of-use assets because the onerous lease
provision and lease incentives liability had been transferred
against the asset at inception.
The profit from discontinued operations for the period is GBPnil
(2020: GBP21.6 million).
The total statutory loss after tax for the Group is GBP21.5
million (2020: GBP13.1 million profit).
Taxation
The tax charge comprises corporation taxes incurred and a
deferred tax charge. The total tax charge from continuing
operations was GBP0.1 million (2020: GBP0.8 million) - (see note
6).
The total tax credit from discontinued operations was GBPnil
million (2020: GBP0.1 million).
Earnings per share
Basic adjusted losses per share from continuing operations were
2.3 pence (2020: 1.8 pence). Continuing statutory losses per share
were 5.7 pence (2020: 2.4 pence).
Total basic adjusted losses per share were 2.3 pence (2020: 4.2
pence). Total statutory losses per share were 5.7 pence (2020: 3.7
pence earnings).
Some of the comparative disclosures for earnings per share have
been restated - see note 9.
CASHFLOW
Statutory net cash outflow from continuing operating activities
was an outflow of GBP2.6 million, compared with an outflow of
GBP2.9 million in the prior year; this was driven by trading in the
year and refinancing/ restructuring costs.
Cash outflow from investing activities of GBP0.4 million (2020:
GBP1.5 million - from continuing operations), reflects a reduction
in capital expenditure.
Cash inflows from financing activities netted to GBP3.8 million
(2020: GBP2.9 million outflow - from continuing operations). The
income was driven by the cash receipt of GBP7.3 million on the
Group's new four year term loan. The outflow in the comparative
period was as a result of repayments of the Group's RCF.
Going concern
As stated in the strategic report, the Group's business
activities and the factors likely to affect its future development
are set out in the principal risks and uncertainties section of the
Group financial statements. The financial position of the Group,
its cash flows, liquidity position and borrowing facilities are set
out in the financial review.
The consolidated financial information has been prepared on a
going concern basis. Despite the current global retail sector
challenges, we have attempted to capture the impact on both our
supply chain and key franchise partners based on what is currently
known and localised trading activity since the start of the crisis.
When considering the going concern assumption, the Directors of the
Group have reviewed a number of factors, including the Group's
trading results and its continued access to sufficient borrowing
facilities against the Group's latest forecasts and projections,
comprising:
1) A Base Case forecast, which is built up at franchise partner
level and incorporates key assumptions specific to each partner and
the impact of Covid-19 in each jurisdiction. This base case
forecasts that the sales for the financial year to March 2022
increase to levels similar to those achieve immediately before the
impact of COVID-19 and the sales for the year to March 2023 show a
more modest increase.
2) A Sensitised forecast, which applies sensitivities against
the Base Case for reasonably possible adverse variations in
performance, reflecting the ongoing volatility in our key markets.
This assumes the following additional key assumptions:
A delayed recovery that assumes that retail sales remain subdued
throughout the majority of the forecast period as a result of
continued restrictions on both our franchise and manufacturing
partners as a result of COVID-19.
The potential for subsequent reintroduction or imposition of new
measures to control COVID-19 in areas that will restrict both our
franchise and manufacturing partners and consequentially impact our
retail sales.
The sensitised forecast shows a decrease in sales of 7% as
compared to the Base Case in the financial years to March 2022 and
2023, with the net working capital and the overhead costs assumed
to remain constant. Despite showing a decreases against the Base
Case, the assumptions still assume an increase in revenue from the
financial years 2021 to 2022. The four debt covenants are also not
forecast to be breached under this scenario; and
3) A Reverse Stress Test which assumes an overall increase in
net sales in the financial year to March 2022 of around half that
used in the Base Case.
Based on the sales to date in the current financial year to
March 2022, the Group is significantly behind the Base Case
forecast due to the adverse impact of Covid-19 in certain
jurisdictions. This post year end performance could extend
throughout the going concern assessment period as a result of the
ongoing Covid-19 restrictions and had therefore already
demonstrated that the base case scenario is challenging.
The Board's confidence that the Group will operate within the
terms of the borrowing facilities, and the Group's proven cash
management capability supports our preparation of the financial
statements on a going concern basis. We have modelled a substantial
reduction in global retail sales in our sensitised case and reverse
stress test as a result of possible future store closures and
subdued consumer confidence or as a result of reduced availability
due to restrictions in our manufacturing partners to maintain
production and supply chain constraints throughout the remainder of
FY22 with recovery in FY23.
The impact of the pandemic on the future prospects of the Group
is not fully quantifiable at the reporting date, as the complexity
and scale of restrictions in place at a global level is outside of
what any business could accurately reflect in a financial forecast.
However, if trading conditions were to deteriorate beyond the level
of risks applied in the sensitised forecast, or the Group was
unable to mitigate the material uncertainties assumed in the Base
Case Forecast and the Group were not able to execute further cost
or cash management programmes, the Group would at certain points of
the working capital cycle have insufficient cash. If this scenario
were to crystallise the Group would need to renegotiate with its
lender in order to secure waivers to potential covenant breaches
and consequential cash remedies or secure additional funding.
Therefore, we have concluded that, in this situation, there is a
material uncertainty that casts significant doubt that the Group
will be able to operate as a going concern.
Treasury policy and financial risk management
The Board approves treasury policies, and senior management
directly controls day-to-day operations within these policies. The
major financial risk to which the Group is exposed relates to
movements in foreign exchange rates and interest rates. Where
appropriate, cost effective and practicable, the Group uses
financial instruments and derivatives to manage the risks, however
the main strategy is to effect natural hedges wherever
possible.
No speculative use of derivatives, currency or other instruments
is permitted.
Foreign currency risk
All International sales to franchisees are invoiced in Pounds
sterling or US dollars. The Group therefore has some currency
exposure on these sales, but they are used to offset or hedge in
part the Group's US dollar denominated product purchases. Under the
tripartite agreements, there has been an increased level of
currency matching between purchases and sales, improving the
Group's ability to hedge naturally.
Interest rate risk
The principal interest rate risk of the Group arises in respect
of the drawdown of the GBP19.5 million term loan. These borrowings
are at a fixed rate of 12% plus LIBOR, and exposes the Group to
cash flow interest rate risk. The interest exposure is monitored by
management but due to low interest rate levels during the period
the risk is believed to be minimal and no interest rate hedging has
been undertaken.
In the comparative period, the Group was exposed to interest
rate risk from the Revolving Credit Facility ('RCF') and
shareholder loans.
The convertible shareholder loans attracted a monthly compound
interest rate of 0.83%. These loan agreements contained an option
to convert to equity which is treated as an embedded derivative and
fair valued. This fair value was calculated using the Black Scholes
model and is therefore sensitive to the relevant inputs,
particularly share price. These loans were converted to equity in
March 2021.
The RCF facility was at a fixed rate of 5.5% plus LIBOR. The
interest exposure was monitored by management but, similarly to in
the current year, low interest rate levels during the period meant
the risk was considered to be minimal. At 28 March 2020, the debt
due under the RCF was GBP28.0 million.
Credit risk
The Group has exposure to credit risk inherent in its trade
receivables.
The Group has no significant concentrations of credit risk.
The Group operates effective credit control procedures in order
to minimise exposure to overdue debts. Before accepting any new
trade customer, the Group obtains a credit check from an external
agency to assess the credit quality of the potential customer and
then sets credit limits on a customer by customer basis. IFRS 9
'Financial Instruments' has been applied such that receivables
balances are held net of a provision calculated using a risk
matrix, taking micro and macro-economic factors into
consideration.
Shareholders' funds
Shareholders' funds amount to a deficit of GBP43.0 million, a
worsening from the deficit of GBP4.0 million achieved in the
comparative period. This was driven by actuarial losses of GBP56.7
million on the Group's defined benefit pension scheme, with GBP10.2
million of deferred tax liability being released as result of the
scheme returning to a deficit position - overall giving GBP46.5
million of movement driven solely by the pension scheme. Another
significant movement in the year related to the conversion of the
Group's shareholder loans to equity, resulting in a GBP28.5 million
increase in share capital, share premium and distributable
reserves.
DIRECTORS' RESPONSIBILITY STATEMENT
The 2021 Annual Report and Accounts which will be issued in July
2021, contains a responsibility statement which sets out that as at
the date of approval of the Annual Report on 28 July 2021, the
directors confirm to the best of their knowledge:
-- the Group and unconsolidated Company financial statements,
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006, give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the company and the undertakings included in
the consolidation taken as a whole; and
-- the Strategic Report and Directors' Report include a fair
review of the development and performance of the business and the
position of the company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
Consolidated income statement
For the 52 weeks ended 27 March 2021
Note 52 weeks ended 27 March 2021 52 weeks ended 28 March 2020
Restated*
------------------------------------------- ----------------------------------------------
Before Adjusted Total Before Adjusted Total
adjusted items(1) adjusted items(1)
items items
GBP million GBP million GBP million GBP million GBP million GBP million
---------------- ----- ------------ --------------- ------------ ------------ ---------------- ------------
Revenue 3 85.8 - 85.8 164.7 - 164.7
Cost of sales (63.3) - (63.3) (128.5) - (128.5)
---------------- ----- ------------ --------------- ------------ ------------ ---------------- ------------
Gross profit 22.5 - 22.5 36.2 - 36.2
Administrative
expenses (23.3) (2.6) (25.9) (34.6) (8.2) (42.8)
Other income 2.0 - 2.0 - - -
Impairment
losses on
receivables (1.0) - (1.0) (2.2) - (2.2)
Profit/(loss)
from
operations 3 0.2 (2.6) (2.4) (0.6) (8.2) (8.8)
Finance costs 5 (8.9) (10.3) (19.2) (5.2) - (5.2)
Finance income 5 0.2 - 0.2 0.3 6.0 6.3
---------------- ----- ------------ --------------- ------------ ------------ ---------------- ------------
Loss before
taxation (8.5) (12.9) (21.4) (5.5) (2.2) (7.7)
Taxation (0.1) - (0.1) (0.9) 0.1 (0.8)
---------------- ----- ------------ --------------- ------------ ------------ ---------------- ------------
Loss for the
period from
continuing
operations (8.6) (12.9) (21.5) (6.4) (2.1) (8.5)
Discontinued
operations
(Loss)/profit
for the period
from
discontinued
operations 7 - - - (8.4) 30.0 21.6
(Loss)/profit
for the period
attributable
to equity
holders of the
parent (8.6) (12.9) (21.5) (14.8) 27.9 13.1
---------------- ----- ------------ --------------- ------------ ------------ ---------------- ------------
(Loss)/profit
per share
From continuing
operations
Basic 9 (5.7)p (2.4)p
Diluted 9 (5.7)p (2.4)p
From continuing
and
discontinued
operations
Basic 9 (5.7)p 3.7p
Diluted 9 (5.7)p 3.7p
1. Includes adjusted costs (property costs, restructuring costs
and impairment charges) , the fair value movement on embedded
derivatives and the profit/loss on disposal of the UK operating
segment as set out in note 6 to the consolidated financial
statements. Adjusted items are considered to be one-off or
significant in nature and /or value. Excluding these items from
profit metrics provides readers with helpful additional information
on the performance of the business across the periods because it is
consistent with how the business performance is reviewed by the
Board.
* Results for the prior year have been restated for the impact
of prior year adjustments (note 12) . Earnings/(loss) per share
have also been restated as a result of the prior year adjustment
and the correction of the dilution calculation (note 9).
Consolidated statement of comprehensive income
For the 52 weeks ended 27 March 2021
52 weeks ended 53 weeks ended
27 March 2021 28 March 2020
Restated
GBP million GBP million
------------------------------------------------------------------------------- --- --------------- ---------------
(Loss)/profit for the period (21.5) 13.1
Items that will not be reclassified subsequently to the income statement:
Actuarial (loss)/gain on defined benefit pension schemes (56.7) 46.6
Income tax relating to items not reclassified 10.2 (10.4)
------------------------------------------------------------------------------- --- --------------- ---------------
(46.5) 36.2
------------------------------------------------------------------------------- --- --------------- ---------------
Items that may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations - (1.9)
Deferred tax relating to items reclassified - -
- (1.9)
------------------------------------------------------------------------------- --- --------------- ---------------
Other comprehensive (expense)/income for the period (46.5) 34.3
------------------------------------------------------------------------------- --- --------------- ---------------
Total comprehensive (expense)/income for the period wholly attributable to equity
holders
of the parent (68.0) 47.4
------------------------------------------------------------------------------------ --------------- ---------------
Consolidated balance sheet
As at 27 March 2021
27 March 2021 28 March 2020
restated
GBP million GBP million
----------------------------------------------------- -------------- --------------
Non-current assets
Intangible assets 1.1 0.6
Property, plant and equipment 0.5 0.7
Right-of-use leasehold assets 1.2 7.9
Retirement benefit obligations - 29.8
2.8 39.0
----------------------------------------------------- -------------- --------------
Current assets
Inventories 5.9 9.7
Trade and other receivables 17.4 15.6
Derivative financial instruments 2.6 21.0
Cash and cash equivalents 6.9 6.1
32.8 52.4
Total assets 35.6 91.4
------------------------------------------------------- -------------- --------------
Current liabilities
Trade and other payables (24.9) (29.5)
Borrowings - (28.0)
Current tax liabilities - (0.3)
Derivative financial instruments (1.8) (0.1)
Lease liabilities (0.3) (1.0)
Provisions (4.2) (2.8)
(31.2) (61.7)
----------------------------------------------------- -------------- --------------
Non-current liabilities
Borrowings (19.0) (12.8)
Lease liabilities (1.1) (7.4)
Derivative financial instruments - (0.3)
Retirement benefit obligations (25.6) -
Provisions (1.7) (2.8)
Deferred tax liability - (10.4)
(47.4) (33.7)
Total liabilities (78.6) (95.4)
------------------------------------------------------- -------------- --------------
Net liabilities (43.0) (4.0)
------------------------------------------------------- -------------- --------------
Equity attributable to equity holders of the parent
Share capital 89.3 87.4
Share premium account 108.8 91.7
Own shares (1.0) (1.0)
Translation reserve (3.7) (3.7)
Hedging reserve - -
Retained deficit (236.4) (178.4)
------------------------------------------------------- -------------- --------------
Total equity (43.0) (4.0)
------------------------------------------------------- -------------- --------------
Consolidated statement of changes in equity
For the 52 weeks ended 27 March 2021
Equity attributable to equity holders of the parent
-------------------------------------------------------------------------------------
Share Share Own shares Translation Hedging Retained Total equity
capital premium reserve reserve earnings
account
GBP million GBP million GBP million GBP million GBP million GBP million GBP million
---------------- ------------- ------------ ------------ ------------ ------------ ------------ -------------
Balance at 28
March 2020 as
previously
reported 87.4 91.7 (1.0) (3.7) - (172.1) 2.3
Prior year
adjustment -
income
statement - - - - - (1.3) (1.3)
Prior year
adjustment -
other
comprehensive
income - - - - - (5.0) (5.0)
---------------- ------------- ------------ ------------ ------------ ------------ ------------ -------------
Balance at 28
March 2020 87.4 91.7 (1.0) (3.7) - (178.4) (4.0)
---------------- ------------- ------------ ------------ ------------ ------------ ------------ -------------
Other
comprehensive
expense - - - - - (46.5) (46.5)
Loss for the
period - - - - - (21.5) (21.5)
Total
comprehensive
expense for
the period - - - - - (68.0) (68.0)
Conversion of
shareholder
loans 1.9 17.1 - - - 9.5 28.5
Adjustment to
equity for
equity-settled
share-based
payments - - - - - 0.5 0.5
Balance at 27
March 2021 89.3 108.8 (1.0) (3.7) - (236.4) (43.0)
---------------- ------------- ------------ ------------ ------------ ------------ ------------ -------------
For the 52 weeks ended 28 March 2020
Equity attributable to equity holders of the parent
------------------------------------------------------------------------------------
Share Share Own shares Translation Hedging Retained Total
capital premium reserve reserve earnings equity
account
GBP million GBP million GBP million GBP million GBP million GBP million GBP million
------------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 30
March 2019 87.1 88.9 (1.1) (1.8) 1.3 (228.6) (54.2)
------------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Other
comprehensive
(expense)/income
- restated - - - (1.9) - 36.2 34.3
Profit for the
period -
restated - - - - - 13.1 13.1
Total
comprehensive
(expense)/income
for the period - - - (1.9) - 49.3 47.4
Transfer from
equity to
inventories
during the
period - - - - (1.3) - (1.3)
Adjustment to
equity for
equity-settled
share-based
payments - - - - - 0.9 0.9
Issue of new
shares 0.3 2.9 0.1 - - - 3.3
Expenses of issue
of equity shares - (0.1) - - - - (0.1)
Balance at 28
March 2020 87.4 91.7 (1.0) (3.7) - (178.4) (4.0)
------------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Consolidated cash flow statement
For the 52 weeks ended 27 March 2021
52 weeks ended 53 weeks ended
28 March 2020 30 March 2019
Restated
Note GBP million GBP million
--------------------------------------------------------------------------- ----- --------------- ---------------
Net cash flow from operating activities - continuing operations 11 (2.6) (2.9)
Net cash flow from operating activities - discontinued operations - 3.4
--------------------------------------------------------------------------- ----- --------------- ---------------
Cash flows from investing activities
Interest received - 0.3
Purchase of property, plant and equipment (0.2) (0.4)
Purchase of intangibles - software (0.2) (1.4)
Net cash used in investing activities - continuing operations (0.4) (1.5)
Net cash used in investing activities - discontinued operations - 7.0
--------------------------------------------------------------------------- ----- --------------- ---------------
Cash flows from financing activities
Issue of share capital - 3.2
Expenses of share issue - (0.1)
Shareholder loans - 5.5
Interest paid (1.4) (1.8)
Lease interest paid (0.6) (0.7)
Repayments of leases (1.5) (1.8)
Repayment of facility - (13.0)
Drawdown of facility 7.3 6.0
Payment of facility fee - (0.2)
--------------------------------------------------------------------------- ----- --------------- ---------------
Net cash raised in/(used in) financing activities - continuing operations 3.8 (2.9)
Net cash used in financing activities - discontinued operations - (12.9)
Net increase in cash and cash equivalents 0.8 (9.8)
--------------------------------------------------------------------------- ----- --------------- ---------------
Cash and cash equivalents at beginning of period 6.1 16.3
Effect of foreign exchange rate changes - (0.4)
Cash and cash equivalents at end of period 6.9 6.1
--------------------------------------------------------------------------- ----- --------------- ---------------
Notes
1. General information
The Group's business activities, together with factors likely to
affect its future development, performance and position are set out
in the Chairman's statement, the Chief Executive's review and the
Financial review and include a summary of the Group's financial
position, its cash flows and borrowing facilities and a discussion
of why the Directors consider that the going concern basis is
appropriate.
Whilst the financial information included in this preliminary
announcement has been prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006, this announcement does not itself contain
sufficient information to comply with all the disclosure
requirements of IFRS.
The financial information set out in this announcement does not
constitute the Group's statutory accounts for the 52 week period
ended 27 March 2021 or the 52 week period ended 28 March 2020, but
it is derived from those accounts. Statutory accounts for 2020 have
been delivered to the Registrar of Companies and those for 2021
will be delivered in July 2021. The auditor has reported on the
2021 accounts: their report includes an emphasis matter over going
concern. The 2020 financial statements are available on the Group's
website ( www.mothercareplc.com ).
2. Accounting Policies and Standards
Going concern
The Directors have reviewed the Group's latest forecasts and
projections, which have been sensitivity-tested. When considering
the going concern assumption, the Directors of the Group have
reviewed a number of factors, including the Group's trading results
and its continued access to sufficient borrowing facilities.
The Board's confidence in the Group's Base Case forecast, which
indicates the Group will operate within the terms of the borrowing
facilities it expects to be able to secure, and the Group's proven
cash management capability supports our preparation of the
financial statements on a going concern basis.
However, if trading conditions were to deteriorate beyond the
level of risks applied in the sensitised forecast, or the Group was
unable to mitigate the material uncertainties assumed in the Base
Case Forecast and the Group were not able to execute further cost
or cash management programmes, the Group would at certain points of
the working capital cycle have insufficient cash. If this scenario
were to crystallise the Group would need to renegotiate with its
lender in order to secure waivers to potential covenant breaches
and consequential cash remedies or secure additional funding.
Therefore, we have concluded that, in this situation, there is a
material uncertainty that casts significant doubt that the Group
will be able to operate as a going concern without such waivers or
new financing facilities.
Adoption of new IFRSs
The same accounting policies, presentation and methods of
computation are followed in this yearly report as applied in the
Group's last audited financial statements for the 52 weeks ended 28
March 2020.
Standards issued but not yet effective
At the date of authorisation of these financial statements, the
following standards and interpretations, which have not been
applied in these financial statements, were in issue and endorsed
by the UKEB, but not yet effective:
-- Amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16 Interest
rate benchmark reform - phase 2
-- Extension of the temporary exemption from applying IFRS 9
-- Amendment to IFRS 16, 'Leases' - COVID-19 related rent concessions
The Directors anticipate that adoption of these standards and
interpretations in future periods will have no material impact on
the Group's financial statements.
Discontinued operations
In accordance with IFRS 5 'Non-current Assets Held for Sale and
Discontinued Operations', the net results of discontinued
operations are presented separately in the Group income statement
(and the comparatives restated).
Retirement benefits
Payments to defined contribution retirement benefit schemes are
charged as an expense as they fall due.
For defined benefit schemes, the cost of providing benefits is
determined using the Projected Unit Credit Method, with actuarial
valuations being carried out at each balance sheet date. Actuarial
gains and losses are recognised in full in the period in which they
occur. They are recognised outside of the income statement and
presented in other comprehensive income.
Past service cost is recognised immediately to the extent that
the benefits are already vested.
The retirement benefit obligation recognised in the balance
sheet represents the present value of the defined benefit
obligation less the fair value of scheme assets. Any asset
resulting from this calculation is limited to past service cost,
plus the present value of available refunds.
The Group has an unconditional right to a refund of surplus
under the rules.
In consultation with the independent actuaries to the schemes,
the valuation of the pension obligation has been updated to
reflect: current market discount rates; current market values of
investments and actual investment returns; and also for any other
events that would significantly affect the pension liabilities. The
impact of these changes in assumptions and events has been
estimated in arriving at the valuation of the pension
obligation.
Administration of Mothercare UK Limited and transfer of its
international franchise business to the Group
On 5 November 2019, during the comparative financial period, the
Company's subsidiary and owner of the Group's UK retail operations,
MUK, entered administration. An agreement was reached with the
administrators of MUK to assign the "Mothercare" brand and novate
the majority of the Group's international franchise agreements to a
new legal entity and subsidiary of the Company, MGB, alongside
certain assets and liabilities, including all liabilities in
respect of the Group's defined benefit pension schemes.
The transfer of the international franchise business of MUK to
MGB described above has been accounted for as a common control
transaction. This is because the combining entities (MGB and the
international franchise business of MUK) were ultimately controlled
by the same entity (Mothercare plc) both before and after the
transaction and there was, from a financial accounting perspective,
no loss of control.
While the decision to place MUK into administration did result
in a legal loss of control of the international franchise business
for less than a day, that loss of control was, in effect,
administrative in nature. From the group's perspective, the
commercial effect of the transaction was a divestment of the UK
retail business, an outcome consistent with the group's previously
announced strategy. As a result, the assets and liabilities that
related to the ongoing continuing business were transferred at the
previous book values of MUK, reflecting the fact that no
'acquisition' occurred from the perspective of the Group.
Alternative performance measures (APMs)
In the reporting of financial information, the Directors have
adopted various APMs of historical or future financial performance,
position or cash flows other than those defined or specified under
International Financial Reporting Standards (IFRS). A full
definition is shown in the glossary at the end of this
document.
These measures are not defined by IFRS and therefore may not be
directly comparable with other companies' APMs, including those in
the Group's industry.
APMs should be considered in addition to, and are not intended
to be a substitute for, or superior to, IFRS measures.
Purpose
The Directors believe that these APMs assist in providing
additional useful information on the performance and position of
the Group because they are consistent with how business performance
is reported to the Board and Operating Board.
APMs are also used to enhance the comparability of information
between reporting periods and geographical units (such as
like-for-like sales), by adjusting for non-recurring or
uncontrollable factors which affect IFRS measures, to aid the user
in understanding the Group's performance.
Consequently, APMs are used by the Directors and management for
performance analysis, planning, reporting and incentive setting
purposes and have remained consistent with prior year except where
expressly stated.
The key APMs that the Group has focused on during the period are
as follows:
Group worldwide retail sales
Group worldwide sales are total International sales, which are
the estimated retail sales of overseas franchise and joint venture
partners to their customers. Total Group revenue is a statutory
number and is made up of total UK sales and receipts from
International franchise partners, which includes royalty payments
and the cost of goods dispatched to international franchise
partners.
Like-for-like sales
This is a widely used indicator of a retailer's current trading
performance. This is defined as sales from stores that have been
trading continuously from the same selling space for at least a
year and include website sales and sales taken on iPads in store.
International retail sales are the estimated retail sales of
overseas franchise and joint venture partners to their customers.
International like-for-like sales are the estimated franchisee
retail sales from stores that have been trading continuously from
the same selling space for at least a year. The Group reports some
financial measures on both a reported and constant currency basis.
Sales in constant currency exclude the impact of movements in
foreign exchange translation. The constant currency basis
retranslates the previous year revenues at the average actual
periodic exchange rates used in the current financial year. This
measure is presented as a means of eliminating the effects of
exchange rate fluctuations on the year on year reported
results.
Profit/(loss) before adjusted items
The Group's policy is to exclude items that are considered to be
one-off and signi cant in both nature and/or value and where
treatment as an adjusted item provides stakeholders with additional
useful information to assess the year-on-year trading performance
of the Group. On this basis, the following items were included
within adjusted items for the 52-week period ended 27 March
2021:
Continuing operations:
-- costs associated with restructuring, redundancies and
refinancing;
-- finance costs, including the fair value movement on embedded
derivatives in the shareholder loans;
-- 2020: loss on disposal of the UK business;
-- Discontinued operations:
-- 2020: store impairment and onerous lease charges;
-- 2020: amortisation of intangible assets.
3. Segmental information
IFRS 8 requires operating segments to be identified on the basis
of internal reports about components of the Group that are
regularly reported to the Group's executive decision makers
(comprising the executive directors and operating board) in order
to allocate resources to the segments and assess their performance.
Under IFRS 8, the Group has not identified that its continuing
operations represent more than one operating segment.
Previously, the Group reported on two segments: UK and
International; control of the UK segment was lost on 5 November
2019, and as a result only the International business remains as a
continuing operation.
Management have identified that the Mini Club operation could
constitute a separate operating segment as it has its own
operational manager, however it is considered to meet all the
aggregation criteria under IFRS 8, including: the nature of
products; the nature of the production processes; the type or class
of customer; the methods used to distribute products; and the
nature of the regulatory environment. As the Mini Club operation
ceased in October 2020, by year end it was no longer an aggregated
operating segment.
The results of franchise partners are not reported separately,
nor are resources allocated on a franchise partner by franchise
partner basis, and therefore have not been identified to constitute
separate operating segments.
Revenues are attributed to countries on the basis of the
customer's location. The largest International customer represents
approximately 23% (2020: 38.9%) of group sales.
52 weeks ended 52 weeks ended
27 March 2021 28 March 2020
Turnover by destination GBP million GBP million
------------------------- --------------- ---------------
Continuing operations:
Europe 46.2 66.2
Middle East 20.1 63.4
Asia 19.5 34.1
Rest of world - 1.0
Total revenue 85.8 164.7
------------------------- --------------- ---------------
4. Adjusted items
The total adjusted items reported for the 52-week period ended
27 March 2021 is a net charge of GBP12.9 million (2020: GBP2.2
million from continuing operations) . The adjustments made to
reported loss before tax to arrive at adjusted loss from continuing
operations are:
52 weeks ended 53 weeks ended
28 March 2020 30 March 2019
Restated
GBP million GBP million
--------------------------------------------------------------- --------------- ---------------
Adjusted costs from continuing operations:
Property related costs included in administrative expenses 0.5 2.6
Restructuring costs included in administrative expenses 2.1 5.6
Restructuring costs included in finance costs 10.3 (6.0)
Total adjusted items before tax 12.9 2.2
---------------------------------------------------------------- --------------- ---------------
Property related costs included in administrative expenses -
GBP0.5 million (2020: GBP2.6 million)
The current year charge includes:
-- GBP0.3 million in relation to the Group's warehouse facility,
which became vacant as a result of the cessation of the UK
operations, which comprises GBP0.2 million of dilapidations cost
and GBP0.1 million of loss on disposal, as the warehouse was
assigned to a new tenant in March 2021 and the IFRS 16 asset and
liability were disposed of.
-- GBP0.2 million in relation to settlement of a lease which
reverted to Mothercare when the tenant went into
administration.
The prior year charge included GBP1.3 million, which constituted
impairment to the IFRS 16 asset, reflecting management's best
estimate of the period the warehouse facility, which became vacant
as a result of the cessation of the UK operations, was expected to
continue to be vacant, as well as the accelerated dilapidations
provision due to said warehouse becoming vacant. Additionally,
there are GBP1.3 million of costs pertaining to the prior year
lease guarantee adjustment as detailed in note 12; these related to
a UK store which was traded from by Mothercare UK Limited, however
as this had been guaranteed by Mothercare PLC, the cost of rent,
service charge and insurance are owed by the Group (despite the
administration of Mothercare UK Limited) .
Restructuring costs included in administrative expenses - GBP2.1
million (2020: GBP5.6 million)
The current year charge includes:
-- GBP1.3 million of legal and professional costs for the Group
and also the pension funds in relation to the refinancing which
took place during the year and resulted in the raise of a loan for
GBP19.5 million and the settlement of the revolving capital
facility previously held by the Group.
-- GBP1.3 million of restructuring costs, comprising of legal
and professional fees incurred in the transition of the Group from
the FTSE to AIM stock exchange, and severance pay for roles no
longer required as a result of the reduction in size of the
Group.
-- GBP(1.4) million of credits arising in relation to the profit
on disposal of Mothercare UK Limited business, which went into
administration in the previous year. Of this, GBP(0.8) million
relates to the true-up of the financial asset arising on the
revolving capital facility, which was valued at the previous year
end based on the information available at the time, whilst assuming
the worst-case outcome; and the remaining GBP(0.6) million are
amounts arising on tax adjustments.
-- GBP0.7 million of costs incurred on the relocation of the
Group's head office.
-- GBP0.2 million of costs incurred to date on the
implementation of a new ERP system for the Group; these are the
amounts which were determined not to meet the conditions for
capitalisation as they were part of the research stage of the
project.
Prior year costs of GBP5.6 million reflect the legal and
professional fees incurred for the cessation of the UK business,
corresponding continuation of the global franchise operations, and
the exploration of financing options for the continuing element of
the business.
Restructuring costs/(income) included in finance costs - GBP10.3
million expense (2020: GBP(6.0) million gain)
In May 2018 the Group entered a refinancing and funding review,
resulting in an equity raise, four Shareholder loans, two CVAs
(Mothercare and ELC) , and the amendment to the Group's banking
facilities. In November 2019 following the cessation of the UK
operating segment, there was a further equity raise and the
agreement for four additional Shareholder loans to raise finance
for the continuing operations of the business. The terms of the
Shareholder loans allow for these loans to be converted into new
ordinary shares of the Company at specific dates. The lenders'
option to convert represents an embedded derivative that is fair
valued using a Black Scholes model at each balance sheet date.
The increase in the embedded derivatives of GBP9.1 million
(2020: reduction of GBP6.0 million) is recognised as a finance cost
(2020: finance income) . This GBP9.1 million was driven by the high
level of uncertainty in the UK market, which caused the fair value
of these instruments to plummet in March 2020; during 2021 the
value returned to pre-March 2020 levels. The shareholder loans
converted in March 2021 and were fair valued immediately prior to
their transfer to share capital and share premium.
The GBP6.0 million reduction in the comparative year consisted
of: a reduction in liabilities of GBP4.6 million in relation to the
shareholder loans issued in May 2018; and GBP1.4 million from the
inception valuation in November 2019 to the reporting date of 27
March 2021 for the newly issued loans in the current period. The
reduction in the value of these embedded derivatives has been
driven by the share price movement; and the share price at the
reporting date was impacted by uncertainties in the UK stock market
due to COVID-19.
There were also 15.0 million 12 pence warrants issued during the
year. These have been treated as a liability and fair valued both
at inception and at the balance sheet date of 27 March 2021. The
cost in the income statement in relation to these is GBP1.2
million.
5. Net finance costs
52 weeks ended 53 weeks ended
28 March 2020 30 March 2019
Restated
GBP million GBP million
----------------------------------------------------------------- --------------- ---------------
Interest and bank fees on bank loans and overdrafts 1.8 1.2
Other interest payable 6.2 2.6
Net interest expense on liabilities/return on assets on pension - 0.6
Interest on lease liabilities 0.9 0.8
Fair value movement on embedded derivatives 9.1 -
Fair value movement on warrants 1.2 -
----------------------------------------------------------------- --------------- ---------------
Interest payable 19.2 5.2
Fair value movement on embedded derivatives - (6.0)
Net interest income on liabilities/return on assets on pension (0.2) -
Interest received on bank deposits - (0.3)
----------------------------------------------------------------- --------------- ---------------
Net finance (income)/costs 19.0 (1.1)
----------------------------------------------------------------- --------------- ---------------
6. Taxation
The charge for taxation on loss from continuing operations for
the period comprises:
52 weeks ended 52 weeks ended
27 March 2021 28 March 2020
Restated*
GBP million GBP million
-------------------------------------------------------- --------------- ---------------
Current tax - overseas tax and UK corporation tax 0.3 0.8
Deferred tax - UK tax charge for temporary differences (0.2) -
Charge/(credit) for taxation on loss for the period 0.1 0.8
-------------------------------------------------------- --------------- ---------------
UK corporation tax is calculated at 19% (2020: 19%) of the
estimated assessable profit for the period. Legislation has been
substantively enacted after the current financial year balance
sheet date to increase the rate of corporation tax to 25% in 2023,
which is a non-adjusting post balance sheet event. At the
comparative period end, there was legislation in force -The Finance
Act 2016 - to reduce the main rate of UK corporation tax from 19%
to 17% from 1 April 2020. These rate reductions were substantively
enacted by the comparative balance sheet date and therefore
included in these financial statements, and in the prior year,
temporary differences were measured using this enacted tax rates.
Legislation was substantively enacted during the current year, but
after the prior financial year balance sheet date, to repeal the
reduction of the main corporation tax rate thereby maintaining the
current rate of corporation tax at 19%.
Taxation for other jurisdictions is calculated at the rates
prevailing in the respective jurisdictions.
The charge for the period can be reconciled to the loss for the
period before taxation per the consolidated income statement as
follows:
52 weeks ended 53 weeks ended
27 March 2021 28 March 2020
Restated
GBP million GBP million
------------------------------------------------------------------------------------ --------------- ---------------
Loss for the period from continuing operations (21.4) (6.4)
Loss for the period before taxation multiplied by the standard rate of corporation
tax in
the UK of 19% (2019: 19%) (4.1) (1.2)
Effects of:
Expenses not deductible for tax purposes 0.1 -
Profits/losses surrendered to discontinued operations - -
Impact of difference in current and deferred tax rates - (0.1)
Impact of overseas tax rates 0.9 0.3
Impact of overseas taxes expensed (0.7) (0.1)
Adjustments in respect of prior periods - current tax (0.6) 0.1
Adjustments in respect of prior periods - deferred tax (0.2) -
Deferred tax not recognised 4.7 1.7
Relief for losses brought forward - 0.1
Charge for taxation on loss for the period 0.1 0.8
------------------------------------------------------------------------------------ --------------- ---------------
In addition to the amount charged to the income statement,
deferred tax relating to retirement benefit obligations and cash
flow hedges amounting to GBP10.2 million has been credited directly
to other comprehensive income (2020: GBP10.4 million charge) .
7. Discontinued operations
On 5 November 2019, the Board's application to place MUK and MBS
into administration was accepted. The UK operating segment,
comprising the UK online and retail store estate, and directly
related income and expenses, has therefore been treated as a
discontinued operations. The prior year comparatives have been
restated accordingly.
The results of the discontinued operations, which have been
included in the consolidated income statement were as follows:
52 weeks ended 27 March 2021 52 weeks ended 28 March 2020
Before Adjusted Total Before Adjusted Total
adjusted items adjusted items
items* items*
GBP million GBP million GBP million GBP million GBP million GBP million
------------------------------- ------------- ------------- ------------- ------------ ------------ ------------
Revenue: - - - 149.5 - 149.5
Expenses - - - (137.1) - (137.1)
------------------------------- ------------- ------------- ------------- ------------ ------------ ------------
Gross profit - - - 12.4 - 12.4
------------------------------- ------------- ------------- ------------- ------------ ------------ ------------
Administrative expenses - - - (15.7) 30.0 14.3
------------------------------- ------------- ------------- ------------- ------------ ------------ ------------
(Loss)/profit from operations - - - (3.3) 30.0 26.7
Net finance costs - - - (5.2) - (5.2)
------------------------------- ------------- ------------- ------------- ------------ ------------ ------------
(Loss)/profit before taxation - - - (8.5) 30.0 21.5
Taxation - - - 0.1 - 0.1
------------------------------- ------------- ------------- ------------- ------------ ------------ ------------
Net (loss)/profit attributable
to discontinued operations - - - (8.4) 30.0 21.6
------------------------------- ------------- ------------- ------------- ------------ ------------ ------------
* Adjusted loss after tax on discontinued operations of GBPnil
(2020: GBP(8.4) million) includes only those costs that are clearly
identifiable as costs of the component that is being disposed of
and that will not be recognised on an ongoing basis.
The assets acquired by MGB were limited to certain items of
property, plant and equipment, and trade debtors. All inventories
held at the reporting date, as well as all UK store leases, were
not included in the transfer to Mothercare Global Brand Limited,
with control of these assets being lost through the
administration.
8. Dividends
There was no final dividend for the period (2020: GBPnil) and no
interim dividend was paid during the period (2020: GBPnil) .
9. Earnings per share
52 weeks ended 52 weeks ended
28 March 2021 28 March 2020
Restated
Million Million
------------------------------------------------------------------------------------ --------------- ---------------
Weighted average number of shares in issue for the purposes of basic earnings per
share 379.0 352.5
Dilution - option schemes (restated) - -
------------------------------------------------------------------------------------ --------------- ---------------
Weighted average number of shares in issue for the purpose of diluted earnings per
share
(restated) 379.0 352.5
------------------------------------------------------------------------------------ --------------- ---------------
Number of shares at period end 563.8 374.2
------------------------------------------------------------------------------------ --------------- ---------------
GBP million GBP million
------------------------------------------------------------------------------------ --------------- ---------------
Loss for basic and diluted earnings per share (restated) (21.5) 13.1
Adjusted items (restated) 12.9 (27.8)
Tax effect of above items - (0.1)
Adjusted loss for continuing and discontinued operations (8.6) (14.8)
------------------------------------------------------------------------------------ --------------- ---------------
From continuing and discontinued operations pence Pence
--------------------------------------------- ------ ------
Basic losses per share (restated) (5.7) 3.7
Basic adjusted losses per share (2.3) (4.2)
Diluted losses per share (restated) (5.7) 3.7
Diluted adjusted losses per share (2.3) (4.2)
--------------------------------------------- ------ ------
GBP million GBP million
---------------------------------------------------------- -------------- --------------
Loss for basic and diluted earnings per share (restated) (21.5) (8.5)
Adjusted items (restated) (Note 4) 12.9 2.2
Tax effect of above items - (0.1)
Adjusted loss for continuing operations (8.6) (6.4)
---------------------------------------------------------- -------------- --------------
From continuing operations Pence pence
------------------------------------- ------ ------
Basic losses per share (restated) (5.7) (2.4)
Basic adjusted losses per share (2.3) (1.8)
Diluted losses per share (restated) (5.7) (2.4)
Diluted adjusted losses per share (2.3) (1.8)
------------------------------------- ------ ------
Where there is a loss per share, the calculation has been based
on the weighted average number of shares in issue, as the loss
renders all potentially dilutive shares anti-dilutive.
Diluted EPS has therefore been calculated using the weighted
average number of shares in issue of 379.0 million (2020: 352.5
million) , which is the same denominator as used to calculate basic
EPS.
During the current year, the FRC conducted a review of the
Group's 2020 Annual Report. This note has therefore been restated
to correct an error that was identified during their review. The
shareholder loan options to convert and the issued share options
were previously disclosed as dilutive, and then used in the
calculation of diluted EPS. The table showing the calculation of
the denominator has been amended to exclude these, as they are
antidilutive. Following on from this, the diluted EPS from
continuing operations and the diluted EPS from total operations
have both been restated such that they use the same denominator as
the basic profit per share i.e. the diluted and basic loss per
share disclosed are the same. Previously, diluted EPS from
continuing operations was disclosed as (2.0) p, it is now disclosed
as (2.4) p. Previously, diluted EPS from total operations was
disclosed as 3.0p, it is now disclosed as 3.7p. There was no impact
on adjusted losses per share.
The number of shareholder loan options to convert as at the
comparative year end has also been restated to 168.2 million due to
a computational error in the prior period.
In addition to the above, the profit number in the comparative
period has been amended by GBP1.3 million, and basic EPS from total
operations has been restated from 4.1p to 3.7p, as a result of the
prior year adjustment - see note 12 for further information.
10. Share Capital and Share Premium
On 12 March 2021, the Group's shares were transferred from the
London Stock Exchange's Main Market to instead be listed on AIM.
Following this, on 17 March 2021, the shareholder loans -
previously held within borrowings with the option to convert
classified as a financial liability - converted to equity. The
agreements entitled the shareholders to 189,644,132 ordinary 1
pence shares, giving rise to GBP1.9 million of share capital,
GBP17.1 million of share premium and GBP9.5 million of
distributable profits.
On 7 November 2019, the Company issued 32,359,450 ordinary
shares at 10 pence. This raised equity of GBP3.1 million, an
increase in share capital of GBP0.3 million, and GBP2.8 million in
share premium (after expenses of GBP0.1 million) .
Also in the comparative period, there were options issues under
the Save as You Earn schemes for 89,274 as follows: 54,576 on 10
July 2019; 3,076 on 31 July 2019; 6,153 on 14 Aug 2019; and 25,469
on 11 Sept 2019.
11. Notes to the cash flow statement
52 weeks ended 53 weeks ended
27 March 2021 28 March 2020
Restated
GBP million GBP million
Loss from operations (2.4) (8.8)
Adjustments for:
Depreciation of property, plant and equipment 0.3 3.1
Amortisation of right-of-use assets 1.5 0.5
Amortisation of intangible assets 0.2 3.2
Impairment of right-of-use assets - 0.5
Profit on sale of property, plant and equipment (0.1) -
(Gain)/loss on non-cash foreign currency adjustments 0.1 (1.3)
Share-based payments 0.5 0.9
Movement in provisions 0.4 1.5
Net gain on financial derivative instruments (0.8) -
Payments to retirement benefit schemes (4.5) (11.6)
Charge in respect of retirement benefit schemes 3.4 2.9
Operating cash flow before movement in working capital (1.4) (9.1)
Decrease in inventories 3.8 61.7
Decrease in receivables 0.9 30.9
Decrease in payables (5.1) (86.3)
Net cash flow from operating activities (1.8) (2.8)
Income taxes paid (0.8) (0.1)
-------------------------------------------------------- --------------- ---------------
Cash flow from operations - continuing operations (2.6) (2.9)
Cash flow from operations - discontinuing operations - 3.4
-------------------------------------------------------- --------------- ---------------
Analysis of net debt
28 March Non - cash 27 March
2020 Cash movements(1) 2021
flow Offset
GBP million GBP million GBP million GBP million GBP million
------------------------------------- ------------ ------------ ------------ --------------- ------------
Cash and cash equivalents/bank
overdrafts 6.1 0.8 - - 6.9
Borrowings: revolving credit
facility - secured (7.0) - 11.7 (4.7) -
Borrowings: term loan - secured - (7.3) (11.7) - (19.0)
Borrowings - shareholder
loans (12.8) - - 12.8 -
IFRS 16 lease liabilities (8.4) 2.1 - 4.9 (1.4)
Net debt (22.1) (4.4) - 13.0 (13.5)
------------------------------------- ------------ ------------ ------------ --------------- ------------
1. Non-cash movements comprise:
-- Shareholder loans: interest of GBP6.2 million accrued in the
period before the loans were converted to equity (in their
entirety) in March 2021.
-- Revolving credit facility: the GBP4.7 million reflects the
movement in the cash proceeds from the wind-up of the UK operations
expected to be used by the administrators, to part-repay this loan
and the fact that the financial asset is no longer linked to the
debt, hence whilst the starting position of GBP(7.0) million was
the debt facility net of the asset, the closing position of GBPnil
reflects the fact the facility has been fully settled.
-- The offset of GBP11.7 million reflects the fact that when the
term loan was drawn down, GBP11.7 million was immediately used to
settle the Revolving capital facility; this money never passed
through the Group and the loan was received net of this.
-- Non-cash movements on IFRS 16 lease liabilities comprise
GBP1.5 million of additions in the year - being the Group's new
head office; GBP7.3 million of disposals in the year - being the
assignment of the lease on the UK warehouse facility which the
Group was no longer using; and GBP0.9 million of interest accrued
on lease liabilities.
The Group had outstanding borrowings at 27 March 2021 of GBP19.0
million (2020: GBP40.8 million) .
In November 2020, the Group drew down on a four-year term loan
of GBP19.5 million (GBP19.0 million net of prepaid facility fees)
with Gordon Brothers. The loan is secured on the assets and shares
of specific Group subsidiaries. Interest amounts payable on this
facility are not materially sensitive to changes in LIBOR; the
interest rate payable is 12% plus LIBOR.
The Group previously held a revolving credit facility; this was
fully settled at the time the term loan with Gordon Brothers was
withdrawn. At the comparative period end, there was GBP28.0 million
outstanding under this facility, which was secured on the shares of
specified obligor subsidiaries and the assets of the group not
already pledged. This loan was in breach of the covenant
requirements and therefore repayable on demand. Interest amounts
payable on this facility are not materially sensitive to changes in
LIBOR.
The Group also holds a financial asset of GBP2.6 million (2020:
GBP21.0 million) reflecting the expected proceeds from the
wind-down of the UK operations by the administrators of Mothercare
UK Limited. The total expected repayment due is GBP2.6 million
(2020: GBP7.0 million) . In the comparative period, these proceeds
were used to repay the secured revolving capital facility. As this
facility was settled on the agreement of the new term loan, this
asset is no longer linked to the Group's debt.
The Group held shareholder loans which converted to equity in
March 2021, and therefore there are no outstanding amounts at the
current financial period end. GBP5.5 million of capital was raised
in 2020 and GBP8.0 million in 2019. These attracted a monthly
compound interest rate of 0.83%, and had a termination date of June
2021. These are accounted for at an amortised cost of GBPnil (2020:
GBP12.8 million) , with the option to convert fair valued and
treated as an embedded derivative liability of GBPnil (2020: GBP0.3
million) . The conversion option formed a liability rather than
equity due to the terms of the lending agreements through which the
conversion price could be reduced should the Group issue
shares.
12. Restatements for the 52 weeks ended 28 March 2020
After the Annual Report for the year ended 28 March 2020 was
approved, the Group was approached by a third party about a lease
liability relating to Mothercare UK Limited. Despite Mothercare UK
Limited being in administration, this was an amount that the Group
were liable for due to a cross-guarantee with Mothercare PLC. Had
management been aware of this liability before the 2020 Annual
Report was approved, a provision would have been included as at 5
November 2019 i.e. the date Mothercare UK Limited went into
administration, and would still have been on the balance sheet at
28 March 2020 and 27 March 2021. As a result of this, it has been
considered appropriate to include a prior year adjustment for the
amount the provision would have been.
The impact of this prior year adjustment on the balance sheet
has been to increase provisions as at 27 March 2021 by GBP1.2
million, increase derivative financial instruments by GBP0.1
million, and reduce retained earnings by GBP1.3 million. Under the
Group's accounting policy, amounts which have fallen due are
treated as financial guarantee contracts under IFRS 9: Financial
instruments. Amounts which are a potential future liability are
accounted for under IAS 37: Provisions.
The impact of this prior year adjustment on the income statement
for the comparative year has been to increase the adjusted items
expense by GBP1.3 million and reduce the profit GBP1.3 million.
There is no impact on the brought forward reserves for the
comparative financial year.
Additionally, the Group had previously disclosed the deferred
tax liability on the defined benefit pension scheme at the
underlying corporation tax rate - this was on the basis that the
scheme is currently in a funding deficit, and further, there was no
expectation a surplus payment would ever be received. However, the
deferred tax liability in the comparative period has been increased
to reflect the 35% withholding tax which would be paid in the
highly unlikely event the scheme were to return to a surplus
position in future years.
The impact of this prior year adjustment on the balance sheet
has been to increase the deferred tax liability and reduce retained
earnings by GBP5.0 million as at 28 March 2020 by GBP5.0 million.
This adjustment has reversed in the year to 27 March 2021 and has
nil impact on the balance sheet as at 27 March 2021..
The impact of this prior year adjustment on the income statement
for the comparative year has been GBPnil. The impact of this prior
year adjustment on other comprehensive income for the prior period
has been to reduce earnings from other comprehensive income by
GBP5.0 million.
There is no impact on the brought forward reserves for the
comparative financial year.
13. Events after the balance sheet date
Shutdowns due to COVID-19 are ongoing, and the uncertainties in
relation to this have continued after the year end. Whilst the
future impact remains unknown, to date there has been a broad
impact across both the supply chain and the franchise partner
network, with factories and stores closing in multiple
territories.
On 4 March 2021 the UK Government announced an intention to
increase the rate of corporation tax to 25% with effect from 1
April 2023. The 2021 Finance Bill received Royal Assent on 10 June
2021. As no deferred tax asset balances have been recognised at 27
March 2021, the impact of this rate change would be nil if the tax
increase had been substantively enacted by that date. The actual
impact would be dependent on a number of factors including
actuarial movements in the Group's pension schemes.
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END
FR FZGZNGLRGMZG
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