TIDMMTC
RNS Number : 3198Z
Mothercare PLC
13 September 2022
Mothercare plc
Full Year Results 2022
Significant improvement in profitability reflects ongoing
strategic transformation into an asset-light, global franchising
business
Mothercare plc ("Mothercare", "the Company" or "the Group"), the
leading specialist global brand for parents and young children,
today announces full year results for the 52 week period to 26
March 2022. Comparatives are based on the 52 week period to 27
March 2021.
Key Highlights
-- International retail sales by franchise partners of GBP385.3
million (2021: GBP358.6 million).
-- Adjusted EBITDA of GBP12.0 million (2021: GBP2.2 million),
ahead of market expectations, reflecting the Group's focus on core
international franchise and brand management competencies, as an
asset light global franchising business.
-- Net borrowings of GBP9.9 million (2021: GBP12.1 million) at the year end.
-- Pension scheme deficit materially reduced to GBP60 million as
at 30 June 2022 (March 2020: GBP124.6 million) and agreed reduction
in payments with Trustees to significantly reduce annual cash cost
going forward.
-- Post period end refinancing of the business, improving our
financial flexibility notwithstanding the loss of revenue from
Russia.
-- The significant improvement in profitability evidences the
full year impact of the establishment of a cost base that is
appropriate for our business but still has the necessary skills and
experience to deliver further growth, as the impact of Covid-19
diminishes.
Current Trading & Outlook
-- In the first twenty one weeks of FY23, the Group's Franchise
Partners recorded total retail sales of GBP135 million (FY22:
GBP117 million, excluding Russia; GBP150 million, including Russia)
impacted by the permanent closure of the Russian retail
business.
-- Our medium-term guidance for the steady state operation, in
more normal circumstances, of our continuing franchise operations
remains that they are capable of exceeding GBP10 million operating
profit.
-- Whilst mindful of the inflationary global economic
environment, we are now focused upon driving towards restoring
critical mass and optimising the Mothercare brand globally over the
next five years.
Financial Highlights
-- Profit for the 52 weeks to 26 March 2022 of GBP12.1 million (2021: GBP21.5 million loss).
-- Net debt(3) at GBP11.0 million (2021: GBP13.5 million).
Our Group
2022 2021
52 weeks to 52 weeks to % change
26 Mar 2022 27 Mar 2021 vs.
GBPmillion GBPmillion last year
-------------------------------------------------- ------------ ------------ ----------
Turnover 82.5 85.8 (3.8)%
Adjusted EBITDA 12.0 2.2 -
Adjusted operating profit 11.1 0.2 -
Group adjusted profit / (loss) after taxation(2) 9.0 (8.6) -
Statutory profit / (loss) 12.1 (21.5) -
Our Franchise partners
2022 2021
52 weeks to 52 weeks to % change
26 Mar 2022 27 Mar 2021 vs.
GBPmillion GBPmillion last year
-------------------------------- ------------ ------------ ----------
Worldwide retail sales(1) GBPm 385.3 358.6 7.5%
Online retail sales GBPm 40.9 44.4 (7.9)%
Total number of stores 680 734 (7.4)%
Space (k) sq. ft. 1,828 1,970 (7.2)%
-------------------------------- ------------ ------------ ----------
Clive Whiley, Chairman of Mothercare, commented:
"The year under review was bookended by the Covid-19 pandemic
and the Ukraine conflict, however, despite the persistence of these
difficult global challenges, we have begun to demonstrate the
potential of Mothercare as an asset light global franchising
business.
This represents an inflection point for the business, with the
combined benefits of more normalised circumstances and the updated
financing arrangements greatly enhancing our financial
flexibility.
Accordingly, whilst mindful of the global inflationary
environment and its impact on both consumers and the business we
remain positive on the long-term prospects for the Mothercare
brand."
Investor and analyst enquiries
to:
Mothercare plc Email:
Clive Whiley, Chairman investorrelations@mothercare.com
Andrew Cook, Chief Financial
Officer
Numis Securities Limited (NOMAD Tel: 020 7260 1000
& Joint Corporate Broker)
Luke Bordewich
Henry Slater
finnCap (Joint Corporate Broker) Tel: 020 7220 0500
Christopher Raggett
Media enquiries to: Email: mothercare@mhpc.com
MHP Communications Tel: 07709 496 125
Simon Hockridge
Tim Rowntree
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 Groups 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).
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.
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, expect 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 purses 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
Chairman's Statement
The year under review was bookended by the Covid-19 pandemic and
the Ukraine conflict. Indeed, even after two years, continuing
headwinds from the former prevented 14% of our partners' global
stores trading at the year end, with some restrictions still
remaining in place today. The latter caused the complete suspension
of our franchise partners' retail business in Russia (116 stores
and online) on the 9 March 2022.
In this context I am delighted to report that the prior year
transition of the business to focus upon our core international
franchise and brand management competencies, as an asset light
global franchising business, succeeded in generating free cash flow
from operations and an adjusted EBITDA of GBP12 million for the
financial year to 26 March 2022, a result ahead of market
expectations. Furthermore, we have now completed the refinancing of
the business, which is detailed further below and in the Financial
Review, without resorting to additional financing requirements or
further equity dilution.
The Pandemic and new ways of working with our Partners
Worldwide franchisee retail sales of GBP385 million, 7% higher
than last year, remain significantly impacted by Covid-19 at around
25% down on the total retail sales for similar territories in the
year before the pandemic. Online retail sales represented 11% of
our total retail sales, slightly down on the 12% for last year,
reflecting lower levels of Covid-19 restrictions on store openings,
yet still well ahead of the levels achieved in the period prior to
the pandemic.
As detailed in the Chief Operating Officer's report, most of the
new ways of working with our manufacturing and franchise partners,
introduced since the pandemic, are now embedded in the business.
However, we are mindful that the pandemic has also had a
significant impact on our franchise partners' profitability,
inevitably resulting in a need for them to reduce costs and the
levels of investment they have been able to make in their
businesses. This is likely to mean that the return to pre pandemic
levels of trading will take longer and we are working with our
partners to assist that recovery, ultimately benefitting both our
own business and our franchise partners in the longer term.
Update on Russian business
Given the numerous economic, logistical, reputational and
business disruptions experienced since the suspension of the
Russian retail business, we withdrew the right to operate
Mothercare branded stores in Russia on 27 June 2022. This followed
the pausing of operations we announced on 9 March 22.
In the period under review GBP88 million of our franchisee
retail sales came from Russia and the territory directly
contributed some GBP5.5 million to adjusted EBITDA for the year.
This represents the single biggest impact on the business for the
new financial year and will potentially lead to timing differences
as we adjust our cost base. We have already substantially
implemented the necessary adjustments to our supply chain,
operations and administrative costs to address the consequent
diseconomies of scale and maintain our service to our franchise
partners.
New Financing Arrangements
At the year-end the Group had net borrowings of GBP9.9 million
(March 2021 GBP12.1 million). This comprised total cash of GBP9.2
million (March 2021: GBP6.9 million), reflecting ongoing tight
control of cash, against the GBP19.5 million (GBP19.1 million net
of the unamortised facility fee) of the Group's loan facility with
GB Europe Management Services Limited ("GBB") which remained fully
drawn across the year. This modest reduction in net debt, set
against the challenging backdrop of the pandemic, demonstrates our
progress as a focused, asset light, global franchising business
with no directly operated stores and greatly reduced direct
costs.
In addition, the warrants issued to certain of the Group's
shareholders in relation to the 2021 amendments to the CULS
arrangements, expired unexercised on 17 March 2022, reducing
potential equity holders' dilution and anticipated cash receipts by
GBP1.8 million.
When we completed the GBP19.5 million secured four-year loan
facility with GBB, in November 2020, the Group contained the Russia
retail business and the covenants were therefore set against the
then business plan and Group structure. As a result of the
termination of our Russian operation, following the commencement of
the Ukraine conflict, these covenants were no longer appropriate
and we therefore commenced refinancing discussions with GBB to
amend the terms to reflect the change.
I am therefore pleased to report that on 13 September we agreed
revised terms for our debt financing arrangements with GBB,
alongside agreeing reduced Deficit Reduction Contributions
("DRC's") with the Mothercare Pension Scheme Trustees of our
defined benefit schemes ("Trustees"). This greatly reduces the
annual cash cost to the Company and together these arrangements
significantly improve our financial flexibility, notwithstanding
the loss of revenue from Russia. We explored other potential debt
providers as part of the refinancing process.
Revised GBP19.5m GBB term facility
Mothercare has agreed revised terms to extend the GBP19.5
million GBB term loan facility by one year to November 2025. The
term loan bears an interest rate of 1300 basis points ("bps") over
SONIA plus 100bps PIK accrued monthly that rolls up into the
principal. The facility is secured on the assets of the Company and
contains covenants usual for facilities of this type (see the
Financial Review). In addition, the Pension Trustee second ranking
secured charge has been increased from GBP15 million to GBP25
million.
I would like to thank GBB, on behalf of all stakeholders, for
their support over the last three years as the Group's sole
lender.
Revised pension contribution plans
Since my appointment in 2018 we have fostered an excellent,
mutually beneficial working relationship with the Trustees without
whose support all stakeholders could have been materially
disadvantaged.
In order to support the new debt financing arrangements, we have
reached formal agreement with the Trustees for a further reduction
in DRCs. The revised recovery plan now sets out aggregate
contributions of GBP29 million in the financial years March 2023 to
March 2027. This represents a GBP30 million reduction in the
aggregate cash payments that were to have been made to the pension
schemes in that period under the previous arrangement.
The revised recovery plan agreed with the Trustees includes
total contributions (DRCs plus costs) in the financial years to
March 2023 GBP1 million; March 2024 GBP4 million; March 2025 GBP7
million; March 2026 GBP8 million; March 2027 & beyond GBP9
million aggregating to fully fund a GBP78 million deficit by March
2033. We are also well advanced in exploring the possibility of
further reducing the quantum or uncertainty of subsequent recovery
plan contributions through alternative means.
Pension Schemes
The last full actuarial valuation of the schemes was at 31 March
2020 and showed a deficit of GBP124.6 million, resulting from total
assets of GBP383.7 million and total liabilities of GBP508.3
million. Based on desktop projections of this valuation provided to
the Trustees, as at 30 June 2022 the deficit had reduced to GBP60
million with total assets at GBP330 million and total liabilities
of GBP390 million.
Opportunities for growth
As we strive to be the leading global brand for parents and
young children Mothercare is in an almost unparalleled position in
being a highly trusted British heritage brand, that connects with
newborn babies and children across multiple product categories, at
the beginning of their life as consumers. Furthermore, at present
the Brand's singular route to market is via franchisees.
Yet Mothercare is still not represented in eight of the top ten
markets in the world, when ranked by wealth and birth rate, and we
have barely scratched the surface in exploring the multiple
opportunities available to us in wholesale, licensing or online
marketplaces to grow the global presence of the brand.
This year we intend to leverage the full bandwidth of this
intrinsic value through connections with other businesses and the
development of the product range and licensing beyond our historic
limits.
Cost Reduction Programme
The results show a further net reduction in administrative
expenses of 25% compared to last year demonstrating our continual
review and challenge to costs, whilst still ensuring we operate to
the standards of a world class business.
Supply chain model
We continue to evolve our supply chain to reduce cost,
complexity and deliver goods to our franchise partners in the
quickest way possible. For Autumn/Winter 2022 we expect to deliver
80% of our total shipments direct from the country of manufacturing
to our retail partners' markets. Furthermore we closed our
remaining UK distribution centre in April 2022 and are also
developing a new product option framework as we seek to curtail the
impact of input cost inflation on each of our product
categories.
Enterprise Resource Planning ("ERP") system
Although our new ERP system is progressing, with the product
lifecycle management system going live in the first quarter of the
current financial year, the remainder of the system has faced the
almost inevitable delays associated with a project of this size and
complexity. Hence, as this is currently due to go live around the
end of this financial year, we will not reap the full cost savings
until the financial year ending March 2024 although the contract
for the creation of the ERP is on a fixed basis so costs will not
increase commensurate with the delay.
Management & Board changes
We have a PLC Board that we believe is appropriate for a company
of our size, nature and circumstances. Our Non-Executive Directors
have deeply embedded and relevant skills, continue to directly
contribute to the ongoing change process, are regularly appraised
and are encouraged to interface with the Operating Board.
During the year we also supplemented the Operating Board via the
appointment of a Director of Merchandising and, following our
successful transition to becoming an international brand owner and
operator, are reinforcing the brand and E-commerce skills within
the executive team. This will also facilitate an increasing focus
upon step-change growth.
Finally, having satisfactorily dealt with the additional
challenges created by the Ukraine conflict, we expect to appoint a
new Chief Executive Officer during the current year. 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 Chairman and my fellow Non-Executive Directors.
Dividend Policy
The Company has not paid a dividend since 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, noting the restriction
within the Company's agreements with its lenders and the Pension
Trustees and once the Directors believe it is financially prudent
for the Group to do so.
Summary and Outlook
First and foremost, on behalf of the Board I would like to thank
our colleagues across the business, alongside our manufacturing,
franchise and financing partners and shareholders for their
unwavering support throughout the last four years. Without this
support Mothercare would not have been able to surmount the
considerable challenges we have overcome together and be in the
position we are today.
This represents an inflection point for Mothercare, with the
combined benefits of more normalised circumstances and the updated
financing arrangements greatly enhancing our financial
flexibility.
The permanent closure of the Russian business is fully reflected
in our forecasts, which will reduce our new financial year results
by GBP6 million as previously guided, and we have substantially
completed the necessary adjustments to our cost base given the
coterminous diseconomies of scale. Our medium-term guidance for the
steady state operation, in more normal circumstances, of our
continuing franchise operations remains that they are capable of
exceeding GBP10 million operating profit.
As demonstrated at a number of points over the last four years,
we have the resilience to deal with major challenges
satisfactorily. Whilst mindful of the inflationary global economic
environment, we are now focused on restoring critical mass and
optimising the Mothercare brand globally over the next five years.
This is an exciting prospect for our partners, our colleagues and
all our stakeholders alike as we leave behind the turmoil of recent
years.
Mothercare plc
Preliminary Results
FINANCIAL AND OPERATIONAL REVIEW
The significant improvement in profitability evidences the full
year impact of the establishment of a cost base that is appropriate
for our business but still has the necessary skills and experience
to deliver further growth, as the impact of Covid-19 diminishes.
Coupled with the refinement and improvement of our operating model,
we continue to demonstrate we are a profitable and cash generative
international business, with reduced risk, lower overheads and an
asset-light model.
We have previously highlighted the changes and restructuring
that took place across the Group in recent years and the results of
these activities are now becoming evident in our improved financial
performance. These results are still heavily impacted by COVID-19
and going forwards we expect the growth from sales returning to
pre-pandemic levels to significantly mitigate the loss of
contribution from our Russia operations.
International retail sales by our franchise partners of GBP385.3
million (2021: GBP358.6 million) showed a 7% increase year on year.
Whilst the retail sales have increased year on year, they are still
significantly impacted by COVID-19 and remain below the levels we
would otherwise expect. Retail sales are around 25% down on the
total retail sales for similar territories in the period before the
pandemic.
The profit from operations in the year was GBP13.0 million
(2021: loss of GBP2.4 million) reflecting a number of significant
changes. To better understand the underlying results, the Group
uses a non-statutory reporting measure of adjusted profit, to show
results before any one-off significant non-trading items. This
involves removing the adjusted items which relate to restructuring
and reorganisation costs and are non-recurring (GBP1.9 million
subtracted in year ended 2022 and GBP2.6 million added back in
2021), together with depreciation and amortisation of GBP0.9
million (2021: GBP2.0 million), resulting in an adjusted EBITDA
profit for the year of GBP12.0 million (2021: GBP2.2 million).
The improvement in adjusted EBITDA of GBP9.8 million is made up
of an increase of GBP5.1 million of gross profit and a reduction of
GBP4.7 million of net costs. Gross profit increased over the
previous financial year by GBP5.1 million, approximately GBP3.0
million as a result of the previously highlighted delays in
shipping at the end of our financial year FY21. This moved margin
of around GBP1.5 million into this financial year FY22, with the
remainder largely being an increase in royalties from the higher
level of retail sales. The net year on year cost reductions of
GBP4.7 million, were made up of: GBP2.5 million of lower staff
costs as we progress to a team that has the appropriate skills and
experience for the current business; pension scheme running costs
reduced by GBP1.7 million to GBP1.7 million; IT costs reduced by
GBP0.6 million; impairment of receivables lower by GBP0.5 million;
other net cost savings of GBP0.4 million, partially offset by the
absence of around GBP1.0 million of the GBP2.0 million other
income, from the warehouse that was rented last year before
assignment, which related to costs included within
depreciation.
The Group recorded a profit for the 52 weeks to 26 March 2022 of
GBP12.1 million (2021: loss of GBP21.5 million). The adjusted
profit for the year was GBP9.0 million (2021: loss of GBP8.6
million). The adjusted items are detailed in note 6.
Our Russian territory, which ceased contributing to the Group's
retail sales and revenue on the 9 March 2022, generated GBP88.2
million (23%) of total retail sales for the financial year to March
2022 and GBP77.3 million (22%) of the previous year's total retail
sales. Russia contributed around GBP5.5 million (2021: GBP5.0
million) to adjusted EBITDA for the year. The Group will not be
affected by any further write offs in relation to items such as
stock or debt, as a result of the Russian termination.
Retail space at the end of the year was 1.8 million sq. ft. from
680 stores (2021: 2.0 million sq. ft. from 734 stores).
REVISION TO LOAN TERMS
As a result of the termination of our Russian operation in March
2022, the Group was unable to meet its covenant obligations under
the loan agreement with our lender Gordon Brothers for the first
quarter of the financial year to March 2023. We have therefore
agreed the following amendments to the loan:
-- Loan to remain at GBP19.5 million and not amortising.
-- Term extended from 26 November 2024 to 26 November 2025.
-- Interest rate of 13% per annum plus SONIA, with SONIA not
less than 1%, payable in cash, plus a 1% per annum payment-in-kind
coupon that accrues monthly into the principal (which becomes due
when the loan is repaid). Previously the interest rate was 12% per
annum plus SONIA with a floor of 1%.
-- Covenants revised to reflect the current results and
forecasts of the Group and previous defaults waived.
-- The facility remains secured over the assets of the Group as
a whole and early repayment charges if it is repaid prior to term
have been reset.
Whilst there is some uncertainty particularly around the time
and levels of recovery in retail sales post COVID-19, coupled with
the heightened global economic uncertainty, in the short term and
the resultant impact on the Group's profitability and cash
generation our forecasts show that we are able to comply with our
revised commitments to our lender and the pension schemes for the
foreseeable future. As at the balance sheet date the Group had net
borrowings of GBP9.9m, being cash of GBP9.2 million against the
term, loan of GBP19.1 million, which is a drawdown of GBP19.5m net
of the unamortised facility fee, reflecting the continuing tight
control of cash.
PENSION SCHEME CONTRIBUTIONS
Coupled with the revised terms for the term loan we also revised
the schedule of contributions to our pension schemes' deficits. The
value of the deficit under the full actuarial valuation at 31 March
2020 was GBP124.6 million; the Group's deficit payments were
previously calculated using this as the basis. The previously
agreed annual contributions to the pension schemes, for the years
ending in March, were as follows: 2023 - GBP9.0million; 2024 -
GBP10.5 million; 2025 - GBP12.0 million; 2026 to 2029 - GBP15
million; 2030 - GBP5.7 million.
As at 31 March 2022 the deficit had reduced to GBP78 million and
the following revised annual contributions have now been agreed
with the trustees, for the years ending in March as follows: 2023 -
GBP1 million; 2024 - GBP4 million; 2025 - GBP7 million; 2026 - GBP8
million; 2027 to 2032 - GBP9 million: 2033 - GBP0.7 million. Mainly
due to increasing interest rates the deficit had reduced still
further to GBP60m by the end of June 2022. These deficits are on an
actuarial technical provisions basis, which is used to determine
the contributions required and produces different figures from
those included in the balance sheet, which are required to be from
applying IAS 19.
OPERATING MODEL
The Group continues to work towards its goal of becoming an
asset light business. We continue to use our tripartite agreement
('TPA') process, whereby the franchise partners commit to paying
the manufacturing partners for the product when due and in return
the manufacturing partners were generally willing to re-extend
credit terms that had sometimes been lost because of the UK retail
administration. 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, are unchanged and remains with the Group.
For the spring/summer 2023 season, currently in production, we
expect some 50% of the products by value are invoiced directly to
franchise partners by our manufacturing partners. This figure now
excludes Russia that was invoiced direct. We continue to work with
our larger franchise partners to move them to this basis. For some
of the smaller franchise partners we are obtaining bank guarantees
or letters of credit to reduce our debt exposure.
We are also moving more product direct from manufacturing
partners to franchise partners. For spring/summer 2023, we expect
80%, by value, to be shipped in this way. As we now move the
majority of our products in this way, post year end, we have been
able to exit from our UK warehouse service provider and now only
have a warehouse in China for consolidation of smaller orders that
cannot be viably shipped direct.
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.
ENTERPRISE RESOURCE PLANNING ("ERP") SYSTEM
Unfortunately, as is often the case when delivering a
complicated integrated system, the ERP project has faced
significant delays, which have only come to light during the
development of the system. Despite the delay in the finance and
operations elements, the product lifecycle management ("PLM") went
live in May 2022 and is proving to be a significant improvement
over our legacy systems. When the full system is complete both
manufacturers and franchisees will be able to link to the PLM
through bespoke portals to place, manage and progress orders. The
full ERP system is currently expected to go live around the end of
this financial year and the provider is on a fixed price contract,
so this cost will not significantly increase due to the delay. We
have also managed to realise some of the IT costs savings early as
highlighted above and there are further annual IT costs savings of
approximately GBP1 million once the full ERP is live.
BALANCE SHEET
The balance sheet strengthened in the current year, closing the
year at a net asset of GBP1.5 million compared with a net liability
of GBP43.0 million for the prior year. The balance sheet benefited
from a swing in the defined benefit pension scheme to an asset
position of GBP12.4 million at year end (2021: GBP25.6 million
liability). The move in the defined benefit scheme from a liability
to an asset position was driven mainly by an increase in the
discount rate placing a lower value on the liabilities. The
increase in the discount rate reflects the increase in corporate
bond yields during the period.
Net current assets
Current assets of GBP19.6 million (2021: GBP32.8 million)
decreased by GBP13.2 million, principally due to lower inventory
and trade receivable balances which were partially offset by an
increase in cash.
Current liabilities of GBP14.1 million (2021: GBP31.2 million)
decreased by GBP17.1 million, principally as a result of decreases
in trade and other payables and provisions. In part due to those
franchise partners now being invoiced directly by manufacturing
partners we do not record the stock, payable and resultant
receivable on these transactions.
Net current assets increased to GBP5.5 million in the current
year, up from GBP1.6 million in the prior year, driven by the
improvement in operating performance year on year and lower
payables year on year.
The Group's working capital position is closely monitored and
forecasts demonstrate the Group is able to meet its debts as they
fall due.
26 March 2022 27 March
GBP million 2021
GBP million
================================================= ============= ============
Intangible fixed assets 3.6 1.1
Property, plant and equipment 1.2 1.7
Retirement benefit obligations asset/(liability) 12.4 (25.6)
Net borrowings (excluding IFRS 16
lease liabilities) (9.9) (12.1)
Derivative financial instruments 0.2 0.8
Other net liabilities (6.0) (8.9)
================================================= ============= ============
Net assets / (liabilities) 1.5 (43.0)
================================================= ============= ============
Share capital and premium 198.1 198.1
Reserves (196.6) (241.1)
================================================= ============= ============
Total equity 1.5 (43.0)
================================================= ============= ============
Pensions
The Mothercare defined benefit pension schemes were closed with
effect from 30 March 2013.
The defined benefit scheme had a temporary surplus at the end of
the year of GBP12.4 million (2021: GBP25.6 million deficit). The
swing of GBP38 million to a surplus position was mainly due to the
assumptions used to place a value on the scheme liabilities. The
liabilities are valued using a discount rate that is based on
corporate bond yields with an increase in yields placing a lower
value on the liabilities. Over the year, changes in the financial
market conditions resulted in the discount rate increasing by 85
basis points and long-term inflation expectations increasing by 35
basis points. The combination of these resulted in a reduction in
the liabilities by GBP36 million with the increase in inflation
partially offsetting the increase in the discount rate. An
allowance was also made for the potential impact of the Covid-19
pandemic on future improvements which resulted in a fall in life
expectancies, reducing liabilities by GBP6 million. The returns on
the scheme assets were however lower than expected resulting in an
asset experience loss of GBP7 million and the company contributions
over the year exceeded the income statement charge by GBP3
million.
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 GBP124.6 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:
52 weeks 52 weeks 52 weeks
GBP million ending ended ended
26 March 26 March 27 March
2023* 2022 2021
==================================== ========= ========= =========
Income statement
Running costs (1.7) (1.7) (3.4)
Net (expense) / income for interest
on liabilities / return on assets 0.4 (0.5) 0.2
==================================== ========= ========= =========
Net charge (1.3) (2.2) (3.2)
==================================== ========= ========= =========
Cash funding
Regular contributions (1.0) (1.0) (1.3)
Deficit contributions - (4.3) (3.2)
==================================== ========= ========= =========
Total cash funding (1.0) (5.3) (4.5)
==================================== ========= ========= =========
Balance sheet**
Fair value of schemes' assets n/a 395.8 403.4
Present value of defined benefit
obligations n/a (383.4) (429.0)
==================================== ========= ========= =========
Net (liability)/surplus n/a 12.4 (25.6)
==================================== ========= ========= =========
* 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 2023 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
2021 Sensitivity
2022 2021 Sensitivity GBP million
================ ====== ====== ============= ============
Discount rate 2.8% 2.0% +/- 0.1% -6.3 /+6.4
================ ====== ====== ============= ============
Inflation - RPI 3.5% 3.1% +/- 0.1% +5.1 /-5.6
================ ====== ====== ============= ============
Inflation - CPI 2.9% 2.4% +/- 0.1% +1.9 /-1.9
================ ====== ====== ============= ============
The Group has a deferred tax liability of GBP0.4 million (2021:
GBPnil). 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
The Group's borrowings (including lease liabilities) of GBP20.2
million (2021: GBP20.4) has remained fairly consistent year on
year. Net debt (Note 27) stood at GBP11.0 million at year end
(2021: 14.7 million). The decrease resulting from warrant options
of GBP1.2 million which expired during the year.
The Group regularly reviews its financing arrangements and
remains confident of its ability to access additional financing
successfully when needed. The G roup's amended and extended
committed facility will mature in 2025, this together with its cash
and cash equivalents are considered adequate to meet its projected
cash requirements.
Leases
Right-of-Use assets of GBP0.9 million (2021: GBP1.2 million) and
lease liabilities of GBP1.1 million (2020: GBP1.4 million)
represented the Group's head office leases.
Working capital
The Group only purchases stock directly needed to fulfil
franchise partner orders and is gradually moving all franchise
partners to direct shipments thereby reducing our stock holdings at
year end. Stock held in our UK distribution centres also reduced
significantly prior to the closure of the facility in early FY23.
The year end stock decreased by GBP3.8m from GBP5.9 million in 2021
to GBP2.1 million at the year end. GBP1.7 million of the decrease
relates to stock in transit with GBP2.1 million being a reduction
in the stocks held at our distribution centres.
Trade receivables fell by GBP8.2 million to GBP3.4million (2021:
GBP11.6 million) driven by strong credit control measures and the
direct invoicing referred to above. Trade creditors decreased to
GBP4.7 million (2021: GBP11.8 million) due to similar reasons.
INCOME STATEMENT
52 weeks to 52 weeks
26 March 2022 to
GBPmillion 27 March
2021
GBPmillion
============================================= ============== ===========
Revenue 82.5 85.8
Adjusted EBITDA (EBITDA before exceptionals) 12.0 2.2
Depreciation and amortisation (note
7) (0.9) (2.0)
============================================= ============== ===========
Adjusted result before interest and
taxation 11.1 0.2
Adjusted net finance costs (3.1) (8.7)
============================================= ============== ===========
Adjusted result before taxation 8.0 (8.5)
Adjusted costs 3.1 (12.9)
============================================= ============== ===========
Loss before taxation 11.1 (21.4)
Taxation 1.0 (0.1)
============================================= ============== ===========
Total profit/(loss) 12.1 (21.5)
============================================= ============== ===========
EPS - basic 1.6p (5.7)p
============================================= ============== ===========
Adjusted EPS - basic 2.1p (2.3)p
============================================= ============== ===========
Foreign exchange
The main exchange rates used to translate International retail
sales are set out below:
52 weeks ended 52 weeks
26 March 2022 ended
27 March
2021
================== ============== =========
Average:
Euro 1.2 1.1
Russian rouble 106.1 96.9
Chinese Renminbi 8.8 8.8
Kuwaiti dinar 0.4 0.4
Saudi riyal 5.1 4.9
Emirati dirham 5.0 4.8
Indonesian rupiah 19,644 18,954
Indian rupee 101.8 96.9
================== ============== =========
Closing:
Euro 1.2 1.1
Russian rouble 144.6 102.9
Chinese Renminbi 8.4 9.0
Kuwaiti dinar 0.4 0.4
Saudi riyal 4.9 5.2
Emirati dirham 4.8 5.1
Indonesian rupiah 18,924 19,965
Indian rupee 100.1 100.5
================== ============== =========
The principal currencies that impact the translation of
International sales are shown below. The net effect of currency
translation caused worldwide sales and adjusted loss to decrease by
GBP16.4 million (2021: GBP26.1 million) and GBP0.9 million (2021:
GBP1.4 million) respectively as shown below:
Adjusted
Worldwide sales Profit/(loss)
GBP million GBP million
================== ================= ==============
Euro - -
Russian rouble (4.5) (0.3)
Chinese Renminbi - -
Kuwaiti dinar (0.8) (0.1)
Saudi riyal (2.4) (0.2)
Emirati dirham (1.3) (0.1)
Indonesian rupiah (0.5) -
Indian rupee (0.5) -
Other currencies (6.4) (0.2)
================== ================= ==============
(16.4) (0.9)
================== ================= ==============
Net finance costs
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.
Finance costs decreased by GBP17.1 million year on year
explained by the conversion of shareholder loans to equity in the
prior year. Interest on borrowings was GBP2.5 million in the
current year (2021: GBP6.2 million) The prior year cost included
convertible shareholders loans which were converted into equity in
March 2021. Fair value movements on shareholder loan embedded
derivatives of GBP9.1million in prior year was nil in the current
year due to the loan being converted into equity in March 2021.
Fair value costs on warrants issued to shareholders of GBP1.2
million in prior year was a gain of GBP1.2million in the current
year as the options expired unexercised in March 2022.
The net interest income/costs on the defined benefit asset and
liability was a cost of GBP0.5 million in the current year, a swing
from the income of GBP0.2 million in 2021.
Discontinued operations
There were no discontinued operations presented for the current
financial 52 week period ended 26 March 2022.
The total statutory profit after tax for the Group is GBP12.1
million (2021: GBP21.5 million loss).
Taxation
The tax credit comprises corporation taxes incurred and a
deferred tax credit. The total tax credit from operations was
GBP1.0 million (2021: GBP0.1 million charge) - (see note 9).
Earnings per share
Basic adjusted earnings per share were 2.1 pence (2021: 2.3
pence losses). Statutory earnings per share were 1.6 pence (2021:
5.7 pence losses).
CASHFLOW
Statutory net cash flow from operating activities was an inflow
of GBP8.1 million compared with an outflow of GBP2.6 million in the
prior year; this was driven by the increase in operating profit and
prudent management of working capital. Working capital benefited
from a large decrease in receivables relative to 2021 partially
offset by the decrease in payables.
Cash outflow from investing activities of GBP2.9 million (2021:
GBP0.4 million), was mainly driven by our investment in our new
Enterprise Resource Plan system which is planned to be put into
operation in FY24.
Cash outflow from financing activities was GBP3.0 million (2021:
GBP3.8 million net inflow). The inflow in the prior year was driven
by the cash receipt of GBP7.3 million on the Group's new four-year
term loan.
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. 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:
-- A Base Case forecast, which excludes any income from Russia and
-- 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.
In making the assessment on going concern the Directors have
assumed that it is able to mitigate the material uncertainty in
relation to levels of recovery in retail sales post COVID-19
coupled with the heightened global economic uncertainty. The impact
of these issues on the future prospects of the Group is not fully
quantifiable at the reporting date, as the complexity and scale of
these issues at a global level is outside of what any business
could accurately reflect in a financial forecast. However, we have
attempted to capture the impact on both our supply chain and key
franchise partners based on what is currently known. We have
modelled a substantial reduction in global retail sales as a result
of subdued, consumer confidence or disposable income, throughout
the remainder of FY23 with recovery in FY24.
The Sensitised scenario assumes the following additional key
assumption:
-- A delayed recovery that assumes that retail sales remain
subdued throughout the majority of the forecast period as a result
of consumer confidence returning more slowly post COVID-19, coupled
with the potential impact on customers' disposable income due to
the current heightened global economic uncertainty.
The Board's confidence in the Group's Base Case forecast, which
indicates the Group will operate within the terms of its revised
borrowing facilities, which now includes more appropriate covenants
following the cessation of the Russian operation 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.
Treasury policy and financial risk management
The Board approves treasury policies, and senior management
directly control 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
were at a fixed rate of 12% plus SONIA in the current year, from
FY23 to FY25 interest would be charged at 13% per annum plus SONIA,
with SONIA not less than 1%, plus a 1% per annum compounded payment
to be made when the loan is repaid, these expose the Group to
future cash flow 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.
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
as detailed in note 3.
Shareholders' funds
Shareholders' funds amount to a surplus of GBP1.5 million, an
improvement from the deficit of GBP43.0 million achieved in the
comparative period. This was principally driven by temporary net
actuarial gains of GBP31.9 million on the Group's defined benefit
pension scheme and profits for the year of GBP12.1 million.
Directors' responsibility statement
The 2022 Annual Report and Accounts which will be issued in
September 2022, contains a responsibility statement which sets out
that as at the date of approval of the Annual Report on 13
September 2022, the directors confirm to the best of their
knowledge:
-- that the consolidated financial statements, prepared in
accordance with UK-adopted 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 group; and
-- the parent company financial statements which have been
prepared in accordance with United Kingdom Accounting Standards
comprising FRS 101 'Reduced Disclosure Framework' and applicable
law, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the parent company:
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 26 March 2022
52 weeks ended 26 March 2022 52 weeks ended 27
March 2021
----------------------------------------------------------------------- ---------------------------------------
Before Before Adjusted
Note adjusted Adjusted adjusted items
items items(1) Total items (1)
GBP GBP GBP GBP GBP Total
million million million million million GBP million
-------------------------- ------- ---------- ---------- ---------- ---------- ----------- --------------
Revenue 3 82.5 - 82.5 85.8 - 85.8
Cost of sales (54.9) - (54.9) (63.3) - (63.3)
Gross profit 27.6 - 27.6 22.5 - 22.5
Administrative expenses (16.0) 1.9 (14.1) (23.3) (2.6) (25.9)
Other income - - - 2.0 - 2.0
Impairment losses
on receivables (0.5) - (0.5) (1.0) - (1.0)
-------------------------- ------- ---------- ---------- ---------- ---------- ----------- --------------
Profit/(loss) from
operations 3 11.1 1.9 13.0 0.2 (2.6) (2.4)
Finance costs 5 (3.1) 1.2 (1.9) (8.9) (10.3) (19.2)
Finance income 5 - - - 0.2 - 0.2
-------------------------- ------- ---------- ---------- ---------- ---------- ----------- --------------
Profit /(loss) before
taxation 8.0 3.1 11.1 (8.5) (12.9) (21.4)
-------------------------- ------- ---------- ---------- ---------- ---------- ----------- --------------
Taxation 1.0 - 1.0 (0.1) - (0.1)
-------------------------- ------- ---------- ---------- ---------- ---------- ----------- --------------
Profit/(loss) for
the period 9.0 3.1 12.1 (8.6) (12.9) (21.5)
Profit/(loss) for
the period attributable
to equity holders
of
the parent 9.0 3.1 12.1 (8.6) (12.9) (21.5)
-------------------------- ------- ---------- ---------- ---------- ---------- ----------- --------------
Profit/(loss) per
share
Basic 8 1.6p (5.7)p
Diluted 8 1.6p (5.7)p
-------------------------- ------- ---------- ---------- ---------- ---------- ----------- --------------
(1) Includes adjusted costs (property costs, restructuring costs
and impairment charges) and movement on warrant options. 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
Consolidated statement of comprehensive income
For the 52 weeks ended 26 March 2022
52 weeks ended 52 weeks ended
26 March 27 March
2022 2021
GBP million GBP million
================================================= ============== =====================
Profit / (loss) for the period 12.1 (21.5)
Items that will not be reclassified subsequently
to the income statement:
Remeasurement of net defined benefit liability:
Actuarial gain / (loss) on defined benefit
pension schemes 35.0 (56.7)
Deferred tax relating to items not reclassified (3.1) 10.2
================================================= ============== =====================
31.9 (46.5)
================================================= ============== =====================
Items that may be reclassified subsequently
to the income statement:
Exchange differences on translation of - -
foreign operations
Deferred tax relating to items reclassified - -
================================================= ============== =====================
- -
================================================= ============== =====================
Other comprehensive income / (expense)
for the period 31.9 (46.5)
================================================= ============== =====================
Total comprehensive income / (expense)
for the period wholly
attributable to equity holders of the
parent 44.0 (68.0)
================================================= ============== =====================
Consolidated balance sheet
As at 26 March 2022
26 March 27 March
2022 2021
GBP million GBP million
======================================== ============ ============
Non-current assets
Intangible assets 3.6 1.1
Property, plant and equipment 0.3 0.5
Right-of-use leasehold assets 0.9 1.2
Retirement benefit obligations 12.4 -
========================================= ============ ============
17.2 2.8
======================================== ============ ============
Current assets
Inventories 2.1 5.9
Trade and other receivables 8.1 17.4
Derivative financial instruments 0.2 2.6
Cash and cash equivalents 9.2 6.9
========================================= ============ ============
19.6 32.8
======================================== ============ ============
Total assets 36.8 35.6
========================================= ============ ============
Current liabilities
Trade and other payables (12.1) (24.9)
Derivative financial instruments - (1.8)
Lease liabilities (0.3) (0.3)
Provisions (1.7) (4.2)
========================================= ============ ============
(14.1) (31.2)
======================================== ============ ============
Non-current liabilities
Borrowings (19.1) (19.0)
Lease liabilities (0.8) (1.1)
Retirement benefit obligations - (25.6)
Provisions (0.9) (1.7)
Deferred tax liability (0.4) -
========================================= ============ ============
(21.2) (47.4)
======================================== ============ ============
Total liabilities (35.3) (78.6)
========================================= ============ ============
Net assets/(liabilities) 1.5 (43.0)
========================================= ============ ============
Equity attributable to equity holders
of the parent
Share capital 89.3 89.3
Share premium account 108.8 108.8
Own shares (1.0) (1.0)
Translation reserve (3.7) (3.7)
Retained loss (191.9) (236.4)
========================================= ============ ============
Total equity 1.5 (43.0)
========================================= ============ ============
Consolidated statement of changes in equity
For the 52 weeks ended 26 March 2022
Share
Share premium Translation Retained Total
capital account Own shares reserve earnings equity
GBP million GBP million GBP million GBP million GBP million GBP million
================== ============= ============ ============== ============= =============== ==================
Balance at 27 March
2021 89.3 108.8 (1.0) (3.7) (236.4) (43.0)
Items that will not
be reclassified
subsequently to
the
income statement - - - - 31.9 31.9
=================== ============= ============ ============== ============= =============== ==================
Other comprehensive
income - - - - 31.9 31.9
Profit for the
period - - - - 12.1 12.1
=================== ============= ============ ============== ============= =============== ==================
Total comprehensive
income - - - - 44.0 44.0
Adjustment to
equity for
equity-settled
share-based
payments - - - - 0.5 0.5
=================== ============= ============ ============== ============= =============== ==================
Balance at 26 March
2022 89.3 108.8 (1.0) (3.7) (191.9) 1.5
=================== ============= ============ ============== ============= =============== ==================
Share Total
Share premium Translation Retained Equity
capital account Own shares reserve Earnings GBP
GBP million GBP million GBP million GBP million GBP million 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
as restated 87.4 91.7 (1.0) (3.7) (178.4) (4.0)
Items that will
not be
reclassified
subsequently to
the
income statement - - - - (46.5) (46.5)
================== =============== ============ =============== ============= =============== ================
Other
comprehensive
expense - - - - (46.5) (46.5)
Loss for the
period - - - - (21.5) (21.5)
================== =============== ============ =============== ============= =============== ================
Total
comprehensive
(expense)/income - - - - (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)
================== =============== ============ =============== ============= =============== ================
Consolidated cash flow statement
For the 52 weeks ended 26 March 2022
52 weeks 52 weeks
ended ended
Note 26 March 27 March
2022 2021
GBP million GBP million
=========================================== ====== ============ ============
Net cash flow from operating activities 10 8.1 (2.6)
Cash flows from investing activities
Purchase of property, plant and equipment (0.1) (0.2)
Purchase of intangibles - software (2.8) (0.2)
=========================================== ====== ============ ============
Cash used in investing activities (2.9) (0.4)
=========================================== ====== ============ ============
Cash flows from financing activities
Interest paid (2.5) (1.4)
Repayments of leases (0.4) (1.5)
Drawdown of loan facility - 7.3
=========================================== ====== ============ ============
Net cash outflow / (inflow) from financing
activities (3.0) 3.8
=========================================== ====== ============ ============
Net increase in cash and cash equivalents 2.2 0.8
=========================================== ====== ============ ============
Cash and cash equivalents at beginning
of period 6.9 6.1
Effect of foreign exchange rate changes 0.1 -
=========================================== ====== ============ ============
Cash and cash equivalents at end of
period 9.2 6.9
=========================================== ====== ============ ============
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 26 March 2022 or the 52 week period ended 27 March 2021, but
it is derived from those accounts. Statutory accounts for 2021 have
been delivered to the Registrar of Companies and those for 2022
will be delivered in September 2022. The auditor has reported on
the 2022 accounts: their report includes a material uncertainty
over going concern. The 2021 financial statements are available on
the Group's website ( www.mothercareplc.com).
2. Accounting Policies and Standards
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. 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:
-- A Base Case forecast which excludes any income from Russia; and
-- 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.
In making the assessment on going concern the Directors have
assumed that it is able to mitigate the material uncertainty in
relation to levels of recovery in retail sales post COVID-19
coupled with the heightened global economic uncertainty. The impact
of these issues on the future prospects of the Group is not fully
quantifiable at the reporting date, as the complexity and scale of
these issues at a global level is outside of what any business
could accurately reflect in a financial forecast. However, we have
attempted to capture the impact on both our supply chain and key
franchise partners based on what is currently known. We have
modelled a substantial reduction in global retail sales as a result
of subdued, consumer confidence or disposable income, throughout
the remainder of FY23 with recovery in FY24.
The Sensitised scenario assumes the following additional key
assumption:
The Board's confidence in the Group's Base Case forecast, which
indicates the Group will operate within the terms of its revised
borrowing facilities which now includes more appropriate covenants
following the cessation of the Russian operation 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 27
March 2021.
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:
-- Extension of the temporary exemption from applying IFRS 9
-- Amendment to IFRS 16, 'Leases' - COVID-19 related rent
concessions
-- IFRS 17, 'Insurance Contracts' - replacing IFRS 4
-- Property, Plant and Equipment: Proceeds before intended use -
amendments to IAS 16
-- Reference to the Conceptual framework - amendments to IFRS
3
-- Onerous contracts: Cost of fulfilling a contract - amendments
to IAS 37
The Directors anticipate that adoption of these standards and
interpretations in future periods will have no material impact on
the Group's financial statements.
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.
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 sales:
Group worldwide sales are total International retail sales.
Total Group revenue is a statutory number and is made up of
receipts from International franchise partners, which includes
royalty payments and the cost of goods dispatched to international
franchise partners.
Constant currency sales:
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
signi cant in both nature and/or quantum 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 26 March 2022:
-- costs associated with restructuring and redundancies;
-- movement on embedded derivatives in the shareholder
warrants;
-- historic claims received against a subsidiary of Mothercare
UK Limited (in administration);
-- movement on the expected outcome related to the
administration of Mothercare UK Limited (in administration).
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 operations
represent more than one 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 24% (2021: 23%) of Group sales.
52 weeks 52 weeks
ended ended
26 March 27 March
2022 2021
GBP million GBP million
==================================== ============= =============
Sale of goods to franchise partners 59.9 68.1
Royalties income 22.6 17.7
==================================== ============= =============
Total revenue 82.5 85.8
==================================== ============= =============
4. Adjusted items
The total adjusted items reported for the 52-week period ended
26 March 2021 is a net gain of GBP3.1 million (2021: GBP12.9
million cost) . The adjustments made to reported profit before tax
to arrive at adjusted profit are:
52 weeks 52 weeks
ended ended
26 March 27 March
2022 2021
GBP million GBP million
==================================================== ============= ==============
Adjusted costs from continuing operations:
Property related income / (costs) included in
administrative expenses 0.5 (0.5)
Restructuring and reorganisation income / (costs)
included in administrative expenses 1.4 (2.1)
Restructuring income / (costs) included in nance
costs 1.2 (10.3)
==================================================== ============= ==============
Adjusted items before tax 3.1 (12.9)
==================================================== ============= ==============
Property related income / (costs) included in administrative
expenses - GBP0.5 million (2021: GBP(0.5) million)
The current year income relates to credits arising from the
settlement of the lease liability relating to a claim on a previous
UK retail store.
The prior year charge included:
-- GBP(0.3) 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.
-- GBP(0.2) million in relation to settlement of a lease which
reverted to Mothercare when the tenant went into
administration.
Restructuring and reorganisation income / (costs) included in
administrative expenses - GBP1.4 million (2021: GBP(2.1)
million)
The current year income includes:
-- GBP1.6 million credits arising in relation to the profit on
disposal of Mothercare UK Limited business which went into
administration. Of this GBP0.8 million relates to the true-up of
the financial asset arising on the revolving capital facility,
which was valued at the end of financial year 2021 based on the
information available at the time, whilst assuming the worst-case
outcome. The remaining GBP0.8 million relates to recovery of
holding and handling costs incurred in liquidating stock owned by
Mothercare UK Limited, these costs were expensed in previous years
as there was no certainty of recovery of these.
-- GBP(0.2) million provision to settle a legal claim received
against a subsidiary.
The prior year charge included:
-- GBP(1.3) million of legal and professional costs for the
Group and also the pension funds in relation to the refinancing
which took place 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.
-- GBP(1.3) 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.
-- GBP1.4 million of credits arising in relation to the profit
on disposal of Mothercare UK Limited business, which went into
administration. Of this, GBP0.8 million relates to the true-up of
the financial asset arising on the revolving capital facility,
which was valued at the end of financial year 2020 based on the
information available at the time, whilst assuming the worst-case
outcome; and the remaining GBP0.6 million were amounts arising on
tax adjustments.
-- GBP(0.7) million of costs incurred on the relocation of the
Group's head office.
-- GBP(0.2) million of costs incurred 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.
Restructuring income /(costs) included in finance costs - GBP1.2
million (2021: GBP(10.3) million)
The GBP1.2 million income relates to 15.0 million 12 pence
warrants issued in prior year. The warrant options issued to the
shareholders expired in March 2022 without the shareholders
exercising the warrants. The prior year charge related to increases
in the fair value of embedded derivatives relating to shareholder
loans due to the uncertainty in the UK market. The shareholder
loans converted to equity in March 2021 and were fair valued
immediately prior to their transfer to share capital and share
premium.
5. Net finance costs
52 weeks 52 weeks
ended ended
26 March 27 March
2022 2021
GBP million GBP million
============================================ ============= =============
Interest and bank fees on bank loans
and overdrafts - 1.8
Other interest payable 2.5 6.2
Net interest expense on liabilities/return
on assets on pension 0.5 -
Interest on lease liabilities 0.1 0.9
Fair value movement on embedded derivatives - 9.1
Fair value movement on warrants (1.2) 1.2
============================================ ============= =============
Interest payable 1.9 19.2
Net interest income on liabilities/return
on assets on pension - (0.2)
============================================ ============= =============
Net finance costs/(income) 1.9 19.0
============================================ ============= =============
6. Taxation
The (credit) / charge for taxation on profit / (loss) for the
period comprises:
52 weeks 52 weeks
ended ended
26 March 27 March
2022 2021
GBP million GBP million
========================================= ========================= ==============
Current tax:
Current year 1.7 0.9
Adjustment in respect of prior periods - (0.6)
========================================= ========================= ==============
1.7 0.3
========================================= ========================= ==============
UK corporation tax is calculated at 19% (2021: 19%) of the
estimated assessable profit for the period. The increase in the
corporation tax rate from 19% to 25% was substantively enacted by
the balance sheet date and will be effective from 1 April 2023. As
a result, the relevant deferred tax balances have been remeasured.
Deferred tax balances are expected to unwind after 1 April 2023.
The impact of the change in tax rate has been recognised in tax
expense in profit or loss, except to the extent that it relates to
items previously recognised outside profit or loss.
Taxation for other jurisdictions is calculated at the rates
prevailing in the respective jurisdictions.
The (credit) / charge for the period can be reconciled to the
(loss) /profit for the period before taxation per the consolidated
income statement as follows:
52 weeks 52 weeks
ended ended
26 March 27 March
2022 2021
GBP million GBP million
========================================================= ============ ============
Pro t/(loss) for the period before taxation 11.1 (21.4)
Pro t/(loss) for the period before taxation multiplied
by the standard rate of corporation tax
in the UK of 19% (2021: 19%) 2.1 (4.1)
Effects of:
Expenses not deductible for tax purposes 1.2 0.1
Impact of difference in current and deferred 0.1 -
tax rates
Income not taxable (1.0) -
Impact of overseas tax rates 0.6 0.9
Impact of overseas taxes expensed - (0.7)
Deferred tax recognized in other comprehensive (3.1) -
income
Adjustment in respect of prior periods - current
tax - (0.6)
Adjustment in respect of prior periods - deferred
tax - (0.2)
Deferred tax not recognised/written off (0.9) 4.7
========================================================= ============ ============
(Credit)/charge for taxation on profit/(loss)
for the period (1.0) 0.1
========================================================= ============ ============
7. Dividends
There was no final dividend for the period (2021: GBPnil) and no
interim dividend was paid during the period (2021: GBPnil) .
8. Earnings per share
52 weeks 52 weeks
ended ended
26 March 27 March
2022 2021
million million
=================================== =========== ===========
Weighted average number of shares
in issue 563.8 379.0
Dilutive potential ordinary
shares 10.1 -
=================================== =========== ===========
Diluted weighted average number
of shares 573.9 379.0
=================================== =========== ===========
Number of shares at period end 563.8 563.8
=================================== =========== ===========
GBP million GBP million
=================================== =========== ===========
Pro t/(loss) for basic and diluted
earnings per share 12.1 (21.5)
Adjusted items (note 6) (3.1) 12.9
Tax effect of above items - -
=================================== =========== ===========
Adjusted pro ts / (losses) from
continuing operations 9.0 (8.6)
=================================== =========== ===========
Pence Pence
=================================== =========== ===========
Basic earnings / (losses) per
share 1.6 (5.7)
Basic adjusted earnings / (losses)
per share 2.1 (2.3)
Diluted earnings / (losses)
per share 1.6 (5.7)
=================================== =========== ===========
Diluted adjusted earnings /
(losses) per share 2.1 (2.3)
=================================== =========== ===========
26 March 27 March
Analysis of shares by class 2022 2021
million million
=================================== =========== ===========
Ordinary shares at period end
date 563.8 563.8
SAYE options 3.7 2.6
Value creation plan - 0.4
LTIP options 11.3 10.7
Warrants - 15.0
=================================== =========== ===========
Total 578.8 592.5
=================================== =========== ===========
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.
9. Share Capital and Share Premium
On 12 March 2021, the Group's shares were transferred from the
London Stock Exchange 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.
10. Notes to the cash flow statement
52 weeks ended 52 weeks
26 March ended 27
2022 March
GBP million 2021
GBP million
=============================================== ======================= ============
Profit / (loss) from operations 13.0 (2.4)
Adjustments for:
Depreciation of property, plant and equipment 0.3 0.3
Amortisation of right-of-use assets 0.3 1.5
Amortisation of intangible assets 0.3 0.2
Pro t on sale of property, plant and equipment - (0.1)
(Loss) / gain on adjusted foreign currency
movements (0.1) 0.1
Equity-settled share-based payments 0.5 0.5
Movement in provisions (3.4) 0.4
Net gain on nancial derivative instruments (0.6) (0.8)
Payments to retirement bene t schemes (5.2) (4.5)
Charge to pro t from operations in respect
of retirement bene t schemes 1.7 3.4
=============================================== ======================= ============
Operating cash inflow / (outflow) before
movement in working capital 6.8 (1.4)
Decrease in inventories 3.8 3.8
Decrease in receivables 11.7 0.9
Decrease in payables (12.9) (5.1)
=============================================== ======================= ============
Net cash inflow / (outflow) from operating
activities 9.4 (1.8)
Income taxes paid (1.3) (0.8)
=============================================== ======================= ============
Net cash inflow / (outflow) from operating
activities 8.1 (2.6)
=============================================== ======================= ============
Analysis of net debt
27 March Foreign Other non-cash 26 March
2021 Cash flow exchange movements(1) 2022
GBP million GBP million GBP million GBP million GBP million
========================== ============= ============= ============= ============== =============
Term loan (19.0) - - (0.1) (19.1)
Cash at bank 6.9 2.2 0.1 - 9.2
IFRS 16 lease liabilities (1.4) 0.4 - (0.1) (1.1)
=========================== ============= ============= ============= ============== =============
Net debt (13.5) 2.6 0.1 (0.2) (11.0)
Warrants (1.2) - - 1.2 -
=========================== ============= ============= ============= ============== =============
Net debt and financial
liabilities (14.7) 2.6 0.1 1.0 (11.0)
=========================== ============= ============= ============= ============== =============
(1) Non-cash movements comprise
-- Term loan - unwinding of GBP0.1 million of the facility fee charged on the term loan.
-- Non-cash movements on IFRS 16 lease liabilities represents
the of interest accrued on lease liabilities.
-- Non-cash movements on the warrants represents the expiration
of the warrant options issued to shareholders which were not
exercised at year end.
The Group had outstanding borrowings at 26 March 2022 of GBP19.1
million (2021: GBP19.0 million) .
In November 2020, the Group drew down on a four-year term loan
of GBP19.5 million (GBP19.1 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 SONIA.
The Group also holds a financial asset of GBP0.2 million (2021:
GBP2.6 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 GBP0.2 million (2021:
GBP2.6 million) .
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.
11. Events after the balance sheet date
Refinancing of borrowing
In the first half of FY23 the group renegotiated its existing
loan facility. The total amount available under the facility
remained the same. The interest rate increased to 13% per annum
plus SONIA, with SONIA not less than 1%, plus a 1% per annum
compounded payment to be made when the loan is repaid. Previously
the interest rate was 12% per annum plus SONIA with a floor of 1%.
The repayment date has been extended from FY25 to FY26.
Cessation of Mothercare Business in Russia
Following the pausing of operations in Russia that we announced
on 9 March 2022, o n 27 June 2022 Mothercare terminated its license
and supply agreements with its franchise partner in Russia given
the numerous economic, logistical and business disruptions and the
associated uncertainty and the detrimental impact on the Mothercare
brand if operations resumed. With effect from that date the
franchise partner has no right to operate any Mothercare branded
stores in Russia. The impact of the termination on the future
performance of the group has been outlined in the Chairman's review
above.
Defined benefit scheme contributions
In order to support the new debt financing arrangements, the
Trustees of the schemes agreed a further reduction in contributions
after the balance sheet date. Details of these are provided in the
financial and operational review above .
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(END) Dow Jones Newswires
September 13, 2022 10:38 ET (14:38 GMT)
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