Pre-close Trading Update
04/05/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230504:nGNE3SlQNM&default-theme=true
Mothercare plc
Pre-close trading update
Mothercare plc ("Mothercare" or "the Company"), the global specialist brand
for parents and young children, today issues a pre-close trading update for
the financial year ended 25 March 2023 (“FY23”). This update is based upon
draft figures pending finalisation of the year end audit.
Highlights
* Unaudited net worldwide retail sales by franchise partners of £322 million
for the year, includes no contribution from the Russian market, which was
suspended at the end of our previous financial year, representing an increase
of 8% in continuing markets.
* Adjusted EBITDA of £6.5 to £7 million for FY23, ahead of analysts’
expectations
* Net debt of £12.3 million at the year end
* Pension scheme deficit materially reduced to £39 million (March 2020:
£124.6 million, March 2022 £78 million)
EBITDA before adjusting items is now expected in the range of £6.5 to £7
million for the financial year to 25 March 2023. For the prior year to
March 2022 our Russian territory directly contributed some £5.5 million to
our adjusted EBITDA, which coupled with some margin benefit due to shipping
delays in last year’s results, means there is a year on year improvement in
the underlying profitability of the business, once these elements are
excluded.
Unaudited net worldwide retail sales by franchise partners were £322 million,
compared to £385 million for the previous financial year which included £88
million from Russia. Hence total retail sales for the year to March 2023 were
8% higher than the levels for the previous financial year with the Russian
retail sales excluded. Excluding our Middle East markets, as well as Russia,
the increase was 17% and our Middle East markets (43% of our total retail
sales) reduced by 1%, with Saudi Arabia weakest of these markets reflecting
certain local factors some of which are transitory. As previously reported, in
many of our territories our partners still need to clear old inventory due to
the suppressed demand during Covid-19. These factors will continue to impact
the Group results for the financial year to March 2024, which will defer
previously anticipated growth notwithstanding ongoing improvements in product
and service.
Our medium-term guidance is unchanged for the steady state operation in more
normal circumstances and we believe our continuing franchise operations remain
capable of exceeding £10 million operating profit and we are now focused on
accelerating our growth in both existing and new markets.
Financing
At the year-end Mothercare had total cash of £7.2 million (March 2022: £9.2
million), reflecting ongoing tight control of cash, against the £19.5 million
(March 2022: £19.1 million) of the Group’s existing loan facility, which
remained fully drawn across the year.
With recent increases in interest rates, the interest rate on this loan is
currently approximately 18.2%, which coupled with the extended time to return
to pre-pandemic retail sales levels, particularly in our Middle Eastern
markets, highlighted above, means the Board’s current forecasts for
continuing operations show the Group may require waivers to future periods’
covenant tests. We have therefore commenced refinancing discussions with our
lender to vary, renegotiate or refinance this debt facility. Additionally we
are looking at various financing alternatives (including equity and equity
linked structures) to give us both additional flexibility and reduced cash
financing costs. For the avoidance of doubt the Group does not require (and is
not seeking through this refinancing) additional liquidity.
Pension Schemes
The last full actuarial valuation of the schemes was at 31 March 2020 and
showed a deficit of £124.6 million. The Trustees are currently undertaking a
triennial actuarial valuation as at 31 March 2023, the results of which will
be available later this year. As part of this valuation, the Trustees will
review the assumptions used to determine the liabilities, including the
mortality assumption. Recent mortality experience for the UK suggests that
longevity improvements are not as high as previously expected and this is
generally leading to a reduction in pension scheme liabilities. The latest
analysis of the pension schemes, including an adjustment for the expected
reduction in life expectancies, suggests a deficit of approximately £39
million at 31 March 2023 resulting from total assets at £198 million and
total liabilities of £237 million. The results of the formal valuations
currently underway may materially differ once the Trustees have completed
their assessment.
The current recovery plan is based on the deficit at March 2022 of £78
million with annual contributions for the years ending in March of: 2024 - £4
million; 2025 - £7 million; 2026 - £8 million; 2027 to 2032 - £9 million;
2033 - £0.7 million. These contributions will be reviewed once the actuarial
valuation as at 31 March 2023 is completed. Additionally, the Trustees in
determining the amount of ongoing cash contributions, recognise the current
level of borrowings and would be prepared to look afresh at the valuation
assumptions if the covenant improves after the valuation date, for example via
an equity linked structure, which could reduce the deficit further.
Clive Whiley, Chairman of Mothercare, commented:
“Once again our results demonstrate the resilience we have introduced to the
business over recent years, where we continue to generate both profit and
cash. This would not have been possible without the support of all of our
colleagues, franchisees and manufacturing partners whom I would like to thank
on behalf of the board.
Although our immediate priority remains to support our franchise partners as
they emerge from a period of suppressed demand, ultimately for the benefit of
our own business, we have also redoubled our efforts to restore critical mass.
Accordingly we are engaged in discussions to drive the Mothercare brand
globally by widening the bandwidth of our product offering, alongside
penetration into new territories via a variety of routes to market.”
Investor and analyst enquiries to:
Mothercare plc
Email: investorrelations@mothercare.com
Clive Whiley, Chairman
Andrew Cook, Chief Financial Officer
Numis (Nominated Advisor & Joint Corporate Broker)
Tel: 020 7260 1000
Luke Bordewich
Henry Slater
finnCap (Joint Corporate Broker)
Tel: 020 7220 0500
Christopher Raggett
MHP
Tel: 020 3128 8789
Email: mothercare@mhpc.com
Simon Hockridge
Tim Rowntree