REG - Mothercare PLC - Full Year Results 2022
13/09/2022 15:45
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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 £385.3 million
(2021: £358.6 million).
· Adjusted EBITDA of £12.0 million (2021: £2.2 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 £9.9 million (2021: £12.1 million) at the year
end.
· Pension scheme deficit materially reduced to £60 million as at 30
June 2022 (March 2020: £124.6 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 £135 million (FY22: £117 million, excluding
Russia; £150 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 £10 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 £12.1 million (2021:
£21.5 million loss).
· Net debt(3) at £11.0 million (2021: £13.5 million).
Our Group
2022 2021
52 weeks to 52 weeks to % change
26 Mar 2022 27 Mar 2021 vs.
£million £million 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.
£million £million last year
Worldwide retail sales(1) £m 385.3 358.6 7.5%
Online retail sales £m 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 & Joint Corporate Broker) Tel: 020 7260 1000
Luke Bordewich
Henry Slater
finnCap (Joint Corporate Broker) Tel: 020 7220 0500
Christopher Raggett
Media enquiries to: Email: mothercare@mhpc.com (mailto: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 £12
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 £385 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 £88 million of our franchisee retail sales came
from Russia and the territory directly contributed some £5.5 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 £9.9 million (March 2021
£12.1 million). This comprised total cash of £9.2 million (March 2021: £6.9
million), reflecting ongoing tight control of cash, against the £19.5 million
(£19.1 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 £1.8 million.
When we completed the £19.5 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 £19.5m GBB term facility
Mothercare has agreed revised terms to extend the £19.5 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 £15 million to £25 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 £29 million in
the financial years March 2023 to March 2027. This represents a £30 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 £1
million; March 2024 £4 million; March 2025 £7 million; March 2026 £8
million; March 2027 & beyond £9 million aggregating to fully fund a £78
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 £124.6 million, resulting from total assets of £383.7
million and total liabilities of £508.3 million. Based on desktop projections
of this valuation provided to the Trustees, as at 30 June 2022 the deficit had
reduced to £60 million with total assets at £330 million and total
liabilities of £390 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 £6 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 £10 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 £385.3 million (2021:
£358.6 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 £13.0 million (2021: loss of £2.4
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 (£1.9 million subtracted in
year ended 2022 and £2.6 million added back in 2021), together with
depreciation and amortisation of £0.9 million (2021: £2.0 million),
resulting in an adjusted EBITDA profit for the year of £12.0 million (2021:
£2.2 million).
The improvement in adjusted EBITDA of £9.8 million is made up of an increase
of £5.1 million of gross profit and a reduction of £4.7 million of net
costs. Gross profit increased over the previous financial year by £5.1
million, approximately £3.0 million as a result of the previously highlighted
delays in shipping at the end of our financial year FY21. This moved margin
of around £1.5 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 £4.7 million, were made up of: £2.5
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 £1.7 million to £1.7 million; IT costs reduced by £0.6 million;
impairment of receivables lower by £0.5 million; other net cost savings of
£0.4 million, partially offset by the absence of around £1.0 million of the
£2.0 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 £12.1
million (2021: loss of £21.5 million). The adjusted profit for the year was
£9.0 million (2021: loss of £8.6 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 £88.2 million (23%) of total
retail sales for the financial year to March 2022 and £77.3 million (22%) of
the previous year's total retail sales. Russia contributed around £5.5
million (2021: £5.0 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 £19.5 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 £9.9m, being cash of £9.2 million against the term, loan of
£19.1 million, which is a drawdown of £19.5m 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 £124.6 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 - £9.0million; 2024 - £10.5
million; 2025 - £12.0 million; 2026 to 2029 - £15 million; 2030 - £5.7
million.
As at 31 March 2022 the deficit had reduced to £78 million and the following
revised annual contributions have now been agreed with the trustees, for the
years ending in March as follows: 2023 - £1 million; 2024 - £4 million; 2025
- £7 million; 2026 - £8 million; 2027 to 2032 - £9 million: 2033 - £0.7
million. Mainly due to increasing interest rates the deficit had reduced still
further to £60m 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 £1 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 £1.5 million compared with a net liability of £43.0 million for the
prior year. The balance sheet benefited from a swing in the defined benefit
pension scheme to an asset position of £12.4 million at year end (2021:
£25.6 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 £19.6 million (2021: £32.8 million) decreased by £13.2
million, principally due to lower inventory and trade receivable balances
which were partially offset by an increase in cash.
Current liabilities of £14.1 million (2021: £31.2 million) decreased by
£17.1 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 £5.5 million in the current year, up from
£1.6 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 2021
£ million £ 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
£12.4 million (2021: £25.6 million deficit). The swing of £38 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 £36
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 £6 million. The returns on the scheme
assets were however lower than expected resulting in an asset experience loss
of £7 million and the company contributions over the year exceeded the income
statement charge by £3 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 £124.6
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 ending 52 weeks ended 52 weeks ended
£ million 26 March 2023* 26 March 2022 27 March 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 £ 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 £0.4 million (2021: £nil). 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 £20.2 million (2021:
£20.4) has remained fairly consistent year on year. Net debt (Note 27) stood
at £11.0 million at year end (2021: 14.7 million). The decrease resulting
from warrant options of £1.2 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
Group'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 £0.9 million (2021: £1.2 million) and lease
liabilities of £1.1 million (2020: £1.4 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 £3.8m from £5.9
million in 2021 to £2.1 million at the year end. £1.7 million of the
decrease relates to stock in transit with £2.1 million being a reduction in
the stocks held at our distribution centres.
Trade receivables fell by £8.2 million to £3.4million (2021: £11.6 million)
driven by strong credit control measures and the direct invoicing referred to
above. Trade creditors decreased to £4.7 million (2021: £11.8 million) due
to similar reasons.
INCOME STATEMENT
52 weeks to 52 weeks to
26 March 2022 27 March 2021
£million £million
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 ended
26 March 2022 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 £16.4 million (2021: £26.1 million) and
£0.9 million (2021: £1.4 million) respectively as shown below:
Adjusted
Worldwide sales Profit/(loss)
£ million £ 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 £17.1 million year on year explained by the
conversion of shareholder loans to equity in the prior year. Interest on
borrowings was £2.5 million in the current year (2021: £6.2 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 £9.1million 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 £1.2 million in prior year was a gain of
£1.2million 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 £0.5 million in the current year, a swing from the income of £0.2
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 £12.1 million (2021:
£21.5 million loss).
Taxation
The tax credit comprises corporation taxes incurred and a deferred tax credit.
The total tax credit from operations was £1.0 million (2021: £0.1 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 £8.1
million compared with an outflow of £2.6 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 £2.9 million (2021: £0.4 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 £3.0 million (2021: £3.8 million
net inflow). The inflow in the prior year was driven by the cash receipt of
£7.3 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 £19.5 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 £1.5 million, an improvement from
the deficit of £43.0 million achieved in the comparative period. This was
principally driven by temporary net actuarial gains of £31.9 million on the
Group's defined benefit pension scheme and profits for the year of £12.1
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 adjusted Adjusted Before adjusted
items items(1) Total items Adjusted items(1) Total
Note £ million £ million £ million £ million £ million £ 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 27 March
26 March 2021
2022 £ million
£ 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
£ million £ 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 premium account
Share capital £ million Own shares Translation Retained earnings Total equity
£ million £ million reserve £ million £ million
£ 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 premium account
Share capital £ million Own shares Translation Retained Earnings Total Equity
£ million £ million reserve £ million £ 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 ended 52 weeks ended
26 March 27 March
Note 2022 2021
£ million £ 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 significant
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 27 March
26 March 2021
2022 £ million
£ 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 £3.1 million (2021: £12.9 million cost). The
adjustments made to reported profit before tax to arrive at adjusted profit
are:
52 weeks ended 52 weeks ended
26 March 27 March
2022 2021
£ million £ 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 1.4 (2.1)
expenses
Restructuring income / (costs) included in finance costs 1.2 (10.3)
Adjusted items before tax 3.1 (12.9)
Property related income / (costs) included in administrative expenses - £0.5
million (2021: £(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:
• £(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 £0.2 million of dilapidations cost and £0.1 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.
• £(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 - £1.4 million (2021: £(2.1) million)
The current year income includes:
• £1.6 million credits arising in relation to the profit on disposal of
Mothercare UK Limited business which went into administration. Of this £0.8
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 £0.8 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.
• £(0.2) million provision to settle a legal claim received against a
subsidiary.
The prior year charge included:
• £(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 £19.5 million and the settlement of the revolving
capital facility previously held by the Group.
• £(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.
• £1.4 million of credits arising in relation to the profit on
disposal of Mothercare UK Limited business, which went into administration. Of
this, £0.8 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 £0.6 million were
amounts arising on tax adjustments.
• £(0.7) million of costs incurred on the relocation of the Group's head
office.
• £(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 - £1.2 million (2021:
£(10.3) million)
The £1.2 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
£ million £ 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
£ million £ 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 ended 52 weeks
26 March ended
2022 27 March
£ million 2021
£ million
Profit/(loss) for the period before taxation 11.1 (21.4)
Profit/(loss) for the period before taxation multiplied by the standard rate
of corporation tax
2.1 (4.1)
in the UK of 19% (2021: 19%)
Effects of:
Expenses not deductible for tax purposes 1.2 0.1
Impact of difference in current and deferred tax rates 0.1 -
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 income (3.1) -
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: £nil) and no
interim dividend was paid during the period (2021: £nil).
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
£ million £ million
Profit/(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 profits / (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 £1.9 million of share capital, £17.1 million of share premium
and £9.5 million of distributable profits.
10. Notes to the cash flow statement
52 weeks ended 52 weeks ended 27 March
26 March 2021
2022 £ million
£ 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
Profit 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 financial derivative instruments (0.6) (0.8)
Payments to retirement benefit schemes (5.2) (4.5)
Charge to profit from operations in respect of retirement benefit 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
Other non-cash movements(1)
27 March Cash flow Foreign exchange £ million 26 March
2021 £ million £ million 2022
£ million £ 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 £0.1 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 £19.1 million (2021:
£19.0 million).
In November 2020, the Group drew down on a four-year term loan of £19.5
million (£19.1 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 £0.2 million (2021:
£2.6 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 £0.2 million (2021: £2.6 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, on 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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