REG - Mothercare PLC - Interim results announcement
24/11/2022 07:00
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RNS Number : 4285H Mothercare PLC 24 November 2022
Mothercare plc
Interim results announcement
Driving the Mothercare brand globally
Mothercare plc ("Mothercare" "the Company" or "the Group"), the leading
specialist global brand for parents and young children, today announces
unaudited half year results for the 26-week period to 24 September 2022 ("H1
FY23"). The comparative period was a 26-week period to 25 September 2021 ("H1
FY22").
Key Highlights
· International retail sales by franchise partners of £162.1 million
(2021: £184.3 million, excluding Russia £140.8 million), an increase of 15%
over last year, excluding sales from Russia.
· Adjusted EBITDA of £3.2 million (H1 FY22: £5.6 million) reflecting
the loss of contribution from Russia for the whole of the current period,
which was around £2.9 million for the equivalent period last year.
· Group adjusted profit before taxation from operations of £2.9
million (H1 FY22: £5.2 million).
· Total Group profit before taxation of £0.8 million (H1 FY22: £4.0
million).
· Successfully completed the refinancing of the business, without
further equity dilution.
· New Chief Executive Officer appointed and joining in January.
· Net debt reduced to £11.6 million (£13.3 million at 25 September
2021).
· Pension scheme deficit materially reduced to £42 million at 30
September 2022 (£124.6 million deficit at 31 March 2020).
Our Group
26 weeks to 26 weeks to 28 weeks to
24 Sep 2022 25 Sep 2021 10 Oct 2020
Turnover £m 38.5 41.7 44.4
Adjusted EBITDA(2 ) £m 3.2 5.6 (0.1)
Adjusted profit from operations (2 ) £m 2.9 5.2 (1.3)
Adjusted profit before taxation(2 ) £m 1.7 3.6 (4.4)
Profit for the period £m 0.4 3.6 (13.2)
Adjusted basic earnings per share(2 ) 0.2p 0.9p (1.2)p
Basic earnings per share 0.1p 1.0p (3.5)p
Our Franchise partners
26 weeks to 26 weeks to 28 weeks to
24 Sep 2022 25 Sep 2021 10 Oct 2020
Worldwide retail sales(1) £m 162.1 184.3 189.2
Online retail sales £m 13.1 17.6 27.1
Total number of stores 562 740 793
Space (k) sq. ft. 1,345 1,967 2,180
Clive Whiley, Chairman of Mothercare plc, commented:
"Our results demonstrate the strong foundations and resilience we have created
in the business over recent years. Furthermore, we have generated both profit
and cash despite the impact of Covid-19 and the war in Ukraine.
Our immediate priority now remains to support our franchise partners as we
together navigate out of this suppressed demand period, recover from supply
chain disruptions and rebuild their store footfall whilst growing their
digital sales. This inevitably means that a return to pre pandemic levels of
trading is taking time, however this will ultimately benefit both our own
business and our franchise partners' businesses in the longer term.
Today I am delighted to announce the impending arrival of Dan Le Vesconte as
our new Chief Executive Officer, with extensive experience in the retail
direct-to-consumer, wholesale and licensing sector he will be a great asset to
the executive team. Whilst we remain mindful of the current global economic
uncertainty we are now wholly focused upon restoring critical mass and driving
the Mothercare brand globally over the next five years."
Investor and analyst enquiries to:
Mothercare Email: investorrelations@mothercare.com
plc (mailto:investorrelations@mothercare.com)
Clive Whiley, Chairman
Andrew Cook, Chief Financial
Officer
Numis Securities Limited (Nominated Advisor & Joint Corporate Broker) Tel: 020 7260 1000
Luke Bordewich
Henry Slater
finnCap (Joint Corporate Tel: 020 7220 0500
Broker)
Christopher Raggett
Media enquiries to:
MHP Email: mothercare@mhpc.com (mailto:mothercare@mhpc.com)
Simon Tel: 07709 496 125
Hockridge
Tim Rowntree
Notes
1 - Worldwide retail sales are total International and UK retail franchise
partner sales to end customers (which are estimated and unaudited).
2 - Adjusted figures are stated before the impact of the adjusting items set
out in note 4.
3 - Net debt is defined as total borrowings, 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, except as required by law or by any
appropriate regulatory authority.
5 - The information contained within this announcement is deemed by the
Company to constitute inside information for the purposes of the Market Abuse
Regulation (EU) No 596/2014. Upon the publication of this announcement via a
Regulatory Information Service, this inside information is now considered to
be in the public domain.
6 - The person responsible for the release of this announcement is Lynne
Medini, Group Company Secretary at Mothercare plc, Westside 1, London Road,
Hemel Hempstead, HP3 9TD.
7 - Mothercare plc's Legal Entity Identifier ("LEI") number is
213800ZL6RPV9Z9GFO74.
Chairman's statement
Overview
The transformation of the business in recent years to focus upon our core
international franchise and brand management competencies as an asset light
global franchising business, has proved invaluable. We were once again forced
to contend with unavoidable adverse events this half, in particular with the
termination of our operations in Russia. It is therefore testimony to the
resilience of the business that, notwithstanding the ongoing challenges from
the pandemic and the current global economic uncertainty on our franchise
partners, we still succeeded in generating free cash flow from operations and
an adjusted EBITDA of £3.2 million for the six months to 24 September 2022.
We continue to make the necessary adjustments to our supply chain, operations
and administrative costs demanded to address the consequent diseconomies of
reduced scale. At the half-year end we successfully refinanced the business,
without further equity dilution, which further enhances our financial
flexibility.
Trading Update
Although at the half-year end our franchise partners' global stores were all
open following the pandemic, retail sales of £162 million for the period were
heavily impacted by the pausing of operations we announced on 9 March 2022 and
the subsequent termination of the right to operate Mothercare branded stores
in Russia on 27 June 2022. Excluding the impact of the lost Russian retail
sales, worldwide retail sales grew at 15% in the 26 weeks to 24 September
2022. Online retail sales for the period reduced to 8% of total retail sales
(H1 FY22: 9.5%) in part reflecting the loss of the higher Russian online
activity but still well ahead of the pre pandemic level of 4.9%.
Against this back-drop our franchisees in Asian markets performed particularly
well, with India and Malaysia ahead of pre pandemic levels of sales,
recovering strongly from Covid-19 impacted periods. The UK franchise with
Boots increased sales performance by 10% year on year over the same period.
However, performance in our Middle Eastern region, specifically the Kingdom of
Saudi Arabia and the United Arab Emirates remained much more challenging.
Saudi Arabia has undergone significant changes over the last few years
including sales tax, Saudisation of the workforce and the introduction of many
new leisure activities which didn't previously exist all competing for
consumers' money. This continues to change the shape of our retail offering in
the country although we remain confident of the longer term market
opportunity.
Overall we have seen strong contributions from our innovation pipeline and
core new-born and baby essentials categories where we have made improvements
to design, quality and fit. We are currently evolving these same improvements
into further ranges across our product age spectrum. In addition, we have
recently launched our new toy range MPlay, now worth 5% of our order book,
which is designed to develop early stage hand and eye co-ordination and
mobility skills and is the first of several developments in our Home and
Travel product category.
Given the pressures on families around the world as a result of inflation and
as a direct response to the input cost challenges we face, we continue to
evolve our product to ensure we can offer value for money. To this end we have
increased our offer on packs and outfit sets both providing better value.
Growth Opportunities
As we strive to be the leading global brand for parents and young children the
Mothercare brand is in an almost unparalleled position. It is a highly trusted
British heritage brand, which is globally recognised and connects with
new-born babies and children across multiple product categories. The Board is
conscious that, at present, the Company's singular route to market is via our
franchisees and thus we have barely scratched the surface in exploring the
multiple possibilities available to us to grow the future global presence of
the brand:
· We are driving initiatives to maintain momentum in improving
profitability. Underwritten by the establishment of a cost base that is
appropriate for our business with the necessary skills and experience to
deliver further growth as we return to more normal pre-pandemic levels of
business.
· Mothercare is still not represented in eight of the top ten markets
in the world, when ranked by wealth and birth rate. We are exploring options
to enter new territories through several channels or a combination thereof via
e-commerce (either DTC or marketplaces) or with partners that would hold the
online rights for a territory and provide the website and full supply chain
capability in these markets. We have opportunities to wholesale the Mothercare
product into third party retailers, both large retailers or independents and
we can licence the brand either by specific product in a country (e.g. baby
bottles and teats) or the whole offer if it is more economical to manufacture
our Mothercare designs locally.
We will fully leverage this intrinsic value through connections with other
businesses and the development of the product range and licensing beyond our
historic limits. There is a window of opportunity for us, via step-change
growth, to bring synergies and enhanced profitability into our business, as
the core strengths of the Group across supply, franchisee partnerships and
international reach continue to demonstrate momentum.
Update on Initiatives
Supply chain model
Our efforts to develop our supply chain to reduce cost, complexity and deliver
goods to our franchise partners in the quickest way led to a marked
improvement in on-time availability, with over 85% of our product being
delivered direct from our country of manufacturing to our retail partners'
markets.
Enterprise Resource Planning ('ERP') System
Our new ERP system includes a leading product lifecycle management system
integrated with a supply chain and finance system with portal-based access for
both our franchise partners and manufacturing partners to both input and
access information. This is due to go live early in the next financial year,
with the full benefit of the cost savings in the financial year ending March
2024. We are confident that the final system will deliver at least the
expected benefits and cost savings.
Brand Review
We have substantially completed our in-depth review of our brand positioning
and customer perceptions across all of our major markets. We understand
evolving customer needs in each territory even better as we seek both to
elevate our product and to reinforce categories where we have natural
defensive strengths. This improved insight will inform the future brand and
product strategy to be driven by the new Chief Executive Officer.
Cost Reductions
The continual review and challenge to costs held administrative expenses flat
at prior year levels, inflationary pressures notwithstanding, whilst still
ensuring we operate to the standards of a world class business.
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
and total liabilities of £508.3 million. Based on a desktop review of this
valuation provided to the pension scheme trustees, at 30 September 2022 the
deficit had reduced by 67% to £42 million.
The revised recovery plan agreed with the Trustees in September includes total
contributions (Deficit Repair Contributions 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.
However, the recent turmoil in financial markets following the mini budget
alongside the complexity of Liability Driven Investment hedging strategies
means that this calculation is far from straightforward. We look forward to
improved clarity at the next full actuarial valuation, at March 2023. At which
time, if the recent reduction in the deficit remains, the subsequent annual
payments could be further reduced.
Management & Board changes
Our successful transition to be an international brand owner and operator, has
led to a need to reinforce the product, brand, E-commerce and distribution
skills within the executive team. Accordingly I am delighted that we have
appointed Daniel Le Vesconte as the Group's new Chief Executive Officer today.
Dan brings a wealth of international brand experience in direct to consumer,
franchise, wholesale and licensing, having held senior leadership roles for
several globally recognised brands including Abercrombie and Fitch, Hollister
and Gilly Hicks (A&F Corp), Dr Martens (Dr Martens PLC), the Wolverine
Worldwide group of brands and Vans and Reef (VF Corp).
Dan joins us in January and will work closely with our global stakeholders to
spearhead the growth of the iconic Mothercare brand into the next generation,
complementing our existing executive team to accelerate step-change growth.
Outlook
The strong platform for growth we have created would not have been possible
without the ongoing commitment and support of all stakeholders, including our
Mothercare colleagues, our franchise partners, our manufacturing partners, our
pension scheme trustees and our shareholders.
Whilst trading conditions will likely remain challenging across our markets,
including consumer sentiment and inflation, the far-reaching and ongoing
improvements to our product offer, increased focus on value and the
demographics of births and children around the world will provide a degree of
insulation in these uncertain times. 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.
We have once again demonstrated our fortitude to deal with major challenges
effectively and remain profitable and cash generative. The results from our
recent focus on product design have encouraged us to concentrate our efforts
upon accelerating our exposure to new products and markets, restoring critical
mass and optimising the Mothercare brand globally over the next five years.
Clive Whiley
Chairman
Condensed consolidated income statement
For the 26 weeks ended 24 September 2022
26 weeks ended 24 September 2022 26 weeks ended 25 September 2021 52 weeks ended
(Unaudited) (Unaudited) 26 March 2022
Restated * (Audited)
Before adjusted items Adjusted items(1) Total Before adjusted items Adjusted items (1) Total Total
£ million £ million
Note £ million £ million
£ million £ million £ million
Revenue 38.5 - 38.5 41.7 - 41.7 82.5
Cost of sales (27.5) - (27.5) (28.2) - (28.2) (54.9)
Gross profit 11.0 - 11.0 13.5 - 13.5 27.6
Administrative expenses (8.1) - (8.1) (8.3) 0.4 (7.9) (14.1)
Impairment losses on receivables - - - - - - (0.5)
Profit from operations 2.9 - 2.9 5.2 0.4 5.6 13.0
Net finance costs 5 (1.2) (0.9) (2.1) (1.6) - (1.6) (1.9)
Profit before taxation 1.7 (0.9) 0.8 3.6 0.4 4.0 11.1
Taxation 6 (0.4) - (0.4) (0.4) - (0.4) 1.0
Profit for the period 1.3 (0.9) 0.4 3.2 0.4 3.6 12.1
Profit for the period attributable to equity holders of the parent
1.3 (0.9) 0.4 3.2 0.4 3.6 12.1
Earnings per share
Basic 7 0.2 p 0.1 p 0.6 p 0.5 p 1.6p
Diluted 7 0.2 p 0.1 p 0.6 p 0.6 p 1.6p
(1) Adjusted items included: restructuring costs included in finance
costs, and property related income and other restructuring costs included in
administrative expenses. Adjusted items are one-off or significant in nature
and or /value. Excluding these items from the profit metrics provides readers
with helpful additional information on the performance of the business across
the periods because it is consistent with how business performance is reviewed
by the Board and Operating Board.
* The comparative results for the period to 25 September 2021 have been
restated to incorporate the impact of a misclassification. An amount of £2.3
million in operating expenses has been reclassified to cost of sales, the
change has resulted in a decrease in gross profit of £2.3 to £13.5 million
compared to the amount previously reported of £15.8 million.
Condensed consolidated statement of comprehensive income
For the 26 weeks ended 24 September 2022
26 weeks ended 26 weeks ended 52 weeks ended
24 September 2022 25 September 2021 26 March 2022
(Unaudited) (Unaudited) (Audited)
£ million £ million £ million
Profit for the period 0.4 3.6 12.1
Items that will not be reclassified subsequently to the income statement:
Actuarial (loss)/gain on defined benefit pension schemes
(1.1) 1.9 35.0
Income tax relating to items not reclassified 0.2 - (3.1)
(0.9) 1.9 31.9
Items that may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations 0.1 - -
0.1 - -
Other comprehensive (expense)/income for the period (0.8) 1.9 31.9
Total comprehensive (expense)/income for the period wholly attributable to
equity holders of the parent
(0.4) 5.5 44.0
Condensed consolidated balance sheet
As at 24 September 2022
24 September 2022 25 September 2021 26 March 2022
(Unaudited) (Unaudited) (Audited)
Note £ million £ million £ million
Non-current assets
Intangible assets 8 4.5 1.2 3.6
Property, plant and equipment 8 0.2 0.4 0.3
Right-of-use assets 0.7 1.1 0.9
Retirement benefit obligations 11.8 - 12.4
17.2 2.7 17.2
Current assets
Inventories 0.6 4.5 2.1
Trade and other receivables 6.9 11.5 8.1
Derivative financial instruments 11 0.2 - 0.2
Current tax asset 0.3 - -
Cash and cash equivalents 8.7 6.9 9.2
16.7 25.5 19.6
Total assets 33.9 28.2 36.8
Current liabilities
Trade and other payables (10.7) (18.2) (12.1)
Lease liabilities (0.5) (0.3) (0.3)
Derivative financial instruments 11 - (1.5) -
Provisions (0.9) (2.3) (1.7)
(12.1) (22.3) (14.1)
Non-current liabilities
Borrowings 9 (19.3) (19.0) (19.1)
Lease liabilities (0.5) (0.9) (0.8)
Retirement benefit obligations 10 - (22.0) -
Provisions (0.6) (1.2) (0.9)
Deferred tax liability (0.2) - (0.4)
(20.6) (43.1) (21.2)
Total liabilities (32.7) (65.4) (35.3)
Net assets/(liabilities) 1.2 (37.2) 1.5
Equity attributable to equity holders of the parent
Share capital 89.3 89.3 89.3
Share premium account 108.8 108.8 108.8
Own shares (1.0) (1.0) (1.0)
Translation reserve (3.6) (3.5) (3.7)
Retained deficit (192.3) (230.8) (191.9)
Total equity 1.2 (37.2) 1.5
Condensed consolidated statement of changes in equity
For the 26 weeks ended 24 September 2022 (unaudited)
Share capital Share premium account Own shares Translation reserve Retained Total equity
deficit
£ million £ million £ million £ million £ million £ million
Balance as at 26 March 2022 as previously reported 89.3 108.8 (1.0) (3.7) (191.9) 1.5
Profit for the period - - - - 0.4 0.4
Other comprehensive income for the period - - - 0.1 (0.9) (0.8)
Total comprehensive income for the period 0.1 (0.5) (0.4)
- - -
Adjustments to equity for equity-settled share-based payments - 0.1 0.1
- - -
Balance at 24 September 2022 89.3 108.8 (1.0) (3.6) (192.3) 1.2
For the 26 weeks ended 25 September 2021 (unaudited)
Share capital Share premium account Own shares Translation reserve Retained Total equity
deficit
£ million £ million £ million £ million £ million £ million
Balance as at 26 March 2022 as previously reported 89.3 108.8 (1.0) (3.7) (236.4) (43.0)
Profit for the period - - - - 3.6 3.6
Other comprehensive income for the period - - - - 1.9 1.9
Total comprehensive income for the period - 5.5 5.5
- - -
Adjustments to equity for equity-settled share-based payments - 0.3 0.3
- - -
Balance at 25 September 2021 89.3 108.8 (1.0) (3.7) (230.6) (37.2)
For the 52 weeks ended 26 March 2022 (audited)
Share capital Share premium account Own shares Translation reserve Retained Total equity
deficit
£ million £ million £ million £ 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
Condensed consolidated cash flow statement
For the 26 weeks ended 24 September 2022
26 weeks ended 26 weeks ended 52 weeks ended
Note 24 September 2022 25 September 2021 26 March 2022
(Unaudited) (Unaudited) (Audited)
£ million £ million £ million
Net cash flow from operating activities 13 2.1 2.1 8.1
Cash flows from investing activities
Purchase of property, plant and equipment 0.0 (0.1) (0.1)
Purchase of intangibles - software (0.7) (0.5) (2.8)
Cash used in investing activities (0.7) (0.6) (2.9)
Cash flows from financing activities
Interest paid (1.9) (1.3) (2.5)
Repayments of obligations under leases (0.1) (0.2) (0.5)
Net cash outflow from financing activities (2.0) (1.5) (3.0)
Net (decrease)/increase in cash and cash equivalents (0.6) - 2.2
Cash and cash equivalents at beginning of period 9.2 6.9 6.9
Effect of foreign exchange rate changes 0.1 - 0.1
Cash and cash equivalents at end of period 8.7 6.9 9.2
Notes to the condensed consolidated financial statements
1 General information
The review of the Group's business activities, together with factors likely to
affect its future development, performance and position are set out in the
Financial Highlights and Chairman's Statement.
The results for the 26 weeks ended 24 September 2022 are unaudited.
These unaudited condensed consolidated interim financial statements for the
current period and prior financial periods do not constitute statutory
accounts as defined in section 434 of the Companies Act 2006. A copy of the
statutory accounts for the 2022 financial year has been filed with the
Registrar of Companies. The 2022 financial statements are available on the
Group's website (www.mothercareplc.com (http://www.mothercareplc.com) ). The
auditor has reported on these: their report was unqualified.
2 Accounting Policies and Standards
Basis of preparation
These unaudited condensed consolidated interim financial statements have been
prepared in accordance with the Disclosure and Transparency Rules of the UK
Financial Conduct Authority, and with IAS 34 'Interim Financial Reporting'.
Unless otherwise stated, the accounting policies applied, and the judgements,
estimates and assumptions made in applying these policies, are consistent with
those described in the Annual Report and Financial Statements 2022. The
financial period represents the 26 weeks ended 24 September 2022. The
comparative periods are the 26 weeks ended 25 September 2021 and the 52 weeks
ended 26 March 2022.
Going concern
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 Company
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.
Notes to the condensed consolidated financial statements
2 Accounting Policies and Standards (continued)
Going concern (continued)
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 was 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 half yearly report as applied in the Group's last audited
financial statements for the 52 weeks ended 26 March 2022.
Standard issued but not yet effective
There are no standards issued but not yet effective that have been identified
as expected to have a material impact on the disclosures or the amounts
reported in these financial statements.
Foreign currency adjustments
Foreign currency monetary assets and liabilities are revalued to the closing
balance sheet rate under IAS21 "The Effects of Changes in Foreign Exchange
Rates".
Taxation
The taxation charge for the 26 week period is calculated by applying the best
estimate of the average annual effective tax rate expected for the full year
to the profit/loss for the period after adjusting for any significant one-off
items, and a tax credit is recognised only to the extent that the resulting
tax asset is more than likely not to reverse.
Notes to the condensed consolidated financial statements
2 Accounting Policies and Standards (continued)
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).
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.
Notes to the condensed consolidated financial statements
2 Accounting Policies and Standards (continued)
The key APMs that the Group has focused on during the period are as follows:
Group worldwide retail sales
Group worldwide sales are total International and UK retail sales from our
franchise partners. Total Group revenue is a statutory number and is made up
of total receipts from our franchise partners, which includes royalty payments
and the cost of goods dispatched to franchise partners.
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.
3 Segmental information
IFRS 8 requires operating segments to be identified on the basis of internal
reports about components of the Group that are regularly reported to the
Group's executive decision makers (comprising the executive directors and
operating board) in order to allocate resources to the segments and assess
their performance. Under IFRS 8, the Group has not identified that its
continuing operations represent more than one operating segment.
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.
Notes to the condensed consolidated financial statements
4 Adjusted items
Due to their significance or one-off nature, certain items have been
classified as adjusted items as follows:
26 weeks ended 26 weeks ended 52 weeks ended
24 September 2022 25 September 2021 26 March 2022
(Unaudited) (Unaudited) (Audited)
£ million £ million £ million
Adjusted costs/(income):
Restructuring costs included in finance costs 0.9 - 1.2
Property related (income)/costs included in administrative expenses - (0.5) 0.5
Other restructuring costs included in administrative expenses - 0.1 1.4
Adjusted items before tax 0.9 (0.4) 3.1
Restructuring costs included in finance costs - £0.9 million (H1 FY22: £
nil)
The current year costs relate to legal and professional fees incurred in
renegotiating the loan in the current year of £0.5 million and a £0.4
million loss arising from the modification of the existing loan.
Property related (income)/costs included in administrative expenses - £Nil
(H1 FY22: £0.5 million income)
In the comparative period, there was a £0.5 million release of provisions in
relation to onerous lease costs prior to the administration of Mothercare UK
Limited. The release of provision represented amounts settled by the Group
during the period.
Other restructuring costs included in administrative expenses - £Nil (H1
FY22: £0.1 million costs)
In the comparative period £0.1 million of severance pay related costs were
incurred as a result of Group restructuring of operations.
5 Net finance costs
26 weeks ended 26 weeks ended 52 weeks ended
24 September 2022 25 September 2021 26 March 2022
(Unaudited) (Unaudited) (Audited)
£ million £ million £ million
Interest (income)/expense on pension liabilities (0.2) 0.2 0.5
Interest expense on lease liabilities 0.1 0.1 0.1
Fair value movement on embedded derivatives and warrants - - (1.2)
Other net interest 1.3 1.3 2.5
Net finance costs 1.2 1.6 1.9
Notes to the condensed consolidated financial statements
6 Taxation
26 weeks ended 26 weeks ended 52 weeks ended
24 September 2022 25 September 2021 26 March 2022
(Unaudited) (Unaudited) (Audited)
£ million £ million £ million
Current tax - Overseas tax and UK corporation tax 0.4 0.4 1.7
Deferred tax - UK tax charge for temporary differences - - (2.7)
Total tax charge 0.4 0.4 (1.0)
No deferred tax asset has been recognised in the financial statements at the
balance sheet date (H1 FY22: £nil million).
7 Earnings per share
26 weeks ended 26 weeks ended 52 weeks ended
24 September 2022 25 September 2021 26 March 2022 (Audited)
(Unaudited) (Unaudited)
million million million
Weighted average number of shares in issue for the purpose of basic earnings
per share
563.8 562.9 563.8
Dilutive potential ordinary shares 1.8 28.7 10.1
Weighted average number of shares in issue for the purpose of diluted earnings
per share
565.6 591.6 573.9
£ million £ million £ million
Profit for basic and diluted earnings per share 0.4 3.6 12.1
Adjusted items 0.9 (0.4) (3.1)
Tax effect of adjusted items - - -
Adjusted earnings 1.3 3.2 (9.0)
£ million £ million £ million
Pence Pence Pence
Basic earnings per share 0.1 0.6 1.6
Basic adjusted earnings per share 0.2 0.6 2.1
Diluted earnings per share 0.1 0.6 1.6
Diluted adjusted earnings per share 0.2 0.5 2.1
The total dividend for the period is nil pence per share (H1 FY22: nil pence
per share).
Notes to the condensed consolidated financial statements
8 Tangible fixed assets and Software assets
There were no additions to Right-of-use assets in the period.
Capital additions of £1.0 million were made during the period (H1 FY22: £0.3
million). These comprised tangible fixed assets of £0.0 million (H1 FY22:
£nil million) and software assets of £1.0 million (H1 FY22: £0.3 million).
9 Borrowings
The Group had outstanding borrowings at 24 September 2022 of £19.3 million
(26 March 2022: £19.1 million).
The credit facility of £19.3 million (26 March 2022: £19.1 million) is
secured on the shares of specified obligor subsidiaries and the assets of the
group not already pledged. The Group also holds a financial asset of
£0.2 million (26 March 2022: £0.2 million) reflecting the expected
proceeds from the wind-down of the UK operations by the administrators of
Mothercare UK Ltd and Mothercare Business Services Limited.
10 Retirement benefit schemes
The Group has calculated the value of its pension liability under IAS 19 as at
24 September 2022. The FY22 year end assumptions have been rolled forward and
updated for changes in market rates over the current interim period.
For the two schemes, based on the actuarial assumptions from the last full
actuarial valuations carried out as of March 2020 and using the rolled forward
assumptions referred to above, a net asset of £11.8 million (H1 FY22: £22.0
million liability) has been recognised. The swing to a surplus position was
mainly due to the assumptions used to place a value on the scheme liabilities.
The discount rate and long term inflation expectations increased over the
period.
11 Financial instruments: fair value disclosures
The Group held the following financial instruments at fair value at 24
September 2022.
Fair value measurements at 24 September 2022 Fair value measurements at 25 September 2021 Fair value measurements at 26 March 2022
(Unaudited) (Unaudited)) (Audited)
£ million £ million £ million
Non-current financial liabilities:
Derivative financial instruments:
Embedded derivative arising on warrants - (1.2) -
Financial guarantees - (0.3) -
Current financial assets:
Derivative financial instruments:
Financial asset 0.2 2.6 0.2
0.2 1.1 0.2
In prior year, the Group had warrants which provides the opportunity to
purchase shares at an exercise price of 12 pence per share and a financial
guarantee over a leasehold premises previously traded as Mothercare UK Ltd (in
administration). The option to purchase at the exercise price was fair valued
and treated as an embedded derivative. The fair value of embedded derivatives
arising on the warrant was measured using the Black-Scholes model, based on
quoted prices and fell under level 2 of IFRS 7's fair value hierarchy.
Notes to the condensed consolidated financial statements
11 Financial instruments: fair value disclosures (continued)
The Group's financial asset (Level 3 within the IFRS 7 hierarchy) represents a
right, arising under the sales purchase agreement with the administrators of
MUK, to receive the proceeds of the wind-up of the UK retail store estate and
website operations as repayment for the Group's secured borrowings. It has
been estimated by the administrators that the Group will receive £0.2 million
(H1 FY22: £2.6 million). Many of the outflows which would impact the
valuation of this financial asset are finalised, with the final repayment
being dependent on the amounts to be received back by the merchant acquirer
and final settlement of VAT.
The Directors consider that the carrying value amounts of financial assets and
financial liabilities recorded at amortised cost in the financial statements
are approximately equal to their fair values.
12 Share-based payments
A charge is recognised for share-based payments based on the fair value of the
awards at the date of grant, the estimated number of shares that will vest and
the vesting period of each award. The total net charge for share-based
payments under IFRS 2 is £0.1 million (H1 FY22: £0.3 million).
13 Notes to the cash flow statement
26 weeks ended 26 weeks ended 52 weeks ended
24 September 2022 25 September 2021 26 March 2022
(Unaudited) (Unaudited) (Audited)
£ million £ million £ million
Profit from operations 2.9 5.6 13.0
Adjustments for:
Depreciation of property, plant and equipment and right of use assets 0.3 0.3 0.6
Amortisation of intangible assets 0.1 0.1 0.3
Loss/(gain) on non-cash foreign currency adjustments 1.4 0.1 (0.1)
Share-based payments 0.1 0.3 0.5
Movement in provisions (1.1) (2.6) (3.4)
Net gain on financial derivative instruments - - (0.6)
Payments to retirement benefit schemes (1.3) (2.9) (5.2)
Charge in respect of retirement benefit schemes 1.0 1.1 1.7
Operating cash flow before movement in working capital 3.4 2.0 6.8
Decrease in inventories 1.1 1.4 3.8
Decrease in receivables 0.2 6.0 11.7
Decrease in payables (1.9) (6.8) (12.9)
Cash generated from operations 2.8 2.6 9.4
Income taxes paid (0.7) (0.5) (1.3)
Net cash flow from operating 2.1 2.1 8.1
activities
Analysis of net debt
Foreign exchange
26 March Non-cash movements 24 September
2022 Cash flow 2022
£ million £ million £ million £ million £ million
Cash and cash equivalents 9.2 (0.6) 0.1 - 8.7
IFRS 16 lease liabilities (1.1) 0.1 - - (1.0)
Term loan (19.1) - - (0.2) (19.3)
Net debt (11.0) (0.5) 0.1 (0.2) (11.6)
Notes to the condensed consolidated financial statements
14 Related party transactions
Transactions between the Group and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. Transactions between the Group and its joint ventures and associates are
disclosed below.
Trading transactions:
There was no revenue earned from related parties in the current or prior
period.
A provision of £1.8 million (H1 FY22: £1.8 million) exists for doubtful
debts in respect of the amounts owed by the related party.
Additional Disclosures
Embedded enterprise risk management framework
We have implemented an embedded enterprise risk management (ERM) framework
which applies to every part of our business operations. The primary focus of
ERM is to manage the principal and emerging risks to the business and to
support management in risk-based decision making. The Board monitors ERM by
assessing the effectiveness of internal controls and effectiveness of risk
management. Clear risk tolerance levels across strategic, operational and
reputational risks are set by the Board enabling consistent and risk aware
decision making.
Principal risks and uncertainties
Our Principal Risks are those that can materially impact our performance,
opportunities or reputation. Our Executive, Audit and Risk Committee, and
Operating Board, undertake an assessment of our Principal risks at least
annually in relation to achieving our strategy and our future performance.
Mothercare has a policy of continuously identifying and reviewing Principal
Risks. Workshops are held with department leaders to identify, assess and
evaluate Principal Risks, and with the Operating Board to discuss, evaluate,
mitigate and own Principal and operational risks. The following risks have
been agreed:
· Liquidity
· Dependence on a small number of partners
· Covid-19
· Challenging global economic and political conditions
· ERP system
· Regulatory and legal
· Brand, reputation and relationships
· Personnel and talent
Directors' Responsibility statement
The Directors are responsible for preparing the Interim Results for the
26-week period ended 24 September 2022 in accordance with applicable law,
regulations and accounting standards. The Directors confirm that to the best
of their knowledge the condensed consolidated interim financial statements
have been prepared in accordance with IAS 34: 'Interim Financial Reporting',
and that the interim management report includes a fair review of the
information required by DTR 4.2.7R and DTR 4.2.8R, namely:
· an indication of the important events that have occurred during
the first 26 weeks of the financial year and their impact on the condensed
consolidated interim financial statements, and a description of the principal
risks and uncertainties for the remaining 26 weeks of the financial year; and
· material related party transactions in the first 26 weeks of the
year and any material changes in the related party transactions described in
the last annual report.
The Directors of Mothercare plc are listed on page 38 of the Mothercare plc
Annual Report and Financial Statements 2022. A list of directors is maintained
on the Mothercare plc website at: www.mothercareplc.com. With the exception of
today's announcement, there have been no changes since the publication of the
Annual Report.
By order of the Board
Clive Whiley
Andrew
Cook
Chairman
Chief Financial Officer
24 November 2022
Shareholder information
Financial calendar
2023
Preliminary announcement of results for the 52 weeks ending 25 March 2023 July
Issue of report and accounts July
Annual General Meeting September
Announcement of interim results for the 26 weeks ending 23 September 2023 November
Registered office and head office
Westside 1, London Road, Hemel Hempstead, Hertfordshire HP3 9TD
www.mothercareplc.com
Registered number 1950509
Group Company Secretary
Lynne Medini
Registrars
Administrative enquiries concerning shareholders in Mothercare plc for such
matters as the loss of a share certificate, dividend payments or a change of
address should be directed, in the first instance, to the registrars:
Equiniti Limited
Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
Telephone 0371 384 2013
Overseas +44 (0)121 415 7042
www.shareview.co.uk
Postal share dealing service
A postal share dealing service is available through the Company's registrars
for the purchase and sale of Mothercare plc shares from the
www.shareview.co.uk website or on the shareholder helpline Telephone 0371 384
2013, Overseas +44(0)121 415 7042.
Further details can be obtained from Equiniti on 0371 384 2013 (calls to this
number are charged at the standard landline rate per minute plus network
extras. Lines are open 8.30 am to 5.30pm, Monday to Friday).
The Company's stockbrokers are:
Numis Securities Limited
45 Gresham Street
London EC2V 7BF
Telephone 020 7260 1000
finnCap Limited
One Bartholomew Close
London EC1A 7BL
Telephone 020 7220 0500
ShareGift
Shareholders with a small number of shares, the value of which makes it
uneconomic to sell them, may wish to consider donating them to charity through
ShareGift, a registered charity administered by The Orr Mackintosh Foundation.
The share transfer form needed to make a donation may be obtained from the
Mothercare plc registrars, Equiniti Limited.
Further information about ShareGift is available from www.sharegift.org or by
telephone on 020 7930 3737.
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