REG - Mothercare PLC - Interim results announcement
25/11/2021 07:00
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RNS Number : 5180T Mothercare PLC 25 November 2021
Mothercare plc
Interim results announcement
The true potential of the Group starting to show post restructuring
Mothercare plc ("Mothercare" or "the Group" or "Company"), the global
specialist brand for parents and young children, today announces unaudited
half year results for the 26-week period to 25 September 2021 ("H1 FY22"). The
comparative period was a 28-week period to 10 October 2020 ("H1 FY21"). At the
beginning of this financial year the Company moved from 13 periods of 4 weeks
per annum to 12 periods. Each quarter of the year includes 3 periods, with the
first two of 4 weeks, followed by a 5 week period. This has resulted in H1
FY22 figures being for a period of 2 weeks, 7% less than H1 FY21 comparatives.
Key Highlights
· Adjusted EBITDA of £5.6 million (H1 FY21: loss of £(0.1)
million) demonstrates the benefit of the actions we have taken over recent
years to transform the Group and reflects the true potential in the business,
despite the significant negative impact of Covid-19.
· Group adjusted profit before taxation from operations of £3.6
million (H1 FY21: loss of £(4.4) million).
· Total Group profit before taxation of £3.6 million (H1 FY21:
loss of £(13.2) million).
· Initiatives implemented to deliver further improved profitability
when we return to more normal pre-pandemic levels of business.
· Strong order book from franchise partners for autumn/winter 2022
season, the second season of our new elevated product offering following
positive feedback from global franchise partners.
· Net debt at 25 September 2021 of £13.5 million (£26.8 million
at 10 October 2020).
· Pension scheme deficit materially reduced to £91 million as at
30 October 2021 (£124.6 million deficit at 31 March 2020).
Our Group
26 weeks to 28 weeks to
25 Sep 2021 10 Oct 2020
Turnover £m 41.7 44.4
Adjusted EBITDA(2 )£m 5.6 (0.1)
Adjusted profit/(loss) from operations( 2 )£m 5.2 (1.3)
Adjusted profit/(loss) before taxation(2 )£m 3.6 (4.4)
Profit/ (loss) for the period (restated(4)) £m 3.6 (13.2)
Adjusted basic earnings/(loss) per share(2 ) 0.6p (1.2)p
Basic earnings per/(loss) share restated(4) 0.6p (3.5)p
Our Franchise partners
26 weeks to 28 weeks to
25 Sep 2021 10 Oct 2020
Worldwide retail sales(1) £m 184.3 189.2
Online retail sales £m 17.6 27.1
Total number of stores 740 793
Space (k) sq. ft. 1,967 2,180
Clive Whiley, Chairman of Mothercare plc, commented:
"I am pleased to announce results that demonstrate we are moving closer to
unlocking the true underlying potential of Mothercare, reflecting the strong
foundations we have created for the business over recent years, despite the
impact that Covid-19 still has had over the period.
With positive feedback to our new product ranges, and a lean operating
structure, we enter the second half with growing confidence for our future
prospects."
Investor and analyst enquiries to:
Mothercare plc
Email: investorrelations@mothercare.com
(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 Broker)
Tel: 020
7220 0500
Christopher Raggett
Media enquiries to:
MHP
Communications
Email: mothercare@mhpc.com (mailto:mothercare@mhpc.com)
Simon
Hockridge
Tel: 020 3128 8789
Tim Rowntree
Alistair de
Kare-Silver
Notes
1 - Worldwide retail sales are total International retail franchise partner
sales to end customers (which are estimated and unaudited) in relation to
continuing operations only. International stores refer to overseas franchise
and joint venture stores.
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 including shareholder loans, cash
at bank and IFRS 16 lease liabilities.
4- The comparative results for the period to 10 October 2020 have been
restated to reflect the impact of the prior year adjustments, as detailed in
note 16.
5 - 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.
6 - 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.
7 - 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.
8 - Mothercare plc's Legal Entity Identifier ("LEI") number is
213800ZL6RPV9Z9GFO74.
Chairman's statement
Overview
Whilst the business is still being heavily impacted by the effects of
Covid-19, these results show the transformation that has been achieved by the
Group over recent years and the potential moving forward. Throughout the
pandemic Mothercare has demonstrated its strength and resilience as a leading
global parenting brand and celebrated its 60(th) anniversary in September this
year. These strong foundations would not have been possible without the
commitment and support of all our stake-holders, including our Mothercare
colleagues, our franchise partners, our manufacturing partners, our pension
scheme trustees and our investors.
Across this period Covid-19 has continued to have a significant impact on
several elements of our business throughout the world, above levels that those
of us based in the UK have been experiencing. At the half year end, we still
had just over 10% of our partners' global stores closed. Despite these
headwinds we have achieved a considerable improvement in our profitability, as
the initiatives we have previously implemented begin to bear fruit and the
Group is well placed for further improvements in performance as retail sales
return to their pre-pandemic levels across the globe.
Trading Update & Outlook
Half year retail sales of £184 million are largely in line with the levels
for the equivalent period for last year. Both years have been heavily impacted
by Covid-19 and remain over 25% below the levels we would otherwise expect.
The online retail sales for the period to October 2020 were significantly
higher than previous years, reflecting the increased online activity due to
store closures at that time. For the period to September 2021 with more stores
open, the online sales whilst lower than those to October 2020, represent 9.5%
of total retail sales more than double the 4.9% that the online sales
represented in the half year period to October 2019.
The ongoing disruption to global freight movement resulted in some products
for the autumn/winter 2021 season being delivered to our franchise partners at
the beginning of this financial period rather than the previous financial year
as would usually happen. This will have moved some of the margin into this
financial period, though true year on year comparisons are difficult as the
period to October 2020 was also impacted by delays and variations caused by
the administration of Mothercare UK in November 2019.
We have recently presented our enhanced clothing range for the autumn/winter
2022 season to our franchise partners and both the feedback and orders have
been very positive. Our clothing ranges, whilst still offering great choice at
a variety of price points, are now offering improved design, fashionability,
quality, and value, that will result in clearer differentiation from our
competitors' offerings. The first full season with this elevated product range
will be spring/summer 2022, which is launching in stores in January next year.
We have been excited to see the reaction of our franchise partners and we look
forward to seeing customer feedback and learning from their buying behaviours
to further improve and refine our product offering for future seasons.
Absent any significant further impact from Covid-19, based on the reaction of
our franchise partners and the levels of product that they have already
committed to buy for the two 2022 seasons, this would result in retail sales
for our franchise partners of around £500 million for the calendar year 2022.
Whilst not a direct comparison, our franchise partners' worldwide retail sales
for the financial year to March 2020 were £542 million.
Since the end of our previous financial year we have faced several lockdowns
and restrictions in our franchise territories. Our manufacturing partners have
also faced disruptions - such as lockdowns in India and Bangladesh and power
restrictions in China - and we have continued to experience delays and
uncertainties in global shipping. The resultant impact on the availability of
product on time for our franchise partners has impacted their ability to sell
the product at full price and compounded local Covid-19 related restrictions.
In our markets where our franchise partners sell a significant portion of
locally sourced, non-Mothercare branded product, on which they invariably
achieve lower margins, this reduction in profitability has been even more
pronounced. One of the ways we are seeking to support these markets is by
further increasing our offer of Mothercare branded products in areas other
than clothing, which account for the majority of these locally sourced
products.
Whilst we remain cautious given the ongoing pandemic restrictions and supply
chain headwinds, we believe that the second half of this financial year should
deliver a performance at similar levels to the first half. Our medium-term
guidance remains that the steady state operation of our existing franchise
operations, in more normal circumstances, should exceed £15 million operating
profit. Furthermore, with encouraging results from our recent focus on product
design we are now concentrating our efforts upon accelerating the growth of
our brand exposure to new and attractive markets.
Growth Opportunities
In our last Annual Report I outlined the areas that we are exploring to grow
our bottom line:
- organic growth within our existing territories,
- entering new territories and
- step change growth beyond our historic limits.
We are encouraged by early discussions around the opportunities of licensed
product in both our existing and new territories and there is some interest in
the use of our brand beyond the current product ranges. We are evaluating
various possibilities of entering new territories with a pure online business
either directly ourselves via a marketplace type offering or with partners
that would provide the website and full supply chain capability as an
alternative to our existing franchised markets. Furthermore we have reviewed
other opportunities and are optimistic that we will be able to bring
synergies and enhanced profitability into our business as the core strengths
of the Group continue to demonstrate momentum.
We will update further on these opportunities as they progress.
Update on Initiatives
Supply chain model
We continue to develop our supply chain to reduce cost, complexity and deliver
goods to our franchise partners in the quickest way. With shipping for spring/
summer 2022 underway, we will deliver circa 84% of our products direct from
our country of manufacturing to our retail partners' markets. By autumn/winter
2022 we expect this figure to rise to 88%. Our UK distribution centre will
close as planned early next year.
Enterprise Resource Planning ('ERP') System
The project is progressing well and we are confident that the final system
will deliver at least the expected benefits and cost savings. During the
initial phase we identified some potential improvements, which will delay the
go live date slightly to around the middle of 2022 but should provide a better
and more stable outcome. The final system will consist of a leading product
lifecycle management system ('PLM') 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.
Brand Review
We have recently commissioned an in-depth review of our brand position and
customer perceptions across ten of our markets. We believe this is an
important project as over the years, in our international markets, the brand
has not been clearly and consistently communicated. As we dedicate more cost
and resource to elevating our product it becomes increasingly important that
our brand strategy is clear and our customers' expectations are met. This
project will complete in early 2022 and we look forward to reviewing the
results to inform future brand strategy.
Cost Reductions
The results for the first half of the year show a further reduction in
administrative expenses of 13% compared to last year demonstrating our
continual review and challenge of costs, 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, as at 30/10/21 the deficit
has reduced by 27% to £91 million with total assets at £424 million and
total liabilities of £515 million. The reduced deficit is attributable to the
contributions made by the Group of £8m, coupled with an improvement in the
valuation of the investments from a relatively depressed position in March
2020.
The current recovery plan is for payments in the financial years to: March
2022 £4.1 million; March 2023 £9.0 million; March 2024 £10.5 million; March
2025 £12 million; March 2026 to March 2030 £15 million each year and March
2031 £3.3 million.
Based on actuarial modelling there is a 50% chance that the schemes will be
full funded by March 2027, which would mean, on a purely theoretical basis, a
reduction in the deficit recovery contributions of some £50 million in
aggregate over the planned contributions period, if this 50% chance occurred.
The next full actuarial valuation, at which time the recovery plan will be
formally reviewed, will be at March 2023. At that time if the recent reduction
in the deficit remains, the subsequent annual payments could be significantly
reduced.
Clive Whiley
Chairman
Condensed consolidated income statement
For the 26 weeks ended 25 September 2021
26 weeks ended 25 September 2021 28 weeks ended 10 October 2020 52 weeks ended
(Unaudited) Restated(*) 27 March 2021
(Unaudited) (Audited)
Before adjusted items Adjusted items(1) Total Before adjusted items Adjusted items (1) Total Total
£ million £ million
Note £ million £ million
£ million £ million £ million
Continuing operations
Revenue 41.7 - 41.7 44.4 - 44.4 85.8
Cost of sales (25.9) - (25.9) (33.5) - (33.5) (63.3)
Gross profit 15.8 - 15.8 10.9 - 10.9 22.5
Administrative expenses (10.6) 0.4 (10.2) (12.2) (1.9) (14.1) (25.9)
Other income - - - - - - 2.0
Impairment losses on receivables - - - - - - (1.0)
Profit/(loss) from operations 5.2 0.4 5.6 (1.3) (1.9) (3.2) (2.4)
Net finance costs 5 (1.6) - (1.6) (3.1) (6.8) (9.9) (19.0)
Profit/(loss) before taxation 3.6 0.4 4.0 (4.4) (8.7) (13.1) (21.4)
Taxation 6 (0.4) - (0.4) (0.1) - (0.1) (0.1)
Profit/(loss) for the period 3.2 0.4 3.6 (4.5) (8.7) (13.2) (21.5)
Profit/(loss) for the period attributable to equity holders of the parent
3.2 0.4 3.6 (4.5) (8.7) (13.2) (21.5)
Earnings/(losses) per share
Basic 7 0.6 p 0.6 p (1.2) p (3.5) p (5.7) p
Diluted 7 0.5 p 0.6 p (1.2) p (3.5) p (5.7) p
(1) Adjusted items included: property related costs, restructuring
costs included in administrative expenses and the fair value movement on
embedded derivatives. 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 10 October 2020 have been restated
to reflect the impact of the prior year adjustments, as detailed in note 16.
Condensed consolidated statement of comprehensive income
For the 26 weeks ended 25 September 2021
26 weeks ended 28 weeks ended 52 weeks ended
25 September 2021 10 October 2020 27 March 2021
(Unaudited) Restated (Audited)
(Unaudited)
£ million £ million £ million
Profit/(loss) for the period 3.6 (13.2) (21.5)
Items that will not be reclassified subsequently to the income statement:
Actuarial gain/(loss) on defined benefit pension schemes
1.9 (57.8) (56.7)
Income tax relating to items not reclassified - 5.4 10.2
1.9 (52.4) (46.5)
Items that may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations - 0.9 -
Deferred tax on items reclassified - - -
- 0.9 -
Other comprehensive income/(expense) for the period 1.9 (51.5) (46.5)
Total comprehensive income/(expense) for the period wholly attributable to
equity holders of the parent
5.5 (64.7) (68.0)
Condensed consolidated balance sheet
As at 25 September 2021
25 September 2021 10 October 2020 27 March 2021
(Unaudited) Restated (Audited)
(Unaudited)
Note £ million £ million £ million
Non-current assets
Intangible assets 8 1.2 0.5 1.1
Property, plant and equipment 8 0.4 0.5 0.5
Right-of-use assets 1.1 8.5 1.2
2.7 9.5 2.8
Current assets
Inventories 4.5 6.7 5.9
Trade and other receivables 11.5 14.3 17.4
Derivative financial instruments 11 2.6 11.0 2.6
Cash and cash equivalents 6.9 4.6 6.9
25.5 36.6 32.8
Total assets 28.2 46.1 35.6
Current liabilities
Trade and other payables (18.2) (24.3) (24.9)
Borrowings 9 - (33.1) -
Lease liabilities (0.3) (1.3) (0.3)
Derivative financial instruments 11 (1.5) (7.1) (1.8)
Provisions (2.3) (4.4) (4.2)
(22.3) (70.2) (31.2)
Non-current liabilities
Borrowings 9 (19.0) - (19.0)
Lease liabilities (0.9) (8.0) (1.1)
Retirement benefit obligations 10 (22.0) (28.8) (25.6)
Provisions (1.2) (2.4) (1.7)
Deferred tax liability - (5.0) -
(43.1) (44.2) (47.4)
Total liabilities (65.4) (114.4) (78.6)
Net liabilities (37.2) (68.3) (43.0)
Equity attributable to equity holders of the parent
Share capital 89.4 87.4 89.3
Share premium account 108.7 91.7 108.8
Own shares (1.0) (1.0) (1.0)
Translation reserve (3.5) (2.8) (3.7)
Hedging reserve - - -
Retained deficit (230.8) (243.6) (236.4)
Total equity (37.2) (68.3) (43.0)
Condensed consolidated statement of changes in equity
For the 26 weeks ended 25 September 2021 (unaudited)
Share capital Share premium account Own shares Translation reserve Hedging reserve Retained deficit Total equity
£ million £ million £ million £ million £ million £ million £ million
Balance as at 27 March 2021 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 28 weeks ended 10 October 2020 (unaudited)
Share capital Share premium account Own shares Translation reserve Hedging reserve Retained deficit Total equity
Restated Restated
£ million £ million £ million £ million £ million £ million £ million
Balance as at 28 March 2020 as restated
87.4 91.7 (1.0) (3.7) - (178.4) (4.0)
Loss for the period restated - - - - - (13.2) (13.2)
Other comprehensive income/(expense) for the period 0.9 - (52.4) (51.5)
- - -
Total comprehensive (expense)/income for the period 0.9 - (65.6) (64.7)
- - -
Adjustments to equity for equity-settled share-based payments 0.4 0.4
- - - - -
Balance at 10 October 2020 as restated 87.4 91.7 (1.0) (2.8) - (243.6) (68.3)
For the 52 weeks ended 27 March 2021 (audited)
Share capital Share premium account Own shares Translation reserve Hedging reserve Retained deficit Total equity
£ million £ million £ million £ million £ 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 as 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)
Items that will be reclassified to the income statement - - - - - - -
Other comprehensive (expense)/income for the period - - - - - (46.5) (46.5)
Loss for the period - - - - - (21.5) (21.5)
Total comprehensive (expense)/income for the period - - - - - (68.0) (68.0)
Conversion of shareholder loans 1.9 17.1 - - - 9.5 28.5
Adjustment to equity for equity-settled share-based payments - - - - - 0.5 0.5
Balance at 27 March 2021 89.3 108.8 (1.0) (3.7) - (236.4) (43.0)
Condensed consolidated cash flow statement
For the 26 weeks ended 25 September 2021
26 weeks ended 28 weeks ended 52 weeks ended
Note 25 September 2021 10 October 2020 27 March 2021
(Unaudited) (Unaudited) (Audited)
( )
£ million £ million £ million
Net cash flow from operating activities 13 2.1 0.4 (2.6)
Cash flows from investing activities
Purchase of property, plant and equipment (0.1) (0.2) (0.2)
Purchase of intangibles - software (0.5) - (0.2)
Cash used in investing activities (0.6) (0.2) (0.4)
Cash flows from financing activities
Interest paid (1.3) (1.1) (1.4)
Repayments of obligations under leases (0.2) (0.5) (2.1)
Repayment of facility - - (13.0)
Drawdown of facility - - 7.3
Net cash (outflow)/inflow from financing activities (1.5) (1.6) 3.8
Net increase/(decrease) in cash and cash equivalents - (1.4) 0.8
Cash and cash equivalents at beginning of period 6.9 6.1 6.1
Effect of foreign exchange rate changes - (0.1) -
Cash and cash equivalents at end of period
6.9 4.6 6.9
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 25 September 2021 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 2021 financial year has been filed with the
Registrar of Companies. The 2021 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 qualified.
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', as
adopted by the European Union. 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 2021. The financial period represents the 26
weeks ended 25 September 2021. The comparative periods are the 28 weeks ended
10 October 2020 and the 52 weeks ended 27 March 2021.
Going concern
When considering the going concern assumption, the Directors of the Company
have reviewed a number of factors, including the Company's trading results and
its continued access to sufficient borrowing facilities against the Company's
latest forecasts and projections, comprising:
1) A Base Case forecast, which is built up at franchise partner level and
incorporates key assumptions specific to each partner and the impact of
Covid‐19 in each jurisdiction. This Base Case forecasts that the sales for
the financial year to March 2022 increase to levels similar to those achieved
immediately before the impact of Covid‐19 and the sales for the year to
March 2023 show a more modest increase.
2) A Sensitised forecast, which applies sensitivities against the Base Case
for reasonably possible adverse variations in performance, reflecting the
ongoing volatility in our key markets. This assumes the following additional
key assumptions:
· A delayed recovery that assumes that retail sales remain subdued
throughout the majority of the forecast period as a result of continued
restrictions on both our franchise and manufacturing partners as a result of
Covid‐19.
· The potential for subsequent reintroduction or imposition of new
measures to control Covid‐19 in areas that will restrict both our franchise
and manufacturing partners and consequentially impact our retail sales.
· The Sensitised forecast shows a decrease in sales of 7% as compared
to the Base Case in the financial years to March 2022 and 2023, with the net
working capital and the overhead costs assumed to remain constant. Despite
showing a decrease against the Base Case, the assumptions still assume an
increase in revenue from the financial years 2021 to 2022. The four debt
covenants are also not forecast to be breached under this scenario; and
3) A Reverse Stress Test which assumes an overall increase in net sales in the
financial year to March 2022 of around half that used in the Base Case.
Notes to the condensed consolidated financial statements
2 Accounting Policies and Standards (continued)
Going concern (continued)
Based on the sales to date in the current financial year to March 2022, the
Company is significantly behind the Base Case forecast due to the adverse
impact of Covid‐19 in certain jurisdictions. This post year end performance
could extend throughout the going concern assessment period as a result of the
ongoing Covid‐19 restrictions and has therefore already demonstrated that
the Base Case scenario is challenging.
The Board's confidence that the Company will operate within the terms of the
borrowing facilities, and the wider Group's proven cash management capability
supports our preparation of the financial statements on a going concern basis.
We have modelled a substantial reduction in global retail sales in our
sensitised case and reverse stress test as a result of possible future store
closures and subdued consumer confidence or as a result of reduced
availability due to restrictions in our manufacturing partners to maintain
production and supply chain constraints throughout the remainder of FY22 with
recovery in FY23.
The impact of the pandemic on the future prospects of the Company is not fully
quantifiable at the reporting date, as the complexity and scale of
restrictions in place at a global level is outside of what any business could
accurately reflect in a financial forecast. However, if trading conditions
were to deteriorate beyond the level of risks applied in the sensitised
forecast, or the Company and the wider Group were unable to mitigate the
material uncertainties assumed in the Base Case Forecast and the wider Group
were not able to execute further cost or cash management programmes, the
Company would at certain points of the working capital cycle have insufficient
cash. If this scenario were to crystallise the Company 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, on this basis, the Directors have concluded that there is a
material uncertainty that may cast significant doubt on the Company's ability
to continue as a going concern.
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 27 March 2021.
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 except where expressly stated.
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 retail sales, which are the
estimated retail sales of overseas franchise and joint venture partners to
their customers. Total Group revenue is a statutory number and is made up of
total receipts from International franchise partners, which includes royalty
payments and the cost of goods dispatched to international franchise partners.
International like-for-like sales
International like-for-like sales are the estimated franchisee retail sales
from stores that have been trading continuously from the same selling space
for at least a year. The Group reports some financial measures on both a
reported and constant currency basis. Sales in constant currency exclude the
impact of movements in foreign exchange translation. The constant currency
basis retranslates the previous year revenues at the average actual periodic
exchange rates used in the current financial year. This measure is presented
as a means of eliminating the effects of exchange rate fluctuations on the
year-on-year reported results.
Profit/(loss) before adjusted items
The Group's policy is to exclude items that are one-off and significant in
nature and/or value and where treatment as an adjusted item provides
stakeholders with additional useful information to assess the year-on-year
trading performance of the Group.
3 Segmental information
IFRS 8 requires operating segments to be identified on the basis of internal
reports about components of the Group that are regularly reported to the
Group's executive decision makers (comprising the executive directors and
operating board) in order to allocate resources to the segments and assess
their performance. Under IFRS 8, the Group has not identified that its
continuing operations represent more than one operating segment.
Previously, the Group reported on two segments: UK and International; control
of the UK segment was lost on 5 November 2019, and as a result only the
International business remains as a continuing operation.
Management have identified that the former Mini Club operation could
constitute a separate operating segment as it had its own operational manager,
however it was considered to meet all the aggregation criteria under IFRS 8,
including: the nature of products; the nature of the production processes; the
type or class of customer; the methods used to distribute products; and the
nature of the regulatory environment. As the Mini Club operation ceased in
October 2020, it is no longer an aggregated operating segment.
The results of franchise partners are not reported separately, nor are
resources allocated on a franchise partner by franchise partner basis, and
therefore have not been identified to constitute separate operating segments.
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 28 weeks ended 52 weeks ended
25 September 2021 10 October 2020 Restated 27 March 2021
(Unaudited) (Unaudited) (Audited)
£ million £ million £ million
Adjusted (income)/costs:
Property related (income)/costs included in administrative expenses (0.5) 2.2 0.5
Other restructuring costs/(income) included in administrative expenses
0.1 (0.3) 2.1
Restructuring costs included in finance costs - 6.8 10.3
Adjusted items before tax (0.4) 8.7 12.9
Property related (income)/costs included in administrative expenses - £0.5
million credit (H1 FY21 restated: £2.2 million charge)
( )
Following an agreed settlement during the period, there was a £0.5 million
release of provisions in relation to onerous lease costs prior to the
administration of Mothercare UK Limited (H1 FY21: £1.2 million charge). The
release of provision represented amounts settled by the Group during the
period.
In the comparative period there were also £1.0 million of costs not
recognised this period, which comprised:
- £0.5 million of costs in relations to the relocation of IT servers
incurred due to the change in Head Office location
- £0.5 million of costs in relation to the Group's warehouse facility,
which has now been assigned to a new tenant - including legal costs,
utilities, and dilapidations severance and legal fees in relation to group
restructuring.
Other restructuring costs included in administrative expenses - £0.1 million
(H1 FY21: £0.3 million credit)
During the period, £0.1 million of severance pay related costs were incurred
as a result of Group restructuring of operations.
In the comparative period, a credit of £0.3 million was recognised, which
related to a specific pay provision for the potential costs of complying with
the National Minimum Wage (NMW) Regulations. The liability arose due to
time off in lieu payments timing not meeting the requirements of the NMW
regulations, and incidences of colleagues purchasing items of uniform that
take the average pay below that required by NMW threshold. The initial
provision of £0.5 million based on detailed workings for one year, was trued
up to a net credit of £0.3 million due to settlements made within the year.
Restructuring costs included in finance costs - £nil million (H1 FY21: £6.8
million)
In the comparative period, there was £6.8 million, which related to an
increase in the embedded derivative liability. The increase in the liability
included the conversion options for four additional shareholder loans from the
second equity raise in November 2019 and reduced conversion price of the four
original shareholder loans from the first equity raise in May 2018.
The terms of the Shareholder loans allowed for these loans to be converted
into new ordinary shares of the Company at specific dates. The lenders' option
to convert represented an embedded derivative that was fair valued using a
Black Scholes model at each balance sheet date. These loans were converted
into equity in March 2021.
Notes to the condensed consolidated financial statements
5 Net finance costs
26 weeks ended 28 weeks ended 52 weeks ended
25 September 2021 10 October 2020 27 March 2021
(Unaudited) (Unaudited) (Audited)
£ million £ million £ million
Interest expense/(income) on pension liabilities 0.2 (0.3) (0.2)
Interest expense on lease liabilities 0.1 0.5 0.9
Fair value movement on embedded derivatives and warrants - 6.8 10.3
Other net interest 1.3 2.9 8.0
Net finance costs 1.6 9.9 19.0
6 Taxation
26 weeks ended 28 weeks ended 52 weeks ended
25 September 2020 10 October 2020 27 March 2021
(Unaudited) (Unaudited) (Audited)
£ million £ million £ million
Current tax - Overseas tax and UK corporation tax 0.4 0.1 0.3
Deferred tax - UK tax charge for temporary differences - - (0.2)
Total tax charge 0.4 0.1 0.1
7 Earnings/(losses) per share
26 weeks ended 28 weeks ended 52 weeks ended
25 September 2021 10 October 2020 27 March 2021
(Unaudited) Restated (Audited)
(Unaudited)
million million million
Weighted average number of shares in issue for the purpose of basic earnings
per share
563.8 373.2 379.0
Dilution - option schemes (restated) 28.7 - -
Weighted average number of shares in issue for the purpose of diluted earnings
per share
592.5 373.2 379.0
£ million £ million £ million
Profit/(loss) for basic and diluted earnings per share restated 3.6 (13.2) (21.5)
Adjusted items restated (note 4) (0.4) 8.7 12.9
Tax effect of adjusted items - - -
Adjusted profits/(losses) 3.2 (4.5) (8.6)
Pence Pence Pence
Basic earnings/(losses) per share 0.6 (3.5) (5.7)
Basic adjusted earnings/(losses) per share 0.6 (1.2) (2.3)
Diluted earnings/(losses) per share 0.6 (3.5) (5.7)
Diluted adjusted earnings/(losses) per share 0.5 (1.2) (2.3)
The total dividend for the period is nil pence per share (H1 FY21: nil pence
per share).
Notes to the condensed consolidated financial statements
8 Tangible fixed assets and Software assets
There were £ nil millions of additions to Right-of-use assets in the period.
Capital additions of £0.3 million were made during the period (H1 FY21: £0.2
million). These comprised tangible fixed assets of £nil million (H1 FY21:
£0.1 million) and software assets of £0.3 million (H1 FY21: £0.1 million).
9 Borrowings
The Group had outstanding borrowings at 25 September 2021 of £19.0 million
(27 March 2021: £19.0 million) .
The term loan of £19.5 million (£19.0 million net of prepaid facility fees)
(27 March 2021: £19.0 million) is secured on the assets and shares of
specific Group subsidiaries. Interest amounts payable on this facility are not
materially sensitive to changes in LIBOR, the interest rate payable is 12%
plus LIBOR, with LIBOR at a minimum rate of 1%.
10 Retirement benefit schemes
The Group has calculated the value of its pension liability under IAS 19 as at
25 September 2021. The FY21 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 liability of £22.0 million (H1 FY21:
£28.8 million) has been recognised. This represents a material decrease
year-on-year, primarily as a result of lower discount rate assumptions and
increase in long term inflation expectations.
11 Financial instruments: fair value disclosures
The Group held the following financial instruments at fair value at 25
September 2021.
Fair value measurements at 25 September 2021 Fair value measurements at Fair value measurements at 27 March 2021
(Unaudited) 10 October 2020 (Audited)
(Unaudited)
£ million £ million £ million
Current financial liabilities:
Derivative financial instruments:
Embedded derivative arising on shareholder loans - (7.1) -
Embedded derivative arising on warrants (1.2) - (1.2)
Financial guarantees (0.3) - (0.6)
Current financial assets:
Derivative financial instruments:
Financial asset 2.6 11.0 2.6
1.1 3.9 0.8
At the reporting date, the Group has 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 is fair valued
and treated as an embedded derivative. The fair value of embedded derivatives
arising on the warrant has been measured using the Black-Scholes model, is
based on quoted prices and falls under level 2 of IFRS 7's fair value
hierarchy.
Notes to the condensed consolidated financial statements
11 Financial instruments: fair value disclosures (continued)
In the comparative year, the Group held shareholder loans which provided an
opportunity for conversion to equity at specified dates. The shareholder loans
were accounted for at an amortised cost of £15.1 million. The option to
convert was treated as an embedded derivative and fair valued
at £7.1m. The fair value of embedded derivatives arising on shareholder loans
was measured using the Black-Scholes model, was based on quoted prices and
also falls under level 2 of IFRS 7's fair value hierarchy.
The derivative financial assets and liabilities, whose fair values include the
use of level 2 inputs are obtained from the banks and financial institutions
with which the derivatives have been transacted, subject to adjustment for
credit risk if necessary. The value of these is therefore categorised within
level 2 of the fair value hierarchy set out in IFRS 7.
The valuations incorporate the following inputs:
· interest rates and yield curves at commonly quoted intervals;
· observable credit spreads;
· share price; and
· interpolated zero coupon LIBOR rates.
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 £2.6 million
(H1 FY21: £11.0 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 £0.3 million (H1 FY21: £0.4 million).
Notes to the condensed consolidated financial statements
13 Notes to the cash flow statement
26 weeks ended 28 weeks ended 52 weeks ended
25 September 21 10 October 2020 27 March 2021
(Unaudited) (Unaudited) (Audited)
£ million £ million £ million
Profit/(loss) from operations 5.6 (4.1) (2.4)
Adjustments for:
Depreciation of property, plant and equipment and right of use assets 0.3 1.1 1.8
Amortisation of intangible assets 0.1 0.1 0.2
Profit on sale of property, plant and equipment (0.1)
Loss on non-cash foreign currency adjustments 0.1 - 0.1
Share-based payments 0.3 0.4 0.5
Movement in provisions (2.6) 2.0 0.4
Net gain on financial derivative instruments - - (0.8)
Payments to retirement benefit schemes (2.9) (0.4) (4.5)
Charge in respect of retirement benefit schemes 1.1 1.6 3.4
Operating cash flow before movement in working capital 2.0 0.7 (1.4)
Decrease in inventories 1.4 2.2 3.8
Decrease in receivables 6.0 2.5 0.9
Decrease in payables (6.8) (4.7) (5.1)
Foreign exchange gains arising on working capital - 0.3 -
Cash generated from operations 2.6 1.0 (1.8)
Income taxes paid (0.5) (0.6) (0.8)
Net cash flow from operating 2.1 0.4 (2.6)
activities
Analysis of net debt
Foreign exchange
27 March Non-cash movements 25 September
2021 Cash flow 2021
£ million £ million £ million £ million £ million
Cash and cash equivalents 6.9 - - - 6.9
IFRS 16 lease liabilities (1.4) - - 0.2 (1.2)
Term loan (19.0) - - - (19.0)
Net debt (13.5) - - 0.2 (13.3)
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:
Joint ventures and associates Revenue from related parties - continuing Amounts owed by related parties (net of provisions)
£ million £ million
26 weeks ended 25 September 2021 (unaudited) - -
28 weeks ended 10 October 2020 (unaudited) 0.2 -
52 weeks ended 27 March 2021 (audited) 0.1 -
Revenue earned from related parties includes royalty income on retail sales of
related parties to their customers, plus sales of goods to related parties
made at the Group's usual list price.
A provision of £1.8 million (H1 FY21: £2.0 million) exists for doubtful
debts in respect of the amounts owed by the related party.
The amounts outstanding are unsecured and will be settled in cash.
Notes to the condensed consolidated financial statements
15 Post balance sheet events
Shutdowns due to Covid-19 are ongoing, and the uncertainties in relation to
this have continued after the year end. Whilst the future impact remains
unknown, to date there has been a broad impact across both the supply chain
and the franchise partner network, with factories and stores closing in
multiple territories.
The Group received distribution proceeds of £1.2m from the administrators of
Mothercare UK Ltd and Mothercare Business Services Ltd in relation to the
wind-down of the UK operations. These proceeds reduced the financial asset
value held by the Group as at 25 September 2021.
16 Restatement for period ended 10 October 2020
After the Annual Report for the year ended 28 March 2020 was approved, the
Group was approached by a third party about a lease liability relating to
Mothercare UK Ltd. Despite Mothercare UK Ltd being in administration, this was
an amount that the Group were liable for due to a cross-guarantee with
Mothercare PLC. The impact of this prior year adjustment on the income
statement for the comparative year has been to increase the adjusted items
expense and losses by £1.3 million.
For the period ended 10 October 2020, the restated retained losses brought
forward and provisions needed to be restated to reflect the prior year
restatements. Therefore, a further prior year restatement was recognised in
the period ended 10 October 2021 which included an increase in the provisions
and retained losses by £0.4 million. In H1 FY21, £0.9 million of the onerous
lease provision was already recognised.
An agreed settlement was reached during the period under review in relation to
this lease resulting in release of part of this provision as included in note
4.
Under the Group's accounting policy, amounts which have fallen due are treated
as financial guarantee contracts under IFRS 9: Financial instruments. Amounts
which are a potential future liability are accounted for under IAS 37:
Provisions.
Additionally, the Group had previously disclosed the deferred tax liability on
the defined benefit pension scheme at the underlying corporation tax rate -
this was on the basis that the scheme is currently in a funding deficit, and
further, there was no expectation a surplus payment would ever be received.
However, the deferred tax liability in the comparative period has been
increased to reflect the 35% withholding tax which would be paid in the highly
unlikely event the scheme were to return to a surplus position in future
years. The impact of this prior year adjustment on the balance sheet has been
to increase the deferred tax liability and reduce retained earnings by £5.0
million as at 28 March 2020.
For the period ended 10 October 2020, this prior year restatement was
recognised because the deferred tax liability was not fully released until the
27 March 2021.
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
· New business model
· Covid-19
· Challenging global economic and political conditions
· ERP system
· Regulatory and legal
· Brand, reputation and relationships
Directors' Responsibility statement
The Directors are responsible for preparing the Interim Results for the
26-week period ended 25 September 2021 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',
as adopted by the European Union 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 42 of the Mothercare plc
Annual Report and Financial Statements 2021. 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
25 November 2021
Shareholder information
Financial calendar
2022
Preliminary announcement of results for the 52 weeks ending 26 March 2022 July
Issue of report and accounts August
Annual General Meeting September
Announcement of interim results for the 26 weeks ending 24 September 2022 November
Registered office and head office
Westside 1, London Road, Hemel Hempstead, Hertfordshire HP3 9TD
Telephone 01923 241000
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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