Mothercare Regulatory News (MTC)

Mothercare plc

Interim results announcement

Driving the Mothercare brand globally

Mothercare plc ("Mothercare" "the Company" or "the Group"), the highly trusted British heritage international brand and franchise operator, that connects with the parents of newborn babies and children across multiple product categories throughout their early life as parents, today announces unaudited half year results for the 26-week period to 23 September 2023 ("H1 FY24"). The comparative period was a 26-week period to 24 September 2022 ("H1 FY23").

Key Highlights

· International retail sales by franchise partners of £137.2 million (2022: £162.1 million), a decrease of 15% on last year (13% down at constant currency). This reflects difficult trading conditions in the Middle East which is down 20% on last year, with continuing operations excluding the Middle East down 6% on last year at constant currency.

· Adjusted EBITDA of £3.6 million (H1 FY23: £3.2 million) increased by 12%, reflecting tighter control of costs.

· Group adjusted profit before taxation from operations increased 17% to £3.4 million (H1 FY23: £2.9 million).

· Total Group profit before taxation of £2.0 million (H1 FY23: £0.8 million).

· Net debt increased to £15.8 million (£11.6 million at 24 September 2022).

· We continue to explore options to further mitigate the pension scheme current deficit of £35 million (at 31 March 2023) notwithstanding the reduction from £124.5 million since March 2020.

Our Group 

 Our Franchise partners 

Clive Whiley, Chairman of Mothercare plc, commented:

"These results are testament to our continued drive to preserve the strength of the Mothercare brand in a fast changing retail and macroeconomic trading environment. Against significant headwinds in the Middle East, one of our core markets, we are pleased that our business model and disciplined approach to cost has resulted in an increase in profitability for the first half."

Investor and analyst enquiries to:

Mothercare plc Email: investorrelations@mothercare.com

Clive Whiley, Chairman

Andrew Cook, Chief Financial Officer

Deutsche Numis Tel: 020 7260 1000

(NOMAD & Joint Corporate Broker)

Luke Bordewich

Henry Slater

Cavendish Capital Markets Limited Tel: 020 7220 0500

(Joint Corporate Broker)

Carl Holmes

Media enquiries to:

MHP Email: mothercare@mhpc.com

Rachel Farrington Tel: 020 3128 8613

Tim Rowntree

Notes

1 - Worldwide retail sales are total 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

Trading Update

As noted in our last trading update, our franchise partners' international retail sales were impacted by the continuing global economic uncertainty, alongside the need for them to clear old inventory, decreasing by 15% to £137 million for the 26 weeks to 23 September 2023. Online retail sales for the period increased to 10% of total retail sales (H1 FY23: 8%).

Performance in our Middle Eastern region, especially the Kingdom of Saudi Arabia, remains challenging having undergone significant changes in recent years. Fiscal and legislative changes and the introduction of many new leisure activities competing for consumers' money is changing consumer behaviour. The shape of our partner's retail offering in the country is evolving and we remain confident of the longer-term market opportunity.

It is therefore reassuring to report that our continued focus upon the necessary adjustments to our supply chain, operations and administrative costs meant that we generated free cash flow from operations and increased adjusted EBITDA by 12% to £3.6 million for the six months to 23 September 2023.

We are acutely aware of the ongoing pressure exerted on our franchise partners' profitability and the consequent need for them to reduce costs and the levels of investment they can make in their businesses. This will likely lead to further reductions in our store footprint in some regions. We are working closely with our key partners to assist them with their recovery, ultimately benefitting both our own business and our franchise partners' businesses when we eventually return to pre pandemic levels of trading. We do not currently expect our combined efforts to offset full this impact on the Group results for the financial year to March 2024 and beyond.

Financing

The Group had net debt of £15.8 million on 23 September 2023 (September 2022: £11.6 million). This comprised total cash of £4.2 million (September 2022: £8.7 million), against lease liabilities of £0.4 million and £19.6 million of the Group's existing loan facility with GB Europe Management Services Limited ("GBB") which remains fully drawn.

We continue to enjoy a strong relationship with GBB and the Group has received various necessary waivers and adjustments to covenants in relation to the loan facility from GBB in the past. As noted in our previous trading update the interest cost on this loan (currently 19.2%) and the extended time to return to pre-pandemic retail sales levels means that we will continue to need such waivers and covenant adjustments to the loan facility to avoid or remedy breaches of its terms. Accordingly, we are continuing our refinancing discussions with GBB to vary this debt facility alongside exploring various financing alternatives. For the avoidance of doubt, the Group does not require additional liquidity in our current forecasts. We continue to pursue other options that would also provide additional liquidity to accelerate business development.

Growth Opportunities

We have established momentum in improving profitability, underpinned by a cost base that is now appropriate for the reduced scale of our business. At the same time we are preserving the skills and experience necessary to deliver further growth as we return to more normal pre-pandemic levels of business.

Accordingly, we can now redouble our efforts to capitalise upon the possibilities to grow the future global presence of the brand. This includes entering new territories through multiple 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.  This also opens a window of opportunity for us, via step-change growth, to bring synergies and enhanced profitability into our business, as we exploit the core strengths of the Group across supply, franchisee partnerships and international reach.

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 further improvement in on-time availability, with over 85% of our product being delivered direct from our country of manufacturing to our retail partners' markets. We also continue to develop our product option framework as we seek to curtail the impact of input cost inflation.

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 now due to go live at the beginning of the next financial year, with the full benefit of the cost savings in the financial year ending March 2025. We are confident that the final system will deliver at least the expected benefits and cost savings.

Pension Schemes

The last full actuarial valuation of the schemes was at 31 March 2023 and showed a deficit of £35 million, resulting from total assets of £198 million and total liabilities of £233 million. The revised recovery plan agreed with the Trustees includes total contributions (Deficit Repair Contributions plus costs) in the financial years to: March 2024 £2.4 million; March 2025 £2.0 million; March 2026 & 2027 £3.0 million; March 2028 & 2029 £4.0 million; March 2030 & 2031 £5.0 million; March 2032 £6.0 million and March 2033 £0.5 million aggregating to fully fund the £35 million deficit by July 2032.

We continue to explore options to mitigate the pension scheme deficit (£35 million deficit at 31 March 2023).

Outlook

Our prime goal in recent years has been to protect the underlying Mothercare brand intellectual property value, for the benefit of all stakeholders and avoiding unnecessary equity dilution. We are continuing with our efforts to refinance the Group and remain in discussions with key stakeholders and financing partners to ensure that the Group has adequate and appropriate financing for the future.  Our medium-term guidance for the steady state operation, in more normal circumstances, is unchanged and we believe our continuing franchise operations remain capable of delivering approximately £10 million operating profit.

In the interim we remain focused on restoring critical mass and monetising the Mothercare global brand IP to further free up cashflow, in addition to the significant reduction in pension contributions, to invest in the long-term corporate development of the Group.

This 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 to whom we are grateful.

Clive Whiley

Chairman

Condensed consolidated income statement

(1) Adjusted items included: restructuring costs included in finance costs and administrative expenses, 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.

Condensed consolidated statement of comprehensive income

Condensed consolidated balance sheet

Condensed consolidated statement of changes in equity

Condensed consolidated cash flow statement

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 23 September 2023 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 2023 financial year has been filed with the Registrar of Companies. The 2023 financial statements are available on the Group's website (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 2023. The financial period represents the 26 weeks ended 23 September 2023. The comparative periods are the 26 weeks ended 24 September 2022 and the 52 weeks ended 25 March 2023.

Going concern

With recent increases in interest rates, the interest rate on this loan is currently approximately 19.2%, which coupled with the extended time to return to pre-pandemic retail sales levels, particularly in our Middle Eastern markets, means the Board's current forecasts for continuing operations show the Group may require waivers to future periods' covenant tests. Our current lender remains supportive, whilst we complete our financing activities to repay all or part of the facility.

The consolidated financial information has been prepared on a going concern basis. When considering the going concern assumption, the Directors of the Group have reviewed a number of factors, including the Group's trading results and its continued access to sufficient borrowing facilities against the Group's latest forecasts and projections, comprising:

? A Base Case forecast; 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 the Group is able to mitigate the material uncertainty surrounding the Group's ability to successfully complete its financing activities to repay all or part of the existing facility and that our current lenders would continue to support us in the event we required waivers to future period's covenant test, whilst doing so.

Notes to the condensed consolidated financial statements

2 Accounting Policies and Standards (continued)

Going concern (continued)

The Sensitised scenario assumes the following additional key assumption:

? A significant reduction in global retail sales, which may result from subdued, consumer confidence or disposable income or through store closures or weaker trading in our markets, throughout the remainder of FY24 and FY25.

The Board's confidence in the Group's Base Case forecast, which indicates that the Group will operate with sufficient cash balances, provided appropriate covenant waivers on our current facility were agreed, if required prior to the completion of our funding activities, 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 risk applied in the Sensitised forecast, or the Group was unable to execute further cost or cash management programmes, the Group would at certain points of the working capital cycle require covenant waivers based on its current facilities agreement. 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 have completed the current negotiations to amend the covenants or secure additional funding. Therefore, we have concluded that, in this situation, there is a material uncertainty in relation to the continued support of our existing lender, if required, that casts significant doubt that the Group will be able to operate as a going concern without potential waivers or revised/ new financing facilities.

Adoption of new IFRSs

The Group early adopted Amendments to IAS1 - Non-current liabilities with covenants. The adoption had no impact on the recently issued annual financial statements. Covenants which the Group must comply with only after the reporting date did not affect the classification of non-current liabilities at the period end. 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 25 March 2023.

Standards 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 sales

Group worldwide sales are total 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:

Restructuring costs included in finance costs - £Nil (H1 FY23: 0.9 million)

In the comparative period, £0.5 million of legal and professional fees were incurred in renegotiating the Group's loan and a £0.4m loss arising from the modification of the loan.

Restructuring costs included in administrative expenses - £0.2 million (H1 FY23: £Nil)

The current year income relates to £0.4 million credits arising in relation to the profit on disposal of Mothercare UK Limited business which went into administration, this was offset by £0.2m of severance payments made.

5 Net finance costs

Notes to the condensed consolidated financial statements

6 Taxation

In addition to the amount charged to the income statement, deferred tax credits relating to retirement benefit obligations amounting to £3.1 million has been charged directly to other comprehensive income (H1 FY23: £0.2 million).

7 Earnings per share

The total dividend for the period is nil pence per share (H1 FY23: 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 £1.1 million were made during the period (H1 FY23: £1.0 million). These comprised tangible fixed assets of £0.1 million (H1 FY23: £0.0 million) and software assets of £1.0 million (H1 FY23: £1.0 million).

9 Borrowings

The carrying value of the Group's outstanding borrowings at 23 September 2023 was £19.6 million (25 March 2023: £19.5 million)£. The Group is required to achieve certain royalty targets under its covenants and, due to the extended time to return to pre-pandemic retail sales levels, will have difficulty achieving its targets. Accordingly, refinancing discussions are ongoing with the lender to vary the debt facility.

The credit facility of £19.6 million (25 March 2023: £19.5 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 £0.5 million (25 March 2023: £0.5 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 23 September 2023. The FY23 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 actuarial valuations carried out as of March 2023 and using the rolled forward assumptions referred to above, a net liability of £6.0 million (H1 FY23: £11.8 million asset) has been recognised. The swing to a liability position was mainly due to returns on the assets being lower than expected at the start of the year resulting in an asset experience loss.

11 Financial instruments: fair value disclosures

The Group held the following financial instruments at fair value at 23 September 2023.

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 £0.5 million (H1 FY23: £0.2 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 FY23: £0.1 million).

13 Notes to the cash flow statement

Analysis of net debt

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.

Risk management framework

A risk management framework is in place which is appropriate for the size and complexity of the business with consideration to its AIM listing, future partner and system developments and Brand promotion and evolution. 

MGB maintains its risk management function in line with the Quoted Companies Alliance Corporate Governance Code (QCA Code) complying with AIM Rule 26. The Audit & Risk Committee provides oversight, as to the overall suitability and effectiveness of the risk management approach and is accountable and supported by the Board. The Operating Board formally reviews, discusses and documents the Principal Risks to the business at least annually. The Risk Committee, which is chaired by the CFO, sits quarterly to understand existing and developing issues, and MGB Senior Managers contribute to and update Operational Risk registers, as a minimum also quarterly. All colleagues recognise their responsibility to proactively identify and manage risk and opportunity in their daily activities and planning.

Principal risks and uncertainties

Reviewed, discussed and agreed by the Operating Board annually, MGB Principal Risks are designed to promote strategic success and improve future performance, the impact of operational risks on these determines the focus for senior management and their teams. The following risks have been agreed:

· Liquidity

· Dependency on a small number of partners

· Pension scheme funding

· 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 23 September 2023 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 56 of the Mothercare plc Annual Report and Financial Statements 2023. 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 2023

Financial calendar

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