Update of trading and activity before closing

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Mothercare plc

Update of trading and activity before closing

Mothercare plc (“Mothercare” or “the Company”), the global specialty brand for parents and young children, today released a pre-close trading update for the fiscal year ended March 27, 2021.

Strong points

  • Unaudited global net sales of £ 326m for the year affected by various approaches to Covid-19 in franchise markets
  • Significantly reduced net debt of £ 12.1million at year-end
  • The performance over the recent period is in line with expectations and the Group expects to publish a low EBITDA profit for the year, compared to previous forecasts of a slight loss.
  • New Lightweight Operating Model for Assets Delivering Continuous Financial Benefits
  • Further reduction in overhead expected through further reduction in distribution costs and new ERP system
  • Encourage feedback on a new tailor-made product strategy for international markets

Pre-closing Trade Update

Unaudited worldwide franchisee net retail sales for the year to March 2021 were £ 326m, £ 216m (40%) lower than the previous year, reflecting the impact of Covid-19 on the various markets in which our franchisees operate. the world. As a global brand, the impact of Covid-19 has varied wildly across markets, as the countries in which our franchise partners operate have approached the Covid-19 pandemic in different ways, including, but not limited to , restrictions on travel, movement and hours of operation. retailers. These issues were compounded by similar restrictions for our manufacturing partners, which, together with the disruption of the global movement of freight, resulted in additional challenges with product availability for franchise partners, which had an additional impact on sales of the year.

At the end of the year, Mothercare had a net debt of £ 12.1million, a cash of £ 6.9million against a substantial drawdown of £ 19.5million on the new facility announced last November, reflecting both continued tight cash flow control and the conversion of total outstandings. 19 million shareholder loans in new ordinary shares on March 17, 2021. Although we achieved a performance broadly in line with our expectations during the last period of the year, we now expect to report a slight EBITDA profit , before adjustment, for the closed financial year. March 27, 2021, however, we are not immune to the evolving impacts of Covid-19 on the operations of our franchisees country by country.

During the period, the Financial Reporting Board conducted a review of the annual report and accounts of Mothercare plc until March 28, 2020. The Board is pleased to confirm the successful completion of the FRC review without change. material or material required or issue raised, particularly in light of the complexity of these accounts reflecting both the entry into administration of Mothercare UK during the period and the impact of the pandemic on the conduct of the ‘audit itself last spring. In light of the FRC review, Mothercare will amend the disclosure of diluted EPS from continuing and discontinued operations in 2020. Further details will be provided in the notes to our 2021 Annual Report and Accounts.

We plan to release preliminary results for the year through March 27, 2021 at the end of July.

Business Strategy and operational update

We continue to work towards our goal of becoming a lean company, greatly facilitated by the implementation of our new mode of purchasing from stock, which means that our franchise partners commit to paying for products directly with our manufacturing partners. . For the fall / winter 2021 season currently in our supply chain, approximately 55% of products by value are invoiced directly to franchise partners by our industrial partners, thus eliminating the Group’s exposure to debt and the need for working capital. of these products. Therefore, for these products, creditors and inventories will not be recognized by the Group and although the associated income will also be excluded, there will be no significant impact on the margin in pounds sterling earned. Responsibility for the design, quality control and choice of manufacturing partner for these products rests with the Group. Also, for the fall / winter 2021 season, approximately 70% of the products by value will be shipped directly from the country of manufacture to our franchise partners without going through our warehouses.

We have plans to extend these working methods to the rest of our franchise partners and anticipate that 80% of our product will go direct by the end of this current fiscal year and we continue to work to minimize costs for ourselves. and our franchise partners by moving activities. higher in the supply chain.

The National Distribution warehouse in Daventry, which primarily served Mothercare UK’s retail business, which was previously sublet to a short-term third party, has now been fully ceded to a third party. This eliminated a possible risk of around £ 3million per year for the Group on a lease that expires in June 2026.

We are also making progress in the development of a new ERP system designed to provide easier, more accurate and more cost effective access to information for the benefit of our own business and those of our manufacturing and franchise partners. In the year ending March 2023, the first full year to benefit from the new system, our information technology costs are expected to be reduced to almost half of those for the year to March 2021, which would lead to a direct improvement in net income. over £ 2million.

In 2020, we also commissioned an in-depth customer survey in several of our key territories to better understand our customers’ perspectives on Mothercare’s local business and the affected competitors. Analysis of the results showed a strong correlation between the sampled markets and allowed us to clarify our product strategy both in terms of the specific categories we should focus on and the attributes of the products we should focus on. . The revised product strategy will be much more tailored to meet the expectations of our customers in our international markets, rather than focusing on products historically designed for the UK market. Our Spring / Summer 2022 season, which was the first to use these learnings, was presented to our franchise partners this month with initial positive feedback.

Outlook

The global outlook remains uncertain, with the continued impact of Covid-19 being felt all over the world, but over 80%. worldwide points of sale of our franchise partners are now open, which indicates a recovery in their sales and consequently in our revenues. Our plans are based on continuing but reducing the levels of disruption from the pandemic and on that basis, the Trustees believe Mothercare remains on track to return to profitable trading levels in the short to medium term.

Given these reducing impacts on us and on the operations of our franchise partners, the implementation of the new operating model, significantly reduced cost structures and the elimination of significant legacy issues, the stable operation of our operations of Retail franchise under more normal circumstances could return to annual operating profits of £ 15million in the years to come. The further planned reduction in overheads and the continued implementation of the lean asset model will also improve cash generation for the business.

Clive Whiley, President of Mothercare, said:

“Our performance in 2021 shows that while we are not immune to the impact of the pandemic on the operations of our franchise partners around the world, we ended the year in a much stronger position than we did. had started. the strength of the Mothercare business today, with what will be a positive but modest EBITDA result for the year. We enter FY22 as a prudently funded, cash-generating and profitable business.

We anticipate 2022 to be a year of further progress and we can now focus on developing our strategy and future plans to optimize the skills and attributes of Mothercare over the next five years. It is an exciting prospect for all of our staff and stakeholders as we look forward to emerging from these most uncertain times. “

Investor and analyst inquiries to:
Mothercare plc E-mail: [email protected]
Andrew Cook, Chief Financial Officer
Kevin Rusling, Chief Operating Officer

Numis Securities Limited (financial advisor and NOMAD) Phone: 020 7260 1000
Luke Bordewich
Henry slater

Media inquiries to:
MHP Communications E-mail: [email protected]
Tim rowntree Phone: 020 3128 8789
Simon hockridge

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