Annual Report &
Accounts 2021
m
o
t
h
e
r
c
a
r
e
p
l
c
a
n
n
u
a
l
r
e
p
o
r
t
a
n
d
a
c
c
o
u
n
t
s
2
0
2
1
Contents
Overview
2
3
About us
Financial highlights
Strategic report
Business model
Chairman’s statement
4
10 Growth
12
13 Chief Operating Officer’s and business review
24 Response to COVID-19
25 KPIs
26 Principal risks and uncertainties
30 Section 172 statement
31
Financial review
41 Non-financial information
Governance
42 Board of Directors
43 Operating Board
44 Corporate governance report
48 Directors’ report
50 Directors’ remuneration report
Financial statements
56 Directors’ responsibilities statement
57
Independent auditor’s report
69 Consolidated income statement
Consolidated statement
70
of comprehensive income
71 Consolidated balance sheet
72
Consolidated statement of changes
in equity
73 Consolidated cash flow statement
74 Notes to the consolidated financial statements
Company financial statements
120 Company balance sheet
121 Company statement of changes in equity
122
127 Shareholder information
Notes to the company financial statements
2018
Fundamental
restructuring of the
group’s operations
and associated
refinancing
commenced.
2019
Mothercare UK Limited
and Mothercare Business
Services Limited entered
administration.
Certain liabilities, assets
and contracts were
transferred to Mothercare
Global Brand.
Highlights
During the year under review, and
notwithstanding the challenges created
by COVID-19, the Group completed
its transformation and is en route to
rebuild the brand as we enter into new
arrangements with franchise partners
designed to build the scale, scope and
stature of our brand.
2020
COVID-19 begins to impact
global franchise and
manufacturing partners.
Head office move from Watford
to Hemel Hempstead.
10 year franchise agreement
with Boots UK for the UK and
ROI in stores and via Boots
website with option for a
further 10 years.
2020
10 year franchise
agreement renewed with
Alshaya with option for a
further 10 years.
New debt facilities
secured.
Revised pension
arrangements.
2021
Delisted from Main Market
and admission to AIM.
Conversion of all shareholder
loans completed.
Conclusion of the final phase of
the refinancing and restructuring
of Mothercare.
Completion of the
transformation
process.
Mothercare plc annual report and accounts 2021
1
Overview
About us
A trusted global brand –
designed for the future
Mothercare plc is the owner of Mothercare Global
Brand (MGB), a globally franchised brand for
parents and young children. MGB designs, sources
and supplies products across clothing, equipment
and other categories for parents and young
children across the world. The Mothercare brand is
presented in stores and online through a network
of global franchise partners who operate over 700
dedicated Mothercare stores and more than 400
additional stores which carry a selection of product
from the brand across some 37 countries around
the world.
Completion of the transformation process has opened the way
to Mothercare becoming a simplified, profitable, and cash
generative franchise business, representing a sea-change in our
prospects from the position reached at the end of 2019. These
are exciting times as we enter into new arrangements with our
franchise partners designed to build the scale, scope and stature
of our brand. Without the distractions of the last three years
restructuring the business we can accelerate the growth of our
franchise base to address large and attractive markets where we
currently have no presence.
Our current measure of success, as we strive to be the leading
global brand for parents and young children, remains our ability
to distribute the Mothercare brand and its products to many
more territories around the world through franchising, wholesale
& licensing: hence optimising the level of sustainable long-term
revenues and profitability going into 2022 and beyond.
We are a truly global company that
caters for many different markets and
cultures. We are committed to treating
all markets equally and being respectful
to differences within local cultures,
whilst maintaining brand consistency.
10
11
24
23
28
21
25
22
19
20
37
36
34
35
29
30
31
32
33
5
13
12
27
26
Stores
Ireland
Lithuania
Estonia
Latvia
Belarus
1 UK
2
3 Gibraltar
4 Malta
5 Cyprus
6
7
8
9
10 Russia
11 Kazakhstan
12 Azerbaijan
13 Georgia
14 Greece
15 Albania
16 Romania
17 Serbia
18 Macedonia
India
19
20 Sri Lanka
21 UAE
22 Saudi Arabia
23 Kuwait
24 Bahrain
25 Oman
26 Egypt
27
Jordan
28 Qatar
29 Thailand
30 Vietnam
31 Malaysia
32 Singapore
33
Indonesia
34 Brunei
35 Philippines
36 Hong Kong
37 China
1
2
3
7
8
6
9
16
17
18
15
14
4
12
-
1
5
9
7
4
5
12
116
5
5
2
26
1
5
5
1
139
6
40
61
33
6
5
5
5
14
12
14
21
11
50
3
17
7
66
2
Mothercare plc annual report and accounts 2021
Financial highlights
Our Group – £m (from continuing operations):
Turnover
Adjusted EBITDA
Adjusted operating profit/(loss)
Adjusted loss
Statutory loss
Our Franchise Partners:
Worldwide retail sales £m
Online retail sales £m
Total number of stores
Space (k) sq. ft.
2021
85.8
2.2
0.2
(8.6)
(21.5)
2021
358.6
44.4
734
1,970
2020
164.7
6.2
(0.6)
(6.4)
(8.5)
2020
542.1
31.3
841
2,345
Mothercare plc annual report and accounts 2021
3
Overview
Chairman’s statement
“ I am pleased to report that we have completed our transition
to refocus the Mothercare brand on its core competencies of
international franchise and brand management coupled with
design, development and distribution of product which is sold
through our international partners’ stores and online.”
A Platform for Growth
I am pleased to report that we have completed
our transition to refocus the Mothercare brand on
its core competencies of international franchise
and brand management coupled with design,
development and distribution of product which
is sold through our international partners’ stores
and online. Today the Group is free of the cost
and operational burden associated with a UK
store estate and warehousing. Our gross profit
is principally derived from royalties payable on
global franchise partners’ retail sales, operating
through over 700 stores, representing some 2 million
square feet of retail space.
The Mothercare brand is represented in 37 countries around
the world including the UK through our franchise arrangement
with Boots. Yet whilst this reach is impressive, the brand is still not
represented in 7 of the top 10 baby markets in the world, when
viewed by wealth and birth rate. Hitherto, the Brand’s singular
route to market today is via franchisees and post the restructuring
we are now able to explore the opportunities available to us in
wholesale, licensing or online marketplaces.
Accordingly, our current measure of success, as we strive to be
the leading global brand for parents and young children, remains
our ability to distribute the Mothercare brand and its products
to many more territories around the world through franchising,
wholesale & licensing as well as growing our existing territories:
hence optimising the level of sustainable long-term revenues and
profitability going into 2022 and beyond.
Understandably, during this past year our focus has been on
our existing franchise partners and their markets, managing
both the impact of the pandemic upon them and its effect on
our supply chain. However we now have the management time
and resource to optimise our operating platform and generate
revenues through an asset-light model, both in the UK and other
international territories, backed by new debt facilities provided by
Gordon Brothers Brands LLC (“GBB”).
We look to the future with great optimism and have multiple
opportunities to grow the global presence of the Mothercare
brand. We are actively pursuing a three-pronged growth strategy
encompassing:
4
Mothercare plc annual report and accounts 2021
Opportunities for step change growth
Thirdly, we are seeking to leverage the intrinsic value liberated by
our extensive efforts over the last three years, where in addition
to the above:
• we are an AIM listed entity with expectations of an improving
trend in operating profitability and being debt free within five
years;
• Mothercare is a strong unencumbered core brand, superior in
its quality, international footprint and global reach than many
peers who are being afforded premium market ratings; and
• we have a transactionally astute PLC Board & senior executive
team that has overseen our emergence from both the
restructuring and the pandemic in better shape than we entered.
Accordingly, these are exciting times as, without the distractions
of the last three years, we are seeking to accelerate the growth
of the business to encompass large and attractive markets
where we currently have no presence, whilst expanding in our
existing territories.
The Pandemic
As a global brand and franchise operator the impact of Covid-19
has varied enormously by market as the countries in which our
franchise partners operate have addressed the pandemic in
many different ways including, but not limited to, restrictions
on travel, movement and operating hours of retailers. These
issues have been compounded by similar restrictions for our
manufacturing partners, which coupled with the disruption to the
global movement of freight, have caused additional challenges
with availability of product for franchise partners further impacting
sales for the year.
These circumstances introduced an unprecedented demand
shock throughout the first quarter of 2020 which led to the year
under review commencing with many of our franchise partners’
global retail locations being closed which, alongside significant
disruption within our manufacturing base, required extensive
efforts to reorganise production to ensure the best possible
range availability. Whilst stores have substantially re-opened for
customers since then this still equated to an aggregate reduction
in worldwide retail sales by our franchise partners of 34 per cent.
compared to last year, reflecting the impact of Covid-19 in the
various markets in which our franchisees operate around the
world. Throughout the pandemic we witnessed substantial online
sales growth, however, this in itself was not enough to offset the
temporary closure of retail stores.
The contingency plans activated by the Board are detailed
elsewhere in this report, however these primarily focused
management attention upon the well-being of our colleagues
alongside protecting corporate liquidity in order to preserve the
businesses of our manufacturing and franchise partners as a
prerequisite to returning to longer-term profitability. The Group
did not access any of the distress loan facilities proffered by Her
Majesty’s Government nor did we furlough any direct employees
in the continuing business.
Rebuilding the Group
Last year we finalised the fundamental restructuring of the
Company’s operations and the associated refinancing of the
Group, commenced in the summer of 2018, which ultimately
resulted in the placing into administration of the Group’s
UK retail business in November 2019. This unavoidable step
preserved value most notably for our pension fund, our global
franchise operations and lending group – who would have
otherwise faced significant losses – importantly it cleared a path
for the Mothercare brand to emerge as the profitable and cash
generative international franchise operation it is today.
Mothercare plc annual report and accounts 2021
5
Opportunities for Organic growth
During 2020 we commissioned an in-depth customer survey
across many of our major territories to gain greater insight of
our customers’ views on both the local Mothercare business
and the relevant competitors. The analysis of the results has
shown strong correlation across the sampled markets and has
allowed us to refocus our product strategy both in terms of the
specific categories we develop and the level and quality and
design. This revised product strategy, which is detailed further
in the Chief Operating Officer’s review, will be more geared
to meet the expectations of our customers in our international
markets, rather than majoring on products that were
historically designed and developed for the UK market. Our
spring/summer 2022 season, which was the first to use these
learnings, was presented to our franchise partners recently
receiving positive initial feedback.
Opportunities for growth beyond the existing territories
Secondly, as we noted last year, we estimate that the birth
rate around the world is c130 million births per annum, within
which we believe that at least 30 million babies are born each
year into households where there is a sufficient income level to
make this an addressable market for the Mothercare brand.
Indeed, of the top ten territories by wealth and birth rate, the
Mothercare brand is only available in three of them today. For
example, we currently have no presence in the USA, Japan,
Australia or Brazil. Closer to home, we have no stores or online
presence in any of the bigger European economies, such as
Germany, France, the Netherlands or Scandinavia. We believe
this translates into great potential for the Mothercare brand
beyond its existing global footprint. An assessment is now
underway to identify the right franchise partners and channels
to market for these territories.
Strategic Report
Chairman’s statement
continued
As previously stated, the key strategic aim post the
restructuring was to further transform the business by creating
both a financial structure which supports a sustainable, capital
light franchising model with the capacity to secure both future
global growth and brand reach, alongside redeveloping the
Group’s UK retail presence within a Mothercare franchise.
The year under review witnessed substantial progress with
all of our goals, notwithstanding the continuing challenges
presented by Covid-19, as recorded in detail within the Chief
Operating Officer’s Review and Financial Review, achieving
the Board’s objective of preserving significant value for all
stakeholders.
New ways of working with our Partners
We continue to work towards our goal of becoming an asset light
business, greatly facilitated by the implementation of our new way
of stock purchasing, meaning that our franchise partners contract
to pay for products directly with our manufacturing partners.
requirement for these products. Hence for these products the
creditors and stock will not be recognised by the Group and
whilst the associated revenue will also be excluded the continued
receipt of royalty payments will ensure no material impact on
the sterling margin earned. The responsibility for design, quality
control and choice of manufacturing partner for these products
remains with the Group. Also, for the autumn/winter 2021 season,
some 70% of the products by value, will be shipped directly from
the country of manufacture to our franchise partners without
passing through our warehouses, both reducing our cost base
and speeding up the supply of product.
As detailed in the Financial Review, we have targeted extending
these ways of working to the remainder of our franchise partners
and anticipate 80% of our products moving direct by the end of
this current financial year and we continue to work to minimise
costs for both ourselves and our franchise partners by moving
activities further up the supply chain.
Updated Financing Requirement
For the autumn/winter 2021 season currently in our supply
chain some 55% of the products by value are invoiced directly
to franchise partners by our manufacturing partners, thus
removing the Group’s exposure to the debt and working capital
At the year-end Mothercare had net borrowing of £12.1 million,
being cash of £6.9 million against a substantial drawdown of £19.5
million from the new facility announced last November, reflecting
both ongoing tight control of cash and the conversion of the total
6
Mothercare plc annual report and accounts 2021
outstanding £19 million of shareholder loans into new ordinary
shares on 17 March 2021.
This represents a significant reduction in the total financing
requirement, of around £50 million, anticipated in November 2019
and bears testimony to our accelerated progress to becoming
a focused, asset light global franchising business with no directly
operated stores and greatly reduced direct costs.
GBB, with whom terms for a new £19.5 million secured four year
loan facility, to refinance the Company’s outstanding secured
senior debt facility and for additional working capital purposes,
were agreed in November 2020, is now the Group’s sole lender.
These changes are detailed in the Financial Review, including the
terms agreed with the Pension Scheme Trustees of our defined
benefit schemes, for a revised schedule of contributions, which
allows the Group to pay contributions at an affordable level whilst
paying off the new loan.
Cost Reduction Programme
Last year the Group made substantial progress in addressing
its legacy infrastructure and associated cost base which greatly
assisted in reducing the total financing requirement the Group
refinanced with GBB:
• we surrendered the lease of our former head office in Watford
and moved into our new head office in Apsley, Hemel
Hempstead, in August 2020 reducing cash occupancy costs for
our head office by £900,000 per annum;
• The National Distribution warehouse facility in Daventry, which
predominantly serviced the Mothercare UK retail business, which
was previously sublet to a third-party on a short-term basis, was
fully assigned to a third party with a strong covenant on 1 March
2021. This removed a contingent risk of around £3 million per
annum to the Group on a lease that expires in June 2026;
• We are also progressing the development of a new integrated
ERP system designed to provide easier, more accurate and
cost-effective access to information to benefit 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 would be
expected to reduce to close to half of those for the year to
March 2021, a direct bottom line improvement of over £2 million.
Implementation of the ERP system is also considered on
page 29, in the principal risks and uncertainties section.
GBB, with whom terms for a new
£19.5 million secured 4 year loan
facility, to refinance the Company’s
outstanding secured senior debt
facility and for additional working
capital purposes, were agreed in
November 2020, is now the Group’s
sole lender.
Delisting & AIM Admission
The Company first listed on the London Stock Exchange in 1972
with its listing on the main market continuing throughout via
various different corporate entities. However, with the completion
of the transformation plan the Board considered, for the reasons
highlighted below, that AIM is a more appropriate market for the
Company at this stage, commensurate with the Company now
being a Small-Cap company. AIM was launched in 1995 as the
London Stock Exchange’s market specifically designed for smaller
companies, with a more flexible regulatory regime, and has an
established reputation with investors and is an internationally
recognised market:
• AIM will offer greater flexibility with regard to corporate
transactions, enabling the Company to agree and execute
certain transactions more quickly and cost effectively than a
company on the Official List;
• Companies whose shares trade on AIM are deemed to be
unlisted for the purposes of certain areas of UK taxation,
including possibly being eligible for relief from inheritance tax.
Furthermore stamp duty is not payable on the transfer of shares
that are traded on AIM and not listed on any other market;
• In addition to existing institutional investors, given the possible
tax benefits, admission to trading on AIM could make the
Company’s shares more attractive to both AIM specific funds
and certain retail investors where, since 2013, shares traded on
AIM can be held in ISAs.
This continued improvement in overhead recovery and reduced
distribution costs, in tandem with the impact of the new ways of
working, will support cash generation as highlighted above and
is detailed further within the Chief Operating Officer’s Review and
Financial Review.
Accordingly, following shareholder approval, the Company
applied to cancel the listing of its Ordinary Shares on the Official
List and to trading on the Main Market alongside applying to the
London Stock Exchange for admission to trading on AIM which
was successfully completed on 12 March 2021.
Mothercare plc annual report and accounts 2021
7
Strategic Report
Chairman’s statement
continued
Management & Board changes
We have a PLC Board that is appropriate for a company of
our size, nature and circumstances with Non-Executive Directors
with deeply embedded and relevant skills who have directly
contributed to the change process and interface cohesively with
the Operating Board.
In addition, the Company’s management requirements have
evolved as we have successfully transitioned the business to
become a focused international brand owner and operator.
Hence during the year we reinforced the executive team with
the appointment of both a Chief Product Officer and Head of
Commercial, whose collective expertise has already contributed to
our evolving product roadmap as we strive to build closer partner
relationships and better serve end customer needs in key markets.
Accordingly, having completed the short-term priorities associated
with the refinancing and the transformation plan, alongside
continuing to manage through the continuing restrictions imposed
upon us by Covid-19, we have recommenced the search for a
new Chief Executive Officer: where we are seeking proven global
brand and E-commerce experience.
A further announcement will be made when appropriate and, in
the interim, the day-to-day management of the Group is being
run by the Chief Operating Officer and Chief Financial Officer with
oversight from me as Non-Executive Chairman and my fellow Non-
Executive Directors.
Dividend Policy
The Company has not paid a dividend since 3 February 2012.
The Directors understand the importance of optimising value for
shareholders and it is the Directors’ intention to return to paying
a dividend as soon as this is possible under the Company’s
agreements with GBB and the pension trustees and as soon as the
Directors believe it is financially prudent for the Group to do so.
Outlook
First and foremost I would like to thank all of our colleagues across
the organisation for their continued diligence in combating the
challenges created by the pandemic. Their combined efforts in the
face of adversity have been truly inspiring.
Whilst the global outlook remains uncertain and we are not
immune to the continued impact of Covid-19 being felt around
the world, over 80 per cent. of our franchise partners’ global retail
locations are now open, which points towards recovery in their
sales and consequently our revenues.
Accordingly, based upon reducing impacts on us and our
franchise partners’ operations as the current year progresses and
the implementation of the new operating model, greatly reduced
cost structures and the elimination of significant legacy issues,
we expect a significant improvement in operating profits for the
current year.
Furthermore, we still anticipate that the steady state operation
of our existing retail franchise operations, in more normal
circumstances, should exceed annual operating profits of £15 million
in future years, underwritten by the planned further reduction in
overheads. For the first 13 weeks of our current financial year to
March 2022 our total retail sales were £94 million, generating an
adjusted EBITDA of approximately £2.5 million.
8
Mothercare plc annual report and accounts 2021
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
“ Hence we expect 2022 to be a year
of further progress as we focus upon
developing our strategy and future
plans to optimise the Mothercare
brand globally over the next five years.
That is an exciting prospect for all of
our staff and stakeholders as we finally
exit this most uncertain of times.”
Clive Whiley,
Chairman
Mothercare plc annual report and accounts 2021
9
Growth
With the completion of our transition to refocus the Group on its core competencies of international franchise
and brand management and the design, development, sourcing and distribution of product we can now
pursue a growth strategy and the management team has the time and resources to evolve, adapt and
optimise the operating platform and format.
Organic Growth
Retail sales 2021
An in-depth customer research programme in our key global
markets, together with a detailed review of trading history
is informing our product roadmap as outlined in the Chief
Operating Officer’s report. As a result we have identified a
number of initiatives and opportunities to grow our existing
sales within the current franchise partner base.
Approximately 30% of our franchise partners’ retail sales are
generated from products that they have sourced themselves
and are not branded as Mothercare. These products are
usually where there isn’t a Mothercare equivalent and is mostly
in the categories of home and travel products or specialist
clothing that is for more extreme weather conditions and our
approval is required to sell all such products. Part of our product
strategy is to review these locally sourced products to identify
opportunities for us to design and deliver similar products and
thus extend our range. Not only will this increase the sales of
Mothercare branded products, which generally make higher
margins for our franchise partners but also allow them more
defence against becoming a showroom for third party brands,
all of which can be purchased online from a competitor.
The recent steps taken to change and update the business
model, as a direct result of the operational challenges
presented by the administration of the Group’s former UK
retail business and the subsequent pandemic, provide further
opportunities. We now expect to ship over 80% of our products
direct from country of manufacture to retail, providing an
opportunity for better full price sell through and potentially
increased orders.
Improving our franchise partners’ profitability in these ways
will increase their motivation to invest in and grow their
Mothercare business.
Whilst our online retail sales more than doubled in share of
total sales during the year, it still represents only 12% of our total
retail sales. Whilst market by market the percentage share is
variable, over time this will inevitably grow and potentially offers
our franchise partners an opportunity to grow their businesses
with lower capital investment over the longer term. Our
increased investment in digital marketing assets coupled with
the awareness of the need to evolve as a digital retailer and
consequential investment of our partners provides significant
headroom for them to grow their businesses.
With our strong franchise partner base we are well positioned
to grow market share through a mix of each of the above in
our major markets and the chart demonstrates the significant
headroom available. In the final year of trading the UK retail
estate we achieved sales per capita similar to those of Kuwait
and Qatar below. Purely for indicative purposes, excluding
India and China, increasing the sales per capita across our
existing markets to these levels, would increase our retail sales
to twenty times the levels achieved last year.
10
Mothercare plc annual report and accounts 2021
Cyprus
UK
ROW
Russia
Greece
Indonesia
India
China
Hong Kong
Malaysia
Singapore
Saudi Arabia
Oman
Jordan
Bahrain
Egypt
Lebanon
Qatar
Kuwait
United Arab
Emirates
Kazakhstan
1600
1400
1200
1000
800
600
400
200
0
Population millions
Retail sales per capita
i
a
n
h
C
i
a
d
n
I
a
i
s
e
n
o
d
n
I
a
i
s
s
u
R
t
p
y
g
E
K
U
q
a
r
I
a
i
s
y
a
a
M
l
n
a
t
s
h
k
a
z
a
K
i
a
b
a
r
A
i
d
u
a
S
e
c
e
e
r
G
n
a
d
r
o
J
s
e
t
a
r
i
m
E
b
a
r
A
d
e
t
i
n
U
g
n
o
K
g
n
o
H
n
o
n
a
b
e
L
e
r
o
p
a
g
n
S
i
n
a
m
O
t
i
a
w
u
K
r
a
t
a
Q
i
n
a
r
h
a
B
s
u
r
p
y
C
Growth beyond existing territories
The chart below shows the estimated addressable market
for Mothercare, in anticipation of future growth.
We have now commenced an assessment of priority global
markets together with a review of the optimal entry and
operating model for each new territory. Our new asset light,
IP heavy operating model enables us to consider various
market entry modes including online only, concession
and wholesale through shop-in-shops together with the
traditional franchise model. In fact the new franchise
arrangement with Boots UK is a good example of the
model of shop-in-shop expansion.
The work currently underway on our brand and updated
product roadmap as outlined in the Chief Operating Officer’s
report will support in furthering the partnerships we have
around the world.
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
s
e
t
a
t
S
d
e
t
i
n
U
l
i
z
a
r
B
n
a
p
a
J
a
i
r
e
g
N
i
e
c
n
a
r
F
K
U
i
a
n
h
C
i
o
c
x
e
M
l
y
a
t
I
y
e
k
r
u
T
y
n
a
m
r
e
G
i
n
a
p
S
l
a
e
u
z
e
n
e
V
a
i
s
s
u
R
a
d
a
n
a
C
a
n
i
t
n
e
g
r
A
i
a
b
a
r
A
i
d
u
a
S
a
i
l
a
r
t
s
u
A
s
e
n
p
p
i
i
l
i
h
P
a
e
r
o
K
h
t
u
o
S
u
r
e
P
a
i
s
y
a
a
M
l
a
c
i
r
f
A
h
t
u
o
S
s
d
n
a
l
r
e
h
t
e
N
i
a
d
n
I
n
a
r
I
l
e
a
r
s
I
n
a
w
a
T
i
a
i
s
e
n
o
d
n
I
i
m
u
g
e
B
l
n
e
d
e
w
S
n
a
t
s
i
k
a
P
i
a
b
m
o
o
C
l
e
l
i
h
C
d
n
a
o
P
l
e
c
e
e
r
G
a
i
r
t
s
u
A
r
o
d
a
u
c
E
d
n
a
l
r
e
z
t
i
w
S
q
a
r
I
d
n
a
e
r
I
l
n
a
t
s
h
k
a
z
a
K
s
e
t
a
r
i
m
E
b
a
r
A
d
e
t
i
n
U
Step Change Growth
The Mothercare brand is in an almost unparalleled position
of being a highly trusted British heritage global brand, that
connects with newborn babies and children across multiple
product categories, at the beginning of their life as consumers.
We are seeking to leverage the full bandwidth of this intrinsic
value through connections with other businesses and the
development of the product range and licensing beyond
our historic limits. Our product development strategy will
provide potential in both existing and new markets, alongside
expanded distribution into markets where a full Mothercare
offering isn’t currently available.
There are also numerous natural product synergies into
associated non-clothing and home categories like health and
beauty or outdoor children’s activities that provide increased
sales opportunities for the brand. We are actively reviewing
these category opportunities and all routes to market based
upon the stable, capital light, international model we now have
established.
Moreover, we are aware that there are many opportunities, not
least as a result of the pandemic, that we could explore to bring
synergistic benefits or open up new territories and channels for
our existing products.
Mothercare plc annual report and accounts 2021
11
Business model
Mothercare is a leading global parenting brand with operations in 37 countries through global franchise
partnerships. The brand has a strong heritage and trusted reputation.
Our core competencies are that of Brand management, product design and development, sourcing and distribution of product. Our
revenue is principally driven from royalty on sales.
BRAND
DESIGN
MANUFACTURING
PARTNERS
DISTRIBUTION
PRODUCT
ROYALTIES
PAYMENTS
FRANCHISE PARTNERS
37 COUNTRIES
18 PARTNERS
12
Mothercare plc annual report and accounts 2021
Chief Operating Officer’s and business review
Overview
• In August 2020 we completed a new 10 year franchise agreement with an
option to extend for another 10 years, with both Alshaya Group, our largest
franchise partner, and Boots UK Limited for the UK and Republic of Ireland.
Subsequently we have advanced new agreements with our franchise
partners in Indonesia, Malaysia, Singapore and Hong Kong.
• We commissioned a comprehensive research programme to better
understand our global consumers and markets.
• Significant investment in increased digital assets and content.
• Overhaul of the product offering, enhancing the design, fabrications and
construction of the ranges.
• Continued investment in developing our core competencies and
complimenting the existing team with key new hires.
Our principal route to market is via our global franchise network
of over 700 Mothercare stores in 37 countries, together with shop-
in-shop formats and an increasing online presence. We trade
from many of the world’s best shopping malls and continue to
invest in our online presentation and content.
ASIA 26% / EUROPE 37% / M.EAST 37% MIX
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
Kevin Rusling,
Chief Operating
Officer
Mothercare plc annual report and accounts 2021
13
Chief Operating Officer’s and business review
continued
Strong and well-established partnerships
We are privileged to have strong and long-standing relationships with our key partners, many of whom
we have traded with for over 20 years.
Alshaya MENA
Brands: 90
Alshaya Group is a leading international franchise operator
with 90 global brands and over 4000 stores in its portfolio
including retail, dining, leisure and hospitality across the Middle
East & North Africa, Russia, Turkey and Europe.
Stores: 168 Mothercare stores
• Over 40+ years of market experience
• Market leadership in Baby & Kids segment
• Host to biggest Mothercare store globally
• First franchise partner of Mothercare
• Alshaya group turnover in excess of $1bn.
Mothercare Mena – UAE homepage
SS21 digital implementation
14
Mothercare plc annual report and accounts 2021
Our partners trade online in 15 countries
through dedicated Mothercare sites and
also through over 22 marketplaces.
Mothercare Russia:
Instagram
Alshaya Russia
Brands: 3
Mothercare Russia is operated by the Alshaya Group and is
the largest territory in the Mothercare portfolio.
Stores: 116 Mothercare stores
• Russia operates our strongest online presence through a
dedicated website
• Significant loyalty database through the “Privilege Card”
providing detailed insights into shopping patterns
• Mothercare mobile app launching later this year
• Re-launched Mothercare in Kazakstan.
Mothercare Russia:
YouTube
Reliance India
Brands: 45
Reliance Retail has a portfolio of over
45 international brands that spans
across the entire spectrum of luxury,
bridge to luxury, high-premium and
high street lifestyle. Reliance Retail
operates over 777 stores.
Stores: 139 Mothercare stores
• Reliance Retail (turnover $21 billion)
is a division of Reliance Industries
Limited with annual turnover of
$87 billion
• RBL Group is #1 Indian Company
by Profit Fortune Global 500
ranking India’s largest retailer
and 6th largest globally
• Operates standalone, shop
in shop and concession stores
together with a wholesale
model of certain categories.
Mothercare India:
Instagram
Mothercare plc annual report and accounts 2021
15
Strategic Report
Chief Operating Officer’s and business review
continued
Kanmo Indonesia
Brands: 16
Kanmo group’s first retail operation was Mothercare and
today operates over 260 stores through 16 brands. It has a
market leadership position in the kids and baby segment
and operates in over 50 cities across Indonesia. Alongside
the retail operation it has over 800 touchpoints through is
distributor business channel.
Stores: 50 Mothercare stores
• The number One baby and kids retail leader in Indonesia
• Over 15 years experience as a turn-key omni-channel
operator with vast distribution, retail and wholesale
capabilities.
President of
Indonesia
In 2019, President
of Indonesia,
Mr Joko
Widodo was
also spotted
shopping at
Mothercare
store by media.
Singapore’s Harbour Front Experience Store
It’s home to a host of incredible services to parents
and expecting families, they even offer a personal car
seat cleaning service when you can take in your car
seat and have it professionally cleaned in store.
Store Opening – Mothercare at SKA Mal
Pekanbaru, Indonesia – with more than 2000 visitors in one day!
Kim Hin Group (Singapore, Malaysia and Hong Kong)
Countries: 3
Mothercare’s second franchise partner, Kim Hin started trading
in Singapore in 1984. Part of the larger Kim Kin Group and now
operates stores in Malaysia and Hong Kong. Kim Hin Group is
also distributor to many of the best know Childrenswear brands.
Stores: 39 Mothercare stores
• In 2018 Malaysia was converted to a public company;
Singapore and Hong Kong remain privately owned
• Kim Hin Group is a leading player in Childrenswear across
the markets.
16
Mothercare plc annual report and accounts 2021
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
KLMSA Group Greece
Countries: 5
KLMSA Group primarily focuses on retail business by offering
high quality products at the best price to a retail client base
through a number of well-known brands, specialising in Mother
and baby.
Stores: 26 Mothercare stores
• It became a Mothercare franchise partner in 1999 and now
operates 37 stores, the first Mothercare store in Greece
opened in 1987.
Boots
Stores: 416 inc 10 shop in shop
Mothercare stores
Boots UK is owned by Wallgreens Boots
Alliance which operate over 21,000 stores
and turnover in excess of $139b. WBA is
the largest retail pharmacy in the US and
Europe. Boots has a strong parenting
heritage in the UK and operated an
alliance with Mothercare for over 10 years
before becoming the exclusive franchise
partner in 2020.
• Boots has 2500 stores in the UK
• Mothercare had a joint partnership
with Boots UK to design, manufacture
and deliver Mini Club – a Boots
exclusive clothing brand since 2010,
and also supplied Boots with elements
of home and travel products within a
wholesale model
• In October 2020 Mothercare and Boots
entered into a new agreement to
franchise the Mothercare range in the
UK and ROI.
Hello Magazine
Re-Opening event Elliniko store
Mothercare launched
an exciting partnership
with Boots back in
September 2020.
These photos are from
the Trafford Centre store
in Manchester. We have
10 unique shop in shop
concessions with Boots
and this was one of the
first to open. Overall,
Mothercare is present in
around 400 Boots stores.
Mothercare Home Page on Boots.com
Mothercare plc annual report and accounts 2021
17
Strategic Report
Chief Operating Officer’s and business review
continued
Markets and channels
Our core competencies are that of brand management, product
design and development, sourcing and distribution of product
with the objective of growing the existing Mothercare business with
our global franchise partners and to extend the reach into new
categories, markets and channels. Our gross profit is principally
driven by royalty on retail sales.
We created a new more balanced version of our franchise
agreement which also works in conjunction with the new business
model and in August 2020 we completed a new 10 year franchise
agreement with an option to extend for another 10 years, with
Alshaya Group, our largest franchise partner, and Boots UK for the
UK and Republic of Ireland. Subsequently we have advanced new
agreements with our franchise partners in Indonesia, Malaysia,
Singapore and Hong Kong.
The Mothercare Brand
A key focus for us is strengthening our brand consistency around
the world and reconnecting with our customers as a global brand.
We have recently embarked on a comprehensive research
programme to gain a deeper understanding of the consumer
and their needs by global market. From this work we shall create
a clear brand direction and guidelines for our team and all our
partners ensuring the Mothercare brand is represented in a
consistent fashion.
Within e-commerce, we have set new standards for our digital
photography and copy, ensuring we are more in line with
global competitors. Alongside this, we are delivering a new set
of web design templates and social media guidelines to further
drive consistency and support our partners in becoming more
digitally focused.
Example desktop banner ads (above)
Digital assets are created for partners to use across web and social
media, our models are real families enabling us to capture those
precious moments authentically.
18
Mothercare plc annual report and accounts 2021
Babywear – today and everyday
All of our web collateral is designed mobile
first to ensure we offer the best experience
across mobile, web and app.
Attention to detail
Our products are designed inhouse enabling us to concentrate on
the little things that matter and make the product fun for children and
give peace of mind to parents.
We provide our franchise partners with assets and campaigns for
use online, social and in store and are increasing the level of digital
assets to match the elevated product offer.
Product
Our in-house design team, working closely with the buying and
merchandising teams, create all of the products sold under
the Mothercare brand worldwide. We principally work with
manufacturing partners across Bangladesh, India, China and
Turkey to produce our ranges and will continue to evolve the mix
of locations and factories to ensure that we maintain the high
standards of quality and design that our partners and customers
around the globe have come to expect.
Our global end consumer research also enabled us to re-build
the product roadmap under the leadership of our Chief Product
Officer who joined the business in September.
The product roadmap will evolve over the next couple of years
and identifies categories and key age stages on which we will
focus allowing us to create market leading products. The strength
of the Mothercare brand is its heritage and the trust placed in it by
consumers. Our new ranges build upon this to create unique and
differentiated products across a wide range of categories.
Our newly constructed ranges have a clear product positioning
and handwriting, where we have made significant changes to the
design, fabrics and garment construction and introduced some
new manufacturing partners to help elevate the product offer
and our quality.
Our focus on the needs of parents in the two clusters of Baby
and Child, together with an understanding of the global critical
occasions and attributes required by parents will deliver an
enhanced offer from Spring 22.
Since the financial year closed we have rebuilt and refreshed our
range offering to our partners and this has been extremely well
received.
Mothercare plc annual report and accounts 2021
19
Strategic Report
Chief Operating Officer’s and business review
continued
Operational Review
I am extremely proud of how the team responded to the
pandemic. We acted swiftly to ensure that our colleagues
and partners were safe and then adapted and accelerated
the business to not only face the challenges of the pandemic
but also complete the Transformation Programme we had
embarked upon.
Throughout the year we continued to build our core
competencies and the team to deliver it. Several new colleagues
have joined since the start of the pandemic and the team as a
whole has shown great dedication whilst working from home and
balancing the challenges this brings. I would like to thank them
for their unwavering commitment.
During Covid we evolved our business model and introduced
a new tripartite purchase order contract which is designed to
reduce working capital requirements and provide further security
and financial support for our manufacturing partners and security
of stock for our franchise partners. We continue to evolve this
model as outlined in the Financial Review.
Our partnerships around the world are supported by a first class
retail team, led by the Head of Commercial. The retail team’s role
is to build ever closer relationships enabling us to understand the
global markets and customer need in more detail, thus further
enhancing our product development roadmap and business
model. We have taken the learnings from the pandemic and the
significant shift to online to review the development of the store
of the future together with looking at new business and market
opportunities.
Covid 19 will continue to impact both our retail and
manufacturing locations in the near-term and this will require us
to continue to flex our operations to manage the pandemic. This
itself brings new opportunities and ways of doing business that
will, over the medium-term, bring further benefits.
As we enter the new financial year we move into our next
phase “rebuild” where we will implement the product and
brand updates together with focus on new routes to deliver the
Mothercare brand.
20
Mothercare plc annual report and accounts 2021
Our History
1961
Founded by
Selim Zilka and
Sir James Goldsmith,
opening the first store
in Kingston.
2007
Mothercare acquires
The Early Learning
Centre (ELC) stores
around the globe.
1968
Begins selling
children’s clothes
up to the age of 5.
1972
Mothercare
becomes a
public company.
1983
The first international
franchise store
opens in Kuwait.
2000
Mothercare Plc is
formed as a sole
business after
previous merges with
Habitat and BHS and
Mothercare.com
is launched.
1990s
Expands further
globally into Russia
and Europe.
1987
Stores open in
Malaysia, Hong
Kong and Singapore.
2011
Alshaya opens their
200th Store
– Morocco Mall
2015
Mothercare Russia
opens their
100th store
– Detsky Mir.
2018
Mothercare wins
award for Body
Proud Mums
Campaign.
2019
The Early Learning
Centre sold to the
Entertainer and
UK business enters
administration.
2021
Mothercare
celebrates its
60th anniversary
2020
Mothercare Global
Brand is formed and
partnership with
Boots UK
is launched.
2019
Mothercare
Experience store
launched in
Singapore
– Harbour Front.
Mothercare plc annual report and accounts 2021
21
Strategic Report
Chief Operating Officer’s and business review
continued
Our Strengths
We have six core strengths that give Mothercare an enduring competitive advantage:
A globally recognised Brand and Product offering
We have established a distinctive brand in a number of
global markets, the broad appeal of the product offering from
Mothercare and crucially, often first to market franchise model
has given us a noticeable presence in many of the world’s
leading shopping malls.
We continue to focus on enhancing the design, construction
and fabrications of all of our product ranges through the
complete ownership of design. We choose our manufacturing
partners to ensure that our global customers get the
consistent high standard of products specifically in relation to
both quality and ethics that they have come to expect.
Sixty years of experience
An attractive financial model
Mothercare has been designing and developing products
for babies, young children and parents for 60 years, the
last 37 on a global basis. Our long-standing manufacturing
and franchise partners’ businesses often started with the
Mothercare brand and we therefore benefit from a deep
understanding of the brand.
We believe that we are the only global parenting brand
of scale. Although we face direct competition from
regional players our recent consumer research shows
that Mothercare scores the highest in trust, a highly
desirable attribute for any brand but in particular a
childrenswear brand.
We have established a new financial model that is now
applied to the majority of our franchise partners. This involves
us only placing orders for products that match the orders
from our franchise partners and are covered by the three-
way contractual agreement that they will pay for them,
usually also being invoiced direct by the manufacturing
partner. We therefore do not hold stock that is not covered
by a sales order and are generally not exposed to the
related working capital requirement and risk. The product is
generally shipped direct from our manufacturing partners to
our franchise partners, largely removing the need for us to
use warehouses.
We earn the majority of our gross profit from the royalties
we charge as a percentage of our franchise partners’
net retail sales.
22
Mothercare plc annual report and accounts 2021
A flexible franchise modelSixty years of experienceAn attractive financial modelAn experienced management teamMultiple pathways to drive growthA globally recognised Brand and Product offeringMothercare‘A leading global brand for parents and young children’
An experienced management team
Multiple pathways to drive growth
Our management team brings considerable and diverse
experience gained from senior roles in retail, franchising,
licensing, hospitality, digital and financial industries.
Our aim is to build a world class team in each of our
core competencies and seek to build upon this with the
appointment of a chief executive officer with digital and
brand experience.
We are currently present in over 37 countries demonstrating
our strong track record of international expansion. As
outlined in our Growth section there is still significant runway
for further geographies. We are also able to expand our
addressable market through new routes and additional
synergistic product offerings.
The trust and heritage we have established in our brand
is critical to us. Where necessary we vigorously defend
our trademarks, copyrights and know-how to protect our
intellectual property both in existing and new territories.
A flexible franchise model
Brand
Exclusive Partnership
• Strong brand identity across the
globe that’s trusted and reliable.
• Legal maintenance of IP and
domain names.
• Full multichannel agreement for use of the brand.
• Pull model, allowing partners to select and maximise
product based upon local trading needs.
• Selected use of third party brands to compliment the
Mothercare offer.
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
Market Relevant Design
• End consumer focussed
product development.
• from pre birth to child
driving strong consumer
lifetime value.
• technically compliant &
certified.
• high level of product
newness engaging return
purchasing & brand
loyalty.
• strongly co-ordinated
cross category offer
encouraging higher
basket spend.
• unique cross category
ranging for hard and soft
goods.
Commercial
Management Team
• Dedicated commercial
management team who
work in close partnership
to provide best
practice and general
management support.
Online, Marketing and Store Assets
Supply Chain Management
• Full photographic and copy assets for online.
• Wire frame and social media guidelines.
• Stop Motion video, YouTube and social media content.
• Window designs.
• Seasonal and brand photography and video content.
• Content for key global and local events, e.g. Ramadan, Diwali.
• Flexible model providing direct
to market product deliveries.
Mothercare plc annual report and accounts 2021
23
The Company’s response to COVID-19
The experience we gained at the time of the administration of the UK
retail business in November 2019 proved invaluable in helping us – with
the support of our franchise and manufacturing partners – to manage
and mitigate the overall impact on both our and their businesses. We
felt the impact of an unprecedented demand shock which led to a low
point in April 2020 of only 27 per cent. of our franchise partners’ global
retail locations being open. We have continued to track this on a weekly
basis with around 87 per cent. of locations open by the year end.
Your Board activated contingency plans to focus management
attention upon the well-being of our colleagues alongside
protecting corporate liquidity in order to preserve the businesses
of our manufacturing and franchise partners as a prerequisite to
returning to longer-term profitability.
At the headquarters, plans were already afoot to move servers
and to test remote working ahead of a planned office move
in the summer of 2020. This served us well for the stay-at-home
measures introduced at the end of March 2020 with all teams
enabled to access the network simultaneously from home. Our
product teams and photography teams were more challenged
to work from home and, as soon as practicable, they were
categorised as essential teams and were able to attend the new
headquarters in Hemel Hempstead in a risk-controlled way.
As we were unable to host our selling events in person, we
adapted them to be virtual selling events, online, with greater
attention to detail on CAD files zooming in on design detail and
with the essential teams in HQ showcasing products via video link.
Whilst clearly not quite the same as being able to see and touch
product physically, it afforded our franchise partners the best
alternative to make their buying decisions for forthcoming seasons.
The Group did not make use of any government loans nor did it
furlough any employees in the continuing business. Some former
Mini Club employees who were based within Boots stores prior
to the cessation of the Mini Club business were furloughed under
the CJRS Furlough scheme. The amounts received in relation to
these employees were immediately passed through to Boots.
At the time of writing, plans are being considered for
reintroducing teams to the physical headquarters and ways of
working going forward including accommodating requests for
more flexible working arrangements.
We are looking forward to meeting our colleagues and
manufacturing and franchise partners around the globe in
person in 2021.
be
everyday
real.
We are looking forward to meeting
our colleagues and manufacturing
and franchise partners around the
globe in person in 2021.
24
Mothercare plc annual report and accounts 2021
KPIs
Measuring our
performance
KPIs
Measuring our performance
Worldwide Sales*
Online retail sales £m
Total retail sales £m
Stores as a % of total sales
Online as a % of total sales
Worldwide Stores*
Number of stores
Space (k) sq. ft.
International Growth*
Year on year sales in constant currency
Global Franchises
Countries with a Mothercare presence
Product Mix*
Clothing & Footwear
Home & Travel
Toys
2021
44.4
358.6
87.6%
12.4%
734
1,970
2020
31.3
542.1
94.2%
5.8%
841
2,345
(30.5)%
(10.5) %
37
86.8%
11.2%
2.0%
40
78.2%
19.8%
1.9%
2019
26.8
604.3
95.6%
4.4%
1,010
2,643
(2.4) %
50
65.7%
31.1%
3.3%
* Numbers presented relate to stores held by, and sales to end consumers by the Group’s franchise partners. See accounting policies for definitions.
Mothercare plc annual report and accounts 2021
25
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Principal risks and
uncertainties
Our enterprise
risk management
framework
Principal risks and uncertainties
Our enterprise risk management framework
Mothercare Global Brand (MGB), the main operating company within the Group, is a global franchisor operating in highly unusual times.
Being able to identify and articulate the impact of COVID-19 on our business model to our partners and our colleagues has enabled us to
retain their support and manage associated risks effectively.
We have an embedded enterprise risk management (ERM) framework in place that applies to every part of our business operations.
ERM is a key discipline embedded throughout MGB empowering departments to identify risks and opportunities and to manage them
effectively.
The Board is required to monitor and review the effectiveness of the system of internal control within MGB and has overall responsibility
for ERM. They set our risk appetite and articulate the amount of acceptable risk within which MGB operates. The Board challenges our
Executive to continually evolve ERM and governance and annually assesses the effectiveness of risk management.
The Board agrees our risk appetite and tolerance levels annually. Our risk appetite is guided by the following principles:
•
That our behaviours are in line with our Global Code of Conduct;
•
That our performance should meet the needs of our business model and that of our partners;
•
That our products are sustainable and meet the highest safety standards;
•
That we operate our business to optimise our working capital position; and
•
That we manage our operational and principal risks effectively.
Our risk tolerance reflects the level of risk deemed either acceptable or inevitable in pursuit of our strategic intentions. Risk Tolerance is
summarised at a high level below:
Risk Tolerance
High Tolerance
Type of Risk
• Strategic risks
Medium Tolerance
Low Tolerance
• Operational and transformational risks
• Key strategic project risks
• Macro–economic risks
• Financial risk
Geo–political risks
• Health & Safety risks
• Manufacturing risks
• Bribery & slavery risks
• Regulatory and compliance risks
• Brand reputational risks
By providing clear risk tolerance levels across our strategic, operational, regulatory and reputational risks, it provides direction and sets
boundaries for consistent and measured risk-aware decision making.
Governance
The Board is assisted in its endeavours by several committees, including the Audit and Risk Committee, Operating Board and Risk
Committee (see more on page 47 of this report):
• The Audit and Risk Committee oversees the effectiveness of robust ERM and internal control environment. It is accountable to and fully
supported by the Board.
• The Operating Board is responsible for delivering on our strategy and managing reputational, financial and operational risk. The
Operating Board place risk on the agenda to ensure appropriate debate of our principal risks and their management. Any risk
not adequately mitigated by management actions is returned to the Risk Committee for further evaluation and allocated to the
appropriate senior manager for improvement.
• The Risk Committee, comprising Operating Board members, acts as a forum to identify, monitor and manage emerging risks across
our global footprint. The Risk Committee meets monthly and calls upon guest experts from around the business to advise on specific
matters as required. Having Operating Board members serve as Risk Committee members gives visibility and seniority to the group to
discuss key and emerging risks.
The Plc Board challenges our Operating Board to continually evolve ERM and its governance
26
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued The diagram below illustrates MGB’s ERM structure.
Plc Board
Audit and Risk Committee
Operating Board
Risk Committee
Mothercare Global Brand
ERM direction
and oversight
Risk policy, appetite
and framework
ERM activity
(risk owners)
Risk identification,
evaluation, actioning/
controls, monitoring,
reporting and
ongoing review
FY2021 ERM activity
The primary focus of ERM at MGB was to manage the principle and emerging risks to the business and to support management in
risk-based decision making. The global impact of the COVID-19 pandemic continues to present a significant challenge for MGB and its
franchise and manufacturing partners. The prolongation of the pandemic has resulted in a year of continual, tactical risk management
activities which our staff have responded to and successfully executed. Supply chain disruption has been anticipated and mitigating
actions have been put into place to ensure that Mothercare can continue to operate and support its franchise partners and manage the
supply base while protecting our financial stability.
Alongside managing the risks presented by Covid, the Operating Board has worked throughout the year to embed the new operating
model with our partners and have continued to enhance the contractual agreements and protecting the MGB brand.
The risks presented by Brexit and compliance to the changing export regulations continue to be managed by the Operating Board.
Principal Risks and uncertainties
As with all global businesses, MGB faces numerous different risks but also many opportunities. 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. This
contributes to our top down ERM approach.
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.
This reflects our combined ‘top-down’/’bottom-up’ approach.
Mothercare plc annual report and accounts 2021
27
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Principal risks and uncertainties
Our enterprise risk management framework continued
Principal risks
Potential impact
Key controls and mitigations
Change on LY
Liquidity
Failure to control cash
management and
working capital resulting
in breaches to banking
covenants. Not meeting
commitments to our
pension schemes and
inability to meet our
strategic intentions.
Dependency on a small
number of partners
Our partner base has
contracted, by design
since 2019, resulting in
a smaller footprint for
MGB. Whilst this reduction
removed some smaller
unprofitable partners,
we now have a greater
reliance on fewer key
partners. Our success is
directly dependent upon
their success.
New business model
Post-administration of
the UK business, the new
business model and
purpose may not be
clear or adhered to by all
partners and potential
partners impacting ability
to grow the business and
resulting in poor results.
COVID-19
The resultant impact on
our revenues as a result
of limitations on store
opening, customers’
shopping habits and
our ability to source and
distribute product in a
timely manner.
Challenging global
economic and political
conditions
MGB may be negatively
affected by challenging
economic conditions and
political developments
affecting the international
markets in which it
operates.
The ongoing impact of
COVID–19 and expected
disruption to global trade
may impact partner sales
and result in margin and
revenue squeeze.
Disruption to global
supply chain may also
put pressure on stock
availability and further
hamper trade in our
global markets.
Any damage to, or loss of,
the Group’s relationship
with key partners could
have a material impact
on the MGB’s franchise
model success, results
of operation or financial
condition.
A lack of articulation,
understanding or
adherence to our new
business model may result
in:
• Lack of clarity around
MGB’s purpose and
resultant inability to attract
new partners
• Perception of high risk,
reduced profit and
increased international
debt
• Pricing challenges
• Poor buy–in from existing
partners impacting long
term profitability.
The impacts of COVID–19
on global economies,
along with rising tensions
could impact both our
franchise partners and
manufacturing partners
ability to operate
successfully, therefore
impacting on our revenue.
• We have strong cash management governance in place,
including Cash Management Committee.
• Tri–partite agreements in place with franchisees and suppliers
significantly improving working capital.
• Credit management improvements made to manage timely
incoming payments.
• Ongoing identification and risk–based review of potential new
business channels, partnerships and territories to grow our global
business and reduce reliance.
• Collaboration with international partners continues with the aim of
providing support to enable growth.
• Revised contracts provide increased transparency, competitive
pricing and royalty rates.
• Business plans reviewed and discussed quarterly with partners to
agree growth plans.
• Strategic focus on our top 7 franchise partners.
• Ensuring changes are mutually beneficial for both MGB and
partners.
• Relationship management improvements are in place.
• Clear product architecture developed and launched to help
partners understand the product hierarchy and pricing.
• Improved commercial agreements and disciplines are in place
for both franchise partners and suppliers.
• Continued audit checks are conducted with consequences in
place for any non–compliance issues.
• Our numerous franchise territories coupled with the spread of
our manufacturing base reduces the restrictions imposed by an
individual country or region
• Management team will continue with the rigour and agility they
have demonstrated in reaction to the pandemic to date
• Use of flexible and innovative business model
Economic and political
uncertainty impacting
Europe, the Middle East,
and those dependant
on China could have a
material adverse effect on
the Group’s business.
• MGB works closely with individual franchise partners to optimise
benefits and mitigate risks to be gained from changing
conditions.
• Improved products, presentation and service, with clarity of the
products on offer and where they sit in the product and pricing
hierarchy.
• Franchise partners have the ability to source product locally
impacting their own cost model
• A risk–based review of new potential markets is ongoing.
28
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
Principal risks
Potential impact
Key controls and mitigations
Change on LY
ERP System
MGB legacy IT systems
are being replaced by a
world class ERP system
however this presents a
risk of design failure and
implementation delay
leading to the loss of our
ability to operate.
Regulatory and Legal
A failure to comply with
increasing regulatory
requirements or
introduction of new
regulations impacting
MGB or any of our
partners could result in
brand damage, fines
or impact our ability to
operate profitably.
A failure of our IT
infrastructure could result
in the inability to support
our Global partners to
trade effectively.
Any failure or attack
relating to our
warehousing systems or
finance systems, especially
would impact operational
efficiency.
MGB is reliant on
manufacturers, suppliers
and distributors to
comply with employment,
environmental and other
laws.
Increasing regulatory
pressure (GDPR, EUTR,
Modern Slavery Act,
CCO) requires monitoring
and reporting to
avoid damage to the
Mothercare brand.
Changes to regulations
or onerous import
restrictions and taxes
could significantly impact
profitability of our partners.
• An ERP Steering Committee has been established including
representatives from all departments and to ensure that the
system is appropriately scoped and planned.
• Disaster recovery capabilities in place.
• Additional reliance put in place around core systems
• Continual monitoring of our IT landscape against risk factors
• Our Global Code of Conduct training is mandatory and required
to be completed on an annual basis.
• Anti–Bribery and Corruption training has been rolled out to all
colleagues and additional training given to those in higher risk
areas.
• Conflict of Interest self–certification is required.
• Cyclical audits are carried out to check compliance with
legislation, such as Health and Safety matters. Non–compliance is
investigated and will result in disciplinary action.
• MGB has continued to develop its sourcing strategy to allow
for greater flexibility in moving suppliers in response to supply
interruptions and regulation changes.
Brand, Reputation and
Relationships
Our brand could be
impacted by:
• Our Global Code of Conduct training is required to be completed
annually by all partners.
As a franchisor, our
Brand is our key asset.
Failure to create a strong
and desirable Brand
will negatively impact
our ability to operate
a successful franchisor
model.
Our franchisor model
is built upon successful
relationships with our
partners. Should these
be negatively impacted,
our model may not be
successful in the longer
term.
• Product failures and/or
ineffective management
of product incidents
• Our required high standards communicated throughout supply
chain and to all partners via our Operating Model and relevant
guidelines
• public scandals relating to
• All Mothercare branded suppliers are required to comply with our
any partners
Responsible Sourcing Handbook – Compliance Standards.
• inappropriate behaviours
• Responsible sourcing audits are completed annually.
• data breaches.
• MGB participates in the Bangladesh Safety Accord.
• Our relationships could be
impacted by global trade
deterioration.
• Focus on pre–despatch quality checks.
• Established product recall process in place.
• Group trademarks are formally logged in country of operation.
• Proactive enforcement of IP rights.
Risk has increased
Risk has decreased
No change
New emerging risk
Mothercare plc annual report and accounts 2021
29
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Section 172
statement
Section 172 statement
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to explain how they considered their general duties under
Section 172(1) of the Companies Act 2006 to act in a manner they would consider would be most likely to promote the success of the
company for the long term for the benefit of its shareholders as a whole whilst having regard, among other things, to the interests of all
stakeholders including employees, business relationships with suppliers, customers and others.
Mothercare’s stakeholders include its shareholders, employees, franchise partners, manufacturing partners, the trustees of the pension
scheme and its lenders. Key board decisions throughout the year considered the key stakeholder groups and, in particular given the
circumstances we found ourselves in during the pandemic, methods of engagement with those groups.
During the year the board was cognisant of its s172 duties and specific examples are set out below.
Shareholders
Agreement was reached with the holders of the convertible unsecured loans issued in 2018 and 2019 (CULS) who committed to convert
them to equity around 31 January 2021. The CULS conversion was completed on 19 March 2021 following the Company’s admission to AIM
on 12 March 2021.
Employees
To facilitate working from home, colleagues were provided with office equipment and weekly virtual coffee mornings held for all
employees to join. There was an emphasis on wellbeing with access to support for an array of matters.
Annual bonus for executive directors for FY20, whilst technically achieved, were not paid out and there was no increase to base salaries.
Lenders
Recapitalisation of the business - The board kept the financial needs and available resources of the Group under close review and
planned to recapitalise the Group with the minimum possible dilution for shareholders. In November 2020 it completed the refinancing
with GB Europe Management Services Limited. The Group also moved its headquarters during the year reducing occupancy costs by
c£900,000 per annum and it sub-let then subsequently assigned the Daventry warehouse lease during the year further reducing cash
occupancy costs.
Pension trustees
Both our pensioners and the Trustees of our pension schemes are reliant on good management and governance to facilitate our
continued success.
Detailed discussions were held with the trustees of the defined benefit pension schemes and agreement was reached on revised deficit
payments to 2024.
Franchise and manufacturing partners
We held close discussions with both our international franchise and manufacturing partners to modernise and improve our commercial
relationships to mutual benefit, with the objective of improving pricing and quality for our franchise partners and reducing financial and
operational risk for our manufacturing partners. As a result of those constructive discussions we successfully launched during the year our
innovative and more sustainable and less capital-intensive business model. The teams created virtual selling events and the commercial
business partners held quarterly business reviews with franchise partners online.
Other relevant information
The Board also takes into consideration the long‐term consequences for both the Company and its stakeholders when making these
decisions, making sure the Company conducts its business in a fair way, protecting its reputation and external relationships. The dividend
policy has been provided on page 8 of the Chairman’s statement. Obligations to pension trustees are also forefront in any decision
making with regular communication driving a strong working relationship.
The Company regularly considers the welfare of the local community in which it operates and continues to build strong links through
engagement with local initiatives and fundraising for charities. Overseas, the Group considers the choice of which manufacturing partners
to work with to be a key decision.
The Company strives to maintain a reputation for high standards of business conduct through its internal culture and values. It has regard
to relevant legislation such as modern slavery, human rights and ensures tax policies are up‐to date. A non‐financial information statement
has been provided on page 41.
Stakeholders are regularly engaged with to ensure conflicts of interest, if any, are identified at an early stage and managed. The risk
identification process undertaken by the Group’s risk committee furthers this aim.
30
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
Financial review
Financial review
“In addition to the significant
progress we have made around
our product and brand strategy the
last year has also seen a radical
change in the way the business
is now financed and in our new
operating model. The result has
been the emergence of a profitable
and cash generative international
business, with reduced risk, lower
overheads and an asset-light
model.”
Andrew Cook,
Chief Financial Officer
After a period of significant change and restructuring of the Group in 2020, the year ended 27 March 2021 was a relative return to stability
for Mothercare – albeit with international uncertainties over COVID-19 continuing to impact trading levels.
International retail sales by our franchise partners of £358.6 million (2020: £542.1 million) showed a 34% decrease year on year. This trend
reflects the impact of the COVID-19 pandemic, which has affected each market across the world in many different ways. During the current
year, the percentage of retail stores open globally varied between 23% and 95% of the total portfolio. The most significant impact was felt
in the first quarter; for the rest of the year the percentage of retail stores open globally varied between 81% and 95%. At 27 March 2021, the
Group’s franchise partners had 92% of stores open (2020: 58%).
The loss from operations in the year was £2.4 million (2020: loss of £8.8 million) reflecting the significant impact of COVID-19 on our business.
The Group uses a non-statutory reporting measure of adjusted profit, to show results before any one-off significant non-trading items,
adding back the adjusted items which relate to the restructuring and reorganisation costs and are non-recurring of £2.6 million together
with depreciation and amortisation of £2.0 million gives an adjusted EBITDA profit for the year of £2.2 million (2020: £6.2 million).
The Group recorded a loss from continuing operations for the 52 weeks to 27 March 2021 of £21.5 million (2020: £8.5 million loss). The adjusted
loss for the year from continuing operations was £8.6 million (2020: £6.4 million loss). Continuing operations represent the Global operation
of the business; all operations for the 2021 financial year were continuing, however, the UK operational segment ceased during the
comparative year and was previously categorised as a discontinued operation. Continuing operations reported reflected accounting
guidelines and therefore included some expenditure which ceased following the administration process, and as such, the comparative
period does not necessarily reflect the result achieved by the standalone international business.
Total loss for the year of £21.5 million (2020: £13.1 million profit) was the same as the loss from continuing operations. However, the prior year
also included a gain on the loss of control of the Group’s main trading subsidiary Mothercare UK Limited (in administration), and a shared
service entity, Mothercare Business Services Limited (in administration) of £46.2 million.
Retail space at the end of the year was 2.0 million sq. ft. from 734 stores (2020: 2.3 million sq. ft. from 841 stores – continuing operations).
There was also COVID-19 induced disruption in the supply chain, impacting both the current and previous financial years. This temporarily
decelerated, or in some instances constrained, the movement of product within the supply chain, which resulted in a lack of availability for
franchise partners.
The Group has two distribution centres, one in the UK and one in Shenzhen, China; and whilst routes directly from suppliers to partners
were able to continue, there were barriers to stock being shipped in and out of the facility in China. There were also COVID-19 related
logistical challenges in securing space and haulage, with shipments being delayed once vessel capacities were reached.
Each of the Group’s key markets – including the Middle East, Russia, China, India, Indonesia and Singapore saw a decline in trading year
on year – driven by the aforementioned stock availability limitations and store closures.
Mothercare plc annual report and accounts 2021
31
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Financial review
continued
The year ended 28 March 2020 saw two subsidiaries of the Group, Mothercare UK Limited (MUK) and Mothercare Business Services
Limited (MBS), enter administration. Mothercare Global Brand Limited (MGB), also a subsidiary of Mothercare PLC (PLC), purchased the
brand, customer relationships, and certain assets and liabilities of the international business from the administrators.
Responsibility for the UK operating segment ceased to belong to PLC from the point of administration; included within this were the
UK retail store estate, through which the Group sold to end consumers, as well as the Group’s UK trading website. Subsequently,
the administrators wound down the UK operations, generating cash to repay the creditors, with the bank debt to which MUK was a
guarantor, being the sole secured creditor, and the Group liable for any shortfall.
The International and UK operating segments were previously both trading segments of the same legal entity, MUK. The corporate
costs were therefore managed as one business. In categorising these operations between continued and discontinued operations, the
accounting standards do not allow for such costs to be pro-rated. Any expenditure which was incurred under a contract used by the
international continuing business as well as the UK discontinued operation was disclosed under continuing operations – regardless of
whether the expenditure did not continue after the administration, and regardless of whether the contract was primarily for the benefit of
the UK segment. For this reason, the continuing administrative expenses disclosed in the comparative period do not necessarily reflect the
ongoing corporate cost base of the business. There were no discontinued operations in the current period.
COMPLETION OF REFINANCING
As initially announced last November, there were three main achievements connected with the refinancing –
• A new £19.5 million four year term loan to refinance the Company’s previous debt that was repayable on demand due to covenant
breaches.
• The holders of the £19.0 million of Convertible Unsecured Loan Notes that were potentially due for repayment on 30 June 2021, have
converted their entire holdings into equity, increasing the number of ordinary shares in issue from 374.2 million to 563.8 million.
• Revised contribution schedules have been agreed for the next five years with the Mothercare pension schemes’ trustees that will
enable us to generate sufficient cash over that period to repay the term loan in full whilst still meeting the reduced deficit reduction
contributions. The value of the deficit under the full actuarial valuation at 31 March 2020 was £123.4 million; the Group’s deficit payments
are calculated using this as the basis. The agreed annual contributions to the pension schemes, for the years ending in March, are as
follows: 2022 – £4.1 million; 2023 – £9.0million; 2024 – £10.5 million; 2025 – £12.0 million; 2026 to 2029 – £15 million; 2030 – £5.7 million.
Whilst COVID-19 is still having a negative short term impact on the Group’s profitability and cash generation our forecasts show that we
are able to comply with our commitments to our lender and the pension schemes for the foreseeable future. As at the balance sheet
date the Group had net borrowings of £12.1m, being cash of £6.9 million against a substantial drawdown of £19.5 million from the new facility,
reflecting an ongoing tight control of cash.
In March 2021 the Group transitioned stock exchanges by simultaneously being admitted to AIM and cancelling its listing on the Main
Market.
OPERATING MODEL
The Group continues to work towards its goal of becoming an asset light business. At the beginning of the COVID-19 pandemic with
supply chains being stretched, it was clear that our existing operating model would put excessive demands on our limited working
capital. At that time product was often shipped to our warehouse to be picked and repacked and shipped back to franchise partners,
resulting in our manufacturing partners frequently being paid well before our franchise paid us, due to the time the stock was inside our
supply chain. We launched the new tripartite agreement (‘TPA’) at the beginning of COVID-19, whereby the franchise partners commit
to paying the manufacturing partners for the product when due. And as a result the manufacturing partners were generally willing to
re-extend credit terms that had sometimes been lost because of the UK retail administration, thereby limiting the impact on our franchise
partners’ working capital. The TPA process has resulted in a substantial reduction in our working capital requirement and has been an
instrumental element of our successful navigation through the impact of COVID-19.
We have subsequently further improved the TPA model whereby the franchise partner is invoiced directly by the manufacturing partner.
This allows the manufacturing partners the opportunity to obtain credit insurance in relation to the franchise partners debt, which due to
MGB’s limited trading history was sometimes difficult to obtain for invoices raised to MGB. Additionally, this model removes the Group’s
exposure to the debt and working capital requirement for these products. Where this is the case, under IFRS 15 the Group is the agent in
the transaction – previously the Group was the principal. Hence for these products the creditors and stock will not be recognised by the
Group and whilst the associated revenue and cost of sales will also be excluded there will be no material impact on the absolute margin
earned. The responsibility for design, quality control and choice of manufacturing partner for these products, as outlined in the Chief
Operating Officer’s report, are unchanged and remains with the Group.
For the autumn/winter 2021 season, recently in our supply chain some 55% of the products by value are invoiced directly to franchise
partners by our manufacturing partners. The direct invoicing to franchise partners by manufacturing partners for products is a condition in
recent franchise agreements highlighted below, which will mean that within the next year this figure should increase to around 70%.
32
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued The second major change to the operating model was within our supply chain. As mentioned above we previously contracted
warehouse space and associated labour to accept and unpack products from manufacturing partners then pick and repack to send to
our franchise partners. Clearly it is more cost effective to do things once so from our spring/ summer 2022 season due to ship later this year,
where volumes allow, our manufacturing partners will individually pack orders for each franchise partner and then they will be shipped
direct to our franchise partners, eliminating the need for us to use our warehouses. For the spring/ summer 2022 season we anticipate 80%
of our products will be moving direct and we continue to work to minimise costs for both ourselves and our franchise partners by moving
activities further up the supply chain.
These new ways of working are being accepted by both our franchise and manufacturing partners as they are beneficial for all. Our
franchise partners have the potential of reduced distribution recharges, shorter delivery times and improved surety and availability of
product. In turn, manufacturing partners have greater security of payment through credit insurance or simply dealing directly with some of
our well capitalised franchise partners.
Another change that is currently underway is the development of a new integrated ERP system, expected to go live early in 2022. In the
year ending March 2023, the first full year to benefit from the new system, our information technology costs would be expected to be
reduced to close to half of those for the year to March 2021, which would result in a direct bottom line improvement of over £2 million. This
system will allow us to automate much of our ordering process with both our franchise partners and manufacturing partners accessing
the system through portals. It will also provide easier, more accurate and cost-effective access to information, including our ability to
analyse our franchise partners’ sales data to ensure we are optimising our product designs.
PARTNERSHIP AGREEMENTS
In addition to the TPAs above we have also been rolling out a new more balanced version of our franchise partner agreement. In the
past there was sometimes limited consistency between the agreements which makes them more difficult to manage and increases
our legal costs. In August 2020 we completed new 10 year franchise agreements with an option to extend for another 10 years, with both
Alshaya Group, our largest franchise partner, and Boots UK Limited for the UK and Republic of Ireland. Subsequently we have now
finalised new agreements with our franchise partners in Indonesia, Malaysia, Singapore and Hong Kong. These new agreements are all
based on the same standard version and contain the commitments to the TPA, direct shipping and direct invoicing. We intend to extend
these new standard agreements to other franchise partners when appropriate in relation to their existing agreements.
We have also launched a new manufacturing partner agreement, which is common to all our manufacturing partners and again is
more balanced and replaces relationships in the past that were often more informal and lacked the clarity that we now have. All our
manufacturing partners receiving future orders, commencing with the spring/ summer 2022 season now being placed, will be required to
sign up to this agreement.
LEGACY ISSUES FROM THE ADMINISTRATION OF THE UK RETAIL BUSINESS
The National Distribution Centre (‘NDC’) warehouse facility in Daventry, which predominantly serviced the Mothercare UK retail business
and was previously sublet to a third-party on a short-term basis, has now been fully assigned to a third party. This has removed a
potential risk of around £3 million per annum to the Group on a lease that expires in June 2026.
In addition to the NDC lease above after issuing our results for the year ended Mach 2020, we were approached by the landlord of a
previous UK retail store, where a cross guarantee existed that we were not aware of. The resultant provision, which needed to be made as
a prior year adjustment, as detailed in note 32, was £1.3m.
BALANCE SHEET
Total equity at 27 March 2021 was a deficit of £43.0 million, a worsening on the deficit position of £4.0 million at 27 March 2020. This was
driven by the temporary defined pension scheme moving from a surplus of £29.8 million to a deficit of £25.6 million. There was also
the conversion of the shareholder loans from borrowings to equity during the year – these were carried at a borrowings amount of
£12.8 million and embedded derivatives of £0.3 million at the comparative period end.
Mothercare plc annual report and accounts 2021
33
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Financial review
continued
The Group has moved to a net current asset position of £1.6 million. In the comparative period, the net current liability position is driven by
the level of provision held against Group receivables and includes the unwind of certain non-cash provisions. The Group’s working capital
position is closely monitored and forecasts demonstrate the Group is able to meet its debts as they fall due.
Intangible fixed assets
Property, plant and equipment
Retirement benefit obligations (liability)/asset (net of deferred tax)
Net borrowings (excluding IFRS 16 lease liabilities)
Derivative financial instruments
Other net liabilities
Net liabilities
Share capital and premium
Reserves
Total equity
Pensions
27 March 2021
£ million
28 March 2020
Restated
£ million
1.1
1.7
(25.6)
(12.1)
0.8
(8.9)
(43.0)
198.1
(241.1)
(43.0)
0.6
8.6
19.4
(34.7)
20.6
(18.5)
(4.0)
179.1
(183.1)
(4.0)
The Mothercare defined benefit pension schemes were closed with effect from 30 March 2013.
The pension deficit at 27 March 2021 was £25.6 million, whereas at 28 March 2020, the Group was in the unusual and temporary position
of recognising an accounting surplus under IAS 19 of £29.8 million for these schemes. This accounting surplus – arising as a result of a
decrease in long term inflation expectations and the use of a lower pre-retirement discount rate – was a function of the volatile markets
around that time, driven by the extreme situation of countries all over the world being about to enter a period of ‘lockdowns’ and high
levels of uncertainty. During the current year, therefore, the scheme has returned to a deficit of a level similar to the value it was held at in
2019.
The Group’s deficit payments are calculated using the full triennial actuarial valuation as the basis rather than the accounting deficit /
surplus. The value of the deficit under the full actuarial valuation at 31 March 2020 was £123.4 million.
Details of the income statement net charge, total cash funding and net assets and liabilities in respect of the defined benefit pension
schemes are as follows:
£ million
Income statement
Running costs
Net (expense) / income for interest on liabilities / return on assets
Net charge
Cash funding
Regular contributions
Additional contributions
Deficit contributions
Total cash funding
Balance sheet**
Fair value of schemes’ assets
Present value of defined benefit obligations
Net (liability)/surplus
* Forecast
52 weeks ending
26 March 2022*
52 weeks ending
27 March 2021
52 weeks ending
28 March 2020
(2.5)
(0.5)
(3.0)
(1.0)
–
(4.1)
(5.1)
n/a
n/a
n/a
(3.4)
0.2
(3.2)
(1.3)
–
(3.2)
(4.5)
403.4
(429.0)
(25.6)
(2.9)
(0.6)
(3.5)
(1.9)
(1.9)
(7.8)
(11.6)
401.2
(371.4)
29.8
** The forecast fair value of schemes’ assets and present value of defined benefit obligations is dependent upon the movement in external market factors, which have not been
forecast by the Group for 2022 and therefore have not been disclosed.
34
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued In consultation with the independent actuaries to the schemes, the key market rate assumptions used in the valuation and their sensitivity
to a 0.1% movement in the rate are shown below:
Discount rate
Inflation – RPI
Inflation – CPI
2021
2.0%
3.1%
2.4%
2020
2.3%
2.5%
1.7%
2021
Sensitivity
+/– 0.1%
+/– 0.1%
+/– 0.1%
2021
Sensitivity
£ million
–7.3 /+7.5
+4.5 /–5.7
+1.8 /–1.8
The Group has a deferred tax liability of £nil (2020: £10.4 million). In 2021, no deferred tax asset was recognised as there was not considered
to be enough certainty over the recoverability. In the comparative period, the deferred tax liability arose as a temporary difference due to
the surplus on the pension scheme.
Net debt
Net debt of £13.5 million, which includes net borrowings, related financial assets and IFRS 16 lease liabilities represents an improvement on
the 2020 position of £22.1 million.
The Group’s IFRS 16 lease liabilities significantly reduced to £1.4 million (2020: £8.4 million) as a result of the assignment of the warehouse
facility lease, which had been vacated since the administration of the UK business.
In March 2021, the Group’s shareholder loans were converted to equity. At the 2021 year end, the net debt amount in relation to these was
therefore £nil. At the 2020 year end, £12.8 million in relation to these was included within net debt; £6.2 million of interest accrued up to the
point of conversion.
During the year, the Group agreed a £19.5 million secured four year term loan, which was drawn down in November 2020; the carrying
value of this at 27 March 2021 is £19.0 million (£19.5 million gross of unamortised facility fee).
At the point of the administration of Mothercare UK Ltd and Mothercare Business Services Ltd, the Group’s secured Revolving Credit
Facility (RCF) crystalised at £28.0 million, and this £28.0 million was shown as a current liability at 28 March 2020. Linked to this debt was a
financial asset. Under the sales purchase agreement with the administrators, the proceeds of the wind up of the UK business were first
be used to repay the secured creditor i.e. the RCF. Monies of £21.0 million were expected to be generated towards this, and therefore in
addition to the debt of £28.0 million, a financial asset of £21.0 million was recognised gross of the debt to reflect this. During the current
year, the outstanding balance on the RCF was settled through distributions received from the administrators, with the remaining balance
settled at the point of drawdown of the Group’s new term loan. The Group still holds a financial asset of £2.6 million, reflecting expected
future distributions from the administrators, however as at the current year end this financial asset is no longer linked to the Group’s
borrowings.
Also included within net debt is £6.9 million (2020: £6.1 million) of cash funds, the increase being driven by cash received under the term loan
facility during the year.
Leases
Right-of-Use assets of £1.2 million (2020: £7.9 million) and lease liabilities of £1.4 million (2020: £8.4 million) represented the Group’s head office
leases. The comparative period included an investment property asset relating to the NDC warehouse facility in Daventry which the
Group ceased to use for supply of goods from the point at which Mothercare UK Ltd went into administration; this lease was assigned in
March 2021 and therefore the carrying value was disposed of in the period.
Working capital
The Group only purchases stock directly needed to fulfil franchise partner orders. Of the £5.9 million (2020: £9.7 million) year-end inventories
balance, £2.6 million (2020: £4.5 million) of this related to stock in transit, i.e. was on a boat on its way to one of the Group’s two distribution
centres, at the year end date.
Trade receivables have remained consistent year on year, being £11.6 million at 27 March 2021 (2020: £11.2 million). Similarly, trade payables
have also remained fairly constant, being £11.8 million at 27 March 2021 (2020: £12.0 million).
Mothercare plc annual report and accounts 2021
35
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Financial review
continued
INCOME STATEMENT – on a continuing operations basis
Revenue
Adjusted EBITDA (EBITDA before exceptionals)
Depreciation and amortisation (note 7)
Adjusted result before interest and taxation
Adjusted net finance costs
Adjusted result before taxation
Adjusted costs
Loss before taxation
Taxation
Profit from discontinued operations (note 10)
Total (loss)/profit
EPS – basic (continuing operations)
Adjusted EPS – basic (continuing operations)
Foreign exchange
The main exchange rates used to translate International retail sales are set out below:
Average:
Euro
Russian rouble
Chinese Renminbi
Kuwaiti dinar
Saudi riyal
Emirati dirham
Indonesian rupiah
Indian rupee
Closing:
Euro
Russian rouble
Chinese Renminbi
Kuwaiti dinar
Saudi riyal
Emirati dirham
Indonesian rupiah
Indian rupee
52 weeks to
27 March 2021
£million
52 weeks to
28 March 2020
Restated
£million
85.8
2.2
(2.0)
0.2
(8.7)
(8.5)
(12.9)
(21.4)
(0.1)
–
(21.5)
(5.7) p
(2.3) p
164.7
6.2
(6.8)
(0.6)
(4.9)
(5.5)
(2.2)
(7.7)
(0.8)
21.6
13.1
(2.4) p
(1.8) p
52 weeks ended
27 March 2021
52 weeks ended
28 March 2020
1.1
96.9
8.8
0.4
4.9
4.8
18,954
96.9
1.1
102.9
9.0
0.4
5.2
5.1
19,965
100.5
1.1
82.4
8.9
0.4
4.8
4.7
17,968
90.1
1.1
93.9
8.3
0.4
4.4
4.3
19,576
88.5
36
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued The principal currencies that impact the translation of International sales are shown below. The net effect of currency translation caused
worldwide sales and adjusted loss to decrease by £26.1 million (2020: increase by £14.4 million) and £1.4 million (2020: increase by £0.9 million)
respectively as shown below:
Euro
Russian rouble
Chinese Renminbi
Kuwaiti dinar
Saudi riyal
Emirati dirham
Indonesian rupiah
Indian rupee
Other currencies
Net finance costs
Worldwide sales
£ million
Adjusted
Profit/(loss)
£ million
1.4
(18.9)
–
(0.7)
(0.8)
(0.7)
(1.5)
(1.8)
(3.1)
(26.1)
–
(1.1)
–
–
–
–
(0.1)
(0.1)
(0.1)
(1.4)
Financing costs include interest receivable on bank deposits, less interest payable on borrowing facilities, the amortisation of costs relating
to bank facility fees and the net interest charge on the liabilities/assets of the pension scheme.
Year-on-year finance costs have increased due to the compounding interest on the convertible shareholder loans. Whilst interest of
£2.6 million accrued in the prior period, the current year saw an interest accrual of £6.2 million – the increase partly as a result of the effect
of compounding, but also due to an acceleration of interest on early conversion to include interest up to what would have been the
conversion date (three months later).
There was also a swing in interest income/costs on the pension scheme, with a £0.2 million income in the current year compared to a
£0.6 million cost in 2020.
£10.3 million of finance costs (2020: £6.0 million of finance income) are included in adjusted items. £9.1 million of costs arose on the fair value
movements of the shareholder loan embedded derivatives (2020: income of £6.0 million).This £9.1 million was driven by fluctuations in the
Group’s share price – in March 2020 there was a high level of uncertainty in the UK market – driven by COVID-19, which caused the fair
value of these instruments to plummet; during 2021 the value returned to pre-March 2020 levels. The shareholder loans converted in March
2021 and were fair valued immediately prior to their transfer to share capital and share premium. Also included in adjusted finance costs is
the recognition of 15.0 million of warrants issued in March 2021, as well as the fair value movements on these to the year end date, totalling
£1.2 million (2020: £nil).
Discontinued operations
There were no discontinued operations presented for the current financial 52 week period ended 27 March 2021.
On 5 November 2019, administrators were appointed for MUK and MBS, two subsidiaries of Mothercare PLC. The trade, and certain assets
and liabilities pertaining to the international business were transferred to a new Group subsidiary, MGB. Consequently, in the comparative
period, the UK operating segment was presented as a discontinued operation, and a profit on the loss of control of £46.2 million
subsequently recognised. This profit reflected the greater value of liabilities disposed of compared to assets, the largest of these being
the IFRS 16 lease liabilities for the UK store estate – this was significantly greater than the corresponding right-of-use assets because the
onerous lease provision and lease incentives liability had been transferred against the asset at inception.
The profit from discontinued operations for the period is £nil (2020: £21.6 million).
The total statutory loss after tax for the Group is £21.5 million (2020: £13.1 million profit).
Taxation
The tax charge comprises corporation taxes incurred and a deferred tax charge. The total tax charge from continuing operations was
£0.1 million (2020: £0.8 million) – (see note 9).
The total tax credit from discontinued operations was £nil million (2020: £0.1 million) – (see note 10).
Earnings per share
Basic adjusted losses per share from continuing operations were 2.3 pence (2020: 1.8 pence). Continuing statutory losses per share were
5.7 pence (2020: 2.4 pence).
Mothercare plc annual report and accounts 2021
37
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Financial review
continued
Total basic adjusted losses per share were 2.3 pence (2020: 4.2 pence). Total statutory losses per share were 5.7 pence (2020: 3.7 pence
earnings).
Some of the comparative disclosures for earnings per share have been restated – see note 12.
CASHFLOW
Statutory net cash outflow from continuing operating activities was an outflow of £2.6 million, compared with an outflow of £2.9 million in the
prior year; this was driven by trading in the year and refinancing/ restructuring costs.
Cash outflow from investing activities of £0.4 million (2020: £1.5 million – from continuing operations), reflects a reduction in capital
expenditure.
Cash inflows from financing activities netted to £3.8 million (2020: £2.9 million outflow – from continuing operations). The income was driven
by the cash receipt of £7.3 million on the Group’s new four year term loan. The outflow in the comparative period was as a result of
repayments of the Group’s RCF.
Going concern
As stated in the strategic report, the Group’s business activities and the factors likely to affect its future development are set out in the
principal risks and uncertainties section of the Group financial statements. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are set out in the financial review.
The consolidated financial information has been prepared on a going concern basis. Despite the current global retail sector challenges,
we have attempted to capture the impact on both our supply chain and key franchise partners based on what is currently known and
localised trading activity since the start of the crisis. 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:
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 achieve 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 decreases 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.
Based on the sales to date in the current financial year to March 2022, the Group 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 had therefore already demonstrated that the base case scenario
is challenging.
The Board’s confidence that the Group will operate within the terms of the borrowing facilities, and the 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.
38
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued The impact of the pandemic on the future prospects of the Group 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 Group was unable to mitigate the
material uncertainties assumed in the Base Case Forecast and the Group were not able to execute further cost or cash management
programmes, the Group would at certain points of the working capital cycle have insufficient cash. If this scenario were to crystallise the
Group would need to renegotiate with its lender in order to secure waivers to potential covenant breaches and consequential cash
remedies or secure additional funding. Therefore, we have concluded that, in this situation, there is a material uncertainty that casts
significant doubt that the Group will be able to operate as a going concern.
Treasury policy and financial risk management
The Board approves treasury policies, and senior management directly controls day-to-day operations within these policies. The major
financial risk to which the Group is exposed relates to movements in foreign exchange rates and interest rates. Where appropriate, cost
effective and practicable, the Group uses financial instruments and derivatives to manage the risks, however the main strategy is to effect
natural hedges wherever possible.
No speculative use of derivatives, currency or other instruments is permitted.
Foreign currency risk
All International sales to franchisees are invoiced in Pounds sterling or US dollars. The Group therefore has some currency exposure on
these sales, but they are used to offset or hedge in part the Group’s US dollar denominated product purchases. Under the tripartite
agreements, there has been an increased level of currency matching between purchases and sales, improving the Group’s ability to
hedge naturally.
Interest rate risk
The principal interest rate risk of the Group arises in respect of the drawdown of the £19.5 million term loan. These borrowings are at a fixed
rate of 12% plus LIBOR, and exposes the Group to cash flow interest rate risk. The interest exposure is monitored by management but due
to low interest rate levels during the period the risk is believed to be minimal and no interest rate hedging has been undertaken.
In the comparative period, the Group was exposed to interest rate risk from the Revolving Credit Facility (‘RCF’) and shareholder loans.
The convertible shareholder loans attracted a monthly compound interest rate of 0.83%. These loan agreements contained an option
to convert to equity which is treated as an embedded derivative and fair valued. This fair value was calculated using the Black Scholes
model and is therefore sensitive to the relevant inputs, particularly share price. These loans were converted to equity in March 2021.
The RCF facility was at a fixed rate of 5.5% plus LIBOR. The interest exposure was monitored by management but, similarly to in the current
year, low interest rate levels during the period meant the risk was considered to be minimal. At 28 March 2020, the debt due under the RCF
was £28.0 million.
Credit risk
The Group has exposure to credit risk inherent in its trade receivables.
The Group has no significant concentrations of credit risk.
The Group operates effective credit control procedures in order to minimise exposure to overdue debts. Before accepting any new trade
customer, the Group obtains a credit check from an external agency to assess the credit quality of the potential customer and then sets
credit limits on a customer by customer basis. IFRS 9 ‘Financial Instruments’ has been applied such that receivables balances are held net
of a provision calculated using a risk matrix, taking micro and macro-economic factors into consideration as detailed in note 3.
Mothercare plc annual report and accounts 2021
39
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Financial review
continued
Shareholders’ funds
Shareholders’ funds amount to a deficit of £43.0 million, a worsening from the deficit of £4.0 million achieved in the comparative period.
This was driven by actuarial losses of £56.7 million on the Group’s defined benefit pension scheme, with £10.2 million of deferred tax liability
being released as result of the scheme returning to a deficit position – overall giving £46.5 million of movement driven solely by the
pension scheme. Another significant movement in the year related to the conversion of the Group’s shareholder loans to equity, resulting
in a £28.5 million increase in share capital, share premium and distributable reserves.
The directors’ statement in respect of section 172 of the Companies Act 2006 can be found within the Governance section on page 30.
This strategic report was approved by the Board on 28 July 2021 and signed on its behalf by:
Andrew Cook
Chief Financial Officer
40
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Non-financial
information
Non-financial information
Sections 414CA of the Companies Act 2006 requires a non-financial information statement to be included in the strategic report. The
following table summarises the non-financial information provided in this annual report and cross refers to where it can be found if not
included in full in the table.
Section 414CB non-financial matters
Impacts
Further details
Environmental matters
Employees
Social matters
Respect for human rights
Anti-corruption and anti-bribery
Weekly ‘all hands’ coffee mornings have
continued to be held throughout the pandemic
albeit virtually. We are mindful that, at the time
of writing, a number of new starters hired during
the pandemic have yet to meet their colleagues
in person and we look forward to greeting them
face to face. Well-being and mental health have
been a particular focus with access to confidential
professional support provided.
Modern Slavery encompasses the offences of
slavery, servitude, forced or compulsory labour
and human trafficking and is a grave violation
of human rights. As employers and providers
of goods and services, Mothercare seeks to
ensure that such offences do not take place in
our operations or our supply chain. We respect
internationally recognised human rights, as
outlined in the United Nations Guiding Principles
on Business and Human Rights (UNGPs) and work
with partners to understand and enhance the role
we can play in this.
The Bribery Act 2010, which came into force on 1
July 2011, consolidated previous legislation and
introduced, amongst other things, a corporate
offence of “failure to prevent bribery”. This is an
offence in the UK wherever the offence takes
place. Failure to comply with the act could
expose the Group to unlimited fines and other
consequences.
The Group’s Modern Slavery Statement
is set out in full on the Company’s
website at www.mothercareplc.com/
corporate-citizenship
The Group has a zero-tolerance
approach to bribery and corruption
and its position has been explained
to its franchise and manufacturing
partners. Employees undertake annual
anti-bribery and corruption training.
Mothercare plc annual report and accounts 2021
41
HEAD_0 1st line continued2nd line continuedHEAD_0 2nd lineStrategic Report
Board of Directors
and
Operating Board
Board of Directors and
Operating Board
Committee Memberships key:
A — Audit and Risk Committee
R — Remuneration Committee
N — Nomination Committee
F — Full board member
1. Clive Whiley N F
—
Position: Chairman
Appointment: April 2018.
Skills, competencies, experience: Clive Whiley has
over thirty-five years’ experience in regulated strategic
management positions since becoming a Member of
the London Stock Exchange. He has extensive main
board executive director experience across a broad
range of financial services, engineering, manufacturing,
distribution, retail & leisure businesses: encompassing
the UK, Europe, North America, Australasia, the Middle
East and the People’s Republic of China.
Other Directorships: Mr Whiley is currently Chairman of
China Venture Capital Management Limited, First China
Venture Capital Limited and Y-LEE Limited. Formerly
Chairman of Dignity plc and a Non-Executive Director
of Grand Harbour Marina plc.
F
2. Andrew Cook
—
Position: Chief Financial Officer
Appointment: January 2020
Skills, competencies, experience: Andrew served as
Corporate Development Director of Mothercare from
April 2019 until his appointment as CFO in 2020. Andrew
is a highly-experienced, results-oriented finance
executive having successfully transformed business
profitability across a number of sectors, including retail.
He was most recently Chief Financial Officer for Stanley
Gibbons Group plc. Prior to that role, he held senior
director roles within Medina Dairy Group, Kelly Services,
The Body Shop and Virgin Group.
Other Directorships: None
3. Gillian Kent R A N F
—
Position: Non-executive director and
Remuneration Committee Chair
Appointment: March 2017
Skills, competencies, experience: Gillian
has had a broad executive career including
being Chief Executive of real estate portal
Propertyfinder until its acquisition by Zoopla,
and 15 years with Microsoft including three
years as Managing Director of MSN UK.
Gillian also held positions of Director of
Strategy and Business Development and
Director of Marketing MSN UK. Formerly a
non-executive director at Pendragon Plc,
Dignity plc, Coull Limited and Skadoosh
Limited.
Other Directorships: Gillian holds non-
executive director roles at National Accident
Helpline Group Plc, Ascential Plc, SIG plc
and at three private companies, No Agent
Technologies Limited, Theo Topco Limited
and Portswigger Limited.
4. Mark Newton-Jones F
—
Position: Non-Executive Director
Appointment: July 2014
Skills, competencies, experience: Mark was re-
appointed as Chief Executive Officer of the Company
in May 2018. Mark initially joined the Company in July
2014 acting as Chief Executive Officer of the Company
until April 2018. Mark has 30 years’ experience with and
developing some of the industry’s leading retail brands
in both stores and online. Formerly, Mark has held
directorships with companies within the Shop Direct
Group where he was Chief Executive Officer. Mark was
also a non-executive director of Boohoo plc from 2013
to 2016.
Other Directorships: Mark is Chairman of Graduate
Fashion Week and a board member of the INGKA
Holding B.V. (Supervisory Board of the IKEA Group).
Mark is also currently a director of Pockit Limited and
a member of Concentric Team Technology I Founder
Partner LLP.
5. Brian Small A R N F
—
Position: Non-executive director and Audit and Risk
Committee Chair
Appointment: December 2019
Skills, competencies, experience: Brian is an
experienced FTSE 250 CFO with broad general
management experience in retail, wholesale and
consumer-branded manufacturing. Most recently,
Brian was the CFO for JD Sports before retiring from
corporate life to focus on non-executive roles.
Other Directorships: Non-executive director of Boohoo.
com, Pendragon Plc and a Trustee Director for the Retail
Trust Charity.
6. Lynne Medini
—
Position: Group Company Secretary
Appointment: May 2018
Skills, competencies, experience: Lynne is
an experienced Chartered Governance
Professional with a career spanning 30
years at Mothercare. Fellow, The Chartered
Governance Institute.
42
Mothercare plc annual report and accounts 2021
030_c117718.indd 42
030_c117718.indd 42
05/08/2021 13:40
05/08/2021 13:40
HEAD_0 1st line continued2nd line continued Operating Board
Andrew Cook — Chief Financial Officer. See opposite page for biography.
7. Kevin Rusling
—
Position: Chief Operating Officer, Mothercare
Global Brand
Appointment: April 2017
Skills, competencies, experience: Formerly international
director of Monsoon Accessorize; prior to that Kevin ran
the international division of Walmart’s George at Asda
business for five years and was previously international
manager at Marks and Spencer for 12 years.
Other Directorships: Trustee of Sue Ryder, the palliative,
neurological and bereavement support charity.
8. Karen Tyler
—
Position: Chief Product Officer, Mothercare Global
Brand
Appointment: September 2020
Skills, competencies, experience: Karen Tyler has over
35 years’ retail and online experience sourcing and
developing product. She has extensive knowledge of
the children’s and nursery sector across many global
markets. She has previously led teams for Next, Boots,
Matalan as well as holding directorships at Boden and
Mamas and Papas.
9. Harriet Poppleton
—
Position: Head of Commercial, Mothercare Global
Brand
Appointment: January 2021
Skills, competencies, experience: Formerly International
and Business Development director of Monsoon
Accessorize. Harriet has over 15 years of extensive
International retailing experience in various leadership
roles in USA, Middle East and the UK. Having
spearheaded a global change programme Harriet
is used to managing the complexities of multi-channel
global partnerships and business models whilst
delivering a global brand with consistency.
Mothercare plc annual report and accounts 2021
43
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineGovernance
Corporate
governance
Corporate governance
The Board believes that establishing and maintaining high
standards of corporate governance are critical to the successful
delivery of the Group’s strategy and to safeguard the interests of
its shareholders, franchise partners, manufacturing partners, staff
and other stakeholders. Ahead of the proposed delisting from the
main market and admission to AIM, the Board considered under
Rule 26 of the AIM Rules, which recognised corporate governance
code it would apply. Having reviewed both the UK Corporate
Governance Code 2018 and The Quoted Companies Alliance
Corporate Governance Code, it considered that The Quoted
Companies Alliance Corporate Governance Code (the QCA
Code) was appropriate for the reshaped size and complexity of
the Mothercare Group. We set out how we have complied with the
QCA Code at page 45.
The directors as at the date of this report and as at the year end
along with their biographical details and committee memberships
are shown on the preceding pages. Their attendance at meetings
for the year ended 27 March 2021 is set out in the table below.
The table sets out for each director both the number of meetings
attended and the maximum number of meetings that could
have been attended. Only the attendance of members of the
committees is shown in the table although other directors have
also attended at the invitation of the respective committee chair.
The ad hoc board meetings which approved the interim results
and full year report and accounts were constituted by the Board
from those members available at that time, having considered the
views of the whole Board beforehand.
Maximum no of meetings
Director
Clive Whiley
Andrew Cook
Gillian Kent
Mark Newton-Jones
Brian Small
Glyn Hughes*
Board
4 additional
including sub-
committee
10 formal
10/10
10/10
10/10
10/10
10/10
2/2
4/4
4/4
3/4
3/4
3/4
-
Committee
Audit and Risk
Nomination
Remuneration
5 formal
3 ad hoc
1 formal
5 formal
5/5
5/5
3/3
3/3
1/1
1/1
1/1
5/5
5/5
* Denotes that the director resigned during the year and thus was not eligible to attend all meetings.
Directors’ conflict of interest
The Board has maintained procedures whereby potential conflicts
of interest are reviewed regularly. These procedures have been
designed so that the Board may be reasonably assured that any
potential situation where a director may have a direct or indirect
interest which may conflict or may possibly conflict with the interests
of the Company are identified and, where appropriate, dealt with
in accordance with the Companies Act 2006 and the Company’s
Articles of Association. The Board has not had to deal with any
conflict during the period.
Board evaluation
An internal board evaluation was undertaken during FY21. This
involved each director completing a questionnaire. The outcome of
each was then collated into an anonymised summary followed by
open discussion on the results led by the Chairman. Unsurprisingly,
given the continued focus on survival throughout the pandemic,
a requirement was noted for an improvement in the timeliness
and content of routine board papers alongside a need for
future strategic direction in order to continue to grow the brand
worldwide.
The search for a CEO had been paused whilst the final elements of
the restructuring were completed alongside managing through the
restrictions imposed by COVID-19. An announcement will be made
when the recruitment process is concluded.
In the interim, the day-to-day management of the Group is being
run by the Chief Operating Officer and Chief Financial Officer
with oversight from the non-executive Chairman. Furthermore,
the Group has reinforced the executive team with the addition of
relevant skills and expertise, including the recent appointment of
a Head of Commercial Business, in anticipation of a new Chief
Executive Officer bringing proven global brand and e-commerce
experience.
44
Mothercare plc annual report and accounts 2021
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
The Chairman meets with the non-executive directors without management present at least annually.
Principle
1
QCA Corporate Governance Code:
10 principles and related disclosures
DELIVER GROWITH
Establish a strategy and business model which promote
long-term value for shareholders
2
3
4
5
6
7
8
9
Seek to understand and meet shareholder needs and
expectations
Take into account wider stakeholder and social
responsibilities and their implications for long-term success
Embed effective risk management, considering both
opportunities and threats, throughout the organisation
MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK
Maintain the board as a well-functioning, balanced team
led by the chair
Ensure that between them the directors have the
necessary up-to-date experience, skills and capabilities
Evaluate board performance based on clear and
relevant objectives, seeking continuous improvement
Promote a corporate culture that is based on ethical
values and behaviours
Maintain governance structures and processes that are
fit for purpose and support good decision-making by the
board
Mothercare plc application
The Group’s business model is set out on page 12. The
Group’s revenue principally derives from royalties payable
on global franchise partners’ retail sales, operating
through over 700 stores and 37 countries around the world,
including the UK. Since 2020 we have been working with
MGB’s franchise partners on an asset-light model in which
manufacturing partners invoice and are paid directly by
franchise partners for products. Moving forward this new
operating model, together with changes in associated cost
structures, would result in a reduction in future overheads
and supports improving cash generation for the business.
The Company maintained a close dialogue with its major
investors, particularly during the period of restructuring
which is now complete. Looking forward, and subject to
COVID-19 restrictions, it intends to continue to hold investor
roadshows on a regular basis.
The Company maintains an investor relations inbox that
all shareholders are invited to use and, specifically to
ask questions that they might ordinarily ask at general
meetings of the company.
See section 172 statement on page 30
The main stakeholders in the business include its people,
franchise partners, manufacturing partners and pension
trustees. Regular dialogue is maintained with them all.
See our Principal risks and uncertainties on pages 26 to 29
See our governance statement on pages 44 to 47
See our governance statement on pages 44 to 47
See our governance statement on pages 44 to 47
The Company believes that establishing and maintaining
high standards of corporate governance are critical to
the successful delivery of the Group’s strategy and to
safeguard the interests of its stakeholders. The Group is
committed to respecting internationally recognised human
rights and partnering with suppliers that: provide decent,
safe and fair working conditions for their employees
with dignity and respect; reduce the environmental
impact of their operations; and demonstrate a strong
commitment to business ethics. MGB will continue to
evolve and strengthen the Group as it develops its global
relationships.
A key element of the Board’s responsibility is monitoring
and reviewing the effectiveness of the company’s system
of internal control, and the non-executive directors
challenge and scrutinise its effectiveness and integrity.
The roles and responsibilities of the Directors, eg where
they sit on and / or chair a specific committee are set out
at page 42. The terms of reference and matters reserved
for the board are available on the Company’s website,
www.mothercareplc.com
Mothercare plc annual report and accounts 2021
45
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineGovernance
Corporate governance
continued
10
BUILD TRUST
Communicate how the company is governed and is
performing by maintaining a dialogue with shareholders
and other relevant stakeholders
Reports of the work of the Board and its committees are
set out in the Annual Report 2021:
Board: corporate governance pages 44 – 47 and Directors’
report pages 48 – 49
Audit and Risk Committee: page 47
Nomination Committee – page 47
Remuneration Committee – pages 50 – 55
Shareholder notices of meetings and voting at general
meetings is available on the regulatory information
service at www.mothercareplc.com. There have been no
significant votes cast against since 2018
Copies of previous annual reports are available on the
same URL
Governance and Committees
The Board is assisted by three main committees that meet and report on a regular basis. At the year end the members of the committees
were as set out below. A record of the meetings held during the year of the Board and its principal committees and the attendance by
each director is set out on page 44.
Committee members
A
Audit and Risk Committee
Brian Small (Chair)
Gillian Kent
R
Remuneration Committee
Gillian Kent (Chair)
Brian Small
N
Nomination Committee
Clive Whiley (Chair)
Gillian Kent
Brian Small
46
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Audit and Risk Committee
Nomination Committee
The Committee comprises Brian Small as Chair and Gillian Kent.
Brian is a chartered accountant with recent and relevant financial
experience.
The Committee comprises Clive Whiley as Chair and Brian Small
and Gillian Kent. The terms of reference are available on the
Company’s website, mothercareplc.com.
As a matter of process, the Committee makes recommendations
to the Board on candidates to fill board vacancies which are
then considered by the Board in conjunction with any advice or
recommendation from the Remuneration Committee.
During the year, the search for a CEO was put on hold and the
business continued to be run by the CFO and COO.
Remuneration Committee – see page 50
The Committee meets regularly during the year with attendance
noted at page 44 of the Governance report.
The Company’s chairman, CFO and external audit partner are
invited to attend along with other board directors and executives
from time to time.
The Committee’s remit is to review the scope and issues arising
from the audit and matters relating to financial control and risk. It
assists the Board in its review of corporate governance and in the
presentation of the Company’s financial results through its review
of the interim and full year accounts before approval by the Board,
focusing in particular on compliance with accounting principles,
changes in accounting practice and major areas of judgement.
During its scheduled meetings the Committee considered
accounting judgements including the IFRS16 lease rate on
the former distribution centre and sought legal advice on the
recognition of the pension valuation as an asset on a technical
provisions basis whilst the deficit remained on a buy-out basis. The
Committee also considered whether to continue with voluntary
quarterly reporting and concluded that, as the business was
no longer UK focussed so the impact of UK holidays was less
important, the Company would publish interim and full year reports
going forward with trading updates as required.
The Committee further considered the timing of the FY20 results
as a result of the pandemic and the extensions enabled by the
Corporate Insolvency and Governance Act 2020. In the event,
a separate accounts meeting was held to approve the FY2020
annual report and accounts.
In addition to the scheduled meetings, the Committee met to
consider the engagement of Grant Thornton, on a non-audit basis,
and associated fee in respect of the working capital report ahead
of the AIM admission.
Financial Reporting Council (“FRC”) review of annual report and
accounts to 28 March 2020
The FRC reviewed the Company’s annual report and accounts
for the year ended 28 March 2020 in accordance with the FRC’s
Conduct Committee’s Operating Procedures. The Company
complied with its request for information and in this report we
expand on the accounting policy around revenue recognition,
have restated the FY2020 diluted EPS, and acknowledge that
Mr Richard Griffiths be considered a related party.
Mothercare plc annual report and accounts 2021
47
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineGovernance
Directors’ report
Directors’ report
Directors’ report
The directors present their report on the affairs of the Group,
together with the financial statements and auditors’ report for the
52-week period ended 27 March 2021. The corporate governance
statement set out on pages 44 to 47 forms part of this report. The
Chairman’s statement on page 4 gives further information on the
work of the Board during the period.
The principal activity of the Group is undertaken by its subsidiary
and owner of the Mothercare intellectual property, Mothercare
Global Brand (MGB). MGB specialises in designing and sourcing
Mothercare products and licensing and franchising the brand.
The Group’s headquarters is in the UK and it operates in some 37
countries through its network of franchise partners.
An overview of future developments can be found in ‘Growth’ on
page 10.
Directors
With regard to the appointment and replacement of directors, the
Company is governed by its Articles of Association, the Companies
Act 2006 and related legislation and best corporate governance
practice. The Articles may be amended by special resolution of the
shareholders. The business of the Company is managed by the
Board which may exercise all the powers of the Company subject
to the provision of the Articles of Association, the Companies Act
and any ordinary resolution of the Company.
The following directors served during the 52-week period ended 27
March 2021:
are set out in note 25 to the financial statements. No shares were
held in Treasury.
On conversion of the shareholder loans during the year the issued
share capital increased from 374,192,494 by 189,644,132 new ordinary
shares to 563,836,626.
Details of the share plans operated by the Group are set out at
note 30 to the financial statements.
Substantial shareholdings
As at 10 July 2021, the Company had been advised by, or was
aware of, the following interests above 3% in the Company’s
ordinary share capital:
Richard Griffiths and controlled undertakings
Lombard Odier Asset Management (Europe)
Limited
M&G Plc
D C Thomson & Company Limited
UBS Asset Management
% of issued
share capital
33.22
19.21
12.60
10.10
4.28
Treasury policy and financial risk management
Treasuring policy, financial risk management and foreign currency,
interest rate and credit risk are set out on page 39 of the financial
review.
Appointment
Charitable giving
Name
Clive Whiley
Non-executive chairman and chair of the
nomination committee
Executive director
Executive director to 30 June 2020
Andrew Cook
Glyn Hughes
Mark Newton-Jones Executive director to 23 July 2020, non-
Gillian Kent
Brian Small
executive director from 24 July 2020
Non-executive director and chair of the
remuneration committee
Non-executive director and chair of the
audit and risk committee
The directors will all retire and offer themselves for re-election at the
forthcoming AGM.
The directors have had regard to the need to foster the Company’s
business relationship with suppliers, customers and others, and the
effect of that regard, including the principal decisions taken by the
Company during FY2021 are as set out in more detail in the section
172 statement on page 30.
Dividend
The directors are not recommending the payment of a final
dividend for the year and no interim dividend was paid during
the year (2020: nil). Dividend policy is set out on page 8 of the
Chairman’s statement.
Capital structure
As at 28 July 2021, the Company’s issued ordinary share capital was
563,836,626 ordinary shares of 1p each all carrying voting rights. The
details of the Company’s issued share capital as at 27 March 2021
48
Mothercare plc annual report and accounts 2021
During the financial year the Group donated three lorry loads
and six van loads of product and shop fittings as the Group’s
former headquarters were cleared ahead of the office move in the
summer of 2020.
Donations totalling £45,000 in the year under review were made to
Bliss.
Energy and Carbon
Mothercare Greenhouse Gas Emissions 2020/21
2020
Performance
2021
Performance
Total CO2e emissions (tonnes)
CO2e emissions (per £m Group
revenue)
Total Energy Consumption (m kWh)
4,243
26.05
17.48
393
4.7
1.85
Methodology: Emissions fall within the activities for which we have
operational control. There are no material exclusions from this
data. We have used the GHG Protocol Corporate Accounting
and Reporting Standard as the method to quantify and report
greenhouse gas emissions. They have been reported in line
with the UK Government’s ‘Environmental Reporting Guidelines:
including streamlined energy and carbon reporting guidance’
(dated March 2019). We have applied emission factors from the
UK Government’s annually updated Conversion Factors tables.
Where energy data was unavailable we have applied estimation
techniques accounting for 6% of the CO2e emissions.
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
Directors’ report
In 2021 our overall CO2e emissions reduced, in absolute terms,
by 90% versus 2020, as a direct consequence of relocating
our head office to a smaller site and relinquishing control of
operations at distribution centres. No energy efficiency actions
were implemented in the year reported, however, we have begun
discussions with the landlord of our new Aspley HQ to understand
the opportunities for energy efficiency improvements and carbon
reduction in the coming year.
Political donations
It is the Company’s policy not to make political donations and
none were made during the year.
Auditors
Each of the persons who was a director of the Company at the
date of approval of this annual report confirms that:
• so far as the director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
• the director has taken all the steps that he/she ought to have
taken as a director in order to make himself/herself aware of any
relevant audit information and to establish that the Company’s
auditor is aware of that information.
this confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
Auditor
Grant Thornton UK LLP has expressed its willingness to continue
in office as auditor and a resolution to reappoint them will be
proposed at the forthcoming annual general meeting.
Annual general meeting (AGM)
The AGM will be held on 9 September 2021
By order of the Board
Lynne Medini
Group Company Secretary
28 July 2021
Mothercare plc annual report and accounts 2021
49
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineGovernance
Directors’
remuneration
report
Statement from the Chair
Directors’ remuneration report
STATEMENT FROM THE REMUNERATION COMMITTEE CHAIR
Dear Shareholder,
On behalf of my colleagues on the Remuneration Committee and the Board, I am pleased to present the Directors’ Remuneration Report
for the financial year ended 27 March 2021.
This report contains the following parts:
• The Remuneration Committee’s Annual Statement, which provides an overview of the key developments and remuneration decisions
made during the financial year and sets the context for the remuneration outcomes for the financial year under review;
• An Annual Report on Remuneration, which provides shareholders with details of the remuneration paid to the Executive Directors for the
performance delivered in 2020/21 and a summary of the work of the Remuneration Committee in the year.
Both the Annual Statement and Annual Report on Remuneration will be subject to an advisory vote at the forthcoming AGM on
9 September 2021; and
• The Directors’ Remuneration Policy which was approved by shareholders at a general meeting of the company held on Friday
29 March 2019 with 84.5% in favour can be referenced on our website, www.mothercareplc.com.
Review of the 2021 financial year
2021 has been another challenging year for Mothercare due to the Coronavirus pandemic which impacted our franchisees’ retail
operations around the world and our manufacturing partners, which along with the disruption to the global movement of freight, created
further challenges for the availability of product for franchise partners resulting in retail sales some 34% lower than prior year. Mothercare’s
main priority has been the safety of our colleagues, partners and customers during this time and while managing through the pandemic
the leadership also completed the refinancing of the business in November 2020 and continued transforming Mothercare into an asset
light business, which along with tight control of costs and cash closed the year with significantly reduced net borrowings of £12.1m and
making a small EBITDA profit. Against this backdrop, the following remuneration decisions were taken.
Remuneration decisions in respect of 2021 financial year
Board changes
Glyn Hughes’ role as interim CEO ceased with effect from 30 June 2020. The Company agreed to release Glyn from his notice period early
and pay his equivalent base pay and benefits (including pension entitlement) for three months post-termination. Glyn was not entitled to
an annual bonus.
The decision was made to pause the recruitment of a CEO until the business had completed the refinancing and transformation of
Mothercare’s operating model. Now that this has completed the recruitment process continues. In the meantime, it will continue to be led
by our Chief Financial Officer, Andrew Cook (Executive Director) and our Chief Operating Officer, Kevin Rusling, with oversight from Clive
Whiley as Non-Executive Chairman.
On the 24th July 2020, Mark Newton Jones moved from being an Executive Director to a Non-Executive Director on a fee of £40,000 pa.
Salary/Fees
There were no increases to base salary for Executive Directors or to the fees for the Non-Executive Directors. This was in line with the wider
workforce policy.
Annual bonus outcomes
For the year ended 27 March 2021, the annual bonus for Andrew Cook was dependent on achieving underlying operating profit
performance targets in respect of 50% of the awards and the balance based on a mix of strategic financial and non-financial objectives.
Profit targets were not achieved, and this portion of the annual bonus therefore lapsed. The remaining 50% of the annual bonus award
focused on the key strategic milestones of refinancing and delivering the transformation which were met in full.
The Committee determines whether to apply discretion in respect of the bonus at the end of year. An example of this was for FY2020 when
the Committee first determined that a decision on the annual bonus would be deferred, and later determined that the annual bonus
would not be paid despite the non-financial objectives being met. In respect of FY2021, the Committee took into account various factors in
determining not to apply discretion to reduce the bonus:
• Accomplishment of the strategic objectives set at the start of the year were crucial for the continuation of business operations.
• With the exception of support for our Mini Club colleagues employed within Boots, the Company had not taken any other form of
Government Coronavirus distress loan facilities.
• The need to ensure that key talent is retained and motivated has greater importance now more than ever.
50
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
The Committee will continue to consider incentive pay-outs holistically to ensure that any payments are in the long-term interests of
shareholders.
The breakdown of the assessment of performance of the Executive Bonus scheme can be found on page 53
Long-term incentives
Under the 2020 LTIP, a performance share award was granted to Andrew Cook, CFO on 28 September 2020, at 100% of salary in the form
of nominal cost options which are subject to Absolute TSR performance (50% of the award) and EBITDA performance (50% of the award).
The 2020 LTIP award will vest based on performance after 3 years and be subject to a further 2 year holding period during which the
shares may not be sold other than to meet the tax obligations in respect of the award.
No long-term incentive awards vested in the year.
Other remuneration decisions
During the year the company launched an SAYE plan for all employees.
Mothercare is committed to creating an inclusive working environment and rewarding our employees throughout the organisation in a
fair manner. In making decisions on executive pay, the Remuneration Committee considers wider workforce remuneration and conditions
and the total employee experience.
Implementation of Directors’ Remuneration Policy for 2022 financial year
Details in relation to the application of the Directors Remuneration policy for FY2022 are set out on page 51, however the key elements are
as follows:
• In light of the ongoing uncertainty around the impact of COVID-19 on global trading the Committee has made the decision not to
award any increases in base salary for the serving Executive Director.
• The CEO and CFO annual bonus opportunity will be subject to a maximum of 100% of base salary. The bonus will be subject to the
same mix of profit (50%), with the balance split between strategic financial objectives, and strategic non-financial objectives.
• It is our intention to grant LTIP awards under the Remuneration Policy. In line with the Policy, any awards will be limited to a maximum
opportunity of 100% of salary. All executive directors’ awards carry a performance period of three years and vested awards are subject
to an additional two-year holding period. Performance conditions will be decided by the Remuneration Committee and be aligned to
the Company’s strategic objectives. Details of the awards will be announced at the time they are made.
• Non-Executive Directors’ basic fees were reviewed by the Chairman and executive director post the year end and it was agreed that
the base fees would be restored to their pre-2018 fee of £50,000 with effect from 1 July 2021. There remained no change to the Chairman’s
fee for FY2022.
Consideration by the Directors of matters relating to Directors’ remuneration
The Remuneration Committee is composed of the Company’s independent Non-Executive Directors, Gillian Kent (Chair), and Brian Small.
Executive Directors only attend meetings by invitation.
The Committee’s key responsibilities are:
• reviewing the ongoing appropriateness and relevance of remuneration policy including a new 3 year policy for 2022;
• reviewing and approving the remuneration packages of the Executive Directors;
• the grant of 2021 share awards for Executive Directors and senior management and the out turn of prior awards;
• monitoring the level and structure of remuneration of the senior management; and
• production of the Annual Report on the Directors’ remuneration.
Conclusion
We believe that our approach to executive remuneration supports the transformed Mothercare, and we continue to be committed
to a responsible and transparent approach in respect of executive pay. The Committee believes that the advisory vote provides
accountability and gives shareholders a say on this important area of corporate governance. We continue to value any feedback from
Shareholders and hope to receive your support at the forthcoming general meeting.
Gillian Kent
Chair of the Remuneration Committee
28 July 2021
Mothercare plc annual report and accounts 2021
51
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineGovernance
Annual report on
remuneration
Annual report on remuneration
Single total figure of remuneration (audited)
The table below shows the single total figure remuneration for qualifying services in FY2021 with comparative figures for FY2020
Director
Executive
Andrew Cook1
Glyn Hughes2
Mark Newton-Jones
(to 23.07.2020)
Non Executive
Clive Whiley3
Gillian Kent
Mark Newton-Jones
(from 24.07.2020)
Brian Small4
Salary and fees
2020
£000
2021
£000
Benefits
2020
£000
2021
£000
Pension
2020
£000
2021
£000
Annual bonus
2020
2021
£000
£000
Long Term
Incentives
2020
£000
2021
£000
259
59
47
325
155
480
130
47.5
27
47.5
480
44
–
15
12
6
4
–
–
–
2
13
14
1
–
–
–
15
15
20
–
–
–
–
3
33
48
–
–
–
–
129.5
0
0
–
–
–
–
0
0
0
0
–
–
–
0
0
0
0
–
–
0
0
9
0
–
–
2021
£000
415.5
80
179
130
47.5
27
47.5
Total
2020
£000
52
371
551
481
44
–
15
1 Andrew Cook was promoted to CFO on 23 January 2020. His salary, benefits and pension represent the actual amounts paid in respect of qualifying services during that
financial year.
2 Glyn Hughes resigned as a Director with effect from 30 June 2020
3 Clive Whiley’s comparative 2020 remuneration relates to his time as Executive Chairman. From the start of FY2021, Clive became Non-Executive Chairman.
4 Brian Small was appointed on 10 December 2019. His 2020 comparative fee represents the actual amounts paid in respect of qualifying services during that financial year.
Executive Director base salary (unaudited)
Base salary and fees
A Cook
Non-executive director fees (unaudited)
Chairman
Non-executive director
Chair of audit and risk committee
Chair of remuneration committee
Annual bonus plan (unaudited)
2021
£000
259
2021
£000
130
40
7.5
7.5
2020
£000
259
2020
£000
130
40
7.5
7.5
% increase
0
% increase
0
0
0
0
In the table below we summarise the achievement of each performance measure.
Andrew Cook
Achievement (% of maximum)
Maximum bonus
opportunity of base
salary
100%
Group PBT (50% of
total)
0%
Financially based
strategic measures
(20% of total)
100%
Non-financial strategic
measures (30% of
total)
100%
Payout
£129,500
It should be noted that each of the elements of the award operate independently of each other.
The Committee acknowledges the significant contributions of the CFO to complete the refinancing and restructuring phase and build on
the brand’s long-term success. When considering whether the annual bonus payout, the Committee took into account the factors set out
in the Chairman’s statement on page 4.
52
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
Annual bonus performance measures for FY2021 (unaudited)
Measure
PBT: Underlying PBT
Strategic Financial Objectives
Detail
50% underlying MGB EBITDA of £8.5m
20%
1. Refinance the Company’s RCF debt facility
2. Reposition the financing profile to allow 2021
CULS conversion
3. Secure a YOY reduction in the Company’s
working capital position by >£10m
Strategic Non-Financial Objectives
30%
1.
Deliver a sustainable and investable
MGB through securing and finalising key
franchise agreements with particular focus
on Alshaya and Boots, on most favourable
commercial terms practicable
2. Secure appropriate pension stakeholder
support (through Trustees, tPR, PPF) for the
Company’s refinancing and strategic plan
3. Minimise NDC lease liability
Assessment
Not met
1. Achieved with new finance in place with GB
Europe Management Services Limited with
effect from November 2020
2. CULS conversion completed in March 2021
3. Successfully managed a significant
reduction in the total financing requirement,
of around £50 million, anticipated in
November 2019 to a position where at the
year end net borrowings were £12.1 million
1. Agreements with Alshaya and Boots
concluded with 10 year agreements in
place and new ways of working introduced
including tripartite contracts.
2. Revised schedule of repayments secured
3. NDC lease assigned
In line with the Remuneration Policy approved in 2019, the maximum opportunity is 100% with up to 75% of salary payable in cash. Any
bonus payable in excess of 75% is delivered in shares vesting after three years subject to the participant’s continued employment. The
annual bonus payable for FY2021 was 50% of salary and so there will be no award of shares under the FY2021 annual bonus. .
Long term incentive plans (unaudited)
LTIP 2019 (unaudited)
This was awarded on 29 March 2019 and is subject to a relative TSR performance measure with a share price underpin of 30p. Vesting
occurs on the third anniversary subject to the testing of the performance conditions. For executive directors, all awards vesting will be
subject to an additional two-year holding period.
Measure
Relative TSR against bespoke FTSE Retailers with 30p underpin
1 Straight line vesting between threshold and maximum
The LTIP 2019 performance period concludes at the end of FY2022.
Weighting (% of total
award)
100
Threshold1 (25%
vesting)
Median
Maximum1 (100%
vesting)
Upper Quartile
LTIP 2020 (unaudited)
This was awarded on 28 September 2020 and is subject to two performance targets split 50 / 50:
• Absolute Total Shareholder Return (TSR) measured three years from the grant date; and
• FY2023 Earnings before interest, taxes, depreciation and amortisation (EBITDA).
Performance Level
Stretch
Target
Threshold
Performance Level
Stretch 110%
Target 100%
Threshold 90%
Absolute TSR
25p
20p
15p
EBITDA
£17.7m
£16.1m
£14.4m
% of grant to vest
100%
62.5%
25%
% of grant to vest
100%
62.5%
25%
The percentage of shares earned will increase on a straight line basis between these levels.
Mothercare plc annual report and accounts 2021
53
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineGovernance
Annual report on remuneration
continued
The table below sets out the plan interests awarded during the year to the executive director.
Director
Andrew Cook
Plan
LTIP 2020
Basis of award
100%
Face value
£259,000
% vesting
at threshold
performance
25
Number of shares
2,590,000
Performance period
end
2023
The number of share options were calculated using the share price at the last placing of 10p per share. The Remuneration Committee
retains discretion in the event of windfall gains.
Payments to past Directors and payments for Loss of Office
Glyn Hughes’ role as interim CEO ceased with effect from 30 June 2020. The Company agreed to release Glyn from his notice period early
and pay his equivalent base pay and benefits (including pension entitlement) for three months post-termination. As such, a payment of
£95,000 was made to Glyn shortly after he ceased to be a director.
Statement of directors’ shareholding and share interests (unaudited)
Shareholdings
Director
Executive Directors
Clive Whiley
Andrew Cook
Glyn Hughes3
Non-Executive Directors
Gillian Kent
Brian Small
Mark Newton-Jones4
Shareholding
requirement
(% salary)1
Current shareholding
(% salary)2
Legally owned as at
27 March 2021
Legally owned as at
28 March 2020
Shares held
n/a
200%
200%
n/a
n/a
n/a
n/a
48.75%
45.9%
n/a
n/a
n/a
1,225,890
862,375
553,204
–
–
2,796,710
1,000,000
0
553,204
–
–
2,296,710
1
Executive Director shareholding to be built up within five years of joining the Company.
2 Shareholding percentage was calculated by reference to the average mid-market quoted share price over the 30 days to the balance sheet date 14.64p.
3 Holding as at termination date.
4 executive director until 23.07.2020
54
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
Plan
LTIP 2019
Chairman’s
award
Share interests
Director
Clive Whiley
Andrew Cook
Glyn Hughes1
Mark Newton-Jones2
Date of
award
Number of
awards at
28.03.20
Awards
granted
Awards
vested
Awards
lapsed
Number of
awards at
27.03.21
Exercise
price
Date at which
award vests
Expiry date
of awards
29.03.19
SAYE 23.12.2020
LTIP2019 29.03.2019
–
29.03.19
03.01.19
29.03.19
SAYE
LTIP 2019
SAYE
LTIP 2019
774,110
–
–
180,000
709,601 2,590,000
–
–
–
1,806,257
–
1,222,987
130,984
–
–
–
–
–
–
–
774,110
–
–
–
713,491
130,984
1,053,771
180,000
3,299,601
–
509,496
0
752,486
Nil
10p
Nil
–
Nil
13p
Nil
29.03.2022
29.03.2029
01.03.2024
29.03.2022
–
29.03.2022
01.03.2022
29.03.2022
30.08.2024
29.03.2029
–
29.03.2029
30.08.2022
29.03.2029
1 Glyn Hughes resigned with effect from 30 June 2020
2 Mark Newton-Jones served as an executive director up to 23 July 2020x
Advisers to the Committee
The Committee retains external suppliers to provide advice on specific topics during the year, some of whom attend Committee meetings
at the invitation of the Chair. The Committee has also consulted with the Chairman, CFO and Group Company Secretary.
Organisation
PricewaterhouseCoopers LLP
Scope
Advice in relation to executive remuneration
and LTIs
Fees
£18,250 (FY20 £40,600)
Statement of voting at General Meeting
The FY2020 Directors’ Remuneration Report (other than the part containing the Directors’ Remuneration Policy) was approved at the
General Meeting held on 26 November 2020. The current Directors’ Remuneration Policy was approved at a General Meeting held on
29 March 2019. The Policy is next subject to renewal in 2022.
The following proxy votes were received in advance.
Meeting
GM
26.11.20
GM
29.03.19
Resolution
To approve the Directors’
remuneration report (2020)
To approve the Directors’
Remuneration Policy (2019)
Votes For
(including
Discretion)
% of Votes
For (including
discretion) Votes Against
% of Votes
Against
Votes
Withheld*
% of votes
withheld
223,159,553
89.80
25,356,198
10.20
1,920,624
230,313,298
84.52
42,185,076
15.48
59,811
0.77
0.02
*A vote withheld is not a vote in law and is not counted in the calculation of votes ‘for’ and ‘against’ each resolution
The Committee remains committed to continuing to engage with shareholders and their advisory bodies on an ongoing basis as
appropriate.
APPROVAL
This report was approved by the board of directors on 28 July 2021 and signed on its behalf by Gillian Kent, Chair of the Remuneration
Committee.
Mothercare plc annual report and accounts 2021
55
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineGovernance
The directors are responsible for preparing the annual report in
accordance with applicable law and regulations. Having taken
advice from the Audit and Risk Committee, the directors consider
the annual report and the financial statements, taken as a whole,
provides the information necessary to assess the company’s
performance, business model and strategy and is fair, balanced
and understandable.
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the company’s
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
This responsibility statement was approved by the board of
directors on 28 July 2021 and is signed on its behalf by:
Clive Whiley
Chairman
Andrew Cook
Chief Financial Officer
Directors’ responsibilities statement
Directors’ responsibilities statement
The directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006, and have elected to
prepare the parent company financial statements in accordance
with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law),
including FRS 101 “Reduced Disclosure Framework”. Under
company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs and profit or loss of the Company and
Group for that period.
In preparing the parent company financial statements the directors
are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
In preparing the Group financial statements, the directors are
required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether applicable international accounting standards
in conformity with the requirements of the Companies Act
2006 have been followed, subject to any material departures
disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the company and enable them to ensure
that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
56
Mothercare plc annual report and accounts 2021
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
Independent
auditor’s report
to the members of
Mothercare plc
Independent auditor’s report
to the members of Mothercare plc
Report on the audit of the financial statements
Opinion
Our opinion on the financial statements is qualified
We have audited the financial statements of Mothercare plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the
52-week period ended 27 March 2021, which comprise the Consolidated income statement, the Consolidated statement
of comprehensive income, the Consolidated and Company balance sheets, the Consolidated and Company statements
of changes in equity, the Consolidated cash flow statement and the related notes to the financial statements, including a
summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the
group financial statements is applicable law and international accounting standards in conformity with the requirements of
the Companies Act 2006. The financial reporting framework that has been applied in the preparation of the parent company
financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101
‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice).
In our opinion, except for the matter described in the basis for qualified opinion section of our audit report:
• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 27
March 2021 and of the group’s loss for the period then ended;
• the group financial statements have been properly prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for qualified opinion
With respect to inventories at 28 March 2020 having a carrying value of £9.7m, we were unable to observe the counting of the physical
inventories because a stocktake was not performed due to the outbreak of COVID-19, and we were unable to satisfy ourselves concerning
those inventory quantities by alternative means. We were therefore unable to obtain sufficient appropriate audit evidence concerning the
existence and condition of inventories and consequently we were unable to determine whether any adjustment to the carrying value of
inventories was necessary. Our audit opinion on the financial statements for the period ended 28 March 2020 was modified accordingly.
Since opening inventories affect the determination of the results of operations, our opinion on the financial statements for the period
ended 27 March 2021 is also modified as we are unable to determine whether any adjustments to the Consolidated income statement
are necessary. In addition, were any adjustment to the inventory balance to be required, the strategic report would also need to be
amended.
In addition, on 5 November 2019, two of the group’s UK trading subsidiaries, Mothercare UK Limited and Mothercare Business Services
Limited, were put into administration. The results of the UK retail operations, including directly attributable overhead costs, and a profit
on disposal, were presented in the discontinued operations line item in the Consolidated income statement for the period ended
28 March 2020. The UK operations finance team were made redundant after the date of administration and were not available
to provide supporting information and explanations in respect of the UK retail operations. We were therefore unable to obtain
sufficient appropriate audit evidence concerning the classification of the Consolidated income statement items between continuing
and discontinued and whether any adjustments were necessary in respect of this classification. Our audit opinion on the financial
statements for the period ended 28 March 2020 was modified accordingly. Our opinion on the current period’s financial statements is
also modified because of the possible effect of this matter on the comparability of the current period’s figures and the corresponding
figures.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’
section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our qualified opinion.
Mothercare plc annual report and accounts 2021
57
HEAD_0 1st line continued2nd line continuedFinancials
Independent
auditor’s report
to the members of
Mothercare plc
Independent auditor’s report
to the members of Mothercare plc continued
Material uncertainty related to going concern
We draw attention to the going concern note within Note 2 in the financial statements, which indicates that the impact of the ongoing
COVID-19 pandemic on the future prospects of the group is not fully quantifiable at the reporting date and the scale of restrictions in
place at a global level is outside of what any business could accurately reflect in a financial forecast.
If trading conditions were to deteriorate beyond the level of risks applied in the sensitised forecast, the group would need to
renegotiate with its lender in order to secure waivers to potential covenant breaches and consequential cash remedies or secure
additional funding. Therefore, management have concluded that, in this situation, there is a material uncertainty that casts significant
doubt on the group’s and the parent company’s ability to continue as a going concern.
As stated in note 2, these events or conditions, along with the other matters as set forth in note 2, indicate that a material uncertainty
exists that may cast significant doubt on the company’s ability to continue as a going concern. Our opinion is not modified in respect
of this matter.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of management’s assessment of the entity’s ability to continue as a going concern
The existence of a material uncertainty related to going concern was assessed as a matter that was one of the most significant
assessed risks of material misstatement due to the uncertainty of the future impact on the entity of the COVID-19 outbreak, and
in particular on its ability to continue as a going concern for the foreseeable future, as defined in IAS 1, Presentation of Financial
Statements. Due to the ongoing COVID-19 pandemic, there is significantly more judgment applied in developing cash flow forecasts
and in determining compliance with loan covenants.
Management performed an assessment of the group’s ability to continue as a going concern, which included modelling a Base Case
scenario, a Reasonable Worst Case scenario and performing a Reverse Stress Test. The assumptions selected by management in
preparing these assessments required the application of significant management judgement, in particular, in the estimation of future
royalty revenue generated from franchisees.
This, in turn, required us to exercise significant auditor judgement when evaluating the assumptions used by management in preparing
the scenarios and in concluding whether the Reverse Stress Test scenario identified by management was plausible. We also applied
significant professional judgement in evaluating and concluding on the impact of the sensitivity analyses.
We performed the following audit procedures to evaluate management’s assessment of the entity’s ability to continue as a going
concern:
• Obtaining an understanding of how management prepared their base case and sensitised forecasts for the period to 24 March
2023;
• Assessing the accuracy of management’s forecasting by comparing the reliability of past forecasts to management’s actual results,
and considering whether management’s historic forecasting accuracy impacts upon the reliance we can place upon the forecasts
provided;
• Obtaining an understanding of key trading, balance sheet and cash flow assumptions and testing those key assumptions to
underlying historical financial data, post period end trading information and market analysis data;
• Assessing the terms of the covenants attached to external debt held and challenging management’s assessment of a breach of
covenants during the going concern period;
• Assessing the plausibility of the mitigating actions available to management to continue as a going concern if downside sensitivities
were to crystalise;
• Considered the forecasts prepared in respect of the most likely impact of COVID-19 and whether these still give rise to a material
uncertainty;
• Evaluated management’s reverse stress test of the most likely outcome and worse-case forecasts and management’s consideration
of the magnitude of a decline in revenues and EBITDA that would give rise to the elimination of the headroom in the borrowing
facilities or would result in a breach in banking covenants;
• Performing arithmetical and consistency checks on management’s going concern base case model; and
• Assessing the adequacy of related disclosures within the annual report.
58
Mothercare plc annual report and accounts 2021
HEAD_0 1st line continued2nd line continued In performing our audit procedures, we noted that if trading conditions were to deteriorate beyond the level of risks applied in the
sensitised forecast, or the group was unable to mitigate the material uncertainties assumed in the Base Case Forecast and the group
were not able to execute further cost or cash management programmes, the group would at certain points of the working capital
cycle have insufficient cash.
Our responsibilities
We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
on the group’s and the parent company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we
are required to draw attention in our report to the related disclosures in the financial statements or, if such disclosures are inadequate,
to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However,
future events or conditions may cause the group or the parent company to cease to continue as a going concern.
The responsibilities of the directors with respect to going concern are described in the ‘Responsibilities of directors for the financial
statements’ section of this report.
Mothercare plc annual report and accounts 2021
59
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Independent auditor’s report
to the members of Mothercare plc continued
Our approach to the audit
Overview of our audit approach
Overall materiality:
Materiality
Key audit
matters
Scoping
• Group: £546,000, which represents approximately 0.64% of group revenue.
• Parent company: £355,000 which is 2% of the parent company’s net liabilities, capped at 65%
of group materiality.
Key audit matters were identified as:
• Going concern basis of accounting
• Revenue recognition (new in current period); and
• Defined benefit pension scheme valuation (new in current period).
• Observation of physical inventory (see Basis for qualified opinion)
• Comparability of current and corresponding period figures (see Basis for qualified opinion)
Our auditor’s report for the 52-week period ended 28 March 2020 included one key audit
matter that has not been reported as a key audit matters in our current period’s report. This
related to the impact of and accounting for the administration of Mothercare UK Limited and
Mothercare Business Services Limited, both of which entered administration during that period.
The audit of the financial information of each of the following components was completed
using component materiality:
• Mothercare Group plc;
• Mothercare Global Brand Limited; and
• Mothercare Services Limited.
Our work performed over components covered 98% of the group’s revenue and 94% of the
group’s profit before tax
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
60
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
High
Potential
financial
statement
impact
Low
Low
Comparability of
current and
corresponding period
figures
Revenue
Recognition
Trade
receivables
Inventory
Going
concern
Defined
benefit
scheme
Management
override of
control
Observation of
physical inventory
Adjusted items
Completeness
of costs
Extent of management judgement
High
Key audit matter
Significant risk
Other risk
In addition to the matters described in the Basis of qualified opinion and Material uncertainty related to going concern sections, we have
determined the matters described below to be the key audit matters to be communicated in our report.
Mothercare plc annual report and accounts 2021
61
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Independent auditor’s report
to the members of Mothercare plc continued
Key Audit Matter – Group
How our scope addressed the matter – Group
Revenue recognition
Our audit work included, but was not restricted to:
We identified revenue as one of the most significant risks of material
misstated due to fraud. Under ISA (UK) 240 there is a presumed risk
that revenue may be misstated due to the improper recognition of
revenue.
• assessing whether the accounting policies adopted by the directors
were in accordance with the requirements of IFRS 15 “Revenue from
Contracts with Customers”, and whether management accounted
for revenue in accordance with the accounting policies;
• obtaining confirmations from all franchise partners to confirm royalty
revenue;
• recalculating the expected royalty revenue by franchise partner
based on the retail sales reported by franchise partners and royalty
rates extracted from underlying contracts; and
• performing alternative procedures where confirmations were not
obtained by substantively testing revenue transactions by agreeing
a sample of sales invoices to franchise submissions, cash receipts
and other supporting third party documentation.
The group recognised revenues of £85.8m (2020: £164.7m) for the for the
52-week period ended 27 March 2021.The revenue recorded by the
group is one of the key factors that impacts EBITDA and is a key driver
for the group.
We identified the occurrence and accuracy of franchise royalty
revenue as a significant risk due to the unpredictability of revenue
generated and the increased risk of manipulation.
The application of IFRS 15 Revenue from Contracts with Customers
requires significant management judgement which could create
opportunity for the manipulation of revenue. We, therefore identified
this accounting treatment as a significant risk due to the risk of revenue
being inappropriately recognised.
Since mid-way through the current financial year, the group agreed
new contracts with certain customers resulting in revenue being
recognised on an agency basis. The most significant consideration
under IFRS 15 ‘in determining this treatment is that control of the
stock passes directly from the manufacturer to the franchise partner,
therefore the group never takes control of the stock during the logistics
cycle.
Relevant disclosures in the Annual Report and Accounts 2021
Our results
• Financial statements: Note 3, Significant accounting policies
Our audit work did not identify any material misstatements in relation
to revenue recognition.
Defined benefit pension scheme
Our audit work included, but was not restricted to:
We identified the defined benefit pensions schemes as as one of the
most significant assessed risks of material misstatement due to error.
The group operates two defined benefit pension schemes: the Staff
Scheme; and the Executive Scheme, both of which are closed to new
members.
The valuation of the scheme obligation is complex and involves the
application of actuarial assumptions over the prevailing future outlook
at the point of the valuation. The valuation of the obligation is sensitive
to changes in the assumptions applied.
We have identified a risk with respect to accuracy of the assumptions
used to calculate the defined pension liability.
The defined benefit schemes were in a net surplus position of £29.8m
under International Accounting Standard (IAS) 19 ‘Employee Benefits’
valuation performed as at 28 March 2020, however the schemes have
since entered a net deficit position of £25.6m as at 27 March 2021.
• assessing whether the accounting policies adopted by the directors
were in accordance with the requirements of IAS 19 “Employee
benefits” and whether the accounting and disclosure requirements
of the standard was met;
• obtaining the actuarial report prepared by managements expert
and reconciling it to the financial statements;
• using the specialist knowledge of our internal valuation team to
assess the reasonableness of the assumptions and models used by
the actuary to determine the present value of the defined benefit
obligations; and
• checking the input utilised in determining the finance costs and
expected return on the plan assets against market information.
Relevant disclosures in the Annual Report and Accounts 2021
Our results
• Financial statements: Note 3, Significant accounting policies
Our audit work did not identify any inaccuracies in management’s
assumptions which led to material misstatements in relation to the
valuation of the scheme obligation.
62
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Our application of materiality
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified misstatements
on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report.
Materiality was determined as follows:
Materiality measure
Group
Parent company
Materiality for financial
statements as a whole
We define materiality as the magnitude of misstatement in the financial statements that, individually or in the
aggregate, could reasonably be expected to influence the economic decisions of the users of these financial
statements. We use materiality in determining the nature, timing and extent of our audit work.
Materiality threshold
£546,000 which is which is approximately 0.64% of
group revenue.
£355,000 which is 2% of the parent company’s total
liabilities capped at 65% of group materiality.
Significant judgements
made by auditor
in determining the
materiality
In determining materiality, we made the following
significant judgements:
In determining materiality, we made the following
significant judgements:
Revenue is considered to be the most appropriate
benchmark because there is considerable volatility in
profit before tax. Revenue is also a key performance
metric for the group.
Total liabilities is is considered to be the most
appropriate benchmark as the company's purpose is
that of holding of investments in subsidiary entities. The
company does not undertake any trading activities.
The threshold applied to revenue was 0.64% which is
higher than 0.5% in the prior year.
Materiality for the current year is lower than the level
that was determined in the prior year.
Materiality for the current year is lower than the level
that was determined in the prior year which reflects
the decrease in revenue in comparison to prior year.
The materiality determined was not revised during the
audit.
The materiality determined was not revised during the
audit.
Performance materiality
used to drive the extent
of our testing
We set performance materiality at an amount less than materiality for the financial statements as a whole
to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality for the financial statements as a whole.
Performance materiality
threshold
Significant judgements
made by auditor
in determining
the performance
materiality
Specific materiality
£355,000 which is 65% of financial statement materiality.
£231,000 which is 65% of financial statement materiality.
In determining performance materiality, we made the
following significant judgements:
In determining performance materiality, we made the
following significant judgements:
• Based on the number of findings and identified
• Based on the number of findings and identified
misstatements in the prior year audit.
misstatements in the prior year audit.
We determine specific materiality for one or more particular classes of transactions, account balances or
disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole
could reasonably be expected to influence the economic decisions of users taken on the basis of the financial
statements.
Specific materiality
We determined a lower level of specific materiality for
the following areas:
We determined a lower level of specific materiality for
the following areas:
Related party transactions
Directors’ remuneration
Related party transactions
Directors’ remuneration
Mothercare plc annual report and accounts 2021
63
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Independent auditor’s report
to the members of Mothercare plc continued
Materiality measure
Group
Parent company
Communication of
misstatements to the
audit committee
We determine a threshold for reporting unadjusted differences to the audit committee.
Threshold for
communication
£27,000 and misstatements below that threshold that,
in our view, warrant reporting on qualitative grounds.
£18,000 and misstatements below that threshold that,
in our view, warrant reporting on qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncor-
rected misstatements.
Overall materiality – Group
Overall materiality – Parent company
Revenues
£85.8m
PM
£355k, 65%
FSM
£546k,
0.64%
Net liabilities
£170.5m
PM
£231k, 65%
FSM
£355k
2% capped
TFPUM
£191k, 35%
TFPUM
£124k, 35%
FSM: Financial statements materiality, PM: Performance materiality, TFPUM: Tolerance for potential uncorrected misstatements
64
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued An overview of the scope of our audit
We performed a risk-based audit that requires an understanding of the group’s and the parent company’s business and in particular matters
related to:
Understanding the Group, its components, and their environments, including Group-wide controls
• The engagement team obtained an understanding of the group and its environment, including group-wide controls, and assessed the risks of
material misstatement at the group level.
Identifying significant components
We evaluated the identified components to assess the significance of that component and to determine the planned audit response based on a
measure of materiality. We measured significance based on the percentage of the group’s total assets, revenues and profit before taxation.
Type of work to be performed on financial information of parent and other components
We determined that the most effective way to scope the audit was to perform full scope audit procedures on the three main reporting
components, which were all UK based. These components included the parent company entity.
The audit of the financial information of each of the following components was completed using component materiality:
• Mothercare plc
• Mothercare Global Brand Limited
• Mothercare Services Limited
For any remaining entities, not in scope for full audit procedures, these were either dormant companies, holding companies or intercompany
trading entities and we performed analytical review over these components at the year end.
Performance of our audit
All of the work was carried out by the group engagement team. Work was planned and performed during both interim and year end visits.
Planning work also included a detailed assessment of the group’s internal control environment, including the IT systems and controls. All work was
carried out remotely.
Our audit work on the above components covers 98% of consolidated revenue and 94% reported consolidated loss before tax.
Mothercare plc annual report and accounts 2021
65
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Independent auditor’s report
to the members of Mothercare plc continued
Changes in approach from previous period
The number of components in the current year was three (2020: five) due to the Mothercare UK Limited and Mothercare Business Services Limited
entering into administration during the prior year.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report and
accounts, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is
a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact.
As described in the basis for qualified opinion section above, we were unable to obtain sufficient appropriate evidence with regards to the
carrying value of inventory at 28 March 2020, which results in a modification in our audit opinion on the financial statements for the periods ended
27 March 2021.
We have concluded that where the other information refers to the inventory balance or related balances such as cost of sales, it may be materially
misstated for the same reason.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
Except for the matter relating to inventory described in the basis for qualified opinion section of our report, in our opinion, based on the work
undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matter on which we are required to report under the Companies Act 2006
Except for the matter relating to inventory described in the basis for qualified opinion section of our report, in the light of the knowledge and
understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material
misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
In respect solely to the issue relating to inventory described in the basis for qualified opinion section of our report:
• we have not received all the information and explanations that we considered necessary for the purpose of our audit.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our
opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’
remuneration specified by law are not made. Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
66
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the inherent limitations of an audit, there is
an unavoidable risk that material misstatements in the financial statements may not be detected, even though the audit is properly planned and
performed in accordance with the ISAs (UK).
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
• We understood how Mothercare plc is complying with those legal and regulatory frameworks by making inquiries of management, those
responsible for legal and compliance procedures and the company secretary. We corroborated our inquiries by reading the board minutes,
papers provided to the audit and risk committee and correspondence received from regulatory bodies.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most
significant which are directly relevant to specific assertions in the financial statements are those related to the reporting frameworks (IFRS and
the Companies Act 2006).
• In addition, we concluded that there are certain significant laws and regulations that may have an effect on the determination of the amounts
and disclosures in the financial statements and those laws and regulations relating to health and safety, employee matters, environmental, and
bribery and corruption practices.
• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur, by evaluating
management’s incentives and opportunities for manipulation of the financial statements. This included the evaluation of the risk of
management override of controls. We determined that the principal risks were in relation to:
o
o
journal entries that increased revenues or that reclassified costs from the income statement to the balance sheet; and
potential management bias in determining accounting estimates.
• Our audit procedures involved:
o
o
o
o
o
evaluation of the design effectiveness and assessing the design effectiveness of controls that management has in place to prevent and
detect fraud;
journal entry testing, with a focus on material manual journals, including those with unusual account combinations and those posted directly
to the consolidation that increased revenue or that reclassified costs from the income statement to the balance sheet;
challenging assumptions and judgements made by management in its significant accounting estimates;
testing the completeness of the group’s related party transactions through information obtained at the parent and component entities and
testing that these transactions had a valid business purpose; and
assessing the extent of compliance with the relevant laws and regulations as part of our procedures on the related financial
statement item.
• In addition, we completed audit procedures to conclude on the compliance of disclosures in the annual report and accounts with applicable
financial reporting requirements.
• These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud or error. However,
detecting irregularities that result from fraud is inherently more difficult than detecting those that result from error, as those irregularities that result
from fraud may involve collusion, deliberate concealment, forgery or intentional misrepresentations. Also, the further removed non-compliance
with laws and regulations is from events and transactions reflected in the financial statements, the less likely we would become aware of it.
• The engagement partner assessed whether the engagement team collectively had the appropriate competence and capabilities to identify or
recognise non-compliance with laws and regulations through the following:
o
o
understanding of, and practical experience with audit engagements of a similar nature and complexity through appropriate training and
participation; and
knowledge of the industry in which the client operates.
Mothercare plc annual report and accounts 2021
67
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Independent auditor’s report
to the members of Mothercare plc continued
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Wendy Russell
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Milton Keynes
28 July 2021
68
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Consolidated
income statement
For the 52 weeks
ended 27 March
2021
Consolidated income statement
For the 52 weeks ended 27 March 2021
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Other income
Impairment losses on receivables
Profit/(loss) from operations
Finance costs
Finance income
Loss before taxation
Taxation
Loss for the period from continuing
operations
Discontinued operations
(Loss) /profit for the year from
discontinued operations
(Loss) /profit for the period
attributable to equity holders of
the parent
(Loss) /profit per share from
continuing and discontinued
operations
Basic
Diluted
Loss per share from continuing
operations
Basic
Diluted
52 weeks ended 27 March 2021
52 weeks ended 28 March 2020 Restated*
Before
adjusted
items
£ million
Note
Adjusted
items1
£ million
Total
£ million
Before
adjusted
items
£ million
Adjusted
items1
£ million
Total
£ million
4
6
19
7
8
8
9
85.8
(63.3)
22.5
(23.3)
2.0
(1.0)
0.2
(8.9)
0.2
(8.5)
(0.1)
–
–
–
(2.6)
–
–
(2.6)
(10.3)
–
(12.9)
–
85.8
(63.3)
22.5
(25.9)
2.0
(1.0)
(2.4)
(19.2)
0.2
(21.4)
(0.1)
(8.6)
(12.9)
(21.5)
164.7
(128.5)
36.2
(34.6)
–
(2.2)
(0.6)
(5.2)
0.3
(5.5)
(0.9)
(6.4)
–
–
–
(8.2 )
–
–
(8.2)
–
6.0
(2.2)
0.1
(2.1)
10
–
–
–
(8.4)
30.0
(8.6)
(12.9)
(21.5)
(14.8)
27.9
12
12
12
12
(5.7) p
(5.7) p
(5.7) p
(5.7) p
164.7
(128.5)
36.2
(42.8)
–
(2.2)
(8.8)
(5.2)
6.3
(7.7)
(0.8)
(8.5)
21.6
13.1
3.7p
3.7p
(2.4) p
(2.4) p
1
Includes adjusted costs (property costs, restructuring costs and impairment charges) , the fair value movement on embedded derivatives and the profit/loss on disposal of the
UK operating segment as set out in note 6 to the consolidated financial statements. Adjusted items are considered to be one-off or significant in nature and /or value. Excluding
these items from profit metrics provides readers with helpful additional information on the performance of the business across the periods because it is consistent with how the
business performance is reviewed by the Board.
*
Results for the prior year have been restated for the impact of prior year adjustments (note 32) . Earnings/(loss) per share have also been restated as a result of the prior year
adjustment (note 32) and the correction of the dilution calculation (note 12).
Mothercare plc annual report and accounts 2021
69
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedFinancials
Consolidated statement of
comprehensive income
For the 52 weeks
ended 27 March 2021
Consolidated
balance sheet
Consolidated statement of comprehensive income
For the 52 weeks ended 27 March 2021
(Loss)/profit for the period
Items that will not be reclassified subsequently to the income statement:
Remeasurement of net defined benefit liability:
Actuarial (loss)/gain on defined benefit pension schemes
Deferred tax relating to items not reclassified
Items that may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations
Deferred tax relating to items reclassified
Other comprehensive (expense) / income for the period
Total comprehensive (expense) / income for the period wholly
attributable to equity holders of the parent
Note
31
17
27
17
52 weeks
ended
27 March
2021
£ million
(21.5)
(56.7)
10.2
(46.5)
–
–
–
(46.5)
(68.0)
52 weeks
ended
28 March
2020
Restated
£ million
13.1
46.6
(10.4)
36.2
(1.9)
–
(1.9)
34.3
47.4
70
Mothercare plc annual report and accounts 2021
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
Consolidated
balance sheet
As at 27 March
2021
Consolidated balance sheet
As at 27 March 2021
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use leasehold assets
Retirement benefit obligations
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Derivative financial instruments
Lease liabilities
Provisions
Non-current liabilities
Borrowings
Lease liabilities
Derivative financial instruments
Retirement benefit obligations
Provisions
Deferred tax liability
Total liabilities
Net assets/(liabilities)
Equity attributable to equity holders of the parent
Share capital
Share premium account
Own shares
Translation reserve
Hedging reserve
Retained loss
Total equity
Note
27 March
2021
£ million
28 March
2020
Restated
£ million
14
15
16
31
18
19
22
20
23
21
22
16
24
21
16
22
31
24
17
25
26
25
27
27
1.1
0.5
1.2
–
2.8
5.9
17.4
2.6
6.9
32.8
35.6
(24.9)
–
–
(1.8)
(0.3)
(4.2)
(31.2)
(19.0)
(1.1)
–
(25.6)
(1.7)
–
(47.4)
(78.6)
(43.0)
89.3
108.8
(1.0)
(3.7)
–
(236.4)
(43.0)
0.6
0.7
7.9
29.8
39.0
9.7
15.6
21.0
6.1
52.4
91.4
(29.5)
(28.0)
(0.3)
(0.1)
(1.0)
(2.8)
(61.7)
(12.8)
(7.4)
(0.3)
–
(2.8)
(10.4)
(33.7)
(95.4)
(4.0)
87.4
91.7
(1.0)
(3.7)
–
(178.4)
(4.0)
Approved by the board and authorised for issue on 28 July 2021 and signed on its behalf by:
Andrew Cook
Chief Financial Officer
Company Registration Number: 1950509
Mothercare plc annual report and accounts 2021
71
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Consolidated statement of
changes in equity
For the 52 weeks
ended 27 March 2021
Consolidated cash
flow statement
Consolidated statement of changes in equity
For the 52 weeks ended 27 March 2021
Share
capital
£ million
Share
premium
account
£ million
Note
Own
shares
£ million
Translation
reserve
£ million
Hedging
reserve
£ million
Retained
earnings
£ million
Total
equity
£ million
Balance at 28 March 2020 as previously
reported
Prior year adjustment – income
statement
Prior year adjustment – other
comprehensive income
87.4
91.7
(1.0)
(3.7)
–
–
–
–
–
–
–
–
Balance at 28 March 2020 as restated
87.4
91.7
(1.0)
(3.7)
Items that will not be reclassified
subsequently to the income statement
Items that will be reclassified
subsequently to the income statement
27
Other comprehensive expense
Loss for the period
Total comprehensive (expense) /income
Conversion of shareholder loans
25,26
Adjustment to equity for equity-settled
share-based payments
30
Balance at 27 March 2021
–
–
–
–
–
1.9
–
89.3
–
–
–
–
–
17.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
108.8
(1.0)
(3.7)
–
–
–
–
–
–
–
–
–
–
–
–
(172.1)
(1.3)
(5.0)
(178.4)
2.3
(1.3)
(5.0)
(4.0)
(46.5)
(46.5)
–
(46.5)
(21.5)
(68.0)
9.5
0.5
(236.4)
–
(46.5)
(21.5)
(68.0)
28.5
0.5
(43.0)
For the 52 weeks ended 28 March 2020
Balance at 30 March 2019
87.1
88.9
(1.1)
(1.8)
1.3
(228.6)
(54.2)
Share
capital
£ million
Share
premium
account
£ million
Note
Own
shares
£ million
Translation
reserve
£ million
Hedging
reserve
£ million
Retained
Earnings
£ million
Total
Equity
£ million
Items that will not be reclassified
subsequently to the income statement -
restated
Items that will be reclassified
subsequently to the income statement
27
Other comprehensive (expense) /income
- restated
Profit for the period - restated
Total comprehensive (expense) /income
–
–
–
–
–
Issue of new shares
25,26
0.3
Expenses of issue of equity shares
Transfer from equity to inventories during
the period
Adjustment to equity for equity-settled
share-based payments
26
27
30
–
–
–
–
–
–
–
–
2.9
(0.1)
–
–
–
–
–
–
–
0.1
–
–
–
–
(1.9)
(1.9)
–
(1.9)
–
–
–
–
Balance at 28 March 2020 as restated
87.4
91.7
(1.0)
(3.7)
–
–
–
–
–
–
–
(1.3)
–
–
36.2
36.2
–
36.2
13.1
49.3
–
–
–
0.9
(178.4)
(1.9)
34.3
13.1
47.4
3.3
(0.1)
(1.3)
0.9
(4.0)
72
Mothercare plc annual report and accounts 2021
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Consolidated cash
flow statement
For the 52 weeks
ended 27 March
2021
Consolidated cash flow statement
For the 52 weeks ended 27 March 2021
Net cash flow from operating activities – continuing operations
Net cash flow from operating activities – discontinued operations
Cash flows from investing activities
Interest received
Purchase of property, plant and equipment
Purchase of intangibles – software
Proceeds from sale of property, plant and equipment
Cash (used in)/generated from investing activities – continuing operations
Cash generated from investing activities – discontinued operations
Cash flows from financing activities
Issue of share capital
Expenses of share issue
Shareholder loans raised
Interest paid
Lease interest paid
Repayments of leases
Repayment of loan facility
Drawdown of loan facility
Facility fee paid
Net cash inflow/(outflow) from financing activities – continuing operations
Net cash outflow from financing activities – discontinued operations
Net increase in cash and cash equivalents
Cash and cash equivalents / (overdraft) at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period
52 weeks ended
27 March
2021
£ million
52 weeks ended
28 March
2020
£ million
(2.6)
–
–
(0.2)
(0.2)
–
(0.4)
–
–
–
–
(1.4)
(0.6)
(1.5)
–
7.3
–
3.8
–
0.8
6.1
–
6.9
(2.9)
3.4
0.3
(0.4)
(1.4)
–
(1.5)
7.0
3.2
(0.1)
5.5
(1.8)
(0.7)
(1.8)
(13.0)
6.0
(0.2)
(2.9)
(12.9)
(9.8)
16.3
(0.4)
6.1
Note
28
28
Mothercare plc annual report and accounts 2021
73
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Notes to the
consolidated
financial
statements
Notes to the consolidated financial statements
1 General information
• Onerous contracts: Cost of fulfilling a contract – amendments to
Mothercare plc is a company incorporated in Great Britain under
the Companies Act 2006. The address of the registered office is
given in the shareholder information on page 128. The nature of the
Group’s operations and its principal activities are set out in note 5
and in the business review on page 13.
These financial statements are presented in UK pounds sterling
because that is the currency of the primary economic environment
in which the Group operates. Foreign operations are included in
accordance with the policies set out in note 2.
2 Significant accounting policies
Basis of presentation
The Group’s accounting period covers the 52 weeks ended
27 March 2021. The comparative period covered the 52 weeks
ended 28 March 2020.
Basis of accounting
The Group’s financial statements have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006.
Adoption of new and revised standards
The same accounting policies, presentation and methods of
computation are followed in this yearly report as applied in the
Group’s last audited financial statements for the 52 weeks ended
28 March 2020.
New standards not affecting the reported results nor the financial
position
In the current year, the Group has applied a number of
amendments to IFRS Standards and Interpretations issued by the
International Accounting Standards Board (IASB) that are effective
for the current annual report period. Their adoption has not had
any material impact on the disclosures or on the amounts reported
in these financial statements.
New standards in issue but not yet effective
At the date of authorisation of these financial statements, the
following standards and interpretations, which have not been
applied in these financial statements, were in issue and endorsed
by the UKEB, but not yet effective:
• Amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16 Interest rate
benchmark reform – phase 2
• Extension of the temporary exemption from applying IFRS 9
• Amendment to IFRS 16, ‘Leases’ – COVID-19 related rent
concessions
At the date of authorisation of these financial statements, the
following standards and interpretations, which have not been
applied in these financial statements, were in issue but not yet
endorsed by the UKEB, and not yet effective:
• Definition of Accounting Estimates – amendments to IAS 8
• Disclosure of Accounting policies – amendments to IAS 1 and
IFRS Practice Statement 2
• Annual Improvements to IFRS 2018-2020
IAS 37
• Property Plant and Equipment: Proceeds before Intended Use –
amendments to IAS 16
• Reference to the Conceptual framework – amendments to IFRS 3
• Classification of liabilities and current or non-current –
amendments to IAS 1
• IFRS 17, ‘Insurance Contracts’ – replacing IFRS 4
These standards which have been issued but are not yet effective
are not expected to have a material impact on the disclosures or
the amounts reported in these financial statements.
Discontinued operations
In accordance with IFRS 5 ‘Non-current Assets Held for Sale
and Discontinued Operations’, the net results of discontinued
operations are presented separately in the Group income
statement (and the comparatives restated) . Assets held for sale are
presented separately in the Group balance sheet.
Going concern
As stated in the strategic report, the Group’s business activities
and the factors likely to affect its future development are set out in
the principal risks and uncertainties section of the Group financial
statements. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are set out in the financial
review.
The consolidated financial information has been prepared on
a going concern basis. Despite the current global retail sector
challenges, we have attempted to capture the impact on both our
supply chain and key franchise partners based on what is currently
known and localised trading activity since the start of the crisis.
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:
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 achieve 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.
74
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
2 Significant accounting policies (continued)
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 decreases 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.
Based on the sales to date in the current financial year to March
2022, the Group 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 had therefore already demonstrated that the base case
scenario is challenging.
The Board’s confidence that the Group will operate within the
terms of the borrowing facilities, and the 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 Group
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 Group was unable
to mitigate the material uncertainties assumed in the Base Case
Forecast and the Group were not able to execute further cost
or cash management programmes, the Group would at certain
points of the working capital cycle have insufficient cash. If this
scenario were to crystallise the Group would need to renegotiate
with its lender in order to secure waivers to potential covenant
breaches and consequential cash remedies or secure additional
funding. Therefore, we have concluded that, in this situation, there is
a material uncertainty that casts significant doubt that the Group
will be able to operate as a going concern.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the
Company (its subsidiaries) made up to 27 March 2021. Control is
achieved when the Company:
• has the power over the investee;
• is exposed, or has the right, to variable returns from its
involvement with the investee; and
• has the ability to use its powers to affect its returns.
The Company reassesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control listed above.
The accounting policies of subsidiaries are in line with those used
by the Group.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Administration of Mothercare UK Limited and transfer of its
international franchise business to the Group
On 5 November 2019, the Company’s subsidiary and owner of the
Group’s UK retail operations, MUK, entered administration. An
agreement was reached with the administrators of MUK to assign
the “Mothercare” brand and novate the majority of the Group’s
international franchise agreements to a new legal entity and
subsidiary of the Company, MGB, alongside certain assets and
liabilities, including all liabilities in respect of the Group’s defined
benefit pension schemes.
The transfer of the international franchise business of MUK to
MGB described above has been accounted for as a common
control transaction. This is because the combining entities (MGB
and the international franchise business of MUK) were ultimately
controlled by the same entity (Mothercare plc) both before and
after the transaction and there was, from a financial accounting
perspective, no loss of control.
While the decision to place MUK into administration did result in
a legal loss of control of the international franchise business for
less than a day, that loss of control was, in effect, administrative in
nature. From the Group’s perspective, the commercial effect of the
transaction was a divestment of the UK retail business, an outcome
consistent with the Group’s previously announced strategy. As
a result, the assets and liabilities that related to the ongoing
continuing business were transferred at the previous book values
of MUK, reflecting the fact that no ‘acquisition’ occurred from the
perspective of the Group.
By applying merger accounting principles, the group has reflected
the commercial substance of the transaction and has accounted
for this by:
• Derecognising the assets and liabilities of MUK retained by the
administrator;
• Recognising the payments made/to be made and liabilities
to be assumed by the Group under the terms of the sale and
purchase agreement agreed with the administrator; and
• Recognising the resulting difference as a gain on disposal of the
UK retail business in the consolidated income statement.
Revenue recognition
Revenue is recognised only when (or as) the Group satisfies a
performance obligation by transferring control of the promised
goods or services to a customer. The transfer of control can
occur over time or at a point in time. Revenue is measured at the
transaction price the Group expects to be entitled to in a contract
with a customer and excludes amounts collected on behalf of third
parties discounts, value-added taxes (VAT) and other sales-related
taxes.
Revenue recognition has been considered in accordance with
IFRS 15 and two separate performance obligations have been
identified in relation to income received from franchise partners:
Mothercare plc annual report and accounts 2021
75
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
2 Significant accounting policies (continued)
Adjusted earnings
The first performance obligation identified relates to the sale of
goods to international franchise partners. Turnover from such sales
is recognised at the point in time at which the control of goods is
transferred, which is on dispatch. There are two potential points in
time depending on the method of shipping. In the first instance,
control passes to the franchise partner once the goods are loaded
on their shipping vessel. In the second instance, control passes to
the franchise partner at the point their freight carrier collects the
goods from one of our distribution centres.
The second performance obligation is in relation to royalty revenue
from licences provided to franchise partner to trade under the
Mothercare brand name, which is recognised on a sales usage
basis when the corresponding retail sales are recognised by the
franchise partner, in accordance with the substance of the relevant
licensing agreement.
Since mid-way through the current financial year, the Group
has also recognised revenue with certain customers on an
agency basis. The most significant consideration under IFRS 15
in determining this treatment is that control of the stock passes
directly from the manufacturer to the franchise partner, therefore
the Group never takes control of the stock during the logistics cycle.
Agency revenue, being solely the margin element of the sale, is
recognised at the point that control of the goods passes to the
franchise partner.
Given the Group’s business model, management are required
to apply their judgment as to whether the Group is contracting
in the capacity of an agent or a principal. The key determining
factor considered by management in making such a judgment
is whether control of the stock passes to the Group (before
transferring to the franchise partner) .
Interest income
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate applicable,
which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to that
asset’s net carrying amount.
Investment property
Investment property is initially measured at cost, and subsequently
at cost less accumulated depreciation and any accumulated
impairment losses, with changes in the carrying value recognised
in the consolidated statement of comprehensive income. Rent
receivable is recognised on a straight-line basis over the period of
the lease and disclosed within other income. Where an incentive
(such as a rent free period) is given to a tenant, the carrying value
of the investment property excludes any amount reported as a
separate asset as a result of recognising rental income on this
basis.
Accrued income
Accrued income relates to revenues the Group is entitled to,
where amounts have not yet been invoiced, and is treated as a
receivable yet to be invoiced, dependent only on the passage of
time. In these instances the Group has an unconditional right to the
revenue.
The Group considers that adjusted profit before tax provides
additional useful information for shareholders. The term adjusted
earnings is not a defined term under IFRS and may not therefore
be comparable with similarly titled profit measurements reported
by other companies. It is not intended to be a substitute for IFRS
measures of profit.
As the Group has chosen to present an alternative earnings per
share measure, a reconciliation of this alternative measure to the
statutory measure required by IFRS is given in note 12.
To meet the needs of shareholders and other external users of the
financial statements the presentation of the income statement has
been formatted to show more clearly, through the use of columns,
our adjusted business performance which provides more useful
information on underlying trends.
The adjustments made to reported results are as follows:
Adjusted items
Due to their significance or one-off nature, and where treatment
as an adjusted item provides stakeholders with additional useful
information to assess the year-on-year trading performance of the
Group, certain items have been classified as adjusted.
The gains and losses on these items, such as provision for onerous
leases, impairment charges, and restructuring costs can have a
material impact on the trend in the profit from operations and the
result for the period. Adjusting for these items is consistent with how
business performance is measured internally by the Board and
Operating Board.
On this basis the following items are analysed as adjusted items on
the face of the income statement:
Continuing operations
• costs associated with restructuring, redundancies and
refinancing;
• finance costs, including the fair value movement on embedded
derivatives in the shareholder loans;
• FY20: loss on disposal of the UK business;
Discontinued operations
• store impairment and onerous lease charges;
• amortisation of intangible assets.
Further details of the adjusted items are provided in note 6.
Leasing
Leases, for which the Group is a lessor, are classified as finance
leases whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee. All leases held by the
Group are classified as operating leases.
All leases are accounted for by recognising a right-of-use asset
and a lease liability unless they are for leases of low value assets,
or for a duration of twelve months or less.
76
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 2 Significant accounting policies (continued)
Lease liabilities are measured at the present value of the
contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent
in the lease unless (as it typically the case) this is not readily
determinable, in which case the Group’s incremental borrowing
rate on commencement of the lease is used. Variable lease
payments are only included in the measurement of the lease
liability if they depend on an index or rate. In such cases, the initial
measurement of the lease liability assumes the variable element
will remain unchanged throughout the lease term. Other variable
lease payments are expensed in the period to which they relate.
Right of use assets are initially measured at the amount of the
lease liability, reduced for any lease incentives received, and
increased for: lease payments made at or before commencement
of the lease; initial direct costs incurred; and the amount of
any dilapidations provision recognised where the Group is
contractually required to dismantle, remove or restore the leased
asset.
Subsequent to initial measurement, lease liabilities increase as
a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-
of-use assets are amortised on a straight-line basis over the
remaining term of the lease or over the remaining economic life of
the asset if, rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease, it
adjusts the carrying amount of the lease liability to reflect the
payments to make over the revised term, which are discounted
at the same discount rate that applied on lease commencement.
The carrying value of lease liabilities is similarly revised when the
variable element of future lease payments dependent on a rate or
index is revised. An equivalent adjustment is made to the carrying
value of the right-of-use asset, with the revised carrying amount
being amortised over the revised remaining lease term.
The Group as lessor
Rental income from operating leases which are less than twelve
months in duration is recognised on a straight-line basis over the
term of the relevant lease. Initial direct costs incurred in negotiating
and arranging an operating lease are added to the carrying
amount of the leased asset and recognised on a straight-line basis
over the term of the leases. The Group does not act as a lessor on
any leases which are longer than twelve months in duration.
Foreign currencies
The individual financial statements of each Group company are
presented in the currency of the primary economic environment
in which it operates (its functional currency) . For the purpose of the
consolidated financial statements, the results and financial position
of each Group company are expressed in pounds sterling, which
is the functional currency of the Company, and the presentational
currency for the consolidated financial statements.
In preparing the financial statements of the individual companies,
transactions in currencies other than the functional currency are
recorded at the rates of exchange prevailing on the dates of
the transactions. At each balance sheet date, monetary assets
and liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date.
Non-monetary assets and liabilities carried at fair value that are
denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined. Non-
monetary items that are measured in terms of historical cost in a
foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items,
and on the retranslation of monetary items, are included in the
income statement.
In these consolidated financial statements, the assets and liabilities
of the Group’s foreign operations are translated at exchange
rates prevailing on the balance sheet date. Income and expense
items are translated at the average exchange rates for the period;
unless exchange rates fluctuate significantly during that period,
in which case the exchange rates at the date of transactions are
used. Exchange differences arising, if any, are classified within other
comprehensive income, accumulated in equity in the Group’s
translation reserve. Such translation differences are recognised
as income or as expenses in the period in which the operation is
disposed of.
Hedge accounting
In order to hedge its exposure to certain foreign exchange risks, the
Group has previously entered into forward contracts. During the
prior financial year, the Group ceased hedging, and there were no
open forward contracts at either 28 March 2020 or 27 March 2021.
The Group designates its forward currency contracts as cash flow
hedges. At the inception of the hedge relationship, the Group
documents the relationship between the hedging instrument
and the hedged item, along with its risk management objectives
and its strategy for undertaking various hedge transactions.
Changes in the fair value of financial instruments designated as
effective are recognised in other comprehensive income and
any ineffective portion is recognised immediately in the income
statement. Amounts previously recognised in other comprehensive
income and accumulated in equity are reclassified to profit and
loss in the periods when the hedged item is recognised in profit or
loss, categorised in the income statement for consistency with the
recognised hedged item; when the underlying hedged item results
in recognition of a non-financial asset, an adjustment is made to
take it to inventory. Movements in the hedging reserve in equity are
detailed in note 27.
Retirement benefit costs
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 at the earlier of the following: when
the plan amendment or curtailment occurs; or when the entity
recognises related restructuring costs or termination benefits.
Mothercare plc annual report and accounts 2021
77
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
2 Significant accounting policies (continued)
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 retirement benefit obligations has been updated
to reflect current market discount rates, and also considering
whether there have been 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 retirement benefit obligations.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
financial year. Taxable profit differs from net profit as reported
in the income statement because it excludes items of income or
expense that are taxable or deductible in other financial years
and it further excludes items that are never taxable or deductible.
The Group’s liability for current tax is calculated using tax rates that
have been enacted or substantively enacted by the balance sheet
date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used
in the computation of taxable profit, and is accounted for using the
balance sheet liability method.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and interests
in joint ventures, except where the Group is able to control the
reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
Deferred tax assets are recognised to the extent that it is probable
that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary difference arises from initial
recognition of goodwill or from the initial recognition (other than
in a business combination) of other assets and liabilities in a
transaction that affects neither the tax profit nor the accounting
profit.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all
or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected
to apply in the period when the liability is settled or the asset
is realised based on the tax rates that have been enacted
or substantively enacted at the reporting date. Deferred
tax is charged or credited in the income statement, except
when it relates to items charged or credited directly to other
78
Mothercare plc annual report and accounts 2021
comprehensive income, in which case the deferred tax is also dealt
with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated
depreciation and any recognised impairment losses.
Depreciation is charged so as to write off the cost or valuation of
assets, other than land and assets in the course of construction,
over their estimated useful lives, using the straight-line method, on
the following bases:
Leasehold improvements
– lease term
Fixtures, fittings and equipment
– 3 to 10 years
The gain or loss arising on the disposal or retirement of an asset
is determined as the difference between the sales proceeds and
the carrying amount of the asset and is recognised in the income
statement. Management re-assess the useful lives and residual
values of property, plant and equipment on an annual basis.
Intangible assets – software
Where computer software is not an integral part of a related item
of computer hardware, the software is classified as an intangible
asset. The capitalised costs of software for internal use include
external direct costs of materials and services consumed in
developing or obtaining the software and payroll and payroll-
related costs for employees who are directly associated with
and who devote substantial time to the project. Capitalisation of
these costs ceases no later than the point at which the software
is substantially complete and ready for its intended internal use.
These costs are amortised on a straight-line basis over their
expected useful lives, which is normally five years.
Assets under the course of construction
Whilst internal development of intangible software assets is taking
place, assets are reported in the category of assets under the
course of construction. Once an asset is ready for use, either
in stages or in entirety, the asset is transferred to the reported
category of intangible assets – software and depreciation
commences.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying
amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered
an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss (if any) . Intangible assets under the course
of construction are tested for impairment annually irrespective
of whether there are any indicators of impairment. Where the
asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount of the
cash generating unit to which the asset belongs. An intangible
asset with an indefinite useful life is tested for impairment at least
annually and whenever there is an indication that an asset may be
impaired.
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 2 Significant accounting policies (continued)
The recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount
of the asset (or cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised as an expense in the
income statement immediately.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or cash generating unit) is increased to
the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss
been recognised for the asset (or cash-generating unit) in prior
years. A reversal of an impairment loss is recognised as income
immediately.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost comprises direct materials and, where applicable, direct
labour costs and those overheads that have been incurred in
bringing the inventories to their present location and condition.
Cost is calculated using the weighted average cost formula.
Net realisable value represents the estimated selling price less
all estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
Whilst the Group engages in hedge accounting (no new contracts
were taken out in the current financial period ended 27 March 2021) ,
inventory is adjusted on recognition by transferring amounts from
the hedging reserve.
Financial guarantees
Where the Company has entered into financial guarantee
contracts, such as over a lease, these are initially measured at fair
value, and later revalued to the higher of: expected credit losses,
and the amount initially recognised less any cumulative income/
amortisation.
Lease guarantees
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.
Financial instruments
Financial assets and liabilities are recognised on the Group’s
balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
Trade receivables
Trade receivables are initially measured at the transaction price,
and subsequently measured at amortised cost less provision or
impairment. The Group recognises a loss allowance for expected
credit losses on trade receivables, which is updated at each
financial reporting date to reflect changes in credit risk since initial
recognition.
Expected credit losses are estimated using a provision matrix
based on the Group’s historical credit loss experience, adjusted
for factors that are specific to the debtors, general economic
conditions, and an assessment of both the current as well as the
forecast direction of conditions at the reporting date, including time
value of money where appropriate.
Financial asset
The Group holds a financial asset of £2.6 million (2020: £21.0 million)
reflecting the amount which the administrators of MUK and MBS
are expected to pay towards settlement of the Group’s secured
debt. This amount represents the realisation of cash from the
wind-up of the UK business through the administration process. The
asset has been fair valued based on the administrators’ worst-
case estimate of the amount that the Group will receive.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits, and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to
an insignificant risk of change in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according
to the substance of the contractual arrangements entered into. An
equity instrument is any contract that evidences a residual interest
in the assets of the Group after deducting all of its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are initially measured
at fair value, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue
costs, are accounted for on an accruals basis to the income
statement using the effective rate interest method and are added
to the carrying amount of the instrument to the extent that they are
not settled in the period in which they arise.
Finance costs directly attributable to the acquisition or construction
of qualifying assets are capitalised. Qualifying assets are those
that necessarily take a substantial period of time to prepare for
their intended use.
Trade payables
Trade payables are initially measured at fair value, and are
subsequently measured at amortised cost, using the effective
interest rate method.
Equity instruments
Equity instruments issued by the Company are recorded as the
proceeds are received, net of direct issue costs.
Derivative financial instruments
The Group uses forward foreign currency contracts to mitigate
the transactional impact of foreign currencies on the Group’s
performance. The Group’s financial risk management policy
prohibits the use of derivative financial instruments for speculative
or trading purposes and the Group does not therefore hold or
issue any such instruments for such purposes.
Mothercare plc annual report and accounts 2021
79
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
2 Significant accounting policies (continued)
Forward foreign currency contracts are recognised initially at fair
value, which is updated at each balance sheet date. Changes
in the fair values are recognised either in the income statement
or through reserves depending on whether the contract is
designated as a hedging instrument.
Forward contracts in place are considered an effective cash flow
hedge and are accounted for by recognising the gain/loss on
the hedge through reserves rather than the income statement,
removing volatility within the income statement.
The Group has continued to apply IAS 39 for the purposes of
hedge accounting.
management’s best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations.
For cash-settled share-based payments, a liability equal to the
portion of the goods or services received is recognised at the
current fair value determined at each balance sheet date, with any
changes in fair value recognised in the profit or loss for the year.
The Group also provides employees with the ability to purchase
the Group’s ordinary shares at 80% of the current market value
within an approved Save As You Earn scheme. The Group records
an expense based on its estimate of the 20% discount related to
shares expected to vest on a straight-line basis over the vesting
period.
Embedded derivatives
Government Grants
Derivatives embedded in other financial instruments or other host
contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contracts,
and the host contracts are not measured at fair value through
profit or loss.
Warrants
Where warrants are not issued for a fixed number of shares at a
fixed amount, they are recognised as a liability at fair value on
the date of issue. Subsequently, fair value is recalculated, with
movements recognised in the income statement, at each reporting
date.
Provisions
Provisions, including liabilities of uncertain timing or amount such
as leasehold dilapidations, warranty claims and disputes, and
onerous leases, are recognised when the Group has a present
obligation as a result of a past event, and it is probable that
the Group will be required to settle that obligation. Provisions
are measured at the directors’ best estimate of the expenditure
required to settle the obligation at the balance sheet date, and
are discounted to present value where the effect is material.
Onerous contracts
Present obligations arising out of onerous contracts are recognised
and measured as provisions. An onerous contract is considered to
exist where the Group has a contract under which the unavoidable
costs of meeting the obligations under the contract exceed the
economic benefits expected to be received under it.
Share-based payments
The Group has applied the requirements of IFRS 2 ‘Share-based
Payments’.
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured
at fair value at the date of grant, and expensed on a straight-line
basis over the vesting period. The estimates are updated at each
balance sheet date for the Group’s expectation of shares that will
eventually vest and adjusted for the effect of non-market based
vesting conditions.
The Group received government grants during the reporting
period under the Coronavirus 19 Job Retention Scheme (CJRS) and
in accordance with IAS 20 Accounting for Government Grants, has
accounted for this income using the Income Approach. Under
this method the income is recognised on a systematic basis in
the profit and loss account over the same period that the Group
recognised the related payroll costs that the grant is intended to
compensate. This specific grant income has been deducted in
reporting the related payroll expense.
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 measurements.
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.
The key APMs that the Group has focused on during the period
are as follows:
Fair value is measured by use of the valuation technique
considered to be most appropriate for each class of award,
including Black-Scholes calculations and Monte Carlo simulations.
The expected life used in the formula is adjusted, based on
Group worldwide sales are total International 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 UK sales and receipts from
Group worldwide sales:
80
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued International franchise partners, which includes royalty payments
and the cost of goods dispatched to international franchise
partners. A reconciliation is included within the Financial Review on
pages 31 to 40.
Like-for-like sales:
This is a widely used indicator of a retailer’s current trading
performance. This is defined as sales from stores that have been
trading continuously from the same selling space for at least a
year and include website sales and sales taken on iPads in store.
International retail sales are the estimated retail sales of overseas
franchise and joint venture partners to their customers. 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. Further details are disclosed
within the Financial Review on pages 31 to 40.
Profit/(loss) before adjusted items:
The Group’s policy is to exclude items that are considered to be
significant in both nature and/or quantum and where treatment
as an adjusted item provides stakeholders with additional useful
information to assess the year-on-year trading performance of
the Group. On this basis, the following items were included within
adjusted items for the 52-week period ended 27 March 2021:
Continuing operations
• costs associated with restructuring, redundancies and
refinancing;
• finance costs, including the fair value movement on embedded
derivatives in the shareholder loans;
• FY20: loss on disposal of the UK business;
Discontinued operations
• store impairment and onerous lease charges;
• amortisation of intangible assets.
Further details of the adjusted items are provided in note 6.
A reconciliation of adjusted earnings is shown in note 6.
3 Critical accounting judgements and key sources of estimation
uncertainty
In the process of applying the Group’s accounting policies, which
are described in note 2, management has made judgements
that have an effect on the application of policies and reported
amounts.
3a Critical accounting judgements
Critical judgements represent key decisions made by
management in the application of the Group’s accounting policies.
Where a significant risk of materially different outcomes exists due
to management assumptions or sources of estimation uncertainty,
this will represent a critical accounting estimate. Estimates and
judgements are continually evaluated and are based on
historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
The estimates and judgements which have a significant risk of
causing a material adjustment to the carrying amount of assets
and liabilities are discussed below.
Accounting for the administration of Mothercare UK Limited and
Mothercare Business Services Limited
Judgement was required with regard to the chosen method of
accounting for the loss of control of Mothercare UK Limited. Whilst
factually and legally, the Group lost control of the continuing
International segment for a short period of time between the
administrators taking control of Mothercare UK Limited, and the
administrators signing an agreement to sell trade and assets to
Mothercare Global Brand Limited, acquisition accounting has not
been considered to appropriately reflect the substance of the
transaction. Mothercare PLC retained control of the International
operating segment, which continued operating in the way it had
done previously.
Refer to the accounting policy on the administration of Mothercare
UK Limited and transfer of its international franchise business to the
Group for full details.
Discontinued operations
In the preparation of these results, certain judgements have been
required around the categorisation of activities as continuing or
discontinued.
The UK segment which has been discontinued and the continuing
International segment were managed using the same supply and
cost base.
The International and UK operating segments were previously
both trading segments of the same legal entity, MUK. The
corporate costs were therefore managed as one business.
In categorising these operations between continued and
discontinued operations, the accounting standards do not allow
for such costs to be pro-rated. Any expenditure which was incurred
under a contract used by the International continuing operating
segment as well as the UK discontinued operating segment
has therefore been disclosed under continuing operations –
regardless of whether the expenditure did not continue after
the administration, and regardless of whether the contract was
primarily for the benefit of the UK segment. For this reason, the
continuing administrative expenses disclosed do not necessarily
reflect the ongoing corporate cost base of the business.
For some income and expenditure, judgement was required
around the method of allocation between the segments:
• The overarching principle which has been followed for is that
unless costs were clearly identifiable as solely relating to the
discontinued operating segment, then that cost has been
treated as continuing. Therefore, even costs which clearly
ceased as a result of the administration have been treated as
continuing costs if that particular overhead was being used
by the International basis and there is no clear split between
the amount relating to the International operating segment as
opposed to the discontinued UK operating segment.
Mothercare plc annual report and accounts 2021
81
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
3 Critical accounting judgements and key sources of estimation
uncertainty (continued)
3a Critical accounting judgements (continued)
• Cost of sales includes judgments in relation to the split between
continuing and discontinued operations; some costs have been
pro-rated where they were in relation to matters not specific to
individual products.
• IFRS 5 does not allow the allocation of corporate overheads
to discontinued operations, therefore only costs directly and
solely related to the UK operating segment have been included.
The overarching principle which has been followed is that
unless costs were clearly identifiable as solely relating to the
discontinued operating segment, then that cost has been
treated as continuing. Wages and salaries have been split
such that only employees solely working on the UK operating
segment have been treated as discontinued; therefore there
were some employees that left as a result of the administration
process, due to their company of employment, whose costs have
been treated as continuing for statutory accounting purposes.
• In splitting out depreciation expenditure, depreciation and
impairment in relation to assets at UK stores has been treated
as discontinued; amortisation and impairment on intangible
software assets has been treated as continuing as these were
predominantly in use by head office or the logistics operation.
• Share based payment charges, and the administrative cost
of the defined benefit pension schemes have been treated as
entirely continuing on the basis that the schemes are continuing,
even though the employees under these could have been
employees of the UK operating segment.
• Adjusted costs specifically in relation to the UK business
have been categorised as discontinued – in particular, any
impairment, closure costs, or onerous lease provision movements
in relation to the UK store estate. The legal and professional
costs in relation to the UK administration as well as the head
office restructure in the previous comparative period have been
treated as continuing costs for the reason that there is not clear
cut way of segmenting these.
• Regarding the tax payable, estimates have had to be made to
split out the corporation tax between the UK and International
operating segments; these estimates have been made based
on the estimates included in the remainder of the income
statement.
Regarding the balance sheet position at the point of
administration, judgement was required as follows:
• Although a period-end close was done at the point of
administration, meaning that the reported results from 31 March
2019 to 5 November 2019 reflect the trading income and
expenditure for that period, on 5 November 2019 a number of
employees of Mothercare UK Limited and Mothercare Business
Services Limited moved under the control of the administrators.
In effect, a full true-up of accruals and consideration of balance
sheet provisions had been at 10 October 2010, four weeks earlier.
• Judgement was involved in how to treat accruals for the
UK operating segment; these accruals may never now
materialise however they remained as a creditor at the point of
administration.
• No supplier funding income was accrued after the half
year date, but at the point of administration there was an
unrecoverable debtor reflecting supplier funding income
accrued; this was treated as a debtor at the point of
administration rather than the income statement accrual being
reversed.
• Stock records were updated daily and therefore the position
was accurately known as to what was in transit or in warehouses
at the point of administration however no physical stock count
was done; this meant there could have been shrinkage in UK
stores or the warehouse which was included in the ‘loss of control
of stock’ rather than in cost of sales for discontinued operations.
• The value of the property plant and equipment disposal at the
point of administration has been estimated by reviewing the
fixed asset register for software still in use, and in the case of
hardware, making a judgement on the value of the hardware
which would continue to be used in the business, then disposing
of any other assets previously recognised.
Judgements were also required in the preparation of the cashflow
statements:
• Trade payables relating to the UK operating segment were not
separately identifiable due to the operations of Mothercare
UK Limited having been managed on a combined ledger; the
trade payable movement in the cashflow statement therefore
represents the total Group working capital movement in trade
payables for the year or for the prior year as applicable.
• Depreciation has been added back to the operating profit
according to the split of discontinued/continuing operations in
the income statement.
• Pensions costs and share based payments have been treated
as continuing expenses for the cashflow statement, consistent
with the income statement disclosures.
Adjusted items
The directors believe that the adjusted profit and earnings
per share measures provide additional useful information for
shareholders on the performance of the business.
These measures are consistent with how business performance is
measured internally by the Board and Operating Board.
The adjusted profit before tax measure is not a recognised
profit measure under IFRS and may not be directly comparable
with adjusted profit measures used by other companies. The
classification of adjusted items requires significant management
judgement by considering the nature and intentions of a
transaction.
Note 6 provides further details on current period adjusted items
and their adherence to Group policy.
Determination of Expected credit losses (ECL) on trade and other
receivables
Judgment is required in determining the rate of expected default
applicable for receivables. A risk matrix includes judgments for
the rates used by age and risk level of a receivable. There is also
inherent judgment in selecting the appropriate risk level for each
customer.
82
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 3 Critical accounting judgements and key sources of estimation
uncertainty (continued)
3b Key sources of estimation uncertainty
In applying the Group’s accounting policies described above,
the directors have identified that the following areas are the key
estimates that have a significant risk of resulting in a material
adjustment to the carrying value of assets and liabilities in the next
financial year.
The interest rate used to discount post-employment benefit
obligations to present value is derived from the yields of senior,
high-quality corporate bonds at the balance sheet date;
selection of an appropriate rate is judgemental. These generally
include AA-rated securities. The discount rate is based on the
yield of a portfolio of bonds whose weighted residual maturities
approximately correspond to the duration necessary to cover the
entire benefit obligation.
Expected credit losses (ECL) on trade and other receivables
The provision for the allowance for expected credit losses (refer
to note 19) is calculated using a combination of internally and
externally sourced information, including future default levels
(derived from historical defaults overlaid by macro-economic
assumptions) , future cash collection levels (derived from past
trends) , credit ratings and other credit data.
Once a customer has defaulted on a receivable amount, there
is limited sensitivity associated with credit risk however, prior to
default, the greatest sensitivity relates to the ability of customers to
afford their payments. Deterioration in the ability of customers to
afford their payments will cause an increase in the probability of
default.
If the ECL rates on trade receivables had been 5% higher at 27
March 2021, the loss allowance on trade receivables would have
been £0.5 million higher (2020: £0.5 million higher) .
Pension and other post-retirement benefits are inherently
long-term and future experience may differ from the actuarial
assumptions used to determine the net charge for ‘pension
and other post-retirement charges’. Note 31 to the consolidated
financial statements describes the principal discount rate, inflation
and pension retirement benefit obligation assumptions that have
been used to determine the pension and post-retirement charges
in accordance with IAS 19. The calculation of any charge relating
to retirement benefits is clearly dependent on the assumptions
used, which reflects the exercise of judgement. The assumptions
adopted are based on prior experience, market conditions and
the advice of plan actuaries.
At 27 March 2021, the Group’s pension deficit was £25.6 million (2020:
£29.8 million surplus) . Further details of the accounting policy on
retirement benefits are provided in note 2.
Sensitivities to changes in assumptions in respect of discount rates/
inflation and life expectancy are included in note 31.
Allowances against the carrying value of inventory
Deferred taxation
The Group reviews the market value of, and demand for, its
inventories on a periodic basis to ensure that recorded inventory
is stated at the lower of cost and net realisable value. In assessing
the ultimate realisation of inventories, the Group is required to
make judgements as to future demand requirements and to
compare these with current inventory levels. Factors that could
impact estimated demand and selling prices are timing and
success of product ranges (see note 18) .
A 20% change in the volume of inventories requiring clearance
through the franchise network or any alternative mediums would
impact the net realisable value by £0.8 million. A 5% change in the
level of markdown applied to the selling price would impact the
value of inventories by £0.2 million.
Retirement benefits
Retirement benefits are accounted for under IAS 19 ‘Employee
Benefits’. For defined benefit plans, obligations are measured at
discounted present value whilst plan assets are recorded at fair
value.
As a result of changing market and economic conditions, the
expenses and liabilities actually arising under the plans in the
future may differ materially from the estimates made on the basis
of these actuarial assumptions. The plan assets are partially
comprised of equity and fixed-income instruments. Therefore,
declining returns on equity markets and markets for fixed-income
instruments could necessitate additional contributions to the plans
in order to cover future pension obligations. Also, higher or lower
withdrawal rates or longer or shorter life expectancy of participants
may have an impact on the amount of pension income or
expense recorded in the future.
The Directors have to consider the recoverability of the deferred tax
assets based on forecast profits. There are no deferred tax assets
recognised by the Group at 27 March 2021.
Impairment of assets
The Group reviews the carrying value of assets on a periodic
basis, and whenever events or changes in circumstances indicate
that the related carrying amounts may not be recoverable.
Such circumstances or events could include: a pattern of losses
involving the asset; a decline in the market value for the asset; and
an adverse change in the business or market in which the asset
is involved. Determining whether an impairment has occurred
typically requires various estimates and assumptions, including
determining which cash flows are directly related to the potentially
impaired asset, the useful life over which cash flows will occur, their
amount and the asset’s residual value, if any, and the impact of
Brexit or COVID-19, if any. Estimates of future cash flows and the
selection of appropriate discount rates relating to particular assets
or groups of assets involve the exercise of a significant amount of
judgement.
Cash flow projections are based on the Group’s five year internal
forecasts, the results of which are reviewed by the Board. Estimates
of selling prices and direct costs are based on past experience,
expectations of future changes in the market and historic trends.
Mothercare plc annual report and accounts 2021
83
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
3 Critical accounting judgements and key sources of estimation uncertainty (continued)
The Group holds the lease at a warehouse facility, previously used primarily for the UK operating segment, for the purpose of receiving
rental income and this IFRS 16 right-of-use asset has therefore been classified as investment property. In order to assess the appropriate
carrying value of this investment property, the net present value of future cashflows has been estimated. This includes judgments over the
value of future cashflows, the appropriate discount rate for these cashflows, and the ability of the Group to contract with sub-tenants or
re-assign the lease. A 1% decrease/increase in the discount rate would increase/reduce the impairment made to this investment property
by £0.2 million.
Estimation of useful lives of property, plant and equipment, right of use assets and intangible assets
Property, plant and equipment and intangible assets are depreciated on a straight line basis over their useful economic lives. This requires
the estimation of how long these assets will be in use by the business before they are either disposed of, and if necessary, required to be
replaced. The appropriateness of assets’ useful economic lives and any changes could affect prospective depreciation rates and asset
carrying values are reviewed at least annually. Right-of-Use investment property assets have been depreciated over the lease length,
which was considered appropriate having taken into account the expected net present value of cashflows generated over the lease
term. Estimation will be required over the estimated useful economic life of the ERP system; currently this is an asset under construction and
not being depreciated but as appropriate the Group will carry out an assessment of how long it is expected to endure.
4. Revenue
Continuing operations:
Sale of goods to franchise partners
Royalties income
Total revenue
5. Segmental information
52 weeks
ended
27 March
2021
£ million
68.1
17.7
85.8
52 weeks
ended
28 March
2020
£ million
140.6
24.1
164.7
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 Mini Club operation could constitute a separate operating segment as it has its own operational
manager, however it is 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, by year end it was 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.
Revenues are attributed to countries on the basis of the customer’s location. The largest International customer represents approximately
23% (2020: 38.9%) of Group sales.
Turnover by destination
Continuing operations:
Europe
Middle East
Asia
Rest of world
Total revenue
84
Mothercare plc annual report and accounts 2021
52 weeks
ended
27 March
2021
£ million
46.2
20.1
19.5
–
85.8
52 weeks
ended
28 March
2020
£ million
66.2
63.4
34.1
1.0
164.7
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
6. Adjusted items
The total adjusted items attributable to continuing operations reported for the 52-week period ended 27 March 2021 is a net charge of
£12.9 million (2020: £2.2 million) . The adjustments made to reported loss before tax to arrive at adjusted loss from continuing operations are:
Adjusted costs from continuing operations:
Property related costs included in administrative expenses
Restructuring and reorganisation costs included in administrative expenses
Restructuring costs/(income) included in finance costs
Adjusted items before tax *
* Tax on adjusted items was at 19% (2020: 19%) .
Property related costs included in administrative expenses – £0.5 million (2020: £2.6 million)
The current year charge includes:
52 weeks
ended
27 March
2021
£ million
0.5
2.1
10.3
12.9
52 weeks
ended
28 March
2020
Restated
£ million
2.6
5.6
(6.0)
2.2
• £0.3 million in relation to the Group’s warehouse facility, which became vacant as a result of the cessation of the UK operations, which
comprises £0.2 million of dilapidations cost and £0.1 million of loss on disposal, as the warehouse was assigned to a new tenant in March
2021 and the IFRS 16 asset and liability were disposed of.
• £0.2 million in relation to settlement of a lease which reverted to Mothercare when the tenant went into administration.
The prior year charge included £1.3 million, which constituted impairment to the IFRS 16 asset, reflecting management’s best estimate of
the period the warehouse facility, which became vacant as a result of the cessation of the UK operations, was expected to continue to be
vacant, as well as the accelerated dilapidations provision due to said warehouse becoming vacant. Additionally, there are £1.3 million of
costs pertaining to the prior year lease guarantee adjustment as detailed in note 32; these related to a UK store which was traded from
by Mothercare UK Limited, however as this had been guaranteed by Mothercare PLC, the cost of rent, service charge and insurance are
owed by the Group (despite the administration of Mothercare UK Limited) .
Restructuring and reorganisation costs included in administrative expenses – £2.1 million (2020: £5.6 million)
The current year charge includes:
• £1.3 million of legal and professional costs for the Group and also the pension funds in relation to the refinancing which took place
during the year and resulted in the raise of a loan for £19.5 million and the settlement of the revolving capital facility previously held by
the Group.
• £1.3 million of restructuring costs, comprising of legal and professional fees incurred in the transition of the Group from the FTSE to AIM
stock exchange, and severance pay for roles no longer required as a result of the reduction in size of the Group.
• £(1.4) million of credits arising in relation to the profit on disposal of Mothercare UK Limited business, which went into administration in the
previous year. Of this, £(0.8) million relates to the true-up of the financial asset arising on the revolving capital facility, which was valued at
the previous year end based on the information available at the time, whilst assuming the worst-case outcome; and the remaining £(0.6)
million are amounts arising on tax adjustments.
• £0.7 million of costs incurred on the relocation of the Group’s head office.
• £0.2 million of costs incurred to date on the implementation of a new ERP system for the Group; these are the amounts which were
determined not to meet the conditions for capitalisation as they were part of the research stage of the project.
Prior year costs of £5.6 million reflect the legal and professional fees incurred for the cessation of the UK business, corresponding
continuation of the global franchise operations, and the exploration of financing options for the continuing element of the business.
Restructuring costs included in finance costs – £10.3 million (2020: £6.0 million gain)
In May 2018 the Group entered a refinancing and funding review, resulting in an equity raise, four Shareholder loans, two CVAs
(Mothercare and ELC) , and the amendment to the Group’s banking facilities. In November 2019 following the cessation of the UK
operating segment, there was a further equity raise and the agreement for four additional Shareholder loans to raise finance for the
continuing operations of the business. The terms of the Shareholder loans allow for these loans to be converted into new ordinary shares
of the Company at specific dates. The lenders’ option to convert represents an embedded derivative that is fair valued using a Black
Scholes model at each balance sheet date.
Mothercare plc annual report and accounts 2021
85
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
6. Adjusted items (continued)
The increase in the embedded derivatives of £9.1 million (2020: reduction of £6.0 million) is recognised as a finance cost (2020: finance
income) . This £9.1 million was driven by the high level of uncertainty in the UK market, which caused the fair value of these instruments to
plummet in March 2020; during 2021 the value returned to pre-March 2020 levels. The shareholder loans converted in March 2021 and were
fair valued immediately prior to their transfer to share capital and share premium.
The £6.0 million reduction in the comparative year consisted of: a reduction in liabilities of £4.6 million in relation to the shareholder
loans issued in May 2018; and £1.4 million from the inception valuation in November 2019 to the reporting date of 27 March 2021 for the
newly issued loans in the current period. The reduction in the value of these embedded derivatives has been driven by the share price
movement; and the share price at the reporting date was impacted by uncertainties in the UK stock market due to COVID-19.
There were also 15.0 million 12 pence warrants issued during the year. These have been treated as a liability and fair valued both at
inception and at the balance sheet date of 27 March 2021. The cost in the income statement in relation to these is £1.2 million.
Adjusted items – discontinued operations
The adjustments made to reported loss before tax to arrive at adjusted loss from discontinued operations are:
Adjusted costs from discontinued operations:
ELC discontinued operations
Profit on disposal of the UK segment discontinued operations
Property related costs
Adjusted items before tax
52 weeks
ended
27 March
2021
£ million
–
–
–
–
52 weeks
ended
28 March
2020
£ million
(0.8)
(46.2)
17.0
(30.0)
Loss on disposal of the ELC discontinued operations – £nil (2020: £0.8 million gain)
The comparative year amount reflects a final true-up of the ELC operations once trading had fully ceased.
Profit on disposal of the UK segment discontinued operations – £nil (2020: £46.2 million gain)
The trading results of the discontinued operation and details of the £46.2 million gain are provided in note 10.
Property related costs – £nil (2020: £17.0 million)
UK store impairment – £nil (2020: £14.8 million)
Following the decline in performance of the store estate, the Group estimated the net present value of future cash flows to be below the
carrying value of the store assets. The impairment provision was calculated using discounted cash flows based on the reasonable worst-
case strategic plan. The charges associated with the impairment of stores and onerous leases were classified as adjusted items on the
basis of the significant value of the charge in the period to the results of the Group.
Onerous lease provision – £nil (2020: £1.1 million)
Provisions for onerous leases are recognised when the Group believes that the unavoidable costs of meeting or exiting the lease
obligations exceed the economic benefits expected to be received under the lease.
The current year movement reflected costs of rates and service charges for onerous UK stores, with an onerous lease provision for rent
at only the handful of stores where there was less than a year remaining on the lease at the date of transition to IFRS 16. The prior year
included a significant charge taken to the onerous lease provision due to the continued declining performance of stores. The provision has
been calculated using cashflows discounted on a pre-tax basis using a risk-free rate return. The unwind of this discount rate is charged to
finance costs.
The charges associated with onerous leases and the impairment of store assets have been classified as adjusted items on the basis of
the significant value of the charge/credit in the period to the results of the Group.
Store closure provision – £nil (2020: £1.1 million)
Following the approval of the company voluntary arrangements (“CVA”) for Mothercare and ELC and the administration of Childrens
World Limited, the closure programme reduced the estate to less than 80 stores. 16 stores closed in the current year and 43 stores were
closed during the prior year . The associated cost of closing these stores in the period include costs of redundancy, agent fees, and
dilapidations costs.
86
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 6. Adjusted items (continued)
Whilst costs associated with the closure of the UK store estate have recurred across financial periods, the Group considers that they
should be treated as an adjusted item given they are part of a strategic programme and are significant in value to the results of the
Group.
Cashflows arising on adjusted items
Continuing operations
Property related costs
Restructuring and reorganisation costs in
administrative expenses
Restructuring costs in financing costs
Total
Discontinued operations
Property related costs:
Store closure costs
Proceeds from the sale of freehold properties
Adjusted cashflows from discontinued operations
Cash flows from operating activities
Cash flows from investing activities
52 weeks
ended
27 March
2021
£ million
52 weeks
ended
28 March
2020
£ million
52 weeks
ended
27 March
2021
£ million
52 weeks
ended
28 March
2020
£ million
(0.7)
(2.3)
–
(3.0)
–
–
–
–
(5.6)
–
(5.6)
(4.2)
–
(4.2)
–
–
–
–
–
–
–
–
–
–
–
0.5
0.5
Where categories of adjusted costs are not disclosed in the table above, the cashflows relating to those costs were £nil.
7. Loss from operations
Loss from continuing operations (except where specifically stated) has been arrived at after (crediting) /charging:
Continuing operations
Net total foreign exchange (gains) / loss
Cost of inventories recognised as an expense
Write down of inventories to net realisable value
Depreciation of property, plant and equipment
Amortisation of right-of-use assets
Amortisation of intangible assets – software
Impairment of right-of-use asset – investment property
Gain on disposal of property, plant and equipment
Rental income from investment properties
Rental expense of properties (see note 29)
Loss allowance on trade receivables (see note 19)
Warehouse, freight and duty costs
IT contracts and maintenance
Staff costs (including directors*) :
Wages and salaries (including cash bonuses, excluding share-based payment charges)
Social security costs
Pension costs (including administrative expenses and PPF levy of defined benefit scheme)
Share-based payments charge (see note 30)
* Directors include executive and non-executive directors.
52 weeks
ended
27 March
2021
£ million
52 weeks
ended
28 March
2020
£ million
1.4
57.0
0.3
0.3
1.5
0.2
–
(0.1)
(2.0)
2.1
1.0
3.7
4.7
10.1
1.1
3.9
0.5
(1.2)
122.6
–
3.1
0.5
3.2
0.5
–
–
2.7
2.2
3.3
2.2
15.8
1.9
3.5
0.9
Mothercare plc annual report and accounts 2021
87
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
7. Loss from operations (continued)
An analysis of the average monthly number of full and part-time employees throughout the Group in respect of continuing operations,
including directors*, is as follows:
Number of employees comprising:
UK stores
Head Office
Overseas
* Directors include executive and non-executive directors.
52 weeks
ended
27 March
2021
Number
247
179
10
436
52 weeks
ended
28 March
2020
Number
410
189
9
608
Details of Directors’ emoluments are provided within the remuneration report on pages 50 to 55.
Employees at UK stores were employed at the Group’s Miniclub operation which ceased during the year. There were no UK store
employees at 27 March 2021.
The analysis of auditor’s remuneration is as follows:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor for other services to the Group:
The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Total non-audit fees
The policy for the approval of non-audit fees is set out on page 47, in the corporate governance report.
52 weeks
ended
27 March
2021
£ million
0.1
0.2
0.3
0.2
52 weeks
ended
28 March
2020
£ million
0.1
0.3
0.4
0.3
Grant Thornton UK LLP were engaged in January 2021 to perform another assurance engagement, being the preparation of a working
capital report. In December 2019, Grant Thornton UK LLP were also engaged to prepare a similar report.
8. Net finance costs
Interest and bank fees on bank loans and overdrafts
Other interest payable
Net interest expense on liabilities/return on assets on pension
Interest on lease liabilities
Fair value movement on embedded derivatives
Fair value movement on warrants
Interest payable
Fair value movement on embedded derivatives
Net interest income on liabilities/return on assets on pension
Interest received on bank deposits
Net finance costs/(income)
88
Mothercare plc annual report and accounts 2021
52 weeks
ended
27 March
2021
£ million
52 weeks
ended
28 March
2020
£ million
1.8
6.2
–
0.9
9.1
1.2
19.2
–
(0.2)
–
19.0
1.2
2.6
0.6
0.8
–
–
5.2
(6.0)
–
(0.3)
(1.1)
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
9. Taxation
The charge for taxation on loss from continuing operations for the period comprises:
Current tax:
Current year
Adjustment in respect of prior periods
Deferred tax: (see note 17)
Adjustment in respect of prior periods
Charge for taxation on loss for the period
52 weeks
ended
27 March
2021
£ million
0.9
(0.6)
0.3
(0.2)
0.1
52 weeks
Ended
28 March
2020
£ million
0.8
–
0.8
–
0.8
UK corporation tax is calculated at 19% (2020: 19%) of the estimated assessable profit for the period. Legislation has been substantively
enacted after the current financial year balance sheet date to increase the rate of corporation tax to 25% in 2023, which is a non-adjusting
post balance sheet event. At the comparative period end, there was legislation in force -The Finance Act 2016 – to reduce the main rate of
UK corporation tax from 19% to 17% from 1 April 2020. These rate reductions were substantively enacted by the comparative balance sheet
date and therefore included in these financial statements, and in the prior year, temporary differences were measured using this enacted
tax rates. Legislation was substantively enacted during the current year, but after the prior financial year balance sheet date, to repeal the
reduction of the main corporation tax rate thereby maintaining the current rate of corporation tax at 19%.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The charge for the period can be reconciled to the (loss) /profit for the period before taxation per the consolidated income statement as
follows:
Loss for the period before taxation
Loss for the period before taxation multiplied by the standard rate of corporation tax
in the UK of 19% (2020: 19%)
Effects of:
Expenses/(income) not deductible for tax purposes
Impact of difference in current and deferred tax rates
Impact of overseas tax rates
Impact of overseas taxes expensed
Adjustment in respect of prior periods – current tax
Adjustment in respect of prior periods – deferred tax
Relief for losses brought forward
Deferred tax not recognised/written off
Charge for taxation on loss for the period
52 weeks
ended
27 March
2021
£ million
(21.4)
(4.1)
0.1
–
0.9
(0.7)
(0.6)
(0.2)
–
4.7
0.1
52 weeks
ended
28 March
2020
£ million
(6.4)
(1.2)
–
(0.1)
0.3
(0.1)
0.1
–
0.1
1.7
0.8
In addition to the amount charged to the income statement, deferred tax relating to retirement benefit obligations and cash flow hedges
amounting to £10.2 million has been credited directly to other comprehensive income (2020: £10.4 million charge) .
The Group has a specific pay provision for the potential costs of complying with the National Minimum Wage (NMW) Regulations of
£0.2 million (2020: £0.5 million) which has been accounted for as an adjusted item (see note 6) . The liability has arisen 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 provision is based on detailed workings for one year, extrapolated for
the six-year review period. The discussions with HMRC are ongoing and the final settlement may differ to the provision held.
Mothercare plc annual report and accounts 2021
89
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
10. Discontinued operations
On 5 November 2019, in the comparative financial period, the Board’s application to place Mothercare UK Limited and Mothercare
Business Services Limited into administration was accepted. The UK operating segment, comprising the UK online and retail store estate,
and directly related income and expenses, were therefore treated as a discontinued operations.
The results of the discontinued operations, which have been included in the consolidated income statement were as follows:
Financial performance and cash flow information
Discontinued operations
Revenue
Expenses
Gross profit
Administrative expenses
(Loss) /profit from operations
Net finance costs
(Loss) /profit before taxation
Taxation
(Loss) /profit from discontinued operations
52 weeks ended 27 March 2021
52 weeks ended 28 March 2020
Before
adjusted
items*
£ million
Adjusted
items
£ million
Total
£ million
Before
adjusted
items*
£ million
Adjusted items
£ million
Total
£ million
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
149.5
(137.1)
12.4
(15.7)
(3.3)
(5.2)
(8.5)
0.1
(8.4)
–
–
–
30.0
30.0
–
30.0
–
30.0
149.5
(137.1)
12.4
14.3
26.7
(5.2)
21.5
0.1
21.6
*
Adjusted loss after tax on discontinued operations of £nil (2020: £(8.4) million) includes only those costs that are clearly identifiable as costs of the component that is being
disposed of and that will not be recognised on an ongoing basis.
Net cash outflow from operating activities
Net cash inflow from investing activities
Net cash outflow from financing activities
Net reduction in cash generated by discontinued operations
52 weeks
ended
27 March
2021
£ million
–
–
–
–
52 weeks
ended
28 March
2020
£ million
3.4
7.0
(12.9)
(2.5)
Adjusted items of £30.0 million in the comparative period comprise: £46.2 million of profit on disposal of the UK operating segment (see
below) ; £(0.8) million of costs in relation to the ELC operation which was discontinued in 2019 (note 6) ; and £17 million of property related
costs (note 6) .
Adjusted item – Profit on disposal of the UK operating segment; £nil (2020: £46.2 million)
Administration of Mothercare UK Limited (MUK) and Mothercare Business Services Limited (MBS)
On 4 November 2019, Mothercare plc announced a Notice of Intent to appoint Administrators to MUK, the main trading subsidiary of the
Mothercare plc Group.
On 5 November 2019, administrators were appointed for MUK and MBS – the shared services operation for the Mothercare plc Group.
Transfer to Mothercare Global Brand Limited (MGB)
On 4 October 2019, MGB, a fully-owned subsidiary of Mothercare plc, was incorporated in the United Kingdom.
90
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 10. Discontinued operations (continued)
On 5 November 2019, after Mothercare PLC had appointed administrators for MUK and MBS, an agreement was entered into such
that MGB, purchased the ‘Mothercare’ brand, contracts MUK held with its incumbent franchise partners, and certain assets from the
administrators in exchange for certain liabilities including, but not limited to, two s75 defined benefit pension scheme liabilities.
As a condition of this transfer there were conditions contained in the transfer agreement which stipulate that cash generated through
the administration process would be used to repay the Group’s Revolving Credit Facility; at the point of administration, secured creditors
totalled £28.0 million. The Group has a commitment to repay any shortfall otherwise preventing the administrators from repaying the
secured creditors in full – this has been valued at £7.0 million. The Group therefore has a financial asset of £21.0 million to reflect the portion
of the secured creditors expected to be repaid by the administrators.
The assets acquired by Mothercare Global Brand Limited were limited to certain items of property, plant and equipment, and trade
debtors. All inventories held at the reporting date, as well as all UK store leases, were not included in the transfer to Mothercare Global
Brand Limited, with control of these assets being lost through the administration.
Reduction in intangible assets
Reduction in property, plant and equipment
Reduction in right-of-use assets
Reduction in inventories
Reduction in trade and other receivables
Reduction in trade and other payables
Reduction in provisions
Reduction in lease liabilities
Reduction in Group secured creditors
Profit on disposal
11. Dividends
There was no final dividend for the period (2020: £nil) and no interim dividend was paid during the period (2020: £nil) .
52 weeks
ended
28 March
2020
£ million
(14.0)
(15.8)
(39.1)
(68.8)
(12.7)
70.9
11.3
101.1
13.3
46.2
Mothercare plc annual report and accounts 2021
91
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
12. (Losses) /earnings per share
Weighted average number of shares in issue
Dilution – option schemes (restated)
Diluted weighted average number of shares in issue (restated)
Number of shares at period end
Continuing operations
Loss for basic and diluted earnings per share (restated)
Adjusted items (restated) (note 6)
Tax effect of above items
Adjusted losses from continuing operations
Discontinued operations
Profit/(loss) for basic and diluted earnings per share
Adjusted items (note 6)
Tax effect of above items
Adjusted earnings from discontinued operations
Continuing and discontinued operations
Profit/(loss) for basic and diluted earnings per share (restated)
Adjusted items (restated) (note 6)
Tax effect of above items
Adjusted losses for continuing and discontinued operations
From continuing and discontinued operations
Basic (losses) /earnings per share (restated)
Basic adjusted losses per share
Diluted (losses) /earnings per share (restated)
Diluted adjusted losses per share
From continuing operations
Basic losses per share (restated)
Basic adjusted losses per share
Diluted losses per share (restated)
Diluted adjusted losses per share
From discontinued operations
Basic earnings per share
Basic adjusted losses per share
Diluted earnings per share (restated)
Diluted adjusted losses per share
Analysis of shares by class
Ordinary shares at period end date
Antidilutive – shareholder loan options to convert
Antidilutive – SAYE options
Antidilutive – Value creation plan
Antidilutive – LTIP options
Antidilutive - warrants
Total
92
Mothercare plc annual report and accounts 2021
52 weeks
ended
27 March
2021
million
379.0
–
379.0
563.8
52 weeks
ended
28 March
2020
Restated
million
352.5
–
352.5
374.2
£ million
£ million
(21.5)
12.9
–
(8.6)
(8.5)
2.2
(0.1)
(6.4)
£ million
£ million
–
–
–
–
21.6
(30.0)
–
(8.4)
£ million
£ million
(21.5)
12.9
–
(8.6)
13.1
(27.8)
(0.1)
(14.8)
Pence
Pence
(5.7)
(2.3)
(5.7)
(2.3)
3.7
(4.2)
3.7
(4.2)
Pence
Pence
(5.7)
(2.3)
(5.7)
(2.3)
(2.4)
(1.8)
(2.4)
(1.8)
Pence
Pence
–
–
–
–
27 March
2021
million
563.8
–
2.6
0.4
10.7
15.0
592.5
6.1
(2.4)
6.1
(2.4)
28 March
2020
million
374.2
168.2
2.0
0.8
6.9
–
552.1
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
12. (Losses) /earnings per share (continued)
Where there is a loss per share, the calculation has been based on the weighted average number of shares in issue, as the loss renders
all potentially dilutive shares anti-dilutive.
Diluted EPS has therefore been calculated using the weighted average number of shares in issue of 379.0 million (2020: 352.5 million) , which
is the same denominator as used to calculate basic EPS.
During the current year, the FRC conducted a review of the Group’s 2020 Annual Report. This note has therefore been restated to correct
an error that was identified during their review. The shareholder loan options to convert and the issued share options were previously
disclosed as dilutive, and then used in the calculation of diluted EPS. The table showing the calculation of the denominator has been
amended to exclude these, as they are antidilutive. Following on from this, the diluted EPS from continuing operations and the diluted EPS
from total operations have both been restated such that they use the same denominator as the basic profit per share i.e. the diluted and
basic loss per share disclosed are the same. Previously, diluted EPS from continuing operations was disclosed as (2.0) p, it is now disclosed
as (2.4) p. Previously, diluted EPS from total operations was disclosed as 3.0p, it is now disclosed as 3.7p. There was no impact on adjusted
losses per share.
The number of shareholder loan options to convert as at the comparative year end has also been restated to 168.2 million due to a
computational error in the prior period.
In addition to the above, the profit number in the comparative period has been amended by £1.3 million, and basic EPS from total
operations has been restated from 4.1p to 3.7p, as a result of the prior year adjustment – see note 32 for further information.
13. Subsidiaries and joint ventures
Details of all the Group’s investments in subsidiaries and joint ventures, all of which are wholly owned (except where stated) and included
in the consolidation, at the end of the reporting period is as follows:
Investment in subsidiaries
Country
% owned
Nature of Business
Direct/
indirect
UK(1)
UK(1)
UK(1)
UK(1)
UK(1)
Hong Kong(2)
UK(1)
UK(1)
Jersey(3)
UK(1)
Chelsea Stores Holdings Limited
Chelsea Stores (EBT Trustees) Limited
Chelsea Stores Holdings 2 Limited
Early Learning Centre Limited
Mothercare Toys 3 Limited
Mothercare Group Sourcing Limited
Mothercare Toys 2 Limited
TCR Properties Limited
Mothercare (Jersey) Limited
Mothercare Finance Limited
Mothercare Sourcing Division (Bangladesh) Private Limited Bangladesh(4)
Mothercare Finance Overseas Limited
Mothercare Group Limited (The)
Mothercare Services Limited
Mothercare (Holdings) Limited
Gurgle Limited
Mothercare International (Hong Kong) Limited
Mothercare Sourcing India Private Limited
Mothercare Inc
Princess Products Limited
Mothercare Procurement Limited
Mothercare Sourcing Limited
Mothercare Trademarks AG
Clothing Retailers Limited
Retail Clothing Limited
Strobe (2) Investments Limited
Strobe Investments Limited
Mothercare Commercial (Shanghai) Co Limited
Cayman Islands(5)
UK(1)
UK(1)
UK(1)
UK(1)
Hong Kong(2)
India(6)
USA(7)
UK(1)
Hong Kong(2)
UK(1)
Switzerland(8)
UK(1)
UK(1)
Jersey(3)
Jersey(3)
China(9)
UK(1)
ROI(10)
UK(1)
Mothercare Global Brand Limited
Mothercare Europe Global Brand Limited
Mothercare Finance (2) Limited
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Direct
Holding Company
Indirect
Dormant
Indirect
Holding Company
Indirect
Trading
Indirect
Property Company
Indirect
Trading
Indirect
Dormant
Direct
Dormant
Direct
Non Trading
Direct
Holding Company
Indirect
Trading
Dormant
Direct
Investment Holding Company Direct
Indirect
Trading
Indirect
Holding Company
Non Trading
Indirect
Investment Holding Company Indirect
Indirect
Trading
Indirect
Non Trading
Direct
Dormant
Direct
Trading
Direct
Dormant
Direct
Trading
Indirect
Non Trading/Dormant
Indirect
Dormant
Direct
Non Trading
Direct
Trading
Indirect
Trading
Trading
Dormant
Trading
Direct
Indirect
Indirect
Mothercare plc annual report and accounts 2021
93
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
13. Subsidiaries and joint ventures (continued)
Investment in joint ventures
Wadicare Limited*
*As the joint venture is loss-making, no share of profits has been recognised.
Registered office address;
(1) Westside 1, London Road, Hemel Hempstead, HP3 9TD
(2) 26th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong
(3) Sanne Secretaries Limited, 13 Castle Street, St Helier, JE4 5UT, Jersey
(4) 62/1 Purana Paltan, Level 4, Motijheel C/A, Dhaka 1000, Bangladesh
(5) Maples & Calder, PO Box 309, Grand Cayman, Cayman Islands
Place of
incorporation
Cyprus
Proportion of
ownership
interest
%
30
Proportion
of voting
power held
%
30
(6) Number 100, N.A Elixir, 2nd Floor, 4th B Cross, 5th Block Industrial Layout, Koramangala, Bangalore, 560095, India
(7) 1209 Orange Street, Wilmington, Delaware, 1980, USA
(8) Haldenstrasse 5, 6340 Baar, Switzerland
(9) Unit 7 and 8, 18 Floor, No 3 Building, No 1193 ChangNing Road, ChangNing District, Shanghai, China
(10) The Greenway, Block C, 1120114 St Stephen’s Green, Dublin 2, Ireland
14. Intangible assets
Cost
As at 30 March 2019
Additions
Derecognised on disposals
Transfers
As at 28 March 2020
Additions
Disposals
As at 27 March 2021
Amortisation and impairment
As at 30 March 2019
Amortisation
Derecognised on disposals
Impairment
Exchange differences
As at 28 March 2020
Amortisation
Derecognised on disposals
As at 27 March 2021
Net book value
As at 30 March 2019
As at 28 March 2020
As at 27 March 2021
Trade name
£ million
Customer
relationships
£ million
Software
£ million
Software
under
development
£ million
Intangible assets
Total
Intangibles
£ million
4.1
–
(4.1)
–
–
–
–
–
4.1
–
(4.1)
–
–
–
–
–
–
–
–
–
0.2
–
(0.2)
–
–
–
–
–
0.2
–
(0.2)
–
–
–
–
–
–
–
–
–
75.8
1.5
(77.1)
1.2
1.4
0.1
–
1.5
61.4
3.2
(63.8)
–
–
0.8
0.2
–
1.0
14.4
0.6
0.5
1.9
–
(0.7)
(1.2)
–
0.6
–
0.6
–
–
–
–
–
–
–
–
–
1.9
–
0.6
82.0
1.5
(82.1)
–
1.4
0.7
–
2.1
65.7
3.2
(68.1)
–
–
0.8
0.2
–
1.0
16.3
0.6
1.1
Trade name and customer relationships related to the acquisition of Early Learning Centre on 19 June 2007, Gurgle Limited on 8
September 2009 and Blooming Marvellous on 7 July 2010. Trade name and customer relationships were amortised over a useful life of
10-20 and 5-10 years respectively.
Following the administration of Mothercare UK limited on 5 November 2019, all assets relating to what was previously the UK segment of
the Group were disposed of in the comparative period.
The Group does not hold any intangible assets with a restricted title.
94
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
14. Intangible assets (continued)
Software
Software is amortised on a straight line basis over its expected useful life which is usually five years. At each balance sheet date, the
Group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered
an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of
the impairment loss (if any) . Intangible assets including software under the course of construction are tested for impairment annually
irrespective of whether there are any indicators of impairment. Where the asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. As at year end, there
are no intangible assets remaining with an indefinite useful life.
The recoverable amount is deemed to be the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash-generating unit (“CGU”) is estimated to be less than its carrying amount, the carrying
amount of the asset or CGU is reduced to that recoverable amount. An impairment loss is recognised as an expense in administrative
expenses immediately.
The relevant CGUs have been identified as the whole Group for any other software as these are used across the entire business. The key
assumptions for the value in use calculations are those regarding the discount rate. Management has used a pre-tax discount rate of 13%.
Cashflow projection has been based on management’s most recent budget, which is for an eighteen month period with a projection
taking this out five years. Management have based the budgets on historic performance, adjusted for changes due to COVID-19 and
the evolving business model. Various scenario analyses were run and there was sufficient headroom; the headroom was not particularly
sensitive to any budgetary assumptions used.
Sensitivity analysis has been undertaken, which reduces the net present value of future cash flows. There is no indication that the carrying
value of software would require further impairment over and above the £nil million (2020: £nil million) already booked.
Software additions include £0.1 million (2020: £1.5 million) of internally generated intangible assets.
At 27 March 2021, the Group had entered into contractual commitments for the acquisition of software amounting to £nil million
(2020: £nil million) .
15. Property, plant and equipment
Cost
As at 30 March 2019
Transfers
Additions
Disposals
Derecognised on disposals
As at 28 March 2020
Additions
Disposals
As at 27 March 2021
Accumulated depreciation and impairment
As at 30 March 2019
Charge for period
Impairment
Disposals
Eliminated on disposals
As at 28 March 2020
Charge for period
Disposals
As at 27 March 2021
Net book value
As at 30 March 2019
As at 28 March 2020
As at 27 March 2021
Leasehold
£ million
Fixtures,
fittings,
equipment
£ million
Assets in
course of
construction
£ million
Total
£ million
75.7
–
0.4
–
(76.1)
–
–
–
–
63.4
1.5
3.3
–
(68.2)
–
–
–
–
12.3
–
–
122.2
1.4
–
(0.8)
(120.4)
2.4
0.1
–
2.5
108.6
3.3
3.5
(0.8)
(112.9)
1.7
0.3
–
2.0
13.6
0.7
0.5
1.8
(1.4)
–
–
(0.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
1.8
–
–
199.7
–
0.4
(0.8)
(196.9)
2.4
0.1
–
2.5
172.0
4.8
6.8
(0.8)
(181.1)
1.7
0.3
–
2.0
27.7
0.7
0.5
Mothercare plc annual report and accounts 2021
95
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
15. Property, plant and equipment (continued)
The net book value of leasehold properties includes £nil million (2020: £nil million) in respect of short leasehold properties.
Within discontinued operations, there is a £nil million charge (2020: £6.8 million charge) for the impairment of property, plant and
equipment. The amount in the comparative period was included within adjusted items – administrative expenses, as impairment testing
during the comparative period identified a number of stores where the current and anticipated future performance did not support
the carrying value of the stores. Following the administration of Mothercare UK limited, all assets relating to what was previously the UK
segment of the Group were disposed of.
An impairment review of Group level intangibles and fixed assets was completed and based on the value in use of the Group level cash
flows, no further impairment charge has been made.
At 27 March 2021, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
£nil million (2020: £nil million) .
16. Leases
Right-of-use Assets
At 31 March 2019
Effects of modification to lease terms
Transfer to investment property
Impairment
Disposals
Amortisation
Balance at 28 March 2020
Additions
Disposals
Amortisation
Balance at 27 March 2021
Investment property
Land and buildings
£ million
Property, Plant and
Equipment
Land and buildings
£ million
Property, Plant and
Equipment
IT equipment
£ million
–
–
8.7
(0.5)
–
(0.4)
7.8
–
(6.6)
(1.2)
–
62.3
0.2
(8.7)
(8.0)
(39.1)
(6.7)
–
1.5
–
(0.3)
1.2
0.2
–
–
–
–
(0.1)
0.1
–
(0.1)
–
–
Total
£ million
62.5
0.2
–
(8.5)
(39.1)
(7.2)
7.9
1.5
(6.7)
(1.5)
1.2
Within discontinued operations, there is a £nil million (2020: £8.0 million charge) . The prior year amount related to the impairment of Right-
of-use assets, and was included within adjusted items – administrative expenses, as impairment testing during the comparative period
identified a number of stores where the current and anticipated future performance did not support the carrying value of the stores.
Following the administration of Mothercare UK limited, all assets relating to what was previously the UK segment of the Group were
disposed of.
An impairment review of investment property was completed and based on the net present value of the expected cashflows, a further
impairment charge of £nil million (2020: £0.5 million) has been made. The net present value is equivalent to the fair value.
Lease liabilities
At 31 March 2019
Modifications
Disposals
Interest expense
Lease payments
Balance at 28 March 2020
Additions
Disposals
Interest expense
Lease payments
Balance at 27 March 2021
96
Mothercare plc annual report and accounts 2021
Land and buildings
£ million
IT equipment
£ million
Total
£ million
(118.9)
(0.2)
101.1
(5.3)
15.0
(8.3)
(1.5)
7.2
(0.9)
2.1
(1.4)
(0.2)
–
–
–
0.1
(0.1)
–
0.1
–
–
–
(119.1)
(0.2)
101.1
(5.3)
15.1
(8.4)
(1.5)
7.3
(0.9)
2.1
(1.4)
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 17. Deferred tax assets and liabilities
The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon in the current and prior
reporting period:
At 30 March 2019
(Charge) /credit to income
Credit/(charge) to other
comprehensive income
At 28 March 2020
(Charge) /credit to income
Credit/(charge) to other
comprehensive income
At 27 March 2021
Accelerated
tax
depreciation
£ million
Short–term
timing
differences
£ million
Retirement
benefit
obligations
restated
£ million
Share-
based
payments
£ million
Intangible
assets
£ million
Losses
£ million
Total
restated
£ million
0.1
–
–
0.1
(0.1)
–
–
(0.3)
–
–
(0.3)
0.3
–
–
0.2
–
(10.4)
(10.2)
–
10.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10.4)
(10.4)
0.2
10.2
–
Certain deferred tax assets and liabilities have been offset where the Group has a legally enforceable right to do so. The following is the
analysis of the deferred tax balances (after offset) for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
27 March
2021
£ million
–
–
–
28 March
2020
restated
£ million
0.1
(10.5)
(10.4)
At 27 March 2021, the Group has unused capital losses of £439.4 million (2020: £642.1 million) available for offset against future capital gains.
No asset has been recognised in respect of the capital losses as it is not considered probable that there will be future taxable capital
gains. The capital losses may be carried forward indefinitely.
The Group has taken a prudent approach given the uncertainty around future profitability of the relevant statutory entities and as at the
balance sheet date deferred tax assets of £0.1 million on accelerated depreciation, and £0.1 million on short-term timing differences have
not been recognised. The Group also has unrelieved tax losses of £78.3 million (2020: £31.2 million) available for offset against future profits
at the balance sheet date. No deferred tax asset has been recognised for such losses.
In arriving at the decision not to recognise a deferred tax asset, management has critically assessed all available information, including
future business profit projections and in certain cases, analysis of historical operating results. These forecasts are consistent with those
prepared and used internally for business planning and impairment testing purposes. Following this evaluation, it was determined there
would be insufficient taxable income generated to realise the benefit of the remaining deferred tax assets in the near future.
At the reporting date, deferred tax liabilities of £0.1 million (2020: £0.3 million) relating to withholding taxes have not been provided for in
respect of the aggregate amount of unremitted earnings of £33.5 million (2020: £22.5 million) in respect of subsidiaries and joint ventures.
No liability has been recognised because the Group, being in a position to control the timing of the distribution of intra group dividends,
has no intention to distribute intra group dividends in the foreseeable future that would trigger withholding tax. There are no unremitted
earnings in connection with interests in joint ventures.
Mothercare plc annual report and accounts 2021
97
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
18. Inventories
Gross value
Allowance against carrying value of inventories
Finished goods and goods for resale
Finished goods and goods for resale comprises the following:
Finished goods and goods for resale – at a distribution centre
Finished goods and goods for resale – in transit
Finished goods and goods for resale
27 March
2021
£ million
10.1
(4.2)
5.9
27 March
2021
£ million
3.4
2.5
5.9
28 March
2020
£ million
13.6
(3.9)
9.7
28 March
2020
£ million
5.2
4.5
9.7
The cost of inventories recognised as an expense during the year in respect of continuing operations was £57.0 million (2020: £122.6 million) .
The amount of write down of inventories to net realisable value recognised within net income in the period is a charge of £0.3 million (2020:
£nil million charge for total operations) . All inventories (2020: All) are expected to be recovered within the year.
19. Trade and other receivables
Trade receivables gross
Expected credit losses (ECL) under IFRS 9
Trade receivables net
Prepayments
Accrued income*
Other receivables
VAT
Trade and other receivables due within one year
27 March
2021
£ million
28 March
2020
£ million
18.9
(7.3)
11.6
2.1
1.9
1.0
0.8
17.4
19.7
(8.5)
11.2
3.1
1.3
–
–
15.6
The following table details the risk profile of trade receivables based on the Group’s provision matrix, which determines the expected
credit loss by reference to age of the debt as well as micro and macroeconomic factors. No material expected credit loss has been
identified in association with accrued income (2020: none).
Not past due
£ million
< 30 days
£ million
31–60 days
£ million
61–90 days
£ million
91–120 days
£ million
20%
24%
>120 days
£ million
92%
Total
£ million
39%
Trade receivables – days past due
Expected credit loss rate (ECL)
Estimated total gross carrying
amount at default
Lifetime ECL
At 27 March 2021
11%
7.6
(0.9)
6.7
15%
3.0
(0.5)
2.5
9%
1.6
(0.2)
1.4
0.2
–
0.2
0.4
(0.1)
0.3
6.1
(5.6)
0.5
18.9
(7.3)
11.6
Trade receivables – days past due
Expected credit loss rate (ECL)
Estimated total gross carrying
amount at default
Lifetime ECL
At 28 March 2020
Not past due
£ million
< 30 days
£ million
31–60 days
£ million
18%
6.1
(1.1)
5.0
3%
3.5
(0.1)
3.4
7%
2.7
(0.2)
2.5
61–90 days
£ million
100%
91–120 days
£ million
100%
>120 days
£ million
95%
Total
£ million
43%
0.8
(0.8)
–
0.4
(0.4)
–
6.2
(5.9)
0.3
19.7
(8.5)
11.2
98
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 19. Trade and other receivables (continued)
The following tables explain how significant changes in the gross carrying amount of the trade receivables contributed to the loss
allowance.
The following summarises the movement in the allowance for doubtful debts:
Balance at start of period
Amounts written off during the period as uncollectable
Amounts recovered in the period
Charged in the period
Balance at end of period
52 weeks ended
27 March
2021
£ million
52 weeks ended
28 March
2020
£ million
(8.5)
2.0
0.1
(0.9)
(7.3)
(7.7)
0.7
0.7
(2.2)
(8.5)
The Group’s exposure to credit risk inherent in its trade receivables is discussed in note 22. The Group has no significant concentration of
credit risk, except as disclosed above. The Group operates effective credit control procedures in order to minimise exposure to overdue
debts. Before accepting any new trade customer, the Group obtains a credit check from an external agency to assess the credit quality of
the potential customer and then sets credit limits on a customer by customer basis.
Debtor balances which are not provided for are either on payment plans and abide or pay to terms with the exception of timing due to
unforeseen circumstances.
Provisions for doubtful trade receivables are established based upon the difference between the receivable value and the estimated
net collectible amount. The Group establishes its provision for doubtful trade receivables based on its historical loss experiences and an
analysis of the counterparty’s current financial position.
The average credit period taken on sales of goods is disclosed in note 22. No interest is charged on trade receivables, however, the right
to charge interest on outstanding balances is retained.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
20. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or
less. The carrying amount of these assets approximates their fair value.
21. Borrowings
The Group had outstanding borrowings at 27 March 2021 of £19.0 million (2020: £40.8 million) .
In November 2020, the Group drew down on a four-year term loan of £19.5 million (£19.0 million net of prepaid facility fees) with Gordon
Brothers. The loan is secured on the assets and shares of specific Group subsidiaries. Interest amounts payable on this facility are not
materially sensitive to changes in LIBOR; the interest rate payable is 12% plus LIBOR.
The Group previously held a revolving credit facility; this was fully settled at the time the term loan with Gordon Brothers was withdrawn. At
the comparative period end, there was £28.0 million outstanding under this facility, which was secured on the shares of specified obligor
subsidiaries and the assets of the Group not already pledged. This loan was in breach of the covenant requirements and therefore
repayable on demand. Interest amounts payable on this facility are not materially sensitive to changes in LIBOR.
The Group also holds a financial asset of £2.6 million (2020: £21.0 million) reflecting the expected proceeds from the wind-down of the
UK operations by the administrators of Mothercare UK Limited. The total expected repayment due is £2.6 million (2020: £7.0 million) . In
the comparative period, these proceeds were used to repay the secured revolving capital facility. As this facility was settled on the
agreement of the new term loan, this asset is no longer linked to the Group’s debt.
The Group held shareholder loans which converted to equity in March 2021, and therefore there are no outstanding amounts at the
current financial period end. £5.5 million of capital was raised in 2020 and £8.0 million in 2019. These attracted a monthly compound interest
rate of 0.83%, and had a termination date of June 2021. These are accounted for at an amortised cost of £nil (2020: £12.8 million) , with the
option to convert fair valued and treated as an embedded derivative liability of £nil (2020: £0.3 million) – see note 22 . The conversion option
formed a liability rather than equity due to the terms of the lending agreements through which the conversion price could be reduced
should the Group issue shares.
Mothercare plc annual report and accounts 2021
99
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
21. Borrowings (continued)
Borrowing facilities
Borrowings:
Secured borrowings at amortised cost:
Term loan
Prepaid facility fee
Revolving credit facility
Shareholder loans
Total Borrowings
Amount due for settlement within one year
Amount due for settlement after one year
Weighted average interest rate paid (for when borrowings in place)
22. Financial risk management
A. The classes and categories of the Groups financial instruments are categorised as follows:
Financial Instruments: Categories
27 March
2021
£ million
28 March
2020
£ million
19.5
(0.5)
–
–
19.0
–
19.5
21.0%
–
28.0
12.8
40.8
28.0
12.8
12.8%
Financial assets
Derivatives designated as hedging instruments
Customer and other receivables at amortised cost*
Cash and short-term deposits
Financial assets
Total
Financial liabilities
Derivatives not designated as hedging instruments
Trade and other payables at amortised cost**
Lease liabilities***
Interest bearing loans and borrowings:
Term loan
Revolving credit facility
Shareholder loans
Total
Fair value level
27 March
2021
£ million
28 March
2020
Restated
£ million
1
3
2
–
13.5
6.9
2.6
23.0
1.8
21.8
1.4
19.5
–
–
44.5
–
12.5
6.1
21.0
39.6
0.4
28.0
8.4
–
28.0
12.8
77.6
*
Prepayments of £2.1 million (2020: £3.1 million) , the VAT receivable of £0.8 million (2020: £nil million) and other debtors of £1.0 million (2020: £nil million) do not meet the definition of a
financial instrument.
** Other creditors (including payroll creditors and deferred income) of £3.1 million (2020: £1.5 million) do not meet the definition of a financial instrument.
*** This table has been restated, as in the comparative annual report, lease liabilities were not disclosed within this table. No changes have been made to the values of the lease
liabilities.
The Group’s finance team performs valuations of financial items for financial reporting purposes, in consultation with third party valuation
specialists for complex valuations. Valuation techniques are selected based on the characteristics of each instrument, with the overall
objective of maximising the use of market-based information. The finance team reports directly to the Chief Financial Officer and to the
Audit and Risk Committee, with whom valuation processes and fair value changes are discussed.
Fair value hierarchy levels 1-3 are based on the degree to which the fair value is observable and are defined as:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted process included within Level 1 that are observable for
the asset or liability, either directly (i.e. Prices) or indirectly (i.e. derived from prices) ; and
100
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
22. Financial risk management (continued)
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs) .
Derivatives and the financial asset are valued at fair value. All other financial assets/liabilities are valued at amortised cost.
The following valuation techniques are used for instruments categorised in Levels 2 and 3:
Derivatives not designated as hedging instruments (Level 2) –
Warrants – £1.2 million (2020: £nil)
The warrants issued in March 2021 are not traded on an active market, however the inputs used in the valuation are all observable inputs:
volatility has been calculated using the Group’s share price trends; the risk free rate is based on government data; and the share price
used is the stock exchange listing price as at the reporting date. The valuation of these inputs is predominantly sensitive to the share
price, which is not judgmental. A change in the risk free rate and/or volatility percentage would have no notable effect on the valuation.
The exercise price is 12 pence.
Embedded derivatives on shareholder loans – £nil (2020: £0.3 million)
The embedded derivatives on the Group’s shareholder loans – held in the comparative period, and converted to equity in March 2021
– are not traded on an active market, however the inputs used in the valuation are all observable inputs: volatility has been calculated
using the Group’s share price trends; the risk free rate is based on government data; and the share price used is the stock exchange
listing price as at the reporting date. The valuation of these inputs is predominantly sensitive to the share price, which is not judgmental. A
change in the risk free rate and/or volatility percentage would have no notable effect on the valuation.
Financial guarantees – £0.6 million (2020: £0.1 million)
The financial guarantee over a leasehold property previously traded by Mothercare UK Ltd (in administration) is not traded on an active
market, however the inputs used in the valuation are all observable inputs – only amounts which have already fallen due by the year end
date have been recognised as a financial guarantee.
Financial assets (Level 3) – the financial asset 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. All amounts the Group is required to pay have now been settled, and the financial asset valuation has been calculated by
using the worst case scenario, i.e. that the Group will receive a further £2.6 million. Many of the outflows which would impact the valuation
of this financial asset have now been finalised, with the final repayment being dependent on the amounts to be received back by the
merchant acquirer and final settlement of VAT. In the comparative period, the financial asset was estimated by the worst case outcome
expected at that time, which was a settlement of £7.0 million.
B. Terms, conditions and risk management policies
The Board approves treasury policies and senior management directly controls day-to-day operations within these policies. The major
financial risks to which the Group is exposed relate to movements in foreign exchange rates and interest rates. Where appropriate, cost
effective and practicable, the Group uses financial instruments and derivatives to manage these risks. No speculative use of derivatives,
currency or other instruments is permitted. The Group’s financial risk management policy is described in note 22.
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the
returns to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of equity
attributable to equity holders of the parent comprising issued capital, reserves and retained earnings as disclosed in the statement of
changes in equity.
C. Foreign currency risk management
The Group incurs foreign currency risk on purchases whenever they are denominated in a currency other than the functional currency. This
risk is managed through holding derivative financial instruments and through the natural offset of sales and purchases denominated in
foreign currency.
The Group historically used forward foreign currency contracts to reduce its cash flow exposure to exchange rate movements, primarily
on the US dollar. In doing so, hedge accounting was applied; contracts were considered effective cash flow hedges and accounted
for by recognising the gain/loss on the hedge through reserves. There were no contracts outstanding at the year end date or prior year
end date - contracts outstanding in the prior year matured between March 2019 and May 2019. The Group has more recently relied on its
foreign currency denominated revenues to provide a natural hedge against its foreign currency denominated stock purchases.
The Group incurs foreign currency risk on royalty income as local sales are translated into Sterling amounts on which royalties are
calculated. To help mitigate against further currency impacts, the Group previously entered into hedging contracts. The Group has more
recently relied on the balance created by foreign currency denominated stock purchases.
Mothercare plc annual report and accounts 2021
101
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
22. Financial risk management (continued)
Foreign exchange rate risk
Foreign exchange risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of the changes
in foreign exchange rates. The Group uses UK pounds sterling as its reporting currency. As a result, the Group is exposed to foreign
exchange rate risk on financial assets and liabilities that are denominated in a currency other than UK sterling, primarily in US dollars and
Hong Kong dollars.
Consequently, it enters into various contracts that reflect the changes in the value of foreign exchange rates to preserve the value of
assets, commitments and anticipated transactions. The Group previously used forward contracts and options, primarily in US dollars, but
has not entered into any contracts since the latest ones it held expired in May 2019.
Derivatives embedded in non-derivative host contracts have been recognised separately as derivative financial instruments when
their risks and characteristics are not closely related to those of the host contract and the host contract is not stated at its fair value with
changes in its fair value recognised in the income statement.
Of total continuing sales, 25% (2020: 38%) were invoiced in foreign currency. The Group purchases product in foreign currencies,
representing approximately 98% (2020: 86%) of purchases.
The Group did not hold any foreign currency forward exchange contracts at 27 March 2021; nor were they committed to any such
contracts (2020: none) .
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as
follows:
US dollar
Euro
Indian rupee
Chinese renminbi
Bangladeshi taka
Liabilities – Trade payables
Assets – Trade receivables
Assets – Cash
27 March
2021
£ million
28 March
2020
£ million
27 March
2021
£ million
28 March
2020
£ million
27 March
2021
£ million
28 March
2020
£ million
(7.3)
(0.1)
(0.4)
–
–
(7.8)
(8.1)
(0.1)
(0.7)
(0.2)
–
(9.1)
3.5
0.5
0.6
–
–
4.6
2.7
0.1
0.4
–
0.1
3.3
1.0
–
0.8
–
0.1
1.9
0.3
0.2
0.9
–
–
1.4
Liabilities included in the table above are categorised as trade payables (2020: all trade payables) .
Assets included in the table above are categorised as Trade debtors of £4.6 million (2020: £3.3 million) and cash of £1.9 million (2020:
£1.4 million)
Currency sensitivity analysis
The Group’s foreign currency financial assets and liabilities are denominated mainly in US dollars. The following table details the impact
of a 10% increase in the value of pounds sterling against the US dollar. A negative number indicates a net decrease in the carrying value
of assets and liabilities and a corresponding loss in adjusted items or in other comprehensive income where pounds sterling strengthens
against the US dollar.
US dollar impact
D. Credit risk
Reflected in profit and loss
Reflected in equity
27 March
2021
£ million
0.3
28 March
2020
£ million
0.5
27 March
2021
£ million
–
28 March
2020
£ million
(0.1)
Credit risk is the risk that a counterparty may default on their obligation to the Group in relation to lending, hedging, settlement and
other financial activities. The Group’s credit risk is primarily attributable to its trade receivables. The Group has a credit policy in place
and the exposure to counterparty credit risk is monitored. The Group mitigates its exposure to counterparty credit risk through minimum
counterparty credit guidelines, diversification of counterparties, working within agreed counterparty limits and bank guarantees where
appropriate.
The carrying amount of the financial assets represents the maximum credit exposure of the Group. The carrying amount is presented
net of impairment losses recognised. The maximum exposure to credit risk comprises trade receivables as shown in note 19, and cash
and derivative financial assets. Debtor balances which are not provided for are either on payment plans and abide or pay to terms with
exception of timing due to unforeseen circumstances.
102
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
22. Financial risk management (continued)
The average credit period on International gross trade receivables based on International revenue was 49 days (2020: 44 days) .
E. Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk
management framework for the management of the Group’s short-, medium- and long-term funding and liquidity management
requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities
by continuously monitoring forecast and actual cash flows, and matching the maturity profiles of financial assets and liabilities and
monitoring covenant compliance and headroom.
The table below shows the maturity analysis of the undiscounted remaining contractual cash flows (including interest) of the Group’s
financial liabilities, including cash flows in respect of derivatives:
Financial liabilities
Borrowings
Trade and other payables
Derivatives
Lease liabilities
At 27 March 2021
Financial liabilities
Borrowings
Trade and other payables
Derivatives
Lease liabilities
At 28 March 2020
Less than 1 year
£ million
1 to 2 years
£ million
2–5 years
£ million
Over 5 years
£ million
Total
£ million
–
21.8
1.8
0.3
23.9
–
–
–
0.4
0.4
19.5
–
–
0.7
20.2
–
–
–
–
–
19.5
21.8
1.8
1.4
43.5
Less than 1 year
£ million
1–2 years
£ million
2–5 years
£ million
Over 5 years
£ million
Total
£ million
28.0
28.0
–
1.1
57.1
19.0
–
0.3
1.2
20.5
–
–
–
4.2
4.2
–
–
–
1.9
1.9
47.0
28.0
0.3
8.4
83.7
Stock payments due to suppliers are matched with franchise partner payments and as a result the unwind of trade payables
from the balance sheet is equal and opposite to trade receivable cash receipts from franchise partners. From summer 2020,
the Group has been sourcing and selling stock to franchise partners through a tripartite contracting mechanism. Under the
tripartite agreements, each party commits to produce, deliver and pay for stock to agreed timelines, this method of contract-
ing greatly reduces the working capital burden for the Group as all payments to suppliers are offset by cash receipts from
franchise partners which are made in advance of the payment to supplier.
There are some exceptions to this way of working where franchise partners do still receive invoices from the Group, which are
settled on agreed terms. These exceptions are incorporated into cash forecasts and the business has the headroom to deal
with these. Away from stock the overhead recovery and royalties are charged on terms which vary by franchise partner which
provide cash flow to cover the overhead costs.
F. Interest rate risk
The principal interest rate risk of the Group arises in respect of the drawdown of the revolving credit facility. This facility is at a fixed rate plus
LIBOR, it exposes the Group to cashflow interest rate risk. The interest exposure is monitored by management but due to low interest rate
levels during the period the risk is believed to be minimal and no interest rate hedging has been undertaken.
G. Market risk
The Group is exposed to market risk, primarily related to foreign exchange and interest rates. The Group’s objective is to reduce, where it
deems appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates, foreign currency rates and
of the currency exposure of certain net investments in foreign subsidiaries. It is the Group’s policy to use derivative financial instruments,
where possible, to manage exposures of fluctuations on exchange rates. The Group only sells existing assets or enters into transactions
and future transactions (in the case of anticipatory hedges) that it confidently expects it will have in the future, based on past experience.
The Group expects that any loss in value for these instruments generally would be offset by increases in the value of the underlying
transactions.
Mothercare plc annual report and accounts 2021
103
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
22. Financial risk management (continued)
Capital management policies and procedures
The Group’s capital management objectives are:
• To ensure the Group’s ability to continue as a going concern;
• To provide an adequate return to shareholders by pricing products and services in a way that reflects the level of risk involved in
providing those goods and services.
The Group monitors capital on the basis of the carrying amount of equity, any secured borrowing facilities and any subordinated /
un-secured loans, less cash and cash equivalents as presented in the statement of financial position.
Management assess the Group’s capital requirements in order to maintain an efficient overall financing structure while avoiding excess
leverage. This takes into account the subordination levels of the Group’s various classes of debt. The Group manages the capital
structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of underlying assets. In order
to maintain or adjust the capital structure, the Group may raise new loan financing or issue new shares to reduce debt.
23. Trade and other payables
Current liabilities
Trade payables
Payroll and other taxes including social security
Accruals
Deferred income
27 March
2021
£ million
28 March
2020
£ million
11.8
1.8
10.0
1.3
24.9
12.0
1.5
16.0
–
29.5
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 56 days (2020: 34 days) . The Group has financial risk management policies in place to ensure that all
payables are paid within the credit timeframe.
Deferred income is a contract liability; it relates to amounts received from franchise partners before the stock has passed into their control.
The performance criteria which must be met is for the Group to provide the franchise partners control of the stock. Of the £1.3 million
deferred income balance (2020: £nil) , all (2020: all) of it will be included in revenue within one year.
The directors consider that the carrying amount of trade payables approximates to their fair value. Included within accruals is an amount
of £1.0 million (2020: £1.4 million) in relation to contractual liabilities arising as part of the administration of Mothercare UK Limited in the
comparative financial period. These represent management’s best estimate of the amounts that are due to third parties.
24. Provisions
Current liabilities
Property provisions
Other provisions
Short-term provisions
Non-current liabilities
Property provisions
Other provisions
Long-term provisions
Property provisions
Other provisions
Total provisions
104
Mothercare plc annual report and accounts 2021
27 March
2021
£ million
28 March
2020
Restated
£ million
2.3
1.9
4.2
0.2
1.5
1.7
2.5
3.4
5.9
2.2
0.6
2.8
0.7
2.1
2.8
2.9
2.7
5.6
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
24. Provisions (continued)
The movement on total provisions is as follows:
Balance at 28 March 2020 restated
Utilised in period
Charged in period
Transferred from accruals
Transferred to financial instruments
Balance at 27 March 2021
Property
provisions
£ million
Other
provisions
£ million
Total
provisions
£ million
2.9
(0.5)
0.6
–
(0.5)
2.5
2.7
(0.5)
0.6
0.6
–
3.4
5.6
(1.0)
1.2
0.6
(0.5)
5.9
Property provisions in the current year represent £1.8 million of obligations in relation to the lease at the Group’s Daventry warehouse site,
which was assigned to a third party in March 2021, and £0.7 million of provision in relation to a UK store lease which had been guaranteed
by Mothercare PLC. In the prior year, property provisions comprise £1.7 million of amounts for dilapidations lease at the Group’s Daventry
warehouse site, as well as a prior year adjustment of £1.2 million of provision in relation to a UK store lease which had been guaranteed
by Mothercare PLC. The prior year adjustment for £1.2 million has resulted in the increase of short term provisions from £2.3 million to £2.8
million, and the increase in long-term provisions from £2.1 million to £2.8 million. The impact of this has also been to increase total property
provisions from £1.7 million to £2.9 million. See note 32 for details of this restatement.
Other provisions include provisions for uninsured losses and contractual agreements requiring future cash outflows. The timing of these
provisions is uncertain and estimation has been used to consider what amounts will fall due in less than one year.
25. Share capital
Issued and fully paid
Ordinary shares of 1 pence each
Balance at beginning of period
Conversion to equity of shareholder loans
Issue of shares in the period
Balance at the end of period
Deferred shares of 49 pence each
Balance at beginning of period
Balance at end of period
Total share capital at end of period
52 weeks
ended
27 March
2021
Number of
shares
374,192,494
189,644,132
–
563,836,626
52 weeks
ended
28 March
2020
Number of
Shares
341,743,770
–
32,448,724
374,192,494
170,871,885
170,871,885
170,871,885
170,871,885
52 weeks
ended
27 March
2021
£ million
52 weeks
ended
28 March
2020
£ million
3.7
1.9
–
5.6
83.7
83.7
89.3
3.4
–
0.3
3.7
83.7
83.7
87.4
On 12 March 2021, the Group’s shares were transferred from the London Stock Exchange’s Main Market to instead be listed on AIM.
Following this, on 17 March 2021, the shareholder loans – previously held within borrowings with the option to convert classified as a
financial liability – converted to equity. The agreements entitled the shareholders to 189,644,132 ordinary 1 pence shares, giving rise to £1.9
million of share capital, £17.1 million of share premium and £9.5 million of distributable profits.
On 7 November 2019, the Company issued 32,359,450 ordinary shares at 10 pence. This raised equity of £3.1 million, an increase in share
capital of £0.3 million, and £2.8 million in share premium (after expenses of £0.1 million) .
Also in the comparative period, there were options issues under the Save as You Earn schemes for 89,274 as follows: 54,576 on 10 July 2019;
3,076 on 31 July 2019; 6,153 on 14 Aug 2019; and 25,469 on 11 Sept 2019.
The deferred shares do not carry any voting rights.
Further details of employee and executive share schemes are given in note 30.
The own shares reserve of £1.0 million (2020: £1.0 million) represents the cost of shares in Mothercare plc purchased in the market and held
by the Mothercare Employee Trusts to satisfy options under the Group’s share option schemes (see note 30) . The total shareholding is
925,342 (2020: 925,342) with a market value at 27 March 2021 of £0.1 million (2020: £0.1 million) .
Mothercare plc annual report and accounts 2021
105
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
26. Share premium
Balance at beginning of period
Premium arising on conversion of shareholder loans to equity
Premium arising on issue of new shares
Share issue costs
Balance at end of period
See note 25 above for further details.
27. Translation and hedging reserves
Translation reserve
Balance at beginning of period
Exchange differences on translation of foreign operations
Balance at end of period
Hedging reserve
Balance at beginning of period
Cash flow hedges: gains/(losses) arising in the period
(Removal) /additions to equity to/from inventory during the period
Deferred tax on cash flow hedges
Balance at end of period
52 weeks
ended
27 March
2021
£ million
91.7
17.1
–
–
108.8
52 weeks
ended
27 March
2021
£ million
(3.7)
–
(3.7)
–
–
–
–
–
52 weeks
ended
28 March
2020
£ million
88.9
–
2.9
(0.1)
91.7
52 weeks
ended
28 March
2020
£ million
(1.8)
(1.9)
(3.7)
(1.3)
–
1.3
–
–
106
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
28. Reconciliation of cash flow from operating activities
Loss from continuing operations
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of right-of-use assets
Amortisation of intangible assets
Impairment of property, plant and equipment and right of use assets
Profit on sale of property, plant and equipment
Loss/(gain) on adjusted foreign currency movements
Equity-settled share-based payments
Movement in provisions
Net gain on financial derivative instruments
Payments to retirement benefit schemes
Charge to profit from operations in respect of retirement benefit schemes
Operating cash flow before movement in working capital
Decrease in inventories
Decrease in receivables
Decrease in payables
Net cash flow from operating activities
Income taxes paid
Net cash flow from operating activities – continuing operations
Net cash flow from operating activities – discontinued operations
Changes in liabilities arising from financing activities
52 weeks
ended
27 March
2021
£ million
(2.4)
0.3
1.5
0.2
–
(0.1)
0.1
0.5
0.4
(0.8)
(4.5)
3.4
(1.4)
3.8
0.9
(5.1)
(1.8)
(0.8)
(2.6)
–
52 weeks
ended
28 March
2020
Restated
£ million
(8.8)
3.1
0.5
3.2
0.5
–
(1.3)
0.9
1.5
–
(11.6)
2.9
(9.1)
61.7
30.9
(86.3)
(2.8)
(0.1)
(2.9)
3.4
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s
consolidated cash flow statement as cash flows from financing activities.
Mothercare plc annual report and accounts 2021
107
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
28. Reconciliation of cash flow from operating activities (continued)
Analysis of net debt and financial liabilities
Shareholder loans
Revolving credit facility
Term loan
Cash at bank
IFRS 16 lease liabilities
Net debt
Embedded derivatives
Warrants
Net debt and financial liabilities
1. Non-cash movements comprise
Note
21
21
21
19/21
28 March
2020
£ million
Cash flow
£ million
Foreign
exchange
£ million
Offset1
£ million
Other
non–cash
movements1
£ million
27 March
2021
£ million
(12.8)
(7.0)
–
6.1
(8.4)
(22.1)
(0.3)
–
(22.4)
–
–
(7.3)
0.8
2.1
(4.4)
–
–
(4.4)
–
–
–
–
–
–
–
–
–
–
11.7
(11.7)
–
–
–
–
–
–
12.8
(4.7)
–
–
4.9
13.0
0.3
(1.2)
12.1
–
–
(19.0)
6.9
(1.4)
(13.5)
–
(1.2)
(14.7)
• Shareholder loans: interest of £6.2 million accrued in the period before the loans were converted to equity (in their entirety) in March 2021.
•
•
•
Revolving credit facility: the £4.7 million reflects the movement in the cash proceeds from the wind-up of the UK operations expected to be used by the administrators, to part-
repay this loan and the fact that the financial asset is no longer linked to the debt, hence whilst the starting position of £(7.0) million was the debt facility net of the asset, the
closing position of £nil reflects the fact the facility has been fully settled.
The offset of £11.7 million reflects the fact that when the term loan was drawn down, £11.7 million was immediately used to settle the Revolving capital facility; this money never
passed through the Group and the loan was received net of this.
Non-cash movements on IFRS 16 lease liabilities comprise £1.5 million of additions in the year – being the Group’s new head office; £7.3 million of disposals in the year – being the
assignment of the lease on the UK warehouse facility which the Group was no longer using; and £0.9 million of interest accrued on lease liabilities.
• Non-cash movements on the embedded derivative constitute a £6.2 million revaluation to the date of disposal, offset by their conversion to equity.
• Non-cash movements on the warrants comprise the fair value of £0.9 million on recognition and £0.3 million of fair value movements on revaluation at the balance sheet date.
29. Lease liabilities
At the balance sheet date, the maturity analysis of the Group’s undiscounted cashflows on IFRS 16 leases were as follows:
Not later than one year
After one year but not more than five years
After five years
Total undiscounted cashflows
Land and Buildings
27 March
2021
£ million
Other
27 March
2021
£ million
Land and Buildings
28 March
2020
£ million
Other
28 March
2020
£ million
0.5
1.2
–
1.7
–
–
–
–
1.9
7.2
2.3
11.4
0.1
0.1
–
0.2
The Group’s weighted average incremental borrowing rate for all leases is 11% (2020: 7%) ; as a practical expedient, a lessee may apply
a single discount rate to a portfolio of leases with reasonably similar characteristics; leases have been grouped according to location,
type and lease length. The practical expedient has been employed such that leases where the contractual term ends within twelve
months of the date of initial application have been accounted for as short-term leases. The Group has elected to rely on its assessment
on whether a lease is onerous under IAS37: Provisions, Contingent Assets, and Contingent Liabilities immediately before the date of initial
application, and included an adjustment to the right-of-use asset at transition date, i.e. the beginning of the comparative period, in
accordance with this.
The weighted average incremental borrowing rate for leases included in continuing operations is 11% (2020: 10%) .
Operating lease commitments consisted of total future minimum lease payments of £0.1 million (2020: £nil) for leases which were not
accounted for under IFRS 16 ‘Leases’.
108
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 30. Share-based payments
An expense is recognised for share-based payments based on the fair value of the awards (at the date of grant for those awards due to
be equity settled and at year end for those due to be cash settled) , the estimated number of shares that will vest and the vesting period
of each award. The decrease in the charge year on year is due to a change in the estimated number of shares that will vest.
Share-based payments comprise a charge of £0.5 million (2020: £0.9 million ) including national insurance. At 27 March 2021 there is a
balance sheet liability of £0.4 million related to the expected national insurance charge when share-based payment schemes vest
(2020: £0.2 million) , which has been recognised in accruals in note 23.
These charges relate to the following schemes:
A. Save As You Earn Schemes
B. Long Term Incentive Plans – LTIP 2019
C. Long term Incentive Plans – LTIP 2020
D. Value Creation Plan
Details of the share schemes that the Group operates are provided in the directors’ remuneration report on pages 50 to 55.
For each scheme, expected volatility was determined with reference to the 90-day volatility of the Company share price over the
previous three years. The expected life used in each model has been adjusted, based on management’s best estimate, for the effects
of non-transferability, exercise restrictions and behavioural considerations. The dates of exercise are not disclosed, as it is not deemed
practicable to do so.
A. Save As You Earn Schemes
The employee Save As You Earn schemes are open to all eligible employees and provide for a purchase price equal to the average
daily mid-market price on the three days prior to the offer date, less 20%.
The share options can be applied for during a two week period in the year of invitation and savings are placed in an employee Save As
You Earn bank account on trust for a three-year period.
The number of shares outstanding under the Save As You Earn Schemes is as follows:
Balance at beginning of period
Granted during period
Forfeited during period
Exercised during period
Cancelled in the period
Expired during period
Balance at end of period
Weighted
average
exercise
price
17p
10p
20p
–
13p
24p
11p
52 weeks
ended
27 March
2021
Number of
shares
2,078,084
1,551,240
(91,075)
–
(261,968)
(661,663)
2,614,618
52 weeks
ended
28 March
2020
Number of
Shares
6,891,298
–
(614,882)
(89,274)
(3,759,071)
(349,987)
2,078,084
The shares outstanding at 27 March 2021 had a weighted average remaining contractual life of 2.6 years and held a weighted average
exercise price of 11.2p.
Mothercare plc annual report and accounts 2021
109
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
30. Share-based payments (continued)
The fair value of Save As You Earn share options is calculated based on a Black-Scholes model with the following assumptions:
Grant date
Number of options granted
Share price at grant date
Exercise price
Expected volatility
Risk free rate
Expected dividend yield
Time to expiry
Fair value of option
December
2020
1,551,240
13p
10p
87%
0.03%
Nil
3 years
8.2p
December
2018
6,497,914
18p
13p
58%
1.33%
Nil
3 years
8.9p
The resulting fair value is expensed over the service period of three years on the assumption that 10% of December 2020 options / 25% of
December 2018 options will lapse over the service period as employees leave the Group.
B. Long Term Incentive Plans – LTIP 2019
In March 2019 the Group granted awards under the Mothercare plc 2019 Long term Incentive Plan. These consisted of an award of
Conditional shares, which carry no performance conditions other than continued service, and a nil cost option award for which vesting
is subject to a relative total shareholder return (TSR) performance condition against a bespoke comparator group as well as fulfilment of
share price underpin. These options were valued using a Monte-Carlo simulation model, the key assumptions and inputs are below
Grant date
Number of shares awarded
Share price at date of grant
Exercise price
Expected volatility
Risk-free rate
Expected dividend yield
Fair value of shares granted
Average time to expiry
March
2019
Nil cost
options
7,608,053
22.5p
Nil
58.3%
0.63%
Nil
13.1p
3.0 years
March
2019
Conditional
shares
774,110
22.5p
Nil
58.3%
0.63%
Nil
22.5p
3.0 years
C. Long Term Incentive Plans – LTIP 2020
In September 2020, the Group granted further awards under the Mothercare plc 2019 Long term Incentive Plan. The performance
conditions relate to Group earnings before interest, tax, depreciation and amortisation, and relative total shareholder return weighted
equally 50:50. No consideration is payable for the grant of these awards. There were two types of awards granted, and a different
valuation model has been used for each. The EBITDA awards were valued using a Black-Scholes model, the key assumptions and inputs
are below. The TSR awards were valued using a Monte-Carlo simulation model, the key inputs and assumptions are below.
Grant date
Number of shares awarded
Share price at date of grant
Exercise price
Expected volatility
Risk-free rate
Expected dividend yield
Fair value of shares granted
Average time to expiry
110
Mothercare plc annual report and accounts 2021
September
2020
EBITDA awards
3,095,000
10.3p
Nil
66.4%
(0.1) %
Nil
10.3p
3.0 years
September
2020
TSR awards
3,095,000
10.3p
Nil
66.4%
(0.1) %
Nil
5.0p
3.0 years
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 30. Share-based payments (continued)
D. Value Creation Plan
In August 2017 the Group granted awards under the Value Creation Plan (VCP) with the grant of an additional award in September 2017
for the incoming Chief Financial Officer. The VCP grants nil cost options to selected participants based on Total Shareholder Return over
a three year period to March 2020. The awards are exercisable in three equal tranches from March 2020 through to March 2022. The fair
value at the date of grant was calculated using a Monte Carlo model as the VCP carries a share price based performance condition.
The volatility was based on share price information. The fair value of the allocated VCP thus far is £1.2 million to be spread over a five year
period. A charge of £0.3 million was recognised in the financial year. The VCP lapsed with no shares vesting.
31. Retirement benefit schemes
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for all qualifying employees.
The cost charged to the income statement of £0.5 million (2020: £0.6 million for continuing operations; £1.4m for continuing and discontinued
operations) represents contributions due and paid to these schemes by the Group at rates specified in the rules of the plan.
Defined benefit schemes
The Group previously operated two defined benefit pension schemes for employees of Mothercare UK Limited; these were both closed
to future accrual with effect from 28 March 2013.
The pension schemes’ assets are held in a separate trustee administered fund to meet long-term pension liabilities to past and present
employees. The trustees of the fund are required to act in the best interest of the fund’s beneficiaries.
For the protection of members’ interests, the Group has appointed three trustees, who are independent of the Group. To maintain this
independence, the trustees and not the Group are responsible for their own successors.
The most recent full actuarial valuation was carried out as of 31 March 2020 and was updated for the purpose of these disclosures with the
advice of professionally qualified actuaries. The present value of the defined benefit obligation, the related current service cost and the
past service cost were measured using the projected unit method.
The value of the deficit under the full actuarial valuation at 31 March 2020 was £123.4 million; the Group’s deficit payments are calculated
using this as the basis.
The schemes expose the Company to actuarial risks such as longevity risk, interest rate risk and market (investment) risk.
Mothercare plc annual report and accounts 2021
111
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
31. Retirement benefit schemes (continued)
Below is an outline of the risks, what they are and how the Group mitigates those risks.
Risk
Description
Mitigation
Over the year, the Company and Trustee strategic
allocation to growth assets, bond and bond-like
assets has changed.
In December 2019 the Trustees removed the Staff
Scheme’s 13% allocation to global synthetic equity
temporarily on a tactical basis and invested the sale
proceeds in a cash fund in order to reduce short
term asset and funding volatility. Following this, in
August 2020, the Trustees used some of these assets
to increase the Staff Scheme’s secured finance
allocation to 15% (from 10%) . The remaining 8% of
assets remains invested in a cash fund with Insight.
Following a breach of a de-risking trigger in
February 2021 the Trustees implemented de-risking of
the Executive Scheme by decreasing the diversified
growth fund allocation from 24% to 14%. The
proceeds were used to increase the liability driven
investment portfolio allocation from 25% to 35%.
As at the end of the year, the Staff Scheme had a
strategic allocation to bond and bond-like assets
of 68% (up from 63% last year) and the Executive
Scheme had a strategic allocation to bond and
bond-like assets of 86% (up from 76% last year)
The target interest rate and inflation hedge ratios
within the leveraged liability driven investment
portfolio remain unchanged from last year at c.63%
for the Staff Scheme, and c.62% for the Executive
Scheme (on the 2017 technical provisions basis) .
This is designed to reduce funding level volatility
by investing in assets which more closely match the
characteristics of the liabilities.
The Staff and Executive Schemes have a proportion
of their strategic allocation (33% and 35%
respectively) in liability-driven investments, which
provide a hedge against falling bond yields (falling
yields which increase the DBO will also increase the
value of the bond assets) . Note that there are some
differences in the credit quality of bonds held by the
UK Pension Fund and the bonds analysed to decide
the DBO discount rate, such that there remains some
risk should yields on different quality bond/ swap
assets diverge.
The UK Pension Fund holds some inflation–linked
assets which provide a hedge against higher–than–
expected inflation increases on the DBO.
Volatile asset returns
The Defined Benefit Obligation (DBO) is calculated
using a discount rate set with reference to AA
corporate bond yields; asset returns that differ from
the discount rate will create an element of volatility in
the solvency ratio.
There is a strategic allocation of 24% and 14% to
diversified growth funds for the Staff and Executive
Schemes, respectively. The Staff Scheme also has
a 8% strategic allocation to a leveraged global
synthetic equity mandate (offering c.17% asset
exposure to global equity markets) .
Although these growth assets are expected to
outperform corporate bonds in the long term,
they can lead to volatility and mismatching risk in
the short term. The allocation to growth assets is
monitored to ensure it remains appropriate give the
UK Pension Schemes’ long-term objectives.
Changes in
bond yields
A decrease in corporate bond yields will increase
the present value placed on the DBO for accounting
purposes, although this will be partially offset by an
increase in the value of the UK Pension Fund’s bond
holdings.
Inflation risk
Life expectancy
A significant proportion of the DBO is indexed in line
with price inflation (specifically inflation in the UK
Retail Price Index and Consumer Price Index) and
higher inflation will lead to higher liabilities (although,
in most cases, this is capped at an annual increase
of 5%) .
The majority of the UK Pension Fund’s obligations
are to provide benefits for the life of the member, so
increases in life expectancy will result in an increase
in the liabilities.
112
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 31. Retirement benefit schemes (continued)
Other Risks: There are a number of other risks of running the UK Pension Fund including operational risks (such as paying out the wrong
benefits) and legislative risks (such as the government increasing the burden on pension through new legislation) .
Asset-liability matching strategy
The Trustees of the Schemes, on behalf of the Company, ensure that the Schemes’ assets are invested in accordance with the policies and
objectives set out in the Schemes’ Statement of Investment Principles.
The Schemes investment strategies aim to match the Schemes’ assets to a portion of the interest rate and inflation sensitivity of the
retirement obligations by investing in unleveraged and leveraged fixed and index-linked UK government bonds, as part of a liability
driven investment portfolio. The Schemes also invest in other bond and bond-like investments (multi-asset credit and secured finance)
in order to broadly match benefit payments as they fall due, whilst aiming to generate an excess return over that expected from
government bonds. The Trustees, on behalf of the Company, reviews how the expected yield on the investments are matching the
expected cash outflows arising from the retirement obligations, and the degree to which the interest rate and inflation sensitivity of the
retirement obligations is matched.
In addition, the Trustees believe that, over the long term, excess returns over that expected from government bonds will be generated
through investing in equities and other return enhancing asset classes, as well as through the use of active management where
appropriate.
Over the year, the Company and Trustees’ strategic allocation to growth assets, bond and bond-like assets remained unchanged.
However, in December 2019, the Trustees removed the 13% allocation to the global synthetic equity mandate within the Staff scheme
temporarily on a tactical basis and invested the sale proceeds in a cash fund in order to reduce short term asset and funding volatility.
As at the end of the year, the Staff Scheme had a strategic allocation to bond and bond-like assets of 68% (up from 63% last year) and
the Executive Scheme had a strategic allocation to bond and bond-like assets of 86% (up from 76% last year) .
The target interest rate and inflation hedge ratios within the leveraged liability driven investment portfolio remain unchanged from last
year; in October 2019, the Trustee and Company increased the target interest rate and inflation hedge ratios within the leveraged liability
driven investment portfolio from c.56% to c.63% for the Staff Scheme, and from c.55% to c.62% for the Executive Scheme (all on an ongoing
technical provisions basis) .
The IAS 19 valuation conducted for the period ending 27 March 2021 disclosed a net defined pension deficit of £25.6 million (2020: surplus of
£29.8 million) .
Right to recognise a surplus position on the balance sheet
The Group is considered to have an unconditional right to a surplus under the scheme on scheme wind-up, under Paragraph
11(c) of IFRIC 14. Under the scheme rules, the ability for the Trustees to apply remaining assets on a wind up, after all benefit
entitlements have been secured in full, to increase the benefits of the Schemes’ members prior to them being distributed to
the Schemes’ employers is subject to employer consent. Such consent can be properly withheld by the employer under current
trust law and in that scenario, the Trustees have to pay any balance remaining to employers in such shares as the Trustees
after consultation with the Actuary shall decide. This is subject to the requirements of section 76 of the Pensions Act 1995 having
been met. The surplus can therefore be returned to the employers on a winding up as long as the usual requirements in sec-
tion 76 of the Pensions Act 1995 relating to the provision of pension increases have been met (those requirements apply to all
UK registered DB schemes) .
The major assumptions used in the updated actuarial valuations were:
Discount rate
Inflation rate – RPI
Inflation rate – CPI
Future pension increases
Male life expectancy at age 65
Male life expectancy at age 65 (currently aged 45)
Female life expectancy at age 65
Female life expectancy at age 65 (currently aged 45)
Following the closure of the Scheme to future benefit accrual, a salary increase assumption is not required.
27 March
2021
2.0%
3.1%
2.4%
3.1%
21.6 years
22.9 years
24.2 years
25.7 years
28 March
2020
2.3%
2.5%
1.7%
2.5%
21.4 years
22.7 years
23.7 years
25.2 years
Mothercare plc annual report and accounts 2021
113
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
31. Retirement benefit schemes (continued)
The mortality assumptions used are the SAPS tables published by the CMI allowing for future improvements in line with the CMI 2018
projections with a long term annual rate of improvement of 1.25 per cent. and a core smoothing factor of 7. Weighted averages across
both schemes are shown above.
In the prior year the Company’s basis for setting the discount rate was amended to a to a ‘single agency’ yield curve approach. Under
this approach the yield curve is based on a AA ‘universe’ including bonds that receive at least one AA rating from the main ratings
agencies (i.e. a ‘single agency’ approach) and a bootstrapping method to extrapolate the curve at the longer end. Logarithmic
regression has been used to find the best fitting yield curve for the spot yields calculated from the bond data.
The effects of movements in the principal assumptions used to measure the scheme liabilities for every change in the relevant assumption
are set out below:
Assumption
Discount rate
Rate of RPI inflation
Rate of CPI inflation
Life expectancy (age 65)
Discount rate
Rate of RPI inflation
Change in
assumption
+/– 0.1%
+/– 0.1%
+/– 0.1%
+ 1 year
+/– 0.5%
+/– 0.5%
Impact on
scheme
liabilities
£ million
–7.3 /+7.5
+4.5 /–5.7
+1.8 /–1.8
+ 17.6
–34.7 /+39.4
+28.1 /– 24.7
The above sensitivities are applied to adjust the defined benefit obligation at the end of the reporting period. Whilst the analysis does
not take account of the full distribution of cash flows expected under the scheme, it does provide an approximation to the sensitivity of the
assumptions shown.
Amounts expensed in the income statement in respect of the defined benefit schemes are as follows:
Running costs
Past service costs in respect of GMP equalisation (see note 6 – adjusted items)
Past service credit in respect of PIE (see note 6 – adjusted items)
Net interest on liabilities/return on assets
52 weeks
ended
27 March
2021
£ million
3.4
–
–
(0.2)
3.2
52 weeks
ended
28 March
2020
£ million
2.9
–
–
0.6
3.5
Running costs are included in administrative expenses, and net interest on liabilities/return on assets is included in finance costs.
The amount recognised in other comprehensive income for the period ending 27 March 2021 is an expense of £55.1 million (2020:
£46.6 million gain) .
The amount included in the balance sheet arising from the Group’s obligations in respect of its defined benefit retirement schemes is as
follows:
Present value of defined benefit obligations
Fair value of schemes’ assets
(Liability) /asset recognised in balance sheet
27 March
2021
£ million
(429.0)
403.4
(25.6)
28 March
2020
£ million
(371.4)
401.2
29.8
114
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
31. Retirement benefit schemes (continued)
Movements in the present value of defined benefit obligations were as follows:
At beginning of period
Interest expense
Actuarial (losses) /gains arising from changes in demographic assumptions
Actuarial gains/(losses) arising from changes in financial assumptions
Experience gains on liabilities
Benefits paid
At end of period
Movements in the fair value of schemes’ assets were as follows:
At beginning of period
Interest income
Scheme administration expenses
Return on scheme assets excluding interest income
Company contributions
Benefits paid
At end of period
The major categories of scheme assets are as follows:
UK equities
Overseas equities
Corporate bonds
Index-linked government bonds
Government bonds
Diversified growth funds
Cash and cash equivalents
27 March
2021
£ million
Quoted
market
price in
active
market
–
–
151.4
90.8
34.6
93.1
33.5
403.4
27 March
2021
£ million
No quoted
market
price in
active
market
–
–
–
–
–
–
–
–
52 weeks
ended
27 March
2021
£ million
(371.4)
(7.3)
(5.1)
(78.4)
19.1
14.1
(429.0)
52 weeks
ended
27 March
2021
£ million
401.2
7.5
(3.4)
7.7
4.5
(14.1)
403.4
28 March
2020
£ million
Quoted
market
price in
active
market
–
–
119.9
96.5
54.3
85.5
45.0
401.2
52 weeks
ended
28 March
2020
£ million
(388.6)
(9.8)
(1.2)
15.8
–
12.4
(371.4)
52 weeks
ended
28 March
2020
£ million
363.7
9.2
(2.9)
32.0
11.6
(12.4)
401.2
28 March
2020
£ million
No quoted
market
price in
active
market
–
–
–
–
–
–
–
–
The percentage split of the scheme assets between sterling and non-sterling are as follows as at 27 March 2021:
Overseas equities
Corporate bonds
Secured Finance
Liability driven investments
Diversified growth funds
Cash and cash equivalents
Sterling
Non–sterling
100%
100%
100%
100%
77%
100%
–
–
–
–
23%
–
Mothercare plc annual report and accounts 2021
115
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
31. Retirement benefit schemes (continued)
The schemes’ assets do not include any of the Group’s own financial instruments nor any property occupied by, or other assets used by,
the Group.
The Company is committed to paying into each scheme for future years, these amounts are outlined on the below Schedule of
Contributions:
Exec Scheme year ending March
2022
2023
2024
2025
Amount
£0.5 million
£1.0 million
£1.2 million
£1.4 million
Staff Scheme year ending March
Amount
2022
2023
2024
2025
£3.6 million
£8.0 million
£9.3 million
£10.6 million
The schemes are funded by the Company. Funding of the schemes is based on a separate actuarial valuation for funding purposes for
which the assumptions may differ from the assumptions above. Funding requirements are formally set out in the Statement of Funding
Principles, Schedule of Contributions and Recovery Plan agreed between the trustees and the Company.
The weighted average duration of the defined benefit obligation at 27 March 2021 is approximately 20 years (2020: 20 years) .
The defined benefit obligation at 27 March 2021 can be approximately attributed to the scheme members as follows:
• Active members: 0% (2020: 0%)
• Deferred members: 61% (2020: 72%)
• Pensioner members: 39% (2020: 28%)
All benefits are vested at 27 March 2021 (unchanged from 28 March 2020) .
32. Restatement for the year ended 28 March 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 Limited. Despite Mothercare UK Limited being in administration, this was an amount that the Group
were liable for due to a cross-guarantee with Mothercare PLC. Had management been aware of this liability before the 2020 Annual
Report was approved, a provision would have been included as at 5 November 2019 i.e. the date Mothercare UK Limited went into
administration, and would still have been on the balance sheet at 28 March 2020 and 27 March 2021. As a result of this, it has been
considered appropriate to include a prior year adjustment for the amount the provision would have been.
The impact of this prior year adjustment on the balance sheet has been to increase provisions as at 27 March 2021 by £1.2 million, increase
derivative financial instruments by £0.1 million, and reduce retained earnings by £1.3 million. 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.
The impact of this prior year adjustment on the income statement for the comparative year has been to increase the adjusted items
expense by £1.3 million and reduce the profit £1.3 million.
There is no impact on the brought forward reserves for the comparative financial year.
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 by £5.0 million. This adjustment has reversed in the year to 27 March 2021 and has nil impact on
the balance sheet as at 27 March 2021..
The impact of this prior year adjustment on the income statement for the comparative year has been £nil. The impact of this prior year
adjustment on other comprehensive income for the prior period has been to reduce earnings from other comprehensive income by £5.0
million.
There is no impact on the brought forward reserves for the comparative financial year.
116
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 33. Contingent liability
At the comparative period end, it was reported that the Group had a contingent liability in relation to orders that were initially placed with
suppliers for the Spring/Summer 2020 and Autumn/Winter 2020 seasons but that were cancelled pre year end by management. Whilst
resolution has been reached with many of these suppliers there is still the possibility that due to the administration process or the impact
of COVID-19 there may be a claim from a supplier in relation to these issues.
The value of any potential cost to the Group is not possible to determine with any accuracy however management’s best estimate of
future outflows in relation to the above is considered to be less than £1.0 million in value (2020: £0.7 million) , with the probability being low
but not remote.
34. Related party transactions
Transactions between the Company 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 are disclosed below.
Trading transactions
During the year, Group companies entered into the following transactions with related parties who are not members of the Group:
52 weeks ended 27 March 2021
Joint ventures
52 weeks ended 28 March 2020
Joint ventures
Sales of
goods
£ million
0.1
Sales of
goods
£ million
0.3
Purchases of
goods
£ million
–
Purchases
of
goods
£ million
–
Amounts
owed by
related
parties
£ million
1.8
Amounts
owed by
related
parties
£ million
2.0
Amounts
owed to
related
parties
£ million
–
Amounts
owed to
related
parties
£ million
–
Sales of goods to related parties were made at the Group’s usual cost prices.
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received at the year end. The
amounts shown above have been shown gross and a provision of £1.8 million (2020: £2.0 million) has been made for doubtful debts. During
the year, £0.3 million of debt owed from related parties was written off (2020: £nil) .
Remuneration of key management personnel
The remuneration of the key management personnel of the Group (including executive and non-executive directors and other key
decision makers), is set out below in aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’. Further
information about the remuneration of individual directors is provided in the audited part of the remuneration report on pages 50 to 55.
Short-term employee benefits
Post-employment benefits
Compensation for loss of office
Mothercare Pension scheme
Details of other transactions and balances held with the two pension schemes are set out in note 31.
Other transactions with key management personnel
There were no other transactions with key management personnel.
52 weeks
ended
27 March
2021
£ million
2.1
–
0.5
2.6
52 weeks
ended
28 March
2020
£ million
4.3
0.2
–
4.5
Mothercare plc annual report and accounts 2021
117
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
34. Related party transactions (continued)
Other transactions with related parties
One of the shareholders who owns a significant stake in the business was involved in the following transactions:
In the current year, shareholder loans of £7.8 million in funds for which the shareholder had an interest were converted to equity. In March
2021, 8.6 million 12 pence warrants were issued to these funds.
In the prior comparative period, shareholder loans of £2.7 million were issued to funds in which this shareholder had an interest.
This shareholder is considered a related party through their ability to exercise significant influence as defined by IAS 28.
35. Events after the balance sheet date
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.
On 4 March 2021 the UK Government announced an intention to increase the rate of corporation tax to 25% with effect from 1 April 2023.
The 2021 Finance Bill received Royal Assent on 10 June 2021. As no deferred tax asset balances have been recognised at 27 March 2021,
the impact of this rate change would be nil if the tax increase had been substantively enacted by that date. The actual impact would be
dependent on a number of factors including actuarial movements in the Group’s pension schemes.
118
Mothercare plc annual report and accounts 2021
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
Company financial statements
Contents
120 Company balance sheet
121 Company statement of changes in equity
122 Notes to the Company financial statements
128 Shareholder information
Mothercare plc annual report and accounts 2021
119
Financials
Company balance sheet
As at 27 March 2021
Fixed assets
Investments in subsidiary undertakings
Current assets
Debtors – amounts falling due within one year
Financial assets
Cash and cash equivalents
Creditors – amounts falling due within one year
Derivative financial instruments
Provisions
Net current liabilities
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Derivative financial instruments
Provisions
Net liabilities
Equity
Called up share capital
Share premium
Own shares
Profit and loss account
Total Equity
For the 52 weeks ended 27 March 2021
Note
27 March
2021
£ million
28 March
2020
restated
£ million
3
4
5
6
5
7
8
8
8
0.8
0.8
0.1
–
1.7
1.8
(170.6)
(1.8)
(0.7)
(171.3)
(170.5)
–
–
–
(170.5)
89.3
108.8
(1.0)
(367.6)
(170.5)
0.3
0.3
0.5
21.0
1.0
22.5
(188.3)
(0.1)
(0.5)
(166.4)
(166.1)
(12.8)
(0.3)
(0.7)
(179.9)
87.4
91.7
(1.0)
(358.0)
(179.9)
The Company has taken advantage of the disclosure exemption permitted by s408 of the Companies Act 2006 and has not presented a
profit and loss account. The Company reported a loss for the financial period ended 27 March 2021 of £19.1 million (2020: loss of £19.7 million).
Approved by the board on 28 July 2021 and signed on its behalf by:
Andrew Cook
Chief Financial Officer
Company Registration Number: 1950509
120
Mothercare plc annual report and accounts 2021
Company statement of changes in equity
For the 52 weeks ended 27 March 2021
Balance at 28 March 2020 as previously reported
Prior year adjustments
Balance at 28 March 2020 as restated
Loss for the period
Other comprehensive income for the period
Total comprehensive income for the period
Issue of shares
Balance at 27 March 2021
Balance at 30 March 2019
Loss for the period
Other comprehensive income for the period
Total comprehensive income for the period
Issue of shares
Expenses of issue of new shares
Balance at 28 March 2020
Share
capital
£ million
Note
Share
premium
account
£ million
Own
share
reserve
£ million
Profit
and loss
account
£ million
Total
£ million
87.4
–
87.4
–
–
–
1.9
89.3
87.1
–
–
–
0.3
–
87.4
91.7
–
91.7
–
–
–
17.1
108.8
88.9
–
–
–
2.9
(0.1)
91.7
(1.0)
–
(1.0)
–
–
–
–
(1.0)
(1.1)
–
–
–
0.1
–
(1.0)
(356.7)
(1.3)
(358.0)
(19.1)
–
(19.1)
9.5
(367.6)
(338.3)
(19.7)
–
(19.7)
–
–
(358.0)
(178.6)
(1.3)
(179.9)
(19.1)
–
(19.1)
28.5
(170.5)
(163.4)
(19.7)
–
(19.7)
3.3
(0.1)
(179.9)
7
6
7
6
6
Mothercare plc annual report and accounts 2021
121
Financials
Notes to the company financial statements
As at 27 March 2021
General information
Mothercare plc is a public company limited by shares incorporated in Great Britain under the Companies Act 2006. The address of
the registered office is given in the shareholder information on page 128. Mothercare plc acts as a holding company for a group of
companies operating as a specialist franchisor of products for mothers-to-be and children under the Mothercare brand.
1. Significant accounting policies
The Company’s accounting period covers the 52 weeks ended 27 March 2021. The comparative period covered the 52 weeks ended
28 March 2020.
The separate financial statements of the Company are presented as required by the Companies Act 2006. The Company meets the
definition of a qualifying entity under FRS100 ’Application of Financial Reporting Requirements’ issued by the Financial Reporting Council
(FRC). Accordingly these financial statements have been prepared in accordance with FRS 101 ‘Reduced Disclosure Framework’ as issued
by the FRC.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemption available under the standard in relation to
share-based payments presentation of comparative information in respect of certain assets, capital management, certain revenue
requirements of IFRS 15, the presentation of a cash flow statement, standards not yet effective and certain related party transactions.
Where required, equivalent disclosures are given in the consolidated financial statements.
Going concern
The financial statements have been prepared on the historical cost basis and on the going concern basis, as described in the going
concern statement in the Financial Review on page 38.
The Directors have reviewed the Group’s latest forecasts and projections, which have been sensitivity-tested for reasonably possible
adverse variations in performance, reflecting the uncertainties around the impact of COVID-19.
The Board’s confidence in the Group’s Base Case forecast, which indicates the Group will operate within the terms of the borrowing
facilities it expects to be able to secure, and the Group’s proven cash management capability supports our preparation of the financial
statements on a going concern basis.
However, if trading conditions were to deteriorate beyond the level of risks applied in the sensitised forecast, or the Group was unable
to mitigate the material uncertainties assumed in the Base Case Forecast and the Group were not able to execute further cost or
cash management programmes, the Group would at certain points of the working capital cycle have insufficient cash. If this scenario
were to crystallise the Group would need to renegotiate with its lender in order to secure waivers to potential covenant breaches and
consequential cash remedies or secure additional funding. Therefore, we have concluded that, in this situation, there is a material
uncertainty that casts significant doubt that the Group will be able to operate as a going concern without such waivers or new financing
facilities.
Warrants
Where warrants are not issued for a fixed number of shares at a fixed amount, they are recognised as a liability at fair value on the
date of issue. Subsequently, fair value is recalculated, with movements recognised in the income statement, at each reporting date.
The Company is exempt from preparing financial instrument disclosures under FRS 101; these are included in note 22 of the Group
consolidated financial statements.
Interest rate risk
For information on the Company’s approach to interest rate risk, please see page 103 of the Group consolidated financial statements.
Liquidity risk
For information on the Company’s approach to liquidity risk, please see page 103 of the Group consolidated financial statements.
Credit risk
The Company has exposure to credit risk inherent in its receivables due from its subsidiary undertakings.
Critical accounting judgements
The preparation of the Company financial statements requires management to make judgements, estimates and assumptions in
applying the Company’s accounting policies to determine the reported amounts of assets, liabilities, income and expenses. The estimates
and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing
basis, with revisions to accounting estimates applied prospectively.
122
Mothercare plc annual report and accounts 2021
Critical judgements represent key decisions made by management in the application of the Group accounting policies. Where a
significant risk of materially different outcomes exists due to management assumptions or sources of estimation uncertainty, this will
represent a critical accounting estimate. Estimates and judgements are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates.
The estimates and judgements which have a significant risk of causing a material adjustment to the carrying amount of assets and
liabilities are discussed below.
Impairment of assets
The Group reviews the carrying value of assets on a periodic basis, and whenever events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. Such circumstances or events could include: a pattern of losses involving the asset;
a decline in the market value for the asset; and an adverse change in the business or market in which the asset is involved. Determining
whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are
directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value,
if any, and the impact of Brexit, if any. Estimates of future cash flows and the selection of appropriate discount rates relating to particular
assets or groups of assets involve the exercise of a significant amount of judgement.
Key sources of estimation uncertainty
Allowances against the carrying value of investments in subsidiaries
The financial statements have been prepared on the historical cost basis except for the re measurement of certain financial instruments
to fair value. The principal accounting policies adopted are the same as those set out in note 2 to the consolidated financial statements
except as noted below.
Investments in subsidiaries and associates are stated at cost less, where appropriate, provisions for impairment. The recoverable amounts
of individual investments in subsidiaries are determined from value in use calculations with a discounted cash flow model being used
to calculate this amount. The key assumptions for the value in use calculation are those regarding the discount rate and growth rates.
Management has used a pre-tax discount rate of 13.0% (2020: 13.0%) which reflects the time value of money and risks related to the cash
generating units. There have been no impairment charges during the current financial period. During the comparative period, investments
in the holding company of MUK were impaired by £29.7 million due to the loss of control of MUK and MBS as the fair value of less cost to
sell and value in use of this investment was considered to be £nil.
Cash flow projections are based on the Group’s four year internal forecasts, the results of which are reviewed by the Board. Estimates
of selling prices and direct costs are based on past experience, expectations of future changes in the market and historic trends. The
forecasts are extrapolated beyond four years based on long-term average growth rate of 0%.
2. Profit and loss account
As permitted by Section 408 of the Companies Act 2006, no separate profit and loss account is presented for the Company. The
Company’s loss for the 52 weeks ended 27 March 2021 was £17.6 million (2020: loss of £18.4 million). The auditor’s remuneration for audit and
other services is disclosed in note 7 to the consolidated financial statements.
Mothercare plc annual report and accounts 2021
123
Financials
Notes to the company financial statements
continued
3. Investments in subsidiary undertakings
Investments in the Company’s balance sheet consist of its investments in subsidiary undertakings. The Company’s subsidiaries, all of which
are wholly owned, are included in note 12 of the Group financial statements.
The Company’s investment in its subsidiary undertakings is as follows:
Investment in subsidiaries - net book value
Cost
At 28 March 2020
Disposal
Share-based payments to employees of subsidiaries
At 27 March 2021
Impairment
At 28 March 2020
Charged during the period
At 27 March 2021
Net book value
27 March
2021
£ million
0.8
28 March
2020
£ million
0.3
£ million
454.0
–
0.5
454.5
(453.7)
–
(453.7)
0.8
The recoverable amounts of individual investments in the Mothercare subsidiaries are determined from value in use calculations with
a discounted cash flow model being used to calculate this amount. The key assumptions for the value in use calculation are those
regarding the discount rate and growth rates. Management has used a pre-tax discount rate of 13.0% (2020: 13.0%) which reflects the time
value of money and risks related to the cash generating units. The cash flow projections are based on the financial budgets and forecasts
approved by the Board covering a four year period. No growth rate has been applied.
4. Debtors
Other debtors
27 March
2021
£ million
0.1
28 March
2020
£ million
0.5
124
Mothercare plc annual report and accounts 2021
5. Creditors
Creditors: amounts due within one year
Amounts due to subsidiary undertakings
Borrowings and bank overdraft (secured)
Trade payables
Accruals and other creditors
Derivative financial instruments
Creditors: amounts due after one year
Borrowings and bank overdraft (secured)
Shareholder loans
Derivative financial instruments
27 March
2021
£ million
28 March
2020
£ million
167.8
–
0.3
2.5
1.8
172.4
–
–
–
–
157.3
28.0
–
3.0
0.1
188.4
–
12.8
0.3
13.1
Amounts due to subsidiary undertakings are repayable on demand. No interest is payable on the outstanding balances.
The Company had outstanding borrowings at 27 March 2021 of £nil (2020: £28.0 million) .
The revolving credit facility of £nil (2020: £28.0 million) was secured on the shares of specified obligor subsidiaries and the assets of the
Group not already pledged. The Company also holds a financial asset of £nil (2020: £21.0 million) reflecting the expected proceeds from
the wind-down of the UK operations by the administrators and therefore the total debt amount at 27 March 2021 is £nil million (2020:
£7.0 million). As at 27 March 2021, there was a financial asset remaining of £2.6 million, which is no longer linked to any debt, and is now held
by one of the Company’s indirect subsidiaries.
The Company held shareholder loans which converted to equity in March 2021, and therefore there are no outstanding amounts at the
current financial period end. £5.5 million of capital was raised in 2020 and £8.0 million in 2019. These attracted a monthly compound interest
rate of 0.83%, and had a termination date of June 2021. These are accounted for at an amortised cost of £nil (2020: £12.8 million), with the
option to convert fair valued and treated as an embedded derivative liability of £nil (2020: £0.3 million) - see note 22 of the Group financial
statements . The conversion option formed a liability rather than equity due to the terms of the lending agreements through which the
conversion price could be reduced should the Group issue shares.
6. Provisions
Current liabilities
Property provisions
Short-term provisions
Non-current liabilities
Property provisions
Long-term provisions
The movement on total provisions is as follows:
Balance at 28 March 2020 restated
Transferred to financial instruments
Balance at 27 March 2021
27 March
2021
£ million
0.7
0.7
–
–
28 March
2020
Restated
£ million
0.5
0.5
0.7
0.7
Property
provisions
£ million
1.2
(0.5)
0.7
Property provisions in the current year represent £0.7 million of provision in relation to a UK store lease which had been guaranteed by
Mothercare PLC. In the prior year, property provisions comprise a prior year adjustment of £1.2 million of provision in relation to a UK store
lease which had been guaranteed by Mothercare PLC.
Mothercare plc annual report and accounts 2021
125
Financials
Notes to the company financial statements
continued
7. Called up share capital
For details of the Company’s share capital and movements, please see note 25 to the consolidated financial statements.
Further details of employee and executive share schemes are provided in note 30 to the consolidated financial statements.
8. Reserves
Balance at 28 March 2020
Issue of new shares
Loss for the financial year
Balance at 27 March 2021
Share
premium
£ million
91.7
17.1
–
108.8
Own
shares
£ million
(1.0)
–
–
(1.0)
Profit
and loss
account
restated
£ million
(358.0)
9.5
(19.1)
(367.6)
The own shares reserve of £1.0 million (2020: £1.0 million) represents the cost of shares in Mothercare plc purchased in the market and held
by the Mothercare Employee Trusts to satisfy options under the Group’s share option schemes (see note 30) . The total shareholding is
925,342 (2020: 925,342) with a market value at 27 March 2021 of £0.1 million (2020: £0.1 million) .
The Company has no distributable reserves and has made no distribution during this or the prior year.
9. Prior year adjustments
After the Annual Report for the year ended 28 March 2020 was approved, the Group was approached about a liability relating to
Mothercare UK Limited. Despite the Company being in administration, this was an amount that the Group owed due to a cross-
guarantee. Had management been aware of this liability before the Annual Report was approved, a provision would have been
included as at 5 November 2019 i.e. the date Mothercare UK Limited went into administration, and would still have been on the balance
sheet at 27 March 2021. As a result of this, it has been considered appropriate to include a prior year adjustment for the amount the
provision would have been.
The impact of this prior year adjustment on the balance sheet has been to increase provisions as at 27 March 2021 by £1.3 million and
reduce retained earnings by £1.3 million.
The impact of this prior year adjustment on the income statement for the comparative year has been to increase the adjusted items
expense by £1.3 million and reduce the profit £1.3 million.
There is no impact on the brought forward reserves for the comparative financial year.
10. Events after the balance sheet date
Details on events after the balance sheet date are shown in note 35 to the consolidated financial statements.
126
Mothercare plc annual report and accounts 2021
Shareholder information
Shareholder information (unaudited)
Shareholder analysis
A summary of holdings as at 27 March 2021 is as follows:
Banks, insurance companies and pension funds
Nominee companies
Other corporate holders
Individuals
Mothercare ordinary shares
Number of
shares
Number of
shareholders
1
475,276,475
83,645,329
4,914,821
563,836,626
1
161
167
18,527
18,856
As can be seen from the above analysis, many shares are registered in the name of a nominee company as the legal owner. The
underlying holder of shares through a nominee account is the beneficial owner of these shares, being entitled to the capital value and the
income arising from them. An analysis of these nominee holdings shows that the largest underlying holders are pension funds, with unit
trusts and insurance companies the other major types of shareholder.
Share price data
Share price at 27 March 2021 (28 March 2020)
Market capitalisation
Share price movement during the year:
High
Low
2021
16.20p
£85.9m
17.90p
3.89p
2020
4.81p
£18.0m
24.00p
4.77p
All share prices are quoted at the mid-market closing price. For capital gains tax purposes:
• the market value on 31 March 1982 of one ordinary share in British Home Stores PLC is 155p and of one ordinary share in Habitat
Mothercare PLC is 133p; and
• the market value of each Mothercare plc 50p ordinary share immediately following the reduction of capital and consolidation on
17 August 2000 for the purpose of allocating base cost between such shares and the shares disposed of as a result of the reduction is
135p.
Rights issue and TERP
On 23 September 2014 the Company announced a proposed rights issue of 9 for 10 ordinary shares at 125p per new ordinary share. The
theoretical ex-rights price (‘TERP’) between 24 September and 9 October 2014 (being the last day the ordinary shares were traded cum
rights) was 178p.
Immediately before the rights issue, the issued share capital was 88,824,771. 79,942,294 new ordinary shares were issued on 27 October 2014.
The total issued share capital immediately following the rights issue was 168,767,065.
Placing and open offer
On 9 July 2018 the Company announced a proposed subdivision of shares (into 1p ordinary shares and 49p deferred shares) and a
placing and open offer of 170,871,885 ordinary 1p shares on a 1 for 1 basis at 19p per ordinary share. Immediately before the placing and
open offer, the issued share capital was 170,871,885. 170,871,885 new ordinary shares were issued on 27 July 2018. The total issued share capital
immediately following the placing and open offer was 341,743,770.
Placing
On 5 November 2019 the Company announced that 32,359,450 new ordinary 1p shares (the “Placing Shares”) had been placed by Numis
Securities Limited at a price of 10 pence per Placing Share with existing institutional investors. The Placing Shares were admitted to the
premium listing segment of the Official List on 7 November 2019. The issued share capital prior to the Placing was 341,833,044 and, following
the issue, the total number of issued shares with voting rights was 374,192 494.
Conversion shares
On 17 March 2021 189,644,132 conversion shares of 1p each were issued at 10 pence per ordinary share. The total voting rights following the
admission of the conversion shares was 563,836,626.
Mothercare plc annual report and accounts 2021
127
Financials
Shareholder information
Shareholder information
continued
Registrars and transfer office
Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
Financial calendar
Annual General Meeting
Announcement of interim results
Preliminary announcement of results for the 52 weeks ending 26 March 2022
Issue of report and accounts
Annual General Meeting
2021
9 September
November
2022
July
July
August
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).
Stockbrokers
The Company’s stockbrokers are:
finnCap Ltd, One Bartholomew Close London EC1A 7BL
Telephone 020 7220 0500
Numis Securities Limited, The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT
Telephone 020 7260 1000
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.
128
Mothercare plc annual report and accounts 2021
Designed and produced
by Black&Callow
www.blackandcallow.com
Printed on FSC® certified paper.
m
o
t
h
e
r
c
a
r
e
p
l
c
a
n
n
u
a
l
r
e
p
o
r
t
a
n
d
a
c
c
o
u
n
t
s
2
0
2
1
Mothercare plc
Westside 1
London Road
Hemel Hempstead
HP3 9TD
T 01923 241000
www.mothercareplc.com
Registered in England number 1950509