Performance in the Middle Eastern market remains difficult said Mothercare noting that its partner's retail offerings in the region continue to evolve in response to changing consumer behaviour, as well as fiscal and legislative adjustments.
H1 FY25 operational performance highlights:
Franchise partners worldwide generated total retail sales of £121.2m in H1 FY25, marking a 12% decline from the prior year's £137.2m and a 9% decrease at constant currency. The figures also reflect the need for franchise partners to clear old inventory.
During the 26-week timeframe ending on 28 September 2024, online retail sales remained consistent at 10% of total retail sales.
Adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) for the period fell 53% to £1.7m, resulting in an adjusted loss before taxation of £1.4m. This decline was primarily driven by high net financing costs during the period, which have been significantly reduced for future periods.
The company's adjusted operational profit fell sharply by 68% to £1.1m in the first half of FY24, a stark contrast to the £3.4m recorded in the same period the previous year.
Clive Whiley, chairman of Mothercare said: “Our results continue to reflect the impact of the continuing uncertainty on our franchise partners' operations in the Middle East. We are now focused upon restoring critical mass alongside delivering our remaining core objectives. This is an exciting prospect for all our partners, colleagues and stakeholders as we can finally leave behind the turmoil of recent years that Mothercare has successfully come through."
In 2019, Mothercare entered administration in the UK and closed all 79 of its stores as part of a strategic shift towards focusing on its international operations.
As outlined in the company’s full Year 2024 results statement, the primary focus has been to safeguard the value of Mothercare's brand intellectual property for the benefit of all stakeholders.
Joint venture and refinancing
The company's net debt saw an increase, reaching £17.1m from £15.8m as of 23 September 2023. In a strategic move on 17 October, Mothercare announced a joint venture valued at £30m for the South Asian market with Reliance Brands, a part of Indian conglomerate Reliance Industries Limited.
This new venture includes Mothercare's franchise operations in India, Nepal, Sri Lanka, Bhutan, and Bangladesh, replacing the previous agreement that covered only India.
Upon finalising this partnership, Mothercare received an upfront payment of £16m and secured revised debt facilities totalling £8m through GB Europe Management Services.
The restructuring in South Asia and the sale of a 51% stake in the joint venture company is projected to yield a taxable gain of approximately £29m.
The company expects the new joint venture in the South Asian region, along with the related refinancing, will help lower the combined business and pension schemes' financing requirements, resulting in significantly reduced cash financing costs.
This move also sets the stage for substantial growth as the company aims to support increased retail sales and expand the store networks of its franchise partners while exploring new markets and distribution channels.
Outlook
The company has been focused on safeguarding and repositioning the value of Mothercare's brand intellectual property (IP) to foster growth in royalty income streams. This approach aims at bolstering profitability and improving both the pension deficit and stock market valuation.
