Uk retailer Mothercare has told the trustees of its defined benefit (DB) schemes that it would not be making the first instalment of the deficit repayment contributions due this month in full due to reduced cash generation primarily as the result of the suspension of its franchise partner’s retail business in Russia.
It also said it had entered into discussions with the trustees about a possible new deficit recovery schedule, with the company having provided forecasts and information to the trustees and their advisers.
“Notwithstanding the excellent, mutually beneficial relationship fostered with the scheme trustees since 2018, there can be no certainty as to the outcome of the discussions despite the deficit nearly halving since the last valuation with the next full actuarial valuation due in March 2023,” Mothercare said in a pre-close trading update today.
“We are also exploring the possibility of reducing the quantum or uncertainty of subsequent recovery plan contributions through alternative means.”
Mothercare announced the suspension of its franchise partner’s retail business in Russia on 9 March. It said £88m (€105m) of its annual retail sales came from Russia and the territory directly contributed around £5.5m to adjusted EBITDA for the year.
Mothercare UK fell into administration in November 2019, with the two DB schemes safeguarded by being moved to a new legal entity, Mothercare Global Brand. A five-year deficit recovery payment schedule was revealed in November 2020.
The agreed annual contributions to the pension schemes, for the years ending in March, were: 2021 £3.2m, 2022 £4.1m, 2023 £9m, 2024 £10.5m, 2025 £12m, 2026 to 2029 £15m, and 2030 £5.7m.
Today Mothercare said all contributions for the year to 31 March 2022 had been made in full and on time. It also said the pension deficit had materially reduced to £66m as at 28 February 2022, from the £124.6m deficit identified in the last full actuarial valuation of the schemes at 31 March 2020.
“As expected last year was one of further progress for Mothercare, generating free cash flow from operations as a focused, asset light global franchising business,” said Clive Whiley, chair of Mothercare.
“Whilst we must now deal with the impacts of the suspension of our franchise partner’s operations in Russia, we retain the resilience to deal with this additional challenge satisfactorily.”
He added: “We continue to drive initiatives designed to maintain momentum in improving profitability particularly when we return to more normal pre-pandemic levels of business. The near halving of the pension deficit also offers the potential for material reductions in our recovery plan payments. This is a good backdrop against which to revisit our current financing arrangements and we are exploring all available alternative funding options to further improve our financial flexibility.”