My previous Chairman’s statements detailed how our principal focus in recent years, to protect the underlying Mothercare brand intellectual property ("IP") in a solvent business structure, for the benefit of all stakeholders, has led to:
- a reduction of the combined debt financing & pension schemes actuarial deficit from £256 million, for a business that reported a loss before tax of £72.8 million on worldwide retail sales of over £1.1 billion in the year ended March 2018; to
- the reported adjusted loss before tax of £2.5 million for the financial year to March 2025 on worldwide retail sales by franchise partners of £230.6 million with a comparative financing requirement, including pension deficit, of £43 million, some 83% lower than the inherited position.
The Transformation Plan launched immediately after my appointment, alongside management efforts to radically reduce working capital requirements (in the face of the unprecedented Covid-19 led demand shock) and subsequently to offset the loss of retail sales of £88 million in Russia (as a result of sanctions arising from the Ukraine conflict), strived to secure a sustainable business model with a capacity to sponsor future growth.
We are now focused on reversing the dis-economies of scale associated with the halving of our franchise partners’ store footprint over the last five years due to the pandemic, the Ukraine conflict and more recently the uncertainty in the Middle East. This ultimately led to the transition of the business to an asset light global franchising business to focus upon our core international franchise and brand management competencies, as evidenced by our recent agreements in both South Asia and Turkey.
Ongoing Core Objectives
Our primary goals for the year under review and beyond were to:
- reduce the combined business and pension schemes financing requirement, whilst putting in place adequate working capital facilities and eliminating the unsustainable cash financing charges;
- sponsor growth in our franchise partners' retail sales, profitability and store footprint; and
- explore new territories and additional routes to market.
These objectives were designed to rebalance the Mothercare brand IP value in a way that also promotes growth in our royalty income: ultimately improving profitability and the covenant of the underlying business for actuarial pension and stock market rating purposes alike.
As detailed in the Financial Review section, the new joint venture for the South Asian region and concurrent refinancing, highlighted below, successfully reduced the combined business and pension schemes’ financing requirement and introduced significantly reduced cash financing charges.
In addition, in June 2025 we announced a new license agreement for Turkey, with Ebebek Mağazacılık A.Ş. (“Ebebek”), which is outlined below.
A combination of these factors has now established a platform for step-change growth as we seek a catalyst to restore growth in our franchise partners’ retail sales and store footprint alongside exploring new territories and additional routes to market.
The Year under review
Worldwide retail sales by franchise partners for FY25 were £230.6 million, compared to £280.8 million for the previous financial year, a year-on-year decline of 18% which reduces to 14% at constant currency exchange rates. As predicated in our interim results statement last December this deterioration in trading was impacted by a combination of the continuing uncertainty in the Middle East and to a lesser extent the UK, where we are ending our exclusive distribution relationship with Boots at the end of this year, and the ongoing need for franchise partners to clear old inventory.
The resultant adjusted EBITDA of £3.5 million (FY24: £6.9 million) led to an adjusted loss before taxation of £2.5 million (FY24: £3.5 million adjusted profit) notwithstanding a continued tight control of overheads delivering further cost savings of £2.1 million. Online retail sales for the period remained broadly consistent at 9% of total retail sales (FY24: 10%).
The underlying strength of the business is however demonstrated by the fact that excluding the UK, on a like for like basis our total retail sales were positive for FY25 despite the prevailing economic uncertainties. In addition, there are signs of the headwinds in the Middle East final abating where the shape of our partner’s retail offering continues to adapt to address evolving consumer behaviour, pursuant to ongoing fiscal and legislative changes.
Joint Venture and Refinancing
Last October we announced a joint venture with an entry valuation of c£30 million for the South Asian region with Reliance Brands Ltd ("Reliance"), a wholly owned subsidiary of Reliance Industries Ltd, a Fortune 500 company and the largest private sector corporation in India. In one step this:
- underlined the inherent value of the Mothercare brand;
- created an invigorated partnership in the South Asian region with Reliance, one of the world's largest, leading and respected business groups which will bring symbiotic and synergistic benefits; and
- significantly de-leveraged the business to finally allow an appropriate focus upon the Company's future development.
New South Asian Joint Venture Arrangements
Mothercare and Reliance created a new joint venture covering Mothercare's franchise operations in India, Nepal, Sri Lanka, Bhutan and Bangladesh, replacing the previous franchise arrangement with Reliance covering India alone.
Under the terms of these arrangements, Reliance paid £16 million to acquire a 51% interest in a new joint venture company, JVCO 2024 Ltd ("JVCo"). We retain a residual 49% shareholding in JVCo and granted JVCo perpetual rights for the use of the Mothercare brand and related intellectual property in India, Nepal, Sri Lanka, Bhutan and Bangladesh.
For FY25 our retail sales in India amounted to £18.6 million and contributed approximately £0.4 million to adjusted EBITDA (FY24: under the previous franchise arrangements approximately £24.0 million retail sales and £0.9 million adjusted EBITDA). Whilst we now receive revenues at lower rates than previously, we expect the reinvigorated business to grow strongly and surpass previous revenue levels over the next few years. We also expect to benefit from both sourcing fees (supplying the joint venture with product) together with the value creation accruing to our residual 49% equity stake in JVCo.
New Financing Arrangements with Gordon Brothers
We applied part of the proceeds received from Reliance towards a refinancing of the Company's existing debt facilities with GB Europe Management Services Ltd ("Gordon Brothers"), replacing the previous £19.5m term loan (which attracted interest at a rate of 13% per annum, plus SONIA, plus PIK interest of 1% per annum) with:
- an £8m two year term loan facility, attracting interest at a rate of 4.8% per annum, plus SONIA (with a floor of 5.2%), plus PIK interest of 1% per annum, rising to 2% per annum through the term of the loan; and
- granted Gordon Brothers warrants to subscribe up to 43.4m new ordinary shares at a subscription price of 8.5p per share (the "Warrants"), exercisable for five years from the date of issue, representing approximately 7% of the Company's issued share capital (following exercise in full of the Warrants).
Financial impact
As a result of this restructuring of our operations in South Asia and the associated sale of this 51% stake in JVCo, we received approximately £11.5 million of net cash proceeds after other pre-completion adjustments, refinancing expenses, transactional costs and associated additional pension deficit payments, which was applied to refinance the existing Gordon Brothers facilities as outlined above. As detailed in the Financial Review section this resulted in a taxable gain arising of £27 million and - after the use of certain pre-existing tax losses - a cash tax cost of £1.4 million.
The present levels of retail sales highlighted above, means the Board’s current forecasts for continuing operations show the Group requiring waivers to our covenant tests. We continue to have regular and positive discussions with our lender, who is aware of our revised forecasts. For the avoidance of doubt the Group does not require additional liquidity.
New License Agreement
In June 2025 we announced a new license agreement for Turkey, with Ebebek, the leading retailer in our sector in Turkey meeting all the needs of mother and baby from the prenatal period up to the age of four and has some 280 stores and an Online business producing revenues of around £400 million together with three stores recently opened in the UK.
The new license agreement gives Ebebek the exclusive right to use the Mothercare brand in Turkey on products either designed and sourced by Ebebek or Mothercare for a period of 10 years.
The agreement also allows Mothercare to purchase products Ebebek has sourced for itself, either under its own brands or Mothercare, for sale by our franchise partners outside of the territories where Ebebek trades and to re-brand these products with the Mothercare brand if relevant. The shares of Ebebek, which went public in 2023, are traded on Borsa Istanbul's Stars Market under the code EBEBK.
This is further evidence of the strength, inherent value and global appeal of the Mothercare brand and the value it can add, with businesses that are already market leaders in their territory. We look forward to working together with Ebebek to establish Mothercare as an important part of their business.
Pension Schemes
The revised recovery plan, agreed with the Trustees last year, included total contributions (Deficit Repair Contributions plus costs) in the financial years to March 2025 £2.0 million; March 2026 & 2027 £3.0 million; March 2028 & 2029 £4.0 million; March 2030 & 2031 £5.0 million and March 2032 £6.0 million and March 2033 £0.5 million aggregating to fully fund the deficit by March 2033. In order to support the Company’s cash flows whilst it is exploring growth opportunities, the trustees agreed to defer the first six months’ payments due in the year to March 2026, with a revised schedule of contributions to be agreed by 30 September 2025. We have written to the Trustee requesting an extension to the current deferral, followed by a revision to the current schedule of contributions, both to be at a time and a level that are affordable to the Group. The Trustee is considering the request and following the required process but we have yet to receive a formal response. We also continue to explore other options to mitigate the pension scheme deficit.
Opportunities for Growth
As we pursue our goal to be the world's most trusted and desirable brand for parents of babies and young children, the facts surrounding our market remain compelling:
- Mothercare remains a highly trusted British heritage brand, that connects with the parents of newborn babies and children across multiple product categories throughout their early life as parents;
- we estimate that there are some 30 million babies born every year in the world, into markets addressable by the Mothercare brand, yet only 700,000 in aggregate in the UK. Mothercare is still not represented in eight of the top ten markets in the world, when ranked by wealth and birth rate; and
- we have yet to fully capitalise on the multiple opportunities available to us in wholesale, licensing or online marketplaces to grow the global presence of the Mothercare brand beyond our existing franchise network.
We intend to utilise both the new South Asian region joint venture, and coterminous refinancing, alongside the new license agreement with Ebebek as a catalyst to redouble our efforts to capitalise upon the possibilities to grow the future global presence of the Mothercare brand: through connections with other businesses, the development of our branded product ranges and licensing within and beyond our existing perimeters.
Management & Board changes
We have a PLC Board that we believe is appropriate for a company of our size, nature and circumstances. Our Non-Executive Directors have relevant skills, continue to directly contribute to the ongoing change process, are regularly appraised and are encouraged to interface with the Operating Board.
Following the creation of the new South Asian joint venture and coterminous refinancing, Mark Newton Jones stood down from the Board at the 2024 AGM. I would like to thank Mark, both personally and on behalf of the Board for his efforts since my appointment and we wish him well with his future endeavours.
The day-to-day management of the Group continues to be run by the Chief Financial Officer and the Operating Board, with oversight from me as Chairman. We continue to anticipate the search for a new Chief Executive Officer to be fulfilled as a natural consequence of the multiple strategic discussions currently in train.
Dividend Policy
The Company has not paid a dividend since February 2012. The Directors understand the importance of optimising value for shareholders and it is the Directors' intention to return to paying a dividend when it is financially prudent for the Group to do so.
Summary and Outlook
On behalf of the Board, I would once again like to thank our colleagues across the business, together with our pension trustees and all other stakeholders for their unfailing support throughout the challenges of the last seven years.
As detailed, the new joint venture & licensing agreement strengthens our cooperation with franchise partners who are dominant in their home territories and underlines the intrinsic value of the Mothercare brand strength, coterminously supporting a material reduction in our bank facilities and leverage.
However, notwithstanding the close working relationship established with both the pension trustee and Gordon Brothers in recent years the unintended consequences of the recent UK Listing Rules changes place us at a material disadvantage. Unfortunately, these recent changes, that allow greater flexibility for companies with a view to fostering growth in UK equity markets, also removed the previously sacrosanct safeguard of shareholder approval requirements for material transactions and have tilted the balance in favour of debt providers.
As a direct result, having successfully demonstrated the inherent strength of the Mothercare brand, we are now accelerating our efforts to reverse and monetise our operational gearing, where the current business model could support much higher volumes, and would result in the vast majority of increased income falling straight to the bottom line.
Accordingly, we are in discussions with several other parties to restore critical mass, especially in the UK market - which contributed £20m to our retail sales and around £1.3m to our adjusted EBITDA in FY25 - alongside delivering our other core objectives. In the interim, the underlying business continues to prove its resilience and profitable cash generation despite consequential impacts on absolute levels of the profitability arising from the continuing challenges facing our Middle East operations.
