Retailer Mothercare will not fully pay the first instalment of its deficit repair contributions schedule this month and will enter into negotiations with its schemes’ trustees over its timetable for future payments.
A pre-close trading update published on April 11 revealed that the schemes’ deficit stood at an estimated £66mn as of February 28, a decline of 27.5 per cent from a level of £91mn on October 30 2021.
The last actuarial valuation yielded a deficit of £124.6mn as of March 31 2020. In 2019, a transfer of sponsor saved Mothercare UK’s pension schemes from falling into the Pension Protection Fund, following the collapse of the retailer into administration in that year.
The retailer’s franchisee partners have been disrupted by the fallout from Russia’s invasion of Ukraine and the coronavirus pandemic.
The near halving of the pension deficit also offers the potential for material reductions in our recovery plan payments
Clive Whiley, Mothercare
On March 9, Mothercare announced that its franchise partner’s retail business in Russia, which ran 116 stores and an online operation, had been suspended.
The retailer said its reduced cash generation, caused primarily by the suspension of the Russian business, prompted it to inform the schemes’ trustees that “we will not be making the first instalment of the deficit repayment contributions due this month in full and would like to enter into discussions to revise the repayment schedule”.
Mothercare exploring ‘alternative means’ over contributions
The group generated £88mn of its annual retail sales from Russia, while the region directly contributed around £5.5mn to its adjusted earnings before interest, taxation, depreciation and amortisation for the year.
The retailer has fulfilled its agreement to pay £4.1mn towards the scheme for its year to March 2022.
The deficit repair contributions schedule would see Mothercare provide £9mn in the 2023 financial year, £10.5mn for 2024 and £12mn for 2025.
Mothercare would then pay £15mn annually for 2026 to 2030, then £3.3mn for 2031.
The group said the trustees have responded and that negotiations have begun over its pension arrangements.
It added, however, that “there can be no certainty as to the outcome of the discussions”, ahead of its next actuarial valuation in March 2023.
“We are also exploring the possibility of reducing the quantum or uncertainty of subsequent recovery plan contributions through alternative means”, its announcement stated.
Mothercare has been contacted to clarify this statement.
‘A good backdrop’ to revisit Mothercare’s financing
Mothercare has excluded Russia from its 2023 forecasts in the absence of any certainty surrounding the reopening of its stores there, a decision that will impact its results by £6mn.
“We continue to drive initiatives designed to maintain momentum in improving profitability, particularly when we return to more normal pre-pandemic levels of business,” Mothercare chairman Clive Whiley said.
“The near halving of the pension deficit [since March 2020] also offers the potential for material reductions in our recovery plan payments.
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“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.”
In 2019, a restructure protected nearly 6,000 members of Mothercare UK’s pension schemes by transferring the plans to its global parent company.
The restructure included a revised payment schedule that reduced sponsor contributions.
A spokesperson for The Pensions Regulator said: “In our role to protect savers we are in contact with the trustee of these pension schemes".
