Mothercare in discussions with pension trustees over revised DRC payment schedule

Mothercare has notified its defined benefit (DB) pension trustees it will not be able to pay the first instalment of the deficit recovery contributions (DRC) due this month (April) in full due to reduced cash generation following the suspension of its Russian business.

In its pre-close trading update, Mothercare also stated that it had requested a revised DRC payment schedule, which was initially agreed in January 2020, and discussions have commenced with the trustees.

All DRCs that were due for the year to 31 March 2022 had been paid in full and on time.

Mothercare UK fell into administration in November 2019, with its two DB schemes and their members moved to a subsidiary of the company and new legal entity, Mothercare Global Brand, to be safeguarded.

The details of the five-year DRC payment schedule were revealed in November 2020, with annual contributions to the pension schemes of £3.2m in 2020/21, £4.1m in 2021/22, £9m in 2022/23, £10.5m in 2023/24, £12m in 2024/25, then £15m each year from 2025/26 to 2029/30, and £3.3m in 2030/31.

Mothercare noted that there was no certainty as to the outcome of the discussions with the trustees, despite the deficit of the schemes almost having since their last valuation.

Its update revealed that, as at 28 February 2022, the schemes’ deficit stood at £66m, with total assets of £412m and liabilities of £478m.

This was a reduction of £58.6m compared to the schemes’ last full actuarial valuation, as at 31 March 2020, when the deficit was £124.6m, and £25m less than the £91m deficit recorded as at 30 October 2021.

“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,” commented Mothercare chairman, Clive Whiley.

“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.

“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.”

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