Final Results
23 May 2002
Preliminary results for the 52 weeks ended 30 March 2002
Mothercare plc Announces Preliminary Results
'Getting Back on Track to Become The Leading Specialist Retailer for Mothers To
Be and Parents
of Young Children'
Chris Martin, Chief Executive, comments:
'This has been a year of two distinct halves, with improved business
performance from our recovery programme seen in the first half of 2001,
followed by the adverse impact from implementing the move to the new warehouse
in the second half.
We are now getting back on track with our blueprint for revitalising the brand
and delivering a consistent offer to customers. Our priorities remain to
roll-out our successful new store formats to improve availability and to
provide specialist service, at the same time as driving down distribution
costs.'
Highlights
* Total sales up 1.9% to £426.9m (£419.1m), UK stores sales like-for-like
growth 2.0%
* Gross margin growth of 1.5 percentage points
* Profit before tax and exceptionals £4.2m (£10.2m)
* Final dividend per share 1.5p (1.5p), bringing the total dividend per share
for the year to 2.5p (1.5p)
* Sales growth in the out of town stores was 5.5%. Nine new stores to open in
2002/2003
* Availability returned to pre-warehouse move levels
* Strong performance from International and Direct businesses
* Management team strengthened
Enquiries to:
Chris Martin, Chief Executive Mothercare plc 01923 206 187
Susan Gilchrist / Alex Ranson Brunswick Group Ltd 020 7404 5959
An interview with Mothercare Chief Executive, Chris Martin is available at
www.cantos.com in audio, video and text.
Financial results
Group sales increased by 1.9% to £426.9 million (£419.1 million). The gross
margin increased by 1.5 percentage points and, after an 8.6% increase in costs,
Group operating profits before exceptional items were £3.0 million compared
with £7.1 million last year. Profit before tax and exceptionals was £4.2
million (£10.2 million).
Sales in the UK stores increased by 1.2% to £374.7 million (£370.1 million),
2.0% like for like. UK stores made an operating loss of £1.0 million, compared
with a profit of £4.7 million last year.
Mothercare International sales reduced by 3.0% to £38.9 million (£40.0
million), and operating profits rose to £4.0 million from £3.4 million.
The catalogue and website business, Mothercare Direct, continued to grow
strongly, with sales up by 48.8% to £13.3 million (£9.0 million), and achieved
breakeven a year ahead of plan (last year a loss of £1.0 million).
Earnings per share before exceptional items were 6.3p (6.5p). The board has
recommended a final dividend of 1.5p (1.5p), making a total of 2.5p (1.5p) and
underlining its confidence in the successful recovery of the business.
The balance sheet remains strong with cash of £12.3 million and continues to
support the investment required to develop the business. This includes the
roll-out of the large store format, which commenced in the second half.
Costs
Distribution costs, which increased to £23.2 million (£15.7 million), were the
primary drivers of the overall increase in cost, principally in the second half
and particularly in the final quarter. Also significant were the ongoing
investments in improving customer service through staffing levels and training,
and higher rent and rates.
As set out at the interim results in November, an exceptional charge of £4.1
million was taken in the first half to cover additional costs of temporary
warehousing and direct deliveries from suppliers to stores during the period
affected by the move to the new warehouse in Daventry.
Warehouse
In mid-August 2001, Mothercare moved to a new warehouse in Daventry, owned and
operated by Tibbett & Britten. Initial implementation problems led to severe
stock shortages in stores during the autumn and this impacted on sales. In
December, stock flow through the warehouse was rebuilt and, since the beginning
of January 2002, the facility has consistently achieved its targets.
As announced in January, although the Daventry warehouse will be the main
distribution facility for Mothercare, the business will continue to be
supported by an additional site, operated by Exel and based in Coventry. The
facility has been taken on a renewable one-year contract basis for up to three
years, and is now fully operational, mainly handling large hardware items. As
announced, this will increase annual costs by £3 million in 2002/2003.
Recovery programme
Mothercare's phased recovery programme is getting back on track to achieve our
vision of being the leading specialist retailer for mothers-to-be and parents
of young children. Although the warehouse difficulties have led to the sales
and profits setback, the strengthened senior management team has achieved
significant progress during the year in product, service and stores.
Product
Significant improvements in the product ranges have increased the average
customer spend by 5%. These have included the development of innovative
products such as the go anywhere high chair, the flo-control feeding bottle and
the mother's hospital bag. The clothing range was relaunched in Autumn 2001,
options were reduced by 25% and, despite the availability issues, sales were
held at the previous year's level. Significant margin gains are being driven
through direct sourcing, with some 30% of the Spring 2002 range bought directly
from manufacturers. It is anticipated that around 50% of the clothing range
will be sourced directly within the next two years.
Service and Operating Standards
Although stock shortages resulting from the warehouse problems had a
detrimental impact on sales and distribution costs, availability has now vastly
improved over the second half, from 55% to 90%. This is now back to levels seen
prior to the move to the new warehouse, and an aggressive plan is in place to
improve availability further and reduce distribution costs as a percentage of
sales from the current run rate of 7.5% to 5.5% by the end of this financial
year. Overall, distribution costs this year will be higher than last year.
A key part of the recovery programme has been to achieve higher, consistent
standards of customer care and specialist advice in all stores. To this end, we
have introduced in-depth training programmes for 4,500 store staff. We have
succeeded in reducing staff turnover in stores from 55% to 36%, and in
achieving a significant increase in full-time mix.
UK Stores
Our chain of 63 out of town stores continues to perform well, with 5.5% sales
growth in 2001/2002. Trials of the redesigned 12-14,000 sq ft format have been
successful, providing new in-store fittings for stronger visual merchandising
and flexibility, and additional facilities for customers. This format is now
being rolled out, with Rotherham having opened in October and Bristol in March.
Since the year-end, the programme has begun to accelerate with new stores
opening in Eccles and Walsall in May. A further 7 stores are due to open in the
remainder of the current financial year. In the next 3-4 years, the out of town
chain is planned to expand to at least 100 sites and will account for 75% of
space, compared to 55% today.
Sales by the high street chain were down during the year by 3.4%. Using the
lessons learnt from the out of town store model, designing the blueprint for
the high street stores is a key priority. Work on this has already begun and we
will be trialling new concepts during the second half.
Direct
Mothercare Direct, the catalogue and website business, achieved excellent sales
growth of 48.8% and moved into profit, breaking even for the full year. A new
format, `handbag-sized' catalogue was successfully launched in February and has
been circulated to half a million customers. The aim is now to achieve greater
consistency and integration between the catalogue, website and stores, offering
customers flexibility in how they shop.
International
Mothercare International achieved a strong profit performance. With a continued
focus on building relationships with key franchise partners, 26 new stores were
opened and/or new franchise partnerships secured during the year, with another
11 stores planned for the current financial year. These partnerships are
increasingly moving to royalty-based arrangements in order to drive sales more
effectively. The overseas business presents a significant opportunity for
further growth and a key learning base for the UK.
Current trading
Total sales in the last 8 weeks were up 1.4%. Like for like sales in the UK
stores were down 2.1% and gross margins have improved. Availability has
returned to pre-warehouse move levels.
Sales performance in the current year should improve in the second half, as the
benefits from the continuing roll-out of new store formats and products,
combined with improving availability and reducing distribution costs come
through.
Board
Following the appointment of new directors to the Mothercare Operating Board,
securing continuity and succession on the plc Board is a priority. To that end,
searches have been commissioned to identify two new non-executive directors,
one of whom will be nominated a successor to the Chairman, Alan Smith.
Preliminary announcement of audited results
GROUP PROFIT AND LOSS ACCOUNT
For the 52 weeks ended 30 March 2002 (2001 - 52 weeks ended 31 March 2001)
Before Exceptional Total Before Exceptional Total
items items
exceptional exceptional
(Note 1) (Note 1)
items items
2002 2002 2002 2001 2001 2001
Notes £m £m £m £m £m £m
Mothercare 426.9 419.1
continuing
Bhs - 89.9
discontinued
Turnover 426.9 - 426.9 509.0 - 509.0
Mothercare 3.0 7.1
continuing
Bhs - (6.7)
discontinued
Profit/(Loss) 3.0 3.0 0.4 (7.4) (7.0)
from retail
operations
Exceptional - (4.1) (4.1) - 12.3 12.3
items (net)
Interest 2 1.2 - 1.2 3.1 - 3.1
(net)
Profit/(Loss) 4.2 (4.1) 0.1 3.5 4.9 8.4
before
taxation
Taxation 3 - - - (1.2) 1.2 -
Profit/(Loss) 4.2 (4.1) 0.1 2.3 6.1 8.4
for the
financial
year
Dividend per 4
share
- Interim 1.0p -
- Final 1.5p 1.5p
2.5p 1.5p
Earnings per 5
share
- Basic 6.3p 0.2p 6.5p 6.0p
- Diluted 0.2p 6.0p
MOTHERCARE CONTINUING BUSINESS BEFORE EXCEPTIONAL ITEMS
2002 2001
£m £m
Turnover 426.9 419.1
Profit from retail operations 3.0 7.1
Interest (net) 1.2 3.1
Profit before tax and exceptionals 4.2 10.2
Taxation - (1.2)
Profit after tax before exceptionals 4.2 9.0
GROUP BALANCE SHEET
As at 30 March 2002
Notes 30 March 2002 31 March 2001
£m
£m
Fixed assets
Tangible fixed assets 88.6 87.7
Investments 5.0 4.3
93.6 92.0
Current assets
Stocks 55.1 43.6
Debtors 35.2 32.4
Cash at bank and in hand and time 12.3 36.8
deposits
Creditors: amounts falling due within 6 (65.3) (71.0)
one year 41.8
37.3
Net current assets
Total assets less current liabilities 130.9 133.8
Creditors: amounts falling due after one 6 (2.8) (2.4)
year
Provisions for liabilities and charges 7 (2.7) (4.4)
Net assets 125.4 127.0
Capital and reserves attributable to
equity interests
Called-up share capital 35.3 35.3
Profit and loss account 8 90.1 91.7
127.0
Shareholders' funds 125.4
ANALYSIS OF NET CASH
30 March 2002 31 March 2001
£m
£m
Cash at bank and in hand 6.2 26.8
Time deposits 6.1 10.0
Obligations under finance leases:
Short-term - (2.0)
Net cash 12.3 34.8
GROUP CASH FLOW STATEMENT
For the 52 weeks ended 30 March 2002 (2001 - 52 weeks ended 31 March 2001)
52 weeks 52 weeks ended 31 March 2001
ended Mothercare Bhs Total
continuing discontinued
30 March
2002
£m £m £m £m
Profit/(loss) from retail operations 3.0 7.1 (6.7)
before 0.4
exceptional items
Depreciation 11.6 11.4 7.1 18.5
Working capital (11.5) 9.9 3.6 13.5
Exceptional costs (13.6) (24.3) (4.0) (28.3)
Net cash flow from operating (10.5) 4.1 - 4.1
activities
Returns on investments and servicing 1.2 3.1 - 3.1
of finance
Taxation (0.1) 2.9 - 2.9
Capital expenditure
Purchase of tangible fixed assets (10.7) (11.2) (6.3) (17.5)
Sale of tangible fixed assets - 9.5 2.1 _11.6
(10.7) (1.7) (4.2) (5.9)
Trading cash flow (20.1) 8.4 (4.2) 4.2
Acquisitions and disposals
Disposal of Bhs - 208.9
Acquisition of Mothercare shares by (0.7) (3.8)
Employee Trust
(0.7) 205.1
Equity dividends paid (1.7) -
(22.5) 209.3
Management of liquid resources 3.9 26.3
Financing
Scheme of arrangement -reduction in - (105.1)
share capital
Decrease in debt (2.0) (98.0)
(2.0) (203.1)
(Decrease)/increase in cash in the (20.6) 32.5
year
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET CASH
(Decrease)/increase in cash in the (20.6) 32.5
year
Cash flow from liquid resources (3.9) (26.3)
Cash flow from financing 2.0 98.0
Movement in net cash/(debt) in the (22.5) 104.2
year
Net cash/(debt) at the beginning of 34.8 (69.4)
the year
Net cash at the end of the year 12.3 34.8
1. Exceptional items
The group has undergone a fundamental re-organisation in relation to the
disposal of Bhs, which occurred in May 2000. The last stage of the
re-organisation was the move to a new warehouse, operated by the contractor,
Tibbett & Britten, which began despatching to stores in August 2001.
Significant difficulties were experienced with the transition to the new
warehouse and, as a result, additional costs were incurred through the need to
operate temporary warehousing and to deliver goods directly from suppliers to
stores.
These additional costs resulted in an exceptional charge for the year of £4.1
million.
In the year ended 31 March 2001 exceptional costs of £7.4 million were charged
to profit from retail operations in relation to the start up of Mothercare.com.
Other exceptional items represented net profit on disposal of stores of £3.5
million, the continuing costs of separation from Bhs of £9.9 million and
adjustments in respect of the loss on disposal of Bhs of £18.7 million.
The tax effect of the exceptional item is £nil (2001 - credit £1.2 million).
2. Interest (net)
2002 2001
£m £m
Interest receivable 1.3 4.3
Interest payable - banks loans and overdrafts - (1.1)
Obligations under finance leases (0.1) (0.1)
1.2 3.1
3. Taxation
The group had no charge to corporation tax in either year. As at 30 March 2002
the group has tax losses to carry forward of approximately £35 million.
4. Dividends
An interim dividend of 1.0p (2001 - nil) per ordinary share was paid on 12
February 2002. The total cost of the interim dividend was £0.7 million (2001 -
£nil).
A final dividend of 1.5p (2001 - 1.5p) per ordinary share has been proposed and
will be payable, if approved by shareholders, on 16 August 2002 to ordinary
shareholders on the register at the close of business on 28 June 2002. The
total cost of the final dividend is £1.0 million (2001 - £1.0 million).
5. Earnings per share
2002 2001
Weighted average number of shares in issue 67.2m 138.8
Dilution:
Option schemes 0.9m 0.3m
Diluted weighted average number of shares 68.1m 139.1
in issue
Profit after tax £0.1m £8.4m
Continuing business profit after tax £4.2m £9.0m
before exceptional items
Basic earnings per share 0.2p 6.0p
Continuing business earnings per share 6.3p 6.5p
before exceptional items
Diluted earnings per share 0.2p 6.0p
The earnings per share calculations in 2001 were adjusted to take account of
the impact of the capital reduction and subsequent share consolidation on 17
August 2000.
The earnings per share of the Mothercare continuing business before exceptional
items eliminates the impact of the disposal of Bhs.
6. Creditors
2002 2001
Due within one year £m £m
Obligations under finance leases - 2.0
Trade creditors 27.0 22.3
Corporation tax 10.9 11.0
Payroll and other taxes, including social 1.4 1.5
security
Proposed dividend 1.0 1.0
Accruals and deferred income 23.6 31.9
Landlords' contributions 1.2 1.1
Other creditors 0.2 0.2
65.3 71.0
The Corporation tax creditor relates to
outstanding tax issues and the group is
in discussions with the Inland Revenue to
resolve these matters.
Due after one year
Landlords' contributions 2.8 2.4
7. Provisions for liabilities and charges
Disposal Re-organisation Total
Provisions Provisions
£m £m £m
Balance at 1 April 2001 0.1 4.3 4.4
Utilised in year - (5.8) (5.8)
Charged in year - 4.1 4.1
Balance at 30 March 2002 0.1 2.6 2.7
The re-organisation provisions principally represent the costs of the
Mothercare store disposal programme provided in previous years. The exceptional
costs charged to the re-organisation provision in relation to the new warehouse
have been fully utilised within the year.
8. Reconciliation of movement in shareholders' funds
2002 2001
£m £m
Profit for the financial year 0.1 8.4
Dividends (1.7) (1.0)
Impact of capital reduction - (106.0)
Net decrease in shareholders' funds (1.6) (98.6)
Opening shareholders' funds 127.0 225.6
Closing shareholders' funds 125.4 127.0
Notes:
a. The results for the year have been prepared using accounting policies which
are consistent with the previous year, except for accounting for deferred
tax where the group has adopted FRS 19 'Deferred tax' in the current year.
There has been no financial impact on the group as a consequence of this
change in accounting policy.
There were no other changes in accounting policies.
b. This preliminary announcement of results does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985. The
preliminary announcement has been extracted from the statutory accounts of
Mothercare plc for 2002 which have been approved by the board of directors
on 23 May 2002. The auditors have given an unqualified auditors' report on
the statutory accounts which have not yet been filed with the Registrar of
Companies.
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