Interim Results

21st November, 2002 Mothercare plc Interim Results for the 28 weeks ended 12th October, 2002 Summary * Group sales up 0.8% to £228.0m, (2001, £226.2m), UK like-for-like sales down 2.1%, International sales up 29.5%, Direct sales up 11.0% * Gross margin down by 0.8 percentage points, affected by discounting, product and business mix * Cost increases of 13.8%, driven by warehouse and distribution * Loss before tax and exceptional items £10.0m, (2001, £4.8m profit) * UK like-for-like sales in the five weeks to 15 November 2002 now positive, 1.4%, and at higher gross margins Mark McMenemy, Finance Director and acting Chief Executive, comments: 'After a very difficult period for the business, the sales picture is now positive and the stores well stocked for Christmas trading. Gross margins are now benefiting from a less promotional stance. The high cost of warehousing and distribution continues to be a major impediment, and new options to bring it back to acceptable levels are being urgently considered.' Enquiries to: Mothercare plc Mark McMenemy, Finance Director and acting Chief Executive 020 7404 5959 (21 November, only) Brunswick Group Limited Philippa Power/Chi Lo 020 7404 5959 A meeting for analysts will be held this morning at 08.45 for 09.00 at the Lincoln Centre, 18 Lincoln's Inn Fields, London WC2 Mothercare plc FINANCIAL RESULTS 28 weeks ending 12th October, 2002 Group sales in the first half increased by 0.8% to £228.0m (2001, £226.2m). The gross margin declined by 0.8 percentage points. This was due to a combination of discounting, product mix and growth in the lower margin International business. After a 13.8% increase in costs, the Group made an operating loss of £9.9m, (2001, £3.9m profit) before exceptional items. The loss before tax and exceptionals was £10.0m, (2001, £4.8m profit). An exceptional credit of £10.0m, a non-cash release of a corporation tax provision relating to a property reorganisation in 1996/7, is explained in note 2 to the group profit statement. Basic and diluted earnings per share were 0.0p (2001, 1.0p). The loss per share before exceptional items was 14.9p (2001, earnings per share 7.1p). As a result of the performance in the first half, no interim dividend will be paid, (2001, 1.0p). Working capital requirements have been held since the year end, with excess stock from the Spring/Summer being successfully traded out through the clearance stores. Capital investment of £8.9m in the first half reflects the ongoing new store programme, with five out of town stores opened in the first half, and the development of the model for the high street. The Company has no long-term debt and overall net debt of £0.9m, (being cash at bank and in hand of £2.3m and an overdraft of £3.2m). UK Stores Sales in the UK Stores fell by 2.3% to £195.1m (2001, £199.8m), 2.1% down on a like-for-like basis. Sales of Clothing, especially babywear, under-performed through Spring/Summer, while warm weather in September held back sales of the Autumn ranges until the last three weeks of the half. Hardware (home, travel and toys) was flat for the first six months, but has performed well since September against weak comparatives arising from the disruption after the warehouse move in August 2001. The average gross margin in the UK Stores fell as a result of the weaker sales of Clothing compared to other, lower margin, product. In addition, discounting was required to dispose of residual Spring/Summer clothing lines successfully, initially through the main chain and, from August, through five clearance stores converted for the purpose. Profitability was also affected by increased warehouse and distribution costs. As a result, UK Stores made an operating loss of £12.7m, (2001, £2.1m profit). Mothercare International Mothercare International benefited from the focus on a small number of core territories. Most franchises were ahead with the Middle East strongly up. Overall, International sales increased by 29.5% to £24.7m, (2001, £19.1m) against weak comparatives, and the order book for next Spring is well ahead. Profitability improved strongly with operating profits increasing to £2.8m, (2001, £1.9m). Mothercare Direct Mothercare Direct, the catalogue and website business, continued to make good progress both in its own right, and in enhancing the range of product that can be made available to customers in store. The business generated by Mothercare.com, while still small, grew by 43% against strong comparatives. Sales by Mothercare Direct in total increased by 11.0% to £8.1m (2001, £7.3m), and the business broke even against losses of £0.1m in the comparable period. DEVELOPMENT OF THE BUSINESS Warehousing and distribution The primary focus in warehousing and distribution over the past twelve months has been to restore service levels and meet the stock volume requirements of the business, particularly during the all-important peak periods. This objective has been achieved, but at a very high cost of £18.3m (2001, £9.7m). Various initiatives were jointly undertaken with Tibbett and Britten to drive down costs in the Daventry warehouse and to improve operational efficiency, but these did not result in the expected level of improvement. As a consequence, warehouse and distribution costs have not reduced as anticipated and continue to run at an unacceptable 8.0% of sales. Options to address this issue are currently being intensively examined. In the meantime, the Daventry warehouse will continue to be supported by the second warehouse at Coventry, operated by Exel, which has been retained until March 2004. Ranging and sourcing Under the new Product Director appointed in May 2002, the Autumn/Winter ranges were rationalised wherever possible to reduce potential end of season markdown. There is much work still to be done but the number of options is being substantially reduced as too many options lead to fragmented ranges, operational complexity and excessive cost. Action already taken will see further progress in the Spring. Design and technical input is being increased, and communication with the customer based on the excellence of the product, through the campaign 'because little things matter'. The merchandise sourcing strategy continues to develop with sourcing in more depth, across fewer options, from a reduced supplier base to unlock further potential in the intake margin across all product categories. STORE DEVELOPMENT Out of town stores Five stores were opened in the format proven in the blueprint stores in Kew, Milton Keynes and Rotherham, which themselves continue to show improved sales densities. The new locations are Bradford, Leicester, Manchester (Eccles), Newbury and Walsall, while Bristol opened at the end of the previous financial year. The search for high quality outlets in the right locations remains a key priority but the current shortage of such sites means that there may be no new openings in the second half. High street stores The first stage in the development of a high street format for the future was unveiled in the refurbished Hammersmith store in early October. Whilst still early days, sales growth is currently ahead of planned performance in both Clothing and Hardware. The store focus is on delivering specialist service, improved facilities and access to a much wider range of merchandise through in-store, easy-to-use ordering linked to the home delivery service of Mothercare Direct. The high street model will be refined as we learn from the Hammersmith store's trading performance over Christmas and the January sale period, prior to remodelling further high street stores in the next financial year. MANAGEMENT CHANGES Ben Gordon assumes the role of Chief Executive Officer on 2nd December, 2002. On that date Mark McMenemy will resume his role as Finance Director having acted as Chief Executive since 15th July, 2002. As previously announced, Ian Peacock became Chairman on 1st November, 2002. CURRENT TRADING Group sales in the five weeks ending 15th November have increased by 6.7%. All sales channels are showing improvement. Within the total increase, UK like-for-like sales are ahead by 1.4%. The business is well positioned for Christmas trading and inventory is currently at satisfactory levels, although it is early in the second half and peak trading is still to come. The form of trading is substantially different to last year when the business was in distress with a heavy reliance on promotion. A greater proportion of the merchandise is now being sold at full price and this is having a beneficial effect on gross margins. TRADING UPDATE A trading update will be published in January, 2003 after the Christmas and early January sales period. Preliminary announcement of unaudited results GROUP PROFIT STATEMENT For the 28 weeks ended 12 October 2002 (2001 - 28 weeks ended 13 October 2001) 28 weeks ended 12 October 2002 28 weeks ended 13 October 2001 _______________________________ ______________________________ Before Before exceptional Exceptional Total exceptional Exceptional Total 52 weeks ended items items £ items items £ 30 March 2002 £ million £ million million £ million £ million million £ million ________________________________________________________________________________________________________ Turnover Note 228.0 - 228.0 226.2 - 226.2 426.9 ________________________________________________________________________________________________________ (Loss)/profit from retail operations (9.9) - (9.9) 3.9 - 3.9 3.0 Exceptional items 2 - - - - (4.1) (4.1) (4.1) Interest 3 (0.1) - (0.1) 0.9 - 0.9 1.2 ________________________________________________________________________________________________________ (Loss)/profit (10.0) - (10.0) 4.8 (4.1) 0.7 0.1 before taxation Taxation 2, 4 - 10.0 10.0 - - - - ________________________________________________________________________________________________________ (Loss)/profit after (10.0) 10.0 - 4.8 (4.1) 0.7 0.1 taxation _____________________ ____________________ Dividends 5 - (0.7) (1.7) ________ _______________________ Retained profit/ - - (1.6) (loss) ________________________________________________________________________________________________________ Dividend per share 5 0.0p 1.0p 2.5p Earnings per share 6 0.0p 1.0p 0.2p Earnings per share 6 0.0p 1.0p 0.2p diluted ________________________________________________________________________________________________________ RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 28 weeks ended 28 weeks ended 52 weeks ended 12 October 2002 13 October 2001 30 March 2002 £ million £ million £ million ________________________________________________________________________________________________________ Profit for the financial - 0.7 0.1 period Dividends - (0.7) (1.7) ________________________________________________________________________________________________________ Movement in shareholders' - - (1.6) funds Opening shareholders' funds 125.4 127.0 127.0 ________________________________________________________________________________________________________ Closing shareholders' funds 125.4 127.0 125.4 ________________________________________________________________________________________________________ GROUP BALANCE SHEET As at 12 October 2002 12 October 2002 13 October 2001 30 March 2002 Note £ million £ million £ million ______________________________________________________________________________________________________ Fixed assets Tangible fixed assets 90.3 85.3 88.6 Investments 5.0 4.9 5.0 ______________________________________________________________________________________________________ 95.3 90.2 93.6 ______________________________________________________________________________________________________ Current assets Stocks 51.8 43.7 55.1 Debtors 31.2 27.4 35.2 Cash at bank and in hand 2.3 32.6 12.3 Creditors - amounts falling due within one 7 (50.4) (57.1) (65.3) year ______________________________________________________________________________________________________ Net current assets 34.9 46.6 37.3 ______________________________________________________________________________________________________ Creditors - amounts falling due after more 7 (2.7) (2.6) (2.8) than one year Provisions for liabilities and charges 8 (2.1) (7.2) (2.7) ______________________________________________________________________________________________________ Net assets 125.4 127.0 125.4 ______________________________________________________________________________________________________ Capital and reserves attributable to equity interests Called-up share capital 35.3 35.3 35.3 Profit and loss account 90.1 91.7 90.1 ______________________________________________________________________________________________________ 125.4 127.0 125.4 ______________________________________________________________________________________________________ GROUP CASH FLOW For the 28 weeks ended 12 October 2002 (2001 - 28 weeks ended 13 October 2001) 28 weeks ended 28 weeks ended 52 weeks ended 12 October 2002 13 October 2001 30 March 2002 £ million £ million £ million ______________________________________________________________________________________________________ (Loss)/profit from retail operations (9.9) 3.9 3.0 Depreciation 6.5 6.2 11.6 Working capital 0.8 (0.6) (11.5) Exceptional costs (0.6) (6.9) (13.6) ______________________________________________________________________________________________________ Net cash flow from operating activities (3.2) 2.6 (10.5) Returns on investments and servicing of (0.1) 0.9 1.2 finance Taxation - 0.1 (0.1) Capital expenditure (8.9) (4.8) (10.7) ______________________________________________________________________________________________________ Trading cash flow (12.2) (1.2) (20.1) Acquisitions and disposals Acquisition of own shares by Employee Trust - (0.5) (0.7) Equity dividends paid (1.0) (1.0) (1.7) ______________________________________________________________________________________________________ (13.2) (2.7) (22.5) Management of liquid resources 6.1 10.0 3.9 Financing - (1.5) (2.0) ______________________________________________________________________________________________________ (Decrease)/increase in cash in the period (7.1) 5.8 (20.6) ______________________________________________________________________________________________________ Reconciliation of net cash flow to movement in net funds 28 weeks ended 28 weeks ended 52 weeks ended 12 October 2002 13 October 2001 30 March 2002 £ million £ million £ million ______________________________________________________________________________________________________ (Decrease)/increase in cash for the period (7.1) 5.8 (20.6) Cash flow from liquid resources (6.1) (10.0) (3.9) Cash flow from financing - 1.5 2.0 ______________________________________________________________________________________________________ Movement in net (debt)/funds in the period (13.2) (2.7) (22.5) Net funds at the beginning of the period 12.3 34.8 34.8 ______________________________________________________________________________________________________ Net (debt)/funds at the end of the period (0.9) 32.1 12.3 ______________________________________________________________________________________________________ Analysis of net cash 28 weeks ended 28 weeks ended 52 weeks ended 12 October 2002 13 October 2001 30 March 2002 £ million £ million £ million ______________________________________________________________________________________________________ Cash at bank and in hand 2.3 32.6 6.2 Overdrafts (3.2) - - Time deposits - - 6.1 Obligations under finance leases: - short term - (0.5) - ______________________________________________________________________________________________________ (0.9) 32.1 12.3 ______________________________________________________________________________________________________ 1 Accounting policies This interim report has been prepared under the historic cost convention and using accounting policies which are consistent with previous years. 2 Exceptional items A corporation tax provision of £10.0 million made in a prior year has been released in the period as an exceptional credit to the profit and loss account. This provision related to outstanding tax issues relating to the reorganisation of various property interests conducted in 1996/7. These have now been resolved with the Inland Revenue. In the 28 weeks to 13 October 2001 exceptional costs of £4.1 million were charged to profit before taxation in relation to the additional costs incurred as a result of the warehouse transition. This was the last stage of the reorganisation in relation to the disposal of Bhs that occurred in May 2000. 3 Interest 28 weeks ended 28 weeks ended 52 weeks ended 12 October 2002 13 October 2001 30 March 2002 £ million £ million £ million ______________________________________________________________________________________________________ Interest comprises: Interest receivable 0.1 1.0 1.3 Interest payable (0.2) - - Obligations under finance leases - (0.1) (0.1) ______________________________________________________________________________________________________ (0.1) 0.9 1.2 ______________________________________________________________________________________________________ 4 Tax Current tax is calculated at nil per cent (2001 - nil per cent) being the estimated effective rate of tax on the expected result for the 52 weeks ending 29 March 2003. The only significant timing differences impacting the group are accelerated capital allowances and tax losses generated in prior years which are available to offset future profits. The group had tax losses carried forward of approximately £44 million at 12 October 2002 (30 March 2002 - £35 million). Tax losses have been recognised to the extent of any deferred tax liabilities arising primarily from accelerated capital allowances. No further deferred tax asset has been recognised for the remaining losses of £30 million (2001 - £17 million) as the directors are of the opinion that there is sufficient uncertainty over the recoverability of these losses against future taxable profits such that in accordance with FRS 19 it is not appropriate to recognise any further asset at this time. This position will be reviewed at the year end and future balance sheet dates. A corporation tax provision of £10.0 million made in a prior year, has been released in the period, as set out in Note 2. 5 Dividend No interim dividend is to be paid (2001 - 1.0p per share). 6 Earnings per share 28 weeks ended 28 weeks ended 52 weeks ended 12 October 2002 13 October 2001 30 March 2002 ______________________________________________________________________________________________________ Weighted average number of shares in issue 67.1m 67.2m 67.2m Dilution: Option schemes 0.0m 1.1m 0.9m ______________________________________________________________________________________________________ Diluted weighted average number of shares in 67.1m 68.3m 68.1m issue ______________________________________________________________________________________________________ Profit after tax £0.0m £0.7m £0.1m Earnings per share: - Basic 0.0p 1.0p 0.2p - Diluted 0.0p 1.0p 0.2p ______________________________________________________________________________________________________ 7 Creditors 28 weeks ended 28 weeks ended 52 weeks ended 12 October 2002 13 October 2001 30 March 2002 £ million £ million £ million ______________________________________________________________________________________________________ Due within one year Overdrafts 3.2 - - Obligations under finance leases - 0.5 - Trade creditors 26.1 17.5 27.0 Proposed dividend - 0.7 1.0 Corporation tax 0.9 11.1 10.9 Payroll and other taxes, including social 1.2 0.9 1.4 security Accruals and deferred income 17.5 25.0 23.6 Landlords' contributions 1.4 1.3 1.2 Other creditors 0.1 0.1 0.2 ______________________________________________________________________________________________________ 50.4 57.1 65.3 ______________________________________________________________________________________________________ Due after one year Landlords' contributions 2.7 2.6 2.8 ______________________________________________________________________________________________________ 2.7 2.6 2.8 ______________________________________________________________________________________________________ 8 Provisions for liabilities and charges Disposal Re-organisation provisions provisions Total £ million £ million £ million ______________________________________________________________________________________________________ Opening balance as at 31 March 2002 0.1 2.6 2.7 Utilised - (0.6) (0.6) ______________________________________________________________________________________________________ Closing balance as at 12 October 2002 0.1 2.0 2.1 ______________________________________________________________________________________________________ The reorganisation provisions principally represent the costs of the Mothercare store disposal programme provided in previous years. This interim report was approved by the directors on 21 November 2002. Results for the two half years have not been audited, but have been reviewed by the auditors. The financial information contained in the interim accounts does not constitute statutory accounts as defined in section 240 of the Companies Act. The full year comparatives were extracted from the full group accounts which have been filed with the Registrar of Companies together with an unqualified auditors' report. All shareholders will receive a copy of this statement.

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