Annual Financial Report and Notice of Annual Ge...
Mothercare PLC Annual Financial Report
To the London Stock Exchange
 Mothercare plc ("the Company")
 ANNUAL REPORT AND FINANCIAL STATEMENTS AND NOTICE OF ANNUAL GENERAL MEETING
The Company has today published the following documents on its website,
www.mothercareplc.com:
 * The Annual Report and Accounts for the year ended 26 March 2011;
 * Form of Proxy; and
 * Notice of Meeting and Chairman's letter.
Copies of these documents will shortly be available for inspection via the
Financial Services Authority's National Storage Mechanism located at
http://hemscott.com/nsm.do.
The Company will be holding its Annual General Meeting at 10.30 am on Thursday
14 July 2011 at the Company's office at Cherry Tree Road, Watford,
Hertfordshire, WD24 6SH.
In accordance with the requirements of Rule 6.3.5 of the Disclosure and
Transparency Rules ("DTR") of the UK Financial Services Authority we also attach
to this announcement a copy of the preliminary announcement, a description of
the principal risk factors, related party transactions and a responsibility
statement as required by DTR 4.1.12 and as set out in the Annual Report and
Accounts for the year ended 26 March 2011.
Enquiries: Tim Ashby, Group General Counsel and Company Secretary. +44 (0)
1923 206177
Mothercare plc
Preliminary Results
Major UK property restructure; rapid International growth
Mothercare plc announces preliminary results for the 52 weeks ended 26 March
2011.
Financial Results
* Group sales £793.6m, up 3.6% (2010: £766.4m)
* Group network sales(1) £1,158m, up 7.1% (2010: £1,081m)
* Net cash at year end £15.3m (2010: £38.5m)
* Increased committed bank facilities from £40m to £80m on improved terms
* Total dividend 18.3p, up 8.9% (2010: 16.8p)
* Group underlying profit before tax(1) £28.5m, down 23.4% (2010: £37.2m)
2011 2010
£m £m
---------------------------------------------------------------------------
Underlying profit from operations before share based payments 31.1 52.0
- Financing (0.4) (0.4)
- Share based payments (2.2) (14.4)
---------------------------------------------------------------------------
Underlying profit before tax 28.5 37.2
- Non-underlying items (19.7) (4.7)
---------------------------------------------------------------------------
Profit before tax 8.8 32.5
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Basic underlying EPS 24.7p 31.5p
---------------------------------------------------------------------------
Reshaping the UK
* Rightsizing the store portfolio - announcing plans to transform the in-town
estate within two years:
* Circa 110 in-town store closures plus 40 rent reductions by March 2013,
benefiting from 120 in-town lease expiries (90 in 2011/12; 30 in
2012/13);
* Reducing occupancy costs by circa £18m and benefiting UK profit by at
least £4m-£5m per annum from March 2013.
* Driving multi-channel - new ELC website launched. New Mothercare website
planned for 2012. Mobile sites launched for both brands
* Developing Wholesale - launched clothing partnership with Boots; Wholesale
sales up 350.0% to £21.6m
* Reducing costs - programme underway to save a further £5m per annum
Growing International
* Another strong year with Total International sales(1) up 16.3% to £570.9m
* 166 new International stores taking the total overseas to 894 in 54
countries
* Asia-Pacific sales up 47.0% with rapid growth in our three JVs - Australia,
China and India
* Announcing today plans to enter Latin America in 2011 with franchise stores
in Colombia and Panama
* Rollout of overseas e-commerce websites commenced
Ben Gordon, Chief Executive, said:
"Over the last three years we have been reshaping the UK business for a changing
retail landscape by downsizing the in-town property portfolio and growing Direct
and Wholesale. Today we are announcing plans to accelerate our UK property
strategy and transform the store portfolio over the next two years, benefiting
from the unique position of having over 40% of our high street leases expiring
by March 2013. This will substantially reduce our exposure to the UK high
street, further reduce operational leverage and allow us to focus on out-of-town
Parenting Centres, Direct and our new Wholesale business.
"International has had another record year with total International sales up
16.3% and the business continues to go from strength to strength. We are on
track to meet the International growth targets set out in December and we are
announcing today plans to enter Latin America for the first time later this
year.
"In the new financial year, we expect International to continue to grow retail
sales at 15-20% with 150 new store openings. We expect the environment to remain
challenging in the UK, although we will benefit from continued growth in
Wholesale and Direct together with the acceleration of our property strategy.
Given the group's strong underlying operating cashflow, particularly from
International, we are proposing a full year dividend of 18.3p, an increase of
8.9%."
Enquiries to:
Mothercare plc
Ben Gordon, Chief Executive 01923 206001
Neil Harrington, Finance Director 01923 206187
Joanne Russell, Head of Investor Relations 01923 694900
Brunswick Group Limited
Catherine Hicks/Catriona McDermott 020 7404 5959
Notes
1. For definitions of 'group network sales', 'Total International
sales' and 'underlying profit' see Financial Review on pages 7 to
11.
CHIEF EXECUTIVE'S REVIEW
RESULTS
The Mothercare group has had a challenging year, with International continuing
to deliver strong sales and profit growth and the UK seeing flat sales in a
difficult trading environment together with a decline in profitability.
Group sales in the year rose by 3.6% to £793.6 million (2010: £766.4 million)
and group profit before tax reduced from £32.5 million to £8.8 million. This is
after charging £19.7 million of non-underlying items (2010: £4.7 million) again
mostly relating to the volatile non-cash foreign exchange adjustments where we
are required to revalue stock and commercial currency hedges to spot rate.
Underlying profit before tax decreased from £37.2 million to £28.5 million after
a £2.2 million share based payments charge (2010: £14.4 million).
The group remains cash generative at the operating level and was debt free at
year end with net cash of £15.3 million. In May 2011, the group refinanced,
increasing committed bank facilities from £40 million to £80 million extended to
May 2014 on improved terms, which includes a reduction in interest rate from
1.7% to 1.4% above LIBOR. The increased facility, which is in addition to an
uncommitted £10 million overdraft, gives the group additional opportunities to
fund the next phase of our growth strategy.
With regard to the overall performance of the group and the strong underlying
operating cashflows generated from International in particular, we are proposing
a final dividend of 11.9 pence, an increase of 5.3%, resulting in a full year
dividend of 18.3p, an increase of 8.9%.
International results
International reported sales in the year increased by 17.2% to £206.4 million
(2010: £176.1m). Total International sales increased by 16.3% to £570.9 million
(2010: £490.9 million). This was mostly driven by a 15.6% increase in
International retail sales to £561.5m (2010: £485.9m). International underlying
profit from operations was 18.5% higher than last year at £27.5 million (2010:
£23.2 million).
UK results
Total UK sales in the year were down 0.5% at £587.2 million (2010: £590.3
million). UK like-for-like retail sales were down 4.0% (down 2.7% including
VAT), Direct in Home sales were up 10.5% (up 12.1% including VAT) to £82.9
million and sales from our new rapidly growing Wholesale channel increased by
350.0% to £21.6 million.
UK trading in the second half of the year was affected by adverse weather
conditions in the key trading weeks before Christmas together with a general
weakening in the consumer environment and increased competition, particularly in
Toys and Home & Travel. This led to an increase in clearance activity of
Autumn/Winter stocks in the fourth quarter resulting in gross margin for the
year being 2.5 percentage points lower than in 2010. As a result, UK underlying
profit from operations was significantly lower than last year at £11.1 million
(2010: £36.1 million).
WORLD CLASS BRANDS
Specialism and innovation are central to the development of our two world class
global brands, Mothercare and the Early Learning Centre as we continue to build
the Mothercare group as the leading global parenting business. The Early
Learning Centre brand has also been a success internationally and we have Early
Learning Centre outlets overseas than in the UK with 309 stores in 37 countries.
We have been working hard on our clothing ranges, particularly the baby category
where we have continued to grow market share in the newborn baby range despite
increased competition. In Home & Travel our premium ranges are performing well
as customers are choosing to spend more money on considered purchases when
buying quality and style. In Toys, our wooden kitchens continue to be a popular
choice with sales up 48% in the year. Our Diner kitchen won the Junior magazine
best design award for children's toys aged 3-5 years.
MOTHERCARE GROUP STRATEGY
Over the last six years, the Mothercare group has been transformed from a
predominantly UK retailer with £520 million of network sales into a multi-
channel global business with £1,158 million of network sales in 55 countries
worldwide. This transformation has been achieved through the strength of our two
brands Mothercare and Early Learning Centre, excellent product design and
innovation together with our focus on parenting and specialism. Over this period
we have also financially re-engineered the group, improving operating leverage
and flexibility.
Whilst this has been a tough year for retailing in the UK, our strategy to grow
International, Direct and Wholesale whilst rightsizing the UK portfolio has
partly mitigated the impact on the group. As a result of the downturn in
trading, we have reviewed our UK strategy and resolved to accelerate it.
We are announcing today plans to transform our UK business through a radical
restructure of our UK property portfolio. We have a unique opportunity with one
third of our leases expiring in the next two years. This will allow us to
rightsize our UK high street portfolio whilst we continue to drive multi-channel
consumer options, develop our new and rapidly growing Wholesale business and
focus on reducing costs.
At the same time we will continue to rapidly grow the International business. In
December, we set out plans to grow rapidly our International sales by 15-20% per
annum, opening at least 150 new stores each year. These plans are on track and
we expect our International retail sales to almost double again to approximately
£1 billion in 2013/14.
RESHAPING THE UK
i. Rightsizing the store portfolio
Over the last three years our UK property strategy has been a key element in our
overall strategy. We have reduced the cost base and operational gearing in the
store portfolio whilst focusing on the growth of Direct and the new Wholesale
channel. During this time we have reduced the in-town estate by a quarter,
benefiting from a high level of lease expiries to close high street stores.
At the same time we have taken advantage of the weak property market to open 21
larger and more profitable out-of-town Parenting Centres on favourable terms. We
have also transformed the Early Learning Centre estate, reducing the in-town
store numbers by 50 whilst creating 109 new concessions within existing
Mothercare Parenting Centres and opening 309 stores overseas.
Our property strategy has to date created a much more flexible estate with a
significantly shorter average lease length, lower costs and improved operational
gearing. However this has only partially mitigated the effects of the recent
downturn in UK trading which has highlighted that operational gearing and high
rents in town remain an issue. We are therefore announcing today a significant
acceleration of the UK property strategy over the next two years.
In total, 150 stores will be affected with approximately 110 stores closed and
rents renegotiated to a substantially lower level on a further 40 stores. We are
in the fortunate position of having 120 lease expiries in the next two years,
which is one third of the entire estate, 90 in 2011/12 and 30 in 2012/13. The
vast majority of these lease expiries fall within the lower profit in-town store
estate. There are also 30 more stores which do not have a lease expiry and which
we plan to exit with a cash cost. Total cash costs are expected to be less than
£5 million, although this will depend on negotiations. The results of this
activity will be to transform the UK estate by March 2013 reducing total store
numbers from 373 to an estimated 266, 102 of which will be out-of-town Parenting
Centres and 164 in-town.
By March 2013 we expect total rental costs to be reduced by approximately £12
million and total store occupancy costs, which comprise rent, rates and service
charges, to be reduced by £18 million, both on an annualised basis. Average
lease length in the estate will also be improved and operational gearing will be
enhanced. In total we expect net annualised benefits of at least £4 million to
£5 million per annum from March 2013. The reduction of the UK in-town property
estate goes hand in hand with our plans to grow Wholesale and Direct in the UK,
thereby retaining a significant portion of sales but without the associated rent
and rates costs.
As we reduce our exposure to the high street, we will also be investing in the
remaining core estate and we have developed new store formats, one for
Mothercare and one for the Early Learning Centre which we are trialing over the
next few months. The formats provide an improved shopping environment, enhanced
displays, signage and store layouts and better Early Learning Centre positioning
in Mothercare stores. We have already started the trial and we will be expanding
this over the next few months.
ii. Driving multi-channel
Direct continues to be an important and fast growing channel. In 2010/11 Direct
in Home sales increased by 10.5% in the year to £82.9 million and Web in Store
increased by 9.0% to £46.1 million. Total Direct sales were up 9.9% to £129.0
million, representing 22.0% of our UK business. We remain the largest online
specialist retailer in our space and continue to enhance our e-commerce offering
through improved services and better website functionality. Last July we re-
launched the Early Learning Centre online platform which has been a great
success, and we plan to launch a new, world class Mothercare online platform in
2012.
As the strength of online continues to grow, mobile is becoming an increasingly
important access tool, with traffic from mobile devices increasing four-fold
over the past 12 months. In response to this trend we have launched new
transactional mobile sites for both Mothercare and the Early Learning Centre.
iii. Developing Wholesale
Wholesale is a relatively new but exciting channel for the Mothercare group.
Sales increased by 350.0% to £21.6 million in the year. This channel provides us
with the opportunity to maximise the revenue and profit of our two brands while
broadening the reach of our consumer offering. It also enables us to retain
sales in towns where we are closing our own stores.
In conjunction with our strategic partner Boots, we successfully launched the
mini club brand in September. The mini club range, which is now in its second
season, is available in around 380 Boots stores. It is performing exceptionally
well and we are pleased with the positive response we have received for the new
Spring/Summer range.
iv. Reducing costs
We continue to focus on reducing the UK cost base and have initiated a cost
reduction programme which will save £5 million per annum in addition to the
property savings outlined above. These savings will be realised in the current
financial year and within the UK operating segment.
GROWING INTERNATIONAL
International is going from strength to strength with Total International sales
up 16.3%, and profits up 18.5%. We opened 166 new stores in the year, increasing
overseas retail space by 20%. The International business now represents
approximately 50% of Group Network sales, and is our largest profit generator.
The total number of overseas stores is now 894 in 54 countries.
The Asia-Pacific region had a particularly strong year with retail sales up
47.0%. This region is currently our smallest region but one with the biggest
growth potential as it includes our joint ventures in Australia, China and
India. The region is benefiting from buoyant economic growth in China and India.
Our newest joint venture, Mothercare Australia, continues to make rapid progress
in integrating and converting its recent acquisitions and opening new Mothercare
stores. Mothercare Australia currently operates 47 stores, 13 Mothercare and 34
Early Learning Centre. We have accelerated the store conversion programme and
this has resulted in an increase in our share of start-up costs this year.
Within the next 12 months Mothercare Australia plans to create a chain of at
least 60 Mothercare and Early Learning Centre stores establishing the only
mother and baby chain with a national footprint across Australia.
China remains a key growth market for Mothercare and our stores continue to
trade well. We opened a further 3 Mothercare stores this year, 2 in Beijing and
1 in Shanghai bringing total store numbers in China to 11. We plan to increase
the number of stores in China over the next year opening more stores in Shanghai
and Beijing as well as trialing second tier cities.
It has also been a very strong year for our India business with 30 new stores
opened during the year taking our total number of stores to 62. We now have 35
franchise stores and 27 with our joint venture. The potential for growth in
India is tremendous with high brand awareness across the middle classes and we
remain on track to have 200 stores by 2015.
We have also commenced the roll-out of our overseas e-commerce platform with our
franchise partners. Earlier this year we launched transactional websites for
Mothercare in both Australia and Ireland which are performing well. Following
this, we recently launched our first, non-English site, for the Early Learning
Centre in Russia. E-commerce is an area of tremendous growth internationally and
we have plans to introduce e-commerce platforms across much of the International
estate over time.
Finally, we are also announcing today our plans to open franchise stores in
Latin America for the first time. We expect to open trial stores during 2011 in
Colombia and Panama.
OUTLOOK
In the new financial year, we expect International to continue to grow retail
sales at 15-20% per annum with 150 new store openings. We expect the environment
to remain challenging in the UK, although we will benefit from continued growth
in Wholesale and Direct together with the acceleration of our property strategy.
FINANCIAL REVIEW
RESULTS SUMMARY
Group underlying profit before tax reduced by £8.7 million to £28.5 million
(2009/10: £37.2 million). Underlying profit excludes exceptional items and other
non-underlying items which are analysed below. Â After these non-underlying
items, the group recorded a pre-tax profit of £8.8 million (2009/10: £32.5
million).
Income Statement
£ million 2010/11 2009/10
--------------------------------------------------------------------------------
Revenue 793.6 766.4
Underlying profit from operations before share based payments 31.1 52.0
Share based payments (2.2) (14.4)
Financing (0.4) (0.4)
--------------------------------------------------------------------------------
Underlying profit before tax 28.5 37.2
Exceptional items and unwind of discount on exceptional (3.6) (1.3)
provisions
Non-cash foreign currency adjustments (13.8) (1.3)
Amortisation of intangible assets (2.3) (2.1)
--------------------------------------------------------------------------------
Profit before tax 8.8 32.5
--------------------------------------------------------------------------------
Underlying EPS - basic 24.7p 31.5p
EPS - basic 7.6p 28.0p
--------------------------------------------------------------------------------
Underlying profit from operations before share based payments includes all of
the group's trading activities, but excludes the volatile share based payment
costs charged to the income statement in accordance with IFRS 2 (see below).
Non-underlying Items
Underlying profit before tax excludes the following non-underlying items:
* Non-cash adjustments principally relating to marking to market of commercial
foreign currency hedges at the period end. As hedges are taken out to match
future stock purchase commitments, these are theoretical adjustments which
we are required to make under IAS 39 and IAS 21. These standards require us
to revalue stock and our commercial foreign currency hedges to spot rate.
This volatile adjustment does not affect the cash flows or ongoing
profitability of the group and is likely to reverse at the start of the next
accounting period.
* Amortisation of intangible assets (excluding software)
* Exceptional restructuring costs of the UK business of £3.6 million (see note
3)
* Net profits on disposal or termination of property interests of £0.2 million
(see note 3)
* Unwind of discount on exceptional property provisions £0.2 million (see note
3)
Exceptional items in 2009/10 included £2.0 million of integration costs of the
Early Learning Centre, £1.0 million net profits on disposal or termination of
property interests and £0.3 million unwind of discount on exceptional property
provisions
Results by Segment
The primary segments of Mothercare plc, are the UK business and the
International business.
£ million - Revenue 2010/11 2009/10
-----------------------------------------
UK 587.2 590.3
International 206.4 176.1
-----------------------------------------
Total 793.6 766.4
-----------------------------------------
£ million - Underlying Profit 2010/11 2009/10
-----------------------------------------------------------------------------
UK 11.1 36.1
International 27.5 23.2
Corporate (7.5) (7.3)
-----------------------------------------------------------------------------
Underlying profit from operations before share based payments 31.1 52.0
Share based payments (2.2) (14.4)
Financing (0.4) (0.4)
-----------------------------------------------------------------------------
Underlying profit before tax 28.5 37.2
-----------------------------------------------------------------------------
UK sales were 0.5% lower than last year with growth in Direct and Wholesale
offsetting lower store sales. However, we have benefited from the property
strategy, with lower occupancy costs and tight cost control.
International has benefited from the 16.3% growth in Total International sales
driving growth in royalty income and costs growing at a slower rate.
Corporate expenses represent board and company secretarial costs and other head
office costs including audit, professional fees, insurance and head office
property.
Share based payments
Underlying profit before tax also includes a share based payments charge of £2.2
million (2009/10: £14.4 million) in relation to the Company's long-term
incentive schemes. There are four main types of long-term share based incentive
scheme being the Executive Incentive Plan, the Performance Share Plan, the
Deferred Shares Plan and the Save As You Earn schemes. Full details can be found
in the Annual Report.
The charges as calculated under IFRS 2 are based on a number of market based
factors and estimates about the future including estimates of Mothercare's
future profits, share price and Total Shareholder Return in relation to the
General Retailers' Index. As a result it is difficult to estimate or predict
reliably future charges. However, we estimate with the information currently
available, the share based payments charge in 2011/12 will increase to
approximately £5 million.
Like-for-like sales, International retail sales, Total International sales and
Group network sales
'Like-for-like sales' are defined as sales for stores that have been trading
continuously from the same selling space for at least a year and include Direct
in Home and Direct in Store.
'International retail sales' are the estimated retail sales of overseas
franchisees and joint ventures and associates to their customers (rather than
Mothercare sales to franchisees as included in the statutory or reported sales
numbers). 'Total International sales' are International retail sales plus
International Wholesale sales. 'Group Network sales' are Total International
sales plus total UK sales. Group Network sales and Reported sales are analysed
as follows:
£ million Reported sales Network sales*
----------------------------------------
2010/11 2009/10 2010/11 2009/10
-------------------------------------------------------------------------
UK retail sales 565.6 585.5 565.6 585.5
UK Wholesale sales 21.6 4.8 21.6 4.8
-------------------------------------------------------------------------
Total UK sales 587.2 590.3 587.2 590.3
-------------------------------------------------------------------------
International retail sales 197.0 171.1 561.5 485.9
International Wholesale sales 9.4 5.0 9.4 5.0
-------------------------------------------------------------------------
Total International sales 206.4 176.1 570.9 490.9
-------------------------------------------------------------------------
Group sales/Group network sales 793.6 766.4 1,158.1 1,081.2
-------------------------------------------------------------------------
* Estimated
Previously we have included in group network sales the retail sales from our
partnership with Boots. We now include the Wholesale sales to Boots only,
consistent with other UK Wholesale arrangements. This has reduced year-on-year
group network sales growth for the full year from 8.6% to 7.1%.
Financing and Taxation
Financing represents interest receivable on bank deposits and costs relating to
bank facility fees and the unwinding of discounts on provisions.
The underlying tax charge is comprised of current and deferred tax and the
effective tax rate is 2.9% lower than 2009/10 at 25.6 per cent (2009/10: 28.5
per cent).  An underlying tax charge of £7.3 million (2009/10: £10.6 million)
has been included for the period; the total tax charge was £2.3 million
(2009/10: £8.9 million). In 2011/12 the effective tax rate is expected to reduce
further to approximately 23%.
Pensions
We continue to operate defined benefit pension schemes for our staff, although
the schemes are now closed to new members. Details of the income statement net
charge, total cash funding and net assets and liabilities are as follows:
£ million 2011/12 * 2010/11 2009/10
--------------------------------------------------------------------------------
Income statement
Service cost (2.5) (2.9) (2.1)
Return on assets/interest on liabilities 0.2 (0.6) (1.2)
--------------------------------------------------------------------------------
Net charge (2.3) (3.5) (3.3)
--------------------------------------------------------------------------------
Cash funding
Regular contributions (2.1) (2.2) (2.7)
Deficit contributions** (2.2) (2.8) (2.3)
--------------------------------------------------------------------------------
Total cash funding (4.3) (5.0) (5.0)
--------------------------------------------------------------------------------
Balance sheet
Fair value of schemes' assets 208.4 197.0
Present value of defined benefit obligations (246.0) (252.1)
--------------------------------------------------------------------------------
Net liability N/A (37.6) (55.1)
--------------------------------------------------------------------------------
* Estimate
** Deficit contributions are paid at the beginning of the following financial
year
In consultation with the independent actuaries to the schemes, the key market
rate assumptions used in the valuation are as follows:
2010/11 2009/10 2010/11 2010/11
Sensitivity Sensitivity
£ million
-----------------------------------------------------------------
Discount rate 5.5% 5.6% +/- 0.1% -/+ 5.6
+/- 0.5% -/+ 28.0
-----------------------------------------------------------------
Inflation - RPI 3.5% 3.7% +/- 0.1% +/- 5.0
-----------------------------------------------------------------
Inflation - CPI 2.8% n/a +/- 0.1% +/- 5.0
-----------------------------------------------------------------
The pension valuation reflects the government's announcement that future
statutory minimum pension indexation would be measured by reference to the
Consumer Prices index rather than the Retail Prices Index. This has contributed
to an overall reduction in the pension deficit in 2010/11 of £17.5 million.
The sensitivity of the IAS 19 valuation to a 0.1% and 0.5% movement in the
discount rate is set out in the table above.
Balance Sheet and Cash Flow
The balance sheet includes identifiable intangible assets arising on the
acquisition of The Early Learning Centre of £20.3 million and goodwill of £68.6
million.
The group continues to generate operating cash, with cash generated from
operations of £27.1  million. Continued rapid growth in the International and
Wholesale business and increased stock purchases through our Sourcing division
has resulted in an outflow of working capital in the year of £15.0 million.
We have made investments during the year in the Australia, India and China joint
ventures and the purchase of the Blooming Marvellous trade mark totaling £13.6
million.
After investing £21.8 million of capital expenditure (£12.2 million net of lease
incentives received) and paying £15.5 million of dividends and £6.0 million of
tax, the net cash position at the year end is positive, at £15.3 million
(2009/10: £38.5 million).
Going Concern
The group's objective with respect to managing capital is to maintain a balance
sheet structure that is both efficient in terms of providing long-term returns
to shareholders and safeguards the group's ability to continue as a going
concern. As appropriate, the group can choose to adjust its capital structure by
varying the amount of dividends paid to shareholders, returns of capital to
shareholders, issuing new shares or the level of capital expenditure.
At the year end, the group had facilities of £50 million, being £40 million
committed secured bank facilities and a £10 million uncommitted unsecured bank
overdraft at an interest rate of 1.7% above LIBOR, which expire on 31 October
2013. After the year end the group refinanced on improved terms, increasing
committed secured facilities to £80 million expiring in May 2014 at an interest
rate of 1.4% above LIBOR, in addition to the uncommitted overdraft of £10
million.
The group's previous and current committed borrowing facilities contain certain
financial covenants which have been met throughout the period. The covenants are
tested half-yearly and are based around gearing, fixed charge cover and
guarantor cover.
The committed bank facility was drawn down by a maximum of £30 million during
the period to fund seasonal working capital and at the year end the group had a
cash balance of £15.3 million in addition to the £50 million of available
facilities.
The current economic conditions create uncertainty around the level of demand
for the group's products. However, the group has significant opportunities to
optimise the UK property portfolio, long-term contracts with its franchisees
around the world and long standing relationships with many of its suppliers. Â As
a consequence, the directors believe that the group is well placed to manage its
business risks successfully despite the uncertain economic outlook.
The group's latest forecasts and projections have been sensitivity-tested for
reasonable possible adverse variations in trading performance and show that the
group will operate within the terms of its borrowing facilities and covenants
for the foreseeable future.
After making appropriate enquiries, the directors have a reasonable expectation
that the Company and the group have adequate resources to continue in
operational existence for the foreseeable future. Â The financial statements are
therefore prepared on the going concern basis.
Capital Expenditure
Total capital expenditure in the year was £21.8 million (2009/10: £24.2
million), of which £5.2 million was for software intangibles and £16.6 million
was invested in UK stores. Landlord contributions of £9.6 million (2009/10:
£10.2 million) were received, partially offsetting the outflow. Net capital
expenditure after landlord contributions was £12.2 million (2009/10: £14.0
million). Net capital expenditure for 2011/12, before landlord contributions, is
expected to be approximately £20 million.
Earnings per Share and Dividend
Basic underlying earnings per share were 24.7 pence compared to 31.5 pence last
year. The directors recommend a 5.3% increase in the final dividend to 11.9
pence (2009/10: 11.3 pence) giving a total dividend for the year of 18.3 pence
(2009/10: 16.8 pence), an increase of 8.9%.
The final dividend will be payable on 5 August 2011 to shareholders registered
on 3 June 2011. The latest date for election to join the dividend reinvestment
plan is 15 July 2011.
Treasury policy and financial risk management
The board approves treasury policies and senior management directly controls
day-to-day operations within these policies. The major financial risk to which
the group is exposed relates to movements in foreign exchange rates and interest
rates. Where appropriate, cost effective and practicable, the group uses
financial instruments and derivatives to manage the risks.
No speculative use of derivatives, currency or other instruments is permitted.
Foreign currency risk
All international sales to franchisees are invoiced in pounds sterling or US
dollars.
International reported sales represent 26.0% of group sales. Total International
Sales represent approximately 49.3% of Group Network Sales. The group therefore
has some currency exposure on these sales, but it is used to offset or hedge in
part the group's US dollar and Euro denominated product purchases. The group
policy is that all material net exposures are hedged by using forward currency
contracts.
Interest rate risk
At 26 March 2011, the group has positive cash balances. Given the cash
generative nature of the group, interest rate hedging was not considered
necessary. The board will keep this under review as the group develops.
Shareholders' funds
Shareholders' funds amount to £192.8 million, an increase of £4.4 million in the
year driven largely by the reduction in the retirement benefits liability. This
represents £2.18 per share at year end (2010: £2.14 per share).
Accounting Policies and Standards
There are no new standards affecting the reported results and financial
position.
Consolidated income statement
For the 52 weeks ended 26 March 2011
Note 52 weeks ended 26 March 2011 52 weeks ended 27 March 2010
---------------------------------------------------------------
Non- Non-
underlying    underlying
Underlying1 2 Total Underlying1 2 Total
£ £
£ million £ million million £ million £ million million
-----------------------------------------------------------------------------------------
Revenue 2 793.6 - 793.6 766.4 - 766.4
Cost of sales 3 (721.6) (16.1) (737.7) (676.0) (3.4) (679.4)
-----------------------------------------------------------------------------------------
Gross profit 72.0 (16.1) 55.9 90.4 (3.4) 87.0
+---------------------------------------------------------------------------------------+
|Administrative |
|expenses before       |
|share-based payments  (39.1) (3.6) (42.7) (37.9) (0.8) (38.7)|
| |
|Share-based payments (2.2) - (2.2) (14.4) (1.2) (15.6)|
+---------------------------------------------------------------------------------------+
Administrative
expenses (41.3) (3.6) (44.9) (52.3) (2.0) (54.3)
+---------------------------------------------------------------------------------------+
|Profit from retail |
|operations before       |
|share-based payments  32.9 (19.7) 13.2 52.5 (4.2) 48.3|
+---------------------------------------------------------------------------------------+
Profit from retail
operations 30.7 (19.7) 11.0 38.1 (5.4) 32.7
Profit on
disposal/termination
of property
interests 3 - 0.2 0.2 - 1.0 1.0
Share of results of
joint ventures and
associates (1.8) - (1.8) (0.5) - (0.5)
+---------------------------------------------------------------------------------------+
|Profit from |
|operations before       |
|share-based payments 2 31.1 (19.5) 11.6 52.0 (3.2) 48.8|
+---------------------------------------------------------------------------------------+
Profit from
operations 28.9 (19.5) 9.4 37.6 (4.4) 33.2
Net finance costs 3, 4 (0.4) (0.2) (0.6) (0.4) (0.3) (0.7)
-----------------------------------------------------------------------------------------
Profit before
taxation 28.5 (19.7) 8.8 37.2 (4.7) 32.5
Taxation 5 (7.3) 5.0 (2.3) (10.6) 1.7 (8.9)
-----------------------------------------------------------------------------------------
Profit for the
period attributable
to equity holders of
the parent 21.2 (14.7) 6.5 26.6 (3.0) 23.6
-----------------------------------------------------------------------------------------
Earnings per share
Basic 7 24.7p  7.6p 31.5p 28.0p
Diluted 7 24.2p  7.4p 30.7p 27.3p
-----------------------------------------------------------------------------------------
1 Before items described in note 2 below.
2 Includes exceptional items (profit/loss on disposal/termination of property
interests, restructuring and integration costs), amortisation of intangible
assets (excluding software) and the impact of non-cash foreign currency
adjustments under IAS 39 and IAS 21 as set out in note 3 to the financial
statements.
All results relate to continuing operations.
Consolidated statement of comprehensive income
For the 52 weeks ended 26 March 2011
52 weeks ended 52 weeks ended
Note 26 March 2011 27 March 2010
£ million £ million
--------------------------------------------------------------------------------
Other comprehensive income - actuarial  (32.1)
gain/(loss) on defined benefit pension 16.5
schemes
Exchange differences on translation of (1.2) 0.1
foreign operations
Tax relating to components of other 5 (4.3) 9.0
comprehensive income
--------------------------------------------------------------------------------
Net gain/(loss) recognised in other 11.0 (23.0)
comprehensive income
Profit for the period 6.5 23.6
--------------------------------------------------------------------------------
Total comprehensive income for the period  0.6
attributable to equity holders of the parent 17.5
--------------------------------------------------------------------------------
Consolidated balance sheet
As at 26 March 2011
52 weeks ended 52 weeks ended
26 March 2011 27 March 2010
£ million £ million
--------------------------------------------------------------------------------
Non-current assets
Goodwill 68.6 68.6
Intangible assets 38.5 36.3
Property, plant and equipment 91.1 93.9
Investments in joint ventures and associates 10.4 1.7
Deferred tax asset 6.9 7.9
--------------------------------------------------------------------------------
 215.5 208.4
--------------------------------------------------------------------------------
Current assets
Inventories 116.0 91.3
Trade and other receivables 62.5 57.7
Cash and cash equivalents 15.3 38.5
Currency derivative assets - 14.1
--------------------------------------------------------------------------------
 193.8 201.6
--------------------------------------------------------------------------------
Total assets  409.3 410.0
--------------------------------------------------------------------------------
Current liabilities
Trade and other payables (130.1) (120.6)
Current tax liabilities  (1.0) (1.4)
Currency derivative liabilities (2.7) -
Short term provisions (5.6) (9.0)
--------------------------------------------------------------------------------
 (139.4) (131.0)
--------------------------------------------------------------------------------
Non-current liabilities
Trade and other payables (32.3) (26.2)
Retirement benefit obligations (37.6) (55.1)
Long term provisions (7.2) (9.3)
--------------------------------------------------------------------------------
 (77.1) (90.6)
--------------------------------------------------------------------------------
Total liabilities  (216.5) (221.6)
--------------------------------------------------------------------------------
Net assets  192.8 188.4
--------------------------------------------------------------------------------
Equity attributable to equity holders of the
parent
Called up share capital 44.3 44.1
Share premium account 5.9 4.9
Other reserve 50.8 50.8
Own shares (9.0) (8.9)
Translation reserves 0.1 1.3
Retained earnings 100.7 96.2
--------------------------------------------------------------------------------
Total equity 192.8 188.4
--------------------------------------------------------------------------------
Consolidated statement of changes in equity
For the 52 weeks ended 26 March 2011
Equity attributable to equity holders of the parent
------------------------------------------------------------------
 Share Share Other Own Translation Retained Total
capital premium reserve1 shares reserve earnings equity
account
 £ £ £ million £ £ million £ £
million million million million million
--------------------------------------------------------------------------------
Balance at 28 44.1 4.9 50.8 (8.9) 1.3 96.2 188.4
March 2010
Total - - - - (1.2) 18.7 17.5
comprehensive
income for the
period
Issue of 0.2 1.0 - - - - 1.2
equity shares
Credit to - - - - - 2.6 2.6
equity for
equity-settled
share-based
payments
Purchase of - - - (1.4) - - (1.4)
own shares
Shares - - - 1.3 - (1.3) -
transferred to
employees on
vesting
Dividends paid - - - - - (15.5) (15.5)
--------------------------------------------------------------------------------
Balance at 26 44.3 5.9 50.8 (9.0) 0.1 100.7 192.8
March 2011
--------------------------------------------------------------------------------
For the 52 weeks ended 27 March 2010
Equity attributable to equity holders of the parent
------------------------------------------------------------------
 Share Share Other Own Translation Retained Total
capital premium reserve1 shares reserve earnings equity
account
 £ £ £ million £ £ million £ £
million million million million million
--------------------------------------------------------------------------------
Balance at 29 Â 43.8 4.3 50.8 Â (10.6) 1.2 Â 108.0 197.5
March 2009
Total - - - - 0.1 0.5 0.6
comprehensive
income for the
period
Issue of 0.3 0.6 - - - - 0.9
equity shares
Credit to - - - - - 2.6 2.6
equity for
equity-settled
share based
payments
Shares - - - 1.7 - (1.7) -
transferred to
employees on
vesting
Dividends paid - - - - - (13.2) (13.2)
--------------------------------------------------------------------------------
Balance at 27 44.1 4.9 50.8 (8.9) 1.3 96.2 188.4
March 2010
--------------------------------------------------------------------------------
1 The other reserve relates to shares issued as consideration for the
acquisition of the Early Learning Centre on 19 June 2007.
Consolidated cash flow statement
For the 52 weeks ended 26 March 2011
Note 52 weeks ended 52 weeks ended
26 March 2011 27 March 2010
£ million £ million
--------------------------------------------------------------------------------
Net cash flow from operating activities 8 27.1 50.1
--------------------------------------------------------------------------------
Cash flows from investing activities
Interest received 0.1 -
Purchase of property, plant and equipment (16.6) (18.7)
Purchase of intangibles - software (5.2) (5.5)
Purchase of intangibles - other (3.1) -
Proceeds from sale of property, plant and 3.3 2.4
equipment
Investments in joint ventures and associates (10.5) (1.9)
and acquisition of subsidiary
--------------------------------------------------------------------------------
Net cash used in investing activities (32.0) (23.7)
--------------------------------------------------------------------------------
Cash flows from financing activities
Interest paid (0.6) (0.5)
Repayment of obligations under finance leases - (0.1)
Equity dividends paid (15.5) (13.2)
Issue of ordinary share capital 1.2 0.9
Purchase of own shares (1.4) -
--------------------------------------------------------------------------------
Net cash used in financing activities (16.3) (12.9)
--------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash (21.2) 13.5
equivalents
--------------------------------------------------------------------------------
Cash and cash equivalents at beginning of 38.5 24.8
period
Effect of foreign exchange rate changes (2.0) 0.2
--------------------------------------------------------------------------------
Cash and cash equivalents at end of period 15.3 38.5
--------------------------------------------------------------------------------
Notes
General information
a. The accounting policies followed are the same as those published by the
group within the 2010 annual report which is available on the group's
website (www.mothercareplc.com).
b. Whilst the financial information included in this preliminary
announcement has been prepared in accordance with IFRS as endorsed by
the European Union, this announcement does not itself contain sufficient
information to comply with all the disclosure requirements of IFRS.
c. The Company believes that underlying profit before tax and underlying
earnings provides additional useful information for shareholders. The
term underlying earnings is not a defined term under IFRS and may not
therefore be comparable with similarly titled profit measurements
reported by other companies. It is not intended to be a substitute for
IFRS measures of profit. As the Company has chosen to present an
alternative earnings per share measure, a reconciliation of this
alternative measure to the statutory measure required by IFRS is given
in note 7.
d. The financial information set out in this announcement does not
constitute the Company's statutory accounts for the 52 week period ended
26 March 2011 or the 52 week period ended 27 March 2010, but it is
derived from those accounts. Statutory accounts for 2010 have been
delivered to the Registrar of Companies and those for 2011 will be
delivered following the Company's annual general meeting. The auditors
have reported on those accounts; their reports were unqualified, did not
draw attention to any matters by way of emphasis without qualifying
their report and did not contain statements under s498 (2) or (3)
Companies Act 2006 or equivalent preceding legislation.
Segmental information
IFRS 8 requires operating segments to be identified on the basis of internal
reports about components of the group that are regularly reported to the group's
board in order to allocate resources to the segments and assess their
performance. Â The group's reporting segments under IFRS 8 are UK and
International.
UK comprises the group's UK store and wholesale operations, catalogue and web
sales. The International business comprises the group's franchise and wholesale
revenues outside the UK. The unallocated corporate expenses represent board and
company secretarial costs and other head office costs including audit,
professional fees, insurance and head office property.
 52 weeks ended 26 March 2011
-------------------------------------------------------
  UK International Unallocated Consolidated
Corporate
Expenses
  £ million £ million £ million £ million
--------------------------------------------------------------------------------
Revenue
External sales  587.2 206.4 - 793.6
--------------------------------------------------------------------------------
Result
Segment result 11.1 27.5 (7.5) 31.1
(underlying)
--------------------------------------------------------------------
Share based payments (2.2)
Non-cash foreign currency (13.8)
adjustments
Amortisation of (2.3)
intangible assets
Exceptional items (3.4)
--------------------------------------------------------------------------------
Profit from operations 9.4
Investment income   0.1
Finance costs   (0.7)
--------------------------------------------------------------------------------
Profit before taxation   8.8
Taxation   (2.3)
--------------------------------------------------------------------------------
Profit for the period   6.5
--------------------------------------------------------------------------------
Notes continued
 52 weeks ended  27 March 2010
-------------------------------------------------------
  UK International Unallocated Consolidated
Corporate
Expenses
  £ million £ million £ million £ million
--------------------------------------------------------------------------------
Revenue
External sales  590.3 176.1 - 766.4
--------------------------------------------------------------------------------
Result
Segment result 36.1 23.2 (7.3) 52.0
(underlying)
--------------------------------------------------------------------
Share based payments (14.4)
Non-cash foreign currency (1.3)
adjustments
Amortisation of (2.1)
intangible assets
Exceptional items (1.0)
--------------------------------------------------------------------------------
Profit from operations 33.2
Finance costs   (0.7)
--------------------------------------------------------------------------------
Profit before taxation   32.5
Taxation   (8.9)
--------------------------------------------------------------------------------
Profit for the period   23.6
--------------------------------------------------------------------------------
3. Exceptional and other non-underlying items
Due to their significance or one-off nature, certain items have been classified
as exceptional or non-underlying as follows:
 52 weeks ended 52 weeks ended
26 March 2011 27 March 2010
 £ million £ million
--------------------------------------------------------------------------------
Exceptional items:
Profit on disposal/termination of property  0.2 1.0
interests
Restructuring costs included in administrative (3.6) -
expenses
Integration of ELC included in administrative - (0.8)
expenses
Share based payments charge included in - (1.2)
administrative expenses
Other non-underlying items:
Non-cash foreign currency adjustments under IAS (13.8) (1.3)
39 and IAS 211
Amortisation of intangibles1 (2.3) (2.1)
Unwinding of discount on exceptional property  (0.3)
provisions included in finance costs (0.2)
--------------------------------------------------------------------------------
Exceptional and other non-underlying items (19.7) (4.7)
--------------------------------------------------------------------------------
1 Included in non-underlying cost of sales is a charge of £16.1 million (2010:
charge of £3.4 million).
Profit on disposal/termination of property interests
During the 52 weeks ended 26 March 2011 ('current year') a net credit of £0.2
million has been recognised in profit from operations (2010: net credit of £1.0
million) relating to profit on disposal/termination of property interests, from
property restructures and provisions against subleases and vacant property.
Restructuring costs included in admin expenses
During the current year a net charge of £3.6 million (2010: £nil million) has
been recognised in administration expenses arising from a substantial
restructure of the group's UK Head Office operations which will improve
efficiency and effectiveness and result in a reduction in the ongoing cost base.
Integration of the Early Learning Centre
In the prior year, costs of £0.8 million have been charged to administrative
expenses relating to restructuring costs.
Share based payments charge included in admin expenses
During the 52 weeks ended 27 March 2010 a one-off share based payments charge of
£1.2 million relating to the 2007 Executive Incentive Plan was recognised in
administrative expenses relating to synergies achieved from the integration of
the Early Learning Centre.
4.Net Finance costs
52 weeks ended 52 weeks ended
26 March 2011 27 March 2010
£ million £ million
--------------------------------------------------------------------------------
Other interest receivable (0.1) -
Interest and bank fees on bank loans and 0.5 0.4
overdrafts
Unwinding of discounts on provisions 0.2 0.3
--------------------------------------------------------------------------------
Finance costs 0.6 0.7
--------------------------------------------------------------------------------
Notes continued
5.Taxation
The charge for taxation on profit for the period comprises:
52 weeks ended 52 weeks ended
26 March 2011 27 March 2010
£ million £ million
--------------------------------------------------------------------------
Current tax:
Current year 8.1 8.5
Adjustment in respect of prior periods (0.8) (1.5)
--------------------------------------------------------------------------
7.3 7.0
--------------------------------------------------------------------------
Deferred tax:
Current year (5.0) 0.4
Change in tax rate (in relation to prior period) 0.6 -
Adjustment in respect of prior periods (0.6) 1.5
----------------------------------------------------------------
 (5.0) 1.9
----------------------------------------------------------------
Charge for taxation on profit for the period 2.3 8.9
----------------------------------------------------------------
UK corporation tax is calculated at 28 per cent (2010: 28 per cent) of the
estimated assessable profit for the period.
The charge for the period can be reconciled to the profit for the period before
taxation per the consolidated income statement as follows:
52 weeks ended 52 weeks ended
26 March 2011 27 March 2010
£ million £ million
--------------------------------------------------------------------------------
Profit for the period before taxation 8.8 32.5
--------------------------------------------------------------------------------
Profit for the period before taxation multiplied  9.1
by the standard rate of corporation tax in the UK 2.5
of 28% (2010: 28%)
Effects of:
Expenses not deductible for tax purposes 1.0 0.7
Change in tax rates 1.0 -
Impact of overseas tax rates (0.7) (0.4)
Utilisation of tax losses not previously (0.1) (0.5)
recognised against capital gains
Adjustment in respect of prior periods (1.4) -
--------------------------------------------------------------------------------
Charge for taxation on profit for the period 2.3 8.9
--------------------------------------------------------------------------------
In addition to the amount charged to the income statement, deferred tax relating
to retirement benefit obligations amounting to £4.3 million (2010: £9.0 million)
has been credited directly to equity.
6.Dividends
52 weeks ended 52 weeks ended
26 March 2011 27 March 2010
pence per share  pence per share £ million
£ million
--------------------------------------------------------------------------------
Amounts recognised as
distributions to equity
holders in the period
Final dividend for the prior 11.3p 9.9 9.9p 8.5
year
Interim dividend for the 6.4p 5.6 5.5p 4.7
current year
--------------------------------------------------------------------------------
  15.5 13.2
--------------------------------------------------------------------------------
The proposed final dividend of 11.9 pence per share for the 52 weeks ended 26
March 2011 was approved by the Board after 26 March 2011, on 17 May 2011, and
so, in line with the requirements of IAS 10 'Events After the Balance Sheet
Date', the related cost of £10.5 million has not been included as a liability as
at 26 March 2011. This dividend will be paid on 5 August 2011 to shareholders on
the register on 3 June 2011.
Notes continued
7.Earnings per share
52 weeks ended 52 weeks ended
26 March 2011 27 March 2010
million million
--------------------------------------------------------------------------------
Weighted average number of shares in issue 85.8 84.4
Dilution - option schemes 1.8 2.1
--------------------------------------------------------------------------------
Diluted weighted average number of shares in issue 87.6 86.5
--------------------------------------------------------------------------------
£ million £ million
--------------------------------------------------------------------------------
Earnings for basic and diluted earnings per share 6.5 23.6
Non-cash foreign currency adjustments 13.8 1.3
Amortisation of intangibles (excluding software) 2.3 2.1
Unwinding of discount on exceptional property 0.2 0.3
provisions
Exceptional items (note 3) 3.4 1.0
Tax effect of above items (5.0) (1.7)
--------------------------------------------------------------------------------
Underlying earnings 21.2 26.6
--------------------------------------------------------------------------------
pence pence
--------------------------------------------------------------------------------
Basic earnings per share 7.6 28.0
Basic underlying earnings per share 24.7 31.5
Diluted earnings per share 7.4 27.3
Diluted underlying earnings per share 24.2 30.7
--------------------------------------------------------------------------------
8.Reconciliation of cash flow from operating activities
52 weeks ended   26 52 weeks ended 27 March
March 2011 2010
£ million £ million
--------------------------------------------------------------------------------
Profit from retail operations 11.0 32.7
Adjustments for:
Depreciation of property, 16.6 15.1
plant and equipment
Amortisation of intangible 4.1 3.3
assets - software
Amortisation of intangible 2.3 2.1
assets - other
Non-underlying losses on 0.9 1.0
disposal of property, plant
and equipment
Losses on disposal of - 0.1
intangible assets - software
Loss on non-underlying non- 13.8 1.3
cash foreign currency
adjustments
Equity-settled share-based 2.6 2.6
payments
Movement in property (5.7) (5.0)
provisions
Movement in integration - (3.3)
provisions
Movement in other provisions (0.1) 0.1
Amortisation of lease (5.9) (3.4)
incentives
Lease incentives received 9.6 10.2
Payments to retirement benefit (5.2) (6.1)
schemes
Charge to profit from 4.1 3.7
operations in respect of
service costs of retirement
benefit schemes
--------------------------------------------------------------------------------
Operating cash flow before 48.1 54.4
movement in working capital
Increase in inventories (23.9) (7.2)
Increase in receivables (4.8) (2.9)
Increase in payables 13.7 13.5
--------------------------------------------------------------------------------
Cash generated from operations 33.1 57.8
--------------------------------------------------------------------------------
Income taxes paid (6.0) (7.7)
--------------------------------------------------------------------------------
Net cash flow from operating 27.1 50.1
activities
--------------------------------------------------------------------------------
Principal Risk Factors: Extracted from the Annual Report and Accounts for the
year ended 26 March 2011.
The board recognises that the management of risk through the application of a
consistent process during the year as required by Code provision C2 (Internal
Control) is key to ensuring that a robust system of internal control is
monitored by the business.
The principal risks and uncertainties facing the Company may include some of
those set out below. It should be borne in mind that this is not an exhaustive
list and that there may be other risks that have not been considered or risks
that the board consider now are insignificant or immaterial in nature, but that
may arise and/or have a larger effect than originally expected.
External risks
* The group is reliant upon manufacturers in other countries, particularly
China, India and the Far East. Global economic conditions (including global
demand for goods and services affecting sales levels and the availability of
credit lines for business to its key suppliers affecting product supply)
will continue to affect the performance of the group's businesses as will
the effect of exchange rate movements, principally the US dollar; cost price
movements (including raw materials) and the difficulty of passing on input
cost price increases, governmental and supra-national regulation affecting
imports, taxation, duties and levies.
* The failure to react appropriately to changes in the economic environment
generally or consumer confidence issues affecting the group's core customers
in the UK and in overseas markets, particularly from levels of unemployment
or the reduction in real disposable incomes caused by, amongst other things,
any contraction of the global economy, increases in personal and indirect
taxation, interest rate movements and the availability of consumer credit.
* The failure to identify or react appropriately to changes in consumer demand
for the group's products or services; competitor activity or new entrants
within the markets in which group companies operate.
* The group is potentially vulnerable to adverse movements in exchange rates
as it pays for a large proportion of its goods in foreign currency,
principally the US dollar. Whilst the group effects transactions, the effect
of which seeks to hedge the exposure to adverse exchange rates, there is no
guarantee that the transactions will be sufficient to cover all likely
exposure.
* With the continued expansion of the group's international franchise
operations, the group may be exposed to sales concentration risk as certain
franchise partners extend their activities in their own and additional
territories. As at 26 March 2011 the group's largest franchisee represents
approximately 10 per cent of group sales and receivables. The group's brands
are potentially exposed to the commercial risk in the default by franchisees
of payment for amounts due on royalties and goods supplied. Â In order to
mitigate this risk, the group seeks to insure the receivables due from
franchisees but in turn may then be exposed to the liquidity of the credit
insurance market and/or credit quality of the insurers or potential default
of banks or insurance companies in providing security for franchisee primary
default. International operations are also exposed to the possibility in
some markets of political restrictions on remittance of funds to the UK or
refusal to enforce the relevant brand's intellectual property rights against
infringement. As the group grows its wholesale business a similar set of
risks may, over time, become apparent.
* The group continues to operate defined benefit pension schemes (albeit that
they are now closed to new members). The volatility in movement of real
asset and liability values together with those of the discount rate used for
the accounting assumptions under IAS 19 directly affect the net surplus or
deficit in the schemes and the variability of the charge contained within
the financial statements. Recent tax and legislative changes that are to be
introduced in 2011 and 2012 may have implications for the funding and future
operation of these and defined contribution schemes currently operated by
the group.
Internal risks
* Both Early Learning Centre and Mothercare have a reputation for quality,
safety and integrity. This may be seriously undermined by adverse press
or regulatory comment on aspects of its business both in the UK and
overseas, whether justified or not. To this end, the group takes all
reasonable care to safeguard the reputation of its brands, particularly
in product manufacture and supply areas, by engaging independent third
parties to validate critical areas of its manufacturing and supply chain
for compliance with its ethical code.
* Any disruption to the relationship with or failure of key suppliers
could adversely affect the group's ability to meet its sales and profit
plans if suitable alternatives could not be found quickly.
* Any failure in or termination of the group's wholesale business (such as
mini club in the UK) could adversely affect the development of and
expansion of this channel of business, in addition to any contractual or
other liability that may result.
* The group's investments in joint ventures and overseas companies exposes
it to greater risk to certain overseas markets, and to the operating
performance of those businesses.
* Any failure of the group's logistics, distribution and information
technology strategies or platforms, or its business continuity
procedures, may restrict the ability of the group to make product
available to its UK business, in its worldwide stores network and/or
Direct businesses thereby failing to meet customer expectations and
adversely affecting sales and profits.
* A failure in any economic climate to invest appropriately in the group's
infrastructure, people, tangible and intangible assets as it seeks to
balance short and long term profitability drivers.
* Financing. The Company and the group may be exposed to counterparty risk in
respect of its hedging, banking, insurance or other finance based contracts
and particularly in the ability of the relevant counterparties being able to
continue to be able to meet their obligations. As noted above, the group has
sought to strengthen further its banking relationships through the recent
renewal of its facilities.
Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the group and its joint ventures
are disclosed below.
Trading transactions
During the year, group companies entered into the following transactions with
related parties who are not members of the group:
52 weeks ended 26 March 2011
------------------------------------------------------
Sales of goods £ Purchase Amounts Amounts
million of goods owed by owed to
£ million related related
 parties parties
£ million £ million
--------------------------------------------------------------------------------
Joint ventures and 14.3 - 8.4 -
associates
--------------------------------------------------------------------------------
52 weeks ended 27 March 2010
------------------------------------------------
Sales of Purchase Amounts Amounts
goods of goods owed by owed to
£ million £ million related related
parties parties
£ million £ million
-------------------------------------------------------------------------------
Joint ventures and associates 1.3 - 1.7 -
-------------------------------------------------------------------------------
Sales of goods to related parties were made at the group's usual cost prices.
The amounts outstanding are unsecured and will be settled in cash. No guarantees
have been given or received. No provisions have been
made for doubtful debts in respect of the amounts owed by related parties.
Other transactions
During the year, the group sold a freehold property on an arm's length basis to
the Mothercare defined benefit pension scheme for cash
of £3.0 million. There were no amounts outstanding in relation to this
transaction at the period end.
Remuneration of key management personnel
The remuneration of the operating board (including directors), who are the key
management personnel of the group, is set out below in aggregate for each of the
categories specified in IAS 24 'Related Party Disclosures'. Further information
about the remuneration of individual directors is provided in the audited part
of the remuneration report on pages 36 to 41.
52 weeks 52 weeks
ended ended
26 March 27 March
2011 2010
£ million £ million
------------------------------------------------------
Short-term employee benefits 3.7 3.0
Post-employment benefits 0.4 0.4
Share-based payments 1.8 11.1
------------------------------------------------------
5.9 14.5
------------------------------------------------------
Other transactions with key management personnel
There were no other transactions with key management personnel.
Responsibility statement
We confirm that to the best of our knowledge:
* the financial statements, prepared in accordance with the relevant financial
reporting framework, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and the management report,
which is incorporated into the directors' report, includes a fair view of
the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that
they face.
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Mothercare Plc via Thomson Reuters ONE
[HUG#1522112]