Final Results
Mothercare PLC
24 May 2007
24 May 2007
Mothercare plc
Preliminary Results
Mothercare plc, the leading global retailer of parenting and children's
products, today announces its preliminary results for the 52 weeks ended 31
March 2007. The prior financial year has 53 weeks.
Financial Results
----------------------------------------------------
Results Comparable Statutory basis
basis 52 vs 53 weeks
52 vs 52 weeks(2)
--------------------------------------------------------------------------------
Group sales £498.5m +5.1% +3.3%
--------------------------------------------------------------------------------
Group underlying
profit before
taxation (1) £22.6m +12.4% +7.6%
--------------------------------------------------------------------------------
Group profit
before taxation £18.9m -18.9% -21.9%
--------------------------------------------------------------------------------
Underlying EPS 24.2p +19.2% +14.2%
--------------------------------------------------------------------------------
Basic EPS 20.9p -15.4% -18.0%
--------------------------------------------------------------------------------
Final dividend 6.7p +8.9% +8.9%
--------------------------------------------------------------------------------
Total dividend 10.0p +11.1% +11.1%
--------------------------------------------------------------------------------
Financial Highlights (comparable 52 week basis)
• Total UK like-for-like sales up 1.6% (UK store like-for-like sales up
0.8%) (3)
• UK sales up 1.0% to £411.4m, including Direct in Home up 16.8% to £23.0m
and Direct in Store up 21.0% to £24.8m
• UK gross margin up 0.4 percentage points
• International revenue up 30.2% to £87.1m; franchisee like-for-like sales
up 12.0%
• Year end cash balance £40.1m (2006: £35.9m)
• Pension schemes surplus of £2.0m on an IFRS basis (2006: £17.5m deficit)
Operational Highlights:
• A net 62 international franchise stores added during the year; total 328
stores in 38 countries
• New UK National Distribution Centre performing well after successful
move
• New online platform, built by Amazon Services, launched and performing
ahead of expectations
• UK central and sourcing operations restructured to improve efficiency
and reduce costs (£2.1m exceptional charge) plus new office in China announced
today.
• Optimisation of UK portfolio continues. One new store opened, three
stores re-sited, two of our largest stores downsized and seven stores
closed.
Ben Gordon, Chief Executive said:
'With the completion of a number of major projects in the year, 2006/07
represents a key milestone in the transformation of Mothercare. We launched our
new bespoke e-commerce platform, completed the move to our new National
Distribution Centre, grew like for like sales in the UK and continued to improve
margins. We also opened a record 62 international stores, boosting this rapidly
growing business.
With a strong platform in place we are focussing on our growth strategy of
specialism, efficiency and reach and are confident that the business will
continue to develop strongly during the coming year. We also look forward to the
future growth opportunities we anticipate from the proposed acquisition of the
Early Learning Centre announced last month.'
Enquiries to:
Mothercare plc
Ben Gordon, Chief Executive 01923 206001
Neil Harrington, Finance Director 01923 206187
Brunswick Group Limited
Catherine Hicks/Anna Jones 020 7404 5959
(1) Group underlying profit before taxation excludes exceptional items and the
volatile non-cash IAS 39 adjustment (marking to market of financial
instruments). See Financial Review for further details.
(2) Excluding the estimated impact of sales and profits in the 53rd week of
2006. See Financial Review for further details.
(3) See Financial Review for definition of like-for-like sales.
CHIEF EXECUTIVE'S REVIEW
RESULTS
The year ended 31 March 2007 contained 52 weeks compared with 53 weeks last year
and the financial statements and this review have been prepared on this basis.
Certain key information calculated on a more comparable basis (52 weeks compared
with 52 weeks) is set out in the Financial Highlights and Financial Review.
Group sales for the year rose by 3.3% to £498.5 million (2006: £482.7 million).
Group underlying profit before taxation increased by 7.6% to £22.6 million
(2006: £21.0 million). Group underlying profit before taxation excludes net
exceptional charges of £2.4 million (2006: exceptional credit of £2.9 million)
and also the non-cash IAS 39 adjustment. If these items are included, statutory
group profit before taxation decreased by 21.9% to £18.9 million (2006: £24.2
million).
Positive like-for-like sales in the UK more than offset the effects of planned
space reductions associated with our successful UK store rightsizing programme,
although the extra week last year has led to a 0.8% reduction in UK sales to
£411.4 million. This includes Direct in Home sales up 13.9% to £23.0 million and
Direct in Store sales up 18.7% to £24.8 million. Total UK like-for-like sales
increased by 1.6% in the year and UK store like-for-like sales increased by
0.8%. UK gross margins increased by 0.4 percentage points. In our International
markets both total and like-for-like sales continued to grow strongly by 27.9%
(to £87.1 million) and 12.0% respectively. During the year we opened a net 62
overseas franchise stores, bringing the total to 328 stores in 38 countries and
international profits increased by 52.8% to £8.1 million.
STRATEGIC DEVELOPMENT
With a strong platform in place following the completion of a number of major
projects, we are focussing on delivering our strategy of specialism, efficiency
and reach, both in the UK and overseas. Although not covered in this review, we
also look forward to the further growth opportunities we anticipate from the
proposed acquisition of the Early Learning Centre announced after the year end.
Specialism
We are strengthening Mothercare's position as a leading parenting and children's
specialist brand worldwide, concentrating on developing our product offering,
improving our stores and delivering excellent customer service.
Product
We have carried out considerable work this year to improve our own label product
base, and reinforce our position as a specialist retailer in the UK and around
the world.
We gained market share in our pushchair ranges and now have the largest range of
Mothercare and branded pushchairs available online in the UK. Our Special
Collection premium clothing range, which falls into the 'best' category in our
good, better, best pricing strategy, was also launched in the year. Special
Collection has been well received by customers in the 30 stores in which it has
been trialled and will now be rolled out to the worldwide store portfolio. We
also launched new ranges in home furnishings for baby and first bedroom which
have performed well both in store and online.
Stores
With our high street re-fit programme now complete we have turned our focus to
our out of town stores network. We have extended the trial of the new out of
town concept, which is designed to create a true destination for parenting,
increase sales densities, expand our successful Home and Travel ranges and
maximise the benefits of our in store concessions.
We now have 10 stores fitted with the new format, with customer feedback being
very positive. We plan to extend the trial to at least a further 10 out of town
stores in 2007/08.
Service and People
In our new out of town stores, we have developed in-store areas for car seats
and pushchairs with improved fixtures and colour coded information. The concept
incorporates clearer product merchandising and display to improve presentation
and ease of selection together with an information and advice 'station'.
Our independent mystery shopper programme continues to provide insight into how
our stores perform against a set of service criteria, which is also benchmarked
against our major competitors. This year we have focussed the emphasis on
'service into selling' to raise the bar higher and to continue to stretch our
performance further. Our results continue to improve and have been recognised as
'best in class' in our own programme as well as in external surveys.
EFFICENCY
Mothercare is investing in building an efficient operating platform, including a
new global supply chain and direct sourcing capability. During the year we
concentrated on reducing the controllable portion of our overheads. As part of
this activity we carried out a restructuring of our UK central and sourcing
operations to improve efficiency and reduce operating costs going forward.
Sourcing
Continued progress has been made with our sourcing initiatives, allowing us to
again grow our UK margin over the year by 0.4 percentage points (and by 8.7
percentage points over the last four years).
We have re-structured our direct sourcing activities, closing our UK sourcing
office in Manchester, expanding our direct sourcing office in Tirapur, India and
opening a direct sourcing office in Shanghai. The establishment and growth of
our Indian sourcing office and the recent opening of our China office will
generate further benefits to gross margin and efficiency in future years.
Supply Chain
In November 2004 we announced our new distribution strategy and the plan to move
the bulk of our operations to a new bespoke National Distribution Centre. At
that time we indicated the completion of the transition would take place in late
2006. This transition was completed both on plan and within budget and the new
facility has operated well over its first Christmas period.
We have also re-located our Direct Distribution Centre to an efficient high
capacity operation run by a third party specialist. Again the transition was
completed on time and within budget and this distribution centre also operated
well through the peak period.
Infrastructure
Having completed the roll out of our new web enabled EPOS system to all UK
stores we have subsequently added further functionality to these core store
systems including an intranet, electronic gift vouchers and automatic payroll
processing. This has further improved efficiency in our stores and allowed us to
mitigate the effects of wage inflation in the retail sector.
We have also restructured central and head office functions during the year to
improve efficiency and to focus resource on the rapidly growing customer facing
areas of our business.
REACH
With the foundations of specialism and efficiency firmly in place we can focus
on our third priority which is about expanding our reach to parents in the UK
and around the world through our integrated multi-channel business and our world
class franchisee network.
Mothercare Direct
Mothercare Direct comprises Direct in Home (web in home and telephone catalogue
ordering) and Direct in Store (web enabled stores). Overall sales from our
Direct channel grew by 16.3% to £47.8 million (2006: £41.1 million).
During the year this business was transformed through the launch of an exciting
new online platform, built for us by Amazon Services. The website launched in
November 2006 and is performing ahead of expectations. We also moved into a new
warehouse and fulfilment centre which has improved capacity and efficiency.
Our investment in the Direct business, which includes the new website, the
recent extension of the web in store facility to all stores and the upgrading of
our direct fulfilment operations provides the company with a powerful
opportunity to exploit both the in store and in home based internet retailing
opportunities. We believe that our Direct business has significant potential for
future growth in the UK and worldwide.
Store optimisation
We are optimising our entire store portfolio to ensure we have the best size and
locations wherever we trade. In 2005/06 we opened ten new stores and closed ten
stores in the year, four of which were direct re-sites. In 2006/07 we opened
four new stores and closed ten stores, three of which were direct re-sites to
smaller sized units in more suitable locations. During 2006/07 we also downsized
two of our largest out of town stores, in Reading and Cardiff. In each case the
rightsizing of our portfolio increased sales per square foot and reduced
operating costs. We are aiming at re-siting, relocating or downsizing more than
30 Mothercare stores during the next 24 months.
International
Our International business has had an excellent year. At the year end we were
trading in 38 countries through 328 stores. Total retail sales made by our
franchisees were £196.4 million. Overall franchisee like-for-like sales grew by
an estimated 12.0%. Our revenue from franchisees increased by 27.9% to £87.1
million.
During the current financial year we expect to open at least 50 more new
International stores, the majority of which will be in existing markets. Last
year we opened our first stores in India and we plan to open 100 stores here in
the next five years. We also plan to open new stores in countries where we do
not currently trade including Egypt, The Philippines and Armenia.
Outlook
The underlying strength of the Mothercare brand together with the actions we are
taking to improve the specialism, efficiency and reach of our multi-channel
business will help us to continue to grow in the UK and we are confident that
the UK and the International businesses will continue to develop strongly during
the year. We will provide a trading statement for the first quarter on 19 July
2007, the date of our AGM.
FINANCIAL REVIEW
RESULTS SUMMARY
On a statutory basis (52 weeks versus 53 weeks last year) Group sales for the
year rose by 3.3% to £498.5 million (2006: £482.7 million). Group underlying
profit before taxation increased by 7.6% to £22.6 million (2006: £21.0 million).
Group underlying profit before taxation excludes net exceptional charges of £2.4
million (2006: exceptional credit of £2.9 million) and the volatile non-cash IAS
39 adjustment. If these items are included, statutory group profit before
taxation decreased by 21.9% to £18.9 million (2006: £24.2 million).
53rd week in 2006
In 2006, Mothercare had an additional week's trading and the statutory results
were for the 53 weeks ended 1 April 2006, which resulted in additional turnover
and profit compared to 2007. In order to provide more meaningful comparisons,
estimates of the additional revenue and profits generated in the 53rd week of
2006 have been excluded from the analysis set out below where indicated. We
believe that this provides the most consistent comparable basis.
Profit before taxation
Underlying profit before taxation excludes exceptional items. It also excludes
the impact of IAS 39 (Financial Instruments: Recognition and Measurement) which
gives rise to non-cash adjustments to the income statement which are not
reflective of the underlying profit or cash flows of the business. Underlying
profit before taxation is derived as follows:
2007 2006 %
£m £m
Group profit before taxation 18.9 24.2 -21.9%
Exceptional items:
- Profit on disposal of property (0.2) (2.9)
interests
- Direct distribution centre 0.5 -
- Restructuring 2.1 -
Other non-underlying items:
- IAS 39 non-cash adjustment 1.3 (0.3)
-------- ----------- -------
Underlying profit before tax 22.6 21.0 +7.6%
(52 vs 53 weeks)
Impact of 53rd week in 2006 - (0.9)
======== ======== ========
Underlying profit before tax 22.6 20.1 +12.4%
(52 vs 52 weeks)
======== ======== ========
In our 2006 interim report, our underlying profit before tax measure also
excluded the non-cash impact of IAS 19 (Employee Benefits), by including regular
cash contributions made to the pension schemes rather than the more volatile
income statement charge. We have however, recently made a number of significant
changes to the pension scheme - including increasing the retirement age from 60
to 65 from 1 April 2007 and the payment of special one-off contributions to the
scheme - and these will not be reflected in the regular cash contributions until
the next scheme valuation in 2008. Rather than adjusting underlying profit, it
is therefore considered more appropriate to provide full disclosure of the
income statement charge, the cash funding and the balance sheet position as
follows:
2007 2006
£m £m
Income statement
----------------
Service cost (5.0) (4.7)
Return on assets 13.2 10.9
Interest on liabilities (9.4) (9.0)
---------- ----------
Net charge (1.2) (2.8)
========== ==========
Cash funding
--------------
Regular contributions (3.0) (3.2)
Additional contributions (1.5) (5.3)
---------- ----------
Total cash funding (4.5) (8.5)
========== ==========
Balance Sheet
---------------
Fair value of schemes' assets 193.6 180.4
Present value of defined benefit obligations (191.6) (197.9)
---------- ----------
Net asset/(liability) 2.0 (17.5)
========== ==========
Results by segment (comparable 52 week basis)
The primary segments of Mothercare plc are the UK (which includes the Direct
business) and the International business:
£m 2007 Revenue Underlying
profit from
operations
UK 411.4 19.3
International 87.1 8.1
Corporate - (6.4)
---------- -------------
498.5 21.0
========== =============
£m 2006 Revenue Underlying
profit from
operations
UK 407.3 20.1
International 66.9 5.2
Corporate - (6.7)
---------- -------------
474.2 18.6
========== =============
Corporate expenses not allocated to UK or International represent head office
costs, board and senior management costs, insurance, annual and interim
reporting costs and audit and professional fees.
Results by category and channel (comparable 52 week basis)
Sales in the year have again increased in each of our key product categories and
also across each channel to market. UK store sales were up 1.0%, International
stores up 30.2% and Direct in Home up 16.8%.
Total UK like-for-like sales are defined as sales growth on the previous year
for stores that have been trading continuously from the same selling space for
at least a year, plus Direct in Home sales. UK store like-for-likes are defined
on the same basis except that Direct in Home sales are excluded. Total UK
like-for-like sales were up 1.6% in the year and UK store like-for-like sales
were up 0.8%. International franchisee like-for-like sales were up an estimated
12.0% in the year. Our Direct business, which is wholly in the UK, increased
revenue by 18.9% in the year to £47.8 million.
Underlying profit before taxation (comparable 52 week basis)
Group underlying profit before taxation increased by 12.4% to £22.6 million in
the year. The key drivers of profit were the increase in UK store like-for-like
sales, the store right-sizing programme and the improved gross margin
percentage, together with strong contributions from the smaller but more rapidly
growing International and Direct businesses. Combined, these more than off-set
rises in our cost base.
The UK gross margin improved by 0.4 percentage points as a result of better
buying, an increase in direct sourcing and greater volumes in the UK and
overseas.
In line with other retailers, Mothercare is experiencing inflation in store
operating costs in the UK, however the total UK cost increase was reduced
through tight management of controllable costs. We expect cost pressures to
continue in the current year, however these will be mitigated by the
restructuring actions we have taken in the year, the optimisation of our store
portfolios, growing the gross margin through more direct sourcing and better
buying, expanding the Direct business and focussing closely on store
productivity and other costs.
Exceptional items
Exceptional items can be summarised as follows:
2007 2006
£m £m
UK restructure 2.1 -
Direct distribution centre move 0.5 -
Disposal of property interests (0.2) (2.9)
--------- ---------
Total exceptional charge/(credit) 2.4 (2.9)
========= =========
During the year a significant restructuring programme was carried out at the UK
head office in Watford and we announced the closure of our sourcing office in
Manchester leading to exceptional redundancy and other related costs amounting
to £2.1 million. In addition, the Direct distribution centre was relocated
during the year to a larger more efficient site, generating an exceptional
charge of £0.5 million. The exceptional credit in respect of disposal of
property interests relates to net disposal proceeds on the disposal of the
leasehold interest in ten closed and two downsized stores in the period.
Taxation
The tax charge of £4.4 million, representing an effective tax rate of 23.3%,
mainly reflects utilisation of tax losses. The group still has unused tax losses
of £12.9 million (2006: £17.7 million) available to set off against future
profits. The current year tax charge benefits from a £1.6m provision release
relating to prior years. On a comparable basis with last year (excluding prior
year items) the effective tax rate would have been 31.7%.
Pensions
We continue to operate defined benefit pension schemes for our staff. The total
net cost of the pension schemes in the year was £1.2 million (2006: £2.8
million).
The valuation of the schemes under IAS 19 at 31 March 2007 gave rise to a net
pension surplus of £2.0 million (2006: deficit of £17.5 million) before deferred
taxation. IFRS requires that we value pension scheme liabilities using a high
quality corporate bond yield, and this has proven to be a volatile measure. We
do however believe that the overall downward trend in the deficit over time
reflects the actions we have taken, including £16.8 million of special
contributions to the scheme over the last 3 years, and we are comfortable with
the current level of funding in the schemes.
From 1 April 2007 the retirement age for future service was increased from 60 to
65 years. We will continue to keep the structure and level of benefits of the
group's pension schemes under active review.
Balance sheet and cash flow
The group had a net cash inflow of £4.2 million, leaving a cash balance at the
end of the year of £40.1 million (2006: £35.9 million).
The working capital outflow in the year was £6.0 million. This is due to
increased inventory levels resulting from the increase in direct sourcing
together with receivables growth arising from the growth of International, and
amounts receivable from property disposals. The total overseas receivables
balance at 31 March 2007 was £19.4 million (2006: £14.3 million). Bank
guarantees and/or insurance is in place to mitigate risk.
Capital expenditure
Capital expenditure in the year was £18.5 million. £11.5 million was invested in
UK stores including the new out of town store re-fits, £3.4 million was invested
in infrastructure including store EPOS functionality and £3.6 million was
invested in the final phases of the National Distribution Centre move.
Earnings per share and dividend
Basic earnings per share were 20.9 pence for the period (2006: 25.5 pence).
Underlying earnings per share were 24.2 pence (2006: 21.2 pence). Further
details are set out in note 8.
The Directors are pleased to recommend an 8.9% increase in final dividend for
the year to 6.7 pence (2006: 6.15 pence). The total dividend for the year is
10.0 pence (2006: 9.0 pence) an increase of 11.1%.
The final dividend will be payable on 10 August 2007 to shareholders registered
on 8 June 2007. The latest date for election to join the dividend re-investment
plan is 20 July 2007.
Consolidated income statement
For the 52 weeks ended 31 March 2007
Note 52 weeks ended 53 weeks ended
31 March 2007 1 April 2006
restated
(note 1)
--------------------------------------------------------------------------------
Underlying 1 Non-underlying 2 Total Underlying 1 Non-underlying 2 Total
£ million £ million £ million £ million £ million £ million
--------------------------------------------------------------------------------------------------------------
Revenue 2 498.5 - 498.5 482.7 - 482.7
Cost of sales (448.8) (1.8) (450.6) (432.1) 0.3 (431.8)
---------------------------------------------------------------------------------------------------------------
Gross profit 49.7 (1.8) 47.9 50.6 0.3 50.9
Administrative
expenses (28.7) (2.1) (30.8) (31.1) - (31.1)
---------------------------------------------------------------------------------------------------------------
Profit from retail
operations 21.0 (3.9) 17.1 19.5 0.3 19.8
Profit on disposal
of property
interests - 0.2 0.2 - 2.9 2.9
-------------------------------------------------------------------------------------------------------------
Profit from
operations 21.0 (3.7) 17.3 19.5 3.2 22.7
Investment
income 4 1.7 - 1.7 1.8 - 1.8
Finance costs 5 (0.1) - (0.1) (0.3) - (0.3)
--------------------------------------------------------------------------------------------------------------
Profit before
taxation 22.6 (3.7) 18.9 21.0 3.2 24.2
Taxation 6 (5.8) 1.4 (4.4) (6.5) (0.2) (6.7)
--------------------------------------------------------------------------------------------------------------
Profit for the
period
attributable
to equity
holders of the
parent 16.8 (2.3) 14.5 14.5 3.0 17.5
------------------------------------------------------------------------------------------------------------
Earnings per share
Basic 8 24.2p (3.3)p 20.9p 21.2p 4.3p 25.5p
Diluted 8 23.7p (3.2)p 20.5p 20.7p 4.3p 25.0p
------------------------------------------------------------------------------------------------------------
1 Before items described in note 2 below.
2 Includes exceptional items (reorganisation of Direct distribution,
restructuring and profit on disposal of property interests) as set out in note
3 to the financial statements and the impact of fair value accounting under
IAS 39.
All results relate to continuing operations.
Consolidated statement of recognised income and expense
For the 52 weeks ended 31 March 2007
52 weeks ended 53 weeks ended
31 March 2007 1 April 2006
£ million £ million
--------------------------------------------------------------------------------
Actuarial gains/(losses) on defined
benefit pension schemes 16.1 (0.8)
IAS 39 adjustment transfers to profit and
loss - 0.1
Tax on items taken directly to equity (4.7) 0.7
--------------------------------------------------------------------------------
Net income recognised directly in equity 11.4 -
Profit for the period 14.5 17.5
--------------------------------------------------------------------------------
Total recognised income and expense for
the period attributable to equity holders
of the parent 25.9 17.5
--------------------------------------------------------------------------------
Changes in accounting policy to adopt IAS
32 and 39:
Attributable to equity holders of the parent - (0.1)
--------------------------------------------------------------------------------
Consolidated balance sheet
As at 31 March 2007
Note 31 March 2007 1 April 2006
£ million £ million
-----------------------------------------------------------------------------------
Non-current assets
Property, plant and equipment 85.4 83.7
Intangible assets - software 5.2 4.0
Deferred tax asset 0.2 8.5
Retirement benefit obligations 2.0 -
-----------------------------------------------------------------------------------
92.8 96.2
-----------------------------------------------------------------------------------
Current assets
Inventories 51.8 50.8
Trade and other receivables 42.3 32.0
Cash and cash equivalents 40.1 35.9
-----------------------------------------------------------------------------------
134.2 118.7
-----------------------------------------------------------------------------------
Total assets 227.0 214.9
-----------------------------------------------------------------------------------
Current liabilities
Trade and other payables (57.6) (51.3)
Current tax liabilities (0.2) (0.9)
Short term provisions (2.9) (3.7)
-----------------------------------------------------------------------------------
(60.7) (55.9)
-----------------------------------------------------------------------------------
Non-current liabilities
Trade and other payables (14.8) (8.9)
Retirement benefit obligations - (17.5)
Long term provisions (0.5) (0.9)
-----------------------------------------------------------------------------------
(15.3) (27.3)
-----------------------------------------------------------------------------------
Total liabilities (76.0) (83.2)
-----------------------------------------------------------------------------------
Net assets 151.0 131.7
-----------------------------------------------------------------------------------
Equity attributable to equity holders of the
parent
Called up share capital 36.6 36.3
Share premium account 3.1 2.2
Own shares (7.4) (6.5)
Retained earnings 118.7 99.7
-----------------------------------------------------------------------------------
Total equity 9 151.0 131.7
-----------------------------------------------------------------------------------
Consolidated cash flow statement
For the 52 weeks ended 31 March 2007
Note 52 weeks ended 53 weeks ended
31 March 2007 1 April 2006
restated
(note 1)
£ million £ million
--------------------------------------------------------------------------------
Net cash flow
from operating
activities 10 27.5 13.3
--------------------------------------------------------------------------------
Cash flows from investing activities
Interest received 1.6 1.8
Interest paid (0.1) (0.3)
Purchase of property,
plant and equipment (18.5) (16.7)
Proceeds from property,
plant and equipment 1.4 6.0
--------------------------------------------------------------------------------
Net cash used in investing
activities (15.6) (9.2)
--------------------------------------------------------------------------------
Cash flows from financing activities
Equity dividends paid 7 (6.6) (5.5)
Issue of ordinary share
capital 1.2 1.4
Purchase of own shares (2.3) (1.1)
--------------------------------------------------------------------------------
Net cash used in financing
activities (7.7) (5.2)
--------------------------------------------------------------------------------
Net increase/(decrease) in cash
and cash equivalents 4.2 (1.1)
--------------------------------------------------------------------------------
Cash and cash equivalents at
beginning of period 35.9 37.0
--------------------------------------------------------------------------------
Cash and cash equivalents at
end of period 40.1 35.9
--------------------------------------------------------------------------------
Notes
1. General information
a. The accounting policies followed are the same as those published by the group
within the 2006 annual report and accounts, except for a presentational
adjustment in respect of IAS 19 'Employee Benefits'. The results for the 52
weeks ended 31 March 2007 include the components of net pension expense, being
the service cost, interest cost and expected return on assets, within
Administrative expenses and in arriving Profit from operations. In prior
periods, pension interest cost was presented within Finance costs and the
expected return on assets was presented within Investment income, outside of
Profit from operations. Both presentations are permitted under IAS 19. Prior
periods have been restated on a comparable basis.
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, or superior to, 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 8.
To meet the needs of shareholders and other external users of the financial
statements the presentation of the income statement has been reformatted to show
more clearly, through the use of columns, our underlying business performance
which provides more useful information on underlying trends.
d. The financial information set out in this announcement does not constitute
the Company's statutory accounts for the 52 week period ended 31 March 2007 or
the 53 week period ended 1 April 2006, but it is derived from those accounts.
Statutory accounts for 2006 have been delivered to the Registrar of Companies
and those for 2007 will be delivered following the Company's annual general
meeting. The auditors have reported on those accounts; their reports were
unqualified and did not contain statements under s237 (2) or (3) Companies Act
1985.
2. Segmental information
For management purposes, the group is currently organised into two operating
segments: Mothercare UK and International. Mothercare UK comprises the UK store
operations, catalogue and web sales. The International business comprises the
group's franchise operations outside of the UK. These two segments are
distinguished by the different nature of their risks and returns. It is
considered that there are no secondary segments as all business originates in
the UK.
Segmental information about the Mothercare UK and International businesses is
presented below.
52 weeks ended
31 March 2007
-------------------------------------------------------
Mothercare UK International Unallocated Consolidated
corporate
expenses
£ million £ million £ million £ million
---------------------------------------------------------------------------------
Revenue
External sales 411.4 87.1 - 498.5
---------------------------------------------------------------------------------
Result
Segment result
(underlying) 19.3 8.1 (6.4) 21.0
IAS 39
adjustment (1.3) - - (1.3)
Exceptional
items (note 3) (2.4) - - (2.4)
---------------------------------------------------------------------------------
Profit from
operations 15.6 8.1 (6.4) 17.3
-------------------------------------------------------------------
Investment income 1.7
Finance costs (0.1)
---------------------------------------------------------------------------------
Profit before
taxation 18.9
Taxation (4.4)
---------------------------------------------------------------------------------
Profit for the period 14.5
---------------------------------------------------------------------------------
53 weeks ended
1 April 2006
--------------------------------------------------------
Mothercare UK International Unallocated Consolidated
corporate
expenses
£ million £ million £ million £ million
---------------------------------------------------------------------------------
Revenue
External sales 414.6 68.1 - 482.7
---------------------------------------------------------------------------------
Result
Segment result
(underlying) 20.9 5.3 (6.7) 19.5
IAS 39
adjustment 0.3 - - 0.3
Exceptional
items (note 3) 2.9 - - 2.9
---------------------------------------------------------------------------------
Profit from
operations 24.1 5.3 (6.7) 22.7
-------------------------------------------------------------------
Investment income 1.8
Finance costs (0.3)
---------------------------------------------------------------------------------
Profit before
taxation 24.2
Taxation (6.7)
---------------------------------------------------------------------------------
Profit for the period 17.5
---------------------------------------------------------------------------------
Corporate expenses not allocated to UK or International represent head office
costs, board and senior management costs, insurance, annual and interim
reporting costs and audit and professional fees.
3. Exceptional items
Due to their significance and one-off nature, certain items have been classified
as exceptional, such as distribution reorganisation costs, restructuring costs
and profits on the disposal of property interests.
52 weeks ended 53 weeks ended
31 March 2007 1 April 2006
£ million £ million
-------------------------------------------------------------------------------
Reorganisation of Direct
distribution centre (0.5) -
UK central and sourcing
restructure (2.1) -
Profit on disposal of
property interests 0.2 2.9
-------------------------------------------------------------------------------
Exceptional items (2.4) 2.9
-------------------------------------------------------------------------------
Reorganisation of Direct distribution centre
During the 52 weeks ended 31 March 2007, costs of £0.5 million were charged to
gross profit to provide for the direct revenue costs associated with the
reorganisation of the distribution network as a result of the move to a new
Direct distribution centre. The tax effect of this charge to gross profit was a
credit of £0.1 million.
UK central and sourcing restructure
During the 52 weeks ended 31 March 2007, costs of £2.1m were charged to
administrative expenses relating to a restructure of the UK head office in
Watford and the closure of the group's sourcing facility in Manchester, the
expansion of the sourcing office in India and the opening of a new sourcing
office in China. The tax effect of this charge to gross profit was a credit of
£0.6 million.
Profit on disposal of property interests
During the 52 weeks ended 31 March 2007, a net credit of £0.2 million has been
recognised in profit from operations relating to the disposal of leasehold
interests in closed stores.
During the 53 weeks ended 1 April 2006, a net credit of £2.9 million was
recognised in profit from operations relating to the disposal of freehold and
leasehold property interests in closed stores.
The tax effect of the profit on disposal of property interests in the 52 weeks
ended 31 March 2007 was a credit of £0.3 million. The tax effect in the 53 weeks
ended 1 April 2006 was £nil due to the availability of capital losses brought
forward from earlier periods.
4. Investment income
52 weeks ended 53 weeks ended
31 March 2007 1 April 2006
restated
(note 1)
£ million £ million
--------------------------------------------------------------------------------
Interest on bank
deposits 1.7 1.8
--------------------------------------------------------------------------------
Investment income 1.7 1.8
--------------------------------------------------------------------------------
5. Finance costs
52 weeks ended 53 weeks ended
31 March 2007 1 April 2006
restated
(note 1)
£ million £ million
--------------------------------------------------------------------------------
Interest on bank
loans and
overdrafts 0.1 0.3
--------------------------------------------------------------------------------
Finance costs 0.1 0.3
--------------------------------------------------------------------------------
6. Taxation
The charge for taxation on profit for the period comprises:
52 weeks ended 53 weeks ended
31 March 2007 1 April 2006
£ million £ million
--------------------------------------------------------------------------------
Current tax:
Current year 0.6 0.5
Adjustment in
respect of prior
periods - 0.4
--------------------------------------------------------------------------------
0.6 0.9
--------------------------------------------------------------------------------
Deferred tax:
Current year 5.4 5.8
Adjustment in
respect of prior
periods (1.6) -
--------------------------------------------------------------------------------
3.8 5.8
--------------------------------------------------------------------------------
Charge for
taxation on
profit for the
period 4.4 6.7
--------------------------------------------------------------------------------
UK corporation tax is calculated at 30 per cent (2006: 30 per cent) of the
estimated assessable profit for the period.
At the balance sheet date, the group has unused tax losses of £12.9 million
(2006: £17.7 million) available for offset against future profits. A deferred
tax asset of £3.9 million (2006: £5.3 million) has been recognised in respect of
£12.9 million (2006: £17.7 million) of such losses.
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 53 weeks ended
31 March 2007 1 April 2006
£ million £ million
--------------------------------------------------------------------------------
Profit for the period before
taxation 18.9 24.2
--------------------------------------------------------------------------------
Profit for the period before
taxation multiplied by the
standard rate of corporation
tax in the UK of 30% (2006: 30%) 5.6 7.3
Effects of:
Expenses not deductible for
tax purposes 0.8 0.6
Utilisation of tax losses not
previously recognised - (0.3)
Utilisation of tax losses not
previously recognised against
capital gains (0.4) (0.9)
Adjustment in respect of prior
periods (1.6) -
--------------------------------------------------------------------------------
Charge for taxation on
profit for the period 4.4 6.7
--------------------------------------------------------------------------------
In addition to the amount charged to the income statement, deferred tax relating
to share-based payment arrangements amounting to £0.2 million (2006: £0.7
million) has been credited directly to equity. Deferred tax relating to the
retirement benefit obligation amounting to £4.9 million (2006: £nil) has been
debited directly to equity.
7. Dividends
52 weeks ended 53 weeks ended
31 March 2007 1 April 2006
£ million £ million
--------------------------------------------------------------------------------
Amounts recognised as distributions to equity
holders in the period
Final dividend for the 53 weeks ended 1 April
2006 of 6.15 pence per share (2006: final
dividend for the 52 weeks ended 26 March 2005
of 5.3 pence per share) 4.3 3.6
Interim dividend for the 52 weeks ended 31
March 2007 of 3.30 pence per share (2006:
interim dividend for the 53 weeks ended 1
April 2006 of 2.85 pence per share) 2.3 1.9
--------------------------------------------------------------------------------
6.6 5.5
--------------------------------------------------------------------------------
The proposed final dividend of 6.70 pence per share for the 52 weeks ended 31
March 2007 was approved by the board after 31 March 2007, on 24 May 2007, and
so, in line with the requirements of IAS 10 'Events After the Balance Sheet
Date', the related cost of £4.9 million has not been included as a liability as
at 31 March 2007. This dividend will be paid on 10 August 2007 to shareholders
on the register on 8 June 2007.
8. Earnings per share
52 weeks ended 53 weeks ended
31 March 2007 1 April 2006
million million
--------------------------------------------------------------------------------
Weighted average number of shares
in issue 69.4 68.5
Dilution - option schemes 1.5 1.5
--------------------------------------------------------------------------------
Diluted weighted average number of
shares in issue 70.9 70.0
--------------------------------------------------------------------------------
£ million £ million
--------------------------------------------------------------------------------
Earnings for basic and diluted
earnings per share 14.5 17.5
IAS 39 adjustment 1.3 (0.3)
Exceptional items (note 3) 2.4 (2.9)
Tax effect of above items (1.4) 0.2
--------------------------------------------------------------------------------
Underlying earnings 16.8 14.5
--------------------------------------------------------------------------------
pence pence
--------------------------------------------------------------------------------
Basic earnings per share 20.9 25.5
Basic underlying earnings per share 24.2 21.2
Diluted earnings per share 20.5 25.0
Diluted underlying earnings per
share 23.7 20.7
--------------------------------------------------------------------------------
9. Reconciliation of equity
31 March 2007 1 April 2006
£ million £ million
--------------------------------------------------------------------------------
Total recognised income and expense 25.9 17.5
IAS 39 transition balance sheet adjustment - (0.1)
Dividends to equity holders of the parent
company (6.6) (5.5)
Issue of ordinary share capital 1.2 1.4
Purchase of own shares (2.3) (1.1)
Cost of employee share schemes 1.1 0.5
--------------------------------------------------------------------------------
Net increase in equity 19.3 12.7
Equity at beginning of year 131.7 119.0
--------------------------------------------------------------------------------
Equity at end of year 151.0 131.7
--------------------------------------------------------------------------------
10. Reconciliation of cash flow from operating activities
52 weeks ended 53 weeks ended
31 March 2007 1 April 2006
£ million £ million
-----------------------------------------------------------------------------------
Profit from retail operations 17.1 19.8
Adjustments for:
Depreciation of property, plant and equipment 12.6 12.1
Amortisation of intangible assets - software 1.3 0.7
Losses on disposal of property, plant
and equipment 0.2 0.3
Loss/(gain) on currency derivatives 0.7 (0.2)
Cost of employee share schemes 1.1 0.5
Movement in provision for costs of
reorganisation of distribution network (2.3) (2.6)
Movement in property provisions (0.7) (0.5)
Movement in reorganisation provisions 1.6 -
Movement in other provisions 0.2 (0.4)
Amortisation of lease incentives (1.4) (1.0)
Lease incentives received 7.8 2.3
Payments to retirement benefit schemes (4.5) (8.5)
Charge to profit from operations in respect of
service costs of retirement benefit schemes 1.2 2.8
-----------------------------------------------------------------------------------
Operating cash flow before movement in
working capital 34.9 25.3
Increase in inventories (1.0) (4.0)
Increase in receivables (10.5) (3.0)
Increase/(decrease) in payables 5.5 (5.0)
-----------------------------------------------------------------------------------
Cash generated from operations 28.9 13.3
-----------------------------------------------------------------------------------
Income taxes paid (1.4) -
-----------------------------------------------------------------------------------
Net cash flow from operating activities 27.5 13.3
-----------------------------------------------------------------------------------
11. Post Balance Sheet Events
On 18 March 2007, Mothercare announced that it was in discussions regarding a
possible acquisition of Chelsea Stores Holdings Limited ('CSHL'), owner of the
Early Learning Centre. On 28 April 2007, Mothercare announced that it had agreed
to acquire CSHL for a total consideration of £85 million, in the form of new
Mothercare ordinary shares and the assumption of CSHL's net debt on completion,
valued at approximately £36 million.
The Proposed Acquisition is conditional on the approval of Mothercare's
shareholders at an extraordinary general meeting of shareholders, clearance from
the Office of Fair Trading, the approval of the prospectus and the admission of
the new Mothercare shares to the Official List and to trading on the London
Stock Exchange's market for listing securities. Further details of the principal
terms and conditions of the acquisition agreement will be set out in the
circular to be sent to Mothercare's shareholders.
Full details of the announcement regarding the Proposed Acquisition are
available on the Investor Information section of the website, www.mothercare.com
This information is provided by RNS
The company news service from the London Stock Exchange