Interim Results
Mothercare PLC
16 November 2001
EMBARGOED UNTIL 0700 ON FRIDAY 16TH NOVEMBER 2001
16 November 2001
MOTHERCARE PLC - INTERIM RESULTS STATEMENT
Interim results for the 28 weeks ended 13 October 2001
* Sales up 6.8% to £226.2m (H1 2000: £211.8m) like for like growth 5.9%
* PBT £4.8m* (£4.0m*), operating profit up 116% at £3.9m (£1.8m)
* Margin growth of 2.1% points
* Warehouse issues giving rise to a £4m exceptional charge
* Stock levels now improving
* Interim dividend 1.0p (nil)
*before exceptionals
Commenting on the results, Chief Executive, Chris Martin said:
'We are encouraged that the fundamentals of the business are responding to
the recovery programme. Successes include our new clothing range, the
strength of our home, travel and toy product areas, and the performance of
our Mothercare World stores.'
'We are, however, very disappointed that the problems at the warehouse will
take longer to resolve than initially anticipated. The impact of this means
pre-exceptional profits this year will be lower than expectations.'
'Going forward we continue to be encouraged by the significant opportunity
for Mothercare to deliver growth as a specialist retailer through growing
sales densities and continued margin improvements.'
Enquiries:
Chris Martin Mothercare plc 020 7404 5959 (for today only)
Caroline Whitelegge
Susan Gilchrist Brunswick Group 020 7404 5959
Alex Ranson
A meeting for analysts will be held this morning at 0900 for 0915 at The
Lincoln Centre, 18 Lincoln's Inn Fields, London WC2.
Financial results
An encouraging performance and key successes in the first half clearly
demonstrate that the business is continuing to respond to the recovery
programme. Disappointingly, start up problems with the new warehouse impacted
the performance of the business in the last 4 weeks of the first half.
The business achieved an operating profit of £3.9 million (£1.8 million),
with profit before tax and exceptional items up by 20 per cent to £4.8
million (£4.0 million). Sales increased by 6.8 per cent to £226.2 million, an
increase of 5.9 per cent on a like-for-like basis. Gross margin increased by
2.1 percentage points.
Operating profit from UK stores was £2.1 million (£1.4 million) on sales of
£199.8 million. The overseas franchise business, Mothercare International,
increased sales by 4.7 per cent to £19.1 million and achieved an operating
profit of £1.9 million (£1.0 million). Mothercare Direct, comprising the
catalogue and website, achieved strong growth, with sales up by 87.9 per cent
to £7.3 million. The Direct business, as expected, made an operating loss of
£0.1 million (£0.6 million loss) in the first half and will move into profit
in the second half.
Due to the major difficulties experienced with the transition to the new
warehouse, additional costs associated with the operation of temporary
warehousing and deliveries direct from suppliers to stores have been
incurred. An exceptional charge of £4.1 million has been taken in the half
year to cover the cost of operating these contingencies through the Christmas
trading period, a longer period than had been previously anticipated.
During the first half, the business continued to invest in staffing levels
and training to drive standards and service. Together with higher rent and
rates, and the running costs of Mothercare.com, this contributed to an
increase in cost growth as planned, of 10.2%. Cost growth is expected to be
lower in the second half.
Earnings per share for the continuing business before exceptional items was
7.1p (1.4p). The board has recommended an interim dividend of 1.0p.
The balance sheet remains strong and continues to support the investment
required to rebuild the business, including the roll-out of the large store
format which will start in March 2002.
Recovery programme - phase two
Mothercare is part way through its phased recovery programme, which is
building the foundations for the business to achieve its vision: to be the
leading specialist retailer for mothers-to-be and parents of young children,
with expertise and service at the heart of the offer.
Progress in the first half re-affirms that the business is responding to the
recovery programme, despite the temporary adverse impact of the new
warehouse. Supported by an ongoing drive to improve service and operating
standards, the priority actions behind the year-long second phase of the
recovery programme, which commenced in March 2001, have been:
- the launch and performance of the Autumn/Winter 2001 clothing range
- the roll-out of the large store Mothercare World format from January 2002
- moving to the new warehouse in August 2001
Warehouse
As highlighted at the trading update in early October, the move to the new
warehouse in Daventry, operated by Tibbett & Britten, took place on 18 August
2001. However, in early September, it became apparent that productivity
levels within the warehouse were well below those planned, leading to severe
stock availability problems in stores. Contingency distribution routes were
put in place.
As the senior teams of Mothercare and Tibbett & Britten worked through the
problems, it became clear that errors in stock location within the warehouse
had occurred, the extent of which were greater than first thought. Stock flow
through the warehouse is gradually being rebuilt from a clean base. This
process is taking time and consequently, within the plan presented by Tibbett
& Britten, it is not expected that the warehouse will reach normal
operational levels until January.
Additional contingencies have been put in place to protect stock flow for
Christmas, including direct deliveries from suppliers and additional
warehouse facilities. These contingencies will remain in place throughout the
Christmas trading period, a longer period than anticipated. The additional
cost of these contingencies has been charged as an exceptional item in the
first half.
Product
The customer response to the relaunch of Mothercare's clothing ranges this
Autumn has been positive, with particularly encouraging trends and market
share gains seen in maternity and children's fashion. Improvements have been
and will continue to be driven through focusing on core lines, reducing the
number of options within the range and more direct sourcing.
In the period to 28 September, the home, travel and toy product areas
continued to perform well. Although performance in these areas has since been
significantly impacted by availability issues arising from the problems at
the new warehouse, the sales trend has improved in recent weeks with
increased stock levels and availability.
Channels
UK stores
The Mothercare World chain continues to perform strongly. We have been
developing a new generation of Mothercare World stores with our trial format
at Milton Keynes and Kew, and the recent reopening of Rotherham. These model
stores have achieved improved sales densities and provide the blueprint for
Mothercare World to be rolled-out in the new financial year.
Four new out-of-town sites at Manchester, Bradford, Walsall and Bristol have
been secured during the first half. These four new store openings in 2002/03
will represent the first stage of the Mothercare World roll-out programme and
work to identify further sites is continuing.
International
Mothercare International has performed well in the first half. It has
continued to focus on developing a small number of core territories by
consolidating and strengthening relationships with key franchise partners.
Relationships with franchisees are moving increasingly to royalty-based
arrangements in order to drive sales more effectively. There remains a
significant opportunity to drive the international business going forward.
Mothercare Direct
Mothercare Direct has continued to grow very strongly and is on track to
break even in the current year. Catalogue sales increased by 50.6 per cent in
the first half while Mothercare.com is currently attracting up to 80,000 hits
per week.
Operating standards and service
The benefits of an ongoing drive to improve service and operating standards
throughout the business are starting to become evident. A strong emphasis
continues to be placed on the training and development of people as a result
of which service standards have improved significantly: labour turnover in
stores has been reduced by 17 percentage points to 40 per cent and the
proportion of full time staff in stores has increased from 8 per cent to 30
per cent since May. This has been a major driver in increasing average
customer spend by 5 per cent.
The progress being made in providing a better service to customers was
recently recognised when Mothercare received three awards from Mother and
Baby magazine, including that of 'Retailer of the Year Award' for 2001/02, as
voted by the magazine's readers.
Current trading
Stock availability problems arising from the operational issues at the
warehouse have impacted sales in the current period. UK sales in the first
four weeks of the second half declined by 4.3 per cent (4.5 per cent on a
like-for-like basis).
Total sales for the period declined by 7.6 per cent. This was due to the
decision to halt temporarily international shipments of stock to prioritise
deliveries to UK stores.
In light of the impact of the warehouse on performance and costs, profits for
the full year are expected to be lower than expectations.
INTERIM RESULTS
For the 28 weeks ended 13 October 2001 (2000 - 28 weeks ended 14 October)
Before Exceptional
Exceptional items
Notes items Note 2 Total
2001 2001 2001
£m £m £m
Mothercare continuing 226.2
Bhs discontinued -
_____
Turnover 226.2 - 226.2
_____ ____ _____
Mothercare continuing 3.9
Bhs discontinued -
___
Profit from retail operations 3.9 - 3.9
Exceptional items 2 - (4.1) (4.1)
Interest 3 0.9 - 0.9
_____ ____ _____
Profit/(loss) before 4.8 (4.1) 0.7
taxation
Taxation 4 - - -
_____ ____ _____
Profit after taxation
4.8 (4.1) 0.7
_____ ____ _____
Dividend per share 5 1.0p
Earnings per share - 6
Basic 1.0p
Diluted 1.0p
INTERIM RESULTS
For the 28 weeks ended 13 October 2001 (2000 - 28 weeks ended 14 October)
Before Exceptional
Exceptional items
items Note 2 Total Total
2000 2000 2000 31 March 2001
£m £m £m £m
Mothercare continuing 211.8 419.1
Bhs discontinued 89.9 89.9
_____ ______
Turnover 301.7 - 301.7 509.0
_____ ____ _____ _____
Mothercare continuing 1.8 (0.3)
Bhs discontinued (6.7) (6.7)
_____ _____
Profit from retail operations (4.9) (7.4) (12.3) (7.0)
_____ _____
Exceptional items - 12.3 12.3 12.3
Interest 2.2 - 2.2 3.1
_____ ____ ____ _____
Profit/(loss) before taxation
(2.7) 4.9 2.2 8.4
Taxation (1.2) 1.2 - -
_____ ____ ____ _____
Profit after taxation
(3.9) 6.1 2.2 8.4
_____ ____ ____ _____
Dividend per share Nil p 1.5p
Earnings per share -
Basic 1.1p 6.0p
Diluted 1.1p 6.0p
Mothercare Continuing business before exceptional items
13 October 14 October 31 March
2001 2000 2001
£m £m £m
Turnover 226.2 211.8 419.1
_____ _____ _____
Profit from retail operations 3.9 1.8 7.1
Interest 0.9 2.2 3.1
_____ _____ _____
Profit before tax and exceptionals 4.8 4.0 10.2
_____ _____ _____
Earnings per share 7.1p 1.4p 6.5p
_____ _____ _____
GROUP BALANCE SHEET
As at 13 October 2001 (2000 - 14 October)
13 14 October 31 March
October 2000 2001
Notes 2001 £m £m
£m
Fixed Assets
Tangible fixed assets 85.3 86.5 87.7
Investments 4.9 4.3 4.3
_____ _____ _____
90.2 90.8 92.0
_____ _____ _____
Current Assets
Stocks 43.7 38.4 43.6
Debtors 27.4 30.6 32.4
Cash at bank and in hand and 32.6 42.3 36.8
time deposits
Creditors: amounts falling due 7 (57.1) (71.2) (71.0)
within one year
_____ _____ _____
Net Current Assets 46.6 40.1 41.8
_____ _____ _____
Creditors: amounts falling due 7 (2.6) (2.6) (2.4)
after one year
Provisions for liabilities and 8 (7.2) (6.5) (4.4)
charges
_____ _____ _____
Net Assets 127.0 121.8 127.0
_____ _____ _____
Capital and reserves
attributable to equity interests
Called-up share capital 35.3 35.3 35.3
Profit and loss account 91.7 86.5 91.7
_____ _____ _____
127.0 121.8 127.0
_____ _____ _____
NET CASH /EQUITY % 25.3% 32.7% 27.4%
ANALYSIS OF NET CASH
13 October 14 October 31 March
2001 2000 2001
£m £m £m
Cash at bank 32.6 42.3 26.8
Time deposits - - 10.0
Obligations under
finance leases:
- short term (0.5) (2.0) (2.0)
- long term - (0.5) -
_____ _____ _____
32.1 39.8 34.8
_____ _____ _____
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
13 October 14 October
2001 2000
£m £m
Profit for the financial period 0.7 2.2
Dividend (0.7) -
Opening shareholders' funds 127.0 225.6
Scheme of arrangement - reduction of share capital - (106.0)
_____ ______
Closing shareholders' funds 127.0 121.8
_____ ______
GROUP CASH FLOW
For the 28 weeks ended 13 October 2001 (2000 - 28 weeks ended 14 October)
28 weeks ended 28 weeks ended 52 weeks ended
13 October 2001 14 October 2000 31 March 2001
£m £m £m
Profit/(loss) from
retail operations 3.9 (4.9) 0.4
before
exceptional items
Depreciation 6.2 13.4 18.5
Working capital (0.6) 9.6 13.5
Exceptional costs/other (6.9) (14.9) (28.3)
____ ______ ______
Net cash flow from 2.6 3.2 4.1
operating activities
(Note 9)
Returns on 0.9 2.2 3.1
investments and
servicing of
finance
Taxation 0.1 2.3 2.9
Capital (4.8) 0.2 (5.9)
expenditure (Note 9)
____ ______ ______
(1.2) 7.9 4.2
Acquisitions and
disposals
Disposal of Bhs - 208.9 208.9
Acquisition of own (0.5) (2.5) (3.8)
shares by Employee Trust
____ ______ ______
(0.5) 206.4 205.1
____ ______ ______
Equity dividends paid (1.0) - -
____ ______ ______
(2.7) 214.3 209.3
Management of 10.0 36.3 26.3
liquid resources
Financing
Scheme of arrangement - (105.1) (105.1)
-reduction in share
capital
Other (1.5) (10.3) (98.0)
____ ______ ______
(1.5) (115.4) (203.1)
____ ______ ______
Increase in cash 5.8 135.2 32.5
in the period
____ ______ ______
RECONCILIATION OF NET CASH
FLOW TO MOVEMENT IN NET FUNDS
Increase in cash 5.8 135.2 32.5
in the period
Cash flow from (10.0) (36.3) (26.3)
liquid resources
Cash flow from 1.5 10.3 98.0
financing
____ ______ ______
Movement in net (2.7) 109.2 104.2
funds/(debt) in
the period
Net funds (debt) 34.8 (69.4) (69.4)
at the beginning
of the period
____ ______ ______
Net funds at the 32.1 39.8 34.8
end of the period
____ ______ ______
NOTES
1. ACCOUNTING POLICIES
This interim report has been prepared under the historic cost convention
and using accounting policies which are consistent with previous years,
except for accounting for deferred tax where the new accounting standard, FRS
19 'Deferred tax' has been adopted by the directors in this interim report.
This Standard requires that deferred tax is recognised in respect of all
timing differences that have originated but not reversed at the balance sheet
date where transactions or events that result in an obligation to pay more
tax in the future or a right to pay less tax in the future have occurred at
the balance sheet date. Previously the group's accounting policy was to
provide for the tax which was likely to be payable or recoverable. There has
been no financial impact on the results of the group as a consequence of this
change in accounting policy as the group has tax losses which have previously
not been recognised. See note 4 for more details.
2. EXCEPTIONAL ITEMS
The group has undergone a fundamental re-organisation in relation to the
disposal of Bhs, which occurred in May 2000. The final financial settlement
in connection with this disposal was in line with expectations. The last
stage of the re-organisation was the move to a new warehouse, operated by the
contractor, Tibbett & Britten, which began despatching to stores in August
2001.
Significant difficulties have been experienced with the transition to
the new warehouse and, as a result, additional costs have been incurred
through the need to operate temporary warehousing and to deliver goods
directly from suppliers to stores.
The additional costs provided (£4.1 million) are based on these
temporary solutions being required until the end of 2001.
In the half year to 14 October 2000 exceptional items were charged to
operating profit in relation to the start up of Mothercare.com (£7.4
million). The exceptional credit of £12.3 million represented the net profit
on disposal of stores (£3.4 million) and the continuing costs of separation
(£9.9 million) and adjustments (£18.6 million) in respect of the loss on the
Bhs disposal.
The tax effect of the exceptional item is £nil (2000 - credit £1.2 million).
3. INTEREST
Interest 28 weeks ended 13 28 weeks ended 52 weeks ended
comprises: October 2001 14 October 2000 31 March 2001
£m £m £m
Interest receivable 1.0 3.4 4.3
Interest payable - (1.1) (1.1)
Obligations under (0.1) (0.1) (0.1)
finance leases
_____ _____ _____
0.9 2.2 3.1
_____ _____ _____
4. TAX
As set out in note 1, the directors have adopted FRS 19 in this interim
report. The only significant timing differences impacting the group are
accelerated capital allowances and tax losses generated in prior years which
are available to offset future profits. As a result of the adoption of FRS 19
the tax losses have been recognised to the extent of any deferred tax
liabilities. No further deferred tax asset has been recognised for the
remaining losses of £17 million (2000 - £23 million) as the directors are of
the opinion, that there is sufficient uncertainty over the recoverability of
these losses against future taxable profits such that in accordance with FRS
19 it is not appropriate to recognise any further asset at this time. This
position will be reviewed at the year end and future balance sheet dates.
Current tax is calculated at nil per cent (2000 - nil per cent) being
the estimated effective rate of tax on profit for the 52 weeks ending 30
March 2002. The tax charge has been reduced by the availability of tax losses
that have arisen in prior periods.
5. DIVIDEND
An interim dividend of 1.0p per share has been proposed (2000 - nil p).
The dividend will be payable on 12 February 2002 to shareholders on the
register on 11 January 2002. The cost of the dividend will be £0.7 million.
6. EARNINGS PER SHARE
28 weeks ended 13 28 weeks ended 52 weeks ended
October 2001 14 October 2000 31 March 2001
Weighted 67.2m 197.8m 138.8m
average number
of shares in
issue
Dilution:
Option schemes 1.1m - 0.3m
_____ _____ _____
Diluted weigted 68.3m 197.8m 139.1m
average number
of shares in issue
_____ _____ _____
Profit after tax £0.7m £2.2m £8.4m
Continuing business £4.8m £2.8m £9.0m
profit after tax before
exceptional items
Earnings per share:
- Basic 1.0p 1.1p 6.0p
- Diluted 1.0p 1.1p 6.0p
- Continuing business 7.1p 1.4p 6.5p
before exceptional items
The earnings per share of the continuing business before exceptional
items has been shown to provide an indication of the underlying profitability
of the business. It is calculated by dividing the profit after tax but before
exceptional items of the continuing Mothercare business by the weighted
average number of shares in issue during the period.
7. CREDITORS
13 October 14 October 31 March
2001 2000 2001
£m £m £m
Due within one year
___________________
Obligations under finance leases 0.5 2.0 2.0
Trade creditors 17.5 19.2 22.3
Proposed dividend 0.7 - 1.0
Current taxation 11.1 12.9 11.0
Payroll and other taxes, 0.9 0.8 1.5
including social security
Accruals and deferred income 25.0 35.0 31.9
Landlords' contributions 1.3 1.0 1.1
Other creditors 0.1 0.3 0.2
____ ____ ____
57.1 71.2 71.0
____ ____ ____
Due after one year
__________________
Obligations under finance leases - 0.5 -
Landlords' contributions 2.6 2.1 2.4
____ ____ ____
2.6 2.6 2.4
____ ____ ____
8. PROVISIONS FOR LIABILITIES AND CHARGES
Disposal Re-organisation
provisions provisions Total
£m £m £m
Opening balance 0.1 4.3 4.4
Charged in the - 4.1 4.1
period
Utilised - (1.3) (1.3)
____ _____ _____
Closing balance 0.1 7.1 7.2
____ _____ _____
The re-organisation provisions principally represent the costs of the
Mothercare store disposal programme and the additional provision charged in
the period in relation to the new warehouse, as set out in note 2.
9. ANALYSIS OF MOTHERCARE CONTINUING BUSINESS CASH FLOW FROM OPERATIONS
28 weeks 28 weeks 52 weeks
ended 13 ended 14 October ended 31 March
October 2001 2000 2001
£m £m £m
Profit/(loss) from 3.9 1.8 7.1
retail operations
Depreciation 6.2 6.3 11.4
Working capital (0.6) 6.0 9.9
Exceptional (6.9) (10.9) (24.3)
costs/other
_____ ______ ______
Net cash flow from 2.6 3.2 4.1
operations
_____ ______ ______
Capital expenditure
Purchase of (4.8) (4.9) (11.2)
tangible fixed assets
Sale of tangible - 9.3 9.5
fixed assets
_____ ______ ______
(4.8) 4.4 (1.7)
_____ ______ ______
These interim results were approved by the Directors on 16 November
2001. Results for the two half years have not been audited, but have been
reviewed by Arthur Andersen. The financial information contained in the
interim accounts does not constitute statutory accounts as defined in Section
240 of the Companies Act. The full year comparatives were extracted from the
full Group Accounts which have been filed with the Registrar of Companies
together with an unqualified auditors' report. All shareholders will receive
a copy of the interim results.
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