Interim Results
Mothercare PLC
17 November 2005
17 November 2005
Mothercare plc
Results for the 28 weeks ended 8 October 2005
'Growing through specialism, efficiency and reach'
Key Financials
•Group sales up 3.0% to £250.4m (2004: £243.2m)
•UK sales up 1.0% to £215.9m
•International sales up 17.0% to £34.5m
•Group profit from retail operations down 3.2% to £9.0m (2004: £9.3m)
•Profit before tax up 4.6% to £11.4m (2004: £10.9m)
•Earnings per share up 1.8% to 11.3p (2004: 11.1p)
•Dividend up 5.6% to 2.85p (2004: 2.70p)
•Cash balance of £34.4m (2004: £41.4m)
Operational Highlights
•Ongoing progress in rebuilding the business:
- New product ranges performing well
- Structured staff training programmes producing results
- Distribution move proceeding to plan
- All stores now web enabled
•Growth plans gaining momentum:
- 6 new stores opened in the UK (total 232)
- 29 International stores opened (total 247)
- Direct sales showing continued growth
Ben Gordon, Chief Executive, said:
'During the half we continued to consolidate the improvements made to the
business over the past three years. We have continued to rejuvenate our stores
and ranges, our new distribution warehouse move is on time and on budget and our
customer service programmes are producing results. We are now looking to grow
the business with greater focus on our specialism, our efficiency and by
expanding our reach through our UK store portfolio, growing our Direct business
and continuing our International expansion.
The work we have done to rebuild the business over the past three years means
that we are in a stronger position than in the past, despite the trading
environment continuing to be tough. We have ensured the business is in good
shape and everything within our control is being tightly managed to compete
effectively.'
Enquiries to:
Mothercare plc
Ben Gordon, Chief Executive 01923 206001
Steven Glew, Finance Director 01923 206140
Brunswick Group Limited
Susan Gilchrist/Catherine Hicks/Anna Jones 020 7404 5959
CHIEF EXECUTIVE'S REVIEW
INTRODUCTION
In May 2003 we outlined a three-year turnaround programme, with the objective of
stabilising and rebuilding Mothercare, followed by a longer-term growth plan. We
have achieved an enormous amount since that time, resulting in significant
improvements in sales and gross margins. The achievements of the turnaround
programme have provided resilience in the current difficult UK trading
environment and enabled the rapid growth of the International business.
Total sales for the first half are up 3.0%, with profit before tax up 4.6% to
£11.4 million. The strong growth in profitability of our International business
has partly off-set a reduction in profit in our UK business. In the UK we have
grown sales and gross margins, however whilst we have controlled costs tightly,
the growth in costs has been greater than the growth in income leading to a
reduction in retail operating profit. The increase in gross margin has been
impacted as we have continued to be competitive in our pricing and reacted to
the trading environment.
Our product ranges have been revamped to meet the needs and aspirations of
today's customers, our stores have been transformed, our infrastructure is now
providing real efficiency benefits and our customer service levels have shown a
significant improvement. In addition, we are on track and on budget to deliver
our new distribution network.
STRATEGY
The turnaround strategy provided an excellent roadmap to recovery. With three
years of stability now under our belt, and strong controls introduced into the
business, we are in a much better position to grasp the many opportunities still
ahead of us. To this end, we are now looking to growth under a new roadmap, the
three key areas of which are specialism, efficiency and reach.
Specialism
Mothercare has a clear customer proposition as a speciality retailer for
pregnant women and parents of young children. We will continue to develop this
point of differentiation with particular focus on our products, our stores and
our customer service.
Product
The improvements we have made to the quality, design and value of our ranges
have significantly repositioned our product offer. The 'good, better, best'
pricing architecture that we introduced is a key element of this success and has
ensured we have competitive entry price points whilst also offering our
customers more fashionable product. We are taking product development to a new
level with the further expansion of our sub-brands. An example of this is MODA
maternity wear store-within-stores. The 12 trial stores have been successful and
we plan to roll out to 50 more stores in the next 6 months. Our gift offer,
which focuses on our core market of birth to age two, has been successfully
launched and is now available in all our stores. We are now extending this offer
to other seasonal events and will have a much stronger Christmas gift range in
store this year. These and other opportunities in the product area will continue
to build our sales growth.
Stores
The ranging and presentation of our stores is an important aspect of our
specialism. Our stores need to be accessible and inviting, with the widest offer
possible to attract and satisfy our customers.
We have now refitted the majority of our 158 high street stores - improving the
customer environment and refocusing the ranges presented. We have also
'web-enabled' all of our stores allowing customers access to our complete
catalogue range, regardless of store size.
We are now turning more attention to our 74 out of town stores. Whilst these
stores are generally in a good physical condition and carry the bulk of our
range, we believe there is significant opportunity to extend our customer offer,
thereby improving sales densities and profitability. To this end, we are
planning to trial a number of formats to make the shopping experience easier and
more interesting for our customers.
Service
Given the nature of the products we sell, a high level of customer service is
critical to our success. The work we have been doing on specialist staff
training has been bedded down and we now have experts in most stores in key
areas of our business. Performance is closely measured and linked to staff
rewards. The benefits of this training are beginning to show through in the
results of our Mystery Shopper programme, which show significant improvements.
Efficiency
Our speciality proposition needs world-class operational support to drive
profitability. This is heightened by the current trading environment, with
pressure on both customer spending and our cost base in major areas such as
payroll, energy and property. With constantly improving direct sourcing, our new
supply chain and a more effective infrastructure we can engineer further costs
out of the business and run it more efficiently.
Sourcing
A vital element of our plans is to improve the efficiency of our product
purchasing processes. This involves sourcing product in the most cost efficient
way, whilst shortening order lead times, maintaining product quality and
achieving our demanding supplier standards. An important aspect is sourcing
product directly from suppliers. We have increased our direct sourcing of our
clothing and we are moving towards a level of 40% directly sourced compared to
15% three years ago, and we are on track to achieve a target of 50% direct
sourcing within two years.
Supply Chain
The programme to transform our distribution network into a world-class supply
chain is proceeding to schedule. We have completed the first phases of the plan
to time and budget. The new National Distribution Centre now handles 60% of our
product by volume and all despatches to stores are from this facility.
The final phase of this programme is the transfer of the balance of our boxed
product. This phase is scheduled for completion in the late Summer of 2006. Once
this programme is complete it will form the platform for further improvements in
our supply chain.
The update of our distribution network is only a stage, albeit a key stage, in
the transformation of our supply chain. We have more to do in planning and
managing the flow of product through our business, to drive down total supply
chain costs, improve availability and reduce total stockholdings.
Our target remains to reduce UK store distribution costs to 6.0% by March 2007
(current 6.4%) with a long term target of 5% which compares with 8.5% three
years ago. Our target for availability is to increase the level to 95% (current
88%) compared to 65% three years ago. We also plan to reduce stock levels
significantly.
Our International distribution network continues to increase its impact with
some 20% of our volume handled through our Dubai distribution centre and some
15% through our Singapore centre.
Infrastructure
We continue to focus on driving down our controllable operating costs to help
improve profitability to off-set inflationary cost increases particularly in
property rental and rates, energy and store labour costs.
An important aspect is the efficiency of our in-store processes, whilst allowing
our staff to provide the required customer service levels. A vital element here
is our new EPOS system, which is now in 200 stores, covering 90% of our sales.
This system has already substantially reduced till service times and back office
time. Following completion of the roll out of the base system, due by March 2006
we plan to add additional functionality, which will further improve customer
service and store efficiency.
Reach
We will continue to extend our reach to be more accessible to more customers,
both in the UK and around the world.
We will achieve this by ensuring our UK stores are the right size and in the
right place, that our Direct business fulfils its potential and that our
International business continues its strong growth.
UK Stores
We have opened nine new stores since August 2004. These have included one new in
town store, six new out of town stores and two replacement in town stores, where
we have relocated to a preferable size and location. Three months in and the
relocated and resized stores are more profitable than they were previously.
We have closed five non-performing stores in the half year and intend to close
some five more by the year end.
We continue to see opportunities for a further 50 UK stores.
Mothercare Direct
Our Direct business is central to our multi-channel strategy. This business
comprises home shopping (internet at home and telephone catalogue ordering)
together with internet in stores (web enabled stores). Direct is already a
strong business and we see significant opportunities to extend product ranges
and improve on-line shopping. Staff and customers are making better use of our
web-in-store, which is now in every store. We are also making better use of
speciality catalogues for products such as gift and first bedroom, which have
proved very popular. We plan to expand the range available over the internet.
International
Our International business represents a substantial growth opportunity for
Mothercare. Our brand has strong awareness internationally and a sustained
quality perception. We now trade in 33 countries through 247 stores with 22
franchisee partners. We have long established relationships with the majority of
our franchisees.
We see potential for at least another 150 international stores over the next
three years. Some 50 of these have opened this year. We will grow through
existing franchisees, both in their current countries and in new countries. We
are also progressing opportunities to develop in new countries with new
franchisees. An example of this is the agreement we have recently signed with
Shoppers' Stop to develop a franchise in India, with the first store due to open
in March 2006. We have agreed a plan with our new partner to open at least 40
stores over the next four years.
OUTLOOK
During the half we continued to consolidate the improvements made to the
business over the past three years. We have continued to rejuvenate our stores
and ranges, our new distribution warehouse move is on time and on budget and our
customer service programmes are producing results. We are now looking to grow
the business with greater focus on our specialism, our efficiency and by
expanding our reach through our UK store portfolio, growing our Direct business
and continuing our International expansion.
The work we have done to rebuild the business over the past three years means
that we are in a stronger position than in the past, despite the trading
environment continuing to be tough. We have ensured the business is in good
shape and everything within our control is being tightly managed to compete
effectively.
FINANCIAL REVIEW
RESULTS SUMMARY
Total group sales have increased by 3.0% to £250.4 million (2004: £243.2
million) with like-for-like UK store sales down by 1.0%. Profit from retail
operations decreased by 3.2% to £9.0 million (2004: £9.3 million).
The results can be summarised as follows:
28 weeks to
8 October 2005 9 October 2004
£m £m
Revenue (exc VAT) 250.4 243.2
---------- -----------
Profit from retail operations 9.0 9.3
Profit on disposal of property interests 0.7 -
---------- -----------
Profit from operations 9.7 9.3
Net interest income 1.7 1.6
---------- -----------
Profit before tax 11.4 10.9
Taxation (3.7) (3.4)
---------- -----------
Profit after tax 7.7 7.5
========== ===========
Earnings per share 11.3p 11.1p
Group revenue and profit from retail operations:
Revenue Profit from Retail Operations
2005 2004 2005 2004
£m £m £m £m
Total UK 215.9 213.7 4.4 5.3
Mothercare International 34.5 29.5 4.6 4.0
-------- ------- -------- ------
Total 250.4 243.2 9.0 9.3
-------- ------- -------- ------
(IFRS) Accounting standards
The above results have been prepared under International Financial Reporting
Standards ('IFRS') and prior year figures have been restated accordingly.
Divisional performance
UK
Total UK sales increased by 1.0% to £215.9 million. Total UK store sales
increased by 0.6% to £205.9 million. Like-for-like sales (defined as sales
growth on the previous year for stores that have been trading continuously from
the same selling space for at least 13 financial periods) decreased by 1.0%. The
net sales gain due to store openings and closures was 1.6%. Six stores were
opened during the period and five were closed.
Mothercare Direct sales increased by 9.2% to £10.0 million as a result of
improved product ranges and improved marketing.
Overall UK gross margins have increased by 0.2% in the period despite the
challenging trading environment. Our sourcing strategy has continued to provide
gross margin gains, which have been partly off-set by a reduction in retail
selling prices as we have continued to price our products competitively.
UK profit from retail operations reduced by 17.0% to £4.4 million from £5.3
million last year. The increase in sales and gross margin has been more than
off-set by the growth of UK operating costs.
The increase in operating costs has been restricted to 2.5%. Significant
inflationary increases in property, energy and store payroll (including the
investment in upskilling our store teams) have been partly compensated by tight
control of other operating costs particularly central costs and store
controllable costs. UK store distribution costs have remained at 6.4% of sales,
the same level as last year.
UK performance includes an exchange gain of £0.6 million arising from the
'marking to market' of foreign exchange contracts which hedge purchase
commitment in foreign currency.
Mothercare International
Mothercare International, our overseas franchise business, performed well with
sales growing by 17.0% to £34.5 million and profit from retail operations
growing 15.0% to £4.6 million. Overall franchisee sales grew by 25%, based on 8%
like-for-like growth together with the addition of 29 new stores, taking the
total to 247 at the end of the half.
We have opened stores in five new countries, including Indonesia and Pakistan
and now trade in 33 countries. Our franchisees have also refurbished 11 stores
as part of their continuing commitment to provide a modern and attractive store
environment.
The net margins of our International business for the half year have decreased
to 13.3% from 13.6% last year. This is due to higher distribution costs that
will be recovered from franchisees in the second half, so we would expect the
net margin rate for the full year to be ahead of last year. Our new Far East
distribution centre in Singapore is helping to improve the flow of product and
improve availability for our franchisees. Some 15% of our International volume
is now distributed through this facility.
Profit on disposal of property interests
The operating credit of £0.7 million relates to the net gain on disposal of a
leasehold interest of a closed store in the period.
Interest
Net interest income increased to £1.7 million from £1.6 million last year. Under
IFRS this figure now includes pension scheme investment income and finance
costs, before which net interest income decreased to £0.7 million from £0.9
million last year, principally as a result of the lower average cash balances
following the £10 million special pension contribution made at the end of the
last financial year.
Taxation
Due to the tax losses we have brought forward of some £23 million, no tax will
actually be paid for the half year. The tax charge of £3.7 million, representing
an effective tax rate of 32%, reflects utilisation of these losses in respect of
which a deferred tax asset existed at the end of last year.
Balance sheet and cash flow
The Group had a net cash outflow of £2.6 million in the period, leading to the
cash balance at the end of the half year of £34.4 million (2004: £41.4 million).
Cash balances have reduced on last year due to the special pension contribution
of £10 million made in March 2005.
An increase in working capital of £7.7 million in the half is principally due to
an increase in stock and debtors as a result of our growing International
operations.
Capital expenditure for the period was £8.8 million (2004: £10.3 million), of
which the cost of new stores was £4 million.
Dividend
The Directors are pleased to recommend an interim dividend for the year of 2.85
pence (2004: 2.7 pence) an increase of 5.6%.
The interim dividend will be payable to shareholders registered on Friday 6
January 2006. The latest date for election to join the dividend re-investment
plan is Friday 20 January 2006.
Pensions
The pension scheme valuation has been updated under IFRS for accounting purposes
as at 8 October 2005. This has resulted in an increase in the gross deficit from
the year end of £11.2 million to £33.6 million (an increase of £8.3 million to
£21.7 million net of deferred tax). This increase in deficit has arisen mainly
due to the impact of a lower discount rate offset by an increase in asset
values. This movement has been taken through the Statement of Recognised Income
and Expense. The Board is aware of our long term pension responsibilities and
recent pension legislation and as a result is keeping the pension position
constantly under review.
Preliminary announcement of unaudited results
Consolidated income statement
For the 28 weeks ended 8 October 2005
(unaudited)
28 weeks ended 28 weeks ended 52 weeks ended
8 October 2005 9 October 2004 26 March 2005
Note £ million £ million £ million
-------- -------- --------
Revenue 250.4 243.2 457.2
Cost of sales (225.5) (216.7) (408.1)
Re-organisation of
distribution network 2 - - (6.5)
-------- -------- --------
Gross profit 24.9 26.5 42.6
Administrative expenses (15.9) (17.2) (32.4)
-------- -------- --------
Profit from retail
operations 3 9.0 9.3 10.2
Profit on disposal of
property interests 4 0.7 - -
-------- -------- --------
Profit from operations 9.7 9.3 10.2
Profit on disposal of
subsidiary undertaking 5 - - 2.4
-------- -------- --------
Profit before financing
and taxation 9.7 9.3 12.6
Investment income 6 6.5 5.8 10.9
Finance costs 7 (4.8) (4.2) (8.0)
-------- -------- --------
Profit before taxation 11.4 10.9 15.5
Taxation 8 (3.7) (3.4) (4.2)
-------- -------- --------
Profit for the period
attributable to 7.7 7.5 11.3
equity holders of the
parent -------- -------- --------
Earnings per share
Basic 10 11.3p 11.1p 16.6p
Diluted 10 11.1p 10.9p 16.3p
-------- -------- --------
All results relate to continuing operations.
Consolidated statement of recognised income and expense
For the 28 weeks ended 8 October 2005
(unaudited)
28 weeks ended 28 weeks ended 52 weeks ended
8 October 2005 9 October 2004 26 March 2005
£ million £ million £ million
-------- -------- --------
Actuarial losses on defined
benefit pension schemes (11.0) (2.4) (9.3)
Tax on items taken directly
to equity 3.3 0.7 3.1
-------- -------- --------
Net expenses recognised
directly in equity (7.7) (1.7) (6.2)
Profit for the period 7.7 7.5 11.3
-------- -------- --------
Total recognised income and
expense for the period
attributable to equity holders
of the parent - 5.8 5.1
-------- -------- --------
Consolidated balance sheet
As at 8 October 2005
(unaudited)
8 October 2005 9 October 2004 26 March 2005
Note £ million £ million £ million
-------- -------- --------
Non-current assets
Property, plant and
equipment 85.8 82.5 84.3
Intangible assets -
software 3.2 2.2 2.7
Deferred tax asset 13.3 11.9 13.6
-------- -------- --------
102.3 96.6 100.6
-------- -------- --------
Current assets
Inventories 48.7 45.9 46.8
Trade and other
receivables 32.4 30.3 28.8
Cash and cash equivalents 34.4 41.4 37.0
-------- -------- --------
115.5 117.6 112.6
-------- -------- --------
-------- -------- --------
Total assets 217.8 214.2 213.2
-------- -------- --------
Current liabilities
Trade and other payables 11 (52.8) (57.1) (55.9)
Short term provisions 12 (4.9) (1.8) (5.1)
-------- -------- --------
(57.7) (58.9) (61.0)
-------- -------- --------
Non-current liabilities
Trade and other payables 11 (8.9) (8.1) (7.8)
Retirement benefit
obligations (33.6) (25.3) (22.4)
Long term provisions 12 (1.4) (0.7) (3.0)
-------- -------- --------
(43.9) (34.1) (33.2)
-------- -------- --------
-------- -------- --------
Total liabilities (101.6) (93.0) (94.2)
-------- -------- --------
-------- -------- --------
Net assets 116.2 121.2 119.0
-------- -------- --------
Equity attributable to equity
holders of the parent
Called up share capital 35.9 35.8 35.8
Share premium account 1.4 1.2 1.3
Own shares (4.8) (4.6) (5.5)
Retained earnings 83.7 88.8 87.4
-------- -------- --------
Total equity 116.2 121.2 119.0
-------- -------- --------
Consolidated cash flow statement
For the 28 weeks ended 8 October 2005
(unaudited)
28 weeks ended 28 weeks ended 52 weeks ended
8 October 2005 9 October 2004 26 March 2005
£ million £ million £ million
-------- -------- --------
Net cash flow from
operating activities 8.5 11.8 12.5
-------- -------- --------
Cash flows from investing
activities
Interest received 0.8 1.0 1.8
Interest paid (0.1) (0.1) (0.1)
Purchase of property,
plant and equipment (8.8) (10.3) (18.4)
Proceeds from sale of
property, plant and
equipment 0.4 - 1.1
Proceeds from sale of
subsidiary undertaking - 0.5 3.4
-------- -------- --------
Net cash used in
investing activities (7.7) (8.9) (12.2)
-------- -------- --------
Cash flows from financing
activities
Equity dividends paid (3.6) (2.7) (4.6)
Issue of ordinary share
capital 0.2 0.9 1.0
-------- -------- --------
Net cash used in
financing activities (3.4) (1.8) (3.6)
-------- -------- --------
-------- -------- --------
Net (decrease)/increase
in cash and cash
equivalents (2.6) 1.1 (3.3)
-------- -------- --------
Cash and cash equivalents
at beginning of period 37.0 40.3 40.3
-------- -------- --------
Cash and cash equivalents
at end of period 34.4 41.4 37.0
-------- -------- --------
Reconciliation of cash flow from operating activities
For the 28 weeks ended 8 October 2005
(unaudited)
28 weeks ended 28 weeks ended 52 weeks ended
8 October 2005 9 October 2004 26 March 2005
£ million £ million £ million
-------- -------- --------
Profit from retail
operations 9.0 9.3 10.2
Adjustments for
Depreciation of property,
plant and equipment 6.7 6.4 12.0
Loss on disposal of
property, plant and
equipment 0.1 0.5 0.7
Cost of employee share
schemes 0.7 0.4 0.8
Charge to profit from
operations in respect of the
costs of re-organisation of
distribution network - - 6.5
Utilisation of provision for
the costs of re-organisation
of distribution network (1.3) - (0.9)
Utilisation of property
provisions (0.2) (1.0) (1.1)
Payments to retirement
benefit schemes (1.3) (1.4) (12.4)
Charge to profit from
operations in respect of the
service costs of retirement
benefit obligations 2.5 2.1 3.9
-------- -------- --------
Operating cash flow before
movements in working capital 16.2 16.3 19.7
Increase in inventories (1.9) (0.8) (1.8)
Increase in receivables (3.6) (2.7) (3.3)
Decrease in payables (2.2) (1.0) (2.1)
-------- -------- --------
Net cash flow from operating
activities 8.5 11.8 12.5
-------- -------- --------
Analysis of cash and cash equivalents
As at 8 October 2005
(unaudited)
8 October 2005 9 October 2004 26 March 2005
£ million £ million £ million
-------- -------- --------
Cash at bank and in hand 34.4 21.4 37.0
Time deposits - 20.0 -
-------- -------- --------
34.4 41.4 37.0
-------- -------- --------
Notes
1 General information and accounting policies
(a) The next annual financial statements of the Company will be
prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted for use in the EU. The financial information contained in these
interim accounts has been prepared on the basis of IFRS that the Company expects
to be applicable as at 1 April 2006. IFRS are subject to amendment and
interpretation by the International Accounting Standards Board (IASB) and there
is an ongoing process of review and endorsement by the European Commission.
The accounting policies followed in the interim financial report are the same as
those included within the document 'Adoption of IFRS - Restatement of 2005
financial information' which the Company issued on 15 July 2005 and which is
available on the Company's website, www.mothercare.com/investorinfo with the
exception of the adoption of IAS 32 'Financial Instruments: Disclosure and
Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'.
The Company has elected to apply the exemption available within IFRS 1
'First-time Adoption of International Financial Reporting Standards' that
permits the hedge accounting applied under the previous Generally Accepted
Accounting Principles (GAAP) to be used as a comparative for IAS 39. Hence the
change in accounting policy has had no impact on the results of the prior
period. The impact on the opening balance sheet is set out in note 14.
(b) The results for the 28 weeks ended 8 October 2005 are
unaudited and were approved by the board of directors on 17 November 2005. The
results for the 52 weeks ended 26 March 2005 included in this report do not
constitute statutory accounts for the purpose of section 240 of the Companies
Act 1985. A copy of the statutory accounts for the 52 weeks ended 26 March 2005
under UK GAAP, on which an unqualified report has been made by the auditors
under section 235 of the Companies Act 1985, has been delivered to the Registrar
of Companies.
(c) Profit from retail operations
Profit from retail operations represents the profit generated from normal retail
trading, prior to any gains or losses on property transactions. It also includes
the volatility arising from accounting for derivative financial instruments
under IAS 39, as the Company has not adopted hedge accounting.
(d) Underlying earnings
Certain items do not reflect the underlying trading performance of the Company,
principally gains and losses on disposal of property interests, re-organisation
costs and other non-operating items, such as the prior year disposal of a
subsidiary undertaking with capital tax losses attached. The Company believes
that 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. The adjustments made to reported profit to
arrive at underlying earnings are disclosed in note 10.
(e) Retirement benefits
In consultation with the independent actuaries to the schemes, the valuation of
the pension liability has been updated to reflect current market discount rates,
current market values of investments and actual investment returns, and also
considering whether there have been any other events that would significantly
affect the pension liabilities. The impact of these changes in assumptions and
events has been estimated in arriving at the valuation of the pension liability.
2 Re-organisation of distribution network
During the 52 weeks ended 26 March 2005, costs of £6.5 million were charged to
Gross profit to provide for the direct revenue costs associated with the
re-organisation of the distribution network as a result of the move to the new
National Distribution Centre.
3 Profit from retail operations
For the 28 weeks ended 8 October 2005, profit from retail operations is stated
after crediting a net gain of £0.6 million to cost of sales as a result of the
Company's decision not to adopt hedge accounting under IAS 39. As these gains
result from the first-time application of IAS 39, as discussed in notes 1 and
14, there are no comparative figures for prior periods.
4 Profit on disposal of property interests
During the 28 weeks ended 8 October 2005, a credit of £0.7 million has been
recognised in profit from operations relating to net disposal proceeds on the
disposal of the leasehold interest in a closed store and the release of the
related landlord's contribution previously received and held as deferred income.
5 Profit on disposal of subsidiary undertaking
During the 52 weeks ended 26 March 2005, income of £2.4 million was credited to
profit before taxation relating to the sale of a subsidiary undertaking. The
group has capital tax losses significantly in excess of likely future
requirements and one of the group's subsidiary undertakings with capital tax
losses attached was sold to a third party for £2.4 million net of costs.
6 Investment income
28 weeks ended 28 weeks ended 52 weeks ended
8 October 2005 9 October 2004 26 March 2005
£ million £ million £ million
-------- -------- --------
Interest on bank deposits 0.8 1.0 1.8
Retirement benefit schemes 5.7 4.8 9.1
-------- -------- --------
Investment income 6.5 5.8 10.9
-------- -------- --------
7 Finance costs
28 weeks ended 28 weeks ended 52 weeks ended
8 October 2005 9 October 2004 26 March 2005
£ million £ million £ million
-------- -------- --------
Interest on bank loans and
overdrafts 0.1 0.1 0.1
Retirement benefit schemes 4.7 4.1 7.9
-------- -------- --------
Finance costs 4.8 4.2 8.0
-------- -------- --------
8 Taxation
28 weeks ended 28 weeks ended 52 weeks ended
8 October 2005 9 October 2004 26 March 2005
£ million £ million £ million
--------- --------- ---------
Current tax: UK corporation
tax - - -
Deferred tax: reversal of
deferred tax asset in
respect of tax losses
utilised against profits for
the period 3.7 3.4 4.2
--------- -------- --------
3.7 3.4 4.2
--------- -------- --------
The tax charge comprises entirely of deferred tax and is calculated at 32 per
cent (2004: 31 per cent).
A deferred tax asset of £6.8 million was recognised in respect of trading losses
carried forward at 26 March 2005, before taking into account any deferred tax
liabilities, as the directors were of the opinion that it was probable that the
benefit of the tax losses would be realised. This deferred tax asset has reduced
to £3.5 million at 8 October 2005 reflecting utilisation of these losses against
profits in the period. The group had tax losses carried forward of approximately
£11.5 million as at 8 October 2005 (2004: approximately £29 million). The
overall deferred tax asset at 8 October 2005 is £13.3 million including £11.9
million of deferred tax assets in relation to retirement benefit obligations.
9 Dividends
28 weeks ended 28 weeks ended 52 weeks ended
8 October 2005 9 October 2004 26 March 2005
£ million £ million £ million
-------- -------- --------
Amounts recognised as
distributions to equity holders
in the period:
Final dividend of 5.3
pence per share (2004:
4.0 pence per share) 3.6 2.7 2.7
Interim dividend of 2.7
pence per share - - 1.9
-------- -------- --------
3.6 2.7 4.6
-------- -------- --------
The proposed interim dividend of 2.85 pence per share for the 28 weeks ended 8
October 2005 was approved by the board after 8 October 2005, on 17 November
2005, and so, in line with the requirements of IAS 10 'Events after the Balance
Sheet Date', the related cost of £1.9 million has not been included as a
liability as at 8 October 2005. This dividend will be paid on 10 February 2006
to shareholders on the register on 6 January 2006.
10 Earnings per share
28 weeks ended 28 weeks ended 52 weeks ended
8 October 2005 9 October 2004 26 March 2005
million million million
-------- -------- --------
Weighted average number of
shares in issue 68.3 67.8 68.0
Dilution - option schemes 1.1 1.3 1.2
-------- -------- --------
Diluted weighted average
number of shares in issue 69.4 69.1 69.2
-------- -------- --------
£ million £ million £ million
-------- -------- --------
Earnings for basic and
diluted earnings per share 7.7 7.5 11.3
Costs of re-organisation of
distribution network - - 6.5
Profit on disposal of
property interests (0.7) - -
Profit on disposal of
subsidiary undertaking - - (2.4)
Tax effect of above items - - (1.9)
-------- -------- --------
Underlying earnings 7.0 7.5 13.5
-------- -------- --------
pence pence pence
-------- -------- --------
Basic earnings per share 11.3 11.1 16.6
Basic underlying earnings
per share 10.2 11.1 19.9
Diluted earnings per share 11.1 10.9 16.3
Diluted underlying earnings
per share 10.1 10.9 19.5
-------- -------- --------
11 Trade and other payables
8 October 2005 9 October 2004 26 March 2005
£ million £ million £ million
-------- -------- --------
Current liabilities:
Trade payables 28.4 30.6 29.8
Payroll and other taxes,
including social security 2.2 2.1 1.2
Accruals and deferred income 20.7 23.0 24.2
Lease incentives 0.8 0.8 0.7
Currency derivative
liabilities 0.2 - -
Other creditors 0.5 0.6 -
-------- -------- --------
52.8 57.1 55.9
-------- -------- --------
Non-current liabilities:
Lease incentives 8.9 8.1 7.8
-------- -------- --------
12 Provisions
8 October 2005 9 October 2004 26 March 2005
£ million £ million £ million
-------- -------- --------
Current liabilities:
Property provisions 1.2 1.5 1.4
Distribution provisions 3.4 - 3.4
Other provisions 0.3 0.3 0.3
-------- -------- --------
Short term provisions 4.9 1.8 5.1
-------- -------- --------
Non-current liabilities:
Property provisions 0.1 0.1 0.1
Distribution provisions 0.9 - 2.2
Other provisions 0.4 0.6 0.7
-------- -------- --------
Long term provisions 1.4 0.7 3.0
-------- -------- --------
Property provisions 1.3 1.6 1.5
Distribution provisions 4.3 - 5.6
Other provisions 0.7 0.9 1.0
-------- -------- --------
Total provisions 6.3 2.5 8.1
-------- -------- --------
The movement on total provisions
is as follows:
Property Distribution Other Total
provisions provisions provisions provisions
£ million £ million £ million £ million
Balance at 26 March 2005 1.5 5.6 1.0 8.1
Utilised in period (0.2) (1.3) (0.5) (2.0)
Charged in period - - 0.2 0.2
--------- -------- -------- --------
Balance at 8 October 2005 1.3 4.3 0.7 6.3
--------- -------- -------- --------
13 Reconciliation of IFRS comparatives from previously reported UK GAAP
financial information
Until 26 March 2005, the Company prepared its consolidated financial statements
under UK GAAP. With effect from 27 March 2005, the Company is required to
prepare its consolidated financial statements in accordance with IFRS.
The comparative figures included in this report for the 28 weeks ended 9 October
2004 and for the 52 weeks ended 26 March 2005 are as restated for IFRS.
Full details of the restatement and reconciliations of the UK GAAP financial
information for the 52 weeks ended 26 March 2005 can be obtained from the
Company's website www.mothercare.com/investorinfo.
14 IAS 39 transition balance sheet
The Company adopted IAS 32 'Financial Instruments: Disclosure and Presentation'
and IAS 39 'Financial Instruments: Recognition and Measurement' from 27 March
2005. In the preparation of its financial statements in accordance with IFRS for
the 52 weeks ended 26 March 2005, the Company continued to apply the hedge
accounting rules of UK GAAP, taking advantage of the exemption available within
IFRS 1 'First-time Adoption of International Financial Reporting Standards'.
The Company is required to recognise transitional adjustments in accounting for
its financial instruments in accordance with the measurement requirements of IAS
39 at 27 March 2005.
Although the Company has taken the decision not to hedge account for its foreign
exchange contracts, it is deemed to have hedge accounted under UK GAAP until 26
March 2005 and discontinued hedge accounting prospectively thereafter. IFRS 1
requires the Company to recognise various transitional adjustments to account
for those hedging relationships in place on 27 March 2005.
Foreign exchange contracts that were previously accounted for as cash flow
hedges of forecasted transactions under UK GAAP were not previously measured at
fair value. The difference between the derivative's fair value and its
previously reported carrying value has been recognised directly in equity as at
27 March 2005.
Additionally the Company has recognised the fair value of embedded derivatives
found within certain of its supply contracts in opening retained earnings.
All derivative instruments will continue to be recognised on the balance sheet
at fair value with future gains and losses being recognised immediately in
earnings, except when the hedging requirements of IAS 39 are met.
Reconciliation between the IFRS restated balance sheet as at 26 March 2005
applying prior hedge accounting and the balance sheet after the adoption of both
IAS 32 and IAS 39:
£ million
--------
Net assets as at 26 March 2005 as per the IFRS restated balance
sheet under prior hedge accounting 119.0
Adoption of IAS 32 and IAS 39:
Currency derivative assets 0.1
Currency derivative liabilities (0.2)
--------
Net assets as at 27 March 2005 after the adoption of IAS 32 and
IAS 39 118.9
--------
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