Preliminary Results
Mothercare PLC
20 May 2004
20 May 2004
Mothercare plc
Results for the 52 weeks ended 27 March 2004
Key Financials
• Group sales up 3.5% to £446.9 million (2003: £431.7 million)
• Like-for-like UK store sales up 5.9%* (2003: down 1.0%)
• Gross margins up 6.2 percentage points
• Profit before non-operating exceptional items and taxation of £17.3
million (2003: loss £22.4 million)
• Non-operating exceptional credit of £6.6 million (2003: charge of £2.4m)
• Profit before tax £23.9 million (2003: loss before tax of £24.8 million)
• Basic earnings per share 46.5p (2003: loss per share 22.0p)
• Adjusted earnings per share (before exceptional items) 24.4p - see note
5 (2003: loss per share 29.2p)
• Final dividend 4.0p (2003: nil)
• Strong cash generation with net cash balances of £40.3 million (2003:
£7.7 million)
Operational Highlights
• Further progress in five key turnaround projects
- 35 high street stores refitted by the end of March and continue to
outperform the chain
- Improvements to design, quality and fashionability of ranges have
increased product appeal
- Distribution performing well with greater availability and further
cost reductions achieved
- Significant investment made in infrastructure and systems to support
long term growth
- New customer service standards introduced
• Good performance delivered by Mothercare Direct and Mothercare
International
* See financial review for definition of like for like sales
Current Trading
• UK store like for like sales for the seven weeks to 14 May 2004 were up
5.8%.
Commenting on the results, Ben Gordon, Chief Executive said:
'It has been a year of good progress for Mothercare. The business is responding
well to the actions we are taking in our turnaround plan. Much remains to be
done to complete this plan and position the company for sustained profit growth
over the longer term. We have started this financial year with a much improved
cash position, which allows us to invest in developing the business. We are well
on track to turn Mothercare into an efficient specialty retailer with an
internationally respected brand, and are increasingly confident of Mothercare's
potential to achieve sustained profitability and growth.'
Enquiries to:
Mothercare plc
Ben Gordon, Chief Executive 01923 206001
Steven Glew, Finance Director 01923 206140
Brunswick Group Limited
Susan Gilchrist/ Philippa Power 020 7404 5959
CHAIRMAN'S STATEMENT
This has been an extraordinary year for Mothercare. Profit before tax was £23.9
million for the year, a much stronger outcome than anyone predicted at the
beginning of the period. This compared with a loss before tax of £24.8 million
last year.
Underlying this profit improvement is a company which is beginning to transform
both its economic model and its relationship with its customers. Product is of
higher quality and greater appeal than before and is more available on the
shelves. More of our stores look bright and exciting and our staff have become
increasingly confident in their ability to provide their customers with what
they want at the right price.
We are pleased to recommend a final dividend of 4.0p. Going forward our
intention, subject of course to trading performance, is to provide investors
with a dividend growing strongly and steadily. In normal circumstances we would
expect the final dividend to account for approximately two thirds of the
dividend for the year as a whole.
CHIEF EXECUTIVE'S REVIEW
Last year we outlined a three year turnaround programme with the objective of
rebuilding Mothercare and progressing plans for longer-term growth.
We have now completed the first year of the turnaround programme and are
encouraged by the progress we have made. In the year trading started to recover
with like for like store sales up by 5.9% and gross margins up by 6.2 percentage
points.
Clothing sales and margins have grown especially strongly as our focus on this
area, particularly on the high street, has paid off. Home and Travel continues
to be a strong part of our product mix and has provided solid sales and margin
growth. Our strategy to concentrate on higher margin educational / development
toys has meant that toy sales have declined but overall toy profitability has
increased.
Our performance has been driven by the actions we have taken throughout the
year. It is also a reflection of the strength of the Mothercare brand and the
loyalty of our customer base, and is a credit to our teams across the business.
In the new financial year, we will continue to take the actions necessary to
revitalise Mothercare fully and position the Company for long-term growth. As
previously indicated, we need to support the business for the long term and this
will involve significant revenue and capital investment, in particular in
central infrastructure and customer service standards.
Delivery of the turnaround is now well established and we are beginning to look
ahead to the next phase of growth for Mothercare, with particular focus on new
store development in the UK and growing our International business.
TURNAROUND
Our plan to rebuild the business is focused on five key projects: store
proposition, product and sourcing, supply chain, our infrastructure and customer
service. Throughout the year, we have made progress with these initiatives.
Store proposition
One of our key priorities during the year has been to define the Mothercare
proposition for our 165 high street stores with the aim of providing a modern,
inviting environment with product ranges which exceed customer expectations.
Early in the year we carried out trials of both new store environment and
merchandise mix. As a result of these trials we identified the most successful
format, known as 'Superlite'. We commenced roll-out of this format in January
2004 and by the financial year end 35 of our high street stores were refitted.
These refitted stores continue to perform well, achieving sales growth of some
12% above the average of our high street stores, generating a cash return on
investment on an annualised basis in excess of 20%.
Building on the success of the new format, a further 17 stores have been
refitted since the year end, so that 35% of our high street space has now been
refitted. We plan to convert a further 40 stores by March 2005, with the result
that over half of our high street space will then have been refitted. The
balance will be converted in the following financial year. The cost of refitting
high street stores in the year was £3.5m. Our estimate of total capital
expenditure required over the three years for our high street refit programme
remains unchanged at £20 million.
Our 68 out-of-town stores have continued to perform well as they benefited from
the improvements in our customer offer and other turnaround initiatives. Now
that the roll-out of the new high street format is fully underway, we are
turning our attention to our out-of-town stores as we believe that there are
opportunities for further improvements particularly in the largest ones. We have
allocated some £8 million of capital expenditure over the next two years for
this programme.
Product and sourcing
We continue to make strong progress in improving the design, quality,
fashionability and price of our product ranges. We have rebalanced our ranges
with the introduction of a good, better, best pricing policy to ensure that we
have the right breadth of product offer to meet the requirements of all our
customers and that we can compete effectively in each segment of the market. In
addition, we believe product innovation will be an important growth driver and
during the year we have introduced a number of new products, particularly in our
Home and Travel area. These factors will ensure that we continue to
differentiate Mothercare's product ranges from our competitors.
Effective sourcing is fundamental to providing good quality, good value product.
During the year we undertook a comprehensive review of our sourcing capability
and made some early progress implementing changes. We have consolidated our
supplier base from some 80 to 60 countries, shifting production locations and
providing quality products at better margins. We increased our direct sourcing
of clothing to 30% in the year, compared to 10% two years ago. Our target is to
move towards 50% direct sourcing in this area.
Supply chain
Our logistics network has performed increasingly well throughout the year. This
has been achieved by making tactical changes within the current supply chain to
drive up productivity and reduce costs. Distribution costs as a percentage to
sales are now 6.5% compared to 8.1% last year. In the short term we will
continue to improve the efficiency of our current operations with a target
run-rate of 6% to sales by March 2005.
We are undertaking a detailed analysis of our entire logistics network to
determine the most appropriate and cost effective supply chain for Mothercare.
Part of the work has been to understand which is the best route for our wide
range of products to reach our customers and from that analysis to determine
what our supply chain of the future should be. We are making good progress with
this project and will provide a full update on our plans in November.
Improved product availability has also been a key factor in driving sales growth
during the year. Availability is now over 80% compared to 65% in January 2003.
Whilst this is a big improvement it is still not good enough and going forward
our target is to secure availability in excess of 90% by the end of the
turnaround phase. To achieve this we have identified a range of actions from
significant systems enhancements to small procedural changes, which we will
undertake during the coming year. However, improvements will be gradual and will
also be dependent on the work we are carrying out to define the longer-term
supply chain requirements for Mothercare.
Infrastructure
The lack of investment in the infrastructure of the business has been a
significant factor in the historic under-performance of Mothercare. Our first
priority has been to implement a modern merchandise planning system which will
allow us to plan and manage our product ranges more effectively. This major
project was implemented on schedule in April 2004 and will be of substantial
benefit as we plan our ranges for Spring/Summer 2005.
The replacement of our ageing store EPOS systems is also a key priority as it is
an essential part of improving customer service. The development of the system
is approaching completion with a trial due to start in July and roll-out is
scheduled to commence in the Autumn. We plan that the roll out will be completed
by March 2006.
As indicated at our interim results in November, we expect that the investment
in these systems, together with further enhancements to central and distribution
systems, will be some £15 million over the three years of the turnaround
programme.
Customer service
Given the nature of our products and the life stage of our customers, the
delivery of excellent customer service is vital to the success of Mothercare. As
a specialty retailer, customer service is a key differentiator and an
opportunity to gain real competitive advantage.
Our immediate priority has been to reinstate basic retailing disciplines and
then to introduce a number of initiatives to raise store and service standards
across the chain. We have introduced new standards, roles, processes,
communications and performance measurement with the aim of changing the culture
of the business so it becomes genuinely customer-driven. We have created stores
of excellence to help cascade this best practice and ensure consistency
throughout the portfolio. Whilst we have made good progress in this area there
is much more work to be done in the coming year and it will require further
investment, particularly in training and rewards.
LONG-TERM GROWTH
The priority last year was to get the turnaround programme fully underway and we
have now completed one full year of our three year programme. The next phase
includes a focus on new store development and our International and Direct
businesses to help drive long-term growth.
New store development
We have now completed a review of our store portfolio in the UK. This review has
examined market sizes, customer catchments, existing store locations and
potential new locations, taking into account potential store sales, operating
performance and rent levels. The review demonstrated that overall our existing
portfolio is in good locations. However, it also identified areas where our
store portfolio needs rebalancing to achieve optimal size and locations. In
addition, it identified some 40 further high street and 20 out-of-town locations
where Mothercare could trade successfully.
We have therefore initiated a store opening programme. Once established we plan
to open new stores, of different sizes depending on their location, at a rate of
some 5-10 per annum. Our focus is to obtain locations which meet our returns
targets. It will take time to establish a pipeline of suitable sites so we would
not expect the programme to commence fully until 2005. We have however already
secured one new out-of-town location at Thurrock Lakeside, Essex, where a new
10,000 sq.ft. store is planned to open in September 2004. We expect the capital
expenditure on new stores will be some £10 million over the next 2 years.
International
Our International franchise business, continues to perform well. It is
benefiting from the improvements we are making in product quality, design and
availability and its performance demonstrates the popularity of the Mothercare
brand overseas.
During the year 26 new stores were opened in a number of countries where
Mothercare already has a presence including Greece, Spain and Russia. We have
identified the potential for a significant number of new stores in existing
territories over the next three years. Our analysis shows that the potential
exists to open some 30 stores per annum and 21 are already scheduled to open in
the coming year. A vital element of our business model is the partnership
between Mothercare and the franchisee in developing these territories.
Mothercare Direct
Our Direct business is an important element of our strategy to be a
multi-channel retailer. Direct does this in two ways; firstly, through in-store
web ordering, it allows smaller stores to offer a wider catalogue range to their
customers. Future plans will see this capability rolled out to more stores, and
Direct carrying a wider range.
Secondly, Direct provides Mothercare with the potentially powerful capability to
develop further customer relationships. Over the next 2-3 years we will be
enhancing these capabilities to better understand and target our customers'
needs.
CURRENT TRADING
Current trading continues to be encouraging with UK store like-for-like sales
for the seven weeks to 14th May 2004 up 5.8%.
FINANCIAL REVIEW
RESULTS SUMMARY
Total group sales have increased by 3.5% to £446.9 million (2003: £431.7
million) with like-for-like UK store sales up by 5.9%. Operating profit improved
significantly from a loss of £22.5 million last year to a profit of £16.6
million this year.
The results can be summarised as follows:
2004 2003
£m £m
Turnover (ex VAT) 446.9 431.7
======= ======
Operating profit/(loss) (before exceptional operating items) 15.8 (19.7)
Exceptional operating items 0.8 (2.8)
------- ------
Operating profit/(loss) 16.6 (22.5)
Non-operating exceptional items 6.6 (2.4)
Interest 0.7 0.1
Taxation 7.3 10.0
------- ------
Profit/(loss) after tax 31.2 (14.8)
======= ======
Group turnover and operating profit/(loss) before exceptional and one-off
items*:
Turnover Operating profit/(loss)*
2004 2003 2004 2003
£m £m £m £m
UK Stores 381.3 369.3 8.3 (15.9)
Mothercare Direct 17.8 16.2 1.4 0.7
Mothercare International 47.8 46.2 6.1 4.8
------- ------ -------- ------
Total 446.9 431.7 15.8 (10.4)
======= ====== ======== ======
*Operating loss of £19.7m in 2003 was after charging one-off items of £9.3m,
giving an operating loss before one-off items of £10.4m.
Sales
UK Stores
UK store sales increased by 3.3% to £381.3 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)
increased by 5.9%. The sales loss due to net store closures was 2.6%. Of the 15
store closures announced with our results in May last year, eight were closed in
the year. We have conducted a further review of our store portfolio and
confirmed a closure programme which now comprises some 10 stores, principally
smaller stores of marginal profitability.
Operating profit has increased to £8.3 million from a loss of £15.9 million last
year.
Mothercare Direct
Mothercare Direct, our catalogue and website business, had another successful
year with sales growing by 9.9% to £17.8 million and operating profit growing by
108.8% to £1.4 million. The sales growth achieved was impacted by the improved
availability in the UK stores, as in the past Direct was seen as a last resort
for product not available in stores. This business has also benefited from the
margin growth achieved across the group.
Mothercare International
Mothercare International, our overseas franchise business, also performed well
with sales growing by 3.4% to £47.8 million and operating profit growing 26.1%
to £6.1 million.
The sales growth in our franchisee stores is up 22% with 26 new franchise stores
opened in the year taking the total to 190.
Franchisee store sales have increased above the growth of our International
business itself partly due to the fact that Mothercare International sales in
2003 were boosted by delayed shipments from 2002 (due to availability issues).
The move to royalty based agreements whereby Mothercare receive the profit
element of our sales based on franchisee sales rather than shipments to the
franchisee has also been a factor. This delays our income as there is a delay
between date of shipment and the date of sale by our franchisee. The proportion
of sales through royalty agreements has increased by 20 percentage points to 70%
for the year.
Operating profit
Group operating profit, was £16.6 million compared to a loss of £22.5 million
last year. Operating profit, before exceptional items, was £15.8 million (2003:
loss of £19.7 million). The key factors driving this improvement in operating
profit were an increase in sales and gross margin together with a reduction in
distribution costs.
Gross margin increased by 6.2 percentage points. This was achieved by a better
flow of product through our business leading to improved availability to
customers and allowing greater full price trading. The gross margin also
benefited from a more effective management of markdowns throughout the year. The
improvements in our product range and the early benefits of our sourcing
initiatives also played a major role in the increase.
Distribution costs reduced from 8.1% to sales last year to 6.5% to sales this
year, resulting in a £5.2 million improvement to operating profit.
Operating profit also includes a credit of £0.9 million relating to the release
of the unused element of a provision against clearance stock, and business
stabilisation costs of £2.5 million principally relating to our turnaround
programme.
The operating profit for the current year includes an operating exceptional
credit of £0.8 million relating to VAT, primarily due to the successful outcome
of an outstanding VAT claim.
Non-operating exceptional items
The non-operating exceptional credit of £6.6 million relates to property items
of £4.6 million and a £2.0 million profit on the sale of a subsidiary. The
property credit includes lease premiums received on the sale of a number of
stores which realised £2.5 million and the release of amounts accrued and
provided for within the loss on sale of Bhs of £2.6 million following the early
surrender of a vacant leasehold property. This has been offset by further
provisions for losses on disposal of stores of £0.5 million which have arisen in
the year.
The non-operating exceptional credit of £2.0 million relates to the sale of a
subsidiary undertaking. The group has capital tax losses in excess of likely
future requirements and has taken advantage of an opportunity to sell one of the
group's subsidiary undertakings with capital tax losses attached to a third
party giving rise to a profit on disposal of £2.0 million net of costs.
Pensions
The Company has reviewed its pension arrangements in the year and introduced a
number of changes. The company operated defined benefit, final salary schemes
which were open to all employees. Following a full review of options the Company
decided that defined benefit pension schemes are an important differentiating
benefit to attract and retain employees. We have however closed the final salary
schemes to new entrants and introduced an average salary scheme to contain the
future liability and increased employee and employer contributions.
The total cost of the pension scheme charged to the profit and loss account in
the year was £2.7 million (2003 - £3.0 million). The prior year charge reflected
the elimination of the prepayment held on the balance sheet at that time
following a change in the valuation of the scheme's assets. The valuation of the
schemes under FRS17 at 31 March 2004 gave rise to a net pension deficit of £16.9
million (2003: deficit of £22.2 million) after the benefit of potential deferred
taxation at 30% amounting to £7.2 million (2003: £9.5 million). On a FRS17 basis
the net charge to profits would have been £3.8 million (2003: £1.2 million)
after the benefit of net finance income of £1.1 million (2003: £2.9 million).
Interest and taxation
Net interest income increased to £0.7 million from £0.1 million last year as a
result of the higher average cash balances resulting from the positive cash flow
of the business.
The group had tax losses carried forward of approximately £58 million as at 29
March 2003. £22.2 million of these losses have been utilised against the taxable
profit arising in the year. A net deferred tax asset of £6.4 million has been
recognised in respect of the remaining available trading losses after taking
account of any deferred tax liabilities. The recognition of the deferred tax
asset in connection with tax losses, together with the release of tax provisions
brought forward no longer required, has given rise to an exceptional tax credit
of £7.3 million in the profit and loss account in the year.
As a result of these changes in the future a normalised tax charge will be made
to profit.
Cash Flow
The group had a net cash inflow of £32.6 million in the year, leading to the
cash balance at the end of the year of £40.3 million (2003: £7.7 million). The
increase in cash has resulted from improved trading, and the benefits of a
working capital reduction of £8 million, and a reduced level of capital
expenditure in the period.
Capital expenditure for the period was £8.5 million (2003: £13.4 million),
principally relating to the cost of store refurbishment and information
technology. Over the three years of our turnaround programme we expect that
capital expenditure excluding new stores will be some £50 million. We anticipate
that capital expenditure on new stores over the next two years will be some £10
million.
Dividend
The Directors are pleased to recommend a final dividend for the year of 4.0p
(2003: nil pence).
The final dividend will be payable on 30 July 2004 to shareholders registered on
18 June 2004. The latest date for election to join the dividend re-investment
plan is 9 July 2004.
Preliminary announcement of audited results
Group profit and loss account
For the 52 weeks ended 27 March 2004
52 weeks ended 27 March 2004 52 weeks ended 29 March 2003
---------------------------- ----------------------------
Before Exceptional Before Exceptional
exceptional items exceptional items
items (note 1) Total items (note 1) Total
Note £ million £ million £ million £ million £ million £ million
---------------------- ----- ----------- ----------- --------- ----------- ----------- ---------
Turnover 446.9 - 446.9 431.7 - 431.7
Cost of sales (400.7) 0.8 (399.9) (425.9) (0.9) (426.8)
---------------------- ----- ----------- ----------- --------- ----------- ----------- ---------
Gross profit 46.2 0.8 47.0 5.8 (0.9) 4.9
Administrative
expenses (30.4) - (30.4) (25.5) (1.9) (27.4)
---------------------- ----- ----------- ----------- --------- ----------- ----------- ---------
Profit/(loss)
from retail
operations 15.8 0.8 16.6 (19.7) (2.8) (22.5)
Exceptional items:
Profit/(loss)
on disposal of
stores 1 - 4.6 4.6 - (2.4) (2.4)
Profit on sale
of subsidiary
undertaking 1 - 2.0 2.0 - - -
Interest (net) 2 0.7 - 0.7 0.1 - 0.1
---------------------- ----- ----------- ----------- --------- ----------- ----------- ---------
Profit/(loss)
on ordinary
activities
before
taxation 16.5 7.4 23.9 (19.6) (5.2) (24.8)
Taxation 3 - 7.3 7.3 - 10.0 10.0
---------------------- ----- ----------- ----------- --------- ----------- ----------- ---------
Profit/(loss)
on ordinary
activities
after taxation 16.5 14.7 31.2 (19.6) 4.8 (14.8)
---------------------- ----- ----------- ----------- ----------- -----------
Dividends
proposed 4 (2.7) -
--------- ---------
Retained
profit/(loss)
for the
financial year
transferred to
reserves 28.5 (14.8)
--------- ---------
---------------------- ----- ----------- ----------- --------- ----------- ----------- ---------
Earnings/(loss) per
share 5 46.5p (22.0p)
Earnings/(loss) per
share diluted 5 45.7p (22.0p)
---------------------- ----- ----------- ----------- --------- ----------- ----------- ---------
Group balance sheet
As at 27 March 2004 (29 March 2003)
2004 2003
restated *
Note £ million £ million
------------------------- ----- --------- ----------
Fixed assets
Tangible assets 81.3 85.6
------------------------- ----- --------- ----------
Current assets
Stocks 45.0 48.0
Debtors 34.0 25.6
Cash at bank and in hand
and time deposits 40.3 7.7
------------------------- ----- --------- ----------
119.3 81.3
Creditors - amounts
falling due within
one year 6 (60.1) (54.3)
------------------------- ----- --------- ----------
Net current assets 59.2 27.0
------------------------- ----- --------- ----------
Total assets less current
liabilities 140.5 112.6
Creditors - amounts
falling due after
one year 6 (1.2) (2.2)
Provisions for
liabilities and charges 7 (3.6) (4.7)
------------------------- ----- --------- ----------
Net assets 135.7 105.7
------------------------- ----- --------- ----------
Capital and reserves
attributable to equity
interests
Called up share capital 35.5 35.3
Share premium account 0.6 -
ESOP reserve (4.2) (4.9)
Profit and loss account 103.8 75.3
------------------------- ----- --------- ----------
Shareholders' funds 8 135.7 105.7
------------------------- ----- --------- ----------
* Comparative figures have been restated to reflect the adoption of UITF 38
'Accounting for ESOP trusts'.
Group cash flow statement
For the 52 weeks ended 27 March 2004 (52 weeks ended 29 March 2003)
2004 2004 2003 2003
£ million £ million £ million £ million
--------------------------------------- --------- --------- --------- ---------
Reconciliation of net cash inflow from
operating activities
Profit/(loss) from retail operations
before exceptional items 15.8 (19.7)
Depreciation 13.0 14.3
Reversal of past impairment losses (1.1) -
Loss on disposal of tangible fixed
assets 0.9 -
Cost of employee share schemes 0.9 -
Decrease in stocks 3.0 3.8
Decrease in debtors 0.1 4.7
Increase in creditors 4.9 9.0
Net cash outflow in respect of
exceptional items (0.4) (3.8)
--------------------------------------- --------- --------- --------- ---------
Net cash inflow from operating
activities 37.1 8.3
--------------------------------------- --------- --------- --------- ---------
Net cash inflow from operating
activities 37.1 8.3
Returns on investments and
servicing of finance
Interest received 0.9 0.5
Interest paid (0.2) (0.4)
--------------------------------------- --------- --------- --------- ---------
0.7 0.1
Capital expenditure
Purchase of tangible fixed assets (8.5) (13.4)
Sale of tangible fixed assets 1.4 1.4
--------------------------------------- --------- --------- --------- ---------
(7.1) (12.0)
--------------------------------------- --------- --------- --------- ---------
Trading cash
inflow/(outflow) 30.7 (3.6)
Acquisitions and disposals
Sale of subsidiary undertaking 1.3 -
Equity dividends paid - (1.0)
Management of liquid resources (30.0) 6.1
Financing
Issue of ordinary share capital 0.8 -
Acquisition of own shares (0.2) -
--------------------------------------- --------- --------- --------- ---------
0.6 -
--------------------------------------- --------- --------- --------- ---------
Increase in cash in the year 2.6 1.5
--------------------------------------- --------- --------- --------- ---------
Reconciliation of net cash flow to
movement in net funds
Increase in cash in the year 2.6 1.5
Cash flow from management of liquid
resources 30.0 (6.1)
--------------------------------------- --------- --------- --------- ---------
Movement in net funds in the year 32.6 (4.6)
Net cash at the beginning of the year 7.7 12.3
--------------------------------------- --------- --------- --------- ---------
Net cash at the end of the year 40.3 7.7
--------------------------------------- --------- --------- --------- ---------
Analysis of net cash
2002 Cash flow 2003 Cash flow 2004
£ million £ million £ million £ million £ million
------------------------------ --------- --------- --------- --------- ---------
Cash 6.2 1.5 7.7 2.6 10.3
Overdrafts - - - - -
------------------------------ --------- --------- --------- --------- ---------
Net cash 6.2 1.5 7.7 2.6 10.3
------------------------------ --------- --------- --------- --------- ---------
Cash flow from management
of liquid resources
Time deposits 6.1 (6.1) - 30.0 30.0
------------------------------ --------- --------- --------- --------- ---------
Net cash 12.3 (4.6) 7.7 32.6 40.3
------------------------------ --------- --------- --------- --------- ---------
1 Exceptional items
Profit from retail operations includes an exceptional credit of £0.8 million
relating to VAT, principally arising from the successful outcome of an
outstanding VAT claim.
Exceptional items credited to profit before taxation amount to £6.6 million and
comprise the following three items.
A settlement has been reached for the early surrender of the lease of a vacant
property. This resulted in a release in the period, as an exceptional credit to
the profit and loss account, of £2.6 million of amounts accrued and provided for
within the loss on sale of Bhs in prior years in respect of this onerous lease.
Unconditional agreements have been reached for the sale of the leases of four
stores whose disposal was announced in the previous annual report. An
exceptional credit of £2.5 million has been recognised in the profit and loss
account relating to the lease premiums received and receivable. A further
exceptional charge of £0.5 million has been recognised to provide for the loss
on disposal of a further two stores which are also not expected to reach
acceptable levels of profitability. Actions to close these stores commenced in
March 2004.
The group has capital tax losses significantly in excess of likely future
requirements. One of the group's subsidiary undertakings with capital tax losses
attached has been sold to a third party for £2.0 million net of costs.
The tax effect of the above exceptional items is £nil (2003 - £nil).
A deferred tax asset of £6.4 million has been recognised in the balance sheet in
respect of carried forward tax losses following the group's return to
profitability. An exceptional credit of £7.3 million has been recognised in the
profit and loss account relating to this deferred tax asset and the release of a
brought forward provision for corporation tax of £0.9 million which is no longer
required.
In the 52 weeks ended 29 March 2003, exceptional costs of £2.8 million were
charged to loss from retail operations. These costs related to directors and
head office staff redundancy costs of £1.9 million, store staff redundancies of
£0.1 million and £0.8 million one-off costs incurred in renegotiating the
group's warehouse and distribution contract during the year.
In the 52 weeks ended 29 March 2003, an exceptional charge of £3.1 million was
recognised to provide for the loss on disposal of stores. This was offset by
£0.7 million profit on stores disposed of during the year. The net exceptional
cost of £2.4 million was charged to loss before taxation.
In the 52 weeks ended 29 March 2003, a corporation tax provision of £10.0
million made in a prior year was released as an exceptional credit to the profit
and loss account. This provision related to outstanding tax issues from the
reorganisation of various property interests conducted in 1996/7. These were
resolved with the Inland Revenue last year.
2 Interest (net)
2004 2003
£ million £ million
----------------------------------------------- --------- ---------
Interest payable and similar
charges:
Bank loans and overdrafts (repayable
within five years, not by instalments) (0.2) (0.4)
Interest receivable and similar income 0.9 0.5
----------------------------------------------- --------- ---------
0.7 0.1
----------------------------------------------- --------- ---------
3 Taxation
The credit for tax on profit/(loss) on ordinary activities comprises:
2004 2003
£ million £ million
----------------------------------------------- --------- ---------
Current Tax
UK corporation tax at 30% (2003 - 30%) - -
Exceptional release of prior year tax
provision (note 1) 0.9 10.0
----------------------------------------------- --------- ---------
0.9 10.0
----------------------------------------------- --------- ---------
Deferred Tax
Exceptional credit for deferred tax (note 1) 6.4 -
----------------------------------------------- --------- ---------
7.3 10.0
----------------------------------------------- --------- ---------
The group had tax losses carried forward of approximately £36 million as at 27
March 2004 (2003 - £58 million).
4 Dividends
2004 2003
£ million £ million
---------------------------------------- --------- ---------
Interim paid of nil pence per ordinary
share (2003 - nil pence) - -
Final proposed of 4.0 pence per
ordinary share (2003 - nil pence) 2.7 -
---------------------------------------- --------- ---------
2.7 -
---------------------------------------- --------- ---------
5 Earnings/(loss) per share
2004 2003
----------------------------------------- -------- -------
Weighted average number of
shares in issue 67.3m 67.2m
Dilution - option schemes 1.1m -
----------------------------------------- -------- -------
Diluted weighted average number
of shares in issue 68.4m 67.2m
----------------------------------------- -------- -------
Profit/(loss) after tax £31.2m (£14.8m)
Exceptional items (net of tax) (£14.7m) (£4.8m)
----------------------------------------- -------- -------
Profit/(loss) after tax before
exceptional items £16.5m (£19.6m)
----------------------------------------- -------- -------
Basic earnings/(loss) per share 46.5p (22.0p)
Earnings/(loss) per share before
exceptional items 24.4p (29.2p)
Diluted earnings/(loss) per
share 45.7p (22.0p)
----------------------------------------- -------- -------
6 Creditors - amounts falling due within one year and after one year
2004 2003
£ million £ million
--------------------------------------------------- --------- ---------
Amounts falling due within one year
Trade creditors 25.6 27.8
Proposed dividend 2.7 -
Corporation tax - 0.9
Payroll and other taxes, including social security 1.2 3.1
Accruals and deferred income 28.8 20.7
Landlords' contributions 1.0 1.3
Other creditors 0.8 0.5
--------------------------------------------------- --------- ---------
60.1 54.3
--------------------------------------------------- --------- ---------
Amounts falling due after one year
--------------------------------------------------- --------- ---------
Landlords' contributions 1.2 2.2
--------------------------------------------------- --------- ---------
7 Provisions for liabilities and charges
2004 2003
£ million £ million
--------------------------------------------------- --------- ---------
Property provisions 2.6 4.7
Other provisions 1.0 -
--------------------------------------------------- --------- ---------
3.6 4.7
--------------------------------------------------- --------- ---------
The movement on provisions can be analysed as follows:
Property Other
provisions provisions Total
£ million £ million £ million
-------------------------- ---------- ---------- ---------
Balance at 30 March 2003 4.7 - 4.7
Transfer from accruals - 0.5 0.5
Utilised in year (1.2) (0.3) (1.5)
Released in year (1.4) - (1.4)
Charged in year 0.5 0.8 1.3
-------------------------- ---------- ---------- ---------
Balance at 27 March 2004 2.6 1.0 3.6
-------------------------- ---------- ---------- ---------
Property provisions principally represent the costs of store disposals. Property
provisions released during the year relate to the early surrender of the lease
of a vacant property as disclosed in note 1. Property provisions charged during
the year relate to the costs of store closures as disclosed in note 1.
Other provisions principally represent provisions for uninsured losses.
8 Reconciliation of movement in shareholders' funds
2004 2003
restated *
£ million £ million
----------------------------------------------------- --------- ----------
Profit/(loss) for the financial year 31.2 (14.8)
Dividends (2.7) -
New share capital subscribed 0.8 -
Acquisition of own shares (0.2) -
Cost of employee share schemes charged to profit and
loss account 0.9 0.1
----------------------------------------------------- --------- ----------
Net increase/(decrease) in shareholders' funds 30.0 (14.7)
----------------------------------------------------- --------- ----------
Shareholders' funds at beginning of the year as
previously stated 110.6 125.4
Prior year adjustment (4.9) (5.0)
----------------------------------------------------- --------- ----------
Shareholders' funds at beginning of the year as
restated 105.7 120.4
----------------------------------------------------- --------- ----------
Shareholders' funds at end of the year 135.7 105.7
----------------------------------------------------- --------- ----------
* Comparative figures have been restated for the adoption of UITF 38 'Accounting
for ESOP trusts'.
Notes:
a. UITF 38 'Accounting for ESOP trusts' has been adopted during the year.
This states that the consideration paid for shares in Mothercare plc, held by an
ESOP trust on behalf of the Company, should be accounted for as a reduction in
shareholders' funds, the 'ESOP reserve', rather than as a fixed asset
investment. Consideration paid for the purchase of own shares represents the
cost of the shares purchased by the ESOP trust. UITF 38 requires any
compensation expense related to share awards to be based on the intrinsic value
of the awards. In the past the compensation expense has been based on the cost
of the shares purchased, which has been equal to the intrinsic value. As a
result of the adoption of UITF 38, net assets and shareholders' funds as at 29
March 2003 have decreased by £4.9 million. Comparative figures have been
restated accordingly. The adoption had no impact on the group's results in
previous accounting periods, but resulted in a £0.1 million decrease in
operating profit in the current year. Other than the adoption of UITF 38, the
results for the year have been prepared using accounting policies which are
consistent with the previous year.
b. The financial information set out above does not constitute the
Company's statutory accounts for the 52 week periods ended 27 March 2004 or 29
March 2003, but it is derived from those accounts. Statutory accounts for 2003
have been delivered to the Registrar of Companies and those for 2004 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.
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