Mothercare Regulatory News (MTC)

RNS Number : 2366M

Mothercare PLC

20 May 2010

 

Mothercare plc Preliminary Results

 

"Mothercare worldwide network sales exceed £1 billion"

 

Mothercare plc announces its preliminary results for the 52 weeks ended 27 March 2010.

 

Financial Results

 

·; Group sales £766.4m, up 5.9% (2009: £723.6m)

·; Worldwide network sales(1) £1.1bn, up 10.0%

·; Strong cash generation. Net cash balance £38.5m, up 55.2% (2009: £24.8m)

·; Total dividend 16.8p, up 15.9% (2009: 14.5p)

·; Underlying profit from operations before share based payments £52.0m, up 16.6% (2009: £44.6m)

 

	2010 £m	2009 £m	(2)
Underlying profit from operations before share based payments	52.0	44.6
- Financing	(0.4)	(0.1)
- Share based payments	(14.4)	(7.6)
Underlying profit before tax	37.2	36.9
- Non-underlying items	(4.7)	5.1
Profit before tax	32.5	42.0
Basic underlying EPS	31.5p	32.0p
Basic EPS	28.0p	36.2p

 

Key Highlights

 

Record year for International:

·; Total International sales(1) £490.9m, up 21.4%; underlying profit from operations up 40.6%

·; 119 new stores - total 728 overseas stores in 51 countries; retail space 1.5 million sq. ft., up 18.8%

·; Launched Mothercare in Australia and ELC in South Africa. Opened 50th store in Russia

·; 32 stores in India - to increase to 70 this year

 

Two new strategic joint ventures:

·; JV in India with Delhi Land & Finance (announced in October)

·; JV in the UK with Boots to supply children's clothing to c. 400 stores (announced in February)

 

Resilient performance in UK:

·; Positive like-for-like sales(1) for fourth consecutive year at +3.0%

·; Property restructure ahead of plan. 10 parenting centres opened; 29 in-town stores closed

 

Continuing growth in Direct:

·; Direct in Home sales £72.4m, up 16.3%; Direct in Store sales £54.4m, up 20.6%

·; Total Direct sales £126.8m, up 18.2%

 

Ben Gordon, Chief Executive, said:

 

"Mothercare has had another strong year with our worldwide network sales exceeding £1 billion for the first time. International had a record year and we ended the year with a total of 1,115 stores worldwide in 52 countries. UK performance was robust with positive like-for-like sales growth for the fourth consecutive year, and our property restructure is on track. As a result of the excellent performance of the group, we have again recommended a significant increase in the dividend.

 

"The year finished with a more challenging consumer environment in the UK and strong growth in International. We expect this pattern to continue into 2010/11 and we are planning cautiously. However, overall we are well placed going forward, with our rapidly growing International platform, strong cash flow and debt free balance sheet."

 

Enquiries to:

 

Mothercare plc

Ben Gordon, Chief Executive	01923 206001
Neil Harrington, Finance Director	01923 206187
Joanne Russell, Head of Investor Relations	01923 694900
Brunswick Group Limited
Anita Scott/Catriona McDermott	020 7404 5959

 

Notes

(1) For definitions of 'network sales', 'total International sales' and 'like-for-like sales' see Financial Review.

(2) Restated for Amendments to IAS 38 regarding treatment of catalogue costs. See note 11.

CHIEF EXECUTIVE'S REVIEW

 

RESULTS

 

The Mothercare group delivered a strong performance in 2009/10 with underlying growth in sales and profits in both our UK and International businesses (for segmental analysis see below).

 

Group sales for the year rose by 5.9% to £766.4 million (2008/09: £723.6 million). Underlying profit from operations, excluding the share based payments charge, increased by 16.6% to £52.0 million (2008/09: £44.6 million) and underlying profit before tax increased by 0.8% to £37.2 million (2008/09: £36.9 million).

 

Group profit before tax decreased from £42.0 million last year to £32.5 million this year. However this is after charging £4.7 million of non-underlying items (credit of £5.1 million last year) mostly relating to the volatile non-cash adjustments where we revalue stock and commercial currency hedges to spot rate. These do not affect the cash flows or ongoing profitability of the group.

 

The group generated £57.8 million of cash flow from operations and ended the year with a net cash balance of £38.5 million (2008/09: £24.8 million). As a result of the strong underlying performance of the group and the positive cash generation, we are pleased to propose a final dividend of 11.3 pence per share giving a total dividend for the year of 16.8 pence per share, an increase of 15.9%.

 

TWO WORLD CLASS BRANDS

 

Over the last five years we have grown Mothercare from a predominantly UK retailer into a global multi-channel company through our two world class brands, Mothercare and the Early Learning Centre. This transformation has been achieved through excellent product innovation and design together with a focus on specialism. We will continue to build the Mothercare group as the world's leading parenting retailer.

 

An excellent example of creative innovation in the year is the Mothercare 'SPIN' pushchair. Working with experts to address new child development research, Mothercare's in-house design team developed this unique pushchair which allows babies to benefit from both facing their parents and also looking out to the world. The SPIN launched with great success around the world, becoming an immediate bestseller in its first year. Mothercare is now the leading pushchair retailer in a number of markets around the world, including the UK. Design and innovation at the Early Learning Centre continues, and one of our recent developments was the launch of our interactive Retro Robot which proved to be a bestseller over the Christmas period.

 

MOTHERCARE STRATEGY

 

We have four key growth channels through which we develop our two brands:

 

1. UK retailing

2. Direct

3. Wholesale

4. International franchise

 

1. UK retailing

 

In November we announced that phase 1 of our property strategy, which we started in May 2008, was complete and that the £5.0 million of benefits highlighted at that time had been achieved with £5.0 million less capital expenditure than anticipated.

 

At the same time we announced phase 2 of our property strategy. Whilst phase 1 was all about the rightsizing of Mothercare stores, reducing space and increasing sales per square foot, phase 2 will deliver a significant shift in footprint from in-town to the more profitable out-of-town parenting centre format - driving profit per square foot but leaving the overall retail space in the UK broadly the same.

 

Even after closing 63 stores in phase 1 of our property strategy, we are still left with a very favourable lease expiry profile where almost 50% of the group's leases are due to expire by March 2012. This, together with the weak property market, has given us an excellent opportunity to embark on a new phase of our property strategy, closing more lower profit in-town stores, opening more out-of-town parenting centres in key catchments with strong property deals and renegotiating rents downwards at lease expiry.

 

Phase 2 can be split into three distinct elements, each with separate targets:

 

i) New out-of-town parenting centres

Our out-of-town parenting centres are true destination stores with the full range of Mothercare and Early Learning Centre product together with key concessions. Our target is to increase the number of parenting centres in the UK to 120. In November we announced that we would open 10 new parenting centres per annum and in 2009/10 we met this target. The new stores are performing well and we have attracted £10.2 million of lease incentive payments from landlords in the year. Our plans to open 10 further out-of-town parenting centres in 2010/11 are on track.

 

ii) Rationalise high street chain

We announced in November our plans to close or renegotiate the leases on 90 lower profit in-town stores, dealing with 30 stores each year over three years. In 2009/10 we exceeded our target with 29 store closures and 14 lease renegotiations.

 

iii) In-town opportunities

We also identified a number of key towns where we targeted eight of our new landmark format stores. One of these was opened during 2009/10 and another after year end taking the total to six.

 

We now expect our property strategy to deliver £16.1 million of annual benefits each year by the end of 2012 from phase 1 and phase 2 combined (an increase to our previous estimate of £15.0 million).

 

2. Direct

 

Direct has continued its rapid growth with total sales of £126.8 million in the year, an increase of 18.2%.

 

The development of e-commerce in the UK over the last ten years has transformed the face of UK retail and Mothercare has been in the vanguard of that transformation. Mothercare UK's Direct business is now over 20% of our UK business split between orders placed online at home and online in store. The growth of Direct reflects the transformation of retailing with stores increasingly acting more as showrooms. This is particularly true for our extensive range of nursery furniture, pushchairs and car seats. We continue to expand our product ranges online and our full Clothing range is now available on the Mothercare website in addition to our full range of Home & Travel and Toys. We are now rolling out our Widest Choice programme for the Early Learning Centre with a much larger range of lines now available online only. Also, in September we acquired the remaining 50% of Gurgle.com, our social networking website for parents and parents-to-be, which continues to grow rapidly.

 

3. Wholesale

 

Wholesale is currently small, but represents a significant growth opportunity for us both in the UK and globally. In the UK, wholesale sales were £4.8 million, up 78%, and this will be boosted in 2010/11 by the autumn launch of our clothing partnership with Boots announced in February. We will supply childrenswear to Boots UK on a wholesale basis, replacing their existing childrenswear offer in circa 400 UK stores from September 2010.

 

4. International franchise

 

Our fourth distribution channel is International franchising which is how we operate our overseas stores. International franchising remains the single largest growth opportunity for the group offering huge potential in developed and emerging markets, driven by the strength of our two brands, our unique network of strong franchise partners and our state of the art logistics network.

 

Our International franchise model has allowed rapid growth with no capital investment for Mothercare. We earn profits from our royalties, as a fixed percentage of International retail sales. Total International sales, which include International retail sales and International wholesale sales, increased by 21.4% to £490.9m.

 

International underlying profit from operations increased by over 40% to £23.2 million on top of growth of over 50% last year. Over the last two years growth in our International business has been rapid with store numbers up 47.4% to 728 stores in 51 countries, and average retail selling space up 47.9% to 1.5 million square feet. Total International sales have increased by more than 70% over the last two years and underlying profit from operations increased by nearly 120% over the same period. The International segment as reported also includes our small overseas wholesale business.

 

In our key growth markets of India and China, our strategy is to form joint ventures with our franchise partners so that Mothercare can share in more of the upside in markets where we expect to generate substantial growth.

 

In October we announced our newest joint venture with Delhi Land & Finance in India. This new joint venture, along with our existing partner in the region, Shopper's Stop, gives us an excellent opportunity to accelerate our expansion in India. At the year end we had 32 successful stores in India and we expect to have 70 stores open by the end of the current financial year, well on the way to our medium term target of 200 stores.

 

Mothercare owns 30% of the franchise companies in India and China. We charge a royalty on retail sales as with the franchise model, but we also earn a 30% share of the net joint venture profits. We contribute 30% of the capital expenditure in these markets and with the rapid growth that we predict, we are expecting to invest in the region of £5 million of total capital expenditure in India and China over the next three years.

 

In Europe we have 327 stores with strong growth in Eastern European countries with higher birth rates, including Poland, Russia and Ukraine.

 

Across the Middle East and Africa we have 225 stores and we are now opening larger format parenting centre stores with two stores opened in Dubai in the year exceeding 10,000 square feet. During the year we launched the Early Learning Centre in South Africa.

 

Asia Pacific is currently our smallest region with 176 stores, but it has the greatest long-term growth potential, including both India and China. During the year we also launched Mothercare in Australia.

 

We are growing the International business around the world by continuing to open new stores in existing countries, entering new countries and also opening larger format stores that can accommodate our entire product ranges. We plan to open at least 100 additional overseas stores per year for the foreseeable future.

 

SUMMARY AND OUTLOOK

 

Mothercare has had another strong year with our worldwide network sales exceeding £1 billion for the first time. International had a record year and we ended the year with a total of 1,115 stores worldwide in 52 countries. UK performance was robust with positive like-for-like sales growth for the fourth consecutive year, and our property restructure is on track. As a result of the excellent performance of the group, we have again recommended a significant increase in the dividend.

 

The year finished with a more challenging consumer environment in the UK and strong growth in International. We expect this pattern to continue into 2010/11 and we are planning cautiously. However, overall we are well placed going forward, with our rapidly growing International platform, strong cash flow and debt free balance sheet.

 

  

FINANCIAL REVIEW

 

RESULTS SUMMARY

 

Group underlying profit before tax increased by £0.3 million to £37.2 million (2008/09: £36.9 million as restated - see below). Underlying profit excludes exceptional items and other non-underlying items which are analysed below. After these non-underlying items, the group recorded a pre-tax profit of £32.5 million (2008/09: £42.0 million as restated). Underlying profit from operations before the IFRS 2 share based payments charge increased by £7.4 million, or 16.6%, to £52.0 million.

 

Income Statement

 

£ million	2009/10	2008/09 restated
Revenue	766.4	723.6
Profit from operations before share based payments	52.0	44.6
Share based payments	(14.4)	(7.6)
Financing	(0.4)	(0.1)
Underlying profit before tax	37.2	36.9
Exceptional items and unwind of discount on exceptional provisions	(1.3)	(4.6)
Non-cash foreign currency adjustments	(1.3)	11.8
Amortisation of intangible assets	(2.1)	(2.1)
Profit before tax	32.5	42.0
Underlying EPS - basic	31.5p	32.0p
EPS - basic	28.0p	36.2p

 

Profit from operations before share based payments includes all of the group's trading activities, but excludes the volatile share based payment costs charged to the income statement in accordance with IFRS 2 (see below).

 

Prior year restatement

 

Historically, in line with many similar companies, the group has charged the costs of preparing catalogues in line with the sales benefits. Amendments to IAS 38 require associated costs for such catalogues to be recognised up front as the group has access to and receives the catalogues. This has resulted in restatement due to timing differences of additional costs of £0.2 million for the full year 2008/09 together with associated restatements of the tax charge.

 

Non-underlying Items

 

Underlying profit before tax excludes the following non-underlying items:

·; Non-cash adjustments principally relating to marking to market of commercial foreign currency hedges at the period end. As hedges are taken out to match future stock purchase commitments, these are theoretical adjustments which we are required to make under IAS 39 and IAS 21. These standards require us to revalue stock and our commercial foreign currency hedges to spot. This volatile adjustment does not affect the cash flows or ongoing profitability of the group and reverses at the start of the next accounting period.

·; Amortisation of intangible assets (excluding software).

·; Exceptional integration costs of £2.0 million being final integration costs of the Early Learning Centre (see note 3).

·; Net profits on disposal or termination of property interests of £1.0 million (see note 3).

·; Unwind of discount on exceptional property provisions £0.3 million (see note 3).

 

Exceptional items in 2008/09 included £2.1 million of losses on disposal or termination of property interests, £1.5 million of integration costs and £1.0 million of unwind of discount on exceptional provisions.

 

Results by Segment 

 

The primary segments of Mothercare plc, are the UK business and the International business.

 

£ million - Revenue	2009/10	2008/09
UK	590.3	578.8
International	176.1	144.8
Total	766.4	723.6

 

 

£ million - Underlying Profit	2009/10	2008/09 restated
UK	36.1	34.7
International	23.2	16.5
Corporate	(7.3)	(6.6)
Profit from operations before share based payments	52.0	44.6
Share based payments	(14.4)	(7.6)
Financing	(0.4)	(0.1)
Underlying profit before tax	37.2	36.9

 

In the year, like-for-like UK retail sales growth has largely been offset by the impact of currency movements on net margin. However, profit has benefited from the property strategy, with lower occupancy costs, lower central costs as well as tight cost control and growth in the wholesale channel.

 

International has benefited from the 21.4% growth in total International sales driving growth in royalty income and shipments, and central costs growing at a slower rate.

 

Corporate expenses represent board and company secretarial costs and other head office costs including audit, professional fees, insurance and head office property. This year they include a £0.5 million one-off cost of restructuring and reorganising certain operations.

 

Share based payments

 

Underlying profit before tax also includes a share based payments charge of £14.4 million (2008/09: £7.6 million) in relation to the Company's long-term incentive schemes. There are three main types of long-term share based incentive scheme being the Executive Incentive Plan, the Performance Share Plan and the Save As You Earn schemes. Full details can be found in the Annual Report.

 

The Executive Incentive Plan is based on Mothercare's Total Shareholder Return (TSR) over three years compared with the TSR of the FTSE General Retailers' Index. The scheme only vests if Mothercare's TSR outperforms the General Retailers'. The Performance Share Plan is based on cumulative underlying profit before tax growth over a three-year period and the Save As You Earn schemes give individuals the opportunity to subscribe to options at a discounted price over three years. These schemes therefore target both enterprise value creation and profit growth and we believe that they directly reflect the interests of our shareholders.

 

Over the three years to 27 March 2010:

 

·; Mothercare's market capitalisation increased 107% from £274.1 million(1) to £566.4 million(1);

·; Mothercare's TSR outperformed the FTSE General Retailers' TSR by 120%(1) (Mothercare +88.0%; General Retailers -33.0%); and

·; Underlying profit before tax increased 64.6% to £37.2 million.

 

 1 Three-month average to 27 March in line with the scheme rules 

 

As a result of this strong performance the share based payments charge calculated under IFRS 2 has increased.

 

The charges as calculated under IFRS 2 are theoretical calculations based on a number of market based factors and estimates about the future including estimates of Mothercare's future share price and TSR in relation to the General Retailers'. As a result it is difficult to estimate or predict reliably future charges. However, we estimate with the information currently available, the share based payments charge in 2010/11 will reduce from £14.4 million to approximately £9 million.

 

Like-for-like sales, total International sales and network sales

 

'Like-for-like sales' are defined as sales for stores that have been trading continuously from the same selling space for at least a year and include Direct in Home and Direct in Store. Sales from Early Learning Centre inserts in Mothercare stores are included where they are trading in existing Mothercare space.

 

'International franchisee retail sales' are the estimated retail sales of franchisees and joint ventures. 'Total International sales' are International franchisee retail sales plus International wholesale sales. Total 'network sales', which include the retail sales made by our franchise partners overseas to customers (rather than Mothercare sales to franchisees as published) and wholesale sales were £1.1 billion, up 10.0% as follows:

 

£ million - Network Sales	2009/10	2008/09
UK retail (inc. Direct)	585.5	576.1
UK wholesale	4.8	2.7
Total UK	590.3	578.8
Total International	490.9	404.2
Group network sales	1,081.2	983.0

 

Financing and Taxation

 

Financing represents interest receivable on bank deposits and costs relating to bank facility fees and the unwinding of discounts on provisions.

 

The underlying tax charge is comprised of current and deferred tax and is calculated at 28.5 per cent (2008/09: 27.6 per cent). An underlying tax charge of £10.6 million (2008/09: £10.2 million as restated) has been included for the period; the total tax charge was £8.9 million (2008/09: £11.8 million as restated).

 

Pensions

 

We continue to operate defined benefit pension schemes for our staff, although the schemes are now closed to new members. Details of the income statement net charge, total cash funding and net assets and liabilities are as follows:

 

£ million	2010/11	*	2009/10		2008/09
Income statement
Service cost	(3.1)		(2.1)		(2.5)
Return on assets / interest on liabilities	(0.6)		(1.2)		1.6
Net charge	(3.7)		(3.3)		(0.9)
Cash funding
Regular contributions	(2.7)		(2.7)		(2.1)
Deficit contributions	(2.3)		(2.3)	**	(2.6)
Total cash funding	(5.0)		(5.0)		(4.7)
Balance sheet
Fair value of schemes' assets			197.0		150.2
Present value of defined benefit obligations			(252.1)		(175.6)
Net liability	N/A		(55.1)		(25.4)

 

* Estimate

** Excludes one-off contribution of £3.0 million paid in 2009/10. The £2.3 million deficit contribution was paid at the beginning of 2010/11

 

In consultation with the independent actuaries to the schemes, the key market rate assumptions used in the valuation are as follows:

 

	2009/10	2008/09	Sensitivity	Sensitivity £ million
Discount rate	5.6%	6.5%	0.1%	(5.6)
			0.5%	(30.2)
Inflation	3.7%	3.2%	0.1%	5.3

 

The pension fund deficit has increased because under IAS the liability is calculated based on corporate bond rates, which have reduced compared with last year. The sensitivity of the IAS 19 valuation to a 0.1% and 0.5% reduction in the discount rate and a 0.1% reduction in inflation are set out in the table above.

 

Balance Sheet and Cash Flow

 

The balance sheet includes identifiable intangible assets arising on the acquisition of The Early Learning Centre of £24.7 million and goodwill of £68.6 million.

 

The group continues to generate operating cash, with cash generated from operations of £57.8 million after £3.0 million of one-off pension payments. We have managed the business very tightly this year and as a result we have generated a working capital inflow of £3.4 million. In future years however, we would expect an underlying working capital outflow of approximately £10 million per annum as a result of the rapid growth of International and Direct and the increase in our own direct sourcing operations, where we have achieved better margins but take ownership of stock earlier in the supply chain. After investing £24.2 million of capital expenditure (£14.0 million net of lease incentives received) and paying £13.2 million of dividends and £7.7 million of tax, the net cash position at the year end is positive, at £38.5 million (2008/09: £24.8 million).

 

Going Concern

 

The group's objective with respect to managing capital is to maintain a balance sheet structure that is both efficient in terms of providing long-term returns to shareholders and safeguards the group's ability to continue as a going concern. As appropriate, the group can choose to adjust its capital structure by varying the amount of dividends paid to shareholders, returns of capital to shareholders, issuing new shares or the level of capital expenditure.

 

At the year end, the group had facilities of £65 million, being £55 million committed secured bank facilities and a £10 million uncommitted unsecured bank overdraft.

 

As of 26 April 2010, the group refinanced, with committed secured bank facilities of £40 million at an interest rate of 1.7% above LIBOR, which expire on 31 October 2013. It also has an uncommitted unsecured bank overdraft of £10 million.

 

The group's previous and current committed borrowing facilities contain certain financial covenants which have been met throughout the period. The covenants are tested half-yearly and are based around gearing, fixed charge cover and guarantor cover.

 

The committed bank facility was drawn down by a maximum of £20 million during the period to fund seasonal working capital and at the year end the group had a cash balance of £38.5 million in addition to the £65 million of available facilities at the time (which has now been reduced to £50 million as noted above).

 

The current economic conditions create uncertainty around the level of demand for the group's products. However, the group has long-term contracts with its franchisees around the world and long standing relationships with many of its suppliers. As a consequence, the directors believe that the group is well placed to manage its business risks successfully despite the uncertain economic outlook.

 

The group's latest forecasts and projections have been sensitivity-tested for reasonable possible adverse variations in trading performance and show that the group will operate within the terms of its borrowing facilities and covenants for the foreseeable future.

 

After making appropriate enquiries, the directors have a reasonable expectation that the Company and the group have adequate resources to continue in operational existence for the foreseeable future. The financial statements are therefore prepared on the going concern basis.

 

Capital Expenditure

 

Total capital expenditure in the year was £24.2 million (2008/09: £22.8 million), of which £5.5 million was for software intangibles and £14.6 million was invested in UK stores. Landlord contributions of £10.2 million (2008/09: £6.6 million) were received, partially offsetting the outflow. Net capital expenditure after landlord contributions was £14.0 million (2008/09: £16.2 million). Net capital expenditure for 2010/11, after landlord contributions, is expected to be £20 million.

 

Earnings per Share and Dividend

 

Basic underlying earnings per share were 31.5 pence compared to 32.0 pence last year (as restated). The directors recommend a 14.1% increase in the final dividend to 11.3 pence (2008/09: 9.9 pence) giving a total dividend for the year of 16.8 pence (2008/09: 14.5 pence), an increase of 15.9%.

 

The final dividend will be payable on 6 August 2010 to shareholders registered on 4 June 2010. The latest date for election to join the dividend reinvestment plan is 16 July 2010.

 

Treasury policy and financial risk management

 

The board approves treasury policies and senior management directly controls day-to-day operations within these policies. The major financial risk to which the group is exposed relates to movements in foreign exchange rates and interest rates. Where appropriate, cost effective and practicable, the group uses financial instruments and derivatives to manage the risks.

 

No speculative use of derivatives, currency or other instruments is permitted.

 

Foreign currency risk

 

All international sales to franchisees are invoiced in pounds sterling or US dollars.

 

International published sales represent approximately 23 per cent of group sales. Total International sales represent approximately 45 per cent of group network sales. The group therefore has some currency exposure on these sales, but it is used to offset or hedge in part the group's US dollar and Euro denominated product purchases. The group policy is that all material exposures are hedged by using forward currency contracts.

 

Interest rate risk

 

At 27 March 2010, the group has positive cash balances. Given the cash generative nature of the group, interest rate hedging was not considered necessary. The board will keep this under review as the group develops.

 

Shareholders' funds

 

Shareholders' funds amount to £188.4 million, a decrease of £9.1 million in the year driven largely by the increase in the retirement benefits liability. This represents £2.14 per share compared to £2.25 per share at the previous year end (as restated).

 

Accounting Policies and Standards

 

This year the group has adopted International Financial Reporting Standard 8 'Operating Segments', International Accounting Standard 1 'Presentation of Financial Statements' (revised 2007) and Amendments to International Accounting Standard 38 'Intangible Assets'. Prior period results have been restated accordingly (see notes 1 and 11).

  

Consolidated income statement

For the 52 weeks ended 27 March 2010

 

	Note	52 weeks ended 27 March 2010			52 weeks ended 28 March 2009 restated3
		Underlying1	Non-underlying2	Total	Underlying1	Non-underlying2	Total
		£ million	£ million	£ million	£ million	£ million	£ million
Revenue	2	766.4	-	766.4	723.6	-	723.6
Cost of sales	3	(676.0)	(3.4)	(679.4)	(645.0)	8.2	(636.8)
Gross profit		90.4	(3.4)	87.0	78.6	8.2	86.8
Administrative expenses before share based payments		(37.9)	(0.8)	(38.7)	(33.6)	-	(33.6)
Share based payments		(14.4)	(1.2)	(15.6)	(7.6)	-	(7.6)
Administrative expenses		(52.3)	(2.0)	(54.3)	(41.2)	-	(41.2)
Profit from retail operations before share based payments		52.5	(4.2)	48.3	45.0	8.2	53.2
Profit from retail operations		38.1	(5.4)	32.7	37.4	8.2	45.6
Profit/(loss) on disposal/termination of property interests	3	-	1.0	1.0	-	(2.1)	(2.1)
Share of results of joint ventures		(0.5)	-	(0.5)	(0.4)	-	(0.4)
Profit from operations before share based payments	2	52.0	(3.2)	48.8	44.6	6.1	50.7
Profit from operations		37.6	(4.4)	33.2	37.0	6.1	43.1
Investment income	4	-	-	-	0.4	-	0.4
Finance costs	3, 5	(0.4)	(0.3)	(0.7)	(0.5)	(1.0)	(1.5)
Profit before taxation		37.2	(4.7)	32.5	36.9	5.1	42.0
Taxation	6	(10.6)	1.7	(8.9)	(10.2)	(1.6)	(11.8)
Profit for the period attributable to equity holders of the parent		26.6	(3.0)	23.6	26.7	3.5	30.2
Earnings per share
Basic	8	31.5p		28.0p	32.0p		36.2p
Diluted	8	30.7p		27.3p	31.0p		35.0p

1 Before items described in note 2 below.

2 Includes exceptional items (profit/loss on disposal/termination of property interests and integration costs), amortisation of intangible assets (excluding software) and the impact of non-cash foreign currency adjustments under IAS 39 and IAS 21 as set out in note 3 to the financial statements.

3 Restated for Amendments to IAS 38 as described in note 11.

 

All results relate to continuing operations.

 

Consolidated statement of comprehensive income

For the 52 weeks ended 27 March 2010

 

	Note	52 weeks ended 27 March 2010	52 weeks ended 28 March 2009 restated1
		£ million	£ million
Other comprehensive income - actuarial loss on defined benefit pension schemes		(32.1)	(31.2)
Tax relating to components of other comprehensive income	6	9.0	8.7
Net loss recognised in other comprehensive income		(23.1)	(22.5)
Profit for the period		23.6	30.2
Total comprehensive income for the period attributable to equity holders of the parent		0.5	7.7

1 Restated for Amendments to IAS 38 as described in note 11.

Consolidated balance sheet

As at 27 March 2010

	Note		27 March 2010	28 March 2009 restated1	29 March 2008 restated1
			£ million	£ million	£ million
Non-current assets
Goodwill			68.6	68.6	68.6
Intangible assets			36.3	35.9	35.6
Property, plant and equipment			93.9	92.4	95.8
Investments in joint ventures			1.7	0.7	0.8
Retirement benefit obligations			-	-	2.0
Deferred tax asset			7.9	0.8	-
			208.4	198.4	202.8
Current assets
Inventories			91.3	94.1	70.8
Trade and other receivables			57.7	54.4	51.1
Current tax assets			-	-	1.0
Cash and cash equivalents			38.5	24.8	22.7
Currency derivative assets			14.1	7.3	0.7
			201.6	180.6	146.3
Total assets			410.0	379.0	349.1
Current liabilities
Trade and other payables			(120.6)	(108.7)	(95.6)
Current tax liabilities			(1.4)	(2.1)	-
Obligations under finance leases			-	-	(0.4)
Short term provisions			(9.0)	(11.9)	(24.0)
			(131.0)	(122.7)	(120.0)
Non-current liabilities
Trade and other payables			(26.2)	(19.6)	(15.5)
Obligations under finance leases			-	(0.1)	(0.1)
Retirement benefit obligations			(55.1)	(25.4)	-
Deferred tax liability			-	-	(4.4)
Long term provisions			(9.3)	(13.7)	(12.1)
			(90.6)	(58.8)	(32.1)
Total liabilities			(221.6)	(181.5)	(152.1)
Net assets			188.4	197.5	197.0
Equity attributable to equity holders of the parent
Called up share capital			44.1	43.8	43.6
Share premium account			4.9	4.3	3.4
Other reserve			50.8	50.8	50.8
Own shares			(8.9)	(10.6)	(9.8)
Translation reserves			1.3	1.2	-
Retained earnings			96.2	108.0	109.0
Total equity	9		188.4	197.5	197.0

1 Restated for Amendments to IAS 38 as described in note 11.

 

Consolidated statement of changes in equity

For the 52 weeks ended 27 March 2010

 

	Equity attributable to equity holders of the parent
	Share capital	Share premium account	Other reserve1	Own shares	Translation reserve	Retained earnings	Total equity
	£ million	£ million	£ million	£ million	£ million	£ million	£ million
Balance at 29 March 2009 as previously reported	43.8	4.3	50.8	(10.6)	1.2	109.1	198.6
Change in accounting policy (note 11)	-	-	-	-	-	(1.1)	(1.1)
Balance at 29 March 2009 (as restated)2	43.8	4.3	50.8	(10.6)	1.2	108.0	197.5
Total comprehensive income for the period	-	-	-	-	-	0.5	0.5
Issue of equity shares	0.3	0.6	-	-		-	0.9
Credit to equity for equity-settled share based payments	-	-	-	-	-	2.6	2.6
Shares transferred to employees on vesting	-	-	-	1.7	-	(1.7)	-
Exchange differences arising on translation of overseas operations	-	-	-	-	0.1	-	0.1
Dividends paid	-	-	-	-	-	(13.2)	(13.2)
Balance at 27 March 2010	44.1	4.9	50.8	(8.9)	1.3	96.2	188.4

  For the 52 weeks ended 28 March 2009

 

		Equity attributable to equity holders of the parent
	Share capital		Share premium account	Other reserve1	Own shares	Translation reserve	Retained earnings	Total equity
	£ million		£ million	£ million	£ million	£ million	£ million	£ million
Balance at 30 March 2008 as previously reported	43.6		3.4	50.8	(9.8)	-	110.0	198.0
Change in accounting policy (note 11)	-		-	-	-	-	(1.0)	(1.0)
Balance at 30 March 2008 (as restated)2	43.6		3.4	50.8	(9.8)	-	109.0	197.0
Total comprehensive income for the period	-		-	-	-	-	7.7	7.7
Issue of equity shares	0.2		0.9	-	-	-	-	1.1
Credit to equity for equity-settled share based payments	-		-	-	-	-	2.5	2.5
Purchase of own shares	-		-	-	(1.1)	-	-	(1.1)
Shares transferred to employees on vesting	-		-	-	0.3	-	(0.3)	-
Exchange differences arising on translation of overseas operations	-		-	-	-	1.2	-	1.2
Dividends paid	-		-	-	-	-	(10.9)	(10.9)
Balance at 28 March 2009	43.8		4.3	50.8	(10.6)	1.2	108.0	197.5

1 The other reserve relates to shares issued as consideration for the acquisition of the Early Learning Centre on 19 June 2007.

2 Restated for Amendments to IAS 38 as described in note 11.

Consolidated cash flow statement

For the 52 weeks ended 27 March 2010

 

	Note	52 weeks ended 27 March 2010	52 weeks ended 28 March 2009
		£ million	£ million
Net cash flow from operating activities	10	50.1	34.9
Cash flows from investing activities
Interest received		-	0.4
Purchase of property, plant and equipment		(18.7)	(17.5)
Purchase of intangibles - software		(5.5)	(5.3)
Proceeds from sale of property, plant and equipment		2.4	-
Investments in joint ventures and acquisition of subsidiary		(1.9)	(0.3)
Net cash used in investing activities		(23.7)	(22.7)
Cash flows from financing activities
Interest paid		(0.5)	(0.4)
Repayment of obligations under finance leases		(0.1)	(0.4)
Equity dividends paid		(13.2)	(10.9)
Issue of ordinary share capital		0.9	1.1
Purchase of own shares		-	(1.1)
Net cash used in financing activities		(12.9)	(11.7)
Net increase in cash and cash equivalents		13.5	0.5
Cash and cash equivalents at beginning of period		24.8	22.7
Effect of foreign exchange rate changes		0.2	1.6
Cash and cash equivalents at end of period		38.5	24.8

 

Notes

 

1. General information

 

a) The accounting policies followed are the same as those published by the group within the 2009 annual report and accounts except that in the current year the group has adopted International Financial Reporting Standard 8 'Operating Segments', International Accounting Standard 1 'Presentation of Financial Statements' (revised 2007) and Amendments to IAS 38 'Intangible Assets'.

 

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (IAS 14 'Segment Reporting') required the group to identify two sets of segments (business and geographical), using a risks and rewards approach, with the group's system of internal financial reporting to key management personnel serving only as the starting point for the identification of such segments. As a result, the segmental information which is included in note 2 below is presented in accordance with IFRS 8. The comparatives have been restated accordingly.

 

IAS 1 (revised) requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income. As a result, a consolidated statement of changes in equity has been included in the primary statements.

 

Amendments to IAS 38 require that when an entity has a right to access or has taken delivery of mail order catalogues or advertisement, any associated expenditure must be recognised as an expense. Historically, and in line with a number of similar companies, the group had prepaid the costs of preparing catalogues until the catalogue had been distributed and the benefits of sales associated with the costs of the catalogue were earned. This change in accounting policy has been applied retrospectively, the effect of which is disclosed in note 11.

 

b) Whilst the financial information included in this preliminary announcement has been prepared in accordance with IFRS as endorsed by the European Union, this announcement does not itself contain sufficient information to comply with all the disclosure requirements of IFRS.

c) The Company believes that underlying profit before tax and underlying earnings provides additional useful information for shareholders. The term underlying earnings is not a defined term under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. It is not intended to be a substitute for IFRS measures of profit. As the Company has chosen to present an alternative earnings per share measure, a reconciliation of this alternative measure to the statutory measure required by IFRS is given in note 8.

d) The financial information set out in this announcement does not constitute the Company's statutory accounts for the 52 week period ended 27 March 2010 or the 52 week period ended 28 March 2009, but it is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498 (2) or (3) Companies Act 2006 or equivalent preceding legislation.

2. Segmental information

 

The group has adopted IFRS 8 'Operating Segments' with effect from 29 March 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the group that are regularly reported to the group's board in order to allocate resources to the segments and assess their performance. The group's reporting segments under IFRS 8 are UK and International.

 

UK comprises the group's UK store and wholesale operations, catalogue and web sales. The International business comprises the group's franchise and wholesale revenues outside the UK. The unallocated corporate expenses represent board and company secretarial costs and other head office costs including audit, professional fees, insurance and head office property.

 

		52 weeks ended 27 March 2010
		UK	International	Unallocated Corporate Expenses	Consolidated
		£ million	£ million	£ million	£ million
Revenue
External sales		590.3	176.1	-	766.4
Result
Segment result (underlying)		36.1	23.2	(7.3)	52.0
Share based payments					(14.4)
Non-cash foreign currency adjustments					(1.3)
Amortisation of intangible assets					(2.1)
Exceptional items					(1.0)
Profit from operations					33.2
Finance costs					(0.7)
Profit before taxation					32.5
Taxation					(8.9)
Profit for the period					23.6

 

Notes continued

 

		52 weeks ended 28 March 2009 restated1
		UK	International	Unallocated Corporate Expenses	Consolidated
		£ million	£ million	£ million	£ million
Revenue
External sales		578.8	144.8	-	723.6
Result
Segment result (underlying)		34.7	16.5	(6.6)	44.6
Share based payments					(7.6)
Non-cash foreign currency adjustments					11.8
Amortisation of intangible assets					(2.1)
Exceptional items					(3.6)
Profit from operations					43.1
Investment income					0.4
Finance costs					(1.5)
Profit before taxation					42.0
Taxation					(11.8)
Profit for the period					30.2

1 Restated for Amendments to IAS 38 as described in note 11.

 

3. Exceptional and other non-underlying items

 

Due to their significance or one-off nature, certain items have been classified as exceptional or non-underlying as follows:

 

		52 weeks ended 27 March 2010	52 weeks ended 28 March 2009
		£ million	£ million
Exceptional items:
Profit/(loss) on disposal/termination of property interests		1.0	(2.1)
Integration of ELC included in cost of sales1		-	(1.5)
Integration of ELC included in admin expenses		(0.8)	-
Share based payments charge included in admin expenses		(1.2)	-
Other non-underlying items:
Non-cash foreign currency adjustments under IAS 39 and IAS 21(1)		(1.3)	11.8
Amortisation of intangibles1		(2.1)	(2.1)
Unwinding of discount on exceptional property provisions included in finance costs		(0.3)	(1.0)
Exceptional and other non-underlying items		(4.7)	5.1

1 Included in non-underlying cost of sales is a charge of £3.4 million (2009: credit of £8.2 million).

  Profit/(loss) on disposal/termination of property interests

During the 52 weeks ended 27 March 2010 ('current year') a net credit of £1.0 million has been recognised in profit from operations relating to profit on disposal/termination of property interests and provisions against subleases and vacant property.

 

During the 52 weeks ended 28 March 2009 ('prior year') a net charge of £2.1 million was recognised in profit from operations relating to provisions against subleases and vacant property.

 

Integration of the Early Learning Centre

In the current year, costs of £0.8 million have been charged to administrative expenses relating to restructuring costs.

 

In the prior year, costs of £1.5 million were charged to cost of sales relating to the restructure of Early Learning Centre's supply chain and the opening of Early Learning Centre inserts in Mothercare stores.

 

Share based payments charge included in admin expenses

In the current year, a one-off share based payments charge relating to the 2007 Executive Incentive Plan of £1.2 million (2009: £nil million) was recognised in administrative expenses relating to synergies achieved from the integration of the Early Learning Centre.

 

4. Investment income

 

	52 weeks ended  27 March 2010	52 weeks ended 28 March 2009
	£ million	£ million
Interest on bank deposits	-	0.4
Investment income	-	0.4

 

5. Finance costs

 

	52 weeks ended 27 March 2010	52 weeks ended 28 March 2009
	£ million	£ million
Interest and bank fees on bank loans and overdrafts	0.4	0.4
Unwinding of discounts on provisions1	0.3	1.1
Finance costs	0.7	1.5

1 Includes a non-underlying charge of £0.3 million (2009: £1.0 million) of unwinding of discount on exceptional provisions. See note 3.

Notes continued

 

6. Taxation

 

The charge for taxation on profit for the period comprises:

 

	52 weeks ended 27 March 2010	52 weeks ended 28 March 2009 restated1
	£ million	£ million
Current tax:
Current year	8.5	8.3
Adjustment in respect of prior periods	(1.5)	-
	7.0	8.3
Deferred tax:
Current year	0.4	4.5
Adjustment in respect of prior periods	1.5	(1.0)
	1.9	3.5
Charge for taxation on profit for the period	8.9	11.8

1 Restated for Amendments to IAS 38 as described in note 11.

 

UK corporation tax is calculated at 28 per cent (2009: 28 per cent) of the estimated assessable profit for the period.

 

The charge for the period can be reconciled to the profit for the period before taxation per the consolidated income statement as follows:

 

	52 weeks ended 27 March 2010	52 weeks ended 28 March 2009 restated1
	£ million	£ million
Profit for the period before taxation	32.5	42.0
Profit for the period before taxation multiplied by the standard rate of corporation tax in the UK of 28% (2009: 28%)	9.1	11.7
Effects of:
Expenses not deductible for tax purposes	0.7	1.0
Impact of overseas tax rates	(0.4)	0.1
Utilisation of tax losses not previously recognised against capital gains	(0.5)	-
Adjustment in respect of prior periods	-	(1.0)
Charge for taxation on profit for the period	8.9	11.8

1 Restated for Amendments to IAS 38 as described in note 11.

 

In addition to the amount charged to the income statement, deferred tax relating to retirement benefit obligations amounting to £9.0 million (2009: £8.7 million) has been credited directly to equity.

 

7. Dividends

 

	52 weeks ended 27 March 2010		52 weeks ended 28 March 2009
	pence per share	£ million	pence per share	£ million
Amounts recognised as distributions to equity holders in the period
Final dividend for the prior year	9.9p	8.5	8.3p	6.9
Interim dividend for the current year	5.5p	4.7	4.6p	4.0
		13.2		10.9

 

The proposed final dividend of 11.3 pence per share for the 52 weeks ended 27 March 2010 was approved by the Board after 27 March 2010, on 20 May 2010, and so, in line with the requirements of IAS 10 'Events After the Balance Sheet Date', the related cost of £9.8 million has not been included as a liability as at 27 March 2010. This dividend will be paid on 6 August 2010 to shareholders on the register on 4 June 2010.

Notes continued

 

8. Earnings per share

 

	52 weeks ended 27 March 2010	52 weeks ended 28 March 2009
	million	million
Weighted average number of shares in issue	84.4	83.5
Dilution - option schemes	2.1	2.7
Diluted weighted average number of shares in issue	86.5	86.2
	£ million	£ million restated1
Earnings for basic and diluted earnings per share	23.6	30.2
Non-cash foreign currency adjustments	1.3	(11.8)
Amortisation of intangibles arising on acquisition of ELC	2.1	2.1
Unwinding of discount on exceptional property provisions	0.3	1.0
Exceptional items (note 3)	1.0	3.6
Tax effect of above items	(1.7)	1.6
Underlying earnings	26.6	26.7
	pence	pence restated1
Basic earnings per share	28.0	36.2
Basic underlying earnings per share	31.5	32.0
Diluted earnings per share	27.3	35.0
Diluted underlying earnings per share	30.7	31.0

1 Restated for Amendments to IAS 38 as described in note 11.

 

The impact of the restatement for Amendments to IAS 38 (as described in note 11) was to decrease basic earnings per share by 0.1p and diluted earnings per share by 0.2p for the 52 weeks ended 28 March 2009.

 

9. Reconciliation of equity

 

	52 weeks ended 27 March 2010	52 weeks ended 28 March 2009 restated1
	£ million	£ million
Total recognised income and expense	0.5	7.7
Dividends to equity holders of the parent company	(13.2)	(10.9)
Issue of ordinary share capital	0.9	1.1
Exchange differences on translation of overseas operations	0.1	1.2
Purchase of own shares	-	(1.1)
Cost of employee share schemes	2.6	2.5
Net (decrease)/increase in equity	(9.1)	0.5
Equity at beginning of year	197.5	197.0
Equity at end of year	188.4	197.5

1 Restated for Amendments to IAS 38 as described in note 11.

 

10. Reconciliation of cash flow from operating activities

 

	52 weeks ended 27 March 2010	52 weeks ended 28 March 2009 restated1
	£ million	£ million
Profit from retail operations	32.7	45.6
Adjustments for:
Depreciation of property, plant and equipment	15.1	17.3
Amortisation of intangible assets - software	3.3	2.6
Amortisation of intangible assets - other	2.1	2.1
Underlying losses on disposal of property, plant and equipment	1.0	2.4
Losses on disposal of intangible assets - software	0.1	-
Loss/(gain) on non-underlying non-cash foreign currency adjustments	1.3	(11.8)
Equity-settled share based payments	2.6	2.5
Movement in property provisions	(5.0)	(3.1)
Movement in integration provisions	(3.3)	(10.3)
Movement in other provisions	0.1	(0.3)
Amortisation of lease incentives	(3.4)	(2.2)
Lease incentives received	10.2	6.6
Payments to retirement benefit schemes	(6.1)	(5.0)
Charge to profit from operations in respect of service costs of retirement benefit schemes	3.7	1.2
Operating cash flow before movement in working capital	54.4	47.6
Increase in inventories	(7.2)	(14.9)
Increase in receivables	(2.9)	(2.4)
Increase in payables	13.5	9.8
Cash generated from operations	57.8	40.1
Income taxes paid	(7.7)	(5.2)
Net cash flow from operating activities	50.1	34.9

1 Restated for Amendments to IAS 38 as described in note 11.

 

Notes continued

 

11. Prior period restatement

 

Amendments to IAS 38 require that when an entity has a right to access or has taken delivery of mail order catalogues or advertisement, any associated expenditure must be recognised as an expense. Historically, and in line with a number of similar companies, the group has prepaid the costs of preparing catalogues until the catalogue has been distributed and the benefits of sales associated with the costs of the catalogue are being earned.

 

As a result of this change in policy the amounts disclosed in the accounts have been changed, and the comparatives restated, as follows:

 

Balance sheet adjustments:			28 March 2009	29 March 2008
			£ million	£ million
Trade and other receivables (as previously reported)			55.7	52.5
Prior year adjustment			(1.4)	-
Current year adjustment			0.1	(1.4)
Trade and other receivables (restated)			54.4	51.1
Trade and other payables (as previously reported)			(108.4)	(95.6)
Prior year adjustment			-	-
Current year adjustment			(0.3)	-
Trade and other payables (restated)			(108.7)	(95.6)

 

Current tax liabilities (as previously reported)			(2.6)	0.6
Prior year adjustment			0.4	-
Current year adjustment			0.1	0.4
Current tax liabilities (restated)			(2.1)	1.0

 

Income statement adjustments:				52 weeks ended 28 March 2009
				£ million
Profit before tax (as previously reported)				42.2
Current year adjustment				(0.2)
Profit before tax (restated)				42.0

 

Taxation (as previously reported)				(11.9)
Current year adjustment				0.1
Taxation (restated)				(11.8)

 

As a result of this change in policy, there was a £0.1 million increase in profit after tax for the 52 weeks ended 27 March 2010.

 

 

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