Mothercare Regulatory News (MTC)

24 May 2007 07:00

Mothercare PLC24 May 2007 24 May 2007 Mothercare plc Preliminary Results Mothercare plc, the leading global retailer of parenting and children'sproducts, today announces its preliminary results for the 52 weeks ended 31March 2007. The prior financial year has 53 weeks. Financial Results ---------------------------------------------------- Results Comparable Statutory basis basis 52 vs 53 weeks 52 vs 52 weeks(2) --------------------------------------------------------------------------------Group sales £498.5m +5.1% +3.3%--------------------------------------------------------------------------------Group underlyingprofit beforetaxation (1) £22.6m +12.4% +7.6%--------------------------------------------------------------------------------Group profitbefore taxation £18.9m -18.9% -21.9%--------------------------------------------------------------------------------Underlying EPS 24.2p +19.2% +14.2%--------------------------------------------------------------------------------Basic EPS 20.9p -15.4% -18.0%--------------------------------------------------------------------------------Final dividend 6.7p +8.9% +8.9%--------------------------------------------------------------------------------Total dividend 10.0p +11.1% +11.1%-------------------------------------------------------------------------------- Financial Highlights (comparable 52 week basis) • Total UK like-for-like sales up 1.6% (UK store like-for-like sales up 0.8%) (3)• UK sales up 1.0% to £411.4m, including Direct in Home up 16.8% to £23.0m and Direct in Store up 21.0% to £24.8m• UK gross margin up 0.4 percentage points• International revenue up 30.2% to £87.1m; franchisee like-for-like sales up 12.0%• Year end cash balance £40.1m (2006: £35.9m)• Pension schemes surplus of £2.0m on an IFRS basis (2006: £17.5m deficit) Operational Highlights: • A net 62 international franchise stores added during the year; total 328 stores in 38 countries• New UK National Distribution Centre performing well after successful move• New online platform, built by Amazon Services, launched and performing ahead of expectations• UK central and sourcing operations restructured to improve efficiency and reduce costs (£2.1m exceptional charge) plus new office in China announced today.• Optimisation of UK portfolio continues. One new store opened, three stores re-sited, two of our largest stores downsized and seven stores closed. Ben Gordon, Chief Executive said: "With the completion of a number of major projects in the year, 2006/07represents a key milestone in the transformation of Mothercare. We launched ournew bespoke e-commerce platform, completed the move to our new NationalDistribution Centre, grew like for like sales in the UK and continued to improvemargins. We also opened a record 62 international stores, boosting this rapidlygrowing business. With a strong platform in place we are focussing on our growth strategy ofspecialism, efficiency and reach and are confident that the business willcontinue to develop strongly during the coming year. We also look forward to thefuture growth opportunities we anticipate from the proposed acquisition of theEarly Learning Centre announced last month." Enquiries to: Mothercare plcBen Gordon, Chief Executive 01923 206001Neil Harrington, Finance Director 01923 206187Brunswick Group LimitedCatherine Hicks/Anna Jones 020 7404 5959 (1) Group underlying profit before taxation excludes exceptional items and thevolatile non-cash IAS 39 adjustment (marking to market of financialinstruments). See Financial Review for further details. (2) Excluding the estimated impact of sales and profits in the 53rd week of2006. See Financial Review for further details. (3) See Financial Review for definition of like-for-like sales. CHIEF EXECUTIVE'S REVIEW RESULTS The year ended 31 March 2007 contained 52 weeks compared with 53 weeks last yearand the financial statements and this review have been prepared on this basis.Certain key information calculated on a more comparable basis (52 weeks comparedwith 52 weeks) is set out in the Financial Highlights and Financial Review. Group sales for the year rose by 3.3% to £498.5 million (2006: £482.7 million).Group underlying profit before taxation increased by 7.6% to £22.6 million(2006: £21.0 million). Group underlying profit before taxation excludes netexceptional charges of £2.4 million (2006: exceptional credit of £2.9 million)and also the non-cash IAS 39 adjustment. If these items are included, statutorygroup profit before taxation decreased by 21.9% to £18.9 million (2006: £24.2million). Positive like-for-like sales in the UK more than offset the effects of plannedspace reductions associated with our successful UK store rightsizing programme,although the extra week last year has led to a 0.8% reduction in UK sales to£411.4 million. This includes Direct in Home sales up 13.9% to £23.0 million andDirect in Store sales up 18.7% to £24.8 million. Total UK like-for-like salesincreased by 1.6% in the year and UK store like-for-like sales increased by0.8%. UK gross margins increased by 0.4 percentage points. In our Internationalmarkets both total and like-for-like sales continued to grow strongly by 27.9%(to £87.1 million) and 12.0% respectively. During the year we opened a net 62overseas franchise stores, bringing the total to 328 stores in 38 countries andinternational profits increased by 52.8% to £8.1 million. STRATEGIC DEVELOPMENT With a strong platform in place following the completion of a number of majorprojects, we are focussing on delivering our strategy of specialism, efficiencyand reach, both in the UK and overseas. Although not covered in this review, wealso look forward to the further growth opportunities we anticipate from theproposed acquisition of the Early Learning Centre announced after the year end. Specialism We are strengthening Mothercare's position as a leading parenting and children'sspecialist brand worldwide, concentrating on developing our product offering,improving our stores and delivering excellent customer service. Product We have carried out considerable work this year to improve our own label productbase, and reinforce our position as a specialist retailer in the UK and aroundthe world. We gained market share in our pushchair ranges and now have the largest range ofMothercare and branded pushchairs available online in the UK. Our SpecialCollection premium clothing range, which falls into the 'best' category in ourgood, better, best pricing strategy, was also launched in the year. SpecialCollection has been well received by customers in the 30 stores in which it hasbeen trialled and will now be rolled out to the worldwide store portfolio. Wealso launched new ranges in home furnishings for baby and first bedroom whichhave performed well both in store and online. Stores With our high street re-fit programme now complete we have turned our focus toour out of town stores network. We have extended the trial of the new out oftown concept, which is designed to create a true destination for parenting,increase sales densities, expand our successful Home and Travel ranges andmaximise the benefits of our in store concessions. We now have 10 stores fitted with the new format, with customer feedback beingvery positive. We plan to extend the trial to at least a further 10 out of townstores in 2007/08. Service and People In our new out of town stores, we have developed in-store areas for car seatsand pushchairs with improved fixtures and colour coded information. The conceptincorporates clearer product merchandising and display to improve presentationand ease of selection together with an information and advice 'station'. Our independent mystery shopper programme continues to provide insight into howour stores perform against a set of service criteria, which is also benchmarkedagainst our major competitors. This year we have focussed the emphasis on'service into selling' to raise the bar higher and to continue to stretch ourperformance further. Our results continue to improve and have been recognised as"best in class" in our own programme as well as in external surveys. EFFICENCY Mothercare is investing in building an efficient operating platform, including anew global supply chain and direct sourcing capability. During the year weconcentrated on reducing the controllable portion of our overheads. As part ofthis activity we carried out a restructuring of our UK central and sourcingoperations to improve efficiency and reduce operating costs going forward. Sourcing Continued progress has been made with our sourcing initiatives, allowing us toagain grow our UK margin over the year by 0.4 percentage points (and by 8.7percentage points over the last four years). We have re-structured our direct sourcing activities, closing our UK sourcingoffice in Manchester, expanding our direct sourcing office in Tirapur, India andopening a direct sourcing office in Shanghai. The establishment and growth ofour Indian sourcing office and the recent opening of our China office willgenerate further benefits to gross margin and efficiency in future years. Supply Chain In November 2004 we announced our new distribution strategy and the plan to movethe bulk of our operations to a new bespoke National Distribution Centre. Atthat time we indicated the completion of the transition would take place in late2006. This transition was completed both on plan and within budget and the newfacility has operated well over its first Christmas period. We have also re-located our Direct Distribution Centre to an efficient highcapacity operation run by a third party specialist. Again the transition wascompleted on time and within budget and this distribution centre also operatedwell through the peak period. Infrastructure Having completed the roll out of our new web enabled EPOS system to all UKstores we have subsequently added further functionality to these core storesystems including an intranet, electronic gift vouchers and automatic payrollprocessing. This has further improved efficiency in our stores and allowed us tomitigate the effects of wage inflation in the retail sector. We have also restructured central and head office functions during the year toimprove efficiency and to focus resource on the rapidly growing customer facingareas of our business. REACH With the foundations of specialism and efficiency firmly in place we can focuson our third priority which is about expanding our reach to parents in the UKand around the world through our integrated multi-channel business and our worldclass franchisee network. Mothercare Direct Mothercare Direct comprises Direct in Home (web in home and telephone catalogueordering) and Direct in Store (web enabled stores). Overall sales from ourDirect channel grew by 16.3% to £47.8 million (2006: £41.1 million). During the year this business was transformed through the launch of an excitingnew online platform, built for us by Amazon Services. The website launched inNovember 2006 and is performing ahead of expectations. We also moved into a newwarehouse and fulfilment centre which has improved capacity and efficiency. Our investment in the Direct business, which includes the new website, therecent extension of the web in store facility to all stores and the upgrading ofour direct fulfilment operations provides the company with a powerfulopportunity to exploit both the in store and in home based internet retailingopportunities. We believe that our Direct business has significant potential forfuture growth in the UK and worldwide. Store optimisation We are optimising our entire store portfolio to ensure we have the best size andlocations wherever we trade. In 2005/06 we opened ten new stores and closed tenstores in the year, four of which were direct re-sites. In 2006/07 we openedfour new stores and closed ten stores, three of which were direct re-sites tosmaller sized units in more suitable locations. During 2006/07 we also downsizedtwo of our largest out of town stores, in Reading and Cardiff. In each case therightsizing of our portfolio increased sales per square foot and reducedoperating costs. We are aiming at re-siting, relocating or downsizing more than30 Mothercare stores during the next 24 months. International Our International business has had an excellent year. At the year end we weretrading in 38 countries through 328 stores. Total retail sales made by ourfranchisees were £196.4 million. Overall franchisee like-for-like sales grew byan estimated 12.0%. Our revenue from franchisees increased by 27.9% to £87.1million. During the current financial year we expect to open at least 50 more newInternational stores, the majority of which will be in existing markets. Lastyear we opened our first stores in India and we plan to open 100 stores here inthe next five years. We also plan to open new stores in countries where we donot currently trade including Egypt, The Philippines and Armenia. Outlook The underlying strength of the Mothercare brand together with the actions we aretaking to improve the specialism, efficiency and reach of our multi-channelbusiness will help us to continue to grow in the UK and we are confident thatthe UK and the International businesses will continue to develop strongly duringthe year. We will provide a trading statement for the first quarter on 19 July2007, the date of our AGM. FINANCIAL REVIEW RESULTS SUMMARY On a statutory basis (52 weeks versus 53 weeks last year) Group sales for theyear rose by 3.3% to £498.5 million (2006: £482.7 million). Group underlyingprofit before taxation increased by 7.6% to £22.6 million (2006: £21.0 million).Group underlying profit before taxation excludes net exceptional charges of £2.4million (2006: exceptional credit of £2.9 million) and the volatile non-cash IAS39 adjustment. If these items are included, statutory group profit beforetaxation decreased by 21.9% to £18.9 million (2006: £24.2 million). 53rd week in 2006 In 2006, Mothercare had an additional week's trading and the statutory resultswere for the 53 weeks ended 1 April 2006, which resulted in additional turnoverand profit compared to 2007. In order to provide more meaningful comparisons,estimates of the additional revenue and profits generated in the 53rd week of2006 have been excluded from the analysis set out below where indicated. Webelieve that this provides the most consistent comparable basis. Profit before taxation Underlying profit before taxation excludes exceptional items. It also excludesthe impact of IAS 39 (Financial Instruments: Recognition and Measurement) whichgives rise to non-cash adjustments to the income statement which are notreflective of the underlying profit or cash flows of the business. Underlyingprofit before taxation is derived as follows: 2007 2006 % £m £mGroup profit before taxation 18.9 24.2 -21.9%Exceptional items:- Profit on disposal of property (0.2) (2.9) interests- Direct distribution centre 0.5 -- Restructuring 2.1 -Other non-underlying items:- IAS 39 non-cash adjustment 1.3 (0.3) -------- ----------- -------Underlying profit before tax 22.6 21.0 +7.6%(52 vs 53 weeks) Impact of 53rd week in 2006 - (0.9) ======== ======== ========Underlying profit before tax 22.6 20.1 +12.4%(52 vs 52 weeks) ======== ======== ======== In our 2006 interim report, our underlying profit before tax measure alsoexcluded the non-cash impact of IAS 19 (Employee Benefits), by including regularcash contributions made to the pension schemes rather than the more volatileincome statement charge. We have however, recently made a number of significantchanges to the pension scheme - including increasing the retirement age from 60to 65 from 1 April 2007 and the payment of special one-off contributions to thescheme - and these will not be reflected in the regular cash contributions untilthe next scheme valuation in 2008. Rather than adjusting underlying profit, itis therefore considered more appropriate to provide full disclosure of theincome statement charge, the cash funding and the balance sheet position asfollows: 2007 2006 £m £mIncome statement----------------Service cost (5.0) (4.7)Return on assets 13.2 10.9Interest on liabilities (9.4) (9.0) ---------- ----------Net charge (1.2) (2.8) ========== ==========Cash funding--------------Regular contributions (3.0) (3.2)Additional contributions (1.5) (5.3) ---------- ----------Total cash funding (4.5) (8.5) ========== ==========Balance Sheet---------------Fair value of schemes' assets 193.6 180.4Present value of defined benefit obligations (191.6) (197.9) ---------- ----------Net asset/(liability) 2.0 (17.5) ========== ========== Results by segment (comparable 52 week basis) The primary segments of Mothercare plc are the UK (which includes the Directbusiness) and the International business: £m 2007 Revenue Underlying profit from operationsUK 411.4 19.3International 87.1 8.1Corporate - (6.4) ---------- ------------- 498.5 21.0 ========== ============= £m 2006 Revenue Underlying profit from operationsUK 407.3 20.1International 66.9 5.2Corporate - (6.7) ---------- ------------- 474.2 18.6 ========== ============= Corporate expenses not allocated to UK or International represent head officecosts, board and senior management costs, insurance, annual and interimreporting costs and audit and professional fees. Results by category and channel (comparable 52 week basis) Sales in the year have again increased in each of our key product categories andalso across each channel to market. UK store sales were up 1.0%, Internationalstores up 30.2% and Direct in Home up 16.8%. Total UK like-for-like sales are defined as sales growth on the previous yearfor stores that have been trading continuously from the same selling space forat least a year, plus Direct in Home sales. UK store like-for-likes are definedon the same basis except that Direct in Home sales are excluded. Total UKlike-for-like sales were up 1.6% in the year and UK store like-for-like saleswere up 0.8%. International franchisee like-for-like sales were up an estimated12.0% in the year. Our Direct business, which is wholly in the UK, increasedrevenue by 18.9% in the year to £47.8 million. Underlying profit before taxation (comparable 52 week basis) Group underlying profit before taxation increased by 12.4% to £22.6 million inthe year. The key drivers of profit were the increase in UK store like-for-likesales, the store right-sizing programme and the improved gross marginpercentage, together with strong contributions from the smaller but more rapidlygrowing International and Direct businesses. Combined, these more than off-setrises in our cost base. The UK gross margin improved by 0.4 percentage points as a result of betterbuying, an increase in direct sourcing and greater volumes in the UK andoverseas. In line with other retailers, Mothercare is experiencing inflation in storeoperating costs in the UK, however the total UK cost increase was reducedthrough tight management of controllable costs. We expect cost pressures tocontinue in the current year, however these will be mitigated by therestructuring actions we have taken in the year, the optimisation of our storeportfolios, growing the gross margin through more direct sourcing and betterbuying, expanding the Direct business and focussing closely on storeproductivity and other costs. Exceptional items Exceptional items can be summarised as follows: 2007 2006 £m £mUK restructure 2.1 -Direct distribution centre move 0.5 -Disposal of property interests (0.2) (2.9) --------- ---------Total exceptional charge/(credit) 2.4 (2.9) ========= ========= During the year a significant restructuring programme was carried out at the UKhead office in Watford and we announced the closure of our sourcing office inManchester leading to exceptional redundancy and other related costs amountingto £2.1 million. In addition, the Direct distribution centre was relocatedduring the year to a larger more efficient site, generating an exceptionalcharge of £0.5 million. The exceptional credit in respect of disposal ofproperty interests relates to net disposal proceeds on the disposal of theleasehold interest in ten closed and two downsized stores in the period. Taxation The tax charge of £4.4 million, representing an effective tax rate of 23.3%,mainly reflects utilisation of tax losses. The group still has unused tax lossesof £12.9 million (2006: £17.7 million) available to set off against futureprofits. The current year tax charge benefits from a £1.6m provision releaserelating to prior years. On a comparable basis with last year (excluding prioryear items) the effective tax rate would have been 31.7%. Pensions We continue to operate defined benefit pension schemes for our staff. The totalnet cost of the pension schemes in the year was £1.2 million (2006: £2.8million). The valuation of the schemes under IAS 19 at 31 March 2007 gave rise to a netpension surplus of £2.0 million (2006: deficit of £17.5 million) before deferredtaxation. IFRS requires that we value pension scheme liabilities using a highquality corporate bond yield, and this has proven to be a volatile measure. Wedo however believe that the overall downward trend in the deficit over timereflects the actions we have taken, including £16.8 million of specialcontributions to the scheme over the last 3 years, and we are comfortable withthe current level of funding in the schemes. From 1 April 2007 the retirement age for future service was increased from 60 to65 years. We will continue to keep the structure and level of benefits of thegroup's pension schemes under active review. Balance sheet and cash flow The group had a net cash inflow of £4.2 million, leaving a cash balance at theend of the year of £40.1 million (2006: £35.9 million). The working capital outflow in the year was £6.0 million. This is due toincreased inventory levels resulting from the increase in direct sourcingtogether with receivables growth arising from the growth of International, andamounts receivable from property disposals. The total overseas receivablesbalance at 31 March 2007 was £19.4 million (2006: £14.3 million). Bankguarantees and/or insurance is in place to mitigate risk. Capital expenditure Capital expenditure in the year was £18.5 million. £11.5 million was invested inUK stores including the new out of town store re-fits, £3.4 million was investedin infrastructure including store EPOS functionality and £3.6 million wasinvested in the final phases of the National Distribution Centre move. Earnings per share and dividend Basic earnings per share were 20.9 pence for the period (2006: 25.5 pence).Underlying earnings per share were 24.2 pence (2006: 21.2 pence). Furtherdetails are set out in note 8. The Directors are pleased to recommend an 8.9% increase in final dividend forthe year to 6.7 pence (2006: 6.15 pence). The total dividend for the year is10.0 pence (2006: 9.0 pence) an increase of 11.1%. The final dividend will be payable on 10 August 2007 to shareholders registeredon 8 June 2007. The latest date for election to join the dividend re-investmentplan is 20 July 2007. Consolidated income statement For the 52 weeks ended 31 March 2007 Note 52 weeks ended 53 weeks ended 31 March 2007 1 April 2006 restated (note 1) -------------------------------------------------------------------------------- Underlying 1 Non-underlying 2 Total Underlying 1 Non-underlying 2 Total £ million £ million £ million £ million £ million £ million--------------------------------------------------------------------------------------------------------------Revenue 2 498.5 - 498.5 482.7 - 482.7Cost of sales (448.8) (1.8) (450.6) (432.1) 0.3 (431.8)---------------------------------------------------------------------------------------------------------------Gross profit 49.7 (1.8) 47.9 50.6 0.3 50.9Administrativeexpenses (28.7) (2.1) (30.8) (31.1) - (31.1)---------------------------------------------------------------------------------------------------------------Profit from retailoperations 21.0 (3.9) 17.1 19.5 0.3 19.8 Profit on disposal of propertyinterests - 0.2 0.2 - 2.9 2.9-------------------------------------------------------------------------------------------------------------Profit fromoperations 21.0 (3.7) 17.3 19.5 3.2 22.7 Investmentincome 4 1.7 - 1.7 1.8 - 1.8Finance costs 5 (0.1) - (0.1) (0.3) - (0.3)--------------------------------------------------------------------------------------------------------------Profit beforetaxation 22.6 (3.7) 18.9 21.0 3.2 24.2Taxation 6 (5.8) 1.4 (4.4) (6.5) (0.2) (6.7)--------------------------------------------------------------------------------------------------------------Profit for theperiodattributableto equityholders of the parent 16.8 (2.3) 14.5 14.5 3.0 17.5------------------------------------------------------------------------------------------------------------ Earnings per share Basic 8 24.2p (3.3)p 20.9p 21.2p 4.3p 25.5pDiluted 8 23.7p (3.2)p 20.5p 20.7p 4.3p 25.0p------------------------------------------------------------------------------------------------------------ 1 Before items described in note 2 below. 2 Includes exceptional items (reorganisation of Direct distribution, restructuring and profit on disposal of property interests) as set out in note 3 to the financial statements and the impact of fair value accounting under IAS 39. All results relate to continuing operations. Consolidated statement of recognised income and expense For the 52 weeks ended 31 March 2007 52 weeks ended 53 weeks ended 31 March 2007 1 April 2006 £ million £ million--------------------------------------------------------------------------------Actuarial gains/(losses) on definedbenefit pension schemes 16.1 (0.8)IAS 39 adjustment transfers to profit andloss - 0.1Tax on items taken directly to equity (4.7) 0.7--------------------------------------------------------------------------------Net income recognised directly in equity 11.4 -Profit for the period 14.5 17.5--------------------------------------------------------------------------------Total recognised income and expense forthe period attributable to equity holdersof the parent 25.9 17.5--------------------------------------------------------------------------------Changes in accounting policy to adopt IAS32 and 39: Attributable to equity holders of the parent - (0.1)-------------------------------------------------------------------------------- Consolidated balance sheet As at 31 March 2007 Note 31 March 2007 1 April 2006 £ million £ million-----------------------------------------------------------------------------------Non-current assets Property, plant and equipment 85.4 83.7Intangible assets - software 5.2 4.0Deferred tax asset 0.2 8.5Retirement benefit obligations 2.0 ------------------------------------------------------------------------------------ 92.8 96.2-----------------------------------------------------------------------------------Current assets Inventories 51.8 50.8Trade and other receivables 42.3 32.0Cash and cash equivalents 40.1 35.9----------------------------------------------------------------------------------- 134.2 118.7-----------------------------------------------------------------------------------Total assets 227.0 214.9----------------------------------------------------------------------------------- Current liabilities Trade and other payables (57.6) (51.3)Current tax liabilities (0.2) (0.9)Short term provisions (2.9) (3.7)----------------------------------------------------------------------------------- (60.7) (55.9)-----------------------------------------------------------------------------------Non-current liabilities Trade and other payables (14.8) (8.9)Retirement benefit obligations - (17.5)Long term provisions (0.5) (0.9)----------------------------------------------------------------------------------- (15.3) (27.3)-----------------------------------------------------------------------------------Total liabilities (76.0) (83.2)----------------------------------------------------------------------------------- Net assets 151.0 131.7----------------------------------------------------------------------------------- Equity attributable to equity holders of theparent Called up share capital 36.6 36.3Share premium account 3.1 2.2Own shares (7.4) (6.5)Retained earnings 118.7 99.7-----------------------------------------------------------------------------------Total equity 9 151.0 131.7----------------------------------------------------------------------------------- Consolidated cash flow statement For the 52 weeks ended 31 March 2007 Note 52 weeks ended 53 weeks ended 31 March 2007 1 April 2006 restated (note 1) £ million £ million--------------------------------------------------------------------------------Net cash flowfrom operatingactivities 10 27.5 13.3-------------------------------------------------------------------------------- Cash flows from investing activitiesInterest received 1.6 1.8Interest paid (0.1) (0.3)Purchase of property,plant and equipment (18.5) (16.7)Proceeds from property,plant and equipment 1.4 6.0--------------------------------------------------------------------------------Net cash used in investingactivities (15.6) (9.2)-------------------------------------------------------------------------------- Cash flows from financing activitiesEquity dividends paid 7 (6.6) (5.5)Issue of ordinary sharecapital 1.2 1.4Purchase of own shares (2.3) (1.1)--------------------------------------------------------------------------------Net cash used in financingactivities (7.7) (5.2)-------------------------------------------------------------------------------- Net increase/(decrease) in cashand cash equivalents 4.2 (1.1)--------------------------------------------------------------------------------Cash and cash equivalents atbeginning of period 35.9 37.0--------------------------------------------------------------------------------Cash and cash equivalents atend of period 40.1 35.9-------------------------------------------------------------------------------- Notes 1. General information a. The accounting policies followed are the same as those published by the groupwithin the 2006 annual report and accounts, except for a presentationaladjustment in respect of IAS 19 'Employee Benefits'. The results for the 52weeks ended 31 March 2007 include the components of net pension expense, beingthe service cost, interest cost and expected return on assets, withinAdministrative expenses and in arriving Profit from operations. In priorperiods, pension interest cost was presented within Finance costs and theexpected return on assets was presented within Investment income, outside ofProfit from operations. Both presentations are permitted under IAS 19. Priorperiods have been restated on a comparable basis. b. Whilst the financial information included in this preliminary announcementhas been prepared in accordance with IFRS as endorsed by the European Union,this announcement does not itself contain sufficient information to comply withall the disclosure requirements of IFRS. c. The Company believes that underlying profit before tax and underlyingearnings provides additional useful information for shareholders. The termunderlying earnings is not a defined term under IFRS and may not therefore becomparable with similarly titled profit measurements reported by othercompanies. It is not intended to be a substitute for, or superior to, IFRSmeasures of profit. As the Company has chosen to present an alternative earningsper share measure, a reconciliation of this alternative measure to the statutorymeasure required by IFRS is given in note 8. To meet the needs of shareholders and other external users of the financialstatements the presentation of the income statement has been reformatted to showmore clearly, through the use of columns, our underlying business performancewhich provides more useful information on underlying trends. d. The financial information set out in this announcement does not constitutethe Company's statutory accounts for the 52 week period ended 31 March 2007 orthe 53 week period ended 1 April 2006, but it is derived from those accounts.Statutory accounts for 2006 have been delivered to the Registrar of Companiesand those for 2007 will be delivered following the Company's annual generalmeeting. The auditors have reported on those accounts; their reports wereunqualified and did not contain statements under s237 (2) or (3) Companies Act1985. 2. Segmental information For management purposes, the group is currently organised into two operatingsegments: Mothercare UK and International. Mothercare UK comprises the UK storeoperations, catalogue and web sales. The International business comprises thegroup's franchise operations outside of the UK. These two segments aredistinguished by the different nature of their risks and returns. It isconsidered that there are no secondary segments as all business originates inthe UK. Segmental information about the Mothercare UK and International businesses ispresented below. 52 weeks ended 31 March 2007 ------------------------------------------------------- Mothercare UK International Unallocated Consolidated corporate expenses £ million £ million £ million £ million---------------------------------------------------------------------------------RevenueExternal sales 411.4 87.1 - 498.5---------------------------------------------------------------------------------Result Segment result(underlying) 19.3 8.1 (6.4) 21.0IAS 39adjustment (1.3) - - (1.3)Exceptionalitems (note 3) (2.4) - - (2.4)---------------------------------------------------------------------------------Profit fromoperations 15.6 8.1 (6.4) 17.3-------------------------------------------------------------------Investment income 1.7Finance costs (0.1)---------------------------------------------------------------------------------Profit beforetaxation 18.9Taxation (4.4)---------------------------------------------------------------------------------Profit for the period 14.5--------------------------------------------------------------------------------- 53 weeks ended 1 April 2006 -------------------------------------------------------- Mothercare UK International Unallocated Consolidated corporate expenses £ million £ million £ million £ million---------------------------------------------------------------------------------RevenueExternal sales 414.6 68.1 - 482.7---------------------------------------------------------------------------------Result Segment result(underlying) 20.9 5.3 (6.7) 19.5IAS 39adjustment 0.3 - - 0.3Exceptionalitems (note 3) 2.9 - - 2.9---------------------------------------------------------------------------------Profit fromoperations 24.1 5.3 (6.7) 22.7-------------------------------------------------------------------Investment income 1.8Finance costs (0.3)---------------------------------------------------------------------------------Profit beforetaxation 24.2Taxation (6.7)---------------------------------------------------------------------------------Profit for the period 17.5--------------------------------------------------------------------------------- Corporate expenses not allocated to UK or International represent head officecosts, board and senior management costs, insurance, annual and interimreporting costs and audit and professional fees. 3. Exceptional items Due to their significance and one-off nature, certain items have been classifiedas exceptional, such as distribution reorganisation costs, restructuring costsand profits on the disposal of property interests. 52 weeks ended 53 weeks ended 31 March 2007 1 April 2006 £ million £ million-------------------------------------------------------------------------------Reorganisation of Directdistribution centre (0.5) -UK central and sourcing restructure (2.1) -Profit on disposal ofproperty interests 0.2 2.9-------------------------------------------------------------------------------Exceptional items (2.4) 2.9------------------------------------------------------------------------------- Reorganisation of Direct distribution centre During the 52 weeks ended 31 March 2007, costs of £0.5 million were charged togross profit to provide for the direct revenue costs associated with thereorganisation of the distribution network as a result of the move to a newDirect distribution centre. The tax effect of this charge to gross profit was acredit of £0.1 million. UK central and sourcing restructure During the 52 weeks ended 31 March 2007, costs of £2.1m were charged toadministrative expenses relating to a restructure of the UK head office inWatford and the closure of the group's sourcing facility in Manchester, theexpansion of the sourcing office in India and the opening of a new sourcingoffice in China. The tax effect of this charge to gross profit was a credit of£0.6 million. Profit on disposal of property interests During the 52 weeks ended 31 March 2007, a net credit of £0.2 million has beenrecognised in profit from operations relating to the disposal of leaseholdinterests in closed stores. During the 53 weeks ended 1 April 2006, a net credit of £2.9 million wasrecognised in profit from operations relating to the disposal of freehold andleasehold property interests in closed stores. The tax effect of the profit on disposal of property interests in the 52 weeksended 31 March 2007 was a credit of £0.3 million. The tax effect in the 53 weeksended 1 April 2006 was £nil due to the availability of capital losses broughtforward from earlier periods. 4. Investment income 52 weeks ended 53 weeks ended 31 March 2007 1 April 2006 restated (note 1) £ million £ million--------------------------------------------------------------------------------Interest on bankdeposits 1.7 1.8--------------------------------------------------------------------------------Investment income 1.7 1.8-------------------------------------------------------------------------------- 5. Finance costs 52 weeks ended 53 weeks ended 31 March 2007 1 April 2006 restated (note 1) £ million £ million--------------------------------------------------------------------------------Interest on bankloans andoverdrafts 0.1 0.3--------------------------------------------------------------------------------Finance costs 0.1 0.3-------------------------------------------------------------------------------- 6. Taxation The charge for taxation on profit for the period comprises: 52 weeks ended 53 weeks ended 31 March 2007 1 April 2006 £ million £ million--------------------------------------------------------------------------------Current tax:Current year 0.6 0.5Adjustment inrespect of priorperiods - 0.4-------------------------------------------------------------------------------- 0.6 0.9-------------------------------------------------------------------------------- Deferred tax:Current year 5.4 5.8Adjustment inrespect of priorperiods (1.6) --------------------------------------------------------------------------------- 3.8 5.8--------------------------------------------------------------------------------Charge fortaxation onprofit for theperiod 4.4 6.7-------------------------------------------------------------------------------- UK corporation tax is calculated at 30 per cent (2006: 30 per cent) of theestimated assessable profit for the period. At the balance sheet date, the group has unused tax losses of £12.9 million(2006: £17.7 million) available for offset against future profits. A deferredtax asset of £3.9 million (2006: £5.3 million) has been recognised in respect of£12.9 million (2006: £17.7 million) of such losses. The charge for the period can be reconciled to the profit for the period beforetaxation per the consolidated income statement as follows: 52 weeks ended 53 weeks ended 31 March 2007 1 April 2006 £ million £ million--------------------------------------------------------------------------------Profit for the period beforetaxation 18.9 24.2--------------------------------------------------------------------------------Profit for the period beforetaxation multiplied by thestandard rate of corporation tax in the UK of 30% (2006: 30%) 5.6 7.3Effects of:Expenses not deductible fortax purposes 0.8 0.6Utilisation of tax losses notpreviously recognised - (0.3)Utilisation of tax losses notpreviously recognised against capital gains (0.4) (0.9)Adjustment in respect of priorperiods (1.6) ---------------------------------------------------------------------------------Charge for taxation onprofit for the period 4.4 6.7-------------------------------------------------------------------------------- In addition to the amount charged to the income statement, deferred tax relatingto share-based payment arrangements amounting to £0.2 million (2006: £0.7million) has been credited directly to equity. Deferred tax relating to theretirement benefit obligation amounting to £4.9 million (2006: £nil) has beendebited directly to equity. 7. Dividends 52 weeks ended 53 weeks ended 31 March 2007 1 April 2006 £ million £ million--------------------------------------------------------------------------------Amounts recognised as distributions to equityholders in the periodFinal dividend for the 53 weeks ended 1 April2006 of 6.15 pence per share (2006: finaldividend for the 52 weeks ended 26 March 2005 of 5.3 pence per share) 4.3 3.6Interim dividend for the 52 weeks ended 31 March 2007 of 3.30 pence per share (2006: interim dividend for the 53 weeks ended 1April 2006 of 2.85 pence per share) 2.3 1.9-------------------------------------------------------------------------------- 6.6 5.5-------------------------------------------------------------------------------- The proposed final dividend of 6.70 pence per share for the 52 weeks ended 31March 2007 was approved by the board after 31 March 2007, on 24 May 2007, andso, in line with the requirements of IAS 10 'Events After the Balance SheetDate', the related cost of £4.9 million has not been included as a liability asat 31 March 2007. This dividend will be paid on 10 August 2007 to shareholderson the register on 8 June 2007. 8. Earnings per share 52 weeks ended 53 weeks ended 31 March 2007 1 April 2006 million million--------------------------------------------------------------------------------Weighted average number of sharesin issue 69.4 68.5Dilution - option schemes 1.5 1.5--------------------------------------------------------------------------------Diluted weighted average number ofshares in issue 70.9 70.0-------------------------------------------------------------------------------- £ million £ million--------------------------------------------------------------------------------Earnings for basic and dilutedearnings per share 14.5 17.5IAS 39 adjustment 1.3 (0.3)Exceptional items (note 3) 2.4 (2.9)Tax effect of above items (1.4) 0.2--------------------------------------------------------------------------------Underlying earnings 16.8 14.5-------------------------------------------------------------------------------- pence pence--------------------------------------------------------------------------------Basic earnings per share 20.9 25.5Basic underlying earnings per share 24.2 21.2Diluted earnings per share 20.5 25.0Diluted underlying earnings pershare 23.7 20.7-------------------------------------------------------------------------------- 9. Reconciliation of equity 31 March 2007 1 April 2006 £ million £ million--------------------------------------------------------------------------------Total recognised income and expense 25.9 17.5IAS 39 transition balance sheet adjustment - (0.1)Dividends to equity holders of the parentcompany (6.6) (5.5)Issue of ordinary share capital 1.2 1.4Purchase of own shares (2.3) (1.1)Cost of employee share schemes 1.1 0.5--------------------------------------------------------------------------------Net increase in equity 19.3 12.7Equity at beginning of year 131.7 119.0--------------------------------------------------------------------------------Equity at end of year 151.0 131.7-------------------------------------------------------------------------------- 10. Reconciliation of cash flow from operating activities 52 weeks ended 53 weeks ended 31 March 2007 1 April 2006 £ million £ million-----------------------------------------------------------------------------------Profit from retail operations 17.1 19.8 Adjustments for:Depreciation of property, plant and equipment 12.6 12.1Amortisation of intangible assets - software 1.3 0.7Losses on disposal of property, plant and equipment 0.2 0.3Loss/(gain) on currency derivatives 0.7 (0.2)Cost of employee share schemes 1.1 0.5Movement in provision for costs ofreorganisation of distribution network (2.3) (2.6)Movement in property provisions (0.7) (0.5)Movement in reorganisation provisions 1.6 -Movement in other provisions 0.2 (0.4)Amortisation of lease incentives (1.4) (1.0)Lease incentives received 7.8 2.3Payments to retirement benefit schemes (4.5) (8.5)Charge to profit from operations in respect ofservice costs of retirement benefit schemes 1.2 2.8-----------------------------------------------------------------------------------Operating cash flow before movement inworking capital 34.9 25.3 Increase in inventories (1.0) (4.0)Increase in receivables (10.5) (3.0)Increase/(decrease) in payables 5.5 (5.0)-----------------------------------------------------------------------------------Cash generated from operations 28.9 13.3-----------------------------------------------------------------------------------Income taxes paid (1.4) ------------------------------------------------------------------------------------Net cash flow from operating activities 27.5 13.3----------------------------------------------------------------------------------- 11. Post Balance Sheet Events On 18 March 2007, Mothercare announced that it was in discussions regarding apossible acquisition of Chelsea Stores Holdings Limited ("CSHL"), owner of theEarly Learning Centre. On 28 April 2007, Mothercare announced that it had agreedto acquire CSHL for a total consideration of £85 million, in the form of newMothercare ordinary shares and the assumption of CSHL's net debt on completion,valued at approximately £36 million. The Proposed Acquisition is conditional on the approval of Mothercare'sshareholders at an extraordinary general meeting of shareholders, clearance fromthe Office of Fair Trading, the approval of the prospectus and the admission ofthe new Mothercare shares to the Official List and to trading on the LondonStock Exchange's market for listing securities. Further details of the principalterms and conditions of the acquisition agreement will be set out in thecircular to be sent to Mothercare's shareholders. Full details of the announcement regarding the Proposed Acquisition areavailable on the Investor Information section of the website, www.mothercare.com This information is provided by RNS The company news service from the London Stock Exchange