Mothercare Regulatory News (MTC)

16 Nov 2006 07:02

Mothercare PLC16 November 2006 16 November 2006 Mothercare plc Interim Results for the 28 weeks ended 14 October 2006 Key Financials: • Group sales up 5.6% to £264.3m (2005: £250.4m) • Group profit before taxation up 12.3% to £12.8m (2005: £11.4m) • Group underlying profit before taxation up 8.7% to £11.2m (2005: £10.3m) 1 • Basic EPS up 15.0% to 13.0p (2005: 11.3p) • Underlying EPS up 9.3% to 10.6p (2005: 9.7p) • Interim dividend up 15.8% to 3.30p (2005: 2.85p) Financial Highlights: • UK sales up 2.0% to £220.2m (2005: £215.9m), including Direct in Home (home shopping) sales up 15.0% to £11.5m (2005: £10.0m) • UK store like for like sales up 1.9% in the first half 2 • UK gross margin up 30 basis points • International revenue from franchisees up 27.8% to £44.1m (2005: £34.5m) • International franchisee like for like sales up an estimated 9.0% in the first half 2 • Oxford Street store to be re-sited - exceptional profit of £1.6m in the current half year on disposal of old store Operational Highlights: •Final phase of move to new distribution centre completed successfully - on time and on budget driving improved availability •Focus on improving efficiency of store portfolio: three stores opened, five closed and two of the largest stores downsized •Extension of new out-of-town store format trials from two to seven stores €32 overseas franchise stores added during the first half - total at half year 298 stores in 38 countries Commenting on the results, Ben Gordon, Chief Executive said: "Our specialist proposition, multi-channel strategy and outstanding customerservice are driving Mothercare's growth. The UK business has performed well inwhat remains a difficult and volatile trading environment. We are delighted withthe performance of our International business, which as of today comprises 307stores. We expect International to continue to grow strongly and despite achallenging UK market we believe we are well placed as we look to the secondhalf." Enquiries to: Mothercare plcBen Gordon, Chief Executive 01923 206001Neil Harrington, Finance Director 01923 206187 Brunswick Group LimitedSusan Gilchrist/Catherine Hicks 020 7404 5959 1 Underlying profit before taxation excludes exceptional items and the impact ofthe volatile non-cash elements of IAS 19 (pension costs) and IAS 39 (marking tomarket of financial instruments). See the financial review for further detail. 2 See financial review for definition of like for like sales CHIEF EXECUTIVE'S REVIEW 2006/07 INTERIM RESULTS Group sales for the 28 weeks to 14 October 2006 rose by 5.6% to £264.3m (2005:£250.4m). Underlying profit before taxation increased by 8.7% to £11.2m (2005:£10.3m). Underlying profit before taxation excludes exceptional items and theimpact of the volatile non-cash elements of IAS 19 and IAS 39 (pension costs andthe marking to market of financial instruments). Refer to the Financial Reviewfor segmental profit detail. Against the backdrop of a continuing difficult UK retail market we have grownsales in the UK by 2.0% to £220.2m. This includes Direct in Home sales (web in home and telephone), up 15.0% to £11.5m. UK store like for like saleswere up by 1.9% in the first half. UK gross margin increased by 30 basis points. Growth has been strong in our International markets. International revenueincreased by 27.8% to £44.1m and franchisee like for like sales increased by anestimated 9.0%. Strategic Development We continue to work to our three-part strategy to build Mothercare into a worldclass speciality brand - focusing on our specialist proposition, best in classefficiency and growing the business around the world - both in store and online. We have continued our drive to develop Mothercare's full potential, through ourSpecialism, Efficiency and Reach strategies. Specialism Our focus remains firmly on strengthening Mothercare's proposition as theleading specialist brand worldwide for parenting. The combination of innovativeand comprehensive product ranges in great stores and on our web site,underpinned by outstanding service, are ensuring that Mothercare remains trulydifferentiated from our competitors. Product We have further improved the quality, design and value of our baby andchildrenswear ranges and continue to drive through our good, better, bestpricing strategy. This has driven an increase in our market share in the UK overthe past two years. Our home and travel business benefited from a one-off peak in sales duringSeptember following the introduction of the new car seat legislation in the UK,which affects children up to twelve years old. We also focussed on productdevelopment in the half, extending our own brand bottles and other feedingranges - a direct move to maximise the strength of Mothercare's brand in termsof expertise and specialism. Stores In March we launched a new out-of-town format in two trial stores in Watford andBasingstoke. The new format offers more comprehensive product ranges augmentedthrough our web in store "available to order only" lines and the introduction ofadditional footwear and other specialist concessions. The shopping environment in these stores is improved with better layout, visualmerchandising and in-store navigation. Early customer feedback has been veryencouraging and performance in these stores is exceeding our investmentcriteria. As a result five further out-of-town stores were refitted in Octoberin Southampton, Oxford, Stevenage, Ipswich and Torquay. Assuming that thesuccess we have seen continues, we will roll out the new format to the widerout- of-town estate next year. Service and People The expertise and specialism of our staff remains one of our keydifferentiators. We have set higher standards of customer service and productknowledge to underpin our position as a speciality retailer. In the UK ourindependently procured mystery shopper programme now ranks Mothercare in the toptwo UK retailers for customer service in our market. Efficiency Mothercare is continuing to invest in a highly efficient and cost effectivesupply chain and state of the art sourcing capability, to enable us to operateas a world class speciality retailer. Sourcing The first full season of the operation of our own direct sourcing office inIndia has contributed to UK gross margin gains of 30 basis points in the firsthalf year. We see further opportunity to make efficiency, quality and designimprovements through these activities to further support our store roll out inIndia. We also now have plans to open a direct sourcing office in China. Supply Chain In November 2004 we announced our new distribution strategy which included aplan to move the bulk of our operation to a brand new 450,000 square footbespoke National Distribution Centre (NDC). This transition has now beencompleted successfully, on plan and on budget. We have continued to make significant progress on product availability, nowaround 93%, up from 88% last year. With the completion of the move to the newNDC we are now concentrating on delivering further efficiencies from ourdistribution operations and reducing the distribution cost to our UK stores. Infrastructure With the successful roll out of our new EPOS system to all UK stores last yearwe are now proceeding to the next phase of the project to deliver furtherefficiencies within the stores network, reducing paper based administration instores, releasing management time from back office tasks and improving customerservice. We have continued to address the issue of the rising occupancy, energy and fuelcosts faced by all retailers. Our store re-siting and resizing programme iscontributing to off-setting those costs, as is the move to our new NDC.Inflation in fuel costs is being off-set by refining the frequency and timing ofdeliveries to stores and making greater use of rail services to our stores. REACH Our reach initiatives, which focus on the UK store portfolio, our internet offerand our international business, are supporting a world-class franchisee networkand in the UK, an integrated multi-channel catalogue and internet operation. UK Stores With the success of our Direct in Store offer and a more efficient use of space,Mothercare can now offer much wider ranges in less space. In the first half yearwe have opened one new store, re-sited two stores, closed three stores and wehave also downsized two of our largest stores, Cardiff and Reading. Thisrightsizing activity has resulted in like-for-like sales growth in the firsthalf being higher than total UK stores growth. The stores that have beenrightsized are seeing a significant reduction in space, but only a smalldecrease in overall sales. With a significant increase in sales per square footand a much reduced rent, store profitability is much improved. We will continueto optimise our store portfolio and we currently have plans to close five morestores and rightsize a further ten stores during the next eighteen months. Allof this store activity now incorporates the key features of our new out-of-townformat. One of the re-sites we are planning is to move our store on Oxford Street. Wehave agreed terms to relocate our current 17,000 square foot store to a new8,000 square foot store across the road. We are excited by the opportunitiesthat this will bring to showcase the Mothercare brand in a more contemporarystore, on a smaller more efficient footprint. The costs are covered by the exitpremium from the existing store and an exceptional profit of £1.6m arising fromthe disposal of the old store has been recognised in the first half. It isexpected that the new store will commence trading in mid 2007. Mothercare Direct We have grown a very successful multi-channel business through Mothercare Directwhich comprises Direct in Home (web in home and telephone catalogue ordering)and Direct in Store (web-enabled stores). On average, one million customersvisit our website each week. Overall UK sales from our Direct in Home channelgrew by 15.0% to £11.5m during the first half. The success of our multi-channel offer allows us to develop further the rangeavailable in our smaller stores by the addition of "available to order onlylines". We are therefore able to significantly increase the options availablewithout increasing total stockholding in store. International Our International business continues to provide substantial growth. At the endof the half we were trading in 38 countries through 298 stores and as of todaywe trade in 307 stores. Total retail sales made by our franchisees in the firsthalf were £100.1m. Overall franchisee like for like sales grew by an estimated9.0%. Our income from franchisees increased by 27.8% during the first half to£44.1m. We now expect to open approximately 70 stores in this financial year in total,the majority of which will be in existing markets. Our India franchise hasstarted well with eight stores opened in the first half year, meaning we are ontrack for our target of 10 stores by the year end. Outlook Notwithstanding the difficult and at times volatile UK trading conditions, ourmulti channel UK business has performed well. We are delighted with theperformance of our International business, which as of today comprises 307stores. We expect International to continue to grow strongly and despite anongoing challenging UK market we believe we are well placed as we look to thesecond half. We will provide a trading statement for the third quarter on 18 January 2007. FINANCIAL REVIEW RESULTS SUMMARY Total Group sales increased by 5.6% to £264.3m (2005: £250.4m). Profit beforetax improved by 12.3% to £12.8m (2005: £11.4m). Underlying profit beforetaxation was up 8.7% to £11.2m (2005: £10.3m). The results can be summarised asfollows: Income Statement 28 weeks 28 weeks 14 October 2006 8 October 2005 £m £m restated note 1 Revenue 264.3 250.4Profit from retail operations 10.5 10.0Profit on disposal of property 1.6 0.7interests (exceptional)Profit from operations 12.1 10.7Investment income and finance 0.7 0.7costsProfit before taxation 12.8 11.4Taxation (3.8) (3.7)Profit after taxation 9.0 7.7Earnings per share 13.0p 11.3pDividend per share 3.30p 2.85p Underlying Profit Before Taxation In our 2006 financial statements, following our transition to IFRS, we referredto a new underlying profit measure. Underlying profit before taxation excludesexceptional items. It also excludes the impact of two of the standards adopted,IAS 19 (Employee Benefits) and IAS 39 (Financial Instruments: Recognition andMeasurement) which give rise to non cash adjustments to the income statement,which can be highly volatile and not reflective of the underlying profit or cashflow of the business. Further details are set out in note 1d. Underlying profitbefore taxation is derived as follows: 28 weeks 28 weeks 14 October 2006 8 October 2005 £m £m Profit before taxation 12.8 11.4Exceptional profit on disposal (1.6) (0.7)of property interestsProfit before exceptional items 11.2 10.7and taxationIAS 19 non cash charge (0.9) 0.2IAS 39 adjustment 0.9 (0.6)Underlying profit before taxation 11.2 10.3 Results by Segment The primary segments for Mothercare Plc are the UK (which includes the Directbusiness) and International businesses. Last year we reported the profits of ourInternational division on a contribution basis after allocating direct costsonly. We now report underlying profit before tax on a fully absorbed basis, inaccordance with IAS 14, with shared costs now allocated between the two segmentson a more comprehensive basis: HY 2006/07 Revenue Underlying profit Underlying profit£m Old basis New basis UK 220.2 4.5 9.4International 44.1 6.0 3.9Corporate - - (2.8)Financing - 0.7 0.7 264.3 11.2 11.2 HY 2005/06£mUK 215.9 5.0 9.9International 34.5 4.6 2.9Corporate - - (3.2)Financing - 0.7 0.7 250.4 10.3 10.3 Corporate expenses represent head office costs, board and senior managementcosts, audit and reporting, insurance and professional fees. Results by Category and Channel Sales in the first half have increased in each of our key product categories andalso across each channel to market. Sales increased by 1.4% in UK stores, 27.8%in International and 15.0% in Direct in Home. Like for like sales are defined as sales growth on the previous year for storesthat have been trading continuously from the same selling space for at least ayear. UK like for like sales were up an estimated 1.5% in the half (afteradjusting for the timing of Easter). International franchisee like for likesales were up an estimated 9.0% in the half year. Underlying Profit Before Taxation Underlying profit before taxation increased by 8.7% or £0.9m in the first half.A 2.0% increase in UK sales and a 30 basis point increase in UK grossmargin together with a strong performance from International more than off-setrises in the cost base. Although the UK gross margin improved as a result of better buying and anincrease in direct sourcing, the overall gross margin percentage was slightlylower than last year due to the rapid growth of the International businesswhich, whilst profit enhancing, is dilutive at a gross margin level. The upward pressure on occupancy, staff and energy costs in the UK retail markethas continued in the current year. However we expect to continue to mitigatethis by reducing operational gearing in the UK through focusing on controllablecosts, optimising the store portfolio (rightsizing, relocating stores to reducerent and increase sales densities), growing the gross margin through more directsourcing and expanding the Direct business. The net margin based on underlying profit before taxation increased by 0.1% inthe half year and the net margin based on profit before taxation increased by0.2% in the half year. Profit on Disposal of property interests (exceptional) The exceptional profit of £1.6m has arisen on the agreed disposal of our OxfordStreet store which is to be re-sited to a new location on Oxford Street in 2007. Investment Income, Finance Costs and Taxation Investment income represents interest receivable on bank deposits and interestpayable on rent reviews. The tax charge of £3.8m represents an effective taxrate of 30.0%. The Group still has unused tax losses of £7.5m (2005: £11.5m)available to set off against future profits. Pensions We continue to operate a defined benefit pension scheme for our staff. The totalcharge to the income statement in respect of the pension scheme in the half yearwas £0.7m (2005: £1.5m). Previously the service costs were included within profit from operations, thereturn on assets were included in investment income and the interest on pensionliabilities were included in finance costs. These three elements of the totalpension expense are now all included within profit from operations. Thispresentation is considered more appropriate as it ensures that thepresentational impact of ongoing variability between the individual componentsof net pension expense is reduced. Further details are set out in note 1. The valuation of the schemes under IAS 19 at 14 October 2006 gave rise to afurther reduction in the pension deficit. The deficit has reduced from £33.6mthis time last year to £17.5m at the year end - and is now down to £14.3m. Afterdeferred taxation the deficit has reduced from £23.5m last year to £10.0m thisyear. The IFRS deficit is a volatile figure based as it is on a corporatebond yield on a specific date. However the underlying downward trend in thedeficit is real and reflects the actions we have taken including the payment ofspecial contributions to the scheme in the last two financial years. We arecomfortable with the current level of funding in the scheme, however we willcontinue to keep the structure and level of benefit of the Group's pensionscheme under active review. Balance Sheet and Cash Flow The cash balance at the end of the half year was £30.6m (2005: £34.4m). The working capital outflow in the half year was £5.7m. £1.9m of the increasewas due to higher inventory levels resulting from the rapid growth ofInternational and Direct, together with a planned increase in direct sourcingwhich increases stock levels as ownership is taken earlier in the supply chain.The balance of the working capital increase, £3.8m, includes a £2.8m increase inInternational receivables in line with the rapid growth of this business and italso includes proceeds receivable from the relocation of the Oxford Streetstore. Capital Expenditure Capital expenditure in the half year was £10.5m (2005: £8.8m). £6.1m wasinvested in UK stores, £2.9m was invested in the distribution network and £1.2mwas invested in systems infrastructure including the new EPOS tills. Capitalexpenditure for the full year is expected to be approximately £24m. Earnings Per Share and Dividend Basic earnings per share were 13.0 pence for the half (2005: 11.3 pence).Underlying earnings per share were 10.6 pence (2005: 9.7 pence). Further detailsare set out in note 8. The Directors recommend a 15.8% increase in the interimdividend to 3.3 pence (2005: 2.85 pence). The percentage increase reflects therelatively low increase in the interim dividend last year of 5.6%. This bringsthe expected interim:final ratio back in line with our more usual 1:2 split. Theinterim dividend will be payable on 9 February 2007 to shareholders registeredon 5 January 2007. The latest date for election to join the dividend re-investment plan is 19 January 2007. Preliminary announcement of unaudited results Consolidated income statementFor the 28 weeks ended 14 October 2006(unaudited) 28 weeks 28 weeks 53 weeks ended ended ended 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ million restated restated (note 1) (note 1) Revenue 264.3 250.4 482.7Cost of sales (239.0) (225.5) (431.8)Gross profit 25.3 24.9 50.9Administrative expenses (14.8) (14.9) (31.1)Profit from retail operations 2 10.5 10.0 19.8Profit on disposal of property interests (exceptional) 3 1.6 0.7 2.9Profit from operations 12.1 10.7 22.7Investment income 4 0.8 0.8 1.8Finance costs 5 (0.1) (0.1) (0.3)Profit before taxation 12.8 11.4 24.2Taxation 6 (3.8) (3.7) (6.7)Profit for the period attributableto equity holders of the parent 9.0 7.7 17.5 Earnings per shareBasic 8 13.0p 11.3p 25.5pDiluted 8 12.9p 11.1p 25.0p All results relate to continuing operations. Consolidated statement of recognised income and expenseFor the 28 weeks ended 14 October 2006(unaudited) 28 weeks 28 weeks 53 weeks ended ended ended 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ million Actuarial gain/(losses) on defined benefit pension schemes 2.3 (11.0) (0.8)IAS 39 transfers to income statement - - 0.1Tax on items taken directly to equity (0.7) 3.3 0.7Net income/(expense) recognised directly in equity 1.6 (7.7) -Profit for the period 9.0 7.7 17.5 Total recognised income and expensefor the period attributable to equityholders of the parent 10.6 - 17.5 Changes in accounting policy to adopt IAS 32 and 39. Attributableto equity holders of the parent (0.1) Consolidated balance sheetAs at 14 October 2006(unaudited) 14 October 8 October 1 April 2006 2005 2006 Note £ million £ million £ millionNon-current assetsProperty, plant and equipment 84.7 85.8 83.7Intangible assets - software 4.9 3.2 4.0Deferred tax asset 4.4 13.3 8.5 94.0 102.3 96.2Current assetsInventories 52.7 48.7 50.8Trade and other receivables 9 40.4 32.4 32.0Cash and cash equivalents 30.6 34.4 35.9 123.7 115.5 118.7 Total assets 217.7 217.8 214.9 Current liabilitiesTrade and other payables 10 (54.0) (52.8) (51.3)Current tax liabilities - - (0.9)Short term provisions 11 (2.2) (4.9) (3.7) (56.2) (57.7) (55.9)Non-current liabilitiesTrade and other payables 10 (10.0) (8.9) (8.9)Retirement benefit obligations (14.3) (33.6) (17.5)Long term provisions 11 (0.4) (1.4) (0.9) (24.7) (43.9) (27.3) Total liabilities (80.9) (101.6) (83.2) Net assets 136.8 116.2 131.7 Equity attributable to equity holdersof the parentCalled up share capital 36.4 35.9 36.3Share premium account 2.3 1.4 2.2Own shares (7.2) (4.8) (6.5)Retained earnings 105.3 83.7 99.7 Total equity 136.8 116.2 131.7 Consolidated cash flow statementFor the 28 weeks ended 14 October 2006(unaudited) 28 weeks 28 weeks 53 weeks ended ended ended 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ million restated restated (note 1) (note 1) Net cash flow from operating activities 8.8 8.5 13.3Cash flows from investing activitiesInterest received 0.8 0.8 1.8Interest paid (0.1) (0.1) (0.3)Purchase of property, plant and (10.5) (8.8) (16.7)equipmentProceeds from sale of property, plant and equipment 1.6 0.4 6.0 Net cash used in investing activities (8.2) (7.7) (9.2) Cash flows from financing activitiesEquity dividends paid (4.3) (3.6) (5.5)Issue of ordinary share capital 0.2 0.2 1.4Purchase of own shares (1.8) - (1.1)Net cash used in financing activities (5.9) (3.4) (5.2) Net decrease in cash and cash equivalents (5.3) (2.6) (1.1) Cash and cash equivalents at beginning of period 35.9 37.0 37.0 Cash and cash equivalents at end of period 30.6 34.4 35.9 Reconciliation of cash flow from operating activitiesFor the 28 weeks ended 14 October 2006(unaudited) 28 weeks 28 weeks 53 weeks ended ended ended 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ million restated restated (note 1) (note 1) Profit from retail operations 10.5 10.0 19.8 Adjustments forDepreciation of property, plant and equipment 7.2 6.7 12.1Amortisation of intangible assets - software 0.1 - 0.7Loss on disposal of property, plant and equipment - 0.1 0.3Losses/(gains) on currency derivatives 0.3 - (0.2)Cost of employee share schemes 0.5 0.7 0.5Utilisation of provision for the costsof re-organisation of distributionnetwork (1.8) (1.3) (2.6)Utilisation of property provisions (0.1) (0.2) (0.5)Utilisation of other provisions (0.1) - (0.4)Payments to retirement benefit schemes (1.6) (1.3) (8.5)Charge in respect of net pension costs 0.7 1.5 2.8 Operating cash flow before movements in working capital 15.7 16.2 24.0 Increase in inventories (1.9) (1.9) (4.0)Increase in receivables (8.6) (3.6) (3.0)Increase/(Decrease) in payables 4.8 (2.2) (3.7)Cash generated from operations 10.0 8.5 13.3 Income taxes paid (1.2) - - Net cash flow from operating activities 8.8 8.5 13.3 Analysis of cash and cash equivalentsAs at 14 October 2006(unaudited) 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ million Cash at bank and in hand 30.6 34.4 35.9 Notes 1 General information and accounting policies (a) The financial information contained in these interim accounts hasbeen prepared in accordance with International Financial Reporting Standards(IFRS). The same accounting policies and methods of computation are followed inthe interim financial report as published by the Company on 1 April 2006, exceptfor a presentational adjustment in respect of IAS 19, Employee Benefits. Theresults for the 28 weeks ended 14 October 2006 include the components of netpension expense, being the service cost, interest cost and expected return onassets, within Administrative expenses and in arriving at Profit fromoperations. In prior periods, pension interest cost was presented within Financecosts and the expected return on assets was presented within Investment income,outside of Profit from operations. Both presentations are permitted under IAS19. The Company considers the presentation adopted in the results for the 28 weeksended 14 October 2006 to be more appropriate as it ensures that thepresentational impact of any ongoing variability between the individualcomponents of net pension expense is reduced. The impact of this presentational adjustment for the 53 weeks ended 1 April 2006is to reduce Administrative expenses by £1.9m (28 weeks ended 8 October 2005:£1.0m), reduce Investment income by £10.9m (28 weeks ended 8 October 2005:£5.7m) and reduce Finance costs by £9.0m (28 weeks ended 8 October 2005: £4.7m).The impact on the balance sheet is nil (28 weeks ended 8 October 2005: nil). (b) The results for the 28 weeks ended 14 October 2006 are unauditedand were approved by the board of directors on 16 November 2006. The results forthe 53 weeks ended 1 April 2006 included in this report do not constitutestatutory accounts for the purpose of section 240 of the Companies Act 1985. Acopy of the statutory accounts for the 53 weeks ended 1 April 2006 under IFRS,on which an unqualified report has been made by the auditors under section 235of the Companies Act 1985, has been delivered to the Registrar of Companies. (c) Profit from retail operations Profit from retail operations represents the profit generated from normal retailtrading, prior to any gains or losses on property transactions. It also includesthe volatility arising from accounting for derivative financial instrumentsunder IAS 39, as the Company has not adopted hedge accounting (refer to dbelow). (d) Underlying earnings The Company believes that underlying profit before tax and underlying earningsprovides additional useful information for shareholders. The term underlyingearnings is not a defined term under IFRS and may not therefore be comparablewith similarly titled profit measurements reported by other companies. It is notintended to be a substitute for, or superior to, IFRS measures of profit. Theadjustments made to reported profit to arrive at underlying earnings aredisclosed in note 8. The adjustments made to reported results are as follows: Exceptional items: Due to their significance and one-off nature certain itemshave been classified as exceptional. The gains and losses on these discreteitems, such as profits on the disposal of property interests, can have amaterial impact on the absolute amount of and trend in the result for the year. IAS 39 adjustment: The Company has taken the decision not to adopt hedgeaccounting under IAS 39, financial instruments. The effect of not applying hedgeaccounting under IAS 39 means that the reported results reflect the actual rateof exchange ruling on the date of a transaction regardless of the cash flow paidby the Company at the predetermined rate of exchange. In addition, any gain orloss accruing on open contracts at a reporting period end is recognised in theresult for the period (regardless of the actual outcome of the contract onclose-out). Whilst the impacts described above could be highly volatiledepending on movements in exchange rates, this volatility will not be reflectedin the cash flows of the Group, which will be based on the hedged rate. Theadjustment made by the Company therefore is to report its underlying performanceon the basis described above. IAS 19 non-cash adjustment: Various factors, including the variability incorporate bond yield rates, create volatility in the income statement andbalance sheet, when accounting for pensions under IAS 19 Employee benefits, andwhen compared to the cash contributions the Company is required to make in orderto fund all future liabilities. The underlying earnings measure thereforeincludes the 'normal' cash contributions which the company is required to makebut excludes the volatile IAS 19 charge as it is considered that this gives afairer measure of the cost of providing post retirement benefits. (e) Retirement benefits In consultation with the independent actuaries to the schemes, the valuation ofthe pension liability has been updated to reflect current market discount rates,current market values of investments and actual investment returns, and alsoconsidering whether there have been any other events that would significantlyaffect the pension liabilities. The impact of these changes in assumptions andevents has been estimated in arriving at the valuation of the pension liability. 2 Profit from retail operations For the 28 weeks ended 14 October 2006, profit from retail operations is statedafter charging a net loss of £0.9 million (2005: credit of £0.6 million) to costof sales as a result of the Company's decision not to adopt hedge accountingunder IAS 39. 3 Profit on disposal of property interests For the 28 weeks ended 14 October 2006, a credit of £1.6 million (2005: creditof £0.7 million) has been recognised in profit from operations relating to netdisposal proceeds on the disposal of the leasehold interest in five closedstores in the period, and one future store closure that is now unconditional. 4 Investment income 28 weeks 28 weeks 53 weeks ended ended ended 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ million restated restated (note 1) (note 1) Interest on bank deposits 0.8 0.8 1.8 5 Finance costs 28 weeks 28 weeks 53 weeks ended ended ended 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ million restated restated (note 1) (note 1) Interest on bank loans and overdrafts 0.1 0.1 0.3 6 Taxation 28 weeks 28 weeks 53 weeks ended ended ended 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ million Current tax: UK corporation tax 0.4 - 0.9Deferred tax: reversal of deferredtax asset in respect of tax lossesutilised against profits for the period 3.4 3.7 5.8 3.8 3.7 6.7 The tax charge is comprised of current and deferred tax and is calculated at 30per cent (2005: 32 per cent) after exceptional profits. A deferred tax asset of £5.3 million was recognised in respect of trading lossescarried forward at 1 April 2006, before taking into account any deferred taxliabilities, as the directors were of the opinion that it was probable that thebenefit of the tax losses would be realised. This deferred tax asset has reducedto £2.3 million at 14 October 2006 reflecting utilisation of these lossesagainst profits in the period. The group had tax losses carried forward ofapproximately £7.5 million as at 14 October 2006 (2005: approximately £11.5million). The overall deferred tax asset at 14 October 2006 is £4.4 millionincluding £5.4 million of deferred tax assets in relation to retirement benefitobligations. 7 Dividends 28 weeks 28 weeks 53 weeks ended ended ended 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ millionAmounts recognised as distributions toequity holders in the period:Final dividend of 6.15 pence per share(2005: 5.30 pence per share) 4.3 3.6 3.6 Interim dividend of 2.85 pence per share - - 1.9 4.3 3.6 5.5 The proposed interim dividend of 3.30 pence per share for the 28 weeks ended 14October 2006 was approved by the board after 14 October 2006, on 16 November2006, and so, in line with the requirements of IAS 10 'Events after the BalanceSheet Date', the related cost of £2.3 million has not been included as aliability as at 14 October 2006. This dividend will be paid on 9 February 2007to shareholders on the register on 5 January 2007. 8 Earnings per share 28 weeks 28 weeks 53 weeks ended ended ended 14 October 8 October 1 April 2006 2005 2006 million million million Weighted average number of shares in 69.1 68.3 68.5issueDilution - option schemes 0.6 1.1 1.5Diluted weighted average number of shares in issue 69.7 69.4 70.0 £ million £ million £ million Earnings for basic and diluted earnings per share 9.0 7.7 17.5IAS 19 non cash adjustment (0.9) 0.2 (0.4)IAS 39 adjustment 0.9 (0.6) (0.3)Profit on disposal of property interests (exceptional) (1.6) (0.7) (2.9)Tax effect of above items - 0.1 0.2Underlying earnings 7.4 6.7 14.1 Pence Pence Pence Basic earnings per share 13.0 11.3 25.5Basic underlying earnings per share 10.7 9.8 20.6Diluted earnings per share 12.9 11.1 25.0Diluted underlying earnings per share 10.6 9.7 20.1 9 Trade and other receivables 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ million Trade receivables 17.3 14.2 14.5Prepayments and accrued income 17.4 15.0 14.3Other receivables 5.3 1.6 3.0Currency derivative assets - 0.6 0.2VAT receivable 0.4 1.0 - 40.4 32.4 32.0 10 Trade and other payables 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ million Current liabilities:Trade payables 29.0 28.4 27.6Payroll and other taxes, including social security 2.8 2.2 1.7Accruals and deferred income 20.7 20.7 21.1Lease incentives 1.3 0.8 0.9Currency derivative liabilities 0.2 0.2 -Other payables - 0.5 - 54.0 52.8 51.3 Non-current liabilities: Lease incentives 10.0 8.9 8.9 11 Provisions 14 October 8 October 1 April 2006 2005 2006 £ million £ million £ millionCurrent liabilities:Property provisions 0.8 1.2 0.9Distribution provisions 1.2 3.4 2.5Other provisions 0.2 0.3 0.3Short term provisions 2.2 4.9 3.7 Non-current liabilities: Property provisions 0.1 0.1 0.1Distribution provisions - 0.9 0.5Other provisions 0.3 0.4 0.3Long term provisions 0.4 1.4 0.9 Total liabilities:Property provisions 0.9 1.3 1.0Distribution provisions 1.2 4.3 3.0Other provisions 0.5 0.7 0.6 Total provisions 2.6 6.3 4.6 The movement on total provisions isas follows: Property Distribution Other Total provisions provisions provisions provisions £ million £ million £ million £ million Balance at 1 April 2006 1.0 3.0 0.6 4.6Utilised in period (0.3) (1.8) (0.1) (2.2)Charged in period 0.2 - - 0.2 Balance at 14 October 2006 0.9 1.2 0.5 2.6 This information is provided by RNS The company news service from the London Stock Exchange