17th Nov 2005 07:00
Mothercare PLC17 November 2005 17 November 2005 Mothercare plc Results for the 28 weeks ended 8 October 2005 "Growing through specialism, efficiency and reach" Key Financials •Group sales up 3.0% to £250.4m (2004: £243.2m) •UK sales up 1.0% to £215.9m •International sales up 17.0% to £34.5m •Group profit from retail operations down 3.2% to £9.0m (2004: £9.3m) •Profit before tax up 4.6% to £11.4m (2004: £10.9m) •Earnings per share up 1.8% to 11.3p (2004: 11.1p) •Dividend up 5.6% to 2.85p (2004: 2.70p) •Cash balance of £34.4m (2004: £41.4m) Operational Highlights •Ongoing progress in rebuilding the business: - New product ranges performing well - Structured staff training programmes producing results - Distribution move proceeding to plan - All stores now web enabled •Growth plans gaining momentum: - 6 new stores opened in the UK (total 232) - 29 International stores opened (total 247) - Direct sales showing continued growth Ben Gordon, Chief Executive, said: "During the half we continued to consolidate the improvements made to thebusiness over the past three years. We have continued to rejuvenate our storesand ranges, our new distribution warehouse move is on time and on budget and ourcustomer service programmes are producing results. We are now looking to growthe business with greater focus on our specialism, our efficiency and byexpanding our reach through our UK store portfolio, growing our Direct businessand continuing our International expansion. The work we have done to rebuild the business over the past three years meansthat we are in a stronger position than in the past, despite the tradingenvironment continuing to be tough. We have ensured the business is in goodshape and everything within our control is being tightly managed to competeeffectively." Enquiries to: Mothercare plcBen Gordon, Chief Executive 01923 206001Steven Glew, Finance Director 01923 206140 Brunswick Group LimitedSusan Gilchrist/Catherine Hicks/Anna Jones 020 7404 5959 CHIEF EXECUTIVE'S REVIEW INTRODUCTION In May 2003 we outlined a three-year turnaround programme, with the objective ofstabilising and rebuilding Mothercare, followed by a longer-term growth plan. Wehave achieved an enormous amount since that time, resulting in significantimprovements in sales and gross margins. The achievements of the turnaroundprogramme have provided resilience in the current difficult UK tradingenvironment and enabled the rapid growth of the International business. Total sales for the first half are up 3.0%, with profit before tax up 4.6% to£11.4 million. The strong growth in profitability of our International businesshas partly off-set a reduction in profit in our UK business. In the UK we havegrown sales and gross margins, however whilst we have controlled costs tightly,the growth in costs has been greater than the growth in income leading to areduction in retail operating profit. The increase in gross margin has beenimpacted as we have continued to be competitive in our pricing and reacted tothe trading environment. Our product ranges have been revamped to meet the needs and aspirations oftoday's customers, our stores have been transformed, our infrastructure is nowproviding real efficiency benefits and our customer service levels have shown asignificant improvement. In addition, we are on track and on budget to deliverour new distribution network. STRATEGY The turnaround strategy provided an excellent roadmap to recovery. With threeyears of stability now under our belt, and strong controls introduced into thebusiness, we are in a much better position to grasp the many opportunities stillahead of us. To this end, we are now looking to growth under a new roadmap, thethree key areas of which are specialism, efficiency and reach. Specialism Mothercare has a clear customer proposition as a speciality retailer forpregnant women and parents of young children. We will continue to develop thispoint of differentiation with particular focus on our products, our stores andour customer service. Product The improvements we have made to the quality, design and value of our rangeshave significantly repositioned our product offer. The "good, better, best"pricing architecture that we introduced is a key element of this success and hasensured we have competitive entry price points whilst also offering ourcustomers more fashionable product. We are taking product development to a newlevel with the further expansion of our sub-brands. An example of this is MODAmaternity wear store-within-stores. The 12 trial stores have been successful andwe plan to roll out to 50 more stores in the next 6 months. Our gift offer, which focuses on our core market of birth to age two, has been successfullylaunched and is now available in all our stores. We are now extending this offerto other seasonal events and will have a much stronger Christmas gift range instore this year. These and other opportunities in the product area will continueto build our sales growth. Stores The ranging and presentation of our stores is an important aspect of ourspecialism. Our stores need to be accessible and inviting, with the widest offerpossible to attract and satisfy our customers. We have now refitted the majority of our 158 high street stores - improving thecustomer environment and refocusing the ranges presented. We have also"web-enabled" all of our stores allowing customers access to our completecatalogue range, regardless of store size.We are now turning more attention to our 74 out of town stores. Whilst thesestores are generally in a good physical condition and carry the bulk of ourrange, we believe there is significant opportunity to extend our customer offer,thereby improving sales densities and profitability. To this end, we areplanning to trial a number of formats to make the shopping experience easier andmore interesting for our customers. Service Given the nature of the products we sell, a high level of customer service iscritical to our success. The work we have been doing on specialist stafftraining has been bedded down and we now have experts in most stores in keyareas of our business. Performance is closely measured and linked to staffrewards. The benefits of this training are beginning to show through in theresults of our Mystery Shopper programme, which show significant improvements. Efficiency Our speciality proposition needs world-class operational support to driveprofitability. This is heightened by the current trading environment, withpressure on both customer spending and our cost base in major areas such aspayroll, energy and property. With constantly improving direct sourcing, our newsupply chain and a more effective infrastructure we can engineer further costsout of the business and run it more efficiently. Sourcing A vital element of our plans is to improve the efficiency of our productpurchasing processes. This involves sourcing product in the most cost efficientway, whilst shortening order lead times, maintaining product quality andachieving our demanding supplier standards. An important aspect is sourcingproduct directly from suppliers. We have increased our direct sourcing of ourclothing and we are moving towards a level of 40% directly sourced compared to15% three years ago, and we are on track to achieve a target of 50% directsourcing within two years. Supply Chain The programme to transform our distribution network into a world-class supplychain is proceeding to schedule. We have completed the first phases of the planto time and budget. The new National Distribution Centre now handles 60% of ourproduct by volume and all despatches to stores are from this facility. The final phase of this programme is the transfer of the balance of our boxedproduct. This phase is scheduled for completion in the late Summer of 2006. Oncethis programme is complete it will form the platform for further improvements inour supply chain. The update of our distribution network is only a stage, albeit a key stage, inthe transformation of our supply chain. We have more to do in planning andmanaging the flow of product through our business, to drive down total supplychain costs, improve availability and reduce total stockholdings. Our target remains to reduce UK store distribution costs to 6.0% by March 2007(current 6.4%) with a long term target of 5% which compares with 8.5% threeyears ago. Our target for availability is to increase the level to 95% (current88%) compared to 65% three years ago. We also plan to reduce stock levelssignificantly. Our International distribution network continues to increase its impact withsome 20% of our volume handled through our Dubai distribution centre and some15% through our Singapore centre. Infrastructure We continue to focus on driving down our controllable operating costs to helpimprove profitability to off-set inflationary cost increases particularly inproperty rental and rates, energy and store labour costs. An important aspect is the efficiency of our in-store processes, whilst allowingour staff to provide the required customer service levels. A vital element hereis our new EPOS system, which is now in 200 stores, covering 90% of our sales.This system has already substantially reduced till service times and back officetime. Following completion of the roll out of the base system, due by March 2006we plan to add additional functionality, which will further improve customerservice and store efficiency. Reach We will continue to extend our reach to be more accessible to more customers,both in the UK and around the world. We will achieve this by ensuring our UK stores are the right size and in theright place, that our Direct business fulfils its potential and that ourInternational business continues its strong growth. UK Stores We have opened nine new stores since August 2004. These have included one new intown store, six new out of town stores and two replacement in town stores, wherewe have relocated to a preferable size and location. Three months in and therelocated and resized stores are more profitable than they were previously. We have closed five non-performing stores in the half year and intend to closesome five more by the year end. We continue to see opportunities for a further 50 UK stores. Mothercare Direct Our Direct business is central to our multi-channel strategy. This businesscomprises home shopping (internet at home and telephone catalogue ordering)together with internet in stores (web enabled stores). Direct is already astrong business and we see significant opportunities to extend product rangesand improve on-line shopping. Staff and customers are making better use of ourweb-in-store, which is now in every store. We are also making better use ofspeciality catalogues for products such as gift and first bedroom, which haveproved very popular. We plan to expand the range available over the internet. International Our International business represents a substantial growth opportunity forMothercare. Our brand has strong awareness internationally and a sustainedquality perception. We now trade in 33 countries through 247 stores with 22franchisee partners. We have long established relationships with the majority ofour franchisees. We see potential for at least another 150 international stores over the nextthree years. Some 50 of these have opened this year. We will grow throughexisting franchisees, both in their current countries and in new countries. Weare also progressing opportunities to develop in new countries with newfranchisees. An example of this is the agreement we have recently signed withShoppers' Stop to develop a franchise in India, with the first store due to openin March 2006. We have agreed a plan with our new partner to open at least 40stores over the next four years. OUTLOOK During the half we continued to consolidate the improvements made to thebusiness over the past three years. We have continued to rejuvenate our storesand ranges, our new distribution warehouse move is on time and on budget and ourcustomer service programmes are producing results. We are now looking to growthe business with greater focus on our specialism, our efficiency and byexpanding our reach through our UK store portfolio, growing our Direct businessand continuing our International expansion. The work we have done to rebuild the business over the past three years meansthat we are in a stronger position than in the past, despite the tradingenvironment continuing to be tough. We have ensured the business is in goodshape and everything within our control is being tightly managed to competeeffectively. FINANCIAL REVIEW RESULTS SUMMARY Total group sales have increased by 3.0% to £250.4 million (2004: £243.2million) with like-for-like UK store sales down by 1.0%. Profit from retailoperations decreased by 3.2% to £9.0 million (2004: £9.3 million). The results can be summarised as follows: 28 weeks to 8 October 2005 9 October 2004 £m £m Revenue (exc VAT) 250.4 243.2 ---------- -----------Profit from retail operations 9.0 9.3Profit on disposal of property interests 0.7 - ---------- -----------Profit from operations 9.7 9.3Net interest income 1.7 1.6 ---------- -----------Profit before tax 11.4 10.9Taxation (3.7) (3.4) ---------- -----------Profit after tax 7.7 7.5 ========== =========== Earnings per share 11.3p 11.1p Group revenue and profit from retail operations: Revenue Profit from Retail Operations 2005 2004 2005 2004 £m £m £m £m Total UK 215.9 213.7 4.4 5.3Mothercare International 34.5 29.5 4.6 4.0 -------- ------- -------- ------Total 250.4 243.2 9.0 9.3 -------- ------- -------- ------ (IFRS) Accounting standards The above results have been prepared under International Financial ReportingStandards ("IFRS") and prior year figures have been restated accordingly. Divisional performance UK Total UK sales increased by 1.0% to £215.9 million. Total UK store salesincreased by 0.6% to £205.9 million. Like-for-like sales (defined as salesgrowth on the previous year for stores that have been trading continuously fromthe same selling space for at least 13 financial periods) decreased by 1.0%. Thenet sales gain due to store openings and closures was 1.6%. Six stores wereopened during the period and five were closed. Mothercare Direct sales increased by 9.2% to £10.0 million as a result ofimproved product ranges and improved marketing. Overall UK gross margins have increased by 0.2% in the period despite thechallenging trading environment. Our sourcing strategy has continued to providegross margin gains, which have been partly off-set by a reduction in retailselling prices as we have continued to price our products competitively. UK profit from retail operations reduced by 17.0% to £4.4 million from £5.3million last year. The increase in sales and gross margin has been more thanoff-set by the growth of UK operating costs. The increase in operating costs has been restricted to 2.5%. Significantinflationary increases in property, energy and store payroll (including theinvestment in upskilling our store teams) have been partly compensated by tightcontrol of other operating costs particularly central costs and storecontrollable costs. UK store distribution costs have remained at 6.4% of sales,the same level as last year. UK performance includes an exchange gain of £0.6 million arising from the"marking to market" of foreign exchange contracts which hedge purchasecommitment in foreign currency. Mothercare International Mothercare International, our overseas franchise business, performed well withsales growing by 17.0% to £34.5 million and profit from retail operationsgrowing 15.0% to £4.6 million. Overall franchisee sales grew by 25%, based on 8%like-for-like growth together with the addition of 29 new stores, taking thetotal to 247 at the end of the half. We have opened stores in five new countries, including Indonesia and Pakistanand now trade in 33 countries. Our franchisees have also refurbished 11 storesas part of their continuing commitment to provide a modern and attractive storeenvironment. The net margins of our International business for the half year have decreasedto 13.3% from 13.6% last year. This is due to higher distribution costs thatwill be recovered from franchisees in the second half, so we would expect thenet margin rate for the full year to be ahead of last year. Our new Far Eastdistribution centre in Singapore is helping to improve the flow of product andimprove availability for our franchisees. Some 15% of our International volumeis now distributed through this facility. Profit on disposal of property interests The operating credit of £0.7 million relates to the net gain on disposal of aleasehold interest of a closed store in the period. Interest Net interest income increased to £1.7 million from £1.6 million last year. UnderIFRS this figure now includes pension scheme investment income and financecosts, before which net interest income decreased to £0.7 million from £0.9million last year, principally as a result of the lower average cash balancesfollowing the £10 million special pension contribution made at the end of thelast financial year. Taxation Due to the tax losses we have brought forward of some £23 million, no tax willactually be paid for the half year. The tax charge of £3.7 million, representingan effective tax rate of 32%, reflects utilisation of these losses in respect ofwhich a deferred tax asset existed at the end of last year. Balance sheet and cash flow The Group had a net cash outflow of £2.6 million in the period, leading to thecash balance at the end of the half year of £34.4 million (2004: £41.4 million).Cash balances have reduced on last year due to the special pension contributionof £10 million made in March 2005. An increase in working capital of £7.7 million in the half is principally due toan increase in stock and debtors as a result of our growing Internationaloperations. Capital expenditure for the period was £8.8 million (2004: £10.3 million), ofwhich the cost of new stores was £4 million. Dividend The Directors are pleased to recommend an interim dividend for the year of 2.85pence (2004: 2.7 pence) an increase of 5.6%. The interim dividend will be payable to shareholders registered on Friday 6January 2006. The latest date for election to join the dividend re-investmentplan is Friday 20 January 2006. Pensions The pension scheme valuation has been updated under IFRS for accounting purposesas at 8 October 2005. This has resulted in an increase in the gross deficit fromthe year end of £11.2 million to £33.6 million (an increase of £8.3 million to£21.7 million net of deferred tax). This increase in deficit has arisen mainlydue to the impact of a lower discount rate offset by an increase in assetvalues. This movement has been taken through the Statement of Recognised Incomeand Expense. The Board is aware of our long term pension responsibilities andrecent pension legislation and as a result is keeping the pension positionconstantly under review. Preliminary announcement of unaudited results Consolidated income statement For the 28 weeks ended 8 October 2005 (unaudited) 28 weeks ended 28 weeks ended 52 weeks ended 8 October 2005 9 October 2004 26 March 2005 Note £ million £ million £ million -------- -------- --------Revenue 250.4 243.2 457.2Cost of sales (225.5) (216.7) (408.1)Re-organisation ofdistribution network 2 - - (6.5) -------- -------- --------Gross profit 24.9 26.5 42.6Administrative expenses (15.9) (17.2) (32.4) -------- -------- --------Profit from retailoperations 3 9.0 9.3 10.2Profit on disposal ofproperty interests 4 0.7 - - -------- -------- --------Profit from operations 9.7 9.3 10.2Profit on disposal ofsubsidiary undertaking 5 - - 2.4 -------- -------- --------Profit before financingand taxation 9.7 9.3 12.6Investment income 6 6.5 5.8 10.9Finance costs 7 (4.8) (4.2) (8.0) -------- -------- --------Profit before taxation 11.4 10.9 15.5Taxation 8 (3.7) (3.4) (4.2) -------- -------- --------Profit for the periodattributable to 7.7 7.5 11.3equity holders of theparent -------- -------- --------Earnings per shareBasic 10 11.3p 11.1p 16.6pDiluted 10 11.1p 10.9p 16.3p -------- -------- -------- All results relate to continuing operations. Consolidated statement of recognised income and expense For the 28 weeks ended 8 October 2005 (unaudited) 28 weeks ended 28 weeks ended 52 weeks ended 8 October 2005 9 October 2004 26 March 2005 £ million £ million £ million -------- -------- --------Actuarial losses on defined benefit pension schemes (11.0) (2.4) (9.3)Tax on items taken directly to equity 3.3 0.7 3.1 -------- -------- --------Net expenses recogniseddirectly in equity (7.7) (1.7) (6.2)Profit for the period 7.7 7.5 11.3 -------- -------- --------Total recognised income and expense for the period attributable to equity holders of the parent - 5.8 5.1 -------- -------- -------- Consolidated balance sheet As at 8 October 2005(unaudited) 8 October 2005 9 October 2004 26 March 2005 Note £ million £ million £ million -------- -------- --------Non-current assetsProperty, plant andequipment 85.8 82.5 84.3Intangible assets -software 3.2 2.2 2.7Deferred tax asset 13.3 11.9 13.6 -------- -------- -------- 102.3 96.6 100.6 -------- -------- --------Current assetsInventories 48.7 45.9 46.8Trade and otherreceivables 32.4 30.3 28.8Cash and cash equivalents 34.4 41.4 37.0 -------- -------- -------- 115.5 117.6 112.6 -------- -------- -------- -------- -------- --------Total assets 217.8 214.2 213.2 -------- -------- -------- Current liabilitiesTrade and other payables 11 (52.8) (57.1) (55.9)Short term provisions 12 (4.9) (1.8) (5.1) -------- -------- -------- (57.7) (58.9) (61.0) -------- -------- --------Non-current liabilitiesTrade and other payables 11 (8.9) (8.1) (7.8)Retirement benefitobligations (33.6) (25.3) (22.4)Long term provisions 12 (1.4) (0.7) (3.0) -------- -------- -------- (43.9) (34.1) (33.2) -------- -------- -------- -------- -------- --------Total liabilities (101.6) (93.0) (94.2) -------- -------- -------- -------- -------- --------Net assets 116.2 121.2 119.0 -------- -------- -------- Equity attributable to equityholders of the parentCalled up share capital 35.9 35.8 35.8Share premium account 1.4 1.2 1.3Own shares (4.8) (4.6) (5.5)Retained earnings 83.7 88.8 87.4 -------- -------- --------Total equity 116.2 121.2 119.0 -------- -------- -------- Consolidated cash flow statement For the 28 weeks ended 8 October 2005 (unaudited) 28 weeks ended 28 weeks ended 52 weeks ended 8 October 2005 9 October 2004 26 March 2005 £ million £ million £ million -------- -------- --------Net cash flow fromoperating activities 8.5 11.8 12.5 -------- -------- --------Cash flows from investingactivitiesInterest received 0.8 1.0 1.8Interest paid (0.1) (0.1) (0.1)Purchase of property,plant and equipment (8.8) (10.3) (18.4)Proceeds from sale ofproperty, plant andequipment 0.4 - 1.1Proceeds from sale ofsubsidiary undertaking - 0.5 3.4 -------- -------- --------Net cash used ininvesting activities (7.7) (8.9) (12.2) -------- -------- --------Cash flows from financingactivitiesEquity dividends paid (3.6) (2.7) (4.6)Issue of ordinary sharecapital 0.2 0.9 1.0 -------- -------- --------Net cash used infinancing activities (3.4) (1.8) (3.6) -------- -------- -------- -------- -------- --------Net (decrease)/increasein cash and cashequivalents (2.6) 1.1 (3.3) -------- -------- -------- Cash and cash equivalentsat beginning of period 37.0 40.3 40.3 -------- -------- --------Cash and cash equivalentsat end of period 34.4 41.4 37.0 -------- -------- -------- Reconciliation of cash flow from operating activities For the 28 weeks ended 8 October 2005 (unaudited) 28 weeks ended 28 weeks ended 52 weeks ended 8 October 2005 9 October 2004 26 March 2005 £ million £ million £ million -------- -------- --------Profit from retailoperations 9.0 9.3 10.2Adjustments forDepreciation of property,plant and equipment 6.7 6.4 12.0Loss on disposal ofproperty, plant andequipment 0.1 0.5 0.7Cost of employee shareschemes 0.7 0.4 0.8Charge to profit fromoperations in respect of thecosts of re-organisation ofdistribution network - - 6.5Utilisation of provision forthe costs of re-organisationof distribution network (1.3) - (0.9)Utilisation of propertyprovisions (0.2) (1.0) (1.1)Payments to retirementbenefit schemes (1.3) (1.4) (12.4)Charge to profit fromoperations in respect of theservice costs of retirementbenefit obligations 2.5 2.1 3.9 -------- -------- --------Operating cash flow beforemovements in working capital 16.2 16.3 19.7Increase in inventories (1.9) (0.8) (1.8)Increase in receivables (3.6) (2.7) (3.3)Decrease in payables (2.2) (1.0) (2.1) -------- -------- --------Net cash flow from operatingactivities 8.5 11.8 12.5 -------- -------- -------- Analysis of cash and cash equivalents As at 8 October 2005 (unaudited) 8 October 2005 9 October 2004 26 March 2005 £ million £ million £ million -------- -------- --------Cash at bank and in hand 34.4 21.4 37.0Time deposits - 20.0 - -------- -------- -------- 34.4 41.4 37.0 -------- -------- -------- Notes 1 General information and accounting policies (a) The next annual financial statements of the Company will beprepared in accordance with International Financial Reporting Standards (IFRS)as adopted for use in the EU. The financial information contained in theseinterim accounts has been prepared on the basis of IFRS that the Company expectsto be applicable as at 1 April 2006. IFRS are subject to amendment andinterpretation by the International Accounting Standards Board (IASB) and thereis an ongoing process of review and endorsement by the European Commission. The accounting policies followed in the interim financial report are the same asthose included within the document 'Adoption of IFRS - Restatement of 2005financial information' which the Company issued on 15 July 2005 and which isavailable on the Company's website, www.mothercare.com/investorinfo with theexception of the adoption of IAS 32 'Financial Instruments: Disclosure andPresentation' and IAS 39 'Financial Instruments: Recognition and Measurement'. The Company has elected to apply the exemption available within IFRS 1'First-time Adoption of International Financial Reporting Standards' thatpermits the hedge accounting applied under the previous Generally AcceptedAccounting Principles (GAAP) to be used as a comparative for IAS 39. Hence thechange in accounting policy has had no impact on the results of the priorperiod. The impact on the opening balance sheet is set out in note 14. (b) The results for the 28 weeks ended 8 October 2005 areunaudited and were approved by the board of directors on 17 November 2005. Theresults for the 52 weeks ended 26 March 2005 included in this report do notconstitute statutory accounts for the purpose of section 240 of the CompaniesAct 1985. A copy of the statutory accounts for the 52 weeks ended 26 March 2005under UK GAAP, on which an unqualified report has been made by the auditorsunder section 235 of the Companies Act 1985, has been delivered to the Registrarof Companies. (c) Profit from retail operationsProfit 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. (d) Underlying earningsCertain items do not reflect the underlying trading performance of the Company,principally gains and losses on disposal of property interests, re-organisationcosts and other non-operating items, such as the prior year disposal of asubsidiary undertaking with capital tax losses attached. The Company believesthat underlying earnings provides additional useful information forshareholders. The term underlying earnings is not a defined term under IFRS andmay not therefore be comparable with similarly titled profit measurementsreported by other companies. It is not intended to be a substitute for, orsuperior to, IFRS measures of profit. The adjustments made to reported profit toarrive at underlying earnings are disclosed in note 10. (e) Retirement benefitsIn 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 Re-organisation of distribution network During the 52 weeks ended 26 March 2005, costs of £6.5 million were charged toGross profit to provide for the direct revenue costs associated with there-organisation of the distribution network as a result of the move to the newNational Distribution Centre. 3 Profit from retail operations For the 28 weeks ended 8 October 2005, profit from retail operations is statedafter crediting a net gain of £0.6 million to cost of sales as a result of theCompany's decision not to adopt hedge accounting under IAS 39. As these gainsresult from the first-time application of IAS 39, as discussed in notes 1 and14, there are no comparative figures for prior periods. 4 Profit on disposal of property interests During the 28 weeks ended 8 October 2005, a credit of £0.7 million has beenrecognised in profit from operations relating to net disposal proceeds on thedisposal of the leasehold interest in a closed store and the release of therelated landlord's contribution previously received and held as deferred income. 5 Profit on disposal of subsidiary undertaking During the 52 weeks ended 26 March 2005, income of £2.4 million was credited toprofit before taxation relating to the sale of a subsidiary undertaking. Thegroup has capital tax losses significantly in excess of likely futurerequirements and one of the group's subsidiary undertakings with capital taxlosses attached was sold to a third party for £2.4 million net of costs. 6 Investment income 28 weeks ended 28 weeks ended 52 weeks ended 8 October 2005 9 October 2004 26 March 2005 £ million £ million £ million -------- -------- --------Interest on bank deposits 0.8 1.0 1.8Retirement benefit schemes 5.7 4.8 9.1 -------- -------- --------Investment income 6.5 5.8 10.9 -------- -------- -------- 7 Finance costs 28 weeks ended 28 weeks ended 52 weeks ended 8 October 2005 9 October 2004 26 March 2005 £ million £ million £ million -------- -------- --------Interest on bank loans andoverdrafts 0.1 0.1 0.1Retirement benefit schemes 4.7 4.1 7.9 -------- -------- --------Finance costs 4.8 4.2 8.0 -------- -------- -------- 8 Taxation 28 weeks ended 28 weeks ended 52 weeks ended 8 October 2005 9 October 2004 26 March 2005 £ million £ million £ million --------- --------- ---------Current tax: UK corporation tax - - -Deferred tax: reversal ofdeferred tax asset inrespect of tax lossesutilised against profits forthe period 3.7 3.4 4.2 --------- -------- -------- 3.7 3.4 4.2 --------- -------- -------- The tax charge comprises entirely of deferred tax and is calculated at 32 percent (2004: 31 per cent). A deferred tax asset of £6.8 million was recognised in respect of trading lossescarried forward at 26 March 2005, 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 £3.5 million at 8 October 2005 reflecting utilisation of these losses againstprofits in the period. The group had tax losses carried forward of approximately£11.5 million as at 8 October 2005 (2004: approximately £29 million). Theoverall deferred tax asset at 8 October 2005 is £13.3 million including £11.9million of deferred tax assets in relation to retirement benefit obligations. 9 Dividends 28 weeks ended 28 weeks ended 52 weeks ended 8 October 2005 9 October 2004 26 March 2005 £ million £ million £ million -------- -------- --------Amounts recognised asdistributions to equity holdersin the period:Final dividend of 5.3pence per share (2004:4.0 pence per share) 3.6 2.7 2.7Interim dividend of 2.7pence per share - - 1.9 -------- -------- -------- 3.6 2.7 4.6 -------- -------- -------- The proposed interim dividend of 2.85 pence per share for the 28 weeks ended 8October 2005 was approved by the board after 8 October 2005, on 17 November2005, and so, in line with the requirements of IAS 10 'Events after the BalanceSheet Date', the related cost of £1.9 million has not been included as aliability as at 8 October 2005. This dividend will be paid on 10 February 2006to shareholders on the register on 6 January 2006. 10 Earnings per share 28 weeks ended 28 weeks ended 52 weeks ended 8 October 2005 9 October 2004 26 March 2005 million million million -------- -------- --------Weighted average number ofshares in issue 68.3 67.8 68.0Dilution - option schemes 1.1 1.3 1.2 -------- -------- --------Diluted weighted averagenumber of shares in issue 69.4 69.1 69.2 -------- -------- -------- £ million £ million £ million -------- -------- --------Earnings for basic anddiluted earnings per share 7.7 7.5 11.3Costs of re-organisation ofdistribution network - - 6.5Profit on disposal ofproperty interests (0.7) - -Profit on disposal ofsubsidiary undertaking - - (2.4)Tax effect of above items - - (1.9) -------- -------- --------Underlying earnings 7.0 7.5 13.5 -------- -------- -------- pence pence pence -------- -------- --------Basic earnings per share 11.3 11.1 16.6Basic underlying earningsper share 10.2 11.1 19.9Diluted earnings per share 11.1 10.9 16.3Diluted underlying earningsper share 10.1 10.9 19.5 -------- -------- -------- 11 Trade and other payables 8 October 2005 9 October 2004 26 March 2005 £ million £ million £ million -------- -------- --------Current liabilities:Trade payables 28.4 30.6 29.8Payroll and other taxes,including social security 2.2 2.1 1.2Accruals and deferred income 20.7 23.0 24.2Lease incentives 0.8 0.8 0.7Currency derivativeliabilities 0.2 - -Other creditors 0.5 0.6 - -------- -------- -------- 52.8 57.1 55.9 -------- -------- -------- Non-current liabilities:Lease incentives 8.9 8.1 7.8 -------- -------- -------- 12 Provisions 8 October 2005 9 October 2004 26 March 2005 £ million £ million £ million -------- -------- --------Current liabilities:Property provisions 1.2 1.5 1.4Distribution provisions 3.4 - 3.4Other provisions 0.3 0.3 0.3 -------- -------- --------Short term provisions 4.9 1.8 5.1 -------- -------- -------- Non-current liabilities:Property provisions 0.1 0.1 0.1Distribution provisions 0.9 - 2.2Other provisions 0.4 0.6 0.7 -------- -------- --------Long term provisions 1.4 0.7 3.0 -------- -------- -------- Property provisions 1.3 1.6 1.5Distribution provisions 4.3 - 5.6Other provisions 0.7 0.9 1.0 -------- -------- --------Total provisions 6.3 2.5 8.1 -------- -------- -------- The movement on total provisionsis as follows: Property Distribution Other Total provisions provisions provisions provisions £ million £ million £ million £ millionBalance at 26 March 2005 1.5 5.6 1.0 8.1Utilised in period (0.2) (1.3) (0.5) (2.0)Charged in period - - 0.2 0.2 --------- -------- -------- --------Balance at 8 October 2005 1.3 4.3 0.7 6.3 --------- -------- -------- -------- 13 Reconciliation of IFRS comparatives from previously reported UK GAAP financial information Until 26 March 2005, the Company prepared its consolidated financial statementsunder UK GAAP. With effect from 27 March 2005, the Company is required toprepare its consolidated financial statements in accordance with IFRS. The comparative figures included in this report for the 28 weeks ended 9 October2004 and for the 52 weeks ended 26 March 2005 are as restated for IFRS. Full details of the restatement and reconciliations of the UK GAAP financialinformation for the 52 weeks ended 26 March 2005 can be obtained from theCompany's website www.mothercare.com/investorinfo. 14 IAS 39 transition balance sheet The Company adopted IAS 32 'Financial Instruments: Disclosure and Presentation'and IAS 39 'Financial Instruments: Recognition and Measurement' from 27 March2005. In the preparation of its financial statements in accordance with IFRS forthe 52 weeks ended 26 March 2005, the Company continued to apply the hedgeaccounting rules of UK GAAP, taking advantage of the exemption available withinIFRS 1 'First-time Adoption of International Financial Reporting Standards'. The Company is required to recognise transitional adjustments in accounting forits financial instruments in accordance with the measurement requirements of IAS39 at 27 March 2005. Although the Company has taken the decision not to hedge account for its foreignexchange contracts, it is deemed to have hedge accounted under UK GAAP until 26March 2005 and discontinued hedge accounting prospectively thereafter. IFRS 1requires the Company to recognise various transitional adjustments to accountfor those hedging relationships in place on 27 March 2005. Foreign exchange contracts that were previously accounted for as cash flowhedges of forecasted transactions under UK GAAP were not previously measured atfair value. The difference between the derivative's fair value and itspreviously reported carrying value has been recognised directly in equity as at27 March 2005. Additionally the Company has recognised the fair value of embedded derivativesfound within certain of its supply contracts in opening retained earnings. All derivative instruments will continue to be recognised on the balance sheetat fair value with future gains and losses being recognised immediately inearnings, except when the hedging requirements of IAS 39 are met. Reconciliation between the IFRS restated balance sheet as at 26 March 2005applying prior hedge accounting and the balance sheet after the adoption of bothIAS 32 and IAS 39: £ million --------Net assets as at 26 March 2005 as per the IFRS restated balancesheet under prior hedge accounting 119.0Adoption of IAS 32 and IAS 39:Currency derivative assets 0.1Currency derivative liabilities (0.2) --------Net assets as at 27 March 2005 after the adoption of IAS 32 andIAS 39 118.9 -------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Mothercare