Final Results
Mothercare PLC
24 May 2001
MOTHERCARE PLC
24 May 2001
Preliminary results for the 52 weeks ended 31 March 2001
MOTHERCARE PLC ANNOUNCES PRELIMINARY RESULTS
* Mothercare returns to profit: profit before tax and exceptionals:
£10.2m (loss £6.1m)
* Sales up 4.7% to £419.1m** with growth achieved across all channels
* Margin growth of 1.3 % points
* Business responding to recovery programme
* Sales in the eight weeks to 18 May 2001 up 12.8% with like-for-like
growth of 9.6%
* Return to dividend: final dividend of 1.5p proposed
** ongoing business
Chris Martin, Chief Executive commented:
'Mothercare's return to profit this year confirms that the business is
responding to the phased recovery programme we set out last year. Although
these early signs clearly indicate that the business is on the road to
recovery, there is still a significant amount of work to do to rebuild the
Mothercare brand.'
Enquiries to:
Chris Martin, Chief Executive Mothercare plc 01923 206187
Susan Gilchrist/Victoria Sabin Brunswick Group Limited 020 7404 5959
Note:
Please go to www.cantoscomms.com to see interviews with Chris Martin (Chief
Executive) and Mark McMenemy (Finance Director).
Financial results
Encouraging progress has been made during the year, with a continued focus
on building solid foundations for Mothercare's recovery. Although there is
still much work to do to rebuild the Mothercare brand, the company's return
to profit in the full year clearly demonstrates that the business has
responded to the first phase of the recovery programme.
Following the disposal of Bhs in May 2000 and the subsequent restructuring
of the Mothercare business, including the disposal of underperforming
stores, the 'ongoing' Mothercare business is based on 252 UK stores, 157
overseas franchise stores and the Mothercare Direct channel, comprising the
catalogue and web site.
The ongoing business achieved an operating profit of £7.1 million, compared
with £4.9 million last year on a 52 week basis. Sales in the ongoing
business increased by 4.7 per cent to £419.1 million, an increase of 2.9
per cent on a like-for-like basis. Within this, sales in the ongoing UK
stores increased by 3.7 per cent in the year and 3.6 per cent in the second
half, with a stronger performance in the fourth quarter. Operating profit
from UK stores was £4.7 million. International sales were up by 8.9 per
cent and sales through the Direct channels grew by 32.7 per cent. The
International business achieved an operating profit of £3.4 million (£2.7
million) and, as expected, Direct made an overall loss of £1.0 million
(£0.2 million profit), due to the operating costs associated with
Mothercare.com.
As a result of better buying and sourcing arrangements, combined with
better stock control and therefore lower markdown, gross margin increased
by 1.3 percentage points in the year.
Investment in training and service standards required as part of the
recovery programme was reflected in an increase in costs of 7.0 per cent.
This also includes the running costs of Mothercare.com and reflects higher
rents and rates in stores.
An interest credit of £3.1 million has benefited from the receipt of the
proceeds of the disposal of Bhs, of which £105.1 million was returned to
shareholders in August. Mothercare's overall profit before tax and
exceptional items increased to £10.2 million, compared to a loss of £6.1
million last year.
The effective rate of tax on earnings before exceptional charges was 12 per
cent due to the utilisation of tax losses generated in previous years.
Depending on the level of taxable profit in future years, it is not
anticipated that tax will be payable until the year ending March 2003.
A net exceptional credit of £4.9 million relates to the start-up costs of
Mothercare.com, the set up of the new warehouse at Daventry, other
separation costs associated with the Bhs disposal, the net profit on
disposal of stores and the release of the provision against the loss on
disposal of Bhs.
Earnings per share for the continuing business before exceptional items was
6.5p (2.2p loss per share). Given the early signs of sustainable growth,
the board has recommended a final dividend payment of 1.5p in respect of
the year 2000/01.
The balance sheet remains strong and able to support the investment
required to drive the continued recovery of the business in 2001/02.
Within this, the immediate priorities are the warehouse move this Summer
and continued work on product and service improvement. This will be
followed by the start of the roll-out of the large store format from
January 2002.
Current trading
Total sales in the eight weeks to 18 May 2001 were up by 12.8 per cent, 9.6
per cent on a like-for-like basis, with margins up year-on-year. This
reflects an improvement in performance since the end of January, with
clothing having returned to growth.
Recovery programme - phase one
The vision for Mothercare is to be the leading specialist retailer for
mothers-to-be and parents of young children, with expertise and service at
the heart of the offer. The total value of the maternity and pre-school
market in the UK today is estimated at around £3.4 billion and the average
spend per child is continuing to increase year-on-year. Combined with the
fact that more than 90 per cent of all first-time pregnant women go to
Mothercare for advice on products, Mothercare has a significant opportunity
to grow its share of the market from its current level of 11 per cent
through driving the sales density in the UK chain from a current average of
£187 per square foot.
In order to achieve this vision, a phased recovery programme commenced in
June 2000, as outlined at the interim results November. The objective of
the first phase of this programme was to achieve a turnaround which would
set the business firmly on the road to recovery and return it to
profitability.
The priority actions behind the first phase of Mothercare's recovery
programme have been:
- working on product, with a major focus on tackling clothing issues
- improving operating standards and service
- developing channels & formats, with a focus on Mothercare World and
Mothercare Direct.
The focus in phase one of recovery has been to address fundamental
operational issues in each of the above areas. This has been supported by
a restructuring in the business last Summer to achieve clearer
accountability for the recovery programme and by the reshaping and
strengthening of the senior management team.
Good progress has been made as a result of this work, including:
- continued strong growth in home & travel (sales up by 7.5 per cent)
- the stabilisation of clothing performance, with improving trends since
the end of January 2001
- increased availability of core lines
- improvements in store standards and service
- significant improvements in sales density at the model Mothercare
World store at Kew
- a significant uplift in sales through the Mothercare Direct catalogue.
As a result of these achievements, the business returned to profit and is
well positioned to continue to drive its recovery through phase two and
beyond.
Recovery programme - phase two
Building on this progress, key priorities in phase two of the recovery
programme, which commenced in March, are:
- moving to the new warehouse in August 2001
- the launch and performance of the clothing range for Autumn/Winter
2001
- rolling out the large store Mothercare World format from January 2002
The focus on driving improvements in service and operating standards will
continue throughout the second phase of the recovery programme.
The successful delivery of phase two of the recovery programme will provide
the platform for driving sustainable sales and profit growth in the future
and will be the basis for rebuilding the Mothercare brand.
New warehouse
The split from the Bhs business during the year has provided Mothercare
with the opportunity to move its distribution to a new warehouse facility.
Working with a new logistics partner, Tibbett & Britten, Mothercare will
move from the Bhs distribution facility at Atherstone in Warwickshire to a
dedicated, stocked warehouse in Daventry, Northamptonshire this Summer.
Built in 1999 and formerly occupied by C&A, the new warehouse will be fully
operational from August 2001, serving the UK and international stores. The
new warehouse provides a major opportunity for Mothercare to drive sales
through improvements in operating standards, service and product
availability.
The stock build for the new warehouse commences at the end of May 2001 and
company stock levels will therefore build during this transition. This
will be followed by a focused programme after August 2001 to deliver target
stock levels for the Spring/Summer 2002 launch.
Building a destination range - launch and performance of Autumn/Winter 2001
clothing
Sales of home & travel products continued to grow strongly for the fourth
consecutive year. Mothercare's market leadership in this area is built on
innovation and exclusivity, with an unrivalled 'destination' range offering
value through to premium product. The toy range is also being developed to
destination status and is beginning to achieve growth.
A similar model is now being applied in clothing to address issues which
contributed to the decline of Mothercare's clothing business over the past
five years. Following changes in the buying team last Spring, the focus
has been on building maternity, baby and pre-school children's ranges which
offer value through to premium product. New buying arrangements have
resulted in a larger proportion of clothing being sourced direct from
manufacturers and improvements in margin, flexibility and speed of
response.
Although early benefits of the clothing strategy have driven some sales and
margin improvement in a number of areas for Spring/Summer 2001, the effect
of work undertaken during the year will be seen to a greater extent in
Autumn/Winter 2001/02.
The overall performance of clothing has seen growth in maternity and
babywear offset by poor performance in older age ranges in the first half
and in the Christmas trading period. Since the introduction of the
Spring/Summer 2001 range at the end of January, a positive trend in
clothing performance has been seen.
Improving operating standards & service
Mothercare's vision of being a leading specialist retailer requires a
continual improvement in operating standards and service across the whole
organisation and is a key area for investment going forward. Improvement
is central to the recovery programme and driving future sales growth.
In order to strengthen the expertise required in stores, a training and
development programme has been introduced for over 4,000 sales associates,
focusing on improving product knowledge, selling skills and customer
service. This programme is supported by rigorous measurement on a regular
basis.
Product availability is essential in providing good customer service.
Stock availability issues are being tackled through work on buying
processes, with a particular focus on core lines and start of season
clothing availability. Improvements have already been achieved and further
significant benefits are anticipated when the new warehouse becomes fully
operational from August.
Developing channels & formats
UK stores:
The large-store Mothercare World format (10,000 sq ft and over), which
accounts for 55 per cent of total space, achieved sales growth of 8 per
cent in the year.
Further work on developing and testing the large store format has focused
on three stores: Kew and Milton Keynes (out-of-town) and Peterborough (high
street). Mothercare World provides more for the customer in terms of
product, environment and service. The stores include a cafe, play area and
internet links and are increasingly becoming a focal point for local groups
such as National Childbirth Trust classes to meet and share experiences and
local information. This approach encourages customers to spend longer in
the store, therefore driving up sales densities and has been particularly
successful in the out-of-town locations.
As outlined in November, there is potential to grow the Mothercare World
chain from the current 62 stores to at least 100 through a combination of
new locations and re-sites. In phase two activity will be focused on the
identification of new out-of-town sites and the commencement of the roll-
out in the fourth quarter. On the high street, the focus in the coming
year will be the continuation of the Mothercare World trial at Peterborough
and work on developing the small store format.
Sales for the year as a whole in the smaller Mothercare stores were flat,
with growth in the fourth quarter due to improvements in the range, service
and standards beginning to come through. Further benefits will be derived
from the implementation of the new warehouse and from the Autumn/Winter
clothing ranges.
The reshaping of the smaller stores portfolio will continue, with
identification of opportunities to resite or relocate to larger spaces and
some 11 store closures planned, representing approximately 2 per cent of
total space, for the current year. The costs of these closures have
already been provided.
Mothercare Direct:
The investment in skills and infrastructure to support the Direct business
over the last year have brought benefits to the whole of the Mothercare
business. A focus on driving sales through the mail order catalogue has
achieved a strong uplift and a new call centre has dramatically improved
service levels. Reflecting the large-store concept, the catalogue and web
site offer a wealth of parenting information and advice for mothers-to-be
and parents of young children. Since its 'hard' launch in September 2000,
on-line sales and visitor numbers at Mothercare.com have continued to grow
in line with expectations, with the site attracting around 60,000 visits
per week.
Mothercare International:
With the major focus on revitalising the UK business, activity in the
International operation has concentrated on consolidating and strengthening
relationships with franchise partners. Based on solid foundations in the
UK business, there will be significant opportunity to develop the
International business going forward.
Preliminary announcement of results
For the 52 weeks ended 31 March 2001 (2000 - 53 weeks ended 1 April 2000)
Before Exceptional
exceptional items
items (Note 1) Total
2001 2001 2001
Notes £m £m £m
Mothercare
continuing 419.1
Bhs discontinued 89.9
______
Turnover 509.0 - 509.0
______ ______ ______
Mothercare
continuing 7.1
Bhs discontinued (6.7)
______
Profit from retail
operations 0.4 (7.4) (7.0)
Exceptional items - 12.3 12.3
Interest 2 3.1 - 3.1
______ ______ ______
Profit/(Loss)
before taxation 3.5 4.9 8.4
Taxation (1.2) 1.2 -
______ ______ ______
Profit/(Loss) for
the financial year 2.3 6.1 8.4
===== ===== =====
Dividend per share 3
- Final and full
year 1.5p
Earnings per share 4
-pre exceptional
- Basic 6.5p 6.0p
- Diluted 6.5p 6.0p
Before Exceptional
exceptional items
items (Note 1) Total
2000 2000 2000
Notes £m £m £m
Mothercare
continuing 443.7
Bhs discontinued 822.4
________
Turnover 1,266.1 - 1,266.1
________ ________ ________
Mothercare
continuing 0.4
Bhs discontinued 13.1
________
Profit from retail
operations 13.5 (92.8) (79.3)
Exceptional items - (303.6) (303.6)
Interest 2 (6.5) - (6.5)
________ ________ ________
Profit/(Loss)
before taxation 7.0 (396.4) (389.4)
Taxation (0.3) - (0.3)
________ ________ ________
Profit/(Loss) for
the financial year
6.7 (396.4) (389.7)
======== ======== ========
Dividend per share 3
- Final and full
year -
Earnings per share 4
-pre exceptional
- Basic (2.2)p (152.7)p
- Diluted (2.2)p (152.1)p
CONTINUING BUSINESS BEFORE EXCEPTIONAL ITEMS
2001 2000
£m £m
Turnover 419.1 443.7
_______ _______
Retail profit 7.1 0.4
Interest 3.1 (6.5)
_______ _______
Profit/(Loss) before tax and
exceptionals 10.2 (6.1)
Taxation (1.2) 0.4
_______ _______
Profit/(Loss) after tax and
before exceptionals 9.0 (5.7)
_______ _______
Basic earnings per share 6.5p (2.2)p
GROUP BALANCE SHEET
As at 31 March 2001 (2000 - 1 April)
31 March 1 April
2001 2000
Notes £m £m
Fixed assets
Tangible fixed assets 87.7 319.6*
Investments 4.3 1.5
_______ _______
92.0 321.1
_______ _______
Current assets
Stocks 43.6 118.7
Debtors 32.4 65.2
Cash at bank and in hand and time
deposits 36.8 51.3
Creditors: amounts falling due
within one year 5 (71.0) (257.4)
_______ _______
Net current assets/(liabilities) 41.8 (22.2)
_______ _______
Creditors: amounts falling due
after one year 5 (2.4) (11.6)
Provisions for liabilities and
charges 6 (4.4) (61.7)
_______ _______
Net assets 127.0 225.6
_______ _______
Capital and reserves attributable
to equity interests
Called-up share capital 35.3 42.4
Share premium account - 31.7
Profit and loss account 91.7 151.5
_______ _______
Shareholders' funds 7 127.0 225.6
_______ _______
Net cash (debt)/ equity % 27.4 (30.8)
* after reflecting the provision for the loss on the disposal of Bhs
ANALYSIS OF NET CASH/(DEBT)
31 March 1 April
2001 2000
£m £m
Cash at bank 26.8 15.0
Time deposits 10.0 36.3
Bank overdrafts and bank loans -
(20.7)
Bills of exchange and bank loans -
(93.5)
Bank loans over one year - (2.5)
Obligations under finance leases:
- short term (2.0) (2.0)
- long term - (2.0)
_______ _______
Net cash/(debt) 34.8 (69.4)
_______ _______
The bank loans were repaid early on the sale of Bhs in May 2000.
GROUP CASH FLOW
For the 52 weeks ended 31 March 2001 (2000 - 53 weeks ended 1 April 2000)
52 weeks ended 31 March 2001 53 weeks
ended
Mothercare Bhs 1 April
continuing discontinued Total 2000
£m £m £m £m
Profit from retail
operations before
exceptional items 7.1 (6.7) 0.4 13.5
Depreciation 11.4 7.1 18.5 66.6
Working capital 9.9 3.6 13.5 20.4
Exceptional costs/other (24.3) (4.0) (28.3) (5.3)
_______ _______ _______ _______
Net cashflow from
operating activities 4.1 - 4.1 95.2
Returns on investments
and servicing of finance
3.1 - 3.1 (6.5)
Taxation 2.9 - 2.9 (0.6)
Capital expenditure
Purchase of tangible
fixed assets (11.2) (6.3) (17.5) (92.5)
Sale of tangible fixed
assets 9.5 2.1 11.6 49.0
_______ _______ _______ _______
(1.7) (4.2) (5.9) (43.5)
_______ _______ _______ _______
Trading cash flow 8.4 (4.2) 4.2 44.6
_______ _______
Acquisitions and
disposals
Disposal of Bhs
(Note 1) 208.9 -
Acquisition of
Mothercare shares by
Employee Trust (3.8) -
________ _______
205.1 -
________ _______
Equity dividends paid - (22.8)
_______ _______
209.3 21.8
Management of liquid 26.3 (2.0)
resources
Financing
Scheme of arrangement -
reduction in share
capital (105.1) -
Other (98.0) (17.3)
________ _______
(203.1) (17.3)
_______ _______
Increase in cash in the
period 32.5 2.5
________ _______
RECONCILIATION OF NET
CASH FLOW TO MOVEMENT IN
NET CASH/(DEBT)
Increase in cash in the
period 32.5 2.5
Cash flow from liquid
resources (26.3) 2.0
Cash flow from financing
98.0 17.3
_______ _______
Movement in net
cash/(debt) in the
period 104.2 21.8
Net debt at the
beginning of the period (69.4) (91.2)
_______ _______
Net cash/(debt) at the
end of the period 34.8 (69.4)
_______ _______
1. Exceptional Items
The exceptional items can be summarised as follows:
2001 2001 2000 2000
Cont- Discont- 2001 Cont- Discont- 2000
inuing inued Total inuing inued Total
£m £m £m £m £m £m
Cost of sales
(7.4) - (7.4) (40.3) (43.6) (83.9)
Administrat-
ive expenses - - - (8.0) (0.9) (8.9)
______ ______ _____ _____ _____ _____
Total charged
to retail
profit/
(loss) (a) (7.4) _ (7.4) (48.3) (44.5) (92.8)
Profit/
(loss) on
disposal of
Stores (b) 3.5 - 3.5 7.2 (3.4) 3.8
Provision for
costs of
separation (c) (9.9) - (9.9) (6.8) - (6.8)
Loss on
disposal of
Bhs (d) - 18.7 18.7 - (300.6) (300.6)
_____ _____ _____ _______ _______ _______
Total
exceptional
items (13.8) 18.7 4.9 (47.9) (348.5) (396.4)
______ _______ _____ _______ _______ _______
(a) Exceptional items charged to the profit from retail operations -
Mothercare.com
The group charged £7.4 million in relation to the start up of
Mothercare.com during the first half of the year. £3.6 million was
charged in the previous year.
(b) Profit/(loss) on disposal of stores
The property disposal programme has continued and has generated a profit
of £3.5 million and cash of £9.5 million during the year. In the prior
year Mothercare generated a profit of £7.2 million and cash of £18.6
million on the disposal programme.
(c) Costs of separation of Bhs and Mothercare
The group has charged £9.9 million in relation to the set up of its new
distribution facility at Daventry as a result of the impending move from
the Bhs Atherstone facility and other costs associated with the
separation of IT facilities and the closure of the old Storehouse offices
at Marylebone Road. Separation costs in the prior year amounted to £6.8
million.
(d) Loss on disposal of Bhs
On 22 May 2000, the group completed the disposal of Bhs to Measuremarket
and received £208.9 million, net of the direct costs of disposal of £3.6
million. Last year the group provided for the estimated loss on the
disposal of Bhs at 1 April 2000 of £300.6 million. After taking account
of Bhs trading up to the date of the disposal and the final outcome of
the negotiations, we have been able to release £18.7 million in the year
to March 2001 which has been credited to the profit and loss account as
an exceptional item.
2. Interest
2001 2000
£m £m
Interest receivable 4.3 2.4
Interest payable - banks loans and
overdrafts (1.1) (8.1)
Obligations under property leases - (0.6)
Obligations under finance leases (0.1) (0.2)
______ ______
3.1 (6.5)
====== ======
3. Dividend
A final dividend of 1.5p per share has been proposed and will be
payable, if approved by shareholders, on 17 August 2001 to ordinary
shareholders on the register at the close of business on 29 June 2001.
The total cost of the dividend is £1.0 million. There was no dividend
paid in the previous year.
4. Earnings per share
Earnings per share have been adjusted to take account of the impact of
the capital reduction and subsequent share consolidation on 17 August
2000. The weighted average number of shares in issue in the period and
the prior year comparatives have been restated accordingly.
52 weeks 53 weeks
ended ended
31 March 1 April
2001 2000
Weighted average number of shares in
issue 138.8m 255.2m
Dilution:
Option schemes 0.3m -
LTIP schemes - 1.0m
_______ _______
Diluted weighted average number of
shares in issue 139.1m 256.2m
_______ _______
Profit/(loss) after tax £8.4m £(389.7)m
Continuing business profit/(loss)
after tax before exceptional items £9.0m £(5.7)m
Basic earnings/(loss) per share 6.0p (152.7)p
Continuing business earnings/(loss)
per share before exceptional items 6.5p (2.2)p
Diluted earnings/(loss) per share 6.0p (152.1)p
The earnings per share of the continuing business before exceptional
items have been shown to eliminate the impact of the disposal of Bhs.
5. Creditors
31 March 1 April
2001 2000
Due within one year £m £m
Bank overdrafts - 20.7
Bills of exchange and bank loans - 93.5
Obligations under finance leases 2.0 2.0
Trade creditors 22.3 43.8
Current taxation 11.0 10.5
Payroll and other taxes, including
social security 1.5 6.0
Dividend payable 1.0 -
Accruals and deferred income 31.9 71.1
Landlords' contributions 1.1 6.6
Other creditors 0.2 3.2
_______ _______
71.0 257.4
_______ _______
Due after one year
Bank loans - 2.5
Obligations under finance leases - 2.0
Corporation tax - 0.3
Landlords' contributions 2.4 6.8
_______ _______
2.4 11.6
_______ _______
6. Provisions for liabilities and charges
Deferred Disposal Exceptional
tax provisions provisions Total
£m £m £m £m
Balance at 1 April
2000 44.7 0.3 16.7 61.7
Tax charge 0.6 - - 0.6
Disposal of
subsidiary (45.3) - (6.3) (51.6)
Utilised - (0.2) (6.1) (6.3)
_______ _______ _______ _______
Balance at 31 March
2001 - 0.1 4.3 4.4
_______ _______ _______ _______
The exceptional provisions principally represent the costs of the
Mothercare store disposal programme.
7. Reconciliation of movement in shareholders' funds
2001 2000
£m £m
Profit/(loss) for the financial year 8.4 (389.7)
Dividend (1.0) -
Impact of capital reduction (106.0) -
_______ _______
Net decrease in shareholders' funds (98.6) (389.7)
Opening shareholders' funds 225.6 615.3
_______ _______
Closing shareholders' funds 127.0 225.6
_______ _______
Note:
The group has adopted FRS 16 (current taxation) and FRS 18 (accounting
policies) in the current year. There have been no changes to the accounts
as a result of the adoption of these standards.
This preliminary announcement of results does not constitute statutory
accounts. The preliminary announcement has been extracted from the
statutory accounts of Mothercare plc for 2001, on which the auditors have
given an unqualified auditors' report and which have not yet been filed
with the Registrar of Companies.
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