Mothercare Plc : Half-yearly report
MOTHERCARE PLC
Interim Results
Group returns to half-year profit
Mothercare plc, the leading international mother and baby specialist, today announces Interim results for the 28-week period to 12 October 2013.
Highlights for H1 FY2013/14
Financial highlights
Group returns to half year profit with underlying profit before tax of £2.0 million
Worldwide network sales2 up 4.4%1 to £637.7 million; total International sales up 13.0%1 and total UK sales down 7.5%
International like-for-like sales up 4.8%1; UK like-for-like sales (1.4%), on an improving trend from (3.4%) last year
Underlying International profits up 13.5% to £25.2 million and underlying UK losses reduced by £2.0 million to £14.9 million
Net debt of £48.0 million with banking facilities refinanced
Operating highlights
International space up 11.9%1 with 1,156 stores in 59 countries
Reshaping of UK business continued with the closure of an additional 18 loss making stores and refits in some key stores
Growth in total Direct sales, with click-and-collect now in all stores in advance of peak trading
Award winning mobile app; mobile visits now represent 33% of all website traffic
Further product innovation with 30% newness in our toy range for Christmas
Group performance4
| H1 2013/14 | H1 2012/13 | ||
| 28 weeks to | 28 weeks to | % change | |
| 12 Oct 2013 | 13 Oct 2012 | vs. | |
| £million | £million | last year | |
| Group | |||
| Worldwide network sales2 | 637.7 | 611.11 | +4.4 |
| Total group sales | 376.3 | 384.11 | (2.0) |
| Group underlying profit / (loss) before tax | 2.0 | (1.8) | - |
| Exceptional charge & non-underlying items | (13.0) | (26.8) | - |
| Group loss before tax after exceptionals | (11.0) | (28.6) | - |
| Underlying EPS | 1.9p | (1.7p) | - |
| Net debt | (48.0) | (29.8) | +61.1 |
| International | |||
| International like-for-like sales2 | +4.8%1 | +4.4%1 | - |
| Total International sales | 399.3 | 353.51 | +13.0 |
| Underlying International profit | 25.2 | 22.2 | +13.5 |
| UK | |||
| UK like-for-like sales2 | (1.4%) | (3.4%) | - |
| Total UK sales | 238.4 | 257.6 | (7.5) |
| Underlying UK loss | (14.9) | (16.9) | - |
Alan Parker, Chairman of Mothercare plc, said:
"The Group has delivered its first half year underlying profit since 2010/11. International has continued to see double-digit growth and the UK has seen losses reduced. Our geographic diversification has supported these results amid some challenging trading conditions. The business is moving to a firmer footing."
Simon Calver, Chief Executive of Mothercare plc, said:
"The benefits of the changes we are making to the business are clear, with a return to underlying profit. Our International business continues to deliver double-digit growth and the opportunities in these markets remain.
"In the UK, online sales are growing and customer surveys indicate improving satisfaction rates. The newly launched CRM capability will help us improve service levels further as we align our offer to our customers' needs. We continue to target a return to profit in the UK and the reduced UK operating loss this half year is a step in the right direction.
"We are planning for consumer spending to remain subdued in the UK during the second half of the year. We have made progress with our Transformation and Growth plan, but there is more to do. We continue to strengthen our position, becoming the world's leading mother and baby specialist."
Enquiries to:
Mothercare plc
Matt Smith, Chief Financial Officer
Ramona Tipnis, Director of Investor Relations 01923 206455
Tulchan Communications
Katharine Wynne 020 7353 4200
Notes:
1 - This is on a comparable basis and excludes Australia and New Zealand from FY2012/13.
2 - UK like-for-like sales are defined as sales from stores that have been trading continuously from the same selling space for at least a year and include Direct in Home and Direct in Store.
International retail sales are the estimated total retail sales of overseas franchise and joint venture partners to their customers. International like-for-like sales are the estimated franchisee retail sales from stores that have been trading continuously from the same selling space for at least a year.
Total International sales are International retail sales plus International Wholesale sales. Worldwide network sales are total International sales plus total UK sales. International stores refer to overseas franchise and joint venture stores.
3 - Direct in Home refers to all online sales made outside of the store network for delivery to store or to our customers' homes. Direct in Store relates to all sales made via our web-enabled tills for product to be delivered either to store or to our customers' homes.
4 - The net interest charge and consequently underlying profit before tax for H1 2012/13 have been restated to reflect the impact of the amendment to IAS19 "Employee Benefits". Full details can be found in Note 2 of the Financial Review.
5 - This announcement contains certain forward-looking statements concerning the Company. Although the Board believes its expectations are based on reasonable assumptions, the matters to which such statements refer may be influenced by factors that could cause actual outcomes and results to be materially different. The forward-looking statements speak only as at the date of this document and the Company does not undertake any obligation to announce any revisions to such statements, except as required by law or by any appropriate regulatory authority.
6 - Mothercare plc will release its Q3 Trading Update for the 13 weeks to 11 January 2014 on Thursday 16 January 2014.
CHIEF EXECUTIVE'S REVIEW
Overview
The changes we are making to the business are beginning to have an impact, but there is more to do. We have made progress against the four pillars of our Transformation and Growth plan:
Operate a lean retail structure;
Return the UK to profitability;
Drive International growth; and
Build a multi-channel business.
Together with our partners, we have 4.3 million sq.ft. across 1,393 stores in 60 markets worldwide. International now accounts for circa 60% of space and worldwide network sales and our business structures clearly reflect the needs of a global business.
We are reshaping the UK business by closing loss making stores in the UK; investing where appropriate in stores; restructuring business processes; improving product, service and value; and investing in online both in the UK and for our International partners. Despite trading conditions in some of our markets being challenging, International has continued to grow and losses in the UK are shrinking.
Return to profit at Group level
After losses at the half year stage since 2010/11 and in the midst of a challenging trading environment both in the UK and in some of our overseas markets, the return to underlying profit for the first half of the year is encouraging.
Group underlying profit before tax was £2.0 million (H1 2012/13: loss of £1.8 million). International profits were up 13.5% at £25.2 million (H1 2012/13: £22.2 million) while underlying UK losses were reduced to £14.9 million (H1 2012/13: loss of £16.9 million). Corporate expenses were flat at £4.2 million (H1 2012/13: £4.2 million), while underlying interest charges and the cost of share based payments were up at £4.1 million (H1 2012/13: £2.9 million). After exceptional items and other non-underlying charges of £13.0 million (H1 2012/13: £26.8 million), the reported loss before tax was reduced to £11.0 million (H1 2012/13: loss of £28.6 million). These exceptional charges relate to restructuring costs of £5.1 million, non-cash foreign exchange adjustments of £7.4 million and amortisation of intangibles of £0.5 million.
Worldwide network sales were up 4.4%1 at £637.7 million (H1 2012/13: £611.1 million1). Total International sales were up 13.0%1 at £399.3 million (H1 2012/13: £353.5 million1) and total UK sales were down 7.5% at £238.4 million (H1 2012/13: £257.6 million). Group sales, which reflect total UK sales and reported revenues from our International partners were down 2.0%1 at £376.3 million (H1 2012/13: £384.1 million1).
Space across all our markets was up 3.7%1 year-on-year. In line with our strategy of closing loss making stores in the UK, we closed a further 18 stores and reduced space by 6.0% year-on-year to 1.8 million sq.ft.. In International we opened a net 87 stores and grew space, across all 59 countries, by 11.9%1 year-on-year to 2.5 million sq.ft..
Net debt at the end of the half-year was £48.0 million (H1 2012/13: £29.8 million), and was impacted by anticipated restructuring costs of £10.8 million. The net debt will improve as we progress through peak trading and it remains well within our banking facilities of £90 million, which we recently refinanced. We have extended our banking facilities out to May 2017 while also increasing flexibility and reducing our cost of borrowing.
Double-digit growth from International
| H1 2013/14 | H1 2012/13 | ||
| 28 weeks to | 28 weeks to | % change | |
| 12-Oct-13 | 13-Oct-12 | vs. last year | |
| International like-for-like sales growth | +4.8% | +4.4% | - |
| International retail sales | £395.5m | £349.1m | +13.3% |
| International wholesale sales | £3.8m | £4.4m | (13.6%) |
| Total International sales | £399.3m | £353.5m | +13.0% |
| Underlying profit | £25.2m | £22.2m | +13.5% |
The above numbers are on a comparable basis and exclude Australia and New Zealand from H1 2012/13
Our International business delivered another year of double-digit growth with space up 11.9%1, total sales up 13.0%1 and underlying profit up 13.5%. International like-for-like sales growth was up 4.8%1 with positive like-for-like and total sales growth from each of our four regions.
Our franchise partners now have 1,156 stores in 59 countries, which trade from 2.5 million sq.ft. of space and transactional e-commerce sites in six countries. The importance of our International business continues to grow and it now accounts for 58.6% of worldwide space and 62.6% of worldwide network sales.
International retail sales were up 13.3%1 at £395.5 million (H1 2012/13: £349.1 million1). Over the course of the first half of the year the currency benefit has reversed. Whilst the first quarter saw a currency benefit of 2.8%, the second quarter was negatively impacted by 0.2%. Even so, our International business delivered double-digit growth in retail sales, demonstrating the strength of the business and the benefit of its geographic diversification. Reported International sales were up 9.1% at £137.9 million (H1 2012/13: £126.5 million1).
Our largest region, Europe, continues to grow. The region now has 475 stores in 27 countries. Since the end of the year a net 42 stores were opened and have increased space by 5.5% year-on-year.
The Middle East and Africa now has 317 stores in 13 countries. Since the end of the year eight stores were opened, increasing space by 8.9% year-on-year. The exceptionally hot summer had a negative impact on post-Ramadan footfall during the first half.
Asia continues to offer good growth opportunities and our franchise partners in this region now have 318 stores. Since the end of the year a further 28 stores have been added, which has increased space by 27.2% year-on-year. India and China continue to offer good growth opportunities as we continue to establish ourselves as the leading mother and baby brand in these markets.
Our newest region, Latin America, now has 46 stores in seven countries. A further nine stores were opened during the first half of the year, which has increased space by 49.6% year-on-year.
International profits were up 13.5% at £25.2 million (H1 2012/13: £22.2 million) with retail profits of £25.4 million (H1 2012/13: £23.0 million) and joint venture losses reduced to £0.2 million (H1 2012/13: £0.8 million).
We continue to work closely with our franchise partners. Together we continue to see growth opportunities across all four of our regions.
UK losses reduced
| H1 2013/14 | H1 2012/13 | ||
| 28 weeks to | 28 weeks to | % change | |
| 12-Oct-13 | 13-Oct-12 | vs. last year | |
| UK like-for-like sales growth | (1.4%) | (3.4%) | - |
| UK direct sales | £66.7m | £60.9m | +9.5% |
| UK retail sales (including direct) | £222.2m | £240.0m | (7.4%) |
| UK wholesale sales | £16.2m | £17.6m | (8.0%) |
| Total UK sales | £238.4m | £257.6m | (7.5%) |
| Underlying loss | (£14.9m) | (£16.9m) | +11.8% |
Our aim in the UK is to build an omni-channel business supported by a flexible online business and a profitable core store portfolio.
Over the first half of this year, we have made further progress towards our goal of returning the UK to profitability. Underlying UK losses were reduced to £14.9 million (H1 2012/13: £16.9 million) during the first half.
Since the end of the year, we have closed an additional 18 loss making stores (five Mothercare and 13 Early Learning Centre) and our UK business now operates from 237 stores (191 Mothercare and 46 Early Learning Centre), compared to 311 stores (209 Mothercare and 102 Early Learning Centre) at the end of FY 2011/12. As a result we have reduced our loss making space in the UK retail network by 35k sq.ft. leaving us with 1.8 million sq.ft. of selling space.
Over the first half of the year we have further invested in our largest stores. We have transformed our Oxford Street and Romford stores and have also converted our store in Rotherham to an outlet store selling prior season stock. This is in addition to the investment in stores completed last year and together with our work in product and value it is changing our customers' experience.
This reduction in space over the last 18 months (74 stores and 176.2k sq.ft.) has had an impact on total UK sales, which were down 7.5% at £238.4 million (H1 2012/13: £257.6 million). UK like-for-like sales, whilst down 1.4% during the first half, are on an improving trend from a decline of 3.4% last year. Direct has benefited from the investments we have made and the resulting improvement in customer service.
Direct in Home3 was up 11.6% at £48.0 million (H1 2012/13: £43.0 million) and Direct in Store3 was up 4.1% at £18.7 million (H1 2012/13: £17.9 million) over the first half of the year. Together they now account for 28.0% of total UK sales and are continuing to grow. Our award winning mobile app has helped drive visits to our online site with circa 33% of all visits now from a mobile device (including apps). The introduction of free next-day click-and-collect to all Mothercare stores in May this year and its extension at the beginning of the second half of the year to all Early Learning Centre stores means our customers can take advantage of this service over the peak Christmas trading period. Click-and-collect now accounts for over 36% of all Direct in Home sales. This is important because online customers spend twice as much as our store only customers and multi-channel customers spend twice as much again.
We have continued to manage the business to optimise cash gross margin. This means maximising profit while ensuring our products are competitively priced; reflecting promotions and offers in the market. We launched the AW13 clothing range with a Buy-One-Get-One-Half-Price offer, at a time of unseasonably warm weather and this negatively impacted our clothing margin performance. We also took the decision to clear end-of-line nursery furniture ahead of the launch of new nursery room-sets in our largest 90 stores. As a result, gross margins were down circa 200 basis points during the first half of the year, but we end the half year with a cleaner stock position.
The benefit of our investment in improving customer service is clear with 'highly satisfied' scores rapidly becoming the norm. In addition, we are now beginning to amalgamate details of our customers' shopping patterns across all channels. We have just completed the roll-out of eReceipts that will not only give our customers an electronic copy of their receipts with us, but will also give us greater insight into their shopping habits.
We have built on the progress made in Clothing. Our product reflects current fashion trends and pricing is now at a competitive level and we have seen market share grow both in terms of volume and value. Our Value Essentials ranges and more premium Baby K and Little Bird ranges continue to perform well. In addition our re-launched maternity range, Blooming Marvellous, has been well received; winning the Prima Baby Reader Awards 2013 - bronze for maternity clothes and gold for maternity lingerie. The range is meeting the price expectations of our customers, offering them both quality and design at accessible prices. We are the market leader in this segment with over 15% share in maternitywear and nearly a third in maternity essentials.
Whilst the Home & Travel segment remains challenging, we are continuing to strengthen our position with new product launches that are competitively priced. For example, the Xpedior our most popular mid-priced pushchair, is now in five colours and will soon be sold in two chassis - the original four-wheeler and the new three-wheeler. Over the summer months we introduced furnished room-sets into our largest 90 Mothercare stores. The response to the new ranges, displayed in a more customer-friendly environment has resulted in an uplift in sell-through rates.
We remain the market leader in Home & Travel with over a quarter of UK sales in value terms for this category. Our importance in this segment and the improvements we have made in store are helping us make headway with the brands as demonstrated by the recent exclusive offers with Bugaboo for the Buffalo and Andy Warhol pushchairs.
We continue to invest in our Early Learning Centre ranges. For the third season in a row, a third of our product is new, reflecting our investment in innovation. The recently launched Toy Box range is a good example of this. It has been launched in time for Christmas and looks set to be a strong performer. Our top-12 toys for Christmas are in all Early Learning Centre stores and inserts and we are looking forward to peak trading.
Summary and outlook
During the first half of the year, the operating loss in the UK was reduced and the double-digit improvement in International profit, resulted in an underlying Group profit. This is after two years of reporting a loss at the half year. We have made further progress both in the UK and across our International markets, despite trading conditions being challenging in some of our markets.
Our International businesses continue to deliver double-digit growth and we see further opportunity in these markets.
In the UK we have made significant progress with product, stores, service and how we engage with our customers across all channels. We are making progress towards putting the UK business on a firmer footing and ultimately achieving our goal of profitability. However, we expect consumer spending to remain subdued for the rest of the year.
We have great teams in place and everyone at Mothercare is working towards making this a stronger business. I know that the changes we are making will have a lasting impact and I look forward to building on this in the years ahead.
FINANCIAL REVIEW
RESULTS SUMMARY
Group underlying profit before tax was £2.0 million, for the 28 weeks to 12 October 2013, (H1 2012/13: £1.8 million loss). Underlying profit excludes exceptional items and other non-underlying items which are analysed below. Exceptional items include a major structural and operational review of the business. After exceptional and non-underlying items, the group recorded a pre-tax loss of £11.0 million (H1 2012/13: loss of £28.6 million).
Income statement
| £ million | H1 13/14 | H1 12/13 | FY 12/13 |
| Restated* | Restated* | ||
| Revenue | 376.3 | 388.4 | 749.4 |
| Underlying profit from operations before share based payments | 6.1 | 1.1 | 12.7 |
| Share based payments | (0.4) | 0.1 | (0.9) |
| Net finance costs | (3.7) | (3.0) | (5.9) |
| Underlying profit/(loss) before tax | 2.0 | (1.8) | 5.9 |
| Exceptional items and unwind of discount on exceptional provisions | (5.1) | (24.5) | (35.7) |
| Non-cash foreign currency adjustments | (7.4) | (1.8) | 6.9 |
| Amortisation of intangible assets | (0.5) | (0.5) | (1.0) |
| Loss before tax | (11.0) | (28.6) | (23.9) |
| Underlying EPS - basic | 1.9p | (1.7p) | 4.2p |
| EPS - basic | (9.8p) | (28.1p) | (26.9p) |
* Restated for amendments to IAS 19 as explained in Note 2.
Profit from operations before share based payments includes all of the group's trading activities, but excludes the share based payment (charge)/credit to the income statement in accordance with IFRS 2 (see below).
Non-underlying items
Underlying profit/(loss) before tax excludes the following non-underlying items (see note 4):
Exceptional items:
Major structural and operational review of the business totalling £5.1 million.
Other non-underlying items:
Non-cash adjustments principally relating to marking to market of commercial foreign currency hedges at the period end. As hedges are taken out to match future stock purchase commitments, these are adjustments which we are required to make under IAS 39 and IAS 21. These standards require us to revalue stock and our commercial foreign currency hedges to spot. This volatile adjustment does not affect the cash flows or ongoing profitability of the group and reverses at the start of the next accounting period.
Amortisation of intangible assets (excluding software).
Results by segment
The primary segments of Mothercare plc are the UK business and the International business.
| £ million - Revenue | H1 13/14 | H1 12/13 | FY 12/13 |
| UK | 238.4 | 257.6 | 499.7 |
| International | 137.9 | 130.8 | 249.7 |
| Total | 376.3 | 388.4 | 749.4 |
| £ million - Underlying profit/(loss) | H1 13/14 | H1 12/13 | FY 12/13 |
| Restated* | Restated* | ||
| UK | (14.9) | (16.9) | (21.6) |
| International | 25.2 | 22.2 | 42.1 |
| Corporate | (4.2) | (4.2) | (7.8) |
| Underlying profit from operations before share based payments | 6.1 | 1.1 | 12.7 |
| Share based payments | (0.4) | 0.1 | (0.9) |
| Net finance costs | (3.7) | (3.0) | (5.9) |
| Underlying profit/(loss) before tax | 2.0 | (1.8) | 5.9 |
* Restated for amendments to IAS 19 as explained in Note 2.
UK retail sales have declined year-on-year due to store closures and negative like-for-like sales across the store estate partly offset by growth of 11.6% in the Direct in Home channel. Results have however benefited from the removal of 18 loss making stores during the period and delivering planned cost savings.
International retail sales have increased 4.7% on a constant currency basis (11.9% excluding Australia) with all four regions delivering positive growth (after excluding Australia). Reported sales are up 5.4% (including Australia). Profit has benefited from increased retail sales and reduction in joint venture losses.
Corporate expenses represent board and company secretarial costs and other head office costs including audit, professional fees, insurance and head office property.
Share based payments
Underlying profit before tax also includes a share based payments charge of £0.4 million (H1 2012/13: £0.1 million credit) in relation to the company's long-term incentive schemes.
Like-for-like sales, total International sales and network sales
Like-for-like sales are defined as sales for stores that have been trading continuously from the same selling space for at least a year and include Direct in Home and Direct in Store.
International retail sales are the estimated retail sales of overseas franchisees and joint ventures and associates to their customers (rather than Mothercare sales to franchisees as included in the statutory or reported sales numbers). Total International sales are International retail sales plus International wholesale sales. Group network sales are total International sales plus total UK sales. Group network sales and reported sales are analysed as follows:
| £ million | Reported sales | Network sales* | ||||||
| H1 13/14 | H1 12/13 | % | FY 12/13 | H1 13/14 | H1 12/13 | % | FY 12/13 | |
| UK retail sales | 222.2 | 240.0 | (7.4) | 468.2 | 222.2 | 240.0 | (7.4) | 468.2 |
| UK wholesale sales | 16.2 | 17.6 | (8.0) | 31.5 | 16.2 | 17.6 | (8.0) | 31.5 |
| Total UK sales | 238.4 | 257.6 | (7.5) | 499.7 | 238.4 | 257.6 | (7.5) | 499.7 |
| International retail sales | 134.1 | 126.4 | 6.1 | 242.0 | 395.5 | 374.8 | 5.5 | 721.0 |
| International wholesale sales | 3.8 | 4.4 | (13.6) | 7.7 | 3.8 | 4.4 | (13.6) | 7.7 |
| Total International sales | 137.9 | 130.8 | 5.4 | 249.7 | 399.3 | 379.2 | 5.3 | 728.7 |
| Group sales | 376.3 | 388.4 | (3.1) | 749.4 | 637.7 | 636.8 | 0.1 | 1,228.4 |
* Estimate
Financing and taxation
Financing represents interest receivable on bank deposits, interest payable on borrowings, the amortisation of costs relating to bank facility fees and the net interest charge on the liabilities/assets of the pension scheme (see note 5).
The underlying tax charge is comprised of current overseas taxes incurred and is offset by UK deferred tax. The total tax credit was £2.3 million (H1 2012/13: credit of £3.7 million) - see note 6.
Pensions
The Mothercare defined benefit pension schemes were closed with effect from 30 March 2013. Details of the income statement net charge, total cash funding and net assets and liabilities are as follows:
| £ million | H1 13/14 | H1 12/13 | FY 12/13 |
| Restated* | Restated* | ||
| Income statement | |||
| Service cost | - | (1.3) | (2.4) |
| Running costs | (0.6) | (0.4) | (0.8) |
| Net (interest on liabilities)/return on assets | (1.5) | (1.4) | (2.6) |
| Gains on curtailment | - | - | 3.3 |
| Net charge | (2.1) | (3.1) | (2.5) |
| Cash funding | |||
| Regular contributions | (0.5) | (1.0) | (2.0) |
| Deficit contributions | (2.6) | - | (5.2) |
| Total cash funding | (3.1) | (1.0) | (7.2) |
| Balance sheet | |||
| Fair value of schemes' assets | 242.4 | 219.5 | 234.8 |
| Present value of defined benefit obligations | (298.2) | (271.0) | (296.4) |
| Net liability | (55.8) | (51.5) | (61.6) |
* Restated for amendments to IAS 19 as explained in Note 2.
The gains on curtailment in FY 12/13 were due to the closure of the Mothercare Staff and the Mothercare Executive Pension schemes.
In consultation with the independent actuaries to the schemes, the key market rate assumptions used in the valuation and their sensitivity to a 0.1% movement in the rate are shown below.
| H1 13/14 | H1 12/13 | 2013/14 Sensitivity | 2013/14 Impact on scheme liabilities £ million | |
| Discount rate | 4.6% | 4.5% | +/- 0.1% | -/+£7.0m |
| Inflation - RPI | 3.4% | 2.7% | +/- 0.1% | +/-£6.0m |
| Inflation - CPI | 2.4% | 1.7% | +/- 0.1% | +/-£6.0m |
Balance sheet and cash flow
The balance sheet includes identifiable intangible assets arising on the acquisition of the Early Learning Centre of £7.1 million and goodwill of £26.8 million. These assets are allocated to the International business.
The group is seasonal with much of the cash generation in the second half. In the first half the group had a cash outflow from operations of £5.3 million mainly reflecting exceptional cash flows for property, and other restructuring costs.
We have made further investment in our Chinese joint venture during this year of £2.1 million to drive growth and have opened 15 new stores during the period taking the total to 53.
After investing £5.3 million of capital expenditure (£5.1 million net of lease incentives received), the net debt position at the half year end is £48.0 million (H1 2012/13: net debt of £29.8 million).
Going concern
The group's objective with respect to managing capital is to maintain a balance sheet structure that is both efficient in terms of providing long-term returns to shareholders and safeguards the group's ability to continue as a going concern. As appropriate, the group can choose to adjust its capital structure by issuing new shares or varying the level of capital expenditure.
On 18 October 2013, the group refinanced with the support of its two existing banks, HSBC and Barclays, amending its committed facilities of £90 million to a term loan of £40 million and a revolving credit facility of £50 million (at an interest rate range of 2.5 per cent to 3.5 per cent above LIBOR) maturing in May 2017. These facilities provide the liquidity and covenant headroom to accommodate the group's strategy. The covenants in the new facilities are tested quarterly and are based around gearing, fixed charge cover and guarantor cover.
The group continues to implement the conclusions of the structural and operational review of the size and scope of its business that was carried out in early 2012. The focus remains to stabilise like-for-like sales and margin, reduce the UK central costs, close additional UK stores to focus on 200 profitable stores, accelerate international expansions (with more store openings in both new and existing countries) and launch combined online and in-store customer options with a new website in the UK and 30 new overseas websites. The resulting strategy will deliver a transformation of the UK businesses, together with increased International growth over the same period.
The £50m term loan has been fully drawn down throughout H1 FY14. The RCF was drawn to a maximum of £24.3m in September 2013, the seasonal peak for borrowing requirements, giving a total borrowing of £74.3m with a further £15.7m of available facility.
The current challenging economic conditions, particularly the difficult consumer and retail environment, create uncertainty around the level of demand for the group's products. However, with the new banking facilities in place, the long-term contracts with its franchisees around the world, long standing relationships with many of its suppliers and other mitigating actions available, the directors believe the group is well placed to manage its business risks successfully despite the uncertain economic outlook.
The group's latest forecasts and projections, which incorporate the continued execution of the 'Transformation and Growth' plan, have been sensitivity-tested for reasonably possible adverse variations in trading performance. This indicates the group will operate within the terms of its borrowing facilities and covenants for the foreseeable future. To the extent that future trading is worse than a reasonably possible downside, which the directors do not consider a likely scenario, there are mitigating actions available which enable the group to continue to operate within the terms of the borrowing facilities and covenants for the foreseeable future.
After considering the forecasts, sensitivities and mitigating actions available to management, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements are prepared on the going concern basis.
Capital expenditure
Total capital expenditure for the half year was £5.3 million (H1 2012/13: £8.2 million), of which £1.5 million was for software intangibles and £3.8 million for tangible fixed assets. Landlord contributions of £0.2 million (H1 2012/13: £2.1 million) were received, partially offsetting the £5.3 million outflow. Net capital expenditure after landlord contributions was £ 5.1 million (H1 2012/13: £6.1 million).
Earnings per share and dividend
Basic underlying earnings per share were 1.9 pence compared to a loss of 1.7 pence last year. The Board has decided that given the continued cash investment required to deliver the 'Transformation and Growth' plan the company will not pay an interim dividend for 2013/14
(H1 2012/13: nil).
Treasury policy and financial risk management
The Board approves treasury policies and senior management directly controls day-to-day operations within these policies. The major financial risk to which the group is exposed relates to movements in foreign exchange rates and interest rates. Where appropriate, cost effective and practicable, the group uses financial instruments and derivatives to manage the risks.
No speculative use of derivatives, currency or other instruments is permitted.
Foreign currency risk
All International sales to franchisees are invoiced in pounds sterling or US dollars.
International reported sales represent approximately 37 per cent of group sales. Total International sales in the 28 week period represent approximately 63 per cent of group network sales. The group therefore has some currency exposure on these sales, but they are used to offset or hedge in part the group's US dollar and Euro denominated product purchases. The group policy is that all material exposures are hedged by using forward currency contracts.
Interest rate risk
At 12 October 2013, the group had drawn down £50 million on its term borrowing facility and £12 million on the revolving credit facility offset by cash of £14.0 million. The group hedges all of the floating interest rate on this term facility using interest rate swaps. These financial instruments are accounted for as a cash flow hedge with changes in the fair value of the financial instrument that are designated as effective recognised in comprehensive income and any ineffective portion recognised immediately in the income statement.
Shareholders' funds
Shareholders' funds amount to £30.9 million, a decrease of £7.9 million in the 28 week period driven largely by the non-underlying loss on forward currency contracts. This represents £0.35 per share compared to £0.44 per share at the year end. The retained deficit in the consolidated balance sheet is £24.9 million.
Consolidated income statement
For the 28 weeks ended 12 October 2013
| 28 weeks ended 12 October 2013 (unaudited) | 28 weeks ended 13 October 2012 (unaudited) Restated* | 52 weeks ended 30 March 2013 Restated* | ||||||
| Note | Underlying1 £ million | Non-underlying 2 £ million | Total £ million | Underlying1 £ million | Non-underlying 2 £ million | Total £ million | Total £ million | |
| Revenue | 376.3 | - | 376.3 | 388.4 | - | 388.4 | 749.4 | |
| Cost of sales | (355.0) | (7.9) | (362.9) | (367.0) | (2.5) | (369.5) | (696.3) | |
| Gross profit | 21.3 | (7.9) | 13.4 | 21.4 | (2.5) | 18.9 | 53.1 | |
| Administrative expenses | (15.4) | (5.1) | (20.5) | (19.4) | (1.5) | (20.9) | (40.1) | |
| Profit/(loss) from retail operations | 5.9 | (13.0) | (7.1) | 2.0 | (4.0) | (2.0) | 13.0 | |
| Loss on disposal/termination of property interests | 4 | - | - | - | - | (11.8) | (11.8) | (13.8) |
| Other exceptional items | 4 | - | - | - | - | (10.6) | (10.6) | (15.4) |
| Share of results of joint ventures and associates | (0.2) | - | (0.2) | (0.8) | - | (0.8) | (1.4) | |
| Profit/(loss) from operations | 5.7 | (13.0) | (7.3) | 1.2 | (26.4) | (25.2) | (17.6) | |
| Net finance costs | 5 | (3.7) | - | (3.7) | (3.0) | (0.4) | (3.4) | (6.3) |
| Profit/(loss) before taxation | 2.0 | (13.0) | (11.0) | (1.8) | (26.8) | (28.6) | (23.9) | |
| Taxation | 6 | (0.3) | 2.6 | 2.3 | 0.3 | 3.4 | 3.7 | 0.1 |
| Profit/(loss) for the period attributable to equity holders of the parent | 1.7 | (10.4) | (8.7) | (1.5) | (23.4) | (24.9) | (23.8) | |
Loss per share | ||||||||
| Basic | 8 | 1.9p | (9.8p) | (1.7p) | (28.1p) | (26.9p) | ||
| Diluted | 8 | 1.9p | (9.8p) | (1.7p) | (28.1p) | (26.9p) | ||
All results relate to continuing operations.
(1) Before items described in note 2 below.
(2) Includes exceptional items (profit/(loss) on disposal/termination of property interests, restructuring costs, impairment charges and provisions for onerous leases) and other non-underlying items of amortisation of intangible assets (excluding software) and the impact of non-cash foreign currency adjustments under IAS 39 and IAS 21 as set out in Note 4 to the financial statements.
* Restated for amendments to IAS 19 as explained in Note 2 to the financial statements.
Consolidated statement of comprehensive income
For the 28 weeks ended 12 October 2013
| 28 weeks ended 12 October 2013 (unaudited) | 28 weeks ended 13 October 2012 (unaudited) Restated* | 52 weeks ended 30 March 2013 Restated* | ||||
| £ million | £ million | £ million | ||||
| Loss for the period | (8.7) | (24.9) | (23.8) | |||
| Items that will not be reclassified subsequently to the income statement: | ||||||
| Remeasurement of net defined benefit liability - actuarial gain/(loss) on defined benefit pension schemes | 4.8 | 3.3 | (13.6) | |||
| Income tax relating to items not reclassified | (3.6) | (1.5) | 2.4 | |||
| 1.2 | 1.8 | (11.2) | ||||
| Items that may be reclassified subsequently to the income statement: | ||||||
| Exchange differences on translation of foreign operations | (1.0) | 0.5 | 0.6 | |||
| Cash flow hedges: gains/(losses) arising in the period | 0.2 | (0.4) | (0.3) | |||
| Income tax on items that may be reclassified | - | - | - | |||
| (0.8) | 0.1 | 0.3 | ||||
| Other comprehensive income/(expense) for the period | 0.4 | 1.9 | (10.9) | |||
| Total comprehensive expense for the period wholly attributable to equity holders of the parent | (8.3) | (23.0) | (34.7) | |||
* Restated for amendments to IAS 19 as explained in Note 2.
Consolidated balance sheet
As at 12 October 2013
| 12 October 2013 (unaudited) | 13 October 2012 (unaudited) | 30 March 2013 | ||||
| Note | £ million | £ million | £ million | |||
| Non-current assets | ||||||
| Goodwill | 26.8 | 26.8 | 26.8 | |||
| Intangible assets | 17.8 | 20.8 | 19.7 | |||
| Property, plant and equipment | 10 | 65.1 | 78.4 | 69.6 | ||
| Investments in joint ventures | 9.9 | 7.7 | 8.0 | |||
| Deferred tax asset | 6 | 20.7 | 20.7 | 21.7 | ||
| 140.3 | 154.4 | 145.8 | ||||
| Current assets | ||||||
| Inventories | 112.8 | 115.5 | 110.6 | |||
| Trade and other receivables | 12 | 59.6 | 64.6 | 58.1 | ||
| Cash and cash equivalents | 14.0 | 20.2 | 17.6 | |||
| Current tax asset | 1.1 | 3.6 | 1.0 | |||
| Derivative financial instruments | 16 | - | - | 7.3 | ||
| 187.5 | 203.9 | 194.6 | ||||
| Total assets | 327.8 | 358.3 | 340.4 | |||
| Current liabilities | ||||||
| Trade and other payables | 13 | (120.3) | (136.9) | (123.3) | ||
| Current tax liabilities | (0.3) | (2.0) | (0.5) | |||
| Borrowings | 11 | (15.5) | - | (3.5) | ||
| Short term provisions | 14 | (16.4) | (24.4) | (21.4) | ||
| Derivative financial instruments | 16 | (1.8) | (1.9) | (0.3) | ||
| (154.3) | (165.2) | (149.0) | ||||
| Non-current liabilities | ||||||
| Trade and other payables | 13 | (25.9) | (29.3) | (28.1) | ||
| Borrowings | 11 | (46.5) | (50.0) | (46.5) | ||
| Retirement benefit obligations | 15 | (55.8) | (51.5) | (61.6) | ||
| Long term provisions | 14 | (14.4) | (12.6) | (16.4) | ||
| (142.6) | (143.4) | (152.6) | ||||
| Total liabilities | (296.9) | (308.6) | (301.6) | |||
| Net assets | 30.9 | 49.7 | 38.8 | |||
| Equity attributable to equity holders of the parent | ||||||
| Share capital | 44.3 | 44.3 | 44.3 | |||
| Share premium account | 6.2 | 6.2 | 6.2 | |||
| Other reserve | 6.2 | 50.8 | 6.2 | |||
| Own shares | (0.4) | (0.6) | (0.6) | |||
| Translation and hedging reserve | (0.5) | 0.1 | 0.3 | |||
| Retained deficit | (24.9) | (51.1) | (17.6) | |||
| Total equity | 30.9 | 49.7 | 38.8 | |||
Consolidated statement of changes in equity
For the 28 weeks ended 12 October 2013
| Share capital | Share premium account | Other reserve | Own shares | Translation and hedging reserve | Retained deficit | Total equity | |
| £ million | £ million | £ million | £ million | £ million | £ million | £ million | |
| Balance at 31 March 2013 | 44.3 | 6.2 | 6.2 | (0.6) | 0.3 | (17.6) | 38.8 |
| Other comprehensive income for the period | - | - | - | - | (0.8) | 1.2 | 0.4 |
| Loss for the period | - | - | - | - | - | (8.7) | (8.7) |
| Total comprehensive income for the period | - | - | - | - | (0.8) | (7.5) | (8.3) |
| Credit to equity for equity-settled share-based payments | - | - | - | - | - | 0.4 | 0.4 |
| Shares transferred to employees on vesting | - | - | - | 0.2 | - | (0.2) | - |
| Balance at 12 October 2013 (unaudited) | 44.3 | 6.2 | 6.2 | (0.4) | (0.5) | (24.9) | 30.9 |
For the 28 weeks ended 13 October 2012
| Share capital | Share premium account | Other reserve | Own shares | Translation reserve | Retained deficit Restated * | Total equity Restated* | |
| £ million | £ million | £ million | £ million | £ million | £ million | £ million | |
| Balance at 1 April 2012 | 44.3 | 6.2 | 50.8 | (2.1) | - | (26.5) | 72.7 |
| Other comprehensive income for the period | - | - | - | - | 0.1 | 1.8 | 1.9 |
| Loss for the period | - | - | - | - | - | (24.9) | (24.9) |
| Total comprehensive income for the period | - | - | - | - | 0.1 | (23.1) | (23.0) |
| Shares transferred to employees on vesting | - | - | - | 1.5 | - | (1.5) | - |
| Balance at 13 October 2012 (unaudited) | 44.3 | 6.2 | 50.8 | (0.6) | 0.1 | (51.1) | 49.7 |
For the 52 weeks ended 30 March 2013
| Share capital | Share premium account | Other reserve | Own shares | Translation and hedging reserve | Retained deficit Restated* | Total equity Restated* | |
| £ million | £ million | £ million | £ million | £ million | £ million | £ million | |
| Balance at 1 April 2012 | 44.3 | 6.2 | 50.8 | (2.1) | - | (26.5) | 72.7 |
| Other comprehensive expense for the period | - | - | - | - | 0.3 | (11.2) | (10.9) |
| Loss for the period | - | - | - | - | - | (23.8) | (23.8) |
| Total comprehensive expense for the period | - | - | - | - | 0.3 | (35.0) | (34.7) |
| Transfer between reserves | - | - | (44.6) | - | - | 44.6 | - |
| Credit to equity for equity-settled share-based payments | - | - | - | - | - | 0.8 | 0.8 |
| Shares transferred to employees on vesting | - | - | - | 1.5 | - | (1.5) | - |
| Balance at 30 March 2013 | 44.3 | 6.2 | 6.2 | (0.6) | 0.3 | (17.6) | 38.8 |
* Restated for amendments to IAS 19 as explained in Note 2.
Consolidated cash flow statement
For the 28 weeks ended 12 October 2013
| Note | 28 weeks ended 12 October 2013 (unaudited) | 28 weeks ended 13 October 2012 (unaudited) | 52 weeks ended 30 March 2013 | |
| £ million | £ million | £ million | ||
| Net cash flow from operating activities | 18 | (5.3) | (0.7) | 6.8 |
| Cash flows from investing activities | ||||
| Purchase of property, plant and equipment | (3.8) | (6.3) | (13.2) | |
| Purchase of intangibles - software | (1.5) | (1.9) | (3.0) | |
| Proceeds from sale of property, plant and equipment | - | 2.2 | 2.2 | |
| Investments in joint ventures | (2.1) | (1.1) | (1.8) | |
| Net cash used in investing activities | (7.4) | (7.1) | (15.8) | |
| Cash flows from financing activities | ||||
| Interest paid | (1.7) | (1.2) | (2.8) | |
| Facility fees paid | - | (1.4) | (1.4) | |
| Net bank loans raised | 12.0 | 30.0 | 30.0 | |
| Net cash raised in financing activities | 10.3 | 27.4 | 25.8 | |
| Net (decrease)/increase in cash and cash equivalents | (2.4) | 19.6 | 16.8 | |
| Cash and cash equivalents at beginning of period | 17.6 | (0.1) | (0.1) | |
| Effect of foreign exchange rate changes | (1.2) | 0.7 | 0.9 | |
| Net cash and cash equivalents at end of period | 14.0 | 20.2 | 17.6 | |
Notes
General information
The group's business activities, together with factors likely to affect its future development, performance and position are set out in the Chief Executive's review and the financial review and include a summary of the group's financial position, its cash flows and borrowing facilities and a discussion of why the directors consider that the going concern basis is appropriate.
The results for the 28 weeks ended 12 October 2013 are unaudited but have been reviewed by the group's auditor, whose report forms part of this document. The information for the 52 weeks ended 30 March 2013 included in this report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified or modified, did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
Accounting Policies and Standards
The annual financial statements of Mothercare plc are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The condensed set of financial statements included in this half yearly report has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union.
The same accounting policies, presentation methods and methods of computation are followed in the condensed set of financial statements as applied in the group's latest annual audited financial statements except that:
The group has adopted the amendments to IAS 1 "Presentation of Items of Other Comprehensive Income". The amendments to IAS 1 require items of other comprehensive income to be grouped by those items that will be reclassified subsequently to income statement and those that will never be reclassified, together with their associated income tax. The amendments have been applied retrospectively, and hence the presentation of items of comprehensive income have been restated to reflect the change. The amendment affects presentation only and has no impact on the group's financial position or performance.
IAS 19 (revised 2011) "Employee Benefits" and the related consequential amendments have impacted the accounting for the group's defined benefit scheme, by replacing the interest cost and expected return on assets with a net interest charge on the net defined benefit pension liability. For the current period, underlying PBT of £2.0 million is £1.4 million lower and other comprehensive income of £0.4 million is £1.4 higher than it would have been prior to the adoption of IAS 19 (revised 2011). For the comparative period, the underlying loss before tax of £1.8 million is £1.2 million greater and other comprehensive income £1.2 million higher than previously reported. As the group has always recognised actuarial gains and losses immediately there has been no effect on the prior year defined benefit obligation. At the same time the group has taken the decision to separately identify the interest on the liabilities/assets of the pension scheme and classify these within net finance costs. These were previously reported within administrative expenses. The comparative financial information has been restated.
IFRS 13 "Fair value measurement" establishes a single source of guidance under IFRS for all fair value measurements. The application of IFRS 13 has not materially impacted the fair value measurements carried out by the group. IFRS 13 also requires specific disclosures on fair values. The group has included the required disclosures in note 16.
Taxation
The taxation charge for the half-year is calculated by applying the best estimate of the average annual effective tax rate expected for the full year to the profit for the period and recognise a tax credit only to the extent that the resulting tax asset is more than likely not to reverse.
Profit from retail operations
Profit from retail operations represents the profit generated from normal retail trading, prior to any gains or losses on property transactions and impairment charges. It also includes the volatility arising from non-cash foreign currency adjustments under IAS 39 'Financial Instruments: Recognition and Measurement' and IAS 21 'The Effects of Changes in Foreign Exchange Rates'.
Underlying earnings
The Company believes that underlying profit before tax and underlying earnings provides additional useful information for shareholders. The term underlying earnings is not a defined term under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. It is not intended to be a substitute for, or superior to, IFRS measures of profit. A reconciliation of this alternative measure to the statutory measure required by IFRS is disclosed in note 8. The adjustments made to reported results are as follows:
Exceptional items: Due to their significance or one-off nature, certain items have been classified as exceptional. The gains and losses on these discrete items, such as profits/losses on the disposal/termination of property interests, provision for onerous leases, impairment charges, restructuring costs and other non-operating items can have a material impact on the absolute amount of and trend in the profit from operations and the result for the period. Therefore any gains and losses on such items are analysed as non-underlying on the face of the income statement. Further details of the exceptional items are provided in note 4.
Non-cash foreign currency adjustments: The group has taken the decision not to adopt hedge accounting under IAS 39 'Financial Instruments: Recognition and Measurement'. The effect of not applying hedge accounting under IAS 39 means that the reported results reflect the actual rate of exchange ruling on the date of a transaction regardless of the cash flow paid by the group at the predetermined rate of exchange. In addition, any gain or loss accruing on open contracts at a reporting period end is recognised in the result for the period (regardless of the actual outcome of the contract on close-out). Whilst the impacts described above could be highly volatile depending on movements in exchange rates, this volatility will not be reflected in the cash flows of the group, which will be based on the hedged rate. In addition, foreign currency monetary assets and liabilities are revalued to the closing balance sheet rate under IAS 21 'The Effects of Changes in
Foreign Exchange Rates'. The adjustment made by the group therefore is to report its underlying performance consistently with the cash flows, reflecting the hedging which is in place.
Amortisation of intangible assets: The average estimated useful life of identifiable intangible assets is 10 to 20 years for trade names and 5 to 10 years for customer relationships. The amortisation of these intangible assets does not reflect the underlying performance of the business.
Retirement benefits
In consultation with the independent actuaries to the schemes, the valuation of the pension obligation has been updated to reflect current market discount rates, current market values of investments and actual investment returns, and also to consider whether there have been any other events that would significantly affect the pension liabilities. The impact of these changes in assumptions and events has been estimated in arriving at the valuation of the pension obligation as disclosed in note 15.
Notes (continued)
Segmental information
Information reported to the group's Chief Executive for the purpose of resource allocation and assessment of segment performance is focussed on two operating segments: UK and International. UK comprises the group's UK store and wholesale operations, catalogue and internet sales. The International business comprises the group's franchise and wholesale operations, joint ventures and associates outside of the UK.
Segmental information about the UK and International businesses is presented below.
| 28 weeks ended 12 October 2013 (unaudited) | ||||||
| UK | International | Unallocated Corporate Expenses | Consolidated | |||
| £ million | £ million | £ million | £ million | |||
Revenue | ||||||
| External sales | 238.4 | 137.9 | - | 376.3 | ||
Result | ||||||
| Segment result (underlying) | (14.9) | 25.2 | (4.2) | 6.1 | ||
| Share-based payments (underlying) | (0.4) | |||||
| Non-cash foreign currency adjustments (non-underlying) | (7.4) | |||||
| Amortisation of intangible assets (non-underlying) | (0.5) | |||||
| Exceptional items | (5.1) | |||||
| Loss from operations | (7.3) | |||||
| Finance cost | (3.7) | |||||
| Loss before taxation | (11.0) | |||||
| Taxation | 2.3 | |||||
Loss for the period | (8.7) | |||||
| 28 weeks ended 13 October 2012 (unaudited) | |||||
| UK | International | Unallocated Corporate Expenses | Consolidated Restated* | ||
| £ million | £ million | £ million | £ million | ||
Revenue | |||||
| External sales | 257.6 | 130.8 | - | 388.4 | |
Result | |||||
| Segment result (underlying) | (16.9) | 22.2 | (4.2) | 1.1 | |
| Share-based payments (underlying) | 0.1 | ||||
| Non-cash foreign currency adjustments (non-underlying) | (1.8) | ||||
| Amortisation of intangible assets (non-underlying) | (0.5) | ||||
| Exceptional items | (24.1) | ||||
| Loss from operations | (25.2) | ||||
| Finance cost (including £0.4m non-underlying) | (3.4) | ||||
| Loss before taxation | (28.6) | ||||
| Taxation | 3.7 | ||||
Loss for the period | (24.9) | ||||
| 52 weeks ended 30 March 2013 | |||||
| UK | International | Unallocated Corporate Expenses | Consolidated Restated* | ||
| £ million | £ million | £ million | £ million | ||
Revenue | |||||
| External sales | 499.7 | 249.7 | - | 749.4 | |
Result | |||||
| Segment result (underlying) | (21.6) | 42.1 | (7.8) | 12.7 | |
| Share-based payments (underlying) | (0.9) | ||||
| Non-cash foreign currency adjustments (non-underlying) | 6.9 | ||||
| Amortisation of intangible assets (non-underlying) | (1.0) | ||||
| Exceptional items | (35.3) | ||||
| Loss from operations | (17.6) | ||||
| Finance costs (including £0.4m non-underlying) | (6.3) | ||||
| Loss before taxation | (23.9) | ||||
| Taxation | 0.1 | ||||
Loss for the period | (23.8) | ||||
* Restated for amendments to IAS 19 as explained in Note 2.
Notes (continued)
3 Segmental information (continued)
Corporate expenses not allocated to UK or International represent board and company secretarial costs and other head office costs including audit, professional fees, insurance and head office property.
Exceptional and non-underlying items
Due to their significance or one-off nature, certain items have been classified as exceptional or non-underlying as follows:
| 28 weeks ended 12 October 2013 (unaudited) | 28 weeks ended 13 October 2012 (unaudited) | 52 weeks ended 30 March 2013 | ||
| £ million | £ million | £ million | ||
| Exceptional items: | ||||
| Restructuring costs included in cost of sales | - | (0.2) | (0.2) | |
| Restructuring costs included in administrative expenses | (5.1) | (1.4) | (4.0) | |
| Store property, plant and equipment impairment included in administrative expenses | - | - | (1.8) | |
| Share based payments charge included in administrative expenses | - | (0.1) | (0.1) | |
| Onerous lease provision | - | - | (4.3) | |
| Loss on disposal/termination of property interests | - | (11.8) | (13.8) | |
| Impairment of investment in and receivables due from associate | - | (10.6) | (11.1) | |
| Restructuring costs included in net finance costs | - | (0.4) | (0.4) | |
| Total exceptional items: | (5.1) | (24.5) | (35.7) | |
| Other non-underlying items: | ||||
| Non-cash foreign currency adjustments | (7.4) | (1.8) | 6.9 | |
| Amortisation of intangibles | (0.5) | (0.5) | (1.0) | |
| Exceptional and non-underlying items before tax | (13.0) | (26.8) | (29.8) | |
Restructuring costs
During the 28 weeks ended 12 October 2013 a charge of £5.1 million (H1 2012/13: £2.0 million) was recognised relating to head office restructuring and group reorganisation. The objective for the reorganisation was to streamline the business and improve efficiency to support the Transformation and Growth plan. This has resulted in the removal of c 250 head office roles. Other exceptional costs have been incurred in relation to legal and other costs related to the new banking agreement.
Notes (continued)
Net finance costs
| 28 weeks ended 12 October 2013 (unaudited) | 28 weeks ended 13 October 2012 (unaudited) Restated* | 52 weeks ended 30 March 2013 Restated* | ||
| £ million | £ million | £ million | ||
| Interest on pension liabilities/return on assets | 1.5 | 1.4 | 2.6 | |
| Other net interest | 2.2 | 2.0 | 3.7 | |
| Net finance costs | 3.7 | 3.4 | 6.3 | |
* Restated for amendments to IAS 19 as explained in Note 2 and to present interest on pension liabilities/return on assets within finance costs/income.
Taxation
| 28 weeks ended 12 October 2013 (unaudited) | 28 weeks ended 13 October 2012 (unaudited) Restated* | 52 weeks ended 30 March 2013 Restated* | ||
| £ million | £ million | £ million | ||
| Current tax - Overseas tax and UK corporation tax | 0.3 | 0.9 | 1.7 | |
| Deferred tax - UK tax credit for timing differences | (2.6) | (4.6) | (1.8) | |
| Total tax credit | (2.3) | (3.7) | (0.1) | |
| * Restated for amendments to IAS 19 as explained in Note 2 | ||||
The deferred tax credit arises on UK timing differences including the impact of the change in rate from 23% (2012) to 20% (2013).
The net deferred tax asset at 12 October 2013 is £20.7 million (H1 2012/13: £20.7 million) including £11.2 million of deferred tax assets in relation to retirement benefit obligations (H1 2012/13: £11.8 million).
Dividends
In April 2012 the group announced that the dividend would not be resumed until there was a marked improvement in the group's results. Accordingly there will be no dividend for the first half of the year.
Earnings per share
| 28 weeks ended 12 October 2013 (unaudited) | 28 weeks ended 13 October 2012 (unaudited) Restated* | 52 weeks ended 30 March 2013 Restated* | ||
| million | million | million | ||
| Weighted average number of shares in issue for the purpose of basic earnings per share | 88.6 | 88.5 | 88.5 | |
| Dilution - option schemes (for underlying results only) | 1.4 | - | 1.1 | |
Weighted average number of shares in issue for the purpose of diluted earnings per share | 90.0 | 88.5 | 89.6 | |
| £ million | £ million | £ million | ||
| Loss for basic and diluted earnings per share | (8.7) | (24.9) | (23.8) | |
| Exceptional and other non-underlying items | 13.0 | 26.8 | 29.8 | |
| Tax effect of above items | (2.6) | (3.4) | (2.3) | |
| Underlying earnings/(loss) | 1.7 | (1.5) | 3.7 | |
| Pence | Pence | Pence | ||
Basic loss per share | (9.8) | (28.1) | (26.9) | |
| Basic underlying earnings/(loss) per share | 1.9 | (1.7) | 4.2 | |
Diluted loss per share | (9.8) | (28.1) | (26.9) | |
| Diluted underlying earnings/(loss) per share | 1.9 | (1.7) | 4.1 |
* Restated for amendments to IAS 19 as explained in Note 2
Notes (continued)
Seasonality of the Early Learning Centre
Sales for the Early Learning Centre are more heavily weighted towards the second half of the year, with approximately 40% of annual sales occurring in the third quarter (mid-October to early January).
Property, plant and equipment (excluding software intangibles)
Capital additions of £3.3 million were made during the period (H1 2012/13: £5.0 million) comprising additions to stores (£1.8 million; H1 2012/13: £1.7 million), product development (£0.2 million; H1 2012/13: £0.3 million), and other items (£1.3 million; H1 2012/13: £3.0 million).
Bank loans and overdrafts
As at 12 October 2013, the group had drawn down £62.0 million (H1 2012/13: £50.0 million) of its £90.0 million committed secured borrowing facilities. The committed secured borrowing facilities attract an interest rate of 3.5 per cent to 4.0 per cent above LIBOR and the final maturity date is 31 May 2015. On 18 October the group refinanced new £90 million banking facilities with the support of its two existing banks, HSBC and Barclays (at an interest rate range of 2.5 per cent to 3.5 per cent above LIBOR) maturing in May 2017.
Trade and other receivables
| 12 October 2013 (unaudited) | 13 October 2012 (unaudited) | 30 March 2013 | ||
| £ million | £ million | £ million | ||
| Trade receivables | 40.3 | 39.1 | 37.1 | |
| Prepayments and accrued income | 16.6 | 20.1 | 17.4 | |
| Other receivables | 2.7 | 5.4 | 3.6 | |
| 59.6 | 64.6 | 58.1 |
Included within trade receivables are trade and other receivables due after more than one year:
| 12 October 2013 (unaudited) | 13 October 2012 (unaudited) | 30 March 2013 | ||
| £ million | £ million | £ million | ||
| Trade receivables | - | 0.1 | - |
Trade and other payables
| 12 October 2013 (unaudited) | 13 October 2012 (unaudited) | 30 March 2013 | ||
| £ million | £ million | £ million | ||
| Current liabilities: | ||||
| Trade payables | 75.7 | 83.5 | 70.3 | |
| Payroll and other taxes, including social security | 2.7 | 3.1 | 1.8 | |
| Accruals and deferred income | 37.0 | 45.5 | 43.4 | |
| VAT payable | 0.2 | 0.6 | 2.8 | |
| Lease incentives | 4.7 | 4.2 | 5.0 | |
| 120.3 | 136.9 | 123.3 | ||
| Non-current liabilities: | ||||
| Lease incentives | 25.9 | 29.3 | 28.1 |
Notes (continued)
Provisions
| 12 October 2013 (unaudited) | 13 October 2012 (unaudited) | 30 March 2013 | ||
| £ million | £ million | £ million | ||
| Current liabilities: | ||||
| Property provisions | 15.6 | 24.0 | 20.5 | |
| Other provisions | 0.8 | 0.4 | 0.9 | |
| Short term provisions | 16.4 | 24.4 | 21.4 | |
| Non-current liabilities: | ||||
| Property provisions | 13.5 | 12.2 | 15.4 | |
| Other provisions | 0.9 | 0.4 | 1.0 | |
| Long-term provisions | 14.4 | 12.6 | 16.4 | |
| Total liabilities: | ||||
| Property provisions | 29.1 | 36.2 | 35.9 | |
| Other provisions | 1.7 | 0.8 | 1.9 | |
| Total provisions | 30.8 | 37.0 | 37.8 |
| The movement on total provisions is as follows: | |||||||
| Property provisions | Other provisions | Total provisions | |||||
| £ million | £ million | £ million | |||||
| Balance at 31 March 2013 | 35.9 | 1.9 | 37.8 | ||||
| Utilised in period | (7.0) | (0.2) | (7.2) | ||||
| Charged in period | 0.8 | - | 0.8 | ||||
| Released in period | (0.6) | - | (0.6) | ||||
| Balance at 12 October 2013 (unaudited) | 29.1 | 1.7 | 30.8 | ||||
Property provisions principally represent the costs of store disposals relating to the optimisation of the UK portfolio which involves the closure and re-siting of Mothercare and Early Learning Centre stores and provisions for onerous leases. The timing of the utilisation of the above provisions is variable dependent upon the lease expiry and closure dates of the properties concerned. The majority of this provision is expected to be utilised over the next two years.
Other provisions principally represent provisions for uninsured losses, hence the timing of the utilisation of these provisions is uncertain and provisions for an onerous support contract for a decommissioned IT project which is expected to be utilised over the next four years.
Retirement benefit schemes
The group has updated its accounting for pensions under IAS 19 as at 12 October 2013. This involved rolling forward the assumptions from the prior year end and updating for changes in market rates in the first half. For the UK schemes, based on the actuarial assumptions from the last full actuarial valuations carried out at 31 March 2011, a liability of £55.8 million (H1 2012/13: £51.5 million) has been recognised.
Financial instruments' fair value disclosures
The group held the following financial instruments at fair value at 12 October 2013. The fair value of foreign currency forward contracts is measured using quoted foreign exchange rates and yield curves from quoted rates matching the maturities of the contracts, and they therefore are categorised within level 2 of the fair value hierarchy set out in IFRS 7.
Notes (continued)
16 Financial instruments' fair value disclosures (continued)
| Fair value measurements at 12 October 2013 | ||||
| Total | ||||
| £ million | ||||
| Financial Liabilities | ||||
| Derivative financial instruments: | ||||
| Interest rate swaps and similar instruments | (0.2) | |||
| Forward foreign currency contracts | (1.6) | |||
| (1.8) | ||||
The derivative financial assets and liabilities whose fair values include the use of level 2 inputs are obtained from the banks or financial instruments with which the derivatives have been transacted, subject to adjustment for own credit risk if necessary.
The valuations incorporate the following inputs:
interest rates and yield curves at commonly quoted intervals; and
observable credit spreads.
The directors consider that the carrying value amounts of financial assets and financial liabilities recored at amortised cost in the financial statements are approximately equal to their fair values.
17 Share-based payments
An expense is recognised for share-based payments based on the fair value of the awards at the date of grant, the estimated number of shares that will vest and the vesting period of each award. The total net charge for share-based payments under IFRS 2 is £0.4 million (28 weeks ended 13 October 2012: £nil million) of which £0.4 million (28 weeks ended 13 October 2012: £nil million) will be equity settled. The assumptions used to measure the fair values of the share-based payments are in line with those previously published.
Notes (continued)
18 Notes to the cash flow statement
| 28 weeks ended 12 October 2013 (unaudited) | 28 weeks ended 13 October 2012 (unaudited) | 52 weeks ended 30 March 2013 | |
| Restated* | Restated* | ||
| £ million | £ million | £ million | |
| Loss from retail operations | (7.1) | (2.0) | 13.0 |
| Adjustments for: | |||
| Depreciation of property, plant and equipment | 7.4 | 8.4 | 15.8 |
| Amortisation of intangible assets | 3.3 | 2.9 | 5.6 |
| Impairment of intangible assets | - | 0.1 | 1.9 |
| Losses on disposal of property, plant and equipment and intangible assets | 0.4 | - | 4.2 |
| Loss/(profit) on non-underlying non-cash foreign currency adjustments | 7.4 | 1.8 | (6.9) |
| Equity settled share-based payments | 0.4 | - | 0.8 |
| Movement in provisions | (7.1) | (10.1) | (15.4) |
| Cash payments for non underlying property disposals | - | (0.1) | - |
| Amortisation of lease incentives | (2.7) | (2.7) | (4.9) |
| Lease incentives received | 0.2 | 2.1 | 3.5 |
| Payments to retirement benefit schemes | (3.1) | (1.0) | (7.2) |
| Charge to profit from operations in respect of retirement benefit schemes | 0.6 | 1.7 | (0.1) |
| Operating cash flow before movements in working capital | (0.3) | 1.1 | 10.3 |
| Increase in inventories | (1.9) | (17.6) | (11.7) |
| (Increase)/ decrease in receivables | (1.9) | 2.5 | 8.5 |
| (Decrease)/increase in payables | (0.5) | 15.8 | 2.2 |
| Cash (utilised)/generated from operations | (4.6) | 1.8 | 9.3 |
| Income taxes paid | (0.7) | (2.5) | (2.5) |
| Net cash (outflow)/inflow from operating activities | (5.3) | (0.7) | 6.8 |
| * Restated for amendments to IAS 19 as explained in Note 2 |
19. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the group and its joint ventures and associates are disclosed below.
Trading transactions:
| Joint ventures and associates | Sales of goods | Amounts owed by related parties (net of provisions) |
| £ million | £ million | |
| 28 weeks ended 12 October 2013 (unaudited) | 12.4 | 7.5 |
| 28 weeks ended 13 October 2012 (unaudited) | 13.4 | 5.5 |
| 52 weeks ended 30 March 2013 | 21.5 | 5.8 |
Sales of goods to related parties were made at the group's usual list prices.
The amounts outstanding are unsecured and will be settled in cash
Risks and uncertainties
The Board continually assesses and monitors the key risks of the business. The principal risks and uncertainties which could impact the Company's long-term performance remain those detailed on pages 30 to 32 of the Company's 2013 Annual Report and Accounts and which are summarised below:
The group fails to meet the financial targets set out in the Transformation and Growth plan
Shortfall in LFL sales, particularly in the UK
Macro-economic conditions, especially in the Euro-zone
Additional cash funding to support International joint ventures
UK store rationalisation programme becomes difficult to achieve in current market
conditions
Foreign exchange rates risk
Logistics, distribution or IT systems failure
Organisational change and headcount reduction
International expansion leading to over exposure in certain territories
Changes in consumer demand
Risk of loss of reputation relating to quality, safety and integrity
Failure to invest in product innovation
Failure to ensure supplier base operates to appropriate standards of safety
A copy of the Company's 2013 Annual Report and Accounts is available on the Company's website www.mothercareplc.com.
Certain statements in this report are forward looking. Although the group believes that the expectations reflected in these forward looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by forward looking statements. We undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.
Responsibility statement
We confirm that to the best of our knowledge:
The condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";
the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first 28 weeks of the year and description of principal risks and uncertainties for the 24 weeks of the year); and
the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).
By order of the Board
Simon Calver Matt Smith
Chief Executive Chief Financial Officer
20 November 2013
Independent review report to Mothercare plc
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 28 weeks ended 12 October 2013 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated balance sheet, the consolidated cash flow statement and related notes 1 to 19. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 28 week period ended 12 October 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
20 November 2013
Shareholder information
Financial calendar
| 2014 | |
| Preliminary announcement of results for the 52 weeks ending 29 March 2014 | end May |
| Issue of report and accounts | mid June |
| Annual General Meeting | mid July |
| Announcement of interim results for the 28 weeks ended 11 October 2014 | mid November |
Registered office and head office
Cherry Tree Road, Watford, Hertfordshire WD24 6SH
Telephone 01923 241000
www.mothercareplc.com
Registered number 1950509
Group general counsel and company secretary
Tim Ashby
Registrars
Administrative enquiries concerning shareholders in Mothercare plc for such matters as the loss of a share certificate, dividend payments or a change of address should be directed, in the first instance, to the registrars:
Equiniti Limited
Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
Telephone 0871 384 2013 (calls to this number are charged at 8p per minute plus network extras)
Overseas +44 (0)121 415 7042
www.equiniti.com
Postal share dealing service
A postal share dealing service is available through the Company's registrars for the purchase and sale of Mothercare plc shares. Further details can be obtained from Equiniti on 0871 384 2248 (calls to this number are charged at 8p per minute plus network extras). Lines are open 08:30 to 17:30, Monday to Friday.
The Company's stockbrokers are:
JPMorgan Cazenove & Co Limited
25 Bank Street
Canary Wharf,
London E14 5JP
Telephone 020 7742 4000
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Telephone 020 7260 1000
ShareGift
Shareholders with a small number of shares, the value of which makes it uneconomic to sell them, may wish to consider donating them to charity through ShareGift, a registered charity administered by The Orr Mackintosh Foundation. The share transfer form needed to make a donation may be obtained from the Mothercare plc registrars, Equiniti Limited.
Further information about ShareGift is available from www.sharegift.org or by telephone on
020 7930 3737.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Mothercare Plc via Thomson Reuters ONE
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