REG - Mothercare PLC - Final Results <Origin Href="QuoteRef">MTC.L</Origin> - Part 2
18/05/2017 07:06
- Part 2: For the preceding part double click ID:nRSR4770Fa
concluded that a period of three years is a suitable time period for
their review for the following reasons;
· This period aligns with our business planning cycle and delivery of
strategic goals
· Performance is significantly impacted by both UK and International
economic conditions which are difficult to predict beyond this period
The assessment was made by considering the principal risks facing the Company,
and stress testing the strategic plan to model the impact of a combination of
these risks occurring together to drive severe and extreme pressure on the
business over the three year period to FY20. The review included detailed
financial projections covering profit, cash flows and banking facility
covenants. Two different scenarios were modelled.
The first scenario assumed a continuation of severe external macro-economic
and currency pressures across key International markets over an 18 month
period, alongside a marked downward turn in consumer confidence in the UK
market over the same timeframe, with the impact equivalent to the worst UK
performance over a five year historic period. Modest recovery is assumed
thereafter across the Group. Projections under this scenario factored in
short term high single digit negative LFL growth in International, and
negative LFL and margins in the UK. The second scenario assumes a less severe
but sustained negative impact on both the UK and International businesses,
with smaller declines each year over the entire period.
In both of the above scenarios, the profitability and liquidity of the
business would be significantly impacted. However, the directors concluded
that while management would need to take significant mitigating actions such
as an immediate and material reduction in capital spend and costs, there would
be sufficient cash available for the business to remain liquid in both of the
above scenarios over the period reviewed.
Based on the results of this review, the directors confirm they have a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due for the next three years.
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 31% of group sales. Total
International worldwide sales in the 52 week period represent approximately
62% of group worldwide 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 denominated product purchases. The Group policy is that all material
exposures are hedged by using forward currency contracts. To help mitigate
against the currency impact on royalty receipts, the Group has hedged against
its major market currency exposure.
Interest rate risk
The principal interest rate risk of the Group arises in respect of the
drawdown of the revolving credit facility. This facility is at a fixed rate
plus LIBOR, it exposes the Group to cashflow interest rate risk. The interest
exposure is monitored by management but due to low interest rate levels during
the period the risk is believed to be minimal and no interest rate hedging has
been undertaken.
Credit risk
The Group's exposure to credit risk inherent in its trade receivables. The
Group has no significant concentration of credit risk, except with the China
joint venture. The Group operates effective credit control procedures in order
to minimise exposure to overdue debts and where possible also carries
insurance against the cost of bad debts. The insurance counterparties involved
in transactions are limited to high quality financial institutions. Before
accepting any new credit customer, the Group obtains a credit check from an
external agency to assess the credit quality of the potential customer and
then sets credit limits on a customer by customer basis.
Events after the balance sheet date
On 5 May 2017 the Group refinanced with the support of its two existing banks,
HSBC and Barclays, amending its committed facilities of £50.0 million to a
£62.5 million revolving credit facility and a £5.0 million uncommitted
overdraft (at an interest rate range of 2.0% to 3.0% above LIBOR). The
amended revolving credit facility is made up of two tranches, a £50.0 million
maturing in May 2020 (with an option to extend for an additional one year on
two occasions subject to lenders' approval) and an additional £12.5 million
maturing in November 2018 (with an option to extend for an additional six
months on two occasions subject to lenders' approval). In addition, an
accordion facility with a variable limit that allows the Group to draw down up
to £75.0 million has been made available, subject to lenders' approval.
Consolidated income statement
For the 52 weeks ended 25 March 2017
Note 52 weeks ended 25 March 2017 52 weeks ended 26 March 2016
Underlying1 Non-underlying 2 Total Underlying1 Non-underlying2 Total
£ million £ million £ million £ million £ million £ million
Revenue 2 667.4 - 667.4 682.3 - 682.3
Cost of sales (606.2) (2.4) (608.6) (622.1) - (622.1)
Gross profit 61.2 (2.4) 58.8 60.2 - 60.2
Administrative expenses (38.2) (9.7) (47.9) (36.3) (6.5) (42.8)
Profit/(loss) from retail operations 23.0 (12.1) 10.9 23.9 (6.5) 17.4
Other exceptional items 3 - (0.5) (0.5) - (3.4) (3.4)
Share of results of joint ventures - - - (1.1) - (1.1)
Profit/(loss) from operations 2 23.0 (12.6) 10.4 22.8 (9.9) 12.9
Net finance costs 4 (3.3) - (3.3) (3.2) - (3.2)
Profit/(loss) before taxation 19.7 (12.6) 7.1 19.6 (9.9) 9.7
Taxation 5 (3.2) 4.3 1.1 (3.2) (0.1) (3.3)
Profit/(loss) for the period attributable to equity holders of the parent 16.5 (8.3) 8.2 16.4 (10.0) 6.4
Earnings per share
Basic 7 9.7p 4.8p 9.6p 3.8p
Diluted 7 9.3p 4.6p 9.3p 3.6p
9.3p
3.6p
All results relate to continuing operations.
1 Before items described in footnote 2 below.
2 Includes exceptional items (property costs, restructuring costs, provision
for receivables and impairment charges) 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 3.
Consolidated statement of comprehensive income
For the 52 weeks ended 25 March 2017
52 weeks ended 52 weeks ended 26 March 2016
25 March 2017
£ million £ million
Profit for the period 8.2 6.4
Items that will not be reclassified subsequently to the income statement:
Remeasurement of net defined benefit liability - actuarial (loss)/gain on defined benefit pension schemes (9.7) 1.1
Deferred tax relating to items not reclassified 0.5 (1.5)
(9.2) (0.4)
Items that may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations (1.8) (0.4)
Cash flow hedges: gains arising in the period 20.2 4.2
Deferred tax relating to items reclassified 1.1 (0.3)
19.5 3.5
Other comprehensive income for the period 10.3 3.1
Total comprehensive income for the period wholly attributable to equity holders of the parent 18.5 9.5
Consolidated balance sheet
As at 25 March 2017
25 March 2017 26 March 2016
£ million £ million
Non-current assets
Goodwill 26.8 26.8
Intangible assets 36.6 27.1
Property, plant and equipment 80.4 69.4
Investments in joint ventures - -
Long term receivable 0.8 -
Deferred tax asset 24.8 20.3
Derivative financial instruments 0.2 0.2
169.6 143.8
Current assets
Inventories 102.0 101.8
Trade and other receivablesCurrent tax asset 67.6- 75.90.3
Derivative financial instruments 8.6 12.1
Cash and cash equivalents - 13.5
178.2 203.6
Total assets 347.8 347.4
Current liabilities
Trade and other payables (125.5) (130.1)
Bank overdraft (0.9) -
Current tax liabilities (0.2) -
Derivative financial instruments (0.8) (1.1)
Short-term provisions (8.8) (14.6)
(136.2) (145.8)
Non-current liabilities
Trade and other payables (21.5) (22.1)
Borrowings (15.0) -
Retirement benefit obligations (80.1) (74.4)
Long-term provisions (13.6) (16.0)
(130.2) (112.5)
Total liabilities (266.4) (258.3)
Net assets 81.4 89.1
Equity attributable to equity holders of the parent
Share capital 85.4 85.4
Share premium account 61.0 61.0
Own shares (1.5) (0.3)
Translation reserve (1.3) 0.5
Hedging reserve 5.2 9.7
Retained deficit (67.4) (67.2)
Total equity 81.4 89.1
Consolidated statement of changes in equity
For the 52 weeks ended 25 March 2017
Equity attributable to equity holders of the parent
Share capital Share premium account Own shares Translation reserve HedgingReserve Retained earnings Total equity
£ million £ million £ million £ million £ million £ million £ million
Balance at 26 March 2016 85.4 61.0 (0.3) 0.5 9.7 (67.2) 89.1
Other comprehensive expense for the period - - - (1.8) 21.3 (9.2) 10.3
Profit for the period - - - - - 8.2 8.2
Total comprehensive income/(expense) for the period - - - (1.8) 21.3 (1.0) 18.5
Removal from equity to inventories during the period - - - - (25.8) - (25.8)
Purchase of own shares - - (1.2) - - - (1.2)
Credit to equity for equity-settled share-based payments - - - - - 0.8 0.8
Balance at 25 March 2017 85.4 61.0 (1.5) (1.3) 5.2 (67.4) 81.4
For the 52 weeks ended 26 March 2016
Equity attributable to equity holders of the parent
Share capital Share premium account Own shares Translation reserve Hedging reserve Retained earnings Total equity
£ million £ million £ million £ million £ million £ million £ million
Balance at 28 March 2015 85.2 60.8 (0.4) 0.9 6.8 (75.6) 77.7
Other comprehensive expense for the period - - - (0.4) 3.9 (0.4) 3.1
Profit for the period - - - - - 6.4 6.4
Total comprehensive income/(expense) for the period - - - (0.4) 3.9 6.0 9.5
Removal from equity to inventories during the period - - - - (1.0) - (1.0)
Issue of equity shares 0.2 0.2 0.1 - - - 0.5
Credit to equity for equity-settled share-based payments - - - - - 2.4 2.4
Balance at 26 March 2016 85.4 61.0 (0.3) 0.5 9.7 (67.2) 89.1
Consolidated cash flow statement
For the 52 weeks ended 25 March 2017
52 weeks ended 25 March 2017 52 weeks ended 26 March 2016
£ million £ million
Net cash flow from operating activities 15.3 21.9
Cash flows from investing activities
Interest received 0.1 0.2
Purchase of property, plant and equipment (28.2) (27.8)
Purchase of intangibles - software (14.4) (11.4)
Proceeds from sale of property, plant and equipment 1.3 -
Net cash used in investing activities (41.2) (39.0)
Cash flows from financing activities
Interest paid (1.0) (1.4)
Drawdown on facility 15.0 -
Purchase of own shares (1.2) -
Issue of ordinary share capital - 0.4
Net cash used in financing activities 12.8 (1.0)
Net decrease in cash and cash equivalents (13.1) (18.1)
Cash and cash equivalents at beginning of period 13.5 31.5
Effect of foreign exchange rate changes (1.3) 0.1
(Overdraft)/cash and cash equivalents at end of period (0.9) 13.5
(0.9)
13.5
Notes
1. General information
a) The accounting policies followed are the same as those published by the
Group within the 2016 annual report.
b) Whilst the financial information included in this preliminary announcement
has been prepared in accordance with IFRS as endorsed by the European Union,
this announcement does not itself contain sufficient information to comply
with all the disclosure requirements of IFRS.
c) 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 IFRS measures of profit.
As the Company has chosen to present an alternative earnings per share
measure, a reconciliation of this alternative measure to the statutory measure
required by IFRS is given in Note 7.
d) The financial information set out in this announcement does not constitute
the Company's statutory accounts for the 52 week period ended 25 March 2017 or
the 52 week period ended 26 March 2016, but it is derived from those accounts.
Statutory accounts for 2016 have been delivered to the Registrar of Companies
and those for 2017 will be delivered following the Company's annual general
meeting. The auditors have reported on those accounts; their reports were
unqualified, did not draw attention to any matters by way of emphasis without
qualifying their report and did not contain statements under s498 (2) or (3)
of the Companies Act 2006. The 2016 financial statements are available on the
Company's website (www.mothercareplc.com).
e)
2. Segmental information
IFRS 8 requires operating segments to be identified on the basis of internal
reports about components of the Group that are regularly reported to the
Group's board in order to allocate resources to the segments and assess their
performance. The Group's reporting segments under IFRS 8 are UK and
International.
UK comprises the Group's UK store and wholesale operations, catalogue and web
sales. The International business comprises the Group's franchise and
wholesale revenues outside the UK. The unallocated corporate expenses
represent board and company secretarial costs and other head office costs
including audit, professional fees, insurance and head office property.
52 weeks ended 25 March 2017
UK International Unallocated corporate expenses Consolidated
£ million £ million £ million £ million
Revenue
External sales 459.4 208.0 - 667.4
Result
Segment result (underlying) (4.4) 35.2 (7.0) 23.8
Share-based payments (0.8)
Non-cash foreign currency adjustments (non-underlying) 4.1
Amortisation of intangible assets (non-underlying) (1.0)
Exceptional items (Note 3) (15.7)
Profit from operations 10.4
Net finance costs (underlying) (3.3)
Profit before taxation 7.1
Taxation 1.1
Profit for the period 8.2
8.2
52 weeks ended 26 March 2016
UK International Unallocated corporate expenses Consolidated
£ million £ million £ million £ million
Revenue
External sales 459.7 222.6 - 682.3
Result
Segment result (underlying) (6.4) 40.3 (8.1) 25.8
Share-based payments (3.0)
Non-cash foreign currency adjustments (non-underlying) 1.2
Amortisation of intangible assets (non-underlying) (0.9)
Exceptional items (Note 3) (10.2)
Profit from operations 12.9
Net finance costs (underlying) (3.2)
Profit before taxation 9.7
Taxation (3.3)
Profit for the period 6.4
6.4
3. Exceptional and other non-underlying items
Due to their significance or one-off nature, certain items have been
classified as exceptional or non-underlying as follows:
52 weeks ended 25 March 2017 52 weeks ended 26 March 2016
£ million £ million
Exceptional items:
Restructuring costs in cost of sales (5.5) (0.3)
Restructuring and property impairment included in administrative expenses (5.7) (6.5)
Joint venture trade receivable provision included in administrative expenses (4.0) -
Property related costs in other exceptional items (0.5) (0.1)
Impairment of investment in joint venture in other exceptional items - (3.3)
Total exceptional items: (15.7) (10.2)
Other non-underlying items:
Non-cash foreign currency adjustments under IAS 39 and IAS 211 4.1 1.2
Amortisation of intangibles1 (1.0) (0.9)
Exceptional and other non-underlying items (12.6) (9.9)
1Included in non-underlying cost of sales is a credit of £3.1 million (2016:
credit of £0.3 million).
Restructuring costs in cost of sales
During the 52 weeks ended 25 March 2017 a charge of £5.5 million was
recognised. £3.4 million was related to the international restructure, £1.1
million to warehouse development costs and £1.0 million warehouse closure
costs.
£3.4 million was related to costs associated to the international restructure.
Towards the end of 2016, the Group recognised that significant challenges
exist within the current International business model requiring a wide range
restructure. £3.2 million of the restructure costs relate to a one-off
increase in the stock provision to reflect the alignment of our international
trading strategy with the UK, i.e. more full price sales, less discounting and
tighter management of stocks.
£1.1 million was related to the planned development of warehouses in the UK
and consists of incremental labour and warehouse storage costs.
£1.0 million was related to the planned closure of the online warehouse. The
costs consist of unavoidable costs associated to the closure. The online
warehouse operation in the following year will operate from our main
distribution centre.
During the 52 weeks ended 26 March 2016 a charge of £0.3 million was
recognised in relation to the store restructuring programme.
Restructuring and property related costs included in administrative expenses
During the 52 weeks ended 25 March 2017 a charge of £5.7 million was
recognised. £3.6 million related to head office restructure costs, £0.2m
related to the write off of amounts owed by a franchisee and £1.9 million
store impairment.
The Group, recognised £3.6 million associated to head office restructure. £2.1
million related to head office redundancies and IT restructure, £1.5 million
related to the Group strategy review. The strategy review continues to evolve
the strategic six pillars, drive profitability and deliver effective and
significant changes. Such costs will continue into 2018.
£1.9 million charge was recognised where the carrying value of property, plant
and equipment is higher than net realisable value (2016: £1.8 million credit).
This is mainly driven by an overall decline in store net present value.
During the 52 weeks ended 26 March 2016 a charge of £6.5 million was
recognised mainly related to fixed assets written off in relation to the store
restructuring and refurbishment programme.
Joint venture trade receivable provision in administration expenses
Due to the challenging economic conditions and performance over the past 12
months in China, the Group took a prudent approach and provided for all
outstanding debt at 26 March 2016, £4.0 million (charged to exceptional items)
plus a provision of £1.5 million for overdue debt in the current year (charged
to underlying profit).
Included in gross trade receivables is £10.4 million (2016: £4.0 million) for
amounts owed from the joint venture in China, in addition the Group has made a
loan of £0.8 million during the year. A provision of £5.5 million (2016: £nil)
exists for debt where there is uncertainty over the recoverability.
Property related costs
Provisions of £0.5 million (2016: £0.1 million) have been made for onerous
leases and losses on disposal/termination of property interests.
Impairment of joint venture investment
During the 52 weeks ended 26 March 2016, the Group fully impaired its
investment in Mothercare-Goodbaby China Retail Limited ('China JV') due to
uncertainties in respect of the future cash flows. The impairment was recorded
at the start of January 2016. The charge in the period amounts to £3.3
million.
4. Net finance costs
52 weeks ended 25 March 2017 52 weeks ended 26 March 2016
£ million £ million
Interest and bank fees on bank loans and overdrafts 0.7 0.5
Net interest on liabilities/return on assets on pension 2.6 2.7
Net finance costs 3.3 3.2
Financing represents interest receivable on bank deposits, less amounts
capitalised for borrowing costs associated with the build of qualifying
assets, fees payable on borrowing facilities, the amortisation of costs
relating to bank facility fees and the net interest charge on the
liabilities/assets of the pension scheme.
5. Taxation
The (credit)/charge for taxation on profit for the period comprises:
52 weeks ended 25 March 2017 52 weeks ended 26 March 2016
£ million £ million
Current tax:
Current year 1.6 1.8
Adjustment in respect of prior periods 0.2 -
1.8 1.8
Deferred tax:
Current year 0.5 0.6
Change in tax rate in respect of prior periods 0.3 0.2
Adjustment in respect of prior periods (3.7) 0.7
(2.9) 1.5
(Credit)/charge for taxation on profit for the period (1.1) 3.3
UK corporation tax is calculated at 20% (2016: 20%) of the estimated
assessable profit for the period. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions.
Due to the adoption of FRS 101 for statutory accounting purposes subsequent to
the preparation of the consolidated group financial statements for the 52
weeks ended 26 March 2016, further tax losses have become available within the
Group and a prior year adjustment of £1.1 million to recognise a deferred tax
asset in respect of these losses has been recognised in the financial
statements in the current period. The corresponding credit to the income
statement has been recognised as a non-underlying credit given the one-off
nature of this transaction.
The (credit)/charge for the period can be reconciled to the profit for the
period before taxation per the consolidated income statement as follows:
52 weeks ended 25 March 2017 52 weeks ended 26 March 2016
£ million £ million
Profit for the period before taxation 7.1 9.7
Profit for the period before taxation multiplied by the standard rate of corporation tax in the UK of 20% (2016: 20 %) 1.4 1.9
Effects of:
(Income)/expenses not deductible for tax purposes (0.3) 1.6
Rate change on deferred tax 0.3 0.2
Impact of difference in current and deferred tax rates (0.1) -
Impact of overseas tax rates 1.1 1.5
Relief for losses brought forward - (1.9)
Impact of double tax relief - (0.7)
Adjustment in respect of prior periods - current tax 0.2 -
Adjustment in respect of prior periods - deferred tax (3.7) 0.7
(Credit)/charge for taxation on profit for the period (1.1) 3.3
In addition to the amount credited to the income statement, a deferred tax
credit relating to retirement benefit obligations amounting to £0.5 million
(2016: £1.5 million charge) has been taken directly to other comprehensive
income.
6. Dividends
The directors are not recommending the payment of a final dividend for the
year (2016: £nil). No interim dividend was paid during the year (2016: £nil).
7. Earnings per share
52 weeks ended 25 March 2017 52 weeks ended 26 March 2016
Million million
Weighted average number of shares in issue 170.5 170.6
Dilution - option schemes (for underlying results only) 7.9 6.0
Diluted weighted average number of shares in issue 178.4 176.6
Number of shares at period end 170.9 170.9
£ million £ million
Profit for basic and diluted earnings per share 8.2 6.4
Exceptional and other non-underlying items (Note 3) 12.6 9.9
Tax effect of above items (4.3) 0.1
Underlying earnings 16.5 16.4
pence pence
Basic earnings per share 4.8 3.8
Basic underlying earnings per share 9.7 9.6
Diluted earnings per share 4.6 3.6
Diluted underlying earnings per share 9.3 9.3
8. Reconciliation of cash flow from operating activities
52 weeks ended 25 March 2017 52 weeks ended 26 March 2016
£ million £ million
Profit from retail operations 10.9 17.4
Adjustments for:
Depreciation of property, plant and equipment 14.2 13.3
Amortisation of intangible assets 5.0 5.1
Impairment of property, plant and equipment and intangible assets 1.9 1.5
Losses on disposal of property, plant and equipment and intangible assets - 4.2
Profit on non-underlying non-cash foreign currency adjustments (4.1) (1.2)
Equity-settled share-based payments 0.8 3.0
Movement in provisions (7.5) (13.9)
Cash payments for other exceptional items (0.2) 2.8
Amortisation of lease incentives (5.0) (4.1)
Lease incentives received 2.0 5.3
Payments to retirement benefit schemes (9.6) (11.1)
Charge to profit from operations in respect of retirement benefit schemes 3.0 2.7
Operating cash flow before movement in working capital 11.4 25.0
(Increase)/decrease in inventories (0.5) (12.9)
Decrease/(increase) in receivables 7.5 (1.1)
(Decrease)/increase in payables (2.0) 13.3
Cash generated from operations 16.4 24.3
Income taxes paid (1.1) (2.4)
Net cash flow from operating activities 15.3 21.9
9. Events after the balance sheet date
On 5 May 2017 the Group refinanced with the support of its two existing banks,
HSBC and Barclays, amending its committed facilities of £50.0 million to a
£62.5 million revolving credit facility and a £5.0 million uncommitted
overdraft (at an interest rate range of 2.0% to 3.0% above LIBOR). The
amended revolving credit facility is made up of two tranches, a £50.0 million
maturing in May 2020 (with an option to extend for an additional one year on
two occasions subject to lenders' approval) and an additional £12.5 million
maturing in November 2018 (with an option to extend for an additional six
months on two occasions subject to lenders' approval). In addition, an
accordion facility with a variable limit that allows the Group to draw down up
to £75.0 million has been made available, subject to lenders' approval.
This information is provided by RNS
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