REG-Mothercare Plc : Final Results <Origin Href="QuoteRef">MTC.L</Origin>
19/05/2016 07:05
Mothercare Plc
FY2015/16 Full Year Results
Underlying profits up 51% as UK turnaround continues
with plans underway to strengthen the International business
Mothercare plc, the global retailer for parents and young children, today
announces full-year results for the 52-week period to 26 March 2016.
Highlights for FY2015/16
* Underlying profit before tax up 51% at £19.6m
* Further progress in UK with margins up 70 bps, online sales growth of 15%,
like-for-like sales growth of 3.6% and losses reduced by 64%
* International remains challenging with economic and currency headwinds
impacting profits, which were down (12%)
* Statutory profit before tax of £9.7m compared to a loss in the previous
four years
* Closing net cash of £13.5m, after investing £39.2m during the year
* Review of International business completed with plans in place to
strengthen the business
Group performance
FY2015/16 FY2014/15
52 weeks to 52 weeks to % change
26 Mar 2016 28 Mar 2015 vs.
£million £million last year
UK
UK like-for-like sales 1 +3.6% +2.0% -
Total UK sales 459.7 458.1 +0.3%
Underlying UK loss 2 (6.4) (18.0) +64.4%
International
International like-for-like sales 1 (4.5)% +5.6% -
International retail sales in constant currency (1.4)% +12.4%
International retail sales in actual currency (7.4)% +2.1%
Total International sales 689.7 745.4 (7.5)%
Underlying International profit 2 40.3 45.9 (12.2)%
Group
Worldwide sales 1 1,149.4 1,203.5 (4.5)%
Total group sales 682.3 713.9 (4.4)%
Group underlying profit before tax 2 19.6 13.0 +50.8%
Exceptional credit/charge & non-underlying items (9.9) (26.1) -
Group profit before tax after exceptional and non-underlying items 9.7 (13.1) -
Underlying EPS 2 9.6p 8.6p +11.6%
Net cash 13.5 31.5 -
Mark Newton-Jones, Chief Executive of Mothercare plc, said:
"I'm pleased to report that two years into our turnaround strategy we have
recorded a 51% growth in underlying profit before tax and the delivery of our
first statutory profit in five years."
"The results highlight the significant progress we are making towards
returning the UK to profitability. Improvements to our customer offer, both in
store and online, and the look and feel of the store estate are driving
like-for-like sales growth for a second consecutive year. Nearly 40% of the
store estate is now in the new and much improved format and the feedback from
customers continues to be positive. This sales growth is not at the expense
of gross margins which have also returned to growth. There is still much to
do, but we are encouraged by our maintained trajectory towards profitability
in the UK."
"Conditions for our International business remain challenging. The issues are
primarily at a macro level, with economic and currency headwinds persisting.
Whilst we recognise these pressures, we believe that we can also make some
improvements in how we operate. We are exiting underperforming stores whilst
continuing to grow space where there is potential for long term growth. We are
also taking the lessons learned from our success in the UK and exporting them
to our International markets. This is strengthening our International
operations and improving the management of our brand globally."
"Our vision remains clear: to be the leading global retailer for parents and
young children."
Investor & analyst enquiries to:
Mothercare plc
Mark Newton-Jones, Chief Executive Officer
Richard Smothers, Chief Financial Officer
Ramona Tipnis, Director of Investor
Relations
01923 206455
Media enquiries to:
Mothercare plc
Helen Gunter, Director of Corporate Communications
MHP Communications
John Olsen/Simon
Hockridge
020 3128 8100
Notes:
1 - UK like-for-like sales are defined as sales from stores that have been
trading continuously from the same space for at least a year and include
online sales.
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 at constant
currency from stores that have been trading continuously from the same selling
space for at least a year and include online sales on a similar basis.
Total International sales are International retail sales plus International
Wholesale sales. Worldwide sales are total International sales plus total UK
sales. International stores refer to overseas franchise and joint venture
stores.
2 - Underlying profit before tax refers to PBT before exceptional and
non-underlying items. Underlying EPS is calculated on the basis of underlying
profit.
3 - This announcement contains certain forward-looking statements concerning
the Group. 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 Group does not undertake any obligation to announce
any revisions to such statements, except as required by law or by any
appropriate regulatory authority.
4 - Mothercare plc will host its AGM at which point it will also release its
Q1 Trading Update for the 15 weeks to 9 July 2016 on Thursday 14 July 2016.
CHIEF EXECUTIVE'S REVIEW
Overview
We have made solid progress in each of our six strategic pillars in this past
year as we continue to transform and modernise our business. In the UK almost
40% of space is now in the new and much improved format. We have invested in
product, service, systems and the team which is delivering a significantly
improved experience for our customers both in store and online. Like-for-like
sales are up for the second year in a row and margins, after five years of
decline, are up 70 bps reflecting our improved product quality and design,
better buying negotiations and a focus on full price sales. Combined, this has
resulted in a 64% reduction in losses compared to the previous year and we are
on track to return the UK to profit.
International has been more of a challenge, but we remain focused on building
a strong and more resilient business for the future. Our plan has been to fix
the UK business by transforming it in to a modern and professional retailer
and, by doing so, make it more exportable. We are now taking the lessons
learned and the new practices from the UK into our International markets which
will improve our partners' businesses and indeed the management of our brand
globally. Despite the challenges faced in our International markets, where
sales and profit have been impacted by economic and currency headwinds, we are
still opening new space. We have also recently completed a full review of our
International operations, looking for ways in which we can improve and
strengthen the business. We believe we can work even more closely with our
partners to support their businesses and strengthen the franchise model,
ensuring that we will be best placed to benefit when market conditions
improve.
I'd like to thank our teams and our International partners for all of their
effort in this past year, as we transform and modernise our business.
We have made further progress against each of our six strategic pillars and
overall the business is on a firmer footing and we are positioning ourselves
well for the future.
2 Become a digitally led business Online sales up 15%, accounting for 37% of
UK retail sales (FY2014/15: 32%). In store online ordering continuing to grow,
up 25% year-on-year and now accounting for 41% (FY2014/15: 38%) of all online
sales Mobile now 81% of online traffic and 58% of online sales for customers
ordering from outside our retail store network 4 Supported by a modern retail
estate and great service 56 UK stores, or almost 40% of UK space, in new and
much improved format Closed 19 underperforming stores, refurbished 47,
resited four and opened two new stores in the UK 6 Offering style, quality and
innovation in product Improved style, quality, innovation and design for all
three product categories Launched "Smile" by Julian Macdonald, our first
designer collaboration 8 Stabilise and recapture gross margin Margins up by 70
bps driven by less discounting and improved buying Significantly lower levels
of stock going into sale with 66% of product sold at full price compared to
57% two years ago 10 Running a lean organisation while investing for the
future Continued tight control of costs, despite need to invest selectively in
some areas £34m of free cash generated, before capital expenditure 12
Expanding further internationally Space up 4.6% with 1,310 stores in 57
countries as a net 37 new stores opened Closing stores in unprofitable markets
- Honduras, Slovenia and Uzbekistan
Group results
We now trade from 1,480 stores in 58 countries across the world. Global
retail space was up 0.6% year-on-year at 4.6m sq.ft., despite challenging
market conditions in many of our International markets and continued planned
store closures in the UK. In the UK space was down (6.4%) and we ended the
year with 170 stores and 1.6m sq.ft. of retail space. International continued
to grow space, which was up 4.6% and we ended the year with 1,310 stores and
3.0m sq.ft. of retail space.
FY2015/16 H1 FY2014/15
52 weeks to 28 weeks to % change
26 Mar 16 28 Mar 15 vs. last year
£million £million
Underlying International profit 2 40.3 45.9 (12.2)%
Underlying UK loss 2 (6.4) (18.0) +64.4%
Corporate expenses (8.1) (8.6) +5.8%
Underlying profit from operations 2 25.8 19.3 +33.7%
Underlying net finance costs (3.2) (5.0) -
Share based payments (3.0) (1.3) -
Underlying profit before tax 2 19.6 13.0 +50.8%
Exceptional items (10.2) (32.0) -
Non-cash foreign currency adjustments 1.2 6.9 -
Amortisation of intangibles (0.9) (1.0) -
Reported profit before tax 9.7 (13.1) -
Worldwide sales were down (4.5%) at £1,149m with total UK sales up 0.4% and
total International sales down (7.4%). Group sales were down (4.4%) at £682m,
reflecting the gain of 0.4% in the UK and more than offset by the (13.0%)
reduction in receipts from our International partners as a result of the
adverse currency impact and destocking in some key markets.
Despite the decline in sales, underlying Group profit before tax was up 51%
at £19.6m. The UK reduced losses by 64% delivering a loss of (£6.4m), while
International profits were down (12%) at £40.3m. Other Group expenses were
down (5.8%) during the year with corporate costs of (£8.1m), finance costs of
(£3.2m) and share based payments of (£3.0m).
Non-underlying costs were significantly reduced with a charge of (£10.2m)
for exceptional items, a credit of £1.2m for non-cash foreign currency
adjustments and a charge of (£0.9m) for amortisation of intangible assets. As
a result we ended the year with a reported profit of £9.7m compared to a loss
in the previous year (FY2014/15: loss of (£13.1)).
Our balance sheet remains strong with a net cash balance of £13.5m
(FY2014/15: £31.5m) after investing £39.2m in the business over the year.
UK
In the UK we have made significant progress over the last year with total UK
sales up 0.3% at £460m and UK losses reduced by 64% at (£6.4m).
We now have 56 stores in the new and significantly improved format, which
along with the improvements in product and service (both in store and online),
have contributed to the results this year. We are now confident in our
approach and will continue to roll out the new store format to the rest of the
UK store portfolio. The new and improved format will also be adopted by our
International partners for both new store openings and refurbishments of
existing stores.
FY2015/16 FY2014/15
52 weeks to 52 weeks to % change
26 Mar 16 28 Mar 15 vs. last year
UK like-for-like sales growth +3.6% +2.0% -
UK online sales £159.4m £138.4m +15.2%
UK retail sales (including online) £426.1m £425.7m +0.1%
UK wholesale sales £33.6m £32.4m +3.7%
Total UK sales £459.7m £458.1m +0.3%
Underlying loss £(6.4)m £(18.0)m +64.4%
Become a digitally led business
Online sales were up 15% at £159.4m with in store online sales via iPads now
accounting for 41% of the mix. This continued level of growth means online
sales now account for 37% (FY2014/15: 32%) of UK retail sales, which is
significantly above the UK average of c18%.
Our target customers are digitally enabled millennials who use their mobile
devices whilst out and about to browse merchandise, review content, read
reviews and purchase product. Our focus on content and enhancing the customer
journey is helping to support conversion rates. Mobile now accounts for 81%
(FY2014/15: 70%) of online traffic and 58% (FY2014/15: 53%) of online sales
for customers ordering from home or outside our retail store network.
Click-and-collect remains an important delivery option for our busy customers
and represents about a third of all online orders placed.
Supported by a modern retail estate and great service
Our store network has seen a step change over the last year. We closed 19
underperforming stores (13 Mothercare and six ELC), refurbished 47 stores,
resited four and opened two new stores. Nearly 40% of retail space in the UK
is now in the new, modern and much improved format.
New stores have clearly marked departments. In Clothing and footwear we have
sections for Maternity and Newborn. In Home and travel we have departments for
Car seats, Pushchairs, Feeding and Nursery furniture. ELC also received a
makeover. The new departments make it easier for customers to navigate around
and browse our stores and locate the products that meet their needs. Our
larger stores have coffee shops and soft play areas, which are helping to
increase dwell times. These facilities are increasingly used by our customers
as somewhere to meet like-minded mums and dads and relax over a coffee while
their toddlers have a run around in a fully supervised play zone.
Whist only a few of our stores have been trading in the new format for more
than a year, we are pleased with their performance since refurbishment. Early
indications are that they are largely performing in line with their business
plans. There are however a small number of stores that are not meeting
expectations and we have been able to identify the cause and put in place
remedial action plans while also learning from these for future
refurbishments.
As a result of these changes 56 of our 170 stores (162 Mothercare and eight
ELC) or nearly 40% of UK retail space is in the new format. We are also
continuing to migrate our estate to larger stores and ended the year with 96
out-of-town Mothercare stores, 66 Mothercare in town and eight ELC in town
stores with 121 ELC inserts within Mothercare stores. As a result our
out-of-town stores now account for 75% of UK space.
Whilst our strategy of closing underperforming stores reduced UK space by
(6.4%) year-on-year and reduced UK sales by (£14m), it contributed positively
towards the overall performance of the UK by reducing UK losses by £3.5m.
Offering style, quality and innovation in product
Improving stores without a similar improvement in product wouldn't deliver
the sorts of results we are seeing. The teams have been busy over the last
year upgrading our style, quality and value for money.
In Clothing and footwear , we have continued to work with brands to sit
alongside our own in-house designed product. The branded product has good sell
through rates at full price and also helps our range architecture in the
"Best" category of Clothing & footwear as we improve our own ranges. In our
own designed product we have successfully moved from four phases of product
each year to seven - introducing more newness to the customer offer.
In 'Newborn', an area of strength, we increased the level of Special Occasion
product which also helped increase our gift sales both in store and online.
These ranges have higher than average selling prices. In 'Maternity', another
area where we have traditionally been strong, we reacted to customer feedback
and introduced a range of Maternity Essentials at entry price points while
also adding brands like "Ripe" and "Hotmilk". In addition, in our refurbished
stores, we have introduced discreet maternity departments with a boutique feel
to differentiate the department and improve the display of product. Again the
customer response has been encouraging and we will continue to work with our
customers to offer them the products that they need at this important time in
their lives. By upgrading our quality and style, we have migrated our ranges
such that 21% of our own brand product is now in the "Best" category compared
to just 11% two years ago. The addition of "Smile" by Julian Macdonald, an
occasion wear range and our first designer collaboration, gives this
transition further impetus.
In Home and travel we continued to work with our suppliers to increase the
level of exclusive product and offers for our customers. At the same time we
have invested in our own brand ranges with products like our first own brand
ISO fix car seat and the award winning XSS Pockit stroller weighing less than
4kgs and folding down to just 34cm by 14cm (Junior Design Award for Best
Lightweight Buggy: October 2015). Our in store and online product presentation
took another step change with the creation of shop-in-shops, giving a more
boutique feel and through brand stores online. Our store staff are using iPads
effectively and have continued to improve service levels for customers. In
some of our stores we are seeing up to half of Home and travel sales
originating from iPads in our advisers' hands.
In ELC Toys our work has focused on improving the ranges and introducing more
newness, going back to our heritage of educational toys. Brand additions,
including Mellisa & Doug and Leapfrog, have helped towards this goal. We now
have 17% of sales coming from brands compared to 13% a year ago and for peak
trading we had 48% of products as new compared with just 32% in the previous
year.
Stabilise and recapture margin
It is pleasing to see the results of all of the work we have done in
improving our product and controlling the markdown and promotional activity.
Following five years of significant margin decline, we were able to stabilise
margins in FY2015. Our continued focus on both buying and reducing discounting
has resulted in a strong outturn in FY2016 with margins up 70 bps. This is
within our stated range of 50-100 bps improvement in the year.
We would not have been able to achieve this result had it not been for the
hard work of all of our teams and our unrelenting focus on product and stock
levels which allowed us to increase full price sales. Compared to two years
ago, full price sales have increased by nearly 10% in total with clothing
sales at full price improving nearly 15%.
Running a lean organisation
Despite the significant investment in the business, we have not lost sight of
cost control. Whilst costs were up in certain areas as we invested in the
future, overall we were able to take £1.8m of costs out of the business. In
particular, we have been able to deliver reductions in areas like rent,
contracts and some salaries. We have also invested in the key areas of
marketing and product, in particular to strengthen our capabilities in
digital, buying, merchandising and design.
International
Review of International
The recent macro-economic challenges across our International markets have
led us to review our International business model in more detail and, after
extensive analysis, we firmly believe that the franchise model is still the
appropriate strategy, being both low risk, capital light and scalable. However
we recognise that in the past the business has been managed as the
International division of an essentially UK business, and to some degree at
arm's length, with a relatively loose operating framework. We recognise that
this needs to change and as such we aim to build closer ties with our partners
to become a truly global business, with the UK seen as a division of the
whole. We are working with our partners to increase collaboration between
ourselves as franchisor and them as franchisees, sharing best retail practice
but also developing better services for them in buying, merchandising,
digital, marketing and training.
Our progress in the UK has given confidence to our partners that we are
developing a more modern and professional business to franchise. We have
invested in the International team, with three Managing Directors each with
regional responsibility, to provide more depth. Importantly we have also
extended the responsibility of the Executive Committee to include
International in their remit. Whilst Jerry Cull will be stepping down as
Managing Director of International, he will continue to be onboard supporting
us with his knowledge and experience as we progress with our strategy in
International.
International performance
Our International markets have been faced with ongoing macro headwinds for
some time. The weaker oil price is now beginning to impact consumer sentiment
and demand in the Middle East, while China has also seen a slowdown in
consumer spending as GDP growth has slowed. Currency devaluation has also had
an adverse impact, particularly in important markets like Russia where the
rouble has devalued significantly and so had a material impact on the cost of
goods and our profits in sterling. Despite these challenges, our franchise
partners have looked to strengthen and grow their store portfolios where
appropriate whilst also closing underperforming stores. Equally our partners
are investing to put the foundations in place to build their digital
capability, either in the form of a traditional website or in the less mature
online markets by building a database.
Additionally, we are working with our franchise partners to ensure the
trading approach is appropriate for current market conditions including
de-stocking where necessary to ensure that old stock is cleared to create
open-to-buy for our new improved ranges. By looking to strengthen our
International business in this downturn, we believe we will be well positioned
for a stronger recovery when market conditions improve.
FY2015/16 FY2014/15
52 weeks to 52 weeks to % change
26 Mar 16 28 Mar 15 vs. last year
International like-for-like sales growth (4.5)% +5.6% -
International retail sales: constant currency (1.4)% +12.4% -
International retail sales: actual currency (7.4)% +2.1% -
International retail sales £682.9m £737.3m (7.4)%
International wholesale sales £6.7m £8.1m (17.3)%
Total International sales £689.7m £745.4m (7.5)%
Underlying profit £40.3m £45.9m (12.2)%
Expanding further internationally
We are working with our partners to take a more proactive approach to space
growth, exiting where we see issues manifest and growing where we see
opportunity. As a result we believe that we are laying the foundations for a
more robust business. During the year we closed 92 stores, reducing space by
214k sq.ft., while at the same time opening 129 stores and increasing space by
347k sq.ft.. On a net basis space was up 4.6% with 37 stores and 132k sq.ft.
of space added during the year. Like the UK, our International stores are now
migrating to a larger format and will continue to do so over the next few
years as we replicate the best learnings from the UK.
International like-for-like sales were down (4.5%) year-on-year with Europe,
including Russia, the only one of our four regions in growth. International
sales in constant currency were down (1.4%) with all but the Middle East in
growth. Whilst growth in the Middle East slowed over the course of the year,
the region saw a marked slowdown during the last quarter as oil prices began
to impact consumer confidence. With currency moves continuing to have an
adverse impact, International sales in actual currency was down (7.4%) at
£683m, despite beneficial currency moves from the Middle East and to a lesser
degree Asia.
Wholesale sales were down at £6.7m resulting in a decline of (7.5%) in total
International sales to £690m.
International profit was down (12.2%) at £40.3m, with adverse currency
moves, particularly the rouble, having a £1m impact for the year and cost
recovery also being weaker with lower volumes of product to our International
partners. International remains an important and significant part of our group
business and now accounts for 66% of worldwide space and 60% of worldwide
sales.
Outlook
In the UK, we are making solid progress against our strategic pillars and
expect to see further improvement in the year ahead. Online sales growth
remains strong and is supporting like-for-like sales and total UK sales
growth. We will continue to invest in digital, our stores, improve product and
upgrade service and systems. Together these initiatives should deliver further
improvement in UK profitability in the year ahead.
Our International businesses will continue to face the challenges of economic
and currency headwinds in their markets. However, we are continuing to build
these businesses with our partners, investing in stores and online and
exporting the lessons learned from our successes in the UK. Mothercare is a
global brand, by working more closely with our partners we will operate as a
global business with the UK a division of the whole.
Whilst we recognise that there is still much to be done in the transformation
of our group, we have made good progress overall and our vision remains clear
- to be the leading global retailer for parents and young children.
Mothercare plc Preliminary Results
FINANCIAL REVIEW
RESULTS SUMMARY
Group underlying profit before tax increased by £6.6 million to £19.6
million (2014/15: £13.0 million). Underlying profit excludes exceptional
items and other non-underlying items which are analysed below. Exceptional
items include costs relating to activity on property. After exceptional and
non-underlying items, the Group recorded a pre-tax profit of £9.7 million
(2014/15: loss of £13.1 million).
Income statement
£ million 52 weeks ended 26 March 2016 52 weeks ended 28 March 2015
Revenue 682.3 713.9
Underlying profit from operations before interest and share based payments 25.8 19.3
Share based payments (3.0) (1.3)
Net finance costs (3.2) (5.0)
Underlying profit before tax 19.6 13.0
Exceptional items (10.2) (32.0)
Non-cash foreign currency adjustments 1.2 6.9
Amortisation of intangible assets (0.9) (1.0)
Profit/(Loss) before tax 9.7 (13.1)
Underlying EPS - basic (pence) 9.6 8.6
EPS - basic (pence) 3.8 (12.6)
Profit from operations before share based payments includes all of the
group's trading activities, but excludes the share based payment costs charged
to the income statement in accordance with IFRS 2 (see below).
Results by segment
The primary segments of Mothercare plc are the UK business and the
International business.
52 weeks ended 26 March 2016 52 weeks to 28 March 2015
£ million - Revenue
UK 459.7 458.1
International 222.6 255.8
Total 682.3 713.9
52 weeks to 26 March 2016 52 weeks to 28 March 2015
£ million - Underlying Profit/(loss)
UK (6.4) (18.0)
International 40.3 45.9
Corporate (8.1) (8.6)
Profit from operations before share based payments 25.8 19.3
Share based payments (3.0) (1.3)
Net finance costs (3.2) (5.0)
Underlying profit before tax 19.6 13.0
UK LFL sales have increased by 3.6% with support from online sales which were
up 15.2% year on year. Total UK sales were marginally higher year on year,
with underlying trading offsetting the impact of 25 planned store closures.
The business continued to sell more at full price, and this along with
improved buying margins and planned efficiencies improved profitability.
International retail sales decreased by 1.4% on a constant currency basis
with all four regions seeing a reduction in both constant and actual currency
sales. As a result of the ongoing economic and currency headwinds, reported
sales are down by 13%, with profit down on last year.
Corporate expenses represent board and company secretarial costs and other
head office costs including audit, professional fees, insurance and head
office property, and were lower year on year.
Share based payments
Underlying profit before tax also includes a share based payments charge of
£3.0 million (2014/15: £1.3 million) in relation to the Company's long-term
incentive schemes. There are a number of long-term share based incentive
schemes including the Long Term Incentive Plans, the Save As You Earn schemes
and the Company Share Option Plan. Full details can be found in note 28 in the
consolidated financial statements.
The charges as calculated under IFRS 2 are calculations based on a number of
market based factors and estimates about the future including estimates of
Mothercare's future share price, future profitability and TSR in relation to a
comparator group of retailers. As a result it is difficult to estimate or
predict reliably future charges.
Like-for-like sales, total International sales and worldwide sales
UK '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 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 worldwide sales are total International
sales plus total UK sales. Group worldwide sales and reported sales are
analysed as follows:
£ million Reported sales Worldwide sales*
52 weeks ended 26 March 2016 52 weeks ended 28 March 2015 52 weeks ended 26 March 2016 52 weeks ended 28 March 2015
UK retail sales 426.1 425.7 426.1 425.7
UK wholesale sales 33.6 32.4 33.6 32.4
Total UK sales 459.7 458.1 459.7 458.1
International retail sales 215.9 247.7 683.0 737.3
International wholesale sales 6.7 8.1 6.7 8.1
Total International sales 222.6 255.8 689.7 745.4
Group sales/Group worldwide sales 682.3 713.9 1,149.4 1,203.5
* Estimated
Analysis of worldwide sales movement
£ million - Worldwide sales
Sales for 52 weeks ended 28 March 2015 1,203.5
Currency impact (44.3)
Proforma sales for 52 weeks ended 28 March 2015 1,159.2
Decrease in International LFL (29.5)
Increase in International space 19.5
Increase in UK LFL 14.2
Decrease in UK space (13.8)
Decrease in wholesale (0.2)
Sales for 52 weeks ended 26 March 2016 1,149.4
Sales in the year ended 26 March 2016 were lower by £54.1m primarily as a
result of an adverse currency impact of £44.3m.
Excluding the currency impact, worldwide sales have decreased by 0.8% driven
by International sales; a decrease in like for like sales by 4.5% and an
increase in space by 4.6%.
UK like for like sales have grown strongly by 3.6%, but have been offset by a
decrease in UK space as a result of planned store closures.
Analysis of profit movement
£ million - underlying profit before tax
Underlying profit for 52 weeks ended 28 March 2015 13.0
Currency impact (1.0)
Proforma underlying profit for 52 weeks ended 28 March 2015 12.0
Decrease in International volumes (6.4)
UK closures of loss making stores 3.5
UK new and re-site stores 0.5
UK sales and margin improvement 8.2
Decrease in costs 1.8
Underlying profit before tax for 52 weeks ended 26 March 2016 19.6
On a proforma basis (i.e. excluding the currency impact) underlying profit
has increased by £7.6m. This is driven by UK sales and margin improvement,
the closure of UK loss making stores, and a reduction in the cost base. This
is partly offset by a decrease in international volume.
Foreign exchange
The main exchange rates used to translate the consolidated income statement
and balance sheet are set out below:
52 weeks ended 26 March 2016 52 weeks ended 28 March 2015
Average:
Russian rouble 95.40 70.57
Indonesian rupiah 20,418 19,484
Saudi riyal 5.68 6.03
Emirati Dirham 5.54 5.91
Closing:
Russian rouble 98.09 88.67
Indonesian rupiah 18,959 19,499
Saudi riyal 5.43 5.61
Emirati Dirham 5.32 5.49
The principal currencies that impact our results are Russian rouble,
Indonesian rupiah, Saudi riyal and Emirati Dirham. The Russian rouble
continued to weaken against the sterling in the year impacting profit
significantly. The net effect of currency translation caused worldwide sales
and underlying operating profit from ongoing operations to decrease by £44.3m
and £1.0m respectively compared with 2015 as shown below:
Worldwide Sales £ million Underlying Operating profit £ million
Russian rouble (35.8) (2.1)
Euro - Ireland (2.2) (0.1)
Euro - Greece (2.0) (0.1)
Indonesian rupiah (1.2) (0.1)
Saudi riyal 6.2 0.6
Emirati Dirham 4.8 0.4
Other currencies (14.1) 0.4
(44.3) (1.0)
The profit impacts are somewhat mitigated by our hedging strategy on royalty
receipts.
In addition to the translation exposure, the group is also exposed to
movements on certain of its transactions, principally movements in the US
dollar. These exposures are largely hedged and therefore did not significantly
impact underlying profit.
Net finance cost
Financing represents interest receivable on bank deposits, 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.
The net finance cost is materially lower than last year as the Group was
largely in a net cash position during the year.
52 weeks ended 26 March 2016 52 weeks ended 28 March 2015
£ million £ million
Net interest on liabilities/ return on assets on pension 2.7 2.1
Other net interest 0.5 4.4
Net finance costs 3.2 6.5
Taxation
The underlying tax charge is comprised of current overseas taxes and a prior
year adjustment for UK taxes and is offset by UK deferred tax. The effective
tax rate is 16.4% (2014/15: 19.2%) The effective tax rate is lower than the
standard tax rate of 20% mainly due to the utilisation of brought forward tax
losses. An underlying tax charge of £3.2m (2014/15: £2.5 million) has been
included for the period and in total the tax charge was £3.3m (2014/15:
£2.3m). The cash tax payments were £2.4m.
Non-underlying items
Underlying profit before tax excludes the following non-underlying items (see
Note 3):
Exceptional items (see Note 3):
* Assets written off at net book value with respect to the store
restructuring and refurbishment programme of £5.6 million.
* A credit for the release of store property provisions in relation to the UK
business of £0.8 million.
* International bad debt costs of £1.9 million.
* Impairment of joint venture by £3.3 million.
Exceptional items in 2014/15 included restructuring costs of the UK and head
office organisation totalling £9.1 million, a credit for the release of the
store impairment provision in relation to the UK business of £4.8 million,
property related exceptional costs of £25.9 million and costs relating to
re-financing completed in October 2014 of £1.5 million.
Other non-underlying items:
* The retranslation of foreign cash, payables and receivables.
* The revaluation of outstanding forward contracts, these represent contracts
that have not yet been matched to the purchase of stock. (note: the prior year
credit included the fair value movement of contracts taken out before hedge
accounting under IAS 39 "Financial Instruments: Recognition and Measurement"
was adopted in January 2014).
* Amortisation of intangible assets (excluding software).
Earnings per share and dividend
Basic earnings per share were 3.8 pence compared to a loss per share of 12.6
pence in 2014/15. Basic underlying earnings per share were 9.6 pence compared
to 8.6 pence last year.
52 weeks ended 26 March 2016 52 weeks ended 28 March 2015
Million Million
Weighted average number of shares in issue 170.6 122.2
Dilution- option schemes (for underlying results only) 6.0 3.6
Diluted weighted average number of shares in issue 176.6 125.8
Number of shares at period end 170.9 170.5
£ Million £ Million
Profit/(loss) for basic and diluted earnings per share 6.4 (15.4)
Exceptional items and other non-underlying items (Note 3) 9.9 26.1
Tax effect of above items 0.1 (0.2)
Underlying earnings 16.4 10.5
Basic earnings/(loss) per share 3.8 (12.6)
Basic underlying earnings per share 9.6 8.6
Diluted earnings/(loss) per share 3.6 (12.6)
Diluted underlying earnings per share 9.3 8.3
The Board has concluded that given the cash investment required to deliver
the new strategy the Company will not pay a final dividend for 2015/16. The
total dividend for the year is nil pence per share (2014/15: nil pence per
share).
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 52 weeks ending 25 March 2017 * 52 weeks ending 26 March 2016 52 weeks ended 28 March 2015
Income statement
Running costs (2.7) (2.7) (1.4)
Net interest on liabilities/ return on assets (2.5) (2.7) (2.1)
Net charge (5.2) (5.4) (3.5)
Cash funding
Regular contributions (2.2) (2.2) (0.6)
Deficit contributions (7.7) (8.9) (5.8)
Total cash funding (9.9) (11.1) (6.4)
Balance sheet
Fair value of schemes' assets n/a 287.5 283.4
Present value of defined benefit obligations n/a (361.9) (364.6)
Net liability n/a (74.4) (81.2)
* Estimate
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:
2015/16 2014/15 2015/16 Sensitivity 2015/16 Sensitivity £ million
Discount rate 3.6% 3.5% +/- 0.1% -6.4/+6.4
Inflation - RPI 3.1% 3.1% +/- 0.1% +6.3/-6.3
Inflation - CPI 2.0% 2.0% +/- 0.1% +6.3/-6.3
Cash flow
Underlying free cash flow was £(5.6)million with cash generated from
operations of £35.8 million being used for capital expenditure and taxation.
Capital expenditure of £39.2 million reflected the investment in the year in
store refurbishment and IT infrastructure.
Working capital movement of £nil is higher than 2015, reflecting the timing
profile of payments for stock.
52 weeks ended 26 March 2016 52 weeks ended 28 March 2015
£ million £ million
Underlying profit from operations before interest and share based payments 25.8 19.3
Depreciation and amortisation 17.5 16.7
Retirement benefit schemes (8.4) (5.0)
Change in working capital - (9.8)
Other movements 0.9 (3.2)
Cash generated from operations 35.8 18.0
Capital expenditure (39.2) (12.7)
Interest and tax received/(paid) (2.2) (6.2)
Underlying Free cashflow (5.6) (0.9)
Exceptional (12.9) (16.7)
Free cashflow (18.5) (17.6)
Net bank loans repaid Issue of ordinary share capital - 0.4 (65.0) 95.3
Exchange differences 0.1 1.5
Cash and cash equivalents at beginning of period 31.5 17.3
Net cash and cash equivalents at end of period 13.5 31.5
Balance sheet
The balance sheet includes identifiable intangible assets arising on the
acquisition of the Early Learning Centre of £5.5 million and goodwill of
£26.8 million. These assets are allocated to the International business.
26 March 2016 28 March 2015
£ million £ million
Goodwill and other intangibles 53.9 45.9
Property, plant and equipment 69.4 56.4
Retirement benefit obligations (net of tax) (58.1) (64.9)
Net cash 13.5 31.5
Derivative financial instruments 11.2 9.3
Other net liabilities (0.8) (0.5)
Net assets 89.1 77.7
Share capital and premium 146.4 146.0
Reserves (57.3) (68.3)
Total equity 89.1 77.7
Shareholders' funds amount to £89.1 million, an increase of £11.4 million
in the year driven mainly by a fall in the defined benefit obligation of £6.8
million. This represents £0.52 per share compared to £0.46 per share at the
previous year end.
Going concern
The directors have reviewed the going concern principle according to revised
guidance provided by the FRC.
The group's business activities and the factors likely to affect its future
development are set out in the principle risks and uncertainties section. The
financial position of the group, its cash flows, liquidity position and
borrowing facilities are set out in the financial review.
At the end of the year the group had a cash balance of £13.5m and was debt
free with sufficient headroom against covenants.
The directors have reviewed the group's latest forecasts and projections,
which have been sensitivity-tested for reasonably possible adverse variations
in 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, then there are mitigating actions
available, which would enable the group to continue to operate within the
terms of the borrowing facilities and covenants for the foreseeable future.
Based on this, 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 therefore
prepared on the going concern basis.
Viability Statement
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