REG - Mothercare PLC - Half-year Report <Origin Href="QuoteRef">MTC.L</Origin> - Part 2
23/11/2017 07:08
- Part 2: For the preceding part double click ID:nRSW2915Xa
as underlying
(2) Adjusted items includes property costs, costs of developing warehousing, stock provisions and restructuring costs and
other adjusted 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. These items were previously defined
as exceptional and non-underlying items
Condensed statement of comprehensive income/(expense)
For the 28 weeks ended 7 October 2017
28 weeks ended7 October 2017 (unaudited) 28 weeks ended8 October 2016 (unaudited) 52 weeks ended25 March 2017
£ million £ million £ million
(Loss)/profit for the period (14.5) 0.4 8.2
Items that will not be reclassified subsequently to the income statement:Actuarial gain/(loss) on defined benefit pension schemes 6.9 (35.1) (9.7)
Income tax relating to items not reclassified (1.1) 4.8 0.5
5.8 (30.3) (9.2)
Items that may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations (0.6) (1.7) (1.8)
Cash flow hedges: (losses)/gains arising in the period (4.1) 17.1 20.2
Deferred tax on cash flow hedges 1.2 (1.4) 1.1
(3.5) 14.0 19.5
Other comprehensive income/(expense) for the period 2.3 (16.3) 10.3
Total comprehensive (expense)/income for the period wholly attributable to equity holders of the parent (12.2) (15.9) 18.5
Condensed balance sheet
As at 7 October 2017
7 October 2017 (unaudited) 8 October 2016 (unaudited) 25 March 2017
Note £ million £ million £ million
Non-current assets
Goodwill 26.8 26.8 26.8
Intangible assets 35.0 28.0 36.6
Property, plant and equipment 10 70.1 77.0 80.4
Long term receivable - - 0.8
Deferred tax asset 6 25.2 24.8 24.8
Derivative financial instruments 13 0.9 2.2 0.2
158.0 158.8 169.6
Current assets
Inventories 119.6 125.8 102.0
Trade and other receivables 71.8 75.0 67.6
Cash and cash equivalents 11 1.3 14.4 -
Current tax asset 2.2 0.9 -
Derivative financial instruments 13 2.3 20.4 8.6
197.2 236.5 178.2
Total assets 355.2 395.3 347.8
Current liabilities
Trade and other payables (131.4) (147.5) (125.5)
Bank overdraft - - (0.9)
Current tax liabilities - - (0.2)
Derivative financial instruments 13 (3.9) (0.9) (0.8)
Short term provisions (8.2) (9.0) (8.8)
(143.5) (157.4) (136.2)
Non-current liabilities
Trade and other payables (23.3) (21.3) (21.5)
Borrowings 11 (38.9) (30.0) (15.0)
Retirement benefit obligations 12 (68.9) (106.5) (80.1)
Long term provisions (14.8) (17.8) (13.6)
(145.9) (175.6) (130.2)
Total liabilities (289.4) (333.0) (266.4)
Net assets 65.8 62.3 81.4
Equity attributable to equity holders of the parent
Share capital 85.4 85.4 85.4
Share premium account 61.0 61.0 61.0
Own shares (1.1) (0.3) (1.5)
Translation reserve (1.9) (1.2) (1.3)
Hedging reserve (0.8) 14.3 5.2
Retained deficit (76.8) (96.9) (67.4)
Total equity 65.8 62.3 81.4
Condensed statement of changes in equity
For the 28 weeks ended 7 October 2017 (unaudited)
Share capital Share premium account Own shares Translationreserve Hedging reserve Retained deficit Total equity
£ million £ million £ million £ million £ million £ million £ million
Balance at 25 March 2017 85.4 61.0 (1.5) (1.3) 5.2 (67.4) 81.4
Other comprehensive (expense)/income for the period - - - (0.6) (2.9) 5.8 2.3
Loss for the period - - - - - (14.5) (14.5)
Total comprehensive (expense)/income for the period - - - (0.6) (2.9) (8.7) (12.2)
Removal from equity to inventories during the period - - - - (3.1) - (3.1)
Credit to equity for equity-settled share- based payments - - - - - (0.2) (0.2)
Deferred tax on share-based payments - - - - - (0.1) (0.1)
Shares transferred to employees on vesting - - 0.4 - - (0.4) -
Balance at 7 October 2017 (unaudited) 85.4 61.0 (1.1) (1.9) (0.8) (76.8) 65.8
For the 28 weeks ended 8 October 2016 (unaudited)
Share capital Share premium account Own shares Translationreserve Hedging reserve Retained deficit 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)/income for the period - - - (1.7) 15.7 (30.3) (16.3)
Profit for the period - - - - - 0.4 0.4
Total comprehensive (expense)/income for the period - - - (1.7) 15.7 (29.9) (15.9)
Removal from equity to inventories during the period - - - - (11.1) - (11.1)
Credit to equity for equity-settled share- based payments - - - - - 0.3 0.3
Deferred tax on share-based payments - - - - - (0.1) (0.1)
Balance at 8 October 2016 (unaudited) 85.4 61.0 (0.3) (1.2) 14.3 (96.9) 62.3
For the 52 weeks ended 25 March 2017
Share capital Share premium account Own shares Translationreserve Hedging reserve Retained deficit 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)/income for the period - - - (1.8) 21.3 (9.2) 10.3
Profit for the period - - - - - 8.2 8.2
Total comprehensive (expense)/income 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 (audited) 85.4 61.0 (1.5) (1.3) 5.2 (67.4) 81.4
Condensed cash flow statement
For the 28 weeks ended 7 October 2017
Note 28 weeks ended7 October 2017 (unaudited) 28 weeks ended8 October 2016 (unaudited) 52 weeks ended25 March 2017
£ million £ million £ million
Net cash flow from operating activities 15 (7.6) (1.9) 15.3
Cash flows from investing activities
Interest received - - 0.1
Purchase of property, plant and equipment (11.5) (21.1) (28.2)
Purchase of intangibles - software (2.8) (4.0) (14.4)
Net cash received on disposal of joint venture - - 1.3
Net cash used in investing activities (14.3) (25.1) (41.2)
Cash flows from financing activities
Interest paid (0.7) (0.4) (1.0)
Drawdown on facility 24.5 30.0 15.0
Purchase of own shares - - (1.2)
Payment of facility fee (0.6) - -
Net cash raised in financing activities 23.2 29.6 12.8
Net increase/(decrease) in cash and cash equivalents 1.3 2.6 (13.1)
(Overdraft)/cash and cash equivalents at beginning of period (0.9) 13.5 13.5
Effect of foreign exchange rate changes 0.9 (1.7) (1.3)
Net cash and cash equivalents/(overdraft) at endof period 1.3 14.4 (0.9)
Notes
1 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 7 October 2017 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 25 March 2017 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.
2 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.
Taxation
The taxation charge for the 28 week period 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 recognising 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'.
Non-cash foreign currency adjustments
Since January 2014 the Group has adopted hedge accounting on its foreign currency contracts. The adjustment made by the
Group ensures that it reports its adjusted profit performance consistently with cash flows, reflecting the economic hedging
which is in place. In addition, foreign currency monetary assets and liabilities are revalued to the closing balance sheet
rate under IAS21 "The Effects of Changes in Foreign Exchange Rates".
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 is recorded in adjusted items.
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.
Alternative performance measures (APMs)
In the reporting of financial information, the directors have adopted various APMs of historical or future financial
performance, position or cash flows other than those defined or specified under International Financial Reporting Standards
(IFRS). These measures are not defined by IFRS and therefore may not be directly comparable with other companies' APMs,
including those in the Group's industry. APMs should be considered in addition to, and are not intended to be a substitute
for, or superior to, IFRS measurements.
Notes (continued)
2 Accounting Policies and Standards (continued) Purpose
The directors believe that these APMs assist in providing additional useful information on the ongoing trends, performance
and position of the Group. APMs are also used to enhance the comparability of information between reporting periods and
geographical units (such as like-for-like sales), by adjusting for non-recurring or uncontrollable factors which affect
IFRS measures, to aid the user in understanding the Group's performance.
Consequently, APMs are used by the directors and management for performance analysis, planning, reporting and incentive
setting purposes and have remained consistent with prior year.
The key APMs that the Group has focused on this half year are as follows:
• Group worldwide sales: This is the headline measure of revenue for the Group. Worldwide sales are total International
sales plus total UK sales. Total International sales are International retail sales plus International Wholesale sales.
Total Group sales is a statutory number and is made up of total UK sales and receipts from our International partners,
which includes royalty payments and the cost of goods dispatched to our franchise partners.
• Like-for-like sales (LFL): This is a widely used indicator of a retailer's current trading performance. This is defined
as sales from stores that have been trading continuously from the same selling space for at least a year and include online
sales. International retail sales are the estimated retail sales of overseas franchisees and joint ventures and associates
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.
• Constant currency sales exclude the impact of movements in foreign exchange on translation.
• Adjusted (loss)/profit: This is the headline measure of the Group's performance, and is based on (loss)/profit before
adjusted items; adjusted costs, amortisation of intangibles and impact of non- cash foreign currency adjustments under IAS
39 and IAS 21. Certain items due to their significance or one-off nature have been classified as adjusted costs. The gains
and losses on these discrete items, such as profits/losses on the disposal/termination of property interests, provision
for onerous leases, inventory, receivables, 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 adjusted items on the face of the income statement.
• Adjusted free cash flow: This is the headline measure of cash flow for the Group. This is based on the adjusted
performance excluding the impact of adjusted items. The presentation of adjusted free cash flow differs from the statutory
cash flow.
• Adjusted earnings per share: This is the earnings per share using adjusted (loss)/profit after tax as the earnings.
Note: adjusted profit and adjusted items were previously defined as underlying profit and exceptional and non-underlying
items.
3 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
costs.
3 Segmental information
28 weeks ended 7 October 2017(unaudited)
UK International Unallocated Corporate Expenses Consolidated
£ million £ million £ million £ million
Revenue
External sales 229.0 110.5 - 339.5
Result
Adjusted profit from retail operations before interest and share based payments (9.6) 14.9 (4.3) 1.0
Share-based payments credit 0.2
Adjusted profit from retail operations 1.2
Non-cash foreign currency adjustments (adjusted item) -
Amortisation of intangible assets (adjusted item) (0.5)
Adjusted costs (excluding adjusted items in finance costs) (15.4)
Loss from operations (14.7)
Finance costs (2.1)
Loss before taxation (16.8)
Taxation 2.3
Loss for the period (14.5)
28 weeks ended 8 October 2016(unaudited)
UK International Unallocated Corporate Expenses Consolidated
£ million £ million £ million £ million
Revenue
External sales 231.2 116.5 - 347.7
Result
Adjusted profit from retail operations before interest and share based payments (8.8) 20.8 (3.7) 8.3
Share-based payments (0.5)
Adjusted profit from retail operations 7.8
Non-cash foreign currency adjustments (adjusted item) 4.5
Amortisation of intangible assets (adjusted item) (0.5)
Adjusted costs (10.7)
Profit from operations 1.1
Finance cost (1.9)
Loss before taxation (0.8)
Taxation 1.2
Profit for the period 0.4
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
Adjusted profit from retail operations before interest and share based payments (4.4) 35.2 (7.0) 23.8
Share-based payments (0.8)
Adjusted profit from retail operations 23.0
Non-cash foreign currency adjustments (adjusted item) 4.1
Amortisation of intangible assets (adjusted item) (1.0)
Adjusted costs (15.7)
Profit from operations 10.4
Finance costs (3.3)
Profit before taxation 7.1
Taxation 1.1
Profit for the period 8.2
4 Adjusted items
Due to their significance or one-off nature, certain items have been classified as adjusted items as follows:
28 weeks ended7 October 2017 (unaudited) 28 weeks ended8 October 2016 (unaudited) 52 weeks ended25 March 2017
£ million £ million £ million
Adjusted costs:
Restructuring costs included in cost of sales (1.0) (4.5) (5.5)
Restructuring costs and property impairment included in administrative expenses (1.3) (1.3) (5.7)
Property related costs in other adjusted costs (11.7) (0.9) (0.5)
Joint venture trade receivable provision in administrative expenses (1.4) (4.0) (4.0)
Restructuring costs in finance costs (0.2) - -
Total adjusted costs: (15.6) (10.7) (15.7)
Other adjusted items:
Non-cash foreign currency adjustments under IAS39 and IAS21 included in cost of sales - 4.5 4.1
Amortisation of intangibles included in cost of sales (0.5) (0.5) (1.0)
Adjusted items before tax (16.1) (6.7) (12.6)
Restructuring costs included in cost of sales
During the 28 weeks ended 7 October 2017 a charge of £1.0 million was recognised for further incremental costs associated
with the planned development of UK warehousing that began in the prior year.
In H1 FY2016/17, a charge of £4.5 million was recognised, £3.6 million was related to costs associated to the international
restructure (in particular a £3.2m charge to increase the stock provision to align international trading with UK) and £0.9
million was related to the planned development of warehouses in the UK and consists of incremental labour and warehouse
storage costs.
Restructuring costs and property impairment included in administration expenses
During the 28 weeks ended 7 October 2017 a charge of £1.3 million was recognised. The majority of this amount related to an
ongoing strategic review of the overhead cost base of the business, the costs include consultancy fees, staff costs, a
£0.4 million increase in stock provisioning associated with ranges to be exited, and redundancy costs. Additional adjusted
costs are expected in the second half of FY2017/18 as subsequent to the balance sheet date it was announced that there will
be a wider head office restructure to save central costs by £7-£10 million before any re- investment.
In H1 FY2016/17, a £1.3 million charge related to head office redundancies.
Property related costs in other adjusted costs
During the 28 weeks ended 7 October 2017 a charge of £11.7 million was recognised. A £7.9 million charge related to store
closures costs and impairments following the store closure programme announced during the period. A £3.2 million charge
related to accelerated depreciation for stores refurbished by FY2017/18 and H1 FY2018/19. Additionally a charge of £0.6
million for dilapidations on an expired warehouse lease.
In H1 FY2016/17, a charge of £0.9 million was recognised. A £0.4 million charge related to accelerated depreciation for
stores refurbished by FY2016/17 and H1 FY2017/18. The remaining
£0.5 million charge related to asset write-downs for stores refurbished or closed.
4 Adjusted items (continued)
Joint venture trade receivable provision in administration expenses
During the 28 weeks ended 7 October 2017 the Group had made considerable progress in converting the joint venture in China
to a franchise agreement. This transition has led to a £1.4 million charge to adjusted costs consisting of; £0.9 million
for a loan write off, £0.3 million legal fees and a £0.2 million increase in the trade receivable provision.
In HY17, the Group fully provided for all outstanding debt at FY2015/16, £4.0 million. In H2 FY2016/17 a further £1.5
million was provided (charged to adjusted profit).
Restructuring in finance costs
A renegotiation on new banking facilities was signed on 5 May 2017 and a charge of £0.2 million for the write off of the
previous unamortised facility charge was recognised in the 28 weeks ended 7 October 2017.
5 Net finance costs
28 weeks ended7 October 2017 (unaudited) 28 weeks ended8 October 2016 (unaudited) 52 weeks ended25 March 2017
£ million £ million £ million
Interest on pension liabilities/return on assets 1.1 1.3 2.6
Other net interest 1.0 0.6 0.7
Net finance costs 2.1 1.9 3.3
6 Taxation
28 weeks ended7 October 2017 (unaudited) 28 weeks ended8 October 2016 (unaudited) 52 weeks ended25 March 2017
£ million £ million £ million
Current tax - Overseas tax and UK corporation tax (1.6) - 1.8
Deferred tax - UK tax charge for timing differences (0.7) (1.2) (2.9)
Total tax credit (2.3) (1.2) (1.1)
The deferred tax credit arises on UK temporary differences.
The net deferred tax asset at 7 October 2017 is £25.2 million (H1 FY2016/17: £24.8 million) including £11.7 million of
deferred tax assets in relation to retirement benefit obligations (H1 FY2016/17: £18.1 million).
HMRC will be reviewing Mothercare's compliance with the National Minimum Wage legislation in the second half of the year.
Currently the outcome of this is unknown and it is not possible to estimate any potential cost.
7 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.
8 Earnings per share
28 weeks ended7 October 2017 (unaudited) 28 weeks ended8 October 2016 (unaudited) 52 weeks ended25 March 2017
million million million
Weighted average number of shares in issue for the purpose of basic earnings per share 169.8 170.8 170.5
Dilution - option schemes 7.5 4.2 7.9
Weighted average number of shares in issue for the purpose of diluted earnings per share 177.3 175.0 178.4
£ million £ million £ million
(Loss)/ profit for basic and diluted earnings per share (14.5) 0.4 8.2
Adjusted items (Note 4) 16.1 6.7 12.6
Tax effect of above items (1.6) (1.3) (4.3)
Adjusted earnings 0.0 5.8 16.5
Pence Pence Pence
Basic earnings per share (8.5) 0.2 4.8
Basic adjusted earnings per share 0.0 3.4 9.7
Diluted earnings per share (8.5) 0.2 4.6
Diluted adjusted earnings per share 0.0 3.3 9.3
9 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 38%
of annual sales forecast to occur in the third quarter (mid-October to early January).
10 Property, plant and equipment
Capital additions of £6.4 million were made during the period (H1 FY2016/17: £19.4 million). The decrease over H1 FY2016/17
is primarily driven by the rest of the store refurbishment programme being planned.
11 Bank loans and overdrafts
As at 7 October 2017, the Group had drawn down £39.5 million of the Revolving Credit Facility. The RCF attracts an
interest rate of 2.5% above LIBOR. This is offset by £0.6 million facility fee and £1.3 million of cash and cash
equivalents resulting in net debt of £(37.6) million.
12 Retirement benefit schemes
The Group updated its accounting for pensions under IAS 19 as at 7 October 2017. 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 in March 2014, a liability of £68.9
million (H1 FY2016/17: £106.5 million) has been recognised. This represents a material decrease year on year, primarily as
a result of higher gilt and corporate bond yields and increased asset values.
The tri-ennial valuation of the pension has been concluded (based on the FY17 balance sheet year end date) and this will be
reflected in the valuation as at 24 March 2018.
13 Financial instruments' fair value disclosures
The Group held the following financial instruments at fair value at 7 October 2017. 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.
Fair value measurements at 7 October 2017 (unaudited) Fair value measurements at 8October 2016 (unaudited) Fair value measurements at 25 March 2017
£ million £ million £ million
Non-current financial assets:
Derivative financial instruments:
Forward foreign currency contracts 0.9 2.2 0.2
Current financial assets:
Derivative financial instruments:
Forward foreign currency contracts 2.3 20.4 8.6
Current financial liabilities:
Derivative financial instruments:
Forward foreign currency contracts (3.9) (0.9) (0.8)
(0.7) 21.7 8.0
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 recorded at amortised
cost in the financial statements are approximately equal to their fair values.
14 Share-based payments
A charge 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 credit for share-based payments under
IFRS 2 is £0.2 million (H1 FY2016/17: £0.5 million charge) of which £0.2 million (H1 FY2016/17: £0.3 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.
15 Notes to the cash flow statement
28 weeks ended7 October 2017 (unaudited) 28 weeks ended8 October 2016 (unaudited) 52 weeks ended25 March 2017
£ million £ million £ million
(Loss)/profit from retail operations (3.0) 2.0 10.9
Adjustments for:
Depreciation of property, plant and equipment 8.4 7.0 14.2
Amortisation of intangible assets 4.4 3.1 5.0
Impairment of property, plant and equipment and intangible assets (0.2) - 1.9
Losses on disposal of property, plant and equipment and intangible assets (0.1) - -
Loss on non-cash foreign currency adjustments - (4.5) (4.1)
Equity settled share-based payments (0.2) 0.5 0.8
Movement in provisions (5.3) (3.7) (7.5)
Cash payments for other adjusted items (0.1) - (0.2)
Amortisation of lease incentives (2.3) (3.0) (5.0)
Lease incentives received 1.9 0.9 2.0
Payments to retirement benefit schemes (7.1) (6.0) (9.6)
Charge to profit from operations in respect of retirement benefit schemes 1.7 1.6 3.0
Operating cash flow before movement in working capital (1.9) (2.1) 11.4
Increase in inventories (18.4) (22.9) (0.5)
(Increase)/decrease in receivables (7.0) 1.3 7.5
Increase/(decrease) in payables 20.4 22.4 (2.0)
Cash (used in)/generated from operations (6.9) (1.3) 16.4
Income taxes paid (0.7) (0.6) (1.1)
Net cash (outflow)/inflow from operating activities (7.6) (1.9) 15.3
Analysis of net debt
25 March2017 Cash flow Foreign exchange 7 October2017
£ million £ million £ million £ million
Cash and cash equivalents - 0.4 0.9 1.3
Borrowings (15.0) (24.5) - (39.5)
Facility fee - 0.6 - 0.6
Bank overdrafts (0.9) 0.9 - -
Net debt (15.9) (22.6) 0.9 (37.6)
16 Related party transactions
Transactions between the Group 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 Revenue from relatedparties Amounts owed by related parties (net ofprovisions)
£ million £ million
28 weeks ended 7 October 2017 (unaudited) 3.8 7.2
28 weeks ended 8 October 2016 (unaudited) 6.4 4.0
52 weeks ended 25 March 2017 9.8 6.3
Income earned from related parties includes royalty income on retail sales of related parties to
their customers, plus sales of goods to related parties made at the Group's usual list price.
The net amounts owed by related parties relate to the China JV (£6.8 million) and the Ukraine JV (£0.4 million).
A provision of £5.7 million and £0.8 million (H1 FY2016/17: £4.5 million and £1.0 million) exists for doubtful debts in
respect of the amounts owed by China JV and Ukraine JV respectively. In addition a loan balance with China of £0.9 million
has been written off during the 28 weeks ended 7 October 2017.
The amounts outstanding are unsecured and will be settled in cash.
17 Post balance sheet events
Additional costs within adjusted items are expected in the second half of FY2017/18 as subsequent to the balance sheet date
it was announced that there will be a wider head office restructure to save overhead costs by £7-£10 million before any
re-investment.
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 are summarised below:
• The anticipated turnaround of the Group's UK business may not be achievable if it fails to implement effectively key
aspects of its new strategic plan such as IT, store and infrastructure transformation.
• The Group may be affected by challenging economic conditions and political developments affecting the UK and
International markets in which it operates.
• The Group's brands and reputation are key to its success both in the UK and internationally; any damage to the
Group's brands or concerns relating to its products (including their quality or safety) could have an adverse effect on the
business.
• The Group is dependent on a small number of franchise partners that make up a significant proportion of its
International business, many of which are due for re-negotiation.
• The Group's results of operations may be affected by both transactional and translational foreign exchange risk.
• The Group's future
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