Mothercare plc Annual Report 2005

FY2005 Annual Report · Mothercare plc

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2 Chairman and chief executive’s statement
4 Business review:
5 Our business
9 Financial review
12 Corporate responsibility
15 Corporate governance

20 Board of directors
21 Directors’ report
23 Directors’ remuneration report
30 Directors’ responsibilities for the accounts
31 Independent auditors’ report
32 Group profit and loss account

Group statement of total recognised gains and losses

33 Group and Company balance sheets

Reconciliation of movement in shareholders’ funds

34 Group cash flow statement

Notes to the group cash flow statement

35 Accounting policies
36 Notes to the accounts
47 Five year record
48 Shareholder information

Our mission
is to meet the
needs and
aspirations
of parents for
their children,
worldwide.

Mothercare at a glance

Breakdown of sales

Stores at 26 March 2005

Out-of-town
High street

Total UK stores

International (franchise stores)*

Total

Total
selling area
(000s sq ft)

1,122
736

1,858

500

2,358

Stores

70
161

231

220

451

Europe

Middle
East

Far
East

Other

Total

*International
franchise stores

106

220

Total UK

£m

401.1

Mothercare International

56.1

Front cover Pink net tutu bridesmaid’s
dress £34/36 and cream butterfly
bridesmaid’s dress £34/36, dolly bag £6

Performance highlights

Group sales up
2.3% to £457.2 million
(2004 – £446.9 million)

Like-for-like UK
store sales up 1.3%.
See financial review
for definition of like-
for-like sales

Final dividend 5.3p
(2004 – 4.0p)

Basic earnings
per share 16.2p
(2004 – 46.5p)

Non-operating
exceptional credit
of £2.4 million
(2004 – 6.6 million)

Gross margin
up 0.5 percentage
points

Profit before
exceptional
items and taxation
of £19.6 million
(2004 – £16.5 million)

Product % of total UK sales

home & travel 47%
clothing 41%
toys 11%
other 1%

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Chairman and chief executive’s statement

Ian Peacock
Chairman

Dear shareholder

We are pleased to report another year of encouraging
performance. Sales and profits are up in the UK and our
international business continues to perform strongly.

We are now two years into our three-year turnaround
programme to rebuild Mothercare and we have focused our
resources on rebuilding the business through improvements
to our customer service, our infrastructure, our stores and our
product. We now have a much more stable platform in place
to start growing the business through new stores and other
routes to market including our direct operations and our
international franchises.

The UK business was resilient in the tougher trading environment,
particularly in the second half of the year. Throughout the
year, we continued to focus on turning the business round
and developing the Mothercare brand for the future. We
have started to reap some of the rewards from all the work
that has been done.

More of our stores are now modern and inviting and we
have further improved the design, quality, range and value
of our products. We are now well placed to grow our overall
market share with improved products and better availability.

We look forward to the opening of our new National Distribution
Centre this summer and the opportunities it will bring to lower
our distribution costs and to improve the efficiency with which
we bring products to our customers.

Ben Gordon
Chief executive

We have made significant investment in our infrastructure and
the systems required to support long-term growth.

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£19.6m

PROFIT BEFORE
EXCEPTIONAL ITEMS
AND TAXATION

5.3p

FINAL DIVIDEND

+1.3%

LIKE-FOR-LIKE UK
STORE SALES

+0.5

PERCENTAGE POINTS
GROSS MARGIN
IMPROVEMENT

We recognise the opportunities we have to gain competitive
advantage as a speciality retailer. As the average age of first-
time mothers rises we are aware that customers are becoming
ever more discerning and demand better advice and support.
We have further invested in programmes to underpin the delivery
of excellent service. Our employees continue to improve on the
specialist advice, help and support they offer to our customers.
During the year it was a great accolade to be named by the
Sunday Times as one of the Best Big Companies to Work For
based on the opinions of our UK employees. We were also
highlighted in the ‘Making Boards Better’ section of the DTI
‘Building Better Boards’ publication of December 2004.

We are encouraged also by the continued solid growth of
our international franchise business, demonstrating the strength
of the Mothercare brand worldwide. With almost as many
stores outside the UK as within the UK, we are increasingly
becoming an international business with a strong multinational
brand. We opened 27 stores in countries where we have
an existing presence and three stores in new countries. We
welcome the three new franchisees who have joined us and
look forward to further building our international business,
where we see considerable potential for further growth.

We have generated more cash with cash balances standing at
£37 million at the year end, having made a special voluntary
contribution into the staff pension scheme of £10 million to
strengthen its funding position.

We are proud of the progress we have made during the year
and recognise that we still have a number of initiatives to
complete in the current year. With the turnaround programme
well progressed, we have continued to develop and implement

plans to drive growth in our business. In doing so, we have
identified and analysed what we believe are the principal
internal and external risks to our business. These are set out
on page 15.

We have reinstated a progressive dividend policy and we
are pleased to recommend a final dividend of 5.3p bringing
the dividend for the full year to 8.0p – double last year’s total
dividend.

During the year Angela Heylin OBE retired from the board.
We would like to thank Angela for her seven years of excellent
counsel, particularly during the time of management transition.
We welcome David Williams who joined the board in August
2004, bringing with him a wealth of experience and expertise
that will be invaluable for the future. We would also like to thank
our employees throughout the business for their continued
hard work, enthusiasm and commitment.

Finally, the Mothercare Charitable Foundation received
its charitable status during the year and we are proud to
serve on the board of trustees. During the year the charitable
foundation made donations to a number of good causes
and further good causes are being considered for support
going forward.

With a resilient business model, the strength of our brand
and the specialist nature of our business, Mothercare will be
in a strong position to meet the challenges that lie ahead.

Ian Peacock

Ben Gordon

231

220

+15%

TOTAL UK STORES

INTERNATIONAL
FRANCHISE STORES

TOTAL DIRECT
SALES GROWTH

270,000

DIRECT CUSTOMERS

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Business review

Our business
Mothercare was created to provide parents and parents-to-be with
a one-stop-shop for the best quality and most innovative products
for their children under one roof. This remains the central ethos of
the Mothercare business today. For more than 40 years the brand
has been part of the process of parenting.

As an established specialist retailer, Mothercare understands the
highs and lows of parenting. We strive to make every mother and
father the best parent they can be and to give their little ones the
best possible start in life.

We aim to offer our customers products with a compelling mix of
strong design, exceptional quality and great value for money in the
areas of clothing, furniture and home furnishings, bedding, feeding,
bathing, travel equipment and toys.

Underpinning this goal lies a commitment to developing the
infrastructure that will support the delivery of world-class product. With
the latest systems and processes we aim to ensure seamless sourcing
and delivery from supplier to customer-focused product specialists.

From pregnancy through to childhood, our experts provide specialist
help and advice through stores, the internet, by post and by phone.

OUR MARKETS
The Mothercare brand is universally recognised in the UK and our
competitive position is significantly stronger than it was two years
ago. Our international brand recognition continues to grow with
more stores opening in new markets and in countries where we
already have a presence.

In the UK around 83 per cent of pregnant mothers walk through
our doors and continue to visit Mothercare as their children grow.
Some 75 per cent of mothers with 0-2 year olds and 60 per cent of
mothers with 3-6 year olds also visit our stores on a regular basis
(source: October 2004 Exit Survey). As our stores, products and
customer service continue to improve we are increasingly better
placed to leverage the strong brand position that we have.

TURNAROUND
Last year we outlined the second phase of our turnaround programme,
identifying the five key projects designed to stabilise our business and
to grow both sales and margins. We are pleased with our progress in
each of these areas, the details of which are described below.

Customer service
Customer service provides an opportunity for us to gain real
competitive advantage in our specialist markets. We have continued
to invest in the delivery of excellent customer service, upgrading the
quality of service and expertise provided by our store colleagues.

Having thoroughly reviewed the needs of our customers, we have
introduced a career development programme to deliver training
and support for our experts in specific product categories, such as
bra fitting, feeding and car seat fitting. Structured training programmes
in product knowledge and commercial selling have also been rolled
out. All these initiatives are linked to employee rewards to incentivise
employees to build more meaningful relationships with customers. To
ensure every member of the company plays their part in delivering
excellent customer service, we have also launched a recognition
scheme at our Watford office.

We’ve made more staff available at the times the customers need
them most. And we have worked hard on improving back of house
processes and stock room management.

We’ve improved standards throughout our stores. Our visual
merchandising, product display, point of sale signage and the
quality of our window displays have been transformed.

To measure the success of this investment we have introduced a
‘Mystery Shopper’ programme to measure employee behaviour,
awareness and interaction with customers. We’ve already seen
significant improvement. We use the results to track progress on a
store by store basis and help focus on the areas that need further
development.

Early results of our customer research suggest that customers are
noticing a significant improvement in service levels. Independent
customer exit interviews show we are improving in our own right
and against the competition.

Store proposition
At the heart of our store proposition is our aim to appeal visually to
our customers by displaying our products in a vibrant and interesting
way. Our stores are also designed to be convenient and easy to shop.
We have been presented with the Tommy’s Best Feeding and Changing
award for our in-store facilities across the country.

Opposite White kaftan £25 and pink bikini bottoms (part of set) £22
all stores White polo shirt £6/7 and jeans £7/8

Some 75 per cent of mothers with 0-2 year olds visit our stores Drawing table £70

Below (left to right) Our career development framework has been introduced to

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Business review continued

This year our major high street refurbishment programme has been
largely completed. We have now refurbished 100 of our 161 high street
stores to the Superlite format, improving both the store environment and
the merchandise mix. These stores now contribute about 71 per cent
of sales.

Sales growth in the refitted stores is some five per cent above the
average of the typical non-refitted high street stores. The cash return
on investment on an annualised basis is in excess of 20 per cent. The
35 stores in their second year since refit have maintained the improved
sales levels they achieved in their first year.

The remaining 61 high street stores have benefited from the
remerchandising that has been introduced across the entire store
portfolio. Of these, 30 that do not justify financially a major refit will
undergo minor updating with the balance being relocated to stores
of a better size or location as appropriate opportunities arise or closed.

Our 70 out-of-town stores continue to perform well. This group of
stores has been refurbished more recently than the high street stores.
Nevertheless we have trialled refurbishment in a small number of
these stores. Results show that the product mix, merchandising and
service we provide are more important to customers in these stores
than changes to the physical environment.

The intention is to undertake only moderate updates to those
out-of-town stores that have not benefited from a recent refurbishment,
concentrating on improving the customer offer and sales densities
thereby maintaining the impact of our brand.

Product and sourcing
We have repositioned our product offer over the past two years by
improving design, quality, fashionability and value. Much of this work
has been based on developing Mothercare’s ‘handwriting’ which
encompasses our in-house look and feel.

Customers are now demanding more high quality, fashionable
products. The introduction of the ‘good, better, best’ product and
pricing architecture continues to work well. Our ‘good’ product is
represented by very competitively priced products that protect our
margins and still boast good design and quality. In this range we
have some keen entry priced products in store.

Growing the proportion of Better and Best product

2003

2005

■ Good
■ Better
■ Best

Our ‘best’ product ranges demonstrate high quality fashion and
choice. In Clothing, customers have responded well to our new
ranges. An example of this is our party dresses at £36 which are
aspirational, with better fabrication and are great value.

As a result of this clear pricing strategy, our average selling price is
up by 3 per cent, despite significant price deflation in our products,
particularly in clothing. It also gives us the flexibility to capture a
wider range of customers and enables us to react to varying market
conditions. Using this approach we can flex the amount of good,
better and best product up or down the price chain dependent
on customer demand.

During the year we continued to innovate and introduce new product
ranges. In our Home and Travel ‘better’ category, we won the Mother
& Baby Awards, Pushchair of the Year category for our own brand
Sherpa Extreme for the second year running.

We have launched our new gift range to grow our customer base
by appealing to friends and family members looking for the perfect
present. We have focused on our core market of birth to age two
and these gifts have been extremely well received by our customers.
Over 200 gift lines are available on our website, through a dedicated
catalogue and in 41 trial stores. Early results are positive and we will
extend the business based on the results of the trial.

Our first children’s bedroom range, ‘First bedrooms’, has also been
launched on our website, in a dedicated catalogue and in our larger
stores. The range takes over where our nursery ranges end, offering
fully co-ordinated looks for boys and girls up to the age of eight. Initial
customer reaction is good and we will continue to monitor results.

Below (left to right) Gingham light £25
Svan highchair £165

3-piece oriental style lounge set £30 We have improved our product over the past two years

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Maternity wear is often a mother’s first tangible experience of
our brand and as such it continues to provide great potential for
Mothercare. We’ve made tremendous advances in our maternity
range, making it more fashionable and providing a wider selection
of garments. In response to customer feedback we will re-brand our
maternity ranges this autumn with a new sub-brand called Moda
Mothercare. In some larger stores we are installing a separately
branded women’s wear area within the maternity department.

Much of our success in product and pricing has been driven by
streamlining our supplier base. We have reduced the number of
items within our business to give greater choice with less complexity.
We have also reduced our supplier base, sourcing product from
better factories and fewer countries. Our more efficient operation
has reduced the cost of shipping product.

Currently at 35 per cent, we continue to move closer to our target
of sourcing 50 per cent of our clothing directly increasing the benefit
to the gross margin over the next three to five years.

Supply chain
We have made significant progress over the past two years with
product availability and the efficiency of our current distribution
operation. Availability is now around 85 per cent (from 65 per cent
two years ago) and distribution costs as a percentage to sales have
been reduced to 6.4 per cent (from 8.5 per cent two years ago).

We have reviewed our internal processes and have launched
a series of initiatives to improve stock file accuracy, production
planning and relationships with suppliers to ensure products
flow more efficiently through our warehouses and into our stores
to meet customer demand.

We will close our secondary distribution facility in Coventry which
handles our ‘pick to zero’ distribution operation and our returns
business. The returns business has already been successfully transferred
and the pick to zero operation is on schedule to transfer in June 2005.

Managing the transition

Coventry

Daventry

Phase 1

Mid 2005

Phase 2
Autumn 2005
to
Summer 2006
Phase 3

New bespoke
Daventry warehouse

Daventry space

Retained

Daventry space

The NDC operational systems have been tested over the past two
years both in DIDC and Coventry and it was a deliberate decision
to retain existing operational systems to reduce risk. The vast majority
of employees from Coventry are transferring to the new NDC.

We will retain an area of DIDC, which is ideal for hanging goods, and our
existing specialist warehouse for our Direct operation. Subsequent phases
over the next 18 months will focus on improvements for the Christmas
peak 2005 and for the long-term optimisation of the supply chain.

The costs of establishing the new warehouse at Daventry include
£7 million of capital expenditure and £6.5 million of operating
exceptional costs. The return on this investment when the new
operation is fully in place will be based on our target of 5 per cent
distribution costs of sales over the three years from full operation,
improved availability and the expected resultant sales increase.

Following our announcement in November 2004, we have progressed
with our plans to move the bulk of our distribution to a new National
Distribution Centre (NDC) which will become the hub of our network.

During the first phase, a project team, led by Mothercare in conjunction
with our logistics partner, Exel, has been managing the construction
of the purpose built NDC on the same distribution site as our existing
Daventry facility (DIDC). The NDC is now complete and we are
operating in the new building on schedule and on budget.

Infrastructure
We have continued our investment in the systems and tools necessary
to deliver growth in the business. In 2003 we implemented a modern
merchandise planning system and have used it to successfully launch
the Spring/Summer 2005 season. The system is performing well, helping
to improve availability and margins and reducing markdowns. We will
enhance the system with developments to planning and replenishment
systems alongside improved working practices.

Below (left to right) Our new maternity brand MODA Mothercare to be introduced this autumn Shorts £6/ 7 and hat £5/6 Our NDC will become the
hub of our distribution network Mothercare and Exel jointly managed the construction of the purpose built NDC

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Business review continued

We are continuing the roll out of new EPOS hardware and software
systems to all our stores. The new system is Chip and PIN enabled
and allows a higher level of customer service through reducing
transaction time by a third, improving customer information and
increasing financial controls.

of 30 new stores. Our sales to franchisees, which include the cost of
product together with franchise/royalty fees, increased by 17.3 per cent
during the year. This was largely driven by the improvements made
to availability, distribution, the Superlite format and product quality
in the UK business.

75 stores now have the new EPOS system and we expect to complete
roll out to all our stores by March 2006.

OUR STRATEGY FOR GROWTH
Having achieved the objectives we set for the second year of our
three-year turnaround programme, we are now embarking on our
programme for sustainable, long-term growth.

Long-term growth will come from continued improvements to the
performance of our existing operations together with the expansion
of our International business, new UK stores and extending our Direct
operations. We will also continue to monitor closely our service
delivery levels and focus the way in which we continue to enhance
our relationships with all our customers.

We are taking a balanced approach to our objectives for 2005/06,
focusing on further developments for our customers, our people, our
process transformation and our financial management. We have
identified major growth opportunities in three key areas:

NEW STORE DEVELOPMENT
Following our review of our UK store portfolio, we have identified
some 40 high street and 20 out-of-town locations where Mothercare
could trade successfully. Our focus will be on obtaining stores in
the right locations to achieve our target rates of return. Now, some
70 per cent of the UK population are within a 25 minute drive of
a Mothercare store and our growth plans will bring that figure to
80 per cent. These plans will also give us a presence in some of
the key areas where we don’t currently have stores.

We believe an opening programme of up to ten new stores per year
is achievable. We have eight confirmed openings for 2005/06 and have
already opened stores in Denton, Manchester and in Harrogate.

INTERNATIONAL
Mothercare International, our overseas franchise business, performed
well during the year with franchisee sales growing by 17 per cent
based on 10 per cent like-for-like growth together with the addition

We now trade in 30 countries through 220 stores, 30 of which were
opened during the year. We expect the number of international stores
to surpass the number of UK stores by Christmas 2005.

International sales and profits

Retail sales (ex vat)

£m

Profit/contribution (ex vat)

2004/05

2003/04

2002/03

2001/02

119

101

2004/05

2003/04

2002/03

2001/02

£m

7.3

6.1

4.8

4.0

Our international business represents a substantial growth opportunity
for Mothercare. Following five years of consistent growth, Mothercare
has strong brand awareness overseas and a sustained premium/
quality perception.

We have 20 franchise partners, most of whom we have worked with
for many years through solid relationships built on the exchange of
local knowledge and a strong growth pipeline.

Together with our franchisees, we have analysed opportunities for
further growth in this business, taking into account five key factors
which contribute to successful trading for Mothercare. They are: market
economic growth; market competitive environment; market risk; linkage
to our logistics infrastructure and strength of potential franchise partners.

We plan to open around 100 new stores in existing countries and with
existing franchisees in the next three years. A significant proportion of
these will be in the Middle East, Russia, Turkey and Spain.

The second opportunity is to enter and grow in new countries. An
example of this is in Indonesia and Pakistan, where we’ve opened
our first stores in April 2005 and we have plans in place to open more
stores in both countries.

To support our planned growth, we have reorganised our international
warehouse network. As well as our dedicated UK warehouse, we

Below (left to right) Border print frill t-shirt £7/8 We have focused our gift range on our core market of birth to age two Knitted blanket, mitts and
hat £25

Beaded hippy top £25 and white linen trousers £35

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operate a hub in Dubai and have opened a new distribution centre
in Singapore to distribute product originating in the Far East more
efficiently. This has resulted in lower warehousing and transport costs
for franchisees and has improved delivery times considerably.

MOTHERCARE DIRECT
Mothercare Direct makes up much of our multi-channel business and
comprises our catalogue, phone orders and our established retail
website where over 270,000 customers ordered through one or more
of these channels last year. Direct had another successful year with
sales growing overall by 15 per cent. However the growth of internet
ordering in-store had the effect of cannibalising the home shopping
sales, such that they were down 5 per cent in the year.

Financial review
RESULTS SUMMARY
Total group sales have increased by 2.3 per cent to £457.2 million
(2004 – £446.9 million) with like-for-like UK store sales up by 1.3 per cent.
Operating profit before exceptional items improved by 13.3 per cent
to £17.9 million from £15.8 million last year.

The results can be summarised as follows:

Turnover (ex VAT)

Operating proﬁt (before exceptional operating items)
Exceptional operating items

Our multi-channel approach has been designed for the Mothercare
customer who is time and convenience pressured and often uses
more than one channel to research, test and then buy products. We
continually work to ensure that all of our complementary channels
work seamlessly for the benefit of our customers.

Operating proﬁt
Non-operating exceptional items
Interest
Taxation

A key opportunity is to make all our stores web-enabled so that
customer orders can be placed online, allowing us to capture
orders for products that are either out of stock or not ranged at the
store. Some 138 stores are now web-enabled and it is intended that
all stores will be web-enabled by the end of 2005/06. Sales growth
in our web-enabled stores was 40 per cent during the year. This has
impacted on our catalogue and home internet sales but we are
pleased with our overall Direct performance.

Our catalogues also provide a strong growth opportunity. 52 per cent
of customers who buy in-store have a catalogue with them and last
year we printed 30 per cent more to ensure that as many pregnant
customers as possible left the store with a catalogue.

This year we will increase the sophistication of our direct mail activity,
particularly through range specific catalogues and seasonal marketing.
We will also improve the level of in-store messaging about our direct
channels and we will integrate our databases so that we can target
products and promotions to meet our customers’ needs through the
journey of parenthood.

Having the channels in place to serve customers with the right product
at the right time is the essence of modern retailing and we intend to
realise the huge opportunity that this business offers us.

Proﬁt after tax

Earnings per share

Group turnover and operating profit before exceptional operating items:

Total UK
Mothercare International

Total

Turnover

Operating proﬁt

2005
£m

401.1
56.1

2004
£m

399.1
47.8

457.2

446.9

2005
£m

10.6
7.3

17.9

2004
£m

9.7
6.1

15.8

Divisional performance
UK
Total UK sales increased by 0.5 per cent to £401.1 million. Total UK
store sales increased by 0.7 per cent to £384.1 million. Like-for-like
sales (defined as sales growth on the previous year for stores that
have been trading continuously from the same selling space for at
least 13 financial periods) increased by 1.3 per cent. The sales loss
due to net store closures was 0.6 per cent. Three stores were opened
during the year and five were closed.

2005
£m

2004
£m

457.2

446.9

17.9
(6.5)

11.4
2.4
1.7
(4.4)

11.1

15.8
0.8

16.6
6.6
0.7
7.3

31.2

16.2p

46.5p

Below (left to right) Nursing chair £280
trouser £7/8

Floral swimshort £7/8

Ballerina t-shirt and shoes £10

Butterfly smock dress £12/13 and easy turn up jean £7/8; flower print top (part of set) £12/13 and stripe

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Mothercare Direct sales reduced by 4.8 per cent to £17.0 million
largely due to cannibalisation from significantly increased sales in
our web-enabled stores.

Operating profit before exceptional operating items increased by
9.3 per cent to £10.6 million from £9.7 million last year.

Mothercare International
Mothercare International performed well with sales growing by
17.3 per cent to £56.1 million and operating profit growing 19.7 per cent
to £7.3 million. 30 new franchise stores were opened in the year taking
the total to 220 at the year end.

Operating profit
Group operating profit, before exceptional operating items increased
by 13.3 per cent to £17.9 million (2004 – £15.8 million). The key factors
driving this improvement were an increase in sales and gross margin
together with a reduction in distribution costs. Taking into account
exceptional operating items, group operating profit decreased by
31.3 per cent to £11.4 million (2004 – £16.6 million).

Gross margin increased by 0.5 percentage points due to better product
flow through the business which lead to improved availability to
customers and allowed for greater full price trading. The improvements
in our product range and the early benefits of our sourcing initiatives
also played a major role in the increase.

Distribution costs reduced to 6.4 per cent of sales from 6.5 per cent
last year.

The increase in other operating costs was restricted to below 3 per cent
as our continued focus on reducing our cost base offset increases in
key cost areas such as store payroll and energy.

Operating exceptional items
The operating exceptional charge of £6.5 million relates to the costs
associated with the reorganisation of our distribution network as a
result of the move to our new NDC.

Non-operating exceptional items
The exceptional credit of £2.4 million relates to the profit on disposal
net of costs of a subsidiary undertaking with capital tax losses attached.

Interest and taxation
Net interest income increased to £1.7 million from £0.7 million last year
as a result of the higher average cash balances resulting from the
positive cash flow of the business.

Due to the tax losses we have brought forward of some £36 million
no tax will actually be paid for the year. The tax charge of £4.4 million,
representing an effective tax rate of 29 per cent, reflects utilisation of
these losses in respect of which a deferred tax asset was established
at the end of last year.

Pensions
The total cost of the pension schemes charged to the profit and loss
account in the year was £2.4 million (2004 – £2.7 million). The valuation
of the schemes under FRS 17 at March 2005 gave rise to a net pension
deficit of £15.5 million (2004 – deficit of £15.5 million) after the benefit
of potential deferred taxation at 30 per cent amounting to £6.6 million
(2004 – £6.7 million). On a FRS 17 basis the net charge to profits would
have been £2.8 million (2004 – £3.8 million) after the benefit of net
finance income of £1.7 million (2004 – £1.1 million).

Over the last two years we have performed a major review of the
structure and levels of benefits of the group’s pension schemes. The
changes in benefit structure will reduce costs in the long term, however
the deficit remains significant and the board concluded that a special
voluntary contribution into the scheme of £10 million to strengthen its
funding position was necessary and appropriate. This contribution
was made in March 2005.

If this contribution had not been made, our pension deficit under
FRS 17 would have increased by £10 million mainly due to the impact
of allowing for increased mortality rates.

We expect to review the ongoing level of contributions to the scheme
when the actuarial valuation as at 31 March 2005 is completed. The
investment risk profile of the pension funds has also been reviewed
and the level of investment in fixed income and property has been
increased to help reduce the likelihood of significant deficits arising
in the future.

Balance sheet and cash flow
The group had a net cash inflow of £6.7 million before the special
pension contribution of £10 million, giving a net cash outflow of
£3.3 million in the year, leading to the cash balance at the end
of the year of £37.0 million (2004 – £40.3 million).

Capital expenditure for the year was £18.4 million (2004 – £8.5 million), of
which the cost of our high street store refurbishment programme was
£7.5 million and the cost of new stores was £2.6 million.

Opposite Nordic bed £200, funky animals duvet set £28 and funky animals wall light £30
Unisex long sleeve top, hat, bootees and fleece blanket £18

Leaf patterned shirt £10/1 1

Below (left to right) 2-piece jersey vest set £16

Beaded pink kaftan £9/10; flower print swimsuit £7/8

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Business review continued

Earnings per share and dividend
Basic earnings per share are 16.2p for the year (2004 – 46.5p). Adjusted
earnings per share before exceptional items are 19.5p after a tax charge
of 9.3p per share (2004 – 24.4p after a tax charge of nil pence per share).

The directors are pleased to recommend a final dividend for the year
of 5.3p (2004 – 4.0p). The total dividend for the year is 8.0p compared
with 4.0p last year, an increase of 100 per cent.

The final dividend will be payable on 29 July 2005 to shareholders
registered on 17 June 2005. The latest date for election to join the
dividend re-investment plan is 8 July 2005.

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 risks to which the group is exposed relate to
movements in exchange rates and interest rates. Where appropriate,
cost effective and practicable the group uses financial instruments and
derivatives to manage these risks. No speculative use of derivatives,
currency or other instruments is permitted.

Foreign currency risk
All export sales to franchise operations are invoiced in sterling. Export
sales represent approximately 12.3 per cent of group sales. The group
therefore has no currency exposure on these sales.

The group purchases product in foreign currency, representing some
6 per cent of purchases. The group policy is that all material exposures
are hedged by using forward currency contracts.

Interest rate risk
The group does not anticipate incurring substantial sustained levels
of debt in the short term. In this situation interest rate hedging is not
considered necessary.

The board will keep this situation under review.

Shareholders’ funds
Shareholders’ funds amount to £143.5 million, an increase of £7.8 million
in the year. This is equivalent to £2.00 per share compared to £1.91 per
share at the previous year end.

Accounting policies and standards
The principal accounting policies used by the group are shown on
page 35. There have been no material changes to accounting policies
in the year.

No new accounting standards came into effect during the year.

Implementation of FRS 17 ‘Retirement Benefits’ has been delayed by
the Accounting Standards Board. Preliminary disclosures are required
under the transitional arrangements and these are set out in note 18
to the accounts on pages 44 and 45.

For the 53 weeks ending 1 April 2006, the group will adopt International
Accounting Standards and International Financial Reporting Standards
(‘IFRS’) as issued by the International Accounting Standards Board and
endorsed by the European Union. Consequently the date of transition
to IFRS for the group is 28 March 2004. The group is well advanced
in considering the impact that the adoption of IFRS will have on the
financial statements. The main areas where the adoption of IFRS will
have an impact are expected to be share-based payment accounting,
lease accounting and taxation.

The group has elected to apply the exemption to the general principle
of retrospective application in relation to financial instruments and
therefore there will be no impact on the results for the 52 weeks
ended 26 March 2005. In the preparation of the financial statements
for the 53 weeks ending 1 April 2006, the group will implement these
requirements in full.

The group intends to publish results for the 52 weeks ended 26 March
2005 restated for IFRS, with a reconciliation between its financial
statements under UK GAAP and IFRS, with the Annual General Meeting
statement in July 2005.

Corporate responsibility
The Company recognises that corporate social responsibility (CSR)
is an integral part of its ongoing daily operations. Mothercare is
committed to the welfare of its customers, employees, suppliers and
the communities in which it operates. Throughout the turnaround
programme, we have made further progress in our CSR activities.

PEOPLE
Reward and benefits
The Mothercare web site (www.mothercare.com) includes details of the
benefits of working for the Company. These include extensive training
and development programmes, bonus and pension schemes, other
flexible benefits, work/life balance schemes, mother friendly shifts,
career breaks and retirement policies.

Below (left to right) Triangle bikini £8/9 and lightweight skirt £6/7, butterfly beaded vest £5/6 and surf short £7/8 Captain t-shirt £5/6 and
camouflage print short £8/9

Baby boy gift set £12 Aqua jersey kaftan £24 and white prairie skirt £28

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All Mothercare employees have access to an independent and free
helpline offering support on financial, legal and personal issues. During
the year a confidential hotline was established so that employees
can report concerns about fraud, theft and breaches of security.

We are proud to have been named by the Sunday Times as one of
the Best Big Companies to Work For in 2005, based on the opinions
of a cross section of our UK employees.

Communication
Employees have been fully engaged in the Company’s three year
turnaround programme. The Company’s short and long term goals
have been communicated and discussed through conferences,
roadshows, workshops and newsletters.

Towards the year end two employee forums were introduced to
provide the framework for consultation in the retail and central support
functions. Each forum is comprised of elected employee representatives
and management representatives. The first meetings will take place
in June 2005.

Customer service
During the year a Career Development Framework (CDF) was
introduced to provide a structured career path for all store employees.
The framework is supported by new customer-focused training
programmes and provides progressive pay bands, rewarding people
for reaching agreed levels of service.

Disability
The Company has progressed with its work on the new provisions of
the Disability Discrimination Act 2004. Store and website accessibility
audits are continuing. Employees have now been trained on
identifying and dealing with potential barriers to disabled customers
and colleagues.

SUPPLIERS
Ethics
The ongoing appraisal of all our suppliers’ factory standards,
manufacturing capabilities and overall quality performance has
continued. We aim to ensure that our products are made to a
consistently high standard and in full compliance with Mothercare’s
Ethical Code of Practice. To this end we continue to be an active
member of the Ethical Trading Initiative (ETI). The ETI is an alliance
of businesses, non-governmental organisations and trade unions
committed to working together to promote Ethical Trade.

Quality
As year on year customer returns fall, we continue to focus on the
safety, quality and legality of all our products. Our ongoing programme
to evaluate, update and implement new quality initiatives includes
the audit of all factories used to manufacture our Mothercare branded
products. We are in the process of establishing an independent
supplier welfare committee. This committee will oversee an extensive
quality audit programme covering manufacturing controls and
processes and the implementation of management systems.

During the year, we have won awards for our products including
the Tommy’s Parent Friendly Award for best maternity wear, the Baby
and Toddler Gear ‘On Test’ award for the Newbury cot, eight Prima
Baby Awards and two Mother & Baby Gold Awards for the Sherpa
three-wheeler pushchair and our Mothercare baby wipes.

Use of chemicals and harmful substances
The environmental policy, published in February 2003, pledged to
phase out the use of materials that ‘may pose an unacceptable risk
to our customers, the people making our products, or the environment’.
The complete substitution of PVC in our range of cot mattresses has
been accomplished and we are continuing to seek substitutes for
other materials.

ENVIRONMENT
The Company manages the impact of its business activities on the
environment by making efficient use of raw materials, optimising
energy consumption and by encouraging recycling and sustainability.

Raw materials/logistics initiatives
We maintain an active interest in the activities and efficiencies of
our logistics partners. During the year all inbound import containers
have been redirected into the rail head adjacent to our warehouse
and store deliveries to Aberdeen transferred from road to rail service.
Combined, these initiatives have saved 311,000 miles of road traffic
and 723 heavy goods vehicle journeys.

Next year we expect to further reduce the number of our vehicles on
the road from 100 to 88, every working day. We will transfer all Scottish
store deliveries to rail. This will cut 680,000 miles or 1,369 road journeys
and 300,000 litres of fuel.

A new, dynamic transport scheduling tool for our combined collection
and delivery fleet will result in 1,300 fewer journeys in 2005/06. We expect
a saving of 320,000 miles and 140,000 litres of fuel.

Below (left to right) We are proud to have been named by the Sunday Times as one of the Best Big Companies to Work For in 2005
£8/9 and lemon and pink ra-ra skirt (2 pack) £6/8

Silver plated bubble blower £8 Ditsy floral print wrap top £14

Triangle bikini

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All delivery drivers are trained in the Government-sponsored safe
and efficient driving scheme.

The Foundation welcomes applications from charities and research
organisations that are focused on:

Energy consumption
Energy management systems in all our stores control the time
switching of lighting and heating to reduce wastage. An external
consultant has been retained to report on efficient energy consumption.

A contract for greener electricity supply was tendered in September
2004. This resulted in a 100 per cent green energy contract, with the
prices more than offsetting the reduction in climate change levy.

In line with the introduction of Building Energy Logbooks we are installing
additional sub-metering in all new stores on electrical and HVAC circuits
to monitor energy consumption against initial design parameters.

Two trials are underway to generate more accurate billing, reducing
the large fluctuations that currently result from estimated readings.

Recycling
All packaging from our warehouses is recycled and 50 per cent of
cardboard and other waste is recycled where we are responsible for
collecting trade waste. We participate in recycling schemes operated
by the shopping centres in which we are represented. It is intended
that recycling will be increased where opportunities permit and we
are currently investigating recycling schemes for our Watford office.

All delivery vehicle oils, batteries and tyres are sent for reprocessing
and/or reclamation of materials.

COMMUNITY
Given the Company’s focus on the turnaround programme in 2003/04,
work on community based activities was limited. During 2004/05 we have
taken steps to improve our community programmes, as set out below.

Charitable donations
Following the formation of the Mothercare Charitable Foundation
(formerly Mothercare Foundation Limited) last year, charitable status
was granted from the Charities Commission on 16 June 2004.

The Foundation’s aim is to help parents in the UK and worldwide meet
the needs and aspirations for their children and to give their children
the very best chance of good health, education, well-being and a
secure start in life.

• ensuring the good health and well-being of mums-to-be, new

mums and their children;

• special baby-care needs and premature births; and

• other parenting initiatives related to family well-being.

The four Foundation trustees, chaired by Karren Brady, meet quarterly
to review requests from charities and community groups for funding. It
is also the route through which funds raised from employees’ charitable
activities are channelled to appropriate causes. A Foundation working
party oversees the applications presented to the trustees and ensures
they are appropriate to our aims and objectives.

The Foundation is funded by donations from group profit and
interest on cash balances retained in the Fund account. During
the year the Company gave £200,000 to the Foundation. Donations
to date total £35,000 to Action Medical Research for its Touching
Tiny Lives campaign. A further £20,000 has been authorised for
TAMBA and Homestart and we are considering a number of
other donations to good causes.

Following the humanitarian disaster caused by the tsunami in the
Indian Ocean, the Company donated £50,000 to the British Red
Cross. This money was given to charities in Sri Lanka, where we have
a strong supplier base, to help with immediate requirements. As the
requirements of the region become clearer over time, the Company
will consider additional resources it can make available to those in
continuing need.

Community activities
To promote the Company’s involvement in the community, where
possible we provide facilities in stores for national and local self-help
groups to carry out parenting, baby and childcare activities and courses.

Mothercare worked with the Department of Health during the year to
support National Breastfeeding Awareness Week with in-store seminars
in May 2004. During the year we have continued to work closely with
National Childbirth Trust, St. John Ambulance and with local special
care baby units.

Below (left to right) Sleeveless lemon kaftan £20

Blackboard easel £70

Light and sound carousel £13 Vanity case set £16

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Corporate governance
The Company aspires to achieve high standards of corporate
governance in order to promote the interests of investors, customers,
staff and other stakeholders. The Company considers that it has
complied during the 52 weeks ended 26 March 2005 with the code
provisions set out in Section 1 of the Combined Code on Corporate
Governance published by the Financial Reporting Council in July
2003, ‘FRC 2003 Code’.

The board
The board operates on a unitary basis and comprises the chairman,
three independent non-executive directors, and two full time executive
directors, being the chief executive and the finance director. The board
has overall responsibility for the Company’s system of internal control
and for reviewing its effectiveness. The Company has established
and maintained a system of internal control within an executive
management structure with defined lines of responsibility and
delegation of authority within prescribed financial and operational
limits. The Company’s system of internal control is based on financial,
operational, compliance and risk control policies and procedures
together with regular reporting of financial performance. Planning,
budgeting and forecasting procedures are also in place together
with formal capital investment and appraisal arrangements.

Risk management
The board recognises that the management of risk in accordance with
both the Turnbull Guidance and the FRC 2003 Code is key to ensuring
that a robust system of internal control is monitored by the business.

The annual review sets out progress against the turnaround strategy
previously disclosed and how this strategy will develop into following
phases designed to promote the growth of the Mothercare business.
The board recognise that there remains a considerable amount of
work to be done to complete the re-establishment of the business and
achieve the expected rewards from it within the timeframe that the
executive committee has set itself. This places continued high demands
on the Mothercare team at all levels. In addition, the retail market
environment within which the business operates is characterised by a
less benign economic retail environment, continued strong competitive
pressures, volatility and, in recent years, clothing price deflation. Against
this background, the system of internal controls is designed to manage

rather than eliminate risks. It also recognises that there are risks in
the failure to deliver the expected benefits of the programmes set
out below and that the Company has had a higher risk profile than
a number of its peers:

• completion of the build, commissioning and phased transfer of

operations to the new warehouse at Daventry and the closure of
the existing facility in Coventry;

• leveraging the full benefits of the new business systems infrastructure,

particularly EPOS (including chip and pin technology), and
merchandise planning systems, introduced last year;

• obtaining the planned further supply chain improvements thereby
delivering greater efficiencies, product availability and a lower
distribution cost base;

• promoting the quality and value of our merchandise to our

customers by highlighting the benefits of sourcing, design and
innovation, quality and value;

• re-shaping the store portfolio, leveraging the benefits of the high

street and out-of-town store formats and implementing new
customer service standards; and

• successfully managing the operational gearing characteristics of

the business.

Other risk activity involves the executive committee having overall
responsibility for ensuring that a rolling programme of structured risk
assessments of those areas having a significant effect on the future of
the business is carried out. The programme ensures so far as practicably
possible, that the appropriate risk management processes are identified,
appropriate controls established, residual risks evaluated and that the
necessary action and risk avoidance measures taken or monitoring
undertaken. Elements of the programme are reviewed by the internal
audit function during the year. The board also considers and reviews
at each board meeting key business performance indicators.

In addition to the evaluation of business risk referred to above, the
programme of specific risk management activity continued during
the year with individual stores being tested against a risk assessment
model emphasising health and safety, disability discrimination, fire
safety and internal process compliance. The internal audit function

Below (left to right) New baby gift hamper £60
Cuddle ‘n’ dry hooded towel (3 pack) £13

Scooter club woven pyjamas £10/1 1; car vest pyjamas £8/9 Nappy stacker gift set £30

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(a combination of internal resources and external resource provided
by PricewaterhouseCoopers LLP) supplements the risk-based approach
set out above. Furthermore, the Company has adopted procedures
to ensure auditor independence, the details of which are set out in
the section below detailing the work of the audit committee.

The board believes that the system of internal control described can
provide only reasonable and not absolute assurance against material
mis-statement or loss. The audit committee periodically reviews the
system of internal control on behalf of the board.

The principles of good governance are briefly commented on below:

The board and directors
The board of Mothercare plc meets regularly and maintains overall
control of the group’s affairs through a schedule of matters reserved
for its decision. These include setting the group strategy, the approval
of the annual budget and financial statements, major acquisitions
and disposals, authority limits for capital and other expenditure and
material treasury matters. Details of the terms of reference of the
board’s committees are also set out in the corporate governance
section of the Company’s website at www.mothercare.com/investorinfo.

The non-executive directors are independent and free from any
business or other relationship that could interfere materially with their
judgement. The non-executive directors do not participate in any bonus,
share option or pension scheme of the Company. Ian Peacock has
an equity based incentive, details of which are set out on page 26
within the remuneration report. This incentive scheme was designed
to ensure that in the total remuneration of the chairman, an element
was deferred and payable in shares so as to ally fully the chairman’s
and shareholders’ interests. To enable this to be effective, a contract
of employment was required. Given that Ian Peacock fulfils all
remaining requirements of independence under Code provision A.3.1,
he is considered by the board to be independent. The chairman’s
other commitments are set out in the biographical details on page 20
and there have been no significant changes during the year relating
to these commitments.

The board considers that the balance achieved between executive
and non-executive directors during the year was appropriate and
effective for the control and direction of the business.

The board is assisted by committees that it has established with
written terms of reference. The roles of the remuneration, audit and
nomination committees are set out below. The audit, remuneration
and nomination committees are comprised of the three non-executive
directors. A record of the meetings held during the year, of the board,
its committees and the attendance by individual directors is set out
on page 19.

The board has delegated day-to-day and business management
control of the Mothercare business to the executive committee. The
executive committee consists of the directors of Mothercare UK
Limited and the company secretary.

Throughout the year the board has been supplied with information
and papers submitted at each board meeting which ensures that
the major aspects of the group’s affairs are reviewed regularly in
accordance with a rolling agenda and programme of work. All
directors, whether executive or non-executive, have unrestricted access
to the company secretary and executives within the business on any
matter of concern to them in respect of their duties. In addition new
directors are given appropriate training on appointment to the board.
Appropriate time is made during the year for continuing training on
relevant topics concerning the functioning of the board and the
obligations of directors. Furthermore, the Company has undertaken
to reimburse legal fees to the directors if circumstances should arise
in which it is necessary for them to seek separate, independent, legal
advice in furtherance of their duties. In accordance with the Articles of
Association, one third of the directors are required to offer themselves
for re-election every year.

Given the importance of good corporate governance, the board
has agreed to establish a corporate governance sub-committee of
the audit committee under the chairmanship of Bernard Cragg, the
senior non-executive director. This sub-committee, which is comprised
of the independent non-executive directors, will provide assistance
to the board and its committees by reviewing corporate governance
developments and implementing best practice. It will also develop
and recommend to the board the adoption of a set of governance
principles. As the sub-committee has only recently been constituted,
further details of its activities will form part of next year’s annual report.

Opposite Hatbox gift set £40
Fabric box set £20

Beaded hippy top £25 and beaded hippy skirt £30

Below (left to right) Girl’s provencal dressing table £200 Crinkle baby doll top £25 and blue jersey skirt £28

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The remuneration committee, chaired during the year by Angela
Heylin until her retirement from the board on 18 November 2004 and
subsequently by David Williams, establishes the remuneration policy
generally, approves specific arrangements for the executive directors
and reviews and comments upon the proposed arrangements for
senior executives so as to ensure consistency within the overall
remuneration policy. Full disclosure of the Company’s remuneration
policy and details of the remuneration of each director is set out
in the remuneration report on pages 23 to 29. During the year no
director was, and procedures are in place to ensure that no director
is, involved in deciding or determining his or her own remuneration.

The nomination committee, chaired during the year by Ian Peacock,
comprises all the non-executive directors. The terms of reference of
the committee is set out on the Company’s website. The committee
makes proposals on the size, structure, composition and appointments
to the board. It carries out the selection process and agrees the terms
of appointment of non-executive directors. It also reviews succession
planning on an annual basis.

David Williams was appointed as a non-executive director during the
year. An external search consultancy was used to identify candidates
and David Williams was selected from the candidates put forward.
The nomination committee was, when appointing David Williams,
and remains of the opinion that his experience both in the UK and
international retail environment would be of benefit to the board’s
review and implementation of the Company’s strategy. The board is
of the opinion that the remaining directors seeking re-election at the
AGM have continued to give effective counsel and commitment to
the Company and accordingly should be reappointed.

During the year the board carried out an evaluation of its effectiveness
and operation. This evaluation was carried out by an external facilitator
and comprised the use of an extensive questionnaire and face to face
interviews with individual directors and the company secretary. It was
subsequently followed up by a review of the findings by the whole
board. The review found that the balance within the board between
executive and non-executive directors was appropriate and promoted
interaction and debate. The consensus from the review was that the
board operated effectively.

A review was held of the effectiveness of the audit committee and
the auditors during the year. During the year, the audit committee

reviewed and updated its terms of reference following the Smith
guidance to audit committees and made changes to its method
of operation. Whilst these changes have been embedded for a
short time, it was considered that the work of the audit committee
during the year was effective measured against its revised terms of
reference and general audit committee practice. In respect of the
auditor effectiveness review, it was considered that the auditors had
carried out their obligations in an effective and appropriate manner.

The company secretary acts as secretary to the board and its
committees.

Shareholder relations
The Company maintains regular dialogue with institutional shareholders
following presentation of the financial performance of the business
to the investing communities. This dialogue takes place at least four
times a year following the announcement of the interim and full
year results and trading statement at the AGM and post Christmas.
During such meetings the board is able to put forward its objectives
for the business and discuss performance against those objectives
and develop an understanding of the views of major shareholders.
Mindful always of its obligations to the investing community as a
whole, the Company reaches a wider audience by the use of its
website (at www.mothercare.com/investorinfo) and, with a view
to encouraging full participation of those unable to attend the
AGM, provides an opportunity for shareholders to ask questions of
their board by the provision of a reply-paid question service to the
chairman. Approximately 100 letters were received and responses
sent last year.

The outcome of meetings with major shareholders is reported by the
chief executive at board meetings on a periodic basis.

The audit committee
The audit committee was chaired during the year by Bernard Cragg,
the senior non-executive director. The remit of the audit committee is
to review the scope and issues arising from the audit and matters
relating to financial control. It also assists the board in its review of
corporate governance and in the presentation of the Company’s
financial results through its review of the interim and full year
accounts before approval by the board, focusing in particular
on compliance with accounting principles, changes in accounting
practice and major areas of judgement. The full terms of reference

Below (left to right) Butterfly tassel bikini £8/9 and lemon and orange vest (2 pack) £4/6; paradise vest and bikini bottoms £7/8
mask £12

Filled laundry bag £30

Floral swimshort £7/8

Bath pillow and eye

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are set out under the corporate governance section of the website
at www.mothercare.com/investorinfo.

The audit committee comprises the three non-executive directors.
Bernard Cragg is a chartered accountant with considerable technical
financial and, in common with the remainder of the committee, wide
and varied commercial experience.

The committee met four times during the year. No specific remuneration
of the non-executive directors is ascribed to membership of the audit
committee other than a supplement of £5,000 paid to Bernard Cragg
in respect of his chairmanship of the committee.

The main activities of the audit committee in the 52 weeks ended
26 March 2005
The audit committee’s review of the financial statements is structured
to ensure, so far as is reasonably practicable, that the financial
statements as published present a true and fair view of the Company's
affairs and the results for the year.

In preparing the accounts, the continued appropriateness and
consistent application of the accounting policies adopted by the
Company are reviewed in both the interim and final accounts for
the year. The committee also reviews the reasonableness of the
judgements and estimates that have been used by management
in the preparation of those accounts and the application of the
relevant accounting standards.

Following the completion of the audit of the accounts, the committee
reviews with the auditors the report of their findings and the contents
of any management letter. An assessment of the effectiveness of the
audit process and the auditors is also carried out.

Whilst the board has overall responsibility for the Company’s system
of internal control and for reviewing its effectiveness, the audit
committee addresses internal financial control on behalf of the board
at least twice annually through reviewing the output of the internal
audit function and risk management activities.

The audit committee reviews annually the independence of the external
audit firm and the individuals carrying out the audit by receiving
assurances from, and assessing, the audit firm against best practice
principles. The committee seeks to balance the benefits of continuity
of audit personnel and the need to assure independence through

change of audit personnel by agreeing with the audit firm staff rotation
policies. In addition, a policy in respect of non-audit work by the audit
firm has also been implemented, the general principle being that the
audit firm should not be requested to carry out non-audit services on
any activity of the Company where they may, in the future, be required
to give an audit opinion. The Company has, however, recognised
that taxation advice is an acceptable derogation from this principle.

The audit committee has approved a work plan for the internal audit
function and received during the year reports upon investigations
carried out. The committee meets with the internal audit team leaders
without management present at least once each year.

Director attendance statistics for the 52 weeks ended 26 March 2005

Committee

Director

Board1

Audit

Nomination

Remuneration

Maximum number
of meetings

Ian Peacock2
Karren Brady
Bernard Cragg
Steven Glew2
Ben Gordon2
Angela Heylin3
David Williams4

8
7
7
8
8
3
4

4
4
4
4
4
2
3

1
1
–
–
–
–
–

4
3
5
3
3
3
3

Notes:
1. In addition to the board meetings referred to above there are two ad hoc board

committee meetings to approve the full year and interim report and accounts. These
meetings are constituted by the board from such members as are available at that
time having considered the views of the entire board beforehand.

2. Ian Peacock, Ben Gordon and Steven Glew attend meetings of the audit and

remuneration committees upon the invitation of the respective chairmen.

3. Resigned 18 November 2004.
4. Appointed 2 August 2004.

Steven Glew
Finance director

Below (left to right) Hearts pyjamas £14/15; gingham vest pyjamas £12/13
(2 pack) £4/6 and striped, belted canvas crop trousers £10/1 1

Boy’s 3-piece set £20/22 Mug and coaster £8

Lemon and orange vest

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Board of directors

1 STEVEN GLEW
Finance director
Appointed finance director in March 2003. Former group finance
director of Crown Sports plc and of Booker plc. Also held senior
financial roles with Tesco plc in the UK and Ireland. Chartered
accountant. Aged 48.

4 KARREN BRADY ●
Non-executive director
Appointed in July 2003. Managing director of Birmingham
City Football Club plc. Chairman and non-executive director
of Kerrang! Radio (West Midlands), a non-executive director
of Channel 4 and of Sport England. Aged 36.

2 IAN PEACOCK ●
Non-executive chairman
Appointed chairman on 1 November 2002 having joined the board
as chairman elect on 1 August 2002. Chairman of MFI Furniture
Group plc, Deputy Chairman of Lombard Risk Management plc
and a Trustee of the WRVS. Formerly held senior management
positions in the banking industry in London, New York and Asia,
including BZW and Kleinwort Benson. From 1998–2000 was a
special adviser to the Bank of England. Aged 57.

5 BERNARD CRAGG ●
Senior non-executive director
Appointed in March 2003. Chairman of Datamonitor and a non-
executive director of Bank of Ireland UK Financial Services, Bristol
& West plc, Workspace Group Plc and of Astro All Asia Networks
Plc. Formerly group finance director and chief financial officer of
Carlton Communications plc and a non-executive director of
Arcadia plc. Chartered accountant. Aged 50.

3 BEN GORDON
Chief executive
Appointed chief executive in December 2002. Formerly senior
vice president and managing director, Disney Store, Europe and
Asia Pacific. Has also held senior management positions with the
WH Smith Group in Europe and the USA and L’Oreal S.A., Paris.
Aged 45.

6 DAVID WILLIAMS ●
Non-executive director
Appointed in August 2004. Chairman of Wyevale Garden Centres plc,
non-executive director of DX Services plc, Avebury Group Limited
and is an Operating Partner of Duke Street Capital. He has
also held a number of senior management roles in Diageo plc,
PepsiCo Restaurants International and Whitbread plc. Aged 58.

● Audit committee
● Remuneration committee
● Nomination committee

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●
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Directors’ report

Business review
The principal companies within the Mothercare group for the period
under review were Mothercare plc; (the ‘Company’) and Mothercare
UK Limited. A review of the business strategy and a commentary
on the performance of the Mothercare business is set out in the
chairman and chief executive’s statement and business review
on pages 4 to 19.

Dividend
The directors recommend a final dividend of 5.3p per share. An interim
dividend of 2.7p was paid in February 2005 making a total of 8.0p
per share (2004 – total of 4.0p per share). No interim dividend was
paid during 2004.

Substantial shareholdings
As at 18 May 2005, the Company has been advised by the following
companies of notifiable interests in its ordinary share capital:

Holder

M & G Investment Management
Fidelity Management Research Co.
Morley Fund Management

Number of Percentage of
issued capital

8,662,291
8,656,253
4,662,650

12.11%
12.09%
6.51%

Directors
The following directors served during the 52 weeks ended
26 March 2005.

Name

Appointment

Ian Peacock

Chairman and independent non-executive
director, chairman of the nomination committee

Karren Brady

Independent non-executive director

Bernard Cragg

Senior independent non-executive director
and chairman of the audit committee

Angela Heylin

Independent non-executive director and
chairman of the remuneration committee
(resigned 18 November 2004)

Steven Glew

Executive director

Ben Gordon

Executive director

David Williams

Independent non-executive director
(appointed 2 August 2004) and
(from 18 November 2004) chairman
of the remuneration committee

Having been appointed since the last Annual General Meeting,
David Williams offers himself for re-election in accordance with the
Company’s articles of association. Ben Gordon and Steven Glew retire
by rotation from the board following the conclusion of the Annual
General Meeting (the ‘AGM’) on 15 July 2005 and stand for re-election
at the AGM. Biographical details of the directors, indicating their
experience and qualifications, are set out on page 20.

Angela Heylin retired from the board on 18 November 2004 after
more than seven years’ service. The board wishes to place on record
its thanks to Angela for her counsel during her period of service and
especially during the period of management change prior to the
commencement of the turnaround programme.

Details of directors’ service arrangements are set out in the
remuneration report on page 27.

A statement of directors’ interests in the shares of Mothercare plc
and of their remuneration is set out on pages 27 and 28.

Employees
The company communicates, and reviews with all its employees, its
corporate objectives, performance and economic activity relevant to
its business. This is achieved through the company magazine, briefings,
bulletins, e-mail and video presentations.

The capabilities of the group’s employees are measured, their
development needs ascertained and programmes designed to
ensure that the critical skills required for the development of both the
individual and the business are attained. The group’s remuneration
strategy is set out in the remuneration report. That report includes
details of the various incentive schemes and share plans operated
by the group.

Mothercare is an equal opportunities employer and ensures that
recruitment and promotion decisions are made solely on the basis of
suitability for the job. Disabled people are given due consideration for
employment opportunities and, if employees become disabled, every
effort is made to retain them by providing relevant employment aids.

Pensions
Following the review of its final salary pension arrangements last
year, changes came into effect on 28 March 2004 which introduced a
new career average pension scheme (known as Pension Builder) for
all new members. Those existing members of the final salary scheme
that wished to retain that benefit agreed to increase their contributions
by 2 per cent.

The pending introduction of International Accounting Standard (IAS) 19,
coupled with the changing demographic assumptions used in
calculating pension liabilities has had the effect of increasing the cost
of pensions to companies. Further details of the pension charge are
set out on pages 44 to 45. In order to partially address the pensions
deficit in the Mothercare Staff Pension Scheme, the business made a
special contribution of £10 million to that scheme on 24 March 2005.

Payment of suppliers
Payments to merchandise suppliers are made in accordance with the
general conditions of purchase, which are communicated to suppliers
at the beginning of the trading relationship. It is the group’s policy
to make payments to non-merchandise suppliers, unless otherwise
agreed, within the period set out in the supplier’s invoice or within
45 days from the date of invoice.

The amount owed to trade creditors at the end of the financial year
represented nil days (2004 – nil days) of average daily purchases
during the year for the Company.

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Directors’ report continued

Fixed assets
Changes in fixed assets are shown in note 8 to the accounts. A
valuation of the group’s freehold and long leasehold properties,
excluding rack rented properties, was carried out by external valuers,
primarily Messrs Cushman & Wakefield, Healey & Baker, as at 1 April
2003. The basis of the valuation is Existing Use Value in respect of
properties primarily occupied by the group and on the basis of
Open Market Value in respect of investment properties, both bases
being in accordance with the Practice Statements contained in the
RICS Appraisal and Valuation Manual. The valuation was updated
by a desk top exercise during the year. This adjusted valuation of the
properties resulted in a surplus over their net book value of £14 million.

Corporate citizenship
The board recognises that corporate citizenship, or social responsibility,
is an important factor in managing the reputation of a business such
as Mothercare.

Further details are set out on pages 12 to 14.

Auditors
In accordance with section 385 of the Companies Act 1985, a resolution
proposing the reappointment of Deloitte & Touche LLP as auditors to
the Company will be put to the AGM.

Charitable and political donations
The Mothercare Charitable Foundation (a company limited by
guarantee) was constituted during the prior year with a donation
of £150,000 from the business. Charitable donations for the 52 weeks
ended 26 March 2005 were £250,000. Included within this amount is
£200,000 donated to the Foundation and a further £50,000 donated
to the British Red Cross Asian Tsunami appeal and allocated by them
at the Company’s request for work in Sri Lanka.

It is the Company’s policy not to make political donations.

Going concern
After making appropriate enquiries, the directors have a reasonable
expectation that the Company and the group have adequate resources
to continue in operational existence for the foreseeable future. The
financial statements are therefore prepared on a going concern basis.

Annual General Meeting
The 2005 Annual General Meeting will be held on Friday 15 July 2005
at 10.30am at the Hilton National Hotel, Elton Way, Watford WD25 8HA.

The notice of the meeting and a prepaid form of proxy for the use
of shareholders unable to come to the AGM but who may wish to
vote or to put any questions to the board of directors are enclosed
with this annual report. The chairman will respond in writing to
questions received.

As in previous years a copy of the chairman’s opening statement
to the meeting, together with a resumé of questions and answers
given at the meeting, will be prepared following the AGM. This will
be made available to shareholders on request to the company
secretary at the Company’s head office.

The following paragraphs give explanatory notes on the business
to be proposed at the meeting:

Resolution 1: To receive the Report and Accounts for the 52 weeks
ended 26 March 2005. The directors will present the report and accounts
and shareholders may raise any questions on it at the meeting.

Resolution 2: To declare a final dividend of 5.3p per share, payable
29 July 2005 to those shareholders on the register on 17 June 2005.

Resolution 3: To approve the remuneration report.

Resolutions 4 to 6: Reappointment of directors. The Company’s
articles of association require that (a) one third of the directors that
are required to retire by rotation must retire and (b) that directors
who have been appointed since the last AGM must offer themselves
for re-election. Separate resolutions will be proposed on each of
these appointments.

Resolution 7: Reappointment of auditors. Deloitte & Touche LLP has
indicated its willingness to act as auditors to the Company and
accordingly an ordinary resolution to reappoint them will be proposed.

The meeting will also be asked to consider the following matters of
Special Business:

Resolution 8: Purchase of own shares. The Company was authorised
at the 2004 AGM to purchase up to 10 per cent of its shares in the
market. This authority has not been used and expires at the conclusion
of this year’s AGM. This resolution seeks to renew the authority for
a further year. Shares purchased (if any) will be cancelled or, where
appropriate, held in treasury pursuant to the Companies (Acquisition
of Own Shares) (Treasury Shares) Regulations 2003. The directors have
no present intention of using this authority, but wish to be in a position
to act quickly in the interests of the Company and shareholders
generally if circumstances so warrant. Purchase of the Company’s
shares would only be made if, in the reasonable opinion of the board,
it would result in an increase in earnings per share (if acquired shares
are cancelled) or otherwise be in the best interests of the Company
at the time.

Resolution 9: The Save As You Earn (SAYE) share option scheme
operated by the Company was approved in 1995 and the authority
expires in June 2005. The directors consider that such schemes
are important in aligning employee and shareholder interests and
consequently seek shareholder approval to a new SAYE scheme.
Full details are set out in the accompanying circular.

By order of the board

Clive E Revett Company secretary
19 May 2005

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Directors’ remuneration report

This report for the 52 weeks ended 26 March 2005 has been
prepared in accordance with the Directors’ Remuneration Report
Regulations 2002 (the ‘Regulations’), the requirements of the Listing
Rules of the UK Listing Authority and Schedule B to the Combined
Code relating to directors’ remuneration. At the AGM on 15 July 2005
shareholders will be asked to approve this report.

The Regulations require the auditors to report on the ‘auditable
part’ of the directors’ remuneration report and to state whether in
their opinion that part of the report has been properly prepared
in accordance with the Companies Act 1985 (as amended by the
Regulations). The directors’ share options, long-term incentive plan
and share matching scheme conditional awards (including the
performance criteria set out in Appendix A), equity incentive awards,
emoluments and compensation payments as set out in Table 1 and
pension arrangements set out in Table 2 have therefore been audited.

THE REMUNERATION COMMITTEE
Composition of the remuneration committee
The remuneration committee is comprised of the independent non-
executive directors of the Mothercare plc board. Angela Heylin was
chairman of the committee until her retirement on 18 November 2004.
David Williams was appointed chairman of the committee on the same
day. Karren Brady and Bernard Cragg served throughout the year.
Ian Peacock attended meetings at the invitation of the committee.

The committee, which determines the remuneration for the executive
directors and approves the pay and benefits of the members
of the executive committee, met five times during the year.
Its terms of reference are available on the Mothercare website
at www.mothercare.com/investorinfo.

Advisors to the remuneration committee
The organisations below have provided material assistance to the
remuneration committee.

During the year, the committee reviewed its principal remuneration
advisor. Four firms were considered for the role, including the
incumbent advisor, New Bridge Street Consultants LLP. It was
subsequently decided to make a change of advisor and Kepler
Associates Limited were appointed. The Company also uses the
services of Hyman Associates and DLA LLP as shown below. The
remuneration committee consulted both organisations during the
year. The committee also consulted the chief executive, human
resources director and company secretary as appropriate.

Person or organisation

Services provided

New Bridge Street Consultants LLP
(to January 2005)

Kepler Associates Limited
(from January 2005)

Hyman Associates
DLA LLP

Pensions and executive
remuneration and incentive
scheme design
Pensions and executive
remuneration and incentive
scheme design
Remuneration structure
Legal services principally
in respect of employment
contracts

REMUNERATION POLICY STATEMENT
The Company’s policy is to provide competitive remuneration packages
that will recruit, retain and motivate directors and individuals of the
required calibre to meet the Company’s objectives. The intent is to
ensure, that the remuneration policy is in line with market practice
and appropriate to the Company’s needs. The committee monitors
the Company’s compliance with the Revised Combined Code
provisions for directors’ and senior management remuneration and
with best practice in applying performance related remuneration.

The remuneration policy aims to balance appropriately the fixed
salary and performance related elements of remuneration. The
latter element is achieved through an annual bonus scheme and
longer-term incentives. The bonus rewards primarily the achievement
of Company profit before tax, a measure which the board believes
is a suitable measure of annual performance for a retail business.
Other measures captured include free cash flow and personal/strategic
performance objectives. Longer-term performance remuneration is
delivered through equity-based incentives including the long-term
incentive plan, share matching scheme and the share option
schemes. The performance criteria for the vesting of these equity
incentives are detailed in the relevant sections below. In each case
the performance criteria are aligned with shareholders’ interests.

The committee normally reviews the executive directors’ remuneration
annually, against a policy that positions base salaries around the
median of companies, similar in sector focus, size and complexity.
Variable elements of the package, designed to attract and motivate
outstanding performance and delivery, give executive directors the
opportunity to earn an overall upper quartile total remuneration
package, for top quartile performance. Details of the individual
executive directors’ remuneration, are described below.

In line with the previous year, participants in the long-term incentive
plan and share matching schemes have not received further awards
under the executive share option schemes during the year. The
remuneration committee considers that the long-term incentive
plan and share matching scheme are less volatile in nature than
the executive share option scheme and are to be preferred for
the executive committee as, under the scheme, participants are
encouraged to retain shares in the Company.

Maintaining the momentum of the development of the Company
as it enters the next phase of its development by attracting, retaining
and motivating the talent necessary to deliver the strategic objectives
is a key priority for the committee. It is the committee’s intention
therefore to conduct a full review of its executive remuneration during
2005/06 to ensure it reflects shareholder views and developments in
market practice as well as the objective set out above.

PERFORMANCE GRAPH
The performance graph overleaf shows the Company’s total
shareholder return (TSR) against the return achieved by the FTSE
SmallCap and the FTSE 350 General Retailers Indices. The graph
shows the five financial years to 26 March 2005.

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Directors’ remuneration report continued

The indices were chosen on the basis that they best matched the
Company’s peer group.

Total shareholder return
1 April 2000 to 26 March 2005
Source: Datastream

Mothercare plc
FTSE SmallCap
FTSE 350 General Retailers Index
TSR Index at 1.4.00 = 100

400

300

200

100

y/e Mar 00

y/e Mar 01

y/e Mar 02

y/e Mar 03

y/e Mar 04

y/e Mar 05

DIRECTORS’ REMUNERATION
The executive directors’ fixed annual remuneration comprises a base
salary, which is normally reviewed in April each year, and benefits.
The variable remuneration element is achieved through an annual
bonus scheme, participation in the long-term incentive plan and
share matching scheme and (prior to 2003) executive share option
scheme. With the exception of the Save As You Earn share option
scheme, which is open to all employees including executive directors,
and the share incentive awards made to Ian Peacock and Ben Gordon,
the Company operates no other long-term incentive schemes.

The remuneration of the non-executive directors comprises fixed
annual fees. Expenses incurred on Company business are reimbursed
when claimed.

Salary
It is the policy to set each director’s salary at or about the market
median. Each executive director’s salary is considered individually
by the remuneration committee following advice from independent
remuneration consultants. Base salary is the only element of
remuneration used in determining pensionable earnings under the
Mothercare Executive Pension Scheme.

Annual bonus
The annual bonus for executive directors is paid upon the
achievement of Company financial targets set annually by the
remuneration committee. In addition, personal targets linked to key
business objectives must also be met if an executive director is to
achieve the maximum bonus. The maximum annual bonus that may
ordinarily be paid to an executive director is 85 per cent of base
salary (100 per cent for the chief executive), although the maximum
bonus would be payable only in the event of exceptional performance.
For the financial year 2005/06 however, the remuneration committee
felt it appropriate to increase the annual bonus opportunity for
executive directors by up to 50 per cent subject to the executives
deferring any bonus over 25 per cent of salary into Mothercare
shares for one to two years. The purpose of this is both to maintain
the momentum of the turnaround and to support retention. The
2005/06 long-term incentive awards will be adjusted so that the
total fair value of incentives remains unchanged from 2004/05.

Ben Gordon and Steven Glew received performance-related
bonuses of £63,180 and £26,265 respectively for the 52 weeks ended
26 March 2005.

Profit share scheme
In addition to the annual bonus scheme, the Company operates a
profit share scheme. All group employees (other than participants
in the annual bonus scheme) with at least six months’ service are
eligible to participate in this scheme.

THE LONG TERM INCENTIVE PLAN (LTIP) AND
SHARE MATCHING SCHEME (SMS)
The Long Term Incentive Plan
Under the LTIP, conditional awards of shares may be made to
executives each year. In 2005/06, the maximum anticipated LTIP
award is 67 per cent of salary.

The extent to which awards will vest will depend partly upon the
Company’s TSR performance relative to all general retailers in the
Mid 250 and SmallCap indices, and partly upon the achievement
of earnings per share (‘EPS’) targets shown in the table at the end
of this report. The targets are measured over a three-year period.
If the performance criteria are not met over the three-year period
the award lapses. The performance targets for the awards made
to date are shown in the table on the facing page. The committee
considers that the criteria applied to date are more challenging than
those typically applied. TSR was chosen as it aligns the interests of
directors with shareholders by requiring superior TSR performance
compared to the Company’s competitors. The award is partly based
on EPS to ensure there is substantial improvement in the underlying
performance of the Company. No part of the award subject to EPS will
vest unless the Company’s TSR performance is above median relative
to general retailers in the Mid 250 and SmallCap indices.

During the transition to International Financial Reporting Standards,
EPS growth figures will be calculated on a consistent basis.

Share Matching Scheme
Under this scheme, executives who invest in the Company’s shares
and retain those shares for at least three years may receive matching
shares if long-term performance targets are achieved.

Executives may be invited to invest up to 100 per cent of pre-tax basic
salary in any year. This could include up to 50 per cent of pre-tax
salary via a payment under the long-term incentive plan. Annual
bonus shares deferred may be invested in the Share Matching Scheme.

Executives’ investments will be matched on a 1:1 basis after three years,
provided executives retain the shares they purchased for three years
and performance targets (set out in the table on the facing page)
are achieved over a three-year period. The performance targets for
matching awards are the same as for the LTIP awards. If the
performance criteria are not met over the three-year period the
award lapses. The matching ratio is calculated using the pre-tax
value of the purchased shares in the case of sums derived from the
annual bonus deferred shares or the long-term incentive plan, or the
actual value of the shares already owned that were pledged in 2003.

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The conditional awards made to date to executive directors under the LTIP are as follows:

Director

Ben Gordon

Total

Steven Glew

Total

21 July 2003

As at
1 June 2004 26 March 2005

Initial share
price (p)

–
402,477

103,236
402,477

402,477

505,713

–
105,264

51,500
105,264

105,264

156,764

340.0
161.5

Performance period

27.03.04 – 26.03.07
01.04.03 – 31.03.06

Details of the directors’ shares pledged under the SMS are as follows:

Director

Ben Gordon

Total

Steven Glew

Total

21 July 2003

As at
1 June 2004 26 March 2005

Pledge period

–
100,619

49,425
100,619

27.03.04 – 26.03.07
01.04.03 – 31.03.06

100,619

150,044

–
60,000

60,000

29,714
60,000

89,714

29,714
60,000

89,714

27.03.04 – 26.03.07
01.04.03 – 31.03.06

Details of the directors’ conditional matching shares under the SMS are as follows:

Director

Ben Gordon

Total

Steven Glew

Total

21 July 2003

As at
1 June 2004 26 March 2005

Performance period

–
100,619

49,425
100,619

27.03.04 – 26.03.07
01.04.03 – 31.03.06

100,619

150,044

–
60,000

60,000

29,714
60,000

89,714

29,714
60,000

89,714

27.03.04 – 26.03.07
01.04.03 – 31.03.06

EXECUTIVE SHARE OPTION SCHEME
The Company has granted executive share options under two schemes;
the Mothercare (formerly Storehouse) plc 1995 Executive Share
Option Scheme and the Mothercare plc 2000 Share Option Plan.

The Mothercare plc 2000 Share Option Plan
Options under the Mothercare plc 2000 Share Option Plan are
granted at market value. Options may be exercised by participating
executives if there is a significant improvement in the Company’s
underlying performance.

The remuneration committee regularly reviews the performance
criteria. For the Mothercare plc 2000 Share Option Plan, the criteria
were chosen and agreed following research into similar schemes
and discussions between the Company, its advisors and a number
of institutional investors. They were set at a level that was intended to
balance shareholder and employee interests for the long-term future
of the Company. The performance criteria that must be met before
an option can be exercised demand that EPS growth over a three-

year performance period must equal or exceed the growth in the
Retail Prices Index by 9 per cent. If the performance criteria are not
met over the performance period, the option grant will lapse.

Annual option grants may be made to executive directors and senior
employees. Under the plan rules the normal maximum award is two
times salary with any award in excess of this subject to EPS growth
exceeding RPI by 20 per cent.

No option grants were made to executive directors during the year.
Following the adoption of the LTIP and SMS, no further options will
be granted to those participating senior executives under the share
option scheme unless there are exceptional circumstances.

The Mothercare plc 1995 Executive Share Option Scheme
No director had an award under this scheme and no further awards
are to be made under this scheme. With the exercise of options by
various senior employees during the year, there are now no outstanding
awards made under this scheme.

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Directors’ remuneration report continued

DIRECTORS’ SHARE OPTIONS

Director

27 March 2004

Granted/(lapsed)
during year

Grant/(lapse)
date

Exercise price
(pence)

First exercise date

Last exercise date 26 March 2005

Ben Gordon

Total

Steven Glew

Total

312,500
5,9511

318,451

402,011
5,9511

407,962

–
–

–

–
–

–

9 December 2002
1 December 2003

104.00
155.00

9 December 2005
1 December 2006

9 December 2012
1 December 2009

26 March 2003
1 December 2003

99.5
155.00

26 March 2006
1 December 2006

26 March 2013
1 December 2009

312,500
5,951

318,451

402,011
5,951

407,962

Notes:
1. Options granted under the three-year SAYE option scheme.
2. The options set out above are granted without payment from a participant.
3. Share price details are shown on page 48.
4. Performance conditions are set out in the narrative above. The award to Steven Glew dated 26 March 2003 included 201,000 options with performance criteria of EPS growth

of RPI plus 20 per cent.

5. No variations have been made to the terms and conditions of existing options in the current or previous years.
6. No options were exercised in the year.

EQUITY INCENTIVE AWARDS
Following the appointments of the chairman and the chief executive
on 1 November and 2 December 2002 respectively, Ian Peacock
and Ben Gordon were awarded equity-based incentives, as
described below.

Ian Peacock was awarded 95,694 ordinary shares in the Company
which, in aggregate, amounted to £100,000 at the time the award
was made. The award vests in three tranches of 31,898 shares on
1 November in each year (or the nearest date following 1 November
if the Company is in a close period). The second tranche vested
and was transferred on 19 November 2004. A total of 63,796 shares
have now vested with a further 31,898 outstanding. No payment
is required from Ian Peacock for the award. The awards may only
vest in the event that he remains employed by the Company on the
relevant vesting date or pro rata, subject to a minimum of one third
of the award vesting, in the event that there is a change in control of
the Company.

Ben Gordon was awarded 500,000 ordinary shares in the Company,
for which no payment is required from him. The award vests in
respect of tranches of 100,000 shares, subject to the achievement
of the performance conditions. The vesting performance conditions
for three of the tranches of shares are share price growth. For each
of the tranches of shares to vest, the Company’s share price must
have remained at levels of 200p, 300p and 400p (respectively) per
share for at least three months. For the remaining two tranches of
shares to vest the performance conditions are: profit before tax and
exceptional items of £15 million and £30 million achieved by the end
of the Company’s financial year in 2007.

Having vested on the achievement of a performance criterion, that
element of the award will be released to Ben Gordon in tranches on
the second, third, fourth and fifth anniversaries of 2 December (as
appropriate) in proportions that release the entirety of any tranche
of shares attached to a performance condition achieved by the
fifth anniversary. Varying proportions of the award will vest and be

released to the extent that performance conditions have been met,
if there is a change in control of the Company before 2 December
2007. Ben Gordon will also be able to retain that proportion of the
award that has vested, in the event that the Company terminates his
employment (other than for cause) or the Company is in fundamental
breach of his employment contract. Where any share price or share
price performance condition is not met generally within four years,
then that element of the award will lapse.

On the first vesting date (2 December 2004) Ben Gordon had met
three of the five performance criteria. The table below sets out the
shares transferred on 2 December 2004 and transferable to Ben
Gordon in the future (subject to, amongst other conditions, his
continued employment).

Award

Number of shares released1
(on 2 December each year)

Condition2

Met

No. of shares

2004

2005

2006

2007

1.
2.
3.
4.
5.

Yes
Yes
No
Yes
No

100,000
100,000
100,000
100,000
100,000

50,000
50,000
–
25,000
–

25,000
25,000
–
25,000
–

15,000
15,000
–
25,000
–

10,000
10,000
–
25,000
–

Total

500,000

125,000

75,000

55,000

45,000

Notes:
1. For two performance conditions being met, 50 per cent vests on the second
anniversary, 25 per cent on the third anniversary, 15 per cent on the fourth
anniversary and 10 per cent on the fifth anniversary subject to continued
employment at the relevant date.
For any additional performance condition being met, 25 per cent vests at each
anniversary, subject to continued employment at the relevant date.

2. Condition 1 – share price must have been above 200p for three months;
condition 2 – share price must have been above 300p for three months;
condition 3 – share price must have been above 400p for three months;
conditions 4 and 5 – profit before tax and exceptional items must be above
£15.0 million and £30.0 million respectively by the end of the Company’s 2007
financial year.

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SHAREHOLDING GUIDELINES
Executive directors are expected to build up a shareholding equal to
their basic salaries by retaining in shares at least half of the post-tax
gains made either under the LTIP or the SMS.

SERVICE CONTRACTS
Executive directors
Executive directors’ service contracts may be terminated by the
Company giving 12 months’ notice.

Ben Gordon’s previous service contract, which included an extended
notice period, has expired. The current service agreement provides
for liquidated damages on termination by the Company for basic
salary equivalent to the unexpired portion of the notice period and
the fair value of the benefits to which he may be entitled, including
pension credits but not bonus or share options. Separate provisions
govern the entitlement to the equity incentive award and are
described in the section above.

Steven Glew commenced employment with the Company on
4 March 2003. His service agreement, dated 28 February 2003
may be terminated on 12 months’ written notice by the Company.

Non-executive directors
Ian Peacock is entitled to three months’ salary on termination of
his employment contract dated 31 October 2002 by the Company.
Karren Brady, Bernard Cragg and David Williams have service
arrangements with the Company that may be terminated upon
one month’s notice. Their service arrangements were entered into
on 29 July 2003, 31 March 2003 and 2 July 2004 respectively.

EXTERNAL APPOINTMENTS AND OTHER COMMITMENTS OF
THE DIRECTORS
The other business commitments of the directors are set out within
their biographical details on page 20. An executive director may
take one external appointment as a non-executive director, subject
to the approval of the board. The director may retain any fees from
such a role. Neither of the executive directors currently has such
an appointment.

PENSION ARRANGEMENTS
Ben Gordon and Steven Glew are members of the Mothercare
Executive Pension Scheme. Pension accrues at the rate of one thirtieth
of salary for each year of pensionable service up to Inland Revenue
Limits. The normal retirement age is 60 years. Contributions by Ben
Gordon and Steven Glew are 7 per cent of pensionable salary.

In addition to membership of the Mothercare Executive Pension
Scheme, pension benefits on earnings in excess of the Inland Revenue
earnings cap for Ben Gordon and Steven Glew are provided through
individual Funded Unapproved Retirement Benefit Schemes. The
contribution rates for Ben Gordon and Steven Glew are 30 and 33
per cent respectively. Further pension detail is given in Table 2.

For details of the pension provision within the Company during the
year, see the directors’ report on page 21.

For further detail on the cost of pensions to the Company, including
the statements required by FRS 17, see pages 44 and 45.

EMOLUMENTS AND COMPENSATION PAYMENTS
The emoluments (including pension contributions) in the 52 weeks
ended 26 March 2005 are shown overleaf in Table 1A. In addition,
the salaries paid to the management level below the board are set
out overleaf in Table 1B.

The fees of the non-executive directors are determined by the board,
with the non-executive directors abstaining from discussions on their
own arrangements. The non-executive directors do not participate
in the Company pension, annual bonus plan, share option or other
long-term incentives. Fees are reviewed periodically and set at levels
to reflect the time, commitment and responsibilities of the individual
non-executive director.

BENEFICIAL INTERESTS OF THE DIRECTORS
The beneficial interests of the directors in the share capital of the
Company are set out in the table below. This table does not show
option or incentive awards. These are dealt with in the relevant
section of this report.

Ian Peacock
Ben Gordon
Steven Glew
Karren Brady
Bernard Cragg
David Williams

Interest held at
Interest held at
27 March 2004 26 March 2005
(number)

(number)

74,564
101,998
60,000
2,500
20,000
–

120,462
231,862
77,900
2,500
20,000
3,300

Ian Peacock and David Williams are shareholders and directors
of Mothercare Employees’ Share Trustee Limited, which held
13,151 (2004 – 13,151) Mothercare shares in trust on 26 March 2005.
A separate trust, Mothercare Employee Trust, held 3,388,902 shares
on 26 March 2005 (2004 – 3,545,800).

The executive directors are technically deemed to be interested in all
of the shares held by Mothercare Employees’ Share Trustee Limited
and Mothercare Employee Trust as potential beneficiaries.

There have been no movements in directors’ interests, beneficial or
non-beneficial, between 26 March 2005 and 19 May 2005.

Approved by the board on 19 May 2005 and signed on its behalf by:

David Williams Chairman, remuneration committee

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Directors’ remuneration report continued

TABLE 1A
Directors’ emoluments
Total emoluments (including pension contributions) in the 52 weeks ended 26 March 2005 were £1,456,000 (2004 – £1,439,000).

Salary/fees
£000

Incentive
scheme vesting
£000

Performance
bonus
£000

Benefits
£000

Total
remuneration
(excluding
pensions)
£000

Pension
contributions
£000

2005

2004

2005

2004

2005

2004

2005

2004

2005

2004

2005

2004

351
206

100
30
35
25
18
–

325
200

100
22
32
31
–
7

361
–

99
–
–
–
–
–

–
–

99
–
–
–
–
–

63
26

350
150

–
–
–
–
–
–

13
11

–
–
–
–
–
–

13
11

–
–
–
–
–
–

788
243

199
30
35
25
18
–

688
361

199
22
32
31
–
7

79
39

–
–
–
–
–
–

61
38

–
–
–
–
–
–

Executive directors
Ben Gordon
Steven Glew
Non-executive directors
Ian Peacock
Karren Brady
Bernard Cragg
Angela Heylin
David Williams
Brian Hardy

Notes:
Benefits typically include a company car, medical and dental insurance and other similar benefits.
The salaries for Ben Gordon and Steven Glew were reviewed with effect from 1 April 2005 and are now £375,000 and £210,120 per annum respectively.

TABLE 1B
The following table sets out the number of individuals within the salary bands for the management level directly below the board.

Salary band

£200,001–250,000
£150,001–200,000
£100,001–150,000
£75,001–100,000
£50,001– 75,000

2004/05

2003/04

1
1
4
–
–

1
–
3
1
1

TABLE 2
Pensions
The disclosure of the directors’ benefits accrued in the Mothercare Executive Pension Scheme and money purchase benefits under the
appropriate funded unapproved retirement benefits scheme are set out below:

Accrued benefits in Mothercare Executive Pension Scheme

Transfer value* as at

At 27 March
2004

Change
during year

At 26 March
2005

Change
during
year net
of inflation

Transfer value
of change
in year net
of inflation

27 March
2004

Change
during year

Director
contributions

26 March
2005

Defined benefits for Final Salary Scheme

Money
purchase

Company
contributions

Ben Gordon
Steven Glew

4
4

4
3

8
7

3
3

22
19

36
33

38
41

11
11

74
74

75
34

*Calculation is consistent with applicable professional actuarial guidelines of accrued benefit.

The transfer values represent a liability to the Company and not a sum paid or due to be paid to the individual.

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APPENDIX A
Performance criteria for the Long Term Incentive Plan and Share Matching Scheme
The performance targets for the LTIP and SMS schemes granted in 2003 and 2004 in respect of total shareholder return (’TSR’) are as follows:

LTIP
Total shareholder return ranking percentage

Top 20%
Median
Median to top 20%
Below median

Percentage of award vesting

50%
10%
10% to 50% (pro rata, on a straight-line basis)
Nil

Note:
No part of the awards subject to EPS will vest unless the Company’s TSR performance has been above median relative to all general retailers in the FTSE Mid 250 and SmallCap indices.

SMS
Total shareholder return over three years ranking percentage
(relative to general retailers in Mid 250 and SmallCap)

Top 20%
Median
Median to top 20%
Below median

Ratio of free shares to purchased shares

5:10
1:10
1:10 to 5:10 (pro rata, on a straight-line basis)
Nil

Note:
No part of the awards subject to EPS will vest unless the Company’s TSR performance has been above median relative to all general retailers in the FTSE Mid 250 and SmallCap indices.

The performance targets for the LTIP and SMS schemes granted in 2003 and 2004 in respect of earnings per share (EPS) are as follows:

LTIP
Percentage of award vesting

EPS in 2005/06 for 2003 awards

EPS in 2006/07 for 2004 awards

50%
10%
10% to 50% (pro rata, on a straight-line basis)
Nil

40p
20p
20p to 40p
Below 20p

42.1p
32.3p
32.3p to 42.1p
Below 32.3p

Note:
EPS refers to pre-tax EPS.

SMS
Ratio of award vesting

EPS in 2005/06 for 2003 awards

EPS in 2006/07 for 2004 awards

5:10
1:10
1:10 to 5:10 (pro rata, on a straight-line basis)
Nil

40p
20p
20p to 40p
Below 20p

42.1p
32.3p
32.3p to 42.1p
Below 32.3p

Note:
EPS refers to pre-tax EPS.

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Directors’ responsibilities for the accounts

Company law requires the directors to prepare accounts for each
financial year which give a true and fair view of the state of affairs of
the Company and of the group and of the profit or loss of the group
for that period.

After making enquiries, the directors have a reasonable expectation
that the Company and the group have adequate resources to
continue in operational existence for the foreseeable future. For this
reason, they continue to adopt the going concern basis in preparing
the accounts.

In preparing the accounts, the directors are required to: select
suitable accounting policies and then apply them consistently; make
judgements and estimates that are reasonable and prudent; and
state whether applicable accounting standards have been followed.

The directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Company and group and enable them to ensure
that the accounts comply with the Companies Act 1985. They are
also responsible for safeguarding the assets of the Company and
group and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.

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Independent auditors’ report

To the shareholders of Mothercare plc
We have audited the accounts of Mothercare plc for the 52 weeks
ended 26 March 2005 which comprise the group profit and loss account,
group statement of total recognised gains and losses, balance sheets,
reconciliation of movement in shareholders’ funds, group cash flow
statement, notes to the group cash flow statement, the accounting
policies and the related notes numbered 1 to 19. These accounts
have been prepared under the accounting policies set out therein.
We have also audited the information in the part of the directors’
remuneration report that is described as having been audited.

This report is made solely to the Company’s members, as a body, in
accordance with section 235 of the Companies Act 1985. Our audit
work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditors’
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company and the Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors
As described in the statement of directors’ responsibilities, the
Company’s directors are responsible for the preparation of the
accounts in accordance with applicable United Kingdom law and
accounting standards. They are also responsible for the preparation
of the other information contained in the annual report including the
directors’ remuneration report. Our responsibility is to audit the accounts
and the part of the directors’ remuneration report described as having
been audited in accordance with relevant United Kingdom legal and
regulatory requirements and auditing standards.

We report to you our opinion as to whether the accounts give a true
and fair view and whether the accounts and the part of the directors’
remuneration report described as having been audited have been
properly prepared in accordance with the Companies Act 1985.
We also report to you if, in our opinion, the directors’ report is not
consistent with the accounts, if the Company has not kept proper
accounting records, if we have not received all the information and
explanations we require for our audit, or if information specified by
law regarding directors’ remuneration and transactions with the
Company and other members of the group is not disclosed.

We review whether the corporate governance statement reflects
the Company’s compliance with the nine provisions of the July 2003
FRC Combined Code specified for our review by the Listing Rules
of the Financial Services Authority, and we report if it does not.
We are not required to consider whether the board’s statements
on internal control cover all risks and controls, or form an opinion on
the effectiveness of the group’s corporate governance procedures or
its risk and control procedures.

We read the directors’ report and the other information contained
in the annual report for the above year as described in the contents
section including the unaudited part of the directors’ remuneration
report and consider the implications for our report if we become
aware of any apparent misstatements or material inconsistencies
with the accounts.

Basis of audit opinion
We conducted our audit in accordance with United Kingdom
auditing standards issued by the Auditing Practices Board. An
audit includes examination, on a test basis, of evidence relevant
to the amounts and disclosures in the accounts and the part of
the directors’ remuneration report described as having been
audited. It also includes an assessment of the significant estimates
and judgements made by the directors in the preparation of the
accounts and of whether the accounting policies are appropriate
to the circumstances of the Company and the group, consistently
applied and adequately disclosed.

We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary
in order to provide us with sufficient evidence to give reasonable
assurance that the accounts and the part of the directors’ remuneration
report described as having been audited are free from material
misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion, we also evaluated the overall adequacy of
the presentation of information in the accounts and the part of the
directors’ remuneration report described as having been audited.

Opinion
In our opinion:

• the accounts give a true and fair view of the state of affairs of the
Company and the group as at 26 March 2005 and of the profit of
the group for the 52 weeks then ended; and

• the accounts and part of the directors’ remuneration report

described as having been audited have been properly prepared
in accordance with the Companies Act 1985.

Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
London
19 May 2005

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Group profit and loss account
For the 52 weeks ended 26 March 2005

52 weeks ended 26 March 2005

52 weeks ended 27 March 2004

Before
exceptional
items
£ million

Exceptional
items
(note 3)
£ million

Note

457.2
(408.0)

49.2
(31.3)

17.9

–
–
1.7

19.6
(6.3)

13.3

–
(6.5)

(6.5)
–

(6.5)

2.4
–
–

(4.1)
1.9

(2.2)

Turnover
Cost of sales

Gross profit
Administrative expenses

Profit from retail operations
Exceptional items:

Profit on disposal of subsidiary undertaking
Profit on disposal of stores

Interest (net)

Profit on ordinary activities before taxation
Taxation

Profit on ordinary activities after taxation

Dividends

Retained profit for the financial year

Earnings per share
Earnings per share diluted

All results relate to continuing operations.

Before
exceptional
items
£ million

Exceptional
items
(note 3)
£ million

446.9
(400.7)

46.2
(30.4)

15.8

–
–
0.7

16.5
–

16.5

–
0.8

0.8
–

0.8

2.0
4.6
–

7.4
7.3

14.7

Total
£ million

457.2
(414.5)

42.7
(31.3)

11.4

2.4
–
1.7

15.5
(4.4)

11.1

(5.5)

5.6

16.2p
15.9p

Total
£ million

446.9
(399.9)

47.0
(30.4)

16.6

2.0
4.6
0.7

23.9
7.3

31.2

(2.7)

28.5

46.5p
45.7p

Group statement of total recognised gains and losses
For the 52 weeks ended 26 March 2005

Profit for the financial year being total recognised gains and losses relating to the year

A statement of the movement in reserves is shown in note 16.

The accounting policies on page 35 and the notes on pages 36 to 46 form an integral part of these statements.

2005
£ million

11.1

2004
£ million

31.2

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Group and Company balance sheets
As at 26 March 2005

Fixed assets
Tangible assets
Investments in subsidiary undertakings

Current assets
Stocks
Debtors
Cash at bank and in hand and time deposits

Creditors – amounts falling due within one year

Net current assets/(liabilities)

Total assets less current liabilities
Creditors – amounts falling due after one year
Provisions for liabilities and charges

Net assets

Capital and reserves attributable to equity interests
Called up share capital
Share premium account
ESOP reserve
Profit and loss account

Approved by the board on 19 May 2005 and signed on its behalf by:

Ben Gordon
Steven Glew

Reconciliation of movement in shareholders’ funds
For the 52 weeks ended 26 March 2005

Profit for the financial year
Dividends
New share capital subscribed
Acquisition of own shares
Cost of employee share schemes charged to profit and loss account

Net increase in shareholders’ funds
Shareholders’ funds at beginning of the year

Shareholders’ funds at end of the year

Note

2005
£ million

Group

2004
£ million

87.0
–

87.0

46.8
40.8
37.0

124.6
(59.5)

65.1

152.1
(0.5)
(8.1)

143.5

35.8
1.3
(3.2)
109.6

143.5

81.3
–

81.3

45.0
34.0
40.3

119.3
(60.1)

59.2

140.5
(1.2)
(3.6)

135.7

35.5
0.6
(4.2)
103.8

135.7

2005
£ million

–
108.8

108.8

–
7.2
50.0

57.2
(90.3)

(33.1)

75.7
–
–

75.7

35.8
1.3
(3.2)
41.8

75.7

Company

2004
£ million

–
108.8

108.8

–
7.1
50.1

57.2
(89.6)

(32.4)

76.4
–
–

76.4

35.5
0.6
(4.2)
44.5

76.4

2005
£ million

2004
£ million

11.1
(5.5)
1.0
–
1.2

7.8
135.7

143.5

31.2
(2.7)
0.8
(0.2)
0.9

30.0
105.7

135.7

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The accounting policies on page 35 and the notes on pages 36 to 46 form an integral part of these statements.

Group cash flow statement
For the 52 weeks ended 26 March 2005

Reconciliation of net cash inflow from operating activities
Profit from retail operations before exceptional items
Depreciation
Reversal of past impairment losses
Loss on disposal of tangible fixed assets
Cost of employee share schemes
(Increase)/decrease in stocks
(Increase)/decrease in debtors
Prepaid special contribution to pension scheme
(Decrease)/increase in creditors
Net cash outflow in respect of exceptional items

Net cash inflow from operating activities

Net cash inflow from operating activities
Returns on investments and servicing of finance
Interest received
Interest paid

Capital expenditure
Purchase of tangible fixed assets
Sale of tangible fixed assets

Trading cash (outflow)/inflow

Acquisitions and disposals
Sales of subsidiary undertakings
Equity dividends paid
Management of liquid resources
Financing
Issue of ordinary share capital
Acquisition of own shares

Increase in cash in the year

Reconciliation of net cash flow to movement in net funds
Increase in cash in the year
Cash flow from management of liquid resources

Movement in net funds in the year
Net cash at the beginning of the year

Net cash at the end of the year

Notes to the group cash flow statement
For the 52 weeks ended 26 March 2005

a ANALYSIS OF NET CASH

Cash at bank and in hand
Overdrafts

Net cash at bank and in hand

Cash flow from management of liquid resources
Time deposits*

Net cash at bank and in hand and time deposits

Note

£ million

2005

2004

17.9
12.0
–
0.7
1.2
(1.8)
(3.3)
(10.0)
(2.2)
(2.0)

1.8
(0.1)

(18.4)
1.1

1.0
–

15.8
13.0
(1.1)
0.9
0.9
3.0
0.1
–
4.9
(0.4)

0.9
(0.2)

(8.5)
1.4

0.8
(0.2)

37.1

0.7

(7.1)

30.7

1.3
–
(30.0)

0.6

2.6

2.6
30.0

32.6
7.7

40.3

12.5

1.7

(17.3)

(3.1)

3.4
(4.6)
30.0

1.0

26.7

26.7
(30.0)

(3.3)
40.3

37.0

2003
£ million

Cash flow
£ million

2004
£ million

Cash flow
£ million

2005
£ million

7.7
–

7.7

–

7.7

2.6
–

2.6

30.0

32.6

10.3
–

10.3

30.0

40.3

26.7
–

26.7

(30.0)

(3.3)

37.0
–

37.0

–

37.0

*Cash on the balance sheet represents the total cash of £37.0 million (2004 – £10.3 million) and time deposits of £nil (2004 – £30.0 million).

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Accounting policies

The principal accounting policies are summarised below. They
have all been applied consistently throughout the 52 weeks ended
26 March 2005 and the preceding 52 weeks ended 27 March 2004.

Basis of accounting
The financial statements have been prepared under the historical
cost convention and in accordance with applicable United Kingdom
law and accounting standards.

Basis of consolidation
The group financial statements consolidate the financial statements
of the Company and its subsidiary undertakings drawn up to
26 March 2005.

As permitted by section 230 of the Companies Act 1985, no
separate profit and loss account is presented for the Company.

Goodwill
Goodwill arising on acquisitions which took place prior to 29 March
1997 was written off to reserves in accordance with the accounting
standard then in force. As permitted by the current accounting
standard the goodwill previously written off to reserves has not
been reinstated in the balance sheet. On disposal or closure of a
previously acquired business, the attributable amount of goodwill
previously written off to reserves is included in determining the
profit or loss on disposal.

Tangible fixed assets
Tangible fixed assets are stated at cost, net of depreciation and any
provision for impairment. Depreciation is provided on all tangible
fixed assets, other than freehold land and assets in course of
construction, at rates calculated to write off the cost, less estimated
residual value, of each asset on a straight-line basis over its expected
useful life, as follows:

Freehold buildings
– 50 years
Fixed equipment in freehold buildings – 20 years
Leasehold improvements
Fixtures, fittings and equipment

– the lease term
– 3 to 20 years

Residual value is calculated on prices prevailing at the date of
acquisition.

Investments
Fixed asset investments are shown at cost less provision for impairment.

Stocks
Stocks consist substantially of goods for resale and are stated at the
lower of cost and net realisable value. Cost includes an appropriate
element of overhead expenditure.

ESOP reserve
The ESOP reserve deducted in arriving at shareholders’ funds
represents the cost of the Company’s own shares acquired by ESOP
trusts in connection with the group’s employee share schemes.

Taxation
Current tax, including UK corporation tax and foreign tax, is provided
at amounts expected to be paid (or recovered) using the tax rates
and laws that have been enacted or substantively enacted by the
balance sheet date.

Deferred tax is recognised in respect of all timing differences that
have originated but not reversed at the balance sheet date where
transactions or events that result in an obligation to pay more tax in

the future or a right to pay less tax in the future have occurred at
the balance sheet date. Timing differences are differences between
the group’s taxable profits and its results as stated in the financial
statements that arise from the inclusion of gains and losses in tax
assessments in periods different from those in which they are
recognised in the financial statements.

A net deferred tax asset is regarded as recoverable and therefore
recognised only when, on the basis of all available evidence, it
can be regarded as more likely than not that there will be suitable
taxable profits from which the reversal of the underlying timing
differences can be deducted.

Deferred tax is measured at the average tax rates that are expected
to apply in the periods in which the timing differences are expected
to reverse, based on the tax rates and laws that have been enacted
or substantively enacted by the balance sheet date. Deferred tax is
measured on a non-discounted basis.

Turnover
Group turnover comprises the value of sales (excluding sales taxes
and net of discounts) of goods in the normal course of business.

Employee share schemes
No cost is recognised in the profit and loss account in respect of
awards made under SAYE option schemes.

The cost of awards made under the group’s share based
compensation schemes is based on the intrinsic value of the
awards and is charged to the profit and loss account over the
related period of employment.

Pension costs
The cost of providing pensions is calculated using actuarial
valuation methods which reflect the long-term costs. The amount
charged to the profit and loss account is calculated so as to
produce a substantially level percentage of the current and future
pensionable payroll. Variations from the regular cost so calculated
are allocated to the profit and loss account over the average
remaining service lives of employees.

Foreign currency
Transactions in foreign currencies are recorded at the rate of
exchange at the date of the transaction or, if hedged, at the
forward contract rate. Monetary assets and liabilities denominated
in foreign currencies at the balance sheet date are reported at the
rates of exchange prevailing at that date or, if appropriate, at the
forward contract rate.

The results of overseas operations are translated at the average
rates of exchange during the period and their balance sheets at
the rates ruling at the balance sheet date. Exchange differences
arising on translation of the opening net assets and results of
overseas operations are taken directly to reserves.

Leases
Rentals under operating leases are charged on a straight-line
basis over the lease term, even if the payments are not made
on such a basis.

Benefits received and receivable as incentives to enter into property
leases are spread evenly over the lease term or, if shorter than the
full lease term, over the period to the first rent review date on which
the rent is expected to be adjusted to the prevailing market rate.

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Notes to the accounts

1 BASIS OF PRESENTATION
The Company’s accounting period covers the 52 weeks ended 26 March 2005. The comparative period covered the 52 weeks ended
27 March 2004.

2 SUPPLEMENTARY PROFIT AND LOSS INFORMATION
All turnover and retail profit is derived from one class of business in the UK.

Turnover by destination can be analysed as follows:

UK including Channel Islands
Rest of Europe
Rest of World

Profit from retail operations has been determined after charging/(crediting) the following items:

Depreciation of tangible assets
Reversal of past impairment losses
Net rent of properties
Hire of plant and equipment
Auditors’ remuneration:

Audit services
Further assurance services
Tax services

Staff costs (including directors):

Wages and salaries (including bonuses)
Social security costs
Other pension costs

2005
£ million

2004
£ million

401.1
28.1
28.0

457.2

399.1
22.6
25.2

446.9

2005
£ million

2004
£ million

12.0
–
47.4
1.9

0.2
0.1
0.3

52.6
3.2
2.6

13.0
(1.1)
46.0
1.8

0.2
0.1
0.7

52.8
3.0
3.0

The policy for approval of non-audit fees, together with an explanation of the services provided, is set out on page 19.

An analysis of the average number of full and part-time employees throughout the group, all of whom are employed in the UK, including
executive directors, is as follows:

Number of employees
Full time equivalents

2005

5,149
3,051

2004

5,005
3,033

Details of directors’ emoluments, share options and beneficial interests are provided within the remuneration report on pages 23 to 29.

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3 EXCEPTIONAL ITEMS
Exceptional costs of £6.5 million have been charged to profit from retail operations to provide for the direct revenue costs associated with
the reorganisation of the distribution network as a result of the move to the new National Distribution Centre.

Exceptional income of £2.4 million has been credited to profit before taxation relating to the sale of a subsidiary undertaking. The group
has capital tax losses significantly in excess of likely future requirements and one of the group’s subsidiary undertakings with capital tax
losses attached has been sold to a third party for £2.4 million net of costs.

The tax effect of the above exceptional items is £1.9 million credit (2004 – £nil).

In the 52 weeks ended 27 March 2004, profit from retail operations included an exceptional credit of £0.8 million relating to VAT, principally
arising from the successful outcome of an outstanding VAT claim.

In the 52 weeks ended 27 March 2004, non-operating exceptional items credited to profit before taxation amounted to £6.6 million and
comprised the following three items. The release of a prior year provision of £2.6 million no longer required following the early surrender
of the lease of a vacant property. Lease premiums of £2.5 million received and receivable on the sales of the leases of four stores offset
by a charge of £0.5 million to provide for the loss on disposal of another two stores. The profit on disposal of one of the group’s subsidiary
undertakings with capital tax losses attached of £2.0 million.

In the 52 weeks ended 27 March 2004, an exceptional tax asset of £6.4 million was recognised in the balance sheet in respect of carried
forward tax losses following the group’s return to profitability. In addition, a brought forward provision for corporation tax of £0.9 million
was released as an exceptional item since the provision was no longer required.

4 INTEREST (NET)

Interest payable:

Bank loans and overdrafts (repayable within five years, not by instalments)

Interest receivable and similar income

5 TAXATION
The charge/(credit) for tax on profit on ordinary activities comprises:

Current tax:

UK corporation tax at 30% (2004 – 30%)
Exceptional release of prior year tax provision (note 3)

Deferred tax:

Reversal of deferred tax asset in respect of tax losses utilised against profits for the year
Adjustment in respect of prior years
Exceptional credit for deferred tax (note 3)

2005
£ million

2004
£ million

(0.1)
1.8

1.7

(0.2)
0.9

0.7

2005
£ million

2004
£ million

–
–

–

4.7
(0.3)
–

4.4

–
(0.9)

(0.9)

–
–
(6.4)

(6.4)

(7.3)

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Notes to the accounts continued

5 TAXATION CONTINUED

Factors affecting tax charge for the period

Profit on ordinary activities before tax

Profit on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK
of 30% (2004 – 30%)
Effects of:

Expenses not deductible for tax purposes
Capital allowances in excess of depreciation
Utilisation of tax losses
Exceptional release of prior year tax provision (note 3)
Tax relief on special contribution to pension scheme
Movement in short-term timing differences

2005
£ million

15.5

2004
£ million

23.9

4.7

0.8
(0.5)
(4.4)
–
(0.8)
0.2

–

7.2

0.5
0.3
(8.0)
(0.9)
–
–

(0.9)

Factors that may affect future tax charges
The group had tax losses carried forward of approximately £23 million as at 26 March 2005 (2004 – £36 million).

Deferred tax
A net deferred tax asset of £2.0 million (2004 – £6.4 million) has been recognised in respect of trading losses carried forward. The deferred
tax asset has been recognised because the directors are of the opinion that it is more likely than not that the asset will be recoverable.

Deferred tax therefore comprises:

Accelerated capital allowances
Other timing differences
Tax losses

The movement on the deferred tax asset can be analysed as follows:

Balance at beginning of year
Reversal in respect of tax losses utilised against profits for the year
Adjustment in respect of prior years
Exceptional recognition of deferred tax asset in respect of carried forward losses

6 DIVIDENDS

Interim paid of 2.7p per ordinary share (2004 – nil pence)
Final proposed of 5.3p per ordinary share (2004 – 4.0p)

2005
£ million

2004
£ million

(4.7)
(0.1)
6.8

2.0

(4.8)
0.5
10.7

6.4

2005
£ million

2004
£ million

6.4
(4.7)
0.3
–

2.0

–
–
–
6.4

6.4

2005
£ million

2004
£ million

1.9
3.6

5.5

–
2.7

2.7

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7 EARNINGS PER SHARE

Weighted average number of shares in issue
Dilution – option schemes

Diluted weighted average number of shares in issue

Profit after tax
Exceptional items (net of tax)

Profit after tax before exceptional items

Basic earnings per share
Earnings per share before exceptional items
Diluted earnings per share

2005

68.0m
1.2m

69.2m

2004

67.3m
1.1m

68.4m

£11.1m
£2.2m

£31.2m
(£14.7m)

£13.3m

£16.5m

16.2p
19.5p
15.9p

46.5p
24.4p
45.7p

Earnings per share before exceptional items has been calculated to provide further information.

In accordance with the requirements of FRS 14 ’Earnings per share’, shares held by Mothercare Employee Trust and by Mothercare
Secondary Trust are excluded from the calculation of the weighted average number of shares in issue.

8 TANGIBLE FIXED ASSETS

Cost
Balance at beginning of year
Transfers
Additions
Disposals

Balance at end of year

Accumulated depreciation
Balance at beginning of year
Charge for year
Disposals

Balance at end of year

Net book value
Balance at beginning of year

Balance at end of year

Properties including
fixed equipment

Freehold
£ million

Leasehold
£ million

Fixtures,
fittings,
equipment
£ million

Assets in
course of
construction
£ million

Total
£ million

18.3
–
0.2
–

18.5

1.9
0.1
–

2.0

16.4

16.5

103.2
–
2.9
(1.1)

105.0

62.4
4.8
(0.6)

66.6

40.8

38.4

137.3
2.1
13.3
(1.5)

151.2

115.3
7.1
(1.3)

121.1

22.0

30.1

2.1
(2.1)
2.0
–

2.0

–
–
–

–

2.1

2.0

260.9
–
18.4
(2.6)

276.7

179.6
12.0
(1.9)

189.7

81.3

87.0

The net book value of leasehold properties includes £38.2 million (2004 – £40.6 million) in respect of short leasehold properties.

The Company had no fixed assets at either year end.

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Notes to the accounts continued

9 INVESTMENTS
Investments in the Company’s balance sheet consist of its investments in subsidiary undertakings.

The parent company and the group have investments in the ordinary share capital of the following wholly owned trading subsidiary
undertakings which principally affected the profits or net assets of the group. To avoid a statement of excessive length, details of investments
which are not significant have been omitted. All subsidiary undertakings have been included in the consolidation. The principal country of
operation for the subsidiary undertakings is the United Kingdom.

Mothercare UK Limited
Storehouse Finance plc*

*Direct subsidiary of Mothercare plc.

The Company’s investment in its subsidiary undertakings is as follows:

Cost of investments (less amounts written off £153.0 million)
Loans to subsidiary undertakings

Comparative figures have been amended, further details are provided in note 16.

10 STOCKS

Finished goods and goods for resale

11 DEBTORS

Trade debtors
Amounts due from subsidiary undertakings
Prepayments and accrued income
Prepaid special contribution to pension scheme
Other debtors
Deferred tax (note 5)

12 CREDITORS – AMOUNTS FALLING DUE WITHIN ONE YEAR AND AFTER ONE YEAR

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Amounts falling due within one year
Trade creditors
Proposed dividend
Amounts due to subsidiary undertakings
Payroll and other taxes, including social security
Accruals and deferred income
Landlords’ contributions
Other creditors

Amounts falling due after one year
Landlords’ contributions

Business

Country of incorporation

Retailing
Finance Company

England & Wales
England & Wales

2005
£ million

43.3
65.5

108.8

2004
£ million

43.3
65.5

108.8

2005
£ million

Company

2004
£ million

–

2005
£ million

Company

2004
£ million

–
7.1
–
–
0.1
–

7.2

–
6.0
–
–
1.1
–

7.1

2005
£ million

Company

2004
£ million

–
3.6
86.3
–
0.4
–
–

90.3

–

–
2.7
86.0
–
0.9
–
–

89.6

–

2005
£ million

46.8

2005
£ million

11.9
–
13.8
10.0
3.1
2.0

40.8

2005
£ million

29.8
3.6
–
1.2
24.2
0.7
–

59.5

0.5

Group

2004
£ million

45.0

Group

2004
£ million

10.1
–
11.9
–
5.6
6.4

34.0

Group

2004
£ million

25.6
2.7
–
1.2
28.8
1.0
0.8

60.1

1.2

13 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
The disclosures in this note should be read in conjunction with the sections on treasury operations, funding and liquidity, and currency risk
included in the business review on page 12.

The numerical disclosures in this note deal with financial assets and financial liabilities as defined in FRS 13 ’Derivatives and other financial
instrument disclosures’. Certain financial assets such as investments in subsidiary companies are excluded from the scope of these
disclosures. As permitted by FRS 13, short term debtors and creditors have also been excluded from the disclosures.

Financial risk management
The group uses financial instruments to raise finance for its operations and to manage risk arising from those operations. All transactions
in derivatives (principally forward foreign exchange contracts) are taken to manage the risks outlined below. No transactions of a speculative
nature are undertaken and no options are used.

The major financial risks to the group are interest rate risk and exchange rate risk. The board reviews and agrees the policies for managing
these risks as summarised below. There has been no change since the year end to the major financial risks to the group or to the group’s
approach to the management of these risks.

Finance and interest rate risk
During the 52 weeks ended 26 March 2005, there was a net cash outflow of £3.3 million. However, before the voluntary special contribution
to the pension scheme, the group had a net cash inflow of £6.7 million primarily as a result of the improved trading performance and the
sustained profitability of the group. Consequently, the short term funding flexibility provided by the group’s overdraft facilities has not been
required during the year. Excess cash has been placed on deposit where possible.

During the 52 weeks ended 27 March 2004, the cash balance increased primarily as a result of the group’s return to profitability. Consequently,
the short term funding flexibility provided by the group’s overdraft facilities was not required except at the beginning of the year. Excess
cash was placed on deposit where possible.

Cash balances are the group’s only material financial assets and bear interest at commercial rates based on LIBID.

The interest charge for the year, excluding interest receivable, of £0.1 million (2004 – £0.2 million) includes charges for lending facilities
made available to the group but not utilised during the year and consequently cannot be measured as a percentage of the average
gross borrowings of £nil (2004 – £nil).

Foreign currency risk
About 12 per cent of the sales of Mothercare’s UK businesses in the 52 weeks ended 26 March 2005 were to franchisees overseas which are
all billed in sterling. The group therefore has no currency exposure on these sales. Less than 6 per cent of the group’s purchases are made
in a foreign currency and the exchange risk is hedged by using forward contracts. The group’s policy is to cover all material exposures on
such creditors that arise from time to time. All other purchases sourced from overseas are invoiced in sterling. In summary, the group manages
the currency exposure by eliminating any adverse movements in sterling against the underlying currencies while foregoing the benefit of
any upward movements.

Forward foreign exchange contracts are entered into to provide hedging against transactional exposure and the amount outstanding
at 26 March 2005 was £11.1 million (2004 – £8.7 million). The book value of these forward foreign exchange contracts was £nil (2004 – £nil)
and their fair value was £11.3 million (2004 – £8.5 million).

Analysis of borrowing by interest rate, currency and maturity
The group had no outstanding borrowings at 26 March 2005 and 27 March 2004.

Borrowing facilities
The group had £20.0 million committed borrowing facilities available to it at 26 March 2005 (2004 – £20.0 million).

Currency analysis of net assets
The group’s borrowings and net assets (excluding gross borrowings) by currency at 26 March 2005 were:

Currency

Sterling
US dollar

2005

2004

Net assets
excluding
gross
borrowings
by currency
of operation
£ million

138.7
4.8

143.5

Net assets
excluding
gross
borrowings
by currency
of operation
£ million

134.4
1.3

135.7

Gross
borrowings
£ million

–
–

–

Gross
borrowings
£ million

–
–

–

Fair values
There are no material differences between the book values and fair values of the group’s financial assets.

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Notes to the accounts continued

14 PROVISIONS FOR LIABILITIES AND CHARGES

Property provisions
Distribution provisions
Other provisions

The movement on provisions can be analysed as follows:

Balance at 27 March 2004
Charged in year
Utilised in year

Balance at 26 March 2005

2005
£ million

1.5
5.6
1.0

8.1

Group

2004
£ million

2.6
–
1.0

3.6

Property
provisions
£ million

Distribution
provisions
£ million

Other
provisions
£ million

Total
£ million

2.6
–
(1.1)

1.5

–
6.5
(0.9)

5.6

1.0
0.3
(0.3)

1.0

3.6
6.8
(2.3)

8.1

Property provisions principally represent the costs of store disposals. The timing of the utilisation of these provisions is variable dependent
upon the lease expiry dates of the properties concerned.

Distribution provisions principally represent the costs of the reorganisation of the distribution network, of which the main components relate
to lease provisions on vacant property and start up costs. It is expected that substantially all of the distribution provisions will be utilised
by March 2007.

Other provisions principally represent provisions for uninsured losses, hence the timing of the utilisation of these provisions is uncertain.

15 CALLED-UP SHARE CAPITAL

Authorised
Ordinary shares of 50p each:
Balance at 27 March 2004 and 26 March 2005

Allotted, called-up and fully paid
Ordinary shares of 50p each:
Balance at 27 March 2004
Issued under the Mothercare 2000 Executive Share Option Plan
Issued under the Mothercare Sharesave Scheme

Balance at 26 March 2005

Further details of employee and executive share schemes are provided in note 19.

Number of shares

£ million

95,767,413

47.9

71,062,086
327,179
226,472

71,615,737

35.5
0.2
0.1

35.8

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16 RESERVES

As at 27 March 2004
Net premium on shares issued
Cost of employee share schemes
Transfer in respect of vested employee share based payment transactions
Retained profit for the financial year

As at 26 March 2005

Share
premium
account
£ million

ESOP
reserve
£ million

0.6
0.7
–
–
–

1.3

(4.2)
–
1.2
(0.2)
–

(3.2)

Group

Profit
and loss
account
£ million

103.8
–
–
0.2
5.6

109.6

The ESOP reserve represents the cost to Mothercare Employee Trust of the Company’s shares that it has acquired to meet the expected
requirements of the share based payment schemes described in the directors’ remuneration report on pages 23 to 29. The total shareholding
is 3,402,053 (2004 – 3,558,951) with a market value at 26 March 2005 of £9,423,687.

As at 27 March 2004
Net premium on shares issued
Cost of employee share schemes
Transfer in respect of vested employee share based payment transactions
Retained loss for the financial year

As at 26 March 2005

Share
premium
account
£ million

ESOP
reserve
£ million

0.6
0.7
–
–
–

1.3

(4.2)
–
1.2
(0.2)
–

(3.2)

Company

Profit
and loss
account
£ million

44.5
–
–
0.2
(2.9)

41.8

Following clarification that the Company is the sponsoring company of Mothercare Employee Trust, investments in the Company balance
sheet have been amended to show the Company’s investment in own shares as a deduction from equity, the ESOP reserve. This had no
effect on the Company’s result for the period.

The Company loss for the financial year was £2.9 million (2004 – £2.6 million). As permitted by section 230 of the Companies Act 1985 no
separate profit and loss account is presented in respect of the parent company. The audit fees for the Company were borne by another
group company.

The cumulative amount of goodwill written off against reserves is £30.1 million (2004 – £30.1 million). This goodwill arose on acquisitions,
net of amounts written back on subsequent disposals.

17 COMMITMENTS

Contracts for capital expenditure

Current annual commitments of the group under operating leases are as follows:

Leases which expire:
Within one year
Between two and five years
After five years

2005
£ million

5.3

2005
£ million

0.3
1.2
–

1.5

Group

2004
£ million

–

Other

2004
£ million

0.3
1.6
–

1.9

2005
£ million

2.4
7.0
43.8

53.2

Buildings

2004
£ million

1.9
6.2
42.6

50.7

The Company has committed to support certain of its subsidiary undertakings and has banking cross guarantees with certain of its
subsidiary undertakings.

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Notes to the accounts continued

18 PENSION ARRANGEMENTS
a) SSAP 24 disclosures
The group has operated two funded defined benefit pension schemes for its employees during the year.

The pension costs of the schemes were assessed in accordance with the advice of qualified actuaries using primarily the projected unit
and current unit methods. The latest valuations were carried out at 31 March 2003. The next actuarial valuations have been brought
forward by one year and will now be carried out as at 31 March 2005.

The assumptions which have the most significant effect on the results of the valuation are set out below:

Rate of return on investments
Rate of increase in salaries
Rate of increase in pensions

6.5 – 7.0 per cent
5.0 – 6.0 per cent
3.0 per cent

The total pension cost to the group is £2.4 million (2004 – £2.7 million). Total contributions made to the pension schemes in the year were
£12.4 million, including a special contribution of £10 million, and the contribution rate for 2005/06 will be 13 per cent of pensionable earnings.
Actuarial advice indicated that the assets of the schemes no longer fully cover the liabilities for benefits accrued to members and, in
mitigation, the group made a special contribution of £10 million during the year. In accordance with SSAP 24, this is held as a prepayment
of £10 million in the balance sheet as at 26 March 2005 (2004 – £nil).

Effective 28 March 2004, the final salary scheme was closed to new entrants and a ’career average’ scheme was introduced to replace it.
Existing members were asked to either increase their contributions from an average of 4.8 per cent to an average of 6.8 per cent or accrue
future benefits on a ’career average’ basis.

For the protection of members’ interests, the group has appointed three trustees, two of whom are independent of the group. To maintain
this independence, the trustees and not the group are responsible for appointing their own successors.

b) FRS 17 disclosures
Additional disclosures regarding the group’s defined benefit pension schemes are required under the transitional provisions of FRS 17
’Retirement Benefits’ and these are set out below. They provide information which would have been necessary for full implementation of
FRS 17 in the 53 weeks ending 1 April 2006; however, due to changes in the regulatory requirements, the Mothercare plc accounts for the
53 weeks ending 1 April 2006 will be prepared in accordance with International Financial Reporting Standards.

The full actuarial valuation described above was updated at 26 March 2005 by qualified actuaries using revised assumptions that were
consistent with the requirements of FRS 17. Investments were valued, for this purpose, at fair value.

The major assumptions used for the updated actuarial valuations were:

Rate of increase in salaries
Rate of increase in pensions in payment
Discount rate
Inflation assumption

2005

4.3 per cent
2.8 per cent
5.5 per cent
2.8 per cent

2004

2003

4.7 per cent
2.7 per cent
5.5 per cent
2.7 per cent

4.4 – 5.4 per cent
2.4 per cent
5.4 per cent
2.4 per cent

The fair value of the assets in the schemes, the present value of the liabilities in the schemes and the expected rate of return at each
balance sheet date were:

Equities
Bonds
Property
Other assets
Special contribution2

Total fair value of assets
Present value of scheme liabilities

Deficit in the schemes
Related deferred tax asset

Net pension liability

2005

2004

2003

per cent

£ million

per cent

£ million

per cent

£ million

8.5
5.5
7.5
4.5
8.0

88.7
19.5
25.0
0.5
10.0

143.7
(165.8)

(22.1)
6.6

(15.5)

8.5
5.5
7.5
–
–

88.2
8.91
23.1
–
–

120.2
(142.4)

(22.2)
6.7

(15.5)

9.0
5.4
7.5
–
–

67.7
8.7
20.4
–
–

96.8
(128.5)

(31.7)
9.5

(22.2)

Notes:
1. The information received from the investment manager and supplied to the actuary for the fair value of bonds held by the schemes as at 27 March 2004 was incorrect.

Accordingly the comparative figure has been amended from £7.0 million to £8.9 million which has had the effect of reducing the net deficit in the schemes from £16.9 million
to £15.5 million.

2. The special contribution of £10 million received from the Company was held in cash at the balance sheet date and has subsequently been invested in line with the

scheme’s investment asset allocation policy.

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Movement in the deficit in the schemes during the year:

Deficit at beginning of year
Operating costs
Normal contributions
Special contribution
Other finance income
Actuarial (loss)/gain

Deficit at end of year

2005
£ million

2004
£ million

(22.2)
(4.5)
2.4
10.0
1.7
(9.5)

(22.1)

(31.7)
(4.9)
2.7
–
1.1
10.6

(22.2)

The contribution rate for the 52 weeks ended 26 March 2005 was 13 per cent of pensionable earnings and the agreed contribution rate for
the next year is 13 per cent of pensionable earnings.

Analysis of the amount that would have been charged to operating profit under FRS 17:

Current service cost

Analysis of the amount that would have been credited to net finance income under FRS 17:

Expected return on pension scheme assets
Interest on pension scheme liabilities

2005
£ million

4.5

2004
£ million

4.9

2005
£ million

2004
£ million

9.6
(7.9)

1.7

8.1
(7.0)

1.1

Analysis of the actuarial (loss)/gain that would have been recognised in the statement of total recognised gains and losses under FRS 17:

Actual return less expected return on pension scheme assets
Experience gains and losses arising on the scheme liabilities
Changes in assumptions underlying the present value of the scheme liabilities

History of experience gains and losses:

Difference between the expected and actual return on scheme assets
As a percentage of scheme assets

Experience gains and losses on scheme liabilities
As a percentage of the present value of scheme liabilities

Total actuarial (loss)/gain recognised in the statement of total recognised gains and losses
As a percentage of the present value of scheme liabilities

The analysis of reserves that would have arisen if FRS 17 had been fully implemented is as follows:

2005

£3.2m
2.2%

(£2.9m)
(1.8%)

(£9.5m)
(5.7%)

Profit and loss account reserves excluding pension liability
Amount relating to defined benefit pension schemes’ liability, net of deferred tax
Prepaid special contribution to pension scheme, net of deferred tax

Profit and loss account reserves

2005
£ million

2004
£ million

3.2
(2.9)
(9.8)

(9.5)

14.7
0.2
(4.3)

10.6

2004

2003

£14.7m
12.2%

£0.2m
0.1%

£10.6m
7.4%

2005
£ million

109.6
(15.5)
(7.0)

87.1

(£36.4m)
(37.6%)

–
0.0%

(£45.4m)
(35.3%)

Group

2004
£ million

103.8
(15.5)
–

88.3

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Notes to the accounts continued

19 EMPLOYEE AND EXECUTIVE SHARE SCHEMES
The Mothercare Sharesave Scheme (SAYE)
This scheme enables all employees to acquire options over ordinary shares of the Company at 80 per cent of market price in conjunction
with a save-as-you-earn contract. The options are exercisable firstly three years after the date of commencement (usually two months
after the date of the grant) of the SAYE contract.

In accordance with UITF Abstract 17 ’Employee share schemes’, the group has taken advantage of the exemption in relation to the SAYE scheme.

The Mothercare 2000 Executive Share Option Plan
Under this scheme full time executives are granted options to acquire shares in the Company. Further details of the scheme are given in
the remuneration report.

Mothercare Employee Trust
Mothercare Employee Trust is a discretionary trust for the benefit of employees and former employees (and their dependants) of the
Company and its subsidiaries. The trust may buy shares in the market or subscribe for new shares in the Company; for example it may
buy shares for awards under any of the share schemes. The trust has waived the payment of any dividends.

Outstanding options at 26 March 2005 under the group’s share option schemes were as follows:

Mothercare 2000 Executive Share Option Plan

Mothercare Sharesave Scheme

Ordinary
shares
2005

156,101
25,246
424,272
312,500
275,863
402,011
387,500
20,000
2,170
23,135
671,642

2,700,440

Date of
grant

May 01
July 01
June 02
Dec 02
Jan 03
Mar 03
June 04
Nov 04
Dec 00
June 01
Aug 03

Option
price (p)

300.00
325.00
207.00
104.00
87.00
99.50
335.00
299.00
125.00
255.00
155.00

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Five year record

SUMMARY OF TURNOVER AND PROFIT

2005
£ million

2004
£ million

2003
£ million

2002
£ million

2001
£ million

Turnover
Continuing – Mothercare
Discontinued

Total

Profit/(loss) from retail operations before exceptional items
Continuing – Mothercare
Discontinued

Before exceptional items
Exceptional items
Interest and other items

Profit/(loss) before taxation
Taxation

Profit/(loss) for the financial year

Earnings/(loss) per share
Dividends per share

SUMMARY OF BALANCE SHEETS

Fixed assets
Net current assets
Creditors falling due after one year
Provisions for liabilities and charges

Total net assets

OTHER KEY STATISTICS

Share price at year end (p)

Net cash/equity (%)

Capital expenditure

Depreciation

Rents

Number of stores

Net selling space (000’s sq ft)

Average number of employees

Average number of full time equivalents

457.2
–

457.2

17.9
–

17.9
(4.1)
1.7

15.5
(4.4)

11.1

446.9
–

446.9

15.8
–

15.8
7.4
0.7

23.9
7.3

31.2

431.7
–

431.7

(19.7)
–

(19.7)
(5.2)
0.1

(24.8)
10.0

(14.8)

426.9
–

426.9

419.1
89.9

509.0

3.0
–

3.0
(4.1)
1.2

0.1
–

0.1

7.1
(6.7)

0.4
4.9
3.1

8.4
–

8.4

16.2p
8.0p

46.5p
4.0p

(22.0p)
–

0.2p
2.5p

6.0p
1.5p

87.0
65.1
(0.5)
(8.1)

81.3
59.2
(1.2)
(3.6)

85.6
27.0
(2.2)
(4.7)

88.6
37.3
(2.8)
(2.7)

87.7
41.8
(2.4)
(4.4)

143.5

135.7

105.7

120.4

122.7

277.0

354.0

101.5

232.5

206.75

25.8

18.4

12.0

47.4

231

1,858

5,149

3,051

29.7

8.5

13.0

46.0

233

1,863

5,005

3,033

7.0

13.4

11.6

45.7

241

1,922

5,032

3,109

9.8

10.7

11.6

44.1

245

1,927

5,201

3,111

27.4

11.2

11.4

41.3

252

1,980

5,353

3,167

The results for 2001 have been restated where necessary in accordance with FRS 19 ’Deferred tax’.

The net assets for 2003, 2002 and 2001 have been restated where necessary in accordance with UITF 38 ’Accounting for ESOP Trusts’.

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Shareholder information

Shareholder analysis
A summary of holdings as at 12 May 2005 is as follows:

Mothercare ordinary shares

Number of shares
million

Number of
shareholders

Financial calendar

Annual General Meeting
Announcement of interim results

Banks, insurance companies and
pension funds
Nominee companies
Other corporate holders
Individuals

0.4
65.8
0.5
4.9

71.6

14
774
114
26,547

27,449

Payment of interim dividend
Preliminary announcement of results for
53 weeks ending 1 April 2006
Issue of report and accounts
Annual General Meeting
Payment of final dividend

2005

15 July
17 November

2006

February

end May
mid June
mid July
mid August

As can be seen from the above analysis, many shares are registered
in the name of a nominee company as the legal owner. The underlying
holder of shares through a nominee account is the beneficial owner
of these shares, being entitled to the capital value and the income
arising from them. An analysis of these nominee holdings shows that
the largest underlying holders are pension funds, with unit trusts and
insurance companies the other major types of shareholder.

Individual shareholders owning 500 or more Mothercare shares are
entitled to a 10 per cent discount in defined denominations on up to
£500 of merchandise in Mothercare stores. If an individual shareholding
of 500 or more shares is not on the share register but is held through
a nominee or trustee, the book of vouchers can nevertheless be
obtained by contacting the company secretary at the registered office.

Share price data

Share price at 24 March 2005 (26 March 2004)
Market capitalisation
Share price movement during the year:

High
Low

2005

2004

277.0p
£198.4m

354.0p
£251.6m

374.0p
277.0p

383.0p
100.0p

All share prices are quoted at the mid-market closing price. For capital
gains tax purposes:

• the market value on 31 March 1982 of one ordinary share in British

Home Stores PLC is 155p and of one ordinary share in Habitat
Mothercare PLC is 133p; and

• the market value of each Mothercare plc 50p ordinary share

immediately following the reduction of capital and consolidation
for the purpose of allocating base cost between such shares
and the shares disposed of as a result of the reduction is 135p.

Registrars and transfer office
Lloyds TSB Registrars, The Causeway, Worthing, West Sussex BN99 6DA.

Registered office and head office
Cherry Tree Road, Watford, Hertfordshire WD24 6SH
Telephone 01923 241000
www.mothercare.com
Registered number 1950509

Company secretary
Clive E Revett

Registrars
Administrative enquiries concerning shareholders in Mothercare plc
for such matters as the loss of a share certificate, dividend payments
or a change of address should be directed, in the first instance, to
the registrars:

Lloyds TSB Registrars
The Causeway, Worthing, West Sussex BN99 6DA
Telephone 0870 600 3965
www.lloydstsb-registrars.co.uk

Low cost share dealing service
A postal share dealing service is available through the company’s
stockbrokers for the purchase and sale of Mothercare plc shares.
Further details can be obtained from:

Cazenove & Co Limited
20 Moorgate, London EC2R 6DA
Telephone 020 7155 5155

ShareGift
Shareholders with a small number of shares, the value of which
makes it uneconomic to sell them, may wish to consider donating
them to charity through ShareGift, a registered charity administered
by The Orr Mackintosh Foundation. The share transfer form needed
to make a donation may be obtained from the Mothercare plc
registrars, Lloyds TSB Registrars.

Further information about ShareGift is available from
www.sharegift.org or by telephone 020 7337 0501.

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For locations and your
nearest store in the UK
please visit our website
www.mothercare.com

Stores
UK stores
Europe 106
Rest of the world 114

231

Designed and produced by cgi-london.com

Photography supplied by Mothercare except board photography by Ric Gemmell, store photography by Tim Hazael and warehouse
photography by newsteam.co.uk

Printed by CTD Printers Ltd. Printed on PhoeniXmotion paper, which is manufactured using totally chlorine-free pulps from sustainably
managed forests. The paper coating uses natural minerals such as calcium carbonate and clay.

Mothercare plc
Cherry Tree Road
Watford
Hertfordshire
WD24 6SH

T 01923 241000
F 01923 240944
www.mothercare.com

Registered in England number 1950509