Mothercare plc
Annual report and accounts 2012
Transformation
and growth
www.mothercareplc.com
Financial highlights
Worldwide network sales
£1,232.4m +6.4%
UK sales
£560.0m
UK retail (stores and direct) and UK wholesale sales
-4.6%
International sales
+17.8%
£672.4m
Retail sales achieved by our franchise partners joint ventures
and associate and International wholesale sales
Group sales
£812.7m +2.4%
UK sales
£560.0m
UK retail (stores and direct) and UK wholesale sales
-4.6%
International sales
£252.7m
Royalty revenues, landed cost of goods delivered to
our franchise partners and International wholesale sales
+22.4%
Operating profit
£1.6m
-94.4%
Stores across the world
1,339
Space
4,229k sq. ft.
+5.7%
+9.5%
UK operating loss
£24.7m
vs. profit of £11.1 million last year
International operating profit
£34.9m
Corporate expenses
£7.6m
UK stores
311
Space
1,946k sq. ft.
International stores
1,028
Space
2,283k sq. ft.
n/a
+26.9%
+1.3%
-16.6%
-3.5%
+15.0%
+23.7%
Our brands
Contents
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Mothercare
Mothercare opened its first store in 1961 and since its earliest
days has been a specialist retailer of products for mothers-to-
be, babies and children up to the age of eight. Our core area of
specialism remains the pre-birth months and babies aged up
to two years of age. Mothercare’s product offering is wide and
includes maternity and children’s clothing, furniture and home
furnishings for babies and young children, bedding, feeding,
bathing, travel equipment and toys. We sell our products
through retail, internet and wholesale operations in the UK
and Internationally through a small but growing wholesale
operation and significant franchise operations in Europe,
the Middle East and Africa, Asia Pacific and more recently
Latin America.
Mothercare stores
UK – in town: 106
UK – OOT*: 103
International: 668
*OOT = Out of town
Early Learning Centre
Early Learning Centre was set up in 1971 as a mail order
business selling educational books and toys, and was acquired
by the group in 2007. Today ELC is a designer and retailer of
educational toys for children aged up to eight years, which are
primarily own-brand products designed and sourced through
our state-of-the-art sourcing centre in Hong Kong. Product is
sold through retail, internet, catalogue and wholesale
operations in the UK and through our small wholesale and
significant franchise operations in Europe, the Middle East and
Africa, Asia Pacific and more recently Latin America.
ELC stores
UK – in town: 102
UK – inserts in
Mothercare stores: 111
Note: the figure above refers to inserts
in 103 OOT Mothercare stores and
eight in town Mothercare stores
International: 360
Overview
Our brands
At a glance
Our mission
Chairman’s statement
Chief Executive’s statement
Business review
Business review
Financial review
KPIs – Financial and non-financial
Risks
Corporate responsibility
Governance
Board of directors
Executive committee
Corporate governance
Directors’ report
Remuneration report
Appendix to the remuneration report
Financial statements
Directors’ responsibilities statement
Independent auditor’s report to the
members of Mothercare plc
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the consolidated
financial statements
Company financial statements
Independent auditor’s report on the
Company financial statements
Company balance sheet
Notes to the Company financial statements
Five year record
Shareholder information
For more information visit:
www.mothercareplc.com
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Mothercare plc Annual report and accounts 2012 01
At a glance
UK
Consumer spending remained
challenging throughout the
year, which resulted in the UK
delivering an operating loss of
£24.7 million for the financial year
ended 31 March 2012.
Total UK sales were down 4.6 per cent at £560.0 million, with like-
for-like sales down 6.2 per cent. Gross margin erosion of circa 500
basis points over the year put further pressure on UK profitability.
As a result the UK delivered an operating loss of £24.7 million for
the year ended 31 March 2012
The strategy for transforming the UK will, over the next three years,
dispose of loss making stores, reduce the operating cost base by
at least £20 million and invest in product, store environment and
services, thereby returning the UK to profitability
UK sales
Clothing 34%
Home & travel 36%
Toys 30%
Store sales
£398.7m
UK store sales down 8.7%
Direct
£130.0m
UK direct sales up 0.8%
Wholesale
£31.3m
Wholesale sales up 44.9%
2012
2011
£398.7m
£436.6m
2012
2011
£130.0m
£129.0m
2012
2011
£31.3m
£21.6m
We ended the year with 311 stores in the
UK having closed a net 62 stores (closed
67 and opened five stores) during the
year. Space in the UK was down 3.5 per
cent, closing the year with 1,946k sq. ft.
across the store portfolio. It is our
intention to further reduce the store
network to circa 200 stores, reducing
space to circa 1,700k sq. ft. by March 2015.
Over the year store-based sales were
down 8.7 per cent to £398.7 million. This
was attributable to both the decline in
like-for-like sales and the continued
closure of stores.
Total direct sales were up 0.8 per cent
at £130.0 million with Direct in Home
sales of £91.7 million and Direct in Store
sales of £38.3 million. The legacy
platform, which contributed to the
under performance of our sales in this
segment, has now been replaced by
a new platform. Our new website offers
additional functionality making it
easier for customers to navigate and
complete orders more effectively, which
is expected to restore this segment of
our sales to growth.
Wholesale sales were up 44.9 per cent
to £31.3 million. The mini club range,
which is a strategic partnership with
Boots UK, continues to perform well.
We are exploring the opportunities for
growing ELC’s wholesale sales and
have conducted successful trials with
several leading retailers over the
Christmas period.
02 Mothercare plc Annual report and accounts 2012
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International sales
Clothing 64%
Home & travel 21%
Toys 15%
International
Our International business, with
1,028 stores across 58 countries
and with 41 partners, continues to
grow and saw profits increase by
26.9 per cent to £34.9 million.
International retail sales were up 18.5 per cent to £665.5 million with
like-for-like sales growth of 6.1 per cent
We took our first steps into a new region, Latin America, and
are encouraged by the potential offered by these new markets.
We continue to see growth opportunities over the next three
years of circa 20 per cent per annum across our International
markets with Europe and the Middle East and Africa expected to
grow by circa 10 per cent per annum, Asia Pacific by circa 20 per
cent and Latin America by over 100 per cent
Stores
£665.5m
Direct
n/a
Wholesale
£6.9m
International store sales up 18.5%
International Direct launching in FY13
Wholesale sales down 26.6%
2012
2011
£6.9m
£9.4m
We have a small wholesale business
for ELC that helps us extend our reach
to markets where we do not have
franchise stores. Over the year
wholesale sales were down 26.6 per
cent to £6.9 million. This was mainly
the result of changing our wholesale
operations in North America.
We have taken our first steps towards
a multi-channel strategy across our
International markets. We now have
operational internet sites for ELC in
Russia and Australia and for
Mothercare in Kuwait, Ireland and
Australia. We work with our franchise
partners to develop appropriate
websites and believe all our major
partners will have transactional
websites by March 2015.
2012
2011
£665.5m
£561.5m
Retail sales through our franchise
partners’ stores were up 18.5 per cent
to £665.5 million. We have continued to
open stores across all our geographies.
Europe – 409 stores in 28 countries and
increased space by 6.7 per cent
Asia Pacific – 318 stores in 13 countries
and increased space by 53 per cent
Middle East and Africa – 290 stores
in 14 countries and increased space
by 23.1 per cent
Latin America – At the year end we
had 11 stores in three countries and
recently opened in Venezuela. We
now have 12 stores in four countries
Mothercare plc Annual report and accounts 2012 03
Our mission
Our aim is to be the definitive
one-stop-shop for mothers
across the world for product,
value and service.
The brand qualities that will help us deliver
transformation and growth:
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Passion
We are passionate about the quality
of all our products, which is reflected
in our clothing ranges where we are
working hard to deliver value without
compromising on quality.
Expertise
We have over 50 years’ experience
of meeting the needs of mothers and
their babies and young children, which
is reflected in our new furniture and
bedding ranges.
p07
Innovation
We have taken the time to reflect on the
feedback from mums, taking the best of
available technology and developing
components where necessary to deliver
lighter, easier to manoeuvre and more
flexible pushchairs.
For more information visit:
www.mothercare.com
04 Mothercare plc Annual report and accounts 2012
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Transformation and growth
Passion
We take pride in the uncompromising quality
of our clothing ranges, and have taken heed
of customer feedback with regard to our
value proposition and fashionability.
Our Autumn/Winter 12 ranges have seen a step
up in these important areas and we have worked
hard to deliver on customer needs. Our clothing
ranges aim to be relevant and age appropriate
with a nod to fashion. We have added key
staples for the nursery bag with good quality,
cute slogan or animal graphic t-shirts at great
opening prices. Our ranges now move
through the pricing architecture with clear
good, better and best ranges. Even
at the top end, we have realigned
prices to offer uncompromising
value to our customers.
For more information visit:
www.mothercare.com
Mothercare plc Annual report and accounts 2012 05
Transformation and growth
Expertise
We have re-launched our furniture and bedding
ranges for Autumn/Winter 12 with clear ranges
at each price point. We recognise that some
customers may have space constraints and have
taken these needs into account when designing
a compact range. This attention to detail is also
evident in the recently launched Treasured range,
which was designed with the International
customer in mind. The success of the range in the
UK at the ‘best’ end of our ranging reflects the
quality and exclusivity of the product.
:
For more information visit:
www.mothercare.com
06 Mothercare plc Annual report and accounts 2012
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Transformation and growth
Innovation
The Movix pushchair is a great example of
the innovation that we aim to deliver for our
customers. The lightweight, versatile chassis
has been designed to accommodate three
different travel options for baby with no
need for adjustment or additional adaptors.
Suitable from birth, the Movix comes with
a carrycot which is parent facing and also
includes a three-position seat which is both
forward and parent facing. In addition a car
seat option is available. Extra thought
has also gone into accessibility
to the under-seat storage and
folding mechanism, making life
easier for mum.
For more information visit:
www.mothercare.com
Mothercare plc Annual report and accounts 2012 07
Chairman’s statement
“ We have a robust plan for
transformation and growth with
new, strong leadership capable
of delivering the results.”
Alan Parker CBE
Chairman
I was delighted to be approached and appointed Chairman of
Mothercare last year. For over 50 years, Mothercare has been one
of the pre-eminent names on the UK high street and ELC has over
the last 30 years represented innovation and quality as a toy brand.
The strengths of both brands, with a network of strong and
passionate international franchisees, are clear assets of the
Company, complemented by its sourcing operations.
The trading results of the UK business have worsened over the past
two years. On becoming Chairman, it became evident from an early
stage that significant changes within the business were required.
I assumed the role of Executive Chairman in November 2011, with
a view to implementing these changes following the resignation
of Ben Gordon as Chief Executive.
The board then carried out a thorough structural and operational
review of the whole business, with the input of expert external
consultants. The key elements of that review – the ‘Transformation
and Growth’ plan – are set out in this report. In essence, we have a
plan to transform the UK business to reflect the needs of customers
and the changes in their shopping habits, while accelerating the
group’s successful expansion internationally.
After a thorough search process, the board appointed Simon
Calver as the new Chief Executive. Simon has the skills, experience,
passion and leadership expertise to put the Company on a much
stronger and more profitable footing
Having the right people in place is a critical factor to the success
of the ‘Transformation and Growth’ of the business. I have
reshaped the executive team, so that now we have Mike Logue as
Managing Director UK, and Jerry Cull as Managing Director
International, each with ownership for their respective businesses.
Their teams will be more focused and aligned to delivering the
results we require
It was clear that costs in the business had to be tackled quickly
to reflect the reduction in the store estate in the UK. We now have
a clear programme in place to tackle these costs which included
a well managed and professional consultation process at the
Watford head office. This resulted in some job losses both in
Watford and our overseas offices, which were greatly regrettable
08 Mothercare plc Annual report and accounts 2012
Worldwide network sales
International 55%
UK 45%
International is now a larger part of
our business and is set to grow by
circa 20 per cent per annum
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We have worked with our banks, who have been supportive of
our business strategy by agreeing to provide increased facilities
to allow the Company to take some of the decisive steps required
under the ‘Transformation and Growth’ plan
We have carried out a thorough, externally facilitated board
evaluation process to review the overall effectiveness of the board
and its interaction with the Company’s executive management
In addition, the Company has made significant progress over the
last year in a number of areas:
International retail space of Mothercare and ELC products
increased by 23.7 per cent (over 400,000 sq. ft. of extra space)
The UK business reduced its estate by 62 stores, demonstrating
that the Company is in the vanguard of reshaping its business
to reflect the new customer shopping trends
A completely new website was launched in May 2012 which
significantly improves the online shopping experience with
Mothercare through computers or smart phones
Since Simon’s appointment as our new Chief Executive I have
reverted to the position of non-executive Chairman and will ensure
that the appropriate governance and oversight of the Company will
be maintained.
I believe we have put the Company on the right course for success,
and that the actions that have been taken over a period of
nearly six months will allow Simon and his team to re-establish the
relationship with our customers as a priority, continue to address
the structural issues in the UK business, and to restore the
group’s profitability.
I appreciate the strength of support that I have received from our
franchise partners around the world. Without doubt, this is a vital
attribute to the strength and future development of the group.
I would like to say a big thank you to our franchise partners for
their support.
Also, I would like to recognise the hard work and loyalty of the
many thousands of team members during a difficult year. Their
commitment continues to be a remarkable feature and remains
fundamental to our future success.
Finally, on behalf of the board, I should like to thank Ian Peacock,
who retired after nine years as Chairman of Mothercare, for his
leadership of the Company and contribution to the business.
23.7%
Increase in international retail space
Alan Parker CBE
Chairman
Mothercare plc Annual report and accounts 2012 09
Chief Executive’s statement
“ We need to bring the customer with us...
they need to be at the centre of every
decision we make. As a team, this is
our most important delivery yet.”
Simon Calver
Chief Executive
Group results
Worldwide network sales grew by 6.4 per cent to £1,232.4 million
(2011: £1,158.1 million), driven by the growth of our International
business but tempered by the continued decline seen in the UK.
Group sales, which reflect UK revenues and the payments we
receive from our International partners, were up 2.4 per cent to
£812.7 million (2011: £793.6 million).
The decline in profits in the 53 week period has however been
disappointing with a reduction in underlying profit before tax to
£1.6 million, down from £28.5 million last year. International has
continued to grow rapidly, but the UK has struggled in the face
of a challenging economic backdrop and an increasingly
competitive environment.
Underlying profit before tax declined to £1.6 million (2011: £28.5 million)
with exceptional charges and other non-underlying items of
£104.5 million (2011: £19.7 million) resulting in reported losses before
tax of £102.9 million (2011: profit of £8.8 million).
The non-underlying charge of £104.5 million includes £104.4 million of
exceptional items including a non-cash write down of UK goodwill
and other intangibles already announced in the first half, together
with a provision for restructuring costs to deliver the ‘Transformation
and Growth’ plan.
Whilst over 70 per cent of the exceptional charges are non-cash items,
the decline in UK profitability and the need to fund an additional
quarterly rent payment (due to the 53rd week in this financial year)
have resulted in a year-end net debt position of £20.1 million (2011: net
cash position of £15.3 million). Over the next three years we will be
incurring cash restructuring costs of circa £35 million in total. We
recently refinanced our banking facilities to fund the ‘Transformation
and Growth’ plan, increasing committed facilities to £90 million,
extending the term to May 2015 and resetting bank covenants
(see Financial Review for more details).
As we announced in April, the board has decided to suspend the
dividend until the ‘Transformation and Growth’ plan delivers a
marked improvement in our results. There will therefore be no final
dividend payment this year, which means the payout for the full year
is 2.0p per share.
1,339 stores
Across 59 markets
10 Mothercare plc Annual report and accounts 2012
Group revenues
2012
2011
2010
£812.7m
£793.6m
£766.4m
+2.4%
Helped by International, group
sales continued to grow
Our business model
Our business is fully integrated across all our 59 countries.
Our International markets operate on a franchise model,
which means store operations are managed by our
partners, while in the UK we manage our stores directly. It is
important to know that these differences in who manages
stores and the sale of our products, means that there is no
difference in the lifecycle of our product ranges, which we
manage across our global offices in the UK, India, China,
Hong Kong and more recently Bangladesh.
The product cycle starts at the concept stage where we
consider our existing ranges, global trends and customer
needs. We then test these concepts through customer
focus groups. This gives us great insight into price points
and the best pricing architecture, thus allowing us to arrive
at relevant ranges at the good, better, best price points.
At the design stage, we are always considering how we
can help our customers by meeting their needs but also by
considering the quality that our customers have come to
expect from Mothercare.
Once we have product ready for our stores, merchandisers
across all our markets consider the ranges and place their
orders. It is our job then to source efficiently and ensure
product is manufactured to our high standards. We then
distribute product to all our markets ensuring timely
delivery while also ensuring store staff across all our
markets are trained in how best to sell our products.
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International results
Total International sales were up 17.8 per cent to £672.4 million
(2011: £570.9 million) with total reported sales up 22.4 per cent to
£252.7 million (2011: £206.4 million). International underlying operating
profits were up 26.9 per cent to £34.9 million (2011: £27.5 million). This
profit comprised franchise profits of £38.1 million and joint venture
and associate start-up losses of £3.2 million.
We now have three joint ventures and an associate. While our new
joint venture in the Ukraine is profitable, our joint ventures in India
and China and our Australian associate are start-up operations and
as such have made, in total, a £3.2 million loss for the period. We see
our equity stakes in these markets as an important investment in
future growth opportunities.
We have laid the foundations with our franchise partners that will
see an acceleration in revenue and profit growth. We remain the
only specialist mother and baby retailer in this position in the
world today.
We have great franchise partners many of which I have already
had the pleasure of meeting. They have such enthusiasm and
passion for our brands and are excited by their potential in each
of their countries.
Product concept
Consumer feedback
Product design
Sourcing
Manufacture
Distribution
UK
International
Mothercare plc Annual report and accounts 2012 11
Chief Executive’s statement
continued
UK results
Total UK sales were down 4.6 per cent at £560.0 million (2011:
£587.2 million) with a like-for-like sales decline of 6.2 per cent. Total
Direct sales were up 0.8 per cent at £130.0 million (2011: £129.0 million)
with Direct in Home down 1.7 per cent at £91.7 million and Direct in
Store up 7.3 per cent at £38.3 million. Our wholesale channel grew by
44.9 per cent to £31.3 million.
Trading conditions in the UK deteriorated as we moved through the
year. Although we have gained some market share in home & travel,
the market was particularly weak and while we have gained some
market share, sales were impacted by the reduction in the overall
size of the market. We have managed stock levels very tightly over
the year through additional promotions and offers and, as a result,
we ended the third quarter with a clean stock position and a
reduced gross margin which was, as expected, down 500 basis
points for the full year. The UK segment of the Mothercare group
recorded a loss of £24.7 million (2011: profit of £11.1 million) for the year.
Our brands
The Mothercare and the Early Learning Centre brands resonate
strongly with mothers across the globe. The strength of the
International business and franchise partners has allowed us to
grow robustly and is a clear indication of the relevance of both
brands in our overseas and UK markets. We now have 1,339 stores
worldwide across 59 markets – 409 in Europe, 318 in Asia, 311 in the
UK, 290 in the Middle East and Africa and 11 in Latin America
following our recent launch. In the UK over 80 per cent of expectant
mothers continue to visit our stores and our challenge is to convert
more of these visitors to loyal, long term customers.
Mothercare was founded in 1961 and has since its earliest days
endeavoured to offer mothers-to-be, new mothers and their babies
and children up to the age of eight innovative and quality products
at great value that are relevant to their lives. Our ranges include
products for feeding, bathing, travel equipment, maternity wear and
associated product, children’s clothing, furniture, bedding and toys.
Whilst we remain an important source of information and support for
mothers-to-be and new mothers, I realise that we can do a lot more.
These improvements will become increasingly apparent to our
customers as we move through our three-year ‘Transformation and
Growth’ plan.
Early Learning Centre was founded in 1971 and has its roots in a mail
order business that today includes 462 stores worldwide, the internet
and a small but growing wholesale business. ELC aims to provide
babies and children up to the age of eight years nurturing toys
that encourage learning and development in a fun and
supportive manner.
Our strategy
We have over the last few months completed a thorough review of
our business, both UK and International. This review forms the basis
of our ‘Transformation and Growth’ plan, which is essential to deliver
UK profitability and accelerate International growth. The group’s
task is to deliver this over the next three years.
Actions already taken
In International, we opened our first stores in Latin America. We also
took our first steps towards a multi-channel offer with transactional
websites for Early Learning Centre in Russia and Australia and for
12 Mothercare plc Annual report and accounts 2012
ELC 36 per cent newness A/W 2011
Worldwide network sales
Stores 86%
Direct 11%
Wholesale 3%
+6.4%
Our scale continues to grow with
worldwide network sales up
Mothercare in Kuwait, Ireland and Australia with Mothercare
Indonesia launching in June 2012.
In the UK, we continued our store rationalisation plan and ended the
year with 311 stores. On 1 May 2012 we launched our new website.
Our senior management team continues to be strengthened.
Mike Logue, our UK Managing Director, has been with the business
since August 2011 and is building a strong UK team to assist him
in the task ahead. I joined on 30 April 2012 and Jerry Cull our
International Managing Director, who has been with the business
for over 30 years, continues to drive International forward.
I would like to take this opportunity to thank Alan Parker our
Chairman, who stepped up to an executive role, for his leadership
of the business over the last few months. Our review is now complete
and I have a clear strategy in the ‘Transformation and Growth’ plan,
which we will implement over the next three years. It is in essence a
simple plan – accelerate International growth while returning the UK
to profitability through cost reduction and transformation. This will be
our most important delivery yet. In addition, the customer will return
to the centre of everything that we do. Our success will be driven by
our ability to reconnect with them, converting more into shoppers
both online and in-store.
Our strategy is based on the four cornerstones of:
Lean retail
Restore UK profitability
Accelerate International growth
Multi-channel worldwide
Summary
I am excited to have joined the Mothercare group as Chief Executive
and I am confident about the opportunities ahead. Worldwide
network sales are up 6.4 per cent and our brands remain as relevant
to our customers today as they ever have been. I have been fully
involved in the formulation of the ‘Transformation and Growth’ plan
and I know that it is both the right plan and one which the team and
I can deliver.
We have a long way to go, and the plan to bring the UK business
back to acceptable levels of profitability will take three years. We
need to invest in e-commerce, be ruthless with our non-store cost
base and use our scale and growth worldwide to drive sourcing
economies and pass these savings onto the customers to improve
our value for money around the world. Everything we do will
enhance customer value, experience and loyalty in each of our
59 countries. My team and I are up for the challenge and, whilst
there is much to do in this difficult economic climate, I look forward
to delivering the ‘Transformation and Growth’ plan. As a team, this
will be our most important delivery yet.
Simon Calver
Chief Executive
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UK OOT stores
2012
2011
2010
103
98
87
-3.5%
Our space in sq. ft. was down
3.5 per cent as we migrated to
larger OOT stores during the year
Mothercare plc Annual report and accounts 2012 13
Chief Executive’s statement
‘Transformation and Growth’ plan:
The four cornerstones
1. Lean retail
Lean retail means delivering
operational efficiencies and
substantial non-store cost reductions,
tightly managing cash and working
capital and building on the scale of
our sourcing operations.
Reduce UK non-store costs by
£20 million per annum (annualised)
Our infrastructure is larger than we
require, given our new smaller UK
operating base. We have identified
£20 million of annualised costs that
can be taken out of the business over
the next three years from areas like
distribution, head office costs and
payroll. Work has already begun
in this area and we have taken action
to reduce UK head office payroll
costs by 16 per cent.
In addition, we reduced UK stock
levels by 12 per cent during FY2011/12
and plan to continue to drive down
our working capital requirements.
Sourcing efficiencies
Our buying volumes continue to grow
despite the recent decline seen in the
UK. International growth of circa 20
per cent provides us with a strong
base from which to underpin
negotiations with our supplier base to
reduce costs that we can pass on to
our customers in lower prices, further
driving growth.
Category mix
Clothing and home & travel are
expected to grow as a percentage
of sales as Early Learning Centre
stores are closed in the UK which will
help to underpin our gross margins.
An increased focus on innovation
should also help to drive sales of
own-brand product and again
increase margin. These changes
in category mix are expected to
lower prices whilst maintaining
gross margins.
2. Restore UK
profitability
Restoring UK profitability means
delivering profitable growth through
targeted and specific actions aimed
at stabilising like-for-like sales and
reducing significantly store
occupancy costs.
National coverage
We have identified that circa 200
stores in the UK is the optimum size for
Mothercare supported by online and
wholesale business. This will offer the
best national coverage of mother and
baby specialists in the UK. These
stores will not only be a place for
shopping, customer service and
advice but will also offer our ‘Collect
in Store’ service, whereby online
orders can be collected from stores.
The target 200 stores chain is based
around our profitable Mothercare out
of town stores, key Mothercare in town
stores and Early Learning Centres in
key strategic locations. The target 200
store portfolio is currently profitable.
The stores to be closed currently lose
circa £13 million per annum and these
stores will be closed by 2015.
Increase value and innovation across
our product ranges
We have lost ground in terms of our
value perception and we need to
change this. We aim to have a clear
pricing architecture with good, better
and best ranges all offering value to
the customer in terms of quality and
price. An increase in own-brand and
third-party exclusivity over the term of
the plan will also help to improve our
value credentials.
In addition over the next few quarters
we will continue to launch new and
innovative products focused on solving
the needs of mums and babies.
Enhance customer service and
improve in-store environment
We are investing in additional training
for all store staff and will have started
with specialist fitters for car seats
and bras in all our stores at all times.
We have also begun in-store
investment focusing on fitting rooms
and baby feeding and changing
facilities, which are important to
our mums.
Customer satisfaction measurement
by store has recently been introduced
and will further help us to track daily
store level performance. It is essential
that in all of our markets we set, not
follow, the standards of service that
mothers expect, to retain the trust of
our customers.
14 Mothercare plc Annual report and accounts 2012
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Our joint ventures in the Ukraine,
China and India and our Australian
associate are all on track to be
profitable by March 2014.
3. Accelerate
International
growth
Accelerating International growth
means increasing sales in existing
markets, targeting new markets and
focusing on key growth regions –
China, India, the Middle East and
Latin America.
Mothercare is a brand with truly
global reach. Our International
business continues to go from strength
to strength. We have great franchise
partners and proven concepts for
Mothercare and Early Learning Centre
across the emerging markets, which
will drive space and revenue growth
of approximately 20 per cent per
annum over the term of the plan.
We are now in four regions and each
is delivering strong growth for us.
Europe (which includes Eastern
Europe) and the Middle East and
Africa, our two largest and oldest
regions, are expected to deliver
growth of 10 per cent per annum. Asia-
Pacific is expected to grow by 20 per
cent per annum while our newest
region Latin America is expected to
grow by over 100 per cent per annum,
albeit from a lower base. Our business
is well balanced and each region
benefits from some high growth
markets. In particular we believe
Saudi Arabia, Russia, China, India and
Latin America will drive growth over
the term of the plan. Overall, we
expect International retail sales to
grow by 20 per cent per annum over
the next three years to March 2015.
4. Multi-channel
worldwide
Multi-channel worldwide means
launching new e-commerce platforms
in the UK and all major overseas
markets, growing both online revenues
and store sales and putting
Mothercare back into the lead.
New UK platform
In line with the plan we launched our
new UK e-commerce platform for both
direct to home and in-store ordering
on 1 May 2012. The new website is a
step change from the old legacy one
with richer product content, improved
search capabilities and better visibility
for search engines. However, this is just
the start but it has enabled us to have
and use the tools commonplace
across the industry to drive conversion
and sales. Mothers are becoming
much more informed and for many of
our categories, significant research is
done online before customers visit our
stores. Having a great website will
therefore grow both online revenues
and in-store sales. As the number one
baby website we have a large
amount of traffic to our site and can
increase conversion by doing the
basics well. Thereafter we will begin to
build long relationships with our
customers, growing with them as their
family does.
We have launched a new website in
the UK and will build the capability to
become one of the leading online
players in the UK over the next three
years. We will be redeveloping and
reconfiguring our delivery network,
our technology teams and our loyalty
and retention tools but we can and
will get there.
International websites
In addition, we will lead the move to
multi-channel in our International
markets with fully operational websites
in five markets. Our existing platform
has now been tested and is easily
scalable across all our markets.
We aim to have transactional websites
across our major markets over the
term of the plan, many of which will
be some of the first such sites in their
markets in any category.
Wholesale
Mini club, our wholesale arrangement
with Boots UK for clothing, has been
a great success. In addition to this we
have a small but growing wholesale
business for ELC product both in the
UK and Internationally. We have, over
the last few months, successfully
trialed with several retailers.
Wholesale is a great format for
growing our reach for ELC and we
would expect this element of our
revenues to grow over the term of
the plan.
Mothercare plc Annual report and accounts 2012 15
Business review
UK
“ We shall only succeed by
delivering for our customers.”
Mike Logue
Managing Director – UK
I joined Mothercare in August last year after seeing the potential
both the Mothercare and ELC brands had in the UK. Clearly our
latest results highlight the task that is ahead of us. I am however
confident we can transform the UK business.
Having spent time with our customers and store teams in over 100
of our shops they have made it very clear to me what needs to
improve. We have put in place a leadership team wholly focused
on the UK and we are off and running, reducing our cost base to
ensure we have a lean UK business that can significantly improve
value and service.
On 1 May 2012 we launched our new Mothercare.com website
and we have over 600,000 customers a week visiting our site.
Our customers are seeing market leading prices on car seats
and pushchairs as we monitor prices online and in-store daily. It is
fantastic to see our investment pay off as we grow market share.
In July we launch our fantastic Autumn Winter 2012 (AW12) clothing
range which our sourcing teams around the world have worked
tirelessly to design and produce. Prices are down double digits
across the entire AW12 range whilst maintaining the quality all our
customers trust us for.
As we previously announced we are closing circa 70 ELC stores and
circa 40 Mothercare stores by March 2015. This is absolutely the right
strategy and we will maintain national coverage of both Mothercare
and ELC, even after these store closures. The circa 200 store portfolio
will include 100 Early Learning Centres within our larger Mothercare
stores and 30 stand-alone ELC stores, which will complement our
Mothercare.com and ELC.co.uk websites. We are well positioned
to support our customers with the right multi-channel operation.
We have a lot to achieve, however I am confident by continuing
to listen to our customers and our teams around the UK we shall
transform the UK back to profitable growth.
600,000
Customers a week visiting our site
Mike Logue
Managing Director – UK
16 Mothercare plc Annual report and accounts 2012
Business review
International
“ Our global reach spreads our risk
profile and we are well balanced both
across and even within the regions.”
Jerry Cull
Managing Director – International
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Our International business continues to go from strength to strength.
We are now present in four regions and all contribute to our overall
target of growing space and sales by circa 20 per cent per annum.
We have also started our journey towards delivering a multi-channel
offer across our markets and have transactional websites in four of
our markets and expect to have all our major markets covered over
the term of the ‘Transformation and Growth’ plan.
Europe remains our largest region with 409 stores covering
992k sq. ft. in 28 countries. We expect space growth to continue at
10 per cent per annum with the rapid growth markets of Russia and
Turkey compensating for our weaker Eurozone markets. Ireland and
ELC Russia already have transactional websites and the initial
response has been encouraging.
The Middle East and Africa is our oldest region and has 290 stores
covering 628k sq. ft. in 14 countries. Favourable demographic and
growing affluence underpin our growth expectations of 10 per cent
per annum. We have recently launched a transactional website in
Kuwait, which is fully customised to fit in with local customs
and practices.
Asia Pacific now has 318 stores covering 644k sq. ft. in 13 countries.
The opportunities in India and China remain significant and we
expect to see space growth of 20 per cent per annum for the
foreseeable future. Our joint ventures in India, China and Australia
will all become profitable over the term of our plan. Our
transactional websites in Australia are also proving to be successful
and our website in Indonesia launches in June 2012.
Latin America is our newest region and at year end we had 11 stores
covering 19k sq. ft. across three countries. We opened our first store in
Venezuela in May 2012. The opportunity for growth is significant and
we believe we can grow to over 200k sq. ft. over the next three years.
So as you can see the opportunity for growth is encouraging.
We have a proven business model for the emerging markets,
which we will continue to leverage over the next few years.
Jerry Cull
Managing Director – International
Mothercare plc Annual report and accounts 2012 17
International space growth
2012
2011
2010
2,283k sq. ft.
1,845k sq. ft.
1,538k sq. ft.
6.1% like-for-like growth.
Organic growth continues to play a
role in our strategy for our
international markets
Financial review
Results summary
Group underlying profit before tax was £1.6 million
(2010/11: £28.5 million). Underlying profit excludes
exceptional items and other non-underlying items
of £104.5 million, of which £77.0 million was already
reported in the first half. This includes the non-cash
write down of UK goodwill and intangibles (£55.0
million) in the first half, together with the
restructuring costs of delivering the new
‘Transformation and Growth’ plan. After these non-
underlying items, the group recorded a pre-tax
loss of £102.9 million (2010/11: profit of £8.8 million).
Income statement
£ million
Revenue
Underlying profit
from operations
before share-based
payments
Share-based
payments
Net finance costs
Underlying profit
before tax
Exceptional items and
unwind of discount
on exceptional
provisions
Non-cash foreign
currency
adjustments
Amortisation of
intangible assets
(Loss)/profit before tax
Underlying EPS – basic
EPS – basic
2011/12
812.7
2010/11
793.6
2.6
(0.6)
(0.4)
1.6
31.1
(2.2)
(0.4)
28.5
2.0
(2.0)
(102.9)
1.8p
(105.2p)
(13.8)
(2.3)
8.8
24.7p
7.6p
Profit from operations before share-based payments
includes all of the group’s trading activities, but
excludes the share-based payment costs charged
to the income statement in accordance with IFRS 2
(see below).
53rd week in 2012
The financial year ended 31 March 2012 contained
53 weeks compared to 52 weeks last year. The
financial statements and this review have therefore
been prepared on this basis.
18 Mothercare plc Annual report and accounts 2012
For information on a more comparable, 52 week basis:
Group sales were up 0.8 per cent to £799.6 million
(2011: £793.6 million)
UK sales were down 6.3 per cent to £550.3 million
(2011: £587.2 million)
International reported sales were up 20.8 per cent
to £249.3 million (2011: £206.4 million)
Group underlying profit before tax £1.5 million
(2011: £28.5 million)
Non-underlying items
Underlying profit before tax excludes the following
non-underlying items:
Exceptional items
Restructuring costs in UK head office and distribution
of £9.1 million
Onerous lease provision for the UK business of
£11.5 million
Store impairment provision in relation to the UK
business of £3.8 million
Share-based payments credit in relation to leavers
of £0.8 million (resulting from the UK restructure)
Net losses on disposal or termination of property
interests of £22.6 million
Goodwill and intangible assets impairment
in relation to UK share of goodwill and other
intangibles arising on the acquisition of ELC
of £55.0 million
Share of restructuring costs in the Australian
associate business of £0.4 million (relating to
business reorganisation and integration)
Other non-underlying items:
Non-cash adjustments principally relating to
marking to market of commercial foreign currency
hedges at the period end. As hedges are taken out
to match future stock purchase commitments, these
are theoretical adjustments which we are required
to make under IAS 39 and IAS 21. These standards
require us to revalue stock and our commercial
foreign currency hedges to spot. This volatile
adjustment does not affect the cash flows or
ongoing profitability of the group and reverses
at the start of the next accounting period
Amortisation of intangible assets
(excluding software)
Unwind of discount on exceptional property
provisions £0.1 million
(104.5)
(3.6)
Impairment of investment in Australian associate
business £2.8 million
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Exceptional items in 2010/11 included £3.6 million
restructuring costs of the UK business, £0.2 million net
profits on disposal or termination of property interests
and £0.2 million unwind of discount on exceptional
property provisions.
growth in royalty income and shipments, with central
costs growing at a slower rate. International profit has
been reduced by losses in joint ventures and
associates during the year, mostly driven by the
impact of restructuring in Australia.
Results by segment
The primary segments of Mothercare plc are the UK
business and the International business.
£ million
Revenue
UK
International
Total
£ million
Underlying profit
UK
International
Corporate
Underlying profit
from operations
before share-based
payments
Share-based
payments
Net finance costs
Underlying profit
before tax
2011/12
560.0
252.7
812.7
2010/11
587.2
206.4
793.6
2011/12
2010/11
(24.7)
34.9
(7.6)
2.6
(0.6)
(0.4)
1.6
11.1
27.5
(7.5)
31.1
(2.2)
(0.4)
28.5
UK retail sales have declined year-on-year due to
store closures and declining like-for-like sales across
both the store estate and Direct channels. However,
profit has benefited from the property strategy, with
lower occupancy costs and tight cost control.
International has benefited from the 22.4 per cent
growth in total International reported sales driving
Corporate expenses represent board and company
secretarial costs and other head office costs including
audit, professional fees, insurance and head
office property.
Share-based payments
Underlying profit before tax also includes a share-
based payments charge of £0.6 million (2010/11:
£2.2 million) in relation to the Company’s long term
incentive schemes. There are four main types of
long term share-based incentive scheme, being the
Executive Incentive Plan, the Performance Share
Plan, the Deferred Shares Plan and the Save As You
Earn schemes. Full details can be found in note 28.
The underlying IFRS 2 charge has reduced in 2011/12,
reflecting the reduction in the group’s performance
and a number of leavers from the executive schemes.
Like-for-like sales, total International sales
and network sales
Like-for-like sales are defined as sales for stores that
have been trading continuously from the same selling
space for at least a year and include Direct in Home
and Direct in Store.
International retail sales are the estimated retail sales
of overseas franchisees and joint ventures and
associates to their customers (rather than Mothercare
sales to franchisees as included in the statutory or
reported sales numbers). Total International sales are
International retail sales plus International wholesale
sales. Group network sales are total International
sales plus total UK sales. Group network sales and
reported sales are analysed as follows:
£ million
UK retail sales
UK wholesale sales
Total UK sales
International retail sales
International wholesale sales
Total International sales
Group reported sales/Group network sales
* Estimate
Reported sales
Network sales*
2011/12
528.7
31.3
560.0
245.8
6.9
252.7
812.7
2010/11
565.6
21.6
587.2
197.0
9.4
206.4
793.6
2011/12
528.7
31.3
560.0
665.5
6.9
672.4
1,232.4
2010/11
565.6
21.6
587.2
561.5
9.4
570.9
1,158.1
Mothercare plc Annual report and accounts 2012 19
Financial review
continued
Financing and taxation
Financing represents interest receivable on bank
deposits, interest payable on borrowings, costs
relating to bank facility fees and the unwinding of
discounts on provisions.
The underlying tax charge comprises current and
deferred tax and the effective tax rate is nil per cent
(2010/11: 25.6 per cent). The tax charge in some areas of
the business has been offset by allowable tax losses.
There is no underlying tax charge in 2011/12 (2010/11:
£7.3 million). The total tax credit was £11.1 million (2010/11:
charge of £2.3 million). In 2012/13, the effective tax rate
is expected to increase towards the standard rate
of tax.
Pensions
We continue to operate defined benefit pension
schemes for our staff, although the schemes are now
closed to new members. Details of the income
statement net charge, total cash funding and net
assets and liabilities are as follows:
£ million
2012/13*
2011/12
2010/11
Income statement
Service cost
Return on assets/
(interest) on
liabilities
Gains on
curtailment
Net charge
Cash funding
Regular
contributions
Deficit
contributions
Total cash funding
Balance sheet
Fair value of
schemes’ assets
Present value of
defined benefit
obligations
(2.5)
(2.3)
(2.9)
(1.0)
–
(3.5)
(2.0)
(3.2)
(5.2)
0.2
0.2
(1.9)
(1.9)
(6.1)
(8.0)
(0.6)
–
(3.5)
(2.2)
(2.3)
(4.5)
217.3
208.4
(270.0)
(52.7)
(246.0)
(37.6)
Net liability
N/A
* Estimate
Deficit contributions in 2011/12 include two annual
payments due to the 53rd week. This impact does
not unwind until 2013/14, when no deficit contribution
will be due within the financial year. The gains on
curtailment in 2011/12 are due to the UK restructuring
headcount reduction.
In consultation with the independent actuaries to
the schemes, the key market rate assumptions used
in the valuation and their sensitivity to a 0.1 per cent
movement in the rate are shown below.
2011/12
%
2010/11
%
2011/12
Sensitivity
%
2011/12
Impact on
scheme
liabilities
£ million
Discount rate
Inflation – RPI
Inflation – CPI
4.9
3.3
2.3
5.5
3.5
2.8
+/- 0.1
-/+ 6.0
+/- 0.1
+/- 5.3
+/- 0.1
+/- 5.3
Balance sheet and cash flow
The balance sheet includes identifiable intangible
assets arising on the acquisition of Early Learning
Centre of £6.9 million and goodwill of £26.8 million.
This relates to the International business. In 2011/12,
the group carried out a review to determine whether
there is any indication that the goodwill and intangible
assets suffered any impairment loss. It has been
determined that the UK business does not generate
sufficient cash flows to support the full value of the
goodwill and intangible assets and consequently an
impairment loss of £55.0 million has been charged.
The group continues to generate operating cash,
with cash generated from operations of £5.6 million.
The inclusion in the year of a 53rd week adversely
impacted the timing of cash flows, with additional
rental (£13.2 million) and pension deficit payments
(£3.3 million) being incurred. Close management of
working capital, in particular stock levels, generated
an underlying inflow in working capital of approximately
£9.0 million, excluding the 53rd week rent payment.
We have made significant investments in our joint
ventures and associates during the year to drive
growth in International, including £2.0 million in the
Ukraine, £1.5 million in Australia, £1.3 million in China
and £0.9 million in India.
20 Mothercare plc Annual report and accounts 2012
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After investing £24.9 million of capital expenditure
(£21.4 million net of lease incentives received),
receiving property sale proceeds of £2.3 million and
£4.1 million in tax receipts and paying £11.9 million of
dividends, the net debt position at the year end is
£20.1 million (2010/11: net cash of £15.3 million).
At the year end the group had committed secured
bank facilities of £80 million (with an average interest
rate of 1.4 per cent above LIBOR) which were due
to expire in May 2014. It also had an uncommitted
unsecured bank overdraft facility of £10 million. On
11 April 2012, the group refinanced the banking facilities
with the support of its two existing banks, HSBC and
Barclays, increasing the level of committed facilities
from £80 million to £90 million (at an interest rate range
of 3.5 per cent to 4.0 per cent above LIBOR) and
extending the term to 31 May 2015. These facilities
provide additional liquidity and covenant headroom
to accommodate the new three-year strategy. The
covenants in the new facilities are tested quarterly
and are based around gearing, fixed charge cover
and guarantor cover.
Going concern
Details of this can be found on page 33 within the
corporate governance section.
Capital expenditure
Total capital expenditure in the year was £24.9 million
(2010/11: £21.8 million), of which £3.2 million was for
software intangibles and £21.7 million was invested
in UK stores and web development. Landlord
contributions of £3.5 million (2010/11: £9.6 million) were
received, partially offsetting the outflow. Net capital
expenditure after landlord contributions was
£21.4 million (2010/11: £12.2 million). Net capital
expenditure for 2012/13, after landlord contributions,
is expected to be circa £15.0 million.
Earnings per share and dividend
Basic underlying earnings per share were 1.8p
compared to 24.7p last year. The board has decided
that given reduction in profits in the 53 week period
and the cash investment required to deliver the
‘Transformation and Growth’ plan, the Company will
not pay a final dividend for 2011/12. The total dividend
for the year is therefore 2.0p per share (2010/11: 18.3p
per share).
Treasury policy and financial risk management
The board approves treasury policies and senior
management directly controls day-to-day operations
within these policies. The major financial risk to which
the group is exposed relates to movements in
foreign exchange rates and interest rates. Where
appropriate, cost effective and practicable, the
group uses financial instruments and derivatives
to manage the risks.
No speculative use of derivatives, currency or other
instruments is permitted.
Foreign currency risk
All International sales to franchisees are invoiced in
pounds sterling or US dollars.
International published sales represent approximately
31 per cent of group sales. Total International sales
represent approximately 55 per cent of group network
sales. The group therefore has some currency
exposure on these sales, but it is used to offset or
hedge in part the group’s US dollar and euro
denominated product purchases. The group policy
is that all material exposures are hedged by using
forward currency contracts.
Interest rate risk
At 31 March 2012, the group had drawn down
£20 million on its borrowing facility. At this date and
throughout 2011/12 no interest rate hedging was
considered necessary. Following the refinancing on
11 April 2012 it is anticipated that the group will hedge
the floating interest rate on a proportion of the
new borrowings.
Shareholders’ funds
Shareholders’ funds amount to £72.7 million, a decrease
of £120.1 million in the year driven largely by the
goodwill and other intangible impairments and
exceptional provisions required for the UK property
transformation and restructuring. This represents
£0.83 per share compared to £2.18 per share at the
previous year end. The retained earnings reserve in
the consolidated balance sheet shows a deficit of
£26.5 million. However, the Company has taken steps
during the period to increase the retained earnings
reserve in the Company balance sheet to £72.3 million
and therefore has the ability to pay dividends and
make other similar payments when the ‘Transformation
and Growth’ plan is delivering benefits.
Accounting policies and standards
There are no new standards affecting the reported
results and financial position.
Neil Harrington
Finance director
Mothercare plc Annual report and accounts 2012 21
KPIs – Financial and non-financial
Measuring our performance
International profits
International space
Mar-12
Mar-11
Mar-10
£34.9m
£27.5m
£23.2m
Mar-12
Mar-11
2,283k sq. ft.
1,845k sq. ft.
Mar-10
1,538k sq. ft.
The focus on increasing space is clearly evident
in the growth we have seen both in revenues
and profits over the last few years across our
International business. Profit growth has been at,
or ahead of, space and we would expect this to
continue to be the case for the foreseeable future.
£34.9m
Our success in our International markets is driven
by the quality of our franchise partners who
believe in our brands. Whilst we continue to target
circa 150 store openings a year, recently opened
stores have been larger in size and we are now
looking to grow space at the top of our previously
guided range of 15-20 per cent per annum. Space
growth and the subsequent like-for-like sales
growth remains the driving force for revenues in
our International markets.
2,283k sq. ft.
Average length of service
of store-based employees
Women in senior
management positions
Mothercare
Mar-12
Mar-11
Mar-10
ELC
Mar-12
Mar-11
Mar-10
6.0 yrs
5.1 yrs
5.4 yrs
5.8 yrs
5.2 yrs
5.1 yrs
A key strength for both Mothercare and Early
Learning Centre is the connection our staff feel
for the brands, which is reflected in the above
average level of staff retention we enjoy. At March
2012, Mothercare had 4,467 retail employees with
an average service of six years with the longest
serving employee being with Mothercare for
41 years. ELC with 934 retail employees had an
average service of 5.8 years and 29 years for
the longest serving employee.
Achieved to date
Mar-12
Aug-11
Aug-09
53%
54%
46%
The above-average number of women we have
in senior management positions below executive
committee level is largely attributable to working
mums and those planning to become mums who
have a strong affinity with the brands and a
culture built on teamwork and cooperation.
We strive to offer a fair and flexible environment
that will continue to see us give recognition
where deserved.
6.0 yrs
53%
22 Mothercare plc Annual report and accounts 2012
UK profits
Actual achieved to date
£(24.7)m
£11.1m
£36.1m
FY-12
FY-11
FY-10
Target
FY15(estimate): return
to profits
Our three-year transformation plan for the UK
envisages a return to profitability by March 2015.
UK operating cost
reduction
Target UK operating cost reduction
FY15(estimate): £20m
The transformation of the UK is dependent in part
on our ability to rationalise our UK operating cost
base. In April 2012, we announced that we aim to
take £20 million, on an annualised basis, out of this
cost base over the three years of the plan. We
have already commenced this process and will
report on our progress at the end of each year.
£(24.7)m
£20m
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Actual achieved to date
Mar-12
Mar-11
Mar-10
209
212
212
Target store portfolio
Mothercare
ELC
102 311
161 373
175 387
FY15(estimate): circa 200
Mothercare
circa 170
circa 30
ELC
It has been our strategy to rationalise our store
portfolio to reflect the evolution we have
witnessed in terms of shopping habits across the
UK. Core to our strategy of transforming the UK
and returning it to profitability is the removal of
loss making stores from our estate. This process is
expected to eliminate losses of £13 million, through
the closure of circa 111 stores, on an annualised
basis by FY15. As a result, we expect to have
circa 200 stores by March 2015.
311
Mothercare plc Annual report and accounts 2012 23
Risks
Principal risks and uncertainties
The principal risks and uncertainties facing the Company
may include some of those set out below. These risks and
uncertainties reflect and focus on some of the group’s
challenges in delivering the ‘Transformation and Growth’ plan,
particularly in the context of the wider economic uncertainties
at a macro level. It should be borne in mind that this is not an
exhaustive list and that there may be other risks that have not
been considered or risks that the board considers now are
insignificant or immaterial in nature, but that may arise and/or
have a larger effect than originally expected. Against this
background, the system of internal control is designed to
manage rather than eliminate risks, to reduce the impact to
the group and to ensure that adequate mitigation is in place.
In order to manage risk effectively, the executive committee
(see page 31) has 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, 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 process outlined above has been in effect during the
period and up to the date of the approval of the accounts
by the board.
Risk
Impact
Mitigation
Financial
The group fails to meet the
financial targets set out in the
‘Transformation and Growth’
plan
Potential breach of covenants
contained in bank facility
agreements leading to event
of default
Detailed monthly monitoring of
financial performance against
plan targets
Alternative financing options to
supplement bank facility
Restructured head office and
UK store teams
LFL sales in the UK do not
meet expectations under
‘Transformation and Growth’
plan
Poor business performance may
mean that financial targets are
not met
Loss of supplier confidence
Reshaped UK business team
New price and value strategy
supported by promotional
activity
Loss of market share
New website launched
Unforeseen additional cash
funding to support international
joint venture operations and
associates
Diverts cash away from the UK
business
May delay UK business
turnaround
UK store rationalisation
programme is difficult to achieve
in current market conditions
Greater than anticipated costs
of closure
Reduces cash available to
UK business
Uncertainty in the macro
economic environment –
particularly the Eurozone
economies
Fluctuations and uncertainty in
exchange rates
Continued weak UK consumer
confidence may delay business
turnaround
Underperforming International
business in affected regions
Increase in cost of goods
impacts margin
Potential for increase in bad
debts
Joint ventures and associates
submit business plans and
management reports monthly to
the Company
Attendance at board meetings
2011/12 targets met which
provides a record of past
performance
Dedicated and experienced
property team
Product range and pricing being
adapted to meet customer
demand
Strong franchise partners;
close working relationship
with franchisees ensures early
awareness of any financial
issues
Credit insurance
Limited exposure to Eurozone
economies
24 Mothercare plc Annual report and accounts 2012
Risk
Impact
Mitigation
Operational
The UK business fails to deliver
on brand standards, or react to
changes in consumer demand
or existing or new competitor
activity
Loss of market share
Loss of sales leading to a
shortfall in profits
International expansion leads
to over-exposure in certain
territories
The group becomes vulnerable
to key markets
Manufacturing
and product
The group fails to meet its
reputation for quality, safety
and integrity
Damage to brand reputation
and customer confidence would
impact sales
Failure to invest properly in
product innovation
New products and innovation
are a key driver of sales
People and
infrastructure
Organisational change and
headcount reductions lead to
erosion of corporate knowledge
The ‘Transformation and Growth’
plan falls behind schedule
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Improvements being made at
store level through better store
operations, staff training and
store standards
New website launched in the UK
New customer satisfaction
programme launched
Structured pricing policy and
strategy
Product range and pricing being
adapted to meet customer
demand
Strong franchise operations
work closely with international
franchisees
Credit insurance against key
franchisee recoverables
Significant group investment in
product quality management
resource
High standards communicated
throughout supply chain
In-house responsible sourcing
team working in Bangladesh,
India and China
Global code of conduct
communicated and applied to
head office/suppliers/franchisees
The group maintains an ongoing
investment strategy in new
products
Launches of new products and
ranges planned for FY13
Development and approval of
key business objectives for all
employees from top down with
quarterly reviews to monitor
employee performance
Legacy IT systems fail to meet
business requirements
Adverse impact on performance
and ability to meet key targets
Comprehensive IT review
planned
Failure or increase in costs of
the group’s logistics or global
distribution network
The UK business or international
franchisees do not meet
customer demand, leading
to loss in sales
Erosion of margin
Regular review and audit of
distribution network
Strengthened and dedicated
expert distribution team
Mothercare plc Annual report and accounts 2012 25
Corporate responsibility
Corporate responsibility underpins our core
relationships for today and the future:
Highlights
In 2011/12, the Mothercare group:
Communities – parents and children
The people who work for us
Our suppliers who make and distribute
our products
The environment
Our aim is to be the definitive one-stop-shop
for mothers across the world for product, value
and service.
This report gives an overview of our activities over
the last 12 months and provides an update on the
targets we set ourselves in 2007.
exceeded its targets in buildings emissions,
transport emissions and waste recycling
had average service of store-based staff of
nearly six years at both Mothercare and ELC
stores
had 53 per cent of senior management positions
(below executive committee level) filled by women
was ranked seventh in the Reputation Institute’s
survey
Governance and targets
The corporate responsibility steering committee is
chaired by Tim Ashby, our group general counsel and
company secretary, who has been with Mothercare
since 2010. The steering committee reports directly to
the plc board and is supported by a small central
team and external experts.
In 2007/08 we set seven targets to be achieved by
2013 (published on www.mothercareplc.com). These
targets and our current performance are shown in
the table on the next page (shaded blue). We are
currently in the process of setting our next set of targets
to cover the period spanning our ‘Transformation and
Growth’ plan and beyond and we will report on them
in due course.
Average length of service of
store staff
Mothercare
2012
2011
2010
ELC
2012
2011
2010
6.0 yrs
5.1 yrs
5.4 yrs
5.8 yrs
5.2 yrs
5.1 yrs
Our staff both at Mothercare and
ELC continue to have a close
affinity with the brands which is
reflected in their length of service
26 Mothercare plc Annual report and accounts 2012
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Key performance indicators
Buildings energy use (m kWh)
Transport fuel used (m litres)
Transport mileage (m miles)
Carbon emissions (tonnes) of which:
Buildings
Transport
Packaging used (tonnes)
Packaging per £100 (kg, UK only)
Solid wooden products recycled or Forest
Stewardship Council wood
Carrier bags used (m, UK only)
Recycled waste (tonnes, UK only)
Total fundraising (£k)
of which:
Direct donations (£k)
Employee fundraising (£k)
2007/08
baseline
2011/12
performance
2013 target
baseline
Progress
against target
baseline
71.2
2.6
6.1
40,400
33,500
6,900
11,500
20.0
Not collected
17.4
Not collected
100
100
Not collected
57.5
1.7
4.3
30,200
25,600
4,600
9,300
17.0
*
11.1
3,800
760
32
728
–
–
–
–
-15%
-20%
–
-40%
–
–
–
–
-24%
-33%
–
-15%
50% sourced Not available
-36%
75% recycled 86% recycled
-50%
1,000 76% achieved
32
–
–
–
* Data collection for 2012 in progress. Performance will be available in the autumn.
Buildings emissions – target achieved
We met our buildings emissions target in FY2011
and have exceeded our target this year by
nine percentage points.
This was in part due to the ongoing store closures, a
milder winter and our Swindon warehouse being fully
rented out. We have also seen a 17 per cent reduction
in electricity consumption and a 30 per cent reduction
in gas consumption at our Daventry distribution
centre. These reductions were driven by greater use
of thermostat control, dimmer switches and a
reduction in weekend working. We have also seen
a small benefit from the reduction in Defra’s emission
factors for both electricity and gas.
It is encouraging to note that our stores improved
their energy performance per sq. ft. by 3.4 per cent
during the year.
Transport emissions – target achieved
We exceeded our target by 5 percentage points in
FY2011 and have seen a further improvement, partly
due to store closures but also from more effective
stock control, ensuring that the right products are
at the right place at the right time. Overall we have
achieved a 33 per cent reduction in carbon emissions
from our transport fleet since 2007/08.
Waste recycling – target achieved
We redoubled our efforts, during the year, to reduce
waste and increase recycling at both our stores and
our distribution centres. Our ELC warehouse at
Daventry was able to achieve zero waste to landfill
during the year.
Communities – parents and children
We believe that parenting and raising children is an
essential foundation for the society we live in, and that
healthy babies, parents and families benefit us all.
We are committed to helping parents through the
work we do by providing education and information to
parents in the community; our Born to Care Partnership
with Save the Children and charitable donations
made through the Mothercare Group Foundation.
Awards received
During the year ELC was awarded the ‘best toy shop’
at ‘Tommy’s let’s get baby friendly Awards 2012’.
Mothercare won ‘best maternity basics’ at the
‘Pregnancy & birth bloom awards 2012’.
Children’s play facilities
In recognition of the importance of play in the
development of children, we have created a small
soft play area in a number of our stores. The areas
are signposted and support the ethos of Playtime
which we continue to hold every Tuesday at 11am
across our ELC stores and ELC inserts in larger
Mothercare plc Annual report and accounts 2012 27
Corporate responsibility
continued
Mothercare stores. These playtimes are hosted by
staff and include painting, modelling, colouring and
singing nursery rhymes and involve parents and
carers also.
Baby and Me events
Our larger Mothercare stores hold Baby and Me
events for expectant mums and dads who receive
advice and guidance on different aspects of
parenting. These events have proved to be
extremely popular.
Charitable giving
Mothercare’s total direct giving to charity last year
was £32,324, with £27,324 to the Mothercare Group
Foundation and £5,000 to Save the Children. During
the year the Mothercare Group Foundation was able
to make grants of £124,360.
People who work for us
Mothercare retains its caring culture, which is clear in
the loyalty we enjoy from our staff. The average length
of service for our store-based staff is high at 6.0 years
for Mothercare and 5.8 years for ELC. It is also not
unusual to come across staff members with 10, 15 and
even 20 years of service. The longest serving employee
at Mothercare has clocked up 41 years, while at ELC
the number is equally impressive at 29 years.
In addition, we take equal opportunities seriously and
aim to reward and promote talent where appropriate.
As a result we are proud to say that 53 per cent of
senior management positions (below executive
committee level) are held by women.
In a year when Mothercare has undergone significant
change, we were ranked seventh in the survey
conducted by the Reputation Institute. The study
measures the reputations of over 250 companies in
the UK and is part of a larger study of over 2,000
companies globally. The research conducted by the
Reputation Institute indicates that strong reputations
are based on the concepts of admiration, trust, good
feeling and overall esteem that stakeholders have
towards a company.
People making our products
Responsible sourcing remains a key focus for
Mothercare – we aim to reduce the risk of brand-
damaging allegations by monitoring our supply base,
gaining a better understanding of the complex issues
that affect workers and ultimately working to provide
better workplaces for them. Our Responsible Sourcing
Code of Conduct and Implementation Policy are
available online at www.mothercareplc.com
Our Responsible Sourcing Team is made up of 12
dedicated professionals located regionally in our
Head and Sourcing Offices. They work directly with
our suppliers and factories to understand the issues
in the supply chain and improve working conditions.
Their work is complemented by the third-party
audit information we obtain through SEDEX
(www.sedexglobal.com). By using our own internal
team and third-party audit information, we increase
the visibility we have over the supply chain, which
allows us to focus on gaining transparency and
working with the factory to make improvements.
The more work we do in this area, the more complex
issues we unravel, which are often industry-wide issues
and not limited to individual factories. In order to
tackle these sorts of issues, we continue to be
active members of the Ethical Trading Initiative
(www.ethicaltrade.org). This platform allows us to
have dialogue with other retailers, non-governmental
organisations and trade unions, and to work together
on programmes that tackle endemic issues that
cannot be resolved by individual retailers.
Going forward, the Mothercare Responsible Sourcing
Programme has to adapt to a changing business
environment. As a result of this, the team is in the midst
of developing a five-year strategy which will cement
current global practices and fully embed responsible
sourcing in the day-to-day culture of the Mothercare
business, before expanding and undertaking
aspirational work in the later years of the strategy.
This will allow us to maintain the high standard of our
current work, whilst helping us to plan for the future.
It will also provide the team with measurable goals
to achieve and track progress.
The focus of the Responsible Sourcing Team is on the
first tier of our supply base where we believe we have
the greatest influence and ability to bring about
change. In 2011/12, 96 per cent of our supply base was
registered on SEDEX and third-party audit information
was provided for 88 per cent of factories. In addition
to this our in-house team visited 80 per cent of our
direct supply base to offer help and guidance on
non-compliance resolution.
The second and third tiers of our supply base
(e.g. spinning mills, homeworkers, etc) are investigated
on a project basis or as part of our involvement with
ETI working groups such as the group to tackle the
Sumangali scheme in South India, which exists in
spinning mills over which we as an individual retailer
have very limited influence. This approach allows us
to target our resources effectively and develop best
practice, which we then work to implement in a wider
context at a later stage.
28 Mothercare plc Annual report and accounts 2012
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Labour turnover down by over 70 per cent vs.
40 per cent for the overall India project group
Average hourly rate of pay up by 8 per cent vs.
20 per cent drop in the overall India project group
Average working hours down by over 6 per cent
Bangladesh factory
Efficiency up by 7 per cent
Absenteeism has reduced by over 75 per cent vs.
55 per cent in the overall Bangladesh project
group
Basic pay of the lowest paid worker has increased
by over 9 per cent vs. 2.5 per cent in the overall
Bangladesh project group
Average working hours reduced by over 30 per
cent vs. 17 per cent in the overall Bangladesh
project group
The feedback from the factories involved has been
very positive:
“ This is the first time
I have come across
an opportunity for
supervisors to partake
in a factory development
project; I feel more
important and
recognised.”
Supervisor at our factory in India.
Case Study – Collaborative factory improvement
projects in India and Bangladesh
Mothercare is participating in the Responsible and
Accountable Garment Sector (RAGS) Challenge
Fund, set up by the Department for International
Development (DfID). We are working with five other
retailers on the Benefit for Business and Workers
(BBW) project, which focuses on improving the
management systems of ready-made garment
manufacturers, demonstrating the business benefits
of providing better jobs and providing the tools and
know-how to create change.
The goal of the project is to make responsible
business and efficient production the norm in the
Indian and Bangladesh Garment Export
Manufacturing sectors. The objectives are to
support factories to:
Introduce and sustain productivity and quality
improvements
Have a more stable and satisfied workforce
Provide better remuneration packages for workers
Ensure that workers do not work excessive hours
Ensure that workers are able to communicate
their views
The project is delivered in two phases:
Phase One (November 2010 – February 2012)
consists of building management skills and
improving working conditions in 10 pilot factories
in India and Bangladesh
Phase Two consists of training and implementation
support for 100 factories commencing March 2012
Mothercare has two key factories involved in
Phase One, both of whom have achieved very
encouraging results, including significant
improvements in productivity, absenteeism and
turnover. We are particularly pleased by the shift in
the factory owners’ way of thinking about their
business and their workers. Some examples of
improvements:
India factory
Productivity up by over 20 per cent in the
Mothercare factory vs. less than 1.5 per cent over
the whole project group in India
Absenteeism down by over 50 per cent vs.
less than 40 per cent for the overall India
project group
Mothercare plc Annual report and accounts 2012 29
Board of directors
1.
2.
3.
4.
5.
6.
7.
Committee
Memberships key:
A Audit Committee
R Remuneration
Committee
N Nomination
Committee
F Full board member
R N F
1. Alan Parker
Chairman
Appointed August 2011
Executive Chairman of Mothercare plc
from 17 November 2011 to 30 April 2012.
Non-executive director of Kesa Electrical
plc, Jumeirah International LLC and
Justice Holdings Limited. President and
Chairman of the British Hospitality
Association. Formerly Chief Executive of
Whitbread plc and Managing Director
EMEA of Holiday Inn.
F
2. Simon Calver
Chief Executive
Appointed April 2012
Formerly Chief Executive of Lovefilm
International; CEO of Video Island;
President and Chief Operating Officer
of Riverdeep Inc; Vice President and
General Manager of Home and Small
Business, UK and Ireland, Dell Computer
Corporation and Vice President
International Sales Operations,
PepsiCo Inc.
F
3. Neil Harrington
Finance Director
Appointed January 2006
Non-executive director and audit
committee chair at McBride plc.
Formerly Finance Director of George
Clothing UK, a division of Asda Stores
Limited; Chief Financial and Admin
Officer of Global George, a division of
Wal-Mart Stores Inc; Finance Director of
Barclaycard International, a division of
Barclays Bank plc; and Group Financial
Controller of French Connection Group
plc. On 25 April 2012, the Company
announced the resignation of Neil
Harrington. Chartered Accountant.
A R N F
4. Bernard Cragg
Senior non-executive director
Appointed March 2003
Senior non-executive director of
Workspace Group plc; non-executive
director of Astro All Asia Networks plc
and Progressive Digital Media Group
plc. Formerly Group Finance Director
and Chief Financial Officer of Carlton
Communications plc, Chairman of
I-mate plc and Datamonitor plc and
a non-executive director of Bristol &
West plc and Arcadia Group plc.
Chartered Accountant.
A R N F
5. Amanda Mackenzie
Non-executive director
Appointed January 2011
Chief Marketing and Communications
Officer of Aviva plc. A member of Aviva’s
Executive Committee, Executive sponsor
for diversity and Chair of the operational
risk committee. Member of Lord Davies
steering group to increase the number
of women on corporate boards;
President of the Marketing Society;
board member of the National Youth
Orchestra and chair of Front Foot for the
Advertising Association.
A R N F
6. Richard Rivers
Non-executive director
Appointed July 2008
Formerly Chief of Staff and Head of
Corporate Strategy at Unilever.
A non-executive director of Channel 4
Television Corporation and Lumene
Oy, and a member of the Advisory
Board of WPP.
A R N F
7. David Williams
Non-executive director
Appointed August 2004
Chair of Operating Partners of Duke
Street Capital LLP, The Original Factory
Shop Ltd; Natures Way Foods Ltd and
Wagamama Ltd. Non-executive Director
of the Royal London Mutual Insurance
Group Ltd. Formerly Chairman of Simple
Ltd, Avebury Taverns Ltd, Sandpiper Ltd,
Wyevale Garden Centres plc and Ideal
Shopping Direct plc, Adelie Food
Holdings Ltd and Oasis Dental
Healthcare Ltd. Formerly Governor
of London Business School.
30 Mothercare plc Annual report and accounts 2012
Executive committee
1.
2.
3.
4.
5.
6.
1. Simon Calver
Chief Executive
5. Mike Logue
Managing Director – UK
Appointed August 2011
Formerly Commercial Director for non
food and managing director of Asda
Living at Asda; Managing Director of
Gamestation; various operational roles
at Marks and Spencer throughout the
UK and in Hong Kong.
6. Sue Malti
Group HR Director
Appointed December 2006
Formerly HR Director at RHM (Rank
Hovis McDougal); Group HR Director at
the Thresher Group; various HR and
commercial roles at Marks and Spencer
(1984-1990).
(See opposite page for biography)
2. Tim Ashby
Group General Counsel and
Company Secretary
Appointed May 2010
Formerly Region Counsel for Europe/
Africa at Yum! Brands Inc. (owners of
KFC, Pizza Hut and Taco Bell); Senior
International Counsel, PepsiCo, Inc.;
Solicitor, Denton Wilde Sapte.
3. Jerry Cull
Managing Director – International
Appointed December 2005
With the group for over 30 years.
Director of International and head of
Mothercare’s franchise business since
1995. Formerly, regional manager at
Mothercare; various roles at Bhs,
including Head of Bhs International.
4. Neil Harrington
Finance Director
(See opposite page for biography)
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Mothercare plc Annual report and accounts 2012 31
Corporate governance
“ Having been a Chief Executive for
many years, I recognise and firmly
believe in the importance of good
corporate governance and the
benefits that it brings – to the
Company, its shareholders and its
management. We carried out a
thorough evaluation of the board
a few months ago, which I will use
to establish a clear framework of
objectives and governance of the
Company over the next few years.”
Alan Parker CBE
Chairman
32 Mothercare plc Annual report and accounts 2012
The Company believes that by seeking to achieve a high standard
of corporate governance in all of the activities undertaken by the
group, the group’s reputation and performance will be enhanced.
In addition, it will also promote and benefit the interests of investors,
customers, staff and other stakeholders. To this end, and save as
described below, the Company considers that it has complied
throughout the 53-week period ended on 31 March 2012 with the
relevant provisions set out in the UK Corporate Governance Code
published by the Financial Reporting Council (FRC) in 2010 having
applied the main and supporting principles set out in Sections A to E
of the Code.
The board
The leadership of the Mothercare plc business is provided by the
Mothercare plc board. It operates on a unitary basis and ordinarily
comprises the non-executive Chairman, four independent
non-executive directors, and two full-time executive directors, being
the group Chief Executive and the Finance Director. During
the past year, Ian Peacock retired as Chairman and Alan Parker
was appointed as the new Chairman with effect from 15 August 2011.
Following Ben Gordon’s resignation as Chief Executive, with effect
from 17 November 2011, Alan Parker took on the role of part-time
Executive Chairman until 30 April 2012, being the period during which
the Company was without a Chief Executive. Alan Parker worked
three days a week for, and did not become Chief Executive of, the
Company. In his capacity as Executive Chairman, Alan Parker
initiated the structural and operational review of the business, had
the executive committee reporting to him directly, and reshaped the
executive management team. Alan Parker relinquished his position
as Executive Chairman on the same day that Simon Calver
commenced as Chief Executive. It is noted that this was a technical
breach of the UK Corporate Governance Code requirement to
separate the responsibilities of running the Company and running
the board, even though Alan Parker did not become Chief Executive.
A key element of the board’s responsibility is monitoring and
reviewing the effectiveness of the Company’s system of internal
control and the non-executive directors challenge and scrutinise its
effectiveness and integrity. The Company has continued to maintain
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 system of internal
control is based on financial, operational, compliance and risk
control policies and procedures together with regular reporting of
financial performance and measurement of key performance
indicators. Risk management, planning, budgeting and forecasting
procedures are also in place together with formal capital investment
and appraisal arrangements.
Following his appointment, the Chairman instigated a detailed
externally facilitated evaluation of the board (using Wickland
Westcott), and its effectiveness and operation. The review was
positive but suggested recommendations to improve further the
overall effectiveness of the board, its composition and its interaction
with the executive committee, and which are now being
implemented by the board.
Diversity
The importance of improving the diversity
balance (including gender) on boards of UK
listed companies is recognised. Currently the
Mothercare plc board (excluding the executive
directors) comprises one woman and four men,
and the senior executive management team
(including the executive directors) has one woman
and four men. The Company believes it is well
positioned to meet the challenge of improving
gender diversity and expects to have women
representing 25 per cent of its board by January
2013, and an increased percentage of women
on the executive committee by the same time.
As at 31 March 2012, 53 per cent of the senior
management positions (the two grades below
executive committee) were held by women.
Going concern
The directors have reviewed the going concern
principle in the light of the guidance provided by the
FRC. The group’s business activities, and the factors
likely to affect its future development, are set out in the
business review. The financial position of the group, its
cash flows, liquidity position and borrowing facilities
are set out in the financial review on pages 18 to 21.
In addition, notes 21 and 22 to the financial statements
include the group’s objectives, policies and processes
for managing its capital; its financial risk management
objectives; details of its hedging arrangements and its
exposure to credit and liquidity risks.
The group’s objective with respect to managing
capital is to maintain a balance sheet structure that
is both efficient in terms of providing long term returns
to shareholders and safeguards the group’s ability
to continue as a going concern. As appropriate,
the group can choose to adjust its capital structure
by varying the amount of dividends paid to
shareholders, returns of capital to shareholders,
issuing new shares or the level of capital expenditure.
A review of the business performance is set out in the
financial review. Trading in the period has been
impacted by the economic downturn in the UK with
a reduction in the underlying result of the UK business
leading to an underlying loss for the period of
£24.7 million (2011: profit of £11.1 million). The International
business continues to expand, generating an
underlying profit for the period of £34.9 million
(2011: £27.5 million).
As noted in the Chief Executive’s review we have
performed a structural and operational review
of the size and scope of our business. In the UK,
the ‘Transformation and Growth’ plan aims to stabilise
like-for-like sales and margin, reduce UK central costs,
close additional stores to focus on a core portfolio
of circa 200 stores and launch combined online and
in-store customer options with a new website and;
in international accelerate expansion (with more
store openings in both new and existing countries)
and 30 new overseas websites. The resulting strategy
will deliver a transformation of the UK business,
together with increased International growth in the
next three years.
At the year end the group had committed secured
bank facilities of £80 million (with an average interest
rate of 1.4 per cent above LIBOR) which were due to
expire in May 2014. It also had an uncommitted
unsecured bank overdraft facility of £10 million. On
11 April 2012 the group refinanced the banking facilities
with the support of its two existing banks, HSBC and
Barclays, increasing the level of committed facilities
from £80 million to £90 million (at an interest rate range
of 3.5 per cent to 4.0 per cent above LIBOR) and
extending the term to 31 May 2015 (see note 21). These
facilities provide additional liquidity and covenant
headroom to accommodate the new three-year
strategy. The covenants in the new facilities are tested
quarterly and are based around gearing, fixed
charge cover and guarantor cover.
The committed bank facility was drawn down by
a maximum of £40 million during the period and at
the year end the group had a net debt balance of
£20.1 million funded by a drawdown against the
facility of £10 million, £10 million of committed
overdraft and £1.9 million of uncommitted overdraft,
net of £1.8 million of cash.
The current challenging economic conditions,
particularly the difficult consumer and retail
environment, create uncertainty around the level
of demand for the group’s products. However, with
the new strategy in place, the long term contracts
with its franchisees around the world, long standing
relationships with many of its suppliers and other
mitigating actions available, the directors believe that
the group is well placed to manage its business risks
successfully despite the uncertain economic outlook.
The group’s latest forecasts and projections, which
incorporate the execution of the new strategy, have
been sensitivity-tested for reasonably possible
adverse variations in trading performance. This
indicates the group will operate within the terms of its
borrowing facilities and covenants for the foreseeable
future. To the extent that future trading is worse than a
reasonably possible downside, which the directors do
not consider a likely scenario, then there are mitigating
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Mothercare plc Annual report and accounts 2012 33
Corporate governance
continued
actions available which enable the group to continue
to operate within the terms of the borrowing facilities
and covenants for the foreseeable future.
After considering the forecasts, sensitivities and
mitigating actions available to management, the
directors have a reasonable expectation that the
Company and the group have adequate resources to
continue in operational existence for the foreseeable
future. Accordingly, the financial statements are
therefore prepared on the going concern basis.
Risk management
The effective management of risks within the group is
essential to underpin the delivery of its objectives and
strategy. The board is responsible for ensuring that
risks are identified and appropriately managed
across the group and has delegated to the audit
committee responsibility for reviewing the group’s
internal controls, including the systems established to
identify, assess, manage and monitor risks. The
Company has an internal audit function, which reports
through the group general counsel and company
secretary to the audit committee. The activities of the
internal audit function are supplemented by external
resources as necessary. The external auditors also
report to the audit committee on the efficiency of
controls as part of the audit.
The principal risks and uncertainties facing the
Company are set out on pages 24 and 25.
The programme of specific risk management activity
of the Company’s UK operations continued during the
year across the activities of both brands. Under this
programme, individual stores are tested against a risk
assessment model that emphasises health and safety,
fire safety and internal process compliance.
The board believes that the system of internal control
described can provide only reasonable and not
absolute assurance against material mis-statement
or loss. During the course of its review of the system
of internal control, the board has not identified nor
been advised of any failings or weaknesses which
it has determined to be significant. Therefore
a confirmation in respect of necessary actions
has not been considered appropriate.
Bribery Act 2010
The Bribery Act 2010, which came into force on 1 July
2011, consolidates previous legislation and introduces
(amongst other things) a new corporate offence of
“failure to prevent bribery”. Non-compliance with this
Act could expose the group to unlimited fines and
other consequences.
Accordingly, the group has introduced additional
measures into the business to reinforce its zero
tolerance approach to bribery and corruption.
The Group Global Code of Conduct (with specific
reference to the Bribery Act) was issued to all non-
store level employees both in the UK and overseas.
The group’s position on bribery and corruption has
been explained to suppliers and franchisees at
conferences, and to its joint venture partners.
The group maintains a global “whistleblower”
hotline accessible in many languages.
Shareholder relations
The Company maintains regular dialogue with
institutional shareholders following presentation of the
financial performance of the business to the investing
communities. Opportunities for dialogue take place
at least six times a year. Formal meetings are held
following the announcement of the half and full year
results, with telephone conversations and ad hoc
meetings following our four trading statements.
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.
The outcome of meetings with major shareholders is
reported by the Chief Executive at board meetings
on a periodic basis.
The Company seeks to reach a wider audience by
the use of its website (www.mothercareplc.com) 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
through the internet at www.mothercareplc.com
or by email to investorrelations@mothercare.com.
The Company provides electronic voting facilities
through www.sharevote.co.uk. Those shareholders
who wish to use this facility should review the notes
and procedures set out in the Notice of Meeting.
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.mothercareplc.com.
The non-executive directors are independent and free
from any business or other relationship that could
interfere with their judgement. Although Bernard
Cragg was appointed a non-executive director of the
Company in March 2003, and has now served over
nine years in that role, he will retire as a non-executive
director (and senior independent director and chair of
34 Mothercare plc Annual report and accounts 2012
the audit committee) in December 2012. The board
considers that Bernard Cragg remains independent
until his retirement. The non-executive directors do not
participate in any bonus, share option or pension
scheme of the Company.
re-election every year; from 2013, the board has
resolved that all directors should offer themselves for
re-election, notwithstanding that it is a requirement of
the UK Corporate Governance Code for FTSE 350
companies that the directors do so every year.
The business commitments of each member of the
board are set out in the biographical details on
page 30. Notwithstanding such commitments,
each member of the board is able to allocate
sufficient time to the Company to discharge his/her
responsibilities effectively.
The board considers that the balance achieved
between executive and non-executive directors
during the period 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 comprised the four non-
executive directors with the Chairman additionally
serving on the remuneration and nomination
committees. A record of the meetings held during the
year of the board, its committees and the attendance
by individual directors is set out at page 37.
The board has delegated day-to-day and business
management control of the group to the executive
committee. The executive committee ordinarily
consists of the group Chief Executive, Finance Director,
the managing directors of the UK and International
businesses, other operational directors within the
group, and the group general counsel and
company secretary.
Throughout the period, 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 group general counsel
and company secretary and executives within the
group 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. 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
The board is of the opinion that the directors seeking
re-election at the AGM have continued to give
effective counsel and commitment to the Company
and accordingly should be re-appointed. During the
year the senior independent director did not carry out
an annual performance review of the Chairman, who
was appointed in August 2011, but will do so next year.
Directors’ interests and indemnity arrangements
At no time during the year did any director hold a
material interest in any contract of significance with
the Company or any of its subsidiary undertakings
other than a third-party indemnity provision between
each director and the Company and service
contracts between each executive director and the
Company. The Company has purchased and
maintained throughout the year directors’ and
officers’ liability insurance in respect of itself and its
directors. The directors also have the benefit of the
indemnity provision contained in the Company’s
Articles of Association. These provisions, which are
qualifying third-party indemnity provisions as defined
by Section 236 of the Companies Act 2006, were in
force throughout the year and are currently in force.
Details of directors’ remuneration, service contracts
and interests in the shares of the Company are set out
in the directors’ remuneration report.
The Company also provides an indemnity for the
benefit of each person who was a director of
Mothercare Pension Trustees Limited, which is a
corporate trustee of the Company’s occupational
pension schemes, in respect of liabilities that may
attach to them in their capacity as directors of that
corporate trustee. These provisions, which are
qualifying pension scheme indemnity provisions as
defined in Section 235 of the Companies Act 2006, were
in force throughout the year and are currently in force.
Directors’ conflicts of interest
The board has maintained procedures whereby
potential conflicts of interests are reviewed regularly.
These procedures have been designed so that the
board may be reasonably assured that any potential
situation where a director may have a direct or
indirect interest which may conflict or may possibly
conflict with the interests of the Company are
identified and where appropriate dealt with in
accordance with the Companies Act 2006 and the
Company’s Articles of Association. The board has
not had to deal with any conflict during the period.
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Mothercare plc Annual report and accounts 2012 35
Corporate governance
continued
Committees
David Williams
Chairman, remuneration committee
The remuneration committee, chaired during the
year by David Williams, comprises the Chairman
and the non-executive directors. It establishes the
remuneration policy generally, approves specific
arrangements for the Chairman and the executive
directors and reviews and comments upon the
proposed arrangements for senior executives so as
to ensure consistency within the overall remuneration
policy and group strategy. The terms of reference of
the committee are set out on the Company’s website.
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 42 to 49 and
in Appendix A on pages 50 to 52. During the period no
director was, and procedures are in place to ensure
that no director is, involved in deciding or determining
his or her own remuneration.
Alan Parker
Chairman, nomination committee
The nomination committee, chaired by Alan Parker
following his appointment during the year, comprises
all of the non-executive directors. The terms of
reference of the committee are set out on the
Company’s website. The committee makes proposals
on the size, structure, composition (including diversity)
and appointments to the board. It carries out the
selection process and agrees the terms of
appointment of non-executive directors. Ordinarily
an external search agency is used to assist in the
identification of suitable candidates for board
appointments. The nomination committee also
reviews succession planning on an annual basis.
The Company’s position on diversity balance is set
out earlier in this report.
Bernard Cragg
Chairman, 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
36 Mothercare plc Annual report and accounts 2012
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 are set out under the
corporate governance section of the website at
www.mothercareplc.com.
The audit committee comprises the four non-executive
directors. The group general counsel and company
secretary acts as secretary to the committee. Bernard
Cragg is a chartered accountant with considerable
financial and varied commercial experience.
The committee met four times during the period.
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
53 weeks ended 31 March 2012
During the period the audit committee has:
reviewed the financial statements both in the interim
report and full year report and accounts, having in
both cases received a report from the external
auditors on their review and audit of the respective
reports and accounts;
assisted the board in its detailed review of the going
concern principle underpinning the results of the
group for the period in the light of the Financial
Reporting Council’s additional guidance on going
concern and liquidity risk;
considered the output of the procedures used to
evaluate and mitigate risk within the group;
reviewed the effectiveness of the group’s internal
controls and disclosures made in the annual report;
considered the management letter from the external
auditors on their review of the effectiveness of
internal control;
agreed the fees and terms of appointment of the
external auditors;
reviewed both the committee’s and the external
auditor’s effectiveness;
agreed the work plan of the internal audit function
and reviewed the resultant output from that plan;
and
reviewed and assessed the group’s compliance with
corporate governance principles.
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. There are no contractual
obligations restricting the committee’s choice of
external auditors.
In any event, the external auditors are required to
rotate the audit partner responsible for the audit
every five years. The current lead audit partner has
been in place for five years, and is being replaced
once the accounts for the year have been finalised
and approved.
In addition, a policy in respect of non-audit work by
the audit firm is in effect. The general principle is 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, and the nature of any non-audit work
must be approved by the committee. The committee
has assisted the board in the assessment of the
adequacy of the resourcing plan for the internal
audit function. In respect of the activities of the
function, the committee has received reports upon
the work carried out and the results of the
investigations including management responses,
their adequacy and timeliness.
A review was also held of the effectiveness of the
audit committee and the external auditors during
the year. It was considered that the work of the audit
committee during the year was effective measured
against its terms of reference and general audit
committee practice. In respect of the auditor
effectiveness review, it was considered that the
external auditors had carried out their obligations
in an effective and appropriate manner.
As a result of its work during the year, the committee
has concluded that it has acted in accordance
with its terms of reference and has ensured the
independence of the external auditors (by enquiry
of them, and reviewing the report issued by the
auditors regarding their independence, and the
non-audit services provided by the auditors and
the safeguards relating thereto). The Company did
not pay any non-audit fees to the auditors on a
contingent basis (non-audit fees incurred in the year
are set out in note 7). The Chairman of the committee
will be available at the AGM to answer any questions
on the work of the committee.
Director attendance
Director attendance statistics for the 53-week period ended 31 March 2012
Director
Maximum number of meetings
Alan Parker*
Ian Peacock*
Bernard Cragg
Ben Gordon*
Neil Harrington
Amanda Mackenzie
Richard Rivers
David Williams
Notes:
Board
Audit
Nomination
Remuneration
Committee
9
6
4
9
4
9
9
9
9
4
3
2
4
n/a
n/a
4
4
4
7
5
3
7
n/a
n/a
7
7
7
7
5
3
6
n/a
n/a
7
7
7
Ben Gordon and Neil Harrington attended meetings of the audit and remuneration committees upon the invitation of the respective chairmen.
Ian Peacock and Alan Parker attended meetings of the audit committee on the same basis during their respective periods as Chairman of the
Company. In addition to the board meetings above there were two ad hoc board meetings which approved the interim and full year report and
accounts respectively and which were constituted by the board from those members available at that time, having considered the views of the
whole board beforehand.
* denotes that the director either was appointed or retired/resigned during the year and thus was not eligible to attend all meetings.
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Mothercare plc Annual report and accounts 2012 37
Going concern
The accounts have been prepared under the going
concern principle. For full details please see the
corporate governance report on page 33.
Dividend
The directors are not recommending the payment of
a final dividend. An interim dividend of 2p per share
was paid in February 2012 (2011: 6.4p per share)
making a total of 2p per share (2011: total of 18.3p
per share) for the year.
The Trustees of the Mothercare Employee Trust, who
held 440,394 shares, and Mothercare Employees’
Share Trustee Limited which held 3,151 shares, waived
their entitlement to receive dividends in respect of
these shares.
Shares
As at 23 May 2012, the Company’s issued share capital
was 88,637,086 ordinary shares of 50p each all
carrying voting rights. Details of the change in the
Company’s issued share capital during the year is
set out in note 25. No shares were held in Treasury.
The Company has one class of ordinary shares.
Each share carries the right to one vote at general
meetings of the Company. There are no specific
restrictions on the size of a holding in the Company
nor on the transfer of shares, which are both governed
by the general provisions of the Company’s Articles of
Association and legislation. The directors are not
aware of any agreements between shareholders
that may result in restrictions on the transfer of shares
or on voting rights.
Details of the Company’s employee share schemes
are set out in the remuneration report. The Trustees
of the Mothercare Employee Trust and Mothercare
Employees’ Share Trustee Limited abstain from voting
their shareholding in the Company.
Directors’ report
The directors present their report on the affairs of
the group, together with the financial statements
and auditors’ report for the 53-week period ended
31 March 2012. The corporate governance statement
set out on pages 32 to 37 forms part of this report.
The Chairman’s statement on pages 8 and 9 gives
further information on the work of the board during
the period. The principal activity of the group is as
a specialist multi-channel retailer, franchisor and
wholesaler of products for mothers-to-be, babies
and children under the Mothercare and Early
Learning Centre brands.
Business review
The principal companies within the Mothercare group
for the period under review were Mothercare plc (the
‘Company’); Mothercare UK Limited and Chelsea
Stores Holdings Ltd (which own the Mothercare and
Early Learning Centre brands respectively). The
Companies Act 2006 requires the directors’ report to
contain a review of the business and a description of
the principal risks and uncertainties facing the group.
A review of the business strategy and a commentary
on the performance of the group is set out in the
performance highlights, our group overview,
Chairman’s statement, Chief Executive’s statement,
the business review and financial review. The principal
risks facing the business are detailed in the corporate
governance report. These disclosures form part of this
report. The directors’ report is prepared for the
members of the Company and should not be relied
upon by any other party or for any other purpose.
Where the directors’ report (including the
performance highlights, our group overview, business
review, financial review, KPIs, corporate responsibility
report, directors’ remuneration report and corporate
governance report) contain forward-looking
statements these are made by the directors in good
faith based on the information available to them at
the time of their approval of this report. These
statements will not be updated or reported upon
further during the year unless the Company is under
a legal obligation to do so. Consequently, such
statements should be treated with caution due to the
inherent uncertainties, including both economic and
business risk factors, underlying such forward-looking
statements or information.
The group’s use of financial instruments, the risk
management objectives and exposures are set
out in the notes to the financial statements and
the corporate governance report on page 32.
38 Mothercare plc Annual report and accounts 2012
Substantial shareholdings
As at 30 April 2012, the Company has been advised of or is aware of the following interests above 3 per cent in
the Company’s ordinary share capital:
Holder
M&G Investment Management Ltd
DC Thomson & Company Ltd
Fidelity International Limited
Allianz Global Investors
Aberdeen Asset Managers Limited
Capital Group of Companies
Financière de L’Echiquier (FR)
Percentage
of issued
share
capital
14.64%
10.51%
7.97%
7.40%
6.82%
5.92%
3.95%
Number of
shares
12,973,149
9,313,522
7,064,133
6,553,148
6,042,805
5,248,433
3,496,800
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Acquisition of own shares
The Company was given a general approval at the
AGM in July 2011 to purchase up to 10 per cent of its
shares in the market. This authority expires after the
AGM on 19 July 2012. The authority has not been used
during the year.
Significant agreements and change of control
The group has entered into one significant agreement
in the past year. This is a multi currency term and
revolving facilities agreement dated 11 April 2012 in
respect of a £90,000,000 credit facility with Barclays
Bank plc and HSBC Bank plc for general business
purposes. This supersedes the multi currency revolving
facilities agreement entered into by the group with
Barclays Bank plc and HSBC Bank plc on 16 May 2011.
There are a number of agreements that alter or
terminate upon a change of control such as
commercial contracts, bank loan agreements and
employee share plans. The only one of these which
is considered to be significant in terms of likely impact
on the business of the group as a whole is the multi
currency term and revolving facilities agreement
referred to above under which a change of control
of the Company would entitle the banks to cancel the
facility and require the repayment of all outstanding
amounts on a minimum of 30 days’ notice
Other than early vesting under the group’s long term
incentive plans, the directors are not aware of any
agreements between the Company and its directors
or employees that provide for compensation for loss
of office or employment that would occur because of
a takeover bid whether successful or not. There are no
special contractual payments associated with a
change of control of the Company.
Directors
With regard to the appointment and replacement of
directors, the Company is governed by its Articles of
Association, the UK Corporate Governance Code,
the Companies Act and related legislation. The
Articles may be amended by special resolution of
the shareholders. The business of the Company is
managed by the board who may exercise all the
powers of the Company subject to the provision of
the Articles of Association, the Companies Act and
any ordinary resolution of the Company.
The following directors served during the 53-week
period ended 31 March 2012:
Name
Alan Parker
Ian Peacock
Appointment
Executive Chairman (17 November 2011 to 30 April 2012); Chairman and non-executive
director (15 August – 16 November 2011 and from 30 April 2012); Chairman of the
nomination committee (from 15 August 2011)
Chairman and Chairman of the nomination committee until 15 August 2011;
non-executive director (retired 31 October 2011)
Bernard Cragg
Senior independent non-executive director and Chairman of the audit committee
Ben Gordon
Executive director (until 17 November 2011)
Neil Harrington
Executive director
Amanda Mackenzie
Independent non-executive director
Richard Rivers
Independent non-executive director
David Williams
Independent non-executive director and Chairman of the remuneration committee
Simon Calver was appointed as Chief Executive on 30 April 2012.
Mothercare plc Annual report and accounts 2012 39
Directors’ report
continued
In accordance with the Company’s Articles of
Association, David Williams and Bernard Cragg retire
by rotation from the board following the conclusion of
the AGM on 19 July 2012 and stand for re-election.
Alan Parker and Simon Calver are standing for
election having been appointed since the last AGM.
Biographical details of all of the directors, indicating
their experience and qualifications, are set out on
page 30. In light of the number of changes to the
board over the past year, the required election of Alan
Parker and Simon Calver at the AGM, the forthcoming
retirement as a director of Bernard Cragg after more
than nine years as a director, and the announced
resignation of Neil Harrington, it has been decided
to defer the retirement and re-election of all directors
until the annual general meeting of the Company in
2013 notwithstanding that it is a requirement of the UK
Corporate Governance Code for FTSE 350 companies
that the directors do so every year.
Details of directors’ service arrangements are set
out in the remuneration report on page 47.
A statement of directors’ interests in the shares of
Mothercare plc and of their remuneration is set out
on pages 49 and 50 respectively. A statement
of directors’ interests in contracts and indemnity
arrangements is set out on page 35.
Employees
The Company involves all of its employees in the
delivery of its strategy. It regularly discusses with all
its employees its corporate objectives and business
performance, as well as the economic environments
in which the Company trades through its business
sectors. This is achieved through the Company
magazine ‘Small Talk’ (to be replaced by an
employee communications website), regular
briefings, bulletins, e-mail and video presentations.
The Company aspires to develop a loyal and high
performing team through the development of its
culture and values. As part of this development
process it measures the capabilities of the group’s
employees, ascertains their development needs
and develops and implements programmes
designed to ensure that the critical skills required
for the development of both the individual and the
group are attained.
The group’s remuneration strategy is set out in the
remuneration report which includes details of the
various incentive schemes and share plans operated
by the group.
The group is an equal opportunities employer and
ensures that recruitment and promotion decisions in
all of its companies are made solely on the basis of
40 Mothercare plc Annual report and accounts 2012
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 support.
During the year, it became necessary to carry out
a consultation process affecting certain roles at the
Company’s head office in Watford and to make
redundancies in some of its overseas offices. The
Company recognises the impact of such processes
on its employees and this process was carried out
thoroughly and professionally, and in compliance
with relevant laws and regulations.
Pensions
The group operates pension schemes for those of its
employees who wish to participate. Details of the
pension charge is set out in note 29. The board is
mindful that further changes to elements of its pension
provision will be inevitable given the proposed tax
and auto-enrolment requirements introduced over the
past year. The Company has commenced a series of
reviews to seek a practical solution to these changes.
Payment of suppliers
Payments to merchandise suppliers are made in
accordance with 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 60 days from
the date of invoice.
The amount owed to trade creditors at the end of the
financial year represented nil days (2011: nil days) of
average daily purchases during the year for the
Company and 53 days (2011: 62 days) for the group.
Fixed assets
Changes in tangible fixed assets are shown in note 16
to the accounts. A valuation of the group’s freehold
and long leasehold properties, excluding rack rented
properties, was carried out by external valuers, as at
December 2009. The basis of the valuation is Existing
Use Value in respect of properties primarily occupied
by the group and on the basis of Market Value in
respect of investment properties, both bases being in
accordance with the Practice Statements contained in
the RICS Appraisal and Valuation Manual. A further
internal valuation of the freehold properties was
carried out as at April 2012 on the same basis. This
adjusted valuation of the freehold properties resulted
in a surplus over their net book value of £2,201,773.
Corporate citizenship
The group’s corporate social responsibility ethos and
details of the programmes that it runs in its business
relationships around the world are set out on pages
26 to 29. During the year, the group re-issued its Global
Code of Conduct to all its office employees, both in
the UK and overseas.
Auditors
In the case of each of the persons who were directors
of the Company at the date when this report was
approved:
so far as each of the directors is aware, there is no
relevant audit information (as defined in the
Companies Act 2006) of which the Company’s
auditors are unaware; and
each of the directors has taken all the steps that he/
she ought to have taken as a director to make
himself/herself aware of any relevant audit
information (as defined) and to establish that the
Company’s auditors are aware of that information.
Annual General Meeting
The 2012 Annual General Meeting will be held on
Thursday, 19 July 2012 at 10.00am in the conference
suite at the Company’s head office at Cherry Tree
Road, Watford, Hertfordshire WD24 6SH.
The notice of the meeting and a prepaid form of
proxy for the use of shareholders unable to come to
the AGM but who wish to vote or to put any questions
to the board of directors are enclosed with this annual
report for those shareholders who elected to receive
paper copies. The Company wishes to encourage as
many shareholders as possible to vote electronically.
Those shareholders who have elected to, or now wish
to participate in electronic voting may register their
vote in respect of resolutions to be proposed to the
AGM at www.sharevote.co.uk. To use the facility
shareholders will need their voting ID, task ID and
shareholder reference number from their proxy form
and register at www.shareview.co.uk. For full details
on how to use this facility please see the Notice
of Meeting.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 418 (2) of the
Companies Act 2006.
Shareholders may also submit questions via email to
investorrelations@mothercare.com. The Chairman will
respond in writing to questions received.
A resolution proposing the re-election of Deloitte LLP
as auditors to the Company will be put to the AGM.
Charitable and political donations
The Company made no donations during the year to
the Mothercare Group Foundation. Total cash
charitable donations for the year ended 31 March 2012
were £32,324 (2011: £282,161).
It is the Company’s policy not to make political
donations.
Post balance sheet events
Post balance sheet events are disclosed in note 31.
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
Group General Counsel and Company Secretary at
the Company’s head office.
The notice of meeting gives explanatory notes on the
business to be proposed at the meeting.
By order of the Board
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Group General Counsel and Company Secretary
23 May 2012
Mothercare plc Annual report and accounts 2012 41
sufficiently attractive to allow us to recruit, retain and
motivate a new senior management team with the
skills and capability to navigate our current situation
and deliver the ‘Transformation and Growth’ plan so
we can meet our future aspirations.
In January 2012 the remuneration committee
appointed new consultants to help review the
Company’s executive remuneration arrangements.
Our intention was to bring forward a framework for
approval at the annual general meeting. However,
it has become clear that more time is required to
enable a full and effective consultation with our
shareholders on the new arrangements. This will allow
our proposals to be properly set within the context of
the ‘Transformation and Growth’ plan we have just
announced, and will also give us time to reflect
investor views properly in our proposals.
The committee expects to consult further on future
long term incentive proposals over the summer once
the new strategy has been fully articulated and
digested by investors. In the meantime, the committee
will operate a short term incentive plan with financial
and non-financial performance measures linked to
the business plan. This is important to enable Simon
Calver, our new Chief Executive, to reinforce the
focus of his management team to deliver the
business turnaround.
These are clearly challenging times for executive pay
in general, and Mothercare in particular. Your board
is putting the building blocks in place for sustained
‘Transformation and Growth’, with new senior
leadership at the Company being a critical
component. We look forward to receiving your
support for the remuneration report at the annual
general meeting.
David Williams
Chairman, remuneration committee
Remuneration report
David Williams
Chairman, remuneration committee
Remuneration committee chairman’s statement
During the last 12 months, we have seen a significant
reduction in the group’s profitability, primarily as a
result of the deterioration in the trading results of the
UK business, and consequent impact on the share
price. Over the same period, we have initiated
important leadership changes, including the
appointment of a new Chairman and Chief Executive,
and further changes to the management team are
planned. All of this has been against the background
of the development of the ‘Transformation and
Growth’ plan essential to the future of Mothercare as
outlined elsewhere in this annual report.
We are operating in a rapidly changing environment
for executive pay in the UK, which is now a high profile
and sensitive matter. Reflecting the Company’s
performance, during the year there were no increases
in the salary levels of executive directors, which remain
at 2008/09 levels. Further, no annual bonus payments
were paid, and awards made under the Performance
Share Plan (PSP) and Executive Incentive Plan (EIP)
relating to the performance over the three-year
period ending 31 March 2012 did not vest. However,
awards made under the Executive Incentive Plan (EIP)
for the three-year period to 26 March 2011 did vest
reflecting the group’s relative performance as against
other general retailers over that period (details are set
out in the remuneration report).
Given the Company’s current position, it is now an
opportune time to break with the past and to put in
place a remuneration strategy and arrangements
which are better aligned with the current debate
on remuneration and, most importantly, reflect
Mothercare’s plans for ‘Transformation and Growth’
in the future. The PSP and EIP plans which operated
in the past, and delivered significant reward to
executives and shareholders (as Mothercare
increased in value in both absolute terms and relative
to other retailers) are no longer appropriate, not least
because they cannot be supported by the Company’s
current financial position and future business strategy.
The committee is determined that, as well as adopting
aspects of best practice (such as deferral of bonuses),
remuneration should also provide a strong link
between reward and sustainable performance for
shareholders. Set against this, Mothercare is in a
challenging situation and undergoing significant
management change. Remuneration must be
42 Mothercare plc Annual report and accounts 2012
Introduction and remuneration policy statement
Our remuneration policy is to provide competitive
remuneration packages that will help recruit, retain
and motivate executives of the required calibre to
meet the group’s strategic objectives. We aim to
ensure that the policy is appropriate to the group’s
needs and rewards executives for achieving relevant
performance criteria. The committee monitors
the group’s compliance with the UK Corporate
Governance Code provisions and institutional
investor guidelines for directors’ remuneration.
During the year, the committee has re-considered the
group’s remuneration policy, and its short term and
long term incentive plans to ensure that it has a
structure in place which supports its three-year
business plan. During this review, the committee
considered the appropriateness of the existing policy
and incentive plans from a strategic and business
perspective and also took into account views
expressed by shareholders, current market practice,
regulatory changes and corporate governance
requirements. The outcome of the review was that the
existing incentive plans are no longer considered to
be appropriate and that revised arrangements were
necessary. As a consequence, the Company is actively
consulting with shareholders, and will be proposing
a new long term incentive plan for approval by
shareholders in due course and will also be making
some amendments to its short term incentive plan with
effect from the 2012/13 financial year.
The revised policy will support and be aligned with
the company’s ‘Transformation and Growth’ plan
(detailed in the Chief Executive’s statement) both
from a structural and strategic perspective. It will also
take into account best practice and will provide the
Company with the ability to retain, motivate and
attract key executives to support the Company
through its next stage in development.
The key design principles of the revised incentive
arrangements will be as follows:
Executive directors and senior employees will be
given the opportunity to earn highly competitive
levels of reward for exceptional delivery of the
‘Transformation and Growth’ plan over the medium
to long term, subject to the proviso that excessive
or undeserved remuneration should not be paid
The Company must have the ability to retain and
attract talent of an appropriate calibre to execute
the business strategy in a highly challenging
environment, and reflecting the future aspirations
of the Company
The performance metrics should be closely aligned
to the Company’s strategic objectives and the
targets chosen will represent an accurate measure
of performance against the success of meeting
the objectives
The structures will reflect best practice guidelines,
wherever possible, and will be developed in full
consultation with investors
Accordingly, this report will address both the policy
and plans that have been in place during the year,
and details of the revised policy and amended short
term incentive plan.
The remuneration report
This report to shareholders has been prepared in
accordance with the Companies Act 2006 (the Act),
and the relevant regulations relating to directors’
remuneration, the requirements of the Listing Rules
of the UK Listing Authority and the UK Corporate
Governance Code. At the Annual General Meeting
on 19 July 2012 shareholders will be asked to approve
this report, as well as the share matching awards for
the Chairman.
The relevant section of the Act and regulations require
the auditors to report on certain elements of this
report and to state whether in their opinion these
elements have been properly prepared in
accordance with the Act. The audited sections include
directors’ share options, the PSP and EIP awards
(including that set out in Appendix A on page 50),
emoluments and compensation payments as set
out in Table 1A and pension arrangements set out
in Table 2 of Appendix A.
The remuneration committee
Composition of the remuneration committee
The remuneration committee comprises the
independent non-executive directors and the
Chairman of the Mothercare plc board (who, in the
view of the directors, was deemed to be independent
upon appointment). David Williams is Chairman of the
committee with Bernard Cragg, Amanda Mackenzie
and Richard Rivers serving throughout the year.
Ian Peacock served until his retirement in October 2011
and Alan Parker has served since his appointment
in August 2011.
The committee’s principal duty is the determination of
the remuneration for the executive directors, approval
of the pay and benefits of the members of the
executive committee and oversight of remuneration
policy for management below executive director and
executive committee members to ensure that such
remuneration is consistent with delivery of the business
strategy and value creation for shareholders.
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Remuneration report
continued
The committee met seven times during the year and
each member’s attendance at these meetings is
set out on page 37 of the corporate governance
report. The committee’s detailed terms of reference
are available on the Mothercare website at
www.mothercareplc.com.
Lane Clark & Peacock LLP does not provide any other
services to the Company and does not have any
other connections with the Company. However, DLA
Piper LLP provides general legal advice to the group,
and PwC LLP provides certain other advice and non-
audit services to the group.
Advisers to the remuneration committee
The committee retained certain external organisations
to assist them in their work during the year. The
committee has also consulted the Chief Executive,
human resources director and group general counsel
and company secretary as appropriate. No executive
was present for discussions of their own remuneration.
As at 31 March 2012, the committee’s advisers were:
Person or organisation
Services provided
PricewaterhouseCoopers
LLP
Advice on the new
incentive schemes,
executive remuneration
and remuneration
benchmarking
Lane Clark & Peacock LLP Pensions advice
DLA Piper LLP
Legal services principally
in respect of employment
contracts
During the period 1 April 2011 to 31 December 2011,
Kepler Associates Ltd advised the committee on
executive remuneration and remuneration
benchmarking. With effect from January 2012, the
committee has been advised by PwC on these issues.
Performance graph
The performance graph below shows the group’s TSR
against the return achieved by the FTSE 250 Index.
Mothercare plc entered the FTSE 250 on 30 June 2008,
but returned to the FTSE SmallCap Index on
19 December 2011. The performance graph below
shows performance against the FTSE 250 Index and
the FTSE All Share General Retailers Index. The graph
shows the five financial years to 31 March 2012.
The indices were chosen on the basis that Mothercare
was a constituent of both the FTSE 250 and FTSE
General Retailers indices. The group’s performance
against the FTSE All Share General Retailers Index
determines the level of vesting of awards under the
Executive Incentive Plan.
Five-year total shareholder return
180
120
60
0
7
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March 07
March 08
March 09
March 10
March 11
March 12
FTSE All Share
FTSE 250 Index
FTSE ASX General Retailers
Mothercare
44 Mothercare plc Annual report and accounts 2012
Directors’ remuneration
Current
The executive directors’ fixed annual remuneration
comprises a base salary (which is normally reviewed
in April each year) and benefits; they also receive
variable remuneration through an annual bonus
scheme, and the group’s long term incentive plans
(EIP and PSP). The group made no awards to the
executive directors under any other long term
incentive scheme during the year, although they are
entitled to participate in the Save As You Earn share
option scheme, which is open to all employees (but
excluding non-executive directors).
The remuneration of the non-executive directors
comprises fixed annual fees. Expenses incurred on
group business are reimbursed when claimed. Non-
executive director fees are reviewed periodically and
set at levels to reflect the time commitment and
responsibilities of the non-executive directors. The fees
of the non-executive directors are determined by the
Chairman and executive directors on behalf of the
board. The non-executive directors do not participate
in the group pension, annual bonus plan or any long
term incentive scheme. The Chairman’s remuneration
is determined by the remuneration committee without
the Chairman present. As an inducement for Alan
Parker to become Chairman, the Company agreed
to implement a share matching scheme under which
it would match the shares purchased by him, up to a
maximum value and subject to certain performance
criteria being met. Details of this scheme, which is
subject to shareholder approval, are set out later
in this report.
Future
The executive directors’ fixed annual remuneration
will still comprise a base salary, which is normally
reviewed in April each year, and benefits. The variable
elements of remuneration will be delivered through
a short term incentive plan and a long term incentive
plan. All elements of the variable remuneration will
be assessed against both financial and non-financial
performance criteria. Further details are set out below.
Ordinarily, the Company would report on the balance
between the fixed and performance based
compensation awarded to its executive directors.
However, one of the executive directors (Neil
Harrington) has submitted his resignation and will
not receive variable compensation in this financial
year; and the payment of variable compensation
to the other executive director is subject to the
finalisation of a new long term incentive plan in
consultation with shareholders.
Salary
Each executive director’s salary is considered
individually by the remuneration committee, taking
account of individual performance and potential;
pay positioning relative to comparable roles,
particularly at other retailers and also companies
of similar size in other sectors; pay elsewhere in the
Company, and advice from the independent
remuneration consultants. Base salary is the only
element of remuneration used in determining
pensionable earnings under the Mothercare
executive pension scheme. With the exception of
increases in salary to reflect increased responsibilities,
the group maintained 2011/12 salary levels at 2008/09
levels. Consequently, the salaries for Ben Gordon
(prior to his departure) and Neil Harrington remained
at £600,000 and £265,400 per annum respectively.
Simon Calver has been appointed as Chief Executive
with effect from 30 April 2012. His salary is £500,000
per annum. This represents a material reduction
to the level of the previous incumbent to reflect the
Company’s financial position. In setting Simon Calver’s
salary the remuneration committee took a range of
factors into account, most importantly the level of
salary deemed necessary to attract an individual of
a calibre with the necessary skills required to develop
and lead the ‘Transformation and Growth’ plan in
order for the business to meet its future aspirations.
The Committee also took into consideration
competitive levels of salary in the retail sector,
taking into account Mothercare’s current market
capitalisation. No change to Neil Harrington’s salary
is proposed for the year 2012/13.
Short term incentive plan (STIP)
Current: Annual bonus
The annual cash bonus scheme for executive directors
is based on the achievement of group financial
targets and the delivery of stretching personal targets
tied to key business objectives. Financial and personal
targets are set annually by the remuneration
committee. For the year 2011/12 the committee decided
that the annual bonus PBT measure should include
measures of operating cash flow, working capital
and other key performance indicators. Consequently,
it was decided that 75 per cent of the bonus
opportunity would be linked to group PBT and the
remaining 25 per cent to these other performance
measures. The individual performance multipliers
would apply to both elements. Any bonus awarded
would be paid entirely in cash. As the targets were not
met, no bonus was paid for the year.
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Mothercare plc Annual report and accounts 2012 45
Remuneration report
continued
Ben Gordon resigned during the year and did not
receive a bonus, although the maximum bonus
opportunity at the start of the year was 135 per cent
of salary; Neil Harrington’s bonus opportunity is a
maximum of 115 per cent of salary; he received no
performance related bonus for the year ended
31 March 2012 (2011: £nil).
(in exceptional circumstances, 200 per cent of salary)
are made to selected executives, as determined by
the remuneration committee each year. Conditional
awards were made to the wider executive team
through awards made in May and November. Details
of executive directors’ historical awards are set out in
Appendix A on page 50.
Future: STIP
With effect from 2012/13, a number of amendments will
be made to the STIP. The key amendments and
rationale are as follows:
The maximum bonus potential for the Chief Executive
will be reduced to 125 per cent of salary and for the
Finance Director will be 100 per cent of salary
The performance metrics will be aligned to the
Company’s ‘Transformation and Growth’ plan and
its key focus areas over the next 12 months. Both
financial and strategic measures – based on a
balanced scorecard approach – will be used with
a weighting of 75 per cent financial and 25 per cent
strategic measures. Strategic measures will include
customer satisfaction surveys
Payment under the STIP will be subject to an
overriding financial measure based on the
Company’s net quarterly cash/debt position which
will ensure that STIP payments are not made where
the financial position of the Company does not
support it and when they are unjustified
For the executive directors and other members of
the executive committee, 30 per cent of any STIP
payment earned will be deferred into shares in the
Company for a three-year period. By paying a
significant portion of any STIP in shares, executives’
focus on long term value creation and the degree
of alignment with shareholders will be increased
During the deferral period, in line with best practice,
the shares are subject to claw back in exceptional
circumstances, such as financial misstatement
Profit share scheme
In addition to the annual bonus scheme, the group
has operated a profit share scheme. All group
employees (other than participants in the annual
bonus scheme or the new proposed STIP) with at
least six months’ service are eligible to participate
in this scheme.
Long term incentive plan
Current:
(a) The Performance Share Plan (PSP)
The group’s performance share plan was approved
by shareholders in 2006. Under the PSP, conditional
awards of shares of up to 100 per cent of salary
Vesting of shares to an individual is conditional upon
the achievement of the cumulative three-year growth
in group PBT. 20 per cent of an award vests if
Mothercare’s three-year PBT growth is 5 per cent p.a.
and 100 per cent of an award will vest if Mothercare’s
three-year PBT per share growth is at least 15 per cent
each year, with straight-line vesting in between.
Dividends accrue and are paid on shares that vest.
If the performance threshold of 5 per cent p.a. PBT per
share growth is not met the award lapses. PBT per
share was chosen as the remuneration committee
believed that PBT was a good measure of
Mothercare’s financial performance; it is highly visible
internally, and is regularly monitored and reported.
For the three-year performance period to 26 March
2011, Mothercare’s profit before tax decreased.
Accordingly, the awards granted in 2008 did not vest.
This was also the case for awards granted in 2009
which did not vest by reference to the three-year
performance ended 31 March 2012.
In September 2008, the remuneration committee and
the board approved an extension of the PSP to key
executives in the overseas markets in which it
operates, principally China, Hong Kong and India.
The nature of the securities laws in certain countries
makes it impractical for individuals to receive shares
in the Company upon vesting of conditional awards
as envisaged by the PSP scheme. Consequently the
scheme approved for overseas participants grants
conditional awards over ‘notional shares’ in the
Company. These notional shares are hedged within
the employee trust such that individual participants
may receive a cash award equivalent to the growth in
value of the notional shares under the award. In all
other respects (including maximum award limits,
performance conditions etc) the overseas scheme is
equivalent to that operated for UK-based executives.
(b) The Executive Incentive Plan (EIP)
The group’s executive incentive plan was approved
by shareholders in 2006. Under the EIP, selected senior
executives are eligible to receive a percentage of
‘surplus value created’ over a three-year performance
period. ‘Surplus value created’ is defined as group
TSR outperformance of the FTSE All-Share General
Retailers Index (Index) multiplied by the average
market capitalisation of the group over the
46 Mothercare plc Annual report and accounts 2012
three-month period immediately prior to the start of
the financial year in which the grant date falls. The
committee believed this relative TSR performance
condition provided alignment with shareholders’ long
term interests, as well as supporting the motivation
and retention of the management team. However, as
noted elsewhere in this report, the committee has
re-considered the suitability of the EIP scheme and will
be proposing its replacement in due course.
At the vesting date, the committee retains discretion to
defer up to 50 per cent of an award into shares for a
further year. Following a minor refinement approved
by the committee to the EIP in 2009, in order to provide
additional alignment with shareholders’ interests,
awards from 2009 onwards will be settled wholly in
shares (rather than up to 50 per cent as provided in
the original scheme). The EIP was also amended to
allow an executive to extend the period of deferral
by awarding the deferred element as nil-cost options.
EIP awards have been made in each year since
inception in 2006. The award criteria made to
executive directors is set out in EIP Table 1 in
Appendix A (page 50).
During the three-year performance period to
26 March 2011, Mothercare’s total shareholder return
outperformed the FTSE General Retailers Index by
38.29 per cent (Mothercare +48.78 per cent, General
Retailers +10.49 per cent).
With regard to the EIP award that vested in March
2011, the remuneration committee decided to exercise
its discretion to defer the maximum 50 per cent of the
vested amount into shares. These share awards will
not be released until June 2012 and therefore the value
of the deferred shares to which the executive directors
will be entitled will not be known until that date. Details
are set out in Appendix A on page 50.
No EIP Awards vested in relation to the performance
ended 27 March 2012.
Future:
Long term incentive plan
As explained earlier in this report, the committee has
reconsidered the applicability of the existing PSP and
EIP, in light of the group’s performance in the past two
years and the longer term business objectives and
performance targets set out by the Chief Executive in
this report.
The outcome of the review was that the PSP and EIP
are no longer considered to be appropriate and that
revised arrangements were necessary in order to
support the company in delivering its three-year
business plan and to have regard to changing
market practices. The Company is currently working
with its key shareholders to devise an appropriate
long term incentive plan which will be implemented
in due course.
The Executive Share Option Scheme (ESOS)
The Mothercare plc 2000 Share Option Plan
Under the rules of the Mothercare 2000 Share Option
Plan no further options can be granted.
Shareholding guidelines
Executive directors are expected to build up a
shareholding equal to 100 per cent of their basic
salaries after three years in position. Under the
proposed terms of the short term incentive plan
outlined above, 30 per cent of any payments would
be deferred in shares for a three-year period and
would count towards this shareholding obligation
at their net of tax value.
Details of the shares held by the directors as at
31 March 2012 are provided below.
Service contracts
Executive directors
Executive directors’ service contracts are rolling
contracts that require 12 months’ notice by either
the Company or executive to terminate the
contract. Mitigation provisions are included in
any severance agreement.
Ben Gordon, the former Chief Executive, resigned
from the Company on 17 November 2011 having
commenced with the group on 2 December 2002.
His service agreement provided for liquidated
damages on termination by the group 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 long term incentives. Accordingly, Ben
Gordon received a payment equal to his basic salary
in lieu of notice for the period from 17 November 2011
to 9 October 2012. Ben Gordon also received his
contractual entitlement to the benefits of any share
awards under the performance share plan and
executive incentive plan which had vested before
11 October 2011, and these are set out in Appendix A
on page 50.
Non-executive directors
Alan Parker is entitled to six months’ salary on
termination of his service agreement dated 2 August
2011 by the group. Bernard Cragg, Richard Rivers,
David Williams and Amanda Mackenzie have service
agreements with the group that may be terminated
upon one month’s notice; their service agreements
were entered into on 26 March 2003, 27 May 2008,
2 July 2004 and 1 January 2011 respectively.
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Remuneration report
continued
As at 31 March 2012, the annual salary/fees payable
to the Chairman (in his non-executive capacity) were
£200,000, the senior non-executive director £60,000,
the Chairman of the Remuneration Committee £55,000
and the other non-executive directors £50,000.
As an inducement for Alan Parker to become
Chairman and related to his service agreement, the
Company agreed to implement a share matching
scheme under which it would grant 60,000
performance related share options if Alan Parker
purchased and held shares in the Company in the
vesting period to the value of £200,000. The Chairman
purchased these shares and the Company granted
60,000 options with a nominal exercise price which
vest in August 2014 subject to certain performance
criteria being met. For the grant to vest in full, the
Company total shareholder return over the three-year
performance period must be greater than or equal to
the total shareholder return of the FTSE 250 (excluding
certain mining and investment companies) plus 50 per
cent, if the Company’s performance is below TSR
index, the award will not vest. The Chairman must
retain his shareholding for the performance period.
In accordance with the UK Corporate Governance
Code and the Listing Rules, the implementation of the
share matching plans for Alan Parker are subject to
shareholder approval and have been proposed as
resolution 10 on the notice of meeting.
Executive Chairman
Following the resignation of Ben Gordon with effect
from 17 November 2011, Alan Parker became Executive
Chairman, and agreed to spend three days per week
in this role until a new Chief Executive was appointed.
Alan Parker did not act as a Chief Executive of the
Company. Following Simon Calver’s appointment with
effect from 30 April 2012, Alan Parker stood down as
Executive Chairman on the same date. For the six
months’ duration of his role as Executive Chairman,
and to reflect the material increase in the time spent
on behalf of the group, Alan Parker received an extra
fee of approximately £200,000. The Company also
agreed to an extension of the share matching
arrangement awarded to Alan Parker on his
appointment as Chairman. The Company agreed to
match additional investment in the Company by Alan
Parker on a 0.35:1 (Company/Alan Parker) basis (up to
a maximum further investment of £400,000). The
vesting of this additional match is subject to the same
performance criteria as the initial share matching
scheme and the award will not vest if the
performance criteria are not satisfied. As described
above, the implementation of this plan is subject to
shareholders’ approval.
External appointments and other commitments of
the directors
The other business commitments of the directors are
set out within their biographical details on page 30.
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. Neil Harrington is a non-executive
director of McBride plc, from which he currently receives
an annual fee of £40,000.
Pension arrangements
Neil Harrington is a member of the Mothercare
Executive Pension Scheme. Neil Harrington participates
in the pension builder career average section of the
Mothercare Executive Pension Scheme. Pension accrues
at one forty-fifth of pensionable salary (subject to a
notional earnings cap of £185,400). The normal
retirement age is 65 years. Contributions by Neil
Harrington are set at 8 per cent of pensionable salary.
The committee regularly reviews the financial impact to
the Company of pension provision. Given the regulatory
changes expected in October 2012 a further review of
the effect of these changes on the Company pension
schemes is underway. In the meantime, in order to
control the cost of pensions, the group has agreed
with the Trustees of the Executive Pension Scheme the
introduction of a capped accrual section which limits
annual accrual in excess of CPI inflation to £3,125 per
annum and has agreed with the individuals affected
to pay a salary supplement of up to £16,000 per annum
to compensate for their reduced accrual.
Those directors and senior executives subject to the
earnings cap and who participated in the FURBS
arrangements now receive a cash salary supplement
equivalent to the former FURBS payment, for investment
in an investment vehicle of their own choice. Further
pension detail is given in Table 2 of Appendix A on
page 50.
For further details of the pension provision within the
group during the year, see the directors’ report on
page 38.
For further details on the cost of pensions to the
group, including the statements required by IAS 19,
see note 29.
Emoluments and compensation payments
The emoluments (including pension contributions) for
executive directors for the year ended 31 March 2012
and the salaries paid to the management level below
the board are set out in Tables 1A and 1B of Appendix A
on page 50.
48 Mothercare plc Annual report and accounts 2012
Beneficial interests of the directors
The beneficial interests of the directors in the share
capital of the group are set out in the table below.
This table does not show outstanding option or
incentive awards. These are dealt with in the relevant
section of this report.
Interest held at
31 March 2012
(or appointment
if later)
(number)
Interest held at
26 March 2011
(or appointment
if later)
(number)
Alan Parker
Bernard Cragg
Neil Harrington
Richard Rivers
David Williams
Amanda Mackenzie
210,400
20,000
100,000
29,000
71,300
25,760
–
20,000
66,022
8,000
38,300
–
Tim Ashby and David Williams are shareholders and
directors of Mothercare Employees’ Share Trustee
Limited, which held 3,151 Mothercare shares in trust on
31 March 2012 (3,151 on 26 March 2011). A separate trust,
The Mothercare Employee Trust, held 440,394 shares
on 31 March 2012 (2,458,079 shares on 26 March 2011).
The executive directors are also deemed to have an
interest in shares held by Mothercare Employees’
Share Trustee Limited and the Mothercare Employee
Trust as potential beneficiaries.
There have been no movements in directors’ interests,
beneficial or non-beneficial, between 31 March 2012
and 23 May 2012.
Approved by the Board on 23 May 2012 and signed on
its behalf by:
David Williams
Chairman, remuneration committee
G
o
v
e
r
n
a
n
c
e
Mothercare plc Annual report and accounts 2012 49
Appendix to the remuneration report
APPENDIX A
Table 1A
Directors’ emoluments
Total emoluments (including pension contributions) in the 53 weeks ended 31 March 2012 were £7,460,000 (2011 – £7,815,000).
Salary/fees
£000
Performance
bonus
£000
Benefits
£000
Incentive
schemes’
vesting
£000
Compensation
for loss of office
£000
Total
remuneration
(excl. pensions)
£000
Pension
contributions
£000
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
Executive directors
Alan Parker
Ben Gordon
Neil Harrington
Non-executive
directors
Ian Peacock
Bernard Cragg
Amanda Mackenzie
Richard Rivers
David Williams
Karren Brady
272
380
265
108
60
50
50
55
–
–
600
265
180
60
8
50
55
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9
12
–
–
–
–
–
–
–
13
11
–
3,968
1,411
–
4,586
1,794
–
658
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
272
5,015
1,688
–
5,199
2,070
108
60
50
50
55
–
180
60
8
50
55
20
–
23
34
–
–
–
–
–
–
–
32
32
–
–
–
–
–
–
Note:
Benefits typically include a company car, medical insurance and other similar benefits.
(i)
In addition to the pension contributions for Ben Gordon set out above, a sum of £63,810 was paid to Ben Gordon for the 53 weeks ended 31 March 2012 and
£82,170 was paid for the 52 weeks ended 26 March 2011, as a salary supplement referred to in page 48 following the discontinuance of the FURBS scheme.
(ii) In addition to the pension contributions for Neil Harrington set out above, a sum of £40,854 was paid to Neil Harrington for the 53 weeks ended 31 March 2012
and £26,923 is paid for the 52 weeks ended 26 March 2011 as an employer contribution directly to a SIPP following the discontinuance of the FURBS scheme.
Included within the current year amount paid is a supplement of £16,000 given in return for voluntarily capping the pension accrual at £140,625.
(iii) Alan Parker was non-executive Chairman from 15 August 2011 to 17 November 2011 with a fee of £200,000 per annum. From 18 November 2011 he assumed the
role of Executive Chairman with a fee of £600,000 per annum. On 30 April 2012 Mr Parker reverted to the role of non-executive Chairman and his fee reverted
back to £200,000 per annum.
(iv) Ben Gordon’s Incentive Scheme Vesting in 2012 includes £441,000 relating to early vesting as a result of his resignation.
Table 1B
Aggregate directors’ remuneration
The total amounts for directors’ remuneration were as follows:
Emoluments
Compensation for loss of office
Amounts receivable under long term incentive schemes
Money Purchase pension contributions
Total
2012
£000
1,261
658
5,379
162
7,460
2011
£000
1,262
–
6,380
173
7,815
50 Mothercare plc Annual report and accounts 2012
Table 1C
The following table sets out the number of individuals within the salary bands for the management level directly below
the board.
Salary band
250,001 – 300,000
200,001 – 250,000
150,001 – 200,000
100,001 – 150,000
75,001 – 100,000
50,001 – 75,000
2012
2011
–
–
6
2
–
–
1
–
5
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
At 26
March
2011
Change
during
year
At 31
March
2012
Change
during
year net
of inflation
Transfer
value of
change in
year net
of inflation
26 March
2011
Ben Gordon
Neil Harrington
34.0
20.8
3.5
3.9
37.5
24.7
1.7
2.8
23.36
32.96
447,822
181,698
*Calculation is consistent with applicable professional actuarial guidelines of accrued benefit.
Defined benefits for Final Salary Scheme (£000)
Money
Purchase
Group
contri-
butions
Transfer value as at *
Change
during
year
206,725
127,529
Director
contri-
butions
–
–
31 March
2012
654,547
309,227
63,811
40,854
G
o
v
e
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n
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c
e
Note:
The transfer values represent a liability to the group and not a sum paid or due to be paid to the individual. The amounts shown as director contributions were
made under salary sacrifice arrangements and are shown for reasons of transparency.
Performance Share Plan
Conditional awards held by executive directors under the PSP are as follows:
Director
Ben Gordon
Total
Neil Harrington
Total
27 March
2011
(number)
Granted
during year
(number)
(Lapsed)
during year
(number)
Grant date
Vesting/(lapse)
date
240,802
–
(240,802)
16 June 2008
16 June 2011
115,384
–
356,186
79,886
38,278
–
118,164
–
135,135
135,135
(115,384)
(135,135)
(491,321)
25 May 2010 11 October 2011
24 May 2011 11 October 2011
–
(79,886)
16 June 2008
16 June 2011
–
44,831
44,831
–
–
25 May 2010
24 May 2011
25 May 2013
24 May 2014
(79,886)
Vested
during year
(number)
Gains on
exercise
2012
£
31 March
2012
(number)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
38,278
44,831
83,109
The above awards were granted as nil-cost options.
Mothercare plc Annual report and accounts 2012 51
Appendix to the remuneration report
continued
Executive Incentive Plan
Conditional award percentages of surplus value made to executive directors are as follows:
Surplus value
£0m to £50m
£50m to £75m
Over £75m
(1) Percentage applies only on up to £25 million of surplus value created above £50 million
(2) Percentage applies only on surplus value created in excess of £75 million
EIP cash and share determinations made under the EIP during the year
2008 Cycle: Total surplus value created £128.98 million
Name
Ben Gordon (1)
Neil Harrington (2)
% of surplus value to which participant entitled
Ben Gordon
Neil Harrington
1.0%
1.5%(1)
2.0%(2)
0.4%
0.6%(1)
0.8%(2)
Vesting
date
Cash
amount
paid £
Deferred
into shares
(number)
Reference
share price
6 June 2011
6 June 2011
977,255
390,904
228,224
91,290
428p
428p
(1) Ben Gordon’s deferred shares vested following his resignation from the Company. Vesting occurred on 31 January 2012. On the date of the vesting the share
price was 193p. In addition 745,610 deferred shares related to the 2007 scheme vested during the year at a reference share price of 342p.
(2) Neil Harrington’s deferred shares will vest on 6 June 2012 and the value of the deferred shares to which he will be entitled will not be known until that date.
In addition 298,244 deferred shares related to the 2007 scheme vested during the year at a reference share price of 342p.
Directors’ share matching scheme
Director
Alan Parker
26 March 2011
Granted
Grant date
Vest date
31 March 2011
–
–
60,000(1)
54,997(2)
2 August 2011
17 November 2011
1 August 2014
16 November 2014
60,000
54,997
(1) During the year the Chairman was granted 60,000 performance related share options with a nominal exercise price. As a condition of this award the Chairman
was required to purchase and hold shares in the Company over the vesting period for a value of £0.2 million. At 31 March 2012 the Chairman had purchased the
required value of shares.
(2) Upon assuming the role of Executive Chairman, the Chairman was granted 54,997 performance related share options with a nominal exercise price. As a
condition of this award the Chairman was required to purchase and hold shares in the Company over the vesting period for a value of £0.4 million. At 31 March
2012 the Chairman had purchased £0.2 million of shares in the Company. The above disclosure assumes the remainder of shares will be purchased during the
agreed purchase period.
52 Mothercare plc Annual report and accounts 2012
Financial statements
Contents
54 Directors’ responsibilities statement
55
Independent auditor’s report to the
members of Mothercare plc
56 Consolidated income statement
56 Consolidated statement of comprehensive
income
57 Consolidated balance sheet
58 Consolidated statement of changes in equity
59 Consolidated cash flow statement
60 Notes to the consolidated financial statements
98 Company financial statements
99
Independent auditor’s report on the
Company financial statements
100 Company balance sheet
101 Notes to the Company financial statements
104 Five year record
105 Shareholder information
Mothercare plc Annual report and accounts 2012 53
F
i
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a
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c
a
i
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s
t
a
t
e
m
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n
t
s
Directors’ responsibilities statement
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position
of the Company and enable them to ensure that the
financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the
assets of the Company and hence for taking
reasonable steps for the prevention and detection of
fraud and other irregularities.
The directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the Company’s website.
Legislation in the United Kingdom governing the
preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
the financial statements, prepared in accordance
with the relevant financial reporting framework, give
a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the
undertakings included in the consolidation taken
as a whole; and
the management report, which is incorporated into
the directors’ report, includes a fair review of the
development and performance of the business and
the position of the company and the undertakings
included in the consolidation taken as a whole,
together with a description of the principal risks
and uncertainties that they face.
By order of the Board on 23 May 2012 and signed on
its behalf by:
Neil Harrington
Finance Director
The directors are responsible for preparing the annual
report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare
financial statements for each financial year. Under
that law the directors are required to prepare the
group financial statements in accordance with
International Financial Reporting Standards (IFRSs)
as adopted by the European Union and Article 4 of
the IAS Regulation and have elected to prepare the
parent company financial statements in accordance
with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and
applicable law). Under company law the directors
must not approve the accounts unless they are
satisfied that they give a true and fair view of the
state of affairs of the Company and of the profit
or loss of the Company for that period.
In preparing the parent company financial
statements, the directors are required to:
select suitable accounting policies and then apply
them consistently;
make judgments and accounting estimates that are
reasonable and prudent;
state whether applicable UK Accounting Standards
have been followed, subject to any material
departures disclosed and explained in the financial
statements; and
prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the Company will continue in business.
In preparing the group financial statements,
International Accounting Standard 1 requires that
directors:
properly select and apply accounting policies;
present information, including accounting policies,
in a manner that provides relevant, reliable,
comparable and understandable information;
provide additional disclosures when compliance
with the specific requirements in IFRSs are insufficient
to enable users to understand the impact of
particular transactions, other events and conditions
on the entity’s financial position and financial
performance; and
make an assessment of the Company’s ability to
continue as a going concern.
54 Mothercare plc Annual report and accounts 2012
Independent auditor’s report to
the members of Mothercare plc
We have audited the group financial statements
of Mothercare plc for the 53 weeks ended
31 March 2012 which comprise the consolidated
income statement, the consolidated statement of
comprehensive income, the consolidated balance
sheet, the consolidated cash flow statement, the
consolidated statement of changes in equity and the
related notes 1 to 31. The financial reporting framework
that has been applied in their preparation is
applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. 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 auditor’s 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 auditor
As explained more fully in the directors’ responsibilities
statement, the directors are responsible for the
preparation of the group financial statements and
for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion
on the group financial statements in accordance with
applicable law and International Standards on
Auditing (UK and Ireland). Those standards require
us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the
amounts and disclosures in the financial statements
sufficient to give reasonable assurance that the
financial statements are free from material
misstatement, whether caused by fraud or error.
This includes an assessment of: whether the
accounting policies are appropriate to the group’s
circumstances and have been consistently applied
and adequately disclosed; the reasonableness of
significant accounting estimates made by the
directors; and the overall presentation of the financial
statements. In addition, we read all the financial and
non-financial information in the annual report to
identify material inconsistencies with the audited
financial statements. If we become aware of any
apparent material misstatements or inconsistencies
we consider the implications for our report.
Opinion on financial statements
In our opinion the group financial statements:
give a true and fair view of the state of the group’s
affairs as at 31 March 2012 and of its loss for the
53 weeks then ended;
have been properly prepared in accordance with
IFRSs as adopted by the European Union; and
have been prepared in accordance with the
requirements of the Companies Act 2006 and Article 4
of the IAS Regulation.
Opinion on other matter prescribed by the
Companies Act 2006
In our opinion the information given in the directors’
report for the financial year for which the group
financial statements are prepared is consistent with
the group financial statements.
Matters on which we are required to report
by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to
report to you if, in our opinion:
certain disclosures of directors’ remuneration
specified by law are not made; or
we have not received all the information and
explanations we require for our audit.
Under the Listing Rules we are required to review:
the directors’ statement, contained within the
corporate governance report, in relation to going
concern;
the part of the corporate governance statement
relating to the company’s compliance with the nine
provisions of the UK Corporate Governance Code
specified for our review; and
certain elements of the report to shareholders by the
board on directors’ remuneration.
Other matter
We have reported separately on the parent company
financial statements of Mothercare plc for the 53 weeks
ended 31 March 2012 and on the information in the
directors’ remuneration report that is described as
having been audited.
Nicola Mitchell, FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London
23 May 2012
Mothercare plc Annual report and accounts 2012 55
F
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
Consolidated income statement
For the 53 weeks ended 31 March 2012
Revenue
Cost of sales
Gross profit
Administrative expenses before
share-based payments
Share-based payments
Administrative expenses
(Loss)/profit from retail operations before
share-based payments
(Loss)/profit from retail operations
(Loss)/profit on disposal/termination of
property interests
Exceptional and non-underlying items
Share of results of joint ventures
and associates
(Loss)/profit from operations before
share-based payments
(Loss)/profit from operations
Net finance costs
(Loss)/profit before taxation
Taxation
(Loss)/profit for the period attributable to
equity holders of the parent
(Loss)/earnings per share
Basic
Diluted
53 weeks ended 31 March 2012
52 weeks ended 26 March 2011
Underlying1
£ million
Non-
underlying2
£ million
Total
£ million
Underlying1
£ million
Non-
underlying2
£ million
812.7
(768.4)
44.3
(38.5)
(0.6)
(39.1)
5.8
5.2
–
–
(3.2)
2.6
2.0
(0.4)
1.6
–
1.6
1.8p
1.8p
–
(2.0)
(2.0)
(10.9)
0.8
(10.1)
(12.9)
(12.1)
(22.6)
(69.3)
812.7
(770.4)
42.3
(49.4)
0.2
(49.2)
(7.1)
(6.9)
(22.6)
(69.3)
793.6
(721.6)
72.0
(39.1)
(2.2)
(41.3)
32.9
30.7
–
–
(0.4)
(3.6)
(1.8)
(105.2)
(104.4)
(0.1)
(104.5)
11.1
(102.6)
(102.4)
(0.5)
(102.9)
11.1
31.1
28.9
(0.4)
28.5
(7.3)
–
(16.1)
(16.1)
(3.6)
–
(3.6)
(19.7)
(19.7)
0.2
–
–
(19.5)
(19.5)
(0.2)
(19.7)
5.0
(93.4)
(91.8)
21.2
(14.7)
(105.2p)
(105.2p)
24.7p
24.2p
Note
4, 5
28
7
6
13, 14
8
9
11
11
Total
£ million
793.6
(737.7)
55.9
(42.7)
(2.2)
(44.9)
13.2
11.0
0.2
–
(1.8)
11.6
9.4
(0.6)
8.8
(2.3)
6.5
7.6p
7.4p
1 Before items described in note 2 below.
2 Includes exceptional items (profit/loss on disposal/termination of property interests, restructuring costs, impairment charges, provision for onerous leases) and
other non-underlying items of amortisation of intangible assets (excluding software) and the impact of non-cash foreign currency adjustments under IAS 39 and
IAS 21 as set out in note 6 to the consolidated financial statements.
All results relate to continuing operations.
Consolidated statement of comprehensive income
For the 53 weeks ended 31 March 2012
Other comprehensive (expense)/income – actuarial (loss)/gain on defined benefit pension schemes
Tax relating to components of other comprehensive income
Exchange differences on translation of foreign operations
Net (loss)/gain recognised in other comprehensive income
(Loss)/profit for the period
Total comprehensive (expense)/income for the period attributable to equity holders of the parent
56 Mothercare plc Annual report and accounts 2012
Note
29
9
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
(21.2)
4.1
(0.1)
(17.2)
(91.8)
(109.0)
16.5
(4.3)
(1.2)
11.0
6.5
17.5
Consolidated balance sheet
As at 31 March 2012
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Investments in joint ventures
Investment in associate
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Currency derivative liabilities
Short term provisions
Non-current liabilities
Trade and other payables
Borrowings
Retirement benefit obligations
Long term provisions
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Share capital
Share premium account
Other reserve
Own shares
Translation reserves
Retained (loss)/earnings
Total equity
Approved by the Board and authorised for issue on 23 May 2012 and signed on its behalf by:
31 March
2012
£ million
26 March
2011
£ million
Note
15
15
16
13
14
17
18
19
20
23
21
22
24
23
21
29
24
25
25
26.8
22.1
86.3
6.8
3.2
17.6
68.6
38.5
91.1
3.2
7.2
6.9
162.8
215.5
99.1
74.7
1.8
175.6
338.4
(123.8)
(1.9)
(0.1)
(1.3)
(24.5)
(151.6)
(29.0)
(20.0)
(52.7)
(12.4)
(114.1)
(265.7)
72.7
44.3
6.2
50.8
(2.1)
–
(26.5)
72.7
116.0
62.5
15.3
193.8
409.3
(130.1)
–
(1.0)
(2.7)
(5.6)
(139.4)
(32.3)
–
(37.6)
(7.2)
(77.1)
(216.5)
192.8
44.3
5.9
50.8
(9.0)
0.1
100.7
192.8
Neil Harrington
Finance Director
Mothercare plc Annual report and accounts 2012 57
F
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
Consolidated statement of changes in equity
For the 53 weeks ended 31 March 2012
Balance at 27 March 2011
Total comprehensive (expense)/income
for the period
Issue of equity shares
Credit to equity for equity-settled
share-based payments
Shares transferred to employees
on vesting
Dividends paid
Share
capital
£ million
44.3
–
–
–
–
–
Share
premium
account
£ million
5.9
–
0.3
–
–
–
Other
reserve1
£ million
50.8
–
–
–
–
–
Balance at 31 March 2012
44.3
6.2
50.8
Equity attributable to equity holders of the parent
Own
shares
£ million
Translation
reserve
£ million
Retained
earnings
£ million
Total
equity
£ million
(9.0)
–
–
–
6.9
–
(2.1)
0.1
(0.1)
–
–
–
–
–
100.7
192.8
(108.9)
–
0.5
(6.9)
(11.9)
(26.5)
(109.0)
0.3
0.5
–
(11.9)
72.7
For the 52 weeks ended 26 March 2011
Balance at 28 March 2010
Total comprehensive income for
the period
Issue of equity shares
Credit to equity for equity-settled
share-based payments
Purchase of own shares
Shares transferred to employees
on vesting
Dividends paid
Share
capital
£ million
Share
premium
account
£ million
44.1
–
0.2
–
–
–
–
4.9
–
1.0
–
–
–
–
Other
reserve1
£ million
50.8
–
–
–
–
–
–
Balance at 26 March 2011
44.3
5.9
50.8
Equity attributable to equity holders of the parent
Own
shares
£ million
Translation
reserve
£ million
Retained
earnings
£ million
(8.9)
–
–
–
(1.4)
1.3
–
(9.0)
1.3
(1.2)
–
–
–
–
–
0.1
96.2
18.7
–
2.6
–
(1.3)
(15.5)
100.7
Total
equity
£ million
188.4
17.5
1.2
2.6
(1.4)
–
(15.5)
192.8
1 The other reserve relates to shares issued as consideration for the acquisition of Early Learning Centre on 19 June 2007.
58 Mothercare plc Annual report and accounts 2012
Consolidated cash flow statement
For the 53 weeks ended 31 March 2012
Net cash flow from operating activities
Cash flows from investing activities
Interest received
Purchase of property, plant and equipment
Purchase of intangibles – software
Purchase of intangibles – other
Proceeds from sale of property, plant and equipment
Investments in joint ventures and associates
Net cash used in investing activities
Cash flows from financing activities
Interest paid
New bank loans raised
Equity dividends paid
Issue of ordinary share capital
Purchase of own shares
Net cash raised/(used) in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Net (debt)/cash and cash equivalents at end of period
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
5.6
27.1
Note
26
0.9
(21.7)
(3.2)
–
2.3
(5.7)
(27.4)
(1.3)
20.0
(11.9)
0.3
–
7.1
(14.7)
15.3
(0.7)
(0.1)
0.1
(16.6)
(5.2)
(3.1)
3.3
(10.5)
(32.0)
(0.6)
–
(15.5)
1.2
(1.4)
(16.3)
(21.2)
38.5
(2.0)
15.3
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Notes to the consolidated financial statements
1. General information
Mothercare plc is a company incorporated in Great
Britain under the Companies Act 2006. The address
of the registered office is given in the shareholder
information on page 105. The nature of the group’s
operations and its principal activities are set out in
note 5 and in the overview and business review on
pages 1 and 16 to 17.
These financial statements are presented in UK
pounds sterling because that is the currency of the
primary economic environment in which the
group operates.
2. Significant accounting policies
Basis of presentation
The group’s accounting period covers the 53 weeks
ended 31 March 2012. The comparative period covered
the 52 weeks ended 26 March 2011.
Basis of accounting
The group’s financial statements have been prepared
in accordance with International Financial Reporting
Standards (IFRS) adopted for use in the European
Union, International Financial Reporting
Interpretations Committee (IFRIC) and with those parts
of the Companies Act 2006 applicable to companies
reporting under IFRS. They therefore comply with
Article 4 of the EU IAS Regulation.
New standards affecting presentation
and disclosure
There are no new standards in the year affecting the
presentation and disclosure of the financial statements.
New standards affecting the reported results and
financial position
There are no new standards in the year affecting the
reported results and financial position.
New standards not affecting the reported results nor
the financial position
The following new and revised Standards and
Interpretations have been adopted in these financial
statements. Their adoption has not had any significant
impact on the amounts reported in these financial
statements, but may impact the accounting for future
transactions and arrangements:
IAS 24 (2009) ‘Related Party Disclosures’
Improvements to IFRSs 2010
Amendments to IFRIC 14 (Nov. 2009) ‘Prepayments
of a Minimum Funding Requirement’
IFRIC 19 ‘Extinguishing Financial Liabilities with
Equity Instruments’
New Standards in issue but not yet effective
At the date of authorisation of these financial
statements, the following standards and
interpretations, which have not been applied in
these financial statements, were in issue but not yet
effective (and in some cases had not yet been
adopted by the EU).
Amendments to IFRS 7 ‘Disclosures – Transfers of
Financial Assets’
Amendments to IFRS 7 ‘Disclosures – Offsetting
Financial Assets and Financial Liabilities’
IFRS 9 ‘Financial Instruments’
IFRS 10 ‘Consolidated Financial Statements’
IFRS 11 ‘Joint Arrangements’
IFRS 12 ‘Disclosure of interests in other entities’
IFRS 13 ‘Fair value measurement’
IAS 1 (Amended) ‘Presentation of items in Other
Comprehensive Income’
Amendments to IAS 12 ‘Deferred Tax: Recovery of
Underlying Assets’
IAS 19 (Revised) ‘Employee benefits’
IAS 27 (Revised) ‘Separate Financial Statements’
IAS 28 (Revised) ‘Investments in Associates and
Joint Ventures’
Amendments to IAS 32 ‘Offsetting Financial Assets
and Financial Liabilities’
Amendments to IAS 12 ‘Deferred Tax: Recovery of
Underlying Assets’
The directors anticipate that the adoption of these
standards and interpretations in future periods will
have no material impact on the group’s financial
statements when the relevant standards come into
effect, except as follows:
IAS 19 (revised) will impact the measurement of the
various components representing movements in the
defined benefit pension obligation and associated
disclosures, but not the group’s total obligation.
Following the adoption of IAS 19 (revised) effective
from periods starting after 1 January 2013 the net
retirement benefit obligation in the balance sheet will
not be impacted but the net finance cost of pensions
within the income statement will increase. This will
reduce profit for the year and accordingly increase
other comprehensive income.
The financial statements have been prepared on the
historical cost basis, except for the revaluation of
financial instruments, and on the going concern basis,
as described in the going concern statement in the
60 Mothercare plc Annual report and accounts 2012
corporate governance report on page 32.
The principal accounting policies are set out below.
Basis of consolidation
The consolidated financial statements incorporate
the financial statements of the Company and entities
controlled by the Company (its subsidiaries) made
up to 31 March 2012. Control is achieved where the
Company has the power to govern the financial and
operating policies of an investee entity so as to obtain
benefits from its activities.
The results of subsidiaries acquired or disposed of
during the financial year are included in the
consolidated income statement from the effective
date of acquisition or up to the effective date of
disposal, as appropriate.
Where necessary, adjustments are made to the
financial statements of subsidiaries to bring the
accounting policies used into line with those used
by the group.
All intra-group transactions, balances, income and
expenses are eliminated on consolidation.
Business combinations
The acquisition of subsidiaries is accounted for using
the purchase method. The cost of the acquisition is
measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred
or assumed and equity instruments issued by the
group in exchange. Acquisition related costs are
recognised in profit and loss as incurred. The
acquiree’s identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition
under IFRS 3 (2008) ’Business combinations’ are
recognised at their fair value at the acquisition date,
except for non-current assets (or disposal groups) that
are classified as held for sale in accordance with IFRS
5 ’Non-Current Assets Held for Sale and Discontinued
Operations’, which are recognised and measured at
fair value less costs to sell and deferred tax assets or
liabilities or assets related to employee benefit
arrangements are recognised and measured in
accordance with IAS 12 ‘Income taxes’ and IAS 19
‘Employee Benefits’ respectively.
Goodwill arising on acquisition is recognised as an
asset and initially measured at cost, being the excess
of the cost of the business combination over the
group’s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities recognised.
If, after reassessment, the group’s interest in the net fair
value of the acquiree’s identifiable assets, liabilities
and contingent liabilities exceeds the cost of the
business combination, the excess is recognised
immediately in the income statement.
Goodwill
Goodwill arising on consolidation represents the
excess of the cost of acquisition over the group’s
interest in the fair value of the identifiable assets and
liabilities of a subsidiary, associate or jointly controlled
entity at the date of acquisition.
Goodwill is initially recognised as an asset at cost
and is subsequently measured at cost less any
accumulated impairment losses. Goodwill which is
recognised as an asset is reviewed for impairment
at least annually. Any impairment is recognised
immediately in profit or loss and is not
subsequently reversed.
For the purposes of impairment testing, goodwill
is allocated to each of the group’s cash-generating
units expected to benefit from the synergies of the
combination. Cash-generating units to which goodwill
has been allocated are tested for impairment
annually, or more frequently when there is an
indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less
than the carrying amount of the unit, the impairment
loss is allocated first to reduce the carrying amount
of any goodwill allocated to the unit and then to the
other assets of the unit pro-rata on the basis of the
carrying amount of each asset in the unit.
An impairment loss recognised for goodwill is not
reversed in a subsequent period.
On disposal of a subsidiary, associate or jointly
controlled entity, the attributable amount of goodwill
is included in the determination of the profit or loss
on disposal.
Revenue recognition
Revenue is measured at the fair value of the
consideration received or receivable and represents
amounts receivable for goods and services provided
in the normal course of business, net of discounts,
VAT and other sales related taxes.
Sales of goods are recognised when goods are
delivered and title has passed. Sales to international
franchise partners are recognised when the significant
risks and rewards of ownership have transferred
which is on dispatch.
Royalty revenue is recognised on an accruals basis
in accordance with the substance of the relevant
agreement (provided that it is probable that the
economic benefits will flow to the group and the
amount of revenue can be measured reliably).
Royalty arrangements that are based on sales and
other measures are recognised by reference to the
underlying arrangement.
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Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
Interest income is accrued on a time basis, by
reference to the principal outstanding and at the
effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts
through the expected life of the financial asset to that
asset’s net carrying amount.
Profit from retail operations
Profit from retail operations represents the profit
generated from normal retail trading, prior to any
gains or losses on property transactions. It also
includes the volatility arising from accounting for
derivative financial instruments under IAS 39, ‘Financial
Instruments: Recognition and Measurement’, as the
group has not adopted hedge accounting.
Underlying earnings
The group believes that underlying profit before tax
and underlying earnings provides additional useful
information for shareholders. The term underlying
earnings is not a defined term under IFRS and may
not therefore be comparable with similarly titled profit
measurements reported by other companies. It is not
intended to be a substitute for IFRS measures of profit.
As the group has chosen to present an alternative
earnings per share measure, a reconciliation of this
alternative measure to the statutory measure required
by IFRS is given in note 11.
To meet the needs of shareholders and other external
users of the financial statements the presentation of
the income statement has been formatted to show
more clearly, through the use of columns, our
underlying business performance which provides
more useful information on underlying trends.
The adjustments made to reported results are
as follows:
Recognition and Measurement’. The effect of not
applying hedge accounting under IAS 39 means that
the reported results reflect the actual rate of
exchange ruling on the date of a transaction
regardless of the cash flow paid by the group at the
predetermined rate of exchange. In addition, any
gain or loss accruing on open contracts at a reporting
period end is recognised in the result for the period
(regardless of the actual outcome of the contract on
close-out). Whilst the impacts described above could
be highly volatile depending on movements in
exchange rates, this volatility will not be reflected in
the cash flows of the group, which will be based on
the hedged rate. In addition, foreign currency
monetary assets and liabilities are revalued to the
closing balance sheet rate under IAS 21 ‘The Effects of
Changes in Foreign Exchange Rates’. The adjustment
made by the group therefore is to report its underlying
performance consistently with the cash flows,
reflecting the hedging which is in place.
Amortisation of intangible assets
The balance sheet includes identifiable intangible
assets which arose on the acquisition of the Early
Learning Centre and Blooming Marvellous and are
amortised on a straight-line basis over their expected
economic lives. The average estimated useful life of the
assets is as follows:
Trade name
Customer relationships
– 10 to 20 years
– 5 to 10 years
The amortisation of these intangible assets does not
reflect the underlying performance of the business.
Unwinding of discount on exceptional provisions
Where property provisions are charged to
exceptional items, the associated unwinding of the
discount on these provisions is classified as
non-underlying.
Exceptional items
Due to their significance or one-off nature, certain
items have been classified as exceptional. The gains
and losses on these discrete items, such as profits/
losses on the disposal/termination of property
interests, impairment charges, restructuring costs and
other non-operating items can have a material
impact on the absolute amount of and trend in the
profit from operations and the result for the period.
Therefore any gains and losses on such items are
analysed as non-underlying on the face of the income
statement. Further details of the exceptional items are
provided in note 6.
Non-cash foreign currency adjustments
The group has taken the decision not to adopt hedge
accounting under IAS 39 ‘Financial Instruments:
Joint ventures and associates
Joint ventures and associates are accounted for using
the equity method whereby the interest in the joint
venture or associate is initially recorded at cost and
adjusted thereafter for the post acquisition change in
the group’s share of net assets less any impairment in
the value of individual investments. The profit or loss of
the group includes the group’s share of the profit or
loss of the joint ventures and associates.
Any excess of the cost of acquisition over the group’s
share of the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised at
the date of acquisition is recognised as goodwill.
The goodwill is included within the carrying amount
of the investment and is assessed for impairment as
part of that investment.
62 Mothercare plc Annual report and accounts 2012
Where a group entity transacts with an associate or
joint venture of the group, profits and losses are
eliminated to the extent of the group’s interest in the
relevant associate or joint venture.
Leasing
Leases are classified as finance leases whenever the
terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are
classified as operating leases.
The group as lessor
Rental income from operating leases is recognised
on a straight-line basis over the term of the relevant
lease. Initial direct costs incurred in negotiating and
arranging an operating lease are added to the
carrying amount of the leased asset and recognised
on a straight-line basis over the term of the leases.
The group as lessee
Assets held under finance leases are recognised as
assets of the group at their fair value or, if lower, at
the present value of the minimum lease payments,
each determined at the inception of the lease. The
corresponding liability to the lessor is included in the
balance sheet as a finance lease obligation. Lease
payments are apportioned between finance charges
and reduction of the lease obligation so as to achieve
a constant rate of interest on the remaining balance
of the liability. Finance charges are charged directly
against income, unless they are directly attributable
to qualifying assets, in which case they are capitalised.
Rentals payable under operating leases are charged
to income on a straight-line basis over the term of the
relevant lease.
Benefits received and receivable as an incentive to
enter into an operating lease are also spread on a
straight-line basis over the lease term.
Foreign currencies
The individual financial statements of each group
company are presented in the currency of the primary
economic environment in which it operates (its
functional currency). For the purpose of the
consolidated financial statements, the results and
financial position of each group company are
expressed in pounds sterling, which is the functional
currency of the Company, and the presentation
currency for the consolidated financial statements.
In preparing the financial statements of the individual
companies, transactions in currencies other than the
functional currency are recorded at the rates of
exchange prevailing on the dates of the transactions.
At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies
are retranslated at the rates prevailing on the balance
sheet date. Non-monetary assets and liabilities carried
at fair value that are denominated in foreign currencies
are translated at the rates prevailing at the date when
the fair value was determined. Non-monetary items that
are measured in terms of historical cost in a foreign
currency are not retranslated.
Exchange differences arising on the settlement of
monetary items, and on the retranslation of monetary
items, are included in the income statement. Exchange
differences arising on non-monetary items carried
at fair value are included in the profit or loss for
the period except for differences arising on the
retranslation of non-monetary items in respect of
which gains and losses are recognised directly in
equity. For such non-monetary items, any exchange
component of that gain or loss is also recognised
directly in equity.
In order to hedge its exposure to certain foreign
exchange risks, the group enters into forward
contracts (see below for details of the group’s
accounting policies in respect of such derivative
financial instruments).
For the purpose of presenting consolidated financial
statements, the assets and liabilities of the group’s
foreign operations are translated at exchange rates
prevailing on the balance sheet date. Income and
expense items are translated at the average
exchange rates for the period unless exchange
rates fluctuate significantly during that period, in
which case the exchange rates at the date of
transactions are used. Exchange differences arising,
if any, are classified within other comprehensive
income, accumulated in equity in the group’s
translation reserve. Such translation differences are
recognised as income or as expenses in the period
in which the operation is disposed of.
Retirement benefit costs
Payments to defined contribution retirement benefit
schemes are charged as an expense as they fall due.
For defined benefit schemes, the cost of providing
benefits is determined using the Projected Unit Credit
Method, with actuarial valuations being carried out at
each balance sheet date. Actuarial gains and losses
are recognised in full in the period in which they occur.
They are recognised outside of the income statement
and presented in other comprehensive income.
Past service cost is recognised immediately to the
extent that the benefits are already vested, and
otherwise is amortised on a straight-line basis over the
average period until the benefits become vested.
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Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
The retirement benefit obligation recognised in the
balance sheet represents the present value of the
defined benefit obligation as adjusted for
unrecognised past service cost, and as reduced by
the fair value of scheme assets. Any asset resulting
from this calculation is limited to past service cost,
plus the present value of available refunds and
reductions in future contributions to the scheme.
In consultation with the independent actuaries to
the schemes, the valuation of the retirement benefit
obligations has been updated to reflect current
market discount rates, and also considering whether
there have been any other events that would
significantly affect the pension liabilities. The impact
of these changes in assumptions and events has
been estimated in arriving at the valuation of the
retirement benefit obligations.
Taxation
The tax expense represents the sum of the tax
currently payable and deferred tax.
The tax currently payable is based on taxable profit
for the financial year. Taxable profit differs from net
profit as reported in the income statement because it
excludes items of income or expense that are taxable
or deductible in other financial years and it further
excludes items that are never taxable or deductible.
The group’s liability for current tax is calculated using
tax rates that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or
recoverable on differences between the carrying
amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted
for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are
recognised to the extent that it is probable that
taxable profits will be available against which
deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the
temporary difference arises from initial recognition
of goodwill or from the initial recognition (other than
in a business combination) of other assets and
liabilities in a transaction that affects neither the
tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable
temporary differences arising on investments in
subsidiaries and associates, and interests in joint
ventures, except where the group is able to control
the reversal of the temporary difference and it is
probable that the temporary difference will not
reverse in the foreseeable future.
64 Mothercare plc Annual report and accounts 2012
The carrying amount of deferred tax assets is
reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of
the asset to be recovered.
Deferred tax is calculated at the tax rates that are
expected to apply in the period when the liability is
settled or the asset is realised. Deferred tax is charged
or credited in the income statement, except when it
relates to items charged or credited directly to other
comprehensive income, in which case the deferred tax
is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when
there is a legally enforceable right to set off current
tax assets against current tax liabilities and when they
relate to income taxes levied by the same taxation
authority and the group intends to settle its current tax
assets and liabilities on a net basis.
Property, plant and equipment
Property, plant and equipment is carried at cost less
accumulated depreciation and any recognised
impairment losses.
Depreciation is charged so as to write off the cost or
valuation of assets, other than land and assets in
course of construction, over their estimated useful
lives, using the straight-line method, on the
following bases:
– 50 years
Freehold buildings
Fixed equipment in freehold buildings – 20 years
Leasehold improvements
Fixtures, fittings and equipment
– the lease term
– 3 to 20 years
The gain or loss arising on the disposal or retirement
of an asset is determined as the difference between
the sales proceeds and the carrying amount of the
asset and is recognised in income.
Intangible assets – software
Where computer software is not an integral part of a
related item of computer hardware, the software is
classified as an intangible asset. The capitalised costs
of software for internal use include external direct
costs of materials and services consumed in
developing or obtaining the software and payroll and
payroll-related costs for employees who are directly
associated with and who devote substantial time to
the project. Capitalisation of these costs ceases no
later than the point at which the software is
substantially complete and ready for its intended
internal use. These costs are amortised on a straight-
line basis over their expected useful lives, which is
normally five years.
Impairment of tangible and intangible assets
excluding goodwill
At each balance sheet date, the group reviews the
carrying amounts of its tangible and intangible assets
to determine whether there is any indication that those
assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the
impairment loss (if any). Where the asset does not
generate cash flows that are independent from other
assets, the group estimates the recoverable amount
of the cash-generating unit to which the asset belongs.
An intangible asset with an indefinite useful life is
tested for impairment at least annually and whenever
there is an indication that an asset may be impaired.
Recoverable amount is the higher of fair value less
costs to sell and value in use. In assessing value in use,
the estimated future cash flows are discounted to their
present value using a pre tax discount rate that
reflects current market assessments of the time value
of money and the risks specific to the asset for which
the estimates of future cash flows have not
been adjusted.
If the recoverable amount of an asset (or cash-
generating unit) is estimated to be less than its
carrying amount, the carrying amount of the asset (or
cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised as an
expense immediately.
Where an impairment loss subsequently reverses, the
carrying amount of the asset (or cash-generating unit)
is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount
does not exceed the carrying amount that would
have been determined had no impairment loss been
recognised for the asset (or cash-generating unit) in
prior years. A reversal of an impairment loss is
recognised as income immediately.
Inventories
Inventories are stated at the lower of cost and net
realisable value. Cost comprises direct materials and,
where applicable, direct labour costs and those
overheads that have been incurred in bringing the
inventories to their present location and condition.
Cost is calculated using the weighted average cost
formula. Net realisable value represents the estimated
selling price less all estimated costs of completion
and costs to be incurred in marketing, selling
and distribution.
Financial instruments
Financial assets and liabilities are recognised on the
group’s balance sheet when the group becomes a
party to the contractual provisions of the instrument.
Trade receivables
Trade receivables are measured at initial recognition
at fair value, and are subsequently measured at
amortised cost using the effective interest rate method.
Appropriate allowances for estimated irrecoverable
amounts are recognised in the income statement
when there is objective evidence that the asset is
impaired. The allowance recognised is measured as
the difference between the asset’s carrying amount
and the present value of estimated future cash flows
discounted at the effective interest rate computed at
initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand
and demand deposits, and other short term highly
liquid investments that are readily convertible to
a known amount of cash and are subject to an
insignificant risk of change in value.
Financial liabilities and equity
Financial liabilities and equity instruments are
classified according to the substance of the
contractual arrangements entered into. An equity
instrument is any contract that evidences a residual
interest in the assets of the group after deducting all
of its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are
initially measured at fair value, net of direct issue
costs. Finance charges, including premiums payable
on settlement or redemption and direct issue costs,
are accounted for on an accruals basis to the income
statement using the effective rate interest method and
are added to the carrying amount of the instrument
to the extent that they are not settled in the period in
which they arise.
Trade payables
Trade payables are initially measured at fair value,
and are subsequently measured at amortised cost,
using the effective interest rate method.
Equity instruments
Equity instruments issued by the Company are
recorded as the proceeds are received, net of direct
issue costs.
Derivative financial instruments
The group uses forward foreign currency contracts to
mitigate the transactional impact of foreign currencies
on the group’s performance. The group’s financial risk
management policy prohibits the use of derivative
financial instruments for speculative or trading
purposes and the group does not therefore hold
or issue any such instruments for such purposes.
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Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
Derivative financial instruments that are economic
hedges that do not meet the strict IAS 39 ‘Financial
Instruments: Recognition and Measurement’ hedge
accounting rules are accounted for as financial assets
or liabilities at fair value through profit or loss and
hedge accounting is not applied. Forward foreign
currency contracts are recognised initially at fair
value, which is updated at each balance sheet date.
Changes in the fair values are recognised in the
income statement.
Embedded derivatives
Derivatives embedded in other financial instruments
or other host contracts are treated as separate
derivatives when their risks and characteristics are not
closely related to those of the host contracts and the
host contracts are not measured at fair value through
profit or loss.
Market risk
The group is exposed to market risk, primarily related
to foreign exchange and interest rates. The group’s
objective is to reduce, where it deems appropriate
to do so, fluctuations in earnings and cash flows
associated with changes in interest rates, foreign
currency rates and of the currency exposure of certain
net investments in foreign subsidiaries. It is the group’s
policy and practice to use derivative financial
instruments to manage exposures of fluctuations on
exchange rates. The group only sells existing assets
or enters into transactions and future transactions
(in the case of anticipatory hedges) that it confidently
expects it will have in the future, based on past
experience. The group expects that any loss in value
for these instruments generally would be offset by
increases in the value of the underlying transactions.
Foreign exchange rate risk
Foreign exchange risk is the risk that the fair value of
future cash flows of a financial instrument will fluctuate
because of the changes in foreign exchange rates. The
group uses UK pounds sterling as its reporting currency.
As a result, the group is exposed to foreign exchange
rate risk on financial assets and liabilities that are
denominated in a currency other than UK sterling,
primarily in US dollars and Hong Kong dollars.
Consequently, it enters into various contracts that
reflect the changes in the value of foreign exchange
rates to preserve the value of assets, commitments
and anticipated transactions. The group also uses
forward contracts and options, primarily in US dollars.
Provisions
Provisions are recognised when the group has a
present obligation as a result of a past event, and
it is probable that the group will be required to settle
that obligation. Provisions are measured at the
directors’ best estimate of the expenditure required
to settle the obligation at the balance sheet date,
and are discounted to present value where the effect
is material.
Share-based payments
The group has applied the requirements of IFRS 2
‘Share-based Payments’.
The group issues cash-settled and equity-settled
share-based payments to certain employees.
Equity-settled share-based payments are measured
at fair value at the date of grant. The fair value
determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line
basis over the vesting period, based on the group’s
estimate of shares that will eventually vest and
adjusted for the effect of non market-based vesting
conditions, updated at each balance sheet date.
Fair value is measured by use of the valuation
technique considered to be most appropriate for
each class of award, including Black-Scholes
calculations and Monte Carlo simulations.
The expected life used in the formula is adjusted,
based on management’s best estimate, for the
effects of non-transferability, exercise restrictions
and behavioural considerations.
For cash-settled share-based payments, a liability
equal to the portion of the goods or services received
is recognised at the current fair value determined at
each balance sheet date, with any changes in fair
value recognised in profit or loss for the year.
The group also provides employees with the ability to
purchase the group’s ordinary shares at 80% of the
current market value within an approved Save As You
Earn scheme. The group records an expense based
on its estimate of the 20% discount related to shares
expected to vest on a straight-line basis over the
vesting period.
Onerous leases
Present obligations arising out of onerous contracts are
recognised and measured as provisions. An onerous
contract is considered to exist where the group has a
contract under which the unavoidable costs of meeting
the obligations under the contract exceed the
economic benefits expected to be received under it.
3. Critical accounting judgements and key sources of
estimation uncertainty
In the process of applying the group’s accounting
policies, which are described in note 2, management
has made the following judgements that have the
most significant effect on the amounts recognised in
the financial statements.
66 Mothercare plc Annual report and accounts 2012
The key assumptions concerning the future, and other
key sources of estimation uncertainty at the balance
sheet date that have a significant risk of causing a
material adjustment to the carrying amounts of assets
and liabilities within the next financial year, are
discussed below.
Retirement benefits
Retirement benefits are accounted for under IAS 19
‘Employee Benefits’. For defined benefit plans,
obligations are measured at discounted present
value whilst plan assets are recorded at fair value.
Because of changing market and economic
conditions, the expenses and liabilities actually arising
under the plans in the future may differ materially from
the estimates made on the basis of these actuarial
assumptions. The plan assets are partially comprised
of equity and fixed-income instruments. Therefore,
declining returns on equity markets and markets for
fixed-income instruments could necessitate additional
contributions to the plans in order to cover future
pension obligations. Also, higher or lower withdrawal
rates or longer or shorter life of participants may have
an impact on the amount of pension income or
expense recorded in the future.
The interest rate used to discount post-employment
benefit obligations to present value is derived from
the yields of senior, high-quality corporate bonds at
the balance sheet date. These generally include
AA-rated securities. The discount rate is based on the
yield of a portfolio of bonds whose weighted residual
maturities approximately correspond to the duration
necessary to cover the entire benefit obligation.
Pension and other post-retirement benefits are
inherently long term and future experience may differ
from the actuarial assumptions used to determine the
net charge for ‘pension and other post-retirement
charges’. Note 29 to the consolidated financial
statements describes the principal discount rate,
earnings increase and pension retirement benefit
obligation assumptions that have been used to
determine the pension and post-retirement charges in
accordance with IAS 19. The calculation of any charge
relating to retirement benefits is clearly dependent on
the assumptions used, which reflects the exercise of
judgement. The assumptions adopted are based on
prior experience, market conditions and the advice of
plan actuaries.
At 31 March 2012, the group’s pension liability was
£52.7 million (2011: £37.6 million). Further details of the
accounting policy on retirement benefits are provided
in note 2.
Impairment of stores’ property, plant and equipment
Stores’ property, plant and equipment (see note 16)
are reviewed for impairment on a periodic basis, and
whenever events or changes in circumstances indicate
that the related carrying amounts may not be
recoverable. Such circumstances or events could
include: a pattern of losses involving the fixed asset;
a decline in the market value for a particular store
asset; and an adverse change in the business or
market in which the store asset is involved.
Determining whether an impairment has occurred
typically requires various estimates and assumptions,
including determining what cash flow is directly
related to the potentially impaired asset, the useful life
over which cash flows will occur, their amount and the
asset’s residual value, if any. Estimates of future cash
flows and the selection of appropriate discount rates
relating to particular assets or groups of assets involve
the exercise of a significant amount of judgement.
Further details of the accounting policy on the
impairment of stores’ property, plant and equipment
are provided in note 2.
Impairment of goodwill
Determining whether goodwill is impaired requires an
estimation of the value in use of the cash-generating
units to which goodwill has been allocated. The value
in use calculation requires the group to estimate
future cash flows expected to arise from the cash-
generating unit a suitable long term growth rate and
a suitable discount rate in order to calculate present
value. The carrying amount of goodwill at the balance
sheet date was £26.8 million (2011: £68.6 million).
Property provisions
Descriptions of the provisions held at the balance
sheet date are given at note 24. These provisions
are estimates and the actual costs and timing of
future cash flows are dependent on future events.
Any differences between expectations and the actual
future liability are accounted for in the period when
such determination is made.
Onerous leases
Provisions has been made in respect of leasehold
properties for vacant, partly let and loss making
trading stores and costs relating to Early Learning
Centre’s supply chain warehouse, for the shorter of the
remaining period of the lease and the period until, in
the directors’ opinion, they will be able to exit the lease
commitment. The amount provided is based on the
future rental obligations together with other fixed
outgoings, net of any sub-lease income and in the
case of trading stores the expected future shortfall
in contribution to cover the fixed outgoings.
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Notes to the consolidated financial statements
continued
3. Critical accounting judgements and key sources of estimation uncertainty continued
In determining the provision, the cash flows have been discounted on a pre tax basis using a risk free rate of return. Significant
assumptions are used in making these calculations and changes in assumptions and future events could cause the value of
these provisions to change.
Allowances against the carrying value of inventory
The group reviews the market value of and demand for its inventories on a periodic basis to ensure that recorded inventory is
stated at the lower of cost and net realisable value. In assessing the ultimate realisation of inventories, the group is required to
make judgements as to future demand requirements and to compare these with current inventory levels. Factors that could
impact estimated demand and selling prices are timing and success of product ranges (see note 18).
Allowances against the carrying value of trade receivables
Using information available at the balance sheet date, the group reviews its trade receivable balances and makes
judgements based on an assessment of past experience, debt ageing and known customer circumstance in order to
determine the appropriate level of allowance required to account for potential irrecoverable trade receivables (see note 19).
4. Revenue
An analysis of the group’s revenue, all of which relates to continuing operations, is as follows:
Revenue
Interest revenue
Total revenue
53 weeks
ended
31 March
2012
£ million
812.7
0.9
813.6
52 weeks
ended
26 March
2011
£ million
793.6
0.1
793.7
5. Segmental information
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the group that
are regularly reported to the group’s board in order to allocate resources to the segments and assess their performance.
The group’s reporting segments under IFRS 8 are UK and International.
UK comprises the group’s UK store and wholesale operations, catalogue and online sales. The International business comprises
the group’s franchise and wholesale revenues outside the UK. The unallocated corporate expenses represent board and
company secretarial costs and other head office costs including audit, professional fees, insurance and head office property.
Revenue
External sales
Result
Segment result (underlying)
Share-based payments (underlying)
Non-cash foreign currency adjustments
Amortisation of intangible assets
Exceptional items
Loss from operations
Net finance costs
Loss before taxation
Taxation
Loss for the period
68 Mothercare plc Annual report and accounts 2012
53 weeks ended 31 March 2012
UK
£ million
International
£ million
Unallocated
corporate
expenses
£ million
Consolidated
£ million
560.0
252.7
–
812.7
(24.7)
34.9
(7.6)
2.6
(0.6)
2.0
(2.0)
(104.4)
(102.4)
(0.5)
(102.9)
11.1
(91.8)
Revenue
External sales
Result
Segment result (underlying)
Share-based payments
Non-cash foreign currency adjustments
Amortisation of intangible assets
Exceptional items
Profit from operations
Net finance costs
Profit before taxation
Taxation
Profit for the period
52 weeks ended 26 March 2011
UK
£ million
International
£ million
Unallocated
corporate
expenses
£ million
Consolidated
£ million
587.2
206.4
–
793.6
11.1
27.5
(7.5)
31.1
(2.2)
(13.8)
(2.3)
(3.4)
9.4
(0.6)
8.8
(2.3)
6.5
Revenues are attributed to countries on the basis of the customer’s location. The largest international customer represents
approximately 13.8% (2011: 9.9%) of group International sales.
Other information
Capital additions
Depreciation and amortisation
Balance sheet
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
53 weeks ended 31 March 2012
UK
£ million
International
£ million
Consolidated
£ million
20.1
17.8
5.9
5.0
203.1
115.8
176.0
13.7
26.0
22.8
318.9
19.5
338.4
189.7
76.0
265.7
In addition to the depreciation and amortisation reported above, impairment losses of £9.4 million, £41.8 million and
£13.2 million (2011: £nil) were recognised in respect of property, plant and equipment, goodwill and intangible assets
respectively. These impairment losses were attributable to the UK segment.
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Notes to the consolidated financial statements
continued
5. Segmental information continued
Other information
Capital additions
Depreciation and amortisation
Balance sheet
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
52 weeks ended 26 March 2011
UK
International
Consolidated
Restated*
£ million
Restated*
£ million
£ million
21.7
19.6
4.0
3.4
277.8
109.3
169.8
5.4
25.7
23.0
387.1
22.2
409.3
175.2
41.3
216.5
*Capital additions and depreciation and amortisation have been restated to separately identify those items that form part of the International segment.
Corporate assets not allocated to UK or International represent current tax assets/liabilities, deferred tax assets/liabilities,
cash at bank and in hand, currency derivative assets/liabilities and retirement benefit obligations.
6. Exceptional and other non-underlying items
Due to their significance or one-off nature, certain items have been classified as exceptional or non-underlying as follows:
Exceptional items:
Restructuring costs in cost of sales
Restructuring costs included in administrative expenses
Store property, plant and equipment impairment included in administrative expenses
Share-based payment credit included in administrative expenses
Onerous lease provision
(Loss)/profit on disposal/termination of property interests
Goodwill and intangible assets impairment (see note 15)
Impairment of investment in associate (see note 14)
Share of restructuring cost in associate
Total exceptional items:
Other non-underlying items:
Non-cash foreign currency adjustments under IAS 39 and IAS 211
Amortisation of intangibles1
Unwinding of discount on exceptional property provisions included in finance costs
Exceptional and other non-underlying items
1 Included in non-underlying cost of sales is a charge of £nil million (2011: charge of £16.1 million).
70 Mothercare plc Annual report and accounts 2012
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
(2.0)
(7.1)
(3.8)
0.8
(11.5)
(22.6)
(55.0)
(2.8)
(0.4)
(104.4)
2.0
(2.0)
(0.1)
(104.5)
–
(3.6)
–
–
–
0.2
–
–
–
(3.4)
(13.8)
(2.3)
(0.2)
(19.7)
Restructuring costs in cost of sales
During the 53 weeks ended 31 March 2012 the warehouse previously supplying the Early Learning Centre online business was
closed and the business transferred into the warehouse supporting the Mothercare online business. This rationalisation of
warehouses led to a one-off integration cost of £2.0 million (2011: £nil).
Restructuring costs in administration expenses
During the 53 weeks ended 31 March 2012 a charge of £7.1 million (2011: £3.6 million) was recognised relating to a substantial
head office restructuring and group reorganisation. Included within this expense are redundancy payments including some
senior executives, curtailment gain on the defined benefit pension scheme and professional and advisory fees in connection
with the new strategic plan.
Store property, plant and equipment impairment included in administration expenses
During the 53 weeks ended 31 March 2012 the group has made provision of £3.8 million (2011: £nil) for store impairment where
the carrying value of property plant and equipment is higher than the net realisable value and value in use.
Share-based payment credit included in administrative expenses
During the 53 weeks ended 31 March 2012 a credit of £0.8 million was recognised in respect of leavers from the executive
incentive share schemes.
Onerous lease provision
A provision of £11.5 million has been made for onerous leases relating to vacant, sublet and trading properties having taken
into consideration the results for the year, the Christmas trading activity and the continued pressure on the UK store portfolio.
Onerous lease provisions have been recognised where there is an expected shortfall in the store contribution to cover the
fixed rental obligations. A discount rate of 2.3% has been used in calculating the provision, being the risk free rate.
(Loss)/profit on disposal/termination of property interests
During the 53 weeks ended 31 March 2012 a net charge of £22.6 million (52 weeks ended 2011: a net credit of £0.2 million)
has been recognised in loss/profit from operations relating to losses on disposal/termination of property interests relating
to the store reduction programme announced in May 2011. In April 2012 the group announced further store closures and
these related costs will be provided for in the next financial year.
Goodwill and intangible assets impairment
The group has carried out a review to determine whether there is any indication that the goodwill and intangible assets have
suffered any impairment loss. It has been determined that the UK business does not generate sufficient cash flows to support
the value of the goodwill and intangible assets allocated to the UK segment and consequently an impairment loss of
£55.0 million has been charged.
Impairment of investment in associate
The group has carried out a review of its investment in associate and written the investment down to recoverable amount
at 31 March 2012 (£2.8 million charge).
Share of restructuring cost in associate
During the year the Australian associate undertook a significant integration and rebranding of three separate mother
and baby chains into a single cohesive Mothercare brand. Mothercare’s share of these costs of £0.4 million (2011: £nil) is
included and has been treated as exceptional.
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Notes to the consolidated financial statements
continued
7. (Loss)/profit from retail operations
(Loss)/profit from retail operations has been arrived at after charging/(crediting):
Net total foreign exchange (gains)/losses
Cost of inventories recognised as an expense
(Release)/write down of inventories to net realisable value
Depreciation of property, plant and equipment
Amortisation of intangible assets – software
Amortisation of intangible assets – other included in non-underlying cost of sales
Impairment of property, plant and equipment
Underlying loss on disposal of property, plant and equipment
Net rent of properties
Amortisation of lease incentives
Hire of plant and equipment
Staff costs (including directors):
Wages and salaries (including cash bonuses, excluding share-based payment charges)
Social security costs
Pension costs (see note 29)
Share-based payment (credit)/charges (see note 28)
Exceptional costs included in cost of sales (see note 6)
Exceptional costs included in administrative expenses (see note 6)
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
(5.2)
491.8
(0.5)
16.2
4.6
2.0
3.8
0.7
65.4
(5.2)
1.9
85.8
5.3
2.5
(0.2)
2.0
7.1
7.4
433.5
1.0
16.6
4.1
2.3
–
–
68.2
(5.9)
1.9
87.9
5.5
4.1
2.2
16.1
3.6
An analysis of the average monthly number of full and part-time employees throughout the group, including executive
directors, is as follows:
Number of employees comprising:
UK stores
Head office
Overseas
Total
Full time equivalents
53 weeks
ended
31 March
2012
number
52 weeks
ended
26 March
2011
number
5,890
779
274
6,943
6,390
772
278
7,440
4,350
4,650
Details of directors’ emoluments, share options and beneficial interests are provided within the remuneration report on
pages 42 to 49.
For the 53 weeks ended 31 March 2012, profit from retail operations is stated after a non-underlying net credit of £2.0 million
(2011: £13.8 million charge) to cost of sales as a result of non-cash foreign currency adjustments under IAS 39 and IAS 21.
72 Mothercare plc Annual report and accounts 2012
The analysis of auditor’s remuneration is as follows:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor for other services to the group:
The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Corporate finance services
Tax advisory services
Other services
Total non-audit fees
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
0.1
0.2
0.3
–
–
0.2
0.2
0.1
0.2
0.3
0.2
0.1
–
0.3
The nature of tax services comprises corporation tax advice and compliance services.
The corporate finance fees were in connection with investments and potential investments. Other services of £0.2 million
include fees in connection with restructuring and the review of the group’s interim statement.
Fees payable to Deloitte LLP and their associates for non-audit services to the Company are not required to be disclosed
because the consolidated financial statements are required to disclose such fees on a consolidated basis.
The policy for the approval of non-audit fees, together with an explanation of the services provided, is set out on page 37,
in the corporate governance report.
8. Net finance costs
Interest receivable
Interest and bank fees on bank loans and overdrafts
Unwinding of discounts on provisions1
Net finance costs
1 Non-underlying charge of £0.1 million (2011: £0.2 million) of unwinding of discount on exceptional provisions (see note 6).
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
(0.9)
1.3
0.1
0.5
(0.1)
0.5
0.2
0.6
Mothercare plc Annual report and accounts 2012 73
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Notes to the consolidated financial statements
continued
9. Taxation
The (credit)/charge for taxation on (loss)/profit for the period comprises:
Current tax:
Current year
Adjustment in respect of prior periods
Deferred tax: (see note 17)
Current year
Change in tax rate in respect of prior periods
Adjustment in respect of prior periods
(Credit)/charge for taxation on (loss)/profit for the period
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
(2.1)
(2.4)
(4.5)
(6.5)
(0.5)
0.4
(6.6)
(11.1)
8.1
(0.8)
7.3
(5.0)
0.6
(0.6)
(5.0)
2.3
UK corporation tax is calculated at 26% (2011: 28%) of the estimated assessable (loss)/profit for the period. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The (credit)/charge for the period can be reconciled to the (loss)/profit for the period before taxation per the consolidated
income statement as follows:
(Loss)/profit for the period before taxation
(Loss)/profit for the period before taxation multiplied by the standard rate of corporation tax in the
UK of 26% (2011: 28%)
Effects of:
Expenses not deductible for tax purposes
Change in tax rate
Impact of overseas tax rates
Utilisation of tax losses not previously recognised against capital gains
Adjustment in respect of prior periods
Impact of write-off of prior year deferred tax asset
(Credit)/charge for taxation on (loss)/profit for the period
53 weeks
ended
31 March
2012
£ million
(102.9)
(26.7)
15.4
0.2
(0.2)
0.3
(2.0)
1.9
(11.1)
52 weeks
ended
26 March
2011
£ million
8.8
2.5
1.0
1.0
(0.7)
(0.1)
(1.4)
–
2.3
In addition to the amount credited to the income statement, deferred tax relating to retirement benefit obligations amounting
to £4.1 million has been credited directly to other comprehensive income (2011: £4.3 million charge).
74 Mothercare plc Annual report and accounts 2012
10. Dividends
Amounts recognised as distributions to equity holders in the period
Final dividend for the prior period
Interim dividend for the current period
53 weeks ended
31 March 2012
52 weeks ended
26 March 2011
pence per
share
£ million
pence per
share
£ million
11.9p
2.0p
11.3p
6.4p
10.1
1.8
11.9
9.9
5.6
15.5
In line with the announcement made with the trading statement on 12 April 2012, the Company will not pay any dividend until
the ‘Transformation and Growth’ plan is delivering benefits and accordingly no final dividend has been declared for the
53 weeks ended 31 March 2012.
11. Earnings per share
Weighted average number of shares in issue
Dilution – option schemes (for underlying results only)
Diluted weighted average number of shares in issue
Earnings for basic and diluted earnings per share
Exceptional and other non-underlying items (note 6)
Tax effect of above items
Underlying earnings
Basic earnings per share
Basic underlying earnings per share
Diluted earnings per share
Diluted underlying earnings per share
53 weeks
ended
31 March
2012
million
52 weeks
ended
26 March
2011
million
87.2
1.7
88.9
85.8
1.8
87.6
£ million
£ million
(91.8)
104.5
(11.1)
1.6
6.5
19.7
(5.0)
21.2
pence
pence
(105.2)
1.8
(105.2)
1.8
7.6
24.7
7.4
24.2
12. Subsidiaries
A list of the group’s significant investments in subsidiaries, all of which are wholly owned, including the name and country
of incorporation is given in note 3 to the Company financial statements. All subsidiaries are included in the consolidation.
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Notes to the consolidated financial statements
continued
13. Investments in joint ventures
Investments at start of period
Additions
Share of loss
Investments at end of period
Summary aggregate financial results and position of joint ventures:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total joint venture revenue
Total loss for the period
* The prior year has been restated to separately analyse joint ventures and associates (see note 14).
Details of the joint ventures are as follows:
Mothercare-Goodbaby China Retail Limited
Rhea Retail Private Limited
Juno Retail Private Limited
Wadicare Limited
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
Restated*
£ million
3.2
4.5
(0.9)
6.8
14.9
4.8
19.7
(8.2)
–
(8.2)
25.5
(3.1)
1.7
2.4
(0.9)
3.2
11.7
5.4
17.1
(9.0)
(0.9)
(9.9)
9.2
(3.1)
Place of
incorporation
Hong Kong
India
India
Cyprus
Proportion
of
ownership
interest %
Proportion
of voting
power held
%
30
30
30
30
50
30
30
30
On 1 November 2011, the group acquired a 30% share of the share capital of Wadicare Limited, a company registered in
Cyprus for £2 million plus associated acquisition costs. This company has purchased the shares of MB Group Limited Ukraine
which trades through the former Mothercare and Early Learning Centre franchises in Ukraine.
During the year the group made additional investments in Mothercare-Goodbaby China Retail Limited of (£1.3 million),
Rhea Retail Private Limited (£0.5 million) and Juno Retail Private Limited (£0.4 million).
76 Mothercare plc Annual report and accounts 2012
14. Investments in associate
Investment at start of period
Additions
Share of loss
Impairment
Investment at end of period
Summary financial results and position of associates:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total revenue for the period1
Total loss for the period1
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
Restated*
£ million
7.2
1.5
(2.7)
(2.8)
3.2
17.9
15.6
33.5
(17.7)
(3.4)
(21.1)
51.1
(11.3)
–
8.1
(0.9)
–
7.2
21.0
13.5
34.5
(13.8)
(1.3)
(15.1)
18.7
(3.6)
* The prior year has been restated to separately analyse joint ventures and associates.
1 The period shown above relates to the 12 months ended 31 December 2011 (comparative is the six months post acquisition to 31 December 2010).
Details of the associate is as follows:
Mothercare Australia Limited
Place of
incorporation
Proportion
of
ownership
interest
%
Proportion
of voting
power held
%
Australia
23.0
23.0
At 31 March 2012 the group undertook an impairment review of the investment carrying value. A discounted cash flow forecast
was used based on two years of forecasts extended out a further two years using planned growth rates. A pre tax discount
rate of 9.83% was used. The impairment review indicated that the cost of investment was worth more than the recoverable
amount at 31 March 2012 and therefore the group has made an impairment provision of £2.8 million. The reporting date of
Mothercare Australia Limited is 30 June 2012. The group has equity accounted for Mothercare Australia Limited for 12 months
ended 31 December 2011 as the data for the final three months to 31 March 2012 has not been made available yet and is price
sensitive as Mothercare Australia Limited is a public company.
Mothercare plc Annual report and accounts 2012 77
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Notes to the consolidated financial statements
continued
15. Goodwill and intangible assets
Cost
As at 27 March 2010
Additions
Exchange differences
As at 27 March 2011
Additions
Exchange differences
As at 31 March 2012
Amortisation and impairment losses
As at 27 March 2010
Amortisation
As at 27 March 2011
Impairment losses
Amortisation
As at 31 March 2012
Net book value
As at 27 March 2010
As at 26 March 2011
As at 31 March 2012
Goodwill
£ million
Trade
name
£ million
Customer
relationships
£ million
Software
£ million
Total
£ million
Intangible assets
68.6
–
–
68.6
–
–
68.6
–
–
–
41.8
–
41.8
68.6
68.6
26.8
25.2
3.1
0.3
28.6
–
0.2
28.8
3.5
1.5
5.0
12.0
1.3
18.3
21.7
23.6
10.5
5.7
–
–
5.7
–
–
5.7
2.3
0.8
3.1
1.2
0.7
5.0
3.4
2.6
0.7
21.2
5.2
–
26.4
3.2
–
29.6
10.0
4.1
14.1
–
4.6
18.7
11.2
12.3
10.9
52.1
8.3
0.3
60.7
3.2
0.2
64.1
15.8
6.4
22.2
13.2
6.6
42.0
36.3
38.5
22.1
Goodwill, trade name and customer relationships relate to the acquisition of the Early Learning Centre on 19 June 2007,
Gurgle Limited on 8 September 2009 and Blooming Marvellous on 7 July 2010. Trade name and customer relationships
are amortised over a useful life of 10-20 and 5-10 years respectively.
Impairment of goodwill
The group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.
Goodwill acquired through the business combination has been allocated to the two groups of cash-generating units (CGUs)
that are expected to benefit from that business combination, being UK (£nil, 2011: £41.8 million) and International (£26.8 million,
2011: £26.8 million), which are also reporting segments. These represent the lowest level within the group at which goodwill is
monitored for internal management purposes.
The recoverable amounts of the CGUs are determined from value in use calculations with a discounted cash flow model
being used to calculate this amount. The key assumptions for the value in use calculation are those regarding the discount
rates, growth rates and expected changes to selling prices. Management has used a pre tax discount rate of 9.83%
(2011: 10.4%) which reflects the time value of money and risks related to the CGUs. The cash flow projections are based on
financial budgets and forecasts approved by the board covering a three-year period. Cash flows beyond the three-year
period assume a 2% growth rate (2011: 2%), which does not exceed the long term growth rate for the market in which the
group operates. The value in use calculations use this growth rate to perpetuity.
The group has conducted sensitivity analysis on the impairment test of the International CGU. With reasonable possible
changes in key assumptions, there is no indication that the carrying amount of goodwill would be reduced to a lower amount.
At 26 March 2011 goodwill of £41.8 million was allocated to the UK business segment and £26.8 million to the International
business. The UK segment has experienced a fall in demand during the year. The group has therefore revised its cash flow
forecast for the UK business segment and goodwill and intangibles has seen a reduction to its recoverable amount through
recognition of an impairment loss against goodwill (£41.8 million), trade name (£12.0 million) and customer relationships
(£1.2 million).
78 Mothercare plc Annual report and accounts 2012
Forecasts show that, in overall terms, the goodwill and intangibles acquired with the Early Learning Centre has significantly
more value than that recorded in the books as the group has more than doubled the number of stores within International and
the UK segments combined since acquisition. However at the time of acquisition Early Learning Centre was predominantly a
UK business, resulting in the majority of goodwill being allocated to the UK. Whilst the International business for Early Learning
Centre has subsequently grown very rapidly it is not possible to offset the surplus in International goodwill against the deficit in
UK goodwill.
Software
Software additions include £1.5 million (2011: £1.6 million) of internally generated intangible assets.
At 31 March 2012, the group had entered into contractual commitments for the acquisition of software amounting to
£0.3 million (2011: £0.3 million).
16. Property, plant and equipment
Cost
As at 27 March 2010
Transfers
Additions
Exchange differences
Disposals
As at 27 March 2011
Transfers
Additions
Exchange differences
Disposals
As at 31 March 2012
Accumulated depreciation and impairment
As at 27 March 2010
Charge for period
Exchange differences
Disposals
As at 27 March 2011
Charge for period
Impairment
Exchange differences
Disposals
As at 31 March 2012
Net book value
As at 27 March 2010
As at 26 March 2011
As at 31 March 2012
Properties including
fixed equipment
Freehold
£ million
Leasehold
£ million
Fixtures,
fittings,
equipment
£ million
Assets in
course of
construction
£ million
Total
£ million
14.7
–
–
–
(2.7)
12.0
(0.6)
–
–
(1.2)
10.2
2.6
0.1
–
(0.1)
2.6
0.1
0.1
–
(0.2)
2.6
12.1
9.4
7.6
113.0
–
7.0
–
(2.4)
117.6
0.6
5.3
–
(1.8)
121.7
82.5
5.8
–
(2.0)
86.3
4.8
4.0
–
(1.3)
93.8
30.5
31.3
27.9
199.8
1.7
8.0
(0.1)
(4.8)
204.6
2.4
6.7
(0.1)
(3.9)
209.7
150.2
10.7
(0.1)
(4.2)
156.6
11.3
5.3
(0.1)
(3.4)
169.7
49.6
48.0
40.0
1.7
(1.7)
2.4
–
–
2.4
(2.4)
10.8
–
–
10.8
–
–
–
–
–
–
–
–
–
–
1.7
2.4
10.8
329.2
–
17.4
(0.1)
(9.9)
336.6
–
22.8
(0.1)
(6.9)
352.4
235.3
16.6
(0.1)
(6.3)
245.5
16.2
9.4
(0.1)
(4.9)
266.1
93.9
91.1
86.3
The net book value of leasehold properties includes £27.5 million (2011: £31.1 million) in respect of short leasehold properties.
£3.8 million of the impairment on property, plant and equipment has been included within non-underlying administration
expenses and the remaining £5.6 million is included within loss on disposal/termination of property interests.
Mothercare plc Annual report and accounts 2012 79
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Notes to the consolidated financial statements
continued
16. Property, plant and equipment continued
At 31 March 2012, the group had entered into contractual commitments for the acquisition of property, plant and equipment
amounting to £3.6 million (2011: £5.0 million).
Freehold land and buildings with a carrying amount of £7.6 million (2011: £9.4 million) have been pledged to secure the group’s
borrowing facility (see note 21). The group is not allowed to pledge these assets as security for other borrowings.
17. Deferred tax assets and liabilities
The following are the major deferred tax assets and liabilities recognised by the group and movements thereon in the current
and prior reporting period:
Accelerated
tax
depreciation
£ million
Short term
timing
differences
£ million
Retirement
benefit
obligations
£ million
Share-
based
payments
£ million
Intangible
assets
£ million
Losses
£ million
Total
£ million
At 27 March 2010
(Charge)/credit to income
Transfer to current tax
Charge to other comprehensive income
At 27 March 2011
Credit/(charge) to income
Charge to other comprehensive income
At 31 March 2012
(4.0)
1.9
–
–
(2.1)
0.5
–
(1.6)
1.6
3.5
(1.7)
–
3.4
4.5
–
7.9
15.4
(1.4)
–
(4.3)
9.7
(1.2)
4.1
12.6
1.8
0.1
–
–
1.9
(1.9)
–
–
(6.9)
0.9
–
–
(6.0)
4.0
–
(2.0)
–
–
–
–
–
0.7
–
0.7
7.9
5.0
(1.7)
(4.3)
6.9
6.6
4.1
17.6
Certain deferred tax assets and liabilities have been offset where the group has a legally enforceable right to do so.
The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
31 March
2012
£ million
26 March
2011
£ million
23.4
(5.8)
17.6
18.4
(11.5)
6.9
At the balance sheet date the group has unused tax losses of £2.8 million (2011: £nil) available for offset against future profits.
A deferred tax asset has been recognised of £0.7 million in respect of £2.8 million (2011: £nil) of such losses. There are no
unrecognised tax losses.
At the reporting date, deferred tax liabilities of £0.8 million (2011 : £0.4 million) relating to withholding taxes have not been
provided in respect of the aggregate amount of unremitted earnings of £5.9 million (2011 : £3.4 million) in respect of
subsidiaries. No liability has been recognised because the group, being in a position to control the timing of the distribution of
intra group dividends, has no intention to distribute intra group dividends in the foreseeable future that would trigger
withholding tax. There are no unremitted earnings in connection with interests in associates and joint ventures.
At 31 March 2012, the group has unused capital losses of £662.5 million (2011: £665.2 million) available for offset against future
capital gains. No asset has been recognised in respect of the capital losses as it is not considered probable that there will
be future taxable capital gains. The capital losses may be carried forward indefinitely.
80 Mothercare plc Annual report and accounts 2012
18. Inventories
Underlying
Allowance against carrying value of inventories
Finished goods and goods for resale
31 March
2012
£ million
26 March
2011
£ million
104.0
(4.9)
99.1
121.4
(5.4)
116.0
The amount of write down of inventories to net realisable value recognised as net income in the period is £0.5 million
(2011: cost of £1.0 million).
19. Trade and other receivables
Trade receivables gross
Allowance for doubtful debts
Trade receivables net
Prepayments and accrued income
Other receivables
Trade and other receivables due within one year
Trade and other receivables due after more than one year
The following summarises the movement in the allowance for doubtful debts:
Balance at beginning of period
(Charged)/released in the period
Balance at end of period
31 March
2012
£ million
26 March
2011
£ million
48.8
(1.6)
47.2
19.0
7.1
73.3
52.4
(1.4)
51.0
8.0
3.5
62.5
31 March
2012
£ million
26 March
2011
£ million
1.4
–
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
(1.4)
(0.2)
(1.6)
(1.7)
0.3
(1.4)
The group’s exposure to credit risk inherent in its trade receivables is discussed in note 22. The group has no significant
concentration of credit risk. The group operates effective credit control procedures in order to minimise exposure to overdue
debts and where possible also carries insurance against the cost of bad debts. The insurance counterparties involved in
transactions are limited to high quality financial institutions. Before accepting any new credit customer, the group obtains
a credit check from an external agency to assess the credit quality of the potential customer and then sets credit limits on
a customer by customer basis.
The historical level of customer default is minimal and as a result the ‘credit quality’ of year end trade receivables is
considered to be high.
Mothercare plc Annual report and accounts 2012 81
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Notes to the consolidated financial statements
continued
19. Trade and other receivables continued
The ageing of the group’s current trade receivables is as follows:
Trade receivables gross
Allowance for doubtful debts
Trade receivables net
Of which trade receivables gross comprise:
Amounts neither impaired nor past due on the reporting date
Amounts past due:
Less than one month
Between one and three months
Between three and six months
Greater than six months
Allowance for doubtful debts:
Amounts neither impaired nor past due on the reporting date
Less than one month
Between one and three months
Between three and six months
Greater than six months
Trade accounts receivable net carrying amount
31 March
2012
£ million
26 March
2011
£ million
50.2
(1.6)
48.6
52.4
(1.4)
51.0
44.1
45.5
1.3
2.2
1.2
1.4
(0.3)
–
–
(0.3)
(1.0)
48.6
2.4
1.7
1.6
1.2
(0.3)
–
–
(0.8)
(0.3)
51.0
Provisions for doubtful trade accounts receivable are established based upon the difference between the receivable value
and the estimated net collectible amount. The group establishes its provision for doubtful trade accounts receivable based
on its historical loss experiences and an analysis of the counterparty’s current financial position.
The average credit period taken on sales of goods is disclosed in note 22. No interest is charged on trade receivables,
however, the right to charge interest on outstanding balances is retained.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
20. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the group and short term bank deposits with an original maturity of three
months or less. The carrying amount of these assets approximates their fair value.
21. Borrowing facilities
The group had outstanding borrowings at 31 March 2012 of £21.9 million (2011: £nil).
Overdraft
The group has an unsecured overdraft facility of £10.0 million which bears interest at 1.0% above bank base rates. £1.9 million
of this facility (net of cash in transit) was drawn down at 31 March 2012.
Committed borrowing facilities
The group also had £80 million of committed secured borrowing facilities available at 31 March 2012 with an average interest
rate of 1.43% above LIBOR in respect of which all conditions precedent have been met. The final maturity date of this facility
was 31 October 2013. £20 million of this facility was drawn down at 31 March 2012.
82 Mothercare plc Annual report and accounts 2012
The group has subsequently agreed a refinancing of its banking facilities as of 11 April 2012 with its two existing banks,
increasing the level of committed facilities from £80 million to £90 million and extending the term to 31 May 2015 at an interest
rate range of 3.5 to 4% above LIBOR. These facilities further strengthen the group’s financial position and provide additional
liquidity and covenant headroom to accommodate the new three-year strategy. Further information is included within the
corporate governance statement.
Borrowings:
Unsecured borrowings at amortised cost:
Bank overdrafts (net of cash in transit)
Secured borrowings at amortised cost:
Committed facility
Total borrowings
Amount due for settlement within one year
Amount due for settlement after one year
Total borrowings
Weighted average interest rate paid
31 March
2012
£ million
26 March
2011
£ million
(1.9)
(20.0)
(21.9)
(1.9)
(20.0)
(21.9)
2.24
–
–
–
–
–
–
2.16
22. Risks arising from financial instruments
A. Terms, conditions and risk management policies
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 foreign 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. The group’s financial risk management
policy is described in note 2.
The following table provides an overview of the notional value of derivative financial instruments outstanding at year end by
maturity profile:
Foreign currency forward exchange contracts:
Not later than one year
After one year but not more than five years
Foreign currency option contracts:
Not later than one year
31 March
2012
£ million
26 March
2011
£ million
110.7
9.5
120.2
–
–
139.2
–
139.2
6.1
6.1
The group manages its capital to ensure that entities in the group will be able to continue as going concerns while maximising
the returns to stakeholders through the optimisation of the debt and equity balance. The capital structure of the group consists
of net debt, which includes borrowings disclosed in note 21 after deducting cash and cash equivalents and equity attributable
to equity holders of the parent comprising issued capital, reserves and retained earnings as disclosed in the statement of
changes in equity.
Mothercare plc Annual report and accounts 2012 83
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Notes to the consolidated financial statements
continued
22. Risks arising from financial instruments continued
B. Foreign currency risk management
The group incurs foreign currency risk on sales and purchases whenever they are denominated in a currency other than the
functional currency. This risk is managed through holding derivative financial instruments.
The group uses forward foreign currency contracts to reduce its cash flow exposure to exchange rate movements, primarily on
the US dollar. The group has not hedge accounted for its forward foreign currency contracts under the requirements of IAS 39.
Therefore, derivative financial instruments have been recognised as assets and liabilities measured at their fair values at the
balance sheet date and changes in their fair values have been recognised in the income statement. These arrangements are
designed to address significant foreign exchange exposures on forecast future purchases of goods for the following year and
are renewed on a revolving basis as required.
Derivatives embedded in non-derivative host contracts have been recognised separately as derivative financial instruments
when their risks and characteristics are not closely related to those of the host contract and the host contract is not stated at
its fair value with changes in its fair value recognised in the income statement.
International sales represent 31% (2011: 26%) of group sales. Of these sales, 23% (2011: 19%) were invoiced in foreign currency.
The group purchases product in foreign currencies, representing approximately 46% (2011: 42%) of total purchases.
The carrying amount of the group’s foreign currency denominated monetary assets and monetary liabilities at the reporting
date is as follows:
US dollar
Euro
Hong Kong dollar
Indian rupee
Chinese renminbi
Singapore dollar
31 March
2012
£ million
Liabilities
26 March
2011
£ million
31 March
2012
£ million
Assets
26 March
2011
£ million
(5.0)
(0.2)
(2.0)
(0.2)
(0.6)
–
(8.0)
(6.5)
(0.3)
(3.0)
(0.3)
(0.3)
–
(10.4)
14.4
2.4
0.4
1.2
0.2
0.1
18.7
5.8
2.1
0.4
1.5
0.1
0.4
10.3
The total amounts of outstanding forward foreign currency contracts to which the group has committed is as follows:
At notional value
At fair value
31 March
2012
£ million
26 March
2011
£ million
120.2
(1.2)
139.2
(2.7)
At 31 March 2012, the average hedged rate for outstanding forward foreign currency contracts is 1.58 for US dollars. There
were no forward contracts in place for any other currencies at the year end. These contracts mature between April 2012 and
May 2013. The fair value of foreign currency forward contracts is measured using quoted foreign exchange rates and yield
curves from quoted rates matching the maturities of the contracts, and they therefore are categorised within level 2 of the fair
value hierarchy set out in IFRS 7.
The fair value of embedded derivatives is a liability of £0.1 million (2011: £nil million).
84 Mothercare plc Annual report and accounts 2012
Currency sensitivity analysis
The group’s foreign currency financial assets and liabilities are denominated mainly in US dollars. The following table details
the impact of a 10% increase in the value of pounds sterling against the US dollar. A negative number indicates a net
decrease in the carrying value of assets and liabilities and a corresponding loss in non-underlying profit where pounds
sterling strengthens against the US dollar.
US dollar impact
31 March
2012
£ million
26 March
2011
£ million
(9.9)
(12.5)
C. Credit risk
Credit risk is the risk that a counterparty may default on their obligation to the group in relation to lending, hedging,
settlement and other financial activities. The group’s credit risk is primarily attributable to its trade receivables. The group
has a credit policy in place and the exposure to counterparty credit risk is monitored. The group mitigates its exposure to
counterparty credit risk through minimum counterparty credit guidelines, diversification of counterparties, working within
agreed counterparty limits and trade insurance and bank guarantees where appropriate.
The carrying amount of the financial assets represents the maximum credit exposure of the group. The carrying amount is
presented net of impairment losses recognised. The maximum exposure to credit risk comprises trade receivables as shown
in note 19 and cash and cash equivalents of £1.8 million.
The average credit period on trade receivables was 21 days (2011: 23 days) based on total group revenue. The average credit
period on International trade receivables was 67 days (2011: 82 days).
D. Liquidity risk
Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity
risk management framework for the management of the group’s short, medium and long term funding and liquidity
management requirements. The group manages liquidity risk by maintaining adequate reserves, banking facilities and
reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles
of financial assets and liabilities. Included in note 21 is a description of additional undrawn facilities that the group has at its
disposal to further reduce liquidity risk.
E. Interest rate risk
The principal interest rate risk of the group arises in respect of its sterling borrowings. The group’s borrowing facilities at 1.43%
over LIBOR expose the group to cash flow interest rate risk. The interest exposure is monitored by management but due to
low interest rate levels during the period no interest rate hedging has been undertaken.
Going forward under the new banking arrangements the group intends to use derivative contracts to manage its interest
rate risk.
Mothercare plc Annual report and accounts 2012 85
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Notes to the consolidated financial statements
continued
23. Trade and other payables
Current liabilities
Trade payables
Payroll and other taxes including social security
Accruals and deferred income
VAT payable
Lease incentives
Non-current liabilities
Lease incentives
31 March
2012
£ million
26 March
2011
£ million
71.0
2.3
43.7
2.0
4.8
123.8
77.5
2.0
42.6
4.0
4.0
130.1
29.0
32.3
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.
The average credit period taken for trade purchases is 53 days (2011: 62 days). The group has financial risk management
policies in place to ensure that all payables are paid within the credit timeframe.
The directors consider that the carrying amount of trade payables approximates to their fair value.
31 March
2012
£ million
26 March
2011
£ million
24.1
0.4
24.5
12.0
0.4
12.4
36.1
0.8
36.9
5.2
0.4
5.6
6.8
0.4
7.2
12.0
0.8
12.8
24. Provisions
Current liabilities
Property provisions
Other provisions
Short term provisions
Non-current liabilities
Property provisions
Other provisions
Long term provisions
Property provisions
Other provisions
Total provisions
86 Mothercare plc Annual report and accounts 2012
The movement on total provisions is as follows:
Balance at 27 March 2011
Utilised in period
Charged in period
Released in period
Unwinding of discount
Balance at 31 March 2012
Property
provisions
£ million
Other
provisions
£ million
Total
provisions
£ million
12.0
(8.7)
34.0
(1.3)
0.1
36.1
0.8
(0.4)
0.4
–
–
0.8
12.8
(9.1)
34.4
(1.3)
0.1
36.9
Property provisions principally represent the costs of store disposals or closures relating to the optimisation of the UK portfolio
which involves the closure of Mothercare and Early Learning Centre stores and provisions for onerous lease costs. Provisions
for onerous leases have been made for vacant, partly let and trading stores for the shorter of the remaining period of the
lease and the period until, the group will be able to exit the lease commitment. For trading stores the amount provided is
based on the shortfall in contribution required to cover future rental obligations together with other fixed outgoings.
The majority of this provision is expected to be utilised over the next three financial years.
Other provisions principally represent provisions for uninsured losses, hence the timing of the utilisation of these provisions
is uncertain.
25. Share capital
Issued and fully paid
Ordinary shares of 50 pence each:
Balance at beginning of period
Issued under the Mothercare 2000 Executive Share Option Plan
Issued under the Mothercare Sharesave Scheme
Balance at end of period
53 weeks
ended
31 March
2012
Number of
shares
52 weeks
ended
26 March
2011
Number of
shares
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
88,540,219
–
96,543
88,116,381
71,394
352,444
88,636,762
88,540,219
44.3
–
–
44.3
44.1
–
0.2
44.3
Further details of employee and executive share schemes are given in note 28.
The own shares reserve of £2.1 million (2011: £9.0 million) represents the cost of shares in Mothercare plc purchased in the
market and held by the Mothercare employee trusts to satisfy options under the group’s share option schemes (see note 28).
The total shareholding is 443,545 (2011: 2,461,230) with a market value at 31 March 2012 of £0.7 million (2011: £11.7 million).
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Notes to the consolidated financial statements
continued
26. Reconciliation of cash flow from operating activities
(Loss)/profit from retail operations
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets – software
Amortisation of intangible assets – other
Impairment of property, plant and equipment
(Losses)/profits on disposal of property, plant and equipment
(Profit)/loss on non-underlying non-cash foreign currency adjustments
Equity-settled share-based payments
Movement in property provisions
Movement in other provisions
Amortisation of lease incentives
Lease incentives received
Payments to retirement benefit schemes
Charge to profit from operations in respect of retirement benefit schemes
Operating cash flow before movement in working capital
Decrease/(increase) in inventories
Increase in receivables
(Decrease)/increase in payables
Cash (utilised)/generated from operations
Income taxes received/(paid)
Net cash (outflow)/inflow from operating activities
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
(6.9)
16.2
4.6
2.0
9.4
(23.0)
(2.0)
0.5
12.7
–
(5.2)
3.5
(8.0)
1.9
5.7
18.5
(9.8)
(12.9)
1.5
4.1
5.6
11.0
16.6
4.1
2.3
–
0.9
13.8
2.6
(5.7)
(0.1)
(5.9)
9.6
(4.6)
3.5
48.1
(23.9)
(4.8)
13.7
33.1
(6.0)
27.1
Cash and cash equivalents
Net overdrafts
Net cash and cash equivalents/(debt)
27 March
2011
£ million
Cash flow
£ million
Foreign
exchange
£ million
31 March
2012
£ million
15.3
–
15.3
(12.8)
(1.9)
(14.7)
(0.7)
–
(0.7)
1.8
(1.9)
(0.1)
88 Mothercare plc Annual report and accounts 2012
27. Operating lease arrangements
The group as lessee:
Amounts recognised in cost of sales for the period:
Minimum lease payments paid
Contingent rents
Minimum sublease payments received
Net rent expense for the period
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
67.4
0.4
(0.5)
67.3
70.4
0.4
(0.7)
70.1
Contingent rent relates to store properties where an element of the rent payable is determined with reference to
store turnover.
At the balance sheet date, the group had outstanding commitments for future minimum lease payments under non-
cancellable operating leases, which fall due as follows:
Not later than one year
After one year but not more than five years
After five years
Total future minimum lease payments
31 March
2012
£ million
26 March
2011
£ million
65.2
195.6
185.7
446.5
72.5
212.5
214.1
499.1
At the balance sheet date, the group had contracted with sub-tenants for the following future minimum lease payments:
Not later than one year
After one year but not more than five years
After five years
Total future minimum lease payments
31 March
2012
£ million
26 March
2011
£ million
1.4
3.6
1.8
6.8
1.2
3.0
4.3
8.5
28. Share-based payments
An expense is recognised for share-based payments based on the fair value of the awards (at the date of grant for those
awards due to be equity settled and at year end for those due to be cash settled), the estimated number of shares that will
vest and the vesting period of each award.
The underlying charge for share-based payments is £0.6 million (2011: £2.2 million), including national insurance, of which
£0.5 million (2011: £2.6 million) was equity-settled. The exceptional credit for share-based payments of £0.8 million (2011: £nil)
arises in respect of leavers from the executive incentive share schemes. At 31 March 2012 the liability in the balance sheet is
£0.1 million related to the expected national insurance charge when share-based payment schemes vest (2011: £0.9 million).
These charges relate to the following schemes:
A. Executive Share Option Scheme
B. Save As You Earn Schemes
C. Executive Incentive Plan
D. Performance Share Plan
E. Deferred Shares Scheme
F. Share Matching Scheme
Details of the share schemes that the group operates are provided in the directors’ remuneration report on pages 42 to 49.
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Notes to the consolidated financial statements
continued
28. Share-based payments continued
For each scheme, expected volatility was determined with reference to the 90-day volatility of the group’s share price over
the previous three years. The expected life used in each model has been adjusted, based on management’s best estimate,
for the effects of non-transferability, exercise restrictions and behavioural considerations. The dates of exercise are not
disclosed, as it is not deemed practicable to do so.
A. Executive Share Option Scheme
Share options may be granted to executives and senior managers at a price equal to the average quoted market price of the
group’s shares on the date of grant. The options vest after three years, conditional on the group’s share price exceeding 3%
per annum compound growth over the vesting period. If the options remain unexercised after a period of 10 years from the
date of grant, they expire. Furthermore, options are forfeited if the employee leaves the group before the options vest.
The number of options outstanding under the Executive Share Option Scheme is as follows:
Balance at beginning of period
Forfeited during period
Exercised during period
Balance at end of period
53 weeks
ended
31 March
2012
Number
of shares
30,000
–
–
30,000
52 weeks
ended
26 March
2011
Number
of shares
111,407
(24,838)
(56,569)
30,000
Weighted
average
option
price
326p
326p
The options outstanding at 31 March 2012 had a weighted average remaining contractual life of 2.3 years and ranged in price
from 284p to 335p.
B. Save As You Earn schemes
The employee Save As You Earn schemes are open to all employees and provide for a purchase price equal to the daily
average market price on the date of grant, less 20%.
The shares can be purchased during a two week period each year and are placed in the employee Save As You Earn trust
for a three-year period.
The number of shares outstanding under the Save As You Earn schemes is as follows:
Balance at beginning of period
Granted during period
Forfeited during period
Exercised during period
Cancelled in the period
Expired during period
Balance at end of period
53 weeks
ended
31 March
2012
Number of
shares
52 weeks
ended
26 March
2011
Number of
shares
Weighted
average
exercise
price
308p
115p
299p
276p
370p
305p
768,613
2,752,739
(34,216)
(96,543)
(161,811)
(41,991)
1,243,132
–
(124,129)
(349,944)
–
(446)
139p
3,186,791
768,613
The shares outstanding at 31 March 2012 had a weighted average remaining contractual life of three years and ranged in
price from 115p to 497p.
90 Mothercare plc Annual report and accounts 2012
The fair value of Save As You Earn share options is calculated based on a Black-Scholes model with the
following assumptions:
Grant date
Number of options granted
Share price at grant date
Exercise price
Expected volatility
Risk free rate
Expected dividend yield
Time to expiry
Fair value of option
December
2011
December
2009
December
2008
230,951
676p
497p
30.0%
3.00%
3.00%
2,752,739
159p
115p
43.1%
0.58%
3.00%
635,038
237p
237p
30.0%
2.00%
3.50%
3.25 years 3.25 years 3.25 years
41.1p
172.9p
56.4p
The resulting fair value is expensed over the service period of three years on the assumption that 20% of options will lapse
over the service period as employees leave the group.
C. Executive Incentive Plan
The Executive Incentive Plan is a conditional award based on surplus value created over a three-year performance period.
The surplus value is calculated as the difference between the total shareholder return of Mothercare and that of the FTSE
All-Share General Retailers Index, multiplied by Mothercare’s market capitalisation. The 2009, 2010 and 2011 schemes are a
wholly equity settled scheme where some of the shares can be delivered on vesting and the remainder deferred.
The fair value of the Executive Incentive plan award is calculated using a binomial model with the following assumptions at
grant date:
Grant date
Market capitalisation at award date
Expected Mothercare share price volatility
Expected Index volatility
Risk free rate
Correlation between Mothercare and the Index
Time to expiry
Fair value at grant date
Fair value at 26 March 2012
May 2011
June 2010 May 2009
£449.0m
30.0%
30.0%
2.38%
50.0%
3 years
£1.8m
£0.1m
£562.7m
30.0%
30.0%
2.68%
50.0%
3 years
£3.0m
Nil
£338.4m
30.0%
30.0%
3.70%
50.0%
3 years
£1.8m
Nil
D. Performance Share Plan
The Performance Share Plan is a conditional award of shares based on the expected growth in Mothercare’s profit before
taxation over three years. The number of shares outstanding under the Performance Share Plan is as follows:
Balance at beginning of period
Awarded during period
Lapsed during period
Vested during period
Balance at end of period
53 weeks
ended
31 March
2012
Number of
shares
52 weeks
ended
26 March
2011
Number of
shares
1,332,889
999,807
(1,276,378)
–
1,430,838
641,855
(235,805)
(503,999)
1,051,318
1,332,889
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Notes to the consolidated financial statements
continued
28. Share-based payments continued
The fair value of the plan award is calculated based on Mothercare’s estimate of future profit per share growth. At the current
time the group’s forecasts suggest that the performance share plan is not expected to pay out and consequently the fair
value is nil.
Grant date
Number of shares awarded
Share price at date of grant
Exercise price
Time to expiry
Fair value per share
November
2011
376,154
137p
Nil
3 years
137p
May 2011
618,653
446p
Nil
3 years
446p
November
2010
62,992
522p
Nil
3 years
522p
June 2010
578,863
520p
Nil
3 years
520p
E. Deferred Shares Scheme
The Deferred Shares scheme is a conditional award of shares determined on historic company performance. The number of
shares outstanding under the Deferred Shares scheme is as follows:
Balance at beginning of period
Awarded during period
Lapsed during period
Vested during period
Balance at end of period
Grant date
Number of shares awarded
Fair value price at date of grant
Exercise price
Time to expiry
53 weeks
ended
31 March
2012
Number of
shares
52 weeks
ended
26 March
2011
Number of
shares
167,290
–
(57,581)
–
–
192,119
(24,829)
–
109,709
167,290
June 2010
June 2010
96,060
557p
Nil
2 years
96,060
557p
Nil
3 years
F. Share Matching Scheme
During the year the Chairman was granted 60,000 options with a nominal exercise price which vest in August 2014. To enable
maximum vesting the Company total shareholder return over the three-year performance period must be greater than or
equal to the total shareholder return of the FTSE 250 plus 50%. As a condition of this award the Chairman was required to
purchase shares in the Company for a value of £0.2 million and must continue to hold these shares over the performance
period. At the date of grant the fair value of these awards was less than £0.1 million.
Upon assuming the role of Executive Chairman, the Chairman was granted a further 54,997 options with a nominal exercise
price which vest in November 2014. To enable maximum vesting the Company total shareholder return over the three-year
performance period must be greater than or equal to the total shareholder return of the FTSE 250 plus 50%. As a condition of
this award the Chairman is required to purchase shares in the Company for a value of £0.4 million and must continue to hold
these shares over the performance period. At the date of grant the fair value of these awards was less than £0.1 million.
Grant date
Number of shares awarded
Share price at date of grant
Fair value price at date of grant
Exercise price
Time to expiry
92 Mothercare plc Annual report and accounts 2012
Dec 2011
Dec 2011
60,000
155p
116p
Nil
3 years
54,997
155p
116p
Nil
3 years
The shares were granted in two tranches with expiry in August and November 2014.
The resulting fair value is expensed over the service period of three years.
29. Retirement benefit schemes
Defined contribution schemes
The group operates defined contribution retirement benefit schemes for all qualifying employees of Early Learning Centre
Limited and Mothercare UK Limited.
The total cost charged to income of £0.6 million (2011: £0.6 million) represents contributions due and paid to these schemes by
the group at rates specified in the rules of the plan.
Defined benefit schemes
The group has operated two defined benefit pension schemes for employees of Mothercare UK Limited during the period.
On 28 March 2004, the final salary schemes were 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% to an average of 6.8%
or accrue future benefits on a ‘career average’ basis.
In 2009 the ‘career average’ schemes were closed to new entrants.
The pension scheme assets are held in a separate trustee administered fund to meet long term pension liabilities to past and
present employees. The trustees of the fund are required to act in the best interest of the fund’s beneficiaries.
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.
The most recent full actuarial valuations were carried out as at 31 March 2008. Actuarial valuations of the Mothercare Staff
and Executive Pension Schemes were undertaken as at 31 March 2011. Discussions are underway between the Company
and the trustees with the aim of signing off the actuarial valuations and recovery plans by 30 June 2012. The most recent full
actuarial valuations were updated as at 31 March 2012 for the purpose of these disclosures with the advice of professionally
qualified actuaries. The present value of the defined benefit obligation, the related current service cost and the past service
cost were measured using the projected unit credit method.
The IAS 19 valuation conducted for the period ended 31 March 2012 disclosed a net defined pension deficit of £52.7 million
(2011: £37.6 million).
The major assumptions used in the updated actuarial valuations were:
Discount rate
Inflation rate – RPI
Inflation rate – CPI
Future pension increases
Expected rate of salary increases
Expected return on schemes’ assets
Analysed between:
Equities
Bonds
Property
Alternative assets
Other assets
31 March
2012
26 March
2011
4.9%
3.3%
2.3%
3.2%
3.3%
6.0%
7.3%
4.7%
5.3%
6.3%
4.7%
5.5%
3.5%
2.8%
3.4%
3.5%
7.0%
8.3%
5.1%
6.3%
7.3%
5.1%
The overall expected rate of return on assets is calculated as the weighted average of the expected returns from each of the
asset classes. The returns quoted above are net of investment management expenses but before adjustment to allow for the
expected administrative and other expenses of running the schemes.
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Notes to the consolidated financial statements
continued
29. Retirement benefit schemes continued
The mortality assumptions used are the SAPS tables published by the CMI allowing for future improvements in line with the
medium cohort projection and a 1% floor.
Staff pension scheme:
Male
Female
Executive pension scheme:
Male
Female
Age 65 now Age 45 now
86.4
88.2
88.5
89.3
87.7
89.8
89.8
90.9
The effects of movements in the principal assumptions used to measure the scheme liabilities for every change in the relevant
assumption are set out below:
Assumption
Discount rate
Rate of price inflation
Life expectancy
Amounts expensed in the income statement in respect of the defined benefit schemes are as follows:
Current service cost
Interest cost
Expected return on schemes’ assets
Gains on curtailment
Change in
assumption
+/- 0.1%
+/- 0.1%
+ 1 year
Impact on
scheme
liabilities
£ million
-/+6.0
+/- 5.3
+ 8.1
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
2.3
13.5
(13.7)
(0.2)
1.9
2.9
14.1
(13.5)
–
3.5
Current service cost, interest cost and expected return on schemes’ assets have been included in underlying administrative
expenses and the curtailment gain is included within non-underlying administrative expenses.
The expected return on scheme assets was a gain of £13.7 million (2011: a gain of £13.5 million) with a resulting actuarial loss of
£8.5 million (2011: loss of £2.5 million).
There was an actuarial loss of £12.7 million (2011: a gain of £19.0 million) relating to the defined benefit obligations.
The amount recognised in other comprehensive income for the year ended 31 March 2012 is a loss of £21.2 million (2011: a gain
of £16.5 million).
The total cumulative actuarial loss recognised in other comprehensive income is £53.3 million (2011: £32.1 million).
94 Mothercare plc Annual report and accounts 2012
The amount included in the balance sheet arising from the group’s obligations in respect of its defined benefit retirement
schemes is as follows:
Present value of defined benefit obligations
Fair value of schemes’ assets
Liability recognised in balance sheet
Movements in the present value of defined benefit obligations were as follows:
At beginning of period
Service cost
Gains on curtailments
Interest cost
Contribution from scheme members
Actuarial losses/(gains)
Benefits paid
At end of period
Movements in the fair value of schemes’ assets were as follows:
At beginning of period
Expected return on schemes’ assets
Actuarial losses
Company contributions
Members’ contributions
Benefits paid
At end of period
31 March
2012
£ million
26 March
2011
£ million
270.0
(217.3)
52.7
246.0
(208.4)
37.6
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
246.0
2.3
(0.2)
13.5
1.5
12.7
(5.8)
270.0
252.1
2.9
–
14.1
1.7
(19.0)
(5.8)
246.0
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
208.4
13.7
(8.5)
8.0
1.5
(5.8)
217.3
197.0
13.5
(2.5)
4.5
1.7
(5.8)
208.4
The analysis of the fair values of the schemes’ assets and the expected rates of return at each balance sheet date were:
Equities
Bonds
Property
Alternative assets
Other assets
31 March
2012
%
31 March
2012
£ million
26 March
2011
%
26 March
2011
£ million
7.3
4.7
5.3
6.3
4.7
84.6
63.1
24.5
33.7
11.4
217.3
8.3
5.1
6.3
7.3
5.1
94.8
57.3
26.1
30.1
0.1
208.4
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continued
29. Retirement benefit schemes continued
The history of experience adjustments is as follows:
Present value of defined benefit obligations
Fair value of schemes’ assets
53 weeks
ended
31 March
2012
£270.0m
(£217.3m)
52 weeks
ended
26 March
2011
£246.0m
(£208.4m)
52 weeks
ended
27 March
2010
£252.1m
(£197.0m)
52 weeks
ended
28 March
2009
£175.6m
(£150.2m)
52 weeks
ended
29 March
2008
£167.3m
(£181.1m)
Deficit/(surplus) in the schemes
£52.7m
£37.6m
£55.1m
£25.4m
(£13.8m)
Experience adjustments on schemes’ liabilities
£12.7m
(£19.0m)
£66.0m
(£1.9m)
(£35.1m)
Percentage of schemes’ liabilities
4.7%
7.7%
26.2%
1.1%
21.0%
Experience adjustments on schemes’ assets
(£8.5m)
(£2.5m)
£33.9m
(£44.9m)
(£26.9m)
Percentage of schemes’ assets
3.9%
1.2%
17.2%
29.9%
14.9%
The estimated amount of cash contributions expected to be paid to the schemes during the 52 weeks ending 30 March 2013
is £5.2 million.
30. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation
and are not disclosed in this note. Transactions between the group and its joint ventures and associates are disclosed below.
Trading transactions
During the year, group companies entered into the following transactions with related parties who are not members of
the group:
53 weeks ended 31 March 2012
Joint ventures and associates
52 weeks ended 26 March 2011
Joint ventures and associates
Sales of
goods
£ million
Purchase of
goods
£ million
Amounts
owed by
related
parties
£ million
Amounts
owed to
related
parties
£ million
22.0
–
9.9
–
Sales of
goods
£ million
Purchase of
goods
£ million
Amounts
owed by
related
parties
£ million
Amounts
owed to
related
parties
£ million
14.3
–
8.4
–
Sales of goods to related parties were made at the group’s usual cost prices.
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. A provision
of £0.8 million (2011: £0.8 million) has been made for doubtful debts in respect of the amounts owed by related parties.
96 Mothercare plc Annual report and accounts 2012
Remuneration of key management personnel
The remuneration of the operating board (including executive and non-executive directors), who are the key management
personnel of the group, is set out below in aggregate for each of the categories specified in IAS 24 ‘Related Party Disclosures’.
Further information about the remuneration of individual directors is provided in the audited part of the remuneration report
on pages 42 to 49.
Short term employee benefits
Post employment benefits
Compensation for loss of office
Share-based payments
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
2.8
0.4
1.6
0.4
5.2
3.7
0.4
–
1.8
5.9
Mothercare pension scheme
Details of other transactions and balances held with the two pension schemes are set out in note 29.
Other transactions with key management personnel
There were no other transactions with key management personnel.
31. Events after the balance sheet date
On 11 April 2012 the group agreed the refinancing of its banking facilities with the support of its existing banks, HSBC and
Barclays increasing the level of committed facilities from £80 million to £90 million and extending the term to 31 May 2015
(see note 21).
On 12 April 2012 the group announced a further reduction in the UK store portfolio, reshaping the UK around a profitable core
of 200 stores. The group will now close 111 stores (36 Mothercare and 75 Early Learning Centres) over the next three years to
March 2015. The costs associated with the additional store closures announced in April 2012 will be provided for in the next
financial year.
There were no other events after the balance sheet date.
Mothercare plc Annual report and accounts 2012 97
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Company financial statements
Contents
99
Independent auditor’s report on the
Company financial statements
100 Company balance sheet
101 Notes to the Company financial statements
98 Mothercare plc Annual report and accounts 2012
Independent auditor’s report on the
Company financial statements
We have audited the parent company financial
statements of Mothercare plc for the 53 weeks ended
31 March 2012 which comprise the parent company
balance sheet, and the related notes 1 to 8. The
financial reporting framework that has been applied
in their preparation is applicable law and United
Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. 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 auditor’s 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 auditor
As explained more fully in the directors’ responsibilities
statement, the directors are responsible for the
preparation of the parent company financial
statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit and
express an opinion on the parent company financial
statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the
amounts and disclosures in the financial statements
sufficient to give reasonable assurance that the
financial statements are free from material
misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting
policies are appropriate to the parent company’s
circumstances and have been consistently applied
and adequately disclosed; the reasonableness of
significant accounting estimates made by the
directors; and the overall presentation of the financial
statements. In addition, we read all the financial and
non-financial information in the annual report to
identify material inconsistencies with the audited
financial statements. If we become aware of any
apparent material misstatements or inconsistencies
we consider the implications for our report.
Opinion on financial statements
In our opinion the parent company financial
statements:
give a true and fair view of the state of the
Company’s affairs as at 31 March 2012;
have been properly prepared in accordance with
United Kingdom Generally Accepted Accounting
Practice; and
have been prepared in accordance with the
requirements of the Companies Act 2006.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
the part of the directors’ remuneration report to be
audited has been properly prepared in accordance
with the Companies Act 2006; and
the information given in the directors’ report for the
financial year for which the financial statements are
prepared is consistent with the parent company
financial statements.
Matters on which we are required to report by
exception
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
adequate accounting records have not been kept
by the parent company, or returns adequate for our
audit have not been received from branches not
visited by us; or
the parent company financial statements and the
part of the directors’ remuneration report to be
audited are not in agreement with the accounting
records and returns; or
certain disclosures of directors’ remuneration
specified by law are not made; or
we have not received all the information and
explanations we require for our audit.
Other matter
We have reported separately on the group financial
statements of Mothercare plc for the 53 weeks ended
31 March 2012.
Nicola Mitchell, FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London
23 May 2012
Mothercare plc Annual report and accounts 2012 99
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Company balance sheet
As at 31 March 2012
Fixed assets
Investments in subsidiary undertakings
Current assets
Debtors
Cash at bank and in hand and time deposits
Creditors – amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Net assets
Capital and reserves attributable to equity interests
Called up share capital
Share premium
Other reserve
Own shares
Profit and loss account
Equity shareholders’ funds
31 March
2012
£ million
Note
26 March
2011
Restated*
£ million
3
4
5
5
6
7
7
7
7
8
214.9
214.9
50.4
0.3
50.7
(74.1)
(23.4)
191.5
(20.0)
171.5
44.3
6.2
50.8
(2.1)
72.3
171.5
214.4
214.4
39.0
0.4
39.4
(128.7)
(89.3)
125.1
–
125.1
44.3
5.9
50.8
(9.0)
33.1
125.1
* The prior year balance sheet has been restated to reallocate bank loans and overdrafts within creditors and to reanalyse intercompany debtors and creditors.
Approved by the Board on 23 May 2012 and signed on its behalf by:
Neil Harrington
Finance Director
Company Registration Number: 1950509
100 Mothercare plc Annual report and accounts 2012
Notes to the Company financial statements
1. Significant accounting policies
Basis of presentation
The Company’s accounting period covers the 53 weeks ended 31 March 2012. The comparative period covered the 52 weeks
ended 26 March 2011.
Basis of accounting
The separate financial statements of the Company are presented as required by the Companies Act 2006. They have been
prepared under the historical cost convention and on the going concern basis as described in the going concern statement
in the corporate governance report and in accordance with applicable United Kingdom law and United Kingdom generally
accepted accounting standards. The principal accounting policies are presented below and have been applied consistently
throughout the 53 weeks ended 31 March 2012 and the preceding 52 weeks ended 26 March 2011.
Investments
Fixed asset investments are shown at cost less provision for impairment.
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.
Cash flow statement
The Company is exempt from the requirement of FRS 1 (revised) to include a cash flow statement as part of its Company
financial statements because it prepares a consolidated cash flow statement which is shown on page 59.
Related parties
The Company has taken advantage of paragraph 3 (c) of Financial Reporting Standard 8 (Related Party Disclosures) not to
disclose transactions with group entities or interests of the group qualifying as related parties.
2. Profit and loss account
As permitted by Section 408 of the Companies Act 2006, no separate profit and loss account is presented for the Company.
The Company’s profit for the 53 weeks ended 31 March 2012 was £57.5 million (2011: profit of £14.8 million). The auditor’s
remuneration for audit and other services is disclosed in note 7 to the consolidated financial statements.
3. Investments in subsidiary undertakings
Investments in the Company’s balance sheet consist of its investments in subsidiary undertakings.
The Company’s significant subsidiaries, all of which are wholly owned, are as follows:
Mothercare UK Limited
Mothercare Procurement Limited
Early Learning Centre Limited
Principal activity
Retailing company
Sourcing company
Retailing company
The Company’s investment in its subsidiary undertakings is as follows:
Cost of investments (less amounts written off £153.0 million (2011: £153.0 million))
Loans to subsidiary undertakings
Country of incorporation
United Kingdom
Hong Kong
United Kingdom
31 March
2012
£ million
26 March
2011
£ million
149.4
65.5
214.9
148.9
65.5
214.4
Mothercare plc Annual report and accounts 2012 101
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Notes to the Company financial statements
continued
3. Investments in subsidiary undertakings continued
Cost
At 27 March 2011
Share-based payments to employees of subsidiaries
At 31 March 2012
Provisions for impairment
At 27 March 2011 and 31 March 2012
Net book value
4. Debtors
Amounts due from subsidiary undertakings
Other debtors
* The prior year balance sheet has been restated to reanalyse intercompany debtors and creditors.
5. Creditors
Creditors: amounts falling due within one year
Amounts due to subsidiary undertakings
Bank loans and overdrafts
Accruals and other creditors
* The prior year balance sheet has been restated to reanalyse intercompany debtors and creditors.
Creditors: amounts falling due after more than one year
Bank loans and overdrafts
102 Mothercare plc Annual report and accounts 2012
£ million
214.4
0.5
214.9
–
214.9
31 March
2012
£ million
26 March
2011
Restated*
£ million
49.8
0.6
50.4
38.8
0.2
39.0
31 March
2012
£ million
26 March
2011
Restated*
£ million
56.9
15.8
1.4
74.1
89.5
38.5
0.7
128.7
31 March
2012
£ million
26 March
2011
£ million
20.0
20.0
–
–
6. Called up share capital
Issued and fully paid
Ordinary shares of 50p each:
Balance at 27 March 2011
Issued under the Mothercare Sharesave Scheme
Balance at 31 March 2012
Number of
shares
£ million
88,540,219
96,543
88,636,762
44.3
–
44.3
Further details of employee and executive share schemes are provided in note 28 to the consolidated financial statements.
The own shares reserve of £2.1 million (2011: £9.0 million) represents the cost of shares in Mothercare plc purchased in the
market and held by the Mothercare employee trusts to satisfy options under the group’s share option schemes (see note 28
to the consolidated financial statements). The total shareholding is 443,545 (2011: 2,461,230) with a market value at 31 March 2012
of £0.7 million (2011: £11.7 million).
7. Reserves
Balance at 27 March 2011
Net premium on shares issued
Fair value of share-based payments
Shares transferred to employees on vesting
Dividends
Profit for the financial year
Balance at 31 March 2012
Share
premium
£ million
Other
reserve
£ million
Own shares
£ million
5.9
0.3
–
–
–
–
6.2
50.8
–
–
–
–
–
50.8
(9.0)
–
–
6.9
–
–
(2.1)
Profit
and loss
account
£ million
33.1
–
0.5
(6.9)
(11.9)
57.5
72.3
Included in the profit for the year was a dividend from a subsidiary undertaking of £59.6 million.
8. Reconciliation of equity shareholders’ funds
Equity shareholders’ funds brought forward
Dividends
Shares issued
Fair value of share-based payments
Purchase of own shares
Retained profit for the period
Equity shareholders’ funds carried forward
53 weeks
ended
31 March
2012
£ million
52 weeks
ended
26 March
2011
£ million
125.1
(11.9)
0.3
0.5
–
57.5
171.5
123.4
(15.5)
1.2
2.6
(1.4)
14.8
125.1
Mothercare plc Annual report and accounts 2012 103
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Five year record
(unaudited)
Summary of consolidated income statements
Revenue
Underlying1 profit from operations before interest
Non-underlying2 items
Interest (net)
(Loss)/profit before taxation
Taxation
(Loss)/profit for the financial year
Basic (loss)/earnings per share
Basic underlying earnings per share
Summary of consolidated balance sheets
Deferred tax asset/(liability)
Other non-current assets
Net current assets
Retirement benefit obligations
Other non-current liabilities
Total net assets
Other key statistics
Share price at year end
Net (debt)cash/equity
Capital expenditure
Depreciation and amortisation
Rents
Number of UK stores
Number of International stores3
UK selling space (000’s sq. ft.)
International selling space (000’s sq. ft.)3
Average number of employees
Average number of full time equivalents
2012
2011
2010
£ million
£ million
£ million
2009
Restated4
£ million
2008
Restated4
£ million
812.7
2.0
(104.4)
(0.5)
(102.9)
11.1
(91.8)
(105.2p)
1.8p
17.6
145.2
24.0
(52.7)
(61.4)
72.7
166.0p
(27.6%)
24.9
22.8
65.4
311
1,028
1,946
2,283
6,943
4,350
793.6
766.4
723.6
676.8
28.9
(19.5)
(0.6)
8.8
(2.3)
6.5
7.6p
24.7p
6.9
208.6
54.4
(37.6)
(39.5)
192.8
474.0p
7.9%
21.8
23.0
68.2
373
894
2,017
1,845
7,440
4,650
37.6
(4.4)
(0.7)
32.5
(8.9)
23.6
37.0
6.1
(1.1)
42.0
(11.8)
30.2
38.5
(34.1)
0.1
4.5
(4.4)
0.1
28.0p
31.5p
36.2p
32.0p
0.1p
34.5p
7.9
200.5
70.6
(55.1)
(35.5)
188.4
601.0p
20.4%
24.2
20.5
69.1
387
728
2,008
1,538
7,452
4,486
0.8
197.6
57.9
(25.4)
(33.4)
197.5
(4.4)
200.8
26.3
2.0
(27.7)
197.0
386.5p
400.0p
12.5%
22.8
22.0
71.0
405
609
2,007
1,294
7,715
4,653
11.5%
20.4
19.7
71.2
425
494
2,070
1,040
7,626
4,244
1 Before items described in note 2 below.
2 Includes exceptional items (profit/loss on disposal/termination of property interests, impairment charges, restructuring costs, impairment charges, provision
for onerous leases) and other non-underlying items of amortisation of intangible assets (excluding software) and the impact of non-cash foreign currency
adjustments under IAS 39 and IAS 21 as set out in note 6 to the consolidated financial statements.
3 International stores are owned by franchise partners, joint ventures and associates.
4 Restated for Amendments to IAS 38 (2008 balance sheet only).
104 Mothercare plc Annual report and accounts 2012
Shareholder information
Shareholder analysis
A summary of holdings as at 30 March 2012 is
as follows:
Banks, insurance
companies and
pension funds
Nominee companies
Other corporate holders
Individuals
Mothercare ordinary shares
Number of
shares million
Number of
shareholders
417,546
73,342,826
10,252,241
4,624,149
88,636,762
7
721
121
23,249
24,098
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% discount in
defined denominations on up to £500 of merchandise
in Mothercare and Early Learning Centre stores in the
UK. 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. Eligible shareholders can
request a voucher booklet by sending their name,
address and shareholder account number by email
to investorrelations@mothercare.com or by writing to
the registered office.
Share price data
Share price at 30 March 2012
(26 March 2011)
Market capitalisation
Share price movement
during the year:
High
Low
2012
2011
166.00p
£147.1m
474.00p
£419.7m
477.20p
127.30p
627.50p
466.50p
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
Equiniti Limited, Aspect House, Spencer Road,
Lancing, West Sussex BN99 6DA
Financial calendar
Annual General Meeting
Announcement of interim results
Payment of interim dividend
Preliminary announcement of
results for the 52 weeks ending
30 March 2013
Issue of report and accounts
Annual General Meeting
Payment of final dividend
2012
19 July
20 November
2013
February
end May
mid June
mid July
mid August
Registered office and head office
Cherry Tree Road, Watford, Hertfordshire WD24 6SH
Telephone 01923 241000
www.mothercareplc.com
Registered number 1950509
Group general counsel and company secretary
Tim Ashby
Registrars
Administrative enquiries concerning shareholders
in Mothercare plc for such matters as the loss of a
share certificate, dividend payments or a change
of address should be directed, in the first instance,
to the registrars:
Equiniti Limited
Aspect House, Spencer Road, Lancing,
West Sussex BN99 6DA
Telephone 0871 384 2013 (calls to this number
are charged at 8p per minute from a BT landline.
Other telephony providers’ costs may vary).
Lines are open 08:30 to 17:30, Monday to Friday.
www.equiniti.com
Mothercare plc Annual report and accounts 2012 105
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Shareholder information
continued
Postal share dealing service
A postal share dealing service is available through
the Company’s registrars for the purchase and sale
of Mothercare plc shares. Further details can be
obtained from Equiniti on 0871 384 2248 (calls to this
number are charged at 8p per minute from a BT
landline. Other telephony providers’ costs may vary).
Lines are open 08:30 to 17:30, Monday to Friday.
Stockbrokers
The Company’s stockbrokers are:
JPMorgan Cazenove & Co Limited
20 Moorgate, London EC2R 6DA
Telephone 020 7155 5155
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Telephone 020 7260 1000
ShareGift
Shareholders with a small number of shares, the
value of which makes it uneconomic to sell them,
may wish to consider donating them to charity
through ShareGift, a registered charity administered
by The Orr Mackintosh Foundation. The share transfer
form needed to make a donation may be obtained
from the Mothercare plc registrars, Equiniti Limited.
Further information about ShareGift is available from
www.sharegift.org or by telephone on 020 7930 3737.
106 Mothercare plc Annual report and accounts 2012
Notes
Mothercare plc Annual report and accounts 2012 107
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Notes
108 Mothercare plc Annual report and accounts 2012
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Mothercare plc
Cherry Tree Road
Watford
Hertfordshire
WD24 6SH
T 01923 241000
F 01923 206376
www.mothercareplc.com
Registered in England number 1950509