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Mothercare plc
Annual report
and accounts 2014
www.mothercareplc.com
Financial highlights
Worldwide network sales
(£m)
Group sales
(£m)
Mar-14
Mar-13
Mar-12
£1,191.5m
£1,185.1m1
£1,163.3m1
Mar-14
Mar-13
Mar-12
£724.9m
£744.1m3
£791.7m3
£1,191.5m+0.5%1
£724.9m -2.6%3
International sales
£729.2m +6.4%1
UK sales
£462.3m -7.5%
International sales
£262.6m +7.5%3
UK sales
£462.3m -7.5%
Note 1: The above figures are on a comparable basis and exclude Australia
and New Zealand for FY 2012/13 and FY 2011/12. Including Australia and New
Zealand, Worldwide network sales were down 3.0%, International sales were up
0.1% and UK sales were down 7.5%.
Note 3: The above figures are on a comparable basis and exclude Australia and
New Zealand for FY 2012/13 and FY 2011/12. Including Australia and New Zealand,
Group sales were down 3.3% compared to £749.4 million last year, International
sales were up 5.2% compared to £249.7 million last year and UK sales were down
7.5% compared to £499.7 million last year.
Space across the world
(sq.ft.)
Underlying profit/(loss) before tax
(£m)
Mar-14
Mar-13
Mar-12
4,392.6k sq.ft.
4,152.5k sq.ft.2
4,014.2k sq.ft.2
Mar-14
Mar-13
-£1.3m5 Mar-12
£5.9m5
£9.5m
4,392.6k sq.ft. +5.8%2 £9.5m+61.0%
Stores
1,441 +8.8%2
International space
2,655.8k sq.ft. +13.1%2
Stores
1,221 +14.2%2
UK space
1,736.8k sq.ft. -3.8%
Stores
220 -13.7%
Note 2: The above figures are on a comparable basis and exclude Australia
and New Zealand for FY 2012/13 and FY 2011/12. Including Australia and New
Zealand, Space across the world was up 0.6%, International space was up
3.7% and UK space was down 3.8%.
International operating profit
£45.3m +7.6% 4
UK operating loss
£21.5m reduced by 0.5%
Corporate expenses
£7.8m in line with last year
Note 4: The above figures include Australia and New Zealand for FY 2012/13
as the impact is not material.
Note 5: The above figures have been restated for the IAS19 impact. The statutory
loss before tax after exceptional and non-underlying items is £26.3 million for
FY 2013/14 compared to a loss of £23.9 million for FY 2012/13 and a loss of
£105.8 million for FY 2011/12.
Our brands
Contents
Mothercare
At Mothercare, we aim to be to be the world’s leading
mother and baby specialist in the markets in which
we operate. Our products are designed to meet the
needs of mothers-to-be, babies and children up to the
age of eight. Our product offering includes Clothing
with children’s ranges from entry price offering mums
everyday value to the more premium Little Bird and
Baby K ranges and Blooming Marvellous, our maternity
range; Home & Travel which includes pushchairs,
car seats, furniture, bedding, feeding and bathing
equipment; and Toys mainly for babies. We sell our
products through multi-channel retail and wholesale
operations in the UK and through franchise operations
across our International markets in Europe, the Middle
East and Africa, Asia and Latin America.
Mothercare stores
UK – in town: 92
UK – OOT*: 97
International franchise stores: 819
*OOT = Out of town
Early Learning
Centre
At Early Learning Centre, we aim to provide children up
to the age of eight with toys that nurture and encourage
learning through play. The range is mainly own brand and
is designed and sourced through our facilities in Hong
Kong. The Early Learning Centre range is sold through our
multi-channel retail and wholesale operations in the UK
and through franchise and wholesale operations across
our International markets in Europe, the Middle East and
Africa, Asia and Latin America.
Early Learning Centre stores
UK – in town: 31
UK – inserts in Mothercare stores: 128
Note: the figure above refers to 97 OOT Mothercare
stores and 31 in town Mothercare stores.
International franchise stores: 402
Overview
01 Our brands
02 At a glance
04 Our mission
Strategic report
14 Chairman’s statement
15 Strategic pillars
18 Business review
22 Divisional review
24 Financial review
28 KPIs – Financial and non-financial
30 Risks – Principal risks and uncertainties
34 Corporate responsibility
Governance
38 Board of directors
39 Executive committee
40 Corporate governance
47 Audit and Risk Committee
52 Nomination Committee
53 Directors’ report
57 Remuneration report
Financial statements
83 Directors’ responsibilities statement
84 Independent auditor’s report to
the members of Mothercare plc
88 Consolidated income statement
89 Consolidated statement
of comprehensive income/(expense)
90 Consolidated balance sheet
91 Consolidated statement of changes in equity
92 Consolidated cash flow statement
93 Notes to the consolidated financial statements
Company financial statements
135 Company balance sheet
136 Notes to the company financial statements
139 Five-year record
140 Shareholder information
01
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements
At a glance
International
Our International business continues to
deliver on its growth potential with space
up 13.1%. Profits were up 7.6% at £45.3 million,
despite a challenging year impacted by
adverse currency moves.
BInternational retail sales in constant currencies were up 9.3% with currency
devaluation of 2.8% and a wholesale reduction of 0.1% resulting in reported
retail sales growth of 6.4% to £729.2 million.
BLike-for-like sales were up 2.5% with all four regions making a positive
contribution. Despite the increasing level of currency devaluation over
the year, all four regions delivered positive reported retail sales growth.
Store sales
(£m)
Direct
(£m)
Mar-14
Mar-13
Mar-12
£721.9m
£677.7m
£606.2m
£721.9m
International store sales up 6.5%
International now has 1,221 stores over
2.7m sq.ft. Mothercare accounts for 85%
of space. Retail sales, through our
franchise partners’ stores were up 6.5%
at 721.9 million excluding Australia and
New Zealand and including them were
up 0.1%. Our franchise partners’
three-year rolling plans envisage
double-digit space growth each year,
giving us confidence in the future.
B Europe – 494 stores, 27 countries,
space +8.6%
BMiddle East and Africa – 327 stores,
13 countries, space +8.5%
BAsia – 352 stores, 12 countries,
space +28.1%
BLatin America – 48 stores, 7 countries,
space +15.0%
02
n/a
More markets now with
operational websites
Multi-channel is still in its infancy in most
of the markets in which our franchise
partners operate. Our scalable online
platform capable of multiple languages
and currencies is allowing our partners
the opportunity to pioneer a multi-
channel strategy in their territories.
Our partners now have transactional
websites in Kuwait, Indonesia, Ireland,
Russia (both Mothercare and Early
Learning Centre), Spain, China (on
TMall) and India (Shoppers Stop).
There is also a non-transactional
website in Colombia. We will continue
to work with our partners to launch
transactional websites as their markets
evolve and mature.
International sales
Clothing 64%
Home & Travel 21%
Toys 15%
Wholesale
(£m)
Mar-14
Mar-13
Mar-12
£7.3m
£7.7m
£6.9m
£7.3m
International wholesale
sales down 5.2%
We believe that there is an opportunity
to grow our Early Learning Centre
business through wholesale, but only in
those markets where we do not already
have a franchise agreement. This is still
a small part of the overall business
but we expect this area of our business
to grow in the future.
All the above numbers for International exclude
Australia and New Zealand for FY 2012/13 and
FY 2011/12.
Mothercare plc Annual report and accounts 2014 UK
UK losses were slightly reduced to £21.5 million
with our Direct business returning to growth.
Like-for-like sales growth, whilst down, was on
an improving trend.
BTotal UK sales were down 7.5% at £462.3 million, with like-for-like sales down
1.9% and gross margins down circa 200 basis points.
BOur goal remains to return the UK to profitability and we closed a further
net 35 loss-making stores whilst also rationalising our cost base aimed at
operating a lean retail business.
Store sales
(£m)
Direct
(£m)
UK sales
Clothing 39%
Home & Travel 39%
Toys 22%
Wholesale
(£m)
Mar-14
Mar-13
Mar-12
£298.5m
£340.5m
£398.7m
Mar-14
Mar-13
Mar-12
£134.1m
£127.7m
£130.0m
Mar-14
Mar-13
Mar-12
£29.7m
£31.5m
£31.3m
£298.5m
UK store sales down 12.3%
£134.1m
UK direct sales up 5.0%
We ended the year with 220 stores
(189 Mothercare and 31 Early Learning
Centre), closing a further 35 loss-making
stores (seven Mothercare and 28 Early
Learning Centre) thus reducing space
by a further 3.8% year-on-year. We are
predominantly closing standalone Early
Learning Centre stores, which means
the Mothercare format that includes
Early Learning Centre shop-in-shops, is
the larger of the two brands with 97% of
the 1,737k sq.ft. we trade from in the UK.
The reduction in space and the decline
in like-for-like sales together contributed
towards the 12.3% decline in stores sales
to £298.5 million.
Total direct sales were up 5.0% at
£134.1 million with Direct in Home up 5.9%
at £99.3 million and Direct in Store up
2.7% at £34.8 million. The return to growth
for our direct business is testament to
the investment in terms of the online
platform, customers’ experience
online and improved delivery options.
Next day click-and-collect is now
available across all our stores, is free
to customers and accounts for a third
of all our online orders.
£29.7m
UK wholesale sales
down 5.7%
UK wholesale sales were down
5.7% at £29.7 million. Miniclub, our
strategic partnership with Boots,
continues to perform well and grew
sales. Although UK wholesale sales
for ELC were disappointing last year,
we expect this area of our business
to grow in the future.
03
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Our mission
Building for a
stronger future
We are a Global company
and our business structures
and sourcing operations
reflect this. Our products are
designed to meet the needs
of parents the world over.
Our aim of being the world’s
leading mother and baby
specialist can be achieved
only if we keep in mind that we
are a Global company and
therefore our ranges, be
it Home & Travel, Clothing
or Toys, have been built to
accommodate this. Over the
next few pages we will aim
to bring these themes to life.
04
We aim to be the world’s leading mother and baby specialist,
making life easier for families the world over by offering our
customers value, choice, service and delivery both in store
and online.
Our brands, Mothercare and Early Learning Centre, resonate
strongly with families the world over and our presence in
60 countries is testament to the enduring strength of both
brands. Our customers trust us to have the products that will
enhance their experience of parenthood; catering to the
needs of expectant mothers, babies and children up to the
age of eight. Many of our customers turn to our staff for
advice and our experienced and trained staff are well
equipped to help them along their life-changing journeys.
We aim to build on these strengths in the years ahead.
We have once again grown underlying profit before tax.
International has delivered another year of growth, despite
challenging market conditions. In the UK we have slightly
reduced losses and recognise that we still have more to do.
International growth
In a year which experienced significant currency devaluation
and some geo-political changes, our International business
saw profit growth of 7.6%. This is testament to the underlying
strength of our International business and the commitment
of all our partners across all four of the regions in which
we operate.
During the year we opened a further net 152 stores and
increased space by 13.1% to 2.7 million sq.ft. and we continue
to see further growth opportunities, which our partners plan
to capitalise on.
UK rationalising cost base
In the UK, we closed a further net 35 loss-making stores and
reduced space by 3.8% to 1.7 million sq.ft. while also reducing
costs as planned. It is however not all about costs and closing
stores. During the year, we invested in stores where the
opportunity was clear and also opened two outlet stores
that are helping with stock and margin management.
Overall losses in the UK were slightly reduced and following
a disappointing peak trading period we recognise that there
is still more to do to return the UK to profitability.
Mothercare plc Annual report and accounts 2014 Global
See page
6
Home
& Travel
Clothing
See page
10
Toys
See page
8
See page
12
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Mothercare plc Annual report and accounts 2014
05
05
Mothercare plc Annual report and accounts 2014
Global
Where we are
Our brands, both Mothercare and Early Learning Centre,
are easily recognised the world over with new parents seeking
out our stores at this most crucial point in their lives.
Number of countries
60
Mothercare sq.ft.
3.95 million
57% International; 43% UK
Early Learning Centre sq.ft.
0.45 million
88% International; 12% UK
Number of franchise partners
42
plus the UK with own stores
Franchise stores
Own stores
06
Mothercare plc Annual report and accounts 2014
Ireland
Carrick Mines
6,515 sq.ft.
Out of town
UAE
Mirdiff Centre
8,525 sq.ft.
Mall
The first franchise store was opened
on St. Stephens Green in Dublin in
1991. Our partner now has eight
out-of-town and 11 high street
stores in Ireland and will soon be
migrating their online platform to
include a wider product range.
The Alghuriair store was opened in
1985. There are now 44 Mothercare
mainly mall stores and 45 Early
Learning Centre stores in the UAE.
An online platform is planned for
early 2015.
China
Wanfujing
1,700 sq.ft.
Shop-in-shop
Azerbaijan
3,100 sq.ft.
High Street
The first franchise store was opened
in China in 2008 and there are
now 54 mall format stores and
13 shop-in-shops in department
stores. A small selection of ELC toys
are ranged in 45 out of 67 stores in
this market.
Our first franchise store was
opened in 2005 in Baku on Fountain
Square. There are now three high
street and two mall stores in
Azerbaijan where Mothercare is
proving to be very popular.
07
Increasingly global business
At the end of the year we had 1,441
(1,221 International franchise stores
and 220 UK) stores in 60 countries.
Space grew by 5.8% with our
International partners increasing
space by 13.1% offset by a reduction
of 3.8% in the UK. This continuing shift in
space is also reflected in retail sales.
International retail sales were up 6.4% at
£729.2 million and now account for 61.2%
of worldwide network sales. Sales in
the UK were £462.3 million, down 7.5%,
reflecting the reduction in space.
Variety of store formats to meet
customer needs
As in the UK, our International partners
use a variety of store formats to serve
the needs of their customers. This varies
from the smaller shop-in-shop format to
a mid-sized high street store to the
larger OOT (out of town) or large store
in a mall. We work with our partners to
determine the best format for any
particular location.
Our product is also carefully designed
to meet the needs of our customers
across all the markets in which
we operate.
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Home & Travel
In & Out
Room sets to buggy systems...
Over the last year we have
improved our product displays.
We have introduced room sets to
showcase our furniture and bedding
ranges and worked alongside key
pushchair manufacturers to ensure
better display of our product.
Bugaboo
Bugaboo was able to
give us exclusivity on the
Cameleon Navy pushchair
for a seven week period.
It proved very popular with
our customers, selling three
times the expected volume
for the period.
Little Beep Beep
Mobile
The Little Beep Beep Mobile
soothes baby to sleep with
a sweet lullaby and gentle
rotating toys. This mobile
coordinates with the cute
Little Beep Beep range to
create a gorgeous and
colourful nursery.
08
Mothercare plc Annual report and accounts 2014 New Padstow
furniture range
We introduced our new
Padstow range into
stores in December 2013.
It is a versatile range
made of solid wood
and has been a great
success with customers
looking for furniture that
will last the test of time.
Room sets help drive sales
In December 2013, we introduced room sets to our largest
stores in the UK. They have successfully brought together
the display of our new furniture and bedding ranges.
This has made it easier for customers to visualise how
the product might look in their homes and has resulted
in a healthy uplift in sales.
Improved product displays
for branded goods
We are the most important route to market for many of
our branded goods suppliers. Customers like to come
into stores to look over big-ticket items before they buy.
We have worked with our largest suppliers to introduce
better display fixtures and improve the level of expertise
and service of our store colleagues. The result is
improved visual displays, more knowledgeable staff
and ultimately improved sell-through rates.
09
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Clothing
Practical style
Maternity to value essentials...
Our clothing ranges from maternity,
through to newborn and children
to eight years have done well as
customers have responded positively
to the improved fashion and value.
Our hard work over the last two years
is beginning to come through as
evidenced by volumes sold.
Blooming
Marvellous
The relaunched
Blooming Marvellous
maternity range with
a younger, more
fashionable range at
lower retail prices has
resonated with
customers. Our jeans,
nursing tops, dresses
and swimwear that are
comfortable, fit well and
flatter are proving to be
a success with mums.
10
Mothercare plc Annual report and accounts 2014 Boys ranges
Our boys ranges have
responded particularly
well to the improved
value and updated
designs that are now
making their way into
stores. Mums are looking
for practical clothing
suitable for rough and
tumble and our ranges
meet these needs.
Improved store formats
We refitted 11 stores during the year. Our clothing ranges
have benefited from the improved lighting, displays
and ranges and the results are coming through in
volumes sold.
In January, we rebranded an Early Learning Centre store
in White City, London to the Mothercare format with
mainly clothing and a small, focused Home & Travel
range. The uplift in sales has been encouraging and
we are trialling a further three such stores.
Stars and Dreams
The newly introduced premium priced Stars and Dreams
range for newborn babies has performed well as a
gifting option.
11
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Toys
Playful learning
Early Learning Centre encourages
learning through play. Over the last few
years we have been investing in ranges
that encourage logical thought and
dexterity through touch, textures
and shapes.
Shape sorter
Children learn through
interactive play and we
aim to provide parents
with the best tools to do
so. Our shape sorter is
robust, colourful, with
varied shapes that
keeps the interest of
toddlers for hours
on end.
12
Mothercare plc Annual report and accounts 2014 First gadgets set
Children like to emulate
their parents and ‘my
first gadgets set’ is just
the toy for role playing.
It combines sound with
light and texture to
keep children engaged
for hours.
Toy Box range
The Toy Box range was widened and introduced in time
for peak trading. It proved popular over Christmas, as it
was particularly interesting for toddlers grappling with
dexterity and the price points are attractive.
Renewed investment in product development
We have over the last few years invested in product. Over a
third of all our ranges are new for the season. This means that
we are always ensuring parents have something new for their
children while also allowing us to offer products that are not
easily available elsewhere on the high street.
In the UK we have been closing stores, but the Early Learning
Centre continues to have a place. The brand performs
extremely well in the shop-in-shop formats which are located in
our larger Mothercare stores. These shop-in-shops have play
areas that allow children to explore in a relaxed atmosphere.
13
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Chairman’s statement
Mothercare has continued on its path
to transform its UK business to reflect
the continuing changes in consumer
shopping habits and overseas we
have maintained expansion with the
support of our excellent franchise
partners. Our global presence in 60
countries means that we are a leading
international UK retailer.
The success of our International
business improved the group’s
underlying profit over the previous
year. Growth could have been more
were it not for the strength of the Pound
and the political uncertainty in parts of
Eastern Europe. At the same time, the
UK market remains extremely
competitive, as evidenced by the
announcements of some other
companies in our sector. In particular,
the Q3 trading results were
disappointing but trends since then
have been more positive.
In February 2014, Simon Calver
resigned as the Chief Executive and
the board acted swiftly to appoint
Mark Newton-Jones as Interim CEO.
A full search process is being
conducted for a new permanent
Chief Executive and the appointment
will be announced as soon as we are
in a position to do so. I welcome
Nick Wharton as a new non-executive
director, who is providing his
considerable retail expertise to
the board.
Our store staff have unrivalled expertise
for new mothers and we continue to
look at ways to support new parents at
this exciting time of their lives. We have
continued to make changes to the size
of the store estate by closing loss-
making stores. We have improved our
home delivery options and our online
platform. Our new clothing ranges have
been well received by our customers.
The group still has a long way to
go to reach the objectives in our
Transformation and Growth plan.
We remain convinced that Mothercare
is an attractive business with strong
brands and the potential for significant
growth in shareholder value over the
long term.
Finally, Mothercare is all about family
and I would like to thank all those
involved with our great brands.
The contribution of our store colleagues
at Mothercare and ELC has been
excellent, as has that of our support
centre in the UK and our overseas
sourcing offices. I recognise the strength
of commitment from our franchise
partners around the world. This gives us
the inspiration to improve year on year.
Alan Parker CBE
Chairman, Mothercare plc
Underlying group
profits are up on last
year, but there is a lot
more to do. We are
determined to
achieve our goal of
returning the UK to
profitability, growing
our International
business and building
shareholder value
over the long term.
Alan Parker CBE
Chairman
14
Mothercare plc Annual report and accounts 2014 Strategic pillars
Category mix
This ongoing shift in category mix is
more pronounced in the UK, with Toy
sales down at 22% of sales and Clothing
and Home & Travel both at 39%.
Restore UK
profitability
Returning the UK to profitability
remains an essential goal for
Mothercare. Significant progress
has been made towards closing
loss-making stores and reducing
non-store operating costs, although
competitive pressures, particularly in
the Home & Travel category, over the
last two years have offset the gains we
have made. However, we remain
confident that the UK business can be
returned to profitability.
National coverage
Our mission is to be the world’s leading
mother and baby specialist and to do
so in the UK will require a store network
that offers national coverage for both
our brands – Mothercare and Early
Learning Centre. We believe our target
store network will offer such national
coverage. Whilst our strategy of closing
loss-making stores predominantly
impacts our Early Learning Centre store
base, the brand continues to have an
effective route to market through
over 100 shop-in-shops in our larger
Mothercare stores, an online offer with
free next-day delivery to store and a
small wholesale business.
Lean retail
Our business continues to evolve
rapidly and we must ensure our
operating structures reflect our
changing needs. International now
accounts for over 60% of our business
both in terms of space and retail sales
and is continuing to deliver double-
digit space growth. In the UK, we are
continuing to close loss-making stores
while also realigning the sales mix.
Reduce UK non-store costs by
£20 million over three years
Our intention is to scale back our UK
store portfolio to circa 200 stores by the
end of March 2015. This smaller store
portfolio will also require a reduced cost
base and we have, in line with plans,
reduced UK non-store operating costs
by £15 million over the last two years.
Our focus remains on managing
working capital. Stock control is a
major focus and despite the growing
International business, we have been
able to reduce stock by £17.5 million
over the last financial year.
Sourcing efficiencies
We continue to leverage our scale
to ensure we are able to offer our
customers improved value. Clothing
now accounts for over half of worldwide
network sales and we have worked with
our suppliers to improve efficiencies
and reduce stock levels. Home & Travel
now accounts for nearly a third of
worldwide sales and we are working
with our suppliers for exclusive ranges
for our customers. Toys now accounts for
just under 20% of worldwide sales and
we are continually looking at ways to
introduce new ranges while also
managing inventories.
15
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements International
growth
Our International business continues
to deliver on its growth potential. Space
was up 13.1% to 2.7 million sq.ft., resulting
in reported retail sales growth of 6.4%
(9.3% in constant currencies) and profit
growth of 7.6%.
Over the year our franchise partners
increased space by 13.1% and opened
net 152 stores across both the
Mothercare and Early Learning Centre
formats. The Early Learning Centre
stores are relatively small and whilst our
partners opened a further 52 stores,
these openings only accounted for
15% of the additional space added for
the year. Our Mothercare stores, as in
the UK, are larger and account for 85%
of the 2.7 million sq.ft. we have across all
four regions.
International continues to see
underlying growth and like-for-like sales
growth came in at 2.5%. All our regions
delivered positive like-for-like sales
growth and retail sales growth in
constant and moving currencies.
We end the year with 220 stores
(189 Mothercare and 31 Early Learning
Centre) having closed a further net 35
loss-making stores during the year.
Increase value and innovation across
our product ranges
Our success depends on our ability to
offer our customers the right products
for mothers-to-be, babies and young
children. To do so we need to offer our
customers both product innovation and
value. Our Clothing ranges are now
competitively priced compared to the
leading competitors and we have
ranges from entry price through to the
more premium Little Bird and Baby K
ranges. We have improved the fashion
element and our recent product into
store has been well received by
customers. In Home & Travel, we have
increased the number of exclusives we
have with our suppliers. The Bugaboo
Cameleon Navy and Silver Cross’s Pop
Strollers are good examples of what we
are beginning to achieve. We are
continuing this work with our suppliers
to ensure we offer value and relevant
ranges for our customers. In Toys we
introduced the innovative Toy Box
range which starts with several options
at the competitive price of £4.
Enhance customer service and
improve in store environment
We regularly monitor in store and Direct
customer feedback and it is encouraging
that we are now achieving consistently
high results. However, we know that
product availability can still be
improved and this will be an area
of focus in the year ahead.
Strategic pillars
continued
16
Mothercare plc Annual report and accounts 2014 Our franchise partners in Europe
now have 494 stores in 27 countries and
grew space by 8.6% during the year.
The Middle East and Africa, our oldest
region continues to offer growth
opportunities and now has 327 stores in
13 countries and grew space by 8.5%.
Asia offers the largest growth potential
with China and India and has 352 stores
in 12 countries and grew space by 28.1%.
Latin America now has 48 stores in
seven countries and grew space
by 15.0%.
Our joint ventures in China, India and
the Ukraine have collectively reduced
losses this year. China and India
continue to offer good growth while
the Ukraine is profitable.
Multi-channel
worldwide
Multi-channel is core to our strategy.
In the UK, our Direct business both ‘in
Home’ and ‘in Store’ are in growth and
accounts for nearly 30% of all sales.
Our International partners now have
ten websites – nine transactional
and one for research and inspiration.
It remains our aim to have transactional
websites in all our major markets.
UK online sales return to growth
UK Direct sales have returned to growth
of 5.0% at £134.1 million with Direct in
Home up 5.9% and Direct in Store
increasing by 2.7% during the year.
Investment over the last two years has
gone a long way towards this outcome.
We launched the new online platform in
May 2012, the iPhone App in November
2012, the Android App in November 2013
and the iPad App is soon to be launched
in June 2014.
All stores, both Mothercare and Early
Learning Centre now have free next
day click-and-collect available to
customers. This has been a very popular
service for our customers and over
a third of all online orders are now
collected in store. We will continue to
improve service and strive to offer our
customers the opportunity to shop both
our brands the way that suits them best.
International websites
We have built further on the investment
of last year. Having put in place a fully
scalable online platform capable of
being rolled out to multiple markets in
multiple languages and currencies, we
have rolled this out to more markets.
We now have nine transactional sites
in eight countries – China (on TMall),
Kuwait, India, Indonesia, Ireland, Russia
(Mothercare and Early Learning
Centre), Spain and Ukraine and a
non-transactional site in Colombia.
Our partners are taking the first
steps towards a multi-channel strategy
in their territories by exploiting the UK
e-commerce expertise, and often they
find that they are leading the way
ahead of other retailers in their markets.
Wholesale
Miniclub, our partnership with Boots UK,
continues to perform well and delivered
another year of growth. It is the only
wholesale agreement we have for
clothing. In addition, we have small
wholesale businesses for Early Learning
Centre for both the UK and International.
It is still early days for growing our Early
Learning Centre wholesale business
and whilst sales were down this year,
as we assess the suitability of new
relationships, we still believe that there
is opportunity and we will seek to grow
this business in the future.
17
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Business review
Overview
Whilst we have not delivered the
progress in profitability that we would
like, the underlying performance
reflects progress in the main pillars of
our Transformation and Growth plan:
B1. Operate a lean retail structure;
B2. Return the UK to profitability;
B3. Drive International growth; and
B4. Build a multi-channel business.
Our International business now accounts
for over 60% of worldwide space and
network sales and is the driver of growth
for our business. Together with our
partners, we now trade from 1,441 stores
across 60 markets with 4.4 million sq.ft. of
selling space.
Group profits improved on last year
We had a relatively encouraging set
of interim results and generated an
underlying profit before tax at the half
year for the first time in three years.
Trading performance in the UK over Q3
was disappointing and the gross margin
was impacted by the highly promotional
pre-Christmas period. Trading
performance recovered in Q4 for both
International and the UK and our full
year results are in line with market
expectations as set in January 2014.
Group underlying profit before tax
was £9.5 million (FY 2012/13: £5.9 million).
Underlying International profits were
up 7.6% at £45.3 million (FY 2012/13:
£42.1 million) while underlying UK losses
were slightly reduced to £21.5 million
(FY 2012/13: loss of £21.6 million).
Corporate expenses were flat at
£7.8 million (FY 2012/13: £7.8 million), while
underlying interest charges and the
cost of share based payments were
slightly lower at £6.5 million (FY 2012/13:
£6.8 million). After exceptional items
and other non-underlying charges
of £35.8 million (FY 2012/13: £29.8 million),
the reported loss before tax was
£26.3 million (FY 2012/13: £23.9 million).
These exceptional charges relate to
restructuring costs of £6.4 million, store
related impairment costs of £2.7 million,
property related costs of £8.2 million,
non-cash foreign exchange
adjustments of £14.9 million which
resulted in a negative movement
of £21.8 million year-on-year, impairment
of investment in the Ukraine joint
venture of £2.6 million and amortisation
of intangibles of £1.0 million.
Worldwide network sales were up
0.5% at £1,191.5 million (FY 2012/13:
£1,185.1 million excluding Australia and
New Zealand). Total International sales
were up 6.4% at £729.2 million (FY 2012/13:
£685.4 million excluding Australia and
New Zealand) and total UK sales were
down 7.5% at £462.3 million (FY 2012/13:
£499.7 million). Group sales, which reflect
total UK sales and reported revenues
from our International partners, were
down 2.6% at £724.9 million (FY 2012/13:
£744.1 million).
Space across all 60 markets was up
5.8% year-on-year as we grew our
International footprint by 13.1% and exited
3.8% of loss-making space in the UK.
Our International partners now operate
from 59 countries with 1,221 stores and
2.7 million sq.ft. of space. Our UK
business now has 1.7 million sq.ft.
across its 220 stores.
As we guided in January 2014, we
ended the year with £46.5 million (FY
2012/13: £32.4 million) of net debt on our
balance sheet. As anticipated, our net
debt position has improved since the
half year as we have continued to
manage our stock position tightly.
In October 2013, we refinanced our
banking facilities to £90 million with a
term loan of £40 million and a revolving
credit facility of £50 million maturing in
May 2017. In May 2014, the bank facilities
were amended to provide further
headroom on the covenants and the
facilities were increased to £100 million to
October 2014 to provide further flexibility.
International continues to deliver solid growth despite currency devaluation
International like-for-like sales growth
International retail sales
International wholesale sales
Total International sales
Underlying profit
FY 2013/14
52 weeks to
29-Mar-14
FY 2012/13
52 weeks to
30-Mar-13
% change
vs.
last year
+2.5%
£721.9m
£7.3m
£729.2m
£45.3m
+5.6%
£677.7m
£7.7m
£685.4m
£42.1m
–
+6.5%
(5.2%)
+6.4%
+7.6%
The above numbers are on a comparable basis and exclude Australia and New Zealand from FY 2012/13.
International is the growth engine of
our business and now accounts for over
60% of worldwide space and worldwide
network sales.
(FY 2012/13 £42.1 million) with retail profits
of £45.9 million (FY2013/14 £43.5 million)
and joint venture losses reduced to
£0.6 million (FY 2012/13 loss of £1.4 million).
Our International business has delivered
another year of solid growth with all
four regions contributing strongly;
clear testament to the resilience and
dedication of our partners across
all 59 countries in which we operate.
Despite being faced with increasing
and unprecedented levels of currency
devaluation, unseasonable weather
during Q3 and some geo-political
unrest; our International business grew
profits by 7.6% to £45.3 million.
The potential of our International
business is clear with the opportunity
for significant new store openings
across all four regions. Based on rolling
three-year plans we, along with our
partners, envisage double-digit
International space growth. During the
year our partners opened a further
152 stores and they now operate from
1,221 stores, which increased space by
13.1% to 2.7 million sq.ft.
18
Mothercare plc Annual report and accounts 2014 Our business model
Our business is fully integrated
across all our 60 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 life
cycle of our product ranges, which we
manage across our global offices in
the UK, India, China, Hong Kong
and 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.
International retail sales, helped by
like-for-like sales growth of 2.5%, were
up 9.3% in constant currencies. Currency
devaluation of 2.8% during the year
resulted in reported retail sales growth
of 6.5% to £721.9 million (FY 2012/13
£677.7 million). The increasing level of
currency devaluation meant that the H1
currency benefit of 1.4% reversed to a
negative impact of 6.9% during H2.
To help mitigate against further currency
impacts, we have hedged our Russian
rouble, Indian rupee and Indonesian
rupiah exposure for the first half of the
new financial year. We will monitor the
situation and consider putting in place
a rolling six-month hedging strategy for
certain of our markets.
Reported International sales, which
reflect receipts from our partners,
were up 5.2% at £262.6 million
(FY 2012/13: £249.7 million).
Europe, our largest region, delivered
positive like-for-like sales growth and
mid single-digit total sales growth in
both constant and moving currencies.
During the year Russia and Turkey in
particular were impacted by an
increasing level of currency devaluation.
It is nevertheless encouraging to
note that after a disappointing Q3
performance, constant currency sales in
Russia reverted back to strong double-
digit growth. The region now has 494
stores across 27 countries. Our partners
opened 61 stores and increased space
by 8.6% year-on-year.
Product concept
Consumer feedback
Product design
Sourcing
Manufacture
Distribution
UK
International
19
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Business review
continued
The Middle East and Africa now has 327
stores in 13 countries. Our partners
opened 18 stores and increased space
by 8.5% year-on-year. After a relatively
weak Q3 performance, it is encouraging
to note that sales growth has reverted
back to more normal levels. For the year
as a whole, like-for-like sales growth was
positive with mid to high single-digit
sales growth in both constant and
moving currencies.
Asia now has 352 stores in 12 countries.
During the year, our partners opened
62 stores and increased space by 28.1%
year-on-year. This region saw mid
single-digit like-for-like sales growth
and double-digit total sales growth in
both constant and moving currencies,
despite the significant levels of currency
devaluation seen in Indonesia
and India.
Latin America now has 48 stores, having
opened a further 11 stores during the
year and increasing space by 15.0%
year-on-year. This region delivered
double-digit like-for-like and total sales
growth for the year.
Together with our franchise partners, we
continue to see growth opportunities
across all four of our regions.
20
UK update
UK like-for-like sales growth
UK direct sales
UK retail sales (including direct)
UK wholesale sales
Total UK sales
Underlying loss
Our aim in the UK remains to build
a multi-channel business supported
by a flexible online business and
a profitable core store portfolio.
UK losses were slightly reduced by
0.5% to £21.5 million (FY 2012/13
£21.6 million). After a disappointing Q3
there was an improvement in Q4 trading
and full year losses are in line with
expectations as revised in January 2014.
We continue to target returning the UK to
profitability and we have made some
operational progress over the last year.
During the year we closed a further
net 35 loss-making stores (seven
Mothercare and 28 Early Learning
Centre) and now operate from 220
stores (189 Mothercare and 31 Early
Learning Centre), compared to
255 stores at the end of FY 2012/13.
This resulted in a 3.8% reduction in
space, ending the year with 1.7 million
sq.ft. of selling space.
The closure of loss-making stores over
the last two years (91 stores and 209k
sq.ft.) has, as planned, had an impact
on total UK sales, which were down
7.5% at £462.3 million (FY 2012/13 £499.7
million). UK like-for-like sales declined
1.9% but are on an improving trend with
FY2013/14
52 weeks to
29-Mar-14
FY 2012/13
52 weeks to
30-Mar-13
% change
vs.
last year
(1.9%)
£134.1m
£432.6m
£29.7m
£462.3m
(£21.5m)
(3.6%)
£127.7m
£468.2m
£31.5m
£499.7m
(£21.6m)
–
+5.0%
(7.6%)
(5.7%)
(7.5%)
+0.5%
a decline last year of 3.6% and a fall of
6.2% in the year before that. Direct has
benefited from the improvement in our
online platform, customer interface and
improved service with Direct in Home
growing 5.9% to £99.3 million (FY 2012/13
£93.8 million) and Direct in Store growing
2.7% to £34.8 million (FY 2012/13 £33.9
million). Direct, for both channels, now
accounts for 29.0% of total UK sales with
click-and-collect now accounting for
over a third of all online sales. We will
shortly be launching our first tablet app,
having seen mobile grow to circa 35% of
our online traffic. We expect continuing
growth in our Direct business and it is
important because online customers
spend twice as much as our store only
customers and multi-channel customers
spend twice as much again.
Over the year we have refitted 11 stores,
right-sized one and relocated another.
As we continue our work to reshape the
UK store portfolio, we are also investing
in the continuing store base, which
remains a critical part of supporting
our multi-channel strategy in the UK.
We now have two outlet stores in
Rotherham and Fort Kinnaird, selling
prior season stock. This is helping us
clear end-of-season stock faster while
also allowing our core stores to sell
more full margin product. In addition we
have, in the last few weeks, started to
trial a Clothing focused format with a
small essential Home & Travel segment.
Mothercare plc Annual report and accounts 2014 Summary and outlook
This has been a challenging year
for Mothercare. Whilst Q3 was a
disappointment, following a relatively
encouraging set of Interim results, it is
pleasing to see trading performance
recover in Q4 for both International
and the UK.
Despite currency and political
headwinds in some overseas markets,
we remain confident of continued
progress in our core growth markets
and our partners’ rolling three-year
plans give us visibility of future
International space growth at
double digit rates.
In the UK, we continue to close loss-
making stores, invest in the continuing
store portfolio and improve product,
value, service and our customers’
shopping experience both in store and
online. We are managing the business
tightly and our goal remains to return
the UK to profitability.
Whilst the Home & Travel segment
remains challenging and very
competitive, we have made progress
with our suppliers towards increasing
the level of exclusivity in our ranges.
This last year saw successes with the
exclusive Bugaboo Cameleon3 Navy
selling out and the Silver Cross Blue
Bubbles and Pink Butterflies Pop
Strollers selling ahead of plan. The
Mothercare Nanu range, strollers
suitable from birth, was also extended
and was popular with our more
value-driven customers. We are
continuing the dialogue with our
suppliers, working in partnership with
them as the market leader in this
segment to deliver more exclusives
at good value for our customers.
The furniture ranges, which were
launched in the summer and presented
in room sets, are also continuing to
perform well.
The Early Learning Centre ranges are
an integral part of the Mothercare
Toy category. We continue to invest
in product with increased newness
helping this segment of our business.
The new ‘Toy Box’ range and the ‘Royal
Baby’ set launched on the day Prince
George was born have been important
ranges for us this year.
Overall customer perceptions
are improving as a result of the
improvement in product, stores and
service. We continue to score highly on
our ‘My Customer’ satisfaction surveys
with scores consistently above 75, which
represents the proportion of customers
who are highly satisfied. Whilst we score
highly for staff friendliness, helpfulness
and availability and time spent in
queues, we have not made as much
progress in product availability and
this remains an area of focus for us.
Over the course of H2 we launched
‘My Mothercare’, our improved loyalty
scheme which captures life stage data
and aims to improve customer service,
and a new Customer Relationship
Management system, which has
already built a customer database of
over 1 million. This will give us greater
insight into our customers’ shopping
habits and allow us to tailor our email
marketing campaigns.
We continue to manage the business to
optimise cash gross margins. We have
managed stock levels tightly whilst
market conditions, particularly in
Home & Travel, have remained
very competitive. With the highly
promotional pre-Christmas period,
gross margins were down circa 200
basis points during H2, which combined
with a similar decline in H1 has resulted
in a circa 200 basis point margin decline
for the year as a whole.
We have made further progress with
Clothing product over the year.
Newborn ranges have done
particularly well with the new premium
‘Stars and Dream’ range selling well as
a gifting option over the Christmas
period. The lower price point and
improved fashion also helped our
maternity brand ‘Blooming Marvellous’
and the successful ‘Little Bird’ range,
designed by Jools Oliver, was extended
to more stores.
21
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements temperatures during the winter which
held back sales but sales have reverted
back to expected trends for the Spring/
Summer season. This region has
delivered high single-digit space
growth despite it being our oldest.
Asia continues to offer good growth
opportunities from China and India.
Notwithstanding the currency impacts
from Indonesia and India, this region
delivered double-digit reported retail
sales growth. Latin America is still
relatively new and we are now in seven
countries with 48 stores.
Our partners continue to actively seek
out opportunities for growth and are
keen to explore the opportunity for
moving to a multi-channel format.
These markets are not as mature as the
UK and many of our partners find that
they are amongst the first retailers to
make the transition, which means
building out and testing the delivery
platforms. Even so we have made
progress and now have nine
transactional sites in eight countries
and one non-transactional site, with
each of our regions represented.
Jerry Cull
Managing Director – International
Divisional review
International
Over the last year,
our partners grew
space by 13.1% and
now have 2.7 million
sq.ft. of retail space
with 1,221 stores in
59 countries.
Jerry Cull
Managing Director – International
International space
Mar-14
Mar-13
Mar-12
2,656k sq.ft.
2,347k sq.ft.
2,068k sq.ft.
+2.5%
International like-for-like sales
(excluding Australia and New Zealand)
International like-for-like sales
remain positive at 2.5%.
22
Our International markets have
delivered another year of solid sales
and profit growth, despite significant
levels of currency devaluation
and some geo-political unrest.
Our partners remain confident of their
ability to deliver double-digit space
growth in the future, as they have done
over the last few years.
Our franchise partners’ knowledge
of their markets and their enthusiasm
for both our brands is unrivalled.
They remain committed to the business
and their forward plans give me
confidence that we can look forward
to another year of double-digit
space growth.
Over the last year, our partners
grew space by 13.1% and now have
2.7 million sq.ft. of retail space with
1,221 stores in 59 countries. This increase
in space combined with like-for-like
sales of 2.5% resulted in retail sales
growth of 9.3% in constant currency.
The adverse currency impact of 2.8%
meant reported retail sales growth was
a bit weaker at 6.4%. Losses from our
joint ventures in China, India and the
Ukraine were further reduced and we
ended the year with International profits
up 7.6% to £45.3 million.
I am encouraged to note that despite
the increasing level of currency
devaluation over the course of the
year and the geo-political unrest
experienced by some of the markets in
which we operate; all four regions have
delivered positive like-for-like sales and
retail sales growth in both constant and
reported currencies. Europe has had
a tough year with Russia and Turkey
in particular impacted by currency
moves and the Ukraine impacted by
demonstrations outside our flagship
store in Union Square. Faced with
these difficulties our partners have
demonstrated their spirit by keeping
stores open and serving customers,
thus helping to deliver the results for
the year. The Middle East and Africa
experienced unseasonably warm
Mothercare plc Annual report and accounts 2014 UK
We have remained
focused on our goal
of returning the UK
to profitability.
Matt Stringer
Commercial Director – UK
UK space
Mar-14
Mar-13
Mar-12
1,737k sq.ft.
1,805k sq.ft.
1,946k sq.ft.
-1.9%
UK like-for-like sales
Our Direct business is now in
growth and supporting like-
for-like sales, which are also
being helped by our strategy
of closing loss-making stores.
Our store portfolio has also benefited
from further investment. During the year
we refitted 11 stores, right-sized one and
relocated another store. We now have
two outlet stores that are helping our
core stores transition more cleanly to
new season stock. In addition we are
trialling a clothing focused format.
We have also improved our online
offer. The platform is improved and is
augmented by an iPhone and Android
app, with the iPad app soon to be
launched. Our stores and online work
well together and over a third of all
online orders are now collected in store
This investment has resulted in both
Direct in Home and Direct in Store
growing during the year.
Our customers are noticing the changes
we are making and are pleased
with the results as our ‘My Customer’,
survey scores would indicate. We are
now consistently scoring highly in all
areas bar stock availability and this is
an area of focus for the year ahead.
So as you can see, we are moving the
UK in the right direction with improved
product and customer service both in
store and online, growing collaboration
with suppliers and investment in both
stores and online. We still have a lot of
work ahead of us, but we have made a
start and need to work on these themes
for the year ahead.
Matt Stringer
Commercial Director – UK
UK underlying losses are slightly
reduced from the previous year.
We have made progress by closing a
further net 35 loss-making stores and
reducing operating costs while also
improving our customers’ experience
both in store and online. However, the
financial gains from this progress have
been eroded by weaker than expected
trading over peak and by the pressure
on gross margin, particularly in the
Home & Travel category.
After an encouraging set of H1 results,
the Q3 trading update was a
disappointment. Even so we have
remained focused on our goal of
returning the UK to profitability, core
to which is our strategy of closing
loss-making stores and reducing the
operating cost base. During the year
we reduced space by 3.8% by closing
a further net 35 stores, which reduced
losses by £4.2 million. Our operating cost
saving initiatives reduced losses by
a further £7.4 million. These were offset
by weaker than expected trading,
particularly in gross margin. This led to
UK losses of £21.5 million for the year
(FY 2012/13: £21.6 million).
We are clear that we need to stem
this continued margin pressure.
As the market leader in many of our
categories, we are an important route
to market for our supplier base.
Over the last year, we have had
successful exclusives like the Bugaboo
Cameleon Navy and the Silver Cross
Pop Stroller ranges. These have sold
through well and we are working with
our suppliers to increase the level of
collaboration to ensure we offer our
customers quality product at good
value and where appropriate exclusive
to us. Our new furniture ranges are also
doing well with the Padstow popular
with customers and new room sets
allowing customers to visualise our
product in their homes. Our Clothing
ranges have also benefited from
improved fashion at prices that are
in line with the market.
23
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Financial review
Results summary
Group underlying profit before tax increased by £3.6 million
to £9.5 million (2012/13: £5.9 million). Underlying profit
excludes exceptional items and other non-underlying
items which are analysed below. After these non-
underlying items, including a non-cash negative foreign
currency swing of £21.8 million compared with 2012/13, the
group recorded a pre-tax loss of £26.3 million (2012/13: loss
of £23.9 million). Underlying profit from operations before
interest and the IFRS 2 share based payments charge
increased by £3.3 million to £16.0 million.
Non-underlying items
Underlying profit before tax excludes the following
non-underlying items (see Note 6):
Exceptional items (see Note 6):
B Restructuring costs of the UK and head office
organisation totalling £6.8 million.
BA credit of £1.2 million against previously charged
costs incurred in the rationalisation of the group’s
online warehousing.
BImpairment of investment in Ukraine joint venture
of £2.6 million.
Income statement
£ million
Revenue
Underlying profit from operations
before interest and share based
payments
Share based payments
Net finance costs
Underlying profit before tax
Exceptional items and unwind of
52 weeks
ended
29 March
2014
52 weeks
ended
30 March
2013
Restated*
724.9
749.4
16.0
(0.1)
(6.4)
9.5
12.7
(0.9)
(5.9)
5.9
discount on exceptional provisions
(19.9)
(35.7)
Non-cash foreign currency
adjustments
Amortisation of intangible assets
Loss before tax
Underlying EPS – basic
EPS – basic
(14.9)
(1.0)
(26.3)
7.7p
(31.0p)
6.9
(1.0)
(23.9)
4.2p
(26.9p)
* Restated for amendments to IAS 19 as explained in Note 2.
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).
BStore impairment provision in relation to the UK business
of £2.7 million.
BProperty related exceptional costs of £8.2 million.
BCosts relating to re-financing completed in October 2013
of £0.8 million.
Exceptional items in 2012/13 included £11.1 million of write off
costs for the Australian associate, £18.1 million of property
related costs, £1.8 million store impairment provision in relation
to the UK business, £4.2 million restructuring costs of the UK
and head office organisation and £0.5 million of other
exceptional costs.
Other non-underlying items:
BNon-cash adjustments principally relating to marking
to market of commercial foreign currency hedges at the
period end (£14.9 million charge compared with a £6.9 million
credit in 2012/13). 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.
BAmortisation of intangible assets (excluding software).
24
Mothercare plc Annual report and accounts 2014 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/(loss)
UK
International
Corporate
Profit from operations before share
based payments
Share based payments
Net finance costs
Underlying profit before tax
52 weeks to
29 March
2014
52 weeks to
30 March
2013
462.3
262.6
724.9
499.7
249.7
749.4
52 weeks to
29 March
2014
52 weeks to
30 March
2013
Restated*
(21.5)
45.3
(7.8)
16.0
(0.1)
(6.4)
9.5
(21.6)
42.1
(7.8)
12.7
(0.9)
(5.9)
5.9
* Restated for amendments to IAS 19 as explained in Note 2.
UK retail sales have declined year on year due to store
closures and declining like-for-like sales across the store
estate and were partially offset by increases in our Direct in
Home business. The impact of declining sales and margins
has been offset by the benefit from the property strategy, with
the continued exit from loss-making stores and tight cost
control, leaving losses in line with prior year.
International has benefited from increased royalties driven
from higher network sales offset by the impact of adverse
foreign exchange movements. International profit also
includes losses in joint ventures which have reduced during
the year.
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 £0.1 million (2012/13: £0.9 million) in relation
to the Company’s long-term incentive schemes. There are
a number of long-term share based incentive schemes
including the Long Term Incentive Plans, the 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 29 on page 125.
The charges as calculated under IFRS 2 are theoretical
calculations based on a number of market based factors
and estimates about the future including estimates of
Mothercare’s future share price, future profitability and total
shareholder return (TSR) in relation to the General Retailer’s Index.
As a result it is difficult to estimate or predict reliably future charges.
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 sales/Group network sales
* Estimated.
Reported sales
Network sales*
52 weeks
ended
29 March
2014
52 weeks
ended
30 March
2013
52 weeks
ended
29 March
2014
52 weeks
ended
30 March
2013
432.6
29.7
462.3
255.3
7.3
262.6
724.9
468.2
31.5
499.7
242.0
7.7
249.7
749.4
432.6
29.7
462.3
721.9
7.3
729.2
468.2
31.5
499.7
721.0
7.7
728.7
1,191.5
1,228.4
25
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Financial review
continued
Financing and taxation
Financing represents interest receivable on bank deposits, interest payable on borrowings, the amortisation of costs relating
to bank facility fees and the net interest charge on the liabilities/assets of the pension scheme (see Note 30).
The underlying tax charge comprised current overseas taxes and is offset by UK deferred tax. The effective tax rate is 28.4%
(2012/13: 37.3%). The effective tax rate is higher than the standard tax rate of 23% mainly due to higher overseas tax rates.
An underlying tax charge of £2.7 million (2012/13: £2.2 million) has been included for the period and in total the tax charge
was £1.2 million (2012/13: credit of £0.1 million).
Pensions
The Mothercare defined benefit pension schemes were closed with effect from 30 March 2013. Details of the income statement
net charge, total cash funding and net assets and liabilities are as follows:
£ million
Income statement
Service cost
Running costs
Net interest on liabilities/ return on assets
Exceptional 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
Net liability
* Restated for amendments to IAS 19 as explained in Note 2.
** Estimate.
52 weeks
ending
28 March 2015**
52 weeks ended
29 March 2014
52 weeks to
30 March 2013
Restated*
–
(1.1)
(2.1)
–
(3.2)
(0.6)
(5.8)
(6.4)
n/a
n/a
–
–
(1.1)
(2.7)
–
(3.8)
(0.6)
(5.6)
(6.2)
253.3
(303.0)
(49.7)
(2.4)
(0.8)
(2.6)
3.3
(2.5)
(2.0)
(5.2)
(7.2)
234.8
(296.4)
(61.6)
The gains on curtailment in 2012/13 were due to the closure of the Mothercare Staff and the Mothercare Executive
Pension schemes.
In consultation with the independent actuaries to the schemes, the key market rate assumptions used in the valuation
and their sensitivity to a 0.1% movement in the rate are shown below:
2013/14
2012/13
2013/14
Sensitivity
2013/14
Sensitivity
£ million
4.5%
3.4%
2.4%
4.6%
3.4%
2.4%
+/- 0.1% +6.5/-6.5
+/- 0.1% +5.5/-6.3
+/- 0.1% +5.5/-6.3
Discount rate
Inflation – RPI
Inflation – CPI
26
Mothercare plc Annual report and accounts 2014 Balance sheet and cash flow
The balance sheet includes identifiable intangible assets
arising on the acquisition of the Early Learning Centre of
£6.8 million and goodwill of £26.8 million. These assets are
allocated to the International business.
The group continues to generate operating cash, with cash
generated from operations of £5.7 million. Income taxes of
£1.7 million were paid in the year resulting in net cash flow from
operating activities of £4.0 million.
We have made further investment in our joint ventures
during the year to drive the growth in International, including
£2.9 million in China.
After investing £10.9 million of capital expenditure (£10.2 million
net of lease incentives received), the net debt position at the
year end is £46.5 million (2012/13: Net debt of £32.4 million).
Going concern
The accounts have been prepared under a going concern
principle. For full details please see the corporate
governance report on page 43.
Capital additions
Total capital additions in the year were £12.2 million (2012/13:
£12.5 million), including £3.3 million for software intangibles
and £5.8 million invested in UK stores. Landlord contributions
of £0.7 million (2012/13: £3.5 million) were received, partially
offsetting the outflow. Net capital additions after landlord
contributions was £11.5 million (2012/13: £9.0 million).
Earnings per share and dividend
Basic underlying earnings per share were 7.7 pence
compared to 4.2 pence last year. The board has concluded
that given the cash investment required to deliver the
Transformation and Growth plan the Company will
not pay a final dividend for 2013/14. The total dividend for the
year is nil pence per share (2012/13: nil pence 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 reported sales represent approximately 36% of
group sales. Total International sales represent approximately
61% of group network sales. The group has some currency
exposure on these sales, as local sales are translated into
sterling amounts on which royalties are calculated. Given the
devaluation of a number of currencies during the year
including the Russian rouble we have seen International retail
sales grow at 9.3% at constant exchange rates but only 6.5%
at moving exchange rates (excluding Australia and New
Zealand from 2012/13). Historically these royalty receipts have
not been hedged. To help mitigate against further currency
impacts, we have hedged our Russian rouble, Indian rupee
and Indonesian rupiah exposure for the first half of the new
financial year. We will monitor the situation and consider
putting in place a rolling six-month hedging strategy for
certain of our markets. The group continues to hedge all
material exposures resulting from purchases by using forward
currency contracts.
Interest rate risk
The group has drawn down £40.0 million on its term borrowing
facility and £25.0 million on the revolving credit facility offset by
cash of £17.3 million and the amortised facility fee of £1.2 million.
The group hedges all of the floating interest rate on this term
facility using interest rate swaps. These financial instruments
are accounted for as a cash flow hedge with changes in
the fair value of the financial instrument that are designated
as effective recognised in comprehensive income and
any ineffective portion recognised immediately in the
income statement.
Shareholders’ funds
Shareholders’ funds amount to £15.2 million, a decrease of
£23.6 million in the year driven largely by the loss before tax.
This represents £0.17 per share compared to £0.44 per share
at the previous year end.
27
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements KPIs – Financial and non-financial
Measuring our performance
International profits
Mar-14
Mar-13
Mar-12
£45.3m
£42.1m*
£34.6m*
International profits were up 7.6% to
£45.3 million, despite some of the
markets in which we operate suffering
from a significant level of currency
devaluation, geo-political unrest
and unseasonably warm weather
during Q3.
* Restated for IAS 19.
£45.3m
International space
(excluding Australia and New Zealand)
Mar-14
Mar-13
Mar-12
2,656k sq.ft.
2,347k sq.ft.
2,068k sq.ft.
Our franchise partners opened an
additional 152 stores, increasing space
by 13.1% to 2,656k sq.ft. across the 59
markets in which they operate.
2,656k
sq.ft.
Average length of services of
store based employees
Mothercare
Mar-14
Mar-13
Mar-12
Early Learning Centre
Mar-14
Mar-13
Mar-12
6.1 years
6.4 years
6.0 years
5.9 years
5.8 years
5.8 years
Our store employees, at both
Mothercare and Early Learning Centre,
continue to feel a strong affinity with our
brands. Their commitment to the brands
is clear in their continued support and
length of service, which is higher than
the average for retailers.
6.1
years
We have an above average number
of women in senior management
positions. At the end of FY 2013/14,
women held 18 of the 35 senior
management positions in the
group across all our offices.
51%
51%
49%
53%
Women in senior
management positions
Mar-14
Mar-13
Mar-12
28
Mothercare plc Annual report and accounts 2014 UK profits/(losses)
-£21.5m
-£21.6m*
-£25.2m*
Mar-14
Mar-13
Mar-12
UK losses are in line with the previous
year at £21.5 million. Progress made
with closing further loss-making stores
and reducing operating costs was
offset by weaker than expected
trading. Our goal to return the UK
to profitability remains.
* Restated for IAS 19.
£21.5m
UK operating cost
reduction of £20m
-£5.0m
-£7.0m
-£8.0m
Mar-15
Mar-14
Mar-13
Our three-year Transformation and
Growth plan envisages reducing
operating costs by £20 million over
three years. We reduced costs by
£8 million in FY 2012/13 on an annualised
basis and have further reduced costs
by £7 million this year.
UK store numbers
Mar-14
Mar-13
Mar-12
220 stores
189 Mothercare and 31 ELC
255 stores 196 Mothercare and 59 ELC
Target achieved
We closed a further net 35 loss-
making stores in the UK. As a result,
we now operate from 220 stores –
189 Mothercare and 31 Early
Learning Centre.
220
stores
311 stores
209 Mothercare and 102 ELC
29
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Risks
Principal risks
and uncertainties
The board takes overall responsibility for risk management
with a particular focus on determining the nature and extent
of significant risks it is willing to take in achieving its strategic
objectives. The Audit and Risk Committee takes responsibility
for overseeing the effectiveness of sound risk management
and internal control systems.
The Company must report its principal risks and uncertainties
in its annual Strategic Report, in addition to providing
some explanation of its internal risk management process.
The table below sets out the principal risks and uncertainties,
and indicates the directional change of perceived net risk
over the year.
The Executive Committee is responsible for delivering the
Company’s strategy and managing operational risk, and the
internal risk management process has been formalised
through the Risk Committee which acts as a forum to monitor
and manage risk processes and to assess and identify any
emerging risks.
Key:
Increase in risk over the year
No change
Impact
Mitigation
Change
Financial
Risk
B The group fails to meet its
financial targets
B LFL sales in the UK do not meet
expectations and forecasts
B Financial pressure and
capital constraints
BAdverse publicity and
media coverage
B Ultimately, could lead to a
potential breach of covenants
contained in bank facility
agreements leading to Event
of Default
B Weaker UK consumer confidence
continues to impact profit
and performance
B Loss of supplier confidence
BLoss of market share
B Unforeseen additional cash
funding to support international
joint venture operations
B Diverts cash away from the
UK business
B May delay UK business turnaround
B Material changes in currency
exchange rates
BReduction in profit from
currency movements
30
B Redefined Transformation and
Growth plan with Project
Management Office scoped to
track project contribution
B Renegotiated bank facility to
safeguard future financing needs
BAlternative financing options to
supplement bank facility
BProduct range and pricing
being adapted to meet
customer demand
B Reshaped UK business team
BNew price and value strategy
supported by promotional activity
B Improved ‘Direct to Customer’
channel including ‘Collect in Store’
B Restructuring of overseas Sourcing
Offices buying processes and
procedures to improve margin
B Joint ventures submit business
plans and management reports
monthly to the Company
B Attendance at joint venture
company board meetings
BCurrency hedging now
put in place to protect the group
profit against unfavourable
movements in exchange rates
Mothercare plc Annual report and accounts 2014 Financial continued
Risk
Impact
Mitigation
Change
BAccelerated store closure
BOngoing cost to the Company
B Dedicated and experienced
programme does not meet targets
if no closure
property team
BStore closure programme diverts
capital, impacts customer brand
perception
BStore closure programme leaves
the business vulnerable to failure
by sub-lease tenants
B Uncertainty in the
macroeconomic environment
B Greater than anticipated costs
B Store portfolio strategy completed
of closure
B Reduces cash available to UK
or International business
B Potential for leases to revert back
to the Company if failure by
sub-lease tenants
B International businesses may be
impacted in affected regions
B Increase in cost of goods impacts
franchisee margin
BPotential for increase in bad debts
in 2013 and reviewed annually
BTrack record of meeting annual
closure targets
B Strong franchise partners; close
working relationship with
franchisees ensures early
awareness of any financial issues
BCredit insurance in place
and tested
B Limited exposure to
Eurozone economies
BRoll out franchisee
website offerings
BPolitical risk and uncertainty in
key franchise markets and joint
venture markets
B The group becomes vulnerable
to key markets and franchise
partners
BStrong franchise operations work
closely with International
franchisees
B Over exposure in certain
International territories
B Profitability of International
BCredit insurance in place
business and franchisees affected
and tested
B Increased fuel and commodity
prices reduces profitability
BSustainable expansion plans
finalised with franchisees
Operational
BThe UK business fails to deliver on
BLoss of market share and erosion
brand standards, or react to
changes in consumer demand or
existing or new competitor activity
of brand loyalty
BLoss of sales leading to a shortfall
in profits
B Improvements being made at
store level through better store
operations, staff training and store
standards
BCustomer satisfaction programme
launched and embedded
BStructured pricing policy
and strategy
B Product range and pricing
being adapted to meet
customer demand
31
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Risks
Principal risks
and uncertainties
continued
Manufacturing and Product
Risk
Impact
Mitigation
Change
BThe group fails to meet its
reputation for quality, safety
and integrity
BDamage to brand reputation and
customer confidence
BFailure to handle any safety issue
with dexterity would attract
unfavourable media comment
and impact sales
B Increasing overseas sourcing
activity leaves the group open
to social responsibility and
bribery issues
B Damage to brand reputation,
both in the UK and country of
issue origin
BIncreasing environmental impact
of importing large volumes of
product causes damage to brand
and reputation
BSignificant group investment in
product quality management
resource
BHigh standards communicated
throughout supply chain
BIn-house responsible sourcing
team working in Bangladesh, India
and China
BGlobal code of conduct
communicated and applied
through the system
B Focus on pre despatch
quality checks
BThe Company has signed the
Bangladesh Safety Accord to help
improve factory safety
B Company Code of Conduct and
Conflict of Interest – compliance
certification
B In-house responsible sourcing
team working in Bangladesh, India
and China
BRevised Sourcing Office summary
of ‘Controls and Procedures’ issued
BThe group is looking to increase
sourcing from within the EU
BFailure to invest properly in
product innovation
BNew products and innovation are
B The group maintains an ongoing
a key driver of sales
B Product offering looks tired and
fails to attract customers
investment strategy in new
products
B Launch of new products and
ranges delivered in FY 2013/14 with
further planned launches in
FY2014/15
B Extended Baby K and Little
Bird ranges
32
Mothercare plc Annual report and accounts 2014 People and Infrastructure
Risk
Impact
Mitigation
Change
B Organisational change and
headcount reductions lead to
erosion of corporate knowledge
B Key employees leave the business
BThe Transformation and Growth
BDevelopment and approval of key
plan falls behind schedule
BEmployee experience and
expertise is lost
business objectives for all
employees from top down with
regular reviews to monitor
employee performance
BRegular feedback given to
Executive Management through
anonymous internal questionnaire
B Increased level of internal
communications
B Legacy IT systems fail to meet
business requirements
BData Centre back-up fails
BAdverse impact on performance
and ability to meet key targets
BComprehensive IT review
(ongoing)
B Increased risk of data loss through
internal and external sources
B Head Office computing platform
upgraded to facilitate IT strategy
B Systems are vulnerable to criminal
B New till system implemented
B Failure or increase in costs
of the group’s logistics or global
distribution network
cyber attacks
throughout the Mothercare estate
B Microsoft Office 365 solution for all
email activity being built
B Data Centre being moved to an
external specialist data centre
B The UK business or international
B Regular review and audit of
franchisees do not meet customer
demand leading to loss in sales
BErosion of margin
distribution network
BStrengthened and dedicated
expert distribution team
B Benchmarking global rates is
part of the International Supply
Chain routine
33
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Corporate responsibility
In Mothercare we aim to ensure that we conduct ourselves
responsibly, for all our customers, those involved with the
manufacture of our products and their communities, and for
the environment in which we operate. In the last year the
scope of the corporate responsibility (CR) team has been
expanded to provide more proactive management of CR
challenges across all our operations, and have started
initiatives aimed at embedding good CR practice throughout
the organisation.
Our team now comprises 10 professional Responsible
Sourcing Officers, based in China, India and Bangladesh.
The CR team now reports into the UK based Group
People Director.
This report gives an overview of our CSR activities over the
last 12 months and provides an update on the targets we
set ourselves.
Highlights
In FY2014, the Mothercare group:
Bexceeded its UK environmental targets to reduce
B had average service of store based staff of six years at both
Mothercare and ELC stores
Bhad 51% of senior management positions (below board
level) filled by women
B was ranked eighth in the Reputation Institute’s
annual survey.
The strategic direction of our Corporate Responsibility
programme is developed and agreed through the
Corporate Responsibility Steering Committee, which
is chaired by Louise Palmer as Group People Director.
The Committee is made up of members of the Senior
Management Team and includes:
B Mathieu Penverne – Director of Sourcing
B Helen Burgess – Director of Group Property
BPhilippe Dayraud – Group Product Development and
Sourcing Director
BWalter Blackwood – Director of Group Logistics.
greenhouse gas emissions from buildings and transport,
to reduce packaging per £100 of goods and to drive up
waste recycling
The Committee reports to the board through the Audit and
Risk Committee and is supported by the group’s Corporate
Social Responsibility team.
Our Environment
At the end of FY2013, following the completion of a five-year programme of improvements, we set ourselves new targets that
continued to concentrate on our biggest environmental impacts – greenhouse gas emissions, waste and packaging.
Key performance indicators
Objective of key performance indicators
FY2014/15 target
Extending existing targets
Carbon emissions from buildings
Carbon from transport
Packaging
Waste
Introducing new targets
Including International in targets
Continue to reduce carbon emissions from our buildings
Continue to reduce carbon emissions from transporting
5% per annum
5% per annum
our products
Continue to reduce the packaging per £100 of goods we sell
Drive up recycling of our own waste
1% per annum
Maintain at 90%
Extend our approach to corporate responsibility
to our overseas operations
Water in our supply chain
Look for ways to reduce water usage, particularly in areas
of particular stress
Supply chain transparency
Look further and deeper into our supply chain, improving
traceability and control
Four of the targets focus on reducing our impacts in the UK, since this is where the majority of our directly controlled business
lies. The remaining three focus on our overseas operations, as these continue to expand to reflect the growing international
nature of our business.
34
Mothercare plc Annual report and accounts 2014 These two year targets are designed to reflect our Transformation and Growth plan and run to the end of FY2015, ensuring
we continue to operate in a responsible manner, taking into account the communities which are affected by our operations.
They also lay the basis for future investment, once the transformation phase is complete.
Our performance against these targets for FY2014 is shown in the table below, along with other environmental data.
Key performance indicators
2012/13 baseline
2013/14 performance
Annual reduction target
FY2014/15 target
Building energy use (m kWh)
Transport fuel used (m litres)
Transport mileage (m miles)
CO2e emissions (tonnes)*
CO2e emissions (per ‘000 sq.ft.)
Of which:
Buildings
Transport
Packaging used (tonnes, UK only)
Packaging per £100 (kg, UK only)
Recycled waste (tonnes, UK only)
UK store carrier bags used (m bags)
International store carrier bags used
(m bags)
55.2
1.3
3.5
25,000
13.8
21,700
3,300
8,500
17.1
2,900
14.0
6.6
48.7
1.1
3.0
21,300
12.2
18,500
2,800
7,200
15.7
3,900
13.8
7.7
–
–
–
–
–
-5% pa
-5% pa
–
-1% pa
Maintain 90% recycled
–
–
–
–
–
–
–
-15%
-15%
–
-8%
95%
–
–
* Greenhouse gas emissions Methodology: We have reported on all the emission sources required under the Companies Act 2006 (Strategic Report and Directors’
Reports) Regulations 2013. These sources fall within the activities for which we have operational control. There are no material exclusions from this data. The data has
been prepared in accordance with the UK Government’s Environmental Reporting Guidance (2013 version). As a result of the change to the Department for Environment,
Food and Rural Affairs GHG conversion factors for company reporting published in 2013, the CO2e totals have been restated for 2012/13.
Building emissions – target exceeded
We continued to reduce our electricity and gas usage at
our stores, office and at our National Distribution Centre
(NDC) in FY2014, achieving a 15% reduction compared with
FY2013, exceeding our 5% reduction target. This reduction was
achieved in part due to planned store closures and milder
winter temperatures.
Notably, gas consumption at our NDC reduced by a
third while electricity consumption reduced by over 10%.
A new programme of energy efficiency projects contributed
to this reduction. These included a complete ‘power down’
at certain non-operating periods, temperature control
measures that ensure the heating is capped and a series
of educational initiatives such as a ‘switch it off’ campaign.
Buildings energy for FY2014 contains an estimated 23%
kilowatt hours as a result of estimating a proportion of
unreliable electricity and gas data from our stores. To rectify
this situation, new monitoring procedures have been
implemented for FY2015.
Transport emissions – target exceeded
During FY2014 we continued to improve the fuel efficiency
of our fleet. Road miles used in distributing our products
reduced by 14%, yet fuel used reduced by a greater amount,
16%. As a result we have exceeded our 5% CO2e reduction
target, achieving a 15% reduction compared with FY2013.
Packaging handled – target exceeded
Packaging per £100 of goods sold in the UK has fallen
by 8% compared with the previous year, exceeding our
1% reduction target. While lower sales volumes explain
part of the reduction, we also have a number of efficiency
projects underway which have contributed to a reduction in
packaging around our products.
Waste recycling – target exceeded
During FY2014 the waste we sent to landfill reduced to 211
tonnes, the lowest it has ever been. Our NDC is zero waste to
landfill, recycling all of its discarded waste. This year our stores
have focused on improving their recycling waste procedures
and alongside that new, more accurate systems for recording
waste weight have resulted in a total tonnage increase.
However, we have also increased the amount of waste
we recycle to 95%, exceeding our target of maintaining
a 90% recycling rate.
35
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Corporate responsibility
continued
CSR in our International operations and Supply Chain
It is our aim to extend the focus of our CSR activities to our
international operations and at the same time, improve the
environmental impacts of our supply chain. To this end,
we have strengthened our overseas CSR team and
appointed a new Head of CSR, to be based in our
Hong Kong sourcing office.
Our People
We directly employ 5,628 people in the UK and 181 in Asia, not
including those colleagues who work for our global network
of franchisees.
We have a diverse workforce with 18 (51%) of our senior
management roles (not including executive management)
being held by females. Throughout the rest of the business
4,575 (91%) of our UK retail colleagues and 448 (72%) of our UK
office colleagues are female.
We measure employee engagement via our annual
MyVoice survey which ran for the second year in February
2014. The survey is gaining momentum with a response rate
of 85% which was up by 30% on the previous year. The survey
gives colleagues the opportunity to comment honestly
and confidentially about their experience of working for
Mothercare and we were delighted that the highest scoring
areas include having pride in the brands and our focus on the
customer. Each department has committed to an action plan
to work on the feedback that was obtained through this
process. The survey will be run again in the second half
of FY2015.
Business information is shared with colleagues in a variety of
ways such as briefings by the Executive team and via email.
We also circulate a quarterly internal publication called
‘Smalltalk’ to share news stories throughout the business
and celebrate success.
People making our products
The majority of Mothercare products are sourced directly
through our sourcing offices based in India and China.
Our aim is to reduce the risk of poor working conditions by
monitoring our supply base, gaining a better understanding
of the complex issues that affect workers and working to
provide better workplaces for them. Our Responsible
Sourcing Code of Conduct and Implementation Policy are
continuously reviewed and updated to ensure that they
reflect our goals and challenges. These are issued to all
suppliers and are available online: www.mothercareplc.com
Our Responsible Sourcing Team is made up of ten dedicated
professionals located regionally in our Sourcing Offices.
The team works directly with the suppliers and factories we
source from in Bangladesh, China and India to understand
the issues and help them to make improvements to working
conditions in the supply chain.
Their work is supported by the third party audit information
we obtain through SEDEX (www.sedexglobal.com). By using
third party audit information and our own internal team, we
aim to increase the visibility we have over the supply chain,
which then allows us to focus on working with factories to
make improvements.
The issues highlighted are often industry-wide and are not
limited to individual factories. In order to tackle these sorts
of issues, we continue to be members of the Ethical Trading
Initiative (ETI) (www.ethicaltrade.org). This platform enables
us to have a dialogue with other retailers, non-governmental
organisations and trade unions, and to work together on
programmes that tackle endemic issues that can’t be
resolved by individual retailers.
The Responsible Sourcing (RS) team is working to a strategy,
which aims to embed Responsible Sourcing and good
environmental practices in the day-to-day culture of the
Mothercare business.
In previous years the focus of the RS Team has been on the
first tier of our supply base. In FY2013 96% of our supply base
was registered on SEDEX and third party audit information
was provided for 84% of factories. In the last year the scope
of the RS team has been extended to full service supply (FSS)
base. The RS teams are currently working to ensure that all
existing and prospective FSS suppliers to Mothercare have
completed the audit process and data is available for
checking on the SEDEX database.
Mothercare also continues to work with other brands and
retailers, through the platform of the ETI, to understand
and remedy the issues found deeper in the supply chain
(e.g. spinning mills, homeworkers etc). We have targeted our
resources at the specific areas of spinning mills in South India
and homeworkers in China, as we know that these industries
have specific issues that we can begin to address by working
together. In doing so, we have been able to develop methods
for dealing with such issues in collaboration with others, and in
our own supply chains.
Update from the Far East region
The team based in the Far East region has recently expanded
to six Responsible Sourcing professionals, based in Shanghai
and Guangzhou. The team is dedicated to maintaining
an effectively operated audit program and Supplier
Development Program (SDP), and continuously seeks to
improve the quality of audits, and follow-up action plans.
36
Mothercare plc Annual report and accounts 2014 The team recognises that an essential part of CSR is the
education of the Mothercare Sourcing Teams and Buyers.
The Responsible Sourcing Team, Far East, has recently been
focused on embedding CSR into sourcing practices, through
induction training, workshops and the development and
introduction of a light touch audit. The light touch audit is
specifically designed to enable all teams within Sourcing
including Technology, Quality and Purchasing to conduct
audits during visits to suppliers. Simple cue cards are used to
support this process, which outline the common issues and
different risk levels. Light touch audits have proved an
invaluable input to the process and a good way of
embedding CSR awareness throughout all Sourcing activities.
Human Rights, in particularly child rights are one of the
core concerns of the Far East team. In addition to all the work
done by the team to eliminate child labour in the supply
chain, the team also supported Save the Children as part
of Mothercare’s global campaign launched in 2010 to
raise £1.75 million over three years for Save the Children.
The Responsible Sourcing Far East Team also supports
local community projects by Save the Children, such as
Breastfeeding Awareness Week, Knit One Save One,
donation of bookends to schools, donation of clothes
and caps for children suffered from Gansu flood.
Update from the South Asia Team
The team in South Asia comprises four full time professionals,
specialising in social and environmental compliance.
The Sourcing countries in the region are India, Bangladesh
and Sri Lanka.
Over the last year, 100% of new factories were visited and
assessed by the RS team to ensure their compliance to our
social and environmental standards before being brought
on board.
The RS team also regularly conducts random validation
checks of third party auditors to ensure the quality and
reliability of audits conducted.
Signing ACCORD in Bangladesh: Though not directly
impacted by the Rana Plaza tragedy in April 2013, we continue
to make concentrated efforts to ensure that factories in
our supply chain meet building, fire and electrical safety
standards. We have signed the ACCORD and are committed
to ensuring that the Safety standards are constantly
monitored and improved.
Working with ETI to address concerns regarding South
Indian Mills: It is not possible for Mothercare alone to resolve
the current high profile issues relating to ‘Sumangali’ – the
practices related to employment of young women in mills,
as we do not have a direct relationship with the mills. We have
therefore joined a consortium with ETI to work on a three-year
program on Sumangali Intervention which involves
highlighting Sumangali practices where they exist and
working with Mill owners to address concerns. We are also
are part of the Tirupur Stakeholders Forum (TSF), which
works to resolve issues related to Sumangali.
In addition to working with Sourcing teams and suppliers
to ensure compliance to our CSR standards, we work with
and support the local communities associated with our
supply base.
Art to Care competition
There was a drawing competition held for suppliers across
India for the children of workers from the age group from 0-12
years. This was done in collaboration with Save the Children.
More than 5,000 children of our suppliers across India
participated in the competition. In addition to winners’
trophies, all participating children were provided with
a participation certificates.
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 providing education
and information to parents in the community, our Born to Care
Partnership with Save the Children and sponsorship of
National Breastfeeding week.
Providing a place for mums to meet with children’s
play facilities
We have recently opened Mumspace stores in Romford,
Edmonton, Southampton, Leeds and Dudley. These offer a
meeting room for regular parent and baby/child activities.
A wide range of classes take place during the week within
these stores.
Events
My Mothercare Events are run in around 130 of our UK stores,
three times a year for first-time expectant parents (usually in
February, June and October). In-store experts give advice
on in-car safety, sleep safety and nursery, pushchair choices
and the best toys for baby’s first year. Midwives and Health
Visitors frequently attend to give advice and the British Red
Cross offers first aid advice to parents wherever trainers
are available.
The My Mothercare website has the events details:
www.mymothercare.com
Awards received
This year Mothercare received Prima Baby and pregnancy
awards: Bronze, Silver and Gold.
37
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Board of directors
1
2
3
4
5
6
7
8
Committee Memberships key:
A Audit and Risk Committee R Remuneration Committee N Nomination Committee F Full board member
R N F
1. Alan Parker CBE
Chairman
Appointed in August 2011.
Executive Chairman of Mothercare plc
from 17 November 2011 to 30 April 2012.
Non-executive chairman of Darty plc
and non-executive independent director
of Burger King Worldwide Inc. President
and Chairman of the British Hospitality
Association. Formerly Chief Executive of
Whitbread plc and Managing Director
EMEA of Holiday Inn, and non-executive
director of Jumeirah Group LLC.
F
2. Matt Smith
Chief Financial Officer
Appointed in March 2013.
Formally Finance Director of Argos, part
of Home Retail Group plc. Matt has spent
ten years in senior financial roles at Home
Retail Group, and also had responsibility
for supply chain, distribution and IT. Prior
to Home Retail Group, Matt worked
at KPMG both in London and Sydney,
becoming a director in its corporate
finance department. Matt is a
Chartered Accountant.
R N F
3. Angela Brav
Non-executive Director
Appointed in January 2013.
Chief Executive Officer of InterContinental
Hotels Group PLC. Angela has held
various senior roles within the group
since joining in 1991 including Senior Vice
38
President, Americas franchise operations
and applied technology, senior vice
president, applied technology for the
Americas region, senior vice president,
integrated technology solution and senior
vice president, quality and service. Angela
has also worked at IHG’s headquarters
in Brussels, Belgium and Guadalajara,
Mexico.
N F
A
4. Lee Ginsberg
Non-executive Director
Appointed in July 2012.
Non-executive director and chair of
the audit committee at Trinity Mirror
plc. Previously Chief Financial Officer of
Domino’s Pizza Group plc (until 2 April
2014) and prior to this Group Finance
Director at Health Club Holdings Limited,
formerly Holmes Place plc where he also
served as Deputy Chief Executive. Lee is
a Chartered Accountant having qualified
with PricewaterhouseCoopers.
N F
A
5. Amanda Mackenzie OBE
Non-executive Director
Appointed in January 2011.
Chief Marketing and Communications
Officer of Aviva plc. A member of Aviva’s
Executive Committee and Executive
sponsor for diversity. A member of Lord
Davies’ steering group to increase the
number of women on boards; a board
member of the National Youth Orchestra
and a past President of the Marketing
Society. Amanda was awarded an OBE in
the 2014 New Year Honours List for services
to marketing.
R N F
6. Richard Rivers
Non-executive Director
Appointed in 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.
R N F
7. Imelda Walsh
Non-executive Director
Appointed in June 2013.
Non-executive director and chair of the
remuneration committee of William Hill
plc and Mitchells & Butlers plc. Formerly
Group HR Director of J Sainsbury plc,
non-executive director and chair of the
remuneration committee at Sainsbury’s
Bank plc, and previously with roles at
Barclays plc, Coca-Cola & Schweppes
Beverages Limited and Diageo plc.
N F
A
8. Nick Wharton
Non-executive Director
Appointed in November 2013.
Chief Executive Officer of Dunelm Group
plc. Formerly Chief Financial Officer of
Halfords Group plc, and with finance
and international positions at The Boots
Company plc and Cadbury
Schweppes plc.
Mothercare plc Annual report and accounts 2014
Executive committee
1
3
4
5
6
7
1. Mark Newton-Jones
Interim Chief Executive Officer
Appointed March 2014.
Formerly the Group CEO of Shop Direct.
Prior to Shop Direct, Mark held various
director roles at Next plc, and has almost
30 years of retail experience.
2. Matt Smith
Chief Financial Officer
(See opposite page for biography)
3. 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.
4. Philippe Dayraud
Group Product Development
and Sourcing Director
Appointed September 2012.
Formerly Chief Product Officer of Pimkie
International (international ladies fashion
chain with over 750 shops globally);
Chief Product Officer of Kiabi for six
years; together with various product and
sourcing executive roles.
5. Louise Palmer
Group People Director
Appointed November 2012.
Formerly a partner at The Inzito
Partnership (premium executive search
firm), and a founder of 7days (specialist
organisational improvement consultancy);
Head of Organisation Design at
British Airways.
6. 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.
7. Matt Stringer
UK Commercial Director
Appointed February 2013.
Formerly Managing Director of Carphone
Warehouse; various roles at M&S including
International Operations Director and
Head of GM Stock Management and
New Buying.
39
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements
Corporate governance
Our stakeholders
demand high
standards of corporate
governance – it is part
of our brand.
Alan Parker CBE
Chairman
40
Dear shareholder
There have been many changes to the
Mothercare group over the past few
years and in these circumstances it is
even more important that the Company
maintains a high standard of corporate
governance in all of its activities. This will
enhance its reputation and performance
and will enable the Company to have
greater success in dealing with and
delivering on its strategic objectives.
Furthermore, we know that our
customers, employees, international
franchise partners, and investors
demand high standards. It is part
of the Mothercare brand.
The Company considers that it has
complied throughout the 52-week
period ended on 29 March 2014 with the
relevant provisions set out in the UK
Corporate Governance Code
published by the Financial Reporting
Council (FRC) in 2012, 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. The board operates on a
unitary basis and ordinarily comprises
the non-executive Chairman, six
independent non-executive directors,
and two full-time executive directors
being the Chief Executive Officer and
the Chief Financial Officer.
Mothercare plc main board
(as at 29 March 2014):
Chairman/Non-executive
Alan Parker CBE (Chairman)
Angela Brav
Lee Ginsberg
Amanda Mackenzie OBE
Richard Rivers (SID)
Imelda Walsh
Nick Wharton
Executive
Matt Smith (CFO)
Permanent CEO to be appointed
Note: Mark Newton-Jones was appointed as
Interim CEO with effect from 17 March 2014 but
was not appointed formally as a board director.
Board changes
There were several changes to the
board during the year. After nine years
as a non-executive director of the
Company, David Williams retired at
the end of May 2013, and on behalf
of the board I would like to thank him
for his contribution over this period.
Imelda Walsh joined as a non-executive
director on 1 June 2013 and became the
chair of the remuneration committee
following the AGM on 18 July 2013.
On 14 November 2013, Nick Wharton,
Chief Executive Officer of Dunelm
Group plc, was appointed as a
non-executive director.
The board is pleased to be able to
draw upon Imelda’s experience both
as a non-executive and as the chair of
other remuneration committees, and
on Nick Wharton’s UK retail expertise.
On 24 February 2014, Simon Calver
resigned as the Chief Executive.
The board appointed Mark Newton-
Jones as the group’s Interim Chief
Executive with effect from 17 March 2014.
However, being an interim appointment,
Mark Newton-Jones was not appointed
formally as a board director. This was
a rapid appointment that allowed the
Company to keep operating with a
chief executive and enabled the
board to conduct a full and robust
search for a permanent chief executive.
Mark Newton-Jones has extensive retail
experience in the UK and is a candidate
for the permanent chief executive role.
An announcement will be made as soon
as a permanent CEO is appointed.
The board and its 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.
Mothercare plc Annual report and accounts 2014 Key activities of the board
Regular agenda items:
Group strategy
Financing, going concern and liquidity
Reports from board committees
Business performance and financial results
Annual budget and financial statements
Consideration of acquisitions
and disposals
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/
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 (including
meetings with principal advisers to the
Company) and have a formal induction
process that continues following their
appointment. 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.
The non-executive directors are
independent and free from any
business or other relationship that
could interfere with their judgement.
The non-executive directors do not
participate in any bonus, share option
or pension scheme of the Company.
Key agenda items also considered in the
year included:
UK and International strategy days
Leadership and succession
The business commitments of each
member of the board are set out in
the biographical details on page 38.
Notwithstanding such commitments,
each member of the board is able to
allocate sufficient time to the
Company to discharge his or 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.
In accordance with the UK Corporate
Governance Code, from 2013 the board
has resolved that all directors should
offer themselves for re-election
each year.
During the year, Richard Rivers as the
senior independent director evaluated
the performance review of the Chairman,
having taken the opinions of the other
directors before doing so, and the
Chairman and the board together
evaluated the performance of the
group Chief Executive.
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 reappointed.
41
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Corporate governance
continued
Governance and Committees
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.
Mothercare plc main board
Board committees
A
N
Audit and Risk
Nomination
R
D
Remuneration
Disclosure
Executive Committee
The board is assisted by committees. There are four committees of the board that meet and report on a regular basis: audit
and risk, disclosure, nomination and remuneration. For a number of years the Audit and Remuneration Committees comprised
all the non-executive directors, but during the year the board decided to adopt a committee structure for both the Audit and
Remuneration Committees such that each non-executive director was a member of one or other of the 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 46.
A
Audit and Risk
Committee
B Committee members: Lee
Ginsberg (Chair), Amanda
Mackenzie, Nick Wharton
B Key roles and responsibilities:
review the scope and issues
arising from the audit and
matters relating to financial
control, review of corporate
govenance, financial
statements and accounts,
responsibility for risk
managment, internal and
external audit
N
Nomination
Committee
BCommittee members: Alan
Parker (Chair), Angela Brav, Lee
Ginsberg, Amanda Mackenzie,
Richard Rivers, Imelda Walsh,
Nick Wharton
B Key roles and responsibilities:
proposals on the size, structure,
composition (including diversity)
and appointments to the board,
managing the selection process
and agreeing to the terms of
appointment of non-executive
and executive directors of the
board, review succession
planning of board members
and the Executive Committee
annually
R
Remuneration
Committee
BCommittee members: Imelda
Walsh (Chair), Angela Brav, Alan
Parker, Richard Rivers
B Key roles and responsibilities:
establishes the remuneration
policy, preparation and
approval of the Remuneration
Report, approval of specific
arrangements for the Chairman
and the executive directors,
review, comment and propose
to the board the proposed
arrangements for the Executive
Committee including short and
long term incentive programmes
42
Mothercare plc Annual report and accounts 2014 The board has established a Disclosure
Committee that is responsible for the
establishment and maintenance of
disclosure controls and procedures in
the Company (and their evaluation), for
the appropriateness of the disclosures
made (after due consideration of the
obligations of the Company under the
Listing Rules and the Disclosure and
Transparency Rules) and for compliance
with the group’s share trading rules.
It reports to the board through the Chief
Executive (or through the Chairman
in the absence of a CEO).
In addition, the Company’s Executive
Committee reports to the board,
ordinarily through the Chief Executive
but, as at the date of this report, through
the Chief Financial Officer (who is also
an executive director) until a permanent
Chief Executive (and executive director)
is appointed.
Each of the committees has clear terms
of reference and reports to the board
on its area of responsibility. Details of the
terms of reference of the board’s
committees are set out in the corporate
governance section of the Company’s
website at www.mothercareplc.com.
Executive Committee
The executive management of the
Company (principally through the
Executive Committee) has operated
within a structure with defined lines
of responsibility and delegations
of authority, and 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.
The board has delegated day-to-day
and business management control of
the group to the Executive Committee.
The Executive Committee currently
consists of the Chief Executive, Chief
Financial Officer, the Managing Director
of the International businesses, the UK
Commercial Director, the Global
Product and Sourcing Director, the
Group People Director and the Group
General Counsel/Company Secretary.
Board effectiveness and balance
In 2012, the Chairman instigated a
detailed externally facilitated
evaluation of the board (conducted
by Wickland Westcott (which has no
other connections to the group)), and
of its effectiveness and operation.
As noted in last year’s Annual report,
the conclusions of the review were
positive but it also provided some
recommendations to improve further
the overall effectiveness of the board.
These included:
BPromoting greater interaction
between the board and the
Executive Committee
BReflecting the international (and
global) nature of the business
BIncreasing the number of women
on the board, particularly to reflect
the nature of the Mothercare
and ELC business.
The board has implemented these
recommendations. The board has held
two strategy days with the Executive
Committee during the year focusing on
the UK business and the International
business respectively, and board
members have spent more time in
the business with members of the
Executive Committee and with senior
management. The importance of the
International business was recognised
with a trip to India by the Chairman and
the Senior Independent Director in
February 2014, and other visits during
the year by the Chairman to the group’s
international franchise partners and to
the International franchise partner
meeting in Singapore in October 2013.
As at 29 March 2014, the board
comprises the Chairman and six
non-executive directors of which three
are women.
During the year the Chairman asked
the Group General Counsel/Company
Secretary to conduct the annual board
evaluation process on behalf of the
board. The results of this evaluation
indicate that the board believes that it
is operating effectively, with improved
access to members of the Executive
Committee and the ability to spend
more time in the business with
senior management.
The board believes that it has an
appropriate range of breadth and
expertise to manage the group’s
activities. Details of the experience and
background of each director is set out
on page 38.
Diversity
The importance of improving the
diversity balance (including gender)
on boards of UK listed companies is
recognised. At the date of this report,
the main board (including the executive
directors) comprises three women and
five men, and the Executive Committee
(excluding the Executive Directors)
has one woman and four men.
The Company believes it is well
positioned to support gender diversity
at all senior levels and, as at 29 March
2014, 51% of the senior management
positions (the two grades below
executive committee) were held by
women (2013: 49%).
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 24 to 27.
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.
43
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Corporate governance
continued
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. UK retail
sales have declined year on year due
to store closures and declining like-for-
like sales across the store estate
partially offset by increases in our Direct
in Home business. The impact of the
declining sales and margins has been
offset by the benefit from the property
strategy, with the continued exit from
loss-making stores and tight cost control
leaving UK losses flat against the prior
year. The International business
continues to expand generating
an underlying profit for the period of
£45.3 million (FY2013: £42.1 million).
The group continues to implement
the conclusions of the structural and
operational review of the size and
scope of its business that was carried
out in early 2012 and announced as the
three-year Transformation and Growth
plan. The focus remains to stabilise like-
for-like sales and margin, reduce the UK
central costs, close additional UK stores
to focus on 200 profitable stores,
accelerate international expansion
(with more store openings in both new
and existing countries), and launch
combined online and in-store customer
options with a new website in the UK
and more new overseas websites.
The resulting strategy will deliver a
transformation of the UK business,
together with increased International
growth over the same period.
On 18 October 2013, the group
refinanced with the support of its two
existing banks, HSBC and Barclays,
amending its committed facilities of
£90 million to a term loan of £40 million
and a revolving credit facility of
£50 million (at an interest rate range
of 2.5% to 3.5% above LIBOR) maturing
in May 2017. On 20 May 2014 the group
amended the banking facilities with the
continued support of its two existing
banks providing further headroom on
the gearing and fixed charge cover
covenants. The covenants in the facilities
are tested quarterly and are based
around gearing, fixed charge cover
and guarantor cover.
At the year end the group had a net
debt balance of £46.5 million funded
by drawdowns against the Term Loan
facility of £40 million and Revolving
Credit facility of £25.0 million offset by
cash of £17.3 million and a £1.2 million
facility fee. 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
banking facilities 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 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
strategic initiatives outlined above,
have been sensitivity-tested for
reasonably possible adverse variations
in trading performance and foreign
currency fluctuations. This indicates the
group will operate within the terms of its
borrowing facilities and covenants for
the foreseeable future. To the extent
that future trading is worse than a
reasonably possible downside, which
the directors do not consider a likely
scenario, then there are mitigating
actions available which would enable
the group to continue to operate within
the terms of the borrowing facilities and
covenants for the foreseeable future.
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 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 responsibility
to the Audit and Risk Committee 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/Company
Secretary to the Committee.
The activities of the internal audit
function are supplemented by external
resources as necessary. The external
auditors also report to the Audit and
Risk Committee on the efficiency of
controls as part of the audit.
The principal risks and uncertainties
facing the Company are set out on
pages 30 to 33.
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, all
individual stores are tested against a
risk assessment model that emphasises
health and safety, fire safety and
internal process compliance.
For many years, the Company has
applied its risk management principles
to its International business, for example
by carrying out audits of its franchise
partners, and taking out trade
insurance against key franchise
receivables. The Company has
additional controls in place with
its joint venture partners.
44
Mothercare plc Annual report and accounts 2014 Sourcing/overseas operations
The group operates a supply and
sourcing function with offices in India,
Bangladesh, China and Hong Kong.
It sources its products primarily from
India, China and Bangladesh, and in
addition some furniture products are
supplied from Vietnam. The sourcing
offices are responsible for ensuring that
appropriate governance standards are
observed by the suppliers used by the
group, and has a dedicated corporate
responsibility team. More details are
set out in the corporate responsibility
section of this report on pages 34 to 37,
including a summary of the Company’s
participation in the Bangladesh Accord.
The board believes that the system
of internal control described can
provide only reasonable and not
absolute assurance against material
misstatement 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.
Bribery Act 2010
The Bribery Act 2010, which came
into force on 1 July 2011, consolidated
previous legislation and introduced
(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 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 and is reviewed
on an annual basis. The group’s position
on bribery and corruption has been
explained to its suppliers, franchisees
and 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 its presentation of the financial
performance of the business to the
investing communities. Opportunities for
dialogue take place at least four times
a year following the announcement of
the half and full year results and trading
statements at the AGM (Quarter 1
results) and post Christmas (Quarter 3
results). During such meetings the
Company 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.
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 Ltd, 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.
45
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Corporate governance
continued
Director attendance
Director attendance statistics at meetings for the 52-week period ended 29 March 2014.
Maximum number of meetings
Director:
Alan Parker
Angela Brav
Lee Ginsberg
Amanda Mackenzie
Richard Rivers
Imelda Walsh*
Nick Wharton*
David Williams*
Simon Calver*
Matt Smith
Board
10
10/10
8/10
10/10
10/10
10/10
8/8
4/4
1/2
9/9
10/10
Committee
Audit
Nomination
Remuneration
5
2/2
1/2
5/5
5/5
2/2
0/0
3/3
0/1
4/4
5/5
3
3/3
3/3
3/3
3/3
3/3
2/2
1/1
0/0
–
–
6
6/6
4/6
3/3
1/2
6/6
5/5
0/0
0/1
5/5
3/5
* Denotes that the director was appointed or retired/resigned during the year and thus was not eligible to attend all meetings.
Note: The table sets out for each director both the number of meetings attended and the maximum number of meetings that could have been attended by those:
Either who were not appointed for the full year, and/or
Who were appointed for the full year but reflecting the changes to the structure of each Committee during the year.
Notes:
Simon Calver and Matt Smith attended meetings of the Audit and Remuneration Committees upon the invitation of the respective chairs of those committees.
Alan Parker attended meetings of the Audit and Risk Committee upon the invitation of the chair of that committee.
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.
46
Mothercare plc Annual report and accounts 2014 Audit and Risk Committee
The Committee
continues to ensure
that the highest
accounting standards
are met as well as
improving its risk
management
process to reflect
major changes
to the business.
Lee Ginsberg
Chair, Audit and Risk Committee
Dear Shareholder
This report details the key activities
and focus of the Committee during
the year in addition to its principal
and ongoing responsibilities.
This Committee is committed to
monitoring the integrity of the group’s
reporting process and financial
management, as well as maintaining
sound systems of risk management and
internal control at a time of material
change in the group.
The Committee scrutinises the interim
and full year accounting and financial
statements before proposing them to
the board for approval, and reviews in
detail any accounting judgements that
are made by the Company.
In recognition of the importance of
risk management to the business and
the formal role of the Committee in
considering the external environment
and setting the group’s appetite for risk,
the Committee has changed its name
to the Audit and Risk Committee.
The Company has managed its risk
through various internal risk committees
for many years, but during the year we
have formalised the reporting structure.
Therefore, the individual committees
within the Company report to its risk
committee, which in turn reports to
this Committee. The change of the
Committee’s name seems appropriate
to reflect these changes and this
Committee reports to the board.
Composition of the Committee
For a number of years the Committee
comprised all the non-executive
directors, but during the year the board
of the Company decided to adopt
a committee structure for both the audit
and remuneration committees such
that each non-executive director was
a member of one or other of the
Committees. Biographical details of
the directors are set out on page 38
of this report.
The Committee currently comprises Lee
Ginsberg as Chairman, and Amanda
Mackenzie and Nick Wharton as the
non-executive directors. The Group
General Counsel/Company Secretary
acts as secretary to the Committee.
Both Lee Ginsberg and Nick Wharton
are chartered accountants with
considerable financial and commercial
experience with listed companies.
The Audit and Risk Committee regularly
invites the Group’s Chief Financial
Officer, Director of Finance, Head of
Taxation, and Group General Counsel/
Company Secretary (in his capacity as
head of internal audit and risk) to
attend its meetings. Other executives,
including the Chief Executive, are invited
to attend from time to time.
The Committee works closely with
Deloitte LLP as its external auditors.
The audit partner of Deloitte LLP is
invited to attend all of the scheduled
Committee meetings. PwC is engaged
to provide internal audit consultancy
and support, and is invited to attend
Committee meetings when required
(usually three times a year). The relevant
audit partners of both Deloitte LLP and
PwC hold meetings with the Committee
(and separately with the Chair of the
Committee) at which representatives of
the Company are not present.
The Committee meets regularly during
the year in line with the financial
reporting timetable, and met five times
in the period covered by this report.
No specific remuneration of the
non-executive directors is ascribed to
membership of the Committee other
than a supplement of £7,500 (up from
£5,000 last year) per annum paid to
Lee Ginsberg for the period in respect
of which he acts as Chair of
the Committee.
47
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Audit and Risk Committee
continued
Activities of the Committee
The remit of the Audit and Risk Committee is to review the scope and issues arising from the audit and matters relating to
financial control and risk. It assists the board in its review of corporate governance and in the presentation of the Company’s
financial results through its review of the interim and full year accounts before approval by the board, focusing in particular on
compliance with accounting principles, changes in accounting practice and major areas of judgement.
Additionally, as part of its risk remit, the Committee reviews its financial and contractual arrangement with franchise partners
around the world, including the process and standard franchise agreements used by the Company. The growth of the
International business (now representing some 61% of worldwide retail sales) means that, for example, the risks of exchange
rate fluctuations on group profitability are now more material to the business.
The full terms of reference of the Committee (which are reviewed and, if necessary, amended during the year) are set out under
the corporate governance section of the website at www.mothercareplc.com
Heading
Scope
Action
Audit
Risk
The review of the Company’s
accounts and financial
statements, and of any
accounting policies
and judgements
Breviewed 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
Bchallenged management’s judgements and recommendations on key financial
issues, and provided oversight of controls relating to finance and tax
Breviewed the processes necessary to ensure that the board is able to confirm that
the annual report is ‘fair, balanced and understandable’
Bassisted the board in its detailed review of the going concern in light of the
Financial Reporting Council’s additional guidance on going concern and
liquidity risk
Bformalised the reporting structure of risk within the group
Bconsidered the output of the procedures used to evaluate and mitigate risk within
the group
Bsupported the Company in its decision to implement currency hedging on royalty
receipts from some franchise markets
Breview of standard international agreements with franchisees
Bchanged its name to the Audit and Risk Committee
Oversight of the Company’s
risk appetite, its risk
management process and
internal audit controls, risk
mitigation and insurance;
oversight of the Company’s
International agreements
with franchisees
Governance Compliance with the Bribery
Act and the group’s Global
Code of Conduct,
compliance with the UK
Corporate Governance
Code, and policies on the
use of auditors
Bconsidered the management letter from the external auditors on their review
of the effectiveness of internal control
Bagreed the fees and terms of appointment of the external auditors
Bagreed the work plan of the internal audit function, reviewed the resultant output
from that plan, and ensured that proper processes are in place to report on any
actions required
Breviewed and assessed the group’s compliance with corporate governance
principles and any disclosures made under the Code of Conduct or from the
group’s ‘whistleblowing’ hotline
Effectiveness A review of the effectiveness
Breviewed the effectiveness of the group’s internal controls and disclosures made
of the Committee and its
internal and external audit
in the annual report
Breviewed its effectiveness as part of the board evaluation process
Breviewed both the internal and the external audit effectiveness
48
Mothercare plc Annual report and accounts 2014 Fair, balanced and understandable
The Committee has reviewed the contents of this year’s
annual report and accounts and advised the board that,
in its view, taken as a whole, the report is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the group’s performance, business
model and strategy.
Areas of significant financial judgement considered
by the Committee during the year
During the year the Committee, management and external
auditor considered and concluded on what the significant
risks and issues were in relation to the financial statements
and how these would be addressed.
Going concern
As noted elsewhere in this report, the Company has been
making significant changes to its business, particularly in
the UK, for a number of years as part of its transformation
strategy. The Company has been supported by its banks
and there have been amendments to the terms of the bank
facilities available to the Company to assist it in delivering
the changes required to put the business on a more
stable footing.
During the year, the Committee has reviewed regularly and
considered carefully the liquidity and financing arrangements
of the group as part of the going concern review, and has
engaged in detail with its external auditors. This process has
included giving due consideration to management reports
that detail the assumptions and estimates underlying
the budgets and forecasts that underpin the review, the
quality and reliability of management forecasts, a review
of compliance with key financial covenants and the impact of
sensitivities on the budget and forecasts. These matters were
discussed with the Chief Financial Officer. The Committee
also reviewed the reports from the external auditor in its
assessment of the going concern assumption.
In assessing the appropriateness of the financial statements,
and in consultation with Deloitte as the external auditors, the
Committee concentrated on the following significant
audit risks:
Classification and presentation of exceptional items
The Committee has been careful to ensure that the Company
adopts and applies a consistent policy and approach to any
items that may be considered as exceptional in the accounts.
During the year, the Committee reviewed reports prepared by
the Company and the external auditor that confirmed the
appropriateness of each of the items that were classified
as exceptional items.
Property closure provisions
For a number of years the Company has pursued a policy
of reducing the number of stores operating in the UK and this
policy is continuing. This has involved an active programme
of managing the expiry dates of lease agreements and
engaging and negotiating with landlords the surrender or
assignment of other leases. Through this process, the number
of UK stores operated by the group at 29 March 2014 was 220,
a reduction from 311 at the same point two years earlier.
The Committee reviewed reports from the Company that
assessed the judgements around future costs, including
dilapidations and closure costs, and the timing of potential
future landlord settlements on those remaining properties
earmarked for closure. The Committee also reviewed the
reports from the external auditor which considered the
appropriateness of the retained provision.
Onerous lease and fixed asset impairment
Given the loss-making status of the UK business, the
assets within each store are tested for impairment and
each lease is assessed to determine if it is considered
onerous. The Committee reviewed reports from the Company
that consider the assumptions used within the three-year
plan to assess both of these items and the appropriateness
of any assumptions beyond this three year time frame.
The Committee also reviewed the reports from the external
auditor which considered the appropriateness of the
retained provision.
Inventory/obsolescence provision
The Committee reviewed reports from the Company
in respect of the inventory obsolescence provision
and considers the age, value and type of stock whilst
assessing the appropriateness of any required provision.
The Committee also reviewed the reports from the external
auditor in considering the appropriateness of provisions
held against the carrying value of inventory.
49
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Audit and Risk Committee
continued
Carrying value of joint venture investments and recoverability
of receivables from these parties
Following the administration of Mothercare Australia Limited
in January 2013 (in which the Company had a 23% stake
through its subsidiary Mothercare Finance Limited), the
Committee has reviewed the group’s investments in its other
joint ventures in India, China and the Ukraine. The businesses
in India and China have continued to expand and grow and,
as at the end of FY2014, there was no reason to impair the
value of these investments. However, the ongoing political
situation in the Ukraine meant that the Committee regarded
the Company’s investment in the Ukraine joint venture as a
risk and the value of this investment has been fully impaired
in the accounts. The Committee noted that the business
continued to trade profitably, and the decision to impair the
assets was taken on a prudent basis to reflect the continued
uncertainty in the region. The Committee reviewed reports
from the Company that detailed the underlying assumptions
and estimates in the budgets for each investment. Further, the
Committee reviewed the work performed by the external
auditor in its assessment of the assumptions in the budgets.
These matters were discussed specifically with the Chief
Financial Officer and the external auditor.
Foreign currency
During the second half of FY2014, there were significant
movements in the value of GBP sterling against other
currencies around the world and this impacted the group’s
profitability. The group has had a currency hedging policy
against purchases denominated in US dollars for many
years as part of its sourcing operation, but historically has
not hedged against royalty receipts from franchise partners.
It is also relevant that the scale of the International business
against UK business has increased in recent years. For these
and other reasons, the Company has now implemented a
policy of hedging in part against the currencies of its core
franchise businesses around the world (including the Russian
rouble, Indian rupee and Indonesian rupiah).
50
Mothercare plc Annual report and accounts 2014
Other significant matters considered by the Committee
during the year
Other significant
matters
How the Committee addressed
those matters
Pension liabilities Both of the group’s direct benefit schemes
were closed to future accrual on 30 March
2013. The triennial valuation of the group’s two
pension schemes commenced on 1 April 2014
and, subject to completion, the outcome of
this review will be included in next year’s
report. During the year, the Committee
received reports from management which
detailed movements in the deficit, and
received the reports from the external auditor.
Tax
The Committee has received an assessment
from the Company of judgements made in
relation to its tax position and of its ongoing
relationship with HM Revenue and Customs,
and confirmation that there are no material
issues with HM Revenue and Customs.
Policies
The Committee reviews its policies at least once every year,
including:
BExternal auditor independence – The Committee reviews at
least once a year 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.
The Committee’s review of the independence of its external
auditors was by enquiry of them, reviewing the report issued
by the auditors regarding their independence, and
considering the policy on non-audit services provided by
them, and it concluded that Deloitte LLP was independent.
BExternal auditor appointment – Deloitte LLP has acted as
the Group’s external auditor since 2002. Its performance is
reviewed annually by the Committee. As part its review in
FY2014 (and as noted in last year’s report), the Committee
noted that the group audit partner was rotated in 2013 and
the current audit partner’s five-year term will end in 2017.
The Committee endorsed the judgement reached in FY2013
that a tender of the external audit services at this time would
not be in the group’s interests. The Committee is aware
of the FRC guidance (and more recently the EU guidance)
to put the audit out to tender at least every ten years.
The Committee has concluded that it does not intend to put
the external audit work out to tender until 2017 which is at the
time of the next audit partner rotation. However, the
Committee may decide to put the audit out to tender at any
time before this date. There are no contractual obligations
restricting the Company’s choice of external auditors.
BAuditors providing non audit services – 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
– the appointment of the audit firm for any non-audit work
must be approved by the Committee (or by the Chair of
the Committee in the case of minor matters), and will be
approved only if it is regarded as being in the best
interests of the Company
– the Committee will not approve (and the Company will not
pay) any non-audit fees to the auditors on a contingent
basis (non-audit fees incurred in the year are set in note 7).
– internal audit – after a thorough tender process, PwC was
appointed in FY2013 to act as the Company’s internal audit
consultants and advisers. PwC works closely with the
internal audit function of the Company and attends
meetings of the Committee by invitation at least three
times a year.
– 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.
Risk management
Under the overall supervision of the Audit and Risk
Committee, there are several sub-committees and work
groups that oversee and manage risk within the Company
and the group. The Company has formally established its
own Risk Committee, jointly chaired by the CFO and Group
General Counsel/Company Secretary, to provide more
regular oversight of risk matters, evaluate emerging risks
that may affect the business, and design and oversee
a compliance and sub-committee framework that ensures
the necessary actions are carried out to manage risk.
The Company’s sub-committees include health and safety,
retail store compliance and profit protection, internal audit
and corporate responsibility.
Internal audit
The role of internal audit within the business is to provide
independent assurance that the Company’s risk
management, governance and internal control processes
are operating effectively. The Company achieves this by using
a combination of internal resource for operational reviews
and external competent support provided by PwC.
The Company’s Group General Counsel/Company Secretary
is responsible for internal audits and reports to
the Committee.
Effectiveness
The Committee considered its effectiveness of its own
performance and that of the external audit.
Audit and Risk Committee
It was considered that the work of the Audit and Risk
Committee during the year was effective when measured
against its terms of reference and general audit committee
practice. The Committee was satisfied that the quality of the
papers and information presented at its meetings, and the
advice received from its external and internal auditors, was
of sufficient detail and quality that enabled it to consider
matters appropriately, to take decisions and to make
recommendations to the board as appropriate.
External audit
The Committee reviewed the effectiveness of its external
audit and considered that Deloitte LLP had carried out its
obligations in an effective and appropriate manner.
The review considered factors such as the quality and
expertise of the personnel leading and working on the
account (including the strength and performance of the
lead audit partner), the quality of the audit papers and
presentations, the competence with which questions relating
to key accounting judgements were answered, and the
stability that would be provided by continuing to use
Deloitte LLP at the current time.
The Committee reviewed the independence of its
external auditors during the year (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) and considered
that Deloitte LLP was independent. 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 in note 7).
Having considered these factors, the Committee unanimously
recommended to the board that a resolution for the re-
appointment of Deloitte LLP as the Company’s external
auditor to be proposed to shareholders at the 2014 AGM.
Conclusion
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 during the year.
The Chair of the Committee will be available at the AGM
to answer any questions on the work of the Committee.
Lee Ginsberg
Chair, Audit and Risk Committee
51
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Nomination Committee
Dear Shareholder
During the year there have been a number of changes to the
board, and these have been overseen by the Nomination
Committee in accordance with its terms of reference.
In my Chairman’s statement in last year’s annual report,
I noted that David Williams was to stand down in May 2013
after nine years as a non-executive director and Chair of the
Remuneration Committee.
Imelda Walsh joined the board in June 2013 and became
the new Chair of the Remuneration Committee following the
Company’s AGM last July. In November, Nick Wharton joined
as a new non-executive director in November. As noted in
their biographies contained elsewhere in this report, both
Imelda and Nick bring to the board a wide range of
retail expertise.
I am pleased to say that the Mothercare board now contains
six non-executive directors, with a wide range of experience,
diversity and background that can be used to support the
business in the future.
More recently, the Committee has had to consider the
appointment of a new Chief Executive, following Simon
Calver’s resignation. The Committee was able to appoint
Mark Newton-Jones as an Interim CEO within three weeks
of Simon’s departure, and (at the date of this report)
continues to conduct a robust and thorough search for a
permanent appointment as the new CEO. I am pleased with
the way the process is being conducted, and with the quality
of candidates who are interested in taking on this pivotal role.
Finally, I would like to thank all my fellow directors, particularly
Imelda Walsh as Chair of the Remuneration Committee, for
their time and support.
Composition of the Committee
The Committee currently comprises the Chairman
and all of the non-executive directors of the Company.
When required, the Group General Counsel/Company
Secretary provides support.
During the year, when considering new appointments, the
Committee has worked with Mullwood Parnership, the Inzito
Partnership and Spencer Stuart, all of whom are independent
search companies with no other connections to the Company,
specialising in executive and non-executive director
recruitment as appropriate, in order to ensure that it can
identify candidates from various diverse backgrounds and
relevant sectors of experience.
Activities of the Committee
During the year, the Committee has considered the
appointment of two new non-executive directors,
the appointment of an interim CEO, and made
recommendations to the board. In addition, the Committee
is currently engaged with the appointment of a new
permanent Chief Executive.
The Committee had held several meetings during the year,
and these have been supported by interviews and other
conversations between Committee members.
The full terms of reference of the Committee (which are
reviewed and, if necessary, amended during the year) are
set out in the corporate governance section of the website
at www.mothercareplc.com. As a matter of process, the
Committee makes recommendations to the board, which are
then considered by the board in conjunction with any advice
or recommendation from the Remuneration Committee.
I will be available at the AGM to any questions on the work
of the Committee.
Alan Parker CBE
Chairman
52
Mothercare plc Annual report and accounts 2014 Directors’ report
The directors present their report on the affairs of the group,
together with the financial statements and auditors’ report for
the 52-week period ended 29 March 2014. The corporate
governance statement set out on pages 40 to 46 forms part of
this report. The Chairman’s statement at page 14 gives further
information on the work of the board during the period.
The principal activity of the group is to operate 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. The group operates in the
UK principally through its stores and direct business, and
globally in a further 59 countries through its extensive
franchise network.
The Companies Act 2006 requires the strategic report to
contain a review of the business and a description of the
principal risks and uncertainties facing the group.
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 model and review, financial review, risks, 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.
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 Limited.
Mothercare plc is the group holding company and is listed on
the London Stock Exchange; Mothercare UK Limited owns the
Mothercare trademarks, operates the UK Mothercare
business and acts as the franchisor to Mothercare franchisees
worldwide; Chelsea Stores Holdings Limited (through its
subsidiary Early Learning Centre Limited) owns the ELC trade
marks, operates the UK ELC business and acts as the
franchisor to ELC franchisees worldwide.
A review of the business strategy and a commentary on the
performance of the group is set out in the Overview and
Strategic Report sections of this report on pages 1 to 37.
The principal risks and uncertainties facing the business are
detailed in the Strategic Review on pages 30 to 33 and the
section on risks on pages 30 to 33. These disclosures form part
of this report.
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 Strategic Report on page 30.
Going concern
The financial position of the group, its cash flows, liquidity
position and borrowing facilities are set out in Financial
Review on pages 24 to 27. The group’s going concern position
is set out in the corporate governance report on page 43.
Dividend
The directors are not recommending the payment of a final
dividend for the year and no interim dividend was paid
during the year (FY2013: nil).
Shares
As at 21 May 2013, the Company’s issued share capital was
88,815,598 ordinary shares of 50p each all carrying voting
rights. The details of the Company’s issued share capital
as at 29 March 2014 are set out in note 25 to the financial
statements. 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 abstain from voting its shareholding in
the Company.
53
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Directors’ report
continued
Substantial shareholdings
As at 30 April 2014, the Company has been advised by or is
aware of the following interests above 3% in the Company’s
ordinary share capital:
Holder
Percentage
of issued
share
capital
Number
of shares
M&G Investment Management Ltd
14,445,860
Fidelity International Limited
D C Thomson & Company Limited
Aberforth Partners
10,660,329
9,313,522
5,681,693
Capital Research & Management
5,195,000
UBS Global Asset Management Ltd
4,204,266
Allianz Global Investors
3,695,502
Aberdeen Asset Managers Limited
3,359,965
16.27
12.00
10.49
6.40
5.85
4.73
4.16
3.78
Acquisition of own shares
The Company was given a general approval at the AGM
in July 2013 to purchase up to 10% of its shares in the market.
This authority expires after the AGM on 17 July 2014.
The authority has not been used during the year.
Significant agreements and change of control
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 term loan and
revolving credit facilities agreement entered into by the group
with Barclays Bank PLC and HSBC Bank PLC 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.
Under the term loan and revolving credit facilities agreement
referred to above, Barclays Bank PLC and HSBC Bank PLC
provide the group with a £90 million credit facility to be
used for general business purposes. During the year the
agreement was amended and restated on 18 October 2013.
The agreement was further amended on 20 May 2014.
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 2006 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 52-week period
ended 29 March 2014:
Name
Alan Parker
Appointment
Chairman and non-executive director;
chairman of the nomination committee
Angela Brav
Independent non-executive director
Simon Calver
Executive director (until 24 February 2014)
Lee Ginsberg
Independent non-executive director and
chair of the Audit and Risk Committee
Amanda Mackenzie Independent non-executive director
Richard Rivers
Independent non-executive director and
Senior Independent Director; chairman of
the Remuneration Committee (from 1 June
2013 to 18 July 2013)
Matt Smith
Executive director
Imelda Walsh
Nick Wharton
David Williams
Independent non-executive director (from
1 June 2013) and chair of the Remuneration
Committee (from 18 July 2013)
Independent non-executive director (from
14 November 2013)
Independent non-executive director and
chairman of the Remuneration Committee
(until 31 May 2013)
In accordance with the requirement of the UK Corporate
Governance Code, at the Annual General Meeting of the
Company in July 2014 all the directors currently appointed
shall retire and offer themselves for re-election.
Details of directors’ service arrangements are set out in the
remuneration report on page 68.
A statement of directors’ interests in the shares of Mothercare
plc and of their remuneration is set out on pages 76 and 79
respectively. A statement of directors’ interests in contracts
and indemnity arrangements is set out on page 68.
54
Mothercare plc Annual report and accounts 2014 Employees
The Company involves all of its employees in the delivery
of its strategy. It regularly discusses with all its employees its
corporate objectives, trading results and performance, as
well as the economic environments in which the Company
trades through its business sectors. This is achieved through
the Company employee website and magazine ‘SmallTalk’,
regular briefings by the Chief Executive and other executive
committee members, and through other email and video
presentations. These communications are extended to the
group’s overseas offices in India, Bangladesh, Hong Kong
and China, and to the stores in the UK.
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.
Disabled employees
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 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.
Organisation review
During the year under review, it became necessary to carry
out a further organisation review at the Company’s head
office in Watford and its overseas sourcing offices which
resulted in a reduction of the number of roles in the
organisation and, consequently, a number of redundancies
both in the UK and overseas. As part of this process, a
consultation process was carried out at the Company’s head
office in Watford. A further organisation review is underway
and this has resulted in another consultation process at the
Watford office. The Company has engaged with those
employees affected. The Company recognises the impact
of such processes on its employees and each process was
carried out thoroughly and professionally, and in compliance
with relevant laws and regulations.
As reported last year, the Mothercare Staff Pension Scheme
and the Mothercare Executive Pension Scheme were both
closed to future accrual with effect from 31 March 2013.
The Company continues to make deficit contribution
payments to each pension scheme and details of the pension
charge are set out in note 29 to the financial statements.
A new defined contribution scheme, the Legal & General
WorkSave Mastertrust, was made available to all employees
with effect from 31 March 2013 and is the designated scheme
used for auto-enrolment of workers from 1 May 2013 (the
‘auto-enrolment staging date’ for the Mothercare group).
Corporate citizenship
The group’s corporate responsibility ethos and details of the
programmes that it runs in its business relationships around
the world are set out on pages 34 to 37. During the year, the
group reissued its Global Code of Conduct to all its office
employees in the UK and overseas, and obtained certificates
of compliance from its employees.
Global Code of Conduct – key themes:
BRelations with employees, customers, suppliers and
franchise partners
BShareholders and corporate governance
BResponsible sourcing
Greenhouse gas emissions
The group’s performance against targets for greenhouse gas
emissions, waste and packaging is set out in the corporate
responsibility section of the Strategic Report on page 35.
Auditors
In the case of each of the persons who were directors of the
Company at the date when this report was approved:
Bso 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
Beach 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.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 418 of the
Companies Act 2006.
Deloitte LLP has expressed its willingness to continue as
auditors to the Company and a resolution proposing its
re-election will be put to the AGM.
55
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Directors’ report
continued
Charitable and political donations
The Company made no donations during the year to
the Mothercare Group Foundation. Total cash charitable
donations made by the Mothercare Group Foundation
for the year ended 29 March 2014 were £nil (2013: £30,000).
It is the Company’s policy not to make political donations.
Post balance sheet events
Post balance sheet events are disclosed in note 32 to the
financial statements.
Annual General Meeting
The 2014 Annual General Meeting will be held on Thursday,
17 July 2014 at 3.00pm 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.
Shareholders may also submit questions via email to
investorrelations@mothercare.com. The Chairman will
respond in writing to questions received.
As in previous years a copy of the Chairman’s opening
statement to the meeting, together with a summary 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/
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
Tim Ashby
Group General Counsel and Company Secretary
21 May 2014
56
Mothercare plc Annual report and accounts 2014 Remuneration report
The Committee
believes that
appropriate levels
of remuneration,
properly structured
and with the
necessary controls,
will complement the
Company’s strategy,
by supporting the
recruitment and
retention of
appropriately
qualified executives.
Imelda Walsh
Chair, Remuneration Committee
Dear Shareholder
I am pleased to present my first
Directors’ Remuneration Report for
Mothercare for the financial period
ended 29 March 2014. I joined the
Mothercare board in June 2013 and
became Chair of the Remuneration
Committee following the AGM in July.
The performance of Mothercare plc
during the past financial year has not
met the expectations of the board.
Underlying group profit before tax
increased over that achieved in FY2013
but improvements to our UK business
have not been achieved at the pace
envisaged under the Transformation
and Growth plan. Our international
business has continued to grow and the
opportunity to introduce Mothercare
and ELC to new geographies as well
as to continue to grow where we are
already established remains very
positive. However, this part of our
business has also faced some
significant currency headwinds. This
performance context has been
reflected in the year’s remuneration
decisions with, in particular, no bonuses
being paid to directors.
My priority, as a new non-executive
director and the new Chair of this
Committee, has been to understand
the business strategy and then, with
the Remuneration Committee, review
whether the remuneration policies and
practices, as they apply to the Executive
Directors and Executive Committee,
support the delivery of the significant
improvement required. The Committee
believes that appropriate levels of
remuneration, properly structured
and with the necessary controls, will
complement the Company’s strategy,
by supporting the recruitment and
retention of appropriately
qualified executives.
Currently, the board is seeking a new
CEO following the resignation of Simon
Calver in February 2014. An early task of
the new incumbent will be to review the
strategy and operational targets of the
Company. The Committee believes that
any further changes to our remuneration
policies must take this into account and
that the long term incentive plan (LTIP)
targets must align with the strategy
led by the new Chief Executive and
approved by the board. Therefore, we
will not make a further award under
the current LTIP until a new CEO is in
post and we have had the opportunity
to review the plan’s targets and
measures. The outcome of this review
will be discussed with shareholders
ahead of any grant, which we still intend
to make in this financial year.
Financial Year 2013/14
Given the performance achieved by
the Company, notwithstanding the year
on year improvement, the targets set
under the annual bonus plan (STIP)
were not achieved and therefore no
payments were made.
The Company introduced a new
long-term incentive plan in December
2012, making its first grant under this plan
in March 2013. A second grant was
made in December 2013 to cover the
financial years FY2014 through to FY2017,
further details of which can be found
on page 63.
Having reviewed performance to date
for both grants, the current long-term
incentive awards are unlikely to have
any material value, primarily due to the
slower than hoped for recovery of our
UK business to date.
57
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Remuneration report
continued
Following our Q3 trading statement and further discussion
with the board, Simon Calver resigned as a director on
24 February 2014. We agreed that a short period of handover
would be helpful and therefore Simon Calver remained with
the Company until the end of the financial year. Simon Calver
expressed a willingness to work his contractual notice of 12
months but the board determined that new leadership was
the priority and requested that Simon be paid in lieu of notice.
Negotiated terms were agreed as disclosed later in this
report, but in summary we agreed to pay Simon Calver an
amount representing six months’ notice.
The board was delighted to secure on an interim basis the
services of an experienced CEO, Mark Newton-Jones, who
started within three weeks of Simon Calver’s departure.
Mark Newton-Jones has extensive retail experience working
for many years with Next and then, over a 10-year period as
CEO of Shop Direct leading the very successful transformation
of the former Littlewoods and GUS home shopping
businesses. The terms agreed with Mark for this six-month
appointment reflect his 30 years of success in the retail sector;
and the expectation that he can deliver short-term
improvements and set the business up for future long-term
success under the permanent CEO. Mark will be paid a salary
of £450,000 over the term of his appointment and will also be
eligible for a further discretionary bonus of up to £225,000
based on stretching performance targets. Mark is not a
member of the plc board. The terms of his appointment are
set out on page 72.
The remuneration agreed for Mark is specific to the interim
nature of the appointment, where the more usual structure
of an executive director’s package is not appropriate.
Financial Year 2014/15
Notwithstanding the Committee’s wish to defer the most
material decisions on remuneration until a new permanent
CEO is appointed, the Committee has decided to make some
changes to the remuneration arrangements for our CFO,
Matt Smith.
The board has been very pleased with Matt’s contribution
over what has been a very challenging year and Matt’s first
with Mothercare plc. We also recognise that his role is critical
during this period whilst he works to support Mark and the
future permanent CEO, and plays a wider role with the plc
board. In recognition of this, the Committee awarded Matt
a 3% increase to his salary (£10,000). A 2% general pay
increase is planned for other employees.
The Committee has also reviewed Matt’s maximum
opportunity under the annual bonus plan (STIP). FY 2014 was
100% of salary, the same as other members of the Executive
Committee. From FY2014/15, this will be increased to 125% and
thereby be aligned with the current CEO maximum.
The current LTIP is relatively new, having been approved by
shareholders in December 2012. Whilst it is likely that the basic
construct of the current plan will still be appropriate for future
grants we believe that targets should be considered in the
light of a strategy review by the board with the assistance of
an incoming CEO. This review should be expedited by the
work Mark Newton-Jones is currently carrying out. In the
policy report we have outlined the flexibility the Committee
retains in operation of the plan (as allowed for in the plan
rules). This includes the flexibility to review the business
measures, the targets set for threshold to maximum vesting
and any other conditions considered relevant for vesting of
awards. Before making any further grant under the current
LTIP, we will consult with major shareholders and
representative bodies.
In our policy statement on shareholding, we recognise that
executive directors will need a period of time to build up their
shareholding. However, an early investment by executives is
always a positive sign of both commitment and confidence.
The Committee will therefore consider the requirement for
executive directors to purchase shares on an accelerated
basis as one of the conditions attached to any grant.
Given the requirement to undertake an external search for
a new CEO it is possible that the Committee determines that
it is unable to make an LTIP grant in this financial year. In such
circumstances we have included in our policy the provision to
enhance the value of the annual bonus (STIP). For executive
directors this will be increased from 125% to 200% and the level
of compulsory deferral into shares will also be increased from
30% to 50%. The deferral period is three years. This is a one
year provision only, applying to FY2014/15, reflecting the
exceptional current circumstances of the Company. The STIP
policy is set out on page 62.
Determining a three-year view of remuneration policy has
been difficult, in light of Mothercare plc’s current performance
and board transition issues. The Committee has tried to
ensure we have a workable set of policies to present to you,
with appropriate flexibility reflecting our circumstances. We
expect to review our policies over the course of this financial
year and may therefore submit a revised remuneration policy
next year. In the meantime we hope that you will conclude
that the policy presented in this report preserves a fair
balance between the interests of the Company’s executives
and its shareholders.
Imelda Walsh
21 May 2014
58
Mothercare plc Annual report and accounts 2014 Introduction
This is a report on the activities of the Remuneration
Committee for the 52 week period to 29 March 2014. It sets
out the remuneration policy of the Company as it applies
to the executive directors of the Company and details the
remuneration received. It has been prepared in accordance
with Schedule 8 of The Large and Medium-sized Companies
and Groups (Accounts and Reports) (Amendment)
Regulations 2008 (‘the Regulations’) as amended in August
2013. This is the first time that the group has prepared the
report in accordance with the amended regulations.
The report is split into three main areas:
BThe statement by the Chair of the Remuneration Committee.
BThe Directors’ Remuneration Policy – the policy is subject to
approval by way of a binding shareholder vote at the
Annual General Meeting of the Company to be held on
17 July 2014, and (subject to approval) the policy will take
effect for three years following that meeting.
BThe annual report on remuneration – this provides details
on remuneration in the period covered by this report and
certain other information as required by the Regulations;
it will be subject to an advisory shareholder vote at the
Annual General Meeting.
The Companies Act 2006 requires the auditors to report to the
shareholders on certain parts of the Directors’ Remuneration
Report contained in the annual report on remuneration and
to state whether, in their opinion, those parts of the report
have been properly prepared in accordance with the
Regulations. The elements of the annual report on
remuneration that are subject to audit are indicated in that
report. The statement by the chair of the Remuneration
Committee and the remuneration policy are not subject
to audit.
Directors’ Remuneration Policy
The Remuneration Policy Report sets out the remuneration
policy for executive directors and has been prepared in
accordance with the Regulations. The policy has been
developed taking into account the principles of the UK
Corporate Governance Code 2012, and the latest guidelines
from investor groups.
This part of the Directors’ Remuneration Report will be put to
a binding vote by shareholders at the Company’s AGM on
17 July 2014, and subject to approval, will take effect following
that meeting.
How the Remuneration Committee operates
to set the directors’ remuneration policy
The Company’s Remuneration Committee (the ‘Committee’)
is constituted in accordance with the recommendations of
the UK Corporate Governance Code. The Committee is the
committee of the board that determines the Group’s policy
on the remuneration of the Executive Directors, the Chairman
and senior management (being the Executive Committee
of the Company). It works within defined terms of reference
which are available on the Company’s corporate website,
www.mothercareplc.com.
The principles applied by the Committee when determining
the Company’s remuneration policy are that it should be
competitive, transparent, in the interests of shareholders and
aligned to the Company’s strategy. Within the framework of
these principles the Committee sets the overall remuneration
package of each Executive Director (including base salary,
short and long term incentives, benefits and terms of
compensation), and the fees paid to the Chairman.
In addition, the Committee considers the structure and level
of remuneration (and the remuneration package) of
members of the Executive Committee of the Company by
reference to the package offered to the Executive Directors.
Remuneration policy
The Committee believes that the remuneration policy has
an important contribution to make to the success of the
Company both in facilitating the recruitment and retention
of high calibre executive directors and senior executives and
aligning their interests with those of shareholders. Within this
context the remuneration policy needs:
BTo be transparent and aligned to the delivery of strategic
objectives at a Company and individual level.
BTo be flexible enough to take into account changes to the
business or remuneration environment.
BTo ensure failure at Company or individual level is
not rewarded.
BTo ensure that exceptional performance is
appropriately rewarded.
59
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Remuneration report
continued
The Committee works to ensure that the remuneration policy
does not promote unacceptable behaviours or risk taking by
considering the appropriate level of stretch in performance
conditions, the balance of short and long term incentives, the
ability to recover or withhold awards and the mix of awards
granted in cash and shares.
The Committee recognises the importance of having
a significant share based element of the remuneration
package to ensure that executive directors have clear
and obvious alignment with the longer term interests
of shareholders in the business. Remuneration packages
are constructed accordingly.
The Committee reviews the level of individual remuneration
packages for Executive Directors and the Executive
Committee annually. Whilst pay benchmarking provides a
context for setting pay levels, it is not considered in isolation;
any review of the remuneration package will take into
account all elements of remuneration to ensure it remains
competitive, and does not look at any single element in
isolation. Occasionally the Committee may review the
package of an individual during the year to reflect, for
example, changes to that person’s responsibilities in
the business.
The table below summarises each element of the
remuneration policy for the Executive Directors, explaining
how each element operates and how each part links to the
corporate strategy.
Key elements of remuneration
Base salary
Purpose and link to strategy
The salary provides the basis on which to recruit and retain those key employees of appropriate
calibre who are responsible for the delivery of the Company’s strategy. The level of salary should reflect
the market value of the role and the post holder’s experience, competency and performance within
the Company.
Operation of the component Paid four-weekly in cash via payroll
Opportunity
Salaries are normally reviewed annually by the Committee, and fixed for 52 weeks commencing from
the beginning of the new financial year. Any salary increase may be influenced by:
Ban individual’s experience, expertise or performance
Bchanges to responsibilities during the year
Baverage change in pay elsewhere in the workforce
Baffordability and general market conditions.
Occasionally there may be a review of an individual’s salary during the year in the event of
material change.
The general policy when setting executive salary is to benchmark against mid-market levels when
compared to other companies of similar scale, revenue and complexity (such as the FTSE 250 General
Retailers Index). Any annual increases in salary that are approved will typically be in line with any salary
increases awarded to the wider workforce. Increases beyond those granted to the workforce may be
awarded at the Committee’s discretion such as where there is a change in the individual’s responsibility
or where the salary set at initial appointment was below the expected level.
There may also be circumstances where the Committee agrees to pay above mid-market levels to
secure or retain an individual who is considered, in the judgement of the Committee, to possess
significant and relevant experience which is required to enable the delivery of the Company’s strategy.
Performance metrics
Executive directors participate in the Company’s annual performance management process. Both
individual and Company performance is taken into account when determining whether any salary
increases are appropriate.
Recovery or withholding
No recovery or withholding applies.
60
Mothercare plc Annual report and accounts 2014 Benefits
Purpose and link to strategy
The Company offers competitive and cost-effective benefits to complement the base salary in line with
those commonly offered by other similar companies as part of its policy to recruit and retain high
calibre executive directors.
Operation of the component Benefits offered include private medical insurance family cover, a car or cash allowance, life assurance
and permanent health insurance. Cash alternatives are available to suit individual circumstances.
Relocation and related benefits may be offered where a director is required to relocate in line with
Company policy.
Opportunity
The aim is to provide market competitive benefits and their value may vary from year to year
depending on the cost to the Company from third party providers.
Performance metrics
No performance metrics apply.
Recovery or withholding
There is no recovery of general benefits but relocation and related benefits may be subject to
repayment either in full or part if an executive resigns within two years of relocating.
Pension
Purpose and link to strategy
The Company offers market competitive and cost effective retirement benefits to its executive directors
in line with those commonly offered by other similar companies.
Operation of the component The Company makes a payment into a defined contribution registered pension scheme or by way
of cash supplement, or a combination of cash and pension contributions.
Opportunity
Executive directors are eligible for a company contribution/cash supplement valued at 15%
of base salary.
Performance metrics
No performance metrics apply.
Recovery or withholding
No recovery or withholding applies.
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Annual bonus (cash and shares)
Purpose and link to strategy
The purpose of the annual bonus (or short term incentive scheme) is to incentivise executive directors
to achieve specific, pre-determined goals during a one-year period (typically a financial year) and to
reward financial and individual performance that is linked to the Company’s strategy.
To preserve the alignment with shareholder interests, provide an element of retention, and protect
against unacceptable behaviour or risk taking, a proportion of bonus is awarded in shares and
deferred for three years.
Operation of the component The Committee sets challenging targets at the start of the financial year to support the Company’s
strategy. The level of any bonus payment is determined by the Committee following the end of the
relevant financial year by reference to the performance criteria.
70% of the bonus is payable in cash with the remaining 30% deferred into shares for three years.
The deferred element is subject to forfeiture in the event of the executive director’s voluntary departure
prior to vesting; the deferred element may be subject to forfeiture if an executive director departs for
other reasons.
Dividend equivalents may accrue on vested deferred shares.
Opportunity
The maximum bonus entitlement for executive directors is 125% of base salary.
Performance metrics
Recovery or withholding
At threshold levels of performance up to 25% of maximum bonus entitlement will be payable in
respect of each performance metric. At target and stretch levels of performance up to 50% and 100%
(respectively) of the maximum bonus entitlement will be payable in respect of each performance metric.
The Committee may exercise its discretion to award an enhanced bonus in a year in which no long-term
incentive plan (LTIP) is offered. In such circumstances, the level of maximum bonus entitlement may be
increased up to 200% for the executive directors. In this case the amount deferred into shares will be
increased to 50% of the amount earned. This will only apply to financial year 2014/15.
The policy is for at least 70% of the bonus entitlement to be based on an appropriate mix of financial
measures such as profit before tax, cash generation or net debt. No more than 30% of the bonus
entitlement will be linked to non-financial measures that may include a business scorecard of measures,
together with personal objectives relevant to the responsibilities of each executive director. The targets
set in relation to non-financial performance will be similarly challenging to the range of financial
targets set.
The Committee reviews all targets annually to ensure that they support the agreed business strategy
and financial measures for the relevant financial year.
The Committee will not award any bonus unless at least a gateway level of financial performance
has been achieved. The measures and targets which form the gateway will be determined by the
Committee and will take account of the ability of the Company to make bonus payments (for example,
by reference to group profit performance). Further, the Committee may exercise its discretion to reduce
the level of any bonus award if it considers that the payment of an award is inconsistent with the
underlying performance of the Company.
No recovery or withholding applies to the cash element of the bonus once it has been paid.
The Committee retains the discretion to reduce or withhold the vesting of the deferred bonus share
award in exceptional circumstances (such as a material adverse adjustment to the accounts, or fraud
or gross misconduct on the part of the individual recipient).
The deferred bonus shares are subject to forfeiture in the event of the executive director’s voluntary
departure prior to vesting; the deferred element may be subject to forfeiture if the executive director
departs for other reasons.
62
Mothercare plc Annual report and accounts 2014 Long-term incentives: LTIP
Purpose and link to strategy
The purpose of providing executive directors with a long term incentive award is to reward
performance in line with the Company’s strategy, grow the business profitably to achieve superior
long-term shareholder returns over the performance period and support recruitment and retention.
Operation of the component Typically, awards are granted annually early in the financial year with vesting dependent on the
achievement of stretching performance conditions over a three or four year period.
The vesting of any awards will be subject to the executive director’s continued employment at the time
of vesting although they may vest early on a change of control or the occurrence of certain other
corporate events in which case the proportion of awards vesting would be determined by the
Committee, taking into account the level of satisfaction of the performance conditions and (at its
discretion) pro rating the award by time.
Participants may be entitled to dividend equivalents on unvested shares between the date of award
and vesting and this is paid in additional shares in respect of awards that vest.
Opportunity
The normal policy maximum is 200% of salary for the Chief Executive and 175% of salary for the CFO.
Performance metrics
Recovery or withholding
Up to 300% of salary may be awarded in circumstances considered by the Committee to be
exceptional. This may include, for example, a first year award for a new Chief Executive Officer.
The Committee has the discretion to set different performance conditions, including performance
measures and weightings, for each year by way of future award. The Committee will review annually
the appropriateness of the performance conditions and the targets to be set.
The performance metrics utilised for grants under the LTIP for FY2013 and FY2014 (described under the
section of this table headed ‘Legacy LTIP awards’) are Group PBT, UK PBT and absolute share price.
Performance is measured over three or four years and each performance target operates separately.
50% of each award may vest based on the PBT targets, and 50% on the absolute share price target with
threshold performance leading to 30% of these awards vesting.
The Committee has the discretion under the Rules to reduce the level of any vesting to take into account
the underlying financial health of the Company and the level of shareholding achieved by the
executive directors during the performance period. The Committee may link the vesting of awards to
satisfaction of a shareholding requirement and may require post-vesting holding to apply. Whether,
and the extent to which, this applies will be determined at the point of each award and communicated
to participants. For any award made in FY2015, a one year post-vesting holding period will be added to
the portion of award vesting over three years.
No decision has been made in relation to the performance conditions and associated terms, which will
apply to awards in respect of FY2015; but these will be determined by the Committee following
consultation with major shareholders.
The Committee has the right to withhold or reduce the level of vesting of awards in certain
circumstances including:
Bmaterial misstatement of financial statements;
Bgross misconduct/fraud of the participant;
Bwhere performance has driven vesting which is clearly unsustainable.
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All employee share plans
Purpose and link to strategy
All employees including executive directors are eligible to become shareholders through the operation
of the HMRC approved Save as you Earn (SAYE) plan (and/or such other HMRC approved all-
employee share plans as the Company may adopt in the future).
Operation of the component The SAYE is the only current all employee scheme and has standard terms under which all UK
employees including executive directors may participate.
Executive directors may be eligible to participate in any other HMRC approved all employee share
plans which the Company may adopt.
Opportunity
All eligible employees can save up to the HMRC limits applying over a three year savings period.
Performance metrics
No performance metrics apply.
Recovery or withholding
No recovery or withholding applies.
Share ownership policy
Purpose and link to strategy
The purpose of requiring executive directors to own shares in the Company is to align the long term
interests of management and shareholders in the success of the Company.
Operation of the component Within five years of appointment to the board, the CEO is expected to hold shares to the value of 150%
of base salary and the CFO 100% of base salary.
75% of vested LTIP awards (after sale of shares to cover associated personal tax liabilities) must be
retained until the guideline is met.
The Committee will review progress towards the achievement of the guideline on an annual basis.
Opportunity
n/a
Performance metrics
No performance metrics apply.
Recovery or withholding
No recovery or withholding applies.
Legacy LTIP awards
Purpose and link to strategy
Legacy LTIP awards are those long-term incentive awards that have already been granted to
executive directors. At the time, the purpose of these awards was to drive performance and align
interests of directors and shareholders through building a shareholding in the Company. The awards
were intended also to provide an incentive to directors to remain with the Company.
Legacy LTIP awards were designed to incentivise participants to grow the business profitably and to
achieve superior long-term shareholder returns in line with the Company’s strategy.
Operation of the component Two annual awards have been granted, referred to as LTIP 1 (granted in FY2013) and LTIP 2 (granted in
FY2014) with vesting dependent on the achievement of stretching performance conditions and the
director’s continued employment.
Awards have a mix of three and four year performance and vesting periods.
Participants may be entitled to dividend equivalents between the date of award and vesting, and
these would be paid as additional shares at the time of vesting (in respect of any awards that vest).
Awards granted under the LTIP may vest early on a change of control and certain other corporate
events, with the proportion of Awards vesting being determined by the Committee, taking into account
the level of satisfaction of the performance condition. The Committee also has the discretion to pro rate
any award by time.
Legacy LTIP awards are past awards made in line with Company policy at the time. Up to 300% of
salary may be awarded in certain circumstances, such as recruitment of an executive director, although
the normal policy maximum is 200% of salary.
Under LTIP 1, being the first award under the plan, 300% of salary was granted to the CEO and 200% of
salary to the CFO.
Under LTIP 2, the normal policy maximum of 200% of salary was granted to the CEO and 175% of salary
to the CFO.
Opportunity
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Mothercare plc Annual report and accounts 2014 Legacy LTIP awards
Performance metric
LTIP 1:
Participants in the FY2013 LTIP will earn up to 50% of the award if the share price reaches the targets
shown in the table below, and will earn up to 50% of the award if the FY2015 group profit before tax
reaches the targets shown in the table below:
FY15 share price
Vesting (% of max)
FY15 Group PBT
Vesting (% of max)
£3
£4
£5
£6
£7
0%
30%
60%
90%
100%
£23m
£34m
£45m
£60m
£70m
0%
30%
60%
90%
100%
The share price and Group PBT conditions and targets will operate separately.
In addition, the UK business must break even in the financial year ending on 28 March 2015 or 27 March
2016. A minimum shareholding requirement must also be met by the executive directors in order for full
vesting to occur. In respect of LTIP 1, the shareholding requirement after three years (from the date of
grant) is 50% for the CFO. The CEO’s award lapsed when he left the Company.
LTIP 2:
Participants in the FY2013/14 LTIP will earn up to 50% of the award if the share price reaches the targets
shown in the table below, up to 37.5% of the award if the group profit before tax reaches the targets
shown in the table below and up to 12.5% of the award if UK profit before tax reaches the targets shown
in the table below:
FY16 share price
Vesting (% of max)
FY16 Group PBT
FY17 UK PBT
Vesting (% of max)
<£4.74
£4.74
£5.60
£6.50
0%
30%
60%
90%
<£34m
£34m
£45m
£60m
<£2m
£2m
£5m
£10m
£7.50 or more
100%
£70m or more
£12m or more
0%
30%
60%
90%
100%
The share price and PBT conditions and targets will operate separately.
A minimum shareholding requirement must also be met by the executive directors in order for full
vesting to occur. In respect of LTIP 2, the shareholding requirement after three years (from the date of
grant) is 50% for the CFO, moving to 100% thereafter (i.e. five years). The CEO’s award lapsed when he
left the Company.
When assessing performance in relation to the conditions set out for LTIP 1 and LTIP 2, the Committee
has the discretion to define how UK PBT performance and ‘break even’ is defined for these purposes
(e.g. excluding exceptional items from the calculation).
If the specified shareholding requirements are not met within three years of the date of grant of
LTIP awards, the Remuneration Committee has discretion to reduce vesting of awards pro-rata to
the extent the requirement has not been met. In determining whether the specified shareholding
requirement has been met (and if not, whether any pro-rata reduction of awards should result),
the Committee will consider:
Bthe shares held by the director and the source of those shares;
Bbonus payouts and LTIP award vesting over the period;
Bthe extent to which shares have been purchased predominantly by the executive directors from
own resources; and
Bsteps taken by the executive director to meet the requirement over the period.
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continued
Legacy LTIP awards
Recovery or withholding
The Committee has the right to withhold or reduce the level of vesting of awards in certain
circumstances where performance has driven vesting which is clearly unsustainable, including:
Bmaterial misstatement of financial statements;
Bgross misconduct/fraud of the participant;
Bwhere performance has driven vesting which is clearly unsustainable.
Notes to the policy table
(1) Choice of performance measures: The performance measures that are used for the annual bonus are a subset of the Company’s key performance indicators.
The targets are derived from the annual business plan, which in turn is linked to the corporate strategy.
(2) Annual bonus – For financial year FY2015 70% of the bonus entitlement will be based on an appropriate mix of financial measures such as Group Profit before Tax (PBT).
PBT measures the underlying profits generated by the business and whether management is converting growth into profits effectively. 30% of the bonus entitlement
is based on non-financial measures that may include business and personal targets which are linked to the corporate strategy, (for example, customer satisfaction).
No bonus will be payable unless at least a gateway level of financial performance has been achieved. The measures and targets which form the gateway will be
determined by the Committee from year to year and may include measures such as profit before tax, and the ability of the Company to make a payment. Details of
targets set for the previous financial year are set out in the Annual Report on Remuneration on page 77.
(3) LTIP – The selection of performance measures and appropriate targets, and the calibration of these targets at threshold and maximum will be subject to shareholder
consultation with regard to any awards made in respect of FY2015 as noted in the table above. Measures and targets will be selected by reference to the Company’s
strategic plan at the time of award.
BAdjustments required in certain circumstances (e.g. rights
issues, corporate restructuring, on a change of control and
special dividends);
BDiscretion in relation to all employee share plans would
be exercised within the parameters of HMRC and UKLA
Listing Rules.
Any use of the above discretions would, where relevant, be
explained in the Annual Report on Remuneration and may,
as appropriate, be the subject of consultation with the
Company’s major shareholders.
Legacy arrangements
For the avoidance of doubt, in approving the directors’
remuneration policy, which contains details of legacy
arrangements as set out in this report, authority is given to the
Company to honour any commitments that may have been
entered into with current or former directors that have been
disclosed previously to shareholders.
Incentive plan discretions
The Committee will operate the annual bonus plan and LTIP
(existing and 2014 plans) according to their respective rules,
the policy set out above and in accordance with the Listing
Rules and HMRC rules where relevant. Copies of the annual
bonus plan and LTIP rules are available on request from the
Company Secretary. The Committee, consistent with
market practice, retains discretion over a number of areas
relating to the operation and administration of these plans.
These include (but are not limited to) the following:
BWho participates in the plans;
BThe timing of grant of award and/or payment;
BThe timing of any bonus payment;
BThe choice of (and adjustment of) performance measures,
weighting and targets for each incentive plan in
accordance with the policy set out above and the rules of
each plan;
BDiscretion relating to the measurement of performance in
the event of a change of control or reconstruction;
BAbility to amend the performance conditions and/or
measures in respect of any award or payout if one or more
events have occurred which would lead the Committee to
consider that it would be appropriate to do so, provided
that such an amendment would not be materially less
difficult to meet;
BDetermination of a good leaver (in addition to any specified
categories) for incentive plan purposes based on the rules
of each plan and the appropriate treatment under the
plan rules;
66
Mothercare plc Annual report and accounts 2014 Remuneration scenarios for executive directors in FY2015
The Company’s remuneration policy results in a significant
proportion of the remuneration received by Executive
Directors being dependent on Company performance.
At the date of this report, the Company does not have a CEO
appointed to the board, and accordingly the charts below
show how total pay for the CFO and (for illustration
purposes only) the previous permanent CEO vary under
three different performance scenarios: Minimum, Target
and Maximum:
Minimum
Target
Maximum
B Comprises the fixed elements of
pay, being base salary, benefits
and pension.
BThe value of base salary and
pension is calculated as at
1 April 2014.
B The value of the benefits
received is taken as the actual
value for the 52 weeks ended
29 March 2014.
BComprises fixed pay (salary,
BComprises fixed pay (salary,
benefits and pension) and 50%
of the maximum annual bonus
and 30% of the full LTIP award.
benefits and pension) and the
maximum value of the bonus
(Chief Executive 125% of base
salary, CFO 125% of base salary).
B Normal policy awards under
the LTIP with full vesting (CEO
200% of base salary, CFO 175%
of base salary).
No account has been taken of share price growth, or of dividend equivalent shares awarded in respect of the deferred
element of bonus and LTIP awards over the deferral/performance periods.
CEO (£000s)
Maximum
On Target
Minimum
27%
49%
100%
28%
45%
Total 2,212
26% 25%
Total 587
Total 1,200
Maximum
On Target
Minimum
28%
51%
100%
30%
42%
Total 1,405
27% 22%
Total 400
Total 785
CFO – Matt Smith (£000s)
Fixed Pay
Annual Bonus
LTI
Fixed Pay
Annual Bonus
LTI
A breakdown of the elements included in the remuneration scenario charts is shown in the table below.
CEO
CFO
Fixed (£000)
Short-Term Plan (£000)
Long-Term Plan (£000)
Base Salary
Benefits
Pension
Total Fixed
Target Maximum
Target Maximum
500
335
12
15
75
50
587
400
313
209
625
419
300
176
1,000
586
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Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Remuneration report
continued
Executive directors’ service contracts
The Committee has agreed certain terms and policies
that are to be included in its service contract with
executive directors:
BThe period of notice for directors will not exceed 12 months
and, accordingly, the employment contracts of the directors
are terminable on 12 months’ notice by either party.
BIn the event of a director’s departure from the Company,
and subject to the ‘good leaver’ provisions set out below,
the Company’s policy on termination payments is as follows:
– No cash bonus will be awarded or paid (nor will any
deferred shares be awarded) following notice of
termination (by either the employee or Company)
– Any unvested annual bonus deferred shares will lapse on
cessation of employment
– Any unvested LTIP awards shall lapse on cessation
of employment; LTIP awards that have vested may
be retained
– The Company may pay basic salary and the fair value of
other benefits in lieu of notice for the duration of the notice
period. The instalments may cease or be reduced
proportionally if the director accepts alternative
employment that starts before the end of the
notice period.
BThe Committee has a concept of a ‘good leaver’ in the
event of termination of employment by reason of ill-health,
permanent disability, statutory redundancy, agreed
retirement, sale of employing company or business out of
the Group or at the discretion of the Committee. If the
executive director in question is a good leaver then the
Committee may exercise its discretion such that:
– a performance-related bonus will be paid at the normal
time and this will be time pro-rated based on the
proportion of the bonus year for which the individual was
employed; the bonus may be paid wholly in cash, or part
cash and part shares
– unvested deferred shares will vest, normally with
immediate effect and in full
– the individual will receive a pro-rated proportion of
outstanding LTIP awards which can be exercised up to six
months (or such longer period as the Committee permits
and up to 12 months in the case of death) after the
performance period ends and provided that the relevant
performance criteria are met for vesting. Exceptionally, the
Committee may decide to release the LTIP shares,
following cessation of employment but subject to the
Committee’s assessment of performance, which can be
exercised in the six months after the leaving date (or such
longer period as the Committee permits and up to
12 months in the case of death) and/or to allow a greater
number of shares to vest than if the level of vesting was
calculated on a pro-rata basis. The provisions governing
the vesting of LTIP awards under the legacy LTIP are
broadly similar and these awards will vest on the terms set
out in that plan. The Committee, in determining the extent
to which these shares should vest, will consider all of the
facts of the executive’s departure, including their
performance and the extent to which their departure
is at the instigation of the Company.
The contracts of the directors do not provide for any
enhanced payments in the event of a change of control of
the Company or for liquidated damages. However, in the
event of a change of control it is the Company’s normal
policy that any unvested annual bonus deferred share
awards will vest in full; in the case of LTIP awards vesting
will be determined by the Board having regard to the
achievement of any relevant performance conditions and
taking into account the time period.
The Company may also consider the payment of legal fees
and other professional services.
Copies of the executive directors’ service contracts are
available for inspection at the Company’s registered office:
Mothercare plc, Cherry Tree Road, Watford, Hertfordshire,
WD24 6SH.
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Mothercare plc Annual report and accounts 2014
Remuneration policy across the group
The remuneration policy for the executive directors is
designed with regard to the policy for employees across
the group as a whole. The Committee is kept updated
through the year on general employment conditions,
budgets for any basic salary increase, the level of bonus
pools and payouts, and participation in share plans.
Therefore the Committee is aware of how total remuneration
of the executive directors compares to the total remuneration
of the general population of employees. A greater proportion
of executive directors’ remuneration is variable when
compared to other employees given their increased line
of sight to the performance of the business. Common
approaches to remuneration policy which apply across the
group include:
Ba consistent approach to ‘pay for performance’ is applied
throughout the group, with annual bonus schemes being
offered to all employees;
Boffering pension and life assurance benefits for
all employees;
Bensuring that salary increases for each category of
employee are considered taking into account the overall
rate of increase across the group, as well as Company and
individual performance;
Bencouraging broad-based share ownership through the
use of all-employee share plans.
Recruitment policy
The Committee’s overriding objective is to appoint executive
directors with the necessary background, skills and
experience to ensure the continuing success of the Company.
The Committee recognises that the increasing pace of
change and multi-channel development in our industry, as
well as the international nature of the group, will mean that
the right individuals may often be highly sought after.
The remuneration package for a new director will therefore
be set in accordance with the Company’s approved
remuneration policy as set out on page 59 of the Directors’
Remuneration Report, subject to such modifications as
are described below. The maximum level of variable
remuneration (excluding any buyout arrangements) that
may be offered on an annual basis to a new director will
be in accordance with the limits as set out in the Policy Table,
normally being 125% of salary in the annual bonus plan and
up to 200% of salary in the long-term incentive plan, but with
regard to the long term incentive up to 300% may be
awarded in exceptional circumstances.
In the majority of cases, where an external appointment is
made, the individual will forfeit incentive awards connected
with their resignation from their previous employment.
The Committee may decide to offer further cash or share-
based payments to ‘buy-out’ these existing entitlements by
making awards of a broadly equivalent value, in the
Committee’s view, under either the Company’s existing
incentive plans or under other arrangements. In determining
the appropriate form and amount of any such award, the
Committee will consider various factors, including the type
and quantum of award, the length of the performance period
and the performance and vesting conditions attached to
each forfeited incentive award.
Where an individual is appointed to the Board, different
performance measures may be set for the year of joining
the board for the annual bonus, taking into account the
individual’s role and responsibilities and the point in the
year the executive director joined.
For any internal appointment to the board, any variable pay
element granted in respect of the prior role may be allowed
to pay out according to its terms, adjusted as appropriate to
take into account the terms of the director’s appointment.
The salary level for a new director will be determined with care
by the Committee, taking into account the individual’s
background, skills, experience, the business criticality and
nature of the role being offered, the Company’s circumstances,
and relevant external and internal benchmarks.
In certain circumstances, the Committee will have set a
starting salary, which is positioned below the relevant market
rate and may therefore wish to adjust the director’s salary at
a level above the average increase in the Company as the
individual gains experience and establishes a strong
performance track record in the role. Conversely, there may
also be circumstances where paying above a mid-market
salary is required to attract or retain an individual considered
to possess significant and relevant experience.
The Committee will of course need to exercise a degree of
judgement in determining the most appropriate salary for
the new appointment.
Benefits and pension contribution will be provided in
accordance with the approved Company policy. Relocation
expenses or allowances, legal fees and other costs relating to
the recruitment may be paid as appropriate in line with the
approved policy.
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continued
The Committee recognises that its shareholders need to understand fully the remuneration package for a new executive
director and is committed to communicating full details and its reasons for agreeing the remuneration at the time of
appointment. The Company will identify any remuneration elements which are specific to the initial appointment.
Chairman and non-executive directors
Fees for a new non-executive director or Chairman will be set in accordance with the approved policy.
Fees for the Chairman
Purpose and
link to strategy
Operation
To attract and retain
a Chairman of
appropriate calibre
and experience
The Chairman’s fee is reviewed annually
by the Committee (without the Chairman
present).
Opportunity
The Chairman receives a single
fee to cover all his board duties.
Details of current fee levels are set
out in the Annual Report on
Remuneration.
Performance
metrics
Recovery
or withholding
No
performance
metrics apply.
No recovery or
withholding
applies.
Fees for NEDs
Purpose and
link to strategy
To attract and retain
non-executive
directors
of appropriate
calibre and
experience
Operation
Opportunity
The remuneration policy for the non-
executive directors is determined by a
sub-committee of the board comprising
the Chairman and the executive directors,
based on independent surveys of fees
paid to non-executive directors of
companies of similar scale, revenue and
complexity to Mothercare. Remuneration
is set taking account of the commitment
and responsibilities of the relevant role.
Non-executive directors receive
a fee for carrying out their duties
together with additional fees for
those non-executive directors who
chair the primary board committees
and the senior independent director.
Details of current fee levels are set
out in the Annual Report on
Remuneration.
Performance
metrics
Recovery
or withholding
No
performance
metrics apply.
No recovery or
withholding
applies.
Note re Chairman’s Legacy Share Matching Plan
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 match the shares purchased by Alan Parker on a 1:1 basis (up to a maximum value of £200,000). The Chairman purchased shares to the maximum value 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 (TSR) 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% in absolute terms over the three year period. If the Company’s performance is below the TSR index, the award will not
vest. The Chairman must retain his shareholding for the performance period. As previously reported, the Company agreed to an extension of this share matching
arrangement awarded to the Chairman on his appointment as Executive Chairman, a position held on an interim basis until the appointment of Simon Calver as CEO.
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 additional investment equated to 54,997 options. 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.
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Mothercare plc Annual report and accounts 2014
Consideration of employment conditions elsewhere
in the Company
In setting the remuneration of the executive directors, the
Committee takes into account the overall approach to
reward for employees in the group. Mothercare operates in a
number of different territories and has employees who carry
out diverse roles across a number of countries. All employees,
including senior managers, are paid by reference to the local
market rate and base salary levels are reviewed regularly.
When considering salary increases for directors, the
Company will be sensitive to pay and employment conditions
across the wider workforce. The Committee does not formally
consult with employees on the executive remuneration policy.
The Company does hold an annual employee engagement
survey and the Committee is kept informed of pay and
conditions applying to the general employee population
across the group.
The Chairman has a service agreement with a six month
notice period. The non-executive directors have service
agreements with one month’s notice. With the exception of
the Chairman’s share matching plan, non-executive directors
are not entitled to participate in any Company incentive
schemes, are not eligible to join the Company’s pension and
benefits schemes (with the exception of colleague discount)
and are not eligible for compensation for loss of office.
Non-executive directors are appointed for an initial term of
three years and would be expected to serve for an additional
three-year term, subject to satisfactory performance and
annual re-election at the AGM. Non-executive directors may
then be requested to serve for a further three-year term
subject to rigorous review at the relevant time and
agreement with the Director.
Non-executive directors are reimbursed for expenses and
any tax arising on those expenses is settled directly by the
Company. To the extent that these are deemed taxable
benefits they will be included in the annual remuneration
report as required.
Consideration of shareholder views
The Committee engages pro-actively with the Company’s
major shareholders. For example, when any material
changes are made to the remuneration policy, the
Committee Chair will consult with major shareholders in
advance. During the immediately preceding financial year
the Chairman consulted with the main shareholder advisory
bodies, the ABI and ISS/RREV, and our major shareholders to
discuss with them the proposed changes to the LTIP awards
made in December 2013. We anticipate that further dialogue
will commence with regard to the implementation of a new
LTIP during the financial year 2014/15.
71
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Remuneration report
Annual report on remuneration
Implementation of Remuneration Policy in FY2015
Following approval at the Company’s Annual General
Meeting to be held on 17 July 2014 the approved directors’
remuneration policy will be implemented following the
Annual General Meeting.
Base Salaries
Executive Directors
The directors’ base salaries are normally reviewed in April
each year. The base salary of Matt Smith, the CFO has been
increased to £335,000 for FY2015. The base salaries for FY2015
and current base salaries as at 29 March 2014 are:
CEO
FY15
n/a
FY14
Increase
500,000
n/a
Matt Smith
335,000 (from 1/4/14)
325,000
3.08%
Interim CEO
The Company appointed Mark Newton-Jones as its interim
CEO, with effect from 17 March 2014 and was appointed on a
six-month contract. Under the terms of that agreement, his
salary for the six-month period will be £450,000 with a further
bonus opportunity of up to £225,000 subject to the
achievement of stretching performance targets. Mark
Newton-Jones is not entitled to any pension contribution
or other benefits (such as a company car), and does not
participate in any long-term incentive scheme. Rather
than receiving a relocation allowance, Mark Newton-Jones
receives a per diem allowance of £100 per day to
cover accommodation and subsistence expenses.
These arrangements are specific and tailored to this
interim assignment.
Chairman and non-executive directors’ fees and expenses
The Chairman’s remuneration is determined by the
Remuneration Committee without the Chairman being
present. The Chairman’s base fee was set at £200,000 and
there is no change to this for FY2015.
Expenses incurred by the Chairman or the non-executive
directors on group business are reimbursed when claimed in
accordance with the group’s business expenses policy.
The fees paid annually to the non-executive directors for
FY2015 are:
Base fee p.a.
£50,000
Supplemental fee p.a.
B Senior independent director £5,000
B Audit and Risk Committee chair £7,500
B Remuneration Committee chair £7,500
Benefits and pension
The Company provides benefits to employees in addition to
base salary. Benefits to executive directors are provided and
paid in line with the Company policy.
Annual bonus
For FY15, and in line with our policy, 70% of the bonus will be
payable for achieving group profit before tax targets and
30% for achieving specific personal objectives and business
scorecard measures (such as customer satisfaction).
Following a review by the Committee, the CFO’s annual
bonus maximum has been increased from 100% to 125%,
in line with that of the CEO. Where a bonus is awarded 70%
of the payment will continue to be made in cash and the
remaining 30% deferred into shares for three years.
Given the need to quickly improve performance in FY15, the
threshold level of vesting will require a significant year on year
improvement in group profit before tax, and if achieved will
trigger for both the CEO and CFO a payment of 25% of the
maximum (which is also dependent on delivery against the
agreed personal objectives and business scorecard
measures). A payment beyond this threshold level will require
a further substantial improvement.
The specific financial, personal and business scorecard
targets are considered to be commercially sensitive because
of the confidential nature of the information that disclosure
would provide to the Company’s competitors. However, full
disclosure will be provided after the financial year end, in the
2015 annual report on remuneration.
For FY2015 only, if no LTIP award is made the annual bonus
maximum for the permanent CEO and CFO may be
increased to 200%. In this case the amount deferred into
shares will be increased to 50% of the amount earned. The
Committee in its discretion may reduce or withhold the award
of any bonus if it considers that the payout is inconsistent with
the underlying performance of the Company.
72
Mothercare plc Annual report and accounts 2014 Long-term incentives
Any LTIP award in the current year is pending the appointment
of a permanent CEO. Until such appointment is made it is not
possible to be definitive about award levels or performance
measures. Before making any grant in the current year the
Committee will consult with major shareholders and
representative bodies.
Service Contracts
All the directors will offer themselves for election or re-election
at the forthcoming Annual General Meeting.
The table below sets out the details of all service contracts
with executive and non-executive directors.
Copies of the executive director’s service contract and
non-executive directors’ letters of appointment are available
for inspection at the Company’s registered office and will be
available from 2.30pm on the day of the Annual General
Meeting until the conclusion of the Annual General Meeting.
Date of
appointment
Notice period
under contract
Executive directors
Matt Smith
25 March 2013
12 months from
the Company
and individual
15 August 2011
6 months
Non-executive
directors
Alan Parker,
Chairman
Angela Brav
Lee Ginsberg
1 January 2013
2 July 2012
Amanda Mackenzie
1 January 2011
Richard Rivers
Imelda Walsh
17 July 2008
1 June 2013
Nick Wharton
14 November 2013
1 month
1 month
1 month
1 month
1 month
1 month
Remuneration in FY2014
The Remuneration Committee
Composition of the Remuneration Committee
For a number of years the Committee comprised all the
non-executive directors, but during the year the board of the
Company decided to adopt a committee structure for both
the Audit and Remuneration Committees such that each
non-executive director was a member of one or other of
the Committees.
The Remuneration Committee currently comprises Imelda
Walsh (chair from 18 July 2013), Angela Brav and Richard Rivers
(as independent non-executive directors), and the Chairman
of the Company (who, in the view of the directors was deemed
to be independent on appointment). The Assistant Group
Company Secretary acts as secretary to the Committee.
During the year the other committee members were:
BDavid Williams (resigned 31 May 2013)
BRichard Rivers (interim chair from 31 May 2013 to 18 July 2013)
BAmanda Mackenzie (to 16 May 2013)
Remit and Activity of the Remuneration Committee
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 senior management
below executive director and executive committee members,
to ensure that such remuneration is consistent with the
delivery of the business strategy and value creation for
shareholders. The Committee sets the fee to be paid to
the Chairman.
The Committee met six times during the year, and each
member’s attendance at these meetings is set out on
page 46 of the Corporate Governance report. The table
below lists the detail of the scope of and actions arising from
those meetings.
The Committee’s detailed terms of reference are available
on the Mothercare website at www.mothercareplc.com
73
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements
BConsideration of any general pay award offered to
group employees
BConsideration of any particular grounds or reasons for an
increase in salary, particularly if greater than the pay award
generally offered to group employees
BApproval of the rules of the short term incentive plan offered
to relevant employees for FY2014
BAgreement that executive directors must defer 30% of any
annual bonus into shares to be held (subject to conditions)
for three years
BAs performance criteria not met, conclusion that no short-term
incentive or bonus payable for the year
BApproval of LTIP performance measures following consultation
with the Company’s major shareholders
BGrant of awards to executive directors in December 2013
BCreation of Remuneration sub-committee to oversee employee
share grant
BApproval of the grant and scheme conditions
BTaking relevant advice from remuneration consultants (PwC)
BReview of the new regulations and also annual reports made
by other similar companies
BRecommendation to the board for approval of the Directors’
Remuneration Policy as part of the Annual report
Remuneration report
continued
Remuneration Committee activity
The Committee considered the following points during the year:
Heading
Salary
Scope
Action
Approval of any pay awards to the
Executive Directors or Executive
Committee
Annual bonus/
short- term incentive
plan
Review of any bonus or short-term
incentive plan against the purpose and
link to strategy outlined in the
Remuneration Policy Report
Long term incentive
plan
SAYE
Governance
Review of the long-term incentive
plan against the purpose and link
to strategy outlined in the
Remuneration Policy Report
Consideration of the all-employee
SAYE scheme
Preparation of the Directors’
Remuneration Policy for approval by
shareholders at forthcoming Annual
General Meeting
74
Mothercare plc Annual report and accounts 2014 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 CEO, Group People Director and Group General Counsel/Company Secretary as appropriate. No executive
was present for discussions of their own remuneration. Appropriate company employees and external advisers may attend
committee meetings at the invitation of the chair.
As at 29 March 2014, the Committee’s advisers were:
Person or organisation
Services provided
PricewaterhouseCoopers LLP
(PwC)
Advice on incentive schemes, executive remuneration and remuneration
benchmarking. Support with drafting the remuneration policy report
KPMG (appointed early 2014)
Pensions advice
Fees
£98,100 excl VAT
£0
DLA Piper LLP
Legal services principally in respect of employment contracts
£7,462.50 excl VAT
All the advisers are considered to be independent.
KPMG was appointed by the Company, during the year following a tender process to provide advice on pension issues. KPMG
also provides general tax advice to the group from time to time.
DLA Piper LLP provides legal advice to the Company on pension issues as well as employment advice. DLA Piper LLP provides
general legal advice to the group both in the UK and overseas.
PwC LLP provides certain other advice and non-audit services to the group. PwC is a member of the Remuneration Consultants
Group and adheres to the voluntary Code of Practice in relation to the advice it provides to the Company.
Chairman and non-executive directors’ fees and expenses
The chairs of the Audit and Risk Committee and the Remuneration Committee receive a supplementary fee to compensate
them for the additional work undertaken in those roles. With effect from 12 October 2013, the supplementary fees were
increased to £7,500 per annum (previously £5,000 per annum). This supplementary fee will continue for FY15.
Statement of voting at general meeting
At the Annual General Meeting held on 18 July 2013, the resolution to approve the Directors’ Remuneration Report was passed
on a show of hands. The FY2013 Directors’ Remuneration Report comprised a single report subject to an advisory vote.
The following proxy votes were received by the Company in respect of the resolution:
Votes For
(including
discretion)
67,748,369
% of Votes For
(including
discretion)
Votes
Against
97.13
2,002,886
% of Votes
Against
2.87
Total votes
cast
69,751,255
Votes
Withheld*
25,802
% of votes
withheld
0.04
Notes:
* A vote withheld is not a vote in law and is not counted in the calculation of votes ‘for’ and ‘against’ each resolution.
As at 16 July 2013, the Company’s issued share capital and total voting rights consisted of 88,689,922 ordinary shares each carrying voting rights. There were no shares in
treasury. As a result, proxy votes representing approximately 78% of the voting capital were cast.
75
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Remuneration report
continued
The information provided in this part of the Directors’ Remuneration Report is subject to Audit.
Single total figure of remuneration for directors
The following table shows a single total figure of remuneration in respect of qualifying services for FY2014 for each director,
together with comparative figures for FY2013.
Single
total figure
Simon Calver1
Matt Smith
Alan Parker
Angela Brav
Lee Ginsberg
Amanda Mackenzie
Richard Rivers
Imelda Walsh
Nick Wharton
David Williams3
Year
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Salary
and fees
£’000
Taxable
benefits
£’000
Bonus
£’000
LTIP
£’000
Pension
£’000
Other
£’000
Total
£’000
500
462
325
6
200
251
50
13
614
43
50
50
505
50
46
–
19
–
9
55
12
11
15
0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0
691
0
2552
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
75
69
50
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
587
611
390
262
200
251
50
13
61
43
50
50
50
50
46
–
19
–
9
55
1 Simon Calver resigned from the board of Mothercare plc on 24 February 2014 but remained in employment with the group until 28 March 2014. In respect of the annual
bonus for FY2013 Mr Calver received cash of £48,125 and £20,625 was deferred into nil cost share options which lapsed on his resignation.
2 Included within his total remuneration for FY2013, Matt Smith received a payment of £178,500 as compensation for the value of bonus he would have received from his
former employer in his final year of employment. A further amount of £76,500 (representing 30% of the total compensation of £255,000) was deferred into nil cost share
options which vest after three years subject to the conditions of the STIP scheme.
3 David Williams resigned on 31 May 2013 as announced on 12 April 2013.
4 Lee Ginsberg received an overpayment of £5,000 in error. This is being recovered during 2014/15.
5 Richard Rivers was underpaid by £5,000 in error. This is being rectified in 2014/15.
76
Mothercare plc Annual report and accounts 2014 Alan Parker Share Matching Scheme
Mr Parker’s share matching scheme is not included in the
FY2014 single total figure of remuneration as the two awards
made under the scheme are not due to vest until August and
November 2014 respectively. Details of the scheme are set out
in the policy section at page 70.
Total pension entitlements
Base salary is the only element of remuneration used to
determine pensionable earnings. During the year, Simon
Calver and Matt Smith received 15% of their base salary as
a pension contribution from the Company which is paid into
a personal pension plan. They do not participate in any
FURBS arrangements.
For further details on the cost of pensions to the group
including the statements required by IAS 19, see note 30.
Additional requirements in respect of the single total figure
table: (auditable)
Taxable Benefits
Benefits typically include a company car, medical insurance
and other similar benefits
Annual Bonuses and LTIPs
STIP/annual bonus
In FY2014 the STIP applied to all non-store employees and
incorporated both financial (75%) and strategic (25%)
measures.
Payment under the STIP is subject to an overriding financial
measure based on the Company’s net quarterly cash/debt
position to ensure that payments are not made where the
underlying financial position of the Company does not
support it.
For the year under review the CEO could earn up to 125% of
base salary and CFO could earn up to 100% of base salary
for the achievement of annual performance metrics.
For Executive Directors, 30% of any payment earned will be
deferred into shares in the Company for three years and
subject to a risk of forfeiture in the case of resignation during
this period, and to claw back in exceptional circumstances
(such as financial misstatement).
The FY2014 threshold was set at £18.5 million group PBT
(pre-bonus spend). Actual group PBT for the year under
review was below this threshold and consequently no annual
bonus was payable for FY2014.
LTIP
The LTIP is not included in the FY2014 single total figure of
remuneration as the conditional share awards were granted
in FY2013 (LTIP1) and FY2014 (LTIP2) respectively and are not yet
due to vest.
LTIP1
LTIP1 awards were made in FY2013, and the details of LTIP1
are included in the legacy LTIP awards section of the policy
table above.
LTIP2
Vesting is dependent on the fulfilment of two Performance
Targets, both equally weighted (50/50):
BShare price target; and
BProfit before Tax: the group PBT target is 37.5% of the total
award measured in FY2016 and 12.5% of the total award
relates to UK PBT measured in FY2017.
Vesting will occur for up to 43.75% of the Option immediately
following publication of the results for FY2016 and, in relation to
the remaining 56.25%, one year later i.e. following publication
of the results for FY2017.
77
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Remuneration report
continued
Scheme interests awarded during the financial year
LTIP grants
Ordinarily conditional share awards are considered and granted in May and November after the announcements of the
Company’s preliminary and interim results respectively. Awards were made in line with the Company’s usual grant policy in
December 2013.
December 2013
Director
Scheme
Basis of
award
Face value2
£’000
Simon Calver1
LTIP conditional
200% of salary
share awards
Matt Smith
LTIP conditional
175% of salary
share awards
1,112
632
Percentage
vesting at
threshold
performance
30%
30%
Number
of shares
251,067
142,794
Performance
period end
FY16
and FY17
FY16
and FY17
1 Mr Calver’s awards lapsed upon his resignation from the Company.
2 The face value of the awards is calculated using the share price at the date of grant (16 December 2013) which was 443p per share.
Payments to past directors
There were no payments to past directors during the year.
Payments for loss of office
Simon Calver resigned from the board of Mothercare plc on 24 February 2014 and from the group on 28 March 2014. He will
receive up to £294,540 (£250,000 in lieu of six months’ notice and £44,540 in pension contributions and benefits) payable in
two instalments (the second instalment to be paid in July 2014). There is a duty to mitigate and the payments he receives will
be reduced accordingly should a new appointment be secured by Mr Calver within six months of his resignation.
All share options, awards, deferred shares lapsed on resignation.
78
Mothercare plc Annual report and accounts 2014
Statement of directors’ shareholding and share interests
Executive directors are expected to build up a shareholding in the Company. After five years, the CEO and CFO (as the
executive directors) should hold a shareholding equal to 150% and 100% of their basic salaries respectively. There are specific
conditions on the level of shareholding required for LTIPs 1 and 2.
The shareholding and share interests of the directors (and their connected persons) who served during the year in the share
capital of the Company are set out in the table below.
Director
Legally
owned
LTIP
awards
STIP
deferred
shares
SAYE
% of salary
held under
shareholding
policy
unvested
vested unvested
vested unvested
vested
Executive directors
Simon Calver
Matt Smith
Non-executive directors
Alan Parker
Angela Brav
Lee Ginsberg
Amanda Mackenzie
Richard Rivers
Imelda Walsh
Nick Wharton3
David Williams
188,3105
1,029,8831
0
367,785
232,554
60,0004
54,9974
0
0
25,760
29,000
0
3,840
71,3005
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,5641
24,3462
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,9031
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
No changes took place in the interests of the directors between 29 March 2014 and 16 May 2014.
1 Simon Calver’s unvested share interests all lapsed upon his resignation.
2 Includes the deferred element of Matt Smith’s buyout payment for bonus foregone from his previous employer.
3 Nick Wharton’s interest is held by his spouse, a connected person.
4 These options are the options held under the Chairman’s share matching scheme.
5 Shares owned on date of resignation.
Mothercare Employees’ Share Trustee Limited
Tim Ashby and Matt Smith are shareholders and directors of Mothercare Employees’ Share Trustee Limited, which held 3,151
Mothercare plc shares in trust on 29 March 2014 (30 March 2013: 3,151 shares). A separate trust, the Mothercare Employee Trust,
held 67,118 shares on 29 March 2014 (30 March 2013: 105,346 shares).
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.
–
0
–
–
–
–
–
–
–
–
79
Mothercare plc Annual report and accounts 2014OverviewStrategic reportGovernanceFinancial statements Remuneration report
continued
Performance graph and CEO remuneration table
The performance graph below shows the group’s total shareholder return (TSR) against the return achieved by the FTSE250
index. Mothercare plc entered the FTSE250 on 30 June 2008 but returned to the FTSE SmallCap Index on 19 December 2011.
The performance graph below shows performance against the FTSE250 Index and the FTSE All Share General Retailers Index.
The graph shows the five financial years to 29 March 2014.
The indices were chosen on the basis that Mothercare was a constituent of both the FTSE250 and FTSE General Retailers
indices. The group’s performance against the FTSE All Share General Retailers Index has historically been used as it
determined the level of vesting of awards under the Executive Incentive Plan. No current executive directors participate
in the scheme and there are no payments due to any past directors.
TSR data indexed to 100
300
250
200
150
100
50
0
Mar 09
Mar 10
Mar 11
Mar 12
Mar 13
Mar 14
Mothercare
FTSE 250
FTSE ASX General Retailers.
Source: Datastream
The table below sets out the details for the director undertaking the role of Chief Executive Officer over the past five years:
Year
2014
2013
2012
2011
2010
CEO
CEO single figure of total
remuneration (£000s)
Annual bonus pay-out
against maximum %
Long term incentive vesting
rates against maximum
opportunity %
Simon Calver
Simon Calver
Ben Gordon
Ben Gordon
Ben Gordon
587
611
5,038
5,231
6,505
0
11
0
0
27.7
0
0
65.5
99.5
100
Ben Gordon resigned from the board with effect from 17 November 2011. Simon Calver was appointed on 30 April 2012, resigned
from the board on 24 February 2014 and was employed by the group until 28 March 2014.
Percentage change in remuneration of director undertaking the role of CEO
The table opposite shows the percentage change in remuneration of the director undertaking the role of Chief Executive
Officer of the parent company compared to salaried employees in head office and retail between FY2013 and FY2014. Hourly
paid employees have been excluded as they work variable hours due to the availability of overtime.
80
Mothercare plc Annual report and accounts 2014 Percentage increase in remuneration in FY2014 compared with remuneration in FY2013
Base salary
All taxable benefits
Annual bonuses
Total
CEO
FY2014
FY2013 % change
500,000
500,000
12,409
0
12,283
48,125
512,409
560,408
0
1
(100)
(8.6)
Average of
salaried employees
FY2013 % change
FY2014
34,339
1,869
126
32,793
1,730
1,059
36,334
35,582
4.7
8
(88)
2.1
Relative importance of spend on pay
The following table sets out the percentage change in dividends and overall spend on pay in FY2014 compared to FY2013.
Dividends
Employee remuneration
FY2014
FY2013 % change
Nil
Nil
£77.8m
£84.3m
0
(7.7)
Employee remuneration taken from Note 7 on page 106.
Auditable sections of the annual report on remuneration
The auditable sections of the annual report on remuneration are shown on pages 76 to 81 starting with the single total figure
of remuneration for each director concluding with the table of directors’ share interests.
Approval
This report was approved by the Board of directors on 21 May 2014 and signed on its behalf by:
Imelda Walsh
Chair, Remuneration Committee
Mothercare plc Annual report and accounts 2014
81
OverviewStrategic reportGovernanceFinancial statements Financial statements
Contents
83 Directors’ responsibilities statement
84 Independent auditor’s report to the members of
Mothercare plc
88 Consolidated income statement
89 Consolidated statement of comprehensive
income/(expense)
90 Consolidated balance sheet
91 Consolidated statement of changes in equity
92 Consolidated cash flow statement
93 Notes to the consolidated financial statements
Company financial statements
135 Company balance sheet
136 Notes to the company financial statements
139 Five-year record
140 Shareholder information
82
Mothercare plc Annual report and accounts 2014
Directors’ responsibilities statement
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:
Bselect suitable accounting policies and then apply
them consistently;
Bmake judgements and accounting estimates that
are reasonable and prudent;
Bstate whether applicable UK Accounting
Standards have been followed, subject to any
material departures disclosed and explained in
the financial statements; and
Bprepare 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:
Bproperly select and apply accounting policies;
Bpresent information, including accounting policies,
in a manner that provides relevant, reliable,
comparable and understandable information;
Bprovide 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
Bmake an assessment of the Company’s ability to
continue as a going concern.
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:
Bthe 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
Bthe strategic 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;
and
Bthe directors consider that the annual report and
accounts, taken as a whole, is fair, balanced and
understandable and gives shareholders the
information needed to assess the group’s
performance, business model and strategy.
By order of the Board on 21 May 2014 and signed on
its behalf by:
Matt Smith
Chief Financial Officer
Mothercare plc Annual report and accounts 2014
83
OverviewStrategic reportGovernanceFinancial statements
Independent auditor’s report to
the members of Mothercare plc
Going concern
As required by the Listing Rules we have reviewed
the directors’ statement on page 43 that the group is
a going concern.
We confirm that:
Bwe have concluded that the directors’ use of the
going concern basis of accounting in the
preparation of the financial statements is
appropriate; and
Bwe have not identified any material uncertainties
that may cast significant doubt on the group’s
ability to continue as a going concern.
However, because not all future events or
conditions can be predicted, this statement is
not a guarantee as to the group’s ability to
continue as a going concern.
Opinion on financial statements of Mothercare plc
In our opinion:
B the financial statements give a true and fair view
of the state of the group’s and of the parent
company’s affairs as at 29 March 2014 and of the
group’s loss for the 52 weeks then ended;
Bthe group financial statements have been
properly prepared in accordance with
International Financial Reporting Standards (IFRSs)
as adopted by the European Union;
Bthe parent company financial statements have
been properly prepared in accordance with
United Kingdom Generally Accepted Accounting
Practice; and
Bthe financial statements have been prepared in
accordance with the requirements of the
Companies Act 2006 and, as regards the group
financial statements, Article 4 of the IAS Regulation.
The financial statements comprise the consolidated
income statement, the consolidated statement
of comprehensive income/expense, the
consolidated balance sheet, the consolidated
statement of changes in equity, the consolidated
cash flow statement and the related notes 1 to 32.
The financial statements also comprise the parent
company balance sheet and related notes 1 to 8.
The financial reporting framework that has been
applied in the preparation of the group financial
statements is applicable law and IFRSs as adopted
by the European Union. The financial reporting
framework that has been applied in the
preparation of the parent company financial
statements is applicable law and United Kingdom
Accounting Standards (United Kingdom Generally
Accepted Accounting Practice).
84
Mothercare plc Annual report and accounts 2014
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy,
the allocation of resources in the audit and directing the efforts of the engagement team:
Risk
The presentation and consistency of the income and
expenditure included within exceptional items.
The group has recorded exceptional income and expenditure
in respect of one-off items and transactions that fall outside of
the normal course of trading.
Going concern
Going concern, liquidity and covenant headroom continue
to be key areas of focus in light of the ongoing significant
changes within the group, particularly in the UK, as part of its
transformation strategy.
The judgement involved in calculating the group’s
property provisions
The group maintains property provisions in respect of store
disposals or closures and onerous leases. The provisions are
estimates based on expected future cashflows.
The valuation of inventory including appropriateness of
judgements applied within the obsolescence provision
Management’s calculation of the inventory obsolescence
provision involves judgement around the current market value
and level of demand for the individual product ranges held.
How the scope of our audit responded to the risk
We reviewed the nature of exceptional items, challenged
management’s judgements in this area and agreed the
quantification to supporting documentation.
We assessed whether they are in line with both the group’s
accounting policy and the guidance issued by the Financial
Reporting Council in December 2013.
We considered whether management’s application of the
policy has been applied consistently with previous accounting
periods, including whether the reversal of any items originally
recognised as exceptional are appropriately classified as
exceptional items.
We also assessed whether the disclosures within the financial
statements provide sufficient detail for the reader to
understand the nature of these items.
We reviewed management’s consideration of the adoption
of the going concern principle. Our work involved assessing
management’s forecasts, challenging the key underlying
assumptions, assessing the accuracy of previous forecasts,
considering reasonably possible downside scenarios and
comparing the short-term forecast against actual trading since
the balance sheet date.
We considered the group’s liquidity and financing
arrangements in light of the recent amendments to the terms
of the bank facilities. Our work assessed the extent of cash
headroom, covenant compliance and the availability and
quantum of mitigating actions to address potential sensitivity
scenarios for a period of 12 months from the signing of the
financial statements.
We have challenged management’s assumptions in arriving at
the property provision. We have verified the inputs used to
calculate the provision and agreed them back to supporting
documentation and reviewed the correspondence with the
group’s independent property advisors to assess whether
these experts’ views have been reflected within the
provision calculations.
We attended annual and perpetual inventory counts to assess
the condition of inventories.
We have tested that the book value of inventories does not
exceed their net realisable value by comparing the actual
sales value to the book value for a sample of lines.
We have challenged the assumptions used in arriving at
management’s inventory provision. Specifically we have
checked the discontinued dates of those relevant inventory
lines to assess whether they have been aged correctly. We
have also reviewed the actual and forecast sales of those
provisioned inventory lines to check that the provision
percentage applied is still appropriate.
Mothercare plc Annual report and accounts 2014
85
OverviewStrategic reportGovernanceFinancial statements
Independent auditor’s report to
the members of Mothercare plc
continued
The recoverability of joint venture investments
and receivables from these parties
There is a risk that the group is exposed to debt owed from the
joint venture companies, due to the volatility of the trading
environments in the countries in which it operates.
We challenged the forecasts and growth assumptions used
in management’s impairment models for the joint venture
investments, including an assessment of the forecast growth
rates and management’s sensitivities to the key assumptions.
Additionally, we completed recoverability testing on the
receivables due from the joint venture companies.
The recoverability of store related fixed assets
In light of the group’s store closure plan, there is a risk that fixed
assets held within stores are not recoverable.
We assessed management’s assumptions, including forecast
store profitability, underlying the fixed asset impairment
models and recalculated the net present values of assets.
The locations were selected to provide an appropriate basis
for undertaking audit work to address the risks of material
misstatement identified above.
Our audit work at these locations is performed at a
materiality level calculated by reference to a proportion
of group materiality appropriate to the relative scale of
the business concerned.
At the parent entity level we also tested the consolidation
process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material
misstatement of the aggregated financial information of the
remaining components not subject to audit or audit of
specified account balances.
The group audit team is directly involved in the audit of the UK
trading companies. The component audit teams in Hong Kong
and India participated in the group audit planning process.
We discussed their risk assessment and issued the component
audit teams with audit referral instructions. We have held
discussions with the component audit teams and reviewed
documentation of the findings from their work.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
Bthe part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the
Companies Act 2006; and
Bthe information given in the Strategic Report and the Directors’
Report for the financial year for which the financial statements
are prepared is consistent with the financial statements.
The Audit and Risk Committee’s consideration of these risks
is set out on page 48.
Our audit procedures relating to these matters were designed
in the context of our audit of the financial statements as a
whole, and not to express an opinion on individual accounts
or disclosures. Our opinion on the financial statements is not
modified with respect to any of the risks described above,
and we do not express an opinion on these individual matters.
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be
changed or influenced. We use materiality both in planning
the scope of our audit work and in evaluating the results of
our work.
We determined materiality for the group to be £1.8 million,
calculated by applying professional judgement and taking
into account the profitability of the International segment
and the loss making position of the UK segment, before
exceptional items.
We agreed with the Audit and Risk Committee that we would
report to the Committee all audit differences in excess of
£90,000, as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds.
We also reported to the Audit and Risk Committee on
disclosure matters that we identified when assessing the
overall presentation of the financial statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding
of the group and its environment, including group-wide
controls, and assessing the risks of material misstatement at the
group level. Based on that assessment, we focused our group
audit scope on the UK trading companies (including both the
UK and International operating segments) and the group’s
sourcing operations in Hong Kong and India, all of which were
subject to a full scope audit for the 52 weeks ended 29 March
2014. These locations represent the principal business units
of the group and account for 100% of the group’s revenue.
86
Mothercare plc Annual report and accounts 2014
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records.
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
B we have not received all the information and explanations
we require for our audit; or
Badequate 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
Bthe parent company financial statements are not in
agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors’ remuneration have
not been made or the part of the Directors’ Remuneration Report
to be audited is not in agreement with the accounting records
and returns. We have nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review the part of
the Corporate Governance Statement relating to the Company’s
compliance with nine provisions of the UK Corporate Governance
Code. We have nothing to report arising from our review.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland),
we are required to report to you if, in our opinion, information
in the annual report is:
Bmaterially inconsistent with the information in the audited
financial statements; or
Bapparently materially incorrect based on, or materially
inconsistent with, our knowledge of the group acquired in the
course of performing our audit; or
Botherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the directors’ statement that they consider
the annual report is fair, balanced and understandable and
whether the annual report appropriately discloses those matters
that we communicated to the Audit and Risk Committee which we
consider should have been disclosed. We confirm that we have
not identified any such inconsistencies or misleading statements.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities
Statement, the directors are responsible for the preparation
of the 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 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. We also comply with
International Standard on Quality Control 1 (UK and
Ireland). Our audit methodology and tools aim to
ensure that our quality control procedures are
effective, understood and applied. Our quality
controls and systems include our dedicated
professional standards review team, strategically
focused second partner reviews and independent
partner reviews.
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.
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
and 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 and to identify any information that is
apparently materially incorrect based on, or
materially inconsistent with, the knowledge
acquired by us in the course of performing the
audit. If we become aware of any apparent
material misstatements or inconsistencies we
consider the implications for our report.
Ian Waller (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
21 May 2014
Mothercare plc Annual report and accounts 2014
87
OverviewStrategic reportGovernanceFinancial statements
Consolidated income statement
For the 52 weeks ended 29 March 2014
Revenue
Cost of sales
Gross profit
Administrative expenses
(Loss)/profit from retail operations
Other exceptional items
Share of results of joint ventures and
associates
Loss from operations
Net finance costs
Loss before taxation
Taxation
Loss for the period attributable to equity
holders of the parent
(Loss)/Earnings per share
Basic
Diluted
52 weeks ended 29 March 2014
52 weeks ended 30 March 2013
Restated*
Underlying1
£ million
Non-
underlying2
£ million
Total
£ million
Underlying1
£ million
Non-
underlying2
£ million
724.9
(680.2)
44.7
(28.2)
16.5
–
(0.6)
15.9
(6.4)
9.5
(2.7)
–
(14.7)
(14.7)
(9.5)
(24.2)
(10.8)
–
(35.0)
(0.8)
(35.8)
1.5
724.9
(694.9)
30.0
(37.7)
(7.7)
(10.8)
(0.6)
(19.1)
(7.2)
(26.3)
(1.2)
749.4
(702.0)
47.4
(34.2)
13.2
–
(1.4)
11.8
(5.9)
5.9
(2.2)
–
5.7
5.7
(5.9)
(0.2)
(29.2)
–
(29.4)
(0.4)
(29.8)
2.3
Total
£ million
749.4
(696.3)
53.1
(40.1)
13.0
(29.2)
(1.4)
(17.6)
(6.3)
(23.9)
0.1
6.8
(34.3)
(27.5)
3.7
(27.5)
(23.8)
7.7p
7.6p
(31.0p)
(31.0p)
4.2p
4.1p
(26.9p)
(26.9p)
Note
4, 5
7
6
13, 14
8
9
11
11
1 Before items described in footnote 2 below.
2 Includes exceptional items (property costs, restructuring costs and impairment charges) and other non-underlying items of amortisation of intangible assets
(excluding software) and the impact of non-cash foreign currency adjustments under IAS 39 and IAS 21 as set out in note 6 to the consolidated financial statements.
* Restated for amendments to IAS 19 as explained in Note 2.
All results relate to continuing operations.
88
Mothercare plc Annual report and accounts 2014
Consolidated statement of comprehensive income/(expense)
For the 52 weeks ended 29 March 2014
Loss for the period
Items that will not be reclassified subsequently to the income statement:
Remeasurement of net defined benefit liability – actuarial gain/(loss)
on defined benefit pension schemes
Income tax relating to items not reclassified
Items that may be reclassified subsequently to the income statement:
Exchange differences on translation of foreign operations
Cash flow hedges: losses arising in the period
Other comprehensive income/(expense) for the period
Total comprehensive expense for the period wholly attributable
to equity holders of the parent
* Restated for amendments to IAS 19 as explained in Note 2.
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
Restated*
£ million
(27.5)
(23.8)
9.5
(4.5)
5.0
(1.3)
(0.1)
(1.4)
3.6
(13.6)
2.4
(11.2)
0.6
(0.3)
0.3
(10.9)
(23.9)
(34.7)
Mothercare plc Annual report and accounts 2014
89
OverviewStrategic reportGovernanceFinancial statements
Consolidated balance sheet
As at 29 March 2014
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
Current tax assets
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Derivative financial instruments
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 and hedging reserves
Retained deficit
Total equity
Approved by the Board and authorised for issue on 21 May 2014 and signed on its behalf by:
Matt Smith
Chief Financial Officer
90
Mothercare plc Annual report and accounts 2014
29 March
2014
£ million
30 March
2013
£ million
Note
15
15
16
13
14
17
18
19
22
20
23
21
22
24
23
21
30
24
25
25
26
26.8
17.4
59.6
7.7
–
18.5
26.8
19.7
69.6
8.0
–
21.7
130.0
145.8
93.1
59.8
–
–
17.3
170.2
300.2
(106.0)
(27.6)
(0.4)
(6.6)
(17.4)
(158.0)
(24.1)
(36.2)
(49.7)
(17.0)
(127.0)
(285.0)
15.2
44.4
6.3
–
(0.4)
(1.1)
(34.0)
15.2
110.6
58.1
1.0
7.3
17.6
194.6
340.4
(123.3)
(3.5)
(0.5)
(0.3)
(21.4)
(149.0)
(28.1)
(46.5)
(61.6)
(16.4)
(152.6)
(301.6)
38.8
44.3
6.2
6.2
(0.6)
0.3
(17.6)
38.8
Consolidated statement of changes in equity
For the 52 weeks ended 29 March 2014
Balance at 31 March 2013
Other comprehensive expense for
the period
Loss for the period
Total comprehensive income/(expense) for
the period
Transfer between reserves
Issue of equity shares
Credit to equity for equity-settled share-
based payments
Shares transferred to employees on vesting
Balance at 29 March 2014
Share
capital
£ million
44.3
–
–
–
–
0.1
–
–
44.4
Share
premium
account
£ million
Other
reserve1
£ million
6.2
–
–
–
–
0.1
–
–
6.3
6.2
–
–
–
(6.2)
–
–
–
–
Equity attributable to equity holders of the parent
Translation
and
hedging
reserve
£ million
Retained
earnings
£ million
Total
equity
£ million
0.3
(1.4)
–
(1.4)
–
–
–
–
(17.6)
5.0
(27.5)
(22.5)
6.2
–
0.1
(0.2)
(1.1)
(34.0)
38.8
3.6
(27.5)
(23.9)
–
0.2
0.1
–
15.2
Own
shares
£ million
(0.6)
–
–
–
–
–
–
0.2
(0.4)
For the 52 weeks ended 30 March 2013
Balance at 1 April 2012
Other comprehensive expense for
the period*
Loss for the period*
Total comprehensive income/(expense) for
the period
Transfer between reserves
Credit to equity for equity-settled share-
based payments
Shares transferred to employees on vesting
Share
capital
£ million
44.3
Share
premium
account
£ million
6.2
Other
reserve1
£ million
50.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(44.6)
–
–
6.2
Equity attributable to equity holders of the parent
Own
shares
£ million
Translation
reserve
£ million
Retained
earnings
£ million
Total
equity
£ million
(2.1)
–
–
–
–
–
1.5
(0.6)
–
0.3
–
0.3
–
–
–
0.3
(26.5)
(11.2)
(23.8)
(35.0)
44.6
0.8
(1.5)
(17.6)
72.7
(10.9)
(23.8)
(34.7)
–
0.8
–
38.8
Balance at 30 March 2013
44.3
6.2
1 The other reserve relates to shares issued as consideration for the acquisition of Early Learning Centre on 19 June 2007.
* Restated for amendments to IAS 19 as explained in Note 2.
Mothercare plc Annual report and accounts 2014
91
OverviewStrategic reportGovernanceFinancial statements
Consolidated cash flow statement
For the 52 weeks ended 29 March 2014
Net cash flow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangibles – software
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
Facility fees paid
Bank loans raised
Issue of ordinary share capital
Net cash raised in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Net cash and cash equivalents at end of period
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
4.0
6.8
Note
27
(7.9)
(3.0)
–
(2.9)
(13.8)
(2.7)
(1.4)
15.0
0.2
11.1
1.3
17.6
(1.6)
17.3
(13.2)
(3.0)
2.2
(1.8)
(15.8)
(2.8)
(1.4)
30.0
–
25.8
16.8
(0.1)
0.9
17.6
27
92
Mothercare plc Annual report and accounts 2014
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 140. The nature of the group’s
operations and its principal activities are set out in
note 5 and in the business review on pages 18 to 23.
These financial statements are presented in UK
pounds sterling because that is the currency of the
primary economic environment in which the group
operates. Foreign operations are included in
accordance with the policies set out in note 2.
2. Significant accounting policies
Basis of presentation
The group’s accounting period covers the 52 weeks
ended 29 March 2014. The comparative period
covered the 52 weeks ended 30 March 2013.
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.
Adoption of new and revised Standards
In the current year, the following new and revised
Standards and Interpretations have been adopted
and have affected the amounts reported in these
financial statements.
New standards affecting presentation and
disclosure
The group has adopted the amendments to IAS 1
‘Presentation of Items of Other Comprehensive
Income’. The amendments to IAS 1 require items
of other comprehensive income to be grouped by
those items that will be reclassified subsequently
to income statement and those that will never be
reclassified, together with their associated income
tax. The amendments have been applied
retrospectively, and hence the presentation of items
of comprehensive income have been restated to
reflect the change. The amendment affects
presentation only and has no impact on the group’s
financial position or performance.
IFRS 13 ‘Fair value measurement’ establishes a single
source of guidance under IFRS for all fair value
measurements. The application of IFRS 13 has not
materially impacted the fair value measurements
carried out by the group. IFRS 13 also requires
specific disclosures on fair values. The group has
included the required disclosures in note 22.
New standards affecting the reported results and
financial position
IAS 19 (revised 2011) ‘Employee Benefits’ and the
related consequential amendments have impacted
the accounting for the group’s defined benefit
scheme, by replacing the interest cost and
expected return on assets with a net interest
charge on the net defined benefit pension liability.
For the current period, underlying profit before
taxation of £9.5 million is £2.7 million lower and other
comprehensive income is £2.7 million higher than it
would have been prior to the adoption of IAS 19
(revised 2011). For the comparative period, the
underlying profit before tax of £5.9 million is £2.4
million lower and other comprehensive income £2.4
million higher than previously reported. As the
group has always recognised actuarial gains and
losses immediately there has been no effect on the
prior year defined benefit obligation. At the same
time the group has taken the decision to separately
identify the interest on the liabilities/return on assets
of the pension scheme and classify these within net
finance costs. These were previously reported within
administrative expenses. The comparative financial
information has been restated.
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.
BAmendments to IAS 36 ‘Impairment of Assets’
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).
BIFRS 9 ‘Financial Instruments’
BIFRS 10 ’Consolidated Financial Statements’
BIFRS 11 ‘Joint Arrangements’
BIFRS 12 ’Disclosure of Interests in Other Entities’
BIFRS 14 ‘Regulatory Deferral Accounts’
BIAS 27 ‘Separate Financial Statements’
BIAS 28 ‘Investments in Associates and
Joint Ventures’
B Amendments to IFRS 10, IFRS 12 and IAS 27
‘Investment Entities’
BAmendments to IFRS 11 ‘Accounting for Acquisitions
of Interests in Joint Operations’
Mothercare plc Annual report and accounts 2014
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OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
New Standards in issue but not yet effective
continued
BAmendments to IAS 16 and IAS 38 ‘Clarification
of Acceptable Methods of Depreciation and
Amortisation’
BAmendments to IAS 19 ‘Defined Benefit Plans:
Employee Contributions’
BAmendments to IAS 32 ‘Offsetting Financial Assets
and Financial Liabilities’
BAmendments to IAS 39 ‘Financial Instruments’
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.
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 Corporate Governance report on page 43.
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 29 March 2014. 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.
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Mothercare plc Annual report and accounts 2014
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.
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 for 40 weeks of the 52 weeks
ended 29 March 2014 arising from accounting for
derivative financial instruments under IAS 39,
‘Financial Instruments: Recognition and
Measurement’, as the group has adopted hedge
accounting for new contracts from 5 January 2014.
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:
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 property costs, 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
Prior to 5 January 2014 the group did not adopt
hedge accounting under IAS 39 ‘Financial
Instruments: Recognition and Measurement’.
The effect of not applying hedge accounting under
IAS 39 for this period means that the reported results
for this 40 week period 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 taken out
before this date 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’. Since January
2014 hedge accounting has been adopted.
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 –5 to 10 years
–10 to 20 years
The amortisation of these intangible assets does not
reflect the underlying performance of the business.
Mothercare plc Annual report and accounts 2014
95
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
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.
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.
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.
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.
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Mothercare plc Annual report and accounts 2014
Hedge Accounting
The group designates its interest rate swaps and
from January 2014 its forward currency contracts
taken out after this date as cash flow hedges. At the
inception of the hedge relationship, the group
documents the relationship between the hedging
instrument and the hedged item, along with its risk
management objectives and its strategy for
undertaking various hedge transactions. Changes
in the fair value of financial instruments designated
as effective are recognised in the comprehensive
income statement and any ineffective portion is
recognised immediately in the income statement.
Amounts previously recognised in other
comprehensive income and accumulated in equity
are reclassified to profit and loss in the periods
when the hedged item is recognised in profit or loss
in the same line of the income statement as the
recognised hedged item. Movements in the
hedging reserve in equity are detailed in note 26.
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.
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.
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.
Mothercare plc Annual report and accounts 2014
97
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
Taxation continued
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:
Freehold buildings
–50 years
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.
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Mothercare plc Annual report and accounts 2014
Cash and cash equivalents
Cash and cash equivalents comprise cash on 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.
The interest rate swaps and forward contracts taken
out post 5 January 2014 in place are considered an
effective cashflow hedge and are accounted for by
recognising the gain/loss on the hedge through
reserves rather than the income statement,
removing volatility within the income statement.
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.
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.
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 and interest
rate swaps to mitigate the risk of movements in
interest rates. 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.
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 either in the income statement or
through reserves depending on whether the
contract is designated as a hedging instrument.
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.
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 and Russian roubles.
Interest rate risk
The group has drawn down on its term borrowing
facility. Following the group refinancing the group
now hedges all of the floating interest rate on this
term facility using interest rate swaps.
Mothercare plc Annual report and accounts 2014
99
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
2. Significant accounting policies continued
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 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 the 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.
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 30 to the
consolidated financial statements describes the
principal discount rate, inflation 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
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Mothercare plc Annual report and accounts 2014
Onerous leases
Provision 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. 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).
Allowances against the carrying value of
investments in joint ventures
The group reviews the recoverable amount of its
investments on a periodic basis. If the recoverable
amount is lower than the carrying value the asset
is impaired (see note 13).
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 29 March 2014, the group’s pension liability was
£49.7 million (2013: £61.6 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 (2013: £26.8 million).
Property provisions
Descriptions of the provisions held at the balance
sheet date are given in 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.
Mothercare plc Annual report and accounts 2014
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OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
4. Revenue
An analysis of the group’s revenue, all of which relates to continuing operations, is as follows:
Revenue
Interest revenue (note 8)
Total revenue
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
724.9
–
724.9
749.4
0.2
749.6
102
Mothercare plc Annual report and accounts 2014
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 web sales. The International business comprises the
group’s franchise and wholesale revenues outside the UK. The unallocated corporate expenses represent board and company
secretarial costs and other head office costs including audit, professional fees, insurance and head office property.
Revenue
External sales
Result
Segment result (underlying)
Share-based payments
Non-cash foreign currency adjustments (non-underlying)
Amortisation of intangible assets (non-underlying)
Exceptional items (note 6)
Loss from operations
Net finance costs (including £0.8 million non-underlying)
Loss before taxation
Taxation
Loss for the period
Revenue
External sales
Result
Segment result (underlying)
Share-based payments
Non-cash foreign currency adjustments (non-underlying)
Amortisation of intangible assets (non-underlying)
Exceptional items (note 6)
Loss from operations
Net finance costs (including £0.4 million non-underlying)
Loss before taxation
Taxation
Loss for the period
* Restated for amendments to IAS 19 as explained in Note 2.
52 weeks ended 29 March 2014
UK
International
£ million
£ million
Unallocated
corporate
expenses
£ million
Consolidated
£ million
462.3
262.6
–
724.9
(21.5)
45.3
(7.8)
16.0
(0.1)
(14.9)
(1.0)
(19.1)
(19.1)
(7.2)
(26.3)
1.2
(27.5)
52 weeks ended 30 March 2013
UK
£ million
International
£ million
Unallocated
corporate
expenses
£ million
Consolidated
Restated*
£ million
499.7
249.7
–
749.4
(21.6)
42.1
(7.8)
12.7
(0.9)
6.9
(1.0)
(35.3)
(17.6)
(6.3)
(23.9)
0.1
(23.8)
Mothercare plc Annual report and accounts 2014
Mothercare plc Annual report and accounts 2014
103
103
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
5. Segmental information continued
Revenues are attributed to countries on the basis of the customer’s location. The largest International customer represents
approximately 17.0% (2013: 15.2%) of group 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
52 weeks ended 29 March 2014
UK
£ million
International
£ million
Consolidated
£ million
9.5
15.7
2.7
4.6
167.7
96.6
162.0
2.5
12.2
20.3
264.3
35.9
300.2
164.5
120.5
285.0
In addition to the depreciation and amortisation reported above, impairment losses of £3.6 million and £nil million (2013:
impairment losses of £4.0 million and £0.1 million) were recognised in respect of property, plant and equipment and intangible
assets respectively. These impairment losses were attributable to the UK segment. £2.7 million of the impairment on property,
plant and equipment is included within non-underlying administrative expenses and the remaining £0.9 million is included within
exceptional property costs.
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 30 March 2013
UK
£ million
International
£ million
Consolidated
£ million
10.6
17.5
1.9
3.9
204.7
96.4
232.3
3.4
12.5
21.4
301.1
39.3
340.4
235.7
65.9
301.6
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, borrowings and retirement benefit obligations.
104
Mothercare plc Annual report and accounts 2014
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 charge included in administrative expenses
Property related costs in other exceptional items
Impairment of investment in and receivables due from joint venture/associate in other exceptional items
Restructuring costs in finance costs
Total exceptional items:
Other non-underlying items:
Non-cash foreign currency adjustments under IAS 39 and IAS 211
Amortisation of intangibles1
Exceptional and other non-underlying items
1 Included in non-underlying cost of sales is a charge of £15.9 million (2013: credit of £5.9 million).
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
1.2
(6.8)
(2.7)
–
(8.2)
(2.6)
(0.8)
(19.9)
(14.9)
(1.0)
(35.8)
(0.2)
(4.0)
(1.8)
(0.1)
(18.1)
(11.1)
(0.4)
(35.7)
6.9
(1.0)
(29.8)
Restructuring costs in cost of sales
During the 52 weeks ended 29 March 2014 a credit of £1.2 million has been recognised in respect of a refund on previous costs
incurred for the rationalisation of the group’s online warehousing operations (2013: £0.2 million costs were incurred in relation to the
same rationalisation).
Restructuring costs in administrative expenses
During the 52 weeks ended 29 March 2014 a charge of £6.8 million (2013: £4.0 million) was recognised relating to head office
restructuring and group reorganisation. The objective for the reorganisation was to streamline the business and improve
efficiency to support the Transformation and Growth plan. This has resulted in the removal of c. 250 head office roles.
Other exceptional costs have been incurred in relation to legal and other costs related to the new banking agreement.
Store property, plant and equipment impairment included in administrative expenses
During the 52 weeks ended 29 March 2014 the group has made a provision of £2.7 million (2013: £1.8 million) for store impairment
where the carrying value of property plant and equipment is higher than the net realisable value and value in use.
Property related costs
Provisions of £8.2 million (2013: £18.1 million) have been made for onerous leases and losses on disposal/termination of property
interests. The onerous leases relate to vacant, sublet and trading properties having taken into consideration the results for the
year, provisions have been recognised where there is an expected shortfall in the store contribution to cover the fixed rental
obligations. A discount rate of 2.7% has been used in calculating the provision, being the risk free rate. The losses on disposals
relate to the store reduction programme announced in April 2012.
Impairment of joint venture investment
The group owns a 30% share in Wadicare Limited which is a joint venture that trades in Ukraine. Due to the political unrest in
the country and the uncertainty of the joint ventures future cashflows the group has made a full provision of £2.6 million against
its investment.
Restructuring costs included in net finance costs
These costs are fees associated with entering into the banking facility agreement signed in April 2012. A renegotiation of new bank
facility was signed on 18 October 2013 and a charge of £0.8 million for the write-off of the April 2012 unamortised facility charge
was recognised in the 52 weeks ended 29 March 2014.
Mothercare plc Annual report and accounts 2014
105
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
7. Loss/(profit) from retail operations
Loss/(profit) from retail operations has been arrived at after (crediting)/charging:
Net total foreign exchange losses/(gains)
Cost of inventories recognised as an expense
Write down/(release) 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
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 30)
Share-based payment charges (see note 29)
Exceptional costs included in cost of sales (see note 6)
Exceptional costs included in administrative expenses (see note 6)
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
10.0
460.2
(0.4)
14.7
4.6
1.0
2.7
0.4
48.7
(5.2)
1.1
69.7
4.6
3.4
0.1
(1.2)
6.8
(12.0)
458.7
(1.7)
15.8
4.6
1.0
1.8
0.4
54.2
(4.9)
1.3
77.2
4.5
1.7
0.9
0.2
4.0
106
Mothercare plc Annual report and accounts 2014
7. Loss/(profit) from retail operations continued
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
Full time equivalents
52 weeks
ended
29 March
2014
number
52 weeks
ended
30 March
2013
number
4,779
653
181
5,613
5,264
711
251
6,226
3,486
3,959
Details of directors’ emoluments, share options and beneficial interests are provided within the remuneration report on pages 76
to 78 and 79 to 81.
For the 52 weeks ended 29 March 2014, profit from retail operations is stated after a non-underlying net charge of £14.9 million
(2013: £6.9 million credit) to cost of sales as a result of non-cash foreign currency adjustments under IAS 39 and IAS 21.
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
Tax compliance services
Total non-audit fees
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
0.1
0.2
0.3
0.1
0.1
0.1
0.2
0.3
0.1
0.1
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 51, in the
Corporate Governance report.
Mothercare plc Annual report and accounts 2014
107
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
8. Net finance costs
Interest receivable
Interest and bank fees on bank loans and overdrafts
Net interest on liabilities/return on assets
Net finance costs
* Restated for amendments to IAS 19 as explained in note 2.
9. Taxation
The charge/(credit)for taxation on loss 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
Charge/(credit) for taxation on loss for the period
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
Restated*
£ million
–
4.5
2.7
7.2
(0.2)
3.9
2.6
6.3
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
2.1
–
2.1
(4.2)
(0.2)
3.5
(0.9)
1.2
1.4
0.3
1.7
(1.7)
–
(0.1)
(1.8)
(0.1)
UK corporation tax is calculated at 23% (2013: 24%) of the estimated assessable loss for the period. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions.
108
Mothercare plc Annual report and accounts 2014
9. Taxation continued
The charge/(credit) for the period can be reconciled to the loss for the period before taxation per the consolidated income
statement as follows:
Loss for the period before taxation
Loss for the period before taxation multiplied by the standard rate of corporation tax in the UK of 23%
(2013: 24%)
Effects of:
Expenses not deductible for tax purposes
Change in tax rate
Impact of overseas tax rates
Impact of double tax relief
Adjustment in respect of prior periods
Impact of write-off of prior year deferred tax asset
Charge/(credit) for taxation on loss for the period
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
(26.3)
(23.9)
(6.0)
2.4
(0.2)
2.0
(0.5)
–
3.5
1.2
(5.8)
5.1
0.1
(0.5)
–
0.2
0.8
(0.1)
In addition to the amount charged to the income statement, deferred tax relating to retirement benefit obligations amounting to
£4.5 million has been charged directly to other comprehensive income (2013: credit of £2.4 million).
10. Dividends
The directors are not recommending the payment of a final dividend for the year (2013: £nil) and no interim dividend was paid
during the year (2013: nil pence per share).
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
Loss for basic and diluted earnings per share
Exceptional and other non-underlying items (note 6)
Tax effect of above items
Underlying earnings
Basic loss per share
Basic underlying earnings per share
Diluted loss per share
Diluted underlying earnings per share
* Restated for amendments to IAS 19 as explained in note 2.
52 weeks
ended
29 March
2014
million
52 weeks
ended
30 March
2013
million
88.7
1.3
90.0
88.5
1.1
89.6
£ million
Restated*
£ million
(27.5)
35.8
(1.5)
6.8
(23.8)
29.8
(2.3)
3.7
pence
pence
(31.0)
7.7
(31.0)
7.6
(26.9)
4.2
(26.9)
4.1
Mothercare plc Annual report and accounts 2014
109
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
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.
13. Investments in joint ventures
Investments at start of period
Additions
Share of loss
Impairment
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
Details of the joint ventures are as follows:
Mothercare-Goodbaby China Retail Limited
Rhea Retail Private Limited
Juno Retail Private Limited
Wadicare Limited
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
8.0
2.9
(0.6)
(2.6)
7.7
27.4
8.0
35.4
(12.5)
–
(12.5)
52.6
(2.0)
6.8
1.8
(0.6)
–
8.0
22.5
7.2
29.7
(13.3)
–
(13.3)
45.3
(2.0)
Place of
incorporation
Hong Kong
India
India
Cyprus
Proportion of
ownership
interest
%
30
30
30
30
Proportion of
voting power
held
%
50
30
30
30
During the year the group made additional investments in Mothercare-Goodbaby China Retail Limited of £2.9 million.
During the year the group fully impaired its investment in Wadicare Limited due to uncertainties in the future cashflows driven
by the political unrest in Ukraine which is where the joint venture trades.
110
Mothercare plc Annual report and accounts 2014
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 period
Total loss for the period
Details of the associate are as follows:
Mothercare Australia Limited
52 weeks
ended
29 March
2014
£ million
53 weeks
ended
30 March
2013
£ million
–
–
–
–
–
–
–
–
–
–
–
–
–
3.2
–
(0.8)
(2.4)
–
–
–
–
–
–
–
14.8
(2.7)
Place of
incorporation
Australia
Proportion of
ownership
interest
%
23.0
Proportion of
voting power
held
%
23.0
Mothercare owned approximately 23% in Mothercare Australia Limited, a listed company in Australia which was treated as an
associate in the consolidated accounts of Mothercare plc. In January 2013 the business was placed into administration and as
at 30 March 2013 was fully impaired. Therefore no financial information is presented in the 52 weeks ended 29 March 2014.
Mothercare plc Annual report and accounts 2014
111
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
15. Goodwill and intangible assets
Cost
As at 1 April 2012
Transfers from property, plant and equipment
Additions
Disposals
As at 31 March 2013
Additions
Disposals
Transfers
As at 29 March 2014
Amortisation and impairment losses
As at 1 April 2012
Impairment losses
Amortisation
Disposals
As at 31 March 2013
Impairment losses
Amortisation
Disposals
As at 29 March 2014
Net book value
As at 31 March 2012
As at 30 March 2013
As at 29 March 2014
Goodwill
£ million
Trade name
£ million
Customer
relationships
£ million
Intangible assets
Software
under
development
£ million
Software
£ million
Total
£ million
68.6
–
–
–
68.6
–
–
–
68.6
41.8
–
–
–
41.8
–
–
–
41.8
26.8
26.8
26.8
28.8
–
–
–
28.8
–
–
–
28.8
18.3
0.1
0.9
–
19.3
–
0.8
–
20.1
10.5
9.5
8.7
5.7
–
–
5.7
–
–
–
5.7
5.0
–
0.1
–
5.1
–
0.2
–
5.3
0.7
0.6
0.4
29.6
4.1
2.8
(10.1)
26.4
3.0
(3.0)
0.2
26.6
18.7
–
4.6
(6.3)
17.0
–
4.6
(3.0)
18.6
10.9
9.4
8.0
–
–
0.2
–
0.2
0.3
–
(0.2)
0.3
–
–
–
–
–
–
–
–
–
–
0.2
0.3
64.1
4.1
3.0
(10.1)
61.1
3.3
(3.0)
–
61.4
42.0
0.1
5.6
(6.3)
41.4
–
5.6
(3.0)
44.0
22.1
19.7
17.4
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, 2013: £nil) and International (£26.8 million, 2013:
£26.8 million). These segments 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 10.1% (2013: 8.8%) 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 (2013:
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.
112
Mothercare plc Annual report and accounts 2014
15. Goodwill and intangible assets continued
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 and intangible assets would be reduced to a
lower amount.
Software
Software additions include £1.0 million (2013: £0.9 million) of internally generated intangible assets.
At 29 March 2014, the group had entered into contractual commitments for the acquisition of software amounting to £0.4 million
(2013: £0.4 million).
16. Property, plant and equipment
Cost
As at 1 April 2012
Transfers
Transfers to software
Additions
Disposals
As at 31 March 2013
Transfers
Additions
Disposals
Exchange differences
As at 29 March 2014
Accumulated depreciation and impairment
As at 1 April 2012
Charge for period
Impairment
Disposals
As at 31 March 2013
Charge for period
Impairment
Disposals
Exchange differences
As at 29 March 2014
Net book value
As at 31 March 2012
As at 30 March 2013
As at 29 March 2014
Properties including
fixed equipment
Freehold
£ million
Leasehold
£ million
Fixtures,
fittings,
equipment
£ million
Assets in
course of
construction
£ million
Total
£ million
10.2
–
–
–
(2.3)
7.9
–
–
–
–
7.9
2.6
–
–
(0.1)
2.5
0.1
–
–
–
2.6
7.6
5.4
5.3
121.7
–
–
4.7
(25.0)
101.4
–
2.8
(3.4)
(0.1)
100.7
93.8
4.3
2.1
(24.9)
75.3
4.8
0.5
(3.4)
0.1
77.3
27.9
26.1
23.4
209.7
6.8
–
3.5
(70.8)
149.2
1.3
4.6
(8.0)
–
147.1
169.7
11.5
1.9
(70.8)
112.3
9.8
3.1
(7.6)
–
117.6
40.0
36.9
29.5
10.8
(6.8)
(4.1)
1.3
–
1.2
(1.3)
1.5
–
–
1.4
–
–
–
–
–
–
–
–
–
–
10.8
1.2
1.4
352.4
–
(4.1)
9.5
(98.1)
259.7
–
8.9
(11.4)
(0.1)
257.1
266.1
15.8
4.0
(95.8)
190.1
14.7
3.6
(11.0)
0.1
197.5
86.3
69.6
59.6
1 Restated gross cost and depreciation of disposals since the acquisition of Early Leaning Centre.
The net book value of leasehold properties includes £23.1 million (2013: £25.6 million) in respect of short leasehold properties.
£2.7 million of the impairment on property, plant and equipment has been included within non-underlying administration
expenses and the remaining £0.9 million is included within exceptional property costs.
Mothercare plc Annual report and accounts 2014
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Notes to the consolidated financial statements
continued
16. Property, plant and equipment continued
At 29 March 2014, the group had entered into contractual commitments for the acquisition of property, plant and equipment
amounting to £3.0 million (2013: £1.7 million).
Freehold land and buildings with a carrying amount of £5.3 million (2013: £5.4 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:
At 1 April 2012
Credit/(charge) to income
Transfer to current tax
Credit to other comprehensive income
At 31 March 2013
Credit/(charge) to income
Transfer to current tax
Charge to other comprehensive income
At 29 March 2014
Accelerated
tax
depreciation
£ million
Short-term
timing
differences
£ million
Retirement
benefit
obligations
£ million
Share-
based
payments
£ million
Intangible
assets
£ million
Losses
£ million
Total
£ million
(1.6)
2.4
–
–
0.8
1.6
–
–
2.4
7.9
(0.4)
–
–
7.5
(0.1)
–
–
7.4
12.6
(0.8)
–
2.4
14.2
0.2
–
(4.5)
9.9
–
0.2
–
–
0.2
–
–
–
0.2
(2.0)
0.2
–
–
(1.8)
–
0.4
–
(1.4)
0.7
0.2
(0.1)
–
0.8
(0.8)
–
–
–
17.6
1.8
(0.1)
2.4
21.7
0.9
0.4
(4.5)
18.5
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
29 March
2014
£ million
30 March
2013
£ million
25.7
(7.2)
18.5
27.1
(5.4)
21.7
At the balance sheet date the group has unused tax losses of £27.6 million (2013: £24.8 million) available for offset against future
profits. No deferred tax asset has been recognised for such losses.
At the reporting date, deferred tax liabilities of £0.2 million (2013: £0.2 million) relating to withholding taxes have not been provided
in respect of the aggregate amount of unremitted earnings of £8.4 million (2013: £11.0 million) in respect of subsidiaries and joint
ventures. 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 29 March 2014, the group has unused capital losses of £637.0 million (2013: £636.0 million) available for offset against future
capital gains. No asset has been recognised in respect of the capital losses as it is not considered probably that there will be
future taxable capital gains. The capital losses may be carried forward indefinitely.
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Mothercare plc Annual report and accounts 2014
18. Inventories
Gross value
Allowance against carrying value of inventories
Finished goods and goods for resale
29 March
2014
£ million
30 March
2013
£ million
99.3
(6.2)
93.1
117.2
(6.6)
110.6
The amount of write down/(release) of inventories to net realisable value recognised within net income in the period is a credit of
£0.4 million (2013: £1.7 million credit).
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
The following summarises the movement in the allowance for doubtful debts:
Balance at beginning of period
Released/(charged) in the period
Balance at end of period
29 March
2014
£ million
30 March
2013
£ million
43.7
(1.6)
42.1
14.1
3.6
59.8
38.9
(1.8)
37.1
17.4
3.6
58.1
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
(1.8)
0.2
(1.6)
(1.6)
(0.2)
(1.8)
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.
With the exception of Australia, 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 2014
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OverviewStrategic reportGovernanceFinancial statements
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 not 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 not 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
29 March
2014
£ million
30 March
2013
£ million
43.7
(1.6)
42.1
36.6
3.6
0.8
1.2
1.5
(0.2)
–
–
(0.4)
(1.0)
42.1
38.9
(1.8)
37.1
33.9
2.2
0.7
1.1
1.0
(0.5)
(0.2)
–
(0.5)
(0.6)
37.1
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 23. 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 29 March 2014 of £63.8 million (2013: £50.0 million).
Committed borrowing facilities
The group agreed a refinancing of its banking facilities as of 18 October 2013 with its two existing banks, re-categorising £10 million
of the term loan to the revolving credit facility and extending the term to 31 May 2017 at an interest rate range of 3% to 3.25% above
LIBOR. These facilities comprise a £40 million term loan and a £50 million revolving credit facility of which £10 million is available to be
utilised in the form of an overdraft. At the year end £40 million had been drawn down against the facility as a term loan. The term
loan carries a fixed interest rate at 2.5% to 3.5% per annum over LIBOR. The group hedges all of this floating interest rate risk using
an interest rate swap exchanging variable rate interest for fixed rate interest.
Subsequent to the balance sheet date the group amended the banking facilities. Refer to note 32 for further details.
116
Mothercare plc Annual report and accounts 2014
21. Borrowing facilities continued
Borrowings:
Secured borrowings at amortised cost:
Committed facility
Revolving credit facility
Facility fee
Amount due for settlement within one year
Amount due for settlement after one year
Total borrowings
Weighted average interest rate paid (%)
22. Risks arising from financial instruments
29 March
2014
£ million
30 March
2013
£ million
(40.0)
(25.0)
1.2
(27.6)
(36.2)
(63.8)
4.38
(50.0)
–
–
(3.5)
(46.5)
(50.0)
4.68
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 group manages its capital to ensure that entities in the group will be able to continue as a going concern 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.
B. Foreign currency risk management
The group incurs foreign currency risk on purchases whenever they are denominated in a currency other than the functional
currency. This risk is managed through holding derivative financial instruments and through the natural offset of sales and
purchases denominated in foreign currency.
The group uses forward foreign currency contracts to reduce its cash flow exposure to exchange rate movements, primarily on
the US dollar. For forward contracts taken out prior to 5 January 2014 the group has not hedge accounted for its forward foreign
currency contracts under the requirements of IAS 39. These 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. For contracts taken out after 5 January 2014 the group has applied hedge accounting and the contracts are
considered effective cashflow hedges and are accounted for by recognising the gain/loss on the hedge through reserves rather
than 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.
In addition the group also incurs foreign currency risk on royalty income as local sales are translated into sterling amounts on
which royalties are calculated. Historically these royalty receipts have not been hedged. To help mitigate against further currency
impacts, we have hedged our Russian rouble, Indian rupee and Indonesian rupiah exposure for the first half of the new financial
year. We will monitor the situation and consider putting in place a rolling six-month hedging strategy for certain of our markets.
Forward contracts have been taken out against the Russian rouble in the year ending March 2015 and hedge accounting has
been applied for these contracts and the gain/loss on the hedge recognised through reserves.
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.
Mothercare plc Annual report and accounts 2014
117
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
22. Risks arising from financial instruments continued
International sales represent 36% (2013: 33%) of group sales. Of these sales, 33% (2013: 35%) were invoiced in foreign currency.
The group purchases product in foreign currencies, representing approximately 54% (2013: 51%) of purchases.
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
29 March
2014
£ million
30 March
2013
£ million
150.2
18.1
168.3
118.5
6.1
124.6
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
Bangladeshi taka
Australian dollar
Singapore dollar
29 March
2014
£ million
Liabilities
30 March
2013
£ million
Assets
29 March
2014
£ million
30 March
2013
£ million
(1.5)
(0.3)
(1.5)
(0.5)
(0.3)
–
–
–
(4.1)
(4.0)
–
(3.7)
(1.0)
(0.3)
–
–
–
(9.0)
10.6
–
0.5
2.5
0.1
0.1
–
–
13.8
6.2
0.4
0.7
1.9
0.2
0.2
0.3
0.1
10.0
The total amounts of outstanding forward foreign currency contracts to which the group has committed is as follows:
At notional value
At fair value – less than one year
At fair value – more than one year
Total fair value
29 March
2014
£ million
30 March
2013
£ million
168.3
124.6
(6.6)
–
(6.6)
6.9
0.4
7.3
At 29 March 2014, the average hedged rate for outstanding forward foreign currency contracts is 1.60 for US dollars and 63.3 for
Russian roubles. These contracts mature between April 2014 and June 2015.
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 £0.1 million below notional value (2013: £nil million).
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Mothercare plc Annual report and accounts 2014
22. Risks arising from financial instruments continued
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
Profit and loss impact
Equity impact
29 March
30 March
29 March
30 March
2014
(14.2)
2013
(13.9)
2014
(17.7)
2013
(13.9)
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 £17.3 million and derivative financial assets.
The average credit period on trade receivables was 21 days (2013: 19 days) based on total group revenue. The average credit
period on International trade receivables based on international revenue was 59 days (2013: 57 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 and monitoring covenant compliance and headroom. 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 term loan and the revolving credit facility. The group’s
sensitivity to interest rates has decreased, mainly due to the use of interest rates swaps to swap floating rate debt to fixed rate
debt. Under interest rate swaps the group agrees to exchange the difference between fixed and floating rate interest amounts
calculated on agreed notional principal amounts. The fair value of interest rate swaps at the reporting date is determined by
discounting the future cash flows using the curves at the reporting date and the credit risk inherent in the contact and is disclosed
below. The average interest rate is based on the outstanding balances at the end of the financial year.
Mothercare plc Annual report and accounts 2014
119
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
22. Risks arising from financial instruments continued
The total amounts of term borrowings on which outstanding interest rate swap contracts have been taken out and to which the
group is committed is as follows:
Notional value of term borrowings
Interest rate swaps at fair value
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Tranche 5
Tranche 6
29 March
2014
£ million
30 March
2013
£ million
40.0
–
50.0
(0.3)
Average contract fixed
interest rate
Notional
principal value
29 March
2014
%
30 March
2013
%
29 March
2014
£ million
30 March
2013
£ million
29 March
2014
£ million
Fair value
30 March
2013
£ million
0.830
0.670
0.702
0.740
0.780
0.830
1.131
1.040
0.69
–
–
–
17.0
3.0
3.0
3.0
3.0
11.0
40.0
20.0
20.0
10.0
–
–
–
50.0
–
–
–
–
–
–
–
(0.2)
(0.1)
–
–
–
–
(0.3)
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is three months LIBOR. The group
settles the difference between the fixed and floating rate on a net basis. All interest rate swap contracts exchanging floating rate
interest for fixed rate interest are designated and effective as cash flow hedges to reduce the group’s cash flow exposure
resulting from variable interest rates on the term loan. During the period the hedge was considered 100% effective in hedging the
fair value exposure to interest rate movements.
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
29 March
2014
£ million
30 March
2013
£ million
63.5
2.0
35.8
–
4.7
106.0
70.3
1.8
43.4
2.8
5.0
123.3
24.1
28.1
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 52 days (2013: 57 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.
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Mothercare plc Annual report and accounts 2014
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
The movement on total provisions is as follows:
Balance at 31 March 2013
Utilised in period
Charged in period
Released in period
Balance at 29 March 2014
29 March
2014
£ million
30 March
2013
£ million
16.7
0.7
17.4
16.3
0.7
17.0
33.0
1.4
34.4
20.5
0.9
21.4
15.4
1.0
16.4
35.9
1.9
37.8
Property
provisions
£ million
Other
provisions
£ million
Total
provisions
£ million
35.9
(10.7)
10.0
(2.2)
33.0
1.9
(0.5)
0.2
(0.2)
1.4
37.8
(11.2)
10.2
(2.4)
34.4
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 represent provisions for uninsured losses (£1.3 million), hence the timing of the utilisation of these provisions is uncertain and
provisions for an onerous support contract for a decommissioned IT project (£0.1 million) which is expected to be utilised over the next year.
Mothercare plc Annual report and accounts 2014
121
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
25. Share capital
Issued and fully paid
Ordinary shares of 50 pence each:
Balance at beginning of period
Issued under the Mothercare Share Schemes
Balance at end of period
52 weeks
ended
29 March
2014
Number of
shares
52 weeks
ended
30 March
2014
Number of
shares
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
88,653,417
160,181
88,636,762
16,655
88,813,598
88,653,417
44.3
0.1
44.4
44.3
–
44.3
Further details of employee and executive share schemes are given in note 29.
The own shares reserve of £0.4 million (2013: £0.6 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 29). The total
shareholding is 70,269 (2013: 108,497) with a market value at 29 March 2014 of £0.1 million (2013: £0.3 million).
26. Translation and hedging reserve
Balance at beginning of period
Exchange differences on translation of foreign operations
Cash flow hedges: gains/(losses) arising in the period
Balance at end of period
52 weeks
ended
29 March
2014
£ million
0.3
(1.3)
(0.1)
(1.1)
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Mothercare plc Annual report and accounts 2014
27. Reconciliation of cash flow from operating activities
(Loss)/profit from retail operations
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment of property, plant and equipment and intangible assets
Losses on disposal of property, plant and equipment and intangible assets
Loss/(profit) on non-underlying non-cash foreign currency adjustments
Equity-settled share-based payments
Movement in provisions
Cash payments for other exceptional items
Amortisation of lease incentives
Lease incentives received
Payments to retirement benefit schemes
Charge/(credit) to profit from operations in respect of retirement benefit schemes
Operating cash flow before movement in working capital
Decrease/(increase) in inventories
Increase/(decrease) in receivables
Decrease/(increase) in payables
Cash generated from operations
Income taxes paid
Net cash inflow from operating activities
* Restated for amendments to IAS 19 as explained in note 2.
Analysis of Net Debt
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
Restated*
£ million
(7.7)
13.0
14.7
5.6
2.7
0.4
14.9
0.1
(10.8)
(0.2)
(5.2)
0.7
(6.2)
1.1
10.1
14.4
(3.3)
(15.5)
5.7
(1.7)
4.0
15.8
5.6
1.9
4.2
(6.9)
0.8
(15.4)
–
(4.9)
3.5
(7.2)
(0.1)
10.3
(11.7)
8.5
2.2
9.3
(2.5)
6.8
Cash and cash equivalents/(debt)
Borrowings
Facility fee
Net debt
30 March
2013
£ million
Cash flow
£ million
Foreign
exchange
£ million
Other
non-cash
movements
£ million
29 March
2014
£ million
17.6
(50.0)
–
(32.4)
1.3
(15.0)
1.4
(12.3)
(1.6)
–
–
(1.6)
–
–
(0.2)
(0.2)
17.3
(65.0)
1.2
(46.5)
Mothercare plc Annual report and accounts 2014
123
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
28. Operating lease arrangements
The group as lessee:
Amounts recognised in cost of sales for the period:
Minimum lease payments paid
Contingent rents
Minimum sub-lease payments received
Net rent expense for the period
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
49.7
0.3
(0.2)
49.8
55.3
0.4
(0.2)
55.5
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
29 March
2014
£ million
30 March
2013
Restated*
£ million
51.8
162.0
114.8
328.6
58.8
175.3
143.4
377.5
* Restated to reflect the future minimum lease payments through to a break clause or lease expiry date. Previously the future minimum lease payments were through to
lease expiry. This change has reduced the total future minimum lease payments by £8.7 million.
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
29 March
2014
£ million
30 March
2013
£ million
1.4
2.2
0.9
4.5
1.4
2.7
1.4
5.5
124
Mothercare plc Annual report and accounts 2014
29. 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 £0.1 million (2013: £0.9 million), including national insurance, of which £nil million
(2013: £0.8 million) was equity-settled. The exceptional charge for share-based payments of £nil million (2013: £0.1 million).
At 29 March 2014 the liability in the balance sheet is £nil million related to the expected national insurance charge when share-
based payment schemes vest (2013: £0.2 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
G. Long-Term Incentive Plans
Details of the share schemes that the group operates are provided in the Directors’ Remuneration Report on pages 57 to 81.
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
Exercised during the period
Lapsed during the period
Balance at end of period
52 weeks
ended
29 March
2014
Number of
shares
52 weeks
ended
31 March
2013
Number of
shares
Weighted
average
option
price
324p
324p
–
324p
22,500
(20,000)
–
30,000
–
(7,500)
2,500
22,500
The options outstanding at 30 March 2013 had a weighted average remaining contractual life of 1.4 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 eligible employees and provide for a purchase price equal to the daily
average market price on the days prior to the offer date, less 20%.
The share options can be applied for during a two-week period in the year of invitation and savings are placed in an employee
Save As You Earn bank account held on trust for a three-year period.
Mothercare plc Annual report and accounts 2014
125
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
29. Share-based payments continued
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
52 weeks
ended
29 March
2014
Number of
shares
52 weeks
ended
30 March
2013
Number of
shares
2,593,812
199,071
(204,314)
(140,181)
(110,467)
(100,905)
3,186,791
299,407
(234,320)
(16,655)
(197,200)
(444,211)
Weighted
average
exercise
price
138p
310p
130p
116p
165p
350p
145p
2,237,016
2,593,812
The shares outstanding at 29 March 2014 had a weighted average remaining contractual life of 1.7 years and ranged in price from
116p to 310p.
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
2013
December
2012
December
2011
199,071
410p
310p
43.0%
0.86%
Nil
299,407
340p
242p
50.0%
0.46%
Nil
3.25 years 3.25 years
158.5p
169.2p
2,752,739
159p
115p
43.1%
0.58%
3.00%
3.25 years
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 2011 scheme is 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 29 March 2014
126
Mothercare plc Annual report and accounts 2014
May
2011
£449.0m
30.0%
30.0%
2.38%
50.0%
3 years
£1.8m
£0.1m
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
Lapsed during period
Balance at end of period
52 weeks
ended
29 March
2014
Number of
shares
52 weeks
ended
30 March
2013
Number of
shares
674,957
(224,582)
1,051,318
(376,361)
450,375
674,957
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 no cumulative charge has
been recognised.
Grant date
Number of shares awarded
Exercise price
Time to expiry
Fair value per share
November
2011
May
2011
376,154
Nil
3 years
137p
618,653
Nil
3 years
446p
E. Deferred Shares Scheme
The Deferred Shares scheme is a conditional award of shares determined on historic company performance. No deferred shares
have been issued since June 2010. The number of shares outstanding under the Deferred Shares scheme is as follows:
Balance at beginning of 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
52 weeks
ended
29 March
2014
Number of
shares
52 weeks
ended
30 March
2013
Number of
shares
37,651
–
(37,651)
109,709
(18,577)
(53,481)
–
37,651
June
2010
June
2010
96,060
557p
Nil
expired
96,060
557p
Nil
expired
Mothercare plc Annual report and accounts 2014
127
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
29. Share-based payments continued
F. Share Matching Scheme
During the year ended 31 March 2012, 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
December
2011
December
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.
G. Long-Term Incentive Plans
In March 2013 the group announced the first awards under the Mothercare plc 2012 Long Term Incentive Plan. This scheme
provides the opportunity for executive directors and senior employees to earn awards which will vest in whole or part
subject to the achievement of stretching corporate performance conditions supporting the Transformation and Growth plan.
The performance conditions relate to the group profit before tax and share price performance. In addition the UK business must
break even in the financial year ending March 2015 or March 2016. The performance period is from 1 April 2012 to 31 March 2015
and the performance conditions will be tested in relation to the financial year 2015 results to determine what percentage of the
shares vest. No consideration is payable for the grant of these awards.
In December 2013 the group granted further awards under the Mothercare plc 2013 Long Term Incentive Plan. The Performance
conditions relate to group profit before tax, UK profit before tax and share price performance, these conditions will be tested in
relation to financial years ending March 2016 and March 2017 to determine what percentage of the shares vest. Specifically the
performance period for the group profit before tax and share price performance measures is 31 March 2013 to 26 March 2016,
and the performance period for the UK profit before tax performance measure is 31 March 2013 to 25 March 2017. No consideration
is payable for the grant of these awards.
Grant date
Number of shares awarded
Share price at date of grant
Exercise price
Expected volatility
Risk-free rate
Expected dividend yield
Fair value of shares granted
Average time to expiry
December
December
December
2013
2013
2013
March
2013
March
2013
PBT awards PBT awards
awards PBT awards
Share price
242,961
443p
Nil
56.4%
0.68%
Nil
443p
3 years
404,934
443p
Nil
49.3%
1.08%
Nil
443p
4 years
647,895
443p
Nil
43.7%
0.63%
Nil
228p
3.5 years
1,152,153
289p
Nil
57.8%
0.28%
Nil
289p
2.5 years
Share price
awards
1,152,154
289p
Nil
57.8%
0.28%
Nil
130p
2.5 years
128
Mothercare plc Annual report and accounts 2014
30. 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 the income statement of £2.0 million (2013: £0.5 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 previously operated two defined benefit pension schemes for employees of Mothercare UK Limited, these were both
closed to future accrual with effect from 30 March 2013.
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 as at March 2011 were updated as at 29 March 2014 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 scheme exposes the Company to actuarial risks such as longevity risk, interest rate risk, market (investment) risk.
The IAS 19 valuation conducted for the period ending 29 March 2014 disclosed a net defined pension deficit of £49.7 million
(2013: £61.6 million).
The major assumptions used in the updated actuarial valuations were:
Discount rate
Inflation rate – RPI
Inflation rate – CPI
Future pension increases
Male life expectancy at age 65
Male life expectancy at age 65 (currently aged 45)
29 March
2014
30 March
2013
4.5%
3.4%
2.4%
3.2%
23.5 years
24.8 years
4.6%
3.4%
2.4%
3.3%
23.7 years
25.1 years
1 Following the closure of the Scheme to future benefit accrual, a salary increase assumption is not required.
The mortality assumptions used are the SAPS tables published by the CMI allowing for future improvements in line with the CMI
2013 projections with a long-term annual rate of improvement of 1%.
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
Change in
assumption
Impact on
scheme
liabilities
£ million
+/- 0.1% + 6.5/- 6.5
+/- 0.1% + 5.5/- 6.3
+ 8.0
+ 1 year
Mothercare plc Annual report and accounts 2014
129
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
30. Retirement benefit schemes continued
The above sensitivities are applied to adjust the defined benefit obligation at the end of the reporting period. Whilst the analysis
does not take account of the full distribution of cash flows expected under the scheme, it does provide an approximation to the
sensitivity of the assumptions shown.
Amounts expensed in the income statement in respect of the defined benefit schemes are as follows:
Service cost
Running costs
Net interest on liabilities/ return on assets
Gains on curtailment
* Restated for amendments to IAS 19 as explained in note 2.
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
Restated*
£ million
–
1.1
2.7
–
3.8
2.4
0.8
2.6
(3.3)
2.5
Service cost and running costs are included in underlying administrative expenses, the curtailment gain is included within
non-underlying administrative expenses and net interest on liabilities/return on assets is included in finance costs.
The amount recognised in other comprehensive income for the period ending 29 March 2014 is a gain of £9.5 million (2013: a loss of
£13.6 million).
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
29 March
2014
£ million
30 March
2013
£ million
303.0
(253.3)
49.7
296.4
(234.8)
61.6
130
Mothercare plc Annual report and accounts 2014
Movements in the present value of defined benefit obligations were as follows:
At beginning of period
Service cost
Gains on curtailments
Interest expense
Actuarial losses (gains) arising from changes in demographic assumptions
Actuarial losses (gains) arising from changes in financial assumptions
Experience losses (gains) on liabilities
Contribution from scheme members
Benefits paid
At end of period
* Restated for amendments to IAS 19 as explained in note 2.
Movements in the fair value of schemes’ assets were as follows:
At beginning of period
Interest income
Scheme administration expenses
Return on scheme assets excluding interest income
Company contributions
Members’ contributions
Benefits paid
At end of period
* Restated for amendments to IAS 19 as explained in note 2.
The major categories of scheme assets are as follows:
UK equities
Overseas equities
Corporate bonds
Property
Hedge funds
Cash and cash equivalents
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
Restated*
£ million
296.4
–
–
13.4
(2.1)
5.1
–
–
(9.8)
303.0
270.0
2.4
(3.3)
13.2
–
21.9
–
1.2
(9.0)
296.4
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
Restated*
£ million
234.8
10.7
(1.1)
12.5
6.2
–
(9.8)
253.3
217.3
10.6
(0.8)
8.3
7.2
1.2
(9.0)
234.8
29 March
2014
£ million
29 March
2014
£ million
30 March
2013
£ million
30 March
2013
£ million
Quoted
market
price in
active
market
No quoted
market
price in
active
market
Quoted
market
price in
active
market
No quoted
market
price in
active
market
56.0
44.0
83.7
–
61.3
2.4
247.4
–
–
–
5.9
–
–
5.9
48.2
36.5
76.5
–
47.2
5.3
213.7
–
–
–
21.1
–
–
21.1
Mothercare plc Annual report and accounts 2014
131
OverviewStrategic reportGovernanceFinancial statements
Notes to the consolidated financial statements
continued
30. Retirement benefit schemes continued
The scheme assets do not include any of the group’s own financial instruments nor any property occupied by or other assets used
by the group.
The estimated amount of cash contributions expected to be paid to the schemes during the 52 weeks ending 29 March 2015 is
£6.3 million.
The scheme is funded by the Company. Funding of the scheme is based on a separate actuarial valuation for funding purposes
for which the assumptions may differ from the assumptions above. Funding requirements are formally set out in the Statement of
Funding Principles, Schedule of Contributions and Recovery Plan agreed between the trustees and the Company.
The weighted average duration of the defined benefit obligation at 29 March 2014 is approximately 23.5 years (2013: 23.5 years).
The defined benefit obligation at 29 March 2014 can be approximately attributed to the scheme members as follows:
BActive members: 0% (2013: 0%)
BDeferred members: 75% (2013: 75%)
BPensioner members: 25% (2013: 25%)
All benefits are vested at 29 March 2014 (unchanged from 30 March 2013).
31. 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:
52 weeks ended 29 March 2014
Joint ventures and associates
52 weeks ended 30 March 2013
Joint ventures and associates
Sales of
goods
£ million
Purchase of
goods
£ million
21.1
–
Sales of
goods
£ million
Purchase of
goods
£ million
21.5
–
Amounts
owed by
related
parties
£ million
7.0
Amounts
owed by
related
parties
£ million
5.8
Amounts
owed to
related
parties
£ million
–
Amounts
owed to
related
parties
£ million
–
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 at the year end.
A provision of £1.2 million (2013: £0.8 million) has been made for doubtful debts in respect of the amounts owed by related parties.
An amount of £nil million (2013: £8.2 million) has been written off in respect of amounts owed by related parties.
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 77 to 81.
132
Mothercare plc Annual report and accounts 2014
31. Related party transactions continued
Short-term employee benefits
Post employment benefits
Compensation for loss of office
Share-based payments
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
3.6
0.3
0.3
–
4.2
3.1
0.3
0.7
0.4
4.5
Mothercare Pension scheme
Details of other transactions and balances held with the two pension schemes are set out in note 30.
Other transactions with key management personnel
There were no other transactions with key management personnel.
32. Events after the balance sheet date
On 20 May 2014 the group amended the banking facilities with the continued support of its two existing banks, increasing the
committed facilities to £100 million which then reduces to £90 million from 10 October 2014 and providing further headroom on
the gearing and fixed charge cover covenants.
Mothercare plc Annual report and accounts 2014
133
OverviewStrategic reportGovernanceFinancial statements
Company financial statements
Contents
135 Company balance sheet
136 Notes to the company financial statements
139 Five-year record
140 Shareholder information
134
Mothercare plc Annual report and accounts 2014
Company balance sheet
As at 29 March 2014
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
Hedging reserve
Profit and loss account
Equity shareholders’ funds
Approved by the Board on 21 May 2014 and signed on its behalf by:
Matt Smith
Chief Financial Officer
29 March
2014
£ million
30 March
2013
£ million
Note
3
4
5
5
6
7
7
7
7
7
8
161.0
161.0
79.2
90.3
169.5
(196.8)
(27.3)
133.7
(36.2)
97.5
44.4
6.3
–
(0.4)
–
47.2
97.5
171.1
171.1
80.1
58.0
138.1
(145.1)
(7.0)
164.1
(46.5)
117.6
44.3
6.2
6.2
(0.6)
(0.3)
61.8
117.6
Company Registration Number: 1950509
Mothercare plc Annual report and accounts 2014
135
OverviewStrategic reportGovernanceFinancial statements
Notes to the company financial statements
1. Significant accounting policies
Basis of presentation
The Company’s accounting period covers the 52 weeks ended 29 March 2014. The comparative period covered the 52 weeks
ended 30 March 2013.
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 52 weeks ended 29 March 2014 and the preceding 52 weeks ended 30 March 2013.
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 92.
Financial instruments
Financial assets and liabilities are recognised on the Company’s balance sheet when the Company becomes a party to the
contractual provisions of the instrument.
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 loss for the 52 weeks ended 29 March 2014 was £20.7 million (2013: loss of £54.4 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
The Company’s investment in its subsidiary undertakings is as follows:
Principal activity
Country of incorporation
Retailing company
Sourcing company
Retailing company
United Kingdom
Hong Kong
United Kingdom
Cost of investments (less amounts written off £153.0 million (2013: £153.0 million))
Loans to subsidiary undertakings
29 March
2014
£ million
30 March
2013
£ million
150.3
65.5
215.8
150.2
65.5
215.7
136
Mothercare plc Annual report and accounts 2014
3. Investments in subsidiary undertakings continued
Cost
At 31 March 2013
Share-based payments to employees of subsidiaries
At 29 March 2014
Impairment
At 31 March 2013
Charged during the period
At 29 March 2014
Net book value
4. Debtors
Amounts due from subsidiary undertakings
Other debtors
5. Creditors
Creditors: amounts due within one year
Amounts due to subsidiary undertakings
Borrowings
Derivative financial instruments
Accruals and other creditors
Creditors: amounts due after more than one year
Borrowings
£ million
215.7
0.1
215.8
(44.6)
(10.2)
(54.8)
161.0
29 March
2014
£ million
30 March
2013
£ million
79.1
0.1
79.2
79.2
0.9
80.1
29 March
2014
£ million
30 March
2013
£ million
168.2
27.6
–
1.0
196.8
140.7
3.5
0.3
0.6
145.1
29 March
2014
£ million
30 March
2013
£ million
36.2
36.2
46.5
46.5
Mothercare plc Annual report and accounts 2014
137
OverviewStrategic reportGovernanceFinancial statements
Notes to the company financial statements
continued
6. Called up share capital
Issued and fully paid
Ordinary shares of 50p each:
Balance at 31 March 2013
Issued under the Mothercare Sharesave Scheme
Balance at 29 March 2014
Number of
shares
£ million
88,653,417
160,181
88,813,598
44.3
0.1
44.4
Further details of employee and executive share schemes are provided in note 29 to the consolidated financial statements.
7. Reserves
Balance at 31 March 2013
Transfer of reserves
Net premium on shares issued
Cash flow hedges: gains arising in the period
Fair value of share-based payments
Shares transferred to employees on vesting
Loss for the financial year
Balance at 29 March 2014
Share
premium
£ million
Other
reserve
£ million
Own
shares
£ million
Hedging
reserve
£ million
Profit and
loss account
£ million
6.2
–
0.1
–
–
–
–
6.3
6.2
(6.2)
–
–
–
–
–
–
(0.6)
–
–
–
–
0.2
–
(0.4)
(0.3)
–
–
0.3
–
–
–
–
61.8
6.2
–
–
0.1
(0.2)
(20.7)
47.2
The own shares reserve of £0.4 million (2013: £0.6 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 29 to the
consolidated financial statements). The total shareholding is 70,269 (2013: 108,497) with a market value at 29 March 2014 of £0.1
million (2013: £0.3 million).
Included in the loss for the 52 weeks ended 29 March 2014 was an impairment charge against investments in subsidiary
undertakings of £10.2 million and a provision against amounts due from subsidiary undertakings of £5.7 million.
8. Reconciliation of equity shareholders’ funds
Equity shareholders’ funds brought forward
Cash flow hedges: gain/(loss) arising in the period
Shares issued
Fair value of share-based payments
Retained loss for the period
Equity shareholders’ funds carried forward
52 weeks
ended
29 March
2014
£ million
52 weeks
ended
30 March
2013
£ million
117.6
0.3
0.2
0.1
(20.7)
97.5
171.5
(0.3)
–
0.8
(54.4)
117.6
138
Mothercare plc Annual report and accounts 2014
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
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 to 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
2014
£ million
2013
Restated4
£ million
2012
2011
£ million
£ million
2010
£ million
793.6
766.4
724.9
15.9
(35.0)
(7.2)
(26.3)
(1.2)
(27.5)
749.4
11.8
(29.4)
(6.3)
(23.9)
0.1
(23.8)
812.7
2.0
(104.4)
(0.5)
(102.9)
11.1
(91.8)
(31.0p)
7.7p
(26.9p)
4.2p
(105.2p)
1.8p
18.5
111.5
12.2
(49.7)
(77.3)
15.2
21.7
124.1
45.6
(61.6)
(91.0)
38.8
17.6
145.2
24.0
(52.7)
(61.4)
72.7
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
189.0p
315.0p
166.0p
474.0p
(238.5%)
(83.5%)
(27.6%)
10.9
20.3
48.7
220
1,221
1,737
2,656
5,613
3,486
16.2
21.4
54.2
255
1,069
1,805
2,347
6,226
3,959
24.9
22.8
65.4
311
1,028
1,946
2,283
6,943
4,350
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
28.0p
31.5p
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
1 Before items described in note 2 below.
2 Includes exceptional items (property costs, restructuring costs, impairment charges) and other non-underlying items of amortisation of intangible assets
(excluding software) and the impact of non-cash foreign currency adjustments under IAS 39 and IAS 21 as set out in note 6 to the consolidated financial statements.
3 International stores are owned by franchise partners, joint ventures and associates.
4 Restated for Amendments to IAS 19.
Mothercare plc Annual report and accounts 2014
139
OverviewStrategic reportGovernanceFinancial statements
Shareholder information
Shareholder analysis
A summary of holdings as at 29 March 2014 is
as follows:
Registrars and transfer office
Equiniti Limited, Aspect House, Spencer Road,
Lancing, West Sussex BN99 6DA
Banks, insurance
companies and
pension funds
Nominee companies
Other corporate holders
Individuals
Mothercare ordinary shares
Number of
shares
million
Number of
shareholders
Financial calendar
Annual General Meeting
Announcement of interim results
17 July
20 November
2014
66,022
75,571,771
9,625,212
3,550,593
88,813,598
6
625
56
22,273
22,960
Preliminary announcement of results
for the 52 weeks ending
28 March 2015
Issue of report and accounts
Annual General Meeting
2015
end May
mid June
mid July
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.
Overseas +44(0)121 415 7042
www.equiniti.com
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.
Share price data
Share price at 28 March 2014
(29 March 2013)
Market capitalisation
Share price movement
during the year:
High
Low
2014
2013
189.00p
£167.9m
315.00p
£279.3m
493.00p
187.00p
362.00p
152.00p
All share prices are quoted at the mid-market
closing price. For capital gains tax purposes:
Bthe 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
Bthe 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.
140
140
Mothercare plc Annual report and accounts 2014
Mothercare plc Annual report and accounts 2014
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 plus network extras). Lines are open
8.30 am to 5.30 pm, Monday to Friday.
Stockbrokers
The Company’s stockbrokers are:
JP Morgan Cazenove & Co
25 Bank Street
Canary Wharf
London E14 5JP
Telephone 020 7742 4000
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.
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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