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2019
Annual report and accounts
Mothercare
Our aim is to meet the needs of mothers-to-be, babies and
children up to pre-school age. Our clothing & footwear
product includes ranges for babies, pre-school children
and maternity wear and has a growing selection of
branded product. Home & travel includes pushchairs, car
seats, furniture, bedding, feeding and bathing equipment.
Toys is mainly for babies and complements the ELC and
other third party ranges.
STORES
UK – in town: 12
UK – out of town: 67
International partners: 1,227
Contents
Overview
2
At a glance and financial highlights
Strategic report
Interim Executive Chairman’s statement
Business model
Chief executive’s review (including strategic review)
KPIs
Risks – principal risks and uncertainties
3
5
6
12
13
20 Financial review
30 Corporate responsibility
Governance
37 Board of Directors
37 Operating Board
38 Corporate governance
43 Audit and risk committee
48 Nomination committee
49 Directors’ report
53 Directors’ remuneration report
Financial statements
72 Directors’ responsibilities statement
73
Independent auditor’s report
84 Consolidated income statement
Consolidated statement
85
of comprehensive income
86 Consolidated balance sheet
87
Consolidated statement of changes
in equity
88 Consolidated cash flow statement
89 Notes to the consolidated financial statements
Company financial statements
Notes to the company financial statements
137 Company balance sheet
138 Company statement of changes in equity
139
144 Five-year record
145 Glossary
147 Shareholder information
At a glance and financial highlights
(total including continuing and discontinuing operations)
Our vision at Mothercare is clear –
to be the leading global retailer for
parents and young children.
Worldwide sales*
£1,071 million (7.9)%1
Group sales
£566 million (13.5)%1
Adjusted loss**
£(11.6) million (604.3)%1
Statutory loss
£(87.3) million (19.9)%1
*
Total UK sales plus estimated and unaudited retail sales
achieved by our franchise partners, joint ventures and
international wholesale
** Adjusted loss before tax and foreign currency revaluation.
Excludes adjusted items as detailed on page 23 of the
financial review
1 Percentage change versus last year
UK:
Stores: 79 (as at 23 May 2019)
Space: 904,522 sq ft.
Asia:
Stores: 477
Space: 1,005,891 sq ft.
Europe:
Stores: 373
Space: 1,117,939 sq ft.
Middle East:
Stores: 338
Space: 870,084 sq ft.
Latin America:
Stores: 39
Space: 31,285 sq ft.
Worldwide sales
International
UK
Stores
Online
Wholesale
Stores
Online
Wholesale
1%5%
94%
9%
41%
50%
2
Mothercare plc annual report and accounts 2019
Interim Executive
Chairman’s
Statement
Interim Executive Chairman’s Statement
A combination of our efforts,
to galvanise all available
resources over the last year,
has bought us the time
to address the impact of
the ongoing trends within
the UK retail sector and to
concentrate upon our vision
to be the leading specialist
global brand for parents and
young children.
What a difference a year makes
It is not an overstatement to note that just
one year ago we began our return to
financial health, emerging from a period of
acute financial distress, notwithstanding the
ongoing trading difficulties experienced in
the UK retail business, which threatened to
engulf Mothercare plc.
At the outset therefore, on behalf of
the Board I would like to thank all our
stakeholders including shareholders,
financiers, franchise partners, shareholder
loan note subscribers, pension trustees,
the Pension Regulator, landlords and
employees alike, whose support we
harnessed in the month following my
appointment. Their contribution was crucial
to the Capital Refinancing Plan and UK
Restructuring package launched on 17
May 2018, ultimately providing funding of
£117.5 million in aggregate.
This support was predicated upon our
demonstration of clear evidence of
a coherent strategic plan to revitalise
the business and, undertaking a
comprehensive restructuring package, to
deliver a root-and-branch review of every
facet of the business.
Restructuring Update
I am delighted to report that we have
tenaciously adhered to the key objectives,
first set out in our time-line a year ago:
• the UK store closure programme,
was completed at the end of March
2019, three months ahead of plan. This
was achieved by the launch of the
Company Voluntary Arrangements of
our subsidiaries, Mothercare UK Limited,
Early Learning Centre Limited and
Childrens World Limited: encompassing
the reduction in number of stores by
c60 to retain a UK store estate of 79,
representing a reduction in space of
30%;
• the target cost saving of at least
£19 million per annum - from rent
reductions, store costs, central
overheads and rightsizing the business
globally - has been significantly
exceeded with an annualised total
operating cost saving of over £25 million:
we anticipate further cost savings during
the current year, as we move towards
greater efficiency;
• we realised materially more cash
proceeds, than could have been
envisaged a year ago, from the sale
and leaseback of the UK head office
and the disposal of Early Learning
Centre, generating total expected cash
of some £26 million, with additional
operational cash-flow and commercial
benefits likely to accrue thereafter;
• last May we stated that we aspired
to be bank debt free by the end of
calendar 2019, since when we have
been assiduously reducing net debt,
greatly assisted by a combination of
the initiatives highlighted above: net
debt was £6.9 million at 30 March 2019,
providing the financial flexibility and
resources, assuming the ongoing
support of our relationship banks and
other stakeholders, to deliver our core
strategic aims.
Mothercare plc annual report and accounts 2019
3
HEAD_0 1st line continued2nd line continuedHEAD_0 2nd lineStrategic Report
Interim Executive Chairman’s Statement
continued
Whilst as a management team we now
have clarity of purpose, are demonstrably
agile and transactionally astute, there
remains much to do and although we have
successfully stabilised the business this was
not without cost to the reported results last
year. Indeed, we continue to face numerous
challenges, with the headwinds within
the UK retail sector showing no sign of
abating, leaving no room for complacency,
as detailed in the Chief Executive’s Review
that follows.
What has not changed
We are fortunate to retain several attractive
core characteristics, which we intend to
build upon, including:
• Mothercare is a globally recognised
specialist brand that stands for trust and
quality;
• a constantly renewing prime customer
base of new parents - with over 300,000
first time births annually in the UK alone
- which has minimal seasonality and
significantly more in our international
markets;
• leading market shares in certain key
product areas, alongside a high
proportion of exclusivity from branded
suppliers, to whom we are frequently
their largest customers;
• a very high degree of operating
annuity within our international revenue
stream, driving capital light expansion
from less moving parts, where we
are encouraging further growth from
what represents over two thirds of our
worldwide sales.
What went wrong?
As highlighted, our priority last year
was to stabilise the business. However,
shareholders deserve an explanation of
the events leading up to the acute short-
term cash flow problems and significant
diminution in shareholder value suffered in
the first half of 2018.
Ultimately, the rapid deterioration in the
Company’s trading performance through
the autumn of 2017 was exacerbated
by the necessity to run the business
for cash, in order to operate within the
Group’s then available financing facilities,
whilst simultaneously having to bear a
mounting burden of professional costs that
threatened to inundate the business.
However, 20/20 hindsight reveals
an acceleration of events over an
extrapolated time period:
• whilst the business had invested
approximately a third of its fund
raise in 2014 to play catch-up and to
modernise its UK store base and its
digital capabilities, it did so without the
knowledge that the UK would see an
unprecedented slow down. Despite
an already aggressive store closure
programme, the reduction in sales and
margin during 2017/18 left the business
with a cost base simply too high to
support, which led directly to a widening
imbalance between total expenses and
sustainable revenues;
• the difficult situation was further fuelled
by a fracture in the relationship between
the non-executive and operating
executives, a break-down in trust with
key shareholders and the appointment
of an array of increasingly expensive
professional advisers.
As detailed in the fund-raising Prospectus
issued on 9 July 2018, £6 million of advisory
costs had already been committed during
Feb/April 2018 to which was added to the
£4 million cost of the Capital Refinancing
Plan, implemented during May/July 2018
with the assistance of our new advisory
team. In fact, had the recast Board not
acted decisively in curtailing professional
costs in April 2018 and, more importantly,
bridged the disconnect between our
relationship banks and our equity
providers, these costs alone could have
rendered the business unsalvageable.
We remain determined to differentiate
Mothercare as a text book recovery case,
in parallel demonstrating that boards can
and should foster a greater alignment
between their debt and equity providers.
Management and Board changes
When we announced the refinancing
initiatives last May we recognised the need
for strength in depth at Board level, in both
retailing and change management skills, to
deliver the challenging turnaround and UK
restructuring.
This change process led to a significant
number of roles being made redundant,
affecting all colleagues and at all levels
and contributing to a reduction in total
headcount of a quarter. Indeed this
programme was weighted towards the
senior leadership team, which has been
reduced by a third. In addition, all key
4
Mothercare plc annual report and accounts 2019
executives agreed to voluntary reductions
to both contracted pension benefits and
notice periods which now no longer exceed
six months.
Accordingly, we believe that we now have
a PLC Board which is appropriate for a
company of our size and nature, and
which interfaces highly cohesively with the
operating board. Furthermore, we are
fortunate to have Non-Executive Directors
with deeply embedded and relevant
skills who have contributed directly to the
change process. Therefore, I remain on
course to step-back to a non-executive
position prior to the end of this year.
As a result, following the completion of the
transformation plan, we expect the total
PLC Board cost to halve next year, to a level
commensurate with a small-cap company.
Strategic outlook
A combination of our efforts, to galvanise
all available resources over the last year,
has bought us the time to address the
impact of the ongoing trends within the UK
retail sector and to concentrate upon our
vision to be the leading specialist global
brand for parents and young children.
The current year should therefore witness
the final steps toward completing the
transformation of the business including
our unremitting efforts to evolve, adapt
and optimise the structure, format and
model for our UK retail operations within
the Mothercare UK franchise, alongside
exploring ways to supplement our working
capital needs. Throughout we will continue
to seek to preserve shareholder value,
by wherever possible minimising equity
dilution, as we strive to optimise the level of
sustainable long-term revenues going into
2021 and beyond. In the interim, we remain
on consensus for 2020.
Finally I would like to thank all of our
colleagues across the organisation for their
hard work in the challenging circumstances
witnessed over the last year.
Clive Whiley
Interim Executive Chairman
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
Business model
(total including
continuing and
discontinuing
operations)
Business model
(total including continuing and discontinuing operations)
The mothercare business model describes
how we operate and create value for our
shareholders, our customers and other key
stakeholders.
Our resources
How we create value
Shareholders’
equity
International
partners
£(49.4)m
33
Grow sales
and margins
Net debt
£(6.9)m
Employees
3,752
Suppliers
1,616
Focused
investment
Manage
costs and
cash
Customers
To reinvest
Create
value
Relationships
For customers
For international
partners
£1,071m
£687m
Worldwide sales 5
Sales1
For employees
For social
£21.5m
Total tax
contributions (TTC)4
£61m
Total pay and
benefits2
For suppliers
£446m3
Value capture
1 International partner sales reflect franchise partner sales to end customers (which are estimated and unaudited) plus wholesale sales
2 Total pay and benefits include payroll costs for stores and head office, share based payments, bonus, and pension costs
3 Supplier payments reflect total trade payments for goods and payments to suppliers for goods not for resale
4 Worldwide corporate income tax, VAT and other indirect taxes, employment taxes including NI and customs duties
5 Total UK sales plus estimated and unaudited retail sales achieved by our franchise partners, joint ventures and international wholesale
What differentiates us
The products we offer
Effective logistics
Home & Travel
3
2
Distribution centres
Hubs
178
brands
Efficient sourcing via third party
Clothing & Footwear
Hong Kong based
Full service vendors
239
suppliers
23
countries
8
brands
Toys
39
brands
4,799
options
2,807
options
689
options
How our customers
buy from us
UK stores
12
in town
UK online
45%
of UK retail sales
International
22
countries
online & 4.5% of
international sales
67
out of town
1,227
stores
Mothercare plc annual report and accounts 2019
5
HEAD_0 1st line continued2nd line continuedStrategic Report
Chief Executive’s
review
Chief Executive’s review
Mark Newton-Jones
Chief Executive Officer
RESULTS SUMMARY
A year of major restructuring
Overview
The past year has been a significant one
for Mothercare during which, following a
difficult period for the business, we have
restructured and refinanced the company
to ensure the brand has a sustainable
future. On a personal note, I was delighted
to be asked to rejoin the business in May
2018, albeit within only 43 days of leaving,
by the newly appointed chairman Clive
Whiley and with the support of our largest
shareholders. This has allowed me,
the wider management team and our
colleagues to continue the transformation
we had started back in 2013 and to
accelerate its pace.
The year has been dominated by three
major areas of focus. Firstly, the capital
raise and the refinancing of the group.
Secondly, an accelerated restructuring
programme which has led to a complete
overhaul and reorganisation of the group
and a subsequent cost base reduction
of over £25 million per year, which is
discussed in more detail below. Thirdly,
we have continued to manage the UK
business in an increasingly difficult retail
market, that was further exacerbated by
our restructuring and specifically the store
closure programme which is now behind
us. This backdrop led to both a lowering of
customer confidence in our brand and a
shortage of product supply to Mothercare
UK.
In the early part of the financial year we
faced numerous supply shortages as
credit insurance was removed and the
supply base became increasingly nervous
about their commitments to Mothercare.
We worked hard communicating with
our suppliers to restore their confidence
and slowly through the year supply
returned to virtually normal levels, despite
credit insurance issues. In the most part
our supply base had recognised our
market leadership and significant share
in their products, and that we are the only
large-scale true specialist left in the Mum
and Baby sector. Importantly they also
recognise that we set out to protect their
brands and products from those that would
discount it more heavily. We appreciate
their support during this past year.
In an extremely busy year, we have taken
swift and decisive action to tackle the
various issues faced by the business and
are now focusing on rebuilding Mothercare,
which is covered in more detail below.
Refinancing and store closure programme
In May 2018 we announced a
comprehensive refinancing and
restructuring of the Group to allow
Mothercare to return to a more stable
footing, accelerate the transformation of the
Group and drive it towards a viable and
sustainable future. This included the launch
of Company Voluntary Arrangements to
restructure the UK store portfolio.
Our shareholders, banks and pension
trustees supported the capital refinancing
of the Group in July, conditional on the
acceleration of the previously announced
store rationalisation programme.
This programme allowed Mothercare
UK to reduce its store base in the second
half of the year to 79 stores, a reduction of
55 stores on the prior year. Without the CVAs
it would have taken over four years, through
natural lease expiry, to achieve the same
reduction in store estate. The 79 stores that
remain are geographically positioned so
that 95% of the customer base is within a
45-minute drive time of a Mothercare store.
Of the 79 stores, 72 stores had already been
refurbished, spending c.£20 million in capex
over a three-year period.
Sale of the ELC brand and future
concession arrangement
In 2007 Mothercare acquired the Early
Learning Centre. The toy business
represents less than 15% of UK turnover and
whilst it has a franchise business the royalty
stream derived from this is relatively small.
The toy market has become increasingly
competitive over the last few years and to
remain ahead of the competition requires
both a singular focus in this category
and also capital investment in innovation
and tooling. During the year we took the
view that the ELC brand would be better
managed and nurtured outside of our
group and in March 2019, we announced
the sale of the Early Learning Centre to The
Entertainer for £11.5 million (plus £2.0 million
of contingent consideration), enabling
a further reduction in bank debt and
a focus on our core strategic priorities.
The Entertainer has been a leader in toy
markets for over 30 years and brings all
the necessary skills and focus to manage
the ELC brand, and importantly they are
committed to extensive new product
development.
We will continue to sell toys in the
Mothercare business and see the category
as important, albeit it’s a small part of
our overall product mix. As part of the
transaction we agreed that The Entertainer
will run our toy offer both in store and online,
using the ELC brand and broadening the
range. We will provide the space and in
return will receive a commission.
Sale of HQ
We chose to sell the head office site and
after numerous expressions of interest
we realised a sale for a consideration of
£14.5 million, on a sale and lease back basis
over a ten-year term, with a three-year
break. These proceeds have further helped
in our reduction of bank debt.
People and organisational restructure
Whilst we had made organisational
changes in the prior year at Mothercare’s
head office, reducing the headcount
by c25%, we recognised that a more
radical approach was needed to make
the organisation leaner still. We have
now completed the reshaping of the
organisation into three distinct divisions;
Mothercare UK franchise, Mothercare
Global Brand and Mothercare Business
Services. This new organisational and
people structure will create more focus
6
Mothercare plc annual report and accounts 2019
HEAD_0 1st line continued2nd line continued
on the two operating elements of the
group, the Mothercare Global Brand
and Mothercare UK franchise and should
drive efficiency in the Mothercare Business
Services division. The subsequent reduction
in the head office headcount as a result of
this organisational change is c20%.
A new approach to sourcing Mothercare
branded products
During the year we embarked on a major
overhaul of how we source product. After
a successful trial in the previous year we
transitioned from running our own sourcing
operation with offices in India, Bangladesh,
China and Hong Kong to a third-party
specialist sourcing agent. Our chosen
agent is W.E Connor who are Hong Kong
based and have operated for 70 years.
They have multiple retail clients in the US
and the UK. By partnering with Connor
we are now sitting alongside their other
retailers’ volumes and thus we anticipate
benefits of scale and lower cost prices in
the medium term. An added benefit of our
new sourcing approach is a lowering of our
cost base. As a direct result we have now
closed all six of our overseas offices.
Stock reduction programme
With a strict approach to cash
management and a planned reduction
in store space we set about reducing the
stock holding of the business. This stock
reduction programme has reduced overall
cash in stock by c£20 million without any
material impact on the stock availability for
our customers.
Rebuilding Mothercare
Three divisions to create commercial focus
As previously mentioned a major
cornerstone of this past year’s restructuring
is the creation of three operating divisions;
Mothercare Global Brand, Mothercare UK
franchise and Mothercare Business Services
(our support functions). Each division has
been set up to have its own operating and
leadership team and has clear objectives
to improve overall performance.
Mothercare Global Brand – The primary
role of this division is to design and then
source the Mothercare branded product
and distribute this product from factory
to each franchise market. The advantage
of decoupling the Global Brand from
Mothercare UK is that the design of
product and importantly the architecture
of the range will be tailored for our
international markets, as opposed to the
historical approach where ranges were
designed for the UK and then adjusted for
the predominately warmer international
climates we trade in. The first season of
operating under this new structure is spring/
summer 2020.
In addition to the changes to product
design, the Global Brand now produces all
the brand marketing materials, including
all of the photography and the content for
online trading. These marketing assets will
be provided to our franchise partners who
will then localise language and nuance
for their home markets. Effectively we have
now started to act as a truly global retailer
with the UK treated in exactly the same
fashion as any of our other major markets.
The measure of success in the Global
Brand will be our ability to distribute more
Mothercare products around the world
through Franchising, Wholesale and
Licensing.
Mothercare UK franchise – As a natural
consequence of forming the Mothercare
Global Brand we have created Mothercare
UK franchise. This important step will instil
all the disciplines we see in our franchise
partners around the world into the UK
business. The UK will independently
operate its local market running stores
and its website, it will buy Mothercare
branded products from the Global
Brand and buy locally to supplement the
Mothercare range with brands such as
Britax, Silvercross, Joie and Bugaboo. This
new way of working has already been
put in place with the recently formed UK
team attending the franchise buying event
alongside all of the other global partners.
The UK is the only franchise we wholly own
and its primary objective is to become
financially viable.
Mothercare Business Services – This
division includes Finance, HR, Property and
IT. By grouping these functions together, we
expect to improve productivity and lower
our overall costs. The Business Services
division’s primary objective is to improve
efficiencies and service levels.
International markets and opportunities
for growth
We still see much potential across
our international markets with growth
opportunities in a number of territories
through more retail space and by trading
online.
We have developed a new franchise
partnership in India with the retail division
of Reliance Industries, known as Reliance
Brands Limited (RBL). RBL share our
ambition for the Mothercare brand across
India. Since August 2018 RBL have opened
14 stores taking the total standalone stores
in India to 77. Additionally, they have begun
a programme to refurbish and modernise
the shop in shops in the Shoppers Stop
department stores. In total we now have 134
outlets for Mothercare across India. Trading
online has also had the same attention
with Mothercare recently launching on the
RBL platform and also on Amazon India,
with the launch of the www.mothercare.in
planned for summer of this year.
To support further growth in India and
other territories globally we are developing
a limited range of lower priced clothing
product. This range is pitched to broaden
our customer base in emerging economies
and allows customers that wouldn’t
ordinarily be able to afford the Mothercare
brand access to it. This new approach to
product will enable our franchise partners
in several markets to open outlets in tier 2
and 3 cities and thus grow their Mothercare
customer base.
In our five largest global markets, China,
India, Indonesia, Middle East and Russia,
we have seen a mixed performance
with growth coming from three of the five
territories but with softness in the Middle
East. We have seen unprecedented social
reform in Saudi Arabia, our largest turnover
country in the Middle East, as well as a
sales tax at 5% being introduced. The
sales tax has also been implemented in
Dubai and Bahrain at the same 5% rate.
The most significant element of this social
change has led to a complete change
of work force, as the new governing law
stipulates we can only employee Saudi
nationals. As a result, we have lost all of the
experienced colleagues with an average
tenure of 8 years, and have replaced them
with a brand new work force who are now
learning how to run a Mothercare store.
Vietnam, which has a population of
90 million and an average age of below
30, is our latest new market to open and
we have expanded the business now to 6
stores with a further 3 in the pipeline.
Global Digital
Digital sales now represent 5% of turnover
in our global brand, this compares with
45% in the UK, clearly indicating further
opportunities for online growth globally. In
China, where we are represented on the
two major platforms T mall and JD.com,
we are also now selling on WeChat, the
Mothercare plc annual report and accounts 2019
7
HEAD_0 1st line continued2nd line continuedHEAD_0 2nd lineStrategic Report
Chief Executive’s review
continued
biggest social media platform in the
country.
Mothercare now trades online in
22 countries, the brand is presented on
both Mothercare websites and across 36
web platforms including Amazon in India,
noon in the Middle East and T mall and JD
.com in China. In the year ahead, we intend
to extend to another four countries (Saudi
Arabia, Taiwan, Vietnam and Greece) and
an additional five platforms.
UK Digital
We have seen our UK digital sales stall in
the last year and move into decline. There
are three factors at play here. Firstly, as
we closed stores we have lost the iPad
generated sales from the store and the
online sales in the catchment around the
closure store have declined. The full price
product online simply couldn’t compete
with the discounted clearance product in
store. Secondly, we reduced our marketing
expenditure to preserve cash as the
business became financially constrained.
This led to a sharp drop in traffic to the
website as we relied on organic search
alone and not paid search to bring custom
in. Thirdly, we stopped any investment
in engineering changes to improve the
performance of the website and App.
This lack of development in the customer
journey has left Mothercare behind its
competitors.
For the year ahead we have increased
marketing spend online, specifically in
the traffic driving activities of paid search,
email and retargeting. Many development
changes have already been put in place
to improve the website performance with
a redesigned check out launched and
improved product presentation pages
driving an improvement in conversion.
Our development focus is very much on
mobile and more specifically smart phone.
It’s worth noting that our mobile mix of
sales and traffic is considerably higher than
that across other UK retailers. Mobile sales
represent 73% of our total online sales and
88% of our web traffic is through a mobile
device, reflecting the young and busy ‘Mum
on the go’ that is our core customer.
In addition to the programme of activity to
restore growth to our online sales we have
also improved the delivery proposition,
with full tracking of orders in place and time
bands introduced for customers to select
from.
Social media now plays an increasingly
important role in our brand marketing and
online performance. We launched our first
social campaign with #bodyproudmums,
a campaign that featured a number of our
customers photographed showing their
bodies just a few weeks after child birth. The
campaign featured in tube stations across
London and was sponsored by Transport
for London, it has created significant social
noise. The campaign ad was featured in
a number of national press titles and also
on TV – Lorraine and Loose Women. The
campaign was re-posted by celebrities
and bloggers and the estimated reach is
now at 2.7 million consumers, positioning
Mothercare UK as dealing with the reality
of child birth and not the airbrushed
approach that is often taken.
UK Specialism and Service Initiatives
Over this period of restructuring our focus
had moved away from our specialism and
service to that of clearing stock, generating
cash and closing stores. The store closure
programme concluded in the last week
of March 2019, with a 55 store reduction
leaving the UK with an estate of 79 stores.
The closure programme ran for five months
and caused significant distortion to our
trading numbers, both in our margins
and sales performance. There was also a
consequential knock on impact of closing
a third of the store estate in short order,
with customers left not knowing whether it
was their local Mothercare that was closing
down or indeed the whole business. This
undermining of customer confidence led
to concerns about buying our products,
and affected customers’ views of us even
in our ‘keep’ stores, the worry being the
Mothercare business may not survive and
who would then be there to resolve any
after-sales issues. Throughout this period we
have tracked the customers’ perception of
our brand and importantly their propensity
to buy from us as a result, the latest view
on this research is painting a more positive
picture. With more time we believe that the
UK customers’ confidence in our brand will
be restored.
We now look forward to the year ahead as
we rebuild the Mothercare brand in the UK
and have launched a series of initiatives to
improve service and reinforce our specialist
credentials in the mum and baby sector.
To this end we have increased the base
pay of all of our store colleagues to be
ahead of the national minimum wage,
additionally we have put in place further
salary increases for those colleagues that
go on to become more highly trained in
product knowledge and service. Our sales
colleagues can today complete a series of
training modules of which there are eight in
total. Two of these are focused on customer
service and a further six on deeper product
knowledge. After completing their training
they can qualify for the additional skills
and receive a further salary increase. We
believe this approach to training and
then reward will both reduce our staff
turnover retaining experienced talent but
also materially improve our service and
specialist knowledge.
Reaching out to all the expectant parents in
the UK will become increasingly important
with a smaller store footprint and as a result
a longer drive time to access one of our
stores. Activity in the community therefore
becomes even more important. We run
expectant parents events several times
per year, whereby we reach out using our
database, to mums and dads in their third
trimester and invite them into one of our
stores to meet up with experts from across
the Mum and Baby sector. These events
are used as an opportunity to give expert
advice on everything from safety at home
for your newborn all the way through to
feeding, nurture and travel. We ran our
last events in March of this year which
12,000 expectant parents having attended,
encouragingly this was the same level of
attendance as last year yet we have 57
fewer stores.
Enhanced credit proposition
For some time we have offered our
customers an interest-free option of either
six months or 12 months on the more
expensive product we sell. Whilst this
offer has been in place the take-up has
been relatively small. We are relaunching
financial services in the business and
increasing the ways to pay. From the end
of June 2019 we will offer customers a
number of interest free credit options; a
month’s credit, three months’ credit or as
today 12 months’ credit. Importantly these
three credit propositions will be available
both online and in our stores. Historically
we have only offered customers credit in
our stores. We see this as an opportunity
to capture a broader customer base and
further grow sales of our home and travel
products. There is no risk of debt to the
business as the credit is provided by a third
party financial services organisation.
Exclusivity in product
Exclusive product is a key element of our
range which we had grown to represent
over 40% of our home and travel branded
8
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued products. Unfortunately in the last year
with the reduction in credit insurance
and the subsequent shortage in supply
many suppliers restricted our access to
exclusivity, this was purely out of their lack
of confidence in the business. Exclusivity
levels dropped to circa 25%. As confidence
has grown in our restructure and financial
stability so has the exclusive product, we
are now seeing these lines increase and
would hope to get back to the previous
levels within this next year. Exclusive product
is important to us on two fronts, firstly it
cannot be matched in price as we are
the only retailer selling it and secondly our
customers expect something a little more
special from the leading specialist in our
sector. Product that is exclusive to us will sell
at least three times more in volume than
the product that is available elsewhere.
Finally
As we emerge from a year of major
restructuring and start the rebuild of
Mothercare, I’d like to take the opportunity
to thank all our colleagues across the
business. Without their hard work and
commitment the pace of change simply
couldn’t have happened.
Mark Newton-Jones
Chief Executive Officer
Mothercare plc annual report and accounts 2019
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Chief Executive’s review
continued
Group results
Performance – total including continuing and discontinued operations
Group
Worldwide sales1
Total Group revenue
Group adjusted loss before taxation2
Group adjusted loss before taxation and foreign currency revaluations2, 7
Total Group loss before tax
Group performance – on a continuing operations basis
Group
Worldwide sales1
Total Group revenue
Group adjusted loss before taxation2
Group adjusted loss before taxation and foreign currency revaluations2, 7
Group loss before tax from continuing operations
Net debt4
International
International like-for-like sales3
International retail sales in constant currency3
International retail sales in actual currency3
Total International sales1
Total International reported sales
Adjusted International profit before taxation and foreign currency
revaluations2
UK
UK like-for-like sales3
UK online sales
Total UK sales
Adjusted UK loss before taxation and foreign currency revaluations2
2019
53 weeks to
30 Mar 2019
£million
2018
52 weeks to
24 Mar 2018
Restated6
£million
1,071.2
566.3
(8.6)
(11.6)
(87.3)
1,162.9
654.5
(6.8)
2.3
(72.8)
% change
vs. last year
(7.9%)
(13.5%)
(26.5%)
(604.3%)
(19.9%)
2019
53 weeks to
30 Mar 2019
£million
2018
52 weeks to
24 Mar 2018
Restated6
£million
% change
vs. last year
948.0
513.8
(18.4)
(20.4)
(66.6)
(6.9)
(4.7)%
(0.3)%
(3.9)%
611.4
177.2
28.3
(8.9)%
140.1
336.6
(36.3)
1,020.3
580.6
(29.0)
(22.6)
(94.0)
(44.1)
(5.9)%
(5.7)%
(4.8)%
638.8
199.1
28.8
0.6%
152.3
381.5
(40.4)
(7.1)%
(11.5)%
36.6%
9.7%
29.1%
84.4%
(4.3)%
(11.0)%
(1.7)%
(8.0)%
(11.8)%
10.1%
10
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Notes
The Directors believe that alternative performance measures (APMs) assist in providing additional useful information on the performance and position of the Group and across the
period because it is consistent with how business performance is reported to the Board and Operating Board.
APMs are also used to enhance the comparability of information between reporting periods and geographical units (such as like-for-like sales), by adjusting for non-recurring or
uncontrollable factors which affect IFRS measures, to aid the user in understanding the Group’s performance.
Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes and have remained consistent with
prior year, except where expressly stated.
The key APMs that the Group has focused on in the period are as set out in the Glossary.
1 – Total International sales are International retail franchise partner sales to end customers (which are estimated and unaudited) plus International wholesale sales. Worldwide sales
are total International sales plus total UK sales. International stores refers to overseas franchise and joint venture stores.
2 – Adjusted loss before taxation and adjusted loss before taxation and foreign exchange revaluations are stated before the impact of the adjusting items set out in note 6.
3 – UK like-for-like sales are defined as sales from stores that have been trading continuously from the same space for at least a year and includes online sales. International retail
sales are the estimated total retail sales of overseas franchise and joint venture partners to their customers. International like-for-like sales are the estimated franchisee retail sales at
constant currency from stores that have been trading continuously from the same selling space for at least a year and includes online sales on a similar basis.
4 – Net Debt is defined as total borrowings including shareholder loans (note 21) and bank overdraft/cash at bank.
5 – This announcement contains certain forward-looking statements concerning the Group. Although the Board believes its expectations are based on reasonable assumptions,
the matters to which such statements refer may be influenced by factors that could cause actual outcomes and results to be materially different. The forward-looking statements
speak only as at the date of this document and the Group does not undertake any obligation to announce any revisions to such statements, except as required by law or by any
appropriate regulatory authority.
6 – Adjusted items in the prior year have been reclassified on a consistent basis for the treatment of foreign exchange differences on the revaluation of working capital and adjusted
interest costs, and for the discontinued operations of the Early Learning Centre (note 10).
7 – £11.6 million total group adjusted loss2 including discontinued operations before taxation and foreign currency revaluations consists of £20.4 million from continuing operations less
£8.8 million from discontinued operations (note 10).
Mothercare plc annual report and accounts 2019
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KPIs
Measuring our
performance
KPIs
Measuring our performance
The Mothercare KPIs are aimed at measuring our performance against strategy.
(total including continuing and discontinuing operations)
01 Online sales
UK
FY2018/19
FY2017/18
FY2016/17
International
FY2018/19
FY2017/18
FY2016/17
(12.1)%
£152.9m
£174.0m +1.2%
£171.9m +7.8%
£30.3m +13.9%
£26.6m +29.8%
£20.0m +82%
£152.9m
(12.1)%
£30.3m
+13.9%
Actual currency not constant
02 UK store estate invested in
UK
FY2018/19
FY2017/18
FY2016/17
91%
78%
70%
03 Product mix
Growth in branded product mix
91%
-3%
+2%
Flat
-5%
FY2018/19
5
0
-5
Clothing
& footwear
Home & travel
Toys
04 UK gross margin
UK
FY2018/19
FY2017/18
FY2016/17
(195) bps
(216) bps
54 bps
05 Running a lean organisation
Inventory days cover*
FY2018/19
FY2017/18
FY2016/17
59
68
81
06 International growth
Constant currency sales growth
FY2018/19
FY2017/18
FY2016/17
-2.4%
-5.8%
-2.4%
(195) bps
59 days
-2.4%
*Inventory days cover calculation represents the year end net stock at cost value over the annual cost of sales, multiplied by 365. Prior year metrics have been restated to align to
this methodology.
12
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Introduction
Our approach to
Enterprise Risk
Management
Introduction
Our approach to Enterprise Risk Management
Overview
Mothercare Plc is a global business operating in a challenging retail environment, with consumer confidence fragile and changes linked
to Brexit imminent. Mothercare’s Supervisory and Governance Board views Enterprise Risk Management (ERM) as an essential discipline
in achieving the Company’s objectives within this challenging environment. ERM is paramount to our brand values and continually being
embedded into our culture. Our attitude to risk is all-inclusive.
The Supervisory and Governance Board assumes overall responsibility for ERM with special focus on determining the nature and extent
of principal risks it is willing to take to achieve its strategic objectives. The Supervisory and Governance Board monitors and reviews the
effectiveness of internal controls within the Company. It also sets our risk appetite, as required by the UK Corporate Governance Code,
and articulates the acceptable amount of risk within which our Company operates.
The Supervisory and Governance Board annually reviews the Company’s risk management strategy to ensure it aligns with our ongoing
needs. This is especially key during this period of transformation for Mothercare and the considerable changes underway within the retail
market environment.
Risk Appetite
The Supervisory and Governance Board sets Mothercare’s risk appetite, which governs the amount of risk that we deem acceptable
to take in achieving our objectives. Our risk appetite provides direction for the business in making appropriate measured, risk-aware
decisions. Our risk appetite levels are summarised below by type of risk:
Risk Appetite
High Tolerance
Type of Risk
• Strategic risks
• Operational and transformational risks
• Key strategic project risks
• Macro-economic risks
• Geo-political risks
• Health & Safety risks
• Manufacturing risks
• Bribery & slavery risks
• Regulatory and compliance risks
• Brand reputational risks
Medium Tolerance
Low Tolerance
Governance
The Supervisory and Governance Board has overall oversight of ERM for the business, supported by several groups including the Audit &
Risk Committee, Operating Board and Risk Committee (also see page 38 of this annual report):
• the Audit and Risk Committee oversees the effectiveness of robust enterprise risk management and internal control systems and
processes. It is accountable to, and fully supported by, the Supervisory & Governance Board.
• the Operating Board delivers the Global strategy and manages reputational, financial and operational risk. It places risk on the
agenda quarterly to debate our Principal Risks and identifies any movement in risk scores, after management actions and their
effectiveness have been taken into account. Any risk not adequately mitigated by management actions is returned to the Risk
Committee (see below) for further evaluation and allocated to the appropriate senior manager for additional improvement.
• the Risk Committee, comprising company directors and other Senior Leadership Team members across the three divisions (UK, Global
Brand and Business Services) and Plc level, supports the Operating Board in identifying, monitoring and managing emerging risks
across the global Company business operations. The Risk Committee meets monthly and calls upon experts from around the business
to advise on specific matters as required. Emerging risks, and Brexit, GDPR and cyber risks are rolling agenda items. Time is dedicated
to exploring the potential business impacts these risks, mitigating actions and any requirements to escalate the risks to the Operating
Board.
The Supervisory and Governance Board challenges our Operating Board to continually evolve ERM and its governance. The presence
of several Operating Board members on our Risk Committee gives visibility and seniority to the group to discuss key risks and emerging
issues.
Mothercare plc annual report and accounts 2019
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Introduction
Our approach to Enterprise Risk Management continued
The diagram below illustrates Mothercare’s Risk Management structure following the reorganisation during the second half of 2018/19.
Mothercare risk management structure:
ERM direction
and oversight
Risk policy, appetite
and framework
ERM activity
(risk owners)
Risk identification,
evaluation, actioning/
controls, monitoring,
reporting and
ongoing review
Supervisory and Governance Board
Audit and Risk Committee
Operating Board
Risk Committee
UK Division
Global Brand Division
Business Services Division
Enterprise Risk & Internal Audit Team
Mothercare has a dedicated Risk & Internal Audit Team working to embed ERM and assurance activities into the global business. This
team is led by the Head of Risk & Internal Audit with dedicated professionals within the remits of:
o Internal Audit – sitting at the third line of defence, our Internal Audit function provides independent, objective assurance across the
Company, checking the effectiveness of controls in place. Internal Audit has a Plc-wide remit, including auditing our global partners
as well as UK-specific Auditors, who are tasked with leading on key investigations, disrupting global counterfeit goods sales via
online marketplaces and conducting store audits to check compliance to company policy, including regulatory requirements.
o ERM – working to fully embed risk management across our Company, fostering a risk-aware culture and actively working with the
business (via risk workshops and ongoing support) to identify key risks and mitigations which may affect our ability to achieve our
objectives, and developing robust risk reporting.
o Business Continuity and Planning – helping departments prepare suitable plans to effectively respond to any unexpected events,
and performing scenario rehearsals to test robustness of those plans.
Mothercare also has an experienced Incident Management Team supported by a business continuity plan to enable them to react,
adapt and respond quickly to an incident.
2018-19 ERM Activity
The primary focus during the year was on reducing the overall level of our Principal Risks, particularly in light of the transformation of our
business and the continuing evolution of the retail market. These risks were central to Risk Committee discussions and activity during the
year, with mitigating actions closely tracked to ensure their realisation and effectiveness.
Two key working groups continued to support ERM initiatives in 2018/19, given the quantum of change that continues to be involved: a
Brexit Working Group and a GDPR Working Group which have been running since the previous year to facilitate management and
tracking of progress against key actions to meet Brexit and GDPR deadlines, with escalation via the Risk Committee.
o Brexit – has not led to any separate Principal risks but is likely to place a strain on our business that could impact our existing risk
profile. These include: product regulation changes, such as labelling requirements; changes in VAT and new tariffs; and currency
fluctuations and supply chain delays. All of which could have near to medium term operational and financial impacts. The risk of a
shortage of migrant labour is in part mitigated by the outsourcing of our distribution centre to DHL, with whom we have contractual
service level agreements in place. Mothercare has been actively monitoring all business risks linked to Brexit and establishing
mitigations where possible, while also seeking to identify any opportunities that may arise from exiting the European Union.
o GDPR – as an outcome of the GDPR Working Group and Risk Committee discussions, a Data Retention Policy was refreshed to
ensure all data kept by the Company, including customer, personnel, and supplier, is appropriately managed in alignment with the
new rules and that our customer, employee, and third party data is adequately protected.
14
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Our ongoing improvement plans include detailed ‘deep dives’ on each of the Company’s principal risks, which are presented to the
Risk Committee for consideration and any support required. At each of these deep dives, the Risk Committee challenges the nature
and description of the risk for Mothercare, the effectiveness of management actions in reducing risk, and considers whether the risk level
remains acceptable against Mothercare’s risk appetite. Each top risk is covered at least annually.
Separately, risk workshops were conducted across all new business divisions to reflect the changing landscape and risk profile of
Mothercare following its reorganisation. The outputs include refreshed risk registers for each team reflecting their objectives and
challenges to achieving these. The ERM team also provided key support to the Senior Leadership Team in developing priority plans for
the business following the reorganisation, using a risk-based approach.
Principal Risks and Uncertainties
Mothercare has 11 Principal risks, defined as those risks with a High or Very High overall rating after taking into account existing mitigating
controls and their effectiveness. These risks are based on internal and external factors including falling footfall in stores; faltering consumer
confidence; evolving consumer trends and demands; increasing competition; technology risks, including cyber threats and tighter data
regulations; fluctuations in the pound and an uncertain political and economic environment linked to the UK’s impending departure from
the EU by October 2019; and risks relating to Mothercare’s own transformation and the reorganisation during the year.
The Company has set clear objectives aligned to our Vision, Pillars and Priority Plans supporting our corporate strategy. Our principal risks
are considered against this vision.
Enterprise Risk Management Process
Mothercare evaluates risks by determining the severity, the velocity and the probability of all identified risk events. Risks are then
evaluated, appropriate mitigating actions agreed with timelines, and senior management owners assigned. Risks are then continually
monitored and reviewed.
The diagram below explains our key steps. This process ensures a consistent approach to the assessment of risk across the business and
is supported by the Risk and Internal Audit function.
1. Risk identification (existing and emerging risks)
Principal risks are identified through strategic refresh of
objectives and horizon scanning, and department/functional risk
evaluation (top down, bottom up approach), including progress
in reducing risk. After risks are identified and assessed, owners
are assigned and mitigations established.
4. Supervisory and Governance Board review
and sign off (quarterly)
The Supervisory and Governance Board, with
independent assurance from the Audit & Risk
Committee, reviews and signs off Principal risks
(including any new/emerging risks that have
been added) and provides direction for any
escalated risk matters. The Supervisory and
Governance Board also sets the corporate risk
appetite.
ONGOING
Proactive management of risks and regular
risks reviews by functional areas to address
risks, with support provided by Risk &
Internal Audit team.
3. Operating Board review and sign off (quarterly)
The Operating Board reviews the progress of the principal risks
and the outcome of mitigating actions, addresses any escalated
matter, and feeds back to the Risk Committee any actions or
changes required. The Operating Board signs off the assessment
of principal risks after its review.
2. Risk Committee evaluation (monthly)
The Risk Committee meets monthly to debate
the progress of existing principal risks and
effectiveness of actions (or identify new
required actions), via deep dives. Progress in
managing key ongoing risks such as Brexit,
GDPR and Cyber is also discussed. And new
and emerging risks are identified.
Mothercare plc annual report and accounts 2019
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Introduction
Our approach to Enterprise Risk Management continued
Principal Risks – What changed during 2018/19?
Our Principal risks are listed below. We actively monitor these risks to protect, stabilise and grow our Company.
Most of our risks moved sideways during the financial year. Two of our risks – Brand and Reputation; and Personnel and Talent – were
considered to have increased (worsened) due to the significant changes relating to the reorganisation and Company Voluntary
Arrangement (CVA). A detailed assessment of our risks and their movements is detailed in the table below:
Principal Risks 2018-2019
No.
1
Risk description
Impact
Mitigation
Change on
last year
Current retail trading challenges may
impact full price sales and result in
margin squeeze, impacting our ability
to generate cash.
Liquidity and cash management
Current trading challenges does
not deliver cash. Failure to control
cash management may result in
breaches to banking covenants
and forced administration. A lack
of cash impacts our ability to invest
in our six pillars and meet our
strategic intentions.
Volatility in exchange rates could
result in a fluctuations in cost prices
as a result of exposure to US
Dollars on trade purchases.
• Focus on liquidity management.
• Disposal of non-core assets including our head office
building in Watford (sale and leaseback) and ELC.
• Hedging (both via policy and natural hedging) in place
to help minimise any short-term volatility, however there
have been no additional hedging contracts entered
into in the last financial year.
• Focus on cost rationalisation, with tightening of spend
controls and leaner structure following reorganisation,
including closure of unprofitable stores.
• Sourcing activity is now managed via WE Connor, to
support improvement in cost prices and margins, and
thus support our cash position further.
• Cash Committee meets regularly to review and
safeguard the cash position of the Company with
increased scrutiny on spend.
• Store closures completed to optimise cash savings and
recent reorganisation to minimise costs.
• Sale of ELC to TEAL has decreased costs and provided
a cash injection.
• Lower rents are in place following the completion of the
CVA and refinancing.
• Ongoing work with shareholders and franchise
partners around royalty payments and terms.
• Finance departmental risk register in place with
mitigating actions monitored regularly.
2
Brand and Reputation
An inability to manage our Brand
could hinder our ability to increase
customer and market confidence
in our Company, and thus
affect our ability to achieve our
transformation goals.
Whilst a standalone risk ‘reputation’
is also the potential consequence
of each of the risks identified and is
therefore one of our top principal
risks.
Our brand could be impacted by:
• product failures and/or ineffective
management of product incidents
• public scandals relating to our
• Our Global Code of Conduct training is required to be
completed annually by all Mothercare colleagues.
• Targeted streamlining in the number of products we
sell, enabling further strengthening of quality measures
in place.
• Our required high standards are communicated
throughout our supply chain with regular reviews and
grading of 3rd party audits and semi-announced
factory visits.
supply chain
• Responsible Sourcing (RS) audits are completed
• inappropriate behaviours
• data breaches
• health and safety incidents.
annually.
• All Mothercare suppliers and franchise partners are
asked to comply with our RS Handbook – Compliance
Standards.
• The Company participates in the Bangladesh Safety
Accord.
• Significant group investment in product quality
management resource.
• Focus on pre-despatch quality checks.
• Established product recall process managed by the
Group Incident Management team.
• Group trademarks are formally logged in country of
operation.
• Proactive enforcement of Intellectual Property rights.
• New ad campaign to reinforce Mothercare’s position
as a leading retailer for new mums.
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No.
3
Risk description
Impact
Mitigation
Change on
last year
Competition and customer
experience
Our pricing strategy may not
allow us to respond to changing
customer needs and we may not
be competitive against other large
players who can beat our prices
as ‘loss leaders’ in the market.
Failure to provide the right
customer experience and/or
adapt to the changing retail
industry may lead to a loss in
market share and damage our
Brand.
• We are unable to be competitive
against other large players who
can beat prices as ‘loss leaders’ in
the market.
• We may not be able to have
an effective strategy to keep
pace with trends, exclusivity/
differentiation and customer
demands potentially resulting in a
loss of market share and negative
impact on profitability.
• Our marketing mix isn’t as
adaptable as it could be (product,
price, place and promotion).
• We are unable to match customer
habits regarding shopping
convenience.
• We may not provide the right
shopping experience for our
customers.
• Executive objectives to monitor our pricing strategy are
in place.
• Work with suppliers to ensure we can provide the best
price for our product.
• Clear price ranges in place for products in the ‘good’,
‘better’ and ‘best’ categories, with defined value
propositions for each.
• Enhancements to our order fulfilment and delivery
process.
• Investment in our continuing stores and colleagues,
and bolstering of our specialist advice and services, to
provide a unique and specialist shopping experience
to customers.
• Improved customer propositions include credit
finance options with a 3rd party, personal shopping
experiences, online booking of specialist services,
Expectant Parent Events, online parenting groups with
the ‘2am club’ and other activities in our stores.
• Increased promotional activities both online and in
stores.
4
International markets and
franchisee model
A lack of ability to influence
international growth may result in:
• Continued focus on our ‘5 to drive’ markets to grow our
business in key strategic countries and regions.
Inability to influence international
growth, impacted by external
factors and a historical franchisee
model that may not fit with the
Group’s strategic objectives.
• economic downturn and poor
• Improved commercial agreements and disciplines
international sales
continue to be implemented.
• reduced profit and increased
• Identification of different entry points to market.
international debt
• pricing challenges
• Additional monitoring of international revenue has
taken place during the financial year.
• long term profitability
• Relationship management improvements are in place
• 5 to drive fails resulting in a need to
• An increase in internal audits of international partners
revisit international strategy
has taken place during the financial year.
• key international partners pull out
of Mothercare (i.e. Alshaya)
• franchisee partner relationships
deteriorate due to push back
against increasing Mothercare
control and cost model
• declining birth rates in key markets
• political unrest/regional conflict
and uncertainty in international
markets and potential disruption
to supply
• fixing long term historical / legacy
issues could prove costly.
Potential impact on Brand and
reputation (see Risk 2).
The potential for the business to be
consumed with the restructure and
transformation that business as usual
activities and the ability to meet our
strategic objectives are impacted.
There is a potential for a lack of
effort in the organisation post-
reorganisation and that work will
continue to go on as is. This means
inefficiencies may not be cleared
from business as usual activities.
Capacity and capability impacts
could hinder operational objectives.
A potential lack of focus could lead to
transformation scope creep.
5
Transformation strategy and
impact
The Group’s transformation and
restructure does not result in
expected benefits relating to our
operational objectives. The loss
of key talent pre, during and post
restructure could result in reduced
effort and morale, negatively
impacting on our ability to
achieve our strategic objectives.
Redundant colleagues may
leave the business with negative
sentiment about the company. The
new business structure may not
deliver expected benefits or be fit
for purpose.
• Operating Board oversight of our transformation plan.
• The transformation is complete and our new
organisational structure is in place. Tactical projects
are also in place to support, including people plans
to improve talent and succession, and cost reduction/
identification of efficiencies.
• Priority plans have been created and risk rated to
support the new organisational structure and activities
required to sustain it.
Mothercare plc annual report and accounts 2019
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Introduction
Our approach to Enterprise Risk Management continued
No.
6
Risk description
Impact
Mitigation
Change on
last year
Potential failure or disruption of our
supply chain or loss at one of our
warehouses could result in supply of
goods restrictions and an impact on
stock channels to stores/customers.
Potential safety messages on sleep/
travel systems not suitable.
• Strategic review of supply chain complete.
• Partnership with W E Connor.
• Review of our supply chain from a Brexit risk
perspective, by our Brexit Working Group.
• Business continuity plans are being updated across
the Company in alignment with the new structure and
prioritisations being confirmed.
Supply chain and 3rd parties
A supply chain failure of both
inbound and outbound goods
could impact the supply of
products and our ability to trade.
Brexit impacts result in delays to
our supply chain.
Failure to place contracts with new
suppliers impacts our ability to
improve stock channels, sourcing
hubs and achieve logistical
efficiencies.
7
IT Systems
A failure of our IT infrastructure
or dependent legacy IT systems
could result in the loss of our ability
to trade. Any potential attack or
failure of our systems could result
in EPOS, merchandising and
warehousing downtime, affecting
our trading capabilities.
Additionally, a failure of our digital
platform or poor speed/navigation
in the order process could result in
lost trade and impact our market
share and reputation.
A failure of our IT infrastructure or
dependent legacy IT systems could
result in the loss of our ability to
trade. Any potential attack or failure
of our systems could result in EPOS,
merchandising and warehousing
downtime affecting our trading
capabilities.
Additionally, a failure of our digital
platform or poor speed/navigation in
the order process could result in lost
trade and impact our market share
and reputation.
To grow our business, we need
to embrace developments in
technology, however our current
systems hamper our ability to do so.
Additionally, our reliance on legacy
systems results in a need to maintain
knowledge of those systems.
8
9
Product safety
A product safety incident takes
place resulting in damage to our
brand and reputation (refer Risk 2).
Suppliers not adhering to agreed
quality assurance standards.
Potential safety disaster on an H&T
product, Toy product or clothing.
Clear product safety messages on
products.
Real-time impact on reputation via
social media networks.
Political climate and uncertainty
The impact of Brexit on our
business is currently unknown.
Expectations are that there may
be increased costs, inflation, higher
taxes and lower incomes resulting
in a spending squeeze.
• External factors such as trade
deals and agreements may
impact on our import and export
of goods.
• Consumers continue to be more
‘price sensitive’ to changes with
additional Brexit uncertainty.
• Potential for interest rate rises and
economic downturn which may
impact consumer spend.
• Impact on stock market pressures,
resulting in short-termism.
• Continual monitoring of our IT landscape against risk
indicators.
• Additional screening of email traffic and firewalls.
• Security projects in place include vulnerability scanning
upgrades and systems analysis upgrades to allow Big
Data analytics.
• All systems are RAG rated, monitored and actions
are in place to reduce risks, where practical, to an
acceptable level.
• Refreshed policies and procedures in place, including
Cyber Security.
• All major projects and programmes have continual
monitoring against rigorous project management
requirements and have Senior Management oversight.
• Tactical projects are monitored against rigorous project
management requirements.
• A General Data Protection Regulation (GDPR)
implementation plan ensured the changes required to
our IT estate, and updating of Data Retention policy to
align with new regulations.
• Access controls review conducted to ensure
appropriate access to systems around the business.
• 3rd party project in progress to tighten access controls
across the Group.
• Acceptable quality levels are in place with all suppliers
and tested during audits.
• Social media policy in place.
• External communication advisors are in place.
• A Brexit Risk Register is in place, with risks and
opportunities monitored by our Brexit Working Group
monthly.
• Horizon scanning conducted across all areas of risk,
including Brexit.
• Improving our customer experience is a strategic focus
for the Company, with investment being made in all
channels to highlight our specialism in industry.
18
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Risk description
Impact
Mitigation
Change on
last year
No.
10
Regulatory and Legal
• Increasing regulatory pressure
A failure to comply with increasing
regulatory requirements could
result in damage to our Brand and
reputation (refer Risk 2), fines or
impact our ability to trade.
(GDPR, EUTR) requires additional
reporting, costs and takes focus
off trade.
• Minimum wage increases impacts
on costs.
11
Personnel and talent
Failure to attract, retain, motivate
and progress our top talent could
lead to high attrition rates and
an inability to meet our strategic
intentions.
• Ability to ensure we meet
regulatory requirements both in
capability and system ability.
• Security breach of customer
database could result in privacy
issues (fines etc) and a lack of
customer trust.
• Attraction and retention of top
talent is challenging in the current
climate.
• Our restructure impacts may result
in the loss of talent.
• Benefits and incentive plans may
not deliver employee needs
resulting in high attrition rates.
• Potential for executive burn out
due to transformation programme,
financing activity and challenging
trading conditions.
• Our Global Code of Conduct training is mandatory for
all colleagues and required to be completed annually.
• Anti-Bribery and Corruption training has been rolled
out to all colleagues and additional training given to
those in higher risk areas.
• Audits are carried out to check compliance with
legislation, such as Health and Safety matters.
Non-compliance is investigated and would result in
disciplinary action.
• Significant investment in stores to train more of our
Customer Service Advisors to be true specialists.
• Investment in our HR team to include key areas of
growth for colleagues, including talent retention,
training and development and succession planning.
• Re-invigoration of Company benefits.
• Improved recruitment processes are in place.
• Standardised contracts are in place.
• Industry benchmarking took place this financial year
to check that our remuneration is appropriate for our
Company.
• Performance-related bonus pay is in place for 2020 and
open to all employees.
Mothercare plc annual report and accounts 2019
19
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Financial review
Financial review
Glyn Hughes
Chief Financial Officer
RESULTS SUMMARY
Group adjusted loss before taxation was £18.4 million for the
53 weeks to 30 March 2019 (2018: £29.0 million loss2). All results are
presented on a continuing operations basis unless otherwise
stated.
The Group recorded a pre-tax loss of £66.6 million (2018: £94.0 million
loss2), which included adjusted items of £48.2 million (2018:
£65.0 million2).
During the course of the year, the Directors introduced a new
profit measure of Group adjusted loss before taxation and foreign
currency revaluations3 (see note 2), to remove foreign exchange
volatility from the underlying performance of the business. Group
adjusted loss before taxation and foreign currency revaluations3
was £20.4 million for the 53 weeks to 30 March 2019 (2018: £22.6 million
loss2).
Adjusted items are analysed below and include costs relating
to announced activity on store closures following the Company
Voluntary Arrangements (“CVAs”) approved on 1 June 2018, costs
associated with the refinancing review and equity raise, and further
restructuring of the business.
Income Statement – on a continuing operations basis
Revenue
Adjusted loss before interest and taxation
Adjusted net finance costs
Adjusted loss before taxation
Adjusted loss before taxation and
foreign currency revaluations
Foreign currency revaluations1 (note 2)
Adjusted loss before taxation
Adjusted costs
Non-cash foreign currency adjustments
Amortisation of intangible assets
Loss before taxation1
(Loss) / profit from discontinued operations
Total loss before taxation
EPS – basic
Adjusted EPS – basic
53 weeks to
30 March
2019
£million
52 weeks to
24 March
2018
Restated2
£million
513.8
(13.1)
(5.3)
(18.4)
(20.4)
2.0
(18.4)
(47.3)
(0.9)
–
(66.6)
(20.7)
(87.3)
580.6
(25.5)
(3.5)
(29.0)
(22.6)
(6.4)
(29.0)
(66.7)
2.1
(0.4)
(94.0)
21.2
(72.8)
(23.8) p
(7.1) p
(54.8) p
(16.3) p
1.
In the prior year the foreign exchange differences on the revaluations of working
capital were included in adjusted items. These have now been included in loss
before adjusted items in line with industry best practice.
20
Mothercare plc annual report and accounts 2019
2.
3.
The prior year has been restated for the reclassification of ELC discontinued
operations (note 10).
Adjusted results are consistent with how the business performance is measured
internally. Refer to adjusted items table in note 6 for further details.
See glossary for definitions
Results by segment – on a continuing operations basis
The primary segments of Mothercare plc are the International
business and the UK business.
£ million
Revenue
International
UK
Total
53 weeks
ended
30 March
2019
£ million
52 weeks
ended
24 March
2018
Restated*
£ million
177.2
336.6
513.8
199.1
381.5
580.6
Adjusted (loss)/profit before taxation and
foreign currency revaluations
International
UK
Corporate
Adjusted loss from operations before
interest and foreign currency revaluations
Net finance costs
Adjusted loss before taxation and foreign
currency revaluations
Statutory loss before taxation1
Loss before taxation from discontinued
operations
Total loss before taxation
28.3
(36.3)
(7.1)
(15.1)
(5.3)
28.8
(40.4)
(7.5)
(19.1)
(3.5)
(20.4)
(22.6)
(66.6)
(94.0)
(20.7)
(87.3)
21.2
(72.8)
* Adjusted items have been restated on a consistent basis for the treatment of foreign
exchange differences on the revaluation of working capital (2018: loss £6.4 million – see
notes 2 and 6)
1.
A breakdown of statutory loss by segment is shown in note 5 - Segmental
information.
See glossary for definitions
HEAD_0 1st line continued2nd line continued
Segmental results
International retail sales in constant currency were down 0.3% with challenging economic conditions in some markets impacting
performance. Growth across our key markets in Russia, China and Indonesia was offset by underperformance in the Middle East, along
with the short-term sales impact from the transition to a new partner in India. With the addition of unfavourable foreign exchange rate
movements, the International business achieved an adjusted profit of £28.3 million, a decrease of 2.1% year-on-year. Retail space from
continuing operations at the end of the year was 2.6m sq ft from 1,010 stores (2018: 2.5 m sq ft from 962 stores).
UK like-for-like sales declined by 8.9% year-on-year, total UK sales declined 11.8%, with Retail stores sales down by 15.8% and Online sales
down by 8.0%. The UK business has been impacted by declining footfall and online sessions driven by macroeconomic factors, as well as
challenges around supplier restrictions on stock availability and the impact on the brand from negative coverage of the refinancing and
restructuring process announced in May 2018. Store closures driven by the CVAs resulted in additional discounting to clear stock, which has
also driven business away from the online full price sales as volumes shifted to closing stores.
UK adjusted losses before taxation and foreign currency revaluations have decreased year-on-year by £4.1 million to £36.3 million (2018: loss
of £40.4 million), due to the decline in sales and margin being offset by cost savings throughout the business as a result of store closures
and central costs savings following restructures over the last 2 years.
Corporate expenses represent Board and company secretarial costs and other head office costs including audit, professional fees,
insurance and head office property costs. Corporate expenses have decreased year-on-year after savings achieved as part of the
restructuring activity.
On a continuing operations basis:
£ million
Reported sales
Worldwide sales*
53 weeks ended
30 March 2019
52 weeks ended
24 March 2018
Restated**
53 weeks ended
30 March 2019
52 weeks ended
24 March 2018
Restated**
UK retail sales
UK wholesale sales
Total UK sales
International retail sales
International wholesale sales
Total International sales
Group sales/Group worldwide sales
306.3
30.3
336.6
170.1
7.1
177.2
513.8
349.3
32.2
381.5
191.3
7.8
199.1
580.6
306.3
30.3
336.6
604.3
7.1
611.4
948.0
* International retail sales are estimated and reflect the international franchise partner sales.
** The prior year has been restated for the reclassification of ELC discontinued operations (note 10).
Analysis of worldwide sales movement
On a continuing operations basis
£ million – Worldwide sales*
Sales for 52 weeks ended 24 March 2018
Currency impact
Sales in constant currency for 52 weeks ended 24 March 2018
Impact of 53rd trading week
Decrease in International like-for-like sales
Increase in International space
Decrease in UK like-for-like sales
Decrease in UK space
Worldwide sales for 53 weeks ended 30 March 2019
Group reported sales for 53 weeks ended 30 March 2019
* See glossary for definitions
349.3
32.2
381.5
631.0
7.8
638.8
1,020.3
1,020.3
(22.9)
997.4
16.7
(26.3)
9.7
(28.6)
(20.9)
948.0
513.8
Worldwide sales in 2019 were lower by £66.1 million on a constant currency basis when excluding the impact of week 53, primarily as a
result of decreased UK and International like-for-like sales and decreased UK space, offset by the addition of international space.
International worldwide retail sales have decreased by £16.6 million on a constant currency basis when excluding the impact of week 53,
driven by a decline in footfall resulting in lower like-for-like sales, offset by the addition of international space.
Mothercare plc annual report and accounts 2019
21
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Financial review
continued
UK retail sales have fallen by £49.5 million excluding the impact of week 53, mainly due to a decrease in UK space as a result of planned
store closures and a decline in footfall in a challenging retail environment. In addition there have been challenges around supplier
restrictions on stock availability and the impact on the brand from negative coverage of the refinancing and restructuring process
announced in May 2018.
Analysis of profit movement
On a continuing operations basis
£ million – adjusted (loss)/ profit before tax
Adjusted loss for 52 weeks ended 24 March 2018
Currency impact
Constant currency adjusted loss for 52 weeks ended 24 March 2018
Increase in International volumes
UK closures of loss making stores
UK sales and gross margin decline
Decrease in costs
Depreciation
Adjusted loss before taxation for 53 weeks ended 30 March 2019
Adjusted profit before taxation from discontinued operations
Total adjusted loss before taxation
See glossary for definitions
(29.0)
(1.4)
(30.4)
3.8
4.9
(8.1)
9.9
1.5
(18.4)
9.8
(8.6)
On a constant currency basis (i.e. excluding the currency impact), adjusted loss before taxation decreased to £18.4 million from a loss of
£30.4 million last year. This is driven by lower UK sales and margin, offset by reduced costs from store closures and rent savings.
Foreign exchange
The main exchange rates used to translate the consolidated income statement and balance sheet are set out below:
Average:
Euro
Russian rouble
Chinese Renminbi
Kuwaiti dinar
Saudi riyal
Emirati dirham
Indonesian rupiah
Indian rupee
Turkish lira
Closing:
Euro
Russian rouble
Chinese Renminbi
Kuwaiti dinar
Saudi riyal
Emirati dirham
Indonesian rupiah
Indian rupee
Turkish lira
22
Mothercare plc annual report and accounts 2019
53 weeks ended
30 March 2019
52 weeks ended
24 March 2018
1.1
83.6
8.7
0.4
5.1
4.7
18,587
89.1
6.6
1.2
85.4
8.9
0.4
5.0
4.9
18,709
91.4
7.6
1.1
76.3
8.8
0.4
4.9
4.9
17,731
85.1
4.8
1.1
80.3
8.8
0.4
5.2
5.1
19,179
90.7
5.5
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued The principal currencies that impact the translation of International sales are shown below. The net effect of currency translation caused
worldwide sales and adjusted loss to decrease by £22.9 million and £1.4 million respectively as shown below:
Euro
Russian rouble
Chinese Renminbi
Kuwaiti dinar
Saudi riyal
Emirati dirham
Indonesian rupiah
India rupee
Turkish lira
Other currencies
See glossary for definitions
Discontinued operations
Worldwide sales
£ million
Adjusted
Profit/(loss)
£ million
0.2
(13.5)
(0.2)
–
(0.2)
0.2
(1.6)
(2.0)
(5.4)
(0.4)
(22.9)
–
(0.7)
–
–
–
–
(0.3)
(0.1)
–
(0.3)
(1.4)
On 12 March 2019, the Group entered into an agreement for the sale of the Early Learning Centre (ELC) trade and specified assets. This
contract completed on 22 March 2019, and the subsequent Curated Wholesale Agreement with TEAL Brands Limited (“TEAL”) took effect
from 13 May 2019.
The loss from discontinued operations for the period is £25.9 million (2018: £16.9 million profit).
The total statutory loss after tax for the Group is £93.4 million (2018: £76.1 million).
Net finance cost
Financing represents interest receivable on bank deposits, less amounts capitalised for borrowing costs associated with the build of
qualifying assets, interest payable on borrowing facilities, the amortisation of costs relating to bank facility fees and the net interest charge
on the liabilities/assets of the pension scheme. Year-on-year finance costs have increased due to the shareholder loans.
£2.7 million of finance costs are included in adjusted items. £1.7 million from the movement on the embedded derivative as part of the
shareholder loan, £0.4 million charge for the previously unamortised facility fee and £0.6 million in relation to the unwind of the discount on
the onerous lease provision.
Taxation
The tax charge comprises corporation taxes incurred and a deferred tax charge. The total tax charge from continuing operations was
£0.9 million (2018: credit of £1.0 million) – (see note 9).
The total tax charge from discontinued operations was £5.2 million (including an £0.4 million credit in adjusted costs) (2018: £4.3 million) –
(see note 10).
Adjusted items
Adjusted loss before tax for the 53 weeks ending 30 March 2019 excludes the following adjusted items (see note 6):
• Property related costs of £31.8 million, including impairment and onerous lease charges of £43.2 million (2018: £49.8 million), a £2.5 million
(2018: £5.8 million charge) credit on store closure costs and the profit on the sale of the Head Office of £8.9 million (2018: £nil);
• Cost associated with restructuring, redundancies and refinancing of £12.8 million (2018: £7.0 million);
• Costs included in finance costs of £2.7 million (2018: £0.2 million);
• Non-cash foreign currency adjustments relating to the revaluation of outstanding forward contracts which have not yet been matched
to the purchase of stock of £0.9 million (2018: £2.1 million credit); and
• Adjusted costs of £30.5 million (2018: £1.0 million) relating to discontinued operations (note 10).
Mothercare plc annual report and accounts 2019
23
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Financial review
continued
Earnings per share and dividend
Basic adjusted losses per share from continuing operations were 7.1 pence (2018: 16.3 pence). Continuing statutory losses per share were
23.8 pence (2018: 54.8 pence).
Total basic adjusted losses per share were 5.6 pence (2018: 5.8 pence). Total statutory losses per share were 33.1 pence (2018: 44.8 pence).
For continuing operations
Loss for basic and diluted earnings per share
Adjusted items (note 6)
Tax effect of adjusted items
Adjusted losses for continuing operations
For continuing operations
Basic losses per share
Diluted losses per share
Basic adjusted losses per share
Diluted adjusted losses per share
For total continuing and discontinued operations
Loss for basic and diluted earnings per share
Adjusted items (note 6)
Tax effect of adjusted items
Adjusted losses for continuing and discontinued operations
For total continuing and discontinued operations
Basic losses per share
Diluted losses per share
Basic adjusted losses per share
Diluted adjusted losses per share
* The prior year has been restated for the reclassification of ELC discontinued operations (note 10).
53 weeks ended
30 March 2019
£ million
52 weeks ended
24 March 2018
Restated*
£ million
(67.5)
48.2
(0.9)
(20.2)
pence
(23.8)
(23.8)
(7.1)
(7.1)
(93.0)
65.0
0.3
(27.7)
pence
Restated*
(54.8)
(54.8)
(16.3)
(16.3)
£ million
£ million
(93.4)
78.7
(1.3)
(16.0)
pence
(33.1)
(33.1)
(5.6)
(5.6)
(76.1)
66.0
0.3
(9.8)
pence
Restated*
(44.8)
(44.8)
(5.8)
(5.8)
The Board has concluded that given the refinancing of the business, the Company will not pay a final dividend for the period. The total
dividend for the year is nil pence per share (2018: nil pence per share).
24
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued 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
Running costs
Past service costs in respect of GMP equalisation (see note 6)
Past service credit in respect of PIE (see note 6)
Net interest on liabilities / return on assets
Net charge
Cash funding
Regular contributions
Additional contributions
Deficit contributions
Total cash funding
Balance sheet**
Fair value of schemes’ assets
Present value of defined benefit obligations
Net liability
*Forecast
52 weeks ending
28 March 2020*
53 weeks ended
30 March 2019
52 weeks ended
24 March 2018
(3.5)
–
–
(0.5)
(4.0)
(1.6)
(2.0)
(11.2)
(14.8)
n/a
n/a
n/a
(3.3)
(0.6)
1.6
(0.9)
(3.2)
(2.2)
(6.9)
(5.3)
(14.4)
363.7
(388.6)
(24.9)
(3.4)
–
–
(2.0)
(5.4)
(2.6)
–
(9.2)
(11.8)
351.5
(389.2)
(37.7)
**The forecast fair value of schemes’ assets and present value of defined benefit obligations is dependent upon the movement in external market factors, which have not been
forecast by the Group for 2020 and therefore have not been disclosed.
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:
Discount rate
Inflation – RPI
Inflation – CPI
1 Impact on net liability.
2019
2.6%
3.2%
2.1%
2018
2.7%
3.1%
2.0%
2019
Sensitivity
+/- 0.1%
+/- 0.1%
+/- 0.1%
2019
Sensitivity1
£ million
-7.5 /+7.7
+5.1 /-7.3
+3.1 /-2.9
Mothercare plc annual report and accounts 2019
25
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Financial review
continued
Net Debt and Cash flow
Net debt of £6.9 million is significantly reduced (by £37.2 million) since the prior year, mainly as a result of the equity raise of £29.6 million (net
of fees), the sale of the Head office (£14.5 million net of fees), and the sale of the ELC business (£6.0 million).
Adjusted free cash flow (as defined in note 2) was an inflow of £33.4 million with cash generated from operations of £41.2 million (2018:
£15.9 million). Statutory net cash inflow from operating activities (note 28) was £2.1 million compared with an outflow of £29.3 million in the
prior year, reflecting improvements in working capital.
Net capital expenditure was markedly lower at £3.3 million (2018: £21.7 million), due to proceeds received on the sale of the Head Office in
December 2018.
The inflow from working capital of £37.0 million (2018: outflow of £2.6 million), reflects lower inventory driven by store closures and tighter
buying, and a reduction in receivables from International franchise partners.
Adjusted loss from operations before interest and share-based payments
Depreciation and amortisation
Retirement benefit schemes
Change in working capital
Other movements1
Discontinued operations
Adjusted cash generated from operations
Capital expenditure
Interest and tax paid
Adjusted free cashflow
Adjusted items1
Free cashflow
(Repayment)/drawdown on facility
Payment of facility fee
Issue of share capital(net of expenses)
Shareholder loan
Exchange differences
(Overdraft)/cash and cash equivalents at beginning of period
Cash at bank/(overdraft) at end of period
Borrowings – due to banks
Borrowings – Shareholder loans
Statutory net debt at end of period
See glossary for definitions
1 Other movements mainly comprise utilisations of provisions in the period including onerous lease and store closure provisions.
53 weeks ended 30
March 2019
£ million
52 weeks ended
24 March 2018
£ million
(13.9)
20.3
(12.2)
37.0
4.1
5.9
41.2
(3.3)
(4.5)
33.4
(27.8)
5.6
(25.5)
(0.7)
29.6
8.0
0.9
(1.6)
16.3
(17.0)
(6.2)
(6.9)
(25.6)
22.1
(8.6)
(2.6)
(1.5)
32.1
15.9
(21.7)
(3.4)
(9.2)
(15.5)
(24.7)
27.5
(0.6)
–
–
(2.9)
(0.9)
(1.6)
(42.5)
–
(44.1)
26
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Balance sheet
Total equity at 30 March 2019 was a deficit of £49.4 million, a reduction of £54.0 million year-on-year, driven predominantly by the losses in
the year of £93.4 million, partially offset by a decrease in the defined benefit pension obligation (net of tax) of £12.8 million, and the capital
raise of £29.6 million (£32.5 million less £2.9 million of advisor fees).
The net liability position is driven by impairments of software and UK store assets and therefore by non-cash movements. The Group’s
working capital position is closely monitored and forecasts demonstrate the Group is able to meet its debts as they fall due. The net
current liability position includes the unwind of certain non-cash provisions.
In March 2019 the Group entered into an agreement for the sale of the Early Learning Centre (ELC) trade and specified assets –
consequently, the remaining intangible assets and goodwill arising from the acquisition of the Early Learning Centre have been written off.
Goodwill and other intangibles
Property, plant and equipment
Retirement benefit obligations (net of tax)
Net borrowings
Derivative financial instruments
Other net liabilities
Net (liabilities) / assets
Share capital and premium
Reserves
Total equity
Going concern
30 March 2019
£ million
24 March 2018
£ million
16.3
27.7
(24.9)
(6.9)
(3.3)
(58.3)
(49.4)
176.0
(225.4)
(49.4)
66.4
55.0
(37.7)
(44.1)
(9.9)
(25.1)
4.6
146.4
(141.8)
4.6
The Group’s business activities and the factors likely to affect its future development are set out in the principal risks and uncertainties
section of these financial statements. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are set out
in the financial review.
As at 30 March 2019 the Group had a net debt of £6.9 million (2018: £44.1 million) and was in compliance with covenant requirements.
Current net debt as at 17 May 2019 amounts to £15.0 million, including a £13 million drawdown on the Revolving Credit Facility (“RCF”). The
cash outflow since year end reflects the seasonal working capital cycle and timing of orders placed with our trade suppliers for the AW19
season.
At the start of the financial year, the Group had successfully completed a refinancing with the support of its two Banks, HSBC Plc and
Barclays Bank Plc. At this stage the Group had access to a RCF of £67.5 million, which included an uncommitted overdraft facility of
£5.0 million, expiring in December 2020.
In the financial year the Group realised cash from a number of investments, each of which was used to reduce the RCF facility. In addition,
there was a contractual £17.5 million stepdown in facility limit, including the removal of the overdraft facility of £5.0m, in November 2018. At
the same time, the Group agreed with the banks to soften its covenant targets to December 2019.
On 14 December 2018, the Group completed the sale and leaseback of its UK head office, with net proceeds of £14.5 million.
On 12 March 2019, the Group agreed to sell Early Learning Centre to The Entertainer for £11.5 million. The first instalment of £6.0 million
was received on 22 March 2019, with a further instalment of £5.5 million received on 15 May 2019. Under the terms of the signed Curated
Wholesale Agreement which governs the terms of future trading, a further £2.0 million is expected to be received over the next two years
through an earn-out commission, taking the total consideration for the deal to £13.5 million. In addition, the proceeds from selling excess
Early Learning Centre stock will be applied against the RCF, with the limit stepping-down by £2.0 million increments in June, July and
August.
On 25 April 2019, the Group closed the stores in Ayr and Paisley, leading to proceeds of £0.5 million.
As a result of the above, by the end of August 2019, the RCF will be £18.0 million.
The Group also has access to an uncommitted debtor backed facility of up to £10.0 million (but not exceeding the total debt outstanding)
from one of the Company’s trade partners, expiring in October 2019.
The consolidated financial information in our full year accounts has been prepared on a going concern basis. When considering the
going concern assumption, the Directors of the Group have reviewed a number of factors, including the Group’s trading results, its
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Financial review
continued
continued access to sufficient borrowing facilities and its ability to continue to operate within its financial covenants against the Group’s
latest forecasts and projections, comprising:
• A Base Case forecast; and
• A Reasonable Worst Case forecast (“RWC”), which applies sensitivities against the Base Case for reasonably possible adverse
variations in performance, reflecting the ongoing volatility in UK and International trading performance.
The RWC scenario assumes the following key sensitivities:
• Significant further decline in UK sales, beyond that already seen in 2019, following a marked downturn in consumer confidence linked to
uncertainty caused by the delay to BREXIT, the assumed rate of decline for 2020 is worse than that experienced in any year in the UK
over the last five years.
• Following the decline in underlying UK margin rate in 2019, margin is assumed to be broadly flat in 2020 (after normalising for the impact
of the store closure programme), reflecting the continued margin investment necessary to stimulate demand.
• International to experience a continuation of external macro-economic and currency pressures across key markets culminating in
moderate decline in like-for-like retail sales.
However, if the risk and sensitivities applied in our RWC forecast, or a more significant and prolonged decline in trading performance
were to materialise, beyond that seen in 2019, and the Group were not able to execute further cost or cash management programmes
the Group would breach its fixed charge covenant on its existing banking facilities and at certain points of the working capital cycle
have insufficient headroom against existing facility limits. If this scenario were to crystallise the Group would need to renegotiate with its
relationship banks in order to secure additional funding and a reset of covenants. Therefore, we have concluded that, under the RWC,
there is a material uncertainty that casts significant doubt that the Group will be able to operate as a going concern.
Notwithstanding this material uncertainty, the Board’s confidence in the Group’s Base Case forecast, which indicates the Group will
operate within the terms of its committed borrowing facilities and covenants for the foreseeable future, and the Group’s proven cash
management capability supports our preparation of the financial statements on a going concern basis.
Viability Statement
In accordance with provision C.2.2 of the 2016 revision of the Code, the Directors have assessed the prospects and viability of the company
and its ability to meet liabilities as they fall due over the medium term. The directors concluded that a period to the end of March 2022 is a
suitable time period for their review for the following reasons;
• This period aligns with our medium term forecasting cycle
• Performance is significantly impacted by both UK and International economic conditions which are increasingly difficult to predict
beyond this period
The assessment was made by considering the principal risks facing the Group, and stress testing the strategic plan to model the impact
of a combination of these risks occurring together to drive sustained pressure on the business over the three year period to March 2022.
These projections were then reviewed in the context of the available funding. The bank revolving credit facility is due to expire in
December 2020 and it is assumed that the Group will be able to secure a similar level of funding at this point if required.
The scenario assumed the following key assumptions:
• UK sales decline significantly in year one, beyond that already seen in 2019, following a marked downturn in consumer confidence
linked to uncertainty caused by the delay to BREXIT. The assumed rate of decline for 2020 is worse than that experienced in any year in
the UK over the last five years. Further decline is forecast in year two followed by marginal recovery in the final year of the review. The
estimated annual cash impact of +/-1% change in sales growth is £0.9 million.
• Following the decline in underlying UK margin rate in 2019, margin is assumed to be broadly flat in 2020 (after normalising for the impact
of the store closure programme), reflecting the continued margin investment necessary to stimulate demand. Marginal recovery is
assumed in year two and three. The estimated annual cash impact of +/- 100bps change in margin rate is £2.5 million.
• International to experience a continuation of external macro-economic and currency pressures across key markets culminating in
moderate decline in like-for-like retail sales in all three years of the review period. The estimated annual cash impact of +/-1% change in
International like-for-like retail sales is £0.2 million.
• Potential FX volatility, primarily in respect of US Dollars as a result of hedges expiring is not reflected in our forecast. There is a natural
hedge in place between the income we receive from franchise partners invoiced in US Dollars and the purchases from our trade
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Mothercare plc annual report and accounts 2019
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£11 million resulting from the net exposure to purchases in US Dollars, whilst a 10% strengthening of sterling would result in £10 million
annualised saving.
In the above scenario, the profitability and liquidity of the business would be significantly impacted and management would seek to
take significant mitigating actions, such as an immediate and material reduction in capital spend and costs. In addition in this scenario,
covenants and headroom would be breached and the Group would require additional short term support from its relationship banks
in order to retain sufficient cash available for the business to remain liquid over the period reviewed. Notwithstanding the above and
the material uncertainty as outlined in the Going Concern Statement, the directors confirm they have a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they fall due for the next three years. It is recognised that such
future assessments are subject to a level of uncertainty that increases with time and, therefore, future outcomes cannot be guaranteed or
predicted with certainty.
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
34% of Group sales (2018: 34%). Total International worldwide sales in the 53 week period represent approximately 64% of Group
worldwide sales (2018: 62%). The Group therefore has some currency exposure on these sales, but they are used to offset or hedge in part
the Group’s US dollar denominated product purchases. The Group policy is that where feasible, all material exposures are hedged by
using forward currency contracts.
Interest rate risk
The principal interest rate risk of the Group arises in respect of the drawdown of the Revolving Credit Facility (“RCF”). This facility is at a
fixed rate plus LIBOR, and exposes the Group to cash flow interest rate risk. The interest exposure is monitored by management but due to
low interest rate levels during the period the risk is believed to be minimal and no interest rate hedging has been undertaken.
At 30 March 2019, Group has drawn down £17.0 million on the RCF, which attracts an interest rate of 4.25% above LIBOR, and exposes the
Group to cashflow interest rate risk. The interest exposure is monitored by management but due to low interest rate levels during the
period the risk is believed to be minimal and no interest rate hedging has been undertaken.
The shareholder loans (note 21) raised in the period attract a monthly compound interest rate of 0.83%. These loan agreements contain
an option to convert to equity which is treated as an embedded derivative and fair valued. This fair value is calculated using the Black
Scholes model and is therefore sensitive to the relevant inputs, particularly share price.
Credit risk
The Group has exposure to credit risk inherent in its trade receivables. The Group has no significant concentration of credit risk. The Group
operates effective credit control procedures in order to minimise exposure to overdue debts. Before accepting any new trade 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. IFRS 9 ‘Financial Instruments’ has been applied retrospectively as at 25 March 2018 by adjusting the
opening balance sheet at that date. Receivables balances are held net of a provision calculated using a risk matrix, taking micro and
macro-economic factors into consideration as detailed in note 2.
Shareholders’ funds
Shareholders’ funds amount to a deficit of £49.4 million, a reduction of £54.0 million in the 53 week period to 30 March 2019. This was driven
predominantly by the losses in the year of £ 93.4 million, partly offset by a decrease in the net defined benefit pension obligation of
£12.8 million and the capital raise of £32.5 million (£29.6 million net of expenses).
Mothercare plc annual report and accounts 2019
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Corporate
Responsibility
Corporate Responsibility
Performance Update
Highlights
• In 2019, the Mothercare Group:
• Continued to drive the CR2020 strategy across the three areas of products, environments and communities;
• Progress diversity and inclusion with the creation of a new policy and initiatives such as the adoption of informal flexible working
• Developed Cotton and Timber policies to support the delivery of the targets for responsibly sourced raw materials
• Continued to reduce total CO2e emissions through buildings and transport
• Had 52% of senior management positions (below Board level) filled by women
Our approach to Corporate Responsibility
As a responsible retailer, our social and environmental commitments sit alongside our vision to be the leading global specialist for parents
and young children. We are committed to our Corporate Responsibility (CR) programme and our customers and other stakeholders trust
us to act with integrity to do the right thing, in the right way.
This report provides a summary of our performance over the last twelve months. We have structured this update into our three areas of
focus and we have included an overview of our CR2020 strategy and supporting governance.
Our CR2020 strategy
Mothercare’s vision is to be the leading global specialist for parents and young children. Our role is to “unite mums (and dads) to take on
parenting together”. Our CR2020 ambition to “unite with mums and dads to create a better world for the future of our children” has been
developed to be consistent with and supportive of our vision.
As a global retailer the impacts of our business are diverse. Products are produced, transported, sold and then used and disposed of by
our customers. To focus our activity on the material impacts and opportunities, we structure our CR2020 programme into three areas:
1.
Products: addressing the social and environmental impacts of making and using our products;
2.
Environment: making our operations greener; and
3. Communities: strengthening our ties with the communities in which we work and investing in our people.
We recognise that the United Nations Sustainable Development Goals (SDGs) are increasingly providing a framework for businesses to
design and measure their corporate responsibility and sustainability strategies. We include the goals where we believe that our CR2020
strategy can achieve the greatest impact in our performance against targets sections.
During 2020 we will be updating our CR2020 strategy and will review the SDGs in more detail to help us identify where we can make the
most material impact.
CR2020 Governance structure
The restructure of the Mothercare business during 2019 has created two roles to develop and implement the CR strategy, they replace the
previous Global Head of CR. The Responsible Business Senior Manager will develop the overall strategic direction and monitor progress
against our targets. The Responsible Sourcing Manager specifically focusses on the product area of our strategy. These changes came
into effect from January 2019.
Plc board
Progress against our CR2020 vision and strategy is reported at least annually to the plc Board via the Audit and Risk Committee.
CR2020 Steering Committee
The steering committee was established in 2017 to measure progress against this strategy. It is made up of key members of the Senior
Leadership Team and Operating Board.
CR team
The restructure of the Mothercare business during 2018 resulted in the removal of the small team of responsible sourcing professionals,
based in China, India and Bangladesh. This work will now be led by the UK based Responsible Souring Manager in partnership with our
suppliers, NGOs, other retailers and advisors.
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Mothercare plc annual report and accounts 2019
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CR2020 Performance Update
1.
Products
The biggest impact that Mothercare makes is through the products that we sell, from production right through to the way that products
are used and disposed of. Every year we sell thousands of different items to our customers and our supply chain, like other retailers, is
diverse and long. We acknowledge the material risks and opportunities in our supply chain and aim to address these proactively. The
update on Products is separated into three areas:
A. Responsible Sourcing
B. Environmental impacts of production
C. Raw Material Sustainability
A. Responsible Sourcing
For Mothercare Group, Responsible Sourcing means partnering with suppliers that:
• provide decent, safe and fair working conditions for their employees;
• treat employees with dignity and respect;
• reduce the environmental impacts of their operations; and
• demonstrate a strong commitment to business ethics.
Our Approach
We source from approximately 500 factories and the top five countries; China, India, Bangladesh, Turkey and the UK, account for 88% of
our production sites.
We are members of the Ethical Trading Initiative (ETI) and our Code of Practice is based on the ETI’s Base Code, which outlines the labour
standards expected at factories.
A single Responsible Sourcing Handbook, launched in February 2017 and updated in April 2019, is part of our supplier terms and
conditions. It is sent to all suppliers and available on our website at www.mothercareplc.com. The handbook explains in detail our
requirements and policies for Responsible Resourcing and includes all relevant policies, for example:
• Supplier Code of Practice;
• Child Labour Policy;
• Sub Contracting and Sub Supplier policy;
• Home worker policy;
• Migrant worker policy;
Modern Slavery Act 2015
Much of our work in Responsible Sourcing is particularly relevant to the UK Government’s Modern Slavery Act 2015, which applies to
Mothercare. We believe the new law is providing the opportunity for progressive organisations to share the work they are doing and to
encourage more action on this serious topic. In line with the law, we have reported our actions under the Modern Slavery Act 2015 on our
website at www .mothercareplc.com. Our third statement covering 2018/19 will be published in July 2019.
3rd Party Audits
Before production is approved and annually thereafter, all Mothercare and exclusive branded factories must provide an independent
factory ethical audit from a shortlist of providers, to demonstrate that they comply with our Code of Practice. This year we reviewed over
500 independent audits of factories. This review and grading has previously been carried out by the internal Responsible Sourcing teams.
From February 2019, Verisio were appointed to manage this important element of our Responsible Sourcing due diligence. The audits are
reviewed and depending on the findings a corrective action plan may be issued. Factories are required to close the actions identified in
the corrective action plan.
Additional factory assessments
In 2019 our internal RS team carried out 109 factory assessments across in China, India and Bangladesh. This is a planned and welcomed
reduction on the 175 assessments carried out in 2018 as we consolidate the number of suppliers that we have and seek to move beyond
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Corporate Responsibility
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audits to develop a more strategic approach. Going forward this work will be managed by the Responsible Sourcing manager and
conducted by independent consultants and advisors using a risk-based approach .
Collaboration with Stakeholders
In addition to our own work, we believe that dialogue and collaboration with stakeholders such as other brands and retailers, investors,
non-governmental organisations (NGOs) and government and industry bodies, are the most effective ways to influence long-lasting
improvements. Concerns identified during factory audits are often industry-wide and cannot be resolved by individual retailers. In
order to address this, we continue to be members of the Ethical Trading Initiative (ETI). We have continued to work with a wide group of
stakeholders and examples of some of the key initiatives can be found on our corporate website www .mothercareplc.com.
B. Environmental Impacts of production
Environmental sustainability is an integral aspect of our Code of Practice. Mothercare was ranked 19th out of 82 apparel brands in the
Corporate information transparency index compiled by the Chinese NGO called the Institute of Public and Environmental Affairs (IPE).
C. Raw Material Sustainability
Cotton and timber are the most significant raw materials in terms of importance to Mothercare and in relation to environmental impact.
Cotton
As Mothercare’s most important raw material, we want to play an active role in helping cotton to be produced in better ways; better for
the people that grow it and better for the environment.
Mothercare has applied for membership of the Better Cotton Initiative (BCI) and has set an ambitious goal for 50% of cotton to come
from sustainable cotton by 2023. Mothercare is excited to be part of this programme to make Better Cotton a sustainable mainstream
commodity.
Timber
Although timber is a less significant raw material in Mothercare in terms of volume, the impact of timber environmentally and socially is
well documented. Mothercare has a target for all timber and timber-based product to be 100% responsibly sourced by 2023.
Product – Performance against targets
Area of Focus
Activity Area
Target
Measure
1
Responsible
Sourcing
Maintain continuous
progress in Responsible
Sourcing year/year
Maintain or improve %
score at the annual ETI
(Ethical Trade Initiative)
strategic submission
Product
2
Environmental
impacts of
sourcing
All key factories reduce
their environmental
impacts in terms of
waste, pollution and
energy use
% of factories with
an environmental
scorecard making
progress against related
targets
Lead UN SDG
our target
supports
Status
Commentary
On track
Mothercare strategic submission
for FY2018 was using the revised ETI
reporting framework meaning that
a yr/yr comparison is not possible.
Mothercare received a score of 53%
and the associated classification of
“Improver”
On track
25 factories received scorecards in
FY2018 and progress against targets
has been monitored during FY2019.
3
Cotton
4
Timber
Source 12% of our cotton
from sustainable sources
by 2020 and 50% by 2023
Measured via BCI
purchase of BCCU
relative to total cotton
purchase
Just started
BCI membership application lodged.
Baseline cotton data established.
New Cotton Policy developed.
Source 25% of all wood
and paper goods from
responsible sources by
2020 and 100% by 2023
Measured as %
of timber volumes
purchased
Just started
Implementation plan being
developed with the new sourcing
partner.
Timber policy updated.
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Environment
2019 continued to be a year of considerable infrastructural change at Mothercare, particularly with the store closure programme.
In 2019 our overall CO2e emissions reduced, in absolute terms, by 32% versus 2018. While both buildings energy and transport energy
consumption reduced year on year, a contributory factor behind the fall was the impact of the DEFRA emissions conversion factor annual
changes. Mothercare’s emissions from electricity consumption reduced by 39% in a year.
Key performance indicators
Building energy use (m kWh)
Transport fuel used (m litres)
Transport distance (m kilometers)
Kilometers/litres of fuel consumption
CO2e emissions (tonnes)*
Of which:
Buildings
Transport
CO2e emissions (per £m)
CO2e emissions (per ‘000 sq. ft)
Total waste (tonnes, UK only)
Recycled waste (%)
2019
Performance
2018
Performance
2019 vs 2018
(+/-)%
29.09
0.71
2.85
4.04
9,514
7,659
1,855
25.41
9.29
3,911
94%
36.63
0.83
3.40
4.08
14,074
11,905
2,170
32.17
10.79
4,505
94%
-21%
-15%
-16%
-1%
-32%
-36%
-14%
-21%
-14%
-13%
0%
*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).
Building emissions
Buildings emissions relate to electricity and gas consumption at our UK stores, UK and overseas offices and at our National Distribution
Centres. During 2019, the first full year of the reconfiguration of our distribution network to our Nuneaton site led to energy savings. Also,
energy usage at stores and offices fell by 27%, mainly as a result of store closures but also helped by last year’s roll out of automatic
electricity meter readers leading to more robust, real-time data.
Transport emissions
Transport emissions relate to diesel consumption for deliveries between our distribution centres and from the distribution centres to stores.
In absolute terms, distance travelled reduced by 16%, and litres consumed fell by 15%, leading to a 14% reduction in transport emissions.
The first full year with the removal of our out-base hub at Dagenham - as part of our ongoing reconfiguration programme – was a major
contributor to the fall in distance travelled. However, because of an increase in shorter distance stock movements around our main centre
at Nuneaton, we saw fuel efficiency decrease by 1%. We continue to invest in our programme of fleet upgrades and driver efficiency
training.
Waste
The volume of waste produced has declined by 13% vs 2018 and 94% of this waste has been recycled, which is broadly in line with 2018. The
volume of waste sent to landfill has declined by 11% vs 2019
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Environment – Performance against targets
Area of Focus
Activity Area
Target
Measure
Lead UN SDG
our target
supports
Status
Commentary
Environment
5 Operational
waste
Aim to achieve zero
waste to landfill by
2020
% waste to landfill
On track
6
Transport
energy
Improve fuel efficiency
year/year
Km drive/ litre fuel
consumption
Not
Achieved
7
Buildings
energy
Improve energy
efficiency year/year
Building energy use /
£ sales
On track
Total waste volume reduced by
13% and the volume of waste sent
to landfill reduced by 11%. The % of
waste sent to landfill remained flat
at 6% with 94% being recycled.
In absolute terms, distance
travelled reduced by 16%, and
litres consumed fell by 15%.
As part of our reconfiguration
programme, we engaged in more
shorter, less fuel efficient stock
movements at our main centre in
Nuneaton, which led to a small
decrease in fuel efficiency.
Reduction in buildings energy
consumption at our stores and
distribution centres, coupled with
a substantial decrease in Defra’s
electricity conversion factors, led
to year on year improvements
of 21%.
(Note: the table is for performance guidance. See full table for detailed breakdown)
3. Communities
Mothercare Community
Our people are our biggest asset. We employ directly 3582 people in our UK offices and stores as at 30 March 2019, not including those
colleagues who work for our global network of franchisees.
Diversity
We have a diverse workforce with 25% of our board positions and 52% of our senior management roles (not including executive
management) being held by females. Throughout the rest of the business 92% of our UK retail colleagues and 75% of our UK office
colleagues are female. We published our second gender pay gap report in March 2019 relating to the data point of 5 April 2018 and
this is available on our corporate website at www .mothercareplc.com . This report shows that our gender pay gap remains broadly
unchanged from last year although it is important to note that across our business 89% of our colleagues are females. When we analyse
the most senior 50 roles, while women still make up the majority, the proportion drops to 52%. The predominantly female total colleague
base compared to the balanced male/ female senior team is the main reason for Mothercare’s pay gap. This report includes a summary
of our activities delivered in 2019 to create a more diverse and inclusive organisation. This included the creation of our Diversity, Inclusion
and Equality Policy and the work we are doing to weave this into every aspect of our business. Through consultation with our colleagues
we developed informal flexible working guidelines and introduced a core business hours model (i.e. 10.00 to 16.00) to enable flexible
working for our office colleagues. A more detailed breakdown of gender diversity is available in the corporate governance update on
page 41 of this report.
Communication
It has been a year of considerable change for Mothercare, all of which has had a significant impact on our colleagues. Clear, accessible
communications and ongoing colleague engagement was essential to get us through this unsettled period, as well as facilitate a smooth
transition to the new business model and new ways of working.
We continue to hold regular colleague briefings, with the Operating Board and senior leaders providing updates on our progress against
our transformation strategy and the work we are doing to make Mothercare a great place to work. We are putting much greater focus
on small group and, where possible, face-to-face communications to enable more targeted and timely engagement with our teams and
to encourage more two-way dialogue. This all contributes to our commitment to be a leaner, more nimble organisation that is driven by
informed and empowered colleagues.
In 2017, we set up an employee consultation forum (ECF) to represent colleagues during an office reorganisation. Following very positive
feedback from colleagues, in 2018, we established three enduring colleague engagement groups (CEGs): one for Mothercare stores, one
for Mini Club stores and one for head office. Each CEG is made up of elected colleague representatives, with members of our Operating
Board taking up chair and sponsor roles. We engage these elected forums for formal consultation matters, and more generally to seek
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HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued colleague feedback and insight on ad hoc issues and proposals. The CEGs have quickly become a valued part of our business and
enable us to better embed the voice of the colleague in our decision-making.
Training and development
We have a clear set of values and behaviours for our employees and we have been investing in their development.
A key priority in 2019 has been the development of the specialist proposition, which has focused on upskilling our teams to become
experts in both great customer service whilst offering expert product knowledge for our customers. To support this development we have
designed a suite of eight training modules for our colleagues in retail stores, which cover two in-depth customer service modules and six
expert knowledge modules on our product ranges. This expert knowledge is invaluable to customers, covering everything from fixing a
car seat safely to how to use a baby carrier correctly.
The first phase of the training has been rolled out using a face to face approach by our newly created ‘Master Specialist’ regional trainers.
The training has been very well received across our estate with 126 people upskilled to deliver training in store, 61 employees completing
specialist product knowledge training and all our team members currently completing the Great Customer Service training.
The Group’s talent management learning system called “Inspire” enables employees across the group to remotely access and develop
a number of core skills, from compliance and product knowledge to personal development.
Charitable Giving
The Mothercare Group Foundation (MGF) aims to help parents in the UK and worldwide meet the needs and aspirations for their
children and to give them the very best chance of good health, education, well-being and a secure start in life.
The MGF donations are focused on three areas:
I.
Ensuring the good health and well-being of mums-to-be, new mums and their children;
II. Special baby care needs and premature births; and
III.
Parenting initiatives (or charities) that support families on the parenting journey - uniting mums (and dads) to take on parenting
together.
The revenue from the MGF was used to support the corporate charity partner and colleague fundraising matching scheme in 2019:
Corporate charity partner
Our official 2019 Corporate Charity was Bliss. Bliss is a UK charity working to provide the best possible care and support for all premature
and sick babies and their families. The MGF made donations of £40k during the year bringing the total donations to the charity since 2017
to over £100k. In addition, many colleagues have engaged in fundraising activities such as a book sale, bake sales and sponsored sports
events, raising over £7,500. Following a review with the MGF Trustees it was decided to extend the partnership with Bliss for another year
until April 2020.
Employee sponsorship matching fund
Mothercare run a matching fund, meaning that MGF will make an additional donation to add to employees’ own fundraising activities.
During 2019, over £5k was donated to top up colleague fundraising.
Single-use carrier bag proceeds
Mothercare Group has donated all income received from the charges for single-use carrier bags in England, Scotland and Wales
(Northern Ireland pay the levy to the government) to our chosen environmental charity, Trees for Cities, due to its educational, community
and international reach. During 2019 £62k was donated to Trees for Cities bringing the total donations to the charity since October 2015 to
£355k. To find out more about the charity, please visit www .treesforcities.org.
Customer Communities
We believe that parenting and raising children is an essential foundation for the society we live in. We are committed to helping mums
(and dads) take on parenting together. Through our events, we provide support and information to parents in the local community:
Mothercare was proud to be runner up with our Body Proud Mums campaign in Transport for London’s “Women We See” diversity
competition. Body Proud Mums boldly celebrates a diverse range of mothers and their post-partum bodies. The campaign seeks to
normalise their experiences, spark a positive conversation around the issue and help them feel confident and proud of their bodies after
childbirth and offering reassurance for mums that every body is beautiful and unique. From surgical scars to stretch marks, we want to
celebrate and support the true journey of motherhood and that includes the physical changes to the body.
Every year Mothercare welcomes thousands of people to our successful Expectant Parent Events throughout the UK. We are proud to
help, support and inspire parents-to-be as they take on this important role. Being a specialist means; giving accurate, clear product
Mothercare plc annual report and accounts 2019
35
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineStrategic Report
Corporate Responsibility
continued
advice and excellent customer care to all our customers, so meeting the needs of everyone who attends our events (including; adoptive
parents, same sex parents and grandparents). These events run in all of our stores across the UK four times a year usually in February,
June, August and October. Midwives, Health Visitors, First Aid trainers and other experts frequently attend the events to offer one to one
advice to the parents-to-be.
We provide a range of advisory leaflets to support expectant parent events and personal shopper appointments. These leaflets cover
popular topics such as feeding, car seats safety and fitting, baby slings, maternity, pushchairs and sleep safety. We also offer advice and
raise awareness of relevant campaigns such as; accident prevention, child car seat safety, baby sensory week taster sessions in store. We
have hosted Facebook live debates on maternal mental health, baby sling wearing advice, baby first aid and we have participated in
World Prematurity Day on 17 November as part of our partnership with Bliss.
We host New Parent Meet Up coffee mornings with the NCT in 14 of our stores across the UK in Bristol, Manchester, Gateshead, Havant,
Solihull, Romford, Edmonton, Leeds, Truro, Greenwich and Plymouth, which offer a perfect meeting space for parents to relax and meet
other new parents covering such topics as feeding, sleeping, first aid and baby massage.
Community – Performance against targets
Area of Focus
Activity Area
Target
Measure
Community
8
Community
impact
Develop long term
value creating charity
partnerships
Delivery of joint
partnership strategy
goals
Lead UN SDG*
our target
supports
9
Colleague
volunteering
By 2020 donate 2000
hours to causes that
create a better world
for the future of our
children
Recorded colleague
hours volunteered
10
Colleague
giving
Enable colleagues
to get involved with
community and
charity activities
yr/yr growth in
% participation
of colleagues
participating in payroll
giving, volunteering
and charity
partnership activities
Status
Commentary
On track
Delivery of the Joint Partnership
Strategy with Bliss on track.
Partnership extended until April
2020
Not
started
Colleague Volunteering offer to
be launched with Colleagues
from Autumn 2019/20.
Not
started
Payroll giving offer to be
launched to colleagues during
2019/20. Measurement tool of
participation to be developed.
*The United Nations Sustainable Development Goals (SDG) came into force in January 2016 and set out 17 goals to be achieved by 2030.
36
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Board of Directors
and Operating
Board
Supervisory and
Governance Board
Board of Directors and Operating Board
Supervisory and Governance Board
Committee Memberships key:
A — Audit and Risk Committee
R — Remuneration Committee
N — Nomination Committee
F — Full board member
D — Defence Committee
Di — Disclosure Committee
1. Clive Whiley N F D Di
—
Position: Interim Executive Chairman
Appointment: April 2018
Skills, competencies, experience: Clive Whiley has
over thirty five years’ experience in regulated strategic
management positions since becoming a Member of
the London Stock Exchange. He has extensive main
board executive director experience across a broad
range of financial services, engineering, manufacturing,
distribution, retail & leisure businesses: encompassing
the UK, Europe, North America, Australasia, Middle East
and the People’s Republic of China.
Other Directorships: Mr Whiley is currently a Non-
Executive Director of Grand Harbour Marina plc which
is listed on the Malta Stock Exchange and Camper
& Nicholsons Marina Investments Limited and also
Chairman of China Venture Capital Management
Limited, First China Venture Capital Limited and Y-LEE
Limited.
2. Mark Newton-Jones F D Di
—
Position: Chief Executive Officer
Appointment: July 2014
Skills, competencies, experience: Mark has 30 years’
experience with and developing some of the industry’s
leading retail brands in both stores and online.
Formerly, Mark has held directorships with companies
within the Shop Direct Group where he was Chief
Executive Officer. Mark was also a non-executive
director of Boohoo plc from 2013 to 2016. Mark initially
joined Mothercare as Chief Executive in 2014.
Other Directorships: Mark is Chairman of Graduate
Fashion Week and a board member of the INGKA
Holding B.V. (Supervisory Board of the IKEA Group).
Mark is also currently a director of Pockit Limited.
F D Di
3. Glyn Hughes
—
Position: Chief Financial Officer
Appointment: December 2017
Skills, competencies, experience: Glyn has extensive
international retail and finance experience gained
during his 10 year residence in Asia (2006 – 2016) where
he held both CEO and CFO positions within the Dairy
Farm Group. Appointments prior to that include senior
Finance, Strategy and Business Development roles at
Kingfisher, Tesco and KPMG.
Other Directorships: None
6. Lynne Medini
—
Position: Group Company Secretary
Appointment: May 2018
Skills, competencies, experience: Lynne is an
experienced chartered secretary with a career
spanning over 20 years at Mothercare. Fellow, ICSA.
4. Gillian Kent R A F N D Di
—
Position: Non-executive director and Remuneration
Committee Chair
Appointment: March 2017
Skills, competencies, experience: Gillian has had a
broad executive career including being Chief Executive
of real estate portal Propertyfinder until its acquisition
by Zoopla, and 15 years with Microsoft including three
years as Managing Director of MSN UK. Formerly a
non-executive director at Pendragon Plc and Coull
Limited.
Other Directorships: Gillian holds non-executive
director roles at National Accident Helpline Group
Plc, Ascential Plc, and at three private companies, No
Agent Technologies Limited, Theo Topco Limited and
Portswigger Limited.
5. Nick Wharton R A F N D Di
—
Position: Non-executive director and Audit and Risk
Committee Chair
Appointment: November 2013
Skills, competencies, experience: Nick provides the
Company with extensive experience within the retail
sector both in the UK and internationally. Substantial
plc experience having operated as both CEO and
CFO supports the financial and strategic direction of
the Company. Formerly CFO of Superdry Plc, Chief
Executive Officer of Dunelm Group plc, Chief Financial
Officer of Halfords Group plc, and held finance and
international positions at The Boots Company plc and
Cadbury Schweppes plc.
Other Directorships: Non-executive director of A.G.
BARR p.l.c.. Director of 1104 Consulting Limited.
Operating Board
Mark Newton-Jones — Chief Executive Officer. See above for biography
Glyn Hughes — Chief Financial Officer. See above for biography
7. Kirsty Homer
—
Global People and Governance Director, Mothercare
Global Brand
Appointment: June 2017
Skills, competencies, experience: Formerly Director
of Personnel Group and Partnership Services at John
Lewis Partnership where Kirsty had a career spanning
20 years including 14 years at Waitrose Ltd.
8. Kevin Rusling
—
COO, Mothercare Global Brand
Appointment: April 2017
Skills, competencies, experience: Formerly international
director of Monsoon Accessorize; prior to that Kevin ran
the international division of Walmart’s George at Asda
business for five years and was previously international
manager at Marks and Spencer for 12 years.
9. Andrew Cook
—
Corporate Development Director
Appointment: March 2019
Skills, competencies, experience: Andrew is a highly-
experienced, results-oriented finance executive whose
commercial insight has enabled him to successfully
transform business profitability across a number of
sectors, including retail. Most recently, Andrew was
Chief Financial Officer for Stanley Gibbons Group plc.
Prior to that, he held senior director roles within Medina
Dairy Group, Kelly Services, The Body Shop and Virgin
Group.
Mothercare plc annual report and accounts 2019
37
HEAD_0 1st line continued2nd line continuedGovernance
Corporate
governance
Corporate governance
Dear Shareholder
Board Changes
The Company believes that establishing and maintaining high
standards of corporate governance are critical to the successful
delivery of the group’s strategy and to safeguard the interests
of its shareholders, customers, staff, franchise partners and
other stakeholders. The group delivers this through a corporate
governance framework in its activities globally.
As mentioned in my statement earlier in this report, I would like to
thank all stakeholders including shareholders, financiers, franchise
partners, shareholder loan note subscribers, pension trustees, the
Pension Regulator, landlords and employees alike, whose support
we harnessed in the month following my appointment to launch
the crucial Capital Financing Plan and UK Restructuring package.
We maintained an environment of constructive dialogue with all
stakeholders during the course of that month, which continues to
date, demonstrating that the principles are embedded throughout
the organisation.
Clive Whiley
Chairman
General
The Company considers that it has complied throughout the
53-week period ended on 30 March 2019 with the relevant
provisions set out in the 2016 UK Corporate Governance Code.
Further explanation of how the Main Principals have been applied
are set out below and in the main committee reports. Early
adoption of some of the principals of the 2018 Code have been
undertaken where feasible to do so.
During the year there were changes to the board structure which
resulted in a necessary number of executive directors whilst the
Company focussed on the comprehensive refinancing of the
Group and restructuring of UK operations.
Since the 2018 annual report and accounts, Mark Newton-Jones
was reappointed as CEO, Tea Colaianni, Lee Ginsberg, Richard
Rivers and David Wood resigned in May, July, July and November
respectively.
Following the resignation of Alice Darwall a new Group Company
Secretary was appointed, promoting Lynne Medini to the role.
Lynne has been with the business since 1992.
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, capital raising, defence and bid
approaches, authority limits for capital and other expenditure and
material treasury matters.
The Board has approved formally the roles and responsibilities of
the Chairman and Chief Executive, with the Chairman responsible
for matters such as the leadership and management of the
Board (and for dealing with any takeover approach), and the
Chief Executive responsible for the leadership of the business and
managing it within the authorities delegated by the Board.
The Board
The leadership of the Mothercare plc business is provided by the
Mothercare plc Board. The Board operates on a unitary basis and
currently comprises the Executive Chairman, two independent
non-executive directors, and two full-time executive directors
being the Chief Executive Officer and the Chief Financial Officer.
Whilst the roles of chairman and CEO are not exercised by the
same individual, the current chairman is in an executive role
and therefore not considered to be independent under the UK
Corporate Governance Code. Clive Whiley was appointed in 2018
for his experience of restructuring and finance in order to help steer
Mothercare through that phase of its transformation.
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 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.
Mothercare plc Main Board:
As at 30 March 2019
Chairman
Clive Whiley (Executive Chairman)
Non-executive
Gillian Kent
Nick Wharton
Executive
Mark Newton-Jones
Glyn Hughes
38
Mothercare plc annual report and accounts 2019
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
Key activities of the Board
Regular agenda items:
Group strategy
Financing, going concern, viability and liquidity
Reports from Board committees
Business performance and financial results
Annual budget and financial statements
Consideration of acquisitions and disposals
Risk management and review
Operational oversight
Key agenda items also considered in the year included:
Renegotiation of the Revolving Credit Facilities
Restructure of capital
Restructuring of store estate and CVAs
Restructuring of sourcing operations
Restructuring of head office
Sale and leaseback of Head Office
Sale of assets of Early Learning Centre
Appointment of broker
Appropriate time is made during the year for continuing training
on relevant topics concerning the functioning of the Board
and obligations of directors. The Company has undertaken to
reimburse legal fees to the directors if circumstances should arise in
which it is necessary for them to seek separate, independent, legal
advice in furtherance of their duties.
In accordance with the 2016 UK Corporate Governance Code the
Board has resolved that all directors should offer themselves for
re-election at regular intervals subject to continued satisfactory
performance. The Company has applied annual re-elections at its
annual general meetings since 2013.
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.
The business commitments of each member of the Board are
set out in the biographical details on page 37. 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.
Governance and Committees
The Board commenced an externally facilitated board
evaluation during 2018, engaging Ian White, an experienced
company secretary now focussed on board evaluation. The
evaluation exercise extended into 2019 in order to include the
new directors and the output of the evaluation was presented to
the Board during the first half of the year and recommendations
implemented.
The Chairman has considered the contributions made by the
directors during the year under review, and is of the opinion that
the Company’s directors have continued to give effective counsel
and commitment to the Company and accordingly should be
reappointed by shareholders at the AGM.
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 (Supervisory and Governance Board)
Board committees
Audit and risk
Remuneration
Nomination
Defence
Disclosure
Operating Board
Mothercare plc annual report and accounts 2019
39
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineGovernance
Corporate governance
continued
The Board is assisted by committees. There are four main committees of the Board that meet and report on a regular basis: Audit and
Risk, Remuneration, Nomination and Defence and, in addition, there is a Disclosure Committee. At the year end the members of the
committees were as set out below. A record of the meetings held during the year of the Board and its principal committees and the
attendance by individual directors is set out on page 42.
A
Audit and Risk Committee Remuneration Committee Nomination Committee
N
R
D
Defence Committee
Disclosure
Disclosure Committee
Committee members:
Committee members:
Committee members:
Committee members:
Committee members:
Nick Wharton (Chair),
Gillian Kent
Gillian Kent (Chair), Nick
Wharton
Clive Whiley (Chair), Gillian
Kent, Nick Wharton
Clive Whiley (Chair), Mark
Newton-Jones, Glyn
Hughes, Gillian Kent, Nick
Wharton
Clive Whiley, Mark Newton-
Jones, Glyn Hughes, Gillian
Kent, Nick Wharton, Lynne
Medini
Key roles and
responsibilities:
Key roles and
responsibilities:
Key roles and
responsibilities:
Key roles and
responsibilities:
Key roles and
responsibilities:
Review the scope and
issues arising from the
audit and matters relating
to financial control, review
of corporate governance,
financial statements and
accounts, responsibility for
risk management, internal
and external audit.
Establishes the
remuneration policy,
preparation and
approval of the directors’
remuneration report,
approval of specific
arrangements for the
Chairman and executive
directors, review comment
and propose to the
Board the proposed
arrangements for the
executive committee
including short- and
long-term incentive
programmes.
Advises the Board in a
bid situation, appoints
professional advisers to
support the Committee
and the Board, maintains
and reviews the defence
process of the Company.
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 and review
succession planning of
Board members.
The establishment and
maintenance of disclosure
controls and procedures
in the Company (and
their evaluation), for
the appropriateness of
the disclosures made
in order to meet the
Company’s legal and
regulatory obligations and
requirements arising from
its listing on the London
Stock Exchange, and
for compliance with the
Group’s share dealing
policy.
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 sections of the Company’s website at www.mothercareplc.com.
In addition, the Company’s Operating Board reports to the Board through its Chief Executive Officer.
Operating Board
The executive management of the Company (principally through the Operating Board) operates 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 Operating Board. As at 30 March 2019
the Operating Board consisted of the CEO, CFO, Chief Operating Officer, Global People and Governance Directors, and Corporate
Development Director. The Operating Board oversees the three divisions of the group: Mothercare Global Brand, Mothercare UK and
Mothercare Business Services.
Board effectiveness and balance
The Board commenced an externally facilitated board evaluation during 2018, engaging Ian White, an experienced company secretary
now focussed on board evaluation. The evaluation exercise extended into 2019 in order to include the new directors. The output of the
evaluation was presented to the Board during the first half of the year and recommendations implemented. Ian White has no other
connection with the Company.
In the year ahead the Board intends to support the CEO in the continuing delivery of our strategy, vision and transformation plans and to
provide guidance on risk planning and risk management. The Board believes that it has an appropriate range of breadth and expertise
to manage the group’s activities.
As at 30 March 2019, the Board had two non-executive directors, of whom one is a woman. Details of the experience and background of
each director is set out on page 37.
40
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Diversity
The importance of improving the diversity balance (including
gender) on boards of UK listed companies is recognised. During
the year the Group created its new Diversity, Inclusion and Equality
policy and its principles will apply in all areas of the business
including the board. At the date of this report, the main board
(including the chairman and executive directors) comprises one
woman and four men, and the Operating Board (excluding the
executive directors) has one woman and two men. The Company
has a senior leadership team that reflects gender diversity, with
52% of the senior management positions (the two grades below
Operating Board) being held by women as at 30 March 2019 (2018:
65%). The Company believes it is well positioned to support gender
diversity at all senior levels.
Employee gender diversity as at 30 March 2019
Directors of the Company (including the Chairman and
executive directors)
Operating Board (excluding executive directors)
Senior management positions
Total senior managers other than directors of the Company
Other retail support centre employees
Total retail support centre employees
Total retail employees of the group
Grand total employees of the group (retail support centre and
retail)
Going concern
The directors have reviewed the going concern principle according
to revised guidance provided by the FRC and details are set out in
the financial review on page 27.
Viability statement
In accordance with provision C.2.2 of the 2016 revision of the Code,
the directors have assessed the prospects and viability of the
company and its ability to meet liabilities as they fall due over the
medium term. The viability statement is set out on page 28 of the
financial review.
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 identity, assess,
manage and monitor risks. The Company has an internal audit
function which is led by the Head of Risk and Internal Audit and
reports through the CFO to the Audit and Risk Committee. In
addition, there is an internal Risk Committee, chaired by the CFO,
that meets every two months.
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 16 to 19.
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.
Male
%
Female
%
Total
4
2
10
12
81
96
254
350
80%
67%
43%
46%
24%
26%
8%
10%
1
1
13
14
262
276
2,956
3,232
20%
33%
57%
54%
76%
74%
92%
90%
5
3
23
26
343
372
3210
3582
The Board believes that the system of internal control described
can provide only reasonable and no 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. Compulsory anti-bribery and corruption e-learning
training modules are undertaken on induction and annually at all
levels across the group (including the board). 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 (in
November and May respectively) and trading statements at
the Quarter 1 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
CEO at Board meetings on a periodic basis. In addition, leading
investors in the Company have access to the Chief Financial Officer.
Mothercare plc annual report and accounts 2019
41
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineGovernance
Corporate governance
continued
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 its website 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. The Company
has purchased and maintained throughout the year directors’
and officers’ liability insurance in respect of itself and its directors.
The directors also have the benefit of the indemnity provision
contained in the Company’s Articles of Association. These
provisions, which are qualifying third-party indemnity provisions as
defined by Section 236 of the Companies Act 2006, were in force
throughout the year and are currently in force. Details of directors’
remuneration, service contracts and interests in the shares of the
Company are set out in the directors’ remuneration report.
The Company also provides an indemnity for the benefit of each
person who was a director of Mothercare Pension Trustees Limited,
which was 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’ conflict of interest
The Board has maintained procedures whereby potential conflicts
of interest 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.
Director attendance
Director attendance statistics at meetings for the 53-week period ended 30 March 2019:
Maximum number of meetings
Director:
Clive Whiley*
Mark Newton-Jones*
Glyn Hughes
Gillian Kent
Nick Wharton
Tea Colaianni*
Lee Ginsberg*
Alan Parker*
Richard Rivers*
David Wood*
Notes:
Board
Audit and Risk
Nomination
Remuneration
Committee
9 formal
28 additional including
sub committee
5 formal
1 formal
2 ad hoc
5 formal
3 ad hoc
9/9
6/8
9/9
9/9
9/9
1/1
2/3
0/0
2/3
5/6
19/19
10/13
28/28
20/23
18/23
11/14
18/21
8/8
20/21
20/22
1/1
1/1
1/1
5/5
5/5
1/1
4/4
4/4
1/1
1/1
1/1
1/1
1/1 2/2
• The table sets out for each director both the number of meetings attended and the maximum number of meetings that could have
been attended. Only the attendance of members of the committees is shown in the table although other directors have also attended
at the invitation of the respective committee chair.
• Glyn Hughes attended meetings of the Audit and Risk Committee upon the invitation of the Committee chair.
• The two ad hoc board meetings which approved the interim and full year report and accounts were constituted by the Board from
those members available at that time having considered the views of the whole Board beforehand.
*denotes that the director was appointed or resigned during the year and thus was not eligible to attend all meetings.
42
Mothercare plc annual report and accounts 2019
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
Audit and risk
committee
Audit and risk committee
Dear Shareholder
On behalf of the Board, I am pleased to present my report to
shareholders on the key activities and focus of the Committee
during the year in addition to its principal and ongoing
responsibilities which are to:
• monitor the integrity of the Group’s financial statements and
half year report through their review, receiving reports from the
Group’s auditor and consideration of any significant accounting
policies and judgements;
• have oversight of the Company’s risk appetite, its risk
management process and internal audit controls, risk mitigation
and insurance and within that to review the effectiveness of the
Group’s internal audit function including that it is adequately
resourced and oversight of the Company’s agreements with its
International partners;
• review the Group’s controls to ensure compliance with the
Bribery Act and the group’s Global Code of Conduct, the
UK Corporate Governance Code, and policies on the use of
auditors; and
• recommend to the Board the appointment, reappointment
and removal of the external auditor, to approve their terms
of engagement and remuneration and to monitor their
independence.
Activities during the year
The Committee has met five times during the year (see the
corporate governance report for meeting attendance table) and
reports were provided to the subsequent Board Meeting. I am
satisfied that the Committee was presented with good quality
papers and sufficient time was allowed to enable full and informed
debate. At least once a year the Committee meets separately with
the external Auditor without management present.
The Committee has a standing agenda, that was reviewed
during the year, and, in addition, it considers relevant matters as
they arise. Specifically, within the financial year the Committee
considered the accounting implications from the Company
Voluntary Arrangements completed in June 2018, the disposal of
the Early Learning Centre to The Entertainer in March 2019 and the
Group’s adoption or preparedness of new accounting standards.
Consideration was also given to the presentation of the financial
statements and in particular the use and presentation of adjusted
items and alternative performance measures. The Committee has
also overseen the Group’s preparedness for Brexit and its ongoing
response to the growing exposure to information (cyber) risks.
Our external audit relationship was tendered during the year.
While, due to the limited time period prior to which our auditor was
to rotate on a compulsory basis, Deloitte LLP (“Deloitte”) did not
participate, this process involved a number of prospective audit
firms. Each firm was given wide access to the business in order
to develop their audit approach and plan prior to presentation
to the Audit and Risk Committee. Following this meeting a
recommendation based on quality, knowledge and experience
was made to appoint Grant Thornton as auditor for financial year
2020, subject to shareholder approval at the AGM.
On behalf of the Board, I would like to thank Deloitte for their
support to the Group over the past 17 years.
Nick Wharton
Audit and Risk Committee Chair
Mothercare plc annual report and accounts 2019
43
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Audit and risk committee
continued
Composition of the Committee
The Committee currently comprises Nick Wharton as Chairman,
and Gillian Kent, non-executive director. The Group Company
Secretary acts as secretary to the Committee. Nick Wharton is a
chartered accountant with considerable financial and commercial
experience within listed companies. Biographical details of the
directors are set out on page 37 of this report.
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. Each member’s attendance at these
meetings is set out on page 42 of the corporate governance
report.
The Committee ordinarily invites the Group’s Chief Financial Officer,
Head of Internal Audit & Risk and External audit partner to attend
its meetings. Other Board directors and executives are invited to
attend from time to time.
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.
The Committee also recognises that the size of the International
business (representing approximately two-thirds of worldwide retail
space and 60% of worldwide retail sales) means that the Group
is more exposed to geopolitical events and the risk of exchange
rate fluctuations. This risk is given additional consideration by the
Committee, including treasury and hedging policies.
The full terms of reference of the Committee (which were reviewed
and amended during the year) are set out under the corporate
governance section of the website at www .mothercareplc.com.
The principal matters under consideration during the year are set
out below:
Internal control & risk management
The key features of the Group’s internal control and risk
management systems that ensure the accuracy and reliability of
financial reporting include clearly defined lines of accountability
and delegation of authority, policies and procedures that cover
financial planning and reporting, preparing consolidated accounts,
capital expenditure, project governance and information security,
and the Group’s Code of Conduct.
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 a formally established Risk Committee, chaired
by the CFO, 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 mitigate risk. The
Company’s sub-committees include health and safety, retail store
compliance and profit protection, internal audit and corporate
responsibility.
44
Mothercare plc annual report and accounts 2019
The Company, like other retail businesses, continues to face
unexpected but material risks on a daily basis. The Company
seeks to manage risk in its operations and it has its own business
continuity plans in other areas of the business.
Information technology and security
The Committee continues to focus on the development of the
information technology control environment.
The Group has taken external advice on cyber risks that may
affect the business and undertook further cyber security business
continuity scenario sessions during the year which included
members of the Operating Board and the group’s information
technology department.
The General Data Protection Regulations (“GDPR”) required
compliance by May 2018. The Group has developed clear policies
and procedures in this area and has adopted appropriate
measures to be compliant. Ongoing compliance is monitored as
part of the annual internal audit agenda.
Whistleblowing
The Group has a policy and process in place for whistleblowing
and the Committee is satisfied that colleagues have the
opportunity to raise concerns in confidence and that arrangements
are in place for independent investigation of such matters.
Controls and procedures are also in place to ensure compliance
with the Bribery Act 2010. The Committee receives an annual report
on the Group’s gift register which includes any gifts and hospitality
above an agreed threshold received from external partners.
Areas of significant financial judgement considered by the
Committee during the year
During the year the Committee considered a number of
significant issues, taking into account in all instances the views of
the Company’s external auditor. The issues and how they were
addressed by the Committee are detailed below:
Classification and presentation of adjusted items
The Committee gave consideration to the presentation of the
financial statements and in particular the use of alternative
performance measures and the presentation of adjusted items
in accordance with the group accounting policy. This policy states
that adjustments are only made to reported profit before tax
where income and charges are one-off in nature and significant in
value and/or nature.
The Committee received detailed reports from management
outlining the judgements applied in relation to the disclosure of
adjusted items, which in the current year are:
• costs relating to previously announced activity on property and
retail restructuring programmes;
• cost associated with head office redundancies, refinancing and
restructuring;
• store and other asset impairment and onerous lease charges;
• foreign exchange gains / losses including the revised basis of
disclosure considered and adopted during the year; and
• amortisation of intangible assets.
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to the number and value of these items (£77.4 million charge) and
the guidelines on the use of alternative performance measures
issued by the European Securities and Markets Authority. Following
detailed review and active discussion with management, the
Committee has concluded that the presentation of the financial
statements is appropriate.
Going concern & viability statement
The Committee reviewed management’s assessment of going
concern and long-term viability with consideration of forecast cash
flows, including sensitivity to trading and expenditure plans and
potential mitigation actions. The Committee also considered the
Group’s financing facilities and future funding plans.
Notwithstanding the material uncertainty highlighted in the Going
Concern review, under the Reasonable Worst Case (“RWC”)
forecast, in which the Group would breach its fixed charge
covenant on its existing banking facilities and at certain points
of the working capital cycle have insufficient headroom against
existing facility limits, the Committee confirmed that the application
of the going concern basis for the preparation of the financial
statements continued to be appropriate and recommended the
approval of the viability statement. The Directors’ confidence in
the Group’s Base Case forecast, which indicates the Group will
operate within the terms of its committed borrowing facilities and
covenants for the foreseeable future, and the Group’s proven cash
management capability supports the preparation of the financial
statements on a going concern basis. The financial position of the
Group, its cashflows, liquidity position and borrowing facilities are
set out in the Financial Review on pages 20 to 29.
Defined benefit pension schemes
The Committee has reviewed the actuarial assumptions such as
discount rate, inflation rate, expected return of scheme assets and
mortality which determine the pension cost and the UK defined
benefit scheme valuation, and has concluded that they are
appropriate. The assumptions have been disclosed in the financial
statements.
Accuracy of the Inventory obsolescence provision relating to
seasonal stock
Inventory provisions include obsolete stock, net realisable
value below cost and stock loss provisions. The Committee has
examined management papers outlining the judgements made
regarding provisioning for inventory balances and is satisfied that
a sufficiently robust process was followed to confirm quantities of
inventory and that net realisable value of inventory exceeds its cost
at year end.
Other significant matters considered by the Committee during the
year
Other significant
matters
Property
provisions and
onerous leases
Property
closure
provisions
Onerous lease
provision
How the Committee addressed those matters
For a number of years the Company has pursued
a policy of reducing the number of stores operating
in the UK. This policy continued during 2019 with the
approval of the company voluntary arrangements
(“CVA”) for Mothercare and ELC and the administration
of Childrens World Limited reducing the estate to
fewer than 80 stores with 43 stores closed during the
year.
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.
Reflecting, following the CVA, the reduced time and
cost to close these stores a net credit of £0.3 million
was recognised with respect to store closures,
including property dilapidations, redundancy and
lease exit costs. The Committee also reviewed the
reports from the external auditor which considered the
appropriateness of the retained provision.
With regard to classification and presentation, while
the costs associated with the closure of the UK store
estate will reoccur across financial periods, the Group
considers that they should be treated as an adjusted
item given they are part of a strategic programme
and are significant in value to the results of the Group.
Given the loss-making status of the UK business, each
store lease is assessed to determine if it is considered
onerous. The current year includes a significant charge
taken to the onerous lease provision due to the
declining performance of stores.
The Committee reviewed reports from the Company
that consider the assumptions used within the three-
year plan to assess this and the appropriateness
of any assumptions beyond this three year time
frame. The provision has been calculated using the
reasonable worst-case strategic plan assumptions,
with cashflows discounted on a pre-tax basis using a
risk-free rate return. The unwind of this discount rate is
charged to finance costs.
The Committee also reviewed the reports from
the external auditor which considered the
appropriateness of the retained provision.
The charges associated with onerous leases and the
impairment of store assets have been classified as
adjusted items on the basis of the significant value
of the charge/credit in the period to the results of the
Group.
Mothercare plc annual report and accounts 2019
45
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Audit and risk committee
continued
Other significant
matters
Disposal of
Early Learning
Centre
How the Committee addressed those matters
On 12 March 2019 the Group entered into an
agreement for the sale of the Early Learning Centre
trade and specified assets with completion on 22
March 2019 and subsequent curated wholesale
agreement taking effect on 13 May 2019. The
Committee has reviewed the accounting implications
of the transaction together with the disclosure of
discontinued operations in the annual report and
accounts. The Committee has also reviewed the
papers from the external Auditor on this topic.
Fair, balanced and understandable
The Committee has evaluated all of the available information
and the assurances provided by management. In particular, the
review of items identified as adjusted items ensured that equal
prominence was given to statutory measures as the adjusted items.
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.
Financial Reporting Council (“FRC”) review of 29 March 2017
annual report and accounts
During the year the FRC reviewed the Company’s annual report
and accounts for the year ended 29 March 2017. The review was
carried out under the FRC Conduct Committee’s Operating
Procedures with no substantive exchange of correspondence. The
review was closed and Mothercare included in the list of company
names published in September 2018.
Supervision and independence of the external auditor
The Committee oversees the external Auditor by reviewing and
approving the audit plan, ensuring it is consistent with the scope of
the audit engagement.
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.
Re-appointment
As highlighted on page 43, the external audit relationship was
tendered during the year. Due to the limited time period prior
to which our auditor was to be rotated on a compulsory basis,
Deloitte LLP (“Deloitte”) did not participate in the tender and will not
therefore be reappointed at the forthcoming AGM.
The tender process involved a number of prospective audit
firms. Each firm was given wide access to the business in order
to develop their audit approach and plan prior to presentation
to the Audit and Risk Committee. Following this meeting a
46
Mothercare plc annual report and accounts 2019
recommendation based on quality, knowledge and experience
was made to appoint Grant Thornton as auditor for financial year
2020, subject to shareholder approval at the AGM.
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.
Furthermore 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
and the Committee will not approve (and the Company will not
pay) any non-audit fees to the auditors on a contingent basis.
Audit Fees
Non-Audit Fees
– Audit related assurance services
– Other
– Total
Non Audit Fees as a percentage of
audit fees
Total Auditor’s Remuneration
2019
2018
£445,000
£485,000
£100,000
£924,000
£1,024,000
£41,000
£0
£41,000
230%
£1,469,000
8.5%
£526,000
Non-audit fees incurred in the year were incurred in respect of
interim assurance work totalling £100,000 together with performing
Reporting Accountant procedures in respect of the Group’s equity
raise and the disposal of Early Learning Centre totalling £924,000.
The Audit and Risk Committee has considered the fees in light
of the audit fee and independence requirement however,
acknowledge that Deloitte was best placed to do the work given
the time frame, knowledge of the Group and independence.
Effectiveness
During the year, the Committee considered via an internal
questionnaire the effectiveness of its own performance and that of
the external audit with recommendations being implemented in
the new financial year.
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 to 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.
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
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.
Nick Wharton
Chair, Audit and Risk Committee
Mothercare plc annual report and accounts 2019
47
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Nomination
committee
Nomination committee
Dear Shareholder
Clive, Mark and Glyn were elected at the 2018 AGM.
During 2019, and covered in part in last year’s annual report and
accounts, there were a number of changes to the Board overseen
by this Committee as detailed later in this report.
I have now completed my first year as Executive Chairman and
Committee chair and would like to thank my fellow and former
Committee members for their work over the year.
The work of the Nomination Committee
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.
Composition of the Committee
The Committee currently comprises the Chairman and the two
non-executive directors of the Company. When required, the Group
Company Secretary provides support. The Committee’s key roles
and responsibilities are set out in the Corporate Governance
report on page 40.
Activities of the Committee
The Committee met formally during the year supported by
interviews and other conversations between Committee members.
The Global People and Governance Director is also invited to
attend meetings.
As noted in last year’s report, there were two appointments made
in early April 2018 overseen by this Committee resulting in the
appointment of David Wood as CEO on 4 April 2018 and Clive
Whiley as Interim Executive Chairman on 19 April 2018. An external
search consultancy, Inzito, was used in respect of David Wood.
Inzito has no other connections with the Company. Clive Whiley was
invited to become Interim Executive Chairman without the services
of a search consultancy. Following his resignation on 4 April 2018, on
18 May 2018 Mark Newton-Jones was reappointed to the Board.
In addition, the Committee conducted a search for a replacement
Company Secretary following the resignation of Alice Darwall.
Lynne Medini was promoted to the role of Group Company
Secretary from within the organisation.
Performance evaluation
The Board commenced an externally facilitated board evaluation
during 2018, hiring Ian White, experienced in company secretarial
and board evaluation matters. The evaluation extended into 2019
in order to include the new directors. The output of the evaluation
was presented to the Board during the first half of the year and
recommendations implemented.
Diversity
The importance of improving the diversity balance (including
gender) on boards of UK listed companies is recognised and
forms part of Mothercare’s Diversity, Inclusion and Equality Policy as
described in more detail in the Corporate Responsibility section at
page 30. Details of the Company’s gender diversity are set out in
the Corporate Governance report on pages 38 to 42.
Finally, I would like to thank all my fellow directors for their
considerable hard work and support to the business during a year
of so much change.
I will be available at the AGM to answer any questions on the work
of the Committee.
Approval
On behalf of the Nomination Committee
Clive Whiley
Chairman of the Nomination Committee
24 May 2019
48
Mothercare plc annual report and accounts 2019
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Directors’ report
Directors’ report
The directors present their report on the affairs of the group,
together with the financial statements and auditors’ report for the
53-week period ended 30 March 2019. The corporate governance
statement set out on pages 38 to 42 forms part of this report. The
Chairman’s statement at page 3 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 brand. The group
operates in the UK principally through its stores and direct business,
and globally in a further 50 countries and four continents through
its extensive franchise network.
The Companies Act 2006 requires the directors’ report to contain a
review of the business and a description of the principal risks and
uncertainties facing the group.
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 strategic report)
contains 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 Early Learning Centre Limited (the
assets of which were sold to TEAL on 22 March 2019). Mothercare
plc is the group holding company and is listed on the London
Stock Exchange; Mothercare UK Limited owns the Mothercare
trade marks, operates the UK Mothercare business and acts as
the franchisor to Mothercare franchisees worldwide; Early Learning
Centre Limited owned the ELC trade marks, operated the UK ELC
business and acted as the franchisor to ELC franchisees worldwide
up to 22 March 2019.
Commentary on the performance of the group and a review of the
business strategy including an indication of future developments
is set out in the Overview and Strategic Report sections of this
report on pages 2 to 36. The principal risks and uncertainties facing
the business are detailed in the Strategic Report at page 16 and
the section on risks at page 13. 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.
Going concern
The financial position of the group, its cashflows, liquidity position
and borrowing facilities are set out in Financial Review on pages
20 to 29. The group’s going concern position is also set out in the
Financial Review.
Viability statement
The viability statement is set out in the Financial Review on pages
28 to 29.
Dividend
The directors are not recommending the payment of a final
dividend for the year and no interim dividend was paid during the
year (2018: nil).
Capital structure
As at 23 May 2019, the Company’s issued ordinary share capital
was 341,743,770 ordinary shares of 1p each all carrying voting rights.
The details of the Company’s issued share capital as at 30 March
2019 are set out in note 25 to the financial statements. No shares
were held in Treasury.
During the year, the Company restructured its share capital
and raised equity through a placing and open offer. The former
170,871,885 ordinary 50p shares were subdivided into 170,871,885
ordinary shares of 1p each with voting rights and 170,871,885
deferred shares of 49p each with no voting rights, no entitlement
to receive a dividend or other distribution or to further participate
in the capital, profits or assets of the Company. A further 170,871,885
ordinary shares of 1p each were issued.
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
trusts abstain from voting their shareholdings in the Company.
Substantial shareholdings
In accordance with The Large and Medium-sized Companies
and Group (Accounts and Reports) Regulations 2008 and the
Disclosure and Transparency Rules (DTR) of the Financial Conduct
Authority, as at 30 March 2019, the Company had been advised by
or was aware of the following interests above 3% in the Company’s
ordinary share capital:
Holder
Mr Richard Griffiths
M&G Investment Management
FIL Investment International
UBS Global Asset Management
Majedie Asset Management
DC Thomson Pensions
Jupiter Asset Management
Number of
shares
62,879,700
55,338,922
34,162,735
31,130,064
27,500,000
27,169,375
16,241,974
Percentage of
issued share
capital
18.40
16.19
10.00
9.11
8.05
7.95
4.75
Mothercare plc annual report and accounts 2019
49
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Directors’ report
Directors’ report
continued
During the period from 31 March 2019 to 24 May 2019 the following
notifications were received:
Holder
M&G Investment Management
Acquisition of own shares
Number of
shares
64,937,112
Percentage of
issued share
capital
19
The Company was given a general approval at the AGM in July
2018 to purchase up to 10 per cent of its shares in the market. This
authority expires after the AGM on 26 July 2019. The authority has
not been used during the year.
The shares held within the trusts are disclosed within the Directors’
Remuneration Report at page 65.
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 multi-currency term
and revolving 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.
At the start of the financial year, the Group had successfully
completed a refinancing with the support of its two Banks, HSBC
Bank plc and Barclays Bank Plc. This gave the Group access to a
Revolving Credit Facility (“RCF”) of £67.5 million expiring in December
2020 with access to a further uncommitted overdraft facility of
£5.0 million.
In the financial year the Group realised cash from a number of
investments. In each case the proceeds were applied to the RCF
reducing indebtedness from these actions by £32.5 million.
On 14 December 2018, the Group completed the sale and
leaseback of its UK head office, the net proceeds of £14.5 million
were used to reduce drawings under the bank facilities. At the
same time, the uncommitted overdraft of £5.0 million was removed
and the Group agreed with the banks to soften its covenant
targets to December 2019.
On 12 March 2019, the Group agreed to sell Early Learning Centre
to The Entertainer for £11.5 million. The first instalment of £6.0 million
was received on 22 March 2019, with a further instalment of
£5.5 million received on 15 May 2019; the proceeds were used to
reduce the RCF to £24.5 million. Under the terms of the signed
Curated Wholesale Agreement which governs the terms of future
trading, a further £2.0 million is expected to be received over the
next two years through an earn-out commission, taking the total
consideration for the deal to £13.5m. In addition, the proceeds from
selling excess Early Learning Centre stock will be applied against
the RCF, with the limit stepping-down by £2.0 million increments in
June, July and August.
On 25th April 2019, the Group closed the stores in Ayr and Paisley,
leading to proceeds of £0.5m, which were used to further reduce
the RCF.
50
Mothercare plc annual report and accounts 2019
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. As at the
date of this report, 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 which may exercise all the powers of the
Company subject to the provision of the Articles of Association, the
Companies Act and any ordinary resolution of the Company.
The following directors served during the 53-week period ended
30 March 2019:
Name
Clive Whiley
Appointment
Executive Chairman and chair of the
nomination committee (appointed 19 April
2018)
Mark Newton-Jones Executive director (to 4 April 2018 and from
Glyn Hughes
Gillian Kent
Nick Wharton
Alan Parker
Tea Colaianni
Lee Ginsberg
Richard Rivers
David Wood
18 May 2018)
Executive director
Independent non-executive director and
chair of the remuneration committee
Independent non-executive director and
chairman of the audit and risk committee
Chairman and non-executive director
and chair of the nomination committee (to
19 April 2018)
Independent non-executive director and
chair of the remuneration committee (to
18 May 2018)
Independent non-executive director and
chairman of the audit and risk committee
(to 19 July 2018)
Independent non-executive director and
Senior Independent Director (to 19 July 2018)
Executive director (from 4 April to
21 November 2018). Details of payments
for loss of office are set out in the directors’
remuneration report at page 63
In accordance with the requirement of the UK Corporate
Governance Code, at the Annual General Meeting of the
Company in July 2019 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 64 and 59
respectively. A statement of directors’ interests in contracts and
indemnity arrangements is set out on page 42.
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Employees
Corporate citizenship
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
intranet, ClubHub, the colleague engagement groups (CEGs),
briefings by the Chief Executive and other Operating Board
members and senior management within the newly created
business divisions of Mothercare Global Brand, Mothercare UK
and Mothercare Business Services. These communications are
extended to Mothercare UK ’s stores in the UK. The CEG is a
forum for the exchange of information and views on matters that
affect Mothercare employees and serve as consultative bodies
where required. They are made up of elected representatives and
several meetings were attended by the Chairman. The CEGs were
consulted on the restructuring of the store estate and head office
during the year.
The Company aspires to develop a loyal and high performing
team through the development of its culture and values. Regular
performance reviews are carried out with all employees and
objectives are set that align with business strategy. In addition,
we offer a variety of development opportunities and training
interventions to enable employees to improve their skills.
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 committed to
the promotion of equality and diversity throughout the business
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 will not be discriminated against because
of their disability. We will assess their needs, provide support and
where necessary make reasonable adjustments to the working
environment.
Pensions
The Mothercare Staff Pension Scheme and the Mothercare
Executive Pension Scheme were both closed to future accrual with
effect from 30 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 31 to the financial statements.
A defined contribution scheme, the Legal & General WorkSave
Mastertrust, was made available to all employees with effect
from 30 March 2013 and is the designated scheme used for auto-
enrolment of workers since 1 May 2013 (the ‘auto-enrolment staging
date’ for the Mothercare group).
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 30 to 36.
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 this Report on page 33.
Auditors
Each of the persons who was a director of the Company at the
date of approval of this annual report confirms that:
• so far as the director is aware, there is no relevant audit
information which the Company’s auditor is unaware; and
• the director has taken all the steps that he/she ought to have
taken as a director in order to make himself/herself aware of any
relevant audit information and to establish that the Company’s
auditor is 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.
Following a formal tender process, Grant Thornton UK LLP was
appointed as the Company’s new auditor with effect from the
28 March 2020 financial year. The appointment is subject to
approval by shareholders at the Annual General Meeting of the
Company on 26 July 2019.
Deloitte LLP will resign as auditor of the Company following
completion of the 30 March 2019 audit. They did not participate in
the tender due to the rules on the mandatory rotation of auditors.
Grant Thornton UK LLP will be appointed to fill a casual vacancy
and a resolution to appoint Grant Thornton UK LLP will be put to
the AGM.
Political donations
It is the Company’s policy not to make political donations and
none were made during the year.
Post balance sheet events
Post balance sheet events are disclosed in note 33 to the financial
statements.
Annual General Meeting
The 2019 Annual General Meeting will be held on Friday, 26 July
2019 at 11.00am 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.
Mothercare plc annual report and accounts 2019
51
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Directors’ report
continued
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
Company Secretary at the Company’s head office.
The notice of meeting gives explanatory notes on the business to
be proposed at the meeting.
The Directors’ Report of Mothercare plc was approved by the
Board and signed on its behalf by
Lynne Medini
Group Company Secretary
24 May 2019
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remuneration
report
Statement from the Chair
Directors’ remuneration report
REMUNERATION REPORT
STATEMENT FROM THE CHAIR
Dear Shareholder,
I was appointed as Chair of the Remuneration Committee on 14th September 2018 and I am pleased to present the Directors’
Remuneration Report for the year ended 30 March 2019 on behalf of the Board.
This report contains the following parts:
• The Remuneration Committee’s Annual Statement, which provides an overview of the key developments and remuneration decisions
made during the financial year and sets the context for the remuneration outcomes for the financial year under review; and
• An Annual Report on Remuneration, which provides shareholders with details of the remuneration paid to the Executive Directors for the
performance delivered in 2018/19 and a summary of the work of the Remuneration Committee in the year.
Both the Annual Statement and Annual Report on Remuneration will be subject to an advisory vote at the forthcoming AGM in July 2019;
and
• The Directors’ Remuneration Policy and LTIP which were approved by shareholders at a general meeting of the company held on
Friday 29 March 2019 with 84.5% and 90.5% in favour respectively and can be referenced on our website.
Review of the 2019 financial year
Fiscal year 2019 has been a year of significant change in Mothercare. On the retirement of our Chairman Alan Parker on the 19 April
2018, we appointed Clive Whiley, a restructuring expert, as Interim Executive Chairman, to steer Mothercare through the refinancing and
restructuring of the business which was achieved in May 2018, and working with the rest of the executive team, to continue to transform the
business to deliver a sustainable and profitable future for the Company.
This transformation has included the UK store closure programme, product outsourcing, the creation of a leaner organisational structure,
a revised Group structure and the reduction of net debt assisted by the sale and leaseback of the UK head office and the sale of Early
Learning Centre.
This has required a huge effort from all involved and has touched every colleague in the UK and many in our international business. Whilst
it has also created significant but necessary disruption, this is now largely behind us, and we closed the year in a more robust position with
the right-sized organisation to deliver the next phase of our strategic transformation plan.
To support the changes in the business and ensure that the executive directors and senior management incentives are aligned to the
implementation of our strategic transformation plan, a new directors’ remuneration policy and long-term incentive plan were developed.
These were approved following a major shareholder consultation at a general meeting of the company held on Friday 29 March 2019. This
new policy replaced our 2017 Remuneration Policy and long-term value creation plan (VCP) which, in the view of the Committee, was no
longer effective or appropriate given the Company’s size and relative position in the FTSE Small Cap index. The new Policy also reflects
emerging corporate governance best practice.
Directorate changes
Executive director changes
The beginning of 2019 saw a number of executive and non-executive directorate changes as the Company adapted to the changing
requirements and size of the business.
Mark Newton-Jones stepped down as CEO on 4 April 2018 and re-joined the board as CEO on 18 May 2018. On his return as CEO his base
salary was rebased from £618,000 to £480,000 to reflect the change in the Company’s market capitalisation and its relative position in the
FTSE Small Cap index. All other benefits remained unchanged on re-appointment and all previous share awards were restored.
David Wood who joined the Board as CEO on 4 April 2018, with a base salary of £430,000, was appointed Group Managing Director
on 18 May 2018. The terms and conditions of his employment contract remained unchanged. David resigned on 21 November 2018
and remains an employee of the Company and will continue to receive his salary and benefits until the end of his notice period on
20 November 2019. Under the rules of the relevant plans, David’s equity awards lapsed.
As referenced earlier Clive Whiley joined the Board as Interim Executive Chairman and Chief Restructuring Officer on 19 April 2018 for
a minimum period of nine months. Clive receives an annual salary of £480,000 and is eligible to receive an annual bonus (Short Term
incentive Plan or STIP) award subject to clearly defined financial performance objectives. On 29 March, to provide a link between the
Executive Chairman and shareholders and provide a level of retention, the Interim Executive Chairman received a one-off award of
restricted shares with no performance conditions.
Mothercare plc annual report and accounts 2019
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Directors’ remuneration report
continued
Non-executive director changes
Our independent Non-Executive Chairman, Alan Parker, retired from the Board on 19 April 2018 after six years in the role. Alan continued to
receive his fees from the date he left the Board to the expiry of his notice period on 18 October 2018 which was consistent with his service
agreement.
Tea Colaianni resigned as non-executive director and Chair of the Remuneration Committee on 18 May 2018 to concentrate on her other
board directorships.
Richard Rivers, Senior Independent Director, and Lee Ginsberg, Chair of the Audit and Risk Committee, stepped down as Non-Executive
Directors from the conclusion of the Company’s Annual General Meeting on 19 July 2018. Richard would have been entering his 11th year
at Mothercare while Lee had taken on new roles outside the Company which impacted his commitment to support Mothercare. Nick
Wharton, Non-Executive Director, was appointed Chair of the Audit and Risk Committee.
Salary review
The CFO, Glyn Hughes, was eligible for a salary review under the terms of his contract on appointment on 1 December 2017. Based on
Glyn’s performance and his taking on of additional responsibilities the Committee approved an increase in his base annual salary from
£295,000, to £325,000 on 1 September 2018.
We are also committed to ensuring that all colleagues across the Group receive appropriate and fair pay. During the year, as part of
the Head Office restructuring, all positions, grades and salaries were reviewed and aligned to reflect market benchmarks with every
individual being paid competitively. In stores, new Mothercare hourly rates were agreed for implementation in 2020 paying above the
national minimum wage and national living wage and with additional pay for those in specialist roles.
Annual bonus – STIP
For the year ended 30 March 2019, 50% of the annual bonus was dependent on achieving Group PBT performance targets and the
balance based on a mix of strategic financial and non-financial objectives. Group PBT was not achieved and this portion of the annual
bonus will not be paid. The remaining 50% of the annual bonus award was designed to keep the Executive Directors focused on the
key strategic milestones required to deliver the transformation. The plan structure encouraged the Executive Chairman and CFO to
predominantly concentrate on strategic financial goals including the refinancing of Mothercare and to achieve substantial cost savings
for the organisation, it also encouraged the CEO on implementing the Company’s operating model changes. Overall execution has
been strong on these elements and on this basis, the Committee felt it appropriate to award an annual bonus. In line with the plan rules,
outcomes range between 33% and 50% of salary. Full details can be found on page 60.
Long-term incentives
There was no LTIP vesting during the year.
Other remuneration decisions
The CEO and CFO agreed to a voluntary reduction in their notice periods from 12 months to 6 months and in their pension contributions
from 15% to 10%.
Gender pay gap – the Group’s second Gender Pay Gap report was published and is available at www .mothercareplc.com. The report
shows that our pay gap remains largely unchanged from last year. Whilst it is disappointing that we are not yet seeing improvement, we
are confident that the work we have done (as detailed in the report) – and continue to do – will have a greater impact over the years to
come.
Outlook for the 2020 financial year
Details in relation to the application of the Directors’ Remuneration Policy in 2020 are set out on page 68, however, the key elements are as
follows:
• Due to both Company and economic factors and the wider business environment, base salaries for Executive Directors will remain
unchanged. (The average pay change in pay rates, as a result of the new hourly rates, for the non-management store population in
the wider workforce is 5.07%).
• The CEO and CFO annual bonus maximum opportunity will be subject to a maximum of 100% of base salary; this is a reduction from
125% of salary in line with the new remuneration policy and companies of a similar size. The bonus will be subject to the same mix of
performance measures which consists of Group PBT (50%), with the remaining balance split between strategic financial objectives and
strategic non-financial objectives.
• On 29th March 2019 we granted LTIP awards under our newly approved Policy at 70% of salary for the CEO and CFO. The sole
performance measure for these awards is Relative Total Shareholder Return (TSR) against a selected group of FTSE retailers. 25% of the
award will vest for Company performance equal to median performance of the comparator group and 100% vesting for performance
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Mothercare plc annual report and accounts 2019
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underpin of 30p to ensure that management is only rewarded for a meaningful recovery in the Company’s share price and that there
is a level of alignment of pay outs with the shareholder experience. As per our Policy, these awards will be subject to a two-year post
vesting holding period.
• A one-off Chairman’s Award of Restricted Stock was awarded to the Executive Chairman representing 30% of base salary; this was
made in recognition of his role in the recovery of Mothercare and to ensure his services are retained over the next crucial period for the
Company. In line with governance guidance and the planned transition of the Executive Chairman to a non-executive role at the end of
the year the Committee recognised that it was not appropriate for him to participate in the LTIP.
• The new incentive plans including the LTIP and Chairman’s Award will be subject to more robust malus and clawback provisions which
now include reputational damage and corporate failure as triggers in addition to misconduct, misstatement and calculation errors.
• The maximum pension contribution for the CEO and CFO has been reduced from 15% to 10% of salary.
• Minimum shareholding requirements have also been increased to 200% of salary for the CEO and CFO.
• Executive Directors must now also hold shares post-cessation of employment equal in value to the lower of the shareholding
requirement immediately prior to departure or actual shareholding on departure for two years.
• Non-Executive Directors’ basic fee remains unchanged for 2020.
Conclusion
I hope that you find the information in this report helpful. We believe that our approach to executive remuneration and our new Policy are
well designed to support the delivery of our transformation plan and reflect best practice in corporate governance. The Annual Report
on Remuneration and Annual Statement will be subject to an advisory vote at the forthcoming AGM. We continue to value any feedback
from Shareholders and hope to receive your support at the AGM in July.
Yours sincerely,
Gillian Kent
Chair of the Remuneration Committee
24 May 2019
REMUNERATION PHILOSOPHY
The key principles underpinning the Committee’s approach to executive remuneration are:
• To be transparent and aligned to the delivery of strategic objectives at a Company and individual level.
• To be flexible enough to take into account changes to the business or remuneration environment.
• To ensure failure at Company or individual level is not rewarded.
• To ensure that exceptional performance is appropriately rewarded.
THE REMUNERATION POLICY
The Remuneration Policy was approved at a General Meeting of the Company on 29 March 2019 and the Company is therefore not
seeking approval for a new Policy at this year’s AGM.
We summarise the changes from the previous Policy in the table below. Full details of the new Policy can be found in the Notice of
General Meeting which is available on the Company’s website (www.mothercareplc.com).
2017 Policy
Current Policy
Rationale
• Annual bonus maximum
opportunity 125% of salary
• Maximum opportunity of 100% of salary
• The Committee decided to reduce the
• Any bonus above 75% of salary deferred in
maximum opportunity under the annual
bonus in line with companies of a similar size
• Any bonus above 100% of
shares deferred for three years
salary paid in shares deferred
for three years
Mothercare plc annual report and accounts 2019
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Directors’ remuneration report
continued
2017 Policy
Current Policy
Rationale
• Long-term incentives:
• 2019 Policy – LTIP awards with a focus on
• The VCP is no longer functioning as an
• 2017 Policy – VCP. Under the
current Policy, the Executive
Directors are eligible to
participate in the VCP, sharing
in share price growth above a
threshold
• 2014 Policy – LTIP. Whilst the LTIP
is included in the current Policy, it
was agreed that further awards
would not be made under the
LTIP if the VCP was approved
by shareholders. The maximum
opportunity under the LTIP was
200% of salary
Executive Chairman remuneration:
• No long-term award in current
Policy
share price recovery
effective long-term incentive plan
• Maximum opportunity under the Policy of
• Given the VCP is two years in to its three-
100% of salary with 2019 award levels at 70%
of salary for the CEO and CFO
• LTIP Awards vest based on performance
over three years and are subject to a two-
year post-vesting holding period
• Enhanced malus & clawback provisions to
apply to awards
• Introduction of a one-off Chairman’s Award
of Restricted Stock with no performance
conditions of up to 30% of salary
• Award vests after three years subject to
continued service only and is subject to a
minimum two-year holding period
• Furthermore, the Chairman must hold all
vested shares (after income tax and NI)
under the award while on the Board and is
also subject to a further requirement to hold
the shares for a minimum of one year after
stepping down from the Board
year performance period and is expected
to lapse, the Committee decided to
introduce a long-term incentive which is
better aligned to the principles of the Policy
• The Committee recognised that maintaining
the same LTIP maximum opportunity as the
2014 Policy would be inappropriate given the
current size of the Company and reduced
the maximum opportunity of the new LTIP to
100% of salary
• For the 2019 grant of the LTIP awards were
made at 70% of salary for the Executive
Directors and it is the intention of the
Committee that they will only make awards
at the maximum Policy opportunity level if
there is a significant recovery of the share
price
• The Executive Chairman is key to the
recovery of Mothercare and the Chairman’s
Award ensures the services of the Executive
Chairman are retained for the crucial period
covered by the Restricted Stock award.
• Given the planned transition of the Executive
Chairman to a non-executive role at the
end of the year, the Committee recognises
that would not have been appropriate to
make him an LTIP award with performance
conditions
• The requirement to hold vested shares is in
line with the key principle of sustained share
price growth
• Pensions:
• Maximum contribution reduced to 10% of
• The Committee was conscious of the
• Maximum contribution of 15% of
salary
• Recruitment provisions in line
with the Policy
salary for the CEO and CFO
• Reduction in contribution for newly
appointed executive directors to be in line
with pension contributions prevailing in the
wider workforce
requirement under the Code that pension
contributions should be aligned with the
wider workforce
• The Executive Directors voluntarily reduced
their contractual pension entitlement from
15% of salary to 10% to facilitate this change
• Minimum shareholding
• Increased minimum shareholding
• A key facet of this Policy is sustained share
requirement:
• 150% of salary shareholding
requirements of 200% of salary for the CEO
and CFO
requirement for the CEO and
100% of salary requirement for
the CFO
• 100% of vested LTIP awards (after income
tax and NI) must be retained until the
requirement is met
price growth
• These changes help align the interests of
the Executive Directors and shareholders
in ensuring that the focus is on sustained
shareholder value
• 75% of vested awards (after
income tax and NI) LTIP awards
must be retained until the
requirement is met
• No post-cessation of
employment shareholding
requirement in place
• Executive Directors must also hold shares
post-cessation of employment equal in
value to the lower of the shareholding
requirement immediately prior to departure
or actual shareholding on departure for two
years
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remuneration
Annual report on remuneration
This section reports on the activities of the Remuneration Committee for the financial year ended 30 March 2019. It sets out the details
of remuneration during the reporting period, information required by the Regulations and plans for the next financial year. It has been
prepared in accordance with Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008 (“the Regulations”) as amended in August 2013. The Annual Report on Remuneration and the Annual Statement will be put to an
advisory shareholder vote at the Annual General Meeting on 26 July 2019.
• Remuneration in 2019: page 57
• Audited section: page 59
• Remuneration in 2020: page 68
Remuneration in 2019
Composition, remit and activity of the Remuneration Committee
The Remuneration Committee currently comprises two independent Non-Executive Directors – Gillian Kent (Remuneration Committee
Chair) and Nick Wharton. The Chairman and Executive Directors will only attend Remuneration Committee meetings as and when invited
by the Remuneration Committee Chair. The Group Company Secretary acts as secretary to the 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 Operating Board and oversight of remuneration policy for senior management below Executive Director and
Operating Board member level, 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 held five formal meetings during the year and three ad hoc meetings. Each member’s attendance at the meetings is set
out on page 42 of the corporate governance report. The table below lists the detail and scope of actions arising from those meetings. The
Committee’s detailed terms of reference are available on the Company’s website at www.mothercareplc.com.
Remuneration Committee Activity
The Committee considered the following matters during the financial year:
Duties
Action
Strategy and policy
Recruitment
To set the remuneration policy for all Executive
Directors and the Company Chairman and
senior management.
To ensure compliance with the Remuneration
Policy.
A new Directors’ Remuneration Policy was
approved at a General Meeting on 29 March
2019. The Policy took effect for a period of up to
three years from this date. It was developed
taking into account the principles of the UK
Corporate Governance Code 2018 and the
latest guidelines from investor groups.
Clive Whiley was appointed Executive
Chairman on 19 April 2018. The Committee
approved Clive’s remuneration package in line
with the Policy.
Mothercare plc annual report and accounts 2019
57
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Annual report on remuneration
continued
Duties
Action
Salary
To recommend to the Board the remuneration
for all Executive Directors, the Chairman and the
Company Secretary, and consider the levels
and structure of remuneration for Executive
Committee members and other members of
senior management.
Approval of any pay awards to the Executive
Directors or Executive Committee.
Annual bonus - STIP
To determine targets and monitor performance
against those targets for any performance-
related pay schemes operated by the
Company, and approve the total annual
payments made under such schemes.
Long term incentives
To review the design of all share incentive plans
for approval by the Board and shareholders.
Benefits
For any such plans, determine each year
whether awards will be made, and if so,
the overall amount of such awards, the
individual awards to Executive Directors and
other designated senior executives and the
performance targets to be used.
To recommend to the Board the remuneration
for all Executive Directors, the Chairman and the
Company Secretary, and consider the levels
and structure of remuneration for Executive
Committee members and other members of
senior management.
On Mark Newton-Jones’s reappointment to the
Board, his salary was rebased to £480,000.
In line with the Remuneration Policy an annual
review of salaries was undertaken and no
further changes were applied save as set out
below.
No change was applied to Glyn Hughes’ salary
beyond the implementation of the increase
from his salary from £295,000 to £325,000 on
1 September 2018.
No salary increases were made for the
Operating Board in March 2019.
In addition, the Committee also considered
the results of the general staff pay review. It
supported (i) the benchmarking review carried
out during the Head Office restructure; and (ii)
the increase of the Mothercare minimum wage
to £8.30/hour (from age 21) with effect from 1 April
2019 which means the Company continues to
pay above the national living wage.
Approved the full year 2019 targets and
weightings for Clive Whiley, Mark Newton-Jones,
David Wood and Glyn Hughes.
Approved 2019 Annual bonus awards for Clive
Whiley, Mark Newton-Jones and Glyn Hughes
as reported on page 60.
A new long-term incentive plan (LTIP) was
approved at a General Meeting on 29 March
2019.
Approved LTIP awards and the Executive
Chairman’s award under the new LTIP. The
awards were made with the proviso that, should
the VCP vest – which in the Committee’s opinion
is unlikely, the LTIP will not pay out to those
participating in the VCP.
During the year the Executive Directors
voluntarily reduced their pension contributions
from 15% to 10% and the Executive Directors also
reduced their annual bonus entitlements from
125% to 100%. The Executive Chairman received
private medical expenses insurance and life
insurance with effect from 14 December 2018. No
other changes made to Executive Director or
Executive Committee benefits during the year.
58
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Single total figure remuneration table (audited)
The table below shows the single total figure remuneration for qualifying services in 2019 with comparative figures for 2018.
Director
Executive
Clive Whiley1
Mark Newton-Jones2
David Wood3
Glyn Hughes4
Non Executive
Gillian Kent7
Nick Wharton
Alan Parker8
Lee Ginsberg10
Richard Rivers10
Tea Colaianni9
Salary and fees
2019
£000
2018
£000
Benefits
2019
£000
2018
£000
Pension
2019
£000
Annual bonus
2019
£000
2018
£000
2018
£000
Long Term
Incentives5
2019
£000
2018
£000
Other
2019
£000
2018
£000
Total
2019
£000
2018
£000
456
433
274
318
44
44
10
15
14
7
618
–
91
48
48
188
56
53
56
0
11
8
12
0
5
0
0
0
1
–
13
–
4
0
2
0
0
0
1
–
58
41
35
–
966
–
14
240
158
0
163
0
–
0
0
–
0
0
–
0
0
0
0
0
696
660
323
528
44
49
10
15
14
8
–
727
109
48
50
188
56
53
57
1
2
3
4
5
6
7
8
9
Clive Whiley joined as a Director on 19 April 2018 on an annual salary of £480,000.
Mark Newton-Jones’s salary on 4 April 2018, when he ceased to be a director, was £618,000. He returned to an executive director role on 18 May 2018 on a rebased salary of
£480,000.
David Wood joined as a Director on 04 April 2018 and ceased to be a director on 21 November 2018. His salary, benefits and pension represent the actual amounts paid during
the financial year. In line with the terms of the Remuneration Policy he was not eligible for a bonus payment.
Glyn Hughes became an Executive Director on 1 December 2017. His salary, benefits and pension represent the actual amounts paid during the financial year.
LTIP and VCP awards for Mark Newton-Jones were restored upon his reappointment to the Board. Glyn Hughes did not have any long-term incentives eligible for vesting for the
2019 performance year.
In 2018 Mark Newton-Jones received an overpayment of £2,915 of his pension supplement in error. This was recovered during 2019.
Gillian Kent received a pension contribution in error, this is being corrected during 2020.
Alan Parker retired as non-executive chairman on 19 April 2018.
Tea Colaianni resigned as a director on 18 May 2018.
10
Lee Ginsberg and Richard Rivers stepped down as directors at the annual general meeting held on 19 July 2018.
Executive Director base salary (audited)
Clive Whiley’s salary on joining on 19 April 2018 was £480,000
Mark Newton-Jones’s salary on 4 April 2018 was £618,000. Upon his return to an executive director position on 18 May 2019, his salary was
rebased to £480,000.
David Wood’s salary was £430,000. See page 63 for payments for loss of office.
Glyn Hughes was appointed on 1 December 2017 and his annual salary was set at £295,000. This increased to £325,000 following a review
of Glyn’s performance and increased responsibilities on 1 September 2018.
Non-Executive Director fees (audited)
The Non-Executive Directors’ fees remained unchanged in the year. Further information is available on page 70.
Taxable benefits (audited)
Benefits for Executive Directors typically include a company car, medical insurance and other similar benefits. For Non-Executive Directors,
reimbursement of certain expenses relating to the performance of such a director’s duties in carrying out activities such as travel to and
from Company meetings, are classified as taxable benefits. In such cases, the Company ensures that the director is not out of pocket by
settling the related tax via a PAYE Settlement Agreement (PSA). In line with current regulations, these taxable benefits have been disclosed
and the gross figures are shown in the taxable benefits column in the single total figure remuneration table above.
Total pension entitlements (audited)
Base salary is the only element of remuneration included in pensionable earnings. During the year, Mark Newton-Jones and Glyn Hughes
received 15% of their base salary as a pension contribution from the Company to 31 January 2019 and voluntarily reduced their entitlement
to 10% of their base salary from 1 February 2019. David Wood received 15% of his base salary during his tenure.
Mothercare plc annual report and accounts 2019
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Annual report on remuneration
continued
None of the directors have a prospective entitlement to a defined benefit pension by reason of qualifying services. Clive Whiley does not
receive a pension contribution.
Annual Bonus Plan (audited)
In the table below, we summarise the achievement of each performance measure.
Clive Whiley
Mark Newton-Jones
David Wood2
Glyn Hughes
Maximum
(% of salary)
100%
100%1
125%
100%1
Achievement (% of maximum)
Group PBT
0%
0%
Financially based
strategic measures
40%
20%
Non-financial
strategic measures
10%
13%
Pay-out (£000)
£240,000
£158,400
0%
Not eligible
40%
10%
£162,500
1
Mark Newton-Jones and Glyn Hughes voluntarily elected to reduce their maximum opportunity under the annual bonus to 100% from 125% during the year.
2.
David Wood ceased to be a director on 21 November 2018 and in line with the terms of the Remuneration Policy was not eligible for a bonus payment.
The Committee acknowledges the importance of the contributions of Clive Whiley and Glyn Hughes, in particular their work on the
refinancing and restructuring which is pivotal to the continued success. The Committee also acknowledges Mark Newton-Jones’
contribution to the restructuring and the ongoing development of the company’s customer offer as well as his taking on additional
objectives during the year.
In recognition of these contributions, the Committee approved a bonus payment to the Executive Directors. We provide a breakdown of
the assessment of performance for each element of the award below.
It should be noted that each of the elements of the award operate independently of each other, for example the financial strategic
objectives can vest without the Group PBT objective being met and vice versa. It should also be noted that the financial strategic
objectives and non-financial strategic objectives comprise of multiple measures and each individual measure can also vest
independently of other measures.
Group PBT objective (50% of total award) for 2019
Measure
Group PBT
Detail
Achieve target of £5.9m
Assessment
Not met
Total Score
(%)
0%
Financial strategic objectives (40% of total award) for 2019 - these objectives were shared by both the Chairman and the CFO in the year.
Measure
Refinancing
Cost savings
Net debt (CFO only)
Detail
Secure the refinancing of Mothercare
including:
Maintaining the banks’ facilities,
securing bridge finance, complete the
CVA and equity raise post CVA
Achieve annualised cost savings of
£19m
Achieve an additional £10m of
annualised cost savings whilst securing
long-term business viability
Achieve closing net debt target
Assessment
All the targets were achieved, including
maintaining the banks’ facilities of
£67.5m, securing bridge financing of
£8m, completing the CVA with pension
scheme support by July 2018 and
raising £32.5m equity post CVA
Annual cost savings were achieved
through the CVA, product outsourcing
and the organisation restructure
Substantially achieved
Target was exceeded
Total Score
(%)
Chair: 25%
CFO:20%
15%
5%
Non-financial strategic objectives for 2019 – the non-financial strategic objectives were set individually for the Chairman, CEO and CFO
and the tables below outline each Executive Director’s targets.
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Clive Whiley
Measure
Future operating model
Mark Newton-Jones
Detail
Lead the development and delivery
of the new organisational structure
and operating model for the long term
success of the company with delivery to
key milestones
Assessment
Design and delivery of the new
organisational structure and operating
model achieved in full
Total Score
(%)
10%
Measure
Franchise model
Detail
Secure the international franchise model
Global sourcing
Launch new global sourcing model
Wholesale model
Implement 1 new partner trial
Assessment
Achieved, with Reliance signed as the
new franchise partner in India
Achieved with the negotiation and
contract with W E Connor as the new
responsible sourcing partner and
started the migration to them
Achieved
Total Score
(%)
5%
10%
5%
Additional objectives taken on by Mark Newton-Jones following the departure of David Wood, who, in line with the remuneration policy,
was not eligible for a bonus payment.
Measure
Ecommerce
UK retail
Brand
Glyn Hughes
Measure
Investor relations
Detail
Lead the development of Mothercare’s
ecommerce channel including the
development and delivery of the
roadmap to increase critical KPIs and
grow the channel above budget
Lead and develop the UK store
performance and specialist service
levels to improve NPV
Reposition the Mothercare brand
and build the proposition to be more
relevant and engaging to our core
customers
Assessment
Ecommerce channel did not meet the
expectations set for the year
Total Score
(%)
0%
All CVA stores were closed ahead of
plan. A specialist instore development
programme has been devised and is
in the process of being rolled out.
Achieved through branding campaigns
and improvement in customer
engagement measure from 81% to 84%
8%
5%
Detail
Develop and build trust and
confidence in the transformation plan
among key shareholders
Assessment
Substantially achieved through
consistent and continuous shareholder
contact over the last year generating
support for the transformation
Total Score
(%)
10%
The Committee remains committed to transparent reporting in all aspects within the framework of operating in a highly competitive
international market. The Committee will continue to assess the commercial sensitivity of measures and targets with the aim of disclosing
wherever possible.
Whilst the CEO’s and CFO’s 2019 maximum bonus opportunities were set at 125% of base salary (the same as in 2018), during the year they
voluntarily reduced their maximum opportunity to 100% of base salary. In line with the new Remuneration Policy, the maximum opportunity
is now 100% with up to 75% of salary payable in cash. Any bonus payable in excess of this is delivered in shares vesting after three years
subject to the participant’s continued employment. The annual bonus payments for 2019 did not exceed 75% of salary and so there was
no deferral.
Mothercare plc annual report and accounts 2019
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Annual report on remuneration
continued
Long term incentive plans (audited)
LTIP 4
The LTIP 4 award granted in June 2015 was tested in relation to the relative TSR position at the end of 2018 and the threshold target was not
met. Consequently, there was nil vesting under this element as reflected in the single figure table. The Group PBT element was measured
following the announcement of the 2019 financial results and no vesting for this element of the award. The Committee did not exercise any
discretion in this regard.
Measure
Relative TSR against FTSE All Share
Retailers
Group PBT
1 Straight line vesting between threshold and maximum
Weighting
(% of total award)
Threshold1
(25% vesting)
Maximum1
(100% vesting) Outcome
Vesting of this
element
50%
50%
Median
£55m
Upper quartile Below median
£70m Below threshold
0%
0%
The LTIP 4 award for Mark Newton-Jones was reinstated upon his reappointment as CEO.
LTIP 5
The LTIP 5 award granted in August 2016 is subject to two performance measures - an underlying EPS growth target, which accounts for
50% of the award and relative TSR which accounts for the balance. Half of any awards vesting under LTIP 5 will be released after the end
of the three-year performance period with the remaining half subject a further holding of one year.
Measure
Relative TSR against FTSE All Share
Retailers
EPS
Weighting
(% of total award)
Threshold1
(25% vesting)
Maximum1
(100% vesting) Outcome
Vesting of this
element
50%
50%
Median
25% CAGR
Upper quartile Below Median
35% CAGR Below Threshold
0%1
0%
1
Straight line vesting between threshold and maximum
The EPS performance period concluded at the end of 2019 and performance was below threshold leading to this element lapsing.
The TSR performance period concludes in August 2019, however, performance as at the end of 2019 was tested and it is unlikely that there
will be any vesting under this element.
As performance was substantially completed during this financial year, this amount is reported in the single figure table, however this
figure will be updated in the 2020 annual report if required.
The LTIP 5 award for Mark Newton-Jones was reinstated upon his reappointment as CEO.
New LTIP 2019 (audited)
The LTIP 2019 was awarded on 29 March 2019 and is subject to a relative TSR performance measure with a share price underpin of 30p.
Vesting occurs on the third anniversary subject to the testing of the performance conditions. For the executive directors all awards vesting
will be subject to an additional two-year holding period.
Measure
Relative TSR against bespoke FTSE Retailers with
30p share price underpin
1 Straight line vesting between threshold and maximum
Weighting
(% of total award)
Threshold1
(25% vesting)
Maximum1
(100% vesting
100%
Median
Upper quartile
The LTIP2019 performance period concludes at the end of 2022. The table below sets out the plan interests awarded during the year to
executive directors.
Director
Mark Newton-Jones
Glyn Hughes
Plan
LTIP2019
LTIP2019
Basis of
award
70%
70%
Face
value
£336,000
£227,500
% vesting
at threshold
performance
25%
25%
Number of
shares
1,806,257
1,222,987
Performance
period end
2022
2022
The number of share options were calculated using an average share price of £0.186 per share. This was calculated by reference to the
average closing share price over a period of the 30 business days ended 28 March 2019.
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Mothercare plc annual report and accounts 2019
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During the year, a one-off award of restricted shares was made to the Executive Chairman. There are no performance conditions
attached to the award and vesting is dependent on the Executive Chairman’s continued employment with the Company. This award is
due to vest at the end of 2022 and all vested awards are subject to a further two year holding period.
Director
Clive Whiley
Plan
LTIP2019 – Chairman’s award
Basis of award
30%
Face value
£144,000
Number of shares
774,110
Vesting Date
29 March 2022
The number of conditional share award options were calculated using an average share price of £0.186 per share. This was calculated by
reference to the average closing share price over a period of the 30 business days ended 28 March 2019.
VCP
In 2018 a one-off award under the 5-year VCP was granted in place of future annual awards under the former LTIP.
VCP parameter
Hurdle
Performance & holding period
Participation pool / value delivered
Measurement and value delivered
Award limit
Implementation
Share price of £2.00
Overall 5-year period:
• 3-year performance period to 28 March 2020 2-year phased holding period
If hurdle of £2.00 is achieved at the end of the 3-year period, award delivers 12.5% of
growth in value above £1.50
If share price adjusted for dividends at end of 3 years is at least £2.00, award delivers
12.5% of growth in value above £1.50
Dilution capped at 5% of issued share capital over 5 years for all plans
In 2018 Mark Newton-Jones was granted an award under the VCP of 4.375% (35% of the total 12.5% pool) of the value created above a
starting share price of £1.50 if a hurdle share price of £2.00 is met up to a maximum of 4.5 million shares. Mark Newton-Jones’s entitlement
lapsed on 4 April 2018 but was reinstated following his reappointment as CEO on 18 May 2018.
On his appointment as CFO Designate prior to his appointment as an Executive Director, Glyn Hughes was granted an award under the
VCP of 1.75% (14% of the total 12.5% pool) of the value created above a starting share price of £1.50 if a hurdle share price of £2.00 is met up
to a maximum of 1.8 million shares.
Both the CEO and CFO are participants in the VCP. However, at the current share price, it is projected that no vesting will occur under the
VCP. In the unlikely event that the VCP does pay out based on performance, the new LTIP will not pay out to those participating in the VCP.
Payments to past directors (audited)
There were no payments made to past Directors.
Payments for loss of office (audited)
The following payments were made during the year to those who were directors for part of the year:
Mark Newton-Jones (4 April to 18 May 2018)
Alan Parker (20 April to 18 October 2018)
David Wood (22 November to 30 March 2019)
Salary
£000
77
64
153
Benefits
£000
2
–
4
Pension
£000
12
–
23
Mothercare plc annual report and accounts 2019
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Annual report on remuneration
continued
Statement of shareholding and share interests (audited)
Executive Directors are expected to build up a shareholding in the Company. After five years, the CEO and CFO are expected to hold
shares in the Company equal to 200% of base salary. There is no requirement for the Executive Chairman to build up a shareholding in
the Company.
The Executive Directors are committed to building up their shareholding in Mothercare.
Since their appointments in 2014 and 2017 respectively the CEO and CFO have purchased 2,258,552 and 353,204 shares respectively at an
average price of 40.8p and 36.6p per share representing 192% and 39% of their gross salaries.
The levels of share ownership as at 30 March 2019 are shown below:
Shareholding
requirement
(% salary)1
Current
shareholding
(% salary)2
Legally
owned as at
30 March
2019
Legally
owned as at
24 March
2018
Subject to
performance
conditions
Not
Subject to
performance
conditions
Vested but
unexercised
Unvested LTIP
interests
Unvested
SAYE options
Shareholding
requirement
met?
Shares held directly
Other
Shares
Options
n/a
200%
200%
200%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
92.6%
21.4%
45.79%
n/a
n/a
n/a
n/a
n/a
n/a
500,000
2,296,710
353,204
1,000,000
–
14,592
562,428
10,830
210,869
40,000
–
733,576
123,799
–
–
7,296
562,428
10,830
210,869
40,000
–
–
–
n/a
n/a
–
–
–
n/a
n/a
774,110
–
2,973,963
130,984
1,222,987
–
n/a
n/a
–
–
n/a
n/a
–
–
–
n/a
n/a
n/a
no
no
no
n/a
n/a
Director
Executive Directors
Clive Whiley
Mark Newton-Jones
Glyn Hughes
David Wood4
Non-Executive Directors
Gillian Kent
Nick Wharton3
Alan Parker4
Lee Ginsberg4
Richard Rivers4
Tea Colaianni4
1
2
3
4
Executive Director shareholding to be built up within five years of joining the Company
Shareholding percentage was calculated by reference to the average mid-market quoted share price over the 30 days to the balance sheet date
Nick Wharton’s interest is held by his spouse, a person closely associated
Holding as at termination date
There were no movements in the shareholding of current directors since the year end and the date of finalising this report, 24 May 2019.
The outstanding awards as at 30 March 2019 under the LTIP, deferred annual bonuses and SAYE are set out in the table below.
Date of
award
Number of
awards at
24.03.18
Awards
granted
Awards
vested
Awards
lapsed
Number of
awards at
30.03.19
Exercise
price
Date at which
award vests
Expiry date
of awards
Director
Clive Whiley
Plan
LTIP 2019
Chairman’s
award
Mark Newton-Jones
SAYE
LTIP 3
29.03.19
03.01.19
22.12.16
12.12.14
–
–
774,110
130,984
20,000
989,011
LTIP 4
03.06.15
522,079
LTIP 5
08.08.16
906,666
–
–
–
–
LTIP 2019
29.03.19
–
1,806,257
Glyn Hughes2
Annual Bonus
(deferred shares)
03.06.15
31,5452
SAYE
–
LTIP 2019
29.03.19
–
–
–
–
38,158
–
1,222,987
–
–
–
–
–
–
–
–
–
20,000
989,011
774,110
Nil
29.03.2022
29.03.2029
130,984
0
0
13p4
90p
01.03.22
01.03.20
Nil
50% end FY171
50% end FY181
30.08.22
30.08.20
12.12.24
261,039
261,040
Nil
50% end FY181
03.06.25
–
–
–
–
906,666
Nil
50% end FY191
08.08.26
50% end FY191
1,806,257
0
–
1,222,987
Nil
Nil
–
Nil
50% end FY20
29.03.2022
29.03.2029
03.06.18
–
N/A
–
29.03.2022 29.03.2029
1
2
3
Vesting is determined by the Committee following publication of the preliminary results for the respective financial year.
31,545 adjusted following the placing and open offer to 38,158.
The CEO and CFO also have outstanding VCP awards, the CEO’s being 4.375% (35% of the total 12.5% pool) and the CFO’s being 1.75% (14% of the total 12.5% pool) of the value
created above a starting share price of £1.50 if a hurdle share price of £2.00 is met up to a maximum of 1.8million shares.
4
Option price of 13p calculated on the three day average MMQ on 23/26/27 November 2018 discounted by 20% as provided for under the plan rules.
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The table above shows the maximum number of shares that could have been released if awards were to vest in full. As at the date
of this report in 2018, all outstanding awards in this table had lapsed in line with the plan rules. However, upon Mark Newton-Jones’s
reappointment to the Board, his awards were restored.
Mothercare Employees’ Share Trustee Limited
The Mothercare Employees’ Share Trustee Limited, held 5,986 Mothercare plc shares in trust on 30 March 2019 (24 March 2018: 5,986 shares).
A separate trust, the Mothercare Employee Trust, held 988,022 shares on 30 March 2019 (24 March 2018: 1,013,707 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.
Performance graph
The performance graph below shows the Group’s TSR against the return achieved by the FTSE Small Cap index. Given the Company’s
share price and market capitalisation, the Committee believes that the FTSE Small Cap represents the most appropriate index for
comparison.
The graph also shows performance against the FTSE All Share General Retailers Index, given the Company is a constituent of this index.
The graph shows the ten financial years to 30 March 2019.
Total return since March 2009 (rebased to 100)
500
450
400
350
300
250
200
150
100
50
0
31/03/2009
31/03/2010
31/03/2011
31/03/2012
31/03/2013
31/03/2014
31/03/2015
31/03/2016
31/03/2017
31/03/2018
31/03/2019
Mothercare
FTSE Small Cap
FTSE All-Share General Retailers
Mothercare plc annual report and accounts 2019
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Annual report on remuneration
continued
CEO remuneration table
The table below sets out the details for the director undertaking the role of Chief Executive Officer over the past ten years.
Year
2019
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
CEO
Mark Newton-Jones1
David Wood1
Mark Newton-Jones
Mark Newton-Jones
Mark Newton-Jones
Mark Newton-Jones
Simon Calver
Simon Calver
Ben Gordon
Ben Gordon
Ben Gordon
CEO single figure of
total remuneration
(£000s)
622
323
727
718
814
774
587
611
5,038
5,231
6,505
Annual bonus pay-out
against maximum (%)
33%
0%
0%
0%
0%
46%
0%
11%
0%
0%
27.7%
Long term incentive
vesting against
maximum opportunity
(%)
0%
0%
0%
0%
0%
0%
0%
0%
65.5%
99.5%
100%
1
The figures in the table above represent the single figure numbers for the whole year for the individuals who undertook the role of CEO during the year. In respect of David
Wood, he was CEO between 04 April 2018 and 18 May 2018, his salary for this period was £274,000.
Mark Newton-Jones was appointed CEO on 17 July 2014 and stepped down from that position on 4 April 2018 and was reappointed on
18 May 2018. David Wood was appointed as CEO on 4 April 2018 and became Group Managing Director on 18 May 2018; he resigned
from the board on 21 November 2018. 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. Ben Gordon resigned from the Board with effect from 17 November 2011.
Percentage change in remuneration of director undertaking the role of CEO
The table 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 2018 and 2019.
Base Salary p.a.
All taxable benefits2
Annual Bonuses
2019
£
480,000
11,392
158,400
CEO
2018
£
618,000
12,928
–
%
Change
–22.33%
–11.9%
Average of salaried employees
2019
£
37,398
6,134
–
2018
£
39,148
6,073
–
%
Change
-4.5%1
1.0%
n/a
1
2
Average salary excludes hourly paid employees due to the variability in the hours they work and includes salaries for part-time employees.
Mark Newton-Jones’s taxable benefits are actual spend and include car allowance and medical.
Relative importance of spend on pay
The following table sets out the percentage change in dividends and overall spend on pay in 2019 compared to 2018.
Dividend
Employee Remuneration
2019
Nil
£63.4m
2018
Nil
£71.3m
% Change
0
-11.1%
Employee remuneration taken from note 7 on page 105, includes hourly paid employees and excludes ELC discontinued operations. 2018
figure adjusted for 53rd week.
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Advisors to the Committee
The Committee retains external suppliers to provide advice on specific topics during the year, some of whom attend Committee meetings
at the invitation of the Chair. The Committee has also consulted with the CEO, CFO, People and Governance Director and Group
Company Secretary. No Executive has been present for discussions in relation to their own remuneration.
People or Organisation
PricewaterhouseCoopers LLP (PwC)
Scope
Advice in relation to executive
remuneration and benchmarking,
incentive design, shareholder
consultation and attendance at
various Committee meetings.
Fees
£59,600 excluding VAT, calculated based on both hourly
rates and fixed fee bases. (2018 £91,100).
The appointment of external independent remuneration consultants is the responsibility of the Committee. PwC were appointed as the
Committee’s independent advisers in 2012 following a selection process. PwC also provides certain other advice and non-audit services
to the Group (including VAT advice). The Committee is satisfied that this does not compromise the independence of the advice provided.
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.
Statement of voting at General Meeting
The 2018 Directors’ Remuneration Report (other than the part containing the Directors’ Remuneration Policy) was approved at the Annual
General Meeting held on 19 July 2018. The revised Directors’ Remuneration Policy and establishment of a new long-term incentive plan
(LTIP) were approved at the General Meeting held on 29 March 2019. Having passed a binding vote at that General Meeting on 29 March
2019 the Policy is next subject to a binding vote in 2022.
The resolutions were passed on a show of hands at the meetings. The following proxy votes were received in advance.
Meeting
AGM 19.07.18
GM 29.03.19
GM 29.03.19
Resolution
To approve
the Directors’
remuneration
report (2018)
To approve
the Directors’
Remuneration
Policy (2019)
To approve the
establishment
of a long-term
incentive plan
(“LTIP”)
Votes For
(including
Discretion)
% of Votes
For (including
discretion)
Votes
Against
% of Votes
Against
Total votes
cast (excluding
withheld)
Votes
Withheld*
% of votes
withheld
108,318,373
81.92
23,912,054
18.08
132,230,427
77,805
0.06
230,313,298
84.52
42,185,076
15.48
272,498,374
59,811
0.02
246,573,026
90.49
25,915,344
9.51
272,488,370
69,815
0.03
* 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 19 July 2018, the Company’s issued share capital and total voting rights consisted of 170,871,885 ordinary shares each carrying voting
rights.
As at 29 March 2019 the Company’s issued share capital and total voting rights consisted of 341,743,770 ordinary shares each carrying
voting rights.
There are no shares in treasury. As a result, proxy votes representing approximately 77% of the voting capital were cast for the 2018 AGM
and 79% for the 29 March 2019 General Meeting.
Prior to the meetings the Committee sought to engage with shareholders as much as possible, consulting with major shareholders who
made up c80% of the Company’s shareholding register as well as consulting with shareholder advisory bodies. The Committee received
positive feedback for the proposals and made several changes to the policy and LTIP as a result of this process.
Following the results of the General Meeting which saw the new Directors’ Remuneration Policy receive a vote ‘for’ of 84.52%, the
Committee granted awards under the LTIP on 29 March 2019 to the CEO, CFO and a one-off Chairman’s award.
The Committee will continue to engage with shareholders and their advisory bodies on an ongoing basis as appropriate.
Mothercare plc annual report and accounts 2019
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Annual report on remuneration
continued
Statement of implementation in 2020
Executive Directors
Base pay
Executive Director salaries are normally reviewed in March each year. In light of the Company’s trading and profit position, it was decided
not to increase base salaries for 2020. Base salaries will be reviewed again in March 2020.
Job Title
Name
Executive Chairman
CEO
CFO
1
Clive Whiley
Mark Newton-Jones1
Glyn Hughes
Upon his reappointment to the Board on 18 May 2019, Mark Newton-Jones’s base salary was rebased to £480,000
2019/20
£480,000
£480,000
£325,000
2018/19
£480,000
£480,000
£325,0002
Increase
0%
0%
0%
2
With effect from 1 September 2018 Glyn Hughes’ base salary increased to £325,000.
Annual bonus (STIP)
All Executive Directors’ 2020 maximum bonus opportunity is 100%. In line with the new Remuneration Policy any award up to 75% of salary
will be payable in cash. Any bonus payable in excess of this will be delivered in shares vesting after three years subject to continued
employment.
The performance measures and weightings for the Executive Chairman for 2020 are outlined below.
Measure
Group PBT
Financially based strategic measures
The performance measures and weightings for the CEO and CFO for 2020 are outlined below:
Measure
Group PBT
Financially based strategic measures
Non-financial strategic measures
Weighting
50%
50%
Weighting CEO
50% minimum
20%
30% maximum
Weighting CFO
50% minimum
20%
30% maximum
Due to the potential impact on our commercial interests, annual bonus targets are considered commercially sensitive and therefore will
be disclosed in the 2020 Remuneration Report following completion of the financial year.
Measures and targets will be set taking into account the Company’s current financial position and the imperative to focus on the delivery
of a successful plan to improve performance.
Long term incentive awards
The award made under the LTIP at the end of 2019 carries a performance period that spans 2020 to 2022. This award was granted within
the terms as set out in the new Remuneration Policy. Details of this grant can be found on page 62 of this report.
In line with the new Remuneration Policy, any awards made under the LTIP are within the maximum LTIP opportunity of 100% of salary. All
Executive Directors’ awards carry a performance period of 3 years and vested awards will be subject to an additional two-year holding
period. Performance conditions attached will be decided by the Remuneration Committee and be aligned to the Company’s strategic
objectives.
No further award will be made to the Executive Chairman under the LTIP and no further awards will be made under the VCP.
Pensions and benefits
There are no changes proposed for pensions and benefits, and these will be provided in line with the approved Policy.
68
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Illustrations of application of Remuneration Policy
The Policy results in a significant proportion of the remuneration received by executive directors being dependent on Company
performance. The charts below show how total pay for the CEO and CFO vary across various performance scenarios.
Minimum
Comprises fixed elements of pay being
salary, benefits and pension.
Target
Comprises fixed elements
of pay
Maximum
Comprises fixed elements
of pay
Maximum with 50% share price
growth
Comprises fixed elements
of pay
The Executive Chairman does not receive
any additional benefits or a pension
The value of salary and pension is
calculated based on the annual salary and
employer pensions contributions. The value
of the benefits received is for the FY2018/9
year end
This scenario assumes no pay-out under
the annual bonus and LTIP.
Assumes 50% pay-out of
the annual bonus
Assumes 100% pay-out of
the annual bonus
Assumes 100% pay-out of
the annual bonus
Assumes threshold pay-out
of the LTIP
Assumes maximum pay-out
of the LTIP
Assumes maximum pay-out
of the LTIP plus the value
resulting from a share price
growth of 50%
For the Executive Chairman, the Chairman’s Award is included in full as there are no performance conditions attached to this
award. No share price appreciation has been shown for the Chairman’s Award as there are no performance conditions.
£000
2,000
1,500
1,000
500
0
£000
1,000
800
600
400
200
0
Mark Newton-Jones
1,355
25%
35%
40%
10%
863
28%
62%
539
100%
1,523
33%
32%
35%
Clive Whiley
624
864
28%
1,104
1,104
43%
43%
100%
72%
57%
57%
£000
1,200
1,000
800
600
400
200
0
Minimum On-target Maximum
Fixed
Bonus
LTIP
50% share
price
Minimum On-target Maximum 50% share
Fixed
Bonus
price
Glyn Hughes
838
25%
35%
941
33%
31%
40%
36%
10%
536
28%
62%
337
100%
Minimum On-target Maximum 50% share
Fixed
Bonus
LTIP
price
Mothercare plc annual report and accounts 2019
69
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Annual report on remuneration
continued
The Non-Executive Directors
In 2018 the Non-Executive Directors offered to reduce their fees and the Company accepted. There has been no change to the fees since
the reduction became effective in February 2018. Expenses incurred are reimbursed in accordance with the normal business expense
policy.
Job Title
NED
Name
Gillian Kent
2020
£47,500
2019
£47,500
Change Notes
0% Includes supplementary fee of £7,500 as Chair of
the Remuneration Committee
NED
Nick Wharton
£47,500
£47,500
0% Includes supplementary fee of £7,500 as Chair of
the Audit and Risk Committee
APPROVAL
This report was approved by the Board of Directors on 24 May 2019 and signed on its behalf by Gillian Kent, Chair of the Remuneration
Committee.
70
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statements
Financial statements
Contents
Financial statements
72 Directors’ responsibilities statement
73
Independent auditor’s report
84 Consolidated income statement
85 Consolidated statement of comprehensive income
86 Consolidated balance sheet
87 Consolidated statement of changes in equity
88 Consolidated cash flow statement
89 Notes to the consolidated financial statements
Company financial statements
137 Company balance sheet
138 Company statement of changes in equity
139 Notes to the company financial statements
144 Five year record
145 Glossary
147 Shareholder information
Mothercare plc annual report and accounts 2019
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Directors’ responsibilities statement
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), including FRS 101 “Reduced
Disclosure Framework”. Under company law the directors must not
approve the accounts unless they are satisfied that they give a true
and fair view of the state of affairs of the company and of the profit
or loss of the company for that period.
In preparing the parent company financial statements, the
directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgments and accounting estimates that are reasonable
and prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
In preparing the group financial statements, International
Accounting Standard 1 requires that directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial
performance; and
• make an assessment of the company’s ability to continue as a
going concern.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the company and enable them to ensure
that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the company’s
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
company and the undertakings included in the consolidation
taken as a whole;
• the 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
• the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the
information necessary for shareholders to assess the company’s
position and performance, business model and strategy.
This responsibility statement was approved by the board of
directors on 24 May 2019 and is signed on its behalf by:
Mark Newton-Jones
Chief Executive Officer
Glyn Hughes
Chief Financial Officer
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Independent
auditor’s report
to the members of
mothercare plc
Independent auditor’s report
to the members of mothercare plc
Report on the audit of the financial statements
Opinion
In our opinion:
• the financial statements of Mothercare plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the state of
the group’s and of the parent company’s affairs as at 30 March 2019 and of the group’s loss for the 53 weeks then ended;
• the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• the 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.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes in equity;
• the consolidated cash flow statement;
• the related consolidated notes 1 to 34 and parent company 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, including FRS 101 “Reduced Disclosure Framework” (United Kingdom
Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited
by the FRC’s Ethical Standard were not provided to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Mothercare plc annual report and accounts 2019
73
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Independent
auditor’s report
to the members of
mothercare plc
Independent auditor’s report
to the members of mothercare plc continued
Material uncertainty relating to going concern
We draw attention to Note 1 in the financial statements, concerning the Group’s ability to continue as a going concern. As at 30 March 2019 the
Group had net debt of £6.9 million (2018: £44.1 million) and was in compliance with covenant requirements. Current net debt as at the date of this
report amounts to 15.0 million.
At 30 March 2019, the Group’s committed facilities comprise a £30.0 million Revolving Credit Facility (“RCF). This facility is expected to reduce to
£18.0 million by August 2019.
As stated in Note 1, if the risk and sensitivities applied in the Directors’ reasonable worst case forecast, or a more significant and
prolonged decline in trading performance were to materialise, beyond that seen in FY19, the Group would breach its fixed charge
covenant on its existing banking facilities and at certain points of the working capital cycle have insufficient facilities within the twelve-
month period from the date of this report. If this scenario were to crystallise the Group would need to renegotiate with its relationship
banks in order to secure additional funding and a reset of covenants.
In response to this we:
• assessed the design and implementation of the controls in place to address this key audit matter;
• obtained an understanding of the financing facilities, including the nature of facilities, repayment terms, covenants and attached
conditions;
• assessed the facility and covenant headroom calculations on both a base case scenario, and the directors’ downside scenario;
• challenged the appropriateness of management’s forecasts by testing their mechanical accuracy, assessing historical forecasting
accuracy, understanding management’s consideration of downside sensitivity analysis and applying further sensitivities to
understand the impact on facilities and covenant compliance;
• considered the consistency of management’s forecasts with other areas of the audit, such as the impairment financial models and
the forecasts underpinning the viability statement; and
• reviewed the wording of the going concern statement, including the material uncertainty, and assessed its consistency with
management’s forecasts.
As stated in Note 2, these events or conditions, along with the other matters as set forth in Note 2 to the financial statements, indicate
that a material uncertainty exists that casts significant doubt on the Group’s and the Company’s ability to continue as a going concern.
The financial statements do not include the adjustments that would result if the Group or Company was unable to continue as a going
concern. Our opinion is not modified in respect of this matter.
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HEAD_0 1st line continued2nd line continued Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Going concern assumption (see material uncertainty related to going concern section);
• Classification and presentation of adjusted items;
• Accuracy and completeness of the inventory obsolescence provision;
• Impairment of UK store assets and associated onerous lease provisions; and
• Accounting for the disposal of the Early Learning Centre business.
Within this report, any new key audit matters are identified with
and any key audit matters which are the same as the prior year identified with
.
Materiality
The materiality that we used for the group financial statements was £1.6 million. This was determined based on
0.28% of current period revenue. The benchmark of 0.28% was determined as the average of materiality as a
percentage of revenue for the three previous financial periods (2016 - 2018).
Scoping
Full audit procedures were performed over 99% of the Group’s revenue and 95% of the Group’s loss before tax.
Significant changes in our
approach
The accounting for the disposal of the Early Learning Centre business in the financial period has been identified
as a key audit matter. A significant level of Management judgement was required to determine the loss on
disposal and results from discontinued operations.
This year we no longer consider the recognition of supplier funding arrangements or the recoverability of
deferred tax assets to be key audit matters.
The recognition criteria for accrued supplier funding related balances at year end is consistent with prior years,
with the majority of amounts determined by an established methodology requiring limited management
judgement.
Following the sale of the Early Learning Centre business during the financial period, there are no material
deferred tax assets remaining.
We did not include India as a significant component as this component does not contribute to a significant
proportion of the Group’s results.
Conclusions relating to principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were
consistent with the knowledge we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the directors’ assessment of the group’s and the
company’s ability to continue as a going concern, we are required to state whether we have
anything material to add or draw attention to in relation to:
Aside from the impact of the matters disclosed
in the material uncertainty relating to going
concern section, we confirm that we have
nothing material to add or draw attention to in
respect of these requirements.
• the disclosures on pages 16-19 that describe the principal risks and explain how they are
being managed or mitigated;
• the directors’ confirmation on page 28 that they have carried out a robust assessment of
the principal risks facing the group, including those that would threaten its business model,
future performance, solvency or liquidity;
• the directors’ explanation on page 28 as to how they have assessed the prospects of
the group, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that
the group will be able to continue in operation and meet its liabilities as they fall due over
the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We are also required to report whether the directors’ statement relating to going concern and
the prospects of the group required by Listing Rule 9.8.6R(3) is materially inconsistent with our
knowledge obtained in the audit.
Mothercare plc annual report and accounts 2019
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Independent auditor’s report
to the members of mothercare plc continued
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the
efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. In addition to the matter described in the material uncertainty relating to going concern
section, we have determined the matters described below to be the key audit matters to be communicated in our report.
Classification and presentation of adjusted items
Key audit matter
description
The group presents alternative performance measures to provide supplemental information to enable users of the
financial statements to gain an understanding of the underlying trading results of the Group. Current year items
relating principally to impairment, loss on disposal of discontinued operations, property rationalisation, restructuring
costs, and refinancing costs have been treated and disclosed as adjusting items, as detailed by Management in
note 6. The total impact of these is to adjust the Group statutory consolidated loss from continuing operations for
the period before tax of £67.5 million to an adjusted consolidated loss from continuing operations before tax for the
period of £20.2 million.
The classification of items as adjusting is an area of judgement. They could also present the opportunity for
Management bias in presentation, particularly in light of the pressures which the retail industry is currently facing
and the fact that certain financial covenants are based on results before adjusted items. Given the high level of
Management judgement involved, we deemed this a potential fraud risk for our audit.
Management has refined the Group’s policy in respect of foreign currency. In previous financial periods,
Management included the retranslation of foreign currency denominated cash and debtors in adjusted items.
Management has restated the foreign currency adjustments prior year comparative to reflect consistent
classification with the updated policy. As disclosed in Note 6, the impact of this restatement on the prior year
comparative was to reduce results before adjusted items by £9.1 million.
Management has highlighted adjusted items as a critical accounting judgement in Note 3. Further information in
respect of these items is included in Note 6. The Audit and Risk Committee report on page 43 also refers to adjusted
items as one of the significant judgements considered by the Committee.
How the scope of our
audit responded to the
key audit matter
We evaluated the appropriateness of the adjustments made to the statutory loss for the period to derive the
adjusted loss. We completed the following audit procedures:
• challenged the appropriateness and classification of these items by testing a sample of these and agreed them
back to supporting documentation;
• assessed the completeness of any credits to adjusting items;
• assessed the consistency of classification of foreign currency adjustments to reflect Management’s updated
policy;
• considered the nature and scope of the charges and confirmed the costs described as adjusting relate to
activities identified in the group accounting policy;
• reviewed the related disclosure in the Group financial statements and assessed consistency with the prior period
and current market best practice; and
• benchmarked the items which are excluded from the adjusted result measure against both peers and the
European Securities and Markets Authority (ESMA) guidance and Financial Reporting Council (FRC) FAQs.
Key observations
We consider the rationale for classifying items as adjusting is consistent year on year, other than the change in
treatment of foreign currency adjustments, and is in accordance with the group’s accounting policy.
As appropriately disclosed in Note 6, Management has appropriately amended its policy in respect of the
classification of foreign currency adjustments to be in line with market practice.
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Accuracy and completeness of the inventory obsolescence provision
Key audit matter
description
At the year end the gross inventory balance is £72.5 million (2018: £92.0 million), less £5.7 million (2018: £5.0 million)
obsolescence allowance against the carrying value.
The challenging retail environment and store rationalisation programme means there continues to be significant
Management judgement involved in determining the adequacy of the inventory obsolescence provision, in
particular the provision percentages applied to reduced-to-clear and slow moving inventory lines. Given the high
level of Management judgement involved, we deemed this a potential fraud risk for our audit.
The Audit and Risk Committee report on page 43 also refers to inventory provisioning as one of the significant issues
and judgements. Further information is included in Note 3b and Note 17.
How the scope of our
audit responded to the
key audit matter
We considered the methodology used to calculate the inventory provision and assessed its consistency with
prior periods. In addition, we assessed the design and implementation of controls in respect of the obsolescence
provision review process, and considered the adequacy of the disclosures in the financial statements. We
completed the following audit procedures:
• challenged the reasonableness of Management’s judgements and the assumptions used, specifically by
assessing the provision percentages based on an evaluation of sales of reduced-to-clear inventory lines.
For other lines, we assessed the forecast sales demand in comparison to prior periods;
• assessed the integrity of the underlying calculation by checking the accuracy of the ageing of a sample of
reduced-to-clear inventory items;
• reviewed the level of inventory write offs in the year compared to the overall inventory provision; and
• tested the completeness of the provision by assessing the net realisable value for a sample of stock lines.
Key observations
We consider the Group’s provisioning policy to be appropriate and are satisfied that the overall provision is
reasonable.
Impairment of UK store assets and associated onerous lease provisions
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Independent auditor’s report
to the members of mothercare plc continued
Key audit matter
description
The risk of store impairment continues to be a key audit matter given the Group has incurred current period losses.
Management has performed a full impairment assessment for all stores to determine if the carrying value of these
UK assets, after taking into consideration the carrying value of unamortised lease incentives, is supported. As a result
of the further decline in UK store trading performance in the current period, a total impairment charge of £15.4 million
has been recorded. Following the impairment recorded, the book value of UK store assets was £16.1 million (2018:
£40.4 million).
There is a high degree of Management judgement required in estimating the cash flows used in the impairment
and onerous lease models. The overall calculations are highly sensitive to changes in the assumptions, which can
result in material differences in the determined impairment and onerous lease provisions.
When a review for impairment is conducted the recoverable amount is determined based on value in use
calculations which rely on the directors’ assumptions and estimates of future trading performance.
The key assumptions applied by the directors in the impairment reviews are:
• cashflow forecasts;
• future revenue growth;
• discount rates;
• gross margin; and
• store costs.
Associated onerous leases provisions total £43.7 million (2018: £37.5 million). The key assumptions in assessing the level
of provision required are:
• the net present value of future store contributions;
• the fixed cost to lease expiry; and
• the estimated disposal costs.
Following Management’s review over the completeness of onerous lease provisions an additional charge of £13.3
million has been recorded in the year.
The Audit and Risk Committee report on page 45 also refers to this as one of the significant issues and judgements.
Further information is included in Notes 3a and 3b and Notes 15 and 24.
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audit responded to the
key audit matter
UK store impairment
We considered the appropriateness of the methodology applied by the directors in calculating the impairment
charges. In addition, we assessed the design and implementation of controls in respect of the impairment review
process, and considered the adequacy of the disclosures in the financial statements.
We assessed the impairment models and calculations by completing the following audit procedures:
• verified the mechanical accuracy of the impairment models;
• assessed the discount rate applied to the impairment reviews with support from our internal valuations
specialist, and compared the rates to our internal benchmarked data;
• compared forecast growth rates to economic data; and
• evaluated the information included in the impairment models through our knowledge of the business
gained through reviewing trading plans, strategic initiatives, meeting minutes and our retail industry
knowledge.
Where stores were trading significantly below the original base case scenario, we considered the evidence
available to support future improvements in performance by assessing trading plans and actions being taken on
an individual store basis.
Onerous lease provisions
We considered the appropriateness of the methodology applied by the directors in calculating the onerous lease
provision. In addition, we assessed the design and implementation of controls in respect of the onerous lease review
process, and considered the adequacy of the disclosures in the financial statements.
We assessed the provision model and calculations by:
• checking the mechanical accuracy of the model including agreeing lease data to supporting evidence;
• assessing the risk-free rate applied to the model and comparing the rates to external market data;
• comparing forecast growth rates to economic data; and
• evaluating the information included in the provision model through our knowledge of the business gained
through reviewing trading plans, strategic initiatives and meeting minutes.
Key observations
We assessed the level of impairment recorded in respect of the UK business, together with the additional onerous
lease provisions recognised, and are satisfied that the judgements applied by Management and the level of
charges recorded in the year and the related disclosures are appropriate.
Accounting for the disposal of the Early Learning Centre business
Key audit matter
description
As set out in note 10 to the consolidated financial statements, on 12 March 2019 the Group entered into an
agreement for the sale of the Early Learning Centre trade and specified assets.
The loss on disposal was £30.1 million, and Management has determined the loss from discontinued operations
as £25.9 million (2018: profit of £16.9 million). Total consideration for the transaction was £11.5 million with additional
amounts payable based on certain performance obligations. A significant level of judgement was required by
Management to determine the loss on disposal, as well as the amounts that related to discontinued activities in the
current and prior periods. The comparative figures in the income statement have been restated to separate costs
associated with the Early Learning Centre trade from those that will remain as part of continuing activities.
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Independent auditor’s report
to the members of mothercare plc continued
How the scope of our
audit responded to the
key audit matter
In response to this significant transaction, we have extended the nature, timing and extent of our audit procedures
to assess the loss on disposal and classification of items as discontinued. We completed the following audit
procedures:
• reviewed the terms and conditions of the sale agreement;
• assessed Management’s determined loss on disposal for consistency with the terms and conditions of the
sale agreement;
• assessed the treatment of the disposal against the requirements of IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations;
• assessed the items determined by Management to be included in discontinued operations against the
requirements;
• assessed the appropriateness of presentation and disclosure in relation to the disposal against the
requirements of IFRS 5.
Key observations
As a result of our audit procedures, we consider Management’s determined loss on disposal and items classified as
discontinued to be appropriate.
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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
£1.6 million (2018: £1.7 million)
£1.5 million (2018: £1.6 million)
Basis for
determining
materiality
Given the losses in the period, materiality has been
determined based on 0.28% of current period revenue.
The benchmark of 0.28% was determined as the average
of materiality as a percentage of revenue for the three
previous financial periods (2016 - 2018).
Approximately 0.9% of net liabilities.
Rationale for
the benchmark
applied
Given the volatility in statutory and adjusted results incurred
in the current and comparative financial periods, revenue
represents the most appropriate benchmark to determine
an appropriate materiality. Materiality represents
approximately 0.3% of revenue (2018: 0.3%) and 0.9% of total
assets (2018: 0.6%).
Net liabilities have been used as this is a non-trading
holding company and we consider this to be the most
appropriate basis.
We agreed with the audit and risk committee that we would report to the Committee all audit differences in excess of £80,000 (2018:
£85,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the
audit and risk committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
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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 audit scope on the UK trading entities,
(including both the UK and International operating segments), the group’s sourcing operations in Hong Kong and the Head Office company,
which is consistent with prior year.
We performed full scope audits for each component other than Hong Kong, where an audit of specified balances was performed (these were
cost of sales, inventory and trade payables).
Our audit work at the entities was executed at levels of materiality applicable to each individual entity which were lower than group materiality
and ranged between 40% and 95% (2018: 40% and 95%) of group materiality. These locations represent the principal business units and account
for 99% (2018: 100%) of the Group’s revenue and 95% (2018: 97%) of the group’s loss before tax for the 52 weeks ended 24 March 2018. They were
also selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. This
audit approach is consistent with the prior year.
The group audit team is directly involved in the audit of the UK trading entities. The component audit team in Hong Kong 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 of their work.
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.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon.
We have nothing to report in
respect of these matters.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material misstatements
of the other information include where we conclude that:
• fair, balanced and understandable – the statement given by the directors that they consider the
annual report and financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the group’s position and performance,
business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit and Risk Committee reporting – the section describing the work of the audit and risk committee
does not appropriately address matters communicated by us to the audit and risk committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
directors’ statement required under the Listing Rules relating to the company’s compliance with
the UK Corporate Governance Code containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision
of the UK Corporate Governance Code.
Responsibilities of directors
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, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Mothercare plc annual report and accounts 2019
81
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Independent auditor’s report
to the members of mothercare plc continued
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these financial statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and
perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for
our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, our procedures included the following:
• enquiring of management, internal audit and the audit and risk committee, including obtaining and reviewing supporting
documentation, concerning the group’s policies and procedures relating to:
o
identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
o detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
o
the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
• discussing among the engagement team, including significant component audit teams, and involving relevant internal specialists,
including tax, valuations, pensions and IT specialists regarding how and where fraud might occur in the financial statements and
any potential indicators of fraud. As part of this discussion, we identified potential for fraud in the following areas: accuracy and
completeness of the inventory obsolescence provision, classification and presentation of adjusted items and incorrect revenue
recognition due to transactions outside of the terms of contracts with franchise partners; and
• obtaining an understanding of the legal and regulatory frameworks that the group operates in, focusing on those laws and
regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the group.
The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, employment legislation,
pensions legislation and tax legislation.
Audit response to risks identified
As a result of performing the above, we identified the accuracy and completeness of the inventory obsolescence provision as a key audit
matter. The key audit matters section of our report explains the matter in more detail and also describes the specific procedures we performed
in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and
regulations discussed above;
• enquiring of management, the audit and risk committee and in-house legal counsel concerning actual and potential litigation and
claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
HMRC;
• in addressing the risk of incorrect revenue recognition due to transactions outside of the terms of contracts with franchise partners, we
have circulated letters to a sample of franchise partners requesting them to confirm they are operating in line with the latest contract
and have reviewed the latest contract for consistency with the Group’s revenue recognition policy; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal
specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
82
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act
2006.
In our opinion, based on the work undertaken in the course of the audit:
• the 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; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and of the parent company and their environment obtained in the course of the
audit, we have not identified any material misstatements in the strategic report or the directors’ report.
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:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for
our audit have not been received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns.
Directors’ remuneration
We have nothing to report in
respect of these matters.
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 in
respect of these matters.
Other matters
Auditor tenure
Following the recommendation of the audit and risk committee, we were appointed by the shareholders at the Annual General Meeting
on 19 July 2002 to audit the financial statements for the period ending 29 March 2003 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and reappointments of the firm is 17 years, covering the years ending 29 March 2003 to
30 March 2019.
Consistency of the audit report with the additional report to the audit and risk committee
Our audit opinion is consistent with the additional report to the audit and risk committee we are required to provide in accordance with ISAs
(UK).
Use of our report
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.
Sukhbinder Kooner (Senior statutory auditor)
for and on behalf of Deloitte LLP
Senior Statutory Auditor
London, UK
24 May 2019
Mothercare plc annual report and accounts 2019
83
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Consolidated
income statement
For the 53 weeks
ended 30 March
2019
Consolidated income statement
For the 53 weeks ended 30 March 2019
53 weeks ended 30 March 2019
52 weeks ended 24 March 2018 Restated*
Before
adjusted
items
£ million
Adjusted
items1
£ million
Total
£ million
Before
adjusted
items
£ million
Adjusted
items1
£ million
Total
£ million
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Loss from operations
Net finance costs
Loss before taxation
Loss before taxation and foreign
currency revaluations
Foreign currency adjustments
Loss before taxation
Taxation
Loss for the period from continuing
operations
Discontinued operations
Profit/(loss) for the year from
discontinued operations
Loss for the period attributable
to equity holders of the parent
Loss per share from continuing and
discontinued operations
Basic
Diluted
Loss per share from continuing
operations
Basic
Diluted
Note
4, 5
6
7
8
6
9
10
12
12
12
12
513.8
(494.4)
19.4
(32.5)
(13.1)
(5.3)
(18.4)
(20.4)
2.0
(18.4)
(1.8)
–
(1.1)
(1.1)
(44.4)
(45.5)
(2.7)
(48.2)
(47.3)
(0.9)
(48.2)
0.9
(20.2)
(47.3)
(30.1)
(77.4)
4.2
(16.0)
(5.6) p
(5.6) p
(7.1) p
(7.1) p
513.8
(495.5)
18.3
(76.9)
(58.6)
(8.0)
(66.6)
(67.7)
1.1
(66.6)
(0.9)
(67.5)
(25.9)
(93.4)
580.6
(569.3)
11.3
(36.8)
(25.5)
(3.5)
(29.0)
(22.6)
(6.4)
(29.0)
1.3
–
0.1
0.1
(64.9)
(64.8)
(0.2)
(65.0)
(67.1)
2.1
(65.0)
(0.3)
580.6
(569.2)
11.4
(101.7)
(90.3)
(3.7)
(94.0)
(89.7)
(4.3)
(94.0)
1.0
(27.7)
(65.3)
(93.0)
17.9
(9.8)
(1.0)
(66.3)
(33.1) p
(33.1) p
(5.8) p
(5.8) p
(23.8) p
(23.8) p
(16.3) p
(16.3) p
16.9
(76.1)
(44.8) p
(44.8) p
(54.8) p
(54.8) p
1
Includes adjusted costs (property costs, restructuring costs and impairment charges), the fair value movement on embedded derivatives, and the impact of non-cash foreign
currency adjustments as set out in note 6 to the consolidated financial statements. Adjusted items are considered to be one-off or significant in nature and /or value. Excluding
these items from profit metrics provides readers with helpful additional information on the performance of the business across the periods because it is consistent with how the
business performance is reviewed by the Board and the Operating Board.
*
Adjusted items in the prior year have been reclassified to be on a consistent basis for the treatment of foreign exchange differences on the revaluation of working capital and
adjusted interest costs (see note 6), and for the discontinued operations of the Early Learning Centre (see note 10).
84
Mothercare plc annual report and accounts 2019
HEAD_0 1st line continued2nd line continued
Consolidated statement of
comprehensive income
For the 53 weeks
ended 30 March 2019
Consolidated statement of comprehensive income
For the 53 weeks ended 30 March 2019
Loss for the period
Items that will not be reclassified subsequently to the income statement:
Remeasurement of net defined benefit liability:
actuarial gain 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: gains/(losses) arising in the period
Deferred tax relating to items reclassified
Other comprehensive income/(expense) for the period
Total comprehensive expense for the period wholly attributable
to equity holders of the parent
Note
31
16
27
27
16
53 weeks
ended
30 March
2019
£ million
(93.4)
1.6
0.2
1.8
0.1
12.9
(0.6)
12.4
14.2
(79.2)
52 weeks
ended
24 March
2018
£ million
(76.1)
36.0
(21.4)
14.6
(0.6)
(18.8)
1.4
(18.0)
(3.4)
(79.5)
Mothercare plc annual report and accounts 2019
85
Financials
Consolidated
balance sheet
As at 30 March
2019
Consolidated balance sheet
As at 30 March 2019
Note
30 March
2019
£ million
24 March
2018
£ million
14
14
15
13
18
16
17
18
22
19
20
23
21
22
24
23
21
22
31
24
25
26
25
27
27
–
16.3
27.7
–
–
–
44.0
66.8
45.9
1.5
16.3
0.5
131.0
175.0
(102.6)
(11.5)
(0.7)
–
(21.8)
(136.6)
(14.8)
(11.7)
(4.8)
(24.9)
(31.6)
(87.8)
(224.4)
(49.4)
87.1
88.9
(1.1)
(1.8)
1.3
(223.8)
(49.4)
26.8
39.6
55.0
–
0.1
3.6
125.1
87.0
64.5
0.1
–
–
151.6
276.7
(106.3)
(1.6)
(0.3)
(9.4)
(16.8)
(134.4)
(20.1)
(42.5)
(0.6)
(37.7)
(36.8)
(137.7)
(272.1)
4.6
85.4
61.0
(1.1)
(1.9)
(9.4)
(129.4)
4.6
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Investments in joint ventures
Long-term receivables
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Assets classified as held for sale
Total assets
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Derivative financial instruments
Provisions
Non-current liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Retirement benefit obligations
Provisions
Total liabilities
Net (liabilities)/assets
Equity attributable to equity holders of the parent
Share capital
Share premium account
Own shares
Translation reserve
Hedging reserve
Retained loss
Total equity
Approved by the board and authorised for issue on 24 May 2019 and signed on its behalf by:
Glyn Hughes
Chief Financial Officer
Company Registration Number: 1950509
86
Mothercare plc annual report and accounts 2019
HEAD_0 1st line continued2nd line continued
Consolidated statement of
changes in equity
For the 53 weeks
ended 30 March 2019
Consolidated statement of changes in equity
For the 53 weeks ended 30 March 2019
Share
capital
£ million
Note
Share
premium
account
£ million
Own
shares
£ million
Translation
reserve
£ million
Hedging
reserve
£ million
Retained
earnings
£ million
Total
equity
£ million
Balance at 25 March 2018 as previously
reported
Cumulative adjustment to opening
balances from the application of IFRS 15
Cumulative adjustment to opening
balances from the application of IFRS 9
Balance at 25 March 2018 as restated*
Items that will not be reclassified
subsequently to the income statement
Items that will be reclassified
subsequently to the income statement
Other comprehensive income
Loss for the period
2
2
27
Total comprehensive income/(expense)
Issue of new shares
Expenses of issue of equity shares
Transfer to equity from inventory during
the period
Charge to equity for equity-settled
share-based payments
Balance at 30 March 2019
25,26
26
27
30
* Restated for the adoption of IFRS 15 and IFRS 9 as explained in note 2
For the 52 weeks ended 24 March 2018
85.4
–
–
85.4
–
–
–
–
–
1.7
–
–
–
87.1
61.0
–
–
61.0
–
–
–
–
–
30.8
(2.9)
–
–
(1.1)
–
–
(1.1)
–
–
–
–
–
–
–
–
–
(1.9)
–
–
(1.9)
–
0.1
0.1
–
0.1
–
–
–
–
88.9
(1.1)
(1.8)
(9.4)
(129.4)
–
–
(9.4)
–
12.3
12.3
–
12.3
–
–
(1.6)
–
1.3
(0.8)
(2.0)
(132.2)
1.8
–
1.8
(93.4)
(91.6)
–
–
–
–
(223.8)
4.6
(0.8)
(2.0)
1.8
1.8
12.4
14.2
(93.4)
(79.2)
32.5
(2.9)
(1.6)
–
(49.4)
Balance at 26 March 2017
Items that will not be reclassified
subsequently to the income statement
Items that will be reclassified
subsequently to the income statement
Other comprehensive (expense)/income
Loss for the period
Total comprehensive expense
Transfer to equity from inventories during
the period
Charge to equity for equity-settled
share-based payments
Shares transferred to employees
Balance at 24 March 2018
Note
Share
capital
£ million
85.4
Share
premium
account
£ million
61.0
Own
shares
£ million
(1.5)
–
–
–
–
–
–
–
–
85.4
–
–
–
–
–
–
–
–
61.0
–
–
–
–
–
–
–
0.4
(1.1)
27
30
Translation
reserve
£ million
Hedging
reserve
£ million
Retained
earnings
£ million
Total
equity
£ million
(1.3)
–
(0.6)
(0.6)
–
(0.6)
–
–
–
(1.9)
5.2
–
(17.4)
(17.4)
–
(17.4)
2.8
–
–
(9.4)
(67.4)
14.6
–
14.6
(76.1)
(61.5)
–
(0.1)
(0.4)
(129.4)
81.4
14.6
(18.0)
(3.4)
(76.1)
(79.5)
2.8
(0.1)
–
4.6
Mothercare plc annual report and accounts 2019
87
Financials
Consolidated cash
flow statement
For the 53 weeks
ended 30 March
2019
Consolidated cash flow statement
For the 53 weeks ended 30 March 2019
Net cash flow from operating activities – continuing operations
Net cash flow from operating activities – discontinued operations
Cash flows from investing activities
Interest received
Purchase of property, plant and equipment
Purchase of intangibles – software
Proceeds from sale of property, plant and equipment
Cash used in investing activities – continuing operations
Cash used in investing activities – discontinued operations
Cash flows from financing activities
Issue of share capital
Expenses of share issue
Shareholder loans
Interest paid
Repayment of facility
Drawdown of facility
Facility fee paid
Net cash from financing activities – continuing operations
Net cash from financing activities – discontinued operations
Net increase in cash and cash equivalents
Overdraft at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents/(overdraft) at end of period
* The prior year has been restated for the reclassification of ELC discontinued operations.
53 weeks ended
30 March
2019
£ million
52 weeks ended
24 March
2018
Restated*
£ million
1.0
0.4
0.1
(5.9)
(6.4)
14.5
2.3
–
32.5
(2.9)
8.0
(3.6)
(61.5)
36.0
(0.7)
7.8
5.5
17.0
(1.6)
0.9
16.3
(31.3)
32.6
–
(15.6)
(8.5)
–
(24.1)
–
–
–
–
(1.4)
(61.5)
89.0
(0.6)
25.5
(0.5)
2.2
(0.9)
(2.9)
(1.6)
Note
28
28
88
Mothercare plc annual report and accounts 2019
HEAD_0 1st line continued2nd line continued Notes to the
consolidated
financial
statements
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 147. The nature of the
Group’s operations and its principal activities are set out in note 5
and in the business review on pages 6 to 11.
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 53 weeks ended
30 March 2019. The comparative period covered the 52 weeks
ended 24 March 2018.
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’) interpretations,
and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS. These financial statements
therefore comply with Article 4 of the EU IAS Regulation.
Adoption of new and revised Standards
The same accounting policies, presentation and methods of
computation are followed in this yearly report as applied in the
Group’s last audited financial statements for the 52 weeks ended
24 March 2018, with the exception of IFRS 9 ‘Financial Instruments’
and IFRS 15 ‘Revenue from Contracts with Customers’ for which
the 53 weeks ended 30 March 2019 is the Group’s first period of
application.
Impact of application of IFRS 9 – Financial Instruments
IFRS 9 introduced new requirements for:
1) The classification and measurement of financial assets and
financial liabilities;
2) Impairment of financial assets; and
3) Hedge accounting.
In relation to the impairment of financial assets, IFRS 9 requires an
expected credit loss (ECL) model, which replaces IAS 39’s incurred
credit loss model. The expected credit loss model requires the
Group to account for expected credit losses and changes in those
expected credit losses at each reporting date to reflect changes
in credit risk since initial recognition of the financial assets. It is no
longer necessary for a credit event to have occurred before credit
losses are recognised.
Specifically, IFRS 9 requires the Group to recognise an allowance
for expected credit losses on trade receivables and contract
assets.
Trade receivable balances are held net of a provision calculated
using a risk matrix, taking micro and macro-economic factors into
consideration. The receivables provision was calculated as at
25 March 2018 as it would have been if IFRS 9 had applied, and an
adjustment was recognised through retained earnings to reflect
that under IFRS 9, the provision would have been £2.0 million higher.
The Group has continued to apply IAS 39 for the purposes of
hedge accounting, and therefore there is no impact of IFRS 9 on
hedge accounting for the current financial year.
Impact of application of IFRS 15 – Revenue from Contracts with
Customers
IFRS 15 has been applied from 25 March 2018 with the application
of the standard in the current accounting period and a cumulative
effect adjustment at the date of initial application recognised
through retained earnings of £0.8 million.
Under the Group’s standard contract terms for the sale of goods,
customers have a right of return within 30 days. At the point of sale,
a refund liability and a corresponding adjustment to revenue is
recognised for those products expected to be returned. At the
same time, the Group has a right to recover the product from
customers when they exercise their right of return so consequently
recognises a right to returned goods asset and a corresponding
adjustment to cost of sales. A right of return asset and a refund
liability are therefore held gross on the balance sheet.
Gift card breakage, previously recognised on expiry, is now
recognised in proportion to its usage pattern to the extent it is
recoverable. IFRS 15 also required the reclassification of certain
items previously reported in cost of sales to revenue.
IFRS 9 has been applied retrospectively as at 25 March 2018
by adjusting the opening balance sheet at that date, and in
accordance with the transitional provisions set out in this standard.
The total impact of these adjustments was to increase revenue
and cost of sales in the current financial year by £0.6 million and
£0.3 million respectively.
Classification and measurement of financial assets
The directors of the Company reviewed and assessed the Group’s
existing financial assets as at 25 March 2018 based on the facts and
circumstances that existed at that date and assessed the initial
application of IFRS 9 on the Group’s financial assets as regards
their classification and measurement.
All financial assets held by the Group are considered to be debt
instruments held within a business model whose objective is to
collect the contractual cash flows, where these contractual cash
flows are solely payments of principal and interest on the principal,
and are therefore subsequently measured at amortised cost.
The impact of the application of IFRS 15 on basic and diluted
earnings per share is disclosed in note 12.
New standards not affecting the reported results nor the financial
position
In the current year, in addition to IFRS 9 and IFRS 15, the Group
has applied a number of amendments to IFRS Standards and
Interpretations issued by the International Accounting Standards
Board (IASB) that are effective for an annual period that begins
on or after 1 January 2018. Their adoption has not had any material
impact on the disclosures or on the amounts reported in these
financial statements.
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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 and endorsed
by the EU, but not yet effective:
• IFRS 16, ‘Leases’;
• amendments to IFRS 9 ‘Prepayment features with negative
compensation’; and
• amendments to IAS 12 ‘Recognition of Deferred Tax Assets for
Unrealised Losses’
The directors anticipate that, with the exception of IFRS 16 ‘Leases’,
adoption of these standards and interpretations in future periods
will have no material impact on the Group’s financial statements.
IFRS 16 ’Leases’
IFRS 16 ‘Leases’ is applicable for periods beginning on or after
1 January 2019 and will therefore be applied by the Group in the
2020 financial year. IFRS 16 will have a material impact on the
reported assets, liabilities and income statement. The Group will
apply IFRS 16 under the modified retrospective approach, with
the cumulative effect of initially applying the standard being
recognised at the date of initial application.
IFRS 16 distinguishes leases and service contracts on the basis of
whether an identified asset is controlled by a customer. Criteria for
control include:
• the right to obtain substantially all of the economic benefits from
the use of an identified asset; and
• the right to direct the use of that asset.
Distinctions between operating leases and finance leases are
removed for lessee accounting and replaced by a model where
a right-of -use asset and a corresponding liability have to be
recognised for all leases by lessees except for short-term leases
and leases of low value assets.
The right-of-use asset is initially measured at cost less impairment,
and lease incentives, and subsequently measured at cost (subject
to certain exceptions) less accumulated depreciation and
impairment losses, adjusted for any re-measurement of the lease
liability.
Lease incentives (including rent-free periods and landlord
contributions) will be recognised as part of the measurement of the
right-of-use assets and lease liabilities whereas under IAS 17 they
resulted in the recognition of a lease incentive liability, amortised as
a reduction of rental expenses on a straight-line basis.
The lease liability is initially measured at the present value of the
lease payments that are not paid at that date. Subsequently, the
lease liability is adjusted for interest and rent payments, as well as
the impact of lease modifications.
There is no cash impact of adoption of this standard but the
classification of cash flows will be affected because operating
lease payments under IAS17 are presented as operating cash
flows: whereas under the IFRS 16 model, the lease payments will
be split into interest payments and depreciation, which will be
presented as financing and operating cash flows respectively.
Under IFRS 16, right-of-use assets will be tested for impairment in
accordance with IAS 36 Impairment of Assets. This will replace the
previous requirement to recognise a provision for onerous lease
contracts.
As at 30 March 2019, the Group has non-cancellable operating
lease commitments of £150.1 million. The Group will recognise a
lease liability of between a range of £113.0 million and £121.0 million
in respect of these.
The Group has elected to rely on its assessment of whether or
not a lease is onerous under IAS 37: Provisions, Contingent Assets,
and Contingent Liabilities immediately before the date of initial
application, and included an adjustment to the right-of-use asset in
accordance with this.
The Group will also recognise a right-of-use asset between a
range of £58.0 million and £67.0 million.
The provision for onerous lease contracts which was required
under IAS 17 of £43.7 million will be derecognised.
Lease liability incentives of £18.0 million currently recognised in
respect of the operating leases will be derecognised and the
amount factored into the measurement of the right-to-use assets
and lease liabilities.
There are nine leases which fall due for renewal in 2020 and are
therefore excluded from these numbers by virtue of the practical
expedient whereby leases where the term ends within 12 months
of the date of initial application have been accounted for as short-
term leases. The transition adjustments to the balance sheet would
therefore be impacted by the terms on which these leases are
renewed, but the lease length and rent are currently unknown.
Operating lease commitments within one year of £26.4m include
£0.7m in relation to stores closed in 2019, and £2.1m in relation to
stores due to close in 2020. The practical expedient has been
employed such that leases where the term ends within 12 months
of the date of initial application have been accounted for as short-
term leases.
The Group’s weighted average incremental borrowing rate is
within the range of 7.0-7.5%. As a practical expedient, a lessee
may apply a single discount rate to a portfolio of leases with
reasonably similar characteristics; leases have been grouped
according to location, type, and lease length.
Discontinued operations
In accordance with IFRS 5 ‘Non-current Assets Held for Sale
and Discontinued Operations’, the net results of discontinued
operations are presented separately in the Group income
statement (and the comparatives restated) . Assets held for sale are
presented separately in the Group balance sheet.
Prior period reclassification of foreign currency revaluations
In previous periods the Group has included all foreign currency
transactions relating to the retranslation of foreign currency
denominated cash and debtor balances as part of adjusted
items. These gains/losses are now included before adjusted items
in line with industry best practice and accordingly the prior period
treatment of these items have been reclassified on a comparable
basis.
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HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued Going concern
The Group’s business activities and the factors likely to affect
its future development are set out in the principal risks and
uncertainties section of these financial statements. The financial
position of the Group, its cash flows, liquidity position and
borrowing facilities are set out in the financial review.
• A Reasonable Worst Case forecast (“RWC”) , which applies
sensitivities against the Base Case for reasonably possible
adverse variations in performance, reflecting the ongoing
volatility in UK and International trading performance.
The RWC scenario assumes the following key sensitivities:
As at 30 March 2019 the Group had a net debt of £6.9 million (2018:
£44.1 million) and was in compliance with covenant requirements.
Current net debt as at 17 May 2019 amounts to £15.0 million,
including a £13 million drawdown on the Revolving Credit Facility
(“RCF”) . The cash outflow since year end reflects the seasonal
working capital cycle and timing of orders placed with our trade
suppliers for the AW19 season.
At the start of the financial year, the Group had successfully
completed a refinancing with the support of its two Banks, HSBC
Plc and Barclays Bank Plc. At this stage the Group had access to
a RCF of £67.5 million, which included an uncommitted overdraft
facility of £5.0 million, expiring in December 2020.
In the financial year the Group realised cash from a number of
investments, each of which was used to reduce the RCF facility. In
addition, there was a contractual £17.5 million stepdown in facility
limit, including the removal of the overdraft facility of £5.0m, in
November 2018. At the same time, the Group agreed with the
banks to soften its covenant targets to December 2019.
On 14 December 2018, the Group completed the sale and
leaseback of its UK head office, with net proceeds of £14.5 million.
On 12 March 2019, the Group agreed to sell Early Learning Centre
to The Entertainer for £11.5 million. The first instalment of £6.0 million
was received on 22 March 2019, with a further instalment of
£5.5 million received on 15 May 2019. Under the terms of the signed
Curated Wholesale Agreement which governs the terms of future
trading, a further £2.0 million is expected to be received over the
next two years through an earn-out commission, taking the total
consideration for the deal to £13.5 million. In addition, the proceeds
from selling excess Early Learning Centre stock will be applied
against the RCF, with the limit stepping-down by £2.0 million
increments in June, July and August.
• Significant further decline in UK sales, beyond that already seen
in 2019, following a marked downturn in consumer confidence
linked to uncertainty caused by the delay to BREXIT, the assumed
rate of decline for 2020 is worse than that experienced in any
year in the UK over the last five years
• Following the decline in underlying UK margin rate in 2019, margin
is assumed to be broadly flat in 2020 (after normalising for the
impact of the store closure programme) , reflecting the continued
margin investment necessary to stimulate demand.
• International to experience a continuation of external
macro-economic and currency pressures across key markets
culminating in moderate decline in like-for-like retail sales.
However, if the risk and sensitivities applied in our RWC forecast, or
a more significant and prolonged decline in trading performance
were to materialise, beyond that seen in 2019, and the Group
were not able to execute further cost or cash management
programmes the Group would breach its fixed charge covenant
on its existing banking facilities and at certain points of the working
capital cycle have insufficient headroom against existing facility
limits. If this scenario were to crystallise the Group would need to
renegotiate with its relationship banks in order to secure additional
funding and a reset of covenants. Therefore, we have concluded
that, under the RWC, there is a material uncertainty that casts
significant doubt that the Group will be able to operate as a going
concern.
Notwithstanding this material uncertainty, the Board’s confidence
in the Group’s Base Case forecast, which indicates the Group will
operate within the terms of its committed borrowing facilities and
covenants for the foreseeable future, and the Group’s proven cash
management capability supports our preparation of the financial
statements on a going concern basis.
Further details on going concern are shown in the Financial Review
on pages 27 to 28.
On 25 April 2019, the Group closed the stores in Ayr and Paisley,
leading to proceeds of £0.5 million.
Basis of consolidation
As a result of the above, by the end of August 2019, the RCF will be
£18.0 million.
The Group also has access to an uncommitted debtor backed
facility of up to £10.0 million (but not exceeding the total debt
outstanding) from one of the Company’s trade partners, expiring in
October 2019.
The consolidated financial information in our full year accounts
has been prepared on a going concern basis. When considering
the going concern assumption, the Directors of the Group have
reviewed a number of factors, including the Group’s trading results,
its continued access to sufficient borrowing facilities and its ability
to continue to operate within its financial covenants against the
Group’s latest forecasts and projections, comprising of:
• A Base Case forecast; and
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the
Company (its subsidiaries) made up to 30 March 2019. Control is
achieved when the Company:
• has the power over the investee;
• is exposed, or has the right, to variable returns from its
involvement with the investee; and
• has the ability to use its powers to affect its returns.
The Company reassesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control listed above.
The accounting policies of subsidiaries are in line with those used
by the Group.
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All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
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 the income statement and is not subsequently
reversed.
Under the Group’s standard contract terms, customers have a
right of return within 30 days. At the point of sale, a refund liability
and a corresponding adjustment to revenue is recognised for
those products expected to be returned. At the same time, the
Group has a right to recover the product when customers exercise
their right of return so consequently recognises a right to returned
goods as an asset and a corresponding adjustment to cost
of sales. The Group uses its accumulated historical experience
to estimate the number of returns on a portfolio level using the
expected value method. It is considered highly probable that a
significant reversal in the cumulative revenue recognised will not
occur given the consistent level of returns over previous years.
Sales to international franchise partners are recognised on the
transfer of control, which is on dispatch.
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 applicable disposal
group, the attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
Non-current assets transferred to held for sale
Non-current assets classified as held for sale are measured at the
lower of carrying amount and fair value less costs to sell.
Non-current assets and disposal groups are classified as held
for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition
is regarded as met only when the sale is highly probable and
the asset (or disposal group) is available for immediate sale in
its present condition. Management must be committed to the
sale which should be expected to qualify for recognition as a
completed sale within one year from the date of classification.
Revenue recognition
Revenue is measured at the fair value of the consideration the
Group expects to be entitled to in a contract with a customer and
excludes amounts collected on behalf of third parties. Revenue
is recognised net of discounts, VAT and other sales related taxes,
at the point when the Group transfers control of a product to a
customer.
Sales of goods are recognised when goods are delivered and
title has passed. For sales of goods to retail customers, revenue is
recognised when control of the goods has transferred, being at
the point the customer purchases the goods at the retail store, at
which time payment of the transaction price is due immediately.
Revenue from online sales is recognised when control passes to
the customer, on receipt of the goods.
Royalty revenue is recognised on an accruals basis in accordance
with the substance of the relevant agreement (provided that
control of goods has been transferred and consideration is
unconditional) . Royalty arrangements that are based on sales and
other measures are recognised by reference to the underlying
arrangement.
Gift card breakage, previously recognised on expiry, is now
recognised in proportion to its usage pattern to the extent it is
recoverable.
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.
Supplier funding income
The Company receives income from its suppliers, primarily in the
form of early settlement discounts and volume based rebates,
and recognises these as a reduction in cost of sales in the year to
which they relate. Any supplier funding income received in respect
of unsold stock at the period end is accounted for as deferred
income on the balance sheet. The Group accrues for supplier
income due from annual agreements for volume rebates. The
Group receives promotional contributions which are recognised
when the promotional activity is complete. Promotional income
directly attributable to marketing costs is recognised as a
deduction to administrative expenses.
Included in the balance sheet are amounts receivable of £1.5 million
in respect of supplier funding income, comprising £0.8 million of
settlement discounts invoiced but not yet settled and £0.7 million of
promotional and retrospective rebate contributions earned but not
yet invoiced, netted against £0.9 million of deferred rebate income
on stock not yet sold.
Adjusted earnings
The Group considers that adjusted profit before tax provides
additional useful information for shareholders. The term adjusted
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.
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HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 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 12.
the reporting period. Including these items within adjusted profits is
in line with how business performance is measured internally by the
Board and Operating Board.
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 adjusted business performance which provides more useful
information on underlying trends.
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 adjustments made to reported results are as follows:
Adjusted items
Due to their significance or one-off nature, and where treatment
as an adjusted item provides stakeholders with additional useful
information to assess the year-on-year trading performance of the
Group, certain items have been classified as adjusted.
The gains and losses on these items, such as provision for onerous
leases, impairment charges, and restructuring costs can have a
material impact on the trend in the profit from operations and the
result for the period. Adjusting for these items is consistent with how
business performance is measured internally by the Board and
Operating Board.
On this basis the following items are analysed as adjusted items on
the face of the income statement:
• loss on disposal of the ELC business;
• store impairment and onerous lease charges;
• profit arising on the sale of the Head office freehold;
• costs associated with restructuring, redundancies and
refinancing;
• finance costs, including the fair value movement on embedded
derivatives in the shareholder loans;
• non-cash foreign currency adjustments relating to the
revaluation of outstanding forward contracts which have not yet
been matched to the purchase of stock and the retranslation of
foreign currency denominated creditor balances; and
• amortisation of intangible assets.
Further details of the adjusted items are provided in note 6.
Foreign currency transactions
Foreign currency adjustments include:
Within the underlying income statement:
• the retranslation of foreign currency denominated cash and
debtor balances (predominantly USD) to closing spot rate.
• within adjusted items:
• the retranslation of foreign currency denominated creditor
balances and stock (predominantly USD) to closing spot rate.
• the revaluation of outstanding forward contracts which have not
yet been matched to the purchase of stock.
The volatility in the spot rate at year end and the associated gains
and losses on unsettled transactions do not present the users of
the accounts with a true picture of underlying performance during
Unwinding of discount on adjusted provisions
Where property provisions are charged to adjusted items, the
associated unwinding of the discount on these provisions is
classified as an adjusted item.
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 leases held by the Group 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
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 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 presentational
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
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Group’s accounting policies in respect of such derivative financial
instruments) .
In these 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.
Hedge accounting
The Group designates its forward currency contracts 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 other comprehensive income 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, categorised in the income statement for consistency with the
recognised hedged item. Movements in the hedging reserve in
equity are detailed in note 27.
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.
The retirement benefit obligation recognised in the balance sheet
represents the present value of the defined benefit obligation
less 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.
The Group has an unconditional right to a refund of surplus under
the rules.
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.
mortality rates annually. Accordingly, mortality rates are based on
CMI 2018 data; previously mortality rates were updated only at
each Triennial review.
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 recognised for taxable temporary
differences arising on investments in subsidiaries 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.
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.
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 based on the tax rates that have been enacted
or substantively enacted at the reporting date. Deferred
tax is charged or credited in the income statement, except
when it relates to items charged or credited directly to other
comprehensive income, in which case the deferred tax is also dealt
with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated
depreciation and any recognised impairment losses.
In the current financial period, the Group has considered that more
accurate information would be provided to investors by updating
Depreciation is charged so as to write off the cost or valuation of
assets, other than land and assets in the course of construction,
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HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 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
– lease term
Fixtures, fittings and equipment
– 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 the income
statement.
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.
The 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 in the
income statement 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 initially measured at fair value and
subsequently measured at amortised cost less provision or
impairment. The Group recognises a loss allowance for expected
credit losses on trade receivables, which is updated at each
financial reporting date to reflect changes in credit risk since initial
recognition.
Expected credit losses are estimated using a provision matrix
based on the Group’s historical credit loss experience, adjusted
for factors that are specific to the debtors, general economic
conditions, and an assessment of both the current as well as the
forecast direction of conditions at the reporting date, including time
value of money where appropriate.
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.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according
to the substance of the contractual arrangements entered into. An
equity instrument is any contract that evidences a residual interest
in the assets of the group after deducting all of its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are initially measured
at fair value, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue
costs, are accounted for on an accruals basis to the income
statement using the effective rate interest method and are added
to the carrying amount of the instrument to the extent that they are
not settled in the period in which they arise.
Finance costs directly attributable to the acquisition or construction
of qualifying assets are capitalised. Qualifying assets are those
that necessarily take a substantial period of time to prepare for
their intended use.
Trade payables
Trade payables are initially measured at fair value, and are
subsequently measured at amortised cost, using the effective
interest rate method.
Mothercare plc annual report and accounts 2019
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HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Equity instruments
Equity instruments issued by the Company are recorded as the
proceeds are received, net of direct issue costs.
Derivative financial instruments
The Group uses forward foreign currency contracts to mitigate
the transactional impact of foreign currencies on the Group’s
performance. The Group’s financial risk management policy
prohibits the use of derivative financial instruments for speculative
or trading purposes and the Group does not therefore hold or
issue any such instruments for such purposes.
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.
Forward contracts in place are considered an effective cash flow
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.
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.
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.
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.
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, and expensed on a straight-line
basis over the vesting period. The fair value is updated at each
balance sheet date for the Group’s estimate of shares that will
eventually vest and adjusted for the effect of non-market based
vesting conditions.
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.
Alternative performance measures (APMs)
In the reporting of financial information, the Directors have
adopted various APMs of historical or future financial performance,
position or cash flows other than those defined or specified under
International Financial Reporting Standards (IFRS) .
These measures are not defined by IFRS and therefore may not be
directly comparable with other companies’ APMs, including those
in the Group’s industry.
APMs should be considered in addition to, and are not intended to
be a substitute for, or superior to, IFRS measurements.
Purpose
The Directors believe that these APMs assist in providing additional
useful information on the performance and position of the Group
because they are consistent with how business performance is
reported to the Board and Operating Board.
APMs are also used to enhance the comparability of information
between reporting periods and geographical units (such as
like-for-like sales) , by adjusting for non-recurring or uncontrollable
factors which affect IFRS measures, to aid the user in understanding
the Group’s performance.
Consequently, APMs are used by the Directors and management
for performance analysis, planning, reporting and incentive setting
purposes and have remained consistent with prior year.
The key APMs that the Group has focused on during the period
are as follows:
Group worldwide sales:
Group worldwide sales are total International sales plus total UK
sales. Total International sales are International retail sales plus
International Wholesale sales. Total Group revenue is a statutory
number and is made up of total UK sales and receipts from
International franchise partners, which includes royalty payments
and the cost of goods dispatched to international franchise
partners. A reconciliation is included within the Financial Review on
pages 20 to 29.
Like-for-like sales:
This is a widely used indicator of a retailer’s current trading
performance. This is defined as sales from stores that have been
trading continuously from the same selling space for at least a
year and include website sales and sales taken on iPads in store.
International retail sales are the estimated retail sales of overseas
96
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued franchise and joint venture partners to their customers. International
like-for-like sales are the estimated franchisee retail sales from
stores that have been trading continuously from the same selling
space for at least a year. The Group reports some financial
measures on both a reported and constant currency basis. Sales
in constant currency exclude the impact of movements in foreign
exchange translation. The constant currency basis retranslates the
previous year revenues at the average actual periodic exchange
rates used in the current financial year. This measure is presented
as a means of eliminating the effects of exchange rate fluctuations
on the year on year reported results. Further details are disclosed
within the Financial Review on pages 20 to 29.
Profit/(loss) before adjusted items:
The Group’s policy is to exclude items that are considered to be
significant in both nature and/or quantum and where treatment
as an adjusted item provides stakeholders with additional useful
information to assess the year-on-year trading performance of
the Group. On this basis, the following items were included within
adjusted items for the 53-week period ended 30 March 2019:
• loss on disposal of the ELC business;
• store impairment and onerous lease charges;
• profit arising on the sale of the Head office freehold;
• costs associated with restructuring, redundancies and
refinancing;
• finance costs, including the fair value movement on embedded
derivatives in the shareholder loans;
• non-cash foreign currency adjustments relating to the
revaluation of outstanding forward contracts which have not yet
been matched to the purchase of stock; and
3a Critical accounting judgements
Critical judgements represent key decisions made by
management in the application of the Group’s accounting policies.
Where a significant risk of materially different outcomes exists due
to management assumptions or sources of estimation uncertainty,
this will represent a critical accounting estimate. Estimates and
judgements are continually evaluated and are based on
historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
The estimates and judgements which have a significant risk of
causing a material adjustment to the carrying amount of assets
and liabilities are discussed below.
Adjusted items
The directors believe that the adjusted profit and earnings
per share measures provide additional useful information for
shareholders on the performance of the business.
These measures are consistent with how business performance is
measured internally by the Board and Operating Board.
The adjusted profit before tax measure is not a recognised
profit measure under IFRS and may not be directly comparable
with adjusted profit measures used by other companies. The
classification of adjusted items requires significant management
judgement by considering the nature and intentions of a
transaction.
Note 6 provides further details on current period adjusted items
and their adherence to Group policy.
Deferred taxation
• amortisation of intangible assets.
A reconciliation of adjusted earnings is shown in note 6.
The Directors have to consider the recoverability of the deferred tax
assets based on forecast profits. There are no deferred tax assets
recognised by the Group at 30 March 2019.
Profit/(loss) before taxation and foreign currency revaluations:
The Group has introduced a new measure this year which is
profit/(loss) before taxation and foreign currency revaluations on
the basis that foreign currency differences on the revaluation of
foreign currency denominated cash and debtor balances, albeit
recurring, are significant in size, volatile and distort the underlying
performance of the Group.
Adjusted free cash flow:
This is the adjusted measure of cash flow for the Group. This
is based on performance excluding the impact of adjusted
items. The presentation of adjusted free cash flow differs from
the statutory cash flow statement, which is based on statutory
performance for the Group. The reconciliation from adjusted free
cash flow to statutory cash flow is shown in the Financial Review on
page 26.
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 judgements
that have an effect on the application of policies and reported
amounts.
Impairment of assets
The Group reviews the carrying value of assets 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 asset; a decline in the market value for the asset; and
an adverse change in the business or market in which the asset
is involved. Determining whether an impairment has occurred
typically requires various estimates and assumptions, including
determining which cash flows are 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, and the impact of
Brexit, 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.
Cash flow projections are based on the Group’s four year internal
forecasts, the results of which are reviewed by the Board. Estimates
of selling prices and direct costs are based on past experience,
expectations of future changes in the market and historic trends.
The forecasts are extrapolated beyond four years based on long-
term average growth rate of 0%. Bringing the terminal growth rate
to 1% /(1) % would result in a £3.5 million increase in/ reduction of
cashflows.
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HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
3b Key sources of estimation uncertainty
In applying the Group’s accounting policies described above,
the directors have identified that the following areas are the key
estimates that have a significant risk of resulting in a material
adjustment to the carrying value of assets and liabilities in the next
financial year.
Expected credit losses (ECL) on trade and other receivables
The provision for the allowance for expected credit losses (refer
to note 18) is calculated using a combination of internally and
externally sourced information, including future default levels
(derived from historical defaults overlaid by macro-economic
assumptions) , future cash collection levels (derived from past
trends) , credit ratings and other credit data.
Once a customer has defaulted on a receivable amount, there
is limited sensitivity associated with credit risk however, prior to
default, the greatest sensitivity relates to the ability of customers to
afford their payments. Deterioration in the ability of customers to
afford their payments will cause an increase in the probability of
default.
If the ECL rates on trade receivables over 60 days past due had
been 5% higher at 30 March 2019, the loss allowance on trade
receivables would have been £0.5 million higher.
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 17) .
A 20% change in the volume of inventories going to clearance
would impact the net realisable value by £0.6 million. A 5% change
in the level of markdown applied to the selling price would impact
the value of inventories by £0.6 million.
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 31 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 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 30 March 2019, the Group’s pension liability was £24.9 million (2018:
£37.7 million) . Further details of the accounting policy on retirement
benefits are provided in note 2.
Sensitivities to changes in assumptions in respect of discount rates/
inflation and life expectancy are included in note 31.
Onerous leases
Provision has been made in respect of leasehold properties for
vacant, partly let and loss-making trading stores 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 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.
Cash flow projections are based on the Group’s four year internal
forecasts, the results of which are reviewed by the Board. Cash
flows have been discounted at the appropriate risk-free rate.
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.
The Group has performed sensitivity analysis on the onerous
lease provisions using reasonably possible scenarios based on
recent market movements and historic trends. Neither a half a
percentage point increase nor decrease in the risk-free rate would
result in a material change to the onerous lease provisions.
As a result 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 expectancy 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;
selection of an appropriate rate is judgemental. These generally
include AA-rated securities. The discount rate is based on the
98
Mothercare plc annual report and accounts 2019
Supplier funding
Supplier funding is recognised as a reduction in cost of sales in
the year to which it relates. Volume and other rebates require
judgement to be made as to the quantum and timing of income
recognised, which are dependent upon achieving pre-agreed
purchasing targets over an extended period of time.
Returns provision
In estimating the value of the returns provision under IFRS 15 and
the value of the corresponding asset representing the value of
returned stock, we have assumed a continuation of the current rate
of returns, which is 6% of revenue.
A 1% increase/reduction in the rate of returns would increase/
reduce the liability by £0.3 million and increase/reduce the asset by
£0.2 million
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 4. Revenue
Continuing operations:
Sale of goods
* Restated for the reclassification of ELC discontinued operations (see note 10) .
53 weeks
ended
30 March
2019
£ million
52 weeks
ended
24 March
2018
Restated*
£ million
513.8
580.6
As stated in note 2, IFRS 15 has been applied in the current accounting period and a cumulative effect adjustment at the date of initial
application recognised through retained earnings. Under the Group’s standard contract terms for the sale of goods, customers have a
right of return within 30 days. The Group uses its accumulated historical experience to estimate the number of returns on a portfolio level
using the expected value method. It is considered highly probable that a significant reversal in the cumulative revenue recognised will not
occur given the consistent level of returns over previous years.
Gift card breakage, previously recognised on expiry, is now recognised in proportion to its usage pattern to the extent it is recoverable.
IFRS 15 has also required the reclassification of certain items previously reported in cost of sales to revenue.
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.
The UK segment 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.
International
£ million
UK
£ million
53 weeks ended 30 March 2019
Unallocated
corporate
expenses
£ million
Total
£ million
Revenue
External sales
Result
Segment result (before adjusted items*)
Share-based payments credit
Non-cash foreign currency adjustments
(adjusted item)
Amortisation of intangible assets (adjusted item)
Adjusted items (note 6)
Profit/(loss) from operations
Net finance costs
Loss before taxation
Taxation
Loss after taxation from continuing operations
Loss for the period from discontinued operations
Loss for the period
* see glossary on page 145 for definition.
177.2
29.5
–
–
–
(7.9)
21.6
336.6
(35.5)
–
–
–
(34.1)
(69.6)
–
(7.9)
0.8
(0.9)
–
(2.6)
(10.6)
513.8
(13.9)
0.8
(0.9)
–
(44.6)
(58.6)
(8.0)
(66.6)
(0.9)
(67.5)
(25.9)
(93.4)
Mothercare plc annual report and accounts 2019
99
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Revenue
External sales
Result
Segment result (before adjusted items*)
Share-based payments credit
Non-cash foreign currency adjustments
(adjusted item)
Amortisation of intangible assets (adjusted item)
Adjusted items (note 6)
Profit/(loss) from operations
Net finance costs
Loss before taxation
Taxation
Loss after taxation from continuing operations
Profit for the period from discontinued operations
Loss for the period
* See glossary on page 145 for definitions.
International
£ million
UK
£ million
52 weeks ended 24 March 2018**
Unallocated
corporate
expenses
£ million
Consolidated
Restated
£ million
199.1
25.4
–
–
–
(5.2)
20.2
381.5
(43.4)
–
–
–
(59.3)
(102.7)
–
(7.6)
0.1
2.1
(0.4)
(2.0)
(7.8)
580.6
(25.6)
0.1
2.1
(0.4)
(66.5)
(90.3)
(3.7)
(94.0)
1.0
(93.0)
16.9
(76.1)
Revenues are attributed to countries on the basis of the customer’s location. The largest International customer represents approximately
12.9% (2018: 19.6%) of group sales.
** Adjusted items in the prior year have been reclassified to be on a consistent basis for the treatment of foreign exchange differences on the revaluation of working capital and
adjusted interest costs (see note 6), and for the discontinued operations of the Early Learning Centre (see note 10).
Other information
Capital additions
Depreciation and amortisation
Balance sheet
Assets
Consolidated total assets
Liabilities
Consolidated total liabilities
International
£ million
UK
£ million
Corporate
£ million
Total
£ million
53 weeks ended 30 March 2019
1.8
2.2
38.6
0.7
3.1
3.6
110.3
170.2
7.4
14.5
26.1
53.5
12.3
20.3
175.0
224.4
In addition to the depreciation and amortisation reported above, impairment losses of £15.4 million (2018: £16.0 million) were recognised
in respect of property, plant and equipment. The UK store impairment testing during the period identified a number of stores where the
current and anticipated future performance does not support the carrying value of the stores and as a result a charge of £14.0 million has
been incurred in respect of the impairment of the assets associated with these stores. In addition a charge of £14.5 million has been made
for the impairment of software assets. These impairment losses were attributable to the UK segment and are detailed in note 6: Adjusted
items.
Other information
Capital additions
Depreciation and amortisation
Balance sheet
Assets
Consolidated total assets
Liabilities
Consolidated total liabilities
International
£ million
UK
£ million
Corporate*
£ million
Total
£ million
52 weeks ended 24 March 2018
3.5
5.3
93.0
4.0
5.7
8.6
136.4
176.0
8.9
7.8
47.3
92.1
18.1
21.7
276.7
272.1
*
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.
100
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 6. Adjusted items
The total adjusted items attributable to continuing operations reported for the 53-week period ended 30 March 2019 is a net charge of
£48.2 million (2018: £65.0 million) . The loss attributable to the sale of ELC is shown within note 10 – Discontinued operations. The adjustments
made to reported loss before tax to arrive at adjusted loss from continuing operations are:
Adjusted costs from continuing operations:
Restructuring costs in cost of sales
Impairment costs in cost of sales
Property related costs included in administrative expenses
Non-property related restructuring costs and property impairment included in
administrative expenses
Joint venture restructuring costs included in administrative expenses
Restructuring costs included in finance costs
Total adjusted costs:
Other adjusted items:
Non-cash foreign currency adjustments under IFRS 9 and IAS 21 included in cost of sales
Amortisation of intangible assets included in cost of sales
Adjusted items before tax **
53 weeks
ended
30 March
2019
£ million
52 weeks
ended
24 March
2018
Restated*
£ million
(0.2)
–
(31.8)
(12.6)
–
(2.7)
(47.3)
(0.9)
–
(48.2)
(0.9)
(1.1)
(55.6)
(7.0)
(1.9)
(0.2)
(66.7)
2.1
(0.4)
(65.0)
*
Adjusted items in the prior year have been restated on a consistent basis for the treatment of foreign exchange differences on the revaluation of working capital loss of
£9.1 million (£6.4 million on a continuing basis) and adjusted interest costs of £0.2 million and for the reclassification of ELC discontinued operations (see note 10) .
** Tax on adjusted items was at 19% (2018: 19%) .
Restructuring costs in cost of sales – £0.2 million (2018: £0.9 million)
Costs of £0.2 million have been incurred in relation to store redundancies. The 2018 charge for restructuring costs included £0.9 million
relating to the warehouse development project. These costs are considered to be adjusted items as they are significant in value and
relate to a one-off in nature. As a result, they are not considered to be normal operating costs of the business.
Impairment costs in cost of sales – £nil (2018: £1.1 million)
The impairment of the Blooming Marvellous tradename in the prior year was classified as an adjusted item on the basis that it was one-
off in nature and significant in value.
Property related costs included in administrative expenses – £31.8 million (2018: £55.6 million)
The charge of £31.8 million (2018: £55.6 million) includes: £15.4 million of UK store impairments; £14.5 million of software impairment; £13.3 million
of increase in the onerous lease provision; a £2.5 million credit in respect of store closure costs; and a profit arising on the sale of the Head
office freehold property of £8.9 million.
Store closure provision – £2.5 million credit
Following the approval of the company voluntary arrangements (“CVA”) for Mothercare and ELC and the administration of Childrens
World Limited, the closure programme reduces the estate to less than 80 stores. 43 stores have closed during the current year (and 16
stores closed post year-end in April 2019) . The associated cost of closing these stores in the period include costs of redundancy, agent
fees, and dilapidations costs. A net credit of £0.3 million was recognised with respect to store closures, including property dilapidations,
redundancy and lease exit costs.
The prior year provision reflected the transformation strategy to take the core estate down to 80-100 destination stores over three years.
The CVAs have reduced the time and cost of those closures resulting in a credit to the income statement in the current period.
Whilst costs associated with the closure of the UK store estate will recur across financial periods, the Group considers that they should be
treated as an adjusted item given they are part of a strategic programme and are significant in value to the results of the Group.
Onerous lease provision – £13.3 million
Provisions for onerous leases are recognised when the Group believes that the unavoidable costs of meeting or exiting the lease
obligations exceed the economic benefits expected to be received under the lease.
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101
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
The current year includes a significant charge taken to the onerous lease provision due to the continued declining performance of stores.
The provision has been calculated using cashflows discounted on a pre-tax basis using a risk-free rate return. The unwind of this discount
rate is charged to finance costs.
The charges associated with onerous leases and the impairment of store assets have been classified as adjusted items on the basis of
the significant value of the charge/credit in the period to the results of the Group.
UK store impairment – £15.4 million
Following the decline in performance of the store estate, the Group has estimated the net present value of future cash flows to be below
the carrying value of the store assets.
The impairment provision is calculated using discounted cash flows based on the reasonable worst-case strategic plan. This is in line with
the approach used in the prior period.
The £15.4 million charge comprises the impairment of store assets, including £4.8 million related to closure stores and £10.6 million of non-
closure stores as a result of the net present value of future cash flows being below the carrying value of the store assets.
The charges associated with the impairment of stores and onerous leases have been classified as adjusted items on the basis of the
significant value of the charge in the period to the results of the Group.
Software impairment – £14.5 million
A charge of £14.5 million has been included for software impairment which comprises, £1.7 million licences for aspects of a planning system
that will no longer be installed, and £12.8 million of general impairment against remaining intangibles.
Sale of Head office freehold properties – profit of £8.9 million
In December 2018, the Group sold and leased back the UK Head Office for cash of £14.5 million (net of £0.2 million fees) . The carrying value
of the assets prior to disposal was £5.6 million, generating a profit on disposal of £8.9 million.
Non-property related costs included in administrative expenses – £12.6 million (2018: £7.0 million)
Head office and store restructure costs – £7.0 million
During the period it was announced that the Sourcing offices would be closed with a third party taking on sourcing activities to drive
economies of scale. Associated costs of £2.5 million relating to the closure of the sourcing office have been provided for and include
severance pay, lease costs, and advisor fees. Further costs of £4.2 million relate to the UK head office and Stores restructure and include
fees, the cost of specific project heads and redundancy costs. The salary costs for individuals that are substantially working on the
restructure have been included in adjusted costs on the basis that these costs would not have been incurred had these projects not taken
place.
Refinancing costs – £5.9 million
In May 2018 the group entered a refinancing and funding review resulting in the equity raise, Shareholder loan, two CVAs (Mothercare and
ELC) , the administration of Childrens World Limited, and the amendment to the group’s banking facilities. Fees of £5.9 million associated
with these activities have been recognised as adjusted costs.
Pension Increase Exchange – £1.4 million gain
In November 2018, members of the defined benefit pension scheme were offered the option of participating in a pension increase
exchange (PIE) . This enabled members the option of taking a higher pension now, in exchange for future increases being reduced to
75% of what they would otherwise have been. This has been recognised as a past service cost through the income statement. Fees
of £0.2 million were incurred to implement this change, including the independent legal advice offered to members. The net impact of
£1.4 million is considered to be one-off in nature and is therefore presented as an adjusted item.
Guaranteed minimum pensions – £0.6 million
On 26 October 2018 a High Court judgement was handed down regarding the Lloyds Banking Group’s defined benefit pension scheme
which affects many pension schemes in the UK, including the Group’s UK schemes. The judgement concluded that schemes should be
amended to ensure that members who have guaranteed minimum pensions (GMP) receive the same benefits regardless of their gender.
This change impacts GMP benefits accrued between 1990 and 1997.
In consultation with independent actuaries, the Group has estimated the financial effect of equalising benefits is to increase the Group
accounting pension deficit by £0.6 million. This has been recognised as a past service cost, and as this is one-off in nature therefore is
presented as an adjusted item.
National Minimum Wage – £0.5 million
The Group has made a specific pay provision for the potential costs of complying with the National Minimum Wage (NMW) Regulations
of £0.5 million. The liability has arisen due to time off in lieu payments timing not meeting the requirements of the NMW regulations, and
102
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued incidences of colleagues purchasing items of uniform that take the average pay below that required by NMW threshold. The provision is
based on detailed workings for one year, extrapolated for the six-year review period. These discussions with HMRC are ongoing and the
final settlement may differ to the provision held.
This provision, which is considered one-off and significant in value, relates to the catch up of historical liabilities, and as a result, is not
considered to be within normal operating costs of the business.
Joint venture restructuring costs included in administrative expenses – £nil (2018: £1.9 million)
The prior year included a provision for debts and legal fees in connection with the former China joint venture. The China joint venture was
disposed of during the year ended 24 March 2018.
Restructuring costs included in finance costs – £2.7 million (2018: £0.2 million)
In May 2018 the Group entered a refinancing and funding review, resulting in an equity raise, four Shareholder loans, two CVAs
(Mothercare and ELC) , and the amendment to the Group’s banking facilities. The terms of the Shareholder loans allow for these loans
to be converted into new ordinary shares of the Company at specific dates. The lenders’ option to convert represents an embedded
derivative that is fair valued using a Black Scholes model at each balance sheet date. The movement in the embedded derivative of
£1.7 million is recognised as a finance cost in adjusted items.
Upon the renegotiation of banking facilities in the current year, a charge of £0.4 million for the previously unamortised facility fee was
recognised in adjusted costs (2018: £0.2 million charge relating to the previous facility) .
Finance costs also include £0.6 million (2018: £nil million) in relation to the unwind of the discount on the onerous lease provision.
Other adjusted items
Non-cash foreign currency adjustments of £0.9 million loss (2018: £2.1 million gain) include the revaluation of stock liabilities held in foreign
currencies and the revaluation of outstanding forward contracts which have not yet been matched to the purchase of stock. The prior
period totals have been adjusted to reflect consistent classification with the current period.
These revaluation and hedging adjustments are reported as adjusted items as the Group reports its underlying performance on a
consistent basis with its cash flows; this is in line with how business performance is measured internally by the Board and Operating Board.
Amortisation charges related to intangible assets arising on the acquisition of Blooming Marvellous which were amortised on a straight
line basis. Following the full impairment of Blooming Marvellous in 2018 there is no amortisation charge in the current period (2018:
£0.4 million) .
Amortisation charges on the intangible assets which arose on the acquisition of the Early Learning Centre are shown within discontinued
operations and are disclosed in note 10.
Mothercare plc annual report and accounts 2019
103
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Cashflows arising on adjusted items
Cash flows from operating activities
Cash flows from investing activities
Restructuring costs in cost of sales
Property related costs:
Store closure costs1
Utilisation of onerous lease provisions
Proceeds from the sale of Head office freehold
property
Other property costs
Non-property related costs in administrative
expenses:
Other fees
Head office and store restructure costs2
Refinancing costs3
Total
Adjusted cashflows from discontinued operations
53 weeks
ended
30 March
2019
£ million
–
(4.6)
(7.6)
–
(0.3)
(0.2)
(7.0)
(8.1)
(27.8)
(6.0)
52 weeks
ended
24 March
2018
£ million
53 weeks
ended
30 March
2019
£ million
52 weeks
ended
24 March
2018
£ million
(0.6)
(5.3)
(3.3)
–
–
–
(6.1)
(0.2)
(15.5)
–
–
–
–
14.5
–
–
–
–
14.5
–
–
–
–
–
–
–
–
––
–
–
(1) Settlement of store closure costs including dilapidations, redundancy, legal and professional fees
(2) Cash outflows on settlement of restructuring and redundancy costs
(3) Consultancy and professional service fees incurred as part of the Group’s refinancing and funding review.
104
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
7. Loss from operations
Loss from continuing operations (except where specifically stated) has been arrived at after (crediting) /charging:
Net total foreign exchange (gains) / loss
Cost of inventories recognised as an expense
Write down of inventories to net realisable value
Depreciation of property, plant and equipment – continuing operations
Depreciation of property, plant and equipment – discontinuing operations
Amortisation of intangible assets – software (included in cost of sales before adjusted items) –
continuing operations
Amortisation of intangible assets – software (included in cost of sales before adjusted items) –
discontinuing operations
Amortisation of intangible assets – tradenames and customer relationships (included in
adjusted items in cost of sales) – continuing operations
Amortisation of intangible assets – tradenames and customer relationships (included in
adjusted items in cost of sales) – discontinuing operations
Impairment of property, plant and equipment
Impairment of intangible assets – software
Gain on disposal of property, plant and equipment – continuing operations
Loss on disposal of property, plant and equipment – discontinuing operations
Loss on disposal of software – discontinuing operations
Net rent of properties (see note 29)
Amortisation of lease incentives
Hire of plant and equipment
Loss allowance on trade receivables (see note 18)
Loss allowance on other financial assets measure at amortised cost
Staff costs (including directors) :
Wages and salaries (including cash bonuses, excluding share-based payment charges)
Social security costs
Pension costs
Share-based payments credit (see note 30)
53 weeks
ended
30 March
2019
£ million
(1.1)
338.3
6.6
9.8
1.0
10.5
–
–
0.5
15.4
14.5
(9.1)
1.0
0.4
26.0
(7.9)
0.3
3.9
55.3
4.1
4.8
(0.8)
52 weeks
ended
24 March
2018
Restated*
£ million
4.3
377.5
2.9
13.7
1.0
8.0
–
0.4
0.5
16.0
–
–
–
–
40.8
(4.3)
0.6
2.1
61.5
4.4
5.5
(0.1)
* The prior year has been restated for the reclassification of ELC discontinued operations (see note 10) .
An analysis of the average monthly number of full and part-time employees throughout the Group in respect of continuing operations,
including executive directors, is as follows:
Number of employees comprising:
UK stores
Head Office
Overseas
Full time equivalents
53 weeks
ended
30 March
2019
Number
3,229
495
28
3,752
2,189
52 weeks
ended
24 March
2018
Restated*
Number
3,884
642
163
4,689
2,767
* The prior year has been restated for the reclassification of ELC discontinued operations (see note 10) .
Details of Directors’ emoluments, share options and beneficial interests are provided within the remuneration report on pages 53 to 70.
For the 53 weeks ended 30 March 2019, loss from continuing operations is stated after an adjusted items net charge of £0.9 million (2018:
£2.1 million credit) to cost of sales as a result of foreign currency adjustments under IAS 39 and IAS 21.
Mothercare plc annual report and accounts 2019
105
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
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
Total non-audit fees
The policy for the approval of non-audit fees is set out on page 46, in the corporate governance report.
53 weeks
ended
30 March
2019
£ million
0.1
0.4
0.5
1.0
52 weeks
ended
24 March
2018
£ million
0.1
0.4
0.5
0.1
Deloitte were engaged for non-audit services to produce a working capital report with regard to the proposed equity issue referred to in
the Financial Review on pages 20 to 29 and work connected with the sale of the ELC trading activities and these are included in the note
above.
8. Net finance costs
Interest and bank fees on bank loans and overdrafts
Other interest payable
Net interest on liabilities/return on assets on pension
Unwinding of discount on provisions (note 24)
Fair value movement on embedded derivatives
Interest payable
Interest received on bank deposits
Net finance costs
53 weeks
ended
30 March
2019
£ million
3.5
1.4
0.9
0.6
1.7
8.1
(0.1)
8.0
52 weeks
ended
24 March
2018
Restated*
£ million
1.9
–
2.0
–
–
3.9
(0.2)
3.7
*
The prior year have been restated on a consistent basis for the treatment of adjusted interest costs (£0.2 million) and for the reclassification of ELC discontinued operations (see
note 10) .
9. Taxation
The charge/(credit) for taxation on (loss) /profit for the period comprises:
Current tax:
Current year
Adjustment in respect of prior periods
Deferred tax: (see note 16)
Current year
Adjustment in respect of prior periods
Charge/(credit) for taxation on loss for the period
* The prior year has been restated for the reclassification of ELC discontinued operations (see note 10) .
53 weeks
ended
30 March
2019
£ million
0.9
(0.1)
0.8
0.1
–
0.1
0.9
52 weeks
Ended
Restated*
24 March
2018
£ million
(1.8)
–
(1.8)
1.4
(0.6)
0.8
(1.0)
UK corporation tax is calculated at 19% (2018: 19%) of the estimated assessable profit for the period. The UK corporation tax rate will
decrease further to 17% from 1 April 2020.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
106
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued The charge/(credit) for the period can be reconciled to the (loss) /profit 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 19% (2018: 19%)
Effects of:
Expenses/(income) not deductible for tax purposes
Impact of difference in current and deferred tax rates
Impact of overseas tax rates
Impact of overseas taxes expensed
Profits/losses surrendered to discontinued operations
Deferred tax not recognised/written off
Adjustment in respect of prior periods – current tax
Adjustment in respect of prior periods – deferred tax
Charge/(credit) for taxation on loss for the period
53 weeks
ended
30 March
2019
£ million
(66.6)
(12.7)
0.2
1.3
2.8
(0.3)
(1.1)
10.9
(0.2)
–
0.9
52 weeks
ended
24 March
2018
Restated*
£ million
(94.0)
(17.8)
1.7
(0.1)
1.6
(0.2)
(0.1)
14.5
–
(0.6)
(1.0)
* The prior year has been restated for the reclassification of ELC discontinued operations (see note 10) .
In addition to the amount charged to the income statement, deferred tax relating to retirement benefit obligations, share-based
payments and cash flow hedges amounting to £0.4 million (2018: charge of £20.0 million) has been charged directly to other
comprehensive income.
The Group has made a specific pay provision for the potential costs of complying with the National Minimum Wage (NMW) Regulations
of £0.5 million which has been accounted for as an adjusted item (see note 6) . The liability has arisen due to time off in lieu payments
timing not meeting the requirements of the NMW regulations, and incidences of colleagues purchasing items of uniform that take the
average pay below that required by NMW threshold. The provision is based on detailed workings for one year, extrapolated for the six-
year review period. The discussions with HMRC are ongoing and the final settlement may differ to the provision held.
Mothercare plc annual report and accounts 2019
107
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
10. Discontinued operations
On 12 March 2019, the Group entered into an agreement for the sale of the Early Learning Centre (ELC) trade and specified assets. This
contract completed on 22 March 2019, and the subsequent Curated Wholesale Agreement with TEAL Brands Limited (“TEAL”) took effect
from 13 May 2019.
The results of the discontinued operations, which have been included in the consolidated income statement were as follows:
Financial performance and cash flow information
Discontinued operations
Revenue
Expenses
Gross profit
Administrative expenses
Profit/(loss) from operations
Net finance costs
Loss before taxation and foreign currency
revaluations
Foreign currency revaluations
Profit/(loss) before taxation
Taxation
Profit/(loss) from discontinued operations
53 weeks ended 30 March 2019
52 weeks ended 24 March 2018
Before
adjusted
items*
£ million
Adjusted items
£ million
Total
£ million
Before
adjusted
items*
£ million
Adjusted items
£ million
Total
£ million
52.5
(42.8)
9.7
(0.4)
9.3
(0.5)
8.8
1.0
9.8
(5.6)
4.2
–
(0.2)
(0.2)
(30.3)
(30.5)
–
(30.5)
–
(30.5)
0.4
(30.1)
52.5
(43.0)
9.5
(30.7)
(21.2)
(0.5)
(21.7)
1.0
(20.7)
(5.2)
(25.9)
73.9
(47.6)
26.3
(0.9)
25.4
(0.5)
24.9
(2.7)
22.2
(4.3)
17.9
–
(1.0)
(1.0)
–
(1.0)
–
(1.0)
–
(1.0)
–
(1.0)
73.9
(48.6)
25.3
(0.9)
24.4
(0.5)
23.9
(2.7)
21.2
(4.3)
16.9
*
Adjusted profit after tax on discontinued operations of £4.2 million (2018: £17.9 million) includes only those costs that are clearly identifiable as costs of the component that is being
disposed of and that will not be recognised on an ongoing basis.
The results of the discontinued operations differ significantly from the reported statutory results of Early Learning Centre Limited, because
they exclude fixed costs of £13.5 million (2018: £15.3 million) that currently remain in the Group, for example store occupancy and distribution
costs, as these costs weren’t discontinued as a result of the disposal agreement. Foreign exchange revaluation losses of £0.6 million (2018:
£4.8 million) are also excluded from the presented discontinued operations result as they arose on balances which were not included in
the sale agreement.
Adjusted item
The adjusted item of £30.1 million (2018: £1.0 million) mainly comprises the write-off of the goodwill and remaining intangible assets (trade
name and customer relationships) relating to the Early Learning Centre acquisition in 2007, amortisation of the intangible assets and non-
cash currency adjustments. 2018 comprises amortisation, costs relating to stock provisioning and non-cash currency adjustments.
Net cash inflow from operating activities
Net cash inflow/(outflow) from financing activities
Net increase in cash generated by the disposal and discontinued operations of ELC trading
activities
53 weeks
ended
30 March
2019
£ million
0.4
5.5
5.9
52 weeks
ended
24 March
2018
£ million
32.6
(0.5)
32.1
108
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued Details of the sale of ELC trading activities
Consideration received or receivable:
Cash
Deferred cash consideration
Total disposal consideration*
Legal expenses
Total net consideration
Write off of goodwill and intangible assets
Write off of property, plant and equipment
Write down of inventory
Write down of other assets
Transfer of inventory to TEAL
Loss before taxation
Attributable tax
Loss on sale of ELC
53 weeks
ended
30 March
2019
£ million
6.0
5.5
11.5
(1.2)
10.3
(30.8)
(1.4)
(2.3)
(0.8)
(5.5)
(30.5)
0.4
(30.1)
*
Additional consideration of £1.0 million in May 2020 and £1.0m in May 2021 has been deferred as it will be earnt over the first two years of trading under the Curated Wholesale
Agreement with TEAL Brands Limited, and therefore the total consideration is deemed to be £13.5 million.
A total loss of £25.9 million arose on the disposal of the trading activities of ELC, being the difference between the proceeds of disposal
and the carrying value of the subsidiary’s remaining net assets and attributable goodwill.
The balance sheet includes £5.5 million of inventories which have been sold to TEAL Brands Limited since the year end.
There are no other held for sale assets or liabilities in relation to this discontinued operation.
11. Dividends
The directors are not recommending the payment of a final dividend for the period (2018: £nil) and no interim dividend was paid during
the period (2018: £nil) .
Mothercare plc annual report and accounts 2019
109
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
12. Earnings per share
Weighted average number of shares in issue
Dilution – option schemes
Diluted weighted average number of shares in issue
Number of shares at period end
Loss for basic and diluted earnings per share
Adjusted items (note 6)
Tax effect of above items
Adjusted losses from continuing operations
(Loss) /profit for basic and diluted earnings per share
Adjusted items (note 6)
Tax effect of above items
Adjusted earnings from discontinued operations
Loss for basic and diluted earnings per share
Adjusted items (note 6)
Tax effect of above items
Adjusted losses for continuing and discontinued operations
From continuing and discontinued operations
Basic losses per share
Basic adjusted losses per share
Diluted losses per share
Diluted adjusted losses per share
From continuing operations
Basic losses per share
Basic adjusted losses per share
Diluted losses per share
Diluted adjusted losses per share
From discontinued operations
Basic (losses) /earnings per share
Basic adjusted earnings per share
Diluted (losses) /earnings per share
Diluted adjusted earnings per share
* The prior year has been restated for the reclassification of ELC discontinued operations (see note 10) .
Impact of changes in accounting policy (see note 2)
110
Mothercare plc annual report and accounts 2019
53 weeks
ended
30 March
2019
million
283.5
28.0
311.5
341.7
52 weeks
ended
24 March
2018
Restated*
million
169.8
2.0
171.8
170.9
£ million
£ million
(67.5)
48.2
(0.9)
(20.2)
(93.0)
65.0
0.3
(27.7)
£ million
£ million
(25.9)
30.5
(0.4)
4.2
16.9
1.0
–
17.9
£ million
£ million
(93.4)
78.7
(1.3)
(16.0)
Pence
(33.1)
(5.6)
(33.1)
(5.6)
Pence
(23.8)
(7.1)
(23.8)
(7.1)
(76.1)
66.0
0.3
(9.8)
Pence
(44.8)
(5.8)
(44.8)
(5.8)
Pence
(54.8)
(16.3)
(54.8)
(16.3)
Pence
Pence
(9.1)
1.5
(9.1)
1.3
9.9
10.6
9.8
10.4
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
IFRS 9 and IFRS 15 have been applied from 25 March 2018 with the application of the standards in the current accounting period and a
cumulative effect adjustment at the date of initial application recognised through retained earnings. If the prior year had been restated
then the impact would have been as follows:
Impact of the adoption of IFRS 9
Impact of the adoption of IFRS 15
Total impact of changes in accounting policy
13. Subsidiaries and joint ventures
Reduction in profit
for the year from
continuing operations
(net of taxation)
24 March 2018
£ million
Impact on basic
earnings per share
24 March 2018
pence
Impact on diluted
earnings per share
24 March 2018
pence
1.6
0.7
2.3
(0.9)
(0.4)
(1.3)
(0.9)
(0.4)
(1.3)
Details of all the Group’s investments in subsidiaries and joint ventures, all of which are wholly owned (except where stated) and included
in the consolidation, at the end of the reporting period is as follows:
Investment in subsidiaries
Country
% owned
Nature of Business
Direct/
indirect
UK(1)
UK(1)
UK(11)
UK(1)
UK(1)
UK(1)
Hong Kong(2)
UK(1)
UK(3)
UK(3)
UK(1)
Jersey(4)
UK(1)
Chelsea Stores Holdings Limited
Chelsea Stores (EBT Trustees) Limited
Childrens World Limited
Chelsea Stores Holdings 2 Limited1
Early Learning Centre Limited
Mothercare Toys 3 Limited2
Mothercare Group Sourcing Limited
Mothercare Toys 2 Limited3
Galleria Limited (11)
Mothercare Shops Group (11)
TCR Properties Limited
Mothercare (Jersey) Limited
Mothercare Finance Limited
Mothercare Sourcing Division (Bangladesh) Private Limited Bangladesh(5)
Mothercare Finance Overseas Limited
Mothercare Group Limited (The)
Mini Club UK Limited
Mothercare (Holdings) Limited
Mothercare UK Limited
Gurgle Limited
Mothercare International (Hong Kong) Limited
Mothercare Sourcing India Private Limited
Mothercare Inc
Princess Products Limited
Mothercare Business Services Limited4
Mothercare Procurement Limited
Mothercare Sourcing Limited
Mothercare Trademarks AG
Clothing Retailers Limited
Retail Clothing Limited
Strobe (2) Investments Limited
Strobe Investments Limited
Mothercare Commercial (Shanghai) Co Limited
Cayman Islands(6)
UK(1)
UK(1)
UK(1)
UK(1)
UK(1)
Hong Kong(2)
India(7)
USA(8)
UK(1)
UK(1)
Hong Kong(2)
UK(1)
Switzerland(9)
UK(1)
UK(1)
Jersey(4)
Jersey(4)
China(10)
1 Formerly Early Learning Holdings Limited
2 Formerly Early Learning Limited
3 Formerly ELC Limited
4 Formerly Mothercare Operations Limited
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Direct
Holding Company
Indirect
Dormant
Indirect
In administration
Indirect
Holding Company
Indirect
Trading
Indirect
Property Company
Indirect
Trading
Indirect
Dormant
Direct
In liquidation
Indirect
In liquidation
Direct
Dormant
Direct
Trading
Direct
Holding Company
Indirect
Trading
Dormant
Direct
Investment Holding Company Direct
Indirect
Trading
Indirect
Dormant
Indirect
Trading
Trading
Indirect
Investment Holding Company Indirect
Indirect
Trading
Indirect
Non Trading
Direct
Dormant
Direct
Non Trading
Direct
Trading
Direct
Dormant
Direct
Trading
Indirect
Non Trading
Indirect
Dormant
Direct
Non Trading
Direct
Trading
Indirect
Trading
Mothercare plc annual report and accounts 2019
111
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Place of
incorporation
Cyprus
Proportion of
ownership
interest
%
30
Proportion
of voting
power held
%
30
Investment in joint ventures
Wadicare Limited
Registered office address;
(1) Cherry Tree Road, Watford, WD24 6SH, UK
(2) 18 Floor Edinburgh Tower, The Landmark, 15 Queen’s Road, Central, Hong Kong
(3) Resolve Partners Limited, 48 Warwick Street, London, W1B 5NL, UK
(4) Sanne Secretaries Limited, 13 Castle Street, St Helier, JE4 5UT, Jersey
(5) 62/1 Purana Paltan, Level 4, Motijheel C/A, Dhaka 1000, Bangladesh
(6) Maples & Calder, PO Box 309, Grand Cayman, Cayman Islands
(7) Number 100, N.A Elixir, 2nd Floor, 4th B Cross, 5th Block Industrial Layout, Koramangala, Bangalore, 560095, India
(8) 1209 Orange Street, Wilmington, Delaware, 1980, USA
(9) Haldenstrasse 5, 6340 Baar, Switzerland
(10) Unit 7 and 8, 18 Floor, No 3 Building, No 1193 ChangNing Road, ChangNing District, Shanghai, China
(11) Childrens World administrators RO, 8th Floor Central Square, 29 Wellington Street, Leeds, LS1 4DL
14. Goodwill and intangible assets
Cost
As at 25 March 2017
Additions
Reclassification from property,
plant and equipment
Transfers
Exchange differences
As at 24 March 2018
Additions
Derecognised on disposals
Transfers
Exchange differences
As at 30 March 2019
Amortisation and impairment
As at 25 March 2017
Amortisation
Impairment
Exchange differences
As at 24 March 2018
Amortisation
Eliminated on disposal
Impairment
Exchange differences
As at 30 March 2019
Net book value
As at 25 March 2017
As at 24 March 2018
As at 30 March 2019
Goodwill
£ million
Trade name
£ million
Customer
relationships
£ million
Software
£ million
Software
under
development
£ million
Intangible assets
Total
Intangibles
£ million
68.6
–
–
–
–
68.6
–
(68.6)
–
–
–
41.8
–
–
–
41.8
–
(41.8)
–
–
–
26.8
26.8
–
29.2
–
–
–
(0.2)
29.0
–
(25.0)
–
0.1
4.1
22.8
0.9
1.1
(0.1)
24.7
0.5
(21.2)
–
0.1
4.1
6.4
4.3
–
5.7
–
–
–
–
5.7
–
(5.5)
–
–
0.2
5.7
–
–
–
5.7
–
(5.5)
–
–
0.2
–
–
–
55.8
6.7
4.6
4.7
–
71.8
4.5
(2.3)
1.8
–
75.8
30.3
8.0
–
–
38.3
10.5
(1.9)
14.5
–
61.4
25.5
33.5
14.4
4.7
1.8
–
(4.7)
–
1.8
1.9
–
(1.8)
–
1.9
–
–
–
–
–
–
–
–
–
–
4.7
1.8
1.9
95.4
8.5
4.6
–
(0.2)
108.3
6.4
(32.8)
–
0.1
82.0
58.8
8.9
1.1
(0.1)
68.7
11.0
(28.6)
14.5
0.1
65.7
36.6
39.6
16.3
Goodwill, trade name and customer relationships related 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.
112
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HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
Following the agreement to sell ELC trading activities to TEAL Brands Limited on 22 March 2019 (see note 10) the goodwill and intangible
assets relating to the ELC business have been disposed of.
Software
Software is amortised on a straight line basis over its expected useful life which is usually five years. At each balance sheet date, the
Group reviews the carrying amounts of its 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. As at year end, there are no intangible assets remaining with
an indefinite useful life.
The recoverable amount is deemed to be 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 (“CGU”) is estimated to be less than its carrying amount, the carrying
amount of the asset or CGU is reduced to that recoverable amount. An impairment loss is recognised as an expense in administrative
expenses immediately.
The relevant CGUs have been identified as the whole Group for any other software as these are used across the entire business. The key
assumptions for the value in use calculations are those regarding the discount rate. Management has used a pre-tax discount rate of
12.6%.
Sensitivity analysis has been undertaken, which reduces the net present value of future cash flows. There is no indication that the carrying
value of software would require further impairment over and above the £14.5 million already booked.
Software additions include £4.5 million (2018: £3.6 million) of internally generated intangible assets.
At 30 March 2019, the Group had entered into contractual commitments for the acquisition of software amounting to £0.5 million (2018:
£0.6 million) .
Mothercare plc annual report and accounts 2019
113
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
15. Property, plant and equipment
Cost
As at 25 March 2017
Transfers
Reclassification to software
Additions
Disposals
Exchange differences
As at 24 March 2018
Transfers
Additions
Disposals
Transfer to assets held for sale (note 20)
As at 30 March 2019
Accumulated depreciation and impairment
As at 25 March 2017
Charge for period
Impairment
Disposals
Exchange differences
As at 24 March 2018
Charge for period
Impairment
Disposals
Transfer to assets held for sale (note 20)
As at 30 March 2019
Net book value
As at 25 March 2017
As at 24 March 2018
As at 30 March 2019
Freehold
£ million
Leasehold
£ million
Fixtures,
fittings,
equipment
£ million
Assets in
course of
construction
£ million
Total
£ million
6.9
–
–
–
–
–
6.9
–
–
(3.5)
(3.4)
–
2.7
–
–
–
–
2.7
–
1.4
(1.2)
(2.9)
–
4.2
4.2
–
96.8
–
–
5.4
(6.4)
–
95.8
–
2.6
(22.7)
–
75.7
66.6
4.2
10.2
(6.3)
–
74.7
4.1
5.3
(20.7)
–
63.4
30.2
21.1
12.3
148.5
4.9
(4.6)
2.7
(9.3)
(0.1)
142.1
1.8
1.5
(23.2)
–
122.2
107.4
10.5
5.8
(9.4)
(0.1)
114.2
6.7
8.7
(21.0)
–
108.6
41.1
27.9
13.6
4.9
(4.9)
–
1.8
–
–
1.8
(1.8)
1.8
–
–
1.8
–
–
–
–
–
–
–
–
–
–
–
4.9
1.8
1.8
257.1
–
(4.6)
9.9
(15.7)
(0.1)
246.6
–
5.9
(49.4)
(3.4)
199.7
176.7
14.7
16.0
(15.7)
(0.1)
191.6
10.8
15.4
(42.9)
(2.9)
172.0
80.4
55.0
27.7
The net book value of leasehold properties includes £12.3 million (2018: £21.0 million) in respect of short leasehold properties. A £15.4 million
charge for the impairment of property, plant and equipment has been included within adjusted – administrative expenses items
(2018: £16.0 million) as impairment testing during the period has identified a number of stores where the current and anticipated future
performance does not support the carrying value of the stores.
A store impairment review has been completed, against which impairment of £15.4 million was recognised and included within adjusted
items in note 6. The recoverable amount of the total store assets is £16.1 million based on the value in use of the individual store after taking
into consideration the carrying value of unamortised landlord contributions relating to stores at 30 March 2019 of £17.1 million.
An impairment review of group level intangibles and fixed assets has been completed for CGUs including both the UK and international
operating segments. The impairment review covered those assets which cannot be reasonably and consistently allocated to a single
store Cash Generating Unit or between the two operating segments in line with the requirements of IAS 36. The total impairment
recognised against the group level intangibles and fixed assets is £29.9 million. The recoverable amount of total Group level intangibles
and fixed assets is £44.0 million based on the value in use of the group level cash flows after taking into consideration the carrying value of
unamortised landlord contributions at 30 March 2019 of £17.1 million and carrying amount of store level assets of £16.1 million. A risk free rate
of 1.2% has been applied.
At 30 March 2019, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
£nil million (2018: £2.0 million) .
114
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 16. 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 25 March 2017
Charge/(credit) to income
Credit/(charge) to other
comprehensive income
At 24 March 2018
(Charge) /credit to income
Credit/(charge) to other
comprehensive income
At 30 March 2019
Accelerated
tax
depreciation
£ million
Short-term
timing
differences
£ million
Retirement
benefit
obligations
£ million
Share-
based
payments
£ million
Intangible
assets
£ million
7.8
(3.8)
–
4.0
(3.9)
–
0.1
2.3
(3.1)
1.2
0.4
(0.1)
(0.6)
(0.3)
13.7
7.4
(21.1)
–
–
0.2
0.2
0.2
(0.1)
(0.1)
–
–
–
–
(0.8)
–
–
(0.8)
0.8
–
–
Losses
£ million
1.6
(1.6)
–
–
–
–
–
Total
£ million
24.8
(1.2)
(20.0)
3.6
(3.2)
(0.4)
–
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
30 March
2019
£ million
0.3
(0.3)
–
24 March
2018
£ million
4.4
(0.8)
3.6
At 30 March 2019, the Group has unused capital losses of £629.5 million (2018: £647.2 million) available for offset against future capital gains.
No asset has been recognised in respect of the capital losses as it is not considered probable that there will be future taxable capital
gains. The capital losses may be carried forward indefinitely.
The Group has taken a prudent approach given the uncertainty around future profitability of the relevant statutory entities and as at
the balance sheet date deferred tax assets of £18.9 million on accelerated depreciation, £2.1 million on short-term timing differences, and
£3.0 million on retirement benefit obligations have not been recognised. The Group also has unrelieved tax losses of £109.6 million (2018:
£69.6 million) available for offset against future profits at the balance sheet date. No deferred tax asset has been recognised for such
losses.
In arriving at the decision not to recognise a deferred tax asset, management has critically assessed all available information, including
future business profit projections and in certain cases, analysis of historical operating results. These forecasts are consistent with those
prepared and used internally for business planning and impairment testing purposes. Following this evaluation, it was determined there
would be insufficient taxable income generated to realise the benefit of the remaining deferred tax assets in the near future.
At the reporting date, deferred tax liabilities of £1.2 million (2018: £2.1 million) relating to withholding taxes have not been provided for in
respect of the aggregate amount of unremitted earnings of 18.3 million (2018: £19.7 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 joint ventures.
Mothercare plc annual report and accounts 2019
115
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
17. Inventories
Gross value
Allowance against carrying value of inventories
Finished goods and goods for resale
30 March
2019
£ million
72.5
(5.7)
66.8
24 March
2018
£ million
92.0
(5.0)
87.0
The cost of inventories recognised as an expense during the year in respect of continuing operations was £372.9 million (2018: £417.0 million) .
The amount of write down of inventories to net realisable value recognised within net income in the period is a charge of £7.3 million (2018:
£3.4 million charge for total operations) . All inventories (2018: All) are expected to be recovered within the year.
Following the implementation of IFRS 15, recognised in the year is a right to returned goods asset of £0.7 million, which represents the
Group’s right to recover products from customers where customers exercise their right to return under the Group’s 30 day returns policy.
The Group uses its accumulated historical experience to estimate the number of returns on a portfolio level using the expected value
method. As stated in note 2, IFRS 15 has been applied in the current accounting period and a cumulative effect adjustment at the date of
initial application recognised through retained earnings. Had the prior period been adjusted the comparative right to return goods asset
would have been £0.9 million.
18. Trade and other receivables
Trade receivables gross
Allowance for doubtful debts (covered by ECL after the implementation of IFRS 9)
Expected credit losses (ECL) under IFRS 9
Trade receivables net
Prepayments
Accrued income
Prepaid facility fees
Other receivables
Trade and other receivables due within one year
Non-current assets
Other receivables
Trade and other receivables due after more than one year
30 March
2019
£ million
24 March
2018
£ million
34.8
–
(7.7)
27.1
11.2
5.6
0.2
1.8
45.9
–
–
49.9
(2.7)
–
47.2
9.6
3.7
0.4
3.6
64.5
0.1
0.1
The following table details the risk profile of trade receivables based on the Group’s provision matrix, which determines the expected
credit loss by reference to age of the debt as well as micro and macroeconomic factors.
Trade receivables – days past due
Expected credit loss rate (ECL)
Estimated total gross carrying
amount at default
Lifetime ECL
At 30 March 2019
Not past due
£ million
11%
21.0
(2.4)
18.6
< 30 days
£ million
30%
2.0
(0.6)
1.4
31-60 days
£ million
13%
1.6
(0.2)
1.4
61-90 days
£ million
33%
0.9
(0.3)
0.6
91-120 days
£ million
14%
2.2
(0.3)
1.9
Trade receivables – days past due
Expected credit loss rate (ECL)
Estimated total gross carrying
amount at default
Lifetime ECL (as previously
stated)
At 24 March 2018
Not past due
£ million
< 30 days
£ million
31-60 days
£ million
61-90 days
£ million
91-120 days
£ million
0%
34.8
–
34.8
2%
5.1
(0.1)
5.0
19%
1.6
(0.3)
1.3
13%
2.4
(0.3)
2.1
11%
3.6
(0.4)
3.2
>120 days
£ million
55%
7.1
(3.9)
3.2
>120 days
£ million
67%
2.4
(1.6)
0.8
Total
£ million
22%
34.8
(7.7)
27.1
Total
£ million
5%
49.9
(2.7)
47.2
116
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued The following tables explain how significant changes in the gross carrying amount of the trade receivables contributed to the loss
allowance.
The following summarises the movement in the allowance for doubtful debts:
Balance at beginning of period
Adjustment upon application of IFRS 9
Balance as restated at 25 March 2018
Amounts written off during the period as uncollectable
Amounts recovered in the period
Charged in the period
Balance at end of period
53 weeks ended
30 March
2019
£ million
52 weeks ended
24 March
2018
£ million
(2.7)
(2.0)
(4.7)
0.3
0.6
(3.9)
(7.7)
(7.0)
–
(7.0)
6.2
0.2
(2.1)
(2.7)
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, except as disclosed above. The Group operates effective credit control procedures in order to minimise exposure to overdue
debts. Before accepting any new trade 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.
Debtor balances which are not provided for are either on payment plans and abide or pay to terms with the exception of timing due to
unforeseen circumstances.
Provisions for doubtful trade receivables are established based upon the difference between the receivable value and the estimated
net collectible amount. The Group establishes its provision for doubtful trade receivables based on its historical loss experiences and an
analysis of the counterparty’s current financial position.
The average credit period taken on sales of goods is disclosed in note 22. No interest is charged on trade receivables, however, the right
to charge interest on outstanding balances is retained.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
19. 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.
20. Assets classified as held for sale
On 8 February 2019 the Group entered into a sale agreement to dispose of two of its remaining freehold properties. This disposal was
completed on 25 April 2019 and as a result was reclassified from property, plant and equipment to assets classified as held for sale. At the
year end, the assets have been valued in the books at the estimated amount of the disposal proceeds of £0.5 million.
Mothercare plc annual report and accounts 2019
117
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
21. Borrowing
The Group had outstanding borrowings at 30 March 2019 of £23.2 million (2018: £44.1 million) . The revolving credit facility is secured on the
shares of specified obligor subsidiaries and the assets of the group not already pledged.
In May 2018 the Group’s two existing banks, HSBC and Barclays, agreed to provide a revolving credit facility of £67.5 million comprising two
tranches. Tranche A is £50.0 million stepping down to £30.0 million in September 2020, with final maturity in December 2020. Tranche B was
£17.5 million and matured in November 2018, at which point an overdraft of £5.0 million became uncommitted outside of the revolving credit
facility. During the year the net proceeds from the sale and lease back of the UK Head Office and the consideration for the sale of the ELC
trading activities has been used to reduce the drawings under the bank facilities. On 25 April 2019, £0.5 million proceeds from the sale of
the held for sale properties, Ayr and Paisley; and on 15 May 2019, £5.5 million of deferred consideration from the sale of ELC to TEAL Brands
Limited were used to repay the RCF. Further, the proceeds from selling the excess Early Learning Centre stock will be applied against the
RCF, with the limit stepping-down by £2.0 million increments in June, July and August. As a result, by the end of August 2019, the limit on the
RCF will be £18 million. As at 30 March 2019 the Group had net debt of £6.9 million (2018: £44.1 million) and had headroom on both cash and
covenants on its facility. The Group has agreed with the banks to reduce its covenant targets in December 2019.
The Group has also raised shareholder loans of £8.0 million during the period. These loans have a termination date of June 2021. These
shareholder loans provide an opportunity for the lender to convert the loan into ordinary shares of the Company at specified dates. It
is accounted for at amortised cost of £6.2 million at 30 March 2019, and the option to convert is fair valued and treated as an embedded
derivative valued as a liability of £4.8 million (see note 22) . The shareholder loans attract a monthly compound interest rate of 0.83%.
Borrowing facilities
Borrowings:
Secured borrowings at amortised cost:
Bank overdraft
Revolving credit facility
Shareholder loan
Total Borrowings
Amount due for settlement within one year
Amount due for settlement after one year
Weighted average interest rate paid (for when borrowings in place)
22. Financial risk management
A. The classes and categories of the Groups financial instruments are categorised as follows:
Financial Instruments: Categories
30 March
2019
£ million
24 March
2018
£ million
–
17.0
6.2
23.2
11.5
11.7
7.4%
1.6
42.5
–
44.1
1.6
42.5
2.86%
Financial assets
Derivatives designated as hedging instruments
Customer and other receivables at amortised cost*
Cash and short-term deposits
Total
Financial liabilities
Derivatives designated as hedging instruments
Derivatives not designated as hedging instruments
Trade and other payables at amortised cost**
Interest bearing loans and borrowings:
Bank overdraft
Revolving credit facility
Shareholder loans
Total
Fair value level
30 March
2019
£ million
24 March
2018
£ million
1
1
2
2
1.5
32.9
16.3
50.7
–
4.8
51.7
–
17.0
6.2
79.7
0.1
51.4
–
51.5
10.0
–
57.0
1.6
42.5
–
111.1
* Prepayments of £11.2 million (2018: £9.6 million) and other debtors of £1.8 million (2018: £3.6 million) do not meet the definition of a financial instrument.
** Property lease incentives of £18.0 million (2018: £24.3 million) , other creditors, (including accruals, payroll creditors and deferred income) of £47.7 million (2018; £45.1 million) do not
meet the definition of a financial instrument.
118
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
Fair value hierarchy levels 1-3 are based on the degree to which the fair value is observable and are defined as:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted process included within Level 1 that are observable for
the asset or liability, either directly (i.e. Prices) or indirectly (i.e. derived from prices) ; and Level 3 fair value measurements are those derived
from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs) .
Derivatives and the shareholder loan are valued at fair value. All other financial assets/liabilities are valued at amortised cost.
B. 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 equity
attributable to equity holders of the parent comprising issued capital, reserves and retained earnings as disclosed in the statement of
changes in equity.
C. 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 has historically used forward foreign currency contracts to reduce its cash flow exposure to exchange rate movements,
primarily on the US dollar. The Group has applied hedge accounting and the contracts are considered effective cash flow hedges and
are accounted for by recognising the gain/loss on the hedge through reserves. The contracts outstanding at year end mature between
March 2019 and May 2019. The Group has more recently relied on its foreign currency denominated revenues to provide a natural hedge
against its foreign currency denominated stock purchases.
The Group incurs foreign currency risk on royalty income as local sales are translated into Sterling amounts on which royalties are
calculated. To help mitigate against further currency impacts, these have been hedged in the past and hedge accounting has been
applied for the contracts and the gain / loss on the hedge has been recognised through reserves.
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.
Derivatives embedded in non-derivative host contracts have been recognised separately as derivative financial instruments when
their risks and characteristics are not closely related to those of the host contract and the host contract is not stated at its fair value with
changes in its fair value recognised in the income statement.
International sales for continuing operations represent 34% (2018: 34%) of Group sales. Of these sales, 38% (2018: 30%) were invoiced in
foreign currency. The Group purchases product in foreign currencies, representing approximately 66% (2018: 65%) 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:
Less than one year
After one year but not more than five years
30 March
2019
£ million
21.5
–
21.5
24 March
2018
£ million
132.1
21.5
153.6
Mothercare plc annual report and accounts 2019
119
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as
follows:
US dollar
Euro
Hong Kong dollar
Indian rupee
Chinese renminbi
Bangladeshi taka
30 March
2019
£ million
(0.6)
(0.8)
(1.8)
(0.9)
(0.3)
–
(4.4)
Liabilities
24 March
2018
£ million
(0.7)
–
(1.0)
(0.9)
(0.9)
(0.2)
(3.7)
30 March
2019
£ million
38.2
–
1.1
1.6
0.4
0.1
41.4
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
30 March
2019
£ million
21.5
1.5
–
1.5
Assets
24 March
2018
£ million
33.3
1.6
0.3
5.4
0.8
0.3
41.7
24 March
2018
£ million
153.6
(9.4)
(0.6)
(10.0)
The fair value of forward foreign currency contracts due in less than one year is a £1.5 million asset (2018: £9.4 million liability) .
At 30 March 2019, the average hedged rate for outstanding forward foreign currency contracts is 1.34 for US dollars. There are no
outstanding hedged contracts in Euros or Russian roubles. These contracts mature between April 2019 and May 2019.
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 £nil million above notional value (2018: £0.1 million above) .
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 adjusted items or in other comprehensive income where pounds sterling strengthens
against the US dollar.
US dollar impact
D. Credit risk
Reflected in profit and loss
Reflected in equity
30 March
2019
£ million
(14.8)
24 March
2018
£ million
(3.7)
30 March
2019
£ million
0.7
24 March
2018
£ million
11.7
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 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 18, and cash and
derivative financial assets. Debtor balances which are not provided for are either on payment plans and abide or pay to terms with
exception of timing due to unforeseen circumstances.
The average credit period on gross trade receivables was 23 days (2018: 26 days) based on total group revenue. The average credit
period on International gross trade receivables based on international revenue was 61 days (2018: 73 days) .
120
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
E. 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.
The table below shows the maturity analysis of the undiscounted remaining contractual cash flows (including interest) of the Group’s
financial liabilities, including cash flows in respect of derivatives:
Financial liabilities
Borrowings
Trade and other payables
Derivatives
At 30 March 2019
Financial liabilities
Borrowings
Trade and other payables
Derivatives
At 24 March 2018
F. Interest rate risk
Less than 1 year
£ million
1 to 2 years
£ million
2-5 years
£ million
Over 5 years
£ million
11.5
51.7
–
63.2
5.5
–
–
5.5
6.2
–
4.8
11.0
–
–
–
–
Less than 1 year
£ million
1-2 years
£ million
2-5 years
£ million
Over 5 years
£ million
1.6
57.0
9.4
67.6
42.5
–
0.6
43.1
–
–
–
–
–
–
–
–
Total
£ million
23.2
51.7
4.8
79.7
Total
£ million
44.1
57.0
10.0
111.1
The principal interest rate risk of the group arises in respect of the drawdown of the revolving credit facility. This facility is at a fixed rate plus
LIBOR, it exposes the group to cashflow interest rate risk. The interest exposure is monitored by management but due to low interest rate
levels during the period the risk is believed to be minimal and no interest rate hedging has been undertaken.
G. 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 to use derivative financial instruments,
where possible, 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.
23. Trade and other payables
Current liabilities
Trade payables
Payroll and other taxes including social security
Accruals
Deferred income
Lease incentives
VAT payable
Non-current liabilities
Lease incentives
30 March
2019
£ million
24 March
2018
£ million
48.4
1.4
45.9
0.4
3.2
3.3
102.6
14.8
55.6
0.8
43.9
0.4
4.2
1.4
106.3
20.1
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 44 days (2018: 48 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.
Mothercare plc annual report and accounts 2019
121
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
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 25 March 2018
Utilised in period
Charged in period
Released in period
Unwinding of discount (see note 6 and 8)
Balance at 30 March 2019
30 March
2019
£ million
24 March
2018
£ million
21.5
0.3
21.8
31.3
0.3
31.6
52.8
0.6
53.4
16.5
0.3
16.8
36.5
0.3
36.8
53.0
0.6
53.6
Property
provisions
£ million
Other
provisions
£ million
Total
provisions
£ million
53.0
(15.0)
51.6
(37.4)
0.6
52.8
0.6
–
–
–
–
0.6
53.6
(15.0)
51.6
(37.4)
0.6
53.4
Property provisions principally represent the costs of store disposals or closures relating to the UK portfolio which involves the closure of
Mothercare stores following the CVA activity in May 2018 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 five financial
years.
Other provisions represent provisions for uninsured losses of £0.6 million (2018: £0.6 million) , hence the timing of the utilisation of these
provisions is uncertain.
122
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes 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 Sharesave Scheme
Conversion of shares to 1 pence ordinary and 49
pence deferred shares
Balance at end of period
Ordinary shares of 1 pence each
Balance at beginning of period
Conversion from ordinary shares of 50 pence
Issue of shares in the period
Balance at the end of period
Deferred shares of 49 pence each
Balance at beginning of period
Conversion of shares from ordinary shares
Balance at end of period
Total share capital at end of period
53 weeks
ended
30 March
2019
Number of
shares
170,871,885
–
(170,871,885)
–
–
170,871,885
170,871,885
341,743,770
–
170,871,885
170,871,885
52 weeks
ended
24 March
2018
Number of
Shares
170,867,497
4,388
–
170,871,885
–
–
–
–
–
–
–
53 weeks
ended
30 March
2019
£ million
52 weeks
ended
24 March
2018
£ million
85.4
–
(85.4)
–
–
1.7
1.7
3.4
–
83.7
83.7
87.1
85.4
–
–
85.4
–
–
–
–
–
–
–
85.4
On 27 July 2018 Mothercare plc subdivided its existing 170,871,885 ordinary shares of 50 pence into 170,871,885 ordinary shares of 1 pence
and 170,871,885 deferred shares of 49 pence. The deferred shares do not carry any voting rights. On the same date, the Company issued a
further 170,871,885 ordinary shares at 19 pence. This raised equity of £32.5 million, an increase in share capital of £1.7 million, and £27.9 million of
share premium (after expenses of £2.9 million) .
Further details of employee and executive share schemes are given in note 30.
The own shares reserve of £1.1 million (2018: £1.1 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 30) . The total shareholding is 998,022
(2018: 1,019,693) with a market value at 30 March 2019 of £0.2 million (2018: £0.2 million) .
26. Share premium
Balance at beginning of period
Premium arising on issue of new shares
Share issue costs
Balance at end of period
See note 25 above for further details.
53 weeks
ended
30 March
2019
£ million
61.0
30.8
(2.9)
88.9
52 weeks
ended
24 March
2018
£ million
61.0
–
–
61.0
Mothercare plc annual report and accounts 2019
123
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
53 weeks
ended
30 March
2019
£ million
(1.9)
0.1
(1.8)
(9.4)
12.9
(1.6)
(0.6)
1.3
53 weeks
ended
30 March
2019
£ million
(58.6)
9.8
10.5
29.9
(9.1)
2.6
(0.8)
(0.2)
(7.9)
1.0
(14.4)
2.3
(34.9)
28.9
20.1
(10.3)
(1.7)
2.1
(1.1)
1.0
0.4
52 weeks
ended
24 March
2018
£ million
(1.3)
(0.6)
(1.9)
5.2
(18.8)
2.8
1.4
(9.4)
52 weeks
ended
24 March
2018
Restated*
£ million
(90.3)
13.7
8.4
17.1
-
3.9
-
31.0
(4.3)
2.4
(11.8)
3.2
(26.7)
(2.4)
(8.2)
1.7
6.3
(29.3)
(2.0)
(31.3)
32.6
27. Translation and hedging reserves
Translation reserve
Balance at beginning of period
Exchange differences on translation of foreign operations
Balance at end of period
Hedging reserve
Balance at beginning of period
Cash flow hedges: gains/(losses) arising in the period
(Removal) /additions to equity to/from inventory during the period
Deferred tax on cash flow hedges
Balance at end of period
28. Reconciliation of cash flow from operating activities
Loss from continuing operations
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment of property, plant and equipment and intangible assets
Profit on sale of property, plant and equipment
Loss on adjusted foreign currency movements
Equity-settled share-based payments
Movement in provisions
Amortisation of lease incentives
Lease incentives received
Payments to retirement benefit schemes
Charge to profit from operations in respect of retirement benefit schemes
Operating cash flow before movement in working capital
Decrease/(increase) in inventories
Decrease/(increase) in receivables
(Decrease) /increase in payables
Foreign exchange movements on working capital
Net cash flow from operating activities
Income taxes paid
Net cash flow from operating activities – continuing operations
Net cash flow from operating activities – discontinued operations
* Restated for the adoption of IFRS 15 and ELC discontinued operations
124
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued Changes in liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s
consolidated cash flow statement as cash flows from financing activities.
Analysis of net debt
Shareholder loan
Revolving credit facility
Cash at bank /overdraft *
Net debt
Note
21
21
19/21
25 March
2018
£ million
–
(42.5)
(1.6)
(44.1)
Cash flow
£ million
(8.0)
25.5
17.0
34.5
Foreign
exchange
£ million
–
–
0.9
0.9
Other
non-cash
movements1
£ million
1.8
–
–
1.8
30 March
2019
£ million
(6.2)
(17.0)
16.3
(6.9)
* The cash flows of the bank overdraft and cash at bank are merged and cannot be separately categorised.
1.
Non-cash movements comprise the £3.0 million valuation of the embedded derivative at inception, £1.4 million of interest accrued on the shareholder loans, and £(0.2) million of
facility fee amortisation.
The RCF at 30 March 2019 had a limit of £30.0 million (of which £17.0m was drawn down) , which included a £10.0 million committed overdraft
facility.
On 25 April 2019, £0.5 million proceeds from the sale of the held for sale properties Ayr and Paisley; and, on 15 May 2019, £5.5 million of
deferred consideration from the sale of ELC to TEAL Brands Limited were used to repay the RCF. The RCF limit will be further reduced by
£2.0 million increments in June, July and August, through repayment of the proceeds received from the sale of ELC stock not transferred to
TEAL, such that by the end of August 2019, the limit on the RCF will be £18 million.
29. Operating lease arrangements
The Group as lessee:
Amounts recognised in cost of sales for the period:
Minimum lease payments paid
Contingent rents
Minimum sublease payments received
Net rent expense for the period
53 weeks
ended
30 March
2019
£ million
26.0
–
–
26.0
52 weeks
ended
24 March
2018
£ million
40.8
0.1
(0.1)
40.8
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
30 March
2019
£ million
26.4
81.9
41.8
150.1
24 March
2018
£ million*
44.0
108.4
69.0
221.4
*
Following a review of operating leases during the implementation of IFRS16 we identified one operating lease that was excluded from the operating lease commitments and
the prior year comparatives. have been restated.
At the balance sheet date, the following future minimum lease amounts are contractually receivable from sub-tenants:
Not later than one year
After one year but not more than five years
Total future minimum lease receivables
30 March
2019
£ million
–
–
–
24 March
2018
£ million
0.4
1.1
1.5
Mothercare plc annual report and accounts 2019
125
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
30. 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 decrease in the charge year on year is due to a change in the estimated number of shares that will vest.
Share-based payments comprise a credit of £0.8 million (2018: £0.1 million credit) including national insurance, of which £nil million (2018:
£0.1 million credit) was equity-settled. At 30 March 2019 the liability in the balance sheet is £0.2 million related to the expected national
insurance charge when share-based payment schemes vest (2018: £0.7 million) .
These charges relate to the following schemes:
A. Save As You Earn Schemes
B. Long Term Incentive Plans – LTIP 2012
C. Long term Incentive Plans – LTIP 2019
D. Retention Share Plan
E. Value Creation Plan
F.
Senior Management Incentive Plan and Management Incentive Plan
Details of the share schemes that the Group operates are provided in the directors’ remuneration report on pages 62 to 63.
For each scheme, expected volatility was determined with reference to the 90-day volatility of the Company 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. 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 average
daily mid-market price on the three 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 on trust for a three-year period.
The number of shares outstanding under the Save As You Earn Schemes is as follows:
Balance at beginning of period
Granted during period
Forfeited during period
Exercised during period
Cancelled in the period
Expired during period
Balance at end of period
Weighted
average
exercise
price
112p
13p
102p
80p
126p
22p
53 weeks
ended
30 March
2019
Number of
shares
2,051,816
6,497,914
(117,704)
–
(920,591)
(620,137)
6,891,298
52 weeks
ended
24 March
2018
Number of
Shares
3,505,488
–
(310,553)
(4,388)
(950,229)
(188,502)
2,051,816
The shares outstanding at 30 March 2019 had a weighted average remaining contractual life of 2.7 years and ranged in price from 13p to
169p.
126
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 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
2018
6,497,914
18p
13p
58.0%
1.33%
Nil
3 years
8.9p
December
2016
2,430,840
112p
90p
52.0%
0.23%
Nil
3.25 years
48.8p
December
2015
1,216,606
224p
169p
42.0%
0.54%
Nil
3.25 years
90.8p
The resulting fair value is expensed over the service period of three years on the assumption that 10% of options will lapse over the service
period as employees leave the Group.
B. Long Term Incentive Plans- LTIP 2012
In December 2014 and March 2015 the Group granted awards under Mothercare plc 2012 Long Term Incentive Plan. The performance
conditions related to group profit before tax and share price performance. These conditions were tested in relation to the results for the
financial years ended March 2018 and March 2017 respectively to determine what % of the shares vest and have subsequently lapsed.
In June 2015, December 2015 and February 2016 the Group granted further awards under Mothercare plc 2012 Long Term Incentive Plan.
The performance conditions relate to group profit before tax and relative total shareholder return (TSR) weighted equally 50:50. The TSR
element lapsed as at the end of the year ended March 2018 and the PBT element is expected to lapse as a result of the financial results
for the year ended March 2019. 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
June
2015
PBT
awards
1,303,870
258p
Nil
54.14%
1.21%
Nil
258p
4.0 years
June
2015
TSR
awards
1,303,870
258p
Nil
44.76%
0.87%
Nil
183p
3.0 years
December
2015
PBT
awards
71,096
240p
Nil
54.14%
1.21%
Nil
258p
3.5 years
December
2015
TSR
awards
71,096
240p
Nil
44.76%
0.87%
Nil
183p
2.5 years
February
2016
PBT
awards
79,802
198p
Nil
54.14%
1.21%
Nil
258p
3.3 years
February
2016
TSR
awards
79,802
198p
Nil
44.76%
0.87%
Nil
183p
2.3 years
In August 2016 the Group granted further awards under the Mothercare plc 2012 Long Term Incentive Plan. The performance conditions
relate to Group adjusted basic earnings per share and relative total shareholder return weighted equally 50:50. These conditions will be
tested in relation to financial year ending March 2019 three years from date of award respectively to determine what percentage of the
shares vest. 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
August
2016
EPS
awards
2,269,692
131p
Nil
46.5%
0.09%
Nil
131p
3.5 years
August
2016
TSR
awards
2,269,692
131p
Nil
46.5%
0.09%
Nil
87p
3.5 years
Mothercare plc annual report and accounts 2019
127
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
C. Long Term Incentive Plans – LTIP 2019
In March 2019 the Group granted awards under the Mothercare plc 2019 Long term Incentive Plan. These consisted of an award of
Conditional shares, which carry no performance conditions other than continued service, and a nil cost option award for which vesting
is subject to a relative total shareholder return (TSR) performance condition against a bespoke comparator group as well as fulfilment of
share price underpin.
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
D. Retention Share Plan
March
2019
Nil cost
options
7,608,053
22.5p
Nil
58.3%
0.63%
Nil
13.1p
3.0 years
March
2019
Conditional
shares
774,110
22.5p
Nil
58.3%
0.63%
Nil
22.5p
3.0 years
In August 2016 the Group granted awards under the Retention share plan. The performance conditions were directly linked to the long
term incentive plan awarded in December 2014 and March 2015. The retention share plan has vested and some participants are still to
exercise. No consideration was 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
E. Value Creation Plan
August
2016
PBT
awards
131,072
135p
Nil
56.3%
0.92%
Nil
184p
1.8
August
2016
TSR
awards
131,072
135p
Nil
49.0%
0.18%
Nil
131p
1.8
In August 2017 the Group granted awards under the Value creation plan (VCP) with the grant of an additional award in September 2017
for the incoming Chief Financial Officer. The VCP grants nil cost options to selected participants based on Total Shareholder Return over
a three year period to March 2020. The awards are exercisable in three equal tranches from March 2020 through to March 2022. The fair
value at the date of grant was calculated using a Monte Carlo model as the VCP carries a share price based performance condition.
The volatility was based on share price information. The fair value of the allocated VCP thus far is £1.2 million to be spread over a five year
period. A charge of £0.3 million was recognised in the financial year.
F. Senior Management Incentive Plan and Management Incentive Plan
In August 2017 the group granted awards under the Senior Management Incentive Plan (“SMIP”) and Management Incentive Plan (“MIP”) .
The performance conditions relate to the total shareholder return (“TSR”) over the period from grant to March 2020. The incentive schemes
are cash settled with values dependant on a share price over £2.00. To the extent that TSR meets or exceeds £2.00, participants in the
plan will receive a cash bonus based on a percentage of base salary. A Monte Carlo model has been used to calculate the fair value of
awards. The volatility was based on share price information. The fair value of this award at year end was immaterial with an average time
to expiry of 2.01 years.
128
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 31. 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 £1.8 million (2018: £1.9 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 schemes’ 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 valuation was carried out as of 30 March 2017 and was updated 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 method.
The schemes expose the Company to actuarial risks such as longevity risk, interest rate risk and market (investment) risk.
GMP equalisation
Following the High Court ruling regarding the Following the High Court ruling regarding the equalisation of Guaranteed Minimum
Pension (‘GMP’) benefits within the Lloyds pension scheme on 26 October 2018, the Schemes are required to adjust benefits to remove the
inequalities between GMP benefits awarded to males and females.
The Company has not previously included an allowance for the impact of GMP equalisation within its reported results. The estimated
increase in liabilities due to GMP equalisation has therefore been recognised as a past service cost within the income statement.
The charge to the income statement for the Schemes in respect of GMP equalisation has been calculated by the Group’s advisors.
The past service cost recognised in respect of GMP equalisation for the Schemes is £0.6 million.
Pension Increase Exchange (PIE) exercise
In November 2018, members of the defined benefit pension scheme were offered the option of participating in a pension increase
exchange (PIE) . This enabled members the option of taking a higher pension now, in exchange for future increases being reduced to
75% of what they would otherwise have been. This has been recognised as a past service cost through the income statement. Fees
of £0.2 million were incurred to implement this change, including the independent legal advice offered to members. The net impact of
£1.4 million is considered to be one-off in nature and is therefore presented as an adjusted item.
Mothercare plc annual report and accounts 2019
129
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Below is an outline of the risks, what they are and how the Group mitigates those risks.
Risk
Description
Mitigation
Volatile asset returns
Changes in
bond yields
The Defined Benefit Obligation (DBO) is calculated
using a discount rate set with reference to AA
corporate bond yields; asset returns that differ from
the discount rate will create an element of volatility
in the solvency ratio. The UK Pension Schemes hold a
proportion in growth assets, though this was reduced
over the year.
After the implementation of the new investment
strategies, only the Staff Scheme has an allocation
to a global synthetic equity mandate (13% of assets,
representing a target exposure of c31%) . There is a
strategic allocation of 24% to diversified growth funds
for both Schemes.
Although these growth assets are expected to
outperform corporate bonds in the long term,
they can lead to volatility and mismatching risk in
the short term. The allocation to growth assets is
monitored to ensure it remains appropriate give the
UK Pension Schemes’ long-term objectives.
A decrease in corporate bond yields will increase
the present value placed on the DBO for accounting
purposes, although this will be partially offset by an
increase in the value of the UK Pension Fund’s bond
holdings.
Inflation risk
Life expectancy
A significant proportion of the DBO is indexed in
line with price inflation (specifically inflation in the
UK Retail Price Index) and higher inflation will lead
to higher liabilities (although, in most cases, this is
capped at an annual increase of 5%) .
The majority of the UK Pension Fund’s obligations
are to provide benefits for the life of the member, so
increases in life expectancy will result in an increase
in the liabilities.
Over the year the Company and Trustee reduced
the allocation to growth assets, increasing the
allocations to bond and bond-like assets. As at the
end of the year, the Staff Scheme had an allocation
to bond and bond-like assets of 63% (increased from
35%) and the Executive Scheme had an allocation to
bond and bond-like assets of 76% (increased from
41%)
As part of this, the Trustee and Company introduced
a leveraged liability driven investment portfolio
with formal interest rate and inflation hedge ratios
(c.56% and c.55% on a technical provisions basis
for the Staff and Executive Schemes respectively) .
This is designed to reduce funding level volatility
by investing in assets which more closely match the
characteristics of the liabilities.
The UK Pension Fund holds a proportion of its assets
(around 35%) in bonds, which provide a hedge
against falling bond yields (falling yields which
increase the DBO will also increase the value of the
bond assets) . Note that there are some differences
in the credit quality of bonds held by the UK Pension
Fund and the bonds analysed to decide the DBO
discount rate, such that there remains some risk
should yields on different quality bond/ swap assets
diverge.
The UK Pension Fund holds some inflation-linked
assets which provide a hedge against higher-than-
expected inflation increases on the DBO.
Other Risks: There are a number of other risks of running the UK Pension Fund including operational risks (such as paying out the wrong
benefits) and legislative risks (such as the government increasing the burden on pension through new legislation) .
The IAS 19 valuation conducted for the period ending 30 March 2019 disclosed a net defined pension deficit of £24.9 million (2018:
£37.7 million) .
130
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 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)
Female life expectancy at age 65
Female life expectancy at age 65 (currently aged 45)
30 March
2019
2.6%
3.2%
2.1%
3.1%
21.3 years
22.6 years
23.5 years
25.0 years
24 March
2018
2.7%
3.1%
2.0%
3.0%
22.0 years
23.3 years
24.1 years
25.7 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 2018
projections with a long term annual rate of improvement of 1.25 per cent and a core smoothing factor of 7. Weighted averages across both
schemes are shown above.
In the current year the Company’s basis for setting the discount rate has been amended to a to a ‘single agency’ yield curve approach.
Under this approach the yield curve is based on a AA ‘universe’ including bonds that receive at least one AA rating from the main
ratings agencies (i.e. a ‘single agency’ approach) and a bootstrapping method to extrapolate the curve at the longer end. Logarithmic
regression has been used to find the best fitting yield curve for the spot yields calculated from the bond data.
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 RPI inflation
Rate of CPI inflation
Life expectancy (age 65)
Discount rate
Rate of RPI inflation
Change in
assumption
+/- 0.1%
+/- 0.1%
+/- 0.1%
+ 1 year
+/- 0.5%
+/- 0.5%
Impact on
scheme
liabilities
£ million
-7.5 /+7.7
+5.1 /-7.3
+3.1 /-2.9
+ 15.0
-35.5 /+40.7
+32.5 /- 29.5
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:
Running costs
Past service costs in respect of GMP equalisation (see note 6 – adjusted items)
Past service credit in respect of PIE (see note 6 – adjusted items)
Net interest on liabilities/return on assets
53 weeks
ended
30 March
2019
£ million
3.3
0.6
(1.6)
0.9
3.2
52 weeks
ended
24 March
2018
£ million
3.4
–
–
2.0
5.4
Running costs are included in 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 30 March 2019 is a gain of £1.6 million (2018: a gain of
£36.0 million) .
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131
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
The amount included in the balance sheet arising from the Group’s obligations in respect of its defined benefit retirement schemes is as
follows:
Present value of defined benefit obligations
Fair value of schemes’ assets
Liability recognised in balance sheet
Movements in the present value of defined benefit obligations were as follows:
At beginning of period
Past service cost in respect of GMP equalisation
Past service cost in respect of PIE
Interest expense
Actuarial (gains) /losses arising from changes in demographic assumptions
Actuarial losses/(gains) arising from changes in financial assumptions
Experience gains on liabilities
Benefits paid
At end of period
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
Benefits paid
At end of period
The major categories of scheme assets are as follows:
UK equities
Overseas equities
Corporate bonds
Index-linked government bonds
Government bonds
Diversified growth funds
Cash and cash equivalents
132
Mothercare plc annual report and accounts 2019
30 March
2019
£ million
Quoted
market
price in
active
market
–
29.9
126.3
86.3
30.7
79.1
11.4
363.7
30 March
2019
£ million
No quoted
market
price in
active
market
–
–
–
–
–
–
–
–
30 March
2019
£ million
388.6
(363.7)
24.9
53 weeks
ended
30 March
2019
£ million
389.2
0.6
(1.6)
10.3
(9.0)
15.8
–
(16.7)
388.6
53 weeks
ended
30 March
2019
£ million
351.5
9.4
(3.3)
8.4
14.4
(16.7)
363.7
24 March
2018
£ million
Quoted
market
price in
active
market
41.6
22.9
67.6
44.4
20.1
82.7
72.2
351.5
24 March
2018
£ million
389.2
(351.5)
37.7
52 weeks
ended
24 March
2018
£ million
409.7
–
–
10.7
6.1
(5.4)
(20.2)
(11.7)
389.2
52 weeks
ended
24 March
2018
£ million
329.6
8.7
(3.4)
16.5
11.8
(11.7)
351.5
24 March
2018
£ million
No quoted
market
price in
active
market
–
–
–
–
–
–
–
–
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued
The percentage split of the scheme assets between sterling & non-sterling are as follows as at 30 March 2019:
Overseas equities
Corporate bonds
Secured Finance
Liability driven investments
Diversified growth funds
Cash and cash equivalents
Sterling
Non-sterling
100%
100%
100%
100%
74%
100%
–
–
–
–
26%
–
The schemes’ 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 Company is committed to paying into each scheme for future years, these amounts are outlined on the below Schedule of
Contributions:
Exec Scheme year ending March
2020
2021
2022
2023
Amount
£2.35 million
£2.73 million
£3.16 million
£3.39 million
Staff Scheme year ending March
Amount
2020
2021
2022
2023
£9.05 million
£10.47 million
£12.14 million
£13.09 million
The schemes are funded by the Company. Funding of the schemes 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 30 March 2019 is approximately 20 years (2018: 22 years) .
The defined benefit obligation at 24 March 2018 can be approximately attributed to the scheme members as follows:
• Active members: 0% (2018: 0%)
• Deferred members: 69% (2018: 66%)
• Pensioner members: 31% (2018: 34%)
All benefits are vested at 30 March 2019 (unchanged from 24 March 2018) .
32. 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 are disclosed below.
Trading transactions
During the year, group companies entered into the following transactions with related parties who are not members of the Group:
53 weeks ended 30 March 2019
Joint ventures
52 weeks ended 24 March 2018
Joint ventures
Sales of
goods
£ million
1.4
Sales of
goods
£ million
6.4
Purchases of
goods
£ million
–
Purchases
of
goods
£ million
–
Amounts
owed by
related
parties
£ million
2.1
Amounts
owed by
related
parties
£ million
1.8
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. The
amounts shown above have been shown gross and a provision of £1.1 million (2018: £0.9 million) has been made for doubtful debts.
Mothercare plc annual report and accounts 2019
133
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
The joint venture in China was fully disposed of on 20 December 2017. As part of the disposal a loan of £0.9 million and gross trade
receivables of £0.5 million were written off against a provision of the same amount.
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 59 to 64.
Short-term employee benefits
Post-employment benefits
Compensation for loss of office
Mothercare Pension scheme
53 weeks
ended
30 March
2019
£ million
4.6
0.3
0.1
5.0
52 weeks
ended
24 March
2018
£ million
3.5
0.3
0.3
4.1
Details of other transactions and balances held with the two pension schemes are set out in note 31.
Other transactions with key management personnel
There were no other transactions with key management personnel.
33. Events after the balance sheet date
On 13 May 2019, the disposal of ELC to TEAL Brands Limited was completed, and the deferred disposal consideration of £5.5 million was
received (see note 10) . On the same date, a Curated Wholesale Agreement was entered into with TEAL Brands Limited.
In April 2019, the sale of the two held for sale freehold properties was completed, for consideration of £0.5 million.
Since the year end date, a further 15 stores within the UK store estate have been closed as part of the Group’s closure programme; this
has brought the total UK estate to 79 stores.
134
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continuedNotes to the consolidated financial statements continued 34. Reconciliation of prior year comparative results
The table below shows a reconciliation of the income statement from the published year end March 2018 financial statements to the
restated amounts shown for the current year.
Before adjusted items
As previously
stated
24 March 2018
£ million
Restated
for foreign
exchange1
£ million
Restatement
for
discontinued
operations3
£ million
As restated
at 24 March
2018
£ million
As previously
stated
24 March 2018
£ million
Adjusted items
Restated
for foreign
exchange
and interest2
£ million
Restatement
for
discontinued
operations3
£ million
As restated
at 24 March
2018
£ million
654.5
(610.5)
44.0
(37.7)
6.3
(4.0)
2.3
2.3
–
2.3
(3.6)
(1.3)
–
(9.1)
(9.1)
–
(9.1)
–
(9.1)
–
(9.1)
(9.1)
0.6
(73.9)
50.3
(23.6)
0.9
(22.7)
0.5
(22.2)
(24.9)
2.7
(22.2)
580.6
(569.3)
11.3
(36.8)
(25.5)
(3.5)
(29.0)
(22.6)
(6.4)
(29.0)
–
(10.0)
(10.0)
(65.1)
(75.1)
–
(75.1)
(68.0)
(7.1)
(75.1)
4.3
1.3
0.3
(8.5)
(17.9)
(27.7)
(74.8)
–
9.1
9.1
0.2
9.3
(0.2)
9.1
–
9.1
9.1
(0.6)
8.5
–
1.0
1.0
–
1.0
–
1.0
0.9
0.1
1.0
–
1.0
–
0.1
0.1
(64.9)
(64.8)
(0.2)
(65.0)
(67.1)
2.1
(65.0)
(0.3)
(65.3)
(1.3)
(8.5)
17.9
–
17.9
(9.8)
(1.0)
(1.0)
(74.8)
8.5
–
(66.3)
Revenue
Cost of sales
Gross profit
Administrative expenses
Loss from operations
Net finance costs
Loss before taxation
Loss before taxation and
foreign currency revaluations
Foreign currency adjustments
Loss before taxation
Taxation
Loss for the period from
continuing operations
Discontinued operations
Profit and loss for the year from
discontinued operations
Loss for the period attributable
to equity holders of the period
1. Adjusted items in 2018 have been restated for the treatment of foreign exchange differences on the revaluation of working capital.
2.
3.
Interest classified as adjusted has been reclassified from administrative expenses to net finance costs.
Discontinued operations are disclosed in note 10. Included in the £50.3 million cost of sales figure is a charge of £2.7 million relating to foreign currency adjustments. This is
disclosed on two different lines in note 10; expenses of £47.6 million and foreign currency adjustments of £2.7 million.
Mothercare plc annual report and accounts 2019
135
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Company financial
statements
Company financial statements
Contents
137 Company balance sheet
138 Company statement of changes in equity
139 Notes to the Company financial statements
144 Five year record
145 Glossary
147 Shareholder information
136
Mothercare plc annual report and accounts 2019
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
Company balance
sheet
As at 30 March
2019
Company balance sheet
As at 30 March 2019
Fixed assets
Investments in subsidiary undertakings
Current assets
Debtors – amounts falling due within one year
Cash and cash equivalents
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 (liabilities)/assets
Equity
Called up share capital
Share premium
Own shares
Profit and loss account
Total Equity
For the 53 weeks ended 30 March 2019
Note
30 March
2019
£ million
24 March
2018
£ million
3
4
5
5
6
7
7
7
29.1
29.1
0.3
11.8
12.1
(194.3)
(182.2)
(153.1)
(11.7)
(164.8)
87.1
88.9
(1.1)
(339.7)
(164.8)
78.2
78.2
156.1
–
156.1
(156.3)
(0.2)
78.0
(42.5)
35.5
85.4
61.0
(1.1)
(109.8)
35.5
The Company has taken advantage of the disclosure exemption permitted by s208 of the Companies Act 2006 and has not produced
a profit and loss account. The Company reported a loss for the financial period ended 30 March 2019 of £229.9 million (2018: loss of
£174.8 million).
Approved by the board on 24 May 2019 and signed on its behalf by:
Glyn Hughes
Chief Financial Officer
Company Registration Number: 1950509
Mothercare plc annual report and accounts 2019
137
HEAD_0 1st line continued2nd line continuedFinancials
Company
statement of
changes in equity
Company statement of changes in equity
Balance at 26 March 2017
Loss for the period
Other comprehensive income for the period
Total comprehensive income for the period
Shares transferred to employees
Capital contribution for equity-settled share based
payments
Balance at 24 March 2018
Balance at 25 March 2018
Loss for the period
Other comprehensive income for the period
Total comprehensive income for the period
Issue of shares
Expenses of issue of new shares
Balance at 30 March 2019
Share
capital
£ million
Note
Share
premium
account
£ million
Own
share
reserve
£ million
Profit
and loss
account
£ million
Total
£ million
85.4
–
–
–
–
–
85.4
85.4
–
–
–
1.7
–
87.1
61.0
–
–
–
–
–
61.0
61.0
–
–
–
30.8
(2.9)
88.9
(1.5)
–
–
–
0.4
–
(1.1)
(1.1)
–
–
–
–
–
(1.1)
65.5
(174.8)
–
(174.8)
(0.4)
(0.1)
(109.8)
(109.8)
(229.9)
–
(229.9)
–
–
(339.7)
210.4
(174.8)
–
(174.8)
–
(0.1)
35.5
35.5
(229.9)
–
(229.9)
32.5
(2.9)
(164.8)
7
6
6
138
Mothercare plc annual report and accounts 2019
HEAD_0 1st line continued2nd line continued
Notes to the
company financial
statements
Notes to the company financial statements
General information
Mothercare plc is a public company limited by shares incorporated in Great Britain under the Companies Act 2006. The address of
the registered office is given in the shareholder information on page 147. Mothercare plc acts as a holding company for a group of
companies operating as a specialist multi-channel retailer, franchisor and wholesaler of products for mothers-to-be and children under
the Mothercare brand.
1. Significant accounting policies
The Company’s accounting period covers the 53 weeks ended 30 March 2019. The comparative period covered the 52 weeks ended 24
March 2018.
The separate financial statements of the Company are presented as required by the Companies Act 2006. The Company meets the
definition of a qualifying entity under FRS100 ’Application of Financial Reporting Requirements’ issued by the Financial Reporting Council
(FRC). Accordingly these financial statements have been prepared in accordance with FRS 101 ‘Reduced Disclosure Framework’ as issued
by the FRC.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemption available under the standard in relation to
share-based payments presentation of comparative information in respect of certain assets, capital management, certain revenue
requirements of IFRS 15, the presentation of a cash flow statement, standards not yet effective and certain related party transactions.
Where required, equivalent disclosures are given in the consolidated financial statements.
Principal risks and uncertainties
Going concern
The financial statements have been prepared on the historical cost basis and on the going concern basis, as described in the going
concern statement in the Financial Review on page 27. The Directors have reviewed the latest forecasts and projections which have
been sensitivity tested for reasonably possible adverse variations in performance. These are outlined in the Viability Statement on
pages 28 to 29.
If the risk and sensitivities applied in our Reasonable Worst Case (“RWC”) forecast, or a more significant and prolonged decline in trading
performance were to materialise, beyond that seen in 2019, and the Group were not able to execute further cost or cash management
programmes the Group would breach its fixed charge covenant on its existing banking facilities and at certain points of the working
capital cycle have insufficient headroom against existing facility limits. If this scenario were to crystallise the Group would need to
renegotiate with its relationship banks in order to secure additional funding and a reset of covenants. Therefore, we have concluded that,
under the RWC, there is a material uncertainty that casts significant doubt that the Group will be able to operate as a going concern.
Notwithstanding this material uncertainty, the Board’s confidence in the Group’s Base Case forecast, which indicates the Group will
operate within the terms of its committed borrowing facilities and covenants for the foreseeable future, and the Group’s proven cash
management capability supports our preparation of the financial statements on a going concern basis.
Interest rate risk
The principal interest rate risk of the Company arises in respect of the drawdown of the revolving credit facility. This facility is at a fixed
rate plus LIBOR, it exposes the Company to cashflow interest rate risk. The interest exposure is monitored by management but due to low
interest rate levels during the period the risk is believed to be minimal and no interest rate hedging has been undertaken.
Credit risk
The Company has exposure to credit risk inherent in its receivables due from its subsidiary undertakings.
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 and Company’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 20 of the consolidated financial statements is a
description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.
As referred to in the Financial Review on pages 20 to 29 the Group initiated financing discussions with its lenders in January 2018 and as
part of this, they agreed to defer the testing of financial covenants due on 24 March 2018. In May 2018 the Companies two existing banks,
HSBC and Barclays, agreed to provide a revolving credit facility of £67.5 million comprising two tranches. Tranche A is £50.0 million stepping
down to £30.0 million in September 2020 with final maturity in December 2020. Tranche B was £17.5 million and matured in November 2018, at
which point an overdraft of £5.0 million became uncommitted outside of the revolving credit facility.
Mothercare plc annual report and accounts 2019
139
HEAD_0 1st line continued2nd line continuedHEAD_0 2nd lineFinancials
Notes to the
company financial
statements
Notes to the company financial statements
continued
Critical accounting judgements
The preparation of the Company financial statements requires management to make judgements, estimates and assumptions in
applying the Company’s accounting policies to determine the reported amounts of assets, liabilities, income and expenses. The estimates
and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing
basis, with revisions to accounting estimates applied prospectively.
Critical judgements represent key decisions made by management in the application of the Group accounting policies. Where a
significant risk of materially different outcomes exists due to management assumptions or sources of estimation uncertainty, this will
represent a critical accounting estimate. Estimates and judgements are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates.
The estimates and judgements which have a significant risk of causing a material adjustment to the carrying amount of assets and
liabilities are discussed below.
Impairment of assets
The Group reviews the carrying value of assets 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 asset;
a decline in the market value for the asset; and an adverse change in the business or market in which the asset is involved. Determining
whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are
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, and the impact of Brexit, 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.
Key sources of estimation uncertainty
Allowances against the carrying value of investment in subsidiaries
The financial statements have been prepared on the historical cost basis except for the re measurement of certain financial instruments
to fair value. The principal accounting policies adopted are the same as those set out in note 2 to the consolidated financial statements
except as noted below.
Investments in subsidiaries and associates are stated at cost less, where appropriate, provisions for impairment. The recoverable amounts
of individual investments in subsidiaries 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 rate and growth rates.
Management has used a pre-tax discount rate of 12.6% (2018:10.7%) which reflects the time value of money and risks related to the cash
generating units. As a result a provision for impairment of £49.1 million has been charged in the year (2018: £167.1 million).
Cash flow projections are based on the Group’s four year internal forecasts, the results of which are reviewed by the Board. Estimates
of selling prices and direct costs are based on past experience, expectations of future changes in the market and historic trends. The
forecasts are extrapolated beyond four years based on long-term average growth rate of 0%. Bringing the terminal growth rate to 1% /
(1)% would result in a £3.5 million increase in/ reduction of cashflows.
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 53 weeks ended 30 March 2019 was £229.9 million (2018: loss of £174.8 million). The auditor’s remuneration for audit
and other services is disclosed in note 7 to the consolidated financial statements.
140
Mothercare plc annual report and accounts 2019
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued 3. Investments in subsidiary undertakings
Investments in the Company’s balance sheet consist of its investments in subsidiary undertakings. The Company’s subsidiaries, all of which
are wholly owned, are included in note 12 of the Group financial statements.
The Company’s investment in its subsidiary undertakings is as follows:
Investment in subsidiaries - net book value
Cost
At 25 March 2018
Addition
Share-based payments to employees of subsidiaries
At 30 March 2019
Impairment
At 25 March 2018
Charged during the period
At 30 March 2019
Net book value
30 March
2019
£ million
29.1
24 March
2018
£ million
78.2
£ million
453.1
–
–
453.1
(374.9)
(49.1)
(424.0)
29.1
On 22 March 2019 the Company agreed to sell of the trading activities of the Early Learning Centre (ELC) to Teal Brands Limited (see note
10). As a consequence all the residual investment in ELC has now been fully impaired.
The recoverable amounts of individual investments in the Mothercare subsidiaries 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 rate and growth rates. Management has used a pre-tax discount rate of 12.6% (2018: 10.7%) which reflects the time
value of money and risks related to the cash generating units. The cash flow projections are based on the financial budgets and forecasts
approved by the Board covering a five year period. No growth rate has been applied.
As a result an impairment charge of £49.1 million was charged during the period against the Mothercare and the Early Learning Centre
subsidiaries.
4. Debtors
Amounts due from subsidiary undertakings
Other debtors
30 March
2019
£ million
–
0.3
0.3
24 March
2018
£ million
155.7
0.4
156.1
Amounts due from subsidiary undertakings are recognised at fair value and repayable on demand. No interest is charged on the
outstanding balances.
Mothercare plc annual report and accounts 2019
141
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Notes to the company financial statements
continued
5. Creditors
Creditors: amounts due within one year
Amounts due to subsidiary undertakings
Borrowings and bank overdraft (secured)
Derivative financial instruments
Accruals and other creditors
Creditors: amounts due after one year
Borrowings and bank overdraft (secured)
Shareholder loan
30 March
2019
£ million
24 March
2018
£ million
176.5
11.5
4.8
1.5
194.3
5.5
6.2
11.7
146.7
8.8
-
0.8
156.3
42.5
–
42.5
Amounts due to subsidiary undertakings are repayable on demand. No interest is payable on the outstanding balances.
In May 2018 the Companies two existing banks, HSBC and Barclays, agreed to provide a revolving credit facility of £67.5 million comprising
two tranches. Tranche A is £50.0 million stepping down to £30.0 million in September 2020 with final maturity in December 2020. Tranche B
was £17.5 million and matured in November 2018, at which point an overdraft of £5.0 million became uncommitted outside of the revolving
credit facility.
The Company has also raised shareholder loans of £8.0 million during the period. As the shareholder loans provide an opportunity to
convert the loans into ordinary shares of the Company at specified dates it is accounted for at amortised cost (£6.2 million at 30 March
2019), and the option to convert is fair valued and treated as an embedded derivative (see note 22). The shareholder loans attract a
monthly compound interest rate of 0.83%.
The revolving credit facility is secured on the shares of specified obligor subsidiaries and the assets of the group not already pledged.
6. Called up share capital
Issued and fully paid
Ordinary shares of 50 pence each
Balance at beginning of period
Issued under the Mothercare Sharesave Scheme
Conversion of shares to 1 pence ordinary and 49
pence deferred shares
Balance at end of period
Ordinary shares of 1 pence each
Balance at beginning of period
Conversion from ordinary shares of 50 pence
Issue of shares in the period
Balance at the end of period
Deferred shares of 49 pence each
Balance at beginning of period
Conversion of shares from ordinary shares
Balance at end of period
Total share capital at end of period
53 weeks
ended
30 March
2019
Number of
shares
170,871,885
–
(170,871,885)
–
–
170,871,885
170,871,885
341,743,770
–
170,871,885
170,871,885
52 weeks
ended
24 March
2018
Number of
Shares
170,867,497
4,388
–
170,871,885
–
–
–
–
–
–
–
53 weeks
ended
30 March
2019
£ million
52 weeks
ended
24 March
2018
£ million
85.4
–
(85.4)
–
–
1.7
1.7
3.4
–
83.7
83.7
87.1
85.4
–
–
85.4
–
–
–
–
–
–
–
85.4
On 27 July 2018 Mothercare plc subdivided its existing 170,871,885 ordinary shares of 50 pence into 170,871,885 ordinary shares of 1 pence
and 170,871,885 deferred shares of 49 pence. The deferred shares do not carry any voting rights. On the same date, the Company issued a
further 170,871,885 ordinary shares at 19 pence. This raised equity of £32.5 million, an increase in share capital of £1.7 million, and £27.9 million in
share premium (after expenses of £2.9 million).
Further details of employee and executive share schemes are provided in note 30 to the consolidated financial statements.
142
Mothercare plc annual report and accounts 2019
HEAD_0 1st lineHEAD_0 1st line continuedHEAD_0 2nd line2nd line continued
7. Reserves
Balance at 25 March 2018
Issue of new shares
Share issue expenses
Loss for the financial year
Balance at 30 March 2019
Share
premium
£ million
61.0
30.8
(2.9)
–
88.9
Own
shares
£ million
(1.1)
–
–
–
(1.1)
Profit
and loss
account
£ million
(109.8)
–
–
(229.9)
(339.7)
The own shares reserve of £1.1 million (2018: £1.1 million) represents the cost of shares in Mothercare plc purchased in the market and held
by the Mothercare Employee Trusts to satisfy options under the Group’s share option schemes (see note 28 to the consolidated financial
statements). The total shareholding is 994,008 (2018: 1,019,693) with a market value at 30 March 2019 of £0.2 million (2018: £0.2 million).
The Company has no distributable reserves and has made no distribution during this or the prior year.
8. Events after the balance sheet date
Details on events after the balance sheet date are shown in note 33 to the consolidated financial statements.
Mothercare plc annual report and accounts 2019
143
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Five year record
(unaudited)
Glossary
Five year record
(unaudited)
Summary of consolidated income statements
Revenue
Adjusted1 (loss)/profit from operations before interest
Adjusted2 items
Interest (not including adjusted items)
(Loss)/profit before taxation
Taxation
Loss from continuing operations
Discontinued operations
(Loss)/profit for the financial year
Basic (losses)/earnings per share - continuing
Basic adjusted (losses)/earnings per share-continuing
Summary of consolidated balance sheets
Deferred tax asset
Other non-current assets
Net current assets
Retirement benefit obligations
Other non-current liabilities
Total net (liabilities)/assets
Other key statistics
Share price at year end
Net (debt) cash/equity
Number of issued shares
Capital expenditure
Depreciation and amortisation
Rents
Number of UK stores4
Number of International stores
UK selling space (000’s sq.ft.)
International selling space (000’s sq.ft.)
Average number of employees
Average number of full time equivalents
1 Before items described in note 2 below.
2019
£ million
20183
£ million
2017
£ million
2016
£ million
2015
£ million
513.8
(13.1)
(48.2)
(5.3)
(66.6)
(0.9)
(67.5)
(25.9)
(93.4)
(7.1p)
(23.8p)
–
44.0
(5.6)
(24.9)
(62.9)
(49.4)
580.6
(25.5)
(65.0)
(3.5)
(94.0)
1.0
(93.0)
16.9
(76.1)
(38.4p)
(54.7p)
3.6
121.5
17.2
(37.7)
(100.0)
4.6
667.4
23.0
(12.6)
(3.3)
7.1
1.1
8.2
–
8.2
4.8p
9.7p
24.8
144.8
42.0
(80.1)
(50.1)
81.4
682.3
22.8
(9.9)
(3.2)
9.7
(3.3)
6.4
–
6.4
3.8p
9.6p
20.3
123.5
57.8
(74.4)
(38.1)
89.1
713.9
18.0
(24.6)
(6.5)
(13.1)
(2.3)
(15.4)
–
(15.4)
(12.6p)
8.6p
23.6
109.6
64.1
(81.2)
(38.4)
77.7
22.5p
(14.0%)
341,743,770
12.3
20.2
26.0
93
1,010
1,024
2,601
3,752
2,189
17.5p
(89.1%)
170,871,885
18.1
22.1
40.8
134
932
1,300
2,503
4,689
2,767
118.5p
(19.5%)
170,867,497
42.6
19.9
42.8
152
1,150
1,462
2,946
5,211
3,099
180.0
15.0%
170,863,741
39.2
18.3
44.6
170
1,142
1,552
2,921
5,346
3,153
206.5p
40.5%
170,469,020
12.7
17.7
48.2
189
1,121
1,658
2,776
5,433
3,304
2
Includes adjusted items (property costs, restructuring costs, impairment charges) and other adjusted items of amortisation of intangible assets (excluding software) and the
impact of foreign currency adjustments under IAS 39 and IAS 21 as set out in note 6 to the consolidated financial statements.
3.
2018 has been restated for the discontinued operations of ELC. The prior years remain unchanged.
4. As at 30 March 2019.
144
Mothercare plc annual report and accounts 2019
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Glossary
Glossary
Alternative Performance Measures (APMs)
Introduction
In the reporting of financial information, the Directors have adopted various APMs of historical or future financial performance, position
or cash flows other than those defined or specified under International Financial Reporting Standards (IFRS). These measures are not
defined by IFRS and therefore may not be directly comparable with other companies’ APMs, including those in the Group’s industry.
APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measures.
Purpose
The Directors believe that these APMs assist in providing additional useful information on the performance and position of the Group and
across the period because it is consistent with how business performance is reported to the Board and Operating Board.
APMs are also used to enhance the comparability of information between reporting periods and geographical units (such as like-for-like
sales), by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid the user in understanding the Group’s
performance.
Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting
purposes and have remained consistent with prior year, except where expressly stated.
The key APMs that the Group has focused on during the period are as follows:
Group worldwide sales
Group worldwide sales are total International sales plus total UK sales. Total International sales are International retail sales plus
International Wholesale sales. Total Group revenue is a statutory number and is made up of total UK sales and receipts from International
franchise partners, which includes royalty payments and the cost of goods dispatched to international franchise partners.
Like-for-like sales
This is a widely used indicator of a retailer’s current trading performance. This is defined as sales from stores that have been trading
continuously from the same selling space for at least a year and include website sales and sales taken on iPads in store.
International retail sales
International retail sales are the estimated retail sales of overseas franchise and joint venture partners to their customers.
International like-for-like sales
International like-for-like sales are the estimated franchisee retail sales from stores that have been trading continuously from the same
selling space for at least a year. The Group reports some financial measures on both a reported and constant currency basis. Sales in
constant currency exclude the impact of movements in foreign exchange translation. The constant currency basis retranslates the previous
year revenues at the average actual periodic exchange rates used in the current financial year. This measure is presented as a means of
eliminating the effects of exchange rate fluctuations on the year-on-year reported results.
Profit/(loss) before adjusted items
The Group’s policy is to exclude items that are considered to be one-off and significant in both nature and/or value and where treatment
as an adjusted item provides stakeholders with additional useful information to assess the year-on-year trading performance of the
Group.
Profit/(loss) before taxation and foreign currency revaluations
The Group has introduced a new measure this year which is profit/(loss) before taxation and foreign currency revaluations on the basis
that foreign currency differences on the revaluation of foreign currency denominated cash and debtor balances, albeit recurring, are
significant in size, volatile and distort the underlying performance of the Group.
Adjusted free cash flow
This is the adjusted measure of cash flow for the Group. This is based on the adjusted performance excluding the impact of adjusted
items. The presentation of adjusted free cash flow differs from the statutory cash flow statement, which is based on the statutory
performance for the Group.
Mothercare plc annual report and accounts 2019
145
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Shareholder
information
Five year record
continued
Adjusted loss before taxation and foreign currency revaluations – continuing operations
Adjusted profit before taxation and foreign currency revaluations – discontinued operations
(note 10)
Adjusted total loss before taxation and foreign currency revaluations
Foreign currency revaluation adjustments – continuing operations
Foreign currency revaluation adjustments – discontinued operations (note 10)
Adjusted total loss before taxation
* The prior year has been restated for the reclassification of ELC discontinued operations (note 10).
Segment profit – International (note 5)
Less:
Foreign currency revaluation (gain)/loss – continuing operations
Adjusted International profit before taxation and foreign currency revaluations
Segment loss – UK (note 5)
Less:
Foreign currency revaluation (gain)/loss – continuing operations
Adjusted UK loss before taxation and foreign currency revaluations
* The prior year has been restated for the reclassification of ELC discontinued operations (note 10).
Reconciliation of foreign exchange currency revaluations to adjusted income statement:
International segment foreign currency revaluation (gain)/loss – continuing operations
UK segment foreign currency revaluation (gain)/loss – continuing operations
Total foreign currency revaluations (gains)/losses
* The prior year has been restated for the reclassification of ELC discontinued operations (note 10).
53 weeks
ended
30 March
2019
£ million
(20.4)
8.8
(11.6)
2.0
1.0
(8.6)
53 weeks
ended
30 March
2019
£ million
29.5
(1.2)
28.3
53 weeks
30 March
2019
£ million
(35.5)
(0.8)
(36.3)
53 weeks
30 March
2019
£ million
(1.2)
(0.8)
(2.0)
52 weeks
ended
24 March
2018
Restated*
£ million
(22.6)
24.9
2.3
(6.4)
(2.7)
(6.8)
52 weeks
ended
24 March
2018
Restated*
£ million
25.4
3.4
28.8
52 weeks
24 March
2018
Restated*
£ million
(43.4)
3.0
(40.4)
52 weeks
24 March
2018
Restated*
£ million
3.4
3.0
6.4
146
Mothercare plc annual report and accounts 2019
HEAD_0 1st line continuedHEAD_0 2nd line2nd line continued Shareholder
information
Shareholder information
(unaudited)
Shareholder analysis
Placing and open offer
A summary of holdings as at 30 March 2019 is as follows:
Banks, insurance companies
and pension funds
Nominee companies
Other corporate holders
Individuals
Mothercare ordinary shares
Number of
shares
Number of
shareholders
18,971
335,576,588
1,327,775
4,820,436
341,743,770
2
288
74
18,800
19,164
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 30 March 2019
(24 March 2018)
Market capitalisation
Share price movement
during the year:
High
Low
2019
2018
22.5p
£76.7m
17.5p
£29.9m
33.37p
13.88p
132.00p
14.68p
All share prices are quoted at the mid-market closing price. For
capital gains tax purposes:
• the market value on 31 March 1982 of one ordinary share in
British Home Stores PLC is 155p and of one ordinary share in
Habitat Mothercare PLC is 133p; and
• the market value of each Mothercare plc 50p ordinary
share immediately following the reduction of capital and
consolidation on 17 August 2000 for the purpose of allocating
base cost between such shares and the shares disposed of as
a result of the reduction is 135p.
Rights issue and TERP
On 23 September 2014 the Company announced a proposed
rights issue of 9 for 10 ordinary shares at 125p per new ordinary
share. The theoretical ex-rights price (‘TERP’) between 24
September and 9 October 2014 (being the last day the ordinary
shares were traded cum rights) was 178p.
Immediately before the rights issue, the issued share capital
was 88,824,771. 79,942,294 new ordinary shares were issued on 27
October 2014. The total issued share capital immediately following
the rights issue was 168,767,065.
On 9 July 2018 the Company announced a proposed subdivision
of shares (into 1p ordinary shares and 49p deferred shares) and a
placing and open offer of 170,871,885 ordinary 1p shares on a 1 for
1 basis at 19p per ordinary share. Immediately before the placing
and open offer, the issued share capital was 170,871,885. 170,871,885
new ordinary shares were issued on 27 July 2018. The total issued
share capital immediately following the placing and open offer
was 341,743,770.
Registrars and transfer office
Equiniti Limited, Aspect House, Spencer Road, Lancing, West
Sussex BN99 6DA
Financial calendar
Annual General Meeting
Announcement of interim results
Preliminary announcement of results for the 52
weeks ending 28 March 2020
Issue of report and accounts
Annual General Meeting
Registered office and head office
Cherry Tree Road, Watford, Hertfordshire WD24 6SH
Telephone 01923 241000 www.mothercareplc.com
Registered number 1950509
2019
26 July
November
2020
May
June
July
Group company secretary
Lynne Medini
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
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 5.30pm, Monday to Friday).
Mothercare plc annual report and accounts 2019
147
HEAD_0 1st line continuedHEAD_0 1st line2nd line continuedHEAD_0 2nd lineFinancials
Shareholder information
continued
Stockbrokers
The Company’s stockbrokers are:
finnCap Ltd, 60 New Broad Street, London, EC2M 1JJ
Telephone 020 7220 0500
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.
148
Mothercare plc annual report and accounts 2019
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by Black&Callow
www.blackandcallow.com
Printed on FSC® certified paper.
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9
Mothercare plc
Cherry Tree Road
Watford
Hertfordshire
WD24 6SH
T 01923 241000
www.mothercareplc.com
Registered in England number 1950509