Annual Report and Accounts

Mothercare plc ("the Company") ANNUAL REPORT AND FINANCIAL STATEMENTS AND NOTICE OF ANNUAL GENERAL MEETING The Company has today published the following documents on its website, www.mothercareplc.com : * The Annual Report and Accounts for the period ended 28 March 2009; and * Chairman's letter and Notice of Meeting. The Company has also submitted two copies of each of the following documents to the Financial Services Authority ("the FSA"): * The Annual Report and Accounts for the period ended 28 March 2009; * Chairman's letter and Notice of Meeting; and * Form of Proxy. These documents will shortly be available for inspection at the FSA's Document Viewing Facility at : The Financial Services Authority 25 The North Colonnade Canary Wharf London E14 5HS The Company will be holding its Annual General Meeting at 10.30 on Thursday 16 July at the Company's office at Cherry Tree Road, Watford, Hertfordshire, WD24 6SH. In accordance with the requirements of Rule 6.3.5 of the Disclosure and Transparency Rules ("DTR") of the UK Financial Services Authority we also attach to this announcement a copy of the preliminary announcement, a description of the principle risk factors for the Company as set out in the Annual Report and Accounts for the period ending on 28 March 2009 and a responsibility statement as required by DTR 4.1.12. Enquiries: Clive E. Revett, Group Company Secretary. +44 (0) 1923 206185 Principal Risk Factors. Extracted from the Annual Report and Accounts for the Period ended 28 March 2009: "Risk management. The business review sets out progress made during the year against the challenges that the board has set for the business. In this section the principal risks and uncertainties that face the business are set out. This section also forms part of the business review requirements. The board recognises that the management of risk through the application of a consistent process during the year, as required by Code provision C2 (Internal Control), is key to ensuring that a robust system of internal control is monitored by the business. The principal risks and uncertainties facing the Company may include some of those set out below. It should be borne in mind that this is not an exhaustive list and that there may be other risks that have not been considered or risks that the board consider now are insignificant or immaterial in nature, but that may arise and/or have a larger effect than originally expected. External risks The group is reliant upon manufacturers in other countries, particularly China, India and the Far East. Global economic conditions (including global demand for goods and services affecting sales levels and the availability of credit lines for business to its key suppliers affecting product supply) will continue to affect the performance of the group's businesses as will the effect of exchange rate movements, principally the US dollar; cost price movements (including raw materials) and the difficulty of passing on input cost price increases, governmental and supra-national regulation affecting imports; taxation; duties and levies. The failure to react appropriately to changes in the economic environment generally or consumer confidence issues affecting the group's core customers in the UK and in overseas markets, particularly from the reduction in real disposable incomes caused by, amongst other things, the contraction of the global economy, expected future increases in personal and indirect taxation, interest rate movements and the availability of consumer credit. The group is potentially vulnerable to adverse movements in exchange rates as it pays for a large proportion of its goods in foreign currency, principally the US dollar. Whilst the group effects transactions, the effect of which seeks to hedge the exposure to adverse exchange rates, there is no guarantee that the transactions will be sufficient to cover all likely exposure. With the continued expansion of the group's international franchise operations, the group may be exposed to sales concentration risk as certain franchise partners extend their activities in their existing and additional territories. As at 28 March 2009, the group's largest franchisee represents approximately 8.8per cent of group sales. The group's brands are potentially exposed to firstly the commercial risk in the default by franchisees of payment for amounts due on royalties and goods supplied, and secondly (whilst the group seeks to insure the receivables from franchisees) the group may be exposed to the liquidity of the credit insurance market and/or credit quality of the insurers or potential default of banks or insurance companies in providing security for franchisee primary default. International operations are also exposed to the possibility in some markets of political restrictions on remittance of funds to the UK or refusal to enforce the relevant brand's intellectual property rights against infringers. The group continues to operate defined benefit pension schemes (albeit that they are now closed to new members). The volatility in movement of real asset and liability values together with, amongst others, those of the discount rate used for the accounting assumptions under IAS19 directly affect the net surplus or deficit in the schemes and the variability of the charge contained within the financial statements. Internal risks Both ELC and Mothercare have a reputation for quality, safety and integrity. This may be seriously undermined by adverse press or regulatory comment on aspects of its business both in the UK and overseas, whether justified or not. To this end, the group takes all reasonable care to safeguard the reputation of its brands, particularly in product manufacture and supply areas, by engaging independent third parties to validate critical areas of its manufacturing and supply chain for compliance with its ethical code. Any disruption to the relationship with, or failure of, key suppliers could adversely affect the group's ability to meet its sales and profit plans if suitable alternatives could not be found quickly. Any failure of the group's logistics, distribution and information technology platforms may restrict the ability of the Company to make product available in its stores, Direct and International businesses thereby failing to meet customer expectations adversely affecting sales and profits. A failure in the current economic climate to invest appropriately in the group's infrastructure, people, tangible and intangible assets as it seeks to balance short and long term profitability drivers. The Company and the group may be exposed to counterparty risk in respect of its hedging, banking, insurance or other finance based contracts and particularly in the ability of the relevant counterparties being able to continue to meet their obligations. Currently the group is primarily dependent upon one banking relationship and, whilst this relationship has been supportive in the past, there is no guarantee that in the current economic climate this will continue on the same terms. The group will be seeking to renew its facilities during the coming year. Against this background, the system of internal control is designed to manage rather than eliminate risks. In order to effectively manage risk, the executive committee has overall responsibility for ensuring that a rolling programme of structured risk assessments of those areas having a significant effect on the future of the business is carried out. The programme ensures, so far as practicably possible, that the appropriate risk management processes are identified, controls established, residual risks evaluated and that the necessary action and risk avoidance measures taken or monitoring undertaken. Elements of the programme are reviewed by the internal audit function during the year. The process outlined above has been in effect during the period and up to the date of the approval of the accounts by the board. The audit committee regularly reviews the process and output of the programme of risk management on behalf of the board. In addition to the evaluation of business risk referred to above, the programme of specific risk management activity continued during the year across the activities of both brands in the United Kingdom. Under this programme, individual stores are tested against a risk assessment model that emphasises health and safety, disability discrimination, fire safety and internal process compliance. It is intended that as the group's overseas operations develop, appropriate aspects of the risk management review activity will be implemented or refined as appropriate. The internal audit function (a combination of internal resources and external resource provided by PricewaterhouseCoopers LLP) supplements the risk-based approach set out above. Furthermore, the Company has adopted procedures to ensure auditor independence, the details of which are set out in the section below detailing the work of the audit committee. The board believes that the system of internal control described can provide only reasonable and not absolute assurance against material mis-statement or loss. The audit committee periodically reviews the system of internal control on behalf of the board." Mothercare plc Preliminary Results Strong growth in sales, profit and dividend Mothercare plc announces its preliminary results for the 52 weeks ended 28 March 2009. Financial Results * Group sales up 6.9% to £723.6m (2008: £676.8m) * Group profit before tax increased to £42.2m (2008: £4.5m) * Basic EPS increased to 36.3p (2008: 0.1p) * Strong cash generation; debt free. Net cash balance £24.8m (2008: £22.7m) * Total dividend up 20.8% to 14.5p (2008: 12.0p) Financial Highlights (proforma basis)(1) * Group sales up 2.8% to £723.6m (2008: £703.6m) * Group profit before tax increased to £42.2m (2008: loss of £2.6m) * Group underlying(1) profit before tax up 12.4% to £37.1m (2008: £33.0m) * Underlying EPS up 12.6% to 32.1p (2008: 28.5p) * UK like-for-like sales(1) up 1.4% * International like-for-like sales up 6.0% Strategic Highlights (proforma basis) Growth strategy delivering results: * Record results for International: - International retail sales(1) up 40.9%; - International profit up 47.9% to £13.9m; - 115 new stores; total 609 stores overseas in 50 countries. * Early Learning Centre integration largely complete; benefits greater than expected * UK property portfolio restructuring on track to deliver benefits * Rapid growth through online strategy in Direct: - Direct in Home sales up 24.9% to £62.2m; - Direct in Store sales up 26.3% to £45.1m. Ben Gordon, Chief Executive, said: "This has been another strong performance for the Mothercare group and as a result we have recommended a 20.8% increase in the total dividend. Our International franchise business has enjoyed a record year, with profits up by nearly 50%. We now have 1,014 stores worldwide in 51 countries, with plans to open another 100 stores this year. The integration of the Early Learning Centre is now largely complete and has delivered benefits beyond our expectations. "Given the uncertain consumer environment, we are planning cautiously for 2009/10, however we are well placed as we enter the new financial year, benefiting from our growing International platform, resilient multi-channel UK business, strong cash flow and debt free balance sheet." Enquiries to: Mothercare plc Ben Gordon, Chief Executive 01923 206001 Neil Harrington, Finance Director 01923 206187 Brunswick Group Limited Catherine Hicks/Catriona McDermott 020 7404 5959 (1) For definitions of "proforma basis", "group underlying profit before tax", "International retail sales" and "like-for-like sales" see Financial Review. CHIEF EXECUTIVE'S REVIEW RESULTS The Mothercare group has grown sales, profit and dividend against the backdrop of a difficult global economic environment. The multi-channel UK business has again grown like-for-like sales, boosted by strong performances from Direct and the integration of the Early Learning Centre. Our International business had a record year with profits increasing by nearly 50%. Group sales for the year rose by 6.9% to £723.6 million (2008: £676.8 million) and group profit before tax increased nearly ten-fold to £42.2 million (2008: £4.5 million). Like-for-like sales growth in the UK (up 1.4%) and in International (up 6.0%) contributed to this performance which was also boosted by the benefits of the integration of the Early Learning Centre and very tight control of costs. Our key underlying profit before tax measure calculated on the more comparable proforma basis (see below), increased by 12.4% to £37.1 million (2008: £33.0 million). On the statutory basis (which is not comparable as the Early Learning Centre first quarter losses are included this year but excluded last year), underlying profit before tax decreased by 3.9% to £37.1 million (2008: £38.6 million). The group remains cash-generative and debt free. The acquisition facility was not drawn down at any point in the year and the net cash balance at the year end was £24.8 million (2008: £22.7 million). As a result of the strong underlying performance of the group and the positive cash generation, we are pleased to propose a final dividend of 9.9 pence giving a total dividend for the year of 14.5 pence, an increase of 20.8%. The remainder of this review and the financial review is prepared on the more comparable "proforma" basis. It assumes that the Early Learning Centre, which was acquired in the previous financial year on 19 June 2007, had been owned for all of last year. TWO WORLD CLASS BRANDS Our strategy is centred on the development of our two world class brands, Mothercare and the Early Learning Centre. Specialism and innovation are central to our brand positioning as we continue to build the Mothercare group as a leading global parenting retailer. One of our exciting innovations this year was the launch of our exclusive Baby K range, designed in conjunction with celebrity mother Myleene Klass. The ranges have been successful in the UK and around the world and as a result we plan to extend Baby K into Home and Travel. We reached an exclusive licensing agreement with the BBC to produce "In the Night Garden" Home and Travel products, which are selling ahead of our expectations. We also continue to have great success with the MyChoice buggy system which is a real innovation in allowing customisation of products by our customers. With its series of interchangeable options the MyChoice has become one of our best selling pushchairs ever. At the Early Learning Centre we have been working on our own brand toys. The best selling development toys this year included our own brand "Making Music" range, "Snow Queen Palace" and the "Tower of Doom". The best in class expertise and specialism of our staff differentiates us from the competition and continues to be a key focus for us. We were again included in the top "20 Best Big Companies to Work For" in the 2009 Sunday Times awards progressing to 13th place overall. MOTHERCARE STRATEGY The Mothercare group four-lever growth strategy is providing significant benefits: 1. International franchise - globalisation of the two brands; 2. Integration benefits - Early Learning Centre acquisition; 3. Restructuring the UK property portfolio; and 4. Driving the multi-channel business. 1. International franchise - globalisation of the two brands International represents the biggest single growth opportunity for the Mothercare group and we now have 609 overseas stores in 50 countries outside the UK. International continues to develop rapidly with overall franchisee retail sales for the year up by 40.9% to £404.2 million and underlying profits up by 47.9% to £13.9 million. In the same way that the Mothercare brand has been so readily received around the world, the Early Learning Centre brand is proving to be just as popular. We have also invested in our global supply chain and we now have five distribution centres at the core of our state-of-the-art logistics network. In Europe, we saw positive like-for-like growth, particularly in Russia, which contributes the highest international sales numbers for us worldwide. We plan to open a further 10 new Mothercare and Early Learning Centre stores this year, which will bring our total stores number in Russia to 47. The Middle East is a very important region for us where we see huge potential and we currently have 196 stores in the region, across 9 countries. A key part of our development strategy in the Middle East is to open larger stores with the complete range of Home and Travel. The International roll-out of the Early Learning Centre continues to do well, having almost doubled the number of Early Learning Centre stores outside the UK since acquisition to 164, and taken the brand for the first time to 10 new countries this year including India, Bahrain and Kuwait. The Early Learning Centre is now present in 29 countries, up from 15 when we acquired it. 2. Integration benefits - Early Learning Centre acquisition Good progress has been made in realising the synergies from the Early Learning Centre acquisition. Total synergies for the financial year for 2008/09 enabled us to drive benefits ahead of the original business case and we now consider the integration of the Early Learning Centre to be substantially complete. The largest single synergy from the acquisition of the Early Learning Centre has been through building Early Learning Centre inserts within Mothercare stores. Our 84 Early Learning Centre inserts performed at the top end of our expectations through Christmas and have continued to perform well since. The success of the inserts is due to the increased footfall each brand brings to the other. Other significant cost savings have been achieved by combining the two businesses, including moving to a single management team and fully integrating the back office functions whilst maintaining the key talent and expertise of the Early Learning Centre team. During the year we successfully relocated the Early Learning Centre warehouse to a new site adjacent to the existing Mothercare warehouse in Daventry, resulting in further transport savings. 3. Restructuring the UK property portfolio The Early Learning Centre acquisition gave us a unique opportunity to accelerate our property strategy, allowing us to integrate and optimise the combined UK property portfolio, taking the best sites from both brands. At the end of last year we announced a major restructure of our portfolio which included store rightsizing, consolidating two stores into one and store closures. In total, including the stores that received an Early Learning Centre insert or a new out of town refit, we announced that 145 stores would be affected by property restructure activity. This restructure is now largely complete and the beneficial effects on the business can be seen with costs in the year £10.4 million lower than last year. The property restructure delivered £2.4 million of additional profit in 2008/09 and is on track to add £2.6 million of profit before tax in the financial year 2009/10, taking the total profit increase to our £5.0 million target. With recent structural changes in the property market, we are well placed to rationalise further and as a result will move into the next phase of our property transformation. Almost 50% of the group's property leases are coming up for renewal in the next three years enabling us to seek better lease terms, or move out of lower profit stores. This phase will also see us open new out of town "Parenting Centres" in key catchments and open new stores in higher traffic locations such as malls and city centres where we currently do not have a presence, taking further advantage of the beneficial property deals currently available. 4. Driving the multi-channel business The Direct business has continued its rapid growth with total sales through the Direct channel now amounting to £107.3 million, an increase of 25.5%. This is made up of Direct in Home sales up 24.9% to £62.2 million and Direct in Store sales up 26.3% to £45.1 million. Mothercare has been a pioneer in multi-channel retailing in the UK. The proportion of UK sales now delivered through our Direct channel has grown to 18.5%. Our online range and web offering continues to improve and Web in Store in particular, continues to be a great success with customers. The Mothercare website offers customers a much wider choice of Home and Travel than is available in any store and two thirds of our Clothing range is now available online. Our Early Learning Centre website also has more products available online than in store including larger home and garden items that require home delivery. We are also announcing today that we plan to launch Mothercare websites overseas with our franchisees. We are working with our partners to open two trial sites in the next year. The model will be based on a centralised site and support structure which share the look and feel of Mothercare.com, but with local language and fulfilment. Based on the performance of these trials, we may roll out further sites in other countries. Gurgle.com, our social networking and information site for parents has proved a success with mothers around the world and now has 91,000 registered users. It is fast becoming a brand in its own right and our latest development for Gurgle has been the launch of three parenting advice books with Harper Collins. SUMMARY AND OUTLOOK This has been a strong performance for the Mothercare group. Our International business has enjoyed a record year, increasing profits by nearly 50%. We now have 1,014 stores worldwide including 609 Mothercare and Early Learning Centre stores outside the UK in 50 countries. The multi-channel UK business has again grown like-for-like sales in a challenging market, boosted by strong performances from Direct and the integration of the Early Learning Centre. Given the uncertain consumer environment we are planning cautiously for 2009/10 and, as previously announced, we expect that gross margins will come under further pressure from the weakness of Sterling. Overall, we are well placed as we enter the new financial year, benefiting from our growing International platform, resilient multi-channel UK business, strong cash flow and debt free balance sheet. FINANCIAL REVIEW Results Summary Following the acquisition of the Early Learning Centre on 19 June 2007, the Results Summary that follows is again prepared on the more comparable "proforma" basis which assumes that the Early Learning Centre had been owned for all of last year. On this basis, group underlying profit before tax increased by 12.4% to £37.1 million (2008: £33.0 million). Underlying profit excludes exceptional items, amortisation of intangible assets (excluding software) and the volatile non-cash foreign currency adjustments (note 3). Income Statement - Proforma Basis 08/09 07/08 £m £m Revenue 723.6 703.6 Profit from operations 37.2 34.4 Financing (0.1) (1.4) Underlying profit before tax 37.1 33.0 Loss on disposal/termination of property interests (3.1) (16.9) Integration costs (1.5) (18.8) Other reorganisation costs - (0.4) Non-cash foreign currency adjustments 11.8 2.5 Amortisation of intangible assets (2.1) (2.0) Profit/(loss) before tax 42.2 (2.6) Underlying EPS - basic 32.1p 28.5p Non-underlying items Underlying profit before taxation on a proforma basis excludes the following non-underlying items: * Exceptional losses on disposal or termination of property interests and integration costs of £4.6 million; * Non-cash adjustments relating to the revaluation of monetary assets, liabilities and stock, and marking to market of foreign currency hedges at the year end. As the hedges are taken out to match future stock purchase commitments, these are theoretical adjustments which we are required to make under IAS 39 and IAS 21. They will reverse in 2009/10. The net adjustment is a particularly large gain this year due to the recent devaluation of Sterling against the Dollar; and * Amortisation of intangible assets (excluding software) of £2.1 million. Exceptional items in 2007/08 included £35.7 million of exceptional losses on disposal of property interests and integration costs relating to the integration of the Early Learning Centre and the resulting property restructure of both businesses. Results by Segment - Proforma Basis The primary segments of Mothercare plc are the UK business (including Direct) and the International business. Revenue Revenue 08/09 07/08 £m £m UK 578.8 587.3 International 144.8 116.3 Total 723.6 703.6 Underlying profit Underlying profit 08/09 07/08 £m £m UK 32.1 34.5 International 13.9 9.4 Corporate (8.8) (9.5) Financing (0.1) (1.4) Total 37.1 33.0 Corporate expenses represent head office costs, board and senior management costs, audit, insurance and professional fees. The 7.4% reduction in corporate costs is a result of tight cost control and integration synergies. International profits have increased by 47.9% compared with last year, boosted by the weakness of Sterling against the US Dollar. UK profits have declined by 7.0%, however the UK bears the cost of the increase in the pension charge (see below) and in the group bonus and IFRS 2 share based payment charge. If these are excluded, UK profits improved by £1.3 million compared with last year. Like-for-Like Sales In this statement, "like-for-like" sales are defined as sales for stores that have been trading continuously from the same selling space for at least a year and include Direct in Home and Direct in Store. Sales from Early Learning Centre inserts in Mothercare stores are included where they are trading in existing Mothercare space. Like-for-like sales are presented on a proforma basis. International retail sales are the estimated retail sales of franchisees and joint ventures. International like-for-like sales are calculated at constant rates of exchange. Financing and Taxation Financing represents interest receivable on bank deposits and costs relating to bank facility fees, and the unwinding of discounts on provisions. The underlying tax charge is comprised of current and deferred tax and is calculated at 28.0% (2008: 30.0%) of the estimated taxable profits for the year. A total tax charge of £11.9 million (2008: £4.4 million) has been included. Pensions With the triennial valuation of our defined benefit schemes now complete, we have concluded our discussions with the Trustees on future funding and the following changes are being made to the defined benefit schemes: * Schemes now closed to new members (new defined contribution scheme opened instead); * Cap on the revaluation of future pension benefits lowered to 2.5%; * Increase in member contributions of up to 3.0% of pensionable salary; * One-off cash contribution by the company of £3.0 million in 2009/10; and * Increase in regular contributions by the company of approximately £1.0 million per annum. As a result of the above, it is expected that the deficit in the fund will be eliminated within the next ten years. Details of the income statement net charge, total cash funding and net assets and liabilities under IAS 19 are as follows: 09/10* 08/09 07/08 £m £m £m Income statement Current service cost (3.0) (2.5) (3.8) Return on assets/interest on (1.2) 1.6 3.7 liabilities Net charge (4.2) (0.9) (0.1) Cash funding Company contributions (5.0)** (4.7) (3.7) Balance sheet Fair value of schemes' assets 150.2 181.1 Present value of defined benefit (175.6) (167.3) obligations Unrecognised surplus - (11.8) Net (liability)/asset N/A (25.4) 2.0 * Estimate ** Excludes one-off contribution of £3.0 million The effects on the IAS 19 valuation to changes in the key assumptions are as follows: 08/09 07/08 Change in Impact on scheme % % assumption liabilities £m Discount rate 6.5 6.9 +/- 0.1% -/+ 3.8 Rate of salary 4.2 5.0 +/- 0.5% +/- 1.6 growth Life expectancy + 1 year + 5.0 Balance Sheet and Cash Flow The balance sheet includes identifiable intangible assets arising on the acquisition of £26.8 million and goodwill of £68.6 million. The group continues to generate cash, with net cash flow from operating activities of £34.9 million. After investing £22.8 million of capital expenditure, £13.4 million of integration and property costs and paying £10.9 million dividends, the net cash position at the year end is positive, at £24.8 million (2008: £22.7 million). Going Concern Our objective with respect to managing capital is to maintain a balance sheet structure that is both efficient in terms of providing long-term returns to shareholders and safeguards the group's ability to continue as a going concern. As appropriate the group can choose to adjust its capital structure by varying the amount of dividends paid to shareholders, returns of capital to shareholders, issuing new shares or the varying level of capital expenditure. The group has a committed secured bank facility of £55.0 million at an interest rate of 1.0% above LIBOR which expires on 31 May 2010. It also has an uncommitted unsecured bank overdraft of £10.0 million at an interest rate of 1.0% above the bank base rate. The group's committed borrowing facility contains certain financial covenants which have been met throughout the year. The covenants are tested half-yearly and are based around gearing, fixed charge cover and guarantor cover. The committed bank facility was unused throughout the year and at year end the group had a cash balance of £24.8 million in addition to the £65.0 million of available facilities. The group's latest forecasts and projections have been sensitivity-tested for adverse variations in trading performance and show that the group is expected to operate within the terms of its current borrowing facility and covenants for the foreseeable future. Capital Expenditure Total capital expenditure was £22.8 million (2008: £20.4 million), of which £15.9 million was invested in UK stores. This is broadly in line with depreciation of £19.9 million in the year, however the net capex spent after deducting £6.6 million of landlords' contributions to store fit-outs is £16.2 million - significantly below the ongoing level of depreciation. Capital expenditure for 2009/10 is expected to be £15.0 million (net of landlords' contributions to store fit-outs). Earnings per Share and Dividend Basic underlying earnings per share on a proforma basis were 32.1 pence (2008: 28.5 pence). Total basic earnings per share increased to 36.3 pence (2008: 0.1 pence). The Directors recommend a 19.3% increase in the final dividend to 9.9 pence (2008: 8.3 pence) giving a total dividend for the year of 14.5 pence (2008: 12.0 pence), an increase of 20.8%, in line with the Company's progressive dividend policy. The final dividend will be payable on 7 August 2009 to shareholders registered on 5 June 2009. The latest date for election to join the dividend reinvestment plan is 17 July 2009. Consolidated income statement For the 52 weeks ended 28 March 2009 Note 52 weeks ended 28 March 2009 52 weeks ended 29 March 2008 Underlying1 Non-underlying Underlying1 Non-underlying 2 Total 2 Total £ million £ million £ £ million £ million £ million million Revenue 2 723.6 - 723.6 676.8 - 676.8 Cost of sales 3 (644.8) 8.2 (636.6) (602.1) (10.4) (612.5) Gross profit 78.8 8.2 87.0 74.7 (10.4) 64.3 Administrative (41.2) - (41.2) (36.1) (7.3) (43.4) expenses Profit from retail 37.6 8.2 45.8 38.6 (17.7) 20.9 operations Loss on disposal/termination - (2.1) (2.1) - (16.3) (16.3) of property interests 3 Share of results of (0.4) - (0.4) (0.1) (0.1) (0.2) joint ventures Profit from 37.2 6.1 43.3 38.5 (34.1) 4.4 operations 2 Investment income 4 0.4 - 0.4 1.6 - 1.6 Finance costs 3, 5 (0.5) (1.0) (1.5) (1.5) - (1.5) Profit before 37.1 5.1 42.2 38.6 (34.1) 4.5 taxation Taxation 6 (10.3) (1.6) (11.9) (10.8) 6.4 (4.4) Profit for the period attributable 26.8 3.5 30.3 27.8 (27.7) 0.1 to equity holders of the parent Earnings per share Basic 8 32.1p 4.2p 36.3p 34.5p (34.4)p 0.1p Diluted 8 31.1p 4.1p 35.2p 33.7p (33.6)p 0.1p 1 Before items described in note 2 below. 2 Includes exceptional items (loss on disposal/termination of property interests, integration costs and restructuring), amortisation of intangible assets (excluding software) and the impact of non-cash foreign currency adjustments under IAS 39 and IAS 21 as set out in note 3. All results relate to continuing operations. Consolidated statement of recognised income and expense For the 52 weeks ended 28 March 2009 Note 52 weeks ended 52 weeks ended 28 March 2009 29 March 2008 £ million £ million Actuarial loss on defined benefit (31.2) (3.6) pension schemes Tax on items taken directly to 8.7 1.0 equity 6 Net loss recognised directly in (22.5) (2.6) equity Profit for the period 30.3 0.1 Total recognised income and expense for the period 7.8 (2.5) attributable to equity holders of the parent Consolidated balance sheet As at 28 March 2009 Note 28 March 2009 29 March 2008 £ million £ million Non-current assets Goodwill 68.6 68.6 Intangible assets 35.9 35.6 Property, plant and equipment 92.4 95.8 Investments in joint ventures 0.7 0.8 Retirement benefit obligations - 2.0 Deferred tax asset 0.8 - 198.4 202.8 Current assets Inventories 94.1 70.8 Trade and other receivables 55.7 52.5 Current tax assets - 0.6 Cash and cash equivalents 24.8 22.7 Currency derivative assets 7.3 0.7 181.9 147.3 Total assets 380.3 350.1 Current liabilities Trade and other payables (108.4) (95.6) Current tax liabilities (2.6) - Obligations under finance leases - (0.4) Short term provisions (11.9) (24.0) (122.9) (120.0) Non-current liabilities Trade and other payables (19.6) (15.5) Obligations under finance leases (0.1) (0.1) Retirement benefit obligations (25.4) - Deferred tax liability - (4.4) Long term provisions (13.7) (12.1) (58.8) (32.1) Total liabilities (181.7) (152.1) Net assets 198.6 198.0 Equity attributable to equity holders of the parent Called up share capital 43.8 43.6 Share premium account 4.3 3.4 Other reserve 50.8 50.8 Own shares (10.6) (9.8) Translation reserves 1.2 - Retained earnings 109.1 110.0 Total equity 9 198.6 198.0 Consolidated cash flow statement For the 52 weeks ended 28 March 2009 Note 52 weeks ended 52 weeks ended 28 March 2009 29 March 2008 £ million £ million Net cash flow from operating 34.9 51.8 activities 10 Cash flows from investing activities Interest received 0.4 1.6 Purchase of property, plant and (17.5) (17.3) equipment Purchase of intangibles - software (5.3) (3.1) Proceeds from sale of property, - 4.5 plant and equipment Acquisition of subsidiary - (36.4) Cost of acquisition - (5.6) Investments in joint ventures (0.3) (1.0) Net cash used in investing (22.7) (57.3) activities Cash flows from financing activities Interest paid (0.4) (1.1) Repayment of obligations under (0.4) (0.5) finance leases Equity dividends paid (10.9) (7.9) Issue of ordinary share capital 1.1 0.1 Purchase of own shares (1.1) (2.5) Net cash used in financing (11.7) (11.9) activities Net increase/(decrease) in cash 0.5 (17.4) and cash equivalents Cash and cash equivalents at 22.7 40.1 beginning of period Effect of foreign exchange rate 1.6 - changes Cash and cash equivalents at end 24.8 22.7 of period Notes 1. General information a) The accounting policies followed are the same as those published by the group within the 2008 annual report and accounts. b) Whilst the financial information included in this preliminary announcement has been prepared in accordance with IFRS as endorsed by the European Union, this announcement does not itself contain sufficient information to comply with all the disclosure requirements of IFRS. c) The Company believes that underlying profit before tax and underlying earnings provides additional useful information for shareholders. The term underlying earnings is not a defined term under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. It is not intended to be a substitute for IFRS measures of profit. As the Company 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 8. d) The financial information set out in this announcement does not constitute the Company's statutory accounts for the 52 week period ended 28 March 2009 or the 52 week period ended 29 March 2008, but it is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s237 (2) or (3) Companies Act 1985. 2. Segmental information For management purposes, the group is currently organised into two operating segments: UK and International. UK comprises the UK store and wholesale operations, catalogue and web sales. The International business comprises the group's franchise and wholesale operations outside of the UK. These two segments are distinguished by the different nature of their risks and returns. It is considered that there are no secondary segments as all business originates in the UK. Segmental information about the UK and International businesses is presented below. 52 weeks ended 28 March 2009 Unallocated UK International corporate Consolidated expenses £ million £ million £ million £ million Revenue External 578.8 144.8 - 723.6 sales Result Segment result 32.1 13.9 (8.8) 37.2 (underlying) Non-cash foreign currency 11.8 adjustments Amortisation of (2.1) intangibles Exceptional items (3.6) (note 3) Profit from 43.3 operations Investment income 0.4 Finance costs (1.5) Profit before taxation 42.2 Taxation (11.9) Profit for the period 30.3 52 weeks ended 29 March 2008 Unallocated UK International corporate Consolidated expenses £ £ million £ million £ million million Revenue External sales 565.0 111.8 - 676.8 Result Segment result 38.0 9.6 (9.1) 38.5 (underlying) Non-cash foreign 2.7 currency adjustments Amortisation of (1.6) intangibles Exceptional items (35.2) (note 3) Profit from operations 4.4 Investment income 1.6 Finance costs (1.5) Profit before taxation 4.5 Taxation (4.4) Profit for the period 0.1 Corporate expenses not allocated to UK or International represent head office costs, board and senior management costs, insurance, annual and interim reporting costs and audit and professional fees. Notes (continued) 3. Exceptional and other non-underlying items Due to their significance and one-off nature, certain items have been classified as exceptional or non-underlying as follows: 52 weeks ended 52 weeks ended 28 March 2009 29 March 2008 £ million £ million Exceptional items: Loss on disposal/termination of (2.1) (16.3) property interests Integration of ELC included in cost of (1.5) (11.5) sales1 Integration of ELC included in admin - (7.3) expenses UK central and sourcing restructure - (0.1) Unwinding of discount on exceptional (1.0) - provisions included in finance costs Other non-underlying items: Non-cash foreign currency adjustments1 11.8 2.7 Amortisation of intangibles1 (2.1) (1.6) Exceptional and other non-underlying 5.1 (34.1) items 1Included in non-underlying cost of sales, a credit of £8.2 million (2008: charge of £10.4 million) Loss on disposal/termination of property interests During the 52 weeks ended 28 March 2009 ("current year") a net charge of £2.1 million has been recognised in profit from operations relating to provisions against subleases and vacant property. During the 52 weeks ended 29 March 2008 ("prior year"), a net charge of £16.3 million was recognised in profit from operations relating to the optimisation of the UK portfolio which involves the closure and re-siting of Mothercare and Early Learning Centre stores. The tax effect of the loss on disposal of property interests in the current year was a credit of £0.6 million (2008: credit of £0.8 million). Integration of the Early Learning Centre In the current year, costs of £1.5 million (2008: £11.5 million) were charged to cost of sales relating to the restructure of the Early Learning Centre's supply chain and the opening of Early Learning Centre inserts in Mothercare stores. In the current year, costs of £nil million (2008: £7.3 million) were charged to administrative expenses relating to the restructure of the Early Learning Centre's head offices in Swindon and London, the realignment of international franchise agreements and the integration programme. The tax effect of the above costs in the current year was a credit of £0.4 million (2008: credit of £5.3 million). Unwinding of discount on exceptional provisions In the current year, a charge of £1.0 million was recognised in finance costs relating to the unwinding of the discount on exceptional property provisions. Non-cash foreign currency adjustments In the current year, a net profit of £11.8 million (2008: net profit of £2.7 million) was recognised in cost of sales as a result of the non-cash foreign currency adjustments under IAS 39 and IAS 21. Amortisation of intangibles In the current year, amortisation of intangibles arising on the acquisition of the Early Learning Centre of £2.1 million (2008: £1.6 million) was charged to cost of sales. 4. Investment income 52 weeks ended 28 52 weeks ended 29 March 2009 March 2008 £ million £ million Interest on bank 0.4 1.6 deposits Investment income 0.4 1.6 5. Finance costs 52 weeks ended 28 52 weeks ended 29 March 2009 March 2008 £ million £ million Interest and bank fees on bank 0.4 1.1 loans and overdrafts Unwinding of discounts on 1.1 0.4 provisions(1) Finance costs 1.5 1.5 (1) Includes a non-underlying charge of £1.0 million (2008: £nil) of unwinding of discounts on exceptional provisions. See note 3. Notes (continued) 6. Taxation The charge for taxation on profit for the period comprises: 52 weeks ended 28 52 weeks ended 29 March 2009 March 2008 £ million £ million Current tax: Current year 8.4 3.9 Adjustment in respect of prior - 0.1 periods 8.4 4.0 Deferred tax: Current year 4.5 2.0 Adjustment in respect of prior (1.0) (1.6) periods 3.5 0.4 Charge for taxation on profit for 11.9 4.4 the period UK corporation tax is calculated at 28 per cent (2008: 30 per cent) of the estimated assessable profit for the period. The charge for the period can be reconciled to the profit for the period before taxation per the consolidated income statement as follows: 52 weeks ended 28 52 weeks ended 29 March 2009 March 2008 £ million £ million Profit for the period before 42.2 4.5 taxation Profit for the period before taxation multiplied by the 11.8 1.4 standard rate of corporation tax in the UK of 28% (2008: 30%) Effects of: Expenses not deductible for tax 1.0 5.8 purposes Impact of overseas tax rates 0.1 (0.2) Change in tax rate - (0.2) Utilisation of tax losses not - (0.9) previously recognised against capital gains Adjustment in respect of prior (1.0) (1.5) periods Charge for taxation on profit for 11.9 4.4 the period In addition to the amount charged to the income statement, deferred tax relating to retirement benefit obligations amounting to £8.7 million (2008: £1.0 million) has been credited directly to equity. 7. Dividends 52 weeks ended 28 52 weeks ended 29 March 2009 March 2008 pence per £ million pence per £ million share share Amounts recognised as distributions to equity holders in the period Final dividend for the 8.3p 6.9 6.7p 4.7 prior year Interim dividend for the 4.6p 4.0 3.7p 3.2 current year 10.9 7.9 The proposed final dividend of 9.9 pence per share for the 52 weeks ended 28 March 2009 was approved by the board after 28 March 2009, on 20 May 2009, and so, in line with the requirements of IAS 10 'Events After the Balance Sheet Date', the related cost of £8.5 million has not been included as a liability as at 28 March 2009. This dividend will be paid on 7 August 2009 to shareholders on the register on 5 June 2009. Notes (continued) 8. Earnings per share 52 weeks ended 28 52 weeks ended 29 March 2009 March 2008 million million Weighted average number of shares 83.5 80.6 in issue Dilution - option schemes 2.7 1.9 Diluted weighted average number 86.2 82.5 of shares in issue £ million £ million Earnings for basic and diluted 30.3 0.1 earnings per share Non-cash foreign currency (11.8) (2.7) adjustments Amortisation of intangibles 2.1 1.6 arising on acquisition of ELC Exceptional items (note 3) 4.6 35.2 Tax effect of above items 1.6 (6.4) Underlying earnings 26.8 27.8 pence pence Basic earnings per share 36.3 0.1 Basic underlying earnings per 32.1 34.5 share Diluted earnings per share 35.2 0.1 Diluted underlying earnings per 31.1 33.7 share 9. Reconciliation of equity 52 weeks ended 28 52 weeks ended 29 March 2009 March 2008 £ million £ million Total recognised income and 7.8 (2.5) expense Dividends to equity holders of (10.9) (7.9) the parent company Issue of ordinary share capital 1.1 58.1 Exchange differences on 1.2 - translation of overseas operations Purchase of own shares (1.1) (2.5) Cost of employee share schemes 2.5 1.8 Net increase in equity 0.6 47.0 Equity at beginning of year 198.0 151.0 Equity at end of year 198.6 198.0 10. Reconciliation of cash flow from operating activities 52 weeks ended 28 52 weeks ended March 2009 29 March 2008 £ million £ million Profit from retail operations 45.8 20.9 Adjustments for: Depreciation of property, plant and 17.3 16.0 equipment Amortisation of intangible assets - 2.6 2.1 software Amortisation of intangible assets - 2.1 1.6 other Losses on disposal of property, 2.4 1.7 plant and equipment Gain on non-underlying non-cash (11.8) (2.7) foreign currency adjustments Equity-settled share based payments 2.5 1.8 Movement in provision for costs of reorganisation of distribution - (0.7) network Movement in property provisions (3.1) (1.3) Movement integration provisions (10.3) 13.6 Movement in restructuring provisions - (1.6) Movement in other provisions (0.3) 0.3 Amortisation of lease incentives (2.2) (2.8) Lease incentives received 6.6 0.9 Payments to retirement benefit (5.0) (4.3) schemes Charge to profit from operations in respect of service costs of 1.2 0.7 retirement benefit schemes Operating cash flow before movement in 47.8 46.2 working capital Increase in inventories (14.9) (2.4) Increase in receivables (2.3) (3.8) Increase in payables 9.5 14.7 Cash generated from operations 40.1 54.7 Income taxes paid (5.2) (2.9) Net cash flow from operating 34.9 51.8 activities Directors' Responsibility Statement We confirm to the best of our knowledge: 1. The financial statements, prepared in accordance with the applicable setoff accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings including the consolidation taken as a whole; and 2. the review of operations and finance along with other documents which are incorporated into the directors' report, together include a fair review of the development and performance of the business and the position of the Company and the undertakings including the consolidation taken as a whole together with a description of the principal risks and uncertainties they face. By order of the Board Ben Gordon Neil Harrington Group Chief Executive Group Finance Director Dated 9 June 2009 ---END OF MESSAGE--- This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.