Mothercare plc Mothercare plc Annual report and accounts 2016 Annual report and accounts 2016 Annual report and accounts www.mothercareplc.com At a glance Our vision at Mothercare is clear – to be the leading global retailer for parents and young children. Worldwide sales* £1,149m (4.5)% Europe Stores: 469 Group sales UK Space: 1,168k sq.ft. Stores: 170 £682m (4.4)% Space: 1,553k sq.ft. Underlying profit Asia £19.6m +51% Stores: 435 Middle East Statutory profit Space: 916k sq.ft. Stores: 345 £9.7m Space: 873k sq.ft. compared to Latin America Stores: 61 loss of £(13.1)m Space: 70k sq.ft. * Total UK sales plus retail sales achieved by our franchise partners, joint ventures and international wholesale Product Worldwide Sales International UK International UK Clothing & Footwear Clothing & Footwear Stores Stores Home & Travel Home & Travel Online Online Toys Toys Wholesale Wholesale 14.3% 17.3% 1.6% 1.0% 7.3% 36.7% 21.1% 34.7% 58.0% 64.6% 46.0% 97.4% Contents Overview Our brands Overview ifc At a glance Mothercare 01 Contents and financial highlights Our aim is to meet the needs of mothers-to-be, babies Strategic report and children up to the age of eight years. Our Clothing & Footwear product includes ranges for babies, children 02 Chairman’s statement and maternity wear and has a growing selection of 04 Business model branded product. Home & Travel includes pushchairs, 06 Chief Executive’s review car seats, furniture, bedding, feeding and bathing 12 Our strategy equipment. Toys is mainly for babies and complements 13 Strategic pillars our ELC ranges. 24 KPIs – Financial and non-financial STORES 26 Risks – Principal risks and uncertainties UK – in town: 66 32 Financial review UK – out of town: 96 40 Corporate responsibility International partners: 947 Governance 46 Board of Directors Early Learning Centre 47 Executive Committee Our aim is to provide children up to the age of eight years 48 Corporate governance with toys that nurture and encourage learning through 55 Audit and Risk Committee play. Whilst the ranges are mainly own brand and are 61 Nomination Committee designed and sourced through our facilities in Hong Kong, 62 Directors’ report we selectively bring in branded product that enhances 66 Directors’ remuneration report our ranges. STORES Financial statements UK – in town: 8 93 Directors’ responsibilities statement UK – inserts: 121 94 Independent auditor’s report to International partners: 363 the members of Mothercare plc 99 Consolidated income statement 100 Consolidated statement of comprehensive income/(expense) 101 Consolidated balance sheet 102 Consolidated statement of changes in equity Space 103 Consolidated cash flow statement 104 Notes to the consolidated financial International UK statements Mothercare New, modern & refitted format Company financial statements ELC Still to be refitted 143 Company balance sheet 144 Statement of changes in equity 145 Notes to the Company financial 12.9% statements 148 Five year record 37.1% 62.9% 149 Shareholder information 87.1% Mothercare plc Annual report and accounts 2016 01 Chairman’s statement In the last 12 months significant progress has been made both in the transformation of Mothercare and delivering improved profitability for our shareholders. Alan Parker CBE Chairman There has been a further reduction growth. There is now a redefined brand of losses in the UK driven by stronger proposition and product improvements trading and margin improvement. based on a clear understanding of Our International business has had target customer needs. We still have a more difficult year with challenges much to do. However, I believe the in consumer markets and foreign actions taken over the year are exchange. We have worked together significant progress with a high with our International partners to reduce proportion of the benefit still to come. the impact on sales and profitability. In January, Daniel Talisman was Proceeds from the successful rights appointed General Counsel and issue completed in October 2014 have Group Company Secretary, following been used to reduce debt and invest the resignation of Tim Ashby. After 35 in UK retail stores. Customers have years with the Company, Jerry Cull has responded positively to the modern decided to step down as Managing store format with sustained year-on- Director of International. Jerry was year sales growth. This investment responsible for the growth of our programme will continue in the year International partner network from very ahead to include a major improvement small beginnings. Jerry will continue to in the Group’s IT systems infrastructure. support the business in the year ahead while Mark Newton-Jones takes over The new executive leadership team, direct responsibility for our International led by Mark Newton-Jones, not only regional managing directors. improved operating performance, but also laid the foundations for future 02 Mothercare plc Annual report and accounts 2016 There were no Board changes during Finally our International partners are the year. I would like to recognise the a powerful asset to our business and collective experience of both the we recognise that their local insight executive and non-executive directors, and commitment to our brands give which has proved invaluable in us a competitive edge globally. navigating the challenges of the We look forward to working together previous 12 months. A Board evaluation in the next 12 months on the strategy was undertaken which confirmed that for future growth. non-executive members worked both well together and with the executive members whilst remaining independent in the spirit of good governance. I would like to thank everyone involved report Strategic in our two great brands of Mothercare Alan Parker CBE and Early Learning Centre around the Chairman, Mothercare plc world, in our stores, support centres, sourcing offices and suppliers for their hard work and enthusiasm. Mothercare plc Annual report and accounts 2016 03 Business model The Mothercare business model describes how we operate and create value for shareholders, our customers Our vision is to be and other key stakeholders. the leading global retailer for parents Our resources and young children. Shareholders’ equity International partners £89m 45 Cash in bank Suppliers £14m 1,422 Employees with orders worth £595m 5,346 Relationships What differentiates us Trusted own brand Effective logistics Exclusive product 6 2 Expertise and service DCs Hubs Efficient sourcing Understanding customers 17 7 2.4m countries offices customers on database Full service vendors Trusted own brand 621 36 Innovation, suppliers countries quality and style 04 Mothercare plc Annual report and accounts 2016 How we create value For customers For International partners Grow sales and margins Manage £1,149m £690m costs and report Strategic Worldwide sales Sales cash For employees For social Focused investment £71m £15m Create Total pay and benefits Total tax contribution Value (TTC) For suppliers To reinvest £595m Total payment Value capture The products we offer How our customers buy from us Home & Travel UK Stores 175 3,200 74 96 brands options in town out of town Clothing & Footwear UK online 16 5,100 37% brands options of UK retail sales Toys International 80 2,650 12 1,310 brands options countries stores online & 1.6% of international sales Mothercare plc Annual report and accounts 2016 05 Chief Executive’s review Two years into our turnaround, we have delivered 51% growth in underlying PBT and our first statutory profit in five years. Overview the new practices from the UK into our We have made solid progress in each International markets which will improve of our six strategic pillars in this past our partners’ businesses and indeed the year as we continue to transform and management of our brand globally. modernise our business. In the UK Despite the challenges faced in our almost 40% of space is now in the new International markets, where sales and and much improved format. We have profit have been impacted by economic invested in product, service, systems and currency headwinds, we are still Mark Newton-Jones and the team which is delivering a opening new space. We have also Chief Executive significantly improved experience for recently completed a full review of our our customers both in store and online. International operations, looking for Like-for-like sales are up for the second ways in which we can improve and 1. Become a digitally year in a row and margins, after five strengthen the business. We believe we years of decline, are up 70 bps reflecting can work even more closely with our led business our improved product quality and partners to support their businesses and 2. Supported by a design, better buying negotiations and strengthen the franchise model, ensuring modern retail estate a focus on full price sales. Combined, that we will be best placed to benefit this has resulted in a 64% reduction in when market conditions improve. losses compared to the previous year 3. Offering style, quality I’d like to thank our teams and our and we are on track to return the UK and innovation International partners for all of their to profit. in product effort in this past year, as we transform International has been more of a and modernise our business. 4. Stabilise and challenge, but we remain focused We have made further progress against recapture gross on building a strong and more resilient each of our six strategic pillars. Overall business for the future. Our plan has margin the business is on a firmer footing and been to fix the UK business by we are positioning ourselves well for 5. Running a lean transforming it in to a modern and the future. organisation while professional retailer and, by doing investing for the future so, make it more exportable. We are now taking the lessons learned and 6.