Final Results
D.F.S. Furniture Company PLC
09 October 2003
9 October 2003
PRELIMINARY RESULTS FOR THE 52 WEEKS ENDED 2 AUGUST 2003
'think sofas, think DFS'
• Record profit before tax £ 56.4 million up 5.2%*
• Turnover £499.1 million up 8.0%
• Like-for-like sales up 2.5%
• Earnings per share 35.9 pence up 5.6%*
• Ordinary dividend per share 24.0 pence up 5.7%
* before prior year exceptional profit relating to the Primback case.
'We have achieved our financial targets with yet another record profit before
tax and increased our share of a UK furniture market that has never been more
active, aggressive and competitive. With new entrants targeting our sector, and
established players imitating aspects of our successful concept, DFS continues
to stand out because of the fundamental strengths of our business, built up over
more than 30 years. We continue to benefit from our proven abilities in product
innovation, our unique integrated approach to manufacturing and retailing, our
market-leading brand, established national media presence and high levels of
consumer awareness. These are coupled with a strong operating cash flow and
balance sheet, and a substantial freehold store base.
The new DFS logo is already featured on all our advertising and promotional
material and many of our stores, with all due to receive this new fascia by the
end of the calendar year. This is the first major change in our corporate
identity in 15 years, and brings our image completely up-to-date, to match the
extensive changes we have made to our store layouts and product range.
DFS already achieves truly exceptional performance ratios, with sales of over
£500 for every square foot of retail selling space and of over £0.5 million for
every retail employee. Our new stores make an enormous impact in their local
markets from the moment they open. As store numbers grow and competition
increases the impact on our established stores becomes more pronounced and it
becomes increasingly difficult to deliver sustained, significant like-for-like
sales increases. Our future growth will therefore be based on the continued
expansion of our store chain and the progressively increasing benefits of
amortising our advertising and other costs across this growing base. Given the
increasingly competitive nature of our market, and the phasing of our planned
store openings, we do not expect to make material profit progress in our current
financial year. I remain totally confident, however, of our ability to meet all
the challenges in our market place and that the fundamental strengths of our
brand and concept will enable us to continue delivering profitable growth for
the benefit of our shareholders in the future.'
Graham Kirkham
Executive Chairman
Enquiries
DFS Furniture Company plc Hudson Sandler
Graham Kirkham, Executive Chairman Keith Hann
Jon Massey, Chief Operating Officer Noemie de Andia
Ian Bowness, Finance Director Tel: 020 7796 4133
Tel: 020 7796 4133 (on 9 October 2003)
CHAIRMAN'S STATEMENT
We have achieved our financial targets with yet another record profit before tax
and increased our share of a UK furniture market that has never been more
active, aggressive and competitive. With new entrants targeting our sector, and
established players imitating aspects of our successful concept, DFS continues
to stand out because of the fundamental strengths of our business, built up over
more than 30 years. We continue to benefit from our proven abilities in product
innovation, our unique integrated approach to manufacturing and retailing, our
market-leading brand, established national media presence and high levels of
consumer awareness. These are coupled with a strong operating cash flow and
balance sheet, and a substantial freehold store base.
RESULTS
Sales for the 52 weeks to 2 August 2003 grew by 8.0% to £499.1 million (2002:
£462.2 million), including like-for-like growth through our core of comparable
stores of 2.5%. After a 3.5% increase in the first half, like-for-like sales
rose by 1.5% in the second half, reflecting stronger prior year comparatives and
an increasingly competitive trading climate.
Operating profit increased 5.3% to £55.9 million (2002: £53.1 million excluding
the prior year's £8.7 million exceptional profit relating to the Primback case).
Our operating margin improved from 10.7% in the first half to 11.7% in the
second, reflecting an uplift in gross margin and the benefits of amortising our
advertising costs across an expanding store base. After interest receivable of
£0.5 million, the same as in the prior year, profit before taxation was £56.4
million (2002: £53.6 million before exceptional item), an increase of 5.2%.
Earnings per share increased by 5.6% on a pre-exceptional basis to 35.9 pence
(2002: 34.0 pence).
FINANCES
Our balance sheet remains exceptionally robust, with no debt and free cash
increasing to £32.3 million at the year end, compared with £25.4 million in
August 2002. Total cash balances of £45.2 million include £12.9 million
relating to the Primback case (2002: £18.2 million). We continue to pursue
legal actions regarding various sums already paid to H.M. Customs & Excise
related to this case.
DIVIDENDS
The Board recommends a final dividend of 17.0 pence per share (2002: 16.0
pence), an increase of 6.3%. Together with the increased interim dividend of 7.0
pence paid in June, this makes a total ordinary dividend for the year of 24.0
pence (2002: 22.7 pence), a rise of 5.7%. This continues the progressive
dividend policy that we have pursued throughout our ten years as a public
company; we have returned a total of £230 million to our shareholders through
ordinary and special dividends and share buybacks since our flotation in 1993.
The Board remains committed to ensuring that shareholders receive increases in
their income that broadly reflect the growth of earnings per share over the
medium term, and that they also derive full benefit from any future surplus
cash.
STORES
We opened a total of seven stores during the year - six in our principal DFS
upholstery format, together with one addition to the specialist Dining Centre
concept that we operate in the Yorkshire TV region. New leasehold DFS stores
opened at Hull, Birstall (Leeds), Watford and Aberdeen during the first half,
while in the second half our new leasehold store at Tunbridge Wells opened on 5
April. We also re-opened our former Hull upholstery store as a Dining Centre on
3 June and a new freehold DFS store at Tollcross (Glasgow) opened on 7 June.
The Tollcross store was the first to carry the new DFS fascia, which we have
updated after 15 years to reflect our strong, contemporary product range and
consumer appeal. This will be in place on all our stores by the end of 2003.
In the current financial year, we will construct new freehold stores at
Inverness and Carlisle, and also lease a new store which is being built for us
on a site in Cambridge. The longer lead times associated with new builds means
that all these stores are likely to open towards the end of our financial year.
Our long-established policy of investing in freeholds and long leaseholds
affords us a degree of protection from escalating rental costs which is proving
of ever-increasing value in the current climate. We continue to aim for
controlled expansion of our business at the rate of 15 - 20 new stores over a
three year period, with ultimate potential for around 100 upholstery stores in
the UK compared with 65 currently trading.
We have continued our rolling programme of total store refurbishments designed
to ensure that we maintain an up-to-date public image and can display our
continually evolving product range in appealing room settings that incorporate
our latest standards of design, decor and visual merchandising. During the year
we refurbished our stores at Colchester, Peterborough, Bristol, Cardiff and
Sidcup, and in the current year to date we have already undertaken comprehensive
refits at Milton Keynes, Plymouth, Norwich and South Ruislip.
PRODUCTS, MANUFACTURING AND DISTRIBUTION
Like all retailers, our success is ultimately dependent on offering customers
products that they want to buy, at appealing prices and with delivery dates that
meet their requirements. With competition in our market increasing to
unprecedented levels, we have redoubled our efforts not only to develop
attractive new products but also to ensure that we achieve service levels that
set DFS apart.
Our three UK factories at Long Eaton, Alfreton and Adwick-le-Street continue to
make a meaningful contribution to our profits, and also provide DFS with a
unique point of difference as an integrated manufacturing and retailing
business. All our factories achieved record outputs during the year, with the
Berkeley Magna (Long Eaton) and Lincoln House (Alfreton) production units
benefiting from investment in additional capacity and new machinery.
We benefit from direct control of quality, design flexibility and lead times in
our own factories, and also from the expertise which they allow us to apply in
developing supplier partnerships with other manufacturers in Europe and,
increasingly, in low-cost economies further afield. Our efficiency in handling
imported product has been significantly enhanced by the opening of our new
Redhouse distribution facility near Doncaster, which opened in the first half.
Volume has built progressively, in accordance with our plans, as we have
completed the transfer of operations from external contractors, and we are
achieving the expected improvements in our customer service standards.
DFS BRAND AND MARKETING
The new DFS logo is already featured on all our advertising and promotional
material and many of our stores, with all due to receive this new fascia by the
end of the calendar year. This is the first major change in our corporate
identity in 15 years, and brings our image completely up-to-date, to match the
extensive changes we have made to our store layouts and product range. The theme
of 'think sofas, think DFS' is designed to reinforce consumer awareness of DFS
as the market leader in upholstered furniture, and the first choice when making
a buying decision in this category.
The cost-effectiveness of our national TV, radio, newspaper and magazine
advertising will continue to improve as we expand our store network, enabling us
to amortise these and other costs across a wider retail base. This will make an
important contribution to the value we can offer both customers and shareholders
in the years ahead.
THE BOARD
As previously announced, Bill Barnes will join us as Finance Director on 31
October 2003 from NEXT plc, where he has spent 13 years as Group Financial
Controller. Bill will take over from Ian Bowness, our Finance Director since
1995, who has decided that he would like to take a break and consider other
opportunities for his future. Although Ian will be resigning from the Board on
31 October, he has agreed to continue working for us on a consultancy basis for
as long as may be required to ensure a smooth handover of his responsibilities.
I am absolutely delighted that we have been able to attract someone of Bill's
calibre to fulfil this role, and would like to say a huge personal thank you to
Ian for all his hard work and his contribution to the business over the last
eight years.
PEOPLE
We have always said that there is no compromise on the quality of the people we
employ and that the recruitment of high calibre staff is the most important
single constraint on the expansion of DFS. Growing competition is making it an
even greater challenge to recruit and retain staff of the calibre we need to
drive our growth, and increasing the importance of our long-established focus on
training and development. Our new, purpose-built training centre at Redhouse
(Doncaster) is providing us with massive benefits in inducting people to the
business, and in developing their service and selling skills. In addition to
offering industry-leading training programmes, our appeal to new staff is
founded on our reputation as a long-established market leader offering both
security and long-term career prospects. We were pleased to create a further
200 new jobs through our expansion programme last year, and I am delighted to
have this opportunity to welcome those who have joined our team during the year
as well as to thank all our people for their individual contributions to another
record result for DFS.
OUTLOOK
The value of orders booked at the end of the last financial year and over recent
weeks, which will become delivered sales in the current financial year, was 3.9%
lower than in the comparable period in 2002 on a like-for-like basis, albeit
compared with a period of strong growth that included the benefit from last
year's 2002 Golden Jubilee bank holidays.
While the exceptionally hot summer weather was not helpful to our industry, we
believe that the slower sales performance mainly reflects the growing intensity
of competition in our sector, with much highly aggressive promotional activity.
We are confident that we are well placed to mitigate this by virtue of our
market leadership and brand appeal, clear specialist focus, proven marketing
skills and substantial financial strength. Our strategy will continue to be
simple and straightforward: providing products that are relevant and attractive
to consumers, backed by the best service in our sector and delivered to
customers on time. Our prices will remain attractive, but we will never lose
sight of our prime objective of running a profitable business.
DFS already achieves truly exceptional performance ratios, with sales of over
£500 for every square foot of retail selling space and of over £0.5 million for
every retail employee. Our new stores make an enormous impact in their local
markets from the moment they open. As store numbers grow and competition
increases the impact on our established stores becomes more pronounced and it
becomes increasingly difficult to deliver sustained, significant like-for-like
sales increases. Our future growth will therefore be based on the continued
expansion of our store chain and the progressively increasing benefits of
amortising our advertising and other costs across this growing base. Given the
increasingly competitive nature of our market, and the phasing of our planned
store openings, we do not expect to make material profit progress in our current
financial year. I remain totally confident, however, of our ability to meet all
the challenges in our market place and that the fundamental strengths of our
brand and concept will enable us to continue delivering profitable growth for
the benefit of our shareholders in the future.
Graham Kirkham
Executive Chairman
GROUP PROFIT AND LOSS ACCOUNT
52 WEEKS ENDED 2 AUGUST 2003 (53 WEEKS ENDED 3 AUGUST 2002)
2003 2002
£000 £000
Notes
Turnover 499,083 462,154
Cost of sales
Before exceptional item (428,356) (395,694)
Exceptional item 1 - 8,699
Total (428,356) (386,995)
Gross Profit
Before exceptional item 70,727 66,460
Exceptional item 1 - 8,699
Total 70,727 75,159
Administrative expenses (14,782) (13,329)
Operating profit
Before exceptional item 55,945 53,131
Exceptional item 1 - 8,699
Total 55,945 61,830
Interest receivable
Before exceptional item 482 483
Exceptional item 1 - 8,723
Total 482 9,206
Profit on ordinary activities before
taxation
Before exceptional items 56,427 53,614
Exceptional items 1 - 17,422
Total 56,427 71,036
Taxation on profit on ordinary activities
Before exceptional item (18,280) (17,894)
Exceptional item 1 - (2,610)
Total (18,280) (20,504)
Profit for the financial period
Before exceptional items 38,147 35,720
Exceptional items 1 - 14,812
Total 38,147 50,532
Dividends paid and proposed 2 (25,645) (38,936)
Retained profit for the financial period 12,502 11,596
Earnings per ordinary share
Before exceptional items 3 35.9p 34.0p
Exceptional items 1 - 14.0p
Total 35.9p 48.0p
Diluted earnings per ordinary share
Before exceptional items 3 35.7p 33.6p
Exceptional items 1 - 14.0p
Total 35.7p 47.6p
Dividend per ordinary share 24.0p 22.7p
Special dividend per ordinary share - 14.1p
All activities were continuing throughout both the current and previous periods.
There were no recognised gains and losses in either period other than those
reported in the Group profit and loss account.
GROUP BALANCE SHEET
AS AT 2 AUGUST 2003 (3 AUGUST 2002)
2003 2002
£000 £000
Notes
Fixed assets
Tangible assets 111,230 100,040
Current assets
Stocks 16,028 14,888
Debtors 7,050 7,149
Cash at bank and in hand 45,182 43,622
68,260 65,659
Creditors: amounts due within one year (101,704) (103,737)
Net current liabilities (33,444) (38,078)
Total assets less current liabilities 77,786 61,962
Provisions for liabilities and charges (10,933) (10,747)
Net assets 66,853 51,215
Capital and reserves
Called up share capital 5,344 5,291
Share premium account 11,749 8,666
Revaluation reserve 4,218 4,294
Capital redemption reserve 78 78
Profit and loss account 45,464 32,886
Equity shareholders' funds 4 66,853 51,215
GROUP CASH FLOW STATEMENT
52 WEEKS ENDED 2 AUGUST 2003 (53 WEEKS ENDED 3 AUGUST 2002)
2003 2002
£000 £000
Notes
Net cash inflow from operating activities 5 62,466 27,088
Returns on investments and servicing of finance 6 471 588
Taxation (18,586) (18,269)
Capital expenditure 7 (21,523) (28,459)
Equity dividends paid (24,404) (37,197)
Net cash outflow before financing (1,576) (56,249)
Financing 8 3,136 2,669
Increase / (decrease) in cash in the period 1,560 (53,580)
Reconciliation of net cash flow to movement in net funds
Increase / (decrease) in cash in the period 1,560 (53,580)
Net funds at the beginning of the period 43,622 97,202
Net funds at the end of the period 45,182 43,622
NOTES TO THE ACCOUNTS
1. Exceptional profit
Certain amounts previously provided in respect of the Primback case were
released in the prior period. These comprised VAT no longer recoverable by H.M.
Customs & Excise and related interest accruals. The interest accruals were not
allowed for corporation tax and no charge was therefore incurred on their
release.
2. Dividends paid and proposed
2003 2002
£000 £000
Interim dividend paid 7,474 7,112
Special interim dividend paid - 14,894
Final dividend proposed 18,171 16,930
25,645 38,936
3. Earnings per ordinary share
The calculations of earnings per ordinary share and fully diluted earnings per
ordinary share are based on the profit for the financial period of £38,147,000
(2002:£50,532,000).
The calculation of diluted earnings per share is based on :
2003 2002
Number Number
Weighted average number of shares per EPS calculation 106,206,063 105,172,704
Dilutive effect of shares under option 660,920 879,838
Weighted average number of shares per diluted EPS 106,866,983 106,052,542
calculation
NOTES TO THE ACCOUNTS
4. Reconciliation of movements in shareholders' funds
2003 2002
£000 £000
Profit for the financial period 38,147 50,532
Dividends paid and proposed (25,645) (38,936)
Retained profit for the period 12,502 11,596
Share issues 3,136 2,669
Net addition to shareholders' funds 15,638 14,265
Shareholders' funds at the beginning of the period 51,215 36,950
Shareholders' funds at the end of the period 66,853 51,215
5. Reconciliation of operating profit to net cash inflow from operating
activities
2003 2002
£000 £000
Operating profit 55,945 61,830
Depreciation 9,090 7,468
Loss/(profit) on sale of fixed assets 1,243 (168)
Increase in stocks (1,140) (1,534)
Decrease/(increase) in debtors 110 (643)
Decrease in creditors and provisions (2,782) (39,865)
Net cash inflow from operating activities 62,466 27,088
The decrease in creditors and provisions includes a net decrease of £5,279,000
(2002: decrease of £49,229,000) associated with the Primback case.
NOTES TO THE ACCOUNTS
6. Returns on investments and servicing of finance
2003 2002
£000 £000
Interest received 471 588
7 Capital expenditure
2003 2002
£000 £000
Purchase of tangible fixed assets (22,162) (28,998)
Sale of fixed assets 639 539
Net cash outflow for capital expenditure (21,523) (28,459)
8. Financing
2003 2002
£000 £000
Issue of ordinary share capital 3,136 2,669
9. The financial information set out above does not constitute the Company's
statutory accounts for the periods ended 2 August 2003 or 3 August 2002.
Statutory accounts for 2002 have been delivered to the Registrar of Companies
and those for 2003 will be delivered following the Company's Annual General
Meeting. The auditors have reported on those accounts. Their reports were
unqualified and did not contain statements under sections 237 (2) or (3) of the
Companies Act 1985.
10.The annual report will be posted to shareholders on or about 30 October 2003
and will be available on request from the Secretary, DFS Furniture Company plc,
Bentley Moor Lane, Adwick-le-Street, Doncaster, South Yorkshire, DN6 7BD.
OPERATING AND FINANCIAL REVIEW
TURNOVER
Turnover for the 52 weeks ended 2 August 2003 was £499.1 million (2002: £462.2
million), an increase of 8.0%, including like-for-like sales growth of 2.5%.
Sales rose by 14.3% in the first half, including like-for-like growth of 3.5%.
Sales in the second half grew by 2.7% in total (compared to a 27 week period in
2002), including a like-for-like gain of 1.5%.
It remains our policy to calculate like-for-like sales on a core of comparable
stores, excluding branches whose performance has been distorted by launch
promotional activity in the current or prior year.
Our average order value was broadly in line with the previous year at around
£1,500.
OPERATING PROFIT
Operating profit was £55.9 million (2002: £53.1 million before the exceptional
profit relating to the Primback case), an increase of 5.3%. Our operating
margin of 10.7% in the first half (2002: 12.1%) reflected the costs of
increasing staff levels to improve customer service, which had taken effect in
the second half of the prior year, together with rent reviews, increased
pre-opening costs and additional expenses relating to the development of our
Redhouse distribution centre. In the second half operating margin improved to
11.7% (2002: 10.9%) following an uplift in gross margin and the benefit of
amortising our advertising costs across a broader store base. Other store costs
continued to increase, notably rents. The group's operating margin for the year
as a whole was 11.2%, compared with 11.5% before the exceptional profit in the
prior year.
Store pre-opening costs for the year totalled £4.0 million, the same as in the
previous year. In line with our long tradition of conservative accounting, we
have always charged all rental, staffing, training and marketing costs
associated with new store developments to the profit and loss account as they
are incurred.
INTEREST RECEIVABLE
Interest receivable of £0.5 million was in line with the previous year's figure
before the exceptional profit relating to the Primback case.
PROFIT BEFORE TAXATION
Profit on ordinary activities before taxation was £56.4 million (2002: £53.6
million before exceptional item), an increase of 5.2%. The previous year's
profit before taxation, including the exceptional item, was £71.0 million.
TAXATION
The Group's tax charge for the year was 32.4%, compared with an effective rate
of 33.4% before the exceptional profit in the prior year. This reduction
reflects the movement in creditor balances relating to the Primback case, and is
expected to be maintained in the medium term. It is anticipated that the
Group's underlying tax charge will remain slightly above the standard UK
corporation tax rate because of the treatment of certain non-allowable costs.
EARNINGS PER ORDINARY SHARE
Basic earnings per ordinary share of 35.9 pence (2002: 34.0 pence before
exceptional item) grew by 5.6%. On a fully diluted basis, the increase was 6.2%
to 35.7 pence. Basic earnings per share in the prior year, including the
exceptional item, were 48.0 pence (47.6 pence fully diluted). The weighted
average number of shares in issue increased by 1.0 million to 106.2 million
(106.9 million on a fully diluted basis) as the result of share issues under the
Group's option schemes.
EXCEPTIONAL ITEMS
There were no exceptional items in the year under review. In the previous year
an exceptional profit of £17.4 million before taxation (£14.8 million after
taxation) relating to the Primback case was released to the profit and loss
account and returned to shareholders through a special dividend.
DIVIDENDS
The recommended final dividend is 17.0 pence per ordinary share, an increase of
6.3% compared with the 16.0 pence paid in the previous year. Subject to
approval at the Annual General Meeting, the final dividend will be paid on 5
December 2003 to those shareholders whose names are on the register on 7
November 2003. Including the interim dividend paid in June, which was increased
by 4.5% to 7.0 pence, the total ordinary dividend for the year is 24.0 pence
(2002: 22.7 pence), an increase of 5.7%, maintaining cover of 1.5 times. In
2002, shareholders also received a special dividend of 14.1 pence per share
relating to the exceptional profit noted above.
CAPITAL EXPENDITURE
Capital expenditure for the year was £22.2 million (2002: £29.0 million), with
the reduction reflecting a lower level of investment in freeholds and long
leaseholds. The principal components of the year's expenditure were the
acquisition of additional freehold land associated with our Carlisle store
development, the construction and fitting out of our new freehold Tollcross
(Glasgow) store, the fitting-out of our six other new stores and the
comprehensive refurbishment of five established stores.
CASH FLOW
The Group generated a total of £62.5 million from operations and increased its
net free cash balances by £6.9 million after funding capital expenditure and
paying £24.4 million in dividends to shareholders. Comparative figures for the
prior year are distorted by the payment of £44.4 million to H.M. Customs &
Excise to protect ongoing appeals relating to the Primback case.
The highly cash generative nature of our business means that DFS has always been
able to fund its entire expansion programme from its own resources, and to
purchase store freeholds as suitable opportunities arise.
BALANCE SHEET
The Group continues to enjoy a very strong balance sheet, with no borrowings at
either this or the prior year end, and tangible assets including £63.9 million
(2002: £58.7 million) of freeholds and long leaseholds. Total cash balances at
2 August 2003 were £45.2 million (2002: £43.6 million), comprising free cash of
£32.3 million (2002: £25.4 million) and monies associated with the Primback case
of £12.9 million (2002: £18.2 million).
OPPORTUNITIES AND RISKS
DFS is the UK's leading specialist retailer of upholstered furniture, selling
around 30,000 individual pieces of furniture each week, some 15% of which are
manufactured in our own three British factories. We have developed our unique,
integrated retail and manufacturing formula over 34 years in business, during
which we have attained market leadership by maintaining a strong specialist
focus and constantly investing in our stores, systems, products, factories and
people.
We have made substantial gains in market share, from around 5% at the time of
our flotation in 1993 to 17% today, through the pursuit of a policy of
controlled and prudent expansion that aims to add 15 - 20 stores over a typical
three year period.
The finance for all the Group's credit sales is provided through external
financing companies, without recourse to DFS.
DFS makes all its sales within the UK, and many of our overseas suppliers
invoice us in sterling. Although some business is transacted in dollars, the
Group's risk is managed by buying sufficient foreign exchange to cover all
outstanding contracts. Exchange rate risk has therefore never been a material
issue for the Group.
DFS does not undertake speculative financial transactions and continues to
pursue prudent treasury policies, investing its surplus funds only with
top-rated financial institutions. Insurable risks are centrally monitored and
controlled, and are covered with leading UK and international insurance
companies. All other aspects of risk management are kept under continuous
review.
This information is provided by RNS
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