Interim Results

D.F.S. Furniture Company PLC 19 April 2001 19 April 2001 DFS FURNITURE COMPANY plc INTERIM RESULTS FOR THE 26 WEEKS ENDED 27 JANUARY 2001 'clear leader in the industry.' Record profit before tax £24.4m - up 10.8 % Sales £192.6m - up 13.7 % Like-for-like sales - up 8.5 % Earnings per share 15.7p - up 10.6 % Interim dividend per share 6.1p - up 10.9 % 'I am pleased to report double-digit percentage growth in sales, profit before tax, earnings per share and interim dividend in this first half, building on our outstanding 84% profit increase in the comparable period last year. The strength of the DFS concept is evident not only in our appeal to consumers but also, beneficially, from our industry too. This was confirmed when we were the overwhelming choice for the 2001 Business Excellence Award in the annual Furniture Industry Awards. The judges commented that 'DFS is a clear leader in the industry'. I am confident that the strength of DFS as the undisputed market leader will be reflected in another year of profitable growth. Even more importantly, I believe that our investments in our brand, management, systems and people have laid strong foundations for the continued expansion of our store network and for the delivery of further growth in shareholder value in the years ahead. It's a most encouraging start for us all at DFS. Real progress, a result that keeps us right on track. Our prospects shine brightly as our expansion plans unfold and our UK dominance grows.' 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 19 April 2001) CHAIRMAN'S STATEMENT I am pleased to report double-digit percentage growth in sales, profit before tax, earnings per share and interim dividend in this first half, building on our outstanding 84% profit increase in the comparable period last year. The business has benefited from our focus on fashionable, value-for-money products, combined with even stronger branding, ever-more effective marketing, industry-beating service and our increased manufacturing capacity. DFS continues to reap the benefits of our complete dedication to being the best in the upholstered furniture market. Our commanding leadership in this sector is winning steadily increasing recognition from consumers and from our industry. RESULTS Sales in the first half grew by 13.7% to £192.6 million, with like-for-like sales through our core of comparable stores increasing by 8.5%. Our sales performance benefited from a very substantial order bank brought forward, plus a contribution from our new store openings in September at Paisley, our first Scottish store, and Edinburgh and Swansea in December. Operating profit grew by 9.4% to £23.6 million. Pre-opening costs at Edinburgh, Swansea and Speke in Liverpool slightly lowered our operating margin to 12.3% (2000: 12.7%), despite the continuing benefit of higher volumes and increased manufacturing participation. Interest receivable increased to £0.8 million, primarily reflecting higher cash balances prior to the payment of our £20.7 million special dividend in November. As a result, profit before taxation advanced by 10.8% to £24.4 million and earnings per share rose by 10.6% to 15.7 pence. FINANCES The strength of our balance sheet continues to underline the exceptionally cash generative nature of our business. Total cash balances of £87.1 million compare with £83.4 million in January 2000 and £99.6 million at our year end in July, since when we have paid ordinary and special dividends to our shareholders totalling £34.2 million. This is reflected in our free cash balances, which stood at £25.3 million in January, compared with £33.4 million a year earlier. Balances associated with the case of Primback Ltd continued to grow and amounted to £61.8 million at the end of the half, compared with £50.0 million at the same point last year. This case awaits a final decision by the European Court, following delivery in January of the Advocate General's opinion, which supported H.M. Customs & Excise's interpretation of the UK VAT rules. DFS has always fully provided for this, whatever the outcome. DIVIDEND The Board has declared an interim dividend of 6.1 pence per share, an increase of 10.9% and greater than the growth of earnings per share. We remain committed to a progressive dividend policy to provide shareholders with increases in their income in the future, broadly reflecting the trend in earnings over the medium term. STORES Our store opening programme has continued successfully. Our new leasehold store at Paisley opened in September, serving the Glasgow conurbation, and a leasehold store at Edinburgh and a freehold unit at Swansea both opened on Boxing Day. Further successful leasehold store openings have followed in the second half at Romford, which began trading on 17 March, and at Speke in Liverpool, which was launched on 31 March. Our new Basildon store is due to open at the end of July with Taunton and Belfast scheduled to open in the next financial year. Other stores in the pipeline include Borehamwood, Carlisle and Tunbridge Wells. Despite the increase in new store development activity, we have continued our programme of investment in existing stores. INVESTMENT Capital expenditure during the first half increased to £7.3 million (2000: £4.9 million), largely due to our investment in the fitting-out of new stores. To support the planned future growth of the business we also completely upgraded our computer system, more than doubling the capacity of our central server and increasing its speed of operation. Budgeted capital expenditure for the year is £16.9 million (2000: £9.8 million). PRODUCTS AND MANUFACTURING Our market place continues to be driven by style and fashion trends, on which we are strongly placed to capitalise as both the highest volume specialist retailer and one of the largest manufacturers of upholstered furniture in the UK. We have maintained our focus on product innovation, with a high turnover of new models helping to sustain customer interest and staff morale. Our three factories have again broken all previous output records and have worked increasingly closely with each other, and with our supplier partners, to maximise efficiencies in the production process. The breadth, depth and diversity of our product range, combined with our ability to respond rapidly to emerging trends, ensures our continuing appeal to consumers of all ages and from every socio-economic group. DFS BRAND, MARKETING AND E-COMMERCE Sales have undoubtedly benefited from our growing emphasis on the DFS brand and its values, and from our faster-moving and more contemporary approach to advertising. The conversion of our five Northern Upholstery stores to the DFS fascia means that all our branches are now trading under the same banner, strengthening our platform for brand communication across the UK as a whole. Additional promotional activity has been undertaken to strengthen our new brand identity in Yorkshire and Humberside. Our website at www.dfs.co.uk provides an increasingly popular complement to our media advertising, enabling us to display a wide range of products and to provide a useful store-finder guide. We are keeping the potential development of an interactive sales capability under review. FURNITURE INDUSTRY AWARDS I am pleased to report that the strength of the DFS concept is evident not only in our appeal to consumers but also, beneficially, from our industry too. This was confirmed when we were the overwhelming choice for the 2001 Business Excellence Award in the annual Furniture Industry Awards, against competition from fellow finalists IKEA and the John Lewis Partnership. The judges commented that 'DFS is a clear leader in the industry'. MANAGEMENT AND STAFF With expansion continuing apace, we have established a new Trading Board to complement the Group Board and ensure that we have the right structure and resources to tackle all operational issues quickly and effectively. In addition to the three executive directors of the Group, the directors of DFS Trading Ltd are Keith Baker (Operations Director for London and the South), Barry Dennis (Commercial Director), Harvey Ellis (Production Director), Stuart Glover (Financial Services Director), David Payling (Operations Director for Scotland and the North) and Andrew Trofimowicz (Marketing Director). I would like to take this opportunity to congratulate the new Trading Board directors on their appointments, and I look forward to working with all of them to drive the further growth and development of DFS. In a tightening job market, I am happy to report that our long-standing commitment to the recruitment, training and retention of high quality people is proving more important than ever. I would like to pay tribute, once more, to the contributions of all our staff to our continued success in our market place. OUTLOOK The trading environment for furniture and other 'big ticket' retailers is generally recognised to be less than buoyant. However, I believe that we can take encouragement from the progress we have achieved so far this year, against immensely demanding comparisons. As expected, like-for-like sales for the year as a whole are likely to show more modest progress than in the first six months reflecting last year's tougher comparatives, the loss of the special promotional opportunities presented by the extra Bank Holiday and the extended millennium break. I am confident that the strength of DFS as the undisputed market leader will be reflected in another year of profitable growth. Even more importantly, I believe that our investments in our brand, management, systems and people have laid strong foundations for the continued expansion of our store network and for the delivery of further growth in shareholder value in the years ahead. It's a most encouraging start for us all at DFS. Real progress, a result that keeps us right on track. Our prospects shine brightly as our expansion plans unfold and our UK dominance grows. Graham Kirkham Executive Chairman 19 April 2001 CONSOLIDATED PROFIT AND LOSS ACCOUNT NOTES 26 wks ended 26 wks ended 52 wks ended 27 January 29 January 29 July 2001 2000 2000 £000 £000 £000 Turnover 192,585 169,418 357,318 ----------------- ----------------- ------------------ ----------------- ----------------- ------------------ Operating 23,616 21,596 44,825 profit Interest 827 463 1,322 receivable ----------------- ----------------- ------------------ Profit 24,443 22,059 46,147 before taxation Taxation 1 (8,188) (7,390) (14,959) ----------------- ----------------- ------------------ Profit for 16,255 14,669 31,188 the financial period Dividends 2 (6,308) (5,687) (39,913) ----------------- ----------------- ------------------ Retained 9,947 8,982 (8,725) profit ----------------- ----------------- ------------------ ----------------- ----------------- ------------------ Earnings 3 15.7p 14.2p 30.2p per ordinary share ----------------- ----------------- ------------------ ----------------- ----------------- ------------------ Dividend 6.1p 5.5p 18.6p per ordinary share ----------------- ----------------- ------------------ ----------------- ----------------- ------------------ Special - - 20.0p dividend per ordinary share ----------------- ----------------- ------------------ ----------------- ----------------- ------------------ Notes to the accounts 1. The tax charge for the half year period is based on the estimated effective rate for the full year of 33.5% (2000: 33.5%). 2. An interim dividend of 6.1p (net) per ordinary share will be paid on 14 June 2001 to shareholders on the register on 18 May 2001. 3. The calculation of earnings per share is based on the profit attributable to ordinary shareholders and a weighted average of 103,402,086 shares in issue during the period (2000: 103,401,864). CONSOLIDATED BALANCE SHEET NOTES 27 January 29 January 29 July 2001 2000 2000 £000 £000 £000 Fixed assets Tangible 75,878 69,509 71,597 assets ---------------- ---------------- ----------------- Current assets Stocks 12,643 10,997 11,721 Debtors 6,745 5,691 5,411 Cash at bank 4 87,131 83,418 99,583 and in hand Current liabilities Creditors: 4 (143,389) (123,785) (159,651) amounts due within one year ---------------- ---------------- ----------------- Net current (36,870) (23,679) (42,936) liabilities Provisions for (7,140) (6,202) (6,740) liabilities and charges ---------------- ---------------- ----------------- Net assets 31,868 39,628 21,921 ---------------- ---------------- ----------------- ---------------- ---------------- ----------------- Capital and reserves Called up 5,170 5,170 5,170 share capital Share premium 2,059 2,059 2,059 account Revaluation 4,396 4,537 4,396 reserve Capital 78 78 78 redemption reserve Profit and 20,165 27,784 10,218 loss account ---------------- ---------------- ----------------- Equity 31,868 39,628 21,921 shareholders' funds ---------------- ---------------- ----------------- ---------------- ---------------- ----------------- Notes to the accounts continued 4. Cash at bank and in hand includes £61,808,000 (2000: £50,047,000) associated with the Court of Appeal ruling in Primback Ltd - v - Commissioners of Customs & Excise. The same amount is included in creditors (amounts due within one year) pending the outcome of the appeal by H.M. Customs & Excise which has been referred to the European Court of Justice. 5. The results for the six months to 27 January 2001 and 29 January 2000 are unaudited. The results for the year to 29 July 2000 are derived from the full accounts for that period which have been filed with the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 6. The results for the six months to 27 January 2001 have been approved by the directors and are prepared using the same accounting policies as were used in the 2000 statutory accounts. 7. The interim report will be posted to shareholders on or about 30 April 2001 and will be available on request from the Secretary, DFS Furniture Company plc, Bentley Moor Lane, Adwick-le-Street, Doncaster, South Yorkshire, DN6 7BD. CONSOLIDATED CASH FLOW STATEMENT 26 wks ended 26 wks ended 52 wks ended 27 January 29 January 29 July 2001 2000 2000 £000 £000 £000 Net cash inflow 8 33,259 47,682 81,024 from operating activities Returns on 9 919 610 1,278 investment and servicing of finance Taxation (5,195) (1,629) (9,015) Capital 10 (7,209) (4,647) (9,419) expenditure Equity dividends (34,226) (21,197) (26,884) paid ---------------- ---------------- ----------------- (Decrease)/increase (12,452) 20,819 36,984 in cash in the period ---------------- ---------------- ----------------- ---------------- ---------------- ----------------- Reconciliation of net cash flow to movement in cash (Decrease)/increase (12,452) 20,819 36,984 se in cash in the period Cash at bank and 99,583 62,599 62,599 in hand at the beginning of the period ---------------- ---------------- ----------------- Cash at bank and 87,131 83,418 99,583 in hand at the end of the period ---------------- ---------------- ----------------- ---------------- ---------------- ----------------- Notes to the accounts continued . 8. 26 wks ended 26 wks ended 52 wks ended Reconciliation of 27 January 29 January 29 July operating profit 2001 2000 2000 to net cash inflow from £000 £000 £000 operating activities Operating profit 23,616 21,596 44,825 Depreciation 2,972 2,527 5,251 Profit on sale of (44) (27) (67) fixed assets (Increase)/decrease (922) 1,501 777 in stocks Increase in (1,524) (2,329) (1,858) debtors Increase in 9,161 24,414 32,096 creditors and provisions ----------------- ----------------- ----------------- Net cash inflow 33,259 47,682 81,024 from operating activities ----------------- ----------------- ----------------- The increase in creditors and provisions includes an amount of £6,348,000 (2000: £7,401,000) associated with the Primback case. 26 wks ended 26 wks ended 52 wks ended 9. Returns 27 January 29 January 29 July on 2001 2000 2000 investment and £000 £000 £000 servicing of finance Interest 919 610 1,278 received ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- 10. Capital 26 wks ended 26 wks ended 52 wks ended expenditure 27 January 29 January 29 July 2001 2000 2000 £000 £000 £000 Purchase of (7,339) (4,888) (9,790) tangible fixed assets Sale of 130 241 371 fixed assets ----------------- ----------------- ----------------- Net cash (7,209) (4,647) (9,419) outflow for capital expenditure ----------------- ----------------- ----------------- ----------------- ----------------- -----------------

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