Interim Results

D.F.S. Furniture Company PLC 24 April 2003 24 April 2003 INTERIM RESULTS FOR THE 26 WEEKS ENDED 1 FEBRUARY 2003 'Well placed to meet the continuing challenge' • Record profit before tax £26.1 million up 1.6%* • Turnover £241.9 million up 14.3% • Like-for-like sales up 3.5% • Earnings per share 16.8 pence up 2.4%* • Dividend per share 7.0 pence up 4.5% * before prior year exceptional profit relating to the Primback case 'We are pleased to have achieved our targets for the first half, in an uncertain and increasingly competitive trading climate. Our strong overall sales growth and the positive response to our new store openings demonstrate our capacity to go on winning market share. Our balance sheet remains strong, with no debt and free cash of £19.4 million at the end of the first half, together with a further £18.6 million relating to the Primback case. We have created more than 300 new jobs over the last twelve months through our continued retail and manufacturing expansion - additional staff that will enable us to improve our service levels still further. UK consumer confidence has undoubtedly been affected by the international political and economic uncertainties, and we have yet to see the impact of the increases in national insurance contributions that came into effect this month. Although our trading has been volatile, order intake since our AGM in December and sales for the first 11 weeks of the second half have both exceeded the comparable period last year by around 3% on a like-for-like basis. DFS is the UK market leader in upholstered furniture, with increasing brand recognition and the best and most comprehensive product range displayed in outstanding stores. We believe that this leaves us well placed to meet the continuing challenge of an uncertain and increasingly competitive market place. We are on track to achieve our targets for the current year and the fundamental strength of our concept and finances enables us to look forward to growing our business safely and profitably 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 24 April 2003) CHAIRMAN'S STATEMENT We are pleased to have achieved our targets for the first half, in an uncertain and increasingly competitive trading climate. Our strong overall sales growth and the positive response to our new store openings demonstrate our capacity to go on winning market share. The consistent strength of our operating cash flow and balance sheet, and our substantial freehold store base, leave us well positioned to weather short term uncertainties and to maximise opportunities for profitable growth in the future. RESULTS Sales for the 26 weeks to 1 February 2003 grew by 14.3% to £241.9 million (2002: £211.7 million), with like-for-like sales through our core of comparable stores increasing by 3.5%. As noted in my AGM Statement in December, order intake softened in the autumn as consumer spending lost some of its previous buoyancy in response to global political and economic uncertainty. Operating profit was £25.9 million (2002: £25.7 million before the exceptional credit relating to the Primback case), an increase of 0.7%. Our operating margin was 10.7%, compared with 12.1% in the comparable period last year, reflecting increased costs in a number of areas. Store pre-opening costs increased in the first half and we continue to bear additional expense relating to the development of our new Redhouse distribution centre, which is progressively building volumes and improving our service. Other store overheads also rose as the result of rent reviews and our continued investment in extra staff to enhance our customer service. Interest receivable increased to £253,000, compared with £29,000 before the exceptional item last year. Profit before taxation was a record £26.1 million (2002: £25.7 million before exceptional item), a rise of 1.6%. Earnings per share on the same basis were 16.8 pence (2002: 16.4 pence), an increase of 2.4% reflecting a lower estimated effective tax charge of 32.0% (2002: 33.0%) as a result of the reduction in our Primback provisions. There were no exceptional items in the current period, compared with the credit of £17.4 million relating to the Primback case in 2002. In consequence, after exceptional items, profit before taxation for the period was £26.1 million (2002: £43.2 million) and earnings per share were 16.8 pence (2002: 30.5 pence). FINANCES Our balance sheet remains strong, with no debt and free cash of £19.4 million at the end of the first half, together with a further £18.6 million relating to the Primback case. This compares with free cash of £32.9 million and Primback balances totalling £55.9 million at 26 January 2002. The reduction in free cash since then reflects our substantial capital expenditure programme, including investment in freeholds, and a special dividend of £14.8 million paid to our shareholders on 10 May 2002. DIVIDENDS The Board has declared an interim dividend of 7.0 pence per share (2002: 6.7 pence), an increase of 4.5%. DFS remains committed to a progressive dividend policy that will provide shareholders with increases in their income that broadly reflect the growth of earnings per share over the medium term. We will also continue to ensure that our shareholders derive full benefit from any future cash balances surplus to business requirements. STORES Our store opening programme remains on track, in line with our stated objective of expanding the business at the rate of some 15 - 20 stores over a three year period. New leasehold stores opened in Hull on 27 August, at Birstall (Leeds) and Watford on 7 December, and in Aberdeen on Boxing Day. In the second half we opened our new leasehold store at Tunbridge Wells on 5 April, while our former Hull upholstery store will shortly reopen as the fourth outlet in our Dining Centre format. Our freehold store at Tollcross (Glasgow) is planned to open around the end of our financial year. Other stores in the pipeline include Carlisle, Cambridge and Inverness. We have also continued our programme of investment in established outlets, to ensure that these reflect our latest standards of design, layout and visual merchandising and so deliver the full impact that consumers have come to expect from the market-leading DFS brand. Total refurbishments were carried out during the first half at Peterborough and Colchester, while the Bristol store has received this treatment during the second half. MANUFACTURING AND DISTRIBUTION We continue to derive an important competitive advantage from our unique integrated approach to manufacturing and retailing, with three factories focusing on different parts of the furniture market and supplying some 15% to 20% of what we sell. Over 33 years in business, we have found that this provides the optimum level of in-house production within a hugely flexible multi-sourcing strategy including our own factories and supplier partners in the UK, and other manufacturers in the low-cost economies of Eastern Europe and China. All our factories continue to set new production records. The extension of our Berkeley Magna factory at Long Eaton has been completed and is fully operational, and we have invested in new, state-of-the-art cutting machinery to enhance productivity, quality and output at our Lincoln House factory in Alfreton. Our new Redhouse distribution centre, adjacent to a major motorway intersection on the outskirts of Doncaster, opened in October and its throughput has been built up progressively. The final transfer of operations from our existing distributors is due to be completed this month. Our objective in taking direct control of this aspect of our supply chain is to enhance customer service and the planned benefits are already beginning to be achieved. INVESTMENT Capital expenditure during the first half totalled £12.4 million (2002: £20.3 million, including one long leasehold and two freehold purchases). Major items in this half included the acquisition of additional freehold land associated with our Carlisle store development, the fitting out of four new stores and the total refurbishment of two others. We also made significant investments in equipment and vehicles as we developed our new Redhouse distribution centre. Capital expenditure for the full year is expected to be around £22 million (2002: £29.0 million), though this may increase if suitable freehold acquisition opportunities are identified. PRODUCTS, BRAND AND MARKETING Fashion and design remain of great interest to the public, as the news stands and TV schedules testify. Our furniture styles and designs are evolving and developing at a faster rate than ever before. This ensures that we keep pace with current fashion and can offer customers, from a wide range of age and socio-economic groups, furniture that is in tune with their tastes. Our marketing continues to project the core DFS brand values across a multiplicity of media. The key points of difference we seek to emphasise are our unique 'factory to customer' approach as a combined manufacturer and retailer, our unrivalled choice of products, and our commitment to excellent service and consistently good value for money. These principles have been the key to building our position as the UK leader in our category, and will continue to drive our market share growth in the future. PEOPLE We have created more than 300 new jobs over the last twelve months through our continued retail and manufacturing expansion - additional staff that will enable us to improve our service levels still further. At a time of almost full employment, it is more important than ever that we possess the capability to recruit and retain people of the calibre required to achieve customer satisfaction through the delivery of outstanding products and service. Training is critical to our success in this area, and we look forward to the future benefits from our recently opened purpose-built training centre. OUTLOOK UK consumer confidence has undoubtedly been affected by the international political and economic uncertainties, and we have yet to see the impact of the increases in national insurance contributions that came into effect this month. Competition in our sector is increasing and there are relentless upward pressures on rental costs. Against this very demanding background, consumer recognition of the strength of the DFS brand has been key to our continued success in winning business. Although our trading has been volatile, order intake since our AGM in December and sales for the first 11 weeks of the second half have both exceeded the comparable period last year by around 3% on a like-for-like basis. DFS is the UK market leader in upholstered furniture, with increasing brand recognition and the best and most comprehensive product range displayed in outstanding stores. We believe that this leaves us well placed to meet the continuing challenge of an uncertain and increasingly competitive market place. We are on track to achieve our targets for the current year and the fundamental strength of our concept and finances enables us to look forward to growing our business safely and profitably in the future. Graham Kirkham Executive Chairman Consolidated Profit and Loss Account 26 wks ended 26 wks ended 53 wks ended 1 February 26 January 3 August Notes 2003 2002 2002 £000 £000 £000 Turnover 241,869 211,689 462,154 Operating profit Before exceptional item 25,896 25,712 53,131 Exceptional item 1 - 8,699 8,699 Total 25,896 34,411 61,830 Interest receivable Before exceptional item 253 29 483 Exceptional item 1 - 8,723 8,723 Total 253 8,752 9,206 Profit before taxation Before exceptional items 26,149 25,741 53,614 Exceptional items 1 - 17,422 17,422 Total 26,149 43,163 71,036 Taxation Before exceptional item 2 (8,368) (8,495) (17,894) Exceptional item 1 - (2,610) (2,610) Total (8,368) (11,105) (20,504) Profit for the financial period Before exceptional items 17,781 17,246 35,720 Exceptional items 1 - 14,812 14,812 Total 17,781 32,058 50,532 Dividends 3 (7,441) (21,846) (38,936) Retained profit for the financial period 10,340 10,212 11,596 Earnings per ordinary share Before exceptional items 4 16.8p 16.4p 34.0p Exceptional items 1 - 14.1p 14.0p Total 16.8p 30.5p 48.0p Dividend per ordinary share 7.0p 6.7p 22.7p Special dividend per ordinary share - 14.1p 14.1p Consolidated Balance Sheet 1 February 26 January 3 August Notes 2003 2002 2002 £000 £000 £000 Fixed assets Tangible assets 107,875 95,406 100,040 Current assets Stocks 14,634 13,114 14,888 Debtors 7,725 8,976 7,149 Cash at bank and in hand 5 37,953 88,756 43,622 Current liabilities Creditors: amounts due within one year 5 (94,131) (148,756) (103,737) Net current liabilities (33,819) (37,910) (38,078) Provisions for liabilities and charges (11,147) (9,833) (10,747) Net assets 62,909 47,663 51,215 Capital and reserves Called up share capital 5,314 5,249 5,291 Share premium account 9,997 6,540 8,666 Revaluation reserve 4,294 4,345 4,294 Capital redemption reserve 78 78 78 Profit and loss account 43,226 31,451 32,886 Equity shareholders' funds 62,909 47,663 51,215 Consolidated Cash Flow Statement 26 wks ended 26 wks ended 53 wks ended 1 February 26 January 3 August Notes 2003 2002 2002 £000 £000 £000 Net cash inflow from operating activities 6 31,785 32,974 27,088 Returns on investments and servicing of finance 7 268 219 588 Taxation (9,947) (6,951) (18,269) Capital expenditure 8 (12,167) (19,998) (28,459) Equity dividends paid (16,962) (15,191) (37,197) Net cash outflow before financing (7,023) (8,947) (56,249) Financing 9 1,354 501 2,669 Decrease in cash in the period (5,669) (8,446) (53,580) Reconciliation of net cash flow to movement in net funds Decrease in cash in the period (5,669) (8,446) (53,580) Net funds at the beginning of the period 43,622 97,202 97,202 Net funds at the end of the period 37,953 88,756 43,622 Notes to the Accounts 1. 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. The tax charge for the half year period is based on the estimated effective rate for the full year of 32.0% (2002: 33.0% before exceptional item). 3. An interim dividend of 7.0p per ordinary share will be paid on 19 June 2003 to shareholders on the register on 23 May 2003. 4. The calculation of earnings per share is based on the profit attributable to ordinary shareholders and a weighted average of 106,038,945 shares in issue during the period (2002: 104,964,824). 5. Cash at bank and in hand includes £18,644,000 (2002: £55,890,000) associated with the Primback case. The same amount is included in creditors (amounts due within one year) pending resolution with H.M. Customs & Excise. 6. Reconciliation of operating profit to net cash inflow from operating activities. 26 wks ended 26 wks ended 53 wks ended 1 February 26 January 3 August 2003 2002 2002 £000 £000 £000 Operating profit 25,896 34,411 61,830 Depreciation 4,349 3,622 7,468 Profit on sale of fixed assets (17) (149) (168) Decrease/(increase) in stocks 254 240 (1,534) Increase in debtors (591) (2,555) (643) Increase/(decrease) in creditors and provisions 1,894 (2,595) (39,865) Net cash inflow from operating activities 31,785 32,974 27,088 The increase in creditors and provisions includes a net increase of £456,000 (2002: decrease of £11,527,000) associated with the Primback case. 7. Returns on investments and servicing of finance 26 wks ended 26 wks ended 53 wks ended 1 February 26 January 3 August 2003 2002 2002 £000 £000 £000 Interest received 268 219 588 Notes to the Accounts continued 8. Capital expenditure 26 wks ended 26 wks ended 53 wks ended 1 February 26 January 3 August 2003 2002 2002 £000 £000 £000 Purchase of tangible fixed assets (12,439) (20,292) (28,998) Sale of fixed assets 272 294 539 Net cash outflow for capital expenditure (12,167) (19,998) (28,459) 9. Financing 26 wks ended 26 wks ended 53 wks ended 1 February 26 January 3 August 2003 2002 2002 £000 £000 £000 Issue of ordinary share capital 1,354 501 2,669 10. The results for the 26 weeks to 1 February 2003 and 26 January 2002 are unaudited. The results for the period ended 3 August 2002 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. 11. The results for the 26 weeks to 1 February 2003 have been approved by the directors and are prepared using the same accounting policies as were used in the 2002 statutory accounts 12. The interim report will be posted to shareholders on or about 5 May 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. This information is provided by RNS The company news service from the London Stock Exchange

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