Final Results

RNS Number : 1900D

Dunelm Group plc

11 September 2008

 



11 September 2008

Dunelm Group plc

Preliminary Results for the 52 weeks to 28 June 2008

Dunelm Group plc, the leading specialist out-of-town homewares retailer, today announces its preliminary results for the 52 weeks to 28 June 2008.

Financial highlights

• Sales up 10.5% to £391.8m (2007: £354.7m)
  
  
• Like-for-like sales increase of 2.5%
  
  
• Gross margin up 60 basis points to 44.6% (2007: 44.0%)
  
  
• Underlying operating profit up 12.4% to £49.4m (2007: £44.0m*)
  
  
• Statutory operating profit up 21.1%
  
  
• Underlying profit before taxation up 19.8% to £49.1m (2007: £41.0m*)
  
  
• Statutory profit before taxation up 29.9%
  
  
• Underlying EPS (fully diluted) up 21.3% to 16.6p (2007: 13.7p*)
  
  
• Statutory EPS (fully diluted) up 36.6%
  
  
• Recommended final dividend 3.5p per share (2007: 3.0p) giving full year dividend 5.5p 
  
  
• Net debt reduced to £7.2m (2007: £22.6m)
  

* 2007 comparatives exclude non-recurring items i.e. IPO costs, profit on sale of warehouse, costs of warehouse transition - the combined effect of these was to reduce 2007 operating profit by £3.2m, profit before tax by £3.0m and EPS by 1.5p

Business highlights

• Like-for-like sales growth of 2.5% in difficult market conditions
  
  
• Eight new superstores opened in year, one further unit opened since year-end 
  
  
• Contractually committed to six more units with strong pipeline of other opportunities
  
  
• Store refit programme commenced
  
  
• Recognized as the nation's third favourite retailer in a poll by Verdict
  
  
• Acquisition of worldwide rights to Dorma brand for £5.0m since period end
  
  

• For 10 weeks to 6 September

  • Total sales growth 3.1%

  • Like for like sales decline 5.7%

  • Gross margin improvement of 140bps

Will Adderley, Chief Executive, said:

"The last financial year was again an excellent one for sales and profit growth. In a tough market we continued to deliver strong performance and we have continued to grow our market share.

"The like for like sales performance in recent weeks - albeit we were up against strong comparatives - confirms that trading has become increasingly difficult. These market conditions provide us with clear opportunities to grow our store portfolio and to strengthen our business relative to our competitors.

"We have made good progress on our four-point growth strategy but there is still plenty more scope for us to build and improve the business."

For further information please contact:

Dunelm Group plc	0116 2644 356
Will Adderley, Chief Executive
David Stead, Finance Director
Hogarth Partnership	020 7357 9477
John Olsen / Fiona Noblet / Simon Hockridge

Notes to Editors 

Dunelm is amongst the top 10 retailers operating in the £12bn UK homewares market. The Group currently operates 90 stores, branded Dunelm Mill, of which 77 are out-of-town superstores and 13 are high street shops. The majority of the stores are located in the Midlands or north-west of England. Dunelm employs over 5,000 full and part time staff, the vast majority of whom work in the stores.

Dunelm was founded in 1979 as a market stall business, selling ready-made curtains. The first shop was opened in Leicester in 1984 and over the following years the business developed into a successful chain of high street shops in the Midlands specialising in soft furnishings. The first Dunelm superstore was opened in 1991, leading to the Group's expansion into the broader homewares market.  

The superstores provide an average of 28,000 sq ft of selling space and offer an extensive range of around 20,000 products across a broad spectrum of categories, including bedding, curtains, gifts and seasonal items, cushions, bathroom products, kitchenware, quilts, pillows and rugs. Dunelm also specialises in offering a wide range of fabrics, made to measure curtains and a frequently changing series of special buys. The directors are passionate about ensuring that all ranges live up to Dunelm's philosophy of offering customers "Simply Value for Money".

Dunelm also operates an on-line store, to be found at www.dunelm-mill.com. Currently over 9,000 products are available through the website.

Dunelm listed on the London Stock Exchange in October 2006 (DNLM.L) and has a current market capitalisation of approximately £300 million.

Chairman's Statement

Once again Dunelm has delivered record sales and profits, despite the difficult conditions in which the business has had to operate. 

Tough trading conditions allow strong companies to prosper at the expense of weaker competitors. I believe that this will be the case for Dunelm. We continue to have great faith in our 'simply value for money' proposition and we expect customers to become increasingly aware of the value we offer. 

I am pleased to report that we have converted profits into cash very successfully. As a result we have been able to reduce net debt significantly during the period so that the balance sheet is now substantially unleveraged. This means we have the financial strength to face difficult times with confidence, and the flexibility to take advantage of opportunities as they arise - such as the acquisition of the Dorma brand which we announced shortly after the year-end, as well as the ongoing expansion of the store portfolio.

The business has enjoyed a high level of stability in terms of Board membership for a number of years. However, during the year Bill Adderley has stepped down from his position as Non-Executive Director after reaching his 60th birthday.  I am delighted we are able to recognise his role in establishing Dunelm by confirming his honorary position of Founder and Life President.

GEOFF COOPER

Chairman

  Chief Executive's Review

TRADING

I am delighted to report continued successful growth of the Group during the last financial year. Our overall sales increased by 10.5%, including growth of 2.5% in like-for-like sales (calculated by comparing stores which have traded throughout the last two financial years). 

The market environment became increasingly difficult during the year. 

I firmly believe that Dunelm remains the leading multiple homewares specialist in the UK. This has been recognised in surveys by Verdict, the specialist market research agency. In December 2007, they reported that Dunelm is Britain's third favourite shop behind only John Lewis and Waitrose. More recently, their research identified Dunelm as one of the four retailers which engender the highest levels of customer loyalty. We intend to maintain this success by pursuing the four strategic priorities which we outlined two years ago at the time of our flotation.

STRATEGIC PRIORITY 1 - GROWING THE STORE PORTFOLIO

We opened eight new superstores in the year, at Aberdeen, Shoreham, Peterborough, Dumfries, Eastbourne, Leeds, Bournemouth and Sittingbourne. We continue to receive strongly positive customer reaction to all of our new openings and are pleased with trading in all of these locations. Altogether the chain of 76 superstores as at the year-end provided over 2.2m square feet of selling space.

We remain as committed as ever to growing the superstore portfolio as rapidly as we can towards our medium-term target of 150 superstores, without compromising our long-term financial returns. We have opened a further store since the year end, in Huddersfield, and are contractually committed to six more units which are due to open this financial year or early next. We also have numerous further opportunities under negotiation. With few out-of-town retailers currently in the market for adding space, we believe that we are well positioned to achieve a solid pipeline of openings in the next few years. 

Whilst expanding our superstore chain, we continue to look for opportunities to relocate our older high street shops. The superstore opening in Peterborough replaced our high street shop there, leaving us with 13 high street stores; we will be relocating our Worcester high street store early in 2009.

STRATEGIC PRIORITY 2 - DEVELOPING THE CUSTOMER OFFER

We know that it is essential for us to continue improving our retail proposition. We are as passionate as ever about giving 'simply value for money' to all our customers - a combination of great prices, unrivalled choice, excellent quality, great product availability and friendly service. 

One of the ways in which we are able to demonstrate the quality of the ranges we offer is through branding. We recently announced the acquisition of worldwide rights to Dorma, the internationally recognised bedlinen brand, from Dawson International for a consideration of £5m. We see this as a great way to underline the quality of our merchandise, as well as providing a strong point of difference compared with other home textiles retailers. 

We have commenced a significant investment programme to improve the shopping environment in our older stores. We have completed three refits so far and intend to continue our refit programme at the rate of 5-10 stores per year. To date the cost has been approximately £0.5m per store.

STRATEGIC PRIORITY 3 - EXPLOITING OUR INFRASTRUCTURE

Following the roll-out of SAP stock management to all of our stores, in the last twelve months we have had full visibility of all stock throughout the chain. We have used this to develop a chain-wide focus on the availability of key lines and we have seen a noticeable improvement in availability as a result.

Looking ahead we will continue to exploit our enhanced systems and information in various ways, for example in the areas of range management and simplification of in-store tasks.

STRATEGIC PRIORITY 4 - GROWING DUNELM DIRECT

Our webstore has been expanded to offer over 9,000 products. Whilst this channel remains small relative to the business as a whole, sales are growing and we see an important future here. We are therefore investing in a new software platform for the on-line business which should be implemented during the current financial year, and which will offer a big improvement in the on-line shopping experience.

OUTLOOK

In the early weeks of our new financial year, we have continued to face difficult trading conditions. For the 10 weeks to 6 September, total sales growth has been 3.1% and like-for-like sales have declined by 5.7%; last year's equivalent figures were +12.6% and +7.2% respectively. Gross margin has remained strong, with an increase of 140bps year on year driven by higher levels of promotional product and earlier introduction of new lines after our summer sale.

Against a very challenging market background, we are satisfied with these figures and believe that we continue to gain market share on a like-for-like basis. We naturally remain cautious about the medium-term outlook, but the current market conditions provide us with clear opportunities to grow and strengthen our business relative to the competition. 

WILL ADDERLEY

Chief Executive

  Finance Director's Review

OPERATING RESULT

Sales in the financial year were £391.8m, an increase of 10.5%. Like-for-like growth was 2.5%.

We continued to benefit from our increased scale and buying power allowing us to achieve a 60 basis points improvement in buying margin.

Operating costs remained well controlled, with an overall 0.2% reduction in costs in like-for-like stores. Non-store costs grew by £2.1m, including additional investment in advertising during the peak winter trading period.

During the year, we completed the roll-out of our new stock system to all stores, giving us for the first time full visibility of all stock in the business at an item level. On the basis of this new information, various actions have been taken to clear old and excess stocks. The total charge for stock write-downs in the year was £5.9m.

Operating profit was £49.4m, an increase of 12.4% on an underlying basis (i.e. after adjusting last year's comparative figure to add back non-recurring items, primarily IPO costs).

EBITDA

Earnings before interest, tax, depreciation and amortisation were £58.9m. This has been calculated as operating profit (£49.4m) plus depreciation and amortisation (£9.5m) and represented a 10.1% increase on the previous year on an underlying basis. The EBITDA margin achieved, at 15.0% of sales, demonstrates the continuing strength of Dunelm's business model.

FINANCIAL ITEMS AND PBT

The net interest charge for the year was £0.3m compared with £3.0m in the prior year, reflecting the Group's strong cash generation.

In the year to June 2007, the Group suffered foreign exchange losses in respect of US dollar holdings and forward exchange contracts which amounted to £1.4m. We stated at this time last year that we would no longer take out forward exchange contracts and that we would reduce our US dollar holdings. With this reduced exposure and a relatively consistent exchange rate ($2.00 at last year-end, $1.99 this), foreign exchange losses in the most recent financial year amounted to just £0.1m.

After accounting for interest and foreign exchange impacts, profit before tax for the year amounted to £49.1m, an increase of 19.8% on an underlying basis (29.9% on a statutory basis).

TAX, PAT AND EPS

The tax charge for the year was 31.5% of PBT. 

Basic EPS on an underlying basis (i.e. excluding non-recurring items from last year's calculation) shows a rise of 21.7% to 16.8p, with fully diluted EPS increasing 21.3% to 16.6p. These figures are respectively 36.6% and 36.1% above last year's statutory figures. 

FACTORS AFFECTING FY09

The current financial year will end on 4 July 2009, giving a 53 week period. We will present results for the year on both a 52 week and 53 week basis.

Twenty four stores are scheduled to have a rent review in the coming year.

Major IT systems investments will become fully amortised by  April 2009; the related amortisation charge of £2.0m per year will cease at that date.

The recent investment of £5.0m to acquire the rights to the Dorma brand will be amortised against profits over five years, beginning with financial year 2009.

The headline rate of corporation tax will reduce by 1.5 percentage points.

CAPITAL EXPENDITURE

Gross capital expenditure in the most recent financial year was £18.0m, up from £15.1m last year. This included one significant freehold store acquisition as well as the fit-out costs for the other new stores opened in the year, and one store refit.

WORKING CAPITAL

Stocks increased by just £0.1m during the financial year, despite the new store openings. Net working capital was reduced by £0.7m compared with the start of the year (net working capital consisting of stocks; trade and other receivables; and current liabilities (excluding interest and current tax).

CASH POSITION

The Group's profile of strong cash generation continued in the last financial year. Net cash generated from operations, after interest and tax, was £45.0m (an increase of 29.4%) and net debt at the year-end was just £7.2m. This is an excellent position from which to fund future growth.

DIVIDEND

Our policy is to pay dividends such that dividend cover is in the range 2.5x to 3.0x.

An interim dividend of 2.0p was paid in April 2008. It is proposed to pay a final dividend of 3.5p per share.  The total dividend of 5.5p gives dividend cover of 3.0x.

DAVID STEAD

Finance Director

  CONSOLIDATED INCOME STATEMENT

For the 52 weeks ended 28 June 2008

		2008	2007
	Note	£'000	£'000
Revenue	1	391,795	354,721
Cost of sales		(217,018)	(198,537)
Gross profit		174,777	156,184
Operating costs	3	(125,346)	(115,369)
Operating profit	2	49,431	40,815
Financial income	5	1,075	503
Financial expenses	5	(1,365)	(3,492)
Profit before taxation		49,141	37,826
Taxation	6	(15,470)	(13,198)
Profit for the period		33,671	24,628
Earnings per ordinary share - basic	8	16.8p	12.3p
Earnings per ordinary share - diluted	8	16.6p	12.2p
Dividend proposed per ordinary share	7	3.5p	3.0p
Dividend paid per ordinary share	7	2.0p	25.8p

All activities relate to continuing operations. All profit is attributable to equity shareholders.

There were no gains or losses for the current or comparative periods other than those reported above.

  CONSOLIDATED BALANCE SHEET

As at 28 June 2008

	28-Jun	30-Jun
	2008	2007
	£'000	£'000
Non-current assets
Intangible assets	2,097	3,668
Property, plant and equipment	77,157	67,064
Deferred tax asset	-	3,276
Total non-current assets	79,254	74,008
Current assets
Inventories	60,710	60,657
Trade and other receivables	11,636	8,996
Cash and cash equivalents	2,853	17,368
Total current assets	75,199	87,021
Total assets	154,453	161,029
Current liabilities
Trade and other payables	(54,570)	(51,464)
Liability for current tax	(3,840)	(6,310)
Interest-bearing loans and borrowings	(20)	(21)
Total current liabilities	(58,430)	(57,795)
Non-current liabilities
Deferred tax liability	(634)	-
Interest-bearing loans and borrowings	(10,000)	(40,000)
Total non-current liabilities	(10,634)	(40,000)
Total liabilities	(69,064)	(97,795)
Net assets	85,389	63,234
Equity
Issued capital	2,008	2,006
Share premium	345	267
Retained earnings	83,036	60,961
Total equity attributable to equity holders of the parent company	85,389	63,234

  CONSOLIDATED CASH FLOW STATEMENT

For the 52 weeks ended 28 June 2008
	2008	2007
	£'000	£'000
Profit before tax	49,141	37,826
Adjusted for:
Net financing costs	290	2,989
Operating profit	49,431	40,815
Depreciation and amortisation	9,457	9,529
(Profit) on disposal of property, plant and equipment	(278)	(1,130)
Operating cash flows before movements in working capital	58,610	49,214
(Increase) in inventories	(53)	(4,312)
(Increase)/decrease in debtors	(2,640)	1,028
Increase in creditors	3,460	4,480
Net movement in working capital	767	1,196
(Decrease) in provisions	-	(58)
Share based payments expense	286	234
Foreign exchange losses	(49)	(1,286)
Cash flows from operating activities	59,614	49,300
Interest paid	(1,642)	(1,536)
Interest received	1,075	451
Tax paid	(14,093)	(13,468)
Net cash generated from operating activities	44,954	34,747
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment	303	7,200
Acquisition of property, plant and equipment	(17,466)	(14,130)
Acquisition of intangible assets	(538)	(996)
Net cash utilised in investing activities	(17,701)	(7,926)
Cash flows from financing activities
Proceeds from issue of share capital	80	273
Purchase of treasury shares	(1,900)	-
Proceeds from issue of treasury shares	112	-
Net funds raised from bank loan	-	40,000
Repayment of bank loan	(30,000)	-
Repayment of finance lease liability	-	(150)
Dividends paid	(10,020)	(51,605)
Net cash flows utilised in financing activities	(41,728)	(11,482)
Net increase/(decrease) in cash and cash equivalents	(14,475)	15,339
Foreign exchange revaluations	(39)	(956)
Cash and cash equivalents at the beginning of the period	17,347	2,964
Cash and cash equivalents at the end of the period	2,833	17,347

  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 52 weeks ended 28 June 2008

	Issued
	share	Share	Retained	Total
	capital	premium	earnings	equity
	£'000	£'000	£'000	£'000
As at 2 July 2006	2,000	-	87,066	89,066
Profit for the financial year	-	-	24,628	24,628
Issue of share capital	6	267	-	273
Share based payments	-	-	234	234
Deferred tax on share based payments	-	-	327	327
Current corporation tax on share options exercised	-	-	311	311
Dividends	-	-	(51,605)	(51,605)
As at 30 June 2007	2,006	267	60,961	63,234
Profit for the financial year	-	-	33,671	33,671
Issue of share capital	2	78	-	80
Purchase of treasury shares	-	-	(1,900)	(1,900)
Treasury shares reissued in respect of share option schemes	-	-	112	112
Share based payments	-	-	286	286
Deferred tax on share based payments	-	-	(230)	(230)
Current corporation tax on share options exercised	-	-	156	156
Dividends	-	-	(10,020)	(10,020)
As at 28 June 2008	2,008	345	83,036	85,389

  Notes to the annual financial statements

1    Segmental reporting

The Group has only one class of business, retail of homewares, and operates entirely in the UK market.

2    Operating profit

		2008	2007
		£'000	£'000
Operating profit is stated after charging/(crediting) the following items:
Inventories
Cost of inventories included in cost of sales		217,018	198,537
Write down of inventories		5,867	2,228
Amortisation of intangible assets		2,134	1,742
Depreciation of property, plant and equipment
Owned		7,323	7,543
Leased		-	243
Operating lease rentals
Land and buildings		19,140	16,785
Plant and machinery		937	1,061
(Profit) on disposal of property, plant and equipment		(278)	(1,130)

3    Operating costs

	2008	2007
	£'000	£'000
Selling and Distribution	108,051	98,944
Administration	17,573	17,555
(Profit) on disposal of property, plant and equipment	(278)	(1,130)
	125,346	115,369

  4    Employee numbers and costs

The average number of people employed by the Group (including Directors) was:
	2008	2008	2007	2007
	Number	Full time	Number	Full time
	of heads	equivalents	of heads	equivalents
Selling	4,875	3,254	4,637	3,069
Distribution	217	210	207	198
Administration	144	142	127	125
	5,236	3,606	4,971	3,392

The aggregate remuneration of all employees including Directors comprises:

	2008	2007
	£'000	£'000
Wages and salaries including bonuses and termination benefits	47,775	42,323
Social security costs	3,187	2,766
Share-based payment expense	286	234
Defined contribution pension costs	172	114
	51,420	45,437

5    Financial income and expense

	2008	2007
	£'000	£'000
Finance income
Interest on bank deposits	1,075	503
Finance expenses
Interest on bank borrowings and overdraft	(1,278)	(2,113)
Foreign exchange losses	(87)	(1,379)
	(1,365)	(3,492)
Net finance expense	(290)	(2,989)

6    Taxation

	2008	2007
	£'000	£'000
Current taxation
UK corporation tax charge for the period	12,045	12,957
Adjustments in respect of prior periods	(255)	918
	11,790	13,875
Deferred taxation
Origination of temporary differences	3,293	26
Adjustment in respect of prior periods	554	(914)
Tax rate differential	(167)	211
	3,680	(677)
Total taxation expense in the income statement	15,470	13,198

  The tax charge is reconciled with the standard rate of UK corporation tax as follows:

	2008	2007
	£'000	£'000
Profit before tax	49,140	37,826
UK corporation tax at standard rate of 29.5% (2007: 30%)	14,496	11,348
Factors affecting the charge in the period:
Non-deductible expenses	128	953
Ineligible depreciation	918	845
Lease incentive deductions	(128)	(184)
Adjustments to tax charge in respect of prior years	299	4
Profit on disposal in excess of capital gain	(76)	21
Tax rate differential	(167)	211
	15,470	13,198

The taxation charge for the period as a percentage of profit before tax is 31.5%. 

7    Dividends

All dividends relate to the 1p ordinary shares.

	2008	2007
	£'000	£'000
Interim for the period ended 30 June 2007 - paid 25.0p	-	(50,000)
Interim for the period ended 30 June 2007 - paid 0.8p	-	(1,605)
Final for the period ended 30 June 2007 - paid 3.0p	(6,024)	-
Interim for the period ended 28 June 2008 - paid 2.0p	(3,996)	-
	(10,020)	(51,605)

The Directors are proposing a final dividend of 3.5p per ordinary share for the period ended 28 June 2008 which equates to £7.0 million. The dividend will be paid on 5 December 2008 to shareholders on the register at the close of business on 21 November 2008. 

8    Earnings per share

Basic earnings per share is calculated by dividing the profit for the period attributable to equity shareholders by the weighted average number of ordinary shares in issue during the period.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period.

Weighted average numbers of shares:

	2008	2007
	£'000	£'000
Weighted average number of shares in issue during the period	200,446	200,363
Impact of share options	2,180	2,324
Number of shares for diluted earnings per share	202,626	202,687

In addition to standard earnings per share, an underlying earnings per share calculation is provided below which excludes non-recurring costs and income (net of tax). The earnings used for the standard and underlying calculations, together with the resultant earnings per share, are shown below:

	2008	2007
	£'000	£'000
Profit for the period	33,671	24,628
Non-recurring items (net of tax)	-	3,109
Profit for the period excluding non-recurring items	33,671	27,737
Basic earnings per share - standard	16.8p	12.3p
Basic earnings per share - underlying	16.8p	13.8p
Fully diluted earnings per share - standard	16.6p	12.2p
Fully diluted earnings per share - underlying	16.6p	13.7p

 

END

 

 

FR EANNEFLAPEFE