Final Results
MFI Furniture Group PLC
27 February 2003
February 27th 2003
Preliminary results for the 52 weeks to 28 December 2002
Financial Highlights
- Turnover up 19.4% to £1,287m
- UK Retail up 12.5% to £861m
- Howdens up 45.6% to £327m
- France up 11.9% to £94m
- Pre-tax profit up 24.9% to £80.8m*
- Earnings per share up 23.4% to 9.5p*
- Dividends per share up 24% to 3.1p
- Pre-exceptional operating cash inflow of £140m compared to £104m last
year
* 2001 reported before exceptional items
Business Highlights
- Good progress on all strategic priorities, with £1.3bn Group sales target
achieved one year early
- Third year of strong sales growth at UK Retail, driven by MFI
refurbishments and range improvements
- Fifth year of exceptional growth at Howdens
- Hygena Cuisines responding well to UK retail template
- Pilot of Howdens in US performing in line with expectations
- Developing new supply chain systems and initiatives
John Hancock, Chief Executive, said:
'These are excellent results which demonstrate the progress the Group has made
over the last year. We are very pleased by the response of MFI's customers to
our new store formats and product range improvements. Howdens delivered another
year of exceptional growth, driven by its specialty focus and close customer
relationships. We will continue to focus our attention and investment in these
two businesses in 2003, and we remain very excited by the opportunities ahead.'
- ends -
Contacts:
MFI Furniture Group Plc
John Hancock, Chief Executive 020 8913 5319
Martin Clifford-King, Finance Director 020 8913 5350
Brunswick Group Limited
Charlotte Elston / Katya Reynier 020 7404 5959
Company Statement
Financial results
Sales and profitability both increased strongly, with the principal contributors
to growth being UK Retail and Howdens. Sales of £1,287m represented a 19.4%
increase on the previous year, while profit before tax and exceptional items
rose by 24.9% to £80.8m. Earnings per share rose by 23.4% to 9.5 p.
Sales % increase % increase
£m Total business Like for like
UK Retail 861 12.5 6.7
Howdens 327 45.6 28.8
France 94 11.9 7.9
Other 5 n/a n/a
_________ _________ _________
Total Group 1,287 19.4 13.8
_________ _________ _________
The Group has delivered improved financial performance for the third successive
year in a period when we have been investing significantly to consolidate the
Group's position in our core businesses.
We have successfully progressed our five key strategic priorities in the course
of 2002, namely the rollout of the new format into our stores both in the UK and
in France, the continued expansion of our highly successful Howdens trade
operation in the UK together with the establishment of a pilot trade operation
in the US and the development of new integrated systems.
The MFI brand continues to show itself capable of expansion, with new product
categories winning immediate acceptance with our customers. We are successfully
transforming our brand offer from 'pure value' to a more fashion-driven and
aspirational one, while remaining fully committed to the mass market.
Overall gross margin has increased from 50.0% to 50.2% reflecting higher margins
from the introduction of new product ranges in MFI. This has been partially
offset by sales growth in lower margin areas such as fitting service sales,
together with stock markdowns arising from the store reformatting.
Total selling and distribution costs have increased by 20.9%. After stripping
out the additional costs associated with new and reformatted stores and depots,
the like for like selling and distribution costs have increased by 12.3%, which
compares to like for like sales growth of 13.8%. Administration costs have risen
3.3%, broadly in line with inflation.
- UK Retail
Sales were £861m, representing an increase over the previous year of 12.5%, up
6.7% on a like for like basis. The profitability of the UK Retail division has
increased from £34.9m to £37.7m, an increase of 8%. This has been achieved after
incurring £20m of costs and lost revenues associated with the refurbishment
programme. There has been a net £7m increase in operating profit from sales of
our insurance-backed structural guarantees, with profits from this source rising
from £2m (product was launched in August 2001) in 2001 to £9m in 2002.
The new store format brings a new and higher standard of presentation to our
industry, and provides a greatly improved showcase for our developing range of
products - now including sofas and bathrooms. It has also resulted in
substantially increased sales, with a shift towards higher value and higher
margin product lines. There are currently 191 out of town stores, 4 new stores
being opened in the year.
The average year-on-year increase in orders in refurbished stores has been 20%
with those stores that have had a full refit achieving 25% and those that have
received a partial refit producing 8%. We are working to improve the performance
of the partial refit stores by reviewing the layout of the ranges. While 45
stores were scheduled for conversion in 2002, we in fact added 58 stores to the
18 that were open at the beginning of the year. A further 65 are scheduled for
conversion in 2003, and by the end of this year just under 90% of our sales will
be coming from new formatted stores.
In total new product categories are performing in line with expectation, with
bathrooms accounting for 8% and sofas 4% of sales in those stores where the
product is sold. It is clear that our move towards solutions for every room in
the house has valuable growth potential, as the furniture market becomes
increasingly fashion-driven.
In November we acquired the Sofa Workshop business and, by the year-end, sofas
were sold in 86 out of town stores, and bathrooms in 83. We anticipate
substantially completing the rollout of both product categories to the full
chain by the end of 2003. As a consequence of introducing these new product
categories, the total addressable furniture market for the MFI chain will have
increased from £6.7bn to £11bn. Combined with the success of the refurbishment
programme, this underpins our confidence in the future prospects for our stores.
The new High Street stores have allowed us to access a new demographic group of
customers - potentially around 5m of the UK's more affluent homes - without
cannibalising our existing customer base. Sales have been satisfactory and are
skewed towards higher value kitchens.
The Hygena at Currys venture was launched at the end of 2000 and now operates in
124 Currys outlets. Performance has improved strongly over the year, as we have
learned important lessons about store format, staff motivation and training,
range mix and advertising/promotion.
- Howdens
Howdens continues to deliver outstanding results, with operating profits of
£44.4m, up 81.2% on last year's figure of £24.5m. This success is underpinned by
Howdens' strategy of combining a focused product offering with close trade
customer relationships.
By the end of 2002 we had 269 Howdens depots trading in the UK, 41 being opened
in the year. Like for like sales growth was 28.8% in 2002, and the original
depots which were open in 1997 continued to grow sales at more than 20%. The
continued organic growth from our existing depots, and the rollout of the
opening programme, resulted in total sales of £327m - an increase of 45.6% on
last year. We aim to open a further 40 depots in 2003 and are ultimately
targeting a total of 380 depots within the UK by the end of 2005. We are making
good progress on our target of a 15% operating margin, moving to 13.6% by the
end of 2002.
We are pleased with the performance of our pilot of 12 depots in Georgia and
North Carolina in the US. Our investment to date of £10m includes, as expected,
start-up losses of £4.5m. Early results suggest that the format is exportable,
and the depots are performing very much in line with the UK model; however, we
continue to develop cautiously with minimal risk.
- France
Despite a challenging market, sales in France are £94m, up 11.9% on last year
with like for like growth up by 7.9%.
Using experience gained from our UK High Street operation, we have commenced a
refurbishment programme of all of our stores, and this will be complete by the
end of 2004. We have converted 20 of our chain of 133 stores in the new format
and are seeing orders increase by around 18% as a result of the refurbishment.
Profits of £2.3m, compared to £3m in the previous year, represent an improvement
in profit in the second half, reflecting sales uplifts partly offset by
disruption from the conversion process.
Cash flow
Our pre-exceptional operational cash inflow has grown from £104m last year to
£140m, demonstrating the significant cash generation within the business. We
have reinvested this money in capital expenditure, the acquisition of Sofa
Workshop and purchase of shares for staff incentive schemes. At the year-end we
had available cash of £32m compared to £52m at the end of the previous year.
Structural guarantee
We recognise that, elsewhere in our industry, Customs & Excise has challenged
the VAT accounting treatment for insurance-backed structural guarantees and has
raised assessments for the reduction in VAT paid. Whilst we may receive an
assessment from Customs and Excise in the future, we have taken extensive legal
and taxation advice on our own position, and any such action against MFI would
be contested vigorously. As a result no provision has been made (see note 11).
Pensions
We have reviewed our pension arrangements during the year and intend to continue
with our defined benefits scheme, but we have revised our employee benefits and
contribution levels to manage the future exposure to the Group.
The charge to profit under SSAP 24 was £11m. This would have been £15m under FRS
17, but we would expect this to reduce after taking into account the changes to
employee benefits and contribution levels. In common with many other businesses
we are not adopting FRS 17. The FRS 17 deficit on the balance sheet is £102m
compared to an actuarial deficit of £17m.
Systems
With sales having increased 60% in three years, we have been investing in a new
SAP system that will embrace processes and people to achieve margin improvements
by driving efficiency throughout the supply chain. During 2002 we have spent
£12m of cash and expect it to pay for itself within three years.
Dividend
The Board has proposed a final dividend of 1.6p per share to be paid on 13 June
2003 to shareholders on the register at 30 May 2003. The shares will be quoted
ex-dividend from 28 May 2003. This brings a total dividend for the year to 3.1p
per share, an increase of 24% over last year.
Outlook
Over the last three years, MFI has grown sales and profits at average annual
compound rates of 20% and 40% respectively. We have every confidence that the
business remains capable of further strong growth in a series of highly
fragmented markets; markets in which we can outperform our competitors in terms
of product, pricing and service standards. The UK market for furniture is
predicted to grow at between 4 - 5% per annum over the next three to five years,
and, even if there is a slowdown in consumer spending, we still expect to
benefit from our growth opportunities and self-help measures.
Current trading
We are pleased with progress to date and expect the profit outcome for the first
half of the year to be higher than our original expectations. We will release a
further statement on 18 March 2003 on completion of our UK Winter sale.
Consolidated Profit and Loss Account
For the 52 weeks ended 28 December 2002
52 weeks to 52 weeks to 29 December 2001
28 December
2002
Before Exceptional
Total exceptional items Total
items
Notes
£m £m £m £m
Turnover : Group and share of joint ventures 2 1,288.8 1,078.2 - 1,078.2
Less : Share of joint ventures (1.4) (0.2) - (0.2)
_________ _________ _________ _________
Group turnover 1,287.4 1,078.0 - 1,078.0
Cost of sales (641.2) (539.3) (4.7) (544.0)
_________ _________ _________ _________
Gross profit / (loss) 646.2 538.7 (4.7) 534.0
Selling and distribution costs (507.4) (419.7) - (419.7)
Administrative expenses (59.0) (57.1) - (57.1)
_________ _________ _________ _________
Operating profit / (loss) 2 79.8 61.9 (4.7) 57.2
Share of operating loss of joint ventures (2.0) (0.9) - (0.9)
_________ _________ _________ _________
Total operating profit / (loss) - Group and share 77.8 61.0 (4.7) 56.3
of joint ventures
Net profit / (loss) on disposal of fixed assets 0.1 0.5 (1.2) (0.7)
_________ _________ _________ _________
Profit / (loss) on ordinary activities before 77.9 61.5 (5.9) 55.6
interest
Interest receivable and similar income 3.2 4.2 - 4.2
Interest payable and similar charges (0.3) (1.0) - (1.0)
_________ _________ _________ _________
Profit / (loss) on ordinary activities before 80.8 64.7 (5.9) 58.8
taxation
Tax on profit/(loss) on ordinary activities 3 (23.4) (18.7) 1.8 (16.9)
_________ _________ _________ _________
Profit / (loss) for the financial period 57.4 46.0 (4.1) 41.9
Dividends paid and proposed 4 (17.4) (14.7) - (14.7)
_________ _________ _________ _________
Amount transferred to reserves 6 40.0 31.3 (4.1) 27.2
========= ========= ========= =========
Earnings per share
Basic earnings per 10p ordinary share 5 9.5p 7.7p (0.7)p 7.0p
========= ========= ========= =========
Diluted earnings per 10p ordinary share 5 9.1p 7.4p (0.7)p 6.7p
========= ========= ========= =========
All results are derived from continuing operations
Consolidated Balance Sheet
______________________________________________________________________________
28 Dec 2002 29 Dec 2001
Notes £m £m
FIXED ASSETS
Intangible assets 14.6 -
Tangible assets 356.8 300.6
Investments 46.1 27.7
_________ _________
Total fixed assets 417.5 328.3
_________ _________
CURRENT ASSETS
Stocks 177.1 128.7
Debtors 124.0 111.0
Investments 6.9 0.2
Cash at bank and in hand 33.3 52.1
_________ _________
341.3 292.0
CREDITORS
Amounts falling due within one year 7 316.0 229.5
_________ _________
Net current assets 25.3 62.5
_________ _________
Total assets less current liabilities 442.8 390.8
CREDITORS
Amounts falling due after more than one year 8 2.8 0.1
PROVISIONS FOR LIABILITIES AND CHARGES 9 21.9 15.2
_________ _________
Net assets 418.1 375.5
========= =========
CAPITAL AND RESERVES
Called up share capital 61.3 59.9
Share premium account 6 62.1 48.6
Revaluation reserve 6 40.0 42.1
Other reserves 6 24.3 21.9
Profit and loss account 6 230.4 203.0
_________ _________
Equity shareholders' funds 418.1 375.5
========= =========
Consolidated Cash Flow Statement
For the 52 weeks ended 28 December 2002
52 weeks to 52 weeks to
28 Dec 2002 29 Dec 2001
Notes £m £m
Net cash inflow from operating activities 10 138.0 102.8
Returns on investments and servicing of finance 10 2.9 3.2
Taxation (16.2) (11.9)
Capital expenditure and financial investment 10 (117.5) (68.3)
Acquisitions 10 (8.5) -
Equity dividends paid (16.0) (12.7)
_________ _________
Cash (outflow) / inflow before use of liquid resources (17.3) 13.1
and financing
Management of liquid resources (6.7) 0.1
Financing 10 5.5 (0.6)
_________ _________
(Decrease) / increase in cash in the period 10 (18.5) 12.6
========= =========
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
52 weeks to 52 weeks to
28 Dec 2002 29 Dec 2001
Notes £m £m
(Decrease) / increase in cash in the period 10 (18.5) 12.6
Cash movement on :
- debt and lease financing 10 (0.1) 3.2
- cash flow from increase/(decrease) 6.7 (0.1)
in liquid resources
_________ _________
Change in net funds resulting from cash flows (11.9) 15.7
Foreign currency translation differences 10 (0.3) (0.1)
_________ _________
Movement in net funds in the period (12.2) 15.6
Net funds at the beginning of the period 10 51.1 35.5
_________ _________
Net funds at the end of the period 10 38.9 51.1
_________ _________
1. BASIS OF PREPARATION
The financial information set out does not constitute statutory financial statements for the periods ended
52 weeks to 28 December 2002 and 52 weeks to 29 December 2001, but is derived from those accounts. Statutory
accounts for the 52 weeks to 29 December 2001 have been delivered to the Registrar of Companies and those
for the 52 weeks to 28 December 2002 will be sent to shareholders and filed with the Registrar of Companies
on 10 April 2003. The auditors have reported on the accounts, their reports were unqualified and did not
contain statements under Section 237(2) or (3) of the Companies Act 1985.
2. SEGMENTAL ANALYSIS
52 weeks to 29 Dec 2001
52 weeks Before Exceptional Total
to 28 Dec exceptional items
2002 items
£m £m £m £m
TURNOVER 1
UK - Retail 861.4 765.9
- Howden Joinery 326.9 224.5
France 94.2 84.2
US - Howden Millwork 2.0 -
Other operations 2.9 3.4
1,287.4 1,078.0
Joint venture operations 1.4 0.2
Total turnover 1,288.8 1,078.2
PROFIT BEFORE TAXATION 2
UK - Retail 37.7 34.9 (4.7) 30.2
- Howden Joinery 44.4 24.5 - 24.5
France 2.3 3.0 - 3.0
US - Howden Millwork (4.5) - - -
Other operations (0.1) (0.5) - (0.5)
Operating profit / (loss) 79.8 61.9 (4.7) 57.2
Joint venture operations (2.0) (0.9) - (0.9)
Total operating profit / 77.8 61.0 (4.7) 56.3
(loss)
Profit / (loss) on disposal 0.1 0.5 (1.2) (0.7)
of fixed assets
Net interest receivable 2.9 3.2 - 3.2
Profit / ( loss) before 80.8 64.7 (5.9) 58.8
taxation
NET ASSETS
UK - Retail 229.4 219.4
- Howden Joinery 85.6 74.3
France 29.3 17.9
US - Howden Millwork 4.6 -
Other operations 1.5 0.6
Joint venture operations 2.1 0.9
352.5 313.1
Unallocated net assets 3 65.6 62.4
Total net assets 418.1 375.5
1 The analysis of turnover by destination is not materially different from the
analysis of turnover by origin
2 All results are from continuing operations
3 Unallocated net assets comprise balances in respect of dividends, cash,
borrowings and investment in own shares
3. TAX ON PROFIT ON ORDINARY ACTIVITIES
52 weeks to 29 Dec 2001
52 weeks to Before
28 Dec 2002 exceptional Exceptional Total
items items
£m £m £m £m
Taxation on profit for the period
comprises:
UK corporation tax at 30.0% (2001 - 19.0 18.4 (0.5) 17.9
30.0%)
Adjustments relating to prior (4.0) (1.3) - (1.3)
periods
Deferred tax 8.4 1.6 (1.3) 0.3
_________ _________ _________ _________
23.4 18.7 (1.8) 16.9
========= ========= ========= =========
The taxation charge is calculated at 29.0% (2001 - 28.9%) on profits before
exceptional items.
4. EQUITY DIVIDENDS
52 weeks to 52 weeks to
28 Dec 2002 29 Dec 2001
£m £m
Interim paid - 1.5 pence per share 8.0 6.9
(2001 - 1.2 pence per share)
Final proposed - 1.6 pence per share 9.4 7.8
(2001 - 1.3 pence per share)
_______ _____
Total dividend - 3.1 pence per share 17.4 14.7
(2001 - 2.5 pence per share) ======= =====
5. EARNINGS PER SHARE
52 weeks to 28 December 2002 52 weeks to 29 December 2001
Earnings Weighted Earnings Earnings Weighted Earnings
average per share average per share
number of number of
shares shares
£m m p £m m p
Basic earnings per share
Earnings attributable to ordinary 57.4 603.1 9.5 41.9 599.5 7.0
shares
Effect of dilutive share options - 28.6 (0.4) - 21.8 (0.3)
_________ _________ _________ _________ _________ _________
Diluted earnings per share 57.4 631.7 9.1 41.9 621.3 6.7
========= ========= ========= ========= ========= =========
Reconciliation of earnings per
share to exclude exceptional
items
Basic earnings per share 57.4 603.1 9.5 41.9 599.5 7.0
Exceptional items net of tax - - - 4.1 - 0.7
_________ _________ _________ _________ _________ _________
Basic earnings per share before 57.4 603.1 9.5 46.0 599.5 7.7
exceptional items
========= ========= ========= ========= ========= =========
Diluted earnings per share 57.4 631.7 9.1 41.9 621.3 6.7
Exceptional items net of tax - - - 4.1 - 0.7
_________ _________ _________ _________ _________ _________
Diluted earnings per share before 57.4 631.7 9.1 46.0 621.3 7.4
exceptional items
========= ========= ========= ========= ========= =========
6. RESERVES
Share Profit and
premium Other Revaluation loss
account reserves reserve account
£m £m £m £m
At 29 December 2001 48.6 21.9 42.1 203.0
Retained profit for the period - - - 40.0
Shares issued 13.5 - - (9.5)
Amortisation of goodwill - 2.4 - (2.4)
Realised revaluation surplus - - (2.1) 2.1
Foreign exchange - - - (2.8)
_________ _________ _________ _________
At 28 December 2002 62.1 24.3 40.0 230.4
========= ========= ========= =========
7. CREDITORS
AMOUNTS FALLING DUE WITHIN ONE YEAR
28 Dec 2002 29 Dec 2001
£m £m
Bank loans and overdrafts - 0.8
Trade creditors 128.7 84.2
Corporation tax 14.5 15.7
Other taxation and social security 21.3 15.0
Obligations under finance leases - 0.4
Proposed dividends 9.3 7.9
Other creditors 17.9 10.6
Accruals and deferred income 124.3 94.9
_________ _________
316.0 229.5
========= =========
8. CREDITORS
AMOUNTS FALLING DUE WITHIN ONE YEAR
28 Dec 2002 29 Dec 2001
£m £m
Bank loans and overdrafts 1.3 -
Other creditors 1.5 0.1
_________ _________
2.8 0.1
========= =========
9. PROVISIONS FOR LIABILITIES AND CHARGES
Pension Property Deferred
provision provision taxation Total
£m £m £m £m
At 29 December 2001 10.1 3.8 1.3 15.2
Created in the period - - 8.4 8.4
Interest charge 0.5 - - 0.5
Utilised in period (1.4) (0.8) - (2.2)
_________ _________ _________ _________
At 28 December 2002 9.2 3.0 9.7 21.9
========= ========= ========= =========
10. CONSOLIDATED CASH FLOW STATEMENT
a) Reconciliation of operating profit to net cash inflow from operating activities
52 weeks to 52 weeks to
28 Dec 2002 29 Dec 2001
£m £m
Operating profit before exceptional items 79.8 61.9
Depreciation of tangible fixed assets 40.2 30.9
Amortisation of goodwill 0.1 -
Amortisation of fixed asset investment 8.3 1.8
Increase in stocks (45.9) (1.2)
Increase in debtors (10.4) (24.1)
Increase in creditors and provisions 67.5 34.9
_________ _________
Net cash inflow - pre-exceptional operating activities 139.6 104.2
Net cash outflow - operating exceptionals (1.6) (1.4)
_________ _________
Net cash inflow from operating activities 138.0 102.8
========= =========
b) Analysis of cash flows for headings netted in the cash flow statement
52 weeks to 52 weeks to
28 Dec 2002 29 Dec 2001
£m £m
Returns on investments and servicing of finance
Interest received 3.2 4.2
Interest paid (0.3) (1.0)
_________ _________
Net inflow on investments and servicing of finance 2.9 3.2
========= =========
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (98.3) (51.1)
Receipts from sales of tangible fixed assets 9.5 2.6
Payment to acquire own shares (25.5) (18.0)
Investment in joint ventures (3.2) (1.8)
_________ _________
Net outflow for capital expenditure and financial investment (117.5) (68.3)
========= =========
Acquisitions
Acquisition of subsidiary undertaking (10.9) -
Cash acquired with subsidiary undertaking 2.4 -
_________ _________
Net outflow from acquisitions (8.5) -
========= =========
Financing
Share issue 5.4 2.6
Loan acquired with subsidiary undertaking 1.3 -
Decrease in bank finance (0.8) (3.1)
Capital element of finance lease rental payments (0.4) (0.1)
_________ _________
Net inflow/(outflow) from financing 5.5 (0.6)
========= =========
c) Analysis of net funds
Cash at Term loans Net Current Finance Total net
bank asset leases funds
funds investments
£m £m £m £m £m £m
As at 30 December 2000 39.6 (3.9) 35.7 0.3 (0.5) 35.5
Cash flow 12.6 3.1 15.7 (0.1) 0.1 15.7
Exchange difference (0.1) - (0.1) - - (0.1)
_________ _________ _________ _________ _________ _________
As at 29 December 2001 52.1 (0.8) 51.3 0.2 (0.4) 51.1
Cash flow (20.9) 0.8 (20.1) 6.7 0.4 (13.0)
Acquisition of subsidiary 2.4 (1.3) 1.1 - - 1.1
Exchange difference (0.3) - (0.3) - - (0.3)
_________ _________ _________ _________ _________ _________
As at 28 December 2002 33.3 (1.3) 32.0 6.9 - 38.9
========= ========= ========= ========= ========= =========
11. STRUCTURAL GUARANTEE
In August 2001 the Group introduced an optional insurance-backed structural guarantee on certain
items of furniture sold in its UK retail stores. Value Added Tax (VAT) is paid on the furniture
element of the transaction, and Insurance Premium Tax (IPT) on the sale of these warranties.
Elsewhere in our industry Customs and Excise has challenged the VAT accounting treatment for this
product and has raised assessments for the reduction in VAT paid. Whilst an assessment may be
raised on the reduction in VAT, the directors have taken extensive legal and taxation advice and
any such action against MFI would be contested vigorously. As a result no provision has been made
in the accounts.
To date the following amounts have been recorded:
2001 2002 Cumulative
£m £m £m
Reduction in VAT 7.3 22.0 29.3
IPT paid (2.1) (5.6) (7.7)
External insurance / expenses (1.2) (2.8) (4.0)
Reinsurance to Group company (1.7) (4.5) (6.2)
_________ _________ _________
Net benefit to profit and loss 2.3 9.1 11.4
========= ========= =========
80% of the insurance has been reinsured through the Group's captive insurance
company - Southon Insurance Limited. No underwriting profit has been taken in
this company to date.
12 ACQUISITION OF SOFA WORKSHOP
On 4 November 2002, the Group acquired the issued share capital of The Sofa Workshop Holdings Limited
and The Sofa Workshop Direct Holdings Limited ('Sofa Workshop'). The total consideration was £14.0m,
which includes £9.7m paid in cash, £2.6m satisfied by the issue of loan notes, fees of £1.2m and
deferred consideration of £0.5m. The capitalised goodwill on the transaction is £14.7m and will be
amortised in the profit and loss account over 20 years. The fair value of assets and liabilities
acquired as shown below are provisional as the completion accounts have yet to be finalised. In the
last financial year to December 2001 Sofa Workshop had sales of £33.4m and profits of £1.2m.
The balance sheet of Sofa Workshop, together with fair value adjustments, is set out below:
Fair value Fair
Book Value adjustments value
£m £m £m
Tangible fixed assets 2.3 - 2.3
Stock 3.2 (0.1) 3.1
Debtors 3.0 (0.2) 2.8
Cash 2.4 - 2.4
Creditors (9.7) (0.3) (10.0)
Bank loans (1.3) - (1.3)
_________ _________ _________
Net liabilities acquired (0.1) (0.6) (0.7)
Consideration paid - cash (9.7)
- acquisition expenses (1.2)
- issue of loan notes (2.6)
- deferred consideration (0.5)
_________
Capitalised goodwill (14.7)
=========
The fair value adjustments comprise revaluations and an accounting policy
alignment in respect of warranties of £0.1m.
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