Final Results
Galiform PLC
06 March 2007
GALIFORM Plc
PRELIMINARY RESULTS FOR THE 53 WEEKS ENDED 30 DECEMBER 2006
HIGHLIGHTS
• Revenue from continuing operations £733.0m (2005: £621.8m).
• Howden Joinery up 9.5% (5.9% on same depot basis) to £676.3m (2005:
£617.8m).
• Howden Joinery operating profit before exceptional items up £9.2m to
£132.6m.
• Gross margin up 110 basis points.
• Cost of Supply, our sourcing and manufacturing business, before
exceptional items down £9.2m to £39.6m.
• Group operating profit before exceptional items up £11.6m to £65.7m.
• Profit before tax and exceptional items from continuing operations rose
£14.7m to £57.2m.
• Profit before tax after exceptional items from continuing operations
£25.0m (2005: £29.8m).
• Basic earnings per share before exceptional items from continuing
operations 6.1p (2005: 4.7p).
• Basic earnings per share from continuing and discontinued operations
(28.7)p (2005: (21.3)p).
• Net cash inflow of £51.4m meant the Group had net borrowings of £4.1m at
30 December 2006.
• Disposal of MFI Retail business completed - transitional arrangements
performing satisfactorily.
• Loss on disposal and associated provisions of £187.4m.
• 40 new Howden Joinery depots opened in 2006.
Galiform's Chief Executive, Matthew Ingle said:
'2006 was a year of major transformation for the Group. With the disposal of MFI
Retail, we are now focused on the successful Howdens business which continues to
enjoy a strong position in a rapidly changing market. Going forward, we have
great opportunities to grow Howdens, capitalising on its unique strengths.'
Enquiries
Investors/analysts:
Gary Rawlinson
Head of Investor Relations +44 (0)207 404 5959 (6 March only)
+44 (0)207 535 1127
+44 (0)7989 397527
Media:
Brunswick +44 (0)207 404 5959
Susan Gilchrist
Fiona Laffan
Anna Jones
SUMMARY OF GROUP RESULTS
--------------------------------------------------------------------------------
The information presented below relates to the 53 weeks to 30 December 2006 and
the 52 weeks to 24 December 2005, unless otherwise stated.
£m unless stated 2006 2005
Continuing operations (before exceptional items unless
stated):
Revenue 733.0 621.8
Gross profit 362.5 322.5
Operating profit 65.7 54.1
Profit before tax
- excluding exceptional items 57.2 42.5
- including exceptional items (2) 25.0 29.8
Earnings per share from continuing operations
- basic excluding exceptional items 6.1p 4.7p
- basic including exceptional items 1.0p 1.1p
Loss before tax from discontinued operations
- excluding exceptional items (44.8) (67.4)
- including exceptional items (2) (179.6) (144.4)
Earnings per share from continuing and discontinued
operations
- basic excluding exceptional items (0.6)p (4.9)p
- basic including exceptional items (28.7)p (21.3)p
Net debt at end of period 4.1 55.5
1 Whilst the financial information included in this preliminary announcement
has been computed in accordance with International Financial Reporting
Standards (IFRSs), this announcement does not itself contain sufficient
information to comply with IFRSs. The Company expect to publish full
financial statements that comply with IFRSs in April 2007.
The 2005 Preliminary Results were published under UK GAAP. As a result,
figures for 2005 have been restated.
Detailed reconciliations to assist in understanding the nature and value of
the differences between UK GAAP and IFRS were given in the appendix to
MFI's Interim Results for the 24 weeks to 10 June 2006 published on 20 July
2006. This statement can be found on www.galiform.com.
2 Details of exceptional items relating to continuing operations are given in
Note 3 and for discontinued operations in Note 5.
GROUP DEVELOPMENTS
--------------------------------------------------------------------------------
GROUP STRUCTURE
The sale of the MFI Retail business (MFI) to MEP was announced in September 2006
and completed on 18 October 2006. Subsequent to this, the name of the Group was
changed to Galiform Plc.
Also in October, the sale of Sofa Workshop Limited was completed.
GROUP STRATEGY
The sale of Retail followed a number of significant developments in the first
half of the year, that included arranging new banking facilities, exiting
peripheral activities including Hygena Cuisines, switching from manufacturing to
buying-in fascias and appliances, and agreement of new pension arrangements and
funding of the deficit of the Group's pension schemes. This leaves a group that
has fundamentally changed and is now focused on the substantial growth
opportunities that exist for Howden Joinery. Supply, which provides critical
support for the Howden Joinery business model will be simplified when it ceases
to procure goods on behalf of MFI and Hygena Cuisines.
GROUP RESULTS
The following discussion relates to continuing operations, unless otherwise
stated.
--------------------------------------------------------------------------------
Revenue rose by £111.2m to £733.0m, reflecting the increased sales of Howden
Joinery (£58.5m) and third party sales of Supply (£47.7m).
Excluding exceptional items, gross profit increased by £40.0m to £362.5m.
Selling and distribution costs and administrative expenses rose by £28.8m. Net
interest paid fell by £3.1m, an increase in net finance expenses being offset by
a lower pension interest charge. The net result was profit before tax and
exceptional items from continuing operations of £57.2m (2005: £42.5m).
Exceptional items for continuing businesses before tax totalled £32.2m. These
included:
• costs of restructuring the Group of £30.2m;
• factory closure costs of £36.5m; and
• a gain from lower pension liabilities of £38.0m, arising from changes to
the schemes' benefits.
Loss before tax from discontinued operations was £179.6m. This included:
• £44.8m loss from operations prior to disposal, primarily MFI, which was
sold in October;
• £62.5m profit on disposal of Hygena Cuisines;
• £155.7m loss on disposal of MFI; and
• £31.7m provision for other costs arising as a result of the disposal of
Retail.
Basic earnings per share from continuing operations was 1.0p (2005: 1.1p), with
pre exceptional earnings per share of 6.1p (2005: 4.7p).
Basic loss per share from continuing and discontinued operations was 28.7p
(2005: 21.3p loss), with pre exceptional loss per share of 0.6p (2005: 4.9p
loss).
Net cash flows from operating activities were £70.0m, including a payment of
£21.8m received in relation to settlement of a VAT dispute. The sale of Hygena
Cuisines generated net proceeds of £74.6m. The disposal of MFI entailed cash
payments of £78.9m, including fees. Net capital expenditure was £18.3m (2005:
£9.5m net receipts). Payments to acquire fixed and intangible assets totalled
£30.3m (2005: £47.9 m), while the sale of fixed and intangible assets generated
£12.0m (2005: £57.4m). In 2006, there was a cash inflow of £51.4m (2005: £6.7m).
Compared with a year earlier, net borrowings fell from £55.5m to £4.1m.
DIVIDEND
As with the interim dividend, the final dividend for 2006 will be 0p (2005: 2p
interim, 0p final).
OPERATIONAL REVIEW
--------------------------------------------------------------------------------
HOWDEN JOINERY
Howden Joinery sells kitchens and joinery products to the building trade,
predominantly small local builders, via a nationwide network of depots.
2006 2005
£m £m
Revenue 676.3 617.8
Operating profit before exceptional items 132.6 123.4
Howden Joinery continued to encounter favourable market conditions. Revenue
increased by 9.5% to £676.3m, same depot revenue rising by 5.9%. This reflected
a continuing increase in the turnover of mature depots, which have typically
been operating for six years or more, the benefit of the maturing profile of
sales from newer depots and new depot openings. Gross margin rose by 110 basis
points. Taken together, the rise in sales and gross margin, after allowing for
sales-related cost increases, contributed £32.3m
Excluding the impact of higher sales in 2006 on costs, operating costs rose by
£23.1m. This was primarily because of employee costs increasing by £9.4m and
rent and rates rising by £5.2m, of which £4.2m of the former and £2.1m of the
latter related to depots opened in 2006 and increased costs of depots opened in
2005.
Operating profit before exceptional items rose by £9.2m to £132.6m.
Business developments
As planned, 40 new depots were opened during 2006, nationwide, bringing the
total number to 382 at the end of the year. In addition, one existing depot was
relocated and 11 were extended.
A more extensive range of doors was introduced during the autumn, which was
showcased in a new joinery catalogue, and the introduction of a range of Bosch
cooking appliances has been completed. The business also introduced a range of
'Inclusive' kitchens for people with specific physical needs, at the beginning
of 2007. To help builders who may be unfamiliar with such kitchens, an assembly
and installation guide has also been produced.
SUPPLY
Supply primarily sources products for Howden Joinery. The products are either
manufactured, in the case of kitchen cabinets and worktops, or sourced from
third parties by Supply. As part of the transitional arrangements following the
disposal of Hygena Cuisines and MFI, Supply also sources product for these
businesses on an interim basis.
External turnover of Supply was £50.8m (2005: £3.1m), reflecting sales to MFI
and Hygena Cuisines since their disposal.
The net cost of Supply before exceptional items decreased to £39.6m in 2006
(2005: £48.8m). This reflected the move from manufacturing to buying-in fascias
and own-brand appliances that was instigated in the first half of 2006 as part
of the drive to bring a new commercial focus to Supply and the benefit of the
resulting lower cost of these products.
TRANSITIONAL ARRANGEMENTS WITH MFI
The transitional arrangements agreed as part of the disposal of MFI, including
the supply of goods, are proceeding satisfactorily.
We continue to be focused on the development of an efficient, cost-effective and
appropriately scaled business that provides critical support to Howden Joinery.
The transition away from MFI will remove a large degree of the complexity that
currently exists within the Group.
Corporate
The cost of what is now the corporate centre was broadly unchanged, except for
the IFRS charge for share plans. As a result, the cost of Corporate before
exceptional items was £24.2m (2005: £18.0m).
CURRENT TRADING AND OUTLOOK
--------------------------------------------------------------------------------
In the first two periods of 2007, Howden Joinery continued to trade well, in
line with our expectations. Sales increased by 8.2% compared with the
comparative period last year, 4.4% up on a same depot basis. Gross margin was
similar to that seen in 2006.
The trend from 'do it yourself' to 'done for you' continues to be reflected in
the favourable market conditions that Howden Joinery is experiencing. The
positive effect of the maturing of depots opened since around 2000 will be
constrained by the planned opening of around 60 new depots. There is also a
relatively low number of depots going through the rapid growth that is typically
seen in years 3 and 4 of a depots life.
Supply should see the full-year benefit of the move to greater outsourcing in
2006, although its overall performance will be strongly influenced by the level
of demand from its contract to supply MFI.
Consolidated income statement
53 weeks to 30 December 2006 52 weeks to 24 December 2005
Before Exceptional Before
exceptional items exceptional Exceptional
items (note 3 & 5) Total items items Total
Notes £m £m £m £m £m £m
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Continuing operations:
Revenue 733.0 - 733.0 621.8 - 621.8
Cost of sales (370.5) (12.8) (383.3) (299.3) (34.0) (333.3)
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Gross profit 362.5 (12.8) 349.7 322.5 (34.0) 288.5
Other operating expenses - (14.5) (14.5) - (0.2) (0.2)
Selling & distribution costs (241.6) (12.7) (254.3) (210.9) (16.8) (227.7)
Administrative expenses (56.2) 7.8 (48.4) (58.1) 38.3 (19.8)
Share of joint venture profits 1.0 - 1.0 0.6 - 0.6
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Operating profit 65.7 (32.2) 33.5 54.1 (12.7) 41.4
Finance income 3.5 - 3.5 3.9 - 3.9
Finance expense (7.0) - (7.0) (6.3) - (6.3)
Other finance charges - pensions (5.0) - (5.0) (9.2) - (9.2)
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Profit before tax 57.2 (32.2) 25.0 42.5 (12.7) 29.8
Tax on profit 4 (20.9) 2.0 (18.9) (14.6) (8.9) (23.5)
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Profit after tax from continuing
operations 36.3 (30.2) 6.1 27.9 (21.6) 6.3
Discontinued operations:
Loss before tax 5 (44.8) (134.8) (179.6) (67.4) (77.0) (144.4)
Tax on loss 5 5.1 (2.3) 2.8 10.6 2.1 12.7
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Loss after tax from discontinued
operations 5 (39.7) (137.1) (176.8) (56.8) (74.9) (131.7)
------------------------------------- ----- ------- ------- ------- ------- ------- -------
===================================== ===== ======= ======= ======= ======= ======= =======
Loss for the period (3.4) (167.3) (170.7) (28.9) (96.5) (125.4)
===================================== ===== ======= ======= ======= ======= ======= =======
Earnings per share:
From continuing operations
Basic earnings per 10p share 1.0p 1.1p
Diluted earning per 10p share 1.0p 1.1p
From continuing and discontinued operations
Basic earnings per 10p share (28.7)p (21.3)p
Diluted earnings per 10p share (28.7)p (21.3)p
Consolidated balance sheet
As at As at
30 December 24 December
2006 2005
Notes £m £m
----------------------------- ----- -------- --------
Non current assets
Intangible assets 1.9 4.2
Property, plant and equipment 97.1 247.5
Investments 9.7 8.8
Deferred tax asset 60.6 96.7
----------------------------- ----- -------- --------
169.3 357.2
----------------------------- ----- -------- --------
Current assets
Inventories 126.1 173.5
Trade and other receivables 102.4 134.5
Other assets 3.1 5.5
Cash at bank and in hand 53.2 89.0
----------------------------- ----- -------- --------
284.8 402.5
----------------------------- ----- -------- --------
----------------------------- ----- -------- --------
Total assets 454.1 759.7
----------------------------- ----- -------- --------
Current liabilities
Trade and other payables (249.6) (259.0)
Non current liabilities
Borrowings (58.2) (150.0)
Other payables due in more
than one year (10.8) -
Pension liability (189.2) (297.1)
Provisions 8 (23.8) (12.4)
----------------------------- ----- -------- --------
(282.0) (459.5)
----------------------------- ----- -------- --------
----------------------------- ----- -------- --------
Total liabilities (531.6) (718.5)
----------------------------- ----- -------- --------
----------------------------- ----- -------- --------
Net (liabilities)/assets (77.5) 41.2
============================= ===== ======== ========
Equity
Called up share capital 63.2 62.7
Share premium account 83.7 81.3
ESOP reserve (43.2) (48.6)
Other reserves 28.1 28.1
Retained earnings (209.3) (82.3)
----------------------------- ----- -------- --------
Total equity (77.5) 41.2
============================= ===== ======== ========
Consolidated cash flow statement
53 weeks to 52 weeks to
30 December 24 December
2006 2005
Notes £m £m
-------------------------------------- ----- ------------ -----------
Net cash flows from operating
activities 10 70.0 19.6
Cash flows from investing activities
Interest received 3.5 4.1
Sale of subsidiary undertaking 5 (2.1) -
Payments to acquire property, plant
and equipment and intangible assets (30.3) (47.9)
Investment in joint ventures - (1.2)
Receipts from sale of property, plant
and equipment and intangible assets 12.0 57.4
-------------------------------------- ----- ------------ -----------
Net cash (used in)/from investing
activities (16.9) 12.4
-------------------------------------- ----- ------------ -----------
Cash flows from financing activities
Interest paid (6.3) (6.4)
Receipts from issue of share capital 2.9 3.7
Receipts from release of shares from
share trust 1.6 1.0
(Decrease)/increase in loans (89.6) 50.0
Decrease in other assets 2.4 3.9
Dividends paid to Group shareholders - (23.4)
-------------------------------------- ----- ------------ -----------
Net cash (used in)/from financing
activities (89.0) 28.8
-------------------------------------- ----- ------------ -----------
Net (decrease)/increase in cash and
cash equivalents (35.9) 60.8
Cash and cash equivalents at
beginning of period 89.0 28.4
Currency translation differences 0.1 (0.2)
-------------------------------------- ----- ------------ -----------
Cash and cash equivalents at end of
period 10 53.2 89.0
====================================== ===== ============ ===========
For the purposes of the cash flow statement, cash and cash equivalents are
included net of overdrafts payable on demand. These overdrafts are excluded from
the definition of cash and cash equivalents disclosed on the balance sheet.
Cash flows from discontinued operations are detailed in Note 5.
Consolidated statement of recognised income and expense
53 weeks to 52 weeks to
30 December 24 December
2006 2005
£m £m
-------------------------------------- ------------ -----------
Actuarial gains/(losses) on defined
benefit schemes 64.2 (43.7)
Deferred tax on actuarial gain/(loss)
on pension schemes (19.2) 13.1
Currency translation differences (0.3) 0.1
Revaluation reserve - 8.2
Impact of adoption of IAS 39 - (0.9)
-------------------------------------- ------------ -----------
Net income/(loss) recognised directly
in equity 44.7 (23.2)
Loss for the financial period (170.7) (125.4)
-------------------------------------- ------------ -----------
Total recognised income and expense
for the period (126.0) (148.6)
====================================== ===== ============ ===========
Notes to the Preliminary Results for the 53 weeks ended 30 December 2006
1. Basis of preparation
The Group's accounting period covers the 53 week period to 30 December 2006. The
comparative period covered the 52 weeks to 24 December 2005.
The financial information set out in this announcement does not constitute the
statutory accounts for the Group within the meaning of Section 240 of the
Companies Act 1985. The statutory accounts for the 52 weeks to 24 December 2005,
which were prepared under UK GAAP, have been filed with the Registrar of
Companies. The statutory accounts for the 53 weeks ended 30 December 2006 will
be filed in due course. The auditors' reports on these accounts were unqualified
and did not contain any statement under sections 237(2) or (3) of the Companies
Act 1985.
The preliminary results for the 53 weeks to 30 December 2006 have been prepared
in accordance with the International Financial Reporting Standards (IFRS)
adopted for use in the European Union and International Financial Reporting
Interpretations Committee interpretations and with those parts of the Companies
Act 1985 mandatory for companies with our accounting reference date reporting
under IFRS.
The Group is complying with IFRS for the first time for the 53 week period ended
30 December 2006. This preliminary results announcement has been has prepared on
the basis of the Group's accounting policies set out in appendix 1.
2. Segmental analysis
The following information relates to continuing operations only. The results for
discontinued operations are shown in note 5.
The following tables show the segmental analysis of turnover and operating
profit by business segment. This is based on the commercial and legal structure
of the Group, in which Howden Joinery, Supply and Corporate are separate
entities.
a) External revenue
53 weeks 52 weeks
to 30 Dec to 24 Dec
2006 2005
£m £m
Business segments
Howden Joinery 676.3 617.8
Supply 50.8 3.1
Other 5.9 0.9
------------- --------- ---------
Group revenue 733.0 621.8
------------- --------- ---------
Supply's revenue in 2006 includes revenue from MFI Retail and Hygena Cuisines since
their disposal.
b) Operating profit/(loss)
Before exceptional Exceptional items After exceptional
items items
53 weeks 52 weeks 53 weeks 52 weeks 53 weeks 52 weeks
to 30 Dec to 24 Dec to 30 Dec to 24 Dec to 30 Dec to 24 Dec
2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m
Business segments
Howden Joinery 132.6 123.4 - - 132.6 123.4
Supply (39.6) (48.8) (42.5) - (82.1) (48.8)
Corporate (24.2) (18.0) 10.3 (12.7) (13.9) (30.7)
Other (4.1) (3.1) - - (4.1) (3.1)
Share of joint
venture 1.0 0.6 - - 1.0 0.6
-------------- --------- --------- --------- --------- --------- ---------
Group
operating
profit/(loss) 65.7 54.1 (32.2) (12.7) 33.5 41.4
------------- --------- --------- --------- --------- --------- ---------
3. Exceptional items - continuing operations
Exceptional items related to continuing operations charged to operating profit
in the 53 weeks to 30 December 2006 are analysed as follows:
Other Selling and
Cost of operating distribution Administration
sales income costs expenses Total
£m £m £m £m £m
Restructuring (a) - - - (30.2) (30.2)
Factory
closures (b) (6.8) (17.0) (12.7) - (36.5)
Retirement
benefit
exceptional
gain - - - 38.0 38.0
Exceptional
inventory
provision (6.0) - - - (6.0)
Other profit
on disposal - 2.5 - - 2.5
-------- ------- -------- --------- ------
Total charged
to operating
profit (12.8) (14.5) (12.7) 7.8 (32.2)
-------- ------- -------- ---------
Tax credit on
exceptional
items 2.0
------
Net
exceptional
items (30.2)
======
(a) Restructuring
As announced in our 2005 Preliminary Results statement, released on 28 February
2006, the Group intended to reorganise into three distinct trading businesses.
This process was completed before the disposal of MFI Retail.
The costs of restructuring comprise the following items:
£m
Business separation (18.8)
Redundancy costs (5.4)
Property costs (2.9)
Refinancing costs (3.1)
------
Total restructuring costs before tax (30.2)
Tax credit on restructuring costs 8.2
------
Total restructuring costs after tax (22.0)
======
(b) Factory closures
In the same statement, the Group announced the closure of two of its factories
at Stockton and Scunthorpe. These closures were completed in 2006.
The costs of closure comprise the following items:
£m
Redundancy costs (9.8)
Inventories write-offs (6.8)
Loss on disposal of assets (17.0)
Other costs of exit (2.9)
--------
Total factory closure costs before tax (36.5)
Tax credit on factory closure costs 5.2
--------
Total factory closure costs after tax (31.3)
========
The tax credit associated with the exceptional costs is lower than 30% as some
costs are not tax deductible.
(c) Retirement benefit exceptional gain
During 2006, the Group's defined benefit retirement benefit plan was altered so
that the benefits payable were changed from a final salary basis to a career
average revalued basis. The change gave rise to a reduction in the past service
liability in respect of active members, which has been treated as an exceptional
gain during the year, as set out in IAS 19 'Employee Benefits'.
The amount of the gain was £38.0m, on which £11.4m of deferred tax has been
provided.
4. Tax
The effective rate of tax for pre-exceptional continuing activities reflects the
high level of disallowable depreciation on assets not qualifying for capital
allowances.
It is expected that the Group's effective rate of tax for continuing operations
will be around 35% for 2007.
The losses associated with discontinued activities mostly relate to losses on
disposal of the MFI retail business. No capital losses are available on this
transaction.
5. Discontinued operations
Exceptional items
Exceptional items relating to discontinued operations in the 53 weeks to 30
December 2006 are analysed as follows:
Before tax Tax After tax
£m £m £m
Loss on sale of MFI Retail (155.7) (5.9) (161.6)
Exceptional provision on disposal of MFI Retail (31.7) - (31.7)
-------- ------- --------
(187.4) (5.9) (193.3)
Profit on sale of Hygena Cuisines SA 62.5 - 62.5
Profit on sale of Sofa Workshop Limited 0.2 - 0.2
Closure of Sofa Workshop Direct (9.4) 1.8 (7.6)
Restructuring 0.2 1.8 2.0
Other profit and loss on disposal (0.9) - (0.9)
-------- ------- --------
Total discontinued exceptional items (134.8) (2.3) (137.1)
======== ======= ========
(a) Sale of Retail
On October 18 2006, the Group completed the sale of MFI Retail to MEP Mayflower
Limited. A loss arose on this disposal of £155.7m, with associated provisions of
£31.7m.
An analysis of the disposal is shown below.
Net assets disposed of: £m £m
Property plant and Cash paid (75.8)
equipment 77.9 Cash sold with business (3.1)
Inventories 36.4 -------
Cash 3.1 Net cash flow on disposal (78.9)
Receivables 60.8 =======
Payables and provisions (161.9)
-------
Total net assets 16.3 £m
Loss on disposal (155.7)
-------
Amounts paid and payable on
disposal (139.4) Loss on disposal (155.7)
======= Exceptional provision on
disposal (31.7)
--------
Amounts paid and payable on Total costs recognised on
disposal: disposal (187.4)
========
Cash paid to purchaser, and
fees of disposal paid (75.8)
Accrued expenses of
disposal (1.3)
Deferred consideration (62.3)
--------
(139.4)
========
(b) Sale of Hygena Cuisines SA
On 14 February 2006, the Group completed the sale of its French retail business,
Hygena Cuisines SA, to Nobia AB for total gross cash proceeds (before expenses)
of €135m (approximately £92m). A profit arose on the disposal of £62.5m.
An analysis of the disposal is shown below:
Net assets and proceeds £m Cash flow £m
Fixed assets 29.8 Cash received (net of expenses) 87.9
Inventories 12.7 Cash sold with business (13.3)
------
Receivables 5.5 Net cash flow on disposal 74.6
======
Payables (35.9)
------
Total net assets 12.1
Profit on disposal 62.5
------
Net proceeds 74.6
======
Substantial shareholding exemption was obtained from HM Revenue & Customs before
the disposal, resulting in no tax being payable on the sale of the company.
(c) Sale of Sofa Workshop Ltd
As announced on 5 October 2006, the Group announced that it had completed the
sale of Sofa Workshop Limited to New Heights Limited for gross cash proceeds
(before expenses) of £1.8m. A profit arose on the disposal of £0.2m.
An analysis of the disposal is shown below.
Net assets and proceeds £m Cash flow £m
Property, plant and equipment 1.9 Cash received (net of expenses) 0.2
Inventories 1.8 Cash sold with business (1.0)
------
Receivables 2.6 Net cash flow on disposal (0.8)
======
Payables (7.3)
------
Total net assets (1.0)
Profit on disposal 0.2
------
Net proceeds (0.8)
======
(d) Closure of Sofa Workshop Direct factory
The Group's sofa manufacturing facility at Llantrisant in South Wales ceased
production on 22 August 2006 and the factory was decommissioned at the end of
November. The costs associated with the closure are shown below.
£m
Redundancy costs (1.6)
Inventory (2.3)
Property, plant and equipment (3.3)
Other costs of exit (2.2)
-------
Total factory closure costs before tax (9.4)
Tax credit on factory closure costs 1.8
-------
Total factory closure costs after tax (7.6)
=======
(e) Restructuring
As announced in our 2005 Preliminary Results statement, released on 28 February
2006, the Group undertook a review of the store portfolio prior to the disposal
of the MFI Retail business. Between the start of the period and the disposal,
MFI Retail had ceased trading in 13 locations and three regional home delivery
centres had closed.
The restructuring comprised the following items.
£m
Redundancies (3.8)
Other restructuring costs (2.2)
Profit on disposal of properties 6.2
-------
Total restructuring before tax 0.2
Tax credit on restructuring costs 1.8
-------
Total restructuring after tax 2.0
=======
Results and cash flow
The results, which have been included in the consolidated income statement, and
cash flow of the discontinued operations for 2006 were as follows:
Hygena Sofa Workshop Sofa Workshop MFI
Cuisines Direct Ltd Retail Total
£m £m £m £m £m
Operating loss:
Revenue 11.1 0.7 15.9 519.1 546.8
Cost of sales (6.2) (6.3) (8.8) (248.5) (269.8)
------- ------- ------- ------- -------
Gross profit 4.9 (5.6) 7.1 270.6 277.0
Expenses (9.5) (0.1) (9.0) (303.2) (321.8)
------- ------- ------- ------- -------
Loss before tax (4.6) (5.7) (1.9) (32.6) (44.8)
Attributable
tax - - (3.6) 8.7 5.1
(charge)/credit ------- ------- ------- ------- ------
Loss after tax (4.6) (5.7) (5.5) (23.9) (39.7)
Exceptional items:
Exceptional
items before
tax (134.8)
Attributable
tax credit (2.3)
-------
Net loss
attributable
to
discontinued
operations (176.8)
-------
Cash flows:
Contribution
to Group net
operating cash
flows (10.7) (2.1) (2.8) (51.9) (67.5)
Payments in
respect of
investing
activities - (0.3) - (13.0) (13.3)
6. Earnings per share
53 weeks to 30 December 2006 52 weeks to 24 December 2006
--------------------------------- ----------------------------------
Weighted Weighted
average average
number Earnings per number Earnings
Earnings of shares share Earnings of shares per share
£m m p £m m p
----------------------------- -------- -------- ------- -------- ------- -------
Earnings per share
From continuing operations:
Basic earnings per share 6.1 594.4 1.0 6.3 588.4 1.1
Effect of dilutive share
options - 7.2 - - 11.4 -
----------------------------- -------- -------- ------- -------- ------- -------
Diluted earnings per share 6.1 601.6 1.0 6.3 599.8 1.1
----------------------------- -------- -------- ------- -------- ------- -------
From discontinued operations:
Basic earnings per share (176.8) 594.4 (29.7) (131.7) 588.4 (22.4)
Effect of dilutive share
options - - - - - -
---------------------------- -------- -------- ------- -------- ------- -------
Diluted earnings per share (176.8) 594.4 (29.7) (131.7) 588.4 (22.4)
---------------------------- -------- -------- ------- -------- ------- -------
From continuing and
discontinued operations:
Basic earnings per share (170.7) 594.4 (28.7) (125.4) 588.4 (21.3)
Effect of dilutive share
options - - - - - -
---------------------------- -------- -------- ------- -------- ------- -------
Diluted earnings per share (170.7) 594.4 (28.7) (125.4) 588.4 (21.3)
---------------------------- -------- -------- ------- -------- ------- -------
In accordance with IAS 33 'Earnings per share', potential ordinary shares are
only treated as dilutive if their conversion to ordinary shares would decrease
earnings per share or increase loss per share. Therefore, where there is a loss,
no adjustment is made in respect of potential ordinary shares, and diluted
earnings per share is equal to basic earnings per share.
7. Dividends
Amounts recognised as distributions to equity holders in the period
53 weeks to 30 52 weeks to 24
December 2006 December 2005
£m £m
Final dividend for the 52 weeks to 24 December 2005 - nil (52
weeks to 25 December 2004 - 2.0p per share) - 11.6
Interim dividend for the 53 weeks to 30 December 2006 - nil (52
weeks to 24 December 2005 - 2.0p per share) - 11.8
----------- -----------
- 23.4
=========== ===========
No final dividend for 2006 will be paid (2005: nil).
8. Provisions
Deferred tax Property
liability provision Total
£m £m £m
At 25 December 2005 11.2 1.2 12.4
Additional provision in
the period 0.3 18.6 18.9
Transferred on disposal
of subsidiary (1.8) - (1.8)
Utilisation of provision (5.7) - (5.7)
--------- --------- ---------
At 30 December 2006 4.0 19.8 23.8
========= ========= =========
The property provision covers onerous leases. For any such leases, the Group
provides for any shortfall between rent payable and rent receivable on any
non-trading leased properties. The provision is based on the period until the
end of the lease, or until the Group can cover the shortfall by subletting,
assigning or surrendering the lease. None of the provisions are short term.
9. Reconciliation of movement in reserves
Called up Share
share premium ESOP Other Retained
capital account reserve reserves earnings Total
£m £m £m £m £m £m
------------------------------- ------- ------- ------- ------- ------- ------
As at 26 December 2004 62.3 77.2 (49.1) 28.1 98.8 217.3
Net actuarial loss on defined
benefit scheme - - - - (30.6) (30.6)
Foreign exchange - - - - 0.1 0.1
Accumulated loss for the period - - - - (125.4) (125.4)
Issue of new shares 0.4 4.1 - - (1.8) 2.7
Net movement in ESOP - - 0.5 - - 0.5
Dividends declared and paid - - - - (23.4) (23.4)
------- ------- ------- ------- ------- ------
As at 24 December 2005 62.7 81.3 (48.6) 28.1 (82.3) 41.2
First time adoption of IAS 32
and 39 - - - - (0.9) (0.9)
------- ------- ------- ------- ------- ------
Opening equity at 24 December
2005, restated 62.7 81.3 (48.6) 28.1 (83.2) 40.3
Net actuarial gain on defined
benefit scheme (net of tax) - - - - 44.9 44.9
Foreign exchange - - - - (0.3) (0.3)
Accumulated loss for the period - - - - (170.7) (170.7)
Issue of new shares 0.5 2.4 - - - 2.9
Net movement in ESOP - - 5.4 - - 5.4
------- ------- ------- ------- ------- ------
At 30 December 2006 63.2 83.7 (43.2) 28.1 (209.3) (77.5)
======= ======= ======= ======= ======= ======
10. Notes to the cash flow statement
(a) Net cash flows from operating activities
53 weeks to 52 weeks to
30 December 24 December
2006 2005
£m £m
----------------------------------------------- --------- ---------
Group operating profit - continuing operations 33.5 41.4
Group operating loss - discontinued operations
(note 5) (179.6) (144.4)
----------------------------------------------- --------- ---------
Group operating loss (146.1) (103.0)
Adjustments for:
Depreciation and amortisation 40.9 65.4
Share based payments charge/(credit) 3.8 (1.0)
Share of joint venture (profits)/losses (1.0) 1.5
Loss/(profit) on disposal of property, plant
and equipment and intangible assets 14.5 (17.4)
Other exceptional items (before tax) 152.5 128.2
----------------------------------------------- --------- ---------
Operating cash flows before movements in
working capital 64.6 73.7
Movements in working capital
(Increase)/decrease in stock (18.6) 21.3
(Increase)/decrease in trade and other
receivables (59.6) 43.7
Increase/(decrease) in trade and other payables 115.4 (91.4)
Difference between pensions operating charge and
cash paid (10.7) (5.1)
HMRC refund re structural guarantee 21.8 -
Net cash flow - exceptional items (44.5) (19.2)
----------------------------------------------- --------- ---------
3.8 (50.7)
----------------------------------------------- --------- ---------
Cash generated from operations 68.4 23.0
Tax recovered/(paid) 1.6 (3.4)
----------------------------------------------- --------- ---------
Net cash flows from operating activities 70.0 19.6
----------------------------------------------- --------- ---------
Net cash flow from operating activities
comprises:
Continuing operating activities 154.5 60.2
Discontinued operating activities (84.5) (40.6)
----------------------------------------------- --------- ---------
70.0 19.6
----------------------------------------------- --------- ---------
b) Reconciliation of net debt
30 December 24 December
2006 2005
£m £m
----------------------------------------------- --------- ---------
Net debt at start of period (55.5) (62.2)
Net (decrease)/increase in cash and cash
equivalents (35.9) 56.9
Increase in investments (2.4) -
Decrease/(increase) in debt financing 89.6 (50.0)
Currency translation differences 0.1 (0.2)
----------------------------------------------- --------- ---------
Net debt at end of period (4.1) (55.5)
----------------------------------------------- --------- ---------
Represented by :
Cash and cash equivalents 53.2 89.0
Investments 3.1 5.5
Borrowings (60.4) (150.0)
----------------------------------------------- --------- ---------
(4.1) (55.5)
----------------------------------------------- --------- ---------
c) Analysis of net funds
Cash and cash Current asset Bank loans Net borrowings
equivalents investments
£m £m £m £m
As at 24
December 2005 89.0 5.5 (150.0) (55.5)
Cash flow (35.9) (2.4) 89.6 51.3
Exchange
difference 0.1 - - 0.1
--------- --------- --------- ---------
As at 30
December 2006 53.2 3.1 (60.4) (4.1)
========= ========= ========= =========
Analysed as:
Short-term 53.2 3.1 (2.2) 54.1
Long-term - - (58.2) (58.2)
11. Contingent liabilities
(a) Relating to the disposal of the UK Retail operations
As disclosed at the time of the transaction with MEP Mayflower Limited ('MEP'),
the Group is the ultimate guarantor on leases in relation to 56 properties which
are occupied by the MFI Retail operations. If MEP suffers financial distress and
defaults on its obligations under the relevant leases the Group's guarantees are
triggered. For the year ended 25 December 2005 the net rentals payable by the
Group in respect of these properties totalled £15.8m. Remaining lease terms
range between 6 months and 15 years from 30 December 2006.
The Group is not aware of any signs which indicate that the purchaser is in
financial distress. There is uncertainty whether the purchaser will ever suffer
financial distress and thereby trigger the guarantee, and as to whether there
would be any actual net liability if the Group ever did have to meet the lease
obligations, given that the Group could mitigate any liabilities by surrendering
or assigning the leases, or by subletting them to third parties.
Because of the nature of the uncertainties, as described above, the Group is
unable to give an estimate of the financial effect of this contingent liability.
The Group is also exposed to potential costs in respect of certain warranties
and indemnities in relation to the disposal agreement in favour of the
purchaser. The Group has made such provision as is considered necessary in this
respect.
(b) Other guarantees
The Group has guaranteed a US$ 10.0m (2005: US$ 10.0m) letter of credit facility
from Standard Chartered Bank in favour of MFI Asia Limited's suppliers. This
contingency would only trigger in the event that MFI Asia Limited fails to
honour its obligations under the terms of the facility.
Members of the Group have assigned UK property leases in the normal course of
business. Should the assignees fail to fulfil any obligations in respect of
these leases, members of the Group will be liable for those defaults. The number
of claims arising to date has been small and the cost, which is charged to
income as it arises, has not been material.
There is a Group VAT registration cross-guarantee under which if one Group
company fails to pay its VAT then the other Group companies are jointly and
severally liable. The amount outstanding on this guarantee at the period end is
£19.0m (2005: £19.0m).
(c) Other
Aon have made a claim of £11.5m against the Group in respect of termination of
an extended warranty agreement. On the basis of information available, the Group
has been advised that there is little merit in the claim.
APPENDIX 1
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Group's accounting period covers the 53 weeks to 30 December 2006. The
comparative period covered the 52 weeks ended 24 December 2005.
Statement of compliance and basis of accounting
The Group's financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRSs') for the first time in the
current period. The financial statements have been prepared in accordance with
the IFRSs adopted for use in the European Union and International Financial
Reporting Interpretations Committee ('IFRIC') interpretations and with those
parts of the Companies Act 1985 applicable to companies reporting under IFRS.
They therefore comply with Article 4 of the EU IAS Regulation.
These are the Group's first consolidated financial statements prepared under
IFRS and therefore IFRS1 'First time adoption of International Financial
Reporting Standards' has been applied. The last consolidated financial
statements under UK GAAP were for the 52 weeks to 24 December 2005.
The Group has elected to apply the exemption available within IFRS 1 that
permits the hedge accounting applied under the previous GAAP to be used as a
comparative for IAS 39 'Financial Instruments: Recognition and Measurement'.
Hence the change in the accounting policy has had no impact on the results or
the financial position of the prior period.
The financial statements have been prepared on the historical cost basis, except
for the revaluation of financial instruments. The principal accounting policies
are set out below.
At the date of authorisation of these financial statements, the following
standards and interpretations, which have not been applied in these financial
statements, were in issue but not yet effective:
IFRS 6 'Exploration for and Evaluation of Mineral Resources'
IFRS 7 'Financial Instruments: Disclosures', and the relevant amendment to IAS 1
on capital disclosures
IFRIC 4 'Determining whether an arrangement contains a lease'
IFRIC 5 'Rights to Interests Arising from Decommissioning, Restoration, and
Environmental Rehabilitation Funds'
IFRIC 6 'Liabilities arising from Participating in a specific market - Waste
Electrical and Electronic Equipment'
IFRIC 7 'Applying the Restatement Approach under IAS 29 Financial Reporting in
Hyperinflationary Economies'
IFRIC 8 'Scope of IFRS 2'
IFRIC 9 'Reassessment of Embedded Derivatives'
IFRIC 10 'Interim reporting and impairments'
IFRIC 11 'IFRS2 - Group and Treasury Share transactions'
The directors anticipate that the adoption of these standards and
interpretations in future periods will have no material impact on the Group's
financial statements except for the additional disclosures on capital and
financial instruments when the relevant standards come into effect for periods
commencing on or after 1 January 2007.
Basis of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the
financial and operating policies so as to obtain benefits from its activities.
Subsidiaries are fully consolidated from the date on which control is
transferred until the date that control ceases.
The purchase method of accounting is used to account for acquisition of
subsidiaries by the Group.
Intercompany transactions, balances and unrealised gains on transactions between
Group companies are eliminated.
Joint Ventures
Joint ventures are accounted for in the financial statements of the Group under
the equity method of accounting. Any losses in joint ventures in excess of the
Group's interest in those joint ventures are not recognised.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of the acquisition is measured at the aggregate of fair values, at the date
of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquired company,
plus any costs directly attributable to the business combination. The acquired
company's identifiable assets, liabilities and contingent liabilities that meet
the conditions for recognition under IFRS 3 are recognised at their fair values
at the acquisition date.
Goodwill arising on acquisition is recognised as an asset and initially measured
at cost, being the excess of the cost of the business combination over the
Group's interest in the net fair value of the identifiable assets, liabilities
and contingent liabilities recognised. If after reassessment, the Group's
interest in the net fair value of the acquired identifiable assets, liabilities
and contingent liabilities exceeds the cost of the business combination, the
excess is immediately recognised in the income statement.
Foreign currencies
Foreign currency transactions
Transactions in foreign currency are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at
the exchange rate ruling at the date. Foreign exchange gains and losses are
recognised in the income statement.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, are translated into sterling at
foreign exchange rates ruling at the balance sheet date. The results and cash
flows of overseas subsidiaries and the results of joint ventures are translated
into sterling on an average exchange rate basis, weighted by the actual results
of each month.
Exchange differences arising from the translation of the results and net assets
of overseas subsidiaries are taken to equity via the statement of recognised
income and expense.
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services, based on
despatch of goods or services provided to customers outside the Group, excluding
sales taxes and discounts. Interest income is recognised in the income statement
as it accrues, using the effective interest method. Dividend income from
investments is recognised when the right to receive payment has been
established.
Exceptional items
Certain items do not reflect the Group's underlying trading performance and, due
to their significance in terms of size or nature, have been classified as
exceptional. The gains and losses on these discrete items, such as profits on
disposal of property interests, reorganisation costs and other non-operating
items can have a material impact on the absolute amount of and trend in profit
from operations and the result for the period. Therefore any gains and losses on
such items are analysed as exceptional on the face of the income statement.
Tax
The tax expense represents the sum of the taxation currently payable and
deferred taxation.
The tax currently payable is based on taxable profit for the financial period.
Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in
other financial years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance sheet date.
Additional income taxes that arise from the distribution of dividends are
recognised at the same time as the liability to pay the related dividend.
Deferred taxation
Deferred taxation is provided in full using the balance sheet liability method.
It is the tax expected to be payable or recoverable on the temporary difference
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary
differences are not provided for: goodwill not deductible for tax purposes; the
initial recognition of assets and liabilities other than in a business
combination that affect neither accounting nor taxable profit; and differences
relating to investments in subsidiaries, to the extent that they will not
reverse in the foreseeable future. The amount of deferred taxation provided is
based on the expected manner of realisation or settlement of the carrying amount
of assets and liabilities, using tax rates enacted or substantively enacted at
the balance sheet date.
A deferred taxation asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset can be
utilised. The carrying amounts of deferred taxation assets are reviewed at each
balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the asset to
be recovered.
Deferred tax is charged or credited to the income statement except when it
relates to items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity.
Leased assets
Payments made under operating leases are recognised in the income statement on a
straight-line basis over the term of the lease. Benefits received as an
incentive to sign a lease, whatever form they may take, are credited to the
income statement on a straight-line basis over the lease term.
Investments
Investments are stated at cost less any provision for impairment.
Intangible assets - software
Where computer software is not an integral part of a related item of computer
hardware, the software is classified as an intangible asset. The capitalised
costs of software for internal use include external direct costs of materials
and services consumed in developing or obtaining the software and payroll and
payroll-related costs for employees who are directly associated with and who
devote substantial time to the project. Capitalisation of these costs ceases no
later than the point at which the software is substantially complete and ready
for its intended internal use. These costs are amortised over their expected
useful lives, which are reviewed annually. The expected useful life is four
years.
Property, plant and equipment
The Group has adopted the transitional provisions of IFRS1 to use previous
revaluations of freehold properties as the new deemed cost at the date of
transition to IFRSs.
All property, plant and equipment is stated at cost (or deemed cost, as
applicable) less accumulated depreciation, and less any provision for
impairment.
Depreciation of property, plant and equipment is provided to write off the
difference between the cost, excluding freehold land, and their residual value
over their estimated lives on a straight-line basis. The current range of useful
lives is as follows:
Freehold property 50 years
Long leasehold property over period of lease
Short leasehold property over period of lease
Fixture and fittings 2-10 years
Plant and machinery 3-10 years
Residual values, remaining useful economic lives and depreciation periods and
methods are reviewed annually and adjusted if appropriate
Gains and losses on disposals are determined by comparing proceeds with carrying
amount. These are included in the income statement.
Impairment of assets
The carrying amount of the Group's assets is reviewed at each balance sheet date
to determine whether there is an indication of impairment. If such an indication
exists, the asset's recoverable amount is estimated.
For goodwill assets that have an indefinite life and intangible assets not yet
available for use, the recoverable amounts are estimated at each balance sheet
date.
An impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. Impairment losses are recognised in the
income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
includes an attributable proportion of manufacturing overheads based on budgeted
levels of activity. Cost is calculated using a standard cost which is regularly
updated to reflect average actual costs. Provision is made for obsolete,
slow-moving or defective items where appropriate.
Non current assets held for sale
Non current assets (and disposal groups) classified as held for sale are
measured at the lower of fair value, less costs to sell, and carrying amount.
Impairment losses on initial classification as held for sale are included in the
income statement. Gains or losses on subsequent re-measurements are also
included in the income statement.
Provisions
Provisions are recognised when the Group has a present obligation as a result of
a past event, and it is probable that the Group will be required to settle that
obligation. Provisions are measured at the directors' best estimate of the
expenditure required to settle the obligation at the balance sheet date, and are
discounted to present value where the effect is material.
Pensions
Payments to defined contribution retirement benefit schemes are charged to the
income statement as they fall due.
The Group operates two defined benefit pension schemes. The Group's net
obligation in respect of the defined benefit pension schemes is calculated by
estimating the amount of future benefit that employees have earned in return for
their service in the current and prior periods; that benefit is discounted to
determine its present value and the fair value of any scheme assets is deducted.
The discount rate is the yield at the balance sheet date on AA rated bonds that
have maturity dates approximating to the terms of the Group's obligations. The
calculation is performed by a qualified actuary using the projected unit method.
Scheme assets are valued at bid price.
Current and past service costs are recognised in operating profit and net
financing costs include interest on pension scheme liabilities and expected
return on assets.
All actuarial gains and losses as at 25 December 2004, the date of transition to
IFRSs, were recognised. Actuarial gains and losses that arise subsequent to 25
December 2004 in calculating the Group's obligation in respect of a scheme are
recognised immediately in reserves and reported in the statement of recognised
income and expense.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance
sheet when the Group becomes a party to the contractual provisions of the
instrument.
Trade receivables
Trade receivables do not carry any interest and are stated at their nominal
value, as reduced by appropriate allowances for estimated irrecoverable amounts.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other
short term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds
received, net of direct issue costs. Finance charges, including premiums payable
on settlement or redemption and direct issue costs, are accounted for on an
accrual basis to the income statement using effective interest method and are
added to the carrying amount of the instrument to the extent that they are not
settled in the period in which they arise.
Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
Adoption of IAS 32 and IAS 39
As permitted by IFRS 1, the Group has elected to apply IAS 32 'Financial
Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments:
Recognition and Measurement' prospectively from 25 December 2005. Consequently,
the relevant comparative information for the 52 weeks ended 24 December 2005
does not reflect the impact of these standards.
Derivative financial instruments
The Group does not currently use derivative financial instruments to reduce its
exposure to interest or exchange rate movements. The Group does not hold or
issue derivatives for speculative or trading purposes. Under UK GAAP, as used
for the 2005 comparatives, such derivative contracts are not recognised as
assets and liabilities on the balance sheet and gains and losses arising on them
are not recognised until the hedged item is itself recognised in the financial
statements.
From 25 December 2005 onwards, derivative financial instruments are recognised
as assets and liabilities measured at their fair values at the balance sheet
date. Changes in their fair values are recognised in the income statement and
this is likely to cause volatility in situations where the carrying value of the
hedged item is either not adjusted to reflect the fair value changes arising
from the hedged risk or is so adjusted but that adjustment is not recognised in
this income statement. Provided the conditions specified by IAS 39 are met,
hedge accounting may be used to mitigate this income statement volatility.
The Company expects that hedge accounting will not generally be applied to
transactional hedging relationships, such as hedges of forecast or committed
transactions.
Where the hedging relationship is classified as a cash flow hedge, to the extent
the hedge is effective, changes in the fair value of the hedging instrument will
be recognised directly in equity rather than in the income statement. When the
hedged item is recognised in the financial statements, the accumulated gains and
losses recognised in equity will be either recycled to the income statement or,
if the hedged item results in a non-financial asset, will be recognised as
adjustments to its initial carrying amount.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based payments. In
accordance with the transitional provisions, IFRS 2 has been applied to all
grants of equity instruments after 7 November 2002 that were unvested as of 26
December 2004
The Group issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value at the date of
grant. The fair value determined at the grant date of the equity-settled share
based payments is expensed on a straight-line basis over the vesting period,
based on the Group's estimate of shares that will eventually vest.
Fair value is measured by use of a binomial model. The expected life used in the
model has been adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions, and behavioural considerations.
APPENDIX 2
FINANCIAL CALENDAR
2007
Trading update and Annual General Meeting 18 May 2007
2007 Interim results 6 September 2007
Trading update 22 November 2007 (provisional)
End of financial year 29 December 2007
2008
2006 Preliminary results 6 March 2008 (provisional)
2008 Interim results 31 July 2008 (provisional)
End of financial year 27 December 2008
This information is provided by RNS
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