Final Results

MFI Furniture Group PLC 28 February 2006 28 February 2006 MFI Furniture Group Plc PRELIMINARY RESULTS FOR THE 52 WEEKS TO 24 DECEMBER 2005 KEY POINTS 2005 results and business developments • Total sales up 2.5% to £1,552.2m: - Howden UK up 10.5% to £617.8m; - UK Retail down 4.5% to £787.8m. • Howden UK pre exceptionals operating profit £103.6m (2004: £102.8m). • UK Retail pre exceptionals operating loss £85.1m (2004: £31.3m loss). • Loss before tax and exceptionals £0.6m (2004: £54.5m profit). • Loss before tax after exceptionals £110.8m (2004: £20.6m profit). • Net borrowings down £6.7m to £55.5m at 24 December 2005 - net cash of £112m as at 27 February 2006. • Successful exit from five peripheral businesses, including Hygena Cuisines in France, with cash proceeds of £92m from the Hygena Cuisines sale after the year-end. • New £150m medium term banking facility agreed in February 2006. • Settlement of VAT dispute resulting in £21.8m cash receipt in February 2006 from HM Revenue & Customs. • Agreement reached with pension trustees on scheme benefits and reduction in deficit. Current trading • In the first part of 2006, Howden UK continues to trade well. UK Retail is in line with plan, with sales down and gross margin up. Strategic update • First phase, stabilisation, completed: - new management structure; - strategy review; - financial stability; - exited peripheral businesses. • New strategic focus has been agreed and encompasses: - accelerating new Howdens depot openings, consistent with successful business model; - reorganising the Group into three distinct businesses; - refocusing Retail around kitchens and bedrooms; - a store by store property review; - improving customer service; - restructuring Supply business to make it flexible and efficient. • Consultations have commenced on proposals that could lead to significant job reductions. MFI Chief Executive, Matthew Ingle, said: '2005 was a very difficult year for MFI. Since my appointment in October, the new management team has worked with speed and urgency to address the problems facing the Group. We have made good progress by exiting a number of peripheral businesses, restoring financial stability and developing our new strategy for the future. We have a huge opportunity to rebuild this Group - there is a lot to do and it will take time. We are building the foundations needed and I am confident we are on the right track. Phase 1, stabilisation, is complete and we are now commencing phase 2, fixing the business, which we are announcing today. This will see us rebuilding and refocusing the business, to create a profitable format for Retail and to grow Howdens.' Enquiries: Investor Relations: Mark Robson MFI Furniture Group 020 7404 5959 Gary Rawlinson Media enquiries: Susan Gilchrist Brunswick 020 7404 5959 Fiona Laffan Anna Jones GROUP RESULTS As indicated in recent trading statements, the Group's results for 2005 reflect the volatile and difficult trading conditions encountered by UK Retail, particularly during the second half of the year, and problems inherent in the business. This resulted in a substantially increased operating loss for UK Retail. Total turnover rose by 2.5% to £1,552.2m (2004: £1,514.6m). Gross margin increased by 40 basis points to 50.0%, the lower margin of UK Retail being offset by the increased margin of Howden UK. Higher selling, distribution and administration costs meant a loss before tax, excluding exceptional items, of £0.6m (2004: £54.5m profit). Including exceptional items, there was a loss of £110.8m (2004: £20.6m profit). Net exceptional charges totalled £110.2m (2004: £33.9m), with a cash cost of £19.2m. Operating exceptional charges were £106.7m. These comprised: • £42.4m arising from the impairment of UK Retail assets; • £13.0m arising from the impairment of Sofa Workshop goodwill; • £38.7m relating to the write off of a receivable from HM Revenue & Customs; • £34.0m due to the write down of stock valuations; • £14.9m relating to the write off of capital expenditure on IT systems (£20m written off in 2004); • £5.4m incurred for remedial actions in respect of the supply chain; • a credit of £40.1m relating to the Group's UK pension scheme; • £1.6m other exceptional net credits. Non-operating exceptional charges totalled £3.5m. These comprised: • costs of £20.9m relating to the exit from peripheral businesses; • £17.4m relating to the profit on disposal of land and buildings, and fixtures and fittings. The tax charge of £7.8m represents tax payable in France (£1.5m), and prior year movements and deferred tax (£6.3m). Loss per share, excluding exceptional items, was 0.9p (2004: positive 5.5p). Including exceptionals, basic loss per share was 20.2p (2004: positive 1.3p). Earnings before interest, tax, depreciation and amortisation were £78.1m (2004: £122.1m). Cash outflow relating to operating exceptional items was £19.2m. Net capital expenditure was an inflow of £9.5m (2004: outflow £74.6m). Expenditure on fixed assets totalled £47.9m (2004: £82.8m), while the sale of fixed assets generated £57.4m (2004: £8.2m). In 2005, there was a cash inflow of £6.7m (2004: outflow £72.8m). Compared to a year earlier, net borrowings fell from £62.2m to £55.5m at 24 December 2005. DIVIDEND No final dividend for 2005 will be paid (2004:2.0p). The interim dividend already paid is therefore the total dividend for the year, 2.0p per share (2004: 4.0p). OPERATIONAL REVIEW Howden UK 2005 2004 £m £m Turnover 617.8 559.1 Operating profit before exceptional items 103.6 102.8 Against the background of increasingly difficult trading conditions, Howden UK performed well with turnover increasing by 10.5% to £617.8m, same depot turnover rising by 6.8%. Although gross margin rose by 110 basis points, higher staff (£8.4m), pension (£6.0m) and logistics (£5.2m) costs resulted in operating profit before exceptional items being virtually unchanged at £103.6m. Increased staff costs reflected higher investment in staff in anticipation of new depot openings, which were slowed in the second half as a result of the focus on cash conservation. Howden UK pension costs also increased, and, following the new agreement with the pension funds trustees, are expected to remain unchanged in 2006. 22 new depots were opened in 2005, bringing the total to 342. Also, 38 existing depots were extended and 9 were relocated. UK Retail (including Sofa Workshop) 2005 2004 £m £m Turnover 787.8 825.1 Operating loss before exceptional items (85.1) (31.3) Turnover fell by 4.5% to £787.8m, and was 5.1% lower on a same store basis. Deteriorating market conditions in the second half of the year, when sales fell 12.4% compared with the same period in 2004, meant that the 3.2% growth seen in the first half was more than cancelled out. Gross margin was 70 basis points lower than in 2004, as a result of pursuing volume in the 2005 Winter Sale. However, actions taken by the new management team meant that gross margin began to recover in the fourth quarter. Previously identified increases in rent and rates (£9m), pension costs (£11m), supply chain stabilisation (£4m) and other logistics costs (£8m), plus an additional £6m advertising expenditure, were partly offset by cost savings initiatives (£23m). As with Howden UK, the new agreement with the pension funds trustees is expected to result in similar pension costs in the current year. As a result of lower gross profit and increased costs, operating loss before exceptional items increased to £85.1m (2004: £31.3m loss). France Retail 2005 2004 £m £m Turnover 133.3 119.4 Operating profit before exceptional items 4.2 2.0 Turnover rose by 11.6% to £133.3m and operating profit increased by £2.2m to £4.2m. The sale of this business was announced on 14 February 2006 and the proceeds of £92m were received the same day. Supply After a lull in new product introduction, 20 new kitchen and bedroom ranges were introduced during 2005, including two new bedroom formats. Stability in the supply chain contributed to a significant real reduction in stock levels, which fell by £22m over the year. GROUP DEVELOPMENTS Strategic review In October, we announced that a wide-ranging and fundamental review of the Group's performance and strategy was being undertaken under the leadership of new Chief Executive, Matthew Ingle. In phase 1, we appointed a new management team, exited peripheral businesses, refinanced the Group and developed our strategic plan. In phase 2, we are implementing our plans for fixing the business. Phase 3 includes other areas where we are confident there is scope to improve performance substantially, but where further work is required. • Group structure Following the exit from peripheral businesses, including the successful sale of Hygena Cuisines earlier this month, the Group is focused on its UK operations. The current centralised group structure for these is inappropriate and inefficient. It has led to a build up of central and other costs for which the business lines were not directly responsible and operational inefficiencies which we intend to eliminate, particularly in the Group's manufacturing operations. The Group's UK operations are being reorganised into three businesses, which will be separately run, managed and accounted for, providing clarity and direct responsibility for all revenues and associated costs of the Group. The three businesses will be: • Retail, comprising the stores and the assets (including regional home delivery centres) associated with final delivery of orders to customers; • Howdens, comprising the depot network; • Supply, including primary warehousing, which will supply products to Retail and Howdens on an arms length basis. Product will be sourced from manufacturing operations retained by the Group and, increasingly, from external suppliers. CEOs have been appointed for Retail, Howdens and Supply, and the Group is now being run on this basis. Steps to effect the legal and commercial separation of the businesses are being implemented. These changes enable us to identify clearly where costs lie within the Group and who has responsibility for them. This will enable us to identify all opportunities for both cost reduction and increased efficiency. The Group intends to report its 2006 Interim results under this new structure, together with comparative information. • Retail The profitability of Retail cannot be restored within the historical business model. The aggregate gross margin is insufficient to absorb fully home delivery and in-store costs, which are scaled for a much larger business. Retail also suffers from poor customer service levels, both in-store and with delivery. A much more focussed and flexible structure is required to improve performance, combined with rigorous application of accountability and control, both financially and operationally. The results of the review to date are summarised below. Product offer Retail currently sells across the whole range of home furniture, from fitted kitchens and bedrooms, and furniture for these rooms, to lounge and dining room furniture, bathrooms and home office. The profitability and competitiveness of the product offer varies considerably and some products are not profitable after allocation of store and delivery costs. Retail will now concentrate on kitchens and bedrooms, and associated products, where it has competitive advantage and can achieve higher margins. This does not necessarily mean higher priced product. Kitchens and bedrooms currently represent in excess of 80 per cent of Retail's sales and gross margin, but a significantly lower proportion of selling space. Sales of non-core products will be progressively reduced as the store portfolio is reshaped. Where appropriate, Retail will consider granting concessions for such products. As a result, Retail's sales are expected to fall in 2006, with the impact on gross profit partially offset by a rise in gross margin. We will concentrate on selling higher margin products, increasing the penetration of installation sales, and improving supply arrangements. The concentration on higher margin product will involve a rationalisation of ranges, and testing and roll-out of new products is now more systematic. This will lead to a smaller range of higher quality product supported by a more focussed marketing campaign. By the end 2006, we plan to reduce the number of bedroom ranges from 53 to 31 and kitchen ranges from 63 to 38. Sofa Workshop As part of our strategy of concentrating on our core kitchens and bedrooms products, we have commenced a sales process for Sofa Workshop. We have also begun a consultation process with employees which may lead to 95 job losses. In-store service Our overall service model will improve. Currently, 60 per cent of customers are not pro-actively approached by our sales staff. As products become increasingly sophisticated, more of our staff will need greater in-depth product knowledge and an ability to plan both kitchens and bedrooms. Accordingly, we are significantly upgrading our training programme which was curtained in 2005 following closure of the training department. In addition, our staff scheduling will be improved to provide better customer service at busy times. Also, our sales staff will be in control of the sale from planning to delivery and installation. Logistics and home delivery In 2005, the costs of primary distribution and initial home delivery to customers were around £100m or approximately 13 per cent of UK Retail's sales. In addition, delivery was characterised by poor execution, with around 60 per cent of kitchen orders, at the worst point last year, requiring more than one delivery to complete. This led to further costs estimated at £36m in 2005. The fixed costs of distribution and home delivery are too high, the operation being scaled for a much larger business. Also, home delivery is uneconomic for some low value items. As a result, three of MFI's eight regional home delivery centres (RHDC) may be closed. This could result in around 180 potential job losses. Retail now has responsibility for the RHDCs and final delivery to customers, and there has been some improvement in the rate of successful deliveries. In addition, customers will in due course have the option to collect their purchases instead of having them delivered. It will be necessary to achieve a further significant reduction in total delivery costs, including those attributable to poor execution, for a turnaround of Retail to be successful. Retail is therefore trialling a new service centre model in Nottingham. It involves a local delivery centre (LDC) serving a cluster of local stores, a model that worked successfully in France. Staff, planners and fitters can co-ordinate their activities and deal with customer's issues personally and on a local basis. Customers can collect their orders from the LDC or, for a charge, the order will be delivered to their home. Staff are incentivised on the profitability of the sale, adjusted for any costs of poor execution. Store portfolio Store sizes currently range from 3,000 to 40,000 square feet, operate in a variety of retail locations and incur rent costs ranging from £8 to £40 per square foot. Total property costs were £101m in 2005. Retail has concluded that the most appropriate size of stores to maximise profitability is between 8,000 and 15,000 square feet. It has also decided what the most appropriate retail location is. A store by store assessment is being undertaken to determine how the current portfolio can be re-shaped, cost effectively, to meet this profile. 11 stores have already been identified which do not meet this portfolio criteria and can be exited cost effectively. If these stores are closed, this may result in around 95 potential job losses. We expect to complete the store by store assessment later this year and will provide an update with our 2006 Interim results. Overall, the combined actions identified in Retail may result in a total of 370 job losses and closure costs of £13m. Annualised cost savings are estimated at £7m. • Howden UK Howdens is a successful business that still has good growth opportunities, both from existing and new depots. It has historically been a very cash generative business and is expected to remain so. In existing depots, it is expected growth will continue as they mature. Consideration will be given to introducing new product ranges and new marketing material that supports the customer. Where appropriate, existing depots will be expanded or re-located. The expansion of Howdens was deliberately slowed as the Group's situation worsened in 2005. Now, Howdens will again be able to move forward by re-investing more of the cash it generates in new depots. We plan to add new depots at the rate of about 30 per year. • Supply Approximately half the products sold by the Group are manufactured in-house and the remainder sourced from third parties. For example, we currently source 15% of our total product from Italy. In a number of categories, relative to in-house manufacture, higher quality products can be sourced at lower cost (and risk) from third parties. For the Group's manufacturing facilities to be price competitive with third party suppliers for these products, significant capital investment would be required. However, this would still leave the Group gross margin exposed to rises in unit costs if volumes fell below planned levels. As a result, we propose to reduce manufacturing capacity in the UK by approximately 40%, with associated costs of £21m. This may lead to around 1,100 job reductions (approx 9% of MFI's total employees). Annualised cost savings are estimated at £12m. In addition, the Group does not have to incur around £40-50m of capital investment to modernise the factories and working capital tied up in in-house manufacturing will be released. These actions will mean that third party sourcing will increase to approximately 75 per cent by the end of 2007 from its current 50%, with associated benefits of lower costs of goods sold and reduced capital expenditure. • Financial implications The phase 2 measures announced today are expected to deliver total profit and loss account benefits of around £11m in 2006 and annualised benefits of £23m from 2007 onwards, together with significant working capital and capital expenditure savings. In respect of these measures, the Group is expected to incur cash costs of £34m in 2006 and associated asset write offs of £36m. This year, fees of around £12m will be incurred in respect of the reorganisation of the Group, the development of the new strategy and the new banking arrangements. MFI will provide an update on the next phase of the review, concerning home delivery logistics and the reshaping of the store portfolio, with its 2006 Interim results announcement. Banking arrangements We announced, on 17 February 2006, a new 39-month secured £150m facility that replaces the previous facility. The Company has received clearance from the Pensions Regulator in respect of the new financing arrangements. The Company and the Trustees of the MFI Group Pension Plan and the Schreiber Fund have agreed that, for so long as the new facilities remain in place, security will also be granted to the Trustees by the MFI Group. This security will be released upon the new lenders being repaid in full. Management changes Matthew Ingle was appointed Chief Executive in October 2005 and CEOs have been appointed for each of the three new businesses: Stephen Round heads Retail, Rob Fenwick manages Supply and Matthew Ingle continues to head Howdens. An interim Group Chief Operating Officer, Pippa Wicks of AlixPartners, has been appointed. Pensions • FRS17 valuation The pre-tax deficit at 24 December 2005 was £296m (£295m at 25 December 2004). During 2005, liabilities fell by £45m as a result of certain members of the UK pension plans accepting a cash payment in exchange for any claim they may have for additional pension benefits arising from the non-equalisation of retirement ages for men and women (the equalisation liability is now £5m at 2004 values). This, together with favourable investment returns, largely offset increases in scheme liabilities which arose from a further fall in bond yields during 2005, and a smaller increase from changes made to life expectancy assumptions. • Actuarial valuation and new pension arrangements The triennial actuarial valuations (as at 6 April 2005) calculated a pre-tax funding deficit of £182m, after the reduction in liabilities described above. Agreement has been reached with the Trustees concerning arrangements for clearing this deficit. The trustees also recognised the need for change to future service benefits. From September 2006, the intention is that the current schemes benefits, which are based on final salary at retirement, will be replaced by a contracted-in hybrid arrangement under which a core defined benefit pension based on career average earnings will be offered with an optional top-up defined contribution account. The effect of these changes would be to reduce the gross actuarial funding deficits (as at 6 April 2005) by £32m to £150m. A similar reduction would occur on a FRS17 basis. Under arrangements agreed with the Pensions Regulator, it is intended that the remaining actuarial deficit will be cleared over a 10-year period. As part of these arrangements and in connection with the terms of the new secured lending facility (see above), the Trustees have been granted security for the duration of the new banking facility via a first fixed charge over the issued share capital of Howden Joinery Limited and second ranking security over other assets charged to secure the new facility. We estimate the total annualised charges to the profit and loss account arising from the new pension arrangements will be around £35m (including £3.8m in respect of the loss of national insurance rebates as a result of the changes to the scheme and estimated take-up of the top-up defined contribution option). This is similar to the charge in 2005. TRADING UPDATE Howden UK has continued to trade well in the first part of the current year (from Boxing day 2005 to 22 February 2006). Total sales are up 9% on the same period last year and more than 6% up on a same depot basis. Gross margin improvement has continued and is up more than 100 basis points on last year. There are no plans to repeat the June 2005 promotion this year as this put pressure on margins over the course of last year. In what has been a tough market for 'larger ticket' items, Retail has traded in line with our plan. Consistent with our deliberate strategy of exiting unprofitable products, orders in the first part of the year are 17% lower than the same period in 2005, 14% lower on a same store basis. However, gross margin has risen by 500 basis points. As a result, the like for like contribution to gross profits is only 5% lower than last year. The Group currently has net cash of £112m, including the Hygena Cuisines disposal proceeds. The next trading update will be given at our AGM on 19 May 2006. CONSOLIDATED PROFIT AND LOSS ACCOUNT 52weeks to 24 December 2005 Before exceptional items Exceptional Continuing Discontinued Total items operations operations* operations (note 3) Total (note 13) £m £m £m £m £m Turnover Group and share of joint venture 2 1,422.7 133.3 1,556.0 - 1,556.0 Less: share of joint venture (3.8) - (3.8) - (3.8) ------ -------- ------- ------- ------- Group turnover 1,418.9 133.3 1,552.2 - 1,552.2 Cost of sales (706.4) (69.6) (776.0) (34.4) (810.4) ------ -------- ------- ------- ------- Gross profit 712.5 63.7 776.2 (34.4) 741.8 Selling and distribution costs (629.6) (53.2) (682.8) (58.0) (740.8) Administrative expenses (75.1) (6.3) (81.4) (14.3) (95.7) ------ -------- ------- ------- ------- Operating profit/(loss) 2 7.8 4.2 12.0 (106.7) (94.7) Share of operating loss of joint venture (1.5) - (1.5) - (1.5) ------ -------- ------- ------- ------- Total operating profit - Group and share of joint venture 6.3 4.2 10.5 (106.7) (96.2) Exceptional item - net profit/(loss) on disposal of fixed assets 3 - - - 17.4 17.4 Exceptional item - provision for closure of operations 3 - - - (20.9) (20.9) ------ -------- ------- ------- ------- Profit/(loss) on ordinary activities before interest 6.3 4.2 10.5 (110.2) (99.7) Interest receivable and similar income 3.9 0.1 4.0 - 4.0 Interest payable and similar charges (6.3) - (6.3) - (6.3) Other finance charges - FRS17 pension (8.8) - (8.8) - (8.8) ------ -------- ------- ------- ------- (Loss)/profit on ordinary activities before taxation (4.9) 4.3 (0.6) (110.2) (110.8) Tax on (loss)/profit on ordinary activities 4 (2.7) (2.2) (4.9) (2.9) (7.8) ------ -------- ------- ------- ------- (Loss)/profit for the financial period (7.6) 2.1 (5.5) (113.1) (118.6) Dividends paid 5 (11.8) - (11.8) - (11.8) ------ -------- ------- ------- ------- Amount transferred (from) / to reserves 7 (19.4) 2.1 (17.3) (113.1) (130.4) ====== ======== ======= ======= ======= Earnings per share Basic (loss)/earnings per 10p ordinary share 6 (20.2)p ======= Diluted (loss)/earnings per 10p ordinary share 6 (20.2)p ======= Earnings per share (before exceptional items) Basic (loss)/earnings per 10p ordinary share 6 (0.9)p ====== Diluted (loss)/earnings per 10p ordinary share 6 (0.9)p ====== 52 weeks to 25 December 2004 (restated **) Before exceptional items Exceptional Continuing Discontinued Total items operations operations operations Total (note 13) £m £m £m £m £m Turnover Group and share of joint venture 2 1,399.1 119.4 1,518.5 - 1,518.5 Less: share of joint venture (3.9) - (3.9) - (3.9) ------- ------- ------- ----- ------- Group turnover 1,395.2 119.4 1,514.6 - 1,514.6 Cost of sales (700.9) (61.8) (762.7) (3.1) (765.8) ------- ------- ------- ----- ------- Gross profit 694.3 57.6 751.9 (3.1) 748.8 Selling and distribution costs (573.0) (50.6) (623.6) (32.8) (656.4) Administrative expenses (59.0) (5.0) (64.0) 4.0 (60.0) ------- ------- ------- ----- ------- Operating profit/(loss) 2 62.3 2.0 64.3 (31.9) 32.4 Share of operating loss of joint venture (2.1) - (2.1) - (2.1) ------- ------- ------- ----- ------- Total operating profit - Group and share of joint venture 60.2 2.0 62.2 (31.9) 30.3 Exceptional item - net profit/(loss) on disposal of fixed assets 3 - - - (2.0) (2.0) Exceptional item - provision for closure of operations 3 - - - - - ------- ------- ------- ----- ------- Profit/(loss) on ordinary activities before interest 60.2 2.0 62.2 (33.9) 28.3 Interest receivable and similar income 1.8 0.2 2.0 - 2.0 Interest payable and similar charges (4.1) (0.2) (4.3) - (4.3) Other finance charges - FRS17 pension (5.4) - (5.4) - (5.4) ------- ------- ------- ----- ------- (Loss)/profit on ordinary activities before taxation 52.5 2.0 54.5 (33.9) 20.6 Tax on (loss)/profit on ordinary activities 4 (22.8) - (22.8) 9.6 (13.2) ------- ------- ------- ----- ------- (Loss)/profit for the financial period 29.7 2.0 31.7 (24.3) 7.4 Dividends paid 5 (23.2) - (23.2) - (23.2) ------- ------- ------- ----- ------- Amount transferred (from)/ to reserves 7 6.5 2.0 8.5 (24.3) (15.8) ======= ======= ======= ===== ======= Earnings per share Basic (loss)/earnings per 10p ordinary share 6 1.3p ======= Diluted (loss)/earnings per 10p ordinary share 6 1.2p ======= Earnings per share (before exceptional items) Basic (loss)/earnings per 10p ordinary share 6 5.5p ======= Diluted (loss)/earnings per 10p ordinary share 6 5.3p ======= * Relates to Hygena Cuisines (see note 13). Included within selling and distribution costs (operating exceptional items) are £0.3m of costs relating to the discontinued operations (2004: £0.4m). Included within profit and loss on disposals is a loss on disposal of assets related to discontinued operations of £0.2m (2004: £0.2m). ** Restated for FRS17 (see note 12) CONSOLIDATED BALANCE SHEET 24 December 25 December Notes 2005 2004 (restated*) FIXED ASSETS £m £m Intangible assets - 13.7 Tangible assets 262.3 381.6 Investments 8.8 8.1 --------- --------- Total fixed assets 271.1 403.4 --------- --------- CURRENT ASSETS Stocks 173.5 238.4 Debtors 134.5 217.9 Investments 5.5 9.4 Cash at bank and in hand 89.0 28.4 --------- --------- 402.5 494.1 --------- --------- CREDITORS FALLING DUE WITHIN ONE YEAR 8 (246.0) (359.3) Net current assets 156.5 134.8 Total assets less current liabilities 427.6 538.2 CREDITORS FALLING DUE AFTER MORE THAN ONE YEAR 9 (150.0) (100.0) PROVISIONS FOR LIABILITIES AND CHARGES 10 (9.6) (13.5) --------- --------- Net assets excluding net pension liability 268.0 424.7 NET PENSION LIABILITY (207.2) (206.2) --------- --------- Net assets 60.8 218.5 ========= ========= CAPITAL AND RESERVES Called up share capital 7 62.7 62.3 Share premium account 7 81.3 77.2 Revaluation reserve 7 13.3 21.8 ESOP reserve 7 (55.0) (55.1) Other reserves 7 28.1 28.1 Profit and loss account 7 (69.6) 84.2 --------- --------- Equity shareholders' funds 60.8 218.5 ========= ========= These financial statements were approved by the board on 28 February 2006 and were signed on its behalf by Mark Robson, Director. * Restated for FRS17 - see note 12 CONSOLIDATED CASH FLOW STATEMENT 52 weeks to 52 weeks to 24 December 25 December Notes 2005 2004 £m £m Net cash inflow from operating activities 11 24.0 66.7 Returns on investments and servicing of finance 11 (2.3) (1.4) Taxation (3.4) (33.7) Capital expenditure and financial investment (net) 11 8.3 (75.7) Equity dividends paid (23.4) (23.2) -------- ------- Cash inflow / (outflow) before use of liquid resources and financing 3.2 (67.3) Management of liquid resources 3.9 2.4 Financing 11 53.7 44.6 -------- ------- Increase/(decrease) in cash in the period 60.8 (20.3) ======== ======= RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Increase/(decrease) in cash in the period 60.8 (20.3) Cash movement on: - debt and lease financing (50.0) (50.0) - cash flow from increase in liquid resources (3.9) (2.4) ------- ------- Change in net funds/(debt) resulting from cash flows 6.9 (72.7) Effect of foreign exchange rate changes 11 (0.2) (0.1) ------- ------- Movement in net funds/(debt) in the period 6.7 (72.8) Net (debt)/funds at the beginning of the period 11 (62.2) 10.6 ------- ------- Net debt at the end of the period 11 (55.5) (62.2) ======= ======= 1. BASIS OF PREPARATION The financial information set out does not constitute statutory financial statements for the periods ended 52 weeks to 24 December 2005 and 52 weeks to 25 December 2004, but is derived from those accounts. Statutory accounts for the 52 weeks to 25 December 2004 have been delivered to the Registrar of Companies and those for the 52 weeks to 24 December 2005 will be sent to shareholders and filed with the Registrar of Companies on 19 April 2006. 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. The accounting policies are consistent with those applied to the audited financial statements for the 52 weeks to 25 December 2004, with the exception of the adoption of FRS17 'Retirement Benefits' in full in 2005. The Group is required to adopt FRS17 retrospectively and so we have restated the comparative figures. The effect of the restatement is shown in note 12. 2. SEGMENTAL ANALYSIS The analysis of turnover by destination is not materially different to the analysis of turnover by origin. 52 weeks to 52 weeks to 24 December 25 December 2005 2004 TURNOVER £m £m Howden Joinery 617.8 559.1 UK Retail 787.8 825.1 France Retail 133.3 119.4 Howden Millwork 9.3 7.3 Other operations 4.0 3.7 -------- -------- 1,552.2 1,514.6 Joint venture operations 3.8 3.9 -------- -------- Total 1,556.0 1,518.5 ======== ======== 24 December 25 December 2005 2004 Total Total (restated) NET ASSETS £m £m Howden Joinery 101.6 141.8 UK Retail 191.1 305.9 France Retail 29.6 40.2 Howden Millwork (4.2) 8.8 Other operations 4.6 1.7 Joint venture operations 0.8 0.1 -------- --------- 323.5 498.5 Unallocated net assets/(liabilities): Pension deficit (207.2) (206.2) Dividend accrual - (11.6) Cash and current asset investments 94.5 37.8 Loans (150.0) (100.0) -------- --------- Total net assets 60.8 218.5 ======== ========= 2 . SEGMENTAL ANALYSIS (continued) 52 weeks to 24 December 2005 52 weeks to 25 December 2004 (restated) PROFIT BEFORE Before Except- Total Before Except- Total TAXATION except- ional except- ional ional items ional items items items £m £m £m £m £m £m Howden Joinery 103.6 0.7 104.3 102.8 2.5 105.3 UK Retail (85.1) (94.9) (180.0) (31.3) (14.0) (45.3) France Retail 4.2 (0.3) 3.9 2.0 (0.4) 1.6 Howden Millwork (6.9) - (6.9) (8.6) - (8.6) Other operations (3.8) - (3.8) (0.6) - (0.6) Operating exceptional item re supply chain computer system - (14.9) (14.9) - (20.0) (20.0) Operating exceptional item re pensions - 40.1 40.1 - - - Operating exceptional item re stock - (34.0) (34.0) - - - Operating exceptional item re restructuring - (3.4) (3.4) - - - ------- -------- ------- -------- -------- -------- Total operating profit 12.0 (106.7) (94.7) 64.3 (31.9) 32.4 Joint venture operations (1.5) - (1.5) (2.1) - (2.1) ------- -------- ------- -------- -------- -------- Total operating profit (Group and JVs) 10.5 (106.7) (96.2) 62.2 (31.9) 30.3 Profit/(loss) on disposal of fixed assets - 17.4 17.4 - (2.0) (2.0) Provision for closure of operations (note 5f) - (20.9) (20.9) - - - Net interest payable (2.3) - (2.3) (2.3) - (2.3) FRS17 pension finance charges (8.8) - (8.8) (5.4) - (5.4) ------- -------- ------- -------- -------- -------- (Loss)/profit before taxation (0.6) (110.2) (110.8) 54.5 (33.9) 20.6 ======= ======== ======= ======== ======== ======== 3. EXCEPTIONAL ITEMS Exceptional costs charged to profit in the year are analysed as follows: Cost of Selling & Administrative Total sales distribution expenses £m £m £m £m Supply Chain (note 3a) 0.4 5.0 - 5.4 Restructuring (note 3a) - - 3.4 3.4 Credit on share based payments & associated national insurance (note 3a) - - (2.0) (2.0) Pensions NRD (note 3b) - - (40.1) (40.1) Structural Guarantee (note 3c) - 38.7 - 38.7 Profit on novation (note 3c) - (3.0) - (3.0) Impairment (note 3d) 34.0 17.3 53.0 104.3 ------- ------- -------- ------ Total charged to operating profit 34.4 58.0 14.3 106.7 ======= ======= ======== Non operating exceptionals: Profit on disposal (note 3e) (17.4) Cost of closures (note 3f) 20.9 ------ Total exceptional costs before tax 110.2 Tax charge on exceptional items 2.9 ------ Total exceptional costs after tax 113.1 ====== a) Exceptional items - supply chain, restructuring costs and share schemes Exceptional items of £5.4m before tax (2004: £31.9m), are included in operating loss in respect of the supply chain. In addition £3.4m has been spent on restructuring in the year. There has also been a £2.0m net credit in respect of share scheme amortisation and associated national insurance where performance conditions are no longer expected to be met (2004: £7.5m). The charges are made up as follows: £m £m Additional delivery and associated remedial costs 1.2 Additional staff and consultancy costs 3.9 Redundancy costs 0.3 -------- 5.4 Restructuring costs 3.4 Credit re share-based payment amortisation and associated national insurance (2.0) ------- Operating exceptional costs before tax 6.8 Tax credit on operating exceptional items (1.2) ------- Operating exceptional costs after tax 5.6 ======= b) Exceptional items - pensions On 6 May 2004, the Group announced additional pension liabilities arising from a failure to equalise the pension age for men and women at age 65. Under FRS17 valuation methods, these additional liabilities were estimated at £50m. In May 2005 the Group wrote to certain members of the UK pension plans offering them an immediate cash payment in exchange for giving up any claim a member may have to possible additional pension benefits arising from the equalisation issue. The closing date for the offers was 8 July 2005. By value 87.4 % of the eligible members accepted the cash offer. This has resulted in a total cash payment of £16.0m in respect of all members who have accepted the cash offer in 2005. The cash has been paid and the expense for all members who accepted the offer has been recognised in these accounts. The effect of these settlements is to reduce the additional liability (originally estimated at £50m on an FRS17 basis) by £45.0m. This reduction in liability has also been reflected in these accounts. 3. EXCEPTIONAL ITEMS (continued) b) Exceptional items - pensions (continued) On 14 March 2005 the group announced that it had received a cash settlement of £12.0m from one of the third parties on whose advice the Group and the pension plan trustees had relied.The cash payments and the reduction in deficit for all offers accepted, together with the cash settlement received from a third party and the associated legal fees, have been treated as exceptional items, included in operating loss. The effect of these items is: £m £m Reduction in pension deficit following acceptance of cash 45.0 offer Cost of cash offer (16.0) Cash settlement received from third party 12.0 Professional fees incurred (0.9) --------- Net operating exceptional credit before tax 40.1 Tax charge on operating exceptional items (8.4) ------- Net operating exceptional credit after tax 31.7 ======= c) Exceptional items - structural guarantee Between August 2001 and May 2004 the Group introduced an optional insurance-backed structural guarantee on certain items of furniture sold in its UK retail stores. Value Added Tax (VAT) was paid on the furniture element of the transaction and Insurance Premium Tax (IPT) was paid on the sale of these warranties. An assessment totalling £60.5m was raised on the VAT on the sale of the warranties and the relevant tax was paid to HM Revenue & Customs at the time. This payment was carried on the balance sheet as a debtor without any provision as at the time we believed that we had a strong legal case to recover this money in full. To date, the following amounts have been recorded: Cumulative 2005 2004 2003 2002 2001 £m £m £m £m £m £m Reduction in VAT 60.5 - 10.5 20.7 22.0 7.3 IPT paid (15.3) - (2.3) (5.3) (5.6) (2.1) External insurance premium/ expenses (7.7) - (1.2) (2.5) (2.8) (1.2) Reinsurance premium to Group company (12.5) - (2.1) (4.2) (4.5) (1.7) Underwriting profit recognised by Group company 8.4 5.5 1.9 1.0 - - -------- ------ ------- ------ ------- ------ Profit taken to profit and loss account 33.4 5.5 6.8 9.7 9.1 2.3 ======== ====== ======= ====== ======= ====== 80% of the insurance was reinsured by the external insurer through the Group's captive insurance company, Southon Insurance Company Limited. MFI has reached a settlement with HM Revenue & Customs in January 2006 over this VAT dispute as the resource required, and associated litigation risk, was deemed to be a distraction to achieving a successful implementation of the new business strategy. Both parties have agreed to settle, with HM Revenue & Customs refunding £21.8m to MFI. As a result, MFI has written off the balance of the receivable of £38.7m in the accounts for the 52 weeks to 24 December 2005. The money was collected in February 2006. 3. EXCEPTIONAL ITEMS (continued) c) Exceptional items - structural guarantee (continued) The exceptional item of £38.7m in respect of the Structural Guarantee included in operating loss is made up as follows: £m £m Structural guarantee debtor at 26 December 2005 60.5 HM Revenue & Customs refund (21.8) --------- Net operating exceptional cost before tax 38.7 Tax credit on operating exceptional items - ------- Net operating exceptional cost after tax 38.7 ======= In addition part of the structural guarantee furniture insurance program undertaken by the Group's captive insurance company - Southon Insurance - has been novated to an external insurance company; this transaction generated an underwriting profit of £3.0m which is included in operating profit. The effect of this item is: £m Profit on novation 3.0 Tax charge on operating exceptional item (0.9) ---------- Operating exceptional credit after tax 2.1 ========== d) Exceptional provision for impairment As a result of the continued underperformance of the UK retail business in accordance with FRS11 we have assessed the assets of UK Retail and as a result impaired the UK retail assets by £42.4m. In addition £14.9m has been provided against the SAP system (2004: £20.0m) and £13.0m has been provided against the goodwill relating to the Sofa Workshop acquisition. Stock valuations have also been reduced by £34.0m for obsolete and excess stock. £m £m UK retail impairment 42.4 Write off of elements of the supply chain computer system capitalised in prior years 14.9 Impairment of goodwill on Sofa Workshop acquisition 13.0 Stock write-down 34.0 ------- Operating exceptional costs before tax 104.3 Tax credit on operating exceptional items - ------- Operating exceptional costs after tax 104.3 ======= e) Profit on disposal of fixed assets The profit on disposal of fixed assets of £17.4m (52 weeks to 25 December 2004: loss of £2.0m), represents net gains on disposal of land and buildings and fixtures and fittings. The associated deferred tax credit is £1.3m (25 December 2004: £nil). f) Exceptional provision for closure costs As announced in our press release of 11 May 2005, the Group agreed with our joint venture partners to end the venture, Hygena at Currys, by mutual agreement following a comprehensive review of the business. A closure programme for the Hygena concessions, which traded in 130 of Currys' 370 stores, is now complete. In our press release of 1 December 2005, the Group announced it is to close it's US pilot operation Howden Millworks. A closure programme for the 20 depots is in place and we expect trading to cease by April 2006 and operations to cease by June 2006. In addition, the Group announced the sale of its 50% interest in its Taiwan joint venture to its Taiwanese partner and announced the closure of the UK joint venture with Ethan Allen. A closure programme for the 2 Ethan Allen stores is in place and we expect it to be finished by March 2006. The sale of the Group 50% interest in its Taiwan joint venture to its Taiwanese partner was completed in December 2005. 3. EXCEPTIONAL ITEMS (continued) (f) Exceptional provision for closure costs (continued) In accordance with FRS3, we have disclosed the costs of closure (including provision for future operating losses) of these businesses, and have treated them as post-operating exceptional items. The costs comprise the following items: £m £m Costs of closure - hygena @ Currys 6.5 Costs of closure - Howden US 13.1 Costs of closure - Ethan Allen 1.4 ------- 21.0 Cost of closure - Taiwan 0.3 Receipt from sale of 50% share of joint venture (0.4) ------- Exceptional provision for closures before tax (0.1) --------- 20.9 Tax credit on operating exceptional items (3.9) --------- Total exceptional provision for closures after tax 17.0 ========= 4. TAX ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES 52 weeks to 52 weeks to 24 Dec 2005 25 Dec 2004 £m £m Taxation on profit for the period comprises: UK corporation tax at 30.0% (2004: 30.0%) - 14.6 Overseas tax 1.5 - Current tax adjustment relating to prior periods (1.7) 3.9 ------ ------ Total current tax (0.2) 18.5 Deferred tax charge/(credit) 8.0 (5.3) ------ ------ 7.8 13.2 ====== ====== 5. EQUITY DIVIDENDS 52 weeks to 52 weeks to 24 Dec 2005 25 Dec 2004 £m £m Interim paid - 2.0 pence per share 11.8 11.6 (2004 - 2.0 pence per share) Final proposed - nil - 11.6 (2004 - 2.0 pence per share) ------ ------ Total dividend - 2.0 pence per share 11.8 23.2 (2004 - 4.0 pence per share) ====== ====== 6. EARNINGS PER SHARE 52 weeks to 24 December 2005 52 weeks to 25 December 2004 ------------------------------------- ----------------------------------- Earnings Weighted Earnings Earnings Weighted average per (restated) average number share number Earnings of of per share shares shares (restated) £m m p £m m p Basic (loss)/earnings per share: ---------------------------------- Basic (loss)/earnings per share (118.6) 588.4 (20.2) 7.4 581.0 1.3 Effect of dilutive share options - - - - 17.9 (0.1) ------ ------ ------ ------ ------ ------ Diluted (loss)/earnings per share (118.6) 588.4 (20.2) 7.4 598.9 1.2 ====== ====== ====== ====== ====== ====== Reconciliation of(loss)/earnings per share to exclude exceptional items: ---------------------------------- Basic (loss)/earnings per share (118.6) 588.4 (20.2) 7.4 581.0 1.3 Exceptional items (net of tax) 113.1 - 19.3 24.3 - 4.2 ------ ------ ------ ------ ------ ------ Basic (loss)/earnings per share excluding exceptional items (5.5) 588.4 (0.9) 31.7 581.0 5.5 ====== ====== ====== ====== ====== ====== Diluted (loss)/earnings per share (118.6) 588.4 (20.2) 7.4 598.9 1.2 Exceptional items (net of tax) 113.1 - 19.3 24.3 - 4.1 ------ ------ ------ ------ ------ ------ Diluted (loss)/earnings per share excluding exceptional items (5.5) 588.4 (0.9) 31.7 598.9 5.3 ====== ====== ====== ====== ====== ====== Earnings per share (eps) excluding exceptional items has been calculated to show the impact of these exceptional items, as they can have a significant effect on earnings and therefore warrant separate consideration. In accordance with FRS14, as the company is loss making in 2005, no adjustment has been made to diluted eps, therefore diluted eps equals basic eps. 7. RESERVES Share Share premium Revaluation ESOP Other Profit and capital account reserve reserve reserves loss account £m £m £m £m £m £m As at 25 December 2004 62.3 77.2 21.8 (55.1) 28.1 286.5 Restatement on adopting FRS17 (note 12) - - - - - (202.3) ----- -------- ------- ------- ------- ------- As at 25 December 2004 restated 62.3 77.2 21.8 (55.1) 28.1 84.2 Retained loss for the period - - - - - (130.4) Movement on pension deficit - - - - - (29.9) Shares issued 0.4 4.1 - - - (1.8) Net movement on ESOP reserve - - - 0.1 - - Realised revaluation profit - - (8.5) - - 8.5 Foreign exchange - - - - - (0.2) ----- -------- ------- ------- ------- ------- As at 24 December 62.7 81.3 13.3 (55.0) 28.1 (69.6) 2005 ===== ======== ======= ======= ======= ======= The cumulative amount of goodwill written off against Group profit and loss account reserves in respect of acquisitions prior to 24 April 1999 when FRS 10 'Goodwill and intangible assets' was adopted amounts to £504.6m (25 December 2004 - £504.6m). Other reserves represent a special reserve of £482.6m less goodwill arising on consolidation of £454.5m. The special reserve is distributable. 8. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 24 Dec 2005 25 Dec 2004 £m £m Trade creditors 73.4 154.5 Corporation tax 0.9 4.6 Other taxation and social security 33.2 24.0 Other creditors 19.7 20.0 Accruals and deferred income 118.8 144.6 Proposed dividends - 11.6 ------ ------ 246.0 359.3 ====== ====== 9. CREDITORS: AMOUNTS FALLING AFTER MORE THAN ONE YEAR 24 Dec 2005 25 Dec 2004 £m £m Bank loans 150.0 100.0 ====== ====== On 17 February 2006 the Group refinanced it's medium term debt and replaced them with a new 3.25 year secured facility. 10. PROVISIONS FOR LIABILITIES AND CHARGES Pension Property Deferred Total provision provision taxation £m £m £m £m Group At 25 December 2004 7.4 0.7 9.3 17.4 Removed on adoption of FRS17 (7.4) - 3.5 (3.9) ------ ------ ------ ------ At 25 December 2004 - restated - 0.7 12.8 13.5 Created in the period - 0.5 - 0.5 Utilised in the period - - (4.4) (4.4) ------ ------ ------ ------ At 24 December 2005 - 1.2 8.4 9.6 ====== ====== ====== ====== The £8.0m charge for deferred tax included in note 4 is made up of the £4.4m credit to the deferred tax provision above, offset by a £12.4m charge from the deferred tax asset of the pension deficit. The £12.4m relates to the £45.0m exceptional credit, as well as the difference between the pension charge for the year and the contributions paid. 11. CONSOLIDATED CASH FLOW STATEMENT a) Reconciliation of operating (loss)/profit to operating cash flows 24 Dec 2005 25 Dec 2004 £m £m (restated) Operating profit before exceptional items 12.0 64.3 Depreciation and amortisation charge 66.1 57.8 ------ ------ 78.1 122.1 Decrease / (increase) in stocks 21.3 (42.7) Decrease/ (increase) in debtors 43.7 (15.4) (Decrease)/ increase in creditors and provisions (94.7) 45.3 Adjustment for pensions movements (5.2) - ------ ------ Net cash inflow - pre-exceptional operating activities 43.2 109.3 Net cash outflow - operating exceptionals (18.2) (28.1) Net cash outflow - operating exceptionals expensed in prior year (1.0) - Net cash outflow - VAT paid re Structural guarantee - (14.5) ------ ------ Net cash inflow from operating activities 24.0 66.7 ====== ====== Net cash inflow from operating activities comprises: Continuing operating activities 10.9 60.7 Discontinued operating activities 13.1 6.0 ------ ------ 24.0 66.7 ====== ====== b) Analysis of cash flows for headings netted in the cash flow statement 24 Dec 2005 25 Dec 2004 £m £m (restated) Returns on investments and servicing of finance Interest received 4.1 2.0 Interest paid (6.4) (3.4) ------ ------ Net outflow on investments and servicing of finance (2.3) (1.4) ====== ====== Capital expenditure and financial investment Payments to acquire tangible fixed assets (47.9) (82.8) Receipts from sales of tangible fixed assets 57.4 8.2 Investment in joint ventures (1.2) (1.1) ------ ------ Net inflow/(outflow) for capital expenditure and financial investment 8.3 (75.7) ====== ====== Financing Shares issued 2.7 2.2 Payment to acquire own shares 1.0 (7.6) Other increase in bank finance 50.0 50.0 ------ ------ Net inflow from financing 53.7 44.6 ====== ====== c) Analysis of net funds Cash at Bank Net Current Total bank loans debt asset net investments (debt)/ funds £m £m £m £m £m As at 27 December 2003 48.8 (50.0) (1.2) 11.8 10.6 Cash flow (20.3) (50.0) (70.3) (2.4) (72.7) Exchange difference (0.1) - (0.1) - (0.1) ------ ----- ----- ------ ----- As at 25 December 2004 28.4 (100.0) (71.6) 9.4 (62.2) Cash flow 60.8 (50.0) 10.8 (3.9) 6.9 Exchange difference (0.2) - (0.2) - (0.2) ------ ----- ----- ------ ----- As at 24 December 2005 89.0 (150.0) (61.0) 5.5 (55.5) ====== ===== ===== ====== ===== 12. PENSIONS The Group has adopted FRS17 'Retirement Benefits' in full with effect from 26 December 2004. On adopting FRS17, we are required to change the accounting treatment of our defined benefit pension schemes. Under FRS17 we are required to include the assets and liabilities of these schemes on the Group balance sheet. Current service costs, curtailment and settlement gains and losses, and net financial returns are included in the profit and loss account in the period to which they relate. Actuarial gains and losses are included in the statement of total recognised gains and losses. We are required to show the effect of adopting FRS17 retrospectively and so we have restated our comparative figures as shown below: GROUP PROFIT AND Profit on ordinary Net interest Profit for the LOSS ACCOUNT activities before receivable/ financial period interest (payable) £m £m £m 52 weeks to 25 Dec 2004 As previously stated 27.3 (2.3) 10.5 Effect of adopting FRS17 1.0 (5.4) (3.1) --------- --------- --------- As restated 28.3 (7.7) 7.4 ========= ========= ========= GROUP Gross pension provision (included in Net pension P&L reserve BALANCE Provisions for liabilities & charges) liabilities SHEET £m £m £m 25 Dec 2004 As previously (7.4) - 286.5 stated Effect of adopting 7.4 (206.2) (202.3) FRS17 ------------ ----------- ---------- As restated - (206.2) 84.2 ============ =========== ========== The actuarial valuation of the schemes as at 6 April 2005 was updated to 24 December 2005 by an independent qualified actuary on a basis consistent with the requirements of FRS 17 and is reported below. It showed that the market value of the schemes' assets was £412m and that the actuarial value of these assets represented 58% of the benefits that had accrued to members. The weighted average major assumptions used for this update were: 24 Dec 2005 25 Dec 2004 27 Dec 2003 Rate of increase in salaries 3.9% 3.9% 3.0% Rate of increase in pensions in payment (pre 6 April 1997) 3.0% 3.0% 3.0% Rate of increase in pensions in payment (post 6 April 1997) 2.9% 2.9% 2.5% Discount rate 4.8% 5.4% 5.5% Inflation assumption 2.9% 2.9% 2.5% The base tables used for mortality in retirement are PMA92 and PFA92. These tables can be projected forward to allow for expected future improvements in mortality. For current pensioners in the scheme, the tables have been projected forward to 2015. For future pensioners, the tables have been projected forward to 2025. The following table shows the future life expectancies in years for males and females at the age of 65, in line with the mortality assumptions adopted. Age 65 Future pensioners - Males 21.6 - Females 24.4 Current pensioners - Males 20.9 - Females 23.7 12. PENSIONS (continued) 24 Dec 25 Dec 2005 2004 £m £m Analysis of the amount that has been charged to operating profit under FRS 17 Current service cost 24.2 15.0 Past service credit (45.0) - ------ ------ Total operating charge (20.8) 15.0 ====== ====== Analysis of the amount that has been charged to net finance income under FRS 17 Expected return on pension scheme assets 23.7 20.7 Interest on pension scheme liabilities (32.5) (26.1) ------ ------ Net return (8.8) (5.4) ====== ====== Analysis of the actuarial loss that has been 24 Dec 25 Dec 27 Dec recognised in the statement of total 2005 2004 2003 recognised gains and losses Actual return less expected return on pension scheme assets 39.6 1.9 26.6 Experience gains and losses arising on the scheme liabilities 22.9 3.6 (19.1) Changes in assumptions underlying the present value of the scheme liabilities (105.5) (105.6) (13.6) ------ ------ ------ Actuarial loss that has been recognised in the STRGL (43.0) (100.1) (6.1) ====== ====== ====== 24 Dec 2005 25 Dec 2004 27 Dec 2003 Analysis of the movement in the scheme £m £m £m deficit during the year Deficit as at start of year (294.6) (189.1) (179.5) Total operating charge (24.2) (15.0) (10.6) Contributions 29.6 15.0 14.2 Net return (8.8) (5.4) (7.1) Past service credit in respect of NRD issue 45.0 - - Actuarial loss recognised in the STRGL (43.0) (100.1) (6.1) ------- ------- ------- Deficit as at end of year (296.0) (294.6) (189.1) ======= ======= ======= 13. POST BALANCE SHEET EVENTS On 13 February 2006 the Group completed on the sale of Hygena Cuisines for proceeds of £92.4m. The impact on the profit is shown on the Consolidated Profit and Loss account. The impact on the cashflow is shown in note 11. On 17 February 2006 the Group refinanced it's medium term debt and replaced it with a new 3.25 year secured facility. This information is provided by RNS The company news service from the London Stock Exchange

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