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.
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