Interim Results - Part 1
MFI Furniture Group PLC
26 July 2001
PART 1
MFI FURNITURE GROUP PLC
Interim Results for the 24 weeks ended 16 June 2001
MFI Furniture Group Plc, the UK's largest manufacturer and retailer of
kitchen and bedroom furniture, announces its interim results for the 24
weeks ended 16 June 2001.
Financial Highlights
* Turnover up 15.1% to £501.2m (H1 2000: £435.5m)
- UK Retail up 9.5% to £369.0m
- Howden Joinery up 52.3% to £88.5m
* Pre-tax profit up 17.0% to £40.6m
(H1 2000: £34.7m before exceptional items)
* On track to achieve target cost savings of £15m for the full year
* Pre-exceptional basic earnings per ordinary share up 14.3% to 4.8p
(H1 2000: 4.2p)
* Interim dividend increased by 33% to 1.2 pence per share
(H1 2000: 0.9p)
* Strong balance sheet with pre-exceptional operating cash flow of £95m
(H1 2000: £71m)
Strategic Priorities
* Rollout of substantial new MFI format store programme. New format
stores are outperforming the rest of the retail business. Capital
expenditure of £65m planned over next three years
* Pushing ahead with the new High Street format where we see potential
for at least 50 stores
* Investment in new product ranges and product areas like bathrooms
(branded 'Splash!') and tiles
* Re-invigoration programme planned for French retail business as well
as store expansion
* First low risk overseas venture launched in Taiwan
* Continued expansion of Howdens trade business with over 50 depots to
open this year and an eventual chain of over 300 depots planned
(currently 199)
* Re-alignment of manufacturing capability with consumer demand and £8m
investment in new capacity
John Hancock, Chief Executive, said:
'Today we are reporting on a strong first half. Having secured MFI's
financial stability last year we are continuing to work on operational
improvements. We are also starting to rollout a series of plans for organic
growth which are low risk, build on the Group's existing strengths and
skills, and have been extensively tested. We have new products, fresh store
designs and new formats in place.
'I am confident that we can continue very successfully with the
transformation of MFI. In summary, we are making good progress and
considerably out-performing the UK furniture market.'
- ends -
Contacts:
MFI Furniture Group Plc
John Hancock, Chief Executive 020 8913 5319
Martin Clifford-King, Finance Director 020 8913 5350
Brunswick Group Limited
Susan Gilchrist
Charlotte Elston 020 7404 5959
William Cullum
CHAIRMAN'S STATEMENT
Results
In the 24 weeks to 16 June 2001, we achieved continued growth in sales,
margins and profitability following the recent structural improvements that
we have made to the business, against a background where the UK furniture
market grew by 1%-2% over the last year.
Group sales at £501.2m were up 15.1% (like for like: up 7.5%) with profit
before tax and exceptional items up 17.0% to £40.6m. Pre-exceptional
operating profit grew 20.9% to £38.8m, and gross margin increased from 49.7%
to 50.4%.
Sales % increase % increase
£m Total business Like for like
UK Retail 369.0 9.5 5.5
Howdens 88.5 52.3 25.1
France 41.7 8.0 0.2
Other 2.0 n/a n/a
_____ _____ _____
Total 501.2 15.1 7.5
===== ===== =====
The Board is proposing to raise the interim dividend by 33% to 1.2p per
share.
Finance
The gross margin has improved from 49.7% to 50.4%. This growth arises from
raising our selling prices together with some cost of product reductions,
offset in part by changes in sales mix which includes the growth of Howdens.
We are on target to achieve an annualised £15m of cost reduction, of which
£8m has been delivered in the first half. This has primarily been in the
area of logistics and cost of product. These savings have been reinvested
in revenue generating areas such as bringing new products into the business
faster, more staff in Howdens' depots to support increased sales and staff
incentives to drive add-on sales in areas like financial services and
fittings.
Stripping out the impact of new store opening costs totalling £15m, our
selling and distribution costs have grown by 8.5% from last year's
comparative of £159.3m; this is marginally above our like for like sales
increase, reflecting increased levels of expenditure in customer focused
activity such as bringing new product into the business faster.
Net cash increased by £58.3m to £94.3m. The operating cash flow generated
by the business remained strong at £95.4m. After dividends, investments,
interest and tax, cash inflow was £79.6m of which £21.3m has been invested
in the business in the form of capital expenditure.
The tax charge for the first half is based on the estimated effective tax
rate for the full year of 29% (2000 - 28%).
The interim dividend of 1.2p per share (2000 - 0.9p) will be paid on 26
October 2001 to shareholders on the register at the close of business on 5
October 2001. Shares will be quoted ex-dividend from 3 October 2001.
Operational Overview
We have now completed the financial stabilisation of MFI, and have made very
substantial progress in turning the core business around. Our strategy is
to drive sales growth in the existing business, as well as exploiting the
potential of new routes to market and new product categories.
During the first half, we made progress in all our markets; we successfully
launched the new MFI store format; and we began to restructure our
manufacturing activities to align them more closely to what our customers
want. At the same time, we achieved our planned cost savings. We are
currently putting in place the foundations for future growth via new
products and store formats.
UK Retail
The main development in the UK retail operation has been the launch and
initial rollout of our new MFI store format, following the success of the
Speke prototype. The new design format creates an attractive and exciting
environment for the customer, as well as enabling our sales consultants to
provide a considerably improved advisory and sales service.
We have now reformatted 7 out of town stores and 6 high street stores, which
are performing ahead of expectations. Consequently we are accelerating our
programme of conversions to the new format using return on capital as the
key factor in our decision-making. We plan to refurbish or relocate all
outlets by the end of 2004. This will incur capital expenditure over the
next three years of around £65 million, which will be funded from
operational cash flow and current resources.
High Street stores are still performing ahead of expectations. Nine have
been opened to date and we see potential for a total of 50 stores, with
about 20 to be operating by the end of this year.
The Hygena at Currys business is still very much in its development phase.
However, at present, its sales are not meeting our initial expectations. We
are refining our product offer and remain confident about the future of the
concept. Using our experience from Howdens as a benchmark, we believe it is
more appropriate to review its potential after a longer timeframe.
Howdens
Howdens has continued to deliver buoyant growth ahead of its targets. Like-
for-like growth has been maintained at 25.1%, with total sales up 52.3%.
Depots which have been open for more than 3 years are continuing to show
growth of 20% per annum. In addition to selling to the small builder, we
are now targeting the new house-build market and have successfully
introduced flooring and additional hardware product to the range. Eighteen
depots have opened in the period and, with 199 depots trading today, we are
on target to have over 300 by the end of 2003.
International
We are starting to focus more attention on our operations in France. Hygena
Cuisines achieved a headline sales increase of 8%, with the bulk of the
sales growth coming from the new fitting service, which carries no margin
and like for like sales growth before fitting sales were up 0.2%. As a
consequence operating profits have fallen by £1.5m.
Hygena Cuisines has previously been managed as an outlet for manufacturing
capacity. In future we intend to manage it as a growth business in its own
right. We have put in place a new local management team and, as a result of
a searching strategic review, we have identified that we have similar
opportunities to those we found in the UK MFI business. This includes
further geographical coverage, product development, branding, pricing and
logistics.
Our joint venture in Taiwan opened its first outlet in late July. We look
forward to reporting fully on progress at the year-end.
We are currently developing low risk plans to introduce the Howdens business
to selected international markets, and we will report further in due course.
In order to ensure that these businesses get the attention they deserve and
to minimise distraction for the UK team, we have recently appointed a new
international business development director to drive this expansion.
Brand and Product
The number of homes buying furniture has remained constant year on year,
however the average transaction values have increased.
The key elements of our brand rehabilitation are now in place. We have a
better understanding of our consumers; we are designing and developing new
product, improving our store formats and repositioning and communicating our
brand.
Our renewed focus on service and product range is continuing to attract more
customers. We have maintained our position as the UK's leading furniture
retailer. Our progress in new product development is impressive, with 48%
of 2001 sales to date arising from products introduced in the last 2 years.
We have introduced bathrooms into 12 stores (branded 'Splash') trading from
sale areas of between 500 and 1000 square feet. This new product offering
fits very well with our Topps Tiles concession - currently on trial in 5
stores. Initial customer reaction to both these offers has been very
positive.
Logistics
Distribution costs are 1% lower, when expressed as a percentage of sales.
The Home Delivery Centres at Gillingham and Cardiff have been shut in the
last three months, following last year's closure of Potters Bar. This has
reduced the number of home delivery centres to 11.
Manufacturing
We have recently undergone a thorough and wide-ranging review of our
manufacturing strategy, in order to align our manufacturing capacity with
the changing product requirements demanded by our customers. Manufacturing
is recognised to be fundamental to our competitive advantage and will enable
us to bring new complex product to market in a short time scale.
As a result of significant cost savings that can be achieved through global
sourcing, we have proposed the rationalisation of our doors and components
factories in Hull. However we will be introducing new product lines into
our other factories with a major investment in new technology for paper-
wrapped product at our Scunthorpe factory and an increase in vinyl door
production at our Stockton factory.
These initiatives will in total generate annual savings of £6m from 2002
onwards, with a capital investment of £8m, and an exceptional cost in the
second half of 2001 of approximately £6m.
Current Trading and Outlook
Trading in the first 5 weeks of the second half continues the trend from the
first half performance with total orders up by 20% and the UK retail
business ahead by 10% compared to last year.
We remain confident of prospects for the balance of the year.
Ian Peacock 26 July 2001
Chairman
CONSOLIDATED PROFIT AND LOSS ACCOUNT
24 weeks Total
to operations
16 June Pre- Exceptional
2001 exceptional items Total
Notes Unaudited Unaudited Unaudited Unaudited
(note 3)
£m £m £m £m
Turnover 2 501.2 435.5 - 435.5
Cost of sales (248.8) (219.2) - (219.2)
_________ ________ ________ _______
Gross profit 252.4 216.3 - 216.3
Selling and
distribution
costs (187.9) (159.3) 12.2 (147.1)
Administration
costs (25.7) (24.9) (4.0) (28.9)
_________ ________ ________ _______
Operating
profit 38.8 32.1 8.2 40.3
Net profit on
disposal of
fixed assets - 0.7 - 0.7
Profit on
disposal of
discontinued
operations - - 11.2 11.2
_________ ________ ________ _______
Profit on
ordinary
activities
before
interest 38.8 32.8 19.4 52.2
Interest
receivable and
similar income 1.9 2.1 - 2.1
Interest
payable and
similar
charges (0.1) (0.2) - (0.2)
_________ ________ ________ _______
Profit on
ordinary
activities
before
taxation 2 40.6 34.7 19.4 54.1
Tax 4 (11.8) (9.8) (2.6) (12.4)
_________ ________ ________ _______
Profit for the
financial
period 28.8 24.9 16.8 41.7
Dividends (6.9) (5.3) - (5.3)
_______ ________ ________ _______
Amount
transferred to
reserves 6 21.9 19.6 16.8 36.4
======= ======= ======= ======
Earnings per
share
Basic earnings
per 10p
ordinary share 7 4.8p 4.2p 2.8p 7.0p
======= ======= ======= ======
Diluted
earnings per
10p ordinary
share 7 4.6p 4.1p 2.8p 6.9p
======= ======= ======= ======
Total
operations
Pre- Exceptional
exceptional items Total
Notes Audited Audited Audited
£m £m £m
Turnover 2 900.6 - 900.6
Cost of sales (453.7) - (453.7)
_________ ___________ ______
Gross profit 446.9 - 446.9
Selling and
distribution
costs (350.5) 12.2 (338.3)
Administration
costs (55.5) (4.0) (59.5)
_________ _______ ______
Operating
profit 40.9 8.2 49.1
Net profit on
disposal of
fixed assets 0.5 - 0.5
Profit on
disposal of
discontinued
operations - 11.2 11.2
_________ _______ ______
Profit on
ordinary
activities
before
interest 41.4 19.4 60.8
Interest
receivable and
similar income 4.8 - 4.8
Interest
payable and
similar
charges (0.8) - (0.8)
_________ _______ ______
Profit on
ordinary
activities
before
taxation 2 45.4 19.4 64.8
Tax 4 (12.7) (2.6) (15.3)
_________ _______ ______
Profit for the
financial
period 32.7 16.8 49.5
Dividends (11.2) - (11.2)
_________ _______ ______
Amount
transferred to
reserves 6 21.5 16.8 38.3
======== ====== =====
Earnings per share
Basic earnings
per 10p
ordinary share 7 5.5p 2.8p 8.3p
======= ======= ======
Diluted
earnings per
10p ordinary
share 7 5.4p 2.8p 8.2p
======= ======= ======
CONSOLIDATED BALANCE SHEET
Restated
As at As at As at
16 June 17 June 30 December
2001 2000 2000
(note 4)
Notes Unaudited Unaudited Audited
FIXED ASSETS £m £m £m
Tangible assets 280.9 280.9 275.9
Investments 18.3 11.2 10.6
_________ ________ ________
299.2 292.1 286.5
_________ ________ ________
CURRENT ASSETS
Stocks 125.3 105.7 127.2
Debtors 91.8 81.9 86.9
Investments 10 0.2 0.5 0.3
Cash at bank and in hand 10 97.2 102.0 39.6
_________ ________ ________
314.5 290.1 254.0
_________ ________ ________
CREDITORS FALLING DUE WITHIN
ONE YEAR
Borrowings 10 3.1 3.3 3.1
Other amounts 234.8 222.7 181.1
_________ ________ ________
237.9 226.0 184.2
_________ ________ ________
Net current assets 76.6 64.1 69.8
TOTAL ASSETS LESS CURRENT 375.8 356.2 356.3
LIABILITIES
CREDITORS FALLING DUE AFTER
MORE THAN ONE YEAR
Borrowings 10 - 3.3 0.8
Other amounts 0.5 0.6 0.5
_________ ________ ________
0.5 3.9 1.3
_________ ________ ________
PROVISIONS FOR LIABILITIES
AND CHARGES 7.3 6.7 8.4
_________ ________ ________
Net assets 368.0 345.6 346.6
_________ ________ ________
CAPITAL AND RESERVES
Called up share capital 59.5 59.5 59.5
Share premium account 6 43.9 43.9 43.9
Other reserves 6 20.6 18.2 19.4
Revaluation reserve 6 42.1 43.4 42.1
Profit and loss account 6 201.9 180.6 181.7
________ ________ ________
Equity shareholders' funds 368.0 345.6 346.6
======== ======== ========
CONSOLIDATED CASH FLOW STATEMENT
24 weeks 24 weeks 52 weeks
to to to
16 June 17 June 30 December
2001 2000 2000
Notes Unaudited Unaudited Audited
£m £m £m
Cash inflow from operating
activities 8 95.4 66.1 25.4
Returns on investments and
servicing of finance 9 1.8 1.9 3.9
Taxation (3.2) 6.8 1.4
Capital expenditure (net) 9 (29.7) 7.7 (2.9)
Proceeds from sale of
subsidiary - 13.7 13.7
Equity dividends paid (5.8) (8.2) (13.6)
________ ________ _________
58.5 88.0 27.9
Management of liquid resources 9 0.1 (0.1) 0.1
Financing 9 (0.8) (16.1) (18.6)
________ ________ _________
Increase in cash in the period 57.8 71.8 9.4
======== ======== =========
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Increase in cash in the period 57.8 71.8 9.4
Cash movement on :
- debt and lease financing 9 0.8 16.1 18.6
- cash flow from (decrease /
increase in liquid resources 9 (0.1) 0.1 (0.1)
________ ________ _________
Change in net cash resulting
from cash flows 58.5 88.0 27.9
Effect of foreign exchange
rate changes 10 (0.2) - -
________ ________ ________
Movement in net cash in the
period 58.3 88.0 27.9
Net cash at the beginning of
the period 10 35.5 7.6 7.6
________ ________ ________
Net cash at the end of the
period 10 93.8 95.6 35.5
======== ======== ========
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
24 weeks 24 weeks 52 weeks
to to to
16 June 17 June 30 December
2001 2000 2000
Unaudited Unaudited Audited
£m £m £m
Profit for the financial period 28.8 41.7 49.5
Translation differences on foreign
currency denominated net
investments (0.5) - (0.9)
_________ _________ ___________
Total recognised gains and losses
relating to the period 28.3 41.7 48.6
Prior period adjustment (note 4) - 1.0 1.0
_________ _________ ___________
Total recognised gains and losses
for the period 28.3 42.7 49.6
======== ========= ===========
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
24 weeks 24 weeks 52 weeks
to to to
16 June 17 June 30 December
2001 2000 2000
Unaudited Unaudited Audited
Profit for the financial period 28.3 41.7 48.6
Dividends (6.9) (5.3) (11.2)
_________ _________ ___________
Retained profit for the financial 21.4 36.4 37.4
period
Equity shareholders' funds at
beginning of the period 346.6 309.2 309.2
________ _________ _________
Equity shareholders' funds at end
of the period 368.0 345.6 346.6
======== ======== =========
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