Interim Results
MFI Furniture Group PLC
21 July 2005
21 July 2005
Interim results for the 24 weeks to 11 June 2005
Financial highlights
- Sales up 7.7% to £757m
- Howden Joinery up 14% to £259m
- UK Retail up 3% to £429m; net orders down 2%
- France Retail up 14% to £64m
- Pre-tax profit of £58.5m (2004: £30.1m restated*)
- Pre-tax profit before exceptional items of £22.9m (2004: £31.1m restated*)
- Earnings per share of 7.2p (2004: 3.5p restated*)
- Earnings per share before exceptional items of 2.4p (2004: 3.7p restated*)
- Interim dividend per share maintained at 2.0p
* restated for FRS17 (see note 13)
Business highlights
- Supply chain stable
- Continued sales and profit growth at Howden Joinery
- Progress in UK Retail
- £16m of cost savings in first half
- Traditional price / value proposition being restored
- Strengthened management team
- France Retail responding well to the refurbishment programme
- Managing the pension deficit downwards
- Group gross margin stable at 50%
John Hancock, Chief Executive, said:
'Following a difficult period the Group is now making progress, albeit in a
highly competitive marketplace.
The first half has seen another strong performance from Howdens. We are
confident that the supply chain is stable and we remain focused on rebuilding
profitability in the UK Retail division, notwithstanding the tougher conditions
in our markets.
We continue to manage our costs and gross margins against the background of what
remains a competitive market.'
- ends -
Contacts:
MFI Furniture Group Plc
John Hancock, Chief Executive Officer 020 8913 5319
Mark Robson, Chief Financial Officer 020 8913 5350
Brunswick Group Limited
Susan Gilchrist / Fiona Laffan / Anna Jones 020 7404 5959
COMPANY STATEMENT
Results
In the 24 weeks to 11 June 2005 Group turnover increased by 7.7% to £757
million, compared with £703 million for the same period last year. Profit before
tax and exceptional items was £22.9 million, compared with £31.1 million last
year. Basic earnings per share, excluding exceptional items, decreased to 2.4
pence per share. Comparatives for 2004 have been restated to comply with FRS 17
'Retirement benefits'.
Exceptional operating items include £5.4 million of supply chain disruption
costs and UK redundancy costs, a carry over from the work we undertook in 2004,
and a net credit from restructuring our pension arrangements of £41.1 million
which is explained in more detail later in this report. Exceptional items
comprise a profit on property disposals of £7.2 million and provisions of £7.3
million, representing £5.7 million of closure costs and £1.6 million for future
trading losses, in respect of the closure of Hygena @ Currys.
Operational review
Howden Joinery
Operating profits were £43.6 million, up 27% from £34.3 million last year, on an
increase in turnover of 14% to £259 million. Same depot sales growth was 11%
compared to 20% for the same period last year.
The focus in the early part of the year was on gross margin improvement in the
more mature depots and this action has helped grow the operating margin to
16.9%, compared to 15.1% for the same period last year. The rate of sales growth
slowed, reflecting the greater maturity of the depot portfolio, the relatively
low level of depot openings in 2003/2004 and no annualised benefit from the
selling price increases put through at the end of 2003.
More recently, actions have been taken to increase sales and, as anticipated at
the time of the AGM in May, the performance of the promotion in the last four
weeks of the first half has considerably improved the overall first half
performance.
During the period we commenced a trial of new bedroom ranges and, if successful,
we expect to eventually roll these out to all depots. We have extended 19 depots
and plan to extend a further 18 by the end of the year. We have opened six
depots and relocated five in the first 24 weeks and are on target to open a
further 34 in the second half, which would give a total of around 360 depots
trading by the year-end.
We continue learning from our 15 depot pilot in the SouthEast of the United
States. Losses in the period are £3.6 million, against £3.3 million last year,
in line with expectations. The new product, sourced from our UK factories but
tailored for the US market, has been well received by our customers and we aim
to increase the pilot to 20 depots by the end of the year.
The Howden pilot in France, with depots in Lille and Paris, progresses well and
we will be expanding this pilot with a further nine depots in the second half,
making a total of 11 depots selling product manufactured in our factories in the
UK. Unlike the US operation, the French operation benefits from the existing UK
infrustructure and supply chain arrangements.
UK Retail
H1 2005 H1 2004
£m £m
Opening net order book 38 26
Net orders 477 489 (2)%
Deliveries (429) (416) 3%
Closing net order book 86 99
Net orders taken during the period were 2% down on the same period last year
(same store net orders 4% lower than the same period last year). UK retail
sales, at £429 million, grew 3% with same store sales up 2%. The opening order
book was relatively high and, as expected, this has unwound contributing to the
growth in UK Retail sales. Pre-exceptional operating losses were £12.9 million,
down from £2.3 million profit last year. Actions are being taken to address the
underperformance of the UK Retail division.
First, we have restored our traditional price/value offer with a price promise
to our customers. Although we have incurred increased advertising expenditure,
we have re-established our customer franchise and have seen double-digit volume
growth in sales with resultant market share gains. The performance of the new
product introduced in the second half of 2004 was good, with especially strong
performance in bedrooms and in the sub £500 price band, and represented 24% of
orders in the first half of the year.
Secondly, we have started to look at a longer term solution to ensure that our
service levels are where we want them to be. The introduction of the Customer
Charter has incorporated new guidelines on service and is one of the most
significant changes to the business in the first half. It has only been possible
to implement following the growing confidence we have in the new supply chain
systems. Early indications are that it has been well received by our customers
and it benefits the business in two main areas:
•Introduces new levels of discipline and consistency of service across the
business.
•Reduces the level of failed delivery, customer refunds and remedial
costs. In addition we are recovering costs by charging customers for
delivery, changing delivery dates and cancelling orders.
Thirdly, we have undertaken a comprehensive review of the Hygena @ Currys
business. Although the business demonstrated some success, the sales growth was
insufficient to generate a financial return that justified continuing in the
longer term. As a result we announced on 11 May 2005 with Dixons Group to end
the venture. Closure costs will be £5.7 million and additional trading losses of
£1.6 million are expected as we phase out the closure of the concessions. The
business made losses of circa £5 million on turnover of £25 million in 2004.
Fourthly we are making good progress with the £40 million cost reduction
programme that we announced in December. Four keys areas have been addressed,
namely:
• Head office/central function job losses and reduction in consulting
spend
• Reduced marketing spend in all areas other than direct advertising
• Reduction in store costs as a result of fewer product refits and store
refurbishments
• Renegotiated logistics and customer service costs, including charging
for home delivery
To date we have achieved £16 million of savings with further progress expected
in the second half of the year, as the introduction of home delivery charging
only commenced at the conclusion of the Winter Sale in March. We have
consciously spent more than plan on direct advertising but this investment has
helped re-establish our customer franchise and improve our gross margin from our
planned level.
Finally, we have strengthened the management team with four new appointments to
the Group Executive Committee. Andrew Livingstone will be joining us from B&Q,
where he is Trading director for B&Q showrooms, to take commercial
responsibility for UK Retail following Mark Horgan's decision to leave the Group
at the end of August. Three internal appointments include Robin Proctor - Supply
Chain director, Rob Fenwick - Manufacturing director and Steve Round - Managing
Director of our French Retail business to enhance the representation and
commercial involvement of their operations.
France Retail
Sales in France, at £64 million, were up 14% on last year with same store growth
of 10% in local currency. Profits were £2.7 million before SAP disruption costs
of £0.3 million. This compares to £1.4 million for the same period last year and
reflects benefits from the store refurbishment and infrastructure investment
over the past few years.
Sourcing
The sourcing joint venture in Asia has developed with over 500 product lines now
being sourced from Asia. The value of product sourced from Asia throughout 2005
is forecast to be £25 million, compared to £5 million in 2004. In addition to
components for our manufacturing operations we are now sourcing leather
upholstery and will be sourcing appliances and bathrooms in the second half.
These products are providing significant gross margin benefit to the operating
divisions, with some benefit retained in the joint venture which is expected to
generate a small profit in 2005.
Supply chain
Since December 2004, significant progress has been made in achieving supply
chain stability, with the system now showing the ability to handle record orders
during the Winter Sale and enabling the business to deliver high despatch
volumes consistently and efficiently over many weeks. This contrasts
dramatically with the performance in the latter part of 2004. Our two key
performance indicators of 'percentage of home delivery errors' and 'number of
stock lines with extended delays' have been improving throughout the first half
to levels better than those achieved under the old systems. We are now seeing
the 'home delivery error rate' at below 5%, compared to 12% before the
implementation of the new systems, and the number of stock lines with extended
delay is circa 100.
The growing confidence in the system has given us the ability to introduce the
Customer Charter with its expected associated cost savings as well as give our
sales teams the trust to sell product without recourse. The system remains
complex and fragile and will require further development before we can proceed
to installing the next phases covering manufacturing, warehousing and retail.
Financial review
Gross margin
The Group's gross margin was stable at 50.0%, compared to 50.1% last year. This
reflects an improved gross margin (0.9 percentage points impact to the Group) at
Howdens, offset by a reduction in the gross margin in UK Retail (1.0 percentage
points impact to the Group). The UK Retail gross margin reflects our deliberate
policy during the Winter Sale, following the customer service issues in 2004, to
re-establish the customer franchise with highly competitive pricing.
Overheads
We highlighted in December that the costs for UK Retail would increase by £47
million per annum. In addition we have deliberately increased the level of
advertising in UK Retail to re-establish the customer franchise, with sales
volumes and logistics costs growing by low double-digits. The cost reduction
programme refered to above has partially mitigated this but Group
pre-exceptional overheads, including Howden Joinery, have grown by £32 million
compared to last year.
Tax
The effective rate of tax for the year is expected to be 38.5% on
pre-exceptional profits. This is higher than the standard rate of corporation
tax as tax relief is unavailable on a proportion of the capital expenditure
incurred on the UK store refurbishment programme, most of which is expensed to
the profit and loss account as depreciation over a period of four years.
Cash flow
The operating cash inflow in the period before exceptional items was £ 59.2
million. After taking into account capital investment, dividends, tax and
property disposals, net debt has decreased by £ 52.4 million to £ 9.8 million.
This includes monies held in escrow, for future insurance claims under the
structural guarantee, which have increased by £1.0 million to £10.4 million.
Structural guarantee
We continue to take extensive legal and taxation advice and have instigated
legal action against HM Revenue & Customs to recover the VAT paid on the
structural guarantees. We are carrying the tax paid of £60.5 million on our
balance sheet as a debtor without any provision and further disclosure is given
in note 12 to the accompanying notes to the financial statements.
Pensions
As at 26 December 2004 the pre-tax deficit in the Group UK pension plans,
calculated in accordance with FRS17, was £294.6 million (£206.2 million after
deferred tax). This included the additional liabilities announced on 6 May 2004
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
£50 million. In May 2005 the Group wrote to certain members of the UK pension
plans offering them a cash payment in exchange for giving up any claim a member
may have to possible additional pension benefits arising from the equalisation
issue. As at 11 June 2005, approximately 90% by value of those to whom the offer
was made had accepted the cash option and the additional liabilities were
therefore reduced from £50 million to £5 million. The aggregate cost of the cash
offer was £15.9 million including £0.3 million fees.
On 14 March 2005 we announced that a £12 million cash settlement had been
received from one of the third parties on whose advice the Group and the pension
plan trustees had relied. The Board continues to take advice and consider with
the Trustees the actions required to obtain recovery, if material, from any
other parties. In the context of the triennial valuations taking place in 2005,
the Board will also be discussing with the Trustees further ways of addressing
the deficit in the funding of the UK pension plans.
Dividend
The Board has declared an interim dividend of 2.0 pence per share (2004: 2.0
pence), level with last year. This will be paid on 21 October 2005 to
shareholders on the register at the close of business on 30 September 2005.
Shares will be quoted ex-dividend from 28 September 2005. We remain committed to
a progressive dividend policy and will gradually weight the pay out towards the
final dividend as we restore profitability to the UK retail business.
Group Board
Bob Wilson has decided to retire from his position of executive director in
April 2006 after serving 8 years as a director and developing and managing one
of the largest and most efficient kitchen manufacturing operations in the world.
We are very grateful to Bob for his tremendous contribution over the 29 years he
has worked for MFI.
Shaun O'Callaghan resigned from the Board on 20 July 2005 to pursue other
interests and we thank him for his significant contribution as interim CFO from
September 2004 to May 2005. Shaun will remain with the Company until the end of
September 2005.
Trading update and outlook
As stated in our interim results last year, we will provide timely trading
updates separately from our Results Announcements. The next trading updates will
be in September covering the UK Retail August bank holiday promotion and in
mid-December to include Howdens' important Autumn trading period.
Trading conditions in the second half are difficult to predict and the UK Retail
division remains more susceptible to any changes in trading conditions than
Howden Joinery. We continue to manage the costs and gross margin in what remains
a competitive market.
Ian Peacock
John Hancock 21 July 2005
FINANCIAL HIGHLIGHTS
24 weeks 24 weeks 52 weeks
to to to
11 12 25
June June December
2005 2004 2004
Unaudited Unaudited Audited
(restated)(restated)
£m £m £m
Turnover (including share of joint venture) 758.8 704.6 1,518.5
Turnover (excluding share of joint venture) 757.3 703.2 1,514.6
Gross margin (before exceptional items) 50.0% 50.1% 49.4%
Operating profit margin (before exceptional items) 3.8% 4.9% 4.2%
Profit before tax 58.5 30.1 20.6
Profit before tax and exceptional items 22.9 31.1 54.5
DIVIDEND PER SHARE
Interim 2.0p 2.0p 2.0p
Final n/a n/a 2.0p
Full year dividend n/a n/a 4.0p
BASIC EARNINGS PER SHARE
Basic earnings per share 7.2p 3.5p 1.3p
Basic earnings per share before exceptional items 2.4p 3.7p 5.5p
OTHER FINANCIAL INFORMATION
Net assets 250.8 322.7 218.5
CONSOLIDATED PROFIT AND LOSS ACCOUNT
24 weeks to 11 June 2004 24 weeks 52 weeks to 25 Dec 2004 (restated*)
Before Exceptional to 12 June Before Exceptional
exceptional items 2004 exceptional items
items (note 6) Total (restated*) items (note 5) Total
Unaudited Unaudited Unaudited Unaudited Audited Audited Audited
£m £m £m £m £m £m £m
Turnover
Group and
share of joint
venture 2 758.8 - 758.8 704.6 1,518.5 - 1,518.5
Less: share of
joint venture (1.5) - (1.5) (1.4) (3.9) - (3.9)
-------- -------- -------- -------- -------- ------- -------
Group turnover 757.3 - 757.3 703.2 1,514.6 - 1,514.6
Cost of
sales (378.4) (0.4) (378.8) (350.6) (762.7) (3.1) (765.8)
-------- -------- -------- -------- -------- ------- -------
Gross profit 378.9 (0.4) 378.5 352.6 751.9 (3.1) 748.8
Selling and
distribution
costs (316.5) (5.0) (321.5) (286.6) (623.6) (32.8) (656.4)
Administrative
expenses (33.5) 41.1 7.6 (31.6) (64.0) 4.0 (60.0)
-------- -------- -------- -------- -------- ------- -------
Operating
profit 28.9 35.7 64.6 34.4 64.3 (31.9) 32.4
Share of
operating loss
of joint
venture (1.0) - (1.0) (0.9) (2.1) - (2.1)
-------- -------- -------- -------- -------- ------- -------
Total
operating
profit - Group
and share of
joint venture 27.9 35.7 63.6 33.5 62.2 (31.9) 30.3
Exceptional
item - net
profit/(loss)
on disposal of
fixed assets - 7.2 7.2 (1.0) - (2.0) (2.0)
Exceptional
item -
provision for
closure of an
operation - (7.3) (7.3) - - - -
-------- -------- -------- -------- -------- ------- -------
Profit on
ordinary
activities
before
interest 27.9 35.6 63.5 32.5 62.2 (33.9) 28.3
Interest
receivable and
similar income 1.8 - 1.8 0.8 2.0 - 2.0
Interest
payable and
similar
charges (2.0) - (2.0) (0.7) (4.3) - (4.3)
Other finance
charges -
FRS17 pension 13 (4.8) - (4.8) (2.5) (5.4) - (5.4)
-------- -------- -------- -------- -------- ------- -------
Profit on
ordinary
activities
before
taxation 2 22.9 35.6 58.5 30.1 54.5 (33.9) 20.6
Tax on profit
on ordinary
activities 3 (8.8) (7.6) (16.4) (10.0) (22.8) 9.6 (13.2)
-------- -------- -------- -------- -------- ------- -------
Profit for the
financial
period 14.1 28.0 42.1 20.1 31.7 (24.3) 7.4
Dividends 4 (11.7) - (11.7) (11.6) (23.2) - (23.2)
-------- -------- -------- -------- -------- ------- -------
Retained
profit 5 2.4 28.0 30.4 8.5 8.5 (24.3) (15.8)
======== ======== ======== ======== ======== ======= =======
Earnings per
share
Basic earnings
per 10p
ordinary share 7 7.2p 3.5p 1.3p
======== ======== ======== ======== ======== ======= =======
Diluted
earnings per
10p ordinary
share 7 7.0p 3.3p 1.2p
======== ======== ======== ======== ======== ======= =======
Earnings per
share (before
exceptional
items)
Basic earnings
per 10p
ordinary share 7 2.4p 3.7p 5.5p
======== ======== ======== ======== ======== ======= =======
Diluted
earnings per
10p ordinary
share 7 2.3p 3.5p 5.3p
======== ======== ======== ======== ======== ======= =======
* Restated for FRS 17 - see note 13
CONSOLIDATED BALANCE SHEET
24 weeks to 24 weeks to 52 weeks to
11 June 12 June 25 December
Notes 2005 2004 2004
Unaudited Unaudited Audited
(restated*) (restated*)
FIXED ASSETS £m £m £m
Intangible assets 13.4 14.1 13.7
Tangible assets 345.2 389.8 381.6
Investments 8.3 8.9 8.1
-------- -------- ---------
Total fixed assets 366.9 412.8 403.4
-------- -------- ---------
CURRENT ASSETS
Stocks 237.7 188.3 238.4
Debtors 8 239.0 206.2 217.9
Investments 10.4 13.8 9.4
Cash at bank and in hand 11 64.8 40.3 28.4
-------- -------- ---------
551.9 448.6 494.1
-------- -------- ---------
CREDITORS FALLING DUE WITHIN
ONE YEAR 393.2 362.7 359.3
Net current assets 158.7 85.9 134.8
Total assets less current
liabilities 525.6 498.7 538.2
CREDITORS FALLING DUE AFTER
MORE THAN ONE YEAR 85.0 25.7 100.0
PROVISIONS FOR LIABILITIES AND
CHARGES 14.0 16.2 13.5
-------- -------- ---------
Net assets excluding net
pension
liability 426.6 456.8 424.7
Net pension liability 13 175.8 134.1 206.2
-------- -------- ---------
NET ASSETS 250.8 322.7 218.5
======== ======== =========
CAPITAL AND RESERVES
Called up share capital 5 62.6 62.2 62.3
Share premium account 5 80.1 66.9 77.2
Revaluation reserve 5 16.2 21.8 21.8
ESOP reserve 5 (54.3) (45.5) (55.1)
Other reserves 5 28.1 28.1 28.1
Profit and loss account 5 118.1 189.2 84.2
-------- -------- ---------
Equity shareholders' funds 250.8 322.7 218.5
======== ======== =========
* Restated for FRS 17 - see note 13.
CONSOLIDATED CASH FLOW STATEMENT
24 weeks to 24 weeks to 52 weeks to
11 June 12 June 25 December
2005 2004 2004
Notes Unaudited Unaudited Audited
£m £m £m
Net cash inflow from operating
activities 9 59.2 82.2 66.7
Returns on investments and
servicing of finance 10 (0.9) 0.1 (1.4)
Taxation (5.6) (17.5) (33.7)
Capital expenditure and
financial investment (net) 10 9.8 (27.8) (75.7)
Equity dividends paid (11.6) (11.6) (23.2)
------- ------- -------
Cash inflow / (outflow) before
use of liquid resources and
financing 50.9 25.4 (67.3)
Management of liquid resources (1.0) (2.0) 2.4
Financing 10 (13.3) (31.3) 44.6
------- ------- -------
Increase/(decrease) in cash in
the period 36.6 (7.9) (20.3)
======= ======= =======
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Increase/(decrease) in cash in
the period 36.6 (7.9) (20.3)
Cash movement on:
- debt and lease financing 11 15.0 25.0 (50.0)
- cash flow from increase in
liquid resources 11 1.0 2.0 (2.4)
------- ------- -------
Change in net (debt)/funds resulting
from cash flows 52.6 19.1 (72.7)
Effect of foreign exchange rate
changes 11 (0.2) (0.6) (0.1)
------- ------- -------
Movement in net (debt)/funds in
the period 52.4 18.5 (72.8)
Net (debt)/funds at the beginning
of the period 11 (62.2) 10.6 10.6
------- ------- -------
Net (debt)/funds at the end of
the period 11 (9.8) 29.1 (62.2)
======= ======= =======
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
24 weeks to 24 weeks to 52 weeks to
11 June 12 June 25 December
2005 2004 2004
Unaudited Unaudited Audited
(restated*) (restated*)
£m £m £m
Profit for the financial period 42.1 20.1 7.4
Translation differences on foreign
currency denominated
net investments (0.7) (2.4) (3.0)
Net effect of adopting FRS17 - (128.6) (199.2)
-------- -------- ---------
Total recognised gains and losses
relating to the period 41.4 (110.9) (194.8)
======== =========
Prior year adjustment (FRS17) (202.3)
--------
Total gains and losses recognised
since last annual report and
financial statements (160.9)
========
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
24 weeks to 24 weeks to 52 weeks to
11 June 11 June 25 December
2005 2004 2004
Unaudited Unaudited Audited
(restated*) (restated*)
£m £m £m
Total recognised gains and losses
for the period 41.4 (110.9) (194.8)
Dividends (11.6) (11.6) (23.2)
Net amortisation of/(additions to)
ESOP trust 0.8 (3.3) (12.9)
Shares issued 1.7 1.3 2.2
-------- -------- --------
Net addition/(reduction) to equity
shareholders' funds 32.3 (124.5) (228.7)
-------- -------- --------
Opening equity shareholders' funds
as previously stated 420.8 447.2 447.2
Net effect of adopting FRS17 (202.3) - -
-------- -------- --------
Adjusted equity shareholders' funds
at beginning of period 218.5 - -
-------- -------- --------
Equity shareholders' funds at end of
the period 250.8 322.7 218.5
======== ======== ========
* Restated for FRS 17 - see note 13.
NOTES TO THE FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
The financial information for the 24 weeks to 11 June 2005 and 12 June 2004 is
unaudited. The accounting policies are consistent with those applied to the
audited financial statements for the 52 weeks to 25 December 2004, except that
the Group has adopted 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 13.
These statements do not constitute statutory financial statements within the
meaning of Section 240 of the Companies Act 1985.
The Group's full financial statements for the 52 week period to 25 December
2004, on which the auditors made an unqualified report, have been delivered to
the Registrar of Companies.
2 SEGMENTAL ANALYSIS
All results are from continuing operations. Unallocated net assets comprise
balances in respect of dividends and net funds. The analysis of turnover by
destination is not materially different to the analysis of turnover by origin.
24 weeks to 24 weeks to 52 weeks to
11 June 12 June 2004 25 December 2004
2005 (restated) (restated)
TURNOVER £m £m £m
Howden Joinery 258.7 227.0 559.1
UK Retail 428.9 415.6 825.1
France Retail 64.3 56.3 119.4
Howden Millwork 3.6 3.0 7.3
Other operations 1.8 1.3 3.7
-------- -------- ----------
757.3 703.2 1,514.6
Joint venture
operations 1.5 1.4 3.9
-------- -------- ----------
Total 758.8 704.6 1,518.5
======== ======== ==========
NOTES TO THE FINANCIAL STATEMENTS
2 SEGMENTAL ANALYSIS (continued)
24 weeks to 11 June 2005 52 weeks to 25 December 2004
(restated)
PROFIT Before Exceptional Total 24 weeks to Before Exceptional Total
BEFORE exceptional items 12 June 2004 exceptional items
TAXATION items (restated) items
£m £m £m £m £m £m £m
Howden
Joinery 43.6 - 43.6 34.3 102.8 2.5 105.3
UK Retail (12.9) (5.1) (18.0) 2.3 (31.3) (14.0) (45.3)
France
Retail 2.7 (0.3) 2.4 1.4 2.0 (0.4) 1.6
Howden
Millwork (3.6) - (3.6) (3.3) (8.6) - (8.6)
Other
operations (0.9) - (0.9) (0.3) (0.6) - (0.6)
Operating
exceptional
item re
supply
chain
computer
system - - - - - (20.0) (20.0)
Operating
exceptional
item re
pensions
(note - 41.1 41.1 - - - -
6b)
-------- -------- ------- ----------- -------- -------- --------
Total
operating
profit 28.9 35.7 64.6 34.4 64.3 (31.9) 32.4
Joint
venture
operations (1.0) - (1.0) (0.9) (2.1) - (2.1)
-------- -------- ------- ----------- -------- -------- --------
Total
operating
profit
(group
and JVs) 27.9 35.7 63.6 33.5 62.2 (31.9) 30.3
Profit/
(loss)
on disposal
of
fixed
assets - 7.2 7.2 (1.0) - (2.0) (2.0)
Provision
for
closure of
an
operation - (7.3) (7.3) - - - -
Net
interest
(payable)/
receivable (0.2) - (0.2) 0.1 (2.3) - (2.3)
FRS17
pension
finance
charges (4.8) - (4.8) (2.5) (5.4) - (5.4)
-------- -------- ------- ----------- -------- -------- --------
Profit
before 22.9 35.6 58.5 30.1 54.5 (33.9) 20.6
taxation ======== ======== ======= =========== ======== ======== ========
NOTES TO THE FINANCIAL STATEMENTS
2 SEGMENTAL ANALYSIS (continued)
24 weeks to 11 24 weeks to 52 weeks to 25
June 2005 12 June 2004 December 2004
Total Total Total
(restated) (restated)
NET £m £m £m
ASSETS
Howden
Joinery 87.5 79.6 77.1
UK Retail 147.3 190.5 170.5
France
Retail 26.8 29.9 34.1
Howden
Millwork 8.2 3.7 8.8
Other
operations 2.2 1.3 1.7
Joint
venture
operations 0.2 0.9 0.1
-------- --------- ---------
272.2 305.9 292.3
Unallocated
net
assets/
(liabilities) (21.4) 16.8 (73.8)
-------- --------- ---------
Total 250.8 322.7 218.5
======== ========= =========
3 TAXATION
The taxation charge is calculated at 38.5% of profit before exceptional items
(24 weeks to 12 June 2004: 32.2%, 52 weeks to 25 December 2004: 41.8%), being
the estimated effective rate of taxation for the 2005 financial year.
4 DIVIDEND
The interim dividend of 2.0p per share (June 2004: 2.0p), will be paid on 21
October 2005 to shareholders on the register of members at the close of business
on 30 September 2005. The shares will be quoted ex-dividend from 28 September
2005.
5 SHARE CAPITAL AND 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 13) - - - - - (202.3)
------- -------- ------- ------- ------- -------
As at 25
December
2004
- restated 62.3 77.2 21.8 (55.1) 28.1 84.2
Retained
profit for
the
period - - - - - 30.4
Shares
issued 0.3 2.9 - - - (1.5)
Net
amortisation
of ESOPs - - - 0.8 - -
Realised
revaluation
profit - - (5.6) - - 5.6
Foreign
exchange - - - - - (0.6)
------- -------- ------- ------- ------- -------
As at 11
June
2005 62.6 80.1 16.2 (54.3) 28.1 118.1
======= ======== ======= ======= ======= =======
6 EXCEPTIONAL ITEMS
(a) Exceptional items - supply chain
The exceptional items included in operating profit of £5.4m before tax (52 weeks
to 25 December 2004: £31.9m, 24 weeks to 11 June 2004: £nil), 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
------
Total operating exceptional costs before tax 5.4
Tax credit on operating exceptional items at 30% (1.6)
------
Total operating exceptional costs after tax 3.8
======
NOTES TO THE FINANCIAL STATEMENTS
6 Exceptional items (continued)
These pre-tax costs are included within profit and loss account headings as
follows:
P&L account heading £m
Cost of sales 0.4
Selling and distribution costs 5.0
--------
5.4
========
(b) Exceptional item - 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.
Up to 11 June 2005, 87.4 % by value of the eligible members have accepted the
cash offer. This will lead to a total cash payment of £15.6m in respect of all
members who have accepted the cash offer before 11 June 2005. The cash will be
paid before the end of July, and the expense for all members who accepted the
offer before 11 June 2005 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.
There are still a small number of cash offers to members where we are waiting
for the members to reply. The closing date for the offers was 8 July 2005. Based
on the responses we have had so far, we expect that there will be some further
payments in the second half of 2005, and a corresponding further reduction in
the deficit.
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 before 11
June 2005, together with the cash settlement received from a third party and the
associated legal fees, have been treated as exceptional items, included in
operating profit, in the first half of 2005. The effect of these items is:
£m £m
Reduction in pension deficit following acceptance of cash offer 45.0
Cost of cash offer (15.6)
Cash settlement received from third party 12.0
Professional fees incurred (0.3)
------
Total net operating exceptional credit before tax 41.1
Tax charge on operating exceptional items at 30% (11.1)
-------
Total net operating exceptional credit after tax 30.0
=======
These pre-tax credits/(charges) are included within Administrative expenses.
(c) Profit on disposal of fixed assets
The profit on disposal of fixed assets of £7.2m (52 weeks to 25 December 2004:
loss of £2.0m. 24 weeks to 12 June 2004: loss of £1.0m), represents net gains on
disposal of land and buildings and fixtures and fittings. The associated
deferred tax credit is £0.3m (25 December 2004 and 12 June 2004: £nil).
NOTES TO THE FINANCIAL STATEMENTS
6 Exceptional items (continued)
(d) Exceptional provision for closure
As announced in our press release of 11 May 2005, the Group has 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 trade in 130 of Currys' 370 stores, is in place and we
expect it to be finished by September 2005. In accordance with FRS3, we have
made a provision for the costs of closure of this business, and have treated it
as a post-operating exceptional item. The provision comprises the following
items:
£m £m
Costs of closure 5.7
Provision for future operating losses 1.6
---------
Total operating exceptional costs before tax 7.3
Tax credit on operating exceptional items at 30% (2.2)
---------
Total exceptional provision for closure after tax 5.1
=========
7 EARNINGS PER SHARE
24 weeks to 11 June 2005 24 weeks to 12 June 2004 52 weeks to 25 December 2004
Earnings Weighted Earnings Earnings Weighted Earnings Earnings Weighted Earnings
average per share (restated) average per share (restated) average per share
number number (restated) number (restated)
of of of
shares shares shares
£m m p £m m p £m m p
Earnings
per share
(eps)
Basic
earnings
per share 42.1 583.5 7.2 20.1 571.4 3.5 7.4 581.0 1.3
Effect of
dilutive
share
options - 15.6 (0.2) - 37.2 (0.2) - 17.9 (0.1)
------ ------- ------ ----- ------ ------ ------ ------- ------
Diluted
earnings
per
share 42.1 599.1 7.0 20.1 608.6 3.3 7.4 598.9 1.2
------ ------- ------ ----- ------ ------ ------ ------- ------
Eps before
exceptional
items
Basic
earnings 42.1 583.5 7.2 20.1 571.4 3.5 7.4 581.0 1.3
per share
Exceptional
items (28.0) - (4.8) 1.0 - 0.2 24.3 - 3.2
------ ------- ------ ----- ------ ------ ------ ------- ------
Basic eps
before
exceptional
items 14.1 583.5 2.4 21.1 571.4 3.7 31.7 581.0 5.5
------ ------- ------ ----- ------ ------ ------ ------- ------
Diluted
earnings
per
share 42.1 599.1 7.0 20.1 608.6 3.3 7.4 598.9 1.0
Exceptional
items (28.0) - (4.7) 1.0 - 0.2 24.3 - 4.3
------ ------- ------ ----- ------ ------ ------ ------- ------
Diluted eps
before
exceptional
items 14.1 599.1 2.3 21.1 608.6 3.5 31.7 598.9 5.3
------ ------- ------ ----- ------ ------ ------ ------- ------
8 DEBTORS
24 weeks to 24 weeks to 52 weeks to
11 June 12 June 25 December
2005 2004 2004
£m £m £m
Debtors and prepayments - due
within one year 178.5 149.1 157.4
VAT paid re structural guarantee -
due after one year (note 12) 60.5 57.1 60.5
--------- ---------- ---------
Total 239.0 206.2 217.9
========= ========== =========
NOTES TO THE FINANCIAL STATEMENTS
9 CASH FLOW STATEMENT
Reconciliation of operating profit to operating cash flows:
24 weeks to 24 weeks to 52 weeks to
11 June 12 June 25 December
2005 2004 2004
(restated) (restated)
£m £m £m
Operating profit before exceptional
items 28.9 34.4 64.3
Depreciation and amortisation charge 29.9 24.0 57.8
Amortisation of fixed asset
investments 0.8 4.2 -
Decrease / (increase) in stocks 0.7 7.4 (42.7)
(Increase) in debtors (21.1) (7.1) (15.4)
Increase in creditors and provisions 14.4 30.0 45.3
-------- ---------- ---------
53.6 92.9 109.3
Net cash inflow/(outflow) -
operating exceptionals 5.6 - (28.1)
Net cash outflow - VAT paid re
structural guarantee - (10.7) (14.5)
-------- ---------- ---------
Net cash inflow from operating
activities 59.2 82.2 66.7
======== ========== =========
10 ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT
24 weeks to 24 weeks to 52 weeks to
11 June 12 June 25 December
2005 2004 2004
(restated) (restated)
£m £m £m
Returns on investments and servicing
of finance
Interest received 1.8 0.8 2.0
Interest paid (2.7) (0.7) (3.4)
--------- --------- ---------
Net (outflow)/inflow on investments
and servicing of finance (0.9) 0.1 (1.4)
========= ========= =========
Capital expenditure and financial
investment
Payments to acquire tangible fixed
assets (20.1) (32.4) (82.8)
Receipts from sales of tangible
fixed assets 30.7 5.3 8.2
Investment in joint ventures (0.8) (0.7) (1.1)
--------- --------- ---------
Net inflow/(outflow) from capital
expenditure and financial investment 9.8 (27.8) (75.7)
========= ========= =========
Financing
Shares issued 1.7 1.3 2.2
Payments to acquire own shares - (7.6) (7.6)
(Decrease) / increase in bank
finance (15.0) (25.0) 50.0
--------- --------- ---------
Net (outflow) / inflow for financing (13.3) (31.3) 44.6
========= ========= =========
NOTES TO THE FINANCIAL STATEMENTS
11 ANALYSIS OF NET FUNDS/(DEBT)
Cash at Bank Current Total net
bank loans Net funds/ asset funds/ (debt)
and in hand (debt) investments
£m £m £m £m £m
As at 27
December 2003 48.8 (50.0) (1.2) 11.8 10.6
Cash flow (7.9) 25.0 17.1 2.0 19.1
Exchange
movement (0.6) - (0.6) - (0.6)
------- ------- ------- ------- -------
As at 12 June
2004 40.3 (25.0) 15.3 13.8 29.1
Cash flow (12.4) (75.0) (87.4) (4.4) (91.8)
Exchange
movement 0.5 - 0.5 - 0.5
------- ------- ------- ------- -------
As at 25
December 2004 28.4 (100.0) (71.6) 9.4 (62.2)
Cash flow 36.6 15.0 51.6 1.0 52.6
Exchange
movement (0.2) - (0.2) - (0.2)
------- ------- ------- ------- -------
As at 11 June
2005 64.8 (85.0) (20.2) 10.4 (9.8)
======= ======= ======= ======= =======
12 HM REVENUE & CUSTOMS CLAIM
In August 2001 the Group introduced an optional insurance-backed structural
guarantee on certain items of furniture sold in its UK retail stores. Value
Added Tax (VAT) is paid on the furniture element of the transaction and
Insurance Premium Tax (IPT) is paid on the sale of these warranties.
An assessment has been raised on the VAT on the sale of the warranties and the
relevant tax has been paid to HM Revenue & Customs. The directors have taken
extensive legal and taxation advice and this action is being contested
vigorously. The relevant tax, which has been paid, is carried on the balance
sheet as a debtor without any provision on the basis that this amount is
recoverable.
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 4.1 1.2 1.9 1.0 - -
Group company
------- ------- ------- ------ ------ ------
Profit taken to
profit and loss
account 29.1 1.2 6.8 9.7 9.1 2.3
======= ======= ======= ====== ====== ======
80% of the insurance has been reinsured by the external insurer through the
Group's captive insurance company, Southon Insurance Company Limited.
The maximum potential exposure, if the Group were to lose its case, is £60.5m,
but this would be expected to be offset by the recovery of approximately £15.3m
of insurance premium tax paid on the sale of extended structural guarantees. All
of the £60.5m had been paid to HM Revenue & Customs at the half year end.
NOTES TO THE FINANCIAL STATEMENTS
13 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 LOSS ACCOUNT Profit on Net interest Profit for the
ordinary receivable/ financial
activities (payable) period
before interest
£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
---------- -------- ---------
24 weeks to 12 June 2004
--------------------------
As previously
stated 32.0 0.1 21.5
Effect of
adopting FRS17 0.5 (2.5) (1.4)
---------- -------- ---------
As restated 32.5 (2.4) 20.1
---------- -------- ---------
GROUP BALANCE SHEET Gross pension Net pension P&L Reserve
provision liabilities
(included in
Provisions for
liabilities &
charges)
£m £m £m
52 weeks to 25 Dec 2004
As previously
stated (7.4) - 286.5
Effect of
adopting FRS17 7.4 (206.2) (202.3)
----------- ------- ------
As restated - (206.2) 84.2
----------- ------- ------
24 weeks to 12 June 2004
As previously
stated (5.9) - 319.2
Effect of
adopting FRS17 5.9 (134.1) (130.0)
----------- ------- ------
As restated - (134.1) 189.2
----------- ------- ------
We have not revised any of the assumptions used to calculate our actuarial
valuation in the 24 weeks to 11 June 2005. We have used the same assumptions as
at 25 December 2004, and they are disclosed in the 2004 annual report and
accounts. The change in the pension deficit between 25 December 2004 and 11 June
2005 is due to the following factors:
Analysis of the movement in the scheme deficit during the current £m
period
Deficit as at 25 December 2004 (before tax) (294.6)
Total operating charge (10.9)
Contributions 14.6
Net return on scheme assets and liabilities (4.8)
Reduction due to exceptional item (note 6) 45.0
------
Deficit as at 11 June 2005 (before tax) (250.7)
------
Tax credit on the deficit at 30% 74.9
------
Deficit as at 11 June 2005 (after tax) (175.8)
======
Independent review report by Deloitte & Touche LLP to MFI Furniture Group Plc
Introduction
We have been instructed by the company to review the consolidated financial
information for the twenty-four weeks ended 11 June 2005 which comprises the
profit and loss account, the balance sheet, the cash flow statement, statement
of total recognised gains and losses, reconciliation of movement in equity
shareholders' funds and related notes 1 to 13. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
polices and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland), and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the twenty-four
week period ended 11 June 2005.
Deloitte & Touche LLP
Chartered Accountants
London
21 July 2005
This information is provided by RNS
The company news service from the London Stock Exchange