Pre-close update

MFI Furniture Group PLC
02 December 2004



2 December 2004



            MFI Furniture Group Plc ('MFI') - Pre-close update


Following the supply chain progress report on 16 November, MFI is today
providing a pre-close update and information on current trading. The Group's
trading performance for the current financial year remains in line with
management expectations.

Chief Executive John Hancock comments, 'Howden has had an exceptional year of
growth and we will be accelerating new depot openings next year. Recent
improvements in our home delivery service and a cost reduction programme should
produce a substantial improvement in the results of UK Retail in 2005, despite
an increase in pension and other costs.'

Howden Joinery

Trading for the current year for Howden Joinery is summarised below:

Sales performance                        Same store             Total

First half (weeks 52-24)                    +20%                +26%
Second half to date (weeks 25- 48)          +18%                +24%
Cumulative (weeks 52-48)                    +19%                +25%

As previously announced, Howden Joinery traded successfully through its peak
period in October. The business has maintained its strong momentum, despite a
more competitive environment. Gross margins in the second half are at the same
level as the first half.

During 2004, 16 new depots have been opened, with a further four openings
planned before the year end, making a total chain of 320. The table below
summarises the depot opening programme over the last five years.

Year     Depot openings
2000           58
2001           56
2002           41
2003           31
2004           20

As previously announced, the Board sees potential for a chain of up to 480
depots in the UK. In 2005 and 2006, the Board intends to invest in a faster rate
of new openings, with up to 40 new depots each year. As a consequence of the
slower opening programme in 2003-4, and the increased proportion of the estate
represented by more mature depots, MFI expects the rate of same store sales
growth to moderate in 2005.

Since mid-November, Howden Millworks in the USA has been selling new kitchen
product ranges specifically designed for the US trade market. Howden Joinery is
piloting two depots in France with a further ten possible in 2005.

UK Retail - Current trading

In order to increase transparency and to help understand the impact in 2004 of
the supply chain disruption, MFI is providing more detail on orders and
deliveries in UK Retail and will continue to provide this detail in future
updates.

Total gross customer orders are 3% down year to date on 2003 (4% down in the
first half, 2% down in the second half). Net orders are down by 8% year to date.
The difference in year on year movements between the gross orders and the net
orders reflects the higher level of refunds to customers for missed and late
deliveries. The level of refunds for delivery problems has reduced in the last
four weeks with the improvement in our home delivery performance.

The table below shows for UK Retail:

   • the opening customer order book;
   • the net orders received in the period (gross customer orders less the
     value of customer refunds in the period);
   • deliveries (when an order is recorded as a sale); and
   • the closing order book position.


     Total orders                      First half       Second half to date     Cumulative
   (excluding VAT)                   (weeks 52-24)         (weeks 25-48)       (weeks 52-48)
                                           £m                   £m                  £m

                               £m 2003     £m     %      £m      £m     %     £m     £m     %
                                         2004          2003    2004         2003   2004

Opening order book                  34     26   (24%)    90      99    10%    34     26   (24%)
Net orders*                        526    490    (7%)   378     346    (8%)  904    836    (8%)
Deliveries                        (470)  (417)  (11%)  (388)   (357)   (8%) (858)  (774)  (10%)
Closing order book                  90     99    10%     80      88    10%    80     88    10%

*Same store net orders in the first half were 8% lower than 2003, 9% lower in
the second half to date, and 9% lower on a cumulative basis.

The gross margin in 2004 has been adversely affected by two factors; the
decision at the half year to sharpen pricing and the impact of the increased
level of refunds. The increased level of refunds has reduced orders by an
estimated £30 million in the period since the introduction of the new supply
chain systems in March to week 48.

UK Retail - 2005 Outlook

UK Retail is targeting a substantial improvement in its results for 2005, on the
basis of home delivery performance returning to pre systems implementation
levels. Key impacts on UK Retail's profitability in 2005 will include:

   •Cost savings of £40 million from non front line UK Retail and Group
    functions in the following areas:
      + •Head office and central staff job losses of 80 full-time positions
         and a reduction in consulting spend.
      + •Reduced marketing spend. Direct advertising spend in the first half
         of 2005 will be at higher levels than in the first half of 2004.
      + •Reduction in store costs as a result of fewer product refits and
         store refurbishments and some property relocations.
      + •Renegotiated logistics costs and reduced indirect spending.

   •A reversal of the effects of the supply chain disruption in 2004:
      + •A reduced level of refunds linked to improved home delivery
         performance.
      + •Reversal of one-off costs incurred in 2004 (additional deliveries,
         call centre and technical costs) of £16 million resulting from the
         systems issues.
      + •Unwinding of the order book position at year end 2004 which is
         expected to be £15 million higher than in 2003.

   •Cost increases for 2005 in relation to rent reviews, the uniform business
    rate, working time directive and new regulations regarding the recycling of
    electrical appliances are projected to total £26m.
   •An incremental investment of £8 million per annum in additional supply
    chain resources.


The Board has reviewed the carrying value of the Group's investment in the
supply chain systems and has concluded that a non-cash charge of £20 million is
appropriate to reduce the carrying value of the system. This value is supported
by an updated view of the benefits to be realised from improvements to the
system substantially over the next three years.


UK Retail - Winter Sale

The short-term focus for management continues to be preparing for the Winter
Sale, which starts on Boxing Day. Over the last two weeks deliveries have
reached the daily rates necessary to trade successfully through the Winter Sale.
This level will have to be maintained for a sustained period during the first
half of 2005 to deliver the expected level of orders. Customer orders will reach
levels not experienced since the new systems went live.

Work continues to improve the stability of the system ahead of the Winter Sale.
Some disruption is still possible as order volumes peak and contingency plans
have been put in place.

Pensions

MFI operates two funded schemes which provide benefits based on the final
pensionable pay of participating employees. The last triennial actuarial
valuations of these schemes were as at 6 April 2002 and the next such valuations
are due as at 6 April 2005. Interim valuations have been undertaken at each
financial year end for the purposes of disclosure under FRS17.

The last FRS17 valuation was at 31 December 2003 and is set out in the notes to
MFI's financial statements for that year. This valuation showed a deficit of
£145.4 million (£101.8 million net of deferred tax) and excluded additional
pension obligations of approximately £50 million before tax (on an FRS17 basis
and the assumptions used by MFI at that time) which were subsequently identified
and announced to the market in May 2004. The Board continues to take advice as
to the actions required to obtain recovery from third parties in relation to
these additional obligations.

At 31 December 2004, based on the latest view of actuarial assumptions, the
FRS17 deficit is estimated to be in the order of £310 million, (£217 million net
of deferred tax), including the additional pension obligations announced in May
2004. An estimate of the revised assumptions compared to 2003 is shown below:

                                                        Estimate       Actual
                                                      31 Dec 2004    31 Dec 2003
Inflation assumption                                       2.9%            2.5%
Rate of increase in salaries                               3.9%            3.0%
Rate of increase in pensions in payment (post 
6 April 1997)                                              2.9%            2.5%
Discount rate                                              5.4%            5.5%

Pension costs charged to the profit and loss account in 2005 under FRS17 are
currently estimated at £34 million, compared to the estimated SSAP 24 charge in
2004 of £16 million. The charge is broadly split two-thirds to UK Retail and
one-third to Howden Joinery.

In common with the recent FRS17 valuations, the next triennial actuarial
valuation as at April 2005 is likely to give rise to a deficit in the schemes as
a result of movements in investment markets in the last three years, changes in
actuarial assumptions since 2002, expected changes to future actuarial
assumptions and the additional obligations identified in May 2004.

In the context of the triennial valuations, MFI will be discussing with the
pension scheme trustees ways of addressing the deficit and establishing that the
future level of contributions MFI is required to make are set at an appropriate
level. MFI's current expectation is that cash contributions in 2005 will be in
the order of £35 million as compared to £13 million in 2004. This assumes that
scheme deficits are dealt with in the same way as in the past, through
additional contributions spread over 14 years. It is emphasised, however, that
the actual level of cash contributions will be determined after the results of
the April 2005 valuations are known, which is expected to be during the second
half of 2005.

MFI will announce its preliminary results for the year ended 25 December 2004 on
24 February 2005.



Enquiries:

MFI
John Hancock         Chief Executive         Today until 3pm only: 020 7404 5959
Shaun O'Callaghan    Interim CFO                  Thereafter: 020 8913 5319/5350

Brunswick
Susan Gilchrist, Fiona Laffan, Anna Jones                          020 7404 5959


                      This information is provided by RNS
            The company news service from the London Stock Exchange