Final Results - Year Ended 31 August 1999

John Lewis Of Hungerford PLC 20 December 1999 CHAIRMAN'S STATEMENT Results Sales for the year ended 31 August 1999 increased 3% to £2,633,152 compared to £2,560,960 for the previous year. The loss before tax for the same period was £102,840 compared to a profit of £196,017 for the previous year. Gross margins were 55% compared to 56% for the previous year. Unit volumes of kitchens sold increased 2% whilst furniture decreased 4%. The loss on ordinary activities after taxation for the year amounted to £53,349 compared to a profit after taxation of £164,795 in the previous year. Despite a loss for the year, net cash inflows from operating activities remained positive at £90,466 compared to £295,588 in the previous year. Basic loss per share was 0.04p compared to earnings per share in the previous year of 0.12p. In view of trading losses no dividend is being proposed by the Board (1998 - 0.108p per share). In addition no Profit Related Pay has been distributed to employees (1998 - £21,941). Trading Review The year under review has been extremely disappointing. Despite an increase in the number of outlets from 8 to 10, sales revenues have not grown significantly. Like for like UK sales increased 2% with the balance of sales growth coming from new outlets. Sales in Europe declined 55%. The UK kitchen market remains fiercely competitive with little real growth. As a result the Company has begun the process of broadening its product offering with the launch of the 'Office at Home' range in June 1999. The home office market is estimated to be growing at an annual rate of 20%. The Company has positioned these new products towards the premium end of the market which is less competitive. United Kingdom Two new outlets were opened in the year under review - a showroom in Tunbridge Wells, Kent and a concession in Leamington Spa, Warwickshire. These new outlets together contributed 8% to total sales. The Company has been unable to open either a showroom or concession in the important area of Kingston-upon-Thames, Surrey due to a lack of suitable sites. A number of new features have recently been added to the 'Artisan' kitchen range including a new door style, alternative worktops and additional colours. The 'Office at Home' range has been well received and the Company is looking at alternative methods of distribution for these products to match the busy lifestyles of many potential customers. During 1999 the Company successfully challenged a significant UK infringement of its 'Artisan' trademark by a major competitor. Whilst the Company was successful in this action it has not been possible to determine whether this infringement has resulted in a loss of sales. Europe Sales in mainland Europe continue to be depressed. Whilst partially due to the continuing high value of sterling and increased local competition, the major factor has been the failure of the new trading arrangements set up in the previous year with our concession partner for two of the Company's three European outlets. During 1999 the Company carried out a complete review of its trading strategy in Europe. It has been a considerable frustration to your Board that we have been unable to implement many of the required changes. A major factor for this delay has been the blatant copyright and trademark infringement by a competitor in the Netherlands. This legal case has resulted in significant cost to the Company, but in your Board's view had to be pressed if the Company was to retain any credible presence in the Netherlands market. Whilst this matter has been successfully concluded in favour of the Company with the offending Company withdrawing completely from the kitchen market, the action has involved not only considerable cash cost but loss of management time. Future European sales efforts will be concentrated only on established areas of demand. Accordingly concession sites in Antwerp, Belgium and Maastrict, Netherlands will be closed. As these have limited future economic value the unamortised cost of these outlets has been written off as an exceptional expense in the accounts to August 31 1999. Financial Review The Company has a cash generative business model. Despite significant trading losses, net cash flows from operating activities was a positive £90,466 (1998 - £295,583). It had been your Boards intention to mortgage the Company's unencumbered freehold land and buildings to eliminate all short term bank debt and provide additional working capital. However a reduction in borrowing requirements and adverse movements in interest rates make fixed term debt unattractive at this time. Accordingly the Company has overdraft facilities in place which should adequately meet any near term funding requirements. Gross profit margins have been broadly maintained during the year through improved buying and manufacturing productivity increases. Distribution and other costs have risen as a result of new outlets and launch costs of the 'Office at Home'. Shareholder funds at 31 August 1999 amounted to £1,396,688 (1998 - £1,439,473). Corporate Issues Your Board believes that the Company's current share price significantly discounts real value. In particular it fails to reflect the longer term earnings potential of the businesses brand assets. Accordingly your Board will seek to renew powers at the forthcoming AGM to buy back up to 10% of the issued share capital of the Company, although there is no immediate intention to exercise such power. Outlook Trading in the UK during the first quarter of the financial year to 31 August 2000 has been encouraging. However, sales in mainland Europe remain depressed. Interest in our new 'Office at Home' range is high but this interest has yet to convert into significant sales. In addition finding suitable new outlets for showrooms and concessions remains challenging. In view of the above, your Board is very cautious on the outcome for the year to 31 August 2000 both in terms of sales and profits. Looking to the longer term, your Board intends to continue its present strategy of increasing the number of UK outlets and supporting its European operations. We intend to pursue the process of broadening the 'John Lewis of Hungerford' brand beyond kitchens and furniture and into other products associated with the home. As part of this process we will continue to look for suitable strategic partnerships. John Lewis Chairman 20 December 1999 Profit and Loss Account for the year ended 31 August 1999 1999 1998 £ £ Turnover 2,633,152 2,560,960 Cost of sales (1,175,898) (1,124,279) -------- -------- Gross profit 1,457,254 1,436,681 Distribution costs (528,583) (442,718) Administrative expenses - normal (970,682) (839,165) Administrative expenses - (42,390) (11,150) exceptional item ------- ------- Total administrative (1,013,072) (850,315) expenses -------- -------- Operating (loss)/profit (84,401) 143,648 Other income 3,512 57,517 Interest payable (21,951) (5,148) and similar charges -------- -------- (Loss)/profit on ordinary (102,840) 196,017 activities before taxation Tax on (loss)/profit on 49,491 (31,222) ordinary activities -------- -------- Profit/(loss) on ordinary (53,349) 164,795 activities after taxation Dividends - (48,236) -------- -------- (Net deficit)/retained (53,349) 116,559 profit for the financial year ======= ====== Earnings per share Basic (0.04p) 0.12p Fully diluted (0.04p) 0.11p JOHN LEWIS OF HUNGERFORD PLC - PRELIMINARY RESULTS Balance Sheet as at 31 August 1999 1999 1998 £ £ £ £ Fixed assets Intangible assets 17,002 12,563 Tangible assets 1,745,493 1,819,731 ------- --------- 1,762,495 1,832,294 Current assets Stocks 152,101 109,762 Debtors 172,692 237,026 Cash at bank and 76,303 86,922 in hand ------- ------- 401,096 433,710 Creditors: amounts falling due (766,903) (826,531) within one year ------- ------- Net current liabilities (365,807) (392,821) ------- --------- Total assets less current 1,396,688 1,439,473 liabilities ======= ======= Capital and reserves Called up share 148,745 138,333 capital Share premium 824,771 824,619 account Other reserves 1,421 1,421 Profit and loss 421,751 475,100 account ------- --------- Shareholders' funds - all equity 1,396,688 1,439,473 interests ======= ======= JOHN LEWIS OF HUNGERFORD PLC - PRELIMINARY RESULTS Cash Flow Statement for the year ended 31 August 1999 1999 1998 £ £ £ £ Net cash inflow from operating 90,466 295,588 activities Returns on investments and servicing of finance Interest received 3,512 25,148 Interest paid (21,951) (5,148) -------- -------- Net cash (outflow)/inflow from returns on (18,439) 20,000 investments and servicing of finance Corporation tax (31,224) (128,857) Capital expenditure Payments to acquire intangible (4,439) (5,088) fixed assets Payments to acquire tangible (96,229) (1,143,344) fixed assets Receipts from sales of tangible 2,450 52,719 fixed assets -------- -------- Net cash outflow from capital (98,218) (1,095,713) expenditure Equity dividends (48,836) (149,400) paid -------- -------- Net cash outflow before financing (106,251) (1,058,382) Financing Issue of ordinary share capital 17,000 - Cost of share (6,436) - issue -------- -------- Net cash inflow from financing 10,564 - -------- -------- (Decrease)/increase (95,687) (1,058,382) in cash ====== ======= JOHN LEWIS OF HUNGERFORD PLC - PRELIMINARY RESULTS FOR THE YEAR ENDED 31 AUGUST 1999 NOTES TO THE ACCOUNTS 1. PRELIMINARY RESULTS The preliminary results have been extracted from the Company's audited accounts which have been approved and signed by the directors and auditors, but have not yet been delivered to the Registrar of Companies. The audited accounts have been prepared under the historical cost convention using the accounting policies set out in the admission document. 2. RECONCILIATION OF MOVEMENTS IN SHAREHOLDER'S FUNDS 1999 1998 £ £ (Loss)/profit for the financial year (53,349) 164,795 Dividends - (48,236) --------- --------- (53,349) 116,559 New share capital subscribed 10,564 - --------- --------- Net (depletion in)/addition to (42,785) 116,559 shareholders' funds Opening shareholders' funds 1.439,473 1,322,914 --------- --------- Closing shareholders' funds 1,396,688 1,439,473 ======= ======= 3. EARNINGS PER SHARE 1999 1998 Earnings per ordinary share is calculated as follows: Basic (Loss)/profit attributable to (£53,349) £164,795 ordinary shareholders Weighted average number of ordinary 140,937,903 138,333,333 shares in issue Earnings per ordinary share (0.04p) 0.12p ========= ======== Fully diluted (Loss)/Profit attributable to (£53,349) £164,795 ordinary shareholders Weighted average number of ordinary 148,179,900 148,223,072 shares in issue Earnings per ordinary share (0.04p) 0.11p ========= ========= Weighted average number of shares in issue - basic calculation 140,937,903 138,333,333 Number of shares deemed to have been issued for no consideration in 7,241,997 9,889,739 respect of share options --------- --------- Weighted average number of shares in issue - fully diluted calculation 148,179,900 148,223,072 ========= ========= 4. 1999 REPORT AND ACCOUNTS Copies of the 1999 report and accounts will be sent to shareholders in due course. Further copies will be available from the Company's nominated adviser: Smith & Williamson, No 1 Riding House Street, London, W1A 3AS. 5. COPY OF ANNOUNCEMENT A copy of this announcement will be available from the nominated adviser: Smith & Williamson, No 1 Riding House Street, London, W1A 3AS for 14 days from the date of this announcement.

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