Final Results
MFI Furniture Group PLC
24 February 2005
MFI Furniture Group Plc
24 February 2005
Preliminary results for the 52 weeks to 25 December 2004
Financial highlights
- Turnover up 2.2% to £1,515m
- Howden Joinery up 24.8% to £559m
- UK Retail down 9.4% to £825m
- France Retail up 4.6% to £119m
- Profit before tax, system write downs and disposals of £47.0m
- System write down & related costs of £20m (2003 - £nil) and loss on
disposal of fixed assets of £2m (2003 - profit of £14.1m)
- Profit before tax of £25.0m (2003 - £117.9m)
- Profit before exceptional items of £58.9m (2003 - £103.8m*)
- Basic earnings per share of 1.8p (2003 - 15.4p)
- Basic earnings per share before exceptional items of 6.0p (2003 -12.9p)
- Dividends per share up 5.3% to 4.0p (2003 - 3.8p)
* excludes profit on disposal of fixed assets of £14.1m
Business highlights
• Supply chain systems operating adequately during the peak order period
of the Winter Sale, although peak delivery period continues over the
balance of the first half.
• Poor result in UK Retail, with system problems and trading issues
resulting in an operating loss of £46.0m, after £14.0m of net exceptional
operating costs (2003 - £41.7m profit).
• Continued strong performance from Howden Joinery in the UK, with
operating profits increasing by 45.8% to £105.0m, including £2.5m of
exceptional operating benefits (2003 - £72.0m).
• Profit improvement and cost reduction measures previously announced for
UK Retail on target.
• Orders in Winter Sale to date have been in line with management's
expectations. A trading update on orders performance will be provided at
the end of the Winter Sale on Thursday 3 March 2005.
John Hancock, Chief Executive, said:
'We have recorded another strong set of numbers from Howden Joinery. However,
2004 was a poor year in UK Retail with performance severely impacted by the
issues around the new supply chain systems. We are making progress in addressing
these issues and 2005 will be a year of stabilisation and recovery in UK Retail
with further growth in Howden Joinery.'
Contacts:
MFI Furniture Group Plc
John Hancock, Chief Executive 020 8913 5319
Shaun O'Callaghan, Interim Chief Financial Officer 020 8913 5350
Brunswick Group Limited
Susan Gilchrist / Fiona Laffan / Anna Jones 020 7404 5959
Operational review
The results for the year can be summarised as follows:
Turnover 2004 2003 Increase *Same store
£m £m % increase %
Howden Joinery 559.1 448.1 24.8 18.7
UK Retail 825.1 910.9 (9.4) (10.6)
France Retail 119.4 114.2 4.6 4.5
Howden Millwork 7.3 5.1 43.1 N/a
Other operations 3.7 3.2 15.6 N/a
------- -------- -------- ----------
Total 1,514.6 1,481.5 2.2 (0.4)
------- -------- -------- ----------
* Same store sales include refurbished and extended/downsized stores, but
exclude new, closed and relocated stores.
Profit before
tax 2004 2004 2004 2003
£m £m £m £m
Pre- Post-
exceptional Exceptional exceptional
items items items
Howden Joinery 102.5 2.5 105.0 72.0
UK Retail (32.0) (14.0) (46.0) 41.7
France Retail 2.0 (0.4) 1.6 0.3
Howden Millwork (8.6) - (8.6) (8.4)
Other operations (0.6) - (0.6) -
System write down
and related costs (20.0) (20.0)
-------- -------- ---------- --------
Operating profit 63.3 (31.9) 31.4 105.6
Joint venture
losses (2.1) - (2.1) (2.1)
Net interest (2.3) - (2.3) 0.3
-------- -------- ---------- --------
Profit before
tax and (loss)/
profit on disposal
of fixed assets 58.9 (31.9) 27.0 103.8
(Loss)/profit
on disposal
of fixed assets - (2.0) (2.0) 14.1
-------- -------- ---------- --------
Profit before tax 58.9 (33.9) ***25.0 117.9
-------- -------- ---------- --------
***Profits before system write down and related costs of £20.0m and loss on
disposal of fixed assets of £2.0m are £47.0m.
Supply chain systems
The introduction of the new supply chain system in 2004 was essential to meet
the changing needs of all parts of the business, both in respect of the scale
and scope of the products the Group sells and the continuing development of our
routes to markets. The old systems, some of which were 20 years old, were not
designed to accommodate the complex requirements of home delivery in UK Retail
or the range of products now sold as part of our 'every room in the house'
strategy. Similarly, the new system was required to support substantial growth
in Howden Joinery and the internationalisation of the Group, both in terms of
customers and suppliers. The new system also provides the operational capability
for the management of each route to market to focus on the appropriate supply
chain strategy for its specific business, through a better alignment of the
supply chain to meet customer needs in each route to market.
Our new supply chain systems went live in March 2004. The initial technical
problems, which we highlighted in July, proved, by September, to be far worse
than expected. This resulted in significant disruption to the home delivery
service we provided to our retail customers and the associated recovery and
compensation costs substantially reduced our profits.
In September 2004, we undertook a thorough root cause analysis of the problems
in the supply chain. This revealed additional technical problems and two
critical underlying business requirements - better data quality and more
accurate inventory forecasting. Subsequent actions were focused on:
• Securing Howden Joinery for its peak autumn trading season.
• Improving and stabilising retail customer service.
• Improving stock availability.
• Increasing the effectiveness of home delivery and fulfilling incomplete
orders.
• Rectifying and optimising system performance.
We have made progress on all of these key areas and the Board is increasingly
confident that the supply chain systems are stabilising:
• Howden Joinery successfully traded through its busiest autumn period
with the system coping with substantially higher volumes.
• Thus far during 2005, the number of home deliveries with errors has been
better than the levels achieved in the corresponding period last year (prior
to the introduction of the new systems). However, the peak delivery period
will continue through to the end of the first half of 2005.
• Availability of stock is considerably improved, particularly within
own-manufactured product.
• Management are focused on stock planning and data quality - key metrics
are in place and showing improvements though deliveries in the next few
periods are critical.
• We have improved data quality, increased data processing capacity and
re-written critical software components - this has resulted in more
stability although there is still more work to do in these areas during
2005.
Exceptional costs
The Board has reviewed the carrying value of the investment in the new system by
looking at its future discounted cash flow benefits. This has resulted in a
£10.3m write down of assets previously capitalised. A further £9.7m of system
costs have been directly expensed in 2004, making a total exceptional charge of
£20.0m for our systems.
We have incurred £17.1m in costs for extra deliveries and installation,
technical supply chain rectification work and additional call centre support. In
addition we spent £2.3m on redundancy costs arising from the restructuring of
the UK Retail business. These costs have been partially offset by a net credit
in respect of share scheme amortisation, comprising a release of £9.1m in
respect of previous years' amortisation on share schemes that are no longer
expected to vest and a current year charge of £3.2m in respect of schemes which
are expected to vest. In addition there is a net release of related national
insurance of £1.6m. These total a net exceptional operating cost of £11.9m.
UK Retail
Our first half performance, as identified at the time, suffered from a weak
promotional strategy, as well as a slowdown in new product introduction -
particularly in beds and bedrooms - as we completed the rollout of the store
refurbishment programme. This was compounded in the second half by problems with
the new supply chain system which went live in March.
The combination of these issues resulted in the division incurring a loss of
£46m, after incurring a net £14.0m of exceptional operating costs. These
comprise £16.3m for extra deliveries and installation, technical supply chain
rectification work and additional call centre support; £2.3m for redundancy
costs arising from a restructuring programme; and a credit of £4.6m for an
amortisation release against share schemes that are no longer expected to vest
as a result of the poor trading performance. This compares to a profit of £41.7m
in 2003.
New product introduction was accelerated in the second half of the year - with a
focus on lower priced ranges, particularly around the £500 price level. Seven
new kitchen ranges, nine new ranges of bedrooms, 15 sofas, seven beds and four
bathrooms were introduced. We have closed the gaps in our bed and bedroom
ranges, and performance is improving. In 2005, the performance of Hygena
kitchens will likewise benefit from lower-end product introductions.
We also increased our advertising spend in the second half to restore our
traditional price/value offer with our promotions proposition 'more home for
your money'. We have made commercial and operational management changes to
enable us to get closer to the customer and be able to make faster and better
decision-making.
Total gross customer orders (new customer orders) were down 3% on 2003, with net
orders down by 7% for the year. The difference between gross orders and net
orders reflects a £36m increase in the level of refunds to customers for missed
and late deliveries, compared to 2003. This is expected to reduce in 2005 as the
system issues are resolved.
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 (excluding VAT) First half Second half Cumulative
(weeks 52-24) (weeks 25-52) (weeks 52-52)
£m £m £m
£m £m £m £m £m £m
2003 2004 2003 2004 2003 2004
Opening order book 34 26 90 99 34 26
Net orders 526 490 377 347 903 837
Deliveries (470) (417) (441) (408) (911) (825)
Closing order book 90 99 26 38 26 38
The closing order book increased by £12m year on year, as deliveries were
impacted by the supply chain issues, and this is expected to reverse in 2005.
Gross margin in 2004 was adversely affected by the impact of the increased level
of refunds (circa £36m) to customers and by the decision at the end of the first
half to sharpen pricing. Gross margins in 2005 will reflect our pricing, product
mix, input costs and the effectiveness of our supply chain. Any improvements in
the level of refunds in the first half of 2005 are likely to be offset by
product mix changes, increases in raw material costs and maintenance of our
value pricing proposition.
In 2004, we spent some £13m (2003 - £19m) of capital expenditure on store
refurbishments, relocations and new stores. We estimate the profit impact in the
year of the resulting store disruption to be about £9m, compared to £19m in
2003. 25 stores were opened in the new format in 2004 - 18 refurbishments and
seven new and relocated stores, less one closure - bringing the total to 146 out
of a total of 195 out-of-town stores and representing over 80% of out-of-town
store orders. Of these stores 80 have been fully refitted, 23 have received a
partial refit and 43 have received the new partial refit.
Our investment programme in 2005 will be lower, as we have effectively completed
the refurbishment programme. The remaining unconverted stores will be relocated
over time with ten relocations planned in 2005. We estimate disruption costs in
2005 to be lower at £5m and this reduction, compared to the £9m cost in 2004,
has been included in our £40m savings plan noted below. We are currently testing
three new smaller store formats of 10,000 square feet.
As announced in December 2004, UK Retail is targeting financial improvements in
2005 both from the reversal of the effects of the supply chain disruption in
2004 and from £40m of specific cost saving measures being implemented. Actions
have been taken in each of the areas detailed in December and progress is in
line with management's plans. Actions are also in place to eliminate the
exceptional operating costs relating to the supply chain disruption and to
reduce the level of refunds paid to customers as a result of poor service.
We also anticipate some £47m of cost increases in 2005. These include some £12m
relating to rent and rates increases, £13m more for pensions and an extra £8m
cost as part of the supply chain stabilisation and improvement activities we
have discussed above. The balance of £14m relates to working time directive and
other logistics costs, regulations regarding electrical appliance recycling,
depreciation and other central costs.
France Retail
In France, sales of £119.4m were up 4.6% on last year (6.4% in local currency),
with same store growth up by 4.5% in local currency. As in the UK, the business
was adversely impacted by the supply chain systems although it was less
significant as we do not operate a home delivery operation in France. Operating
profits improved to £1.6m (pre-exceptional operating profit of £2.0m) compared
to £0.3m in 2003.
We continued with the refurbishment programme of our stores during the year with
17 new format stores - 13 refits and four new stores - added to the 68 that were
open at the beginning of the year, making a total of 85 out of a chain size of
139. Although only 60% of the showrooms are in the new format, sales from these
showrooms accounted for over 70% of our total orders in 2004.
Howden Joinery
Operating profits were £105.0m, including an exceptional operating benefit of
£2.5m, up 45.8% against £72.0m last year. Howden Joinery was less affected by
the supply chain systems in the year as it is a fully-stocked operation and does
not rely on a just-in-time process to deliver direct to customers' homes. It has
a lower number of stock lines compared to the retail division, with a greater
proportion being manufactured in-house. We were therefore able to take action
over the inventory level to minimise disruption.
Howden Joinery in the UK had 320 depots open at the year-end, an increase of 20
units in the year. Sales were up 24.8% and same depot sales were 18.7% higher.
Net operating margin, at 18.8%, has improved (2003 - 16.1%) with the business
able to sustain a selling price increase introduced in 2003, combined with the
benefit of a maturing depot portfolio and a lower number of new depot openings.
As previously announced, the Board sees potential for a chain of up to 480
depots in the UK. In 2005 and 2006 we will invest in a faster rate of new
openings, with up to 40 new depots each year. As a consequence of the increased
opening programme, we expect the operating margin to fall slightly in 2005. We
expected total sales growth in 2005 to moderate to reflect the increasing
maturity of the total estate, a lower number of depots entering their most rapid
growth phase in 2005 compared to 2004 and the absence of the price increase
impact seen in 2004.
Howden Joinery is continuing to develop and update its kitchen product with nine
new ranges added during the year. The bathroom pilot, where bathrooms were
tested during 2004 in six depots, has not been continued.
Howden International
Howden Millwork losses of £8.6m (2003 - £8.4m loss) in the year were in line
with our expectations. We expect a similar level of losses in 2005.
During the year we moved to the next phase of our test to evaluate fully
customers' requirements by testing both pricing and demand for product made to a
US specification. This will help validate whether the business model can provide
acceptable levels of return. There has been an encouraging start to the
introduction of the new US sized ranges which were introduced in the late
autumn, a little later than anticipated. They will continue to be tested during
the first half of 2005.
A two-depot pilot in France commenced in January 2005. Plans are in place to
open a further ten depots and, subject to these openings, we expect to incur
losses of up to £4m in 2005.
HM Customs & Excise claim
We continue to contest vigorously HM Customs & Excise's challenge to the
Company's VAT treatment for structural guarantees. The maximum potential
exposure is £60.5m and this has been paid to HM Customs & Excise. We would
expect this to be offset by the recovery of £15.3m of insurance premium tax paid
on the sale of extended structural guarantees if our claim was not to succeed.
In May we changed the insurance product and no longer give a discount on the
furniture if the customer chooses to purchase the revised product. We are
carrying the tax paid of £60.5m on our balance sheet as a debtor without any
provision and further disclosure is given in note 12 of the accompanying notes
to the financial statements.
Pensions
MFI operates two funded schemes which provide benefits based on the final
pensionable pay of participating employees. The last triennial full 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.
We intend to adopt FRS 17 in 2005. Pension costs charged to the profit and loss
account in 2005 under FRS17 are estimated at £34m, compared to the SSAP 24
charge in 2004 of £16m. The charge is broadly split two-thirds to UK Retail and
one-third to Howden Joinery.
The FRS17 valuation as at 31 December 2004 showed a deficit of £295m (£206m net
of deferred tax). This includes additional pension obligations in respect of the
equalisation of normal retirement dates of approximately £50m before tax
(calculated on an FRS17 basis, after the previous FRS17 valuation as at December
2003 had been prepared, and on assumptions used by the company at the 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.
In the context of the triennial valuations, MFI will be discussing with the
pension scheme trustees ways of addressing the deficit and establishing the
future level of contributions. In the meantime the Company and the trustees have
agreed an additional interim funding rate of £20m per annum, payable quarterly
in arrears.
As a result, our expectations are that the cash contribution to the scheme in
2005 will be in the order of £35m compared to £15m in 2004. The actual level of
cash contributions going forward into 2006 will be determined after the results
of the April 2005 triennial full valuations are known, which is expected to be
during the second half of 2005.
Taxation
The effective tax rate for the Group before exceptional items is 41% for 2004,
compared to 30% in 2003. The rate is higher as the Group has a relatively fixed
level of disallowable expenditure for tax purposes, which represents a higher
percentage of the reduced profit in 2004.
We estimate that the effective rate of tax will fall to a rate closer to 36% in
2005.
Dividends
The Board has proposed a final dividend of 2.0p per share (2003 - 2.0p) to be
paid on 10 June 2005 to shareholders on the register at 27 May 2005. The shares
will be quoted ex-dividend from 25 May 2005. This brings a total dividend for
the year to 4.0p per share (2003 - 3.8p), an increase of 5.3% over the previous
year.
Cash
The Group had net borrowings of £71.6m (2003 - net borrowings of £1.2m) at the
year-end; this shows a reduction of net cash of £70.4m during the year, but is
struck after lodging a further £14.5m with HM Customs & Excise for the disputed
VAT on our structural guarantee product and an additional exceptional cash cost
of £28.1m relating primarily to the supply chain system. In addition the Group
held £9.4m (2003 - £11.8m) on short-term deposit, held in escrow for future
insurance claims.
Accounting standards
In June 2002, the European Union (EU) approved a regulation that will require
all listed EU companies to prepare consolidated statements in accordance with
International Financial Reporting Standards (IFRS). The regulation applies to
all accounting periods beginning on or after 1 January 2005.
MFI's accounting period ended on Saturday 25 December 2004 and, as a result, the
first accounting period for which the Group will prepare accounts under IFRS
will be the financial year 2006. We are prevented by the Companies Act from
adopting these standards in 2005.
The Group continues its preparation for IFRS and will give further guidance on
the accounting impact in due course. The key areas likely to affect MFI are as
follows:
• Property leases
• Share-based payments
• Foreign exchange hedging
• Intangible assets
• Deferred taxation
• Dividends
• Pensions
Current trading
As explained at the Interim Results in July 2004 we intend to give a current
trading update every March following the conclusion of the Winter Sale. In 2005
this statement will be made on Thursday 3 March; this is earlier than previous
years as a result of the timing of Easter. To date the level of orders taken is
in line with management expectations.
We are pleased to announce the launch of a partnership with Tesco and are now
accepting Tesco Clubcard in our stores. Tesco has ten million Clubcard holders.
We are the only furniture retailer associated with Tesco Clubcard and we plan to
use this partnership to generate new customer orders, increase average order
values and increase spend.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
52 weeks to 25 December 2004 52 weeks to
27 December
Before 2003
exceptional Exceptional
items items (note 3) Total Total
£m £m £m £m
Notes
Turnover: Group and
share of joint
ventures 2 1,518.5 - 1,518.5 1,485.1
Less: Share of joint
ventures (3.9) - (3.9) (3.6)
-------- --------- -------- --------
Group turnover 1,514.6 - 1,514.6 1,481.5
Cost of sales (762.7) (3.1) (765.8) (727.2)
-------- --------- -------- --------
Gross profit 751.9 (3.1) 748.8 754.3
Selling and
distribution
costs (622.6) (32.8) (655.4) (581.4)
Administrative
expenses (66.0) 4.0 (62.0) (67.3)
-------- --------- -------- --------
Operating profit 2 63.3 (31.9) 31.4 105.6
Share of operating
loss of joint
ventures (2.1) - (2.1) (2.1)
-------- --------- -------- --------
Total operating
profit - Group and
share of joint
ventures 61.2 (31.9) 29.3 103.5
Net (loss)/profit on
disposal of fixed
assets 3 - (2.0) (2.0) 14.1
-------- --------- -------- --------
Profit on ordinary
activities before
interest 61.2 (33.9) 27.3 117.6
Interest receivable
and similar income 2.0 - 2.0 1.5
Interest payable and
similar charges (4.3) - (4.3) (1.2)
-------- --------- -------- --------
Profit on ordinary
activities before
taxation 58.9 (33.9) 25.0 117.9
Tax on profit on
ordinary activities 4 (24.1) 9.6 (14.5) (31.1)
-------- --------- -------- --------
Profit for the
financial period 34.8 (24.3) 10.5 86.8
Dividends paid and
proposed 5 (23.2) - (23.2) (21.9)
-------- --------- -------- --------
Amount transferred
to/(from) reserves 7 11.6 (24.3) (12.7) 64.9
======== ========= ======== ========
Earnings per share
Basic earnings per
10p ordinary share 6 1.8p 15.4p
======== ========
Diluted earnings per
10p ordinary share 6 1.8p 14.3p
======== ========
Earnings per share
before exceptional
items
Basic earnings per
10p ordinary share 6 6.0p 12.9p
======== ========
Diluted earnings per
10p ordinary share 6 5.8p 12.0p
======== ========
All results are derived from continuing operations
CONSOLIDATED BALANCE SHEET
27 Dec 2003
25 Dec 2004 (restated -see note 1)
Notes £m £m
FIXED ASSETS
Intangible assets 13.7 14.5
Tangible assets 381.6 387.0
Investments 8.1 9.1
------ ------
Total fixed assets 403.4 410.6
------ ------
CURRENT ASSETS
Stocks 238.4 195.7
Debtors 217.9 187.9
Investments 9.4 11.8
Cash at bank and in
hand 28.4 48.8
------ ------
494.1 444.2
CREDITORS
Amounts falling due
within one year 8 (359.3) (334.9)
------ ------
Net current assets 134.8 109.3
------ ------
Total assets less
current liabilities 538.2 519.9
CREDITORS
Amounts falling due
after more than one
year 9 (100.0) (51.5)
PROVISIONS FOR
LIABILITIES AND CHARGES 10 (17.4) (21.2)
------ ------
Net assets 420.8 447.2
====== ======
CAPITAL AND RESERVES
Called up share capital 7 62.3 62.0
Share premium account 7 77.2 65.8
Revaluation reserve 7 21.8 22.3
ESOP reserve 7 (55.1) (42.2)
Other reserves 7 28.1 26.7
Profit and loss account 7 286.5 312.6
------ ------
Equity shareholders'
funds 420.8 447.2
====== ======
These financial statements were approved by the Board on 24 February 2005 and
were signed on its behalf by Shaun O'Callaghan, Director.
CONSOLIDATED CASH FLOW STATEMENT
52 weeks to
52 weeks to 27 Dec 2003
25 Dec 2004 (restated - see note 1)
Notes £m £m
Net cash inflow from
operating activities 11 66.7 93.6
Returns on investments
and servicing of
finance 11 (1.4) 0.3
Taxation (33.7) (22.2)
Capital expenditure and
financial investment 11 (75.7) (70.2)
Equity dividends paid (23.2) (19.7)
------ ------
Cash outflow before use
of liquid resources and
financing (67.3) (18.2)
Management of liquid
resources 2.4 (4.9)
Financing 11 44.6 38.0
------ ------
(Decrease)/increase in
cash in the period (20.3) 14.9
====== ======
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDS
52 weeks to
52 weeks to 27 Dec 2003
25 Dec 2004 (restated - see note 1)
Notes £m £m
(Decrease)/increase in
cash in the period (20.3) 14.9
Cash movement on :
- bank loans (50.0) (48.7)
- cash flow from
(decrease)/increase in
liquid resources (2.4) 4.9
------ ------
Change in net debt
resulting from cash
flows (72.7) (28.9)
Foreign currency
translation differences 11 (0.1) 0.6
------ ------
Movement in net debt in
the period (72.8) (28.3)
Net funds at the
beginning of the period 11 10.6 38.9
------ ------
Net (debt)/funds at the
end of the period 11 (62.2) 10.6
====== ======
1 BASIS OF PREPARATION
The financial information set out does not constitute statutory financial
statements for the periods ended 52 weeks to 25 December 2004 and 52 weeks to 27
December 2003, but is derived from those accounts. Statutory accounts for the 52
weeks to 27 December 2003 have been delivered to the Registrar of Companies and
those for the 52 weeks to 25 December 2004 will be sent to shareholders and
filed with the Registrar of Companies on 18 April 2005. 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 27 December 2003, with the exception of
the adoption of UITF Abstract 38, 'Accounting for ESOP trusts'.
UITF Abstract 38 is effective for periods ending on or after 22 June 2004. The
Abstract requires own shares held through an ESOP trust to be accounted for as a
reduction in shareholders' funds rather than as fixed asset investments. The
Abstract requires this change to be made retrospectively and therefore we have
restated our comparatives. The effect of this has been to reduce net assets as
at 27 December 2003 by £42.2m. There is no effect on retained profits. The
effect on reserves is shown in note 7. The effect on the presentation of the
cash flow statement is shown in note 11.
2 SEGMENTAL ANALYSIS
52 weeks to 25 Dec 2004 52 weeks to
Before 27 Dec 2003
exceptional Exceptional Total
items items
TURNOVER (1) £m £m £m £m
Howden Joinery 559.1 448.1
UK Retail 825.1 910.9
France Retail 119.4 114.2
Howden Millwork 7.3 5.1
Other operations 3.7 3.2
-------- ---------
1,514.6 1,481.5
Joint venture operations 3.9 3.6
-------- ---------
Total turnover 1,518.5 1,485.1
======== =========
PROFIT BEFORE TAXATION (2)
Howden Joinery 102.5 2.5 105.0 72.0
UK Retail (32.0) (14.0) (46.0) 41.7
France Retail 2.0 (0.4) 1.6 0.3
Howden Millwork (8.6) - (8.6) (8.4)
Other operations (0.6) - (0.6) -
System write down and
related costs - (20.0) (20.0) -
------- ------- -------- ---------
Operating profit/(loss) 63.3 (31.9) 31.4 105.6
Joint venture operations (2.1) - (2.1) (2.1)
------- ------- -------- ---------
Total operating profit 61.2 (31.9) 29.3 103.5
(loss)/profit on disposal
of fixed assets - (2.0) (2.0) 14.1
Net interest (payable)/
receivable (2.3) - (2.3) 0.3
------- ------- -------- ---------
Profit before taxation 58.9 (33.9) 25.0 117.9
======= ======= ======== =========
NET ASSETS
Howden Joinery 141.8 132.8
UK Retail 302.0 270.8
France Retail 40.2 39.1
Howden Millwork 8.8 4.6
Other operations 1.7 1.3
Joint venture operations 0.1 1.1
-------- ---------
494.6 449.7
Unallocated net assets
Dividend accrual (11.6) (11.6)
Cash 37.8 60.6
Loans (100.0) (51.5)
-------- ---------
Total net assets 420.8 447.2
======== =========
1 The analysis of turnover by destination is not materially different from the
analysis of turnover by origin
2 All results are from continuing operations
3 EXCEPTIONAL ITEMS
(a) Loss on disposal of fixed assets
The loss on disposal of fixed assets of £2.0m (2003 - profit of £14.1m )
represents net profits on disposal of land and buildings and fixtures and
fittings. The associated tax charge is £nil (2003 - £nil).
(b) Exceptional items included in operating profit
The exceptional expense items included in operating profit of £31.9m (2003 -
£nil) are made up as follows:
Item £m £m
Write off elements of the supply chain computer system capitalised
in prior years 10.3
Write off elements of the 2004 spend on supply chain computer
system 9.7
------
Subtotal 20.0
Exceptional additional delivery and associated remedial costs 11.9
Exceptional additional staff and consultancy costs 4.8
Other 0.4
------
Subtotal 17.1
Exceptional credit re share-based payments amortisation and
associated national insurance (7.5)
Exceptional redundancy costs 2.3
------
Total exceptional costs before tax 31.9
Tax credit on operating exceptional items at 30% (9.6)
------
Total operating exceptional items after tax 22.3
======
These costs have been allocated between profit and loss account headings as
follows:
£m
Cost of sales 3.1
Selling and distribution costs 32.8
Administrative expenses (4.0)
------
31.9
======
4 TAX ON PROFIT ON ORDINARY ACTIVITIES
52 weeks to 52 weeks to
25 Dec 2004 27 Dec 2003
£m £m
Taxation on profit for the period comprises:
UK corporation tax at 30.0% (2003 - 30.0%) 14.6 32.8
Current tax adjustment relating to prior
periods 3.9 (5.3)
------ ------
Total current tax 18.5 27.5
Deferred tax (credit)/charge (4.0) 3.6
------ ------
14.5 31.1
====== ======
5 EQUITY DIVIDENDS
52 weeks to 52 weeks to
25 Dec 2004 27 Dec 2003
£m £m
Interim paid - 2.0 pence per share 11.6 10.3
(2003 - 1.8 pence per share)
Final proposed - 2.0 pence per share 11.6 11.6
(2003 - 2.0 pence per share)
------ ------
Total dividend - 4.0 pence per share (2003 -
3.8 pence per share) 23.2 21.9
====== ======
6 EARNINGS PER SHARE
52 weeks to 25 December 2004 52 weeks to 27 December 2003
Weighted Weighted
average average
number Earnings number Earnings
of per of per
Earnings shares share Earnings shares share
£m m p £m m p
Earnings per share
Basic earnings
per share 10.5 581.0 1.8 86.8 565.4 15.4
Effect of
dilutive share
options - 17.9 - - 41.3 (1.1)
------ ------ ------ ------ ------ ------
Diluted
earnings per
share 10.5 598.9 1.8 86.8 606.7 14.3
====== ====== ====== ====== ====== ======
Reconciliation of
earnings per share
to exclude
exceptional items
Basic earnings per
share 10.5 581.0 1.8 86.8 565.4 15.4
Exceptional items
(net of tax) 24.3 - 4.2 (14.1) - (2.5)
------ ------ ------ ------ ------ ------
Basic earnings
per share
excluding
exceptional
items 34.8 581.0 6.0 72.7 565.4 12.9
====== ====== ====== ====== ====== ======
Diluted earnings
per share 10.5 598.9 1.8 86.8 606.7 14.3
Exceptional items
(net of tax) 24.3 - 4.0 (14.1) - (2.3)
------ ------ ------ ------ ------ ------
Diluted earnings
per share excluding
exceptional items 34.8 598.9 5.8 72.7 606.7 12.0
====== ====== ====== ====== ====== ======
Earnings per share excluding exceptional items has been calculated to show the
impact of these exceptional items, as they can have a distorting effect on
earnings and therefore warrant separate consideration.
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 27
December 2003 62.0 65.8 22.3 - 26.7 312.6
Reclassificati
on of ESOP
shares (see
below) - - - (42.2) - -
------ -------- ------- ------- ------- -------
As at 27
December 2003
rererestated 62.0 65.8 22.3 (42.2) 26.7 312.6
Amount
transferred
from reserves - - - - - (12.7)
Shares 0.3 11.4 - - - (9.5)
issued
Net addition
to ESOPs - - - (12.9) - -
Realised
revaluation
profit - - (0.5) - - 0.5
Foreign
exchange - - - - - (3.0)
Amortisation
of goodwill - - - - 1.4 (1.4)
------ -------- ------- ------- ------- -------
As at 25
December 2004 62.3 77.2 21.8 (55.1) 28.1 286.5
====== ======== ======= ======= ======= =======
During the year the company adopted UITF 38, which resulted in own shares held
by ESOP trusts being reclassified from investments into a negative reserve.
Further details are given in the 'Basis of preparation' section of note 1.
8 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
25 Dec 2004 27 Dec 2003
£m £m
Trade creditors 154.5 140.7
Corporation tax 4.6 19.8
Other taxation and social security 24.0 21.8
Proposed dividends 11.6 11.6
Other creditors 20.0 22.8
Accruals and deferred income 144.6 118.2
------ ------
359.3 334.9
====== ======
9 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
25 Dec 2004 27 Dec 2003
£m £m
Bank loans 100.0 50.0
Other creditors - 1.5
------ ------
100.0 51.5
====== ======
10 PROVISIONS FOR LIABILITIES AND CHARGES
Deferred
Pension Property taxation
provision provision (note 4) Total
£m £m £m £m
At 27 December 2003 6.9 1.0 13.3 21.2
Created in the period 2.6 - - 2.6
Utilised in the period (2.1) (0.3) (4.0) (6.4)
------ ------ ------ ------
At 25 December 2004 7.4 0.7 9.3 17.4
====== ====== ====== ======
11 CONSOLIDATED CASH FLOW STATEMENT
a) Reconciliation of operating profit to operating cash flows
25 Dec 2004 27 Dec 2003
£m £m
Operating profit before exceptional items 63.3 105.6
Amortisation of goodwill 0.7 0.7
Depreciation of tangible fixed assets 57.1 47.5
Amortisation of fixed asset investments - 8.5
------ ------
121.1 162.3
Increase in stocks (42.7) (18.6)
Increase in debtors (15.4) (18.0)
Increase in creditors and provisions 46.3 13.9
------ ------
Net cash inflow - pre-exceptional operating activities 109.3 139.6
Net cash outflow - operating exceptionals (28.1) -
Net cash outflow - VAT paid re Structural guarantee (14.5) (46.0)
------ ------
Net cash inflow from operating activities 66.7 93.6
====== ======
b) Analysis of cash flows for headings netted in the cash flow statement
Following the adoption of UITF 38 (see 'Basis of preparation' section in note 1
for more details), the cash flow notes for the 52 weeks to 27 December 2003 have
been restated to reflect the fact that the item 'Payments to acquire own
shares', which used to form part of the cash flow heading 'Capital expenditure
and financial investment', is now included under the cash flow heading
'Financing'.
25 Dec 2004 27 Dec 2003
£m £m
Returns on investments and servicing of finance
Interest received 2.0 1.5
Interest paid (3.4) (1.2)
------ ------
Net (outflow)/inflow on investments and servicing of
finance (1.4) 0.3
====== ======
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (82.8) (127.2)
Receipts from sales of tangible fixed assets 8.2 58.2
Investment in joint ventures (1.1) (1.2)
------ ------
Net outflow for capital expenditure and financial
investment (75.7) (70.2)
====== ======
Financing
Shares issued 2.2 4.2
Payment to acquire own shares (7.6) (14.9)
Loan acquired with subsidiary undertaking - (1.3)
Other increase in bank finance 50.0 50.0
------ ------
Net inflow from financing 44.6 38.0
====== ======
c) Analysis of net funds
Cash Bank Net Current Total net
at loans (borrowings) asset (borrowings)
bank /funds investments /funds
£m £m £m £m £m
As at 28 December
2002 33.3 (1.3) 32.0 6.9 38.9
Cash flow 14.9 (48.7) (33.8) 4.9 (28.9)
Exchange
difference 0.6 - 0.6 - 0.6
------ ------ -------- -------- --------
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)
====== ====== ======== ======== ========
12 HM CUSTOMS & EXCISE 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) 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 Customs & Excise. 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.
To date, the following amounts have been recorded:
Cumulative 2004 2003 2002 2001
£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 2.9 1.9 1.0 - -
------- ------ ------ ------ ------
Profit taken to profit
and loss account 27.9 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 Limited.
The maximum potential exposure is £60.5m at the year end, but this would be
expected to be offset by the recovery of approximately £15.3m of insurance tax
premium paid on the sale of extended structural guarantees. All of the £60.5m
has been paid to HM Customs & Excise at the year end.
This information is provided by RNS
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