Interim Results

MFI Furniture Group PLC 24 July 2003 July 24th 2003 Interim results for the 24 weeks to 14 June 2003 Financial highlights - Turnover up 17.1% to Â£708m - UK Retail up 10.5% to Â£469m - Howden Joinery up 36.9% to Â£181m - Hygena Cuisines up 19.5% to Â£55m - Pre-tax profit of Â£59.3m (2002: Â£46.2m) - Pre-tax profit before exceptional items up 18.7% to Â£54.5m - Earnings per share of 7.6p (2002: 5.7p) - Earnings per share before exceptional items up 21.4% to 6.8p - Interim dividend per share up 20% to 1.8p Business highlights - Good progress on all strategic priorities - Sales growth at UK Retail, driven by MFI refurbishments - Continued strong sales and profit growth at Howden Joinery - Hygena Cuisines responding well to UK retail template in a difficult market - First phase of new systems implemented on time and within budget John Hancock, Chief Executive, said: I am pleased to report that MFI has continued to grow its sales, margins and profits, at the same time as investing in future opportunities. This demonstrates the Group's ability to manage its business effectively and successfully even in tougher trading conditions. The rapid development of our business over the last few years reflects the impact of a more diversified business model. - ends - Contacts: MFI Furniture Group Plc John Hancock, Chief Executive 020 8913 5319 Martin Clifford-King, Finance Director 020 8913 5350 Brunswick Group Limited Charlotte Elston / Katya Reynier 020 7404 5959 COMPANY STATEMENT _________________ Results _______ In the 24 weeks to 14 June 2003 Group turnover increased by 17.1% to Â£708 million, compared to Â£605 million for the same period in the previous year. Profit before tax was Â£59.3 million; after deducting an exceptional credit of Â£4.8 million the underlying profit before tax is Â£54.5 million, up 18.7% on last year. Earnings per share, excluding the exceptional credit, increased by 21.4% to 6.8 pence per share. We are continuing to concentrate our investment in areas where we can make the highest returns for our shareholders with the lowest risk. The refurbished stores in both the UK and France are continuing to perform well, despite more difficult trading conditions, and the continuing development of Howden Joinery is delivering above-average returns on our investment. Operational review __________________ â€¢ UK Retail The MFI brand continues to grow with 'every room in the house' solutions, new advertising and an increased focus on enhanced service levels driving footfall and frequency of visits. MFI is now capable of providing full room solutions for modern homes, providing quality and superior design to the mass market - and we have the commitment and resource to exploit this position further. UK retail sales have grown 10.5% with same store growth of 5.1%, and operating profits were Â£31.4 million, up 12.5% from Â£27.9 million last year. Operating profits in the period reflect a Â£10 million impact from the disruption of the refits, compared to a comparable figure of Â£7 million last year. Orders from the refurbished stores have increased by an average 20% ahead of the previous year, with over 25% growth being achieved from our full refit stores and 12% from our partial refit stores. So far this year 9 stores have received full refits and 15 have been partially refitted, bringing the total number of new format stores to 100 today. Net operating margin has grown from 5% to 9% in the full refit stores. We are piloting a new partial refitted store, the first one being opened in Eastbourne at the end of 2002. We currently have 10% of orders coming from these new partial refits and we will look for a significant increase in sales performance from these revised partial formats before initiating a rollout. Nevertheless we are confident that we will have a run rate of at least 75% of turnover being derived from our new format stores by the end of the year. Our two new product categories - bathrooms and sofas - are being rolled out as we refit our branch network. Bathrooms are now sold in 106 stores and represent 8% of store turnover in these stores; we are continuing to grow market share in this fragmented market. Sofa sales have a run rate of 5% of store turnover in those stores where we display the full product range. We are pleased with this progress, as we have rolled the full product out into 96 stores from a standing start in November 2002. During the period we relocated our sofa manufacturing to a new 250,000 square foot factory in Wales. â€¢ Howden Joinery Howden Joinery relies on our integrated manufacturing and logistics skills, and its continuing ability to deliver outstanding results demonstrates the power of our supply chain. Operating profits were Â£26.2 million, up 57.8% against Â£16.6 million last year on an increase in turnover of 36.9%. Same depot sales growth of 27.1% has been maintained. We have opened 11 depots during the last 24 weeks and had 280 depots trading at the half-year end. We are on target to have over 300 by the end of the year. Our next priority is to translate the highly successful UK business model to the US. The early signs from our pilot in Georgia and North Carolina are encouraging and we will report further on this trial later in the year, after we have tested new product from the UK. As expected our US losses in the first half of this year totalled Â£3.5 million (2002: Â£1.4 million). â€¢ Hygena Cuisines Sales in France are up 19.5% on last year, despite a weaker kitchen market that has fallen by 5% in the first five months of the year. 11% of this increase results from foreign exchange translation with same store growth showing a 4.7% improvement on last year. Profits at Â£0.9 million, compared to Â£1.5 million profit for the same period last year, have been adversely impacted by costs of disruption of the store reformats totalling Â£3 million. Today we have 55 refitted stores, which are adapted from the UK high street format to meet local tastes and requirements, and these are showing order increases of over 20% on the previous year. We are focusing on the conversion rollout, as it is the refits that are giving the greatest returns on our investment. The introduction of rigid kitchen products, together with new bathroom sanitary ware ranges, have been well received and will further drive our sales expansion plans. â€¢ Supply chain To date our reorganised supply chain has been directed at driving out inefficiencies. The next stage of this development will deliver further effectiveness via higher customer service and reduced supply chain costs. We have successfully implemented the first phase of our systems project - financial and procurement systems - in time and within the budgeted cost. Better management information and consistent integrated systems throughout the Group will provide a range of significant benefits including lower stock levels, fewer failed deliveries, improved levels of customer service, support for the development of the business in new markets and increased levels of efficiency and profitability. Financial review ________________ The gross margin is 50.9%, compared to 50.1% last year, and reflects lower sourcing costs and selling price increases. Selling and distribution costs have increased by 19%. Within this figure is the additional cost of the new and refitted stores and depots, and we have launched a brand advertising campaign to support the new format stores. Within operating profit there is a Â£2.5 million provision for employer national insurance arising from our various share incentive schemes. Additional shares have been purchased with the objective that any gain in the value of these shares will meet the national insurance liability. Under current accounting legislation the provision has to be charged to the profit and loss account, even though there will be no impact on either cash or shareholder value. Also we have received a cash premium totalling Â£2.7 million for the surrender of our lease at Easterhouse, near Glasgow. The operating cash inflow in the period is Â£71 million, before deducting Â£34 million paid to HM Customs & Excise relating to the structural guarantee. After taking into account capital investments, dividends, interest and tax, net cash has reduced by Â£19 million to Â£20 million. Our available cash, which excludes monies held in escrow for future insurance claims, has fallen by Â£22 million to Â£10 million. Structural guarantee ____________________ On 2 April 2003 HM Customs & Excise challenged the VAT treatment of our five-year structural guarantee arrangements with customers. We have appealed against the assessment, and paid the relevant tax across to HM Customs & Excise in order to avoid punitive interest if we were to be unsuccessful with our appeal. We have taken extensive legal and taxation advice and this action by HM Customs & Excise is being contested vigorously. Accordingly, we are carrying the tax paid of Â£34 million on our balance sheet as a debtor without any provision and further disclosure is given in note 11 to the accompanying notes to the financial statements. Dividend ________ The Board has declared an interim dividend of 1.8 pence per share (2002: 1.5 pence). This will be paid on 24 October 2003 to shareholders on the register at the close of business on 3 October 2003. Shares will be quoted ex-dividend from 1 October 2003. Current trading and outlook ___________________________ Total orders for the first 29 weeks of the year for the Group are as follows: Total Same store % increase % increase UK Retail 11% 5% Howden Joinery 37% 27% Hygena Cuisines 15% 2% _______________ _______________ Group 17% 10% _______________ _______________ For the last five weeks, total Group orders were 23% up on last year with same store growth of 16%. We remain confident in the prospects for the Group for the full year, based in part on consumer growth rates remaining benign. Ian Peacock John Hancock 24 July 2003 FINANCIAL HIGHLIGHTS ____________________ 24 weeks to 24 weeks to 52 weeks to 14 June 15 June 28 December 2003 2002 2002 Unaudited Unaudited Audited Â£m Â£m Â£m Turnover (including share of joint venture) 709.4 605.1 1,288.8 Turnover (excluding share of joint venture) 708.1 604.8 1,287.4 Gross margin 50.9% 50.1% 50.2% Operating profit margin 7.8% 7.4% 6.2% Profit before tax 59.3 46.2 80.8 Profit before tax and exceptional items 54.5 45.9 80.7 DIVIDEND PER SHARE Interim 1.8p 1.5p 1.5p Final n/a n/a 1.6p Full year dividend n/a n/a 3.1p Dividend cover - pre-exceptional n/a n/a 3.3x EARNINGS PER SHARE Earnings per share 7.6p 5.7p 10.2p Earnings per share before exceptional items 6.8p 5.6p 10.2p OTHER FINANCIAL INFORMATION Net assets 452.6 401.6 418.1 Available cash 10.5 93.6 32.2 CONSOLIDATED PROFIT AND LOSS ACCOUNT ____________________________________ 24 Weeks to 24 Weeks to 52 Weeks to 14 June 15 June 28 December 2003 2002 2002 Notes Unaudited Unaudited Audited Â£m Â£m Â£m Turnover Group and share of joint venture 2 709.4 605.1 1,288.8 Less: share of joint venture (1.3) (0.3) (1.4) ------ ------ ------- Group turnover 708.1 604.8 1,287.4 Cost of sales (347.7) (301.5) (641.2) ------ ------ ------- Gross profit 360.4 303.3 646.2 Selling and distribution costs (275.0) (231.1) (507.4) Administration costs (30.2) (27.7) (58.9) Goodwill amortisation (0.3) - (0.1) ------ ------ ------- Operating profit 54.9 44.5 79.8 Share of operating loss of joint venture (1.1) (0.4) (2.0) ------ ------ ------- Total operating profit - Group and share of 53.8 44.1 77.8 joint venture Exceptional item - net profit on disposal of 4.8 0.3 0.1 fixed assets ------ ------ ------- Profit on ordinary activities before interest 58.6 44.4 77.9 Interest receivable and similar income 0.9 2.0 3.2 Interest payable and similar charges (0.2) (0.2) (0.3) ------ ------ ------- Profit on ordinary activities before taxation 2 59.3 46.2 80.8 Tax 3 (16.3) (13.4) (23.4) ------ ------ ------- Profit for the financial period 43.0 32.8 57.4 Dividends 4 (10.3) (8.2) (17.4) ------ ------ ------- Retained profit 5 32.7 24.6 40.0 ====== ====== ======= Earnings per share Basic earnings per 10p ordinary share 6 7.6p 5.7p 10.2p ====== ====== ======= Diluted earnings per 10p ordinary share 6 7.2p 5.4p 9.5p ====== ====== ======= Earnings per share (before exceptional items) Basic earnings per 10p ordinary share 6 6.8 p 5.6p 10.2p ====== ====== ======= Diluted earnings per 10p ordinary share 6 6.4 p 5.3p 9.5p ====== ====== ======= CONSOLIDATED BALANCE SHEET __________________________ As at As at As at 14 June 15 June 28 December 2003 2002 2002 Notes Unaudited Unaudited Audited FIXED ASSETS Â£m Â£m Â£m Intangible assets 14.3 - 14.6 Tangible assets 362.0 315.7 356.8 Investments Investment in own shares 40.4 28.7 36.0 Other unlisted investments 8.0 8.0 8.0 Share of joint venture net 1.7 2.7 2.1 assets ---------------------- ------------------------ -------------------- Total investments 50.1 39.4 46.1 ---------------------- ------------------------ -------------------- Total fixed assets 426.4 355.1 417.5 CURRENT ASSETS Stocks 175.9 138.4 177.1 Debtors 7 176.3 123.2 124.0 Investments Fixed term deposits in escrow 10 9.5 4.4 6.7 Other fixed term deposits 10 5.2 76.6 0.2 Cash at bank and in hand 10 5.3 17.0 33.3 ---------------------- ------------------------ -------------------- 372.2 359.6 341.3 ---------------------- ------------------------ -------------------- CREDITORS FALLING DUE WITHIN ONE 323.3 297.5 316.0 YEAR Net current assets 48.9 62.1 25.3 Total assets less current 475.3 417.2 442.8 liabilities CREDITORS FALLING DUE AFTER MORE THAN ONE YEAR 1.5 - 2.8 PROVISIONS FOR LIABILITIES AND 21.2 15.6 21.9 CHARGES ---------------------- ------------------------ -------------------- Net assets 452.6 401.6 418.1 ====================== ======================== ==================== CAPITAL AND RESERVES Called up share capital 5 61.4 60.2 61.3 Share premium account 5 62.6 50.4 62.1 Revaluation reserve 5 30.7 42.1 40.0 Other reserves 5 25.5 22.9 24.3 Profit and loss account 5 272.4 226.0 230.4 ---------------------- ------------------------ -------------------- Equity shareholders' funds 452.6 401.6 418.1 CONSOLIDATED CASH FLOW STATEMENT ________________________________ 24 weeks to 24 weeks to 52 weeks to 14 June 15 June 28 December 2003 2002 2002 Notes Unaudited Unaudited Audited Â£m Â£m Â£m Net cash inflow from operating activities 8 36.6 103.0 138.0 Returns on investments and servicing of 9 0.7 1.8 2.9 finance Taxation (8.1) (5.6) (16.2) Capital expenditure and financial 9 (39.3) (47.0) (117.5) investment (net) Acquisitions - - (8.5) Equity dividends paid (9.2) (7.5) (16.0) ------------------ ------------------ ------------------ Cash (outflow) / inflow before use of liquid resources and financing (19.3) 44.7 (17.3) Management of liquid resources (7.8) (80.8) (6.7) Financing 9 (0.9) 1.0 5.5 ------------------ ------------------ ------------------ Decrease in cash in the period (28.0) (35.1) (18.5) ================== ================== ================== RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS ________________________________________________________ Decrease in cash in the period (28.0) (35.1) (18.5) Cash movement on: - debt and lease financing 10 1.3 0.8 (0.1) - cash flow from increase in liquid 10 7.8 80.8 6.7 resources --------------- --------------- ---------------- Change in net funds resulting from cash (18.9) 46.5 (11.9) flows Effect of foreign exchange rate changes 10 - - (0.3) --------------- --------------- ---------------- Movement in net funds in the period (18.9) 46.5 (12.2) Net funds at the beginning of the period 10 38.9 51.1 51.1 --------------- --------------- ---------------- Net funds at the end of the period 10 20.0 97.6 38.9 =============== =============== ================ STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES ______________________________________________ 24 weeks to 24 weeks to 52 weeks to 14 June 15 June 28 December 2003 2002 2002 Unaudited Unaudited Audited Â£m Â£m Â£m Profit for the financial period 43.0 32.8 57.4 Translation differences on foreign currency denominated net investments 1.4 (0.3) (2.8) ------------------- ------------------ ---------------- Total recognised gains and losses relating 44.4 32.5 54.6 to the period =================== ================== ================ RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS _________________________________________________________ 24 weeks to 24 weeks to 52 weeks to 14 June 15 June 28 December 2003 2002 2002 Unaudited Unaudited Audited Â£m Â£m Â£m Total recognised gains and losses for the 44.4 32.5 54.6 period Dividends (10.3) (8.2) (17.4) Shares issued 0.4 1.8 5.4 ------------------ ------------------ ------------------ Net addition to equity shareholders' funds 34.5 26.1 42.6 Equity shareholders' funds at beginning of 418.1 375.5 375.5 the period ------------------ ------------------ ------------------ Equity shareholders' funds at end of the 452.6 401.6 418.1 period ================== ================== ================== NOTES TO THE FINANCIAL STATEMENTS _________________________________ 1 BASIS OF PREPARATION The financial information for the 24 weeks to 14 June 2003 and 15 June 2002 is unaudited. The accounting policies are consistent with those applied to the audited financial statements for the 52 weeks ended 28 December 2002. 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 ended on 28 December 2002, on which the auditors made an unqualified report, have been delivered to the Registrar of Companies. 2 SEGMENTAL ANALYSIS 24 weeks to 24 weeks to 52 weeks to 14 June 2003 15 June 2002 28 December 2002 TURNOVER Â£m Â£m Â£m UK Retail 468.9 424.2 861.4 Howden Joinery 180.8 132.1 326.9 Hygena Cuisines 54.6 45.7 94.2 Howden Millwork - US 2.2 0.1 2.0 Other operations 1.6 2.7 2.9 ---------------------- ---------------------- ---------------------- 708.1 604.8 1,287.4 Joint venture 1.3 0.3 1.4 operations ---------------------- ---------------------- ---------------------- Total 709.4 605.1 1,288.8 ====================== ====================== ====================== PROFIT BEFORE TAXATION Â£m Â£m Â£m UK Retail 31.4 27.9 37.7 Howden Joinery 26.2 16.6 44.4 Hygena Cuisines 0.9 1.5 2.3 Howden Millwork - US (3.5) (1.4) (4.5) Other operations (0.1) (0.1) (0.1) ---------------------- ---------------------- ---------------------- Total operating profit 54.9 44.5 79.8 Joint venture (1.1) (0.4) (2.0) operations ---------------------- ---------------------- ---------------------- Total operating profit 53.8 44.1 77.8 Profit on disposal of 4.8 0.3 0.1 fixed assets Net interest 0.7 1.8 2.9 receivable ---------------------- ---------------------- ---------------------- Profit before taxation 59.3 46.2 80.8 ====================== ====================== ====================== NET ASSETS Â£m Â£m Â£m UK Retail 244.7 170.0 229.4 Howden Joinery 115.1 107.2 85.6 Hygena Cuisines 35.6 26.7 29.3 Howden Millwork - US 4.9 4.0 4.6 Other operations 1.3 1.6 1.5 Joint venture 1.7 2.7 2.1 operations ---------------------- ---------------------- ---------------------- 403.3 312.2 352.5 Unallocated net assets 49.3 89.4 65.6 ---------------------- ---------------------- ---------------------- 452.6 401.6 418.1 ====================== ====================== ====================== All results are from continuing operations. Unallocated net assets comprise balances in respect of dividends, net funds and investment in own shares. The analysis of turnover by destination is not materially different to the analysis of turnover by origin. 3 TAXATION The taxation charge is calculated at 30% of profit before exceptional items (24 weeks to 15 June 2002 - 29%, 52 weeks to 28 December 2002 - 29% both on profits before exceptional items), being the estimated effective rate of taxation for the 2003 financial year. 4 DIVIDEND The interim dividend will be paid on 24 October 2003 to shareholders on the register of members at the close of business on 3 October 2003. The shares will be quoted ex-dividend on 1 October 2003. 5 SHARE CAPITAL AND RESERVES Share Share premium Revaluation Other Profit and capital account reserve reserves loss account Â£m Â£m Â£m Â£m Â£m As at 28 December 2002 61.3 62.1 40.0 24.3 230.4 Retained profit for the - - - - 32.7 period Shares issued 0.1 0.5 - - (0.2) Realised revaluation - - (9.3) - 9.3 profit Foreign exchange - - - - 1.4 Amortisation of goodwill - - - 1.2 (1.2) ------------------ ---------------------- ------------------- ---------- -------------- As at 14 June 2003 61.4 62.6 30.7 25.5 272.4 ------------------ --------------------- ------------------- ---------- -------------- 6 EARNINGS PER SHARE Earnings per share for the 24 weeks ended 15 June 2002 and for the 52 weeks ended 28 December 2002 have been restated to exclude shares held by the group's employee share trust in accordance with FRS14: 'Earnings per share'. 24 weeks to 14 June 2003 24 weeks to 15 June 2002 52 weeks to 28 December 2002 Weighted Weighted Weighted average average average number Earnings number Earnings number Earnings of per of per of per Earnings shares share Earnings shares share Earnings shares share Â£m m p Â£m m p Â£m m p Earnings per share(eps) ---------------------- Basic earnings per 43.0 565.4 7.6 32.8 571.7 5.7 57.4 564.3 10.2 share Effect of dilutive - 31.3 (0.4) - 32.8 (0.3) - 39.5 (0.7) share options ------ ------ ------ ------ ------ ------ ------ ------ ------ Diluted earnings per 43.0 596.7 7.2 32.8 604.5 5.4 57.4 603.8 9.5 share ------ ------ ------ ------ ------ ------ ------ ------ ------ eps before profit on sale of fixed assets ---------------------- Basic earnings per 43.0 565.4 7.6 32.8 571.7 5.7 57.4 564.3 10.2 share Profit on sale of (4.8) - (0.8) (0.3) - (0.1) (0.1) - - fixed assets ------ ------ ------ ------ ------ ------ ------ ------ ------ Basic eps before 38.2 565.4 6.8 32.5 571.7 5.6 57.3 564.3 10.2 profit on sale of fixed assets ------ ------ ------ ------ ------ ------ ------ ------ ------ Diluted earnings per 43.0 596.7 7.2 32.8 604.5 5.4 57.4 603.8 9.5 share Profit on sale of (4.8) - (0.8) (0.3) - (0.1) (0.1) - - fixed assets ------ ------ ------ ------ ------ ------ ------ ------ ------ Diluted eps before profit on sale of fixed assets 38.2 596.7 6.4 32.5 604.5 5.3 57.3 603.8 9.5 ------ ------ ------ ------ ------ ------ ------ ------ ------ 7 DEBTORS 14 June 2003 15 June 2002 28 December 2002 Â£m Â£m Â£m VAT paid re structural 34.0 - - guarantee Others 142.3 123.2 124.0 ------------- --------------- ----------------- Total 176.3 123.2 124.0 ============= ============== ================ 8 CASH FLOW STATEMENT Reconciliation of operating profit to operating cash flows: 24 weeks to 24 weeks to 52 weeks to 14 June 15 June 28 December 2003 2002 2002 Â£m Â£m Â£m Operating profit before exceptional items 54.9 44.5 79.8 Depreciation and amortisation charge 21.9 17.2 40.3 Amortisation of fixed asset investments 6.1 3.8 8.3 Decrease / (increase) in stocks 1.2 (10.2) (45.9) (Increase) in debtors (18.0) (12.4) (10.4) Increase in creditors and provisions 4.8 61.7 67.5 ------------------ ------------------- ------------------- 70.9 104.6 139.6 Net cash outflow - operating exceptionals - (1.6) (1.6) Net cash outflow - VAT paid re structural (34.3) - - guarantee ------------------- ------------------- ------------------- Net cash inflow from operating activities 36.6 103.0 138.0 =================== =================== =================== 9 ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT 24 weeks to 24 weeks to 52 weeks to 14 June 15 June 28 December 2003 2002 2002 Â£m Â£m Â£m Returns on investments and servicing of finance Interest received 0.9 2.0 3.2 Interest paid (0.2) (0.2) (0.3) --------------------- --------------------- --------------------- Net inflow on investments and servicing of 0.7 1.8 2.9 finance ===================== ===================== ===================== Capital expenditure and financial investment Payments to acquire own shares (10.5) (7.0) (25.5) Payments to acquire tangible fixed assets (49.7) (39.0) (98.3) Receipts from sales of tangible fixed assets 21.6 1.2 9.5 Investment in joint ventures (0.7) (2.2) (3.2) --------------------- --------------------- --------------------- Net outflow from capital expenditure and (39.3) (47.0) (117.5) financial investment ===================== ===================== ===================== Financing Shares issued 0.4 1.8 5.4 Loan acquired with subsidiary undertaking - - 1.3 Decrease in bank finance (1.3) (0.8) (0.8) Capital element of finance lease rental - - (0.4) payments --------------------- --------------------- --------------------- Net (outflow) / inflow for financing (0.9) 1.0 5.5 ===================== ===================== ===================== 10 ANALYSIS OF NET FUNDS Cash at bank Fixed Short Finance Total and in term term Net net hand deposits loans funds leases funds Â£m Â£m Â£m Â£m Â£m Â£m As at 29 December 52.1 0.2 (0.8) 51.5 (0.4) 51.1 2001 Cash flow (35.1) 80.8 0.8 46.5 - 46.5 ------- ------ ------- ------- ------- ------- As at 15 June 17.0 81.0 - 98.0 (0.4) 97.6 2002 Cash flow 16.6 (74.1) (1.3) (58.8) 0.4 (58.4) Exchange (0.3) - - (0.3) - (0.3) movement ------- ------ ------- ------- ------- ------- As at 28 December 33.3 6.9 (1.3) 38.9 - 38.9 2002 Cash flow (28.0) 7.8 1.3 (18.9) - (18.9) ------- ------ ------- ------- ------- ------- As at 14 June 5.3 14.7 - 20.0 - 20.0 2003 ======= ====== ======= ======= ======= ======= 11 STRUCTURAL GUARANTEE 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 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: 24 weeks to 52 weeks to 52 weeks to Cumulative 14 June 28 December 29 December 2003 2002 2001 Â£m Â£m Â£m Â£m Impact of VAT 41.0 11.7 22.0 7.3 IPT paid (10.7) (3.0) (5.6) (2.1) External insurance premium / (5.5) (1.5) (2.8) (1.2) expenses Reinsurance premium to group (8.7) (2.5) (4.5) (1.7) company ----------------- ------------------- ------------------- --------------------- 16.1 4.7 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. Independent review report by Deloitte & Touche 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 14 June 2003 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 11. 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 United Kingdom auditing standards 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 14 June 2003. Deloitte & Touche Chartered Accountants London 24 July 2003 This information is provided by RNS The company news service from the London Stock Exchange

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