Interim Results
Galiform PLC
06 September 2007
GALIFORM Plc
INTERIM RESULTS FOR THE 24 WEEKS ENDED 16 JUNE 2007
--------------------------------------------------------------------------------
HIGHLIGHTS
• Revenue from continuing operations £429.0m (2006: £285.3m).
> Reflects additional trading week for Howden Joinery (c. £10m) and
growth in external turnover of Supply in relation to interim supply
arrangements (c.£100m), particularly with MFI Retail Limited (MFI),
in 2007.
> Howden Joinery up 10.7%, adjusted for additional trading week (6.6% same
depot basis).
• Howden Joinery operating profit before exceptional items up £4.4m to
£55.1m.
> Gross margin similar to 2006 full year margin.
• Cost of Supply, our sourcing and manufacturing business, before
exceptional items down £12.2m to £13.2m, including a currency gain
of £4.6m.
• Profit before tax and exceptional items from continuing operations rose
£16.3m to £24.8m (£24.1m after exceptional items (2006: £34.7m loss)).
• Basic earnings per share before exceptional items from continuing
operations 2.7p (2006: (1.4)p).
• Basic earnings per share from continuing and discontinued operations
7.0p (2006: (0.1)p).
• Net cash inflow of £7.8m resulted in the Group having net funds of £3.7m
at 16 June 2007.
• As already announced, date for termination of supply of products and
logistics services to MFI brought forward to 21 December 2007.
> Final order received in August.
> Proposals for restructuring of Supply business announced.
• 27 new Howden Joinery depots opened so far in 2007 - on track to open 60
in the year.
• As previously announced, payment of £53.1m made to MEP Mayflower
(Holdings) Limited on 3 September 2007.
Galiform's Chief Executive, Matthew Ingle, said:
'Over the first half, we made good progress, both operationally and in our
strategic development. Howden Joinery traded well in the first half and has
continued to do so, and it is on track to open 60 depots in 2007.
'We retain a positive outlook for the remainder of the year, although we
recognise that a decline in consumer confidence could lead to a softening in
demand. The relationship with MFI has proceeded satisfactorily and Supply is
positioning itself to focus solely on supporting Howden Joinery going forward.'
Enquiries
Investors/analysts:
Gary Rawlinson
Head of Investor Relations +44 (0)207 404 5959 (6 September only)
+44 (0)207 535 1127
+44 (0)7989 397527
Media:
Brunswick +44 (0)207 404 5959
Susan Gilchrist
Fiona Laffan
Anna Jones
SUMMARY OF GROUP RESULTS
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The information presented below relates to the 24 weeks to 16 June 2007 and the
24 weeks to 10 June 2006, unless otherwise stated.
£m unless stated 2007 2006
Continuing operations (before exceptional items unless stated):
Revenue 429.0 285.3
Gross profit 190.0 141.8
Operating profit 29.5 12.7
Profit before tax
- excluding exceptional items 24.8 8.5
- including exceptional items(1) 24.1 (34.7)
Earnings per share from continuing operations
- basic excluding exceptional items 2.7p (1.4)p
- basic including exceptional items 7.0p (7.1)p
(Loss)/profit before tax from discontinued operations
- excluding exceptional items - (22.3)
- including exceptional items - 34.9
Earnings per share from continuing and discontinued operations
- basic excluding exceptional items 2.7p (4.5)p
- basic including exceptional items 7.0p (0.1)p
Net funds at end of period 3.7 92.9
(1) Details of exceptional items for the 24 weeks to 16 June 2007 are shown in
note 3.
(2) The Group currently operates two distinct businesses, Howden Joinery and
Supply, which form the basis on which the Group reports its primary segment
information for the 24 weeks to 16 June 2007. This format will be followed
for the Preliminary Results for the 52 weeks ending 29 December 2007. For
2008, with the ending of the supply arrangements with MFI, the Group
intends to report its results as a single entity.
GROUP RESULTS
The following discussion relates to continuing operations, there being no
discontinued operations in 2007.
--------------------------------------------------------------------------------
Revenue rose by £143.7m to £429.0m, reflecting the increased sales of Howden
Joinery (£41.6m) and third party sales of Supply (£101.8m). The increase in
sales by Howden Joinery partly reflected the impact of the first week of 2007
being a trading week, whereas it was Christmas week in 2006, when depots were
closed. The growth of third party sales by Supply reflected MFI being an
external customer in 2007, having been part of the Group until October 2006.
Excluding exceptional items, gross profit increased by £48.2m to £190.0m. With
selling and distribution costs and administrative expenses increasing by £31.2m,
operating profit before exceptional items was £29.5m (2006: £12.7m). The net
interest charge rose £0.5m to £4.7m. The net result was profit before tax and
exceptional items of £24.8m (2006: £8.5m).
Exceptional charges before tax totalled £0.7m, giving profit before tax of
£24.1m (2006: £34.7m loss). The exceptional charge relating to the restructuring
of Supply (around £35m), announced in June 2007, will be accounted for in the
second half of the year.
The tax charge on profit before tax excluding exceptional items was £8.4m, based
on a tax rate of 34%, being the estimated effective rate of tax for the 2007
financial year. In addition, the Group has recognised deferred tax assets in
certain of its subsidiaries (£26.0m) that were previously unrecognised. Given
their size and one-off nature, they have been treated as exceptional items (see
note 5).
Basic earnings per share excluding exceptional items was 2.7p (2006: 1.4p loss)
and including exceptional items was 7.0p (2006: 7.1p loss).
Net cash flows from operating activities were £9.6m. Net capital expenditure was
£6.5m (2006: £0.6m net receipts). Payments to acquire fixed and intangible
assets totalled £6.6m (2006: £13.2m). In the first half of 2007, there was a
cash inflow of £7.8m (2006: £148.4m). At 16 June 2007, the Group had net funds
of £3.7m, compared with net borrowings of £4.1m at the start of the period.
At 16 June 2007, the pension liability shown on the balance sheet stood at
£78.9m (30 December 2006: £189.2m). Of the decrease, over £80m arose from a
reduction of the schemes' liabilities, reflecting an increase in the liability
discount rate. The remainder related to an increase in value of the schemes'
assets, reflecting higher equity prices.
DIVIDEND
There will be no interim dividend (2006: nil).
The Board will consider whether it is appropriate to recommend a nominal final
dividend when it reviews the 2007 full year results in March 2008.
OPERATIONAL REVIEW
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HOWDEN JOINERY
Howden Joinery sells kitchens and joinery products to the building trade,
predominantly small local builders, via a nationwide network of depots.
Results
------------------------------------------------------------------------------
2007 2006
£m £m
------------------------------------------------------------------------------
Revenue 314.5 272.9
Operating profit before exceptional items 55.1 50.7
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Howden Joinery continued to trade well throughout the period, against a
background of rising interest rates. Revenue increased by £41.6m to £314.5m. As
previously indicated, the inclusion of a 53rd week in 2006 means that the
business traded for all of the period in 2007, whereas in 2006 the depots were
closed during the first week, which covered the Christmas shutdown. Adjusting
for this by comparing the first half of 2007 with the same calendar period in
2006, total revenue increased by 10.7%, up 6.6% on a same depot basis. This
reflected a continuing increase in the turnover of mature depots, which have
typically been operating for six years or more, the benefit of the maturing
profile of sales from newer depots and new depot openings. Of particular note
has been the sales of doors and joinery products, which have benefited from the
introduction of a more extensive range of doors and a new joinery catalogue last
autumn. Gross margin in the first half of 2007 was similar to that seen in 2006
as a whole.
The rise in sales through existing and new depots, after allowing for
sales-related cost increases, contributed £7.8m to the growth in operating
profit. This was partly offset by an increase in non-depot costs of £3.4m. The
net result was that operating profit before exceptional items rose by £4.4m to
£55.1m.
The main elements of the increase in non-depot costs related to increased
expenditure on promotional material and expenditure incurred in relation to a
major new product design initiative to address the issue of the kitchens that
will be required to meet market requirements beyond the short term (see Supply
below). In addition, costs were incurred in relation to the launch of a new
facility that is primarily intended to make Howden Joinery an attractive
supplier to larger organisations that have not used the business in the past
(see below - 'Trade Expo Centre').
Business developments
So far this year, 27 new depots have been opened, bringing the total number to
409, the business remaining on course to open 60 during the year. In addition, 2
existing depots have been relocated and 4 were extended.
In May, Howden Joinery opened its 'Trade Expo Centre' (the Centre), the primary
purpose of this new facility being to provide a showcase for the business. The
Centre has an extensive range of existing products on display, in inspirational
and innovative settings designed to inspire the visitor, which is not possible
within the confines of the limited show area of a depot.
The Centre is intended to appeal to professionals from larger organisations that
purchase kitchens, such as house builders, local authorities and housing
associations, which may not have used Howden Joinery in the past. This may have
been because of a lack of appreciation of what the business has to offer and
awareness of the scale of the organisation behind the local depots.
In addition, the Centre provides a forum to educate depot staff about the
product range and the scope of design opportunities that it presents. Finally,
it also provides an opportunity for depots to enable their existing and
potential trade customers to see the range of products offered by the business
in realistic settings.
The initial focus of the Centre was on employees, of whom over 2,500 (65% of
depot employees) have visited the facility. In addition, over 600 existing and
potential trade customers have also visited the Centre so far.
Following comments from its customers, a Howden Joinery website
(www.howdens.com) was launched in April. Initially, this featured the range of
kitchens offered by the business but it has now been extended to include all
the main product groups. This supports the extensive range of product
catalogues, etc., that builders can show their customers.
SUPPLY
Supply primarily sources products for Howden Joinery. The products are either
manufactured, in the case of kitchen cabinets and worktops, or sourced from
third parties by Supply. As part of the transitional arrangements following the
disposal of Hygena Cuisines and MFI, which have proceeded satisfactorily, Supply
also sources products for these businesses on an interim basis.
Results
External turnover of Supply was £111.1m (2006: £9.3m), reflecting sales to MFI
and Hygena Cuisines as third parties, the former having been part of the Group
in 2006.
The net cost of Supply before exceptional items decreased to £13.2m (2006:
£25.4m). This primarily reflected the move from manufacturing to buying-in
fascias and own-brand appliances that was instigated in the first half of 2006
as part of the drive to bring a new commercial focus to Supply. The benefits of
this change were indicated when it was announced in February 2006. In addition,
there was an increased currency gain arising from the strengthening of the pound
against the euro and the US dollar (this gain is against the currency
assumptions used in setting standard prices).
Business developments
Following the agreement to bring forward the termination of the supply and
logistics arrangements with MFI to December 2007, detailed proposals for the
restructuring of our Supply business were announced on 27 June 2007. A period of
consultation with employees and their representatives is now underway.
In relation to the revised supply and logistics arrangements with MFI, the final
product order from MFI, for delivery by 21 December 2007, was received in
August.
As one of the major suppliers of kitchens in the UK market, it is important that
Howden Joinery is supplying a comprehensive range of products that both inspires
and meets consumers' needs. Not only does this mean having products that are
appropriate for today, it also means considering the products that will be
required in the future as factors affecting consumer preferences change.
To ensure that the business remains in a competitive position both in the short
and the longer term, two initiatives have been pursued. First, a new 15,000
square foot design facility has been built at Supply's headquarters at Howden in
Yorkshire. This enables prototype products to be built and viewed in realistic
settings, where they can be critically evaluated before being brought to market.
Second, in beginning to address the issue of future trends in the kitchen market
and thus ensure that Howden Joinery is offering appropriate products, a 'design
forum' has been held to help develop our thinking. This involved liaising with
external design consultants and suppliers to consider issues that might
influence kitchen design in the longer term, such as environmental concerns, the
trend to smaller properties and the blurring of the distinction between rooms,
particularly in apartment-style properties. A number of 'concept' kitchens were
then designed and built. This phase of work culminated in a major 'design forum'
event, where the concepts were shown and explained to audiences that included
all of Howden Joinery's depot managers and a large gathering of our suppliers.
CORPORATE
The cost of the corporate centre was broadly unchanged at £10.7m (2006: £11.0m).
CURRENT TRADING AND OUTLOOK
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In the first two periods in the second half of the year, Howden Joinery
continued to trade well. Gross margin remained in line with 2006. The increase
in sales compared with last year on a period by period basis has risen, such
that total sales (on an adjusted basis) for the first eight periods of 2007 (to
11 August) are now up by 11.9%, up 7.7% on a same depot basis. However, the
recent rise in sales may have been enhanced by builders undertaking more
internal jobs than would be normal due to the very wet weather this summer.
Although the business continues to trade well, there is a risk that the economic
environment may have an impact on demand in the future.
The Supply business has seen the full benefit of the change from manufacturing
to buying-in fascias and appliances that was implemented in the middle of last
year. If the business continues to benefit from current exchange rates for the
remainder of the year, the impact on a comparative basis will be less than in
the first half because of the currency strengthening seen in the second half of
last year.
Corporate costs in the second half of the year will reflect the additional
period compared with the first half (seven versus six). In addition, pension
levy and share option costs are especially biased to the second half of the
year, adding around £2m to costs relative to the first half.
Consolidated income statement
24 weeks to 16 June 2007 24 weeks to 10 June 2006 53 weeks to 30 December 2006
unaudited unaudited audited
Before Before Before
exceptional Exceptional exceptional Exceptional exceptional Exceptional
items items Total items items Total items items Total
Notes £m £m £m £m £m £m £m £m £m
Continuing
operations:
Revenue 2 429.0 - 429.0 285.3 - 285.3 733.0 - 733.0
Cost of sales (239.0) - (239.0) (143.5) - (143.5) (370.5) (12.8) (383.3)
-------------------------------------------------------------------------------------------------------------------
Gross profit 190.0 - 190.0 141.8 - 141.8 362.5 (12.8) 349.7
Selling &
distribution
costs (134.2) (0.5) (134.7) (103.3) - (103.3) (241.6) (12.7) (254.3)
Administrative
expenses (26.5) - (26.5) (26.2) (43.2) (69.4) (56.2) 7.8 (48.4)
Other
operating
expenses - (0.2) (0.2) - - - - (14.5) (14.5)
Share of joint
venture
profits 0.2 - 0.2 0.4 - 0.4 1.0 - 1.0
-------------------------------------------------------------------------------------------------------------------
Operating
profit/(loss) 2 29.5 (0.7) 28.8 12.7 (43.2) (30.5) 65.7 (32.2) 33.5
Finance income 4 0.4 - 0.4 1.7 - 1.7 3.5 - 3.5
Finance expense 4 (4.2) - (4.2) (3.2) - (3.2) (7.0) - (7.0)
Other finance
charges -
pensions 4 (0.9) - (0.9) (2.7) - (2.7) (5.0) - (5.0)
-------------------------------------------------------------------------------------------------------------------
Profit/(loss)
before tax 24.8 (0.7) 24.1 8.5 (43.2) (34.7) 57.2 (32.2) 25.0
Tax on
profit/loss 5 (8.4) 26.0 17.6 (16.6) 9.2 (7.4) (20.9) 2.0 (18.9)
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Profit/(loss)
after tax from
continuing
operations 16.4 25.3 41.7 (8.1) (34.0) (42.1) 36.3 (30.2) 6.1
-------------------------------------------------------------------------------------------------------------------
Discontinued
operations:
Profit/(loss)
before tax - - - (22.3) 57.2 34.9 (44.8) (134.8) (179.6)
Tax on
profit/loss - - - 4.0 2.7 6.7 5.1 (2.3) 2.8
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Profit/(loss)
after tax from
discontinued
operations - - - (18.3) 59.9 41.6 (39.7) (137.1) (176.8)
Profit/(loss)
for the period 16.4 25.3 41.7 (26.4) 25.9 (0.5) (3.4) (167.3) (170.7)
-------------------------------------------------------------------------------------------------------------------
Earnings per
share: 6 pence pence pence
-------------------------------------------------------------------------------------------------------------------
From
continuing
operations
Basic earnings
per 10p share 7.0 (7.1) 1.0
Diluted
earnings per
10p share 6.8 (7.1) 1.0
From
continuing and
discontinued
operations
Basic earnings
per 10p share 7.0 (0.1) (28.7)
Diluted
earnings per
10p share 6.8 (0.1) (28.7)
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Consolidated balance sheet
-------------------------------------------------------------------------------------
As at As at As at
16 June 10 June 30 December
2007 2006 2006
unaudited unaudited audited
Notes £m £m £m
-------------------------------------------------------------------------------------
Non current assets
Intangible assets 3.6 3.6 1.9
Property, plant
and equipment 93.9 178.0 97.1
Investments 9.5 9.1 9.7
Deferred tax asset 50.7 94.6 60.6
-------------------------------------------------------------------------------------
157.7 285.3 169.3
-------------------------------------------------------------------------------------
Current assets
Inventories 111.8 147.1 126.1
Trade and other
receivables 147.0 150.0 102.4
Other assets 3.2 3.8 3.1
Cash at bank and
in hand 41.8 139.7 53.2
-------------------------------------------------------------------------------------
303.8 440.6 284.8
-------------------------------------------------------------------------------------
Total assets
classified as
held for sale - 14.7 -
-------------------------------------------------------------------------------------
Total assets 461.5 740.6 454.1
-------------------------------------------------------------------------------------
Current liabilities
Trade and other
payables (276.7) (339.1) (249.6)
Non current liabilities
Borrowings (39.1) (52.1) (58.2)
Other payables
due in more than
one year - - (10.8)
Pension liability 11 (78.9) (295.6) (189.2)
Provisions (23.0) (9.6) (23.8)
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(141.0) (357.3) (282.0)
-------------------------------------------------------------------------------------
Total liabilities
associated with
assets classified
as held for sale - (3.6) -
-------------------------------------------------------------------------------------
Total liabilities (417.7) (700.0) (531.6)
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Net
assets/(liabilities) 43.8 40.6 (77.5)
-------------------------------------------------------------------------------------
Equity/(deficit)
Called up share capital 7 63.4 62.8 63.2
Share premium account 7 84.9 81.5 83.7
ESOP reserve 7 (37.9) (49.6) (43.2)
Other reserves 7 28.1 28.1 28.1
Retained earnings 7 (94.7) (82.2) (209.3)
-------------------------------------------------------------------------------------
Total equity/(deficit) 43.8 40.6 (77.5)
-------------------------------------------------------------------------------------
Consolidated cash flow statement
-----------------------------------------------------------------------------------
Notes 24 weeks to 24 weeks to 53 weeks to
16 June 10 June 30 December
2007 2006 2006
unaudited unaudited audited
£m £m £m
-----------------------------------------------------------------------------------
Net cash flows from
operating activities 8 9.6 75.6 70.0
Cash flows from investing activities
Interest received 0.4 1.7 3.5
Sale of subsidiary undertakings - 74.6 (2.1)
Payments to acquire property, plant
and equipment and intangible assets (6.6) (13.2) (30.3)
Dividend received from joint venture
investment 0.4 - -
Receipts from sale of property, plant
and equipment and intangible assets 0.1 12.6 12.0
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Net cash (used in)/from investing
activities (5.7) 75.7 (16.9)
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Cash flows from financing activities
Interest paid (2.1) (3.5) (6.3)
Receipts from issue of own share capital 1.4 0.5 2.9
Receipts from release of shares
from share trust 4.6 - 1.6
Decrease in loans (19.1) (97.9) (89.6)
(Decrease)/increase in other assets (0.1) 1.7 2.4
-----------------------------------------------------------------------------------
Net cash used in financing activities (15.3) (99.2) (89.0)
-----------------------------------------------------------------------------------
Net (decrease)/increase in
cash and cash equivalents (11.4) 52.1 (35.9)
Cash and cash equivalents
at beginning of period 8 53.2 89.0 89.0
Currency translation differences - 0.1 0.1
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Cash and cash equivalents
at end of period 8 41.8 141.2 53.2
-----------------------------------------------------------------------------------
For the purposes of the cash flow statement, cash and cash equivalents are
included net of overdrafts payable on demand. Total cash of £141.2m at 10 June
2006 is made up of £139.7m shown on the balance sheet as cash and cash
equivalents, and £1.5m included in assets for sale.
Consolidated statement of recognised income and expense
-----------------------------------------------------------------------------
24 weeks to 24 weeks to 53 weeks to
16 June 10 June 30 December
2007 2006 2006
unaudited unaudited audited
£m £m £m
-----------------------------------------------------------------------------
Actuarial gains on defined
benefit schemes 104.2 - 64.2
Deferred tax on actuarial
gain on defined benefit
pension schemes (31.3) - (19.2)
Currency translation differences - (0.7) (0.3)
Impact of first-time
adoption of IAS 39 - (0.9) -
-----------------------------------------------------------------------------
Net income/(loss) recognised
directly in equity 72.9 (1.6) 44.7
Profit/(loss) for the
financial period 41.7 (0.5) (170.7)
-----------------------------------------------------------------------------
Total recognised income
and expense for the period 114.6 (2.1) (126.0)
-----------------------------------------------------------------------------
Notes to the Financial Statements
--------------------------------------------------------------------------------
1 Basis of preparation and accounting policies
This interim financial information, which is unaudited, has been prepared in
accordance with the Listing Rules of the Financial Services Authority and in
accordance with recognition and measurement requirements of International
Financial Reporting Standards as adopted for use in the European Union ('IFRS').
It is prepared on the basis of the principal accounting policies which are
applicable as at the date of approval of these financial statements. These
accounting policies are consistent with the policies applied in the 53 weeks to
30 December 2006, which are published as part of the Annual Report and Accounts
for that period and which are available from the Group's website
(www.galiform.com). As permitted, the Group has not adopted IAS 34 'Interim
Financial Reporting', which is not yet mandatory for UK groups.
The taxation charge is calculated by applying the annual effective tax rate to
the profit for the period.
The results for the 24-week periods ended 16 June 2007 and 10 June 2006 are
unaudited but have been reviewed by the Group's auditors, whose report forms
part of this document. This interim financial information does not constitute
full statutory accounts as defined by Section 240 of the Companies Act 1985. The
figures for the 53 weeks to 30 December 2006 are derived from the published
statutory accounts. Full statutory accounts for the 53 weeks ended 30 December
2006, including an unqualified auditors' report, have been delivered to the
Registrar of Companies.
The items classified as discontinued operations for the 24 weeks to 10 June 2006
have been revised since the 2006 interim accounts. At the time of publishing the
2006 interim accounts, the MFI Retail business had not been discontinued, and so
it was treated as a continuing operation in those accounts. The MFI Retail
business was sold in October 2006, and so it was treated as a discontinued
operation in the accounts for the 53 weeks to 30 December 2006. In these interim
accounts, the figures for the 24 weeks to 10 June 2006 have been represented to
show the MFI Retail business as discontinued. This is in accordance with IFRS 5.
2 Segmental analysis
The following tables show the segmental analysis of external turnover and
operating profit by business segment. This is based on the commercial and legal
structure of the Group, in which Howden Joinery, Supply and Corporate are
separate entities.
--------------------------------------------------------------------------------
24 weeks 24 weeks 53 weeks to
to 16 June to 10 June 30 December
2007 2006 2006
unaudited unaudited audited
£m £m £m
--------------------------------------------------------------------------------
External revenue
Continuing operations
Howden Joinery 314.5 272.9 676.3
Supply 111.1 9.3 50.8
Other 3.4 3.1 5.9
--------------------------------------------------------------------------------
429.0 285.3 733.0
Retail and other discontinued operations - 333.6 546.8
--------------------------------------------------------------------------------
Total revenue 429.0 618.9 1,279.8
--------------------------------------------------------------------------------
Operating profit/(loss) before exceptional
items
Continuing operations
Howden Joinery 55.1 50.7 132.6
Supply (13.2) (25.4) (39.6)
Corporate (10.7) (11.0) (24.2)
Other (1.9) (2.0) (4.1)
Share of joint venture 0.2 0.4 1.0
--------------------------------------------------------------------------------
29.5 12.7 65.7
Retail and other discontinued
operations - (22.3) (44.8)
--------------------------------------------------------------------------------
Total operating profit/(loss)
before exceptional items 29.5 (9.6) 20.9
--------------------------------------------------------------------------------
3 Exceptional items
Exceptional items related to continuing operations charged to operating profit
in the 24 weeks to 16 June 2007 are analysed as follows:
--------------------------------------------------------------------------------
Unaudited Selling and
distribution Other operating
costs expenses Total
£m £m £m
--------------------------------------------------------------------------------
Loss on sale of tangible
fixed assets - (0.2) (0.2)
Supply restructuring (0.3) - (0.3)
IT restructuring (0.2) - (0.2)
--------------------------------------------------------------------------------
Total charged to operating profit (0.5) (0.2) (0.7)
Tax credit on exceptional items -
--------------------------------------------------------------------------------
Total operating exceptional
items after tax (0.7)
Exceptional tax credit -
see note 5 26.0
--------------------------------------------------------------------------------
Total exceptional items after tax 25.3
--------------------------------------------------------------------------------
4 Finance income, finance expenses and other finance charges
--------------------------------------------------------------------------------
24 weeks 24 weeks 53 weeks to
to 16 June to 10 June 30 December
2007 2006 2006
unaudited unaudited audited
£m £m £m
--------------------------------------------------------------------------------
Finance income
Bank interest receivable 0.4 1.7 3.5
--------------------------------------------------------------------------------
Finance expenses
Bank interest paid (2.4) (3.2) (6.0)
Interest charge on remeasuring
creditors to fair value (1.8) - (1.0)
--------------------------------------------------------------------------------
(4.2) (3.2) (7.0)
--------------------------------------------------------------------------------
Other finance charges - pensions
Finance element of pension charge (0.9) (2.7) (5.0)
--------------------------------------------------------------------------------
5 Tax
--------------------------------------------------------------------------------
24 weeks 24 weeks 53 weeks to
to 16 June to 10 June 30 December
2007 2006 2006
unaudited unaudited audited
£m £m £m
--------------------------------------------------------------------------------
Current tax
Current year UK corporation tax 4.0 - 3.1
Over provision in previous periods - (0.5) (1.1)
--------------------------------------------------------------------------------
Current tax charge/(credit) 4.0 (0.5) 2.0
--------------------------------------------------------------------------------
Deferred tax
Current year 4.4 3.1 18.2
Over provision in previous periods - (1.9) (4.1)
--------------------------------------------------------------------------------
Deferred tax charge 4.4 1.2 14.1
--------------------------------------------------------------------------------
Total tax charged in the income
statement before exceptional
deferred tax credit 8.4 0.7 16.1
Exceptional deferred tax credit* (26.0) - -
--------------------------------------------------------------------------------
Total tax (credited)/charged in
the income statement (17.6) 0.7 16.1
--------------------------------------------------------------------------------
Total tax (credited)/charged in the income
statement:
- continuing operations (17.6) 7.4 18.9
- discontinued operations - (6.7) (2.8)
--------------------------------------------------------------------------------
Total tax (credited)/charged in
the income statement (17.6) 0.7 16.1
--------------------------------------------------------------------------------
The tax charge is calculated at 34% of profit before exceptional items and tax,
being the estimated effective rate of tax for the 2007 financial year.
* As the financial condition of the Group has improved significantly over the
period, the Group has recognised £26.0m of deferred tax assets in certain of its
subsidiaries. The relevant subsidiaries were loss making in 2006 and therefore
no deferred tax asset was booked on the balance sheet. Given the size and
one-off nature, this deferred tax credit has been treated as an exceptional
item.
6 Earnings per share
----------------------------------------------------------------------------------------------------------------------
24 weeks to 16 June 2007 24 weeks to 10 June 2006 53 weeks to 30 December 2006
unaudited unaudited audited
----------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average Earnings average Earnings average Earnings
number per number per number per
Earnings of shares share Earnings of shares share Earnings of shares share
£m m p m m p £m m p
----------------------------------------------------------------------------------------------------------------------
From continuing operations
Basic earnings per share 41.7 599.8 7.0 (42.1) 591.9 (7.1) 6.1 594.4 1.0
Effect of dilutive share
options - 13.8 (0.2) - - - - 7.2 -
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share 41.7 613.6 6.8 (42.1) 591.9 (7.1) 6.1 601.6 1.0
----------------------------------------------------------------------------------------------------------------------
From discontinued operations
Basic earnings per share - - - 41.6 591.9 7.0 (176.8) 594.4 (29.7)
Effect of dilutive share options - - - - - - - - -
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share - - - 41.6 591.9 7.0 (176.8) 594.4 (29.7)
----------------------------------------------------------------------------------------------------------------------
From continuing and
discontinued operations
Basic earnings per share 41.7 599.8 7.0 (0.5) 591.9 (0.1) (170.7) 594.4 (28.7)
Effect of dilutive share
options - 13.8 (0.2) - - - - - -
----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share 41.7 613.6 6.8 (0.5) 591.9 (0.1) (170.7) 594.4 (28.7)
----------------------------------------------------------------------------------------------------------------------
From continuing operations excluding
exceptional items
Basic earnings per share 16.4 599.8 2.7 (8.1) 591.9 (1.4) 36.3 594.4 6.1
From continuing and
discontinued operations
excluding exceptional
items
Basic earnings per share 16.4 599.8 2.7 (26.4) 591.9 (4.5) (3.4) 594.4 (0.6)
----------------------------------------------------------------------------------------------------------------------
In accordance with IAS 33 'Earnings per share', potential ordinary shares are
only treated as dilutive if their conversion to ordinary shares would decrease
earnings per share or increase loss per share. Therefore, where there is a loss,
as in the two comparative periods above, no adjustment is made in respect of
potential ordinary shares, and diluted earnings per share is equal to basic
earnings per share.
7 Reconciliation of movement in reserves
-------------------------------------------------------------------------------------------------
Called up share Share premium ESOP reserve Other reserves Retained Total
capital account earnings
£m £m £m £m £m £m
-------------------------------------------------------------------------------------------------
At 30 December
2006 - audited 63.2 83.7 (43.2) 28.1 (209.3) (77.5)
Profit for the period - - - - 41.7 41.7
Net actuarial gain on
pension schemes - - - - 72.9 72.9
Issue of new shares 0.2 1.2 - - - 1.4
Net movement in ESOP - - 5.3 - - 5.3
-------------------------------------------------------------------------------------------------
At 16 June 2007 -
unaudited 63.4 84.9 (37.9) 28.1 (94.7) 43.8
-------------------------------------------------------------------------------------------------
8 Notes to the cash flow statement
(a) Net cash flows from operating activities
-------------------------------------------------------------------------------------------------
24 weeks to 16 24 weeks to 53 weeks to 30
June 2007 10 June 2006 December 2006
unaudited unaudited audited
£m £m £m
-------------------------------------------------------------------------------------------------
Group operating profit/(loss) after exceptional items
Continuing operations 28.8 (30.5) 33.5
Discontinued operations - 34.9 (179.6)
-------------------------------------------------------------------------------------------------
28.8 4.4 (146.1)
Adjustments for:
Depreciation and amortisation 7.8 18.4 40.9
Share-based payments charge 0.7 1.8 3.8
Share of joint venture profits (0.2) (0.4) (1.0)
Loss on disposal of property, plant and
equipment and intangible assets 0.2 15.1 14.5
Other exceptional items (before tax) 0.5 (29.1) 152.5
-------------------------------------------------------------------------------------------------
Operating cash flows before movements in
working capital 37.8 10.2 64.6
Movements in working capital and exceptional items
Decrease/(increase) in stock 14.3 6.5 (18.6)
Increase in trade and other receivables (44.6) (44.4) (59.6)
Increase in trade and other payables 9.7 107.0 115.4
Difference between pensions operating
charge and cash paid (7.1) (3.7) (10.7)
HMRC refund restructural guarantee - 21.8 21.8
Net cash flow - exceptional items (0.5) (21.8) (44.5)
-------------------------------------------------------------------------------------------------
(28.2) 65.4 3.8
-------------------------------------------------------------------------------------------------
Cash generated from operations 9.6 75.6 68.4
Tax received - - 1.6
-------------------------------------------------------------------------------------------------
Net cash flows from operating activities 9.6 75.6 70.0
-------------------------------------------------------------------------------------------------
Net cash flow from operating activities comprises:
Continuing operating activities 9.6 85.4 154.5
Discontinued operating activities - (9.8) (84.5)
-------------------------------------------------------------------------------------------------
9.6 75.6 70.0
-------------------------------------------------------------------------------------------------
(b) Reconciliation of movement in net debt
-------------------------------------------------------------------------------------------------
24 weeks to 16 24 weeks to 53 weeks to 30
June 2007 10 June 2006 December 2006
unaudited unaudited audited
£m £m £m
-------------------------------------------------------------------------------------------------
Net debt at start of period (4.1) (55.5) (55.5)
Net (decrease)/increase in cash
and cash equivalents (11.4) 52.1 (35.9)
Decrease/(increase) in investments 0.1 (1.7) (2.4)
Decrease in debt and lease financing 19.1 97.9 89.6
Currency translation differences - 0.1 0.1
-------------------------------------------------------------------------------------------------
Net funds/(debt) at end of period 3.7 92.9 (4.1)
-------------------------------------------------------------------------------------------------
Represented by:
Cash and cash equivalents 41.8 139.7 53.2
Investments 3.2 3.8 3.1
Borrowings (41.3) (52.1) (60.4)
Assets held for resale - 1.5 -
-------------------------------------------------------------------------------------------------
3.7 92.9 (4.1)
-------------------------------------------------------------------------------------------------
(c) Analysis of net funds
--------------------------------------------------------------------------------
Cash and cash Current asset Bank Net funds/
equivalents investment loans (borrowings)
£m £m £m £m
--------------------------------------------------------------------------------
At 30 December 2006 - audited 53.2 3.1 (60.4) (4.1)
Cash flow (11.4) 0.1 19.1 7.8
--------------------------------------------------------------------------------
At 16 June 2007 - unaudited 41.8 3.2 (41.3) 3.7
--------------------------------------------------------------------------------
Closing bank loans at 16 June 2007 comprise £39.1m of non current liabilities
and £2.2m of current liabilities.
9 Post balance sheet events
In the 2007 Budget, the Chancellor announced his intention to reduce the rate of
Corporation tax from the current rate of 30% to a rate of 28% with effect from 1
April 2008. As at the half year-end date (16 June 2007), the legislation had not
passed through the House of Commons and had therefore not been substantively
enacted. Therefore, in accordance with IAS 12 'Income Taxes', we have not
remeasured our current or deferred tax charge or provision in these interim
results to reflect the forthcoming change in tax rates.
Since the half year-end date, the legislation has been substantively enacted.
The change in rate will thereforebe reflected in our deferred tax balances in
the accounts for the full year to 29 December 2007, and will be reflected in our
current tax balances after 1 April 2008. Under IAS 12 deferred tax assets and
liabilities are calculated with reference to the tax rate at which they are
expected to crystallise in the future. In accordance with IAS 12, the rate used
in these interim accounts is 30%, but the rate used in the accounts for the full
year to 29 December 2007 will be 28%. Current tax is calculated based on the
rate in force at the time. Therefore, current tax will be calculated at 30%
until 1 April 2008, when it will be calculated at 28%.
We are unable to quantify what the effect of the change in rate will be on
future deferred tax assets and liabilities. As an illustrative example, if the
new rate of 28% was substantively enacted before the date of these accounts, the
effect on the deferred tax balances as at 16 June 2007 would be a £3.4m
reduction of deferred tax assets and a £0.3m reduction of deferred tax
liabilities. Of the total net reduction, £1.5m relating to items taken to equity
will be adopted via the SORIE and the remaining £1.6m will be adjusted via the
Income Statement.
10 Contingent liabilities
Relating to the disposal of the MFI Retail operations
As disclosed at the time of the transaction with MEP Mayflower Limited ('MEP'),
the Group was the ultimate guarantor on leases in relation to 56 properties
which were occupied by the MFI Retail operations. By 16 June 2007, this number
had reduced to 53 properties. The Group's guarantees are triggered if MEP
suffers financial distress and defaults on its obligations under the relevant
leases. The current annual net rentals payable by the Group in respect of these
remaining properties total £16.4m. Remaining lease terms range between 3 months
and 18 years from 16 June 2007.
The Group is not aware of any signs which indicate that the purchaser is in
financial distress. There is uncertainty whether the purchaser will ever suffer
financial distress and thereby trigger the guarantee, and as to whether there
would be any actual net liability if the Group ever did have to meet the lease
obligations, given that the Group could mitigate any liabilities by surrendering
or assigning the leases, or by subletting them to third parties.
Because of the nature of the uncertainties, as described above, the Group is
unable to give an estimate of the financial effect of this contingent liability.
The Group is also exposed to potential costs in respect of certain warranties
and indemnities in relation to the disposal agreement in favour of the
purchaser. The Group has made such provision as is considered necessary in this
respect.
The full list of contingent liabilities, as disclosed in the 2006 Annual Report
and Accounts, has not been reproduced in these interim accounts, as management
consider that there has been no significant change in any of the contingent
liabilities disclosed in the 2006 Annual Report and Accounts other than the one
shown above.
11 Retirement benefit obligations
(a) Total amounts charged in respect of pensions in the period
------------------------------------------------------------------------------------
24 weeks to 24 weeks to 53 weeks to
16 June 10 June 30 December
2007 2006 2006
unaudited unaudited audited
£m £m £m
------------------------------------------------------------------------------------
Charged/(credited) to the income statement
Defined benefit schemes - total operating
charge/(credit) 2.6 13.2 (17.1)
Defined benefit schemes - net finance charge 0.9 2.7 5.0
Defined contribution scheme - total
operating charge 0.3 - 0.2
------------------------------------------------------------------------------------
Total net amount charged/(credited) to
profit before tax 3.8 15.9 (11.9)
------------------------------------------------------------------------------------
Charged/(credited) to equity
Defined benefit schemes
- net actuarial gains
net of deferred tax (72.9) - (44.9)
------------------------------------------------------------------------------------
(b) Defined benefit pension schemes
The most recent actuarial valuation was carried out at 6 April 2005 by the
scheme actuary. The actuary advising the Group has subsequently rolled forward
this valuation to 16 June 2007 and restated the results onto a basis consistent
with market conditions at that date. Due mainly to changes in the discount rate
since 30 December 2006, the pension deficit has significantly reduced over the
24 weeks ended 16 June 2007. The following summary information analyses the main
changes in greater detail.
Key assumptions used in the valuation of the schemes
------------------------------------------------------------------------------------
24 weeks to 24 weeks to 53 weeks to
16 June 10 June 30 December
2007 2006 2006
% % %
------------------------------------------------------------------------------------
Rate of increase of pensions in payment
Pensions with guaranteed increases
(i.e. most of the pre-1997 pensions) 3.30 3.00 3.00
Pensions with increases capped at the lower
of RPI or 5% 3.30 2.90 2.90
Pensions with increases capped at the lower of
RPI or 2.5% 2.50 2.50 2.50
Rate of increase in salaries 4.30 4.00 4.00
Inflation assumption 3.30 3.00 3.00
Expected return on scheme assets 7.06 7.06 7.06
Discount rate 5.80 5.10 5.10
------------------------------------------------------------------------------------
Balance sheet
Movements in the deficit during the period were as follows:
------------------------------------------------------------------------------------
24 weeks to 24 weeks to 53 weeks to
16 June 10 June 30 December
2007 2006 2006
£m £m £m
------------------------------------------------------------------------------------
Deficit at start of period (189.2) (297.1) (297.1)
Current service cost (2.6) (13.2) (20.9)
Past service credit - - 38.0
Employer contributions 9.6 17.4 31.6
Other finance expense (0.9) (2.7) (5.0)
Actuarial gains gross of deferred tax 104.2 - 64.2
------------------------------------------------------------------------------------
Deficit at end of period (78.9) (295.6) (189.2)
------------------------------------------------------------------------------------
Income statement
Amounts recognised in the income statement arising from the Group's obligations
in respect of defined benefit schemes are shown below.
------------------------------------------------------------------------------------
24 weeks to 24 weeks to 53 weeks to
16 June 10 June 30 December
2007 2006 2006
£m £m £m
------------------------------------------------------------------------------------
Amount charged/(credited) to profit
Current service cost 2.6 13.2 20.9
Past service credit - - (38.0)
------------------------------------------------------------------------------------
Net charge/(credit) 2.6 13.2 (17.1)
------------------------------------------------------------------------------------
The current service cost and the past service credit are included within staff
costs.
Amount charged to other finance charges
Net charge 0.9 2.7 5.0
------------------------------------------------------------------------------------
Statement of recognised income and expense
Amounts taken to equity via the statement of recognised income and expense in
respect of the Group's defined benefit schemes are shown below.
------------------------------------------------------------------------------------
24 weeks to 24 weeks to 53 weeks to
16 June 10 June 30 December
2007 2006 2006
£m £m £m
------------------------------------------------------------------------------------
Actuarial gain on scheme assets 21.4 - 24.2
Actuarial gain on scheme liabilities 82.8 - 40.0
------------------------------------------------------------------------------------
Net actuarial gain 104.2 - 64.2
------------------------------------------------------------------------------------
Independent review report to Galiform Plc
--------------------------------------------------------------------------------
Introduction
We have been instructed by the company to review the financial information for
the 24 weeks ended 16 June 2007 which comprise the income statement, the balance
sheet, the statement of recognised income and expense, the cash flow statement
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
policies 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 24 weeks ended
16 June 2007.
Deloitte & Touche LLP
Chartered Accountants
London
6 September 2007
Appendix 1
--------------------------------------------------------------------------------
FINANCIAL CALENDAR
2007
Trading update 22 November 2007
End of financial year 29 December 2007
2008
2007 Preliminary results 6 March 2008
Interim Management Statement 1 May 2008 (provisional)
2008 Half Yearly Report 23 July 2008 (provisional)
Interim Management Statement 13 November 2008 (provisional)
End of financial year 27 December 2008
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