6th Mar 2008 07:00
Galiform PLC06 March 2008 GALIFORM Plc PRELIMINARY RESULTS FOR THE 52 WEEKS ENDED 29 DECEMBER 2007 KEY RESULTS£m unless stated 2007 2006Continuing operations (before exceptional items):Revenue 976.5 733.0 - Howdens Joinery 768.4 676.3 +13.6%Operating profit 88.1 65.7 +34.1%Profit before tax 79.8 57.2 +39.5%Profit after tax 54.3 36.3 +49.6%Basic earnings per share 9.1p 6.1p +49.2% Net debt at end of period 3.3 4.1 Final dividend per share (proposed) 0.5p - HIGHLIGHTS Financial highlights * Howden Joinery revenue increased by 13.6% to £768.4m (up 8.9% on same depot basis). • Group operating profit before exceptional items from continuing operations increased by 34.1% to £88.1m, reflecting: * depot contribution up £23.3m; £13.0m purchasing gain, including currency effects; offset by £12.3m obsolete depot and warehouse stock provisions. • Profit before tax and exceptional items from continuing operations rose 39.5% to £79.8m (£44.4m after exceptional items (2006: £25.0m)). • Basic earnings per share before exceptional items from continuing operations up 49.2% to 9.1p. • Basic earnings per share from continuing and discontinued operations 7.3p (2006: (28.7)p). • Net debt fell by £0.8m, resulting in the Group having net debt of £3.3m at 29 December 2007. • Final dividend of 0.5p per share proposed (2006: nil). Operating highlights • 54 new Howden Joinery depots opened in 2007, bringing total to 436 - opportunity for network of over 600 depots identified. • Supply of products and logistics services to MFI successfully concluded on 21 December 2007. • Restructuring and realignment with Howden Joinery of factory and logistics operations proceeding to plan. Current trading • Trading has been satisfactory in the first part of 2008. Galiform's Chief Executive, Matthew Ingle, said: "2007 was a very pleasing year, both in terms of our financial performance andoperational and strategic developments. Building on the transformation of theGroup begun in 2006, when we refinanced the business, put our supply operationson a commercial footing and sold MFI, it demonstrates the significantopportunities we have ahead of us and our continuing ability to take thebusiness forward. "Across the Group, there is a renewed vigour and focus. "Howdens traded well throughout the year, particularly in the second half as itreaped the benefits of new products, better design and closer relationships withour supply operations. It continued to grow, opening 54 depots, and a number ofnew initiatives were pursued. "Our supply operations not only delivered the benefits from changing oursourcing of appliances and fascias, they successfully managed and exited theproduct supply and logistic services relationship with MFI. This has enabled arestructuring of the supply operations that further aligns them with Howdens'operations and its future requirements. "We have made a positive start to the new financial year and will continue totake the Group forward, both growing the business and strengthening ourcompetitive position." Enquiries Investors/analysts: Gary RawlinsonHead of Investor Relations +44 (0)207 404 5959 (6 March only) +44 (0)207 535 1127 +44 (0)7989 397527 Media: Brunswick +44 (0)207 404 5959Susan GilchristAnna Jones SUMMARY OF GROUP RESULTS The information presented below relates to the 52 weeks to 29 December 2007 andthe 53 weeks to 30 December 2006, unless otherwise stated. £m unless stated 2007 2006Continuing operations (before exceptional items unlessstated):Revenue 976.5 733.0Gross profit 456.2 362.5Operating profit 88.1 65.7Profit before tax- excluding exceptional items 79.8 57.2- including exceptional items1 44.4 25.0 Earnings per share from continuing operations- basic excluding exceptional items 9.1p 6.1p- basic including exceptional items 8.8p 1.0p Loss before tax from discontinued operations- excluding exceptional items - 44.8- including exceptional items 11.1 179.6 Earnings per share from continuing and discontinued operations- basic excluding exceptional items 9.1p (0.6)p- basic including exceptional items 7.3p (28.7)p Net debt at end of period 3.3 4.1 1 Details of exceptional items for the 52 weeks to 29 December 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 52 weeks to 29 December 2007. As previously advised, for 2008, with the ending of the supply arrangements with MFI, the Group intends to report its results as a single entity. FINANCIAL REVIEW The following discussion relates to continuing operations unless otherwise stated. 2007 FINANCIAL RESULTS Revenue rose by £243.5m to £976.5m, reflecting the increased sales of HowdenJoinery depots (£92.1m) and higher sales to MFI and Hygena Cuisines (£149.3m),mostly to the former which is no longer being supplied. Revenue £m 2007 2006Group 976.5 733.0including: Howden Joinery depots 768.4 676.3MFI/Hygena Cuisines 200.1 50.8 Howden Joinery depots traded well throughout the year, with the higher rate ofsales growth seen in the summer sustained to the end of the year. Depot revenueincreased by 13.6% to £768.4m, up 8.9% on a same depot basis. This reflected acontinuing increase in the turnover of mature depots (which have typically beentrading for more than six years), the benefit of the maturing profile of salesfrom newer depots and new depot openings. Of particular note was the sales ofdoors and joinery products, which benefited from the introduction of a moreextensive range of doors and a new joinery catalogue in the autumn of 2006. Theincrease in sales also reflected improvements to the product range, both interms of the scope of the kitchens offered, and new products introduced to meetthe ever-higher aspirations of all end-consumers, such as 'range' cookers. Thisled to both increased volume and additional 'add-on' sales, increasing theaverage value of kitchen sales. In addition, a number of depots saw salesincrease as a result of flood damage to properties. The growth in sales to MFI and Hygena Cuisines reflected MFI being an externalcustomer throughout 2007, having been part of the Group until October 2006. The underlying gross margin on depot sales was similar to that seen in 2006.However, the recorded margin was lower because of the impact of an increase inthe provision for obsolete depot stock at the end of the year (see below). Excluding exceptional items, Group gross profit increased by £93.7m to £456.2m.With selling and distribution costs and administrative expenses increasing by£71.2m, operating profit before exceptional items was £88.1m (2006: £65.7m). Operating profit before exceptional items £m 2007 2006Group 88.1 65.7including: Howden Joinery 145.1 132.6Supply (26.6) (39.6)Corporate (24.7) (24.2) The rise in sales through existing and new depots, after allowing forsales-related cost increases, contributed £23.3m to the growth in operatingprofit. This was partly offset by an increase in non-sales related HowdenJoinery costs of £4.9m and an increase of £5.9m in the provision for obsoletedepot stock, primarily arising from a decision to conclude the bedroom test andthe discontinuation of certain slow-selling kitchen ranges and joinery doors. The decision to end the bedroom test was taken in light of the lower than hopedfor level of take-up by our customers and the fact that storage space beingutilised was constraining space availability for better selling core products.The slow down of sales of certain products arose from the revitalisation of ourproduct range, with a number of market leading products, over the last 12 monthsor so. The main elements of the increase in non-sales related Howden Joinery costs wereincreased expenditure on promotional material, and expenditure incurred inrelation to a major new product design initiative to address the issue of thekitchens that will be required to meet market requirements beyond the shortterm. In addition, costs were incurred in relation to the 'Trade Expo Centre',which opened in May, and two mobile display vehicles, which were commissioned inthe autumn. The move from manufacturing to buying-in fascias and own-brand appliances thatwas instigated in the first half of 2006, as part of the drive to bring a newcommercial focus to purchasing, thereby significantly reduced supply costs. Inaddition, there was a currency gain of a similar size, arising from thestrengthening of the pound against the euro and the US dollar. Together, thesecontributed £13m to the increase in operating profit. Other savings in supplyoperations costs were offset by an increase in the provision for obsoletewarehouse stock that was of the same magnitude as that for depot stock. Thisalso primarily arose from the decision to conclude the bedroom test and thediscontinuation of certain slow-selling kitchen ranges and joinery doors. Costs of other areas of the Group increased by £3.1m, mainly reflectingprovisions made in respect of surplus property. The net interest charge fell £0.2m to £8.3m. The net result was profit beforetax and exceptional items of £79.8m (2006: £57.2m). Exceptional charges before tax totalled £35.4m, giving profit before tax of£44.4m (2006: £25.0m). These mainly arose from the restructuring of supplyoperations announced in June 2007. The tax charge on profit before tax excluding exceptional items was £25.5m, aneffective tax rate of 32.0%. In relation to exceptional charges, there was a taxcredit of £10.1m. In addition, the Group has recognised deferred tax assets incertain of its subsidiaries (£23.9m) that were previously unrecognised. Giventheir size and one-off nature, they have been treated as exceptional items (seenote 5). Basic earnings per share from continuing operations excluding exceptional itemswas 9.1p (2006:6.1p) and including exceptional items was 8.8p (2006: 1.0p). There was an exceptional loss from discontinued operations before tax of £11.1m. Basic earnings per share from continuing and discontinued operations was 7.3p(2006: (28.7p)). Net cash flows from operating activities were £25.7m. Within this, cashexpenditure on exceptional items totalled £11.9m, mainly in relation to theSupply restructuring. Payments to acquire fixed and intangible assets totalled£21.2m (2006: £30.3m). In 2007, net debt fell by £0.8m (2006: £51.4m), such thatas at 29 December 2007, the Group had net borrowings of £3.3m, compared with netborrowings of £4.1m at the start of the year. Compared with the previous year end, the pension liability shown on the balancesheet at 29 December 2007 was over £100m lower at £83.5m (30 December 2006:£189.2m). The major contributors to this fall were a reduction of the schemes'liabilities arising from an increase in the liability discount rate and theCompany's contribution to clear the actuarial deficit (over a 10-year period)that was agreed in 2006. A new triennial actuarial review of the pension schemes will be undertaken onbehalf of the trustees in 2008. DIVIDEND The Board is recommending a final dividend of 0.5p per share (2006: nil) to bepaid on 13 June 2008 to shareholders registered at close of business on 30 May2008. The Board is assessing an appropriate ongoing dividend policy and will providedetails at a later date. 2008 The sale of MFI has transformed the prospects of Galiform, allowing us to accessefficiencies across the business and liberating us to focus on pursuing theopportunities to grow and develop Howden Joinery. This can be seen in thedevelopment of profit before tax and exceptional items from a loss of £4.9m in2005 (under UK GAAP), including MFI, to a profit of £79.8m in 2007 (under IFRS),and is clearly reflected in the progress of earnings per share. The loss of revenue from no longer supplying products to MFI will not have animpact on profit in 2008. However, because elements of logistics costs are onlysemi-variable, the loss of revenue arising from the ending of the supply oflogistics services to MFI means that the cost to the on-going business hasincreased. This 'stranded cost' is the major component of an expected £15mincrease in logistics costs in 2008. We are actively pursuing opportunities to deal with these challenges. BANKING ARRANGEMENTS The Group's bank facility was due to expire in May 2009. This has now beenextended until May 2011. OPERATIONAL REVIEW The overriding strategic goal of Galiform was first set out in the originalHowden Joinery business plan and remains unaltered. It is "To supply from localstock nationwide the small builder's routine kitchen and joinery requirements,assuring no call back quality and best local price". DEPOT NETWORK In 2007, 54 new Howden Joinery depots were opened. In addition, 2 existingdepots were relocated and 5 were extended. Of the 436 depots open at the startof 2008, just under 40% were in their sixth year of trading or less and continueto mature. A review of the opportunities for additional depots, taking account ofdemographic information and the locations of our existing network, has concludedthat the number of depots can be increased to more than 600. Some of these willbe in places where we have no presence; others will be in conurbations thatwarrant additional depots. This year, we are planning to open around 50 depots. PRODUCT SUPPLY AND LOGISTICS SERVICES The product supply and logistics services arrangements with MFI weresuccessfully concluded on 21 December 2007, although Galiform will continue toprovide certain IT and financial services to MFI until 18 October 2008. MANUFACTURING AND LOGISTICS OPERATIONS In response to the ending of product supply and logistics services arrangementswith MFI, the restructuring of manufacturing and logistics operations hasproceeded to plan. By the year end, various facilities had been closed and activities had beentransferred to other locations, as a result of which 340 employees had left theoperations by the end of December. Further rationalisation has taken place sincethen and with the restructuring of logistics operations in Northampton due forcompletion by the end of March 2008, a further 190 employees will have left theGroup. POSITIONING FOR GROWTH As well as rationalising the scale of product supply and logistics operations, akey aspect of the restructuring has been the realignment of these operationswith the requirements of Howden Joinery. Internally, 'flat pack' boxmanufacturing capacity at the Howden factory has been converted to 'rigid box'capacity. Externally, the supply base has been strengthened to enable betterproduct design, new product opportunities and improved supply availability. These changes will provide the flexibility to better manage the requirements ofHowden Joinery's key October trading period, when demand can be more than twicethat seen in other periods, and the capacity to handle the expected growth ofdemand in coming years. TRADE EXPO CENTRE Since the autumn, the work of Howden Joinery's Trade Expo Centre has beenaugmented by two mobile display vehicles. One of these focuses on products aimedat the local authority/housing association sector of the market, the othershowcasing new products. These initiatives have given us a focal point through which to engage withbuilders and their customers on their thoughts about various aspects of thebusiness, including new products and their specific requirements. RELATIONSHIP WITH MEP CLOSING CASH ADJUSTMENTS Under the terms of the sale by Galiform of MFI Retail (Holdings) Limited and itssubsidiaries ("MFI") to MEP Mayflower Limited ("MEP"), MEP acquired economiccontrol of MFI from 5 August 2006 (the "effective date"), including allcashflows generated by MFI between the effective date and completion of the saleon 18 October 2006. Galiform made a payment of approximately £7.7m inrespect of this period at completion of the sale. This amount was subject toadjustment. Galiform has agreed to pay MEP a further £4.9m by way of an adjustmentbut MEP believes that a further adjustment of approximately £8.3m shouldalso be paid by Galiform. Whether this additional amount will be payable is tobe determined by an independent expert who has recently been appointed by theparties for this purpose. The expert determination process is expected to lastapproximately eight weeks. NET ASSET VALUE CLAIM Separately, under the terms of the sale, Galiform gave a warranty relating tothe net value of some of the assets and liabilities of MFI on the effectivedate, against which MEP could claim for up to two years after it acquired MFI.Over the course of the past year, MEP has made a number of notifications toGaliform alleging breach of this warranty. Each notification has been thoroughlyinvestigated by Galiform's external lawyers and forensic accountants. Galiform has strongly rejected MEP's allegations and MEP recently began legalproceedings against Galiform formally claiming breach of the warranty. Havingtaken extensive advice from external lawyers and forensic accountants, the Boardconsiders that MEP's total claim (the "net asset value claim") is grosslyinflated, principally because the majority of the claim is entirely withoutmerit and MEP has chosen, incorrectly, to ignore a substantial number ofoffsetting items. To date, MEP's total gross claim amounts to approximately £57m. However,in the light of the advice it has received, the Board is confident of thestrength of its case and is firmly of the view that only a small fraction ofthis amount (if any) will ultimately be payable. ACCOUNTING Galiform has made provision for amounts which may become payable in respect ofboth 'closing cash adjustments' and the 'net asset value claim' referred toabove. In the light of the advice it has received, the Board believes that suchprovision is adequate. CURRENT TRADING Howden Joinery has made a satisfactory start to 2008, as it continued to tradewell. Sales in the first two periods (to 24 February) increased by 11.8%compared with the comparative period last year, up 7.1% on a same depot basis. Although the economic outlook for 2008 may be uncertain, over the last two yearswe have taken a number of major steps to improve our already strong position inthe market. This year, we will continue to grow the business and strengthen ourcompetitive position. Along with the growth inherent in our Howden Joinery depotportfolio, the Board is confident that the Group is well positioned to face thecurrent year and to deal with any challenges and opportunities that the marketwill present. Consolidated income statement 52 weeks to 29 December 2007 53 weeks to 30 December 2006 Before Exceptional Total Before Exceptional Total exceptional items exceptional items items items items (note 3) Notes £m £m £m £m £m £m-----------------------------------------------------------------------------------------------------------------------Continuing operations:Revenue 2 976.5 - 976.5 733.0 - 733.0Cost of sales (520.3) (6.9) (527.2) (370.5) (12.8) (383.3)-----------------------------------------------------------------------------------------------------------------------Gross profit 456.2 (6.9) 449.3 362.5 (12.8) 349.7Selling & distribution costs (307.5) (15.6) (323.1) (241.6) (12.7) (254.3)Administrative expenses (61.5) (6.6) (68.1) (56.2) 7.8 (48.4)Other operating expenses - (6.3) (6.3) - (14.5) (14.5)Share of joint venture profits 0.9 - 0.9 1.0 - 1.0-----------------------------------------------------------------------------------------------------------------------Operating profit 2 88.1 (35.4) 52.7 65.7 (32.2) 33.5Finance income 1.3 - 1.3 3.5 - 3.5Finance expense (9.9) - (9.9) (7.0) - (7.0)Other finance charges - pensions 0.3 - 0.3 (5.0) - (5.0)-----------------------------------------------------------------------------------------------------------------------Profit before tax 79.8 (35.4) 44.4 57.2 (32.2) 25.0Tax on profit 4 (25.5) 34.0 8.5 (20.9) 2.0 (18.9)-----------------------------------------------------------------------------------------------------------------------Profit after tax from continuingoperations 54.3 (1.4) 52.9 36.3 (30.2) 6.1-----------------------------------------------------------------------------------------------------------------------Discontinued operations: -----------------------------------------------------------------------------------------------------------------------Loss before tax - (11.1) (11.1) (44.8) (134.8) (179.6)-----------------------------------------------------------------------------------------------------------------------Tax on loss - 2.1 2.1 5.1 (2.3) 2.8-----------------------------------------------------------------------------------------------------------------------Loss after tax from discontinuedoperations - (9.0) (9.0) (39.7) (137.1) (176.8)----------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------------Profit/(loss) for the period 54.3 (10.4) 43.9 (3.4) (167.3) (170.7)----------------------------------------------------------------------------------------------------------------------- Earnings per share: 5 pence penceFrom continuing operationsBasic earnings per 10p share 8.8 1.0Diluted earnings per 10p share 8.6 1.0 From continuing and discontinued operationsBasic earnings per 10p share 7.3 (28.7)Diluted earnings per 10p share 7.2 (28.4)----------------------------------------------------------------------------------------------------------------------- Consolidated balance sheet At 29 December At 30 December 2007 2006 Notes £m £m--------------------------------------------------------------------------------Non current assetsIntangible assets 2.5 1.9Property, plant andequipment 91.2 97.1Investments 10.1 9.7Deferred tax asset 45.6 60.6-------------------------------------------------------------------------------- 149.4 169.3--------------------------------------------------------------------------------Current assetsInventories 101.0 126.1Trade and otherreceivables 122.3 102.4Other assets 2.4 3.1Cash at bank and inhand 33.6 53.2-------------------------------------------------------------------------------- 259.3 284.8----------------------------------------------------------------------------------------------------------------------------------------------------------------Total assets classifiedas held for sale 3.1 -----------------------------------------------------------------------------------------------------------------------------------------------------------------Total assets 411.8 454.1-------------------------------------------------------------------------------- Current liabilitiesTrade and other payables (201.1) (244.4)Current tax liability (8.5) (3.0)Current borrowings (3.3) (2.2)-------------------------------------------------------------------------------- (212.9) (249.6)-------------------------------------------------------------------------------- Non current liabilitiesBorrowings (36.0) (58.2)Other payables due inmore than one year - (10.8)Pension liability (83.5) (189.2)Deferred tax liability (2.9) (4.0)Provisions 7 (39.4) (19.8)-------------------------------------------------------------------------------- (161.8) (282.0)--------------------------------------------------------------------------------Total liabilities (374.7) (531.6)----------------------------------------------------------------------------------------------------------------------------------------------------------------Net assets/(liabilities) 37.1 (77.5)-------------------------------------------------------------------------------- Equity/(deficit)Called up share capital 8 63.4 63.2Share premium account 8 85.0 83.7ESOP reserve 8 (32.6) (43.2)Other reserves 8 28.1 28.1Retained earnings 8 (106.8) (209.3)--------------------------------------------------------------------------------Total equity/(deficit) 37.1 (77.5)-------------------------------------------------------------------------------- Consolidated cash flow statement 52 weeks to 53 weeks to 29 December 30 December 2007 2006 Notes £m £m--------------------------------------------------------------------------------Net cash flows from operatingactivities 9 25.7 70.0 Cash flows from investing activitiesInterest received 1.3 3.5Sale of subsidiary undertakings - (2.1)Payments to acquire property, plantand equipment and intangible assets (21.2) (30.3)Dividend received from joint ventureinvestment 0.5 -Receipts from sale of property, plantand equipment and intangible assets - 12.0--------------------------------------------------------------------------------Net cash used in investing activities (19.4) (16.9)-------------------------------------------------------------------------------- Cash flows from financing activitiesInterest paid (8.4) (6.3)Receipts from issue of own sharecapital 1.5 2.9Receipts from release of shares fromshare trust 4.9 1.6Decrease in loans (24.3) (89.6)Repayment of capital element ofobligations under finance leases (0.3) -Decrease in other assets 0.7 2.4--------------------------------------------------------------------------------Net cash used in financing activities (25.9) (89.0)--------------------------------------------------------------------------------Net decrease in cash and cashequivalents (19.6) (35.9) Cash and cash equivalents atbeginning of period 53.2 89.0Currency translation differences - 0.1--------------------------------------------------------------------------------Cash and cash equivalents at end ofperiod 9 33.6 53.2-------------------------------------------------------------------------------- For the purposes of the cash flow statement, cash and cash equivalents areincluded net of overdrafts payable on demand. These overdrafts are excluded fromthe definition of cash and cash equivalents disclosed on the balance sheet. Consolidated statement of recognised income and expense -------------------------------------------------------------------------------- 52 weeks to 53 weeks to 29 December 30 December 2007 2006 £m £m--------------------------------------------------------------------------------Actuarial gains on defined benefitschemes 87.2 64.2Deferred tax on actuarial gain ondefined benefit pension schemes (26.1) (19.2)Effect of change in tax rate ondeferred tax on actuarialgains/losses (3.6) -Currency translation differences 1.1 (0.3)Net income recognised directly inequity 58.6 44.7Profit/(loss) for the financialperiod 43.9 (170.7)--------------------------------------------------------------------------------Total recognised income and expensefor the period 102.5 (126.0)-------------------------------------------------------------------------------- Notes to the Preliminary Results for the 52 weeks ended 29 December 2007 1 Basis of preparation The Group's accounting period covers the 52 weeks to 29 December 2007. Thecomparative period covered the 53 weeks to 30 December 2006. The preliminary results for the year ended 29 December 2007 have been preparedin accordance with the recognition and measurement criteria of InternationalFinancial Reporting Standards ("IFRS") adopted for use in the European Union andInternational Financial Reporting Interpretations Committee interpretations, andwith those parts of the Companies Act 1985 applicable to companies reportingunder IFRS. The accounting policies followed are the same as those detailedwithin the 2006 Annual Report and Accounts, which are available on the Group'swebsite (www.galiform.com). Whilst the financial information included in thispreliminary announcement has been computed in accordance with IFRS, thisannouncement does not itself contain sufficient information to comply with IFRS. The financial information set out in this announcement does not constitute thestatutory accounts for the Group within the meaning of Section 240 of theCompanies Act 1985. The statutory accounts for the 53 weeks to 30 December 2006have been filed with the Registrar of Companies. The statutory accounts for the52 weeks ended 29 December 2007 will be filed in due course. The auditors'reports on these accounts were unqualified and did not contain any statementunder sections 237(2) or (3) of the Companies Act 1985. 2 Segmental analysis The following tables show the segmental analysis of external turnover andoperating profit by business segment. This is based on the commercial and legalstructure of the Group, in which Howden Joinery, Supply and Corporate areseparate entities. External revenue 52 weeks to 53 weeks to 29 December 30 December 2007 2006 £m £m--------------------------------------------------------------------------------Continuing operationsHowden Joinery 768.4 676.3Supply 200.1 50.8Other 8.0 5.9-------------------------------------------------------------------------------- 976.5 733.0Retail and other discontinued operations - 546.8--------------------------------------------------------------------------------Total revenue 976.5 1,279.8-------------------------------------------------------------------------------- Operating profit/(loss) Before exceptional items Exceptional items After exceptional items 52 weeks 53 weeks 52 weeks 53 weeks 52 weeks 53 weeks to 29 Dec to 30 Dec to 29 Dec to 30 Dec to 29 Dec to 30 Dec 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m---------------------------------------------------------------------------------ContinuingoperationsHowden Joinery 145.1 132.6 (0.1) - 145.0 132.6Supply (26.6) (39.6) (33.3) (42.5) (60.0) (82.1)Corporate (27.4) (24.2) - - (3.9) (4.1)Other (3.9) (4.1) (2.0) 10.3 (29.4) (13.9)Share of jointventure 0.9 1.0 - - 0.9 1.0--------------------------------------------------------------------------------- 88.1 65.7 (35.4) (32.2) 52.7 33.5Retail andotherdiscontinuedoperations - (44.8) (11.1) (134.8) (11.1) (179.6)---------------------------------------------------------------------------------Totaloperatingprofit 88.1 20.9 (46.5) (167.0) 41.6 (147.1)--------------------------------------------------------------------------------- 3 Exceptional items Exceptional items charged to the income statement in the 52 weeks to 29 December2007 are analysed as follows: -------------------------------------------------------------------------------------------------------------------- Cost of Other Administration Selling and Total sales operating expenses distribution Notes income costs £m-------------------------------------------------------------------------------------------------------------------Continuing operations:Group restructuring 3(a) 6.9 7.4 6.6 15.6 36.5Other profit and loss on disposal - (1.1) - - (1.1)-------------------------------------------------------------------------------------------------------------------Total charged to operatingprofit 6.9 6.3 6.6 15.6 35.4Tax credit on exceptional items incontinuing operations (10.1)-------------------------------------------------------------------------------------------------------------------Total operating exceptional items after tax 25.3Exceptional tax credit 3(b) (23.9)-------------------------------------------------------------------------------------------------------------------Net exceptional items incontinuing operations 1.4------------------------------------------------------------------------------------------------------------------- Discontinued operations: 3(c)Business rates and otherproperty costs 7.1Professional fees associatedwith discontinued operations 4.0-------------------------------------------------------------------------------------------------------------------Total discontinued exceptionalitems before tax 11.1Tax on discontinued exceptionalitems (2.1)-------------------------------------------------------------------------------------------------------------------Net exceptional items indiscontinued operations 9.0------------------------------------------------------------------------------------------------------------------- Continuing and discontinued operations:Total exceptional items before tax 46.5Tax on exceptional items (12.2)Exceptional tax credit (23.9)-------------------------------------------------------------------------------------------------------------------Total exceptional items after tax 10.4------------------------------------------------------------------------------------------------------------------- (a) 2007 restructurings In June 2007, the Group announced that it was restructuring the Supply business,decreasing the scale and complexity of Supply's manufacturing, warehousing, andtransport operations. The IT restructuring involves relocating and restructuringthe IT department, in response to the new business structure of the continuinggroup. The costs of restructuring comprised the followings items: £mSupply restructuring: - site closure/relocation costs 6.7 - provision for future rent payable on vacated sites 10.1 - redundancies and other staff costs 10.4 - asset write offs/impairments 7.4 - other admin 0.2 - release of exceptional stock provision made in 2006 (1.5)-------------------------------------------------------------------------------- 33.3IT restructuring: - redundancies and other staff costs 1.2 - asset write offs 1.6 - systems separation 0.4--------------------------------------------------------------------------------Total restructuring costs before tax 36.5Tax credit on restructuring costs (10.1)--------------------------------------------------------------------------------Total restructuring costs after tax 26.4-------------------------------------------------------------------------------- (b) Exceptional tax credit This is explained in note 5. (c) Discontinued operations A change to the law regarding business rates on vacant properties has beensubstantially enacted during the period. Prior to the change, there were nobusiness rates to pay for the first three months that a property was empty, andthen there was a business rates exemption of 50% for retail properties and 100%for warehouses. Following the change, there is still an exemption for the firstthree months, but after that time companies now have to pay business rates at100% for all properties. The amount provided in the period related primarily to business rates onproperties which were part of the Group's former MFI Retail operations, whichwere discontinued in 2006. On the disposal of the MFI Retail operations, thecontinuing Group remained the ultimate guarantor for these properties and madesuch provision for rent payable in empty periods as was considered necessary atthe time. That provision was included in the £31.7m item "Exceptional provisionson disposal of MFI Retail Limited" included in the 2006 accounts. Of the total£7.1m provided in the period, £5.6m relates to business rates, while the balancerelates to other related property expenses. Discontinued exceptional items alsoinclude a £4m charge in relation to professional fees. There is an associatedtax credit of £2.1m in respect of discontinued exceptional items. 4 Tax UK Corporation tax is calculated at 30% (2006: 30%) of the estimated assessableprofit for the period. The effective rate of tax for pre-exceptional continuingoperations of 32.0% reflects the high level of disallowable depreciation onassets not qualifying for capital allowances, offset by a £1.8m deferred taxcredit reflecting the change in the rate of corporation tax from 30% to 28%. Theeffective rate of tax would have been 34.2% without this deferred taxadjustment. It is expected that the Group's effective rate of tax for continuing operationswill be around 32% for 2008. As the financial condition of the Group has improved significantly over theperiod, the Group has recognised £23.9m of deferred tax assets in certain of itssubsidiaries. The relevant subsidiaries were loss making in 2006 and thereforeno deferred tax asset was booked on the balance sheet. Given the size andone-off nature, this deferred tax credit has been treated as an exceptionalitem. 5 Earnings per share -------------------------------------------------------------------------------------------------- 52 weeks to 29 December 2007 53 weeks to 30 December 2006 Weighted Weighted average average number Earnings number Earnings Earnings of shares per share Earnings of shares per share £m m P £m m P--------------------------------------------------------------------------------------------------From continuing operationsBasic earnings per share 52.9 598.6 8.8 6.1 594.4 1.0Effect of dilutive shareoptions - 13.8 (0.2) - 7.2 ---------------------------------------------------------------------------------------------------Diluted earnings pershare 52.9 612.4 8.6 6.1 601.6 1.0--------------------------------------------------------------------------------------------------From discontinued operationsBasic earnings per share (9.0) 598.6 (1.5) (176.8) 594.4 (29.7)Effect of dilutive shareoptions - 13.8 - - 7.2 0.3--------------------------------------------------------------------------------------------------Diluted earnings pershare (9.0) 612.4 (1.5) (176.8) 601.6 (29.4)--------------------------------------------------------------------------------------------------From continuing and discontinued operationsBasic earnings per share 43.9 598.6 7.3 (170.7) 594.4 (28.7)Effect of dilutive shareoptions - 13.8 (0.2) - 7.2 0.3--------------------------------------------------------------------------------------------------Diluted earnings pershare 43.9 612.4 7.2 (170.7) 601.6 (28.4)--------------------------------------------------------------------------------------------------From continuing operations excluding exceptional itemsBasic earnings per share 54.3 598.6 9.1 36.3 594.4 6.1Effect of dilutive shareoptions - 13.8 (0.2) - 7.2 (0.1)--------------------------------------------------------------------------------------------------Diluted earnings pershare 54.3 612.4 8.9 36.3 601.6 6.0--------------------------------------------------------------------------------------------------Basic earnings per share 54.3 598.6 9.1 (3.4) 594.4 (0.6)Effect of dilutive shareoptions - 13.8 (0.2) - 7.2 ---------------------------------------------------------------------------------------------------Diluted earnings pershare 54.3 612.4 8.9 (3.4) 601.6 (0.6)-------------------------------------------------------------------------------------------------- 6 Dividends No distributions to equity holders were made in 2006 and 2007. The Board isrecommending a final dividend for 2007 of 0.5p per share, to be paid on 13 June2008. 7 Provisions -------------------------------------------------------------------------------- Property Other Total provision provisions £m £m £m--------------------------------------------------------------------------------At 25 December 2005 1.2 - 1.2Additional provision in the period 18.6 - 18.6--------------------------------------------------------------------------------At 30 December 2006 19.8 - 19.8Additional provision in the period 22.0 1.0 23.0Provision released in the period (0.3) - (0.3)Utilisation of provision inthe period (3.1) - (3.1)--------------------------------------------------------------------------------At 29 December 2007 38.4 1.0 39.4-------------------------------------------------------------------------------- The property provision mainly covers onerous leases. For any such leases, theGroup provides for any shortfall between rent payable and rent receivable on anynon-trading leased properties. The provision is based on the period until theend of the lease, or until the Group can cover the shortfall by subletting,assigning or surrendering the lease. None of the provisions are short term. Theproperty provision also includes amounts for any related shortfalls in businessrates on these properties, and for dilapidations. Other provisions relate to amounts due in respect of a contractual termination. 8 Reconciliation of movement in reserves ---------------------------------------------------------------------------------------------------- Called up Share premium ESOP reserve Other reserves Retained Total share capital account earnings £m £m £m £m £m £m----------------------------------------------------------------------------------------------------At 24 December 2005 62.7 81.3 (48.6) 28.1 (82.3) 41.2First time adoption of IAS 32 and 39 - - - - (0.9) (0.9)----------------------------------------------------------------------------------------------------Opening equity at 24 December2005, restated 62.7 81.3 (48.6) 28.1 (83.2) 40.3Net actuarial gain on definedbenefit scheme - - - - 44.9 44.9Foreign exchange - - - - (0.3) (0.3)Accumulated loss for the period - - - - (170.7) (170.7)Issue of new shares 0.5 2.4 - - - 2.9Net movement in ESOP - - 5.4 - - 5.4----------------------------------------------------------------------------------------------------As at 30 December 2006 63.2 83.7 (43.2) 28.1 (209.3) (77.5)Net actuarial gain on definedbenefit scheme - - - - 61.1 61.1Effect of change in tax rate, takenthrough reserves - - - - (3.6) (3.6)Foreign exchange - - - - 1.1 1.1Accumulated profit for the period - - - - 43.9 43.9Issue of new shares 0.2 1.3 - - - 1.5Net movement in ESOP - - 10.6 - - 10.6----------------------------------------------------------------------------------------------------At 29 December 2007 63.4 85.0 (32.6) 28.1 (106.8) 37.1---------------------------------------------------------------------------------------------------- The ESOP Reserve includes shares in Galiform plc with a market value on thebalance sheet date of £33.9m (2006: £54.9m), which have been purchased in theopen market and which are held by the Group's Employee Share Trusts in order tosatisfy share options and awards made under the Group's various share-basedpayment schemes. The Other Reserve was created in the year to 30 April 1994, following a Groupreconstruction. It is distributable. 9 Notes to the cash flow statement (a) Net cash flows from operating activities ---------------------------------------------------------------------------------- 52 weeks to 53 weeks to 29 December 30 December 2007 2006 £m £m---------------------------------------------------------------------------------- Group operating profit/(loss) before tax and interestContinuing operations 52.7 33.5Discontinued operations (11.1) (179.6)---------------------------------------------------------------------------------- 41.6 (146.1)Adjustments for:Depreciation and amortisation 17.4 40.9Share-based payments charge 5.7 3.8Share of joint venture profits (0.9) (1.0)Loss/(profit) on disposal of property,plant and equipment and intangibleassets (1.1) 14.5Other exceptional items (before tax) 47.6 152.5----------------------------------------------------------------------------------Operating cash flows before movements inworking capital 110.3 64.6 Movements in working capital and exceptional itemsDecrease/(increase) in stock 25.1 (18.6)Increase in trade and other receivables (19.9) (59.6)(Decrease)/increase in trade and otherpayables (60.0) 115.4Difference between pensions operatingcharge and cash paid (18.2) (10.7)HMRC refund re structural guarantee - 21.8Net cash flow - exceptional items (11.9) (44.5)---------------------------------------------------------------------------------- (84.9) 3.8----------------------------------------------------------------------------------Cash generated from operations 25.4 68.4Tax reclaimed 0.3 1.6----------------------------------------------------------------------------------Net cash flows from operating activities 25.7 70.0---------------------------------------------------------------------------------- Net cash flow from operating activities comprises:Continuing operations 25.7 154.5Discontinued operations - (84.5)---------------------------------------------------------------------------------- 25.7 70.0---------------------------------------------------------------------------------- (b) Reconciliation of movement in net debt -------------------------------------------------------------------------------- 52 weeks to 53 weeks to 29 December 30 December 2007 2006 £m £m--------------------------------------------------------------------------------Net debt at start of period (4.1) (55.5)Net decrease in cash and cashequivalents (19.6) (35.9)Net decrease in current assetinvestments (0.7) (2.4)Decrease in bank borrowings 24.3 89.6Increase in finance leases (3.2) -Currency translation differences - 0.1--------------------------------------------------------------------------------Net debt at end of period (3.3) (4.1)-------------------------------------------------------------------------------- Represented by:Cash and cash equivalents 33.6 53.2Investments 2.4 3.1Bank loans (36.1) (60.4)Finance leases (3.2) --------------------------------------------------------------------------------- (3.3) (4.1)-------------------------------------------------------------------------------- (c) Analysis of net debt -------------------------------------------------------------------------------- Cash and cash Current asset Bank Finance Net debt equivalents investment loans Leases £m £m £m £m £m--------------------------------------------------------------------------------At 30 December 2006 53.2 3.1 (60.4) - (4.1)New finance leases - - - (3.2) (3.2)Cash flow (19.6) (0.7) 24.3 - 4.0--------------------------------------------------------------------------------At 29 December 2007 33.6 2.4 (36.1) (3.2) (3.3)-------------------------------------------------------------------------------- 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 guarantor on leases in relation to 56 properties whichwere held by MFI Properties Limited ("MFI Properties") and occupied by the MFIUK Retail operations ("Retail") with "rentals" being paid by Retail to MFIProperties. By 29 December 2007, this number had reduced to 50 properties whichMFI Properties subleases on leases from Galiform Corporate Services Limited andRetail occupies. The Group's guarantees are triggered if MFI PropertiesLimited defaults on its obligations under the relevant leases for examplebecause it suffers financial distress. However, under the terms of the sale ofRetail to MEP, MEP have given the Group an indemnity for any costs incurred bythe Group in relation to any non-payment by MFI Properties. The current annualnet rentals payable by the Group in respect of these remaining properties total£16.2m, with associated business rates of £7.1m. Remaining lease terms rangebetween 9 months and 17.9 years from 29 December 2007, with the average leaseterm being 8.75 years from 29 December 2007. The Group is not aware that the purchaser or its subsidiaries is in financialdistress. There is uncertainty whether the purchaser or its subsidiaries willever suffer financial distress and thereby trigger the guarantee, and as to theactual net liability if the Group ever did have to meet the lease obligations,given that the Group would seek to mitigate any liabilities by surrendering orassigning the leases, or by subletting them to third parties. Because of the nature of the uncertainties, as described above, the Group isunable to give an estimate of the financial effect of this contingent liability. The Group is also exposed to potential costs in respect of certain warrantiesand indemnities given by Galiform plc ("Galiform") in favour of MEP in the saleand purchase agreement ("the SPA") relating to the sale of Retail. One of thewarranties given by Galiform relates to the net value of some of the assets andliabilities of MFI on the effective date of the sale (5 August 2006). Over thecourse of 2007, MEP has made a number of notifications to Galiform allegingbreach of this warranty. Each notification has been thoroughly investigated byexternal forensic accountants engaged by the Group. The Group has strongly rejected MEP's allegations and MEP recently began legalproceedings against Galiform formally claiming breach of the warranty. Havingtaken extensive advice from external lawyers and forensic accountants, the Boardof Galiform considers that the majority of MEP's total claim is without merit,and MEP has chosen, incorrectly, to ignore a substantial number of offsettingitems. To date, MEP's total gross claim amounts to approximately £57m. However, inlight of the advice it has received, the Board is confident of the strength ofits case and is firmly of the view that only a small fraction of this amount (ifany) will ultimately be payable. The Group has made such provision as isconsidered necessary for the claim. Because of the uncertainties as to how thismatter will progress, the Group is currently unable to give any details as tothe expected timing of any resulting payments to MEP, if any. Under the SPA, MEP may make claims against Galiform for breach of non-taxwarranties in the SPA until 18 October 2008 (and for breach of tax warranties orany claim under the tax covenant until the sixth anniversary of the end of theaccounting period of Retail in which completion of the sale ofRetail occurred). The aggregate liability of Galiform in respect of thewarranties that Galiform has given in the SPA and in respect of the tax covenantis capped at £49.6 million (other than in the case of fraud or in the case anyclaims under the warranties relating to title, capacity and authority or claimsfor secondary tax liabilities, for which, in each case, Galiform's liability isuncapped). In addition, under the SPA, Galiform agreed to indemnify MEP inrespect of certain potential liabilities in relation to pensions, employeetransfers, tax, property, and part of the pre-sale reorganisation relating toRetail. These indemnities are unlimited. Under IAS 37: Provisions, Contingent Liabilities, and Contingent Assets, thereis an obligation to disclose information about the amount of any provisionmade. However, IAS 37 allows a company to omit this disclosure in cases wheredisclosure would be expected to seriously prejudice the position of the companyin a dispute with other parties on the subject matter of the provision orcontingent liability. The Group considers that the provision made by the Groupin respect of the claim brought by MEP for breach of the warranty referred toabove falls within this exception, and therefore we are restricting ourdisclosure accordingly. Other guarantees The Group has guaranteed a US$ 10.0m (2006: US$ 10.0m) letter of credit facilityfrom Standard Chartered Bank in favour of Howden Kitchens (Asia) Limited'ssuppliers. This contingency would only trigger in the event that MFI AsiaLimited fails to honour its obligations under the terms of the facility. Members of the Group have assigned UK property leases in the normal course ofbusiness. Should the assignees fail to fulfil any obligations in respect ofthese leases, members of the Group will be liable for those defaults. The numberof claims arising to date has been small and the cost, which is charged toincome as it arises, has not been material. Appendix 1 FINANCIAL CALENDAR 2008 Interim Management Statement 1 May 2008 AGM 16 May 2008 Record date for proposed 2007 final divided 30 May 2008 Payment of proposed 2007 final dividend 13 June 2008 2008 Half Yearly Report 23 July 2008 Interim Management Statement 13 November 2008 End of financial year 27 December 2008 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Howden Joinery