6th Apr 2005 12:30
Signet Group PLC06 April 2005 Embargoed until 12.30 p.m. (BST) 6 April 2005Signet Group plc (LSE: SIG, NYSE: SIG)Preliminary results for year ended 29 January 2005 Signet Reports Further Advance Proposed Final Dividend Up 21.5% Reported At Constant Basis Exchange Rates(1) • Group profit before tax: £210.3m up 5% up 12% • Group sales: £1,614.4m up 1% up 8% • Group like for like sales up 5% • Earnings per share: 8.2p up 9% up 16% • Total dividend per share: 3.0p up 20% (1) See note 10 for reconciliation. Operational highlights • US: - Increase in operating margin to 13.4% - Increase in market share to 7.2% of speciality sector - Kay Jewelers becomes leading speciality retail jewellery brand by sales • UK: - Operating margin broadly maintained at 15.2% - Diamonds now 28% of product mix - 142 stores trading in new format Terry Burman, Group Chief Executive, commented: "The 12% increase in profitbefore tax at constant exchange rates further extends the Group's growth recordand reflects the consistent success of our strategies on both sides of theAtlantic. Reported profit before tax increased by 5% despite being adverselyaffected by the weaker US dollar. The US business again out-performed its main competition and gained furthermarket share with like for like sales up by 5.9%. The UK division saw like forlike sales up by 3.0%, a good performance in an increasingly difficult marketplace. In the year to date, Group like for like sales growth has been in low singledigits after taking account of the change in the timing of Easter. This reflectsa US like for like increase a little ahead of the fourth quarter last year,partly offset by negative mid single digit like for like sales in the UKfollowing a marked deterioration in the general trading environment. Bothbusinesses were up against particularly strong prior year comparatives." Enquiries: Terry Burman, Group Chief Executive ) +44 (0) 20 7399 9520Walker Boyd, Group Finance Director )Mike Smith, Brunswick ) +44 (0) 20 7404 5959Pamela Small, Brunswick ) Signet operated 1,758 speciality retail jewellery stores at 29 January 2005;these included 1,156 stores in the US, where the Group trades as "Kay Jewelers","Jared The Galleria Of Jewelry", and under a number of regional names. At thatdate Signet operated 602 stores in the UK, where the Group trades as "H.Samuel","Ernest Jones", and "Leslie Davis". Chairman's Statement Group ResultsIn the year to 29 January 2005 the Group further extended its growth record. Ona reported basis profit before tax rose by 5.3% to £210.3 million (2003/04:£199.8 million restated, see note 10) reflecting an underlying increase of 12.1%at constant exchange rates. Like for like sales advanced by 5.0%. Total salesrose by 7.8% at constant exchange rates: reported sales were broadly unchangedat £1,614.4 million (2003/04: £1,604.9 million restated). The tax rate fell to32.9% from 35.1%. Earnings per share were 8.2p (2003/04: 7.5p restated), up by9.3% on a reported basis and 15.5% at constant exchange rates. These results reflect the continuing successful implementation of the Group'sstrategies on both sides of the Atlantic. However the full extent of the Group'sprogress has not been reflected in the reported results due to further weakeningof the average US dollar exchange rate from $1.68/£1 to $1.86/£1. This had asignificant adverse impact on the translation of the US division's sales andoperating profit into sterling, thereby affecting Group profit before tax bysome £12 million. The results also included a restructuring charge in the UK of£1.7 million. The US division had a very strong start to 2004/05 with an excellent performanceduring the Valentine's Day period. Although the retail environment became lesspredictable as the year progressed, the business had a strong fourth quarterwith like for like sales up by 4.7%. For the year as a whole the division againout-performed its main competition and gained further market share. 2004 saw theGroup's nationwide Kay chain become the largest speciality retail jewellerybrand by sales in the US. The UK division also had a particularly strong first quarter but faced asoftening trend in the trading environment during the rest of the year. Annuallike for like sales increased by 3.0%; a good performance in an increasinglydifficult market place. The Christmas period proved to be particularlychallenging and both H.Samuel and Ernest Jones did well to out-perform thegeneral retail market. The Group continued to utilise its cash flow and strong balance sheet to investin the growth of the business. £159.1 million was invested in fixed and workingcapital during the year. There was an acceleration in new store space growth inthe US and a major store refurbishment programme in the UK. Gearing (net debt toshareholders' funds) at 29 January 2005 was 11.3% (31 January 2004: 11.8%restated). Accounting Standards DevelopmentsA period of significant and rapid change in accounting is currently taking placewith UK Generally Accepted Accounting Principles ('GAAP') being replaced byInternational Financial Reporting Standards ('IFRS'), and both converging withUS GAAP. The process this year has resulted in a restatement relating to therevenue recognition of extended service agreements in the US and the replacementin 2005/06 of UK GAAP by IFRS. Both are explained in more detail in thefinancial review. DividendThe Board is pleased to recommend a 21.5% increase in the final dividend to2.625p per share (2003/04: 2.16p), the total for the year being 3.0p per share(2003/04: 2.501p). The dividend cover is 2.7 times (2003/04: 3.0 times). TheBoard will continue to review regularly its distribution policy taking intoaccount earnings, cash flow, gearing and the needs of the business. See note 5regarding dividends to US holders of ordinary shares and ADSs. Current TradingIn the year to date Group like for like sales growth has been in low singledigits after taking account of the change in the timing of Easter. This reflectsa US like for like increase a little ahead of the fourth quarter last yearpartly offset by negative mid single digit like for like sales in the UKfollowing a marked deterioration in the general trading environment. Bothbusinesses were up against particularly strong prior year comparatives. Chief Executive's Review GroupGroup operating profit rose to £218.9 million from £210.2 million (restated), anincrease of 11.3% at constant exchange rates or 4.1% on a reported basis. Theoperating margin increased to 13.6% (2003/04: 13.1% restated), and the return oncapital employed ("ROCE") was 26.5% (2003/04: 25.9% restated). The Group's medium term objectives are to set leading performance standards inits sector of the jewellery market on both sides of the Atlantic, to increasenew store space in the US and store productivity in the UK, and to be broadlycash flow neutral after funding the needs of the business and dividend payments. US DivisionIn 2004/05 the business continued to build on its competitive strengths. Itagain out-performed its main competition and gained further market share.Operating profit rose by 17.1% at constant exchange rates and by 5.7% on areported basis to £147.3 million (2003/04: £139.3 million restated). The fiveyear annual compound growth was 12.2% at constant exchange rates. Like for like sales rose by 5.9% and total dollar sales by 10.3%. The mallstores reported solid growth and Jared, the off-mall destination concept,performed particularly strongly. Over the last five years the US division's likefor like sales have grown at an annual compound rate of 4.5% and total dollarsales by 11.0%. During the same period, the US division's share of thespeciality jewellery market has increased from 5.1% to 7.2%. New store space rose by 8% during 2004/05 further leveraging both centraloverhead costs and marketing expenditure. In the last five years new storeselling space has increased by some 60%, with the number of Kay stores up byover a third to 742. Over the same period the number of Jared stores has morethan tripled to 93. Growth in new store space and further development of the division's competitivestrengths in the critical areas of merchandising, store operations and marketinghave contributed significantly to the out-performance of the business and remainkey elements of future strategy. Given the continuing consolidation in thespeciality jewellery sector, there should be opportunities to gain furthermarket share both organically and, if appropriate, by acquisition. The USdivision is now targeting organic space growth of 7% - 9% in future years(previously 6% - 8%). UK DivisionAgainst the background of an increasingly difficult trading environment UKoperating profit advanced by 2.1% to £78.2 million (2003/04: £76.6 million), thecompound five year annual growth rate being 15.8%. There was a restructuringcharge of £1.7 million reflecting the relocation and consolidation of centraladministration functions to enhance efficiency that should generate future costsavings of about £0.6 million per annum. Like for like sales rose by 3.0%, thecompound annual growth rate during the last five years being 6.3%. The businesscontinues to be strongly cash generative and enjoyed a ROCE of over 40% in 2004/05. The drive to increase diamond sales as a proportion of total sales showedfurther success and remains central to the future strategy of both H.Samuel andErnest Jones. Diamonds now account for 28% of the division's product mixcompared with 22% five years ago. The objective is to leverage both chains'strong market positions by increasing average transaction values which haverisen by 42% in H.Samuel and by 29% in Ernest Jones in the last five years. Central to selling diamonds is the interaction between the customer and thesalesperson. The roll-out of the new store format, which facilitates suchinteraction, was implemented as part of the store refurbishment cycle in 2004/05. The focus on customer service was also evident in the priority given tostaff training. The significant changes taking place in the UK business arebeing supported by increased marketing expenditure. In implementing theseinitiatives the UK business is able to draw on the US division's best practices. US Performance Review (68% of Group sales) Details of the US division's performance are set out below: 2004/05 2003/04(1) Change Like for like change Reported At constant exchange rates(2) £m £m % % %Sales 1,100.0 1,103.9 -0.4 +10.3 +5.9Operating 147.3 139.3 +5.7 +17.1profitOperating 13.4% 12.6%marginROCE 22.4% 21.3%(1) Restated for amendment to FRS 5 by 'Application Note G - RevenueRecognition'.(2) See note 10 for reconciliation. The operating margin improved on last year, reflecting leverage of like for likesales growth partly offset by the adverse impact of immature store space. Grossmargin was maintained at last year's level, as a range of supply chaininitiatives and pricing actions counter-balanced commodity cost increases.Commodity costs continue to rise and further initiatives are being implementedin the current year to help again offset the impact. The bad debt charge wastowards the bottom of the range of the last five years at 2.9% of total sales(2003/04: 2.8%). The proportion of sales through the in-house credit card was50.1% (2003/04: 49.3%). In the jewellery sector superior customer service and product knowledge areimportant competitive advantages readily identified by the consumer, and thedivision now has at least one certified diamontologist in every store. Alsoduring 2004/05 all sales staff were coached using the "Ultimate DiamondPresentation" training course. Procedures for recruitment were strengthened andstaff retention was also improved. The multi-year intitiative to enhance storesystems saw the introduction of improved repair and special order services. In mall stores the upper end of the diamond selection was enhanced and the LeoDiamond range was successfully expanded. The gold category was reinvigorated bythe development of fashion gold merchandise in conjunction with the World GoldCouncil. In Jared sales of loose diamonds, the Leo Diamond range, luxury watchessuch as Rolex, Tag Heuer and Raymond Weil all performed well. Cartier watcheswill be tested in certain Jared stores in 2005/06. Average unit selling pricesin both the mall stores and Jared increased by some 10% reflecting not onlyconsumer movement to higher value merchandise such as the Leo Diamond range, butalso the changes in retail prices implemented during the year. The division'scompetitive advantage obtained by sourcing loose stones for about 55% of diamondmerchandise proved to be particularly beneficial during a period of higher roughdiamond costs. Strong marketing programmes again contributed to the sales growthout-performance. Kay television advertising impressions were increased by 11%over the Christmas period and national radio advertising was successfullyintroduced. Some 90% of Jared stores benefited from television advertisingcompared with around 75% in the prior year. The annual gross marketing spendamounted to 6.6% of sales (2003/04: 6.5%) and dollar marketing expenditure hasdoubled over the last five years. Kay, with turnover of $1,155.5 million, became the number one specialityjewellery brand by sales during 2004/05 having consistently out-performed itsmajor competitors. Over the last five years the number of Kay stores hasincreased by almost 200 to a total of 742 and average sales per store have grownto $1.584 million from $1.355 million. Brand name recognition has risen verysignificantly since the introduction of the "Every kiss begins with Kay"advertising campaign in 2000/01. It is planned to increase Kay's representationin malls by between 20 and 30 new stores in 2005/06. In addition to malllocations, stores under the Kay brand are currently being opened in lifestylecentres and power strip malls. Ten such stores were opened in 2004/05 and asimilar number are planned in 2005/06. In the current year it is anticipatedthat four stores will be trialled in metropolitan areas. 321 mall stores currently trade under strong regional brand names. Sales in theyear were over $450 million, reflecting average sales per store of $1.533million. The regional stores could provide the potential to develop a secondmall brand of sufficient size to justify the cost of national televisionadvertising. This would require about 550 stores which could be achieved in themedium term by a mixture of store openings and acquisitions. In 2005/06 it isplanned that 20 to 30 new stores will be opened under the regional brand names. Jared now has sales of just over $400 million and a portfolio of 93 stores,equivalent in space terms to about 400 mall stores. The Jared concept is theprimary vehicle for US space growth and in 2004/05 a further 14 stores wereopened. The chain is still relatively immature with some 70% of stores not yethaving traded for five full years. Excluding the three prototype stores the 25Jared stores that have reached maturity achieved, in aggregate, the target levelof sales and store contribution (set at the time of investment) in their fifthyear of trading. During 2005/06 it is intended to increase the number of Jaredopenings to 15 - 20 per annum, from the 12 - 15 per annum opened in the last sixyears. The change in store numbers by chain is shown in the following table: Total Kay Regional Jared --------- --------- --------- ---------31 January 2004 1,103 717 307 79Store openings 68 34 20 14Store closures (15) (9) (6) - --------- --------- --------- ---------29 January 2005 1,156 742 321 93 --------- --------- --------- --------- In 2004/05 total fixed and working capital investment in the US business was$228.3 million (2003/04: $138.3 million) and new store space increased by a net8% as planned. Recent investment in the store portfolio is set out below: 2004/05 2003/04 2002/03 2001/02 2000/01 -------- -------- -------- -------- --------Store refurbishments andrelocations 76 56 71 91 99New mall stores 44 47 36 41 40New off-mall Kay stores 10 10 - - -New Jared stores 14 12 12 12 15Store fixed capitalinvestment $53m $42m $38m $51m $60mStore total investment(1) $140m $98m $92m $96m $107m(1) Fixed and working capital investment in new space and refurbishments /relocations. In 2005/06 net new store space growth of 7% - 9% is planned reflecting theincreased rate of Jared store openings, an acceleration in the expansion ofstores under regional brand names, the continued growth of Kay stores and theclosure of some 15 mall stores. Total US fixed capital expenditure is expectedto be some $90 to $100 million in 2005/06 (2004/05: $77.6 million), includingthe refurbishment or relocation of approximately 90 stores. Total storeinvestment, including working capital, is planned to be some $155 million in2005/06. UK Performance Review (32% of Group sales) Details of the UK division's performance are set out below: 2004/05 2003/04 Change Like for like change £m £m % %Sales: H.Samuel 286.5 285.8 -0.1 +1.9 Ernest Jones 223.4 209.4 +6.7 +4.5 Other 5.5 5.8 ----------- -----------Total 514.4 501.0 +2.7 +3.0 ----------- -----------Operating profit 78.2(1) 76.6 +2.1Operating margin 15.2%(1) 15.3%ROCE 44.7% 47.1%(1)After charging a restructuring expense of £1.7 million. The division's gross margin benefited from the effect of the lower dollarexchange rate on dollar denominated commodity costs. The operating margin at15.2% was little changed after absorbing a restructuring charge of £1.7 million.Like for like sales were up by 1.9% in H.Samuel, while total sales were similarto last year due to nine net store closures and a significant increase in thenumber of temporary closures for refurbishment. H.Samuel's sales per storeincreased to £0.723 million (2003/04: £0.707 million). Ernest Jones had anotherstrong performance with like for like sales up 4.5%, total sales increasing by6.7% and sales per store reaching £1.15 million (2003/04: £1.101 million). Diamond jewellery assortments were enhanced during the year and continued toperform strongly, accounting for 20% of sales in H.Samuel and 38% in ErnestJones. The Leo Diamond range was expanded in Ernest Jones and the ForeverDiamond selection is now in all H.Samuel stores. White metal jewellery alsoproved popular. In H.Samuel the fashion watch range was increased whilst thegift and collectibles selection continued to be rationalised. The averageselling price in H.Samuel was £37 (2003/04: £35) and in Ernest Jones £141 (2003/04: £139). The focus on diamonds requires a higher level of customer service and greaterproduct knowledge by the store staff. New training practices continued to beenhanced in 2004/05 involving a weekly programme of centrally prepared material,regular feedback from supervisors and emphasis on measurable outcomes.Particular benefit from improved staff training was gained in the diamondcategory. During the year a new incentive scheme, which drew on the Group's USexperience, was tested and will be expanded further in 2005/06. Catalogues remain the main marketing tool, with design and distribution beingstrengthened during the period. The television advertising test was extendedduring Christmas 2004 with H.Samuel national coverage increasing to about 65%from around 40% in the prior year. Ernest Jones' coverage was doubled to some60%. It is planned to continue the trial in 2005/06. Ernest Jones successfullylaunched a customer relationship marketing programme during 2004/05. Over thelast five years marketing expenditure has increased at an annual compound rateof 20.0% and now represents 3.0% of sales in 2004/05 (2003/04: 2.5%). In 2004/05 total fixed and working capital investment in the UK business was£36.3 million (2003/04: £27.5 million), a significant increase reflecting theroll-out of the new store format. At the year end, 142 stores, mostly H.Samuel,traded in the new format, accounting for about 30% of the UK division's salesover the Christmas period. There were seven Ernest Jones and two H.Samuel newstore openings. 11 H.Samuel stores were closed. At the year end there were 602stores (398 H.Samuel and 204 Ernest Jones). Recent investment in the store portfolio is set out below: 2004/05 2003/04 2002/03 2001/02 2000/01 ------- ------- -------- -------- --------Store refurbishments andrelocations 81 32 42 93 24New H.Samuel stores 2 - 4 10 9New Ernest Jones stores 7 5 8 9 3Store fixed capitalinvestment £23m £13m £14m £15m £6mA similar pattern of store investment is planned for 2005/06 with total capitalexpenditure expected to be some £30 to £35 million in 2005/06 (2004/05: £28.8million). This reflects the continued roll-out of the new store format withabout 90 stores planned to be refurbished or relocated during 2005/06, againpredominantly H.Samuel. Group Financial Review Operating Margin and ROCEOperating margin (operating profit to sales ratio) was 13.6% (2003/04: 13.1%restated) and ROCE was 26.5% (2003/04: 25.9% restated). Capital employed isbased on the average of the monthly balance sheets and at 29 January 2005included US in-house credit card debtors amounting to £319.0 million (31 January2004: £292.9 million). Group Costs Group central costs amounted to £6.6 million (2003/04: £5.7 million), theincrease reflecting costs associated with the new corporate governance standardsin both the UK and the US as well as a net property provision of £0.4 million.In 2005/06 a further increase in Group costs is anticipated. Net Interest PayableNet interest payable and similar charges amounted to £8.6 million (2003/04:£10.4 million), the reduction being primarily due to exchange translation and anincrease in the net interest credit on the UK defined benefit pension scheme. TaxationThe charge of £69.1 million (2003/04: £70.2 million restated) represents aneffective tax rate of 32.9% (2003/04: 35.1%). It is anticipated that theeffective tax rate will be approximately 34.0% in 2005/06. Profit for the Financial PeriodProfit for the year increased by 9.0% to £141.2 million (2003/04: £129.6 millionrestated); at constant exchange rates the increase was 16.0%. Liquidity and Capital ResourcesCash generated from operating activities amounted to £172.6 million (2003/04:£203.8 million), reflecting an increase in working capital investment, primarilyassociated with the new store expansion. It is anticipated that in 2005/06 therewill be a further rise in working capital investment due to planned storeopenings. Net financing costs of £9.8 million (2003/04: £11.0 million) and taxof £56.5 million (2003/04: £69.0 million) were paid. Cash flow before investingactivities was £106.3 million (2003/04: £123.8 million). Group capital expenditure was £70.5 million (2003/04: £50.9 million, £47.7million at constant exchange rates). The level of capital expenditure was some1.7 times (2003/04: 1.3 times) the depreciation charge of £41.3 million (2003/04: £39.3 million). Capital expenditure in 2005/06 is expected to be £80 - £90million, most of which will be store related. Dividends of £43.8 million (2003/04: £36.7 million) were paid in the year. Net DebtNet debt at 29 January 2005 was £83.5 million (31 January 2004: £79.9 million,£73.9 million restated at constant exchange rates). Group gearing at the yearend was 11.3% (31 January 2004: 11.8% restated). Excluding the facility securedon the receivables, net cash was £49.3 million (31 January 2004: £58.0 million). Prior Year Adjustment - Extended Service AgreementsFollowing an amendment to FRS 5 "Reporting the substance of transactions" in theform of "Application Note G - Revenue Recognition", the Group, after discussionswith its auditors, changed its accounting policy to spread the revenue arisingfrom extended service agreements in the US over the anticipated period ofclaims. Previously the revenue from such agreements was recognised at the dateof sale with provision being made for the estimated cost of future claimsarising. As a consequence of this change in policy, previously reported 2003/04results were restated at the time of the interim results announcement inSeptember 2004 and reflected a reduction in profit before tax of £7.2 million,but with no impact on cash flows. In view of the continuing trend towards conforming interpretation of UK and IASGAAP methodologies to those of US GAAP, the Group has now decided to furtherupdate its accounting policy in respect of US extended service agreements toconform with that of US GAAP. Consequently it reassessed the level ofincremental costs set against initial revenues and will now recognise revenuesfrom such agreements in proportion to anticipated claims arising. Therefore theprior year adjustment to 2003/04 now amounts to a restatement in profit beforetax of £12.1 million to £199.8 million. The effect on reserves brought forwardat 31 January 2004 is a reduction of £52.7 million net of deferred tax, withshareholders' funds at that date restated to £674.9 million. Following the further update in accounting policy, the reduction in the profitbefore tax for the year 2004/05 is £4.0 million higher than the estimate of £5.8million indicated at the time of the interim results in September 2004. There isno impact on like for like sales figures or cash flows. International Financial Reporting Standards ("IFRS")Signet currently prepares its primary financial statements under UK GenerallyAccepted Accounting Principles ("UK GAAP"). For financial years commencing on orafter 1 January 2005 the Group is required to report in accordance withInternational Accounting Standards ("IAS") and IFRS as adopted by the EuropeanUnion. Therefore Signet will in future prepare its results under IFRS ,commencing with the 13 weeks to 30 April 2005. This announcement will containcomparative information for the year ended 29 January 2005 prepared under IFRS.IFRS may continue to be revised and be subject to new interpretations. Based oncurrent expectations of the standards an overview of the changes from UK GAAP toIFRS for the Signet accounts for the year ended 29 January 2005 is set outbelow. Overview of impact in 2004/05 UK GAAP IFRS £m £mSales 1,614.4 1,606.1Operating profit 218.9 215.5Profit on ordinary activities before tax 210.3 203.9Profit for the financial period 141.2 134.8Earnings per share 8.2p 7.8pNet assets 739.1 769.2 The most significant elements contributing to the change in financialinformation are: • the inclusion of a charge for share-based payments,• the cessation of goodwill amortisation,• the timing of dividend recognition,• the disclosures relating to taxation,• the treatment of leases, and• revenue recognition. These changes have no impact on the Group's historical or future net cash flow,the timing of cash received or the timing of payments. Transitional ArrangementsThe rules for the first time adoption of IFRS are set out in IFRS 1 "First-timeAdoption of International Reporting Standards". In general, a company isrequired to determine its IFRS accounting policies and apply theseretrospectively to determine its opening balance sheet under IFRS. A number ofexceptions from retrospective application are allowed to assist companies asthey move to reporting under IFRS. Where Signet has taken advantage of theexemptions they are noted below. Changes in Accounting PoliciesIFRS 2 Share-based PaymentsIn accordance with IFRS 2, Signet has recognised a charge to income in respectof the fair value of outstanding employee share options. The fair value has beencalculated using the binomial options valuation model and is charged to incomeover the relevant option vesting period. The optional transitional arrangements,which allow companies to apply IFRS 2 fully retrospectively to all optionsgranted but not fully vested at the relevant reporting date, have been used. Theoperating profit impact in 2004/05 is a charge of £3.9 million. IFRS 3 Business CombinationsIFRS 3 requires goodwill to be carried at cost with impairment reviews bothannually and when there are indications that the carrying value may not berecoverable. Under the transitional arrangements Signet will apply IFRS 3prospectively from the transition date. As a result, all prior businesscombination accounting is frozen at the transition date of 31 January 2004, andthe value of goodwill is frozen, subject to exchange rate movements, at £16.8million with amortization previously reported under UK GAAP for 2004/05 of £1.0million not charged for IFRS presentation. IAS 10 Proposed DividendUnder IAS 10 a dividend is not provided for until it is approved. As a resultnet assets are increased by the value of the proposed final dividend which is£45.5 million. IAS 12 Income TaxThe application of IAS 12 requires the separate disclosure of deferred taxassets and liabilities on the Group's balance sheet. Opening balance sheetadjustment will be made to reclassify these assets and liabilities. IAS 17 LeasingIAS 17 requires that where operating leases include clauses in respect ofpredetermined rent increases, those rents are charged to the profit and lossaccount on a straight line basis over the lease term. Furthermore, anyconstruction period or other rental holidays are included in the determinationof the straight-line expense period. Such lease terms are commonly found in theUS and will result in an acceleration of lease charges for accounting purposesfrom the later to the earlier years of the lease term. In addition StandardInterpretations Committee ("SIC") 15 requires inducements to enter into a leaseto be recognised over the lease term rather than over the period to the nextrent review as under UK GAAP. These will result in an additional charge to the profit and loss account of £3.5million and a decrease of £17.9 million in net assets before deferred tax. Therewill be no impact on cash flows. IAS 18 Revenue RecognitionIAS 18 requires that revenue is only recognised when all significant risks ofownership have been transferred to the buyer. There is no impact on profitbefore tax for 2004/05 although net assets are reduced by £6.0 million beforedeferred tax. There are a number of other presentational changes that do not have an impact onthe profit or net assets of the Group. Insurance income and voucher promotionsin the US and only the commission element of warranty sales in the UK, will berecognised in sales. Interest receivable relating to US credit card receivableswill be classified as other operating income. IAS 32 and 39 Financial InstrumentsThe Group has taken the exemption not to restate comparatives for IAS 32'Financial Instruments: Disclosure and Presentation' and IAS 39 'FinancialInstruments: Recognition and Measurement'. As a result, the comparativeinformation in the 2005/06 accounts will be presented on the existing UK GAAPbasis. IAS 32 and IAS 39 will apply from the start of the financial year ending28 January 2006. The Group intends to apply the hedge accounting provisions ofIAS 39 as they relate to forward currency and commodity contracts to the extentpractically and economically appropriate in order to minimise future volatilityarising from its implementation. Reconciliation of UK GAAP sales and profit before tax to IFRS sales and profitbefore tax for the 52 weeks ended 29 January 2005 Sales Profit before tax £m £mAs reported in accordance with UK GAAP 1,614.4 210.3Principal accounting adjustmentsShare-based payments - (3.9)Goodwill amortisation - 1.0Leases - (3.5)Principal presentational adjustmentsUS insurance income 10.4 -Voucher promotions (12.0) -UK warranty sales (6.7) - ---------- ------------Proposed reporting in accordance with IFRS 1,606.1 203.9 ---------- ------------ Reconciliation of UK GAAP net assets to IFRS net assets as at 29 January 2005 Net assets £mAs reported in accordance with UK GAAP 739.1Principal adjustmentsShare-based payments -Goodwill amortisation 1.0Leases (17.9)Voucher promotions (6.0)Deferred taxation 7.5Dividend recognition 45.5 ---------------Proposed reporting in accordance with IFRS 769.2 --------------- Summary of Fourth Quarter Results (Unaudited) 13 weeks ended 13 weeks ended Like for like change 29 January 2005 31 January 2004 restated(1) £m £m %Sales UK 215.9 212.0 +1.4US 442.4 442.6 +4.7 --------- ---------- 658.3 654.6 +3.6 --------- ----------Operatingprofit UK - Trading 67.4 64.7 - Group central costs (1.8) (1.4) --------- ---------- 65.6 63.3US(2) 91.1 90.4 --------- ----------Total operatingprofit 156.7 153.7Interest (1.0) (1.1) --------- --------- Profit before tax 155.7 152.6Taxation (50.6) (53.7) --------- ---------Profit for theperiod 105.1 98.9 EPS - basic 6.0p 5.7p - diluted 6.0p 5.7p (1) Restated for the implementation of the amendment to FRS 5, 'ApplicationNote G - Revenue Recognition'.(2) After goodwill amortisation of £0.2 million (2003/04: £0.2 million). The Board of Directors approved this statement of preliminary results on 6 April2005. There will be an analysts' presentation at 2.00 p.m. BST time today (9.00 a.m.EST time). For all interested parties there will be a simultaneous audio webcastplus slides available at www.signetgroupplc.com and a live telephone conferencecall. The details for the conference call are: European dial-in: +44 (0) 20 7784 1018Replay: +44 (0) 20 7984 7578 Pass code: 9614990 US dial-in: +1 718 354 1171Replay: +1 718 354 1112 Pass code: 9614990 A video webcast of the presentation is expected to be available on the Group website (www.signetgroupplc.com) from close of business on 6 April 2005. High resolution photographs are available to the media at www.newscast.co.uk+44 (0) 20 7608 1000. The next announcement is expected to be that for the first quarter 2005/06 salesfigures, which is scheduled for release on 5 May 2005. This release includes statements which are forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. Thesestatements, based upon management's beliefs as well as on assumptions made byand data currently available to management, appear in a number of placesthroughout this release and include statements regarding, among other things,our results of operation, financial condition, liquidity, prospects, growth,strategies and the industry in which the Group operates. Our use of the words"expects," "intends," "anticipates," "estimates," "may," "forecast,""objective," "plan" or "target," and other similar expressions are intended toidentify forward-looking statements. These forward-looking statements are notguarantees of future performance and are subject to a number of risks anduncertainties, including but not limited to general economic conditions, themerchandising, pricing and inventory policies followed by the Group, thereputation of the Group, the level of competition in the jewellery sector, theprice and availability of diamonds, gold and other precious metals, seasonalityof the Group's business and financial market risk. For a discussion of these and other risks and uncertainties which could causeactual results to differ materially, see the "Risk and Other Factors" section ofthe Company's 2003/04 Annual Report on Form 20-F filed with the U.S. Securitiesand Exchange Commission on April 22, 2004 and other filings made by the Companywith the Commission. Actual results may differ materially from those anticipatedin such forward-looking statements even if experience or future changes make itclear that any projected results expressed or implied therein may not berealised. The Company undertakes no obligation to update or revise anyforward-looking statements to reflect subsequent events or circumstances. Consolidated profit and loss accountfor the 52 weeks ended 29 January 2005 52 weeks ended 52 weeks ended Notes 29 January 2005 31 January 2004 as restated(1) £m £m----------------------------- -------- -------- -------Sales 1,614.4 1,604.9 2----------------------------- -------- -------- ------- Operating profit 218.9 210.2 2Net interest payable and similarcharges (8.6) (10.4)----------------------------- -------- -------- -------Profit on ordinary activities beforetaxation 210.3 199.8Tax on profit on ordinary activities (69.1) (70.2) 4----------------------------- -------- -------- -------Profit for the financial period 141.2 129.6Dividends (52.0) (43.2) 5----------------------------- -------- -------- -------Retained profit attributable toshareholders 89.2 86.4----------------------------- -------- -------- -------Earnings per share - basic 8.2p 7.5p 6 - diluted 8.1p 7.5p 6----------------------------- -------- -------- ------- All of the above relates to continuing activities. (1) Restated for the implementation of the amendment to FRS 5, 'Application NoteG - Revenue Recognition' (see note 9). Consolidated balance sheetat 29 January 2005 29 January 2005 31 January 2004 Notes as restated(1) £m £m----------------------------- -------- -------- -------Fixed assets:Intangible assets 15.2 16.8Tangible assets 226.8 202.8----------------------------- -------- -------- ------- 242.0 219.6----------------------------- -------- -------- -------Current assets:Stocks 578.3 541.5Debtors (2) 375.3 365.2Cash at bank and in hand 102.4 128.0----------------------------- -------- -------- ------- 1,056.0 1,034.7Creditors: amounts falling duewithin one year (351.6) (365.6)----------------------------- -------- -------- ------- Net current assets (2) 704.4 669.1----------------------------- -------- -------- -------Total assets less currentliabilities 946.4 888.7Creditors: amounts falling dueafter more than one year (200.2) (208.6)Provisions for liabilities and charges:Other provisions (5.8) (6.4)Pension (liability)/asset (1.3) 1.2----------------------------- -------- -------- -------Total net assets 739.1 674.9 2----------------------------- -------- -------- ------- Capital and reserves - equity:Called up share capital 8.7 8.6Share premium account 68.0 60.7Revaluation reserve 4.3 3.1Special reserves 155.9 142.2Profit and loss account 502.2 460.3----------------------------- -------- -------- -------Shareholders' funds 739.1 674.9 7----------------------------- -------- -------- ------- Consolidated statement of total recognised gains and lossesfor the 52 weeks ended 29 January 2005 52 weeks ended 52 weeks ended 29 January 31 January 2005 2004 as restated(1) £m £m---------------------------------- -------- --------Profit for the financial period 141.2 129.6Translation differences (33.0) (91.0)Actuarial (loss)/gain arising on pensionasset (net of deferred tax) (3.9) 6.4---------------------------------- -------- --------Total recognised gains and losses 104.3 45.0Prior year adjustments (note 9) - amendment to FRS 5 (52.7) -- FRS 17 - (18.1)---------------------------------- -------- --------Total recognised gains and losses 51.6 26.9---------------------------------- -------- -------- (1) Restated for the implementation of the amendment to FRS 5, 'Application NoteG - Revenue Recognition' (see note 9).(2) Debtors and net current assets include amounts recoverable after more thanone year of £4.3 million (2004: £26.9 million). Consolidated cash flow statementfor the 52 weeks ended 29 January 2005 52 weeks ended 52 weeks ended Notes 29 January 31 January 2005 2004 £m £m---------------------------- -------- -------- --------Net cash inflow from operatingactivities 172.6 203.8 8a---------------------------- -------- -------- --------Returns on investments and servicing offinance:Interest received 1.8 0.9Interest paid (11.6) (11.9)---------------------------- -------- -------- --------Net cash outflow from returns oninvestments and servicing of finance (9.8) (11.0)---------------------------- -------- -------- --------Taxation paid (56.5) (69.0)---------------------------- -------- -------- --------Capital expenditure:Purchase of tangible fixed assets (70.5) (50.9)Proceeds from sale of tangible fixedassets 0.2 0.2---------------------------- -------- -------- --------Net cash outflow from capitalexpenditure (70.3) (50.7)---------------------------- -------- -------- --------Equity dividends paid (43.8) (36.7)---------------------------- -------- -------- --------Cash (outflow)/inflow before use ofliquid resources and financing (7.8) 36.4---------------------------- -------- -------- --------Management of liquid resources:Decrease/(increase) in bank deposits 24.5 (42.4)---------------------------- -------- -------- --------Financing:Proceeds from issue of shares 7.3 6.3Purchase of own shares (9.5) -Repayment of bank loans (8.1) (12.1)---------------------------- -------- -------- --------Cash outflow from financing (10.3) (5.8)---------------------------- -------- -------- --------Increase/(decrease) in cash in theperiod 6.4 (11.8)---------------------------- -------- -------- -------- Reconciliation of net cash flow to movement in net debt---------------------------- -------- -------- --------Increase/(decrease) in cash in the period 6.4 (11.8)Cash outflow from decrease in debt 8.1 12.1Cash (inflow)/outflow from (decrease)/increase inliquid resources (24.5) 42.4---------------------------- -------- -------- --------Change in net debt resulting from cash flows (10.0) 42.7Translation difference 6.4 17.5---------------------------- -------- -------- --------Movement in net debt in the period (3.6) 60.2Opening net debt (79.9) (140.1)---------------------------- -------- -------- --------Closing net debt (83.5) (79.9) 8b---------------------------- -------- -------- -------- Notesfor the 52 weeks ended 29 January 2005 1. Basis of preparation This financial information has been prepared in accordance with applicable UKaccounting standards and under the UK historical cost convention as modified bythe revaluation of freehold and long leasehold properties. It is prepared on thebasis of the accounting policies as set out in the accounts for the 52 weeksended 29 January 2005. 2. Segment information 2005 2004 £m £m-------------------------------- -------- -------- Sales by origin and destination(1):UK 514.4 501.0US 1,100.0 1,103.9-------------------------------- -------- -------- 1,614.4 1,604.9-------------------------------- -------- -------- Operating profit(1):UK - Trading 78.2 76.6 - Group central costs(2) (6.6) (5.7)-------------------------------- -------- -------- 71.6 70.9US 147.3 139.3-------------------------------- -------- --------Total 218.9 210.2-------------------------------- -------- -------- 2005 2004 £m £m-------------------------------- -------- -------- Net assets(1):UK 222.9 209.9US 599.7 544.9Net debt (83.5) (79.9)-------------------------------- -------- -------- 739.1 674.9-------------------------------- -------- -------- Notes:The figures for the UK include the United Kingdom, Channel Islands and Republicof Ireland.The Group's results derive from one business segment - the retailing ofjewellery, watches and gifts.(1) 2004 restated for the implementation of the amendment to FRS 5, 'ApplicationNote G - Revenue Recognition' (see note 9).(2) Group central costs for 2005 include a charge of £0.4 million relating to aproperty provision. Notesfor the 52 weeks ended 29 January 2005 3. Foreign currency translation The exchange rates used for translation of US dollar transactions and balancesin these accounts are as follows: 2005 2004-------------------------------- -------- -------- Profit and loss account (average rate) 1.86 1.68Balance sheet (year end rate) 1.89 1.82-------------------------------- -------- -------- The effect of translation on foreign currency borrowings less deposits in theperiod was to decrease the Group's net borrowings by £6.4 million (2004: £17.5million decrease). The net effect of exchange rate movements on foreign currencyinvestments (excluding goodwill) and foreign currency borrowings less depositsin the period was a loss of £19.3 million (2004: £50.5 million loss). Thisamount has been taken to reserves in accordance with SSAP 20. 4. Taxation 2005 2004(1) £m £m--------------------------------- -------- --------Taxes on profit:UK corporation tax payable 19.8 26.2US taxes 25.9 36.2Deferred taxation:UK 0.5 0.5US 22.9 7.3--------------------------------- -------- -------- 69.1 70.2--------------------------------- -------- -------- (1) Restated for the implementation of the amendment to FRS 5, 'Application NoteG - Revenue Recognition' (see note 9). 5. Dividends 2005 2004 £m £m--------------------------------- -------- --------Interim dividend paid of 0.375p per share (2004: 0.341p) 6.5 5.9Final dividend proposed of 2.625p per share (2004: 2.160p) 45.5 37.3--------------------------------- -------- -------- 52.0 43.2--------------------------------- -------- -------- The interim dividend was paid on 5 November 2004. Subject to shareholderapproval, the proposed final dividend is to be paid on 8 July 2005 to thoseshareholders on the register of members on 10 June 2005. Under US tax legislation the rate of US federal income tax on dividends receivedby individual US shareholders from qualified foreign corporations is reduced to15%. Dividends paid by the Group to individual US holders of shares or ADSsshould qualify for this preferential tax treatment. The legislation only appliesto individuals subject to US federal income taxes and therefore the tax positionof UK shareholders is unaffected. Individual US holders are urged to consulttheir tax advisers regarding the application of this US legislation to theirparticular circumstances. Notesfor the 52 weeks ended 29 January 2005 6. Earnings per share 2005 2004(1) £m £m--------------------------------- -------- --------Profit for the financial period 141.2 129.6--------------------------------- -------- -------- Basic weighted average number of shares in issue (million) 1,731.6 1,718.4Dilutive effect of share options (million) 6.0 12.5--------------------------------- -------- --------Diluted weighted average number of shares (million) 1,737.6 1,730.9--------------------------------- -------- --------Earnings per share - basic 8.2p 7.5p - diluted 8.1p 7.5p--------------------------------- -------- -------- (1) Restated for the implementation of the amendment to FRS 5, 'Application NoteG - Revenue Recognition' (see note 9). 7. Consolidated shareholders' funds Ordinary share Share premium Revaluation Special Profit and loss Total capital account reserve reserves account £m £m £m £m £m £m----------------- ------- ------ ------- ------ ------ ------Balance at 31January 2004 8.6 60.7 3.1 142.2 513.0 727.6Prior yearadjustment - - - - (52.7) (52.7)----------------- ------- ------ ------- ------ ------ ------As restated 8.6 60.7 3.1 142.2 460.3 674.9Retained profitattributable toRelated Shares:
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