24th Feb 2005 07:02
MFI Furniture Group PLC24 February 2005 MFI Furniture Group Plc 24 February 2005 Preliminary results for the 52 weeks to 25 December 2004 Financial highlights - Turnover up 2.2% to £1,515m - Howden Joinery up 24.8% to £559m - UK Retail down 9.4% to £825m - France Retail up 4.6% to £119m- Profit before tax, system write downs and disposals of £47.0m- System write down & related costs of £20m (2003 - £nil) and loss on disposal of fixed assets of £2m (2003 - profit of £14.1m)- Profit before tax of £25.0m (2003 - £117.9m)- Profit before exceptional items of £58.9m (2003 - £103.8m*)- Basic earnings per share of 1.8p (2003 - 15.4p)- Basic earnings per share before exceptional items of 6.0p (2003 -12.9p)- Dividends per share up 5.3% to 4.0p (2003 - 3.8p)* excludes profit on disposal of fixed assets of £14.1m Business highlights • Supply chain systems operating adequately during the peak order period of the Winter Sale, although peak delivery period continues over the balance of the first half. • Poor result in UK Retail, with system problems and trading issues resulting in an operating loss of £46.0m, after £14.0m of net exceptional operating costs (2003 - £41.7m profit). • Continued strong performance from Howden Joinery in the UK, with operating profits increasing by 45.8% to £105.0m, including £2.5m of exceptional operating benefits (2003 - £72.0m). • Profit improvement and cost reduction measures previously announced for UK Retail on target. • Orders in Winter Sale to date have been in line with management's expectations. A trading update on orders performance will be provided at the end of the Winter Sale on Thursday 3 March 2005. John Hancock, Chief Executive, said:'We have recorded another strong set of numbers from Howden Joinery. However,2004 was a poor year in UK Retail with performance severely impacted by theissues around the new supply chain systems. We are making progress in addressingthese issues and 2005 will be a year of stabilisation and recovery in UK Retailwith further growth in Howden Joinery.' Contacts:MFI Furniture Group PlcJohn Hancock, Chief Executive 020 8913 5319Shaun O'Callaghan, Interim Chief Financial Officer 020 8913 5350Brunswick Group LimitedSusan Gilchrist / Fiona Laffan / Anna Jones 020 7404 5959 Operational reviewThe results for the year can be summarised as follows: Turnover 2004 2003 Increase *Same store £m £m % increase % Howden Joinery 559.1 448.1 24.8 18.7UK Retail 825.1 910.9 (9.4) (10.6)France Retail 119.4 114.2 4.6 4.5Howden Millwork 7.3 5.1 43.1 N/aOther operations 3.7 3.2 15.6 N/a ------- -------- -------- ----------Total 1,514.6 1,481.5 2.2 (0.4) ------- -------- -------- ----------* Same store sales include refurbished and extended/downsized stores, butexclude new, closed and relocated stores. Profit beforetax 2004 2004 2004 2003 £m £m £m £m Pre- Post- exceptional Exceptional exceptional items items itemsHowden Joinery 102.5 2.5 105.0 72.0UK Retail (32.0) (14.0) (46.0) 41.7France Retail 2.0 (0.4) 1.6 0.3Howden Millwork (8.6) - (8.6) (8.4)Other operations (0.6) - (0.6) -System write down and related costs (20.0) (20.0) -------- -------- ---------- --------Operating profit 63.3 (31.9) 31.4 105.6Joint venturelosses (2.1) - (2.1) (2.1)Net interest (2.3) - (2.3) 0.3 -------- -------- ---------- --------Profit beforetax and (loss)/profit on disposalof fixed assets 58.9 (31.9) 27.0 103.8(Loss)/profiton disposalof fixed assets - (2.0) (2.0) 14.1 -------- -------- ---------- --------Profit before tax 58.9 (33.9) ***25.0 117.9 -------- -------- ---------- -------- ***Profits before system write down and related costs of £20.0m and loss ondisposal of fixed assets of £2.0m are £47.0m. Supply chain systemsThe introduction of the new supply chain system in 2004 was essential to meetthe changing needs of all parts of the business, both in respect of the scaleand scope of the products the Group sells and the continuing development of ourroutes to markets. The old systems, some of which were 20 years old, were notdesigned to accommodate the complex requirements of home delivery in UK Retailor the range of products now sold as part of our "every room in the house"strategy. Similarly, the new system was required to support substantial growthin Howden Joinery and the internationalisation of the Group, both in terms ofcustomers and suppliers. The new system also provides the operational capabilityfor the management of each route to market to focus on the appropriate supplychain strategy for its specific business, through a better alignment of thesupply chain to meet customer needs in each route to market. Our new supply chain systems went live in March 2004. The initial technicalproblems, which we highlighted in July, proved, by September, to be far worsethan expected. This resulted in significant disruption to the home deliveryservice we provided to our retail customers and the associated recovery andcompensation costs substantially reduced our profits. In September 2004, we undertook a thorough root cause analysis of the problemsin the supply chain. This revealed additional technical problems and twocritical underlying business requirements - better data quality and moreaccurate inventory forecasting. Subsequent actions were focused on: • Securing Howden Joinery for its peak autumn trading season. • Improving and stabilising retail customer service. • Improving stock availability. • Increasing the effectiveness of home delivery and fulfilling incomplete orders. • Rectifying and optimising system performance. We have made progress on all of these key areas and the Board is increasinglyconfident that the supply chain systems are stabilising: • Howden Joinery successfully traded through its busiest autumn period with the system coping with substantially higher volumes. • Thus far during 2005, the number of home deliveries with errors has been better than the levels achieved in the corresponding period last year (prior to the introduction of the new systems). However, the peak delivery period will continue through to the end of the first half of 2005. • Availability of stock is considerably improved, particularly within own-manufactured product. • Management are focused on stock planning and data quality - key metrics are in place and showing improvements though deliveries in the next few periods are critical. • We have improved data quality, increased data processing capacity and re-written critical software components - this has resulted in more stability although there is still more work to do in these areas during 2005. Exceptional costsThe Board has reviewed the carrying value of the investment in the new system bylooking at its future discounted cash flow benefits. This has resulted in a£10.3m write down of assets previously capitalised. A further £9.7m of systemcosts have been directly expensed in 2004, making a total exceptional charge of£20.0m for our systems. We have incurred £17.1m in costs for extra deliveries and installation,technical supply chain rectification work and additional call centre support. Inaddition we spent £2.3m on redundancy costs arising from the restructuring ofthe UK Retail business. These costs have been partially offset by a net creditin respect of share scheme amortisation, comprising a release of £9.1m inrespect of previous years' amortisation on share schemes that are no longerexpected to vest and a current year charge of £3.2m in respect of schemes whichare expected to vest. In addition there is a net release of related nationalinsurance of £1.6m. These total a net exceptional operating cost of £11.9m. UK RetailOur first half performance, as identified at the time, suffered from a weakpromotional strategy, as well as a slowdown in new product introduction -particularly in beds and bedrooms - as we completed the rollout of the storerefurbishment programme. This was compounded in the second half by problems withthe new supply chain system which went live in March. The combination of these issues resulted in the division incurring a loss of£46m, after incurring a net £14.0m of exceptional operating costs. Thesecomprise £16.3m for extra deliveries and installation, technical supply chainrectification work and additional call centre support; £2.3m for redundancycosts arising from a restructuring programme; and a credit of £4.6m for anamortisation release against share schemes that are no longer expected to vestas a result of the poor trading performance. This compares to a profit of £41.7min 2003. New product introduction was accelerated in the second half of the year - with afocus on lower priced ranges, particularly around the £500 price level. Sevennew kitchen ranges, nine new ranges of bedrooms, 15 sofas, seven beds and fourbathrooms were introduced. We have closed the gaps in our bed and bedroomranges, and performance is improving. In 2005, the performance of Hygenakitchens will likewise benefit from lower-end product introductions. We also increased our advertising spend in the second half to restore ourtraditional price/value offer with our promotions proposition 'more home foryour money'. We have made commercial and operational management changes toenable us to get closer to the customer and be able to make faster and betterdecision-making. Total gross customer orders (new customer orders) were down 3% on 2003, with netorders down by 7% for the year. The difference between gross orders and netorders reflects a £36m increase in the level of refunds to customers for missedand late deliveries, compared to 2003. This is expected to reduce in 2005 as thesystem issues are resolved. The table below shows for UK Retail: • the opening customer order book; • the net orders received in the period (gross customer orders less the value of customer refunds in the period); • deliveries (when an order is recorded as a sale); and • the closing order book position. Total orders (excluding VAT) First half Second half Cumulative (weeks 52-24) (weeks 25-52) (weeks 52-52) £m £m £m £m £m £m £m £m £m 2003 2004 2003 2004 2003 2004 Opening order book 34 26 90 99 34 26 Net orders 526 490 377 347 903 837 Deliveries (470) (417) (441) (408) (911) (825) Closing order book 90 99 26 38 26 38 The closing order book increased by £12m year on year, as deliveries wereimpacted by the supply chain issues, and this is expected to reverse in 2005. Gross margin in 2004 was adversely affected by the impact of the increased levelof refunds (circa £36m) to customers and by the decision at the end of the firsthalf to sharpen pricing. Gross margins in 2005 will reflect our pricing, productmix, input costs and the effectiveness of our supply chain. Any improvements inthe level of refunds in the first half of 2005 are likely to be offset byproduct mix changes, increases in raw material costs and maintenance of ourvalue pricing proposition. In 2004, we spent some £13m (2003 - £19m) of capital expenditure on storerefurbishments, relocations and new stores. We estimate the profit impact in theyear of the resulting store disruption to be about £9m, compared to £19m in2003. 25 stores were opened in the new format in 2004 - 18 refurbishments andseven new and relocated stores, less one closure - bringing the total to 146 outof a total of 195 out-of-town stores and representing over 80% of out-of-townstore orders. Of these stores 80 have been fully refitted, 23 have received apartial refit and 43 have received the new partial refit. Our investment programme in 2005 will be lower, as we have effectively completedthe refurbishment programme. The remaining unconverted stores will be relocatedover time with ten relocations planned in 2005. We estimate disruption costs in2005 to be lower at £5m and this reduction, compared to the £9m cost in 2004,has been included in our £40m savings plan noted below. We are currently testingthree new smaller store formats of 10,000 square feet. As announced in December 2004, UK Retail is targeting financial improvements in2005 both from the reversal of the effects of the supply chain disruption in2004 and from £40m of specific cost saving measures being implemented. Actionshave been taken in each of the areas detailed in December and progress is inline with management's plans. Actions are also in place to eliminate theexceptional operating costs relating to the supply chain disruption and toreduce the level of refunds paid to customers as a result of poor service. We also anticipate some £47m of cost increases in 2005. These include some £12mrelating to rent and rates increases, £13m more for pensions and an extra £8mcost as part of the supply chain stabilisation and improvement activities wehave discussed above. The balance of £14m relates to working time directive andother logistics costs, regulations regarding electrical appliance recycling,depreciation and other central costs. France RetailIn France, sales of £119.4m were up 4.6% on last year (6.4% in local currency),with same store growth up by 4.5% in local currency. As in the UK, the businesswas adversely impacted by the supply chain systems although it was lesssignificant as we do not operate a home delivery operation in France. Operatingprofits improved to £1.6m (pre-exceptional operating profit of £2.0m) comparedto £0.3m in 2003. We continued with the refurbishment programme of our stores during the year with17 new format stores - 13 refits and four new stores - added to the 68 that wereopen at the beginning of the year, making a total of 85 out of a chain size of139. Although only 60% of the showrooms are in the new format, sales from theseshowrooms accounted for over 70% of our total orders in 2004. Howden JoineryOperating profits were £105.0m, including an exceptional operating benefit of£2.5m, up 45.8% against £72.0m last year. Howden Joinery was less affected bythe supply chain systems in the year as it is a fully-stocked operation and doesnot rely on a just-in-time process to deliver direct to customers' homes. It hasa lower number of stock lines compared to the retail division, with a greaterproportion being manufactured in-house. We were therefore able to take actionover the inventory level to minimise disruption. Howden Joinery in the UK had 320 depots open at the year-end, an increase of 20units in the year. Sales were up 24.8% and same depot sales were 18.7% higher.Net operating margin, at 18.8%, has improved (2003 - 16.1%) with the businessable to sustain a selling price increase introduced in 2003, combined with thebenefit of a maturing depot portfolio and a lower number of new depot openings. As previously announced, the Board sees potential for a chain of up to 480depots in the UK. In 2005 and 2006 we will invest in a faster rate of newopenings, with up to 40 new depots each year. As a consequence of the increasedopening programme, we expect the operating margin to fall slightly in 2005. Weexpected total sales growth in 2005 to moderate to reflect the increasingmaturity of the total estate, a lower number of depots entering their most rapidgrowth phase in 2005 compared to 2004 and the absence of the price increaseimpact seen in 2004. Howden Joinery is continuing to develop and update its kitchen product with ninenew ranges added during the year. The bathroom pilot, where bathrooms weretested during 2004 in six depots, has not been continued. Howden InternationalHowden Millwork losses of £8.6m (2003 - £8.4m loss) in the year were in linewith our expectations. We expect a similar level of losses in 2005. During the year we moved to the next phase of our test to evaluate fullycustomers' requirements by testing both pricing and demand for product made to aUS specification. This will help validate whether the business model can provideacceptable levels of return. There has been an encouraging start to theintroduction of the new US sized ranges which were introduced in the lateautumn, a little later than anticipated. They will continue to be tested duringthe first half of 2005. A two-depot pilot in France commenced in January 2005. Plans are in place toopen a further ten depots and, subject to these openings, we expect to incurlosses of up to £4m in 2005. HM Customs & Excise claimWe continue to contest vigorously HM Customs & Excise's challenge to theCompany's VAT treatment for structural guarantees. The maximum potentialexposure is £60.5m and this has been paid to HM Customs & Excise. We wouldexpect this to be offset by the recovery of £15.3m of insurance premium tax paidon the sale of extended structural guarantees if our claim was not to succeed.In May we changed the insurance product and no longer give a discount on thefurniture if the customer chooses to purchase the revised product. We arecarrying the tax paid of £60.5m on our balance sheet as a debtor without anyprovision and further disclosure is given in note 12 of the accompanying notesto the financial statements. PensionsMFI operates two funded schemes which provide benefits based on the finalpensionable pay of participating employees. The last triennial full actuarialvaluations of these schemes were as at 6 April 2002 and the next such valuationsare due as at 6 April 2005. Interim valuations have been undertaken at eachfinancial year end for the purposes of disclosure under FRS17. We intend to adopt FRS 17 in 2005. Pension costs charged to the profit and lossaccount in 2005 under FRS17 are estimated at £34m, compared to the SSAP 24charge in 2004 of £16m. The charge is broadly split two-thirds to UK Retail andone-third to Howden Joinery. The FRS17 valuation as at 31 December 2004 showed a deficit of £295m (£206m netof deferred tax). This includes additional pension obligations in respect of theequalisation of normal retirement dates of approximately £50m before tax(calculated on an FRS17 basis, after the previous FRS17 valuation as at December2003 had been prepared, and on assumptions used by the company at the time)which were subsequently identified and announced to the market in May 2004. TheBoard continues to take advice as to the actions required to obtain recoveryfrom third parties in relation to these additional obligations. In the context of the triennial valuations, MFI will be discussing with thepension scheme trustees ways of addressing the deficit and establishing thefuture level of contributions. In the meantime the Company and the trustees haveagreed an additional interim funding rate of £20m per annum, payable quarterlyin arrears. As a result, our expectations are that the cash contribution to the scheme in2005 will be in the order of £35m compared to £15m in 2004. The actual level ofcash contributions going forward into 2006 will be determined after the resultsof the April 2005 triennial full valuations are known, which is expected to beduring the second half of 2005. TaxationThe effective tax rate for the Group before exceptional items is 41% for 2004,compared to 30% in 2003. The rate is higher as the Group has a relatively fixedlevel of disallowable expenditure for tax purposes, which represents a higherpercentage of the reduced profit in 2004. We estimate that the effective rate of tax will fall to a rate closer to 36% in2005. DividendsThe Board has proposed a final dividend of 2.0p per share (2003 - 2.0p) to bepaid on 10 June 2005 to shareholders on the register at 27 May 2005. The shareswill be quoted ex-dividend from 25 May 2005. This brings a total dividend forthe year to 4.0p per share (2003 - 3.8p), an increase of 5.3% over the previousyear. CashThe Group had net borrowings of £71.6m (2003 - net borrowings of £1.2m) at theyear-end; this shows a reduction of net cash of £70.4m during the year, but isstruck after lodging a further £14.5m with HM Customs & Excise for the disputedVAT on our structural guarantee product and an additional exceptional cash costof £28.1m relating primarily to the supply chain system. In addition the Groupheld £9.4m (2003 - £11.8m) on short-term deposit, held in escrow for futureinsurance claims. Accounting standardsIn June 2002, the European Union (EU) approved a regulation that will requireall listed EU companies to prepare consolidated statements in accordance withInternational Financial Reporting Standards (IFRS). The regulation applies toall accounting periods beginning on or after 1 January 2005. MFI's accounting period ended on Saturday 25 December 2004 and, as a result, thefirst accounting period for which the Group will prepare accounts under IFRSwill be the financial year 2006. We are prevented by the Companies Act fromadopting these standards in 2005. The Group continues its preparation for IFRS and will give further guidance onthe accounting impact in due course. The key areas likely to affect MFI are asfollows: • Property leases • Share-based payments • Foreign exchange hedging • Intangible assets • Deferred taxation • Dividends • Pensions Current tradingAs explained at the Interim Results in July 2004 we intend to give a currenttrading update every March following the conclusion of the Winter Sale. In 2005this statement will be made on Thursday 3 March; this is earlier than previousyears as a result of the timing of Easter. To date the level of orders taken isin line with management expectations. We are pleased to announce the launch of a partnership with Tesco and are nowaccepting Tesco Clubcard in our stores. Tesco has ten million Clubcard holders.We are the only furniture retailer associated with Tesco Clubcard and we plan touse this partnership to generate new customer orders, increase average ordervalues and increase spend. CONSOLIDATED PROFIT AND LOSS ACCOUNT 52 weeks to 25 December 2004 52 weeks to 27 December Before 2003 exceptional Exceptional items items (note 3) Total Total £m £m £m £m NotesTurnover: Group andshare of joint ventures 2 1,518.5 - 1,518.5 1,485.1 Less: Share of jointventures (3.9) - (3.9) (3.6) -------- --------- -------- -------- Group turnover 1,514.6 - 1,514.6 1,481.5 Cost of sales (762.7) (3.1) (765.8) (727.2) -------- --------- -------- -------- Gross profit 751.9 (3.1) 748.8 754.3 Selling anddistribution costs (622.6) (32.8) (655.4) (581.4)Administrative expenses (66.0) 4.0 (62.0) (67.3) -------- --------- -------- -------- Operating profit 2 63.3 (31.9) 31.4 105.6 Share of operatingloss of joint ventures (2.1) - (2.1) (2.1) -------- --------- -------- -------- Total operatingprofit - Group and share of joint ventures 61.2 (31.9) 29.3 103.5 Net (loss)/profit ondisposal of fixed assets 3 - (2.0) (2.0) 14.1 -------- --------- -------- --------Profit on ordinaryactivities before interest 61.2 (33.9) 27.3 117.6 Interest receivableand similar income 2.0 - 2.0 1.5Interest payable andsimilar charges (4.3) - (4.3) (1.2) -------- --------- -------- -------- Profit on ordinaryactivities before taxation 58.9 (33.9) 25.0 117.9Tax on profit onordinary activities 4 (24.1) 9.6 (14.5) (31.1) -------- --------- -------- -------- Profit for thefinancial period 34.8 (24.3) 10.5 86.8Dividends paid and proposed 5 (23.2) - (23.2) (21.9) -------- --------- -------- -------- Amount transferredto/(from) reserves 7 11.6 (24.3) (12.7) 64.9 ======== ========= ======== ======== Earnings per shareBasic earnings per10p ordinary share 6 1.8p 15.4p ======== ======== Diluted earnings per10p ordinary share 6 1.8p 14.3p ======== ======== Earnings per sharebefore exceptionalitemsBasic earnings per10p ordinary share 6 6.0p 12.9p ======== ======== Diluted earnings per10p ordinary share 6 5.8p 12.0p ======== ======== All results are derived from continuing operations CONSOLIDATED BALANCE SHEET 27 Dec 2003 25 Dec 2004 (restated -see note 1) Notes £m £m FIXED ASSETSIntangible assets 13.7 14.5Tangible assets 381.6 387.0Investments 8.1 9.1 ------ ------Total fixed assets 403.4 410.6 ------ ------ CURRENT ASSETSStocks 238.4 195.7Debtors 217.9 187.9Investments 9.4 11.8Cash at bank and inhand 28.4 48.8 ------ ------ 494.1 444.2 CREDITORSAmounts falling duewithin one year 8 (359.3) (334.9) ------ ------ Net current assets 134.8 109.3 ------ ------ Total assets lesscurrent liabilities 538.2 519.9 CREDITORSAmounts falling dueafter more than oneyear 9 (100.0) (51.5) PROVISIONS FORLIABILITIES AND CHARGES 10 (17.4) (21.2) ------ ------ Net assets 420.8 447.2 ====== ====== CAPITAL AND RESERVESCalled up share capital 7 62.3 62.0Share premium account 7 77.2 65.8Revaluation reserve 7 21.8 22.3ESOP reserve 7 (55.1) (42.2)Other reserves 7 28.1 26.7Profit and loss account 7 286.5 312.6 ------ ------Equity shareholders'funds 420.8 447.2 ====== ====== These financial statements were approved by the Board on 24 February 2005 andwere signed on its behalf by Shaun O'Callaghan, Director. CONSOLIDATED CASH FLOW STATEMENT 52 weeks to 52 weeks to 27 Dec 2003 25 Dec 2004 (restated - see note 1) Notes £m £m Net cash inflow fromoperating activities 11 66.7 93.6 Returns on investmentsand servicing offinance 11 (1.4) 0.3 Taxation (33.7) (22.2) Capital expenditure andfinancial investment 11 (75.7) (70.2) Equity dividends paid (23.2) (19.7) ------ ------ Cash outflow before useof liquid resources andfinancing (67.3) (18.2) Management of liquidresources 2.4 (4.9) Financing 11 44.6 38.0 ------ ------ (Decrease)/increase incash in the period (20.3) 14.9 ====== ====== RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDS 52 weeks to 52 weeks to 27 Dec 2003 25 Dec 2004 (restated - see note 1) Notes £m £m (Decrease)/increase incash in the period (20.3) 14.9 Cash movement on :- bank loans (50.0) (48.7)- cash flow from(decrease)/increase inliquid resources (2.4) 4.9 ------ ------ Change in net debtresulting from cashflows (72.7) (28.9) Foreign currencytranslation differences 11 (0.1) 0.6 ------ ------ Movement in net debt inthe period (72.8) (28.3) Net funds at thebeginning of the period 11 10.6 38.9 ------ ------ Net (debt)/funds at theend of the period 11 (62.2) 10.6 ====== ====== 1 BASIS OF PREPARATION The financial information set out does not constitute statutory financialstatements for the periods ended 52 weeks to 25 December 2004 and 52 weeks to 27December 2003, but is derived from those accounts. Statutory accounts for the 52weeks to 27 December 2003 have been delivered to the Registrar of Companies andthose for the 52 weeks to 25 December 2004 will be sent to shareholders andfiled with the Registrar of Companies on 18 April 2005. The auditors havereported on the accounts, their reports were unqualified and did not containstatements under Section 237(2) or (3) of the Companies Act 1985. The accounting policies are consistent with those applied to the auditedfinancial statements for the 52 weeks to 27 December 2003, with the exception ofthe adoption of UITF Abstract 38, "Accounting for ESOP trusts". UITF Abstract 38 is effective for periods ending on or after 22 June 2004. TheAbstract requires own shares held through an ESOP trust to be accounted for as areduction in shareholders' funds rather than as fixed asset investments. TheAbstract requires this change to be made retrospectively and therefore we haverestated our comparatives. The effect of this has been to reduce net assets asat 27 December 2003 by £42.2m. There is no effect on retained profits. Theeffect on reserves is shown in note 7. The effect on the presentation of thecash flow statement is shown in note 11. 2 SEGMENTAL ANALYSIS 52 weeks to 25 Dec 2004 52 weeks to Before 27 Dec 2003 exceptional Exceptional Total items itemsTURNOVER (1) £m £m £m £mHowden Joinery 559.1 448.1UK Retail 825.1 910.9France Retail 119.4 114.2Howden Millwork 7.3 5.1Other operations 3.7 3.2 -------- --------- 1,514.6 1,481.5Joint venture operations 3.9 3.6 -------- ---------Total turnover 1,518.5 1,485.1 ======== ========= PROFIT BEFORE TAXATION (2)Howden Joinery 102.5 2.5 105.0 72.0UK Retail (32.0) (14.0) (46.0) 41.7France Retail 2.0 (0.4) 1.6 0.3Howden Millwork (8.6) - (8.6) (8.4)Other operations (0.6) - (0.6) -System write down and related costs - (20.0) (20.0) - ------- ------- -------- ---------Operating profit/(loss) 63.3 (31.9) 31.4 105.6Joint venture operations (2.1) - (2.1) (2.1) ------- ------- -------- --------- Total operating profit 61.2 (31.9) 29.3 103.5(loss)/profit on disposal of fixed assets - (2.0) (2.0) 14.1Net interest (payable)/receivable (2.3) - (2.3) 0.3 ------- ------- -------- ---------Profit before taxation 58.9 (33.9) 25.0 117.9 ======= ======= ======== ========= NET ASSETSHowden Joinery 141.8 132.8UK Retail 302.0 270.8France Retail 40.2 39.1Howden Millwork 8.8 4.6Other operations 1.7 1.3Joint venture operations 0.1 1.1 -------- --------- 494.6 449.7Unallocated net assetsDividend accrual (11.6) (11.6)Cash 37.8 60.6Loans (100.0) (51.5) -------- ---------Total net assets 420.8 447.2 ======== ========= 1 The analysis of turnover by destination is not materially different from the analysis of turnover by origin2 All results are from continuing operations 3 EXCEPTIONAL ITEMS (a) Loss on disposal of fixed assets The loss on disposal of fixed assets of £2.0m (2003 - profit of £14.1m )represents net profits on disposal of land and buildings and fixtures andfittings. The associated tax charge is £nil (2003 - £nil). (b) Exceptional items included in operating profit The exceptional expense items included in operating profit of £31.9m (2003 -£nil) are made up as follows: Item £m £m Write off elements of the supply chain computer system capitalisedin prior years 10.3Write off elements of the 2004 spend on supply chain computer system 9.7 ------Subtotal 20.0 Exceptional additional delivery and associated remedial costs 11.9Exceptional additional staff and consultancy costs 4.8Other 0.4 ------ Subtotal 17.1 Exceptional credit re share-based payments amortisation andassociated national insurance (7.5)Exceptional redundancy costs 2.3 ------Total exceptional costs before tax 31.9Tax credit on operating exceptional items at 30% (9.6) ------Total operating exceptional items after tax 22.3 ====== These costs have been allocated between profit and loss account headings asfollows: £m Cost of sales 3.1Selling and distribution costs 32.8Administrative expenses (4.0) ------ 31.9 ====== 4 TAX ON PROFIT ON ORDINARY ACTIVITIES 52 weeks to 52 weeks to 25 Dec 2004 27 Dec 2003 £m £mTaxation on profit for the period comprises: UK corporation tax at 30.0% (2003 - 30.0%) 14.6 32.8Current tax adjustment relating to prior periods 3.9 (5.3) ------ ------Total current tax 18.5 27.5Deferred tax (credit)/charge (4.0) 3.6 ------ ------ 14.5 31.1 ====== ====== 5 EQUITY DIVIDENDS 52 weeks to 52 weeks to 25 Dec 2004 27 Dec 2003 £m £mInterim paid - 2.0 pence per share 11.6 10.3(2003 - 1.8 pence per share)Final proposed - 2.0 pence per share 11.6 11.6(2003 - 2.0 pence per share) ------ ------Total dividend - 4.0 pence per share (2003 -3.8 pence per share) 23.2 21.9 ====== ====== 6 EARNINGS PER SHARE 52 weeks to 25 December 2004 52 weeks to 27 December 2003 Weighted Weighted average average number Earnings number Earnings of per of per Earnings shares share Earnings shares share £m m p £m m pEarnings per share Basic earningsper share 10.5 581.0 1.8 86.8 565.4 15.4Effect ofdilutive shareoptions - 17.9 - - 41.3 (1.1) ------ ------ ------ ------ ------ ------ Dilutedearnings pershare 10.5 598.9 1.8 86.8 606.7 14.3 ====== ====== ====== ====== ====== ====== Reconciliation of earnings per share to exclude exceptional items Basic earnings per share 10.5 581.0 1.8 86.8 565.4 15.4Exceptional items (net of tax) 24.3 - 4.2 (14.1) - (2.5) ------ ------ ------ ------ ------ ------Basic earnings per shareexcludingexceptional items 34.8 581.0 6.0 72.7 565.4 12.9 ====== ====== ====== ====== ====== ====== Diluted earnings per share 10.5 598.9 1.8 86.8 606.7 14.3Exceptional items (net of tax) 24.3 - 4.0 (14.1) - (2.3) ------ ------ ------ ------ ------ ------ Diluted earnings per share excluding exceptional items 34.8 598.9 5.8 72.7 606.7 12.0 ====== ====== ====== ====== ====== ====== Earnings per share excluding exceptional items has been calculated to show theimpact of these exceptional items, as they can have a distorting effect onearnings and therefore warrant separate consideration. 7 RESERVES Share Share premium Revaluation ESOP Other Profit and capital account reserve reserve reserves loss account £m £m £m £m £m £m As at 27December 2003 62.0 65.8 22.3 - 26.7 312.6Reclassification of ESOPshares (seebelow) - - - (42.2) - - ------ -------- ------- ------- ------- -------As at 27December 2003rererestated 62.0 65.8 22.3 (42.2) 26.7 312.6Amounttransferredfrom reserves - - - - - (12.7)Shares 0.3 11.4 - - - (9.5)issuedNet additionto ESOPs - - - (12.9) - -Realisedrevaluationprofit - - (0.5) - - 0.5Foreignexchange - - - - - (3.0)Amortisationof goodwill - - - - 1.4 (1.4) ------ -------- ------- ------- ------- ------- As at 25December 2004 62.3 77.2 21.8 (55.1) 28.1 286.5 ====== ======== ======= ======= ======= ======= During the year the company adopted UITF 38, which resulted in own shares heldby ESOP trusts being reclassified from investments into a negative reserve.Further details are given in the "Basis of preparation" section of note 1. 8 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 25 Dec 2004 27 Dec 2003 £m £mTrade creditors 154.5 140.7Corporation tax 4.6 19.8Other taxation and social security 24.0 21.8Proposed dividends 11.6 11.6Other creditors 20.0 22.8Accruals and deferred income 144.6 118.2 ------ ------ 359.3 334.9 ====== ====== 9 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 25 Dec 2004 27 Dec 2003 £m £mBank loans 100.0 50.0Other creditors - 1.5 ------ ------ 100.0 51.5 ====== ====== 10 PROVISIONS FOR LIABILITIES AND CHARGES Deferred Pension Property taxation provision provision (note 4) Total £m £m £m £m At 27 December 2003 6.9 1.0 13.3 21.2Created in the period 2.6 - - 2.6Utilised in the period (2.1) (0.3) (4.0) (6.4) ------ ------ ------ ------At 25 December 2004 7.4 0.7 9.3 17.4 ====== ====== ====== ====== 11 CONSOLIDATED CASH FLOW STATEMENT a) Reconciliation of operating profit to operating cash flows 25 Dec 2004 27 Dec 2003 £m £mOperating profit before exceptional items 63.3 105.6Amortisation of goodwill 0.7 0.7Depreciation of tangible fixed assets 57.1 47.5Amortisation of fixed asset investments - 8.5 ------ ------ 121.1 162.3Increase in stocks (42.7) (18.6)Increase in debtors (15.4) (18.0)Increase in creditors and provisions 46.3 13.9 ------ ------Net cash inflow - pre-exceptional operating activities 109.3 139.6Net cash outflow - operating exceptionals (28.1) -Net cash outflow - VAT paid re Structural guarantee (14.5) (46.0) ------ ------Net cash inflow from operating activities 66.7 93.6 ====== ====== b) Analysis of cash flows for headings netted in the cash flow statement Following the adoption of UITF 38 (see "Basis of preparation" section in note 1for more details), the cash flow notes for the 52 weeks to 27 December 2003 havebeen restated to reflect the fact that the item "Payments to acquire ownshares", which used to form part of the cash flow heading "Capital expenditureand financial investment", is now included under the cash flow heading"Financing". 25 Dec 2004 27 Dec 2003 £m £mReturns on investments and servicing of financeInterest received 2.0 1.5Interest paid (3.4) (1.2) ------ ------Net (outflow)/inflow on investments and servicing offinance (1.4) 0.3 ====== ====== Capital expenditure and financial investmentPayments to acquire tangible fixed assets (82.8) (127.2)Receipts from sales of tangible fixed assets 8.2 58.2Investment in joint ventures (1.1) (1.2) ------ ------Net outflow for capital expenditure and financialinvestment (75.7) (70.2) ====== ====== FinancingShares issued 2.2 4.2Payment to acquire own shares (7.6) (14.9)Loan acquired with subsidiary undertaking - (1.3)Other increase in bank finance 50.0 50.0 ------ ------Net inflow from financing 44.6 38.0 ====== ====== c) Analysis of net funds Cash Bank Net Current Total net at loans (borrowings) asset (borrowings) bank /funds investments /funds £m £m £m £m £mAs at 28 December2002 33.3 (1.3) 32.0 6.9 38.9Cash flow 14.9 (48.7) (33.8) 4.9 (28.9)Exchange difference 0.6 - 0.6 - 0.6 ------ ------ -------- -------- --------As at 27 December2003 48.8 (50.0) (1.2) 11.8 10.6Cash flow (20.3) (50.0) (70.3) (2.4) (72.7)Exchange difference (0.1) - (0.1) - (0.1) ------ ------ -------- -------- --------As at 25 December2004 28.4 (100.0) (71.6) 9.4 (62.2) ====== ====== ======== ======== ======== 12 HM CUSTOMS & EXCISE CLAIM In August 2001 the Group introduced an optional insurance-backed structuralguarantee on certain items of furniture sold in its UK retail stores. ValueAdded Tax (VAT) on the furniture element of the transaction and InsurancePremium Tax (IPT) is paid on the sale of these warranties. An assessment has been raised on the VAT on the sale of the warranties, and therelevant tax has been paid to HM Customs & Excise. The directors have takenextensive legal and taxation advice and this action is being contestedvigorously. The relevant tax, which has been paid, is carried on the balancesheet as a debtor without any provision. To date, the following amounts have been recorded: Cumulative 2004 2003 2002 2001 £m £m £m £m £mReduction in VAT 60.5 10.5 20.7 22.0 7.3IPT paid (15.3) (2.3) (5.3) (5.6) (2.1)External insurancepremium/expenses (7.7) (1.2) (2.5) (2.8) (1.2)Reinsurance premium toGroup company (12.5) (2.1) (4.2) (4.5) (1.7)Underwriting profitrecognised by Groupcompany 2.9 1.9 1.0 - - ------- ------ ------ ------ ------Profit taken to profitand loss account 27.9 6.8 9.7 9.1 2.3 ======= ====== ====== ====== ====== 80% of the insurance has been reinsured by the external insurer through theGroup's captive insurance company, Southon Insurance Limited. The maximum potential exposure is £60.5m at the year end, but this would beexpected to be offset by the recovery of approximately £15.3m of insurance taxpremium paid on the sale of extended structural guarantees. All of the £60.5mhas been paid to HM Customs & Excise at the year end. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Howden Joinery