21st Jul 2005 07:01
MFI Furniture Group PLC21 July 2005 21 July 2005 Interim results for the 24 weeks to 11 June 2005 Financial highlights - Sales up 7.7% to £757m - Howden Joinery up 14% to £259m - UK Retail up 3% to £429m; net orders down 2% - France Retail up 14% to £64m- Pre-tax profit of £58.5m (2004: £30.1m restated*)- Pre-tax profit before exceptional items of £22.9m (2004: £31.1m restated*)- Earnings per share of 7.2p (2004: 3.5p restated*)- Earnings per share before exceptional items of 2.4p (2004: 3.7p restated*)- Interim dividend per share maintained at 2.0p* restated for FRS17 (see note 13) Business highlights - Supply chain stable- Continued sales and profit growth at Howden Joinery- Progress in UK Retail - £16m of cost savings in first half - Traditional price / value proposition being restored - Strengthened management team- France Retail responding well to the refurbishment programme- Managing the pension deficit downwards- Group gross margin stable at 50% John Hancock, Chief Executive, said:'Following a difficult period the Group is now making progress, albeit in ahighly competitive marketplace. The first half has seen another strong performance from Howdens. We areconfident that the supply chain is stable and we remain focused on rebuildingprofitability in the UK Retail division, notwithstanding the tougher conditionsin our markets. We continue to manage our costs and gross margins against the background of whatremains a competitive market.' - ends -Contacts: MFI Furniture Group Plc John Hancock, Chief Executive Officer 020 8913 5319Mark Robson, Chief Financial Officer 020 8913 5350 Brunswick Group Limited Susan Gilchrist / Fiona Laffan / Anna Jones 020 7404 5959 COMPANY STATEMENT Results In the 24 weeks to 11 June 2005 Group turnover increased by 7.7% to £757million, compared with £703 million for the same period last year. Profit beforetax and exceptional items was £22.9 million, compared with £31.1 million lastyear. Basic earnings per share, excluding exceptional items, decreased to 2.4pence per share. Comparatives for 2004 have been restated to comply with FRS 17'Retirement benefits'. Exceptional operating items include £5.4 million of supply chain disruptioncosts and UK redundancy costs, a carry over from the work we undertook in 2004,and a net credit from restructuring our pension arrangements of £41.1 millionwhich is explained in more detail later in this report. Exceptional itemscomprise a profit on property disposals of £7.2 million and provisions of £7.3million, representing £5.7 million of closure costs and £1.6 million for futuretrading losses, in respect of the closure of Hygena @ Currys. Operational review Howden JoineryOperating profits were £43.6 million, up 27% from £34.3 million last year, on anincrease in turnover of 14% to £259 million. Same depot sales growth was 11%compared to 20% for the same period last year. The focus in the early part of the year was on gross margin improvement in themore mature depots and this action has helped grow the operating margin to16.9%, compared to 15.1% for the same period last year. The rate of sales growthslowed, reflecting the greater maturity of the depot portfolio, the relativelylow level of depot openings in 2003/2004 and no annualised benefit from theselling price increases put through at the end of 2003. More recently, actions have been taken to increase sales and, as anticipated atthe time of the AGM in May, the performance of the promotion in the last fourweeks of the first half has considerably improved the overall first halfperformance. During the period we commenced a trial of new bedroom ranges and, if successful,we expect to eventually roll these out to all depots. We have extended 19 depotsand plan to extend a further 18 by the end of the year. We have opened sixdepots and relocated five in the first 24 weeks and are on target to open afurther 34 in the second half, which would give a total of around 360 depotstrading by the year-end. We continue learning from our 15 depot pilot in the SouthEast of the UnitedStates. Losses in the period are £3.6 million, against £3.3 million last year,in line with expectations. The new product, sourced from our UK factories buttailored for the US market, has been well received by our customers and we aimto increase the pilot to 20 depots by the end of the year. The Howden pilot in France, with depots in Lille and Paris, progresses well andwe will be expanding this pilot with a further nine depots in the second half,making a total of 11 depots selling product manufactured in our factories in theUK. Unlike the US operation, the French operation benefits from the existing UKinfrustructure and supply chain arrangements. UK Retail H1 2005 H1 2004 £m £m Opening net order book 38 26 Net orders 477 489 (2)% Deliveries (429) (416) 3% Closing net order book 86 99 Net orders taken during the period were 2% down on the same period last year(same store net orders 4% lower than the same period last year). UK retailsales, at £429 million, grew 3% with same store sales up 2%. The opening orderbook was relatively high and, as expected, this has unwound contributing to thegrowth in UK Retail sales. Pre-exceptional operating losses were £12.9 million,down from £2.3 million profit last year. Actions are being taken to address theunderperformance of the UK Retail division. First, we have restored our traditional price/value offer with a price promiseto our customers. Although we have incurred increased advertising expenditure,we have re-established our customer franchise and have seen double-digit volumegrowth in sales with resultant market share gains. The performance of the newproduct introduced in the second half of 2004 was good, with especially strongperformance in bedrooms and in the sub £500 price band, and represented 24% oforders in the first half of the year. Secondly, we have started to look at a longer term solution to ensure that ourservice levels are where we want them to be. The introduction of the CustomerCharter has incorporated new guidelines on service and is one of the mostsignificant changes to the business in the first half. It has only been possibleto implement following the growing confidence we have in the new supply chainsystems. Early indications are that it has been well received by our customersand it benefits the business in two main areas: •Introduces new levels of discipline and consistency of service across the business. •Reduces the level of failed delivery, customer refunds and remedial costs. In addition we are recovering costs by charging customers for delivery, changing delivery dates and cancelling orders. Thirdly, we have undertaken a comprehensive review of the Hygena @ Currysbusiness. Although the business demonstrated some success, the sales growth wasinsufficient to generate a financial return that justified continuing in thelonger term. As a result we announced on 11 May 2005 with Dixons Group to endthe venture. Closure costs will be £5.7 million and additional trading losses of£1.6 million are expected as we phase out the closure of the concessions. Thebusiness made losses of circa £5 million on turnover of £25 million in 2004. Fourthly we are making good progress with the £40 million cost reductionprogramme that we announced in December. Four keys areas have been addressed,namely: • Head office/central function job losses and reduction in consulting spend • Reduced marketing spend in all areas other than direct advertising • Reduction in store costs as a result of fewer product refits and store refurbishments • Renegotiated logistics and customer service costs, including charging for home delivery To date we have achieved £16 million of savings with further progress expectedin the second half of the year, as the introduction of home delivery chargingonly commenced at the conclusion of the Winter Sale in March. We haveconsciously spent more than plan on direct advertising but this investment hashelped re-establish our customer franchise and improve our gross margin from ourplanned level. Finally, we have strengthened the management team with four new appointments tothe Group Executive Committee. Andrew Livingstone will be joining us from B&Q,where he is Trading director for B&Q showrooms, to take commercialresponsibility for UK Retail following Mark Horgan's decision to leave the Groupat the end of August. Three internal appointments include Robin Proctor - SupplyChain director, Rob Fenwick - Manufacturing director and Steve Round - ManagingDirector of our French Retail business to enhance the representation andcommercial involvement of their operations. France RetailSales in France, at £64 million, were up 14% on last year with same store growthof 10% in local currency. Profits were £2.7 million before SAP disruption costsof £0.3 million. This compares to £1.4 million for the same period last year andreflects benefits from the store refurbishment and infrastructure investmentover the past few years. SourcingThe sourcing joint venture in Asia has developed with over 500 product lines nowbeing sourced from Asia. The value of product sourced from Asia throughout 2005is forecast to be £25 million, compared to £5 million in 2004. In addition tocomponents for our manufacturing operations we are now sourcing leatherupholstery and will be sourcing appliances and bathrooms in the second half.These products are providing significant gross margin benefit to the operatingdivisions, with some benefit retained in the joint venture which is expected togenerate a small profit in 2005. Supply chainSince December 2004, significant progress has been made in achieving supplychain stability, with the system now showing the ability to handle record ordersduring the Winter Sale and enabling the business to deliver high despatchvolumes consistently and efficiently over many weeks. This contrastsdramatically with the performance in the latter part of 2004. Our two keyperformance indicators of 'percentage of home delivery errors' and 'number ofstock lines with extended delays' have been improving throughout the first halfto levels better than those achieved under the old systems. We are now seeingthe 'home delivery error rate' at below 5%, compared to 12% before theimplementation of the new systems, and the number of stock lines with extendeddelay is circa 100. The growing confidence in the system has given us the ability to introduce theCustomer Charter with its expected associated cost savings as well as give oursales teams the trust to sell product without recourse. The system remainscomplex and fragile and will require further development before we can proceedto installing the next phases covering manufacturing, warehousing and retail. Financial review Gross marginThe Group's gross margin was stable at 50.0%, compared to 50.1% last year. Thisreflects an improved gross margin (0.9 percentage points impact to the Group) atHowdens, offset by a reduction in the gross margin in UK Retail (1.0 percentagepoints impact to the Group). The UK Retail gross margin reflects our deliberatepolicy during the Winter Sale, following the customer service issues in 2004, tore-establish the customer franchise with highly competitive pricing. OverheadsWe highlighted in December that the costs for UK Retail would increase by £47million per annum. In addition we have deliberately increased the level ofadvertising in UK Retail to re-establish the customer franchise, with salesvolumes and logistics costs growing by low double-digits. The cost reductionprogramme refered to above has partially mitigated this but Grouppre-exceptional overheads, including Howden Joinery, have grown by £32 millioncompared to last year. TaxThe effective rate of tax for the year is expected to be 38.5% onpre-exceptional profits. This is higher than the standard rate of corporationtax as tax relief is unavailable on a proportion of the capital expenditureincurred on the UK store refurbishment programme, most of which is expensed tothe profit and loss account as depreciation over a period of four years. Cash flowThe operating cash inflow in the period before exceptional items was £ 59.2million. After taking into account capital investment, dividends, tax andproperty disposals, net debt has decreased by £ 52.4 million to £ 9.8 million.This includes monies held in escrow, for future insurance claims under thestructural guarantee, which have increased by £1.0 million to £10.4 million. Structural guaranteeWe continue to take extensive legal and taxation advice and have instigatedlegal action against HM Revenue & Customs to recover the VAT paid on thestructural guarantees. We are carrying the tax paid of £60.5 million on ourbalance sheet as a debtor without any provision and further disclosure is givenin note 12 to the accompanying notes to the financial statements. PensionsAs at 26 December 2004 the pre-tax deficit in the Group UK pension plans,calculated in accordance with FRS17, was £294.6 million (£206.2 million afterdeferred tax). This included the additional liabilities announced on 6 May 2004arising from a failure to equalise the pension age for men and women at age 65.Under FRS17 valuation methods, these additional liabilities were estimated at£50 million. In May 2005 the Group wrote to certain members of the UK pensionplans offering them a cash payment in exchange for giving up any claim a membermay have to possible additional pension benefits arising from the equalisationissue. As at 11 June 2005, approximately 90% by value of those to whom the offerwas made had accepted the cash option and the additional liabilities weretherefore reduced from £50 million to £5 million. The aggregate cost of the cashoffer was £15.9 million including £0.3 million fees. On 14 March 2005 we announced that a £12 million cash settlement had beenreceived from one of the third parties on whose advice the Group and the pensionplan trustees had relied. The Board continues to take advice and consider withthe Trustees the actions required to obtain recovery, if material, from anyother parties. In the context of the triennial valuations taking place in 2005,the Board will also be discussing with the Trustees further ways of addressingthe deficit in the funding of the UK pension plans. Dividend The Board has declared an interim dividend of 2.0 pence per share (2004: 2.0pence), level with last year. This will be paid on 21 October 2005 toshareholders on the register at the close of business on 30 September 2005.Shares will be quoted ex-dividend from 28 September 2005. We remain committed toa progressive dividend policy and will gradually weight the pay out towards thefinal dividend as we restore profitability to the UK retail business. Group Board Bob Wilson has decided to retire from his position of executive director inApril 2006 after serving 8 years as a director and developing and managing oneof the largest and most efficient kitchen manufacturing operations in the world.We are very grateful to Bob for his tremendous contribution over the 29 years hehas worked for MFI. Shaun O'Callaghan resigned from the Board on 20 July 2005 to pursue otherinterests and we thank him for his significant contribution as interim CFO fromSeptember 2004 to May 2005. Shaun will remain with the Company until the end ofSeptember 2005. Trading update and outlook As stated in our interim results last year, we will provide timely tradingupdates separately from our Results Announcements. The next trading updates willbe in September covering the UK Retail August bank holiday promotion and inmid-December to include Howdens' important Autumn trading period. Trading conditions in the second half are difficult to predict and the UK Retaildivision remains more susceptible to any changes in trading conditions thanHowden Joinery. We continue to manage the costs and gross margin in what remainsa competitive market. Ian PeacockJohn Hancock 21 July 2005 FINANCIAL HIGHLIGHTS 24 weeks 24 weeks 52 weeks to to to 11 12 25 June June December 2005 2004 2004 Unaudited Unaudited Audited (restated)(restated) £m £m £m Turnover (including share of joint venture) 758.8 704.6 1,518.5Turnover (excluding share of joint venture) 757.3 703.2 1,514.6 Gross margin (before exceptional items) 50.0% 50.1% 49.4% Operating profit margin (before exceptional items) 3.8% 4.9% 4.2% Profit before tax 58.5 30.1 20.6Profit before tax and exceptional items 22.9 31.1 54.5 DIVIDEND PER SHAREInterim 2.0p 2.0p 2.0pFinal n/a n/a 2.0p Full year dividend n/a n/a 4.0p BASIC EARNINGS PER SHARE Basic earnings per share 7.2p 3.5p 1.3pBasic earnings per share before exceptional items 2.4p 3.7p 5.5p OTHER FINANCIAL INFORMATION Net assets 250.8 322.7 218.5 CONSOLIDATED PROFIT AND LOSS ACCOUNT 24 weeks to 11 June 2004 24 weeks 52 weeks to 25 Dec 2004 (restated*) Before Exceptional to 12 June Before Exceptional exceptional items 2004 exceptional items items (note 6) Total (restated*) items (note 5) Total Unaudited Unaudited Unaudited Unaudited Audited Audited Audited £m £m £m £m £m £m £mTurnoverGroup andshare of jointventure 2 758.8 - 758.8 704.6 1,518.5 - 1,518.5Less: share ofjoint venture (1.5) - (1.5) (1.4) (3.9) - (3.9) -------- -------- -------- -------- -------- ------- -------Group turnover 757.3 - 757.3 703.2 1,514.6 - 1,514.6Cost ofsales (378.4) (0.4) (378.8) (350.6) (762.7) (3.1) (765.8) -------- -------- -------- -------- -------- ------- -------Gross profit 378.9 (0.4) 378.5 352.6 751.9 (3.1) 748.8Selling anddistributioncosts (316.5) (5.0) (321.5) (286.6) (623.6) (32.8) (656.4)Administrativeexpenses (33.5) 41.1 7.6 (31.6) (64.0) 4.0 (60.0) -------- -------- -------- -------- -------- ------- -------Operatingprofit 28.9 35.7 64.6 34.4 64.3 (31.9) 32.4Share ofoperating lossof jointventure (1.0) - (1.0) (0.9) (2.1) - (2.1) -------- -------- -------- -------- -------- ------- -------Totaloperatingprofit - Groupand share ofjoint venture 27.9 35.7 63.6 33.5 62.2 (31.9) 30.3Exceptionalitem - netprofit/(loss)on disposal offixed assets - 7.2 7.2 (1.0) - (2.0) (2.0)Exceptionalitem -provision forclosure of anoperation - (7.3) (7.3) - - - - -------- -------- -------- -------- -------- ------- -------Profit onordinaryactivitiesbeforeinterest 27.9 35.6 63.5 32.5 62.2 (33.9) 28.3Interestreceivable andsimilar income 1.8 - 1.8 0.8 2.0 - 2.0Interestpayable andsimilarcharges (2.0) - (2.0) (0.7) (4.3) - (4.3)Other financecharges -FRS17 pension 13 (4.8) - (4.8) (2.5) (5.4) - (5.4) -------- -------- -------- -------- -------- ------- -------Profit onordinaryactivitiesbeforetaxation 2 22.9 35.6 58.5 30.1 54.5 (33.9) 20.6Tax on profiton ordinaryactivities 3 (8.8) (7.6) (16.4) (10.0) (22.8) 9.6 (13.2) -------- -------- -------- -------- -------- ------- -------Profit for thefinancialperiod 14.1 28.0 42.1 20.1 31.7 (24.3) 7.4Dividends 4 (11.7) - (11.7) (11.6) (23.2) - (23.2) -------- -------- -------- -------- -------- ------- -------Retainedprofit 5 2.4 28.0 30.4 8.5 8.5 (24.3) (15.8) ======== ======== ======== ======== ======== ======= =======Earnings pershareBasic earningsper 10pordinary share 7 7.2p 3.5p 1.3p ======== ======== ======== ======== ======== ======= =======Dilutedearnings per10p ordinaryshare 7 7.0p 3.3p 1.2p ======== ======== ======== ======== ======== ======= =======Earnings pershare (beforeexceptionalitems)Basic earningsper 10pordinary share 7 2.4p 3.7p 5.5p ======== ======== ======== ======== ======== ======= =======Dilutedearnings per10p ordinaryshare 7 2.3p 3.5p 5.3p ======== ======== ======== ======== ======== ======= =======* Restated for FRS 17 - see note 13 CONSOLIDATED BALANCE SHEET 24 weeks to 24 weeks to 52 weeks to 11 June 12 June 25 December Notes 2005 2004 2004 Unaudited Unaudited Audited (restated*) (restated*) FIXED ASSETS £m £m £m Intangible assets 13.4 14.1 13.7Tangible assets 345.2 389.8 381.6Investments 8.3 8.9 8.1 -------- -------- ---------Total fixed assets 366.9 412.8 403.4 -------- -------- --------- CURRENT ASSETS Stocks 237.7 188.3 238.4Debtors 8 239.0 206.2 217.9Investments 10.4 13.8 9.4Cash at bank and in hand 11 64.8 40.3 28.4 -------- -------- --------- 551.9 448.6 494.1 -------- -------- --------- CREDITORS FALLING DUE WITHINONE YEAR 393.2 362.7 359.3 Net current assets 158.7 85.9 134.8 Total assets less currentliabilities 525.6 498.7 538.2 CREDITORS FALLING DUE AFTERMORE THAN ONE YEAR 85.0 25.7 100.0 PROVISIONS FOR LIABILITIES ANDCHARGES 14.0 16.2 13.5 -------- -------- --------- Net assets excluding netpensionliability 426.6 456.8 424.7Net pension liability 13 175.8 134.1 206.2 -------- -------- ---------NET ASSETS 250.8 322.7 218.5 ======== ======== ========= CAPITAL AND RESERVES Called up share capital 5 62.6 62.2 62.3Share premium account 5 80.1 66.9 77.2Revaluation reserve 5 16.2 21.8 21.8ESOP reserve 5 (54.3) (45.5) (55.1)Other reserves 5 28.1 28.1 28.1Profit and loss account 5 118.1 189.2 84.2 -------- -------- --------- Equity shareholders' funds 250.8 322.7 218.5 ======== ======== =========* Restated for FRS 17 - see note 13. CONSOLIDATED CASH FLOW STATEMENT 24 weeks to 24 weeks to 52 weeks to 11 June 12 June 25 December 2005 2004 2004 Notes Unaudited Unaudited Audited £m £m £m Net cash inflow from operatingactivities 9 59.2 82.2 66.7 Returns on investments andservicing of finance 10 (0.9) 0.1 (1.4) Taxation (5.6) (17.5) (33.7) Capital expenditure andfinancial investment (net) 10 9.8 (27.8) (75.7) Equity dividends paid (11.6) (11.6) (23.2) ------- ------- ------- Cash inflow / (outflow) beforeuse of liquid resources andfinancing 50.9 25.4 (67.3) Management of liquid resources (1.0) (2.0) 2.4 Financing 10 (13.3) (31.3) 44.6 ------- ------- ------- Increase/(decrease) in cash inthe period 36.6 (7.9) (20.3) ======= ======= ======= RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Increase/(decrease) in cash inthe period 36.6 (7.9) (20.3) Cash movement on:- debt and lease financing 11 15.0 25.0 (50.0)- cash flow from increase inliquid resources 11 1.0 2.0 (2.4) ------- ------- ------- Change in net (debt)/funds resultingfrom cash flows 52.6 19.1 (72.7) Effect of foreign exchange ratechanges 11 (0.2) (0.6) (0.1) ------- ------- ------- Movement in net (debt)/funds inthe period 52.4 18.5 (72.8) Net (debt)/funds at the beginningof the period 11 (62.2) 10.6 10.6 ------- ------- ------- Net (debt)/funds at the end ofthe period 11 (9.8) 29.1 (62.2) ======= ======= ======= STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 24 weeks to 24 weeks to 52 weeks to 11 June 12 June 25 December 2005 2004 2004 Unaudited Unaudited Audited (restated*) (restated*) £m £m £m Profit for the financial period 42.1 20.1 7.4Translation differences on foreigncurrency denominatednet investments (0.7) (2.4) (3.0)Net effect of adopting FRS17 - (128.6) (199.2) -------- -------- --------- Total recognised gains and lossesrelating to the period 41.4 (110.9) (194.8) ======== ========= Prior year adjustment (FRS17) (202.3) --------Total gains and losses recognisedsince last annual report andfinancial statements (160.9) ======== RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS 24 weeks to 24 weeks to 52 weeks to 11 June 11 June 25 December 2005 2004 2004 Unaudited Unaudited Audited (restated*) (restated*) £m £m £m Total recognised gains and lossesfor the period 41.4 (110.9) (194.8)Dividends (11.6) (11.6) (23.2)Net amortisation of/(additions to)ESOP trust 0.8 (3.3) (12.9)Shares issued 1.7 1.3 2.2 -------- -------- --------Net addition/(reduction) to equityshareholders' funds 32.3 (124.5) (228.7) -------- -------- -------- Opening equity shareholders' fundsas previously stated 420.8 447.2 447.2Net effect of adopting FRS17 (202.3) - - -------- -------- --------Adjusted equity shareholders' fundsat beginning of period 218.5 - - -------- -------- -------- Equity shareholders' funds at end ofthe period 250.8 322.7 218.5 ======== ======== ========* Restated for FRS 17 - see note 13. NOTES TO THE FINANCIAL STATEMENTS 1 BASIS OF PREPARATION The financial information for the 24 weeks to 11 June 2005 and 12 June 2004 isunaudited. The accounting policies are consistent with those applied to theaudited financial statements for the 52 weeks to 25 December 2004, except thatthe Group has adopted FRS17 'Retirement Benefits' in full in 2005. The Group isrequired to adopt FRS17 retrospectively and so we have restated the comparativefigures. The effect of the restatement is shown in note 13. These statements do not constitute statutory financial statements within themeaning of Section 240 of the Companies Act 1985. The Group's full financial statements for the 52 week period to 25 December2004, on which the auditors made an unqualified report, have been delivered tothe Registrar of Companies. 2 SEGMENTAL ANALYSIS All results are from continuing operations. Unallocated net assets comprisebalances in respect of dividends and net funds. The analysis of turnover bydestination is not materially different to the analysis of turnover by origin. 24 weeks to 24 weeks to 52 weeks to 11 June 12 June 2004 25 December 2004 2005 (restated) (restated)TURNOVER £m £m £m Howden Joinery 258.7 227.0 559.1UK Retail 428.9 415.6 825.1France Retail 64.3 56.3 119.4Howden Millwork 3.6 3.0 7.3Other operations 1.8 1.3 3.7 -------- -------- ---------- 757.3 703.2 1,514.6Joint ventureoperations 1.5 1.4 3.9 -------- -------- ----------Total 758.8 704.6 1,518.5 ======== ======== ========== NOTES TO THE FINANCIAL STATEMENTS2 SEGMENTAL ANALYSIS (continued) 24 weeks to 11 June 2005 52 weeks to 25 December 2004 (restated)PROFIT Before Exceptional Total 24 weeks to Before Exceptional TotalBEFORE exceptional items 12 June 2004 exceptional itemsTAXATION items (restated) items £m £m £m £m £m £m £m HowdenJoinery 43.6 - 43.6 34.3 102.8 2.5 105.3UK Retail (12.9) (5.1) (18.0) 2.3 (31.3) (14.0) (45.3)FranceRetail 2.7 (0.3) 2.4 1.4 2.0 (0.4) 1.6HowdenMillwork (3.6) - (3.6) (3.3) (8.6) - (8.6)Otheroperations (0.9) - (0.9) (0.3) (0.6) - (0.6)Operatingexceptionalitem resupplychaincomputersystem - - - - - (20.0) (20.0) Operatingexceptionalitem repensions(note - 41.1 41.1 - - - -6b) -------- -------- ------- ----------- -------- -------- --------Totaloperatingprofit 28.9 35.7 64.6 34.4 64.3 (31.9) 32.4Jointventureoperations (1.0) - (1.0) (0.9) (2.1) - (2.1) -------- -------- ------- ----------- -------- -------- --------Totaloperatingprofit(groupand JVs) 27.9 35.7 63.6 33.5 62.2 (31.9) 30.3Profit/(loss)on disposaloffixedassets - 7.2 7.2 (1.0) - (2.0) (2.0)Provisionforclosure ofanoperation - (7.3) (7.3) - - - -Netinterest(payable)/receivable (0.2) - (0.2) 0.1 (2.3) - (2.3)FRS17pensionfinancecharges (4.8) - (4.8) (2.5) (5.4) - (5.4) -------- -------- ------- ----------- -------- -------- --------Profitbefore 22.9 35.6 58.5 30.1 54.5 (33.9) 20.6taxation ======== ======== ======= =========== ======== ======== ======== NOTES TO THE FINANCIAL STATEMENTS2 SEGMENTAL ANALYSIS (continued) 24 weeks to 11 24 weeks to 52 weeks to 25 June 2005 12 June 2004 December 2004 Total Total Total (restated) (restated)NET £m £m £mASSETS HowdenJoinery 87.5 79.6 77.1UK Retail 147.3 190.5 170.5FranceRetail 26.8 29.9 34.1HowdenMillwork 8.2 3.7 8.8Otheroperations 2.2 1.3 1.7Jointventureoperations 0.2 0.9 0.1 -------- --------- --------- 272.2 305.9 292.3Unallocatednetassets/(liabilities) (21.4) 16.8 (73.8) -------- --------- --------- Total 250.8 322.7 218.5 ======== ========= ========= 3 TAXATION The taxation charge is calculated at 38.5% of profit before exceptional items(24 weeks to 12 June 2004: 32.2%, 52 weeks to 25 December 2004: 41.8%), beingthe estimated effective rate of taxation for the 2005 financial year. 4 DIVIDEND The interim dividend of 2.0p per share (June 2004: 2.0p), will be paid on 21October 2005 to shareholders on the register of members at the close of businesson 30 September 2005. The shares will be quoted ex-dividend from 28 September2005. 5 SHARE CAPITAL AND RESERVES Share Share premium Revaluation ESOP Other Profit and capital account reserve reserve reserves loss account £m £m £m £m £m £m As at 25December2004 62.3 77.2 21.8 (55.1) 28.1 286.5RestatementonadoptingFRS17(note 13) - - - - - (202.3) ------- -------- ------- ------- ------- -------As at 25December2004- restated 62.3 77.2 21.8 (55.1) 28.1 84.2Retainedprofit fortheperiod - - - - - 30.4Sharesissued 0.3 2.9 - - - (1.5)Netamortisationof ESOPs - - - 0.8 - -Realisedrevaluationprofit - - (5.6) - - 5.6Foreignexchange - - - - - (0.6) ------- -------- ------- ------- ------- ------- As at 11June2005 62.6 80.1 16.2 (54.3) 28.1 118.1 ======= ======== ======= ======= ======= =======6 EXCEPTIONAL ITEMS (a) Exceptional items - supply chain The exceptional items included in operating profit of £5.4m before tax (52 weeksto 25 December 2004: £31.9m, 24 weeks to 11 June 2004: £nil), are made up asfollows: £m £m Additional delivery and associated remedial costs 1.2Additional staff and consultancy costs 3.9Redundancy costs 0.3 ------Total operating exceptional costs before tax 5.4Tax credit on operating exceptional items at 30% (1.6) ------Total operating exceptional costs after tax 3.8 ====== NOTES TO THE FINANCIAL STATEMENTS6 Exceptional items (continued) These pre-tax costs are included within profit and loss account headings asfollows:P&L account heading £m Cost of sales 0.4Selling and distribution costs 5.0 -------- 5.4 ======== (b) Exceptional item - pensions On 6 May 2004, the Group announced additional pension liabilities arising from afailure to equalise the pension age for men and women at age 65. Under FRS17valuation methods, these additional liabilities were estimated at £50m. In May2005 the Group wrote to certain members of the UK pension plans offering them animmediate cash payment in exchange for giving up any claim a member may have topossible additional pension benefits arising from the equalisation issue. Up to 11 June 2005, 87.4 % by value of the eligible members have accepted thecash offer. This will lead to a total cash payment of £15.6m in respect of allmembers who have accepted the cash offer before 11 June 2005. The cash will bepaid before the end of July, and the expense for all members who accepted theoffer before 11 June 2005 has been recognised in these accounts. The effect ofthese settlements is to reduce the additional liability (originally estimated at£50m on an FRS17 basis) by £45.0m. This reduction in liability has also beenreflected in these accounts. There are still a small number of cash offers to members where we are waitingfor the members to reply. The closing date for the offers was 8 July 2005. Basedon the responses we have had so far, we expect that there will be some furtherpayments in the second half of 2005, and a corresponding further reduction inthe deficit. On 14 March 2005 the group announced that it had received a cash settlement of£12.0m from one of the third parties on whose advice the Group and the pensionplan trustees had relied. The cash payments and the reduction in deficit for all offers accepted before 11June 2005, together with the cash settlement received from a third party and theassociated legal fees, have been treated as exceptional items, included inoperating profit, in the first half of 2005. The effect of these items is: £m £m Reduction in pension deficit following acceptance of cash offer 45.0Cost of cash offer (15.6)Cash settlement received from third party 12.0Professional fees incurred (0.3) ------Total net operating exceptional credit before tax 41.1Tax charge on operating exceptional items at 30% (11.1) -------Total net operating exceptional credit after tax 30.0 ======= These pre-tax credits/(charges) are included within Administrative expenses. (c) Profit on disposal of fixed assets The profit on disposal of fixed assets of £7.2m (52 weeks to 25 December 2004:loss of £2.0m. 24 weeks to 12 June 2004: loss of £1.0m), represents net gains ondisposal of land and buildings and fixtures and fittings. The associateddeferred tax credit is £0.3m (25 December 2004 and 12 June 2004: £nil). NOTES TO THE FINANCIAL STATEMENTS6 Exceptional items (continued) (d) Exceptional provision for closure As announced in our press release of 11 May 2005, the Group has agreed with ourjoint venture partners to end the venture, Hygena at Currys, by mutual agreementfollowing a comprehensive review of the business. A closure programme for theHygena concessions, which trade in 130 of Currys' 370 stores, is in place and weexpect it to be finished by September 2005. In accordance with FRS3, we havemade a provision for the costs of closure of this business, and have treated itas a post-operating exceptional item. The provision comprises the followingitems: £m £m Costs of closure 5.7Provision for future operating losses 1.6 ---------Total operating exceptional costs before tax 7.3Tax credit on operating exceptional items at 30% (2.2) ---------Total exceptional provision for closure after tax 5.1 ========= 7 EARNINGS PER SHARE 24 weeks to 11 June 2005 24 weeks to 12 June 2004 52 weeks to 25 December 2004 Earnings Weighted Earnings Earnings Weighted Earnings Earnings Weighted Earnings average per share (restated) average per share (restated) average per share number number (restated) number (restated) of of of shares shares shares £m m p £m m p £m m pEarningsper share(eps)Basicearningsper share 42.1 583.5 7.2 20.1 571.4 3.5 7.4 581.0 1.3Effect ofdilutiveshareoptions - 15.6 (0.2) - 37.2 (0.2) - 17.9 (0.1) ------ ------- ------ ----- ------ ------ ------ ------- ------Dilutedearningspershare 42.1 599.1 7.0 20.1 608.6 3.3 7.4 598.9 1.2 ------ ------- ------ ----- ------ ------ ------ ------- ------Eps beforeexceptionalitemsBasicearnings 42.1 583.5 7.2 20.1 571.4 3.5 7.4 581.0 1.3per shareExceptionalitems (28.0) - (4.8) 1.0 - 0.2 24.3 - 3.2 ------ ------- ------ ----- ------ ------ ------ ------- ------Basic epsbeforeexceptionalitems 14.1 583.5 2.4 21.1 571.4 3.7 31.7 581.0 5.5 ------ ------- ------ ----- ------ ------ ------ ------- ------ Dilutedearningspershare 42.1 599.1 7.0 20.1 608.6 3.3 7.4 598.9 1.0Exceptionalitems (28.0) - (4.7) 1.0 - 0.2 24.3 - 4.3 ------ ------- ------ ----- ------ ------ ------ ------- ------Diluted epsbeforeexceptionalitems 14.1 599.1 2.3 21.1 608.6 3.5 31.7 598.9 5.3 ------ ------- ------ ----- ------ ------ ------ ------- ------ 8 DEBTORS 24 weeks to 24 weeks to 52 weeks to 11 June 12 June 25 December 2005 2004 2004 £m £m £m Debtors and prepayments - duewithin one year 178.5 149.1 157.4VAT paid re structural guarantee -due after one year (note 12) 60.5 57.1 60.5 --------- ---------- --------- Total 239.0 206.2 217.9 ========= ========== ========= NOTES TO THE FINANCIAL STATEMENTS 9 CASH FLOW STATEMENTReconciliation of operating profit to operating cash flows: 24 weeks to 24 weeks to 52 weeks to 11 June 12 June 25 December 2005 2004 2004 (restated) (restated) £m £m £m Operating profit before exceptionalitems 28.9 34.4 64.3Depreciation and amortisation charge 29.9 24.0 57.8Amortisation of fixed assetinvestments 0.8 4.2 -Decrease / (increase) in stocks 0.7 7.4 (42.7)(Increase) in debtors (21.1) (7.1) (15.4)Increase in creditors and provisions 14.4 30.0 45.3 -------- ---------- --------- 53.6 92.9 109.3Net cash inflow/(outflow) -operating exceptionals 5.6 - (28.1)Net cash outflow - VAT paid restructural guarantee - (10.7) (14.5) -------- ---------- --------- Net cash inflow from operatingactivities 59.2 82.2 66.7 ======== ========== ========= 10 ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT 24 weeks to 24 weeks to 52 weeks to 11 June 12 June 25 December 2005 2004 2004 (restated) (restated) £m £m £mReturns on investments and servicingof financeInterest received 1.8 0.8 2.0Interest paid (2.7) (0.7) (3.4) --------- --------- --------- Net (outflow)/inflow on investmentsand servicing of finance (0.9) 0.1 (1.4) ========= ========= =========Capital expenditure and financialinvestmentPayments to acquire tangible fixedassets (20.1) (32.4) (82.8)Receipts from sales of tangiblefixed assets 30.7 5.3 8.2Investment in joint ventures (0.8) (0.7) (1.1) --------- --------- --------- Net inflow/(outflow) from capitalexpenditure and financial investment 9.8 (27.8) (75.7) ========= ========= =========FinancingShares issued 1.7 1.3 2.2Payments to acquire own shares - (7.6) (7.6)(Decrease) / increase in bankfinance (15.0) (25.0) 50.0 --------- --------- --------- Net (outflow) / inflow for financing (13.3) (31.3) 44.6 ========= ========= ========= NOTES TO THE FINANCIAL STATEMENTS 11 ANALYSIS OF NET FUNDS/(DEBT) Cash at Bank Current Total net bank loans Net funds/ asset funds/ (debt) and in hand (debt) investments £m £m £m £m £m As at 27December 2003 48.8 (50.0) (1.2) 11.8 10.6Cash flow (7.9) 25.0 17.1 2.0 19.1Exchangemovement (0.6) - (0.6) - (0.6) ------- ------- ------- ------- ------- As at 12 June2004 40.3 (25.0) 15.3 13.8 29.1Cash flow (12.4) (75.0) (87.4) (4.4) (91.8)Exchangemovement 0.5 - 0.5 - 0.5 ------- ------- ------- ------- ------- As at 25December 2004 28.4 (100.0) (71.6) 9.4 (62.2)Cash flow 36.6 15.0 51.6 1.0 52.6Exchangemovement (0.2) - (0.2) - (0.2) ------- ------- ------- ------- ------- As at 11 June2005 64.8 (85.0) (20.2) 10.4 (9.8) ======= ======= ======= ======= ======= 12 HM REVENUE & CUSTOMS 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) is paid on the furniture element of the transaction andInsurance Premium 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 Revenue & Customs. 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 on the basis that this amount isrecoverable. To date, the following amounts have been recorded: Cumulative 2005 2004 2003 2002 2001 £m £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 premiumto Groupcompany (12.5) - (2.1) (4.2) (4.5) (1.7) Underwriting profitrecognised by 4.1 1.2 1.9 1.0 - -Group company ------- ------- ------- ------ ------ ------Profit taken toprofit and lossaccount 29.1 1.2 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 Company Limited. The maximum potential exposure, if the Group were to lose its case, is £60.5m,but this would be expected to be offset by the recovery of approximately £15.3mof insurance premium tax paid on the sale of extended structural guarantees. Allof the £60.5m had been paid to HM Revenue & Customs at the half year end. NOTES TO THE FINANCIAL STATEMENTS13 PENSIONS The Group has adopted FRS17 'Retirement Benefits' in full with effect from 26December 2004. On adopting FRS17, we are required to change the accountingtreatment of our defined benefit pension schemes. Under FRS17 we are required toinclude the assets and liabilities of these schemes on the Group balance sheet.Current service costs, curtailment and settlement gains and losses, and netfinancial returns are included in the profit and loss account in the period towhich they relate. Actuarial gains and losses are included in the statement oftotal recognised gains and losses. We are required to show the effect of adopting FRS17 retrospectively and so wehave restated our comparative figures as shown below: GROUP PROFIT AND LOSS ACCOUNT Profit on Net interest Profit for the ordinary receivable/ financial activities (payable) period before interest £m £m £m52 weeks to 25 Dec 2004-------------------------As previouslystated 27.3 (2.3) 10.5Effect ofadopting FRS17 1.0 (5.4) (3.1) ---------- -------- ---------As restated 28.3 (7.7) 7.4 ---------- -------- --------- 24 weeks to 12 June 2004--------------------------As previouslystated 32.0 0.1 21.5Effect ofadopting FRS17 0.5 (2.5) (1.4) ---------- -------- ---------As restated 32.5 (2.4) 20.1 ---------- -------- --------- GROUP BALANCE SHEET Gross pension Net pension P&L Reserve provision liabilities (included in Provisions for liabilities & charges) £m £m £m52 weeks to 25 Dec 2004As previouslystated (7.4) - 286.5Effect ofadopting FRS17 7.4 (206.2) (202.3) ----------- ------- ------As restated - (206.2) 84.2 ----------- ------- ------ 24 weeks to 12 June 2004As previouslystated (5.9) - 319.2Effect ofadopting FRS17 5.9 (134.1) (130.0) ----------- ------- ------As restated - (134.1) 189.2 ----------- ------- ------ We have not revised any of the assumptions used to calculate our actuarialvaluation in the 24 weeks to 11 June 2005. We have used the same assumptions asat 25 December 2004, and they are disclosed in the 2004 annual report andaccounts. The change in the pension deficit between 25 December 2004 and 11 June2005 is due to the following factors: Analysis of the movement in the scheme deficit during the current £m period Deficit as at 25 December 2004 (before tax) (294.6) Total operating charge (10.9) Contributions 14.6 Net return on scheme assets and liabilities (4.8) Reduction due to exceptional item (note 6) 45.0 ------ Deficit as at 11 June 2005 (before tax) (250.7) ------ Tax credit on the deficit at 30% 74.9 ------Deficit as at 11 June 2005 (after tax) (175.8) ====== Independent review report by Deloitte & Touche LLP to MFI Furniture Group Plc Introduction We have been instructed by the company to review the consolidated financialinformation for the twenty-four weeks ended 11 June 2005 which comprises theprofit and loss account, the balance sheet, the cash flow statement, statementof total recognised gains and losses, reconciliation of movement in equityshareholders' funds and related notes 1 to 13. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolices and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland), and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the twenty-fourweek period ended 11 June 2005. Deloitte & Touche LLPChartered AccountantsLondon21 July 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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