Interim Results

Dunelm Group plc 27 February 2008 27 February 2008 Dunelm Group plc Interim Results Announcement Dunelm Group plc, the leading out-of-town specialist homewares retailer, announces its Interim Results for the 26 weeks to 29 December 2007. Financial Highlights • Sales up 10.6% to £197.4m (2006: £178.4m) • Like-for-like sales increase of 4.9% • Gross margin up 80 basis points to 44.9% (2006: 44.1%) • Operating profit up 16.3% to £27.6m (2006: £23.7m)* • Profit before taxation up 24.4% to £27.2m (2006: £21.9m)* • Underlying EPS (fully diluted) up 21.1% to 9.2p* (2006: 7.6p) • Strong net cash generation from operations of £39.7m (2006: £15.9m) • 2.0p interim dividend per share (2006: 0.8p)** * comparisons on an underlying basis, after adding back £4.0m of non-recurring costs in H1 FY07 ** FY07 interim dividend reflected period post IPO only Business Highlights • Recently voted UK's 3rd favourite retailer (Verdict Consumer Satisfaction Index 2008 Survey) • Operating margin of 14.0% reflects benefit of low cost operating model • 5 new superstores opened in the period, with two more opened since period end • 1 further unit committed this financial year; strong pipeline for FY09 • New warehouse has allowed reduction in stock levels • On-line store further developed, with over 9,000 products now available • Sales for 8 weeks to 23 February up 11.2% (up 0.9% on like-for-like basis) Commenting, Will Adderley, Chief Executive of Dunelm, said: "We are delighted to report another period of strong trading in the first half, with good sales and profit growth, increased market share and healthy cash flows. Two factors remain central to this success: our proposition of "simply value for money", offering the widest range of homewares in the UK; and our low cost business model allowing us to deliver an operating margin of 14%. "We are seeing clear benefits from the investments we have made in our infrastructure, and we continue to invest in expanding the superstore portfolio, opening seven new stores since June. "We have continued to grow in the second half of our financial year, with sales for the 8 weeks to 23 February up 11.2%, and up 0.9% like-for-like. We have recently seen weaker consumer demand, and we anticipate that trading in our second half will prove tougher than in the first. That said, we are confident that our robust and defensive business model will stand us in good stead as it has done in previous periods of market weakness." For further information please contact: Dunelm Group plc 0116 2644 356 Will Adderley, Chief Executive David Stead, Finance Director Hogarth Partnership 020 7357 9477 John Olsen Fiona Noblet Notes to Editors Dunelm is amongst the top 10 retailers operating in the £12bn UK homewares market. The Group has 88 stores, branded Dunelm Mill, of which 75 are out-of-town superstores. Dunelm employs over 5,500 full and part time staff, the vast majority of whom work in the stores. Dunelm was founded in 1979 as a market stall business, selling ready made curtains. The first shop was opened in Leicester in 1984 and over the following years the business developed into a successful chain of high street shops in the Midlands specialising in soft furnishings. The first Dunelm superstore was opened in 1991, leading to the Company's move into the broader homewares market. The superstores provide an average of 28,000 sq ft of selling space and offer an extensive range of approximately 20,000 products across a broad spectrum of categories, including bedding, curtains, gifts and seasonal items, cushions, bathroom products, kitchenware, quilts, pillows and rugs. Dunelm also specialises in offering a wide range of fabrics, made to measure curtains and a frequently changing series of special buys. The directors are passionate about ensuring that all ranges live up to Dunelm's philosophy of offering customers "Simply Value for Money". Dunelm also has an on-line store (www.dunelm-mill.com) with over 9,000 products available. Dunelm is listed on the London Stock Exchange (DNLM.L). Chairman's statement I am delighted to report that Dunelm continued to trade strongly in the first half of the financial year, delivering sales and profit growth, generating a healthy positive cash flow and at the same time continuing to invest in longer term growth through a successful new store opening programme. This is particularly pleasing given the difficult consumer and global economic background over the period as well as a significant number of gloomy statements from or about individual retailers and the retail sector generally. I believe that this performance again demonstrates the strength of Dunelm's business model: well stocked stores in out of town locations offering the widest range of home textiles and homewares in the UK, always at value for money prices, supported by a diverse and committed group of product suppliers; by first class teams within the business; and by a cost effective and scaleable infrastructure. In essence this is a simple formula, but it works because the management team retain such a strong focus on execution. Everything is geared towards giving customers the value for money which they deserve. I cannot allow this moment to pass without commenting on the career of Bill Adderley, co-founder of Dunelm with his wife Jean. Bill has chosen to step down from the Board with effect from the end of this month. It is thanks to his vision and flair that the business was created and has developed to its current position. For me personally it has been a privilege to follow in Bill's footsteps as Chairman. I have greatly appreciated his guidance over the last three years and his contributions to the Board have been invaluable. I am delighted to announce that Bill will continue to be associated with the business as Founder and Life President after stepping down from the Board. On behalf of all shareholders I would like to wish both Bill and Jean a long and happy retirement. GEOFF COOPER CHAIRMAN 27 February 2008 Chief Executive's review OVERVIEW Dunelm continues to go from strength to strength. According to data from Verdict, the market research agency, the homewares market as a whole grew by 3.4% in 2007. Our own growth was in double digits, so that we gained market share faster than any other major player. In a sector which remains fragmented, our share of 3.8% puts us in joint fifth place, excellent progress when compared with our share of under 2% as little as five years ago. We have achieved this growth by staying true to what Dunelm stands for - "simply value for money". We want all of our customers to feel they are getting good value from us, whether they are buying a set of face cloths for 99p or spending hundreds of pounds on having curtains custom made and fitted in their home. We believe that this proposition appeals to all segments of the population, as evidenced in the recent Customer Satisfaction Index research by Verdict in which we were voted the UK's third favourite retailer. FINANCIAL PERFORMANCE During the period, sales grew by 10.6% to £197.4m (2006: £178.4m), with a like-for-like increase of 4.9%. Product gross margin increased by 80 basis points. Selling prices remained stable after many years of price deflation, and we continued to experience improvements in bought in costs due to our increasing volumes. Operating profit grew significantly to £27.6m. This was 40% higher than last year's statutory operating profit, and 16.3% higher on an underlying basis (we added back £4.0m of non-recurring costs to last year's statutory operating profit of £19.7m, to show an underlying operating profit of £23.7m). One of the core strengths of Dunelm remains our low cost operating model. This is reflected in our operating margin of 14.0% in the first half, up by 70 basis points. We believe this keeps us firmly in the top tier of UK retailers. Profit before tax was £27.2m, an increase of 24.4% over the £21.9m recorded in the equivalent period last year on an underlying basis. Profit after tax reflects the projected full year effective tax rate of 31.5%. Fully diluted earnings per share were 9.2p, an increase of 21.1% against last year's underlying figure of 7.6p. Net cash generated from operations (after interest and tax) was £39.7m. Despite the addition of new stores, stock levels were actually reduced during the period as we saw the benefit of managing lines in the new warehouse more efficiently. Creditors increased by £17.3m reflecting short term timing on payments; we continue to pay our suppliers in accordance with agreed terms. We made capital investments of £13.1m during the period, including the acquisition of a freehold site at Leeds. Net debt reduced from £22.6m at the start of the period to £1.8m at the end. An interim dividend of 2.0p per share will be paid on 23 April to shareholders on the register at 4 April. NEW STORE OPENINGS During the period we opened new superstores in Shoreham, Aberdeen, Peterborough, Eastbourne and Dumfries. We therefore ended the period with 86 stores, of which 73 are out of town superstores. Since then, we have opened superstores in Leeds and Bournemouth with Sittingbourne to follow shortly. We monitor customer reaction to our new openings carefully, and we continue to see a very positive response in all locations. This gives us further confidence that we can expand the chain to at least 150 superstores across the UK. We intend to roll out as rapidly as we can, subject to the overriding requirement that new store appraisals must pass our rigorous financial hurdle (ie expected to pay back, on a discounted cash flow basis, within 36 months from opening). We believe that the dynamics of the retail warehouse market are currently in favour of strong occupiers and this is reflected in a healthy pipeline of potential new sites for opening in the next financial year - with agreements already signed for units in four locations. In order to secure attractive locations for further expansion, we will consider acquiring freehold units where we see an appropriate development opportunity. SPECIALIST OFFER Our 'Simply Value For Money' proposition remains at the heart of all we do, and we are constantly striving to improve the offer for customers. We continue to introduce new products in a controlled way across all areas of the store, and we have further strengthened the offer in recent months by giving a particular focus to availability of best-selling lines. INFRASTRUCTURE The new warehouse facility at Stoke, commissioned in 2006, has operated smoothly through the winter trading period and has provided a high quality of service to our stores. With our new stock management system now rolled out to all stores, we have much better information to control stock levels than ever before. An early win has been to identify old discontinued stock, allowing us to clear this aggressively in our winter sale. We will continue to exploit information from SAP to manage our stocks more efficiently. LONGER TERM OPPORTUNITIES We recognise the growing importance of the internet as a channel not only for sales, but also for customer communication. Our on-line offering has developed significantly since it was launched two years ago and even though e-commerce remains a small part of our business at present, we do now have over 9,000 products available for purchase on the web. We intend to improve the functionality of the site and to relaunch it later this calendar year. OUTLOOK The business has continued to grow in the eight weeks to 23 February with sales up by 11.2% in total and 0.9% on a like-for-like basis. We have recently seen weaker consumer demand, and we anticipate that trading in the second half will prove tougher than in the first. However, we believe that our business model will stand us in good stead during periods of market weakness, as it has done in the past. Customers can easily trade up or down in our stores and the average spend per transaction (under £30) is relatively low, so for most people, a trip to Dunelm does not represent a major outlay. With our very strong balance sheet and low operational gearing we are financially very robust and will continue to invest in the growth of the business. WILL ADDERLEY CHIEF EXECUTIVE 27 February 2008 Consolidated income statement (unaudited) For the 26 weeks ended 29 December 2007 26 weeks 26 weeks 52 weeks ended ended ended 29 December 30 December 30 June 2007 2006 2007 Notes £'000 £'000 £'000 Revenue 2 197,361 178,434 354,721 Cost of sales (161,053) (147,424) (297,481) ----------------------------- ------ --------- --------- --------- Gross profit 36,308 31,010 57,240 Administrative expenses ongoing (8,727) (7,289) (13,247) Administrative expenses non recurring (relating to IPO and warehouse transition) - (4,015) (3,178) ----------------------------- ------ --------- --------- --------- Total administrative expenses (8,727) (11,304) (16,425) Operating profit 27,581 19,706 40,815 ----------------------------- ------ --------- --------- --------- Analysed as: Operating profit before non-recurring 27,581 23,721 43,993 items Non-recurring items - (4,015) (3,178) ----------------------------- ------ --------- --------- --------- Financial income 608 103 503 Financial expenses (965) (1,947) (3,492) ----------------------------- ------ --------- --------- --------- Profit before taxation 27,224 17,862 37,826 Taxation 4 (8,574) (6,108) (13,198) ----------------------------- ------ --------- --------- --------- Profit for the period 18,650 11,754 24,628 ----------------------------- ------ --------- --------- --------- Earnings per share - basic 5 9.3p 5.9p 12.3p ----------------------------- ------ --------- --------- --------- Earnings per share - diluted 5 9.2p 5.8p 12.2p ----------------------------- ------ --------- --------- --------- Dividend proposed per share 6 2.0p 0.8p 3.0p ----------------------------- ------ --------- --------- --------- Dividend paid per share 6 3.0p 25.0p 25.8p ----------------------------- ------ --------- --------- --------- All activities relate to continuing operations. All profit is attributable to equity shareholders. Consolidated balance sheet (unaudited) As at 29 December 2007 29 December 30 December 30 June 2007 2006 2007 £'000 £'000 £'000 Non current assets Intangible assets 2,720 3,893 3,668 Property, plant and equipment 76,272 67,392 67,064 Deferred tax asset 1,390 2,231 3,276 -------------------------------- --------- --------- --------- Total non-current assets 80,382 73,516 74,008 -------------------------------- --------- --------- --------- Current assets Inventories 59,775 66,471 60,657 Trade and other receivables 12,494 11,336 8,996 Cash and cash equivalents 18,209 7,551 17,368 Assets held for sale - 5,998 - -------------------------------- --------- --------- --------- Total current assets 90,478 91,356 87,021 -------------------------------- --------- --------- --------- -------------------------------- --------- --------- --------- Total assets 170,860 164,872 161,029 -------------------------------- --------- --------- --------- Current liabilities Trade and other payables (68,635) (56,860) (51,464) Liability for current tax (6,073) (6,781) (6,310) Interest-bearing loans and borrowings - (67) (21) Provisions - (36) - -------------------------------- --------- --------- --------- Total current liabilities (74,708) (63,744) (57,795) -------------------------------- --------- --------- --------- Non current liabilities Interest-bearing loans and borrowings (20,000) (50,000) (40,000) -------------------------------- --------- --------- --------- Total non current liabilities (20,000) (50,000) (40,000) -------------------------------- --------- --------- --------- -------------------------------- --------- --------- --------- Total liabilities (94,708) (113,744) (97,795) -------------------------------- --------- --------- --------- Net assets 76,152 51,128 63,234 -------------------------------- --------- --------- --------- Equity Issued capital 2,008 2,006 2,006 Share premium 346 267 267 Retained earnings 73,798 48,855 60,961 -------------------------------- --------- --------- --------- Total equity attributable to equity holders of the parent 76,152 51,128 63,234 -------------------------------- --------- --------- --------- Consolidated cash flow statement (unaudited) For the 26 weeks ended 29 December 2007 26 weeks 26 weeks 52 weeks ended ended ended 29 December 30 December 30 June 2007 2006 2007 Note £'000 £'000 £'000 Cash flows from operating 7 47,109 21,416 49,300 activities Interest paid (1,099) (141) (1,536) Interest received 608 113 451 Tax paid (6,935) (5,497) (13,468) ----------------------------- ------ --------- --------- --------- Net cash generated from operating activities 39,683 15,891 34,747 ----------------------------- ------ --------- --------- --------- Cash flows from investing activities Proceeds on disposal of property, plant and equipment 301 6 7,200 Acquisition of property plant and equipment (13,063) (10,750) (14,130) Acquisition of intangible assets - (317) (996) ----------------------------- ------ --------- --------- --------- Net cash utilised in investing activities (12,762) (11,061) (7,926) ----------------------------- ------ --------- --------- --------- Cash flows from financing activities Proceeds from the issue of share capital 80 273 273 Purchase of treasury shares (47) - - Net funds (repaid)/raised from bank loan (20,000) 50,000 40,000 Repayment of finance lease liabilities - (83) (150) Dividends paid (6,024) (50,000) (51,605) ----------------------------- ------ --------- --------- --------- Net cash utilised in financing activities (25,991) 190 (11,482) ----------------------------- ------ --------- --------- --------- Net increase/(decrease) in cash and cash equivalents 930 5,020 15,339 Foreign exchange revaluations (68) (433) (956) Cash and cash equivalents at the beginning of the period 17,347 2,964 2,964 ----------------------------- ------ --------- --------- --------- Cash and cash equivalents at the end 18,209 7,551 17,347 of the period ----------------------------- ------ --------- --------- --------- Statement of changes in equity (unaudited) For the 26 weeks ended 29 December 2007 Issued Share Share Retained Total Capital premium earnings Equity £'000 £'000 £'000 £'000 As at 1 July 2006 2,000 - 87,066 89,066 Total recognised income & - - 11,754 11,754 expense Issue of share capital 6 267 - 273 Share based payments - - 35 35 Dividends - - (50,000) (50,000) ---------------------- ---------- ---------- ---------- ---------- As at 30 December 2006 2,006 267 48,855 51,128 Total recognised income & - - 12,874 12,874 expense Share based payments - - 199 199 Deferred tax on share based - - 327 327 payments Corporation tax on share options exercised - - 311 311 Dividends - - (1,605) (1,605) ---------------------- ---------- ---------- ---------- ---------- As at 30 June 2007 2,006 267 60,961 63,234 Total recognised income & - - 18,650 18,650 expense Issue of share capital 2 79 - 81 Purchase of treasury shares - - (47) (47) Share based payments - - 268 268 Deferred tax on share based - - (50) (50) payments Corporation tax on share options exercised - - 40 40 Dividends - - (6,024) (6,024) ---------------------- ---------- ---------- ---------- ---------- As at 29 December 2007 2,008 346 73,798 76,152 ---------------------- ---------- ---------- ---------- ---------- Notes to the interim results 1 BASIS OF PREPARATION The interim statements are prepared under the historical cost convention except for share based payments and derivative financial instruments which are stated at their fair value. In addition, assets classified as held for sale are valued at the lower of net book value and fair value, less costs to sell. The presentation of the interim statements requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experiences and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. 2 ACCOUNTING POLICIES The accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 June 2007, as described in those financial statements. 3 SEGMENTAL REPORTING The Group has only one class of business, retail, and operates entirely in the UK market. 4 TAXATION The taxation charge for the interim period has been calculated on the basis of the estimated effective tax rate for the full year of 31.5% (26 weeks ended 30 December 2006: 34.2%, or 31.8% excluding non-deductible one off IPO costs of £3.0 million). 5 EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit for the period attributable to equity shareholders by the weighted average number of ordinary shares in issue during the period. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period. Weighted average numbers of shares: 26 weeks 26 weeks 52 weeks ended ended ended 29 December 30 December 30 June 2007 2006 2007 ('000) ('000) ('000) Weighted average number of shares in issue during the period 200,688 200,108 200,363 Impact of share options 2,812 2,285 2,324 -------------------------------- --------- --------- --------- Number of shares for diluted earnings per share 203,500 202,393 202,687 -------------------------------- --------- --------- --------- In addition to standard earnings per share, an underlying earnings per share calculation is provided below which excludes the non recurring charges which arose last year in respect of IPO expenses and the warehouse transition. The earnings used for the standard and underlying calculations, together with the resultant basic earnings per share, are shown below: 26 weeks 26 weeks 52 weeks ended ended ended 29 December 30 December 30 June 2007 2006 2007 £'000 £'000 £'000 Profit for the period 18,650 11,754 24,628 Non recurring costs (net of tax) - 3,700 3,109 -------------------------------- --------- --------- --------- Profit for the period excluding one off costs 18,650 15,454 27,737 -------------------------------- --------- --------- --------- Basic earnings per share - standard 9.3p 5.9p 12.3p Basic earnings per share - underlying 9.3p 7.7p 13.8p -------------------------------- --------- --------- --------- Notes to the interim results continued 6 DIVIDENDS 26 weeks 26 weeks 52 weeks ended ended ended 29 December 30 December 30 June 2007 2006 2007 £'000 £'000 £'000 Interim for the period ended 30 December 2006 - paid 25.0p - 50,000 50,000 Interim for the period ended 30 June 2007 - paid 0.8p - - 1,605 Final for the period ended 30 June 2007 - paid 3.0p 6,024 - - -------------------------------- --------- --------- --------- 6,024 50,000 51,605 -------------------------------- --------- --------- --------- An interim dividend of 2.0p per ordinary share will be paid for the period ended 29 December 2007 which equates to £4.0m. The dividend will be paid on 23 April 2008 to shareholders on the register at the close of business on 4 April 2008. 7 CASH FLOWS FROM OPERATING ACTIVITIES 26 weeks 26 weeks 52 weeks ended ended ended 29 December 30 December 30 June 2007 2006 2007 £'000 £'000 £'000 Cash flows from operating activities Profit before taxation 27,224 17,862 37,826 Adjusted for: Net financing costs 357 1,844 2,989 Depreciation and amortisation 4,760 4,940 9,529 Share based payment expense 268 35 234 (Profit) on disposal of property, plant and equipment (258) (6) (1,130) -------------------------------- --------- --------- --------- Operating cash flows before movement in working capital 32,351 24,675 49,488 Decrease/(increase) in stocks 882 (10,126) (4,312) (Increase)/decrease in debtors (3,498) (1,312) 1,028 Increase in creditors 17,333 8,771 4,480 Increase/(decrease) in provisions 61 (22) (58) Foreign exchange losses (20) (570) (1,286) -------------------------------- --------- --------- --------- Cash flows from operating activities 47,109 21,416 49,300 -------------------------------- --------- --------- --------- 8 ANNOUNCEMENT The interim report was approved by the Board on 27 February 2008 and copies are available from the registered office at Fosse Way, Syston, Leicester LE7 1NF, or from the website at www.dunelm-mill.co.uk Responsibility statement of the directors in respect of the half-yearly financial report We confirm that to the best of our knowledge: • the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; • the interim management report includes a fair review of the information required by: (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. By Order of the Board WILL ADDERLEY DAVID STEAD CHIEF EXECUTIVE FINANCE DIRECTOR 27 February 2008 27 February 2008 This information is provided by RNS The company news service from the London Stock Exchange

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