Final Results
Galiform PLC
06 March 2008
GALIFORM Plc
PRELIMINARY RESULTS FOR THE 52 WEEKS ENDED 29 DECEMBER 2007
KEY RESULTS
£m unless stated 2007 2006
Continuing operations (before exceptional items):
Revenue 976.5 733.0
- Howdens Joinery 768.4 676.3 +13.6%
Operating profit 88.1 65.7 +34.1%
Profit before tax 79.8 57.2 +39.5%
Profit after tax 54.3 36.3 +49.6%
Basic earnings per share 9.1p 6.1p +49.2%
Net debt at end of period 3.3 4.1
Final dividend per share (proposed) 0.5p -
HIGHLIGHTS
Financial highlights
* Howden Joinery revenue increased by 13.6% to £768.4m (up 8.9% on same
depot basis).
• Group operating profit before exceptional items from continuing
operations increased by 34.1% to £88.1m, reflecting:
* depot contribution up £23.3m; £13.0m purchasing gain, including currency
effects; offset by £12.3m obsolete depot and warehouse stock provisions.
• Profit before tax and exceptional items from continuing operations rose
39.5% to £79.8m (£44.4m after exceptional items (2006: £25.0m)).
• Basic earnings per share before exceptional items from continuing
operations up 49.2% to 9.1p.
• Basic earnings per share from continuing and discontinued operations
7.3p (2006: (28.7)p).
• Net debt fell by £0.8m, resulting in the Group having net debt of £3.3m
at 29 December 2007.
• Final dividend of 0.5p per share proposed (2006: nil).
Operating highlights
• 54 new Howden Joinery depots opened in 2007, bringing total to 436 -
opportunity for network of over 600 depots identified.
• Supply of products and logistics services to MFI successfully concluded
on 21 December 2007.
• Restructuring and realignment with Howden Joinery of factory and
logistics operations proceeding to plan.
Current trading
• Trading has been satisfactory in the first part of 2008.
Galiform's Chief Executive, Matthew Ingle, said:
'2007 was a very pleasing year, both in terms of our financial performance and
operational and strategic developments. Building on the transformation of the
Group begun in 2006, when we refinanced the business, put our supply operations
on a commercial footing and sold MFI, it demonstrates the significant
opportunities we have ahead of us and our continuing ability to take the
business forward.
'Across the Group, there is a renewed vigour and focus.
'Howdens traded well throughout the year, particularly in the second half as it
reaped the benefits of new products, better design and closer relationships with
our supply operations. It continued to grow, opening 54 depots, and a number of
new initiatives were pursued.
'Our supply operations not only delivered the benefits from changing our
sourcing of appliances and fascias, they successfully managed and exited the
product supply and logistic services relationship with MFI. This has enabled a
restructuring of the supply operations that further aligns them with Howdens'
operations and its future requirements.
'We have made a positive start to the new financial year and will continue to
take the Group forward, both growing the business and strengthening our
competitive position.'
Enquiries
Investors/analysts:
Gary Rawlinson
Head of Investor Relations +44 (0)207 404 5959 (6 March only)
+44 (0)207 535 1127
+44 (0)7989 397527
Media:
Brunswick +44 (0)207 404 5959
Susan Gilchrist
Anna Jones
SUMMARY OF GROUP RESULTS
The information presented below relates to the 52 weeks to 29 December 2007 and
the 53 weeks to 30 December 2006, unless otherwise stated.
£m unless stated 2007 2006
Continuing operations (before exceptional items unless
stated):
Revenue 976.5 733.0
Gross profit 456.2 362.5
Operating profit 88.1 65.7
Profit before tax
- excluding exceptional items 79.8 57.2
- including exceptional items1 44.4 25.0
Earnings per share from continuing operations
- basic excluding exceptional items 9.1p 6.1p
- basic including exceptional items 8.8p 1.0p
Loss before tax from discontinued operations
- excluding exceptional items - 44.8
- including exceptional items 11.1 179.6
Earnings per share from continuing and discontinued operations
- basic excluding exceptional items 9.1p (0.6)p
- basic including exceptional items 7.3p (28.7)p
Net debt at end of period 3.3 4.1
1 Details of exceptional items for the 52 weeks to 29 December 2007 are shown
in note 3.
2 The Group currently operates two distinct businesses, Howden Joinery and
Supply, which form the basis on which the Group reports its primary segment
information for the 52 weeks to 29 December 2007. As previously advised,
for 2008, with the ending of the supply arrangements with MFI, the Group
intends to report its results as a single entity.
FINANCIAL REVIEW
The following discussion relates to continuing operations unless otherwise
stated.
2007 FINANCIAL RESULTS
Revenue rose by £243.5m to £976.5m, reflecting the increased sales of Howden
Joinery depots (£92.1m) and higher sales to MFI and Hygena Cuisines (£149.3m),
mostly to the former which is no longer being supplied.
Revenue £m 2007 2006
Group 976.5 733.0
including:
Howden Joinery depots 768.4 676.3
MFI/Hygena Cuisines 200.1 50.8
Howden Joinery depots traded well throughout the year, with the higher rate of
sales growth seen in the summer sustained to the end of the year. Depot revenue
increased by 13.6% to £768.4m, up 8.9% on a same depot basis. This reflected a
continuing increase in the turnover of mature depots (which have typically been
trading for more than six years), the benefit of the maturing profile of sales
from newer depots and new depot openings. Of particular note was the sales of
doors and joinery products, which benefited from the introduction of a more
extensive range of doors and a new joinery catalogue in the autumn of 2006. The
increase in sales also reflected improvements to the product range, both in
terms of the scope of the kitchens offered, and new products introduced to meet
the ever-higher aspirations of all end-consumers, such as 'range' cookers. This
led to both increased volume and additional 'add-on' sales, increasing the
average value of kitchen sales. In addition, a number of depots saw sales
increase as a result of flood damage to properties.
The growth in sales to MFI and Hygena Cuisines reflected MFI being an external
customer throughout 2007, having been part of the Group until October 2006.
The underlying gross margin on depot sales was similar to that seen in 2006.
However, the recorded margin was lower because of the impact of an increase in
the provision for obsolete depot stock at the end of the year (see below).
Excluding exceptional items, Group gross profit increased by £93.7m to £456.2m.
With selling and distribution costs and administrative expenses increasing by
£71.2m, operating profit before exceptional items was £88.1m (2006: £65.7m).
Operating profit before exceptional items £m 2007 2006
Group 88.1 65.7
including:
Howden Joinery 145.1 132.6
Supply (26.6) (39.6)
Corporate (24.7) (24.2)
The rise in sales through existing and new depots, after allowing for
sales-related cost increases, contributed £23.3m to the growth in operating
profit. This was partly offset by an increase in non-sales related Howden
Joinery costs of £4.9m and an increase of £5.9m in the provision for obsolete
depot stock, primarily arising from a decision to conclude the bedroom test and
the discontinuation of certain slow-selling kitchen ranges and joinery doors.
The decision to end the bedroom test was taken in light of the lower than hoped
for level of take-up by our customers and the fact that storage space being
utilised was constraining space availability for better selling core products.
The slow down of sales of certain products arose from the revitalisation of our
product range, with a number of market leading products, over the last 12 months
or so.
The main elements of the increase in non-sales related Howden Joinery costs were
increased expenditure on promotional material, and expenditure incurred in
relation to a major new product design initiative to address the issue of the
kitchens that will be required to meet market requirements beyond the short
term. In addition, costs were incurred in relation to the 'Trade Expo Centre',
which opened in May, and two mobile display vehicles, which were commissioned in
the autumn.
The move from manufacturing to buying-in fascias and own-brand appliances that
was instigated in the first half of 2006, as part of the drive to bring a new
commercial focus to purchasing, thereby significantly reduced supply costs. In
addition, there was a currency gain of a similar size, arising from the
strengthening of the pound against the euro and the US dollar. Together, these
contributed £13m to the increase in operating profit. Other savings in supply
operations costs were offset by an increase in the provision for obsolete
warehouse stock that was of the same magnitude as that for depot stock. This
also primarily arose from the decision to conclude the bedroom test and the
discontinuation of certain slow-selling kitchen ranges and joinery doors.
Costs of other areas of the Group increased by £3.1m, mainly reflecting
provisions made in respect of surplus property.
The net interest charge fell £0.2m to £8.3m. The net result was profit before
tax and exceptional items of £79.8m (2006: £57.2m).
Exceptional charges before tax totalled £35.4m, giving profit before tax of
£44.4m (2006: £25.0m). These mainly arose from the restructuring of supply
operations announced in June 2007.
The tax charge on profit before tax excluding exceptional items was £25.5m, an
effective tax rate of 32.0%. In relation to exceptional charges, there was a tax
credit of £10.1m. In addition, the Group has recognised deferred tax assets in
certain of its subsidiaries (£23.9m) that were previously unrecognised. Given
their size and one-off nature, they have been treated as exceptional items (see
note 5).
Basic earnings per share from continuing operations excluding exceptional items
was 9.1p (2006:6.1p) and including exceptional items was 8.8p (2006: 1.0p).
There was an exceptional loss from discontinued operations before tax of £11.1m.
Basic earnings per share from continuing and discontinued operations was 7.3p
(2006: (28.7p)).
Net cash flows from operating activities were £25.7m. Within this, cash
expenditure on exceptional items totalled £11.9m, mainly in relation to the
Supply restructuring. Payments to acquire fixed and intangible assets totalled
£21.2m (2006: £30.3m). In 2007, net debt fell by £0.8m (2006: £51.4m), such that
as at 29 December 2007, the Group had net borrowings of £3.3m, compared with net
borrowings of £4.1m at the start of the year.
Compared with the previous year end, the pension liability shown on the balance
sheet at 29 December 2007 was over £100m lower at £83.5m (30 December 2006:
£189.2m). The major contributors to this fall were a reduction of the schemes'
liabilities arising from an increase in the liability discount rate and the
Company's contribution to clear the actuarial deficit (over a 10-year period)
that was agreed in 2006.
A new triennial actuarial review of the pension schemes will be undertaken on
behalf of the trustees in 2008.
DIVIDEND
The Board is recommending a final dividend of 0.5p per share (2006: nil) to be
paid on 13 June 2008 to shareholders registered at close of business on 30 May
2008.
The Board is assessing an appropriate ongoing dividend policy and will provide
details at a later date.
2008
The sale of MFI has transformed the prospects of Galiform, allowing us to access
efficiencies across the business and liberating us to focus on pursuing the
opportunities to grow and develop Howden Joinery. This can be seen in the
development of profit before tax and exceptional items from a loss of £4.9m in
2005 (under UK GAAP), including MFI, to a profit of £79.8m in 2007 (under IFRS),
and is clearly reflected in the progress of earnings per share.
The loss of revenue from no longer supplying products to MFI will not have an
impact on profit in 2008. However, because elements of logistics costs are only
semi-variable, the loss of revenue arising from the ending of the supply of
logistics services to MFI means that the cost to the on-going business has
increased. This 'stranded cost' is the major component of an expected £15m
increase in logistics costs in 2008.
We are actively pursuing opportunities to deal with these challenges.
BANKING ARRANGEMENTS
The Group's bank facility was due to expire in May 2009. This has now been
extended until May 2011.
OPERATIONAL REVIEW
The overriding strategic goal of Galiform was first set out in the original
Howden Joinery business plan and remains unaltered. It is 'To supply from local
stock nationwide the small builder's routine kitchen and joinery requirements,
assuring no call back quality and best local price'.
DEPOT NETWORK
In 2007, 54 new Howden Joinery depots were opened. In addition, 2 existing
depots were relocated and 5 were extended. Of the 436 depots open at the start
of 2008, just under 40% were in their sixth year of trading or less and continue
to mature.
A review of the opportunities for additional depots, taking account of
demographic information and the locations of our existing network, has concluded
that the number of depots can be increased to more than 600. Some of these will
be in places where we have no presence; others will be in conurbations that
warrant additional depots.
This year, we are planning to open around 50 depots.
PRODUCT SUPPLY AND LOGISTICS SERVICES
The product supply and logistics services arrangements with MFI were
successfully concluded on 21 December 2007, although Galiform will continue to
provide certain IT and financial services to MFI until 18 October 2008.
MANUFACTURING AND LOGISTICS OPERATIONS
In response to the ending of product supply and logistics services arrangements
with MFI, the restructuring of manufacturing and logistics operations has
proceeded to plan.
By the year end, various facilities had been closed and activities had been
transferred to other locations, as a result of which 340 employees had left the
operations by the end of December. Further rationalisation has taken place since
then and with the restructuring of logistics operations in Northampton due for
completion by the end of March 2008, a further 190 employees will have left the
Group.
POSITIONING FOR GROWTH
As well as rationalising the scale of product supply and logistics operations, a
key aspect of the restructuring has been the realignment of these operations
with the requirements of Howden Joinery. Internally, 'flat pack' box
manufacturing capacity at the Howden factory has been converted to 'rigid box'
capacity. Externally, the supply base has been strengthened to enable better
product design, new product opportunities and improved supply availability.
These changes will provide the flexibility to better manage the requirements of
Howden Joinery's key October trading period, when demand can be more than twice
that seen in other periods, and the capacity to handle the expected growth of
demand in coming years.
TRADE EXPO CENTRE
Since the autumn, the work of Howden Joinery's Trade Expo Centre has been
augmented by two mobile display vehicles. One of these focuses on products aimed
at the local authority/housing association sector of the market, the other
showcasing new products.
These initiatives have given us a focal point through which to engage with
builders and their customers on their thoughts about various aspects of the
business, including new products and their specific requirements.
RELATIONSHIP WITH MEP
CLOSING CASH ADJUSTMENTS
Under the terms of the sale by Galiform of MFI Retail (Holdings) Limited and its
subsidiaries ('MFI') to MEP Mayflower Limited ('MEP'), MEP acquired economic
control of MFI from 5 August 2006 (the 'effective date'), including all
cashflows generated by MFI between the effective date and completion of the sale
on 18 October 2006. Galiform made a payment of approximately £7.7m in
respect of this period at completion of the sale. This amount was subject to
adjustment.
Galiform has agreed to pay MEP a further £4.9m by way of an adjustment
but MEP believes that a further adjustment of approximately £8.3m should
also be paid by Galiform. Whether this additional amount will be payable is to
be determined by an independent expert who has recently been appointed by the
parties for this purpose. The expert determination process is expected to last
approximately eight weeks.
NET ASSET VALUE CLAIM
Separately, under the terms of the sale, Galiform gave a warranty relating to
the net value of some of the assets and liabilities of MFI on the effective
date, against which MEP could claim for up to two years after it acquired MFI.
Over the course of the past year, MEP has made a number of notifications to
Galiform alleging breach of this warranty. Each notification has been thoroughly
investigated by Galiform's external lawyers and forensic accountants.
Galiform has strongly rejected MEP's allegations and MEP recently began legal
proceedings against Galiform formally claiming breach of the warranty. Having
taken extensive advice from external lawyers and forensic accountants, the Board
considers that MEP's total claim (the 'net asset value claim') is grossly
inflated, principally because the majority of the claim is entirely without
merit and MEP has chosen, incorrectly, to ignore a substantial number of
offsetting items.
To date, MEP's total gross claim amounts to approximately £57m. However,
in the light of the advice it has received, the Board is confident of the
strength of its case and is firmly of the view that only a small fraction of
this amount (if any) will ultimately be payable.
ACCOUNTING
Galiform has made provision for amounts which may become payable in respect of
both 'closing cash adjustments' and the 'net asset value claim' referred to
above. In the light of the advice it has received, the Board believes that such
provision is adequate.
CURRENT TRADING
Howden Joinery has made a satisfactory start to 2008, as it continued to trade
well. Sales in the first two periods (to 24 February) increased by 11.8%
compared with the comparative period last year, up 7.1% on a same depot basis.
Although the economic outlook for 2008 may be uncertain, over the last two years
we have taken a number of major steps to improve our already strong position in
the market. This year, we will continue to grow the business and strengthen our
competitive position. Along with the growth inherent in our Howden Joinery depot
portfolio, the Board is confident that the Group is well positioned to face the
current year and to deal with any challenges and opportunities that the market
will present.
Consolidated income statement
52 weeks to 29 December 2007 53 weeks to 30 December 2006
Before Exceptional Total Before Exceptional Total
exceptional items exceptional items
items items items
(note 3)
Notes £m £m £m £m £m £m
-----------------------------------------------------------------------------------------------------------------------
Continuing operations:
Revenue 2 976.5 - 976.5 733.0 - 733.0
Cost of sales (520.3) (6.9) (527.2) (370.5) (12.8) (383.3)
-----------------------------------------------------------------------------------------------------------------------
Gross profit 456.2 (6.9) 449.3 362.5 (12.8) 349.7
Selling & distribution costs (307.5) (15.6) (323.1) (241.6) (12.7) (254.3)
Administrative expenses (61.5) (6.6) (68.1) (56.2) 7.8 (48.4)
Other operating expenses - (6.3) (6.3) - (14.5) (14.5)
Share of joint venture profits 0.9 - 0.9 1.0 - 1.0
-----------------------------------------------------------------------------------------------------------------------
Operating profit 2 88.1 (35.4) 52.7 65.7 (32.2) 33.5
Finance income 1.3 - 1.3 3.5 - 3.5
Finance expense (9.9) - (9.9) (7.0) - (7.0)
Other finance charges - pensions 0.3 - 0.3 (5.0) - (5.0)
-----------------------------------------------------------------------------------------------------------------------
Profit before tax 79.8 (35.4) 44.4 57.2 (32.2) 25.0
Tax on profit 4 (25.5) 34.0 8.5 (20.9) 2.0 (18.9)
-----------------------------------------------------------------------------------------------------------------------
Profit after tax from continuing
operations 54.3 (1.4) 52.9 36.3 (30.2) 6.1
-----------------------------------------------------------------------------------------------------------------------
Discontinued operations:
-----------------------------------------------------------------------------------------------------------------------
Loss before tax - (11.1) (11.1) (44.8) (134.8) (179.6)
-----------------------------------------------------------------------------------------------------------------------
Tax on loss - 2.1 2.1 5.1 (2.3) 2.8
-----------------------------------------------------------------------------------------------------------------------
Loss after tax from discontinued
operations - (9.0) (9.0) (39.7) (137.1) (176.8)
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Profit/(loss) for the period 54.3 (10.4) 43.9 (3.4) (167.3) (170.7)
-----------------------------------------------------------------------------------------------------------------------
Earnings per share: 5 pence pence
From continuing operations
Basic earnings per 10p share 8.8 1.0
Diluted earnings per 10p share 8.6 1.0
From continuing and discontinued operations
Basic earnings per 10p share 7.3 (28.7)
Diluted earnings per 10p share 7.2 (28.4)
-----------------------------------------------------------------------------------------------------------------------
Consolidated balance sheet
At 29 December At 30 December
2007 2006
Notes £m £m
--------------------------------------------------------------------------------
Non current assets
Intangible assets 2.5 1.9
Property, plant and
equipment 91.2 97.1
Investments 10.1 9.7
Deferred tax asset 45.6 60.6
--------------------------------------------------------------------------------
149.4 169.3
--------------------------------------------------------------------------------
Current assets
Inventories 101.0 126.1
Trade and other
receivables 122.3 102.4
Other assets 2.4 3.1
Cash at bank and in
hand 33.6 53.2
--------------------------------------------------------------------------------
259.3 284.8
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total assets classified
as held for sale 3.1 -
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total assets 411.8 454.1
--------------------------------------------------------------------------------
Current liabilities
Trade and other payables (201.1) (244.4)
Current tax liability (8.5) (3.0)
Current borrowings (3.3) (2.2)
--------------------------------------------------------------------------------
(212.9) (249.6)
--------------------------------------------------------------------------------
Non current liabilities
Borrowings (36.0) (58.2)
Other payables due in
more than one year - (10.8)
Pension liability (83.5) (189.2)
Deferred tax liability (2.9) (4.0)
Provisions 7 (39.4) (19.8)
--------------------------------------------------------------------------------
(161.8) (282.0)
--------------------------------------------------------------------------------
Total liabilities (374.7) (531.6)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net assets/(liabilities) 37.1 (77.5)
--------------------------------------------------------------------------------
Equity/(deficit)
Called up share capital 8 63.4 63.2
Share premium account 8 85.0 83.7
ESOP reserve 8 (32.6) (43.2)
Other reserves 8 28.1 28.1
Retained earnings 8 (106.8) (209.3)
--------------------------------------------------------------------------------
Total equity/(deficit) 37.1 (77.5)
--------------------------------------------------------------------------------
Consolidated cash flow statement
52 weeks to 53 weeks to
29 December 30 December
2007 2006
Notes £m £m
--------------------------------------------------------------------------------
Net cash flows from operating
activities 9 25.7 70.0
Cash flows from investing activities
Interest received 1.3 3.5
Sale of subsidiary undertakings - (2.1)
Payments to acquire property, plant
and equipment and intangible assets (21.2) (30.3)
Dividend received from joint venture
investment 0.5 -
Receipts from sale of property, plant
and equipment and intangible assets - 12.0
--------------------------------------------------------------------------------
Net cash used in investing activities (19.4) (16.9)
--------------------------------------------------------------------------------
Cash flows from financing activities
Interest paid (8.4) (6.3)
Receipts from issue of own share
capital 1.5 2.9
Receipts from release of shares from
share trust 4.9 1.6
Decrease in loans (24.3) (89.6)
Repayment of capital element of
obligations under finance leases (0.3) -
Decrease in other assets 0.7 2.4
--------------------------------------------------------------------------------
Net cash used in financing activities (25.9) (89.0)
--------------------------------------------------------------------------------
Net decrease in cash and cash
equivalents (19.6) (35.9)
Cash and cash equivalents at
beginning of period 53.2 89.0
Currency translation differences - 0.1
--------------------------------------------------------------------------------
Cash and cash equivalents at end of
period 9 33.6 53.2
--------------------------------------------------------------------------------
For the purposes of the cash flow statement, cash and cash equivalents are
included net of overdrafts payable on demand. These overdrafts are excluded from
the definition of cash and cash equivalents disclosed on the balance sheet.
Consolidated statement of recognised income and expense
--------------------------------------------------------------------------------
52 weeks to 53 weeks to
29 December 30 December
2007 2006
£m £m
--------------------------------------------------------------------------------
Actuarial gains on defined benefit
schemes 87.2 64.2
Deferred tax on actuarial gain on
defined benefit pension schemes (26.1) (19.2)
Effect of change in tax rate on
deferred tax on actuarial
gains/losses (3.6) -
Currency translation differences 1.1 (0.3)
Net income recognised directly in
equity 58.6 44.7
Profit/(loss) for the financial
period 43.9 (170.7)
--------------------------------------------------------------------------------
Total recognised income and expense
for the period 102.5 (126.0)
--------------------------------------------------------------------------------
Notes to the Preliminary Results for the 52 weeks ended 29 December 2007
1 Basis of preparation
The Group's accounting period covers the 52 weeks to 29 December 2007. The
comparative period covered the 53 weeks to 30 December 2006.
The preliminary results for the year ended 29 December 2007 have been prepared
in accordance with the recognition and measurement criteria of International
Financial Reporting Standards ('IFRS') adopted for use in the European Union and
International Financial Reporting Interpretations Committee interpretations, and
with those parts of the Companies Act 1985 applicable to companies reporting
under IFRS. The accounting policies followed are the same as those detailed
within the 2006 Annual Report and Accounts, which are available on the Group's
website (www.galiform.com). Whilst the financial information included in this
preliminary announcement has been computed in accordance with IFRS, this
announcement does not itself contain sufficient information to comply with IFRS.
The financial information set out in this announcement does not constitute the
statutory accounts for the Group within the meaning of Section 240 of the
Companies Act 1985. The statutory accounts for the 53 weeks to 30 December 2006
have been filed with the Registrar of Companies. The statutory accounts for the
52 weeks ended 29 December 2007 will be filed in due course. The auditors'
reports on these accounts were unqualified and did not contain any statement
under sections 237(2) or (3) of the Companies Act 1985.
2 Segmental analysis
The following tables show the segmental analysis of external turnover and
operating profit by business segment. This is based on the commercial and legal
structure of the Group, in which Howden Joinery, Supply and Corporate are
separate entities.
External revenue 52 weeks to 53 weeks to
29 December 30 December
2007 2006
£m £m
--------------------------------------------------------------------------------
Continuing operations
Howden Joinery 768.4 676.3
Supply 200.1 50.8
Other 8.0 5.9
--------------------------------------------------------------------------------
976.5 733.0
Retail and other discontinued operations - 546.8
--------------------------------------------------------------------------------
Total revenue 976.5 1,279.8
--------------------------------------------------------------------------------
Operating profit/(loss)
Before exceptional items Exceptional items After exceptional items
52 weeks 53 weeks 52 weeks 53 weeks 52 weeks 53 weeks
to 29 Dec to 30 Dec to 29 Dec to 30 Dec to 29 Dec to 30 Dec
2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m
---------------------------------------------------------------------------------
Continuing
operations
Howden Joinery 145.1 132.6 (0.1) - 145.0 132.6
Supply (26.6) (39.6) (33.3) (42.5) (60.0) (82.1)
Corporate (27.4) (24.2) - - (3.9) (4.1)
Other (3.9) (4.1) (2.0) 10.3 (29.4) (13.9)
Share of joint
venture 0.9 1.0 - - 0.9 1.0
---------------------------------------------------------------------------------
88.1 65.7 (35.4) (32.2) 52.7 33.5
Retail and
other
discontinued
operations - (44.8) (11.1) (134.8) (11.1) (179.6)
---------------------------------------------------------------------------------
Total
operating
profit 88.1 20.9 (46.5) (167.0) 41.6 (147.1)
---------------------------------------------------------------------------------
3 Exceptional items
Exceptional items charged to the income statement in the 52 weeks to 29 December
2007 are analysed as follows:
--------------------------------------------------------------------------------------------------------------------
Cost of Other Administration Selling and Total
sales operating expenses distribution
Notes income costs £m
-------------------------------------------------------------------------------------------------------------------
Continuing operations:
Group restructuring 3(a) 6.9 7.4 6.6 15.6 36.5
Other profit and loss on disposal - (1.1) - - (1.1)
-------------------------------------------------------------------------------------------------------------------
Total charged to operating
profit 6.9 6.3 6.6 15.6 35.4
Tax credit on exceptional items in
continuing operations (10.1)
-------------------------------------------------------------------------------------------------------------------
Total operating exceptional items
after tax 25.3
Exceptional tax credit 3(b) (23.9)
-------------------------------------------------------------------------------------------------------------------
Net exceptional items in
continuing operations 1.4
-------------------------------------------------------------------------------------------------------------------
Discontinued operations: 3(c)
Business rates and other
property costs 7.1
Professional fees associated
with discontinued operations 4.0
-------------------------------------------------------------------------------------------------------------------
Total discontinued exceptional
items before tax 11.1
Tax on discontinued exceptional
items (2.1)
-------------------------------------------------------------------------------------------------------------------
Net exceptional items in
discontinued operations 9.0
-------------------------------------------------------------------------------------------------------------------
Continuing and discontinued operations:
Total exceptional items before tax 46.5
Tax on exceptional items (12.2)
Exceptional tax credit (23.9)
-------------------------------------------------------------------------------------------------------------------
Total exceptional items after tax 10.4
-------------------------------------------------------------------------------------------------------------------
(a) 2007 restructurings
In June 2007, the Group announced that it was restructuring the Supply business,
decreasing the scale and complexity of Supply's manufacturing, warehousing, and
transport operations. The IT restructuring involves relocating and restructuring
the IT department, in response to the new business structure of the continuing
group.
The costs of restructuring comprised the followings items:
£m
Supply restructuring:
- site closure/relocation costs 6.7
- provision for future rent payable on vacated sites 10.1
- redundancies and other staff costs 10.4
- asset write offs/impairments 7.4
- other admin 0.2
- release of exceptional stock provision made in 2006 (1.5)
--------------------------------------------------------------------------------
33.3
IT restructuring:
- redundancies and other staff costs 1.2
- asset write offs 1.6
- systems separation 0.4
--------------------------------------------------------------------------------
Total restructuring costs before tax 36.5
Tax credit on restructuring costs (10.1)
--------------------------------------------------------------------------------
Total restructuring costs after tax 26.4
--------------------------------------------------------------------------------
(b) Exceptional tax credit
This is explained in note 5.
(c) Discontinued operations
A change to the law regarding business rates on vacant properties has been
substantially enacted during the period. Prior to the change, there were no
business rates to pay for the first three months that a property was empty, and
then there was a business rates exemption of 50% for retail properties and 100%
for warehouses. Following the change, there is still an exemption for the first
three months, but after that time companies now have to pay business rates at
100% for all properties.
The amount provided in the period related primarily to business rates on
properties which were part of the Group's former MFI Retail operations, which
were discontinued in 2006. On the disposal of the MFI Retail operations, the
continuing Group remained the ultimate guarantor for these properties and made
such provision for rent payable in empty periods as was considered necessary at
the time. That provision was included in the £31.7m item 'Exceptional provisions
on disposal of MFI Retail Limited' included in the 2006 accounts. Of the total
£7.1m provided in the period, £5.6m relates to business rates, while the balance
relates to other related property expenses. Discontinued exceptional items also
include a £4m charge in relation to professional fees. There is an associated
tax credit of £2.1m in respect of discontinued exceptional items.
4 Tax
UK Corporation tax is calculated at 30% (2006: 30%) of the estimated assessable
profit for the period. The effective rate of tax for pre-exceptional continuing
operations of 32.0% reflects the high level of disallowable depreciation on
assets not qualifying for capital allowances, offset by a £1.8m deferred tax
credit reflecting the change in the rate of corporation tax from 30% to 28%. The
effective rate of tax would have been 34.2% without this deferred tax
adjustment.
It is expected that the Group's effective rate of tax for continuing operations
will be around 32% for 2008.
As the financial condition of the Group has improved significantly over the
period, the Group has recognised £23.9m of deferred tax assets in certain of its
subsidiaries. The relevant subsidiaries were loss making in 2006 and therefore
no deferred tax asset was booked on the balance sheet. Given the size and
one-off nature, this deferred tax credit has been treated as an exceptional
item.
5 Earnings per share
--------------------------------------------------------------------------------------------------
52 weeks to 29 December 2007 53 weeks to 30 December 2006
Weighted Weighted
average average
number Earnings number Earnings
Earnings of shares per share Earnings of shares per share
£m m P £m m P
--------------------------------------------------------------------------------------------------
From continuing operations
Basic earnings per share 52.9 598.6 8.8 6.1 594.4 1.0
Effect of dilutive share
options - 13.8 (0.2) - 7.2 -
--------------------------------------------------------------------------------------------------
Diluted earnings per
share 52.9 612.4 8.6 6.1 601.6 1.0
--------------------------------------------------------------------------------------------------
From discontinued
operations
Basic earnings per share (9.0) 598.6 (1.5) (176.8) 594.4 (29.7)
Effect of dilutive share
options - 13.8 - - 7.2 0.3
--------------------------------------------------------------------------------------------------
Diluted earnings per
share (9.0) 612.4 (1.5) (176.8) 601.6 (29.4)
--------------------------------------------------------------------------------------------------
From continuing and discontinued operations
Basic earnings per share 43.9 598.6 7.3 (170.7) 594.4 (28.7)
Effect of dilutive share
options - 13.8 (0.2) - 7.2 0.3
--------------------------------------------------------------------------------------------------
Diluted earnings per
share 43.9 612.4 7.2 (170.7) 601.6 (28.4)
--------------------------------------------------------------------------------------------------
From continuing operations excluding exceptional items
Basic earnings per share 54.3 598.6 9.1 36.3 594.4 6.1
Effect of dilutive share
options - 13.8 (0.2) - 7.2 (0.1)
--------------------------------------------------------------------------------------------------
Diluted earnings per
share 54.3 612.4 8.9 36.3 601.6 6.0
--------------------------------------------------------------------------------------------------
Basic earnings per share 54.3 598.6 9.1 (3.4) 594.4 (0.6)
Effect of dilutive share
options - 13.8 (0.2) - 7.2 -
--------------------------------------------------------------------------------------------------
Diluted earnings per
share 54.3 612.4 8.9 (3.4) 601.6 (0.6)
--------------------------------------------------------------------------------------------------
6 Dividends
No distributions to equity holders were made in 2006 and 2007. The Board is
recommending a final dividend for 2007 of 0.5p per share, to be paid on 13 June
2008.
7 Provisions
--------------------------------------------------------------------------------
Property Other Total
provision provisions
£m £m £m
--------------------------------------------------------------------------------
At 25 December 2005 1.2 - 1.2
Additional provision in the period 18.6 - 18.6
--------------------------------------------------------------------------------
At 30 December 2006 19.8 - 19.8
Additional provision in the period 22.0 1.0 23.0
Provision released in the period (0.3) - (0.3)
Utilisation of provision in
the period (3.1) - (3.1)
--------------------------------------------------------------------------------
At 29 December 2007 38.4 1.0 39.4
--------------------------------------------------------------------------------
The property provision mainly covers onerous leases. For any such leases, the
Group provides for any shortfall between rent payable and rent receivable on any
non-trading leased properties. The provision is based on the period until the
end of the lease, or until the Group can cover the shortfall by subletting,
assigning or surrendering the lease. None of the provisions are short term. The
property provision also includes amounts for any related shortfalls in business
rates on these properties, and for dilapidations.
Other provisions relate to amounts due in respect of a contractual termination.
8 Reconciliation of movement in reserves
----------------------------------------------------------------------------------------------------
Called up Share premium ESOP reserve Other reserves Retained Total
share capital account earnings
£m £m £m £m £m £m
----------------------------------------------------------------------------------------------------
At 24 December 2005 62.7 81.3 (48.6) 28.1 (82.3) 41.2
First time adoption
of IAS 32 and 39 - - - - (0.9) (0.9)
----------------------------------------------------------------------------------------------------
Opening equity at
24 December
2005, restated 62.7 81.3 (48.6) 28.1 (83.2) 40.3
Net actuarial gain
on defined
benefit scheme - - - - 44.9 44.9
Foreign exchange - - - - (0.3) (0.3)
Accumulated loss
for the period - - - - (170.7) (170.7)
Issue of new shares 0.5 2.4 - - - 2.9
Net movement in ESOP - - 5.4 - - 5.4
----------------------------------------------------------------------------------------------------
As at 30 December
2006 63.2 83.7 (43.2) 28.1 (209.3) (77.5)
Net actuarial gain
on defined
benefit scheme - - - - 61.1 61.1
Effect of change
in tax rate, taken
through reserves - - - - (3.6) (3.6)
Foreign exchange - - - - 1.1 1.1
Accumulated profit
for the period - - - - 43.9 43.9
Issue of new shares 0.2 1.3 - - - 1.5
Net movement in ESOP - - 10.6 - - 10.6
----------------------------------------------------------------------------------------------------
At 29 December 2007 63.4 85.0 (32.6) 28.1 (106.8) 37.1
----------------------------------------------------------------------------------------------------
The ESOP Reserve includes shares in Galiform plc with a market value on the
balance sheet date of £33.9m (2006: £54.9m), which have been purchased in the
open market and which are held by the Group's Employee Share Trusts in order to
satisfy share options and awards made under the Group's various share-based
payment schemes.
The Other Reserve was created in the year to 30 April 1994, following a Group
reconstruction. It is distributable.
9 Notes to the cash flow statement
(a) Net cash flows from operating activities
----------------------------------------------------------------------------------
52 weeks to 53 weeks to
29 December 30 December
2007 2006
£m £m
----------------------------------------------------------------------------------
Group operating profit/(loss) before tax and interest
Continuing operations 52.7 33.5
Discontinued operations (11.1) (179.6)
----------------------------------------------------------------------------------
41.6 (146.1)
Adjustments for:
Depreciation and amortisation 17.4 40.9
Share-based payments charge 5.7 3.8
Share of joint venture profits (0.9) (1.0)
Loss/(profit) on disposal of property,
plant and equipment and intangible
assets (1.1) 14.5
Other exceptional items (before tax) 47.6 152.5
----------------------------------------------------------------------------------
Operating cash flows before movements in
working capital 110.3 64.6
Movements in working capital and exceptional items
Decrease/(increase) in stock 25.1 (18.6)
Increase in trade and other receivables (19.9) (59.6)
(Decrease)/increase in trade and other
payables (60.0) 115.4
Difference between pensions operating
charge and cash paid (18.2) (10.7)
HMRC refund re structural guarantee - 21.8
Net cash flow - exceptional items (11.9) (44.5)
----------------------------------------------------------------------------------
(84.9) 3.8
----------------------------------------------------------------------------------
Cash generated from operations 25.4 68.4
Tax reclaimed 0.3 1.6
----------------------------------------------------------------------------------
Net cash flows from operating activities 25.7 70.0
----------------------------------------------------------------------------------
Net cash flow from operating activities comprises:
Continuing operations 25.7 154.5
Discontinued operations - (84.5)
----------------------------------------------------------------------------------
25.7 70.0
----------------------------------------------------------------------------------
(b) Reconciliation of movement in net debt
--------------------------------------------------------------------------------
52 weeks to 53 weeks to
29 December 30 December
2007 2006
£m £m
--------------------------------------------------------------------------------
Net debt at start of period (4.1) (55.5)
Net decrease in cash and cash
equivalents (19.6) (35.9)
Net decrease in current asset
investments (0.7) (2.4)
Decrease in bank borrowings 24.3 89.6
Increase in finance leases (3.2) -
Currency translation differences - 0.1
--------------------------------------------------------------------------------
Net debt at end of period (3.3) (4.1)
--------------------------------------------------------------------------------
Represented by:
Cash and cash equivalents 33.6 53.2
Investments 2.4 3.1
Bank loans (36.1) (60.4)
Finance leases (3.2) -
--------------------------------------------------------------------------------
(3.3) (4.1)
--------------------------------------------------------------------------------
(c) Analysis of net debt
--------------------------------------------------------------------------------
Cash and cash Current asset Bank Finance Net debt
equivalents investment loans Leases
£m £m £m £m £m
--------------------------------------------------------------------------------
At 30 December 2006 53.2 3.1 (60.4) - (4.1)
New finance leases - - - (3.2) (3.2)
Cash flow (19.6) (0.7) 24.3 - 4.0
--------------------------------------------------------------------------------
At 29 December 2007 33.6 2.4 (36.1) (3.2) (3.3)
--------------------------------------------------------------------------------
10 Contingent liabilities
Relating to the disposal of the MFI Retail operations
As disclosed at the time of the transaction with MEP Mayflower Limited ('MEP'),
the Group was the guarantor on leases in relation to 56 properties which
were held by MFI Properties Limited ('MFI Properties') and occupied by the MFI
UK Retail operations ('Retail') with 'rentals' being paid by Retail to MFI
Properties. By 29 December 2007, this number had reduced to 50 properties which
MFI Properties subleases on leases from Galiform Corporate Services Limited and
Retail occupies. The Group's guarantees are triggered if MFI Properties
Limited defaults on its obligations under the relevant leases for example
because it suffers financial distress. However, under the terms of the sale of
Retail to MEP, MEP have given the Group an indemnity for any costs incurred by
the Group in relation to any non-payment by MFI Properties. The current annual
net rentals payable by the Group in respect of these remaining properties total
£16.2m, with associated business rates of £7.1m. Remaining lease terms range
between 9 months and 17.9 years from 29 December 2007, with the average lease
term being 8.75 years from 29 December 2007.
The Group is not aware that the purchaser or its subsidiaries is in financial
distress. There is uncertainty whether the purchaser or its subsidiaries will
ever suffer financial distress and thereby trigger the guarantee, and as to the
actual net liability if the Group ever did have to meet the lease obligations,
given that the Group would seek to mitigate any liabilities by surrendering or
assigning the leases, or by subletting them to third parties.
Because of the nature of the uncertainties, as described above, the Group is
unable to give an estimate of the financial effect of this contingent liability.
The Group is also exposed to potential costs in respect of certain warranties
and indemnities given by Galiform plc ('Galiform') in favour of MEP in the sale
and purchase agreement ('the SPA') relating to the sale of Retail. One of the
warranties given by Galiform relates to the net value of some of the assets and
liabilities of MFI on the effective date of the sale (5 August 2006). Over the
course of 2007, MEP has made a number of notifications to Galiform alleging
breach of this warranty. Each notification has been thoroughly investigated by
external forensic accountants engaged by the Group.
The Group has strongly rejected MEP's allegations and MEP recently began legal
proceedings against Galiform formally claiming breach of the warranty. Having
taken extensive advice from external lawyers and forensic accountants, the Board
of Galiform considers that the majority of MEP's total claim is without merit,
and MEP has chosen, incorrectly, to ignore a substantial number of offsetting
items.
To date, MEP's total gross claim amounts to approximately £57m. However, in
light of the advice it has received, the Board is confident of the strength of
its case and is firmly of the view that only a small fraction of this amount (if
any) will ultimately be payable. The Group has made such provision as is
considered necessary for the claim. Because of the uncertainties as to how this
matter will progress, the Group is currently unable to give any details as to
the expected timing of any resulting payments to MEP, if any.
Under the SPA, MEP may make claims against Galiform for breach of non-tax
warranties in the SPA until 18 October 2008 (and for breach of tax warranties or
any claim under the tax covenant until the sixth anniversary of the end of the
accounting period of Retail in which completion of the sale of
Retail occurred). The aggregate liability of Galiform in respect of the
warranties that Galiform has given in the SPA and in respect of the tax covenant
is capped at £49.6 million (other than in the case of fraud or in the case any
claims under the warranties relating to title, capacity and authority or claims
for secondary tax liabilities, for which, in each case, Galiform's liability is
uncapped). In addition, under the SPA, Galiform agreed to indemnify MEP in
respect of certain potential liabilities in relation to pensions, employee
transfers, tax, property, and part of the pre-sale reorganisation relating to
Retail. These indemnities are unlimited.
Under IAS 37: Provisions, Contingent Liabilities, and Contingent Assets, there
is an obligation to disclose information about the amount of any provision
made. However, IAS 37 allows a company to omit this disclosure in cases where
disclosure would be expected to seriously prejudice the position of the company
in a dispute with other parties on the subject matter of the provision or
contingent liability. The Group considers that the provision made by the Group
in respect of the claim brought by MEP for breach of the warranty referred to
above falls within this exception, and therefore we are restricting our
disclosure accordingly.
Other guarantees
The Group has guaranteed a US$ 10.0m (2006: US$ 10.0m) letter of credit facility
from Standard Chartered Bank in favour of Howden Kitchens (Asia) Limited's
suppliers. This contingency would only trigger in the event that MFI Asia
Limited fails to honour its obligations under the terms of the facility.
Members of the Group have assigned UK property leases in the normal course of
business. Should the assignees fail to fulfil any obligations in respect of
these leases, members of the Group will be liable for those defaults. The number
of claims arising to date has been small and the cost, which is charged to
income as it arises, has not been material.
Appendix 1
FINANCIAL CALENDAR
2008
Interim Management Statement 1 May 2008
AGM 16 May 2008
Record date for proposed 2007 final divided 30 May 2008
Payment of proposed 2007 final dividend 13 June 2008
2008 Half Yearly Report 23 July 2008
Interim Management Statement 13 November 2008
End of financial year 27 December 2008
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