Preliminary Results
MFI Furniture Group PLC
28 February 2002
28 February, 2002
Preliminary results for the 52 weeks to 29 December 2001
________________________________________________________
Financial Highlights
- Turnover up 19.7% to £1,078m
- UK Retail up 14.1% to £766m
- Howden Joinery up 54.6% to £225m
- France up 5.6% to £84m
- *Pre-tax profit up 42.5% to £64.7m
- *Operating cash inflow of £104m compared to £30m last year
- *Earnings per share up 40.0% to 7.7p
- Dividend per share up 31.6% to 2.5p
- Current trading up 25% on last year, 16% on a like for like basis
* before exceptional items
Operational Highlights
- Sales exceed £1 billion for the first time
- New store format generates strong uplift in sales; 45 further out of town
openings planned for 2002
- High Street stores performing ahead of average
- Strong sales and profit performance from Howden Joinery
- Logistics costs further lowered
- Investment planned in new ventures, international growth, manufacturing
and IT
John Hancock, Chief Executive, said:
'I am pleased to announce another highly positive set of results, which
include our first-ever £1 billion annual sales. They testify to the effective
work of everyone in the Group and to the success of our programme to
transform the MFI business. We have improved our performance and financial
position, created a solid foundation for future growth, identified a range of
high-potential, low-risk opportunities both in the UK and abroad, and plan
further investment to exploit them to the full'.
- ends -
Contacts:
MFI Furniture Group Plc
John Hancock, Chief Executive 020 8913 5319
Martin Clifford-King, Finance Director 020 8913 5350
Brunswick Group Limited
William Cullum / Katya Reynier 020 7404 5959
Interviews with John Hancock, Group Chief Executive and Martin Clifford-King,
Finance Director in video, audio and text will be available from 10:15am on
www.cantos.com and www.mfigroup.co.uk
Chairman's Statement
Financial Results
We continued to make good progress throughout 2001, achieving further growth
in sales, margins and profitability. Encouragingly, the second half of the
year produced significant performance gains over the first half.
Group sales of £1,078 million represented a 19.7% increase on the previous
year. Profit before tax and exceptional items rose by 42.5% to £64.7 million,
and earnings per share by 40.0% to 7.7p.
Sales % increase % increase
£m Total business Like for like
UK Retail 766 14.1 8.9
Howden Joinery 225 54.6 29.1
France 84 5.6 (0.4)
Other 3 n/a n/a
_____ ______ _____
Total Group 1078 19.7 11.1
_____ ______ _____
Dividend
The Board is proposing a final dividend of 1.3p, making a total for the year
of 2.5p per share. This represents a 31.6% increase on the total dividend for
2000, reflecting a fair balance between return to shareholders and investing
in the growth prospects of the company. The final dividend will be paid on 14
June 2002 to shareholders on the register as at 31 May 2002. The shares will
be quoted ex-dividend from 29 May 2002.
Finance
The gross margin increased from 49.6% to 50.0%. This increase was driven by
product cost reductions together with a selling price increase from the
introduction of new product, partially offset by changes in the mix of
products and services.
We have achieved cost savings of £16 million - exceeding our target of £15
million - primarily in the area of logistics and sourcing product. These
savings continue to be invested in areas that benefit our customers.
Excluding the impact of new store opening costs totalling £35 million, like
for like costs have increased by 9% which is below our like for like sales
increase of 11%.
The business has produced operating cash inflows before exceptional items of
£104 million compared to £30 million last year, demonstrating our focus on
managing working capital in a business which has increased sales by 19.7%.
Capital expenditure amounted to £51.1 million (2000: £35.4 million), mainly
invested in new stores, refurbishment of existing stores, manufacturing and
introduction of new product.
Our pension scheme actuary has estimated that FRS 17 'Retirement Benefits'
will have minimal impact on the published Group profit before tax. We are
complying with the transitional provisions of FRS 17 in our forthcoming
Annual Report.
Operational Overview
- UK Retail
Sales were £766 million, representing an increase over the previous year of
14.1% (8.9% on a like for like basis).
Out of town stores: The year saw the launch of our new store format. These
stores bring a new and higher standard of presentation and customer service
to our industry, and provide a greatly improved showcase for our developing
range of products. The new format, in conjunction with extensive staff
training, has resulted in substantially increased sales, with a shift towards
higher-value and higher-margin product lines. At the year-end there were 18
stores operating in the new format, and a further 45 will be added during
2002. This substantial increase in refit activity will impact us in the short
term as we lose sales during the refurbishment, sell off display stock and
write off fixtures and fittings. By the end of the current year,
approximately one-third of our out of town stores will be in the new format.
High Street stores: These stores allow us to access new demographic groups of
customers - potentially around 5 million of the UK's more affluent homes -
without cannibalising our existing customer base. Two years after launch, the
MFI high street stores have become a £35 million business in their own right,
and have achieved sales of £300 per square foot against the out of town
average of £190. Sales are skewed towards higher-value kitchens, with a
proportionally higher penetration of fitting. There are currently 20 stores.
During 2002 we plan to open a further 10, and we are aiming for 50 by the end
of 2003.
Building on this experience of appealing to more affluent customers, we have
entered into a joint venture with Ethan Allen, America's largest retailer of
premium furniture, and will open 4 pilot stores in the UK. We expect to open
two stores in the summer, the first of these will be in Kingston.
Hygena at Currys: This venture was launched at the end of 2000 and now
operates in 112 Currys outlets. Performance has improved strongly in recent
weeks, as we learn important lessons about store format, staff training,
range mix and advertising/promotion.
- Howden Joinery
This business recorded another excellent performance, with like-for-like
sales up by 29.1% and total sales up by 54.6% to £225 million. The operation
has a strong profitability profile as the business matures in the UK, and
already achieves 11% net margins.
The success of Howden Joinery is based on its ability to supply smaller
builders with a highly competitive service tailored to their needs. Critical
factors include location, appropriate product offer and strong customer
support.
We are presently evaluating the potential for establishing this highly
successful concept in overseas markets.
- International
In France, Hygena Cuisines achieved £84 million in sales, a 5.6% increase
(though sales were slightly down on the previous year in like for like
terms). We have been carrying out a thorough analysis of our business in this
market and have identified clear growth opportunities. Using experience
gained in our UK High Street operation, we plan to increase the number of
stores from 125 to 170 over the next 3 to 5 years and anticipate significant
sales and profit growth from 2003 onwards. We have appointed the manager
responsible for our UK store refurbishment programme to the position of
managing director in France.
In Taiwan, we have now opened four stores in a joint venture with Mercuries &
Associates. Stores are modelled on our successful UK High Street format, and
are trading ahead of expectations. A further 10 stores will be opened in
2002.
- Brand and product
We continue to strengthen the MFI brand. It has almost universal brand
recognition and people think that we offer a wider range of product than we
actually do. Our central brand proposition is becoming 'Your Home, Your Way',
as we extend our product lines to cover all rooms in the house through a
series of low risk initiatives that will be rigorously tested at every stage.
- Logistics
We continue to drive for increased efficiency in this part of our business -
as in the rest of the supply chain. Delivery costs have now been reduced by
over 1% from 13.4% to 12.3% of sales, and we continue to target a figure of
10%.
- Manufacturing
During 2001, we have undergone a thorough and wide ranging review of
strategy, in order to align our manufacturing capacity with the changing
product requirements of our customers. Manufacturing is recognised to be
fundamental to our competitive advantage and will enable us to bring new
product to market in a short timescale.
As a result of significant annual cost savings totalling £6 million which can
be achieved through global sourcing, we have rationalised our doors and
components factories in Hull. An exceptional cost of £5.9 million has been
incurred in the second half of the year.
We have invested some £8 million in new manufacturing processes and
technologies, particularly in paper-wrapped product at our Scunthorpe factory
and in vinyl door production at our Stockton factory.
We are training and developing our workforce in lean manufacturing techniques
and we continue to review our 'make or buy' decisions on a product-by-product
basis.
- Systems
In order to meet the increasing scale and diversity of the business,
particularly around the supply chain, we intend to put new integrated systems
in place. The project is a three year phased programme and we expect to spend
£15 million on this in 2002. Overall, we are looking for a significant
improvement in the way we manage the supply chain, the purpose being to
nurture a culture of customer service throughout the business as a whole.
Current trading
Orders since Boxing Day for the Group are 25% higher than last year and 16%
higher on a like for like basis. The UK retail business is 26% up on last
year with a 17% like for like increase.
However it should be noted that the sale period lasted for an extra week last
year and, after adjusting for this, it is expected that the underlying
performance of the Group will be closer to 11% on a like for like basis.
Outlook
During the past three years, MFI has been undergoing a process of
transformation. Since 1998, we have increased total sales from £777 million
to £1,078 million and grown Group profits nearly fourfold from £17 million to
£65 million. We have proven our business model of vertical integration, and
validated the potential of our MFI, Hygena, Schreiber and Howden Joinery
brands.
Our strategic priorities continue to be the improvement of UK sales
productivity, the development of new routes to market, the exploration of new
opportunities abroad and an increase in productivity throughout our entire
supply chain.
MFI is a growth company in a growth industry with a strongly improving brand
image. We shall continue to drive our new product development programme, to
research new product categories, to enhance customer service throughout the
business, and to invest in our growth potential, both in the UK and abroad.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the 52 weeks to 29 December 2001
52 Weeks 52 Weeks
to 29 December 2001 to 30 December 2000
Total Total
operations Excep- operations Excep-
Pre- Excep- tional Pre-excep- tional
tional items Total tional items Total
Notes (note 3) (note 3)
£m £m £m £m £m £m
Turnover: 2 1,078.2 - 1,078.2 900.6 - 900.6
Group and share
of joint venture
Less : (0.2) - (0.2) - - -
Share of
joint venture
________ ______ ______ _________ ______ ______
Group turnover 2 1,078.0 - 1,078.0 900.6 - 900.6
Cost of sales (539.3) (4.7) (544.0) (453.7) - (453.7)
________ ______ ______ _________ ______ ______
Gross profit 538.7 (4.7) 534.0 446.9 - 446.9
Selling and (419.7) - (419.7) (350.5) 12.2 (338.3)
distribution costs
Administration (57.1) - (57.1) (55.5) (4.0) (59.5)
costs
________ ______ ______ _________ ______ ______
Operating 2 61.9 (4.7) 57.2 40.9 8.2 49.1
profit/(loss)
Share of (0.9) - (0.9) - - -
operating loss
of joint venture
________ ______ ______ _________ ______ ______
Total operating 2 61.0 (4.7) 56.3 40.9 8.2 49.1
profit/(loss) -
Group and share
Of joint venture
Net profit/(loss) 0.5 (1.2) (0.7) 0.5 - 0.5
on disposal of
fixed assets
Profit on - - - - 11.2 11.2
disposal of
discontinued
operations
________ ______ ______ _________ ______ ______
Profit/(loss) 61.5 (5.9) 55.6 41.4 19.4 60.8
on ordinary
activities
before interest
Interest 4.2 - 4.2 4.8 - 4.8
receivable and
similar income
Interest payable (1.0) - (1.0) (0.8) - (0.8)
and similar
charges
________ ______ ______ _________ ______ ______
Profit/(loss) 2 64.7 (5.9) 58.8 45.4 19.4 64.8
on ordinary
activities
before taxation
Tax 4 (18.7) 1.8 (16.9) (12.7) (2.6) (15.3)
________ ______ ______ _________ ______ ______
Profit/(loss) 46.0 (4.1) 41.9 32.7 16.8 49.5
for the financial
period
Dividends 5 (14.7) - (14.7) (11.2) - (11.2)
________ ______ ______ _________ ______ ______
Amount transferred 6 31.3 (4.1) 27.2 21.5 16.8 38.3
to reserves
======== ====== ====== ========= ====== ======
Earnings per share
Basic earnings 7.7p (0.7)p 7.0p 5.5p 2.8p 8.3p
per 10p ordinary
share
======== ====== ====== ========= ====== ======
Diluted earnings 7.4p (0.7)p 6.7p 5.4p 2.8p 8.2p
per 10p ordinary
share
======== ====== ====== ========= ====== ======
CONSOLIDATED BALANCE SHEET
As at 29 December 2001
29 Dec 2001 30 Dec 2000
Notes £m £m
FIXED ASSETS
Tangible assets 300.6 275.9
Investments
Investment in own shares 18.8 2.6
Other investments 8.0 8.0
Share of joint venture net assets 0.9 -
________ ________
Total investments 27.7 10.6
________ ________
Total fixed assets 328.3 286.5
________ ________
CURRENT ASSETS
Stocks 128.7 127.2
Debtors 111.0 86.9
Investments 0.2 0.3
Cash at bank and in hand 52.1 39.6
________ ________
292.0 254.0
CREDITORS
Amounts falling due within one year 7 229.5 184.2
________ ________
Net current assets 62.5 69.8
________ ________
Total assets less current liabilities 390.8 356.3
CREDITORS
Amounts falling due after more than 8 0.1 1.3
one year
PROVISIONS FOR LIABILITIES AND CHARGES 9 15.2 8.4
________ ________
Net assets 375.5 346.6
======== ========
CAPITAL AND RESERVES
Called up share capital 59.9 59.5
Share premium account 6 48.6 43.9
Revaluation reserve 6 42.1 42.1
Other reserves 6 21.9 19.4
Profit and loss account 6 203.0 181.7
________ ________
Equity shareholders' funds 375.5 346.6
======== ========
CONSOLIDATED CASH FLOW STATEMENT
For the 52 weeks to 29 December 2001
52 weeks to 52 weeks to
29 Dec 2001 30 Dec 2000
Notes £m £m
Net cash inflow from operating activities 10 102.8 25.4
Returns on investments and servicing 10 3.2 3.9
of finance
Taxation (11.9) 1.4
Capital expenditure and financial investment 10 (68.3) (2.9)
Proceeds from sale of subsidiary - 13.7
Equity dividends paid (12.7) (13.6)
________ ________
Cash inflow before use of liquid 13.1 27.9
resources and financing
Management of liquid resources 0.1 0.1
Financing 10 (0.6) (18.6)
________ ________
Increase in cash in the period 10 12.6 9.4
======== ========
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASH
52 weeks to 52 weeks to
29 Dec 2001 30 Dec 2000
Notes £m £m
Increase in cash in the period 10 12.6 9.4
Cash movement on :
- debt and lease financing 3.2 18.6
- cash flow from decrease in liquid (0.1) (0.1)
resources
________ ________
Change in net cash resulting from cash flows 15.7 27.9
Effect of foreign exchange rate changes (0.1) -
________ ________
Movement in net cash in the period 15.6 27.9
Net cash at the beginning of the period 10 35.5 7.6
________ ________
Net cash at the end of the period 10 51.1 35.5
======== ========
1. Basis of Preparation
The financial information set out does not constitute statutory financial
statements for the periods ended 52 weeks to 29 December 2001 and 52 weeks to
30 December 2000, but is derived from those accounts. Statutory accounts for
the 52 weeks to 30 December 2000 have been delivered to the Registrar of
Companies and those for the 52 weeks to 29 December 2001 will be sent to
shareholders and filed with the Registrar of Companies on 2 April 2002. The
auditors have reported on the accounts, their reports were unqualified and
did not contain statements under Section 237(2) or (3) of the Companies Act
1985.
2. Segmental Analysis
Before Before
Except- Except- 52 weeks except- Except- 52 weeks
ional ional to 29 ional ional to 30
items items Dec 2001 items items Dec 2000
£m £m £m £m £m £m
TURNOVER 1
UK - Retail 765.9 671.4
- Howden Joinery 224.5 145.2
France 84.2 79.7
Other operations 3.4 4.3
_________ _________
1078.0 900.6
Joint Venture 0.2 -
Operations
_________ _________
Total 1078.2 900.6
_________ _________
PROFIT BEFORE
TAXATION
UK - Retail 34.9 (4.7) 30.2 20.6 8.7 29.3
- Howden 24.5 - 24.5 15.3 - 15.3
Joinery
France 3.0 - 3.0 5.4 (0.5) 4.9
Other operations (0.5) - (0.5) (0.4) - (0.4)
_________ ________ __________ _______ __________ __________
61.9 (4.7) 57.2 40.9 8.2 49.1
Joint Venture (0.9) - (0.9) - - -
Operations
_________ ________ __________ _______ __________ __________
Operating profit 61.0 (4.7) 56.3 40.9 8.2 49.1
Profit on disposal - - - - 11.2 11.2
of a subsidiary 2
Profit/(Loss) on 0.5 (1.2) (0.7) 0.5 - 0.5
disposal of fixed
assets
Net interest 3.2 - 3.2 4.0 - 4.0
receivable
_________ ________ __________ _______ __________ __________
Profit/(Loss) 64.7 (5.9) 58.8 45.4 19.4 64.8
before taxation
_________ ________ __________ _______ __________ __________
NET ASSETS/
(LIABILITIES)
UK - Retail 219.4 233.4
- Howden Joinery 74.3 58.5
France 17.9 23.5
Other operations 0.6 1.1
Joint venture 0.9 -
_________ ________ __________ _______ __________ __________
313.1 316.5
Unallocated 62.4 30.1
net assets 3
_________ ________ __________ _______ __________ __________
Total 375.5 346.6
_________ ________ __________ _______ __________ __________
1 The analysis of turnover by destination is not materially different to the
analysis of turnover by origin.
2 The sale of Hygena Packaging Limited was sold on 4 January 2000, accordingly
no turnover or operating profit is included for either period.
3 Unallocated net assets comprise balances in respect of dividends, cash,
borrowings and investment in own shares.
3. Exceptional Items
The exceptional items charged in the consolidated profit and loss account for
the 52 weeks to 29 December 2001 arose from the closure of the manufacturing
business at Hull and the partial relocation to other manufacturing sites. The
exceptional credit for the 52 weeks to 30 December 2000 relates principally
to the restructuring of the UK retail business and the sale of the Hygena
Packaging Limited subsidiary on 4 January 2000. They are analysed as
follows:-
52 weeks to 52 weeks to
29 Dec 2001 30 Dec 2000
£m £m
Reorganisation of manufacturing division (5.9) -
Re-occupation of Northampton Distribution - 12.7
Centre
Reorganisation of supply chain and structural - (4.0)
change costs
Disposal of Spanish operations - (0.5)
________ ________
Total operating exceptionals (5.9) 8.2
Sale of Hygena Packaging Limited - 11.2
________ ________
(5.9) 19.4
======== ========
4. Tax
Pre 52 weeks Pre 52 weeks
Except- Except- to 29 Except- Except- to 30
ional ionals Dec 2001 ional ionals Dec 2000
£m £m £m £m £m £m
Taxation on profit
for the period
comprises:
UK corporation 18.4 (0.5) 17.9 9.2 2.6 11.8
tax at 30.0%
(2000 - 30.0%)
Adjustments relating (1.3) - (1.3) 1.5 - 1.5
to prior periods
Deferred tax 1.6 (1.3) 0.3 2.0 - 2.0
- Origination and
reversal of timing
differences
_________ ________ _________ __________ ________ _________
18.7 (1.8) 16.9 12.7 2.6 15.3
========= ======== ========= ========== ======== =========
The taxation charge is calculated at 28.9% (2000 - 28.0%) on profits before
exceptional items.
5. Equity Dividends
52 weeks to 52 weeks to
29 Dec 2001 30 Dec 2000
£m £m
Interim paid - 1.2 pence per share 6.9 5.3
(2000 - 0.9 pence per share)
Final proposed - 1.3 pence per share 7.8 5.9
(2000 - 1.0 pence per share)
______ ______
Total dividend - 2.5 pence per share 14.7 11.2
(2000 - 1.9 pence per share)
====== ======
6. Reserves
Share Profit and
premium Other Revaluation Loss
account reserves reserve account
£m £m £m £m
At 31 December 2000 43.9 19.4 42.1 181.7
Retained profit for the period - - - 27.2
Share Issue 4.7 - - (2.5)
Amortisation of goodwill - 2.5 - (2.5)
Foreign exchange and other - - - (0.9)
adjustments
________ _________ ________ ________
At 29 December 2001 48.6 21.9 42.1 203.0
======== ========= ======== ========
7. Creditors
AMOUNTS FALLING DUE WITHIN ONE YEAR
29 Dec 2001 30 Dec 2000
£m £m
Borrowings 0.8 3.1
Trade creditors 84.2 66.7
Corporation tax 15.7 10.9
Other taxes and social security 15.0 9.4
Obligations under finance leases 0.4 0.3
Proposed dividends 7.9 5.9
Other creditors 10.6 4.7
Accruals and deferred income 94.9 83.2
________ ________
229.5 184.2
________ ________
8. Creditors
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
29 Dec 2001 30 Dec 2000
£m £m
Borrowings - 0.8
Obligations under finance leases - 0.2
Other creditors 0.1 0.3
________ ________
0.1 1.3
======== ========
9. Provisions for Liabilities and Charges
Pension Property Deferred
provision provision taxation Total
(note 4)
£m £m £m £m
At 31 December 2000 7.4 - 1.0 8.4
Created in the period 2.7 - 0.3 3.0
Transfer from creditors - 3.8 - 3.8
__________ __________ _____________ _________
At 29 December 2001 10.1 3.8 1.3 15.2
2001
========== ========== ============= =========
10. Consolidated Cash Flow Statement
a) Reconciliation of operating profit to net cash inflow from operating
activities
52 weeks to 52 weeks to
29 Dec 2001 30 Dec 2000
£m £m
Operating profit before exceptional items 61.9 40.9
Depreciation of tangible fixed assets 30.9 30.4
Amortisation of fixed asset investment 1.8 1.1
Increase in stocks (1.2) (35.4)
Increase in debtors (24.1) (28.4)
Increase in creditors and provisions 34.9 21.3
________ ________
Net cash inflow - pre-exceptional operating 104.2 29.9
activities
Net cash outflow - operating exceptionals (1.4) (4.5)
________ ________
Net cash inflow from operating activities 102.8 25.4
======== ========
b) Analysis of cash flows for headings netted in the cash flow statement
52 weeks to 52 weeks to
29 Dec 2001 30 Dec 2000
£m £m
Returns on investments and servicing of finance
Interest received 4.2 4.8
Interest paid (1.0) (0.9)
________ ________
Net inflow on investments and servicing of finance 3.2 3.9
________ ________
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (51.1) (35.4)
Receipts from sales of tangible fixed assets 2.6 35.0
Payment to acquire own shares (18.0) (2.5)
Investment in joint ventures (1.8) -
________ ________
Net outflow for capital expenditure and (68.3) (2.9)
financial investment
======== ========
Financing
Share issue 2.6 -
Decrease in bank finance (3.1) (18.7)
Capital element of finance lease rental payments (0.1) 0.1
________ ________
Net outflow from financing (0.6) (18.6)
======== ========
c) Analysis of net cash
Current Revolving Total
Cash at asset in- credit Term Net Finance net
bank vestments facility loans cash leases cash
£m £m £m £m £m £m £m
As at 1 January 2000 30.2 0.4 (15.0) (7.6) 8.0 (0.4) 7.6
Cash flow 9.4 (0.1) 15.0 3.7 28.0 (0.1) 27.9
_______ ________ _________ _____ ______ _______ ______
As at 31 December 39.6 0.3 - (3.9) 36.0 (0.5) 35.5
2000
Cash flow 12.6 (0.1) - 3.1 15.6 0.1 15.7
Exchange difference (0.1) - - - (0.1) - (0.1)
_______ ________ _________ _____ ______ _______ ______
As at 29 December 52.1 0.2 - (0.8) 51.5 (0.4) 51.1
2001
======= ======== ========= ===== ====== ======= ======
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