Systems and Supply Chain

MFI Furniture Group PLC
16 November 2004


16 November 2004

   MFI Furniture Group Plc ('MFI') - Systems and Supply Chain Progress Report


As previously announced, MFI is today giving a progress report on its systems
and supply chain. A scheduled pre-close update will take place on Thursday, 2
December 2004.

Progress to date

Since the statement on 9 September, MFI has been working in conjunction with its
IT partners to improve the performance of the supply chain systems. Howden
Joinery has traded successfully through its busiest period, with the stock
replenishment system and processes operating at least as effectively as in the
peak period last year. UK Retail is now in a more stable position, with the
proportion of incomplete deliveries over the last four weeks averaging half the
level in September 2004 and back to the levels achieved in the same period last
year.

Background

The introduction of a new supply chain system was essential to meet the changing
needs of all parts of the business, both in respect of the scale and scope of
the products the Group sells and the changing business model. The old systems,
some of which were 20 years old, were not designed to accommodate the complex
requirements of home delivery in UK Retail or the range of products now sold as
part of its 'every room in the house' strategy. Similarly the new system was
required to support substantial growth in Howden Joinery and the
internationalisation of the Group, both in terms of customers and suppliers. The
new system also provides the operational capability for the management of each
route to market to focus on the appropriate supply chain strategy for its
specific business, through a better alignment of the supply chain to meet
customer needs in each route to market.

Implementation

Immediately following implementation of the new system in March, MFI began to
experience some technical problems, with repercussions across the business. For
example, MFI's ability to operate supplier ordering processes was affected,
causing lower stock availability and longer delivery lead times for bought-in
products. In addition, the systems designed to fulfil incomplete deliveries by
post and parcel carriers failed to perform. These and other problems were
addressed and appeared to be largely resolved by July, with a commensurate
improvement in key performance metrics. In August, performance of the supply
chain again deteriorated and an extensive root cause analysis, completed in
early September, revealed additional technical problems and two critical
underlying business requirements - better data quality and more accurate
inventory forecasting.

Key actions taken

As announced on 14 September, John Hancock assumed overall responsibility for
the supply chain. Actions have been focused on the following areas:

• Securing Howden Joinery for peak season trading - prioritising stock for 
  Howden Joinery and increasing stock levels at individual depots.
• Improving and stabilising retail customer service - improving and stabilising 
  accuracy of delivery lead times quoted to customers, increasing resources in 
  the call centre, removing products with availability issues from the store 
  offering.
• Improving stock availability - optimising utilisation of manufacturing 
  capacity and focusing management attention on stock planning and data quality.
• Increasing the effectiveness of home delivery and fulfilling incomplete orders
  - ensuring delivery pick lists are accurate and timely, enhancing early 
  visibility of incomplete deliveries.
• Rectifying and optimising system performance - improved electronic interfaces 
  with supplier systems, improved database stability, increased data processing 
  capacity, re-write of critical software components.

Initial results

MFI has made progress on a number of key metrics:

• Howden Joinery successfully traded through its busiest period with the system 
  coping with volumes more than doubling in October compared to September.
• The number of incomplete home deliveries has halved from its
  highest level in September 2004 and, over the last four weeks, is back to the
  levels achieved in the corresponding period last year.
• Average bed delivery times cut from 5 weeks to 2 weeks.
• First time availability of appliances has now reached 91%.
• Data quality has improved.

Preparations for the Winter Sale

MFI is well positioned commercially for the Winter Sale with a strong product
offering, attractive promotions and heavyweight advertising. MFI has undertaken
pre-testing of the supply chain system in order to assess its ability to process
the increased daily volumes of orders and deliveries expected throughout the
Winter Sale period. Clearly, pre-testing cannot eliminate entirely the
possibility of new problems occurring when the system is operating at increased
levels on a daily basis for a protracted period. MFI expects home deliveries
over the next two weeks to reach the daily rate required for the Winter Sale,
thereby testing the system's capability to operate deliveries at this level.
Extra processing power and memory, well in excess of forecast requirements, is
being installed together with a number of other planned modifications. Following
this, in order to minimise risks and maintain systems stability, no further
significant modifications will be made to the system until after the Winter
Sale.

Current trading

The Group's trading performance for the current financial year is in line with
management expectations. However, the contribution from Howden Joinery is
expected to be higher than management had expected with a corresponding
shortfall in UK Retail. This is mainly as a result of lower than expected sales
of kitchen cabinets at Hygena @ Currys, which has been particularly affected by
the issues described above.

MFI will give an update on trading in the scheduled pre-close update on 2
December. This update will include details of a cost reduction programme planned
for UK Retail and the Group for 2005 and the results of an ongoing review of the
carrying value of the Group's investment in the new IT systems, which may result
in a non-cash impairment charge. A conference call for analysts and investors
will be held on 2 December, details of which are available from Brunswick.

Enquiries:

MFI
John Hancock                        Today until 11am only:    020 7404 5959
Chief Executive     

Shaun O'Callaghan                              Thereafter:    020 8913 5319/
Interim CFO                                                   020 8913 5350
                                                              
Brunswick
Susan Gilchrist, Fiona Laffan, Anna Jones                     020 7404 5959



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