Interim Results - Pre-tax Profit Up 83.8%
D.F.S. Furniture Company PLC
27 April 2000
DFS FURNITURE COMPANY PLC
INTERIM RESULTS FOR THE 26 WEEKS ENDED 29 JANUARY 2000
DFS Furniture Company plc, Britain's leading upholstery specialist, announces
its interim results for the 26 weeks ended 29 January 2000, the salient
features of which are:
* Record profit before tax £22.1m - up 83.8%
* Sales £169.4m - up 22.9%
* Like-for-like sales - up 18.5%
* Earnings per share 14.2p - up 82.1%
* Interim dividend 5.5p per share - up 25.0%
* Cash balances £83.4m - up 64.7%
Graham Kirkham, Executive Chairman, commented:
'The key drivers of our success have been the actions we have taken to improve
and diversify our product range, sharpen our price competitiveness and enhance
our marketing message, while expanding our in-house manufacturing
capabilities.
'In the second half, progress continues with substantial double digit
increases in both sales and order intake. This together with our huge order
bank gives me confidence that our profits in the year will be the highest in
our history.'
Enquiries:
DFS Furniture Company plc Hudson Sandler
Graham Kirkham, Executive Chairman Keith Hann / Justin Strong
Jon Massey, Chief Operating Officer Tel: 020 7796 4133
Ian Bowness, Finance Director
Tel: 020 7796 4133 (on 27 April)
CHAIRMAN'S STATEMENT
I am delighted to report a very substantial uplift in our first half results.
The improving trends evident in the second half of our last financial year
continued with increasing momentum, delivering an 83.8% increase in profit
before tax to £22.1 million - a new record for DFS. The key drivers of our
success have been the actions we have taken to improve and diversify our
product range, sharpen our price competitiveness and enhance our marketing
message, while expanding our in-house manufacturing capabilities.
Results
We achieved an outstanding sales performance throughout the first half, with
order intake consistently exceeding our budgets. Total sales rose by 22.9% to
£169.4 million and like-for-like sales through our core of comparable stores
grew by 18.5%. Volumes increased at an even faster rate, since further
pricing initiatives to enhance our competitiveness meant that our average
order value was 15.1% lower than in the comparable period last year.
Our operating margin rose to 12.7%, compared with 8.0% in the first half last
year. This reflected improved gross margin and the increased cost-
effectiveness of our store operations and advertising as a result of the
substantial increase in volumes. We also began to benefit from a profit
contribution from our new Lincoln House factory.
Operating profit was up 94.6% at £21.6 million, while interest receivable was
lower at £0.5 million (1999: £0.9 million) reflecting lower average interest
rates. Profit before taxation increased by 83.8% to £22.1 million, while
earnings per share advanced by 82.1% to 14.2p.
Finances
Our cash generation and financial position remain exceptionally strong. At
the end of the first half the balance sheet contained no debt and total cash
balances of £83.4 million, compared with £50.6 million at the same point in
1999. This total includes £50.0 million (1999: £38.0 million) associated with
the case of Primback Ltd. Free cash balances have therefore grown by £20.8
million to £33.4 million since January 1999, after paying dividends totalling
£25.7 million, including the £10.3 million special dividend in November.
Our cash balances provide us with important business advantages, notably the
ability to benefit from appropriate freehold development opportunities.
Dividend
The Board has declared an interim dividend of 5.5p per share, a rise of 25.0%,
reflecting our progressive dividend policy and strong cash position. As ever,
we will keep the level of cash balances under review and consider all options
to ensure that shareholders derive full benefit from any surplus.
It continues to be our intention to provide shareholders with dividend
increases in future years that broadly reflect the growth in earnings per
share over the medium term.
Business development
During the current year we have concentrated on building our like-for-like
sales, upgrading existing stores, improving our product ranges, continuing
with further price initiatives, enhancing our manufacturing capabilities,
maximising advertising effectiveness and strengthening our management team.
Our success in each area has created a strong platform for the expansion of
our store network in the next financial year and to take advantage of future
potential opportunities in e-commerce.
Stores
Refurbishments were completed during the first half at Kings Lynn, Grantham
and Bradford and since the beginning of the second half we have also
refurbished our Coventry store, bringing these established outlets up to the
very latest standard of design and decor.
Development work has started on our new freehold store in Swansea and our new
leasehold store in Romford, both of which will open in our next financial year
together with three leasehold stores in Edinburgh, Glasgow and Liverpool.
Products and manufacturing
Our product range is wider and more striking than ever before which, when
combined with our new pricing policy and our revised marketing strategy, has
significantly broadened our customer appeal.
Our profit growth this period has benefited from the expansion of our
manufacturing capability through the acquisition in June 1999 of the Lincoln
House factory, which will become an increasingly valuable contributor to
profits in the future. We now manufacture a greater proportion of the
furniture we sell than ever before, at our three factories in Alfreton, Long
Eaton and Carcroft. This 'joined up' approach to production and retailing is
a key point of difference for DFS, giving us guaranteed exclusivity and direct
control of quality and delivery lead times. It also enables us to capture the
additional manufacturing margin, which has been further enhanced through the
increase in our buying power as a result of more than doubling our own
production capacity. We have further potential to grow this capacity
substantially to help keep pace with our planned retail expansion.
Marketing and e-commerce
The strength of like-for-like sales demonstrates the effectiveness of our
fresher and more modern marketing approach.
During the second half we have moved into a new phase of marketing with the
recent launch of www.dfs.co.uk our brand new website. This complements our
existing store network and allows potential customers to browse a wider range
of products than through our existing advertising. It also provides a
detailed store finder guide and a range of company information to help them
with their buying decisions. These capabilities will be developed further
when the appropriate profit generating opportunities for DFS arrive.
DFS has always been committed to the use of technology in support of its
retailing activities and will maximise any opportunities presented by advances
in e-commerce and the Internet.
Investment
Capital expenditure during the first half was £4.9 million (1999: £8.4
million). The major components of this investment were the refitting and re-
equipment of our recently acquired Lincoln House factory and the refurbishment
of three existing stores.
People
We have always had the benefit of strong middle management at DFS. During the
first half we took the opportunity to promote two of our regional managers to
more senior positions, with Keith Baker becoming Operations Director for
London and the South and David Payling Operations Director for the North and
Scotland. This new structure will strengthen our capability to manage the
future growth of our store network and sales.
The collapse of other companies in our sector has underlined the security
afforded by our 31 year track record and has given us a number of
opportunities to recruit, train and develop high quality people. We remain
committed to providing rewarding employment for all our staff by being the
best in our industry and by giving each of them the chance to make the most of
their abilities.
Outlook
In the second half, progress continues with substantial double digit increases
in both sales and order intake. This together with our huge order bank gives
me confidence that our profits in the year will be the highest in our history.
Clearly this year is one of step change in our business and we cannot expect
to maintain our recent massive growth rates as we come up against tougher
comparisons next year. We can, however, look to future growth prospects that
are soundly based on strong and enduring business fundamentals. DFS is the UK
market leader in upholstered furniture and, with just 53 stores and a
relatively small market share, there is still enormous potential for expansion
of our store network within the UK. Our store growth and the increased cost
effectiveness it brings will play a huge part in driving future profits
although we will continue to pursue a carefully researched and prudently paced
development programme. We will not waver from any of the principles we have
stood by for the last three decades, particularly our commitment not to
compromise on the quality of our sites, stores and people.
The inherent strengths of our format, market leading status and any
opportunities presented by the Internet underpin my confidence in our ability
to continue to create long term value for all our shareholders.
Graham Kirkham
Executive Chairman
27 April 2000
CONSOLIDATED PROFIT AND LOSS ACCOUNT
26 wks ended 26 wks ended 52 wks ended
29 January 30 January 31 July
2000 1999 1999
Notes £000 £000 £000
Turnover 169,418 137,881 295,486
---------- ---------- ----------
Operating profit 21,596 11,099 24,481
Interest receivable 463 903 1,259
---------- ---------- ----------
Profit before taxation 22,059 12,002 25,740
Taxation 1 (7,390) (3,901) (8,515)
---------- ---------- ----------
Profit for the financial
period 14,669 8,101 17,225
Dividends 2 (5,687) (4,453) (25,650)
---------- ---------- ----------
Retained profit 8,982 3,648 (8,425)
---------- ---------- ----------
Earnings per ordinary share 3 14.2p 7.8p 16.6p
---------- ---------- ----------
Dividend per ordinary share 5.5p 4.4p 14.9p
---------- ---------- ----------
Special dividend per ordinary
share - - 10.0p
========== ========== ==========
NOTES TO THE ACCOUNTS
1. The tax charge for the half year period is based on the estimated
effective rate for the full year.
2. An interim dividend of 5.5p (net) per ordinary share will be paid on 15
June 2000 to shareholders on the register on 19 May 2000.
3. The calculation of earnings per share is based on the profit for the
financial period and a weighted average of 103,401,864 shares in issue
during the period (1999: 104,276,397).
CONSOLIDATED BALANCE SHEET
29 January 30 January 31 July
2000 1999 1999
Notes £000 £000 £000
Fixed assets
------------
Tangible assets 69,509 62,014 67,362
---------- --------- ----------
Current assets
--------------
Stocks 10,997 11,498 12,498
Debtors 5,691 5,603 3,550
Cash at bank and in hand 4 83,418 50,644 62,599
Current liabilities
-------------------
Creditors: amounts due within
one year 4 (123,785) (81,853) (110,061)
---------- ---------- ----------
Net current liabilities (23,679) (14,108) (31,414)
Provisions for liabilities and
charges (6,202) (5,187) (5,302)
---------- ---------- ----------
Net assets 39,628 42,719 30,646
---------- ---------- ----------
Capital and reserves
--------------------
Called up share capital 5,170 5,170 5,170
Share premium account 2,059 2,059 2,059
Revaluation reserve 4,537 4,620 4,537
Capital redemption reserve 78 78 78
Profit and loss account 27,784 30,792 18,802
---------- ---------- ----------
Equity shareholders' funds 39,628 42,719 30,646
========== ========== ==========
NOTES TO THE ACCOUNTS continued
4. Cash at bank and in hand includes £50,047,000 (1999: £38,025,000)
associated with the Court of Appeal ruling in Primback Ltd -v-
Commissioners of Customs & Excise. The same amount is included in
creditors (amounts due within one year), pending the outcome of the
appeal by HM Customs & Excise which has been referred to the European
Court of Justice.
5. The results for the 26 weeks ended 29 January 2000 and 30 January 1999
are unaudited. The results for the 52 weeks ended 31 July 1999 are
derived from the full accounts for that period which have been filed with
the Registrar of Companies. The report of the auditors was unqualified
and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985.
6. The results for the 26 weeks ended 29 January 2000 have been approved by
the directors and are prepared using the same accounting policies as were
used in the 1999 statutory accounts.
7. The interim report will be posted to shareholders on or about 8 May 2000
and will be available on request from the Secretary, DFS Furniture
Company plc, Bentley Moor Lane, Adwick-le-Street, Doncaster, South
Yorkshire DN6 7BD.
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