Dunelm Regulatory News (DNLM)

10 September 2020

Dunelm Group plc

Preliminary Results for the 52 weeks ended 27 June 2020

Emerging stronger and accelerating our transition

Dunelm Group plc ("Dunelm" or "the Group"), the UK's leading homewares retailer, today announces its preliminary results for the 52 weeks to 27 June 2020.

Strong performance in an unprecedented environment

· Response to the crisis highlighted the resilience of our business model, the strength of our balance sheet, the importance of our shared values and our digitally enabled Customer 1st strategy, allowing us to innovate at pace

· Total sales increased in the eight months to February by 6.8%, supported by an 8.8% increase in rolling 12-month unique active customer numbers5

· Online (home delivery) sales grew 105.6% in the fourth quarter

· Gross margin of 50.3% up 70 bps year on year, with gains from sourcing initiatives partially offset by increased clearance activity following the store closure period

· Full year reduction in PBT reflects impact of Covid-19 and the store closure period

· Free cash flow generation of £174.7m, including c.£80m of exceptional working capital benefits related to our response to Covid-19, which are expected to largely reverse in FY21

· Robust balance sheet with year-end net cash of £45.4m, access to £175m of approved banking facilities, and confirmed Covid-19 Corporate Financing Facility ("CCFF") eligibility

· With our stores re-opened, we have not made claims under the Job Retention Scheme (JRS) in FY21 and will not claim the "JRS Bonus"

Well positioned in a resilient homewares market, despite ongoing uncertainty

· Strong recent trading with total year on year sales growth of 59% in July and 24% in August, partly as a result of pent up demand and the timing of our Summer Sale and reflecting a resilient homewares market

· For the first two months of FY21 store footfall has been positive and digital sales were 31% of total sales, with online (home delivery) sales growth of c.130% compared to the prior year

· It is very difficult to provide any meaningful guidance on the future outlook given the uncertainty in the wider economy and the potential impact of further regional or national lockdowns

· Our prudent financial approach has served us well during the Covid-19 crisis. The combination of this approach and the highly uncertain outlook means the Board is not recommending a final dividend for FY20, in order to retain maximum liquidity ahead of winter peak trading

· Assuming no further material impact from Covid-19, the Board anticipates that it will declare an interim dividend in FY21 and return to our published capital policies

Nick Wilkinson, Chief Executive Officer, commented:

"We made good progress before the onset of Covid-19, building our digital capabilities, extending our product choice and value, and broadening and deepening our customer base.

"These unprecedented times have confirmed the strength of the Dunelm business model, with our integrated online and out-of-town stores proposition, broad product range, long-term supplier relationships, strong cash generation and operational grip. Our colleagues have been an inspiration throughout, living our shared values, and I would like to thank them all for their adaptability and resilience.

"These recent months have taught us about our ability to innovate at pace and we are emerging stronger as a result, giving us the confidence to accelerate our strategic priorities, all of which focus on being Customer 1st.

"Growth in the first two months of the new financial year has been significantly ahead of our expectations, reflecting both pent up demand following the store closure period and a resilient homewares market. Our customers have adapted quickly to shopping safely in our mainly out-of-town superstores and we continue to see strong growth in our home delivery offer.

"Whilst the year to date performance has been materially ahead of our initial expectations, it is very difficult to provide any meaningful guidance on the future outlook given the uncertainty in the wider economy and the potential impact of further regional or national lockdowns. However, we remain confident in our ability to adapt to the environment and are well positioned to continue to grow market share and help even more customers create a home they love."

1FY20 PBT on IFRS 16 basis; FY19 on IAS 17. The impact of IFRS 16 on FY20 PBT is a reduction of £2.3m

2Digital includes home delivery, Click & Collect (or Reserve & Collect before October 2019) and tablet-based sales in store

3To ensure comparability following the implementation of IFRS 16, Free cash flow is defined as net cash generated from operating activities less capex (net of disposals), net interest paid, interest on lease liabilities and repayment of lease liabilities

4Excluding lease liabilities

5Unique active customers who have shopped in the last 12 months, based on management estimates using Barclays data

Analyst Presentation:

There will be a live presentation for analysts and institutional investors this morning at 9.30am, hosted via webcast, with a conference call facility for Q&A. For details, please contact ailsa.prestige@mhpc.com. 

For further information please contact:

Next scheduled event:

Dunelm will release its first quarter trading update on 15 October 2020. 

Notes

Quarterly sales analysis:

6 LFL stores: stores trading for at least one full financial year prior to 29 June 2019 without any change of space. LFL store revenues include Click & Collect / Reserve & Collect sales and home delivery sales in respect of orders placed via in-store tablets

7 Total LFL: LFL stores and online (home delivery)

8 H1 FY19 included Worldstores businesses in the total Group

Notes to Editors:

Dunelm was founded in 1979 as a market stall business, selling ready-made curtains. The first shop was opened in Leicester in 1984 and over the following years the business developed into a successful chain of high street shops before expanding, following the opening of the first Dunelm superstore in 1991, into broader homewares categories. Dunelm is now a multi-channel retailer, with dunelm.com being launched in 2005.

Dunelm is market leader in the £14bn UK homewares market and active in the £12bn UK furniture market. It currently operates 173 stores, of which the majority are out-of-town, and trades online through dunelm.com. Dunelm employs approximately 10,000 colleagues and sells approximately 50,000 product lines (including store and online exclusives).

Dunelm, "The Home of Homes", offers a customer proposition of style, value, quality and ease of shopping. From its textiles heritage, in areas such as bedding, curtains, cushions, quilts and pillows, Dunelm has broadened its product range to a complete homewares offer including the likes of kitchenware, dining, lighting, seasonal, wall art and rugs. Dunelm is one of the few national retailers to offer an authoritative selection of curtain fabrics on the roll and owns a specialist UK facility dedicated to producing made-to-measure curtains and blinds.

The product range includes many exclusive, own brand designs and owned premium brands such as Dorma and Fogarty. This is augmented by a range of other well-known brands and licence agreements.

Dunelm has been listed on the London Stock Exchange since October 2006 (DNLM.L) and has a current market capitalisation of approximately £3.0bn.

CHAIRMAN'S STATEMENT

Our Dunelm values guided us through the Covid-19 crisis

Over a long business career, I have experienced a number of recessions and many business challenges, but nothing has come close to the Covid-19 crisis, which is combining a health crisis and an economic crisis with fundamental changes to our social norms. Not surprisingly, Dunelm is being tested like never before. The long-standing foundations of Dunelm have held us in good stead, with the strength of our customer proposition, backed by our new digital capabilities, allowing us to trade whilst our shops were closed. Alongside this, our financial strength continues to provide the resources to weather the storm.

Equally importantly, the commitment of our amazing colleagues, the quality of our leadership, and our Dunelm family values, have guided our decision making at all times. In the darkest and most unpredictable hours of the crisis, our values and our strong desire to the do the right thing for our colleagues, our customers and our communities lit the way. I am immensely proud of how our Dunelm colleagues have performed in the toughest of tests and the social contribution they made including the manufacture of NHS gowns from our curtain factory and sewing laundry bags for care home and other key workers. I would like to say a huge thank you to each and every one of our colleagues.

Strategic progress

Prior to Covid-19, our business was performing very well on all fronts, delivering for all our stakeholders and ahead of our plans. We made good strategic progress, most notably with the launch of our new online platform and the introduction of Click & Collect. This launch was delivered on a phased basis between August and October 2019, with minimal disruption to the business, and was a critical tool in our response to Covid-19. In addition, our product range improved both in store and online, including further innovations in sustainability. 

Board

We were delighted to welcome two new members to our Board during the year. Ian Bull joined in July 2019 as a Non-Executive Director and now chairs our Audit and Risk Committee. Paula Vennells joined in September 2019 as a new Non-Executive Director. Both have settled in well and are making a strong contribution. We are also pleased to announce that William Reeve, independent Non-Executive Director, and Chair of the Remuneration Committee, has assumed the role of Senior Independent Director, with immediate effect.

Dividends 

The interim dividend of 8 pence per share, which was due to be paid in April 2020, was cancelled due to the closure of our stores during lockdown and the urgent need to preserve liquidity. The memories of this enforced shutdown and of the enormous pressure that it put upon our business and our finances remain vivid. Our prudent financial policies and our balance sheet were vital during the shutdown and we were able to partially mitigate its impact with an excellent performance from our newly invested digital channels. Since our stores have re-opened our recovery has continued at pace.

Whilst current trading is very encouraging, the outlook for this financial year is highly uncertain, with heightened economic uncertainty, the possibility of further Covid-related lockdowns and potential Brexit-related disruption. These exceptional circumstances have reinforced our prudence and the Board has decided to retain cash in the business and not to recommend a final dividend.

The Board currently anticipates, in the absence of any further material impact from Covid-19, that we will declare an interim dividend in February 2021. We also expect to return to our published capital policies, which determine both the ordinary dividend and the extent of surplus cash distributions.

Looking ahead

The fundamental strengths of Dunelm, which were so evident during our response to the Covid-19 crisis, have underlined our confidence in our ability to deliver our strategic ambitions, which will create value for all our stakeholders. As a Customer 1st, digitally enabled business, we shall reinforce our leadership of the homewares sector in the UK, integrating our store network with our enhanced digital capabilities, supported by the strength and breadth of our product range, developed in partnership with our suppliers. We have also renewed our ambitions to continue making a substantial contribution to our communities, to improving the sustainability of the materials we use, to encouraging recycling, and to reducing our carbon footprint.

We are confident that Dunelm will deliver another strong performance in the coming year, whatever circumstances may be thrown at us, building on our customer-focused business plans, together with the agility to adapt to the unfolding economic and consumer environment. It is impossible to predict our immediate financial outlook, but we look to the future with confidence and great ambition.

 Andy HarrisonChairman10 September 2020

CHIEF EXECUTIVE OFFICER'S REVIEW

Emerging stronger together

FY20 was an extraordinary year. During the first eight months of the year we made significant progress against our digital and Customer 1st priorities. Trends in sales, unique active customer numbers and margins were all strengthening. And then in March, the Covid-19 crisis hit. Whilst the effects of the pandemic understandably dented our performance for the year, this period also proved to be a great test: of the strength and resilience of our business model and supplier partnerships; of the ability of our teams to respond with agility whilst upholding our values and supporting our local communities; and of our ability to accelerate our transition.

I believe it has been a test that, so far, we have risen to both as a business, and as a team, and one that we are emerging from stronger together. I would like to thank all of my colleagues for their exceptional commitment, resilience and adaptability during this challenging period.

FY20 Review

For the eight months to February 2020, as a result of the progress and investments we had made in digital, product, customer and operational initiatives, we were on track to deliver a year of very strong performance. Total sales were up by 6.8%, with online (home delivery) growth over 30%; gross margin was up by 120 bps; and unique active customers had increased by 8.8% on a 12-month rolling basis to February.

The full year results reflect the disruption in the final four months of the year, including the impact of the forced store closures and new social distancing measures. Total sales declined by 3.9% to £1,057.9m, unique active customers grew by 1.3%, gross margin increased by 70 bps, and PBT of £109.1m was £16.8m lower than the prior year.

Our new digital platform enabled us to respond to the surge in online demand when stores were closed, with online (home delivery) sales growing by over 100% in the final quarter and by 50.5% for the full year. Digital sales as a percentage of total sales reached 27.0% for the full year (FY19: 19.6%).

For the first eight months of the year, we delivered growth across all core homewares categories. The performance of the furniture category was particularly strong, with sales growth of over 40%, both before the Covid-19 disruption, and during the last weeks of the year when the full range of furniture was once again made available in stores and for two-man delivery.

During the lockdown period and since our stores have re-opened, customers have continued to buy into categories across homewares and furniture, with home office furniture, dining furniture, lighting and wallpaper performing particularly well.

Since re-opening, we have observed both a higher level of conversion and a higher basket size in store. Conversely, whilst conversion on our website has also increased, the average order value online has decreased as customers have broadened the range of categories that they are willing to shop online for, moving the mix away from higher value furniture items.

Strategic progress in an unprecedented year

Advanced our digital capabilities

We launched our new proprietary digital platform in October 2019, with the technology materially increasing the browsing speed and creating a step change in visitor capacity, enabling us to handle peak traffic periods more effectively. Customers benefited from user experience improvements from browsing to search and checkout, resulting in a more intuitive shopping experience. The new platform also enabled customers to Click & Collect from our stores, replacing the previous Reserve & Collect option and delivering greater conversion, store efficiency and improved customer convenience. Not only was this platform launch an important milestone for our digital ambitions, it also proved crucial for our ability to respond to increased online demand during the Covid-19 crisis.

Since the initial launch we have continued to introduce new capabilities every week, including dynamic product ratings and reviews, a 'track my order' function, and numerous new propositions to enable us to react to the Covid-19 pandemic. In the fourth quarter, online (home delivery) sales grew year on year by 105.6%.

Extended product choice and value

We continued to extend and refresh our product range across categories. We added more choice, offering additional designs and sizes of bedding, towels and curtains. We also introduced innovative products such as our new Ultra Blackout curtains and extended our furniture ranges - for example, the Bromley range of living room cabinetry now contains over 30 options, including bedroom and hallway designs which are now best sellers.

At the same time, we continued to re-balance the proportion of our range at good, better and best price points, and to offer more choice at entry price points. We also introduced new lower prices in our core Egyptian Cotton and Ultimate towel ranges to strengthen our value for money credentials.

As part of our growing range of sustainable products we introduced bamboo bedding, recycled throws and cushion covers.

Broadened and deepened our customer base

We completed our year-long sponsorship of This Morning in May, after 290 episodes averaging 900k viewers per episode, and continued our Home of Homes marketing campaign, where real families talk about what they love about Dunelm. In February, we began a new partnership as sponsor to Channel 4's First Dates. Our following on social media platforms increased during the year, with 1.2 million Facebook and Instagram followers: an increase of 28%.

Unique active customers grew by 8.8% in the 12 months to February 2020. Brand awareness (as measured by YouGov) was at an all-time high of 86.8% as at June 2020 (FY19: 84.8%).

During the fourth quarter, when physical stores were closed and home delivery growth accelerated, we saw a doubling of the number of customers in our online channels. Of this growth in online customers, 40% came from new customers to Dunelm, 33% from customers who had previously shopped in store and 27% from existing online shoppers visiting us more frequently.

Our response to the crisis - emerging stronger

Strength of the Dunelm business model

Through a difficult and testing time, the Covid-19 crisis has proven the strength and resilience of our business model. The integration of our online platform and out-of-town stores, suitable for socially distanced shopping, enabled us to adapt and serve customers safely. Our flexible supply chain and deep supplier relationships enabled us to respond with agility to both the sudden changes of the initial lockdown period, with online demand up by over 100%, and the subsequent ramping up of operations and high customer demand after stores re-opened. Our broad product range and strong value credentials are more relevant differentiators than ever. We maintained our focus on operational grip and on efficiency throughout this period, enabling us to respond quickly with mitigating actions. We remain a highly cash generative business, taking immediate cash preservation actions at the beginning of the crisis and realigning operations and investment priorities to support our Customer 1st plans. We have a strong balance sheet and maintained our prudent financial policies throughout.

Power of our shared values

This period also reinforced the power of our shared values, and we were guided by our business principles to do the right thing for all our stakeholders. Our teams have strengthened their connection with their local communities, from setting up local Facebook groups for each store community, to supporting local NHS, care workers and charities. We have enhanced our communication with colleagues and are providing both financial and wellness support. To acknowledge their exceptional commitment, resilience and adaptability, we made a special thank you payment of £250 to each of our 10,000 colleagues.

Ability to innovate at pace

We have learnt a lot about how to innovate and develop at pace. We accelerated the delivery rate of our technology releases, enabling frequent enhancements to the online customer experience and operational processes. We introduced new ways to safely deliver products to customers, including safe two-man delivery operations and contact-free Click & Collect. We introduced new ways to serve customers, such as virtual appointments for made-to-measure curtains and blinds and virtual shopping services. We were supported by the agility and innovation of our key suppliers in responding to changing demands. We have learnt from customer feedback that we have many opportunities to develop our customer proposition and further improve our customer experience. In particular, the rapid growth of home delivery demand has highlighted the need to improve delivery lead times and consistency, reduce post sales customer friction, and become faster at flexing, tuning and building our fulfilment capacity. What we have learnt during the crisis gives us the confidence to accelerate these plans.

Well positioned in a resilient market

The UK homewares and furniture markets are sizeable, with combined sales of c.£26bn9. The homewares market declined by 22.5% in March-May, and grew by 11.7% in June-July10, and in recent months home categories have been among the stronger performing consumer segments. Some of this is the result of pent up demand from lockdown, but our consumer research11 confirms a post Covid-19 reality - our homes are more important as a place of 'safety' and are being re-configured to better support the demands of working, educating, entertaining and relaxing.

Dunelm is well positioned to continue to grow its market share. A year ago, we noted the trend we were seeing across all age ranges and demographics for shoppers to be more confident browsing online for homewares categories and to consider a wider portfolio of retailers. This trend has further accelerated in the last 12 months, with Dunelm continuing to benefit, particularly from a growth in younger customers when our stores were closed. In simple terms, our offer is now being considered by more homewares consumers across more categories. Engagement rates on our social posts have increased three-fold since March, and we have seen a 2.0% pts increase in our Brand awareness to 86.8% as at June 2020.

Another notable shift we are observing in consumer attitudes is increased price consciousness, whether expressed as 'I always search for the lowest possible price' or the 54% of UK consumers who have said they are now shopping more price consciously, and are likely to continue to do so12. Dunelm's low average item value (for example, store basket average item value is around £10), coupled with our broad range and choice, is well suited to an environment in which value for money becomes an ever more important differentiator.

One further consumer change we are seeing as a result of the Covid-19 crisis is the willingness of consumers to use digital technology to connect with our physical stores and local colleagues. Homewares shoppers want to be able to touch and feel products, visualise how they will look in their homes, and be confident in delivery and service. We are also seeing significant growth in services where our customers and colleagues connect digitally. A year ago, this was limited to the use of tablets by colleagues to sell our full range of furniture to customers in store, but now includes virtual consultations for made-to-measure curtains and blinds, and the use of Facebook groups by store colleagues to share news and support their local communities.

9 GlobalData combined homewares and furniture market, January to December 2019

10 GfK homewares market

11 Dunelm Home lovers panel

12 Accenture Covid-19 Consumer Pulse Survey

Strengthening our total retail system

All of these trends mean that we have never been more confident about the opportunity to harness our fast-growing digital and data capabilities, with our local store and colleague presence in communities across the UK. We believe that a total retail offer integrating friendly and appealing local stores with a compelling and convenient digital offering will enable us to reach more customers and serve them better.

Our estate of 173 stores is well placed and highly profitable. New stores opened in the last two years are achieving paybacks which are consistent with historic averages. We expect to open three to five new superstores a year (including relocations) and are currently committed to three new openings in FY21 (of which two are relocations). Our target for our store estate remains at approximately 200 superstores, based on our analysis of target catchment areas, reaching over 65% of the UK within 20-minute drive times.

We anticipate undertaking two to three store refits in FY21, and then expect to revert to a more normal run rate of five to ten refits a year from FY22 onwards. The development of our store format will continue as the changes that Covid-19 is bringing to shopping habits become clearer. Take-up of our Click & Collect offer is increasing significantly, and we are improving the capabilities of customer hosts at selling higher ticket, non-stocked items, such as furniture and made-to-measure curtains, in store. The recent opening of a smaller Dunelm edit high street store is providing insight into the effective use of technology in store and how to increase sales densities in our core categories. This trial will inform our superstore format development and we will continue to assess the attractiveness of the edit format in its own right.

Our ambitions and what we will do next

We have learnt a lot in the last few months about how to innovate at pace and how to accelerate our transition, and there is much that we want to do in order to develop our product and services proposition and improve the experience we give our customers. With a large addressable market, a low market share, and homewares customers responding well to our increasingly integrated digital and physical offer, we are highly ambitious about Dunelm's growth prospects. Covid-19 has been disruptive and has caused significant challenges but it has also created the opportunity to develop our business faster than ever before, in a society that is also changing more quickly.

We have always been ambitious about profitable growth, achieving long-term growth in sales, profits and cash through the efficient use of our resources. We are also ambitious about our brand, and in recent years have been developing our brand with the aim to be the number one destination for homewares in the UK. But it is our renewed commitment to being a good company that feels most significant as we navigate the Covid-19 crisis and its aftermath. We are ambitious about being a socially responsible and progressive business. That means being a good place to work, focused on colleague wellbeing, development and diversity; good for our communities, something we have discovered new ways of doing during this crisis; and continue to be committed to successful long-term partnerships with suppliers as well as strong ethical sourcing standards. We are also committed to do more to make sustainable living more affordable for consumers.

In order to deliver on these ambitions and to fulfil our purpose to 'help everyone create a home they love' we have prioritised six focus areas, some of which have been a part of our existing strategy and some of which have been clarified by our learnings from the crisis.

1. Grow our product offer and authority

Product has always been at the core of what we do. We will deepen our relationships with new and long-term supplier partners to strengthen our supply chain and further our sustainability ambitions, which are detailed further below. We will focus on continuous product innovation, informed by how our customers are using their homes to Live, Sleep, Eat and Work/Do. We will increase the emphasis on affordability in established categories, combined with quality and style. We will extend choice where our offer is less mature, such as in sleep, upholstery and decorating. We will work to offer customers more sustainable choices including the opportunity to care and repair for products they already have, in every category.

2. Broaden our customer base

We will maintain our investment across brand awareness and consideration through our proven brand campaigns, including the First Dates sponsorship which runs until February 2021, but we will also now scale our customer acquisition programmes through our digital channels. This will be an iterative process as our data and technology capabilities begin to support better understanding of our customer lifetime value. In addition, we will engage the local community surrounding each store, initially centred around Facebook groups, and enable stores to offer local post-sales support to their customers.

3. Accelerate online, in-store digital and service sales

We continue to develop dunelm.com into the best site for UK home lovers. We will enhance the checkout experience and delivery promises and add a credit payment capability. We will improve search, navigation and browse functionality. We will also continue to pilot new ways of selling, supported through our local stores, such as scaling and upgrading online made-to-measure consultations and testing whether we can sell products directly to local store Facebook groups.

4. Make sustainability accessible for all

We are making sustainability an everyday part of our business. We will introduce more products and services to help customers live sustainably. We are growing our range of recycled products, for example with the introduction of recycled curtains and voiles in the autumn. We will set up local pilots to encourage re-use and repair. We will continue to source our raw materials in an ever more responsible way, focusing on packaging, cotton and timber.

We are partnering with the Carbon Trust to measure our carbon footprint and help us set an ambitious long-term carbon reduction target. We will publish our targets for scope 1 and scope 2 emissions in the new calendar year, and set targets for scope 3 in areas where we can make the biggest impact.

We will continue to build on our strong ethical sourcing compliance programme, which has been monitored by a third-party assurance specialist since October 2018, extending audits to high risk tier two facilities. We will also continue to build engagement and trust with our colleagues, with a step-change approach to diversity, and continued priority of wellbeing.

5. Transform post sales delivery experiences

We will reduce post-sale customer friction and enhance our data flows and insight to improve the speed, consistency and cost of home deliveries. We will target the areas that make the biggest impact to improve our customer experience. We will improve the visibility and communication of order status from basket to delivery and make this easily accessible to customers, their local stores, and via our central customer services support. We will develop more responsive customer service tools, such as live-chat.

6. Evolve smarter stock flows and operations

We are working to ensure Dunelm has a robust, flexible and scalable infrastructure that enables our growth ambitions. As we evolve the customer proposition, we are focused on ensuring our back-end systems and processes are effective, efficient and fit for purpose.

We will develop our supply chain infrastructure, both increasing capacity and optimising the flow of goods between suppliers, our distribution centres and our Home Delivery Network. We will increase our home delivery capacity (both centrally fulfilled and direct to home from our suppliers) in advance of peak trading in FY21, as well as widen the range of products that are available for Click & Collect later in this financial year. We will also test the effectiveness of using store stock to fulfil home deliveries to provide greater convenience to our customers. We are introducing streamlined in-store stock processes and reducing stock levels in store back rooms.

Investing for growth and driving for efficiency

Whilst acknowledging our significant growth ambitions, we will remain balanced and prudent in the allocation of our resources. As we expand our customer proposition, we will need to invest more, predominantly in technology and supply chain, to ensure that we can continue to deliver profitable growth. We will also continue to invest in maintaining the quality of our in-store experience.

To ensure we have the right resources in place to fulfil our ambitions, we have reviewed our support centre operations and realigned functions and roles to ensure our teams are structured efficiently and focused on delivering strategic progress and/or operational excellence.

Capital expenditure for FY21 will be c.£25m across stores, supply chain and technology. Additionally, we anticipate an increase of around £15m in operating costs in FY21 to support our Customer 1st plans and growth ambitions across digital, data and supply chain. This amount includes £3m annualisation impact from moving from capitalising to expensing internal digital development costs following the launch of our new digital platform in FY20 and represents an acceleration of our plans compared to the £8m noted in the Q4 trading statement.

Social distancing requirements will continue to have an impact on our operations during FY21. We remain focused on ensuring the safety of our colleagues and customers and have been cautious in our approach to date. Social distancing measures within the operating models of both stores and distribution have led to higher costs to operate; in total, we estimate these costs to be around £125,000 per week. Furthermore, whilst operating in this way, we will be unable to deliver some of the productivity savings that we had previously anticipated to offset wage inflation (e.g. National Living Wage increases), resulting in an estimated cost increase of c.£5m.

Well positioned for sustainable growth

We made good strategic progress in the first eight months of the year, which was reflected in the excellent growth delivered in unique active customers, sales, gross margin and PBT. Our strong foundations, including our new online platform, our amazing colleagues, our committed suppliers and our shared values, enabled us to navigate the disruption which we faced in the final months of the financial year. Spending on the home has been relatively resilient during the crisis and we are well placed to continue to gain share in this now ever more relevant market.

I am very pleased with the response from our customers since we have fully re-opened operations. In the first two months of the new financial year, we have continued to see strong sales growth across channels and categories. We do, however, remain cautious regarding the wider economic outlook, the potential impact of further regional or national lockdowns and possible Brexit-related disruption. Therefore, to be prudent, we are retaining cash in the business during this period of uncertainty and anticipate returning to our normal capital policies in FY21.

We are emerging from this unprecedented period as a stronger business and with the renewed confidence to accelerate our transition and invest in growth, as we continue to navigate an uncertain external environment. We are the leading homewares specialist in a large market with great potential, our brand awareness is at an all-time high and our customer base is growing. We have an integrated total retail offer with our online platform and local stores providing choice and convenience to our customers. Our business model is highly cash generative, which allows us to invest for the long term to take advantage of further opportunities to grow market share. We are, therefore, well positioned to deliver sustainable growth and help even more customers create a home they love.

Nick WilkinsonChief Executive Officer10 September 2020

CHIEF FINANCIAL OFFICER'S REVIEW

Revenue

Total revenue for the 52 weeks to 27 June 2020 fell by 3.9% to £1,057.9m (FY19: £1,100.4m), with sales impacted by the store closure period during the final months of the year. As an indicator of performance prior to Covid-19, total revenue for the eight months to February grew by 6.8%, with like-for-like ("LFL") stores growing at 2.5%. Online (home delivery) sales performed particularly well, with growth of 50.5% for the full year, and 32.7% for the eight months to February.

Revenues during the last four months of the year were significantly disrupted by Covid-19. From an almost 100% loss of revenue at the end of March when all stores and online operations were closed, the business recovered well towards the end of the year when all operations could re-open.

Trading in the new financial year has been very encouraging, with total sales growth of +59% in July and +24% in August. As customers have become more used to the social distancing measures in store, we have seen strong sales, which in part reflects a level of pent up consumer demand and the timing of our Summer Sale. Online (home delivery) sales have also continued to be strong, with growth of c.130% in the first nine weeks of the new financial year.

In the eight months to February 2020, we outperformed the market and grew market share. With our stores closed, we underperformed the market. Once our stores re-opened, the market returned to growth and we began to regain share.

It is very difficult to forecast future revenue trends at present given the uncertainty in the wider economy and the potential impact of further regional or national lockdowns.

Gross margin

Gross margin of 50.3% was 70 bps higher than the prior year. Gross margin in the first half improved by 120 bps as a result of sourcing gains and lower product markdowns across our categories. In the second half, gross margin was flat, continuing to benefit from sourcing gains, which were offset by additional clearance activity and mix impacts following the unexpected store closure period.

In the absence of any further material impact from Covid-19, we anticipate gross margin to be broadly consistent in FY21. We will continue to target sourcing gains and will continue to invest in price to maintain our value proposition for our customers.

Operating costs

Prior to the store closure period, the operating costs to sales ratio was tracking in line with the prior year. During this period, the growth in costs was driven largely by higher sales volumes online, and increased investment in technology and digital. Productivity gains were achieved to offset wage inflation.

The operating costs to sales ratio for the full year was, however, impacted by the store closure period, with a largely fixed store cost base and reduced store sales. Operating costs for the period were £416.4m, a decrease of £2.3m year-on-year, representing an operating cost to sales ratio of 39.4% (FY19: 38.0%).

Higher costs as a result of social distancing measures in the period totalled £1.3m. FY20 operating costs include the benefits of Covid-19-related government support, including a business rates holiday of £7m and claims under the Job Retention Scheme (JRS) of £14.5m. Additionally, a further £4m of other cost savings were made during the crisis, including voluntary pay reductions for the Board and Executive team and reduced brand marketing costs. FY20 operating costs also include £2.4m of restructuring costs relating to the realignment of our support centre operations to our strategic priorities.

Following the successful launch of the new digital platform, digital development costs are now expensed through the Income Statement; this change in approach led to an increased charge of £4.8m in the period. These cost increases were partially offset by a £3.2m benefit to operating costs from implementing IFRS 1613.

The impact of Covid-19 has triggered the requirement under IAS 36 for a review of the profitability of each 'cash generating unit', defined by management as each individual store and the online operation. Whilst this test generated significant headroom in total cashflows, one specific store required an impairment, which was not material.

In FY21 we anticipate operating cost leverage improvements from higher sales, which will be partly offset by costs relating to social distancing (which we estimate at c.£125,000 per week), National Living Wage inflation of c.£5m and increased investments of c.£15m in digital, data and supply chain to support the strategic focus areas. This amount includes £3m of annualisation of the move to expense digital development costs.

In FY21, the benefit from three quarters of the business rates holiday of £21m is equal to the level of government support received in Q4 FY20 that will not be received again in FY21 (rates £7m; JRS £14.5m). However, we note that the timing of these amounts will have a benefit in the first half and an adverse impact in the second half of the year. With our stores now fully re-opened, we have not made any further claims under the JRS in FY21 and will not claim the "JRS Bonus".

Profit and Earnings per Share

Operating profit for the period was £116.0m (FY19: £126.9m), a reduction of £10.9m, reflecting the impact of the store closure period, partially offset by the strong sales performance in the first three quarters, improved gross margin and the £3.2m benefit from the adoption of IFRS 16.

There was a net cost of £6.9m (FY19: £1.0m) in respect of financial items in the period. This included interest on IFRS 16 lease liabilities of £5.5m, interest payable and amortisation of arrangement fees relating to the Group's Revolving Credit Facility amounting to £1.8m (FY19: £1.9m), partially offset by a gain of £0.3m (FY19: £0.6m gain) resulting from foreign exchange differences on the translation of dollar denominated assets and liabilities. Interest received on cash deposits was £0.1m (FY19: £0.3m).

PBT in the period was £109.1m (FY19: £125.9m), a reduction of £16.8m year-on-year. The impact of IFRS 16 in the period was to reduce profit before tax by £2.3m. Profit after tax of £87.7m (FY19: £101.3m) reflects an effective tax rate of 19.6% (FY19: 19.5%).

Basic earnings per share (EPS) for the period were 43.4 pence (FY19: 50.2p). Diluted earnings per share were 42.9 pence (FY19: 49.9p).

13 The impact of IFRS 16 in the year has been to reduce operating costs by £3.2m and increase financial expenses by £5.5m and therefore reduce PBT by £2.3m

Cash generation and net cash 

In the period, the Group generated £174.7m of free cash flow (FY19: £152.8m).

14 Including impairment and loss on disposal

15 Excluding interest on lease liabilities. FY19 represents interest paid only, with interest received included within net cash generated from operating activities

Working capital inflow of £80.1m (FY19: £26.5m inflow) reflected exceptional creditors of c.£40m, including a deferral of £19m VAT, £10m of rental payments (paid in full but on a monthly rather than quarterly basis), and £10m of other accruals and deferred income, as well as c.£40m of lower stock levels and delayed purchases. These benefits are largely expected to reverse in FY21, mainly in the second half.

Total capital investment was £24.9m for the year (FY19: £25.0m capex less £5.4m disposal proceeds). FY20 included investment in one freehold store (£5.6m), five new store openings including two relocations (£7.6m), technology and digital infrastructure (£4.9m), and store refit expenditure in existing stores (£6.2m). We expect capital expenditure in FY21 to be broadly consistent with FY20.

Tax paid of £34.3m (FY19: £20.5m) reflected the one-off impact of the new rules on the timing of corporation tax payments which resulted in two additional payments on account being made within the period. This will normalise to four payments per year from FY21.

After total dividend payments in the period of £106.0m (FY19: £54.6m), including a special dividend of 32.0 pence per share paid in October 2019, the Group ended the year with a net cash position of £45.4m (FY19: net debt £25.3m). This consisted of cash of £90.0m (FY19: £19.0m) and borrowings of £44.6m (FY19: £44.3m), being the Group's Revolving Credit Facility ("RCF"), which has since been repaid in full. On an underlying basis, excluding the exceptional working capital benefit, net debt would have been c.£35m.

Banking agreements

The Group has in place a £165m syndicated RCF which matures in 2023. The terms of the RCF are consistent with normal practice and include covenants (both calculated on a pre-IFRS 16 basis) in respect of leverage (net debt to be no greater than 2.5x EBITDA) and fixed charge cover (EBITDA to be no less than 1.75x fixed charges), both of which were met comfortably as at 27 June 2020. The Group's ability to meet these covenants has been stress tested as part of viability modelling, which is described in more detail below.

In addition, the Group maintains £10m of uncommitted overdraft facilities and has an accordion option within the RCF for a maximum facility of £75m. During the period, the Group secured eligibility from the Bank of England for funding under the Covid-19 Corporate Financing Facility ("CCFF"). The Board does not currently anticipate any need to draw down on the CCFF facility.

Capital and Dividend Policy

The Board policy on capital structure targets an average net debt level (excluding lease obligations and short-term fluctuations in working capital) of between 0.2x and 0.6x of the last 12 months' EBITDA (on a post IFRS 16 basis). The Group's capital and dividend policy targets ordinary dividend cover of between 1.75x and 2.25x earnings per share during the financial year to which the dividend relates.

The Board will continue to consider returning surplus cash to shareholders if average net debt over a period consistently falls below the minimum target of 0.2x EBITDA, subject to known and anticipated investment plans at the time.

The Group's full capital and dividend policy is available on our website at www.corporate.dunelm.com. 

Dividends

The Board declared an interim dividend of 8 pence per share at the Interim results, which was due to be paid in April 2020. However, this payment was cancelled when the stores were forced to close at the end of March and the priority was to secure liquidity.

The Board's capital and dividend policies, which are set out above, are unchanged. However, given the current level of uncertainty for the outlook due to Covid-19, the Board has decided not to recommend a final dividend for the year and to maintain cash in the business to mitigate the risk of any further enforced store closures and to maintain maximum liquidity ahead of the peak winter trading season.

As set out in the Chairman's statement, the Board currently anticipates, in the absence of any further material impact from Covid-19, that we will declare an interim dividend in February 2021. We also expect to return to our published capital policies which determine both the ordinary dividend and the extent of surplus cash distributions.

Treasury Management

The Group Board has established an overall Treasury Policy, day-to-day management of which is delegated to the Chief Financial Officer. The policy aims to ensure the following:

· Effective management of all clearing bank operations

· Access to appropriate levels of funding and liquidity

· Effective monitoring and management of all banking covenants

· Optimal investment of surplus cash within an approved risk/return profile

· Appropriate management of foreign exchange exposures and cash flows

New accounting standards adopted in the period

The Group has adopted IFRS 16 'Leases' for the first time in the period, using the modified transition approach, which means that the prior period has not been restated and is presented on an IAS 17 basis. The implementation of IFRS 16 has no impact on cash flows generated and does not impact management's decisions on how the business is run. It does, however, have an impact on the assets, liabilities and Income Statement of the Group.

The impact of IFRS 16 on PBT in the period is a reduction of £2.3m.

Principal risks and uncertainties

The Board carried out a review in June and September 2020 of the principal risks that could threaten the Group's business model, future performance, solvency or liquidity. The full assessment, along with changes, including as highlighted by the Covid-19 crisis, is included in the 2020 Annual Report. A summary is provided below:

Future presentation of financials

As previously announced, as we move towards a more integrated total retail system, where customers will have multiple touchpoints with our brand, we will report "total sales", as opposed to sales by channel, in order to provide a more meaningful measure of performance.

We will also disclose digital sales participation and the proportion of sales which continue to be fulfilled via our store estate (including Click & Collect from stores).

The Q1 trading statement, due to be released on 15 October, will include the new disclosures.

Going Concern and viability statement

At the time of approving the financial statements, the Board of Directors is required to formally assess that the business has adequate resources to continue in operational existence for the foreseeable future and as such can continue to adopt the 'Going Concern' basis of accounting. The Board is also required to state that it "has a reasonable expectation that the Group will continue in operation and meet its longer-term liabilities as they fall due" (the "viability statement"). To support this statement, the Board is required to consider the Group's current financial position, its strategy, the market outlook and its principal risks. The Group has chosen to review viability over a three-year period due to the current uncertainty of the economic outlook due to the Covid-19 pandemic and Brexit, which is aligned to the 'central case' three-year forecast approved by the Directors in June 2020, with a 'severe but plausible downside' scenario modelled as described below.

Following this review, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and they continue to adopt the going concern basis of accounting in preparing the annual financial statements. The Directors have reached this conclusion based on the following considerations.

Key judgements

The key judgement that the Directors have considered in forming their conclusion is the potential impact of Covid-19 on future revenue, profits and cashflow. In relation to forecast revenue the primary consideration is the likelihood and future impact of a recurrence of Covid-19, including a second peak in the winter of 2020/21, which could result in the closure of stores. The Directors have also considered the longer-term economic outlook for the UK, using external forecasts and current performance trends. In forming their conclusion, the directors have reviewed the trading performance during the first lockdown period, the trading performance since restrictions have been lifted and the potential impact of a significant recession in the UK, considering the uncertain economic environment.

In forming their conclusions, the Directors have considered the potential mitigating actions that the Group could take to preserve liquidity and ensure compliance with the Group's financial covenants. In doing so, judgement has been applied in determining whether such actions would be reasonably possible to execute as well as the financial impact of taking such actions.

Our response during the Covid-19 pandemic

We closed our stores and online business on 24 March, and then gradually re-opened all our operations in a phased and controlled manner, as our stores moved from 'non-essential' to 'permitted' status. While our first priority has been the health, safety and wellbeing of our customers and colleagues, we restarted and gradually scaled up our online operations from the end of March. While our stores were closed, we introduced a dark store Click & Collect customer proposition.

During this period, we benefited from the investment we made in our new digital platform. We have been operating our digital fulfilment channels at record levels and our supplier partners have increased their 'direct to customer' fulfilment capacities.

Mitigations implemented

At the start of the crisis, we took quick and decisive action to manage our cash position and reduce our costs. We paused our overseas stock orders and asked our UK suppliers to stop replenishing our stores. In responding to the impact of the pandemic, the Group has initiated a number of additional mitigations that are relevant for assessing cashflows during the going concern period:

· We furloughed over 8,000 store, supply chain and support colleagues, who were temporarily not working due to Covid-19. All furloughed colleagues were paid at 100% of their salary in March and April, and 80% of their salary from May onwards, with the Group making up any difference beyond the Government subsidy limits. We received approximately £14.5m in relation to claims under the Job Retention Scheme. We also benefited from the rates holiday for the retail, hospitality and leisure sector of £7m in the financial year, which will further benefit FY21 by approximately £21m. 

· All Executives took a temporary 20% pay reduction for the three months from April to June, with the CEO taking a 90% pay reduction and the Board waiving their fees entirely for that period. All non-essential expenditure was stopped.

· Although paid in full, we moved the majority of our rents to monthly rather than quarterly payments and, where offered, have accepted extended payment terms from some of our larger suppliers. We have continued to pay all suppliers to their agreed payment terms.

· UK VAT payments due between March and July 2020 have been deferred until March 2021.

· We cancelled the interim dividend of 8.0 pence per share (£16m total) that had previously been announced at our Interim results announcement in February, which was due to be paid in April. The Board is not recommending a final dividend for FY20, to retain maximum liquidity ahead of winter peak trading. In the longer term, our capital and dividend policy is unchanged, and we remain committed to returning surplus cash to our shareholders.

· The Group secured eligibility from the Bank of England for funding under the COVID Corporate Financing Facility ("CCFF"). However, we do not anticipate that we will need to draw down on the CCFF facility.

These actions enabled us to partially offset the financial impact of the store closure period and to maintain a strong balance sheet.

Modelling and potential future impact of Covid-19

In their consideration of going concern and the future viability of the Group, the Directors have reviewed future cash forecasts and profit projections, which are based on market data and recent experience. Given the economic uncertainty resulting from the Covid-19 pandemic, it is difficult to estimate with precision the impact on the Group's prospective financial performance. We have, therefore, modelled a range of Covid-19 scenarios in our considerations, including a central case, a downside scenario, a severe but plausible downside and a reverse stress test, all over the three-year horizon.

The 'severe but plausible downside' scenario is very conservative in assuming a further national lockdown for ten weeks where our stores are no longer in the 'permitted' status and where we are unable to offer our Click & Collect service. We have also assumed that this national lockdown occurs in our peak Christmas and Winter Sale trading period, with all of the Group's stores being required to shut for ten weeks in the event of a second Covid-19 outbreak, on top of the downturn in the economy that is already included in the central case, including potential Brexit-related disruption. Throughout this second closure, we have assumed no government support (other than the current committed rates holiday) and no further reduction in costs beyond the variable cost reduction from stores being closed. During this period, online sales are assumed to continue to operate at a level similar to that seen during the first period of lockdown. In this scenario, once the stores re-open, a period of reduced sales is expected, with full year sales not returning to pre Covid-19 levels until FY23. Throughout this 'severe but plausible downside' scenario, the Group would not breach any of their financial covenants and would not require any additional sources of financing (including any drawdown on the CCFF). 

As a result of the uncertainties surrounding the forecasts due to the Covid-19 pandemic, the Group has also modelled a reverse stress test scenario. The reverse stress test models the decline in sales that the Group would be able to absorb before breaching any financial covenants. Such a scenario, and the sequence of events that could lead to it, is considered to be remote, as it requires an annual sales reduction of c.35% in FY21 in order to breach financial covenants in the three-year period under review, and is calculated assuming no further government support and no significant changes to the cost base.

Financing

The Group's banking agreements and associated covenants are set out above. These include a £165m RCF (maturing in March 2023), accordion option with a maximum facility of £75m, £10m uncommitted overdraft as well as eligibility for funding under the COVID Corporate Financing Facility ("CCFF").

The Group ended the financial year with £90m cash at bank, including net cash of £45m and a drawn balance of £45m from the RCF.

The financial covenants are tested semi-annually in line with our December Interim reporting and June year end reporting. These covenants are normally met with significant headroom. Even under the 'severe but plausible downside' Covid-19 scenario as explained above, factoring in the variable cost savings only and no further mitigations within the Group's control, the Group continues to forecast compliance with all financial covenants throughout the going concern period.

Going concern and viability conclusion

Even in the most severe but plausible scenario, Dunelm has sufficient liquidity to continue trading and comfortably meets its financial covenants. The reverse stress test modelling has shown that a scenario of a c.35% reduction in sales in FY21 is required to lead to a breach of covenants in the three-year period under review. However, in this scenario, management would also be able to take some mitigating actions as demonstrated between March and May this year. These actions include, but are not limited to the following:

· Reducing discretionary spend (e.g. marketing and maintenance)

· A reduction in capital investment (e.g. new stores and refits)

· Manage stock levels closely to demand

· Suspension of ordinary dividends, and no special dividends

· Benefit from any government actions to address specific closure periods (JRS, delay in VAT payments)

· Reduce operating model costs e.g. reduced store opening hours, lower technology spend with third party developers

· Delay in payments, including landlords and other suppliers

· Further reduction in support centre headcount

As a result, the Board believes that the Group is well placed to manage its financing and other significant risks satisfactorily and that the Group will be able to operate within the level of its facilities for the foreseeable future. For this reason, the Board considers it appropriate for the Group to adopt the going concern basis in preparing its financial statements. The long-term impact of Covid-19 is uncertain and should the impacts of the pandemic on trading conditions be more prolonged or severe than what the Directors consider to be reasonably possible, the Group would need to implement additional operational or financial measures.

Laura CarrChief Financial Officer

10 September 2020

Consolidated Income Statement

For the 52 weeks ended 27 June 2020

Consolidated Statement of Comprehensive Income

For the 52 weeks ended 27 June 2020

From this financial period and going forward cash flow hedges transferred to inventory are included directly in equity, as this is not a reclassification adjustment as defined in IAS 1.

Consolidated Statement of Financial Position

As at 27 June 2020

Laura Carr

Chief Financial Officer

Consolidated Statement of Cash Flows

For the 52 weeks ended 27 June 2020

From this financial period and going forward interest received is included in cash flows from investing activities.

Consolidated Statement of Changes in Equity

For the 52 weeks ended 27 June 2020

From this financial period and going forward cash flow hedges transferred to inventory are included directly in equity, as this is not a reclassification adjustment as defined in IAS 1.  

Accounting Policies

For the 52 weeks ended 27 June 2020

1 Basis of preparation

The annual report and financial statements for the period ended 27 June 2020 were approved by the Board of Directors on 10 September 2020 along with this preliminary announcement, but have not yet been delivered to the Registrar of Companies.

The financial information contained in this preliminary announcement does not constitute the Group's statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The auditor's report on the statutory accounts for the period ended 27 June 2020 was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

The statutory accounts of Dunelm Group plc for the period ended 29 June 2019 have been delivered to the Registrar of Companies. The auditor's report on the statutory accounts for the period ended 29 June 2019 was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

2 Revenue

The Group has one reportable segment, in accordance with IFRS 8,'Operating Segments', which is the retail of homewares in the UK.

Customers access the Group's offer across multiple channels and often their journey involves more than one channel. Therefore, internal reporting focuses on the Group as a whole and does not identify individual segments.

The Chief Operating Decision-Maker is the Executive Board of Directors of Dunelm Group plc. Internal management reports are reviewed by them on a monthly basis. Performance of the segment is assessed based on a number of financial and non-financial KPIs as well as on profit before taxation.

Management believe that these measures are the most relevant in evaluating the performance of the segment and for making resource allocation decisions.

All material operations of the reportable segment are carried out in the UK. The Group's revenue is driven by the consolidation of individual small value transactions and as a result, Group revenue is not reliant on a major customer or group of customers.

3 Operating costs

The classification of operating costs between selling and distribution costs and administrative expenses between FY19 and FY20 has been impacted by the first-time adoption of IFRS 16.

4 Operating profit

Operating profit is stated after charging the following items:

*Following the implementation of IFRS 16 'Leases' this charge relates to short term leases.

The analysis of the auditor's remuneration is as follows:

5 Employee numbers and costs

The average monthly number of people employed by the Group (including Directors) was:

 The aggregate remuneration of all employees including Directors comprises:

Payroll costs have been presented net of £14.5m claimed from the UK Government's Coronavirus Job Retention Scheme.

6 Financial income and expenses

7 Taxation

The tax charge is reconciled with the standard rate of UK corporation tax as follows:

The taxation charge for the period as a percentage of profit before tax is 19.6% (2019: 19.5%).

In March 2020, the UK Government substantively enacted a corporation tax rate of 19.0% from 1 April 2020 rather than the previously enacted reduction to 17.0%. The deferred tax asset is therefore measured at 19.0%.

8 Dividends

The dividends set out in the table below relate to the 1 pence Ordinary Shares:

Due to the ongoing uncertainty in the wider environment, the Directors have not proposed a final dividend for the period ended 27 June 2020.

9 Earnings per Ordinary Share

Basic earnings per share is calculated by dividing the profit for the period attributable to equity holders of the Company by the weighted average number of Ordinary Shares in issue during the period, excluding Ordinary Shares purchased by the Company and held as treasury shares.

For diluted earnings per share, the weighted average number of Ordinary Shares in issue is adjusted to assume conversion of all dilutive potential Ordinary Shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's Ordinary Shares during the period.

Weighted average numbers of shares:

10 Intangible assets

All amortisation is included within operating costs in the Consolidated Income Statement.

Within software development and licences, £0.8m (2019: £2.3m) of additions relates to internally generated assets.

The impairment in 2019 within rights to brands and customer lists of £3.8m relates to the Fogarty brand.

11 Property, plant and equipment

All depreciation and impairment charges have been included within operating costs in the Consolidated Income Statement.

Within land and buildings and leasehold improvements the impairment of £1.0m (2019: nil) relates to the Group's head office and a store impairment as a result of the impact of Covid-19 on the business. The recoverable amount has been determined as the value in use applying a discount rate of 10.0%.

In the opinion of the Directors, the market value of the freehold land and buildings of the Group exceeds the book value of these assets at 27 June 2020 by £21,257,300 (2019: £18,989,394).

12 Leases

Right-of-use assets included in the Consolidated Statement of Financial Position at 27 June 2020 were as follows:

Lease liabilities included in the Consolidated Statement of Financial Position at 27 June 2020 were as follows:

The maturity analysis of the lease liabilities is as follows:

The remaining contractual maturities of the lease liabilities, which are gross and undiscounted, are as follows:

The following amounts have been recognised in the Consolidated Income Statement:

The impairment of £0.4m (2019: nil) relates to a store impairment as a result of the impact of Covid-19 on the business. The recoverable amount has been determined as the value in use applying a discount rate of 10.0%.

The total cash outflow for leases during the financial period was £43.2m.

Impact

The impact on the Consolidated Statement of Financial Position on transition (30 June 2019) is summarised below:

The table below shows a reconciliation from the total operating lease commitment as disclosed at 29 June 2019 to the total lease liabilities recognised in the accounts immediately after transition:

The impact on the Consolidated Income Statement for the period is summarised below: