Last checked at 11 Sep 2014 07:00
11 September 2014
Dunelm Group plc ("Dunelm")
Preliminary Results for the 52 weeks to 28 June 2014
Dunelm Group plc, the UK's leading homewares retailer, today announces its preliminary results for the 52 weeks to 28 June 2014.
Financial summary
FY14 | FY13 | Change | |
Total revenues | £730.2m | £677.2m | +7.8% |
Like-for-like growth | +2.1% | +1.7% | |
Gross margin | 49.5% | 48.7% | +80 basis points |
Operating profit | £116.0m | £106.5m | +8.9% |
Profit before tax | £116.0m | £108.1m | +7.3% |
Basic EPS | 44.0p | 40.2p | +9.5% |
Fully diluted EPS | 43.7p | 40.0p | +9.3% |
Ordinary dividends | 20.0p | 16.0p | +25.0% |
Free cash flow | £77.1m | £74.6m | +3.4% |
Highlights
· Continuing market share gains and Dunelm remains market leader with 7.4% of UK homewares market (source: Verdict Research);
· 12 new openings in the year (including three relocations, resulting in the closure of two existing superstores and two high street shops) increasing footprint to 136 superstores;
· Contractually committed to 11 more superstores for FY15;
· Over 60%growth in multi-channel revenues, now representing over 6% of total business;
· Increasing investment in brand awareness with first national TV advertising campaign;
· Continued investment in product range, service proposition, multichannel, infrastructure, IT systems and people, to underpin long-term growth.
Dividend
· Recommended final dividend of 15.0p per share (2013: 11.5p) giving a 25% increase in the full year dividend to 20.0p (2013: 16.0p).
Will Adderley, Chief Executive, commented:
"Dunelm has delivered solid trading results in the last financial year. We have again strengthened our specialist proposition, improved customer service in store and increased the profile of our brand. Each of these, together with our traditional product strength, has enabled us to increase sales on a like-for-like basis and to continue to gain market share. We have also made good strategic progress, growing our business through new stores and multi-channel, and strengthening our infrastructure.
"On a personal note, I would like to thank Nick and the team for all that they have achieved over the last few years, continuing to build the business and further improving our operational platform. I am very much looking forward to leading the business in its next phase of growth."
For further information please contact:
Dunelm Group plc | 0116 2644356 |
Will Adderley, Chief Executive | |
David Stead, Finance Director | |
MHP Communications | 020 3128 8100 |
John Olsen / Simon Hockridge / Naomi Lane | dunelm@mhpc.com |
For photography, please contact MHP Communications
CHAIRMAN'S STATEMENT
Since the year end there have been some important changes to our Board reflecting our on-going succession planning. We are announcing today the departure of Nick Wharton, our Chief Executive since 2010, and the resumption of the Chief Executive role by Will Adderley, who has been our Executive Deputy Chairman over the last few years. We also previously announced the appointment of a new Non-executive Director, Andy Harrison, who joined the Board with effect from September. Andy is currently Chief Executive of Whitbread plc and was formerly Chief Executive of easyJet plc. He brings a wealth of experience across a variety of consumer-facing sectors.
I would like to thank Nick for the excellent job he has done in creating a strong operating platform for the business. Looking ahead, the Board is confident that Will, with his unique skill set, is the right person to lead the business through its next phase of growth.
Across the Group, I am pleased to report another year of strong progress. Our management team has continued to focus on driving our well-established strategy for developing the business and building the Group's future, as well as keeping tight control on day to day operations. As a result, Dunelm has again posted good growth in revenue and profits in the latest financial year, accompanied by further strong free cash flow, while also investing for continuing growth in the years ahead.
Given the continuing strong business performance, the Board is recommending a 30% increase in the final dividend to 15.0p per share (2013: 11.5p), bringing the total ordinary dividend for the year to 20.0p (2013: 16.0p); this is in addition to a special dividend of 25.0p per share (£50.7m) paid last October. We remain committed to delivering appropriate cash returns to shareholders through both our ordinary dividend and, where appropriate, additional returns of surplus cash.
Looking ahead, we will continue to invest in a range of exciting development initiatives that will strengthen our brand and increase the scale of our business through both new stores and multi-channel operations. We remain confident in the Dunelm proposition and look forward to further growth in the years ahead.
Geoff Cooper
Chairman
CHIEF EXECUTIVE'S REVIEW
Overview
The business has delivered a solid trading performance over the last financial year as well as making further progress against our operational and strategic objectives.
We continue to strengthen our customer proposition through increasing the market leading choice we offer in store, improving the quality of customer service and introducing added value services, such as Dunelm at Home. This development of our customer offer will continue alongside our constant commitment to delivering excellent value for money.
Our total revenue for the year increased by 7.8%. Within this, like-for-like sales (calculated by comparing stores which have traded throughout the last two financial years) grew by 2.1%, despite a disappointing start to the year due to very hot weather in July 2013. During the year we opened 12 new superstores, including three relocations (resulting in the closure of two existing superstores and two high street shops).
Our continued store expansion and positive like-for-like growth has meant that during the past year we have consolidated further our leadership of the UK homewares market, as reported by Verdict Research. Verdict estimates our share of the market to have increased from 6.8% in 2012 to 7.4% over the 2013 calendar year.
We also continue to progress initiatives to support the longer term growth of the business. The key investments during the year are discussed in greater detail below and include the transition to a new multi-channel fulfilment operation, our first national TV advertising, the upgrading of key points of infrastructure and the roll-out of our 'Dunelm at Home' proposition. Whilst the scale of these planned investments resulted in operating costs growing at a faster rate than sales over the year, we were nevertheless able to deliver an operating margin which was slightly stronger year on year at 15.9%, reflecting continued benefit at the gross margin level from our ongoing direct sourcing initiative.
Dunelm is a highly cash generative business with capital expenditure fully funded from operating cash flows. Whilst we retain a preference for capital flexibility, we have decided to reflect our consistently strong generation of free cash flow by reducing the level of dividend cover from 2.5x to 2.2x. Combined with our earnings growth, this leads to a 25% year on year increase in the level of the total ordinary dividend for the year. In addition we paid a special dividend totalling £50.7m during the financial year, reflecting our approach of periodically distributing surplus cash to shareholders.
Strategic progress
We have continued to make good progress with the four pillars of our strategy.
Pillar 1 - develop our specialist proposition
We know from research that the primary criterion for customers in selecting a homewares retailer is breadth of choice. Furthermore, with colour, design and tactile aspects core to many of our customers' selections, most homewares purchases are made in store, where physical comparisons can be made. Industry-leading product choice in our 136 superstores is therefore a key differentiator, with each store offering over 20 categories of quality products spanning a broad price spectrum and appealing to a wide variety of tastes.
We continue to build on this strength introducing a high proportion of new products and designs across our ranges, with 30% of our c.20,000 lines being refreshed annually. Over the last year we have given particular focus to enhancing both the product range and in-store representation of furniture in the majority of our stores; and we have expanded our child-focused proposition, including the creation of a dedicated "kids zone" in newer format stores.
We recognise that, in order for product choice to be meaningful, it has to be allied to value for money at all price points. We constantly monitor our prices against a wide range of competitors and continue to have a very high level of confidence in the value we offer. Our approach to pricing is consistent across each product category. Our entry-level prices on basic products compete with products offered by grocers and discount multiples but at a higher quality, and our highest quality products are comparable with the quality of products in department stores and higher-end independent retailers but at keener prices, with exceptional value through the middle of our ranges. We also supplement our regular product ranges with a flow of 'special buy' products which are constantly changing so that our customers discover new merchandise each time they visit a store.
Our strong product credentials of choice and value are complemented by knowledgeable, friendly customer service together with a high quality in-store experience and key differentiating services.
During the last financial year, we invested further across each of these elements. Colleague labour hours released through continuing to simplify or remove in-store tasks have been re-allocated to customer service, and we have introduced the second phase of our customer service development programme - Customer First. The success of this approach is reflected in the continued improvement in our customer service metrics and excellent feedback from our customer satisfaction surveys.
Our Dunelm at Home service, through which customers can select bespoke, made-to-measure curtains, other window treatments and matching accessories via a free home design consultation, was extended significantly during the year and is now provided by the majority of our stores. This allows the vast majority of customers nationwide to have access to the service. We invest significantly in training our home consultants to ensure high levels of customer satisfaction.
We also continue to invest in increasing awareness of the Dunelm brand, launching a new logo and primary strapline ("There's no place like Dunelm") last autumn. This evolution of our brand positioning better communicates Dunelm's range authority across all homewares categories and our value, convenience and service advantages. We invested in national TV advertising for the first time in the spring, following a successful regional pilot prior to last Christmas. This involved an incremental investment of over £3m, at the same time as increasing our commitment to catalogues, traditional press advertising and digital marketing. We have seen unprompted brand awareness increase steadily since we commenced our TV advertising and we will continue testing it this autumn, including through the sole sponsorship of ITV's newly launched Encore channel.
Pillar 2 - develop the store portfolio
The vast majority of our portfolio comprises out-of-town superstores, with the average store footprint around 30,000 square feet of retail space. This investment in space enables us to offer over 20,000 homewares products with the depth of range, inspirational presentation and availability that customers expect from a specialist retailer and which we consider to be a key competitive advantage. In most cases we are also able to provide a Pausa coffee shop, now present in over 100 stores, giving an additional reason for customers to visit and increasing their engagement and time in our stores.
In the last financial year we opened 12 new superstores (two being superstore relocations and one being a high street relocation) taking our superstore chain to 136 stores at the year end, providing 4.0 million square feet of selling space in total. One additional new store has been opened since the year-end and 10 more stores are contractually committed and expected to open in the current financial year. We remain confident in further opportunities for us to increase our coverage nationwide, retaining our view that our mature UK superstore portfolio will consist of approximately 200 stores.
Our new stores continue to deliver strong returns on investment, with the average discounted payback for stores opened in the last three financial years expected to be approximately 24 months. We currently target the majority of our new store openings to achieve discounted cash flow payback of a maximum of 36 months, although we recognise that as our portfolio becomes more mature our investment appraisals will need to reflect greater cannibalisation of revenues from existing stores. Going forward, we anticipate that up to a third of new stores will be targeted to achieve payback in up to 48 months.
Our store refit programme continues, with approximately £4.0m invested during the year to improve the overall shopping environment, increase the number of inspirational displays and rebalance category space including the introduction of new ranges such as furniture. While the majority of this investment is now focused on smaller scale refits, we completed major refits in three stores during the financial year. As a result 38% of our superstores are new or have benefited from a major refit over the past three years.
Pillar 3 - grow multi-channel
In common with trends elsewhere in UK retail, Dunelm customers continue to embrace the convenience and value of multi-channel shopping, with the majority of shopping journeys now involving some element of on-line activity (browsing, research or purchasing) through our website, www.dunelm.com.
A key development in our on-line proposition over the last year has been the move to a new dedicated fulfilment operation for deliveries to home, which has enabled us to increase significantly the number of products available for home delivery, shorten lead times for standard deliveries and offer next day delivery as a premium service on 15,000 lines. The new facility, operated on our behalf by a third party partner, became operational in October 2013.
We have also expanded choice for customers by increasing the range of products customers are able to buy from us on-line, launching extended ranges of online-only furniture to complement the ranges displayed and sold in stores.
With the above developments supported by increasing investment in digital marketing, we have seen our multi-channel revenues continue to grow strongly, representing 6% of revenues over the full financial year and approximately 7% in the final quarter. We see scope for this proportion to increase further.
At the same time, we are close to completing the upgrade of the software platform which runs our customer website, involving a capital investment of £7m (of which £5.0m had been spent as at the end of the financial year). This upgrade provides further scalability, improves the customer journey and shopping experience and paves the way for more frequent enhancements to functionality going forward.
Pillar 4 - develop and exploit our infrastructure
Investment in our business infrastructure across IT systems, distribution facilities and people is a key contributor to Dunelm's success and this continued in the past year.
In addition to the work on our new web platform, our IT team has successfully completed a major upgrade to our enterprise wide SAP system and has launched new improved in-store systems for customers ordering made-to-measure curtains. Technology is increasingly critical to delivering a high quality customer experience, not only on-line but also in stores and through our customer contact centre. Accordingly, we have developed an extensive, multi-year programme of future improvements and are investing heavily in our own internal IT capability to enable this programme.
We have made further changes to our central warehouse operations to allow more store-efficient deliveries and also to support the increased volume of merchandise flowing through our own supply chain, driven by store expansion and the continuing move towards direct sourcing. However, our long term planning suggests that our rate of growth will require us to invest in enlarged central warehousing facilities in the medium term, and we are currently developing detailed plans for this project.
We also continue to increase the quality and quantity of our central capabilities to deliver our future growth plans. Specifically this includes adding additional resource in our buying and supply functions to service the greater level of inventory sourced directly. We have also further strengthened our senior management team. Following the recruitment of a new Chief Information Officer at the beginning of the financial year, in January we appointed an experienced Commercial Director, who has already helped us to develop further our buying, supply, marketing and space management teams. We will continue to build these teams in support of our enlarged business.
Summary and outlook
Dunelm has delivered solid trading results in the last financial year. We have again strengthened our specialist proposition, improved customer service in store and increased the profile of our brand. Each of these, together with our traditional product strength, has enabled us to increase sales on a like-for-like basis and to continue to gain market share. We have also made good strategic progress, growing our business through new stores and multi-channel, and strengthening our infrastructure. I would like to thank everyone involved in the business for their hard work and commitment in achieving this.
On a personal note, I would like to thank Nick and the team for all that they have achieved over the last few years, continuing to build the business and further improving our operational platform. I am very much looking forward to leading the business in its next phase of growth.
Will Adderley
Chief Executive
FINANCE DIRECTOR'S REVIEW
Operating result
The '2014' accounting period refers to the 52 weeks ended 28 June 2014 and the comparative period '2013' refers to the 52 weeks ended 29 June 2013.
Revenue
Group revenue for 2014 was £730.2m (2013: £677.2m), an increase of 7.8%. This increase in revenue was achieved through growth in like-for-like sales of 2.1% and contribution from net new space amounting to 5.7%. Like-for-like sales performance was positive in the second half (+5.3%), more than offsetting the first half performance (-0.9%) which included the adverse impact of the summer heat wave in July 2013.
The store expansion programme continued with 12 new openings in the year (of which two were relocations of existing superstores and one was a high street relocation). We expect sales in the coming year to benefit from our on-going investment in the customer proposition and marketing, together with the increased store portfolio.
Gross Margin
Gross margin increased by 80 basis points to 49.5% (2013: 48.7%) reflecting in particular continued benefit from direct sourcing initiatives. We will continue to pursue opportunities to drive margin benefits from direct sourcing and from challenging our UK based suppliers to achieve cost efficiencies, whilst maintaining quality.
Operating Costs
Operating costs in 2014 grew by 9.9% compared with the prior year. In addition to the expansion of the store portfolio, which saw average selling space increase by 7.7% compared with 2013, incremental investments of over £5.0m were made in a number of key areas to support differentiation in our customer proposition and to position the business for further growth. These included:
Ø Customer service - we have continued to roll out customer service training to all store colleagues
Ø Multi-channel operations - we completed the transfer of our in-house fulfilment operation for home delivery to an outsource partner, incurring one-off transition costs
Ø Marketing - we launched our first national TV advertising campaign, as well as increasing investment in other areas such as catalogues and digital marketing, bringing marketing spend to 1.7% of the sales for the year (2013:1.2%)
Ø Dunelm At Home - we rolled out this service to an additional 49 stores during the year, incurring one-off set-up costs
Ø Business infrastructure - we have continued to build the capability and capacity of central teams to support our expansion, particularly in the Commercial and IT functions
Looking ahead, we intend to continue investing to grow and strengthen the business. In addition to cost increases driven by new stores we intend to increase marketing spend further, to around 1.9% of sales; we will grow our capability and capacity to pursue further direct sourcing initiatives; and we will invest in other operational areas of the business as needed. In addition, we anticipate that depreciation and amortisation charges will increase by around 15% from their 2014 level of £20.3m, as new capital projects (notably our new web platform) are completed. As a result of all these factors, we anticipate that operating costs will grow at a faster rate than sales over at least the next financial year.
Operating Profit
Group operating profit for the financial year was £116.0m (2013: £106.5m), an increase of £9.5m (8.9%). Notwithstanding the investments outlined above, operating profit margin at 15.9% was slightly ahead of 2013 (15.7%).
EBITDA
Earnings before interest, tax, depreciation and amortisation were £137.3m (2013: £127.1m). This has been calculated as operating profit (£116.0m) plus depreciation and amortisation (£21.2m) and represents an increase of 8.0% on the previous year. The EBITDA margin achieved was 18.8% of sales (2013: 18.8%).
Financial Items
The Group generated a small net loss on financial items in 2014 (2013: £1.5m gain). This loss was made up of interest earned on cash deposits of £0.4m (2013: £0.9m) offset by foreign exchange differences arising on US dollar cash balances held during the period. In 2014 the strengthening of sterling over the year caused the Group to realise foreign exchange losses on surplus dollar holdings amounting to £0.5m (2013: £0.6m gain).
As at 28 June 2014 the Group held $87.2m (2013: $45.9m) in US dollar forward contracts representing approximately 78% of the anticipated US dollar spend over the next financial year. There were no surplus US dollar cash deposits.
PBT
After accounting for interest and foreign exchange impacts, profit before tax for the year amounted to £116.0m (2013: £108.1m), an increase of 7.3%.
Taxation
The tax charge for the year was 23.2% of profit before tax compared with 24.6% in the prior year. This reflects the reduction in the headline rate of corporation tax to 22.50% (2013: 23.75%) as well as additional benefits from an increase in the level of assets qualifying for capital allowances. We expect the tax charge to continue to trend approximately 100 bps above the headline corporation tax rate going forward. This difference is mainly due to depreciation charged on non-qualifying capital expenditure.
PAT and EPS
Profit after tax was £89.1m (2013: £81.5m), an increase of 9.3%.
Basic earnings per share (EPS) for the year ended 28 June 2014 was 44.0p (2013: 40.2p), an increase of 9.5%. Fully diluted EPS increased by 9.3% to 43.7p (2013: 40.0p).
Capital Expenditure & Working Capital
Gross capital expenditure in the financial year was £28.0m compared with £26.4m in 2013. Significant investments were made in order to support the continued growth and development of the store portfolio with the addition of 12 new superstores (49% of capital expenditure) and three major refits. The remaining investment related mainly to IT activities, including the upgrade of our core enterprise system (SAP) and further investment in a new technology platform to underpin and expand our multi-channel offer.
Investment in working capital increased by £9.3m (2013: £3.4m) over the year, primarily as a result of additional stock to support the expansion in the store estate as well as increased direct sourcing.
Cash Resources
Dunelm continues to deliver strong cash returns. In 2014 the Group generated £103.8m (2013: £100.4m) of net cash from operating activities, an increase of 3.4%. Net cash resources at the end of the year were £21.7m (2013: £44.7m) with daily average cleared funds over the course of the financial year of £48.3m (2013: £66.2m).
Our rate of cash conversion remains strong. Measured as the ratio of net cash from operations to operating profit, conversion was 89% (2013: 94%). Taking free cash flow as a proportion of PBT, conversion was 66% (2013: 69%). For the purpose of this calculation, free cash flow is defined as net cash from operations less capital investment and certain other items in the cash flow statement.
Dividend
An interim dividend of 5.0p was paid in April 2014 (2013: 4.5p). It is proposed to pay a final dividend of 15.0p per share (2013: 11.5p). The total dividend of 20.0p represents an increase of 25.0% over the previous year and moves the dividend cover to 2.2x (2013: 2.5x). The Board considers that this reduction in dividend cover is appropriate in view of the Group's consistently strong financial performance and cash generative nature. The final dividend will be paid on 19 December 2014 to shareholders on the register at the close of business on 28 November 2014.
Share Buy-back
During the year, the Group invested £15.4m to buy in shares to hold in treasury in order to satisfy future exercises of options granted under incentive plans and other share schemes. As at the year-end, we held 936,498 shares in treasury, equivalent to approximately 46% of options outstanding. Over time, we expect to increase our holding in treasury to be equivalent to approximately 60% of outstanding options.
Additional Returns to Shareholders
The Group's policy is to maintain cash resources such that it is able to invest in the four pillars of its strategy and in addition to take advantage of investment opportunities as and when they arise, for example freehold property acquisitions. The Board also remains committed to returning excess capital to shareholders from time to time where cash resources are materially in excess of investment requirements.
During the year, the Group returned excess capital of £50.7m (25.0p per share) to shareholders through a special dividend.
The Board will continue to assess the capital structure of the business in light of anticipated trading performance, known and anticipated investment plans and the level of cash available and will look to distribute excess capital to shareholders when appropriate.
Treasury Management
The Group Board has established an overall Treasury Policy, day-to-day management of which is delegated to the Finance Director. This policy ensures the following;
Ø Effective management of all clearing bank operations.
Ø Access to appropriate levels of funding and liquidity.
Ø Optimal investment of surplus cash within an approved risk/return profile.
Ø Appropriate management of foreign exchange exposures and cash flows.
The funding position of the Group is regularly reviewed by the Board. As a result it has been agreed that access to committed lines of external funding is not required in the short term and that Dunelm will continue to maintain uncommitted lines of funding with partner banks whilst trading with a positive net cash position.
Key Performance Indicators
In addition to the traditional financial measures of sales and profits, the Directors review business performance each month using a range of other KPIs. These include measures shown below.
Sales growth
2014 | 7.8% |
2013 | +12.2% |
2012 | +12.1% |
Like-for-like sales growth
2014 | 2.1% |
2013 | +1.7% |
2012 | +3.1% |
Multi-channel sales participation
2014 | 6.1% |
2013 | 4.1% |
2012 | 2.5% |
Gross margin change (basis points)
2014 | 80bps |
2013 | +40bps |
2012 | +30bps |
Operating margin
2014 | 15.9% |
2013 | 15.7% |
2012 | 15.8% |
Earnings per share (diluted)
2014 | 43.7p |
2013 | 40.0p |
2012 | 35.1p |
Dividend (per share)
2014 | 20.0p |
2013 | 16.0p |
2012 | 14.0p |
EBITDA £m
2014 | £137.3m |
2013 | £127.1m |
2012 | £113.9m |
New store openings
2014 (includes two superstore relocations and one high street relocation) | 12 |
2013 (includes two relocations and one re-opening) | 14 |
2012 (includes two relocations) | 14 |
David Stead
Finance Director
CONSOLIDATED INCOME STATEMENT
For the 52 weeks ended 28 June 2014
Note | 2014 | 2013 | |
£'000 | £'000 | ||
Revenue | 1 | 730,152 | 677,192 |
Cost of sales | (368,851) | (347,448) | |
Gross profit | 361,301 | 329,744 | |
Operating costs | 3 | (245,273) | (223,206) |
Operating profit | 2 | 116,028 | 106,538 |
Financial income | 5 | 436 | 1,518 |
Financial expenses | 5 | (478) | (1) |
Profit before taxation | 115,986 | 108,055 | |
Taxation | 6 | (26,914) | (26,601) |
Profit for the period attributable to owners of the parent | 89,072 | 81,454 | |
Earnings per Ordinary Share - basic | 8 | 44.0p | 40.2p |
Earnings per Ordinary Share - diluted | 8 | 43.7p | 40.0p |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 52 weeks ended 28 June 2014
2014 | 2013 | ||
£'000 | £'000 | ||
Profit for the period | 89,072 | 81,454 | |
Other comprehensive income: | |||
Items that may be subsequently reclassified to profit or loss: | |||
Effective portion of movement in fair value of cash flow hedges | (3,285) | 443 | |
Deferred tax on hedging movements | 669 | (102) | |
Other comprehensive income for the year, net of tax | (2,616) | 341 | |
Total comprehensive income for the period | 86,456 | 81,795 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 28 June 2014
28 June | 29 June | ||
2014 | 2013 | ||
Restated (note 9) | |||
£'000 | £'000 | ||
Non-current assets | |||
Intangible assets | 9,260 | 4,262 | |
Property, plant and equipment | 152,866 | 151,060 | |
Deferred tax asset | 3,783 | 1,460 | |
Total non-current assets | 165,909 | 156,782 | |
Current assets | |||
Inventories | 115,528 | 92,940 | |
Trade and other receivables | 19,479 | 18,344 | |
Cash and cash equivalents | 21,740 | 44,740 | |
Financial instruments | - | 387 | |
Total current assets | 156,747 | 156,411 | |
Total assets | 322,656 | 313,193 | |
Current liabilities | |||
Trade and other payables | (76,016) | (64,349) | |
Liability for current tax | (13,461) | (13,393) | |
Financial instruments | (2,898) | - | |
Total current liabilities | (92,375) | (77,742) | |
Non-current liabilities | |||
Trade and other payables | (40,544) | (37,757) | |
Total non-current liabilities | (40,544) | (37,757) | |
Total liabilities | (132,919) | (115,499) | |
Net assets | 189,737 | 197,694 | |
Equity | |||
Issued share capital | 2,028 | 2,028 | |
Share premium | 1,624 | 1,612 | |
Capital redemption reserve | 43,157 | 43,157 | |
Hedging reserve | (2,319) | 299 | |
Retained earnings | 145,247 | 150,598 | |
Total equity attributable to equity holders of the Parent | 189,737 | 197,694 |
CONSOLIDATED STATEMENT OF CASH FLOWS
For the 52 weeks ended 28 June 2014
Note | 2014 | 2013 | |
£'000 | £'000 | ||
Profit before taxation | 115,986 | 108,055 | |
Adjustment for net financing costs | 42 | (1,517) | |
Operating profit | 116,028 | 106,538 | |
Depreciation and amortisation | 2 | 20,257 | 20,358 |
Impairment losses on non-current assets | 25 | 166 | |
Loss on disposal of non-current assets | 2 | 942 | 76 |
Operating cash flows before movements in working capital | 137,252 | 127,138 | |
Increase in inventories | (22,588) | (6,719) | |
Increase in receivables | (1,160) | (1,321) | |
Increase in payables | 14,448 | 4,664 | |
Net movement in working capital | (9,300) | (3,376) | |
Share-based payments expense | 2,470 | 2,045 | |
Foreign exchange gains | 95 | 451 | |
130,517 | 126,258 | ||
Interest paid | - | (1) | |
Interest received | 461 | 937 | |
Tax paid | (27,144) | (26,795) | |
Net cash generated from operating activities | 103,834 | 100,399 | |
Cash flows from investing activities | |||
Proceeds on disposal of property, plant and equipment | 35 | 10 | |
Acquisition of property, plant and equipment | (20,760) | (23,382) | |
Acquisition of intangible assets | (7,303) | (3,000) | |
Net cash utilised in investing activities | (28,028) | (26,372) | |
Cash flows from financing activities | |||
Proceeds from issue of share capital | 12 | 589 | |
Proceeds from issue of treasury shares | 1,278 | - | |
Purchase of Treasury Shares | (15,404) | - | |
Return of Capital to Shareholders | - | (65,841) | |
Dividends paid | 7 | (84,119) | (29,386) |
Net cash flows utilised in financing activities | (98,233) | (94,638) | |
Net (decrease)/increase in cash and cash equivalents | (22,427) | (20,611) | |
Foreign exchange revaluations | (573) | 161 | |
Cash and cash equivalents at the beginning of the period | 44,740 | 65,190 | |
Cash and cash equivalents at the end of the period | 21,740 | 44,740 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 52 weeks ended 28 June 2014
Note | Issued share capital | Share Premium | Capital redemption reserve | Hedging reserve | Retained earnings | Total equity | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
As at 30 June 2012 | 2,023 | 1,025 | 43,155 | (43) | 160,865 | 207,025 | |
Profit for the financial year | - | - | - | - | 81,454 | 81,454 | |
Movement in fair value of cash flow hedges | - | - | - | 442 | - | 442 | |
Deferred tax on hedging movements | - | - | - | (102) | - | (102) | |
Total comprehensive income for the financial year | - | - | - | 340 | 81,454 | 81,794 | |
Issue of share capital | 5 | 587 | 2 | - | (6) | 588 | |
Share-based payments | - | - | - | - | 2,045 | 2,045 | |
Deferred tax on share-based payments | 6 | - | - | - | - | 1,006 | 1,006 |
Current corporation tax on share options exercised | 6 | - | - | - | - | 461 | 461 |
Dividends | 7 | - | - | - | - | (29,386) | (29,386) |
Return of Capital to Shareholders | - | - | - | - | (65,841) | (65,841) | |
Total transactions with owners, recorded directly in equity | 5 | 587 | 2 | - | (91,721) | (91,127) | |
As at 29 June 2013 | 2,028 | 1,612 | 43,157 | 297 | 150,598 | 197,692 | |
Profit for the financial year | - | - | - | - | 89,072 | 89,072 | |
Movement in fair value of cash flow hedges | - | - | - | (3,285) | - | (3,285) | |
Deferred tax on hedging movements | - | - | - | 669 | - | 669 | |
Total comprehensive income for the financial year | - | - | - | (2,616) | 89,072 | 86,456 | |
Issue of share capital | - | 12 | - | - | - | 12 | |
Purchase of treasury shares | - | - | - | - | (15,404) | (15,404) | |
Issue of treasury shares | - | - | - | - | 1,278 | 1,278 | |
Share-based payments | - | - | - | - | 2,470 | 2,470 | |
Deferred tax on share-based payments | - | - | - | - | 286 | 286 | |
Current corporation tax on share options exercised | 6 | - | - | - | - | 1,066 | 1,066 |
Dividends | 7 | - | - | - | - | (84,119) | (84,119) |
Total transactions with owners, recorded directly in equity | - | 12 | - | - | (94,423) | (94,411) | |
As at 28 June 2014 | 2,028 | 1,624 | 43,157 | (2,319) | 145,247 | 189,737 | |
Notes to the annual financial statements
For the 52 weeks ended 28 June 2014
1 Segmental reporting
The Group has one reportable segment, retail of homewares in the UK.
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 KPI's 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.
2 Operating profit
Operating profit is stated after charging the following items:
2014 | 2013 | |||||
£'000 | £'000 | |||||
Cost of inventories included in cost of sales | 365,746 | 347,170 | ||||
Amortisation of intangible assets | 1,798 | 2,125 | ||||
Depreciation of owned property, plant and equipment | 18,459 | 18,233 | ||||
Impairment losses on non-current assets | 25 | 166 | ||||
Operating lease rentals | 33,980 | 32,044 | ||||
Loss on disposal of property, plant and equipment and intangible assets | 942 | 76 | ||||
Net Foreign exchange losses/(gains) | 573 | (161) | ||||
The cost of inventories stated above Includes the benefit of a net reduction in the provision for obsolete Inventory of £1,953,000 (2013: £666,000). The reducing level of provisions reflects consistently improved realisation of cash on discontinued merchandise.
3 Operating costs
2014 | 2013 | |||||
£'000 | £'000 | |||||
Selling and distribution | 201,435 | 184,092 | ||||
Administrative expenses | 42,896 | 39,038 | ||||
Loss on disposal of property, plant and equipment and intangible assets | 942 | 76 | ||||
245,273 | 223,206 | |||||
4 Employee numbers and costs
The average monthly number of people employed by the Group (including Directors) was:
2014 | 2014 | 2013* | 2013* | |||
Number | Full time | Number | Full time | |||
of heads | equivalents | of heads | equivalents | |||
Selling | 7,558 | 4,258 | 7,187 | 4,132 | ||
Distribution | 307 | 302 | 286 | 282 | ||
Administration | 305 | 299 | 257 | 250 | ||
8,170 | 4,859 | 7,730 | 4,664 | |||
* prior year comparatives have been aligned to the current year method of reporting | ||||||
The aggregate remuneration of all employees including Directors comprises:
2014 | 2013 | |||||
£'000 | £'000 | |||||
Wages and salaries including bonuses and termination benefits | 94,442 | 87,534 | ||||
Social security costs | 6,607 | 5,501 | ||||
Share-based payment expense (note 20) | 2,470 | 2,045 | ||||
Defined contribution pension costs | 1,300 | 375 | ||||
104,819 | 95,455 | |||||
5 Financial income and expense
2014 | 2013 | |||||
£'000 | £'000 | |||||
Finance income | ||||||
Interest on bank deposits | 425 | 906 | ||||
Foreign exchange gains (net) | - | 612 | ||||
Other Interest received | 11 | - | ||||
436 | 1,518 | |||||
Finance expenses | ||||||
Interest on bank borrowings and overdraft | - | (1) | ||||
Foreign exchange losses (net) | (478) | - | ||||
(478) | (1) | |||||
Net finance income | (42) | 1,517 |
6 Taxation
2014 | 2013 | |||||
£'000 | £'000 | |||||
Current taxation | ||||||
UK corporation tax charge for the period | 28,435 | 27,715 | ||||
Adjustments in respect of prior periods | (152) | (261) | ||||
28,283 | 27,454 | |||||
Deferred taxation | ||||||
Origination of temporary differences | (1,386) | (1,027) | ||||
Adjustment in respect of prior periods | (463) | 165 | ||||
Impact of change in tax rate | 480 | 9 | ||||
(1,369) | (853) | |||||
Total tax expense | 26,914 | 26,601 |
The tax charge is reconciled with the standard rate of UK corporation tax as follows:
2014 | 2013 | |||||
£'000 | £'000 | |||||
Profit before taxation | 115,986 | 108,055 | ||||
UK corporation tax at standard rate of 22.5% (2013: 23.75%) | 26,097 | 25,663 | ||||
Factors affecting the charge in the period: | ||||||
Non-deductible expenses | 740 | 1,039 | ||||
Loss on disposal of non-qualifying assets | 212 | (14) | ||||
Adjustments to tax charge in respect of prior periods | (615) | (96) | ||||
Effect of standard rate of corporation tax change | 480 | 9 | ||||
Tax charge | 26,914 | 26,601 | ||||
The taxation charge for the period as a percentage of profit before tax is 23.2% (2013: 24.6%).
A reduction in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) was substantively enacted on 2 July 2013, and a further reduction to 20% (effective from 1 April 2015) was substantively enacted on the same day. This will reduce the Company's future current tax charge accordingly.
7 Dividends
All dividends relate to the 1p Ordinary Shares.
2014 | 2013 | |||||
£'000 | £'000 | |||||
Final for the period ended 30 June 2012 | - paid 10.0p | - | (20,259) | |||
Interim for the period ended 29 June 2013 | - paid 4.5p | - | (9,127) | |||
Special dividend for the period ended 29 June 2013 | - paid 25.0p | (50,708) | - | |||
Final for the period ended 29 June 2013 | - paid 11.5p | (23,287) | - | |||
Interim for the period ended 28 June 2014 | - paid 5.0p | (10,124) | - | |||
(84,119) | (29,386) | |||||
The Directors are proposing a final dividend of 15p per Ordinary Share for the period ended 28 June 2014 which equates to £30.4m. The dividend will be paid on 19 December 2014 to shareholders on the register at the close of business on 28 November 2014.
8 Earnings per 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:
52 weeks ended 28 June 2014 | 52 weeks ended 29 June 2013 | |||||
'000 | '000 | |||||
Weighted average number of shares in issue during the period | 202,554 | 202,598 | ||||
Impact of share options | 1,474 | 1,291 | ||||
Number of shares for diluted earnings per share | 204,028 | 203,889 | ||||
£'000 | £'000 | |||||
Profit for the period | 89,072 | 81,454 | ||||
Earnings per Ordinary Share - basic | 44.0p | 40.2p | ||||
Earnings per Ordinary Share - diluted | 43.7p | 40.0p |
9 Basis of preparation
During the period the Directors have reassessed the liabilities of the group and have determined that £40.5m (£37.8m at 29 June 2013) should be classified as non-current. These amounts represent deferred incomes in respect of lease incentives received, and will be released to the income statement after more than one year.
The annual report and financial statements for the year ended 28 June 2014 were approved by the Board of Directors on 11 September 2014 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 year ended 28 June 2014 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 year ended 29 June 2013 have been delivered to the Registrar of Companies. The auditor's report on the statutory accounts for the year ended 29 June 2013 was unqualified and did not contain a statement under section 498 of the Companies Act 2006.