23 Dec 2014 07:00
JOHN LEWIS OF HUNGERFORD PLC
FINAL RESULTS - YEAR ENDED 31 AUGUST 2014
John Lewis of Hungerford plc ("John Lewis of Hungerford" or the "Company") the specialist kitchen manufacturer and retailer announces its final results for the year ended 31 August 2014.
CHAIRMAN'S STATEMENT
For the second year in succession the business has achieved a double digit sales increase driven by a strong underlying trading performance coupled with contributions from the new Chiswick showroom, which opened on 17th May, and our new bedroom range. This has contributed to a modest profit from operations which, as previously notified, is reduced from that reported last year reflecting investments made in support of our 3 year strategic plan.
Operational Review
Whilst it is encouraging that our sales have grown by almost a third in two years, this increase in sales has presented a number of operational issues, which we are addressing. To meet these challenges we have invested in our operational infrastructure by increasing our technical and customer service functions to support the planned growth of the business and these are included in the costs for the year under review. Though they present a sizeable investment for the business, your Board believe all these roles will provide financial benefit to the business in the medium term and allow us to continue to serve our customers well.
Other key achievements in the period include the opening of our Cobham showroom on 2nd August 2014 and the launch of two new kitchen ranges which are currently being rolled out to more showrooms as funds allow. These new products have been well received by both customers and the media alike. Further, we were very pleased that one of these new kitchens, the Pure range was an award winner in the best luxury kitchen category at this year's House Beautiful awards.
Financial Review
The profit for the year before taxation and share based payments amounted to £103k (2013: £168k).
Overall, sales grew by 13% to £7,416k (2013: £6,557k). Like for like sales from a comparable showroom estate increased by 6%, reflecting a higher volume of higher value kitchens.
A slightly lower gross margin for the year at 52.4% (2013: 52.7%) was attributable to the installations business which although growing revenue by 15% to £963k (2013: £835k) achieved a lower gross profit of 27.5% (2013: 29.1%). Product margins were flat at 56.1%.
Products | 2014 | 2013 | |
£000 | £000 | ||
Turnover | 6,453 | 5,722 | |
Cost of sales | (2,832) | (2,511) | |
Gross margin | 3,621 | 3,211 | |
Product sales include £236k relating to our new bedroom range.
Installations | 2014 | 2013 | |
£000 | £000 | ||
Turnover | 963 | 835 | |
Cost of sales | (698) | (592) | |
Gross margin | 265 | 243 | |
Installation sales include £54k relating to our new bedroom range.
Cash flow
We ended the year with cash at bank and in hand of £1,490k (2013: £1,122k) reflecting the positive working capital generated through customer deposits and advance payments. The net cash inflow from operating activities was £763k (2013: £488k).
Bank loans, which are secured by a charge over the company's freehold property, increased to £817k (2013: £558k). These funds were used to refurbish and fit the two new showrooms that were opened during the year. The Company also had un-drawn committed borrowing facilities at the year end of £250k (2013: £250k).
Capital expenditure, including capitalised development costs, of £676k was in line with budgeted amounts and principally arose from investment in two new showrooms and new machinery for the workshop.
Dividends
The Board is not recommending payment of a dividend.
Progress against 3 year strategic plan
As previously announced the Board has adopted an aspirational target of growing turnover to £10 million per annum and achieving a 5% operating profit by the end of FY 2016. The Board remain committed to this target which we believe is the best way to create sustainable shareholder value.
This year has been an important step in putting in place the infrastructure to support this target, the ambition of which can be seen in the context of our three year track record, summarised below.
2012 | 2013 | 2014 | |||
£000 | £000 | £000 | |||
Turnover | 5,626 | 6,557 | 7,416 | ||
Profit from operations (1) | (86) | 196 | 137 | ||
Profit from operations % | - | 3.0 | 1.8 | ||
(1) Stated before share-based payments expense. Earlier years relates to operating profit before share-based payments.
Restructuring Proposals
On 1 September 2014 we announced the cancellation of a general meeting to consider changing the Company name. The cancellation was necessary to provide a window in which to seek the formal consent of our landlords to changes from the accompanying corporate restructuring. Whilst we saw no reason why such consent would be withheld, in the event it had, the Board became aware late in the process that it may have had an adverse taxation implication. In any event we have now delayed plans to start providing outsourced installation service on behalf of third party kitchen sellers until such time as we are satisfied that the core business is in a position to sustain sales growth combined with the service infrastructure to support it.
Current Trading
At the end of October 2014 we reported that orders and dispatched sales for Q1 of the current financial year were £2.0 million (2013 £1.7 million).
Such a sustained growth rate is encouraging and supports the strategy your Board has adopted. However, as a relatively small business unexpected operating challenges can have a disproportionate impact on our short term financial performance with sales in Q2 adversely impacted by a number of staff changes in our showrooms. In particular, the unrelated resignations of two of our most experienced designers, both of whom have decided to pursue alternative careers away from kitchen design. The quality of our designers is critical to our business and it inevitability takes time to bring suitable replacements into the business and a lead time before they generate sales.
After the first 15 weeks of the financial year our current sales and order book stood at £3.1 million which is flat on the comparable period last year. Our new stores continue to trade in line with expectations with the slowdown in growth attributable almost entirely to reduced activity in stores affected by the aforementioned staffing changes. Addressing this is our immediate priority and we have taken a number of actions to mitigate the impact although it is too early to say whether we will be able to recover the lost sales in the remainder of this financial year. A further update will be provided to shareholders in due course.
Outlook
New showrooms and product development along with the recruitment, training and retention of talented sales people has underpinned most of the sales growth within the business.
Our new showrooms continue to trade in line with expectations and we are satisfied with the performance of all our new product introductions. Therefore our immediate priority is to recruit and train talented salespeople in key locations across our store portfolio. Your Board believe that once these people are in place we will be able to return to the growth experienced in the last two years. We are also focussing attention on delivering a tangible benefit to the business from our recent investment in the operational infrastructure.
I would like again to record my appreciation for the efforts of all of our employees without whom we would not be able to offer the customer experience that is associated with our brand.
Malcolm R. Hepworth
Non Executive Chairman
Enquiries: | ||
Malcolm Hepworth Non Executive Chairman | John Lewis of Hungerford plc | 01235 774300 |
Karen Stanley Finance Director | ||
Martyn Fraser | Smith & Williamson Corporate Finance Limited | 0117 376 2213 |
Income Statement for the year ended 31 August 2014
|
2014 £ |
|
2013 £ | ||||
Revenue |
| 7,416,441 |
| 6,557,481 | |||
Cost of sales |
|
(3,530,279) |
|
(3,103,122) | |||
Gross profit |
| 3,886,162 |
| 3,454,359 | |||
Selling and distribution costs |
|
(498,668) |
|
(420,306) | |||
Administrative expenses Share based payments |
|
(43,139) |
|
- | |||
Other |
| (3,250,184) |
| (2,838,437) | |||
Total |
| (3,293,323) |
| (2,838,437) | |||
Profit from operations before share based payments |
|
137,310 |
|
195,616 | |||
Profit from operations |
|
94,171 |
|
195,616 | |||
Finance income |
|
2,464 |
|
5,021 | |||
Finance expenses |
|
(36,895) |
|
(32,656) | |||
Profit before tax |
|
59,740 |
|
167,981 | |||
Tax expense |
|
(15,377) |
|
(23,136) | |||
Profit for the year |
|
44,363 |
|
144,845 | |||
Earnings per share Basic |
|
0.02p |
|
0.08p | |||
Fully diluted |
| 0.02p |
| 0.08p | |||
Balance Sheet as at 31 August 2014
2014 £ | 2013 £ | ||||
Non -current assets | |||||
Intangible assets | 108,874 | 126,628 | |||
Property, plant and equipment | 2,689,988 | 2,341,515 | |||
Trade and other receivables | 57,075 | 40,575 | |||
2,855,937 | 2,508,718 | ||||
Current assets | |||||
Inventories | 183,111 | 192,320 | |||
Trade and other receivables | 294,152 | 253,183 | |||
Cash and cash equivalents | 1,489,714 | 1,122,252 | |||
1,966,977 | 1,567,755 | ||||
Total assets | 4,822,914 | 4,076,473 | |||
Current liabilities | |||||
Current tax payable | - | - | |||
Trade and other payables | (1,864,637) | (1,482,425) | |||
Borrowings | (39,948) | (40,938) | |||
(1,904,585) | (1,523,363) | ||||
Net-current liabilities | |||||
Borrowings | (777,064) | (514,724) | |||
Deferred tax liabilities | (31,273) | (15,896) | |||
(808,337) | (530,620) | ||||
Total liabilities | (2,712,922) | (2,053,983) | |||
Net assets | 2,109,992 | 2,022,490 | |||
Equity | |||||
Share Capital | 186,745 | 186,745 | |||
Share Premium | 1,188,021 | 1,188,021 | |||
Other Reserves | 1,421 | 1,421 | |||
Retained Earnings | 733,805 | 646,303 | |||
Total Equity | 2,109,992 | 2,022,490 |
Statement of Changes in Equity for the year ended 31 August 2014
Share Capital £ | Share Premium £ | Other Reserves £ | Retained Earnings £ | Total £ | |||||
At 01 September 2012 | 186,745 | 1,188,021 | 1,421 | 501,458 | 1,877,645 | ||||
Profit for the year | - | - | - | 144,845 | 144,845 | ||||
At 31 August 2013 | 186,745 | 1,188,021 | 1,421 | 646,303 | 2,022,490 | ||||
Profit for the year | - | - | - | 44,363 | 44,363 | ||||
Share based payments | - | - | - | 43,139 | 43,139 | ||||
As 31 August 2014 | 186,745 | 1,188,021 | 1,421 | 733,805 | 2,109,992 | ||||
The total comprehensive income for the year is £44,363 (2013: £144,845).
Statement of Cash Flows for the year ended 31 August 2014
2014 £ | 2013 £ | ||
Cash flow from operating activities | |||
Profit from operation | 94171 | 195,616 | |
Amortisation of intangible assets | 17,754 | 14,932 | |
Depreciation of property, plant and equipment | 269,856 | 192,253 | |
Share based payments | 43,139 | - | |
(Profit)/loss on disposal of property, plant and equipment | 4,035 | (2,992) | |
Decrease/(increase) in Inventories | 9,210 | (25,306) | |
Increase in receivables | (57,469) | (38,835) | |
Increase in payables | 382,272 | 152,054 | |
Cash generated from operations | 762,968 | 487,722 | |
Net taxation paid | - | - | |
Net cash from operating activities | 762,968 | 487,722 | |
Cash flows from investing activities | |||
Purchase of intangible assets | - | (60,462) | |
Purchase of property, plant and equipment | (676,069) | (264,625) | |
Net proceeds from sale of property, plant and equipment | 53,674 | 45,275 | |
Interest received | 2,464 | 5,021 | |
Net cash used in investing activities | (619,931) | (274,791) | |
Cash flows from financing activities | |||
Interest paid | (36,895) | (32,656) | |
Increase in borrowings | 300,000 | - | |
Repayment of borrowings | (38,680) | (37,567) | |
Net cash used in financing activities | 224,425 | (70,223) | |
Net increase/(decrease) in cash and cash equivalents | 367,462 | 142,708 | |
Net cash and cash equivalents at the start of the year | 1,122,252 | 979,544 | |
Net cash and cash equivalents at the end of the year | 1,489,714 | 1,122,252 | |
Net cash and cash equivalents | |||
Cash at bank and in hand | 1,489,714 | 1,122,252 | |
Bank overdraft | - | - | |
1,489,714 | 1,122,252 | ||
Notes
1. Statutory Accounts
The financial information does not constitute statutory accounts as defined in section 435 of the Companies Act 2006, but has been extracted from the statutory accounts for the year ended 31 August 2014 on which an unqualified audit report has been issued and which will be delivered to the Registrar following their adoption at the Annual General Meeting.
The statutory accounts for the financial year ended 31 August 2013 have been delivered to the Registrar of Companies with an unqualified audit report.
2. Basis of preparation
The Company's statutory accounts have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
3. Going concern
The Directors, after reviewing the Company's operating budgets, investments plans and financing arrangements, consider that the Company has, at the date of preparing its statutory accounts, sufficient financing available for the estimated requirements for the foreseeable future. Accordingly, the Directors are satisfied that it is appropriate to adopt the going concern basis in preparing the financial information.
4. Earnings/(loss) per share
Basic
The calculation of basic Earnings/(loss) per share is based on a profit of £44,363 (2013: 144,845) and a weighted average number of ordinary shares in issue of 186,745,519 (2013: 186,745,519).
Diluted
The calculation of fully diluted Earnings/(loss) per share is based on a profit of £44,363 (2013: 144,845) and a weighted average number of ordinary shares in issue and under option of 203,008,741 (2013: 186,745,519).
5. Share based payments
2014 | 2013 | ||
£000 | £000 | ||
Share based payments expense | 43,139 | - | |
During the year ended 31 August 2014 the Company provided three types of share-based incentive arrangements:
Type of arrangement | Vesting period | Vesting conditions | |
Individual share option agreements | 3 years | Three years service | |
Employee Share Incentive Plan | 2 years | Two years service | |
Long Term Incentive Plan | 2.64 years | Performance targets relating to revenues and pre-tax profit for the year to 31 August 2016 | |
The Company established the Employee Share Incentive Plan on 25 June 2010 and the Long Term Incentive Plan Plan on 29 April 2014. The Company has calculated charges for the share option awards using a Black-Scholes model. Volatility and risk free rates have been calculated for each share option award based on expected volatility over the vesting period and current risk free rates at the time of each award. Volatility assumptions are based on historic volatility for the Company's share price in the three years prior to the award.
The share based payments charge for the year by scheme was as follows:
2014 | 2013 | ||
£000 | £000 | ||
Individual option agreements | - | - | |
Employee Share Incentive Plan | - | - | |
Long Term Incentive Plan | 43,139 | - | |
Total | 43,139 | - | |
The charge related entirely to equity-settled share based payment transactions.
6. Dividends
The Directors do not recommend payment of a dividend.
7. Posting of Accounts
Copies of the statutory accounts for the financial year ended 31 August 2014 will be posted shortly to shareholders with the notice of the Annual General Meeting. An electronic copy will be available on the Company's web site www.john-lewis.co.uk.
8. Annual General Meeting
The next Annual General Meeting of the Company will be held at the Donnington Grove Hotel, Grove Road, Newbury, RG14 2LA at 4.00 p.m. on 2nd February 2015.