18 Dec 2015 07:00
JOHN LEWIS OF HUNGERFORD PLC
FINAL RESULTS - YEAR ENDED 31 AUGUST 2015
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 2015.
Chairman's Statement
After a couple of years of steady growth the year just ended served to remind us of the challenges we face as a small company. Following a strong first quarter we experienced a series of unplanned staffing changes in our showrooms including the resignations of two of our most experienced designers. Whilst disappointing these changes reflected a desire on the part of the individuals to pursue new careers away from kitchen design and consequently were outside of our control.
The quality of our designers is critical to our business making it crucial that they were replaced with individuals of comparable quality. Consequently senior management time was diverted to addressing this and, whilst it was unquestionably the correct decision, as a small business it came at the expense of initiatives contained in our strategic growth plan.
Inevitability it takes time to identify suitable replacements and a further lead time before they are able to generate sales. It is therefore pleasing to be able to note the year ended on a positive note with a strong trading performance in the final quarter as showroom staffing levels slowly returned to normality and long term customer projects came to fruition. However, this was insufficient to recover the losses incurred earlier in the year contributing to the overall loss for the full year we are reporting today.
Operational and Financial Review
The loss for the year before taxation and share based payments amounted to £197,000 (2014: £103,000 profit).
Overall, sales grew by 5% to £7,799,000 (2014: £7,416,000) with the total number of kitchens sold during the year being 298 (2014: 307). We provide a bespoke design service to customers and so the average sales value of a kitchen in any given year is principally driven by the sales mix and in particular the complexity of customers design requirements.
Like for like sales from a comparable showroom estate decreased by 14%, reflecting a reduced volume of kitchen sales in those showrooms. Our new showrooms continue to trade in line with expectations with the aforementioned staffing issues principally impacting on our mature estate. The new showrooms in Chiswick and Cobham contributed 20% of total sales value and the design of these stores reflects the particular markets they serve. In particular the Chiswick store was designed to highlight the contemporary aspects of our range and we are delighted with customer reaction. We believe this provides a template for future store openings that complements the more traditional feel of other stores in the estate.
Whilst the growth in sales is welcome it was less than budgeted and this coupled with the investments we were already committed to making in support of our longer term growth strategy contributed to the loss for the year. Some of the key investments made in the year include the purchase and installation of a new spray and finishing line and the refurbishment of the Bristol, Harrogate and Oxford showrooms and the installation of the Pure kitchen range in two further showrooms. The costs associated with the showroom refurbishment are treated as capital expenditure in line with the Company's accounting policies.
A slightly lower gross margin for the year at 52.0% (2014: 52.4%) was attributable to a slight reduction in product margins of 55.6% (2014:56.1%). The installations business grew its revenue by 7% to £1,030,000 (2014: £963,000) and achieved a higher gross profit margin of 28% (2014: 27.5%)
Products | 2015 | 2014 |
£000 | £000 | |
Turnover | 6,769 | 6,453 |
Cost of sales | (3,003) | (2,832) |
Gross margin | 3,766 | 3,621 |
Product sales include £242,000 (2014: £236,000) relating to our new bedroom range. This range is now available in Fulham showroom as well as a dedicated showroom based at our head office in Wantage. We intend to install bedrooms into our Winchester showroom in the coming 12 months reflecting the relatively cautious approach we are taking in selectively rolling this out to showrooms in our estate. Our award winning Pure kitchen range has now been installed in 8 showrooms and we intend to continue this roll out in the current year. Pure sales contributed a very encouraging 18% of total sales for the year at £1,386,000.
Installations | 2015 | 2014 |
£000 | £000 | |
Turnover | 1,030 | 963 |
Cost of sales | (741) | (698) |
Gross margin | 289 | 265 |
Installation sales include £91,000 (2014: £54,000) relating to our new bedroom range.
Cash flow
We ended the year with cash at bank and in hand of £1,206,000 (2014: £1,490,000) reflecting the positive working capital generated through customer deposits and advance payments. The net cash inflow from operating activities was £120,000 (2014: £763,000).
Bank loans, which are secured by a charge over the company's freehold property stand at £780,000 (2014: £817,000). The Company also had un-drawn committed borrowing facilities at the year end of £250,000 (2014: £250,000).
Capital expenditure, including capitalised development costs, of £453,000 was in line with budgeted amounts and principally arose from expenditure on new spray and finishing lines together with the continued refurbishment of showrooms and the installation of the Pure kitchen range
Dividends
The Board is not recommending payment of a dividend.
Progress against 3 year strategic plan
The financial performance of the newer stores validates the growth strategy adopted by the Board in recent years. We continue to believe selective opportunities exist to add new stores although this was put on hold during the year as we sought to stabilise the business. The Board have subsequently determined not to pursue further openings until such time as we have secured an improved financial performance from our mature showrooms. This will include installing our current ranges of products throughout the estate and making further investments in our design capability.
Once these changes have been implemented the Board remain confident that the business will return to profitable growth. However, the Board no longer consider our previously announced aspirational target of growing turnover to £10 million with a 5% operating profit by the end of FY 2016 to be a realistic target.
Current Trading and outlook
On 6 November 2015 we reported that despatched sales and forward orders for Q1 stood at £1.9 million (2014: £2.0 million). As we reported at the same time, a change in our operating policy for orders linked to associated building work has had the impact of deferring the point at which some sales are now reported. This was borne out by the significant increase in the forward order book, at the same date, for deliveries in Q2 and beyond which stood at £1.3m (2014: £0.7m). Going forward we believe it is necessary to consider both measures in assessing the current trend within the business and we intend to provide both measures.
After the first 15 weeks of the current financial year our current sales and order book stood at £3.1 million (2014 £3.1m). Our forward order book at the same date, for which deposits have already been taken stood at £1.4m (£2014 £0.7m). We are pleased with this performance which represents a significant achievement in light of the staffing challenges we have faced in the past 12 months.
I would like to record my appreciation for the effort and dedication of all of our employees who have helped steer us through a tough and challenging year.
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 2015
2015 | 2014 | |||||||
£ | £ | |||||||
Revenue | 7,798,821 | 7,416,441 | ||||||
Cost of sales | (3,744,065) | (3,530,279) | ||||||
Gross profit | 4,054,756 | 3,886,162 | ||||||
Selling and distribution costs | (482,273) | (498,668) | ||||||
Administrative expenses | ||||||||
Share based payments | 43,139 | (43,139) | ||||||
Other | (3,717,690) | (3,250,184) | ||||||
Total | (3,674,551) | (3,293,323) | ||||||
(Loss)/Profit from operations before share | ||||||||
based payments | (145,207) | 137,310 | ||||||
(Loss)/Profit from operations | (102,068) | 94,171 | ||||||
Finance income | 2,199 | 2,464 | ||||||
Finance expenses | (53,958) | (36,895) | ||||||
(Loss)/Profit before tax | (153,827) | 59,740 | ||||||
Tax credit / (expense) | 15,276 | (15,377) | ||||||
(Loss)/Profit for the year | (138,551) | 44,363 | ||||||
Earnings per share | ||||||||
Basic | (0.07)p | 0.02p | ||||||
Fully diluted | (0.07)p | 0.02p | ||||||
Balance Sheet as at 31 August 2015
2015 | 2014 | |||||||
£ | £ | |||||||
Non-current assets | ||||||||
Intangible assets | 92,087 | 108,874 | ||||||
Property, plant and equipment | 2,784,262 | 2,689,988 | ||||||
Trade and other receivables | 57,075 | 57,075 | ||||||
2,933,424 | 2,855,937 | |||||||
Current assets | ||||||||
Inventories | 190,209 | 183,111 | ||||||
Trade and other receivables | 306,824 | 294,152 | ||||||
Cash and cash equivalents | 1,206,171 | 1,489,714 | ||||||
1,703,204 | 1,966,977 | |||||||
Total assets | 4,636,628 | 4,822,914 | ||||||
Current liabilities | ||||||||
Current tax payable | - | - | ||||||
Trade and other payables | (1,823,312) | (1,864,637) | ||||||
Borrowings | (83,252) | (39,948) | ||||||
(1,906,564) | (1,904,585) | |||||||
Non-current liabilities | ||||||||
Borrowings | (785,765) | (777,064) | ||||||
Deferred tax liabilities | (15,997) | (31,273) | ||||||
(801,762) | (808,337) | |||||||
Total liabilities | (2,708,326) | (2,712,922) | ||||||
Net assets | 1,928,302 | 2,109,992 | ||||||
Equity | ||||||||
Share Capital | 186,745 | 186,745 | ||||||
Share Premium | 1,188,021 | 1,188,021 | ||||||
Other Reserves | 1,421 | 1,421 | ||||||
Retained Earnings | 552,115 | 733,805 | ||||||
Total equity | 1,928,302 | 2,109,992 | ||||||
Statement of Changes in Equity for the year ended 31 August 2015
Share | Share | Other | Retained | |||||
Capital | Premium | Reserves | Earnings | Total | ||||
£ | £ | £ | £ | £ | ||||
At 01 September 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 | |||
At 31 August 2014 | 186,745 | 1,188,021 | 1,421 | 733,805 | 2,109,992 | |||
Loss for the year | - | - | - | (138,551) | (138,551) | |||
Share based payments | - | - | - | (43,139) | (43,139) | |||
At 31 August 2015 | 186,745 | 1,188,021 | 1,421 | 552,115 | 1,928,302 | |||
The total comprehensive income for the year is (£138,551) (2014: £44,363). | ||||||||
Statement of Cash Flows for the year ended 31 August 2015
2015 | 2014 | |||||||
£ | £ | |||||||
Cash flows from operating activities | ||||||||
(Loss) / profit from operations | (102,068) | 94,171 | ||||||
Amortisation of intangible assets | 16,787 | 17,754 | ||||||
Depreciation of property, plant and equipment | 280,315 | 269,856 | ||||||
Share based payments | (43,139) | 43,139 | ||||||
Loss on disposal of property, plant and equipment | 29,528 | 4,035 | ||||||
(Increase)/decrease in Inventories | (7,098) | 9,210 | ||||||
Increase in receivables | (12,672) | (57,469) | ||||||
Increase in payables | (41,325) | 382,272 | ||||||
Cash generated from operations | 120,328 | 762,968 | ||||||
Net taxation paid | - | - | ||||||
Net cash from operating activities | 120,328 | 762,968 | ||||||
Cash flows from investing activities | ||||||||
Purchase of intangible assets | - | - | ||||||
Purchase of property, plant and equipment | (357,161) | (676,069) | ||||||
Net proceeds from sale of property, plant and equipment | 49,044 | 53,674 | ||||||
Interest received | 2,199 | 2,464 | ||||||
Net cash used in investing activities | (305,918) | (619,931) | ||||||
Cash flows from financing activities | ||||||||
Interest paid | (53,958) | (36,895) | ||||||
Increase in borrowings | - | 300,000 | ||||||
Repayment of borrowings | (43,995) | (38,680) | ||||||
Net cash used in financing activities | (97,953) | 224,425 | ||||||
Net increase/(decrease) in cash and cash equivalents | (283,543) | 367,462 | ||||||
Net cash and cash equivalents at the start of the year | 1,489,714 | 1,122,252 | ||||||
Net cash and cash equivalents at the end of the year | 1,206,171 | 1,489,714 | ||||||
Net cash and cash equivalents comprise: | ||||||||
Cash at bank and in hand | 1,206,171 | 1,489,714 | ||||||
Bank overdrafts | - | - | ||||||
1,206,171 | 1,489,714 | |||||||
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 2015 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 2014 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 loss of £138,551 (2014: £44,363 profit) and a weighted average number of ordinary shares in issue of 186,745,519 (2014: 186,745,519).
Diluted
The calculation of fully diluted Earnings/(loss) per share is based on a loss of £138,551 (2014 £44,363 profit) and a weighted average number of ordinary shares in issue and under option of 186,745,519 (2014: 203,008,741).
5. Share based payments
2015 | 2014 | |||||||
£ | £ | |||||||
Share based payments (income)/expense | (43,139) | 43,139 | ||||||
During the year ended 31 August 2015 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:
2015 | 2014 | |||||||
£ | £ | |||||||
Individual option agreements | - | - | ||||||
Employee Share Incentive Plan | - | - | ||||||
Long Term Incentive Plan | (43,139) | 43,139 | ||||||
Total | (43,139) | 43,139 | ||||||
The (credit) / charge relates 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 2015 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 John Lewis of Hungerford, 156-158 Wandsworth Bridge Road, Fulham, London SW6 2UH at 2.30 p.m. on 27 January 2016.