27/02/2008
Dunelm Group plc
Interim Results Announcement
Dunelm Group plc, the leading out-of-town specialist homewares retailer, announces its Interim Results for the 26 weeks to 29 December 2007.
Financial Highlights
· Sales up 10.6% to £197.4m (2006: £178.4m)
· Like-for-like sales increase of 4.9%
· Gross margin up 80 basis points to 44.9% (2006: 44.1%)
· Operating profit up 16.3% to £27.6m (2006: £23.7m)*
· Profit before taxation up 24.4% to £27.2m (2006: £21.9m)*
· Underlying EPS (fully diluted) up 21.1% to 9.2p* (2006: 7.6p)
· Strong net cash generation from operations of £39.7m (2006: £15.9m)
· 2.0p interim dividend per share (2006: 0.8p)**
* comparisons on an underlying basis, after adding back £4.0m of non-recurring costs in H1 FY07
** FY07 interim dividend reflected period post IPO only
Business Highlights
· Recently voted UK’s 3rd favourite retailer (Verdict Consumer Satisfaction Index 2008 Survey)
· Operating margin of 14.0% reflects benefit of low cost operating model
· 5 new superstores opened in the period, with two more opened since period end
· 1 further unit committed this financial year; strong pipeline for FY09
· New warehouse has allowed reduction in stock levels
· On-line store further developed, with over 9,000 products now available
· Sales for 8 weeks to 23 February up 11.2% (up 0.9% on like-for-like basis)
Commenting, Will Adderley, Chief Executive of Dunelm, said:
“We are delighted to report another period of strong trading in the first half, with good sales and profit growth, increased market share and healthy cash flows. Two factors remain central to this success: our proposition of “simply value for money”, offering the widest range of homewares in the UK; and our low cost business model allowing us to deliver an operating margin of 14%.
“We are seeing clear benefits from the investments we have made in our infrastructure, and we continue to invest in expanding the superstore portfolio, opening seven new stores since June.
“We have continued to grow in the second half of our financial year, with sales for the 8 weeks to 23 February up 11.2%, and up 0.9% like-for-like. We have recently seen weaker consumer demand, and we anticipate that trading in our second half will prove tougher than in the first. That said, we are confident that our robust and defensive business model will stand us in good stead as it has done in previous periods of market weakness.”
For further information please contact:
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Dunelm Group plc |
0116 2644 356 |
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Will Adderley, Chief Executive |
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David Stead, Finance Director |
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Hogarth Partnership |
020 7357 9477 |
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John Olsen |
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Fiona Noblet |
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Notes to Editors
Dunelm is amongst the top 10 retailers operating in the £12bn UK homewares market. The Group has 88 stores, branded Dunelm Mill, of which 75 are out-of-town superstores. Dunelm employs over 5,500 full and part time staff, the vast majority of whom work in the stores.
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 in the Midlands specialising in soft furnishings. The first Dunelm superstore was opened in 1991, leading to the Company’s move into the broader homewares market.
The superstores provide an average of 28,000 sq ft of selling space and offer an extensive range of approximately 20,000 products across a broad spectrum of categories, including bedding, curtains, gifts and seasonal items, cushions, bathroom products, kitchenware, quilts, pillows and rugs. Dunelm also specialises in offering a wide range of fabrics, made to measure curtains and a frequently changing series of special buys. The directors are passionate about ensuring that all ranges live up to Dunelm’s philosophy of offering customers “Simply Value for Money”.
Dunelm also has an on-line store ( www.dunelm-mill.com) with over 9,000 products available.
Dunelm is listed on the London Stock Exchange (DNLM.L).
Chairman’s statement
I am delighted to report that Dunelm continued to trade strongly in the first half of the financial year, delivering sales and profit growth, generating a healthy positive cash flow and at the same time continuing to invest in longer term growth through a successful new store opening programme. This is particularly pleasing given the difficult consumer and global economic background over the period as well as a significant number of gloomy statements from or about individual retailers and the retail sector generally.
I believe that this performance again demonstrates the strength of Dunelm’s business model: well stocked stores in out of town locations offering the widest range of home textiles and homewares in the UK, always at value for money prices, supported by a diverse and committed group of product suppliers; by first class teams within the business; and by a cost effective and scaleable infrastructure. In essence this is a simple formula, but it works because the management team retain such a strong focus on execution. Everything is geared towards giving customers the value for money which they deserve.
I cannot allow this moment to pass without commenting on the career of Bill Adderley, co-founder of Dunelm with his wife Jean. Bill has chosen to step down from the Board with effect from the end of this month. It is thanks to his vision and flair that the business was created and has developed to its current position. For me personally it has been a privilege to follow in Bill’s footsteps as Chairman. I have greatly appreciated his guidance over the last three years and his contributions to the Board have been invaluable. I am delighted to announce that Bill will continue to be associated with the business as Founder and Life President after stepping down from the Board. On behalf of all shareholders I would like to wish both Bill and Jean a long and happy retirement.
GEOFF COOPER
CHAIRMAN
27 February 2008
Chief Executive’s review
OVERVIEW
Dunelm continues to go from strength to strength. According to data from Verdict, the market research agency, the homewares market as a whole grew by 3.4% in 2007. Our own growth was in double digits, so that we gained market share faster than any other major player. In a sector which remains fragmented, our share of 3.8% puts us in joint fifth place, excellent progress when compared with our share of under 2% as little as five years ago.
We have achieved this growth by staying true to what Dunelm stands for – “simply value for money”. We want all of our customers to feel they are getting good value from us, whether they are buying a set of face cloths for 99p or spending hundreds of pounds on having curtains custom made and fitted in their home. We believe that this proposition appeals to all segments of the population, as evidenced in the recent Customer Satisfaction Index research by Verdict in which we were voted the UK’s third favourite retailer.
FINANCIAL PERFORMANCE
During the period, sales grew by 10.6% to £197.4m (2006: £178.4m), with a like-for-like increase of 4.9%.
Product gross margin increased by 80 basis points. Selling prices remained stable after many years of price deflation, and we continued to experience improvements in bought in costs due to our increasing volumes.
Operating profit grew significantly to £27.6m. This was 40% higher than last year’s statutory operating profit, and 16.3% higher on an underlying basis (we added back £4.0m of non-recurring costs to last year’s statutory operating profit of £19.7m, to show an underlying operating profit of £23.7m).
One of the core strengths of Dunelm remains our low cost operating model. This is reflected in our operating margin of 14.0% in the first half, up by 70 basis points. We believe this keeps us firmly in the top tier of UK retailers.
Profit before tax was £27.2m, an increase of 24.4% over the £21.9m recorded in the equivalent period last year on an underlying basis.
Profit after tax reflects the projected full year effective tax rate of 31.5%.
Fully diluted earnings per share were 9.2p, an increase of 21.1% against last year’s underlying figure of 7.6p.
Net cash generated from operations (after interest and tax) was £39.7m. Despite the addition of new stores, stock levels were actually reduced during the period as we saw the benefit of managing lines in the new warehouse more efficiently. Creditors increased by £17.3m reflecting short term timing on payments; we continue to pay our suppliers in accordance with agreed terms. We made capital investments of £13.1m during the period, including the acquisition of a freehold site at Leeds.
Net debt reduced from £22.6m at the start of the period to £1.8m at the end. An interim dividend of 2.0p per share will be paid on 23 April to shareholders on the register at 4 April.
NEW STORE OPENINGS
During the period we opened new superstores in Shoreham, Aberdeen, Peterborough, Eastbourne and Dumfries. We therefore ended the period with 86 stores, of which 73 are out of town superstores. Since then, we have opened superstores in Leeds and Bournemouth with Sittingbourne to follow shortly.
We monitor customer reaction to our new openings carefully, and we continue to see a very positive response in all locations. This gives us further confidence that we can expand the chain to at least 150 superstores across the UK. We intend to roll out as rapidly as we can, subject to the overriding requirement that new store appraisals must pass our rigorous financial hurdle (ie expected to pay back, on a discounted cash flow basis, within 36 months from opening).
We believe that the dynamics of the retail warehouse market are currently in favour of strong occupiers and this is reflected in a healthy pipeline of potential new sites for opening in the next financial year – with agreements already signed for units in four locations. In order to secure attractive locations for further expansion, we will consider acquiring freehold units where we see an appropriate development opportunity.
SPECIALIST OFFER
Our ‘Simply Value For Money’ proposition remains at the heart of all we do, and we are constantly striving to improve the offer for customers. We continue to introduce new products in a controlled way across all areas of the store, and we have further strengthened the offer in recent months by giving a particular focus to availability of best-selling lines.
INFRASTRUCTURE
The new warehouse facility at Stoke, commissioned in 2006, has operated smoothly through the winter trading period and has provided a high quality of service to our stores.
With our new stock management system now rolled out to all stores, we have much better information to control stock levels than ever before. An early win has been to identify old discontinued stock, allowing us to clear this aggressively in our winter sale. We will continue to exploit information from SAP to manage our stocks more efficiently.
LONGER TERM OPPORTUNITIES
We recognise the growing importance of the internet as a channel not only for sales, but also for customer communication. Our on-line offering has developed significantly since it was launched two years ago and even though e-commerce remains a small part of our business at present, we do now have over 9,000 products available for purchase on the web. We intend to improve the functionality of the site and to relaunch it later this calendar year.
OUTLOOK
The business has continued to grow in the eight weeks to 23 February with sales up by 11.2% in total and 0.9% on a like-for-like basis.
We have recently seen weaker consumer demand, and we anticipate that trading in the second half will prove tougher than in the first. However, we believe that our business model will stand us in good stead during periods of market weakness, as it has done in the past. Customers can easily trade up or down in our stores and the average spend per transaction (under £30) is relatively low, so for most people, a trip to Dunelm does not represent a major outlay. With our very strong balance sheet and low operational gearing we are financially very robust and will continue to invest in the growth of the business.
WILL ADDERLEY
CHIEF EXECUTIVE
27 February 2008
Consolidated income statement (unaudited)
For the 26 weeks ended 29 December 2007
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26 weeks |
26 weeks |
52 weeks |
|
|
|
ended |
ended |
ended |
|
|
|
29 December |
30 December |
30 June |
|
|
|
2007 |
2006 |
2007 |
|
|
Notes |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
Revenue |
2 |
197,361 |
178,434 |
354,721 |
|
|
|
|
|
|
|
Cost of sales |
|
(161,053) |
(147,424) |
(297,481) |
|
|
|
|
|
|
|
Gross profit |
|
36,308 |
31,010 |
57,240 |
|
|
|
|
|
|
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Administrative expenses ongoing |
|
(8,727) |
(7,289) |
(13,247) |
|
|
|
|
|
|
|
Administrative expenses non recurring (relating to IPO and |
|
|
|
|
|
warehouse transition) |
|
– |
(4,015) |
(3,178) |
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Total administrative expenses |
|
(8,727) |
(11,304) |
(16,425) |
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|
|
|
|
|
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Operating profit |
|
27,581 |
19,706 |
40,815 |
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|
|
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Analysed as: |
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|
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Operating profit before non-recurring items |
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27,581 |
23,721 |
43,993 |
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Non-recurring items |
|
– |
(4,015) |
(3,178) |
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|
|
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Financial income |
|
608 |
103 |
503 |
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Financial expenses |
|
(965) |
(1,947) |
(3,492) |
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|
|
|
|
|
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Profit before taxation |
|
27,224 |
17,862 |
37,826 |
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|
|
|
|
|
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Taxation |
4 |
(8,574) |
(6,108) |
(13,198) |
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|
|
|
|
|
|
Profit for the period |
|
18,650 |
11,754 |
24,628 |
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|
|
|
|
|
|
Earnings per share – basic |
5 |
9.3p |
5.9p |
12.3p |
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Earnings per share – diluted |
5 |
9.2p |
5.8p |
12.2p |
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|
|
|
|
|
|
Dividend proposed per share |
6 |
2.0p |
0.8p |
3.0p |
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Dividend paid per share |
6 |
3.0p |
25.0p |
25.8p |
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|
|
|
|
|
All activities relate to continuing operations. All profit is attributable to equity shareholders.
Consolidated balance sheet (unaudited)
As at 29 December 2007
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29 December |
30 December |
30 June |
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|
2007 |
2006 |
2007 |
|
|
£’000 |
£’000 |
£’000 |
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|
|
|
|
|
Non current assets |
|
|
|
|
Intangible assets |
2,720 |
3,893 |
3,668 |
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Property, plant and equipment |
76,272 |
67,392 |
67,064 |
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Deferred tax asset |
1,390 |
2,231 |
3,276 |
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Total non-current assets |
80,382 |
73,516 |
74,008 |
|
|
|
|
|
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Current assets |
|
|
|
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Inventories |
59,775 |
66,471 |
60,657 |
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Trade and other receivables |
12,494 |
11,336 |
8,996 |
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Cash and cash equivalents |
18,209 |
7,551 |
17,368 |
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Assets held for sale |
– |
5,998 |
– |
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Total current assets |
90,478 |
91,356 |
87,021 |
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|
|
|
|
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Total assets |
170,860 |
164,872 |
161,029 |
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|
|
|
|
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Current liabilities |
|
|
|
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Trade and other payables |
(68,635) |
(56,860) |
(51,464) |
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Liability for current tax |
(6,073) |
(6,781) |
(6,310) |
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Interest-bearing loans and borrowings |
– |
(67) |
(21) |
|
Provisions |
– |
(36) |
– |
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Total current liabilities |
(74,708) |
(63,744) |
(57,795) |
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|
|
|
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Non current liabilities |
|
|
|
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Interest-bearing loans and borrowings |
(20,000) |
(50,000) |
(40,000) |
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Total non current liabilities |
(20,000) |
(50,000) |
(40,000) |
|
|
|
|
|
|
Total liabilities |
(94,708) |
(113,744) |
(97,795) |
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|
|
|
|
|
Net assets |
76,152 |
51,128 |
63,234 |
|
|
|
|
|
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Equity |
|
|
|
|
Issued capital |
2,008 |
2,006 |
2,006 |
|
Share premium |
346 |
267 |
267 |
|
Retained earnings |
73,798 |
48,855 |
60,961 |
|
Total equity attributable to equity holders of the parent |
76,152 |
51,128 |
63,234 |
|
|
|
|
|
Consolidated cash flow statement (unaudited)
For the 26 weeks ended 29 December 2007
|
|
|
26 weeks |
26 weeks |
52 weeks |
|
|
|
ended |
ended |
ended |
|
|
|
29 December |
30 December |
30 June |
|
|
|
2007 |
2006 |
2007 |
|
|
Note |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
Cash flows from operating activities |
7 |
47,109 |
21,416 |
49,300 |
|
|
|
|
|
|
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Interest paid |
|
(1,099) |
(141) |
(1,536) |
|
Interest received |
|
608 |
113 |
451 |
|
Tax paid |
|
(6,935) |
(5,497) |
(13,468) |
|
|
|
|
|
|
|
Net cash generated from operating activities |
|
39,683 |
15,891 |
34,747 |
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
Proceeds on disposal of property, plant and equipment |
|
301 |
6 |
7,200 |
|
Acquisition of property plant and equipment |
|
(13,063) |
(10,750) |
(14,130) |
|
Acquisition of intangible assets |
|
– |
(317) |
(996) |
|
|
|
|
|
|
|
Net cash utilised in investing activities |
|
(12,762) |
(11,061) |
(7,926) |
|
|
|
|
|
|
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Cash flows from financing activities |
|
|
|
|
|
Proceeds from the issue of share capital |
|
80 |
273 |
273 |
|
Purchase of treasury shares |
|
(47) |
– |
– |
|
Net funds (repaid)/raised from bank loan |
|
(20,000) |
50,000 |
40,000 |
|
Repayment of finance lease liabilities |
|
– |
(83) |
(150) |
|
Dividends paid |
|
(6,024) |
(50,000) |
(51,605) |
|
|
|
|
|
|
|
Net cash utilised in financing activities |
|
(25,991) |
190 |
(11,482) |
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
930 |
5,020 |
15,339 |
|
|
|
|
|
|
|
Foreign exchange revaluations |
|
(68) |
(433) |
(956) |
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the period |
|
17,347 |
2,964 |
2,964 |
|
Cash and cash equivalents at the end of the period |
|
18,209 |
7,551 |
17,347 |
Statement of changes in equity (unaudited)
For the 26 weeks ended 29 December 2007
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|
Issued |
|
|
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|
|
Share |
Share |
Retained |
Total |
|
|
Capital |
premium |
earnings |
Equity |
|
|
£’000 |
£’000 |
£’000 |
£’000 |
|
|
|
|
|
|
|
As at 1 July 2006 |
2,000 |
– |
87,066 |
89,066 |
|
Total recognised income & expense |
– |
– |
11,754 |
11,754 |
|
Issue of share capital |
6 |
267 |
– |
273 |
|
Share based payments |
– |
– |
35 |
35 |
|
Dividends |
– |
– |
(50,000) |
(50,000) |
|
|
|
|
|
|
|
As at 30 December 2006 |
2,006 |
267 |
48,855 |
51,128 |
|
Total recognised income & expense |
– |
– |
12,874 |
12,874 |
|
Share based payments |
– |
– |
199 |
199 |
|
Deferred tax on share based payments |
– |
– |
327 |
327 |
|
Corporation tax on share options exercised |
– |
– |
311 |
311 |
|
Dividends |
– |
– |
(1,605) |
(1,605) |
|
|
|
|
|
|
|
As at 30 June 2007 |
2,006 |
267 |
60,961 |
63,234 |
|
Total recognised income & expense |
– |
– |
18,650 |
18,650 |
|
Issue of share capital |
2 |
79 |
– |
81 |
|
Purchase of treasury shares |
– |
– |
(47) |
(47) |
|
Share based payments |
– |
– |
268 |
268 |
|
Deferred tax on share based payments |
– |
– |
(50) |
(50) |
|
Corporation tax on share options exercised |
– |
– |
40 |
40 |
|
Dividends |
– |
– |
(6,024) |
(6,024) |
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|
|
|
|
|
|
As at 29 December 2007 |