Released: 16/05/1997

Signet Announces 80% Profit Increase and Capital Reorganisation Proposal

HIGHLIGHTS

Preliminary results 52 weeks ended 1 February 1997

Pre tax profit £45.1 m (1995/6: £25.0m)	up 80%
Operating profit £76.5 m (1995/6: £63.9m)	up 20%
Interest charges £31.4 m (1995/6: £38.9m)	down 19%
Year end net debt £240.2 m (1996: £308.2m	down 22%

Proposed Capital Reorganisation

As per DMG draft

Commenting etc

"The 80% increase in pre tax profit is an excellent performance with both the US and UK showing substantial gains. The voluntary refinancing of the Group's bank debt in February 1997 reflects renewed confidence in the future of the Group. The proposed capital reorganisation marks another important step in the Group's successful recovery programme and should benefit the Company and shareholders as a whole."

Chairman's statement on the preliminary results

Summary of results

I am pleased to announce an 80% increase in Group pre-tax profit to £45.1 million for the 52 weeks ended 1 February 1997 (1995/6: £25.0m).

Group sales for the period were £902.0 million (1995/6: £894.7m) representing a like for like increase of 6.4 %. Group operating profit increased to £76.5 million (1995/6: £63.9m) and the operating margin increased to 8.5% (1995/6: 7.1%).

The US business built on the excellent performance of the previous year and operating profit increased by 17%. In the UK, there was a 25% growth in operating profit. Both H. Samuel and Ernest Jones showed improved results, despite the uncertainty in the first nine months of the year caused by the proposed sale of the UK business. Ernest Jones had a particularly good year, outperforming its main competitor with like for like sales up 12.2%.

Net interest charges fell by £7.5 million reflecting continuing tight cash control and first full year benefits of the new financing arrangements for US receivables put in place in the second half of 1995/6.

Net debt (total borrowings less cash) as at 1 February 1997 was reduced by £68.0 million to £240.2 million (3 February 1996: £308.2m) and Group gearing (i.e. the ratio of net debt to shareholders' funds) fell to 80% from 114%.

Group funding

On 27 February 1997, the Group took a further significant step forward in concluding a $360 million refinancing arrangement with a new syndicate of banks. This new three year facility puts all bank borrowings on to a voluntary basis for the first time since 1992, and reaffirms confidence in the future of the Group. It is anticipated that the new facility will result in pre-tax savings of approximately £4.0 million in 1997/8 based on current interest rates and estimated levels of indebtedness.

Capital reorganisation

In September 1996, the Board announced that it would re-examine all options to address the problems associated with the Company's unsatisfactory share capital structure. The Board has today announced proposals for a capital reorganisation to resolve this very complex issue, full details of which are being sent to shareholders.

Review of operations

UNITED STATES (62% of Group turnover)

Trading
Retail trading conditions generally remained very challenging in the US for most of the year. Operating profit for the 52 weeks to 1 February 1997 rose by 17% to £53.8 million (1995/6: £45.9m). Operating margin increased to 9.6% (1995/6: 8.2%). Sales totalled £558.5 million representing a like for like increase of 7.8%. In the important four week trading period to 28 December 1996 the increase was 11.8%. In the year, sales increased to an average of $1.1million per store (1995/6: $1.0m). Gross margin decreased slightly following competitive pressures and a more aggressive selling policy to clear slow moving merchandise. Expenses continued to be tightly controlled and the business benefited from the full year effect of the cost saving programme initiated in May 1995. Bad debts increased to 3.6% of the Group's US sales (1995/6: 2.8%), against a background of increases in consumer debt levels and bad debts in the economy generally. The excellent results build on the substantial progress made in the previous year and validate the actions taken to strengthen the Group's US operations.

Developments
At 1 February 1997 Sterling had 778 stores located in 43 states with a share believed by the Board to be approximately 5% of the US specialty jewellery market. Sterling is the second largest specialty retailer of fine jewellery in the US.

During the period, the strategy of increasing growth and further improving the return on assets showed encouraging results. Merchandise ranges were reviewed with the aim of improving the overall return on working capital by increasing gross margin contribution and improving stock turn ratios. 71 under performing stores were closed and 10 new stores opened.

Good progress was made in developing Kay as a national trade name. 93 stores were converted to the Kay logo and by the end of the year Kay had 440 stores in 41 states. Expenditure on advertising and marketing was reallocated to capitalise on the national spread of the Kay stores through increased use of TV promotions. However, local radio and catalogues continue to be used to support the Group's regional chains.

A fourth Jared off-mall superstore of approximately 5,500 square feet was opened in Denver in November 1996 and performance to date has been encouraging. Further expansion of the Jared concept is planned in 1997/8.

UNITED KINGDOM (38% of Group turnover)

Trading
In the UK, despite some pick up in consumer confidence in the summer and early autumn of 1996, the run up to Christmas was slow. However, UK jewellery operating profit at £34.1 million (1995/6:£27.2m) showed a 25% increase on the previous year and the operating margin increased to 9.9% (1995/6: 8.1%). Like for like sales increased by 4.4% (Ernest Jones 12.2%; H. Samuel 1.6%). The strong sales performance in Ernest Jones reflected the benefits of the store modernisation programme and improvements made to the merchandise ranges during the year. H. Samuel also made progress, albeit at a lower level, in a more competitive sector of the market. Gross margins increased slightly reflecting improved buying and a reduction in the level of discounting.

Developments
At 1 February 1997 the UK business had 594 stores with 428 trading as H. Samuel and 166 trading as Ernest Jones. Six new stores are planned to open during 1997/8. Following the successful completion of the Ernest Jones modernisation programme, further improvements to ranges and selective expansion of the chain are planned.

Trials of a new H. Samuel store format were undertaken in the second half of the year and, modernisation of up to 150 stores is planned for 1997/8. As a result the Group expects to incur a pre-tax charge of approximately £4.4 million in 1997/8 due primarily to the write off of existing fixtures and fittings and the temporary closure of stores during refurbishment. However, this charge may be offset to some extent by increased sales from such stores following modernisation. New merchandise ranges will continue to be introduced into H. Samuel and more flexible systems are being developed to improve the distribution and display of merchandise.

Group costs
UK operating profit, as reported in Note 2 to the Financial Statements, increased to £22.7 million (1995/6: £18.1m) after charging Group and other costs of £11.4 million (1995/6: £9.1m). The figure for 1996/7 includes a charge of £1.6 million relating to the revaluation of UK freehold and long leasehold properties net of other property gains and depreciation adjustments; also included was a charge relating to an increase in the provision for disposal of a Group warehouse.
Dividends

Dividends on all classes of the Company's preference shares remain suspended and there will be no dividend on the ordinary shares for the period ended 1 February 1997.

Taxation

The tax charge of £11.2 million for the year reflects the higher benefit of the utilisation, against US taxable profits, of brought forward US tax losses. The proposed capital restructuring is likely to result in changes to the Company's share ownership structure which will restrict the benefit to the Group of the utilisation of further US tax losses in future years. Credit for such tax losses is not carried on the balance sheet.

Outlook

Sales for the Group as a whole on a like for like basis for the 14 weeks to 10 May 1997 are ahead of last year and are in line with managment's expectations. As always, the outcome for the year will be dependent on trading in the final quarter and at this stage it is too early to identify any firm trend. Recovery of consumer confidence in the UK remains variable and in the US historically high levels of consumer debt and the recent rise in interest rates sound a note of caution.