Original
RNS Number : 4785A
Dunelm Group plc
12 September 2018
 

 

 

12 September 2018

Dunelm Group plc

 ("Dunelm")

Preliminary Results for the 52 weeks to 30 June 2018

 

Seizing opportunities in a digital world

 

Dunelm Group plc, the UK's leading homewares retailer, today announces its preliminary results for the 52 weeks to 30 June 2018.

 

 

Year ended           30 June 2018

 

Underlying

Year ended           30 June 2018

 

Exceptional items

Year ended 30 June 2018

 

Reported

Year ended           1 July

2017

 

Underlying

Year ended           1 July

2017

 

Exceptional items

Year ended           1 July

2017

 

Reported

 

Year on year change

 

Underlying

 

Year on year change

 

Reported

Total revenue

£1,050.1m

-

£1,050.1m

£955.6m

-

£955.6m

+9.9%

+9.9%

Gross margin

48.0%

-

48.0%

48.9%

-

48.9%

-90bps

-90bps

Profit before tax

£102.0m*

-£8.9m

£93.1m

£109.3m*

-£16.9m

£92.4m

-6.7%

+0.8%

 

 

 

 

 

 

 

 

 

EBITDA

£139.6m

-£4.9m

£134.7m

£142.2m

-£14.0m

£128.2m

-1.8%

+5.1%

Free cash flow

-

-

£52.9m

-

-

£14.2m

-

+272.5%

Net debt

-

-

£124.0m

-

-

£122.1m

-

-1.6%

 

 

 

 

 

 

 

 

 

Basic EPS

40.1p

-

36.3p

43.1p

-

36.3p

-7.0%

0.0%

Fully diluted EPS

40.0p

-

36.2p

42.8p

-

36.1p

-6.5%

+0.3%

Ordinary dividends

-

-

26.5p

-

-

26.0p

-

+1.9%

 

*Includes net negative impact of Worldstores estimated at £8.4m for the 52-week period in FY18, and £10.7m for the period post-acquisition in FY17 (from 28 November 2016 to 1 July 2017).

 

Highlights

·      Group revenue of £1,050.1m (FY17: £955.6m), an increase of +9.9%. LFL sales were +4.2%

·      Growth in unique customer numbers both online (+18%), and in-store (+5%)1

·      Strong growth in LFL online, with home delivery sales up 37.9%

·      Continued development of multichannel proposition with total Dunelm.com sales (including Reserve and Collect) now representing 13.5% of total Dunelm sales in FY18 (FY17:11.2%)

·      Opening of ten new superstores in the year (including one relocation) adding 6.1% new space, and completion of six refits

·      Clear plan to leverage the technology acquired with Worldstores; profitable Worldstores products transferred to Dunelm.com

·      Underlying PBT of £102.0m (pre-exceptional items), down 6.7% year on year, inclusive of an estimated £8.4m of net profit dilution from Worldstores (FY17: £109.3m underlying PBT including £10.7m negative impact from Worldstores)

·      PBT of £93.1m (FY17: £92.4m) including £8.9m (FY17: £16.9m) of exceptional costs relating to the acquisition, integration and/ or disposal of the Worldstores businesses

·      Improved free cash flow year-on-year to £52.9m (FY17: £14.2m)

·      1.9% increase in full year dividend to 26.5 pence per share, reflecting strong cash generation and robust balance sheet

 

1 Unique customer numbers reflects internal analysis based on unique payment card transactions within the financial period

 

 

 

Nick Wilkinson, Chief Executive Officer, commented:

 

"Following healthy sales growth over the past year, we are now taking steps to simplify the business under the core Dunelm brand, with one web platform and an integrated supply chain. This will allow us to respond more quickly to the changing consumer environment and drive future profitable growth.

 

"Dunelm's purpose is to help everyone create a home they love. Our committed colleagues, our great products, and our increasingly integrated in-store and online offer, mean we are well placed for success as a leading multichannel specialist.

 

"The Worldstores acquisition has given us the key ingredients for a step change in our digital capabilities. We are preparing to launch Dunelm.com on our new proprietary technology to give us much greater agility in improving our customer proposition. This is a new and exciting chapter for Dunelm as we fully embrace digital retailing.

 

"The UK retail environment remains challenging, but against this difficult background we have traded in line with expectations during the current financial year to date."

 

 

There will be a presentation for analysts at 9.30am this morning at UBS, 5 Broadgate, London EC2M 2QS.  If you have not already registered for attendance then please contact Peter Lambie at MHP Communications on peter.lambie@mhpc.com. 

Dunelm will issue a trading update for the first quarter of its new financial year on 11 October 2018.

 

For further information please contact:

 

Dunelm Group plc

0116 2644439

Nick Wilkinson, Chief Executive Officer

David Stead, Interim Chief Financial Officer

 

 

 

MHP Communications

020 3128 8570

Tim Rowntree / Simon Hockridge / Alistair De Kare Silver / Pete Lambie

dunelm@mhpc.com

 

For photography, please contact MHP Communications

 

Notes to Editors

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 before expanding, following the opening of the first Dunelm superstore in 1991, into broader homewares categories. Dunelm is now a multi-channel retailer, with Dunelm.com being launched in 2005 and the acquisition of the Worldstores Group in 2016 accelerating this further.   

 

Dunelm is market leader in the £13bn UK homewares market and active in the £11bn UK furniture market. It currently operates 172 stores, of which 169 are out-of-town superstores and 3 are located on high streets, and online stores, the largest of which can be found at www.dunelm.com. Dunelm employs approximately 10,000 colleagues and sells around 30,000 product lines in store, increasing to around 55,000 online.

 

Dunelm, "The Home of Homes", offers a customer proposition of style, value, quality and ease of shopping. From its textiles heritage, in areas such as bedding, curtains, cushions, quilts and pillows, Dunelm has rapidly broadened its product offering to a complete homewares offer including the likes of kitchenware, dining, lighting, seasonal, wall art and rugs. Dunelm is one of the few national retailers to offer an authoritative selection of curtain fabrics on the roll, and owns a specialist UK facility dedicated to producing made-to-measure curtains.

 

The product range includes many exclusive, own brand designs and premium brands such as Dorma and Fogarty. This is augmented by a range of other well-known brands and license agreements.

Dunelm has been listed on the London Stock Exchange since October 2006 (DNLM.L) and has a current market capitalisation of approximately £1.0bn.

 

CHAIRMAN'S STATEMENT

 

Introduction

Dunelm has grown to become the market leader in homewares in the UK. It has a network of 169 superstores selling a broad product range (with most lines being unique to Dunelm) offering outstanding value and choice. Our strategy in recent years has been to build on these strengths by growing our online participation, evolving towards a truly multichannel business. This strategy has necessitated large investments in our systems and in our supply chain logistics, and the acquisition of Worldstores in November 2016 accelerated this transition.

The year under review was complicated by a combination of management changes, the integration of Worldstores and a fragile economic environment.  However, the appointment of our new CEO, Nick Wilkinson, in February brought cohesion and impetus to our strategic thinking and as a Board we are pleased with the immediate progress he has achieved. The Worldstores integration is virtually complete and the acquired unit will in future no longer be reported separately, as all the continuing sales are transferred to the Dunelm.com site, which will incorporate key elements of the Worldstores systems. As a result, our fast-growing online business will become better established and will be our primary focus for future growth.

Dunelm has made significant strategic progress in the last few years and I am confident that under Nick's leadership we will turn our strategic plans into substantial value creation.

We are proud of Dunelm's strong culture and amazing colleagues. I would like to thank them all for their hard work and commitment. Although our business is becoming more digital, the human touch from all our colleagues is as important to our success as always.

 

Performance

Against the backdrop of challenging and volatile market conditions, over the last financial year we grew our total sales by 9.9% to £1,050.1m, with positive like-for-like sales performance of 4.2%. We have continued to win homewares market share and strengthen our leadership position. Our store like-for-like sales increased by 1.0%, while like-for-like online sales were up 37.9%, reflecting our increasing focus on this channel as customer shopping behaviour continues to shift. We opened ten new superstores in the year (including one relocation) taking our network to 169 superstores, and we still see opportunity to grow our national store network in a measured way.

Profit before tax and exceptional items fell by 6.7% to £102.0m, reflecting a full year of trading losses reported in respect of Worldstores, a small reduction in our core business gross margin, and increased operating costs due in part to the higher mix of online sales. As a result of new store openings, refits and investment in our digital technology infrastructure, we maintained a relatively high level of capital investment of £44.0m (FY17: £60.5m). Profits after tax and exceptional items were in line year-on-year at £73.3m (2017: £73.1m).

Our balance sheet remains strong with limited leverage (net debt:EBITDA before exceptional items of 0.89x at year-end) and cash generation remains a key feature of our business model with free cash flow of £52.9m in the year (FY17: £14.2m).

Dividends

The Board has recommended maintaining the final dividend at 19.5 pence per share, bringing the total dividend for the full year to 26.5 pence per share, an increase of 1.9% on the previous year. While dividend cover before exceptional items of 1.5x remains below our target range, it reflects both the non-recurring costs associated with the Worldstores acquisition and integration, and our confidence in Dunelm's future growth prospects.

Board changes

Nick Wilkinson has made a strong start as CEO and is already bringing fresh energy to our wider leadership team.

Laura Carr will join as CFO on 29 November and will bring valuable retail and commercial experience having been CFO of Indigo in Canada and most recently Group Financial Controller of Compass Group plc. In the meantime, we have been fortunate to have David Stead return as Interim CFO following the departure of Keith Down in May. David was previously our CFO from 2003 to 2016 and I would like to thank him for returning to smooth the CFO transition. 

As previously advised, Simon Emeny, our Senior Independent Director, stepped down at our AGM in November 2017 after ten years' service. Liz Doherty, who chairs our Audit & Risk Committee, has succeeded Simon as Senior Independent Director.

In March, we appointed Rachel Osborne as a Non-Executive Director to gain the benefit of her experience as CFO in a variety of consumer facing businesses. Unfortunately, Rachel subsequently changed her executive role which created a competitive conflict and she stood down from the Board in August. We have initiated a search for Rachel's replacement and will update on progress in due course.

The future

Our mission at Dunelm is to help everyone create a home they love. Notwithstanding a difficult retail environment, after a challenging period of change and investment we are now well placed for future profitable growth in a multichannel world. Our strategy will bring continuous improvement in our proposition both online and in stores, based around our broad range of great value and stylish products, our well invested infrastructure, our right-sized estate, and the committed colleagues who live and breathe our business principles every day.

I look forward to working with Nick and the rest of the Board to capitalise on the exciting opportunities ahead.

 

Andy Harrison
Chairman
12 September 2018

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

First impressions

Dunelm is a great business which has grown sales in each year of its 39-year history by offering great choice and value for money. Over time we have developed deep knowledge and an unrivalled range of homewares products, supported by committed suppliers. The business is prudently financed, and highly cash generative. Investment in appropriate systems and infrastructure provides a solid platform for growth, and the superstore portfolio combines good locations and attractive rent levels. Our long-established business principles and committed colleagues help ensure a high level of customer satisfaction, which is still growing.

However, we need to continue to change if we are to continue to win. The market is changing, with the increasing penetration of online retail. At the same time, while some of our traditional competitors are retrenching, discounters continue to expand their physical store portfolios. Our rate of market share gain has slowed. We have made some inroads into the furniture market, but our proposition is not yet well developed. The acquisition of Worldstores in FY17 has accelerated the development of our multichannel capabilities, but the process of integrating Worldstores into Dunelm has been substantial and has reduced our focus on some of our operating disciplines.

My conclusion is that I have joined an excellent business which is experiencing some new challenges, both near term and medium term. I am really excited about helping Dunelm to navigate these challenges as we aim to fulfil our purpose of helping everyone create a home they love. We will differentiate ourselves by being famous for product style, value and quality in all market segments, and we are working hard to become the best multichannel retailer for homewares in terms of convenience and customer experience.

Worldstores

The acquisition of Worldstores was a major event in Dunelm's development and trading and integrating the acquired businesses has been a massive focus for the management team.

Although Worldstores was acquired from administration for a nominal sum, our estimate of the total cash outlay we will incur, including goodwill payments to suppliers, integration costs and trading losses amounts to approximately £30m (net of tax relief).   

The business model of Worldstores itself was not sustainable and at the time of acquisition it was incurring losses of over £20m per year. We have transferred significant numbers of profitable lines (approximately 15,000 to date) from Worldstores and Kiddicare to our own website, strengthening the Dunelm.com offer and contributing to growth. Having transferred the worthwhile sales, we decided to cease trading the Worldstores websites as separate entities and they were fully withdrawn by early September 2018. We also sold the Achica brand which did not fit with Dunelm's business model and, having tested the Kiddicare brand, we concluded that we can more profitably extend our presence in the children's market using the Dunelm brand. We therefore closed the Kiddicare business in July 2018.

The main benefit from the acquisition is the access to technology and digital development capabilities, which are an important ingredient to the infrastructure that is essential to our success in a multichannel world. Importantly, we see the technology platform acquired with Worldstores as a real asset. We are well advanced in a major programme to move the Dunelm.com website onto this platform which will allow us to launch Click & Collect and subsequent developments (such as improved delivery options) with much greater agility than has been possible whilst working with a third-party technology partner. We are on track to introduce the new platform during Q3 of our financial year. Linked to the above, we now have not only better technology assets but also a much more advanced capability within the organisation, with a significant increase in the number of digital developers and a digital development centre in London.

With the integration behind us, it is clear that Worldstores has created a new level of energy and focus in the business around digital growth. This will play a key role in driving Dunelm's growth for the foreseeable future.

Immediate challenges and opportunities

We have seen profits fall in our last two financial years and we have identified a number of issues and opportunities to improve performance of the core Dunelm business.

We need to evolve to a market-leading multichannel offer. The actions described above to capitalise on the assets acquired with Worldstores are the critical next phase on this journey.

We also have a clear opportunity to improve our customer offer via renewed focus on our value for money credentials. We will reinvigorate our programme of special buys in the coming months and ensure these are prominently displayed in stores and online.

We have grown our furniture business over recent years such that furniture (excluding Worldstores) now represents approximately 5% of Dunelm sales, but the proposition is still at an early stage of development. I am excited by the opportunity to develop our furniture offer further across all channels.

Partly as a result of management change and partly due to the distraction of the Worldstores acquisition and integration activity, some of our basic retail disciplines have slipped, for example in the areas of margin management and stock loss. I am determined that we will regain our grip in these areas.

We have invested heavily in our store portfolio over recent years. With a small number of exceptions, the performance of new stores has been positive and continues to give good payback on investment. Refit investments have shown a mixed return. I continue to believe in the opportunity for rolling out new stores, and for targeted refits, although I will ensure that we are highly selective with these investments going forward. I anticipate that the rate of new store openings will be lower, approximately three to five per year, as we move towards our target of 200 stores for full national coverage; and that our investment in refits will settle at £5-10m per year over the medium term.

Evolution of strategy

The core of Dunelm's business strategy is sound, but needs to adapt to reflect fully the issues described above and the challenges of a multichannel environment.

Our customer purpose is to help everyone create a home they love. We intend to reflect this in the way we think about the business, the way we organise, and the way we express our strategy.

Customer first - The leading multichannel specialist

We are now organising ourselves in line with a clear "Customer First" mind-set. In this retail environment, we must be agile and able to work at pace in an ever-evolving competitive landscape. Our combined store and online business enables us to offer a leading multichannel customer proposition which neither the discounters nor the pure-play operators can match.

By listening to our customers and serving them better we have a significant opportunity to sell more. Shopping frequency and average basket size have considerable headroom for growth as we develop our customer proposition. We under-participate in certain key homewares customer segments, such as "confident nest builders" and "necessity buyers", and have the potential to grow substantially within these groups. Furthermore, awareness of the Dunelm brand is approximately 80%, which remains low for a market leader.

In the coming years our customer proposition will evolve significantly. Product choice will be extended considerably, in both current and adjacent categories, as we help our customers by sourcing great products. Our stores will become more service and experience orientated, supported by market-leading services which offer inspiration and advice to help customers create a home they love. At the same time, we will work hard to improve the value we offer customers, and to make it even easier for them to shop with us.

In addition to our four existing business goals which help us shape and prioritise our activities to support growth, we have now added a fifth, reflecting the opportunity to grow customer awareness and improve our capabilities with regards to customer acquisition.

1. Reaching new customers with our brand

We have increased the number of unique customers shopping in our stores by 5% and online by 18% during the last year. Continuing to grow our customer base is now a key focus.

 

Historically customers have "found" Dunelm as we have opened new stores near their homes. In recent years, with the growth of online performance marketing, we have also attracted new customers directly to our website, which in turn supports our store sales. 

In the current financial year, we are launching a new integrated brand building campaign which will begin in September 2018, comprising TV sponsorship and advertising, supported by PR, social media activity, email communications and instore activities. We will test and learn from this approach, and will endeavour to have an "always on" flow of customer communications to ensure the Dunelm brand is "front of mind" amongst our target customer segments. Our investment in this campaign over the coming financial year will be partly funded by redirecting existing brand spend. We will measure success in terms of customer acquisition and visit numbers.

We plan to accelerate investment in online performance marketing on Dunelm.com in line with our growth expectation for this channel.

We will also continue to develop the use of our own content via our own website, emails to customers, and on social media channels where we are targeting increased followers and likes. We are learning how best to leverage the capabilities of our new CRM system, and generating interaction through #mydunelm and user-generated content and imagery. We will further step up our product PR activity and influencer programmes to gain critical mass.

We are excited about the potential for medium term growth across all our channels which will come from this heightened focus on customer acquisition.

2. Creating new reasons for customers to shop with Dunelm

We must continually improve our proposition by offering the best product choice, quality, value and style to our customers. We must broaden our product appeal to suit all customer tastes, and reinforce our product advantage compared to our competitors. Driving broader category awareness will help us drive visit frequency and basket size.

During the last year we have had some notable successes in improving our product ranges in areas such as lighting and rugs where sales grew significantly both online and in stores.

We have recently launched online a new Made to Measure blinds offer, which will be followed in due course by Made to Measure curtains, which we expect to appeal to customers seeking convenience. In furniture, we are building differentiation into our offer to improve the ranges available for customers and drive consideration in areas such as mattresses with new Dorma and Fogarty branded products.

We want our customers to see new products each time they visit our stores and website. We will achieve this by reinvigorating our approach to special buys and trading to bring a wide variety of styles and great value products to our customers.

In the last year, we have continued to grow our sales of seasonal products across key winter and summer trading periods (on top of strong growth in FY17). We believe there is more potential for growth here and are planning further improvements in seasonal ranging over the next year.

3. Easy and inspiring multichannel shopping for our customers

Our customers tell us that shopping convenience is high on their priority list. In addition, customers seek help, advice and inspiration to help create a home they love.

Our 169 superstores provide a fantastic opportunity for us to showcase our product ranges and inspire customers as they browse. As we expand our store estate to around 200 stores, we will bring this opportunity within reach of even more customers, enabling them to access our great ranges and 'take home today' convenience.

Our website provides a different type of convenience for customers shopping at home or on the go. We are working hard to create a seamless multichannel proposition, and are aiming to be the leading multichannel brand in homewares for customer experience. In reality, we are still in catch-up mode for online capability, and we know our customers will appreciate the Click & Collect service which we will introduce in tandem with our new web platform early in 2019, as well as improved payment and delivery options.

We know that our stores are an integral part of our future success in a multichannel world, and delivering an inspirational and easy to shop store remains important. We have rolled out tablet-based selling in-store during the last 12 months, providing customers with the opportunity to access the full Dunelm range from every store. We have introduced customer hosts in our stores who will support customers' shopping needs, offering friendly advice and expertise, and helping them navigate the wide variety of ranges available to them.

Last year we continued to evolve our format in stores by completing six major refits, as well as a number of smaller modular refits around furniture, lighting and Made to Measure. We will continue to trial and develop new concepts in stores and currently plan to complete a small number of further major refits in the next financial year.

4. Simple and low cost - good housekeepers

Our low-cost operating model and dedication to keeping things simple has historically been a source of significant cost advantage. However, cost growth has exceeded sales growth for a number of years now as we have addressed the changing retail market and transitioned to our multichannel model.

Our approach going forward is to drive efficiency by leaving behind the Worldstores and Kiddicare brands, and leveraging a single brand, web platform and integrated supply chain. As our channel mix shifts, we will attack costs and work to keep all our channel operations low cost and efficient. We calculate that the marginal contribution from 1-man home delivery sales is currently around 15% below in-store sales.  

Over the last year we have made conscious decisions to invest in areas such as digital marketing and technology, and these investments will continue. We have partially offset these investments through productivity initiatives, both in stores and in our supply chain operations, including elimination of some of the Worldstores operating costs. However, we have also suffered increased operating costs due to weaker grip on basics such as stock loss, sourcing and procurement. We are now refocused on improving controls in these areas.

5. A great place to work for colleagues

Making Dunelm an even better place to work for all our colleagues is a continual focus for our leadership team and something that we are passionate about. We know that highly engaged colleagues provide better service to our customers.

Our business principles are really important to us, and as we embrace a digital future, we are working hard to retain the culture which has enabled us to get to where we are.

We are encouraged by the progress made this year in creating better, more rewarding jobs for colleagues in stores and in support functions. We have again promoted more colleagues to management level roles, and we continue our efforts to identify and develop talent to enable individuals to reach their full potential.

We continually listen to our customers and colleagues using our "always-on" feedback and engagement tools. Significant actions taken in response to feedback from our colleagues include restructuring our Technology teams to become more agile and product focused, and combining our Buying and Merchandising functions into an integrated team.

Colleagues value our commitment to activities which have a benefit for the environment. During the year, we reduced CO2 emissions by 7.4%, supported by the completion of 25 LED refits in the year, taking the total number of our sites with LED lighting up to 164 out of 184. Our focus on recycling and landfill diversion has enabled us to reduce our costs of waste management year-on-year, generate significant revenues from recycling, and improve our landfill diversion by three percentage points to 95%.

Summary

In the near term, we have a number of self-help opportunities to improve profitability and cash generation after a difficult and disappointing FY18. I am determined that we grasp these opportunities quickly so as to return to profit growth.

Over the medium term I see plenty of opportunity for us to drive growth as the leading multichannel specialist, helping more customers to create a home they love. This is a new and exciting chapter for Dunelm as we fully embrace digital retailing.

The UK retail environment remains challenging, but against this difficult background we have traded in line with expectations during the current financial year to date.

 

Nick Wilkinson
Chief Executive Officer
12 September 2018

CHIEF FINANCIAL OFFICER'S REVIEW

 

Overview

 

The table below is provided in order to aid understanding of the impact of Worldstores on the performance of the group as a whole. The analysis includes a number of assumptions and judgements, particularly in relation to the allocation of costs between core Dunelm and Worldstores.

 

 

 

Dunelm

 

Worldstores (£m)

Total Group (£m)

 

Existing (£m)

Worldstores transfer (£m)

Total (£m)

Revenue

971.7

12.4

984.1

66.0

1,050.1

Cost of sales

(495.7)

(7.4)

(503.1)

(43.4)

(546.5)

Gross profit

476.0

5.0

481.0

22.6

503.6

Operating costs

(362.9)

(2.4)

(365.3)

(33.6)

(398.9)

Operating profit

113.1

2.6

115.7

(11.0)

104.7

Financial income and expense

 

 

 

 

(2.7)

Profit before tax and exceptional items

 

 

 

 

102.0

Exceptional items

 

 

 

 

(8.9)

Profit before tax

 

 

 

 

93.1

 

The commentary which follows explains the performance of Dunelm and Worldstores separately as far as possible.

 

Revenue

 

52 weeks to 30 June 2018

 

Revenue
(£m)

YoY Growth (£m)

YoY Growth (%)

LFL stores

805.0

+8.2

+1.0%

LFL online (Dunelm.com) (including lines transferred from Worldstores)

105.4

+28.9

+37.9%

Total LFL

910.4

+37.1

+4.2%

Non-LFL stores

73.7

+43.6

-

Total Dunelm

984.1

+80.7

+8.9%

Worldstores businesses

66.0

+13.7

-

Total Group

1,050.1

+94.5

+9.9%

 

Group revenue for FY18 was £1,050.1m (FY17: £955.6m), an increase of 9.9%. Within this, Dunelm revenue grew by 8.9% to £984.1m.

Despite volatile trading conditions throughout the year, like-for-like ('LFL') revenue grew by 4.2%. This was primarily driven by continued strong performance online, where revenue grew by 37.9%; over the year as a whole, Dunelm.com accounted for 10.7% of total Dunelm business (13.5% including reserve & collect orders picked up in stores).

After a decline in the previous financial year, revenue in LFL stores also increased, with growth of 1.0% reflecting:

·      Better availability throughout the financial year, with no repeat of the supply chain disruption seen in FY17

·      Improvements in product ranges with more new lines and a stronger seasonal offering

·      Benefits from investment in existing stores, including six major refits

·      Favourable weather conditions through the first half, and especially the first quarter

·      Adverse weather conditions in the second half

Non-LFL revenue reflected the impact of our ongoing store expansion programme, with ten new openings in the year (of which one was a relocation). We ended the year with a portfolio of 169 superstores and three stores in high street locations. We anticipate a smaller number of new openings in FY19, with two new superstores committed (both relocations) as at the date of this report.

The Worldstores businesses, comprising Worldstores.co.uk, Achica.com and Kiddicare.com, were acquired midway through FY17. During FY18 we divested Achica.com and made the decision to transfer continuing lines from the Worldstores and Kiddicare ranges to Dunelm.com, prior to winding down the Worldstores.co.uk and Kiddicare.com sites in the first quarter of FY19. As a consequence, sales attributed to Worldstores businesses will be minimal in FY19.

Gross Margin

Gross margin decreased by 90 basis points to 48.0% (FY17: 48.9%). Excluding the dilutive impact of lower margins earned by the Worldstores businesses, core Dunelm gross margin was 48.9% in FY18 and 49.8% in FY17.

Key factors causing the year-on-year decline in gross margin were adverse foreign exchange impacts and a higher level of clearance of discontinued lines (including a year-end adjustment to increase our obsolete stock provision by £2.6m). 

Setting aside the year-end adjustment described above, core Dunelm gross margin showed year-on-year growth of 40bps during the final quarter of the year. This gave positive momentum going into FY19, when we also expect to benefit from improved foreign exchange rates. We anticipate that these benefits will more than offset the margin dilution from transfers of further Worldstores lines to Dunelm.com.

Operating Costs before Exceptional Items

Operating costs before exceptional items in FY18 were £398.9m, an increase of £43.0m or 12.1% compared with the prior year. The total included £33.6m of costs relating to Worldstores businesses (FY17: £29.2m).

The main drivers of the £38.6m increase in core Dunelm operating costs include:

·      Store portfolio growth - nine new superstore openings (net of one relocation), increasing selling space by 6.1%

·      Online - digital marketing and fulfilment costs grew broadly in line with Dunelm.com sales 

·      National Living Wage - upward cost pressure in excess of inflation, partially mitigated by productivity initiatives

We will redouble our focus on productivity and overhead cost control going forward.

Exceptional Items

We have treated as exceptional those non-recurring costs which relate to the acquisition, integration and/or disposal of the Worldstores businesses. During the year, these exceptional items totalled £8.9m, comprising the following:

 

FY18 (£m)

FY17 (£m)

Fair value adjustments in respect of acquired inventory

-

0.5

Acquisition costs

-

1.3

Welcome payments for continuation of supply

-

7.3

Retention and redundancy payments

1.2

2.7

Loss on disposal, asset write-offs, impairments and accelerated amortisation

5.8

2.9

Other integration costs

1.9

2.2

Total

8.9

16.9

Management retention and redundancy payments were made in the year in accordance with contractual agreements. There are no further payments due to be made.  

We have reviewed the websites and other intangible IT assets of both the existing Dunelm business and the acquired Worldstores businesses. Having determined our technology plans going forward, we have written off certain technology assets and useful economic lives of others have been reduced resulting in accelerated depreciation.

During the year we took the decision to develop the Kids and Nursery category under the Dunelm brand, rather than the Kiddicare standalone brand. As a result, the Kiddicare brand acquired as part of the Worldstores acquisition was deemed to be fully impaired. As well as this, aged Kiddicare stock and various other intangible assets relating to the development of a new Kiddicare website were also written off.

As a result of the sale of the Achica business, certain costs relating to the sale and subsequent restructure of the business have been classified as exceptional. These costs include the write-off of assets relating to Achica and onerous contracts. The proceeds from the sale of the Achica business were £0.6m.

Other integration costs include professional advisory support and costs associated with the transfer of the London head office to a new location.

Of the above exceptional items, £1.6m were net cash outflows in the period. We do not expect to report exceptional items in FY19.

Operating Profit before Exceptional Items

Group operating profit before exceptional items for the financial year was £104.7m (FY17: £111.7m), equating to 10.0% of sales (FY17: 11.7%). Included within this is a net negative impact from the Worldstores businesses, which we estimate at £8.4m. This impact will reduce significantly in FY19 as Worldstores trading is absorbed fully into the core Dunelm business.

Operating profit after exceptional items was £95.8m (FY17: £94.8m) reflecting the lower level of exceptional costs in the current year.

EBITDA

Before exceptional items, earnings before interest, tax, depreciation and amortisation were £139.6m (FY17: £142.2m). This represents a 1.8% reduction on the previous financial year. The EBITDA margin achieved was 13.3% (FY17: 14.9%).

After exceptional items EBITDA was £134.7m (FY17: £128.2m).

 

Financial Items

The Group incurred a net financial expense of £2.7m in FY18 (FY17: £2.4m). Interest and amortisation of costs arising from the Group's revolving credit facility amounted to £2.2m (FY17: £2.0m) and net foreign exchange differences on the translation of dollar denominated assets and liabilities amounted to a further £0.5m expense (FY17: expense of £0.6m). Interest earned on cash deposits was £nil (FY17: £0.2m).

As at 30 June 2018, the Group held $164.0m (FY17: $140.0m) in US dollar forward contracts, of which $121.5m were due to mature in the next 12 months (FY17: $107.6m), representing 76% of the anticipated US dollar spend over the next financial year. US dollar cash deposits amounted to $7.3m (FY17: $0.3m).

PBT

After accounting for interest and foreign exchange impacts, profit before tax (excluding exceptional items) for the financial year amounted to £102.0m (FY17: £109.3m), a decrease of 6.7%.

Profit before tax and after exceptional items was £93.1m (FY17: £92.4m).

Taxation

The tax charge for the year was 21.3% of profit before tax, a premium of 230bps compared with the statutory rate of 19.0%. This included an unusually high level of disallowable asset write-offs largely relating to the acquired Worldstores brands.

In future, we expect the tax charge to trend approximately 100 bps above the headline rate of corporation tax, principally due to depreciation charged on non-qualifying capital expenditure.

PAT and EPS

Profit after tax was £73.3m (FY17: £73.1m).

Basic earnings per share (EPS) for the year ended 30 June 2018 was 36.3p and in line with last year, or 40.1p before exceptional items (FY17: 43.1p). Fully diluted EPS increased slightly to 36.2p (FY17: 36.1p). Before exceptional items this measure decreased to 40.0p (FY17: 42.8p).

Operating Cash Flow

In FY18 the Group generated £98.5m (FY17: £79.5m) of net cash from operating activities, an increase of 24%. Cash elements of exceptional costs were £1.6m (FY17: £11.3m).

Net working capital increased by £20.3m over the year (FY17: £26.2m increase). Despite the expansion of our store estate, we reduced year-end inventory by £8.6m through a combination of delayed inflow of Christmas merchandise and lower cover levels on continuing lines. However, payables reduced by £31.4m due to a combination of factors including the later timing of Christmas stock flows and the lower level of capital investment in progress at year-end. 

Capital Expenditure

Gross capital expenditure in the financial year was £44.0m compared with £60.5m in FY17. During the year, we opened ten new stores (£13.8m), and invested £10.6m in refits. We continued to invest in technology infrastructure to improve our website and open up new sales channels (£14.3m). We relocated our London Support Centre and invested in a new bespoke curtains manufacturing site, as well as acquiring one freehold property.

We expect capital expenditure in the next financial year to be lower. We anticipate fewer new store openings. We intend to complete a small number of major store refits as well as other specific upgrades across the estate to introduce concepts which have a proven return (estimated £5-10m in total). We will continue to invest in technology and web development as we move the Dunelm.com website to the Worldstores technology platform and introduce Click & Collect (estimated at £15m). In total, we are planning capital investment, assuming no freehold acquisitions, of £30-35m in FY19.

Free Cash Flow (FCF)

We measure FCF as net cash from operating activities less net cash used in investing activities. FCF was £52.9m in the year (FY17: £14.2m), reflecting the improved operating cash flow and lower capital expenditure year-on-year.

Banking Agreements and Net Debt

During the year the Group amended and extended its syndicated Revolving Credit Facility ('RCF'). The RCF was increased to £165m and extended until March 2023. The terms of the RCF are unchanged and are consistent with normal practice. They include covenants in respect of leverage (net debt to be no greater than 2.5× EBITDA) and fixed charge cover (EBITDA to be no less than 1.75× fixed charges), both of which were met comfortably as at 30 June 2018. In addition, the Group maintains £20m of uncommitted overdraft facilities with two syndicate partner banks.

Net debt at 30 June 2018 was £124.0m (0.89× historical EBITDA before exceptional items) compared with £122.1m in FY17 (0.86× historical EBITDA). Daily average net debt in FY18 was £112.4m (FY17: £92.2m).

Capital and Dividend Policy

The Board targets an average net debt (excluding lease obligations and short-term fluctuations in working capital) of between 0.25× and 0.75× historical EBITDA. This policy provides the flexibility to continue investing in the Group's growth strategy and to take advantage of investment opportunities as and when they arise, for example freehold property acquisitions.

The Board targets ordinary dividend cover (by which we mean the Group's earnings per share in a given financial year divided by the total ordinary dividends declared in respect of that year) of between 1.75× and 2.25×. 

The Board will consider special distributions if average net debt over a period consistently falls below the lower limit of the target range (0.25× EBITDA), subject to known and anticipated investment plans at the time.

The Group's full capital and dividend policy is available on our website at https://corporate.dunelm.com.

Dividends Paid and Proposed

An interim dividend of 7.0p per share was paid in March 2018 (FY17: 6.5p). It is proposed to pay a final dividend of 19.5p per share (FY17: 19.5p), subject to shareholder approval. The total dividend of 26.5p represents an increase of 1.9% over the previous year, giving a dividend cover of 1.5× before exceptional items (FY17: 1.6×). This cover level is outside our policy, as described above; however, the Board has confidence in the strategic plans of the business and believes that ordinary dividend cover will revert to the policy range in the medium term. The final dividend will be paid on 7 December 2018 to shareholders on the register at the close of business on 16 November 2018.

Share Buy-backs

The Group's policy is to purchase shares in the market from time to time to satisfy the future exercise of options granted under incentive plans and other share schemes. During FY18 no shares were purchased (FY17: 500,000). At the year-end, 914,635 shares were held in treasury (FY17: 1,150,642), equivalent to approximately 37% of options outstanding.

Tax Policy

The Group maintains a straightforward and transparent tax policy. The aim is to comply with all relevant tax legislation and pay all taxes due, in full and on time. While actively managing its tax affairs, the Group will only engage in tax planning where this is aligned with commercial and economic activity and does not lead to an abusive result. We would normally expect our corporation tax charge to be higher than the statutory tax rate, as noted above. HMRC has recently reconfirmed the Group's low-risk tax status. Further details of the Group's tax policy are available on our website, https://corporate.dunelm.com.

During the year, total tax contributions paid to HMRC in the form of corporation tax, property taxes, PAYE and NIC and VAT were £142.3m (FY17: £132.6m).

Treasury Management

The Group Board has established an overall Treasury Policy, day-to-day management of which is delegated to the Chief Financial Officer. The policy aims to ensure the following:

·      Effective management of all clearing bank operations

·      Access to appropriate levels of funding and liquidity

·      Effective monitoring and management of all banking covenants

·      Optimal investment of surplus cash within an approved risk/return profile

·      Appropriate management of foreign exchange exposures and cash flows

 

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

 

2018

9.9%

2017

8.5%

2016

7.1%

 

 

Like for like store sales growth

 

2018

1.0%

2017

-2.4%

2016

1.0%

 

 

Online sales growth (including Worldstores)

 

2018

33.1%

2017

108.1%

2016

23.2%

 

 

Gross margin change

 

2018

-90bps

2017

-90bps

2016

60bps

 

 

Operating margin before exceptional items

 

2018

10.0%

2017

11.7%

2016

14.7%

 

 

Earnings per share (diluted) before exceptional items

 

2018

40.0p

2017

42.8p

2016

50.3p

 

 

Dividend per share

 

2018

26.5p

2017

26.0p

2016

25.1p

 

 

Total distributions per share

 

2018

26.5p

2017

26.0p

2016

56.6p

 

 

EBITDA before exceptional items

 

2018

£139.6m

2017

£142.2m

2016

£154.3m

 

 

New store openings

 

2018

10

2017

7

2016

6

 

 

 

David Stead
Interim Chief Financial Officer

12 September 2018

 

Consolidated Income Statement

For the 52 weeks ended 30 June 2018

 

 

 

2018
52 weeks

2018
52 weeks

2018
52 weeks

2017
52 weeks

2017
52 weeks

2017
52 weeks

 

 

£'m

£'m

£'m

£'m

£'m

£'m

 

Note

Underlying

Exceptional
Items
(Note 4)

Reported

Underlying

Exceptional
Items
(Note 4)

Reported

Revenue

2

          1,050.1

-

1,050.1

955.6

-

955.6

Cost of sales

 

(546.5)

-

(546.5)

(488.0)

(0.5)

(488.5)

Gross profit

 

503.6

-

503.6

467.6

(0.5)

467.1

Operating costs

5

(398.9)

(8.9)

(407.8)

(355.9)

(16.4)

(372.3)

Operating profit

6

104.7

(8.9)

95.8

111.7

(16.9)

94.8

Financial income

7

-

-

-

0.2

-

0.2

Financial expenses

7

(2.7)

-

(2.7)

(2.6)

-

(2.6)

Profit before taxation

 

102.0

(8.9)

93.1

109.3

(16.9)

92.4

Taxation

8

(21.0)

1.2

(19.8)

(22.4)

3.1

(19.3)

Profit for the period

 

81.0

(7.7)

73.3

86.9

(13.8)

73.1

 

 

 

 

 

 

 

 

Earnings per Ordinary Share - basic

10

40.1p

 

36.3p

43.1p

 

36.3p

Earnings per Ordinary Share - diluted

10

40.0p

 

36.2p

42.8p

 

36.1p

 

Consolidated Statement of Comprehensive Income

For the 52 weeks ended 30 June 2018

 

 

 

 

 

2018
52 weeks

2017
52 weeks

 

 

 

 

£'m

£'m

Profit for the period

 

 

 

73.3

73.1

Other comprehensive income/(expense):

 

 

 

 

 

Items that may be subsequently reclassified to profit or loss:

 

 

 

 

 

Movement in fair value of cash flow hedges

 

 

 

1.6

1.4

Transfers of cash flow hedges to inventory

 

 

 

2.6

(9.4)

Deferred tax on hedging movements

 

 

 

(0.7)

1.4

Other comprehensive income/(expense) for the period, net of tax

 

 

 

3.5

(6.6)

Total comprehensive income for the period

 

 

 

76.8

66.5

 

Consolidated Statement of Financial Position

As at 30 June 2018

 

 

Note

30 June

1 July

 

 

 

2018

2017

 

 

 

£'m

£'m

Non-current assets

 

 

 

 

 

Intangible assets

 

 

11

28.6

27.5

Property, plant and equipment

 

 

12

198.6

195.2

Deferred tax assets

 

 

 

-

0.3

Derivative financial instruments

 

 

 

1.4

-

Total non-current assets

 

 

 

228.6

223.0

 

 

 

 

 

 

Current assets

 

 

 

 

 

Inventories

 

 

 

154.7

165.3

Trade and other receivables

 

 

 

23.9

26.4

Derivative financial instruments

 

 

 

2.8

1.1

Cash and cash equivalents

 

 

 

15.0

17.4

Total current assets

 

 

 

196.4

210.2

Total assets

 

 

 

425.0

433.2

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

 

 

 

(101.8)

(133.1)

Liability for current tax

 

 

 

(7.8)

(7.0)

Derivative financial instruments

 

 

 

(0.7)

(0.4)

Total current liabilities

 

 

 

(110.3)

(140.5)

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Bank loans

 

 

 

(139.0)

(139.5)

Trade and other payables

 

 

 

(38.3)

(39.8)

Deferred tax liabilities

 

 

 

(1.0)

-

Provisions

 

 

 

(1.7)

(1.7)

Derivative financial instruments

 

 

 

-

(1.6)

Total non-current liabilities

 

 

 

(180.0)

(182.6)

Total liabilities

 

 

 

(290.3)

(323.1)

Net assets

 

 

 

134.7

110.1

 

 

 

 

 

 

Equity

 

 

 

 

 

Issued share capital

 

 

 

2.0

2.0

Share premium account

 

 

 

1.6

1.6

Capital redemption reserve

 

 

 

43.2

43.2

Hedging reserve

 

 

 

2.8

(0.7)

Retained earnings

 

 

 

85.1

64.0

Total equity attributable to equity holders of the Parent

 

 

 

134.7

110.1

 

Consolidated Statement of Cash Flows

For the 52 weeks ended 30 June 2018

 

 

 

 

Note

2018
52 weeks

2017
52 weeks

 

 

 

 

£'m

£'m

Profit before taxation

 

 

 

93.1

92.4

Adjustment for exceptional operating costs

 

 

4

8.9

16.9

Adjustment for net financing costs

 

 

7

2.7

2.4

Operating profit before exceptional operating costs

 

 

 

104.7

111.7

Depreciation and amortisation

 

 

6

33.5

29.3

Loss on disposal of non-current assets

 

 

6

1.4

1.2

Operating cash flows before exceptional operating costs and movements in working capital

 

139.6

142.2

Decrease/(increase) in inventories

 

 

 

8.6

(45.0)

Decrease/(increase) in trade and other receivables

 

 

 

2.5

(4.6)

(Decrease)/increase in payables

 

 

 

(31.4)

23.4

Net movement in working capital before exceptional operating costs

 

 

(20.3)

(26.2)

Share-based payments expense/(credit)

 

 

 

0.3

(0.3)

Interest received

 

 

 

-

0.1

Tax paid

 

 

 

(18.9)

(25.0)

Net cash generated from operating activities before exceptional operating costs

 

100.7

90.8

Cash flows in respect of exceptional operational costs

 

 

4

(2.2)

(11.3)

Net cash generated from operating activities

 

 

 

98.5

79.5

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Acquisition of intangible assets

 

 

 

(12.1)

(11.4)

Proceeds on exceptional disposal of property, plant and equipment and intangible assets

4

0.6

0.2

Acquisition of property, plant and equipment

 

 

 

(34.1)

(46.6)

Amounts due to secured creditor on acquisition

 

 

3

-

(7.5)

Net cash used in investing activities

 

 

 

(45.6)

(65.3)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from issue of treasury shares

 

 

 

1.3

0.9

Purchase of treasury shares

 

 

 

-

(4.2)

Drawdowns on revolving credit facility

 

 

 

10.0

50.0

Repayments of revolving credit facility

 

 

 

(10.0)

(5.0)

Interest paid

 

 

7

(1.9)

(1.4)

Loan transaction costs

 

 

 

(0.8)

-

Ordinary dividends paid

 

 

9

(53.4)

(51.6)

Net cash flows used in financing activities

 

 

 

(54.8)

(11.3)

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

 

 

(1.9)

2.9

Foreign exchange revaluations

 

 

 

(0.5)

(0.4)

Cash and cash equivalents at the beginning of the period

 

 

 

17.4

14.9

Cash and cash equivalents at the end of the period

 

 

 

15.0

17.4

 

Consolidated Statement of Changes in Equity

For the 52 weeks ended 30 June 2018

 

 

Note

Issued share capital

Share premium account

Capital redemption reserve

Hedging reserve

Retained earnings

Total equity

 

 

£'m

£'m

£'m

£'m

£'m

£'m

As at 2 July 2016

 

2.0

1.6

43.2

5.9

46.9

99.6

Profit for the period

 

-

-

-

-

73.1

73.1

Fair value gains of cash flow hedges

 

-

-

-

1.4

-

1.4

Gains on cash flow hedges transferred to inventory

 

-

-

-

(9.4)

-

(9.4)

Deferred tax on hedging movements

 

-

-

-

1.4

-

1.4

Total comprehensive income for the period

 

-

-

-

(6.6)

73.1

66.5

 

 

 

 

 

 

 

-

Purchase of treasury shares

 

-

-

-

-

(4.2)

(4.2)

Proceeds from issue of treasury shares

 

-

-

-

-

0.9

0.9

Share based payments

 

-

-

-

-

(0.3)

(0.3)

Deferred tax on share based payments

 

-

-

-

-

(0.6)

(0.6)

Current tax on share options exercised

 

-

-

-

-

(0.2)

(0.2)

Ordinary dividends paid

9

-

-

-

-

(51.6)

(51.6)

Total transactions with owners, recorded directly in equity

 

-

-

-

-

(56.0)

(56.0)

As at 1 July 2017

 

2.0

1.6

43.2

(0.7)

64.0

110.1

Profit for the period

 

-

-

-

-

73.3

73.3

Fair value gains of cash flow hedges

 

-

-

-

1.6

-

1.6

Loss on cash flow hedges transferred to inventory

 

-

-

-

2.6

-

2.6

Deferred tax on hedging movements

 

-

-

-

(0.7)

-

(0.7)

Total comprehensive income for the period

 

-

-

-

3.5

73.3

76.8

 

 

 

 

 

 

 

 

Proceeds from issue of treasury shares

 

-

-

-

-

1.3

1.3

Share based payments

 

-

-

-

-

0.3

0.3

Deferred tax on share based payments

 

-

-

-

-

(0.3)

(0.3)

Current tax on share options exercised

 

-

-

-

-

(0.1)

(0.1)

Ordinary dividends paid

9

-

-

-

-

(53.4)

(53.4)

Total transactions with owners, recorded directly in equity

 

-

-

-

-

(52.2)

(52.2)

As at 30 June 2018

 

2.0

1.6

43.2

2.8

85.1

134.7

 

Accounting Policies

For the 52 weeks ended 30 June 2018

1 Basis of preparation

The annual report and financial statements for the period ended 30 June 2018 were approved by the Board of Directors on 12 September 2018 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 period ended 30 June 2018 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 period ended 1 July 2017 have been delivered to the Registrar of Companies. The auditor's report on the statutory accounts for the period ended 1 July 2017 was unqualified and did not contain a statement under section 498 of the Companies Act 2006

2 Segmental reporting

The Group has one reportable segment, in accordance with IFRS 8 - Operating Segments, which is the retail of homewares in the UK.

Customers access the Group's offer across multiple channels and often their journey involves more than one channel. Therefore, internal reporting focuses on the Group as a whole, and does not identify individual segments.

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 KPIs 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.

3 Acquisitions and disposals

In the prior year on 28 November 2016, the Group acquired the whole of the trade and certain assets and liabilities of the Worldstores Group (Worldstores Limited (in administration), Kiddicare Limited (in administration) and Achica Limited (in administration) for a cash consideration of £1 through Globe Online Limited, a 100% owned subsidiary of Dunelm Limited.

The purchase has been accounted for as a business combination. The fair value amounts recognised in respect of the identifiable assets acquired and liabilities assumed, are set out below.

 

 

 

 

 

 

 

As at 28 November 2016

 

 

 

 

 

 

£'m

Intangible assets - software

 

 

 

 

 

5.2

Intangible assets - brands

 

 

 

 

 

2.2

Intangible assets - customer lists

 

 

 

 

 

0.1

Property, plant and equipment

 

 

 

 

 

0.8

Inventories

 

 

 

 

 

4.2

Trade and other receivables

 

 

 

 

 

2.9

Accruals and deferred income

 

 

 

 

 

(6.5)

Provisions

 

 

 

 

 

(1.4)

Amounts due to secured creditor

 

 

 

 

 

(7.5)

Total identifiable assets / (liabilities)

 

 

 

 

 

-

Cash consideration

 

 

 

 

 

-

Goodwill

 

 

 

 

 

-

 

As part of this acquisition the Group acquired a subsidiary registered in Cyprus, Achica Brand Management Limited (ABML), whose principal activity is to hold the Achica trademarks.

 

On 16th February 2018, the trade and assets of Achica were sold to BrandAlley UK Limited, a London-based flash sales business for a total consideration of £0.6m. The transaction included the sale of trademarks and customer lists and resulted in an overall loss on disposal of £0.3m.

4 Exceptional items

We have treated as exceptional those non-recurring items which relate to the acquisition, integration and/or disposal of the Worldstores businesses.

 

 

 

 

 

 

 

 

 

 

 

 

2018
52 weeks

2017
52 weeks

 

 

 

 

 

£'m

£'m

Exceptional cost of sales

 

 

 

 

 

 

Fair value adjustments in respect of acquired inventory

 

 

 

 

-

0.5

 

 

 

 

 

-

0.5

 

 

 

 

 

 

 

Exceptional operating costs

 

 

 

 

 

 

Acquisition costs - administrator fees

 

 

 

 

-

0.9

Acquisition costs - other professional fees

 

 

 

 

-

0.4

Welcome payments for continuation of supply

 

 

 

 

-

7.3

Retention and redundancy payments

 

 

 

 

1.2

2.7

Loss on disposal, asset write-offs, impairments and accelerated amortisation

 

 

 

5.8

2.9

Other integration costs

 

 

 

 

1.9

2.2

 

 

 

 

 

8.9

16.4

 

 

 

 

 

8.9

16.9

 

 

 

 

 

 

 

Management retention and redundancy payments were made in the year in accordance with contractual agreements.

A review of the websites and other intangible IT assets of both the existing Dunelm business and the acquired business has been undertaken. Decisions have been made to integrate the available assets, and as a result, certain assets have been written off and others' useful economic lives have been reduced resulting in accelerated amortisation.

During the period management took the decision to develop Dunelm's kids and nursery category under the Dunelm brand, rather than within the standalone Kiddicare brand. As a result, the Kiddicare brand acquired as part of the Worldstores acquisition was deemed to be fully impaired and as such was written off. As well as this, aged Kiddicare stock and various other intangible assets relating to the development of the Kiddicare website were also written off.

As outlined in note 3, certain costs relating to the sale and subsequent restructure of the business have been classified as exceptional. These costs include the write-off of assets relating to Achica and onerous contracts. The proceeds from the sale of the Achica business were £0.6m.

Other integration costs include professional advisory support, and costs associated with the transfer of the London head office to a new location.

The taxation charge for the period relating to exceptional items was £1.2m (2017: £3.1m).

Of the above exceptional cost items, £1.6m were net cash outflows in the period. We do not expect to report exceptional items in relation to the acquisition, integration or divestment of the Worldstores business in the next financial period.

 

5 Operating costs before exceptional items

 

 

 

 

 

 

2018
52 weeks

2017
52 weeks

 

 

 

 

 

£'m

£'m

Selling and distribution costs

 

 

 

 

345.9

304.9

Administrative expenses

 

 

 

 

53.0

51.0

 

 

 

 

 

398.9

355.9

 

6 Operating profit

Operating profit is stated after charging the following items:

 

 

 

 

2018
52 weeks

2018
52 weeks

2018
52 weeks

2017
52 weeks

2017
52 weeks

2017
52 weeks

 

 

 

£m

£m

£m

£m

£m

£m

 

 

 

Underlying

Exceptional
Items

Reported

Underlying

Exceptional
Items

Reported

Cost of inventories included in cost of sales

 

 

539.2

-

539.2

481.0

-

481.0

Amortisation of intangible assets

 

 

7.3

1.1

8.4

7.3

1.0

8.3

Depreciation of owned property, plant and equipment

 

 

26.2

-

26.2

22.0

-

22.0

Loss on disposal and impairment of property, plant and equipment and intangible assets

1.4

2.9

4.3

1.2

1.9

3.1

Operating lease rentals

 

 

51.1

                -  

51.1

45.2

               -  

45.2

 

7 Financial income and expenses

 

 

 

 

 

 

2018
52 weeks

2017
52 weeks

 

 

 

 

 

£'m

£'m

Finance income

 

 

 

 

 

 

Interest on bank deposits

 

 

 

 

-

0.2

 

 

 

 

 

-

0.2

Finance expenses

 

 

 

 

 

 

Interest on bank borrowings

 

 

 

 

(1.9)

(1.7)

Amortisation of issue costs of bank loans

 

 

 

 

(0.3)

(0.3)

Net foreign exchange losses

 

 

 

 

(0.5)

(0.6)

 

 

 

 

 

(2.7)

(2.6)

Net finance expense

 

 

 

 

(2.7)

(2.4)

 

8 Taxation

 

 

 

 

 

 

2018
52 weeks

2017
52 weeks

 

 

 

 

 

£'m

£'m

Current taxation

 

 

 

 

 

 

UK corporation tax charge for the period

 

 

 

 

19.8

19.8

Adjustments in respect of prior periods

 

 

 

 

(0.3)

(0.8)

 

 

 

 

 

19.5

19.0

Deferred taxation

 

 

 

 

 

 

Origination of temporary differences

 

 

 

 

(0.4)

0.1

Adjustments in respect of prior periods

 

 

 

 

0.7

0.2

 

 

 

 

 

0.3

0.3

Total tax expense

 

 

 

 

19.8

19.3

 

The tax charge is reconciled with the standard rate of UK corporation tax as follows:

 

 

 

 

 

2018
52 weeks

2017
52 weeks

 

 

 

 

 

£'m

£'m

Profit before taxation

 

 

 

 

93.1

92.4

 

 

 

 

 

 

 

UK corporation tax at standard rate of 19% (2017: 19.75%)

 

 

 

 

17.7

18.2

Factors affecting the charge in the period:

 

 

 

 

 

 

Non-deductible expenses

 

 

 

 

1.4

1.5

Profit on disposal of non-qualifying assets

 

 

 

 

0.4

0.2

Adjustments in respect of prior periods

 

 

 

 

0.4

(0.6)

Utilisation of previously unrecognised tax losses

 

 

 

 

(0.1)

-

Tax charge

 

 

 

 

19.8

19.3

 

The taxation charge for the period as a percentage of profit before tax is 21.3% (2017: 20.9%).

The UK Government substantively enacted a reduction in future tax rates by 1% from 1 April 2017 to 19% and a further 1% reduction to 18% from 1 April 2020. In September 2016, the Government substantively enacted a further 1% reduction in corporation tax to 17% from 1 April 2020.

 

9 Dividends

 

The dividends set out in the table below relate to the 1 pence Ordinary Shares.

 

 

 

 

 

 

2018
52 weeks

2017
52 weeks

 

 

 

 

 

£'m

£'m

Final for the period ended 2 July 2016

- paid 19.1 pence

 

 

-

38.5

Interim for the period ended 1 July 2017

- paid 6.5 pence

 

 

-

13.1

Final for the period ended 1 July 2017

- paid 19.5 pence

 

 

39.3

-

Interim for the period ended 30 June 2018

- paid 7.0 pence

 

 

14.1

-

 

 

 

 

 

53.4

51.6

 

The Directors are proposing a final dividend of 19.5 pence per Ordinary Share for the period ended 30 June 2018 which equates to £39.4m. The dividend will be paid on 7 December 2018 to shareholders on the register at the close of business on 16 November 2018.

 

10 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:

 

 

 

 

 

 

2018
52 weeks

2017
52 weeks

 

 

 

 

 

'000

'000

Weighted average number of shares in issue during the period

 

 

 

201,801

201,622

Impact of share options

 

 

 

 

936

956

Number of shares for diluted earnings per share

 

 

 

 

202,737

202,578

 

 

 

 

 

 

 

 

 

 

 

 

2018
52 weeks

2017
52 weeks

 

 

 

 

 

£'m

£'m

Profit for the period

 

 

 

 

73.3

73.1

Profit for the period before exceptional costs

 

 

 

 

81.0

86.9

 

 

 

 

 

 

 

Earnings per Ordinary Share - basic

 

 

 

 

36.3p

36.3p

Earnings per Ordinary Share - basic before exceptional costs

 

 

 

40.1p

43.1p

Earnings per Ordinary Share - diluted

 

 

 

 

36.2p

36.1p

Earnings per Ordinary Share - diluted before exceptional costs

 

 

 

40.0p

42.8p

 

11 Intangible assets

 

 

 

 

 

Software
development
and licences

Rights to
brands & customer lists

Total

 

 

 

 

£'m

£'m

£'m

Cost

 

 

 

 

 

 

At 2 July 2016

 

 

 

26.2

9.8

36.0

Additions

 

 

 

11.2

-

11.2

Assets purchased on acquisition of business

 

 

 

5.2

2.3

7.5

Disposals

 

 

 

(1.1)

(0.5)

(1.6)

At 1 July 2017

 

 

 

41.5

11.6

53.1

Additions

 

 

 

13.2

-

13.2

Disposals

 

 

 

(10.6)

(0.6)

(11.2)

At 30 June 2018

 

 

 

44.1

11.0

55.1

Accumulated amortisation

 

 

 

 

 

 

At 2 July 2016

 

 

 

12.1

5.3

17.4

Charge for the financial period

 

 

 

8.0

0.3

8.3

Disposals

 

 

 

(0.1)

-

(0.1)

At 1 July 2017

 

 

 

20.0

5.6

25.6

Charge for the financial period

 

 

 

8.1

0.3

8.4

Impairment

 

 

 

0.5

1.2

1.7

Disposals

 

 

 

(9.0)

(0.2)

(9.2)

At 30 June 2018

 

 

 

19.6

6.9

26.5

Net book value

 

 

 

 

 

 

At 2 July 2016

 

 

 

14.1

4.5

18.6

At 1 July 2017

 

 

 

21.5

6.0

27.5

At 30 June 2018

 

 

 

24.5

4.1

28.6

 

All amortisation is included within operating costs in the income statement.

Within software development and licences £3.9m (2017: £3.1m) of additions relates to internally generated assets.

 

12 Property, plant and equipment

 

 

Land and buildings

Leasehold improvements

Refit Improvements

Plant and machinery

Fixtures and fittings

Total

 

£'m

£'m

£'m

£'m

£'m

£'m

Cost

 

 

 

 

 

 

At 2 July 2016

83.5

131.7

-

4.6

80.4

300.2

Additions

13.0

16.0

4.3

0.3

15.7

49.3

Assets purchased on acquisition of business

-

-

-

0.2

0.6

0.8

Disposals

(0.2)

(2.6)

-

(0.1)

(2.9)

(5.8)

At 1 July 2017

96.3

145.1

4.3

5.0

93.8

344.5

Additions

2.1

10.4

2.5

0.3

15.5

30.8

Disposals

-

(1.8)

-

(0.1)

(2.3)

(4.2)

At 30 June 2018

98.4

153.7

6.8

5.2

107.0

371.1

Accumulated depreciation

 

 

 

 

 

 

At 2 July 2016

11.4

53.7

-

3.4

62.8

131.3

Charge for the financial period

1.6

10.0

0.2

0.5

9.7

22.0

Disposals

(0.2)

(1.4)

-

-

(2.4)

(4.0)

At 1 July 2017

12.8

62.3

0.2

3.9

70.1

149.3

Charge for the financial period

1.7

11.1

0.9

0.4

12.1

26.2

Disposals

-

(1.0)

-

-

(2.0)

(3.0)

At 30 June 2018

14.5

72.4

1.1

4.3

80.2

172.5

Net book value

 

 

 

 

 

 

At 2 July 2016

72.1

78.0

-

1.2

17.6

168.9

At 1 July 2017

83.5

82.8

4.1

1.1

23.7

195.2

At 30 June 2018

83.9

81.3

5.7

0.9

26.8

198.6

 

All depreciation and impairment charges have been included within operating costs in the income statement.

 


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