Original
RNS Number : 6097Y
Dunelm Group plc
10 September 2015
 

 

10 September 2015

Dunelm Group plc ("Dunelm")

Preliminary Results for the 53 weeks to 4 July 2015

 

Dunelm Group plc, the UK's leading homewares retailer, today announces its preliminary results for the 53 weeks to 4 July 2015. The comparative period represented 52 weeks; therefore, to aid comparability, results for the 52 week period to 27 June 2015 are also presented.

 

Financial summary

 


53 weeks ended 4 July 2015

 

52 weeks ended 7 June 2015

 

52 weeks ended 8 June 2014

 

Year on year change

(52 weeks)

Total revenues

£835.8m

£822.7m

£730.2m

12.7%

Like-for-like growth


+5.8%

+2.1%

-

Gross margin

49.2%

49.2%

49.5%

-30bps

Operating profit

£122.5m

£121.3m

£116.0m

+4.6%

Profit before tax

£122.6m

£121.4m

£116.0m

+4.7%

Basic EPS

47.5p

47.0p

44.0p

+6.8%

Fully diluted EPS

47.3p

46.8p

43.7p

+7.1%

Ordinary dividends

21.5p


20.0p


Free cash flow1

£86.9m


£75.8m


                1defined as net cash from operating activities less cash utilised in investing activities

 

Highlights

 

· Another strong year, maintaining our record of growing sales and profit every year since IPO

 

· Progress achieved in all three areas of the re-launched growth strategy:

In store like-for-like growth of 3.4% (52 week basis);

55% growth in home delivery sales (52 week basis), now accounting for 6.1% of total revenue (FY14: 4.4%);

12 new openings in the year (including one high street relocation), increasing footprint to 148 superstores; one  store opened since period end; nine further stores contractually committed (including two relocations).

 

· Continued investment in people, infrastructure, IT and marketing to support growth ambition:

John Browett joined Board on 1 July and will become CEO in January 2016; Keith Down to join Board as CFO in December (both as previously announced);

Additional warehouse and distribution centre to be operational in Spring 2016;

New customer-facing web platform launched in July, improving  customer experience and providing scalability;

Investment in marketing to be maintained, with increased focus on digital channels going forward.

 

· Special distribution during the period of 70.0p per share (£141.7m)

 

· Recommended final dividend of 16.0p per share (FY14: 15.0p), increasing the full year dividend to 21.5p (FY14: 20.0p).

 

Will Adderley, Chief Executive, commented:

 

"It has been a busy and very successful year at Dunelm and the business is in better shape than ever with good momentum and clear plans for further growth.

 

"Customers continue to respond well to our specialist homewares offer and we have made strong progress in all elements of our growth strategy - achieving good like-for-like sales, opening 12 superstores and significantly increasing revenues from our home delivery offer.  At the same time, we have made a number of important changes to prepare the business for its next phase of growth.

 

"I look forward to supporting John Browett, when he takes over in January, and the whole executive team to deliver Dunelm's full potential."

 

Andy Harrison, Chairman, commented:

 

"In my first set of results as Chairman, I am delighted that we can report another strong set of numbers, continuing Dunelm's enviable track record of profitable growth.

 

"We are at a very exciting time in our development. We enter a new chapter of growth with a refreshed executive team, led by John, and supported by Will, who are two of the top retailers of their generation. We also have a great team across the business, with continuing passion for giving our customers great products, great value, and great service.  Dunelm has an outstanding track record and is in great health. We look forward to reporting on our further progress."

 

There will be a presentation for analysts at 10.30am this morning at UBS, 1 Finsbury Avenue, London EC2M 2PP.  If you have not already registered for attendance then please contact Naomi Lane at MHP Communications on naomi.lane@mhpc.com.

 

For further information please contact:

 

Dunelm Group plc

0116 2644356

Will Adderley, Chief Executive


David Stead, Chief Financial Officer




MHP Communications

020 3128 8100

John Olsen / Simon Hockridge / Naomi Lane

dunelm@mhpc.com

 

For photography, please contact MHP Communications

 

Notes to Editors

Dunelm is market leader in the £11bn UK homewares market. The Group currently operates 155 stores, of which 149 are out-of-town superstores and 6 are located on high streets. There is also an on-line store, to be found at www.dunelm.com.

 

Dunelm's "Simply Value for Money" customer proposition offers industry-leading choice of quality products at keen prices, with high levels of availability and supported by friendly service. Core ranges include many exclusive designs and premium brands such as Dorma, and are supported by a frequently changing series of special buys. The superstore format provides an average of 30,000 sq. ft. of selling space with over 20,000 products across a broad spectrum of categories, extending from the Group's home textiles heritage (bedding, curtains, cushions, quilts and pillows) to a complete homewares offer including kitchenware and dining, lighting, wall art, furniture 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.

 

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 into broader homewares categories following the opening of the first Dunelm superstore in 1991.

 

Dunelm has been listed on the London Stock Exchange since October 2006 (DNLM.L) and has a current market capitalisation of approximately £1.8bn.

 

 

CHAIRMAN'S STATEMENT

 

I am delighted to report to you for the first time as Chairman of your Company. Dunelm is a strong business with an enviable track record of success.  I look forward to working with the Board and the executive team to create further value for all stakeholders in the years to come.

 

Financial performance and shareholder distributions

It is pleasing to report that the business has maintained its record of growing sales and profit every year since IPO in 2006. Headline sales over the 52 week period to 27 June 2015 amounted to £822.7m, an increase of 12.7% on the prior year; over the 53 weeks to 4 July which are covered in our statutory numbers, sales amounted to £835.8m. PBT amounted to £121.4m on a 52 week basis (4.7% growth) and £122.6m for 53 weeks.

 

During the last year the board agreed a new capital policy under which we intend to operate with a level of net debt within the range of 0.25 - 0.75 times historical EBITDA. Implementing this policy led to the payment of a special distribution to shareholders of 70p per share in March 2015. Further special distributions will be considered if net debt falls consistently below 0.25x EBITDA.

 

In addition to the above, the Board is recommending an increase in the final dividend to 16.0p per share (FY14: 15.0p), bringing the total ordinary dividend for the year to 21.5p (FY14: 20.0p). This is consistent with our policy of maintaining ordinary dividend cover in the range of 2.0-2.5x, with cover for the year of 2.2x.

 

A more detailed review of the financial performance is provided in the CFO's report.

 

Strategy development

In February, we announced a renewed focus on growth, with an ambition to increase the scale of our business by 50% over the medium term. The core elements of this strategy are described more fully in the Chief Executive's report.

 

Board changes

Let me start by thanking my predecessor, Geoff Cooper, who led the Board as Chairman for eleven years through Dunelm's IPO in 2006 to the end of the last financial year. Over this time the business has grown tremendously delivering a compound annual growth in sales of 11% and a compound annual growth in EPS of 15%.  Shareholders have benefitted from this success with a total shareholder return of over 700% since IPO. Geoff has been pivotal to our success, and his leadership of the Board has been inspirational.  On behalf of all my Board colleagues, I would like to thank him for his enormous service to Dunelm.

 

The last financial year also saw a change of Chief Executive.  In September 2014 Nick Wharton left the role of Chief Executive after three years. After conducting a full external search the Board re-appointed Will Adderley, who had previously been CEO between 1996 and 2011, to the role.  At the time of this appointment John Browett was a top external target candidate, and we were delighted when John became available to join Dunelm earlier this year. John joined the board as Chief Executive Designate on 1 July 2015, and he will become Chief Executive in January 2016 following an induction period working with Will and the broader senior team. John brings an excellent combination of business leadership together with outstanding retail skills across a breadth of sectors, from grocery and electrical goods to fashion. He also brings proven experience of applying technology in multi-channel operations which will help us accelerate our digital plans.

 

Will Adderley will revert to his previous role as Deputy Chairman and will remain actively involved in the business.  The business will benefit greatly from the combined and complementary skills of John and Will, and I look forward to working with them both.

 

We will be joined in December this year by Keith Down as Chief Financial Officer, when David Stead retires from the Board. David has been with the Group for 12 years and has been a fundamental contributor to the growth and success of the business during his tenure.  He will be missed by his colleagues and we all wish him well with his future plans.

 

Keith brings a wealth of experience in financial management, much of it gained in the quoted retail and hospitality sectors. I am confident that, with his drive, experience and character he will play a central role in the execution of our growth strategy, and I look forward to welcoming him to the Board.

 

There were also a number of changes amongst my non-executive colleagues. Matt Davies resigned in January when he agreed to take on an executive role at Tesco plc. The Board greatly valued Matt's contribution during his tenure of nearly three years and we wish him well with his new role.

 

We were pleased to welcome William Reeve to the Board in July as a Non-Executive Director.  William is a serial entrepreneur and investor, who co-founded LOVEFiLM.com and has been actively involved with a number of other successful on-line businesses. We have long searched for someone who has both an entrepreneurial mind-set and deep digital experience, who can operate at board level.  William fits these requirements very well. We are also pleased to be able to announce the appointment of Peter Ruis as a Non-Executive Director. Peter has deep experience in the retail sector, with particular expertise in marketing. He is currently Chief Executive of Jigsaw and prior to that worked with John Lewis Partnership and Ted Baker.

 

We are at a very exciting time in our development. We enter a new chapter of growth with a refreshed executive team, led by John, and supported by Will, who are two of the top retailers of their generation. We also have a great team across the business, with continuing passion for giving our customers great products, great value, and great service.  Dunelm has an outstanding track record and is in great health. We look forward to reporting on our further progress.

 

 

Andy Harrison

Chairman

 

 

CHIEF EXECUTIVE'S REVIEW

 

Overview

The last 12 months have seen exciting developments within Dunelm. We have set ourselves a new growth ambition, re-launched our strategy and made key appointments to further strengthen the capability of the executive management team. At the same time, we have delivered good financial performance including:-

·      total sales of £822.7m on a 52 week basis, representing year on year growth of 12.7%

·      total sales of £835.8m on a statutory 53 week basis

·      PBT of £121.4m on a 52 week basis (4.7% growth)

·      PBT of £122.6m on a statutory 53 week basis

·      fully diluted EPS of 46.8p on a 52 week basis (7.1% growth)

·      fully diluted EPS of 47.3p on a statutory 53 week basis

 

Ambition

Since our IPO in 2006 we have achieved strong growth in sales and profits. Going forward, our target is to deliver sustainable, profitable growth, with a medium term ambition of increasing sales by 50% from their current level.

 

Progress with our growth strategy

We see three key areas of growth opportunity:

·      LFL stores sales growth

·      National coverage from rolling out new stores

·      Growing sales and profit in the home delivery channel

 

Growth opportunity 1 - LFL stores sales growth

We pride ourselves on the breadth of choice we offer our customers, with good quality products at value for money prices across more than 20 different departments. We are always looking to improve the Dunelm offer for customers by evolving our ranges further, both in established departments as well as newer ones. So, for example, we have continued to perform strongly in bed linen thanks in part to developing a much stronger range of kids bedding. Similarly, the roll-out of our Dunelm at Home service has helped to reinforce our strength as a curtains retailer, with made-to-measure curtains being one of our fastest-growing departments.

 

We have also placed renewed emphasis on seasonal merchandise, making deeper stock commitments to campaigns such as Summer Living than in recent years. Trading these campaigns harder has been a successful strategy in the last financial year and we intend to build on this going forward.

 

The look and feel of our stores also continues to evolve. This is assisted by refit activity (we completed nine medium refits in the last financial year) and by experimentation with new merchandising approaches. For example, during the last year we developed the concept of Dorma Living which we have introduced to a number of stores creating a dedicated Dorma area in which we complement the Dorma bed linen range with other Dorma-branded products such as curtains, crockery, decor and wallpaper.

 

We continue to invest in customer service through our Customer First programme. Rewards and incentives for our colleagues in stores are now aligned explicitly with customer service measures, as measured by direct customer feedback. We have a big focus on colleague engagement which we see as a key enabler to delivering continued strong service.

 

Supported by the above initiatives, sales in LFL stores grew by 3.4% over the last financial year. Looking ahead, we will continue to evolve our product offer and see many opportunities to strengthen the proposition further, even in established departments. In addition, we are starting to harness customer feedback in new ways and will use this to inform trials of different store layouts and merchandising approaches. Customer feedback will also be a key element in determining our marketing strategy going forward.

 

Growth opportunity 2 - National coverage from rolling out new stores

The vast majority of our portfolio comprises out-of-town superstores, with the average store footprint comprising around 30,000 square feet of retail space. In the last financial year we opened 12 new superstores (one being a high street relocation) taking our superstore chain to 148 stores at the year end, providing 4.4 million square feet of selling space.

 

Our new stores continue to deliver strong returns, with the average expected discounted payback for stores opened in the last three financial years being approximately 30 months. We currently target the majority of our new store openings to achieve discounted cash flow payback of a maximum of 36 months, although we recognise that as our portfolio becomes more mature it will become harder to achieve this in all cases.

 

Since the year-end, we have opened one additional new store, and nine more stores are contractually committed (including two relocations), with six of these scheduled to open in the current financial year.  We remain confident that the UK can support approximately 200 Dunelm superstores, with particular opportunity for us to expand our presence in London and the South-East.

 

Growth opportunity 3 - Growing sales and profit in the home delivery channel

Our major achievement in this area during the last year was the launch of a new customer-facing web platform, which went live on 1 July 2015. This new platform improves the customer journey and shopping experience, provides significant further scalability, and paves the way for more frequent future developments to allow on-going enhancements to functionality - starting with increased choice of delivery options for greater customer convenience.

 

We currently offer 17,000 homewares lines for home delivery, representing the major part of our business in this channel. Order fulfilment is outsourced to a specialist third party partner using a one-man delivery service. We achieve satisfactory profitability from this business in its own right, with additional benefits when customers bypass home delivery and use our Reserve & Collect service. We anticipate substantial further growth in both home delivery orders and Reserve & Collect transactions.

 

In addition to homewares, our home delivery proposition includes 700 larger furniture items which require a more expensive two-man delivery service. This type of business is relatively new for us. Whilst it is currently unprofitable, we are pleased with the progress made to date and we continue to refine our operating model in order to ensure that it can generate the profitability which we require.

 

Overall growth in home delivery sales during the last financial year was 55%. Over the year as a whole this channel accounted for 6.1% of our total business, up from 4.4% in the previous year.

 

People

We continue to invest in our people and management capability, starting at the very top of the business.  I am delighted that John Browett has joined us and will be our next Chief Executive. John is an outstanding retailer and in the early stages of his induction to the business is already bringing fresh thinking and stimulus. With Keith Down identified as our new CFO to succeed David Stead on his retirement later this year, and with other senior appointments also in place, we have a top class executive team to continue driving growth over the coming years.

 

Infrastructure

We are also developing further the infrastructure which will be needed to allow us to realise our growth ambition. Central to this is the commitment we have made to an additional leasehold warehouse and distribution centre. This facility is scheduled to become operational in spring 2016. It is located close to our existing warehouse at Stoke on Trent and will double our warehouse space to 1 million square feet.

 

Recognising the importance of IT systems in any major retail business, we have been steadily upgrading our internal IT capability over the past two years. The team is now working on important developments not only for our on-line business, but also to make store operations more efficient and effective, and to support the increased scale of central activities as the business grows. The revenue impact of our investment in this area will continue to grow, as the team reaches full complement, as recent capital projects (notably the new web platform) begin to be amortised, and as we resume the work of on-going web enhancements.

 

Marketing

We have increased our investment in customer communication over recent years to a level which now represents approximately 1.8% of sales. We anticipate retaining this scale of investment in the near term, albeit with a shift in emphasis away from traditional media in favour of digital marketing.

 

Summary and outlook

The last 12 months have seen considerable changes within Dunelm and the business is now in better shape than ever. We have good sales momentum and clear plans for further growth. I look forward to leading the business in implementing these plans over the next few months, and subsequently to supporting John Browett and his executive team in further developing the business.

 

 

Will Adderley

Chief Executive

 

 

CHIEF FINANCIAL OFFICER'S REVIEW

 

 

The FY15 accounting period represents trading for the 53 weeks to 4 July 2015. The comparative period FY14 represents trading for the 52 weeks to 28 June 2014. To aid comparability of performance year on year, the comments below in respect of trading items cover both the FY15 in full, and the 52 week period to 27 June 2015 (unaudited). In summary, the 53rd week represented £13.1m of revenue and £1.2m of operating profit (it was a week of unusually low sales and profitability, due to very hot weather and downtime of our web channel as we launched our new platform).

 


53 weeks ended

 4 July 2015

£m

52 weeks ended

 27 June 2015

£m

52 weeks ended

 28 June 2014

£m

year on year change

 (52 weeks)

%

Revenue

835.8

822.7

730.2

12.7%

Gross Profit

411.2

404.8

361.3

12.0%

Gross Margin

49.2%

49.2%

49.5%

-30bps

Operating Costs

-288.7

-283.5

-245.3

15.6%

Operating profit

122.5

121.3

116.0

4.6%

EBITDA

144.1

142.6

137.3

3.9%

 

Revenue

Group revenue for FY15 was £835.8m (FY14: £730.2m), an increase of 14.5% for the full financial year and 12.7% on a 52 week basis. Like-for-like ("LFL") sales grew by 5.8% on a 52 week basis as a result of growth in both in-store LFL sales (+3.4%) and Home Delivery sales (+55.1%). Over the financial year as a whole Home Delivery sales represented 6.1% of total business (FY14: 4.4%). Within our sales mix, we saw particularly pleasing growth from furniture, and from our made-to-measure window treatments business including our Dunelm at Home service.

 

Our store expansion programme continued with 12 new openings in the year (of which one was a relocation of a high street shop).

 

Gross Margin

Gross margin decreased slightly by 30 basis points to 49.2% (FY14: 49.5%). Margin on core homewares products was stable, with dilution driven by a high level of markdown needed to clear excess stocks bought to support the expansion of our furniture proposition. We expect that the dilutive impact of furniture clearance will be much reduced in the coming year. 

 

Operating Costs

Operating costs in FY15 grew by 17.7% compared with the prior year, or by 15.6% on a 52 week basis - an increase of £38.2m. The main drivers of this increase were:

 

Ø Store portfolio growth - average selling space increased by 8.8% across the year

 

Ø Multi-channel fulfilment  - we invested in a higher quality of service for home delivery and the value of business through this channel rose by 55% compared with the previous year

 

Ø Dunelm At Home - we offered this in-home consultation service from approximately 100 stores on average over the year, compared with about half that number in the prior year

 

Ø Warehousing and Logistics - these costs increased by over £8m in total, driven to a significant extent by our increased commitment to furniture stock which led to inefficiencies in our internal supply chain, including extensive use of additional third party storage facilities

 

Ø IT capability - recognising the importance of IT in our business, we have significantly increased the scale and capability of our internal IT function

 

Ø Special distribution - we incurred one-off costs of £0.9m associated with the special distribution (referred to below)

 

Looking ahead, a number of these cost drivers will continue to apply in the new financial year as we open more stores, grow our home delivery business further, continue the roll-out of Dunelm at Home, and further invest in our IT capability. We do not anticipate a further increase in logistics costs in the coming year, except to the extent we incur one-off costs in transitioning to our new central warehouse.

 

Operating Profit

Group operating profit for the financial year was £122.5m (FY14: £116.0m), an increase of £6.5m (5.6%). On a 52 week basis operating profit was £121.3m, an increase of £5.3m (4.6%) over FY14. Operating profit margin was 14.7%, 110bps lower than FY14 due to the fall in gross margin and the operating cost impacts described above.

 

EBITDA

Earnings before interest, tax, depreciation and amortisation were £144.1m or £142.6m on a 52 week basis (FY14: £137.3m). This represents an increase of 5.0% on the previous financial year, or 3.9% on a 52 weeks basis. The EBITDA margin achieved was 17.3% of sales on a 52 week basis (FY14: 18.8%).

 

Financial Items

The Group generated a net gain of £0.1m on financial items in FY15 (FY14: £0.0m). Gains amounting to £0.5m (FY14: £0.4m) were made from interest earned on cash deposits and gains of £0.3m (FY14: £0.5m loss) resulted from foreign exchange differences on the translation of dollar denominated assets and liabilities. These gains were partially offset by £0.7m (FY14: £nil) of interest payable and amortisation of arrangement fees relating to the Group's revolving credit facility, described below.

 

As at 4 July 2015 the Group held $91.5m (FY14: $87.2m) in US dollar forward contracts representing approximately 70% of the anticipated US dollar spend over the next financial year. Surplus US dollar cash deposits amounted to $3.2m (FY14: nil).

 

PBT

After accounting for interest and foreign exchange impacts, profit before tax for the financial year amounted to £122.6m (FY14: £116.0m), an increase of 5.7%. On a 52 week basis the profit before tax was £121.4m, an increase of 4.7%.

 

Taxation

The tax charge for the year was 21.7% of profit before tax, compared with 23.2% in the prior year. This reflects the reduction in the headline rate of corporation tax from 22.5% to 20.75%. The tax charge is expected to trend approximately 100 bps above the headline rate of corporation tax going forward, principally due to depreciation charged on non-qualifying capital expenditure.

 

PAT and EPS

Profit after tax was £96.1m (FY14: £89.1m), an increase of 7.9%.

 

Basic earnings per share (EPS) for the 53 weeks ended 4 July 2015 was 47.5p (FY14: 44.0p), an increase of 8.0%. Fully diluted EPS increased by 8.2% to 47.3p (FY14: 43.7p); this is equivalent to 46.8p (7.1% increase) on a 52 week basis.

 

Operating Cash Flow

Dunelm continues to deliver strong cash returns. In FY15 the Group generated £118.2m (FY14: £103.8m) of net cash from operating activities, an increase of 13.9%.

 

Year-end working capital reduced by £0.2m compared with the previous year-end. We made significant investment in inventories to support 12 new stores, to support our expansion in furniture, and to improve availability. This investment was almost fully offset by an increase in Trade and Other Payables of £16.2m (FY14: £14.4m). Some of this increase is attributed to the 53 week accounting period and is expected to reverse in future years.

 

Capital Expenditure

Gross capital expenditure in the financial year was £31.6m compared with £28.0m in FY14. Significant investments were made in order to support the continued growth and development of the store portfolio with the addition of 12 new superstores (43% of capital expenditure) and a number of refits. We also acquired one freehold site during the year. The remaining investment related mainly to IT activities, including the new web platform which went live to customers on 1 July 2015 underpinning the development and expansion of our multi-channel offer.

 

We anticipate an increased level of capital expenditure in the next financial year. In addition to opening new stores (which continue to require on average £1.2m capital investment), we plan to carry out a number of major store refits (approximately £8m in total), will complete the fit-out of our new warehouse (estimated £12m investment) and will continue to invest in IT systems development (estimated £6m). We will also consider freehold store acquisitions on an opportunistic basis.

 

Capital Policy

During the year, the Board adopted a new policy on capital structure, targeting an average net debt level (excluding lease obligations and short-term fluctuations in working capital) of between 0.25x and 0.75x historical EBITDA. This policy provides the flexibility to continue to invest in the Group's growth strategy and to take advantage of investment opportunities as and when they arise, for example freehold property acquisitions.

 

Application of this policy led to payment of a special distribution to shareholders in March 2015 (see below). The Board will consider further special distributions in the future if average net debt over a period consistently falls below the minimum target level of 0.25x EBITDA, subject to known and anticipated investment plans at the time.

 

Banking Agreements and Net Debt

In order to support its new capital policy, during the year the Group entered into a £150m syndicated Revolving Credit Facility ("RCF") with a maturity of five years. The terms of the RCF are consistent with normal practice and include covenants in respect of leverage (net debt to be no greater than 2.5x EBITDA) and fixed charge cover (EBITDAR to be no less than 1.75x fixed charges), both of which were met comfortably as at 4 July 2015.

 

In addition the Group maintains £20m of uncommitted overdraft facilities with two syndicate partner banks.

 

Net debt at 4 July 2015 was £74.8m (0.52x historical EBITDA) compared with net cash resources of £21.7m at the previous year-end. Daily average net debt from the date of the special distribution on 20 March 2015 through to 4 July 2015 was £75.4m. This falls within our target range of net debt.

 

Dividend

An interim dividend of 5.5p was paid in April 2015 (FY14: 5.0p). It is proposed to pay a final dividend of 16.0p per share (FY14: 15.0p), subject to Shareholder approval. The total dividend of 21.5p represents an increase of 7.5% over the previous year and maintains dividend cover of 2.2x (FY14: 2.2x).The final dividend will be paid on 27 November 2015 to shareholders on the register at the close of business on 16 October 2015.

 

Special Distribution

During the year, the Group returned excess capital of £141.7m (70.0p per share) to shareholders through a B/C Share Scheme which allowed shareholders to receive the return as capital or income.

 

Share Buy-back

During the year, the Group did not invest in any additional shares to hold in treasury. Treasury shares are held in order to satisfy future exercises of options granted under incentive plans and other share schemes. As at the year-end, we held 357,158 shares in treasury, equivalent to approximately 20% of options outstanding. Over time, we expect to increase our holding in treasury to be equivalent to approximately 60% of outstanding options.

 

Treasury Management

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

 

Ø Effective management of all clearing bank operations

Ø Access to appropriate levels of funding and liquidity

Ø Effective monitoring and management of all banking covenants

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

Ø 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


2015 *

12.7%

2014

7.8%

2013

12.2%



Like for like store sales growth


2015 *

3.4%

2014

-0.2%

2013

0.2%



Home delivery sales growth


2015 *

55.0%

2014

68.6%

2013

79.4%



Gross margin change


2015 *

-30bps

2014

80bps

2013

40bps



Operating margin


2015 *

14.7%

2014

15.9%

2013

15.7%



Earnings per share (diluted)


2015 *

46.8p

2014

43.7p

2013

40.0p



Dividend per share


2015

21.5p

2014

20.0p

2013

16.0p



EBITDA


2015 *

£142.6m

2014

£137.3m

2013

£127.1m



New store openings


2015

12

2014

12

2013

14

* 2015 is treated as a 52 week period for these measures, rather than 53 weeks

 

 

David Stead

Chief Financial Officer

10 September 2015

 

CONSOLIDATED INCOME STATEMENT

For the 53 weeks ended 4 July 2015

 

 


Note

2015

53 weeks

2014

52 weeks



£'000

£'000

Revenue

1

835,805

730,152

Cost of sales


(424,649)

(368,851)

Gross profit


411,156

361,301

Operating costs

3

(288,672)

(245,273)

Operating profit

2

122,484

116,028

Financial income

5

811

436

Financial expenses

5

(673)

(478)

Profit before taxation


122,622

115,986

Taxation

6

(26,551)

(26,914)

Profit for the period attributable to owners of the parent


96,071

89,072





Earnings per Ordinary Share - basic

8

47.5p

44.0p

Earnings per Ordinary Share - diluted

8

47.3p

43.7p

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 53 weeks ended 4 July 2015

 

 



2015

53 weeks

2014

52 weeks



£'000

£'000

Profit for the period


96,071

89,072

Other comprehensive income:




Items that may be subsequently reclassified to profit or loss:




Movement in fair value of cash flow hedges


905

(3,286)

Transfers of cash flow hedges to cost of sales


1,706

-

Deferred tax on hedging movements


(522)

668

Other comprehensive income for the period, net of tax


2,089

(2,618)

Total comprehensive income for the period attributable to owners of the parent


98,160

86,454

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 4 July 2015


Note

4 July

28 June



2015

2014



£'000

£'000

Non-current assets




Intangible assets

9

13,124

9,260

Property, plant and equipment

10

158,946

152,866

Deferred tax asset


1,897

3,783

Total non-current assets


173,967

165,909





Current assets




Inventories


133,118

115,528

Trade and other receivables


19,122

19,479

Cash and cash equivalents


16,197

21,740

Total current assets


168,437

156,747

Total assets


342,404

322,656





Current liabilities




Trade and other payables


(88,102)

(72,586)

Liability for current tax


(12,495)

(13,461)

Derivative financial instruments


(308)

(2,898)

Total current liabilities


(100,905)

(88,945)





Non-current liabilities




Bank loans


(91,000)

-

Trade and other payables


(42,376)

(40,544)

Provisions for liabilities


(3,055)

(3,430)

Total non-current liabilities


(136,431)

(43,974)

Total liabilities


(237,336)

(132,919)

Net assets


105,068

189,737





Equity




Issued share capital


2,028

2,028

Share premium


1,624

1,624

Capital redemption reserve


43,157

43,157

Hedging reserve


(230)

(2,319)

Retained earnings


58,489

145,247

Total equity attributable to equity holders of the Parent


105,068

189,737

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the 53 weeks ended 4 July 2015


Note

2015

53 weeks

2014

52 weeks



£'000

£'000

Profit before taxation


122,622

115,986

Adjustment for net financing costs


(138)

42

Operating profit


122,484

116,028

Depreciation and amortisation

2

21,436

20,257

Impairment losses on non-current assets

10

109

25

Loss on disposal of non-current assets

2

102

942

Operating cash flows before movements in working capital


144,131

137,252

(Increase) in inventories


(17,590)

(22,588)

Decrease/(increase) in receivables


1,505

(1,160)

Increase in payables


16,236

14,448

Net movement in working capital


151

(9,300)

Share-based payments expense


250

2,470

Foreign exchange gains


-

95



144,532

130,517

Interest received

5

522

461

Tax paid


(26,859)

(27,144)

Net cash generated from operating activities


118,195

103,834





Cash flows from investing activities




Proceeds on disposal of property, plant and equipment

10

3

35

Acquisition of property, plant and equipment

10

(25,362)

(20,760)

Acquisition of intangible assets

9

(5,884)

(7,303)

Net cash utilised in investing activities


(31,243)

(28,028)





Cash flows from financing activities




Proceeds from issue of share capital


-

12

Proceeds from re-issue of treasury shares


810

1,278

Purchase of Treasury Shares


-

(15,404)

Drawdowns on revolving credit facility


167,000

-

Repayments of revolving credit facility


(76,000)

-

Loan transaction costs


(1,295)

-

Interest paid

5

(148)

-

Ordinary dividends paid

7

(41,458)

(33,411)

Special distributions to shareholders

7

(141,727)

(50,708)

Net cash flows utilised in financing activities


(92,818)

(98,233)





Net decrease in cash and cash equivalents


(5,866)

(22,427)

Foreign exchange revaluations


323

(573)

Cash and cash equivalents at the beginning of the period


21,740

44,740

Cash and cash equivalents at the end of the period


16,197

21,740

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 53 weeks ended 4 July 2015


Note

Issued share capital

Share premium

Hedging reserve

Retained earnings

Total equity





£'000

£'000

£'000

£'000

£'000

£'000

As at 29 June 2013


2,028

1,612

43,157

299

150,598

197,694

Profit for the period


-

-

-

-

89,072

89,072

Movement in fair value of cash flow hedges


-

-

-

(3,286)

-

(3,286)

Deferred tax on hedging movements


-

-

-

668

-

668

Total comprehensive income for the period


-

-

-

(2,618)

89,072

86,454









Issue of share capital


-

12

-

-

-

12

Purchase of treasury shares


-

-

-

-

(15,404)

(15,404)

Issue of treasury shares


-

-

-

-

1,278

1,278

Share based payments


-

-

-

-

2,470

2,470

Deferred tax on share based payments


-

-

-

-

286

286

Current corporation tax on share options exercised

6

-

-

-

-

1,066

1,066

Ordinary dividends paid

7

-

-

-

-

(33,411)

(33,411)

Special distributions to shareholders

7

-

-

-

-

(50,708)

(50,708)

Total transactions with owners, recorded directly in equity

-

12

-

-

(94,423)

(94,411)

As at 28 June 2014


2,028

1,624

43,157

(2,319)

145,247

189,737

Profit for the period


-

-

-

-

96,071

96,071

Movement in fair value of cash flow hedges


-

-

-

905

-

905

Transfers to cost of sales





1,706

-

1,706

Deferred tax on hedging movements


-

-

-

(522)

-

(522)

Total comprehensive income for the period


-

-

-

2,089

96,071

98,160









Issue of treasury shares


-

-

-

-

810

810

Share based payments


-

-

-

-

250

250

Deferred tax on share based payments


-

-

-

-

(861)

(861)

Current corporation tax on share options exercised

6

-

-

-

-

157

157

Ordinary dividends paid

7

-

-

-

-

(41,458)

(41,458)

Special distributions to shareholders

7

-

-

-

-

(141,727)

(141,727)

Total transactions with owners, recorded directly in equity

-

-

-

-

(182,829)

(182,829)

As at 4 July 2015


2,028

1,624

43,157

(230)

58,489

105,068

 

 

NOTES TO THE ANNUAL FINANCIAL STATEMENTS

For the 53 weeks ended 4 July 2015

 

 

1 Segmental reporting

The Group has one reportable segment, retail of homewares in the UK.

 

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 KPI's 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.

 

 

2 Operating profit

Operating profit is stated after charging/(crediting) the following items:






2015

53 weeks

2014

52 weeks






£'000

£'000

Cost of inventories included in cost of sales





421,269

365,746

Amortisation of intangible assets





2,020

1,798

Depreciation of owned property, plant and equipment 




19,416

18,459

Impairment losses on non-current assets





109

25

Operating lease rentals





38,932

33,980

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



102

942

Net foreign exchange (gains)/losses





(323)

573

 

 

3 Operating costs






2015

53 weeks

2014

52 weeks*






£'000

£'000

Selling and distribution





262,594

221,910

Administrative expenses





25,976

22,421

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



102

942






288,672

245,273

* prior year comparatives have been aligned to the current year classification of reporting with no significant impact on any classification of cost. 

 

 

4 Employee numbers and costs

The average monthly number of people employed by the Group (including Directors) was:




2015

53 weeks

2015

53 weeks

2014

52 weeks

2014

52 weeks




Number

Full time

Number

Full time




of heads

equivalents

of heads

equivalents

Selling



7,757

4,425

7,558

4,258

Distribution



382

377

307

302

Administration



417

410

305

299




8,556

5,212

8,170

4,859

 

The aggregate remuneration of all employees including Directors comprises:






2015

53 weeks

2014

52 weeks






£'000

£'000

Wages and salaries including bonuses and termination benefits* 



109,478

94,442

Social security costs





6,529

6,607

Share-based payment expense





250

2,470

Defined contribution pension costs





1,257

1,300






117,514

104,819

* Includes £787,990 that was paid during the year to N Wharton as compensation for loss of office

 

 

5 Financial income and expense






2015

53 weeks

2014

52 weeks






£'000

£'000

Finance income







Interest on bank deposits





507

425

Foreign exchange gains (net)





301

-

Other Interest received





3

11






811

436

Finance expenses







Interest on bank borrowings and overdraft





(538)

-

Amortisation of issue costs of bank loans





(135)

-

Foreign exchange losses (net)





-

(478)






(673)

(478)

Net finance income/(expense)





138

(42)

 

 

6 Taxation






2015

53 weeks

2014

52 weeks






£'000

£'000

Current taxation







UK corporation tax charge for the period





26,357

28,435

Adjustments in respect of prior periods





(309)

(152)






26,048

28,283

Deferred taxation







Origination of temporary differences





237

(1,386)

Adjustment in respect of prior periods





266

(463)

Impact of change in tax rate





-

480






503

(1,369)

Total tax expense





26,551

26,914

 

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






2015

2014






£'000

£'000

Profit before taxation





122,622

115,986

UK corporation tax at standard rate of 20.75% (2014: 22.5%)




25,444

26,097

Factors affecting the charge in the period:







Non-deductible expenses





1,144

740

Loss on disposal of non-qualifying assets





6

212

Adjustments to tax charge in respect of prior periods 




(43)

(615)

Effect of standard rate of corporation tax change 




-

480

Tax charge





26,551

26,914

 

The taxation charge for the period as a percentage of profit before tax is 21.7% (2014: 23.2%).

 

Changes to the UK corporation tax rates were announced in the Chancellor's Budget on 8 July 2015. These include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 18% from 1 April 2020.

As the changes had not been substantively enacted at the balance sheet date their effects are not included in these financial statements. The overall effect of these changes, if they had applied to the deferred tax balance at the balance sheet date, would be to reduce the deferred tax asset by an additional £190k and increase the tax expense for the period by £117k.

 

 

7 Dividends and Return of Capital to Shareholders

 

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






2015

2014






£'000

£'000

Special dividend for the period ended 29 June 2013

- paid 25.0p


-

(50,708)

Final for the period ended 29 June 2013

- paid 11.5p

-

(23,287)

Interim for the period ended 28 June 2014

- paid 5.0p

-

(10,124)

Final for the period ended 28 June 2014

- paid 15.0p

(30,322)

-

Interim for the period ended 4 July 2015

- paid 5.5p

(11,136)

-






(41,458)

(84,119)

 

The Directors are proposing a final dividend of 16p per Ordinary Share for the period ended 4 July 2015 which equates to £32.4m. The dividend will be paid on 27 November 2015 to shareholders on the register at the close of business on 16 October 2015.

 

On 11 February 2015 the Company announced the return of capital to shareholders via a B/C share scheme.  Accordingly:

·      On 10 March 2015 128,710,152 0.001 pence B shares were issued. A dividend of 70 pence per B share was declared on 11 March 2015. Following the declaration of the B share dividend, the B shares automatically converted into deferred shares and were purchased by UBS and subsequently purchased from UBS by the Company, in each case for an aggregate sum of 0.001 penny, and cancelled.
·      On 10 March 2015 73,756,725 0.001 pence C shares were issued. The C shares were purchased by UBS on 11 March 2015 for 70 pence per share. The C shares purchased by UBS were in turn purchased from UBS by the Company and then cancelled.

 

 

 

8 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:






53 weeks ended 4 July 2015

52 weeks ended 28 June 2014






'000

'000

Weighted average number of shares in issue during the period




202,217

202,554

Impact of share options





982

1,474

Number of shares for diluted earnings per share





203,199

204,028













53 weeks ended 4 July 2015

52 weeks ended 28 June 2014






£'000

£'000

Profit for the period





96,071

89,072

Earnings per Ordinary Share - basic





47.5p

44.0p

Earnings per Ordinary Share - diluted





47.3p

43.7p

 

 

9 Intangible Assets





Software
development
and licences

Rights to
Dorma
brand

Total





£'000

£'000

£'000

Cost







At 29 June 2013




9,051

5,040

14,091

Additions




7,303

-

7,303

Disposals




(2,323)

-

(2,323)

At 28 June 2014




14,031

5,040

19,071

Additions




5,884

-

5,884

At 4 July 2015




19,915

5,040

24,955

Accumulated amortisation







At 29 June 2013




4,875

4,954

9,829

Charge for the financial period




1,713

85

1,798

Disposals




(1,816)

-

(1,816)

At 28 June 2014




4,772

5,039

9,811

Charge for the financial period




2,019

1

2,020

At 4 July 2015




6,791

5,040

11,831

Net book value







At 29 June 2013




4,176

86

4,262

At 28 June 2014




9,259

1

9,260

At 4 July 2015




13,124

-

13,124

 

All additions were acquired and do not include any internal development costs.

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

 

 

10 Property, plant and equipment



Land and buildings

Leasehold improvements

Plant and machinery

Fixtures and fittings

Total



£'000

£'000

£'000

£'000

£'000

Cost







At 29 June 2013


79,801

92,588

2,860

57,783

233,032

Additions


209

10,465

799

9,287

20,760

Disposals


-

(1,140)

(35)

(938)

(2,113)

At 28 June 2014


80,010

101,913

3,624

66,132

251,679

Additions


4,252

11,826

377

9,255

25,710

Disposals


-

(193)

-

(879)

(1,072)

At 4 July 2015


84,262

113,546

4,001

74,508

276,317

Accumulated depreciation







At 29 June 2013


7,583

34,515

1,476

38,398

81,972

Charge for the financial period


1,349

6,629

759

9,722

18,459

Disposals


-

(740)

(25)

(878)

(1,643)

Impairment


51

-

(10)

(16)

25

At 28 June 2014


8,983

40,404

2,200

47,226

98,813

Charge for the financial period


1,268

7,510

733

9,905

19,416

Disposals


-

(123)

-

(844)

(967)

Impairment


109

-

-

-

109

At 4 July 2015


10,360

47,791

2,933

56,287

117,371

Net book value







At 29 June 2013


72,218

58,073

1,384

19,385

151,060

At 28 June 2014


71,027

61,509

1,424

18,906

152,866

At 4 July 2015


73,902

65,755

1,068

18,221

158,946

 

All depreciation expense and impairment charge has been included within operating costs in the income statement.

 

11 Basis of preparation

The annual report and financial statements for the period ended 4 July 2015 were approved by the Board of Directors on 10 September 2015 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 4 July 2015 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 28 June 2014 have been delivered to the Registrar of Companies. The auditor's report on the statutory accounts for the period ended 28 June 2014 was unqualified and did not contain a statement under section 498 of the Companies Act 2006.

 


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