TIDMDNLM
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 Year ended Year ended Year ended Year ended Year
30 June 30 June 30 June 1 July 1 July ended Year on Year on
2018 2018 2018 2017 2017 1 July year year
2017 change change
Underlying Exceptional Reported Underlying Exceptional
items items Reported Underlying Reported
Total
revenue GBP1,050.1m - GBP1,050.1m GBP955.6m - GBP955.6m +9.9% +9.9%
------------ ------------ ------------ ----------- ------------ ---------- ------------ ----------
Gross
margin 48.0% - 48.0% 48.9% - 48.9% -90bps -90bps
------------ ------------ ------------ ----------- ------------ ---------- ------------ ----------
Profit
before
tax GBP102.0m* -GBP8.9m GBP93.1m GBP109.3m* -GBP16.9m GBP92.4m -6.7% +0.8%
------------ ------------ ------------ ----------- ------------ ---------- ------------ ----------
EBITDA GBP139.6m -GBP4.9m GBP134.7m GBP142.2m -GBP14.0m GBP128.2m -1.8% +5.1%
------------ ------------ ------------ ----------- ------------ ---------- ------------ ----------
Free cash
flow - - GBP52.9m - - GBP14.2m - +272.5%
------------ ------------ ------------ ----------- ------------ ---------- ------------ ----------
Net debt - - GBP124.0m - - GBP122.1m - -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
GBP8.4m for the 52-week period in FY18, and GBP10.7m for the period
post-acquisition in FY17 (from 28 November 2016 to 1 July
2017).
Highlights
-- Group revenue of GBP1,050.1m (FY17: GBP955.6m), 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 GBP102.0m (pre-exceptional items), down
6.7% year on year, inclusive of an estimated GBP8.4m of net profit
dilution from Worldstores (FY17: GBP109.3m underlying PBT including
GBP10.7m negative impact from Worldstores)
-- PBT of GBP93.1m (FY17: GBP92.4m) including GBP8.9m (FY17:
GBP16.9m) of exceptional costs relating to the acquisition,
integration and/ or disposal of the Worldstores businesses
-- Improved free cash flow year-on-year to GBP52.9m (FY17: GBP14.2m)
-- 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 dunelm@mhpc.com
Kare Silver / Pete Lambie
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 GBP13bn UK homewares market and
active in the GBP11bn 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 GBP1.0bn.
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 GBP1,050.1m, 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
GBP102.0m, 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
GBP44.0m (FY17: GBP60.5m). Profits after tax and exceptional items
were in line year-on-year at GBP73.3m (2017: GBP73.1m).
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 GBP52.9m in the year (FY17: GBP14.2m).
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 GBP30m (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 GBP20m
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 GBP5-10m 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 CO(2)
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 Total Group
(GBPm) (GBPm)
----------------------------------- --------- ------------ ------------- ------------ ------------
Existing Worldstores Total (GBPm)
(GBPm) transfer
(GBPm)
----------------------------------- --------- ------------ ------------- ------------ ------------
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 YoY Growth YoY Growth
(GBPm) (GBPm) (%)
------------------------------------------ -------- ----------- -----------
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 GBP1,050.1m (FY17: GBP955.6m), an
increase of 9.9%. Within this, Dunelm revenue grew by 8.9% to
GBP984.1m.
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 GBP2.6m).
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 GBP398.9m,
an increase of GBP43.0m or 12.1% compared with the prior year. The
total included GBP33.6m of costs relating to Worldstores businesses
(FY17: GBP29.2m).
The main drivers of the GBP38.6m 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 GBP8.9m, comprising the following:
FY18 (GBPm) FY17 (GBPm)
------------------------------------------------- ------------ ------------
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 GBP0.6m.
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, GBP1.6m 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 GBP104.7m (FY17: GBP111.7m), 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
GBP8.4m. This impact will reduce significantly in FY19 as
Worldstores trading is absorbed fully into the core Dunelm
business.
Operating profit after exceptional items was GBP95.8m (FY17:
GBP94.8m) reflecting the lower level of exceptional costs in the
current year.
EBITDA
Before exceptional items, earnings before interest, tax,
depreciation and amortisation were GBP139.6m (FY17: GBP142.2m).
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 GBP134.7m (FY17:
GBP128.2m).
Financial Items
The Group incurred a net financial expense of GBP2.7m in FY18
(FY17: GBP2.4m). Interest and amortisation of costs arising from
the Group's revolving credit facility amounted to GBP2.2m (FY17:
GBP2.0m) and net foreign exchange differences on the translation of
dollar denominated assets and liabilities amounted to a further
GBP0.5m expense (FY17: expense of GBP0.6m). Interest earned on cash
deposits was GBPnil (FY17: GBP0.2m).
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 GBP102.0m (FY17: GBP109.3m), a decrease of
6.7%.
Profit before tax and after exceptional items was GBP93.1m
(FY17: GBP92.4m).
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 GBP73.3m (FY17: GBP73.1m).
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 GBP98.5m (FY17: GBP79.5m) of net
cash from operating activities, an increase of 24%. Cash elements
of exceptional costs were GBP1.6m (FY17: GBP11.3m).
Net working capital increased by GBP20.3m over the year (FY17:
GBP26.2m increase). Despite the expansion of our store estate, we
reduced year-end inventory by GBP8.6m through a combination of
delayed inflow of Christmas merchandise and lower cover levels on
continuing lines. However, payables reduced by GBP31.4m 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 GBP44.0m
compared with GBP60.5m in FY17. During the year, we opened ten new
stores (GBP13.8m), and invested GBP10.6m in refits. We continued to
invest in technology infrastructure to improve our website and open
up new sales channels (GBP14.3m). 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 GBP5-10m 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 GBP15m). In total, we
are planning capital investment, assuming no freehold acquisitions,
of GBP30-35m in FY19.
Free Cash Flow (FCF)
We measure FCF as net cash from operating activities less net
cash used in investing activities. FCF was GBP52.9m in the year
(FY17: GBP14.2m), 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 GBP165m
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 GBP20m of uncommitted overdraft
facilities with two syndicate partner banks.
Net debt at 30 June 2018 was GBP124.0m (0.89× historical EBITDA
before exceptional items) compared with GBP122.1m in FY17 (0.86×
historical EBITDA). Daily average net debt in FY18 was GBP112.4m
(FY17: GBP92.2m).
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
GBP142.3m (FY17: GBP132.6m).
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 GBP139.6m
------------------------------------------------------- ----------
2017 GBP142.2m
2016 GBP154.3m
------------------------------------------------------- ----------
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 2018 2018 2017 2017 2017
52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Note Underlying Exceptional Reported Underlying Exceptional Reported
Items Items
(Note (Note
4) 4)
------------------------ -----
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 2017
52 weeks 52 weeks
GBP'm GBP'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
GBP'm GBP'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 2017
52 weeks 52 weeks
GBP'm GBP'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
Issued Share Capital
share premium redemption Hedging Retained Total
Note capital account reserve reserve earnings equity
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'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 GBP1 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
GBP'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 GBP0.6m. The transaction included the sale
of trademarks and customer lists and resulted in an overall loss on
disposal of GBP0.3m.
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 2017
52 weeks 52 weeks
GBP'm GBP'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 GBP0.6m.
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 GBP1.2m (2017: GBP3.1m).
Of the above exceptional cost items, GBP1.6m 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 2017
52 weeks 52 weeks
GBP'm GBP'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 2018 2018 2017 2017 2017
52 52 weeks 52 52 52 52
weeks weeks weeks weeks weeks
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying Exceptional Reported Underlying Exceptional Reported
Items Items
--------------------- ---- ---- ----------- ----------------- --------- ----------- ---------------- ---------
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 2017
52 weeks 52 weeks
GBP'm GBP'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 2017
52 weeks 52 weeks
GBP'm GBP'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 2017
52 weeks 52 weeks
GBP'm GBP'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 (0.1) -
tax losses
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 2017
52 weeks 52 weeks
GBP'm GBP'm
------------------------------ ---------- --------- ---- ---- ----------- -----------
Final for the period ended - paid 19.1
2 July 2016 pence - 38.5
Interim for the period ended
1 July 2017 - paid 6.5 pence - 13.1
Final for the period ended - paid 19.5 39.3 -
1 July 2017 pence
Interim for the period ended - paid 7.0 pence 14.1 -
30 June 2018
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
GBP39.4m. 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 2017
52 weeks 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 2017
52 weeks 52 weeks
GBP'm GBP'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 Rights Total
development to
and brands
licences & customer
lists
GBP'm GBP'm GBP'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 GBP3.9m (2017: GBP3.1m)
of additions relates to internally generated assets.
12 Property, plant and equipment
Land Leasehold Refit Plant Fixtures Total
and buildings improvements Improvements and machinery and fittings
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EANNFFEDPEFF
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