13 November 2008
The Board is pleased to report that the business has performed well in what have been more difficult trading conditions than those seen in the first half of the year.
In the first 11 periods (44 weeks) of 2008, ending 1st November, Howden Joinery UK depot sales of £701.7m (2007: £677.3m) were up 3.6%, declining 1.6% on a same depot (1) basis. Since the end of the first half of the year (14th June), sales were down 1.5%, declining 6.7% on a same depot basis, against tough comparators.
In our 2008 Half Yearly Report, we said that we had seen a slowdown in the rate of sales growth in the early summer. From then until early October, the absolute value of sales in each period was broadly constant and remained above those in the corresponding periods last year. However, there was a gradual slowing in the rate of increase over last year, reflecting in part the toughening comparators in 2007, when sales benefited from the effects of very wet weather and the rapid roll-out of new products.
In our important period 11, which ran from 6 October to 1 November, sales of over £125m were around 2 ¼ times the amount in preceding periods, despite conversion of 'leads' proving harder since September and selling prices coming under some pressure. While lower than the very high level of sales seen in the same period last year, sales this year were £10m higher than the same period in 2006.
Gross margin for the year to date remains similar to last year (excluding the impact of revenue from MFI in 2007).
Current net borrowings are in line with our expectations.
The depot opening programme for this year has been completed, with 20 Howden Joinery depots having been opened, bringing the total trading to 456 depots.
We continue to focus on new product opportunities. We have introduced five new kitchen ranges since July and are currently introducing a range of 'entry level' free standing appliances. In looking to raise brand awareness with trade customers and their 'end purchaser' customers, we have tested advertising in consumer and trade magazines, as well as national newspapers. To support this initiative, we have introduced facilities on the Howdens Joinery website (www.howdens.com) to help potential 'end-purchasers' of our kitchens find a professional tradesman.
We have always taken steps to manage our cost base in light of prevailing conditions and sought opportunities to improve operational efficiency, and will continue to do so. Already this year, we have reduced depot staffing levels to reflect more difficult market conditions and changes to our depot opening plans. In supply operations, we have taken various steps that have helped offset upward cost pressure on raw materials and finished goods, regularly benchmarking prices and re-sourcing products where appropriate. Also, having undertaken a major restructuring of supply operations when we ended product supply to MFI last year, we are able to realise further opportunities from the new structure.
With the ending of the provision of IT and financial services to MFI in October, the principal outstanding legacy issues arising from the disposal of MFI in 2006 are (i) the leases relating to 46 MFI stores under which Galiform guarantees the payment of rent and associated costs and (ii) the rent and other costs relating to other MFI properties that were not included in the disposal, including Home Delivery Centres.
Following the appointment of administrators by the board of MFI Properties Limited, the final outcome, and, therefore, the amount that Galiform will be required to pay, in relation to the guaranteed properties remains unclear. In our announcement of 30 September 2008, we indicated that the current aggregate annual net rentals (i.e. gross rent less sub tenant income) payable for all 46 properties would be £14.7m, with associated net business rates of circa £6m and other costs of potentially up to £2.5m a year. We also indicated in the announcement how these amounts would reduce over time.
To date, Galiform has received demands from landlords of certain of the guaranteed properties for payment of rent and associated costs relating to the quarter commencing 29 September 2008 that have not been paid by MFI Properties Limited. These demands currently total £3.6m and have been made in relation to 27 of the properties. These amounts do not include business rates, for which Galiform will not be liable so long as the properties remain with the company in administration, but do include an amount equal to VAT which is payable on rent and which is not expected to be recoverable by Galiform.
Payments in respect of any demands received will be treated as an exceptional cost.
Given the progress that has been made in resolving legacy issues arising from the disposal of MFI, Gerard Hughes, Commercial Director, has decided to leave the Group to pursue other interests. He is to resign from the Board of Galiform with effect from 31 December 2008.
Gerard has played an important role in the turnaround of the Company and in particular the successful separation of the ongoing business from MFI.
The Board wishes to thank Gerard for his contribution to Galiform.
Going forward, the provision of guidance to the Board on issues relating to former MFI properties and the Group's pension schemes will be led by the Chief Financial Officer, Mark Robson, with the assistance of external advisers.
If market conditions in the remainder of the financial year remain consistent with those seen in recent weeks, the Board currently expects that the profit outcome for the year would be within the current range of market expectations.
Looking further ahead, we are not expecting the UK's economic environment to improve in the short term and we will continue to manage the business on that basis. The key risk to future trading performance remains the economic uncertainty. However, the Board is confident that the business's inherent resilience and strategy of strengthening its competitive position whilst focusing on providing the small builder customers with improved products and service refinement remains sound for the medium and long term. As ever, we will continue to work to maximise profitability through driving greater efficiencies and to look critically at all items that will impact our future cash flow. This includes capital expenditure, the level of depot openings, working capital and dividends.
Other than as disclosed in this release, there have been no other material changes to the financial position of the Group.
Galiform's Chief Executive, Matthew Ingle, said:
"We continue to deliver good performance in tough trading conditions. This is testimony to the motivation of our people, our business model and the strength of our competitive position."
Galiform will provide details of sales performance for the year as a whole in the first half of January 2009 and will release its 2008 Preliminary Results on 5 March 2009.
|Gary Rawlinson||Brunswick||Susan Gilchrist|
|Head of Investor Relations||Anna Jones|
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+44 (0)7989 397527
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