12 November 2009
The Board is pleased to report that the business has continued to perform resiliently and has seen satisfactory performance on all key measures, particularly during the key October trading period (period 11) when sales of Howden Joinery UK depots were over 3% higher than in 2008. In light of this, Howden Joinery is resuming its UK depot opening programme. In addition, further 'legacy' property agreements have reduced future costs by more than £40m.
Trading conditions have remained stable, with signs of an improvement in market sentiment emerging. Our comparative sales performance this year has improved as the year has progressed, reflecting the weakening pattern of trading conditions seen during the course of 2008, which saw step changes in mid-year and October.
Sales between the end of the first half of the year and early October (periods 7 to 10) of Howden Joinery UK depots were 3.3% lower than the corresponding periods last year, compared with 8.3% lower in the first half of 2009 (see note 1 below). In our important period 11, which ran from 5th to 31st October, sales of over £130m were 3.1% higher than the same period last year and around 2 ¼ times the amount in preceding periods, which is a typical pattern.
Excluding the distorting effect of trading in the first week of the year (see note 1 below), in the first 11 periods (44 weeks) of 2009, ending 31st October, Howden Joinery UK depots' revenue was down 4.6%, declining 5.8% on a same depot basis (i.e. excluding depots opened in 2008).
We have continued to focus on gross profit margin in our depots, and to search for further gains from purchasing and manufacturing efficiencies. Along with the benefit seen from the strengthening of the pound against the US dollar since the first half of the year on purchasing costs, this has meant that the gross profit margin has continued to improve since we reported our half year results.
With the satisfactory performance seen in recent trading, we have decided to recommence our depot opening programme. We plan to open eight depots by the end of this year, and anticipate opening between 20 and 30 depots next year, although this target will not be finalised until early March 2010, when we will have greater visibility of the outlook for the year.
Guaranteed and other legacy properties
The Group continues to manage proactively its 'legacy property' portfolio, the liability for a further eight properties having been removed since the release of the Half Yearly Report in July 2009.
Agreement has been reached with four landlords that further reduces Galiform's financial exposure to properties that had until November 2008 been occupied by MFI Retail operations (the 'guaranteed' properties). Agreement has also been reached with the landlords of one Home Delivery Centre (HDC) and one Sofa Workshop store, thereby ending Galiform's liability for these properties.
These transactions involve Galiform making cash payments to the landlords of these properties totalling £9.5m, in return for being released from all obligations in respect of these leases.
Including two other Sofa Workshop stores from which the landlords have released Galiform from all obligations at nil cost, total future costs of over £40m have been mitigated, reducing current annual payments by over £4m.
(1) Week 1 sales (2008: £5.7m, 2009 £0.8m) excluded because of the impact arising from New Year's Day falling on different days of the week (Tuesday in 2008, Thursday in 2009) which meant not only were there two fewer days trading this year, but also that there were far fewer builders returning to work that week.
The profile of guaranteed properties remaining and the net annual rent and rates (current values) for the associated leases, before any mitigating action is taken, is shown below, along with the situation when the liability crystalised in September 2008.
|As at 30 Sept||As at 1 Jan||1 Jan||1 Jan||1 Jan|
|Number of properties||46||28||25||12||9||-|
|Net annual rent and rates, £m||21.4||13.2||12.2||5.3||3.9||-|
The net annual rent and rates liability of other 'legacy properties' (HDCs, Sofa Workshop stores and 'residual' properties), has been reduced by £1m to £5m.
Other business developments
The Howden Joinery in-stock model serves several markets. We are at the early stages of a review of how the range of kitchens we sell covers the markets we serve and opportunities within supply to improve product availability. We will provide an update on the review when we announce our results for the current financial year.
We are encouraged by the strength of our performance in period 11 and signs of an improvement in market sentiment emerging, but are cautious about the outlook for 2010, given the uncertainty about the prospects for economic recovery.
Sales in the last two periods of the year are generally lower than other periods. Even so, sales after period 11 are usually in excess of 10 per cent of annual turnover.
It should be remembered that sales this year will benefit from the additional day's trading in the week before Christmas. In addition, we are expecting that sales performance will reflect the weak comparative from period 12 last year. We are also anticipating that the underlying gross margin performance seen so far this year will be maintained for the remainder of the year.
Although there are still two periods of the year remaining, it is unlikely that profit before tax for 2009 will be less than the top end of the current range of market expectations.
There have been no material changes to the financial position of the Group since the time of announcing our half year results save as a result of the usual impact of the level of trading and those matters disclosed herein.
Galiform will release its 2009 Preliminary Results on 4 March 2010.
|Gary Rawlinson||Brunswick:||Kate Holgate|
|Head of Investor Relations||Annabel Entress|
|+44 (0)207 535 1127||+44 (0)207 404 5959|
|+44 (0)7989 397527|