Dunelm Group PLC

Earnings Release • Sep 10, 2015

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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:

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

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

o  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:

o  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);

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

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

o  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	Capital redemption reserve	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.

This information is provided by RNS

The company news service from the London Stock Exchange

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