REG - Dunelm Group plc - Preliminary Results
14/09/2022 07:00
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RNS Number : 3537Z Dunelm Group plc 14 September 2022
14 September 2022
Dunelm Group plc
Preliminary Results for the 53 weeks ended 2 July 2022
Record results, confident in a challenging environment
Dunelm Group plc ("Dunelm" or "the Group"), the UK's leading homewares
retailer, today announces its preliminary results for the 53 weeks to 2 July
2022.
FY22 FY21 YoY FY22 YoY
(52 weeks)(6) (52 weeks) (52w vs 52w) (53 weeks)
Total sales £1,553.1m £1,336.2m +16.2% £1,581.4m +18.4%
Gross margin 51.2% 51.6% -40bps 51.2% -40bps
Operating costs:sales ratio 37.5% 39.1% -160bps 37.4% -170bps
Profit before tax (PBT) £209.0m £157.8m +32.4% £212.8m +34.9%
Diluted earnings per share 82.1p 62.9p +30.5% 83.6p +32.9%
Digital % total sales(1) 35% 46% -11ppts 35% -11ppts
FY22 FY21 YoY
(53 weeks) (52 weeks)
Free cash flow(2) £153.0m £108.5m +£44.5m
Net (debt)/cash(3) (£23.8m) £128.6m -£152.4m
Ordinary dividend per share(4) 40p 35p +14.3%
Special dividend per share(5) 37p 65p n/a
Highlights
· Strong sales growth of 16.2%(6) with total sales 41% higher than FY19
· Homewares market share gain of +140bps and continued share gains in
furniture(7)
· Active customers grew by 8.5%(8) over the year, with increases across
all demographics
· New ecommerce and furniture fulfilment operations opened in the year,
giving capacity for growth and improved delivery options for customers
· Scope 1 carbon and plastic packaging reduction targets met and
textiles take-back service introduced in stores nationwide
· Healthy gross margin of 51.2%(6) including impact of the extra Summer
Sale in the year
· PBT growth of 32.4%(6), with a strong profit margin reflecting cost
leverage and operational grip
· Free cash flow of £153.0m, representing 70% conversion of operating
profit
· Final dividend of 26p (FY21: 23p) taking the full year ordinary
dividend to 40p, an increase of 14.3%
Outlook and current trading
· Sales have remained robust in the first ten weeks of the financial
year
· Proven strength of the Dunelm business model gives us confidence,
despite an extremely challenging environment
· Our primary focus is to continue offering outstanding value to all our
customers
· Expect to deliver c.50% gross margin for the full year and manage
costs through efficiency improvements and operational grip
· On track to deliver FY23 results in line with analysts'
expectations(9)
Nick Wilkinson, Chief Executive Officer, commented:
"Our colleagues and our committed supplier partners are at the heart of our
success. In another year of excellent performance, I am extremely grateful for
their skill, commitment and adaptability in the face of new external
challenges and during another busy period of progress across the business.
"We feel confident and well prepared to weather the current economic pressures
- we emerged from an unprecedented global pandemic as a bigger, better
business and we believe we have the tools in place to do that again. That
said, the operating and economic environment is extremely challenging.
"In this environment, we have to make every pound count, both for ourselves
through our tight operational grip and cost discipline, and for our customers,
through our offer of outstanding value at all price points.
"Dunelm, at its heart, offers customers great choice and value. Now is not the
time for us to shy away from that, but for us to fully embrace it; whether
it's our Winter Warm collection or our Student Essentials range, we think
Dunelm's unique and market-leading offer is more relevant than ever before."
1 Digital includes home delivery, Click & Collect and tablet-based sales
in store
2 Free cash flow is defined as net cash generated from operating activities
less capex (net of disposals) and business combinations, net interest paid
(including leases) and loan transaction costs, and repayment of lease
liabilities. A reconciliation of operating profit to free cash flow is
included in the CFO review
3 Excluding lease liabilities. Full definition provided in the table of
alternative performance measures in the CFO review
(4) Ordinary dividends declared relating to the financial year
(5) FY21 special dividend of 65p declared with the FY21 financial results and
paid in FY22. FY22 special dividend of 37p declared with the FY22 interim
results and paid in FY22
(6) 52-week basis. On a 53-week basis, total sales were £1,581.4m (+18.4%),
gross margin was 51.2% (-40bps) and PBT was £212.8m (+34.9%). 52-week results
are unaudited
(7) GlobalData UK homewares market
8 Unique active customers who have transacted at least once in the 12 months
to June 2022. Source: Barclays. The basis of calculation for this metric has
been updated in FY22 and the prior years restated on a consistent basis, as we
believe that this is a more accurate estimate
(9) Company compiled consensus average of analysts' expectations for FY23 PBT
of £178m, with a range £130m to £193m
Analyst Presentation:
There will be an in-person presentation for analysts and institutional
investors this morning at 9.30am, hosted at Peel Hunt LLP, 100 Liverpool
Street, London, EC2M 2AT, as well as a webcast and conference call with a
facility for Q&A. For details, please contact pauline.guenot@mhpc.com
(mailto:pauline.guenot@mhpc.com) . A copy of the presentation will be made
available at https://corporate.dunelm.com (https://corporate.dunelm.com)
For further information please contact:
Dunelm Group plc investorrelations@dunelm.com
Nick Wilkinson, Chief Executive Officer
Karen Witts, Chief Financial Officer
MHP Communications 07710 032 657
Simon Hockridge / Rachel Farrington / Pete Lambie dunelm@mhpc.com
Next scheduled event:
Dunelm will release its first quarter trading update on 20 October 2022.
Quarterly analysis:
53 weeks to 2 July 2022
Q1 Q2 H1 Q3 Q4 H2 FY
Total sales £388.8m £406.8m £795.6m £399.0m £386.7m £785.7m £1,581.4m
Total sales growth 8.3% 12.9% 10.6% 68.6% 1.7% 27.4% 18.4%
Digital % total sales 33% 33% 33% 35% 37% 36% 35%
Gross margin movement -10bps +160bps +80bps +30bps -320bps -150bps -40bps
52 weeks to 26 June 2021
Q1 Q2 H1 Q3 Q4 H2 FY
Total sales £359.1m £360.4m £719.4m £236.6m £380.2m £616.8m £1,336.2m
Total sales growth 36.7% 11.8% 23.0% -16.8% 101.7% 30.4% 26.3%
Digital % total sales 30% 41% 35% 93% 37% 59% 46%
Gross margin movement +100bps +10bps +50bps +30bps +460bps +220bps +130bps
Notes to Editors:
Dunelm is the UK's market leader in homewares, with a specialist offering
for customers across multiple categories via its 177 predominantly out-of-town
superstores and website, dunelm.com.
The business was founded in 1979 as a market stall, selling ready-made
curtains. The first shop was opened in Leicester in 1984, with the first
superstore opening in 1991. With a vision to be the 1(st) Choice for Home,
Dunelm offers quality, value and style throughout its extensive product range,
alongside services such as Home Delivery, Click & Collect and Made to
Measure window treatments. From its textiles heritage in areas such as
bedding, curtains, cushions, quilts and pillows, Dunelm has broadened its
range into categories including furniture, kitchenware, dining, lighting,
outdoor, craft and decoration. Its c.50,000 product lines include specialist
own brands and labels such as Dorma and Fogarty, sourced from long-term
committed suppliers.
Dunelm's purpose is 'To help create the joy of truly feeling at home, now
and for generations to come'. The business is headquartered in Leicester and
employs over 11,000 colleagues. It has been listed on the London Stock
Exchange since October 2006 (DNLM.L) and has a current market
capitalisation of approximately £1.5bn.
CHAIRMAN'S STATEMENT
I am very pleased to report an excellent financial performance, with total
sales growth of 16.2%, delivering record pre-tax profits of £209.0m, an
increase of 32.4% on the prior year(10). More importantly, these results
demonstrate the strength of our business model and the broad appeal of our
customer proposition. These fundamental strengths will hold us in good stead
as we trade into a much tougher consumer environment. Historically, 85% of our
sales growth has come from market share gains and we remain confident that we
can continue to win share. At the heart of our success is the skill and
dedication of our over 11,000 colleagues. We are proud and grateful for their
work.
For the first time in two years, our stores were open for the entirety of the
year, enabling customers to fully benefit from our total retail system. We
have continued to invest in digitising our business and improving our
operational capability, with the opening of a dedicated ecommerce distribution
fulfilment facility and a new furniture warehouse; all designed to improve our
customer service. We have increased our customer numbers once again and
continued to win market share.
We have emerged from the Covid crisis as a bigger and stronger business, well
positioned to face into the pressures of the current inflationary environment
and cost of living challenges. Our commitment to offering our customers
outstanding value remains as strong as ever and we shall continue to cater for
all customers, no matter how they adapt to this environment, by providing
options for every style, space and budget.
In accordance with our long-held values, the Board is deeply mindful that our
decisions must always balance the needs of our customers, colleagues,
communities, suppliers and shareholders, as well as the environment which we
all share. I am pleased that we have continued to make progress in delivering
for all these stakeholders. In addition to our very strong financial
performance, we have created more than 800 new roles and raised more than
£450k for our new charity partner, Mind.
Sustainability remains a key focus for the business and we have continued to
make good progress during the year. We introduced a take-back scheme for
textiles during the year, which is live in more than 90% of our stores, with
take-back now covering more than 50% of own-brand products. We have a number
of partnerships in place to support our Net Zero Pathway, having joined the
Aldersgate Group during the year and continued our collaborations with
Textiles 2030 and the British Retail Consortium. We also recently launched
Conscious Choice, a fantastic collection of products which helps our customers
make more thoughtful decisions through products that last longer and are made
from more sustainable materials.
(10) 52-week basis. On a 53-week basis, total sales were £1,581.4m (+18.4%),
gross margin was 51.2% (-40bps) and PBT was £212.8m (+34.9%). 52-week results
are unaudited
Dividends
The Board has proposed a final ordinary dividend of 26 pence per share,
recognising our very strong performance in the year and our continued
confidence in the business. This takes the full-year ordinary dividend to 40
pence per share, ahead of the 35 pence per share paid in FY21, with dividend
cover of 2.1×, within the range of our stated policy.
During the year our strong cash flow allowed us to pay two special dividends:
65 pence per share in October 2021 and 37 pence per share in March 2022. Our
net debt ended the year at 0.1× FY22 EBITDA, slightly below our long-term
targeted range of between 0.2× and 0.6×.
Board Update
In April 2022 we were delighted to announce the appointment of Karen Witts as
Chief Financial Officer (CFO). Karen is an accomplished finance leader who
brings a wealth of experience from her previous roles with high-profile
consumer-facing brands, which will help us to deliver our ambitious growth
plans. Karen joined the Board on 9 June 2022 and succeeded Laura Carr, who
stepped down from the Board in that month. We also welcomed Vijay Talwar and
Kelly Devine to the Board as Non-Executive Directors during the year, who
bring a great deal of energy and experience, particularly in digital and data.
Finally, post year-end, we announced the appointment of Alison Brittain to the
Board as a NED with effect from 7 September 2022, with the intention that she
will succeed me as Chair ahead of the expiry of my nine-year term in September
2023. Alison is a highly experienced leader with a strong track-record across
a range of consumer-facing companies, and with values clearly aligned to our
own. I am thrilled that Dunelm has been able to attract a Chair Designate of
Alison's calibre to lead the Board through our next stage of growth.
1(st) Choice for Home
Moving forward, we believe that Dunelm's fundamental strengths will once again
differentiate us at a time when consumers have to consider their purchase
decisions even more carefully. This plays to the strength of our product
range, our customer proposition and our proven total retail system, which
combines the advantages of both physical and digital retail. In addition, our
strong balance sheet and underlying cash generation will allow us to continue
to invest in further strengthening our business. We remain confident that we
can continue to deliver for all our stakeholders and be the 1(st) Choice for
Home.
Andy Harrison
Chairman
14 September 2022
CHIEF EXECUTIVE OFFICER'S REVIEW
Introduction
With stores being forced to close during both FY20 and FY21, we were delighted
that we were able to keep our doors open to our customers throughout FY22. It
is clear that customers are increasingly enjoying the advantages of our total
retail system, which allows them to experience the friendly service of our
physical stores in combination with the convenience of our digital channels;
this has contributed to the delivery of record results this year.
FY22 presented new challenges, most notably the impact of higher cost of goods
and inflationary pressures on both businesses and the consumer. Despite these
challenges we have been busy developing our proposition and capabilities
whilst continuing to drive our sustainability agenda. We remain focused on,
and driven by, our shared values, and, against a complex backdrop, our 'keep
listening and learning' value is proving particularly relevant. Once again,
our incredible colleagues and committed suppliers stepped up, learning and
adapting in order to deliver the best possible outcomes for our customers. I
would like to sincerely thank each and every one of them for their continued
resilience and contribution to another very successful year.
We expect the current challenges to persist at least throughout the year ahead
and are conscious that many of our customers are fearful about the mounting
cost of living pressures. Our primary focus at this time is to continue
offering outstanding value to our customers, whilst recognising that
individuals will adapt to the environment in their own ways. As ever, we
continue to apply a relentless focus on basic operational discipline and
attention to detail throughout the business to ensure that every pound counts.
This has characterised Dunelm in recent years, and is even more important in
light of the current challenges we face.
FY22 Review
Another strong performance
FY22 was another strong year for the business. Total sales grew by 16.2%(11),
and while the year-on-year growth benefitted from the lockdown related store
closures last year, the growth of 41.1% compared to FY19 demonstrates the pace
at which the business has developed through the pandemic period. We were
pleased with the performance of our stores following two years of disruption
and our digital channels also traded well, making up 35% of total sales over
the year, up from 20% in FY19. More people shopped with us than ever before;
our active customer base grew by 8.5%. Our strong sales performance was
supported by further market share gains, with our share in the homewares
market growing by 140bps.
We delivered a strong gross margin of 51.2%(11), despite an additional sale
event in Q1, as customer participation in event sales was low through most of
the year. We saw a higher participation of event sales in Q4, especially
during our Summer Sale. Profit before tax grew by 32.4%(11), benefitting from
the strong sales growth, higher than expected leverage of fixed store costs in
the first half, and ongoing tight operational grip.
We delivered a robust free cash flow of £153.0m, which included the impact of
temporarily building our inventory levels. This was a strategic decision we
took to maintain availability for customers through ongoing supply chain
instability which was seen across the market.
On the back of this strong financial performance, the Board has proposed a
final ordinary dividend of 26p, bringing the total ordinary dividend in
respect of FY22 to 40p, an increase of 14.3%.
(11) 52-week basis. On a 53-week basis, total sales were £1,581.4m (+18.4%),
gross margin was 51.2% (-40bps) and PBT was £212.8m (+34.9%). 52-week results
are unaudited
Delivering for all our stakeholders
We recognise that we have a diverse set of stakeholders in our business, and
in FY22 we continued to take decisions to balance the needs and expectations
of all of them.
Our colleagues are extremely important to us and we were pleased to be able to
offer employment to over 800 new colleagues in the year. We understand the
impact of the higher cost of living on all of our colleagues, and so we
implemented a median pay increase above 7% (greater than the equivalent
increase to the National Living Wage), focussing proportionately higher pay
increases on our lower paid colleagues. We want Dunelm to be an inclusive
workplace, and aspire to achieve a colleague base reflective of society at all
levels, providing opportunity for all. During the year we provided training
and set up network support groups to increase awareness in inclusion and
diversity, particularly in the areas of neurodiversity and ethnicity.
We also made progress on our ambitions to support thriving, purpose-driven
communities around every one of our stores. We now have more than one million
followers of our store Facebook groups. We delivered 19,000 Christmas gifts to
local care homes, schools and women's refuges. We raised over £600k for
charities in the year from colleague fundraising activity, including over
£450k for the mental health charity, Mind, during the first year of our
partnership.
We continue to focus on delivering outstanding value for our customers. We
sell great products at great prices and our customers feed back with
consistently high reviews on our own-brand products. We believe that our "fast
and friendly" store service is already a differentiator for Dunelm, and in
order to improve our home delivery service for customers, we opened a new
furniture distribution hub and a new fulfilment operation in the year.
Our business success also helps our committed suppliers to grow their
businesses. We worked collaboratively with them to minimise the disruption to
customers from the supply chain challenges and on initiatives to support the
achievement of our sustainability ambitions.
We shared our ambitious long-term targets for sustainability in FY21. In FY22,
we achieved our in-year targets for carbon emissions, plastic packaging
reduction and take-back - where we introduced a textiles take-back scheme. 30%
of our own branded cotton products met our "more responsibly sourced cotton"
standard. This was below the ambitious target that we set, but we are learning
and educating ourselves and our suppliers, and we are confident that we will
achieve our longer term commitments. We also recently launched a new label,
called Conscious Choice, which showcases our most sustainable products,
allowing customers to make more informed buying decisions.
Strategic Update: Becoming our Customers' 1(st) Choice for Home
Dunelm already enjoys broad-based appeal and greater than 90% brand
awareness(12). We are continuing to grow that appeal, and the number of active
customers who shopped with us increased by 8.5% in FY22. We saw growth across
all geographic regions in the UK, with customers in London and the South
contributing 40% of our total growth in customer numbers in FY22(13). We have
seen growth in customer numbers across all income levels, with a year-on-year
increase of more than 10% in both the <£20k per annum and >£100k per
annum income groups(13). We have also increased the appeal across all age
ranges, with customers aged between 16 and 24 growing by 8.5% and those aged
65 and over growing by 16.2%(13).
Our plan is to become our customers' 1(st) Choice for Home. We want to attract
more customers to shop at Dunelm for their home, and for all customers to shop
more frequently, across more product categories. To achieve this we are
working hard to deliver our purpose, 'to help create the joy of truly feeling
at home, now and for generations to come.' In the current climate, more than
ever, we are ambitious about striving to do this brilliantly, and excited by
the opportunity to continue to learn and adapt.
(12) Prompted awareness three month rolling average to June 2022. Source:
BrandVue
(13) Analysis of Dunelm customers FY21 to FY22. Source: Barclays
Investing in digitising the business
Digitising the business is a broad concept which refers to the development of
digital and data capabilities which allow us to grow our product offer (beyond
the physical limits of a store's capacity); to reach more consumers through
digital content and channels; and to give to our customers the advantages of
physical stores with the ease and convenience of online sales. We now have 177
stores, all offering Click & Collect and tablet-based selling of the
broader Dunelm range via colleague hosts. During the year we expanded our
digital fulfilment capacity and capabilities, with a new dedicated ecommerce
facility and a new furniture warehouse.
The strength of our total retail system has been proven in recent years. Our
customers were able to benefit from the convenience of our digital channels
during the pandemic and more recently have returned to stores to take
advantage of our full physical retail offering. Many of the customers who
shopped with us for the first time online during the pandemic are now shopping
in store, or across both channels, which contributed to an increase in
shopping frequency of 10%(14). We also know that our multi-channel and
multi-category customers shop on average 5x more often and spend 7x(15) more
than customers shopping through single channels and categories, further
demonstrating the advantages of our model. In addition, the number of 'most
valuable' customers, defined as those customers with higher spend across
multiple visits, grew by 16%(16).
We are continuing to invest in digitising the business in a thoughtful way, to
further enhance our product offer, brand reach, and customer experience. To
maximise returns, we are being agile in the way we deploy our digital teams,
balancing investment in growth areas such as customer acquisition and in
foundational capabilities such as master data management.
(14) Number of visits per retained customer in FY22. Retained customers
defined as those who shopped with Dunelm in FY21 and FY22. Source: Barclays
(15) Internal analysis based on active customers for the 12 months to June
2022.
(16) Internal analysis of 'most valuable' customers based on number of visits
and total expenditure.
Strengthening the customer proposition
We are constantly evolving and improving our overall customer proposition by
continuing to strengthen our offer across four key areas: choice and value,
good and circular, friendly and expert, and easy and convenient. Against the
current macro-economic backdrop and the resulting pressure on household
budgets, this is as important as ever.
In terms of choice and value, we offer a broad product range of more than
50,000 SKUs across 30 sub-categories, covering a large proportion of the UK
homewares markets, at price points to appeal to all customers, whatever their
style or budget. We have seen growth across the breadth of our product
categories, both in those where we have higher market shares, and newer areas,
including furniture and decorating. In all areas we have worked hard to
mitigate the impact of cost inflation, re-designing and re-sourcing products
in collaboration with our suppliers. We utilise a 'good - better - best'
hierarchy of price and quality tiers in our core product ranges, and are
totally committed to offering great value at all price points. An example of
this is our range of plain dye bedding, where we offer 15 different
price/quality levels between the opening price ('good') product and the
highest price ('best') product. In the second half of FY22 we re-set our range
of plain dye bedding, with a lower price in the 'good' tier, and a small
number of limited price increases across the best and better tiers. Most
prices remained unchanged, but with new colours and fabrics introduced. Across
each of the 'good', 'better' and 'best' tiers we saw strong growth in volume
and sales. The scope for continuous improvement and innovation around choice
and value is limitless, gives us energy, and leverages the skills, expertise
and experience of our colleagues and our supplier partners. The same approach
is present in how we develop special buys, impulse items and seasonal ranges,
which adapt to changing customer needs and preferences, and is an area of
particular focus in the current environment.
For the first time, we have included our ambition to be more environmentally
and socially responsible into our customer proposition, calling this good and
circular. We wish to offer our customers the opportunity to make informed
choices, and have therefore increased the number of products which meet our
'more responsibly sourced' standards. In addition to The Edited Life, our
lifestyle brand, which incorporates a variety of more sustainable materials
and encourages reduced consumption, we have also recently launched 'Conscious
Choice'. To be included in this selection of sustainably-focused own-brand
lines, each product must be made from at least 50% more sustainable materials
(by weight) compared to conventional alternatives, and will typically also
offer an extended guarantee of between five and 25 years, with the products
having been designed with durability in mind. In addition to product
development, we also reduced the volume of plastic packaging on our own-brand
products, and, in December 2021, expanded an in-store textiles take-back
scheme nationwide. We now have customer take-back options for more than half
of our own-brand product range, and have seen significant customer uptake.
As a business with both digital channels and local stores, we have numerous
ways to seamlessly offer our customers both friendly and expert services. We
recently re-modelled some of our larger stores to extend the furniture
department, showcasing more of our home delivery range for our customers to
see and sample and to allow them to ask for advice. We will learn whether
customers are willing to travel further to visit these stores, but we have
also enabled the colleagues in these stores to talk to customers and showcase
the product virtually through video calls. Indeed, in recent years we have
worked to connect all of our stores digitally with their local areas. This has
exceeded our expectations in many ways, with a total of over one million
Facebook followers in the communities we are building around our stores to
support local initiatives that help people and the environment. This is
becoming a reinforcing model where these communities foster word-of-mouth
awareness and advocacy, and underpin our local marketing, lowering the cost of
reaching new customers and encouraging more visits.
Easy and convenient is another part of our customer proposition that benefits
from the combination of physical and digital channels. Click & Collect is
one example of this, as is the ability to research more complex products
either online or instore, depending on personal preference. Our Made to
Measure curtains and blinds service is benefitting from the work underway to
offer the same comprehensive assortment through all channels, and to allow
customers to manage their order seamlessly between their online account and an
in-store consultation. As part of our commitment to offer a more comprehensive
range in this category, in May 2022 we acquired Sunflex, a leading supplier of
blinds, curtains and poles, for a cash consideration of £20.8m. This
acquisition enhances our product capability in window treatments and brings
design, quality and fulfilment capability across a complex product catalogue.
We have also invested in, and improved, our home delivery capability, with the
opening of two new distribution centres. A dedicated ecommerce fulfilment
facility in Stoke, in partnership with GXO, to support our digital growth
ambitions through better customer service, scale and efficiency, has already
enabled us to shorten delivery times and extend order cut off times for
express delivery services. In March 2022, we opened a dedicated 200,000 sq.
ft. furniture distribution hub in Daventry, to improve the availability and
speed of delivery of bulkier items, as well as the productivity of the flows
into our home delivery network.
This ongoing work to strengthen our customer proposition is benefitting from
the capabilities we continue to build in areas such as product, technology,
digital & data engineering and insight & analytics. None of this would
be possible without the strong operational focus and desire we have to make
every pound count, which enables us to offer outstanding value to our
customers, and at the same time invest prudently in digitising the business.
Summary and outlook
Trading in the first ten weeks of the financial year has remained robust. The
comparative period benefitted from the delayed Summer Sale and reopening of
stores and associated pent up consumer demand so, as expected, sales have been
below the levels seen last year.
The operating and economic environment is extremely challenging. High
inflation is expected to remain a feature throughout the year to come, and
potentially beyond, causing the pressures on household budgets to increase.
While consumer behaviour is unpredictable, our primary focus is to offer
outstanding value. We continue to listen, learn and adapt, which plays to our
strengths. We have a resilient, relevant and advantaged business model which
is highly cash generative, and we are confident in our ability to continue to
deliver for all stakeholders.
As we return to more normal patterns of customer behaviour, we expect a gross
margin of c.50%, in line with our historic average. We are managing input
cost inflation through our tight operational grip, and despite the macro
challenges, we are on track to deliver FY23 results in line with analysts'
expectations(17).
(17) Company compiled consensus average of analysts' expectations for FY23 PBT
of £178m, with a range £130m to £193m.
Nick Wilkinson
Chief Executive Officer
14 September 2022
CHIEF FINANCIAL OFFICER'S REVIEW
Revenue
Total sales for the comparable 52-week period increased by 16.2% to
£1,553.1m(18) (FY21: £1,336.2m). For the 53 weeks to 2 July 2022, total
sales increased by 18.4%. These growth rates reflect a strong year of trading,
the additional Summer Sale event in Q1, and a weaker comparative period in
FY21 when stores were only able to offer Click and Collect services for around
one third of the year. Digital sales made up 35% of total sales, lower than
FY21 (46%) due to the store closure periods in the previous year.
FY22 YoY FY22 YoY
(52 weeks) (52w vs 52w) (53 weeks)
Total Group sales £1,553.1m +16.2% £1,581.4m +18.4%
Digital % total sales 35% -11ppts 35% -11ppts
Homewares market share(19) 10.2% +1.4ppts
Furniture market share(19) 1.9% +0.2ppts
Compared to FY19 (the last comparable period with all stores open all year),
and on a consistent 52-week basis, total sales grew by 41.1% (FY19:
£1,100.4m). Digital sales have grown by 2.5x since FY19, when they made up
20% of total sales. The growth rates we have delivered reflect the significant
improvements we have made to our product offer, the broadening appeal of our
brand, and the strength of our total retail system, which offers customers a
friendly and convenient shopping experience across all channels.
We continue to see broad-based growth across our categories. Our furniture
categories have performed particularly well, benefitting from improved
availability and new additions to our ranges, such as home office (where we
have increased the number of options by 60%). Our seasonal ranges also
performed strongly, with customers responding well to our winter warm and
garden furniture lines in particular. We are also pleased with the performance
of our decorating ranges, and the new products we launched in collaboration
with the Natural History Museum.
Encouragingly, we have further increased our market share(19). In homewares,
our market share increased by 140bps, and we also gained share in the
furniture market, from a small base. Consistent with recent years, over 85% of
our total growth in the year was from market share gains. We remain confident
that the improvements we are making to our customer proposition in the four
key focus areas described in the CEO review will continue to deliver market
share gains going forward.
(18) FY22 was a 53-week year. Unless otherwise stated, commentary relates to
the comparable 52-week period. The 52-week results for FY22 are unaudited
(19) GlobalData UK homewares and furniture markets. Furniture excludes
kitchen and bathroom furniture. Our homewares market share for FY21 has been
restated by GlobalDataUK to 8.8% (previously reported 9.1%).
Gross margin
We continued to work closely with our committed suppliers to mitigate cost
price pressures and minimise retail price increases, whilst maintaining our
commitment to offering customers great value for money at all price points.
Gross margin of 51.2% (on both 52 and 53-week bases) was strong, reflecting a
continued lower participation of event sales in the first half of the year.
Gross margin was 40bps lower than the prior year primarily reflecting a return
to historic levels of participation in event lines during our Summer Sale in
Q4.
Looking ahead, we expect the participation in event lines to be higher than
the last two financial years and expect FY23 gross margin to be closer to our
long-term average of around 50%.
Operating costs
Total operating costs were £581.8m(20) (FY21: £522.5m), representing an
operating cost ratio of 37.5% (FY21: 39.1%). On a 53-week basis, total
operating costs were £591.7m, with an operating cost ratio of 37.4%. The
operating cost ratio benefitted from the leverage effect of a full year with
all stores open, with this impact being particularly strong in H1.
The growth in sales increased operating costs by £12m, including £7m from
the decision to increase our stockholding to protect availability. We expect
these temporary costs to continue through H1 FY23, and then to reduce as stock
levels return to more typical levels in H2. The impact of the reintroduction
of business rates and the repayment of the JRS monies in FY21 led to a net
increase in operating costs of £10m in the year. Inflationary pressures,
mainly on wages, increased operating costs by £17m. We invested £20m in
building capabilities and capacity (particularly in technology, data, digital
and fulfilment). Our investment in new ecommerce and furniture supply chain
sites will improve customer service. The 53(rd) week added a further £10m of
costs compared to FY21.
We will continue to invest in a thoughtful way for the long-term, ensuring
that our resources are deployed to maximise returns. In recent years we have
invested in capability in areas such as digital, data and customer insight, as
well as supply chain capacity to support medium term growth. We will leverage
the benefit from these investments as they mature and become more efficient,
helping to offset inflationary pressures. Our approach to operational grip has
never been more important, and we will continue to relentlessly focus on
making every pound count.
(20) FY22 was a 53-week year. Unless otherwise stated, commentary relates to
the comparable 52-week period. The 52-week results for FY22 are unaudited
Profit and earnings per share
Operating profit of £213.9m(21) (53-week basis: £217.7m) was 28.5% higher
than FY21 (FY21: £166.4m). This reflects a full year of open stores, strong
gross margin, and a tight operational grip on costs. The acquisition and
consolidation of the Sunflex business towards the end of FY22 did not have a
material impact on earnings in the period.
Net finance costs of £4.8m(21) (FY21: £8.6m) included interest on IFRS 16
lease liabilities of £4.8m (FY21: £5.3m). On a 53-week basis, net finance
costs were £4.9m.
Profit before tax in the period was £209.0m(21) (FY21: £157.8m), an increase
of £51.2m year on year. On a 53-week basis, profit before tax was £212.8m.
Profit after tax of £168.2m(21) (FY21: £128.9m) reflected an effective tax
rate of 19.5% (FY21: 18.3%). On a 53-week basis, profit after tax was
£171.2m. The effective tax rate was 50bps higher than the UK headline rate,
within our historic range, but higher than FY21 which benefitted from the
timing of R&D claims. We expect the effective tax rate to continue to
trend c.50-80bps above the headline rate.
Basic earnings per share (EPS) for the period were 83.0 pence(21) (FY21: 63.7
pence). Diluted earnings per share were 82.1 pence(21) (FY21: 62.9 pence). On
a 53-week basis, basic earnings per share were 84.5 pence, with diluted
earnings per share at 83.6 pence.
(21) FY22 was a 53-week year. Unless otherwise stated, commentary relates to
the comparable 52-week period. The 52-week results for FY22 are unaudited
Cash generation and net cash
In the period, the Group generated £153.0m of free cash flow (FY21:
£108.5m).
FY22 (53 weeks) FY21 (52 weeks)
£m £m
Operating profit 217.7 166.4
Depreciation and amortisation(22) 79.3 80.8
Working capital outflow (14.8) (35.0)
Share-based payments 4.8 7.5
Tax paid (35.2) (35.5)
Net cash generated from operating activities 251.8 184.2
Capex and business combinations (41.7) (15.7)
Net interest and loan transaction costs(23) (2.1) (0.7)
Interest on lease liabilities (4.8) (5.3)
Repayment of principal element of lease liabilities (50.2) (54.0)
Free cash flow 153.0 108.5
(22) Including impairment and loss on disposal
(23 )Excluding interest on lease liabilities
There was a working capital outflow of £14.8m in the period (FY21: £35.0m)
as we consciously built our inventory levels to ensure we maintained good
availability for customers, given the risk of ongoing supply chain disruption
which has been seen across the market. Inventories at the end of the period
were £223.0m (FY21: £172.4m). Whilst we are comfortable with this level of
inventory for now, we do expect stock holding to reduce during FY23.
Total capital investment was £41.7m (FY21: £15.7m). This included £9.3m
relating to the set-up of our new ecommerce and furniture supply chain
operations, and £11.5m spent on the three new stores opened in the period, as
well as refits of nine existing stores and decarbonisation initiatives. On 3
May 2022 we acquired the trade and assets of Sunflex, a division of Hunter
Douglas (UK) Limited, for a cash consideration of £20.8m, of which £17.7m
had been paid at 2 July 2022. We expect capital expenditure in FY23 to be
c.£20-£30m.
Cash tax paid of £35.2m (FY21: £35.5m) included receipts in relation to
research and development claims made at the end of FY21.
Repayments of lease liabilities of £50.2m (FY21: £54.0m) were lower than the
prior year as the comparative was impacted by the agreed deferral of the June
2020 rent payments into H1 FY21.
In the period, the Group spent £28.3m (FY21: nil) purchasing shares to be
held in treasury to satisfy future obligations under its employee share
schemes.
After total dividend payments in the period of £282.1m (FY21: £24.3m),
including special dividends of £207.0m, the Group ended the year with a net
debt position of £23.8m (FY21: net cash £128.6m).
Banking agreements
In December 2021 the Group agreed a new £185m sustainability-linked
unsecured revolving credit facility ("RCF"). The facility has an initial term
of four years, which may be extended by a maximum of a further two years
at Dunelm's request, subject to lender consent. The RCF incorporates four
sustainability-linked performance targets which align with our ambitious
sustainability plans, including our commitment to pursue a Net Zero Pathway.
In FY22, we achieved our targets for plastic packaging, take-back and carbon
reduction. Despite an improvement in the sourcing of cotton, our FY22 target
was not achieved. We continue to learn and educate ourselves and our
suppliers, and remain confident that we will achieve our long-term targets.
The terms of the RCF include covenants in respect of leverage (net debt to be
no greater than 2.5× EBITDA(24)) and fixed charge cover (EBITDA(24) to be no
less than 1.75× fixed charges(25)), both of which were met comfortably as at
2 July 2022.
In addition, the Group maintains £10m of uncommitted overdraft facilities and
has an accordion option within the RCF for a maximum facility of £75m.
(24 )EBITDA excludes right of use asset depreciation
(25 )Fixed charges are defined as interest costs plus right of use asset
depreciation
Going concern
At the time of approving the financial statements, the Board of Directors is
required to formally assess that the business has adequate resources to
continue in operational existence for the foreseeable future and as such can
continue to adopt the 'Going Concern' basis of accounting. To support this
assessment, the Board is required to consider the Group's current financial
position, its strategy, the market outlook and its principal risks.
The key judgement that the Directors have considered in forming their
conclusion is the potential impact on future revenue, profits and cashflows of
a downturn in consumer spending away from homewares due to the current
economic environment, resulting in no growth in Year 1 and lower sales and
margin across all channels throughout the review period. They have also
considered a deeper downturn in consumer spending away from homewares,
resulting in negative growth in Year 1 and lower sales and margin across all
channels throughout the review period.
In both downside scenarios Dunelm has sufficient liquidity to continue
trading, including maintaining the payment of dividends in line with its
dividend policy, and to comfortably meet its financial covenants. Reverse
stress modelling has demonstrated that a prolonged sales reduction of 30% from
Q2 FY23 and 37% from FY24 is required to breach covenants by the end of FY24
and a 55% sales reduction is required to breach the RCF limit by the end of
FY24, assuming reasonable mitigating actions have been implemented.
In such an event, management would follow a similar course of actions to those
initially undertaken during the recent Covid-19 pandemic.
As a result, the Board believes that the Group is well placed to manage its
financing and other significant risks satisfactorily and that the Group will
be able to operate within the level of its facilities for the foreseeable
future. For this reason, the Board considers it appropriate for the Group to
adopt the going concern basis in preparing its financial statements. In
addition, based on a review of the impact of climate change, climate change is
not expected to have a significant impact in the Group's going concern
assessment.
Capital and dividend policies
The Board policy on capital structure targets an average net debt level
(excluding lease obligations and short-term fluctuations in working capital)
of between 0.2× and 0.6× of the last 12 months' EBITDA (on a post IFRS 16
basis). The Group's dividend policy targets ordinary dividend cover of
between 1.75× and 2.25× earnings per share during the financial year to
which the dividend relates.
The Board will continue to consider returning surplus cash to shareholders if
average net debt, excluding lease liabilities, over a period consistently
falls below the minimum target of 0.2× EBITDA, subject to known and
anticipated investment plans at the time.
The Group's full capital and dividend policies are available on our website at
www.corporate.dunelm.com (http://www.corporate.dunelm.com) .
Dividends
The Board has proposed a final ordinary dividend of 26 pence per share,
recognising our very strong performance in the year and our confidence in the
business. This takes the full year ordinary dividend to 40 pence per share,
ahead of the 35 pence per share paid in FY21, with dividend cover of 2.1× on
both a 52 and 53 week basis, within the range of our stated policy. The final
dividend will be paid on 5 December 2022 to shareholders on the register on 11
November 2022, subject to it being approved by shareholders at the AGM. We
paid total dividends of £282m in the year, including special dividends of
£207m.
Principal risks and uncertainties
The Board regularly reviews and monitors the risks and uncertainties which
could have a material effect on the Group's results. The principal risks and
uncertainties that could lead to a material impact have not significantly
changed from those listed in the FY21 Annual Report. No new principal risks
were identified in the year, however there were four risks where the potential
impact had increased over the year, with the remaining risks having no change
in their overall impact. We have also renamed one of our principal risks. A
summary of the principal risks has been provided below:
Risk Impact
Competition, market and customers Failure to respond to changing consumer needs e.g., the shift towards online
sales, personalisation, rental versus ownership, sustainability and customer
experience, and to maintain a competitive offer (range, quality, value and
ease of shopping) could impact profitability and limit opportunities for
growth.
A downturn in the economy and consumer spending, aggressive competitor
activity (especially with cost price pressures) could impact sales and profit.
Catastrophic business events Failure to withstand the impact of an external event or combination of events
that severely disrupts markets and causes significant damage to all or a
substantial part of the Group's sales or operations (e.g. pandemic).
Brand damage Our customers expect us to deliver products that are safe, compliant with
legal and regulatory requirements, and fit for purpose. Increasingly,
customers also want to know that products have been responsibly sourced and
that their environmental impact is minimised.
We must also ensure that our suppliers share and uphold our approach to
business ethics, human rights (including safety and modern slavery) and the
environment.
Failure to do so could result in harm to individuals with the potential for
customers, colleagues and other stakeholders to lose confidence in the Dunelm
brand.
People and culture The success of the business could be impacted if it fails to attract, retain
and motivate high-calibre colleagues.
Maintaining and evolving the culture of our business (embodied in our shared
values) is essential to delivering our strategy and ensuring the long-term
sustainability of our business.
IT systems, data and cyber security Operations impacted by failure to develop technology to support the strategy,
lack of systems availability due to cyber attack or other failure, and
reputational damage/fines due to loss of personal data.
Regulatory and compliance Fines, damages claims, and reputational damage could be incurred if we fail to
comply with legislative or regulatory requirements, including consumer law,
health and safety, employment law, GDPR and data protection, Bribery Act, or
competition law.
Climate change and environment Failure to anticipate and address the strategic, regulatory, and reputational
impact of climate change and environmental matters, and governmental, consumer
and media action in response to it.
Supply chain disruption Changes in global supply chain capacity, labour shortages, ongoing disruption
from Covid-19 and geo-political instability may cause interruption to the
supply of stock to our stores and fulfilment of online orders which could
impact sales. Inflationary pressures linked to these challenges could impact
profitability.
Business efficiency Profitability could be impacted by failure to operate the business efficiently
or to manage margin volatility.
Finance and treasury Progress against business objectives constrained by a lack of short-term
funding and long term capital.
Alternative performance measures (APMs)
APM Definition, purpose and reconciliation to statutory measure
Unique active customers growth 12-month rolling growth in unique active customers who have shopped in the 12
months, based on Barclays transactional data. Note that Barclays data
represents approximately 10% of total Dunelm transactions. To measure whether
we are continuing to grow our active customer base - from both new customers
and retention of existing customers.
Total sales Equivalent to revenue (from all channels). This is net of customer returns.
Digital sales Digital sales include home delivery, Click & Collect (or Reserve &
Collect before October 2019) and tablet-based sales in store.
Digital % total sales Digital sales (as defined above) expressed as a percentage of revenue. This is
not a measure that we seek to maximise in itself, but we measure it to track
our adaptability to changing customer behaviours.
Gross margin % Gross profit/revenue. Measures the profitability made on product sales prior
to selling & distribution costs and administrative expenses.
Operating costs to sales ratio Operating costs/revenue. To measure the growth of costs relative to sales
growth.
EBITDA Earnings before interest, tax, depreciation, amortisation and impairment.
Excludes right of use asset depreciation. To measure compliance with bank
covenants
Effective tax rate Taxation/profit before taxation. To measure how close we are to the UK
corporation tax rate and understand the reasons for any differences.
Capex (net of disposals) Acquisition of intangible assets and acquisition of property, plant and
equipment less proceeds on disposal of property, plant and equipment and
intangibles.
Free cash flow Net cash generated from operating activities less capex (net of disposals) and
business combinations, net interest paid (including leases) and loan
transaction costs, and repayment of lease liabilities. Measures the cash
generated that is available for disbursement to shareholders.
Net cash/(debt) Cash and cash equivalents less total borrowings (as shown in note 12).
Excludes IFRS 16 lease liabilities.
Karen Witts
Chief Financial Officer
14 September 2022
Consolidated Income Statement
For the 53 weeks ended 2 July 2022
2022 2021
53 weeks
52 weeks
Note £'m £'m
Revenue 1,581.4 1,336.2
Cost of sales (772.0) (647.3)
Gross profit 809.4 688.9
Operating costs 2 (591.7) (522.5)
Operating profit 3 217.7 166.4
Financial income 5 1.2 0.1
Financial expenses 5 (6.1) (8.7)
Profit before taxation 212.8 157.8
Taxation 6 (41.6) (28.9)
Profit for the period 171.2 128.9
Earnings per Ordinary Share - basic 8 84.5p 63.7p
Earnings per Ordinary Share - diluted 8 83.6p 62.9p
Consolidated Statement of Comprehensive Income
For the 53 weeks ended 2 July 2022
2022 2021
53 weeks
52 weeks
Note £'m £'m
Profit for the period 171.2 128.9
Other comprehensive income/(expense):
Items that may be subsequently reclassified to profit or loss:
Movement in fair value of cash flow hedges 32.4 (17.7)
Deferred tax on hedging movements (5.3) 2.2
Other comprehensive income for the period, net of tax 27.1 (15.5)
Total comprehensive income for the period 198.3 113.4
Consolidated Statement of Financial Position
As at 2 July 2022
Note 2 July 26 June
2022
2021
53 weeks
52 weeks
£'m £'m
Non-current assets
Intangible assets 9 9.9 14.8
Property, plant and equipment 10 173.7 162.6
Right-of-use assets 11 248.5 262.0
Deferred tax assets 4.1 11.4
Derivative financial instruments 4.6 0.3
Total non-current assets 440.8 451.1
Current assets
Inventories 223.0 172.4
Trade and other receivables 22.9 11.8
Current tax asset 1.1 2.4
Derivative financial instruments 19.9 0.4
Cash and cash equivalents 30.2 128.6
Total current assets 297.1 315.6
Total assets 737.9 766.7
Current liabilities
Trade and other payables (223.2) (181.8)
Lease liabilities 11 (52.8) (49.0)
Derivative financial instruments - (5.1)
Total current liabilities (276.0) (235.9)
Non-current liabilities
Bank loans 12 (52.8) -
Lease liabilities 11 (225.3) (244.3)
Provisions (5.5) (4.5)
Derivative financial instruments - (0.8)
Total non-current liabilities (283.6) (249.6)
Total liabilities (559.6) (485.5)
Net assets 178.3 281.2
Equity
Issued share capital 2.0 2.0
Share premium account 1.7 1.6
Capital redemption reserve 43.2 43.2
Hedging reserve 20.2 (4.3)
Retained earnings 111.2 238.7
Total equity attributable to equity holders of the Parent 178.3 281.2
Karen Witts
Chief Financial Officer
14 September 2022
Consolidated Statement of Cash Flows
For the 53 weeks ended 2 July 2022
Note 2022 2021
53 weeks
52 weeks
£'m £'m
Cash flows from operating activities
Profit before taxation 212.8 157.8
Net financial expense 5 4.9 8.6
Operating profit 217.7 166.4
Depreciation and amortisation of property, plant and equipment and intangible 3 30.5 31.8
assets
Depreciation of right-of-use assets 3 48.6 45.7
Loss on disposal and impairment of property, plant and equipment and 3 0.3 2.3
intangible assets
(Gain)/loss on disposal and impairment of right-of-use assets 3 (0.1) 1.0
Share-based payments expense 4.8 7.5
Operating cash flows before movements in working capital 301.8 254.7
Increase in inventories (40.3) (54.2)
(Increase)/decrease in trade and other receivables (7.7) 4.1
Increase in trade and other payables 33.2 15.1
Net movement in working capital (14.8) (35.0)
Tax paid (35.2) (35.5)
Net cash generated from operating activities 251.8 184.2
Cash flows from investing activities
Acquisition of intangible assets (0.7) (0.6)
Acquisition of property, plant and equipment (23.3) (15.1)
Acquisition of business combination (17.7) -
Interest received 0.1 0.1
Net cash used in investing activities (41.6) (15.6)
Cash flows from financing activities
Proceeds from issue of treasury shares and ordinary shares 3.9 1.8
Purchase of treasury shares (28.3) -
Drawdowns on Revolving Credit Facility 85.0 -
Repayments of Revolving Credit Facility (31.0) (45.0)
Interest paid and loan transaction costs (2.2) (0.8)
Interest paid on lease liabilities 11 (4.8) (5.3)
Repayment of principal element of lease liabilities (50.2) (54.0)
Ordinary dividends paid 7 (282.1) (24.3)
Net cash used in financing activities (309.7) (127.6)
Net (decrease) / increase in cash and cash equivalents (99.5) 41.0
Foreign exchange revaluations 5 1.1 (2.4)
Cash and cash equivalents at the beginning of the period 128.6 90.0
Cash and cash equivalents at the end of the period 30.2 128.6
Consolidated Statement of Changes in Equity
For the 53 weeks ended 2 July 2022
Note Issued share capital Share premium account Capital redemption reserve Hedging reserve Retained earnings Total equity attributable to equity holders of the Parent
£'m £'m £'m £'m £'m £'m
As at 28 June 2020 2.0 1.6 43.2 5.3 121.3 173.4
Profit for the period - - - - 128.9 128.9
Movement in fair value of cash flow hedges - - - (17.7) - (17.7)
Deferred tax on hedging movements - - - 2.2 - 2.2
Total comprehensive income for the period - - - (15.5) 128.9 113.4
Proceeds from issue of treasury shares - - - - 1.8 1.8
Share-based payments - - - - 7.5 7.5
Deferred tax on share-based payments - - - - 2.9 2.9
Current tax on share options exercised - - - - 0.6 0.6
Loss on cash flow hedges transferred to inventory - - - 5.9 - 5.9
Ordinary dividends paid 7 - - - - (24.3) (24.3)
Total transactions with owners, recorded directly in equity - - - 5.9 (11.5) (5.6)
As at 26 June 2021 2.0 1.6 43.2 (4.3) 238.7 281.2
Profit for the period - - - - 171.2 171.2
Movement in fair value of cash flow hedges - - - 32.4 - 32.4
Deferred tax on hedging movements - - - (5.3) - (5.3)
Total comprehensive income for the period - - - 27.1 171.2 198.3
Proceeds from issue of shares - 0.1 - - - 0.1
Proceeds from issue of treasury shares - - - - 3.9 3.9
Purchase of treasury shares - - - - (28.3) (28.3)
Share-based payments - - - - 4.8 4.8
Deferred tax on share-based payments - - - - 0.8 0.8
Current tax on share options exercised - - - - 2.2 2.2
Gain on cash flow hedges transferred to inventory - - - (2.6) - (2.6)
Ordinary dividends paid 7 - - - - (282.1) (282.1)
Total transactions with owners, recorded directly in equity - 0.1 - (2.6) (298.7) (301.2)
As at 2 July 2022 2.0 1.7 43.2 20.2 111.2 178.3
Accounting Policies
For the 53 weeks ended 2 July 2022
Basis of preparation
The period ended 2 July 2022 consisted of 53 weeks. The comparative period
consisted of 52 weeks.
The annual report and financial statements for the period ended 2 July 2022
were approved by the Board of Directors on 14 September 2022 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 2 July
2022 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 26 June 2021
have been delivered to the Registrar of Companies. The auditor's report on the
statutory accounts for the period ended 26 June 2021 was unqualified and did
not contain a statement under section 498 of the Companies Act 2006.
1. Revenue
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 their journey
often 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. The Executive Board reviews internal management reports on a
monthly basis and performance is assessed based on a number of financial and
non-financial KPIs as well as on profit before taxation.
Management believes that these measures are the most relevant in evaluating
the performance of the Group and for making resource allocation decisions.
All material operations of the Group 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.
At the year end the Group had £12.2m (2021: £11.8m) of sales orders placed
that will be recognised in the Consolidated Income Statement when the goods
are despatched in the following financial year.
2. Operating costs
2022 2021
53 weeks
52 weeks
£'m £'m
Selling and distribution costs 469.4 423.9
Administrative expenses 122.3 98.6
591.7 522.5
3. Operating profit
Operating profit is stated after charging / (crediting) the following items:
2022 2021
53 weeks
52 weeks
£'m £'m
Cost of inventories included in cost of sales 765.3 638.5
Amortisation of intangible assets 6.2 7.3
Depreciation of owned property, plant and equipment 24.3 24.5
Depreciation of right-of-use assets 48.6 45.7
Loss on disposal and impairment of property, plant and equipment and 0.3 2.3
intangible assets
(Gains) / losses on disposal and impairment of right-of-use assets (0.1) 1.0
Expense related to short-term leases 0.6 1.8
The cost of inventories included in cost of sales includes the impact of a net
increase in the provision for obsolete inventory of £4.2m (2021: £5.3m
increase) of which £2.6m relates to Sunflex.
The analysis of the auditors' remuneration is as follows:
2022 2021
53 weeks
52 weeks
£'000 £'000
Fees payable to the Group's auditors for the audit of the Parent and 46 29
consolidated annual financial statements
Fees payable to the Group's auditors and their associates for other services
to the Group
- Audit of the Company's subsidiaries pursuant to legislation 256 225
- Other assurance services 42 40
4. Employee numbers and costs
The average monthly number of people employed by the Group (including
Directors) was:
2022 2022 2021 2021
53 weeks
53 weeks
52 weeks
52 weeks
Number Full time Number Full time
of heads
equivalents
of heads
equivalents
Selling 9,544 5,437 9,039 5,390
Distribution 963 930 829 812
Administration 925 906 704 695
11,432 7,273 10,572 6,897
The aggregate remuneration of all employees (including Directors) comprises:
2022 2021
53 weeks
52 weeks
£'m £'m
Wages and salaries (including termination benefits) 211.1 190.8
Social security costs 14.3 13.0
Share-based payment expense 4.9 7.5
Pension costs - defined contribution plans 5.2 4.5
235.5 215.8
In the prior year, payroll costs included £14.5m relating to the Board's
decision to repay claims made in 2020 under the UK Government's Coronavirus
Job Retention Scheme.
5. Financial income and expenses
2022 2021
53 weeks
52 weeks
£'m £'m
Financial income
Interest on bank deposits 0.1 0.1
Net foreign exchange gains 1.1 -
1.2 0.1
Financial expenses
Interest on bank borrowings (0.9) (0.8)
Amortisation of issue costs of bank loans (0.4) (0.2)
Net foreign exchange losses - (2.4)
Interest on lease liabilities (4.8) (5.3)
(6.1) (8.7)
Net financial expense (4.9) (8.6)
6. Taxation
2022 2021
53 weeks
52 weeks
£'m £'m
Current taxation
UK corporation tax charge for the period 39.0 32.7
Adjustments in respect of prior periods (0.2) (1.7)
38.8 31.0
Deferred taxation
Origination of temporary differences 3.0 (1.3)
Adjustments in respect of prior periods (0.2) -
Impact of change in tax rate - (0.8)
2.8 (2.1)
Total tax expense 41.6 28.9
6.
The tax charge is reconciled with the standard rate of UK corporation tax as
follows:
2022 2021
53 weeks
52 weeks
£'m £'m
Profit before taxation 212.8 157.8
UK corporation tax at standard rate of 19.0% (2021: 19.0%) 40.4 30.0
Factors affecting the charge in the period:
Non-deductible expenses 1.6 1.4
Adjustments in respect of prior periods (0.4) (1.7)
Impact of change in tax rate - (0.8)
Tax charge 41.6 28.9
The taxation charge for the period as a percentage of profit before tax is
19.5% (2021: 18.3%).
The UK Government substantively enacted an increase in the corporation tax
rate to 25.0% effective from 1 April 2023. The deferred tax asset as at 2 July
2022 has been calculated based on the rate of 25.0% unless the asset/liability
is expected to be realised or settled before the rate increase in which case
the rate of 19.0% has been used.
7. Dividends
The dividends set out in the table below relate to the 1 pence Ordinary
Shares:
2022 2021
53 weeks
52 weeks
£'m £'m
Interim dividend for the period ended 26 June 2021 - paid 12.0 pence - 24.3
Special dividend for the period ended 26 June 2021 - paid 65.0 pence 131.9 -
Final dividend for the period ended 26 June 2021 - paid 23.0 pence 46.8 -
Interim dividend for the period ended 2 July 2022 - paid 14.0 pence 28.3 -
Special dividend for the period ended 2 July 2022 - paid 37.0 pence 75.1 -
282.1 24.3
The Board are proposing a final dividend of 26 pence per Ordinary Share for
the period ended 2 July 2022 which equates to £52.9m. Subject to shareholder
approval at the AGM this will be paid on 5 December 2022 to shareholders on
the register at the close of business on 11 November 2022.
8. Earnings per Ordinary 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 Group's Ordinary Shares
during the period.
Weighted average numbers of shares:
2022 2021
53 weeks
52 weeks
'000 '000
Weighted average number of shares in issue during the period 202,722 202,445
Impact of share options 2,135 2,445
Number of shares for diluted earnings per share 204,857 204,890
2022 2021
53 weeks
52 weeks
£'m £'m
Profit for the period 171.2 128.9
Earnings per Ordinary Share - basic 84.5p 63.7p
Earnings per Ordinary Share - diluted 83.6p 62.9p
9. Intangible assets
Software Rights to brands and customer lists Total
development
and licences
£'m £'m £'m
Cost
At 28 June 2020 51.7 11.0 62.7
Additions 0.6 - 0.6
Disposals (0.3) - (0.3)
At 26 June 2021 52.0 11.0 63.0
Additions 0.9 - 0.9
Acquisition through business combination - 0.5 0.5
Disposals (0.3) - (0.3)
At 2 July 2022 52.6 11.5 64.1
Accumulated amortisation
At 28 June 2020 29.0 11.0 40.0
Charge for the financial period 7.3 - 7.3
Disposals (0.3) - (0.3)
Impairment 1.2 - 1.2
At 26 June 2021 37.2 11.0 48.2
Charge for the financial period 6.2 - 6.2
Disposals (0.2) - (0.2)
At 2 July 2022 43.2 11.0 54.2
Net book value
At 28 June 2020 22.7 - 22.7
At 26 June 2021 14.8 - 14.8
At 2 July 2022 9.4 0.5 9.9
All amortisation is included within operating costs in the Consolidated Income
Statement.
There was no trigger for impairment in the period. Last year's impairment of
£1.2m relates to tablet-based sales enabling software that was impaired
following the development and roll out of new functionality in this area.
Within software development and licences there were no additions (2021: nil)
related to internally generated assets.
10. Property, plant and equipment
Freehold land and buildings Leasehold improvements Fixtures, fittings and equipment Total
£'m £'m £'m £'m
Cost
At 28 June 2020 97.7 160.6 119.9 378.2
Additions - 3.8 9.0 12.8
Disposals - (6.7) (4.7) (11.4)
At 26 June 2021 97.7 157.7 124.2 379.6
Transfer - 1.2 (1.2) -
Additions 0.1 13.3 12.6 26.0
Acquisition through business combination 9.2 0.1 0.3 9.6
Disposals - (8.3) (3.7) (12.0)
At 2 July 2022 107.0 164.0 132.2 403.2
Accumulated depreciation
At 28 June 2020 16.4 84.8 101.6 202.8
Charge for the financial period 1.7 13.2 9.6 24.5
Disposals - (6.2) (4.3) (10.5)
Impairment - 0.1 0.1 0.2
At 26 June 2021 18.1 91.9 107.0 217.0
Transfer - (0.5) 0.5 -
Charge for the financial period 1.8 14.4 8.1 24.3
Disposals - (8.1) (3.7) (11.8)
At 2 July 2022 19.9 97.7 111.9 229.5
Net book value
At 28 June 2020 81.3 75.8 18.3 175.4
At 26 June 2021 79.6 65.8 17.2 162.6
At 2 July 2022 87.1 66.3 20.3 173.7
All depreciation and impairment charges have been included within operating
costs in the Consolidated Income Statement.
There was no trigger for impairment in the period. Last year's impairment of
£0.2m relates to store impairment. The recoverable amount was determined as
the value in use, applying a discount rate of 10.0% (pre-tax).
Similar asset categories have been amalgamated into leasehold improvements and
fixtures, fittings and equipment in the current year. The nature of this
change is presentational under IAS1.
11. Leases
Right-of-use assets included in the Consolidated Statement of Financial
Position at 2 July 2022 were as follows:
2022 2022 2022 2021
53 weeks
53 weeks
53 weeks
52 weeks
Land and buildings Motor vehicles, plant and equipment Total Total
£'m £'m £'m £'m
At the beginning of the period 254.7 7.3 262.0 283.3
Additions 30.9 4.4 35.3 25.5
Disposals (0.1) (0.1) (0.2) (0.1)
Impairment - - - (1.0)
Depreciation (45.1) (3.5) (48.6) (45.7)
At the end of the period 240.4 8.1 248.5 262.0
Right-of-use additions include £3.1m of lease modifications (2021: £1.3m).
Lease liabilities included in the Consolidated Statement of Financial Position
at 2 July 2022 were as follows:
2022 2022 2022 2021
53 weeks
53 weeks
53 weeks
52 weeks
Land and buildings Motor vehicles, plant and equipment Total Total
£'m £'m £'m £'m
At the beginning of the period (286.1) (7.2) (293.3) (314.4)
Additions (31.5) (4.4) (35.9) (26.9)
Disposals - 0.1 0.1 0.1
Interest (4.7) (0.1) (4.8) (5.3)
Repayment of lease liabilities 52.2 3.6 55.8 53.2
At the end of the period (270.1) (8.0) (278.1) (293.3)
The discount rate applied across all lease liabilities ranged between 0.9% and
2.8% (2021: 1.0% and 2.1%). The discount rate reflects our incremental
borrowing rate which we assess by considering the marginal rate on the Group's
RCF, the Bank of England base rate, the yield on Government bonds and the term
of the lease.
The maturity analysis of the lease liabilities is as follows:
2022 2021
53 weeks
52 weeks
£'m £'m
Current (52.8) (49.0)
Non-current (225.3) (244.3)
(278.1) (293.3)
The remaining contractual maturities of the lease liabilities, which are gross
and undiscounted, are as follows:
2022 2021
53 weeks
52 weeks
£'m £'m
Less than one year (57.1) (53.7)
One to two years (53.2) (51.8)
Two to five years (111.9) (119.1)
Five to ten years (68.3) (78.2)
More than ten years (5.0) (10.1)
Total undiscounted lease liability (295.5) (312.9)
The average remaining lease term of our leasehold land and buildings is 5.2
years.
The following amounts have been recognised in the Consolidated Income
Statement:
2022 2022 2022 2021
53 weeks
53 weeks
53 weeks
52 weeks
Land and buildings Motor vehicles, plant and equipment Total Total
£'m £'m £'m £'m
Depreciation of right-of-use assets 45.1 3.5 48.6 45.7
Gain on disposal of right-of-use assets (0.1) - (0.1) -
Impairment of right-of-use assets - - - 1.0
Interest expenses (included in financial expenses) 4.7 0.1 4.8 5.3
Expense relating to short-term leases 0.5 0.1 0.6 1.8
There was no trigger for impairment in the current year. The prior year's
impairment of £1.0m relates to store impairment. The recoverable amount has
been determined as the value in use applying a discount rate of 10.0%
(pre-tax).
The total cash outflow for leases during the financial period was £55.0m
(2021: £59.3m).
12. Bank loans
2022 2021
53 weeks
52 weeks
£'m £'m
Total borrowings 54.0 -
Less: unamortised debt issue costs (1.2) (0.2)
52.8 (0.2)
Unamortised debt issue costs of £0.2m are included in other receivables as at
26 June 2021 as there was no debt at the period end.
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