Laura Ashley has now released its final results for the year ending 2015.
Overall revenues increased when compared to last year as store revenue was up £5M, e-commerce revenue increased by £3.8M and hotel revenue was up £500K, partially offset by a £200K decline in non-retail sales. Cost of inventories also increased, but other cost of sales fell somewhat to give a gross profit some £3.9M ahead of 2014. There was an increase in staff costs but this was mitigated by a fall in operating lease costs with foreign exchange showing a £2.1M swing to the positive. This was counteracted by a £2.9M increase in other admin costs, though, to give an operating profit £4.7M higher than last year. The share of profit from the Japanese associate fell by £1M to give a disappointing £500K loss and the one-off gain on sale of investment fell by £2.7M, although this was partially offset by the lack of £2M in store disposal losses that occurred last time. The slightly higher tax bill then meant that the profit for the year stood at £18.3M, which was a £2.6M growth when compared to 2014.
When compared to the end point of last year, total assets fell by £9.2M, driven by an £8.5M decline in prepayments and accrued income, a £2.5M fall in amounts owed by associate, a £1.7M decline in trade receivables and a £1.7M fall in the value of leasehold property, partially offset by a £3.7M increase in cash, a £2.6M growth in “other debtors” and a £1.7M increase in deferred tax assets. Total liabilities also fell during the year due to an £8.5M fall in accruals & deferred income, a £3.3M decline in other payables and a £2.2M decrease of trade payables, partially offset by a £9M increase in pension liabilities. The end result is a £4.3M fall in net tangible assets to £41.9M. It should also be noted that there is a huge amount of operating leases, relating mainly to the stores, with £119.2M in total non-cancellable leases.
Before movements in working capital, cash profits increased by £5.4M to £27.5M. A large decrease in payables more than offset advantageous movements in other working capital measures to give a net cash from operations some £7.2M higher than last year at £18.6M. This was more than enough to cover the £2M of capital expenditure (part of which involved POS technology to achieve payment card industry compliance) to leave some £16.6M of free cash flow available. This didn’t quite cover the cost of the normal dividends but the £8M received from the sale of investment shares and the £1.2M income from the sale of tangible assets enabled the group to pay a special dividend and to have £3.7M cash left over to add to the pile to give a total of £27.8M at the year end – very comfortable.
Overall the stores made a contribution of £19.6M, a £3.3M increase when compared to last year and e-commerce contributed £9.6M, an £800K increase. Furniture sales fell by 0.3% during the year, although they were some 0.5% higher on a like for like basis in an increasingly competitive market. The group has seen some success in bedroom furniture, mattresses, and the newer wooden ranges. Sales of home accessories increased by 3.5% based on improving and broader product ranges with bed linen, lighting, gift items and soft furnishings enhancing the overall home offering. The group is aiming to maintain this growth with particular emphasis on the new kitchen ranges and the expanded seasonal offering. Decorating sales fell by 1.5% during the year; and fashion sales fell by 2.8% (just 0.1% on a like for like basis) which continues to receive positive feedback from customers despite the lacklustre sales performance with encouraging responses reported with regards the collections due out later in the year.
Non-retail profits fell by £1.3M to £13.4M. Franchise revenues fell by 1.5% to £27.8M due to a weaker Japanese economy and challenges facing some mainland European economies. There are now 303 franchised stores (increased from 286) in 30 territories with further agreements expected to be signed later in the year. More precisely the franchise operations have been affected by an increase in consumption tax in Japan, a sharp fall in the value of the Ukrainian and Russian currencies, and the continued struggle of the economies of Greece, Cyprus and Spain. Licensing income grew by 3% to £3.4M reflecting good levels of organic growth amongst a stable licensee base, although several new license agreements are expected to be approved during the new year. New launches this year have included a bathroom furniture range with contracts extended in stationery, bed linen and bathroom categories. A key performer was the toiletries license with a 61% year on year growth in sales. A second hotel was opened during the year under license located at Lake Windermere in order to further showcase the company’s wares, although in all the hotels made a £400K loss.
The group continues to slightly reduce its store portfolio with three opened and seven closed. E-commerce continues to be an important part of the group’s offering with sales increasing by 8.6% year on year and they now operate a fully translated French website with a German one due to follow this year in order to sell their products into Germany, Austria, Italy and Switzerland. Additional investment has been made in the website to improve the experience for mobile and tablet users. There is a desire to expand further into Asia and in order to aid in this aim, a subsidiary has been incorporated in Singapore.
In the first two months of the current year, the group has seen like for like sales increase by 3% and whilst the consumer markets that they operate in face a number of challenges, the board believes this growth can be maintained for the foreseeable future. This year the board have seen fit to have the AGM in Malaysia which seems to me that is not very convenient for shareholders in a UK company listed on a UK stock exchange. When it is also considered that there was no information regarding when the final results would actually be published, the shareholder engagement really seems to be slipping here.
At the current share price the shares are yielding 5.7%, which is a good return in my view. The P/E ratio seems a decent value at 13.9. Net cash at the year end stood at £27.8M, an increase of £3.7M when compared to this point of last year.
Overall then this is a decent if not exactly exciting update. Profits increased but net assets fell as the pension liabilities grew. Cash flow is one area that the group remains very strong with increased operational cash flow and low capital expenditure giving rise to a large amount of free cash, although this is not quite enough to cover the dividends. Operationally the accessories business seems to be doing well, as does the small licensing business but decorating is struggling and the important franchise sector suffered this year with issues in Japan, Russia and Ukraine having a detrimental effect. The investment in a French and German website is a great idea and something which I think should add significant value going forward, although I am less sure about the expansion in Singapore. The slide in shareholder engagement is a concern and the lack of communication surrounding the release of the final results and the decision to hold the AGM in Malaysia is a very disappointing development. Overall though, the decent trading performance and the 5.7% dividend return is enough to keep me invested.
The share price seems to have become a bit overextended, perhaps as dividend hunters arrive for the pay-out but the trend overall seems positive.
On the 30th June it was announced that the company has purchased an office block in Singapore for a cash consideration of £31.1M from Ho Bee Realty. The office block is 98,254 square feet and will be used as the location of the group’s Asian HQ. The company already has strong franchise partners in Malaysia, Taiwan, Japan, South Korea, Hong Kong and Australia but in order to take advantage of the operations in Asia, in particular China and India, it is thought that the company needs to establish a regional operational presence. The acquisition will be financed using £10.9M from current cash reserves and £20.2M from a new debt facility which will be repayable over 15 years in monthly instalments of £140K. The total acquisition cost will be £34.5M and it will impact earnings this year to the tune of £300K and £600K next year.
I must admit I don’t feel that good about this. I am sure expansion into China and India is something to strive for but is it normal to buy an 8 storey building in Singapore to facilitate this? Would it not be more prudent to lease a building first with a view to buying once the venture is considered a success? One of the main attractions for me of Laura Ashley was the cash cushion and the incredible dividend yield, both of which must be at some risk now. I have decided to sell out here.