Laura Ashley has now released its interim results for the year ending 2015.
Overall, revenues fell when compared to the first half of last year as a £1M growth in e-commerce sales and a £400K increase in hotel revenue was more than offset by a £400K decline in store revenue and a £5.3M fall in non-retail revenue. Cost of sales also fell but gross profit came in some £300K less than last time. Operating costs also fell, however, which meant that operating profits were £200K above the first half of 2015 at £8M before the share of the associate operating profit more than halved and tax fell by £500K which meant the profit for the half year stood at £6.7M, an increase of £400K year on year.
When compared to the end point of last year, total assets fell by £8.8M driven by a £7.6M fall in cash, a £2.9M decline in inventories and a £2.7M decrease in receivables, partially offset by a £3.7M increase in the value of property, plant and equipment. Total liabilities also fell during the year due to a £6.7M decrease in payables to give a net tangible asset level of £40.3M, a decline of £1.6M during the period.
Before movements in working capital, cash profits fell by £700K to £8.8M which was eroded somewhat by a large fall in payables, albeit much smaller than last year, to give an operational cash inflow of £7.7M compared to an operating cash outflow of £1M in the first half of last year. The group then spent £1M on intangible assets and £5M on property plant and equipment along with £2.1M spent on tax (I refuse to include that in the financing section like the Laura Ashley accounts have!). The end result is no free cash flow with which to pay the £7.2M of dividend payments so that the cash outflow for the period stood at £7.6M to give a cash level of £20.2M at the end of the half year.
The contribution from the stores was £7.7M, an increase of £700K year on year. At the period end the property portfolio in the UK comprised 198 stores after three new ones were opened and ten were closed, reducing the total selling space by 2%. The contribution from the e-commerce division was £5.4M, a growth of £800K when compared to the first half of last year. These sales now represent 19% of the total in the UK and the group now offers online delivery to the Benelux countries and early indications are that this will grow quickly.
Furniture sales for the half year increased by 8.8% with like for like sales up 10.4%. With seventeen wooden furniture ranges available in many colours and finishes, upholstery which is available in over 100 fabrics and an extended range of beds, mattresses and mirrors, the depth of choice now on offer has enabled the category’s growth and broadened its appeal. Further product development has added to the range in the new season. Home Accessories sales for the period increased by 8.2%, with like for like sales up 10.5%. As the stand-out category, significant growth was achieved by the lighting, bed linen and gift ranges, all of which significantly outperformed the market. Early indications are that this growth will continue into the second half of the year.
Decorating sales increased by 2.1% with a 4% increase in like for like sales. The best performing products in this category were the made to measure curtains, readymade curtains and the paint ranges. Fashion sales for the period decreased by 5% with like for like sales up 0.6%. There were some successes within the fashion ranges and the group will continue to focus on the core values of the brand which include design, quality and print. This is the most competitive category in which they trade but the board expects like for like sales to continue to grow in the second half of the year.
The loss from the hotel was £100K, half the loss from the first half of 2015. Sales performance at the hotels saw an increase of 44% which is expected to continue into the second half. These hotels are threatening to break into profit at some point.
The contribution from the non-retail division was £5.1M, a decline of £1.5M year on year. The contribution from the associate was £300K, a fall of £400K when compared to the first half of last year. The primary reason for the shortfall against last year was the performance of the Japanese market where, following the rise in local sales tax, the domestic economy has been sluggish. This, aligned to a weak Japanese Yen over the period, resulted in a sharp fall in demand. The political and economic difficulties of Russia and Ukraine have also contributed to a relatively weak performance but good growth was recorded in a number of territories including South Korea and the Middle East. The board expects the performance to improve during the second half of the year.
The board are apparently encouraged as they enter the second half of the year. They will continue to work with their overseas franchisees to ensure that they maximise the international opportunities and the development of the digital platform will remain a key focus during the rest of the year. Trading for the first five weeks of the second half of the year was up 5.7% on a like for like basis.
After the period end a loan of £20.2M was drawn down by the group upon the acquisition of the head office of the Asian operation in Singapore. This represents 65% of the purchase price of the building with the remainder of the purchase price being funded from cash reserves.
Net cash at the period-end was £20.2M compared to £27.8M at the end of last year and £13.8M at the same point of last year (although the £20.2M loan taken out after the end of the period negates this net cash position). After the interim dividend was kept the same, the shares now yield 7.3%.
Overall then, this was another period of slow progress. Profits did increase year on year, but this was only because tax was lower, and pre-tax profits fell. Net assets were also down and although operating cash flow improved there is another caveat here as this was due to a much smaller fall in payables than last time and underlying cash profits fell. Due to the increase in capex, there was no free cash flow but the group still paid out the dividends anyway. Operationally, the UK performance was good driven by furniture and home accessories sales but overseas things were not so bright as a sluggish Japanese economy and weak yen along with disruption in Ukraine and Russia reduced profits. The dividend remains attractive at a yield of 7.3% but the post-balance sheet acquisition of the office building in Singapore means that the group is no longer in a net cash position and this pay-out could be in jeopardy. I will keep a watching brief for now.
On the 11th January the group informed the market that its license partner in Australia was placed into administration. The exposure to the group is £1.2M but there is no effect on the rest of the company.