UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
--------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: August 2, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .................... to ....................
Commission file number ....................
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SIGNET GROUP PLC
(Exact name of registrant as specified in its charter)
ENGLAND
(State or other jurisdiction of incorporation or organization)
ZENITH HOUSE
THE HYDE, COLINDALE
LONDON NW9 6EW ENGLAND
(Address of principal executive offices)
(44) (181) 905-9000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
As of August 2, 1997, the following shares of the registrant's classes of common
stock were outstanding:
Ordinary shares of 0.5p each 1,674,641,586
Class A dollar deferred shares of $0.01 each 12,320,739
Class B dollar deferred shares of $1.00 each 2,500
SIGNET GROUP PLC
Index
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Unaudited Condensed Consolidated Statements of Operations 2
Condensed Consolidated Balance Sheets 3
Unaudited Condensed Consolidated Statements of Cash Flows 4
Unaudited Condensed Consolidated Statement of Changes in 5
Shareholders' Equity
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk *
PART II OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 14
* Omitted because it is not applicable.
UNAUDITED CONDENSED CONSOLIDATED US GAAP
STATEMENTS OF OPERATIONS
for the 26 weeks ended August 2, 1997 and August 3, 1996
NOTES 26 WEEKS 26 weeks
ENDED AUGUST 2 ended August 3
1997 1996
(POUND)000 (pound)000
NET SALES 3 371,232 369,615
Cost of sales (240,388) (239,154)
- ---------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 130,844 130,461
Selling, general and administrative expenses (113,939) (116,834)
Amortization of goodwill (6,043) (6,306)
- ---------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 3 10,862 7,321
Interest expense, net (10,791) (15,923)
Costs of capital reorganization (6,971) -
- ---------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (6,900) (8,602)
Income tax (expense)/credit (1,887) 116
- ---------------------------------------------------------------------------------------------------------------------
NET LOSS (8,787) (8,486)
- ---------------------------------------------------------------------------------------------------------------------
Loss per ordinary share - primary 4 (3.2)P (8.8)p
- supplementary 4 (0.5)P (0.5)p
- ---------------------------------------------------------------------------------------------------------------------
See notes to the unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS US GAAP
as at August 2, 1997, August 3, 1996 and February 1, 1997
AUGUST 2 August 3 February 1
1997 1996 1997
(POUND)000 (pound)000 (pound)000
(UNAUDITED) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 39,293 133,477 163,033
Short term development property investments 900 900 900
Trade accounts receivable net of allowance for 36,505 38,076 64,182
doubtful accounts of (pound)14,644,000 (August
1996:(pound)16,284,000, February 1997:
(pound)15,037,000)
Inventory 309,614 327,094 326,953
Prepaid expenses and other current assets 19,093 28,840 17,788
Deferred income taxes 6,786 6,832 7,366
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 412,191 535,219 580,222
Pension fund prepayment 19,117 13,903 17,058
Deferred income taxes 3,223 2,972 3,159
Property, plant and equipment 118,943 134,677 124 ,231
Goodwill, net 379,414 409,063 391,026
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 932,888 1,095,834 1,115,696
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short term borrowings 23,640 156,486 130,780
Accounts payable, other current liabilities 108,238 101,482 122,044
and accrued expenses
Income taxes payable 16,879 7,829 19,982
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 148,757 265,797 272,806
Long term debt 112,270 158,765 152,814
Other liabilities 15,358 16,220 15,969
Other provisions 5,342 6,786 7,070
Deferred income taxes 1,301 - 327
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 283,028 447,568 448,986
- ----------------------------------------------------------------------------------------------------------------------
Cumulative redeemable preference shares - 91,611 94,274
SHAREHOLDERS' EQUITY
Share capital 73,189 29,371 29,371
Additional paid in capital 168,221 147,491 147,491
Cumulative translation adjustment (26,938) (14,505) (18,875)
Special reserve 556,699 556,699 556,699
Accumulated deficit (121,311) (162,401) (142,250)
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 649,860 556,655 572,436
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 932,888 1,095,834 1,115,696
======================================================================================================================
See notes to the unaudited condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS US GAAP
for the 26 weeks ended August 2, 1997, and August 3, 1996
26 WEEKS 26 weeks
ENDED AUGUST 2 ended August 3
1997 1996
(POUND)000 (pound)000
OPERATING ACTIVITIES
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,258 16,399
- ----------------------------------------------------------------------------------------------------------------------
NET CASHFLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (9,714) (6,664)
Proceeds from sale of property, plant and equipment 981 3,294
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (8,733) (3,370)
- ----------------------------------------------------------------------------------------------------------------------
NET CASHFLOWS FROM FINANCING ACTIVITIES
Repayment of long term debt (38,927) 4,539
Short term borrowings (101,703) (22,659)
Payments arising on disposal of ESOT shares - (13,883)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (140,630) (32,003)
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (122,105) (18,974)
Translation differences (1,635) (392)
Cash and cash equivalents at beginning of period 163,033 152,843
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 39,293 133,477
- ----------------------------------------------------------------------------------------------------------------------
See notes to the unaudited condensed consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES US GAAP
IN SHAREHOLDERS' EQUITY
For the 26 weeks ended August 2, 1997
- --------------------------------------------------------------------------------
Ordinary Preference Deferred Additional Cumulative Special
share share share paid in translation reserve Accumulated
capital capital capital capital reserve (Note) deficit Total
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
Balance at February 1, 1997 29,306 65 - 147,491 (18,875) 556,699 (142,250) 572,436
Net loss - - - - - - (8,787) (8,787)
Finance costs of cumulative
redeemable preference shares - - - - - - (2,560) (2,560)
Cancellation of accrued
dividends on cumulative
redeemable preference shares - - - - - - 32,286 32,286
Conversion of cumulative
redeemable preference shares 1,299 - 36,910 26,339 - - - 64,548
Conversion of non-redeemable
preference shares 5,609 (65) 65 (5,609) - - - -
Conversion of ordinary shares (27,841) - 27,841 - - - - -
Translation differences - - - - (8,063) - - (8,063)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at August 2, 1997 8,373 - 64,816 168,221 (26,938) 556,699 (121,311) 649,860
- ---------------------------------------------------------------------------------------------------------------------------------
Note: The special reserve was created following the approval of the High Court
in London, England and is available under UK GAAP for the elimination of
goodwill arising on consolidation of acquisitions. The special reserve is not
available for distribution to shareholders.
See notes to the unaudited condensed consolidated financial statements.
NOTES TO THE UNAUDITED CONSOLIDATED STATEMENTS US GAAP
as at August 2, 1997
- --------------------------------------------------------------------------------
1. BASIS OF PREPARATION
The Company is now obliged by the United States Securities Exchange Act
of 1934, as amended ("the Exchange Act") to prepare financial
statements in accordance with United States generally accepted
accounting principles ("US GAAP") as the Company no longer qualifies as
a "foreign private issuer" for the purposes of the Exchange Act.
Accordingly, the unaudited condensed consolidated financial statements
of the Company and its subsidiaries have been prepared in accordance
with the rules and regulations of the Securities and Exchange
Commission. They do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements.
- --------------------------------------------------------------------------------
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements as of and for the
periods ended August 3, 1996 and August 2, 1997 are unaudited; however,
in the opinion of the management, such statements include all
adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of the results of operations for the interim
periods presented. The results of operations for any interim period are
not indicative of the results of the full year. The unaudited condensed
consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 20-F for the year ended
February 1, 1997 filed with the Securities and Exchange Commission (the
"1997 Annual Report").
- --------------------------------------------------------------------------------
3. SEGMENTAL INFORMATION
26 WEEKS ENDED 26 weeks ended
AUGUST 2, 1997 August 3, 1996
NET SALES OPERATING Net sales Operating
INCOME/ income/
(LOSS) (loss)
(POUND)000 (POUND)000 (pound)000 (pound)000
UK and Republic of Ireland 136,494 (1,217) 134,206 (3,531)
US 234,738 12,079 235,409 10,852
---------------------------------------------------------
371,232 10,862 369,615 7,321
---------------------------------------------------------
Central and other costs of (pound)4,183,000 (1996 equivalent period:
(pound)4,834,000) are incurred in the UK and have therefore been
charged against the operating income of the UK and Republic of Ireland.
- --------------------------------------------------------------------------------
4. LOSS PER SHARE
The calculation of primary loss per share has been based on the net
loss for the period less additional finance costs of non-equity shares
and the weighted average number of ordinary shares in issue:
NOTES TO THE UNAUDITED CONSOLIDATED STATEMENTS US GAAP
as at August 2, 1997
- --------------------------------------------------------------------------------
4. LOSS PER SHARE (CONTINUED)
26 WEEKS 26 weeks
ENDED AUGUST 2 ended August 3
1997 1996
(POUND)000 (pound)000
Net loss (8,787) (8,486)
Additional finance costs of non-equity shares (3,840) (17,313)
---------------------------------------------------------------------------------------------------
Net loss attributable to ordinary shareholders (12,627) (25,799)
---------------------------------------------------------------------------------------------------
Weighted average number of ordinary shares in issue: NO. No.
- primary (000) 391,749 293,063
- supplementary (000) 1,674,642 1,674,642
---------------------------------------------------------------------------------------------------
Supplementary loss per share is presented as there has been a
significant change in capital structure. The supplementary loss per
share is based on net loss for the period and assumes the new capital
structure was in place for all periods (see Note 7).
- --------------------------------------------------------------------------------
5. INCOME TAX
After adjusting income before taxes for non-deductible expenses,
primarily amortization of goodwill of (pound)6,043,000 and capital
reorganization costs of (pound)6,971,000, the tax charge represents 31%
of the adjusted income before taxes.
- --------------------------------------------------------------------------------
6. NEW FACILITIES AGREEMENT
On February 27, 1997, the Company announced that it had entered into a
voluntary three year $360 million credit facility with a new syndicate
of banks comprising a multi-currency term loan facility in an aggregate
amount of $130 million and a multi-currency revolving facility in an
aggregate amount of $230 million. The new facility bears interest at a
margin of 1.25% above LIBOR.
On March 3, 1997, the borrowings which were due for repayment on June
30, 1997 under the previous facilities agreement were repaid in full
from drawings under the new syndicated facility agreement and from the
Company's own resources.
- --------------------------------------------------------------------------------
7. CAPITAL REORGANIZATION
At an Extraordinary General Meeting and separate class meetings held on
June 26, 1997, shareholders approved proposals for a capital
restructuring and capital reduction. The capital restructuring involved
the conversion of the ordinary shares of 10p each and all classes of
the Company's preference shares into new ordinary shares of 0.5p each
and certain deferred shares. All accumulated arrears and accruals of
dividends on the Company's preference shares were cancelled. The
capital restructuring became effective on July 21, 1997 and dealings in
the new ordinary shares on the London Stock Exchange and trading in new
American Depositary Shares (representing new ordinary shares) on the US
Nasdaq Stock Market commenced on that date.
NOTES TO THE UNAUDITED CONSOLIDATED STATEMENTS US GAAP
as at August 2, 1997
- --------------------------------------------------------------------------------
7. CAPITAL REORGANIZATION (CONTINUED)
The holders of deferred shares are not entitled to receive any dividend
or other distribution, nor are they entitled to receive notice of or to
attend, speak or vote at any general meeting of the Company. Following
the capital restructuring, the deferred shares were all transferred for
no consideration to a person nominated by the Company and will
subsequently be cancelled, redeemed or repurchased for effectively nil
consideration.
The capital reduction is intended to permit the payment of dividends
out of future profits. The capital reduction has been approved by the
High Court in London, England and is expected to become effective
during September 1997.
The costs of the capital reorganization totalling (pound)6,971,000 have
been shown as a deduction in arriving at loss before income taxes in
the consolidated statement of operations.
- --------------------------------------------------------------------------------
8. CONTINGENT LIABILITIES
The Company is resisting claims from a former bondholder of Sterling
Jewelers (formerly Kay Jewelers, Inc.) brought against Sterling
Jewelers and certain former directors of Sterling Jewelers on behalf of
itself and a purported class of bondholders of Sterling Jewelers in May
1991 arising out of the acquisition of Sterling Jewelers. The claims
allege, among other things, that Sterling Jewelers failed to disclose
material facts in the prospectus for the bonds regarding the rights of
bondholders upon a change of control of Sterling Jewelers. The Company
believes Sterling Jewelers has substantial defenses to these claims,
which allege US$10 million in damages, and intends to defend the claims
vigorously. The Company does not believe that the likely resolution of
these claims will have a material adverse effect on its consolidated
financial position or operating results.
The Company and its subsidiaries are not party to any other legal
proceedings considered to be material to the Company's consolidated
financial position.
The Company and its UK subsidiaries have assigned or sub-let UK
property leases in the normal course of business. Should the assignees
or sub-tenants fail to fulfil any obligations in respect of these
leases, such companies may be liable for the defaults. The number of
such claims arising to date has been small, and the liability, which is
charged to the statement of operations as it arises, has not been
material.
The Company has given guarantees in respect of certain subsidiaries'
borrowings at August 2, 1997 amounting to (pound)131,922,000 (February
1, 1997 (pound)228,335,000).
- --------------------------------------------------------------------------------
9. FINANCIAL INSTRUMENTS
The Company has entered into various interest rate protection
agreements, primarily interest rate swaps, in order to limit the impact
of adverse movements in interest rates on its borrowings. Interest rate
swaps fix the amounts payable by the Company for the period of the
swaps. The Company does not hold or issue financial instruments for
trading purposes. Changes in the fair value of the interest rate swaps
are not recognized. These swaps will replace the interest rate caps
previously utilized by the Company which expire in October 1997. These
deferred start interest rate swaps, which will provide hedging from
September 2, 1997 and mature on March 2, 1999 at a weighted average
interest rate of 6.5%, are in the notional amount of $138 million. At
August 2, 1997 no payments or receipts had been made in respect of
these instruments.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Following the capital restructuring, which became effective on July 21, 1997,
the Company, which is subject to the regulations of the Securities and Exchange
Commission ("SEC") in the United States, is obliged to prepare shareholder
information in accordance with generally accepted accounting principles in the
US ("US GAAP") as well as in the UK ("UK GAAP"). The financial information
contained in this Report on form 10-Q is prepared in accordance with US GAAP.
The UK GAAP financial statements for the period covered by this Report are
contained in exhibit 99.1 to this Report.
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the financial review contained in
the 1997 Annual Report.
SEASONALITY; GENERAL ECONOMIC CONDITIONS
The Company's business is highly seasonal with a significant portion of its
sales and most of its operating income generated during its fourth quarter,
which includes the Christmas season. The Company expects to continue to
experience a seasonal fluctuation in its sales and earnings. Because a very
significant percentage of the Company's total sales and earnings for a fiscal
year results from operations in the fourth quarter, the Company has limited
ability to compensate for shortfalls in fourth quarter sales or earnings by
changes in operations or strategies in other quarters. A significant shortfall
in results for the fourth quarter of any fiscal year can thus be expected to
have a material adverse effect on the Company's annual results of operations.
In addition, because a substantial portion of the Company's sales are made on
credit, any significant deterioration in general economic conditions or consumer
debt levels may inhibit consumers' use of credit and cause a material adverse
effect on the Company's revenues and profitability. Furthermore, the Company
expects that any downturn in general or local economic conditions in the market
in which it operates would adversely affect its collection of outstanding credit
accounts receivables and the Company's revenues and profitability. There are
currently historically high levels of consumer debt in the US.
EFFECT OF CURRENCY FLUCTUATIONS
The Company publishes its consolidated financial statements in pounds sterling.
The Company held approximately 68% of its total assets in US dollars at August
2, 1997 and generated approximately 63% of its net sales and all of its
operating income in US dollars for the half year then ended. Thus, even though
the Company's US operations make substantially all of their net sales and incur
substantially all of their expenses in US dollars, in translating the results of
its US operations the Company is subject to fluctuations in the exchange rate
between the pound sterling and the US dollar. Accordingly, depreciation in the
weighted average value of the US dollar against the pound sterling would
decrease reported revenues and operating income, and appreciation in the
weighted average value of the US dollar against the pound sterling would
increase reported revenues and operating income.
As part of its long term strategy, the Company seeks to finance its US net
assets with borrowings denominated in US dollars as a hedge against exchange
rate fluctuations. Currently all of the Company's borrowings are denominated in
US dollars. However, fluctuations in exchange rates between the pound sterling
and the US dollar affect the amount of the Company's consolidated borrowings.
One effect of this is to make compliance with the borrowing limitations in the
Company's Articles of Association subject to such fluctuations. In the event
that the borrowing limitations were exceeded, the Board would not have the
authority to incur any additional borrowings.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIMITATION ON UTILIZATION OF US NET OPERATING LOSSES
As at August 2, 1997, the Company had (pound)60.1 million of net operating
losses ("NOLs") for US federal income tax purposes. Subject to certain
limitations under the US Internal Revenue Code, the Company is entitled to
utilize these NOLs to reduce its future US federal taxable income. As a result
of the changes in the Company's share ownership following the Capital
Restructuring, the Company anticipates that its ability to utilize these NOLs
will be restricted. As NOLs must be utilized within the 15 year period following
the taxable period in which the loss was incurred, certain of these NOLs may
expire unutilized. This limitation could increase the future US federal income
taxes payable by the Company, possibly by a significant amount. The Company is
unable to predict the impact that these limitations will have on the amount of
future US federal income taxes to be paid by the Company as that will depend
upon, among other things, the future US federal income of the Company's US
operations, the remittance of these profits to the UK and Company indebtedness.
The deferred income tax benefits of the NOLs have not been reflected in the
Company's consolidated balance sheet as at August 2, 1997.
CURRENT TRADING
The Company generated a net loss before income taxes of (pound)6.9 million in
the 26 weeks to August 2, 1997 an improvement of 20% over the same period last
year, on turnover of (pound)371.2 million (1996 equivalent period : (pound)369.6
million). Results for the first half year have been encouraging, but the outcome
for the year will be dependent on the all important Christmas trading period.
SUMMARY OF OPERATIONS (26 WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996)
The following table sets forth certain consolidated financial data as a
percentage of net sales:
Percentage of net sales
26 weeks ended 26 weeks ended
August 2 August 3
1997 1996
% %
Net sales 100.0 100.0
Cost of sales (64.8) (64.7)
- ---------------------------------------------------------------------------------------------------------------
Gross margin 35.2 35.3
Selling, general and administrative expenses (30.7) (31.6)
Amortization of goodwill (1.6) (1.7)
- ---------------------------------------------------------------------------------------------------------------
Operating income 2.9 2.0
Net interest expense (2.9) (4.3)
Cost of re-organization (1.9) -
- ---------------------------------------------------------------------------------------------------------------
Loss before taxes (1.9) (2.3)
Income taxes (0.5) 0.0
- ---------------------------------------------------------------------------------------------------------------
Net loss (2.4) (2.3)
- ---------------------------------------------------------------------------------------------------------------
26 WEEKS ENDED AUGUST 2, 1997 COMPARED TO 26 WEEKS ENDED AUGUST 3, 1996
Net sales for the 26 weeks ended August 2, 1997 were (pound)371.2 million
compared to (pound)369.6 million for the equivalent period in 1996 representing
an increase of 0.4%. Comparable store sales growth was 6.6% for the 26 week
period to August 2, 1997.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
US sales fell to (pound)234.7 million for the 26 weeks ended August 2, 1997
compared to (pound)235.4 million for the 26 weeks ended August 3, 1996 largely
as a result of the depreciation in the weighted average value of the US dollar
against the pound sterling. However, comparable store sales growth of 8.9% was
achieved. The strong sales performance, which was ahead of the Company's main
competition, reflected the benefits of more effective marketing and promotional
programs during the period together with improvements made to merchandise
arrangements and assortments.
In the UK, sales for the 26 week period ended August 2, 1997, rose by 1.7% to
(pound)136.5 million compared to (pound)134.2 million for the equivalent period
last year. UK sales were adversely affected by the temporary closure of certain
H. Samuel stores in connection with the H. Samuel modernization program.
Comparable store sales growth for the period was 3.3%. H. Samuel, the Company's
UK mass market jewelry chain (26% of Company sales) experienced a comparable
store sales increase of 1.4% while Ernest Jones, the Company's UK premium
jewelry chain (11% of Company sales) recorded comparable sales growth of 7.9%.
The H. Samuel store modernization programme is proceeding according to plan with
51 stores modernized by the end of July and a further 119 stores planned to be
modernized before the start of the Christmas trading period. Sales from the
modernized stores accounted for only some 10% of H. Samuel's total sales in the
period. Comparable store sales growth from the modernized stores was 6.8% as
against 0.8% for the remainder of the H. Samuel chain. While the 6% differential
is encouraging it should be treated with caution at this early stage of the
program.
The Company's operating income in the 26 weeks ended August 2, 1997
was (pound)10.9 million compared to (pound)7.3 million for the comparable period
last year.
US operating income for the 26 week period ended August 2, 1997 rose by 11.3% to
(pound)12.1 million compared to (pound)10.9 million in the same period last
year. Gross margin in the US showed a small decrease compared to the equivalent
period in 1996, but tight control of selling, general and administrative costs
was maintained and bad debt charges fell from 3.6% to 3.1% of total US sales
although concerns remain about the general credit environment in the US.
In the UK, operating income before central costs for the 26 weeks ended August
2, 1997 was (pound)3.0 million compared to (pound)1.3 million for the equivalent
period last year. The increase in operating income is due to improvements in
gross margin and while cost increases were contained below the rate of
inflation, operating profit for the period was reduced by an estimated
(pound)1.2 million (1996 equivalent period : (pound) nil) due to the write off
of certain residual fixtures and fittings and the temporary closure of H. Samuel
stores being modernized.
Interest charges during the period declined by 32.2% to (pound)10.8 million
(1996 equivalent period : (pound)15.9 million). The reduction reflects a lower
level of average borrowings and lower interest charges from the new banking
facility agreed on February 27, 1997. Capital reorganization costs totalled
approximately (pound)7.0 million.
The tax charge of (pound)1.9 million for the period has been based on the
anticipated effective taxation rate for the 52 weeks ending January 31, 1998.
That rate reflects the utilization against US taxable profits of US tax loss
carry-forwards. Credit for such tax losses is not carried in the balance sheet.
As indicated above, there may be limitations on the future utilization of these
Net Operating Losses as a result of the capital restructuring. The tax charge
represents 31% of the adjusted income before taxes.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company requires significant working capital to support its inventory
requirements. The Company's working capital requirements fluctuate during the
year as a result of the seasonal nature of its business and normally reach their
highest levels in the late fall in preparation for the Christmas season.
The Company generated (pound)27.3 million of net cash from operating activities
in the 26 weeks ended August 2, 1997 (1996 equivalent period : (pound)16.4m).
Investing activities utilized (pound)8.7 million during the period (1996
equivalent period : (pound)3.4 million). Capital expenditure in the period was
approximately (pound)3.1 million higher than last year due principally to the
expansion of new concepts in the UK, new store openings and selected store
refurbishments. Capital expenditures in the second half of 1997 are likely to
exceed the (pound)8.5 million incurred in the same period last year.
The Company expended net cash on financing activities of (pound)140.6 million
during the period (1996 equivalent period : (pound)32.0 million), principally in
reducing its total borrowing obligations with no effect on net debt.
Net debt at August 2, 1997 was (pound)96.6 million (August 3, 1996 :
(pound)181.8m), a reduction of (pound)85.2 million. At constant exchange rates,
the reduction was (pound)75.2 million. The reduction reflects the improved
operating performance of the Group together with a lower proportion of credit
sales in the US.
In October 1995 the Company completed the securitization of its US credit card
receivables through the private placement of fixed-rate certificates bearing a
weighted average interest rate of 7.26% with certain institutional investors
representing interests in the US receivables portfolio held by a trust. The
revolving period of the securitization ends on October 19, 2000. Principal
payments on the outstanding investor certificates will be made monthly
thereafter from the collections received on customer accounts held by the trust.
The proceeds of this securitization aggregated approximately $191.5 million and
were used to refinance the Company's previous securitization program and to
permanently reduce borrowing facilities under the previous facilities agreement
by approximately (pound)67 million.
On February 27, 1997, the Company announced that it had entered into a voluntary
three year $360 million credit facility ("the Facility Agreement") with a new
syndicate of banks comprising a multi-currency term loan facility in an
aggregate amount of $130 million and a multi-currency revolving facility in an
aggregate amount of $230 million. The new facility bears interest at a margin of
1.25% above LIBOR.
At August 2, 1997, the Facility Lenders held an aggregate of (pound)112.3
million ($183.0 million) of the Company's outstanding indebtedness which bore a
weighted average interest rate of 7.3%. This indebtedness (which excludes the
amount financed by the US receivable program) was in US dollar denominated
facilities.
At August 2, 1997, 46% of the Company's floating rate US dollar borrowings were
subject to interest rate caps with a weighted average interest rate of 6.0% or
hedged by floating rate cash. The weighted average interest rate on these
borrowings before the effect of such arrangements was 7.3%. It is the policy of
the Company to enter into interest rate hedges on up to approximately 75% of its
floating rate US dollar borrowings. Interest rates on the remaining floating
rate debt were fixed until September 2, 1997 from which date deferred start
interest rate swaps at a weighted average interest rate of 6.5% will provide
replacement hedging. These interest rate swaps are in the notional amount of
$138 million.
Through store portfolio management and the strategic actions adopted to restore
the Company to profitability, management believes that approximately 193 UK
property leases have been assigned by
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
the Company up to the end of July 1997 (and remain unexpired and occupied by
assignees at that date) and approximately 48 additional stores were sublet at
that date to a large number of assignees or sub-tenants. Should the assignees or
sub-tenants fail to fulfil any obligations in respect of those leases or any
other leases which have at any other time been assigned or sublet, the Company
or one of its UK subsidiaries may be liable for those defaults. The number of
claims arising to date has been small, and the liability has not been material.
FORWARD LOOKING STATEMENTS
All statements other than statements of historical fact included in this
document are, or may be deemed to be forward looking statements within the
meaning of Section 21E of the US Securities Exchange Act of 1934. Important
factors that could cause actual results to differ materially from those
discussed in such forward looking statements include: adverse trends in the
general economy which may impact negatively on discretionary consumer spending,
including unemployment levels, wages and salaries, business conditions, interest
rates, consumer debt levels and availability of credit and levels of taxation;
fluctuations in the price and availability of gold, diamonds and other precious
and semi-precious stones; fluctuations in exchange rates between the pound
sterling and the dollar which may affect reported revenues, operating income and
the amount of the Company's consolidated borrowings and the cost of such
borrowings; and the impact on the ability to pay dividends of the New Facilities
Agreement.
PART II - OTHER INFORMATION
ITEM 2 -CHANGES IN SECURITIES
On August 12, 1997, the Company announced that it would be changing the number
of its Ordinary Shares represented by each of its American Depositary Shares
("ADSs") with effect from September 4, 1997. From September 4, 1997, each ADS
has represented 30 Ordinary Shares rather than three Ordinary Shares. A copy of
the press release announcing the change in Signet's ratio is attached hereto as
Exhibit 99.2.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At an Extraordinary General Meeting and separate Class Meetings of Signet Group
plc held on June 26, 1997, shareholders passed resolutions for a capital
restructuring and capital reduction by significant majorities. The separate
written consent of the holder of the Preference Shares 1997 to the capital
reorganization of Signet (comprising the capital restructuring and the capital
reduction) has also been obtained.
The detailed voting was as follows:
Resolutions % in favour
EXTRAORDINARY GENERAL MEETING Capital restructuring 96.0
Capital reduction 96.0
ORDINARY SHARES CLASS MEETING Capital restructuring 94.6
Capital reduction 94.6
6.875P CONVERTIBLE PREFERENCE SHARES CLASS MEETING Capital restructuring 99.6
Capital reduction 99.5
US$ CONVERTIBLE PREFERENCE SHARES CLASS MEETING Capital restructuring 99.3
Capital reduction 99.3
VTPS CLASS MEETING Capital restructuring 98.4
No separate class approval by the holders of the VTPs was needed for the capital
reduction.
The additional resolution at the Extraordinary General Meeting, to renew and
extend the usual general authority for the allotment of shares and the
disapplication of statutory pre-emption rights, was also passed, with 95.9% in
favour.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Signet Group plc Press Release issued on September 4, 1997 with
respect to the results of operations for the six month period
ended August 2, 1997 (including unaudited consolidated financial
statements prepared in accordance with UK GAAP).
99.2 Signet Group plc Press Release issued August 12, 1997 with
respect to the change in the ADR ratio.
(b) Reports on form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf of the
undersigned hereto duly authorised.
SIGNET GROUP PLC
DATE September 15, 1997 BY: /s/Walker G Boyd
------------------------------
Group Finance Director
and duly authorized signatory
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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27 Financial Data Schedule
99.1 Signet Group plc Press Release issued on September 4, 1997 with
respect to the results of operations for the six month period
ended August 2, 1997 (including unaudited consolidated financial
statements prepared in accordance with UK GAAP).
99.2 Signet Group plc Press Release issued August 12, 1997 with
respect to the change in the ADR ratio.