More misery to come at MFI after £46m loss in core division

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MFI, the furniture group, warned yesterday its operating costs would soar by £47m this year as its core retail chain sunk to a £46m loss.

MFI, the furniture group, warned yesterday its operating costs would soar by £47m this year as its core retail chain sunk to a £46m loss.

The group, still struggling to make up ground lost after botching a £60m systems overhaul, said losses at the MFI chain dragged pre-tax profits down from £117.9m to £25m in 2004.

Analysts pointed out that the dismal performance from its namesake business meant the group had failed to make any headway in profit terms since it first set up its Howden Joinery business five years ago. The company was only saved from reporting an overall loss by Howden, its trade arm, which reported a 46 per cent rise in operating profits to £105m.

The group said its failure to install its new supply-chain systems meant it would have to write off £20m of the investment as an exceptional charge. It also said it had racked up £17.3m in additional costs to cover extra delivery and installation expenses. Its net exceptional operating costs totalled £14m.

John Hancock, the chief executive, said: "We clearly had a really poor year. But we believe we are now getting some stability back into the business." He cautioned that following what is the company's peak sales period, from Boxing Day to 3 March, it still had to go through a "very heavy delivery period until May, so we are not there yet".

The company will reveal how it fared during its sale period next week, but Mr Hancock said the number of customer transactions had risen. Analysts are waiting to get a better feel for this year's trading before re-working their numbers.

MFI said £12m of extra rental costs, £13m more for pensions and an additional £8m to stabilise the supply chain meant it anticipated that operating costs would rise by £47m this year, more than expected. The company is raising its annual cash contributions to the pension scheme to £35m from £15m to help plug a £295m deficit.

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