RNS Number:3912G
United Carpets Group plc
19 July 2006
For immediate release
UNITED CARPETS GROUP plc
Preliminary announcement of results for the year ended 31 March 2006
United Carpets Group plc ("the Group" or "the Company" or "United Carpets"), the
third largest chain of specialist retail carpet and floor covering stores in the
UK, today announces its preliminary results for the year ended 31 March 2006.
Highlights
* Network sales grew by 15% to #48.58m (2005: #42.23m)
* Turnover increased to #17.65m an increase of 16.8% (2005: #15.11m)
* Positive like for like sales up 2.8% against prior year
* Profit before tax of #1.20m* (2005: #1.98m*) reflecting reduced opening
programme
* Increased marketing investment overcame challenging trading conditions
* 9 new stores added during the year making a total of 60
* Like for like sales since the period end up 8.7%
* Before goodwill amortisation and exceptional items.
Paul Eyre, Chief Executive, said:
"This year saw fewer store openings than had originally been expected and
tougher trading conditions than the previous year. In light of this, our
performance has been more than creditable. The second half was strong, and this
growth in sales has continued into the current reporting period."
Enquiries:
United Carpets Group plc
Paul Eyre, Chief Executive
Ian Bowness, Finance Director 01709 579 450
Cardew Group
Tim Robertson 020 7930 0777
William Scott-Gall
Chairman's statement
I am pleased to announce United Carpets Group's preliminary results for the year
ended March 31 2006. The Company has generated revenues of #17.65m this year,
compared to #15.11m in 2005 and is operating from 60 stores located throughout
Northern and Central England. As announced in October 2005, the Board decided to
switch from focusing on new store openings to providing greater support for
existing stores to enable them to manage the challenging trading conditions. The
reduced store opening programme naturally impacted on the Group's profitability;
however, I believe the business is now more resilient and better positioned to
grow organically as evidenced by the more recent like for like sales data.
The business fundamentals remain strong and the Group is well positioned to
continue rolling out its franchise concept.
Financial review
As part of a review of all accounting policies the Group has changed its
accounting policy for income recognition in respect of the initial fee paid by
new franchisees at the outset of a franchise arrangement. Previously, the Group
accounting policy was to recognise the initial franchise fee income in full upon
commencing a franchise arrangement. This policy has changed to spread this
initial fee over 10 years, the term of the franchise arrangement. In the opinion
of the directors the Group benefits from the franchise fee over the term of the
franchise arrangement and it is, therefore, appropriate to recognise it over
this period. This will better reflect the benefit of the fee to the Group and
whilst in the short term this may moderate profits, it will enable growth in the
profitability of the underlying business to be clearly reflected in the results.
Total revenue increased by 16.8% to #17.65m (2005: #15.11m), reflecting the
growth in store numbers during the year. Network sales across the Group,
including the value of retail sales by our franchisees to give a measure of the
Group's turnover on a more comparable basis to a conventional retailer,
increased to #48.58m (2005: #42.23m).
Like for like sales were up 2.8% compared to the previous year. Following a
challenging first half when like for like sales rose by 0.3%, increased
investment in new marketing initiatives, improvements in the product range and
better store presentation helped to increase like for like sales, which were up
5.2% in the second half of the year. Within the like for like sales performance
the core floor coverings business achieved a 3.8% like for like increase on the
previous year whilst bed like for like sales decreased by 4.0%. Underlying
trends in consumer activity point to a swing towards carpets and away from
laminate flooring.
Gross margin increased from 63.8% to 66.6% which largely reflects the increased
proportion of franchise related income to total revenue as the store network
increases.
The increase in distribution costs principally reflects the extra staff and
marketing costs of the additional corporate stores operated during the year.
Marketing and rental costs are incurred by the Group and recharged to
franchisees in turnover. Consequently, administrative expenses reflect the
increase in these costs as the network grows as well as the additional
investment in marketing during the year, the occupancy costs of operating an
increased number of corporate stores and the full year impact of the
strengthening of the management team at the time of the float and associated
ongoing costs of becoming a plc.
Profit on ordinary activities before taxation, goodwill amortisation and
exceptional items was #1.2m, a decrease of 39.4%.
Earnings per share were 0.7p (2005: 1.9p). The Board recommends a final dividend
of 0.5p per share (2005: nil) which together with the interim dividend of 0.25p
per share (2005: nil) paid in January makes a total ordinary dividend of 0.75p
per share for the year (2005: nil). Subject to approval at the Annual General
Meeting, the final dividend will be paid on 8 December 2006 to those
shareholders whose names are on the register on 10 November 2006.
Operations review
The Group operates 60 branded stores across Northern and Central England. With
the exception of 11 corporate stores, the remainder are all franchises operating
under United Carpets' bespoke franchise model, which aims to combine the
advantages of a multiple retailer with the entrepreneurial drive of an
independent. As the Group continues to expand so its economics will improve, in
particular, from more cost effective advertising, as well as the ability to
leverage the other benefits of increased scale.
Floor coverings
The majority of Group revenues are derived from the sale of floor coverings,
predominantly carpet, laminate and vinyl flooring through franchised stores and
the Group's own corporate stores. The market has remained challenging, however,
the Group has responded well evidenced by the increase in like for like sales
over the year. Product mix is constantly changing to reflect current fashions.
We are suitably nimble to be able to react and we ensure that we do not carry
excessive stock in any one style. Currently natural and beige colour floor
coverings are proving popular. While carpet represents the majority of our
sales, vinyl floorings have had a resurgence at the expense of laminate.
We are continually seeking to position ourselves at the front of the market when
it comes to offering service and new customer offerings. This has seen some
developments in our bespoke carpet service in response to increasing demand from
customers for this kind of service. Anecdotal evidence suggests a greater spend
per customer in stores since they have been refurbished.
The Group continues to carry out significant advertising in targeted areas where
it has sufficient critical mass. Selective television advertising in particular
has been very effective for the Group combined with print and radio.
Beds
Beds are sold through the majority of the store network with franchisees earning
a commission on sales. Tough trading conditions during the year had a greater
effect on our beds business than floor coverings due to the higher purchase
price. However, improved product and marketing initiatives resulted in a
significant improvement in like for like sales up 3.8% for the second half of
the year. Beds remain a key part of our customer offering and we continue to
review ways to increase sales.
Store opening programme
The Group has reviewed its store opening programme to reflect changes in the
market. Currently, we have 60 stores clustered around our target areas of
northern and central England, with a further six stores planned to open in the
coming months. Generally, new stores will be located within our existing
footprint to maximize advertising opportunities and our market share.
During the year, nine new stores opened in Chorley, Dudley, Huddersfield,
Keighley, Leeds, Long Eaton, Nuneaton, Southport and Stetchford. The decision to
reduce our store opening programme from the initial target of 15 enabled greater
focus to be placed on providing better support for existing stores and
addressing those stores which were significantly underperforming. In addition to
our five principal corporate stores we started the year with four non-core
corporate stores. During the year seven stores were taken back from franchisees
making 11 non-core corporate stores, of which three were successfully franchised
and one was closed. Franchisees were successfully replaced in six other
franchised stores, one franchisee was relocated to a new site and one further
franchised store closed in both cases following the ending of leases. Since the
year-end franchisees have been successfully replaced in two franchised stores
and one of the non-core corporate stores has also been successfully franchised.
Of the six remaining non-core corporate stores, one is in advanced negotiations
to be franchised, two are planned to be closed and suitable franchisees are
being sought for the remaining three stores. Further changes in franchisees can
be expected, although we expect the annual rate to reduce in 2008 and beyond.
We will continue to open stores where appropriate and have increased our
investment in recruitment of franchisees and further developed our selection
policies of both potential sites and franchisees. Whilst this may impact on our
projected number of store openings, we are convinced that these measures will
improve the quality of our franchise network to the long-term benefit of the
Group.
People
We now employ directly and indirectly over 320 people. A key focus during the
period has been to invest in people. The internal appointment of an experienced
manager to Group training manager has allowed us to run better and more frequent
staff training programmes. Alongside our regular conferences in March and
September, where there is an opportunity for franchisees to review and share
experiences, we are running regular refresher courses focused on sales
techniques, customer service and product innovations.
The Board joins me in thanking all our employees for their hard work during the
year and looks forward to working together in the future.
Outlook
Although the short-term outlook for the flooring market will remain challenging,
the Board firmly believes that the Group's robust franchise model will continue
to generate solid returns. Recent sales have been stronger than the equivalent
period last year, with like for like sales increasing by 8.7% for the 15 weeks
of the current financial year. Whilst some of this increase may be attributable
to a late Easter, this was more than offset by the negative impact of the World
Cup on our sector and the Board are confident the improved product mix in beds
and recently refurbished bespoke carpet offering, will provide momentum for
continued growth. The strength of our brand and marketing activity continues to
attract new customers to our stores throughout Northern and Central England.
The Company is in a strong financial position and the outlook for the future is
positive.
Peter Cowgill
Chairman
Preliminary announcement of results for the year ended 31 March 2006
Consolidated profit and loss account
Note Results Results
before before
goodwill Goodwill goodwill Goodwill
amortisation amortisation amortisation amortisation
and and and and
exceptional exceptional exceptional exceptional
items items 2006 items items 2005
As restated As restated As restated
#'000 #'000 #'000 #'000 #'000 #'000
Turnover 17,649 - 17,649 15,106 - 15,106
Cost of sales (5,894) - (5,894) (5,466) - (5,466)
_______ _______ _______ ______ _______ _______
Gross profit 11,755 - 11,755 9,640 - 9,640
Distribution
costs (1,678) - (1,678) (1,433) - (1,433)
Administrative
expenses (9,172) (56) (9,228) (6,460) (58) (6,518)
Other
operating
income 207 - 207 210 - 210
_______ _______ _______ _______ _______ _______
Operating
profit 1,112 (56) 1,056 1,957 (58) 1,899
Merger expenses 2 - - - - (61) (61)
(Loss)/profit
on disposal of
fixed assets 2 - (121) (121) - 168 168
_______ _______ _______ _______ _______ _______
Profit on
ordinary
activities
before
interest 1,112 (177) 935 1,957 49 2,006
Interest
receivable 106 - 106 52 - 52
Interest
payable (18) - (18) (28) - (28)
_______ _______ _______ _______ _______ _______
Profit on
ordinary
activities
before
taxation 1,200 (177) 1,023 1,981 49 2,030
Taxation 3 (443) (635)
_______ _______
Profit on
ordinary
activities
after taxation
transferred to
reserves 5 580 1,395
_______ _______
Earnings per
share 4
-Basic and
diluted 0.7p 1.9p
_______ ______
All amounts relate to continuing activities. The notes below form part of these
financial statements.
Preliminary announcement of results for the year ended 31 March 2006
Statement of total recognised gains and losses and reconciliation of movements
in shareholders' funds
Statement of total recognised gains and losses
Note 2006 2005
As restated
#'000 #'000
Profit for the financial year 580 1,395
________ ________
Total recognised gains and losses relating to
the year 580 1,395
________
Prior year adjustment 6 (1,677)
________
Total gains and losses recognised since last
annual financial statements (1,097)
________
Reconciliation of movements in equity shareholders' funds
Note 2006 2005
As restated
#'000 #'000
Profit for the year 580 1,395
Shares issued at nominal value - 550
Share premium arising on issue (net of expenses) - 1,167
Interim dividend paid (204) -
________ ________
Net increase in shareholders' funds 376 3,112
________ ________
Opening shareholders' funds as previously
stated 5,601 2,062
Prior year adjustment 6 (1,677) (1,250)
________ ________
Opening shareholders' funds as restated 3,924 812
________ ________
Closing shareholders' funds 4,300 3,924
________ ________
The notes below form part of these financial statements.
Preliminary announcement of results for the year ended 31 March 2006
Consolidated balance sheet
Note 2006 2005
As restated
#'000 #'000 #'000 #'000
Fixed assets
Intangible assets 277 333
Tangible assets 3,570 2,702
_______ _______
3,847 3,035
Current assets
Stocks 1,345 1,232
Debtors 3,622 4,570
Cash at bank and in hand 1,625 2,654
_______ _______
6,592 8,456
Creditors: amounts falling due
within one year (3,895) (5,369)
_______ _______
Net current assets 2,697 3,087
_______ _______
Total assets less current assets 6,544 6,122
Creditors: amounts falling due
after more than one year (2,125) (2,198)
Provisions for liabilities and charges (119) -
_______ _______
Net assets 4,300 3,924
_______ _______
Capital and reserves
Called up share capital 4,070 4,070
Share premium account 5 1,106 1,106
Profit and loss account 5 2,234 1,858
Other reserve 5 (3,110) (3,110)
_______ _______
Shareholders' funds 6 4,300 3,924
_______ _______
The notes below form part of these financial statements.
Preliminary announcement of results for the year ended 31 March 2006
Consolidated cash flow statement
2006 2005
Note #'000 #'000 #'000 #'000
Net cash inflow from operating
activities 7 1,820 1,146
Returns on investments and
servicing of finance
Interest received 106 52
Interest paid (18) (28)
_______ ______
Net cash inflow from returns
on investments and servicing of finance 88 24
Taxation
Corporation tax payment (908) (170)
_______ _______
(908) (170)
Capital expenditure
Purchase of tangible fixed assets (1,519) (1,618)
Sale of tangible fixed assets 51 522
_______ _______
Net cash outflow from
capital expenditure (1,468) (1,096)
Equity dividends paid (204) -
_______ _______
Net cash outflow before financing (672) (96)
Financing
Capital element of hire purchase
repayment's (85) (137)
Bank loans - (635)
Shares issued including premium - 1,717
_______ _______
Net cash (outflow)/inflow from
financing (85) 945
_______ _______
(Decrease)/increase in cash 9 (757) 849
_______ _______
The notes below form part of these financial statements.
Preliminary announcement of results for the year ended 31 March 2006
Notes to the preliminary announcement
1. Results and accounting policies
The preliminary results have been prepared under the historical cost convention,
in accordance with applicable Accounting Standards in the United Kingdom and
with the Group's accounting policies as will be set out in the financial
statements for the year ended 31 March 2006. The preliminary results were
approved by an authorised committee of the Board on 18 July 2006 and are
unaudited.
The financial information contained in this unaudited preliminary announcement
does not constitute statutory accounts as defined by Section 240 of the
Companies Act 1985.
The accounts have been prepared in accordance with the principles of merger
accounting as set out in Financial Reporting Standard 6 "Acquisitions and
Mergers".
Accordingly, the financial information for the Group has been presented as if
United Carpets (Franchisor) Limited, United Carpets (Central) Limited, Debrik
Investments Limited, Weavers Carpets Limited and Nottingham Carpet Warehouse
Limited ("the merged entities") had been owned by United Carpets plc throughout
the prior period when in fact they were not acquired until 7 February 2005.
Accordingly, the consolidated financial statements include the whole of the
results of the merged entities for the year ended 31 March 2005.
The corresponding figures for the previous year include the results of the
merged entities, the assets and liabilities at the previous balance sheet date
and the shares issued by United Carpets Group plc as consideration as if they
had always been in issue. The difference between the nominal value of shares and
the share premium accounts of the merged entities and the nominal value of
shares issued by the Company to acquire the merged entities is taken to
reserves.
There have been no changes in accounting policy in the year, other than as
disclosed in note 6.
2. Exceptional items
2006 2005
As restated
#'000 #'000
Merger expenses - (61)
(Loss)/profit on disposal of fixed
assets (121) 168
______ _______
(121) 107
______ _______
During 2005, merger expenses were treated as a reorganisation cost in accordance
with FRS 3.
Of the current year loss on disposal of fixed assets #118,000 relates to the
loss on disposal of the assets of the Macclesfield store which was closed in the
period. This store was opened in December 2004 with a view to its sale as a
franchise. Despite strenuous efforts no such sale was achieved and following a
period of unsatisfactory trading the lease break clause was actioned and the
store vacated in 2005. The profit of #168,000 in 2005 relates predominantly to
the profit on disposal of the freehold of a site in Nottingham. The directors
consider these items to be one off and exceptional in nature and have
reclassified them as such to give a better understanding of the underlying
results of the business.
3. Taxation on ordinary activities
Analysis of charge in the year:
Note 2006 2005
As restated
#'000 #'000
Corporation tax:
Current year - 774
Over provision in prior years (330) (58)
Prior year adjustment 6 - (183)
______ _______
(330) 533
Deferred tax:
Origination and reversal of
timing differences 773 102
______ _______
443 635
______ _______
4. Basic and diluted earnings per share
The profit per share has been calculated in accordance with FRS 14 'Earnings per
share'. The calculation of the profit per ordinary share is based on profits of
#580,000 (2005 - as restated: #1,395,000) and on a weighted average of
81,400,000 (2005: 74,893,151) ordinary shares in issue during the year. The
weighted average share capital for earnings per share calculated on a dilutive
basis is 81,400,000 (2005: 75,222,055).
5. Reserves
Note Share Profit
premium and Merger
account loss account reserve
#'000 #'000 #'000
At 1 April 2005 as previously
stated 1,106 3,535 (3,110)
Prior year adjustment 6 - (1,677) -
______ _______ _______
As restated 1,106 1,858 (3,110)
Profit for the year - 580 -
Interim dividend paid - (204) -
______ ________ ________
At 31 March 2006 1,106 2,234 (3,110)
______ ________ ________
The merger reserve is the difference between the nominal value of shares issued
in order to acquire the merged entities and the share capital and share premium
account of the merged entities.
6. Prior year adjustment - change in accounting policy
As disclosed in the interim report for the period ended 30 September 2005, the
Board has recently undertaken a review of all accounting policies to ensure they
remain appropriate to the Group's circumstances.
This review has resulted in a change in the accounting policy for income
recognition in respect of the initial fee paid by new franchisees at the outset
of a franchise arrangement. Previously, the Group accounting policy was to
recognise the initial franchise fee income in full upon commencing a franchise
arrangement. This policy has changed to spread this initial fee over 10 years,
the term of the franchise arrangement. In the opinion of the directors the Group
benefits from the franchise fee over the term of the franchise arrangement and
it is, therefore, appropriate to recognise it over this period.
This change in accounting policy has reduced the current year profit before tax
by #8,000 and net assets by #1,683,000 (this includes the effect of the
adjustment on the tax charge). The prior year profit before tax has been reduced
by #610,000 and brought forward net assets have been reduced by #1,677,000.
7. Reconciliation of operating profit to net cash inflow from operating
activities
2006 2005
As restated
#'000 #'000
Operating profit 1,056 1,899
Depreciation 479 335
Amortisation 56 58
Merger expenses - (61)
Increase in stock (113) (207)
Decrease/(increase) in debtors 756 (1,542)
(Decrease)/increase in creditors (414) 664
_______ _______
1,820 1,146
_______ _______
8. Analysis of changes in net funds
Other non
cash
2005 Cashflow changes 2006
#'000 #'000 #'000 #'000
Bank and cash 2,654 (1,029) - 1,625
Bank overdraft (272) 272 - -
_______ _______ _______ _______
2,382 (757) - 1,625
Debt due within one year:
Hire purchase contracts (74) 74 (58) (58)
Debt due after more than one
year:
Obligations under hire purchase
contracts (108) 11 58 (39)
_______ _______ _______ _______
Net funds 2,200 (672) - 1,528
_______ _______ _______ _______
9. Reconciliation of net cash flow to movement in net funds
2006 2005
#'000 #'000
(Decrease)/increase in cash in
the year (757) 849
Cash outflow from hire purchase
financing 85 138
Cash outflow from bank loans - 635
_______ _______
Change in net funds resulting
from cashflows (672) 1,622
New hire purchase contracts - (68)
_______ _______
Movement in net funds in the
year (672) 1,554
Net funds at start of year 2,200 646
_______ _______
Net funds at end of year 1,528 2,200
_______ _______
This information is provided by RNS
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