RNS Number : 3134K
United Carpets Group plc
18 December 2008
UNITED CARPETS GROUP plc
Interim Results for the period ended 30 September 2008
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 interim results for the period ended 30 September 2008.
Highlights
* Network sales grew by 5.9% to �30.88m (2007: �29.16m)
* Revenue increased by 22.4% to �12.62m (2007: �10.31m)
* Like for like sales up 5.0%
* Profit before tax decreased by 9.8% to �637,000 (2007: �706,000)
* Underlying profit before tax* decreased by 13.7% to �634,000 (2007: �735,000)
* 15 stores have been opened since the year end bringing the current total to 80
* Very challenging market conditions
*Before impairment of intangible assets �Nil (2007: �29,000) and profit on disposal of property, plant and equipment of �3,000 (2007:
�Nil)
Paul Eyre, Chief Executive, said:
'United Carpets, along with the wider retail sector, is facing very tough trading conditions, with greatly reduced consumer spending
power. Despite this, the Group's focus on quality products at affordable prices, sold through both our corporate and franchised stores has
generated a satisfactory result for this half year, despite increased costs associated with our store opening programme and additional
marketing expenditure to maintain and increase market share. We believe that United Carpets' position at the value end of the sector,
combined with its relatively resilient franchise structure, will enable us to continue to trade through this difficult period and be well
positioned for the eventual recovery in consumer spending.'
Enquiries:
United Carpets Group plc
Paul Eyre, Chief Executive 01709 732 666
Ian Bowness, Finance Director
Cardew Group
Tim Robertson 020 7930 0777
Jamie Milton
Seymour Pierce
Jonathan Wright 020 7107 8000
Chairman's statement
I am pleased to announce the Group's interim results for the six months ended 30 September 2008. The Group generated revenues of �12.62m
compared to �10.31m in the comparable period in 2007, operating from 73 stores located across Northern and Central England. Since the
period end, a further 7 stores have opened increasing the number of stores to 80. The management team has given careful consideration to how
best to manage the business during these challenging times and is focused on preserving the financial strength of the business whilst
balancing this aim with ensuring that the Group continues to invest sufficiently in marketing to support future sales.
Financial review
Revenue, which as in previous years includes marketing and rental costs incurred by the Group and recharged to franchisees, increased by
22.4% to �12.62m (2007: �10.31m), reflecting the large growth in corporate store numbers during the period. 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 5.9% to �30.88m (2007: �29.16m).
Like for like sales across the whole of the network were up 5.0% compared to the previous period. Given United Carpets' franchise
structure, like for like sales are not the best measure of the Group's financial performance but they do provide a good steer on the overall
trading performance. Within the like for like sales performance, the core floor coverings business achieved a 4.9% like for like increase on
the previous year whilst bed like for like sales increased by 6.0%.
The reduction in gross margin from 69.6% to 65.4% reflects the reduction in the proportion of franchise related income to total revenue
as turnover from corporate stores and trade sales accounted for a greater proportion of revenue.
Distribution costs include staff costs at the corporate stores and the increase of 24.7% arises from the increase in corporate store
numbers in the period in comparison to the same period in 2007 and a full period's cost of the central bed warehouse which opened during the
comparable period in 2007.
Administrative expenses include the occupancy costs and depreciation of corporate stores and the increase of 15.9% arises from the
increase in corporate store numbers and increased marketing expenditure during the period.
A key operational focus is to continue the process of franchising existing corporate stores which will have a positive impact as the
Group recoups its original investment.
Profit before tax decreased by 9.8% to �637,000 (2007 �706,000). Earnings per share were 0.51p (2007: 0.57p).
Dividend
In the current trading environment the Board considers that preserving the existing strength of the Group's financial position is a
priority. Consequently, as we approach what is traditionally a quieter trading period for our sector, the Board feels that it would be
inappropriate, at this time, to pay an interim dividend. The Board still expects to pay a final dividend subject to market conditions.
Operations review
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. Trading over the period was solid with a 4.9% improvement in like for like sales
across the network, confirming that the Group's franchise structure and focus on 'value for money' provided a degree of insulation from the
slowdown in the wider retail sector. Beds are sold through the majority of the store network with franchisees earning a commission on
sales.
The Group continues to carry out television advertising in targeted areas where it has sufficient critical mass as demonstrated by our
recent increased presence in the North West which has improved the cost effectiveness of television advertising in the Granada region. At
the same time we continue to use radio, print and direct advertising strategies to increase brand awareness and drive sales across the
Group. The recent significant increase in store numbers has increased our ability to fund more sustained advertising campaigns in key areas
which will be vital in maintaining foot fall into the stores during this current economic downturn.
The Group ended the period under review with 73 branded stores across Northern and Central England. With the exception of 22 corporate
stores, the remainder were 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.
In the first 11 weeks since the period end, like for like flooring sales are down 5.0% reflecting the sharp downturn in the economic
climate since the end of September.
Franchising
The Group started the year with 47 franchised stores and during the period added 2 new franchised stores in Melton Mowbray and
Blackpool. In addition, we converted 5 franchisee stores back into corporate stores due to underperformance but successfully refranchised
all of them and franchised an additional 2 corporate stores giving us 51 franchised stores at the period end.
The average number of franchisees during the period was similar to the comparable period in 2007 resulting in very similar revenues,
however, increased marketing expenditure to maintain and increase market share impacted on the result for the period.
Since the period end we have opened 2 new franchised stores at Brigg and Liverpool (Hunts Cross), converted 3 franchisee stores back
into corporate stores due to underperformance and successfully refranchised them and franchised one additional corporate store giving us 54
franchisees currently.
Flooring
Having started the year with 18 corporate stores, 6 new corporate stores opened during the period at: Wigan, Failsworth, Kidderminster,
Hall Green, West Bromwich and Gorton and 2 were franchised leaving us with 22 corporate stores at the period end. Five of the 22 corporate
stores are considered to be core to be retained to enable ongoing training and product development, with the Group seeking to franchise as
many as possible of the remainder with quality candidates.
Whilst store numbers and revenues have increased significantly in comparison to the comparable period in 2007, the tougher economic
climate has meant that it is taking longer for new stores to become established in the market. Furthermore although we have demonstrated a
capability to take back underperforming franchisee stores and turn them around under the corporate arm, this inevitably takes time and
adversely affects profit until performance has been improved.
Since the period end, we have successfully opened 5 new corporate stores, in Wednesbury, Little Hulton, Kingstanding, Shrewsbury and
Runcorn, and franchised one corporate store giving us a total of 26 corporate stores currently.
Beds
This segment of the business has yet to perform to its full potential although like for like sales during the period showed a 6.0%
increase. Performance continues to be mixed across the network with some stores generating good sales growth whilst others continue to
underperform. Sales have been more severely affected by the downturn since the end of September, reflecting the greater impact of the
slowdown on items with a higher average order value, with like for like sales in the 11 weeks since the period end, down 10.6%.
Trade Sales
The Group has invested in developing its own in-house cutting operation for flooring providing improvements in efficiency and service to
the store network. Begun just over a year ago, the service is still relatively new and the management team expect it can contribute further
benefits to the Group as utilisation and economies of scale increase.
People
That the Group continues to generate a solid performance in these tough trading conditions is in large part due to our staff and
franchisees. The Board would like to thank all employees, franchisees and supplier partners across the network for their hard work and
dedication which has enabled United Carpets to deliver a creditable trading performance during challenging times. We will continue to invest
in the training and development of all of our people and look forward to their support in maintaining the Group's position in 2009.
Outlook
The marked deterioration in consumer confidence during late September and October noted in our AGM statement on 31 October 2008 has
improved a little with total like for like sales for the last 11 weeks improving to 5.5% down on the previous year, compared to the six
weeks to 23 October 2008 which were down 6.4%.However, although United Carpets' position as the value choice within the sector has to a
degree helped protect it from the general slowdown on the high street, the management believe it is appropriate in this environment to adopt
a cautious approach to protect our financial position going forward. During the second half of this financial year the Group will continue
to invest in marketing to support sales across the store network whilst at the same time looking to maintain tight control of all costs and
reduce the current number of corporate stores by matching them with suitable franchisees. We believe that United Carpets' position at the
value end of the sector, combined with its relatively resilient franchise structure, will enable us to continue to trade through this difficult period and be well positioned for the eventual
recovery in consumer spending.
Peter Cowgill
Chairman
INDEPENDENT REVIEW REPORT TO UNITED CARPETS GROUP PLC
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six
months ended 30 September 2008, which comprises the condensed consolidated interim income statement, the condensed consolidated interim
balance sheet, the condensed consolidated statement of changes in equity and the condensed consolidated interim statement of cash flows and
related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for
preparing the half-yearly financial report in accordance with the AIM Rules for Companies which require that the financial information must
be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.
The annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set
of financial statements included in this half-yearly financial report has been prepared in accordance with applicable law and the AIM Rules
for Companies.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial
report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity". A review of the half-yearly financial report consists of making inquiries, primarily of
persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review nothing has come to our attention that causes us to believe that the accompanying condensed financial statements are
not prepared, in all material respects, in accordance with applicable law, the bases set out in note 1 and the AIM Rules for Companies.
Tenon Audit Limited
Chartered Accountants
Nottingham
18 December 2008
Condensed consolidated interim income statement
For the six months ended 30 September 2008
6 months 6 months
ended 30 ended 30 Year ended
September September 31 March
2008 2007 2008
Unaudited Unaudited Audited
Total Total Total
�'000 �'000 �'000
Note
Revenue 2 12,624 10,311 21,166
Cost of sales (4,373) (3,133) (6,664)
Gross profit 8,251 7,178 14,502
Distribution costs (1,524) (1,222) (2,185)
Administrative expenses (6,200) (5,349) (11,142)
Other operating income 50 38 183
Profit on disposal of
property, plant and equipment 3 - 10
Operating profit before 580 645 1,368
financing costs
Financial income 58 61 145
Financial expenses (1) - (2)
Profit before tax 637 706 1,511
Income tax expense 3 (223) (240) (572)
Profit for the period 2 414 466 939
Basic earnings per share 5 0.51p 0.57p 1.15p
Diluted earnings per share 5 0.51p 0.57p 1.14p
All amounts are attributable to the equity holders of the parent, and all arise from continuing operations. No amounts were recognised
directly in equity, and therefore no separate statement of recognised income and expense has been presented.
Condensed consolidated interim balance sheet
As at 30 September 2008
30 September
2007 31 March
Unaudited 2008
30 September Total Audited
2008 �'000 Total
Unaudited �'000
Total
�'000
Note
Non-current assets
Property, plant and 4 5,070 3,932 4,317
equipment
Intangible assets - 191 -
5,070 4,123 4,317
Current assets
Inventories 2,884 2,271 2,347
Trade and other 2,994 2,768 3,238
receivables
Cash and cash equivalents 934 2,653 1,448
6,812 7,692 7,033
Total assets 11,882 11,815 11,350
Equity
Issued capital 4,070 4,070 4,070
Share premium 1,106 1,106 1,106
Reserves (2,745) (2,855) (2,789)
Retained earnings 2,984 2,728 2,570
Total shareholders' equity 5,415 5,049 4,957
Non-current liabilities
Financial liabilities - 70 - 83
borrowings
Trade and other payables 1,643 1,965 1,514
Provisions 22 93 22
Deferred tax liabilities 234 158 234
1,969 2,216 1,853
Current liabilities
Financial liabilities - 27 - 30
borrowings
Trade and other payables 4,229 4,550 4,256
Current tax liabilities 242 - 254
4,498 4,550 4,540
Total liabilities 6,467 6,766 6,393
Total equity and liabilities 11,882 11,815 11,350
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2008
Share premium Share-based payment
Share capital account Retained earnings Merger reserve reserve
�'000 �'000 �'000 �'000 �'000
At 1 April 2007 4,070 1,106 2,162 (3,110) 289
Profit for the financial - - 466 - -
period
Dividends paid - - - - -
Share-based payments - - - - 66
Transfer - - 100 - (100)
At 30 September 2007 4,070 1,106 2,728 (3,110) 255
At 1 April 2008 4,070 1,106 2,570 (3,110) 321
Profit for the financial - - 414 - -
period
Dividends paid - - - - -
Share-based payments - - - - 44
At 30 September 2008 4,070 1,106 2,984 (3,110) 365
Condensed consolidated interim statement of cash flows
For the six months ended 30 September 2008
6 months ended 30 6 months ended 30
September September Year ended
2008 2007 31 March
Unaudited Unaudited 2008
Total Total Audited
�'000 �'000 Total
�'000
Note
Cash flows from operating
activities
Cash generated from operations 8 819 6 1,228
Interest paid (1) - (2)
Income taxes (paid)/refunded (235) 4 (249)
Net cash from operating 583 10 977
activities
Cash flows from investing
activities
Proceeds from sale of 4 - 129
property, plant and equipment
Interest received 58 61 145
Acquisition of property, plant (1,143) (445) (1,188)
and equipment
Net cash from investing (1,081) (384) (914)
activities
Cash flows from financing
activities
Payment of finance lease (16) (3) (18)
liabilities
Dividends paid - - (631)
Net cash from financing (16) (3) (649)
activities
Net decrease in cash and cash (514) (377) (586)
equivalents
Cash and cash equivalents at 1,448 2,034 2,034
start of period
Cash and cash equivalents 934 1,657 1,448
Notes to the condensed consolidated interim financial statements
1. Basis of preparation
United Carpets Group plc (the "Company") is a company domiciled in the United Kingdom. The condensed consolidated interim financial
statements of the Company for the six months ended 30 September 2008 comprise the Company and its subsidiary undertakings (together referred
to as the "Group").
The Group financial statements for the year ended 31 March 2008 were approved by the Board of Directors on 22 September 2008 and
delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter
paragraph and did not contain any statement under section 237 of the Companies Act 1985. These condensed consolidated interim financial
statements do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985. These condensed consolidated
interim financial statements for the period ended 30 September 2008 are unaudited but have been reviewed by the auditors and their
Independent Review Report is included with these statements.
The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2008.
2. Segment reporting
Segment information is presented in the condensed consolidated interim financial statements in respect of the Group's business segments,
which are the primary basis of segment reporting. The business segment reporting format reflects the Group's management and internal
reporting structure.
Inter-segment pricing is determined on an arm's length basis.
Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Business segments
The Group is comprised of the following main business segments:
* Franchising
* Flooring
* Beds
* Trade sales
For the six months ended 30 September 2008
Franchising Flooring Beds Trade sales Consolidated
2008 2007 2008 2007 2008 2007 2008 2007 2008 2007
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Segment revenue 4,441 4,446 4,795 3,377 2,028 1,729 1,360 759 12,624 10,311
Segment result 926 1,009 (50) (55) 149 150 54 72 1,079 1,176
Unallocated expenses (499) (531)
Operating profit 580 645
Net financing costs 57 61
Income tax expense (223) (240)
Profit for the period 414 466
Notes to the condensed consolidated interim financial statements
3. Income taxes
The tax charge accrued in these interim results reflects an estimated tax rate of 35% (30 September 2007: 34%) as a result of expenses
not deductible for tax purposes and non-qualifying depreciation.
4. Property, plant and equipment
Acquisitions and disposals
During the six months ended 30 September 2008, the Group acquired assets with a cost of �1,143,000 (six months ended 30 September 2007:
�445,000). Assets with a net book value of �1,000 were disposed of during the six months ended 30 September 2008 (six months ended 30
September 2007: �Nil), resulting in a gain on disposal of �3,000 (six months ended 30 September 2007: �Nil).
Capital commitments
There were no capital commitments contracted for but not provided for at the period end (30 September 2007: �Nil).
5. Earnings per share
Basic earnings per share
The calculation of basic earnings per share for the six months ended 30 September 2008 was based on the profit attributable to ordinary
shareholders of �414,000 (six months ended 30 September 2007: �466,000, year ended 31 March 2008: �939,000) and a weighted average number of
ordinary shares outstanding during the six months ended 30 September 2008 of 81,400,000 (six months ended 30 September 2007: 81,400,000,
year ended 31 March 2008: 81,400,000).
Diluted earnings per share
There are 1,428,571 share options which give rise to a dilution at 30 September 2008 (30 September 2007: 1,428,571, March 2008:
1,845,237).
The calculation of diluted earnings per share for the six months ended 30 September 2008 was based on profit attributable to ordinary
shareholders of �414,000 (six months ended 30 September 2007: �466,000, year ended 31 March 2008 �939,000) and a weighted average number of
ordinary shares outstanding during the six months ended 30 September 2008 of 81,549,005 (six months ended 30 September 2007: 81,682,344,
year ended 31 March 2008: 82,644,756), calculated as follows:
At 30 September At 31 March
2008 2007 2008
Weighted average number of ordinary 81,400,000 81,400,000 81,400,000
shares at period end
Effect of share options in issue 149,005 282,344 1,244,756
(dilutive)
Weighted average number of ordinary 81,549,005 81,682,344 82,644,756
shares (diluted)
6. Employee benefits
Pension plans
The Group provides employee benefits under defined contribution pension plans, the details of which are disclosed in the most recent
annual financial statements.
Expense recognised in the consolidated interim income statement
The expense recognised in the consolidated interim income statement consists contributions made to the defined contribution scheme. For
the six months ended 30 September 2008, the Group recognised expense of �44,000 (six months ended 30 September 2007: �46,000, year ended 31
March 2008: �80,000).
Notes to the condensed consolidated interim financial statements
7. Financial instruments
Interest-bearing loans and borrowings
In the opinion of the directors there is no significant difference between the fair value of hire purchase contracts and the carrying
value in the financial statements.
Trade and other receivables/payables
The carrying value is deemed to reflect the fair value for all trade and other receivables/payables.
8. Cash flows from operating activities
6 months ended 30 6 months ended 30 Year ended31 March 2008
September 2008 September 2007
�000 �000 �000
Profit before tax 637 706 1,511
Depreciation of property, 389 331 691
plant and equipment
Impairment of intangible - 29 220
assets
Profit on disposal of (3) - (10)
property, plant and equipment
Share-based payment expense 44 66 132
Increase in inventories (537) (591) (667)
Decrease/(increase) in trade 244 (558) (1,050)
and other receivables
Decrease in provisions - (2) (73)
Increase in trade and other 102 86 617
payables
Financial income (58) (61) (145)
Financial expense 1 - 2
819 6 1,228
9. Related parties
Transactions with key management personnel
Loans to directors as at 30 September 2008 amounted to �Nil (six months ended 30 September 2007: �Nil, year ended 31 March 2008: �Nil).
Key management personnel receive compensation in the form of short-term employee benefits, post-employment benefits and equity
compensation benefits. Key management personnel received total compensation of �376,000 for the six months ended 30 September 2008 (six
months ended 30 September 2007: �313,000, year ended 31 March 2008: �829,000).
This information is provided by RNS
The company news service from the London Stock Exchange
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