CPR.L Regulatory News (CPR)

Full Year results for the 52 weeks ended 27 April 2019

"Business turnaround on track with an encouraging return to positive like-for-like sales growth"

Strategic Progress

Financial Highlights

UK

Rest of Europe

Group

Current Trade

Board update

Commenting on the results Wilf Walsh, Chief Executive, said:

"2018/19 was a transitional year for the business as we took tough but necessary action to address our legacy property issues and restructure the UK store estate. This difficult task was carried out against the backdrop of a challenging trading environment but was essential to put the business back on the path to sustainable profitability.

"From a trading standpoint it was, as expected, a year of two halves, with the first six months reflecting the impact of the CVA implementation, followed by a significant improvement in the second half and, in particular, during Q4. We are pleased to report today that this positive trend has continued into the new year with a return to like-for-like sales growth in the first eight weeks of the period, when UK LFL sales grew by 8.5%.

"We remain the clear number one player in floorcoverings, having maintained our market leadership during an exceptionally challenging period, and our brand attributes remain strong. Our work is far from finished, and while economic and political uncertainties cloud the near term outlook for the retail sector, our turnaround plan is very much on track."

Group financial summary

Notes

1. Revenues represent amounts payable by customers for goods and services after deducting VAT and other charges and reflects the new accounting standard IFRS15 'Revenue from Contracts with Customers'.

2. 'Underlying' excludes separately reported items and related tax.

3. Net debt is calculated as the total of cash and cash equivalents, offset by borrowings, finance leases and unamortised fees.

4. Like-for-like sales calculated as this year's sales compared to last year's sales for all stores that are at least 12 months old at the beginning of our financial year. Stores closed during the year and "C" stores under the CVA are excluded from both years. No account is taken of changes to store size or introduction of third party concessions.

5. Comparative period for the year is the 52 week period ended 28 April 2018.

6. The 2018 comparative year has been restated throughout as a result of the adoption of new IFRS 15 accounting standard, further details of which are provided in note 14.

Certain statements in this report are forward looking. Although the Group believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward looking statements. We undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

LEI: 213800GO32BSNNHXID90

Results presentation

Carpetright plc will hold a presentation to analysts at Citigate Dewe Rogerson, 8th Floor, Holborn Gate, 26 Southampton Buildings, London WC2A 1AN at 09.00am today.

A copy of this statement and associated management presentation can be found on our website www.carpetright.plc.uk

For further enquiries please contact:

Carpetright plc

Wilf Walsh, Chief Executive Officer

Jeremy Simpson, Chief Financial Officer

Tel: 01708 802000

Citigate Dewe Rogerson

Kevin Smith / Nick Hayns

Tel: 020 7638 9571

Notes to Editors

Carpetright plc is Europe's leading specialist floor coverings and beds retailer. Since the first store was opened in 1988 the business has developed both organically and through acquisition within the UK and other European countries. The Group is organised into two geographical regions, the UK and the Rest of Europe (comprising The Netherlands, Belgium and the Republic of Ireland).

Chief Executive's Review

After a difficult year of essential restructuring for the business, I am pleased to be able to adopt a more upbeat tone when reflecting on the current state of our company. While it's clearly too early to declare the job done, we have made substantive progress in the key areas that drove us to make the difficult but necessary decision to restructure the business via a Company Voluntary Arrangement (CVA) and re-capitalisation. Subsequent moves by a host of other retailers to do the same proves that we are not unique in pursuing a plan to build a sustainable and successful future for the brand.

Specifically, our major issue was an unsustainable lease profile and a legacy property portfolio, which, despite our best efforts, proved too difficult to address without resorting to drastic action. I am grateful to our colleagues, suppliers and landlords in helping to make this a success. Against a background of declining consumer confidence and an uncertain political and economic environment, we have materially reduced our rent and rates profile while achieving the predicted sales transfer from closed stores and reducing central costs.

I am pleased to say that we remain on track to deliver the promised benefits of the CVA process, with £19m of annualised cash savings. This included a £6m sales transfer to remaining stores, equating to our 20% target.

Through these challenges, we have adopted a consistent strategy and are transforming this business by focussing on a simple plan:

Who we are. Our brand, our stores, our people

What we sell. An unrivalled choice of floorcoverings

How we sell. Great customer service at unbeatable value

Where we sell. An improved store portfolio supported by an outstanding digital offer

The strategy is supported by clear, uncomplicated principles and I am delighted to report that in our recent UK Employee Attitude Survey, 70% of respondents indicated that they were "proud" to work for Carpetright. After a year when we closed 83 stores across the Group and, regrettably, had to make a number of roles redundant, both in the field and at Store Support Office (SSO), this is particularly reassuring and reinforces our values -

We are honest and straightforward

We care about customers and colleagues

We make it easy

Dealing with the four main planks of the strategy in turn:

Who we are

Carpetright remains comfortably the largest floorcovering retailer in the UK and this leadership position was undoubtedly one of the key reasons why shareholders and other parties supported the £65m recapitalisation of the business that followed the CVA.

While our total sales were impacted by store closures and the negative newsflow surrounding the CVA over the first half of the year, in too many cases we also had multiple stores in some towns, delivering negative contributions. Despite recent upheavals and the restructuring of our business, we retain clear market leadership by some distance in the UK and this is a strong position from which to build our recovery.

It is also worth reflecting on the strength of the Carpetright brand and consumer perceptions. We have always enjoyed strong brand metrics, however these did take a dip in relation to trust and reputation during the launch of the CVA as customers were, understandably, nervous about the future of the business at that point. Unlike other retailers where the product is out on the shelf and available to take away, we ask customers to leave a deposit with us for a bespoke product ahead of delivery in days or, usually, weeks.

I am pleased to note that our brand metrics bounced back strongly following our "Carpetright For Life" campaign which we embarked on after our equity fundraise. Brand attributes such as Quality and Value/Affordable are now at their highest level since we began tracking these measures. Additionally, as a retailer that customers "know and trust" and which "has a really good reputation", our brand perceptions have improved markedly since Spring/Summer 2018. Prompted and spontaneous brand awareness both remain incredibly strong.

We have been facing significant competitive challenges over the past few years and, importantly, we can prove that, with the exception of a very small number of individual stores, we are more than holding our own - whether that's in locations where we face one direct national competitor or larger conurbations where there are multiple brand operators and options for the consumer. Our performance against our competition has improved consistently over the past 52 weeks.

It's clear that once we get to the one-year anniversary of a competitor store opening we begin to recover lost ground rapidly as the local market stabilises. This effect is most pronounced where we invest in refurbishment and upgrade to our "graphite" design store format. While this investment was restricted during the year, we are working hard to create a sustainable financing structure for 2020 onwards that will allow us to support the growth and development of the organisation.

We have been extremely robust in taking on competition and it's clear that this is a very difficult market for a new entrant and brand to gain traction unless they are prepared to pursue an uneconomic model, of course until time and money run out.

By the end of the 2019 financial year, we had 241 stores trading under the new brand format. Our objective is to ensure that every store has some form of consistent new branding and additional investment by the end of the CVA period in April 2021.

In terms of people, we will continue to invest in training - our Fuse platform acts as an effective tool for both product training and communication. Our key development focus for colleagues will be on the implementation of the Microsoft Dynamics 365 cloud-based platform as we migrate from our aged legacy systems.

We have been honest and straightforward with all our colleagues on the need for further restructuring in our business during the CVA period ending in April 2021. We encourage direct feedback and our staff forum on Fuse gives us constant and robust reminders of what is on colleagues' minds both in terms of day to day issues and the company in general.

I am constantly impressed by the number of long service awards that I get to sign every month. The loyalty and dedication of long serving colleagues throughout the past twelve months has been incredibly stoic and is very much appreciated.

What we sell

We want to maintain our credentials as Europe's leading floorcovering retailer. That means retaining our clear leadership position on carpet and growing our share of hard flooring as consumer tastes evolve. Our aim is to make hard flooring 25% of our overall business by 2022.

It is imperative that we stay on top of changes in consumer tastes and, in terms of product, we update our ranges across categories three times a year to ensure that we stay at the forefront of home interior design trends. Our new "Soft" carpet collection was our fastest growing own label product in the period, while our exclusive "Tegola" own brand laminate was launched successfully during the year and has been well-received by customers. Our "House Beautiful" and "Country Living" collections are also exclusive to Carpetright, providing differentiation in a sector where brands have not historically been strong. Our "Essential Value" range continues to provide budget conscious customers with a quality product at an affordable price. We continue to convert more effectively with increased higher margin underlay and accessories penetration.

At cost to our suppliers (mainly on consignment) we established safety supplies of product in our Purfleet SSO in the run-up to the original date for the UK's exit from the EU in March to ensure we were prepared for a "No Deal" Brexit. While, in this scenario, current expectations are that there would be no additional tariffs on the products we source from the EU, our concern remains the immediate potential disruption at port of entry. We are confident that, with supplier support, we can repeat this process later in the year to guarantee no short-term material disruption to our product pipeline as market leader.

How we sell

Great customer service is at the heart of everything that we do, so we were rightly delighted when the business achieved five-star Trustpilot status for customer satisfaction earlier this calendar year. We intend to maintain this level consistently. In comparison to other retailers the customer journey between accessing our brand online and the after-care following the flooring being fitted at the customer's home is usually quite complex, not least due to the bespoke nature of the product and service provided.

Inevitably, a floorcovering purchase involves disruption and some form of intrusion whether that's a visit from one of our highly trained Home Flooring Surveyors, to measure a property and advise on potential options, or third party fitters moving items of furniture, laying the chosen product and taking away unwanted surplus. While we serviced over one million orders last year with a very low number of complaints, one complaint is one too many and we know there is room for further improvement. With a relentless focus on genuinely great customer service, we have a key differentiator in our sector.

Despite a difficult year for colleagues caused by some uncertainty about the business, our "Do We Measure Up?" score of customers being "highly satisfied" was at 75%. In our industry, good news tends to travel slowly as a customer getting what they paid for with accompanying excellent service is the default position and shouldn't be seen as remarkable. Bad news, however, travels incredibly quickly, especially on social media. So when we've got it wrong, engaging with our detractors and resolving issues rapidly is vital for reputation, repeat business and recommendations.

Part of that process is about understanding customer needs and utilising the outstanding product knowledge our colleagues have in store to greatest effect. Interest Free Credit (up to four years at 0% interest) is a great enabler for both the customer and colleagues in delivering affordable home transformation.

Likewise, recommending the appropriate floorcovering and underlay/accessories to make the chosen carpet last longer and perform more efficiently are beneficial for both the customer and our business as we improve conversion rates and average transaction values.

We have been trialling a new "instore experience" colleague training programme in two of our Southern regions and the early results look promising ahead of a potential nationwide rollout in 2020.

Where we sell

Our restructuring programme clearly had its greatest impact within the UK store estate as we addressed the significant legacy issues discussed above. The bottom line is that excessive property costs were primarily to blame for our decision to restructure via a CVA.

Landlords, in the main, have been understanding and supportive of Carpetright's need to restructure its store portfolio and we are grateful for this partnership and a welcome spirit of genuine collaboration. Most landlords now realise that the focus on estimated rental values and upward-only rent reviews has been overtaken by events. Retailers faced with enormous pressures need more flexibility around their lease portfolio and we have noticed that landlords are now prioritising security of income as the property world realigns itself with the real world.

The year-on-year reduction in store numbers since 2014 shows that the CVA merely accelerated the strategic decision we made some years ago to right-size the business on a more economic physical footprint.

It's also interesting to note that, since the CVA, we have maintained several stores, previously earmarked for closure, on zero rent, as landlords would rather not have an empty store on their site or indeed pick up the rates bill of a departed tenant. The contribution from these previously loss-making stores has, unsurprisingly, been much improved although the oppressive rates burden remains something in clear need of Government reform.

The inherent flexibility in our restructured estate will be enhanced by a project we are currently undertaking with Javelin Group to review our portfolio against an "ideal" bricks and mortar model across the UK. The output from this study will enable us to make our retail estate more flexible and ensure improved certainty of contribution in direct contrast to our historical legacy portfolio.

We have several successful department store concessions around the UK and we recently tied up with leading retailer, Furniture Village, for a concession in Guildford. This was on a site where we had to shut a store that had an unsustainable rent and the concession model allows both parties flexibility as well as a mutually lower cost model.

While the complexity of our product and customer journey means it does not necessarily lend itself to a solely online transaction, as market leader we need to ensure that we lead the way on digital to satisfy those customers who do not want to visit a physical retail outlet. Last year we doubled our conversion rate online and Jeremy Maxwell, our new Group Commercial Director, has led a comprehensive review of our digital operations. Jeremy's team is working on several exciting initiatives to grow remote sales and develop a new CRM capability to support our rationalised store estate.

These initiatives will centre on maximising the quantity and quality of website traffic and high impact referrals, as well as innovative digital content and tools to enhance the user experience and maintain and grow a quality customer database.

Summary

For Carpetright, in common with a host of other retailers, 2018/19 was a year that was all about survival. This coming year will be about steering the business through an improvement in performance and laying the groundwork for longer term, sustainable earnings and cash generation. We have made significant inroads into the major challenges of last year. Specifically, we have restructured our property estate, with further flexibility and cost reductions to come, and developed a credible digital strategy.

We have also challenged competition from other retailers robustly to maintain our market leadership position, and dealt with a decline in consumer confidence by reinforcing our brand credentials, improving our range of floorcoverings and enhancing our reputation for quality and value.

I am pleased to report that with the majority of our supplier partners we are negotiating terms closer to those we enjoyed before the CVA. We are grateful to all those suppliers in the UK, Belgium and Northern Europe for their support and for their agreement that nursing the market leader back to health was in everybody's long term interests.

As expected, the performance of the business improved significantly over the second half of the period, with the like-for-like decline in sales reducing significantly, as both colleagues and customers had their confidence in the brand restored. Our performance in the early weeks of the 2019/20 financial year has been encouraging, with positive like-for-like sales growth indicating that we are clearly beginning to recover lost ground. With the disruptions of last year now behind us, we can concentrate fully on the day-to-day running of this customer facing business.

Finally, I am delighted to welcome Jeremy Simpson to the Board as Group CFO. He has made a swift and positive impact on the team and our business in general.

The focus of our strategy remains unchanged as we maintain and grow our position as market leader. My thanks, as ever, go to our resilient and supportive shareholders, to the Board and of course to our hard-working, loyal colleagues from Aberdeen to Truro, Belfast to Cork, and from Amsterdam down to Brussels.

Whilst the financial and political climate remains unpredictable and we know that there is still hard work ahead, we remain confident and positive about our future.

We are Carpetright.

Wilf Walsh

Chief Executive Officer

25 June 2019

Financial Review

As previously reported, trading during the first half of the year was challenging, as a consequence of weakening consumer demand, exceptionally warm weather and the negative impact associated with the CVA. This led to a 15.7% first half decline in Group revenues, including a 12.7% like-for-like decline in the UK. Whilst second half revenues were down 11.1% on the prior year, we saw steady improvement, with UK like-for-like revenues down 8.2% in the third quarter and 2.3% in the fourth. Full year revenues decreased by 13.4% to £386.4m (2018: £446.3m), impacted particularly by store closures as part of the CVA; an analysis of like-for-like revenues is provided in the operational reviews below.

Gross margin declined by 1.6ppts to 54.5% (2018: 56.1%). This arose from two primary sources: promotional activity to mitigate competitor action arising from publicity surrounding the CVA and a change in sales mix in Rest of Europe. Whilst the promotional activity was necessary to maintain sales during a difficult period, the position improved during Q4 as revenues recovered, and we saw a 0.5% margin improvement. The Rest of Europe saw a particular improvement in hard flooring sales in the year - an important strategic initiative for the Group - and we need to respond to the improved scale this offers with further buying improvements, especially as we continue to grow this category in the UK.

We closed 80 UK stores in the year as part of the CVA and three in Rest of Europe, with four opening. This net decrease of 79 meant our total store base numbered 466 at year end (2018: 545), with total store space decreasing by 14% to 4.2 million square feet during the period (2018: 4.9 million square feet).

The Group made significant progress in reducing its cost base and is on track to deliver the annualised savings of £19m outlined at the time of the equity raise in June 2018. We achieved a saving of £13.6m in the period and the remaining initiatives to deliver the full savings target are well underway. Overall, expenses fell by £35.7m to £207.5m (2018: £243.2m), a decrease of some 14.7%.

Underlying EBITDA declined by £4.2m to £2.9m (2018: £7.1m), reflecting lower revenues, which were mitigated in part by the expense savings and Q4 margin improvement discussed above.

Depreciation and amortisation charges were £11.4m (2018: £12.3m). The Group's underlying operating loss was £8.5m (2018: £5.2m).

Net finance charges were £5.6m higher than the prior year at £8.4m (2018: £2.8m), reflecting the higher rate of interest payable on the Group's loans and amortisation of fees associated with the shareholder loan agreed in May 2018.

Separately reported items totalled £7.9m (2018: £61.8m). The primary drivers of this charge related to a review of asset impairment in light of developments within the Group's property portfolio, together with a review of inventory and project costs incurred ahead of the implementation of a new ERP platform, Microsoft Dynamics 365 ("D365"). Further detail on these costs can be found below. Taking into account separately reported items, the statutory loss before tax for the period was £24.8m (2018: £69.8m loss) and basic loss per share was 7.9p (2018: 93.6p loss per share).

The Group ended the year with net debt of £27.4m (2018: £53.0m), reflecting the receipt of proceeds from the Placing and Open Offer and shareholder loan, offset by pre-tax losses resulting from the turnaround of the Group, an adverse movement in working capital due to a number of factors, including the withdrawal of credit insurance from many of our suppliers and the continued, albeit reduced investment in the store refurbishment programme. The shareholder loan of £17.25m (gross) delivered cash inflow of £2.4m, net of fees and settlement of the previous loan. A summary of the net debt movement is outlined below:

Revenue Recognition

The Group adopted IFRS 15 "Revenue from Contracts with Customers" from 29 April 2018. The accounting standard has been retrospectively applied resulting in restatements to prior year comparatives. Under the new standard, the point at which revenue is recognised has changed and due to IFRS 15's definition of 'transfer of control', revenue will be deferred and recognised at a later date than previously recorded under IAS 18. Underlying revenues and profit before tax for the year were reduced by £17.2m and £8.2m respectively, with a corresponding release from 2018 increasing revenues and profit before tax by £20.7m and £10.1m respectively, the difference reflecting the year on year fall in revenues. The overall full year impact on the income statement was a £3.5m increase in revenues and £1.9m increase in profit before tax.

Further details are set out in note 14.

UK - Performance review

The key financial results for the UK were:

The first half of the year was challenging, with a combination of consumer uncertainty and exceptionally warm weather compounding the negative newsflow surrounding the CVA. Our competitors sought to take advantage and it was a testament to our store colleagues and support staff that we managed to maintain market leadership during the period. The second half saw a significant improvement in like-for-like sales, with a 5.4% decline, compared to a 12.7% decline in the first half. Within this, we saw a substantial improvement during the fourth quarter, when like-for-like sales decline moderated to 2.3%. The combined result was a full year like-for-like sales decline of 9.1% (2018: down 3.6%).

Flooring revenues in the year were £280.2m (2018: £333.8m), with a like-for-like decline of 8.4%. This performance whilst disappointing, was in line with other major flooring specialists and reflected wider challenges in the "big ticket" home improvement sector. Whilst Brexit is a prevailing source of uncertainty, the detail is more nuanced, with political distractions from wider domestic initiatives, a weak housing market and a more cautious approach taken by our customers. Flooring is a product that can be "left for another day" by customers, but importantly is one that is needed by every householder, suggesting significant latent demand when confidence returns.

Whilst we cannot control the wider economy, we can inspire customer confidence in Carpetright as Europe's leading flooring retailer. We offer 0% finance over periods of up to 48 months to help in the affordability of our products. Supplies were disrupted in the immediate aftermath of the CVA, but it is a testament to our store support colleagues and the partnership shown by our suppliers that this was short lived. We offer an unrivalled range suitable for every domestic need and customers can place orders with us knowing we control our supply chain end to end, with our own cutting operations, and can be relied upon to see the journey through to fitting, care of our Which? Trusted Trader third party fitters.

Our bed performance in the year was weak, with revenues of £20.8m, down 27.5% on prior year (2018: £28.7m), representing a like-for-like decline of 18.4%. We are not known as a bed specialist, notwithstanding stocking beds in some 197 of our stores. An attempt to improve both the breadth and presentation of the range in 2018 was not successful and we sought to retrench in the period, focusing both on service and price point against the competition. We saw improved traction through the year, particularly during the fourth quarter, when the like-for-like decline reduced significantly. Whilst no cause for celebration, the steady improvement in performance showed our strategy is working and we move into 2020 with a drive to regain lost ground.

We opened four stores and closed 80 stores during the period, including one relocation. This translated into a net space reduction of 643,000 sq ft, a decrease of 18.0%. At the year end the average store size was 8,784 sq ft (2018: 8,724 sq ft) and average lease length was 4.0 years (2018: 4.8 years).

The UK portfolio is now as follows:

We had to engage in significant promotional activity during the first half, with gross margins consequently falling 3.5ppts to 55.9% (2018 H1: 59.4%). We maintained margins in the second half at 55.8%, some 1.2ppts ahead of the comparative period (2018 H2: 54.5%). The average Euro/Sterling rate in the year was unchanged at 1.13 (2018 1.13). Gross profit decreased by £38.5m to £168.1m (2018: £206.6m).

The cost base (excluding depreciation and amortisation) decreased by 17.1% to £168.5m (2018: £203.2m). Costs as a percentage of sales were largely unchanged at 56.0% (2018: 56.1%). The movement in costs reflected a £32.7m reduction in store costs and a £1.9m reduction in central costs. Utilisation of onerous lease provisions within these figures increased to £4.6m (2018: £4.3m) and advance rental accrual releases to £5.7m (2018: £3.1m). This reflected the acceleration arising from the curtailing of lease periods in our "C" and "B" stores and will in future be impacted by the new IFRS 16 lease accounting standard, further details of which are set out in note 14.

The combination of the above factors resulted in underlying EBITDA decreasing by 111.8% to a loss of £0.4m (2018: profit of £3.4m).

Rest of Europe - Performance review

The key financial results for the Rest of Europe were:

In local currency terms, the three businesses in the Rest of Europe combined to produce an encouraging increase in revenue on the prior year. The first half of the period saw a total revenue decline of 1.2% and like-for-like sales increase by 0.5%, partly impacted by supply challenges arising from the UK's CVA. The second half saw a restoration of supply, together with a new leadership team in the Benelux, leading to a significant improvement in total revenue of 5.7% and like-for-like sales growth of 6.4%. These combined to deliver a full year increase in total sales of 1.9% (2018: 3.6%) and like-for-like sales improvement of 3.4% (2018: 1.2%).

The Netherlands posted the most significant improvement in the year, with revenues of €69.5m (2018: €66.9m), representing an absolute increase of 3.9% and 4.9% on a like-for-like basis. This was driven by an increase in hard flooring sales, underpinned by our "new store concept" store presentation. This approach illustrates our product range in combination, in a variety of presentation themes, that inspire customers to visualise how the floorcovering might look in their home, helping them to select those that best match their tastes.

The Belgian business posted revenues of €18.7m, representing an absolute decline of 1.6%, albeit an increase of 0.3% on a like-for-like basis. The business has historically been underinvested, reflecting demand for capital elsewhere in the Group. The capital constraints we experienced across the Group during the year impacted on this business in particular. We remain confident in its long term prospects with relatively modest investment. Our Irish business posted revenues of €8.6m, representing a decline of 5.5%, or some 1.3% on a like-for-like basis. This business has an oversized store footprint which we are looking to reduce as opportunities arise. We believe at the core of the Irish business, we have a strong operation focused on the major cities that is capable of delivering value to the Group once we have an economic operating footprint.

Total revenues of €96.8m were 1.9% ahead of the prior year (2018: €95.0m). This translated into revenues of £85.4m, a rise of 1.9% on the prior year (2018: £83.8m), reflecting the unchanged average exchange rate.

The number of stores decreased by three during the year, there were no openings during the period. The associated trading space reduced by 3.3%. The average store size was broadly unchanged at 10,129 sq ft (2018: 10,244 sq ft), with an average lease length of 3.5 years in the Benelux (2018: 2.6 years) and 3.3 years in Ireland (2018: 4.2 years).

The Rest of Europe portfolio is now as follows:

Gross profit percentage decreased by 2.6ppts to 49.5%, primarily as a result of the higher proportion of hard flooring sales in Benelux. Whilst this is a pleasing strategic development, it has highlighted the need to review our supply chain profile and opportunities to leverage our improved purchasing power. Margins were also impacted by an exceptionally high level of rebates in 2018, with a sum of £0.7m (0.8% of sales) not recurring in 2019. Gross profit fell by 3.2% to £42.3m (2018: £43.7m).

Operating costs in local currency (excluding depreciation and amortisation) decreased by 2.5%, predominantly relating to Irish rental costs. Utilisation of previously made onerous lease provisions, relating to the Irish operations, rose to £1.7m (2018: £1.2m); this will in future be impacted by the new IFRS 16 lease accounting standard, further details of which are set out in note 14. In reported currency, costs decreased by 2.5% to £39.0m (2018: £40.0m).

The combination of the above factors resulted in underlying EBITDA decreasing by 11.9% in local currency, which translated to a decrease of 10.8% in reported currency to £3.3m (2018: £3.7m).

Net finance charges

The Group has two principal sources of debt funding (see page 22):

· A £45m revolving credit facility and committed overdraft facilities of £7.5m and €2.4m, all of which run to 31 December 2019

· A £17.25m (gross) shareholder loan with an 18% coupon, repayable with interest on 31 July 2020 and expected to amount to £25.7m

Net finance charges for the period increased by £5.6m to £8.4m (2018: £2.8m), comprising:

· £3.3m charge relating to the shareholder loan

· £0.2m relating to a higher rate of interest payable on bank debt

· Offset by £0.1m lower finance lease charges

The remaining £2.2m increase relates to fees associated with:

· £1.0m in loan fee amortisation relating to the shareholder loan repaid on 13 June 2018 (fees of £1.5m charged in the period)

· £1.0m in loan fee amortisation relating to the £17.25m shareholder loan put in place on 11 May 2018

· £0.2m relating to the extension in May 2018 of the Group's revolving credit and overdraft facilities to 31 December 2019

Taxation

The weighted average effective tax rate for the year was a credit of 10.9% (2018: credit of 9.0%), a variance of 8.1% compared to the UK corporation tax rate of 19.0%. This variance is due predominantly to a decrease in non-deductible items and the derecognition of a £4.0m deferred tax asset, offset in part by a prior year adjustment arising from a review of deferred tax on historic rollover relief claims (resulting in a deferred tax credit of £3.5m).

Separately reported items

The Group makes certain adjustments to statutory profit measures in order to help investors understand the underlying performance of the business. These adjustments are reported as separately reported items. The Group recorded a net charge of £7.9m (2018: £61.8m).

Non-cash items

The Group performed an impairment review of its goodwill, freehold properties and store fixed assets in accordance with IAS 36, following recent potential indicator events.

The Group reviewed its goodwill balances and determined that no impairment was required (2018: charge of £34.7m).

The Group sold three UK properties shortly after year end, in Salford, Devizes and Newtownards, as the Board determined the sale would be value accretive for shareholders when assessing the implied yield against the Group's cost of capital. This raised £2.6m in cash proceeds, which was transferred to a reserved account as required by the Group's lenders. The associated loss on disposal was £0.8m and accordingly, an impairment was made in the period (2018: £5.1m). The Group continues to review its property portfolio and will consider further disposals where the Board believes there is an opportunity to realise value for shareholders.

Store and other fixed assets of £1.0m (2018: £5.7m) were impaired as a result of a review of potential closures and transfers arising from the CVA process, together with a small sum relating to legacy systems we will be replacing as part of the implementation of D365 during FY20. Following the collapse of our former tenant in March 2019, an assigned lease reverted back to the Group and an onerous lease provision of £0.9m made accordingly (2018: £2.3m).

Ahead of the introduction of D365, we performed a data migration exercise, which included cleansing historic records. As part of this exercise, differences were identified between stock records, predominantly relating to the Purfleet warehouse. To correct this and ensure a cleaner migration to D365, a sum of £2.3m was provided against these stock balances. In addition, following a review of inventory levels, additional provisions totalling £0.7m were established, principally against hard flooring in Purfleet.

Restructuring costs

Restructuring provisions totalling £5.8m were recognised at 28 April 2018 reflecting the expected cost of the Group's restructuring, including redundancy, legal and logistical costs. During the period £0.5m of the provision was released, reflecting the reassessed total cost of implementing the restructuring.

As part of the CVA, the Group is obliged to provide a fund of £0.6m against which creditors may claim for losses associated with the process. We felt it prudent to reserve for this sum, in light of the determination of successful claims being in the hands of the CVA administrator and therefore outside the control of the Group.

Profit on disposal of properties

A net gain of £1.3m was made on the disposal of properties during the year (2018: £1.7m loss), principally from the landlord exercising an option at the Lewisham store.

Strategy

The Group has continued to incur dual running costs as it replaces legacy IT systems and transitions to D365. Historically, these types of cost would have been capital spend, but with the switch to cloud-based software services, these are classified as operating expenditure. Due to the quantum and one-off nature of the project, these costs have been reported as separately reported items and amounted to £2.0m in the period (2018: £1.5m).

Other

In light of the variable nature of employee share based payments, these have been classified as separately reported items. This also allows for greater visibility of these charges in the financial statements. A charge of £0.5m was incurred during the period (2018: £0.5m).

A sum of £0.9m (2018: £0.3m) was incurred in payments made to the Group's legacy defined benefit pension schemes, including a sum of £0.4m relating to Guaranteed Minimum Pension equalisation ahead of formal government direction on the subject.

The tax impact of the separately reported items is a credit of £0.2m (2018: credit of £2.2m).

The total cash impact of separately reported items is an outflow of £1.0m (2018: outflow of £12.8m).

Earnings per share

Underlying loss per share was 5.1p (2018: 5.8p loss per share) and basic loss per share 7.9p (2018: 93.6p earnings per share).

Dividend

The Board continues to prioritise the use of cash in its turnaround strategy for the Group, principally by investing further in the existing store estate and growth strategies, such as online development. Based on the Group's current outlook and restrictions on the payment of dividends under current lending facilities, the Directors do not expect this position to change prior to the maturity of the Shareholder Loan on 31 July 2020. However, the intention is to return to paying a dividend when the Company has sufficient distributable reserves and the Directors believe it is financially prudent to do so.

Balance sheet

The Group had net assets of £49.7m at the end of the period (2018: £9.6m), a year-on-year increase of £40.1m.

Non-current assets

The Group owns a significant property portfolio, most of which is used for retail purposes. The carrying value of these properties reduced by £2.3m to £52.3m as at the balance sheet date (2018: £54.6m), predominantly reflecting depreciation costs of £0.9m (2018: £1.1m). As noted above, the Group performed an impairment review in light of the sale of three properties for £2.6m shortly after year end, amounting to £0.8m; no further impairments were deemed necessary. The balance of the change related to the sale of one freehold in the period, together with depreciation. Carrying values of properties are supported by a combination of value-in-use and independent valuations.

The value of tangible assets fell by £7.7m to £46.9m (2018: £54.6m), reflecting the £0.8m impairment discussed above, together with depreciation of £9.8m, offset by additions of £4.1m and exchange differences.

Intangible assets consists primarily of goodwill and software assets. The increase of £2.6m to £29.6m (2018: £27.0m) reflects £3.1m for the continued expenditure on D365 - which is expected to become operational in the latter part of the current financial year - and £0.6m for website re-platforming, offset by amortisation and impairment. Other non-current assets decreased by £1.6m to £1.4m (2018: £3.0m), primarily from the decrease in deferred tax assets as a result of derecognition of prior year losses.

Current assets

Inventories fell by £2.0m to £43.7m (2018: £45.7m), comprising an underlying increase of £1.0m in stock levels relating predominantly to Brexit planning, offset by the £3.0m impairment as discussed above. Trade debtors decreased by £1.7m to £1.5m (2018: £3.2m), of which £1.4m relates to the reclassification of monies due from our Interest Free Credit ("IFC") provider, Hitachi, to be recognised as cash-in-transit under IAS 7. Prepayments and accrued income decreased by £2.0m to £10.2m (2018: £12.2m), predominantly reflecting lower rent and rates prepayments due to store closures.

Creditors less than one year

Trade payables reduced by £5.4m to £24.8m (2018: £30.2m) reflecting an adverse movement in credit terms with suppliers, in light of a withdrawal of credit insurance by the majority of providers. Rent and rates accruals increased by £0.5m to £3.4m (2018: £2.9m) largely from UK store rent settlements. Tax and social security decreased by £2.3m to £8.7m (2018: £11.0m) primarily from the timing of VAT payments between 2018 and 2019. Other creditors and accruals fell by £5.6m to £32.9m (2018: £38.5m), principally due to the payment of £3.2m advisor fees associated with the CVA which were accrued at the 2018 year end. Average trade creditor days at the year end date were 63 days (2018: 108 days).

Creditors greater than a year

The deferred tax provision reduced by £4.4m, to £2.7m (2018: £7.1m). The movement was primarily as result of an adjustment arising from a review of the UK deferred tax liability on historic rollover relief claims with a value of £5.3m.

At 27 April 2019, the IAS 19 net retirement benefit deficit was £0.6m (2018: £0.8m). Under the technical provision basis, the Group's schemes would have a £1.2m surplus resulting from a reduction in scheme liabilities, combined with increases in the market value of scheme assets and Company contributions. However, application of the 'asset ceiling' under IAS 19 results in the Group de-recognising the £1.5m surplus from the Storey's scheme. An additional £0.3m funding commitment for the scheme was also provided. The discount rate was 2.5% (2018: 2.5%), reflecting prevailing corporate bond rates. The scheme was closed to future accrual with effect from 1 May 2010. Following the triennial valuation as of 6 April 2017, the Company agreed a recovery plan with the Trustees on 27 June 2018. The Company made deficit contributions of £0.9m in the period and it is expected it will continue at this level in the current financial year.

Provisions

Total provisions (less than one year, together with longer term) decreased by £8.6m to £11.1m (2018: £19.7m), reflecting a £3.3m utilisation of the restructuring provision in relation to the CVA and a £6.3m utilisation of onerous lease provisions reflecting the revised, shorter lease periods up to break clauses under the terms of the CVA and the smaller property estate. This was offset in part by the £0.9m onerous lease provision discussed above.

Net debt

Cash and overdrafts of £12.9m (2018: £4.8m) comprised cash of £0.8m (net of overdrafts of £2.5m) and cash equivalents of £12.1m, principally monies due from our credit card and Interest Free Credit providers receivable within 30 days and classified as "cash equivalents" under IAS7.

Loans of £38.9m (2018: £56.0m) comprised drawings under the RCF of £23.0m and £15.9m related to the shareholder loan (the difference to the £17.25m gross sum being fees incurred upon drawing the loan). Further sums relating to accrued interest on loans are included in Creditors greater than one year of £3.3m (2018: £nil) and Creditors less than one year of £0.5m (2018: £0.2m).

Further details are set out in note 12.

Operating leases and impact of IFRS 16

As a consequence of the continued focus on managing the estate to reduce square footage, eliminate store catchment overlap and implementing the CVA, operating lease liabilities for land and buildings reduced to £320.1m (2018: £408.0m).

We will be adopting the new lease accounting standard IFRS 16 - Leases on 28 April 2019 for the year ending 25 April 2020. Using lease data from 27 April 2019, the expected impact on the Group will be as follows:

We will also cease to utilise onerous lease provisions (2019: £6.3m) and advance rental accrual releases (2019: £5.7m), with a further £10m to £12m impact on presented profitability. As discussed above, the provisions will instead be used to impair the "right of use" asset, with a resultant reduction in deprecation over the depreciation period, resulting in a timing difference that as with interest, impact early and benefit later years. The depreciation impact was factored into the assessment outlined above.

The total pre-tax impact on the Group on a like-for-like basis would therefore be of the order of £17m to £19m. IFRS 16 has no economic impact on the Group, nor how the business is run or its cash flows. It is expected that banking covenants will be normalised to reflect a position consistent with historical accounting standards. The Group does not currently intend to alter its approach going forward as to whether assets should be leased or purchased.

Further details are provided in note 14.

Cash flow

The Group's net debt at 27 April 2019 was £27.4m, an improvement of £25.6m on the prior year (2018: £53.0m debt). Average net debt was £25.3m over the financial year (2018: £30.7m).

The working capital outflow of £14.1m was attributable to a decrease in trade payables as credit terms were reduced as a result of the CVA, together with an adverse movement in VAT payable and accruals, arising from the settlement of fees in relation to the CVA. Provisions fell by £9.6m, due to utilisation of lease incentives and restructuring provisions.

Gross capital expenditure was £8.7m (2018: £20.2m), representing a decrease of £11.5m. This reflected the Board's drive to manage cash in light of trading performance, together with the imposition of capital expenditure restrictions by our lenders in August 2018 under the terms of our banking documentation. After allowing for proceeds from asset disposals, net capital expenditure was £8.1m (2018: £19.9m).

The major element of capital expenditure was the investment in store refurbishments, with 209 now completed in the UK and a further 32 stores in the Netherlands and Belgium. The expenditure within IT reflected a combination of the replacement of legacy systems with our new ERP platform and replacement of hardware and network infrastructure within stores in the Netherlands and Belgium.

Our expectation is for capital expenditure to be approximately £8m to £13m in 2020, focused on the continued refurbishment of stores and investment in our IT systems infrastructure.

Current liquidity

To address the liquidity issues in the previous year, the Group took a series of actions to recapitalise the business to provide a strong platform to continue the turnaround of the business:

Gross bank borrowings at the balance sheet date were £25.5m (2018: £46.8m), being a combination drawn down from overdraft and revolving credit facilities. The Group had further undrawn facilities of £29.1m at the balance sheet date. In addition, the Group held gross cash and cash equivalent balances of £15.4m. The combination of these resulted in net bank borrowings of £10.1m, which is £44.5 m lower than the total facilities. This difference would have been £36m if a tighter definition of "cash" had been applied under the facilities agreements which we are discussing with the lenders.

As a result of the above, the Group has access to total committed debt facilities of approximately £72m through to December 2019.

Going concern

The Group meets its day-to-day working capital requirements through its bank facilities and a shareholder loan. The principal banking facility includes a revolving credit facility of £45.0m, a Sterling overdraft of £7.5m and a euro overdraft of €2.4m, all of which are committed to the end of December 2019. The shareholder loan of £17.25m gross (£15.9m net of fees) is committed to 31 July 2020. The three main financial covenants within the banking facility assess underlying EBITDA, debt levels and fixed-charge cover. Given the trading performance since the CVA in June 2018 when covenants were set, headroom against the EBITDA covenant is expected to be the most sensitive both at present and over the remaining term of the facility.

As part of the Board's assessment of going concern, trading and working capital requirements, together with the shareholder loan due for repayment in July 2020, forecasts have been prepared covering a 15 month period from June 2019. These forecasts have been subjected to a sensitivity testing to reflect market and trading uncertainties, offset by the opportunity to take mitigating action through this forecast period.

The forecasts have been updated for actual trading to week seven of the current year and the latest view of trading to the end of June 2019. As discussed in the Chief Executive's report, trading for this period has been encouraging, with positive like-for-like revenues in all of our businesses. Consumer confidence however remains uncertain, with the British Retail Consortium reporting the biggest decline in retail sales on record in May 2019. The financial forecasts have been sensitised to take account of future volatility in demand outside the Group's control, which in certain downside cases would require us to renegotiate our covenants with lenders. This presents an uncertainty to the Going Concern assessment, albeit we are confident in a number of mitigating opportunities to help manage this risk.

The most critical assumption when assessing the Group's Going Concern position is whether it has adequate resources to continue in operational existence for the foreseeable future, determined to be at least 12 months from the date of approval of these financial statements. The Group's principal banking facility falls due within this period, with the shareholder loan falling due within 15 months. The Group is in active discussions regarding refinancing its borrowings and the Directors are confident of obtaining a suitable long term arrangement. In the absence of these discussions coming to fruition, the Directors are confident of there being a market for strategic asset sales that would enable the Group to raise sufficient funds to meet the future cash requirements of the Group and its liquidity needs. However, without either of these developments, and assuming no additional financing or the successful renegotiation of existing covenants under the existing banking facility, the Group and Parent Company may be unable to meet their liabilities as they fall due. These conditions indicate the existence of material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern.

Whilst recognising the inevitable uncertainties of the current retail market and the Group's restructuring, the Directors confirm that, after considering the matters set out above, they have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for a minimum of 15 months following the signing of these financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Further information on the Group's borrowings is given in note 12.

Jeremy Simpson

Chief Financial Officer

25 June 2019

Consolidated income statement

for 52 weeks ended 27 April 2019

* The prior year was restated as a result of the adoption of new IFRS 15 accounting standard, further details of which are provided in note 14.

Consolidated statement of comprehensive income

for 52 weeks ended 27 April 2019

Consolidated statement of changes in equity

for 52 weeks ended 27 April 2019

Consolidated balance sheet

As at 27 April 2019

Consolidated statement of cash flows

For the 52 weeks ended 27 April 2019

For the purposes of the statement of cash flow, cash and cash equivalents are reported net of overdrafts repayable on demand. Overdrafts are excluded from the definition of cash and cash equivalents disclosed in the balance sheet and are included in borrowings and overdrafts under current liabilities.

Notes to the financial statements

1. Principal accounting policies

General information

Carpetright plc ('the Company') and its subsidiaries (together, 'the Group') are retailers of floorcoverings and beds. The Company is listed on the London Stock Exchange and incorporated in England and Wales and domiciled in the United Kingdom. The address of its registered office is Carpetright plc, Purfleet Bypass, Purfleet, Essex, RM19 1TT.

The preliminary announcement does not constitute full financial statements. The results for the year ended 27 April 2019 included in this preliminary announcement are extracted from the audited financial statements for the year ended 27 April 2019 which were approved by the Directors on 25 June 2019. The auditor's report on those financial statements was unqualified and, without modification, draws attention to material uncertainties relating to going concern by way of emphasis. It did not include a statement under Section 498(2) or 498(3) of the Companies Act 2006.

2. Principal accounting policies (abridged)

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented unless otherwise stated.

Basis of preparation

The consolidated financial statements of the Group are drawn up to within seven days of the accounting record date, being 30 April of each year. The financial period for 2019 represents the 52 weeks ended 27 April 2019. The comparative financial period for 2018 was 52 weeks ended 28 April 2018.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and International Financial Reporting Interpretations Committee (IFRS IC) interpretations as adopted by the European Union, together with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The consolidated financial statements have been prepared on the historical cost basis except for pension assets and liabilities and share based payments which are measured at fair value.

Going concern

The Group meets its day to day working capital requirements through its bank facilities and a shareholder loan. The principal banking facility includes a revolving credit facility of £45.0m, a Sterling overdraft of £7.5m and a euro overdraft of €2.4m, all of which are committed to the end of December 2019. The shareholder loan of £17.25m gross (£15.9m net of fees) is committed to 31 July 2020. The three main financial covenants within the banking facility assess underlying EBITDA, debt levels and fixed-charge cover. Given the trading performance since the CVA in June 2018 when covenants were set, headroom against the EBITDA covenant is expected to be the most sensitive both at present and over the remaining term of the facility.

As part of the Board's assessment of going concern, trading and working capital requirements, together with the shareholder loan due for repayment in July 2020, forecasts have been prepared covering a 15 month period from June 2019. These forecasts have been subjected to a sensitivity testing to reflect market and trading uncertainties, offset by the opportunity to take mitigating action through this forecast period.

The forecasts have been updated for actual trading to week seven of the current year and the latest view of trading to the end of June 2019. As discussed in the Chief Executive's report, trading for this period has been encouraging, with positive like-for-like revenues in all of our businesses. Consumer confidence however remains uncertain, with the British Retail Consortium reporting the biggest decline in retail sales on record in May 2019. The financial forecasts have been sensitised to take account of future volatility in demand outside the Group's control, which in certain downside cases would require us to renegotiate our covenants with lenders. This presents an uncertainty to the Going Concern assessment, albeit we are confident in a number of mitigating opportunities to help manage this risk.

The most critical assumption when assessing the Group's Going Concern position is whether it has adequate resources to continue in operational existence for the foreseeable future, determined to be at least 12 months from the date of approval of these financial statements. The Group's principal banking facility falls due within this period, with the shareholder loan falling due within 15 months. The Group is in active discussions regarding refinancing its borrowings and the Directors are confident of obtaining a suitable long term arrangement. In the absence of these discussions coming to fruition, the Directors are confident of there being a market for strategic asset sales that would enable the Group to raise sufficient funds to meet the future cash requirements of the Group and its liquidity needs. However, without either of these developments, and assuming no additional financing or the successful renegotiation of existing covenants under the existing banking facility, the Group and Parent Company may be unable to meet their liabilities as they fall due. These conditions indicate the existence of material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern.

Whilst recognising the inevitable uncertainties of the current retail market and the Group's restructuring, the Directors confirm that, after considering the matters set out above, they have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for a minimum of 15 months following the signing of these financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Alternative Performance Measures

The Company uses a number of Alternative Performance Measures (APMs) in addition to those reported in accordance with IFRS. The Directors believe that these APMs, listed below, are important when assessing the underlying financial and operating performance of the Group and its segments. The following APMs do not have standardised meanings prescribed by IFRS and therefore may not be directly comparable to similar measures presented by other companies.

Sales

Sales represents amounts payable by customers for goods and services before deducting VAT and other charges.

Underlying performance

Underlying performance, reported separately on the face of the Consolidated income statement, is from continuing operations and before separately reported items on the face of the Consolidated income statement.

Gross profit ratio

Calculated as gross profit as a percentage of revenue. It is one of the Group's key performance indicators and is used to assess the underlying performance of the Group's businesses.

Separately reported items

Defined below.

Underlying EBITDA

Underlying EBITDA is defined as operating profit before tax, interest, depreciation, amortisation and separately reported items. It is one of the Group's key performance indicators and is used to assess the trading performance of Group businesses. Underlying EBITDA is also used as one of the targets against which the annual bonuses of certain employees are measured.

Underlying operating profit

Underlying operating profit is defined as operating profit before separately reported items. It is one of the Group's key performance indicators and is used to assess the trading performance of Group businesses.

Underlying profit before tax

Underlying profit before tax is calculated as the net total of underlying operating profit less total net finance costs associated with underlying performance. It is one of the Group's key performance indicators and is used to assess the financial performance of the Group as a whole.

Underlying earnings per share

Underlying earnings per share is calculated by dividing underlying profit before tax less associated income tax costs by the weighted average number of ordinary shares in issue during the year.

Net debt

Net debt comprises the net total of current and non-current interest-bearing borrowings and finance leases, offset by cash and short-term deposits. Net debt is a measure of the Group's net indebtedness to banks and other external financial institutions.

Operating cash flow

This measure is determined by taking underlying operating profit and adding back non-cash items and any movements in working capital.

Disclosure of 'separately reported items'

IAS 1 'Presentation of Financial Statements' provides no definitive guidance as to the format of the income statement but states key lines which should be disclosed. It also encourages the disclosure of additional line items and the reordering of items presented on the face of the income statement when appropriate for a proper understanding of the entity's financial performance. In accordance with IAS 1, the Group has adopted a columnar presentation for its Consolidated income statement, to separately identify underlying performance results, as the Directors consider that this gives a better view of the underlying results of the ongoing business. As part of this presentation format, the Group has adopted a policy of disclosing separately on the face of its Consolidated income statement, within the column entitled 'Separately reported items', the effect of any components of financial performance for which the Directors consider separate disclosure would assist both in a better understanding of the financial performance achieved. In its adoption of this policy, the Group applies a balanced approach to both gains and losses and aims to be both consistent and clear in its accounting and disclosure of such items.

Both size and the nature and function of the components of income and expense are considered in deciding upon such presentation. Such items may include, inter alia, the financial effect of separately reported items which occur infrequently, such as major reorganisation costs, onerous leases and impairments and the taxation impact of the aforementioned separately reported items.

Foreign exchange rates

3. Segmental analysis

The Group's operating segments are determined on the basis of information provided to the Chief Operating Decision Maker - the Board of Directors - to review performance and make decisions. The reporting segments are:

· UK; and

· Rest of Europe (comprising Belgium, the Netherlands and Republic of Ireland).

The reportable operating segments derive their revenue primarily from the retailing of floorcoverings and beds. Central costs of the Group are incurred principally in the UK. As such, these costs are included within the UK segment. Sales between segments are carried out at arm's length. Segment information provided to the Board of Directors for the reportable segments for the 52 weeks ended 27 April 2019 are shown below.

The Group has not presented disaggregation of revenue, as the Group has a main predominant product group - flooring - which is best disclosed through geographical markets.

Carpetright plc is domiciled in the UK. The Group's revenue from external customers in the UK is £301.0m (2018: £362.5m) and the total revenue from external customers from other countries is £85.4m (2018: £83.8m). The total of non-current assets (other than financial instruments and deferred tax assets) located in the UK is £106.2m (2018: £110.5m) and the total of those located in other countries is £70.4m (2018: £73.8m).

Carpetright's trade has historically shown no distinct pattern of seasonality, with trade cycles more closely following macroeconomic indicators.

4. Separately reported items

In order to provide shareholders with additional insight into the underlying performance of the business, items recognised in reported profit or loss before tax which, by virtue of their size and/or nature, do not reflect the Group's underlying performance, have been excluded from the Group's underlying results.

Non-cash items

The Group performed an impairment review of its goodwill, freehold properties and store fixed assets in accordance with IAS 36, following recent potential indicator events.

The Group reviewed its goodwill balances and determined that no impairment was required (2018: charge of £34.7m).

The Group sold three UK properties shortly after year end, in Salford, Devizes and Newtownards, as the Board determined the sale would be value accretive for shareholders when assessing the implied yield against the Group's cost of capital. This raised £2.6m in cash proceeds, which was transferred to a reserved account as required by the Group's lenders. The associated loss on disposal was £0.8m and accordingly, an impairment was made in the period (2018: £5.1m). The Group continues to review its property portfolio and will consider further disposals where the Board believes there is an opportunity to realise value for shareholders.

Store and other fixed assets of £1.0m (2018: £5.7m) were impaired as a result of a review of potential closures and transfers arising from the CVA process, together with a small sum relating to legacy systems we will be replacing as part of the implementation of D365 during FY20. Following the collapse of our former tenant in March 2019, an assigned lease reverted back to the Group and an onerous lease provision of £0.9m made accordingly (2018: £2.3m).

Ahead of the introduction of D365, we performed a data migration exercise, which included cleansing historic records. As part of this exercise, differences were identified between stock records, predominantly relating to the Purfleet warehouse. To correct this and ensure a cleaner migration to D365, a sum of £2.3m was provided against these stock balances. In addition, following a review of inventory levels, additional provisions totalling £0.7m were established, principally against hard flooring in Purfleet.

Restructuring costs

Restructuring provisions totalling £5.8m were recognised at 28 April 2018 reflecting the expected cost of the Group's restructuring, including redundancy, legal and logistical costs. During the period £0.5m of the provision was released, reflecting the reassessed total cost of implementing the restructuring.

As part of the CVA, the Group is obliged to provide a fund of £0.6m against which creditors may claim for losses associated with the process. We felt it prudent to reserve for this sum, in light of the determination of successful claims being in the hands of the CVA administrator and therefore outside the control of the Group.

Profit on disposal of properties

A net gain of £1.3m was made on the disposal of properties during the year (2018: £1.7m loss), principally from the landlord exercising an option at the Lewisham store.

Strategy

The Group has continued to incur dual running costs as it replaces legacy IT systems and transitions to D365. Historically, these types of cost would have been capital spend, but with the switch to cloud-based software services, these are classified as operating expenditure. Due to the quantum and one-off nature of the project, these costs have been reported as separately reported items and amounted to £2.0m in the period (2018: £1.5m).

Other

In light of the variable nature of employee share based payments, these have been classified as separately reported items. This also allows for greater visibility of these charges in the financial statements. A charge of £0.5m was incurred during the period (2018: £0.5m).

A sum of £0.9m (2018: £0.3m) was incurred in payments made to the Group's legacy defined benefit pension schemes, including a sum of £0.4m relating to Guaranteed Minimum Pension equalisation ahead of formal government direction on the subject.

The tax impact of the separately reported items is a credit of £0.2m (2018: credit of £2.2m).

The total cash impact of separately reported items is an outflow of £1.0m (2018: outflow of £12.8m).

5. Tax

The tax credit for the year includes a credit of £0.2m in respect of separately reported items, (2018: credit of £2.2m).

The weighted average annual effective tax rate for the period is 10.9% credit (2018: 9.0% credit).

6. Dividends

The Directors decided that no final dividend will be paid (2018: No final dividend paid). This results in no dividend in the period to 27 April 2019 (2018: No dividend paid).

7. (Loss)/earnings per share

Basic (loss)/earnings per share is calculated by dividing the (loss)/earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, excluding those held by Equity Trust (Jersey) Limited which are treated as cancelled.

In order to compute diluted (loss)/earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. Those share options granted to employees and Executive Directors where the exercise price is less than the average market price of the Company's ordinary shares during the period represent potentially dilutive ordinary shares.

The Group has share options and awards that are potentially dilutive however as the Group has made a loss in the period and as required by IAS33 the Group's diluted EPS is the same as the Basic EPS.

The Directors have presented an additional measure of (loss)/earnings per share based on underlying earnings. This is in accordance with the practice adopted by many major retailers. Underlying earnings is defined as profit/(loss) excluding separately reported items and related tax.

Reconciliation of (loss)/earnings per share excluding post tax (loss)/profit on separately reported items

8. Intangible assets

Goodwill is not amortised. Instead it is subject to an impairment review at each reporting date or more frequently if there is an indication that it may be impaired. Other intangible assets are amortised and tested for impairment when there is an indication that the asset may be impaired. Impairments and amortisation charges are recognised in full in administration expenses in the income statement during the period in which they are identified.

Goodwill is impaired if the carrying amount exceeds the recoverable amount. The recoverable amount is the higher of fair value less costs to sell and the value in use. In the absence of a recent market transaction, the recoverable amount of the goodwill held by the Group is determined from value in use calculations.

Management has identified two cash-generating units (CGUs) supporting goodwill which are the UK and Europe, being the Netherlands, Belgium and Ireland. In the prior year as a result of a significant fall in market capitalisation and a downturn in trading, goodwill was tested for impairment during the period. This resulted in £34.7m of Goodwill being impaired to Nil, comprising £29.8m in the UK and £4.9m in the Netherlands. The remaining Goodwill of £19.6m relates to the Goodwill on the acquisition of the Dutch operations. This was tested for impairment in the period and none deemed required, using value in use calculations based on three-year profit projection models and plans approved by the Board, adjusted for non-cash items and capital expenditure.

The key assumptions used in the cash flow model when assessing European Goodwill balances are:

· Pre-tax -discount rate 9.9%

· Long term Growth rate 2.0%

The recoverable amount using value in use calculations exceeded the carrying value of Goodwill. The following amendments to the key assumptions would result in removal of any available headroom.

· An increase of 0.4% in the discount rate

· A decrease in the long term growth rate to a 1.7% decline

9. Property, plant and equipment