CPR.L Regulatory News (CPR)

Carpetright plc

Preliminary Results Announcement for the 52 weeks ended 30 April 2011

Carpetright plc, Europe's leading specialist carpet and floor covering retailer, today announces its preliminary results for the 52 weeks to 30 April 2011.

Headlines

Group

·; Total Group Revenue1 decreased by 5.8% to £486.8m (2010: £516.6m)

·; Underlying 2 profit before tax down 40.1% to £16.9m (2010: £28.2m)

·; Profit before tax of £6.6m (2010: £22.3m)

·; Underlying2 earnings per share of 18.0p (2010: 31.6p)

·; Basic earnings per share 6.8p (2010: 23.5p)

·; No final dividend (2010: 8.0p) making a full year dividend of 8.0p (2010: 16.0p)

·; Net debt at year end of £65.7m (2010: £71.3m)

UK and Republic of Ireland

·; Total revenue1 decreased by 4.9% to £404.5m (like-for-like3 down 6.0%)

·; Underlying 2 operating profit decreased by 45.0% to £14.4m

·; Store base decreased by 27 to 559

The Rest of Europe

·; Total revenue1 decreased by 7.7% to £82.3m

·; Underlying2 reported operating profit decreased by 29.2% to £6.8m

Lord Harris, Chairman and Chief Executive, said:

"In my statement last year I said I expected consumer demand to remain subdued in the coming year and this indeed proved to be the case. As a result, the Group faced very challenging trading conditions in the year under review, with fragile consumer confidence producing a weak floor coverings market, leading to a reduction in sales volume and profitability.

"Against this background, we have taken a number of management actions to adapt the product proposition whilst retaining competitiveness in the market. These have been completed alongside activities to address the cost base and to review the shape and size of our future store estate.

"The decision not to pay a final dividend reflects the weaker than anticipated profitability in the second half, with the total dividend for the year of 8.0p per share, being the same as that paid in 2009 on a similar level of full year profit. In future, the Board would expect to rebalance the dividend so that the interim payment is a smaller proportion of the total.

"Looking forward, I see no respite from the challenging environment over the next year. That said, I remain confident the Group is well positioned to deliver future profitable sales growth once consumer demand improves."

Lord Harris of Peckham

Chairman and Chief Executive

For further enquiries please contact:

Carpetright plc

Lord Harris of Peckham, Chairman and Chief Executive

Neil Page, Group Finance Director

Tel: 01708 802000

Citigate Dewe Rogerson

Kevin Smith / Lindsay Noton

Tel: 020 7638 9571

There will be a presentation today at 9.00am to analysts and investors at Deutsche Bank AG London, Winchester House, 1 Great Winchester Street, London, EC2N 2DB.

A "listen only" dial in facility will also be available: The dial in number is

+44 (0) 1452 560 297 with the passcode 76039957.

A copy of this trading statement will be available on our website www.carpetright.plc.uk today from 7.00am

Notes

1. All sales figures are quoted after deducting VAT.

2. Underlying' excludes exceptional items and related tax.

3. Like-for-like sales calculated as this year's net sales divided by last year's net sales for all stores that are at least 12 months old at the beginning of our financial year. Stores closed during the year are excluded from both years. No account is taken of changes to store size or introduction of third party concessions. Sales from insurance and house building contracts are supplied through the stores and included in their figures.

4. 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.

Operating and Financial Review

Overview

Total sales decreased by 5.8% to £486.8m, with all businesses showing a decline. During the year, the Group opened 27 stores and closed 51 which gave a net decrease of 24 stores and a total store base of 679. Total store space declined by 2.2% to 6.1 million square feet.

Weak consumer demand in all geographic markets was a significant contributor to the decline in underlying operating profit to £21.2m, a decrease of 37.8% on the prior year. Net finance charges were £1.6m lower at £4.3m, reflecting a lower average net debt. These factors combined to generate an underlying profit before tax of £16.9m, a decrease of 40.1% on the prior year.

Exceptional charges totalled £10.3m (2010: £5.9m) and were principally a combination of non-cash store impairment charges and onerous lease provisions.

As a result, profit before tax decreased by 70.4% to £6.6m. Basic earnings per share decreased by 71.1% to 6.8p reflecting the decrease in post tax earnings.

A summary of the reported financial results for the year ended 30 April 2011 is set out below:

1. Where this review makes reference to "Underlying" these relate to profit / earnings before exceptional items.

Performance by Business

For year to 30 April 2011

1. Underlying operating profits is operating profit, excluding exceptional items.

2. Like-for-like sales growth - calculated as this year's net sales divided by last year's net sales for all stores that are at least 12 months old at the beginning of our financial year. Stores closed during the year are excluded from both years. No account is taken of changes to store size or the introduction of third party concessions. Sales from insurance and house building contracts are supplied through the stores and included in their figures.

3. We exited our retail operations in Poland during the Financial Year 2009/10

UK & Republic of Ireland - Performance Review

The key financial results for the UK & RoI were:

In the UK & RoI, total revenue decreased year on year by 4.9% to £404.5m. We opened 23 new stores adding 146k sq ft of selling space during the year. Including the impact of 50 closures, this translated into a net space decline of 149k sq ft, a decrease of 3.1% since the start of the year.

The UK & RoI portfolio is now as follows:

In a challenging retail environment characterised by low consumer confidence and weak mortgage approval levels, sales were consistently below the previous year's level throughout the year. The decrease in UK sales has been predominantly in carpet, where the proportion of cut length business has continued to increase relative to the 'pay and take' roll stock. Taking the year as a whole, the vinyl business has also declined, although in the final quarter this was at a lower rate, assisted by the introduction of new lines and product specific advertising, which better communicated the benefits of this type of floor covering. Sales of laminate/wood categories continued to decline, although recent developments in the manufacturing process are now delivering an improved product. We believe these categories could provide an area of growth in the coming year, supported by the strength of our value and service proposition.

The fragile state of the economy in the Republic of Ireland continued to impact our business there. An operational review was completed in the year, which resulted in the closure of 5 of our 25 stores. In addition, we have secured lower operating costs through a series of negotiations with key stakeholders, including our staff. Whilst we do not expect an early return to pre-recession trading levels, we remain committed to continuing to trade in this market and are adapting the offer to maximise the opportunities available.

We believe much of Carpetright's success can be attributed to our focus on offering the widest range of carpet at the keenest prices. This view is supported by externally conducted market research which indicated both strong recognition of the Carpetright brand and a strong association with being the 'first choice' for fitted carpet. We believe it is important to continue to enhance this reputation by the development and communication of our 'value added' services. As examples of activity being undertaken, we now ensure our recommended independent fitters vacuum rooms after the fitting has been completed; offer a service to move furniture within a customers' premises; and have arranged for the external assessment of 58 independent fitters within the last year to ensure they are appropriately qualified to carry out their role.

The development and integration of the bed business continued throughout the year, with beds representing 5.1% of the year's sales (2010: 3.4%). At the year end, we had 238 bed departments in existing stores, opening 107 during the 12 month period. In addition to the opening programme, the focus has been on improving the product range, promotional offers and reducing delivery times.

Since re-launching our transactional website, www.carpetright.co.uk, in the Autumn of 2009, we have continues to develop this channel as both a direct route for selling but also, and more importantly, a method of accessing and converting potential customers. The site offers the consumer the ability to order samples, book a consultation appointment and order products on-line. The site now generates over 60,000 unique visitors each week, up considerably on the previous year. We expect this traffic to continue to grow and are examining options to enhance the supporting call centre operation and increase online marketing.

Historically, consumers conducted their pre-purchase research by physically visiting stores before making their final decision. The development of the internet has resulted in a significant proportion of this research now being completed online. The upshot of this change is that customers appear to be prepared to travel further to make a single physical store visit to complete their purchase. We believe that this trend is resulting in a fundamental shift in the required geographic density of our UK store estate. While there remain some catchments where we are under-represented and in which we will continue to look for appropriate opportunities to secure a physical presence, it is clear that in other areas we can reduce store numbers without compromising our ability to serve customers effectively. Taking both these facts into consideration, looking forward we expect to see an overall net reduction in the number of stores in the UK. With leases on 94 stores in our estate due to expire in the next 5 years, we have ample opportunity to reshape the portfolio, reduce the size of store footprints and lower our ongoing rent roll.

We continued to focus on gaining additional sales through the insurance replacement business. This has proved a challenge in the current environment as domestic policy excesses have been increased and there has been a reduction in insurance renewal associated with the current economic conditions. Feedback on the quality of our products and service remain very positive and we continue to look to secure more business through contracts with new insurance customers. The volume of business through this channel is currently small relative to the Group's total revenue, although we believe it offers an opportunity for profitable sales growth when market conditions improve.

Gross profit decreased by 4.9% to £250.8m, representing a maintained gross profit margin of 62.0% (2010: 62.0%). The increased sales participation of beds in the product mix accounted for a 0.3 percentage point decline, as this part of the business operates on a lower gross margin than floor coverings. This was wholly offset by an improvement in the underlying floor covering margin of 0.3 percentage points, achieved through a combination of management of promotions, negotiation with suppliers and increased productivity in the Purfleet cutting facility.

The total UK & RoI cost base decreased by 0.5% compared with the prior year to £236.4m. In like-for-like stores, overall costs were down by 1.0% on the prior year. Store payroll costs continue to be managed closely to the volume of sales and underlying rent in like-for-like stores increased marginally by 0.4% (2010: 2.2%), reflecting a weakening of the property market in the current economic climate. Marketing costs reduced by £1.6m to £9.9m, as we focused expenditure on those activities which, on the basis of past experience, drive consumers to our stores.

Underlying operating profit decreased by 45.0% to £14.4m.

The Rest of Europe - Performance Review

The key financial results for the Rest of Europe were:

In the Rest of Europe, total reported revenue decreased year on year by 7.7% to £82.3m impacted in part by an adverse movement in exchange rates. Sales in local currency declined 3.9%. The markets in both The Netherlands and Belgium were impacted by the current economic situation with consumers remaining cautious with their discretionary expenditure.

We opened four new stores during the year and closed one store. This translated into a net increase of 15k sq ft of selling space, to a total of 1,413k sq ft in 120 stores (2010: 117). Two of the new locations were 'sample only' stores, building on the successful trial opening of a similar store in the prior year. This new smaller format is expected to provide an opportunity for future growth in the store estate. Operationally we have continued to introduce new products, and adapted our promotional offer to consumer demand. Our growth in laminate, a product area where we have had a low market share historically, has been encouraging. This has been achieved through the introduction of a comprehensive range, with a competitive offer supported by our high service standards.

Gross profit margin decreased to 57.4% (2010: 57.8%), impacted by the mix effect of selling more laminate at a lower than average margin, partially offset by improved rebates and effective management of the promotional mix. Reported operating costs decreased by 3.8% to £40.4m. In local currency terms, costs increased by only 0.4% despite inherent inflationary pressures on employment and store occupancy costs and the increased costs of an expanding store portfolio. This reflected the tight management control and focus on achieving efficiencies within the whole operation.

The net result was an underlying operating profit of £6.8m, a decrease of 29.2%. In local currency terms, the underlying profit decreased by 25.2%.

Group Financial Review

Net Finance Costs and Taxation

Net finance charges were £4.3m (2010: £5.9m) reflecting lower average net debt and a reduction in the margin rates on borrowing. The effective tax rate on profits is 30.4% (2010: 29.5%). This increase arises from the disproportionate effect of permanently disallowable items on the reduced level of profit, which was partially offset by the credit arising from the impact of a change in tax rates.

Exceptional Items

The Group recorded a net charge of £10.3m (2010: £5.9m) in the year.

We have continued to trade our property portfolio, although market conditions continue to make this challenging. A profit of £0.5m was achieved (2010: loss of £0.7m).

As a result of the difficult retail environment we have reviewed the carrying value of the store assets in our balance sheet. The tests used to value these assets include a number of assumptions relating to market growth and inflationary expectations. These tests resulted in a net impairment of £2.0m (2010: £1.4m) in relation to 41 stores. In addition, there are 26 leased properties which had previously been used as retail stores where an onerous lease provision has been made on the basis of the difference between the expected cash inflows and outflows .

Balance Sheet and Cash Flow

The Group had net assets of £67.0m (2010: £71.2m) at the end of the year, a decrease of £4.2m since 1 May 2010. The cash generative nature of the business remains one of the strengths of the Group, with free cash flow of £15.0m in the year (2010: £32.0m).

Cash Flow

The Group's operating cash flow was positive at £32.1m (2010: £58.3m). The decrease was predominantly attributable to the reduction in underlying profitability. Net capital expenditure was £9.5m (2010: £9.6m). This can be broken down into the following principal categories:

After the repayment of borrowings and payment of dividend, net debt decreased by £5.6m to £65.7m at the year end (2010: £71.3m).

Property

The Group owns a significant property portfolio, most of which is used for trading purposes. This portfolio is estimated by management to have a market value of £134.0m at the year end (2010: £139.5m), compared to a net book value of £112.3m recorded in the financial statements.

Pensions

The IAS 19 valuation as at 30 April 2011 was a net deficit of £4.0m in relation to defined benefit pension arrangements (2010: £4.8m). The Carpetright scheme closed to future accrual on 30 April 2010. Plan assets increased to £17.4m (2010: £16.3m) driven by higher market values and additional Company contributions agreed with the pension trustees following the triennial valuation in April 2008. The present value of plan liabilities increased to £21.4m (2010: £21.1m) driven principally by a reduction in the discount rate to 5.3% (2010: 5.5%).

Current liquidity

At the year end the Group held cash balances of £8.3m (2010: £8.3m) in a combination of Sterling, Euros and Polish Zlotys.

Gross bank borrowings at the balance sheet date were £70.9m (2010: £75.5m) of which £61.9m is term based with the balance of £9.0m being drawn down from overdraft facilities. The Group had further undrawn, committed facilities of £30.1m at the balance sheet date.

In June 2011, the Group completed a refinancing arrangement of its principal facilities, providing approximately £90m of debt capacity split between amortising term loans, a revolving credit facility and overdrafts in a mixture of Sterling and Euro currencies. The term loans and revolving credit facilities mature in July 2015. Arrangement fees and legal costs will be amortised over the life of the facility, although paid in cash at the outset. The facilities contain financial covenants which are believed to be appropriate in the current economic climate and tested on a quarterly basis. The Group monitors actual and prospective compliance with these on a regular basis. The unamortised costs associated with the previous facilities, which amounted to £0.6m will be written off in the Financial Year 2012.

Earnings per Share

Basic earnings per share decreased by 71.1% to 6.8 pence, reflecting a similar decrease in post tax earnings. Underlying earnings per share decreased to 18.0 pence.

Dividend

The Board has decided not to pay a final dividend (2010: 8.0 pence), bringing the full year dividend to 8.0 pence (2010: 16.0 pence), a 50.0% decrease. Dividend cover, based on basic earnings per share, is 0.9 times (2010: 1.5 times). The Board recognises the importance of dividends to shareholders and will seek to restore a higher level of dividend when a sustained recovery is evident and reflected in the financial results of the Group. At the same time, the Board expects to rebalance the dividend to a lower interim relative to the final, to reflect more accurately the balance of profits earned throughout the year. The Board believe this is in the best interests of the business and will continue to review the dividend policy on a bi-annual basis.

Outlook

The last year has seen a decline in profit performance, in challenging trading conditions. Looking forward, over the next two years we expect the consumer environment to remain difficult and have adapted our plans accordingly. We believe the Group is in a strong position to capitalise on a strong value offer supported by a superior service proposition, when consumer demand increases.

Lord Harris of Peckham

27 June 2011

Consolidated income statement

for 52 weeks ended 30 April 2011

All material items in the income statement arise from continuing operations.

Consolidated statement of comprehensive income

for 52 weeks ended 30 April 2011

Consolidated balance sheet

as at 30 April 2011

Consolidated statements of cash flow

for 52 weeks ended 30 April 2011

For the purposes of the cash flow statement, 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.

Consolidated statement of changes in equity

for 52 weeks ended 30 April 2011

Group

Notes to the accounts

1 Accounting policies

Basis of preparation

The financial statements of the Group are made up to the Saturday nearest to 30 April. The financial year for 2011 represents the 52 weeks ended 30 April 2011. The comparative financial year for 2010 was 52 weeks ended 1 May 2010.

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

The information is derived from the full Group financial statements for the 52 week period to 30 April 2011 and does not constitute full accounts within the meaning of section 435 of the Companies Act 2006. The Group's Annual Report and Financial Statements on which the auditors have given an unqualified report which does not contain a statement under section 498(2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies and posted to shareholders in due course.

The financial information for the 52 weeks to 1 May 2010 is derived from the Annual Report for that year which has been delivered to the Registrar of Companies. The independent auditors reported on those accounts, their report was unqualified and did not contain a statement under either section 498(2) or (3) of the Companies Act 2006.

Foreign exchange rates

Financial assets and liabilities and foreign operations are translated at the following rates of exchange:

2 Segmental analysis

The operating segments have been determined based on reports reviewed by the Board that are used to make strategic decisions. Following the closure of the Polish operation in 2010 the management structure for Europe changed. The Netherlands and Belgium were managed as a combined business by a single management team who had no other responsibilities. Information is presented to the Board of Carpetright plc (the Chief Operating Decision Maker) on a combined basis. As a result it is considered that the combined business forms a single reportable operating segment under IFRS 8. The comparative segmental information has been restated to the new basis.

The reportable operating segments derive their revenue primarily from the retail of floor coverings and beds. Central costs are incurred principally in the UK and are immaterial. As such these costs are included within the UK & RoI segment. Sales between segments are carried out at arm's length.

The segment information provided to the Board for the reportable segments for the 52 weeks ended 30 April 2011 is as follows:

Carpetright plc is domiciled in the UK. The Group's revenue from external customers in the UK is £396.6m (2010 : £416.5m) and the total revenue from external customers from other countries is £90.2m (2010 : £100.1m). The total of non-current assets (other than financial instruments and deferred tax assets) located in the UK is £161.6m (2010 : £175.8m) and the total of those located in other countries is £90.3m (2010 : £89.0m).

Carpetright's trade has historically shown no distinct pattern of seasonality with trade cycles more closely following economic indicators such as consumer confidence and mortgage approvals.

3 Exceptional items

The onerous lease provision relates to 26 properties in the UK & RoI that are not trading and are either empty or leased at below the passing rent. The provision covers the period until full cost recovery is expected.

4 Tax

The income statement has been credited with tax of £1.7m (2010; £0.4m) in respect of exceptional items and £1.1m in respect of exceptional tax arising from the impact of the change in tax rates on deferred tax.

The weighted average annual effective tax rate for the period is 30.4% (2010: 29.5%). The increase arises primarily from one off charges in the year not subject to tax and the disproportionate effect of permanently disallowable items on the reduced level of profit, offset by the credit arising from the impact of the change in tax rates on deferred tax.

5 Earnings per share

Basic earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, excluding those held by the Group's LTIP Trust (see note 25) which are treated as cancelled.

In order to compute diluted 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.

Reconciliation of earnings per share excluding post tax profit on exceptional items:

The Directors have presented an additional measure of earnings per share based on underlying earnings. This is in accordance with the practice adopted by most major retailers. Underlying earnings is defined as profit excluding exceptional items and related tax.

6 Dividends

The Directors propose that no final dividend of should be paid (2010: 8.0 pence per share: £5.4m)

This would leave the 2011 interim and final dividend payments at 8.0 pence per share amounting to £5.4m (2010: 16.0 pence; £10.8m).

7 Group movement in cash and net debt

Group