1 Jul 2008 07:00
Carpetright plc
Preliminary Results Announcement for the 53 weeks ended 3 May 2008
Carpetright plc, Europe's leading specialist carpet and floor coverings retailer today makes its preliminary announcement of its audited results for the 53 weeks ended 3 May 2008.
Highlights
Total Group revenue increased by 9.6% to £521.5 million (2007: £475.9 million)
Revenue increased by 8.3% to £452.7 million (2007: £418.1 million) in the UK and Republic of Ireland ("UK & RoI") and by 19.0% to £68.8 million (2007: £57.8 million) in the Rest of Europe
Like-for-like sales decline of 2.7% in the UK & RoI, with a local currency increase of 6.7% in The Netherlands / Belgium
Gross margin improved to 62.8% (2007: 61.9%) in the UK & RoI
Underlying* Group profit before tax increased by 7.6% to £62.1 million (2007: £57.7 million)
Reported Group profit before tax £59.5 million (2007: £67.0 million)
Operating margin in The Netherlands / Belgium over 10% for the first time
Underlying* earnings per share increased by 8.9% to 63.5 pence (2007: 58.3 pence)
Basic earnings per share 63.2 pence (2007: 68.2 pence)
Strong cash generation with operating cash flow of £72.7 million
Net debt at £57.5 million following investment in new cutting and distribution centre and acquisitions
Store portfolio increased to 675, comprising 559 in the UK & RoI and 116 in the Rest of Europe
Recommended final dividend of 30.0 pence per share giving a total of 52.0 pence, up 4.0%
* 'Underlying' excludes profits / losses on property disposals and other non-recurring items
Lord Harris of Peckham, Chairman and Chief Executive, said:
"This year sees the twentieth anniversary of Carpetright. During that time, the Group has grown at a strong pace and this year, despite adverse market conditions, I am pleased to report we have produced yet another solid performance."
"My fiftieth year of selling carpets has been a challenging one. There is no doubt that the UK floor coverings market became more difficult, in line with other housing and DIY related sectors. This challenge has remained and I believe that the next year will be one of the most difficult I have seen. However, against this background, we are continuing to invest for the future. Carpetright is well placed to weather this period with its strong competitive position, clear UK and European strategic plans, and continued focus on margin growth and strong cash generation."
For further enquiries please contact:
Carpetright plc
Lord Harris of Peckham, Chairman and Chief Executive
Jason Grover, Interim Group Finance Director
Telephone : 020 7638 9571 (until 1pm), 01708 802000 (thereafter)
Citigate Dewe Rogerson
Kevin Smith / Angharad Couch
Telephone : 020 7638 9571
There will be a presentation to analysts and investors at 8.30am today at the office of Deutsche Bank, Winchester House, 1 Great Winchester Street, EC2N 2DB.
A copy of the preliminary results and presentation to analysts can be found on our website www.carpetright.plc.uk today at 7.00am and 8.30am, respectively.
Certain statements made in this announcement are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward looking statements.
Overview of Group financial performance
| 2008 £m | 2007 £m | Change | |
| Revenue | 521.5 | 475.9 | 9.6% |
| Underlying* operating profit | |||
| - UK and Republic of Ireland | 58.0 | 55.6 | 4.3% |
| - The Netherlands and Belgium | 6.8 | 4.8 | 41.7% |
| - Poland | (1.4) | (0.9) | - |
| - Total | 63.4 | 59.5 | 6.6% |
| Net finance charges | (1.3) | (1.8) | 27.8% |
| Underlying* pre tax profit | 62.1 | 57.7 | 7.6% |
| (Losses)/profits on property disposals and non-recurring items | (2.6) | 9.3 | - |
| Profit before taxation | 59.5 | 67.0 | (11.2%) |
| Underlying* earnings per share (pence) | 63.5 | 58.3 | 8.9% |
| Basic earnings per share (pence) | 63.2 | 68.2 | (7.3%) |
| Net borrowings | (57.5) | (6.9) | - |
* Where this review makes reference to "Underlying" these relate to profit / earnings before profits / losses on property disposals and other non-recurring items.
Progress against the Group's financial objectives has been challenging this year.
Revenue increased by 9.6% in the year to £521.5 million with growth being achieved in both regions including a contribution of £30.1 million from Storeys and Carpetworld. The Rest of Europe grew faster than the UK & RoI and now represents over 13% of total revenue.
The Group opened 47 stores and closed 36, which together with the 30 and 13 stores acquired respectively with Storeys and Carpetworld, gave a net increase of 54 stores and a total store base of 675. Many of the new stores are either concession stores or are smaller format stores resulting in total space growing by 7.8% to just over 5.8 million square feet.
Underlying operating profit grew to £63.4 million, an increase of 6.6% on last year, with UK & RoI profitability increasing by 4.3%. Profits in The Netherlands and Belgium improved by 41.7% but these were offset, in part, by continued start-up losses in Poland which totalled £1.4 million. Underlying earnings per share increased by 8.9% to 63.5 pence.
Group profit before taxation decreased by 11.2% to £59.5 million with basic earnings per share decreasing by 7.3% to 63.2 pence, principally arising from net non-recurring costs in the year.
The Group recorded a profit on property disposals of £7.0 million (2007: £9.3 million) as we continued to trade our property portfolio successfully. This has been offset by other non-recurring items, comprising post acquisition reorganisation costs and asset write offs in Storeys, together with pre-opening and dual running costs, principally rent, rates and utility costs, in respect of the new cutting and distribution centre, ahead of it becoming fully operational in April 2008. These non-recurring costs totalled £9.6 million (2007: nil). The Group's strategy to relocate stores continues to deliver strong cash flow and lower the total rent exposure.
The Board anticipates that property profits and cash flows will continue to be achieved on an ongoing basis and that there will be modest non-recurring costs incurred in the forthcoming period as a result of the Carpetworld integration.
The Group's operating cash flow was strong. This was supported by £20.0 million of proceeds from property disposals. Significant investments in the year included £22.3 million for the new cutting and distribution centre, £10.6 million in respect of freehold and long leasehold acquisitions, £32.2 million for the acquisition of Storeys and Carpetworld, and £4.7 million in respect of the continued rollout of Navision store IT systems. Net debt increased by £50.6 million over the year and totalled £57.5 million at the year end.
Net finance charges decreased to £1.3 million, with the impact of higher levels of net borrowings more than offset by £0.9 million (2007: £nil) of finance charges capitalised as a result of the change in accounting policy announced at the time of our Interim statement.
UK and Republic of Ireland - Operational review
Financial results
| UK & RoI - Key financial results | 2008 £m | 2007 £m | Change | |
| Revenue | 452.7 | 418.1 | 8.3% | |
| Gross profit | 284.1 | 258.8 | 9.8% | |
| Gross margin % | 62.8% | 61.9% | 0.9pp | |
| Underlying operating profit | 58.0 | 55.6 | 4.3% | |
| Underlying operating margin % | 12.8% | 13.3% | (0.5pp) |
Revenue in the UK & RoI was 8.3% ahead of last year at £452.7 million driven principally by the Storeys acquisition. The 53rd week contributed 1.6% to the revenue increase in the period. Like-for-like sales declined by 2.7% with a decline in the first half of 3.4% (2007: increase 0.9%) and a decline in the second half of 1.8% (2007: decline 3.6%). Storeys and Carpetworld performed substantially in line with our expectations delivering revenue of £30.1 million. This performance can be viewed against a market which, we believe, increased by less than 1% in value terms and so represents a further increase in market share.
Gross profit increased by 9.8% to £284.1 million with a further increase in the gross margin to 62.8%. This is 0.9 percentage points ahead of last year and has been achieved through improved supplier rebates, lower levels of stock loss and better management of the distribution network, offset by the impact of the strengthening Euro on product cost prices and lower initial margins in Storeys and Carpetworld. The Storeys margin continues to improve as it benefits from core Carpetright terms although with a different sales mix its margin will continue to be lower than that achieved in the rest of the UK & RoI business. The margin in Carpetworld will increase further as we standardise formats and terms.
Underlying operating profit increased by 4.3% to £58.0 million. The 53rd week in the financial year had an overall benefit to operating profit of £0.7 million. The underlying operating margin reduced by 0.5pp to 12.8% which can be analysed as follows:
| Underlying operating margin last year | 13.3% |
| Impact of Storeys and Carpetworld | (0.5%) |
| Core business | |
| Increase in gross margin | 1.8% |
| Increase in store occupancy costs | (0.7%) |
| Decrease in store staff costs | 0.3% |
| Increase in advertising | (0.4%) |
| Increase in depreciation | (0.4%) |
| Increase in other costs | (0.6%) |
| Underlying operating margin this year | 12.8% |
Store occupancy costs increased as a percentage of sales as a result of lower like-for-like sales relative to fixed expenses and increases in rent and rates reflecting the year on year space growth. In addition, the business was impacted by increasing energy and fuel costs, although the impact of fuel price increases was partly mitigated by improvements to the distribution network following the move to the new cutting and distribution centre.
Staff costs decreased as a percentage of sales with inflationary increases offset by a reduction in headcount of over 100 in stores (excluding Storeys and Carpetworld) and the central office. We continue to ensure our managers remain well rewarded recognising the significant contribution they make to sales. The business incurred higher advertising spend to support stronger promotions.
Dual running costs incurred in the start-up phase of the new cutting and distribution centre have been treated as non-recurring items and have been excluded from underlying profit.
Sales and marketing
The specialist floor covering market has declined in volume terms over the last year impacted by a poor economic environment, deteriorating consumer confidence and a decline in mortgage approvals and resultant housing transactions. Manufacturers and retailers have seen the decline accelerate over the year and we believe many independents have ceased trading. As a result, we are continuing to grow market share.
There remains a surplus of supply to the market and it is likely that manufacturers will come under increasing pressure. We continue to work with a small number of selected manufacturers who can meet the demands of our customers in terms of the latest ranges, the best quality and at the keenest prices.
The general trend in our business towards cut-length carpets, rather than roll-stock, has slowed in the year. There has been a gradual increase in the average selling price over the year, in response to cost price inflation impacted by the strength of the Euro. Other trends we have seen have been a gradual transition from light natural colours towards darker natural colours. We have introduced a number of higher quality ranges, which command higher prices, and these are increasingly being bought by our customers who recognise the value for money that these products deliver.
The laminate and wood market appears to have stabilised over the last year. Laminate remains a small part of our business (c 2%) and our offer comprises a small range of take-away product and a more extensive range that can be ordered. The Storeys business now brings a wider range of laminate and wood products to our offering.
Throughout the year, we have sourced a wider range of rugs, principally from India and China. Our rug sales now represent 2.5% of our total business. Our medium term target is to grow rug sales to nearer 5% of total revenue.
In the second half we decided to exit from our "Carpetright at Home" business that offered insurance and retail customers the opportunity to choose carpets from their home. Instead, our insurance business will be run through an independent third party. By doing this we will continue to achieve sales from insurance customers but with a lower central cost and improved cash flows versus dealing with insurance companies directly.
In the forthcoming year, Carpetright, together with several carpet manufacturers and distributors, will be participating in "The Fifth Wall" project, to promote the generic benefits of carpet via a major consumer advertising and PR campaign. We anticipate that this will help re-invigorate interest in carpet in the marketplace.
Store portfolio development
We continue to develop our store portfolio :
| Store numbers | Sq ft ('000) | ||||||
| UK & RoI store base | April 2007 | Openings | Closures | Other | May 2008 | April 2007 | May 2008 |
| Carpetright* | 439 | 21 | (13) | 13 | 460 | 3,930 | 3,963 |
| Concessions | 73 | 10 | (22) | - | 61 | 154 | 121 |
| Storeys | - | 8 | - | 30 | 38 | - | 387 |
| 512 | 39 | (35) | 43 | 559 | 4,084 | 4,471 | |
* including Carpetworld stores
In response to the tougher market conditions, the last 12 months has seen a slow-down in the rate of store openings. There has been a net 9% increase in the number of stores with 39 new openings as well as 43 from business acquisitions. All our new stores take time to mature and we expect to see stronger sales from them in the year ahead. At the same time we closed 35 stores, either as part of our ongoing programme to move to lower cost locations, or because the stores did not contribute to our overall profitability.
Total space grew by 9.5% with the average store size now 8,000 sq ft, which is a slight increase on the prior year due to larger store sizes in Storeys and Carpetworld. In the 2009 financial year we anticipate opening a net eight stores with an increase in average space of approximately 2%.
As we have previously outlined, there is a significant opportunity for us to generate cash, make profits, improve store locations and reduce our ongoing rent bill by moving from A1 retail parks to bulky goods parks. During the year, we negotiated to relocate from two A1 parks. Our portfolio is now broadly split 40/60 in relation to occupancy on A1 or bulky goods parks. In addition we are looking to downsize from 10,000 square feet plus units to smaller units on current parks or through relocations. Where this is not possible, we will sublet space to concessions. During the year, we have downsized or relocated in three such locations and we believe that there is an opportunity to downsize in excess of 100 locations.
Rent inflation is being mitigated to some extent by the introduction of Sleepright, a start-up bed concession, into a number of our stores. These units occupy around 1,200 sq ft of space per unit. At year end, 83 stores included a Sleepright concession and we anticipate the format will be rolled out to around a further 25 stores in the coming year. These concession units help to reduce operating costs and also provide additional footfall.
Since the Group acquired Storeys and Carpetworld, a large number of changes have been made to improve the underlying businesses. Staff numbers have been reduced by over 140 since acquisition and store layouts and product ranges have been improved. These changes have, at times, caused some disruption but leave the stores well positioned for the future.
The Republic of Ireland remains a key growth opportunity with 26 stores including one concession trading at the year end. The performance of these stores continues to improve and we remain on course to reach our medium term target of 30 stores.
Operational initiatives
We continue to invest in the three key service areas:
The in-store experience including the new store computer system
The effectiveness of the supply chain
The quality of our service and, in particular, the fitting service
In the stores, we have continued the rollout of rug display areas and the introduction of energy efficient lighting in the roll-stock areas, giving the stores a much fresher look. We have continued to review our point of sale posters and price tickets to ensure they properly communicate the great value that we offer.
The new store computer system, Navision, which forms part of the major IT investment that we have made over the last three years, continued to be rolled out during the year. At the year end it was in 417 stores and we are converting approximately 10 stores per week. This continuing roll-out has enabled UK store staffing levels to be reduced by over 90 people since May 2007. The roll-out is expected to be complete by October 2008. The benefits include better management information, improved stock control and an improved customer order process.
The supply chain has performed well throughout the year and store staff have been able to sell with confidence. The Group moved into the new facility in Purfleet, Essex in January which accommodates the Group's cutting centre, distribution hub and central offices. This has allowed us to close four sites by the end of April 2008.
The benefits of this investment are:
More efficient goods-in and production processes;
Lower transport costs as carpets will now be cut and despatched to store from the same site;
Faster delivery times to stores of cut-length orders;
In-house production for the first time of cardboard 'inner tubes' for individual carpet orders, utilising waste cardboard;
Lower labour costs as there will be less manual handling through the use of increased automation;
In-house cutting of vinyl at a lower all-in cost; and
Improved communication and interaction between central support office, cutting and distribution teams.
These savings will offset the additional leasing costs of the new site. As the business grows the new site will be able to handle additional volume with a minimal increase in costs.
The quality of fitting continues to improve and independent fitters have been found to support each new store. Ensuring quality fitters are available for our customers remains a key priority and the business continues to invest in the "Fitters Academy" with 163 fitters assessed in the past year.
There is an increasing emphasis in the market on the importance of the service offer. Our customers are now able to make comments on service via email as well as the telephone, and system improvements allow us to capture customer service comments more easily. We continue to train our Store Managers to handle complaints effectively and we treat all feedback as an opportunity to improve our service offering further. Similarly, we have been providing appropriate training and courses for our estimators to enhance the customer experience.
Storeys
On 1 May 2007, the Group acquired Storey Carpets Limited for a total consideration of £19.7 million, of which £0.7 million was paid in May 2008. Storeys comprised 30 stores at the time of acquisition, primarily located in north east England, and it has been trading for over 80 years. We are trading Storeys as a standalone business but we have consolidated its administrative functions with those of Carpetright. By the year end, we had added eight further stores, simplified processes, improved the customer offer and increased gross margins in this business.
Carpetworld
On 31 March 2008, the Group acquired Melford Commercial Properties Limited, the parent company of Carpetworld Manchester Limited ("Carpetworld") for a total consideration of £7.2 million plus £7.7 million of debt repaid. Carpetworld comprised 13 stores at the time of acquisition, primarily located in north west England including four freehold and two long leasehold properties, valued at £12.5 million. As with Storeys, since acquisition we have started to simplify operating processes and improve operating margins. It is intended that this business will ultimately be split across the Carpetright and Storeys formats.
Summary and outlook
The last year has been more challenging than we anticipated with the deteriorating economic environment, a decline in consumer confidence and a reduction in housing transactions having adverse impacts on revenue. We remain cautious about the short-term prospects but are confident that the investments we are making in our stores, ranges, new cutting and distribution centre and IT systems will all support future growth.
Rest of Europe - Operational review
Financial results
| Rest of Europe - Key financial results | 2008 £m | 2007 £m | Change | |||
| Revenue | ||||||
| - The Netherlands and Belgium | 66.7 | 56.8 | 17.4% | |||
| - Poland | 2.1 | 1.0 | 110.0% | |||
| - Rest of Europe | 68.8 | 57.8 | 19.0% | |||
| Underlying operating profit | ||||||
| - The Netherlands and Belgium | 6.8 | 4.8 | 41.7% | |||
| - Poland | (1.4) | (0.9) | - | |||
| Rest of Europe | 5.4 | 3.9 | 38.5% | |||
| Underlying operating margin % | ||||||
| - The Netherlands and Belgium | 10.2% | 8.5% | 1.7pp | |||
| - Poland | - | - | - | |||
| Rest of Europe | 7.8% | 6.7% | 1.1pp | |||
Revenue in the Rest of Europe was 19.0% ahead of last year at £68.8 million. In local currency terms the improvement was 12.7%. Like-for-like sales in local currency increased by 6.7% in The Netherlands and Belgium, and by 11.8% in Poland. Gross profit increased by 21.9% to £39.0 million with an improvement in the gross margin in The Netherlands and Belgium of 1.4 percentage points on the back of improved rebates as volumes increased, offset by increased promotional activity.
Costs were tightly controlled with most of the increase attributable to new space and inflationary pressures.
The region recorded an underlying operating profit of £5.4 million, an increase of 38.5% on last year. The underlying operating profit in The Netherlands and Belgium increased by 41.7% to £6.8 million with operating margins increasing to over our previously stated target of 10%. This was partially offset by continued losses in Poland of £1.4 million (2007: £0.9 million loss). The results of the first store in Germany, which opened in April under the joint venture arrangement with TTL, were negligible.
Store portfolio development
The store expansion programme continued during the year with eight stores opening. The portfolio is now as follows:
| Store numbers | Sq ft ('000) | |||||
| Rest of Europe store base | April 2007 | Openings | Closures | May 2008 | April 2007 | May 2008 |
| The Netherlands | 75 | 3 | (1) | 77 | 903 | 895 |
| Belgium | 28 | - | - | 28 | 347 | 335 |
| Poland | 6 | 5 | - | 11 | 63 | 115 |
| 109 | 8 | (1) | 116 | 1,313 | 1,345 | |
Total space is impacted by further subletting; we continue to assess sublet opportunities for the business where we have excess space, with 21 now completed in The Netherlands and Belgium.
In addition, a pilot store has been established in Germany operating through a 50/50 joint venture with the German flooring retailer, TTL.
The plans for the current year include a further three stores in The Netherlands and three stores in Poland. In addition, on 30 June 2008 the acquisition of Ben de Graaff has seen a further 11 stores join the portfolio in The Netherlands.
Operational initiatives
The Netherlands and Belgium
The key focus throughout the last year has been the ongoing improvement of in-store product offers, together with increased promotional activity, and a controlled store opening programme in The Netherlands. Business in both countries has been strong, particularly in The Netherlands, building on the good performance we achieved last year. Our brand awareness continues to grow, resulting in increased footfall and sales conversion.
In The Netherlands, the focus has been on a strong promotional programme. The strength of our offer, including the use of single day double discount events, continues to enable us to outperform the competition and we estimate that we have once again increased our market share, with much of this growth attributable to a continued improvement in our customer conversion rate. In Belgium we identified, following market research, that the stores in the French speaking region could be targeted more specifically to the local consumer. As a result specific changes were made to the ranges which has led to improved sales and margin growth.
We have seen a shift in the sales mix in The Netherlands and Belgium towards rugs, vinyl and laminate in particular. These categories are more important than in the UK & RoI, with laminate alone representing 24% of total revenue. We have extended the product range to widen customer choice and our advertising strategy has evolved to ensure that we are not perceived as just a carpet specialist. We will look to grow sales from these categories throughout 2008/9 whilst we continue to develop the best carpet ranges for these countries.
Ben de Graaff
On 30 June 2008, we completed the acquisition of the trade and assets of Ben de Graaff Tapijt, a leading floor coverings and curtains/blinds retailer in the south of The Netherlands, for a total consideration of €7.8 million. Ben de Graaff comprises 11 stores and has been trading for 35 years. Revenue is approximately €15 million per annum. Our initial objectives are to implement appropriate changes to simplify processes, and enhance operating margin with a strong sales and customer service focused culture. Stores will be converted to the Carpetright brand in those locations where we have no existing presence, but where catchments overlap, the Ben de Graaff format will remain.
Poland
Progress in Poland continues to be steady, with the Group trading from 11 stores at the year end, an increase of five in the year. Encouragingly we have seen like-for-like sales in local currency of nearly 12% with the best performance from the longest established stores. Most sales continue to be in either rugs or take-away roll-stock carpet but the offer continues to evolve and we have been pleased with the clearer product segmentation in our most recent openings.
Securing suitable new sites has continued to be challenging. We anticipate opening three stores in the year ahead, and as the number of stores increases we will see awareness of the brand grow, which will in turn support revenue growth. During the year we have critically reviewed the store layout and staffing levels for each store. As a result we have reduced the number of people employed in each store and reorganised the stores to ensure clearer category segmentation.
Germany
At the end of 2007, we entered a 50/50 joint venture agreement with TTL, one of Germany's leading floor covering retailers. The joint venture is a pilot for Carpetright in this market. The joint venture utilises the key strengths of both the businesses, with Carpetright providing store design and layout, fixtures and point of sale material as well as staff training. TTL will provide store location, property negotiation, shop fitting, staff recruitment, advertising and central accounting support. In April 2008 the first store, branded "Carpri", opened in Berlin. Our current intentions are to open a further three stores in the next financial year.
Summary and outlook
The performance in the Rest of Europe over the last year has been strong and the growth potential remains solid, particularly with the acquisition of Ben de Graaff in The Netherlands. In the current year we expect to grow the store base by a further 17 stores across the region, including 11 from Ben de Graaff but excluding Germany and continue to grow our market share in each market.
The Group will continue to drive sales and profit in The Netherlands and Belgium in the year ahead. In Poland, the focus will be on driving sales in the existing stores and ensuring the format supports profitable expansion.
Financial review
Financial results
| 2008 | 2007 | % Change | |
| Taxation rate % | |||
| - Underlying | 30.8 | 31.4 | 0.6pp |
| - Effective | 28.1 | 30.8 | 2.7pp |
| Earnings per share (pence) | |||
| - Underlying | 63.5 | 58.3 | 8.9% |
| - Basic | 63.2 | 68.2 | (7.3%) |
| Dividend per share | |||
| - Proposed and paid (pence) | 52.0 | 50.0 | 4.0% |
| - Cover (times) | 1.22 | 1.36 | (10.3%) |
| Net borrowings (£m) | 57.5 | 6.9 | - |
| Pension deficit (£m) | 1.3 | 1.8 | (27.8%) |
| Interest cover (incl capitalised interest) (times) | 27.6 | 38.2 | (27.7%) |
Taxation
The effective tax rate on profits is 28.1% (2007: 30.8%). This has declined principally due to reductions in the UK corporation tax rate from 30% to 28% in April 2008 impacting deferred tax and the recognition of a deferred tax asset in respect of historic losses in Belgium. The underlying rate is stated after removing the impact of the tax on profits on property disposals and non-recurring items, as well as the impact on deferred tax of the 2% reduction in the UK corporation tax rate. The ongoing effective rate is expected to remain slightly higher than the combined statutory rate for the Group due to a number of disallowable items in relation to the Group's freehold properties and other small items.
Earnings per share
Basic earnings per share decreased by 7.3% to 63.2 pence, reflecting a 7.6% decrease in earnings. Underlying earnings per share increased by 8.9% to 63.5 pence. Underlying earnings have increased by 8.6% after removing the effect of profits on property disposals and other non-recurring items together with the tax thereon, as well as the impact of the 2% reduction in UK Corporation tax on deferred tax balances. In addition there has been a reduction in the average number of shares of 0.3%. The Group purchased 750,000 of its own shares for cancellation at an average price of 858 pence during the year. The total consideration for the shares was £6.5 million including fees and taxes. The average number of shares in issue was 67.7 million and at the year end the Group had 67.2 million shares in issue.
Dividend
The Board is proposing a final dividend of 30.0 pence per share (2007: 30.0 pence), bringing the full year dividend to 52.0 pence (2007: 50.0 pence) an increase of 4.0%. The final dividend will be paid on 26 September 2008 to shareholders on the register on 12 September 2008. Dividend cover, based on basic earnings per share, is 1.22 times (2007: 1.36 times). The Board remains comfortable with this level of cover which reflects the Board's confidence in the Group's ongoing cash generating ability.
Cash flow and net borrowings
| Summary cash flow | 2008 £m | 2007 £m |
| Operating cash inflows | 72.7 | 81.8 |
| Net finance charges | (2.2) | (1.6) |
| Taxation paid | (15.1) | (15.9) |
| Dividends | (35.2) | (33.9) |
| Payment for tangible and intangible assets | (46.5) | (33.2) |
| Proceeds on disposal of tangible assets | 20.0 | 24.8 |
| Free cash flow | (6.3) | 22.0 |
| Purchase of own shares | (6.5) | (0.4) |
| Acquisitions | (32.2) | - |
| Other (including foreign exchange differences) | (5.6) | 0.6 |
| Movement in net borrowings | (50.6) | 22.2 |
| Opening net borrowings | (6.9) | (29.1) |
| Closing net borrowings | (57.5) | (6.9) |
Net borrowings increased year on year by £50.6 million reflecting the impact of investment in fixed assets of £46.5 million as well as business acquisitions of £32.2 million. Excluding the investment in the new cutting and distribution centre the Group continued to be highly cash generative and proceeds from the sales of freehold and long leasehold properties and the surrender of leases were very strong at £20.0 million. This includes £6.7 million received from the sale of the Group's warehouse in West Thurrock and £5.4 million from the sale of the store in Castletown.
Capital expenditure comprised £10.6 million on long leaseholds and freeholds, £22.3 million on the new cutting and distribution centre, £8.9 million on stores and £4.7 million on the new IT systems. There was a working capital cash outflow of £1.1 million with decreased inventories being offset by a small increase in receivables and a decrease in payables.
Current liquidity
At the year end the Group held cash balances of £8.9 million (2007: £20.7 million) in a combination of Sterling, Euros and Polish Zlotys. Gross borrowings at the balance sheet date were £66.4 million (2007: £27.7 million) of which £55.3 million is term based with the balance of £11.1 million being drawn down from overdraft facilities. The Group has further undrawn, committed facilities of £39.8 million at the balance sheet date. These are principally available as on-demand overdraft facilities and are subject to annual review.
| Group income statement | ||||
| for the 53 weeks ended 3 May 2008 | ||||
| Note | 53 weeks to 3 May 2008 £m | 52 weeks to 28 April 2007 £m | ||
| Revenue | 2 | 521.5 | 475.9 | |
| Cost of sales | (198.4) | (185.1) | ||
| Gross profit | 2 | 323.1 | 290.8 | |
| Other operating income | 10.1 | 12.3 | ||
| Administrative expenses | (272.4) | (234.3) | ||
| Operating profit | 2 | 60.8 | 68.8 | |
| Operating profit before profit on property disposals and non-recurring items | 63.4 | 59.5 | ||
| (Losses)/profits on property disposals and non-recurring items | (2.6) | 9.3 | ||
| Finance costs payable | (2.8) | (2.6) | ||
| Finance income receivable | 1.5 | 0.8 | ||
| Profit before tax | 59.5 | 67.0 | ||
| Tax | 4 | (16.7) | (20.7) | |
| Profit for the financial period attributable to equity holders of the parent | 42.8 | 46.3 | ||
| Note | 2008 Pence | 2007 Pence | ||
| Basic earnings per share | 5 | 63.2 | 68.2 | |
| Diluted earnings per share | 5 | 63.2 | 68.2 | |
| Dividend per share - interim paid | 6 | 22.0 | 20.0 | |
| Dividend per share - final proposed | 6 | 30.0 | 30.0 | |
| Note | 2008 £m | 2007 £m | ||
| Dividends paid to equity shareholders in the year | 6 | 35.2 | 33.9 | |
| Final dividend proposed to equity shareholders in respect of the year | 20.2 | 20.4 | ||
All material items in the income statement arise from continuing operations.
| Statement of recognised income and expense | ||||
| for the 53 weeks ended 3 May 2008 | ||||
| Note | 53 weeks to 3 May 2008 £m | 52 weeks to 28 April 2007 £m | ||
| Profit for the financial period | 42.8 | 46.3 | ||
| Actuarial gains/(losses) on defined benefit pension schemes | 8 | 0.5 | (0.3) | |
| Fair value losses in respect of cash flow hedges | 8 | (0.2) | - | |
| Exchange gains/(losses) in respect of hedged equity investments | 8 | 4.4 | (0.3) | |
| Tax on items taken directly to or transferred from equity | 8 | (0.1) | 0.1 | |
| Net gains/(losses) recognised directly in equity | 4.6 | (0.5) | ||
| Total recognised income for the financial period attributable to equity holders of the parent | 8 | 47.4 | 45.8 | |
| Group balance sheet | |||
| at 3 May 2008 | |||
| Note | 2008 £m | 2007 £m | |
| Assets | |||
| Non-current assets | |||
| Intangible assets | 62.2 | 38.9 | |
| Property, plant and equipment | 166.0 | 123.8 | |
| Investment property | 21.0 | 19.5 | |
| Investment in joint ventures | 0.2 | - | |
| Deferred tax assets | 3.2 | 1.0 | |
| Derivative financial instruments | - | 0.1 | |
| Trade and other receivables | 1.3 | 1.6 | |
| Total non-current assets | 253.9 | 184.9 | |
| Current assets | |||
| Inventories | 40.1 | 35.9 | |
| Trade and other receivables | 32.6 | 26.7 | |
| Cash and cash equivalents | 7 | 8.9 | 20.7 |
| Total current assets | 81.6 | 83.3 | |
| Total assets | 335.5 | 268.2 | |
| Liabilities | |||
| Current liabilities | |||
| Trade and other payables | (123.4) | (120.1) | |
| Obligations under finance leases | 7 | (0.8) | (0.8) |
| Borrowings and overdrafts | 7 | (22.4) | (12.2) |
| Current tax liabilities | (11.5) | (9.7) | |
| Total current liabilities | (158.1) | (142.8) | |
| Non-current liabilities | |||
| Trade and other payables | (28.3) | (17.6) | |
| Obligations under finance leases | 7 | (3.9) | (3.7) |
| Borrowings | 7 | (39.3) | (11.0) |
| Provisions for liabilities and charges | (1.4) | - | |
| Deferred tax liabilities | (28.9) | (23.3) | |
| Retirement benefit obligations | (1.3) | (1.8) | |
| Total non-current liabilities | (103.1) | (57.4) | |
| Total liabilities | (261.2) | (200.2) | |
| Net assets | 74.3 | 68.0 | |
| Equity | |||
| Share capital | 8 | 0.7 | 0.7 |
| Share premium | 8 | 15.4 | 14.8 |
| Treasury shares | 8 | (0.2) | (0.5) |
| Other reserves | 8 | 58.4 | 53.0 |
| Total equity attributable to equity holders of the parent | 8 | 74.3 | 68.0 |
| Group cash flow statement | |||
| for the 53 weeks ended 3 May 2008 | |||
| Note | 53 weeks to 3 May 2008 £m | 52 weeks to 28 April 2007 £m | |
| Operating activities | |||
| Profit before tax | 59.5 | 67.0 | |
| Adjusted for: | |||
| Depreciation and amortisation | 17.0 | 13.1 | |
| Non-recurring items | 3.0 | - | |
| Share-based payments | - | 0.5 | |
| Profits on property disposals | (7.0) | (9.3) | |
| Net finance costs | 1.3 | 1.8 | |
| Operating cash flows before movements in working capital | 73.8 | 73.1 | |
| Decrease/(increase) in inventories | 0.8 | (3.3) | |
| (Increase)/decrease in trade and other receivables | (1.0) | (3.0) | |
| (Decrease)/increase in trade and other payables | (0.9) | 15.0 | |
| Cash generated from operations | 72.7 | 81.8 | |
| Interest paid | (2.9) | (1.9) | |
| Corporation taxes paid | (15.1) | (15.9) | |
| Net cash from operating activities | 54.7 | 64.0 | |
| Investing activities | |||
| Proceeds on disposal of property, plant and equipment and investment property | 20.0 | 24.8 | |
| Purchases of intangible assets | (2.0) | (5.8) | |
| Purchases of property, plant and equipment and investment property | (44.5) | (27.4) | |
| Acquisition of shares in subsidiaries net of cash acquired | (32.2) | - | |
| Acquisition of shares in joint ventures | (0.2) | - | |
| Interest received | 0.7 | 0.3 | |
| Net cash used in investing activities | (58.2) | (8.1) | |
| Financing activities | |||
| Purchase and cancellation of own shares | (6.5) | - | |
| Purchase of treasury shares by employee share trust | - | (0.4) | |
| Repayment of borrowings | (13.4) | (8.8) | |
| New loans advanced | 38.5 | - | |
| Repayment of obligations under finance leases | (0.8) | (0.7) | |
| Dividends paid to Company shareholders | 6 | (35.2) | (33.9) |
| Net cash used in financing activities | (17.4) | (43.8) | |
| Net (decrease)/increase in cash and cash equivalents in the period | (20.9) | 12.1 | |
| Cash and cash equivalents at the beginning of the period | 19.2 | 6.8 | |
| Exchange differences | (0.5) | 0.3 | |
| Cash and cash equivalents at the end of the period | 7 | (2.2) | 19.2 |
| 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. | |||
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 2008
represents the 53 weeks ended 3 May 2008. The comparative financial year for 2007 was 52 weeks ended 28 April
2007.
The financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority, 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 Acts 1985 and 2006 applicable to companies reporting under IFRS.
The information is derived from the full Group financial statements for the 53 week period to 3 May 2008 and does not constitute full accounts within the meaning of section 240 of the Companies Act 1985 (as amended). 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 237(2) or (3) of the Companies Act 1985 (as amended), will be delivered to the Registrar of Companies in due course and posted to shareholders in July 2008.
The financial information for the 52 weeks to 28 April 2007 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 237(2) or (3) of the Companies Act 1985 (as amended).
The preliminary consolidated financial information for the 53 weeks ended 3 May 2008 was approved by the Directors on 30 June 2008.
Change of accounting policy
In view of the significant capital project relating to the new cutting and distribution centre and in anticipation of the
changes being made to International Accounting Standard 23 the Group has changed its accounting policy and now capitalises interest on qualifying tangible fixed assets. Interest of £0.9m has been capitalised during the period, of which £0.1m related to the prior year. As the adjustment for the prior year is immaterial the comparatives have not been restated.
Foreign exchange rates
Financial assets and liabilities and foreign operations are translated at the following rates of exchange:
| Euro 2008 | Euro 2007 | Zloty 2008 | Zloty 2007 | |
| Average rate | 1.40 | 1.48 | 5.25 | 5.77 |
| Closing rate | 1.28 | 1.47 | 4.42 | 5.54 |
2 Segmental analysis
The Group's primary reporting segment is geographic, as this is the basis on which the Group is both organised and managed. The Group does not report a secondary segment on the basis of business operations because business operations throughout the Group are the same. The geographical sectors are: United Kingdom & Republic of Ireland ("UK & RoI"), and The Netherlands, Belgium, Poland and the joint venture arrangement in Germany ("Rest of Europe"). Central costs are incurred principally in the UK and are immaterial. As such these costs are included within the UK & RoI segment. Segment revenue, expense, result, assets and liabilities include transfers between geographical segments. Such transfers are priced at arm's length and are eliminated on consolidation.
Analysis by geography:
| 53 weeks to 3 May 2008 | 52 weeks to 28 April 2007 | |||||
| UK & RoI | Rest of Europe | Group | UK & RoI | Rest of Europe | Group | |
| £m | £m | £m | £m | £m | £m | |
| Gross Revenue | 456.0 | 68.8 | 524.8 | 421.2 | 57.8 | 479.0 |
| Inter-segment revenue | (3.3) | - | (3.3) | (3.1) | - | (3.1) |
| Segment Revenue (by origin and destination) | 452.7 | 68.8 | 521.5 | 418.1 | 57.8 | 475.9 |
| Gross profit | 284.1 | 39.0 | 323.1 | 258.8 | 32.0 | 290.8 |
| Operating profit before profits/(losses) on property disposals and non-recurring items | 58.0 | 5.4 | 63.4 | 55.6 | 3.9 | 59.5 |
| Segment Result: Operating profit after profits/(losses) on property disposals and non-recurring items | 55.4 | 5.4 | 60.8 | 63.9 | 4.9 | 68.8 |
| Net finance costs payable | (1.3) | (1.8) | ||||
| Profit before tax | 59.5 | 67.0 | ||||
| Tax | (16.7) | (20.7) | ||||
| Profit for the financial period | 42.8 | 46.3 | ||||
| Other segmental items: | ||||||
| Depreciation and amortisation | 13.6 | 3.4 | 17.0 | 10.7 | 2.4 | 13.1 |
| Share-based payments | - | - | - | 0.5 | - | 0.5 |
| Segment Assets: | ||||||
| Gross assets (by origin and destination) (1)(2) | 240.7 | 88.9 | 329.6 | 177.5 | 71.4 | 248.9 |
| Inter-segment balances | (6.2) | - | (6.2) | (2.5) | - | (2.5) |
| Segment assets | 234.5 | 88.9 | 323.4 | 175.0 | 71.4 | 246.4 |
| Unallocated assets | 12.1 | 21.8 | ||||
| Total assets | 335.5 | 268.2 | ||||
| Segment Liabilities: | ||||||
| Gross liabilities (by origin and destination) (1) | 135.8 | 24.8 | 160.6 | 122.8 | 19.2 | 142.0 |
| Inter-segment balances | - | (6.2) | (6.2) | - | (2.5) | (2.5) |
| Segment liabilities | 135.8 | 18.6 | 154.4 | 122.8 | 16.7 | 139.5 |
| Unallocated liabilities | 106.8 | 60.7 | ||||
| Total liabilities | 261.2 | 200.2 | ||||
| Capital Expenditure: | ||||||
| Capital expenditure (by origin and destination) | 38.0 | 8.5 | 46.5 | 30.1 | 3.1 | 33.2 |
(1) Segment assets and liabilities exclude interest-bearing balances and tax assets and liabilities.
(2) Segment assets for Rest of Europe include the equity investment in the German joint venture.
| 3 (Losses)/profits on property disposals and non-recurring items | ||
| 2008 £m | 2007 £m | |
| Disclosed in the income statement: | ||
| Profits on property disposals | 7.0 | 9.3 |
| Pre-opening costs relating to the new cutting and distribution centre | (7.8) | - |
| Post acquisition reorganisation of the Storey's business | (1.8) | - |
| (2.6) | 9.3 | |
| The pre-opening costs relating to the new cutting and distribution centre are the dual running costs incurred in the start-up phase of the new site while the four, now closed, existing centres were also in operation, together with the costs of exiting those four sites. The post acquisition reorganisation costs of the Storeys business are primarily redundancy and other costs arising from the integration of the distribution and support functions into Carpetright. 4 Tax | ||
| (i) Analysis of the charge in the period | ||
| 2008 £m | 2007 £m | |
| UK current tax | 14.9 | 16.1 |
| Overseas current tax | 1.4 | 0.8 |
| Total current tax | 16.3 | 16.9 |
| UK deferred tax | 3.8 | 3.8 |
| Overseas deferred tax | (1.9) | - |
| Adjustments in respect of changes in tax rates | (1.5) | - |
| Total deferred tax | 0.4 | 3.8 |
| Total tax charge in the income statement | 16.7 | 20.7 |
| (ii) Reconciliation of profit before tax to total tax | ||
| 2008 £m | 2007 £m | |
| Profit before tax | 59.5 | 67.0 |
| Tax charge at UK Corporation Tax rate of 29.83% (2007: 30%) | 17.7 | 20.1 |
| Adjusted for the effects of: | ||
| Overseas tax rates | (0.3) | (0.4) |
| Recognition of historic overseas tax losses | (2.3) | - |
| Non-qualifying depreciation | 0.7 | 0.6 |
| Foreign exchange movements on foreign deferred tax | 0.9 | - |
| Other permanent differences | 1.9 | 0.3 |
| Adjustments in respect of changes in tax rates on deferred tax | (1.5) | - |
| Adjustments in respect of prior periods | (0.4) | 0.1 |
| Total tax charge in the income statement | 16.7 | 20.7 |
| Tax of £0.9m has been credited to the income statement (2007: £2.6m charge) in respect of profits/(losses) on property disposals and non-recurring items. The adjustment of £1.5m in respect of the change in the UK Corporation tax rate has been treated as a non-recurring tax credit. | ||
| 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 Equity Trust (Guernsey) Limited 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. | ||
| 2008 | 2007 | ||||||
| Earnings £m | Weighted Average number of shares Million | Earnings per share Pence | Earnings £m | Weighted Average number of shares Million | Earnings per share Pence | ||
| Basic earnings per share | 42.8 | 67.7 | 63.2 | 46.3 | 67.9 | 68.2 | |
| Effect of dilutive share options | 0.1 | 0.2 | - | 0.1 | 0.1 | - | |
| Diluted earnings per share | 42.9 | 67.9 | 63.2 | 46.4 | 68.0 | 68.2 | |
| Reconciliation of earnings per share excluding post tax profit on property disposals and non-recurring items: | |||||||
| 2008 | 2007 | ||||||
| Earnings £m | Weighted Average number of shares Million | Earnings per share Pence | Earnings £m | Weighted Average number of shares Million | Earnings per share Pence | ||
| Basic earnings per share | 42.8 | 67.7 | 63.2 | 46.3 | 67.9 | 68.2 | |
| Adjusted for the effect of profit on property disposals | (7.0) | - | (10.3) | (9.3) | - | (13.7) | |
| Adjusted for the effect of non-recurring items | 9.6 | - | 14.1 | - | - | - | |
| Tax thereon | (0.9) | - | (1.3) | 2.6 | - | 3.8 | |
| Non-recurring tax benefit from the impact of the decrease in UK Corporation Tax rates on the opening deferred tax provision (note 4) | (1.5) | - | (2.2) | - | - | - | |
| Underlying earnings per share | 43.0 | 67.7 | 63.5 | 39.6 | 67.9 | 58.3 | |
| 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 profit on property disposals and non-recurring items and related tax. | |||||||
| 6 Dividends | |||||||
| 2008 | 2007 | ||||||
| Pence per share | £m | Pence per share | £m | ||||
| Prior year final dividend paid | 30.0 | 20.4 | 30.0 | 20.4 | |||
| Current year interim dividend paid | 22.0 | 14.8 | 20.0 | 13.5 | |||
| 52.0 | 35.2 | 50.0 | 33.9 | ||||
| The Directors propose a final dividend of 30.0 pence per share amounting to £20.2m (2007: 30.0 pence per share; £20.4m) which is not included as a liability in these financial statements. Subject to approval by the shareholders at the Annual General Meeting, the proposed dividend will be paid on 26 September 2008 to shareholders who are on the register of members on 12 September 2008. | |||||||
| This would take the 2008 interim and final dividend payments to 52.0 pence amounting to £35.0m (2007: 50.0 pence; £33.9m). | |||||||
| 7 Net debt | ||||||||||||
| Net debt incorporates the Group's borrowings, bank overdrafts and obligations under finance leases, less cash and cash equivalents. | ||||||||||||
| 2007 | 2008 | |||||||||||
| Total £m | Cash flow £m | Acquisitions £m | Exchange differences £m | Revaluation £m | Total £m | |||||||
| Cash and cash equivalents per the balance sheet | 20.7 | (11.8) | - | - | - | 8.9 | ||||||
| Bank overdrafts | (1.5) | (9.1) | - | (0.5) | - | (11.1) | ||||||
| Cash and cash equivalents per the cash flow statement | 19.2 | (20.9) | - | (0.5) | - | (2.2) | ||||||
| Borrowings | ||||||||||||
| Borrowings (current) | (10.7) | (0.6) | - | - | - | (11.3) | ||||||
| Borrowings (non-current) | (11.0) | (24.5) | - | (3.8) | - | (39.3) | ||||||
| Obligation under finance leases | ||||||||||||
| Obligation under finance leases (current) | (0.8) | - | - | - | - | (0.8) | ||||||
| Obligation under finance leases (non-current) | (3.7) | 0.8 | (1.0) | - | - | (3.9) | ||||||
| Derivative financial instruments | 0.1 | - | - | - | (0.1) | - | ||||||
| Net borrowings | (6.9) | (45.2) | (1.0) | (4.3) | (0.1) | (57.5) | ||||||
| 2006 | 2007 | |||||||||||
| Total £m | Cash flow £m | Acquisitions £m | Exchange differences £m | Revaluation £m | Total £m | |||||||
| Cash and cash equivalents per the balance sheet | 9.3 | 11.3 | - | 0.1 | - | 20.7 | ||||||
| Bank overdrafts | (2.5) | 0.8 | - | 0.2 | - | (1.5) | ||||||
| Cash and cash equivalents per the cash flow statement | 6.8 | 12.1 | - | 0.3 | - | 19.2 | ||||||
| Borrowings | ||||||||||||
| Borrowings (current) | (10.8) | 0.1 | - | - | - | (10.7) | ||||||
| Borrowings (non-current) | (20.0) | 8.7 | - | 0.3 | - | (11.0) | ||||||
| Obligation under finance leases | ||||||||||||
| Obligation under finance leases (current) | (0.8) | - | - | - | - | (0.8) | ||||||
| Obligation under finance leases (non-current) | (4.4) | 0.7 | - | - | - | (3.7) | ||||||
| Derivative financial instruments | 0.1 | - | - | - | - | 0.1 | ||||||
| Net borrowings | (29.1) | 21.6 | - | 0.6 | - | (6.9) | ||||||
8 Total Equity
| Note | Share capital £m | Share premium £m | Treasury Shares £m | Other reserves £m | Total £m | |
| At 29 April 2006 | 0.7 | 14.8 | (0.1) | 40.6 | 56.0 | |
| Actuarial loss on defined benefit pension scheme | - | - | - | (0.3) | (0.3) | |
| Exchange difference in respect of hedged equity investments | - | - | - | (0.3) | (0.3) | |
| Tax on items taken directly to or transferred from equity | - | - | - | 0.1 | 0.1 | |
| Profit for the financial period | - | - | - | 46.3 | 46.3 | |
| Total recognised income and expense for the financial period | - | - | - | 45.8 | 45.8 | |
| Purchase of own shares by employee share trust | - | - | (0.4) | - | (0.4) | |
| Share based payments net of tax | - | - | - | 0.5 | 0.5 | |
| Dividend paid to parent company shareholders | 6 | - | - | - | (33.9) | (33.9) |
| At 28 April 2007 | 0.7 | 14.8 | (0.5) | 53.0 | 68.0 | |
| Actuarial gain on defined benefit pension scheme | - | - | - | 0.5 | 0.5 | |
| Exchange difference in respect of hedged equity investments | - | - | - | 4.4 | 4.4 | |
| Tax on items taken directly to or transferred from equity | - | - | - | (0.1) | (0.1) | |
| Fair value losses in respect of cash flow hedges | - | - | - | (0.2) | (0.2) | |
| Profit for the financial period | - | - | - | 42.8 | 42.8 | |
| Total recognised income and expense for the financial period | - | - | - | 47.4 | 47.4 | |
| Transfer of Treasury shares to participants | - | - | 0.3 | (0.3) | - | |
| Purchase and cancellation of own shares | - | - | - | (6.5) | (6.5) | |
| Issue of ordinary shares on acquisition of Storey Carpets Ltd | - | 0.5 | - | - | 0.5 | |
| Issue of ordinary share capital to satisfy share option scheme exercises | - | 0.1 | - | - | 0.1 | |
| Dividend paid to parent company shareholders | 6 | - | - | - | (35.2) | (35.2) |
| At 3 May 2008 | 0.7 | 15.4 | (0.2) | 58.4 | 74.3 | |
| 9 Acquisition of subsidiaries On 1 May 2007, the Group acquired 100% of the issued share capital of Storey Carpets Ltd (Storeys). The initial consideration paid comprised £18.0m cash and £0.5m of shares in Carpetright plc. Deferred consideration of £0.7m was payable on 5 May 2008. Storeys principal activity is the retailing of carpet and other floor coverings. The transaction has been accounted for in accordance with IFRS3 Business Combinations. |
| Brand values were assessed as part of the acquisition fair value but were immaterial. No brand value has been recognised in the cost of the investment. |
| From the date of acquisition to 3 May 2008, the acquisition contributed £29.8m to revenue, £1.3m to profit before tax and £2.0m in cash flow. There is no material difference between the amounts included in these accounts and the amount that would have been recognised had the acquisition been made at the start of the financial year. |
| Details of net assets acquired and goodwill are as follows: | |
| £m | |
| Purchase consideration: | |
| Cash paid | 18.0 |
| Deferred consideration | 0.7 |
| Value of shares issued | 0.5 |
| Direct costs relating to the acquisition | 0.5 |
| Total purchase consideration | 19.7 |
| Fair value of net identifiable assets acquired | (4.4) |
| Goodwill | 15.3 |
The goodwill is attributable to the significant synergies expected to arise after acquisition by the Group.
Part of the consideration for the acquisition comprised 47,529 shares in Carpetright plc with a value of £0.5m. The number of shares issued was determined using the market price of the shares on the date the acquisition was concluded.
The assets and liabilities arising from the acquisition together with their fair values are as follows:
| Acquiree's carrying amount before business combination £m | Accounting policy alignment £m | Fair value adjustments £m | Fair Value £m | |
| Net assets acquired: | ||||
| Property, plant and equipment | 3.0 | - | 3.5 | 6.5 |
| Inventories | 3.3 | - | (0.4) | 2.9 |
| Trade and other receivables | 2.9 | (0.6) | (0.1) | 2.2 |
| Cash and cash equivalents | 1.4 | - | - | 1.4 |
| Trade and other payables | (6.8) | - | (0.4) | (7.2) |
| Tax assets | 0.2 | - | - | 0.2 |
| Deferred tax liabilities | - | - | (0.7) | (0.7) |
| Other provisions | - | - | (0.9) | (0.9) |
| Net identifiable assets acquired | 4.0 | (0.6) | 1.0 | 4.4 |
| Outflow of cash to acquire business, net of cash acquired | |
| £m | |
| Total purchase consideration | 19.7 |
| Satisfied by the issue of shares | (0.5) |
| Deferred consideration | (0.7) |
| Cash and cash equivalents acquired | (1.4) |
| Cash flow on acquisition of shares in subsidiary net of cash acquired | 17.1 |
On 31 March 2008, the Group acquired 100% of the issued share capital of Melford Commercial Properties Ltd.
The initial consideration paid comprised £7.2m cash, subject to a working capital adjustment which is anticipated to return £0.6m. The principal activity of the Group acquired is the retailing of carpet and other floor coverings. The transaction has been accounted for in accordance with IFRS 3 Business Combinations.
Brand values were assessed as part of the acquisition fair value but were immaterial. No brand value has been
recognised in the cost of the investment.
From the date of acquisition to 3 May 2008, the acquisition contributed £0.3m to turnover, £0.2m loss before tax
and £nil in the cash flow. Had the acquisition been made at the start of the financial year the amounts included in these accounts would have been £11.6m in turnover, £2.4m in loss before tax and £1.2m cash outflow.
Provisional details of net assets acquired and goodwill are as follows:
| £m | |
| Purchase consideration: | |
| Cash paid | 7.2 |
| Net asset adjustment to be received | (0.6) |
| Direct costs relating to the acquisition | 0.6 |
| Total purchase consideration | 7.2 |
| Provisional fair value of net identifiable assets acquired | (0.6) |
| Goodwill | 6.6 |
The goodwill is attributable to the significant synergies expected to arise after acquisition by the Group.
The assets and liabilities arising from the acquisition together with their provisional fair values are as follows:
| Acquiree's carrying amount before business combination £m | Accounting Policy Alignment £m | Fair value Adjustments £m | Fair Value £m | |
| Net assets acquired: | ||||
| Property, plant and equipment | 12.8 | - | - | 12.8 |
| Inventories | 0.8 | - | - | 0.8 |
| Trade and other receivables | 0.4 | - | - | 0.4 |
| Trade and other payables | (2.0) | - | - | (2.0) |
| Tax liability | (0.4) | - | - | (0.4) |
| Bank loans and overdrafts | (7.8) | - | - | (7.8) |
| Finance leases | - | (1.0) | - | (1.0) |
| Deferred tax asset/(liability) | 0.5 | (2.2) | (0.5) | (2.2) |
| Net identifiable assets acquired | 4.3 | (3.2) | (0.5) | 0.6 |
| Outflow of cash to acquire business net of borrowings repaid | ||||
| £m | ||||
| Total purchase consideration | 7.2 | |||
| Accrued acquisition costs | (0.4) | |||
| Net asset adjustment to be received | 0.6 | |||
| Bank loans and overdrafts repaid | 7.7 | |||
| Cash flow on acquisition of shares in subsidiary net of borrowings repaid | 15.1 | |||
10 Events after the balance sheet date
On 1 April 2008 the Group announced that its subsidiary in The Netherlands had agreed to purchase the trade and assets of Ben de Graaff Tapijt a retailer of floor coverings and curtains/blinds based in the south of The Netherlands. The purchase completed on 30 June 2008 for an initial consideration of €4.0m with a further €3.8m, subject to working capital values, payable on 1 October 2008.
As information only became available to us the day these financial statements were approved we are unable to provide the full disclosures required under IFRS 3. Full details will be provided in the 2008/9 interim statement.