29 Jul 2009 07:00
UNITED CARPETS GROUP plc
Preliminary Results for the year ended 31 March 2009
United Carpets Group plc ("the Group" or "the Company" or "United Carpets"), the third largest chain of specialist retail carpet and floor covering stores in the UK, today announces its preliminary results for the year ended 31 March 2009.
Highlights
o Flooring up 0.5% o Beds up 9.2%
.
Paul Eyre, Chief Executive, said:
'We are pleased to be able to report on a solid trading performance, in what are very challenging market conditions. We continue to benefit from our focus on offering good quality products at affordable prices and the advantages of operating a franchise structure. The majority of United Carpets stores are run by the owner and are therefore highly focused on succeeding. Reflecting the resilience of our retail model, like for like sales remained positive which compares favourably to the wider retail market. Entering the current year we are trading in line with expectations, however, we expect market conditions to continue to be tough.'
Enquiries:
| United Carpets Group plc Paul Eyre, Chief Executive Ian Bowness, Finance Director Cardew Group Tim Robertson Jamie Milton | 01709 732 666 020 7930 0777 |
| Seymour Pierce Jonathan Wright | 020 7107 8000 |
Chairman's statement
As with many retailers, this has been an extremely challenging trading period and the outlook remains equally tough. I am therefore pleased to be able to announce that the Group delivered a solid trading performance for the year. Revenues increased to £26.79m and profit before tax and exceptional items, although down on the previous year, was slightly ahead of expectations at £1.36m. The business has expanded during the period, with the addition of a further 15 stores and we are focused on ensuring they can make a positive contribution to the Group as swiftly as possible. While the trading environment is difficult, with customers extremely price sensitive, we believe the United Carpets franchise model combined with our retail focus on the value segment of the market means the Group remains well positioned to trade through this period and is well placed to take advantage of any improvement in market conditions.
Financial review
Revenue, which as in previous years includes marketing and rental costs incurred by the Group and recharged to franchisees, increased by 26.5% to £26.79m (2008: £21.17m), with the increase in revenues largely attributable to the increase in the number of corporate stores from which the Group receives 100% of revenues. Network sales across the Group, including the value of retail sales by our franchisees (to give a measure of the Group's turnover on a more comparable basis to a conventional retailer), increased 10.1% to £65.1m (2008: £59.1m).
Like for like sales across the whole of the network were up 1.2% compared to the previous year. This is a creditable performance when compared with like for like figures from the wider retail sector. Given United Carpets' franchise structure, like for like sales are not the best measure of the Group's financial performance but they do provide a good steer on the overall trading performance. Within the like for like sales performance, the core floor coverings business achieved a 0.5% like for like increase on the previous year whilst bed like for like sales increased by 9.2%, a particularly pleasing result for the beds division as this has been a significant area of management focus.
The increase in new corporate stores has changed the business mix and this is reflected in the gross margin which reduced from 68.5% to 64.0% reflecting the reduction in the proportion of franchise related income to total revenue as corporate stores turnover, beds and trade sales accounted for a greater proportion of revenue.
Distribution costs include staff costs at the corporate stores and the increase of 32.6% arises from the increase in corporate stores numbers in the period in comparison to the previous year. Administrative expenses, before exceptional items, include the occupancy costs and depreciation of corporate stores and the increase of 19.6% arises from the increase in corporate store numbers and increased marketing expenditure during the year.
At 31 March 2009, an impairment provision of £0.20m has been made against properties, plant and equipment in loss making stores where it is considered that the performance of the store is unlikely to improve significantly in the foreseeable future. In addition, a provision of £0.57m has been made in respect of those loss making stores where the lease is considered to be onerous. Whilst these charges impact on the Group's reported profit before tax they do not involve any additional cash outlay to the Group.
A key operational focus is to continue the process of franchising existing corporate stores which will have a positive impact as the Group recoups its original investment.
Profit before tax and exceptional items was £1.36m (2008 £1.73m). Earnings per share were 0.40p (2008: 1.15p).
The balance sheet continues to be robust with net funds of £1.73m at the year end.
Dividend
Reflecting the Board's confidence in the future trading performance of the Company, it is recommending a final dividend of 0.50p per share (2008: 0.55p). There was no interim dividend (2008: 0.275p). Subject to approval at the Annual General Meeting, the final dividend will be paid on 4 December 2009 to those shareholders whose names are on the register on 6 November 2009.
Operations review
At the year end, the Group had 80 United Carpets branded stores across its core areas of operation in Northern and Central England, up from 65 stores at the beginning of the financial year. With the exception of 23 corporate stores, the remainder were all franchises operating under the United Carpets' bespoke franchise model, which aims to combine the advantages of a multiple retailer with the entrepreneurial drive of an independent. We continue to believe the combination of our franchise model together with our focus on quality products at affordable prices is well suited to all market conditions and that, in these more challenging times, we benefit from more customers seeking value and the drive of our entrepreneurial franchise teams to succeed.
Marketing is coordinated at Group level in order to maximise brand value and the related costs are recharged to individual franchises, however, as in the previous year, the Group subsidised marketing costs to assist the stores during this more challenging period. During the year, the Group carried out television advertising in targeted areas where it has sufficient critical mass to generate a good return. Increased store densities in the North West and Midlands television regions led to an increase in television advertising in those regions. At the same time we continue to use radio, print and direct advertising strategies to increase brand awareness and drive sales across the Group.
We continue to seek increased returns from existing stores through the spread of best practice throughout the Group. This is implemented through training courses for our brand managers, franchisees and all store staff and biannual franchisee conferences.
Franchising
Under our strategy to accelerate the store expansion programme, over the last 18 months the Group has taken on new sites initially as corporate stores and sought to match franchisees for these stores over time. This was a change from the past where the Group sought to match new stores with franchisees from the outset. As a result, the company has 23 corporate stores at the year end up from 18 at the end of the previous year. The Group is now switching its focus to integrating the corporate stores into its franchise model whilst slowing the pace of new store openings.
The Group started the year with 47 franchised stores and, during the period, added 4 new franchised stores in Melton Mowbray, Blackpool, Brigg and Liverpool (Hunts Cross). In addition, we converted 9 franchisee stores back into corporate stores, due to underperformance, but successfully refranchised all but one of them. An additional 7 corporate stores were also franchised, giving us 57 franchised stores at the period end. Since the period end, we have converted 1 franchised store back into a corporate store and successfully refranchised it and franchised a further 5 corporate stores giving us 62 franchisees currently. We have in place a good pipeline of franchisees currently negotiating to take on new or existing corporate stores and we expect around 5 of these to complete during the remainder of the first half of the current financial year.
Flooring
The majority of Group revenues are derived from the sale of floor coverings, predominantly carpet, laminate and vinyl flooring through franchised stores and the Group's own corporate stores. Trading from this division was resilient with positive like for like sales of 0.5% recorded over the period, a creditable performance in this market.
Having started the year with 18 corporate stores, 11 new corporate stores opened during the period in Wigan, Manchester (Failsworth), Kidderminster, Birmingham (Hall Green), West Bromwich, Manchester (Gorton), Wednesbury, Little Hulton, Birmingham (Kingstanding), Shrewsbury and Runcorn. Nine franchised stores were taken back into the corporate arm and a total of 15 corporate stores were franchised during the year leaving us with 23 corporate stores at the period end. Around 5 of the 23 corporate stores are considered to be core, to be retained to enable ongoing training and product development, with the Group seeking to franchise as many as possible of the remainder with quality candidates. Since the year end, we have successfully franchised 5 corporate stores giving us a total of 18 corporate stores currently.
Whilst store numbers and revenues have increased significantly in comparison to the previous year, the tougher economic climate has meant that it is taking longer for new stores to become established in the market. Furthermore, although we have demonstrated a capability to take back underperforming franchised stores and turn them around under the corporate arm, this inevitably takes time and adversely affects profit until performance has improved.
In the first 16 weeks since the year end, like for like sales are down 4.0%, against relatively tough comparatives and while this is disappointing it represents above average performance for our sector.
Beds
The Beds division delivered a 9.2% increase in like for like sales, a trading performance that is particularly pleasing as this has been an area of significant management focus. For some time there has been a section of the store portfolio where bed sales have been strong and the management target has been to extend this performance across the network. A smaller range of beds was introduced during the second half of the year and this has simplified the sales process and contributed to increased sales.
This trend has continued in the first 16 weeks of the new financial year and, whilst it has eased a little in the last few weeks, it remains a very creditable 8.2% like for like increase.
Trade sales
The Group has invested in developing its own in-house cutting operation for flooring providing improvements in efficiency and service to the store network. Begun just over a year ago, the service is still relatively new and the management team expect it can contribute further benefits to the Group as utilisation and economies of scale increase.
People
Over 400 people work under the United Carpet's brand and their collective contribution during this challenging time has been excellent. On behalf of the Board I would like to thank all employees, franchisees and supplier partners across the network for their hard work and continued dedication. We look forward to continuing to work together to grow the business and the reputation of the brand amongst our target customers during 2009 and beyond.
Outlook
While overall trading since the year end has been negative, with like for like sales in the first 16 weeks down by 2.8%, this is not unexpected given the market environment and relatively tough comparisons to the previous year. Under our strategy for this financial year, we will open fewer new stores and we expect to generate an increase in revenue from new franchisee fees as we convert corporate stores into franchised stores. As you would expect we are watching closely the events unfolding relating to Allied Carpets, currently the second largest operator in our marketplace. This may result in reduced competition and add to our pipeline of experienced franchisee candidates. It also serves to underline the severity of the current recession. We believe market conditions will continue to be difficult for some time, however, we believe our retail offer is more resilient compared to higher priced retailers and that our franchise structure ensures we have a team which is highly motivated to succeed.
Peter Cowgill
Chairman
Preliminary announcement of results for the year ended 31 March 2009
Consolidated income statement
| Note | Results before exceptional items | Exceptional items | 2009 | Results before exceptional items | Exceptional items | 2008 | ||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
| Revenue | 26,792 | - | 26,792 | 21,166 | - | 21,166 | ||||||
| Cost of sales | (9,658) | - | (9,658) | (6,664) | - | (6,664) | ||||||
| Gross profit | 17,134 | - | 17,134 | 14,502 | - | 14,502 | ||||||
| Distribution costs | (2,898) | - | (2,898) | (2,185) | - | (2,185) | ||||||
| Administrative expenses | 2 | (13,065) | (769) | (13,834) | (10,922) | (220) | (11,142) | |||||
| Other operating income | 119 | - | 119 | 183 | - | 183 | ||||||
| Profit on disposal of fixed assets | 4 | - | 4 | 10 | 10 | |||||||
| Operating profit before financing costs | 1,294 | (769) | 525 | 1,588 | (220) | 1,368 | ||||||
| Financial income | 73 | - | 73 | 145 | - | 145 | ||||||
| Financial expenses | (3) | - | (3) | (2) | - | (2) | ||||||
| Profit before tax | 1,364 | (769) | 595 | 1,731 | (220) | 1,511 | ||||||
| Income tax expense | 4 | (271) | (572) | |||||||||
| Profit for the year | 7 | 324 | 939 | |||||||||
| Earnings per share | 5 | |||||||||||
| - Basic | 0.40p | 1.15p | ||||||||||
| - Diluted | 0.40p | 1.14p | ||||||||||
All amounts are attributable to the equity holders of the parent, and all arise from continuing activities. No amounts were recognised directly in equity, and therefore no separate statement of recognised income and expense has been presented.
Preliminary announcement of results for the year ended 31 March 2009
Consolidated balance sheet
| Note | 2009 | 2008 | |||
| £'000 | £'000 | ||||
| Non-current assets | |||||
| Properties, plant and equipment | 5,455 | 4,317 | |||
| 5,455 | 4,317 | ||||
| Current assets | |||||
| Inventories | 2,763 | 2,347 | |||
| Trade and other receivables | 2,766 | 3,238 | |||
| Cash and cash equivalents | 1,848 | 1,448 | |||
| 7,377 | 7,033 | ||||
| Total assets | 12,832 | 11,350 | |||
| Equity | |||||
| Issued capital | 7 | 4,070 | 4,070 | ||
| Share premium | 7 | 1,106 | 1,106 | ||
| Reserves | 7 | (2,699) | (2,789) | ||
| Retained earnings | 7 | 2,446 | 2,570 | ||
| Total shareholders' equity | 4,923 | 4,957 | |||
| Non-current liabilities | |||||
| Financial liabilities - borrowings | 76 | 83 | |||
| Trade and other payables | 1,826 | 1,514 | |||
| Provisions | 591 | 22 | |||
| Deferred tax liabilities | 126 | 234 | |||
| 2,619 | 1,853 | ||||
| Current liabilities | |||||
| Financial liabilities - borrowings | 39 | 30 | |||
| Trade and other payables | 5,011 | 4,256 | |||
| Current tax liabilities | 240 | 254 | |||
| 5,290 | 4,540 | ||||
| Total liabilities | 7,909 | 6,393 | |||
| Total equity and liabilities | 12,832 | 11,350 | |||
Preliminary announcement of results for the year ended 31 March 2009
Consolidated cash flow statement
| Note | 2009 | 2008 | |||
| £'000 | £'000 | ||||
| Cash flows from operating activities | |||||
| Cash generated from operations | 8 | 3,341 | 1,228 | ||
| Interest paid | (3) | (2) | |||
| Income tax paid | (393) | (249) | |||
| Net cash from operating activities | 2,945 | 977 | |||
| Cash flows from investing activities | |||||
| Proceeds from sale of properties, plant and equipment | 4 | 129 | |||
| Interest received | 73 | 145 | |||
| Acquisition of properties, plant and equipment | (2,141) | (1,188) | |||
| Net cash from investing activities | (2,064) | (914) | |||
| Cash flows from financing activities | |||||
| Payment of finance lease liabilities | (33) | (18) | |||
| Dividends paid | (448) | (631) | |||
| Net cash from financing activities | (481) | (649) | |||
| Net increase/(decrease) in cash and cash equivalents | 400 | (586) | |||
| Cash and cash equivalents at the start of the year | 1,448 | 2,034 | |||
| Cash and cash equivalents at the end of the year | 9 | 1,848 | 1,448 | ||
Preliminary announcement of results for the year ended 31 March 2009
Notes to the preliminary announcement
2. Exceptional items
| 2009 | 2008 | |||
| £'000 | £'000 | |||
| Impairment of properties, plant and equipment | 200 | - | ||
| Impairment of intangible assets | - | 220 | ||
| Provision against onerous leases | 569 | - | ||
| 769 | 220 | |||
Exceptional items in administrative expenses in the year ended 31 March 2009 relate to certain loss making stores and include an impairment where the directors consider that the fair value of the related fixed assets less the costs to sell those assets is lower than their net book value. Where there is an onerous lease on such stores this has also been provided as an exceptional item.
During the prior year an impairment provision was made against goodwill as an exceptional item in administrative expenses.
Preliminary announcement of results for the year ended 31 March 2009
Notes to the preliminary announcement (continued)
Segment information is presented in respect of the Group's business segments, which are the primary basis of segment reporting. The business segment reporting format reflects the Group's management and internal reporting structure.
Inter segment pricing is determined on an arm's length basis.
Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
For the year ended 31 March 2009
| Franchising | Flooring | Beds | Trade Sales | Consolidated | ||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Segment revenue | 9,172 ____ | 8,540 ____ | 10,348 ____ | 7,470 ____ | 4,439 ____ | 3,523 ____ | 2,833 ____ | 1,633 ____ | 26,792 ____ | 21,166 ____ |
| Segment results | 1,227 ____ | 2,234 ____ | (162) ____ | (62) ____ | 394 ____ | 353 ____ | 55 ____ | 74 ____ | 1,514 | 2,599 |
| Unallocated expenses | (989) ____ | (1,231) ____ | ||||||||
| Operating profit | 525 | 1,368 | ||||||||
| Net financing costs | 70 | 143 | ||||||||
| Income tax expense | (271) ____ | (572) ____ | ||||||||
| Profit for the year | 324 _____ | 939 _____ | ||||||||
Preliminary announcement of results for the year ended 31 March 2009
Notes to the preliminary announcement (continued)
Analysis of charge in the year:
| 2009 | 2008 | |||
| £'000 | £'000 | |||
| Current tax: | ||||
| UK corporation tax | 353 | 525 | ||
| Adjustments in respect of prior years | 26 | (30) | ||
| 379 | 495 | |||
| Deferred tax: | ||||
| (Release)/charge for the year | (108) | 77 | ||
| Tax on profit on ordinary activities | 271 | 572 | ||
The tax assessed on ordinary activities for the year differs to the standard rate of corporation tax in the UK of 28% (2008: 30%).
| 2009 | 2008 | ||
| £'000 | £'000 | ||
| Profit before tax | 595 | 1,511 | |
| Profit by rate of tax | 167 | 453 | |
| Effects of: | |||
| Expenses not deductible for tax purposes | 34 | 107 | |
| Non qualifying depreciation | 79 | 51 | |
| Marginal relief | (9) | (9) | |
| Adjustment to tax charge in respect of previous years | - | (30) | |
| Total tax | 271 | 572 |
Preliminary announcement of results for the year ended 31 March 2009
Notes to the preliminary announcement (continued)
Weighted average number of ordinary shares (diluted)
| 2009 | 2008 | ||
| £'000 | £'000 | ||
| For the year ended 31 March 2009 | |||
| Weighted average number of ordinary shares at 31 March | 81,400,000 | 81,400,000 | |
| Effect of share options in issue | - | 1,244,756 | |
| Weighted average number of ordinary shares (diluted) at 31 March | 81,400,000 | 82,644,756 |
Dividends on equity shares:
| 2009 | 2008 | ||
| £'000 | £'000 | ||
| Dividends paid during the year on ordinary shares | 448 | 631 |
Preliminary announcement of results for the year ended 31 March 2009
Notes to the preliminary announcement (continued)
7. Capital and reserves
Share capital and share premium
The Group recorded the following amounts within shareholder's equity as a result of the issuance of ordinary shares.
| Share Capital | |||
| 2009 | 2008 | ||
| £'000 | £'000 | ||
|
81,400,000 ordinary shares of 5 pence each | 4,070 | 4,070 | |
| | Share Premium | ||
| | 2009 | | 2008 |
| | £’000 | | £’000 |
| | 1,106 | | 1,106 |
Reserves
| Merger reserve | Share-based payment reserve | Total | |||
| £'000 | £'000 | £'000 | |||
| At 1 April 2008 | (3,110) | 321 | (2,789) | ||
| Charge for the year | - | 90 | 90 | ||
| At 31 March 2009 | (3,110) | 411 | (2,699) |
The merger reserve is the difference between the nominal value of shares issued in order to acquire the merged entities and the share capital and share premium account of the merged entities.
Preliminary announcement of results for the year ended 31 March 2009
Notes to the preliminary announcement (continued)
7. Capital and reserves (continued)
| Retained earnings | |
| £'000 | |
| At 1 April 2008 | 2,570 |
| Profit for the year | 324 |
| Dividends paid | (448) |
| At 31 March 2009 | 2,446 |
8. Reconciliation of operating profit to net cash inflow from operating activities
| 2009 | 2008 | ||
| £'000 | £'000 | ||
| Operating profit | 525 | 1,368 | |
| Profit on disposal of fixed assets | (4) | (10) | |
| Depreciation | 838 | 691 | |
| Impairment of properties, plant and equipment | 200 | - | |
| Provision against onerous leases | 569 | - | |
| Impairment of goodwill | - | 220 | |
| Share-based payments | 90 | 132 | |
| Increase in inventories | (416) | (667) | |
| Decrease/(increase) in trade and other receivables | 472 | (1,050) | |
| Increase in trade and other payables | 1,067 | 617 | |
| Decrease in provisions | - | (73) | |
| 3,341 | 1,228 |
Preliminary announcement of results for the year ended 31 March 2009
Notes to the preliminary announcement (continued)
9. Analysis of changes in net funds
| 2008 | Cashflow | Non-cash movements | 2009 | ||||
| £'000 | £'000 | £ '000 | £ '000 | ||||
| Bank and cash | 1,448 | 400 | - | 1,848 | |||
| Hire purchase contracts: | |||||||
| Due within one year | (30) | 33 | (42) | (39) | |||
| Due after more than one year | (83) | - | 7 | (76) | |||
| Net funds | 1,335 | 433 | (35) | 1,733 | |||
10. Reconciliation of net cash flow to movement in net funds
| 2009 | 2008 | |||
| £'000 | £'000 | |||
| Increase/(decrease) in cash in the year | 400 | (586) | ||
| Cash outflow from hire purchase financing | 33 | 18 | ||
| Assets acquired under hire purchase agreements | (35) | (121) | ||
| Change in net funds resulting from cashflows | 398 | (689) | ||
| Net funds at start of year | 1,335 | 2,024 | ||
| Net funds at end of year | 1,733 | 1,335 |