UCG.L Regulatory News (UCG)

UNITED CARPETS GROUP plc

Preliminary Results for the year ended 31 March 2014

United Carpets Group plc ("the Group" or "the Company" or "United Carpets"), the second largest chain of specialist retail carpet and floor covering stores in the UK, today announces its preliminary results for the year ended 31 March 2014.

Highlights

· Network sales were £55.7m (6 months ended 31 March 2013*: £29.0m)

· Like for like sales increased by 2.2%**

· Revenue for the year ended 31 March 2014 was £21.1m (6 months ended 31 March 2013: £11.3m)

· Profit before tax was £0.94m (6 months ended 31 March 2013: £0.25m)

· As a result of increased profit before tax and a prior period tax credit, earnings per share were 1.39p (6 months ended 31 March 2013: 0.19p)

· Further closures of underperforming stores mean store numbers decreased by 5 to 59

· Cash and cash equivalents increased to £1.68m (31 March 2013: £0.93m)

*As a result of the change in the year end to 31 March, prior period comparatives are for the 6 months ended 31 March 2013

**Network sales and like for like sales are defined under Financial Review

Paul Eyre, Chief Executive, said:

"We are pleased to be announcing a good uplift in profitability, helped by an increase in like for like sales as consumer confidence increases slightly and the housing market also improves.

This trading performance also reflects the benefits of the management actions taken two years ago to reduce significantly the size of the store portfolio, removing the majority of underperforming stores, re-focusing the business on a core network of stores and giving the Company a stronger financial base from which to operate."

Enquiries:

Chairman's statement

I am pleased to present these results which show a significant improvement in Group profitability reflecting the fact that the Company's restructuring has largely been successfully completed and it is no longer held back by a significant tail of weaker stores which historically have impacted heavily on profit margins and demanded a disproportionate amount of management time.

Today, the network of stores totals 57, down from over 80 stores two years ago, of which 46 are franchised and 11 are run as corporate stores. The Group recorded a 2.2% increase in like for like sales performance for the year which was, in our view, a satisfactory performance.

The UK market has been better and continues to show signs that it is recovering although we believe the market remains fragile with a number of hurdles still to come such as increases in interest rates which are expected in the not too distant future. We are therefore looking to continue to develop the business whilst endeavouring to ensure that it does not become over extended.

This report covers the year to 31 March 2014, however, the prior reporting period was for the 6 months to 31 March 2013.

Financial review

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), were £55.7m. Revenue, which as in previous years includes marketing and rental costs incurred by the Group and recharged to franchisees, was £21.1m.

Like for like sales across the whole of the network (based on stores that have traded throughout both the period under review and the corresponding period in the prior year and thus excluding stores that closed during either period) were up 2.2%. This was a good indicator that sentiment improved slightly during the year and that the Group's customer proposition remains attractive.

Gross margin has reduced from 62.7% to 61.7% during the year. The conversion to the new Beds sales process was largely completed during the second half of the year, and whilst this results in a reduction in Beds gross margin this is offset, to some extent, by reduced commission payments to franchisees within distribution costs. The impact on gross margin has also been partially offset by the increased proportion of franchise related income to total revenue as corporate store turnover and Beds sales accounted for a smaller proportion of revenue during the year, due to the reduction in the average number of corporate stores and the change in the Beds sales process.

Distribution costs and administrative expenses include rent, rates and staff costs at the corporate stores. Distribution costs and administrative expenses excluding exceptional items have reduced from 63.9% of revenue to 58.1% reflecting the reduction in the scale of the business and realignment of central costs to support a more streamlined business.

Profit before tax and exceptional items was £0.94m. As a result of increased profit before tax and the deferred tax asset arising in connection with the acquisition of the trade from United Carpets (Northern) Ltd in October 2012, basic earnings per share improved to 1.39p (6 months ended 31 March 2013: 0.19p).

The balance sheet included net funds of £1.68m at 31 March 2014 (31 March 2013: £0.93m).

Dividend

The Board is not recommending a dividend due to the lack of available distributable reserves. The Board is proposing to undertake a formal capital reduction which will convert some of the existing share capital and the share premium reserve into distributable reserves enabling dividend payments to be reconsidered later in the calendar year. I will be writing to shareholders shortly, giving full details of the capital reduction process and notice of the general meeting that will be held to consider the Board's proposals.

Chairman's statement (continued)

Operations review

At the start of the period under review the Group operated 64 stores of which 52 were franchised and 12 were corporate stores. At 31 March 2014, there were 59 stores of which 48 were franchised and 11 were corporate stores. Since then one franchised store and one corporate store have closed, one has been taken back as a corporate store and franchisees have changed in two other stores, so that today the Group operates 57 stores.

The Company expects, over the course of the current financial year, to close a small number of further stores which are either underperforming or where the Company has been unable to negotiate a satisfactory new lease agreement with landlords. Of the 57 stores currently trading, leases are either in place or agreed in principle pending legal completion for 52 with the remaining stores being occupied under short term tenancies. There has been a material improvement to the Group and its franchisees in renegotiated lease agreements, either through rent reductions, improved break clauses or the elimination of significant, potential, historic dilapidation commitments or from a combination of all of these factors.

With the restructuring largely completed, the management team has been able to focus again on developing the business, refining the customer offer and driving sales and is exploring limited trials of smaller store formats.

Refining the customer offer remains a constant focus for the operational team. A key point of differentiation for the Group is the ability to offer customers a very broad range of good quality flooring at highly attractive price points. Independent operators find it difficult to match the range or prices offered by the Group and we believe our pricing compares very favourably with our larger peer group too. We continue to advertise the United Carpets brand across a range of outlets from TV to radio, adapting the shape of the advertising programme in line with the geographic changes in our portfolio of stores. Within our target markets, the United Carpets brand is well known and well respected for delivering great value for money.

Franchising and Retail

Floor coverings are the Group's primary driver of sales (predominantly carpet, laminate and vinyl flooring) through both franchised stores and the Group's own corporate stores. As demonstrated by the trading performance, the market environment has improved albeit from a low base. Employment levels have increased ahead of expectations and so has the housing market, with transaction levels up on the previous year. That said, the market remains fragile with consumers still cautious and events on the horizon, such as interest rate rises, yet to make an impact.

On a like for like basis, sales of Flooring have eased a little to 2.2% down for the 16 weeks since the period end to 17 July 2014. Sales of Beds were 3.6% down on a like for like basis over the same period.

Warehousing

Our in-house cutting operation continues to support the whole network and a small number of third parties, providing a quick, efficient cutting and delivery service enabling attractive retail price points with good margins.

Property

The property division leases properties from third parties and sublets those properties to the store network.

People

The Board believes the Company is fortunate to have such a strong team working within the Company and would like to express its gratitude to all employees and stakeholders who continue to support the business, for their hard work and continued commitment to the Company.

Chairman's statement (continued)

Outlook

Our base is stronger. We have removed the majority of the weaker stores from our portfolio, we have no debt and an improving balance sheet. Consumer demand has shown some signs of improving although the second quarter of the calendar year appears to have softened a little compared to the first quarter as shown by our sales in the first 16 weeks of the current year which, in total, are 2.3% down on a like for like basis. Trading has been a little patchy but we believe the overall picture is generally moving forward, underpinned by higher levels of employment and a more active housing market.

Peter Cowgill

Chairman

Preliminary announcement of results for the year ended 31 March 2014

Consolidated statement of profit or loss and other comprehensive income

Preliminary announcement of results for the year ended 31 March 2014

Consolidated statement of financial position

Preliminary announcement of results for the year ended 31 March 2014

Consolidated statement of changes in equity

Preliminary announcement of results for the year ended 31 March 2014

Consolidated statement of cash flows

Preliminary announcement of results for the year ended 31 March 2014

Notes to the preliminary announcement

1. Basis of preparation

The financial information contained in this unaudited preliminary announcement does not constitute accounts as defined by section 434 of the Companies Act 2006. The financial information for the 6 month period ended 31 March 2013 is derived from the statutory accounts for that period which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The statutory accounts for the year ended 31 March 2014 will be finalised based on the information in this unaudited preliminary announcement and will be delivered to the Registrar of Companies in due course. The Group has prepared its consolidated financial statements for the year ended 31 March 2014 in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

2. Operating profit

Operating profit is arrived at after charging/(crediting):

.

Other exceptional income was compensation received as a result of the compulsory purchase of one of the properties operated by the Group.

Preliminary announcement of results for the year ended 31 March 2014

Notes to the preliminary announcement (continued)

3. Segment reporting

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.

Warehousing was previously described as Warehousing and Beds. The directors consider that, following the change in the way that Beds are sold through the network giving more ownership of Beds sales to franchisees, the revised description better fits the nature of this business.

Preliminary announcement of results for the year ended 31 March 2014

Notes to the preliminary announcement (continued)

4. Tax credit/(expense)

Analysis of charge for the period:

The tax charge for the year differs to the standard rate of corporation tax in the UK of 23% (2013: 24%). The differences are explained below:

The acquisition of the trade from a connected company (United Carpets (Northern) Ltd) gives rise to a deferred tax asset in United Carpets (Franchisor) Ltd. The prior year adjustments principally reflects an estimate of that deferred tax asset following the submission of tax computations for the period to 5 October 2012 by UNCN Realisations 2012 Ltd (formerly United Carpets (Northern) Ltd).

Preliminary announcement of results for the year ended 31 March 2014

Notes to the preliminary announcement (continued)

5. Earnings per share

Basic earnings per share

The calculation of basic earnings per share for the period ended 31 March 2014 was based on the profit attributable to ordinary shareholders of £1,132,000 (2013: £157,000) and a weighted average number of ordinary shares outstanding during the period ended 31 March 2014 of 81,400,000 (2013: 81,400,000).

Diluted earnings per share

Diluted earnings per share for the periods ended 31 March 2014 and 31 March 2013 was the same as basic earnings per share as the share options in issue were non-dilutive in the period.

6. Reconciliation of profit before tax to cash flows from operating activities

7. Reconciliation of cash and cash equivalents

Cash and cash equivalents are solely bank balances.