UCG.L Regulatory News (UCG)

UNITED CARPETS GROUP PLC

Final results for period ended 5 October 2012

United Carpets Group plc ("the Group" or "the Company" or "United Carpets"), the specialist retail carpet and floor covering operator, today announces its final results for the period ended 5 October 2012.

Chairman's statement

The period under review has been extremely challenging for retailers in general and the Group in particular.

On 15 June 2012 the Board announced that a significant proportion of the Group's franchise network was finding it increasingly difficult to operate satisfactorily. Despite the considerable investment made by the Group in technology to provide detailed information on footfall and conversion rates to improve marketing effectiveness and retail performance, together with increased operational and financial support from the Group, franchisees continued to struggle to meet their liabilities to creditors and the Group. As a consequence, it was necessary to terminate a number of franchises and the Board resolved to review a further number of stores to ascertain whether they could remain viable under the current franchise model.

An update on the review was provided on 24 August 2012, when the Company announced that to prevent an accumulation of poorly performing stores, 6 stores had closed and 17 franchised stores had either been taken back into the Group or refranchised. A further tranche of stores were also identified for imminent closure. Whilst the impact of the closures already made and those anticipated at that time were still being quantified, it was apparent that substantial provisions would be required to be made in respect of impairment of property, plant and equipment and onerous contracts. The cash impact of existing leases no longer required was also uncertain at that time. In order to give a clearer picture of the Group's ongoing operations and provide a more accurate view of the financial implications of the store review, the Board decided to extend the accounting reference date from 31 March to 30 September. Since the Company was not in a position to publish financial results for the year ended 31 March 2012 by 30 September 2012, as required by the AIM Rules, trading in the Company's shares was suspended on 24 August 2012.

It became increasingly clear from the review that the financial support provided by the Group to franchisees, which was originally intended to be temporary, was becoming unsustainable and that without substantial rent reductions a significant number of stores would be unable to continue to trade, despite the underlying strength of the core locations. Negotiations with certain landlords to agree appropriately reduced rents were unsuccessful, and as a result, the Company announced the appointment of David Robert Acland and Lila Thomas of Begbies Traynor (Central) LLP as joint administrators of United Carpets (Northern) Limited ("UCN") on 4 October 2012. The immediate sale of the trade of UCN and the majority of UCN's assets to United Carpets (Franchisor) Limited ("UCF"), a wholly owned subsidiary of United Carpets Group plc, has enabled negotiations with landlords to be re-opened and where appropriate, to secure more favourable terms. These negotiations are ongoing which, together with appropriately adjusted central costs and modifications to the franchisor/franchisee trading arrangements, are expected to enable the majority of franchisees to trade successfully.

At present, the Group operates from 66 United Carpets branded stores, primarily across Northern and Central England, of which 15 are currently corporate stores and 51 are operated on a franchise basis. As a result of the arrangements put in place following the administration of UCN, the management team has been negotiating new leases with existing landlords. Terms have been agreed for nearly two thirds of the store network. In many cases alongside reduced rents which have benefitted our franchisees, reduced lease periods or break clauses have been achieved and historic potential dilapidation liabilities extinguished. Negotiations to finalise terms for most of the remaining stores are progressing and whilst every effort is being made to agree settlements which are acceptable to the landlord and achieve a viable future for the franchisee and the Group, this may not be achievable in all cases. In the meantime, UCF continues to occupy any stores where a lease has not yet been signed with a landlord, under licence from the administrator, and is therefore able to continue to operate from those locations.

The Board believes that as a result of the actions taken since June 2012, the Group is in a better position to tackle what remains a very challenging marketplace.

Following the publication of these results, the Board expects that the suspension of the Company's shares will be lifted allowing them to again be traded on AIM.

Peter Cowgill

Chairman

22 February 2013

Chief Executive'sreview

Despite having weathered four years of post credit-crunch recession, it became clear during 2012 that the Company needed to take radical action to address the significant number of underperforming franchised stores and better protect the Group's future. This process involved the closure of a number of stores and a re-evaluation of the business in order to create a smaller entity capable of operating successfully in this prolonged downturn.

The change of year end and the administration of UCN which, under International Financial Reporting Standards ("IFRS") is treated as a discontinued operation, makes trading comparisons more difficult. A proforma income statement showing the results for this period and the prior period on a comparable basis is presented below.

Total revenues for the period under review were £41.5m and profits before tax and exceptional items of the underlying, ongoing business were £0.4m. However, the provisions necessary in respect of the impairment of property plant and equipment and onerous contracts arising from store closures contributed to total exceptional costs of £3.0m in the period (further details on the exceptional items are included in notes 5 and 8 of these financial statements). Whilst many of these were non-cash items, the ongoing cash burden of paying rent and rates in respect of stores that had ceased trading was considered unsustainable leading to the decision to place UCN into administration.

Financial review

The Income Statement as previously prepared including discontinued activities is as follows:

For the 18 month period under 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 £105.8m. Revenue, which includes marketing and rental costs incurred by the Group and recharged to franchisees, was £41.5m.

Like for like sales across the network (which are based on stores that have traded throughout both the period under review and the corresponding period in the prior year and thus exclude stores that closed during either period) were down 1.0%. Flooring was up 0.2% whilst our Beds business declined by 13.7%. The small improvement in Flooring like for like sales generates only a small amount of revenue to the Group in franchise commission. Beds accounts for a smaller proportion of overall sales, approximately 8%, and has always been more vulnerable to weaker market conditions due to the higher average purchase prices. Weak Beds sales has a disproportionate impact on gross profit as the Group benefits from the full value of the sale less a commission paid to franchisees.

Whilst underlying gross margins in the Retail, Beds and Warehouse divisions all registered small increases on the prior year, overall gross margin declined from 66.6% in the prior year to 64.3% in the period under review. This reflects an increase in the proportion of Group revenue arising from corporate stores (as failing franchises were terminated and the stores were taken back), and an increase in the proportion of Group revenue from relatively low margin Warehouse sales offsetting a reduction in the proportion of Beds sales which operate on higher margins.

Distribution costs and administrative expenses includes rent, rates and salaries of the corporate stores staff and bad debt write-offs. Adjusting for the 18 month period, the increase principally reflects the increase in the average number of those corporate stores during the period under review and increasing levels of default by failing franchisees.

As a result of the store closures prior to the administration of UCN, additional provisions were required to reflect the financial impact of those closures. Property, plant and equipment was impaired by £0.9m being the write down of the assets in the stores that were closed and the associated costs of vacating those premises and the provision for onerous contracts was increased by a net amount of £2.6m to reflect the ongoing lease commitments of those empty properties. These provisions have been offset by £0.6m arising from fair value adjustments to the assets acquired by UCF.

Consequently, the profit before tax and exceptional items of £0.4m became a loss of £2.6m after taking account of those exceptional items.

The losses in UCN result in a net release of income tax provision in the period under review of £0.5m reducing the loss after tax for the Group to £2.1m.

The Group incurred a loss of £1.1m as a result of the discontinuation of the activities of UCN following its administration and consequently the loss after tax for the period was £3.2m.

Following the appointment of administrators to UCN on 4 October 2012, the trade of UCN and the majority of its assets were sold to UCF. Details of the acquisition are provided in note 14 of these financial statements and the balance sheet at 5 October 2012 reflects the opening position for the new trading entity. Following an initial payment of £0.6m to the administrators, cash balances at the balance sheet date were £0.8m. Details of the additional consideration payable to the administrators are also set out in note 14 of these financial statements.

Dividend

The Board is not recommending a final dividend. The ability to pay dividends in the future will be dependent on the trading of the Group and the availability of distributable reserves.

Operations review

We began the 18 month period with 85 stores in total, 18 of which were corporate stores operated by the Group, and 67 were franchised stores.

As a result of increasingly challenging market conditions, the Company announced on 15 June 2012 that it was necessary to terminate a number of franchises. The Board also resolved to review a number of stores to decrease the financial burden on the Group and ascertain their viability under the current franchise model.

On 24 August 2012, the Company provided an update on the store review and announced that a significant proportion of the franchise network were finding trading very challenging, resulting in an increasingly unsatisfactory situation for the Company. This led to the closure of 6 stores (4 corporate stores and 2 franchised stores) and a further 17 franchised stores being either taken back into the Group or refranchised. It was also noted that a further 8 stores were expected to close in the following weeks, and that depending on the outcome of ongoing negotiations with landlords, further closures might be necessary.

On 4 October 2012, the Company announced the appointment of administrators of UCN. At that time, UCN was the principal trading company of the Group, operating the Group's corporate stores and also acting as franchisor of the Group's franchises. The majority of UCN's assets were immediately sold to UCF, a direct wholly-owned subsidiary of the Company and also the sole shareholder in UCN. The sale amounted to 72 stores following the closure of 13 stores in the preceding months. Of the 72 stores, 18 were corporate and 54 were franchised. UCF is responsible for managing franchise agreements and operating the corporate stores. Two new subsidiary companies of United Carpets Group plc have been created; United Carpets (Commercial) Ltd to manage the Group's wholesaling, cutting and distribution activities and United Carpets (Property) Ltd to manage lease agreements with landlords and franchisees.

Following the administration of UCN, a further 9 stores were closed and the Group currently trades from 66 United Carpets branded stores across Northern and Central England, 15 of which are corporate stores and 51 are operated under franchise agreements. We have agreed new terms for nearly two thirds of the store network, which includes some of the strongest performing in the Group, and we expect the landlords of most of the remaining stores to also agree acceptable terms in due course. In the meantime, UCF continues to occupy any stores where a lease has not yet been signed with a landlord, under licence from the administrator, and is therefore able to continue to operate from those locations.

Retail

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. Whilst Flooring sales in the period were fractionally up, several years of little or no growth in Flooring sales had impacted disproportionally on poorly performing stores resulting in the failure of a significant number of franchisees. As those stores were taken back as corporate stores it proved extremely difficult to turn around their performance in an increasingly tough retail environment leading to mounting losses in the Retail division.

Beds

Beds continue to be a challenging area for the business with sales down 13.7% on a like for like basis. The Beds range has been renewed and simplified and plans are underway to alter the arrangements with franchisees; giving more ownership of Beds sales to the franchisees and providing them with greater financial incentive to maximise Beds sales.

Warehouse

Our in-house cutting operation continues to expand with turnover increasing to £7.2m for the 18 month period (2011: £4.2m for a 12 month period) as franchisees increasingly appreciate the opportunity to deliver a quick, efficient service at a more attractive price point for customers and, importantly, at an improved margin. Just prior to the start of the period, the Warehouse division commenced wholesaling activities for third parties that are progressing well.

People

During this period of significant change, the contribution of everyone connected to the Company has been remarkable. The Board is extremely grateful for the efforts of our staff and franchisees who have coped extremely well with the additional stress and pressures created by periods of uncertainty and the significantly increased workload arising from the administration process. We have received enormous support from our supplier partners during this period of transition and in particular from those suppliers of product. We look forward to continuing to develop these vitally important relationships as we strive to build a stronger and more stable business over the coming year.

Outlook

While the Board was very disappointed at the need to appoint administrators to UCN, the re-evaluation of the Group's business model was a necessary step in building a long-term future for United Carpets.

The Group is refocusing and re-establishing itself and once negotiations over the remaining stores have been completed, the operating base of stores will have reduced by around one third since the start of the period. Progress continues to be made in re-aligning central costs with this reduced operating base.

Trading conditions since the period end have continued to be very challenging. Increased pressure from competitors, negative perceptions created by the administration of UCN, reduced levels of marketing funds due to fewer stores and unhelpful weather conditions have all combined to make a difficult environment for the Group to re-launch itself and like for like sales in the 19 weeks since the period end are down 11.1%. Whilst this performance is disappointing, the removal of the majority of the loss making stores means that the Group and its remaining franchisees are better able to survive this downturn in trade.

Our new trading entities are well stocked to support the ongoing trading of the store portfolio. The Group has no borrowings and following the purchase of assets from UCN still retains reasonable cash reserves. 

While we are not anticipating an uplift in the market conditions in the near term, the Group is now better placed to benefit from an improvement in future market conditions.

Paul Eyre

Chief Executive

22 February 2013

UNITED CARPETS GROUP PLC

Consolidated income statement for the period from 1 April 2011 to 5 October 2012

All amounts are attributable to the equity holders of the parent. There were no items of other comprehensive income and therefore no separate statement of other comprehensive income has been presented.

Consolidated and parent company balance sheets at 5 October 2012

Consolidated and parent company statements of changes in equity for the period ended 5 October 2012

Group

The merger reserve was the difference between the nominal value of shares issued in order for the parent company to acquire the merged entities and the share capital and share premium account of the merged entities. Following the administration of United Carpets (Northern) Ltd, the merger reserve has been transferred to retained earnings.

UNITED CARPETS GROUP PLC

Consolidated and parent company statements of cash flows for the period ended 5 October 2012

UNITED CARPETS GROUP PLC

Notes forming part of the financial statements for the period ended 5 October 2012

1. Significant accounting policies

United Carpets Group plc (the "Company") is a company domiciled in the United Kingdom. The consolidated financial statements of the Company for the period ended 5 October 2012 comprise the Company and its subsidiary undertakings (together referred to as the "Group").

(a) Statement of compliance

The Group's consolidated financial statements and the Company's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretation Committee ("IFRIC") interpretations that are endorsed by the European Union, and with those parts of the Companies Act 2006 applicable to those companies reporting under IFRS.

The financial information has been prepared under the historical cost convention, except for the cost of share options granted under the terms of employee share schemes which, in accordance with IFRS 2, are accounted for at fair value and the fair value adjustments arising on the acquisition of trade, assets and certain liabilities, as set out in note 14.

The preparation of the financial information requires management to make judgements and estimates in the selection and application of accounting policies. Although these judgements and estimates are based on management's best knowledge of the amount, event or actions and actual results may ultimately differ from these. In the preparation of this financial information, estimates and assumptions have been made by management; further details in respect of these are included in accounting policy 1.(t).

(b) Basis of preparation

The financial period end was extended from 31 March 2012 to 30 September 2012 to allow a store review to be undertaken and reflected in the financial statements. That store review led to the eventual administration on 4 October 2012. The period end date was then extended by five days to 5 October 2012 to include the impact of the administration.

The Group consolidated financial statements and the Company's financial statements have been prepared on the basis of IFRSs in issue that are effective at the Group's reporting date. The accounting policies have been applied consistently throughout the Group for the purposes of these consolidated financial statements.

(c) Basis of consolidation

(i) Subsidiaries

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to the accounting reference date each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to benefit from its activities.

The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests.

 (ii) Uniting of interests method

The results of the Group and all of its subsidiary undertakings are consolidated using the uniting of interests' method of accounting for those business combinations which took place before transition to IFRS and using the acquisition method (see note 1(c)(i) for those business combinations which took place subsequent to the transition to IFRS). The investment is recorded in the Company's balance sheet at the nominal value of the shares issued, together with the fair value of any additional consideration paid.

Merged subsidiary undertakings are treated as if they had always been a member of the Group, for business combinations which took place before transition to IFRS. This treatment is permitted under the exemption in IFRS 1 to not restate acquisitions before transition.

The corresponding figures for the previous period include its results for that period, the assets and liabilities at the previous balance sheet date and the shares issued by the Company as consideration as if they had always been in issue. Any difference between the nominal value of the shares acquired by the Company and those issued by the Company to acquire them is taken to reserves.

(iii) Transactions eliminated on consolidation

Intragroup balances and transactions, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing these consolidated financial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group's interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains.

(d) Foreign currency

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to pounds sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

(e) Property, plant and equipment

(i) Owned assets

Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation (see below) and impairment losses (see accounting policy 1.(j)).

When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment.

(ii) Leased assets

Leased items of which the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. Lease payments are accounted for as described in accounting policy 1.(o).

 (iii) Subsequent costs

The Group recognises, in the carrying amount of an item of property, plant and equipment, the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits, embodied within the item, will flow to the Group and the cost of the item can be measured reliably. On the capitalisation of subsequent costs, original cost and any related accumulated depreciation are de-recognised. All other costs are recognised in profit or loss as an expense as incurred.

(iv) Depreciation

Depreciation is calculated so as to write off the cost of an asset less its residual value and is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows:

- Leasehold property over the term of the lease

- Fixtures and fittings 10% straight line

- Office and computer equipment 25% straight line

- Motor vehicles 25% straight line

The residual value is reassessed annually.

(v) Leases: Accounting by lessor

A lease is an agreement whereby the lessor conveys to the lessee in return for a payment, or series of payments, the right to use an asset for an agreed period of time.

All leases granted by the Group are sub-leases of property that is leased by the Group under operating leases with third parties.

Lease income is recognised over the term of the lease on a straight-line basis.

(f) Trade and other receivables

Trade and other receivables are stated at their estimated recoverable amount after allowance for impairment losses (see accounting policy 1.(j)).

 (g) Inventories

Stocks are valued at the lower of cost and net realisable value, after making due allowances for obsolete and slow moving items.

Cost is based on the cost of purchase on a first in, first out basis. Net realisable value is based on estimated selling price less additional costs to completion and disposal.

(h) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

(i) Goodwill

Negative goodwill represents the excess of the fair value of the identifiable net tangibles and intangible assets acquired over the fair value of consideration. Under IFRS3 'Business Combinations' goodwill arising on acquisitions is not subject to amortisation but is tested for impairment whenever there is an indication that it may be impaired and at each reporting date.

Any impairment charge is recognised for any amount by which the carrying value of goodwill exceeds its recoverable amount. Any such impairment losses recognised are not reversed.

Negative goodwill is released to the profit and loss account in the period in which it arises.

(j) Impairment

The carrying amounts of the Group's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated (see below).

The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss.

Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(k) Employee benefits

(i) Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss as incurred.

(ii) Share-based payment transactions

The share option programme allows Group employees to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options based on the Group's best estimate of the instruments that will vest. The fair value of the options granted is measured using a Black-Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting.

(l) Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract.

(m) Trade and other payables

Trade and other payables are stated at historical cost.

(n) Revenue

Franchise commission is recognised on the provision of services to franchises in the period in which the services are provided. The initial franchise fee is recognised over the 10 year term of the franchise arrangement.

Other turnover and operating income represents amounts receivable for goods and services provided in the United Kingdom net of VAT. Turnover on retail products is recognised whenproducts have been delivered. Turnover on trade products is recognised when products have been delivered.

(o) Expenses

(i) Operating lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense.

(ii) Net financing costs

Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested and foreign exchange gains and losses.

Interest income is recognised in profit or loss as it accrues, using the effective interest method.

(p) Income tax

Income tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following timing differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(q) Segment reporting

An operating segment is a component that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and asses its performance, and for which discrete financial information is available.

(r) Employee benefit trust

The Group has established trusts for the benefit of employees, former employees and certain of their dependants. Monies held in these trusts are held by independent trustees and managed at their discretion.

Where the Group retains future economic benefit from, and has de facto control of the assets and liabilities of the trust, they are accounted for as assets and liabilities of the Group until the earlier of the date that an allocation of trust funds to employees in respect of past services is declared and the date that assets of the trust vest in identified individuals.

Where monies held in a trust are determined by the Group on the basis of employees' past services to the business and the Group can obtain no future economic benefit from those monies, such monies, whether in the trust or accrued for by the Group are charged to the profit and loss account in the period to which they relate.

(s) Recent accounting developments

The following accounts standards, amendments and interpretations issued by the IASB and IFRIC are effective for the Group's accounting periods beginning on or after 1 April 2011.

- IFRS 1 'First-time Adoption of International Financial Reporting Standards'

- IAS 1 'Presentation of Financial Statements'

- IAS 34 'Interim Financial Reporting'

- IFRIC 13 'Customer Loyalty Programmes'

- IFRIC 14 'IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction'

- IAS 24 'Related Party Disclosures'

These accounting standards, amendments and interpretations have had no material effect on the results or financial position of the Group disclosed within these financial statements.

Other new or revised accounting standards and interpretations issued by 22 February 2013 but not yet effective include those listed below. The directors anticipate that the adoption of these accounting standards, amendments and interpretations in future periods will have no material effect on the financial statements of the Group when the relevant standards come into effect for periods commencing on or after 5 October 2012.

- Amendment to IFRS 3 'Business combinations'

- IFRS 7 'Financial Instruments: Disclosures'

- Amendments to IAS 12 'Deferred Tax: Recovery of Underlying Assets'

- Amendments to IAS 1 'Presentation of items of other comprehensive income'

- IFRS 10 'Consolidated financial statements'

- IFRS 12 'Disclosure of interests in other entities'

- IFRS 13 'Fair value measurement'

- IAS 27 'Separate financial statements'

- Amendment to IFRS 7 'Financial Instruments (disclosures)'

- Amendment to IAS 1 'Presentation of financial statements'

- Amendment to IAS 16 'Property, plant and equipment'

- Amendment to IAS 32 'Financial instruments (presentation)'

- Amendment to IAS 34 'Interim financial reporting'

(t) Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(i) Impairment of non-current assets

The Group assesses the impairment of property, plant and equipment and intangible assets subject to amortisation or depreciation whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important that could trigger an impairment review include the following:

·; significant underperformance relative to historical or projected future operating results;

·; significant changes in the manner of the use of the acquired assets or the strategy for the overall business; and

·; significant negative industry or economic trends.

(ii) Provisions to write inventories down to net realisable value

The Group makes provisions for obsolescence, mark downs and shrinkage based on historical experiences and management estimates of future events.

(iii) Trade and other receivables

Trade and other receivables are recognised to the extent that they are judged recoverable. Management reviews are performed to estimate the level of reserves required for irrecoverable debt. Provisions are made specifically against invoices where recoverability is uncertain.

(iv) Provisions

A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event for which it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash flow at a rate that reflects the time value of money and the risks specific to the liability. 

Whether a present obligation is probable or not requires judgment. The nature and type of risks for these provisions differ and management's judgment is applied regarding the nature and extent of obligations in deciding if an outflow of resources is probable or not. 

(v) Income taxes

There are many transactions and calculations for which the ultimate tax determination is uncertain. The group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

(vi) Share-based payment reserve

The estimation of the fair value of share options and other equity instruments at the date of their grant requires management to make estimates concerning the expected volatility of the underlying shares, the dividends payable on the shares, the estimate of the proportion of instruments that will vest and the time at which employees are likely to exercise vested options.

2. Segment reporting

On 4 October 2012 administrators were appointed to United Carpets (Northern) Limited. At this point control was lost of the main trading subsidiary and as such the activities of this company have been treated as discontinued. The discontinued operations segmental information is set out at note 8(b).

The continuing operations as set out on the consolidated income statement represent the group administrative costs. United Carpets (Franchisor) Limited acquired the trade, assets and certain liabilities of United Carpets (Northern) Limited on 4 October but there was no trade to report during the period.

3. Employees

Staff costs, including directors, consist of:

The average monthly number of employees, including directors, during the period/year was as follows:

4. Directors' remuneration

5. Operating loss before financing costs

Operating loss before financing costs is arrived at after charging/(crediting):

Further information on amounts charged to Operating loss before financing costs in discontinued activities is included in note 8.

Services provided by the Group's auditors

A summary of the audit and non-audit fees in respect of services provided by RSM Tenon charged to operating profit in the period from 1 April 2011 to 5 October 2012 is set out below:

Included in the Group audit fees and expenses paid to the Group's auditors are £3,000 paid in respect of the Company (2011: £2,200).

Included in the Group audit fees and expenses paid to the Group's auditors are £4,000 paid in respect of the audit of the Group financial statements (2011: £3,300).

Audit services are provided by RSM Tenon Audit Limited. RSM Tenon Audit Limited is a company registered to carry out audit work by the Institute of Chartered Accountants in England and Wales. RSM Tenon Group plc is a separate group that provides professional resources and certain services to RSM Tenon Audit Limited under the terms of a formal agreement on an arms-length basis.

6. Financial income

7. Income tax expense

(a) Analysis of charge for the year

(b) Reconciliation of total tax charge for the year

The tax charge for the year differs from the standard rate of corporation tax in the UK of 24% (2011: 28%). The differences are explained below:

(c) Factors affecting future tax charges

The corporation tax rate will be 23% from 1 April 2013. The rate is then proposed to reduce by a further 2% from 1 April 2014 when it will be 21%, however, this has not yet been ratified in law.

8. Discontinued operations

On 4 October 2012 the United Carpets plc board appointed administrators to United Carpets (Northern) Limited. At this point the Board did not have control of the subsidiary and therefore the administration was considered a disposal. That disposal was completed on 4 October 2012 and there are therefore no assets or liabilities classified as held for sale at 5 October 2012.

(a) Income statement

Analysis of the result of discontinued operations, and the result recognised on the re-assessment of assets of the disposal subsidiary is as follows:

(b) Segmental information

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. The costs of being quoted on AIM together with directors' emoluments and share-based payments are not allocated to segment results.

(c) Operating (loss)/profit before financing costs

Impairment of property, plant and equipment

At the end of each financial period, loss making stores are reviewed and 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 an impairment charge has been included in administrative expenses. The impairment in the period was £908,000 (2011: £201,000).

Provision against onerous contracts

Where there is an onerous contract this has been provided as an exceptional item. The charge in the year was £2,603,000 (2011: £17,000).

The contracts against which an onerous contract provision has been made expire at various times up to 14 years from the period end.

(d) Cashflow

9. Basic and diluted earnings per share

Basic earnings per share

The calculation of basic earnings per share for the period ended 5 October 2012 was based on the loss attributable to ordinary shareholders of £3,189,000 (2011: profit of £794,000) and a weighted average number of ordinary shares outstanding during the period ended 5 October 2012 of 81,400,000 (2011: 81,400,000).

Diluted earnings per share

Diluted earnings per share for the period ended 5 October 2012 was the same as basic earnings per share as the share options in issue were non-dilutive in the period.

The calculation of diluted earnings per share for the year ended 31 March 2011 was based on profit attributable to ordinary shareholders of £794,000 and a weighted average number of ordinary shares outstanding during the year ended 31 March 2011 of 81,535,942.

Weighted average number of ordinary shares (diluted)

Basic earnings per share - discontinued operations

The calculation of basic earnings per share for the period ended 5 October 2012 was based on the loss attributable to ordinary shareholders of £2,358,000 (2011: profit of £1,925,000) and a weighted average number of ordinary shares outstanding during the period ended 5 October 2012 of 81,400,000 (2011: 81,400,000).

Diluted earnings per share - discontinued operations

Diluted earnings per share for the period ended 5 October 2012 was the same as basic earnings per share as the share options in issue were non-dilutive in the period.

The calculation of diluted earnings per share for the year ended 31 March 2011 was based on profit attributable to ordinary shareholders of £1,925,000 and a weighted average number of ordinary shares outstanding during the year ended 31 March 2011 of 81,535,942.

10. Equity dividends

No final dividend has been proposed but not provided in these financial statements.

11. Company profit and loss account

The Company has not presented its own income statement as permitted by Section 408 of the Companies Act 2006.

The Company's loss after taxation for the period ended 5 October 2012 amounted to £4,989,000 (2011: year £670,000).

12. Property, plant and equipment

Included within the net book value of £400,000 is £Nil (2011: £87,000) relating to assets held under hire purchase agreements.

13. Investments