UCG.L Regulatory News (UCG)

19 Jul 2006 07:00

United Carpets Group plc19 July 2006 For immediate release UNITED CARPETS GROUP plc Preliminary announcement of results for the year ended 31 March 2006 United Carpets Group plc ("the Group" or "the Company" or "United Carpets"), thethird largest chain of specialist retail carpet and floor covering stores in theUK, today announces its preliminary results for the year ended 31 March 2006. Highlights • Network sales grew by 15% to £48.58m (2005: £42.23m) • Turnover increased to £17.65m an increase of 16.8% (2005: £15.11m) • Positive like for like sales up 2.8% against prior year • Profit before tax of £1.20m* (2005: £1.98m*) reflecting reduced opening programme • Increased marketing investment overcame challenging trading conditions • 9 new stores added during the year making a total of 60 • Like for like sales since the period end up 8.7% * Before goodwill amortisation and exceptional items. Paul Eyre, Chief Executive, said: "This year saw fewer store openings than had originally been expected andtougher trading conditions than the previous year. In light of this, ourperformance has been more than creditable. The second half was strong, and thisgrowth in sales has continued into the current reporting period." Enquiries: United Carpets Group plcPaul Eyre, Chief ExecutiveIan Bowness, Finance Director 01709 579 450 Cardew GroupTim Robertson 020 7930 0777William Scott-Gall Chairman's statement I am pleased to announce United Carpets Group's preliminary results for the yearended March 31 2006. The Company has generated revenues of £17.65m this year,compared to £15.11m in 2005 and is operating from 60 stores located throughoutNorthern and Central England. As announced in October 2005, the Board decided toswitch from focusing on new store openings to providing greater support forexisting stores to enable them to manage the challenging trading conditions. Thereduced store opening programme naturally impacted on the Group's profitability;however, I believe the business is now more resilient and better positioned togrow organically as evidenced by the more recent like for like sales data. The business fundamentals remain strong and the Group is well positioned tocontinue rolling out its franchise concept. Financial review As part of a review of all accounting policies the Group has changed itsaccounting policy for income recognition in respect of the initial fee paid bynew franchisees at the outset of a franchise arrangement. Previously, the Groupaccounting policy was to recognise the initial franchise fee income in full uponcommencing a franchise arrangement. This policy has changed to spread thisinitial fee over 10 years, the term of the franchise arrangement. In the opinionof the directors the Group benefits from the franchise fee over the term of thefranchise arrangement and it is, therefore, appropriate to recognise it overthis period. This will better reflect the benefit of the fee to the Group andwhilst in the short term this may moderate profits, it will enable growth in theprofitability of the underlying business to be clearly reflected in the results. Total revenue increased by 16.8% to £17.65m (2005: £15.11m), reflecting thegrowth in store numbers during the year. Network sales across the Group,including the value of retail sales by our franchisees to give a measure of theGroup's turnover on a more comparable basis to a conventional retailer,increased to £48.58m (2005: £42.23m). Like for like sales were up 2.8% compared to the previous year. Following achallenging first half when like for like sales rose by 0.3%, increasedinvestment in new marketing initiatives, improvements in the product range andbetter store presentation helped to increase like for like sales, which were up5.2% in the second half of the year. Within the like for like sales performancethe core floor coverings business achieved a 3.8% like for like increase on theprevious year whilst bed like for like sales decreased by 4.0%. Underlyingtrends in consumer activity point to a swing towards carpets and away fromlaminate flooring. Gross margin increased from 63.8% to 66.6% which largely reflects the increasedproportion of franchise related income to total revenue as the store networkincreases. The increase in distribution costs principally reflects the extra staff andmarketing costs of the additional corporate stores operated during the year.Marketing and rental costs are incurred by the Group and recharged tofranchisees in turnover. Consequently, administrative expenses reflect theincrease in these costs as the network grows as well as the additionalinvestment in marketing during the year, the occupancy costs of operating anincreased number of corporate stores and the full year impact of thestrengthening of the management team at the time of the float and associatedongoing costs of becoming a plc. Profit on ordinary activities before taxation, goodwill amortisation andexceptional items was £1.2m, a decrease of 39.4%. Earnings per share were 0.7p (2005: 1.9p). The Board recommends a final dividendof 0.5p per share (2005: nil) which together with the interim dividend of 0.25pper share (2005: nil) paid in January makes a total ordinary dividend of 0.75pper share for the year (2005: nil). Subject to approval at the Annual GeneralMeeting, the final dividend will be paid on 8 December 2006 to those shareholders whose names are on the register on 10 November 2006. Operations review The Group operates 60 branded stores across Northern and Central England. Withthe exception of 11 corporate stores, the remainder are all franchises operatingunder United Carpets' bespoke franchise model, which aims to combine theadvantages of a multiple retailer with the entrepreneurial drive of anindependent. As the Group continues to expand so its economics will improve, inparticular, from more cost effective advertising, as well as the ability toleverage the other benefits of increased scale. Floor coverings The majority of Group revenues are derived from the sale of floor coverings,predominantly carpet, laminate and vinyl flooring through franchised stores andthe Group's own corporate stores. The market has remained challenging, however,the Group has responded well evidenced by the increase in like for like salesover the year. Product mix is constantly changing to reflect current fashions.We are suitably nimble to be able to react and we ensure that we do not carryexcessive stock in any one style. Currently natural and beige colour floorcoverings are proving popular. While carpet represents the majority of oursales, vinyl floorings have had a resurgence at the expense of laminate. We are continually seeking to position ourselves at the front of the market whenit comes to offering service and new customer offerings. This has seen somedevelopments in our bespoke carpet service in response to increasing demand fromcustomers for this kind of service. Anecdotal evidence suggests a greater spendper customer in stores since they have been refurbished. The Group continues to carry out significant advertising in targeted areas whereit has sufficient critical mass. Selective television advertising in particularhas been very effective for the Group combined with print and radio. Beds Beds are sold through the majority of the store network with franchisees earninga commission on sales. Tough trading conditions during the year had a greatereffect on our beds business than floor coverings due to the higher purchaseprice. However, improved product and marketing initiatives resulted in asignificant improvement in like for like sales up 3.8% for the second half ofthe year. Beds remain a key part of our customer offering and we continue toreview ways to increase sales. Store opening programme The Group has reviewed its store opening programme to reflect changes in themarket. Currently, we have 60 stores clustered around our target areas ofnorthern and central England, with a further six stores planned to open in thecoming months. Generally, new stores will be located within our existingfootprint to maximize advertising opportunities and our market share. During the year, nine new stores opened in Chorley, Dudley, Huddersfield,Keighley, Leeds, Long Eaton, Nuneaton, Southport and Stetchford. The decision toreduce our store opening programme from the initial target of 15 enabled greaterfocus to be placed on providing better support for existing stores andaddressing those stores which were significantly underperforming. In addition toour five principal corporate stores we started the year with four non-corecorporate stores. During the year seven stores were taken back from franchiseesmaking 11 non-core corporate stores, of which three were successfully franchisedand one was closed. Franchisees were successfully replaced in six otherfranchised stores, one franchisee was relocated to a new site and one furtherfranchised store closed in both cases following the ending of leases. Since theyear-end franchisees have been successfully replaced in two franchised storesand one of the non-core corporate stores has also been successfully franchised.Of the six remaining non-core corporate stores, one is in advanced negotiationsto be franchised, two are planned to be closed and suitable franchisees arebeing sought for the remaining three stores. Further changes in franchisees canbe expected, although we expect the annual rate to reduce in 2008 and beyond. We will continue to open stores where appropriate and have increased ourinvestment in recruitment of franchisees and further developed our selectionpolicies of both potential sites and franchisees. Whilst this may impact on ourprojected number of store openings, we are convinced that these measures willimprove the quality of our franchise network to the long-term benefit of theGroup. People We now employ directly and indirectly over 320 people. A key focus during theperiod has been to invest in people. The internal appointment of an experiencedmanager to Group training manager has allowed us to run better and more frequentstaff training programmes. Alongside our regular conferences in March andSeptember, where there is an opportunity for franchisees to review and shareexperiences, we are running regular refresher courses focused on salestechniques, customer service and product innovations. The Board joins me in thanking all our employees for their hard work during theyear and looks forward to working together in the future. Outlook Although the short-term outlook for the flooring market will remain challenging,the Board firmly believes that the Group's robust franchise model will continueto generate solid returns. Recent sales have been stronger than the equivalentperiod last year, with like for like sales increasing by 8.7% for the 15 weeksof the current financial year. Whilst some of this increase may be attributableto a late Easter, this was more than offset by the negative impact of the WorldCup on our sector and the Board are confident the improved product mix in bedsand recently refurbished bespoke carpet offering, will provide momentum forcontinued growth. The strength of our brand and marketing activity continues toattract new customers to our stores throughout Northern and Central England. The Company is in a strong financial position and the outlook for the future ispositive. Peter CowgillChairman Preliminary announcement of results for the year ended 31 March 2006Consolidated profit and loss account Note Results Results before before goodwill Goodwill goodwill Goodwill amortisation amortisation amortisation amortisation and and and and exceptional exceptional exceptional exceptional items items 2006 items items 2005 As restated As restated As restated £'000 £'000 £'000 £'000 £'000 £'000 Turnover 17,649 - 17,649 15,106 - 15,106 Cost of sales (5,894) - (5,894) (5,466) - (5,466) _______ _______ _______ ______ _______ _______ Gross profit 11,755 - 11,755 9,640 - 9,640 Distribution costs (1,678) - (1,678) (1,433) - (1,433)Administrative expenses (9,172) (56) (9,228) (6,460) (58) (6,518)Other operatingincome 207 - 207 210 - 210 _______ _______ _______ _______ _______ _______ Operating profit 1,112 (56) 1,056 1,957 (58) 1,899 Merger expenses 2 - - - - (61) (61)(Loss)/profit on disposal offixed assets 2 - (121) (121) - 168 168 _______ _______ _______ _______ _______ _______ Profit on ordinaryactivitiesbeforeinterest 1,112 (177) 935 1,957 49 2,006 Interest receivable 106 - 106 52 - 52Interest payable (18) - (18) (28) - (28) _______ _______ _______ _______ _______ _______ Profit on ordinaryactivitiesbeforetaxation 1,200 (177) 1,023 1,981 49 2,030 Taxation 3 (443) (635) _______ _______Profit on ordinaryactivitiesafter taxationtransferred toreserves 5 580 1,395 _______ _______ Earnings per share 4-Basic and diluted 0.7p 1.9p _______ ______ All amounts relate to continuing activities. The notes below form part of thesefinancial statements. Preliminary announcement of results for the year ended 31 March 2006 Statement of total recognised gains and losses and reconciliation of movementsin shareholders' funds Statement of total recognised gains and losses Note 2006 2005 As restated £'000 £'000 Profit for the financial year 580 1,395 ________ ________Total recognised gains and losses relating to the year 580 1,395 ________ Prior year adjustment 6 (1,677) ________ Total gains and losses recognised since lastannual financial statements (1,097) ________ Reconciliation of movements in equity shareholders' funds Note 2006 2005 As restated £'000 £'000 Profit for the year 580 1,395Shares issued at nominal value - 550Share premium arising on issue (net of expenses) - 1,167Interim dividend paid (204) - ________ ________Net increase in shareholders' funds 376 3,112 ________ ________Opening shareholders' funds as previously stated 5,601 2,062Prior year adjustment 6 (1,677) (1,250) ________ ________Opening shareholders' funds as restated 3,924 812 ________ ________Closing shareholders' funds 4,300 3,924 ________ ________ The notes below form part of these financial statements. Preliminary announcement of results for the year ended 31 March 2006Consolidated balance sheet Note 2006 2005 As restated £'000 £'000 £'000 £'000 Fixed assetsIntangible assets 277 333Tangible assets 3,570 2,702 _______ _______ 3,847 3,035Current assetsStocks 1,345 1,232Debtors 3,622 4,570Cash at bank and in hand 1,625 2,654 _______ _______ 6,592 8,456 Creditors: amounts falling due within one year (3,895) (5,369) _______ _______Net current assets 2,697 3,087 _______ _______Total assets less current assets 6,544 6,122 Creditors: amounts falling due after more than one year (2,125) (2,198) Provisions for liabilities and charges (119) - _______ _______Net assets 4,300 3,924 _______ _______ Capital and reservesCalled up share capital 4,070 4,070Share premium account 5 1,106 1,106Profit and loss account 5 2,234 1,858Other reserve 5 (3,110) (3,110) _______ _______Shareholders' funds 6 4,300 3,924 _______ _______ The notes below form part of these financial statements. Preliminary announcement of results for the year ended 31 March 2006Consolidated cash flow statement 2006 2005 Note £'000 £'000 £'000 £'000 Net cash inflow from operatingactivities 7 1,820 1,146 Returns on investments andservicing of financeInterest received 106 52Interest paid (18) (28) _______ ______Net cash inflow from returnson investments and servicing of finance 88 24 TaxationCorporation tax payment (908) (170) _______ _______ (908) (170)Capital expenditurePurchase of tangible fixed assets (1,519) (1,618)Sale of tangible fixed assets 51 522 _______ _______Net cash outflow fromcapital expenditure (1,468) (1,096) Equity dividends paid (204) - _______ _______ Net cash outflow before financing (672) (96) FinancingCapital element of hire purchase repayment's (85) (137)Bank loans - (635)Shares issued including premium - 1,717 _______ _______Net cash (outflow)/inflow from financing (85) 945 _______ _______ (Decrease)/increase in cash 9 (757) 849 _______ _______ The notes below form part of these financial statements. Preliminary announcement of results for the year ended 31 March 2006Notes to the preliminary announcement 1. Results and accounting policies The preliminary results have been prepared under the historical cost convention,in accordance with applicable Accounting Standards in the United Kingdom andwith the Group's accounting policies as will be set out in the financialstatements for the year ended 31 March 2006. The preliminary results wereapproved by an authorised committee of the Board on 18 July 2006 and areunaudited. The financial information contained in this unaudited preliminary announcementdoes not constitute statutory accounts as defined by Section 240 of theCompanies Act 1985. The accounts have been prepared in accordance with the principles of mergeraccounting as set out in Financial Reporting Standard 6 "Acquisitions andMergers". Accordingly, the financial information for the Group has been presented as ifUnited Carpets (Franchisor) Limited, United Carpets (Central) Limited, DebrikInvestments Limited, Weavers Carpets Limited and Nottingham Carpet WarehouseLimited ("the merged entities") had been owned by United Carpets plc throughoutthe prior period when in fact they were not acquired until 7 February 2005.Accordingly, the consolidated financial statements include the whole of theresults of the merged entities for the year ended 31 March 2005. The corresponding figures for the previous year include the results of themerged entities, the assets and liabilities at the previous balance sheet dateand the shares issued by United Carpets Group plc as consideration as if theyhad always been in issue. The difference between the nominal value of shares andthe share premium accounts of the merged entities and the nominal value ofshares issued by the Company to acquire the merged entities is taken toreserves. There have been no changes in accounting policy in the year, other than asdisclosed in note 6. 2. Exceptional items 2006 2005 As restated £'000 £'000 Merger expenses - (61)(Loss)/profit on disposal of fixed assets (121) 168 ______ _______ (121) 107 ______ _______ During 2005, merger expenses were treated as a reorganisation cost in accordancewith FRS 3. Of the current year loss on disposal of fixed assets £118,000 relates to theloss on disposal of the assets of the Macclesfield store which was closed in theperiod. This store was opened in December 2004 with a view to its sale as afranchise. Despite strenuous efforts no such sale was achieved and following aperiod of unsatisfactory trading the lease break clause was actioned and thestore vacated in 2005. The profit of £168,000 in 2005 relates predominantly tothe profit on disposal of the freehold of a site in Nottingham. The directorsconsider these items to be one off and exceptional in nature and havereclassified them as such to give a better understanding of the underlyingresults of the business. 3. Taxation on ordinary activities Analysis of charge in the year: Note 2006 2005 As restated £'000 £'000 Corporation tax:Current year - 774Over provision in prior years (330) (58)Prior year adjustment 6 - (183) ______ _______ (330) 533 Deferred tax:Origination and reversal of timing differences 773 102 ______ _______ 443 635 ______ _______ 4. Basic and diluted earnings per share The profit per share has been calculated in accordance with FRS 14 'Earnings pershare'. The calculation of the profit per ordinary share is based on profits of£580,000 (2005 - as restated: £1,395,000) and on a weighted average of81,400,000 (2005: 74,893,151) ordinary shares in issue during the year. Theweighted average share capital for earnings per share calculated on a dilutivebasis is 81,400,000 (2005: 75,222,055). 5. Reserves Note Share Profit premium and Merger account loss account reserve £'000 £'000 £'000 At 1 April 2005 as previously stated 1,106 3,535 (3,110)Prior year adjustment 6 - (1,677) - ______ _______ _______ As restated 1,106 1,858 (3,110)Profit for the year - 580 -Interim dividend paid - (204) - ______ ________ ________At 31 March 2006 1,106 2,234 (3,110) ______ ________ ________ The merger reserve is the difference between the nominal value of shares issuedin order to acquire the merged entities and the share capital and share premiumaccount of the merged entities. 6. Prior year adjustment - change in accounting policy As disclosed in the interim report for the period ended 30 September 2005, theBoard has recently undertaken a review of all accounting policies to ensure theyremain appropriate to the Group's circumstances. This review has resulted in a change in the accounting policy for incomerecognition in respect of the initial fee paid by new franchisees at the outsetof a franchise arrangement. Previously, the Group accounting policy was torecognise the initial franchise fee income in full upon commencing a franchisearrangement. This policy has changed to spread this initial fee over 10 years,the term of the franchise arrangement. In the opinion of the directors the Groupbenefits from the franchise fee over the term of the franchise arrangement andit is, therefore, appropriate to recognise it over this period. This change in accounting policy has reduced the current year profit before taxby £8,000 and net assets by £1,683,000 (this includes the effect of theadjustment on the tax charge). The prior year profit before tax has been reducedby £610,000 and brought forward net assets have been reduced by £1,677,000. 7. Reconciliation of operating profit to net cash inflow from operatingactivities 2006 2005 As restated £'000 £'000 Operating profit 1,056 1,899Depreciation 479 335Amortisation 56 58Merger expenses - (61)Increase in stock (113) (207)Decrease/(increase) in debtors 756 (1,542)(Decrease)/increase in creditors (414) 664 _______ _______ 1,820 1,146 _______ _______ 8. Analysis of changes in net funds Other non cash 2005 Cashflow changes 2006 £'000 £'000 £'000 £'000 Bank and cash 2,654 (1,029) - 1,625Bank overdraft (272) 272 - - _______ _______ _______ _______ 2,382 (757) - 1,625 Debt due within one year:Hire purchase contracts (74) 74 (58) (58) Debt due after more than oneyear:Obligations under hire purchase contracts (108) 11 58 (39) _______ _______ _______ _______Net funds 2,200 (672) - 1,528 _______ _______ _______ _______ 9. Reconciliation of net cash flow to movement in net funds 2006 2005 £'000 £'000 (Decrease)/increase in cash in the year (757) 849 Cash outflow from hire purchase financing 85 138Cash outflow from bank loans - 635 _______ _______Change in net funds resulting from cashflows (672) 1,622 New hire purchase contracts - (68) _______ _______Movement in net funds in the year (672) 1,554Net funds at start of year 2,200 646 _______ _______Net funds at end of year 1,528 2,200 _______ _______ This information is provided by RNS The company news service from the London Stock Exchange