UCG.L Regulatory News (UCG)

Preliminary Results for the year ended 31 March 2011

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 2011.

Highlights

·; Network sales grew by 2.4% to £71.6m (2010: £69.9m)

·; Like for like sales decreased by 1.4%

·; Revenue maintained at £27.5m (2010: £27.5m)

·; Profit before tax and exceptional items increased by 1.2% to £1.480m (2010: £1.463m)

·; Profit before tax increased by 13.2% to £1.243m (2010: £1.098m)

·; Earnings per share increased by 16.7% to 0.98p (2010: 0.84p)

·; Store numbers increased by 4 to 86

·; Final dividend maintained at 0.5p per share (2010: 0.5p)

Paul Eyre, Chief Executive, said:

"In the context of the current market environment, this was a resilient performance slightly ahead of market expectations. We continue to attract customers into our stores by offering good quality products at prices that represent real value for money. As a result, the Group saw a small increase in network sales and subsequent increase in profitability. Coupled with a healthy balance sheet, the business is well positioned to continue to develop its network of franchised stores and increase its share of the flooring and beds market, alongside any improvement in trading conditions."

Enquiries:

Chairman's statement

I am pleased to report on a positive performance by the Group for the 12 months ended 31 March 2011. Against a very challenging market environment, the Company delivered increases to network sales and profits. This was a reassuring performance at a time when customers have become increasingly cautious. The need to have the right offers in each of our stores has become increasingly important and we have focused primarily on continuing to deliver value for money to our customers. Over the period, total store numbers increased slightly up from 82 to 86 at the year end and we have continued to focus on expanding the number of franchised stores. The business has demonstrated that it has firm foundations and is able to deliver a good result in a tough market.

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), increased 2.4% to £71.6m (2010: £69.9m). Revenue, which as in previous years includes marketing and rental costs incurred by the Group and recharged to franchisees, was level at £27.5m (2010: £27.5m).

Reflecting consumer caution in the period under review, like for like sales across the whole of the network were 1.4% lower than the previous year. Like for like sales improved during the second half of our financial year and, we believe, compare favourably to competitor performance in our sector and across the wider retail spectrum.

Given United Carpets' franchise structure, like for like sales are not necessarily 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 was flat whilst our beds business experienced a 13.5% decline, reflecting the difficulty of selling higher priced items such as beds in this market.

Gross margin for the year of 66.6% compares to 66.2% in the prior year and 66.3% in the first half. This reflects the increased proportion of franchise related income to total revenue, principally as more corporate stores were franchised, and a small improvement in Flooring gross margin offset, to some extent, by a slight reduction in Beds gross margin and an increased proportion of Warehouse sales which operate at relatively low gross margin.

Distribution costs include staff costs at the corporate stores and the reduction in comparison to the prior year principally arises from the reduction in the average number of those stores.

Administrative expenses increased by 2.6%, principally reflecting increased rental costs due to the increase in overall store numbers in comparison to the prior year, and included £0.2m of exceptional costs related to certain loss making stores (2010: £0.4m).

Profit before tax and exceptional items was £1.48m (2010 £1.46m). Basic earnings per share increased to 0.98p (2010: 0.84p).

The balance sheet continues to be robust with net funds of £2.5m at the year end (2010: £2.1m).

Dividend

The Board is pleased to recommend a final dividend of 0.5p per share (2010: 0.5p), which together with the interim dividend of 0.25p per share (2010: 0.25p) paid in January makes a total ordinary dividend of 0.75p per share for the year (2010: 0.75p). Subject to approval at the Annual General Meeting, the final dividend will be paid on 2 December 2011 to those shareholders whose names are on the register on 4 November 2011.

Operations review

At the year end, the Group had 86 United Carpets branded stores across its core areas of operation in Northern and Central England, up from 82 stores at the beginning of the financial year. Of these stores, 14 were corporate stores and 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.

During the period we focused on continuing to refine our offer so that it matched our customers' requirements during a period of economic and political change. At the heart of our offer to customers is delivering value for money alongside extensive ranges of good quality flooring and beds. Led by eye catching price points we continue to use advertising campaigns to reinforce these customer messages on value and service. The campaigns run throughout the year on regional television channels in Northern and Central England and are further supported by radio, print, and direct mail marketing. As a consequence within our target markets, United Carpets is a well known and trusted brand.

A key focus during the period under review has been to further enhance the customer analysis available to franchisees. With the objective of better understanding customer visits and spending patterns, a new back office retail system has been introduced across the network and footfall counters have been installed in nearly every store. The new retail system, 'InnStock', has shown immediate benefits in terms of capturing additional customer information as well as analysis of employee sales performance enabling franchisees to respond quickly to changes and opportunities. Footfall counters have also introduced a greater level of analysis of customer patterns, enabling stores to be individually judged by conversion rates which can then be compared across the Group.

Our commitment to delivering superior customer service remains a key part of our strategy. To that end, we continued our programme of mystery shopper exercises to shape a more accurate picture of customer views and experiences that can then be used to further improve customer service levels.

Franchising

We began the year with 70 franchised stores. During the period 4 new franchised stores have opened and 1 has closed temporarily due to a fire. We have taken back 13 franchised stores into the corporate arm and 12 corporate stores have been franchised. As a result, at the end of the period, the Group had 72 franchised stores.

Since the period end we have re-located a franchised store in Mexborough, franchised a further 2 corporate stores and converted 5 franchised stores into corporate stores. The net result of these actions is that the number of franchised stores has decreased to 69 currently.

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. Similar to the overall performance of the Group, sales from this division were weaker throughout the first three quarters of the year, but started to recover in the last quarter.

Having started the year with 12 corporate stores, 2 new corporate stores opened during the period in Manchester and Birmingham, 13 franchised stores were taken back into the corporate arm, 12 corporate stores were franchised during the year and a corporate store in Chester was closed giving 14 corporate stores at the period end.

Of the 14 corporate stores, 2 are considered to be core, to be retained to enable ongoing training and product development, with the Group seeking to franchise the remainder with quality candidates. Since the year end, we have successfully franchised 2 corporate stores, taken back 5 franchised stores and closed a corporate store in South Emsall giving us a total of 16 corporate stores currently.

Beds

Following a difficult first half (against tough comparatives), Beds sales improved significantly in the second half to end the year with like for like sales down 13.5%; a disappointing performance for this division. The beds division with its higher average cost per item, tends to suffer more than flooring when there is a drop off in consumer confidence but we are confident that the division will recover as the wider market improves.

Warehouse

Our in-house cutting operation continues to expand with turnover increasing from £3.3m to £4.2m as franchisees increasingly appreciate the opportunity to deliver a quick, efficient service at a more attractive price point for customers and, as importantly, at an improved margin.

People

As always the Board is extremely grateful to everyone connected to the Company for their significant contributions over the year. The results achieved in the period are entirely due to the efforts of the team including our staff, franchisees and our supplier partners and we look forward to continuing to work together to develop the business.

Outlook

Looking ahead, we believe our increased ability to analyse transaction data through the use of improved systems and additional technology will enable us to increase store performance across the whole of our store network with a particular focus on measuring the effectiveness of our marketing and our ability to convert customer visits into sales. We will continue to refine the process of identifying good prospective franchisees for stores although new store openings are likely to be limited in the near term reflecting the current market environment.

The performance of the business has been satisfactory and arguably quite resilient when compared to the wider retail market. Trading since the year end was initially very tough but has improved in more recent weeks with like for like sales just positive on Flooring and 14.8% down on Beds to give a total like for like sales decline of 1.3% for the first 15 weeks of the new financial year. Given the volatility seen in the year under review it is hard to extrapolate much from a short period of trading and we remain cautious about the remainder of the year in the absence of any significant improvement in consumer confidence.

Peter Cowgill

Chairman

Preliminary announcement of results for the year ended 31 March 2011

Consolidated income statement

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 other comprehensive income has been presented.

Preliminary announcement of results for the year ended 31 March 2011

Consolidated balance sheet

Preliminary announcement of results for the year ended 31 March 2011

Consolidated statement of changes in equity

Preliminary announcement of results for the year ended 31 March 2011

Consolidated cash flow statement

Preliminary announcement of results for the year ended 31 March 2011

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 435 of the Companies Act 2006. The financial information for the year ended 31 March 2010 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 2011 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 2011 in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

2. Exceptional items

At the end of each financial year, 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. Where there is an onerous property lease on such stores this has also been provided as an exceptional item.

The loss on disposal of property, plant and equipment related to the closure of the Chester store during the year.

Preliminary announcement of results for the year ended 31 March 2011

Notes to the preliminary announcement (continued)

3. Business segments

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.

Retail was previously described as Flooring and Warehouse was previously described as Trade sales however the directors consider that the revised descriptions better fit the nature of those segments

Preliminary announcement of results for the year ended 31 March 2011

Notes to the preliminary announcement (continued)

4. Income tax expense

Analysis of charge for the year:

The tax charge for the year differs to the standard rate of corporation tax in the UK of 28% (2010: 28%). The differences are explained below:

Preliminary announcement of results for the year ended 31 March 2011

Notes to the preliminary announcement (continued)

5. Basic and diluted earnings per share

Basic earnings per share

The calculation of basic earnings per share for the year ended 31 March 2011 was based on the profit attributable to ordinary shareholders of £794,000 (2010: £683,000) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2011 of 81,400,000 (2010: 81,400,000).

Diluted earnings per share

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 (2010: £683,000) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2011 of 81,535,942 (2010: 81,480,759).

Weighted average number of ordinary shares (diluted)

6. Dividends

Dividends on equity shares:

Preliminary announcement of results for the year ended 31 March 2011

Notes to the preliminary announcement (continued)

7. Reconciliation of operating profit to net cash inflow from operating activities

8. Analysis of changes in net funds

9. Reconciliation of net cash flow to movement in net funds