23 Jul 2008 07:00
UNITED CARPETS GROUP plc
Preliminary Results for the year ended 31 March 2008
United Carpets Group plc ("the Group" or "the Company" or "United Carpets"), the third largest chain of specialist retail carpet and floor covering stores in the UK, today announces its preliminary results for the year ended 31 March 2008.
Highlights
* Before goodwill impairment and exceptional items.
Paul Eyre, Chief Executive, said:
'Despite tough conditions throughout the retail sector, United Carpets' focus on quality products at affordable prices, sold through both our corporate and franchised stores has delivered another good set of results. Although cautious, we remain optimistic about the future and believe that our strategy of steady expansion in store numbers, value for money offering, innovative product ranges, proactive sales strategies and improved quality of customer service will form the base for our ability to continue to deliver satisfactory growth in the coming year.'
Enquiries:
| United Carpets Group plc Paul Eyre, Chief Executive Ian Bowness, Finance Director Cardew Group Tim Robertson Jamie Milton | 01709 579 450 020 7930 0777 |
| Seymour Pierce Jonathan Wright | 020 7107 8000 |
Chairman's statement
I am pleased to announce another good set of results for the year ended 31 March 2008. The Group generated revenues of £21.17m compared to £19.55m in 2007, operating from 65 stores at 31 March 2008 (2007: 59 stores) located across Northern and Central England. During the year, 7 new stores were opened and one store closed. This represents steady, controlled expansion in the retail base of the Group and we look forward to further expansion in the coming year.
Financial review
Revenue, which as in previous years includes marketing and rental costs incurred by the Group and recharged to franchisees, increased by 8.3% to £21.17m (2007: £19.55m), with the increase in revenue from strong like for like growth and increased store numbers being tempered by the management decision to take back 5 poorer performing franchised stores so that they can be re-franchised. 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 8.8% to £59.1m (2007: £54.3m).
Like for like sales across the whole of the network were up 9.1% compared to the previous year. Given United Carpets' franchise structure, like for like sales are not the best measure of the Group's financial performance but they do provide a good steer on the overall trading performance. Within the like for like sales performance, the core floor coverings business achieved a 10.2% like for like increase on the previous year whilst bed like for like sales decreased by 1.8%.
The reduction in gross margin from 71.0% to 68.5% reflects the reduction in the proportion of franchise related income to total revenue as corporate stores turnover and trade sales accounted for a greater proportion of revenue.
Distribution costs increased by 8.9% and administration expenses (before goodwill impairment and exceptional items) increased by 2.8%. During the year a goodwill impairment provision of £220,000 was made as an exceptional item in administrative expenses.
Profit before tax increased by 46.8% to £1.511m (2007 £1.029m) and underlying profit before tax, goodwill impairment and exceptional items increased by 20.8% to £1.731m (2007: £1.433m).
Earnings per share were up 62.0% to 1.15p (2007: 0.71p).
Whilst the introduction of the centralised warehouse for beds and the launch of the in-house cutting service to the stores absorbed working capital in stock and debtors, the balance sheet continues to be robust with net funds of £1.3m at the year end.
Dividend
The Board recommends a final dividend of 0.55p per share (2007: 0.5p) which together with the interim dividend of 0.275p per share (2007: 0.25p) paid in January makes a total ordinary dividend of 0.825p per share for the year (2007: 0.75p). Subject to approval at the Annual General Meeting, the final dividend will be paid on 5 December 2008 to those shareholders whose names are on the register on 7 November 2008.
Operations review
The Group ended the financial year with 65 branded stores across Northern and Central England. With the exception of 18 corporate stores, the remainder were all franchises operating under United Carpets' bespoke franchise model, which aims to combine the advantages of a multiple retailer with the entrepreneurial drive of an independent. In the current environment, our focus on quality products and value for money has helped to insulate the Group to a degree from the general slow down in the retail sector. Our franchise model is also well suited to cope with the retail sector slow down as each franchised store is run by the owner who is naturally more motivated to drive sales performance.
Franchising
At the end of the year, we operated 47 franchised stores (2007: 48). Our strategy throughout the year was to steadily grow store numbers, having sourced quality locations and appropriate managers/franchisees. We successfully opened two new franchised stores in Northenden and Bury, took 5 franchised stores back into the corporate arm and refranchised 2 stores. In the three months since the end of the financial year, we have taken back 5 poor performing franchised stores and successfully re-franchised 6 stores. We aim to pursue a policy of steady growth in the number of outlets throughout 2008, and we expect to add further new stores during the current financial year.
Floor coverings
The majority of Group revenues are derived from the sale of floor coverings, predominantly carpet, laminate and vinyl flooring through franchised stores and the Group's own corporate stores. Trading over the year was strong with a 10.2% improvement in like for like sales across the network, which confirms that the Group's focus on 'value for money' has insulated it to a degree from the slowdown in the wider retail sector.
Having started the year with 11 corporate stores, United Carpets opened 5 corporate stores; Wetherby, Ilkeston, Sleaford, Grantham and Accrington and closed one corporate store in Manchester. We converted 5 franchisee stores back into corporate stores due to underperformance and successfully refranchised 2 corporate stores. Although we have demonstrated a capability to take back underperforming franchisee stores and turn them around under the corporate arm, this inevitably takes time and adversely affects profits until performance has been improved.
Of the 18 corporate stores at the year end, five are considered to be core corporate stores to be retained to enable ongoing training and product development. The process of re-franchising non core corporate stores is ongoing and the Group has a good pipeline of franchisees seeking to become part of the United Carpets franchise model. Since the year end, we have successfully opened three new corporate stores, in Wigan, Manchester (Failsworth) and Kidderminster; and taken back 5 poor performing franchised stores and successfully re-franchised 6 stores.
We continue to seek increased returns from existing stores through the spread of best practice throughout the Group. This is implemented through training courses for our brand managers, franchisees and all store staff and biannual franchisee conferences.
The Group continues to carry out television advertising in targeted areas where it has sufficient critical mass as demonstrated by our recent increased presence in the North West which has improved the cost effectiveness of television advertising in the Granada region. At the same time we continue to use radio, print and direct advertising strategies to increase brand awareness and drive sales across the Group.
In the first 16 weeks since the year end, like for like sales are up 7.9% demonstrating that the solid trading performance is continuing despite tough comparisons in the previous year.
Beds
Beds are sold through the majority of the store network with franchisees earning a commission on sales. This part of the business has not performed to its full potential and like for like sales during the year showed a 1.8% decrease. However, performance in this department is mixed across the network with some stores generating good sales growth and by spreading best practice through a continuous training programme, increased revenues can be generated. In the 16 weeks since 31 March 2008, beds has seen a 7.4% improvement in like for like sales albeit against weak comparatives.
Trade sales
The Group supplies carpets and laminate flooring from a central depot to individual franchisees. During the year the Group successfully launched an in-house cutting service which should enable some margin enhancement whilst ensuring very competitive prices as the service is extended to more ranges.
People
The Group has performed well in an increasingly stressed economic and market environment and the Board would like to thank all of its people across the network for their hard work and dedication which has enabled United Carpets to deliver a creditable trading performance during challenging times. We will continue to invest in the training and development of all of our people and look forward to their support in growing the Group in 2008.
Outlook
Since the year end, trading has been positive with total like for like sales for the 16 weeks to 17 July 2008 up by 7.8%. We will continue to seek quality franchisees for non-core corporate stores and to open new outlets in suitable areas. A key focus during 2008 will be to continue to deliver quality products at competitive prices, whilst steadily expanding store numbers to ensure continued growth in these difficult market conditions. There is no doubt the outlook for retailers across the market is challenging and United Carpets will not be immune to the broader economic conditions particularly through raw material price increases and the strength of the euro. However, our franchise model means that the majority of our stores are run individually by the "owner" ensuring higher staff motivation levels across the Group and our principles of steady, controlled growth supported by significant cash reserves mean that the Company is well placed to face the increasingly difficult trading environment ahead.
Peter Cowgill
Chairman
Preliminary announcement of results for the year ended 31 March 2008
Consolidated income statement
| | Note | Results before goodwill impairment | | Goodwill impairment | | 2008 | | Results before goodwill impairment and exceptional items | | Goodwill impairment and exceptional items | | 2007 |
| | | | | | | | | | | | | |
| | | £’000 | | £’000 | | £’000 | | £'000 | | £'000 | | £'000 |
| | | | | | | | | | | | | |
| Revenue | | 21,166 | | - | | 21,166 | | 19,546 | | - | | 19,546 |
| | | | | | | | | | | | | |
| Cost of sales | | (6,664) | | - | | (6,664) | | (5,667) | | - | | (5,667) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Gross profit | | 14,502 | | - | | 14,502 | | 13,879 | | - | | 13,879 |
| | | | | | | | | | | | | |
| Distribution costs | | (2,185) | | - | | (2,185) | | (2,006) | | - | | (2,006) |
| Administrative expenses | 3 | (10,922) | | (220) | | (11,142) | | (10,621) | | (202) | | (10,823) |
| Other operating income | | 183 | | - | | 183 | | 110 | | - | | 110 |
| Profit/(loss) on disposal of fixed assets | 3 | 10 | | - | | 10 | | - | | (202) | | (202) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Operating profit before financing costs | | 1,588 | | (220) | | 1,368 | | 1,362 | | (404) | | 958 |
| | | | | | | | | | | | | |
| Financial income | | 145 | | - | | 145 | | 85 | | - | | 85 |
| Financial expenses | | (2) | | - | | (2) | | (14) | | - | | (14) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Profit before tax | | 1,731 | | (220) | | 1,511 | | 1,433 | | (404) | | 1,029 |
| | | | | | | | | | | | | |
| Income tax expense | 5 | | | | | (572) | | | | | | (449) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Profit for the year | 8 | | | | | 939 | | | | | | 580 |
| | | | | | | | | | | | | |
| Earnings per share | 6 | | | | | | | | | | | |
| - Basic | | | | | | 1.15p | | | | | | 0.71p |
| - Diluted | | | | | | 1.14p | | | | | | 0.71p |
| | | | | | | | | | | | | |
All amounts are attributable to the equity holders of the parent, and all arise from continuing activities. No amounts were recognised directly in equity, and therefore no separate statement of recognised income and expense has been presented.
Preliminary announcement of results for the year ended 31 March 2008
Consolidated balance sheet
| | Note | | 2008 | | 2007 |
| | | | | | |
| | | | £’000 | | £’000 |
| | | | | | |
| Non-current assets | | | | | |
| Properties, plant and equipment | | | 4,317 | | 3,818 |
| Intangible assets | | | - | | 220 |
| | | | | | |
| | | | | | |
| | | | 4,317 | | 4,038 |
| | | | | | |
| | | | | | |
| Current assets | | | | | |
| Inventories | | | 2,347 | | 1,680 |
| Trade and other receivables | | | 3,238 | | 2,188 |
| Cash and cash equivalents | | | 1,448 | | 2,034 |
| | | | | | |
| | | | | | |
| | | | 7,033 | | 5,902 |
| | | | | | |
| | | | | | |
| Total assets | | | 11,350 | | 9,940 |
| | | | | | |
| | | | | | |
| Equity | | | | | |
| Issued capital | 8 | | 4,070 | | 4,070 |
| Share premium | 8 | | 1,106 | | 1,106 |
| Reserves | 8 | | (2,789) | | (2,821) |
| Retained earnings | 8 | | 2,570 | | 2,162 |
| | | | | | |
| | | | | | |
| Total shareholders’ equity | | | 4,957 | | 4,517 |
| | | | | | |
| | | | | | |
| Non-current liabilities | | | | | |
| Trade and other payables | | | 1,597 | | 1,768 |
| Provisions | | | 22 | | 95 |
| Deferred tax liabilities | | | 234 | | 157 |
| | | | | | |
| | | | | | |
| | | | 1,853 | | 2,020 |
| | | | | | |
| | | | | | |
| Current liabilities | | | | | |
| Trade and other payables | | | 4,540 | | 3,403 |
| | | | | | |
| | | | | | |
| | | | 4,540 | | 3,403 |
| | | | | | |
| | | | | | |
| Total liabilities | | | 6,393 | | 5,423 |
| | | | | | |
| | | | | | |
| Total equity and liabilities | | | 11,350 | | 9,940 |
| | | | | | |
Preliminary announcement of results for the year ended 31 March 2008
Consolidated cash flow statement
| | Note | | 2008 | | 2007 |
| | | | | | |
| | | | £’000 | | £’000 |
| | | | | | |
| Cash flows from operating activities | | | | | |
| Cash generated from operations | 9 | | 1,228 | | 2,146 |
| Interest paid | | | (2) | | (14) |
| Income tax (paid)/refunded | | | (249) | | 50 |
| | | | | | |
| | | | | | |
| Net cash from operating activities | | | 977 | | 2,182 |
| | | | | | |
| | | | | | |
| Cash flows from investing activities | | | | | |
| Proceeds from sale of property, plant and equipment | | | 129 | | 70 |
| Interest received | | | 145 | | 85 |
| Acquisition of properties, plant and equipment | | | (1,188) | | (1,230) |
| | | | | | |
| | | | | | |
| Net cash from investing activities | | | (914) | | (1,075) |
| | | | | | |
| | | | | | |
| Cash flows from financing activities | | | | | |
| Payment of finance lease liabilities | | | (18) | | (87) |
| Dividends paid | | | (631) | | (611) |
| | | | | | |
| | | | | | |
| Net cash from financing activities | | | (649) | | (698) |
| | | | | | |
| | | | | | |
| Net (decrease)/increase in cash and cash equivalents | | | (586) | | 409 |
| Cash and cash equivalents at start of period | | | 2,034 | | 1,625 |
| | | | | | |
| | | | | | |
| Cash and cash equivalents | 10 | | 1,448 | | 2,034 |
| | | | | | |
Preliminary announcement of results for the year ended 31 March 2008
Notes to the preliminary announcement
1. General information
The preliminary financial information in this document, which has been agreed by the Directors, does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The Group has prepared its consolidated financial statements for the period ended 31 March 2008 in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The information included in the preliminary statements will be included in full financial statements for the year ended 31 March 2008.
The financial information has been prepared on the basis of the recognition and measurement requirements of International Financial Reporting Standards as adopted for use in the European Union ('IFRS') that are effective (or available for early adoption) at 31 March 2008, the first annual reporting date at which United Carpets Group plc is required to use IFRS.
Whilst the financial information included in this preliminary announcement has been prepared in accordance with IFRS, this announcement itself does not contain sufficient financial information to comply with IFRS. A copy of the statutory accounts prepared under IFRS for the year ended 31 March 2008 will be issued to shareholders prior to the Company's Annual General Meeting.
Statutory accounts for 2007, which were prepared under UK GAAP, have been delivered to the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The statutory accounts for 2008 will be delivered to the Registrar of Companies in due course.
2. Basis of preparation
The accounting policies used have been applied consistently to all periods presented in these consolidated financial statements and comply with applicable IFRS standards and IFRIC interpretations issued and effective at the time of preparing these statements.
The preparation of these financial statements in accordance with IFRS resulted in no significant changes to the accounting policies as compared with last year's annual financial statements prepared under UK GAAP. They also have been applied by preparing an opening IFRS balance sheet at 1 April 2007 for the purpose of the transition to IFRS, as required by IFRS 1.
The transition from previous UK GAAP to IFRS had no impact on the net assets, results or cash flows reported previously by the group. As a result of adopting IFRS there have been numerous changes to the presentation of the financial statements.
3. Goodwill impairment and exceptional items
During the year a goodwill impairment provision of £220,000 was made as an exceptional item in administrative expenses.
In 2007, administrative expenses included exceptional store closure costs of £145,000 and £57,000 which related to the impairment of goodwill. The loss on disposal of fixed assets principally related to the closure of the Warrington and Leeds (Dewsbury Road) stores.
4. 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.
For the year ended 31 March 2008
| | Franchising | Flooring | Beds | Trade Sales | Consolidated | |||||
| | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 |
| | £’000 | £’000 | £ ‘000 | £ ‘000 | £ ‘000 | £ ‘000 | £ ‘000 | £ ‘000 | £ ‘000 | £ ‘000 |
| | | | | | | | | | | |
| Segment revenue | 8,540 ____ | 9,108 ____ | 7,470 ____ | 6,222 ____ | 3,523 ____ | 3,176 ____ | 1,633 ____ | 1,040 ____ | 21,166 ____ | 19,546 ____ |
| | | | | | | | | | | |
| Segment results | 2,234 ____ | 1,426 ____ | (62) ____ | 337 ____ | 353 ____ | 237 ____ | 74 ____ | 89 ____ | 2,599 | 2,089 |
| | | | | | | | | | | |
| Unallocated expenses | | | | | | | | | (1,231) ____ | (1,131) ____ |
| | | | | | | | | | | |
| Operating profit | | | | | | | | | 1,368 | 958 |
| Net financing costs | | | | | | | | | 143 | 71 |
| Income tax expense | | | | | | | | | (572) ____ | (449) ____ |
| Profit for the year | | | | | | | | | 939 _____ | 580 _____ |
| | | | | | | | | | | |
| | | | | | | | | | | |
Trade sales was previously described as wholesaling however the directors consider that the revised description better fits the nature of this business.
5. Taxation on ordinary activities
Analysis of charge in the year:
| | | 2008 | | 2007 |
| | | £’000 | | £’000 |
| | | | | |
| Current tax: | | | | |
| UK corporation tax | | 525 | | 359 |
| Adjustments in respect of prior years | | (30) | | 52 |
| | | 495 | | 411 |
| Deferred tax: | | | | |
| Charge for the year | | 77 | | 38 |
| Tax on profit on ordinary activities | | 572 | | 449 |
| | | | | |
The tax assessed on ordinary activities for the year differs to the standard rate of corporation tax in the UK of 30% (2007: 30%).
| | 2008 | | 2007 |
| | £’000 | | £’000 |
| | | | |
| Profit before tax | 1,511 | | 1,029 |
| | | | |
| | | | |
| Profit by rate of tax | 453 | | 309 |
| | | | |
| Effects of: | | | |
| Expenses not deductible for tax purposes | 105 | | 39 |
| Capital allowances for year in excess of depreciation | (77) | | (60) |
| Non qualifying depreciation | 51 | | 47 |
| Non qualifying disposals | - | | 57 |
| Marginal relief | (9) | | (20) |
| Tax losses carried forward | - | | (68) |
| Other timing differences | 2 | | 55 |
| Adjustment to tax charge in respect of previous years | (30) | | 52 |
| Total current tax | 495 | | 411 |
6. Basic and diluted earnings per share
Basic earnings per share
The calculation of basic earnings per share for the year ended 31 March 2008 was based on the profit attributable to ordinary shareholders of £939,000 (2007: £580,000) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2008 of 81,400,000 (2007: 81,400,000).
Diluted earnings per share
The calculation of diluted earnings per share for the year ended 31 March 2008 was based on profit attributable to ordinary shareholders of £939,000 (2007 £580,000) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2008 of 82,644,756 (2007: 81,609,991), calculated as follows:
Weighted average number of ordinary shares (diluted)
| | 2008 | | 2007 |
| | £’000 | | £’000 |
| For the year ended 31 March 2008 | | | |
| Weighted average number of ordinary shares at 31 March | 81,400,000 | | 81,400,000 |
| Effect of share options in issue | 1,244,756 | | 209,991 |
| Weighted average number of ordinary shares (diluted) at 31 March | 82,644,756 | | 81,609,991 |
7. Dividends
Dividends on equity shares:
| | 2008 | | 2007 |
| | £’000 | | £’000 |
| Dividends paid during the year on ordinary shares | 631 | | 611 |
8. Capital and reserves
Share capital and share premium
The Group recorded the following amounts within shareholder's equity as a result of the issuance of ordinary shares.
| | Share Capital | ||
| | 31 March 2008 £ ‘000 | | 31 March 2007 £ ‘000 |
| 81,400,000 ordinary shares of 5 pence each | 4,070 | | 4,070 |
| Share Premium | ||
| 31 March 2008 £ ‘000 | | 31 March 2007 £ ‘000 |
| 1,106 | | 1,106 |
Reserves
| | Merger reserve £ ‘000 | | Share-based payment reserve £ ‘000 | | Total £ ‘000 |
| | | | | | |
| At 1 April 2007 | (3110) | | 289 | | (2,821) |
| Charge for the period | - | | 132 | | 132 |
| Transfer to retained earnings | - | | (100) | | (100) |
| | | | | | |
| At 31 March 2008 | (3110) | | 321 | | (2,789) |
The merger reserve is the difference between the nominal value of shares issued in order to acquire the merged entities and the share capital and share premium account of the merged entities.
| | Retained earnings £ ‘000 |
| | |
| At 1 April 2007 | 2,162 |
| Profit for the year | 939 |
| Dividends paid | (631) |
| Transfer from share-based payment reserve | 100 |
| | |
| At 31 March 2008 | 2,570 |
9. Reconciliation of operating profit to net cash inflow from operating activities
| | 2008 | | 2007 |
| | £’000 | | £’000 |
| | | | |
| Operating profit | 1,368 | | 958 |
| (Profit)/loss on disposal of fixed assets | (10) | | 202 |
| Depreciation | 691 | | 589 |
| Impairment of goodwill | 220 | | 57 |
| Share-based payments | 132 | | 214 |
| Decrease in fixed assets due to transfer to stock | - | | 121 |
| Increase in stock | (667) | | (335) |
| (Increase)/decrease in debtors | (1,050) | | 981 |
| Increase/(decrease) in creditors | 617 | | (736) |
| (Decrease)/increase in provisions | (73) | | 95 |
| | | | |
| | 1,228 | | 2,146 |
10. Analysis of changes in net funds
| | 2007 | | Cashflow | | Non- cash movements | | 2008 |
| | £’000 | | £’000 | | £ ‘000 | | £ ‘000 |
| | | | | | | | |
| Bank and cash | 2,034 | | (586) | | - | | 1,448 |
| | | | | | | | |
| Hire purchase contracts: | | | | | | | |
| Due within one year | (7) | | 18 | | (41) | | (30) |
| Due after more than one year | (3) | | - | | (80) | | (83) |
| Net funds | 2,024 | | (568) | | (121) | | 1,335 |
| | | | | | | | |
11. Reconciliation of net cash flow to movement in net funds
| | | 2008 | | 2007 |
| | | £’000 | | £’000 |
| (Decrease)/increase in cash in the year | | (586) | | 409 |
| Cash outflow from hire purchase financing | | 18 | | 87 |
| Assets acquired under hire purchase agreements | | (121) | | - |
| Change in net funds resulting from cashflows | | (689) | | 496 |
| Net funds at start of year | | 2,024 | | 1,528 |
| Net funds at end of year | | 1,335 | | 2,024 |