UCG.L Regulatory News (UCG)

UNITED CARPETS GROUP plc

Preliminary Results for the 6 month period ended 31 March 2013

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 6 month period ended 31 March 2013.

Highlights

·; Network sales were £29.0m (18 months ended 5 October 2012: £105.8m)

·; Like for like sales decreased by 9.7%*

·; Revenue for the 6 months ended 31 March 2013 was £11.3m (18 months ended 5 October 2012: £Nil)

·; Profit before tax was £0.25m (18 months ended 5 October 2012: Loss of £0.72m)

·; Earnings per share were 0.19p (18 months ended 5 October 2012: Loss per share 3.92p)

·; Store numbers decreased by 8 to 64

·; No dividend is proposed (18 months ended 5 October 2012: Nil)

* Like for like sales are defined under Financial Review

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Paul Eyre, Chief Executive, said:

"These results show we are beginning to move in the right direction, we have reduced the size of the business in response to a very tough market environment and currently operate from 61 stores. This number may reduce further as we increasingly focus on our core portfolio of stores capable of operating successfully in this market. We are pleased to report a profit for the period and we hope to build on this going forward."

Enquiries:

Chairman's statement

I am pleased to be able to report that the Group has been making steady progress following the restructuring which began in the second half of 2012.

To address the significant number of underperforming franchised stores and better protect the Group's future, the Board decided during 2012 to close a number of stores and re-evaluate the business, creating a smaller entity, better able to operate successfully in the current retail environment.

Sales for the period on a like for like basis were down by 9.7% during a difficult period for the retail sector and significant change for the Group. Profit before tax was £0.25m and the Group is now better placed to improve on this performance in the current financial year.

This report covers the 6 month period to 31 March 2013, however, the prior reporting period was for the 18 months to 5 October 2012.

Financial review

Network sales across the Group, including the value of retail sales by our franchisees (to give a measure of the Group's turnover on a more comparable basis to a conventional retailer), were £29.0m. Revenue, which as in previous years includes marketing and rental costs incurred by the Group and recharged to franchisees, was £11.3m.

Like for like sales across the whole of the network (based on stores that have traded throughout both the period under review and the corresponding period in the prior year and thus excluding stores that closed during either period) were down 9.7%. This reflected the continuation of challenging trading conditions, increased pressure from competitors, negative perceptions created by the administration of United Carpets (Northern) Ltd ("UCN"), reduced levels of marketing funds due to fewer stores and unhelpful weather conditions. Whilst this performance is disappointing, it represents an improvement compared to the first 19 weeks of the period which were down 11.1% with sales in March being more encouraging despite the adverse weather conditions. The removal of the majority of the loss making stores meant that the Group and its remaining franchisees were better able to withstand this downturn in trade.

Within the like for like sales performance, the core floor coverings business was 8.9% lower whilst our beds business (which accounts for just over 7% of retail sales) experienced a 19.3% decline.

Whilst underlying Flooring gross margins were maintained during the period in line with pre-administration levels, Warehouse and Beds margins declined. That coupled with an increased proportion of revenue from relatively low margin Warehouse sales, resulted in a reduction in gross margin to 62.7% compared to 64.3% pre-administration.

Distribution costs and administrative expenses include rent, rates and staff costs at the corporate stores and have reduced from their pre-administration levels in line with the reduction in the scale of the business. Further savings are anticipated from the reduction in store numbers since the period end.

Profit before tax and exceptional items was £0.25m. Basic earnings per share improved to 0.19p

The balance sheet included net funds of £0.9m at 31 March 2013 (5 October 2012: £0.8m).

Dividend

The Board is not recommending a 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

At the start of the period under review the Group operated 72 stores of which 54 were franchised and 18 were corporate stores. At 31 March 2013, there were 64 stores of which 52 were franchised and 12 were corporate stores. Since then a further 3 stores have closed, 2 corporate and one franchise, so that today the Group operates 61 stores.

It was clear during the course of 2012 that radical action was necessary in order to better secure the long term future of the Company. The process undertaken was not done lightly and it has caused substantial upheaval and change for multiple stakeholders. While the process is still ongoing, the Board believes the long term impact will be beneficial as it will create a smaller, more resilient network of stores better able to trade successfully during what has been a prolonged downturn in market conditions.

Of the 61 stores currently trading, leases are either in place or have been agreed in principle pending legal completion for 53 stores, with the remaining stores being occupied under licence from the administrator on the same terms that existed prior to the administration of UCN. In many cases, where new leases have been agreed, it has been possible to achieve more favourable terms with landlords through a combination of reduced rents, break clauses and elimination of historic dilapidation commitments. Negotiations in respect of those properties for which leases have not yet been agreed remain ongoing and a small number of further closures can be anticipated.

Franchising and Retail

Floor coverings are the Group's primary driver of sales (predominantly carpet, laminate and vinyl flooring) through both franchised stores and the Group's own corporate stores. It has been a particularly difficult trading period due to the changes taking place across the business and it is harder to draw conclusions from the trading patterns. There is no doubt that our markets remain competitive and consumer spending has continued to be tight. We nevertheless have a good proportion of stores achieving consistent sales of Flooring to show that it remains a market in which it is possible to achieve good returns.

On a like for like basis, sales of Flooring since the period end have improved significantly but still remain 1.6% down for the 16 weeks since the period end to 18 July 2013.

Warehousing and Beds

Our in-house cutting operation continues to expand with revenue of £3.9m in the period as franchisees continue to appreciate the opportunity to deliver a quick efficient service at an attractive price point and better margin.

Sales of Beds continue to under-perform their potential within the Group. During the period under review on a like for like basis Beds sales were 19.3% down and since the period end for the last 16 weeks they were down 20.3%. In practice they are only a small part of total sales and so do not make a material contribution. However, we believe they can make a greater contribution and the process of changing the way that Beds are sold through the network, giving more ownership of Beds sales to the franchisees and providing them with greater financial incentive to maximise Beds sales, will commence roll out shortly.

Property

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

People

This has been a very challenging period and therefore the Board is even more grateful to all members of staff and everyone connected to the business who have supported the business and worked hard to ensure the long term future of the Group. In addition, we would like to thank all our supplier partners who have helped during this period of transition and we look forward to repaying their support through increased opportunities for them as the Group moves forward. 

Outlook

Whilst this has been a particularly difficult period, we are confident the actions taken are in the long term interests of the business and shareholders.

We remain focused on agreeing terms with those stores which will continue as part of the Group and enhancing sales from the core portfolio.

Trading conditions have not materially improved, competition remains tough and consumer spending is tight with no real improvement in the 'feel good' factor so critical to retailers. That said, United Carpets is an experienced and specialist retailer providing an excellent shopping experience for customers looking for a combination of good quality and good value. Combined like for like sales performance has improved significantly for the 16 weeks since the period end but remains 2.9% down although Flooring like for like sales were positive prior to the recent fortnight of exceptionally hot weather.

The Group remains debt free, has reasonable cash reserves and stock levels and therefore can look forward with a degree of confidence that it can continue to make good progress in the current financial year on the basis it has established firmer foundations to meet the challenges of the current market environment.

Peter Cowgill

Chairman

Preliminary announcement of results for the 6 month period ended 31 March 2013

Consolidated statement of profit or loss

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.

Preliminary announcement of results for the 6 month period ended 31 March 2013

Consolidated statement of financial position

Preliminary announcement of results for the 6 month period ended 31 March 2013

Consolidated statement of changes in equity

Preliminary announcement of results for the 6 month period ended 31 March 2013

Consolidated statement of cash flows

Preliminary announcement of results for the 6 month period ended 31 March 2013

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 period ended 5 October 2012 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 period ended 31 March 2013 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 period ended 31 March 2013 in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

2. Operating profit/(loss)

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

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Preliminary announcement of results for the 6 month period ended 31 March 2013

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. Retail and Beds were previously reported separately and Property was previously reported in Franchising. The business segment reporting format reflects the Group's revised 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.

Preliminary announcement of results for the 6 month period ended 31 March 2013

Notes to the preliminary announcement (continued)

4. Income tax expense

Analysis of charge for the period:

The tax charge for the year differs to the standard rate of corporation tax in the UK of 24% (2012: 24%). The differences are explained below:

Preliminary announcement of results for the 6 month period ended 31 March 2013

Notes to the preliminary announcement (continued)

5. Basic and diluted earnings/(loss) per share

Basic earnings/(loss) per share

The calculation of basic earnings per share for the period ended 31 March 2013 was based on the profit attributable to ordinary shareholders of £157,000 (2012: loss of £3,189,000) and a weighted average number of ordinary shares outstanding during the period ended 31 March 2013 of 81,400,000 (2012: 81,400,000).

Diluted earnings/(loss) per share

Diluted earnings per share for the period ended 31 March 2013 and 5 October 2012 was the same as basic earnings per share as the share options in issue were non-dilutive in the period.

6. Equity dividends

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

7. Acquisition

The trade, assets and certain liabilities of United Carpets (Northern) Limited were acquired on 4 October 2012.

The calculations of fair values are provisional and may be subject to further change.

Preliminary announcement of results for the 6 month period ended 31 March 2013

Notes to the preliminary announcement (continued)

7. Acquisition (continued)

The acquisition of the trade from a connected company may give rise to a deferred tax asset in United Carpets (Franchisor) Ltd. An estimate of any such asset will be made once there is further clarity on the tax position of United Carpets (Northern) Ltd to 5 October 2012.

The estimate of deferred contingent consideration above will be determined based on net profits of the Group during the period to 4 October 2013.

The outflow of cash resulting from the acquisition was as follows:

Preliminary announcement of results for the 6 month period ended 31 March 2013

Notes to the preliminary announcement (continued)

8. Reconciliation of profit/(loss) before tax to cash flows from operating activities

9. Reconciliation of cash and cash equivalents

Cash and cash equivalents are solely bank balances.