18 Dec 2008 07:00
UNITED CARPETS GROUP plc
Interim Results for the period ended 30 September 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 interim results for the period ended 30 September 2008.
Highlights
Network sales grew by 5.9% to £30.88m (2007: £29.16m)
Revenue increased by 22.4% to £12.62m (2007: £10.31m)
Like for like sales up 5.0%
Profit before tax decreased by 9.8% to £637,000 (2007: £706,000)
Underlying profit before tax* decreased by 13.7% to £634,000 (2007: £735,000)
15 stores have been opened since the year end bringing the current total to 80
Very challenging market conditions
*Before impairment of intangible assets £Nil (2007: £29,000) and profit on disposal of property, plant and equipment of £3,000 (2007: £Nil)
Paul Eyre, Chief Executive, said:
'United Carpets, along with the wider retail sector, is facing very tough trading conditions, with greatly reduced consumer spending power. Despite this, the Group's focus on quality products at affordable prices, sold through both our corporate and franchised stores has generated a satisfactory result for this half year, despite increased costs associated with our store opening programme and additional marketing expenditure to maintain and increase market share. We believe that United Carpets' position at the value end of the sector, combined with its relatively resilient franchise structure, will enable us to continue to trade through this difficult period and be well positioned for the eventual recovery in consumer spending.'
Enquiries:
| United Carpets Group plc Paul Eyre, Chief Executive Ian Bowness, Finance Director | 01709 732 666 |
| Cardew Group Tim Robertson Jamie Milton | 020 7930 0777 |
| Seymour Pierce Jonathan Wright | 020 7107 8000 |
Chairman's statement
I am pleased to announce the Group's interim results for the six months ended 30 September 2008. The Group generated revenues of £12.62m compared to £10.31m in the comparable period in 2007, operating from 73 stores located across Northern and Central England. Since the period end, a further 7 stores have opened increasing the number of stores to 80. The management team has given careful consideration to how best to manage the business during these challenging times and is focused on preserving the financial strength of the business whilst balancing this aim with ensuring that the Group continues to invest sufficiently in marketing to support future sales.
Financial review
Revenue, which as in previous years includes marketing and rental costs incurred by the Group and recharged to franchisees, increased by 22.4% to £12.62m (2007: £10.31m), reflecting the large growth in corporate store numbers during the period. 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 5.9% to £30.88m (2007: £29.16m).
Like for like sales across the whole of the network were up 5.0% compared to the previous period. 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 4.9% like for like increase on the previous year whilst bed like for like sales increased by 6.0%.
The reduction in gross margin from 69.6% to 65.4% reflects the reduction in the proportion of franchise related income to total revenue as turnover from corporate stores and trade sales accounted for a greater proportion of revenue.
Distribution costs include staff costs at the corporate stores and the increase of 24.7% arises from the increase in corporate store numbers in the period in comparison to the same period in 2007 and a full period's cost of the central bed warehouse which opened during the comparable period in 2007.
Administrative expenses include the occupancy costs and depreciation of corporate stores and the increase of 15.9% arises from the increase in corporate store numbers and increased marketing expenditure during the period.
A key operational focus is to continue the process of franchising existing corporate stores which will have a positive impact as the Group recoups its original investment.
Profit before tax decreased by 9.8% to £637,000 (2007 £706,000). Earnings per share were 0.51p (2007: 0.57p).
Dividend
In the current trading environment the Board considers that preserving the existing strength of the Group's financial position is a priority. Consequently, as we approach what is traditionally a quieter trading period for our sector, the Board feels that it would be inappropriate, at this time, to pay an interim dividend. The Board still expects to pay a final dividend subject to market conditions.
Operations review
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 period was solid with a 4.9% improvement in like for like sales across the network, confirming that the Group's franchise structure and focus on 'value for money' provided a degree of insulation from the slowdown in the wider retail sector. Beds are sold through the majority of the store network with franchisees earning a commission on sales.
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. The recent significant increase in store numbers has increased our ability to fund more sustained advertising campaigns in key areas which will be vital in maintaining foot fall into the stores during this current economic downturn.
The Group ended the period under review with 73 branded stores across Northern and Central England. With the exception of 22 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 first 11 weeks since the period end, like for like flooring sales are down 5.0% reflecting the sharp downturn in the economic climate since the end of September.
Franchising
The Group started the year with 47 franchised stores and during the period added 2 new franchised stores in Melton Mowbray and Blackpool. In addition, we converted 5 franchisee stores back into corporate stores due to underperformance but successfully refranchised all of them and franchised an additional 2 corporate stores giving us 51 franchised stores at the period end.
The average number of franchisees during the period was similar to the comparable period in 2007 resulting in very similar revenues, however, increased marketing expenditure to maintain and increase market share impacted on the result for the period.
Since the period end we have opened 2 new franchised stores at Brigg and Liverpool (Hunts Cross), converted 3 franchisee stores back into corporate stores due to underperformance and successfully refranchised them and franchised one additional corporate store giving us 54 franchisees currently.
Flooring
Having started the year with 18 corporate stores, 6 new corporate stores opened during the period at: Wigan, Failsworth, Kidderminster, Hall Green, West Bromwich and Gorton and 2 were franchised leaving us with 22 corporate stores at the period end. Five of the 22 corporate stores are considered to be core to be retained to enable ongoing training and product development, with the Group seeking to franchise as many as possible of the remainder with quality candidates.
Whilst store numbers and revenues have increased significantly in comparison to the comparable period in 2007, the tougher economic climate has meant that it is taking longer for new stores to become established in the market. Furthermore 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 profit until performance has been improved.
Since the period end, we have successfully opened 5 new corporate stores, in Wednesbury, Little Hulton, Kingstanding, Shrewsbury and Runcorn, and franchised one corporate store giving us a total of 26 corporate stores currently.
Beds
This segment of the business has yet to perform to its full potential although like for like sales during the period showed a 6.0% increase. Performance continues to be mixed across the network with some stores generating good sales growth whilst others continue to underperform. Sales have been more severely affected by the downturn since the end of September, reflecting the greater impact of the slowdown on items with a higher average order value, with like for like sales in the 11 weeks since the period end, down 10.6%.
Trade Sales
The Group has invested in developing its own in-house cutting operation for flooring providing improvements in efficiency and service to the store network. Begun just over a year ago, the service is still relatively new and the management team expect it can contribute further benefits to the Group as utilisation and economies of scale increase.
People
That the Group continues to generate a solid performance in these tough trading conditions is in large part due to our staff and franchisees. The Board would like to thank all employees, franchisees and supplier partners 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 maintaining the Group's position in 2009.
Outlook
The marked deterioration in consumer confidence during late September and October noted in our AGM statement on 31 October 2008 has improved a little with total like for like sales for the last 11 weeks improving to 5.5% down on the previous year, compared to the six weeks to 23 October 2008 which were down 6.4%.However, although United Carpets' position as the value choice within the sector has to a degree helped protect it from the general slowdown on the high street, the management believe it is appropriate in this environment to adopt a cautious approach to protect our financial position going forward. During the second half of this financial year the Group will continue to invest in marketing to support sales across the store network whilst at the same time looking to maintain tight control of all costs and reduce the current number of corporate stores by matching them with suitable franchisees. We believe that United Carpets' position at the value end of the sector, combined with its relatively resilient franchise structure, will enable us to continue to trade through this difficult period and be well positioned for the eventual recovery in consumer spending.
Peter Cowgill
Chairman
INDEPENDENT REVIEW REPORT TO UNITED CARPETS GROUP PLC
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2008, which comprises the condensed consolidated interim income statement, the condensed consolidated interim balance sheet, the condensed consolidated statement of changes in equity and the condensed consolidated interim statement of cash flows and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.
The annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with applicable law and the AIM Rules for Companies.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of the half-yearly financial report consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review nothing has come to our attention that causes us to believe that the accompanying condensed financial statements are not prepared, in all material respects, in accordance with applicable law, the bases set out in note 1 and the AIM Rules for Companies.
| Tenon Audit Limited |
| Chartered Accountants |
| Nottingham |
18 December 2008
Condensed consolidated interim income statement
For the six months ended 30 September 2008
| 6 months | 6 months | ||||||
| Note | ended 30 September 2008 Unaudited Total £'000 | ended 30 September 2007 Unaudited Total £'000 | Year ended 31 March 2008 Audited Total £'000 | ||||
| Revenue | 2 | 12,624 | 10,311 | 21,166 | |||
| Cost of sales | (4,373) | (3,133) | (6,664) | ||||
| Gross profit | 8,251 | 7,178 | 14,502 | ||||
| Distribution costs | (1,524) | (1,222) | (2,185) | ||||
| Administrative expenses | (6,200) | (5,349) | (11,142) | ||||
| Other operating income | 50 | 38 | 183 | ||||
| Profit on disposal of property, plant and equipment | 3 | - | 10 | ||||
| Operating profit before financing costs | 580 | 645 | 1,368 | ||||
| Financial income | 58 | 61 | 145 | ||||
| Financial expenses | (1) | - | (2) | ||||
| Profit before tax | 637 | 706 | 1,511 | ||||
| Income tax expense | 3 | (223) | (240) | (572) | |||
| Profit for the period | 2 | 414 | 466 | 939 | |||
| Basic earnings per share | 5 | 0.51p | 0.57p | 1.15p | |||
| Diluted earnings per share | 5 | 0.51p | 0.57p | 1.14p |
All amounts are attributable to the equity holders of the parent, and all arise from continuing operations. No amounts were recognised directly in equity, and therefore no separate statement of recognised income and expense has been presented.
Condensed consolidated interim balance sheet
As at 30 September 2008
| Note | 30 September 2008 Unaudited Total £'000 | 30 September 2007 Unaudited Total £'000 | 31 March 2008 Audited Total £'000 | |
| Non-current assets | ||||
| Property, plant and equipment | 4 | 5,070 | 3,932 | 4,317 |
| Intangible assets | - | 191 | - | |
| 5,070 | 4,123 | 4,317 | ||
| Current assets | ||||
| Inventories | 2,884 | 2,271 | 2,347 | |
| Trade and other receivables | 2,994 | 2,768 | 3,238 | |
| Cash and cash equivalents | 934 | 2,653 | 1,448 | |
| 6,812 | 7,692 | 7,033 | ||
| Total assets | 11,882 | 11,815 | 11,350 | |
| Equity | ||||
| Issued capital | 4,070 | 4,070 | 4,070 | |
| Share premium | 1,106 | 1,106 | 1,106 | |
| Reserves | (2,745) | (2,855) | (2,789) | |
| Retained earnings | 2,984 | 2,728 | 2,570 | |
| Total shareholders' equity | 5,415 | 5,049 | 4,957 | |
| Non-current liabilities | ||||
| Financial liabilities - borrowings | 70 | - | 83 | |
| Trade and other payables | 1,643 | 1,965 | 1,514 | |
| Provisions | 22 | 93 | 22 | |
| Deferred tax liabilities | 234 | 158 | 234 | |
| 1,969 | 2,216 | 1,853 | ||
| Current liabilities | ||||
| Financial liabilities - borrowings | 27 | - | 30 | |
| Trade and other payables | 4,229 | 4,550 | 4,256 | |
| Current tax liabilities | 242 | - | 254 | |
| 4,498 | 4,550 | 4,540 | ||
| Total liabilities | 6,467 | 6,766 | 6,393 | |
| Total equity and liabilities | 11,882 | 11,815 | 11,350 |
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2008
| Share capital | Share premium account | Retained earnings | Merger reserve | Share-based payment reserve | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 April 2007 | 4,070 | 1,106 | 2,162 | (3,110) | 289 |
| Profit for the financial period | - | - | 466 | - | - |
| Dividends paid | - | - | - | - | - |
| Share-based payments | - | - | - | - | 66 |
| Transfer | - | - | 100 | - | (100) |
| At 30 September 2007 | 4,070 | 1,106 | 2,728 | (3,110) | 255 |
| At 1 April 2008 | 4,070 | 1,106 | 2,570 | (3,110) | 321 |
| Profit for the financial period | - | - | 414 | - | - |
| Dividends paid | - | - | - | - | - |
| Share-based payments | - | - | - | - | 44 |
| At 30 September 2008 | 4,070 | 1,106 | 2,984 | (3,110) | 365 |
Condensed consolidated interim statement of cash flows
For the six months ended 30 September 2008
| Note | 6 months ended 30 September 2008 Unaudited Total £'000 | 6 months ended 30 September 2007 Unaudited Total £'000 | Year ended 31 March 2008 Audited Total £'000 | |
| Cash flows from operating activities | ||||
| Cash generated from operations | 8 | 819 | 6 | 1,228 |
| Interest paid | (1) | - | (2) | |
| Income taxes (paid)/refunded | (235) | 4 | (249) | |
| Net cash from operating activities | 583 | 10 | 977 | |
| Cash flows from investing activities | ||||
| Proceeds from sale of property, plant and equipment | 4 | - | 129 | |
| Interest received | 58 | 61 | 145 | |
| Acquisition of property, plant and equipment | (1,143) | (445) | (1,188) | |
| Net cash from investing activities | (1,081) | (384) | (914) | |
| Cash flows from financing activities | ||||
| Payment of finance lease liabilities | (16) | (3) | (18) | |
| Dividends paid | - | - | (631) | |
| Net cash from financing activities | (16) | (3) | (649) | |
| Net decrease in cash and cash equivalents | (514) | (377) | (586) | |
| Cash and cash equivalents at start of period | 1,448 | 2,034 | 2,034 | |
| Cash and cash equivalents | 934 | 1,657 | 1,448 |
Notes to the condensed consolidated interim financial statements
1. Basis of preparation
United Carpets Group plc (the "Company") is a company domiciled in the United Kingdom. The condensed consolidated interim financial statements of the Company for the six months ended 30 September 2008 comprise the Company and its subsidiary undertakings (together referred to as the "Group").
The Group financial statements for the year ended 31 March 2008 were approved by the Board of Directors on 22 September 2008 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 237 of the Companies Act 1985. These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985. These condensed consolidated interim financial statements for the period ended 30 September 2008 are unaudited but have been reviewed by the auditors and their Independent Review Report is included with these statements.
The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2008.
2. Segment reporting
Segment information is presented in the condensed consolidated interim financial statements 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.
Business segments
The Group is comprised of the following main business segments:
For the six months ended 30 September 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 | 4,441 | 4,446 | 4,795 | 3,377 | 2,028 | 1,729 | 1,360 | 759 | 12,624 | 10,311 |
| Segment result | 926 | 1,009 | (50) | (55) | 149 | 150 | 54 | 72 | 1,079 | 1,176 |
| Unallocated expenses | (499) | (531) | ||||||||
| Operating profit | 580 | 645 | ||||||||
| Net financing costs | 57 | 61 | ||||||||
| Income tax expense | (223) | (240) | ||||||||
| Profit for the period | 414 | 466 | ||||||||
Notes to the condensed consolidated interim financial statements
3. Income taxes
The tax charge accrued in these interim results reflects an estimated tax rate of 35% (30 September 2007: 34%) as a result of expenses not deductible for tax purposes and non-qualifying depreciation.
4. Property, plant and equipment
Acquisitions and disposals
During the six months ended 30 September 2008, the Group acquired assets with a cost of £1,143,000 (six months ended 30 September 2007: £445,000). Assets with a net book value of £1,000 were disposed of during the six months ended 30 September 2008 (six months ended 30 September 2007: £Nil), resulting in a gain on disposal of £3,000 (six months ended 30 September 2007: £Nil).
Capital commitments
There were no capital commitments contracted for but not provided for at the period end (30 September 2007: £Nil).
5. Earnings per share
Basic earnings per share
The calculation of basic earnings per share for the six months ended 30 September 2008 was based on the profit attributable to ordinary shareholders of £414,000 (six months ended 30 September 2007: £466,000, year ended 31 March 2008: £939,000) and a weighted average number of ordinary shares outstanding during the six months ended 30 September 2008 of 81,400,000 (six months ended 30 September 2007: 81,400,000, year ended 31 March 2008: 81,400,000).
Diluted earnings per share
There are 1,428,571 share options which give rise to a dilution at 30 September 2008 (30 September 2007: 1,428,571, March 2008: 1,845,237).
The calculation of diluted earnings per share for the six months ended 30 September 2008 was based on profit attributable to ordinary shareholders of £414,000 (six months ended 30 September 2007: £466,000, year ended 31 March 2008 £939,000) and a weighted average number of ordinary shares outstanding during the six months ended 30 September 2008 of 81,549,005 (six months ended 30 September 2007: 81,682,344, year ended 31 March 2008: 82,644,756), calculated as follows:
| At 30 September | At 31 March | ||
| 2008 | 2007 | 2008 | |
| Weighted average number of ordinary shares at period end | 81,400,000 | 81,400,000 | 81,400,000 |
| Effect of share options in issue (dilutive) | 149,005 | 282,344 | 1,244,756 |
| Weighted average number of ordinary shares (diluted) | 81,549,005 | 81,682,344 | 82,644,756 |
6. Employee benefits
Pension plans
The Group provides employee benefits under defined contribution pension plans, the details of which are disclosed in the most recent annual financial statements.
Expense recognised in the consolidated interim income statement
The expense recognised in the consolidated interim income statement consists contributions made to the defined contribution scheme. For the six months ended 30 September 2008, the Group recognised expense of £44,000 (six months ended 30 September 2007: £46,000, year ended 31 March 2008: £80,000).
Notes to the condensed consolidated interim financial statements
7. Financial instruments
Interest-bearing loans and borrowings
In the opinion of the directors there is no significant difference between the fair value of hire purchase contracts and the carrying value in the financial statements.
Trade and other receivables/payables
The carrying value is deemed to reflect the fair value for all trade and other receivables/payables.
8. Cash flows from operating activities
| | 6 months ended 30 September 2008 | 6 months ended 30 September 2007 | Year ended 31 March 2008 |
| | £000 | £000 | £000 |
| | | | |
| Profit before tax | 637 | 706 | 1,511 |
| Depreciation of property, plant and equipment | 389 | 331 | 691 |
| Impairment of intangible assets | - | 29 | 220 |
| Profit on disposal of property, plant and equipment | (3) | - | (10) |
| Share-based payment expense | 44 | 66 | 132 |
| Increase in inventories | (537) | (591) | (667) |
| Decrease/(increase) in trade and other receivables | 244 | (558) | (1,050) |
| Decrease in provisions | - | (2) | (73) |
| Increase in trade and other payables | 102 | 86 | 617 |
| Financial income | (58) | (61) | (145) |
| Financial expense | 1 | - | 2 |
| | | | |
| | 819 | 6 | 1,228 |
9. Related parties
Transactions with key management personnel
Loans to directors as at 30 September 2008 amounted to £Nil (six months ended 30 September 2007: £Nil, year ended 31 March 2008: £Nil).
Key management personnel receive compensation in the form of short-term employee benefits, post-employment benefits and equity compensation benefits. Key management personnel received total compensation of £376,000 for the six months ended 30 September 2008 (six months ended 30 September 2007: £313,000, year ended 31 March 2008: £829,000).