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Carpetright PLC (CPR)

  Print      Mail a friend       Annual reports

Tuesday 15 December, 2009

Carpetright PLC

Interim Results

RNS Number : 1073E
Carpetright PLC
15 December 2009
 



Carpetright plc

Interim Results Announcement for the 26 weeks ended 31 October 2009


Strong First Half Recovery Drives Revenue, Earnings and Dividend Growth


Carpetright plc, Europe's leading specialist carpet and floor coverings retailer, today announces its interim results for the 26 week trading period from 3 May 2009 to 31 October 2009.


Highlights


Group

  • Total Group revenue of £258.0up 9.0% (2008: £236.8m)

  • Underlying4 profit before tax of £13.9m up 58.0% (2008: £8.8m)

  • Exceptional charges of £2.9m primarily relating to exit from Polish market

  • Profit before tax of £11.0up 15.8% (2008: £9.5m)

  • Underlying4 earnings per share of 15.5p up 64.9% (2008: 9.4p)

  • Basic earnings per share of 11.6p up 14.9% (2008: 10.1p)

  • Interim dividend of 8.0p up 100.0% (2008: 4.0p), underlining the Board's confidence in future prospects

  • Net debt reduced by £23.7m to £73.4m, during the first half


UK and Republic of Ireland

  • Total sales increased by 9.6%, with LFL sales3 up 3.9%

  • Underlyingoperating profit increased 67.9% to £14.1m (2008: £8.4m)

  • Store base increased to 590 stores2


Rest of Europe

  • Total sales increased by 5.9% with like for like sales down by 3.8% in constant currency

  • Underlying4 operating profit increased by 6.5% to £3.3m (2008: £3.1m)

  • Store base decreased to 126

  • Withdrawal from loss making Polish operation included as a non-recurring cost of £2.5m



  • All sales figures are quoted after deducting VAT.

  • Excludes Sleepright within Carpetright locations.

  • Like-for-like sales represent sales from stores which have been trading for 52 weeks at the start of the financial year. It includes the sales of beds, where these have been introduced into the like-for-like store base since the acquisition of Sleepright in December 2008.

  • 'Underlying' excludes profits on property disposals and non-recurring items and for EPS together with associated tax



Commenting on the results, Lord Harris of Peckham, Chairman and Chief Executive, said:


 "We are pleased with this significantly improved first half performance, which clearly demonstrates the strength of the Group. The improved profit and reduction in net debt provide a firm base for the continued growth of our business.


"In the UKdiscussions with housebuilders and insurers have progressed well and we are starting to generate new business. These initiatives ensure we remain well placed to trade resiliently and drive further growth.


"Our business in The Netherlands and Belgium continues to make progress and grow market share although, as previously stated, sales have declined as a consequence of a weaker economy. However, we have a good position to capitalise on any improvement in trading conditions. The planned withdrawal from our loss making operation in Poland will improve Group profitability.  


"While we remain cautious about the retail market in the balance of the financial year and through 2010, we have made a good start to the second half, with the added potential of more insurance and housebuilder business to come. Consequently, the Board has confidence that the Group is well positioned to make further progress."  





Analyst Presentation

There will be a presentation to analysts today at 9.00am at Deutsche Bank, Winchester House, 1 Great Winchester StreetLondonEC2N 2DB A copy of this interim statement can be found on our website www.carpetright.plc.uk from 7.00am today.



Enquiries: 


Carpetright plc 

Lord Harris of Peckham, Chairman and Chief Executive 

Neil Page, Group Finance Director 

Telephone 020 7638 9571 (until 2pm), 01708 802000 (thereafter)


Citigate Dewe Rogerson 

Kevin Smith / Angharad Couch / Lindsay Noton 

Telephone 020 7638 9571 


Forthcoming News flow 

Carpetright will be releasing its Interim Management Statement for the third quarter on 
3 February 2010.



Certain statements in this report are forward looking. Although the Group believes that the expectations reflected in these forward looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward looking statements. We undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.



Chief Executive's Review


I am pleased to report that the first half has seen Carpetright make good progress, as the Group returned to like for like sales growth and increased profits significantly. This performance has been achieved against an ongoing backdrop of a challenging economic and consumer environment.


Total sales increased by 9.0% to £258.0m. During the first half, the Group opened 39 stores and closed 18 which gave a net increase of 21 stores and a total store base of 716. Total space grew by 2.2% to just under 6.3m square feet.  


The return to sales growth in the UK & RoI was the key driver in underlying operating profit increasing to £17.4m, a growth of 51.3%. Net finance charges increased to £3.5m. These factors combined to produce an increase in underlying profit before tax of 58.0% to £13.9m, with a consequent increase in underlying earnings per share to 15.5p. 


Non-recurring items accounted for a net loss of £2.9m (2008: profit of £0.7m). This is principally a combination of the costs of exiting the Polish market, which is discussed in more detail below, and non-cash store impairment charges.


As a result, profit before tax increased by 15.8% to £11.0m.  Basic earnings per share increased by 14.9% to 11.6p, reflecting the increase in post tax earnings.


As a consequence of the higher profits, the reduced capital expenditure and effective management of working capital, net debt has reduced by £23.7m since the year end to £73.4m.



Summary of Group Results


A summary of the reported financial results for the 26 weeks ended 31 October 2009 is set out below: 




  2009

  £m

2008

£m


Change

Revenue

258.0

236.8

9.0%

Underlying* operating profit 

17.4

11.5

51.3%

Net finance charges

(3.5)

(2.7)

(29.6)%

Underlying* profit before tax 

13.9

8.8

58.0%

Profit/(loss) on property disposals and non-recurring items

(2.9)

0.7


Profit before tax

11.0

9.5

15.8%

Earnings per share (pence)




- underlying*

15.5

9.4

64.9%

- basic

11.6

10.1

14.9%

Interim Dividend (pence)

8.0

4.0

100.0%

Net debt

(73.4)

(87.8)



* Where this review makes reference to "Underlying" these relate to profits / earnings before profits / losses on property disposals and other non-recurring items. 




UK and Republic of Ireland - Operational Review



UK & RoI - Key financial results



2009

£m

2008

£m


Change


Revenue 

213.3

194.6

9.6%


Like-for-like sales

3.9%

(13.0%)



Gross profit 

131.6

121.5

8.3%


Gross profit %

61.7%

62.4%

(0.7)pp


Underlying operating profit 

14.1

8.4

67.9%


Underlying operating margin %

6.6%

4.3%




Sales and space

Total revenue increased by 9.6% to £213.3m. The acquisition of Sleepright contributed 3.6% of this increase. We have opened 38 new stores adding 209,000 sq ft of selling space in the first half. Including the impact of 15 closures, this translated into net space growth of 151,000 sq ft, an increase of 3.3% since the start of the year. 


The UK & RoI portfolio is now as follows:

 


Store numbers

Sq ft ('000)


UK & RoI store base

2 May

2009

Openings

Closures



31 Oct

2009

2 May

2009

31 Oct

2009

Standalone - floorcovering

508

28

(4)


532

4,503

4,650

Concessions - floorcovering

57

10

(10)


57

116

130

Standalone - Sleepright

2


(1)


1

13

3


567

38

(15)


590

4,632

4,783


Included in standalone stores : 






Sleepright 

109

17

(2)


124

135

167


The like for like growth of 3.9% was the strongest half year performance since 2004. This reflects an underlying recovery which correlates closely, on a lagged basis, with the improved mortgage approval figures. It has also been assisted by the contraction of the Allied Carpets business in the period since July 2009. The growth of the insurance replacement business continued during the period and this contributed 0.6% to the like for like growth.


The growth in sales has been predominately from within the carpet categories. The proportion of cut length business has increased relative to 'pay and take' roll stock. The vinyl business has grown, whilst the laminate / wood categories have continued to decline. We believe this is a reflection of a growing customer appreciation of the benefits of vinyl and the trend back to carpet as previously laid laminate is replaced.


Our promotional stance remains consistent with offering our customers the best prices. This has been supported by a 24% increase in advertising expenditure which has been focused on a strong price theme, and which also emphasised our product quality and service credentials. 


We have continued to develop the Sleepright proposition, focusing on the product, promotional offers and reducing delivery lead times. We also launched a transactional website in October, offering a wider range than in our stores. Initial sales have been in line with expectations.


Underlying operating profit 

Underlying operating profit increased by 67.9% to £14.1m, reflecting the stronger sales performance.


Gross profit increased by 8.3% to £131.6m, representing 61.7% of sales. This is a 0.7 percentage point decline on the previous year. The Sleepright acquisition accounted for 0.8 percentage points of this decline, as this part of the business operates on a lower gross margin than floor coverings. This was offset by an improvement in the underlying floorcovering margin, achieved through a combination of management of promotions, negotiation with suppliers and increased productivity in the Purfleet cutting facility. 

 

The total UK cost base increased by 3.9compared to last year, to £117.5m. This included the impact of the Sleepright acquisition, which accounted for 3.4% of the growth.  Store payroll numbers continue to be managed closely to the volume of sales. Average store headcount continued to decline with Full time Equivalents (excluding Sleepright) in the first half decreasing by 8% to 2,284.  Store occupancy costs increased year on year, through a mixture of underlying rent and rates inflation plus new space.




Rest of Europe - Operational Review



Rest of Europe - Key financial results


2009

£m

2008

£m

Change

(Reported)

Change (Constant Currency)

Revenue







- The Netherlands and Belgium



43.4

40.7

6.6%

(3.9)%

Poland



1.3

1.5

(13.3)%

0.4%

- Rest of Europe



44.7

42.2

5.9%


Underlying operating profit 







- The Netherlands and Belgium



4.1

3.7

10.8%

(1.2)%

Poland



(0.8)

(0.6)

(33.3)%

(77.8)%

Rest of Europe



3.3

3.1

6.5%


Underlying operating margin %







- The Netherlands and Belgium



9.4%

9.1%

0.3pp


Poland



-

-



Rest of Europe



7.4%

7.3%

0.1pp



Sales and space

In local currency terms, sales in The Netherlands and Belgium declined by 3.9%. This performance was in a market which it is estimated has declined by around 15% and consequently we have continued to increase our market share. After allowing for the movement in exchange rates, this translates to a total sales growth of 6.6% in reported revenue. 


In local currency terms, sales in Poland increased by 0.4%. After allowing for the movement in exchange rates, this translates to a total sales decline of 13.3% in reported revenue.


The European portfolio is now as follows: 



Store Numbers

Sq ft ('000)

Rest of Europe 

store base

2 May

2009

Openings

Closures


31 Oct

2009

2 May

2009

31 Oct

2009

The Netherlands

88

1

(1)


88

1,065

1,059

Belgium

28

-

-


28

335

335

Poland

12

-

(2)


10

123

113


128

1

(3)


126

1,523

1,507


Underlying operating profit

The Netherlands and Belgium gross profit declined by 0.7% in local currency terms on the reduced level of sales. There was an improvement in the gross margin of 1.8 percentage points - a combination of cost price improvements and managing the product mix.


Total costs increased by 0.9% in local currency terms. The year on year increase was principally from rent indexation and the addition of new stores offset by store headcount reductions reflecting the lower level of sales. 


The underlying reported operating profit in The Netherlands and Belgium increased by 10.8% to £4.1m with an operating margin of 9.4%. In local currency terms the underlying operating profit decreased by 1.2%.  


The reported loss in Poland was £0.8m, an increase of £0.2m on the previous year.  


Following a review of the Polish business by the Board, a decision has been taken to withdraw from trading in this market. In the period since its launch four years ago, the business has failed to establish sufficient trading momentum and critical mass, and the resulting performance has been disappointing. Good progress has been made in closing stores either by returning leases to landlords or assignment to other retailers. To date, two stores have been closed in the first half and a further two stores have closed since the end of October, with the remainder scheduled for completion by early 2010. This has resulted in a non-recurring cost of £2.5m, which is a combination of a non-cash write down of the fixed assets to their realisable value (£2.0m) and other costs incurred specifically for the closure (£0.5m). This is reported within non-recurring items




Group Financial Review



Property disposals and non-recurring items 

The Group recorded a net charge of £2.9m (2008: profit of £0.7m) in the first half:



   (Charge) / Gain


2009

£m

2008

£m

Profit/(loss) on disposal of properties 

(0.2)

1.2

UK & RoI Store Impairment charge

(1.2)

-

Poland : Store impairment charge

(2.0)

-

  Closure costs

(0.5)

-

Over-provision from pre-opening costs of Purfleet

1.0

-

Re-organisation costs of acquired businesses

-

(0.5)


(2.9)

0.7


We continued to trade our property portfolio, although market conditions have made this more challenging. A loss of £0.2m was incurred (2008: gain of £1.2m).


As a result of the challenging retail environment we have reviewed the carrying value of the store assets in our balance sheet. The models used to value these assets include a number of assumptions relating to market growth and inflationary expectations. The tests have led to an impairment of £1.2m in relation to 12 loss making stores, principally located in the Republic of Ireland.


As disclosed earlier, the estimated costs of withdrawing from Poland total £2.5m.


The non-recurring pre-opening costs of the cutting and distribution centre recognised in 2007/08 were over-provided by £1.0m.

 

Taxation

The taxation charge is based on an estimated full year effective tax rate of 29.8% (2008: 29.8%).  


Net debt and cashflow

The Group's net debt at 31 October 2009 was £73.4m, a reduction of £23.7m from the year end position of £97.1m. This decrease was primarily driven from an improvement in operational profit performance and a decrease in working capital. The latter reflects the working capital cycle of the business. 


The average net debt figure in the first half was £97.5m (2008: £80.9m) and the Group's average cost of funding was 6.8% (2008: 6.3%).


Summary cashflow


2009

£m

2008

£m

52 wks to

2 May 2009

£m

Underlying Operating Profit

17.4

11.5

22.8

Depreciation and other non-cash items

9.9

10.0

20.5

Non-recurring items

0.5

-

(1.2)

(Increase)/Decrease in stock

(0.2)

5.0

2.7

(Increase)/Decrease in working capital

11.2

(15.4)

(18.6)

Cash generated by operations

38.8

11.1

26.2

Net Interest paid

(3.8)

(2.5)

(5.5)

Corporation Tax paid

(3.0)

(8.2)

(12.2)

Dividends paid

(2.7)

(20.2)

(22.8)

Net Capital Expenditure

(5.6)

(11.0)

(20.6)

Other

-

0.5

(4.7)

Movement in net debt

23.7

(30.3)

(39.6)

Opening net debt

(97.1)

(57.5)

(57.5)

Closing net debt

(73.4)

(87.8)

(97.1)


Net capital expenditure was £5.6m (2008: £11.0m). This can be broken down into the following principal categories. 




2009

£m

2008

£m

Core capital expenditure

5.8

5.4

Freehold properties

-

1.6

Acquisition of new businesses

-

6.3

Proceeds from property disposals

(0.2)

(2.3)


5.6

11.0


Gross bank borrowings at the balance sheet date were £76.5m (2008: £107.3m) of which £72.0m is term based with the balance of £4.5m being drawn down from overdraft facilities. The Group had further undrawn, committed facilities of £42.1m at the balance sheet date.  The term of the majority of these facilities is to July 2012 and they are accompanied by a number of covenants, against which the Group monitors actual and prospective compliance. At 31 October 2009, the Group was compliant with all covenants.


During October 2009 the Group paid down existing loans with one lender utilising existing resources. This reflects the confidence of the Board in the future cash generation of the business. 


Pensions

At 31 October 2009 the IAS net retirement benefit deficit was £5.7m (2 May 2009: £2.4m). The change is predominately due to a decrease in the discount rate used to calculate the liability at the half year. The half year discount rate was 5.5% (year end 6.8%), reflecting prevailing corporate bond rates and together with an increase in the inflation rate used of 3.4% (year end 2.9%), has led to an increase of £5.3m in the IAS 19 calculation of the pension liability for accounting purposes at 31 October 2009.  The increase in the deficit has been offset in part by an increase of £2.0m in the market value of the assets arising from a combination of higher equity prices and a tightening of corporate bond yields.


The company agreed a recovery plan with the Trustees in 2009 and this will be reviewed following the next triennial valuation, which will be performed at 5 April 2011.


Dividend

The Board has declared a 100.0% increase in the interim dividend to 8.0p. In taking this decision, the Board has considered the improvement in profitability achieved and the future prospects of the Group, weighed against the desire to reduce the level of debt. 


The dividend will be paid on 19 February 2010 to shareholders on the register on 5 February 2010. 


Outlook

The first half has provided a firm foundation to continue to rebuild Group profitability. In the UK and RoI, the economic environment has made trading tough. However, the business has capitalised on opportunities and continues to grow. The significant contraction of Allied Carpets, the focus on securing new insurance and housebuilder contracts and launch of a transactional website have added to the strength of the business. 


The performance of The Netherlands and Belgium has been very good in trading conditions which have become significantly tougher. By applying learning from the UK operation, we are confident we have the strength of offer to continue to grow.


Despite the continued uncertainty about economic recovery, we believe we are growing more quickly than the market in all our territories, reflecting the appeal of our value for money proposition. While we remain cautious about the retail market in the balance of the financial year and into 2010, we have made a good start to the second half and have the added potential to secure further new business from the insurers and housebuilders. Consequently the Board has confidence that the Group is well positioned to make further progress.  


Lord Harris of Peckham

14 December 2009



Carpetright plc






Condensed consolidated income statement for 26 weeks ended 31 October 2009



Notes

26 weeks ended

31 October 2009

unaudited

£m

26 weeks ended

1 November 2008

unaudited

£m

52 weeks ended

2 May 2009

audited

£m

Revenue

4

258.0 

236.8 

482.8 

Cost of sales


(100.5)

(91.5)

(187.0)

Gross profit

4

157.5 

145.3 

295.8 

Other operating income


0.6 

2.4 

1.8 

Administrative expenses


(143.6)

(135.5)

(275.3)

Operating profit  

4

14.5 

12.2 

22.3 

Operating profit before profit/(loss) on property disposals and non-recurring items

4

17.4 

11.5 

22.8 

Profit/(loss) on property disposals and non-recurring items

5

(2.9)

0.7 

(0.5)

Finance costs payable


(4.1)

(2.9)

(7.2)

Finance income receivable


0.6 

0.2 

1.6 

Profit before tax


11.0 

9.5 

16.7 

Tax


6

(3.2)

(2.7)

(4.9)

Profit for the financial period attributable to 
equity holders of the Company

7.8 

6.8 

11.8 







Basic earnings per share

8

11.6 

10.1 

17.6 

Diluted earnings per share

8

11.5 

10.1 

17.6 

All items in the income statement arise from continuing operations.















Condensed consolidated statement of comprehensive income for 26 weeks ended 31 October 2009



Notes

26 weeks ended

31 October 2009

unaudited

£m

26 weeks ended

1 November 2008

unaudited

£m

52 weeks ended

2 May 2009

audited

£m

Profit for the financial period


7.8

6.8

11.8

Actuarial gain/(loss) on defined benefit pension scheme

11

(3.3)

-

(1.1)

Fair value gain/(loss) in respect of cash flow hedges


(0.1)

0.5

(2.3)

Exchange gain/(loss) in respect of hedged 
equity investments

0.3

(1.7)

7.2

Tax on components of other comprehensive income


-

(0.1)

0.3

Total other comprehensive income


(3.1)

(1.3)

4.1







Total comprehensive income for the financial period, attributable to equity shareholders of the Company

4.7

5.5

15.9

The notes on pages 13 to 18 form an integral part of this consolidated interim financial information.



Carpetright plc










Condensed consolidated statement of changes in equity for 26 weeks ended 31 October 2009



Share

Capital

£m

Share

Premium

£m

Treasury

Shares

£m

Capital

Redemption

Reserve

£m

Translation

Reserve

£m

Hedging

Reserve

£m

Retained

Earnings

£m

Total

£m

At 3 May 2009

0.7 

15.4 

(0.1)

0.1 

11.9 

(2.3)

41.5 

67.2 











Total comprehensive income for the financial period

0.3 

(0.1)

4.5 

4.7 

Purchase of own shares by Employee Share Trust

(0.1)

(0.1)

Share based payments

0.2 

0.2 

Dividends paid to Group shareholders

(2.7)

(2.7)

At 31 October 2009

0.7 

15.4 

(0.2)

0.1 

12.2 

(2.4)

43.5 

69.3 













Share

Capital

£m

Share

Premium

£m

Treasury

Shares

£m

Capital

redemption

reserve

£m

Translation

Reserve

£m

Hedging

Reserve

£m

Retained

Earnings

£m

Total

£m

At 4 May 2008

0.7 

15.4 

(0.2)

0.1 

4.7 

53.6 

74.3 











Total comprehensive income for the financial period

(1.7)

0.5 

6.7 

5.5 

Share based payments

0.1 

0.1 

Dividends paid to Group shareholders

(20.2)

(20.2)

At 1 November 2008

0.7 

15.4 

(0.2)

0.1 

3.0 

0.5 

40.2 

59.7 


The notes on pages 13 to 18 form an integral part of this consolidated interim financial information.



Carpetright plc



Condensed consolidated balance sheet as at 31 October 2009


Notes

At 31 October 2009

Unaudited

£m

At 1 November 2008

Unaudited

£m

At 2 May 2009

Audited

£m

Assets





Non-current assets





Intangible assets


69.1 

66.4 

71.2 

Property, plant and equipment


156.7 

164.8 

164.7 

Investment property


25.5 

21.2 

25.3 

Investment in joint ventures


0.2 

Deferred tax assets


3.2 

3.2 

3.3 

Derivative financial instruments


0.5 

Trade and other receivables


1.4 

1.3 

1.3 

Total non-current assets


255.9 

257.6 

265.8 

Current assets





Inventories


43.4 

37.9 

43.2 

Assets held for sale

13

0.6 

Trade and other receivables


37.3 

32.1 

34.4 

Cash and cash equivalents

10

8.7 

23.3 

17.4 

Total current assets


90.0 

93.3 

95.0 

Total assets


345.9 

350.9 

360.8 

Liabilities





Current liabilities





Trade and other payables


(120.1)

(111.9)

(110.8)

Obligations under finance leases

10

(0.5)

(0.8)

(0.9)

Borrowings and overdrafts

10

(12.0)

(59.9)

(17.1)

Current tax liabilities


(5.6)

(6.0)

(5.7)

Total current liabilities


(138.2)

(178.6)

(134.5)

Non-current liabilities





Trade and other payables


(33.9)

(30.1)

(31.5)

Obligations under finance leases

10

(3.0)

(3.5)

(3.0)

Borrowings

10

(64.5)

(47.4)

(91.2)

Derivative financial instruments


(2.1)

(2.3)

Provisions for liabilities and charges


(1.1)

(1.2)

(0.8)

Deferred tax liabilities


(28.1)

(29.1)

(27.9)

Retirement benefit obligations

11

(5.7)

(1.3)

(2.4)

Total non-current liabilities


(138.4)

(112.6)

(159.1)

Total liabilities


(276.6)

(291.2)

(293.6)

Net assets


69.3 

59.7 

67.2 

Equity 





Share capital


0.7 

0.7 

0.7 

Share premium 


15.4 

15.4 

15.4 

Treasury shares


(0.2)

(0.2)

(0.1)

Other reserves


53.4 

43.8 

51.2 

Total equity attributable to equity holders 
of the Company

69.3 

59.7 

67.2 

The notes on pages 13 to 18 form an integral part of this consolidated interim financial information.



Carpetright plc


Condensed consolidated statement of cash flows for 26 weeks ended 31 October 2009



Notes

26 weeks ended

31 October 2009

unaudited

£m

26 weeks ended

1 November 2008

unaudited

£m

52 weeks ended

2 May 2009

audited

£m

Cash flows from operating activities






Profit before tax



11.0 

9.5 

16.7 

Adjusted for:






Depreciation and amortisation



9.7 

9.9 

20.4 

Non-recurring non-cash items



3.2 

0.5 

1.1 

Other non-cash items



0.2 

0.1 

0.1 

(Profit)/loss on property disposals


5

0.2 

(1.2)

(1.8)

Net finance costs



3.5 

2.7 

5.6 

Operating cash flows before movements
in working capital

27.8 

21.5 

42.1 

(Increase)/decrease in inventories



(0.2)

5.0 

2.7 

Increase in trade and other receivables



(3.0)

(2.0)

(0.9)

Increase/(decrease) in trade and other payables


14.2 

(13.4)

(17.7)

Cash generated by operations



38.8 

11.1 

26.2 

Interest paid



(3.9)

(2.7)

(6.2)

Corporation taxes paid



(3.0)

(8.2)

(12.2)

Net cash generated from operating activities


31.9 

0.2 

7.8 

Cash flows from investing activities






Proceeds on disposal of property, plant 
and equipment and investment property

9

0.2 

2.3 

3.0 

Purchases of intangible assets


9

(0.6)

(0.7)

(2.0)

Purchases of property, plant and 
equipment and investment property

9

(5.2)

(6.3)

(14.3)

Acquisition of businesses net of cash acquired


(6.3)

(7.3)

Interest received



0.1 

0.2 

0.7 

Net cash used in investing activities



(5.5)

(10.8)

(19.9)

Cash flows from financing activities






Purchase of treasury shares by Employee 
Share Trust

(0.1)

(0.2)

Repayment of borrowings 


10

(34.6)

(4.6)

(20.5)

New loans advanced


10

2.7 

58.0 

72.0 

Repayment of obligations under finance leases

10

(0.4)

(0.4)

(0.8)

Dividends paid to Company shareholders


7

(2.7)

(20.2)

(22.8)

Net cash used in financing activities



(35.1)

32.8 

27.7 

Net increase/(decrease) in cash and cash equivalents in the period

10

(8.7)

22.2 

15.6 

Cash and cash equivalents at the beginning
of the period

13.0 

(2.2)

(2.2)

Exchange differences



(0.1)

0.3 

(0.4)

Cash and cash equivalents at the end of 
the period

10

4.2 

20.3 

13.0 

For the purposes of the cash flow statement, cash and cash equivalents are reported net of overdrafts repayable on demand. Overdrafts are excluded from the definition of cash and cash equivalents disclosed in the balance sheet.


The notes on pages 13 to 18 form an integral part of this consolidated interim financial information.



1. General information

The Company is a public limited liability company incorporated and domiciled in the UK. The address of its registered office is Harris House, Purfleet Bypass, Purfleet, EssexRM19 1TT. The Company is listed on the London Stock Exchange.


This condensed consolidated half-yearly financial information was approved for issue on 14 December 2009


This interim report does not comprise statutory accounts within the meaning of Section 434(3) of the Companies Act 2006. It has been reviewed but not audited by the Group's auditors. The statutory accounts for the year ended 2 May 2009 were approved by the Board of Directors on 29 June 2009 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 made under section 498 of the Companies Act 2006.


2. Basis of preparation

These condensed consolidated half-yearly financial statements for the 26 weeks ended 31 October 2009 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The half-yearly condensed consolidated financial report should be read in conjunction with the annual financial statements for the 52 weeks ended 2 May 2009, which have been prepared in accordance with IFRSs as adopted by the European Union.

 

3. Accounting policies

Except as described below the accounting policies adopted are consistent with those of the annual financial statements for the 52 weeks ended 2 May 2009, as described in those annual financial statements. 


Taxes on income for interim periods are accrued using the tax rate that would be applicable to expected total annual earnings. 


The following new standards and amendments to standards, which are mandatory for the first time in the financial year beginning 3 May 2009, are relevant for the group:


IAS 1 (revised)


Presentation of financial statements

Requires non-owner changes in equity to be shown in either one performance statement (the statement of comprehensive income) or two statements (the income statement and the statement of comprehensive income). The Group has elected to present two statements. Owner changes in equity are required to be shown in a statement of changes in equity.


IFRS 2 (amendment)


Share based payments

- vesting conditions and cancellations

Clarifies that vesting conditions are service conditions and performance conditions only. Other features that are not vesting

conditions are required to be included in the grant date fair value. This has had no impact on the results presented.


IFRS 8 


Operating segments


IFRS 8 replaces IAS 14 'Segment reporting'. It requires a 'management approach' under which segment information is

presented on the same basis as that used for internal reporting

purposes. The Chief operating decision maker, who is responsible for resource allocation and assessing performance of the operating segments has been identified as the Board of Directors. As a result of IFRS 8 The Netherlands is being shown as a separate operating segment with the remainder of what was previously reported as 'Rest of Europe' being included under 'all other operating segments'. 



The following new standards and amendments to standards, which are mandatory for the first time in the financial year beginning 3 May 2009, are relevant but were already applied by the group:


IAS 23, 'Borrowing costs (revised)'


The following new standards and amendments to standards, which are mandatory for the first time in the financial year beginning 3 May 2009, are either not currently relevant or material for the group:


IAS 39 (amendment), 'Financial instruments: Recognition and measurement';

IAS 39 and IFRS 7 (amendment), 'Reclassification of financial assets';

IFRIC 13, 'Customer loyalty programmes'; and

IFRIC 16, 'Hedges of net investment in a foreign operation'



4. Segmental analysis

The operating segments have been determined based on reports reviewed by the Board that are used to make strategic decisions. The Board considers the business on a geographic basis as the company operates only a retail business. Performance is considered for UK and Republic of Ireland (UK & RoI), The Netherlands, Belgium and Poland. Neither Belgium or Poland are significant enough to meet the quantitative thresholds to require separate reporting. They have, therefore, been included under "All other segments".


The reportable operating segments derive their revenue primarily from the retail of floor coverings and beds. Central costs are incurred principally in the UK and are immaterial. As such these costs are included within the UK & RoI segment. Sales between segments are carried out at arm's length.


















The segment information provided to the Board for the reportable segments for the 26 weeks ended 31 October 2009 is as follows:











26 weeks to 31 October 2009

26 weeks to 1 November 2008


UK & RoI

The Netherlands

All other segments

Group

UK & RoI

The Netherlands

All other segments

Group


£m

£m

£m

£m

£m

£m

£m

£m

Gross Revenue 

215.1

31.7

13.0

259.8

196.1

30.2

12.0

238.3

Inter-segment revenue

(1.8)

-

-

(1.8)

(1.5)

-

-

(1.5)

Revenues from external customers

213.3

31.7

13.0

258.0

194.6

30.2

12.0

236.8

Gross profit

131.6

18.4

7.5

157.5

121.5

17.1

6.7

145.3

Underlying operating profit

14.1

3.1

0.2

17.4

8.4

3.3

(0.2)

11.5

Profits/(loss) on property disposals and non- recurring items

(0.5)

-

(2.4)

(2.9)

1.0

(0.3)

-

0.7

Operating profit

13.6

3.1

(2.2)

14.5

9.4

3.0

(0.2)

12.2

Interest revenue

0.6

-

-

0.6

0.2

-

-

0.2

Interest expense

(3.9)

(0.1)

(0.1)

(4.1)

(2.4)

(0.3)

(0.2)

(2.9)

Profit before tax

10.3

3.0

(2.3)

11.0

7.2

2.7

(0.4)

9.5

Tax

(2.3)

(0.7)

(0.2)

(3.2)

(2.0)

(0.7)

-

(2.7)

Profit for the financial period

8.0

2.3

(2.5)

7.8

5.2

2.0

(0.4)

6.8










Segment Assets:









Segment assets

248.1

83.5

33.6

365.2

256.7

77.1

26.4

360.2

Inter-segment balances

(11.4)

(0.1)

(7.8)

(19.3)

(8.7)

-

(0.6)

(9.3)

Balance sheet total assets 

236.7

83.4

25.8

345.9

248.0

77.1

25.8

350.9

Segment Liabilities:









Segment liabilities

(238.7)

(30.4)

(26.8)

(295.9)

(249.1)

(34.5)

(16.9)

(300.5)

Inter-segment balances

-

11.1

8.2

19.3

-

3.1

6.2

9.3

Balance sheet total liabilities

(238.7)

(19.3)

(18.6)

(276.6)

(249.1)

(31.4)

(10.7)

(291.2)










Other segmental items:









Depreciation and amortisation

7.8

1.3

0.6

9.7

8.1

1.1

0.7

9.9

Additions to non-current assets

3.4

0.4

-

3.8

8.7

4.2

-

12.9










Carpetright plc is domiciled in the UK. The Group's revenue from external customers in the UK is £208.6m (2008 : £188.3m) and the total revenue from external customers from other countries is £49.4m (2008 : £48.5m). The total of non-current assets (other than financial instruments, deferred tax assets and employment benefit assets) located in the UK is £233.5m (2008 : £219.8m) and the total of those located in other countries is £38.5m (2008 : £43.4m).










Carpetright's trade has historically shown no distinct pattern of seasonality with trade cycles more closely following economic indicators such as consumer confidence and mortgage approvals.



5. Profit/(loss) on property disposals and non-recurring items



 

26 weeks ended

31 October 2009

£m

26 weeks ended

1 November 2008

£m

52 weeks ended

2 May 2009

£m

Disclosed in the income statement:

 

 

 

Profit/(loss) on property disposals

(0.2)

1.2 

1.8 

UK & RoI impairment of property, plant and equipment

(1.2)

(0.9)

Impairment of investment in joint venture

(0.2)

Over provision for pre-opening costs of Purfleet

1.0 

Post acquisition reorganisation of new businesses

(0.5)

(1.2)

Poland:

 

 

 

  Impairment of property, plant and equipment

(2.0)

  Closure costs

(0.5)

Total

(2.9)

0.7 

(0.5)

 


 

 

 

6. Tax

 

 

 

 

26 weeks ended

31 October 2009

£m

26 weeks ended

1 November 2008

£m

52 weeks ended

2 May 2009

£m

Current 

2.9 

2.0 

5.7 

Deferred

0.3 

0.7 

(0.8)

 

3.2 

2.7 

4.9 

The estimated tax rates on the profits of the Group are as follows:

 

 

 

 

52 weeks ended

1 May 2010

%

52 weeks ended

2 May 2009

%

Weighted average annual underlying tax rate

 

28.7 

28.9 

Weighted average annual effective tax rate

 

29.8 

29.8 

The effective tax rate is defined as the tax charged or credited as a percentage of the accounting profit before tax. The underlying tax rate is defined as the effective tax rate after adjusting for, when relevant, profit/(loss) on property disposals and non-recurring items and tax adjustments in respect of such items.



7. Dividends

 

 

 

 

 

 

 

26 weeks ended 31 October 2009

26 weeks ended 1 November 2008

 

Pence/share

£m

Pence/share

£m

 

 

 

 

 

 

 

Final prior year dividend paid

 

4.0 

2.7 

 

30.0 

20.2 

Proposed current year interim dividend 

 

8.0 

5.4 

 

4.0 

2.7 


The proposed interim dividend of 8.0p per share was approved by the Board of Directors on 14 December 2009 but has not been included as a liability in these financial statements. The proposed dividend will be paid on 19 February 2010 to shareholders who are on the register of members on 5 February 2010.  


8. Earnings per share


26 weeks ended 31 October 2009

26 weeks ended 1 November 2008

52 weeks ended 2 May 2009


Earnings £m

Weighted average number of shares Millions

Earnings per share Pence

Earnings £m

Weighted average number of shares Millions

Earnings per share Pence

Earnings £m

Weighted average number of shares Millions

Earnings per share Pence

Basic earnings per share

7.8 

67.2 

11.6 

6.8 

67.2 

10.1 

11.8 

67.2 

17.6 

Effect of dilutive share options 

0.4 

(0.1)

0.1 

0.4 

Diluted earnings per share

7.8 

67.6 

11.5 

6.8 

67.2 

10.1 

11.9 

67.6 

17.6 


The Directors have presented an additional measure of earnings per share based on underlying earnings as they believe this provides a more comparable measure on an ongoing basis. Underlying earnings is defined as profit after adjusting for post tax profits/(losses) on property disposals and non-recurring items.



26 weeks

ended

31 October

2009

Pence

26 weeks

ended

1 November

2008

Pence

52 weeks

ended

2 May

2009

Pence

Basic earnings per share

11.6 

10.1 

17.6 

Adjusted for the effect of profit/loss on property disposals and 

non-recurring items:



(Profit)/loss on property disposals

0.3 

(1.8)

(2.7)

Non-recurring items

4.0 

0.7 

3.4 

Tax thereon

(0.4)

0.4 

(0.1)

Underlying earnings per share

15.5 

9.4 

18.2 



9. Capital expenditure

During the period, the Group spent approximately £0.6m (2008 : £0.7m) on intangible assets principally in respect of the 
e-commerce project; £4.9m (2008 : £4.9m) on the acquisition and fit out of stores and £0.3m (2008 : £1.4m) on fitting out the new warehouse and transport depot. Net proceeds from vacating properties during the period were £0.2m (2008 : £2.3m).


Capital commitments of £2.4m at 31 October 2009 for which no provision has been made in the accounts relate to the acquisition of tangible and intangible assets (2008 : £5.3m).



10. Borrowings


  2 May  

  2009



31 October 2009



£m

 Cash flow 

£m

Exchange 

movement 

£m

Revaluation 

£m


£m

Cash and cash equivalents per the balance sheet

17.4 

(8.7)

8.7 

Bank overdrafts

(4.4)

(0.1)

(4.5)

Cash and cash equivalents per the cash flow statement

13.0 

(8.7)

(0.1)

4.2 

Borrowings:






  Current borrowings

(12.7)




(7.5)

  Non-current borrowings 

(91.2)




(64.5)


(103.9)

31.9 

-

-

(72.0)

Obligations under finance leases:






  Current obligations under finance leases

(0.9)




(0.5)

  Non-current obligations under finance leases

(3.0)




(3.0)


(3.9)

0.4 

-

-

(3.5)

Derivative financial instruments

(2.3)

0.2 

(2.1)

Net debt

(97.1)

23.6 

(0.1)

0.2 

(73.4)







 

  3 May  

  2008



1 November 2008



£m

 Cash flow 

£m

Exchange 

movement 

£m

Revaluation 

£m


£m

Cash and cash equivalents per the balance sheet

8.9

14.4

-

-

23.3

Bank overdrafts

(11.1)

7.8

0.3

-

(3.0)

Cash and cash equivalents per the cash flow statement

(2.2)

22.2

0.3

-

20.3

Borrowings:






  Current borrowings

(11.3)




(56.9)

  Non-current borrowings 

(39.3)




(47.4)


(50.6)

(53.4)

(0.3)

-

(104.3)

Obligations under finance leases:




  Current obligations under finance leases

(0.8)




(0.8)

  Non-current obligations under finance leases

(3.9)




(3.5)


(4.7)

0.4

-

-

(4.3)

Derivative financial instruments

-

-

-

0.5

0.5

Net debt

(57.5)

(30.8)

-

0.5

(87.8)



11. Retirement benefit obligation



26 weeks

ended

31 October

2009

£m

26 weeks

ended

1 November

2008

£m

52 weeks

ended

2 May

2009

£m





Opening retirement benefit obligations

(2.4)

(1.3)

(1.3)

Current service cost

(0.1)

(0.2)

(0.5)

Interest cost

(0.5)

(0.5)

(1.0)

Expected return on scheme assets

0.5 

0.5 

1.0 

Employer contributions

0.1 

0.2 

0.5 

Actuarial gains/(losses)

(3.3)

(1.1)

Closing retirement benefit obligations

(5.7)

(1.3)

(2.4)





Fair value of pension scheme assets

14.9 

12.0 

12.3 

Present value of pension scheme obligations

(20.6)

(13.3)

(14.7)

Retirement benefit obligations

(5.7)

(1.3)

(2.4)


The main financial assumptions used to assess the liabilities of the scheme have been updated by independent qualified actuaries to assess the liabilities of the scheme. The most significant of these are the discount rate and the inflation rate which are 5.5% (last full year 6.8%) and 3.4% (last full year 2.9%) respectively.  


The amount of the deficit varies if the main financial assumptions change, particularly the discount rate. If the discount rate increased/decreased by 0.1% the IAS 19 deficit would decrease/increase by approximately £0.4m.



12. Related party transactions

Details of transactions during the period with Companies of which Lord Harris and/or M J Harris is a director and/or in which Lord Harris holds a material interest are set out below.



Lease and concession

agreement payments made

Supply of goods/services

payments made


26 weeks

ended

31 October

2009

26 weeks

ended

1 November

2008

26 weeks

ended

31 October

2009

26 weeks

ended

1 November

2008


£'000

£'000

£'000

£'000

Clacton Property Investments Ltd

117 

40 

Edinburgh Retail LLP

228 

228 

Glenrothes Retail LLP

94 

94 

Greenock Retail Ltd

113 

113 

Harris Ventures Ltd

130 

102 

49 

30 

Hull Unit Trust

177 

177 

Islandview Properties Ltd

136 

136 

Neath Retail LLP

75 

75 

Wick Retail LLP

27 

27 


As at 31 October 2009 the Group owed related parties £53,000 (2008 - £26,000).


13. Closure of Polish stores

At 31 October 2009 the Board had approved a plan to exit from Poland by the closure of the stores and the assignment or surrender of the leases. The freehold site will be retained and classified as an investment property when the store has closed. Exits from the sites are being actively sought. The non-current assets, except the freehold property have been reclassified as assets held for sale at 31 October 2009. The estimated costs for closing and disposing of the sites and the impairment charges relating to the non-current assets have been included in non-recurring items.



14. Foreign exchange
The principal exchange rates used were as follows:




 

26 weeks

ended

31 October

2009

26 weeks

ended

1 November

2008

52 weeks

ended

2 May

2009

Euro

 

 

 

  Average

1.14 

1.26 

1.19 

  Closing

1.12 

1.26 

1.12 

Zloty

 

 

 

  Average

4.87 

4.27 

4.53 

  Closing

4.72 

4.61 

4.89 



Risks and uncertainties


The Board has considered the principal risks and uncertainties for the remaining six months of the financial year and determined that the risks presented in the 2009 Annual Report, described below, remain for the rest of the financial year:


● economic and market conditions

● business strategy development and implementation

● employee risk - management and customer service

● entering new markets

● cost inflation

● supply chain and business continuity

● IT systems


These are detailed on page 13 of the 2009 Annual Report, a copy of which is available on the Group's website www.carpetright.plc.uk


Forward looking statements


Certain statements in this half year report are forward looking. Although the Group believes that the expectations reflected in these forward looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward looking statements. We undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.


Statement of Directors' responsibilities


The condensed financial statements have been prepared in accordance with IAS 34, as adopted by the European Union, and the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 namely:

● an indication of important events that have occurred during the period and their impact on the interim financial 
  statements, and a description of the principal risks and uncertainties for the remainder of the financial year.

● material related party transactions in the period and any material changes in the related party transactions 
  described in the last Annual Report.


The Directors of Carpetright plc are listed on page 14 of the Group's 2009 Annual Report. Since the date of the Annual Report there have been no changes to the composition of the Board.




By order of the Board

Neil Page

Group Finance Director

14 December 2009




Interim review opinion


Independent review report to Carpetright 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 26 weeks ended 31 October 2009, which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity, condensed consolidated statement of financial position, condensed consolidated statement of cash flows, comparative figures 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 Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.


As disclosed in note 2, the annual financial statements of the group 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 International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.


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. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.


Scope of review


We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, 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 (UK and Ireland) 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 condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 31 October 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.



PricewaterhouseCoopers LLP
Chartered Accountants

14 December 2009
London




Notes:


a)

The maintenance and integrity of the Carpetright plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.


b)

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.






This information is provided by RNS
The company news service from the London Stock Exchange
 
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