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Carpetright PLC (CPR)

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Tuesday 25 June, 2013

Carpetright PLC

Preliminary Results Announcement

RNS Number : 7548H
Carpetright PLC
25 June 2013
 



 

Carpetright plc

Preliminary Results Announcement for the 52 weeks ended 27 April 2013

 

Carpetright plc, Europe's leading specialist carpet and floor coverings retailer, today announces its preliminary results for the 52 week trading period ended 27 April 2013.

 

Group Financial Summary

 


2013

£m

2012

£m

Change

Group revenue (Note 1)

457.6

471.5

-2.9%

·    UK

381.6

381.6

Level

·    Rest of Europe

76.0

89.9

-15.5%





Underlying operating profit (Note 2)

11.4

8.0

+42.5%

·    UK

10.9

2.8

+289.3%

·    Rest of Europe

0.5

5.2

-90.3%





Underlying profit before tax (Note 2)

9.7

4.0

+142.5%

Underlying earnings per share

9.6p

4.5p

+113.3%





Exceptional items  (Note 4)

(14.8)

9.5


Statutory profit/(loss) before tax

(5.1)

13.5


Basic earnings/(loss) per share

(9.8p)

16.4p






Net debt

10.2

19.1

Down 46.6%

Dividend per share

TBC

Nil


 

Highlights

 

UK

•     Like-for-like revenues increased by 2.2%.  Excluding the expected contraction in sales from the wholesale business, the core retail business like-for-like grew by 3.9%.

•     Gross profit percentage increased by 260 basis points to 61.5% (2012: 58.9%).

•     154 stores refurbished in the period taking the total to 186 stores, with sales uplifts in the fully modernised stores of over 10%.

•     Store base reduced by a net 12 during the year to 478 stores.

•     Exceptional charges of £14.8m related to a combination of net losses on disposal of properties, onerous lease provisions and non-cash impairment of property assets.

 

Rest of Europe

•     Revenue in local currency, declined by 10.4% with like-for-like sales down by 11.0%.

•     Difficult trading conditions in the Netherlands, where the floor coverings market remains weak. 

•     Number of stores remains unchanged at 142, having opened three and closed three stores during the period.

 

Commenting on the results, Darren Shapland Chief Executive said:

 

"The Group grew underlying profits and generated cash during the year, with an encouraging increase in UK retail store like-for-like sales and a significant improvement in gross profit percentage year-on-year.  In the Rest of Europe, trading conditions in the Netherlands remained difficult whilst progress has been made in the recovery plan for the Republic of Ireland.

 

"The success of our self-help activities in improving Group performance during the period was particularly encouraging, demonstrating that a focus on factors within our control can yield good results.

 

"While we expect trading conditions to remain challenging, we are confident that the combination of these self-help initiatives will underpin the positive momentum of the Group."

 

 

Notes

1.     All sales figures are quoted after deducting VAT.

2.     'Underlying' excludes exceptional items and related tax.

3.     Like-for-like sales calculated as this year's net sales compared to last year's net sales for all stores that are at least 12 months old at the beginning of our financial year.  Stores closed during the year are excluded from both years.  No account is taken of changes to store size or introduction of third party concessions.  Sales from insurance and house building contracts are supplied through the stores and included in their figures.

4.     Exceptional items comprises, net losses on disposal of properties of £1.2m, onerous lease provisions of £8.1m non-cash impairment of freehold property assets of £5.2m and impairment of other assets of £0.3m.

5.     Comparative period for the year is the 52 week period ended 28 April 2012.

 

 

Results presentation

Carpetright plc will hold a presentation to analysts and investors at Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB at 9:00am today.

 

A listen only conference call facility is available on 01452 560297, conference ID: Carpetright

 

A copy of this interim statement can be found on our website www.carpetright.plc.uk

 

 

For further enquiries please contact:

 

Carpetright plc

Darren Shapland, Chief Executive

Neil Page, Group Finance Director

Tel: 01708 802000

 

Citigate Dewe Rogerson

Kevin Smith / Lindsay Noton

Tel: 020 7638 9571

 

 

 

Forthcoming News flow:

Carpetright will release its Interim Management Statement for the third quarter on
23 July 2013.

 

Certain statements in this report are forward looking.  Although the Group believes that the expectations reflected in these forward looking statements are reasonable, it 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.

 

 

 

Preliminary Results

 

A summary of the reported financial results for the year ended 27 April 2013 is set out below:


 2013
£m

2012
£m


Change

Revenue

457.6

471.5

(2.9%)

Underlying operating profit

11.4

8.0

42.5%

Net finance charges

(1.7)

(4.0)

57.5%

Underlying profit before tax

9.7

4.0

142.5%

Exceptional items

(14.8)

9.5


Profit/(loss) before tax

(5.1)

13.5


Earnings/(loss) per share (pence)




- underlying

9.6

4.5

113.3%

- basic

(9.8)

16.4


Dividends per share (pence)

Nil

Nil


Net debt

(10.2)

(19.1)

£8.9m

Note -  Where this review makes reference to "Underlying" these relate to profit / earnings before exceptional items.

 

Overview

Total sales decreased by 2.9% to £457.6m, with the UK business being level and a decline in the Rest of Europe.  During the year, the Group opened 14 stores and closed 26 which gave a net decrease of 12 stores, with a total store base of 620.  Total store space declined by 2.1% to 5.7 million square feet.

 

The challenging consumer environment in the UK is continuing to impact the disposable incomes of our customers and subdued mortgage approval volumes influence a lower level of activity within our sector.  Against this backdrop, our self-help actions continue to deliver positive results.  The key driver in the performance of the Rest of Europe continues to be the deterioration of consumer confidence in the Netherlands, where the floor coverings market remains weak. 

 

Overall, Group underlying operating profit increased by 42.5% to £11.4m.  Underlying net finance charges were £2.3m lower at £1.7m, the result of lower average net debt achieved, for the most part, through the sale and leaseback of freehold properties in the latter part of the previous financial year.   These factors combined to generate an underlying profit before tax of £9.7m, a 142.5% increase on the prior year.

 

Exceptional charges totalled £14.8m (2012: a surplus of £9.5m) primarily from onerous lease provisions, net losses on the disposal of property and non-cash impairment charges. As a result, the loss before tax was £5.1m (2012:  profit of £13.5m).  Basic loss per share was 9.8p reflecting the post tax loss (2012: earnings of 16.4p).

 

The combination of cash flow from continued underlying profitability and the level of net capital expenditure, enabled year-end net debt to be reduced by £8.9m to £10.2m (2012: £19.1m).  The cash flow strength of the Group is highlighted by the fact that in the past four years net debt has been reduced by over 89% from £97.1m as at May 2009.

 

Chief Executive's Review

 

The Group grew underlying profits and generated cash during the year, with an encouraging increase in UK retail store like-for-like sales and a significant improvement in gross profit percentage year-on-year.  In the Rest of Europe, trading conditions in the Netherlands remained difficult whilst progress has been made in the recovery plan for the Republic of Ireland.

 

The improvement in the Group's performance this year has been driven, in large part, by the success of our programme of self-help measures, a number of which were accelerated on conclusion of the review completed immediately following my appointment as Chief Executive in May 2012.  The results from this package of initiatives have been very encouraging and further potential exists in the ongoing roll-out over the next two financial years. 

 

The programme is concentrated on six elements, each of which is discussed in more detail below:

 

1.

Modernising the estate

 

2.

Adjusting the store portfolio

 

3.

Enhancing our range of floor coverings and services

 

4.

Optimising digital as part of a multi-channel offering

 

5.

Developing our bed proposition

 

6.

Delivering a step change in service



 

1.    Modernising the estate

We are part way through a three year programme of refurbishing the UK store estate, introducing an updated store design, with a new, more contemporary feel, in which it is easier for customers to shop.  This has involved improving natural light, updating signage, developing new layouts, replacing floor coverings and upgrading in-store lighting. 

 

We have focused on the 357 larger out-of-town stores of the estate, those circa 8,000 sq ft and above, of which 244 are circa 10,000 sq ft, including a bed department.  This excludes 22 of our stores trading under the Storey Carpets brand. 

 

The typical spend per store is around £55k, with post-refurbishment sales showing an increase of around 10% compared to the un-invested estate, resulting in an average payback of about one year.  As some of these stores have now passed their first anniversary, it has been encouraging to see they are continuing to show sales growth above that of the un-invested estate.

 

Within this programme there were 57smaller-scale refreshes of newer stores which did not need a full refurbishment but required someupdating to align them to the latest look.  These typically cost around £20k per store.

 

To date, we have completed 186of these modernisations representing over 50% of this group of larger out-of-town stores, and the customer response has been very positive.  We aim to complete the refurbishment of the remaining larger out-of-town stores over the next two years.

 

At the same time as modernising the larger out-of-town locations we have also been looking at our smaller format stores.  We have 47 stores on high streets and a further 16 concessions sites, which tend to be between 2,000-4,000 sq ft in size.  We have trialled  a 'sample only' format in two stores, with a special 'smooth flooring' area and extended ranges of roll stock samples, plus a dedicated area for premium branded carpets within our range.  While we are still refining the proposition, the results have been strong enough to support a plan to modernise the stores in this format.

 

Our last group of stores are the mid-size locations of around 4,000-8,000 sq ft, of which we have 36.  Again we have trialled a new format, with the focus on 'sample only' with a small takeaway range.  The results have been encouraging and we are looking to finalise the elements of this mid-size format by October 2013.

 

Following the success of the UK plan, we have also commenced a similar refurbishment programme in the Rest of Europe to adapt to changing customer preferences.  By the end of the year, we had refurbished six stores with positive initial results.  Although trading conditions in this business remain challenging, we are planning a further four store refurbishments in the first quarter of this financial year, prior to assessing the potential for a further roll out.

 

2.    Adjusting the store portfolio

At the end of April 2013 we had 478stores trading in the UK and during the last 12 months we opened 11 stores and closed 23.  This net reduction is primarily the result of completing detailed catchment analysis which identified a small number of overlaps, where having more than one store in a town was not beneficial to profit or cash flow.  The new stores have been smaller than the estate average.  These are primarily high street stores located in the Greater London area, where there is a high concentration of potential customers who currently do not have easy access to a Carpetright store.  We have been encouraged by the early trading results and see potential for a further 10-15 of these opportunities.  

 

We continue to take a robust view at lease renewal, which provides an opportunity to secure lower rental cost for future years.  In the period we achieved an average rent reduction of over 10% on the current rent payable in respect of leases which were renewed and exited seven poor performing stores.  Within the next five years 20% of the estate has lease renewals scheduled.

 

In the Rest of Europe we had 142stores trading as at the end of April 2013.  During the last 12 months we opened three stores and closed three.  We now have 13 stores operating a 'sample only' with a small takeaway range format, which has the benefit of lower operating costs withoutnegatively affecting customer choice.      This format allows us to reduce fixed occupancy costs by either sub-letting or handing back space to the landlord, hence increasing profit.    

 

3.    Enhancing our range of floor coverings and services

In the current economic environment our customers are looking harder than ever for value before making their purchase.  Based on our experience, we are adapting our ranges and promotional activity to continue to offer the best prices across a broader flooring selection, to strengthen our product authority as market leader and maximise our market opportunity.

 

In the UK, in line with broadening our appeal to more affluent customers, we introduced a selection of branded carpets at very competitive prices, such as Brintons, Ulster and Westex, and sisal and sea grass ranges to the majority of stores during the period.  The results have been encouraging, generating incremental sales.

 

Analysis indicates that more of our customers are choosing to have their carpet fitted for them, rather than doing it themselves.  As a consequence, we are seeing a higher proportion of our 'pay and take' roll stock - which was traditionally taken home by the customer from the store on the day of purchase - being fitted for the customer.  The trend has enabled us to introduce samples of these products, enabling us to offer a wider selection, particularly in a number of smaller stores.  

 

A further area of opportunity is to develop our smooth flooring selection in the UK, building on our extensive knowledge and success in this market in continental Europe, where it has traditionally made up a much greater proportion of the sales mix.  The roll out of our stocked laminate offering has continued and is now in over 340stores, alongside a laminate sample range available in all stores.  In addition, we introduced a competitive Luxury Vinyl Tile (LVT) offer into 300 stores, with plans to extend this to over 440 stores by the end of July 2013.  Alongside this, we have introduced a new range of engineered wood, which is also being rolled out over the same time period.  We continue to believe this category will provide an area of growth, supported by the strength of our value and service proposition.

 

In the Rest of Europe, we have adapted displays to broaden the colour choice on our most popular roll stock ranges and introduced LVT to all stores.  In addition, we have introduced a distressed wood collection along with sisal and sea grass, the latter two under the branding of 'Natural Collection'.

 

4.    Optimising digital as part of a multi-channel offering

Our customer research indicates that the nature of our product means that the vast majority of customers prefer to visit a store to make their purchase, to give them the opportunity to see and touch their choice of floor covering.  However, the internet is playing an ever-increasing role in pre-purchase behaviour, becoming a vital research tool for many customers and the rapid growth of smart phone and tablet use also underlines the importance of having an effective and integrated digital proposition. 

 

We continued to develop and improve our online presence during the period.  By the end of the year, on a weekly basis we were achieving an average of over 87,000 unique visitors to our website, a 21% increase on the same period last year and this has produced a corresponding increase in appointment leads.  Some of the increase is attributable to an enhanced search engine optimisation programme and increased investment in pay-per-click.  The ability to track attributable sales has given us encouragement to invest more in this area this year.  This initiative, alongside widening the range of available samples, has helped to increase the volume of sample requests by 70%.  We have also continued to focus activity in improving our conversion to sales ratio, through a call centre manned by knowledgeable colleagues and by improved follow-up at store level.

 

In the Rest of Europe, we are developing a process for appointment leads and samples and improving the compatibility of our websites on mobile devices.  We expect to have this operational by the end of the calendar year.

 

5.    Developing our bed proposition

Beds provide an important complementary revenue stream, in our UK business, to our core floor coverings offer and we believe this category has significant further growth potential.  We have established a compelling offer with a typical in-store range of between 25-35 beds available at market leading prices, backed up by a good home delivery service.  At the end of April 2013 the offer 'Sleepright by Carpetright' was trading from 271 stores (2012: 272 stores).  The business delivered an increase in sales of 10.4% in the year as a whole, with 5.6% in the first half and 15.2% in the second half, giving an indication of the momentum being achieved.  Beds now represent 6.7% of total UK sales revenue (2012: 6.1%) and 10.8% of the sales mix in those stores where it is available.  Our biggest opportunity is now in building customer awareness that we sell beds and, to support this, we are increasing our investment in marketing activity focused on this area.

 

By building on the lessons learnt in the UK we have looked to replicate the bed proposition in the Netherlands, albeit adjusted to reflect the needs of the local consumer.  We have opened bed departments in two stores as a trial and are rolling this out to four more stores by the end of July.  These will be evaluated by the end of the calendar year. 

 

6.    Delivering a step change in service

In an environment where customers' service expectations continue to rise, we believe there is an opportunity to drive our customer service standards higher and make them a real competitive advantage.  This view is supported by externally conducted market research.  Based on this research, during the year, we introduced new point of sale and price tickets to improve the transparency of our pricing.  In addition, we invested in training to develop our store colleagues to enable them to provide even better service to our customers.

 

Mystery shopper visits provide a robust measure of our performance, enabling recognition of the best stores and identifying those where corrective action is needed when we have fallen short of our expectations.  Starting in late Summer 2012, we increased the frequency of these visits with every store now getting at least one visit every month.  Simultaneously, all store colleagues received training on selling and service standards and we have increased the bonus and incentives for those who achieve the required standard. 

 

As more customers place a premium on their time, we have seen a growth in the number of customers who would like to make their purchase decision in their own home.  This trend underlines the increasing importance of the role of the estimator in visiting customers' homes, providing a selected range of flooring and measuring room(s).  We are currently evaluating how we can optimise this resource to provide a market leading service in this area and, as a start, have commenced a programme of 'mystery shopper' evaluation of our current performance and increased our training in this area.

 

Our cutting and distribution centre at Purfleet provides a market leading cut-to-measure service to our stores, together with short lead times.  This gives our store colleagues the ability to sell with the confidence of meeting our customers' expectation of fulfilling their order rapidly.  Later this year, we are switching to a new transport fleet, which will reduce our fuel consumption and enable us to increase the proportion of products under centralised distribution. The latter will free up time in store, to be invested in improving our customer service.

 

In the majority of instances, the last contact point the customer has with Carpetright is with the flooring fitter.  In the UK, we recommend the use of one of 1,284 fitters who have been independently assessed and validated.  To monitor the performance of the fitter, customers are contacted after the fitting to seek comments on their experience.  This allows our store managers to track individual performance and identify areas for improvement.  We are looking to improve the robustness of this process by introducing automation in the capture of the customer comments.  We offer all our recommended fitters access to an independent assessment and have broadened the numbers of disciplines to support the expansion of our range into laminate and LVT.

 

Outlook

Historically, trends in UK housing transactions and mortgage approvals have been useful lead indicators of consumer demand in our sector, bearing a positive correlation with floor covering sales.  Both of these indicators have recently shown some early signs of improvement, although this is from a very low base and it remains premature to call a wider recovery in the economy.

 

The success of our self-help activities in improving Group performance during the period was particularly encouraging, demonstrating that a focus on factors within our control can
yield good results.

 

While we expect trading conditions to remain challenging, we are confident this combination of self-help initiatives will underpin the positive momentum of the Group.

 

 

Darren Shapland

Chief Executive

24 June 2013

 

 

Financial Review

 

UK

Key financial results:

 


2013
£m

2012
£m

Change

Revenue

381.6

381.6

Level

Like-for-like sales

2.2%

(0.2%)


Gross Profit

234.8

224.8

4.4%

Gross Profit %

61.5%

58.9%

2.6ppts

Costs

(223.9)

(222.0)

(0.9%)

Underlying Operating Profit

10.9

2.8

289.3%

Underlying Operating Profit %

2.9%

0.7%

2.2ppts

 

The UK portfolio is now as follows:

 


Store Numbers

Sq Ft ('000)


28 April 2012

Openings

Closures

27 April 2013

28 April 2012

27 April 2013

Standalone

474

11

(23)

462

4,241

4,124

Concessions

16

-

-

16

29

29

Total

490

11

(23)

478

4,270

4,153

 

Total UK revenue in the year was £381.6m, in line with the previous year.  We opened 11 stores and closed 23 stores in the year, which translated into net space decline of 117,000 sq ft, a decrease of 2.7%.

 

After taking into account the movement in the number of stores like-for-like sales for the year increased by 2.2% and can be attributed to the following key factors:

 

i)     The stores which have now been fully refurbished are reporting sales increases around 10% above the underlying store base;

ii)    The development of our bed business.  This category now makes up 6.7% of UK sales (2012: 6.1%);

iii)   The introduction of an improved laminate range to more stores;

iv)   The increased use of digital media; and

v)    A 54.4% decline in the wholesale businesses, which now represents 1.5% of sales (2012: 3.3%).  Whilst there remains a market, the level of profitability available to Carpetright
has been significantly reduced by structural changes in the insurance replacement market.  This is likely to remain a relatively small proportion of total sales for the foreseeable future.

The progress made on the self-help initiatives was reflected in the sales line with first half like-for-like sales up 0.8% and this accelerated in the second half to 3.6%. 

 

Gross profit increased by 4.4% to £234.8m, representing 61.5% of sales, an increase of 2.6 percentage points.  This improvement was achieved in the floor covering margin through better sourcing and promotional planning.  The impact of the increase of bed sales at a lower margin was offset by a corresponding decease from our wholesale business.

 

The total UK cost base increased by 0.9% compared with the prior year to £223.9m (2012: £222.0m).  Store payroll costs continue to be managed closely to the volume of sales and increased by 0.2% to £58.3m (2012: £57.6m).  Store occupancy costs fell 0.9% to £126.4m (2012: £127.5m) due to a net reduction in the number of stores, successful rent negotiations and reduced depreciation, although this was partially offset by increased utility and business rates inflation.  The underlying rent in like-for-like stores increased marginally by 0.3% (2012: 0.2%), with the majority of rent reviews being settled at zero, a reflection of the current economic climate.  Marketing and central support costs were up 5.7% at £39.2m (2012: £37.1m), primarily the result of an increased investment in sales-driving advertising activity supporting self-help initiatives and an increase in performance related bonuses.

 

Underlying operating profit increased significantly to £10.9m (2012: £2.8m).

 

 

Rest of Europe

Key financial results:

 


2013
£m

2012
£m

Change
(Reported)

Change
(Local Currency)

Revenue

76.0

89.9

(15.5%)

(10.4%)

Like-for-like sales

(11.0%)

(1.2%)



Gross Profit

43.5

51.2

(15.0%)

(9.7%)

Gross Profit %

57.2%

57.0%

0.2ppts


Costs

(43.0)

(46.0)

6.5%

0.3%

Underlying Operating Profit

0.5

5.2

(90.4%)

(90.5%)

Underlying Operating Profit %

0.7%

5.8%

(5.1ppts)


The Rest of Europe portfolio is now as follows:

 


Store Numbers

Sq Ft ('000)


28 April 2012

Openings

Closures

27 April 2013

28 April 2012

27 April 2013

Netherlands

94

1

-

95

1,094

1,104

Belgium

28

1

(3)

26

329

307

Republic of Ireland

20

1

-

21

147

155

Total

142

3

(3)

142

1,570

1,566

 

In the Netherlands, following the implementation of government austerity measures which adversely affected consumer confidence, the flooring market was weak.  This resulted in an extremely challenging year for our business.  Belgium also faced a difficult period with a similar package of austerity measures, although our sales were not as severely impacted.  Whilst in the Republic of Ireland we achieved consistent sales growth throughout the year, as our recovery plan continues to gain momentum.

 

The three businesses combined to produce a total sales decline of 10.4% in local currency, with like-for-like sales decreasing by 11.0%.  After exchange rate movements, total sales fell 15.5% in reported revenue.

 

Gross profit percentage increased marginally to 57.2% (2012: 57.0%), but was not enough to offset the decline in sales, resulting in a decline of gross profit to £43.5m (2012: £51.2m).  In local currency terms, this represented a 9.7% decline.

 

Reported operating costs decreased by 6.5% to £43.0m.  In local currency terms, costs decreased by 0.3%, which included an additional £0.8m of occupancy costs following the sale and leaseback disposal of four freehold properties in Belgium at the end of the last financial year.  The reduction in the remaining costs reflects tight management control and a focus on achieving efficiencies. 

 

The net result was an underlying operating profit of £0.5m (2012: £5.2m).  In local currency terms, the underlying profit decreased by 90.5%.

 

 

Group Financial Review

 

Net Finance Costs and Taxation

Underlying net finance charges were £1.7m (2012: £4.0m) reflecting lower average net debt and a reduction in the margin rates on borrowings.  The effective tax rate on profits is 29.3% (2012: 18.7%).  This increase arises as a combination of non-recurring adjustments in the prior year and the impact of a change in UK tax rates. 

 

Exceptional Items

The Group recorded a net charge of £14.8m (2012: surplus of £9.5m) in the year.

 


(Charge)/Gain


2013
£m

2012
£m

Profit/(loss) on disposal of properties

(1.2)

13.4

Onerous lease charge

(8.1)

(0.3)

Impairment charge - store assets

(0.3)

(1.0)

- freehold property

(5.2)

-

Restructuring costs

-

(2.1)

Write off of unamortised refinancing fees

-

(0.5)


(14.8)

9.5

 

We continued to trade our property portfolio, although the deterioration in the UK out-of-town retail property market has made this more challenging.  A net loss of £1.2m was made on property disposals in the year (2012: profit of £13.4m).

 

During the period, a property portfolio review was completed.  This resulted in the closure of 11 stores previously trading under the 'Storey Carpets' brand.  In all of these locations there is a 'Carpetright' store in close proximity.  As expected, a proportion of the sales have transferred to nearby stores with an annualised benefit to profit to be around £1m.  In addition, we have had leases for two stores return under privity of contract following their current occupier's administration.  As a result, along with three other closures, the Group is making an onerous lease provision for the estimated future outgoings of these stores of £5.4m.  In April 2011, we made onerous lease provisions for 20 UK stores, we have disposed of eight of these, leaving 12, where in the light of the deterioration of the out-of-town property market, the provision has been reviewed and increased by £2.7m.  

 

We have reviewed the carrying value of the store assets in our balance sheet, consistent with the approach in previous years.  The model used to value these assets includes a number of assumptions relating to market growth and inflationary expectations.  These tests have led to a net impairment charge of £0.3m (2012: £1.0m). 

 

Historically, the Group has made net gains on disposal of freehold properties and has a track record of overachievement against valuations.  Nevertheless, the weakening of the property market in both the UK and the Netherlands, with more properties being returned to landlords, has led us to review the carrying value of the Group's freehold properties.  This has resulted in a non-cash impairment charge of £5.2m. 

 

Earnings per Share

Basic loss per share was 9.8 pence (2012: earnings of 16.4 pence), reflecting the statutory post tax loss.  Underlying earnings per share increased to 9.6 pence (2012: 4.5 pence).

 

Dividend

Whilst recognising good progress has been made in reducing our debt and there has been some encouragement in the increase of the level of underlying profitability, the current economic environment continues to be uncertain.  As a result, the Board feels it is important to see a continued recovery in Group performance before restoring the dividend. The Board has therefore decided not to pay a final dividend (2012: nil pence), resulting in no full year dividend (2012: nil pence).

 

Balance Sheet

The Group had net assets of £65.3m (2012: £70.7m) at the end of the year, a decrease of £5.4m since 28 April 2012, reflecting the post tax loss for the year.

 


27 April 2013

£m

28 April 2012

£m

Movement £m

Freehold and long leasehold property

75.0

83.3

(8.3)

Other non current assets

118.0

121.9

(3.9)

Stock

37.6

38.3

(0.7)

Trade & other current assets

19.8

24.1

(4.3)

Creditors < 1 year

(103.2)

(110.2)

7.0

Creditors > 1 year

(66.6)

(63.3)

(3.3)

Net Debt

(10.2)

(19.1)

8.9

Pension Deficit

(5.1)

(4.3)

(0.8)

Net Assets

65.3

70.7

(5.4)

 

Net Debt and Cash Flow

The cash generative nature of the business remains one of the strengths of the Group, with operating cash flow of £17.4m in the year (2012: £29.1m). 

 

The increase in working capital in the year was attributable to the decline in merchandise creditors in the Netherlands, a consequence of the lower sales, the net amortisation of property lease incentives and the reversal of a timing difference from the previous year related to payment of UK VAT.  The payment for provisions reflects the cash outgoing for previous years' exceptional items, predominantly onerous leases in the UK and Republic of Ireland.

 

Cash Flow


2013
£m

2012
£m

Underlying operating profit

11.4

8.0

Depreciation and other non-cash items

14.6

14.8

Exceptional items

-

(1.6)

(Increase)/Decrease in stock

1.0

(0.4)

(Increase)/Decrease in working capital

(6.2)

13.3

Provisions paid

(3.4)

(5.0)

Operating cash flow

17.4

29.1

Net interest paid

(1.4)

(4.9)

Corporation tax paid

(1.4)

(3.0)

Net capital receipts/(expenditure)

(6.6)

22.8

Free cash flow

8.0

44.0

Other

0.9

2.6

Movement in net debt

8.9

46.6

Opening net debt

(19.1)

(65.7)

Closing net debt

(10.2)

(19.1)

 

Net capital receipts/(expenditure) was an outflow of £6.6m (2012: inflow of £22.8m).  This can be broken down into the following principal categories:

 


2013
£m

2012
£m

Capital expenditure

(9.6)

(6.9)

Purchase of freehold properties

(1.6)

(3.7)

Proceeds from freehold property disposals

2.7

32.0

Proceeds from leasehold property disposals

1.9

1.4

Net capital receipts/(expenditure)

(6.6)

22.8

 

After the repayment of borrowings, net debt decreased by £8.9m to £10.2m at the year end (2012: £19.1m).

 

Property

The Group owns a significant property portfolio, most of which is used for trading purposes. This portfolio is estimated to have a market value of £79.7m at the year-end (2012: £86.6m), compared to a net book value of £73.6m recorded in the financial statements (2012: £81.8m).  The movement in the year is predominantly the result of recognising weaker property markets.

 

Pensions

The IAS 19 valuation as at 27 April 2013 was a net deficit of £5.1m in relation to defined benefit pension arrangements (2012: £4.3m).  The Carpetright scheme closed to future accrual on 30 April 2010.  Plan assets increased to £21.7m (2012: £18.3m) driven by higher market values and additional Company contributions agreed with the pension trustees following the triennial valuation in April 2011.  The present value of plan liabilities increased to £26.8m (2012: £22.6m) driven principally by a reduction in the discount rate to 4.2% (2012: 4.6%).

 

Current liquidity

At the year end the Group held cash balances of £7.9m (2012: £9.6m) principally a combination of Sterling and Euros.

 

Gross bank borrowings at the balance sheet date were £15.5m (2012: £26.0m) of which £1.6m is term based with the balance of £13.9m being drawn down from overdraft and revolving credit facilities.  The Group had further undrawn, committed facilities of £46.7m at the balance sheet date.

 

In June 2011, the Group completed a refinancing arrangement of its principal facilities, split between amortising term loans, a revolving credit facility and overdrafts in a mixture of Sterling and Euro currencies.  The term loans and revolving credit facilities mature in July 2015.  As at 27 April 2013, the facilities provided debt capacity of around £63m.   Arrangement fees and legal costs are amortised over the period to June 2014, although paid in cash at the outset.  The facilities contain financial covenants which are tested on a quarterly basis.  The Group monitors actual and prospective compliance with these on a regular basis. 

 

 

Neil Page

Group Finance Director

24 June 2013

 

 

 

Consolidated income statement

for 52 weeks ended 27 April 2013

 



Group 52 weeks to 27 April 2013


Group 52 weeks to 28 April 2012


Notes

Before exceptional items
£m

Exceptional items

(Note 3)
£m

Total
£m


Before exceptional items
£m

Exceptional items

(Note 3)
£m

Total
£m

Revenue

2

457.6

-

457.6


471.5

-

471.5

Cost of sales


(179.3)

-

(179.3)


(195.5)

-

(195.5)

Gross profit

2

278.3

-

278.3


276.0

-

276.0

Administration expenses


(269.2)

(13.6)

(282.8)


(270.2)

(3.4)

(273.6)

Other operating income


2.3

(1.2)

1.1


2.2

13.4

15.6

Operating profit/(loss)

2

11.4

(14.8)

(3.4)


8.0

10.0

18.0

Finance costs


(2.7)

-

(2.7)


(5.1)

(0.5)

(5.6)

Finance income


1.0

-

1.0


1.1

-

1.1

Profit/(loss) before tax


9.7

(14.8)

(5.1)


4.0

9.5

13.5

Tax

4

(3.2)

1.7

(1.5)


(1.0)

(1.5)

(2.5)

Profit/(loss) for the financial period attributable to equity shareholders of the Company


6.5

(13.1)

(6.6)


3.0

8.0

11.0










Basic earnings/(losses) per share (pence)

6

9.6

(19.4)

(9.8)


4.5

11.9

16.4

Diluted earnings/(losses) per share (pence)

6



(9.8)




16.4

All material items in the income statement arise from continuing operations.

 

Consolidated statement of comprehensive income

for 52 weeks ended 27 April 2013

 


Notes

Group
52 weeks to
27 April 2013
£m

Group
 52 weeks to
28 April 2012
£m

Profit/(loss) for the financial period


(6.6)

11.0





Actuarial loss on defined benefit pension scheme


(1.6)

(0.9)

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


1.9

(7.5)

Tax on components of other comprehensive income

4

0.1

-

Other comprehensive income/(expense) for the period


0.4

(8.4)





Total comprehensive income/(expense) for the period attributable to equity shareholders of the Company


 

(6.2)

 

2.6

The notes on pages 20 to 25 form an integral part of this consolidated financial information.

 

 

Consolidated statement of changes in equity

For 52 weeks ended 27 April 2013

 

Group

Share capital
£m

Share premium
£m

Treasury shares
£m

Translation reserve
£m

Hedging reserve
 £m

Retained earnings
 £m

Total
£m

At 1 May 2011

0.7

15.4

(0.3)

0.1

12.6

(0.1)

38.6

67.0

Total comprehensive income/(expense) for the financial period

-

-

-

-

(7.5)

0.1

10.0

2.6

Issue of new shares

-

0.9

-

-

-

-

-

0.9

Share based payments and related tax

-

-

-

-

-

-

0.2

0.2

At 28 April 2012

0.7

16.3

(0.3)

0.1

5.1

-

48.8

70.7

Total comprehensive income/(expense) for the financial period

-

-

-

-

1.9

-

(8.1)

(6.2)

Issue of new shares

-

0.3

-

-

-

-

-

0.3

Share-based payments and related tax

-

-

-

-

-

-

0.5

0.5

At 27 April 2013

0.7

16.6

(0.3)

0.1

7.0

-

41.2

65.3

 

 

 

Consolidated balance sheet

As at 27 April 2013


Notes

Group
2013
£m

Group
2012
£m

Assets




Non-current assets




Intangible assets


60.8

61.4

Property, plant and equipment


108.6

119.6

Investment property


20.2

20.7

Investment in subsidiary undertakings


-

-

Deferred tax assets


2.6

2.6

Trade and other receivables


0.8

0.9

Total non-current assets


193.0

205.2





Current assets




Inventories


37.6

38.3

Trade and other receivables


19.8

24.1

Current tax assets


-

-

Cash and cash equivalents


7.9

9.6

Total current assets


65.3

72.0





Total assets

2

258.3

277.2





Liabilities




Current liabilities




Trade and other payables


(102.9)

(109.2)

Obligations under finance leases


(0.1)

(0.1)

Borrowings and overdrafts


(12.2)

(9.5)

Current tax liabilities


(0.3)

(1.0)

Total current liabilities


(115.5)

(119.8)





Non-current liabilities




Trade and other payables


(31.6)

(33.8)

Obligations under finance leases


(2.5)

(2.6)

Borrowings


(3.3)

(16.5)

Provisions for liabilities and charges


(11.1)

(6.4)

Deferred tax liabilities


(23.9)

(23.1)

Retirement benefit obligations


(5.1)

(4.3)

Total non-current liabilities


(77.5)

(86.7)

Total liabilities

2

(193.0)

(206.5)

Net assets


65.3

70.7





Equity




Share capital


0.7

0.7

Share premium


16.6

16.3

Treasury shares


(0.3)

(0.3)

Other reserves


48.3

54.0

Total equity attributable to equity shareholders of the Company


65.3

70.7

 

 

Consolidated statement of cash flows

for 52 weeks ended 27 April 2013


Notes

Group
52 weeks to
27 April 2013
£m

Restated

Group
52 weeks to
28 April 2012
£m

Cash flows from operating activities




Profit/(loss) before tax


(5.1)

13.5

Adjusted for:




Depreciation and amortisation

2

14.1

14.6

(Profit)/loss on property disposals


1.2

(4.6)

(Profit)/loss on property subsidiary disposal


-

(8.8)

Dividend received from subsidiaries


-

-

Exceptional non-cash items


13.6

2.3

Share-based compensation charge


0.5

0.2

Net finance costs


1.7

4.0

Operating cash flows before movements in working capital


26.0

21.2

(Increase)/decrease in inventories


1.0

(0.4)

Decrease in trade and other receivables


3.5

7.9

Increase/(decrease) in trade and other payables


(9.7)

5.4

Provisions paid


(3.4)

(5.0)

Cash generated by operations


17.4

29.1

Interest paid


(1.4)

(4.9)

Corporation taxes paid


(1.4)

(3.0)

Net cash generated from operating activities


14.6

21.2





Cash flows from investing activities




Purchases of intangible assets


(0.6)

(0.1)

Purchases of property, plant and equipment and investment property


(10.6)

(12.0)

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


4.6

22.1

Proceeds on property subsidiary disposal


-

12.8

Interest received


-

-

Net cash generated from/(used) in investing activities


(6.6)

22.8





Cash flows from financing activities




Issue of new shares


0.3

0.9

Repayment of borrowings


(13.9)

(42.9)

Intercompany loans


-

-

Net cash used in financing activities


(13.6)

(42.0)





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


(5.6)

2.0

Cash and cash equivalents at the beginning of the period


1.5

(0.7)

Exchange differences


-

0.2

Cash and cash equivalents at the end of the period


(4.1)

1.5

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.

 

To provide greater transparency the movement in trade and other payables has been analysed further to disclose cash movements in post-employment benefits and provisions.  The change in presentation has been applied retrospectively and has no effect on the net cash generated from operating activities in respect of prior years.

 

Notes to the accounts

1 Basis of preparation

Carpetright plc ('the Company') and its subsidiaries (together, 'the Group') are retailers of floor coverings and beds.  The Company is listed on the London Stock Exchange and incorporated in England and Wales and domiciled in the United Kingdom.  The address of its registered office is Harris House, Purfleet Bypass, Purfleet, Essex, RM19 1TT.

 

The financial statements of the Group are drawn up to within seven days of the accounting record date being 30 April of each year.  The financial year for 2013 represents the 52 weeks ended 27 April 2013.  The comparative financial year for 2012 was 52 weeks ended 28 April 2012.

 

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and International Financial Reporting Interpretations Committee (IFRIC) interpretations endorsed by the European Union, together with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

The consolidated financial statements have been prepared on the historical cost basis except for pension assets and liabilities and share based payments which are measured at fair value.

 

The financial information on the following pages is derived from the full Group Financial statements for the 52 week period to 27 April 2013 and does not constitute full accounts within the meaning of section 435 of the Companies Act 2006.  The Groups Annual Report and Financial Statements on which the auditors have given an unqualified report which does not contain a statement under Section 498 (2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies and posted to shareholders in due course.

 

The financial information for the 52 weeks to 28 April 2012 is delivered from the Annual Report for that year which has been delivered to the Registrar of Companies.  The independent auditors reported on these accounts, their report was unqualified and did not contain a statement under either section 498 (2) or (3) of the Companies Report 2006.

 

Foreign Exchange rates

Financial assets and liabilities and foreign operations are translated at the following rates of exchange:

 


Euro
2013

Euro
2012

Zloty
2013

Zloty
2012

Average rate

1.23

1.16

5.12

4.90

Closing rate

1.19

1.23

4.93

5.12

 

 

2.  Segmental analysis

Segmental information is presented using a 'management approach' on the same basis as that used for internal reporting to the Chief Operating decision maker.  The Chief Operating decision maker, who is responsible for resource allocation and assessing performance of the operating segments, has been identified as the Executive Committee.

 

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

 

The segment information provided to the Executive Committee for the reportable segments for the 52 weeks ended 27 April 2013 is as follows:

 


52 weeks to 27 April 2013

52 weeks to 28 April 2012


UK
£m

Europe
£m

Group
£m

UK
£m

Europe
£m

Group
£m

Gross revenue

385.7

76.0

461.7

387.1

89.9

477.0

Inter-segment revenue

(4.1)

-

(4.1)

(5.5)

-

(5.5)

Revenues from external customers

381.6

76.0

457.6

381.6

89.9

471.5

Gross profit

234.8

43.5

278.3

224.8

51.2

276.0

Underlying operating profit

10.9

0.5

11.4

2.8

5.2

8.0

Exceptional items

(14.3)

(0.5)

(14.8)

10.5

(0.5)

10.0

Operating profit/(loss)

(3.4)

-

(3.4)

13.3

4.7

18.0

Finance income

1.0

-

1.0

1.1

-

1.1

Intercompany interest

(0.1)

0.1

-

(0.7)

0.7

-

Finance costs

(2.7)

-

(2.7)

(5.2)

(0.4)

(5.6)

Profit/(loss) before tax

(5.2)

 0.1

(5.1)

8.5

5.0

13.5

Tax

(1.1)

(0.4)

(1.5)

(1.6)

(0.9)

(2.5)

Profit/(loss) for the financial period

(6.3)

(0.3)

(6.6)

6.9

4.1

11.0








Segment assets:







Segment assets

204.3

99.3

303.6

217.7

100.6

318.3

Inter-segment balances

(24.1)

(21.2)

(45.3)

(20.2)

(20.9)

(41.1)

Balance sheet total assets

180.2

78.1

258.3

197.5

79.7

277.2

Segment liabilities:







Segment liabilities

(188.6)

(49.7)

(238.3)

(197.3)

(50.3)

(247.6)

Inter-segment balances

21.2

24.1

45.3

20.8

20.3

41.1

Balance sheet total liabilities

(167.4)

(25.6)

(193.0)

(176.5)

(30.0)

(206.5)








Other segmental items:







Depreciation and amortisation

11.7

2.4

14.1

12.0

2.6

14.6

Additions to non-current assets

8.7

1.6

10.3

7.3

1.4

8.7

 

Carpetright plc is domiciled in the UK.  The Group's revenue from external customers in the UK is £381.6m (2012: £381.6m) and the total revenue from external customers from other countries is £76.0m (2012: £89.9m).  The total of non-current assets (other than financial instruments and deferred tax assets) located in the UK is £154.6m (2012: £162.9m) and the total of those located in other countries is £81.1m (2012: £74.4m).  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.

 

 

3. Exceptional items

 



Group
2013
£m

Group
2012
£m

Property profits/(losses):




UK and the Netherlands


(1.2)

4.6

Sale of Belgian property subsidiary


-

8.8

Onerous lease provisions


(8.1)

(0.3)

Impairment charge




     Store assets


(0.3)

(1.0)

     Freehold properties


(5.2)

-

Store support office restructuring


-

(2.1)

Write off of unamortised refinancing fees


-

(0.5)

Exceptional items before tax


(14.8)

9.5

In accordance with IAS 36 assets are reviewed for impairment whenever changes in circumstances indicate that the carrying value may not be recoverable.  The impairment provision relates to properties in the UK and the Netherlands.

The onerous lease provision relates to properties in the UK and the Republic of Ireland that are not trading and are either empty or leased at below the passing rent. 

 

4.  Tax

(i) Analysis of the charge in the period

 

Group
2013
£m

Group
2012
£m

 

UK current tax

0.5

0.9

Overseas current tax

0.2

1.1

Total current tax

0.7

2.0

UK deferred tax

0.6

0.7

Overseas deferred tax

0.2

(0.2)

Total deferred tax

0.8

0.5

Total tax charge in the income statement

1.5

2.5

The tax charge for the year includes a credit of £0.9m in respect of exceptional items (2012: charge of £3.1m).  In addition, the impact of the change in tax rates on deferred tax liability has resulted in an exceptional tax credit of £0.8m (2012: £1.6m credit).

(ii) Reconciliation of profit/(loss) before tax to total tax

 

Group
2013
£m

      Group
2012
£m

Profit/(loss) before tax

(5.1)

13.5

Tax charge/(credit) at UK Corporation Tax rate of 24% (2012: 26%)

(1.2)

3.5

Adjusted for the effects of:



Overseas tax rates

-

(0.2)

Fall in UK tax rates

(0.8)

(1.6)

Non-qualifying depreciation

0.6

0.6

Other permanent differences

1.1

0.9

Losses recognised

-

(0.6)

Gains not subject to tax

-

(1.1)

Capital gains

1.8

1.7

Adjustments in respect of prior periods

-

(0.7)

Total tax charge in the income statement

1.5

2.5

The weighted average annual effective tax rate for the period is 29.3% (2012: 18.7%).  The increase arises from a combination of non-recurring items in the prior year and the impact of changes in the UK tax rate.

(iii) Tax on items taken directly to or transferred from equity

 

Group
2013
£m

Group
2012
£m

Deferred tax on actuarial gains, recognised in other comprehensive income

(0.1)

-

Deferred tax on share based payments

0.1

-

Total tax recognised in equity

-

-

 

5.  Dividends

The Directors decided that no final dividend will be paid (2012: No final dividend paid).  This results in no dividend in the year to 27 April 2013 (2012: No dividend paid).

6.  Earnings per share

Basic earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, excluding those held by Equity Trust (Jersey) Limited which are treated as cancelled.

 

In order to compute diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares.  Those share options granted to employees and Executive Directors where the exercise price is less than the average market price of the Company's ordinary shares during the period represent potentially dilutive ordinary shares.

 


52 weeks ended 27 April 2013

52 weeks ended 28 April 2012


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/(losses) per share

(6.6)

67.5

(9.8)

11.0

67.2

16.4

Effect of dilutive share options

-

0.3

-

-

0.3

-

Diluted earnings/(losses) per share

(6.6)

67.8

(9.8)

11.0

67.5

16.4

 

Reconciliation of earnings per share excluding post tax profit on exceptional items:

 


52 weeks ended 27 April 2013

52 weeks ended 28 April 2012


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/(losses) per share

 (6.6)

67.5

(9.8)

11.0

67.2

16.4

Adjusted for the effect of exceptional items:







Exceptional items

14.8

-

21.9

(9.5)

-

(14.1)

Tax thereon

(0.9)

-

(1.3)

3.1

-

4.6

Exceptional tax benefit from tax rate change

(0.8)

-

(1.2)

(1.6)

-

(2.4)

Underlying earnings/(losses) per share

6.5

67.5

9.6

3.0

67.2

4.5

The Directors have presented an additional measure of earnings per share based on underlying earnings.  This is in accordance with the practice adopted by most major retailers.  Underlying earnings is defined as profit excluding exceptional items and related tax. 

7.  Movement in cash and net debt


Group
2013
£m

Group
2012
£m

Current assets



Cash and cash equivalents

7.9

9.6

Bank overdrafts

(12.0)

(8.1)


(4.1)

1.5

Current liabilities



Borrowings and overdrafts

(0.2)

(1.4)

Obligations under finance leases

(0.1)

(0.1)


(0.3)

(1.5)

Non-current liabilities



Borrowings

(3.3)

(16.5)

Obligations under finance leases

(2.5)

(2.6)


(5.8)

(19.1)

Total net debt

(10.2)

(19.1)

Reconciliation of movements in the periods ended 27 April 2013



Group
2013
£m

Group
2012
£m

Net increase/(decrease) in cash and cash equivalents


(5.6)

2.0

Net decrease in borrowing

Other non cash movements


13.9

0.6

42.9

1.7



8.9

46.6

 


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