Final Results

RNS Number : 7273Q

United Carpets Group plc

09 August 2010

 

 

UNITED CARPETS GROUP plc

 

Preliminary Results for the year ended 31 March 2010

 

United Carpets Group plc ("the Group" or "the Company" or "United Carpets"), the second largest chain of specialist retail carpet and floor covering stores in the UK, today announces its preliminary results for the year ended 31 March 2010.

 

Highlights

 

·; Network sales grew by 7.4% to £69.9m (2009: £65.1m)

 

·; Like for like sales up 1.0%

 

·; Revenue increased by 2.5% to £27.47m (2009: £26.79m)

 

·; Profit before tax and exceptional items increased by 7.3% to £1.463m (2009: £1.364m)

 

·; Profit before tax increased by 84.5% to £1.098m (2009: £0.595m)

 

·; Store numbers increased by 2 to 82

 

·; Number of corporate stores reduced as planned from 23 to 12 stores

 

·; Recommending a final dividend of 0.5p per share (2009: 0.5p)

.

 

Paul Eyre, Chief Executive, said:

 

'Sales of flooring and beds remained stable during the period under review which resulted in a good performance for the year. Revenues and profits both increased and we achieved our objective of re-balancing the store portfolio with the reduction in the number of corporate stores helped by a record number of new franchisees this year reflecting the continued attractiveness of our business model, even under current circumstances. However, the market environment remains challenging, with little improvement in volume across the housing market and an understandable sense of caution amongst consumers given the continuing economic uncertainty in the UK. This was reflected in a slow trading period since January which has continued into the current financial year.'

 

Enquiries:

 

United Carpets Group plc Paul Eyre, Chief Executive Ian Bowness, Finance Director   Cardew Group Tim Robertson Jamie Milton	01709 732 666     020 7930 0777
Seymour Pierce Jonathan Wright	020 7107 8000

 

Chairman's statement

 

I am pleased to be able to announce that the Group delivered a solid trading performance for the year. Revenues increased to £27.47m and profit before tax and exceptional items, increased by 7.3% to £1.46 m. The year under review was one of consolidation, following a significant increase in the number of stores in the previous year, and the objective was to reduce the number of corporate stores by matching them with new franchisees. We achieved this and introduced 24 new franchisees to the Group so that, at the period end, there were 82 stores of which 12 were corporate stores compared to the 23 corporate stores at the start of the financial year.

Financial review

 

Revenue, which as in previous years includes marketing and rental costs incurred by the Group and recharged to franchisees, increased by 2.5% to £27.47m (2009: £26.79m). Network sales across the Group, including the value of retail sales by our franchisees (to give a measure of the Group's turnover on a more comparable basis to a conventional retailer), increased 7.4% to £69.9m (2009: £65.1m).

 

Like for like sales across the whole of the network were up 1.0% compared to the previous year. We are pleased that we have continued the trend of overall positive like for like sales, which compares well against the wider retail sector, and we believe reflects positively on the franchise structure which tends to reduce sales volatility and ensures each store is run by a self-motivated management team.

 

As we always advise, given United Carpets' franchise structure, like for like sales are not necessarily the best measure of the Group's financial performance but they do provide a good steer on the overall trading performance. Within the like for like sales performance, the core floor coverings business achieved a 1.0% like for like increase on the previous year and bed like for like sales also increased by 1.0%.

 

Gross margin increased from 64.0% to 66.2% reflecting the increased proportion of franchise related income to total revenue as corporate stores turnover, beds and trade sales accounted for a smaller proportion of revenue as more corporate stores were franchised.

 

Distribution costs include staff costs at the corporate stores and were similar to the previous year with heavier costs at the beginning of the year offset later in the year as corporate stores were franchised. Administrative expenses, increased by 2.8% and included £0.4m of exceptional costs related to certain loss making stores (2009: £0.8m).

 

Profit before tax and exceptional items was £1.46m (2009 £1.36m). Basic earnings per share were 0.84p (2009: 0.40p).

 

The balance sheet continues to be robust with net funds of £2.1m at the year end (2009: £1.7m).

Dividend

 

The Board is pleased to recommend a final dividend of 0.5p per share (2009: 0.5p), which together with the interim dividend of 0.25p per share (2009: Nil) paid in January makes a total ordinary dividend of 0.75p per share for the year (2009: 0.5p). Subject to approval at the Annual General Meeting, the final dividend will be paid on 3 December 2010 to those shareholders whose names are on the register on 5 November 2010.

Operations review

 

At the year end, the Group had 82 United Carpets branded stores across its core areas of operation in Northern and Central England, up from 80 stores at the beginning of the financial year. With the exception of 12 corporate stores, the remainder were all franchises operating under the United Carpets' bespoke franchise model, which aims to combine the advantages of a multiple retailer with the entrepreneurial drive of an independent.

 

We continued to differentiate the United Carpets offer through a series of planned advertising campaigns focusing on our key selling strengths namely:

 

·; Extensive quality ranges of flooring and beds

·; Affordable price points

·; Superior customer service

 

Advertising campaigns were run throughout the year on regional television channels in Northern and Central England supported by radio, print and direct mail marketing. The United Carpets brand has very high recognition in our target markets and has established an excellent reputation for value and service. Our marketing objectives revolve around maintaining brand awareness and driving sales led by innovative product offerings and selected price discounts.

 

Supporting our marketing strategies, our ongoing investment in training across the Group is a key focus seeking to continually improve the quality of our staff and management teams. To maintain high customer service levels, it is critical to constantly seek to improve knowledge of the products ranges, sales techniques and customer service levels. In the last year, in addition to our biannual franchisee conferences designed to refresh product knowledge and spread best practice across the Group, we have carried out numerous mystery shopper exercises and customer surveys to obtain accurate feedback on our performance and to seek ways to further improve our customer service.

 

Franchising

 

Having expanded the number of stores significantly in the previous financial year, the focus was to match new stores and a significant proportion of the existing corporate stores with new franchisees. We achieved this goal, introducing 24 new franchisees during the year and as a result, the number of corporate stores reduced from 23 to 12 during the period under review.

 

The Group started the year with 57 franchised stores and, during the period, added 1 new franchised store in Peterborough. In addition, we converted 8 franchisee stores back into corporate stores. An additional 20 corporate stores were also franchised, giving us 70 franchised stores at the period end.

 

Since the period end, we have converted 4 franchised stores into corporate stores, refranchised 1 corporate store and opened a new franchised store in Leeds, resulting in a current total of 68 franchised stores. There is a healthy pipeline of new stores, some of which already have franchisees identified.

Flooring

 

The majority of Group revenues are derived from the sale of floor coverings, predominantly carpet, laminate and vinyl flooring through franchised stores and the Group's own corporate stores. Trading across the network started modestly in the first quarter and improved strongly before being adversely affected by the severe weather conditions experienced in the fourth quarter. However, the overall result was positive with like for like sales up 1.0% over the period.

 

Having started the year with 23 corporate stores, 1 new corporate store opened during the period in Halifax, 8 franchised stores were taken back into the corporate arm and a total of 20 corporate stores were franchised during the year leaving us with 12 corporate stores at the period end.

 

Of the 12 corporate stores, 3 are considered to be core, to be retained to enable ongoing training and product development, with the Group seeking to franchise the remainder with quality candidates. Since the year end, we have successfully refranchised 1 corporate store and taken back 4 franchised stores giving us a total of 15 corporate stores currently.

 

In the first 17 weeks since the year end, like for like sales were down 2.6%, this period includes the World Cup, the general election and subsequent budget which together have made for an exceptionally tough trading period.

Beds

 

The Beds division, which accounts for a little under 10% of network sales, delivered a 1.0% increase in like for like sales. After such a strong result from Beds in the previous period, this was a satisfactory result but we had hoped to continue the momentum. While Beds are a natural extension of flooring sales, they are typically a larger purchase, with an average sale price approaching £300 compared to the average flooring sale which is c. £180. With consumers once again becoming more cautious, the higher purchase cost of beds slowed sales in the last quarter.

 

This has continued in the first 17 weeks of the new financial year when, against strong comparatives in the previous year, like for like sales were down by 25.5%.

 

Trade sales

 

In addition to the introduction of 7 day a week coverage to the stores, the Group has invested in developing its own in-house cutting operation for flooring providing improvements in efficiency and service to the network. During the year, a new cutting machine and sortation system was successfully introduced, increasing the capacity and efficiency of this important facility.

 

People

 

I would like to thank all our employees for their hard work and commitment. Since joining the AIM market, the business has grown substantially with revenues more than doubling and the number of people who work under the United Carpets brand has also increased significantly. We hope to continue to expand the business and are grateful for the support of everyone involved with the Group.

 

Outlook

 

Given the uncertainty across the UK in terms of the impact of the tightened fiscal regime and wider global trends it is hard to predict the future. Certainly, the first 17 weeks of trading of the current year have continued to reflect the weaker trading patterns of the last quarter of 2009/10. We are therefore adopting a cautious approach to future trading although we will continue to invest in marketing and store expansion where we believe we can generate good returns. However, until confidence in the economy and the housing market returns, we believe the trading environment will continue to be challenging.

 

 

Peter Cowgill

Chairman

 

Preliminary announcement of results for the year ended 31 March 2010

Consolidated income statement

 

 

	Note	Results before exceptional items		Exceptional items		2010		Results before exceptional items		Exceptional items		2009
		£'000		£'000		£'000		£'000		£'000		£'000
Revenue		27,475		-		27,475		26,792		-		26,792
Cost of sales		(9,295)		-		(9,295)		(9,658)		-		(9,658)
Gross profit		18,180		-		18,180		17,134		-		17,134
Distribution costs		(2,976)		-		(2,976)		(2,898)		-		(2,898)
Administrative expenses	2	(13,858)		(365)		(14,223)		(13,065)		(769)		(13,834)
Other operating income		111		-		111		119		-		119
Profit on disposal of property, plant and equipment		2		-		2		4		-		4
Operating profit before financing costs		1,459		(365)		1,094		1,294		(769)		525
Financial income		10		-		10		73		-		73
Financial expenses		(6)		-		(6)		(3)		-		(3)
Profit before tax		1,463		(365)		1,098		1,364		(769)		595
Income tax expense	4					(415)						(271)
Profit for the year	7					683						324
Earnings per share	5
- Basic						0.84p						0.40p
- Diluted						0.84p						0.40p

 

 

All amounts are attributable to the equity holders of the parent, and all arise from continuing activities. No amounts were recognised directly in equity, and therefore no separate statement of other comprehensive income has been presented.

Preliminary announcement of results for the year ended 31 March 2010

Consolidated balance sheet

 

 

	Note		2010		2009
			£'000		£'000
Non-current assets
Property, plant and equipment			5,148		5,455
			5,148		5,455
Current assets
Inventories			2,670		2,763
Trade and other receivables			3,184		2,766
Cash and cash equivalents			2,201		1,848
			8,055		7,377
Total assets			13,203		12,832
Equity
Issued capital	7		4,070		4,070
Share premium	7		1,106		1,106
Reserves	7		(2,617)		(2,699)
Retained earnings	7		2,418		2,446
Total shareholders' equity			4,977		4,923
Non-current liabilities
Financial liabilities - borrowings			76		76
Trade and other payables			2,349		1,826
Provisions			743		591
Deferred tax liabilities			106		126
			3,274		2,619
Current liabilities
Financial liabilities - borrowings			57		39
Trade and other payables			4,416		5,011
Current tax liabilities			479		240
			4,952		5,290
Total liabilities			8,226		7,909
Total equity and liabilities			13,203		12,832

 

 

Preliminary announcement of results for the year ended 31 March 2010

Consolidated cash flow statement

 

	Note		2010		2009
			£'000		£'000
Cash flows from operating activities
Cash generated from operations	8		1,879		3,341
Interest paid			(6)		(3)
Income tax paid			(196)		(393)
Net cash from operating activities			1,677		2,945
Cash flows from investing activities
Proceeds from sale of property, plant and equipment			20		4
Acquisition of property, plant and equipment			(695)		(2,141)
Interest received			10		73
Net cash from investing activities			(665)		(2,064)
Cash flows from financing activities
Payment of finance lease liabilities			(48)		(33)
Dividends paid			(611)		(448)
Net cash from financing activities			(659)		(481)
Net increase in cash and cash equivalents			353		400
Cash and cash equivalents at the start of the year			1,848		1,448
Cash and cash equivalents at the end of the year	9		2,201		1,848

 

 

Preliminary announcement of results for the year ended 31 March 2010

Notes to the preliminary announcement

 

1. Basis of preparation

 

The financial information contained in this unaudited preliminary announcement does not constitute accounts as defined by section 435 of the Companies Act 2006. The financial information for the year ended 31 March 2009 is derived from the statutory accounts for that period which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The statutory accounts for the year ended 31 March 2010 will be finalised based on the information in this unaudited preliminary announcement and will be delivered to the Registrar of Companies in due course. The Group has prepared its consolidated financial statements for the year ended 31 March 2010 in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

 

 

2. Exceptional items

 

		2010		2009
		£'000		£'000
Impairment of property, plant and equipment		138		200
Provision against onerous leases		227		569
		365		769

At the end of each financial year, loss making stores are reviewed and where the directors consider that the fair value of the related fixed assets less the costs to sell those assets is lower than their net book value an impairment charge has been included in administrative expenses. Where there is an onerous property lease on such stores this has also been provided as an exceptional item.

 

 

 

3. Business segments

Segment information is presented in respect of the Group's business segments, which are the primary basis of segment reporting. The business segment reporting format reflects the Group's management and internal reporting structure.

 

Inter segment pricing is determined on an arm's length basis.

 

Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

	Franchising		Flooring		Beds		Trade Sales		Consolidated
	2010	2009	2010	2009	2010	2009	2010	2009	2010	2009
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Segment revenue	11,347 ____	9,172 ____	8,032 ____	10,348 ____	4,834 ____	4,439 ____	3,262 ____	2,833 ____	27,475 ____	26,792 ____
Segment results	2,034 ____	1,227 ____	(71) ____	(162) ____	391 ____	394 ____	(56) ____	55 ____	2,298	1,514
Unallocated expenses									(1,204) ____	(989) ____
Operating profit before financing costs									1,094	525
Net financing costs									4	70
Income tax expense									(415) ____	(271) ____
Profit for the year									683 _____	324 _____

 

 

 

4. Taxation on ordinary activities

 

Analysis of charge for the year:

		2010		2009
		£'000		£'000
Current tax:
UK corporation tax		433		353
Adjustments in respect of prior years		1		26
		434		379
Deferred tax:
Release for the year		(21)		(82)
Adjustments in respect of prior years		2		(26)
Tax on profit on ordinary activities		415		271

The tax assessed on ordinary activities for the year differs to the standard rate of corporation tax in the UK of 28% (2009: 28%).

 

	2010		2009
	£'000		£'000
Profit before tax	1,098		595
Profit by rate of tax	307		167
Effect of:
Expenses not deductible for tax purposes	38		34
Non qualifying depreciation	76		79
Marginal relief	(4)		(9)
Adjustment to tax charge in respect of prior years	3		-
Other	(5)		-
Total tax	415		271

 

 

5. Basic and diluted earnings per share

 

Basic earnings per share

The calculation of basic earnings per share for the year ended 31 March 2010 was based on the profit attributable to ordinary shareholders of £683,000 (2009: £324,000) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2010 of 81,400,000 (2009: 81,400,000).

 

Diluted earnings per share

The calculation of diluted earnings per share for the year ended 31 March 2010 was based on profit attributable to ordinary shareholders of £683,000 and a weighted average number of ordinary shares outstanding during the year ended 31 March 2010 of 81,480,759. Diluted earnings per share for the year ended 31 March 2009 was the same as basic earnings per share as the share options in issue were non-dilutive during that year.

Weighted average number of ordinary shares (diluted)

 

	2010		2009
For the year ended 31 March 2010
Weighted average number of ordinary shares at 31 March	81,400,000		81,400,000
Effect of share options in issue	80,759		-
Weighted average number of ordinary shares (diluted) at 31 March	81,480,759		81,400,000

 

 

6. Dividends

 

Dividends on equity shares:

 

	2010		2009
	£'000		£'000
Dividends paid during the year on ordinary shares	611		448

 

7. Capital and reserves

 

Share capital and share premium

The Group recorded the following amounts within shareholder's equity as a result of the issuance of ordinary shares.

	Share Capital
	2010		2009
	£'000		£'000
81,400,000 ordinary shares of 5 pence each	4,070		4,070

 

Share Premium
2010		2009
£'000		£'000
1,106		1,106

Reserves

 

	Merger reserve		Share-based payment reserve		Total
	£'000		£'000		£'000
At 1 April 2009	(3,110)		411		(2,699)
Charge for the year	-		82		82
At 31 March 2010	(3,110)		493		(2,617)

 

 

The merger reserve is the difference between the nominal value of shares issued in order to acquire the merged entities and the share capital and share premium account of the merged entities.

 

 

7. Capital and reserves (continued)

 

	Retained earnings
	£'000
At 1 April 2009	2,446
Profit for the year	683
Dividends paid	(611)
Share-based payments	(100)
At 31 March 2010	2,418

 

 

8. Reconciliation of operating profit to net cash inflow from operating activities

 

	2010		2009
	£'000		£'000
Operating profit	1,094		525
Profit on disposal of property, plant and equipment	(2)		(4)
Depreciation of property, plant and equipment	912		838
Impairment of property, plant and equipment	138		200
Provision against onerous leases	152		569
Share-based payments	(18)		90
Decrease/(increase) in inventories	93		(416)
(Increase)/decrease in trade and other receivables	(418)		472
(Decrease)/increase in trade and other payables	(72)		1,067
	1,879		3,341

 

 

 

9. Analysis of changes in net funds

	2009		Cashflow		Non-cash movements		2010
	£'000		£'000		£'000		£'000
Bank and cash	1,848		353		-		2,201
Hire purchase contracts:
Due within one year	(39)		48		(66)		(57)
Due after more than one year	(76)		-		-		(76)
Net funds	1,733		401		(66)		2,068

 

 

10. Reconciliation of net cash flow to movement in net funds

 

		2010		2009
		£'000		£'000
Increase in cash in the year		353		400
Cash outflow from hire purchase financing		48		33
Assets acquired under hire purchase agreements		(66)		(35)
Change in net funds resulting from cash flows		335		398
Net funds at start of year		1,733		1,335
Net funds at end of year		2,068		1,733

 

 

 

This information is provided by RNS

The company news service from the London Stock Exchange