Half Yearly Report

UNITED CARPETS GROUP plc

Interim results for the 6 month period ended 30 September 2014

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 interim results for the 6 month period ended 30 September 2014.

Key points

· Network sales* were £25.6m (2013: £28.0m)

· Revenue was £9.1m (2013: £10.3m)

· Like for like sales* increased by 0.3%

· Operating profit increased 17.5% to £531,000 (2013: £452,000)

· Profit before tax increased 18.1% to £534,000 (2013: £452,000)

· Earnings per share increased 10.5% to 0.42p (2013: 0.38p)

· Cash and cash equivalents increased to £1.8m (2013: £1.4m)

· Like for like sales* since the period end improving further

* Network sales and like for like sales are defined under Financial review

Paul Eyre, Chief Executive, said:

"I am pleased to be able to report a good performance by the Group. We have been helped, to some extent, by an improving housing market with slightly higher average transaction values which we believe reflects an improvement in consumer confidence. More recent like for like sales figures have been more positive and I believe we are well placed to deliver a good result for the year.

We continue to benefit from our restructuring programme as we operate from a lower cost base giving the opportunity to invest in developing the business and providing the basis for the Board's confidence in the future."

Enquiries:

Chairman's statement

This represents a good performance by the Group with profit before tax increasing by 18.1% against the comparable 6 month period last year. The improvement in performance was driven by a slightly better market environment which has led to an improving sales trend in the second quarter of our financial year and beyond.

Just over two years ago the Group undertook an extensive restructuring of its store network, removing the majority of underperforming stores and establishing a new structure. Today, the network of stores totals 60, down from more than 80 stores just over two years ago, of which 48 are franchised and 12 are run as corporate stores.

Whilst there appears to have been little increase in the levels of consumers' disposable income, there does seem to have been a slight increase in consumer confidence reflected in the increasing number of transactions in the UK housing market. However, with less than 6 months until the General Election, the prospect of a rise in interest rates and a continuation of the uncertainty in the global economy we remain cautious with regard to the future market environment. That said, United Carpets is now in a substantially better position to manage market conditions and continue to pursue opportunities to grow the business.

Financial review

Network sales across the Group, including the value of retail sales by our franchisees (to give a measure of the Group's turnover on a more comparable basis to a conventional retailer), were £25.6m. Revenue, which as in previous years includes marketing and rental costs incurred by the Group and recharged to franchisees, was £9.1m. The reduction in network sales and revenue in comparison to the same period last year principally reflects the change in the Beds sales process and a reduction in the number of third parties serviced by the warehouse.

Like for like sales across the whole of the network (based on stores that have traded throughout both the period under review and the corresponding period in the prior year and thus excluding stores that closed during either period) were up 0.3%.

Gross margin was 65.3% compared to 62.8% in the same period, primarily reflecting the change in the mix of revenue between Franchising and Retail and Warehousing. Distribution costs and administrative expenses, which include rent, rates and staff costs at the corporate stores, have reduced significantly in comparison to the same period last year principally as a result of the change in the Beds sales process and reduced occupancy costs. Distribution costs and administrative expenses excluding exceptional items were 60.2% of revenue, a marginal increase in comparison to the same period last year.

Underlying operating profit (excluding the costs of reducing the number of operational stores, net gains arising in relation to the Group reorganisation and other exceptional income) increased by 31.3% to £507,000 (2013: £386,000).

Profit before tax was £534,000 (2013: £452,000) and basic earnings per share improved to 0.42p (2013: 0.38p).

The balance sheet included cash and cash equivalents of £1.8m as at 30 September 2014 (2013: £1.4m).

Dividend

Following the successful capital restructuring in September, the Board intends to review dividend policy in the light of the full year's performance.

Chairman's statement (continued)

Operations review

At the start of the period under review the Group operated 59 stores of which 48 were franchised and 11 were corporate stores. During the 6 month period ended 30 September 2014, one store closed and one was relocated to alternative premises resulting in 58 stores of which 47 were franchised and 11 were corporate stores. Since the half year end, we have opened corporate stores in Birkenhead and Blackburn and the number of franchised stores increased by one, taking the total number of stores in operation today to 60 of which 12 are corporate stores.

The changes to our portfolio of stores have resulted in a stronger core network which is reflected in the current trading performance. Through re-negotiating the leases for nearly all of the stores we have re-balanced the portfolio so that the cost base is now more in line with the trading potential of the Group.

There may be a small number of store closures in the future but in practice we are now broadly operating from the store base we want to trade from and the focus is on optimising the potential of these stores. We continue to find high calibre franchisees seeking to join our network and emulate the performance of our successful franchisees within the Group. Making a strong start is important in order to gain momentum and confidence. We therefore look to match the best possible store to the franchisee which may mean that we decide to place a new franchisee into a corporate store as opposed to opening a brand new store. Despite the considerable support offered by the Group to assist any struggling franchisee, we may also have to take back a franchised store into the corporate division if the store continues to under perform for a prolonged period without responding to assistance.

Over the last 12 months or so, we have trialled a smaller store format which typically occupies more central locations on the high street, providing customers with samples of the flooring ranges we offer but without carrying the same stock levels as our traditional stores. The concept is working well as part of the United Carpets network and, as a result, we currently have 6 smaller stores in operation. We anticipate opening a few more of these new stores during the course of 2015.

50 out of the 58 stores offer Beds alongside flooring ranges. Last year the Group changed the way Beds were supplied to franchisees by aligning them with the way flooring is supplied, improving the potential return to franchisees from bed sales. Whilst it is early days, bed sales have improved albeit from a low base and we believe that there is scope for further significant improvement.

Central to our customer offer is the provision of great quality products and great value. In the areas where the Group operates, the business is well known for delivering superior ranges of good quality products and this is re-enforced by a rolling advertising programme across print, radio, TV and social networks. Maintaining our public profile is important and so too is improving the customer experience. The Group has worked hard to better understand customer preferences and the benefits of this are reflected in our gradually improving conversion rates.

Franchising and Retail

Floor coverings are the Group's primary driver of sales (predominantly carpet, laminate and vinyl flooring) through both franchised stores and the Group's own corporate stores. The market has improved slightly but remains volatile with consumers easily unnerved by negative news. The housing market has seen an increase in the number of completed transactions and this is a valuable generator of new business for our sector although this trend appears to have slowed a little more recently.

Whilst sales for the first quarter of the financial year were a little patchy, performance improved significantly in the second quarter with sales improving from 2.3% down on a like for like basis after the first 16 weeks of the period to 0.3% up on a like for like basis for the 6 month period in total. Within that total like for like increase, Flooring was 0.4% up and Beds was 0.1% up.

Chairman's statement (continued)

Warehousing

Our in-house cutting operation continues to support the whole network, providing a quick, efficient cutting and delivery service enabling attractive retail price points with good margins. The reduction in sales in the period just ended compared to the same period last year reflects a reduction in the number of third parties serviced by the warehouse as the demands of our network have grown.

Property

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

People

As always, the Board would like to thank all the franchisees, suppliers, employees and other stakeholders in United Carpets for their continued support and hard work. We look forward to working together towards completing another successful year for the business.

Outlook

This has been a good start to the new financial year with the encouraging signs seen in the second quarter improving further since the period end. In particular, tangible benefits are beginning to be seen from the improvements made to the Beds range and the changes in the way that they are supplied to the network.

Despite tough comparatives ahead in the final quarter of our financial year and no certainty over weather conditions during that period, improving like for like sales during our busiest sales period should mean that the Group is well placed to complete a successful year. We remain focused on developing the business through the addition of a successful new store format, improving the volume of bed sales and continued focus on improving the customer experience. Supporting these operating objectives and following our successful capital restructuring during the period, we have virtually no debt, a healthy balance sheet and a cost base that better reflects the scale of the business providing scope to invest in the long term future of the business and generate returns to shareholders. We therefore look forward with renewed confidence on delivering increased value to our shareholders.

Peter Cowgill

Chairman

18 December 2014

Independent review report to United Carpets Group plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the 6 month period ended 30 September 2014 which comprises the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and the related explanatory 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.

This report is made solely to the Company 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. Our review work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing and presenting the half-yearly financial report in accordance with the AIM Rules for Companies issued by the London Stock Exchange.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee pronouncements 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 the AIM Rules for Companies issued by the London Stock Exchange.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (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 6 month period ended 30 September 2014 is not prepared, in all material respects, in accordance with the AIM Rules for Companies issued by the London Stock Exchange.

Chartered Accountants

Suite A, 7th Floor

City Gate East

Tollhouse Hill

Nottingham

NG1 5FS

18 December 2014

Consolidated statement of comprehensive income

For the 6 month period ended 30 September 2014

All activities relate to continuing operations and are attributable to the owners of the parent. There were no items of other comprehensive income and therefore no separate statement of other comprehensive income has been presented.

Consolidated statement of financial position

As at 30 September 2014

* See consolidated statement of changes in equity for details of presentational changes in the year.

Consolidated statement of changes in equity

For the 6 month period ended 30 September 2014

Following approval by shareholders on 20 August 2014 and by the High Court on 17 September 2014, the nominal value of the Company's issued share capital was reduced from 5 pence to 1 pence each and the share premium reserve was cancelled.

The share-based payment reserve of £598,000, previously shown separately, has been combined with retained earnings for presentational purposes.

Consolidated statement of cash flows

For the 6 month period ended 30 September 2014

Notes to the condensed consolidated interim financial statements

1. Basis of preparation

United Carpets Group plc (the "Company") is a company domiciled in the United Kingdom. The condensed consolidated interim financial statements of the Company for the 6 month period ended 30 September 2014 comprise the Company and its subsidiary undertakings (together referred to as the "Group").

The Group financial statements for the year ended 31 March 2014 were prepared in accordance with IFRSs as adopted by the European Union, approved by the Board of Directors on 4 September 2014 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498(2) and 498(3) of the Companies Act 2006. These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. These condensed consolidated interim financial statements for the 6 month period ended 30 September 2014 are unaudited but have been reviewed by the auditors 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" and their Independent Review Report is included within these statements.

The accounting policies applied are consistent with those of the financial statements for the year ended 31 March 2014 and those that are expected to be adopted in the financial statements for the year ending 31 March 2015. In particular, consideration has been given to IFRS 10 'Consolidated Financial Statements' and the Board has concluded that the operations of the franchisees are not required to be consolidated as control of the relevant activities rests with franchisees.

The Group does not consider that any standards or interpretations issued by the International Accounting Standards Board (IASB) but not yet applicable will have a significant impact on the financial statements of the Group when the relevant standards come into effect for periods commencing on or after 1 April 2015.

2. Operating profit

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

Other exceptional income is a profit on disposal of property, plant and equipment and in the comparative periods was compensation received as a result of the compulsory purchase of one of the properties operated by the Group.

3. Segment reporting

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

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

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

Notes to the condensed consolidated interim financial statements (continued)

3. Segment reporting (continued)

Warehousing was previously described as Warehousing and Beds. The directors consider that, following the change in the way that Beds are sold through the network giving more ownership of bed sales to franchisees, the revised description better fits the nature of that business.

4. Income tax (expense)/credit

The tax charge accrued in these interim results reflects an estimated effective tax rate of 35.4% (6 month period ended 30 September 2013: 31.0%, year ended 31 March 2014 tax credit). This includes a charge of £65,000 which relates to adjustments in respect of prior periods as a result of the change in the tax rate from 23% to 20% and a re-assessment of the tax written down values of assets acquired in October 2012. Excluding those items, the effective tax rate was 23.2%, slightly higher than the standard rate of corporation tax of 21% due to expenses not deductible for tax purposes and non-qualifying depreciation.

5. Property, plant and equipment

Acquisitions and disposals

During the 6 month period ended 30 September 2014 the Group acquired assets with a cost of £379,000 (6 month period ended 30 September 2013: £115,000, year ended 31 March 2014: £362,000). Assets with a net book value of £4,000 were disposed of during the 6 month period ended 30 September 2014 (6 month period ended 30 September 2013: £59,000, year ended 31 March 2014: £73,000), resulting in a profit on disposal of £10,000 (6 month period ended 30 September 2013: loss of £59,000, year ended 31 March 2014: loss of £71,000).

Capital commitments

There were no capital commitments contracted for but not provided for at the period end (30 September 2013: £Nil, 31 March 2014: £Nil).

6. Basic and diluted earnings per share

Basic earnings per share

The calculation of basic earnings per share for the 6 month period ended 30 September 2014 was based on the profit attributable to ordinary shareholders of £345,000 (6 month period ended 30 September 2013: £312,000, year ended 31 March 2014: £1,132,000) and a weighted average number of ordinary shares outstanding during the 6 month period ended 30 September 2014 of 81,400,000 (6 month period ended 30 September 2013: 81,400,000, year ended 31 March 2014: 81,400,000).

Notes to the condensed consolidated interim financial statements (continued)

6. Basic and diluted earnings per share (continued)

Diluted earnings per share

Diluted earnings per share for the periods ended 30 September 2014, 30 September 2013 and 31 March 2014 was the same as basic earnings per share as the share options in issue were non-dilutive in any of those periods.

7. Cash generated from operations

8. Contingencies

There have been no material changes to the assessment of any potential liability arising in connection with Employee Benefit Trusts since the financial statements for the year ended 31 March 2014.