13th Dec 2005 07:00
Carpetright PLC13 December 2005 13 December 2005 Carpetright plc Robust performance in a weak market Carpetright plc, Europe's leading specialist carpet and floor covering retailerwith over 500 stores and concessions across the UK and Europe, today announcesits interim results for the 26 weeks to 29 October 2005. Highlights Group • Profit before tax down 18.9% to £24.9m (2004: £30.7m) • Underlying* profit before tax down 30.5% to £22.1m (2004 : £31.8m) • Underlying* profit margin remains strong at 10.2% • Underlying* earnings per share of 22.4p, down 28.7% on last year • Basic earnings per share of 25.3p down 15.1% on last year • Interim dividend maintained at 19.0p UK and Republic of Ireland • Underlying* operating profit down 31.0% to £21.6m (2004 : £31.3m) • Like for like sales decline of 7.1% • Continued increase in market share and ongoing store expansion • Acquisition of Mays completed • Successful implementation of SAP as the Group's core central IT system Europe • Underlying* operating profit of £1.4m (2004 : £1.4m) • Comparable product sales growth of 7.2% following completion of store re-branding programme • 4 new stores opened All figures including comparatives have been reported under IFRS * 'Underlying' excludes profits / (losses) from the disposal of property, plant and equipment or termination of businesses Lord Harris, Chairman and Chief Executive, said: "Despite weak market conditions the Group has continued to deliver robustoperating profits and cashflows." "Our UK and Republic of Ireland business has grown market share with strongoffers, attractive product ranges and high levels of customer service. A net 12new stores have been opened and the business plans to open a further net 10stores in the second half." "In Europe sales growth remains strong in both Belgium and The Netherlands. Thestore re-branding programme is complete and the Group is now focusing on storeexpansion as well as continuing to grow sales in existing stores." "The Group continues to invest in new stores and its underlying infrastructure,both in the UK and Europe, and plans to open two stores in Poland in the secondhalf. The Group is well positioned to grow sales and profits as soon as themarket improves." For further enquiries please contact: Carpetright plc Lord Harris of Peckham, Chairman and Chief ExecutiveIan Kenyon, Group Finance DirectorTelephone: 020 7282 8000 (until 2pm), 01708 525522 (thereafter) Citigate Dewe Rogerson Patrick Toyne Sewell / Sara BatchelorTelephone: 020 7638 9571 A copy of the interim results can be found on our website www.carpetright.plc.uktoday from 7.00am. There will be a presentation today at 9.00am to analysts and investors atCitigate Dewe Rogerson, 26 Finsbury Square, London, EC2A 1DS. A copy of theslides used for this presentation can be found on our websitewww.carpetright.plc.uk from 9.00am. Further details of the nature of the UK GAAP/IFRS adjustment can be found in theannouncements made on 27 September 2005 and 5 December 2005 which can be foundon the Group's website (www.carpetright.plc.uk). Certain statements made in this announcement are forward looking. Suchstatements are based on current expectations and are subject to a number ofrisks and uncertainties that could cause the actual results to differmaterially. Review UK and Republic of Ireland Results The market conditions were weak throughout the half with low levels of consumerconfidence and significantly lower levels of housing transactions than lastyear. These factors contributed to a 31.0% decline in underlying* operatingprofit to £21.6m. This represents an operating margin of 11.4%. Total sales declined 6.7% to £189.7m against last year (this excludes £5.1m ofnon-recurring, third party turnover from the Carpet Express distributionbusiness included in the 2004 figures) with like-for-like sales declining by7.1%. Net new Carpetright space increased by 2.8%, but the sales growth fromthis space was offset by 1.9% lower sales from the concessions business as ourcomparatives continue to be impacted by the Allders concessions that closed inMarch 2005. Gross margin percentage declined by 30 basis points versus last year (thisexcludes £4.0m of Carpet Express gross margin included in the 2004 figures).The Group sought to optimise sales through aggressive promotional activity inthe first half. The effectiveness of these actions has been reviewed and thebusiness remains confident, following a number of changes, that there will be animprovement in full year gross margins as previously indicated. Operating costs, net of other income, as a percentage of sales increased by 4.1percentage points year-on-year (this excludes £4.8m of Carpet Express costsincluded in the 2004 figures). In absolute terms costs have risen by £1.7m(1.9%) reflecting the impact of rental increases, rates inflation and higheradvertising expenditure. However, staff costs have reduced below last year'slevels following actions taken early in 2005 to reduce central headcounttogether with the impact of lower sales on commissions. Other store relatedcosts have been reduced through a series of initiatives including improved wastemanagement. Profits of £2.8m were generated from the closure and surrender of stores in linewith our strategy of moving from A1 retail parks to bulky goods parks. * 'Underlying' excludes profits / (losses) from the disposal of property, plant and equipment or termination of businesses Stores and product The store portfolio has continued to be developed in line with our target of 450Carpetright stores and 100 concessions. During the half 26 new stores(including two concessions) were opened whilst 14 were closed. The businesstraded from 415 stores at the period end and had gross space of 3.7 millionsquare feet. Included within the 415 stores are 42 small format stores (less than 6,000 sqft) and 27 concessions. A net nine small stores were opened and we remainconfident that this format provides a significant opportunity for the Group inthe medium term. The concessions business is being rebuilt following the closure of the Alldersbusiness in March 2005. There are now 27 concessions which trade under the "InHouse Carpets" brand. 11 of the concessions are new departments withinDebenhams, which historically has not had flooring departments, and theseconcessions are taking time to build sales. However, we remain confident that,over time, they will deliver good returns. Within the Republic of Ireland there are 18 stores trading. During this periodwe launched our first TV advertising campaign in the Republic and have alsofocused more management attention in the region to exploit all theopportunities. The three Mays Carpets stores, acquired in June 2005, have continued to tradestrongly. The three stores have delivered net sales of £1.9m since theacquisition completed. The Mays business continues to exploit its traditionalstrengths whilst benefiting from Carpetright's scale. The level of investment in stores will increase in the second half with afurther ten net openings planned. There will be further store closures in thesecond half as the business continues to exploit opportunities to relocatestores. We have continued to offer new carpet ranges at highly competitive prices andhave launched a new range which specifically supports our insurance business.Additionally, we have continued to introduce new vinyl ranges which providecustomers with an alternative to laminate, which has experienced further salesdecline. Operations There have been three key areas of operational focus : • Distribution - we have continued to develop the new distribution facility and have worked hard to ensure that it interacts effectively with the cutting operations. The service levels have been improving steadily and the peak demand has been managed smoothly with high levels of customer service. • IT infrastructure - the first phase of the systems investment for the UK and Republic of Ireland was the introduction of new central systems covering buying, operations, finance and supporting data warehousing. The core system is SAP and the business was delighted to be awarded the "SAP Quality Award 2005" for the implementation, which was completed on time and on budget and is already delivering cost savings. The second phase is the introduction of a new store system which will be piloted during the second half with a full store roll-out planned to commence in the first half of 2006/07. • Cost reduction - actions have been taken to reduce costs in stores and centrally. These have focused on the reduction of store controllable costs, specifically waste management, and tight headcount control both in stores and the centre. Europe Results The businesses in Belgium and The Netherlands recorded an operating profit of£1.4m with comparable product sales, in local currency, increasing by a total of7.2%. The strong sales performance reflects the improvements made over the last yearin product ranging, store layouts and advertising coupled with the enthusiasmand increased professionalism of the sales and support teams. As a result ofall these factors, customers are experiencing an enhanced level of choice, valueand service leading to sales growth in all product categories. The mix of the business continues to be more widely spread than in the UK withhigher laminate sales. The gross margin on product sales is therefore a littlelower than in the UK but has improved by 1.3% as volume growth delivers higherrebates. Costs, net of sub-let income from the 12 sub-lets, have been tightly controlledand have increased by 1.6%. Store Base The business ended the first half with 93 stores, having opened four storesduring the period. The business is trading from 29 stores in Belgium and 64stores in The Netherlands, with a combined trading space of 1.2 million squarefeet. A further four stores will open in the second half whilst one loss-making storewill be closed. The business continues to work towards a three year target of110 stores. The store re-branding was completed in 2004 and the business isfocusing on delivering the benefits of this investment. The strong sales growth achieved is expected to continue despite the challengingretail environment and the operating margin is expected to improve steadilytowards a three year target of 10%. Poland Now that the transformation programme within Belgium and The Netherlands islargely complete the Group has been reviewing opportunities to expand withinEurope. Following a detailed exploration of a number of differentopportunities, the Group has decided that organic growth within Poland is themost attractive option. Accordingly the Group will open two stores, in Warsawand Gdansk, towards the end of the second half. The stores will offerrollstock, rugs, vinyl and laminate. The Group believes there is an opportunityto develop up to 20 stores in Poland over the next three years, with a long termtarget of 40 stores. Group Results The Group recorded an underlying profit before tax of £22.1m giving anunderlying profit margin of 10.2%. This is a decrease of £9.7m (30.5%) on lastyear caused largely by the decline in sales. The increased interest charge of£0.9m (2004 : £0.8m) reflects a higher level of net debt following the sharebuy-backs and purchase of Mays. The Group delivered exceptional profits,principally on the disposal of property, plant and equipment of £2.8m (2004:£1.1m loss) resulting in a profit before tax of £24.9m (2004: £30.7 m). International Financial Reporting Standards (IFRS) The results reflect the adoption of accounting policies under InternationalFinancial Reporting Standards ("IFRS"). An announcement explaining the impactof IFRS was made on 27 September 2005. This document is available from ourwebsite www.carpetright.plc.uk. Since the publication of this guidance some ofthe assumptions and presentational matters have been reviewed which has resultedin minor changes that have been reflected in the comparative figures. The overall impact of IFRS adjustments in the half-year is a reduction inunderlying profit before tax from continuing operations of £1.1m (2004: £0.8m). £'m 26 weeks to 26 weeks to October 2005 October 2004IFRSUnderlying profit before tax 22.1 31.8Finance leases and lease incentives 0.8 0.5Share based payments - 0.1Other 0.3 0.2UK GAAPUnderlying profit on ordinary activities before tax 23.2 32.6 Taxation The underlying taxation rate is 31.4% (2004: 31.0%). This is based onexpectations for the full year. We would expect the underlying rate to beslightly higher than the combined statutory rate for the Group due to a numberof disallowable items. Earnings per share The Group's underlying earnings per share fell by 28.7% to 22.4p (2004 : 31.4p).Basic earnings per share fell by 15.1% to 25.3p (2004: 29.8p). The average number of shares in issue has reduced year-on-year by 2.5% followingthe share buy-backs completed in 2004/05. Dividend The Board has agreed that the interim dividend will be maintained at 19p. Thedividend will be paid on 17 February 2006 to shareholders on the register on 3February 2006. Cash-flow and Debt The Group has delivered strong operating cash-flow of £40.9m (2004 : £41.8m) inthe half. Capital payments, excluding the acquisition of Mays Holdings Limitedfor a net £5.2m, totalled £19.6m (2004 : £14.0m). This was offset by proceedsfrom the disposal of property, plant and equipment of £7.9m (2004 : £0.7m). The net cash inflow before financing activities was £16.7m (2004 : £19.5m). Theshare buyback completed in April 2005 was settled in the half for £9.3m and thefinal dividend for 2004/05 of £19m was paid in September. At the end of the first half net debt stood at £49.7m, which is an increase of£11.8m on the year-end and £8.4m higher than the 2004/05 half-year balance. Calendar Carpetright will issue its third quarter trading update on 31 January 2006 andits pre second half close update on 25 April 2006. The preliminary results forthe year to 29 April 2006 will be announced on 27 June 2006. Summary and Prospects Despite weak market conditions the Group has continued to deliver robustoperating profits and cash-flows. We believe that whilst the UK floor coveringmarket remains challenging our wide range, keen prices, good service and strongstore portfolio will enable us to continue to outperform the market.Additionally we have a clear strategy for growth, both by expanding and furtherimproving our current formats in the UK, Republic of Ireland, Belgium and TheNetherlands, but also through our exciting plans for Poland. The Group remainswell positioned to grow sales and profits as soon as the market improves. Carpetright plcConsolidated Income Statement for 26 weeks to 29th October 2005 Unaudited Unaudited Unaudited Restated Restated 26 weeks to 26 weeks to 52 weeks to 29th October 30th October 30th April 2005 2004 2005 Notes £'000' £'000' £'000' Revenue 2 215,518 235,942 462,497Cost of sales (88,286) (96,136) (189,529)Gross profit 2 127,232 139,806 272,968Other operating income 3,635 231 13,260Administrative expenses (105,030) (108,492) (211,868)Operating profit 2 25,837 31,545 74,360 Analysed as: Operating profit before exceptional items 22,980 32,672 63,356 Exceptional items 3 2,857 (1,127) 11,004 Finance expense 2 (974) (1,011) (2,085)Finance Income 2 82 171 223Profit before taxation 24,945 30,705 72,498Income tax expense 2, 4 (7,786) (9,842) (23,236)Profit for the financial period 2 17,159 20,863 49,262Attributable to:Equity shareholders 8 17,159 20,722 49,121Minority interests - 141 141 17,159 20,863 49,262Basic earnings per share 6 25.3p 29.8p 71.0pFully diluted earnings per share 6 25.3p 29.8p 70.9pProposed dividend per share 5 19.0p 19.0p 47.0p Consolidated Statement of Recognised Income and Expenses for 26 weeks to 29th October 2005 Profit for the financial period 8 17,159 20,863 49,262Actuarial gains on defined benefit pension scheme 8 - 112 226Cash flow hedges: - First time adoption of IAS 39 8 (32) - - - Fair value gains 8 8 - -Currency translation difference 8 101 611 (168)Tax on items taken directly to or transferred from 8 (38) (46) (60)equityTotal recognised income and expense for the period 17,198 21,540 49,260Attributable to:Equity shareholders 17,198 21,399 49,119Minority interests - 141 141 17,198 21,540 49,260 All material items in the income statement arise from continuing operations. There are no differences between the Group's historical cost profit and that recorded in the income statement. Carpetright plcConsolidated Balance Sheet as at 29th October 2005 Unaudited Unaudited Unaudited Restated Restated as at 29th as at 30th as at 30th October 2005 October 2004 April 2005 Notes £'000' £'000' £'000' AssetsGoodwill and intangible assets 32,415 19,158 23,081Property, plant and equipment 142,753 136,659 133,622Deferred Income tax asset 1,092 1,439 1,084Total non-current assets 176,260 157,256 157,787 Inventories 28,773 30,973 29,801Trade and other receivables 27,079 23,219 25,605Cash and cash equivalents 7 3,616 5,229 5,222Total current assets 59,468 59,421 60,628Total assets 235,728 216,677 218,415 LiabilitiesShort term borrowings and overdrafts 7 (24,869) (17,704) (19,732)Trade and other payables (117,586) (113,327) (110,223)Current income tax liabilities (4,925) (6,158) (5,378)Total current liabilities (147,380) (137,189) (135,333) Interest bearing loans and borrowings 7 (28,451) (28,785) (23,354)Retirement benefit obligations (2,392) (2,507) (2,392)Provisions for other liabilities and charges (309) (108) (105)Deferred Income tax liabilities (17,829) (12,420) (16,173)Total non-current liabilities (48,981) (43,820) (42,024)Total liabilities (196,361) (181,009) (177,357)Net assets 39,367 35,668 41,058 EquityShare capital 8 678 688 678Share premium 8 14,146 14,146 14,146Capital redemption reserve 8 125 115 125Translation and hedging reserve 8 (71) 611 (168)Retained earnings 8 24,489 20,108 26,277Total equity 39,367 35,668 41,058 Carpetright plcConsolidated Cash Flow Statement for 26 weeks ended 29th October 2005 Unaudited Unaudited Unaudited Restated Restated 26 weeks to 26 weeks to 52 weeks to 29th October 30th October 30th April 2005 2004 2005 Notes £'000' £'000' £'000'Cash flows from operating activitiesProfit before tax 24,945 30,705 72,498(Profit)/loss on sale of property, plant and (2,857) 602 (11,529)equipmentShare based compensation charge 90 67 106Finance income and expense 892 840 1,862Depreciation and amortisation 6,416 6,820 12,684Increase in trade and other receivables (6,353) (4,145) (1,873)Decrease in inventories 1,896 2,059 3,485Increase/(decrease) in trade and other 15,859 4,827 (4,445)payablesCash from operating activities 40,888 41,775 72,788Finance cost paid (793) (905) (1,844)Income taxes paid (6,585) (8,309) (18,559)Net cash from operating activities 33,510 32,561 52,385Cash flows from investing activitiesProceeds from sale of property, plant and equipment 7,854 701 17,032Finance income received 82 158 207Acquisitions of intangible fixed assets (5,281) (1,621) (5,771)Purchase of property, plant and equipment (14,329) (12,346) (27,410)Acquisitions of subsidiary, net of cash 9 (5,156) - -acquiredTermination of business operations - - (1,506)Net cash used in investing activities (16,830) (13,108) (17,448)Net cash inflow before financing activities 16,680 19,453 34,937Cash flows from financing activitiesRepurchase of own shares (9,268) (8,497) (8,521)Movement in interest bearing loans and borrowings (55) (1,044) (6,505)Receipt of funds from finance company 3,740 - -Repayment of finance lease liabilities (357) (21) (42)Dividends paid 5,8 (18,979) (18,799) (31,876)Net cash used in financing activities (24,919) (28,361) (46,944)Net decrease in cash and cash equivalents in period 7 (8,239) (8,908) (12,007)Cash and cash equivalents at beginning of 7 (4,152) 7,769 7,769periodExchange movements on cash (101) (73) 86Cash and cash equivalents at end of period (12,492) (1,212) (4,152) 0 0 0 For the purposes of the cash flow statement, cash and cash equivalents are included net of overdrafts repayable on demand. These overdrafts are excluded from the definition of cash and cash equivalents disclosed on the balance sheet. 1 Accounting policies a) Basis of preparation The financial information contained in this interim report does not constitute accounts as defined by Section 240 of the Companies Act 1985. The interim report has been reviewed but not audited by the Group's auditors. The statutory accounts for the year ended 30th April 2005, which were prepared under UK GAAP, have been delivered to the Registrar of Companies. The auditors opinion on those accounts was unqualified and did not contain a statement made under section 237 of the Companies Act 1985. Carpetright plc and its subsidiaries ("the Group") has previously prepared its financial statements under UK Generally Accepted Accounting Principles ("UK GAAP"). Following a directive issued by the European Parliament in July 2002, the Group is required to prepare its 2005/06 consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS"). Accordingly, this interim financial report has been prepared using accounting policies consistent with those management expects to apply in the Group's first IFRS Annual Report and Accounts for the 52 weeks ending 29th April 2006. The accounting policies followed in this interim financial report are the same as those published by the Group on 27th September 2005 with the 2004/05 IFRS restatements, which is available on the Group's website, www.carpetright.plc.uk, with the exception of IAS 32 'Financial Instruments: Disclosure' and IAS 39' Financial Instruments: Recognition and Measurement' which apply to the Group from 1st May 2005. The Group has taken the exemption within IFRS 1 'First Time Adoption of IFRS' to apply IAS 32 and IAS 39 prospectively only and then not to restate prior period comparatives retrospectively upon adoption. The Group's accounting policy in respect of Financial Instruments is included below. The reconciliations from UK GAAP to IFRS are set out on note 11. IFRS currently in issue are subject to ongoing review and endorsement by the European Commission, or possible amendment by the International Accounting Standards Board ("IASB"). In addition interpretations are developing and therefore the standards and their interpretation are subject to possible change, before the 2005/06 financial statements are published. b) Comparatives The comparatives have been derived from the IFRS restatement paper issued on the 27th September 2005 in the case of annual comparatives and from the reconciliation's of equity and profit required by IFRS 1 in respect of the interim comparatives disclosed in note 11. c) Exceptional items Exceptional items are defined as material items which arise from events or transactions that fall within the ordinary activities of the Group and which individually or, if of similar type, in aggregate, need to be disclosed by virtue of their size or incidence. d) New accounting policy: Financial Instruments The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risk arising from operational, financing and investment activities. The Group does not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are initially recognised at cost. Subsequent to initial recognition, derivative financial instruments are recognised at fair value. The fair value of derivative financial instruments is determined by reference to market values of similar financial instruments, or by discounted cash flows or using option valuation models. Where derivatives do not qualify for hedge accounting, any gains or losses on remeasurement are immediately recognised in the Income Statement. Where derivatives do qualify for hedge accounting, gains or losses on hedges that are regarded as effective are recognised via equity. Gains or losses on hedges that are regarded as ineffective are recognised in the income statement. In order to qualify for hedge accounting, the Group is required to document hedging relationships between the item being hedged and the hedging instrument at inception. The Group is also required to assess and document that each hedging relationship is effective at inception and periodically throughout the term of the financial instrument. The Group have the following financial instruments. Net Investment hedges Derivative financial instruments are classified as net investment hedges when they hedge the Group's net investment in an overseas operation. In the Group's case derivative instruments qualifying for treatment as net investment hedges are foreign currency loans. Cash flow hedges Derivative financial instruments are classified as cash flow hedges when they hedge the Group's exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction. Derivative instruments qualifying for treatment as cash flow hedging are principally interest rate swaps. 2. Segmental reporting Unaudited Unaudited Restated 26 weeks to 29th October 2005 26 weeks to 30th October 2004 UK & ROI Europe Total UK & ROI Europe Total £'000' £'000' £'000' £'000' £'000' £'000' Income Statement Revenue (by origin and destination) 189,690 25,828 215,518 208,445 27,497 235,942 Gross profit 113,034 14,198 127,232 125,826 13,980 139,806 Operating profit (before exceptionals) 21,569 1,411 22,980 31,321 1,351 32,672 Operating profit 24,426 1,411 25,837 30,194 1,351 31,545 Net finance costs (892) (840) Profit before tax 24,945 30,705 Income tax expense (7,786) (9,842) Profit for the financial period 17,159 20,863 3. Exceptional items The following exceptional items, as disclosed in note 1 c), have been charged in arriving at operating profit: Restated Restated 26 weeks to 26 weeks to 52 weeks to 29th October 30th October 30th April 2005 2004 2005 £'000' £'000' £'000' Profit/(loss) on disposal of property, plant and equipment 2,857 (602) 11,529 Goodwill impairment on closure of New Carpet Express - (525) (525) Total 2,857 (1,127) 11,004 4. Income tax expense The estimated effective tax rates on the profits 52 weeks to 52 weeks to 29th April 30th April 2006 2005 £'000' £'000' Underlying tax rate 31.4% 31.0% Effective tax rate 31.2% 32.0% The effective tax rate is defined as the actual tax paid as a proportion of the accounting profit before taxation. The underlying tax rate is defined as the effective tax rate after adjusting for, when relevant (loss)/profit on disposal of property, plant and equipment, termination of business and tax adjustments in respect of one off items and prior periods. 5. Dividends 26 weeks to 26 weeks to 26 weeks to 26 weeks to 29th October 29th October 30th October 30th October 2005 2005 2004 2004 pence/share £'000' pence/share £'000' Amounts recognised as distributions to equity holders in the period : Final dividend for the period ended 30th April 2005 28.0 18,979 27.0 18,799 Proposed interim dividend for the period ended 29th April 2006 19.0 12,881 19.0 13,077 6. Earnings per share The calculation of basic and diluted earnings per share for the 26 weeks to 29th October 2005 is based on earnings of £17,159,000 (26 weeks to 30th October 2004 restated: £20,722,000) (52 weeks to 30th April 2005: £49,121,000). The weighted average number of shares used in the calculation of basic earnings per share for the 26 weeks to 29th October 2005 was 67,797,322 (26 weeks to 30th October 2004: 69,527,000) (52 weeks to 30th April 2005: 69,168,000). The weighted average number of shares used in the calculation of diluted earnings per share was 67,836,920 (26 weeks to 30th October 2004: 69,613,000) (52 weeks to 30th April 2005: 69,254,000). 6. Earnings per share (contd...) Share options outstanding at less than fair market value represent the 41,000 difference between the basic and diluted weighted average number of shares (26 weeks to 30th October 2004: 86,000) (52 weeks to 30th April 2005: 86,000). The Directors have presented an additional measure of earnings per share based on underlying earnings, in accordance with the practice adopted by most major retailers, as they believe this provides a more comparable measure on an ongoing basis. Underlying earnings is defined as profit after adjusting for, when relevant, goodwill impairment, (loss)/profit on disposal of property, plant and equipment, termination of business and other exceptional items and the related tax effect. Restated Restated 26 weeks to 26 weeks to 52 weeks to 29th October 30th October 30th April 2005 2004 2005 pence pence pence Basic earnings per share 25.3 29.8 71.0 Effect of goodwill impairment - 0.8 0.8 Effect of (profit)/loss on disposal and (4.2) 0.9 (16.7) termination Effect of taxation on exceptional items 1.3 (0.1) 6.3 Underlying earnings per share 22.4 31.4 61.4 7. Notes to cash flow statement ii) Reconciliation of Net debt 26 weeks to 29th 26 weeks to 52 weeks to October 2005 30th October 30th April 2004 2005 £'000' £'000' £'000' Net debt at start of period (37,864) (32,236) (32,236) Net decrease in cash and cash equivalents (8,239) (8,908) (12,007) (Increase)/decrease in interest bearing loans and (3,328) 1,065 6,547 borrowings Currency translation differences (273) (1,181) (168) Net debt at end of period (49,704) (41,260) (37,864) ii) Components of net debt Cash and cash equivalents 3,616 5,229 5,222 Bank overdraft (16,108) (6,441) (9,374) Cash and cash equivalents (12,492) (1,212) (4,152) Interest bearing loans and borrowings (8,761) (11,263) (10,358) Interest bearing loans and borrowings (non (28,451) (28,785) (23,354) current) Net debt (49,704) (41,260) (37,864) - - - iiii) Major non cash transactions The cash outflow for 29th October 2005 includes a £9.3 million payment for shares bought back from the market before the 30th April 2005, but not paid in the year ended 30th April 2005. 8. Statement of changes in equity Share Share Capital Translation Retained Total capital premium redemption and hedging earnings £'000' £'000' £'000' reserve reserve £'000' £'000' £'000' Balance at 1st May 2005 678 14,146 125 (168) 26,277 41,058 First Time adoption adjustments in respect of IAS 391 - - - (10) (22) (32) Restated balance at 1st May 2005 678 14,146 125 (178) 26,255 41,026 Share based compensation charge - - - - 90 90 Cash flow hedges: - Fair value gains 8 8 Currency translation differences - - - 101 - 101 Tax on items taken directly to or transferred from equity - - - (2) (36) (38) Net income recognised in equity - - - 107 54 161 Profit for the period - - - - 17,159 17,159 Total recognised income and expense for the period - - - 107 17,213 17,320 Dividends - - - - (18,979) (18,979) Balance at 29th October 2005 678 14,146 125 (71) 24,489 39,367 8. Statement of changes in equity (contd...) Share Share Translation Retained Total capital premium Capital and hedging earnings £'000' £'000' £'000' redemption reserve £'000' reserve £'000' £'000' Balance at 1st May 2004 696 14,146 107 - 26,549 41,498 Actuarial gains on defined benefit pension schemes - - - - 112 112 Share based compensation charge - - - - 67 67 Currency translation differences - - - 611 - 611 Tax on items taken directly to or transferred from equity - - - - (46) (46) Net income recognised in equity - - - 611 133 744 Profit for the period - - - - 20,722 20,722 Total recognised income and expense for the period - - - 611 20,855 21,466 Dividends - - - - (18,799) (18,799) Purchase of own shares (8) - 8 - (8,497) (8,497) Balance at 30th October 2004 688 14,146 115 611 20,108 35,668 Note 1: Adoption of IAS 32 'Financial Instruments: Disclosure' and IAS 39 'Financial Instruments: Recognition and Measurement' As disclosed in the Group's IFRS release on the 27th September 2005, the Group deferred the adoption of IAS 32 and IAS 39 until the 1st May 2005. The effect of this is that opening reserves have been restated to the fair value of financial instruments held by the Group as at the 1st May 2005. 9. Acquisition of subsidiary (provisional) On the 29th June 2005, the Group acquired 100 per cent of the issued share capital of Mays Carpets Limited for a cash consideration of £6.4m. Mays Carpets Limited is the parent of a group of companies whose principal activity is that of selling floor coverings both wholesale and retail. The transaction has been accounted for by the purchase method of accounting. From the date of acquisition to 29th October 2005, Mays Carpets Ltd contributed £0.1m to profit for the financial period. Fair value and accounting Provisional Book policy Fair value alignment value £'000' £'000' £'000' Net assets acquired: Property, plant and equipment 164 (64) 100 Inventories 906 (100) 806 Trade and other receivables 192 192 Cash and cash equivalents 1,276 1,276 Trade and other payables (151) (151) Tax liabilities (301) (301) Deferred tax liabilities (20) (20) Other provisions (119) (119) Net Assets 1,947 (164) 1,783 Goodwill - provisional 4,649 Total consideration 6,432 Satisfied by : Cash 6,432 Total consideration 6,432 Management found that no significant separable intangible assets have been acquired as part of this acquisition and therefore the difference between the fair value of the consideration and fair value of the net assets has been recognised as goodwill. Net cash outflow arising on acquisition: Cash consideration 6,432 Cash and cash equivalents acquired (1,276) Net cash outflow 5,156 If the acquisition of Mays Carpets Limited had been completed on the first day of the financial year, the contribution to group profit and sales for the period would have been £0.2m and £2.8m respectively. 10. Foreign Exchange The principle exchange rates used were as follows: Euro 26 weeks to 26 weeks to 52 weeks to 29th October 30th October 30th April 2005 2004 2005 Average 1.47 1.49 1.47 Closing 1.47 1.44 1.48 11. Transition to International Financial Reporting Standards("IFRS") Carpetright plc and its subsidiaries ("the Group") reported under UK Generally Accepted Accounting Principles ("UK GAAP") in its previously published financial statements for the year ended 30th April 2005 and this is the first interim period that the Group has presented its interim report under IFRS. The reconciliation's to equity as at 2nd May 2004 (date of transition to IFRS) and as at 30th April 2005 (date of last UK GAAP financial statements) and the reconciliation of profit for the 52 weeks ended 30th April 2005, as required by IFRS 1 First Time Adoption of IFRS, including details of significant accounting policies, were published on the Group's website, www.carpetright.plc.uk, on the 27th September 2005. The reconciliation to equity at 30th October 2004 and the reconciliation of profit for the 26 weeks ended 30th October 2004 have been included below as required by IFRS 1 to enable comparison of the 2004/05 published interim figures. These reconciliations were published on the Group's website, www.carpetright.plc.uk, on the 5th December 2005. Reconciliation of profit for the 26 weeks to 30th October 2004 Share- Total UK GAAP reclass based Pensions Lease Finance Goodwill Taxation Asset Other IFRS IFRS payments incent- leases impair- adjust- ives ment ments £'000' £'000' £'000' £'000' £'000' £'000' £'000' £'000' £'000' £'000' £'000' £'000' Revenue 235,942 - - - - - - - - - - 235,942Cost of sales (92,307) - - - - - - - - (3,829) (3,829 (96,136) Gross profit 143,635 - - - - - - - - (3,829) (3,829) 139,806 Otheroperatingincome 833 (602) - - - - - - - - (602) 231Administrativeexpenses (112,100) - (67) 37 (521) 75 423 - 13 3,648 3,608 (108,492) Operatingprofit 32,368 (602) (67) 37 (521) 75 423 - 13 (181) (823) 31,545 Analysed as: Underlying Operating profit 33,316 - (67) 37 (521) 75 - - 13 (181) (644) 32,672 Exceptional items (948) (602) - - - - 423 - - - (179) (1,127) Loss ondisposal offixed assets (602) 602) - - - - - - - - 602 - Profit onordinaryactivitiesbeforeinterest 31,766 - (67) 37 (521) 75 423 - 13 (181) (221) 31,545Financeexpense (882) - - (35) - (94) - - - - (129) (1,011)Finance Income 171 - - - - - - - - - - 171 Profit beforetaxation 31,055 - (67) 2 (521) (19) 423 - 13 (181) (350) 30,705 Income taxexpense (9,557) - 5 - 213 6 - (559) (4) 54 (285) (9,842) Profit for thefinancialperiod 21,498 - (62) 2 (308) (13) 423 (559) 9 (127) (635) 20,863 11. Transition to International Financial Reporting Standards ("IFRS") (contd...) Reconciliation of equity as at 30th October 2004 UK Share- Total GAAP based Lease Soft- Asset IFRS Re- pay- Pens- incen- Finance Good- Tax- Divi- ware impair- Adjust- stated ments sions tives leases will ation dends reclass ment Other ments IFRS £'000' £'000' £'000' £'000' £'000' £'000' £'000' £'000' £'000' £'000' £'000' £'000' £'000' AssetsGoodwill andintangibleassets 15,428 - - - - 423 - - 3,307 - - 3,730 19,158Property,plant andequipment 139,167 - - - 1,617 - - - (3,307) (818) - (2,508) 136,659 DeferredIncome taxasset 1,439 - - - - - - - 1,439 Totalnon-currentassets 156,034 - - - 1,617 423 - - - (818) - 1,222 157,256 Inventories 32,295 - - - - - - - - - (1,322) (1,322) 30,973 Trade andotherreceivables 23,389 - - 442 - - - - - - (612) (170) 23,219Cash and cashequivalents 5,229 - - - - - - - - - - - 5,229 Total currentassets 60,913 - - 442 - - - - - - (1,934) (1,492) 59,421 Total assets 216,947 - - 442 1,617 423 - - - (818)(1,934) (270) 216,677 LiabilitiesShort termborrowingsand overdrafts (17,659) - - - (45) - - - - - - (45) (17,704)Trade andother payables (120,411) - - (5,993) - - - 13,077 - - 7,084 (113,327)Currentincometax liabilities (8,274) - - 1,357 179 - - - - - 580 2,116 (6,158) Total currentliabilities (146,344) - - (4,636) 134 - - 13,077 - - 580 9,155 (137,189) Interestbearing loansand borrowings (26,618) - - - (2,167) - - - - - - (2,167) (28,785)Retirementbenefitobligations - - (2,507) - - - - - - - - (2,507) (2,507) Provisionsforotherliabilities and charges (108) - - - - - - - - - - - (108)DeferredIncome taxliabilities (2,993) 95 752 - - - (10,519) - - 245 - (9,427) (12,420) Totalnon-currentliabilities (29,719) 95 (1,755) - (2,167) - (10,519) - - 245 - (14,101) (43,820) Total equityandliabilities (176,063) 95 (1,755) (4,636) (2,033) - (10,519) 13,077 - 245 580 (4,946) (181,009) Net Assets 40,884 95 (1,755) (4,194) (416) 423 (10,519) 13,077 - (573)(1,354)(5,216) 35,668 EquityShare capital 688 - - - - - - - - - - - 688Share premium 14,146 - - - - - - - - - - - 14,146Other reserves 115 - - - - - - - - - - - 115Translationand hedgingreserve 611 - - - - - - - - - - - 611Retained earnings 25,324 95 (1,755) (4,194) (416) 423 (10,519) 13,077 - (573)(1,354)(5,216) 20,108 Total equity 40,884 95 (1,755) (4,194) (416) 423 (10,519) 13,077 - (573)(1,354)(5,216) 35,668 12 December 2005 Independent review report to Carpetright Plc Introduction We have been instructed by the company to review the financial information forthe six months ended 29 October 2005 which comprises of the consolidated interimbalance sheet as at 29 October 2005 and the related consolidated interimstatements of income, cash flows for the six months then ended and relatednotes. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the group willbe prepared in accordance with accounting standards adopted for use in theEuropean Union. This interim report has been prepared in accordance with thebasis set out in Note 1. The accounting policies are consistent with those that the directors intend touse in the next annual financial statements. As explained in note 1, there is,however, a possibility that the directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with accounting standards adopted for use in the European Union.The IFRS standards and IFRIC interpretations that will be applicable and adoptedfor use in the European Union at 30 April 2006 are not known with certainty atthe time of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. The maintenance and integrity of the Carpetright's web site is theresponsibility of the directors; the work carried out by the auditors does notinvolve consideration of these matters and, accordingly, the auditors accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 29 October 2005. PricewaterhouseCoopers LLPChartered AccountantsLondon This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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