Preliminary Results

30th Jun 2009 07:00



 

Carpetright plc

Preliminary Results Announcement for the 52 weeks ended 2 May 2009

Carpetright plc, Europe's leading specialist carpet and floor coverings retailer trading within the UK, Republic of Ireland, The Netherlands, Belgium and Poland, today announces its preliminary results for the 52 weeks to 2 May 2009.

Headlines

Group

Total Group revenue declined by 7.4% to £482.8m (2008: £521.5m)

Underlying profit before tax down 72.3% to £17.2m (2008: £62.1m)

Profit before tax of £16.7m (2008: £59.5m)

Underlying basic earnings per share of 18.2p (2008: 63.5p)

Basic earnings per share of 17.6p (2008: 63.2p)

Proposed final dividend of 4.0p (2008: 30.0p) making full year dividend of 8.0p (2008: 52.0p)

Net debt at year end of £97.1m (2008: £57.5m)

UK and Republic of Ireland

Total revenue declined 12.9% to £394.1m (like-for-like down 13.5%) 

Underlying operating profit decreased 73.1% to £15.6m 

Store base increased by 8 to 567

Rest of Europe

Total revenue increased by 28.9% to £88.7m 

Underlying reported operating profit increased by 33.3% to £7.2m 

Store base increased by 12 to 128

* 'Underlying' excludes profit / losses on property disposals and other non-recurring items

Lord Harris, Chairman and Chief Executive, said:

"I have said before that I expected my 51st year of selling carpets to be extremely challenging and it has proved to be the case. Market conditions and consumer confidence declined throughout the year, leading to a significant reduction in sales volume and profitability.

"Our principal markets of UK & RoI are in recession and the likelihood is that with unemployment set to rise, the housing market will remain weak. Although there have been a significant number of actions taken by the Government to improve the economy, we do not expect a return to more normal trading conditions for at least 12 months. 

"Against this backdrop, we have been delighted by the first full year of operations in the new warehouse and cutting facility, which has provided additional capacity and enabled us to pursue additional business with the large insurers and housebuilders. The acquisition of Sleepright and the continued growth of our European business ensure we are well placed to trade resiliently.

"I remain as passionate as ever about our business and am excited about the prospects for the Group when trading conditions improve. I am confident our strategy of providing a comprehensive offer with the widest product range, best prices and excellent customer service will support future growth."

Lord Harris of Peckham

Chairman and Chief Executive

For further enquiries please contact:

Carpetright plc

Lord Harris of Peckham, Chairman and Chief Executive

Neil Page, Group Finance Director

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

Citigate Dewe Rogerson

Kevin Smith / Angharad Couch

Telephone 020 7638 9571

A copy of the interim results can be found on our website www.carpetright.plc.uk today from 7.00am.

There will be a presentation today at 9.00am to analysts and investors at Deutsche Bank AG London, Winchester House, 1 Great Winchester Street, London, EC2N 2DB. A copy of the slides used for this presentation can be found on our website www.carpetright.plc.uk from 9.00am.

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

  Group financial performance

A summary of the reported financial results for the year ended 2 May 2009 is set out below : 

	2009 £m	2008 £m	Change
Revenue	482.8	521.5	(7.4%)
Underlying* operating profit	22.8	63.4	(64.0%)
Net finance charges	(5.6)	(1.3)	-
Underlying* profit before tax	17.2	62.1	(72.3%)
Profits/losses on property disposals and non-recurring items	(0.5)	(2.6)	-
Profit before tax	16.7	59.5	(71.9%)
Earnings per share (pence)
- underlying*	18.2	63.5	(71.3%)
- basic	17.6	63.2	(72.2%)
Dividends per share (pence)	8.0	52.0	(84.6%)
Net debt	(97.1)	(57.5)	(£39.6m)

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

Overview

Progress against the Group's financial objectives has been difficult this year. 

Total sales declined by 7.4% to £482.8m on a reported rate basis. The 53rd week in the comparatives accounted for 1.3% of the decline. The fall in sales was driven mainly by the UK and Republic of Ireland, which declined by 13.5% on a like-for-like basis. During the year, the Group opened 32 stores and closed 24 which, together with the one store acquired with Sleepright and 11 stores with Ben de Graaff, gave a net increase of 20 stores and a total store base of 695. The total space grew by 5.8% to just over 6.1m square feet.

The lower level of sales in the UK & RoI was the key driver in underlying operating profit declining to £22.8m, a decrease of 64.0% on last year.

Net finance charges increased to £5.6m, primarily from the impact of higher levels of net debt. These combined to decrease underlying profit before tax by 72.3% to £17.2m. As a consequence underlying earning per share declined to 18.2p. 

Non-recurring items accounted for a net loss of £0.5m (2008: loss of £2.6m), a combination of net profit on property disposals offset by reorganisation costs from acquisitions. 

Profit before tax decreased by 71.9% to £16.7m.

Basic earnings per share decreased by 72.2% to 17.6p, reflecting a 72.4% decrease in post tax earnings. Underlying earnings per share decreased to 18.2p.

Dividend

Whilst the Group has remained profitable in the most challenging of market conditions, profits have reduced substantially and there remains continued uncertainty in the economic outlook. Against this background, and being mindful of retaining some financial flexibility to respond to any opportunities presented by the downturn, the Board feels it prudent to recommend a final dividend of 4.0p per share. Having previously paid an interim dividend of 4.0p per share the total dividend for the period will therefore be 8.0p per share. The Board appreciates the importance of the dividends to its shareholders and will seek to return to a greater level of dividend when a sustained recovery is evident and reflected in the financial results of the Group.

Outlook

In the UK & RoI, the last year has been extremely difficult with a deteriorating economic environment, a decline in consumer confidence and a reduction in housing transactions having adversely impacted our performance. We remain cautious about short-term prospects but are confident that the investments we have made in our stores, ranges, services, cutting and distribution centre and IT systems will all support future growth.

The performance in the Rest of Europe over the last year has been strong and the growth potential remains solid. In The Netherlands and Belgium, we expect trading conditions to remain challenging but believe we have the strength of offer to continue to grow.

In Poland, the focus will be on driving sales in the existing stores and ensuring the format improves its performance.

  

UK and Republic of Ireland - Operational review

UK & RoI - Key financial results	2009 £m	2008 £m	Change
Revenue	394.1	452.7	(12.9%)
Like-for-like sales	(13.5%)	(2.7%)	(10.8pp)
Gross profit	244.6	284.1	(13.9%)
Gross profit %	62.1%	62.8%	(0.7pp)
Underlying operating profit	15.6	58.0	(73.1%)
Underlying operating margin %	4.0%	12.8%	(8.8pp)

Total revenue declined by 12.9% to £394.1m (like-for-like decline of 13.5%) reflecting a significant deterioration in the economic environment which impacted consumer spending. This performance can be viewed against a market which, we believe, decreased by around 20% in value terms and so represents a further increase in market share.

The acquisition of Sleepright accounted for a sales increase of 1.5%. This was offset by the previous year having a 53rd week which contributed a 1.5% sales decline. The net impact of opening and closing stores added 0.6% to sales year on year.

Gross profit decreased 13.9% to £244.6m representing 62.1% of sales. This is a 0.7 percentage point decline on the previous year. The Sleepright acquisition accounted for 0.2 percentage points of this decline, as this part of the business operates on a lower gross margin than floor coverings.  The remaining difference was principally caused by the impact on product cost prices of the strengthening Euro relative to sterling. Historically, we have always maintained a policy of moving our retail prices to reflect changes in cost prices. However, the unprecedented fluctuations in the exchange rate during the past year resulted in over 10,000 price changes which impacted our promotional programme and operational efficiencies. In the latter part of the year we moved away from this policy to facilitate a clearer and more consistent offer to the customer. 

The total UK cost base increased by 1.3% across the year to £229.0m. This included the impact of the Sleepright acquisition, which accounted for 1.6% of the growth. The 53rd week in the prior year accounted for a 1.8% decline year on year in costs. Consequently, removing these two elements, the cost base grew by 1.5% on a comparable 52 week basis. 

Store payroll costs showed a significant year on year saving. Part of this reduction has come from lower commissions due to lower sales and the rest from a reduction in headcount. In comparable stores, we have achieved a reduction in staff costs equal to over 300 full time equivalent positions (FTEs) year on year through a focus on sales productivity and the impact of completing the roll out of Navision. Net new store openings added just over 30 new FTEs. 

Store occupancy costs increased year on year, through a mixture of underlying rent and rates inflation and new space. Depreciation was also up with the completion of the roll out of our in-store computer system.

Underlying operating profit decreased by 73.1% to £15.6m.

Sales and marketing

The specialist floor covering market has declined in volume terms over the last year impacted by a poor economic environment, deteriorating consumer confidence and a decline in mortgage approvals and resultant housing transactions. Manufacturers and retailers have seen the decline accelerate over the year and we believe many independents have ceased trading.

There still remains a surplus of manufacturing capacity to the carpet market even after some suppliers initiating considerable down sizing or closure programmes. We have continued our strategy of dealing with a small number of suppliers but have increased our overall supplier base. This has helped achieve better pricing and would give us options, if an individual supplier got into difficulties.

Unsurprisingly, consumers are cutting back on how much they wish to spend. Over the past year we have worked closely with suppliers to re-engineer products to lower selling price levels. We have also introduced more Saxony carpets which are available in many fashionable colour options.

The laminate and wood market appeared to decline over the year. We believe choice and quality are more important to the customer in this market than price alone, and we are currently in the process of re-positioning our offer to the consumer.

Due to large shifts in the exchange rate, the selling prices of rugs from India and China have increased, impacting on demand. We continue to review our offer to stay ahead of interior design fashions.

Last year saw the launch of a generic marketing campaign ("Fun on the Floor") to promote the benefits of carpet, supported by retailers, wholesalers and manufacturers. Although the initial impact was below everyone's expectations we remain committed to working within the industry to drive awareness and sales. This year the plan is to improve on the successful aspects of last year's campaign.

The new warehouse and cutting facility has provided capacity for the Group to target incremental sales volume from new business lines outside its core retail offer. In particular, we see the insurance market as an important area for future growth. Our insurance business is administered through an independent third party, allowing us to service this market with a lower central cost and improved cash flows versus dealing with insurers directly.

Store portfolio development

We continued to develop our store portfolio during the year :

	Store numbers					Sq ft ('000)
UK & RoI store base	3 May 2008	Openings	Closures	Other	2 May 2009	3 May 2008	2 May 2009
Standalone	498	23	(12)	1	510	4,350	4,516
Concessions	61	5	(9)	-	57	121	116
	559	28	(21)	1	567	4,471	4,632

In response to the tougher market conditions, we reduced the pace of store openings during the year. There have been 28 new openings as well as one from the acquisition of Sleepright. All our new stores take time to mature and we expect to see stronger sales from them in future years. At the same time we closed 21 stores, either as part of our ongoing programme to move to lower cost locations, or because the stores did not contribute to our overall profitability. 

Total space increased by 3.6% with the average store size now 8,169 sq ft, (2008: 8,000 sq ft). In the 2009/10 financial year we anticipate opening 20 stores.

Operational initiatives

We continue to invest in the key areas:

Quality of service

In-store experience

Advertising effectively

Product development

During the year, a number of initiatives were started to ensure we kept pace with consumer expectations, in particular in respect of the in-store experience. We are in the process of repositioning our point of sale to focus not just on price, but also on the quality of our services and product benefits. We aim to inspire customers with colour, texture and the advantages that come from particular products. Our intention is for our cut length showrooms to have an interior design feel, focusing on fashion and colour trends. This will be in contrast to our roll stock offer which will focus on immediate supply for consumers on a budget.

We are well known for value, but the high quality of our customer service is less appreciated. Going forward, greater emphasis is being placed on the experience of our staff and our independent fitters. Ensuring quality fitters are available for our customers remains a key priority and the business continues to invest in the "Fitters' Academy".

Our customers are now able to make comments on service via email as well as the telephone, and system improvements allow us to capture customer service comments more easily. We continue to train our Store Managers to handle complaints effectively and we treat all feedback as an opportunity to improve our service offering further. Similarly, we have been providing appropriate training and courses for our estimators to enhance the customer experience. We have an exceptionally low complaint ratio reflecting the quality service we already achieve.

This year, our choice of media will determine our creative execution when advertising. The "one size fits all" approach no longer applies and a number of new initiatives are being trialled. As an example, we have sponsored our first TV programme to enhance the communication of the brand.

Our Central Support office and cutting facility has proved to be a real success story. Not only has it allowed us to improve our environmental performance and enhanced communication from department to department, it has also allowed us to become more efficient with the deliveries to our stores resulting in lower costs to the business. In addition, it has given us the capacity to explore new business channels without affecting our traditional retail business opportunities.

  

Rest of Europe - Operational review

Financial results

Rest of Europe - Key financial results			2009 £m	2008 £m	Change (Reported)	Change (Constant Currency)
Revenue
- The Netherlands and Belgium			85.7	66.7	28.5%	10.0%
- Poland			3.0	2.1	42.9%	23.2%
- Rest of Europe			88.7	68.8	28.9%
Underlying operating profit
- The Netherlands and Belgium			8.7	6.8	27.9%	7.4%
- Poland			(1.5)	(1.4)	(7.1%)	8.1%
Rest of Europe			7.2	5.4	33.3%
Underlying operating margin %
- The Netherlands and Belgium			10.2%	10.2%	0.0%	0.0%
- Poland			-	-	-	-
Rest of Europe			8.1%	7.8%	0.3%

Reported revenue in the Rest of Europe was 28.9% ahead of last year at £88.7m. In local currency terms, the increase was 10.0% in The Netherlands and Belgium and 23.2% in Poland.

In July 2008 the acquisition of Ben de Graaff was completed. This added 11 stores to the portfolio. In the 10 months of the financial year they contributed 7.3% of the year on year sales growth in local currency terms. Of the 11 stores, three have been closed and the remainder converted to the Carpetright fascia. This has enabled us to gain the operational and marketing synergies resulting from a single brand. 

An additional two stores were opened bringing the total in The Netherlands and Belgium to 116. 

The Netherlands and Belgium gross profit increased by 30.3% to £49.5m with an improvement in the gross margin of 0.8 percentage points, a combination of cost price improvements and managing the product mix.

Costs were tightly controlled with most of the increase attributable to new space and inflationary pressures. 

The region recorded an underlying operating profit of £7.2m, an increase of 33.3% on last year. The underlying reported operating profit in The Netherlands and Belgium increased by 27.9% to £8.7m with an operating margin of 10.2%. In local currency terms the underlying operating profit increased by 7.4%. The reported loss in Poland was £1.5m, marginally below the previous year. In local currency terms, this loss was an improvement of 8.1% year on year.

The 50/50 joint venture in Germany with TTL, launched in April 2008, with one store near Berlin, has not provided us with a satisfactory return or the confidence to expand the operation. Consequently, we and our partner agreed to discontinue the operation and dissolve the business.

Store portfolio development

The store expansion programme continued during the year with four new stores opening. The portfolio is now as follows: 

	Store Numbers					Sq ft ('000)
Rest of Europe  store base	3 May 2008	Openings	Closures	Other	2 May 2009	3 May 2008	2 May  2009
The Netherlands	77	2	(2)	11	88	895	1,065
Belgium	28	-	-	-	28	335	335
Poland	11	2	(1)	-	12	115	123
	116	4	(3)	11	128	1,345	1,523

Operational initiatives

The Netherlands and Belgium

The key focus throughout the last year has been the ongoing improvement of in-store product offers, together with increased promotional activity and the integration of the Ben de Graaff acquisition. Business in both countries has been strong, building on the good performance of prior years. Our brand awareness continues to grow, resulting in increased footfall and sales conversion.

In The Netherlands, the focus has been on a strong promotional programme. The strength of our offer, including the use of single day "double discount" events, continues to enable us to outperform the competition and we have once again increased our market share, with much of this growth attributable to a continued improvement in our customer conversion rate. In Belgium we identified, following market research, that the stores in the French speaking region could be targeted more specifically to the local consumer. As a result specific changes were made to the ranges, which has led to improved sales and margin growth.

We have seen a shift in the sales mix in The Netherlands and Belgium towards rugs, vinyl and laminate in particular. These categories are more important than in the UK & RoI, with laminate alone representing 20% of total revenue. We have extended the product range to widen customer choice and our advertising strategy has evolved to ensure that we are not perceived as just a carpet specialist. We will look to grow sales from these categories throughout 2009/10 whilst we continue to develop the best product ranges for these countries. 

Integration costs associated with the Ben de Graaff acquisition accounted for £0.7m, which has been included as non-recurring.

Poland 

Progress in Poland has been challenging, particularly due to the deterioration in economic conditions which has impacted consumer demand. The Group was trading from 12 stores at the year end, a net increase of one in the year. This was after two openings and one closure.

Encouragingly we have seen total sales increase by 23.2% in local currency terms. Most sales continue to be in either rugs or take-away roll-stock carpet but the offer continues to evolve and we have been pleased with the clearer product segmentation in our most recent openings.

During the year we have continually reviewed the store layouts for each store. As a result, we have reorganised the stores to ensure clearer category segmentation.

  Financial review 2009

Property disposals and non-recurring items 

The Group recorded a net charge of £0.5m (2008: charge of £2.6m) in the year.

	(Charge) / Gain
	2009 £m	2008 £m
Profit on disposal of properties	1.8	7.0
Store Impairment charge	(0.9)	-
Reorganisation costs of acquired businesses	(1.2)	(1.8)
Impairment of investment in joint venture	(0.2)	-
New cutting & distribution facility	-	(7.8)
	(0.5)	(2.6)

We continued to trade our property portfolio successfully, although market conditions have made this more challenging. A non-recurring gain of £1.8m was achieved (2008: £7.0m).

Accounting standards require us to perform impairment tests each year. As a result of the challenging retail environment we have reviewed the carrying value of the store assets in our balance sheet. The models used to value these assets include a number of assumptions relating to market growth and inflationary expectations. The tests have led to an impairment of £0.9m in relation to eight loss making stores.

A non-recurring charge of £0.5m has been taken for the integration of UK acquisitions and of £0.7m for European integration.

Following the decision to discontinue the joint venture in Germany, the investment has been impaired at a charge of £0.2m.

Cashflow

	2009 £m	2008 £m
Underlying Operating Profit	22.8	63.4
Depreciation and other non-cash items	20.5	17.0
Non-recurring items	(1.2)	(6.6)
Decrease in stock	2.7	0.8
(Increase)/Decrease in working capital	(18.6)	(1.9)
Cash generated by operations	26.2	72.7
Net Interest paid	(5.5)	(2.2)
Corporation Tax paid	(12.2)	(15.1)
Dividends paid	(22.8)	(35.2)
Net Capital Expenditure	(20.6)	(58.9)
Purchase of own shares	-	(6.5)
Other	(4.7)	(5.4)
Movement in net debt	(39.6)	(50.6)
Opening net debt	(57.5)	(6.9)
Closing net debt	(97.1)	(57.5)

The Group's operating cash flow remained positive at £26.2m (2008: £72.7m). The increase in working capital of £18.6m (2008: £1.9m) was due to the reduction in creditors associated with the decline in sales volume. 

Net capital expenditure was £20.6m (2008: £58.9m). This can be broken down into the following principal categories. 

	2009 £m	2008 £m
Core capital expenditure	12.0	36.6
Freehold properties	4.3	9.9
Acquisition of new businesses	7.3	32.4
Proceeds from property disposals	(3.0)	(20.0)
	20.6	58.9

The year on year reduction in core capital expenditure reflects the significant prior year investment in the cutting and warehouse facility at Purfleet and roll out of Navision in stores.

The net debt increased by £39.6m over the year and totalled £97.1m at the year end.

Taxation 

The effective tax rate on profits is 29.8% (2008: 28.1%). This has increased due to the impact of one off credits in 2008 (+2.2 pp) and the lower profitability magnifying the impact of non-qualifying depreciation (+3.1 pp). These have been partially offset by the reduction in the UK corporation tax to 28% from 30% (-2.0 pp) and various overseas tax movements (-1.6 pp).

Current liquidity

At the year end the Group held cash balances of £17.4m (2008: £8.9m) in a combination of Sterling, Euros and Polish Zlotys.

Gross bank borrowings at the balance sheet date were £108.3m (2008: £61.7m) of which £103.9m is term based with the balance of £4.4m being drawn down from overdraft facilities. The Group has further undrawn, committed facilities of £24.5m at the balance sheet date. These are principally available as on-demand overdraft facilities and are subject to annual review.

In April 2009, the Group completed a refinancing arrangement with its principal bank, the Royal Bank of Scotland. The revised facilities provide approximately £110m of debt capacity split between amortising loans, revolving credit facilities and overdrafts in a mixture of Sterling and Euro currencies. The term of these facilities are to July 2012 and involved combined arrangement fees and legal costs of £1.5m. Although paid in cash at the outset, these will be amortised over the life of the facility. The facilities are accompanied by a number of covenants which are believed to be appropriate in the current economic climate. The Group monitors actual and prospective compliance with these on a regular basis and are in the process of renegotiating financing agreements with its other bankers to align the covenant requirements with those of the principal bankers.

  Group income statement

For the 52 weeks ended 2 May 2009

						Note	52 weeks to 2 May 2009 £m	53 weeks to 3 May 2008 £m
Revenue						2	482.8	521.5
Cost of sales							(187.0)	(198.4)
Gross profit						2	295.8	323.1
Other operating income							1.8	10.1
Administrative expenses							(275.3)	(272.4)
Operating profit						2	22.3	60.8
Operating profit before profit on property disposals and non-recurring items						2	22.8	63.4
(Losses)/profits on property disposals and non-recurring items						3	(0.5)	(2.6)
Finance costs payable							(7.2)	(2.8)
Finance income receivable							1.6	1.5
Profit before tax							16.7	59.5
Tax						4	(4.9)	(16.7)
Profit for the financial period attributable to equity holders of the Company							11.8	42.8
						Note	2009 Pence	2008 Pence
Basic earnings per share						5	17.6	63.2
Diluted earnings per share						5	17.6	63.2
Dividend per share - interim paid						6	4.0	22.0
Dividend per share - final proposed						6	4.0	30.0
						Note	2009 £m	2008 £m
Dividends paid to equity shareholders in the year (£m)							22.8	35.2
Final dividend proposed to equity shareholders in respect of the year (£m)							2.7	20.2

All items in the income statement arise from continuing operations.

Statement of recognised income and expense

For the 52 weeks ended 2 May 2009

						Note	52 weeks to 2 May 2009 £m	53 weeks to 3 May 2008 £m
Profit for the financial period							11.8	42.8
Actuarial gains/(losses) on defined benefit pension schemes						8	(1.1)	0.5
Fair value losses in respect of cash flow hedges						8	(2.3)	(0.2)
Exchange gains/(losses) in respect of hedged equity investments						8	7.2	4.4
Tax on items taken directly to or transferred from equity						8	0.3	(0.1)
Net gains/(losses) recognised directly in equity							4.1	4.6
Total recognised income for the financial period attributable to equity holders of the Company							15.9		47.4

  Group balance sheet

At 2 May 2009

	Note	2009 £m	2008 £m
Assets
Non-current assets
Intangible assets		71.2	62.7
Property, plant and equipment		164.7	165.8
Investment property		25.3	21.0
Investment in joint ventures		-	0.2
Deferred tax assets		3.3	3.2
Trade and other receivables		1.3	1.3
Total non-current assets		265.8	254.2
Current assets
Inventories		43.2	40.1
Trade and other receivables		34.4	32.8
Cash and cash equivalents	7	17.4	8.9
Total current assets		95.0	81.8
Total assets		360.8	336.0
Liabilities
Current liabilities
Trade and other payables		(110.8)	(123.8)
Obligations under finance leases		(0.9)	(0.8)
Borrowings and overdrafts		(17.1)	(22.4)
Current tax liabilities		(5.7)	(11.6)
Total current liabilities		(134.5)	(158.6)
Non-current liabilities
Trade and other payables		(31.5)	(28.3)
Obligations under finance leases	7	(3.0)	(3.9)
Borrowings	7	(91.2)	(39.3)
Derivative financial instruments		(2.3)	-
Provisions for liabilities and charges		(0.8)	(1.4)
Deferred tax liabilities		(27.9)	(28.9)
Retirement benefit obligations		(2.4)	(1.3)
Total non-current liabilities		(159.1)	(103.1)
Total liabilities		(293.6)	(261.7)
Net assets		67.2	74.3
Equity
Share capital	8	0.7	0.7
Share premium	8	15.4	15.4
Treasury shares	8	(0.1)	(0.2)
Other reserves	8	51.2	58.4
Total equity attributable to equity holders of the Company	8	67.2	74.3

  Group cash flow statement

for the 52 weeks ended 2 May 2009

	Note	52 weeks  to 2 May 2009 £m	53 weeks to 3 May 2008 £m
Operating activities
Profit before tax		16.7	59.5
Adjusted for:
Depreciation and amortisation		20.4	17.0
Non-recurring non cash items		1.1	3.0
Share-based payments		0.1	-
Profits on property disposals		(1.8)	(7.0)
Net finance costs		5.6	1.3
Operating cash flows before movements in working capital		42.1	73.8
Decrease/(increase) in inventories		2.7	0.8
(Increase)/decrease in trade and other receivables		(0.9)	(1.0)
(Decrease)/increase in trade and other payables		(17.7)	(0.9)
Cash generated from operations		26.2	72.7
Interest paid		(6.2)	(2.9)
Corporation taxes paid		(12.2)	(15.1)
Net cash from operating activities		7.8	54.7
Investing activities
Proceeds on disposal of property, plant and equipment and investment property		3.0	20.0
Purchases of intangible assets		(2.0)	(2.0)
Purchases of property, plant and equipment and investment property		(14.3)	(44.5)
Acquisition of shares in subsidiary net of cash acquired		(7.3)	(32.2)
Acquisition of shares in joint ventures		-	(0.2)
Interest received		0.7	0.7
Net cash used in investing activities		(19.9)	(58.2)
Financing activities
Purchase and cancellation of own shares		-	(6.5)
Purchase of treasury shares by employee share trust		(0.2)	-
Repayment of borrowings		(20.5)	(13.4)
New loans advanced		72.0	38.5
Repayment of obligation under finance leases		(0.8)	(0.8)
Dividends paid to Company shareholders		(22.8)	(35.2)
Net cash generated by/(used in) financing activities		27.7	(17.4)
Net increase/(decrease) in cash and cash equivalents in the period		15.6	(20.9)
Cash and cash equivalents at the beginning of the period		(2.2)	19.2
Exchange differences		(0.4)	(0.5)
Cash and cash equivalents at the end of the period	7	13.0	(2.2)

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.

  

Notes to the accounts

1 Accounting policies

Basis of preparation

The financial statements of the Group are made up to the Saturday nearest to 30 April. The financial year for 2009

represents the 52 weeks ended 2 May 2009. The comparative financial year for 2008 was 53 weeks ended 3 May

2008.

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 Acts 1985 and 2006 applicable to companies reporting under IFRS.

The information is derived from the full Group financial statements for the 52 week period to 2 May 2009 and does not constitute full accounts within the meaning of section 435 of the Companies Act 2006. The Group's 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 in due course and posted to shareholders in July 2009.

The financial information for the 53 weeks to 3 May 2008 is derived from the Annual Report for that year which has

been delivered to the Registrar of Companies. The independent 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.

Foreign exchange rates

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

			Euro 2009	Euro 2008	Zloty 2009	Zloty 2008
Average rate			1.19	1.40	4.53	5.25
Closing rate			1.12	1.28	4.89	4.42

  2 Segmental analysis

The Group's primary reporting segment is geographic, as this is the basis on which the Group is both organised and managed. The Group does not report a secondary segment on the basis of business operations because business operations throughout the Group are the same. The geographical sectors are: United Kingdom & Republic of Ireland ("UK & RoI"), and The Netherlands, Belgium, Poland and the joint venture arrangement in Germany ("Rest of Europe"). Central costs are incurred principally in the UK and are immaterial. As such these costs are included within the UK & RoI segment. Segment revenue, expense, result, assets and liabilities include transfers between geographical segments. Such transfers are priced at arm's length and are eliminated on consolidation.

Analysis by geography:

	52 weeks to 2 May 2009			53 weeks to 3 May 2008
	UK & RoI	Rest of Europe	Group	UK & RoI	Rest of Europe	Group
	£m	£m	£m	£m	£m	£m
Gross Revenue	397.3	88.7	486.0	456.0	68.8	524.8
Inter-segment revenue	(3.2)	-	(3.2)	(3.3)	-	(3.3)
Segment Revenue (by origin and destination)	394.1	88.7	482.8	452.7	68.8	521.5
Gross profit	244.6	51.2	295.8	284.1	39.0	323.1
Operating profit before profits/(losses) on property disposals and non-recurring items	15.6	7.2	22.8	58.0	5.4	63.4
Segment Result: operating profit after profits/(losses) on property disposals and non-recurring items	15.9	6.4	22.3	55.4	5.4	60.8
Net finance costs payable			(5.6)			(1.3)
Profit before tax			16.7			59.5
Tax			(4.9)			(16.7)
Profit for the financial period			11.8			42.8
Other segmental items:
Depreciation and amortisation	16.6	3.8	20.4	13.6	3.4	17.0
Share-based payments	0.1	-	0.1	-	-	-
Segment Assets:
Gross assets (by origin and destination) (1)(2)	245.4	105.2	350.6	240.7	88.9	329.6
Inter-segment balances	(10.5)	-	(10.5)	(6.2)	-	(6.2)
Segment assets	234.9	105.2	340.1	234.5	88.9	323.4
Unallocated assets			20.7			12.1
Total assets			360.8			335.5
Segment Liabilities:
Gross liabilities (by origin and destination) (1)	123.4	32.6	156.0	135.8	24.8	160.6
Inter-segment balances	-	(10.5)	(10.5)	-	(6.2)	(6.2)
Segment liabilities	123.4	22.1	145.5	135.8	18.6	154.4
Unallocated liabilities			148.1			106.8
Total liabilities			293.6			261.2
Capital Expenditure:
Capital expenditure (by origin and destination)	14.1	2.2	16.3	38.0	8.5	46.5

(1) Segment assets and liabilities exclude interest-bearing balances and tax assets and liabilities.

(2) Segment assets for Rest of Europe include the equity investment in the German joint venture.   3 Profits/(losses) on property disposals and non-recurring items

				2009 £m	2008 £m
Disclosed in the income statement:
Profits on property disposals				1.8	7.0
Impairment of property plant and equipment				(0.9)	-
Post acquisition reorganisation of the acquired businesses				(1.2)	(1.8)
Impairment of investment in Joint venture				(0.2)	-
Pre-opening costs relating to the new cutting and distribution centre				-	(7.8)
				(0.5)	(2.6)
The post acquisition reorganisation costs of the Storeys, Ben de Graaff and Sleepright businesses are primarily redundancy and other costs arising from the integration of the support functions into Carpetright. The pre-opening costs relating to the new cutting and distribution centre were the dual running costs incurred in the start-up phase of the new site while the four, now closed, existing centres were also in operation, together with the costs of exiting those four sites.
4 Tax (i) Analysis of the charge in the period
				2009 £m		2008 £m
UK current tax				3.6		14.9
Overseas current tax				2.1		1.4
Total current tax				5.7		16.3
UK deferred tax				(2.2)		3.8
Overseas deferred tax				1.4		(1.9)
Adjustments in respect of changes in tax rates				-		(1.5)
Total deferred tax				(0.8)		0.4
Total tax charge in the income statement				4.9		16.7
(ii) Reconciliation of profit before tax to total tax
				2009 £m		2008 £m
Profit before tax				16.7		59.5
Tax charge at UK Corporation Tax rate of 28% (2008: 29.83%)				4.7		17.7
Adjusted for the effects of:
Overseas tax rates				(0.2)		(0.3)
Recognition of historic overseas tax losses				-		(2.3)
Non-qualifying depreciation				0.7		0.7
Foreign exchange movements on foreign deferred tax				0.3		0.9
Other permanent differences				(0.3)		1.9
Adjustments in respect of changes in tax rates on deferred tax				-		(1.5)
Adjustments in respect of prior periods				(0.3)		(0.4)
Total tax charge in the income statement				4.9		16.7

Tax of £0.1m has been credited to the income statement (2008: £0.9m credit) in respect of profits/(losses) on property disposals and non-recurring items. The 2008 adjustment of £1.5m in respect of the change in the UK Corporation tax rate has been treated as a non-recurring tax credit.

  5 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 (Guernsey) 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.

			2009			2008
	Earnings £m	Weighted average number of shares  Millions	Earnings per share Pence	Earnings £m	Weighted average number of shares Millions	Earnings per share Pence
Basic earnings per share	11.8	67.2	17.6	42.8	67.7	63.2
Effect of dilutive share options	0.1	0.4	-	0.1	0.2	-
Diluted earnings per share	11.9	67.6	17.6	42.9	67.9	63.2
Reconciliation of earnings per share excluding post tax profit on property disposals and non-recurring items:
			2009			2008
	Earnings £m	Weighted average number of shares  Millions	Earnings per share Pence	Earnings £m	Weighted average number of shares Millions	Earnings per share Pence
Basic earnings per share	11.8	67.2	17.6	42.8	67.7	63.2
Adjusted for the effect of profit on property disposals	(1.8)	-	(2.7)	(7.0)	-	(10.3)
Adjusted for the effect of non-recurring items	2.3	-	3.4	9.6	-	14.1
Tax thereon	(0.1)	-	(0.1)	(0.9)	-	(1.3)
Non-recurring tax benefit from the impact of the decrease in UK Corporation Tax rates on the opening deferred tax provision (note 4)	-	-	-	(1.5)	-	(2.2)
Underlying earnings per share	12.2	67.2	18.2	43.0	67.7	63.5

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 profit on property disposals and non-recurring items and related tax.

6 Dividends

				2009		2008
			Pence per share	£m	Pence per share	£m
Prior year final dividend paid			30.0	20.2	30.0	20.4
Current year interim dividend paid			4.0	2.6	22.0	14.8
			34.0	22.8	52.0	35.2

The Directors propose a final dividend of 4.0 pence per share amounting to £2.7m (2008: 30.0 pence per share; £20.2m) which is not included as a liability in these financial statements. Subject to approval by the shareholders at the Annual General Meeting, the proposed dividend will be paid on 25 September 2009 to shareholders who are on the register of members on 11 September 2009.

This would take the 2009 interim and final dividend payments to 8.0 pence amounting to £5.3m (2008: 52.0 pence; £35.0m).

  

7 Movement in cash and net borrowings

Net debt incorporates the Group's borrowings, bank overdrafts and obligations under finance leases, less cash and cash equivalents.

Group

	2008					2009
	Total £m	Cash flow  £m	Acquisitions £m	Exchange  differences £m	Revaluation  £m	Total £m
Cash and cash equivalents per the balance sheet	8.9					17.4
Bank overdrafts	(11.1)					(4.4)
Cash and cash equivalents per the cash flow statement	(2.2)	15.6	-	(0.4)	-	13.0
Borrowings
Borrowings (current)	(11.3)					(12.7)
Borrowings (non-current)	(39.3)					(91.2)
	(50.6)	(51.5)	-	(1.8)	-	(103.9)
Obligation under finance leases
Obligation under finance leases (current)	(0.8)					(0.9)
Obligation under finance leases (non-current)	(3.9)					(3.0)
	(4.7)	0.8	-	-	-	(3.9)
Derivative financial instruments	-	-	-	-	(2.3)	(2.3)
Net borrowings	(57.5)	(35.1)	-	(2.2)	(2.3)	(97.1)
	2007					2008
	Total £m	Cash flow  £m	Acquisitions £m	Exchange  differences  £m	Revaluation  £m	Total £m
Cash and cash equivalents per the balance sheet	20.7					8.9
Bank overdrafts	(1.5)					(11.1)
Cash and cash equivalents per the cash flow statement	19.2	(20.9)	-	(0.5)	-	(2.2)
Borrowings
Borrowings (current)	(10.7)					(11.3)
Borrowings (non-current)	(11.0)					(39.3)
	(21.7)	(25.1)	-	(3.8)	-	(50.6)
Obligation under finance leases
Obligation under finance leases (current)	(0.8)					(0.8)
Obligation under finance leases (non-current)	(3.7)					(3.9)
	(4.5)	0.8	(1.0)	-	-	(4.7)
Derivative financial instruments	0.1	-	-	-	(0.1)	-
Net borrowings	(6.9)	(45.2)	(1.0)	(4.3)	(0.1)	(57.5)

  8 Statement of changes in shareholders' equity

	Note	Share  capital  £m	Share  premium  £m	Treasury shares £m	Other reserves  £m	Total  £m
At 29 April 2007		0.7	14.8	(0.5)	53.0	68.0
Actuarial gain on defined benefit pension scheme		-	-	-	0.5	0.5
Exchange difference in respect of hedged equity investments		-	-	-	4.4	4.4
Tax on items taken directly to or transferred from equity		-	-	-	(0.1)	(0.1)
Fair value losses in respect of cash flow hedges		-	-	-	(0.2)	(0.2)
Profit for the financial period		-	-	-	42.8	42.8
Total recognised income and expense for the financial period		-	-	-	47.4	47.4
Transfer of Treasury shares to participants		-	-	0.3	(0.3)	-
Purchase and cancellation of own shares		-	-	-	(6.5)	(6.5)
Issue of Ordinary shares on acquisition of Storey Carpets Ltd		-	0.5	-	-	0.5
Issue of Ordinary shares to satisfy share option scheme exercises		-	0.1	-	-	0.1
Dividend paid to Company shareholders	6	-	-	-	(35.2)	(35.2)
At 3 May 2008		0.7	15.4	(0.2)	58.4	74.3
Actuarial loss on defined benefit pension scheme		-	-	-	(1.1)	(1.1)
Exchange difference in respect of hedged equity investments		-	-	-	7.2	7.2
Tax on items taken directly to or transferred from equity		-	-	-	0.3	0.3
Fair value losses in respect of cash flow hedges		-	-	-	(2.3)	(2.3)
Profit for the financial period		-	-	-	11.8	11.8
Total recognised income and expense for the financial period		-	-	-	15.9	15.9
Transfer of Treasury shares to participants		-	-	0.3	(0.3)	-
Purchase of own shares by employee share trust		-	-	(0.2)	-	(0.2)
Dividend paid to Company shareholders		-	-	-	(22.8)	(22.8)
At 2 May 2009		0.7	15.4	(0.1)	51.2	67.2

  9 Acquisition of subsidiaries

Ben de Graaff Tapijt

On 30 June 2008, the Group acquired the trade and assets of Ben de Graaff Tapijt. The consideration paid for the acquisition was £5.7m. The principal activity of Ben De Graaff Tapijt is the retailing of carpet and other floor covering. The transaction has been accounted for in accordance with IFRS 3 Business Combinations.

Brand values were assessed as part of the acquisition fair value but were immaterial. No brand value has been recognised in the cost of the investment.

From the date of acquisition to 2 May 2009, the acquisition contributed £5.7m to revenue, £0.1m to underlying operating profit before tax and £0.1m in cash flow. There is no material difference between the amounts included in these accounts and the amount that would have been recognised had the acquisition been made at the start of the financial year for profit or operating cash flow.

Details of net assets acquired and goodwill are as follows:

			£m
Purchase consideration:
Cash paid			5.7
Direct costs relating to the acquisition			0.1
Total purchase consideration			5.8
Fair value of net identifiable assets acquired			(1.3)
Goodwill			4.5
The goodwill is attributable to the significant synergies expected to arise after acquisition by the Group. The assets and liabilities arising from the acquisition together with their provisional fair values are as follows:
	Acquiree's carrying amount before business combination £m	Fair value adjustments £m	Fair value £m
Net assets acquired:
Inventories	2.6	(0.8)	1.8
Trade and other payables	(0.1)	-	(0.1)
Other provisions	-	(0.4)	(0.4)
Net identifiable assets/(liabilities) acquired	2.5	(1.2)	1.3
Outflow of cash to acquire business, net of cash acquired
Cash consideration			5.8
Cash flow on acquisition of shares in subsidiary net of cash acquired			5.8

Sleepright UK Ltd

On 5 December 2008, the Group acquired 100% of the issued share capital of Sleepright UK Ltd (Sleepright). The initial consideration was £0.8m cash. The principal activity of Sleepright is the retailing of beds and mattresses. The transaction has been accounted for in accordance with IFRS 3 Business Combinations.

Brand values were assessed as part of the acquisition fair value but were immaterial. No brand value has been recognised in the cost of the investment.

From the date of acquisition to 2 May 2009, the acquisition contributed £6.6m to revenue, £(0.2)m to profit before tax and £(0.2)m in cash flow. Had the acquisition taken place at the start of the financial year an additional £7.0m in revenue would have been recognised. There would have been no material difference between the amounts included in these accounts and the amounts that would have been recognised for profit or operating cash flow.  Details of net assets acquired and goodwill are as follows:

					£m
Purchase consideration:
Cash paid					0.8
Direct costs relating to the acquisition					0.2
Total purchase consideration					1.0
Fair value of net identifiable liabilities acquired					1.9
Goodwill					2.9
The goodwill is attributable to the significant synergies expected to arise after acquisition by the Group. The assets and liabilities arising from the acquisition together with their provisional fair values are as follows:
		Acquiree's carrying amount before business combination £m	Fair value adjustments £m		Fair value £m
Net assets acquired:
Property, plant and equipment		0.4	-		0.4
Inventories		1.2	(0.4)		0.8
Trade and other receivables		0.6	-		0.6
Trade and other payables		(3.7)	-		(3.7)
Net identifiable assets/(liabilities) acquired		(1.5)	(0.4)		(1.9)
Outflow of cash to acquire business, net of cash acquired
Cash consideration					1.0
Cash flow on acquisition of shares in subsidiary net of cash acquired					1.0
Melford Commercial Properties Ltd On 31 March 2008, the group acquired 100% of the issued share capital of Melford Commercial Properties Ltd. During the current period the purchase consideration and the acquirees book values have been finalised and the fair values have been reviewed. The revised details of net assets acquired and goodwill are as follows:
				£m
Purchase consideration:
Cash paid				6.6
Direct costs relating to the acquisition				0.4
Total purchase consideration				7.0
Fair value of net identifiable liabilities acquired				0.1
Goodwill				7.1

Since the initial estimates were reported the total purchase consideration has been reduced by £0.2m as a result of the finalisation of the direct costs. The fair value of the assets acquired has been reduced by £0.7m to a net liability acquired of £0.1m, £0.3m as a result of the review of the book values in the acquired company and £0.4m as a result of the review of the fair value adjustments.

A net £0.2m was received in cash during the period as a result of the finalisation of the working capital adjustment relating to this acquisition and the payment of direct costs.

Storey Carpets Ltd

£0.7m of deferred consideration was paid during the period relating to the acquisition of Storey Carpets Ltd on 1 May 2007.

ENDFR IFFIVREIAFIA

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Related Shares:

CPR.L