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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Carpetright Plc | LSE:CPR | London | Ordinary Share | GB0001772945 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 4.955 | 4.85 | 5.08 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCPR
RNS Number : 2173J
Carpetright PLC
27 June 2017
Full Year results for the 52 weeks ended 29 April 2017
"Year of significant strategic progress - positive trading momentum re-established in second half, encouraging start to new financial year"
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Financial Highlights
Group
* Group revenue increased to GBP457.6m (2016: GBP456.8m).
* Underlying profit before tax of GBP14.4m (2016:
GBP18.3m), in line with market expectations.
* Year-end net debt position of GBP9.8m (2016: GBP1.1m)
reflects investment in the accelerated store
refurbishment programme.
* Separately reported items of GBP13.5m (2016: GBP5.5m),
primarily related to increased onerous lease cost
provisions on loss making-stores.
* Statutory profit before tax of GBP0.9m (2016: GBP12.8m).
UK
* Significant improvement in performance in the second
half - re-establishing trading momentum after a
difficult first six months.
* Like-for-like sales in the second half increased by
1.8% partially mitigating the decline of 2.8%
experienced in the first half, to give a full year
decline of 0.5% (2016: 2.8% growth).
* Underlying operating profit of GBP10.7m (2016:
GBP17.8m) with reduction reflecting sterling
depreciation impact and margin effect of measures to
address increased competition.
Rest of Europe
* Like-for-like sales growth of 2.5% (2016: 4.8%).
* Improvement in underlying operating profit to GBP5.7m
(2016: GBP2.5m).
Strategic progress
* Year of significant operational change and investment
- strategic plan on track.
* Accelerated store refurbishment programme with 47% of
the UK estate trading under the new brand identity by
period end. On track to complete remainder of UK
estate by end of 2018.
* Post-investment performance of refurbished estate
continues to be encouraging with like-for-like sales
up by 6.8% on average. (note 8)
* Hard flooring category achieving double digit sales
growth as it benefits from greater strategic focus.
* Focus on improving customer service delivering
stronger satisfaction metrics.
* Further progress made in reducing number of
underperforming stores:
o Net nine closures in the UK, reducing the estate to 426 stores, a space
reduction of 1.9%.
o In Rest of Europe, store base increased by a net one but trading space
was reduced by 2.8%.
* Rest of Europe refurbishment programme has been
extended to a further nine stores following a
successful trial.
Current Trading
* Encouraging start made to the new financial year
despite continued economic uncertainty.
* UK like-for-like sales grew by 2.0% for the seven
weeks to 17 June 2017 - with the refurbished stores
continuing to outperform the un-invested estate.
* Rest of Europe, like-for-like sales down 1.2%, on a
local currency basis over the same period, reflecting
the calendar shift of public holidays and a
disruption effect of refurbishing stores.
Commenting on the results Wilf Walsh, Chief Executive, said:
"I am pleased to report on a year of significant strategic progress, as we implemented a wide-ranging programme of investment and operational change, to refresh and update the Carpetright brand. Our strategy is on track and the positive response we have received from these initiatives has encouraged us to press ahead with plans to complete the refurbishment of the UK store estate by the end of 2018 and to extend the programme in the Rest of Europe.
"We have made an encouraging start to the new financial year, underpinned by the improving performance of our refurbished UK estate. While a challenging consumer environment and competitive landscape remain headwinds, we are confident the additional potential in our self-help initiatives will support an increase in market share."
Group financial summary
Reclassified
(note 4)
2017 2016
GBPm GBPm Change
---------------------------- ------- ------------- --------
BUSINESS PERFORMANCE
---------------------------- ------- ------------- --------
Group revenue (note 1) 457.6 456.8 0.2%
---------------------------- ------- ------------- --------
* UK 381.0 391.0 (2.6%)
---------------------------- ------- ------------- --------
* Rest of Europe 76.6 65.8 16.4%
---------------------------- ------- ------------- --------
Underlying operating
profit (note 2) 16.4 20.3 (19.2%)
---------------------------- ------- ------------- --------
* UK 10.7 17.8 (39.9%)
---------------------------- ------- ------------- --------
* Rest of Europe 5.7 2.5 128.0%
---------------------------- ------- ------------- --------
Underlying profit before
tax 14.4 18.3 (21.3%)
---------------------------- ------- ------------- --------
Underlying earnings per
share 16.4p 20.8p (21.2%)
---------------------------- ------- ------------- --------
Net debt (note 3) (9.8) (1.1) (8.7)
---------------------------- ------- ------------- --------
STATUTORY REPORTING
---------------------------- ------- ------------- --------
Separately reported items
(note 4) (13.5) (5.5)
---------------------------- ------- ------------- --------
Statutory profit before
tax 0.9 12.8 (93.0%)
---------------------------- ------- ------------- --------
Basic earnings per share 1.0p 14.9p (93.3%)
---------------------------- ------- ------------- --------
Notes
1. Revenue represents amounts payable by customers for goods and
services after deducting VAT and other charges.
2. 'Underlying' excludes separately reported items and related
tax.
3. Net debt is calculated as the total of cash-in-hand, or at
bank, offset by borrowings, finance leases and unamortised fees.
4. Certain prior year amounts, previously reported in underlying
performance, have been reclassified for consistency with the current
period presentation as separately reported items. This has no
impact on the Group's statutory reported profit before tax and
earnings per share. (see note 4 to the financial statements)
5. Sales represents amounts payable by customers for goods and
services before deducting VAT and other charges.
6. Like-for-like sales calculated as this year's sales compared
to last year's sales for all stores that are at least 12 months
old at the beginning of our financial year. Stores closed during
the year are excluded from both years. No account is taken of
changes to store size or introduction of third party concessions.
7. The 2017 accounting period represents trading for the 52 weeks
to 29 April 2017 (the year). The comparative period 2016 represents
trading for the 52 weeks to 30 April 2016 (the prior year).
8. Excludes stores refurbished in response to new local competitors. Including competition affected stores, like-for-like sales
increased by 5.0% on average post-investment.
Certain statements in this report are forward looking. Although the Group believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward looking statements. We undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.
Results presentation
Carpetright plc will hold a presentation to analysts at Citigate Dewe Rogerson, 3 London Wall Buildings, London Wall, London EC2M 5SY at 08:45 today.
Analysts unable to attend in person may listen to the presentation live at 08:45 by using the details below:
Telephone number: +44 (0) 20 3003 2666
Password: Carpetright
Webcast link: http://edge.media-server.com/m/p/i5pwwrbv
A copy of this statement can be found on our website www.carpetright.plc.uk
For further enquiries please contact:
Carpetright plc
Wilf Walsh, Chief Executive Officer
Neil Page, Chief Financial Officer
Tel: 01708 802000
Citigate Dewe Rogerson
Kevin Smith / Nick Hayns
Tel: 020 7638 9571
Forthcoming news flow:
Carpetright will release its first half trading update on 24 October 2017.
Notes to Editors
Carpetright plc is Europe's leading specialist floor coverings and beds retailer. Since the first store was opened in 1988 the business has developed both organically and through acquisition within the UK and other European countries. The Group is organised into two geographical regions, the UK and the Rest of Europe (comprising The Netherlands, Belgium and the Republic of Ireland).
STRATEGIC UPDATE
As we move into the third year of our transformation of Carpetright, we
are maintaining the consistency of our strategic direction which has been
to focus exclusively on:
* Who we are - our stores, the brand and our people
* What we sell - an unrivalled choice of floorcoverings
* How we sell - making the process easy with unbeatable value
* Where we sell - multi-channel convenience and
improving the quality of the store portfolio
This proven strategy is supported by clear, uncomplicated principles that
are applied consistently throughout the business, specifically:
* We are honest and straightforward
* We care about customers and colleagues
* We make it easy
We review the progress made across the year in each area of strategic
focus in the following sections:
Who we are
Our principles are the essence of our Group-wide 'We are Carpetright' initiative, which is driving cultural change throughout the business with the aim of updating customers' perceptions of the brand. This work is central to our success, as we modernise the store estate and the way we do things around here.
Refurbishment of the store estate and introduction of our new branding and store-fit was a major focus during the year. By the end of April 2017, we had 199 stores in the UK trading under the new brand identity, some 47% of the estate, completing 160 refurbishments during the year, more than our original target having accelerated the programme twice in the course of the period. This work ranged from introducing new signage and a sample area for carpet in stores that make a smaller profit, through to full refurbishment of larger, highly profitable stores, or stores where we are tackling new competition. In these latter two cases, the introduction of our new 'Graphite' store-fit is proving highly successful in regenerating sales growth. As a group, refurbished stores delivered like-for-like sales growth of 6.8% in the final quarter of the year, markedly higher than the un-invested estate (including stores refurbished expressly to meet new competition this figure would be 5.0% growth). This gives us confidence to press ahead with the investment programme. We are aiming to have completed the remainder of the UK estate with some form of additional investment (at a minimum, re-branding with the new identity) by December 2018.
We have a similar programme underway to address the un-invested estate in the Netherlands and Belgium. As at the end of April 2017, we had refurbished an initial nine stores and they have achieved excellent sales growth post-refurbishment. We see this as a significant opportunity to increase share and profitability and are in the process of refurbishing a further twelve stores by the end of July 2017. If we can achieve similar levels of sales growth, we will look to accelerate the programme across the remaining stores in the Netherlands and Belgium during the coming months.
Further improving our reputation and being readily identified as a brand that customers can trust is vital to Carpetright's future success. Our recruitment of Lucy Alexander, previously a presenter on BBC TV's cult home improvement programme 'Homes under the Hammer', as Carpetright Brand Ambassador in the summer of 2016 has been a key initiative in this area. We have supported this move with extensive brand sponsorship on UKTV featuring Lucy, who is a credible home improvement personality. Customer research shows this activity is yielding positive results on brand metrics such as awareness, trust and consideration.
Equally, Carpetright achieving 'Which? Trusted Trader' status for our recommended fitting service is another important element to improving brand perception and 'Making it Easy'. This standard gives potential customers the comfort that the final and most important part of the customer journey, the fitting, and that "ta da" moment, is going to be carried out by carefully selected and properly assessed trades people. 'Who we are' also incorporates our new colleague uniform which was successfully rolled out last year to give teams a comfortable, contemporary identity.
It also covers our culture and the way we train and talk with our colleagues. To this end we have introduced 'Fuse', which is a brand new internal training and communications tool, built around a single platform for mobile, social and programme learning and development as well as internal communications. The training element covers everything from "the basics", through product knowledge, as well as customer service and selling skills. It is also a tool to encourage ongoing management development and Fuse will be at the heart of our launch of a Carpetright Managers' Academy in 2017.
Video based communication offers a much more dynamic live update for store colleagues. The 'Staff Room' element on Fuse allows for open feedback from staff that will help us improve, by being honest and straightforward with each other and accepting of constructive criticism.
What we sell
The floorcoverings market does not stand still. Through market research we know consumer tastes are changing and they tell us what they want to buy for their home. The UK market is currently split 60/40 on carpets versus hard flooring, while Carpetright, because of its heritage, has a split of 90/10 in favour of carpet.
Our move over recent years to increase our share of the hard flooring market is already well documented. We have enjoyed particularly good growth in hard flooring as we have introduced ranges into all of our stores, with a clear product and price architecture, for customers from budget spend right through to GBP100 per square metre and over, with sufficient cross-over between categories to allow customers to trade up if they choose:
- Vinyl - from roll stock, for the take away and DIY market, to premium quality sample vinyl which is specifically ordered for professional fitting;
- Laminate - again in the budget, DIY take away form or in a new range of sampled product for third party fitting;
- Luxury Vinyl Tile (LVT) has now been introduced across the estate, becoming our fastest growing category (albeit from a low base), offering customers the natural look of wood or stone but with the features and benefits of easy to maintain vinyl; and
- Engineered Wood - a superior and more stable product than traditional solid wood, supplied to us by Kahrs, the leading Swedish supplier of environmentally friendly and sustainable flooring products
In carpet, we continue to strengthen our range authority as market leader, with a focus on all budgets, from GBP2.99 per square metre roll stock in our 'Essentials' range through to outstanding quality wool carpets from British manufacturers such as Westex, Brintons and Ulster.
We have identified an opportunity to create exclusives that allow for differentiation of Carpetright versus the independent sector and our national competitors. In this space the 'House Beautiful Collection' has been an outstanding success with the recent addition of a new velvet-style polyamide twist. Exclusive ranges accounted for 3.2% of sales in the final quarter of the year, up from 1.9% in the comparable prior year period.
We will be launching a new collection of products under the popular and well recognised 'Country Living' brand before the end of 2017 in collaboration with this leading lifestyle magazine.
Our buying team has also begun to take a more creative and proactive approach to anticipating interiors fashion trends, with the introduction of more design-led products that customers currently favour, including more bright colour options alongside blue, blush tones and dusty pastels.
In the UK, we began selling beds in 2009 and the business has grown to represent 9.2% of total sales, with beds being merchandised in 253 of our stores. Whilst we have delivered sales growth in the year, we believe a significant opportunity exists to grow this category faster. Through a programme of significant re-ranging and merchandising, supported by additional training, we are confident of delivering a step change in the sales contribution from the bed category, starting in the current financial year.
In the Netherlands and Belgium, we have re-introduced a range of curtains and blinds. This range is now available in 88 stores and represented 4.7% of the total sales mix by the end of the financial year.
How we sell
As part of our plan to keep it simple, the performance of our store colleagues is measured on a small number of straightforward KPIs designed to increase the quality of the sale, both in terms of customer service and value. The success of this programme is demonstrated by our average transaction values, which grew by 11% in the year.
As a simple guide, where a store team delivers 15% or more interest free credit participation, 50% plus underlay penetration and 75% or more "highly satisfied" responses under 'Do We Measure Up?' surveys, they can, on average, expect to deliver like-for-like sales growth 3% ahead of the total UK estate.
As always, our biggest challenge is achieving consistency and narrowing variance between the very best performing stores and under-performing units. Customer service is central to this effort, to ensure we deliver an enviable reputation for service in what is, potentially, a lengthy customer journey with lots of moving parts. Our Net Promoter score has improved significantly to 75% from 71% across the year. As it stands, 96% of our customers are at least "satisfied", as are 91% who experience our Home Flooring Surveyors and 85% of those who deal with recommended fitters. We remain focused on driving these metrics higher, particularly those in the latter area where we should be getting higher scores.
In simple terms, "highly satisfied" customers spend 3.4 times more on average and are significantly more likely to recommend.
Across the Group, customer needs and technology changes are continuing to drive the need to deliver a fully integrated omnichannel shopping experience. We plan to invest in technology that enables our customers to interact with us throughout their buying journey on any device or physical outlet; uses information to make decisions easy for the customer; delivers a simple environment for our colleagues with the right tools; and establishes robust data security and controls. In 2016, we invested in upgrading our store hardware and networks in the UK and are now extending this to the Netherlands and Belgium. We will also be implementing an integrated customer relationship management system in the UK within the next twelve months.
Where we sell
In Carpetright we have too many stores on too many unsustainable long leases that severely impact our overall profitability. We continue to address this challenge with vigour.
In the UK, the last twelve months was another year of progress as we opened eight stores, closed 17, including three relocations, to leave a total of 426 stores (2016: 435 stores). The new stores, opened in areas where we have long been under-represented, including Bath, Leeds and Liverpool, and have all delivered encouraging initial performances. As a result, we now trade from 3,691,000 sq ft of retail space in the UK (2016: 3,763,000 sq ft), a 1.9% reduction year-on-year.
Our progress in the last five years on improving the quality of our UK store estate and reducing overall store numbers has been significant and we aim to have reduced the total to below 400 stores by this time next year. Where we close or downsize stores, we are almost always able to redeploy existing staff locally.
We continue to take a robust view at lease renewal, which provides the opportunity to secure lower rents for future years. Within the next five years 48% of the UK estate has a lease renewal scheduled, providing further opportunity to reduce the fixed store operating costs or to exit underperforming stores. As at April 2017, the average length of lease had fallen to 5.5 years (2016: 6.3 years).
In the Rest of Europe, we opened six stores and closed five, including four relocations during the year, to leave a total of 138 stores (2016: 137 stores). Consequently, we now trade from 1,360,000 sq ft of retail space (2016: 1,387,000 sq ft), a 2.0% reduction year-on-year. In line with the UK activity, discussions are being held with landlords in respect of lease renewals and this process is delivering rental reductions. The potential to secure reductions is generally dictated by the average length of lease remaining; with this being 2.8 years (2016: 2.6 years) in the Netherlands and 1.8 years (2016: 2.3 years) in Belgium. In the Republic of Ireland this period is 8.1 years (2016: 9.1 years), reflecting the agreement of long-term deals during the expansion into this market in the period from 2001 to 2008.
Our progress in this area is delivering an improvement in profitability. Whilst this activity can incur a cash cost to exit leases, either by assigning to new tenants or returning the property to landlords, by taking this robust approach we are confident we are getting an acceptable financial return.
We are also acutely aware of the growing impact of digital on our business, both now and in the medium term. Sales, where the customer journey originated online, increased by 13.4% during the year, along with sample and appointment requests up around 20%. Over the past twelve months we have seen visits to the website increase by 14%, a reduction in our bounce rate due to improvements in the design, and pure online sales increase by 74%. Website revenue is now the equivalent of a top turnover store.
Initiatives delivered during the year include:
- introducing the Carpetright 'Visualiser', giving the customer the opportunity to upload photos of their rooms and see how their choice of new floorcovering will enhance them by trying different product across our extensive ranges;
- blogs designed to enhance consumer knowledge including decorating tips and trends with Diana Civil, a leading interior stylist;
- practical videos on how to choose products, measure a room, stain removal and other tips to enhance our authority as market leaders in the sector;
- online guide with Lucy Alexander as to how we make it "easy with every step"; - ability to book a visit with our Home Flooring Surveyors online; and - ability to pay for products online using interest free credit
Competition
The floorcoverings market in the UK has long been a highly competitive environment, with the Group facing competition from a vibrant independent sector and from a number of national and regional floorcoverings retailers. However, competition intensified significantly during the year when a new national competitor rolled out an aggressive store opening programme and a number of smaller players also began competing more actively at a local level.
Our strategy in response to competitor activity is simple and it applies in a variety of locations, specifically:
- we refurbish our store with our new 'Graphite' shop fit, effectively minimising the potential of any negative store environment factor;
- we ensure the team are appropriately resourced for taking on the challenge of a new competitor; and
- we introduce enhanced local promotions
While this impacted our profit performance, we firmly believe that the cost to the business of failing to meet the competitive challenge would be considerably greater.
Significantly, while a new competitor inevitably steals some sales in the first year of operation, once we anniversary their store opening we are seeing like-for-like sales growth well ahead of the main estate. We believe that this encouraging performance demonstrates that the action we are taking is working.
Current Trading
We have made an encouraging start to the new financial year, underpinned by the improving contribution from our own initiatives.
In the UK like-for-like sales grew 2.0% for the seven weeks to 17 June 2017 - with the refurbished stores continuing to outperform the un-invested estate.
In the Rest of Europe, like-for-like sales were down 1.2%, on a local currency basis over the same period, reflecting the calendar shift of public holidays and a disruption effect of refurbishing twelve stores.
Summary
Our primary external challenges over the past year were two-fold. First, the UK's decision to exit the European Union on 23 June 2016, saw Sterling depreciate dramatically against the Euro. Along with our competitors, this eventually made it necessary to raise some prices and we were able to mitigate this unexpected development in the second half of the year.
Second, as discussed above, a new entrant came to the market with an aggressive store opening programme, to which we are responding robustly.
Against this backdrop, we will not be diverted from our plan to transform the Carpetright business. The four main planks of our strategy remain valid and cover all elements of the customer journey as well as tackling our legacy property issues. Responding to intensified competition has sharpened us up and we are relishing the challenge in what may well become a more difficult trading environment, with ongoing uncertainty over consumer spending and inflationary pressures. We are confident that whatever the external environment we can increase our market share.
After a testing twelve months not lacking in excitement, I am grateful to the Board for their support and counsel and my thanks of course go to everyone in the store support offices in both Purfleet and Utrecht as well as our Regional and Divisional Managers across Europe.
My admiration for our store managers and sales colleagues who serve the customer day in, day out knows no bounds. Everyone in the store support offices does an 'in-store day' once a year, normally during the relatively quiet December period when we can cause least havoc. Whether our sales colleagues are in Edinburgh, Salford, Exeter, Rotterdam, Bruges or Cork, they are all doing a demanding job and I am grateful for their hard work and dedication.
Our ongoing change of culture is still very much in the early stages but the way we train, communicate and reward our frontline staff remains a key priority in making sure we are the first choice for the floorcoverings consumer, every time.
We are Carpetright.
Wilf Walsh
Chief Executive Officer
26 June 2017
FINANCIAL REVIEW
A summary of the reported financial results for the year ended 29 April 2017 is set out below:
2017 2016 Change
GBPm GBPm
----------------------------- ------ ----- -------
Revenue 457.6 456.8 0.2%
Underlying operating profit 16.4 20.3 (19.2%)
Net finance charges (2.0) (2.0) 0.0%
Underlying profit before tax 14.4 18.3 (21.3%)
Separately reported items (13.5) (5.5)
Profit before tax 0.9 12.8 (93.0%)
Earnings per share (pence)
- underlying 16.4p 20.8p (21.2%)
- basic 1.0p 14.9p (93.3%)
Operating cash flow 7.7 13.3 (42.1%)
Net debt (9.8) (1.1) (8.7)
----------------------------- ------ ----- -------
Overview
Total Group revenue for the year increased by 0.2% to GBP457.6m, consisting a decline in the UK business of 2.6% offset by an increase of 16.4% in the Rest of Europe, with the latter impacted by foreign exchange rate movements. Our continued focus on rationalising and repositioning the store portfolio saw the Group open 14 stores and close 22 during the year, which gave a net decrease of eight stores, including seven relocations. The total store base numbered 564 at year end (2016: 572), with total store space declining by 1.9% to 5.1 million square feet during the period.
Group underlying operating profit decreased by 19.2% to GBP16.4m (2016: GBP20.3m), reflecting the impact of the significant depreciation of sterling during the first half of the year and the costs of measures to address intensified competition. This impacted sales and margin rate in the UK, but was partially offset by the benefit from closing underperforming stores, and a strengthening performance in our Rest of Europe business. Net finance charges were level with the prior year at GBP2.0m. These factors combined to generate underlying profit before tax of GBP14.4m (2016: GBP18.3m), a 21.3% decrease on the prior year.
Separately reported items totalled GBP13.5m (2016: GBP5.5m), primarily costs associated with rationalising the store estate and a re-assessment of provisions held for onerous lease costs for loss-making stores following a strategic review of the portfolio.
When separately reported items are included, the statutory measure of profit before tax for the Group was GBP0.9m (2016: GBP12.8m) and basic earnings per share of 1.0p (2016: 14.9p).
The Group ended the year with net debt of GBP9.8m (2016: GBP1.1m), reflecting an acceleration of the store refurbishment programme and the cash costs of rationalising the store portfolio.
UK financial review
The key financial results for the UK were:
2017 2016 Change
GBPm GBPm
---------------------------- ------- ------- ---------
Revenue 381.0 391.0 (2.6%)
Like-for-like sales (0.5%) 2.8%
Gross profit 225.6 237.3 (4.9%)
Gross profit % 59.2% 60.7% (1.5ppts)
Costs (214.9) (219.5) 2.1%
Costs % 56.4% 56.1% (0.3ppts)
Underlying operating profit 10.7 17.8 (39.9%)
Underlying operating profit
% 2.8% 4.6% (1.8ppts)
---------------------------- ------- ------- ---------
The UK portfolio is now as follows:
Store numbers Gross Sq ft
('000)
------------- ------------------------------------------ --------------------
30 April Openings Closures 29 April 30 April 29 April
2016 2017 2016 2017
------------- --------- --------- --------- --------- --------- ---------
Standalone 420 8 (14) 414 3,734 3,669
Concessions 15 0 (3) 12 29 22
------------- --------- --------- --------- --------- --------- ---------
Total 435 8 (17) 426 3,763 3,691
------------- --------- --------- --------- --------- --------- ---------
In tough trading conditions, like-for-like sales in the second half of the year increased by 1.8% partially mitigating the decline of 2.9% experienced in the first half, to give a full year decline of 0.5%.
We opened eight stores and closed 17 stores during the period, including three relocations. This translated into a net space decline of 72,000 sq ft, a decrease of 1.9%. At period end there were 253 stores trading with a bed department (2016: 246). Sales within the beds category now represent 9.2% of the sales mix (2016: 9.0%).
Gross profit decreased by GBP11.7m to GBP225.6m, representing 59.2% of sales, a decrease of 150 basis points. This decline in margin rate reflects a combination of:
- adverse impact of 210 bps from the fall in Sterling to Euro exchange rate on imported goods for resale. The average EUR/GBP rate in 2017 was 12% lower at EUR1.20 (2016: EUR1.36);
- measures to address intensified competition including a 'free fitting' offer in selected stores, an adverse impact of 60bps;
- a dilutive impact of 30bps from product categories which attract lower average gross margins; and
- a favourable impact of 150bps from the improvement in underlying floorcovering margin through improved sourcing, promotional planning and selected price increases.
The total UK cost base decreased by 2.1% compared with the prior year to GBP214.9m (2016: GBP219.5m). Costs as a percentage of sales were 56.4%, a marginal uplift from 56.1% in the prior year, reflecting the operational gearing of the business. The movement in costs was a combination of:
- store payroll costs decreased by GBP1.7m to GBP59.7m (2016: GBP61.4m) owing to a reduction in headcount from store closures, combined with a decline in sales commission and bonus costs from the fall in sales;
- store occupancy costs (rent, rates, other & depreciation) decreased by 1.0% to GBP115.2m (2016: GBP116.4m), primarily the impact of the store closures, offset in part by an increase in depreciation from the refurbishment programme; and
- marketing and central support costs decreased by 4.1% to GBP40.0m (2016: GBP41.7m), primarily the result of lower performance related cost, partially offset by higher advertising costs.
The combination of the above factors resulted in underlying operating profit decreasing by 39.9% to GBP10.7m.
Rest of Europe financial review
The key financial results for the Rest of Europe were:
2017 2016 Change Change
GBPm GBPm (Reported (Local
currency) currency)
--------------------- ------ ------ ---------- ----------
Revenue 76.6 65.8 16.4% 2.0%
Like-for-like sales 2.5% 4.8%
Gross profit 43.8 36.9 18.7% 3.9%
Gross profit % 57.2% 56.1% 1.1ppts
Costs (38.1) (34.4) (10.8%) 2.8%
Costs % 49.7% 52.3% 2.5ppts
Underlying operating
profit 5.7 2.5 128.0% 98.5%
Underlying operating
profit % 7.4% 3.8% 3.6ppts
--------------------- ------ ------ ---------- ----------
The Rest of Europe portfolio is now as follows:
Store numbers Gross Sq ft
('000)
------------- ------------------------------------------ --------------------
30 April Openings Closures 29 April 30 April 29 April
2016 2017 2016 2017
------------- --------- --------- --------- --------- --------- ---------
Netherlands 93 5 (4) 94 985 975
Belgium 23 1 (1) 23 245 228
Republic
of Ireland 21 0 0 21 157 157
------------- --------- --------- --------- --------- --------- ---------
Total 137 6 (5) 138 1,387 1,360
------------- --------- --------- --------- --------- --------- ---------
Macroeconomic indicators for our markets in Belgium and the Republic of Ireland remained fragile throughout the year, however, the Netherlands experienced a recovery in market conditions with an increase in reported consumer confidence and encouraging economic indicators, such as the number of housing transactions, fuelling demand.
In local currency terms, the three businesses combined to produce an increase in revenue of 2.0% on the prior year. The combined like-for-like sales increased by 2.5%. A contributor to growth has been the re-introduction of a curtains & blinds offer into the Netherlands and Belgium. After exchange rate movements, total revenue increased by 16.4% in reported currency.
The number of stores increased by one during the year, having opened six and closed five during the period, including four relocations. The associated trading space reduced by 2.0%.
Gross profit percentage increased 110 basis points to 57.2%, resulting principally from improved supplier terms and non-recurring clearance activity in the prior year, offset in part by investment in promotions to drive top line sales volumes and the impact of growth in lower margin product categories. The combination of volume and rate improvements led to cash gross profit in local currency terms increasing by 3.9%. After taking into account exchange rate movements this resulted in an increase of 18.7% in reported currency.
Operating costs in local currency reduced by 2.8%, primarily the result of reduced occupancy costs related to the downsizing and relocating stores. This was reflected in the decline in the costs as a percentage of sales to 49.7%, a reduction on the prior year figure of 52.3%. In reported currency, costs increased by 10.8% to GBP38.1m.
The net result was a year-on-year improvement in underlying operating profit of 98.5% in local currency, which translated to an increase of 128.0% in reported currency of GBP3.2m to GBP5.7m (2016: GBP2.5m).
Group financial review
Net finance costs and taxation
Net finance charges for the period were unchanged at GBP2.0m (2016: GBP2.0m).
The effective tax rate for the year was 24.3% (2016: 21.3%), a variance of 4.3% compared to the UK corporation tax rate of 20.0% due to the effects of non-deductible items, overseas tax rates and other permanent differences. The 3.0% increase from last year's rate is predominantly due to lower profitability in the UK with non-deductible items remaining unchanged, along with improved profitability in Europe being taxed at higher rates.
Separately reported items
The Group makes certain adjustments to statutory profit measures in order to help investors understand the underlying performance of the business. These adjustments are reported as separately reported items. The Group recorded a net charge of GBP13.5m (2016: GBP5.5m).
Reclassified*
2017 2016
GBPm GBPm
---------------------------------------- ------ -------------
Underlying profit before tax 14.4 18.3
Property related
Loss on disposal of properties (1.9) (3.6)
Freehold property reversal/(impairment) 2.2 (0.4)
Store asset (impairment)/reversal (0.4) 0.1
Net onerous lease charge (11.0) (0.6)
Strategy
Store refurbishment - asset write-offs (1.4) -
Other
Share based payments (1.0) (1.0)
Total separately reported items (13.5) (5.5)
---------------------------------------- ------ -------------
Statutory profit before tax 0.9 12.8
---------------------------------------- ------ -------------
* The charge reported in the 2016 annual report and accounts was GBP4.5m. For consistency with the current period presentation we have reclassified GBP1.0m relating to share based payments. This has no impact on the Group's statutory reported profit before tax and earnings per share. The reclassified separately reported charge for 2016 is therefore GBP5.5m.
A net loss of GBP1.9m was made on the disposal of 25 (22 trading and 3 onerous) properties during the year (2016: GBP3.6m loss), principally a combination of surrender premiums being paid to exit loss-making stores and asset write-offs.
A number of investment properties that have previously been impaired are in receipt of rental income from independent third party tenants. As a result, GBP2.2m of impairment against these locations is no longer required and has been reversed (2016: GBP0.4m charge).
Leasehold store impairment testing during the year has identified a number of stores where the anticipated future performance does not support the carrying value of the assets. As a result, a charge of GBP0.4m has been incurred in respect of the impairment of assets associated with these stores (2016: GBP0.1m credit).
At 30 April 2016 there were eleven vacant properties in the UK and two in the Republic of Ireland classed as onerous leases against which we carried a provision. During the year we disposed of three of these locations. This was offset by three trading stores being closed and added to this group. Following a strategic review of the store portfolio in February 2017, we have made a revised assessment of the onerous lease costs for loss-making stores. The net impact of these judgments is a charge of GBP11.0m (2016: GBP0.6m credit).
The value of assets written off during the store refurbishment programme amounts to GBP1.4m during the year. Given the quantum, and in keeping with historical treatment, such write-offs have been reported as separately reported items.
In light of the variable and non-cash nature of employee share based payments, these have been classified as separately reported items. This also allows for greater visibility of these charges in the accounts. A charge of GBP1.0m was incurred during the year (2016: GBP1.0m).
The cash flow impact of separately reported items was GBP4.0m outflow in the year.
Earnings per share
Underlying earnings per share were 16.4p (2016: 20.8p), reflecting the fall in underlying profitability of the Group.
Basic earnings per share were 1.0p (2016: 14.9p). The reduction in basic earnings per share is less in percentage terms than the reduction in underlying earnings per share, a result of a deferred tax credit of GBP0.6m associated with the fall in the UK corporation tax rate to 17% being taken as a separately reported tax credit.
Dividend
The Board continues to prioritise the use of cash for the acceleration of the strategy by investing further in the existing store estate, while also reducing the fixed occupancy costs as quickly as possible. As a result, it has taken the decision not to pay a final dividend (2016: nil). Based on our current outlook, we do not expect this position to change in the current financial year.
Balance sheet
The Group had net assets of GBP78.0m at the end of the period (2016: GBP74.0m), a year-on-year increase of GBP4.0m.
29 April 30 April
2017 2016
----------------------------------- -------- --------
Freehold & long leasehold property 60.3 61.5
Other non-current assets 116.6 107.5
Stock 41.1 41.6
Trade & other current assets 25.8 20.0
Creditors < 1 year (85.6) (91.1)
Creditors > 1 year (67.2) (62.2)
Net (debt)/cash (9.8) (1.1)
Pension deficit (3.2) (2.2)
Net assets 78.0 74.0
----------------------------------- -------- --------
During the period, two freehold property disposals were completed. The Group owns a significant property portfolio, most of which is used for retail purposes. The carrying values are supported by a combination of value-in-use and independent valuations.
As a consequence of managing the estate to reduce square footage, eliminate store catchment overlap and improve the quality of our store base on realistic rental deals, the operating lease liabilities have reduced significantly to GBP531.9m (2016: GBP599.3m).
Cash flow
The Group's net debt at 29 April 2017 was GBP9.8m, an adverse movement of GBP8.7m (2016: GBP1.1m debt).
This increase in debt was driven by a combination of the decline in the underlying operating profit performance; net expenditure of GBP2.2m on exiting operating leases; cash outflow of GBP5.2m related to previously made provisions; contributions of GBP0.9m to closed defined benefit pension schemes; and an increase of GBP13.6m in working capital, partially offset by a decrease in stock of GBP1.0m.
The increase in working capital was attributable to a combination of an increase in debtors (driven by the seasonal impact of a later Easter and the longer lead times on newly introduced product categories); a decrease in creditors associated with a combination of lower activity levels and a reduction in performance based costs (the result of lower level of profitability); increase in prepayments due to timing differences; and amortisation of deferred income relating to property incentives.
The resulting net inflow of cash generated by operations of GBP7.7m was offset by net capital expenditure, net interest paid, tax paid and other movements (primarily exchange differences) totalling GBP16.2m, resulting in free cash outflow of GBP8.5m (2016: GBP1.4m outflow).
The Group's average net debt was GBP10.2m over the period (2016: GBP7.1m).
2017 2016
GBPm GBPm
------------------------------------- ------ -----
Underlying operating profit 16.4 20.3
Depreciation & other non-cash items 12.2 12.5
Decrease/(Increase) in stock 1.0 (7.0)
(Increase) in working capital (13.6) (4.3)
Net expenditure on exit of operating
leases (2.2) (2.2)
Contributions to pension schemes (0.9) (0.9)
Provisions paid (5.2) (5.1)
------------------------------------- ------ -----
Operating cash flows 7.7 13.3
Net interest paid (1.3) (2.0)
Corporation tax paid (0.9) (3.0)
Net capital expenditure (14.0) (9.7)
------------------------------------- ------ -----
Free cash flows (8.5) (1.4)
Other (0.2) (0.2)
------------------------------------- ------ -----
Movement in net debt (8.7) (1.6)
Opening (net debt)/cash (1.1) 0.5
------------------------------------- ------ -----
Closing net debt (9.8) (1.1)
------------------------------------- ------ -----
Gross capital expenditure was GBP17.4m (2016: GBP11.9m), with the majority of this relating to the store refurbishment programme and opening new stores. After allowing for proceeds from freehold property disposals, net capital expenditure was GBP14.0m (2016: GBP9.7m).
2017 2016
GBPm GBPm
------------------------------------------ ------ ------
Refurbishment & relocations (12.7) (5.9)
New stores (1.6) (0.6)
IT (1.7) (4.0)
Support offices & warehouse (1.4) (1.4)
------------------------------------------ ------ ------
Gross capital expenditure (17.4) (11.9)
Proceeds from freehold property disposals 3.4 2.2
------------------------------------------ ------ ------
Net capital expenditure (14.0) (9.7)
------------------------------------------ ------ ------
Current liquidity
In April 2015, the Group completed a refinancing arrangement of its principal facilities, providing GBP58.0m of debt capacity split between a revolving credit facility (RCF) and multi-option facilities (principally overdrafts) in a mixture of Sterling and Euro currencies. In December 2015, the Group elected not to renew its EUR5.0m multi-option facility in Belgium thereby saving non-utilisation fees. This action reduced the Group's total facilities in GBP terms to GBP54.7m, of which the main GBP45.0m RCF in the UK matures in July 2019. The facilities contain financial covenants which are believed to be appropriate in the current economic climate and tested on a quarterly basis, against which the Group monitors compliance.
Gross bank borrowings at the balance sheet date were GBP20.1m (FY16: GBP7.1m), being a combination drawn down from overdraft and revolving credit facilities. The Group had further undrawn facilities of GBP34.4m at the balance sheet date. In addition, the Group held gross cash balances of GBP12.5m. The combination of these resulted in net debt, before finance leases, of GBP7.6m, providing total headroom against facilities of GBP46.9m. With the addition of GBP2.2m of finance leases (2016: GBP2.3m), the Group closed the period on GBP9.8m of net debt, being GBP8.7m higher than year end 2016.
Pensions
At 29 April 2017, the IAS 19 net retirement benefit deficit was GBP3.2m (2016: GBP2.2m). The discount rate was 2.5% (2016: 3.5%), reflecting prevailing corporate bond rates. This lower discount rate resulted in an increase in the schemes' liabilities and more than offset the increase in market value of the plan's assets and additional company contributions.
The scheme was closed to future accrual with effect from 1 May 2010. The Company agreed a recovery plan with the Trustees in 2015 and this will be reviewed following the completion of the triennial valuation, which will be performed as at 5 April 2017.
Neil Page
Chief Financial Officer
26 June 2017
Consolidated income statement
for 52 weeks ended 29 April 2017
Group 52 weeks
to 30 April
Group 52 weeks 2016
to 29 April 2017 Reclassified*
--------------------------------- ---------------------------------
Separately Separately
Underlying reported Underlying reported
performance items Total performance items Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------------ ---------- ------- ------------ ---------- -------
Revenue 457.6 - 457.6 456.8 - 456.8
Cost of sales (188.2) - (188.2) (182.6) - (182.6)
------------------------------- ------------ ---------- ------- ------------ ---------- -------
Gross profit 269.4 - 269.4 274.2 - 274.2
Administration expenses (255.4) (9.3) (264.7) (255.8) (1.9) (257.7)
Other operating income/(loss) 2.4 (4.2) (1.8) 1.9 (3.6) (1.7)
------------------------------- ------------ ---------- ------- ------------ ---------- -------
Operating profit/(loss) 16.4 (13.5) 2.9 20.3 (5.5) 14.8
------------------------------- ------------ ---------- ------- ------------ ---------- -------
Finance costs (2.0) - (2.0) (2.0) - (2.0)
------------------------------- ------------ ---------- ------- ------------ ---------- -------
Profit/(loss) before
tax 14.4 (13.5) 0.9 18.3 (5.5) 12.8
Tax (3.3) 3.1 (0.2) (4.2) 1.5 (2.7)
------------------------------- ------------ ---------- ------- ------------ ---------- -------
Profit/(loss) for
the financial period
attributable to equity
shareholders of the
Company 11.1 (10.4) 0.7 14.1 (4.0) 10.1
------------------------------- ------------ ---------- ------- ------------ ---------- -------
Basic earnings per
share (pence) 16.4 1.0 20.8 14.9
Diluted earnings per
share (pence) 1.1 14.9
------------------------------- ------------ ---------- ------- ------------ ---------- -------
* Certain prior year amounts, previously reported in underlying performance, have been reclassified for consistency with the current period presentation as separately reported items. This has no impact on the Group statutory reported profit before tax and earnings per share (see note 4).
Consolidated statement of comprehensive income
for 52 weeks ended 29 April 2017
Group Group
52 52
weeks weeks
to to
29 30
April April
2017 2016
GBPm GBPm
-------------------------------------------- ------ ------
Profit for the financial period 0.7 10.1
--------------------------------------------- ------ ------
Items that may not be reclassified
to the income statement:
Re-measurement of defined benefit plans (1.8) 1.1
Tax on items that may not be reclassified
to the income statement 0.1 (0.4)
--------------------------------------------- ------ ------
Total items that may not be reclassified
to the income statement (1.7) 0.7
--------------------------------------------- ------ ------
Items that may be reclassified to the
income statement:
Exchange gains 4.3 3.2
--------------------------------------------- ------ ------
Total items that may be reclassified
to the income statement 4.3 3.2
--------------------------------------------- ------ ------
Other comprehensive income for the
period 2.6 3.9
--------------------------------------------- ------ ------
Total comprehensive income for the
period attributable to equity shareholders
of the Company 3.3 14.0
--------------------------------------------- ------ ------
The notes on pages 24 to 30 form an integral part of this consolidated financial information.
Consolidated statement of changes in equity
for 52 weeks ended 29 April 2017
Capital
Share Share Treasury redemption Translation Retained
capital premium shares reserve reserve earnings Total
Group GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- -------- -------- -------- ----------- ----------- --------- -----
At 2 May 2015 0.7 17.4 (0.4) 0.1 0.1 41.6 59.5
Profit for the period - - - - - 10.1 10.1
Other comprehensive
income for the financial
period - - - - 3.2 0.7 3.9
-------------------------- -------- -------- -------- ----------- ----------- --------- -----
Total comprehensive
income for the financial
period - - - - 3.2 10.8 14.0
-------------------------- -------- -------- -------- ----------- ----------- --------- -----
Issue of new shares - 0.4 - - - - 0.4
Purchase of own shares
by employee benefit
trust - - (0.9) - - - (0.9)
Share based payments
and related tax - - - - - 1.0 1.0
-------------------------- -------- -------- -------- ----------- ----------- --------- -----
At 30 April 2016 0.7 17.8 (1.3) 0.1 3.3 53.4 74.0
-------------------------- -------- -------- -------- ----------- ----------- --------- -----
Profit for the period - - - - - 0.7 0.7
Other comprehensive
income for the financial
period - - - - 4.3 (1.7) 2.6
-------------------------- -------- -------- -------- ----------- ----------- --------- -----
Total comprehensive
income for the financial
period - - - - 4.3 (1.0) 3.3
-------------------------- -------- -------- -------- ----------- ----------- --------- -----
Purchase of own shares
by employee benefit
trust - - (0.3) - - - (0.3) Share based payments and related tax - - - - - 1.0 1.0 -------------------------- -------- -------- -------- ----------- ----------- --------- ----- At 29 April 2017 0.7 17.8 (1.6) 0.1 7.6 53.4 78.0 -------------------------- -------- -------- -------- ----------- ----------- --------- -----
Consolidated balance sheet
for as 32 April 2017
Group Group
2017 2016
GBPm GBPm
-------------------------------------- ------- -------
Assets
Non-current assets
Intangible assets 57.3 57.1
Property, plant and equipment 102.0 95.0
Investment property 15.3 14.5
Investment in subsidiary undertakings - -
Deferred tax assets 1.9 1.9
Trade and other receivables 0.4 0.5
--------------------------------------- ------- -------
Total non-current assets 176.9 169.0
--------------------------------------- ------- -------
Current assets
Inventories 41.1 41.6
Trade and other receivables 25.8 20.0
Cash and cash equivalents 12.5 8.3
--------------------------------------- ------- -------
Total current assets 79.4 69.9
--------------------------------------- ------- -------
Total assets 256.3 238.9
--------------------------------------- ------- -------
Liabilities
Current liabilities
Trade and other payables (83.9) (88.8)
Obligations under finance
leases (0.1) (0.1)
Borrowings and overdrafts (20.1) (7.1)
Current tax liabilities (1.7) (2.3)
--------------------------------------- ------- -------
Total current liabilities (105.8) (98.3)
--------------------------------------- ------- -------
Non-current liabilities
Trade and other payables (34.5) (34.3)
Obligations under finance
leases (2.1) (2.2)
Provisions for liabilities
and charges (17.5) (12.6)
Deferred tax liabilities (15.2) (15.3)
Retirement benefit obligations (3.2) (2.2)
--------------------------------------- ------- -------
Total non-current liabilities (72.5) (66.6)
--------------------------------------- ------- -------
Total liabilities (178.3) (164.9)
--------------------------------------- ------- -------
Net assets 78.0 74.0
--------------------------------------- ------- -------
Equity
Share capital 0.7 0.7
Share premium 17.8 17.8
Treasury shares (1.6) (1.3)
Other reserves 61.1 56.8
--------------------------------------- ------- -------
Total equity attributable
to equity shareholders of
the Company 78.0 74.0
--------------------------------------- ------- -------
Consolidated statement of cash flows
for 52 weeks ended 29 April 2017
Group Group
52 52
weeks weeks
to to
29 30
April April
2017 2016
GBPm GBPm
----------------------------------- ------ ------
Cash flows from operating
activities
Profit /(loss)before tax 0.9 12.8
Adjusted for:
Depreciation and amortisation 12.2 12.5
Loss on property disposals 3.3 3.6
Separately reported non-cash
items 9.2 0.9
Share based payments 1.0 1.0
Net finance costs 2.0 2.0
------------------------------------ ------ ------
Operating cash flows before
movements in working capital 28.6 32.8
Decrease/(Increase) in inventories 1.0 (7.0)
(Increase)/decrease in trade
and other receivables (5.4) 6.2
(Decrease)/increase in trade
and other payables (8.2) (10.5)
Net expenditure on exit of
operating leases (2.2) (2.2)
Contributions to pension schemes (0.9) (0.9)
Provisions paid (5.2) (5.1)
------------------------------------ ------ ------
Cash generated by operations 7.7 13.3
Interest paid (1.3) (2.0)
Corporation taxes paid (0.9) (3.0)
------------------------------------ ------ ------
Net cash generated from operating
activities 5.5 8.3
------------------------------------ ------ ------
Cash flows from investing
activities
Purchases of intangible assets (0.6) (1.8)
Purchases of property, plant
and equipment and investment
property (16.8) (10.1)
Proceeds on disposal of property,
plant, equipment & investment
property 3.4 2.2
Interest received - -
----------------------------------- ------ ------
Net cash generated used in
investing activities (14.0) (9.7)
------------------------------------ ------ ------
Cash flows from financing
activities
Issue of new shares - 0.4
Purchase of treasury shares
by employee benefit trust (0.3) (0.9)
Repayment of finance lease
obligations (0.3) (0.2)
Movement in borrowings 13.0 -
------------------------------------ ------ ------
Net cash used in financing
activities 12.4 (0.7)
------------------------------------ ------ ------
Net increase/(decrease) in
cash and cash equivalents
in the period 3.9 (2.1)
Cash and cash equivalents
at the beginning of the period 1.2 2.9
Exchange differences 0.3 0.4
------------------------------------ ------ ------
Cash and cash equivalents
at the end of the period 5.4 1.2
------------------------------------ ------ ------
For the purposes of the cash flow statement, cash and cash equivalents are reports net of overdrafts repayable on demand. Overdrafts are excluded from the definition of cash and cash equivalents disclosed in the balance sheet and are included in borrowings and overdrafts under current liabilities.
Notes to the financial statements
1. General information
Carpetright plc ('the Company') and its subsidiaries (together, 'the Group') are retailers of floorcoverings and beds. The Company is listed on the London Stock Exchange and incorporated in England and Wales and domiciled in the United Kingdom. The address of its registered office is Carpetright plc, Purfleet Bypass, Purfleet, Essex, RM19 1TT.
The financial information on the following pages is derived from the full Group Financial Statements for the 52 week period to 29 April 2017 and does not constitute full accounts within the meaning of section 435 of the Companies Act 2006. The Groups Annual Report and Financial Statements on which the auditors have given an unqualified report which does not contain a statement under Section 498 (2) or (3) of the Companies Act 2006, will be delivered to the Registrar of Companies and posted to shareholders in due course.
The financial information for the 52 weeks to 30 April 2016 is derived from the Annual Report for that year which has been delivered to the Registrar of Companies. The independent auditors reported on these accounts, their report was unqualified and did not contain a statement under either section 498 (2) or (3) of the Companies Report 2006.
2. Principal accounting policies (abridged)
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented unless otherwise stated.
Basis of preparation
The consolidated financial statements of the Group and the Company are drawn up to within seven days of the accounting record date, being 30 April of each year. The financial period for 2017 represents the 52 weeks ended 29 April 2017. The comparative financial period for 2016 was 52 weeks ended 30 April 2016.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and International Financial Reporting Interpretations Committee (IFRS IC) interpretations as adopted by the European Union, together with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared on the historical cost basis except for pension assets and liabilities and share based payments which are measured at fair value.
Going concern
The Group meets its day to day working capital requirements through its bank facilities. The principal banking facility, which includes a revolving credit facility for GBP45 million, is committed to the end of July 2019. The Directors have considered the future cash requirements of the Group and are satisfied that the facilities are sufficient to meet its liquidity needs. The facilities are subject to a number of financial covenants, which remain unchanged, being a leverage covenant, a fixed charge cover covenant, a clear down covenant and a capital expenditure covenant. The fixed charge cover covenant is the most sensitive to changes in the Group's profitability. The Group was compliant with all covenants as at the year end.
The Directors have considered the expected performance of the business over at least the next twelve months and modelled this performance against the covenants that have been set. In addition, the Directors have considered the trading performance necessary to result in a breach of the banking covenants as well as mitigating factors that would be available and actionable in the event that the adverse performance became reality.
The Directors have also considered the net current liability position of the Group and given the supplier payment terms and the expected cash generation, the Directors confirm that the Group is forecast to be able to meet its liabilities as they fall due.
The Directors confirm that, after considering the matters set out above, they have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for a minimum of twelve months following the signing of these accounts. For this reason they continue to adopt the going concern basis in preparing the financial statements.
Foreign exchange rates
Financial assets and liabilities and foreign operations are translated at the following rates of exchange:
Euro Euro Zloty Zloty
2017 2016 2017 2016
------------- ----- ----- ----- -----
Average rate 1.20 1.36 5.21 5.77
Closing rate 1.19 1.28 5.01 5.62
------------- ----- ----- ----- -----
3. Segmental analysis
The Group's operating segments are determined on the basis of information provided to the Chief Operating Decision Maker - the Board of Directors - to review performance and make decisions. The reporting segments are:
-- UK; and -- Rest of Europe (comprising Belgium, the Netherlands and Republic of Ireland).
The reportable operating segments derive their revenue primarily from the retailing of floorcoverings and beds. Central costs of the Group are incurred principally in the UK. As such, these costs are included within the UK segment. Sales between segments are carried out at arm's length.
The segment information provided to the Board of Directors for the reportable segments for the 52 weeks ended 29 April 2017 is as follows:
52 weeks to
52 weeks to 30 April 2016
29 April 2017 *Reclassified
------------------------ ------------------------
UK Europe Group UK Europe Group
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ------- ------ ------- ------- ------ -------
Gross revenue 468.0 91.8 559.8 480.2 78.8 559.0
Inter-segment revenue (2.9) - (2.9) (5.0) - (5.0)
Gross Sales 465.1 91.8 556.9 475.2 78.8 554.0
Less cost of interest free credit (6.8) - (6.8) (5.1) - (5.1)
Less VAT and other sales tax (77.3) (15.2) (92.5) (79.1) (13.0) (92.1)
--------------------------------------- ------- ------ ------- ------- ------ -------
Revenues from external customers 381.0 76.6 457.6 391.0 65.8 456.8
--------------------------------------- ------- ------ ------- ------- ------ -------
Gross profit 225.6 43.8 269.4 237.3 36.9 274.2
--------------------------------------- ------- ------ ------- ------- ------ -------
Underlying operating profit 10.7 5.7 16.4 17.8 2.5 20.3
Separately reported items (11.9) (1.6) (13.5) (5.1) (0.4) (5.5)
--------------------------------------- ------- ------ ------- ------- ------ -------
Operating profit/(loss) (1.2) 4.1 2.9 12.7 2.1 14.8
Intercompany interest - - - 0.1 (0.1) -
Finance costs (2.0) - (2.0) (2.1) 0.1 (2.0)
--------------------------------------- ------- ------ ------- ------- ------ -------
Profit/(loss) before tax (3.2) 4.1 0.9 10.7 2.1 12.8
Tax 0.5 (0.7) (0.2) (1.9) (0.8) (2.7)
--------------------------------------- ------- ------ ------- ------- ------ -------
Profit/(loss) for the financial period (2.7) 3.4 0.7 8.8 1.3 10.1
--------------------------------------- ------- ------ ------- ------- ------ -------
Segment assets:
Segment assets 204.3 100.6 304.9 196.4 87.0 283.4
Inter-segment balances (28.7) (19.9) (48.6) (26.6) (17.9) (44.5)
--------------------------------------- ------- ------ ------- ------- ------ -------
Balance sheet total assets 175.6 80.7 256.3 169.8 69.1 238.9
--------------------------------------- ------- ------ ------- ------- ------ -------
Segment liabilities:
Segment liabilities (174.4) (52.5) (226.9) (163.1) (46.3) (209.4)
Inter-segment balances 19.9 28.7 48.6 17.9 26.6 44.5
--------------------------------------- ------- ------ ------- ------- ------ -------
Balance sheet total liabilities (154.5) (23.8) (178.3) (145.2) (19.7) (164.9)
--------------------------------------- ------- ------ ------- ------- ------ -------
Other segmental items:
Depreciation and amortisation 10.2 2.0 12.2 10.6 1.9 12.5
Additions to non-current assets 15.0 4.9 19.9 10.2 1.9 12.1
--------------------------------------- ------- ------ ------- ------- ------ -------
* Certain prior year amounts, previously reported in underlying performance, have been reclassified for consistency with the current period presentation as separately reported items. This has no impact on the Group statutory reported profit before tax and earnings per share (see note 4).
Carpetright plc is domiciled in the UK. The Group's revenue from external customers in the UK is GBP381.0m (2016: GBP391.0m) and the total revenue from external customers from other countries is GBP76.6m (2016: GBP65.8m). The total of non-current assets (other than financial instruments and deferred tax assets) located in the UK is GBP143.6m (2016: GBP141.7m) and the total of those located in other countries is GBP80.2m (2016: GBP69.9m).
Carpetright's trade has historically shown no distinct pattern of seasonality, with trade cycles more closely following macro-economic indicators.
4. Separately reported items
In order to provide shareholders with additional insight into the underlying performance of the business, items recognised in reported profit or loss before tax which, by virtue of their size and, or nature, do not reflect the Group's underlying performance, have been excluded from the Group's underlying results.
Group
Group 2016
2017 GBPm
GBPm Reclassified*
----------------------------------------- ------ --------------
Underlying profit before tax 14.4 18.3
Property related
Loss on disposal of properties (1.9) (3.6)
Freehold property reversal/(impairment) 2.2 (0.4)
Store asset (impairment)/reversal (0.4) 0.1
Net onerous lease charge (11.0) (0.6)
Strategy
Store refurbishment - asset write-offs (1.4) -
Other
Share based payments (1.0) (1.0)
Total (13.5) (5.5)
------------------------------------------ ------ --------------
Statutory profit before tax 0.9 12.8
------------------------------------------ ------ --------------
* In 2016 the charge reported in the annual report and accounts was GBP4.5m. For consistency with the current period presentation we have reclassified GBP1.0m relating to share based payments. This has no impact on the Group's statutory reported profit before tax and earnings per share. The reclassified separately reported items for 2016 is therefore GBP5.5m.
A net loss of GBP1.9m was made on the disposal of 25 (22 trading and three onerous) properties during the year (2016: GBP3.6m loss), principally a combination of surrender premiums being paid to exit loss-making stores and asset write-offs.
A number of investment properties that have previously been impaired are in receipt of rental income from independent third party tenants. As a result GBP2.2m of impairment against these locations is no longer required and has been reversed (2016: GBP0.4m charge).
Leasehold store impairment testing during the year has identified a number of stores where the anticipated future performance does not support the carrying value of the assets. As a result, a charge of GBP0.4m has been incurred in respect of the impairment of assets associated with these stores (2016: GBP0.1m credit).
At 30 April 2016 there were eleven vacant properties in the UK and two in the Republic of Ireland classed as onerous leases against which we carried a provision. During the year we disposed of three of these locations. This was offset with three trading stores being closed and added to this group. Following a strategic review of the store portfolio in February 2017, we have made a revised assessment of the onerous lease costs for loss-making stores. The net impact of these judgments is a net charge of GBP11.0m (2016: GBP0.6m).
The value of assets written off incurred during the strategic store refurbishment programme amounts to GBP1.4m during the year. In light of the quantum, and in keeping with historical treatment, such write-offs have been reported as separately reported items.
In light of the variable and non-cash nature of employee share based payments, these have been classified as separately reported items. This also allows for greater visibility of these charges in the accounts. A charge of GBP1.0m was incurred during the year (2016: GBP1.0m).
The cash flow impact of separately reported items was GBP4.0m outflow in the year.
The tax impact of separately reported items is a credit of GBP2.5m. The Group also recognised a GBP0.6m tax credit for the fall in the UK main rate of tax to 17%, which has also been included in separately reported items.
5. Tax
Group Group
2017 2016
(i) Analysis of the charge in the period GBPm GBPm
-------------------------------------------- ----- -----
UK current tax (0.2) 3.6
Adjustment in respect of prior years - (0.6)
Overseas current tax 0.1 -
--------------------------------------------- ----- -----
Total current tax (0.1) 3.0
--------------------------------------------- ----- -----
UK deferred tax (1.0) (1.1)
UK deferred tax prior year adjustment (0.2) -
Overseas deferred tax 2.2 0.8
Overseas deferred tax prior year adjustment (0.7) -
--------------------------------------------- ----- -----
Total deferred tax 0.3 (0.3)
--------------------------------------------- ----- -----
Total tax charge in the income statement 0.2 2.7
--------------------------------------------- ----- -----
Group Group
2017 2016
(ii) Reconciliation of profit before tax to total tax GBPm GBPm
--------------------------------------------------------- ----- -----
Profit before tax 0.9 12.8
--------------------------------------------------------- ----- -----
Tax charge at UK corporation tax rate of 20% (2016: 20%) 0.2 2.6
Adjusted for the effects of:
Overseas tax rates 0.5 0.3
Deferred tax impact of fall in UK tax rates (0.6) (1.3)
Non-qualifying depreciation 0.4 0.4
Other permanent differences 0.6 0.9
Prior year adjustments (0.9) -
Impact of gains crystallising - (0.2)
--------------------------------------------------------- ----- -----
Total tax charge in the income statement 0.2 2.7
--------------------------------------------------------- ----- -----
The weighted average annual effective tax rate for the period is a charge of 24.3% (2016: 21.3%).
The March 2016 Budget announced a fall in UK corporation tax rate to 17% from 1 April 2020 and was substantively enacted in September 2016 and the effects of which are included in these financial statements. The reduction resulted in a deferred tax credit of GBP0.6m in the year.
Group Group
2017 2016
(iii) Tax on items taken directly to or transferred from equity GBPm GBPm
------------------------------------------------------------------- ----- -----
Deferred tax on actuarial losses recognised in other comprehensive
income (0.1) (0.4)
Deferred tax on share based payments - -
------------------------------------------------------------------- ----- -----
Total tax recognised in equity (0.1) (0.4)
------------------------------------------------------------------- ----- -----
6. Dividends
The Directors decided that no final dividend will be paid (2016: No final dividend paid). This results in no dividend in the period to 29 April 2017 (2016: No dividend paid).
7. Earnings per share
Basic earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, excluding those held by Equity Trust (Jersey) Limited which are treated as cancelled.
In order to compute diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. Those share options granted to employees and Executive Directors where the exercise price is less than the average market price of the Company's ordinary shares during the period represent potentially dilutive ordinary shares.
52 weeks to 52 weeks to
29 April 2017 30 April 2016
------------------------------ ------------------------------
Weighted Weighted
average Earnings average Earnings
number per number per
Earnings of shares share Earnings of shares share
GBPm Millions Pence GBPm Millions Pence
--------------------------------- -------- ---------- -------- -------- ---------- --------
Basic earnings per share 0.7 67.6 1.0 10.1 67.7 14.9
Effect of dilutive share options 0.1 1.6 0.1 - 0.2 -
--------------------------------- -------- ---------- -------- -------- ---------- --------
Diluted earnings per share 0.8 69.2 1.1 10.1 67.9 14.9
--------------------------------- -------- ---------- -------- -------- ---------- --------
The Directors have presented an additional measure of earnings per share based on underlying earnings. This is in accordance with the practice adopted by many major retailers. Underlying earnings is defined as profit excluding separately reported items and related tax.
Reconciliation of earnings per share excluding post tax profit on separately reported items
52 weeks to 52 weeks to
29 April 2017 30 April 2016
------------------------------ ------------------------------
Weighted Weighted
average Earnings average Earnings
number per number per
Earnings of shares share Earnings of shares share
GBPm Millions Pence GBPm Millions Pence
--------------------------------------- -------- ---------- -------- -------- ---------- --------
Basic earnings per share 0.7 67.6 1.0 10.1 67.7 14.9
Adjusted for the effect of separately
reported items:
Separately reported items 13.5 - 20.0 5.5 - 8.1
Tax thereon (2.5) - (3.7) (0.2) - (0.3)
Separately reported tax benefit from
tax rate change (0.6) - (0.9) (1.3) - (1.9)
--------------------------------------- -------- ---------- -------- -------- ---------- --------
Underlying earnings per share 11.1 67.6 16.4 14.1 67.7 20.8
--------------------------------------- -------- ---------- -------- -------- ---------- --------
The prior year underlying earnings per share has been amended to take account of the reclassification of GBP1.0m shared based payment charge as a separately reported item (note 4). Basic earnings per share is unchanged.
8. Movement in net debt
Total Cash Exchange Other Total
Group GBPm 2016 flow differences non-cash 2017
--------------------------------- ----- ------ ------------ --------- ------
Current assets:
Cash and cash equivalents
in the balance sheet 8.3 12.5
Bank overdraft (7.1) (7.1)
--------------------------------- ----- ------ ------------ --------- ------
Cash and cash equivalents
in the cash flow statement 1.2 3.9 0.3 - 5.4
--------------------------------- ----- ------ ------------ --------- ------
Current liabilities:
Current borrowing - (13.0) - - (13.0)
Non - Current borrowing - - - - -
--------------------------------- ----- ------ ------------ --------- ------
- (13.0) - - (13.0)
--------------------------------- ----- ------ ------------ --------- ------
Obligations under finance
leases:
Current obligations under
finance leases (0.1) (0.1)
Non-current obligations under
finance leases (2.2) 0.3 - (0.2) (2.1)
--------------------------------- ----- ------ ------------ --------- ------
(2.3) 0.3 - (0.2) (2.2)
--------------------------------- ----- ------ ------------ --------- ------
Derivative financial instruments
--------------------------------- ----- ------ ------------ --------- ------
Total Net (debt)/cash (1.1) (8.8) 0.3 (0.2) (9.8)
--------------------------------- ----- ------ ------------ --------- ------
Total Cash Exchange Other Total
Group GBPm 2015 flow differences non-cash 2016
--------------------------------- ----- ----- ------------ --------- -----
Current assets:
Cash and cash equivalents
in the balance sheet 7.3 8.3
Bank overdraft (4.4) (7.1)
--------------------------------- ----- ----- ------------ --------- -----
Cash and cash equivalents
in the cash flow statement 2.9 (2.1) 0.4 - 1.2
--------------------------------- ----- ----- ------------ --------- -----
Current liabilities:
Current borrowing -
Non - Current borrowing -
--------------------------------- ----- ----- ------------ --------- -----
- - - - -
--------------------------------- ----- ----- ------------ --------- -----
Obligations under finance
leases:
Current obligations under
finance leases (0.1) - - - (0.1)
Non-current obligations under
finance leases (2.3) 0.2 - (0.1) (2.2)
--------------------------------- ----- ----- ------------ --------- -----
(2.4) 0.2 - (0.1) (2.3)
--------------------------------- ----- ----- ------------ --------- -----
Derivative financial instruments
--------------------------------- ----- ----- ------------ --------- -----
Total Net (debt)/cash 0.5 (1.9) 0.4 (0.1) (1.1)
--------------------------------- ----- ----- ------------ --------- -----
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKADBFBKDCAB
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June 27, 2017 02:00 ET (06:00 GMT)
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