Carpetright plc

Interim Results Announcement for the 26 weeks ended 28 October 2017

 

"Significant progress made in core UK flooring business - first half performance impacted by short term UK beds clearance and losses in Rest of Europe. Current trade encouraging but taking a more cautious view of second half prospects"

 

Financial highlights

 

Group

·     Group revenue increased 2.6% to £228.1m (H1 FY17: £222.3m) (note 1)

·     Underlying profit before tax of £2.1m (H1 FY17: £5.1m) (note 2)

·     Net debt of £22.8m (H1 FY17: net cash £0.4m) reflecting the continued investment in the store refurbishment programme. (note 3)

·     Statutory profit before tax £0.3m (H1 FY17: £4.1m).

·     Underlying pre-tax profits for the second half of the year expected towards the bottom end of the current range of market expectations. (note 5)

 

UK

·     Like-for-like sales in the first half of the year increased by 0.7% (H1 FY17: decline of 2.9%), with solid growth of 1.9% in our core flooring categories offset in part by reduced bed sales, which were impacted by clearance of discontinued lines as we changed the entire range. (note 7)

·     Underlying operating profit of £3.6m (H1 FY17: £4.9m) reflecting impact of beds clearance and higher store payroll costs.

 

Rest of Europe

·     Like-for-like sales growth of 6.5% (H1 FY17: decline of 1.5%).

·     Underlying operating loss of £0.4m (H1 FY17: profit of £1.1m)

·     Gross profit margin down 730bps reflecting impact of first time inclusion of low margin service income (520bps) and deeper discounting promotions (210bps), which is now being addressed.

 

Current Trading

·     Encouraging start to the second half:

o  Like-for-like sales in the UK up 1.4% in the six weeks to 9 December 2017 with robust growth of 2.7% in our core flooring categories.

o  Rest of Europe has also made a positive start with like-for-like sales up 9.2% in local currency over the same six week period.

 

Strategic progress

·     Continued investment in store refurbishment programme with 52% of the UK estate trading under the new brand identity by period end.

·     Hard flooring category in the UK achieving double digit sales growth as it benefits from increased customer awareness.

·     Focus on improving customer service delivering stronger satisfaction metrics - 'Trustpilot' score increased to 8.9.

·     Effective response to increased competition - 52 stores have now traded against a new direct local competitor for more than 12 months, delivering like-for-like growth of 5.0% on average during the half.

·     Continued progress made in reducing the number of underperforming stores - ten closures to reduce the UK estate to 418 stores.

 

Commenting on the results, Wilf Walsh, Chief Executive, said:

 

"The first half has undoubtedly been challenging.  Consumer confidence remains fragile and we continue to manage the impact of intensified competition.  We have made pleasing progress in our core flooring business in the UK - like-for-like sales are up, more than half the UK store estate has now been refurbished and our customer service metrics have been improved significantly.  However, as previously flagged, our first half profits reflect the impact of the clearance of discontinued lines in our beds business and also unsuccessful deeper discounting promotions in the Netherlands and Belgium, which are now being addressed.

 

"Looking ahead we will be focused on maintaining sales momentum in UK flooring, capitalising on the much-stronger new range to turn around our beds performance and improving overall trading in the Netherlands and Belgium.  While trading over the first six weeks of the new period has been encouraging, with an acceleration in like-for-like sales growth in both the UK and Rest of Europe, in light of the consumer outlook we are taking a more cautious view of the second half and now expect underlying profit before tax for the full year will be towards the bottom end of the current range of market expectations."

 

 

Group Financial Summary

 

 

	H1 FY18 £m	Reclassified (note 4) H1 FY17 £m	Change
BUSINESS PERFORMANCE
Group revenue (note 1)	228.1	222.3	2.6%
UK	185.1	186.5	(0.8%)
Rest of Europe	43.0	35.8	20.1%
Underlying operating profit (note 2)	3.2	6.0	(46.7%)
UK	3.6	4.9	(26.5%)
Rest of Europe	(0.4)	1.1	(136.4%)
Underlying profit before tax	2.1	5.1	(58.8%)
Underlying earnings per share	2.1p	5.6p	(60.7%)
Net (debt)/cash (note 3)	(22.8)	0.4	(£23.2m)
STATUTORY REPORTING
Separately reported items (note 4)	(1.8)	(1.0)	(80.0%)
Statutory profit before tax	0.3	4.1	(92.7%)
Basic (loss)/earnings per share	(0.4p)	5.8p	(106.9%)

 

 

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)/cash is calculated as the total of cash-in-hand, or at bank, offset by borrowings, finance leases and unamortised fees.

4.     Share based payment charge of £0.1m, 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.

5.     Consensus for the year ending 28 April 2018 is for Group underlying profit before tax to be £15.2m, with a range from £13.8m to £16.5m.

6.     Sales represents amounts payable by customers for goods and services before deducting VAT and other charges.

7.     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.

8.     Comparative period is the 26 week period ended 29 October 2016.

 

Results presentation

Carpetright plc will hold a presentation to analysts and investors at Citigate Dewe Rogerson, 3 London Wall Buildings, London Wall, London EC2M 5SY at 09:00 today.

 

Analysts unable to attend in person may listen to the presentation live at 09:00 by using the details below:

 

Telephone number: +44 (0)20 3003 2666

 

Password: Carpetright

 

Webcast link: https://edge.media-server.com/m6/p/74vcj3uj

 

A copy of this interim statement can be found on our website www.carpetright.plc.uk 

 

 

For further enquiries please contact:

 

Carpetright plc

Wilf Walsh, Chief Executive

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 a trading update for the third quarter on 6 February 2018.

 

 

 

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.

 

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).

 

 

Chief Executive's Review

 

Despite the numerous challenges facing all retailers, we have made substantial progress in driving core UK flooring sales, underlying operational improvements and KPI's across the business during the first half.  It is clear that our turnaround strategy is having the right impact. 

 

In the face of intense competition in the UK, it is encouraging to report like-for-like sales growth of 1.9% in our core flooring business and that recent trading has also been positive in this category with growth of 2.7% in the last six weeks.

 

We are continuing to execute a clear and effective strategy focused on the four key elements:

 

·     Who we are - the brand, our stores and our people

·     What we sell - an unrivalled choice of floor coverings

·     How we sell - making the process easy with great service and unbeatable value

·     Where we sell - multi-channel convenience and improving the quality of the store portfolio 

 

We have maintained momentum in the first half across all areas of strategic focus, specifically:

 

Who we are

From extensive market research, Carpetright enjoys 87% prompted brand recognition, when shoppers are asked "Have you ever heard of this brand?" and scores an equally impressive 63% on spontaneous recognition when the same group are asked simply to name a carpet retailer.  It is a very strong foundation to build on as we implement significant changes to the business.

 

The drive to improve our brand reputation is vital to Carpetright's future success and we have supported this move with extensive sponsorship on UKTV and Channel 4 featuring Lucy Alexander, who is a credible home improvement personality.  Customer research continues to demonstrate that this activity is yielding positive results on key brand metrics such as awareness, trust and consideration. This is supported by 'Which? Trusted Trader' status for our third-party fitting service.

 

By the end of the first half we had 219 stores in the UK trading under the new brand identity, which represents 52% of the estate.  This work ranges from introducing new signage in stores that make a smaller profit, through to full refurbishment of larger, highly profitable stores, or stores where we are responding to new competition.  In the latter two instances, the introduction of our new 'graphite' shop fit is proving highly successful in regenerating sales growth, however, where we are responding to a new direct competitor the positive impact is partially mitigated.

 

As a group, non-anniversary refurbished stores delivered like-for-like sales growth of 7.0% during the first half, markedly higher than the un-invested estate, underpinning the confidence in our strategy to continue with this extensive programme to increase the appeal of our stores (including stores refurbished expressly to meet new competition this figure would be 4.0% growth).  We remain on course to refurbish, in some way, the remainder of the UK estate by end December 2018.

 

We have a similar programme underway to address the un-invested estate in the Netherlands and Belgium.  As at the end of the first half, we have now refurbished 26 stores and they have achieved sales growth well ahead of the un-invested estate.

 

How we train and talk with our colleagues is key to driving a more collaborative, informed culture than was the case in the old days of this business.  To this end, our 'Fuse' platform, an internal training and communications tool, which is built around a mobile social programme of learning and development, has proved to be an outstanding success.

 

Our strategy is supported by clear, uncomplicated values that are applied consistently throughout the business:

·     We are honest and straightforward

·     We care about customers and colleagues

·     We make it easy

 

 

What we sell

While we continue to be Europe's leading retailer of carpet by some considerable distance, our move over recent years to increase our share of the hard flooring market is now also well advanced.  The first half of this financial year has seen growth in this category of 14% in the UK as we expand our hard flooring offer to address changing consumer tastes.

 

Carpet is, of course, still an extremely important category - we're still a cold country in winter and customers getting out of bed on a February morning want to sink their tootsies into a lush, thick carpet to kick start their day.

 

We continue to strengthen our ranges across the board including exclusives such as 'House Beautiful' and 'Kosset - Stain Free for Life'.  They will be joined in December by a new exclusive range of luxurious wool carpets under the 'Country Living' brand, in collaboration with this leading monthly style publication.

 

Beds account for 8.1% of total sales in the in the UK.  To improve our proposition we took the decisive move to re-range the entire category in the first half rather than drip feeding the new product in over a longer period.  The scale of this change was disruptive as we cleared old stock and for a period had a disjointed offer with discounted clearance beds alongside new full price product that team colleagues had to familiarise themselves with.  While this has taken longer than we envisaged, by the start of the important January sale period we will have a much better range of leading brands, at excellent value, that are familiar to consumers.

 

Additionally, we are currently running a test in several stores with bold, magenta signage promoting the 'Sleepright' brand to offer a clearer, easier to navigate 'shop-in-shop' beds offer - the early results are encouraging.

 

 

How we sell

We remain focussed on a handful of in-store KPI's to drive average transaction value, which in our UK flooring business grew by 9.1% in the first half.

 

·    Interest Free Credit. We have grown interest free credit participation to 18.5% (H1 FY17: 16.7%) in the first six months of the financial year.

·    Underlay. The effect of transitioning to exclusive Carpetright branded products has grown underlay penetration to 51.3% (H1 FY17: 48.1%) of applicable orders.

·    Customer Service. Looking after our customers remains an absolute imperative to win share and improve our brand reputation.  "Do We Measure Up?" - our service review process, continues to see encouraging results as our Net Promoter Score grew to 76%.   Our 'Trustpilot' score has been transformed from embarrassing historic lows of 2.7 in July 2014 to 8.9 today and we are well set to land north of 9.0 by the end of this calendar year.

 

Over the next 18 months we are also transforming our mismatch of dated legacy systems by moving the entire business onto the agile Microsoft Dynamics 365 platform.  The key benefits will be significant improvements to sales conversion, CRM, margin and stock management as well as reductions to central costs.

 

Where we sell

Our store portfolio remains a major challenge.  Too many stores on long leases at punitive rents linked to an outdated and unfair business rates burden makes for an expensive, unpalatable casserole of fixed cost.  We continue to attack this legacy issue with vigour.

 

In the UK, the last six months saw continued progress as we shut ten stores.  We opened two new stores in Old Kent Road (London) and Tonbridge, the latter being a relocation into a smaller store.  They are both trading well.

 

Our progress in the last few years on improving the quality of our UK store estate and reducing overall numbers has been significant.  We are aiming to get down to around 400 stores by the end of the current financial year.  At time of writing, we have eight deals in final stage negotiations and we are confident of landing them.

 

In the Rest of Europe, we ended the period with 136 stores, closing two stores during the period. 

 

We remain focused on the growing impact of digital on our business. Examples of activity in the first half include launching an 'online exclusive' rug range; extending the interactive floor visualiser to vinyl, laminate and engineered wood; and enabling customers to pay online for an order placed in store. Encouragingly sales from our digital channels have recently become our largest single trading store, with year-on-year growth of 49%.

 

Summary

We believe our strategy is clear and that it is bearing fruit, as evidenced by the progress delivered across a broad cross-section of KPI's during the first half.  We remain absolutely committed to the plan -  improving the reputation of our brand, focussing on the products customers really want, while giving them great value and customer service whether they shop in one of our much-improved retail stores or online.

 

Looking ahead, the current challenges come from a few headwinds, specifically:

 

·     Consumer confidence. When wage inflation fails to keep pace with RPI there has, at some stage, to be a tipping point when customers tighten their belts.  As the Brexit divorce terms remain unclear, the consumer market has remained volatile and unpredictable, but whatever happens we believe we can maintain and indeed grow our share in the core flooring market.  I'd rather be the established market leader in uncertain times than a new entrant.

·     Property. While we have made substantial progress reducing the size and improving the quality of our store estate we are also future-proofing our business by investing in the online experience.

·     Competition. Arguably, the customer has never had it so good and the advent of a national competitor means that we have had to respond with a raft of offers to ensure that we remain the most popular choice for customers.  This activity can, of course, impact margins and partially mitigates the upside of some of our capital refurbishment but to be crystal clear - the cost of ignoring the competitive threat and continuing with an under-invested, unattractive store offer would be severe. We are managing this threat effectively, as evidenced by the 52 stores having now traded against a new direct local competitor for more than 12 months delivering like-for-like growth of 5.0% on average during the half.

 

Looking ahead we will be focused on maintaining sales momentum in UK flooring, capitalising on the much-stronger new range to turn around our beds performance and improving overall trading in the Netherlands and Belgium.  While trading over the first six weeks of the second half has been encouraging, with an acceleration in like-for-like sales growth in both the UK and Rest of Europe, in light of the consumer outlook we are taking a more cautious view of the second half and now expect underlying profit before tax for the full year will be towards the bottom end of the current range of market expectations.

 

Current Trading

We have had an encouraging start to the second half of the financial year.  In the six weeks to 9 December 2017 it is pleasing to see an upturn in the sales performance, with like-for-like sales in the UK up 1.4% and robust growth of 2.7% in our core flooring categories.  The Rest of Europe has also made a positive start with like-for-like sales up 9.2% in local currency over the same six week period.   This provides confidence that our strategy is on track and that we will deliver.

 

We are Carpetright.

 

 

Wilf Walsh

Chief Executive Officer

12 December 2017

 

 

 

Interim Results

 

A summary of the reported financial results for the 26 weeks ended 28 October 2017 is set out below:

 

 

	H1 FY18 £m	H1 FY17 £m	Change
Revenue	228.1	222.3	2.6%
Underlying operating profit	3.2	6.0	(46.7%)
Net finance charges	(1.1)	(0.9)	(22.2%)
Underlying profit before tax	2.1	5.1	(58.8%)
Separately reported items	(1.8)	(1.0)
Statutory profit before tax	0.3	4.1	(92.7%)
Earnings per share (pence)
- underlying	2.2p	5.6p	(60.7%)
- basic	(0.4p)	5.8p	(106.9%)
Operating cash flow	3.0	5.9	(49.2%)
Net (debt)/cash	(22.8)	0.4	(£23.2m)

 

 

Overview

Total Group revenue for the first half increased by 2.6% to £228.1m, consisting of a decline in the UK business of 0.8% offset by an increase of 20.1% in the Rest of Europe.  Our continued focus on rationalising and repositioning the store portfolio saw the Group open two stores and close 12 during the half year which gave a net decrease of ten stores, leaving a total store base of 554.  Total store space declined by 1.5% to 5.0 million square feet during the period.

 

Group underlying operating profit decreased by 46.7% to £3.2m, driven by the impact of beds clearance and higher store payroll costs in the UK, along with operating losses sustained in our Rest of Europe business.  Net finance charges were £0.2m higher than prior year at £1.1m, a result of marginally higher average net debt during the period as we invest in modernising the stores estate and core IT infrastructure.  These factors combined to generate underlying profit before tax of £2.1m (H1 FY17: £5.1m).

 

Separately reported items totalled £1.8m (H1 FY17: £1.0m), a combination of cost associated with rationalising the store portfolio and dual running IT costs.

 

The statutory measure of profit before tax for the Group was £0.3m (H1 FY17: £4.1m).

 

The Group ended the year with net debt of £22.8m (H1 FY17: cash £0.4m), reflecting the continued investment in the store refurbishment programme.

 

 

 

Financial review

 

UK

 

Key financial results for the UK:

	H1 FY18 £m	H1 FY17 £m	Change
Revenue	185.1	186.5	(0.8%)
Like-for-like sales	0.7%	(2.9%)
Gross profit	110.0	111.0	(0.9%)
Gross profit %	59.4%	59.5%	(0.1ppts)
Costs	(106.4)	(106.1)	(0.3%)
Cost to sales %	57.5%	56.9%	(0.6ppts)
Underlying operating profit	3.6	4.9	(26.5%)
Underlying operating margin %	1.9%	2.6%	(0.7ppts)

 

The UK store portfolio is now as follows:

	Store numbers				Gross Sq ft ('000)
	29 Apr 2017	Openings	Closures	28 Oct 2017	29 Apr 2017	29 Oct 2017
Standalone	414	2	(6)	410	3,669	3,621
Concessions	12	0	(4)	8	22	12
UK	426	2	(10)	418	3,691	3,633
As at 29 Oct 2016				429		3,698

 

Included in standalone stores:

Bed departments	253	0	(4)	249
As at 29 Oct 2016				248

 

In a challenging trading environment with declining consumer confidence and an increasingly competitive landscape, like-for-like sales in the first half of the year increased by 0.7% (H1 FY17: declined 2.9%).   Our core flooring categories delivered growth of 1.9%, offset in part by reduced bed sales which were impacted by sell-through of discontinued lines as we updated the proposition.

 

We opened two and closed ten stores during the period, which translated into net space decline of 58,000 sq ft, a decrease of 1.6%.  At the close of the period there were 249 stores trading with a bed department (H1 FY17: 248).  Sales within the beds category represent 8.1% of the sales mix (H1 FY17: 9.1%).

 

Gross profit decreased by £1.0m to £110.0m, representing 59.4% of sales, a decrease of 10 basis points (bps).  This decline in margin rate reflects a combination of:

·    an adverse impact of 60 bps from the fall in Sterling to Euro exchange rate on imported goods for resale, with the average EUR/GBP rate during the half year being 8% lower at €1.13 (H1 FY17: €1.23);

·     measures to address intensified competition in selected stores, an adverse impact of 70 bps;

·     the impact of clearance activity in the beds category led to a decrease of 80 bps;

·     a favourable impact of 200 bps from the improvement in underlying flooring category margin through improved sourcing, promotional planning, selected price increases and increased sales of higher margin service related income.

 

We are revising our guidance for UK full year margin to a decline of between 40 and 80 bps (previous guidance: decline of 50 - 100 bps).

 

Total UK cost base increased by 0.3% compared with the prior year to £106.4m (H1 FY17: £106.1m).  Costs as a percentage of sales were 57.5% (H1 FY17: 56.9%).  The movement in costs were a combination of:

·   Store payroll costs increased by £1.4m to £31.0m (H1 FY17: £29.6m) the principal drivers being an increase in remuneration for key roles to attract and retain store colleagues, along with the newly introduced apprenticeship levy.  In addition, we are now obliged to pay average commission for colleagues whilst they are on holiday.  This last factor accounts for £0.5m of the increase, the majority of which will be mitigated in the second half.

·    Store occupancy costs decreased by 1.0% to £56.7m (H1 FY17: £57.3m) primarily the impact of net store closures being offset in part by inflationary increases in business rates and utilities.

·     Marketing and central support costs decreased by 2.6% to £18.7m (H1 FY17: £19.2m).

 

The combination of the above factors resulted in underlying operating profit decreasing by 26.5% to £3.6m (H1 FY17: £4.9m).

 

 

Rest of Europe

 

Key financial results for the Rest of Europe

	H1 FY18 £m	H1 FY17 £m	Change (Reported)	Change (Local)
Revenue	43.0	35.8	20.1%	11.4%
Like-for-like sales (local currency)	6.5%	(1.5%)
Gross profit	21.6	20.6	4.9%	(2.4%)
Gross profit %	50.2%	57.5%	(7.3ppts)
Costs	(22.0)	(19.5)	(12.8%)	(4.6%)
Cost to sales %	51.2%	54.5%	3.3ppts
Underlying operating (loss)/profit	(0.4)	1.1	(136.4% )	(130.8%)
Underlying operating margin %	(0.9%)	3.1%	(4.0ppts)

 

Rest of Europe store portfolio:

	Store numbers				Gross Sq ft ('000)
	29 Apr 2017	Openings	Closures	28 Oct 2017	29 Apr 2017	28 Oct 2017
Netherlands	94	0	(2)	94	975	957
Belgium	23	0	0	23	228	228
Republic of Ireland	21	0	0	21	157	157
Europe	138	0	(2)	136	1,360	1,342
As at 29 Oct 2016				137		1,342

 

The 20.1% growth in revenue in the Rest of Europe, has four component parts:

 

1.    Product - Improved economic conditions in the Republic of Ireland help fuel consumer demand, where we experienced revenue growth in local currency of 4.9%.  As a component of total segment performance this contributed growth of 0.5%.  In the Netherlands and Belgium, we changed the pricing strategy away from discounts on individual products to more basket-lead promotions with the aim of driving up average transaction values.  This failed to resonate with consumers and resulted in a decline in revenue of 5.0% across the two markets.  As a component of total segment performance this contributed a decline of 4.5%.  These two factors combined to produce a decline in product revenues of 4.0%.

 

2.    Services - Dutch sales were boosted by the addition of service related income which added 11.6% to total segment revenue growth.  Previously, the customer paid third-party fitters directly but, following a change in legislation, this is now invoiced by the company to the customer at the time of order and the company then pays in the independent fitter, after deducting an administration fee.

 

3.    Revenue recognition - There is a growing trend in Belgium and the Netherlands for products with a longer fitting lead time (eg LVT, curtains & blinds).  In the last financial year, the important Easter trading period was close to the year end with the result of a higher order book being carried and the fitting and consequent revenue recognition falling in the current financial year.  This contributed 3.8% to recognised segmental revenue.

 

The combination of the above three factors resulted in an increase in revenue of 11.4% in local currency terms.

 

4.  Currency translation - The effect of movements in exchange rates added 8.7% to revenue growth on conversion to reported currency.

The number of stores decreased by two during the period resulting in trading space reducing by 1.3%.

 

Gross profit percentage decreased by 730 basis points to 50.2% (H1 FY17: 57.5%).  As shared at our full year results presentation in June, a legislation change in the Netherlands required us to include the cost of fitting in our sales for the first time - in line with existing practice in Belgium.  At the time, we estimated the margin reduction to be in the range of 200-300bps.  The actual result has been a reduction of 520bps.  A further 210bps reduction came from deeper discounting product promotions, as discussed above - this is being addressed in the second half.

 

The combination of the revenue growth but rate declines lead to cash gross profit in local currency terms decreasing by 2.4%.  In the balance of the year, the promotional campaign will revert back to be similar to previous year's activity and we anticipate the full year adverse margin movement will be between 400 and 600 bps (previous guidance: decline of 200 - 300 bps).

 

Operating costs in local currency increased by 4.6%, a combination of inflationary impacts on employment and rental costs and a lower utilisation of previously made onerous lease provisions.  The latter due an improvement in store profitability in the Republic of Ireland.  Costs as a percentage of sales reduced to 51.2% (H1 FY17: 54.5%) as a result of growth in headline revenue.  In reported currency, costs increased by 12.8% to £22.0m.

 

The net result was an operating loss of £0.4m (H1 FY17: profit of £1.1m).

 

 

Group

 

Net finance charges and taxation

Net finance charges were £0.2m higher than prior year at £1.1m, a result of higher average net debt during the period, reflecting the investment in modernising the store estate and core IT infrastructure.

 

The effective tax rate for the year is projected at 30.5% (FY17: 22.6%), a variance of 11.5% points compared to the UK rate.  This variance is due to the impact of non-deductible items, overseas tax rates and a one-off credit recognised in the prior year.  This results in a tax charge in the period of £0.6m (H1 FY17: £0.2m).

 

 

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 £1.8m (H1 FY17: £1.0m).

 

		H1 FY18 £m	H1 FY17 £m
Underlying profit before tax		2.1	5.1
Property related
Profit/(loss) on disposal		(0.4)	(0.9)
Strategy
Store refurbishment - asset write offs		(0.5)	-
Digital transformation project - dual running costs		(0.5)	-
Other
Share based payments		(0.3)	(0.1)
Legacy defined benefit pension administration costs		(0.1)	-
Total separately reported items		(1.8)	(1.0)
Statutory profit before tax		0.3	4.1

 

Note - In H1 FY17 the charge reported in the interim statement was £0.9m. For consistency with the current period presentation we have reclassified £0.1m relating to share based payments.  This has no impact on the Group's statutory reported profit before tax. The reclassified separately reported items for H1 FY17 is therefore £1.0m.

 

A net loss of £0.4m was made on the disposal of six properties during the year (H1 FY17: £0.9m loss), principally a combination of surrender premiums being paid to exit loss making stores, asset write offs and associated fees.

 

The value of assets written off incurred during the strategic store refurbishment programme amounts to £0.5m during the half year.  In keeping with historical treatment, such write offs have been reported as separately reported items.

 

The Group has incurred dual running costs as it replaces legacy IT systems and transitions to a new ERP platform.  Historically, these types of cost would have been capital spend but with the switch to cloud-based software services, these are classified as operating expenditure.  Due to the quantum and one-off nature of the project, these costs have been reported as separately reported items.

In light of the variable 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 £0.3m was incurred during the year (H1 FY17: £0.1m).

 

Earnings per share

Underlying earnings per share were 2.2p (H1 FY17: 5.6p) reflecting the fall in underlying profitability of the Group.  After accounting for tax the Group generated basic losses per share of 0.4p (H1 FY17: earnings 5.8p).

 

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 an interim dividend (H1 FY17: Nil).

 

Balance sheet

The Group had net assets of £83.3m at the end of the half year (2017: £78.0m), an increase of £5.3m since 29 April 2017.

 

Summary Balance Sheet

	28 October 2017               £m	29 April    2017                   £m	Movement £m
Freehold and long leasehold property	61.0	60.3	0.7
Other non-current assets	127.0	116.6	10.4
Stock	39.8	41.1	(1.3)
Trade & other current assets	31.4	25.8	5.6
Creditors < 1 year	(89.5)	(85.6)	(3.9)
Creditors > 1 year	(63.4)	(67.2)	3.8
Net Debt	(22.8)	(9.8)	(13.0)
Pension Deficit	(0.2)	(3.2)	3.0
Net Assets	83.3	78.0	5.3

 

The Group owns a significant property portfolio, most of which is used for retail purposes.  The carrying value are supported by a combination of value-in-use and independent valuations.

 

Capital expenditure

Gross capital expenditure was £13.1m (H1 FY17: £7.9m), with the majority of this relating to the store refurbishment programme and replacement of legacy IT systems.  There were no proceeds from freehold property disposals during the half year (FY17: £3.4m), resulting in net capital expenditure of £13.1m (H1 FY17: £4.5m).

 

£m	H1 FY18	H1 FY17	Movement
Refurbishments & relocations	(7.8)	(2.8)	(5.0)
New stores	(0.9)	(0.1)	(0.8)
IT	(2.5)	(1.5)	(1.0)
Support offices and warehouse	(1.9)	(3.5)	1.6
Gross capital expenditure	(13.1)	(7.9)	(5.2)
Proceeds from freehold property disposals	0.0	3.4	(3.4)
Net capital expenditure	(13.1)	(4.5)	(8.6)

 

Net debt and cash flow

The Group's net debt at 28 October 2017 was £22.8m, an increase of £13.0m from the year end FY17 net debt of £9.8m.

 

This increase in debt was a combination of the underlying operating profit performance and decrease in stock, being offset in part by the net expenditure of £1.0m of exiting property leases; cash outflow of £2.4m from previously made provisions; contributions of £0.4m to closed defined benefit pension schemes and an increase in working capital of £3.7m.

 

The increase in working capital was primarily attributable to a combination of:

·     A net amortisation of property incentives of £1.5m.

·     A £0.9m increase in debtors associated greater mix of orders on interest free credit.

·     A seasonal timing issue related to property rent quarters of £1.0m, which will reverse in the second half.

The resulting net inflow of cash generated by operations of £3.0m was offset by net capital expenditure, net interest paid, tax paid and other movements (primarily exchange differences) totalling £16.0m, resulting in a movement in net debt of £13.0m outflow (H1 FY17: £1.5m inflow).

 

Summary cash flow

£m	H1 FY18	H1 FY17
Underlying Operating Profit	3.2	6.0
Separately reported items - cash	(0.6)	0.0
Depreciation and non-cash items	6.3	6.6
Decrease in stock	1.6	4.1
(Increase) in working capital	(3.7)	(7.2)
Net (expenditure) on exit of operating leases	(1.0)	(0.7)
Contributions to legacy pension schemes	(0.4)	(0.5)
Provisions utilised	(2.4)	(2.4)
Cash generated by operations	3.0	5.9
Net interest paid	(0.9)	(0.6)
Corporation tax paid	(2.1)	0.1
Net capital expenditure	(13.1)	(4.5)
Free cash flow	(13.1)	0.9
Other	0.1	0.6
Movement in net debt	(13.0)	1.5
Opening net debt	(9.8)	(1.1)
Closing net (debt)/cash	(22.8)	0.4

 

 

Current liquidity

In April 2015, the Group completed a refinancing arrangement of its principal facilities, providing £58.0m 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 €5.0m multi-option facility in Belgium thereby saving non-utilisation fees.  This action reduced the Group's total facilities in GBP terms to £54.4m, of which the main £45.0m RCF in the UK matures in July 2019.  

 

Gross bank borrowings at the balance sheet date were £30.7m (H1 FY17: £11.2m), being a combination drawn down from overdraft and revolving credit facilities.  The Group had further undrawn facilities of £23.7m at the balance sheet date.  In addition, the Group held gross cash balances of £9.9m.  The combination of which resulted in net debt, before finance leases, of £20.8m providing total headroom against facilities of £33.6m.

 

The inclusion of £2.0m finance leases (H1 FY17: £2.2m) resulted in the Group closing the period on £22.8m of net debt, being £13.0m higher than year end 2017.

 

 

 

 

Neil Page

Chief Financial Officer

12 December 2017

 

 

 

Condensed consolidated income statement

for 26 weeks ended 28 October 2017

 

		26 weeks to 28 October 2017				26 weeks to 29 October 2016 *Reclassified			52 weeks to 29 April 2017
	Notes		Underlying performance £m	Separately reported Items (note 5) £m	Total £m	Underlying performance £m	Separately reported Items (note 5) £m	Total £m	Underlying performance £m	Separately reported Items (note 5) £m	Total £m
Revenue	4		228.1	-	228.1	222.3	-	222.3	457.6	-	457.6
Cost of sales			(96.5)	-	(96.5)	(90.7)	-	(90.7)	(188.2)	-	(188.2)
Gross profit			131.6	-	131.6	131.6	-	131.6	269.4	-	269.4
Administration expenses			(129.5)	(0.9)	(130.4)	(126.5)	(0.1)	(126.6)	(255.4)	(9.3)	(264.7)
Other operating income/(loss)			1.1	(0.9)	0.2	0.9	(0.9)	-	2.4	(4.2)	(1.8)
Operating profit/(loss)	4		3.2	(1.8)	1.4	6.0	(1.0)	5.0	16.4	(13.5)	2.9
Finance costs	6		(1.1)	-	(1.1)	(0.9)	-	(0.9)	(2.0)	-	(2.0)
Profit/(loss) before tax			2.1	(1.8)	0.3	5.1	(1.0)	4.1	14.4	(13.5)	0.9
Tax	7		(0.7)	0.1	(0.6)	(1.2)	1.0	(0.2)	(3.3)	3.1	(0.2)
Profit/(loss) for the financial period attributable to owners of the Company			1.4	(1.7)	(0.3)	3.9	-	3.9	11.1	(10.4)	0.7
Basic (loss)/earnings per share (pence)	8		2.2		(0.4)	5.6		5.8	16.4		1.0
Diluted (loss)earnings per share (pence)	8				(0.4)			5.8			1.1

 

All items in the income statement arise from continuing operations.

* Certain prior year amounts, previously reported in underlying performance, have been reclassified for consistency with the presentation adopted at year end April 17, as separately reported items. This has no impact on the Group statutory reported profit before tax and earnings per share (see note 5).

 

 

Condensed consolidated statement of comprehensive income

for 26 weeks ended 28 October 2017

 

	Notes	26 weeks to 28 October 2017 £m	26 weeks to 29 October 2016 £m	52 weeks to 29 April 2017 £m
(Loss)/profit for the financial period		(0.3)	3.9	0.7
Items that may not be reclassified to the income statement:
Re-measurements of defined benefit plans	14	2.6	(2.0)	(1.8)
Tax on items that may not be reclassified to the income statement		(0.5)	0.3	0.1
Total items that may not be reclassified to the income statement		2.1	(1.7)	(1.7)
Items that may be reclassified to the income statement:
Exchange gains		3.2	8.2	4.3
Total items that may be reclassified to the income statement		3.2	8.2	4.3
Other comprehensive gains for the period		5.3	6.5	2.6
Total comprehensive income for the period attributable to owners of the Company		5.0	10.4	3.3

 

The notes on pages 22 to 29 form an integral part of this consolidated interim financial information.

 

 

Condensed consolidated statement of changes in equity

for 26 weeks ended 28 October 2017

 

	Share capital £m	Share premium £m	Treasury shares £m	Capital redemption reserve  £m	Translation reserve £m	Retained earnings  £m	Total £m
At 29 April 2017	0.7	17.8	(1.6)	0.1	7.6	53.4	78.0
Loss for the period	-	-	-	-	-	(0.3)	(0.3)
Other comprehensive income for the period	-	-	-	-	3.2	2.1	5.3
Total comprehensive income for the financial period	-	-	-	-	3.2	1.8	5.0
Issue of treasury shares to employees	-	-	0.2	-	-	(0.2)	-
Share-based payments and related tax	-	-	-	-	-	0.3	0.3
At 28 October 2017	0.7	17.8	(1.4)	0.1	10.8	55.3	83.3
	Share capital £m	Share premium £m	Treasury shares £m	Capital redemption reserve  £m	Translation reserve £m	Retained earnings  £m	Total £m
At 30 April 2016	0.7	17.8	(1.3)	0.1	3.3	53.4	74.0
Profit for the period	-	-	-	-	-	3.9	3.9
Other comprehensive income/(expense) for the period	-	-	-	-	8.2	(1.7)	6.5
Total comprehensive income for the financial period	-	-	-	-	8.2	2.2	10.4
Shares purchased by employee benefit trust	-	-	(0.1)	-	-	-	(0.1)
Share-based payments and related tax	-	-	-	-	-	0.1	0.1
At 29 October 2016	0.7	17.8	(1.4)	0.1	11.5	55.7	84.4

 

The notes on pages 22 to 29 form an integral part of this consolidated interim financial information.

 

 

 

Condensed consolidated balance sheet

as at 28 October 2017

	Notes	28 October 2017 £m	29 October 2016 £m	29 April 2017 £m
Assets
Non-current assets
Intangible assets		61.3	60.4	57.3
Property, plant and equipment		108.3	96.2	102.0
Investment property		15.6	14.8	15.3
Deferred tax assets		2.0	2.2	1.9
Trade and other receivables		0.8	0.4	0.4
Total non-current assets		188.0	174.0	176.9
Current assets
Inventories		39.8	38.4	41.1
Trade and other receivables		31.4	26.2	25.8
Cash and cash equivalents	10	9.9	13.8	12.5
Total current assets		81.1	78.4	79.4
Total assets		269.1	252.4	256.3
Liabilities
Current liabilities
Trade and other payables		(89.5)	(86.9)	(83.9)
Obligations under finance leases	10	(0.1)	(0.1)	(0.1)
Borrowings and overdrafts	10	(30.7)	(11.2)	(20.1)
Current tax liabilities		-	(3.4)	(1.7)
Total current liabilities		(120.3)	(101.6)	(105.8)
Non-current liabilities
Trade and other payables		(32.4)	(35.4)	(34.5)
Obligations under finance leases	10	(1.9)	(2.1)	(2.1)
Provisions for liabilities and charges	11	(14.9)	(10.4)	(17.5)
Deferred tax liabilities		(16.1)	(14.8)	(15.2)
Retirement benefit obligations	14	(0.2)	(3.7)	(3.2)
Total non-current liabilities		(65.5)	(66.4)	(72.5)
Total liabilities		(185.8)	(168.0)	(178.3)
Net assets		83.3	84.4	78.0
Equity
Share capital		0.7	0.7	0.7
Share premium		17.8	17.8	17.8
Treasury shares		(1.4)	(1.4)	(1.6)
Other reserves		66.2	67.3	61.1
Total equity attributable to shareholders of the company		83.3	84.4	78.0

 

The notes on pages 22 to 29 form an integral part of this consolidated interim financial information.

 

 

Condensed consolidated statement of cash flows

for 26 weeks ended 28 October 2017

 

	Note	26 weeks to 28 October 2017 £m	26 weeks to 29 October 2016 £m	52 weeks to 29 April 2017 £m
Cash flows from operating activities
Profit before tax		0.3	4.1	0.9
Adjusted for:
Depreciation and amortisation		6.3	6.6	12.2
Loss on property disposals		0.9	0.9	3.3
Separately reported non-cash items		-	-	9.2
Share based compensation		0.3	0.1	1.0
Net finance costs		1.1	0.9	2.0
Operating cash flows before movements in working capital		8.9	12.6	28.6
Decrease in inventories		1.6	4.1	1.0
(Increase) in trade and other receivables		(5.6)	(5.2)	(5.4)
Decrease/(increase) in trade and other payables		1.9	(2.0)	(8.2)
Net expenditure on exit of operating leases		(1.0)	(0.7)	(2.2)
Contributions to pension scheme		(0.4)	(0.5)	(0.9)
Provisions paid		(2.4)	(2.4)	(5.2)
Cash generated by operations		3.0	5.9	7.7
Interest paid		(0.9)	(0.6)	(1.3)
Corporation taxes received/(paid)		(2.1)	0.1	(0.9)
Net cash flows from operating activities		-	5.4	5.5
Cash flows from investing activities
Purchases of intangible assets		(3.0)	(1.1)	(0.6)
Purchases of property, plant and equipment and investment property		(10.1)	(6.8)	(16.8)
Proceeds on disposal of property, plant, equipment & investment property		-	3.4	3.4
Net cash used in investing activities		(13.1)	(4.5)	(14.0)
Cash flows from financing activities
Purchase of treasury shares by employee benefit trust		-	(0.1)	(0.3)
Repayment of finance lease obligations	10	(0.3)	(0.1)	(0.3)
Increase in borrowings	10	17.5	4.0	13.0
Net cash used in financing activities		17.2	3.8	12.4
Net increase in cash and cash equivalents in the period		4.1	4.7	3.9
Cash and cash equivalents at the beginning of the period		5.4	1.2	1.2
Exchange differences		0.2	0.7	0.3
Cash and cash equivalents at the end of the period		9.7	6.6	5.4

 

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.

 

The notes on pages 22 to 29 form an integral part of this consolidated interim financial information.

 

 

Notes to the financial statements

 

1.  General information

Carpetright plc ('the company'), its subsidiaries (together 'The Group') are engaged in the retail of flooring and bed products through a network of retail stores and other channels located in the UK and continental Europe.

Carpetright plc is a company listed on the London Stock Exchange and is incorporated and domiciled in the United Kingdom. The registered address office is, Purfleet Bypass, Purfleet, Essex RM19 1TT.

The condensed consolidated interim financial statements are unaudited but have been reviewed by the auditors whose report is set out on page 31. The financial information presented herein does not amount to statutory accounts within the meaning of Section 434 of the Companies Act 2006. The annual report and financial statements 2017 have been filed with the Registrar of Companies. The independent auditors' report on the annual report and financial statements 2017 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.

The financial period represents the 26 weeks to 28 October 2017 (comparative financial period 26 weeks to 29 October 2016; prior financial year 52 weeks to 29 April 2017). The financial information comprises the results of the Company and its subsidiaries (the 'Group').

These condensed consolidated interim financial statements were approved for issue by the Board of Directors on 12 December 2017.

 

2.  Basis of preparation

The interim results, comprising the condensed consolidated interim financial statements and the interim management report have been prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. They should be read in conjunction with the annual report and financial statements for the 52 weeks ended 29 April 2017, which have been prepared in accordance with IFRSs as adopted by the European Union.

Going concern

The group meets its day-to-day working capital requirements through its bank facilities. The group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the group should be able to operate within the level of its current facilities. After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. Having taken account of the Group's principal risks, the directors considered it appropriate to adopt the going concern basis of accounting in preparing its condensed interim financial statements.

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

	26 weeks to 28 October 2017 £m	26 weeks to 29 October 2016 £m	52 weeks to 29 April 2017 £m
Euro
Average	1.13	1.23	1.20
Closing	1.13	1.11	1.19

 

3.  Accounting policies

With the exception of taxes on income described below the accounting policies adopted are consistent with those of the annual financial statements for the 52 weeks ended 29 April 2017, as described in those Annual Report and Financial Statements.

Taxes on income for interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

There are no new standards, amendments to existing standards or interpretations that are effective for the first time in the financial year beginning on 30 April 2017 that would be expected to have a material impact on the Group's result.

In the current financial year there were several new standards that were issued but not yet effective, adopted by the EU and have not been applied in the preparation of these interim financial statements. These include:

-  IFRS 9 'Financial Instruments' is a new standard which enhances the ability of investors and other users of financial information to understand the accounting for financial assets and reduces complexity. This standard is effective for accounting periods commencing on or after 1 January 2018. The Directors anticipate that the adoption of IFRS 9 will not have a material impact on the financial statements.

-  IFRS 15 'Revenue from Contracts with Customers' is a new standard based on a five-step model framework, which replaces all existing revenue recognition standards. This standard is effective for accounting periods commencing on or after 1 January 2018. The Directors anticipate that the adoption of IFRS 15 will not have a material year on year impact on the financial statements.

-  IFRS 16 'Leases' is a new standard which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The standard eliminates the classification of leases as either operating leases or finance leases as required by IAS 17 and, instead, introduces a single lessee accounting model. A lessee will be required to recognise assets and liabilities for all leases with a term of more than 12 months and depreciate lease assets separately from interest on lease liabilities in the income statement. This standard is effective for accounting periods commencing on or after 1 January 2019. The Directors anticipate that the adoption of IFRS 16 will have a material impact on the financial statements and are currently undertaking an exercise to quantify this impact and will look to provide guidance in the 2018 annual report and accounts.

 

Alternative Performance Measures

The Company uses a number of Alternative Performance Measures (APMs) in addition to those reported in accordance with IFRS. The Directors believe that these APMs, listed below, are important when assessing the underlying financial and operating performance of the Group and its segments. The following APMs do not have standardised meaning prescribed by IFRS and therefore may not be directly comparable to similar measures presented by other companies.

Underlying performance

Underlying performance, reported separately on the face of the Consolidated Income Statement, is from continuing operations and before separately reported items on the face of the income statement.

Sales

Sales represents amounts payable by customers for goods and services before deducting VAT and other charges.

Like-for-like sales (calculated in local currency)

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.

Gross profit ratio

Calculated as Gross profit as a percentage of revenue. It is one of the Group's key performance indicators and is used to assess the underlying performance of the Group's segments

Separately reported items

Defined below.

Underlying operating profit

Underlying operating profit is defined as operating profit before separately reported items. It is one of the Group's key performance indicators and is used to assess the trading performance of Group businesses.

Underlying profit before tax

Underlying profit before tax is calculated as the net total of underlying operating profit less total net finance costs associated with underlying performance. It is one of the Group's key performance indicators and is used to assess the financial performance of the Group as a whole. It is also used as one of the targets against which the annual bonuses of certain employees are measured.

Underlying earnings per share

Underlying earnings per share is calculated by dividing underlying profit before tax less associated income tax costs by the weighted average number of ordinary shares in issue during the year. It is one of the Group's key performance indicators and is used to assess the underlying earnings performance of the Group as a whole.

Net debt

Net debt comprises the net total of current and non-current interest-bearing borrowings and cash and short-term deposits. Net debt is a measure of the Group's net indebtedness to banks and other external financial institutions.

Operating cash flow

This measure is determined by taking underlying operating profit and adding back non-cash items and any movements in working capital.

Disclosure of 'separately reported items'

IAS 1 'Presentation of Financial Statements' provides no definitive guidance as to the format of the income statement but states key lines which should be disclosed. It also encourages the disclosure of additional line items and the reordering of items presented on the face of the income statement when appropriate for a proper understanding of the entity's financial performance. In accordance with IAS 1, the Company has adopted a columnar presentation for its Consolidated income statement, to separately identify underlying performance results, as the Directors consider that this gives a better view of the underlying results of the ongoing business. As part of this presentation format, the Company has adopted a policy of disclosing separately on the face of its Consolidated income statement, within the column entitled 'Separately reported items', the effect of any components of financial performance for which the Directors consider separate disclosure would assist both in a better understanding of the financial performance achieved. In its adoption of this policy, the Company applies a balanced approach to both gains and losses and aims to be both consistent and clear in its accounting and disclosure of such items.

 

Both size and the nature and function of the components of income and expense are considered in deciding upon such presentation. Such items may include, inter alia, the financial effect of separately reported items which occur infrequently, such as major reorganisation costs, onerous leases, share based payments and impairments and the taxation impact of the aforementioned separately reported items.

 

 

4.  Segmental analysis

The operating segments have been determined based on reports reviewed by the Board that are used to make strategic decisions. 

The reportable operating segments derive their revenue primarily from the retail of floor coverings and beds.  Central costs 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 for the reportable segments for the 26 weeks ended 28 October 2017 is as follows:

	26 weeks to 28 October 2017			26 weeks to 29 October 2016 *Reclassified
	UK £m	Europe £m	Group £m	UK £m	Europe £m	Group £m
Gross revenue	226.7	49.9	276.6	229.0	42.9	271.9
Inter-segment revenue	(1.1)	-	(1.1)	(1.6)	-	(1.6)
Gross sales	225.6	49.9	275.5	227.4	42.9	270.3
Less cost of interest free	(2.9)	-	(2.9)	(3.2)	-	(3.2)
Less VAT and other sales taxes	(37.6)	(6.9)	(44.5)	(37.7)	(7.1)	(44.8)
Revenues from external customers	185.1	43.0	228.1	186.5	35.8	222.3
Gross profit	110.0	21.6	131.6	111.0	20.6	131.6
Underlying operating profit	3.6	(0.4)	3.2	4.9	1.1	6.0
Separately reported items	(1.8)	-	(1.8)	(0.8)	(0.2)	(1.0)
Operating profit	1.8	(0.4)	1.4	4.1	0.9	5.0
Finance costs	(1.1)	-	(1.1)	(0.9)	-	(0.9)
Profit before tax	0.7	(0.4)	0.3	3.2	0.9	4.1
Tax	(0.7)	0.1	(0.6)	-	(0.2)	(0.2)
Profit for the financial period	-	(0.3)	(0.3)	3.2	0.7	3.9
Segment assets:
Segment assets	211.7	104.3	316.0	203.0	99.6	302.6
Inter-segment balances	(28.7)	(18.2)	(46.9)	(29.4)	(20.8)	(50.2)
Balance sheet total assets	183.0	86.1	269.1	173.6	78.8	252.4
Segment liabilities:
Segment liabilities	(179.8)	(52.9)	(232.7)	(169.3)	(48.9)	(218.2)
Inter-segment balances	18.2	28.7	46.9	20.8	29.4	50.2
Balance sheet total liabilities	(161.6)	(24.2)	(185.8)	(148.5)	(19.5)	(168.0)
Other segmental items:
Depreciation and amortisation	5.1	1.2	6.3	5.6	1.0	6.6
Additions to non-current assets	10.2	4.2	14.4	6.6	1.0	7.6

 

* Certain prior year amounts, previously reported in underlying performance, have been reclassified for consistency with the presentation adopted at year end April 17, as separately reported items. This has no impact on the Group statutory reported profit before tax and earnings per share (see note 5).

 

Carpetright plc is domiciled in the UK.  The Group's revenue from external customers in the UK is £185.1m (H1 FY17: £186.5m) and the total revenue from external customers from other countries is £43.0m (H1 FY17: £35.8m).  The total of non-current assets (other than financial instruments and deferred tax assets) located in the UK is £148.5m (H1 FY17: £142.3m) and the total of those located in other countries is £84.4m (H1 FY17: £79.7m).

Carpetright's trade has historically shown no distinct pattern of seasonality with trade cycles more closely following economic indicators such as consumer confidence and mortgage approvals.

 

 

5.  Separately reported items

		26 weeks to 28 October 2017 £m	26 weeks to 29 October 2016 Reclassified* £m	52 weeks to 28 April 2017 £m
Underlying profit before tax		2.1	5.1	14.4
Property related
Loss on disposal of properties		(0.4)	(0.9)	(1.9)
Freehold property reversal		-	-	2.2
Store asset (Impairment)		-	-	(0.4)
Net onerous lease charge		-	-	(11.0)
Strategy
Store refurbishment - asset write offs		(0.5)	-	(1.4)
Dual running cost		(0.5)	-	-
Other
Share based payments		(0.3)	(0.1)	(1.0)
Legacy defined benefit pension administration costs		(0.1)	-	-
Separately reported items before tax		(1.8)	(1.0)	(13.5)
Statutory profit before tax		0.3	4.1	0.9

 

The Group recorded a net charge of £1.8m (H1 FY17: £1.0m) in the half year. 

 

A net loss of £0.4m was made on the disposal of six properties during the year (H1 FY17: £0.9m loss), principally a combination of surrender premiums being paid to exit loss making stores, asset write offs and associated fees.

 

The value of assets written off incurred during the strategic store refurbishment programme amounts to £0.5m during the half year.  In keeping with historical treatment such write offs have been reported as separately reported items.

 

The Group has incurred dual running costs as it replaces legacy IT systems and transitions to a new ERP platform.  Due to the quantum and one-off nature of the project, these costs have been reported as separately reported items.

 

In light of the variable 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 £0.3m was incurred during the year (H1 FY17: £0.1m).

 

The cash flow impact of separately reported items was £1.6m in the half year.

 

The tax impact of the separately reported items is a credit of £0.1 (H1 FY17: Credit of £1.0m).

 

 

6.  Finance costs

	26 weeks to 28 October 2017 £m	26 weeks to 29 October 2016 £m	52 weeks to 29 April 2017 £m
Interest on borrowings and overdrafts	(0.7)	(0.6)	(1.2)
Fee amortisation	(0.3)	(0.2)	(0.5)
Net finance expense on pension scheme obligations	-	-	(0.2)
Interest on finance lease obligations	(0.1)	(0.1)	(0.1)
Finance expense	(1.1)	(0.9)	(2.0)

 

 

7.  Income Tax

		26 weeks to 28 October 2017 £m	26 weeks to 29 October 2016 £m	52 weeks to 29 April 2017 £m
UK Tax expense		0.7	-	(1.4)
Overseas Tax expenses		(0.1)	0.2	1.6
Total Tax expense		0.6	0.2	0.2

 

The Income tax expense is recognised based on management's best estimate of the full year weighted average annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period.

 

The taxation charge on profit for the half year was £0.6m (H1 FY17: £0.2m).  This is based on a full year effective tax rate of 30.5% (FY17: 22.6%). The reduction from FY17 is the result of one- off credits recognised and not repeated in the current year.  The full year effective tax rate of 30.5% represents an increase of 11.5% compared to the Group's main rate of tax of 19%, as a result of non-deductibles items, and overseas tax rates.

 

 

8.  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 the Group's LTIP Trust 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.

 

	26 weeks ended 28 October 2017			26 weeks ended 29 October 2016			52 weeks ended 29 April 2017
	Earnings/ (expense) £m	Weighted average number of shares Millions	Earnings/ (loss) per share Pence	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 (loss)/earnings per share	(0.3)	67.6	(0.4)	3.9	67.7	5.8	0.7	67.6	1.0
Effect of dilutive share options	-	1.1	-	-	-	-	0.1	1.6	0.1
Diluted (loss/)earnings per share	(0.3)	68.7	(0.4)	3.9	67.7	5.8	0.8	69.2	1.1

 

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 separately reported items and related tax.

 

	26 weeks ended 28 October 2017			26 weeks ended 29 October 2016			52 weeks ended 29 April 2017
	(Loss)/ earnings £m	Weighted average number of shares Millions	(Loss)/ Earnings per share Pence	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 (loss)/earnings per share	(0.3)	67.6	(0.4)	3.9	67.7	5.8	0.7	67.6	1.0
Adjusted for the effect of Separately reported items:
Separately reported items	1.8	-	2.8	1.0	-	1.3	13.5	-	20.0
Tax thereon	(0.1)	-	(0.2)	(0.4)	-	(0.6)	(2.5)	-	(3.7)
Separately reported tax benefit from tax rate change	-	-	-	(0.6)	-	(0.9)	(0.6)	-	(0.9)
Underlying earnings per share	1.4	67.6	2.2	3.9	67.7	5.6	11.1	67.6	16.4

 

 

9.  Financial risk management and financial instruments

The group's activities expose it to a variety of financial risks, including but not limited to: currency risk, interest rate risk, credit risk and liquidity risk.

The condensed consolidated interim financial statements do not include all the financial risks management information and disclosures required in the annual financial statements, this should be read in conjunction with the Group's annual financial statements as at 29 April 2017.  There have been no changes in the risk management since the year end.

The Group has no financial assets or liabilities that are measured at fair value. 

Borrowings are measured at amortised cost, and the Directors are of the opinion that the carrying value of the borrowings are approximate to their fair value.

The carrying amount of all other financial assets and liabilities approximate their fair value.

 

 

 

10.  Movement in cash and net debt

	29 April 2017				28 October 2017
	Total £m	Cash flow £m	Exchange differences £m	Other non cash £m	Total £m
Cash and cash equivalents in the balance sheet	12.5	(2.6)	-	-	9.9
Bank overdrafts	(7.1)	6.7	0.2	-	(0.2)
Cash and cash equivalents in the cash flow statement	5.4	4.1	0.2	-	9.7
Borrowings
Current borrowings	(13.0)	(17.5)	-	-	(30.5)
Non-current borrowings	-	-	-	-	-
	(13.0)	(17.5)	-	-	(30.5)
Obligations under finance leases
Current obligations under finance leases	(0.1)	-	-	-	(0.1)
Non-current obligations under finance leases	(2.1)	0.3	-	(0.1)	(1.9)
	(2.2)	0.3	-	(0.1)	(2.0)
Net (debt)/cash	(9.8)	(13.1)	0.2	(0.1)	(22.8)

 

 

	30 April 2016				29 October 2016
	Total £m	Cash flow £m	Exchange differences £m	Other non cash £m	Total £m
Cash and cash equivalents in the balance sheet	8.3	5.5	-	-	13.8
Bank overdrafts	(7.1)	(0.8)	0.7	-	(7.2)
Cash and cash equivalents in the cash flow statement	1.2	4.7	0.7	-	6.6
Borrowings
Current borrowings	-	-	-	-	-
Non-current borrowings	-	(4.0)	-	-	(4.0)
	-	(4.0)	-	-	(4.0)
Obligations under finance leases
Current obligations under finance leases	(0.1)	-	-	-	(0.1)
Non-current obligations under finance leases	(2.2)	0.2	-	(0.1)	(2.1)
	(2.3)	0.2	-	(0.1)	(2.2)
Net (debt)/cash	(1.1)	0.9	0.7	(0.1)	0.4

 

 

 

11 Provisions

		Onerous lease provision £m	Re-organisation provision £m	Total £m
Opening at 29 April 2017		17.5	-	17.5
Utilised during the period		(2.9)	-	(2.9)
Impact of movement in foreign exchange rates		0.3	-	0.3
Closing balance at 28 October 2017		14.9	-	14.9
Opening at 30 April 2016		12.5	0.1	12.6
Utilised during the period		(2.6)	-	(2.6)
Impact of movement in foreign exchange rates		0.4	-	0.4
Closing balance at 29 October 2016		10.3	0.1	10.4

 

 

12.  Dividends

No dividends were paid or proposed in the 26 weeks to 28 October 2017 or in the 26 weeks to 29 October 2016

 

13.  Capital expenditure

During the period, cash flow on capital expenditure was £2.5m (H1 FY17: £1.1m) on IT infrastructure and £10.6m (H1 FY17: £6.5m) on the acquisition and fit out of stores. Net proceeds from the sale of assets during the period are £nil (H1 FY16: £3.4m).

Capital commitments contracted but not provided for at the end of the period are £1.8m (H1 FY17: £0.3m) for core IT infrastructure relating to the ERP project.

 

 

14.  Retirement benefit obligation

	26 weeks to 28 October 2017 £m	26 weeks to 29 October 2016 £m	52 weeks to 29 April 2017 £m
Deficit in scheme at beginning of period	(3.2)	(2.2)	(2.2)
Net interest expense	-	-	(0.1)
Employer contributions	0.4	0.5	0.9
Actuarial gains/(losses)	2.6	(2.0)	(1.8)
Deficit in scheme at end of period	(0.2)	(3.7)	(3.2)
Fair value of pension scheme assets	30.1	30.8	29.5
Present value of pension scheme obligations	(30.3)	(34.5)	(32.7)
Retirement benefit obligations	(0.2)	(3.7)	(3.2)

 

The key assumptions used, determined in conjunction with independent qualified actuaries, are:

	28 October 2017 £m	29 October 2016 £m	29 April 2017 £m
RPI inflation	3.4	3.5	3.5
Discount rate	2.6	2.7	2.5

The mortality rates assumptions are taken from the S2NXA CML 2016 (2017 S2NXA CML 2013) with medium cohort improvements, at a minimum of 1.25% pa.

 

Notes to the financial statements

 

The amount of the deficit varies if the main financial assumptions change, particularly the mortality and discount rate.  The sensitivity of a 0.1% change in these assumptions is shown below:

		26 weeks to 28 October 2017 £m	52 weeks to 29 April 2017 £m
Increase/(decrease) by 0.1%	Discount rate	0.5	0.6
Increase/(decrease) by 0.1%	RPI inflation or CPI inflation	0.3	0.4
Increase/(decrease) by 1 year	Life expectancy	0.8	1.2

 

15.  Related party transactions

The Group's significant related parties are disclosed in the Group's 2017 annual financial statements. There were no material differences in related parties or related party transactions in the period compared to the prior period.

 

16.  Events after the reporting period

There have been no events after the reporting period that require further disclosure or have a material impact on the interim financial statements.

 

Principal risks and uncertainties

The Board considers that the principal risks and uncertainties which could have a material impact on the Group's performance in the remaining six months of the financial year remain the same as those stated on pages 26-27 of the 2017 Annual Report and Accounts, which are available on our website www.carpetright.plc.uk.

In summary, the Group is subject to the same general risks as many other businesses; for example, changes in general economic conditions, currency and interest rate fluctuations, changes in taxation legislation, cyber-security breaches, failure of our IT infrastructure, the cost of our raw materials, the impact of competition, political instability and the impact of natural disasters.

The Group uses its risk management process as described on page 24 of the 2017 Annual Report and Accounts to identify, monitor, evaluate and escalate such issues as they emerge, enabling management to take appropriate action wherever possible in order to control them and also enabling the Board to keep risk management under review.

Additional risks and uncertainties currently unknown, or which are currently believed immaterial, may also have an adverse effect on the Group.

 

Forward looking statements

Certain statements in this half year 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.

 

Statement of Directors' responsibilities

The Directors' confirm that these condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

 

·      an indication of important events that have occurred during the first six months and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      Material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report

The Directors of Carpetright plc are listed in the Carpetright plc Annual Report for 29 April 2017, and on the Group's corporate website www.carpetright.plc.uk.

 

 

By order of the Board

 

 

 

 

 

 

Wilf Walsh	Neil Page
Chief Executive	Chief Financial Officer

 

12 December 2017   

 

 

 

Independent review report to Carpetright plc

 

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed Carpetright Plc's condensed consolidated interim financial statements (the 'interim financial statements') in the interim results announcement of Carpetright Plc for the 26 week period ended 28 October 2017. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

What we have reviewed

The interim financial statements comprise:

 

·      the Condensed consolidated balance sheet  as at 28 October 2017;

·      the Condensed consolidated income statement and Condensed consolidated statement of comprehensive income for the period then ended;

·      the Condensed consolidated statement of cash flows for the period then ended;

·      the Condensed consolidated statement of changes in equity for the period then ended; and

·      the explanatory notes to the interim financial statements.

 

The interim financial statements included in the interim results announcement have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

Responsibilities for the condensed consolidated interim financial statements and the review

Our responsibilities and those of the directors

The interim results announcement, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim results announcement in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Our responsibility is to express a conclusion on the interim financial statements in the interim results announcement based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

We have read the other information contained in the interim results announcement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

London

12 December 2017

 

Notes

a)      The maintenance and integrity of the Carpetright Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

b)     Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.