UNITED CARPETS GROUP plc

Interim results for the period ended 30 September 2011

United Carpets Group plc ("the Group" or "the Company" or "United Carpets"), the second largest chain of specialist retail carpet and floor covering stores in the UK, today announces its interim results for the period ended 30 September 2011.

Key points

·      Network sales increased 1.9% to £34.86m (2010: £34.20m)

·      Revenue edged up to £13.47m (2010: £13.36m)

·      Like for like gross sales 0.8% below the previous year

·      Adjusted operating profit* decreased to £308,000 (2010: £534,000)

·      Profit before tax was £267,000 (2010: £604,000)

·      Cash and cash equivalents of £1.72m (2010: £1.85m)

·      Like for like gross sales since the period end to 15 December 2011 up 4.4%

* Adjusted operating profit excludes impairment of property, plant and equipment, charges/releases in respect of onerous contracts and profits/losses on disposal of property, plant and equipment,

Paul Eyre, Chief Executive, said:

'We are pleased to have maintained a similar level of sales to last year given the continued uncertainty and inflationary increases impacting upon UK consumers. We have benefitted from our franchise model and our focus on providing good value to our customers but the increase in the number of less productive corporate stores together with a difficult trading environment for beds has adversely affected profitability in this period. Overall, I believe this represents a reasonable performance in a challenging market but, while there is so much uncertainty in the UK and across Europe, the Board believes it is important to adopt a conservative approach and looks to preserve the Group's current financial position."

Enquiries:

Chairman's statement

The Group has delivered a reasonable performance in a difficult market environment, benefiting from operating its established franchise model and its focus on offering product ranges that represent real value for money for customers. Sales  levels have been maintained close to the previous year demonstrating the Group's continuing customer appeal and although Group profitability decreased as a result of a higher number of corporate stores, it is believed that gains in market share have been achieved.

Financial review

Network sales across the Group, including the value of retail sales by our franchisees (to give a measure of the Group's turnover on a more comparable basis to a conventional retailer), were slightly up at £34.86m (2010: £34.20m). Revenue, which as in previous years includes marketing and rental costs incurred by the Group and recharged to franchisees, was just ahead of last year at £13.47m (2010: £13.36m).

Like for like gross sales across the whole of the network were just 0.8% lower compared to the previous period. Given United Carpets' franchise structure, like for like sales are not necessarily the best measure of the Group's financial performance but they do provide a good steer on the overall trading performance. Within the like for like gross sales performance, the core flooring business was up 0.2% whilst bed sales were down by 11.7%. As we have seen before, when the general environment is more challenging, customers tend to put off the purchase of higher value items such as beds to a greater degree than for the more affordable flooring items.

Gross margin of 66.0% compares to 66.3% in the same period last year and 66.6% for the full year to 31 March 2011. Gross margins in each reported business segment have shown modest improvements in comparison to the same period last year and to the full year to 31 March 2011. The small reduction in overall gross margin principally reflects the increased proportion of warehouse revenue (at relatively low rates of gross margin) to total revenue as the in-house cutting operation continues to expand.

Distribution costs, which rose by 3.1% in comparison to the same period last year, include staff costs at the corporate stores and the increase arises from the increase in the average number of corporate stores. During the period, costs of £42,000 were incurred clearing sites in Mexborough (re-location) and South Emsall (closure). Adjusting for exceptional items in both periods, administrative expenses increased by 3.2% as a result of the increase in the average number of corporate stores.

Profit before tax was £267,000 (2010: £604,000) and earnings per share were 0.22p (2010: 0.48p).

Other than a small number of minor hire purchase contracts, the Group has no borrowings and cash and cash equivalents as at 30 September 2011 were £1.72m (2010:  £1.85m).

Dividend

Reflecting the current market environment and continued political uncertainty, the Board believes that it is important to preserve the current financial position of the Group. As a result, to conserve cash, the Board has decided not to pay an interim dividend and will review the payment of a final dividend at the time of the full year results.

Operations review

The majority of Group revenues are derived from the sale of floor coverings, predominantly carpet, laminate and vinyl flooring through franchised stores and the Group's own corporate stores.  The Group ended the period under review with 85 branded stores across Northern and Central England, compared to 86 at the end of the previous financial year. With the exception of 17 corporate stores, the remaining 68 were all franchises operating under United Carpets' bespoke franchise model.

During the period the central management team was reshaped with the appointments of Mark Prior and Paul Newton as Operations Managers. Mark has previously been Managing Director of a large, multi-site flooring retailer and Paul has previously held Operations Directors roles in two major flooring retailers. Ray Tricker, who was Retail Operations Director, left after nearly 5 years with the Company during which time he was influential in the expansion of the store portfolio. On behalf of the Board, I would like to thank Ray for his significant contribution to the Group. Both Mark and Paul join with extensive retail experience and have already begun to introduce new practices across the Group. Greater emphasis is being placed on performance management within the stores, both franchised and corporate, utilizing information from the recent investments in retail systems and footfall counting. Early indications are encouraging and these self-help initiatives will continue to be developed to further drive sales during this prolonged period of difficult trading conditions.

There is no doubt it is a challenging market environment for retailers and we believe the United Carpets franchise model has important competitive advantages such as scale and each franchised store being operated by an owner manager. We continue to see opportunities to enhance our customer appeal through the value, quality and range of products we offer accompanied by our desire to give exceptional customer service. It is in these areas that our management team has been focused and we continue to provide a truly diversified product range with a particular emphasis on providing 'value for money' offers that aim to differentiate United Carpet stores from independent operators and other smaller chains.  

Advertising remains a key part of the Group's marketing strategy, aimed at increasing brand awareness and promoting individual offers that underline our value for money ranges. In the period under review, we continued to carry out television advertising in targeted areas where we have sufficient critical mass of stores for this to generate economic returns. We also use radio, print and direct advertising strategies to increase brand awareness and drive sales across the Group. Utilising the better information that we now have on footfall and other sales statistics, we are able to monitor the results of our marketing spend more closely and increasingly adapt our approach to improve the effectiveness of that spend.

Franchising

Store numbers during the period have remained broadly flat over the last 12 months with just one store closure in the period (South Emsall) and currently there are 85 United Carpet stores of which 68 are franchised. The focus continues to be upon securing quality candidates for existing corporate stores over and above increasing the total number of stores. The Group also continues to manage the store portfolio and, where appropriate, taking those franchised stores which underperform, back in-house with a view to improving performance and then seeking to re-franchise them over time. Whilst our successful franchisees have continued to perform well during these difficult times, a number of franchisees have experienced significant difficulties and the Group continues to support those franchisees whenever it is practical to do so. Inevitably some will however fail and this may adversely impact on the Group.

Retail

The majority of Group revenues are derived from sales of flooring which, as a result of the self-help initiatives previously referred to, have been reasonably resilient and on a like for like basis gross sales were 0.2% up against last year in the period under review. However in a number of cases, considerable effort is needed to improve performance to an acceptable level with the results of the Retail division being adversely affected in the meantime. The ranges have continued to evolve and we have probably benefitted from a milder period of weather this year. Since the half-year, trading has been positive on a like for like basis with flooring sales up 4.9% for the 11 weeks since 30 September 2011. Whilst sales have been more encouraging, it is important to remember that this period last year included two weeks of heavy snowfall which significantly affected the comparative figures.

Beds

Sales of beds have been disappointing and the decrease in sales was a significant factor in the reduced profitability for the period. Since the period end there has been some improvement in the level of bed sales and on a like for like basis gross sales were down 2.1% for the 11 weeks since 30 September 2011. It remains a key focus for the management team to support bed sales and transfer knowledge and experience around the Group to help do this.

Warehouse

During the period, sales to the franchised network increased by 20%, on top of a similar increase last year. Whilst this division is now close to breakeven, it is not intended to be a primary profit driver as it is a critical cutting and distribution service for the Group to offer, ensuring all stores are able to provide a high quality service at excellent value for money.

People

As always the Board would like to thank all those involved directly or indirectly with the Group for their significant contributions as franchisees, supplier partners and colleagues and looks forward to continuing to work closely together in 2012.

Outlook

Despite the continuing uncertainty surrounding the economic recovery and the outlook for Europe, sales in the 11 weeks since the half-year have, as noted above, shown some encouraging signs with overall like for like gross sales up 4.4% against weather affected comparatives although the Board remains cautious with regard to the outlook. This is primarily driven by the wider market conditions and the expectation that there is unlikely to be a significant improvement in the short term. However, the Board is confident that the Group through its franchise structure, focus on the value end of the market and with the opportunity to further exploit self-help initiatives, is well positioned to deliver better performance from the existing network of stores and take advantage of any upturn in the economy when it is eventually realised.

Peter Cowgill

Chairman