(UCG.L) United Carpets Group PLC Buy/Sell

Paul Eyre, Chief Executive, said:

'After a relatively slow start to the year, the second quarter over the summer period was very positive resulting in like for like sales up 2.5% for the period, an excellent result given the wider economic uncertainty and strong comparatives. Our focus on countering consumer caution by delivering excellent value for money has been effective. Equally pleasing has been the successful conversion of a significant number of corporate stores to franchisees so that today we have 10 corporate stores compared to 23 at the outset of the financial year. Trading has continued to be positive since the period end, giving the Board sufficient confidence to re-instate the interim dividend."

Enquiries: United Carpets Group plc
Paul Eyre, Chief Executive 01709 732 666

Ian Bowness, Finance Director Cardew Group
Tim Robertson 020 7930 0777

Jamie Milton Seymour Pierce
Jonathan Wright 020 7107 8000

Chairman's statement

I am pleased to announce the Group's interim results for the six months ended 30 September 2009. In what has been a very difficult economic environment the Group has delivered a positive first half performance with revenues increasing to £14.06m and profit before tax increasing to £0.7m. Total store numbers have remained constant during this period at 80, with management focus on franchising the majority of our corporate stores. As a result we now have 10 corporate stores compared to 23 at the start of the financial year. We have also sought to take advantage of our market position by emphasising the excellent value for money we offer in comparison to the wider market and the success of this approach has been reflected in the Group's financial performance.

Financial review

Revenue, which as in previous years includes marketing and rental costs incurred by the Group and recharged to franchisees, increased by 11.4% to £14.06m (2008: £12.62m). Franchising revenue increased by 20.0%, broadly in line with the increase in average franchisee numbers; Flooring revenue reduced by 4.7%, as corporate stores were franchised; Beds revenue increased 25.9%, reflecting strong like for like growth and Trade sales increased by 18.3%, as the service to the network continued to develop. 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), increased by 11.8% to £34.51m (2008: £30.88).

Like for like sales across the whole of the network were up 2.5% compared to the previous period. Given United Carpets' franchise structure, like for like sales are not 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 sales performance, the core floor coverings business achieved a 1.6% like for like increase on the previous year whilst bed like for like sales increased strongly by 11.2%. Although only approximately 12% of overall sales, this was an encouraging contribution from the Beds division.

Gross margin of 65.1% compares to 65.4% in the same period last year and 64.0% for the full year to 31 March 2009. Changes in the proportion of Group revenue from Franchising compared to that from Flooring, Beds and Trade Sales impacts on gross margin and the improvement in comparison to the year ended 31 March 2009 reflects the increasing proportion of total revenue from Franchising as corporate stores have been successfully franchised.

Distribution costs include staff costs at the corporate stores and whilst these have reduced in line with Flooring turnover, this has been offset by a strengthening of the Beds field support team resulting in an overall increase of 9.5% in distribution costs.

Administrative expenses include store occupancy costs and marketing expenditure and the increase of 10.3% in comparison to the same period in the prior year principally reflects the increase in average store numbers between the two periods.

Overheads (being distribution costs and administrative expenses excluding exceptional items) as a proportion of sales were 60.9% (2008: 61.2%).

Profit before tax increased by 10.2% to £702,000 (2008: £637,000). Earnings per share were 0.56p (2008: 0.51p).

The balance sheet continues to be robust with no borrowings, other than a small number of minor hire purchase contracts, and cash balances of £1.4m (2008: £0.9m). Trade and other receivables have increased as a result of the higher number of corporate stores franchised during the period.

Dividend

Last year, the Board decided in view of the challenging environment to withhold the interim dividend and preserve the financial strength of the Company. Since then, whilst the trading environment remains uncertain, the Company has performed well and the Board is pleased to announce the re-instatement of an interim dividend of 0.25p per share. The dividend will be paid on 28 January 2010 to those shareholders whose names are on the register on 8 January 2010.

Operations review

As a franchise business we believe our model has natural advantages over the more traditional retailer. Each of our franchised stores is run by an owner-manager which means they are naturally more incentivised to succeed whilst still benefitting from the advantages of being part of a larger branded network. This is an important factor at a time when customers are feeling cautious as a result of the economic environment and job security is lower than it has been historically. To counter the current market environment, the Group has focused on highlighting the excellent value for money our products represent in comparison to the wider market and as a result we believe we have benefitted from customers seeking to find the best deals available. Like for like sales across the whole of the network were an encouraging 2.5% up on the previous year.

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.

Advertising is a key part of the Group's marketing strategy, aimed at increasing brand awareness and promoting individual offers underlining 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 to make it economic. We also use radio, print and direct advertising strategies to increase brand awareness and drive sales across the Group. Advertising strategies are devised for individual stores, regionally and across the whole network of stores.

Allied Carpets, which was the second largest operator in the market, closed the majority of its stores during August 2009 and those of our stores which trade in close proximity to a former Allied Carpets store have seen a modest uplift in sales despite the customer perception that Allied Carpets catered for the more expensive sector of the market.

The Group ended the period under review with 80 branded stores across Northern and Central England. With the exception of 17 corporate stores, these were all franchises operating under United Carpets' bespoke franchise model.

Franchising

In 2008, the Company expanded rapidly adding 15 new stores many of which opened as corporate stores as there was no suitable franchisee available at the time. At the outset of this financial year, a key focus has been to franchise the majority of our corporate stores, and we have made excellent progress.

We began the year with 57 franchised stores. During the period we franchised 9 stores and converted 3 stores back into corporate stores due to underperformance and ended the period with 63 franchised stores. We have not had to close any stores which we believe reflects the Group's increasing efficiency in identifying the right franchisees and addressing any issues that arise early in the process. We have in certain circumstances switched franchisees from one franchised store to another with good effect.

Since the period end we have franchised a further 8 corporate stores and successfully opened a new franchised store in Peterborough giving us 72 franchised stores currently. In addition we have in place an excellent pipeline of potential franchisees.

Flooring

We started the period with 23 corporate stores, 3 stores were taken back into the corporate arm and 9 were successfully franchised during the half to give 17 corporate stores at the period end. Since then one new corporate store has successfully opened in Halifax and a further 8 corporate stores have been re-franchised to give 10 corporate stores currently. We aim to retain three corporate stores as core stores, to enable training and product development with the remainder expected to be franchised during the next 12 months.

On a like for like basis floor coverings sales have continued to be positive. As part of an ongoing process we have expanded our carpet ranges sourced centrally which enable us to provide highly competitive pricing.

Beds

We are very pleased to report that the Beds division is now beginning to fulfil its potential with like for like sales up 11.2% during the period. Sales of beds are a natural addition to flooring and we are now seeing the opportunity for related sales being pursued more effectively by franchisees across the store network. Over the last twelve months, the Group has introduced new ranges, simplified the sales process and improved customer service and the benefit of these actions is now becoming apparent.

Trade sales

The Group's in-house cutting operation for flooring continues to improve in efficiency and service and sales to the franchised network increased by 18.3% in the period. The service to stores has been further enhanced by the introduction of 7 day a week coverage which is expected to bring further benefits in the future.

People

The Group now directly and indirectly employs over 450 people, all of whom have contributed to the Group's positive financial performance. The Board would like to take this opportunity to thank everyone associated with the Company for their support and dedication. We look forward to achieving a good result for this financial year and continuing to work together in the future.

Outlook

Despite the concerns over the economic environment the business is in a good position and customers who perhaps delayed purchases now appear more willing to consider buying. The relatively stable levels of income for those in employment and a relatively stagnant housing market are leading many people to opt to invest in their existing homes as opposed to moving. Our trading performance has been solid, generating positive like for like sales and in the 10 weeks since the period end like for like sales have increased by 6.4%. We are delighted with our progress on franchising corporate stores and whilst this process will continue, we also remain committed to expanding the business. There remains significant scope to infill new stores within our target regions and utilizing our franchise model we are well placed to continue to expand our network at a suitable pace.

Peter Cowgill

Chairman

INDEPENDENT REVIEW REPORT TO UNITED CARPETS GROUP PLC

Introduction

We have reviewed the accompanying condensed consolidated interim balance sheet of United Carpets Group plc as at 30 September 2009 and the related condensed consolidated interim income statement, condensed consolidated statement of changes in equity and condensed consolidated interim statement of cash flows for the six month period then ended. Management is responsible for the preparation and fair presentation of this interim financial information in accordance with applicable law. Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, 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 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.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not prepared, in all material respects, in accordance with applicable law.

Tenon Audit Limited

Statutory Auditor

Nottingham

17 December 2009

Condensed consolidated interim income statement

For the six months ended 30 September 2009
6 months 6 months
ended 30 ended 30 Year ended
September September 31 March

Unaudited Unaudited Audited
Total Total Total
£'000 £'000 £'000
Note
Revenue 2 14,062 12,624 26,792
Cost of sales (4,913) (4,373) (9,658)
Gross profit 9,149 8,251 17,134
Distribution costs (1,669) (1,524) (2,898)
Administrative expenses (6,841) (6,200) (13,834)
Other operating income 61 50 119

Profit on disposal of
property, plant and equipment - 3 4
Adjusted operating profit* 651 580 1,294
Impairment of property, plant - - (200)

and equipment
Decrease/(increase) in 49 - (569)

provision against onerous leases

Operating profit before 700 580 525

financing costs

Financial income 4 58 73
Financial expenses (2) (1) (3)
Profit before tax 702 637 595
Income tax expense 3 (246) (223) (271)
Profit for the period 2 456 414 324
Basic earnings per share 5 0.56p 0.51p 0.40p
Diluted earnings per share 5 0.56p 0.51p 0.40p

All amounts are attributable to the equity holders of the parent, and all arise from continuing operations. No amounts were recognised directly in equity, and therefore no separate statement of other comprehensive income has been presented.

Condensed consolidated interim balance sheet

As at 30 September 2009
30 September
2008 31 March
Unaudited 2009
30 September Total Audited
2009 £'000 Total
Unaudited £'000
Total
£'000
Note

Non-current assets

Property, plant and 4 5,393 5,070 5,455

equipment

Current assets

Inventories 2,659 2,884 2,763
Trade and other 4,057 2,994 2,766

receivables

Cash and cash equivalents 1,380 934 1,848
8,096 6,812 7,377
Total assets 13,489 11,882 12,832

Equity
Issued capital 4,070 4,070 4,070
Share premium 1,106 1,106 1,106
Reserves (2,660) (2,745) (2,699)
Retained earnings 2,802 2,984 2,446
Total shareholders' equity 5,318 5,415 4,923

Non-current liabilities

Financial liabilities - 81 70 76

borrowings

Trade and other payables 2,054 1,643 1,826
Provisions 542 22 591
Deferred tax liabilities 126 234 126
2,803 1,969 2,619

Current liabilities

Financial liabilities - 48 27 39

borrowings

Trade and other payables 4,863 4,229 5,011
Current tax liabilities 457 242 240
5,368 4,498 5,290
Total liabilities 8,171 6,467 7,909
Total equity and liabilities 13,489 11,882 12,832

Condensed consolidated statement of changes in equity

For the six months ended 30 September 2009
Share premium Share-based payment
Share capital account Retained earnings Merger reserve reserve
£'000 £'000 £'000 £'000 £'000
At 1 April 2008 4,070 1,106 2,570 (3,110) 321
Profit for the period - - 414 - -
Dividends paid - - - - -
Share-based payments - - - - 44
At 30 September 2008 4,070 1,106 2,984 (3,110) 365
At 1 April 2009 4,070 1,106 2,446 (3,110) 411
Profit for the period - - 456 - -
Dividends paid - - - - -
Share-based payments - - (100) - 39
At 30 September 2009 4,070 1,106 2,802 (3,110) 450

Condensed consolidated interim statement of cash flows

For the six months ended 30 September 2009
6 months ended 30 6 months ended 30
September September Year ended
2009 2008 31 March
Unaudited Unaudited 2009
Total Total Audited
£'000 £'000 Total
£'000
Note

Cash flows from operating activities
Cash generated from operations 8 (66) 819 3,341
Interest paid (2) (1) (3)
Income taxes paid (29) (235) (393)
Net cash from operating (97) 583 2,945

activities

Cash flows from investing activities
Proceeds from sale of 18 4 4

property, plant and equipment
Interest received 4 58 73
Acquisition of property, plant (373) (1,143) (2,141)

and equipment
Net cash from investing (351) (1,081) (2,064)

activities

Cash flows from financing activities
Payment of finance lease (20) (16) (33)

liabilities
Dividends paid - - (448)
Net cash from financing (20) (16) (481)

activities

Net decrease)/increase in cash (468) (514) 400

and cash equivalents
Cash and cash equivalents at 1,848 1,448 1,448

start of period
Cash and cash equivalents 1,380 934 1,848

Notes to the condensed consolidated interim financial statements

1. Basis of preparation

United Carpets Group plc (the "Company") is a company domiciled in the United Kingdom. The condensed consolidated interim financial statements of the Company for the six months ended 30 September 2009 comprise the Company and its subsidiary undertakings (together referred to as the "Group").

The Group financial statements for the year ended 31 March 2009 were approved by the Board of Directors on 24 September 2009 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 237 of the Companies Act 1985. These condensed consolidated interim financial statements do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985. These condensed consolidated interim financial statements for the period ended 30 September 2009 are unaudited but have been reviewed by the auditors and their Independent Review Report is included with these statements.

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2009.

2. Segment reporting

Segment information is presented in the condensed consolidated interim financial statements in respect of the Group's business segments, which are the primary basis of segment reporting. The business segment reporting format reflects the Group's management and internal reporting structure.

Inter-segment pricing is determined on an arm's length basis.

Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Business segments

The Group is comprised of the following main business segments:
· Franchising
· Flooring
· Beds
· Trade sales

For the six months ended 30 September 2009
Franchising Flooring Beds Trade sales Consolidated

£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Segment revenue 5,329 4,441 4,571 4,795 2,553 2,028 1,609 1,360 14,062 12,624
Segment result 1,161 926 (198) (50) 171 149 16 54 1,150 1,079
Unallocated expenses (450) (499)
Operating profit 700 580
Net financing income 2 57
Income tax expense (246) (223)
Profit for the period 456 414

3. Income taxes

The tax charge accrued in these interim results reflects an estimated tax rate of 35% (30 September 2008: 35%) as a result of expenses not deductible for tax purposes and non-qualifying depreciation.

4. Property, plant and equipment

Acquisitions and disposals

During the six months ended 30 September 2009, the Group acquired assets with a cost of £407,000 (six months ended 30 September 2008: £1,143,000). Assets with a net book value of £18,000 were disposed of during the six months ended 30 September 2009 (six months ended 30 September 2008: £1,000), resulting in a gain on disposal of £Nil (six months ended 30 September 2008: £3,000).

Capital commitments

There were no capital commitments contracted for but not provided for at the period end (30 September 2008: £Nil).

5. Earnings per share

Basic earnings per share

The calculation of basic earnings per share for the six months ended 30 September 2009 was based on the profit attributable to ordinary shareholders of £456,000 (six months ended 30 September 2008: £414,000, year ended 31 March 2009: £324,000) and a weighted average number of ordinary shares outstanding during the six months ended 30 September 2009 of 81,400,000 (six months ended 30 September 2008: 81,400,000, year ended 31 March 2009: 81,400,000).

Diluted earnings per share

There are no share options which give rise to a dilution at 30 September 2009 (30 September 2008: 1,428,571, March 2009: Nil).

The calculation of diluted earnings per share for the six months ended 30 September 2009 was based on profit attributable to ordinary shareholders of £456,000 (six months ended 30 September 2008: £414,000, year ended 31 March 2009 £324,000) and a weighted average number of ordinary shares outstanding during the six months ended 30 September 2009 of 81,400,000 (six months ended 30 September 2008: 81,549,005, year ended 31 March 2009: 81,400,000), calculated as follows:

At 30 September At 31 March

Weighted average number of ordinary 81,400,000 81,400,000 81,400,000

shares at period end
Effect of share options in issue - 149,005 -

(dilutive)
Weighted average number of ordinary 81,400,000 81,549,005 81,400,000

shares (diluted)

6. Employee benefits

Pension plans

The Group provides employee benefits under defined contribution pension plans, the details of which are disclosed in the most recent annual financial statements.

Expense recognised in the consolidated interim income statement

The expense recognised in the consolidated interim income statement consists of contributions made to the defined contribution scheme. For the six months ended 30 September 2009, the Group recognised expense of £42,000 (six months ended 30 September 2008: £44,000, year ended 31 March 2009: £107,000).

Notes to the condensed consolidated interim financial statements

7. Financial instruments

Interest-bearing loans and borrowings

In the opinion of the directors there is no significant difference between the fair value of hire purchase contracts and the carrying value in the financial statements.

Trade and other receivables/payables

The carrying value is deemed to reflect the fair value for all trade and other receivables/payables.

8. Cash flows from operating activities

6 months ended 30 6 months
September 2009 ended 30 Year ended
September 2008 31 March

£000 £000 £000
Profit before tax 702 637 595
Depreciation of property, 451 389 838

plant and equipment
Impairment of property, plant - - 200

and equipment
Profit on disposal of - (3) (4)

property, plant and equipment
Share-based payment expense (61) 44 90
Decrease/(increase) in 104 (537) (416)

inventories
(Increase)/decrease in trade (1,291) 244 472

and other receivables
Provision against onerous (49) - 569

leases
Increase in trade and other 80 102 1,067

payables
Financial income (4) (58) (73)
Financial expense 2 1 3
(66) 819 3,341

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