TIDMCPR
RNS Number : 0387K
Carpetright PLC
11 December 2018
Carpetright plc
Interim Results Announcement for the 26 weeks ended 27 October
2018
"RESTRUCTURING PROGRAMME ON SCHEDULE AND IN LINE WITH MANAGEMENT
EXPECTATIONS"
Strategic progress
-- In a transitional year, on track to deliver GBP19m annualised cash savings:
o Legacy property issues being addressed with 65 underperforming UK stores closed in the period
o Implementation of restructuring activity reducing the Group's overhead costs
-- In the UK, average store lease length has been reduced to 3.5 years, with 52% having an option
to break within two years, providing further flexibility to reduce store size and/or relocate
in a fast changing retail environment
-- Refurbished stores continue to outperform the uninvested estate
-- Strengthened product ranges across all categories, particularly hard flooring with launch
of own brand laminate and luxury vinyl tile ranges
-- Further investment in digital technology to improve both the online and in-store experience
with planned implementation in Spring 2019
Financial Headlines
Group
-- Group revenue decreased 15.7% to GBP191.1m (H1 FY18: GBP226.6m)
-- Underlying EBITDA loss of GBP1.7m (H1 FY18: profit of GBP8.6m)
-- Statutory loss before tax of GBP11.7m (H1 FY18: loss of GBP0.6m)
-- Period end net debt of GBP12.4m (Year end 28 April 2018: net debt of GBP53.0m) reflecting:
o Proceeds received from June's equity issue
o Tight management of working capital and capital expenditure
o Implementation of restructuring activity
o Headroom in bank facilities of GBP58.8m
UK
-- Like-for-like sales declined 12.7% over the half but with a
marked sequential improvement, with the second quarter down
8.9%, this followed a 16.8% fall in the first quarter which
reflected the challenges around stock availability, negative
sentiment associated with the restructuring process and weak
consumer demand
-- Underlying EBITDA loss of GBP2.1m (H1 FY18: profit of GBP8.4m)
Rest of Europe
-- Following management changes, like-for-like sales increased
by 0.5% (H1 FY18: growth of 6.5%) - a significant improvement
from the decline experienced in the second half of the previous
financial year
-- Underlying EBITDA of GBP0.4m (H1 FY18: GBP0.2m)
Commenting on the results, Wilf Walsh, Chief Executive,
said:
"This is a transitional year for Carpetright as we work through
our restructuring plan. We remain on schedule and are confident
that this activity is already starting to yield benefits. This is
the first stage in returning the Group to sustainable long term
profitability."
Group financial summary
H1 FY18 (note
H1 FY19 7)
GBPm GBPm Change
BUSINESS PERFORMANCE
-------- -------------- ---------
Group revenue 191.1 226.6 (15.7%)
-------- -------------- ---------
UK 149.6 184.6 (19.0%)
-------- -------------- ---------
Rest of Europe 41.5 42.0 (1.2%)
-------- -------------- ---------
Underlying EBITDA (1.7) 8.6 (119.8%)
-------- -------------- ---------
UK (2.1) 8.4 (125.0%)
-------- -------------- ---------
Rest of Europe 0.4 0.2 100.0%
-------- -------------- ---------
Underlying (loss)/profit before
tax (12.4) 1.2
-------- --------------
Underlying (loss)/earnings per
share (5.0p) 0.7p
-------- --------------
Net debt (12.4) (22.8)
-------- --------------
STATUTORY REPORTING
-------- --------------
Separately reported items 0.7 (1.8)
-------- --------------
Loss before tax (11.7) (0.6)
-------- --------------
Basic loss per share (4.8p) (1.8p)
-------- --------------
Notes
1. Revenue represents amounts payable by customers for goods and
services after deducting VAT and other charges.
2. 'Underlying' excludes separately reported items and related tax.
3. Net debt is calculated as the total of cash-in-hand, or at
bank, offset by borrowings, finance leases and unamortised
fees.
4. Sales represents amounts payable by customers for goods and
services before deducting VAT and other charges.
5. Like-for-like sales are defined as those stores which
categorised within the CVA process as 'A' and 'B' and those stores
outside the CVA process (e.g. freeholds) that have been trading
continuously during the period and for a full 12 months at the
start of the current financial year.
6. Comparative period is the 26-week period ended 28 October 2017.
7. The Group adopted IFRS 15 - "Revenue from Contracts with
Customers" from 29 April 2018. The accounting standard has been
retrospectively applied resulting in restatements to prior year
comparatives. Under the new standard, the point at which revenue is
recognised has changed and due to IFRS 15's definition of 'transfer
of control', revenue will be deferred and recognised at a later
date than previously recorded under IAS 18. Underlying profit
before tax for H1 2018 has decreased by GBP0.9m, from a profit of
GBP2.1m to GBP1.2m. This revenue has been subsequently recognised
in the second half of FY 2018, with the overall full year impact on
the income statement being a GBP0.3m reduction in the underlying
loss before tax from GBP8.7m to GBP8.4m. This deferral of revenue
also impacts the previous period and therefore the period on period
impact is not considered to be material.
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. The Group undertakes no obligation to update
any forward looking statements whether as a result of new
information, future events or otherwise.
Results presentation
Carpetright plc will hold a presentation to analysts at Citigate
Dewe Rogerson, 3 London Wall Buildings, London Wall, London EC2M
5SY at 09:00 today.
A copy of this statement and the presentation will be made
available on our website www.carpetright.plc.uk
For further enquiries please contact:
Carpetright plc
Wilf Walsh, Chief Executive
Officer
Neil Page, Chief Financial
Officer
Tel: 01708 802000
Citigate Dewe Rogerson
Kevin Smith / Nick Hayns
Tel: 020 7638 9571
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
The restructuring activity undertaken during the period is
addressing the fundamental financial challenge facing the Group -
legacy property costs which had become an increasingly
unsupportable burden over recent years. This process is necessary
to resolve the significant historical UK property issues and to
improve liquidity. I would like to thank shareholders, lending
banks, landlords, suppliers and colleagues for the support they
have given to the Group during this difficult period.
The results for the first half reflect a challenging six months.
Having secured the necessary creditor approvals and financing, the
implementation phase of the restructuring process commenced in
earnest during the second quarter. While these measures inevitably
impacted on our financial performance in the period, I am pleased
to say that our plans to realise GBP19m of annualised savings are
on schedule.
This is the first stage in returning the Group to sustainable
long term profitability.
UK
The restructuring activity was concentrated on our UK store
estate, against a backdrop of turmoil across the UK retail sector.
It would be wrong to blame the media for reporting the facts that
we issued two profit warnings and implemented a Company Voluntary
Arrangement ("CVA"). However, we must recognise that negative
headlines did impact on both our colleagues' and customers'
confidence in our brand. Unlike other retailers going through a
similar process, you don't generally pick a product up from the
shelves in our stores - we ask customers to leave a deposit ahead
of delivery and this clearly became a significant issue for some
during this period. This uncertainty can be seen in our UK
performance with like-for-like sales being down 16.8% in the first
quarter. The rate of decline reduced to 8.9% in quarter two as the
negative brand impact reduced and we increased our investment in
advertising with a clear message, "carpetright.for life" - brand
perception has improved since the campaign launch and we remain the
clear market leader.
In terms of our legacy property portfolio, of the 81 trading
stores designated as Category C within the CVA, we closed 54 in the
period, with a further two stores expected to close in the second
half. The balance of 25 stores are anticipated to continue to trade
on nil rent as these landlords have opted to let us to continue to
pay the business rates, while avoiding an empty unit on their
retail park (these stores remain under a 60-day notice period). In
addition, a further eleven Category B stores have closed where the
landlord has exercised an option to take back the lease, with an
expectation of a further nine closures in the second half. Over 52%
of our UK stores now have an option to break within two years,
providing further flexibility to downsize and/or relocate in a fast
changing retail environment.
The store closure programme has been extensive along with,
regrettably, a number of redundancies in both stores and our head
office as we rebase the business in line with the reduced store
estate.
During the period we continued to focus on developing our
authority in the hard flooring category. We have launched our own
brand "Tegola" ranges in both laminate and luxury vinyl tiles,
alongside extended zones to display a wider range in the category.
The initial results are encouraging and we aim to expand this
activity in the second half.
Margins were under pressure during the period, with reduced
footfall and an increasingly competitive market place. This led us
to increase in the size of promotional discounts as we sought to
maintain sales volumes. This reduction in the margin rate was in
line with our guidance for the period given in June 2018.
As previously announced, a withdrawal of credit insurance by
certain providers caused us some stock problems early in the
period. However, I am pleased to report that our maintained
position as market leader is now ensuring we are moving closer to
the terms we enjoyed with the majority of our suppliers prior to
the implementation of the CVA.
We have continued to invest in digital technology to improve
both the online and in-store experience. I am excited about the
transformational effect this will have on sales and service. This
project will go live in Spring 2019.
We have paused the store refurbishment programme temporarily,
while we achieve clarity on the shape of our UK store portfolio.
The introduction of our new branding and contemporary store fit,
creating a modern shopping environment for our customers, remains
central to the recovery plan. The strategic sense of this
investment is evident in the store sales figures, with refurbished
stores outperforming the uninvested estate. As at the period end
date, we have 188 stores trading under the new brand. We intend to
re-start the refurbishment activity in the second half.
Rest of Europe
Under new leadership, our European business delivered
like-for-like sales growth of 0.5% in the first half driven by the
larger Netherlands business. Improved promotional planning and
stronger retail discipline have been established and, consistent
with the experience of the UK, refurbished stores are performing
ahead of the rest of the estate. We are confident that activity is
now in place to improve profitability.
Outlook
This is a transitional year for Carpetright as we work through
our restructuring plan. We remain on schedule and are confident
that this activity is already starting to yield benefits as we exit
a historically underinvested, poorly sited and over rented property
portfolio and tackle competition threats across the estate, while
growing our digital capability.
In the near term, the strength of consumer spending and
confidence, along with the uncertainty relating to the UK's exit
from the European Union, remain concerns for any retail business.
However, we believe that as market leader, and having taken
decisive action to reduce our cost base significantly, we are
structurally best placed in the floorcoverings sector to deal with
the challenges these headwinds might present and return the
business to sustainable long term profitability.
We are Carpetright.
Wilf Walsh
Chief Executive Officer
11 December 2018
INTERIM RESULTS
A summary of the reported financial results for the 26 weeks
ended 27 October 2018 is set out below:
H1 FY19 H1 FY18*
GBPm GBPm Change
--------------------------------- --------- --------- ---------
Revenue 191.1 226.6 (15.7%)
--------------------------------- --------- --------- ---------
Underlying EBITDA (1.7) 8.6 (119.8%)
--------------------------------- --------- --------- ---------
Depreciation and amortisation (5.8) (6.3)
--------------------------------- --------- ---------
Net finance charges (4.9) (1.1)
--------------------------------- --------- ---------
Underlying (loss)/profit before
tax (12.4) 1.2
--------------------------------- --------- ---------
Underlying EPS (5.0p) 0.7p
--------------------------------- --------- ---------
Separately reported items 0.7 (1.8)
--------------------------------- --------- ---------
Statutory loss before tax (11.7) (0.6)
--------------------------------- --------- ---------
Basic EPS (4.8p) (1.8p)
--------------------------------- --------- ---------
Net debt (12.4) (22.8)
--------------------------------- --------- ---------
* See note 2 to the accounts re: implementation of IFRS 15 -
"Revenue from Contracts with Customers."
Overview of Group Financial Performance
Group revenue for the period was GBP191.1m, being 15.7% below
the prior year. Trading during the period was challenging, as a
consequence of weakening consumer demand, exceptionally warm
weather and the negative impact associated with the restructuring
activity. The Group has made significant progress in reducing its
cost base and is on track to deliver the annualised savings of
GBP19m outlined at the time of the equity fund raising in June
2018. These factors combined to deliver an underlying EBITDA loss
of GBP1.7m for the period (H1 FY18: profit of GBP8.6m).
After depreciation and amortisation charges of GBP5.8m and net
finance charges of GBP4.9m in the period, the latter reflecting the
increased costs of borrowing from the new financing arrangements,
the underlying loss before tax was GBP12.4m (H1 FY18: profit of
GBP1.2m).
Separately reported items were a net credit of GBP0.7m (H1 FY18:
net charge of GBP1.8m) primarily relating to property profits on
disposals, offset in part by dual running costs as the Group
transitions to a new ERP system.
All these factors combined to produce a statutory loss before
tax for the period of GBP11.7m (H1 FY18: loss of GBP0.6m).
The Group ended the period with net debt of GBP12.4m, a
reduction of GBP40.6m since 28 April 2018, reflecting the
combination of proceeds of the equity issue; the trading
performance; tight management of working capital and capital
expenditure; and the costs of implementing the restructuring
activity.
Financial Review
UK
Key financial results for the UK:
H1 FY19 H1 FY18
GBPm GBPm Change
--------------------- -------- -------- ----------
Revenue 149.6 184.6 (19.0%)
===================== ======== ======== ==========
Like-for-like sales (12.7%) 0.7%
===================== ======== ======== ==========
Gross profit 83.7 109.6 (23.6%)
===================== ======== ======== ==========
Gross profit % 55.9% 59.4% (3.5ppts)
===================== ======== ======== ==========
Costs (85.8) (101.2) 15.2%
===================== ======== ======== ==========
Costs % (57.3%) (54.8%) (2.5ppts)
===================== ======== ======== ==========
Underlying EBITDA (2.1) 8.4 (125.0%)
===================== ======== ======== ==========
Underlying EBITDA % (1.4%) 4.5% (5.9ppts)
--------------------- -------- -------- ----------
UK store portfolio is now as follows:
Store numbers Gross Sq ft ('000)
--------------
28 Apr 27 Oct 28 Apr 27 Oct
2018 Openings Closures 2018 2018 2018
-------------- ------- ----------- ----------- ------- ---------- ---------
UK 410 - (65) 345 3,577 3,014
-------------- ------- ----------- ----------- ------- ---------- ---------
As at 28 Oct
2017 418 3,633
-------------- ------- ----------- ----------- ------- ---------- ---------
Trading in the period was heavily impacted by the disruption
caused by the restructuring announcements. A total of 65
underperforming stores were closed in the first half, to end the
period on 345 trading stores (H1 FY18: 418). This translated into a
space decline of 563,000sq ft to 3,014,000sq ft, a year-on-year
decrease of 17.0%.
Like-for-like sales in the first quarter of the financial year
were down 16.8%, whilst the performance in the second quarter was
an improvement in this trend being down 8.9%, as challenges around
stock availability and negative brand sentiment associated with the
restructuring and refinancing started to subside. These combined to
produce a like-for-like sales decline for the period of 12.7%.
Gross profit decreased by GBP25.9m to GBP83.7m, representing
55.9% of sales, a decrease of 3.5ppts in line with the guidance
given in June 2018. This decline in margin rate reflects a
combination of:
-- An adverse impact of 2.5ppts from enhanced promotions to combat negative consumer sentiment
associated with the restructuring process and a competitive market
-- Clearance activity in closure stores, an impact of 0.5ppts
-- A mix impact from the fixed element of warehouse & distribution costs not falling at the same
rate as the sales decline, equivalent to 0.5ppts
For the second half of the year, we anticipate a year-on-year
improvement in the gross profit margin rate of between 0.5ppts and
1.0ppts as we anniversary the adverse movements in the prior year.
As a result, the expected full year decrease is in the range of
1.2ppts to 1.5ppts.
The total UK cost base decreased by 15.2% compared with the
prior year to GBP85.8m (H1 FY18: GBP101.2m). Costs as a percentage
of sales were 57.3% (H1 FY18: 54.8%). The movement in costs was a
combination of:
-- Store payroll costs decreased by GBP4.5m (14.6%) to GBP26.3m (H1 FY18: GBP30.8m) the principal
drivers being the closure of stores; reducing the cost by a total GBP2.2m; efficiency measures
which delivered a reduction of GBP1.2m; and reduced sales commission from the lower level
of underlying sales.
-- Store occupancy costs decreased by GBP9.8m (18.4%) to GBP43.4m (H1 FY18: GBP53.2m). This was
a combination of a reduction in costs from store closures; the accelerated amortisation of
lease incentives; and an increase in the utilisation of onerous lease provisions, being offset
in part by inflationary increases in business rates and utilities. The average remaining life
of lease in UK stores has been reduced to 3.5 years (H1 FY18: 5.5 years). This provides increased
flexibility to exit, relocate or re-negotiate the level of rent.
-- Marketing costs increased by 2.0% to GBP5.0m (H1 FY18: GBP4.9m), weighted to the latter part
of the period to counter negative sentiment post the restructuring activity.
-- Support office costs decreased 10.6% to GBP11.0m (H1 FY18: GBP12.3m) reflecting restructuring
activity to reduce this semi- variable cost.
The combination of the above factors resulted in an underlying
EBITDA loss of GBP2.1m (H1 FY18: profit of GBP8.4m).
An analysis of the adverse underlying EBITDA movement of
GBP10.5m shows:
-- Underlying trading (adverse EBITDA impact of GBP18.5m)
o The decline in like-for-like sales alongside the decline in gross profit margin of 3.5ppts
and inflationary costs, principally on business rates and fuel.
-- CVA impact (favourable EBITDA impact of GBP5.8m)
o While closure of 65 stores reduced sales and margin, this was offset by the cash benefits
of cost reductions resulting from store closures; transfer of sales to existing stores in
the catchment; rent reductions; reductions in overheads costs; and the acceleration of the
amortisation of lease incentives.
-- Cost management (favourable EBITDA impact of GBP2.2m)
o Over and above the CVA activity - productivity has been improved through in-store efficiencies
which have delivered a reduction in salary cost alongside benefits from the tendering of selected
contracts.
Rest of Europe - The Netherlands, Belgium and the Republic of
Ireland
Key financial results for the Rest of Europe
H1 FY19 H1 FY18 Change Change (Local)
GBPm GBPm (Reported)
---------------------------- -------- -------- ------------ ---------------
Revenue 41.5 42.0 (1.2%) (1.9%)
============================ ======== ======== ============ ===============
Like-for-like sales (local
currency) 0.5% 6.5%
============================ ======== ======== ============ ===============
Gross profit 20.4 20.9 (2.4%) (3.0%)
============================ ======== ======== ============ ===============
Gross profit % 49.2% 49.8% (0.6ppts)
============================ ======== ======== ============ ===============
Costs (20.0) (20.7) 3.4% 3.8%
============================ ======== ======== ============ ===============
Costs % (48.2%) (49.3%) 1.1ppts
============================ ======== ======== ============ ===============
Underlying EBITDA 0.4 0.2 100.0% 91.4%
============================ ======== ======== ============ ===============
Underlying EBITDA % 1.0% 0.5% 0.5ppts
---------------------------- -------- -------- ------------ ---------------
Rest of Europe store portfolio is now as follows:
Store numbers Gross Sq ft ('000)
--------------
28 Apr 27 Oct 28 Apr 27 Oct
2018 Openings Closures 2018 2018 2018
-------------- ------- ----------- ----------- ------- ---------- ---------
Netherlands 92 - - 92 950 942
============== ======= =========== =========== ======= ========== =========
Belgium 23 - (1) 22 228 217
============== ======= =========== =========== ======= ========== =========
Republic of
Ireland 20 - (1) 19 153 143
============== ======= =========== =========== ======= ========== =========
Europe 135 - (2) 133 1,331 1,302
-------------- ------- ----------- ----------- ------- ---------- ---------
As at 28 Oct
2017 136 1,342
-------------- ------- ----------- ----------- ------- ---------- ---------
The change in leadership in the Dutch and Belgian businesses had
a positive impact on performance during the period. Sales were
boosted by a strong start to the period before the unusually hot
summer and World Cup brought some disruption during July and
August, along with the impact of the restructuring process on
supply of stock. Sales recovered in the latter part of the period.
The Republic of Ireland business experienced a small single digit
like-for-like sales decline. The three businesses combined to
produce a like-for-like sales increase of 0.5%. Refurbished stores
continue to outperform the uninvested estate.
After exchange rate movements, total revenue decreased by 1.2%
in reported currency.
Gross profit across the European business is behind last year
with the gross profit margin rate down 0.6ppts across the three
businesses to 49.2%. This is driven by changes in sales mix. This
impact is expected higher in the second half, resulting in a full
year decline of between 1.0ppts and 1.5ppts.
Savings have been made in costs across the businesses, with
costs as a percentage of sales down 1.1ppts. Contributors to this
improvement include lower advertising costs and rent
reductions.
The net result was an underlying EBITDA of GBP0.4m, an
improvement of GBP0.2m on H1 2018 in reported currency.
Group financial review
Net finance charges and taxation
The increase in borrowing costs reflects the updated bank
financing facilities and the loan note. The charge of GBP4.9m (H1
FY18: GBP1.1m) consists primarily of interest on the revolving
credit facilities and overdraft of GBP0.5m; non-utilisation fees of
GBP0.2m; accrued loan note interest of GBP1.7m, payable at the end
of the term in July 2020; and amortisation of loan fees of
GBP2.3m.
The taxation charge on the loss for the half year was GBP0.3m
(H1 FY18: charge of GBP0.6m). This is based on a full year
effective tax rate of 7.3% (H1 FY18: 30.5%; FY FY18: credit of
9.0%). The full year forecast effective tax rate is lower than the
Group's main rate of tax of 19%, due to tax credits not being
recognised on expected losses and non-deductibles items.
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 credit of GBP0.7m in the period (H1
FY18: net charge of GBP1.8m).
H1 FY19 H1 FY18 YE 2018
GBPm GBPm GBPm
----------------------------------------------- -------- -------- --------
Underlying (loss)/profit before tax (12.4) 1.2 (8.4)
------------------------------------------------ -------- -------- --------
Non-cash items
Impairment of goodwill - - (34.7)
Freehold property impairment - - (5.1)
Store asset impairment - - (5.7)
Net onerous lease provision release/(charge) - - (2.3)
Release of fixed-rent accruals and
lease incentives - - 2.8
Restructuring costs
Redundancy provisions 0.5 - (3.8)
Store closure costs associated with
CVA - - (2.0)
Professional fees - - (6.4)
Profit/(loss) on disposal of properties 1.5 (0.4) (1.7)
Strategy
Store refurbishment - asset write-offs - (0.5) (0.6)
ERP dual running costs (0.8) (0.5) (1.5)
Other
Share-based payments (0.3) (0.3) (0.5)
Legacy defined benefit pension administration
costs (0.2) (0.1) (0.3)
Total separately reported items 0.7 (1.8) (61.8)
------------------------------------------------ -------- -------- --------
Statutory loss before tax (11.7) (0.6) (70.2)
------------------------------------------------ -------- -------- --------
Provisions totalling GBP5.8m were recognised at 28 April 2018
reflecting the expected cost of the Group's restructuring,
including redundancy, legal and logistical costs. During the period
GBP0.5m of the provision has been released reflecting the
reassessed total cost of implementing the restructuring.
A net gain of GBP1.5m was made on the disposal of properties
during the year (H1 FY18: GBP0.4m loss).
The Group has continued to incur 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 GBP0.3m was incurred during the period (H1
FY18: GBP0.3m).
The Group assessed the adequacy of existing onerous provisions
at the balance sheet date - GBP2.2m was released due to store
closures, offset by a reassessment of the existing store provision
in light of the current UK retail market. The net impact recorded
within separately reported items was nil.
The cash flow impact of separately reported items (excluding
GBP0.4m proceeds from the sale of a freehold property) was an
outflow of GBP1.3m in the period (H1 FY18: outflow of GBP1.6m).
The tax impact of the separately reported items is a credit of
GBPnil (H1 FY18: Credit of GBP0.1m).
Earnings per share
Underlying earnings per share were a loss of 5.0p (H1 FY18:
earnings of 0.7p) reflecting the fall in underlying profitability
of the Group. After accounting for tax, the Group generated basic
losses per share of 4.8p (H1 FY18: loss of 1.8p).
Balance Sheet
The Group had net assets of GBP65.0m at the end of the half year
(YE 2018: GBP13.5m), an increase of GBP51.5m since 28 April
2018.
Summary Balance Sheet
27 October 28 April Movement
2018 2018
GBPm GBPm GBPm
------------------------------------ ----------- --------- ---------
Freehold & long leasehold property 54.1 54.6 (0.5)
Tangible assets 51.7 54.6 (2.9)
Intangible assets 29.2 27.0 2.2
Other non-current assets 2.9 3.0 (0.1)
------------------------------------- ----------- --------- ---------
Non-current assets 137.9 139.2 (1.3)
Inventories 39.9 39.8 0.1
Trade debtors 0.9 0.2 0.7
Prepayments and accrued income 11.0 14.9 (3.9)
Other debtors 4.8 1.6 3.2
------------------------------------- ----------- --------- ---------
Current assets 56.6 56.5 0.1
Trade payables (26.9) (29.9) 3.0
Rent and rates accruals (2.8) (2.9) 0.1
Taxation and social security (12.4) (11.0) (1.4)
Other creditors and accruals (28.2) (28.5) 0.3
Provisions (3.5) (10.6) 7.1
Corporate tax payable (0.8) (0.8) -
------------------------------------- ----------- --------- ---------
Creditors < 1 year (74.6) (83.7) 9.1
Deferred tax provision (8.2) (7.6) (0.6)
Pension deficit (0.9) (0.8) (0.1)
Provisions (8.9) (9.1) 0.2
Other long-term creditors (24.5) (28.0) 3.5
------------------------------------- ----------- --------- ---------
Creditor > 1 year (42.5) (45.5) 3.0
Cash/overdraft 17.4 4.8 12.6
Loans (28.4) (56.0) 27.6
Finance leases (1.4) (1.8) 0.4
------------------------------------- ----------- --------- ---------
Net debt (12.4) (53.0) 40.6
------------------------------------- ----------- --------- ---------
Net assets 65.0 13.5 51.5
------------------------------------- ----------- --------- ---------
Non-current assets
The Group owns a significant property portfolio, most of which
is used for retail purposes. The carrying value of these properties
reduced by GBP0.5m to GBP54.1m as at the balance sheet date. The
carrying values are supported by a combination of value-in-use and
independent valuations, with the movement reflecting the disposal
of one freehold in the UK and depreciation. An impairment review
has been performed at the balance sheet date and no further
impairment is considered necessary.
Tangible assets reduced by GBP2.9m, primarily a result of
depreciation of GBP5.0m offset by additions of GBP2.4m and exchange
differences.
The intangible assets balance consists primarily of goodwill and
software assets. The increase of GBP2.2m reflects the continued
expenditure on the new Microsoft Dynamics 365 ERP system, which is
expected to become operational in the latter part of the current
financial year.
Current assets
The reduction in prepayments and accrued income reflects the
lower rent charge and shift to monthly payments, while the increase
in other debtors is primarily driven by a change in the settlement
days with payment providers.
Creditors less than one year
Trade payables reduced by GBP3.0m reflecting lower purchases
from flooring suppliers, partly due to reduced credit limits.
Average trade creditor days at the half year date were 61 days (YE
FY18: 65 days).
Provisions at the 2018 year end reflected the restructuring
costs and onerous contract provisions arising from the CVA process.
The reduction of GBP7.1m at H1 FY19 reflects the utilisation and
release of this element of the onerous provision, including a
GBP0.5m release from restructuring provisions as actual redundancy
costs are lower than previously anticipated.
Creditors greater than a year
At 27 October 2018, the IAS 19 net retirement benefit deficit
was GBP0.9m (2018 YE: GBP0.8m). Under the technical provision
basis, the Group's schemes would have a surplus resulting from a
reduction in scheme liabilities combined with increases in the
market value of scheme assets and company contributions. However,
application of the 'asset ceiling' under IAS 19 results in the
Group de-recognising any surplus from the Storey's scheme. This
treatment is consistent with the 2018 year end.
The non-current provisions balance decreased by GBP0.2m to
GBP8.9m. This balance reflects the onerous lease provision for UK
and ROI stores not impacted by the CVA. A reassessment of the
provision has been performed at the balance sheet date, resulting
in the extension of existing provisions to cover onerous costs to
the end of the lease for UK stores, bringing the treatment in line
with those stores in the Republic of Ireland. This has been offset
by the release from stores closed as part of the store closure
programme.
Other long-term creditors declined by GBP3.5m reflecting the
utilisation of lease inducements.
As a consequence of the continued focus on managing the estate
to reduce square footage, elimination of store catchment overlap
and implementing the CVA, operating lease liabilities for land and
buildings had reduced to GBP328.7m (H1 FY18: GBP517.1m; YE18:
GBP408.0m).
Net debt and cash flow
The Group's net debt at 27 October 2018 was GBP12.4m, a decrease
of GBP40.6m from the year end FY18 net debt of GBP53.0m, with the
average net debt being GBP25.5m over the period (H1 FY18:
GBP27.9m).
The reduction in net debt is largely driven by the receipt of
GBP62.7m net proceeds from the Placing and Open Offer in June 2018,
and receipt of the Loan Note proceeds of GBP17.3m. These funds were
used to repay bank debt of GBP32.0m and a loan of GBP12.5m.
The increase in working capital was attributable to the impact
of a change in the settlement days with payment providers,
amortisation of rent-free periods and generally lower volumes
associated with trading.
Provisions paid of GBP6.9m relates to the utilisation of onerous
contracts, mainly for stores closed during the period as a result
of the CVA, and the utilisation of the restructuring provision held
for legal, logistical, inventory loss and redundancy costs
throughout the CVA closure programme.
Net capital expenditure was significantly below the prior year
at GBP3.9m (H1 FY18: GBP13.1m), reflecting the temporary pause of
the store refurbishment programme until greater clarity is achieved
on the shape of our UK store portfolio. Investment in IT continued
on a new ERP system and re-platforming the website. The Group
expects full year capital expenditure to be around GBP12m.
Loan note and facility fees of GBP3.0m related to the
refinancing activities outlined above.
H1 FY19 H1 FY18
GBPm GBPm
--------------------------------------------------- -------- --------
Underlying EBITDA (1.7) 8.6
Separately reported items - cash (1.3) (1.6)
(Increase)/decrease in stock (0.1) 1.4
Increase in working capital (4.6) (2.6)
Contributions to pension schemes (0.6) (0.4)
Provisions paid (6.9) (2.4)
--------------------------------------------------- -------- --------
Operating cash flows (15.2) 3.0
Net interest paid (1.0) (0.9)
Corporation tax receipts/(paid) 0.3 (2.1)
Net capital expenditure (3.9) (13.1)
--------------------------------------------------- -------- --------
Free cash flows (19.8) (13.1)
Net capital proceeds 62.7 -
(Repayment)/drawdown of bank facility (32.0) 17.5
Repayment of shareholder loan (12.5) -
Loan note 17.3 -
Payment of loan note fees & facility fee (3.0) -
Repayment of finance lease obligations (0.1) (0.3)
--------------------------------------------------- -------- --------
Movement in cash and cash equivalents 12.6 4.1
Cash and cash equivalents at the beginning of the
period 4.8 5.4
Borrowings - due to banks (13.0) (30.5)
Loan note (net of fee amortisation) (15.4) -
Finance leases (1.4) (2.0)
Exchange differences - 0.2
Closing net debt (12.4) (22.8)
Opening net debt (53.0) (9.8)
--------------------------------------------------- -------- --------
Movement in net debt 40.6 (13.0)
--------------------------------------------------- -------- --------
Liquidity
Gross bank borrowings at the balance sheet date were GBP14.3m
(H1 FY18: GBP30.7m), being a combination drawn down from overdraft
and revolving credit facilities. The Group had further undrawn
facilities of GBP40.1m at the balance sheet date. In addition, the
Group held gross cash balances of GBP18.7m. The combination of
these resulted in net cash of GBP4.4m, providing total headroom
against bank facilities of GBP58.8m.
Going concern
The Group meets its day to day working capital requirements
through its bank facilities, a non-bank loan and available cash
resources. The principal banking facility includes a revolving
credit facility of GBP45.0m, a Sterling overdraft of GBP7.5m and a
euro overdraft of EUR2.4m, all of which are committed to the end of
December 2019. The non-bank loan of GBP17.3m is committed to July
2020. The principal banking facility is subject to three main
financial covenants which assess underlying EBITDA, net debt and
fixed charge cover. These covenants are subject to testing at 26
January 2019, 27 April 2019, 27 July 2019 and 26 October 2019
within the twelve months from the approval of these interim
financial statements. Given the challenging six months trading
conditions, headroom against the EBITDA covenant is expected to be
the most sensitive over the course of the next twelve months and is
at its tightest level in October 2019.
As part of the Board's assessment of going concern, trading and
working capital requirements, forecasts have been prepared for the
seventeen month period through to April 2020. These forecasts have
been subjected to sensitivity testing for the forecast period
which, while not anticipated by the Board, reflects a continuation
of the challenging six month trading experienced by the Group.
The most critical assumptions when assessing covenants over the
next twelve months is the expected level of revenues and gross
margin. Given the volatility in UK trading performance during the
restructuring period, and the ongoing political, economic and
consumer spending uncertainty, including the potential adverse
consequences of the UK's exit from the European Union, the Board
challenged itself on the appropriate trading levels to use in this
assessment. The Board also considered mitigating actions which
could be implemented.
The Directors have also considered the future cash requirements
of the Group, including the expiry of the principal banking
facility at the end of December 2019, and are satisfied that the
facilities are sufficient to meet its liquidity needs over the
course of the next 12 months. Notwithstanding the performance, the
existing facilities mature in December 2019 and it is the Board's
intention to have completed a refinancing prior to the announcement
of the full year results in June 2019.
If the Group's forecast is not achieved, there is a risk that
the Group might not meet the EBITDA covenant and, should such a
situation materialise, the Group would have discussions with its
bank lenders in order to ensure it continues to comply with the
terms of its bank facilities. Without the support of the banks in
these circumstances, and assuming no additional financing, the
Group and Parent Company would be unable to meet their liabilities
as they fall due. These conditions indicate the existence of a
material uncertainty which may cast significant doubt about the
Group's ability to continue as a going concern.
Whilst recognising the inevitable uncertainties of the current
retail market and the Group's ongoing restructuring, the Directors
confirm that, after considering the matters set out above, they
have a reasonable expectation that the Group has adequate resources
to continue in operational existence for a minimum of twelve months
following the signing of these interim financial statements. For
this reason, they continue to adopt the going concern basis in
preparing the financial statements.
Further information on the Group's borrowings is given in note 9
to the Interim Results.
Condensed consolidated income statement (unaudited)
for 26 weeks ended 27 October 2018
26 weeks to 28 52 weeks to 28
October 2017 April 2018
26 weeks to 27 (restated, see (restated, see
October 2018 note 2) note 2)
Separately Separately Separately
reported reported reported
Items Items Items
Underlying (note Underlying (note Underlying (note
performance 4) Total performance 4) Total performance 4) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----- --------------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
Revenue 3 191.1 - 191.1 226.6 - 226.6 445.0 - 445.0
Cost of sales (87.0) - (87.0) (96.1) - (96.1) (195.1) - (195.1)
----------------- ----- --------------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
Gross profit 104.1 - 104.1 130.5 - 130.5 249.9 - 249.9
Administration
expenses (106.8) (0.8) (107.6) (123.0) (1.0) (124.0) (245.6) (59.6) (305.2)
Other operating
income/(expense) 1.0 1.5 2.5 1.1 (0.8) 0.3 2.4 (2.2) 0.2
Operating
(loss)/profit
before
depreciation
and amortisation (1.7) 0.7 (1.0) 8.6 (1.8) 6.8 6.7 (61.8) (55.1)
Depreciation (5.4) - (5.4) (5.5) - (5.5) (11.0) - (11.0)
Amortisation (0.4) - (0.4) (0.8) - (0.8) (1.3) - (1.3)
----------------- ----- --------------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
Operating
(loss)/profit 3 (7.5) 0.7 (6.8) 2.3 (1.8) 0.5 (5.6) (61.8) (67.4)
Finance costs 5 (4.9) - (4.9) (1.1) - (1.1) (2.8) - (2.8)
----------------- ----- --------------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
(Loss)/profit
before
tax (12.4) 0.7 (11.7) 1.2 (1.8) (0.6) (8.4) (61.8) (70.2)
Tax 6 (0.3) - (0.3) (0.7) 0.1 (0.6) 3.2 3.1 6.3
----------------- ----- --------------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
(Loss)/profit for
the financial
period
attributable to
owners of the
Company (12.7) 0.7 (12.0) 0.5 (1.7) (1.2) (5.2) (58.7) (63.9)
----------------- ----- --------------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
Basic
(loss)/earnings
per share
(pence) 7 (5.0) (4.8) 0.7 (1.8) (7.6) (94.1)
Diluted loss per
share (pence) 7 (4.8) (1.8) (94.1)
----------------- ----- --------------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
All items in the income statement arise from continuing
operations.
Condensed consolidated statement of comprehensive income
(unaudited)
for 26 weeks ended 27 October 2018
26 weeks 52 weeks
to to
28 October 28 April
26 weeks 2017 2018
to (restated, (restated,
27 October see note see note
2018 2) 2)
Notes GBPm GBPm GBPm
---------------------------------------------- ----- ----------- ----------- -----------
Loss for the financial period (12.0) (1.2) (63.9)
---------------------------------------------- ----- ----------- ----------- -----------
Items that may not be reclassified to the
income statement:
Re-measurements of defined benefit plans 15 (0.6) 2.6 1.6
Tax on items that may not be reclassified
to the income statement 0.1 (0.5) (0.4)
---------------------------------------------- ----- ----------- ----------- -----------
Total items that may not be reclassified to
the income statement (0.5) 2.1 1.2
---------------------------------------------- ----- ----------- ----------- -----------
Items that may be reclassified to the income
statement:
Exchange gains 1.0 3.2 2.5
---------------------------------------------- ----- ----------- ----------- -----------
Total items that may be reclassified to the
income statement 1.0 3.2 2.5
---------------------------------------------- ----- ----------- ----------- -----------
Other comprehensive gains for the period 0.5 5.3 3.7
---------------------------------------------- ----- ----------- ----------- -----------
Total comprehensive (loss)/income for the
period attributable to owners of the Company (11.5) 4.1 (60.2)
---------------------------------------------- ----- ----------- ----------- -----------
The notes on pages 20 to 34 form an integral part of this
consolidated interim financial information.
Condensed consolidated statement of changes in equity
(unaudited)
for 26 weeks ended 27 October 2018
Capital
Share Share Treasury redemption Translation Merger Retained
capital premium shares reserve reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
At 28 April 2018 0.7 19.1 (1.4) 0.1 10.1 - (9.3) 19.3
Restatement for IFRS 15 - - - - - - (5.8) (5.8)
At 28 April 2018 (restated,
see note 2) 0.7 19.1 (1.4) 0.1 10.1 - (15.1) 13.5
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
Loss for the period - - - - - - (12.0) (12.0)
Other comprehensive income
for the period - - - - 1.0 - (0.5) 0.5
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
Total comprehensive
income/(expense)
for the financial period - - - - 1.0 - (12.5) (11.5)
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
Net proceeds from capital
raising (see note 18) 2.3 - - - - 60.4 - 62.7
Transfer from Merger reserve
(see note 18) - - - - - (60.4) 60.4 -
Share-based payments and related
tax - - - - - - 0.3 0.3
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
At 27 October 2018 3.0 19.1 (1.4) 0.1 11.1 - 33.1 65.0
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
Capital
Share Share Treasury redemption Translation Merger Retained
capital premium shares reserve reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
At 29 April 2017 0.7 17.8 (1.6) 0.1 7.6 - 53.4 78.0
Restatement for IFRS 15 (see
note 2) - - - - - - (6.0) (6.0)
At 29 April 2017 (restated,
see note 2) 0.7 17.8 (1.6) 0.1 7.6 - 47.4 72.0
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
Loss for the period (restated,
see note 2) - - - - - - (1.2) (1.2)
Other comprehensive income
for the period - - - - 3.2 - 2.1 5.3
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
Total comprehensive income
for the financial period - - - - 3.2 - 0.9 4.1
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
Shares purchased by employee
benefit trust - - 0.2 - - - (0.2) -
Share-based payments and related
tax - - - - - - 0.2 0.2
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
At 28 October 2017 0.7 17.8 (1.4) 0.1 10.8 - 48.3 76.3
--------------------------------- -------- -------- -------- ----------- ----------- -------- --------- ------
The notes on pages 20 to 34 form an integral part of this
consolidated interim financial information.
Condensed consolidated balance sheet (unaudited)
as at 27 October 2018
28 October 28 April
27 October 2017 2018
(restated, (restated,
see note see note
2018 2) 2)
Notes GBPm GBPm GBPm
------------------------------------------ ----- ---------- ----------- -----------
Assets
Non-current assets
Intangible assets 29.2 61.3 27.0
Property, plant and equipment 95.2 108.3 98.7
Investment property 10.6 15.6 10.5
Deferred tax assets 2.4 2.3 2.3
Trade and other receivables 0.5 0.8 0.7
------------------------------------------ ----- ---------- ----------- -----------
Total non-current assets 137.9 188.3 139.2
------------------------------------------ ----- ---------- ----------- -----------
Current assets
Inventories 39.9 44.2 39.8
Trade and other receivables 16.7 20.9 16.7
Cash and cash equivalents 9 18.7 9.9 6.6
------------------------------------------ ----- ---------- ----------- -----------
Total current assets 75.3 75.0 63.1
------------------------------------------ ----- ---------- ----------- -----------
Total assets 213.2 263.3 202.3
------------------------------------------ ----- ---------- ----------- -----------
Liabilities
Current liabilities
Trade and other payables 11 (70.3) (92.3) (72.3)
Current tax liabilities (0.8) - (0.8)
Borrowings and overdrafts 9 (14.3) (30.7) (57.8)
Obligations under finance leases 9 (0.1) (0.1) (0.1)
Provisions for liabilities and charges 12 (3.5) - (10.6)
------------------------------------------ ----- ---------- ----------- -----------
Total current liabilities (89.0) (123.1) (141.6)
------------------------------------------ ----- ---------- ----------- -----------
Non-current liabilities
Trade and other payables 11 (24.5) (32.4) (28.0)
Deferred tax liabilities (8.2) (14.5) (7.6)
Borrowings 9 (15.4) - -
Obligations under finance leases 9 (1.3) (1.9) (1.7)
Retirement benefit obligations 15 (0.9) (0.2) (0.8)
Provisions for liabilities and charges 12 (8.9) (14.9) (9.1)
------------------------------------------ ----- ---------- ----------- -----------
Total non-current liabilities (59.2) (63.9) (47.2)
------------------------------------------ ----- ---------- ----------- -----------
Total liabilities (148.2) (187.0) (188.8)
------------------------------------------ ----- ---------- ----------- -----------
Net assets 65.0 76.3 13.5
------------------------------------------ ----- ---------- ----------- -----------
Equity
Share capital 3.0 0.7 0.7
Share premium 19.1 17.8 19.1
Treasury shares (1.4) (1.4) (1.4)
Other reserves 44.3 59.2 (4.9)
------------------------------------------ ----- ---------- ----------- -----------
Total equity attributable to shareholders
of the company 65.0 76.3 13.5
------------------------------------------ ----- ---------- ----------- -----------
The notes on pages 20 to 34 form an integral part of this
consolidated interim financial information.
Condensed consolidated statement of cash flows (unaudited)
for 26 weeks ended 27 October 2018
26 weeks 52 weeks
to to
28 October 28 April
26 weeks 2017 2018
to (restated, (restated,
27 October see note see note
2018 2) 2)
Note GBPm GBPm GBPm
-------------------------------------------------- ---- ----------- ----------- -----------
Cash flows from operating activities
Loss before tax (11.7) (0.6) (70.2)
Adjusted for:
Depreciation and amortisation 5.8 6.3 12.3
(Profit)/loss on property disposals 4 (1.5) 0.9 2.3
Other separately reported items 4 1.0 0.6 11.2
Separately reported non-cash items 4 (0.5) - 47.8
Share based compensation 0.3 0.3 0.5
Net finance costs 5 4.9 1.1 2.8
-------------------------------------------------- ---- ----------- ----------- -----------
Operating cash flows before movements
in working capital (1.7) 8.6 6.7
(Increase)/decrease in inventories (0.1) 1.4 5.6
Decrease/(increase) in trade and other
receivables 1.8 (3.7) 0.3
(Decrease)/increase in trade and other
payables 11 (6.4) 1.1 (23.2)
Net expenditure on exit of operating
leases (0.3) (1.0) (1.9)
Other separately reported items and restructuring
costs (1.0) (0.6) (2.6)
Contributions to pension scheme (0.6) (0.4) (0.9)
Provisions paid (6.9) (2.4) (5.5)
-------------------------------------------------- ---- ----------- ----------- -----------
Cash (used in)/generated from operations (15.2) 3.0 (21.5)
Interest paid (1.6) (0.9) (1.8)
Corporation taxes received/(paid) 0.3 (2.1) (1.4)
-------------------------------------------------- ---- ----------- ----------- -----------
Net cash flows used in operating activities (16.5) - (24.7)
-------------------------------------------------- ---- ----------- ----------- -----------
Cash flows from investing activities
Purchases of intangible assets (2.3) (3.0) (4.5)
Purchases of property, plant and equipment
and investment property (2.0) (10.1) (15.7)
Proceeds on disposal of property, plant
and equipment and investment property 0.4 - 0.3
-------------------------------------------------- ---- ----------- ----------- -----------
Net cash used in investing activities (3.9) (13.1) (19.9)
-------------------------------------------------- ---- ----------- ----------- -----------
Cash flows from financing activities
Net proceeds from capital raising 18 62.7 - -
Repayment of finance lease obligations 9 (0.1) (0.3) (0.3)
(Decrease)/increase in borrowings 9 (44.5) 17.5 32.0
New loans advanced 9 14.9 - 12.0
-------------------------------------------------- ---- ----------- ----------- -----------
Net cash generated from financing activities 33.0 17.2 43.7
-------------------------------------------------- ---- ----------- ----------- -----------
Net increase/(decrease) in cash and cash
equivalents in the period 12.6 4.1 (0.9)
Cash and cash equivalents at the beginning
of the period 4.8 5.4 5.4
Exchange differences - 0.2 0.3
-------------------------------------------------- ---- ----------- ----------- -----------
Cash and cash equivalents at the end
of the period 17.4 9.7 4.8
-------------------------------------------------- ---- ----------- ----------- -----------
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 20 to 34 form an integral part of this
consolidated interim financial information.
Notes to the financial statements
1. General information
Carpetright plc ('the company') and 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 Carpetright plc, 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 pages 36 to 37. The financial information presented
herein does not amount to statutory accounts within the meaning of
Section 434 of the Companies Act 2006. The 2018 Annual report and
financial statements has been filed with the Registrar of
Companies. The independent auditors' report on the 2018 Annual
report and financial statements was unqualified and did not contain
a statement under Section 498 of the Companies Act 2006.
The financial period represents the 26 weeks to 27 October 2018
(comparative financial period: 26 weeks to 28 October 2017; prior
financial year: 52 weeks to 28 April 2018). 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 11 December
2018.
2. Accounting policies
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 28 April
2018, 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, a non-bank loan and available cash
resources. The principal banking facility includes a revolving
credit facility of GBP45.0m, a Sterling overdraft of GBP7.5m and a
euro overdraft of EUR2.4m, all of which are committed to the end of
December 2019. The non-bank loan of GBP17.3m is committed to July
2020. The principal banking facility is subject to three main
financial covenants which assess underlying EBITDA, net debt and
fixed charge cover. These covenants are subject to testing at 26
January 2019, 27 April 2019, 27 July 2019 and 26 October 2019
within the twelve months from the approval of these interim
financial statements. Given the challenging six months trading
conditions, headroom against the EBITDA covenant is expected to be
the most sensitive over the course of the next twelve months and is
at its tightest level in October 2019.
As part of the Board's assessment of going concern, trading and
working capital requirements, forecasts have been prepared for the
seventeen month period through to April 2020. These forecasts have
been subjected to sensitivity testing for the forecast period
which, while not anticipated by the Board, reflects a continuation
of the challenging six month trading experienced by the Group.
The most critical assumptions when assessing covenants over the
next twelve months is the expected level of revenues and gross
margin. Given the volatility in UK trading performance during the
restructuring period, and the ongoing political, economic and
consumer spending uncertainty, including the potential adverse
consequences of the UK's exit from the European Union, the Board
challenged itself on the appropriate trading levels to use in this
assessment. The Board also considered mitigating actions which
could be implemented.
The Directors have also considered the future cash requirements
of the Group, including the expiry of the principal banking
facility at the end of December 2019, and are satisfied that the
facilities are sufficient to meet its liquidity needs over the
course of the next 12 months. Notwithstanding the performance, the
existing facilities mature in December 2019 and it is the Board's
intention to have completed a refinancing prior to the announcement
of the full year results in June 2019.
If the Group's forecast is not achieved, there is a risk that
the Group might not meet the EBITDA covenant and, should such a
situation materialise, the Group would have discussions with its
bank lenders in order to ensure it continues to comply with the
terms of its bank facilities. Without the support of the banks in
these circumstances, and assuming no additional financing, the
Group and Parent Company would be unable to meet their liabilities
as they fall due. These conditions indicate the existence of a
material uncertainty which may cast significant doubt about the
Group's ability to continue as a going concern.
Whilst recognising the inevitable uncertainties of the current
retail market and the Group's ongoing restructuring, the Directors
confirm that, after considering the matters set out above, they
have a reasonable expectation that the Group has adequate resources
to continue in operational existence for a minimum of twelve months
following the signing of these interim financial statements. For
this reason, they continue to adopt the going concern basis in
preparing the financial statements.
Further information on the Group's borrowings is given in note
9.
New standards, amendments and interpretations
The accounting policies adopted for the half year to 27 October
2018 have been prepared on a consistent basis with those of the
annual consolidated financial statements for the 52 weeks ended 28
April 2018 with the exception of taxation, the adoption of IFRS 15
'Revenue from Contracts with Customers' and IFRS 9 'Financial
Instruments', which are explained below. The changes in accounting
policies will also be adopted in the consolidated Annual Report and
Financial Statements for the year ending 27 April 2019.
Taxes on income for interim periods are accrued using the tax
rate that would be applicable to expected total annual
earnings.
-- IFRS 15 'Revenue from Contracts with Customers'
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. The standard requires
revenue to represent the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The Group adopted IFRS 15 from 29 April 2018 using a fully retrospective
approach.
Under the new standard, the point at which revenue is recognised has changed and due to IFRS
15's definition of 'transfer of control', revenue will be deferred and recognised at a later
date than previously recorded under IAS18.
This deferral of revenue also impacts the previous period and therefore the period on period
impact is not considered to be significant.
The opening balance sheet position and comparative periods have been restated to reflect the
decrease in revenue, associated costs and taxation recorded in the 2017 and 2018 financial
years, as well as the impact of this on working capital balances within the balance sheet.
As at 29 April 2017:
-- There is a decrease of GBP6.0m to brought forward retained earnings as a result of the full
retrospective approach.
As at 28 October 2017:
-- The Inventories balance of GBP39.8m has increased to GBP44.2m;
-- The Deferred tax asset balance of GBP2.0m has increased to GBP2.3m;
-- The Trade and other receivables balance of GBP31.4m has decreased to GBP20.9m;
-- The Deferred tax liabilities balance of GBP16.1m has decreased to GBP14.5m; and
-- There is a net impact on the income statement of GBP0.9m increase in the loss after taxation
from GBP0.3m to a loss after taxation of GBP1.2m.
As at 28 April 2018:
-- The Inventories balance of GBP35.7m has increased to GBP39.8m;
-- The Deferred tax asset balance of GBP2.0m has increased to GBP2.3m;
-- The Trade and other receivables balance of GBP25.4m has decreased to GBP16.7m;
-- The Trade and other payables balance of GBP69.4m has increased to GBP72.3m;
-- The Deferred tax liabilities balance of GBP9.0m has decreased to GBP7.6m; and
-- There is a net impact on the income statement of GBP0.3m decrease in the loss after taxation
for the year, from GBP64.2m to GBP63.9m.
-- IFRS 9 'Financial Instruments'
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. As the Group's financial assets are immaterial, the adoption of IFRS 9
has no material impact on the Group's financial statements and subsequently prior year comparatives
have not been restated. The Group has determined that the provision arising from the expected
credit losses on financial assets is in line with the levels of provisions already held.
Standards issued but not yet effective
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 and will be adopted for the Group's 2019/20 financial
year.
Management's assessment of the expected impact on the Group's
financial results following implementation is ongoing and is
expected to significantly affect the presentation of the Group's
consolidated financial statements due to the Group's large property
lease commitment and, to a lesser extent, other operating leases.
The anticipated impact on the consolidated income statement will be
a significant increase in EBITDA due to the removal of the majority
of rental charges from administrative expenses.
The Group's rental charge for the 26 weeks ended 27 October 2018
was GBP33.6m (26 weeks ended 28 October 2017: GBP39.9m; 52 weeks
ended 28 April 2018: GBP80.2m). It is anticipated that there will
be a material impact on the balance sheet. The Group's minimum
operating lease obligations at 27 October 2018 were GBP328.7m (note
17).
There is not expected to be a material impact on the Group's
cash flows, however presentation within the Consolidated cash flow
statement will be adjusted.
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 and stores
expected to close as part of the ongoing store closure programme
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 EBITDA
Underlying EBITDA is defined as operating profit before
depreciation, amortisation and separately reported items.
It is one of the Group's key performance indicators and is used
to assess the trading performance of Group businesses. It is also
used as one of the targets against which the annual bonuses of
certain employees are measured.
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.
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.
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.
Financial assets and liabilities
Financial assets and liabilities and foreign operations are
translated at the following rates of exchange:
26 weeks 26 weeks 52 weeks
to to to
27 October 28 October 28 April
2018 2017 2018
GBPm GBPm GBPm
------------ ----------- ----------- ---------
Euro
Average 1.13 1.13 1.13
Closing 1.13 1.13 1.14
------------ ----------- ----------- ---------
3. 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 27 October 2018 is as follows:
26 weeks to 28 October
2017
26 weeks to 27 October (restated, see note
2018 2)
UK Europe Group UK Europe Group
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------- ------- ------- -------- ------- -------
Gross sales 183.7 49.7 233.4 226.3 48.9 275.2
Inter-segment revenue (0.7) - (0.7) (1.1) - (1.1)
----------------------------------- -------- ------- ------- -------- ------- -------
Sales 183.0 49.7 232.7 225.2 48.9 274.1
Less: cost of interest free
credit (2.8) - (2.8) (2.9) - (2.9)
Less: VAT and other sales
taxes (30.6) (8.2) (38.8) (37.7) (6.9) (44.6)
----------------------------------- -------- ------- ------- -------- ------- -------
Revenues from external customers 149.6 41.5 191.1 184.6 42.0 226.6
----------------------------------- -------- ------- ------- -------- ------- -------
Gross profit 83.7 20.4 104.1 109.6 20.9 130.5
----------------------------------- -------- ------- ------- -------- ------- -------
Underlying operating (loss)/profit (6.5) (1.0) (7.5) 3.3 (1.0) 2.3
Separately reported items 0.8 (0.1) 0.7 (1.8) - (1.8)
----------------------------------- -------- ------- ------- -------- ------- -------
Operating (loss)/profit (5.7) (1.1) (6.8) 1.5 (1.0) 0.5
Finance costs (4.8) (0.1) (4.9) (1.1) - (1.1)
----------------------------------- -------- ------- ------- -------- ------- -------
(Loss)/profit before tax (10.5) (1.2) (11.7) 0.4 (1.0) (0.6)
Tax (0.1) (0.2) (0.3) (1.5) 0.9 (0.6)
----------------------------------- -------- ------- ------- -------- ------- -------
Loss for the financial period (10.6) (1.4) (12.0) (1.1) (0.1) (1.2)
----------------------------------- -------- ------- ------- -------- ------- -------
26 weeks to 28 October
2017
26 weeks to 27 October (restated, see note
2018 2)
UK Europe Group UK Europe Group
Segment assets: GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------- ------- ------- -------- ------- -------
Segment assets 171.3 90.5 261.8 210.5 99.7 310.2
Inter-segment balances (31.8) (16.8) (48.6) (28.7) (18.2) (46.9)
----------------------------------- -------- ------- ------- -------- ------- -------
Balance sheet total assets 139.5 73.7 213.2 181.8 81.5 263.3
----------------------------------- -------- ------- ------- -------- ------- -------
Segment liabilities:
Segment liabilities (144.8) (52.0) (196.8) (182.0) (51.9) (233.9)
Inter-segment balances 16.8 31.8 48.6 18.2 28.7 46.9
----------------------------------- -------- ------- ------- -------- ------- -------
Balance sheet total liabilities (128.0) (20.2) (148.2) (163.8) (23.2) (187.0)
----------------------------------- -------- ------- ------- -------- ------- -------
Other segmental items:
Depreciation and amortisation 4.4 1.4 5.8 5.1 1.2 6.3
Additions to non-current assets 3.7 1.0 4.7 10.2 4.2 14.4
----------------------------------- -------- ------- ------- -------- ------- -------
Carpetright plc is domiciled in the UK. The Group's revenue from
external customers in the UK is GBP149.6m (H1 FY18: GBP184.6m) and
the total revenue from external customers from other countries is
GBP41.5m (H1 FY18: GBP42.0m). The total of non-current assets
(other than financial instruments and deferred tax assets) located
in the UK is GBP110.9m (H1 FY18: GBP148.5m) and the total of those
located in other countries is GBP73.1m (H1 FY18: GBP84.4m).
The Group'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.
4. Separately reported items
26 weeks 52 weeks
26 weeks to to
to 28 October 28 April
27 October 2017 2018
2018 GBPm GBPm
GBPm (restated) (restated)
---------------------------------------------- ----------- ----------- -----------
Underlying (loss)/profit before tax (12.4) 1.2 (8.4)
Property disposal income/(costs)
Profit/(loss) on disposal of properties 1.5 (0.4) (1.7)
Store refurbishment - asset write offs - (0.5) (0.6)
Non-cash items
Impairment of goodwill - - (34.7)
Freehold property impairment - - (5.1)
Store asset impairment - - (5.7)
Net onerous lease provision release/(charge) - - (2.3)
Share based payments (0.3) (0.3) (0.5)
Restructuring costs
Redundancy provisions 0.5 - (3.8)
Store closure costs associated with CVA - - (2.0)
Release of fixed-rent accruals and lease
incentives - - 2.8
Professional fees - - (6.4)
Other
ERP dual running costs (0.8) (0.5) (1.5)
Legacy defined benefit pension administration
costs (0.2) (0.1) (0.3)
Total separately reported items 0.7 (1.8) (61.8)
----------------------------------------------- ----------- ----------- -----------
Statutory loss before tax (11.7) (0.6) (70.2)
----------------------------------------------- ----------- ----------- -----------
The Group makes certain adjustments to statutory profit/loss
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 credit of
GBP0.7m in the 26 weeks to 27 October 2018 (H1 FY18: charge of
GBP1.8m).
Provisions totalling GBP5.8m were recognised at 28 April 2018
reflecting the expected cost of the Group's restructuring,
including redundancy, legal and logistical costs. During the period
GBP0.5m of the provision has been released reflecting the
reassessed total cost of implementing the restructuring.
A net gain of GBP1.5m was made on the disposal of a number
properties during the period (H1 FY18: GBP0.4m loss), principally a
combination of surrender premiums received offset by costs
associated with stores closing as part of the CVA process.
The Group has continued to incur 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 GBP0.3m was incurred during the period (H1
FY18: GBP0.3m).
The Group reported an impairment of GBP34.7m of goodwill at 28
April 2018 reflecting a revised outlook of the Group's business
segments. Goodwill of GBP19.8m, relating to the European business,
was retained and was supported by the underlying cashflow
projections. A full impairment assessment has not been performed at
27 October 2018 and no additional impairment has been recorded.
The Group performed an impairment assessment over its freehold
properties, investment properties and store assets in accordance
with IAS 36 at the balance sheet date. The Group determined that no
impairment was required (28 April 2018: GBP5.1m freehold property,
GBP5.7m store assets).
The Group assessed the adequacy of existing onerous provisions
at the balance sheet date. GBP2.2m was released due to store
closures, offset by an increase in the existing store provision.
The net impact recorded within separately reported items was GBPnil
(28 April 2018: charge of GBP2.3m).
The cash flow impact of separately reported items (excluding
GBP0.4m proceeds from the sale of a freehold property) was an
outflow of GBP1.3m in the period (H1 FY18: outflow of GBP1.6m).
The tax impact of the separately reported items is a charge of
GBPnil (H1 FY18: Credit of GBP0.1m).
5. Finance costs
26 weeks 26 weeks 52 weeks
to to to
27 October 28 October 28 April
2018 2017 2018
GBPm GBPm GBPm
-------------------------------------------------- ----------- ----------- ---------
Interest on borrowings and overdrafts:
Bank interest paid (0.4) (0.6) (1.2)
Bank interest accrued (1) (0.1) (0.1) (0.2)
Bank non-utilisation fees (2) (0.2) - (0.1)
-------------------------------------------------- ----------- ----------- ---------
Interest on borrowings and overdrafts (0.7) (0.7) (1.5)
-------------------------------------------------- ----------- ----------- ---------
Fee amortisation - banks (0.3) (0.3) (1.0)
Fee amortisation - others (3) (2.0) - -
Net finance expense on pension scheme obligations (0.1) - (0.1)
Other interest accrued (4) (1.7) - -
Interest on finance lease obligations (0.1) (0.1) (0.2)
Other Finance charges (4.2) (0.4) (1.3)
-------------------------------------------------- ----------- ----------- ---------
Finance expense (4.9) (1.1) (2.8)
-------------------------------------------------- ----------- ----------- ---------
(1) "Bank interest accrued" includes amounts accrued over the
duration of the facility based on net bank debt levels from month
to month. Payment will be due at maturity of the facility in
December 2019.
(2) "Bank non-utilisation fees" include interest incurred on
undrawn facilities.
(3) "Fee amortisation - others" represents the unwinding of
costs incurred on the drawdown of non-bank loans.
(4) "Other interest accrued" represents interest accruing on
non-bank loans. This will become payable on maturity of the
facility in July 2020.
6. Income Tax
26 weeks 52 weeks
26 weeks to to
to 28 October 28 April
27 October 2017 2018
2018 GBPm GBPm
GBPm (restated) (restated)
---------------------- ----------- ----------- -----------
UK Tax expense 0.1 0.7 (4.3)
Overseas Tax expenses 0.2 (0.1) (2.0)
----------------------- ----------- ----------- -----------
Total Tax expense 0.3 0.6 (6.3)
----------------------- ----------- ----------- -----------
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 the loss for the half
year was GBP0.3m (H1 FY18: charge of GBP0.6m). This is based on a
full year effective tax rate of 7.3% (HY FY18: 30.5%). The FY 2018
effective tax rate was a credit of 9.0%. The full year forecasted
effective tax rate of 7.3% represents a decrease of 11.7% compared
to the Group's main rate of tax of 19%, due to tax not recognised
on losses, offset by non-deductibles items.
7. (Loss)/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 26 weeks ended 52 weeks ended
27 October 2018 28 October 2017 28 April 2018
-------------- -------------------------- ------------------------------------ ------------------------------------
Weighted Weighted Earnings Weighted Loss
average Loss average per average per
number per Loss number share Loss number share
Loss of shares share GBPm of shares Pence GBPm of shares Pence
GBPm Millions Pence (restated) Millions (restated) (restated) Millions (restated)
-------------- ------ ---------- ------ ----------- ---------- ----------- ----------- ---------- -----------
Basic loss per
share (12.0) 251.2 (4.8) (1.2) 67.6 (1.8) (63.9) 67.9 (94.1)
Effect of - - - - - - - -
dilutive
share options -
-------------- ------ ---------- ------ ----------- ---------- ----------- ----------- ---------- -----------
Diluted loss
per share (12.0) 251.2 (4.8) (1.2) 67.6 (1.8) (63.9) 67.9 (94.1)
-------------- ------ ---------- ------ ----------- ---------- ----------- ----------- ---------- -----------
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 26 weeks ended 52 weeks ended
27 October 2018 28 October 2017 28 April 2018
---------------- ---------------------------- ---------------------------------- ----------------------------------
(Loss)/
Weighted (Loss)/ Weighted earnings Weighted Loss
average earnings average per average per
number per Loss number share Loss number share
Loss of shares share GBPm of shares Pence GBPm of shares Pence
GBPm Millions Pence (restated) Millions (restated) (restated) Millions (restated)
---------------- ------ --------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Basic
(loss)/earnings
per share (12.0) 251.2 (4.8) (1.2) 67.6 (1.8) (63.9) 67.9 (94.1)
Adjusted for the
effect
of separately
reported
items:
Separately
reported
items (0.7) - (0.2) 1.8 - 2.5 61.8 - 91.0
Tax thereon - - - (0.1) - - (3.1) - (4.5)
Separately - - - - - - - - -
reported
tax impact
from tax
rate change
---------------- ------ --------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Underlying
(loss)/earnings
per share (12.7) 251.2 (5.0) 0.5 67.6 0.7 (5.2) 67.9 (7.6)
---------------- ------ --------- --------- ---------- ---------- ---------- ---------- ---------- ----------
8. 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 report and
financial statements as at 28 April 2018. 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, with all financial assets and financial
liabilities held at amortised cost in accordance with IFRS 7. The
carrying amount of financial assets and liabilities approximate
their 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.
Liquidity
As stated in note 32 (Events after the reporting period) of the
2018 Annual report and accounts, the Group launched a Placing and
Open Offer on the main market of the London Stock Exchange in May
2018, with net receipts of GBP62.7m received on 11 June 2018.
Additionally, in June 2018, the Group repaid a GBP12.5m short-term
shareholder loan.
The Group completed the refinancing of its facilities in May
2018, which came into effect on receipt of the Placing and Open
Offer proceeds. The refinancing included committed banking
facilities totalling GBP54.6m, consisting of a GBP45.0m revolving
credit facility ("RCF"), GBP7.5m Sterling overdraft and EUR2.4m
euro overdraft facilities. The facilities are committed until
December 2019. Additionally, the Group has drawn on a loan note
agreement from a significant shareholder during the period for
GBP17.3m (gross of fees), which is committed until July 2020.
There were no other material changes to the contractual
undiscounted cash outflows for financial liabilities.
9. Movement in cash and net debt
28 April 27 October
2018 2018
Cash Exchange Other
Total flow differences non-cash Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- -------- ------ ------------ --------- ----------
Cash and cash equivalents in the
balance sheet 6.6 18.7
Bank overdrafts (1.8) (1.3)
---------------------------------------- -------- ------ ------------ --------- ----------
Cash and cash equivalents in the
cash flow statement 4.8 12.6 - - 17.4
---------------------------------------- -------- ------ ------------ --------- ----------
Borrowings
Current borrowings - bank (45.0) 32.0 - - (13.0)
Current borrowings - non-bank (11.0) 12.5 - (1.5) -
Non-current borrowings - non-bank - (17.3) - 1.9 (15.4)
---------------------------------------- -------- ------ ------------ --------- ----------
(56.0) 27.2 - 0.4 (28.4)
---------------------------------------- -------- ------ ------------ --------- ----------
Obligations under finance leases
Current obligations under finance
leases (0.1) (0.1)
Non-current obligations under finance
leases (1.7) (1.3)
---------------------------------------- -------- ------ ------------ --------- ----------
(1.8) 0.1 - 0.3 (1.4)
---------------------------------------- -------- ------ ------------ --------- ----------
Net (debt)/cash (53.0) 39.9 - 0.7 (12.4)
---------------------------------------- -------- ------ ------------ --------- ----------
29 April 28 October
2017 2017
Cash Exchange Other
Total flow differences non-cash Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- -------- ------ ------------ --------- ----------
Cash and cash equivalents in the
balance sheet 12.5 9.9
Bank overdrafts (7.1) (0.2)
---------------------------------------- -------- ------ ------------ --------- ----------
Cash and cash equivalents in the
cash flow statement 5.4 4.1 0.2 - 9.7
---------------------------------------- -------- ------ ------------ --------- ----------
Borrowings
Current borrowings (13.0) (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)
---------------------------------------- -------- ------ ------------ --------- ----------
10. Reconciliation of liabilities arising from financing
activities
Non-cash movement
-------- ----- ----------
28 April Cash Exchange Other 27 October
2018 flow differences non-cash 2018
-------------------------- -------- ----- ------------ --------- ----------
Revolving credit facility (45.0) 32.0 - - (13.0)
Non-bank loans (11.0) (4.8) - 0.4 (15.4)
Finance leases (1.8) 0.1 - 0.3 (1.4)
-------------------------- -------- ----- ------------ --------- ----------
Total Liabilities (57.8) 27.3 - 0.7 (29.8)
-------------------------- -------- ----- ------------ --------- ----------
Non-cash movement
-------- ------ ----------
29 April Cash Exchange Other 28 October
2017 flow differences non-cash 2017
-------------------------- -------- ------ ------------ --------- ----------
Revolving credit facility (13.0) (17.5) - - (30.5)
Non-bank loans - - - - -
Finance leases (2.2) 0.3 - (0.1) (2.0)
-------------------------- -------- ------ ------------ --------- ----------
Total Liabilities (15.2) (17.2) - (0.1) (32.5)
-------------------------- -------- ------ ------------ --------- ----------
11. Trade and other payables
28 October 28 April
27 October 2017 2018
2018 GBPm GBPm
GBPm (restated) (restated)
----------------------------------- ---------- ----------- -----------
Current:
Trade payables 26.9 50.7 29.9
Other taxes and social security 12.4 10.0 11.0
Accruals and deferred income 31.0 31.6 31.4
------------------------------------ ---------- ----------- -----------
70.3 92.3 72.3
----------------------------------- ---------- ----------- -----------
Non-current:
Accruals and deferred income 24.5 32.4 28.0
------------------------------------ ---------- ----------- -----------
Closing balance at 27 October 2018 94.8 124.7 100.3
------------------------------------ ---------- ----------- -----------
Included within Current Accruals and deferred income is GBP2.0m
relating to lease incentives and fixed uplift rent accruals
(GBP3.2m at 28 April 2018, GBP2.4m at 28 October 2017). Included
within Non-current Accruals and deferred income is GBP24.5m
relating to lease incentives and fixed uplift rent accruals
(GBP28.0m at 28 April 2018, GBP32.4m at 28 October 2017). These
balances are being amortised over the duration of the associated
lease.
12. Provisions
Onerous
lease Re-organisation
provisions provisions Total
GBPm GBPm GBPm
--------------------------------------- ----------- --------------- -----
Opening at 28 April 2018 13.9 5.8 19.7
Added during the period 2.2 - 2.2
Utilised during the period (5.2) (1.8) (6.9)
Released during the period (2.2) (0.5) (2.7)
Impact of movement in foreign exchange
rates 0.2 - 0.1
---------------------------------------- ----------- --------------- -----
Closing balance at 27 October 2018 8.9 3.5 12.4
---------------------------------------- ----------- --------------- -----
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
---------------------------------------- ----------- --------------- -----
27 October 28 October 28 April
2018 2017 2018
-------------------------------------- ---------- ---------- ---------
Non-current 8.9 14.9 9.1
Current 3.5 - 10.6
--------------------------------------- ---------- ---------- ---------
Provision for liabilities and charges 12.4 14.9 19.7
--------------------------------------- ---------- ---------- ---------
13. Dividends
No dividends were paid or proposed in the 26 weeks to 27 October
2018 or in the 26 weeks to 28 October 2017.
14. Capital expenditure
During the period, cash flow on capital expenditure was GBP2.2m
(H1 FY18: GBP2.5m) on IT infrastructure, GBP1.0m (H1 FY18: GBP9.1m)
on the acquisition and fit out of stores and GBP1.1m (H1 FY2018:
GBP1.5m) of capital maintenance. Net proceeds from the sale of
assets during the period are GBP0.4m (H1 FY18: GBPnil).
Capital commitments contracted but not provided for at the end
of the period are GBP1.3m (H1 FY18: GBP1.8m) for core IT
infrastructure relating to the ERP project.
15. Retirement benefit obligation
26 weeks 26 weeks 52 weeks
to to to
27 October 28 October 28 April
2018 2017 2018
GBPm GBPm GBPm
-------------------------------------------- ----------- ----------- ---------
Deficit in scheme at beginning of period (0.8) (3.2) (3.2)
Net interest expense - - (0.1)
Administrative fees (0.1) - -
Employer contributions 0.6 0.4 0.9
Actuarial (losses)/gains (0.2) 2.6 3.2
Asset ceiling restriction (0.4) - (1.6)
-------------------------------------------- ----------- ----------- ---------
Deficit in scheme at end of period (0.9) (0.2) (0.8)
-------------------------------------------- ----------- ----------- ---------
Fair value of pension scheme assets 29.5 30.1 30.2
Present value of pension scheme obligations (28.4) (30.3) (29.4)
Asset ceiling (2.0) - (1.6)
-------------------------------------------- ----------- ----------- ---------
Retirement benefit obligations (0.9) (0.2) (0.8)
-------------------------------------------- ----------- ----------- ---------
The key assumptions used, determined in conjunction with
independent qualified actuaries, are:
27 October 28 October 28 April
2018 2017 2018
% % %
-------------- ---------- ---------- --------
RPI inflation 3.4 3.4 3.3
Discount rate 2.8 2.6 2.5
-------------- ---------- ---------- --------
The mortality rates assumptions are taken from the S2NXA CML
2016 (2017 S2NXA CML 2016) with medium cohort improvements, at a
minimum of 1.25% pa. 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 or a 1 year
increase, in these assumptions is shown below:
26 weeks 52 weeks
to to
27 October 28 April
2018 2018
GBPm GBPm
-------------------- ------------------------------- ----------- ---------
Increase/(decrease)
by 0.1% Discount rate 0.5 0.5
Increase/(decrease)
by 0.1% RPI inflation or CPI inflation 0.2 0.2
Increase/(decrease)
by 1 year Life expectancy 1.0 1.0
-------------------- ------------------------------- ----------- ---------
On 26 October 2018 the High Court of Justice of England and
Wales issued a judgement ruling that occupational pension schemes
should be amended to equalise pension benefits for men and women in
relation to the Guaranteed Minimum Pension benefits. This is not
expected to have a material impact on the Group's financial
statements although it will likely result in a small increase to
scheme liabilities. The impact of the ruling will be determined in
the second half of the year and recognised at the year end.
16. Related party transactions
The Group's significant related parties are disclosed in the
Group's 2018 annual financial statements. There were no material
differences in related parties or related party transactions in the
period compared to the prior period.
17. Operating lease commitments
As at 27 October 2018, the future minimum lease payments in
respect of land and buildings and other assets under operating
leases are:
27 October 28 October
2018 2017 28 April 2018
----------------- ----------------- -----------------
Land Land Land
and and and
buildings Other buildings Other buildings Other
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------- ----- ---------- ----- ---------- -----
Operating leases payable:
Amounts payable within one
year 58.9 2.1 79.6 2.1 64.2 2.1
Amounts payable between one
and five years 155.4 2.2 258.1 2.6 201.3 3.1
Amounts payable after five
years 114.4 - 179.7 - 142.5 -
---------------------------- ---------- ----- ---------- ----- ---------- -----
328.7 4.3 517.1 4.7 408.0 5.2
---------------------------- ---------- ----- ---------- ----- ---------- -----
The future minimum lease payments as at 28 April 2018 of
GBP408.0m included the impact of the CVA and committed payments for
the impacted stores during the CVA period. The Group's operating
leases have an average remaining length of 2.9 years (28 April
2018: 3.8 years).
18. Placing and Open Offer
The Group launched a Placing and Open Offer on the Main Market
of the London Stock Exchange on 18 May 2018, with 232,463,221 new
ordinary shares issued on 8 June 2018. Gross receipts of GBP65.1m
before associated costs were received on 11 June 2018. The Placing
and Open Offer was structured through a "cash-box" mechanism that
resulted in an increase of GBP2.3m to Share Capital, and the
creation of a Merger Reserve of GBP60.4m. As at 27 October 2018,
amounts held in the Merger Reserve are considered distributable and
therefore have been reclassified to Retained Earnings.
19. 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 21-23 of the 2018 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 Board has identified risks in relation to the United
Kingdom's exit from the European Union. Given the range of possible
scenarios it is impossible for us to be specific, however the risks
surrounding supply chain disruption, foreign exchange rate
volatility and the potential impact on consumer demand are
considered to be the most significant. We will continue with our
regular risk mitigation process and will prepare for all likely
scenarios until the outcome becomes clear.
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 28 April 2018, 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
11 December 2018
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 half-yearly financial report of Carpetright Plc for the 26
week period ended 27 October 2018. 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.
Emphasis of matter
Without modifying our conclusion on the interim financial
statements, the Group's forecast for the 17 months through to April
2020 contains assumptions over the trading performance of the
existing businesses and cost saving measures. Each of these items
is subject to a level of uncertainty.
The Group meets its day-to-day working capital requirements
through its debt facilities and available cash resources. The
principal banking facility includes a revolving credit facility of
GBP45.0m, a Sterling overdraft of GBP7.5m and a Euro overdraft of
EUR2.4m, all of which are committed to the end of December 2019.
The Meditor non-bank loan of GBP17.3m is committed to July 2020.
The principal banking facilities are subject to a number of
financial covenants, comprising a fixed charge cover covenant, an
EBITDA covenant and a net debt covenant. These covenants are
subject to testing at 26 January 2019, 27 April 2019, 27 July 2019
and 26 October 2019 within the 12 months from the approval of these
interim financial statements. The rolling EBITDA covenant is the
covenant with the least headroom during this period.
As part of the Board's assessment of going concern, trading and
working capital requirements, forecasts have been prepared covering
a 17 month period through to April 2020. These forecasts have been
subject to sensitivity testing, which, whilst not anticipated by
the board, reflect the continuation of the challenging trading
conditions throughout the forecast period. If the Group's forecast
is not achieved, there is a risk that the Group will not meet its
financial covenants and, should such a situation materialise, the
facilities may be cancelled and all or part of the utilisation and
all other amounts accrued or outstanding would be immediately due
and payable.
These conditions, along with the other matters explained in Note
2 to the interim financial statements, indicate the existence of a
material uncertainty which may cast significant doubt about the
Group's ability to continue as a going concern. The interim
financial statements do not include the adjustments that would
result if the Group was unable to continue as a going concern.
Given the matters noted above, the directors have drawn attention
to this in disclosing a material uncertainty relating to going
concern in the basis of preparation to the interim financial
statements.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated balance sheet as at 27 October 2018;
-- 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 half-yearly
financial report 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 half-yearly financial report, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half-yearly financial report 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 half-yearly financial report 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 half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
11 December 2018
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR TMBMTMBBBTFP
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December 11, 2018 02:01 ET (07:01 GMT)
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