TIDMCPR
RNS Number : 3085D
Carpetright PLC
25 June 2019
Full Year results for the 52 weeks ended 27 April 2019
"Business turnaround on track with an encouraging return to
positive like-for-like sales growth"
Strategic Progress
-- Legacy property issues addressed - on track to deliver
GBP19m of annualised savings as part of the CVA
-- Average UK store lease length reduced to four years with
further flexibility to optimise store estate size and/or
relocate before April 2021
-- Strengthened product ranges across all flooring categories
with an emphasis on value, exclusive brand partnerships
and own label initiatives
-- Brand metrics remain strong and market leadership maintained
during an exceptionally challenging period
-- Further investment in new Microsoft Cloud and online platforms
to support bricks and mortar estate
-- Significant improvement in second half trading, particularly
Q4, with a return to like-for-like sales growth in the
new financial year
Financial Highlights
UK
-- Challenging first half, with like-for-like revenues down
12.7%, as the Group implemented the CVA and associated
restructuring of its store portfolio
-- Second half performance improved significantly with like-for-like
sales decline reduced to 5.4%, and Q4 reduced further to
2.3%
-- Full year revenue decline of 17.0% and like-for-like decline
of 9.1%
-- 80 stores closed as part of the CVA and 23 stores retained
on a nil rent basis
-- Underlying EBITDA loss of GBP0.4m (2018: profit of GBP3.4m)
in line with expectations
Rest of Europe
-- Revenue growth of 1.9% and like-for-like growth of 3.4%
(2018: 1.2%)
-- Second half particularly strong, with like-for-like revenue
increase of 6.4%, following introduction of new leadership
team
-- Slight decline in underlying EBITDA to GBP3.3m (2018: GBP3.7m),
reflecting change in sales mix
Group
-- Group revenue decreased by 13.4% to GBP386.4m (2018: GBP446.3m)
-- Underlying EBITDA of GBP2.9m (2018: GBP7.1m), in line with
expectations
-- Statutory loss before tax of GBP24.8m (2018: loss of GBP69.8m)
-- Net debt of GBP27.4m (2018: GBP53.0m) at the period end
-- Cash outflows related to pre-tax losses resulting from
the turnaround of the Group and a continued tightening
of trading terms - the impact of which has now abated and
is starting to improve
-- Separately reported items of GBP7.9m (2018: GBP61.8m),
driven mainly by non-cash asset impairment and ERP dual
running costs
Current Trade
-- UK like-for-like sales in the first eight weeks of the
new financial year were ahead by 8.5% against our prior
year comparative (2018: 14.6% decline)
-- Like-for-likes sales in Rest of Europe were ahead by 4.3%
in the same eight week period (2018: 10.6% growth)
Board update
-- Sandra Turner, non-executive director, to step down from
the Board on 5 September 2019, after nearly nine years'
service
-- Appointment of Pauline Best to the Board as an independent
non-executive director with effect from 1 August 2019 being
announced separately today
Commenting on the results Wilf Walsh, Chief Executive, said:
"2018/19 was a transitional year for the business as we took
tough but necessary action to address our legacy property issues
and restructure the UK store estate. This difficult task was
carried out against the backdrop of a challenging trading
environment but was essential to put the business back on the path
to sustainable profitability.
"From a trading standpoint it was, as expected, a year of two
halves, with the first six months reflecting the impact of the CVA
implementation, followed by a significant improvement in the second
half and, in particular, during Q4. We are pleased to report today
that this positive trend has continued into the new year with a
return to like-for-like sales growth in the first eight weeks of
the period, when UK LFL sales grew by 8.5%.
"We remain the clear number one player in floorcoverings, having
maintained our market leadership during an exceptionally
challenging period, and our brand attributes remain strong. Our
work is far from finished, and while economic and political
uncertainties cloud the near term outlook for the retail sector,
our turnaround plan is very much on track."
Group financial summary
2018
2019 restated
GBPm GBPm Change
BUSINESS PERFORMANCE
Group revenue 386.4 446.3 (13.4%)
* UK 301.0 362.5 (17.0%)
* Rest of Europe 85.4 83.8 1.9%
Underlying EBITDA 2.9 7.1 (59.2%)
* UK (0.4) 3.4 (111.8%)
* Rest of Europe 3.3 3.7 (10.8%)
Underlying (loss)/profit before
tax (16.9) (8.0)
Underlying (loss)/earnings per
share (5.1)p (5.8)p
GBP25.6m
Net debt (27.4) (53.0) lower
STATUTORY REPORTING
Separately reported items (7.9) (61.8)
(Loss)/profit before tax (24.8) (69.8)
Basic (loss)/ earnings per share (7.9)p (93.6)p
Notes
1. Revenues represent amounts payable by customers for goods and
services after deducting VAT and other charges and reflects the new
accounting standard IFRS15 'Revenue from Contracts with
Customers'.
2. 'Underlying' excludes separately reported items and related tax.
3. Net debt is calculated as the total of cash and cash
equivalents, offset by borrowings, finance leases and unamortised
fees.
4. Like-for-like sales calculated as this year's sales compared
to last year's sales for all stores that are at least 12 months old
at the beginning of our financial year. Stores closed during the
year and "C" stores under the CVA are excluded from both years. No
account is taken of changes to store size or introduction of third
party concessions.
5. Comparative period for the year is the 52 week period ended 28 April 2018.
6. The 2018 comparative year has been restated throughout as a
result of the adoption of new IFRS 15 accounting standard, further
details of which are provided in note 14.
Certain statements in this report are forward looking. Although
the Group believes that the expectations reflected in these forward
looking statements are reasonable, it can give no assurance that
these expectations will prove to have been correct. Because these
statements contain risks and uncertainties, actual results may
differ materially from those expressed or implied by these forward
looking statements. We undertake no obligation to update any
forward looking statements whether as a result of new information,
future events or otherwise.
LEI: 213800GO32BSNNHXID90
Results presentation
Carpetright plc will hold a presentation to analysts at Citigate
Dewe Rogerson, 8th Floor, Holborn Gate, 26 Southampton Buildings,
London WC2A 1AN at 09.00am today.
A copy of this statement and associated management presentation
can be found on our website www.carpetright.plc.uk
For further enquiries please contact:
Carpetright plc
Wilf Walsh, Chief Executive Officer
Jeremy Simpson, 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
After a difficult year of essential restructuring for the
business, I am pleased to be able to adopt a more upbeat tone when
reflecting on the current state of our company. While it's clearly
too early to declare the job done, we have made substantive
progress in the key areas that drove us to make the difficult but
necessary decision to restructure the business via a Company
Voluntary Arrangement (CVA) and re-capitalisation. Subsequent moves
by a host of other retailers to do the same proves that we are not
unique in pursuing a plan to build a sustainable and successful
future for the brand.
Specifically, our major issue was an unsustainable lease profile
and a legacy property portfolio, which, despite our best efforts,
proved too difficult to address without resorting to drastic
action. I am grateful to our colleagues, suppliers and landlords in
helping to make this a success. Against a background of declining
consumer confidence and an uncertain political and economic
environment, we have materially reduced our rent and rates profile
while achieving the predicted sales transfer from closed stores and
reducing central costs.
I am pleased to say that we remain on track to deliver the
promised benefits of the CVA process, with GBP19m of annualised
cash savings. This included a GBP6m sales transfer to remaining
stores, equating to our 20% target.
Through these challenges, we have adopted a consistent strategy
and are transforming this business by focussing on a simple
plan:
Who we are. Our brand, our stores, our people
What we sell. An unrivalled choice of floorcoverings
How we sell. Great customer service at unbeatable value
Where we sell. An improved store portfolio supported by an
outstanding digital offer
The strategy is supported by clear, uncomplicated principles and
I am delighted to report that in our recent UK Employee Attitude
Survey, 70% of respondents indicated that they were "proud" to work
for Carpetright. After a year when we closed 83 stores across the
Group and, regrettably, had to make a number of roles redundant,
both in the field and at Store Support Office (SSO), this is
particularly reassuring and reinforces our values -
We are honest and straightforward
We care about customers and colleagues
We make it easy
Dealing with the four main planks of the strategy in turn:
Who we are
Carpetright remains comfortably the largest floorcovering
retailer in the UK and this leadership position was undoubtedly one
of the key reasons why shareholders and other parties supported the
GBP65m recapitalisation of the business that followed the CVA.
While our total sales were impacted by store closures and the
negative newsflow surrounding the CVA over the first half of the
year, in too many cases we also had multiple stores in some towns,
delivering negative contributions. Despite recent upheavals and the
restructuring of our business, we retain clear market leadership by
some distance in the UK and this is a strong position from which to
build our recovery.
It is also worth reflecting on the strength of the Carpetright
brand and consumer perceptions. We have always enjoyed strong brand
metrics, however these did take a dip in relation to trust and
reputation during the launch of the CVA as customers were,
understandably, nervous about the future of the business at that
point. Unlike other retailers where the product is out on the shelf
and available to take away, we ask customers to leave a deposit
with us for a bespoke product ahead of delivery in days or,
usually, weeks.
I am pleased to note that our brand metrics bounced back
strongly following our "Carpetright For Life" campaign which we
embarked on after our equity fundraise. Brand attributes such as
Quality and Value/Affordable are now at their highest level since
we began tracking these measures. Additionally, as a retailer that
customers "know and trust" and which "has a really good
reputation", our brand perceptions have improved markedly since
Spring/Summer 2018. Prompted and spontaneous brand awareness both
remain incredibly strong.
We have been facing significant competitive challenges over the
past few years and, importantly, we can prove that, with the
exception of a very small number of individual stores, we are more
than holding our own - whether that's in locations where we face
one direct national competitor or larger conurbations where there
are multiple brand operators and options for the consumer. Our
performance against our competition has improved consistently over
the past 52 weeks.
It's clear that once we get to the one-year anniversary of a
competitor store opening we begin to recover lost ground rapidly as
the local market stabilises. This effect is most pronounced where
we invest in refurbishment and upgrade to our "graphite" design
store format. While this investment was restricted during the year,
we are working hard to create a sustainable financing structure for
2020 onwards that will allow us to support the growth and
development of the organisation.
We have been extremely robust in taking on competition and it's
clear that this is a very difficult market for a new entrant and
brand to gain traction unless they are prepared to pursue an
uneconomic model, of course until time and money run out.
By the end of the 2019 financial year, we had 241 stores trading
under the new brand format. Our objective is to ensure that every
store has some form of consistent new branding and additional
investment by the end of the CVA period in April 2021.
In terms of people, we will continue to invest in training - our
Fuse platform acts as an effective tool for both product training
and communication. Our key development focus for colleagues will be
on the implementation of the Microsoft Dynamics 365 cloud-based
platform as we migrate from our aged legacy systems.
We have been honest and straightforward with all our colleagues
on the need for further restructuring in our business during the
CVA period ending in April 2021. We encourage direct feedback and
our staff forum on Fuse gives us constant and robust reminders of
what is on colleagues' minds both in terms of day to day issues and
the company in general.
I am constantly impressed by the number of long service awards
that I get to sign every month. The loyalty and dedication of long
serving colleagues throughout the past twelve months has been
incredibly stoic and is very much appreciated.
What we sell
We want to maintain our credentials as Europe's leading
floorcovering retailer. That means retaining our clear leadership
position on carpet and growing our share of hard flooring as
consumer tastes evolve. Our aim is to make hard flooring 25% of our
overall business by 2022.
It is imperative that we stay on top of changes in consumer
tastes and, in terms of product, we update our ranges across
categories three times a year to ensure that we stay at the
forefront of home interior design trends. Our new "Soft" carpet
collection was our fastest growing own label product in the period,
while our exclusive "Tegola" own brand laminate was launched
successfully during the year and has been well-received by
customers. Our "House Beautiful" and "Country Living" collections
are also exclusive to Carpetright, providing differentiation in a
sector where brands have not historically been strong. Our
"Essential Value" range continues to provide budget conscious
customers with a quality product at an affordable price. We
continue to convert more effectively with increased higher margin
underlay and accessories penetration.
At cost to our suppliers (mainly on consignment) we established
safety supplies of product in our Purfleet SSO in the run-up to the
original date for the UK's exit from the EU in March to ensure we
were prepared for a "No Deal" Brexit. While, in this scenario,
current expectations are that there would be no additional tariffs
on the products we source from the EU, our concern remains the
immediate potential disruption at port of entry. We are confident
that, with supplier support, we can repeat this process later in
the year to guarantee no short-term material disruption to our
product pipeline as market leader.
How we sell
Great customer service is at the heart of everything that we do,
so we were rightly delighted when the business achieved five-star
Trustpilot status for customer satisfaction earlier this calendar
year. We intend to maintain this level consistently. In comparison
to other retailers the customer journey between accessing our brand
online and the after-care following the flooring being fitted at
the customer's home is usually quite complex, not least due to the
bespoke nature of the product and service provided.
Inevitably, a floorcovering purchase involves disruption and
some form of intrusion whether that's a visit from one of our
highly trained Home Flooring Surveyors, to measure a property and
advise on potential options, or third party fitters moving items of
furniture, laying the chosen product and taking away unwanted
surplus. While we serviced over one million orders last year with a
very low number of complaints, one complaint is one too many and we
know there is room for further improvement. With a relentless focus
on genuinely great customer service, we have a key differentiator
in our sector.
Despite a difficult year for colleagues caused by some
uncertainty about the business, our "Do We Measure Up?" score of
customers being "highly satisfied" was at 75%. In our industry,
good news tends to travel slowly as a customer getting what they
paid for with accompanying excellent service is the default
position and shouldn't be seen as remarkable. Bad news, however,
travels incredibly quickly, especially on social media. So when
we've got it wrong, engaging with our detractors and resolving
issues rapidly is vital for reputation, repeat business and
recommendations.
Part of that process is about understanding customer needs and
utilising the outstanding product knowledge our colleagues have in
store to greatest effect. Interest Free Credit (up to four years at
0% interest) is a great enabler for both the customer and
colleagues in delivering affordable home transformation.
Likewise, recommending the appropriate floorcovering and
underlay/accessories to make the chosen carpet last longer and
perform more efficiently are beneficial for both the customer and
our business as we improve conversion rates and average transaction
values.
We have been trialling a new "instore experience" colleague
training programme in two of our Southern regions and the early
results look promising ahead of a potential nationwide rollout in
2020.
Where we sell
Our restructuring programme clearly had its greatest impact
within the UK store estate as we addressed the significant legacy
issues discussed above. The bottom line is that excessive property
costs were primarily to blame for our decision to restructure via a
CVA.
Landlords, in the main, have been understanding and supportive
of Carpetright's need to restructure its store portfolio and we are
grateful for this partnership and a welcome spirit of genuine
collaboration. Most landlords now realise that the focus on
estimated rental values and upward-only rent reviews has been
overtaken by events. Retailers faced with enormous pressures need
more flexibility around their lease portfolio and we have noticed
that landlords are now prioritising security of income as the
property world realigns itself with the real world.
The year-on-year reduction in store numbers since 2014 shows
that the CVA merely accelerated the strategic decision we made some
years ago to right-size the business on a more economic physical
footprint.
It's also interesting to note that, since the CVA, we have
maintained several stores, previously earmarked for closure, on
zero rent, as landlords would rather not have an empty store on
their site or indeed pick up the rates bill of a departed tenant.
The contribution from these previously loss-making stores has,
unsurprisingly, been much improved although the oppressive rates
burden remains something in clear need of Government reform.
The inherent flexibility in our restructured estate will be
enhanced by a project we are currently undertaking with Javelin
Group to review our portfolio against an "ideal" bricks and mortar
model across the UK. The output from this study will enable us to
make our retail estate more flexible and ensure improved certainty
of contribution in direct contrast to our historical legacy
portfolio.
We have several successful department store concessions around
the UK and we recently tied up with leading retailer, Furniture
Village, for a concession in Guildford. This was on a site where we
had to shut a store that had an unsustainable rent and the
concession model allows both parties flexibility as well as a
mutually lower cost model.
While the complexity of our product and customer journey means
it does not necessarily lend itself to a solely online transaction,
as market leader we need to ensure that we lead the way on digital
to satisfy those customers who do not want to visit a physical
retail outlet. Last year we doubled our conversion rate online and
Jeremy Maxwell, our new Group Commercial Director, has led a
comprehensive review of our digital operations. Jeremy's team is
working on several exciting initiatives to grow remote sales and
develop a new CRM capability to support our rationalised store
estate.
These initiatives will centre on maximising the quantity and
quality of website traffic and high impact referrals, as well as
innovative digital content and tools to enhance the user experience
and maintain and grow a quality customer database.
Summary
For Carpetright, in common with a host of other retailers,
2018/19 was a year that was all about survival. This coming year
will be about steering the business through an improvement in
performance and laying the groundwork for longer term, sustainable
earnings and cash generation. We have made significant inroads into
the major challenges of last year. Specifically, we have
restructured our property estate, with further flexibility and cost
reductions to come, and developed a credible digital strategy.
We have also challenged competition from other retailers
robustly to maintain our market leadership position, and dealt with
a decline in consumer confidence by reinforcing our brand
credentials, improving our range of floorcoverings and enhancing
our reputation for quality and value.
I am pleased to report that with the majority of our supplier
partners we are negotiating terms closer to those we enjoyed before
the CVA. We are grateful to all those suppliers in the UK, Belgium
and Northern Europe for their support and for their agreement that
nursing the market leader back to health was in everybody's long
term interests.
As expected, the performance of the business improved
significantly over the second half of the period, with the
like-for-like decline in sales reducing significantly, as both
colleagues and customers had their confidence in the brand
restored. Our performance in the early weeks of the 2019/20
financial year has been encouraging, with positive like-for-like
sales growth indicating that we are clearly beginning to recover
lost ground. With the disruptions of last year now behind us, we
can concentrate fully on the day-to-day running of this customer
facing business.
Finally, I am delighted to welcome Jeremy Simpson to the Board
as Group CFO. He has made a swift and positive impact on the team
and our business in general.
The focus of our strategy remains unchanged as we maintain and
grow our position as market leader. My thanks, as ever, go to our
resilient and supportive shareholders, to the Board and of course
to our hard-working, loyal colleagues from Aberdeen to Truro,
Belfast to Cork, and from Amsterdam down to Brussels.
Whilst the financial and political climate remains unpredictable
and we know that there is still hard work ahead, we remain
confident and positive about our future.
We are Carpetright.
Wilf Walsh
Chief Executive Officer
25 June 2019
Financial Review
As previously reported, trading during the first half of the
year was challenging, as a consequence of weakening consumer
demand, exceptionally warm weather and the negative impact
associated with the CVA. This led to a 15.7% first half decline in
Group revenues, including a 12.7% like-for-like decline in the UK.
Whilst second half revenues were down 11.1% on the prior year, we
saw steady improvement, with UK like-for-like revenues down 8.2% in
the third quarter and 2.3% in the fourth. Full year revenues
decreased by 13.4% to GBP386.4m (2018: GBP446.3m), impacted
particularly by store closures as part of the CVA; an analysis of
like-for-like revenues is provided in the operational reviews
below.
Gross margin declined by 1.6ppts to 54.5% (2018: 56.1%). This
arose from two primary sources: promotional activity to mitigate
competitor action arising from publicity surrounding the CVA and a
change in sales mix in Rest of Europe. Whilst the promotional
activity was necessary to maintain sales during a difficult period,
the position improved during Q4 as revenues recovered, and we saw a
0.5% margin improvement. The Rest of Europe saw a particular
improvement in hard flooring sales in the year - an important
strategic initiative for the Group - and we need to respond to the
improved scale this offers with further buying improvements,
especially as we continue to grow this category in the UK.
We closed 80 UK stores in the year as part of the CVA and three
in Rest of Europe, with four opening. This net decrease of 79 meant
our total store base numbered 466 at year end (2018: 545), with
total store space decreasing by 14% to 4.2 million square feet
during the period (2018: 4.9 million square feet).
2019 2018
GBPm GBPm Change
---------------------------------------------- ------- ------- --------------
Revenue from external customers 386.4 446.3 (13.4%)
---------------------------------------------- ------- ------- --------------
Gross profit 210.4 250.3 (15.9%)
---------------------------------------------- ------- ------- --------------
Gross profit % 54.5% 56.1% (1.6ppts)
---------------------------------------------- ------- ------- --------------
Costs (excluding depreciation & amortisation) (207.5) (243.2) 14.7%
---------------------------------------------- ------- ------- --------------
Costs (excluding depreciation & amortisation)
% (53.7%) (54.5%) 0.8ppts
Underlying EBITDA 2.9 7.1 (59.2%)
Depreciation and amortisation (11.4) (12.3) 7.3%
---------------------------------------------- ------- ------- --------------
Underlying operating loss (8.5) (5.2) (63.5%)
Net finance charges (8.4) (2.8) (200%)
---------------------------------------------- ------- ------- --------------
Underlying (loss)/profit before tax (16.9) (8.0) -
Separately reported items (7.9) (61.8) -
---------------------------------------------- ------- ------- --------------
(Loss)/profit before tax (24.8) (69.8) -
---------------------------------------------- ------- ------- --------------
(Loss)/Earnings per share (pence)
Underlying (5.1p) (5.8p) -
Basic (7.9p) (93.6p) -
Net debt (27.4) (53.0) GBP25.6m lower
---------------------------------------------- ------- ------- --------------
The Group 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 raise in June 2018. We achieved
a saving of GBP13.6m in the period and the remaining initiatives to
deliver the full savings target are well underway. Overall,
expenses fell by GBP35.7m to GBP207.5m (2018: GBP243.2m), a
decrease of some 14.7%.
Underlying EBITDA declined by GBP4.2m to GBP2.9m (2018:
GBP7.1m), reflecting lower revenues, which were mitigated in part
by the expense savings and Q4 margin improvement discussed
above.
Depreciation and amortisation charges were GBP11.4m (2018:
GBP12.3m). The Group's underlying operating loss was GBP8.5m (2018:
GBP5.2m).
Net finance charges were GBP5.6m higher than the prior year at
GBP8.4m (2018: GBP2.8m), reflecting the higher rate of interest
payable on the Group's loans and amortisation of fees associated
with the shareholder loan agreed in May 2018.
Separately reported items totalled GBP7.9m (2018: GBP61.8m). The
primary drivers of this charge related to a review of asset
impairment in light of developments within the Group's property
portfolio, together with a review of inventory and project costs
incurred ahead of the implementation of a new ERP platform,
Microsoft Dynamics 365 ("D365"). Further detail on these costs can
be found below. Taking into account separately reported items, the
statutory loss before tax for the period was GBP24.8m (2018:
GBP69.8m loss) and basic loss per share was 7.9p (2018: 93.6p loss
per share).
The Group ended the year with net debt of GBP27.4m (2018:
GBP53.0m), reflecting the receipt of proceeds from the Placing and
Open Offer and shareholder loan, offset by pre-tax losses resulting
from the turnaround of the Group, an adverse movement in working
capital due to a number of factors, including the withdrawal of
credit insurance from many of our suppliers and the continued,
albeit reduced investment in the store refurbishment programme. The
shareholder loan of GBP17.25m (gross) delivered cash inflow of
GBP2.4m, net of fees and settlement of the previous loan. A summary
of the net debt movement is outlined below:
2019
GBPm
Opening net debt (53.0)
Operating cash flow 2.9
Working capital movement (27.5)
Interest and tax cash expense (2.1)
Investing activities (8.1)
Capital proceeds 62.7
Non-cash items (2.3)
---------------------------------- -------
Closing net debt (27.4)
---------------------------------- -------
Revenue Recognition
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 revenues and
profit before tax for the year were reduced by GBP17.2m and GBP8.2m
respectively, with a corresponding release from 2018 increasing
revenues and profit before tax by GBP20.7m and GBP10.1m
respectively, the difference reflecting the year on year fall in
revenues. The overall full year impact on the income statement was
a GBP3.5m increase in revenues and GBP1.9m increase in profit
before tax.
Further details are set out in note 14.
UK - Performance review
The key financial results for the UK were:
2019 2018
GBPm GBPm Change
---------------------------------------------- ------- ------- ---------
Revenue 301.0 362.5 (17.0%)
Like-for-like revenue (9.1%) (3.6%)
Gross profit 168.1 206.6 (18.6%)
Gross profit % 55.8% 57.0% (1.2ppts)
Costs (excluding depreciation & amortisation) (168.5) (203.2) 17.1%
Costs (excluding depreciation & amortisation)
% (56.0%) (56.1%) 0.1ppts
Underlying EBITDA (0.4) 3.4 (111.8%)
Underlying EBITDA % (0.1%) 0.9% (1.0ppts)
---------------------------------------------- ------- ------- ---------
The first half of the year was challenging, with a combination
of consumer uncertainty and exceptionally warm weather compounding
the negative newsflow surrounding the CVA. Our competitors sought
to take advantage and it was a testament to our store colleagues
and support staff that we managed to maintain market leadership
during the period. The second half saw a significant improvement in
like-for-like sales, with a 5.4% decline, compared to a 12.7%
decline in the first half. Within this, we saw a substantial
improvement during the fourth quarter, when like-for-like sales
decline moderated to 2.3%. The combined result was a full year
like-for-like sales decline of 9.1% (2018: down 3.6%).
Flooring revenues in the year were GBP280.2m (2018: GBP333.8m),
with a like-for-like decline of 8.4%. This performance whilst
disappointing, was in line with other major flooring specialists
and reflected wider challenges in the "big ticket" home improvement
sector. Whilst Brexit is a prevailing source of uncertainty, the
detail is more nuanced, with political distractions from wider
domestic initiatives, a weak housing market and a more cautious
approach taken by our customers. Flooring is a product that can be
"left for another day" by customers, but importantly is one that is
needed by every householder, suggesting significant latent demand
when confidence returns.
Whilst we cannot control the wider economy, we can inspire
customer confidence in Carpetright as Europe's leading flooring
retailer. We offer 0% finance over periods of up to 48 months to
help in the affordability of our products. Supplies were disrupted
in the immediate aftermath of the CVA, but it is a testament to our
store support colleagues and the partnership shown by our suppliers
that this was short lived. We offer an unrivalled range suitable
for every domestic need and customers can place orders with us
knowing we control our supply chain end to end, with our own
cutting operations, and can be relied upon to see the journey
through to fitting, care of our Which? Trusted Trader third party
fitters.
Our bed performance in the year was weak, with revenues of
GBP20.8m, down 27.5% on prior year (2018: GBP28.7m), representing a
like-for-like decline of 18.4%. We are not known as a bed
specialist, notwithstanding stocking beds in some 197 of our
stores. An attempt to improve both the breadth and presentation of
the range in 2018 was not successful and we sought to retrench in
the period, focusing both on service and price point against the
competition. We saw improved traction through the year,
particularly during the fourth quarter, when the like-for-like
decline reduced significantly. Whilst no cause for celebration, the
steady improvement in performance showed our strategy is working
and we move into 2020 with a drive to regain lost ground.
We opened four stores and closed 80 stores during the period,
including one relocation. This translated into a net space
reduction of 643,000 sq ft, a decrease of 18.0%. At the year end
the average store size was 8,784 sq ft (2018: 8,724 sq ft) and
average lease length was 4.0 years (2018: 4.8 years).
The UK portfolio is now as follows:
Store numbers Sq ft ('000)
-------------------------------------- ------------------
28 April 27 April 28 April 27 April
2018 Openings Closures 2019 2018 2019
------ -------- -------- -------- -------- -------- --------
Total 410 4 (80) 334 3,577 2,934
------ -------- -------- -------- -------- -------- --------
We had to engage in significant promotional activity during the
first half, with gross margins consequently falling 3.5ppts to
55.9% (2018 H1: 59.4%). We maintained margins in the second half at
55.8%, some 1.2ppts ahead of the comparative period (2018 H2:
54.5%). The average Euro/Sterling rate in the year was unchanged at
1.13 (2018 1.13). Gross profit decreased by GBP38.5m to GBP168.1m
(2018: GBP206.6m).
The cost base (excluding depreciation and amortisation)
decreased by 17.1% to GBP168.5m (2018: GBP203.2m). Costs as a
percentage of sales were largely unchanged at 56.0% (2018: 56.1%).
The movement in costs reflected a GBP32.7m reduction in store costs
and a GBP1.9m reduction in central costs. Utilisation of onerous
lease provisions within these figures increased to GBP4.6m (2018:
GBP4.3m) and advance rental accrual releases to GBP5.7m (2018:
GBP3.1m). This reflected the acceleration arising from the
curtailing of lease periods in our "C" and "B" stores and will in
future be impacted by the new IFRS 16 lease accounting standard,
further details of which are set out in note 14.
The combination of the above factors resulted in underlying
EBITDA decreasing by 111.8% to a loss of GBP0.4m (2018: profit of
GBP3.4m).
Rest of Europe - Performance review
The key financial results for the Rest of Europe were:
Change Change
2019 2018 (Reported (Local
GBPm GBPm currency) currency)
---------------------------------------------- ------- ------- ---------- ----------
Revenue 85.4 83.8 1.9% 1.9%
Like-for-like revenue 3.4% 1.2%
Gross profit 42.3 43.7 (3.2%) (3.2%)
Gross profit % 49.5% 52.1% (2.6ppts)
Costs (excluding depreciation & amortisation) (39.0) (40.0) 2.5% 2.6%
Costs (excluding depreciation & amortisation)
% (45.7%) (47.7%) 2.0ppts
Underlying EBITDA 3.3 3.7 (10.8%) (11.9%)
Underlying EBITDA % 3.9% 4.4% (0.5ppts)
---------------------------------------------- ------- ------- ---------- ----------
In local currency terms, the three businesses in the Rest of
Europe combined to produce an encouraging increase in revenue on
the prior year. The first half of the period saw a total revenue
decline of 1.2% and like-for-like sales increase by 0.5%, partly
impacted by supply challenges arising from the UK's CVA. The second
half saw a restoration of supply, together with a new leadership
team in the Benelux, leading to a significant improvement in total
revenue of 5.7% and like-for-like sales growth of 6.4%. These
combined to deliver a full year increase in total sales of 1.9%
(2018: 3.6%) and like-for-like sales improvement of 3.4% (2018:
1.2%).
The Netherlands posted the most significant improvement in the
year, with revenues of EUR69.5m (2018: EUR66.9m), representing an
absolute increase of 3.9% and 4.9% on a like-for-like basis. This
was driven by an increase in hard flooring sales, underpinned by
our "new store concept" store presentation. This approach
illustrates our product range in combination, in a variety of
presentation themes, that inspire customers to visualise how the
floorcovering might look in their home, helping them to select
those that best match their tastes.
The Belgian business posted revenues of EUR18.7m, representing
an absolute decline of 1.6%, albeit an increase of 0.3% on a
like-for-like basis. The business has historically been
underinvested, reflecting demand for capital elsewhere in the
Group. The capital constraints we experienced across the Group
during the year impacted on this business in particular. We remain
confident in its long term prospects with relatively modest
investment. Our Irish business posted revenues of EUR8.6m,
representing a decline of 5.5%, or some 1.3% on a like-for-like
basis. This business has an oversized store footprint which we are
looking to reduce as opportunities arise. We believe at the core of
the Irish business, we have a strong operation focused on the major
cities that is capable of delivering value to the Group once we
have an economic operating footprint.
Total revenues of EUR96.8m were 1.9% ahead of the prior year
(2018: EUR95.0m). This translated into revenues of GBP85.4m, a rise
of 1.9% on the prior year (2018: GBP83.8m), reflecting the
unchanged average exchange rate.
The number of stores decreased by three during the year, there
were no openings during the period. The associated trading space
reduced by 3.3%. The average store size was broadly unchanged at
10,129 sq ft (2018: 10,244 sq ft), with an average lease length of
3.5 years in the Benelux (2018: 2.6 years) and 3.3 years in Ireland
(2018: 4.2 years).
The Rest of Europe portfolio is now as follows:
Store numbers Sq ft ('000)
-------------------- -------------------------------------- ------------------
28 April Openings Closures 27 April 28 April 27 April
2018 2019 2018 2019
-------------------- -------- -------- -------- -------- -------- --------
Netherlands 92 - (1) 91 950 932
Belgium 23 - (1) 22 228 213
Republic of Ireland 20 - (1) 19 153 143
Total 135 - (3) 132 1,331 1,288
-------------------- -------- -------- -------- -------- -------- --------
Gross profit percentage decreased by 2.6ppts to 49.5%, primarily
as a result of the higher proportion of hard flooring sales in
Benelux. Whilst this is a pleasing strategic development, it has
highlighted the need to review our supply chain profile and
opportunities to leverage our improved purchasing power. Margins
were also impacted by an exceptionally high level of rebates in
2018, with a sum of GBP0.7m (0.8% of sales) not recurring
in 2019. Gross profit fell by 3.2% to GBP42.3m (2018: GBP43.7m).
Operating costs in local currency (excluding depreciation and
amortisation) decreased by 2.5%, predominantly relating to Irish
rental costs. Utilisation of previously made onerous lease
provisions, relating to the Irish operations, rose to GBP1.7m
(2018: GBP1.2m); this will in future be impacted by the new IFRS 16
lease accounting standard, further details of which are set out in
note 14. In reported currency, costs decreased by 2.5% to GBP39.0m
(2018: GBP40.0m).
The combination of the above factors resulted in underlying
EBITDA decreasing by 11.9% in local currency, which translated to a
decrease of 10.8% in reported currency to GBP3.3m (2018:
GBP3.7m).
Net finance charges
The Group has two principal sources of debt funding (see page
22):
-- A GBP45m revolving credit facility and committed overdraft
facilities of GBP7.5m and EUR2.4m, all of which run to 31 December
2019
-- A GBP17.25m (gross) shareholder loan with an 18% coupon,
repayable with interest on 31 July 2020 and expected to amount to
GBP25.7m
Net finance charges for the period increased by GBP5.6m to
GBP8.4m (2018: GBP2.8m), comprising:
-- GBP3.3m charge relating to the shareholder loan
-- GBP0.2m relating to a higher rate of interest payable on bank debt
-- Offset by GBP0.1m lower finance lease charges
The remaining GBP2.2m increase relates to fees associated
with:
-- GBP1.0m in loan fee amortisation relating to the shareholder
loan repaid on 13 June 2018 (fees of GBP1.5m charged in the
period)
-- GBP1.0m in loan fee amortisation relating to the GBP17.25m
shareholder loan put in place on 11 May 2018
-- GBP0.2m relating to the extension in May 2018 of the Group's
revolving credit and overdraft facilities to 31 December 2019
Taxation
The weighted average effective tax rate for the year was a
credit of 10.9% (2018: credit of 9.0%), a variance of 8.1% compared
to the UK corporation tax rate of 19.0%. This variance is due
predominantly to a decrease in non-deductible items and the
derecognition of a GBP4.0m deferred tax asset, offset in part by a
prior year adjustment arising from a review of deferred tax on
historic rollover relief claims (resulting in a deferred tax credit
of GBP3.5m).
Separately reported items
The Group makes certain adjustments to statutory profit measures
in order to help investors understand the underlying performance of
the business. These adjustments are reported as separately reported
items. The Group recorded a net charge of GBP7.9m (2018:
GBP61.8m).
2019 2018
GBPm GBPm
---------------------------------------------------- ------ ------
Underlying loss (16.9) (8.0)
---------------------------------------------------- ------ ------
Non-cash items
Impairment of goodwill - (34.7)
Freehold property (impairment)/reversal (0.8) (5.1)
Store asset impairment (1.0) (5.7)
Net onerous lease charge (0.9) (2.3)
Release of fixed-rent accruals and lease incentives - 2.8
Inventory adjustments (3.0) -
Restructuring costs
Redundancy provisions 0.5 (3.8)
CVA rent guarantee liability (0.6) -
Store closure costs associated with CVA - (2.0)
Professional fees - (6.4)
Profit/(loss) on disposal of properties 1.3 (1.7)
Strategy
Store refurbishment - asset write-offs - (0.6)
ERP dual running costs (2.0) (1.5)
Other
Share based payments (0.5) (0.5)
Pension administration costs (0.9) (0.3)
Total separately reported items (7.9) (61.8)
---------------------------------------------------- ------ ------
Statutory loss before tax (24.8) (69.8)
---------------------------------------------------- ------ ------
Non-cash items
The Group performed an impairment review of its goodwill,
freehold properties and store fixed assets in accordance with IAS
36, following recent potential indicator events.
The Group reviewed its goodwill balances and determined that no
impairment was required (2018: charge of GBP34.7m).
The Group sold three UK properties shortly after year end, in
Salford, Devizes and Newtownards, as the Board determined the sale
would be value accretive for shareholders when assessing the
implied yield against the Group's cost of capital. This raised
GBP2.6m in cash proceeds, which was transferred to a reserved
account as required by the Group's lenders. The associated loss on
disposal was GBP0.8m and accordingly, an impairment was made in the
period (2018: GBP5.1m). The Group continues to review its property
portfolio and will consider further disposals where the Board
believes there is an opportunity to realise value for
shareholders.
Store and other fixed assets of GBP1.0m (2018: GBP5.7m) were
impaired as a result of a review of potential closures and
transfers arising from the CVA process, together with a small sum
relating to legacy systems we will be replacing as part of the
implementation of D365 during FY20. Following the collapse of our
former tenant in March 2019, an assigned lease reverted back to the
Group and an onerous lease provision of GBP0.9m made accordingly
(2018: GBP2.3m).
Ahead of the introduction of D365, we performed a data migration
exercise, which included cleansing historic records. As part of
this exercise, differences were identified between stock records,
predominantly relating to the Purfleet warehouse. To correct this
and ensure a cleaner migration to D365, a sum of GBP2.3m was
provided against these stock balances. In addition, following a
review of inventory levels, additional provisions totalling GBP0.7m
were established, principally against hard flooring in
Purfleet.
Restructuring costs
Restructuring 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 was released, reflecting
the reassessed total cost of implementing the restructuring.
As part of the CVA, the Group is obliged to provide a fund of
GBP0.6m against which creditors may claim for losses associated
with the process. We felt it prudent to reserve for this sum, in
light of the determination of successful claims being in the hands
of the CVA administrator and therefore outside the control of the
Group.
Profit on disposal of properties
A net gain of GBP1.3m was made on the disposal of properties
during the year (2018: GBP1.7m loss), principally from the landlord
exercising an option at the Lewisham store.
Strategy
The Group has continued to incur dual running costs as it
replaces legacy IT systems and transitions to D365. Historically,
these types of cost would have been capital spend, but with the
switch to cloud-based software services, these are classified as
operating expenditure. Due to the quantum and one-off nature of the
project, these costs have been reported as separately reported
items and amounted to GBP2.0m in the period (2018: GBP1.5m).
Other
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
financial statements. A charge of GBP0.5m was incurred during the
period (2018: GBP0.5m).
A sum of GBP0.9m (2018: GBP0.3m) was incurred in payments made
to the Group's legacy defined benefit pension schemes, including a
sum of GBP0.4m relating to Guaranteed Minimum Pension equalisation
ahead of formal government direction on the subject.
The tax impact of the separately reported items is a credit of
GBP0.2m (2018: credit of GBP2.2m).
The total cash impact of separately reported items is an outflow
of GBP1.0m (2018: outflow of GBP12.8m).
Earnings per share
Underlying loss per share was 5.1p (2018: 5.8p loss per share)
and basic loss per share 7.9p (2018: 93.6p earnings per share).
Dividend
The Board continues to prioritise the use of cash in its
turnaround strategy for the Group, principally by investing further
in the existing store estate and growth strategies, such as online
development. Based on the Group's current outlook and restrictions
on the payment of dividends under current lending facilities, the
Directors do not expect this position to change prior to the
maturity of the Shareholder Loan on 31 July 2020. However, the
intention is to return to paying a dividend when the Company has
sufficient distributable reserves and the Directors believe it is
financially prudent to do so.
Balance sheet
The Group had net assets of GBP49.7m at the end of the period
(2018: GBP9.6m), a year-on-year increase of GBP40.1m.
27 April 28 April
2019 2018
----------------------------------- -------- --------
Freehold & long leasehold property 52.3 54.6
Tangible assets 46.9 54.6
Intangible assets 29.6 27.0
Other non-current assets 1.4 3.0
----------------------------------- -------- --------
Non-current assets 130.2 139.2
Inventories 43.7 45.7
Trade debtors 1.5 3.2
Prepayments and accrued income 10.2 12.2
Other debtors 1.2 1.3
----------------------------------- -------- --------
Current assets 56.6 62.4
Trade payables (24.8) (30.2)
Rent and rates accruals (3.4) (2.9)
Taxation and social security (8.7) (11.0)
Other creditors and accruals (32.9) (38.5)
Provisions (5.0) (10.6)
Corporate tax payable (1.2) (0.8)
----------------------------------- -------- --------
Creditors< 1 year (76.0) (94.0)
Deferred tax provision (2.7) (7.1)
Pension deficit (0.6) (0.8)
Provisions (6.1) (9.1)
Other long-term creditors (24.3) (28.0)
----------------------------------- -------- --------
Creditor > 1 year (33.7) (45.0)
Cash and overdraft 12.9 4.8
Loans (38.9) (56.0)
Finance leases (1.4) (1.8)
----------------------------------- -------- --------
Net debt (27.4) (53.0)
Net assets 49.7 9.6
----------------------------------- -------- --------
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 GBP2.3m to GBP52.3m as at the balance sheet date (2018:
GBP54.6m), predominantly reflecting depreciation costs of GBP0.9m
(2018: GBP1.1m). As noted above, the Group performed an impairment
review in light of the sale of three properties for GBP2.6m shortly
after year end, amounting to GBP0.8m; no further impairments were
deemed necessary. The balance of the change related to the sale of
one freehold in the period, together with depreciation. Carrying
values of properties are supported by a combination of value-in-use
and independent valuations.
The value of tangible assets fell by GBP7.7m to GBP46.9m (2018:
GBP54.6m), reflecting the GBP0.8m impairment discussed above,
together with depreciation of GBP9.8m, offset by additions of
GBP4.1m and exchange differences.
Intangible assets consists primarily of goodwill and software
assets. The increase of GBP2.6m to GBP29.6m (2018: GBP27.0m)
reflects GBP3.1m for the continued expenditure on D365 - which is
expected to become operational in the latter part of the current
financial year - and GBP0.6m for website re-platforming, offset by
amortisation and impairment. Other non-current assets decreased by
GBP1.6m to GBP1.4m (2018: GBP3.0m), primarily from the decrease in
deferred tax assets as a result of derecognition of prior year
losses.
Current assets
Inventories fell by GBP2.0m to GBP43.7m (2018: GBP45.7m),
comprising an underlying increase of GBP1.0m in stock levels
relating predominantly to Brexit planning, offset by the GBP3.0m
impairment as discussed above. Trade debtors decreased by GBP1.7m
to GBP1.5m (2018: GBP3.2m), of which GBP1.4m relates to the
reclassification of monies due from our Interest Free Credit
("IFC") provider, Hitachi, to be recognised as cash-in-transit
under IAS 7. Prepayments and accrued income decreased by GBP2.0m to
GBP10.2m (2018: GBP12.2m), predominantly reflecting lower rent and
rates prepayments due to store closures.
Creditors less than one year
Trade payables reduced by GBP5.4m to GBP24.8m (2018: GBP30.2m)
reflecting an adverse movement in credit terms with suppliers, in
light of a withdrawal of credit insurance by the majority of
providers. Rent and rates accruals increased by GBP0.5m to GBP3.4m
(2018: GBP2.9m) largely from UK store rent settlements. Tax and
social security decreased by GBP2.3m to GBP8.7m (2018: GBP11.0m)
primarily from the timing of VAT payments between 2018 and 2019.
Other creditors and accruals fell by GBP5.6m to GBP32.9m (2018:
GBP38.5m), principally due to the payment of GBP3.2m advisor fees
associated with the CVA which were accrued at the 2018 year end.
Average trade creditor days at the year end date were 63 days
(2018: 108 days).
Creditors greater than a year
The deferred tax provision reduced by GBP4.4m, to GBP2.7m (2018:
GBP7.1m). The movement was primarily as result of an adjustment
arising from a review of the UK deferred tax liability on historic
rollover relief claims with a value of GBP5.3m.
At 27 April 2019, the IAS 19 net retirement benefit deficit was
GBP0.6m (2018: GBP0.8m). Under the technical provision basis, the
Group's schemes would have a GBP1.2m 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 the GBP1.5m surplus from the Storey's scheme.
An additional GBP0.3m funding commitment for the scheme was also
provided. The discount rate was 2.5% (2018: 2.5%), reflecting
prevailing corporate bond rates. The scheme was closed to future
accrual with effect from 1 May 2010. Following the triennial
valuation as of 6 April 2017, the Company agreed a recovery plan
with the Trustees on 27 June 2018. The Company made deficit
contributions of GBP0.9m in the period and it is expected it will
continue at this level in the current financial year.
Provisions
Total provisions (less than one year, together with longer term)
decreased by GBP8.6m to GBP11.1m (2018: GBP19.7m), reflecting a
GBP3.3m utilisation of the restructuring provision in relation to
the CVA and a GBP6.3m utilisation of onerous lease provisions
reflecting the revised, shorter lease periods up to break clauses
under the terms of the CVA and the smaller property estate. This
was offset in part by the GBP0.9m onerous lease provision discussed
above.
Net debt
Cash and overdrafts of GBP12.9m (2018: GBP4.8m) comprised cash
of GBP0.8m (net of overdrafts of GBP2.5m) and cash equivalents of
GBP12.1m, principally monies due from our credit card and Interest
Free Credit providers receivable within 30 days and classified as
"cash equivalents" under IAS7.
Loans of GBP38.9m (2018: GBP56.0m) comprised drawings under the
RCF of GBP23.0m and GBP15.9m related to the shareholder loan (the
difference to the GBP17.25m gross sum being fees incurred upon
drawing the loan). Further sums relating to accrued interest on
loans are included in Creditors greater than one year of GBP3.3m
(2018: GBPnil) and Creditors less than one year of GBP0.5m (2018:
GBP0.2m).
Further details are set out in note 12.
Operating leases and impact of IFRS 16
As a consequence of the continued focus on managing the estate
to reduce square footage, eliminate store catchment overlap and
implementing the CVA, operating lease liabilities for land and
buildings reduced to GBP320.1m (2018: GBP408.0m).
We will be adopting the new lease accounting standard IFRS 16 -
Leases on 28 April 2019 for the year ending 25 April 2020. Using
lease data from 27 April 2019, the expected impact on the Group
will be as follows:
-- Recognise a right-of-use asset as at 28 April 2019 of between
GBP245m and GBP255m, net of impairment relating to onerous
lease provisions and advance rental accruals;
-- Recognise a lease liability of between GBP277m and GBP287m,
with a consequent increase in net debt;
-- Increase underlying EBITDA, by approximately GBP60m;
-- Increase underlying operating profit by between GBP18m
and GBP20m;
-- Increase finance costs by between GBP25m and GBP27m; and
-- Decrease Profit Before Tax by approximately GBP7m.
We will also cease to utilise onerous lease provisions (2019:
GBP6.3m) and advance rental accrual releases (2019: GBP5.7m), with
a further GBP10m to GBP12m impact on presented profitability. As
discussed above, the provisions will instead be used to impair the
"right of use" asset, with a resultant reduction in deprecation
over the depreciation period, resulting in a timing difference that
as with interest, impact early and benefit later years. The
depreciation impact was factored into the assessment outlined
above.
The total pre-tax impact on the Group on a like-for-like basis
would therefore be of the order of GBP17m to GBP19m. IFRS 16 has no
economic impact on the Group, nor how the business is run or its
cash flows. It is expected that banking covenants will be
normalised to reflect a position consistent with historical
accounting standards. The Group does not currently intend to alter
its approach going forward as to whether assets should be leased or
purchased.
Further details are provided in note 14.
Cash flow
The Group's net debt at 27 April 2019 was GBP27.4m, an
improvement of GBP25.6m on the prior year (2018: GBP53.0m debt).
Average net debt was GBP25.3m over the financial year (2018:
GBP30.7m).
2019 2018
GBPm GBPm
----------------------------------------------------- ------ ------
Underlying operating (loss)/profit (8.5) (5.2)
Depreciation & amortisation 11.4 12.3
(Increase)/decrease in inventories (1.1) 6.4
Increase in working capital (14.1) (24.1)
Net income/(expenditure) on exit of operating leases 0.9 (1.9)
Restructuring costs (2.4) (2.6)
Contributions to pension schemes (1.2) (0.9)
Provisions paid (9.6) (5.5)
----------------------------------------------------- ------ ------
Operating cash flows (24.6) (21.5)
Net interest paid (2.4) (1.8)
Corporation tax received/(paid) 0.3 (1.4)
Net capital expenditure (8.1) (19.9)
----------------------------------------------------- ------ ------
Free cash flows (34.8) (44.6)
----------------------------------------------------- ------ ------
Net capital proceeds 62.7 -
Other (2.3) 1.4
----------------------------------------------------- ------ ------
Movement in net debt 25.6 (43.2)
Opening net debt (53.0) (9.8)
----------------------------------------------------- ------ ------
Closing net debt (27.4) (53.0)
----------------------------------------------------- ------ ------
The working capital outflow of GBP14.1m was attributable to a
decrease in trade payables as credit terms were reduced as a result
of the CVA, together with an adverse movement in VAT payable and
accruals, arising from the settlement of fees in relation to the
CVA. Provisions fell by GBP9.6m, due to utilisation of lease
incentives and restructuring provisions.
Gross capital expenditure was GBP8.7m (2018: GBP20.2m),
representing a decrease of GBP11.5m. This reflected the Board's
drive to manage cash in light of trading performance, together with
the imposition of capital expenditure restrictions by our lenders
in August 2018 under the terms of our banking documentation. After
allowing for proceeds from asset disposals, net capital expenditure
was GBP8.1m (2018: GBP19.9m).
The major element of capital expenditure was the investment in
store refurbishments, with 209 now completed in the UK and a
further 32 stores in the Netherlands and Belgium. The expenditure
within IT reflected a combination of the replacement of legacy
systems with our new ERP platform and replacement of hardware and
network infrastructure within stores in the Netherlands and
Belgium.
2019 2018
GBPm GBPm
------------------------------------------ ----- ------
Refurbishment (2.6) (10.7)
New stores & relocations (0.1) (1.4)
IT (4.2) (4.6)
Property costs (0.3) (0.8)
Capital maintenance (1.5) (2.7)
------------------------------------------ ----- ------
Gross capital expenditure (8.7) (20.2)
Proceeds from freehold property disposals 0.6 0.3
Net capital expenditure (8.1) (19.9)
------------------------------------------ ----- ------
Our expectation is for capital expenditure to be approximately
GBP8m to GBP13m in 2020, focused on the continued refurbishment of
stores and investment in our IT systems infrastructure.
Current liquidity
To address the liquidity issues in the previous year, the Group
took a series of actions to recapitalise the business to provide a
strong platform to continue the turnaround of the business:
-- Secured a loan note of GBP17.25m (gross) from a shareholder
(GBP15.9m net of fees), which matures in July 2020.
-- Raised GBP65.1m of gross equity in the form of cash via
a Placing and Open Offer.
-- Repaid the first shareholder loan of GBP12.5m at a cost
of GBP1.5m
-- Agreed new facilities with its principal lending banks
whereby the GBP45m RCF remained in place, approximately
GBP10m of overdrafts became committed and, subject to terms,
all facilities continued to be available until December
2019. The three main financial covenants within the banking
arrangements assess underlying EBITDA, debt levels and
fixed-charge cover and were all met in the year.
Gross bank borrowings at the balance sheet date were GBP25.5m
(2018: GBP46.8m), being a combination drawn down from overdraft and
revolving credit facilities. The Group had further undrawn
facilities of GBP29.1m at the balance sheet date. In addition, the
Group held gross cash and cash equivalent balances of GBP15.4m. The
combination of these resulted in net bank borrowings of GBP10.1m,
which is GBP44.5 m lower than the total facilities. This difference
would have been GBP36m if a tighter definition of "cash" had been
applied under the facilities agreements which we are discussing
with the lenders.
As a result of the above, the Group has access to total
committed debt facilities of approximately GBP72m through to
December 2019.
Going concern
The Group meets its day-to-day working capital requirements
through its bank facilities and a shareholder loan. 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
shareholder loan of GBP17.25m gross (GBP15.9m net of fees) is
committed to 31 July 2020. The three main financial covenants
within the banking facility assess underlying EBITDA, debt levels
and fixed-charge cover. Given the trading performance since the CVA
in June 2018 when covenants were set, headroom against the EBITDA
covenant is expected to be the most sensitive both at present and
over the remaining term of the facility.
As part of the Board's assessment of going concern, trading and
working capital requirements, together with the shareholder loan
due for repayment in July 2020, forecasts have been prepared
covering a 15 month period from June 2019. These forecasts have
been subjected to a sensitivity testing to reflect market and
trading uncertainties, offset by the opportunity to take mitigating
action through this forecast period.
The forecasts have been updated for actual trading to week seven
of the current year and the latest view of trading to the end of
June 2019. As discussed in the Chief Executive's report, trading
for this period has been encouraging, with positive like-for-like
revenues in all of our businesses. Consumer confidence however
remains uncertain, with the British Retail Consortium reporting the
biggest decline in retail sales on record in May 2019. The
financial forecasts have been sensitised to take account of future
volatility in demand outside the Group's control, which in certain
downside cases would require us to renegotiate our covenants with
lenders. This presents an uncertainty to the Going Concern
assessment, albeit we are confident in a number of mitigating
opportunities to help manage this risk.
The most critical assumption when assessing the Group's Going
Concern position is whether it has adequate resources to continue
in operational existence for the foreseeable future, determined to
be at least 12 months from the date of approval of these financial
statements. The Group's principal banking facility falls due within
this period, with the shareholder loan falling due within 15
months. The Group is in active discussions regarding refinancing
its borrowings and the Directors are confident of obtaining a
suitable long term arrangement. In the absence of these discussions
coming to fruition, the Directors are confident of there being a
market for strategic asset sales that would enable the Group to
raise sufficient funds to meet the future cash requirements of the
Group and its liquidity needs. However, without either of these
developments, and assuming no additional financing or the
successful renegotiation of existing covenants under the existing
banking facility, the Group and Parent Company may be unable to
meet their liabilities as they fall due. These conditions indicate
the existence of material uncertainties 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 restructuring, the Directors confirm
that, after considering the matters set out above, they have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for a minimum of 15
months following the signing of these 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
12.
Jeremy Simpson
Chief Financial Officer
25 June 2019
Consolidated income statement
for 52 weeks ended 27 April 2019
Group 52 weeks to
Group 52 weeks to 28 April 2018
. 27 April 2019 restated*
--------------------------------- ---------------------------------
Separately Separately
Underlying reported Underlying reported
performance items Total performance items Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----- ------------ ---------- ------- ------------ ---------- -------
Revenue 3 386.4 - 386.4 446.3 -- 446.3
Cost of sales (176.0) - (176.0) (196.0) - (196.0)
------------------------------------- ----- ------------ ---------- ------- ------------ ---------- -------
Gross profit 3 210.4 - 210.4 250.3 - 250.3
Administration expenses (209.5) (9.2) (218.7) (245.6) (59.5) (305.1)
Other operating income/(loss) 2.0 1.3 3.3 2.4 (2.3) 0.1
Operating profit/(loss)
before depreciation and
amortisation 2.9 (7.9) (5.0) 7.1 (61.8) (54.7)
Depreciation (10.7) - (10.7) (11.0) - (11.0)
Amortisation (0.7) - (0.7) (1.3) - (1.3)
------------------------------------- ----- ------------ ---------- ------- ------------ ---------- -------
Operating loss (8.5) (7.9) (16.4) (5.2) (61.8) (67.0)
------------------------------------- ----- ------------ ---------- ------- ------------ ---------- -------
Finance costs (8.4) - (8.4) (2.8) - (2.8)
------------------------------------- ----- ------------ ---------- ------- ------------ ---------- -------
Loss profit before tax (16.9) (7.9) (24.8) (8.0) (61.8) (69.8)
------------------------------------- ----- ------------ ---------- ------- ------------ ---------- -------
Tax 5 2.6 0.2 2.8 4.0 2.2 6.2
------------------------------------- ----- ------------ ---------- ------- ------------ ---------- -------
Loss for the financial period
attributable to equity shareholders
of the Company (14.3) (7.7) (22.0) (4.0) (59.6) (63.6)
------------------------------------- ----- ------------ ---------- ------- ------------ ---------- -------
Basic loss per share (pence) 7 (5.1) (7.9) (5.8) (93.6)
Diluted loss per share (pence) 7 (7.9) (93.6)
------------------------------------- ----- ------------ ---------- ------- ------------ ---------- -------
* The prior year was restated as a result of the adoption of new
IFRS 15 accounting standard, further details of which are provided
in note 14.
Consolidated statement of comprehensive income
for 52 weeks ended 27 April 2019
Group
Group 52 weeks
52 weeks to
to 28 April
27 April 2018
2019 restated
GBPm GBPm
-------------------------------------------------------- --------- ---------
Loss for the financial period (22.0) (63.6)
--------------------------------------------------------- --------- ---------
Items that may not be reclassified to the income
statement:
Re-measurement of defined benefit plans (0.5) 1.6
Tax on items that may not be reclassified to the
income statement 0.1 (0.4)
--------------------------------------------------------- --------- ---------
Total items that may not be reclassified to the
income statement (0.4) 1.2
--------------------------------------------------------- --------- ---------
Items that may be reclassified to the income statement:
Exchange gains (0.7) 2.4
--------------------------------------------------------- --------- ---------
Total items that may be reclassified to the income
statement (0.7) 2.4
--------------------------------------------------------- --------- ---------
Other comprehensive (expense)/ income for the period (1.1) 3.6
--------------------------------------------------------- --------- ---------
Total comprehensive expense for the period attributable
to equity shareholders
of the Company (23.1) (60.0)
--------------------------------------------------------- --------- ---------
Consolidated statement of changes in equity
for 52 weeks ended 27 April 2019
Capital
Share Share Treasury redemption Translation Merger Retained
capital premium shares reserve reserve reserve earnings Total
Group 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
-------------------------------- -------- -------- -------- ----------- ----------- --------- --------- ------
IFRS 15 adjustments see note
14 - - - - - - (10.2) (10.2)
-------------------------------- -------- -------- -------- ----------- ----------- --------- --------- ------
At 29 April 2017 - restated 0.7 17.8 (1.6) 0.1 7.6 - 43.2 67.8
-------------------------------- -------- -------- -------- ----------- ----------- --------- --------- ------
Loss for the period -restated - - - - - - (63.6) (63.6)
Other comprehensive income for
the financial period - - - - 2.4 - 1.2 3.6
-------------------------------- -------- -------- -------- ----------- ----------- --------- --------- ------
Total comprehensive
income/(expense)
for the financial period - - - - 2.4 - (62.4) (60.0)
-------------------------------- -------- -------- -------- ----------- ----------- --------- --------- ------
Issue of new shares - 1.3 - - - - - 1.3
Transfer of treasury shares to
participants - - 0.2 - - - (0.2) -
Share based payments and related
tax - - - - - - 0.5 0.5
-------------------------------- -------- -------- -------- ----------- ----------- --------- --------- ------
At 28 April 2018 - restated 0.7 19.1 (1.4) 0.1 10.0 - (18.9) 9.6
-------------------------------- -------- -------- -------- ----------- ----------- --------- --------- ------
Loss for the period - - - - - - (22.0) (22.0)
Other comprehensive expense for
the financial period - - - - (0.7) - (0.4) (1.1)
-------------------------------- -------- -------- -------- ----------- ----------- --------- --------- ------
Total comprehensive expense for
the financial period - - - - (0.7) - (22.4) (23.1)
-------------------------------- -------- -------- -------- ----------- ----------- --------- --------- ------
Issue of new shares 2.3 - - - - 60.4 - 62.7
Transfer from merger reserve - - - - - (60.4) 60.4 -
Share based payments and related
tax - - - - - - 0.5 0.5
-------------------------------- -------- -------- -------- ----------- ----------- --------- --------- ------
At 27 April 2019 3.0 19.1 (1.4) 0.1 9.3 - 19.6 49.7
-------------------------------- -------- -------- -------- ----------- ----------- --------- --------- ------
Consolidated balance sheet
As at 27 April 2019
Group
Group 2018
2019 restated
Notes GBPm GBPm
--------------------------------------- ----- ------- ---------
Assets
Non-current assets
Intangible assets 8 29.6 27.0
Property, plant and equipment 9 88.9 98.7
Investment property 10 10.3 10.5
Investment in subsidiary undertakings - -
Deferred tax assets 0.9 2.3
Trade and other receivables 0.5 0.7
--------------------------------------- ----- ------- ---------
Total non-current assets 130.2 139.2
--------------------------------------- ----- ------- ---------
Current assets
Inventories 43.7 45.7
Trade and other receivables 12.9 16.7
Cash and cash equivalents 15.4 6.6
--------------------------------------- ----- ------- ---------
Total current assets 72.0 69.0
--------------------------------------- ----- ------- ---------
Total assets 202.2 208.2
--------------------------------------- ----- ------- ---------
Liabilities
Current liabilities
Trade and other payables (69.8) (82.6)
Obligations under finance leases (0.1) (0.1)
Borrowings and overdrafts (25.5) (57.8)
Provisions for liabilities and charges 11 (5.0) (10.6)
Current tax liabilities (1.2) (0.8)
--------------------------------------- ----- ------- ---------
Total current liabilities (101.6) (151.9)
--------------------------------------- ----- ------- ---------
Non-current liabilities
Trade and other payables (24.3) (28.0)
Obligations under finance leases (1.3) (1.7)
Borrowings and overdrafts (15.9) -
Provisions for liabilities and charges 11 (6.1) (9.1)
Deferred tax liabilities (2.7) (7.1)
Retirement benefit obligations (0.6) (0.8)
--------------------------------------- ----- ------- ---------
Total non-current liabilities (50.9) (46.7)
--------------------------------------- ----- ------- ---------
Total liabilities (152.5) (198.6)
--------------------------------------- ----- ------- ---------
Net assets/(liabilities) 49.7 9.6
--------------------------------------- ----- ------- ---------
Equity
Share capital 3.0 0.7
Share premium 19.1 19.1
Treasury shares (1.4) (1.4)
Other reserves 29.0 (8.8)
--------------------------------------- ----- ------- ---------
Total equity attributable to equity
shareholders of the Company 49.7 9.6
--------------------------------------- ----- ------- ---------
Consolidated statement of cash flows
For the 52 weeks ended 27 April 2019
Group
Group 52 weeks
52 weeks to
to 28 April
27 April 2018
2019 restated
GBPm GBPm
--------------------------------------------- --------- ---------
Cash flows from operating activities
Loss before tax (24.8) (69.8)
Adjusted for:
Depreciation and amortisation 11.4 12.3
(Profit)/loss on property disposals (1.3) 2.3
Separately reported non-cash items 6.3 47.8
Separately reported cash items 2.4 11.2
Share based payments 0.5 0.5
Net finance costs 8.4 2.8
---------------------------------------------- --------- ---------
Operating cash flows before movements
in working capital 2.9 7.1
(Increase)/decrease in inventories (1.1) 6.4
Increase in trade and other receivables 3.8 0.4
Decrease in trade and other payables (17.9) (24.5)
Net income/(expenditure) on exit of
operating leases 0.9 (1.9)
Restructuring costs (2.4) (2.6)
Provisions paid (9.6) (5.5)
Contributions to pension schemes (1.2) (0.9)
---------------------------------------------- --------- ---------
Cash used in operations (24.6) (21.5)
Interest paid (2.4) (1.8)
Corporation taxes refunded/(paid) 0.3 (1.4)
---------------------------------------------- --------- ---------
Net cash used in operating activities (26.7) (24.7)
---------------------------------------------- --------- ---------
Cash flows from investing activities
Purchase of intangible assets (3.9) (4.5)
Purchase of property, plant and equipment
and investment property (4.8) (15.7)
Proceeds on disposal of property, plant
and equipment and investment property 0.6 0.3
Interest received - -
--------------------------------------------- --------- ---------
Net cash used in investing activities (8.1) (19.9)
---------------------------------------------- --------- ---------
Cash flows from financing activities
Issue of new shares 62.7 -
Repayment of finance lease obligations (0.2) (0.3)
Repayment of borrowings (34.5) 32.0
New loans advanced 14.9 12.0
---------------------------------------------- --------- ---------
Net cash generated from financing activities 42.9 43.7
---------------------------------------------- --------- ---------
Net increase/(decrease) in cash and
cash equivalents in the period 8.1 (0.9)
Cash and cash equivalents at the beginning
of the period 4.8 5.4
Exchange differences - 0.3
---------------------------------------------- --------- ---------
Cash and cash equivalents at the end
of the period 12.9 4.8
---------------------------------------------- --------- ---------
For the purposes of the statement of cash flow, 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 and are included in
borrowings and overdrafts under current liabilities.
Notes to the financial statements
1. Principal accounting policies
General information
Carpetright plc ('the Company') and its subsidiaries (together,
'the Group') are retailers of floorcoverings and beds. The Company
is listed on the London Stock Exchange and incorporated in England
and Wales and domiciled in the United Kingdom. The address of its
registered office is Carpetright plc, Purfleet Bypass, Purfleet,
Essex, RM19 1TT.
The preliminary announcement does not constitute full financial
statements. The results for the year ended 27 April 2019 included
in this preliminary announcement are extracted from the audited
financial statements for the year ended 27 April 2019 which were
approved by the Directors on 25 June 2019. The auditor's report on
those financial statements was unqualified and, without
modification, draws attention to material uncertainties relating to
going concern by way of emphasis. It did not include a statement
under Section 498(2) or 498(3) of the Companies Act 2006.
2. Principal accounting policies (abridged)
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below. These
policies have been consistently applied to all the periods
presented unless otherwise stated.
Basis of preparation
The consolidated financial statements of the Group are drawn up
to within seven days of the accounting record date, being 30 April
of each year. The financial period for 2019 represents the 52 weeks
ended 27 April 2019. The comparative financial period for 2018 was
52 weeks ended 28 April 2018.
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
and International Financial Reporting Interpretations Committee
(IFRS IC) interpretations as adopted by the European Union,
together with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS.
The consolidated financial statements have been prepared on the
historical cost basis except for pension assets and liabilities and
share based payments which are measured at fair value.
Going concern
The Group meets its day to day working capital requirements
through its bank facilities and a shareholder loan. 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
shareholder loan of GBP17.25m gross (GBP15.9m net of fees) is
committed to 31 July 2020. The three main financial covenants
within the banking facility assess underlying EBITDA, debt levels
and fixed-charge cover. Given the trading performance since the CVA
in June 2018 when covenants were set, headroom against the EBITDA
covenant is expected to be the most sensitive both at present and
over the remaining term of the facility.
As part of the Board's assessment of going concern, trading and
working capital requirements, together with the shareholder loan
due for repayment in July 2020, forecasts have been prepared
covering a 15 month period from June 2019. These forecasts have
been subjected to a sensitivity testing to reflect market and
trading uncertainties, offset by the opportunity to take mitigating
action through this forecast period.
The forecasts have been updated for actual trading to week seven
of the current year and the latest view of trading to the end of
June 2019. As discussed in the Chief Executive's report, trading
for this period has been encouraging, with positive like-for-like
revenues in all of our businesses. Consumer confidence however
remains uncertain, with the British Retail Consortium reporting the
biggest decline in retail sales on record in May 2019. The
financial forecasts have been sensitised to take account of future
volatility in demand outside the Group's control, which in certain
downside cases would require us to renegotiate our covenants with
lenders. This presents an uncertainty to the Going Concern
assessment, albeit we are confident in a number of mitigating
opportunities to help manage this risk.
The most critical assumption when assessing the Group's Going
Concern position is whether it has adequate resources to continue
in operational existence for the foreseeable future, determined to
be at least 12 months from the date of approval of these financial
statements. The Group's principal banking facility falls due within
this period, with the shareholder loan falling due within 15
months. The Group is in active discussions regarding refinancing
its borrowings and the Directors are confident of obtaining a
suitable long term arrangement. In the absence of these discussions
coming to fruition, the Directors are confident of there being a
market for strategic asset sales that would enable the Group to
raise sufficient funds to meet the future cash requirements of the
Group and its liquidity needs. However, without either of these
developments, and assuming no additional financing or the
successful renegotiation of existing covenants under the existing
banking facility, the Group and Parent Company may be unable to
meet their liabilities as they fall due. These conditions indicate
the existence of material uncertainties 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 restructuring, the Directors confirm
that, after considering the matters set out above, they have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for a minimum of 15
months following the signing of these financial statements. For
this reason, they continue to adopt the going concern basis in
preparing the financial statements.
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
meanings prescribed by IFRS and therefore may not be directly
comparable to similar measures presented by other companies.
Sales
Sales represents amounts payable by customers for goods and
services before deducting VAT and other charges.
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 Consolidated
income statement.
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 businesses.
Separately reported items
Defined below.
Underlying EBITDA
Underlying EBITDA is defined as operating profit before tax,
interest, 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. Underlying
EBITDA 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.
Net debt
Net debt comprises the net total of current and non-current
interest-bearing borrowings and finance leases, offset by cash and
short-term deposits. Net debt is a measure of the Group's net
indebtedness to banks and other external financial
institutions.
Operating cash flow
This measure is determined by taking underlying operating profit
and adding back non-cash items and any movements in working
capital.
Disclosure of 'separately reported items'
IAS 1 'Presentation of Financial Statements' provides no
definitive guidance as to the format of the income statement but
states key lines which should be disclosed. It also encourages the
disclosure of additional line items and the reordering of items
presented on the face of the income statement when appropriate for
a proper understanding of the entity's financial performance. In
accordance with IAS 1, the Group 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 Group
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
Group 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 and impairments and
the taxation impact of the aforementioned separately reported
items.
Foreign exchange rates
Financial assets and liabilities and foreign operations are
translated at the following rates of exchange:
Euro Euro Zloty Zloty
2019 2018 2019 2018
-------------- ------ ------ ------ ------
Average rate 1.13 1.13 4.87 5.21
Closing rate 1.16 1.14 4.96 5.01
-------------- ------ ------ ------ ------
3. Segmental analysis
The Group's operating segments are determined on the basis of
information provided to the Chief Operating Decision Maker - the
Board of Directors - to review performance and make decisions. The
reporting segments are:
-- UK; and
-- Rest of Europe (comprising Belgium, the Netherlands and Republic of Ireland).
The reportable operating segments derive their revenue primarily
from the retailing of floorcoverings and beds. Central costs of the
Group are incurred principally in the UK. As such, these costs are
included within the UK segment. Sales between segments are carried
out at arm's length. Segment information provided to the Board of
Directors for the reportable segments for the 52 weeks ended 27
April 2019 are shown below.
The Group has not presented disaggregation of revenue, as the
Group has a main predominant product group - flooring - which is
best disclosed through geographical markets.
52 weeks to 28 April
52 weeks to 27 April 2018
2019 restated
------------------------ -------------------------
UK Europe Group UK Europe Group
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------- ------ ------- ------- ------- -------
Gross revenue 369.1 102.3 471.4 445.8 100.5 546.3
Inter-segment revenue (1.5) - (1.5) (2.0) - (2.0)
Gross revenue 367.6 102.3 469.9 443.8 100.5 544.3
Less cost of interest free credit (5.7) - (5.7) (7.3) - (7.3)
Less VAT and other sales tax (60.9) (16.9) (77.8) (74.0) (16.7) (90.7)
----------------------------------- ------- ------ ------- ------- ------- -------
Revenue from external customers 301.0 85.4 386.4 362.5 83.8 446.3
----------------------------------- ------- ------ ------- ------- ------- -------
Gross profit 168.1 42.3 210.4 206.6 43.7 250.3
----------------------------------- ------- ------ ------- ------- ------- -------
Underlying operating (loss)/profit (9.1) 0.6 (8.5) (6.3) 1.1 (5.2)
Separately reported items (7.5) (0.4) (7.9) (49.7) (12.1) (61.8)
----------------------------------- ------- ------ ------- ------- ------- -------
Operating (loss)/profit (16.6) 0.2 (16.4) (56.0) (11.0) (67.0)
Finance costs (8.3) (0.1) (8.4) (2.8) - (2.8)
----------------------------------- ------- ------ ------- ------- ------- -------
(Loss)/profit before tax (24.9) 0.1 (24.8) (58.8) (11.0) (69.8)
Tax 5.2 (2.4) 2.8 3.4 2.8 6.2
----------------------------------- ------- ------ ------- ------- ------- -------
Loss for the financial period (19.7) (2.3) (22.0) (55.4) (8.2) (63.6)
----------------------------------- ------- ------ ------- ------- ------- -------
Segment assets:
Segment assets 163.8 85.7 249.5 165.1 90.6 255.7
Inter-segment balances (31.0) (16.3) (47.3) (29.5) (18.0) (47.5)
----------------------------------- ------- ------ ------- ------- ------- -------
Balance sheet total assets 132.8 69.4 202.2 135.6 72.6 208.2
----------------------------------- ------- ------ ------- ------- ------- -------
Segment liabilities:
Segment liabilities (149.7) (50.1) (199.8) (194.3) (51.8) (246.1)
Inter-segment balances 16.3 31.0 47.3 18.0 29.5 47.5
----------------------------------- ------- ------ ------- ------- ------- -------
Balance sheet total liabilities (133.4) (19.1) (152.5) (176.3) (22.3) (198.6)
----------------------------------- ------- ------ ------- ------- ------- -------
Other segmental items:
Depreciation and amortisation 8.7 2.7 11.4 9.7 2.6 12.3
Additions to non-current assets 6.3 1.7 8.0 12.7 5.8 18.5
----------------------------------- ------- ------ ------- ------- ------- -------
Carpetright plc is domiciled in the UK. The Group's revenue from
external customers in the UK is GBP301.0m (2018: GBP362.5m) and the
total revenue from external customers from other countries is
GBP85.4m (2018: GBP83.8m). The total of non-current assets (other
than financial instruments and deferred tax assets) located in the
UK is GBP106.2m (2018: GBP110.5m) and the total of those located in
other countries is GBP70.4m (2018: GBP73.8m).
Carpetright's trade has historically shown no distinct pattern
of seasonality, with trade cycles more closely following
macroeconomic indicators.
4. Separately reported items
In order to provide shareholders with additional insight into
the underlying performance of the business, items recognised in
reported profit or loss before tax which, by virtue of their size
and/or nature, do not reflect the Group's underlying performance,
have been excluded from the Group's underlying results.
Group Group
2019 2018
GBPm GBPm
------------------------------------------------------- ------ --------
Underlying loss before tax (16.9) (8.0)
Property disposal costs
Profit/(Loss) on disposal of properties 1.3 (1.7)
Store refurbishment - asset write-offs - (0.6)
-------------------------------------------------------- ------ ------
1.3 (2.3)
Other non-cash items
Goodwill impairment - (34.7)
Freehold and investment property (impairment)/reversal (0.8) (5.1)
Store asset impairment (1.0) (5.7)
Net onerous lease charge (0.9) (2.3)
-------------------------------------------------------- ------ ------
(2.7) (47.8)
Share based payments (0.5) (0.5)
Restructuring costs
Redundancy provisions 0.5 (3.8)
Store closure costs associated with the CVA - (2.0)
Professional fees - (6.4)
CVA rent guarantee liability (0.6) -
Release of fixed rent accruals and lease incentives - 2.8
-------------------------------------------------------- ------ ------
(0.1) (9.4)
ERP dual running costs (2.0) (1.5)
Pension administration costs (0.9) (0.3)
Stock provisions (3.0) -
-------------------------------------------------------- ------ ------
(5.9) (1.8)
Total separately reported items (7.9) (61.8)
-------------------------------------------------------- ------ ------
Statutory (loss)/profit before tax (24.8) (69.8)
-------------------------------------------------------- ------ ------
Non-cash items
The Group performed an impairment review of its goodwill,
freehold properties and store fixed assets in accordance with IAS
36, following recent potential indicator events.
The Group reviewed its goodwill balances and determined that no
impairment was required (2018: charge of GBP34.7m).
The Group sold three UK properties shortly after year end, in
Salford, Devizes and Newtownards, as the Board determined the sale
would be value accretive for shareholders when assessing the
implied yield against the Group's cost of capital. This raised
GBP2.6m in cash proceeds, which was transferred to a reserved
account as required by the Group's lenders. The associated loss on
disposal was GBP0.8m and accordingly, an impairment was made in the
period (2018: GBP5.1m). The Group continues to review its property
portfolio and will consider further disposals where the Board
believes there is an opportunity to realise value for
shareholders.
Store and other fixed assets of GBP1.0m (2018: GBP5.7m) were
impaired as a result of a review of potential closures and
transfers arising from the CVA process, together with a small sum
relating to legacy systems we will be replacing as part of the
implementation of D365 during FY20. Following the collapse of our
former tenant in March 2019, an assigned lease reverted back to the
Group and an onerous lease provision of GBP0.9m made accordingly
(2018: GBP2.3m).
Ahead of the introduction of D365, we performed a data migration
exercise, which included cleansing historic records. As part of
this exercise, differences were identified between stock records,
predominantly relating to the Purfleet warehouse. To correct this
and ensure a cleaner migration to D365, a sum of GBP2.3m was
provided against these stock balances. In addition, following a
review of inventory levels, additional provisions totalling GBP0.7m
were established, principally against hard flooring in
Purfleet.
Restructuring costs
Restructuring 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 was released, reflecting
the reassessed total cost of implementing the restructuring.
As part of the CVA, the Group is obliged to provide a fund of
GBP0.6m against which creditors may claim for losses associated
with the process. We felt it prudent to reserve for this sum, in
light of the determination of successful claims being in the hands
of the CVA administrator and therefore outside the control of the
Group.
Profit on disposal of properties
A net gain of GBP1.3m was made on the disposal of properties
during the year (2018: GBP1.7m loss), principally from the landlord
exercising an option at the Lewisham store.
Strategy
The Group has continued to incur dual running costs as it
replaces legacy IT systems and transitions to D365. Historically,
these types of cost would have been capital spend, but with the
switch to cloud-based software services, these are classified as
operating expenditure. Due to the quantum and one-off nature of the
project, these costs have been reported as separately reported
items and amounted to GBP2.0m in the period (2018: GBP1.5m).
Other
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
financial statements. A charge of GBP0.5m was incurred during the
period (2018: GBP0.5m).
A sum of GBP0.9m (2018: GBP0.3m) was incurred in payments made
to the Group's legacy defined benefit pension schemes, including a
sum of GBP0.4m relating to Guaranteed Minimum Pension equalisation
ahead of formal government direction on the subject.
The tax impact of the separately reported items is a credit of
GBP0.2m (2018: credit of GBP2.2m).
The total cash impact of separately reported items is an outflow
of GBP1.0m (2018: outflow of GBP12.8m).
5. Tax
Group
Group 2018
2019 restated
(i) Analysis of the (credit)/charge in the period GBPm GBPm
---------------------------------------------------- ------ ---------
UK current tax (0.5) 0.2
Overseas current tax 0.7 0.2
----------------------------------------------------- ------ ---------
Total current tax 0.2 0.4
----------------------------------------------------- ------ ---------
UK deferred tax (4.6) (4.4)
Overseas deferred tax 1.8 (2.2)
----------------------------------------------------- ------ ---------
Total deferred tax (3.0) (6.6)
----------------------------------------------------- ------ ---------
Total tax credit in the income statement (2.8) (6.2)
----------------------------------------------------- ------ ---------
Group Group
2019 2018
(ii) Reconciliation of loss before tax to total tax GBPm GBPm
----------------------------------------------------- ------ ---------
Loss before tax (24.8) (69.8)
----------------------------------------------------- ------ ---------
Tax credit at UK corporation tax rate of 19% (2018:
19%) (4.7) (13.3)
Adjusted for the effects of:
Overseas tax rates - (0.6)
Deferred tax impact of a fall in tax rates - 0.2
Non-qualifying depreciation 0.4 0.4
Items not taxed (0.7) 5.7
Losses not recognised 6.5 -
Other permanent differences (0.4) 1.6
Prior year adjustments (3.9) (0.2)
----------------------------------------------------- ------ ---------
Total tax credit in the income statement (2.8) (6.2)
----------------------------------------------------- ------ ---------
The tax credit for the year includes a credit of GBP0.2m in
respect of separately reported items, (2018: credit of
GBP2.2m).
The weighted average annual effective tax rate for the period is
10.9% credit (2018: 9.0% credit).
Group Group
(iii) Tax on items taken directly to or transferred 2019 2018
from equity GBPm GBPm
----------------------------------------------------- ----- -----
Deferred tax on actuarial losses recognised in other
comprehensive income (0.1) 0.4
Deferred tax on share based payments - -
----------------------------------------------------- ----- -----
Total tax recognised in equity (0.1) 0.4
----------------------------------------------------- ----- -----
6. Dividends
The Directors decided that no final dividend will be paid (2018:
No final dividend paid). This results in no dividend in the period
to 27 April 2019 (2018: No dividend paid).
7. (Loss)/earnings per share
Basic (loss)/earnings per share is calculated by dividing the
(loss)/earnings attributable to ordinary shareholders by the
weighted average number of ordinary shares in issue during the
period, excluding those held by Equity Trust (Jersey) Limited which
are treated as cancelled.
In order to compute diluted (loss)/earnings per share, the
weighted average number of ordinary shares in issue is adjusted to
assume conversion of all potentially dilutive ordinary shares.
Those share options granted to employees and Executive Directors
where the exercise price is less than the average market price of
the Company's ordinary shares during the period represent
potentially dilutive ordinary shares.
52 weeks to 27 April 52 weeks to 28 April
2019 2018 - restated
-------------------------- --------------------------
Weighted Weighted
average Loss average Loss
number per number per
Loss of shares share Loss of shares share
GBPm Millions Pence GBPm Millions Pence
--------------------------------- ------ ---------- ------ ------ ---------- ------
Basic loss per share (22.0) 277.4 (7.9) (63.6) 67.9 (93.6)
Effect of dilutive share options - - - - - -
--------------------------------- ------ ---------- ------ ------ ---------- ------
Diluted loss per share (22.0) 277.4 (7.9) (63.6) 67.9 (93.6)
--------------------------------- ------ ---------- ------ ------ ---------- ------
The Group has share options and awards that are potentially
dilutive however as the Group has made a loss in the period and as
required by IAS33 the Group's diluted EPS is the same as the Basic
EPS.
The Directors have presented an additional measure of
(loss)/earnings per share based on underlying earnings. This is in
accordance with the practice adopted by many major retailers.
Underlying earnings is defined as profit/(loss) excluding
separately reported items and related tax.
Reconciliation of (loss)/earnings per share excluding post tax
(loss)/profit on separately reported items
52 weeks to 27 April 52 weeks to 28 April
2019 2018 - restated
-------------------------------- ------------------------------
Weighted (Loss)/ Weighted
average earnings average Earnings
(Loss)/ number per number per
earnings of shares share Earnings of shares share
GBPm Millions Pence GBPm Millions Pence
-------------------------------------- --------- ---------- --------- -------- ---------- --------
Basic loss per share (22.0) 277.4 (7.9) (63.6) 67.9 (93.6)
Adjusted for the effect of separately
reported items:
Separately reported items 7.9 - 2.9 61.8 - 91.0
Tax thereon (0.2) - (0.1) (2.2) - (3.2)
-------------------------------------- --------- ---------- --------- -------- ---------- --------
Underlying loss per share (14.3) 277.4 (5.1) (4.0) 67.9 (5.8)
-------------------------------------- --------- ---------- --------- -------- ---------- --------
8. Intangible assets
Computer
Goodwill software Brands Total
Group GBPm GBPm GBPm GBPm
-------------------------------------------- -------- --------- ------ -----
Cost:
At 29 April 2017 54.1 22.2 0.1 76.4
Exchange differences 0.9 - - 0.9
Additions - 4.5 - 4.5
Transfer from property, plant and equipment - 0.5 - 0.5
Disposals - (2.0) - (2.0)
-------------------------------------------- -------- --------- ------ -----
At 28 April 2018 55.0 25.2 0.1 80.3
-------------------------------------------- -------- --------- ------ -----
Exchange differences (0.3) (0.2) - (0.5)
Additions - 3.9 - 3.9
Disposals - (0.6) - (0.6)
-------------------------------------------- -------- --------- ------ -----
At 27 April 2019 54.7 28.3 0.1 83.1
-------------------------------------------- -------- --------- ------ -----
Accumulated amortisation and impairment:
At 29 April 2017 0.5 18.5 0.1 19.1
Exchange differences - 0.1 - 0.1
Impairment 34.7 0.1 - 34.8
Amortisation - 1.3 - 1.3
Disposals - (2.0) - (2.0)
-------------------------------------------- -------- --------- ------ -----
At 28 April 2018 35.2 18.0 0.1 53.3
-------------------------------------------- -------- --------- ------ -----
Exchange differences (0.1) - - (0.1)
Impairment - 0.2 - 0.2
Amortisation - 0.7 - 0.7
Disposals - (0.6) - (0.6)
-------------------------------------------- -------- --------- ------ -----
At 27 April 2019 35.1 18.3 0.1 53.5
-------------------------------------------- -------- --------- ------ -----
Net book value:
At 27 April 2019 19.6 10.0 - 29.6
-------------------------------------------- -------- --------- ------ -----
At 28 April 2018 19.8 7.2 - 27.0
-------------------------------------------- -------- --------- ------ -----
Goodwill is not amortised. Instead it is subject to an
impairment review at each reporting date or more frequently if
there is an indication that it may be impaired. Other intangible
assets are amortised and tested for impairment when there is an
indication that the asset may be impaired. Impairments and
amortisation charges are recognised in full in administration
expenses in the income statement during the period in which they
are identified.
Goodwill is impaired if the carrying amount exceeds the
recoverable amount. The recoverable amount is the higher of fair
value less costs to sell and the value in use. In the absence of a
recent market transaction, the recoverable amount of the goodwill
held by the Group is determined from value in use calculations.
Management has identified two cash-generating units (CGUs)
supporting goodwill which are the UK and Europe, being the
Netherlands, Belgium and Ireland. In the prior year as a result of
a significant fall in market capitalisation and a downturn in
trading, goodwill was tested for impairment during the period. This
resulted in GBP34.7m of Goodwill being impaired to Nil, comprising
GBP29.8m in the UK and GBP4.9m in the Netherlands. The remaining
Goodwill of GBP19.6m relates to the Goodwill on the acquisition of
the Dutch operations. This was tested for impairment in the period
and none deemed required, using value in use calculations based on
three-year profit projection models and plans approved by the
Board, adjusted for non-cash items and capital expenditure.
The key assumptions used in the cash flow model when assessing
European Goodwill balances are:
-- Pre-tax -discount rate 9.9%
-- Long term Growth rate 2.0%
The recoverable amount using value in use calculations exceeded
the carrying value of Goodwill. The following amendments to the key
assumptions would result in removal of any available headroom.
-- An increase of 0.4% in the discount rate
-- A decrease in the long term growth rate to a 1.7% decline
9. Property, plant and equipment
Long
Freehold leasehold Short Fixtures
land land leasehold and Plant
and buildings and buildings buildings fittings and machinery Total
Group GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- -------------- -------------- ---------- --------- -------------- ------
Cost:
At 29 April 2017 42.0 16.4 17.1 97.1 36.3 208.9
Exchange differences 0.6 - 0.1 0.6 1.1 2.4
Additions - - 0.8 12.7 0.5 14.0
Transfer 0.9 - - - - 0.9
Transfer to intangible assets - - - - (0.5) (0.5)
Transfer from investment property - - 0.1 - - 0.1
Disposals (0.4) (0.2) (0.4) (9.5) (0.9) (11.4)
--------------------------------------- -------------- -------------- ---------- --------- -------------- ------
At 28 April 2018 43.1 16.2 17.7 100.9 36.5 214.4
--------------------------------------- -------------- -------------- ---------- --------- -------------- ------
Exchange differences (0.4) - - (0.3) (0.4) (1.1)
Additions - - 0.1 3.8 0.2 4.1
Disposals (0.7) (0.6) (2.9) (18.9) (1.8) (24.9)
--------------------------------------- -------------- -------------- ---------- --------- -------------- ------
At 27 April 2019 42.0 15.6 14.9 85.5 34.5 192.5
--------------------------------------- -------------- -------------- ---------- --------- -------------- ------
Accumulated depreciation and
impairment:
At 29 April 2017 7.8 5.6 11.5 55.0 27.0 106.9
Exchange differences 0.2 - 0.1 0.4 0.8 1.5
Impairment - 0.2 0.9 4.1 0.4 5.6
Depreciation 0.6 0.2 0.8 8.1 1.0 10.7
Transfer 0.8 - - 0.1 - 0.9
Transfer from investment property - - 0.1 - - 0.1
Disposals (0.1) (0.1) (0.3) (8.4) (1.1) (10.0)
--------------------------------------- -------------- -------------- ---------- --------- -------------- ------
At 28 April 2018 9.3 5.9 13.1 59.3 28.1 115.7
--------------------------------------- -------------- -------------- ---------- --------- -------------- ------
Exchange differences (0.1) (0.2) (0.1) (0.1) (0.3) (0.8)
Impairment 0.8 - 0.1 0.6 0.1 1.6
Depreciation 0.6 0.2 0.9 7.8 1.1 10.6
Disposals (0.3) (0.6) (2.7) (18.1) (1.8) (23.5)
--------------------------------------- -------------- -------------- ---------- --------- -------------- ------
At 27 April 2019 10.3 5.3 11.3 49.5 27.2 103.6
--------------------------------------- -------------- -------------- ---------- --------- -------------- ------
Net book value:
At 27 April 2019 31.7 10.3 3.6 36.0 7.3 88.9
--------------------------------------- -------------- -------------- ---------- --------- -------------- ------
At 28 April 2018 33.8 10.3 4.6 41.6 8.4 98.7
--------------------------------------- -------------- -------------- ---------- --------- -------------- ------
In accordance with IAS 36, assets are reviewed for impairment
whenever changes in circumstances indicate that the carrying value
may not be recoverable.
Property, plant and equipment is subject to an impairment review
at each reporting date or more frequently if there is an indication
of impairment. During the period, GBP0.8m of fixtures and fittings
and GBP0.8m in relation to freehold properties have been subject of
an impairment charge.
Assets held under finance leases have the following net book
value:
Group Group
2019 2018
GBPm GBPm
---------------------------------------- ----- -----
Cost 8.1 8.7
Accumulated depreciation and impairment (3.0) (3.4)
---------------------------------------- ----- -----
Net book value 5.1 5.3
---------------------------------------- ----- -----
The assets held under finance leases comprise buildings.
10. Investment property
Investment property is carried at depreciated historical cost
and is reviewed for impairment at each balance sheet date or when
there is an indication of impairment. The recoverable amount is the
higher of fair value less costs to sell and the value in use
calculations. The value in use calculations are based on five-year
income forecasts and a terminal value. These cash flows discounted
at a pre-tax rate of 9.9% for properties based in the UK and 8.0%
for the properties located in The Netherlands.
Operating expenses attributable to investment properties are
incurred directly by tenants under tenant-repairing leases.
Group
GBPm
-------------------------------------------- -----
Cost:
At 29 April 2017 20.2
Exchange differences 0.7
Transfer from property, plant and equipment (0.1)
-------------------------------------------- -----
At 28 April 2018 20.8
-------------------------------------------- -----
Exchange differences (0.3)
Transfer from property, plant and equipment -
-------------------------------------------- -----
At 27 April 2019 20.5
-------------------------------------------- -----
Accumulated depreciation and impairment:
At 29 April 2017 4.9
Exchange differences 0.1
Impairment 5.1
Depreciation 0.3
Transfer from property, plant and equipment (0.1)
-------------------------------------------- -----
At 28 April 2018 10.3
-------------------------------------------- -----
Exchange differences (0.2)
Impairment -
Depreciation 0.1
-------------------------------------------- -----
At 27 April 2019 10.2
-------------------------------------------- -----
Net book value:
At 27 April 2019 10.3
-------------------------------------------- -----
At 28 April 2018 10.5
-------------------------------------------- -----
.
11. Provisions for charges and liabilities
Group
2019
GBPm
----------------------------------------------
Onerous Reorganisation Total
lease provisions provisions provisions
Group and Company GBPm GBPm GBPm
--------------------------- ----------------- -------------- -----------
At the beginning of the
period 13.9 5.8 19.7
Added during the period 3.1 0.6 3.7
Released during the period (2.0) (0.5) (2.5)
Utilised during the period (6.3) (3.3) (9.6)
Utilised on disposal (0.2) - (0.2)
--------------------------- ----------------- -------------- -----------
At the end of the period 8.5 2.6 11.1
--------------------------- ----------------- -------------- -----------
Group Group
2019 2018
GBPm GBPm
-------------------------------------- ----- -----
Non-current 6.1 10.6
Current 5.0 9.1
-------------------------------------- ----- -----
Provision for liabilities and charges 11.1 19.7
-------------------------------------- ----- -----
The onerous lease provisions relate to estimated future
unavoidable lease costs in respect of closed and loss-making
stores. The utilisation of onerous provisions is dependent on the
future profitability of each store, which is subject to uncertainty
from both internal and external factors. It is expected that the
provisions will be utilised over a three year period.
Following the adoption of IFRS 16 in 2020, onerous lease
provisions and advance rental accruals will cease to be recognised
and instead a right of use impairment will be recognised - please
refer to note 14.
Refer to note 4 for details of the reorganisation provisions,
which include redundancy and other store closure costs in relation
to stores impacted by the CVA. Due to the nature of the provision,
uncertainty exists as to the timing and final costs that will be
incurred from implementing the reorganisation programme. It is
expected that this will be utilised within the next 12 months.
12. Movement in net debt
Total Cash Exchange Other Total
Group GBPm 2018 flow differences non-cash 2019
----------------------------------------- ------ ------ ------------ --------- ------
Current assets:
Cash and cash equivalents in the balance
sheet 6.6 15.4
Bank overdraft (1.8) (2.5)
----------------------------------------- ------ ------ ------------ --------- ------
Cash and cash equivalents in the cash
flow statement 4.8 8.1 - 12.9
----------------------------------------- ------ ------ ------------ --------- ------
Current liabilities:
Current borrowing (56.0) 34.5 (1.5) (23.0)
Non-current borrowing - (14.9) - (1.0) (15.9)
----------------------------------------- ------ ------ ------------ --------- ------
(56.0) 19.6 (2.5) (38.9)
----------------------------------------- ------ ------ ------------ --------- ------
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) 0.2 0.2 1.4
----------------------------------------- ------ ------ ------------ --------- ------
Total net (debt)/cash (53.0) 27.9 - (2.3) (27.4)
----------------------------------------- ------ ------ ------------ --------- ------
Total Cash Exchange Other Total
Group GBPm 2017 flow differences non-cash 2018
----------------------------------------- ------ ------ ------------ --------- ------
Current assets:
Cash and cash equivalents in the balance
sheet 12.5 6.6
Bank overdraft (7.1) (1.8)
----------------------------------------- ------ ------ ------------ --------- ------
Cash and cash equivalents in the cash
flow statement 5.4 (0.9) 0.3 - 4.8
----------------------------------------- ------ ------ ------------ --------- ------
Current liabilities:
Current borrowing (13.0) (44.0) - 1.0 (56.0)
Non - Current borrowing - - - - -
----------------------------------------- ------ ------ ------------ --------- ------
(13.0) (44.0) - 1.0 (56.0)
----------------------------------------- ------ ------ ------------ --------- ------
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 (1.7)
----------------------------------------- ------ ------ ------------ --------- ------
(2.2) 0.3 - 0.1 (1.8)
----------------------------------------- ------ ------ ------------ --------- ------
Total net (debt)/cash (9.8) (44.6) 0.3 1.1 (53.0)
----------------------------------------- ------ ------ ------------ --------- ------
13. Events after the reporting period
Following the period end, the Group sold three properties in
Salford, Devizes and Newtownards for a sum of GBP2.6m.
14. Changes in accounting standards
i) 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. The Group had previously
recognised revenue when the Goods had been prepared on behalf to
the customer. However under IFRS 15 revenue is recognised when the
goods and services are delivered to the customer, as this is the
point where control passes from the Group to the customer.
This deferral of revenue also impacts the previous period, with
details for 2017 and 2018 shown in the tables below:
2017 2017 2018 2018
Group GBPm as reported Adjustment as restated as reported Adjustment as restated
----------------------- ------------ ---------- ------------ ------------ ---------- ------------
Assets:
Deferred tax assets 1.9 0.3 2.2 2.0 0.3 2.3
Inventories 41.1 10.7 51.8 35.7 10.0 45.7
Trade receivables 12.7 (8.4) 4.3 11.9 (8.7) 3.2
----------------------- ------------ ---------- ------------ ------------ ---------- ------------
Total assets 55.7 2.3 58.3 49.6 1.3 51.2
----------------------- ------------ ---------- ------------ ------------ ---------- ------------
Liabilities:
Contact liabilities (9.30 (14.9) (24.2) (8.9) (13.4) (22.3)
Deferred tax liability (15.2) 2.1 (13.1) (9.0) 2.1 (6.9)
----------------------- ------------ ---------- ------------ ------------ ---------- ------------
Total liabilities (24.5) (12.8) (37.3) (17.9) (11.3) (29.2)
----------------------- ------------ ---------- ------------ ------------ ---------- ------------
Equity
Other reserves 61.1 (10.2) 50.9 0.9 (9.7) (8.8)
----------------------- ------------ ---------- ------------ ------------ ---------- ------------
Total equity 61.1 (10.2) 50.9 0.9 (9.7) (8.8)
----------------------- ------------ ---------- ------------ ------------ ---------- ------------
Group GBPm
--------------------- ------- ------ ------- ------- ----- -------
Revenue 457.6 (23.8) 433.8 443.8 2.5 446.3
Cost of sales (188.2) 10.5 (177.7) (194.2) (1.8) (196.0)
--------------------- ------- ------ ------- ------- ----- -------
Gross profit 269.4 (13.3) 256.1 249.6 0.7 250.3
Administrative costs (266.5) 0.7 (265.8) (317.3) - (317.3)
Finance costs (2.0) - (2.0) (2.8) - (2.8)
--------------------- ------- ------ ------- ------- ----- -------
Profit/(Loss) before
tax 0.9 (12.6) (11.7) (70.5) 0.7 (69.8)
Tax (0.2) 2.4 2.2 6.3 (0.1) 6.2
--------------------- ------- ------ ------- ------- ----- -------
Profit/(Loss) after
tax 0.7 (10.2) (9.5) (64.2) 0.6 (63.6)
--------------------- ------- ------ ------- ------- ----- -------
Basic EPS 1.0 (15.0) (14.0) (94.6) 1.0 (93.6)
Diluted EPS 1.1 (15.0) (14.1) (94.6) 1.0 (93.6)
--------------------- ------- ------ ------- ------- ----- -------
The transition from IAS 18 to IFRS 15 on the current year
results is shown below
2019 2019
YoY movement YoY movement
Group GBPm IAS18 adjustment IFRS15
--------------------- ------------- ---------- -------------
Revenue (0.8) 4.3 3.5
Cost of sales 0.3 (1.9) (1.6)
--------------------- ------------- ---------- -------------
Gross profit (0.5) 2.4 1.9
Administrative costs - - -
--------------------- ------------- ---------- -------------
Profit impact (0.5) 2.4 1.9
--------------------- ------------- ---------- -------------
ii) IFRS 16 - Leases
The Group will recognise new assets and liabilities
predominantly for its operating leases of properties and warehouse
vehicles. The nature of the expenses recognised in the income
statement in respect of these leases will change because the Group
will recognise a depreciation charge for right-of-use assets and an
interest expense on lease liabilities. Previously the Group
recognised an operating lease expense, 'rent', on a straight-line
basis over the term of the lease.
IFRS16 will have a material effect on the Group's balance sheet
given the current value of operating leases that will be recognised
as both asset and liability, calculated as the discounted value of
remaining lease payments at the date of initial recognition (see
below). This will result in a significantly lower rental charge, to
be replaced with a higher figure of depreciation and interest.
Whilst depreciation will be recognised on a straight line basis,
IFRS 16 requires interest to be calculated on the effective
interest rate method. This results in a higher level of interest
being charged during the early period of the lease, falling as the
lease progresses and associated liability falls (similar to a
repayment mortgage). When compared to rental costs, this will
result in a reduction in the Group's profit during the early stage
of a lease and an increase during its latter stages.
The Group has prepared an estimate of the impact in the Group's
accounts, but this may change for the following reasons:
-- in light of the Company Voluntary Arrangement (CVA), all
of the Group's B1, B2 and C category leases are capable
of being terminated at short notice. Management will assess
whether they are reasonably certain these leases will extend
beyond the CVA period and revert to their original lease
terms
-- the Group's lease portfolio is frequently changing the
new accounting policies are subject to change until the
Group presents its financial statements for the year ending
25 April 2020
Leases in which the Group is a lessor
Lessor accounting remains similar to the current standard:
lessors continue to classify leases as finance or operating leases.
As such, no significant impact is expected for leases in which the
Group is a lessor.
Impact of the new standard
Given the complexity of the Standard and the number of leases
held by the Group, the implementation project remains work in
progress and the figures quoted below therefore illustrative at
this stage. The Group plans to apply IFRS 16 initially on 28 April
2019 using the "modified retrospective" approach electing to value
the right-of-use asset at an amount equal to the lease liability on
transition. There will be no restatement of comparative
information. All leases entered into on or after 28 April 2019 will
be recognised from the date of inception.
Using this approach, together with management's selected
practical expedients that accompany it, the Group will:
-- Apply IFRS 16 to leases previously identified in accordance
with IAS 17 Leases and IFRIC 4 Determining Whether an Arrangement
Contains a Lease.
-- Calculate a lease liability as at 28 April 2019 based on
the remaining lease payments payable after that date.
-- Calculate the lease term according to management's appetite
for exercising any available extension/break/purchase options.
-- Discount the remaining gross lease payments using the applicable
interest rate, which will generally be the incremental
borrowing rate, as at 28 April 2019 applicable to each
relevant business unit, asset type, currency of the arrangement
and weighted average length of the lease term starting
on the commencement date.
-- Recognise right-of-use assets as at 28 April 2019 at an
amount equal to the lease liability.
-- Exclude any initial direct costs from the measurement of
the right-of-use assets that are recognised on adoption
of IFRS 16 as at 28 April 2019.
Using lease data as at 28 April 2019, the expected impact of
adopting IFRS 16 as at that date, applying the same modified
retrospective approach as described above, would be approximately
to:
-- Recognise a right-of-use asset as at 28 April 2019 of between
GBP245m and GBP255m, net of impairment relating to onerous
lease provisions and advance rental accruals;
-- Recognise a lease liability of between GBP277m and GBP287m,
with a consequent increase in net debt;
-- Increase underlying EBITDA, by approximately GBP60m;
-- Increase underlying operating profit by between GBP18m
and GBP20m;
-- Increase finance costs by between GBP25m and GBP27m; and
-- decrease Profit Before Tax by approximately GBP7m.
We would also cease to utilise onerous lease provisions (2019:
GBP6.3m) and advance rental accrual releases (2019: GBP5.7m), with
a further GBP10m to GBP12m impact on presented profitability. As
discussed above, the provisions will instead be used to impair the
"right of use" asset, with a resultant reduction in deprecation
over the depreciation period, resulting in a timing difference that
as with interest, impact early and benefit later years. The
depreciation impact was factored into the assessment outlined
above. The tax effects of the adoption of IFRS 16 are still being
assessed pending the finalisation of the tax treatment in certain
jurisdictions.
The total pre-tax impact on the Group on a like-for-like basis
would therefore be of the order of GBP17m to GBP19m. IFRS 16 has no
economic impact on the Group, nor how the business is run or its
cash flows. It is expected that banking covenants will be
normalised to reflect a position consistent with historical
accounting standards. The Group does not currently intend to alter
its approach going forward as to whether assets should be leased or
purchased.
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
FR SELSIIFUSEEM
(END) Dow Jones Newswires
June 25, 2019 02:01 ET (06:01 GMT)
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