TIDMCPR
RNS Number : 5283S
Carpetright PLC
26 June 2018
Carpetright plc
Full Year results for the 52 weeks ended 28 April 2018
"Underlying losses in line with guidance - statutory losses
reflect cost and accounting impact of restructuring to address
legacy property issues in the UK"
Financial Highlights
Group
-- Group revenue decreased by 3.0% to GBP443.8m (2017: GBP457.6m).
-- Underlying EBITDA of GBP6.4m (2017: GBP28.6m).
-- Underlying loss before tax of GBP8.7m (2017: profit of GBP14.4m), in-line
with previous guidance.
-- Net debt position of GBP53.0m (2017: GBP9.8m) reflecting the decline
in operating performance and tightening of credit terms by suppliers
responding to adverse publicity surrounding the Group's restructuring.
-- Separately reported items of GBP61.8m (2017: GBP13.5m), driven mainly
by the costs and accounting impact of the restructuring activity, of
which GBP49.0m is non-cash, leading to a statutory loss before tax of
GBP70.5m (2017: profit of GBP0.9m).
UK
-- In tough trading conditions, like-for-like sales in the full year declined
by 3.6% (2017: decline of 0.5%) with a decrease of 7.8% in second half
of the year offsetting the increase of 0.7% reported for the first half.
-- Underlying EBITDA of GBP2.9m (2017: GBP20.9m), the combination of the
sales decline and a lower margin rate.
Rest of Europe
-- Like-for-like sales growth of 1.2% (2017: 2.5%), driven by service related
income and currency translation.
-- Decline in underlying EBITDA to GBP3.5m (2017: GBP7.7m) a result of a
lower margin rate and inflationary cost pressures.
Strategic progress
-- Legacy property issues being addressed with a Company Voluntary
Arrangement - 81 UK trading stores to close by end of September
2018.
-- Further progress made with the introduction of new branding and
contemporary store-fit - 227 stores in the UK trading under the
new brand identity by the end of April 2018 (55% of the UK estate).
-- Refurbished stores continue to outperform the uninvested estate.
-- All remaining UK stores to be receive additional investment by the
end of the CVA period in 2021 with priority being given to most
profitable sites.
-- UK like-for-like sales of hard flooring increased by 9.2% reflecting
our greater strategic focus on this category.
-- GBP65m of equity financing completed after the period end to fund
implementation of the CVA and provide the necessary capital to refurbish
and modernise the ongoing store estate and upgrade our digital platform.
Current trading
-- As expected, trading in the first eight weeks of the new financial year
was heavily impacted by the disruption arising from the Group's restructuring
activity, in particular stock shortages as some suppliers had withdrawn
supply, and the period of exceptionally warm weather.
-- In more recent weeks, following the approval of the CVA and completion
of the recapitalisation, the Group has begun to see the benefits of stock
replenishment by suppliers and less negative publicity, although UK like-for-like
sales remained negative.
-- Sales growth has been restored in the Rest of Europe following appointment
of new leadership.
Commenting on the results Wilf Walsh, Chief Executive, said:
"After a difficult trading year impacted by reduced consumer
spend, increased competition and the legacy of an unsustainable,
over rented store portfolio - the CVA and recapitalisation offers
us the chance to rebuild Carpetright which remains the clear market
leader in floor coverings with outstanding consumer brand
awareness. This will be a transitional year for the Group as we
work through our recovery plan."
Group financial summary
2018 2017
GBPm GBPm Change
BUSINESS PERFORMANCE
-------- ------- --------
Group revenue 443.8 457.6 (3.0%)
-------- ------- --------
UK 360.4 381.0 (5.4%)
-------- ------- --------
Rest of Europe 83.4 76.6 8.9%
-------- ------- --------
Underlying EBITDA 6.4 28.6 (77.6%)
-------- ------- --------
UK 2.9 20.9 (86.1%)
-------- ------- --------
Rest of Europe 3.5 7.7 (54.5%)
-------- ------- --------
Underlying (loss)/profit before tax (8.7) 14.4
-------- ------- --------
Underlying (loss)/earnings per share (6.8p) 16.4p
-------- ------- --------
Net debt (53.0) (9.8)
-------- ------- --------
STATUTORY REPORTING
-------- ------- --------
Separately reported items (61.8) (13.5)
-------- ------- --------
(Loss)/profit before tax (70.5) 0.9
-------- ------- --------
Basic (loss)/ earnings per share (94.6p) 1.0p
-------- ------- --------
Notes
1. Revenue represents amounts payable by customers for goods and services after deducting VAT
and other charges.
2. 'Underlying' excludes separately reported items and related tax.
3. Net debt is calculated as the total of cash-in-hand, or at bank, offset by borrowings, finance
leases and unamortised fees.
4. Sales represents amounts payable by customers for goods and services before deducting VAT
and other charges.
5. Like-for-like sales calculated as this year's sales compared to last year's sales for all
stores that are at least 12 months old at the beginning of our financial year. Stores closed
during the year are excluded from both years. No account is taken of changes to store size
or introduction of third party concessions.
6. Comparative period for the year is the 52 week period ended 29 April 2017.
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.
Results presentation
Carpetright plc will hold a presentation to analysts at Citigate
Dewe Rogerson, 3 London Wall Buildings, London Wall, London EC2M
5SY at 09:00 today.
Analysts unable to attend in person may listen to the
presentation live at 09:00 by using the details below:
Telephone number: +44 (0) 20 3003 2666
Password: Carpetright
Webcast link: https://edge.media-server.com/m6/p/qf2sjezz
A copy of this statement can be found on our website
www.carpetright.plc.uk
For further enquiries please contact:
Carpetright plc
Wilf Walsh, Chief Executive Officer
Neil Page, Chief Financial Officer
Tel: 01708 802000
Citigate Dewe Rogerson
Kevin Smith / Nick Hayns / Elizabeth Kittle
Tel: 020 7638 9571
Forthcoming news flow:
Carpetright will release its first half trading update on 16
October 2018.
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
It has been a very difficult financial year for our business.
After a disappointing first half, our Boxing Day sale started and
never really got going. With significantly increased competition
and signs of a slowdown in consumer spending this left us exposed,
particularly given our historically oversized and over-rented
estate.
While our multiple strategic initiatives to modernise and
improve the business continue to deliver substantial improvements
to our KPIs and customer perception, we were ultimately unable to
carry the weight of a long tail of underperforming stores on
uneconomic legacy rents. Profit warnings and a continued trend of
slow trading meant that we were clearly going to be in the position
of making a financial loss at the end of financial year 2018 and
this left us in the unenviable position of needing to consider a
much more radical restructuring via a Company Voluntary Arrangement
(CVA) and recapitalisation of the business.
Our historic property issues have always been the major
challenge and I have made no secret of this in our previous Annual
Reports and Accounts.
Our historical approach of seeking assignations of leases,
negotiating with landlords and offering incentives on a
case-by-case basis to exit sites was no longer viable and, in the
end, we were timed out on this project once we experienced a severe
downturn in trade post-Christmas - I discuss this in more detail
under "Where we sell it".
None of this changes our strategy which is focusing exclusively
on:
Who we are - our stores, the brand and our people
What we sell - an unrivalled choice of floorcoverings
How we sell - making the process easy with unbeatable value
Where we sell - multi-channel convenience and improving the
quality of the store portfolio
This strategy is supported by clear, uncomplicated principles
that are applied consistently throughout the business,
specifically:
We are honest and straightforward
We care about our customers and colleagues
We make it easy
Who we are
We are the clear market leader in floorcoverings in the UK with
a significant double-digit market share. We are also, by quite some
way, the leader in terms of brand awareness, with a prompted brand
awareness of 89% and a spontaneous brand awareness of 63%, compared
to only 78% and 19% respectively for our closest competitor.
People know who we are, and the challenge is to improve
consideration of Carpetright, increase footfall to our stores and
to convert prospective shoppers into customers who choose to spend
their hard-earned disposable income with us. Flooring is an
infrequent purchase for most people and getting it right is hugely
important.
Refurbishment of the store estate and introduction of our new
branding and contemporary store-fit remained a major focus during
the year, although there was a significant reduction in capital
spending activity post-Christmas. By the end of April 2018, we had
227 stores in the UK trading under the new brand identity, some 55%
of the estate, and we completed 28 refurbishments during the
year.
Investment in our store estate has been crucial - our properties
had been chronically underinvested for years and we have been
implementing a programme of activity to get it fit for purpose and
to create a modern shopping environment for our customers. The
strategic sense of this rationale is evident in the numbers, with
refurbished stores outperforming the uninvested estate.
This work ranged from introducing new signage and a sample area
for carpet in stores that make a smaller profit, through to full
refurbishment of larger, highly profitable stores, or stores where
we are tackling new competition. Coupled with a bold "Free Fitting"
offer to our customers, it clearly had a positive impact on our
ability to compete at a local level.
The introduction of our new 'Graphite' store-fit is proving
successful in generating sales growth. As a group, our refurbished
stores delivered like-for-like sales growth of 9.2% higher than the
un-invested estate (including stores refurbished expressly to meet
new competition this figure would be 4.3% growth). We are aiming to
have completed the remainder of the UK estate with some form of
additional investment by the end of the CVA period in 2021 with the
most profitable stores as a priority.
There is no doubt that the publicity surrounding the
restructuring process over recent months has had an impact on
trade. For customers we are planning an extensive brand relaunch in
Autumn 2018 which will emphasise that as clear market leader, we
are here to stay.
For colleagues we have used Fuse, our social learning and
communications platform, to keep them fully informed and engaged
during the process, no matter how difficult it has been, especially
around the closure of 81 trading stores before the end of September
2018. At the time of writing, we have managed to redeploy 31% of
affected colleagues and hope to exceed this figure.
What we sell
Extensive market research explains how consumer tastes are
changing and they tell us what they want to buy for their home
transformations. Hard flooring continues to become more popular and
more innovations to product are taking place in this sector. Even
in such a difficult trading year we saw sales in the category grow
by 9.2% like for like in the UK. This area represents a big
opportunity to grow our overall market share in floorcoverings.
With impressive support from our suppliers, we are working hard
on a co-ordinated package of initiatives to grow our share of this
market and to make Carpetright as famous for hard flooring as it is
for carpets, specifically:
-- Range Authority. We are introducing an increased number of products across all categories
from vinyl through to engineered wood
-- Developing our own label brand "Tegola" across the category
-- Creating new extended hard flooring zones after a successful in-store trial
-- Increasing training for staff via Fuse, our internal platform to get colleagues to "expert"
level
-- Ensuring there is adequate third-party fitting capacity available where we install hard flooring
units
-- An extended online range offer
In our core carpet business, we have extended the number of
exclusives this year by adding a new partnership with Country
Living magazine in addition to our established partnerships with
House Beautiful magazine and the Kosset brand with its unique
"stain free for life" product.
We are a broad church, whether customers are looking for basic
carpet in our "Essential Value" range or shopping for premium
branded wool products manufactured in the UK - Carpetright can
satisfy all budgets and tastes. We update our ranges twice a year
to ensure we are keeping up to speed with changing tastes and
trends. For 2018 we will be launching our own label "Soft
Sensations" as well as a new home-carpet tile proposition.
The beds category was introduced in 2009 primarily as a means to
utilise excess store space. While last year we believed that we had
a significant opportunity to grow the Beds category with a complete
re-ranging and product change - it simply did not materialise and
it has been a poor trading year. We are not top of mind for
customers when it comes to bed retailing and it is now clear that a
brand extension of any significance is going to be difficult to
achieve.
Nonetheless, we still believe there is some scope for the
"Sleepright" brand but only where the size of the store allows us
to stock a significant range. We are happy to concentrate on the
established beds brands that people know versus other retailers
that are vertically integrated with their own brands, as well as
competing aggressively on price as a cash-generation opportunity.
To this end, we will launch the "Essential Value" proposition in
beds, as well as strengthening our sub GBP500 offer.
How we sell
We are constantly testing and retesting our strategy after such
a difficult period and firmly believe that a consistent focus on
key elements in the customer sales journey to increase conversion
and average transaction values remains the correct approach,
specifically:
-- Interest Free Credit (up to four years) grew to 19% participation at the end of the financial
year. While our average transaction value was GBP382 in 2018, under IFC this grows to GBP1,387.
-- Customer satisfaction is essential - especially the recommendations needed to generate repeat
business. Our "Do We Measure Up" score means that 76% of our customers are "highly satisfied",
while a further 20% are "satisfied". 71% who experience our Home Flooring Surveyors and 65%
of those who deal with third party fitters who are established under our "Which Trusted Trader"
accreditation are also "highly satisfied". We remain focused on driving these metrics higher,
particularly those in the latter area where we should be getting higher scores. In simple
terms, "highly satisfied" customers spend 3.4 times more on average and are significantly
more likely to recommend Carpetright.
-- Value and our all-embracing proposition that we are "Never Beaten on Price" is a key element
in our heritage and we will always match a quote on the same product from any of our competitors.
Similarly, while "50% off" appears to be the default promotion proposition for most big-ticket
retailers - added value such as half price underlay and other enhancements are vital to attract
people into store. Selling the right product, with underlay and associated accessories as
well as offering our "Uplift and Disposal" service, is key to growing ATV.
Where we sell
As indicated above, our legacy property issue is now being
tackled via a CVA that was confirmed, without any landlord
challenge, in June 2018. The stores have been split into three
categories the details of which are as follows:
-- Category A - 195 sites comprising of 176 trading stores and 19 warehouses. These stores average
GBP22,500 per week in sales, have a rent to sales ratio of 15.4% and individually each make
a good profit. These leases are not compromised as part of the CVA.
-- Category B of which: o B1 - 82 stores, average sales of GBP13,200 per week, have a rent
to sales ratio of 18.8% and make a small profit but insufficient
to cover their supporting overhead. The CVA compromise is a 30%
rent reduction for three years.
o B2 - 31 stores, average sales of GBP12,200 per week, have a rent
to sales ratio of 20.7% and are marginally profitable. The CVA
compromise is a 50% rent reduction for three years.
-- Category C - 92 sites, comprising of 81 trading stores, 1 warehouse and 10 closed/sublet stores
with average sales per week of GBP11,500 and rent to sales ratio of 28.9%. These do not make
any profit contribution. The compromise is a 50% rent reduction with the option to exit these
stores on or after 23 September 2018.
While some landlords have been critical of CVA processes
generally, we received approval on our approach from the British
Property Federation as well as an endorsement from the Pension
Protection Fund. Reluctantly, a CVA was genuinely our only viable
option and we look forward to building profitable relationships
with landlords over the three-year period of the CVA and
beyond.
We have a clear line of sight on refurbishing the profitable
Category A stores and will take a prudent look at the Category B
store list given that we have welcome flexibility on those leases
during the three-year CVA period.
In the Rest of Europe, we opened six stores and closed nine,
including three relocations during the year, to leave a total of
135 stores (2017: 138 stores). Consequently, we now trade from
1,331,000 sq ft of retail space (2017: 1,360,000 sq ft), a 2.1%
reduction year-on-year. Short term leases are sensibly the norm in
the Netherlands and Belgium where the average lease length is 2.9
years (2017: 2.8 years) and just 1.5 years (2017:1.8 years)
respectively. However, for the loss-making Republic of Ireland
business this period is 4.2 years (2017: 5.2 years), reflecting the
uncommercial long-term deals entered into during our over-ambitious
expansion into this market from 2001 to 2008.
Online is key to this business in the short and medium term. The
sad demise this year of a number of traditional retailers is
partially down to the fact that they were not "Amazon proof" and
most of the products they sell could be chosen online and delivered
to the home the next day. While choosing floor coverings is not
such an easy sell online we are not being complacent and the key
elements to our digital strategy are:
-- Improving consideration of Carpetright as customers research an inspirational and easy to
navigate website alongside increased marketing spend on search engine optimisation, pay per
click and video on demand. In terms of marketing budgets these formats are rapidly taking
over from the decline in traditional press consumption and this trend is across all demographic
groups.
-- Improve the instore experience by using digital technology and consolidating the benefits
on our new online platform and system change to Microsoft Dynamics 365. Using Artificial Intelligence,
we will deliver customer service automation with personalised content and recommendations
currently being utilised to great effect elsewhere in the retail sector.
-- Acknowledging that some customers will not want to visit a retail store ever - ensure that
we have the online capability allowing them to measure their home accurately, choose products,
along with associated accessories with confidence and complete the end to end experience without
needing to visit a retail outlet or talk to a human being.
Summary
The three headwinds of our legacy property estate, increased
competition and a downturn in consumer spending all combined to
make 2017/18 a year to put behind us.
The CVA and recapitalisation offers us the significant chance to
rebuild as a profitable market leader with outstanding brand
awareness and we do not intend to miss this opportunity.
We will not be diverted from our plan to transform the
Carpetright business. The four main planks of our strategy remain
relevant and finally we have comprehensively tackled our
significant and ultimately, debilitating property issues.
The support received for our successful GBP65m gross fundraising
after the period end is a strong signal that a recapitalised market
leader will be better for consumers, investors, suppliers and
ultimately for landlords as we shall be investing in the profitable
stores that we are retaining.
My thanks, as ever, go to our store and store support office
colleagues who have remained positive, loyal and stoic throughout a
difficult year - their hard work and dedication during a very
testing time have been much appreciated. Similarly, my Board
colleagues have been clear minded, decisive and incredibly
supportive.
Completing the turnaround will take time and the road ahead
remains a challenging one - but we now have the resources to fully
fund our revised business plan. Implementation of the CVA is well
underway and the 92 closures will be complete by end September. As
well as being demanding, the duration of this process means that
the benefits will not be fully seen during 2018/19 and will only
begin to take effect in the second half. However, we do believe
that we now have a bedrock in place of a largely right sized and
right rented retail estate supported by plans to develop a
compelling digital offer that will see us grow profitable market
share over the next few years.
For almost thirty years we've satisfied more customers than any
other flooring retailer - so here's to thirty more as the nation's
favourite.
We are Carpetright.
Wilf Walsh
Chief Executive Officer
26 June 2018
Financial review
2018 2017
GBPm GBPm Change
------------------------------------- -------- ------- ----------------
Revenue 443.8 457.6 (3.0%)
Underlying EBITDA 6.4 28.6 (77.6%)
Depreciation and amortisation (12.3) (12.2) (0.8%)
Net finance charges (2.8) (2.0) (40.0%)
Underlying (loss)/profit before tax (8.7) 14.4 -
Separately reported items (61.8) (13.5) -
(Loss)/profit before tax (70.5) 0.9 -
(Loss)/Earnings per share (pence)
Underlying (6.8p) 16.4p -
Basic (94.6p) 1.0p -
Net debt (53.0) (9.8) GBP43.2m higher
------------------------------------- -------- ------- ----------------
Overview
In the first half of the financial year the Group delivered an
increase in revenue of 2.6%, however, we then experienced a
significant deterioration in UK trading, most notably in the
post-Christmas trading period. The consequence was a decline in
revenue in the second half of 8.3%, resulting in a full year
decrease of 3.0% to GBP443.8m (2017: GBP457.6m).
Our continued focus on rationalising and repositioning the store
portfolio saw the Group open ten stores and close 29 during the
year, which gave a net decrease of 19 stores, including four
relocations. The total store base numbered 545 at year end (2017:
564), with total store space declining by 2.8% to 4.9 million
square feet during the period.
Underlying EBITDA declined to GBP6.4m (2017: GBP28.6m), a
combination of the lower revenue, a reduced gross margin and higher
expenses. The margin was impacted by higher product costs in the UK
as a result of the depreciation of Sterling against the euro,
promotional measures taken to address competition and the
inevitable disruption to trade resulting from the adverse publicity
surrounding the restructuring. Expenses increased by GBP2.4m,
consisting of a rise in the Rest of Europe, primarily as a result
of exchange rate movements, being partially offset by savings in
the UK, further details of which are disclosed in the individual
business unit reviews below.
Depreciation and amortisation charges were GBP12.3m (2017:
GBP12.2m). The net impact of the effects noted above resulted in a
Group underlying operating loss of GBP5.9m (2017: GBP16.4m
profit).
Net finance charges were GBP0.8m higher than the prior year at
GBP2.8m, the increase being driven by higher average drawings of
banking facilities and amortisation fees associated with the
shareholder loan agreed in March 2018.
Separately reported items totalled GBP61.8m (2017: GBP13.5m).
The primary driver of this charge were the poor trading conditions
and the impact of this on the impairment of goodwill; freehold
property valuations; and assets in loss making stores, alongside
the costs of restructuring activity. Further detail on these costs
can be found below.
Taking into account separately reported items, the statutory
loss before tax for the period was GBP70.5m (2017: GBP0.9m profit)
and basic loss per share of 94.6p (2017: 1.0p earnings per
share).
The Group ended the year with net debt of GBP53.0m (2017:
GBP9.8m), reflecting the material fall in operating profit, an
adverse movement in working capital as suppliers reacted to
restructuring announcements and the continued investment in the
store refurbishment programme.
UK - Performance review
The key financial results for the UK were:
2018 2017
GBPm GBPm Change
------------------------------------------------- -------- -------- ----------
Revenue 360.4 381.0 (5.4%)
Like-for-like sales (3.6%) (0.5%)
Gross profit 206.1 225.6 (8.6%)
Gross profit % 57.2% 59.2% (2.0ppts)
Costs (excluding depreciation & amortisation) (203.2) (204.7) 0.7%
Costs (excluding depreciation & amortisation) % 56.4% 53.7% (2.7ppts)
Underlying EBITDA 2.9 20.9 (86.1%)
Underlying EBITDA % 0.8% 5.5% (4.7ppts)
------------------------------------------------- -------- -------- ----------
The UK portfolio is now as follows:
Store numbers Sq ft ('000)
------- ---------------------------------------------------- --------------------
29 April 2017 Openings Closures 28 April 2018 29 April 28 April
2017 2018
------- -------------- --------- --------- -------------- --------- ---------
Total 426 4 (20) 410 3,691 3,577
------- -------------- --------- --------- -------------- --------- ---------
After a positive first half of the financial year with
like-for-like sales growth of 0.7%, the significant downturn in
trading conditions experienced post-Christmas resulted in a second
half decline of 7.8%. The combined result was a full year
like-for-like sales decline of 3.6% (2017: down 0.5%).
We opened four stores and closed 20 stores during the period,
including one relocation. This translated into a net space decline
of 114,000 sq ft, a decrease of 3.1%. At the year end the average
store size was 8,724 sq ft (2017: 8,664 sq ft).
Gross profit decreased by GBP19.5m to GBP206.1m, representing
57.2% of sales, a decrease of 200 basis points. This decline in
margin rate reflects a combination of:
-- an adverse impact of 80bps from the fall in Sterling to euro exchange rate on imported goods
for resale. The average EUR/GBP rate in 2017 was 5.8% lower year on year at EUR1.13 (2017:
EUR1.20);
-- measures to address intensified competition in selected stores, an adverse impact of 70bps;
-- a dilutive impact of 20bps from product categories which attract lower average gross margins;
and
-- an adverse impact of 30bps from a combination of the increase in underlying floorcovering
margin through improved sourcing and selected price increases, offset by enhanced promotions
to combat the negative consumer sentiment associated with the Group's restructuring activity.
The margin will be impacted in the first half of the next
financial year as we commence the store closure activity associated
with the CVA. Our expectations are for a decline of between 350bps
and 400bps in this period. In the following six months the margin
is projected to recover to be around 120bps above that delivered in
the second half of the year just finished. This would result in an
overall decline for the year of around 120bps.
The cost base (excluding depreciation and amortisation)
decreased by 0.7% compared with the prior year to GBP203.2m (2017:
GBP204.7m). Costs as a percentage of sales were 56.4% (2017:
53.7%). The movement in costs was a combination of:
-- store payroll costs increased by GBP0.9m to GBP60.6m, representing 16.8% of revenue (2017:
GBP59.7m, 15.7% of revenue). The principal drivers of this movement were a combination of
increases in basic pay structures designed to attract and retain colleagues in key roles,
alongside the additional costs incurred from new legislative requirements from the introduction
of holiday pay commissions, and the apprenticeship levy. These were partially offset by reduced
commissions from lower revenue volumes.
-- store occupancy costs (rent, rates & other) decreased by GBP0.4m, 0.3%, to GBP108.1m, being
30.0% of revenue (2017: GBP108.5m, 28.5% of revenue), primarily driven by the impact of the
store closures, offset in part by inflationary costs increases in utilities, costs associated
with the 'uplift and disposal' service offer and statutory maintenance work. These expenses
are net of a release of GBP4.3m associated with the onerous lease provision (2017: GBP3.9m);
and
-- marketing and central support costs decreased by 6.8% to GBP37.2m, representing 10.3% of revenue
(2017: GBP39.9m, 10.5% of revenue), reflecting management activities introduced to mitigate
the profit impact from the decline in revenue.
The combination of the above factors resulted in underlying
EBITDA decreasing by 86.1% to GBP2.9m (2017: GBP20.9m).
Rest of Europe - Performance review
The key financial results for the Rest of Europe were:
2018 2017 Change
GBPm GBPm Change (Reported currency) (Local currency)
------------------------------------------------- -------- -------- --------------------------- ------------------
Revenue 83.4 76.6 8.9% 3.6%
Like-for-like sales 1.2% 2.5%
Gross profit 43.5 43.8 (0.7%) (5.4%)
Gross profit % 52.2% 57.2% (5.0ppts)
Costs (excluding depreciation & amortisation) (40.0) (36.1) (10.8%) (5.3%)
Costs (excluding depreciation & amortisation) % (48.0%) (47.2%) (0.8ppts)
Underlying EBITDA 3.5 7.7 (54.5%) (56.7%)
Underlying EBITDA % 4.2% 10.1% (5.9ppts)
------------------------------------------------- -------- -------- --------------------------- ------------------
The Rest of Europe portfolio is now as follows:
Store numbers Sq ft ('000)
--------------------- ------------------------------------------ --------------------
29 April Openings Closures 28 April 29 April 28 April
2017 2018 2017 2018
--------------------- --------- --------- --------- --------- --------- ---------
Netherlands 94 6 (8) 92 975 950
Belgium 23 - - 23 228 228
Republic of Ireland 21 - (1) 20 157 153
--------------------- --------- --------- --------- --------- --------- ---------
Total 138 6 (9) 135 1,360 1,331
--------------------- --------- --------- --------- --------- --------- ---------
In local currency terms, the three businesses in the Rest of
Europe combined to produce an increase in revenue of 3.6% on the
prior year. Our operations experienced a strong first half
performance, delivering 6.5% like-for-like sales growth, which was
offset by a decline in the second half of 4.0%. The latter was in
part impacted by the negative news associated with the
restructuring activity affecting the supply of stock. These
combined to deliver a full year increase in like-for-like sales of
1.2% (2017: 2.5%).
The reported growth of 8.9% has three component parts:
1. Sales of products - Whilst we experienced single digit growth in the Republic of Ireland,
this was more than offset by a decline in sales in the Netherlands and Belgium. The latter
being a result of changes made to the promotional strategy in the first half that failed to
improve average transaction values and resulted in lower customer numbers. It took time to
reverse these changes, and ultimately resulted in the decision to change the leadership of
the business. The net result was a fall in product revenue of 5.0% in local currency terms.
2. Sales of services - Dutch sales were boosted by the addition of service related income which
added 8.6% to total segment revenue growth. Previously, the customer paid third party fitters
directly but, following a change in legislation, this is now invoiced to the customer at the
time of the order and the Company then pays the independent fitter, after deducting an administration
fee.
3. Currency translation - the effect of movements in exchange rates added 5.3% to revenue growth
on conversion to reported currency.
The number of stores decreased by three during the year, having
opened six and closed nine during the period, including three
relocations. The associated trading space reduced by 2.1%. The
average store size was broadly unchanged at 9,859 sq ft at the year
end (2017: 9,855 sq ft).
Gross profit percentage decreased 500 basis points to 52.2%,
primarily as a result of a legislation change in the Netherlands
requiring us to include the cost of fitting in our sales for the
first time, which is at a single digit margin, in line with
existing practice in Belgium. Our expectations are for margin to
increase of up to 100bps in the next financial year.
The combination of the revenue growth offset by rate declines
led to cash gross profit in local currency terms decreasing by
5.4%. After taking into account exchange rate movements this
resulted in a decrease of 0.7% in reported currency.
Operating costs (excluding depreciation and amortisation) in
local currency increased by 5.3%, a combination of inflationary
impacts on employment and rental costs. Utilisation of previously
made onerous lease provisions remained flat at GBP1.2m (2017:
GBP1.2m). In reported currency, costs increased by 10.8% to
GBP40.0m.
The combination of the above factors resulted in underlying
EBITDA decreasing by 56.7% in local currency, which translated to a
decrease of 54.5% in reported currency of GBP4.2m to GBP3.5m (2017:
GBP7.7m).
Group financial review
Net finance charges and taxation
Net finance charges for the period increased by GBP0.8m to
GBP2.8m (2017: GBP2.0m). Of this, GBP0.3m was the result of a
higher level of bank borrowings during the year with the average
level being GBP30.7m (2017: GBP10.2m). The remaining GBP0.5m
increase relates to amortisation of fees associated with the
shareholder loan agreed in March 2018. This loan was repaid on 13
June 2018 and as a result, the residual element of these fees of
GBP1.5m will be a charge in the first half of the next financial
year ending 27 April 2019.
Subsequent to the year end, the Company has extended the
maturity date of its GBP45m revolving credit facilities to 31
December 2019 and the lenders have committed the overdraft
facilities of GBP7.5m and EUR2.4m to the same date. The fees
associated with this transaction were GBP0.5m and paid in May 2018.
These will be fully amortised over the course of the next financial
year.
On 11 May 2018, the Company fully utilised the draw down on a
loan note from a shareholder of GBP17.25m. The GBP2.4m of fees
associated with this transaction were paid in May 2018 and will be
amortised over the life of loan to 31 July 2020. The interest on
this loan is 18.0% pa compounding monthly, to be paid on the
maturity date of the loan. The interest charge on this loan is
expected to be GBP3.3m in the next financial year ending 27 April
2019 and GBP4.0m in the financial year ending 26 April 2020.
The effective tax rate for the year was a credit of 9.0% (2017:
charge 22.6%), a variance of 28.0% compared to the UK corporation
tax rate of 19.0% due to the effects of non-deductible items,
overseas tax rates and other permanent differences. The 31.6%
decrease from last year's rate is predominantly due to material
loss in the current period in the UK, an increase in non-deductible
items and one-off non-deductible items recognised in the year.
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 GBP61.8m (2017:
GBP13.5m).
2018 2017
GBPm GBPm
------------------------------------------ ------- -------
Underlying (loss)/profit before tax (8.7) 14.4
------------------------------------------ ------- -------
Non-cash items
Impairment of goodwill (34.7) -
Freehold property (impairment)/reversal (5.1) 2.2
Store asset impairment (5.7) (0.4)
Net onerous lease charge (2.3) (11.0)
Release of fixed-rent accruals and lease 2.8 -
incentives
Restructuring costs
Redundancy provisions (3.8) -
Store closure costs associated with CVA (2.0) -
Professional fees (6.4) -
Loss on disposal of properties (1.7) (1.9)
Strategy
Store refurbishment - asset write-offs (0.6) (1.4)
ERP dual running costs (1.5) -
Other
Share based payments (0.5) (1.0)
Legacy pension costs (0.3) -
Total separately reported items (61.8) (13.5)
------------------------------------------ ------- -------
Statutory (loss)/profit before tax (70.5) 0.9
------------------------------------------ ------- -------
Non cash items
The Group performed an impairment review over its goodwill,
freehold properties and store fixed assets in accordance with IAS
36, following recent trigger events. The Group's goodwill balances
relate to historical acquisitions of UK and Dutch businesses and
the carrying value has been compared to the expected future
discounted cash flows of the individual cash-generating units.
Following a revision of the outlook for the underlying business
units, an impairment of GBP34.7m has been recognised, comprising
GBP29.8m relating to UK acquisitions and GBP4.9m in the
Netherlands. Freehold and investment properties were impaired by
GBP5.1m, driven by a difficult commercial rental market in the
Netherlands and a revised downward view of market rents and yields
across the UK and the Netherlands. Store fixed assets of GBP5.7m
were impaired as a result of underlying store performances and
those stores earmarked for closure under the CVA arrangements.
A strategic review of the store portfolio as part of the CVA
procedures initiated during the year resulted in a revised
assessment of the onerous lease costs for loss-making stores. The
impact of these judgments is a net charge of GBP2.3m (2017:
GBP11.0m). This charge reflects changes in property costs and lease
length of onerous leases for UK stores as a result of the
implementation of the CVA. A GBP13.9m provision for onerous leases
remained on the balance sheet at the year end 2018. Of this,
GBP4.8m is expected to be utilised against UK stores earmarked for
closure during the first half of the financial year 2019. The
remaining GBP9.2m is associated with UK stores not subject to the
CVA and stores in the Republic of Ireland. It is expected that the
majority of this will be utilised over a period of four years.
In line with IAS 17 the Group has reassessed the expected cash
flows over the remaining life of the lease in stores earmarked to
close as part of the CVA procedure. As a result, a credit of
GBP2.8m relating to the release of previously accrued lease
incentives and fixed rent reviews associated with these stores has
been recognised during the year.
Restructuring costs
A provision for redundancy costs of GBP3.8m has been created at
year end. These relate directly to roles likely to become redundant
under previously announced plans to restructure our stores trading
estate and associated central support functions in conjunction with
the CVA approved in April 2018. A further GBP2.0m of costs directly
associated with the closure of affected stores has also been
provided. A total of GBP6.4m of professional fees were incurred as
a result of administering the CVA and restructuring processes
during the period.
Loss on disposal of properties
A net loss of GBP1.7m was made on the disposal of five
properties during the year (2017: GBP1.9m loss). The loss relates
principally to a combination of surrender premiums paid and asset
write offs.
Strategy
As part of the store refurbishment programme, GBP0.6m (2017:
GBP1.4m) of assets have been written off due to being replaced.
The Group has continued to incur dual running costs as it
replaces legacy IT systems and transitions to a new ERP platform.
Historically, these types of cost would have been capital spend but
with the switch to cloud-based software services, these are
classified as operating expenditure. Due to the quantum and one-off
nature of the project, these costs have been reported as separately
reported items.
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 (2017: GBP1.0m).
The tax impact of the separately reported items is a credit of
GBP2.2m (2017: credit of GBP3.1m).
The total cash impact of separately reported items is an outflow
of GBP12.8m (2017: GBP1.2m inflow).
Earnings per share
Underlying loss per share was 6.8p (2017: 16.4p earnings per
share), reflecting the fall in underlying profitability of the
Group.
Basic loss per share was 94.6p (2017: 1.0p earnings per
share).
Dividend
The Board continues to prioritise the use of cash for the
acceleration of the turnaround strategy principally by investing
further in the existing store estate. Based on the Group's current
outlook and the restrictions on payment of dividends under the
banking facilities and the loan note, the Directors do not expect
this position to change prior to the maturity of the loan note 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 GBP19.3m at the end of the period
(2017: GBP78.0m), a year-on-year decrease of GBP58.7m.
28 April 29 April
2018 2017
------------------------------------ --------- ---------
Freehold & long leasehold property 54.6 60.3
Tangible assets 54.6 57.0
Intangible assets 27.0 57.3
Other non-current assets 2.7 2.3
------------------------------------ --------- ---------
Non-current assets 138.9 177.0
Inventories 35.7 41.1
Trade debtors 11.9 12.7
Prepayments and accrued income 12.2 11.8
Other debtors 1.3 1.3
------------------------------------ --------- ---------
Current assets 61.1 66.9
Trade payables (29.1) (51.0)
Rent and rates accruals (2.9) (2.8)
Taxation and social security (11.0) (10.2)
Other creditors and accruals (26.4) (19.9)
Provisions (10.6) -
Corporate tax payable (0.8) (1.7)
------------------------------------ --------- ---------
Creditors< 1 year (80.8) (85.7)
Deferred tax provision (9.0) (15.2)
Pension deficit (0.8) (3.2)
Provisions (9.1) (17.5)
Other long-term creditors (28.0) (34.5)
------------------------------------ --------- ---------
Creditor > 1 year (46.9) (70.4)
Cash 4.8 5.4
Loans (56.0) (13.0)
Finance leases (1.8) (2.2)
------------------------------------ --------- ---------
Net debt (53.0) (9.8)
------------------------------------ --------- ---------
Net assets 19.3 78.0
------------------------------------ --------- ---------
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 GBP5.7m to GBP54.6m as at the balance sheet date. As
noted previously, the Group performed an impairment review over its
freehold and investment properties and store fixed assets in
accordance with IAS 36, following recent trigger events, resulting
in an impairment of GBP5.1m, driven by a difficult commercial
rental market in the Netherlands and a revised downward view of
market rents and yields across the UK and the Netherlands. During
the period, one freehold property disposal was completed. The
carrying values are supported by a combination of value-in-use and
independent valuations.
Tangible assets reduced by GBP2.4m primarily a result of
GBP14.0m of additions linked to store refurbishments and new store
openings, offset by GBP9.9m depreciation and GBP5.4m asset
impairment charge.
The intangible assets reduction of GBP30.3m is primarily a
result of the impairment of goodwill associated with acquisitions
disclosed above.
Current assets
The reduction in stock holding of GBP5.4m was a consequence of a
combination of lower turnover, fewer stores and most significantly
a tightening of credit terms by suppliers following news of the
Group's restructuring activity.
Creditors less than one year
Trade payables reduced by GBP21.9m reflecting an adverse
movement in credit terms with suppliers, as mentioned above, and
lower sales volume. This movement was partially offset by a GBP6.5m
increase in accruals linked to the timing of the monthly payroll
and professional fees relating to the restructuring plans. Average
trade creditor days at the year end date were 63 days (2017:
108).
Creditors greater than a year
The deferred tax provision reduced by GBP6.2m as a result of tax
credits from the recognition of a deferred tax asset as a result of
the losses incurred during the year and from the impairments
recognised in the UK and the Netherlands.
At 28 April 2018, the IAS 19 net retirement benefit deficit was
GBP0.8m (2017: GBP3.2m). Under the technical provision basis the
Group's schemes would have a GBP0.8m 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 GBP1.4m surplus from the Storey's scheme.
An additional GBP0.2m funding commitment for the scheme was also
provided. The discount rate was 2.5% (2017: 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 5 April 2017, the Company agreed a recovery plan
with the Trustees on 12 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 next financial year.
Provisions increased by GBP2.2m to GBP19.7m. This was a
combination of a GBP5.8m increase associated with restructuring
costs, offset in part by a net reduction on onerous lease
provisions of GBP3.6m. GBP10.6m of this balance will be utilised
during the next financial year and is therefore presented within
creditors less than one year.
Other long-term creditors declined by GBP6.5m reflecting
standard utilisation of lease inducements and the release of a
further GBP2.8m of inducements related to the shortening of the
remaining lease length of stores impacted by the CVA, as disclosed
above under separately reported items.
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 had reduced to GBP408.0m (2017: GBP531.9m).
Cash flow
The Group's net debt at 28 April 2018 was GBP53.0m, an adverse
movement of GBP43.2m (2017: GBP9.8m debt), with the average net
debt being GBP30.7m over the financial year (2017: GBP10.2m).
2018 2017
GBPm GBPm
--------------------------------------------- ------- -------
Underlying operating (loss)/profit (5.9) 16.4
--------------------------------------------- ------- -------
Depreciation & amortisation 12.3 12.2
Decrease in stock 5.7 1.0
Increase in working capital (22.7) (13.6)
Net expenditure on exit of operating leases (1.9) (2.2)
Restructuring costs (2.6) -
Contributions to pension schemes (0.9) (0.9)
Provisions paid (5.5) (5.2)
--------------------------------------------- ------- -------
Operating cash flows (21.5) 7.7
Net interest paid (1.8) (1.3)
Corporation tax paid (1.4) (0.9)
Net capital expenditure (19.9) (14.0)
--------------------------------------------- ------- -------
Free cash flows (44.6) (8.5)
Other 1.4 (0.2)
--------------------------------------------- ------- -------
Movement in net debt (43.2) (8.7)
Opening net debt (9.8) (1.1)
--------------------------------------------- ------- -------
Closing net debt (53.0) (9.8)
--------------------------------------------- ------- -------
The working capital outflow of GBP22.7m was attributable to a
decrease in trade payables of GBP21.9m from accelerating payments
to suppliers as credit terms were reduced, lease inducements
utilisation of GBP4.8m (including the GBP2.8m release as a result
of CVA as disclosed in note 5), offset by an increase in the
payroll accrual by GBP4.4m as the calendar for the April pay day
resulted in this being paid on the first business day of the new
financial year.
Gross capital expenditure was GBP20.2m (2017: GBP17.4m). In the
first half of the year the gross spend was GBP13.1m (2017:
GBP7.9m), however, the programme of activity was reduced in the
second half as actions were taken to conserve cash in the light of
the trading performance. After allowing for proceeds from freehold
property disposals, net capital expenditure was GBP19.9m (2017:
GBP14.0m).
The major element of the expenditure was the investment in store
refurbishments, with 227 now completed in the UK and a further 27
stores in the Netherlands and Belgium. The expenditure within IT is
a combination of the replacement legacy systems onto a new ERP
platform and replacement of the stores hardware and network
infrastructure in the Netherlands and Belgium.
2018 2017
GBPm GBPm
------------------------------------------- ------- -------
Refurbishment (13.0) (12.2)
New stores & relocations (1.6) (2.0)
IT (4.6) (1.7)
Support offices & warehouse (1.0) (1.5)
------------------------------------------- ------- -------
Gross capital expenditure (20.2) (17.4)
Proceeds from freehold property disposals 0.3 3.4
------------------------------------------- ------- -------
Net capital expenditure (19.9) (14.0)
------------------------------------------- ------- -------
In the next financial year, our expectation is for capital
expenditure to be approximately GBP12m focused on the continued
refurbishment of stores.
Current liquidity
Gross bank borrowings at the balance sheet date were GBP46.8m
(2017: GBP20.1m), being a combination drawn down from overdraft and
revolving credit facilities. The Group had further undrawn
facilities of GBP7.8m at the balance sheet date. In addition, the
Group held gross cash balances of GBP6.6m. The combination of these
resulted in net bank borrowings of GBP40.2m, providing total
headroom against bank facilities of GBP14.4m. With the addition of
GBP1.8m of finance leases (2017: GBP2.2m) and a new GBP12.5m
shareholder loan (GBP11.0m, net of fees), the Group closed the year
on GBP53.0m of net debt, being GBP43.2m higher than year end
2017.
Due to the sharp reduction in trade during the year the Group
faced significant pressure in achieving the final covenant tests at
April 2018 for which the Group sought and received waivers from its
principal lending banks. To address the liquidity issue, in the
period after the balance sheet date, but before the signing of
these accounts, 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 from a shareholder, 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.
-- Agreed new facilities with its principal lending banks whereby the GBP45m RCF remains in place,
approximately GBP10m of overdrafts become 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.
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 non-bank 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
non-bank loan of GBP17.3m is committed to July 2020. The three main
financial covenants within the banking arrangements assess
underlying EBITDA, debt levels and fixed-charge cover. Given the
recent trading performance, headroom against the EBITDA covenant is
expected to be the most sensitive both at present and over the
course of the next twelve months. The forecasts have been updated
for actual trading to week seven and latest view of trading to the
end of June 2018. Trading for this period has been particularly
challenging involving a number of factors including the combined
impact of hot weather, the Royal Wedding and a shortage of
inventory while arrangements with suppliers were resolved. The
forecasts have been sensitised to reflect these conditions
continuing.
As part of the board's assessment of going concern, trading and
working capital requirements, forecasts have been prepared covering
a 12 month period from June 2018. These forecasts have been
subjected to a sensitivity testing which, while not anticipated by
the board, reflects a continuation of the very recent challenging
trading conditions throughout the whole of this forecast 12 month
period.
The most critical assumption when assessing the covenant is the
expected level of revenues and gross margin and, having experienced
a severely disruptive recent trading period for the reasons
described above, the Board challenged itself on the appropriate
levels to use in this assessment. The Board also considered
mitigating actions which could be implemented.
The Directors have also considered the future cash requirements
of the Group and are satisfied that the facilities are sufficient
to meet its liquidity needs.
If the Group's sensitised forecast is not achieved, there is a
risk that the Group might not meet the EBITDA covenant and, should
such a situation materialise, the Group would have discussions with
its bank lenders in order to ensure it continues to comply with the
terms of its bank facilities. Without the support of the banks in
these circumstances, and assuming no additional financing, the
Group and Parent Company would be unable to meet their liabilities
as they fall due. These conditions indicate the existence of a
material uncertainty which may cast significant doubt about the
Group's ability to continue as a going concern.
Whilst recognising the inevitable uncertainties of the current
retail market and the Group's 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 12
months following the signing of these financial statements. For
this reason they continue to adopt the going concern basis in
preparing the financial statements.
Neil Page
Chief Financial Officer
26 June 2018
Consolidated income statement
for 52 weeks ended 28 April 2018
. Group 52 weeks to 28 April 2018 Group 52 weeks to 29 April 2017
----------------- ------ -------------------------------------------- ---------------------------------------------
Underlying Separately Underlying Separately
performance reported items Total performance reported items Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ------ ---------------- ---------------- -------- ----------------- ---------------- --------
Revenue 3 443.8 -- 443.8 457.6 - 457.6
Cost of sales (194.2) - (194.2) (188.2) - (188.2)
Gross profit 3 249.6 - 249.6 269.4 - 269.4
Administration
expenses (245.6) (59.5) (305.1) (243.2) (9.3) (252.5)
----------------- ------ ---------------- ---------------- -------- ----------------- ---------------- --------
Other operating
income/(loss) 2.4 (2.3) 0.1 2.4 (4.2) (1.8)
----------------- ------ ---------------- ---------------- -------- ----------------- ---------------- --------
Operating
profit/(loss)
before
depreciation
and
amortisation 6.4 (61.8) (55.4) 28.6 (13.5) 15.1
Depreciation (11.0) - (11.0) (10.2) - (10.2)
Amortisation (1.3) - (1.3) (2.0) - (2.0)
----------------- ------ ---------------- ---------------- -------- ----------------- ---------------- --------
Operating
(loss)/profit (5.9) (61.8) (67.7) 16.4 (13.5) 2.9
Finance costs (2.8) - (2.8) (2.0) - (2.0)
----------------- ------ ---------------- ---------------- -------- ----------------- ---------------- --------
(Loss)/profit
before tax (8.7) (61.8) (70.5) 14.4 (13.5) 0.9
----------------- ------ ---------------- ---------------- -------- ----------------- ---------------- --------
Tax 5 4.1 2.2 6.3 (3.3) 3.1 (0.2)
----------------- ------ ---------------- ---------------- -------- ----------------- ---------------- --------
(Loss)/profit
for the
financial
period
attributable to
equity
shareholders of
the Company (4.6) (59.6) (64.2) 11.1 (10.4) 0.7
----------------- ------ ---------------- ---------------- -------- ----------------- ---------------- --------
Basic
(loss)/earnings
per share
(pence) 7 (6.8) (94.6) 16.4 1.0
Diluted
(loss)/earnings
per share
(pence) 7 (94.6) 1.1
----------------- ------ ---------------- ---------------- -------- ----------------- ---------------- --------
Consolidated statement of comprehensive income
for 52 weeks ended 28 April 2018
Group Group
52 weeks to 52 weeks to
28 April 2018 29 April 2017
GBPm GBPm
--------------------------------------------------------------------------------- --------------- ---------------
(Loss/)profit for the financial period (64.2) 0.7
---------------------------------------------------------------------------------- --------------- ---------------
Items that may not be reclassified to the income statement:
Re-measurement of defined benefit plans 1.6 (1.8)
Tax on items that may not be reclassified to the income statement (0.4) 0.1
---------------------------------------------------------------------------------- --------------- ---------------
Total items that may not be reclassified to the income statement 1.2 (1.7)
---------------------------------------------------------------------------------- --------------- ---------------
Items that may be reclassified to the income statement:
Exchange gains 2.5 4.3
---------------------------------------------------------------------------------- --------------- ---------------
Total items that may be reclassified to the income statement 2.5 4.3
---------------------------------------------------------------------------------- --------------- ---------------
Other comprehensive income for the period 3.7 2.6
---------------------------------------------------------------------------------- --------------- ---------------
Total comprehensive (loss)/income for the period attributable to equity
shareholders of the
Company (60.5) 3.3
---------------------------------------------------------------------------------- --------------- ---------------
Consolidated statement of changes in equity
for 52 weeks ended 28 April 2018
Capital
Share Treasury redemption Translation Retained
capital Share premium shares reserve reserve earnings Total
Group GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------------- -------------- ------------- ------------- ------------- ------------- -------
At 30 April 2016 0.7 17.8 (1.3) 0.1 3.3 53.4 74.0
Profit for the
period - - - - - 0.7 0.7
Other
comprehensive
income/(expense)
for the
financial period - - - - 4.3 (1.7) 2.6
------------------ ------------- -------------- ------------- ------------- ------------- ------------- -------
Total
comprehensive
income/(expense)
for the
financial period - - - - 4.3 (1.0) 3.3
------------------ ------------- -------------- ------------- ------------- ------------- ------------- -------
Purchase of own
shares by
employee benefit
trust - - (0.3) - - - (0.3)
Share based
payments and
related tax - - - - - 1.0 1.0
------------------ ------------- -------------- ------------- ------------- ------------- ------------- -------
At 29 April 2017 0.7 17.8 (1.6) 0.1 7.6 53.4 78.0
------------------ ------------- -------------- ------------- ------------- ------------- ------------- -------
Loss for the
period - - - - - (64.2) (64.2)
Other
comprehensive
income for the
financial period - - - - 2.5 1.2 3.7
------------------ ------------- -------------- ------------- ------------- ------------- ------------- -------
Total
comprehensive
income/(expense)
for the
financial period - - - - 2.5 (63.0) (60.5)
------------------ ------------- -------------- ------------- ------------- ------------- ------------- -------
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 0.7 19.1 (1.4) 0.1 10.1 (9.3) 19.3
------------------ ------------- -------------- ------------- ------------- ------------- ------------- -------
Consolidated balance sheet
As at 28 April 2018
Group Group
2018 2017
Notes GBPm GBPm
----------------------------------------------------------------- ------ -------- --------
Assets
Non-current assets
Intangible assets 8 27.0 57.3
Property, plant and equipment 9 98.7 102.0
Investment property 10 10.5 15.3
Investment in subsidiary undertakings - -
Deferred tax assets 2.0 1.9
Trade and other receivables 0.7 0.4
----------------------------------------------------------------- ------ -------- --------
Total non-current assets 138.9 176.9
----------------------------------------------------------------- ------ -------- --------
Current assets
Inventories 35.7 41.1
Trade and other receivables 25.4 25.8
Cash and cash equivalents 6.6 12.5
----------------------------------------------------------------- ------ -------- --------
Total current assets 67.7 79.4
----------------------------------------------------------------- ------ -------- --------
Total assets 206.6 256.3
----------------------------------------------------------------- ------ -------- --------
Liabilities
Current liabilities
Trade and other payables (69.4) (83.9)
Obligations under finance leases (0.1) (0.1)
Borrowings and overdrafts (57.8) (20.1)
Provisions for liabilities and charges 11 (10.6) -
Current tax liabilities (0.8) (1.7)
----------------------------------------------------------------- ------ -------- --------
Total current liabilities (138.7) (105.8)
----------------------------------------------------------------- ------ -------- --------
Non-current liabilities
Trade and other payables (28.0) (34.5)
Obligations under finance leases (1.7) (2.1)
Provisions for liabilities and charges 11 (9.1) (17.5)
Deferred tax liabilities (9.0) (15.2)
Retirement benefit obligations (0.8) (3.2)
----------------------------------------------------------------- ------ -------- --------
Total non-current liabilities (48.6) (72.5)
----------------------------------------------------------------- ------ -------- --------
Total liabilities (187.3) (178.3)
----------------------------------------------------------------- ------ -------- --------
Net assets 19.3 78.0
----------------------------------------------------------------- ------ -------- --------
Equity
Share capital 0.7 0.7
Share premium 19.1 17.8
Treasury shares (1.4) (1.6)
Other reserves 0.9 61.1
----------------------------------------------------------------- ------ -------- --------
Total equity attributable to equity shareholders of the Company 19.3 78.0
----------------------------------------------------------------- ------ -------- --------
Consolidated statement of cash flows
For the 52 weeks ended 28 April 2018
Group Group
52 weeks to 52 weeks to
28 April 2018 29 April 2017
GBPm GBPm
-------------------------------------------------------------------------- --------------- ---------------
Cash flows from operating activities
(Loss)/profit before tax (70.5) 0.9
Adjusted for:
Depreciation and amortisation 12.3 12.2
Loss on property disposals 2.3 3.3
Separately reported non-cash items 47.8 9.2
Separately reported cash items 11.2 -
Share based payments 0.5 1.0
Net finance costs 2.8 2.0
--------------------------------------------------------------------------- --------------- ---------------
Operating cash flows before movements in working capital 6.4 28.6
Decrease/(Increase) in inventories 5.7 1.0
(Increase)/decrease in trade and other receivables - (5.4)
(Decrease)/increase in trade and other payables (22.7) (8.2)
Net expenditure on exit of operating leases (1.9) (2.2)
Restructuring costs (2.6)
Contributions to pension schemes (5.5) (0.9)
Provisions paid (0.9) (5.2)
--------------------------------------------------------------------------- --------------- ---------------
Cash generated by operations (21.5) 7.7
Interest paid (1.8) (1.3)
Corporation taxes paid (1.4) (0.9)
--------------------------------------------------------------------------- --------------- ---------------
Net cash generated from operating activities (24.7) 5.5
--------------------------------------------------------------------------- --------------- ---------------
Cash flows from investing activities
Purchases of intangible assets (4.5) (0.6)
Purchases of property, plant and equipment and investment property (15.7) (16.8)
Proceeds on disposal of property, plant, equipment & investment property 0.3 3.4
Net cash generated used in investing activities (19.9) (14.0)
--------------------------------------------------------------------------- --------------- ---------------
Cash flows from financing activities
Purchase of treasury shares by employee benefit trust - (0.3)
Repayment of finance lease obligations (0.3) (0.3)
Movement in borrowings 32.0 13.0
New loans advanced 12.0 -
-------------------------------------------------------------------------- --------------- ---------------
Net cash used in financing activities 43.7 12.4
--------------------------------------------------------------------------- --------------- ---------------
Net increase/(decrease) in cash and cash equivalents in the period (0.9) 3.9
Cash and cash equivalents at the beginning of the period 5.4 1.2
Exchange differences 0.3 0.3
--------------------------------------------------------------------------- --------------- ---------------
Cash and cash equivalents at the end of the period 4.8 5.4
--------------------------------------------------------------------------- --------------- ---------------
For the purposes of the cash flow statement, cash and cash
equivalents are reported net of overdrafts repayable on demand.
Overdrafts are excluded from the definition of cash and cash
equivalents disclosed in the balance sheet 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 28 April 2018 included
in this preliminary announcement are extracted from the audited
financial statements for the year ended 28 April 2018 which were
approved by the Directors on 26 June 2018. The auditor's report on
those financial statements was unqualified and, without
modification, draws attention to a material uncertainty 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 and the
Company are drawn up to within seven days of the accounting record
date, being 30 April of each year. The financial period for 2018
represents the 52 weeks ended 28 April 2018. The comparative
financial period for 2017 was 52 weeks ended 29 April 2017.
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.
The Company has elected to take the exemption under section 408
of the Companies Act 2006 not to present its income statement and
statement of comprehensive income. The loss for the Company for the
period was GBP52.6m (2017: loss of GBP6.3m). Amounts due to and
from subsidiaries within the Company balance sheet have been
reclassified from non-current assets and liabilities to current
assets and liabilities as they are repayable on demand and
considered short term in nature.
Going concern
The Group meets its day to day working capital requirements
through its bank facilities and a non-bank 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
non-bank loan of GBP17.3m is committed to July 2020. The three main
financial covenants within the banking arrangements assess
underlying EBITDA, debt levels and fixed-charge cover. Given the
recent trading performance, headroom against the EBITDA covenant is
expected to be the most sensitive both at present and over the
course of the next twelve months. The forecasts have been updated
for actual trading to week seven and latest view of trading to the
end of June 2018. Trading for this period has been particularly
challenging involving a number of factors including the combined
impact of hot weather, the Royal Wedding and a shortage of
inventory while arrangements with suppliers were resolved. The
forecasts have been sensitised to reflect these conditions
continuing.
As part of the board's assessment of going concern, trading and
working capital requirements, forecasts have been prepared covering
a 12 month period from June 2018. These forecasts have been
subjected to a sensitivity testing which, while not anticipated by
the board, reflects a continuation of the very recent challenging
trading conditions throughout the whole of this forecast 12 month
period.
The most critical assumption when assessing the covenant is the
expected level of revenues and gross margin and, having experienced
a severely disruptive recent trading period for the reasons
described above, the Board challenged itself on the appropriate
levels to use in this assessment. The Board also considered
mitigating actions which could be implemented.
The Directors have also considered the future cash requirements
of the Group and are satisfied that the facilities are sufficient
to meet its liquidity needs.
If the Group's sensitised forecast is not achieved, there is a
risk that the Group might not meet the EBITDA covenant and, should
such a situation materialise, the Group would have discussions with
its bank lenders in order to ensure it continues to comply with the
terms of its bank facilities. Without the support of the banks in
these circumstances, and assuming no additional financing, the
Group and Parent Company would be unable to meet their liabilities
as they fall due. These conditions indicate the existence of a
material uncertainty which may cast significant doubt about the
Group's ability to continue as a going concern.
Whilst recognising the inevitable uncertainties of the current
retail market and the Group's 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 12
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 segments.
Separately reported items
Defined below.
Underlying EBITDA
Underlying EBITDA is defined as operating profit before
depreciation, amortisation and separately reported items. It is one
of the Group's key performance indicators and is used to assess the
trading performance of Group businesses.
Underlying operating profit
Underlying operating profit is defined as operating profit
before separately reported items. It is one of the Group's key
performance indicators and is used to assess the trading
performance of Group businesses.
Underlying profit before tax
Underlying profit before tax is calculated as the net total of
underlying operating profit less total net finance costs associated
with underlying performance. It is one of the Group's key
performance indicators and is used to assess the financial
performance of the Group as a whole. It is also used as one of the
targets against which the annual bonuses of certain employees are
measured.
Underlying earnings per share
Underlying earnings per share is calculated by dividing
underlying profit before tax less associated income tax costs by
the weighted average number of ordinary shares in issue during the
year. It is one of the Group's key performance indicators and is
used to assess the underlying earnings performance of the Group as
a whole.
Net debt
Net debt comprises the net total of current and non-current
interest-bearing borrowings and 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 Company has adopted a columnar
presentation for its Consolidated income statement, to separately
identify underlying performance results, as the Directors consider
that this gives a better view of the underlying results of the
ongoing business. As part of this presentation format, the Company
has adopted a policy of disclosing separately on the face of its
Consolidated income statement, within the column entitled
'Separately reported items', the effect of any components of
financial performance for which the Directors consider separate
disclosure would assist both in a better understanding of the
financial performance achieved. In its adoption of this policy, the
Company applies a balanced approach to both gains and losses and
aims to be both consistent and clear in its accounting and
disclosure of such items.
Both size and the nature and function of the components of
income and expense are considered in deciding upon such
presentation. Such items may include, inter alia, the financial
effect of separately reported items which occur infrequently, such
as major reorganisation costs, onerous leases 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
2017 2016 2017 2016
-------------- ------ ------ ------ ------
Average rate 1.13 1.36 5.21 5.77
Closing rate 1.14 1.28 5.01 5.62
-------------- ------ ------ ------ ------
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.
The segment information provided to the Board of Directors for
the reportable segments for the 52 weeks ended 28 April 2018 is as
follows:
52 weeks to 28 April 2018 52 weeks to 29 April 2017
------------------------------ ------------------------------
UK Europe Group UK Europe Group
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Gross revenue 443.3 100.1 543.4 468.0 91.8 559.8
Inter-segment revenue (2.0) - (2.0) (2.9) - (2.9)
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Gross Sales 441.3 100.1 541.4 465.1 91.8 556.9
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Less cost of interest free credit (7.3) - (7.3) (6.8) - (6.8)
Less VAT and other sales tax (73.6) (16.7) (90.3) (77.3) (15.2) (92.5)
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Revenues from external customers 360.4 83.4 443.8 381.0 76.6 457.6
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Gross profit 206.1 43.5 249.6 225.6 43.8 269.4
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Underlying operating profit (6.8) 0.9 (5.9) 10.7 5.7 16.4
Separately reported items (49.7) (12.1) (61.8) (11.9) (1.6) (13.5)
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Operating profit/(loss) (56.5) (11.2) (67.7) (1.2) 4.1 2.9
Finance costs (2.8) - (2.8) (2.0) - (2.0)
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Profit/(loss) before tax (59.3) (11.2) (70.5) (3.2) 4.1 0.9
Tax 4.1 2.2 6.3 0.5 (0.7) (0.2)
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Profit/(loss) for the financial period (55.2) (9.0) (64.2) (2.7) 3.4 0.7
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Segment assets:
Segment assets 159.8 94.3 254.1 204.3 100.6 304.9
Inter-segment balances (29.5) (18.0) (47.5) (28.7) (19.9) (48.6)
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Balance sheet total assets 130.3 76.3 206.6 175.6 80.7 256.3
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Segment liabilities:
Segment liabilities (182.2) (52.6) (234.8) (174.4) (52.5) (226.9)
Inter-segment balances 18.0 29.5 47.5 19.9 28.7 48.6
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Balance sheet total liabilities (164.2) (23.1) (187.3) (154.5) (23.8) (178.3)
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Other segmental items:
Depreciation and amortisation 9.7 2.6 12.3 10.2 2.0 12.2
Additions to non-current assets 12.7 5.8 18.5 15.0 4.9 19.9
---------------------------------------- --------- --------- -------- ---------- ------- ---------
Carpetright plc is domiciled in the UK. The Group's revenue from
external customers in the UK is GBP360.4m (2017: GBP381.0m) and the
total revenue from external customers from other countries is
GBP83.4m (2017: GBP76.6m). The total of non-current assets (other
than financial instruments and deferred tax assets) located in the
UK is GBP110.5m (2017: GBP143.6m) and the total of those located in
other countries is GBP73.8m (2017: GBP80.2m).
Following trigger events driven by market capitalisation and
trading performance since December 2017, assets across both
segments have been reviewed for impairment. Goodwill of GBP29.8m
has been impaired in the UK and GBP4.9m in the Rest of Europe
segment. Freehold and long-leasehold assets in the UK have been
impaired by GBP0.6m and GBP4.5m in the Rest of Europe. Store
leasehold assets have been impaired by GBP5.5m in the UK and
GBP0.2m in the Rest of Europe. Refer to note 4 for further
information.
Carpetright's trade has historically shown no distinct pattern
of seasonality, with trade cycles more closely following
macro-economic 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
2018 2017
GBPm GBPm
--------------------------------------------------------- ------- -------
Underlying (loss) /profit before tax (8.7) 14.4
Property disposal costs
Loss on disposal of properties (1.7) (1.9)
Store refurbishment - asset write-offs (0.6) (1.4)
---------------------------------------------------------- ------- -------
(2.3) (3.3)
Other non-cash
Goodwill impairment (34.7) -
Freehold and investment property (impairment)/reversal/ (5.1) 2.2
Store asset impairment (5.7) (0.4)
Net onerous lease charge (2.3) (11.0)
---------------------------------------------------------- ------- -------
(47.8) (9.2)
Share based payments (0.5) (1.0)
Restructuring costs
Redundancy provisions (3.8) -
Store closure costs associated with the CVA (2.0) -
Professional fees (6.4) -
Release of fixed rent accruals and lease incentives 2.8 -
ERP dual running costs (1.5) -
Legacy pension costs (0.3) -
--------------------------------------------------------- ------- -------
(11.2) -
Total separately reported items (61.8) (13.5)
---------------------------------------------------------- ------- -------
Statutory (loss)/profit before tax (70.5) 0.9
---------------------------------------------------------- ------- -------
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 GBP61.8m (2017:
GBP13.5m).
A net loss of GBP1.7m was made on the disposal of five
properties during the period (2017: GBP1.9m loss). The loss relates
principally to a combination of surrender premiums paid and asset
write offs. As part of the store refurbishment programme, GBP0.6m
(2017: GBP1.4m) of assets have been written off due to being
replaced.
The Group's goodwill balances relate to historical acquisitions
of UK and Dutch businesses and the carrying value has been compared
to the expected future discounted cash flows of the individual
cash-generating units. Following a revision of the outlook for the
underlying business units, an impairment of GBP34.7m has been
recognised, comprising GBP29.8m relating to UK acquisitions and
GBP4.9m in the Netherlands.
The Group performed an impairment review over its freehold and
investment properties, store fixed assets and goodwill in
accordance with IAS 36, following recent trigger events. Freehold
and investment properties were impaired by GBP5.1m driven by a
difficult commercial rental market in the Netherlands and a revised
downward view of market rents and yields across the UK and the
Netherlands. Store fixed assets of GBP5.7m were impaired as a
result of underlying store performances and those stores earmarked
for closure under the CVA arrangements.
A strategic review of the store portfolio as part of the CVA
procedures initiated during the year resulted in a revised
assessment of the onerous lease costs for loss-making stores. The
impact of these judgments is a net charge of GBP2.3m (2017:
GBP11.0m). This charge reflects changes in property costs and lease
length of onerous leases for UK stores as a result of the
implementation of the CVA. A GBP13.9m provision for onerous leases
remained on the balance sheet at the year end 2018. Of this,
GBP4.8m is expected to be utilised against UK stores earmarked for
closure during the first half of the financial year 2019. The
remaining GBP9.2m is associated with UK stores not subject to the
CVA and stores in the Republic of Ireland. It is expected that the
majority of this will be utilised over a period of four years.
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 (2017: GBP1.0m).
A provision for redundancy costs of GBP3.8m has been created at
year end relating to roles likely to be removed under previously
announced plans to restructure our stores trading estate and
associated central support functions in the UK through the CVA.
Further, GBP2.0m of costs directly associated to the closure of
affected stores has been provided. A total of GBP6.4m of
professional fees were incurred directly as a result of
administering the CVA and equity raise processes during the
period.
In line with IAS 17 and SIC 15 the Group has reassessed the
expected cash flows over the remaining life of the lease in stores
earmarked to close as part of the CVA procedure. As a result a
credit of GBP2.8m relating to the release of previously accrued
lease incentives and fixed rent reviews associated with these
stores has been recognised during the year.
The Group has incurred dual running costs as it replaces legacy
IT systems and transitions to a new ERP platform. Historically,
these types of cost would have been capital spend but with the
switch to cloud-based software services, these are classified as
operating expenditure. Due to the quantum and one-off nature of the
project, these costs have been reported as separately reported
items.
The tax impact of the separately reported items is a credit of
GBP2.2m (2017: credit of GBP2.5m).
The total cash impact of separately reported items is an outflow
of GBP12.8m (2017: GBP1.2m inflow).
5. Tax
Group Group
2017 2017
(i) Analysis of the charge in the period GBPm GBPm
--------------------------------------------------- ------ ------
UK current tax - (0.2)
Overseas current tax 0.2 0.1
---------------------------------------------------- ------ ------
Total current tax 0.2 (0.1)
---------------------------------------------------- ------ ------
UK deferred tax (4.2) (1.0)
UK deferred tax prior year adjustment (0.1) (0.2)
Overseas deferred tax (2.1) 2.2
Overseas deferred tax prior year adjustment (0.1) (0.7)
---------------------------------------------------- ------ ------
Total deferred tax (6.5) 0.3
---------------------------------------------------- ------ ------
Total tax (credit)/charge in the income statement (6.3) 0.2
---------------------------------------------------- ------ ------
Group Group
2017 2017
(ii) Reconciliation of profit before tax to total tax GBPm GBPm
---------------------------------------------------------- ------- ------
Profit before tax (70.5) 0.9
---------------------------------------------------------- ------- ------
Tax charge at UK corporation tax rate of 19% (2017: 20%) (13.4) 0.2
Adjusted for the effects of:
Overseas tax rates (0.5) 0.5
Deferred tax impact of fall in UK tax rates 0.2 (0.6)
Non-qualifying depreciation 0.4 0.4
Other permanent differences 1.6 0.6
Permanent difference - goodwill impairment 5.6 -
Prior year adjustments (0.2) (0.9)
Total tax (credit)/charge in the income statement (6.3) 0.2
---------------------------------------------------------- ------- ------
The weighted average annual effective tax rate for the period is
a credit of 9.0% (2017: charge of 24.3%).
Group Group
2018 2017
(iii) Tax on items taken directly to or transferred from equity GBPm GBPm
--------------------------------------------------------------------------- ------ ------
Deferred tax on actuarial losses recognised in other comprehensive income 0.4 (0.1)
Deferred tax on share based payments - -
--------------------------------------------------------------------------- ------ ------
Total tax recognised in equity 0.4 (0.1)
--------------------------------------------------------------------------- ------ ------
6. Dividends
The Directors decided that no final dividend will be paid (2017:
No final dividend paid). This results in no dividend in the period
to 28 April 2018 (2017: 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 28 April 2018 52 weeks to 29 April 2017
----------------------------------------------- ------------------------------------------
Weighted average Earnings Weighted average Earnings
Loss number of shares per share Earnings number of shares per share
GBPm Millions Pence GBPm Millions Pence
------------------------- ------- ------------------------- ----------- --------- ------------------ -----------
Basic (loss)/earnings
per share (64.2) 67.9 (94.6) 0.7 67.6 1.0
Effect of dilutive share
options - - - 0.1 1.6 0.1
------------------------- ------- ------------------------- ----------- --------- ------------------ -----------
Diluted (loss)/earnings
per share (64.2) 67.9 (94.6) 0.8 69.2 1.1
------------------------- ------- ------------------------- ----------- --------- ------------------ -----------
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 (loss)/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 28 April 2018 52 weeks to 29 April 2017
------------------------------------------------ ------------------------------------------
(Loss)/
(Loss)/ Weighted average earnings Weighted average Earnings
earnings number of shares per share Earnings number of shares per share
GBPm Millions Pence GBPm Millions Pence
------------------------ ---------- ----------------------- ----------- --------- ------------------ -----------
Basic (loss)/earnings
per share (64.2) 67.9 (94.6) 0.7 67.6 1.0
Adjusted for the effect
of separately reported
items:
Separately reported
items 61.8 - 91.0 13.5 - 20.0
Tax thereon (2.2) - (3.2) (2.5) - (3.7)
Separately reported
tax benefit from tax
rate change - - - (0.6) - (0.9)
------------------------ ---------- ----------------------- ----------- --------- ------------------ -----------
Underlying
(loss)/earnings per
share (4.6) 67.9 (6.8) 11.1 67.6 16.4
------------------------ ---------- ----------------------- ----------- --------- ------------------ -----------
8. Intangible assets
Goodwill Computer software Brands Total
Group GBPm GBPm GBPm GBPm
--------------------------------------------- --------- ------------------ ------- --------
Cost:
At 30 April 2016 52.4 22.5 0.1 75.0
Exchange differences 1.7 - - 1.7
Additions - 0.6 - 0.6
Disposals - (0.9) - (0.9)
--------------------------------------------- --------- ------------------ ------- --------
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
--------------------------------------------- --------- ------------------ ------- --------
Accumulated amortisation and impairment:
At 30 April 2016 0.5 17.3 0.1 17.9
Exchange differences - 0.1 - 0.1
Amortisation - 2.0 - 2.0
Disposals - (0.9) - (0.9)
--------------------------------------------- --------- ------------------ ------- --------
At 29 April 2017 0.5 18.5 0.1 19.1
--------------------------------------------- --------- ------------------ ------- --------
Exchange differences - 0.1 - 0.1
Amortisation - 1.3 - 1.3
Impairment 34.7 0.1 - 34.8
Disposals - (2.0) - (2.0)
--------------------------------------------- --------- ------------------ ------- --------
At 28 April 2018 35.2 18.0 0.1 53.3
--------------------------------------------- --------- ------------------ ------- --------
Net book value:
At 28 April 2018 19.8 7.2 - 27.0
--------------------------------------------- --------- ------------------ ------- --------
At 29 April 2017 53.6 3.7 - 57.3
--------------------------------------------- --------- ------------------ ------- --------
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 also 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 and Belgium. The goodwill allocated to each CGU at the
start of the period was GBP29.8m (2017: GBP29.8m) to the UK, and
GBP23.8m (2017: GBP23.8m) to Europe.
As a result of a significant fall in market capitalisation and a
downturn in trading, goodwill was tested for impairment during the
period.
Value in use calculations are 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 the UK and European goodwill
balances are:
- UK
* like-for-like sales - continued downturn throughout
FY19 followed by modest recovery in subsequent years
* Gross profit decrease in FY19 followed by stable
gross profit margin
* flat long term growth rate
* pre-tax discount rate of 9.4% (2017: 7.8%)
- Europe
* like-for-like sales growth of 3.5% - 3.8% over the
forecast period.
* Gross profit growth of between 1.0% to 3.3% over the
forecast period.
* Costs inflation increase of 3.1% to 3.7% cost
inflation in the remaining forecast period.
* pre-tax discount rate of 9.7% (2017: 7.8%)
* The long term growth rate of 2% is used in the
calculation of the perpetuity model which is based on
the long-term forecast growth rates of the countries
within the European CGU.
In Europe the recoverable amount based on value in use exceeded
the carrying value by GBP34.1m. The following amendments to key
assumptions would result in the removal of available headroom in
the model:
* a fall in the long-term growth rate to -6% from
+2.0%;
* a rise in the discount rate to 13.8% from 9.4%;
* an average decline in sales by 1.8% each year;
* a decline in gross profit margin of 330bps each year;
and
* an increase in operating costs of 710bps each year.
This has resulted in an impairment of GBP34.7m has been
recognised, comprising GBP29.8m relating to UK acquisitions and
GBP4.9m in the Netherlands. All goodwill relating to UK acquisition
has been impaired.
9. Property, plant and equipment
Long
leasehold
Freehold land land and Short
and buildings buildings leasehold Fixtures and Plant and
Group GBPm GBPm buildings m fitting GBPm machinery GBPm Total GBPm
----------------------- -------------- -------------- -------------- --------------- --------------- -----------
Cost:
At 30 April 2016 43.8 17.6 16.6 93.5 33.9 205.4
Exchange differences 1.5 0.1 0.1 1.1 2.0 4.8
Additions - - 0.7 17.1 1.5 19.3
Transfer between asset
classes - (1.0) 0.9 0.1 - -
Transfer to investment
property (1.7) - - - - (1.7)
Disposals (1.6) (0.3) (1.2) (14.7) (1.1) (18.9)
----------------------- -------------- -------------- -------------- --------------- --------------- -----------
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
----------------------- -------------- -------------- -------------- --------------- --------------- -----------
Accumulated
depreciation and
impairment:
At 30 April 2016 8.3 6.1 11.1 59.2 25.7 110.4
Exchange differences 0.6 0.1 0.1 1.1 1.6 3.5
Impairment/(reversal) (0.8) - - 0.4 - (0.4)
Depreciation 0.7 0.3 0.8 7.3 0.8 9.9
Transfer between asset
classes - (0.7) 0.6 0.1 - -
Transfer to investment
property (0.1) - - - - (0.1)
Disposals (0.9) (0.2) (1.1) (13.1) (1.1) (16.4)
----------------------- -------------- -------------- -------------- --------------- --------------- -----------
At 29 April 2017 7.8 5.6 11.5 55.0 27.0 106.9
----------------------- -------------- -------------- -------------- --------------- --------------- -----------
Exchange differences 0.2 - 0.1 0.5 0.8 1.6
Impairment - 0.2 0.9 4.1 0.4 5.6
Depreciation 0.6 0.2 0.8 8.0 1.0 10.6
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
----------------------- -------------- -------------- -------------- --------------- --------------- -----------
Net book value:
At 28 April 2018 33.8 10.3 4.6 41.6 8.4 98.7
----------------------- -------------- -------------- -------------- --------------- --------------- -----------
At 29 April 2017 34.2 10.8 5.6 42.1 9.3 102.0
----------------------- -------------- -------------- -------------- --------------- --------------- -----------
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, GBP5.6m has been identified for
impairment, the majority of which relates to fixtures and fittings
within loss-making stores.
Assets held under finance leases have the following net book
value:
2018 2017
GBPm GBPm
----------------------------------------- ------ ------
Cost 8.7 8.8
Accumulated depreciation and impairment (3.4) (3.3)
-------------------------------------------- ------ ------
Net book value 5.3 5.5
-------------------------------------------- ------ ------
The assets held under finance leases comprise buildings.
10. Investment property
Group GBPm
--------------------------------------------- ------------------------------------------------------
Cost:
At 30 April 2016 21.2
Exchange differences 1.2
Transfer from property, plant and equipment 1.7
Disposals (3.9)
--------------------------------------------- ------------------------------------------------------
At 29 April 2017 20.2
--------------------------------------------- ------------------------------------------------------
Exchange differences 0.7
Transfer to property plant and equipment (0.1)
At 28 April 2018 20.8
--------------------------------------------- ------------------------------------------------------
Accumulated depreciation and impairment:
At 30 April 2016 6.7
Exchange differences 0.2
Impairment/(reversal) (1.4)
Depreciation 0.3
Transfer from property, plant and equipment 0.1
Disposals (1.0)
--------------------------------------------- ------------------------------------------------------
At 29 April 2017 4.9
--------------------------------------------- ------------------------------------------------------
Exchange differences 0.1
Impairment/(reversal) 5.1
Depreciation 0.3
Transfer to property plant and equipment (0.1)
At 28 April 2018 10.3
--------------------------------------------- ------------------------------------------------------
Net book value:
At 28 April 2018 10.5
--------------------------------------------- ------------------------------------------------------
At 29 April 2017 15.3
--------------------------------------------- ------------------------------------------------------
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 forecast and a terminal value. These cashflows are
discounted at a pre-tax rate of 8.9% for properties based in the UK
and 9.6% for the properties located in The Netherlands, this being
an asset specific discount rate for freehold and investment
properties.
Operating expenses attributable to investment properties are
incurred directly by tenants under tenant-repairing leases.
11. Provisions for charges and liabilities
Onerous lease provision Re-organisation provision Total
GBPm GBPm GBPm
------------------------------------- ------------------------ -------------------------- ----------------------
Opening at 29 April 2017 17.5 - 17.5
Impact of movement in foreign
exchange rates 0.1 - 0.1
Added during the period 8.5 5.8 14.3
Released during the period (6.2) (6.2)
Utilised during the period (5.5) - (5.5)
Utilised on disposal (0.5) - (0.5)
Closing balance at 28 April 2018 13.9 5.8 19.7
-------------------------------------- ------------------------ -------------------------- ----------------------
2018 2017
Total Total
GBPm GBPm
------------- -------------------- ---------------------
Non-current 9.1 17.5
Current 10.6 -
19.7 17.5
------------- -------------------- ---------------------
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 four year period.
Refer to note 5 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.
Current provisions represent the provisions for restructuring
and the impact of the CVA.
12. Movement in net debt
Total Cash Other Total
Group GBPm 2017 flow Exchange 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) - - - (1.7)
------------------------------------------------------ ------- ------- --------------------- ---------- -------
(2.2) 0.3 - 0.1 (1.8)
------------------------------------------------------ ------- ------- --------------------- ---------- -------
Total Net (debt)/cash (9.8) (44.6) 0.3 1.1 (53.0)
------------------------------------------------------ ------- ------- --------------------- ---------- -------
Total Cash Other Total
Group GBPm 2016 flow Exchange differences non-cash 2017
------------------------------------------------------ ------ ------- --------------------- ---------- -------
Current assets:
Cash and cash equivalents in the balance sheet 8.3 12.5
Bank overdraft (7.1) (7.1)
------------------------------------------------------ ------ ------- --------------------- ---------- -------
Cash and cash equivalents in the cash flow statement 1.2 3.9 0.3 - 5.4
------------------------------------------------------ ------ ------- --------------------- ---------- -------
Current liabilities:
Current borrowing - (13.0) - - (13.0)
Non - Current borrowing - - - - -
------------------------------------------------------ ------ ------- --------------------- ---------- -------
- (13.0) - - (13.0)
------------------------------------------------------ ------ ------- --------------------- ---------- -------
Obligations under finance leases:
Current obligations under finance leases (0.1) (0.1)
Non-current obligations under finance leases (2.2) 0.3 - (0.2) (2.1)
------------------------------------------------------ ------ ------- --------------------- ---------- -------
(2.3) 0.3 - (0.2) (2.2)
------------------------------------------------------ ------ ------- --------------------- ---------- -------
Total Net (debt)/cash (1.1) (8.8) 0.3 (0.2) (9.8)
------------------------------------------------------ ------ ------- --------------------- ---------- -------
13. Events after the reporting period
There have been several post balance sheet events arising from
the ongoing restructuring of the business.
On 12 April 2018 the Group launched a Company Voluntary
Agreement ("CVA") impacting its UK business. While the launch and
creditors' vote occurred before the year end, shareholder approval
and cessation of the mandatory challenge period occurred after the
year end. The CVA was approved and became effective on 30 April
2018. The shareholder approval and end of the challenge period are
considered to be adjusting post balance sheet events, with the full
impact of the approved CVA reflected in the financial results for
the 52 week period ended 28 April 2018.
The Group completed the refinancing of its existing facilities
on 11 May 2018, which came into effect on receipt of the Placing
and Open Offer proceeds on 11 June 2018. The refinancing including
committed banking facilities totalling GBP54.6 m, consisting of
GBP45.0 m revolving credit facilitiy ("RCF"), GBP7.5 m Sterling
overdraft and EUR2.4 m Euro overdraft facility. The facilities are
committed until 31 December 2019.
Pursuant to a loan note agreement dated 11 May 2018, Meditor, a
significant shareholder, made available to the Company a Sterling
loan note of net GBP15.0 m (Gross: GBP17.25 m which includes a
GBP2.25 m arrangement fee). The Meditor Loan Note was drawn by the
Company in a single utilisation on 11 May 2018 and is committed
until 31 July 2020. The short-term non-bank loan of GBP12.5 m
issued in March 2018 was repaid on 13 June 2018.
The Group launched a Placing and Open Offer on the Main Market
of the London Stock Exchange on 18 May 2018, with 232,463,221 new
ordinary shares issued on 8 June 2018. Net receipts of GBP63.5 m
(GBP65.1m gross) were received on 11 June 2018.
As a consequence of large asset impairments booked towards the
end of the 52 week period, goodwill in particular, the value of the
Company's net assets fell below half of its called up share
capital. It is a requirement of the Companies Act that where the
net assets of a public company are half or less of its called up
share capital, the directors must call a general meeting of the
company to consider whether any, and if so what, steps should be
taken to deal with the situation. Accordingly, a general meeting
held on 6 June 2018 approved the Resolutions such that the Placing
and Open Offer and CVA became unconditional. Following receipt of
the Placing and Open Offer proceeds, the value of the Company's net
assets were greater than half of its' called up share capital.
The company announced on 12 April 2018 that it had identified a
technical breach with respect to compliance with the borrowing
powers in its Articles and published a Shareholder circular
including resolutions to ratify the breach and amend the Articles
to prevent future breaches. The resolutions were passed at the
Shareholder meeting on 30 April 2018.
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 SESFUIFASEIM
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